##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION12(b)OR 12(g)OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
December 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period fromto
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number 1-14700
 
 (Exact Name of Registrant as Specified in Its Charter)
 Taiwan Semiconductor Manufacturing Company Limited
    
    Republic of China(Translation of Registrants Name Into English)
    
    (Jurisdiction of Incorporation or Organization)
 (Address of Principal Executive Offices)
 
  Name of Each ExchangeTitle of Each Class
    
    on Which RegisteredCommon Shares, par value NT$10.00 each*
    
    The New York Stock Exchange, Inc.
 
 
   þ o
 o þ
  þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer  o(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
  o þ
 o þ
 *
    
    Not for trading, but only in connection with the listing on the New York Stock Exchange, Inc.
of American Depositary Shares representing such Common Shares




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##### 



TABLE OF CONTENTS
Taiwan Semiconductor Manufacturing Company Limited
 PageCAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
    
    
    1PART I
    
    
    2ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
    
    
    2ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    2ITEM 3. KEY INFORMATION
    
    
    2ITEM 4. INFORMATION ON THE COMPANY
    
    
    13ITEM 4A. UNRESOLVED STAFF COMMENTS
    
    
    23ITEM 5. OPERATING AND FINANCIAL REVIEWS AND PROSPECTS
    
    
    23ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    37ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    44ITEM 8. FINANCIAL INFORMATION
    
    
    46ITEM 9. THE OFFER AND LISTING
    
    
    48ITEM 10. ADDITIONAL INFORMATION
    
    
    48ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
    
    
    63ITEM 12D. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    65PART II
    
    
    66ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    66ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    66ITEM 15. CONTROLS AND PROCEDURES
    
    
    66ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    68ITEM 16B. CODE OF ETHICS
    
    
    68ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    68ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    69ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    69ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
    
    
    69ITEM 16G. CORPORATE GOVERNANCE
    
    
    69PART III
    
    
    72ITEM 17. FINANCIAL STATEMENTS
    
    
    72ITEM 18. FINANCIAL STATEMENTS
    
    
    72ITEM 19. EXHIBITS
    
    
    72EX-12.1 CERTIFICATION OF CEO - RULE 13A-14(A)EX-12.2 CERTIFICATION OF CFO - RULE 13A-14(A)EX-13.1 CERTIFICATION OF CEO - RULE 13A-14(B)EX-13.2 CERTIFICATION OF CFO - RULE 13A-14(B)EX-99.1 CONSENT OF DELOITTE & TOUCHE




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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
   
    
    the volatility of the semiconductor and microelectronics industry;
    
    overcapacity in the semiconductor industry;
    
    the increased competition from other companies and our ability to retain and
increase our market share;
    
    our ability to develop new technologies successfully and remain a technological
leader;
    
    our ability to maintain control over expansion and facility modifications;
    
    our ability to generate growth and profitability;
    
    our ability to hire and retain qualified personnel;
    
    our ability to acquire required equipment and supplies necessary to meet
business needs;
    
    our reliance on certain major customers;
    
    the political stability of our local region; and
    
    general local and global economic conditions.
  1




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##### Table of Contents



PART I
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
 Selected Financial and Operating Data
  Year ended and as of December 31,2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    2009NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    US$(in millions, except for percentages,earnings per share and per ADS, and operating data)Income Statement Data:R.O.C. GAAPNet sales
    
    
    266,565
    
    
    
    317,407
    
    
    
    322,630
    
    
    
    333,158
    
    
    
    295,742
    
    
    
    9,256Cost of sales(9)
    
    
    (148,362
    )
    
    
    (161,597
    )
    
    
    (180,280
    )
    
    
    (191,408
    )
    
    
    (166,413
    )
    
    
    (5,208
    )Gross profit
    
    
    118,203
    
    
    
    155,810
    
    
    
    142,350
    
    
    
    141,750
    
    
    
    129,329
    
    
    
    4,048Operating expenses(9)
    
    
    (27,234
    )
    
    
    (28,545
    )
    
    
    (30,628
    )
    
    
    (37,315
    )
    
    
    (37,367
    )
    
    
    (1,170
    )Income from operations
    
    
    90,969
    
    
    
    127,265
    
    
    
    111,722
    
    
    
    104,435
    
    
    
    91,962
    
    
    
    2,878Non-operating income and gains(1) (8)
    
    
    9,399
    
    
    
    9,839
    
    
    
    11,934
    
    
    
    10,822
    
    
    
    5,654
    
    
    
    177Non-operating expenses and losses(1) (8)
    
    
    (6,105
    )
    
    
    (3,742
    )
    
    
    (2,014
    )
    
    
    (3,785
    )
    
    
    (2,153
    )
    
    
    (67
    )Income before income tax and minority interest
    
    
    94,263
    
    
    
    133,362
    
    
    
    121,642
    
    
    
    111,472
    
    
    
    95,463
    
    
    
    2,988Income tax expense
    
    
    (630
    )
    
    
    (7,774
    )
    
    
    (11,710
    )
    
    
    (10,949
    )
    
    
    (5,997
    )
    
    
    (188
    )Income before cumulative effect of changes in
accounting principles
    
    
    93,633
    
    
    
    125,588
    
    
    
    109,932
    
    
    
    100,523
    
    
    
    89,466
    
    
    
    2,800Cumulative effect of changes in accounting
principles
    
    
    
    
    
    
    1,607
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income before minority interest
    
    
    93,633
    
    
    
    127,195
    
    
    
    109,932
    
    
    
    100,523
    
    
    
    89,466
    
    
    
    2,800Minority interest in loss (income) of subsidiaries
    
    
    (58
    )
    
    
    (185
    )
    
    
    (755
    )
    
    
    (590
    )
    
    
    (248
    )
    
    
    (8
    )Net income attributable to shareholders of the
parent
    
    
    93,575
    
    
    
    127,010
    
    
    
    109,177
    
    
    
    99,933
    
    
    
    89,218
    
    
    
    2,792Basic earnings per share(2)
    
    
    3.47
    
    
    
    4.70
    
    
    
    4.04
    
    
    
    3.84
    
    
    
    3.45
    
    
    
    0.11Diluted earnings per share(2)
    
    
    3.46
    
    
    
    4.69
    
    
    
    4.04
    
    
    
    3.81
    
    
    
    3.44
    
    
    
    0.11Basic earnings per ADS equivalent(2)
    
    
    17.33
    
    
    
    23.49
    
    
    
    20.21
    
    
    
    19.19
    
    
    
    17.27
    
    
    
    0.54
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Year ended and as of December 31,2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    2009NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    US$(in millions, except for percentages,earnings per share and per ADS, and operating data)Diluted earnings per ADS
equivalent(2)
    
    
    17.32
    
    
    
    23.47
    
    
    
    20.20
    
    
    
    19.05
    
    
    
    17.21
    
    
    
    0.54Basic weighted average
shares
outstanding(2)
    
    
    27,005
    
    
    
    27,031
    
    
    
    27,005
    
    
    
    26,039
    
    
    
    25,836
    
    
    
    25,836Diluted weighted average
shares
outstanding(2)
    
    
    27,016
    
    
    
    27,054
    
    
    
    27,026
    
    
    
    26,236
    
    
    
    25,914
    
    
    
    25,914U.S. GAAPNet sales
    
    
    267,028
    
    
    
    317,979
    
    
    
    323,221
    
    
    
    334,340
    
    
    
    296,109
    
    
    
    9,268Cost of sales(3)
    
    
    (161,808
    )
    
    
    (179,175
    )
    
    
    (202,046
    )
    
    
    (203,734
    )
    
    
    (167,122
    )
    
    
    (5,231
    )Operating
expenses(3)
    
    
    (32,764
    )
    
    
    (37,050
    )
    
    
    (44,775
    )
    
    
    (44,424
    )
    
    
    (37,627
    )
    
    
    (1,178
    )Income from operations
    
    
    72,456
    
    
    
    101,754
    
    
    
    76,400
    
    
    
    86,182
    
    
    
    91,360
    
    
    
    2,859Income before income tax and
minority interest
    
    
    75,983
    
    
    
    106,647
    
    
    
    85,973
    
    
    
    91,884
    
    
    
    94,253
    
    
    
    2,950Income tax expense
    
    
    (483
    )
    
    
    (10,954
    )
    
    
    (14,012
    )
    
    
    (10,062
    )
    
    
    (4,960
    )
    
    
    (155
    )Cumulative effect of changes
in accounting principles
    
    
    
    
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    75,418
    
    
    
    95,711
    
    
    
    71,658
    
    
    
    81,473
    
    
    
    89,102
    
    
    
    2,789Income attributable to
common shareholders
    
    
    75,418
    
    
    
    95,711
    
    
    
    71,658
    
    
    
    81,473
    
    
    
    89,102
    
    
    
    2,789Basic earnings per
share(4)
    
    
    2.94
    
    
    
    3.68
    
    
    
    2.71
    
    
    
    3.15
    
    
    
    3.45
    
    
    
    0.11Diluted earnings per
share(4)
    
    
    2.94
    
    
    
    3.67
    
    
    
    2.71
    
    
    
    3.13
    
    
    
    3.44
    
    
    
    0.11Basic earnings per ADS
equivalent(4)
    
    
    14.68
    
    
    
    18.40
    
    
    
    13.57
    
    
    
    15.77
    
    
    
    17.24
    
    
    
    0.54Diluted earnings per ADS
equivalent(4)
    
    
    14.68
    
    
    
    18.38
    
    
    
    13.56
    
    
    
    15.65
    
    
    
    17.19
    
    
    
    0.54Basic weighted average
shares
outstanding(4)
    
    
    25,685
    
    
    
    26,011
    
    
    
    26,409
    
    
    
    25,826
    
    
    
    25,836
    
    
    
    25,836Diluted weighted average
shares
outstanding(4)
    
    
    25,695
    
    
    
    26,034
    
    
    
    26,430
    
    
    
    26,023
    
    
    
    25,914
    
    
    
    25,914Balance Sheet Data:R.O.C. GAAPWorking capital(1)
    
    
    177,179
    
    
    
    213,457
    
    
    
    201,116
    
    
    
    195,812
    
    
    
    180,671
    
    
    
    5,655Long-term
investments(1)
    
    
    42,383
    
    
    
    53,895
    
    
    
    36,461
    
    
    
    39,982
    
    
    
    37,845
    
    
    
    1,185Properties
    
    
    244,823
    
    
    
    254,094
    
    
    
    260,252
    
    
    
    243,645
    
    
    
    273,675
    
    
    
    8,566Goodwill
    
    
    6,011
    
    
    
    5,985
    
    
    
    5,988
    
    
    
    6,044
    
    
    
    5,931
    
    
    
    186Total assets
    
    
    519,510
    
    
    
    587,485
    
    
    
    570,865
    
    
    
    558,917
    
    
    
    594,696
    
    
    
    18,613Long term bank borrowing
    
    
    663
    
    
    
    654
    
    
    
    1,722
    
    
    
    1,420
    
    
    
    579
    
    
    
    18Long-term bonds payable
    
    
    19,500
    
    
    
    12,500
    
    
    
    12,500
    
    
    
    4,500
    
    
    
    4,500
    
    
    
    141Guaranty deposit-in and
other
liabilities(5)
    
    
    17,986
    
    
    
    18,333
    
    
    
    17,251
    
    
    
    15,817
    
    
    
    11,436
    
    
    
    358Total liabilities
    
    
    73,271
    
    
    
    78,347
    
    
    
    80,179
    
    
    
    78,544
    
    
    
    95,648
    
    
    
    2,994Capital stock
    
    
    247,300
    
    
    
    258,297
    
    
    
    264,271
    
    
    
    256,254
    
    
    
    259,027
    
    
    
    8,107Cash dividend on common
shares
    
    
    46,504
    
    
    
    61,825
    
    
    
    77,489
    
    
    
    76,881
    
    
    
    76,876
    
    
    
    2,406
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Year ended and as of December 31,2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    2009NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    US$(in millions, except for percentages,earnings per share and per ADS, and operating data)Shareholders equity
attributable to shareholders
of the parent
    
    
    445,631
    
    
    
    507,981
    
    
    
    487,092
    
    
    
    476,377
    
    
    
    495,083
    
    
    
    15,495Minority interest in
subsidiaries
    
    
    608
    
    
    
    1,157
    
    
    
    3,594
    
    
    
    3,996
    
    
    
    3,965
    
    
    
    124U.S. GAAPGoodwill
    
    
    46,993
    
    
    
    46,940
    
    
    
    46,926
    
    
    
    47,028
    
    
    
    46,825
    
    
    
    1,466Total assets
    
    
    558,919
    
    
    
    626,108
    
    
    
    610,843
    
    
    
    599,484
    
    
    
    635,275
    
    
    
    19,883Total liabilities
    
    
    80,962
    
    
    
    92,549
    
    
    
    94,021
    
    
    
    84,424
    
    
    
    99,278
    
    
    
    3,107Capital Stock
    
    
    247,300
    
    
    
    258,297
    
    
    
    264,271
    
    
    
    256,254
    
    
    
    259,027
    
    
    
    8,107Shareholders equity
attributable to common
shareholders of the parent
    
    
    477,297
    
    
    
    532,403
    
    
    
    513,228
    
    
    
    511,089
    
    
    
    532,043
    
    
    
    16,652Minority interest in
subsidiaries
    
    
    660
    
    
    
    1,156
    
    
    
    3,594
    
    
    
    3,971
    
    
    
    3,954
    
    
    
    124Year ended and as of December 31,2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    2009NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    US$(in millions, except for percentages,earnings per share and per ADS, and operating data)Other Financial Data:R.O.C. GAAPGross margin
    
    
    44%
    
    
    
    49%
    
    
    
    44%
    
    
    
    42%
    
    
    
    44%
    
    
    
    44%Operating margin
    
    
    34%
    
    
    
    40%
    
    
    
    35%
    
    
    
    31%
    
    
    
    31%
    
    
    
    31%Net margin
    
    
    35%
    
    
    
    40%
    
    
    
    34%
    
    
    
    30%
    
    
    
    30%
    
    
    
    30%Capital expenditures
    
    
    79,879
    
    
    
    78,737
    
    
    
    84,001
    
    
    
    59,223
    
    
    
    87,785
    
    
    
    2,748Depreciation and amortization
    
    
    75,649
    
    
    
    73,715
    
    
    
    80,005
    
    
    
    81,512
    
    
    
    80,815
    
    
    
    2,529Cash provided by operating
activities(1)
    
    
    157,225
    
    
    
    204,997
    
    
    
    183,766
    
    
    
    221,494
    
    
    
    159,966
    
    
    
    5,007Cash used in investing
activities(1)
    
    
    (77,652
    )
    
    
    (119,724
    )
    
    
    (70,689
    )
    
    
    (8,042
    )
    
    
    (96,468
    )
    
    
    (3,019
    )Cash used in financing
activities
    
    
    (57,969
    )
    
    
    (63,783
    )
    
    
    (135,410
    )
    
    
    (115,393
    )
    
    
    (85,471
    )
    
    
    (2,675
    )Net cash inflow (outflow)
    
    
    22,181
    
    
    
    21,353
    
    
    
    (22,851
    )
    
    
    99,628
    
    
    
    (23,338
    )
    
    
    (730
    )Operating Data:Wafer (200mm equivalent)
shipment(6)
    
    
    5,622
    
    
    
    7,215
    
    
    
    8,005
    
    
    
    8,467
    
    
    
    7,737
    
    
    
    7,737Billing Utilization
Rate(7)
    
    
    94%
    
    
    
    102%
    
    
    
    93%
    
    
    
    88%
    
    
    
    75%
    
    
    
    75%
 
 (1)
    
    As a result of the adoption of the R.O.C. Statements of Financial Accounting
Standards No. 34, Financial Instruments: Recognition and Measurement (R.O.C. SFAS No. 34),
and R.O.C. Statements of Financial Accounting Standards No. 36, Financial Instruments:
Disclosure and Presentation (R.O.C. SFAS No. 36), the balance in 2005 was reclassified to be
consistent with the classification used in our consolidated financial statements for 2006
included herein. Amounts in 2005 reflect the reclassification of NT$2,331 million gains from
non-operating expenses and losses to non-operating income and gains, NT$46 million from
long-term investments to current investments in marketable financial instruments, and NT$212
million from cash used in investing activities to cash provided by operating activities.(2)
    
    Retroactively adjusted for stock dividends until 2008 and profit sharing to
employees in stock until 2007.(3)
    
    Amounts in 2006, 2007, 2008 and 2009 include share-based compensation expenses as a
result of the adoption of U.S. GAAP guidance related to share-based payment (revised 2004),
effective January 1, 2006. See note 30.h. to our consolidated financial statements for
additional details about this new accounting standard. Amounts in 2005 reflected the
reclassification of NT$159 million from net non-operating income/expenses to operating
expenses.(4)
    
    Retroactively adjusted for all subsequent stock dividends.(5)
    
    Consists of other long term payables, obligations under capital leases and total
other liabilities.(6)
    
    In thousands. 4




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(7)
    
    Billing Utilization Rate is equal to annual wafer shipment divided by annual
capacity. Capacity for the years 2007, 2008 and 2009 includes wafers committed by Vanguard.(8)
    
    The specified 2005, 2006 and 2007 amounts for gains/losses on settlement and
disposal of financial assets at fair value through profit or loss were reclassified into
valuation gains/losses on financial instruments for comparison purposes. Such reclassification
resulted in a change of non-operating income and gains from NT$9,705 million to NT$9,839
million and a change in non-operating expenses and losses from NT$3,608 million to NT$3,742
million for the year ended December 31, 2006.(9)
    
    As a result of the adoption of Interpretation 2007-052, Accounting for Bonuses to
Employees, Directors and Supervisors, the Company records profit sharing to employees and
bonus to directors and supervisors as an expense rather than as an appropriation of earnings
starting in 2008. Please refer to note 4 to the consolidated financial statements for more
details. Exchange Rates
   NT dollars per U.S. dollarAverage(1)
    
    High
    
    Low
    
    Period-End2004
    
    
    33.37
    
    
    
    34.16
    
    
    
    31.74
    
    
    
    31.742005
    
    
    32.16
    
    
    
    33.77
    
    
    
    30.65
    
    
    
    32.802006
    
    
    32.51
    
    
    
    33.31
    
    
    
    31.28
    
    
    
    32.592007
    
    
    32.82
    
    
    
    33.41
    
    
    
    32.26
    
    
    
    32.432008
    
    
    31.51
    
    
    
    33.55
    
    
    
    29.99
    
    
    
    32.762009
    
    
    32.96
    
    
    
    35.21
    
    
    
    31.95
    
    
    
    31.95October 2009
    
    
    32.29
    
    
    
    32.61
    
    
    
    32.04
    
    
    
    32.61November 2009
    
    
    32.32
    
    
    
    32.58
    
    
    
    32.12
    
    
    
    32.20December 2009
    
    
    32.25
    
    
    
    32.38
    
    
    
    31.95
    
    
    
    31.95January 2010
    
    
    31.87
    
    
    
    32.04
    
    
    
    31.65
    
    
    
    31.94February 2010
    
    
    32.06
    
    
    
    32.14
    
    
    
    31.98
    
    
    
    32.12March 2010
    
    
    31.83
    
    
    
    32.04
    
    
    
    31.70
    
    
    
    31.73April 2010 (through April 9, 2010)
    
    
    31.65
    
    
    
    31.74
    
    
    
    31.53
    
    
    
    31.53
 
 (1)
    
    Annual averages calculated from month-end rates and monthly averages calculated from
daily closing rates.  Capitalization and Indebtedness
  Reasons for the Offer and Use of Proceeds
  Risk Factors
  5




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##### Table of Contents



Risks Relating to Our Business
 Any global systemic economic and financial crisis could negatively affect our business, results of
operations, and financial condition.
  Since we are dependent on the highly cyclical semiconductor and microelectronics industries, which
have experienced significant and sometimes prolonged periods of downturns and overcapacity, our
revenues, earnings and margins may fluctuate significantly.
  Decreases in demand and average selling prices for products that contain semiconductors may
adversely affect demand for our products and may result in a decrease in our revenues and earnings.
  If we are unable to compete effectively in the highly competitive foundry segment of the
semiconductor industry, we may lose customers and our profit margin and earnings may decrease.
  6




---



##### Table of Contents



If we are unable to remain a technological leader in the semiconductor industry, we may become
less competitive.
  If we are unable to manage our capacity and the streamlining of our production facilities
effectively, our competitiveness may be weakened.
  We may not be able to implement our planned growth or development if we are unable to accurately
forecast and sufficiently meet our future capital requirements.
  
    
    our future financial condition, results of operations and cash flow;
    
    general market conditions for financing activities;
    
    market conditions for financing activities of semiconductor companies; and
    
    social, economic, financial, political and other conditions in Taiwan and
elsewhere.
  We may not be able to implement our planned growth, development or maintain our leading position if
we are unable to recruit and retain qualified executives, managers and skilled technical and
service personnel or suffer production disruptions caused by labor disputes.
  7




---



##### Table of Contents



We may be unable to obtain in a timely manner and at a reasonable cost the equipment necessary for
us to remain competitive.
  Our revenue and profitability may decline if we are unable to obtain adequate supplies of raw
materials in a timely manner and at reasonable prices.
  If the Ministry of Economic Affairs uses a substantial portion of our production capacity, we will
not be able to service our other customers.
  Any inability to obtain, preserve and defend our technologies and intellectual property rights
could harm our competitive position.
  8




---



##### Table of Contents



We are subject to the risk of loss due to explosion and fire because some of the materials we use
in our manufacturing processes are highly combustible.
  Any impairment charges may have a material adverse effect on our net income.
    The loss of or significant curtailment of purchases by any of our largest customers could adversely
affect our results of operations.
  Any failure to achieve and maintain effective internal controls could have a material adverse
effect on our business and results of operations.
  9




---



##### Table of Contents



Our global manufacturing, design and sales activities subject us to risks associated with legal,
political, economic or other conditions or developments in various jurisdictions, including in
particular the Republic of China (R.O.C. or Taiwan), which could negatively affect our business
and financial status and therefore the market value of your investment.
   Our results of operations could be materially adversely affected by natural disasters or
interruptions in the supply of utilities (such as water or electricity) in the locations in which
we, our customers or suppliers operate.
  10




---



##### Table of Contents



Our failure to comply with applicable environmental and climate related laws and regulations as
well as international accords could harm our business and results of operations.
  
    
    significant penalties and legal liabilities such as the denial of import permits;
    
    temporary or permanent suspension of production of the affected products;
    
    alteration of our manufacturing, fabrication and assembly and test processes; and
    
    restrictions on our operations or sales.
   Climate change, other environmental concerns and green initiatives also presents other commercial
challenges, economic risks and physical risks that could harm our results of operations or affect
the manner in which we conduct our business.
   Fluctuations in exchange rates could result in foreign exchange losses.
  11




---



##### Table of Contents



Fluctuations in inflationary and deflationary market expectations could negatively affect demand
for our products and services, which may harm our financial results.
  Risks Relating to Ownership of ADSs
 Your voting rights as a holder of ADSs will be limited.
   You may not be able to participate in rights offerings and may experience dilution of your
holdings.
   12




---



##### Table of Contents



The value of your investment may be reduced by possible future sales of common shares or ADSs by us
or our shareholders.
   The market value of our shares may fluctuate due to the volatility of, and government intervention
in, the R.O.C. securities market.
  
 ITEM 4. INFORMATION ON THE COMPANY
 Our History and Structure
   Our Principal Office
  Business Overview of the Company
    13




---



##### Table of Contents



Our Facilities
  Manufacturing Capacity and Technology
   Current mostadvanced technologyYear of
    
    for volume
    
    Monthly capacity(3)(4)Fab(1)
    
    commencement
    
    production(2)
    
    2005
    
    2006
    
    2007
    
    2008
    
    20092
    
    
    1990
    
    
    
    0.45
    
    
    
    47,584
    
    
    
    50,506
    
    
    
    51,685
    
    
    
    51,609
    
    
    
    53,6493(5)
    
    
    1995
    
    
    
    0.15
    
    
    
    83,300
    
    
    
    89,900
    
    
    
    90,500
    
    
    
    92,400
    
    
    
    95,3775
    
    
    1997
    
    
    
    0.15
    
    
    
    42,500
    
    
    
    51,500
    
    
    
    55,800
    
    
    
    54,200
    
    
    
    48,6006
    
    
    2000
    
    
    
    0.11
    
    
    
    73,000
    
    
    
    83,400
    
    
    
    94,000
    
    
    
    95,100
    
    
    
    96,8007(7)
    
    
    1995
    
    
    
    0.35
    
    
    
    13,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    1998
    
    
    
    0.15
    
    
    
    76,500
    
    
    
    83,500
    
    
    
    89,400
    
    
    
    91,600
    
    
    
    85,75010
    
    
    2004
    
    
    
    0.18
    
    
    
    15,600
    
    
    
    32,000
    
    
    
    31,000
    
    
    
    43,000
    
    
    
    45,50011
    
    
    1998
    
    
    
    0.15
    
    
    
    33,500
    
    
    
    35,500
    
    
    
    35,500
    
    
    
    35,500
    
    
    
    36,56512
    
    
    2001
    
    
    
    0.040
    
    
    
    106,875
    
    
    
    131,175
    
    
    
    160,755
    
    
    
    167,910
    
    
    
    199,28314
    
    
    2004
    
    
    
    0.055
    
    
    
    46,125
    
    
    
    79,650
    
    
    
    133,279
    
    
    
    179,258
    
    
    
    186,443SSMC(6)
    
    
    2000
    
    
    
    0.15
    
    
    
    16,700
    
    
    
    17,700
    
    
    
    20,700
    
    
    
    24,600
    
    
    
    22,010Total
    
    
    
    
    
    
    
    
    
    
    555,084
    
    
    
    654,831
    
    
    
    762,619
    
    
    
    835,177
    
    
    
    869,977
 14




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##### Table of Contents



(1)
    
    Fab 2 produces 150mm wafers. Fabs 3, 5, 6, 8, 10, Fab 11 (WaferTech) and SSMC
produce 200mm wafers. Fab 12 and Fab 14 produce 300mm wafers. Fabs 2, 3, 5, 8 and 12 are
located in Hsinchu Science Park. Fab 6 and Fab 14 are located in the Tainan Science Park.
WaferTech is located in the United States, SSMC is located in Singapore and Fab 10 is located
in Shanghai.(2)
    
    In microns, as of year-end.(3)
    
    Estimated capacity in 200mm equivalent wafers as of year-end for the total
technology range available for production. Actual capacity during each year will be lower as
new production capacity is phased in during the course of the year.(4)
    
    Under an agreement with Vanguard, TSMC is required to use its best commercial
efforts to maintain utilization of a fixed amount of reserved capacity and will not increase
or decrease the stipulated quantity by more than 5,000 wafers per month. Please see Item 7.
Major Shareholders and Related Party Transactions  Related Party Transactions  Vanguard
International Semiconductor Corporation for a discussion of certain of the Vanguard contract
terms. The amounts to be used at Vanguard are not included in our monthly capacity figures.(5)
    
    Fab 4, which commenced operation in 1999 with initial technology of 0.5 micron, was
consolidated into Fab 3 during the fourth quarter of 2001.(6)
    
    Represents that portion of the total capacity that we had the option to utilize as
of December 31, 2005, December 31, 2006, December 31, 2007, December 31, 2008 and December 31,
2009. This fab commenced production in September 2000.(7)
    
    Fab 7 was decommissioned in June 2006 as we integrated its manufacturing facility as
a part of Fab 12s operation.  Capacity Management and Technology Upgrade Plans
  (1)
 
    
    adding capacity to our 300mm wafer fabs;
    
    development of process technologies in 28nm, 20nm nodes and below and other research
and development projects;
    
    Fab 12 and Fab 14 facilities;
    
    backend capacity; and
    
    new technologies development for mask operations.
  
 (1)
    
    Translated from weighted average exchange rate of NT$32.868
to US$1.00. 15




---



##### Table of Contents



Markets and Customers
  Year ended December 31,2007
    
    2008
    
    2009Customer Type
    
    Net Sales
    
    Percentage
    
    Net Sales
    
    Percentage
    
    Net Sales
    
    Percentage(in millions, except percentages)Fabless semiconductor
companies/systems
companies
    
    NT$
    215,662
    
    
    
    66.8
    %
    
    NT$
    236,542
    
    
    
    71.0
    %
    
    NT$
    235,516
    
    
    
    79.6
    %Integrated device
manufacturers
    
    
    106,968
    
    
    
    33.2
    %
    
    
    96,616
    
    
    
    29.0
    %
    
    
    60,226
    
    
    
    20.4
    %Total
    
    NT$
    322,630
    
    
    
    100.0
    %
    
    NT$
    333,158
    
    
    
    100.0
    %
    
    NT$
    295,742

    
    
    
    100.0
    %
  Year ended December 31,2007
    
    2008
    
    2009Region
    
    Net Sales
    
    Percentage
    
    Net Sales
    
    Percentage
    
    Net Sales
    
    Percentage(in millions, except percentages)North America
    
    NT$
    247,832
    
    
    
    76.8
    %
    
    NT$
    246,537
    
    
    
    74.0
    %
    
    NT$
    206,132
    
    
    
    69.7
    %Asia
    
    
    45,128
    
    
    
    14.0
    %
    
    
    52,472
    
    
    
    15.7
    %
    
    
    58,261
    
    
    
    19.7
    %Europe
    
    
    29,670
    
    
    
    9.2
    %
    
    
    34,149
    
    
    
    10.3
    %
    
    
    31,349
    
    
    
    10.6
    %Total
    
    NT$
    322,630
    
    
    
    100.0
    %
    
    NT$
    333,158
    
    
    
    100.0
    %
    
    NT$
    295,742
    
    
    
    100.0
    %
    Commitments by Customers.
  16




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##### Table of Contents



The Semiconductor Fabrication Process
  Our Foundry Services
 Range of Services.
 Fabrication Processes.
 Types of Semiconductors We Manufacture.
  Logic Semiconductors.
 Mixed-Signal/RF Semiconductors.
 Memory Semiconductors.
 CMOS Image Sensor Semiconductors.
 17




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##### Table of Contents



High Voltage Semiconductors.
  Year ended December 31,2007
    
    2008
    
    2009Semiconductor Type
    
    Net Sales
    
    Percentage
    
    Net Sales
    
    Percentage
    
    Net Sales
    
    Percentage(in millions, except percentages)CMOSLogic
    
    NT$
    234,354
    
    
    
    72.6
    %
    
    NT$
    243,884
    
    
    
    73.2
    %
    
    NT$
    211,721
    
    
    
    71.6
    %Memory
    
    
    5,156
    
    
    
    1.6
    %
    
    
    1,839
    
    
    
    0.6
    %
    
    
    1,109
    
    
    
    0.4
    %Mixed-Signal(1)
    
    
    80,247
    
    
    
    24.9
    %
    
    
    84,648
    
    
    
    25.4
    %
    
    
    79,865
    
    
    
    27.0
    %BiCMOS(2)
    
    
    2,517
    
    
    
    0.8
    %
    
    
    2,460
    
    
    
    0.7
    %
    
    
    3,019
    
    
    
    1.0
    %Others
    
    
    356
    
    
    
    0.1
    %
    
    
    327
    
    
    
    0.1
    %
    
    
    28
    
    
    
    0.0
    %Total
    
    NT$
    322,630
    
    
    
    100.0
    %
    
    NT$
    333,158
    
    
    
    100.0
    %
    
    NT$
    295,742
    
    
    
    100.0
    %
 
 (1)
    
    Mixed-signal semiconductors made with the CMOS process.(2)
    
    Mixed-signal and other semiconductors made with the BiCMOS process. Design and Technology Platforms.
  ®
 
    
    Mixed Signal/Radio Frequency Reference Design Kit (MS/RF RDK). This
deliverable reduces design cycle time and encourage IP reuse.
    
    iRCX, an interoperable EDA data format, for TSMC 65nm and 40nm technologies.
This deliverable enables EDA tools that support the iRCX format to receive accurate
interconnect modeling data from TSMC developed iRCX files.
    
    Interoperable design rule check (iDRC) and interoperable
layout-versus-schematic (iLVS) for TSMC 40nm process technology. These deliverables
help simplify data delivery, and ensure data integrity and interpretation.
    
    Interoperable process design kit (iPDK). This deliverable eliminates
duplicative PDK development work and significantly reduces PDK development and related
costs.
    
    Reference Flow 10.0. This deliverable continues the tradition of driving
advances in design methodology and addresses new design challenges of 28nm process
technology, including On-Chip Variation (OCV) optimization that helps increase yields.
  
    
    Tech File and PDK. Customers heavily leverage tech files and PDK provided by
us. We are also increasing resources to support rising demand for PDK in mainstream
technologies.
 18




---



##### Table of Contents




    
    Library and IP. These reusable building blocks are essential for many design
projects. In 2009, nearly half of new tape-outs to us adopted one or more libraries or
IPs from us or our IP partners. To support such high demand, we also expanded its
library and IP portfolio. The total number of library or IP in the portfolio increased
to 2,221 in 2009 from about 1,600 in 2008.
    
    Design Methodology and Flow. We released the first foundry-specific Integrated
Sign-Off Flow (ISF), targeting initially the 65nm process node, in April 2009. With
validated libraries and IP, qualified EDA tools, a full set of proper technology files,
and automated installation scripts, ISF significantly shortens design cycle and helps
improve tape-out quality.
 Multi-project Wafers Program (CyberShuttle).
  Customer Service
  
    
    customer-oriented culture through multi-level interaction with customers;
    
    ability to deliver wafers of consistent quality, competitive ramp-up speed and
efficient yield improvement;
    
    responsiveness to customers issues and requirements, such as engineering change
orders and special wafer handling;
    
    flexibility in manufacturing processes, supported by our competitive technical
capability and efficient production planning;
    
    dedication to help reduce customer costs through collaboration and services,
such as our multi-project wafer program, which combines multiple designs on a single
mask set for increased cost-saving;
    
    availability of eFoundry®, the online service which provides in real-time
necessary information in design, engineering, and logistics throughout customers
product life cycle; and
    
    provision of Virtual Fab®, designed to provide transparent information and
seamless services to our customers such as the availability of key information,
management of on-time delivery and flexibility in scheduling and capacity.
 19




---



##### Table of Contents



Research and Development
     Equipment
   Raw Materials
  20




---



##### Table of Contents



Competition
  Environmental Regulation
     21




---



##### Table of Contents



Electricity and Water
  Risk Management
   Our Subsidiaries and Affiliates
 Vanguard International Semiconductor Corporation (VIS).
 WaferTech in the United States.
 Systems on Silicon Manufacturing Company Pte. Ltd. (SSMC).
 Global Unichip Corporation (GUC).
 22




---



##### Table of Contents



Operations in Mainland China.
 VisEra Technologies Company, Ltd. (VisEra).
 Xintec, Inc. (Xintec).
 Mcube Inc. (Mcube).
 Motech Industries Inc. (Motech).
 
 ITEM 4A. UNRESOLVED STAFF COMMENTS
  
 ITEM 5. OPERATING AND FINANCIAL REVIEWS AND PROSPECTS
 Overview
   
    
    the worldwide demand for semiconductor products;
    
    pricing;
    
    the worldwide semiconductor production capacity as well as our production capacity;
    
    capacity utilization;
    
    technology migration; and
 23




---



##### Table of Contents




    
    fluctuation in foreign currency exchange rate.
  Pricing.
 Production Capacity.
   Technology Migration.
  Year ended December 31,2007
    
    2008
    
    2009Percentage of
    
    Percentage of
    
    Percentage oftotal wafer
    
    total wafer
    
    total waferResolution
    
    revenue(1)
    
    revenue(1)
    
    revenue(1)£45 nanometer
    
    
    
    
    
    
    
    
    
    
    4
    %65 nanometer
    
    
    6
    %
    
    
    21
    %
    
    
    29
    %90 nanometer
    
    
    26
    %
    
    
    26
    %
    
    
    20
    %0.13 micron
    
    
    23
    %
    
    
    17
    %
    
    
    14
    %0.15 micron
    
    
    9
    %
    
    
    6
    %
    
    
    4
    %0.18 micron
    
    
    20
    %
    
    
    17
    %
    
    
    17
    %0.25 micron
    
    
    7
    %
    
    
    5
    %
    
    
    5
    %0.35 micron
    
    
    5
    %
    
    
    5
    %
    
    
    4
    %30.5 micron
    
    
    4
    %
    
    
    3
    %
    
    
    3
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 
 (1)
    
    Percentages represent wafer revenue by technology as a percentage of total revenue
from wafer sales, which exclude revenue not associated with wafer sales, such as revenue from
testing and masks. Total wafer revenue excludes sales returns and allowances. Critical Accounting Policies
  24




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##### Table of Contents



Revenue Recognition.
  Allowances for Doubtful Accounts.
  Inventory valuation.
   Valuation allowance for deferred tax assets.
 25




---



##### Table of Contents



Valuation of long-lived assets and intangible assets.
 
    
    significant under performance relative to historical or projected future
operating results;
    
    significant changes in the manner of our use of the acquired assets or our
overall business strategy; and
    
    significant unfavorable industry or economic trends.
    26




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##### Table of Contents



Goodwill.
 
    
    significant decline in our stock price for a sustained period; and
    
    significant decline in our market capitalization relative to net book value.
    Valuation of investments accounted for using the equity method.
  Accounting for investments in private and publicly-traded securities.
 27




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##### Table of Contents



Results of Operations
  For the year ended December 31,2007
    
    2008
    
    2009Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    (55.9
    )%
    
    
    (57.5
    )%
    
    
    (56.3
    )%Gross profit
    
    
    44.1
    %
    
    
    42.5
    %
    
    
    43.7
    %Operating expensesGeneral and administrative
    
    
    (2.8
    )%
    
    
    (3.3
    )%
    
    
    (3.8
    )%Sales and marketing
    
    
    (1.2
    )%
    
    
    (1.4
    )%
    
    
    (1.5
    )%Research and development
    
    
    (5.5
    )%
    
    
    (6.4
    )%
    
    
    (7.3
    )%Total operating expenses
    
    
    (9.5
    )%
    
    
    (11.1
    )%
    
    
    (12.6
    )%Income from operations
    
    
    34.6
    %
    
    
    31.4
    %
    
    
    31.1
    %Non-operating income and gains
    
    
    3.7
    %
    
    
    3.2
    %
    
    
    1.9
    %Non-operating expenses and losses
    
    
    (0.6
    )%
    
    
    (1.1
    )%
    
    
    (0.7
    )%Income before income tax and minority interest
    
    
    37.7
    %
    
    
    33.5
    %
    
    
    32.3
    %Income tax expense
    
    
    (3.6
    )%
    
    
    (3.3
    )%
    
    
    (2.0
    )%Income before cumulative effect of changes in accounting principles
    
    
    34.1
    %
    
    
    30.2
    %
    
    
    30.3
    %Cumulative effect of changes in accounting principles
    
    
    
    
    
    
    
    
    
    
    Income before minority interest
    
    
    34.1
    %
    
    
    30.2
    %
    
    
    30.3
    %Minority interest in income of subsidiaries
    
    
    (0.3
    )%
    
    
    (0.2
    )%
    
    
    (0.1
    )%Net income
    
    
    33.8
    %
    
    
    30.0
    %
    
    
    30.2
    %
 Year to Year Comparisons
 Net Sales and Gross Margin
 For the year ended December 31,% Change
    
    
    
    
    
    
    
    
    
    % Change2007
    
    2008
    
    from 2007
    
    2009
    
    from 2008NT$
    
    NT$
    
    
    
    
    
    NT$
    
    US$(in millions)
    
    
    
    
    
    (in millions)Net sales
    
    
    322,630
    
    
    
    333,158
    
    
    
    3.3
    %
    
    
    295,742
    
    
    
    9,256
    
    
    
    (11.2
    %)Cost of sales
    
    
    (180,280
    )
    
    
    (191,408
    )
    
    
    6.2
    %
    
    
    (166,413
    )
    
    
    (5,208
    )
    
    
    (13.1
    %)Gross profit
    
    
    142,350
    
    
    
    141,750
    
    
    
    (0.4
    )%
    
    
    129,329
    
    
    
    4,048
    
    
    
    (8.8
    %)Gross margin
percentage
    
    
    44.1%
    
    
    
    42.5%
    
    
    
    
    
    
    
    43.7%
    
    
    
    43.7%
    
    
    

 28




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##### Table of Contents



Net Sales
 (1)
  Gross Margin
 (1)
  
 (1)
    
    Based on weighted average exchange rate of NT$32.868 to US$1.00. 29




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##### Table of Contents



Operating Expenses
 For the Year Ended December 31% Change
    
    
    
    
    
    
    
    
    
    % Change2007
    
    2008
    
    from 2007
    
    2009
    
    from 2008NT$
    
    NT$
    
    
    
    
    
    NT$
    
    US$(in millions)
    
    
    
    
    
    (in millions)Research and
development
    
    
    17,946
    
    
    
    21,481
    
    
    
    19.7
    %
    
    
    21,593
    
    
    
    676
    
    
    
    0.5
    %General and
administrative
    
    
    8,964
    
    
    
    11,097
    
    
    
    23.8
    %
    
    
    11,286
    
    
    
    353
    
    
    
    1.7
    %Sales and marketing
    
    
    3,718
    
    
    
    4,737
    
    
    
    27.4
    %
    
    
    4,488
    
    
    
    141
    
    
    
    (5.3
    )%Total operating
expenses
    
    
    30,628
    
    
    
    37,315
    
    
    
    21.8
    %
    
    
    37,367
    
    
    
    1,170
    
    
    
    0.1
    %Percentage of net
sales
    
    
    9.5%
    
    
    
    11.1%
    
    
    
    
    
    
    
    12.6%
    
    
    
    12.6%
    
    
    
    Income from
operations
    
    
    111,722
    
    
    
    104,435
    
    
    
    (6.5
    )%
    
    
    91,962
    
    
    
    2,878
    
    
    
    (11.9
    )%Operating Margin
    
    
    34.6%
    
    
    
    31.4%
    
    
    
    
    
    
    
    31.1%
    
    
    
    31.1%
    
    
    
    
  Research and Development Expenses
   General and Administrative, Sales and Marketing Expenses
   30




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##### Table of Contents



Non-Operating Income and Expenses
 For the Year Ended December 31% Change
    
    
    
    
    
    
    
    
    
    % Change2007(1)
    
    2008(1)
    
    from 2007
    
    2009
    
    from 2008NT$
    
    NT$
    
    
    
    
    
    NT$
    
    US$(in millions)
    
    
    
    
    
    (in millions)Non-operating
income and gains
    
    
    11,934
    
    
    
    10,822
    
    
    
    (9.3
    )%
    
    
    5,654
    
    
    
    177
    
    
    
    (47.8
    )%Non-operating
expenses and losses
    
    
    (2,014
    )
    
    
    (3,785
    )
    
    
    87.9
    %
    
    
    (2,153
    )
    
    
    (67
    )
    
    
    (43.1
    )%Net non-operating
income (expenses)
    
    
    9,920
    
    
    
    7,037
    
    
    
    (29.1
    )%
    
    
    3,501
    
    
    
    110
    
    
    
    (50.2
    )%
 
 (1)
    
    The 2007 amounts for gains/losses on settlement and disposal of financial assets at
fair value through profit or loss were reclassified into valuation gains/losses on financial
instruments for comparison purposes.   Income Tax Benefit (Expense)
 For the Year Ended December 31% Change
    
    
    
    
    
    
    
    
    
    % Change2007
    
    2008
    
    from 2007
    
    2009
    
    from 2008NT$
    
    NT$
    
    
    
    
    
    NT$
    
    US$(in millions)
    
    
    
    
    
    (in millions)Income tax expense
    
    
    (11,710
    )
    
    
    (10,949
    )
    
    
    (6.5
    )%
    
    
    (5,997
    )
    
    
    (188
    )
    
    
    (45.2
    )%Net income
    
    
    109,177
    
    
    
    99,933
    
    
    
    (8.5
    )%
    
    
    89,218
    
    
    
    2,792
    
    
    
    (10.7
    )%Net margin
    
    
    33.8%
    
    
    
    30.0%
    
    
    
    
    
    
    
    30.2%
    
    
    
    30.2%
    
    
    
    
  31




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##### Table of Contents



Liquidity and Capital Resources
  For the year ended December 31,2007
    
    2008
    
    2009NT$
    
    NT$
    
    NT$
    
    US$(in millions)
    
    (in millions)
    
    (in millions)Net cash provided by operating activities
    
    
    183,766
    
    
    
    221,494
    
    
    
    159,966
    
    
    
    5,007Net cash used in investing activities
    
    
    (70,689
    )
    
    
    (8,042
    )
    
    
    (96,468
    )
    
    
    (3,019
    )Net cash used in financing activities
    
    
    (135,410
    )
    
    
    (115,393
    )
    
    
    (85,471
    )
    
    
    (2,675
    )Net increase/(decrease) in cash
    
    
    (22,851
    )
    
    
    99,628
    
    
    
    (23,338
    )
    
    
    (730
    )
 Operating Activities
    Investing Activities
   
    
    adding production capacity to Fab 12 (Phase IV) and Fab 14 (Phase III);
    
    Fab 12 facilities;
    
    capacity expansion for mask and backend operations;
 32




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##### Table of Contents




    
    developing process technologies which include 28-nanometer nodes and below; and
    
    other research and development projects.
  Financing Activities
    Cash Requirements
  Long-term debtNT$(in millions)During 2010
    
    
    949During 2011
    
    
    276During 2012
    
    
    4,743During 2013
    
    
    60During 2014 and thereafter
    
    
    
 33




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##### Table of Contents



Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    1 Year
    
    1-3 Years
    
    4-5 Years
    
    5 Years(in NT$ millions)Long-Term Debt(1)
    
    
    6,028
    
    
    
    949
    
    
    
    5,019
    
    
    
    60
    
    
    
    Capital Lease Obligations(2)
    
    
    787
    
    
    
    94
    
    
    
    88
    
    
    
    605
    
    
    
    Operating Leases(3)
    
    
    5,749
    
    
    
    558
    
    
    
    991
    
    
    
    907
    
    
    
    3,293Other Payments(4)
    
    
    9,608
    
    
    
    4,005
    
    
    
    5,603
    
    
    
    
    
    
    
    Capital Purchase or other Purchase
Obligations(5)
    
    
    73,095
    
    
    
    72,020
    
    
    
    802
    
    
    
    273
    
    
    
    Total Contractual Cash Obligations(6)
    
    
    95,267
    
    
    
    77,626
    
    
    
    12,503
    
    
    
    1,845
    
    
    
    3,293
 
 (1)
    
    Includes loan payable and bond payable but excludes relevant interest payments
which are not expected to be material in any given period in the future. See notes 15 and 16
to our consolidated financial statements for further information regarding interest rates and
future repayment of long-term debts.(2)
    
    Capital lease obligations represent our commitment for leases of property, which are
described in note 13 to our consolidated financial statements.(3)
    
    Operating lease obligations are described in note 27 to our consolidated financial
statements.(4)
    
    Includes royalty and license payments, as well as payables for acquisition of
property, plant and equipment, but excludes payments that vary based upon our net sales of
certain products and our sales volume of certain other products.(5)
    
    Represents commitments for construction or purchase of equipment, raw material and
other property or services. These commitments are not recorded on our balance sheet as of
December 31, 2009, as we have not received related goods or taken title of the property.(6)
    
    Minimum pension funding requirement is not included since such amounts have not been
determined. We made pension contributions of approximately NT$194 million in 2009 and we
estimate that we will contribute approximately NT$182 million to the pension fund in 2010. See
note 18 to our consolidated financial statements for additional details regarding our pension
plan.   (1)
  
 (1)
    
    Translated from weighted average exchange rate of NT$32.868 to US$1.00. 34




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##### Table of Contents



U.S. GAAP Reconciliation
  For the year ended December 31,2007
    
    2008
    
    2009NT$
    
    NT$
    
    NT$
    
    US$(in NT$ millions)Net income
attributable to the
shareholders of the
parent in
accordance with:R.O.C. GAAP
    
    
    109,177
    
    
    
    99,933
    
    
    
    89,218
    
    
    
    2,792U.S. GAAP
    
    
    71,658
    
    
    
    81,473
    
    
    
    89,102
    
    
    
    2,789Shareholders
equity attributable
to the shareholders
of the parent in
accordance with:R.O.C. GAAP
    
    
    487,092
    
    
    
    476,377
    
    
    
    495,083
    
    
    
    15,495U.S. GAAP
    
    
    513,228
    
    
    
    511,089
    
    
    
    532,043
    
    
    
    16,652
  Taxation
     35




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##### Table of Contents



Off-Balance Sheet Arrangements
  Inflation & Deflation
  Recent Accounting Pronouncements
   (SFAS)
  Climate Change Related Issues
  36




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##### Table of Contents



ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 Directors and Executive Officers
 MANAGEMENT
        37




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##### Table of Contents



YearsTerm
    
    with ourName
    
    Position with our company
    
    Expires
    
    companyMorris Chang
    
    Chairman & Chief Executive Officer
    
    
    2012
    
    
    
    23F.C. Tseng
    
    Vice Chairman
    
    
    2012
    
    
    
    23Tian-Jy Chen
    
    Director (Representative of the National Development Fund)
    
    
    2012
    
    
    
    1Stan Shih
    
    Director
    
    
    2012
    
    
    
    10Sir Peter Leahy Bonfield
    
    Director
    
    
    2012
    
    
    
    8Thomas J. Engibous
    
    Director
    
    
    2012
    
    
    
    1Rick Tsai
    
    Director & President of New Businesses
    
    
    2012
    
    
    
    20Stephen T. Tso
    
    Senior Vice President & Chief Information Officer
    
    
    
    
    
    
    13Mark Liu
    
    Senior Vice President of Operations
    
    
    
    
    
    
    16C.C. Wei
    
    Senior Vice President of Business Development
    
    
    
    
    
    
    12Shang-yi Chiang
    
    Senior Vice President of Research & Development
    
    
    
    
    
    
    1
    (1)M.C. Tzeng
    
    Vice President of Mainstream Fab Operations/Affiliates
    
    
    
    
    
    
    23Richard Thurston
    
    Vice President & General Counsel
    
    
    
    
    
    
    8Lora Ho
    
    Vice President, Chief Financial Officer & Spokesperson
    
    
    
    
    
    
    11Wei-Jen Lo
    
    Vice President of Operations
    
    
    
    
    
    
    6Jason C.S. Chen
    
    Vice President of Worldwide Sales & Marketing
    
    
    
    
    
    
    5Jack Sun
    
    Vice President of Research & Development & Chief Technology Officer
    
    
    
    
    
    
    13Fu-Chieh Hsu
    
    Vice President/Deputy head of Research & Development &
Vice President of Design & Technology Platform
    
    
    
    
    
    
    4Y.P. Chin
    
    Vice President of Operations
    
    
    
    
    
    
    23N.S. Tsai
    
    Vice President of Quality & Reliability
    
    
    
    
    
    
    21Rick Cassidy
    
    Vice President & President of TSMC North America
    
    
    
    
    
    
    13L.C. Tu
    
    Vice President of Human Resources
    
    
    
    
    
    
    23
 
 (1)
    
    Rounded-up for ease of reference from November 10, 2009. Morris Chang
 F.C. Tseng
 Tain-Jy Chen
 Stan Shih
 38




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##### Table of Contents



Sir Peter Leahy Bonfield
 Thomas J. Engibous
 Rick Tsai
 Stephen T. Tso
 Mark Liu
 C.C. Wei
 Shang-yi Chiang
 M.C. Tzeng
 Richard Thurston
 39




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##### Table of Contents



Lora Ho
 Wei-Jen Lo
 Jason C.S. Chen
 Jack Sun
 Fu-Chieh Hsu
 Y.P. Chin
 N.S. Tsai
 Rick Cassidy
 L.C. Tu
  Share Ownership
  40




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##### Table of Contents



Number ofCommonPercentage of
    
    SharesOutstanding
    
    UnderlyingNumber of Common
    
    Common
    
    StockName of Shareholders
    
    Shares Owned(2)
    
    Shares(2)
    
    Options(3)Morris Chang, Chairman & CEO
    
    
    118,587,914
    
    
    
    0.46
    
    
    
    F.C. Tseng, Vice Chairman
    
    
    35,002,675
    
    
    
    0.14
    
    
    
    Tain-Jy Chen, Director(1)
    
    
    1,653,709,980
    
    
    
    6.38
    
    
    
    Stan Shih, Independent Director
    
    
    1,480,286
    
    
    
    0.01
    
    
    
    Sir Peter Leahy Bonfield, Independent Director
    
    
    
    
    
    
    
    
    
    
    Thomas J. Engibous, Independent Director
    
    
    
    
    
    
    
    
    
    
    Rick Tsai, Director & President of
New Businesses
    
    
    33,654,505
    
    
    
    0.13
    
    
    
    826,541Stephen T. Tso, Senior Vice President & CIO
    
    
    15,055,693
    
    
    
    0.06
    
    
    
    419,371Mark Liu, Senior Vice President
    
    
    13,000,573
    
    
    
    0.05
    
    
    
    826,541C.C. Wei, Senior Vice President
    
    
    8,444,325
    
    
    
    0.03
    
    
    
    276,882Shang-yi Chiang, Senior Vice President
    
    
    2,412,481
    
    
    
    0.01
    
    
    
    M.C. Tzeng, Vice President
    
    
    7,699,595
    
    
    
    0.03
    
    
    
    Richard Thurston, Vice President &
General Counsel
    
    
    1,939,892
    
    
    
    0.01
    
    
    
    87,710Lora Ho, Vice President & CFO & Spokesperson
    
    
    6,221,080
    
    
    
    0.02
    
    
    
    Wei-Jen Lo, Vice President
    
    
    2,881,127
    
    
    
    0.01
    
    
    
    Jason C.S. Chen, Vice President
    
    
    2,488,320
    
    
    
    0.01
    
    
    
    Jack Sun, Vice President
    
    
    4,817,095
    
    
    
    0.02
    
    
    
    127,736Fu-Chieh Hsu, Vice President
    
    
    2,015,726
    
    
    
    0.01
    
    
    
    Y.P. Chin, Vice President
    
    
    6,184,823
    
    
    
    0.02
    
    
    
    N.S. Tsai, Vice President
    
    
    2,051,180
    
    
    
    0.01
    
    
    
    Rick Cassidy, Vice President
    
    
    
    
    
    
    
    
    
    
    970,907L.C. Tu, Vice President
    
    
    9,310,067
    
    
    
    0.04
    
    
    
    61,373
 
 (1)
    
    Represents shares held by the National Development Fund of the Executive Yuan.(2)
    
    Except for the number of shares held by the National Development Fund of the
Executive Yuan, the disclosed number of shares owned by the directors and executive officers
does not include any common shares held in ADS form by such individuals as such individual
ownership of ADSs has not been disclosed to shareholders or otherwise made public and each of
these individuals owns less than one percent of all common shares outstanding as of February
28, 2010.(3)
    
    The numbers of the common shares underlying the stock options and the exercise
prices were adjusted for the cash and stock dividends distributed from 2003 to 2009, according
to the terms of the 2002 Employee Stock Option Plan. The options were granted to certain of
our officers except Rick Cassidy as a result of their voluntary selection to exchange part of
their profit sharing to stock options. Compensation
  Board Practices
 General
  41




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##### Table of Contents



Audit Committee
     Compensation Committee
    Employees
  As of December 31,Function
    
    2007
    
    2008
    
    2009Managers
    
    
    2,520
    
    
    
    2,618
    
    
    
    2,792Professionals
    
    
    8,814
    
    
    
    8,830
    
    
    
    9,861Assistant Engineers/Clericals
    
    
    844
    
    
    
    824
    
    
    
    761Technicians
    
    
    10,842
    
    
    
    10,571
    
    
    
    11,052Total
    
    
    23,020
    
    
    
    22,843
    
    
    
    24,466
 42




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##### Table of Contents



As of December 31,Location of Facility and Principal Offices
    
    2007
    
    2008
    
    2009Hsinchu Science Park, Taiwan
    
    
    14,892
    
    
    
    14,635
    
    
    
    16,010Tainan Science Park, Taiwan
    
    
    5,360
    
    
    
    5,500
    
    
    
    5,920China
    
    
    1,457
    
    
    
    1,397
    
    
    
    1,270North America
    
    
    1,255
    
    
    
    1,252
    
    
    
    1,198Europe
    
    
    27
    
    
    
    28
    
    
    
    36Japan
    
    
    27
    
    
    
    29
    
    
    
    29Korea
    
    
    2
    
    
    
    2
    
    
    
    3Total
    
    
    23,020
    
    
    
    22,843
    
    
    
    24,466
      43




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##### Table of Contents



Outstanding Stock Options under the 2002 Employee Stock Option PlanNumber ofCommon SharesUnderlyingUnexercised
    
    Option AdjustedOptions
    
    Exercise PriceName
    
    Grant Date
    
    (#)
    
    (NT$)
    
    Expiration DateRick Tsai
    
    03/07/2003
    
    
    826,541
    
    
    
    22.8
    
    
    03/06/2013Mark Liu
    
    03/07/2003
    
    
    826,541
    
    
    
    22.8
    
    
    03/06/2013Stephen Tso
    
    03/07/2003
    
    
    419,371
    
    
    
    22.8
    
    
    03/06/2013C.C. Wei
    
    03/07/2003
    
    
    276,882
    
    
    
    22.8
    
    
    03/06/2013Jack Sun
    
    03/07/2003
    
    
    127,736
    
    
    
    22.8
    
    
    03/06/2013Richard Thurston
    
    03/07/2003
    
    
    87,710
    
    
    
    22.8
    
    
    03/06/2013L.C. Tu
    
    03/07/2003
    
    
    61,373
    
    
    
    22.8
    
    
    03/06/2013Rick Cassidy
    
    08/22/2002
    
    
    42,016
    
    
    
    29
    
    
    08/21/201206/06/2003
    
    
    928,891
    
    
    
    32
    
    
    06/05/2013
   
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 Major Shareholders
  Percentage of TotalNumber of Common
    
    OutstandingNames of Shareholders
    
    Shares Owned
    
    Common SharesNational Development Fund(1)
    
    
    1,653,709,980
    
    
    
    6.4Directors and executive officers as a group(2)
    
    
    273,247,357
    
    
    
    1.1
 
 (1)
    
    Excludes any common shares that may be owned by other funds controlled by the R.O.C.
government. The National Development Fund was previously named Development Fund.(2)
    
    Excludes ownership of the National Development Fund.  44




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##### Table of Contents



Related Party Transactions
 Koninklijke Philips Electronics N.V. and its Affiliates (Philips)
  Vanguard International Semiconductor Corporation
   Systems on Silicon Manufacturing Company Pte. Ltd. (SSMC)
  45




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##### Table of Contents



VisEra Technologies Company, Ltd.
   
 ITEM 8. FINANCIAL INFORMATION
 Consolidated Financial Statements and Other Financial Information
  Legal Proceedings
    46




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##### Table of Contents



Dividends and Dividend Policy
  Cash Dividends
    
    Stock dividends
    
    Total shares issued as
    
    Outstanding commonPer Share
    
    Per 100 shares
    
    stock dividends
    
    shares at year endNT$2005
    
    
    1.9998
    
    
    
    4.99971
    
    
    
    1,162,602,422
    
    
    
    24,730,024,6472006
    
    
    2.4991
    
    
    
    2.99903
    (1)
    
    
    741,900,740
    (1)
    
    
    25,829,687,8462007
    
    
    2.9995
    
    
    
    0.49991
    (2)
    
    
    129,148,440
    (2)
    
    
    25,627,103,7152008
    
    
    3.0251
    
    
    
    0.50417
    (2)
    
    
    128,135,520
    (2)
    
    
    25,625,437,2562009
    
    
    2.9999
    
    
    
    0.49998
    (2)
    
    
    128,127,187
    (2)
    
    
    25,902,706,622
 
 (1)
    
    50% of the stock dividends were paid out of retained earnings and 50% were from
capitalization of capital surplus.(2)
    
    40% of the stock dividends were paid out of retained earnings and 60% were from
capitalization of capital surplus.      47




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##### Table of Contents



ITEM 9. THE OFFER AND LISTING
  Taiwan Stock Exchange
    
    New York Stock Exchange(1)Average dailyTrading
    
    
    
    
    
    
    
    
    
    Average dailyClosing price per
    
    volume
    
    
    
    
    
    
    
    
    
    Trading volumecommon share(2)
    
    (in thousands of
    
    Closing price per ADS(2)
    
    (in thousands ofHigh
    
    Low
    
    shares)(2)
    
    High
    
    Low
    
    ADSs)(2)(NT$)
    
    (NT$)
    
    
    
    
    
    (US$)
    
    (US$)2005
    
    
    50.21
    
    
    
    33.82
    
    
    
    54,929
    
    
    
    8.33
    
    
    
    5.89
    
    
    
    8,3532006
    
    
    57.36
    
    
    
    43.92
    
    
    
    42,967
    
    
    
    9.84
    
    
    
    6.99
    
    
    
    9,8882007
    
    
    64.80
    
    
    
    51.93
    
    
    
    63,033
    
    
    
    10.75
    
    
    
    8.34
    
    
    
    14,1072008
    
    
    61.60
    
    
    
    34.65
    
    
    
    63,140
    
    
    
    10.89
    
    
    
    5.61
    
    
    
    17,527First Quarter
    
    
    59.82
    
    
    
    44.03
    
    
    
    66,824
    
    
    
    10.16
    
    
    
    7.31
    
    
    
    17,601Second Quarter
    
    
    61.60
    
    
    
    54.85
    
    
    
    63,434
    
    
    
    10.89
    
    
    
    9.33
    
    
    
    15,077Third Quarter
    
    
    57.62
    
    
    
    48.02
    
    
    
    62,996
    
    
    
    10.22
    
    
    
    8.29
    
    
    
    19,941Fourth Quarter
    
    
    49.43
    
    
    
    34.65
    
    
    
    59,765
    
    
    
    8.93
    
    
    
    5.61
    
    
    
    17,4952009
    
    
    65.00
    
    
    
    37.28
    
    
    
    63,800
    
    
    
    11.44
    
    
    
    6.70
    
    
    
    19,433First Quarter
    
    
    49.34
    
    
    
    37.28
    
    
    
    65,917
    
    
    
    8.93
    
    
    
    6.70
    
    
    
    22,507Second Quarter
    
    
    56.87
    
    
    
    47.26
    
    
    
    81,028
    
    
    
    11.34
    
    
    
    8.69
    
    
    
    21,825Third Quarter
    
    
    64.50
    
    
    
    51.22
    
    
    
    55,648
    
    
    
    11.13
    
    
    
    8.80
    
    
    
    14,408Fourth Quarter
    
    
    65.00
    
    
    
    59.20
    
    
    
    53,557
    
    
    
    11.44
    
    
    
    9.51
    
    
    
    19,172October
    
    
    65.00
    
    
    
    60.00
    
    
    
    65,885
    
    
    
    10.55
    
    
    
    9.54
    
    
    
    27,858November
    
    
    62.90
    
    
    
    59.20
    
    
    
    51,542
    
    
    
    10.80
    
    
    
    9.51
    
    
    
    17,015December
    
    
    64.50
    
    
    
    60.70
    
    
    
    43,604
    
    
    
    11.44
    
    
    
    10.51
    
    
    
    12,4472010January
    
    
    64.90
    
    
    
    59.60
    
    
    
    49,158
    
    
    
    11.58
    
    
    
    9.99
    
    
    
    18,962February
    
    
    59.80
    
    
    
    57.20
    
    
    
    49,307
    
    
    
    10.08
    
    
    
    9.56
    
    
    
    16,409March
    
    
    62.20
    
    
    
    59.00
    
    
    
    47,791
    
    
    
    10.55
    
    
    
    9.86
    
    
    
    14,391April (through
April 13, 2010)
    
    
    63.50
    
    
    
    62.10
    
    
    
    41,473
    
    
    
    10.85
    
    
    
    10.59
    
    
    
    11,480
 
 (1)
    
    Trading in ADSs commenced on October 8, 1997 on the New York Stock Exchange. Each
ADS represents the right to receive five common shares.(2)
    
    As adjusted for a NT$1.9998 cash dividend per share and a 4.99971% stock dividend
in July 2005, a NT$2.4991 cash dividend per share and a 2.99903% stock dividend in July
2006, a NT$2.9995 cash dividend per share and a 0.49991% stock dividend in July 2007, a
NT$3.0251 cash dividend per share and a 0.50417% stock dividend in July 2008 and a
NT$2.9999 cash dividend per share and a 0.49998% stock dividend in July 2009. 
 ITEM 10. ADDITIONAL INFORMATION
 Description of Common Shares
  General
  48




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Dividends and Distributions
     Preemptive Rights and Issues of Additional Common Shares
  
    
    offerings by shareholders of outstanding shares; and
    
    offerings of new shares through a private placement approved at a shareholders
meeting.
 49




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Meetings of Shareholders
  Voting Rights
     Other Rights of Shareholders
  50




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Register of Shareholders and Record Dates
   Annual Financial Statements
  Acquisition of Common Shares by Us
     51




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Liquidation Rights
  Transaction Restrictions
  Material Contracts
   Foreign Investment in the R.O.C.
    52




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Depositary Receipts
  53




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
    
    dividends on or free distributions of shares;
    
    the exercise by holders of existing depositary receipts of their pre-emptive
rights in connection with capital increases for cash; or
    
    if permitted under the deposit agreement and custody agreement, the deposit of
common shares purchased by any person directly or through a depositary bank on the
Taiwan Stock Exchange or the Over-the-Counter (GreTai) Securities Market (as
applicable) or held by such person for deposit in the depositary receipt facility.
   
    
    open a securities trading account with a local securities brokerage firm;
    
    remit funds; and
    
    exercise rights on securities and perform other matters as may be designated by
the holder.
   54




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Direct Share Offerings
  Overseas Corporate Bonds
  
    
    converted by bondholders, other than citizens of the PRC and entities organized
under the laws of the PRC save for QDII, into shares of R.O.C. companies; or
 
    
    subject to R.O.C. Financial Supervisory Commission approval, converted into
depositary receipts issued by the same R.O.C. company or by the issuing company of the
exchange shares, in the case of exchangeable bonds.
  Exchange Controls in the R.O.C.
   55




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Voting of Deposited Securities
      56




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57




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Taxation
 R.O.C. Taxation
  
    
    an individual who is not an R.O.C. citizen, who owns ADSs and who is not
physically present in the R.O.C. for 183 days or more during any calendar year; or
    
    a corporation or a non-corporate body that is organized under the laws of a
jurisdiction other than the R.O.C. for profit-making purposes and has no fixed place of
business or other permanent establishment in the R.O.C.
  Dividends
  Capital Gains
 Subscription Rights
  Securities Transaction Tax
 Estate and Gift Tax
 Tax Treaty
 58




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##### Table of Contents



United States Federal Income Taxation
  
    
    dealers in securities;
    
    traders in securities that elect to use a mark-to-market method of accounting
for their securities holdings;
    
    tax-exempt organizations;
    
    life insurance companies;
    
    persons liable for alternative minimum tax;
    
    persons that actually or constructively own 10% or more of our voting stock;
    
    persons that hold common shares or ADSs as part of a straddle or a hedging or
conversion transaction; or
    
    persons whose functional currency is not the U.S. dollar.
    
    
    a citizen or resident of the United States;
    
    a domestic corporation, or other entity subject to United States federal income
tax as a domestic corporation;
    
    an estate whose income is subject to United States federal income tax regardless
of its source; or
    
    a trust if a United States court can exercise primary supervision over the
trusts administration and one or more United States persons are authorized to control
all substantial decisions of the trust.
  59




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We urge you to consult your own tax advisor regarding the United States federal, state and local
tax consequences of owning and disposing of common shares or ADSs in your particular circumstances.
 Taxation of Dividends
     60




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Taxation of Capital Gains
  Passive Foreign Investment Company Rules
   
    
    at least 75% of our gross income for the taxable year is passive income; or
    
    at least 50% of the value, determined on the basis of a quarterly average, of
our assets is attributable to assets that produce or are held for the production of
passive income.
   
    
    any gain you realize on the sale or other disposition of your common shares or
ADSs; and
    
    any excess distribution that we make to you (generally, any distributions to you
during a single taxable year that are greater than 125% of the average annual
distributions received by you in respect of the common shares or ADSs during the three
preceding taxable years or, if shorter, your holding period for the common shares or
ADSs).
  
    
    the gain or excess distribution will be allocated ratably over your holding
period for the common shares or ADSs,
    
    the amount allocated to the taxable year in which you realized the gain or
excess distribution will be taxed as ordinary income,
    
    the amount allocated to each prior year, with certain exceptions, will be taxed
at the highest tax rate in effect for that year, and
    
    the interest charge generally applicable to underpayments of tax will be imposed
in respect of the tax attributable to each such year.
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Non-U.S. Holders
  62




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Information reporting and backup withholding
  Documents on Display
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
  Interest Rate Risks:
  As of December 31, 2009Expected Maturity Dates
    
    As of December 31, 20082014 and
    
    
    
    
    
    Aggregate
    
    
    
    
    
    Aggregate2010
    
    2011
    
    2012
    
    2013
    
    thereafter
    
    Total
    
    Fair Value
    
    Total
    
    Fair ValueLong-term debt (in
millions)US$ denominated debtVariable rate
    
    
    US$20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    US$20
    
    
    
    US$20
    
    
    
    US$20
    
    
    
    US$20Average interest rate
    
    
    0.89%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.89%
    
    
    
    
    
    
    
    2.89%
    
    
    
    NT$ denominated debtVariable rate
    
    
    NT$308
    
    
    
    NT$276
    
    
    
    NT$243
    
    
    
    NT$60
    
    
    
    
    
    
    
    NT$887
    
    
    
    NT$887
    
    
    
    NT$984
    
    
    
    NT$984Average interest rate
    
    
    1.18%
    
    
    
    1.63%
    
    
    
    2.13%
    
    
    
    2.52%
    
    
    
    
    
    
    
    1.67%(2)
    
    
    
    
    
    
    
    1.57%(2)
    
    
    
    Fixed rate
    
    
    
    
    
    
    
    
    
    
    NT$4,500
    
    
    
    
    
    
    
    
    
    
    
    NT$4,500
    
    
    
    NT$4,575(1)
    
    
    
    NT$12,500
    
    
    
    NT$12,612(1)Average interest rate
    
    
    
    
    
    
    
    
    
    
    3.00%
    
    
    
    
    
    
    
    
    
    
    
    3.00%
    
    
    
    
    
    
    
    2.84%(2)
    
    
    
    
 
 (1)
    
    Represents the then quoted market price.(2)
    
    Average interest rates under Total are the weighted average of the average
interest rates of each year for loan outstanding. 63




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Foreign Currency Risk:
  ForwardExchangeAgreements
    
    As of December 31, 2009
    
    As of(in millions)
    
    Expected Maturity Dates
    
    December 31, 20082014 and
    
    
    
    
    
    Aggregate
    
    
    
    
    
    Aggregate2010
    
    2011
    
    2012
    
    2013
    
    thereafter
    
    Total
    
    Fair Value(1)
    
    Total
    
    Fair Value(1)(Sell US$/Buy NT$)
Contract amount
    
    
    US$21.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    US$21.3
    
    
    
    NT$4.3
    
    
    
    US$138.9
    
    
    
    NT$0.4Average contractual
exchange rate
(against NT$
dollars)
    
    
    32.24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32.24
    
    
    
    
    
    
    
    32.82
    
    
    
    (Buy NT$/Sell EUR) Contract amount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    EUR1.5
    
    
    
    NT$(6.5
    )Average contractual
exchange rate
(against NT$
dollars)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42.1
    
    
    
    (Buy JPY/Sell US$) Contract amount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    US$0.1
    
    
    
    NT$0Average contractual
exchange rate
(against US$
dollars)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90.08
    
    
    
    (Sell RMB/Buy US$)
Contract amount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    RMB55
    
    
    
    NT$(1.3
    )Average contractual
exchange rate
(against NT$
dollars)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.88
    
    
    
    
 64




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Cross CurrencySwap
    
    As of December 31, 2009
    
    As of(in millions)
    
    Expected Maturity Dates
    
    December 31, 2008Aggregate
    
    
    
    
    
    Aggregate2014
    
    
    
    
    
    Fair
    
    
    
    
    
    Fair2010
    
    2011
    
    2012
    
    2013
    
    onward
    
    Total
    
    Value(1)
    
    Total
    
    Value(1)(Sell US$/Buy NT$)
Contract amount
    
    
    US$750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    US$750
    
    
    
    NT$181.8
    
    
    
    US$307
    
    
    
    NT$(35.3
    )Range of
interest rate paid
    
    
    0.24%-0.70
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.24%-0.70
    %
    
    
    
    
    
    
    0.54%-5.00
    %
    
    
    Range of
interest rate
received
    
    
    0.00%-0.38
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.00%-0.38
    %
    
    
    
    
    
    
    0.00%-3.83
    %
    
    
    
 
 (1)
    
    Fair value represents the amount of the receivable from or payable to the
counter-parties if the contracts were terminated on the balance sheet date. Other Market Risk:
  
 ITEM 12D. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
 Depositary Fees and Charges
  Service
    
    FeesIssuance of ADS
    
    Up to US$0.05 (or fractions thereof) per ADS issuedCancellation of ADS
    
    Up to US$0.05 (or fractions thereof) per ADS
cancelledDistribution of cash
proceeds (i.e. upon
sale of rights and
other entitlements)
    
    Up to US$0.02 per ADS heldDistribution of ADS
rights or other free
distributions of
Stock (excluding
stock dividends)
    
    Up to US$0.05 (or fractions thereof) per ADS issued
 65




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Depositary Payment
  Reimbursement of listing fees (NYSE):
    
    US$
    500,000Reimbursement of proxy process expenses (printing, postage and distribution):
    
    US$
    352,624Total
    
    US$
    852,624
 
 PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
  
 ITEM 15. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures.
 Managements Annual Report on Internal Control Over Financial Reporting.
   66




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##### Table of Contents



Changes in Internal Control Over Financial Reporting.
 Attestation Report of the Independent Registered Public Accounting Firm.
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated Framework
    Internal
ControlIntegrated Framework
  
 67




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##### Table of Contents



ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM 16B. CODE OF ETHICS
  invest@tsmc.com
 
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  2008
    
    2009NT$
    
    NT$(In thousands)Audit Fees
    
    
    82,412
    
    
    
    74,166Audit Related Fees
    
    
    1,023
    
    
    
    285Tax Fees
    
    
    160
    
    
    
    All Other fees
    
    
    
    
    
    
    600Total
    
    
    83,595
    
    
    
    75,051
 Audit Fees.
 Audit-Related Fees
 Tax Fees.
 All Other Fees
 68




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##### Table of Contents



ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  
 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  
 ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
  
 ITEM 16G. CORPORATE GOVERNANCE
     NYSE Standards for US Companiesunder Listed Company ManualSection 303A
    
    TSMC Corporate PracticesNYSE Section 303A.01requires
a NYSE-listed company to have
a majority of independent
directors on its board of
directors.
    
    Taiwan law does not require a board of
directors of publicly traded companies to
consist of a majority of independent
directors. Taiwan law requires public
companies meeting certain criteria to have
at least two independent directors but no
less than one fifth of the total number of
directors on its board of directors. In
addition, Taiwan law requires public
companies to disclose information pertaining
to their directors, including their
independence status. Please see TSMCs
annual report for the relevant year filed
with the Taiwan authorities and the U.S. SEC
(both of which are available online at
www.tsmc.com) for information on the total
number of TSMC directors and directors who
would be considered independent under NYSE
Section 303A.02 and Taiwan law.
 69




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##### Table of Contents



NYSE Standards for US Companiesunder Listed Company ManualSection 303A
    
    TSMC Corporate PracticesNYSE Section 303A.02
establishes general standards
to evaluate directors
independence (no director
qualifies as independent
unless the board of directors
affirmatively determines that
the director has no material
relationship with the listed
company either directly or as
a partner, shareholder or
officer of an organization
that has a relationship with
the listed company).
    
    Taiwan law establishes comparable standards
to evaluate director independence. For
further information, please consult TSMCs
Taiwan Annual Report for the relevant year.NYSE Section 303A.03requires
non-management directors to
meet at regularly scheduled
executive meetings that are
not attended by management.
    
    Taiwan law does not contain such a
requirement. Except for meetings of
sub-committees of the board of directors and
those held by managing directors, Taiwan law
does not allow separate board meetings of
part but not all of the board of directors.NYSE Section 303A.04requires
listed companies to have a
nominating/corporate
governance committee comprised
entirely of independent
directors which committee
shall have a written charter
establishing certain minimum
responsibilities as set forth
in NYSE Section 303A.04(b)(i)
and providing for an annual
evaluation of the committees
performance.
    
    Taiwan law does not contain such a
requirement. Taiwan law requires directors
to be nominated either by the shareholders
or by the entire board of directors.NYSE Section 303A.05(a)
requires listed companies to
have a compensation committee
comprised entirely of
independent directors.
    
    Taiwan law does not require the board of
directors to establish a compensation
committee. Nevertheless, TSMC has
established a compensation committee. Please
see TSMCs annual report for the relevant
year filed with the Taiwan authorities and
the U.S. SEC (both of which are available
online at www.tsmc.com) for further
information regarding the composition and
functions of its compensation committee.NYSE Section 303A.05(b)
requires a compensation
committees charter to
establish certain minimum
responsibilities and to
provide for an annual
evaluation of the committees
performance.
    
    Taiwan law does not contain such a
requirement. Nevertheless, TSMCs
compensation committee charter contains the
same responsibilities as those provided
under NYSE Section 303A.05(b)(i) and
mandates the committee to review the
adequacy of its charter annually.NYSE Section 303A.06requires
listed companies to have an
audit committee that satisfies
the requirements of Rule 10A-3
under the Securities Exchange
Act of 1934 (the Exchange
Act). Foreign private issuers
must satisfy the requirements
of Rule 10A-3 under the
Exchange Act by July 31, 2005.
    
    Taiwan law requires public companies meeting
certain criteria (which has yet been
promulgated) to have an audit committee that
satisfies comparable standards or public
companies may voluntarily elect to establish
an audit committee. TSMC has voluntarily
elected to establish an audit committee.
Please see TSMCs annual report for the
relevant year filed with the Taiwan
authorities and the U.S. SEC (both of which
are available online at www.tsmc.com) for
further information regarding the
composition of its audit committee. TSMCs
audit committee members are all financially
literate and are assisted by a financial
expert consultant.NYSE Section 303A.07(a)
requires an audit committee to
consist of at least three
board members. All of its
members shall be financially
literate or must acquire such
financial knowledge within a
reasonable period and at least
one of its members shall have
experience in accounting or
financial administration.
    
    Taiwan law requires all independent
directors of a public company to be members
of the audit committee if the company has
established such a committee of which at
least one shall have accounting or financial
expertise. Please see TSMCs annual report
for the relevant year filed with the Taiwan
authorities and the U.S. SEC (both of which
are available online at www.tsmc.com) for
further information regarding the
composition of its audit committee. TSMCs
audit committee members are all financially
literate and are assisted by a financial
expert consultant.
 70




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NYSE Standards for US Companiesunder Listed Company ManualSection 303A
    
    TSMC Corporate PracticesNYSE Section 303A.07(a)
requires that if an audit
committee member is
simultaneously a member of the
audit committee of more than
three public companies, and
the listed company does not
limit the number of audit
committees on which its
members may serve, then, in
each case the board of that
company shall determine
whether the simultaneous
service would prevent such
member from effectively
serving on the listed
companys audit committee, and
shall report its decision in
the annual proxy statement of
the company or in the
companys annual report on
Form 10-K filed with the SEC.
    
    Taiwan law does not contain such
requirement. Taiwan law requires all
independent directors of a public company to be members of the audit committee if the company has established such a committee.
Taiwan law forbids an independent director
from serving as an independent director on a
total of four or more Taiwan public
companies.NYSE Section 303A.07(b)All
members of the audit committee
are required to be
independent.
    
    Taiwan law requires all independent
directors of a public company to be members
of the audit committee if the company has
established such a committee.NYSE Section 303A.07(c)
requires an audit committee to
have a written charter
establishing the duties and
responsibilities of its
members, including the duties
and responsibilities required,
at a minimum, by Section
10A-3(b)(1) of the Exchange
Act.
    
    Taiwan law requires comparable standards.
TSMC currently has a written audit committee
charter containing the same duties and
responsibilities as those provided under
Section 10A-3(b)(1) of the Exchange Act.NYSE Section
303A.07(c)(iii)(B) and (C)
establishes audit committee
objectives: (i) to discuss the
annual audited financial
statements and the quarterly
financial statements of the
company with management and
the independent auditor,
including the information
disclosed under the heading
Managements Discussion and
Analysis of Financial
Condition and Results of
Operations; and (ii) to
discuss the companys press
releases relating to its
earnings as well as the
financial information and
guidelines relating to its
earnings that are supplied to
analysts and rating agencies.
    
    TSMCs written audit committee charter
establishes the same audit committee
objectives.NYSE Section
303A.07(c)(iii)(G)requires an
audit committee to establish
clear policies for hiring
external auditors employees.
    
    Taiwan law does not contain such requirement.NYSE Section 303A.07(d)
requires each company to have
an internal audit function
that provides to the
management and to the audit
committee regular assessments
on the companys risk
management processes and
internal control system.
    
    Taiwan law requires public companies to
establish an internal audit department.
Internal auditors are subject to strict
qualification standards under Taiwan law,
which require the board of directors to
approve the head of a companys internal
audit department. TSMCs internal audit
department has substantially the same
responsibilities as provided under NYSE
Section 303A.07(d).NYSE Section 303A.08requires
each company to give to
shareholders the opportunity
to vote on all equity based
compensation plans and
material revisions thereto
with certain exceptions.
    
    Taiwan law imposes a similar requirement.
TSMC currently has in place two equity based
compensation plans. First, TSMCs employee
stock option plans (ESOPs) are required to
be approved by the board of directors.
Shareholders approval is not required if
the number of options granted under the
relevant ESOP does not exceed the
reservation made in TSMCs Articles of
Incorporation. Otherwise, any change to such
reservation in the Articles requires
shareholders approval. Second, TSMCs
employees profit sharing requires
shareholders approval.NYSE Section 303A.09requires
public companies to adopt and
disclose corporate governance
guidelines, including several
issues for which such
reporting is mandatory, and to
include such information on
the companys website (which
website should also include
the charters of the audit
committee, the nominating
committee, and the
compensation committee.)
    
    Under Taiwan law, if a listed company has
adopted corporate governance guidelines, it
must inform investors how to access such
guidelines.
 71




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##### Table of Contents



NYSE Standards for US Companiesunder Listed Company ManualSection 303A
    
    TSMC Corporate PracticesNYSE Section 303A.09requires
the board of directors to make
a self-assessment of its
performance at least once a
year to determine if it or its
committees function
effectively and report
thereon.
    
    Taiwan law does not contain such requirement.NYSE Section 303A.10provides
for the adoption of a Code of
Business Conduct and Ethics
and sets out the topics that
such code must contain.
    
    Taiwan law does not contain such
requirement. But, because of sound corporate
governance principles, TSMC has adopted a
Policy of Ethics and Business Conduct,
which complies with the Sarbanes-Oxley Acts
requirements concerning financial officers
and CEO accountability.NYSE Section 303A.12(a)
requires the CEO, on a yearly
basis, to certify to the NYSE
that he or she knows of no
violation by the company of
NYSE rules relating to
corporate governance.
    
    Taiwan law does not contain such a
requirement. But, in order to comply with
relevant SEC regulations, TSMCs CEO is
required to certify in TSMCs 20-F annual
report that, to his or her knowledge the
information contained therein fairly
represents in all material respects the
financial condition and results of operation
of TSMC.NYSE Section 303A.12(b)
requires the CEO to notify the
NYSE in writing whenever any
executive officer of the
company becomes aware of any
substantial non-fulfillment of
any applicable provision under
NYSE Section 303A.
    
    Taiwan law does not contain such
requirement. But, in order to be consistent
with the corporate governance principles
established under the Sarbanes-Oxley Act of
2002, TSMCs CEO complies with the notice
provision as set forth under NYSE Section
303A.12(b).NYSE Section 303A.12(c)
requires each listed company
to submit an executed Written
Affirmation annually to the
NYSE and Interim Written
Affirmation each time a change
occurs in the board or any of
the committees subject to
Section 303A.
    
    Taiwan law does not contain such
requirement. But, in order to comply with
the corporate governance principles
established under the Sarbanes-Oxley Act of
2002, TSMC will comply with NYSE Section
303A.12(c).
 
 PART III
 
 ITEM 17. FINANCIAL STATEMENTS
  
 ITEM 18. FINANCIAL STATEMENTS
  
 ITEM 19. EXHIBITS
 (a)
    
    See page F-1 for an index of the financial statements filed as part of this annual report.(b)
    
    Exhibits to this Annual Report:
 1.1(1)
    
    Articles of Incorporation of Taiwan Semiconductor Manufacturing Company
Limited, as amended and restated on May 7, 2007.2b.1
    
    The Company hereby agrees to furnish to the Securities and Exchange Commission,
upon request, copies of instruments defining the rights of holders of long-term
debt of the Company and its subsidiaries.3.1(1)
    
    Rules for Election of Directors, as amended and restated on May 7, 2007.3.2(11)
    
    Rules and Procedures of Board of Directors Meetings, as adopted on June 13, 20083.3(3)
    
    Rules and Procedures of Shareholders Meetings, as amended and restated on May
7, 2002.
 72




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##### Table of Contents



4.1(3)
    
    Land Lease with Southern Taiwan Science Park Administration (formerly Tainan
Science Park Administration) relating to the fabs located in Tainan Science
Park (effective August 1, 1997 to July 31, 2017) (in Chinese with English
summary).4.2(4)
    
    Land Lease with Southern Taiwan Science Park Administration (formerly Tainan
Science Park Administration) relating to the fabs located in Tainan Science
Park (effective May 1, 1998 to April 30, 2018) (in Chinese with English
summary).4.3(4)
    
    Land Lease with Southern Taiwan Science Park Administration (formerly Tainan
Science Park Administration) relating to the fabs located in Tainan Science
Park (effective November 1, 1999 to October 31, 2019) (in Chinese with English
summary).4.4(4)
    
    Land Lease with Hsinchu Science Park Administration relating to Fab 7
(effective December 4, 1989 to December 3, 2009) (in Chinese with English
summary).4.5(3)
    
    Land Lease with Hsinchu Science Park Administration relating to the Fab 7
(effective July 1, 1995 to June 30, 2015) (in Chinese with English summary).4.6(3)
    
    Land Lease with Hsinchu Science Park Administration relating to Fab 8
(effective March 15, 1997 to March 14, 2017) (in Chinese with English summary).4.7(4)
    
    Land Lease with Hsinchu Science Park Administration relating to Fab 12 (Phase
I) (effective December 1, 1999 to November 30, 2019) (in Chinese with English
summary).4.8a(5)
    
    Taiwan Semiconductor Manufacturing Company Limited 2002 Employee Stock Option
Plan, as revised by the board of directors on March 4, 2003.4.8aa(6)
    
    Taiwan Semiconductor Manufacturing Company Limited 2003 Employee Stock Option
Plan.4.8aaa(7)
    
    Taiwan Semiconductor Manufacturing Company Limited 2004 Employee Stock Option
Plan.4.8aaaa(2)
    
    Taiwan Semiconductor Manufacturing Company Limited 2004 Employee Stock Option
Plan, as revised on February 22, 2005.4.8b(5)
    
    TSMC North America 2002 Employee Stock Option Plan, as revised on June 5, 2003.4.8bb(6)
    
    TSMC North America 2003 Employee Stock Option Plan.4.8c(5)
    
    WaferTech, LLC 2002 Employee Stock Option Plan, as revised on June 5, 2003.4.8cc(6)
    
    WaferTech, LLC 2003 Employee Stock Option Plan.4.8ccc(7)
    
    WaferTech, LLC 2004 Employee Stock Option Plan.4.8cccc(2)
    
    WaferTech, LLC 2004 Employee Stock Option Plan, as revised on February 22, 2005.+4.9(8)
    
    Shareholders Agreement, dated as of March 15, 1999, by and among EDB
Investments Pte. Ltd., Koninklijke Philips Electronics N.V. and Taiwan
Semiconductor Manufacturing Company Ltd.4.10(10)
    
    Land Lease with Hsinchu Science Park Administration relating to Fabs 2 and 5
and Corporate Headquarters (effective April 1, 1988 to March 31, 2008) (in
Chinese with English summary).
 73




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##### Table of Contents



4.11(10)
    
    Land Lease with Hsinchu Science Park Administration relating to Fabs 3 and 4
(effective May 16, 1993 to May 15, 2013) (in Chinese with English summary).4.12(9)
    
    Land Lease with Hsinchu Science Park Administration relating to Fab 12 (Phase
II) (effective May 1, 2001 to December 31, 2020) (English summary).4.13(9)
    
    Land Lease with Southern Taiwan Science Park Administration relating to fabs
located in Tainan Science Park (effective November 1, 2000 to October 31, 2020)
(English summary).12.1
    
    Certification of Chief Executive Officer required by Rule 13a-14(a) under the
Exchange Act.12.2
    
    Certification of Chief Financial Officer required by Rule 13a-14(a) under the
Exchange Act.13.1
    
    Certification of Chief Executive Officer required by Rule 13a-14(b) under the
Exchange Act.13.2
    
    Certification of Chief Financial Officer required by Rule 13a-14(b) under the
Exchange Act.99.1
    
    Consent of Deloitte & Touche.
 
 (1)
    
    Previously filed in TSMCs annual report on Form 20-F for the fiscal year
ended December 31, 2007, filed by TSMC on April 15, 2008.(2)
    
    Previously filed in TSMCs annual report on Form 20-F for the fiscal year
ended December 31, 2004, filed by TSMC on May 16, 2005.(3)
    
    Previously filed in TSMCs annual report on Form 20-F for the fiscal year
ended December 31, 2001, filed by TSMC on May 9, 2002.(4)
    
    Previously filed in TSMCs annual report on Form 20-F for the fiscal year
ended December 31, 1999, filed by TSMC on June 29, 2000.(5)
    
    Previously filed in TSMCs annual report on Form 20-F for the fiscal year
ended December 31, 2002, filed by TSMC on June 23, 2003.(6)
    
    Previously filed in TSMCs registration statement on Form S-8, filed by TSMC
on October 20, 2003.(7)
    
    Previously filed in TSMCs registration statement on Form S-8, filed by TSMC
on January 6, 2005.(8)
    
    Previously filed in TSMCs annual report on Form 20-F for the fiscal year
ended December 31, 1998, filed by TSMC on April 30, 1999.(9)
    
    Previously filed in TSMCs annual report on Form 20-F for the fiscal year
ended December 31, 2003, filed by TSMC on May 28, 2004.(10)
    
    Previously filed in TSMCs registration statement on Form F-1, filed by TSMC
on September 15, 1997.(11)
    
    Previously filed in TSMCs annual report on Form 20-F for the fiscal year
ended December 31, 2008, filed by TSMC on April 17, 2009.+
    
    Contains portions for which confidential treatment has been requested. 74




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##### Table of Contents



SIGNATURE
   TAIWAN SEMICONDUCTOR MANUFACTURING
COMPANY LIMITEDBy:
    
    /s/ Lora HoName:
    
    Lora HoTitle:
    
    Vice President and Chief Financial Office
 75




---



##### 



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageConsolidated Financial Statements of Taiwan Semiconductor
Manufacturing Company Limited and SubsidiariesIndex to Consolidated Financial Statements
    
    
    F-1Report of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets
    
    
    F-3Consolidated Statements of Income
    
    
    F-4Consolidated Statements of Changes in Shareholders Equity
    
    
    F-6Consolidated Statements of Cash Flows
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-10
  F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       Internal Control-Integrated Framework
 
  F-2




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##### Table of Contents



Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
 CONSOLIDATED BALANCE SHEETS
(In Millions of New Taiwan or U.S. Dollars, Except Par Value)
 December 31Notes
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    US$(Note 3)ASSETSCURRENT ASSETSCash and cash equivalents
    
    
    2, 5
    
    
    $
    194,613.8
    
    
    $
    171,276.3
    
    
    $
    5,360.8Financial assets at fair value through profit or loss
    
    
    2, 6, 24
    
    
    
    55.7
    
    
    
    186.1
    
    
    
    5.8Available-for-sale financial assets
    
    
    2, 7, 24
    
    
    
    10,898.7
    
    
    
    14,389.9
    
    
    
    450.4Held-to-maturity financial assets
    
    
    2, 8, 24
    
    
    
    5,882.0
    
    
    
    9,944.8
    
    
    
    311.3Receivables from related parties
    
    
    
    
    
    
    0.4
    
    
    
    12.5
    
    
    
    0.4Notes and accounts receivable, net
    
    
    2, 9
    
    
    
    18,496.6
    
    
    
    35,369.8
    
    
    
    1,107.0Other receivables from related parties
    
    
    
    
    
    
    99.9
    
    
    
    121.3
    
    
    
    3.8Other financial assets
    
    
    26
    
    
    
    1,911.7
    
    
    
    1,850.0
    
    
    
    57.9Inventories
    
    
    2, 4, 10
    
    
    
    14,876.6
    
    
    
    20,913.8
    
    
    
    654.6Deferred income tax assets
    
    
    2, 19
    
    
    
    3,969.3
    
    
    
    4,370.3
    
    
    
    136.8Prepaid expenses and other current assets
    
    
    
    
    
    
    1,813.7
    
    
    
    1,368.9
    
    
    
    42.8Total current assets
    
    
    
    
    
    
    252,618.4
    
    
    
    259,803.7
    
    
    
    8,131.6LONG-TERM INVESTMENTS
    
    
    2, 7, 8, 11, 12, 24Investments accounted for using equity method
    
    
    
    
    
    
    18,907.2
    
    
    
    17,871.2
    
    
    
    559.3Available-for-sale financial assets
    
    
    
    
    
    
    2,032.7
    
    
    
    1,358.1
    
    
    
    42.5Held-to-maturity financial assets
    
    
    
    
    
    
    15,426.2
    
    
    
    15,553.2
    
    
    
    486.8Financial assets carried at cost
    
    
    
    
    
    
    3,615.4
    
    
    
    3,063.0
    
    
    
    95.9Total long-term investments
    
    
    
    
    
    
    39,981.5
    
    
    
    37,845.5
    
    
    
    1,184.5PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    2, 13, 26
    
    
    
    243,645.4
    
    
    
    273,674.8
    
    
    
    8,565.8INTANGIBLE ASSETSGoodwill
    
    
    2
    
    
    
    6,044.4
    
    
    
    5,931.3
    
    
    
    185.6Deferred charges, net
    
    
    2, 14
    
    
    
    7,125.8
    
    
    
    6,458.6
    
    
    
    202.1Total intangible assets
    
    
    
    
    
    
    13,170.2
    
    
    
    12,389.9
    
    
    
    387.7OTHER ASSETSDeferred income tax assets
    
    
    2, 19
    
    
    
    6,636.9
    
    
    
    7,988.3
    
    
    
    250.0Refundable deposits
    
    
    
    
    
    
    2,767.2
    
    
    
    2,733.1
    
    
    
    85.5Others
    
    
    2, 26
    
    
    
    97.0
    
    
    
    260.9
    
    
    
    8.2Total other assets
    
    
    
    
    
    
    9,501.1
    
    
    
    10,982.3
    
    
    
    343.7TOTAL ASSETS
    
    
    
    
    
    $
    558,916.6
    
    
    $
    594,696.2
    
    
    $
    18,613.3
 December 31Notes
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    US$(Note 3)LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESFinancial liabilities at fair value through profit or loss
    
    
2, 6, 24
    
    
    $
    85.2
    
    
    $
    
    
    
    $
    Accounts payable
    
    
    
    
    
    
    5,553.2
    
    
    
    10,905.9
    
    
    
    341.3Payable to related parties
    
    
    25
    
    
    
    489.9
    
    
    
    783.0
    
    
    
    24.5Income tax payable
    
    
    2, 19
    
    
    
    9,331.8
    
    
    
    8,800.3
    
    
    
    275.4Salary and bonus payable
    
    
    
    
    
    
    2,215.8
    
    
    
    9,317.0
    
    
    
    291.6Accrued profit sharing to employees and bonus to directors and supervisors
    
    
    2, 4, 20
    
    
    
    15,369.7
    
    
    
    6,818.3
    
    
    
    213.4Payables to contractors and equipment suppliers
    
    
    
    
    
    
    7,998.8
    
    
    
    28,924.3
    
    
    
    905.3Accrued expenses and other current liabilities
    
    
    17, 24, 28
    
    
    
    7,540.0
    
    
    
    12,635.2
    
    
    
    395.5Current portion of bonds payable and bank loans
    
    
    15, 16, 24, 26
    
    
    
    8,222.4
    
    
    
    949.3
    
    
    
    29.7Total current liabilities
    
    
    
    
    
    
    56,806.8
    
    
    
    79,133.3
    
    
    
    2,476.7LONG-TERM LIABILITIESBonds payable
    
    
    15, 24
    
    
    
    4,500.0
    
    
    
    4,500.0
    
    
    
    140.8Long-term bank loans
    
    
    16, 24, 26
    
    
    
    1,420.5
    
    
    
    578.6
    
    
    
    18.1Other long-term payables
    
    
    17, 24, 28
    
    
    
    9,548.2
    
    
    
    5,602.4
    
    
    
    175.3Obligations under capital leases
    
    
    2, 24
    
    
    
    722.3
    
    
    
    707.5
    
    
    
    22.2Total long-term liabilities
    
    
    
    
    
    
    16,191.0
    
    
    
    11,388.5
    
    
    
    356.4OTHER LIABILITIESAccrued pension cost
    
    
    2, 18
    
    
    
    3,701.6
    
    
    
    3,797.0
    
    
    
    118.9Guarantee deposits
    
    
    28
    
    
    
    1,484.5
    
    
    
    1,006.0
    
    
    
    31.5Deferred credits
    
    
    2
    
    
    
    316.5
    
    
    
    185.7
    
    
    
    5.8Others
    
    
    
    
    
    
    43.7
    
    
    
    137.2
    
    
    
    4.3Total other liabilities
    
    
    
    
    
    
    5,546.3
    
    
    
    5,125.9
    
    
    
    160.5Total liabilities
    
    
    
    
    
    
    78,544.1
    
    
    
    95,647.7
    
    
    
    2,993.6COMMITMENTS AND CONTINGENCIES
    
    
    28EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENTCapital stock  NT$10 par value
    
    
    20, 22Authorized: 28,050,000 thousand sharesIssued:         25,625,437 thousand shares in 200825,902,706 thousand shares in 2009
    
    
    
    
    
    
    256,254.4
    
    
    
    259,027.1
    
    
    
    8,107.3Capital surplus
    
    
    2, 20
    
    
    
    49,875.2
    
    
    
    55,486.0
    
    
    
    1,736.7Retained earnings
    
    
    20
    
    
    
    170,053.7
    
    
    
    181,882.7
    
    
    
    5,692.7Unrealized gain/loss on financial instruments
    
    
    24
    
    
    
    (287.3
    )
    
    
    453.6
    
    
    
    14.2Cumulative translation adjustments
    
    
    
    
    
    
    481.1
    
    
    
    (1,766.7
    )
    
    
    (55.3
    )Equity attributable to shareholders of the parent
    
    
    
    
    
    
    476,377.1
    
    
    
    495,082.7
    
    
    
    15,495.6MINORITY INTEREST
    
    
    2
    
    
    
    3,995.4
    
    
    
    3,965.8
    
    
    
    124.1Total shareholders equity
    
    
    
    
    
    
    480,372.5
    
    
    
    499,048.5
    
    
    
    15,619.7TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    
    
    
    
    $
    558,916.6
    
    
    $
    594,696.2
    
    
    $
    18,613.3
   F-3




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##### Table of Contents



Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
 
 CONSOLIDATED STATEMENTS OF INCOME
(In Millions of New Taiwan or U.S. Dollars, Except Earnings Per Share that are in New Taiwan or U.S. Dollars)
 Year Ended December 31Notes
    
    2007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 3)NET SALES
    
    
    
    $
    322,630.6
    
    
    $
    333,157.7
    
    
    $
    295,742.2
    
    
    $
    9,256.4COST OF SALES
    
    4, 10, 25
    
    
    180,280.4
    
    
    
    191,408.1
    
    
    
    166,413.6
    
    
    
    5,208.6GROSS PROFIT
    
    
    
    
    142,350.2
    
    
    
    141,749.6
    
    
    
    129,328.6
    
    
    
    4,047.8OPERATING EXPENSESResearch and development
    
    
    
    
    17,946.3
    
    
    
    21,480.9
    
    
    
    21,593.4
    
    
    
    675.8General and administrative
    
    
    
    
    8,963.8
    
    
    
    11,096.6
    
    
    
    11,285.5
    
    
    
    353.2Marketing
    
    
    
    
    3,718.2
    
    
    
    4,736.7
    
    
    
    4,487.8
    
    
    
    140.5Total operating expenses
    
    
    
    
    30,628.3
    
    
    
    37,314.2
    
    
    
    37,366.7
    
    
    
    1,169.5INCOME FROM OPERATIONS
    
    
    
    
    111,721.9
    
    
    
    104,435.4
    
    
    
    91,961.9
    
    
    
    2,878.3NON-OPERATING INCOME AND GAINSInterest income
    
    2
    
    
    5,651.7
    
    
    
    5,373.8
    
    
    
    2,600.9
    
    
    
    81.4Settlement income
    
    28
    
    
    985.1
    
    
    
    951.2
    
    
    
    1,464.9
    
    
    
    45.9Valuation gain on financial instruments, net
    
    2, 6, 24
    
    
    63.0
    
    
    
    
    
    
    
    594.7
    
    
    
    18.6Technical service income
    
    25, 28
    
    
    590.4
    
    
    
    1,182.0
    
    
    
    367.0
    
    
    
    11.5Rental income
    
    25
    
    
    378.6
    
    
    
    166.3
    
    
    
    153.9
    
    
    
    4.8Gain on disposal of property, plant and equipment and other
assets
    
    2, 25
    
    
    91.2
    
    
    
    100.9
    
    
    
    114.0
    
    
    
    3.5Equity in earnings of equity method investees, net
    
    2, 11
    
    
    2,507.9
    
    
    
    701.5
    
    
    
    46.0
    
    
    
    1.4Gain on settlement and disposal of financial assets, net
    
    2, 24
    
    
    874.7
    
    
    
    721.0
    
    
    
    16.0
    
    
    
    0.5Subsidy income
    
    2
    
    
    364.3
    
    
    
    8.0
    
    
    
    9.0
    
    
    
    0.3Foreign exchange gain, net
    
    2
    
    
    80.9
    
    
    
    1,227.7
    
    
    
    
    
    
    
    Others
    
    25
    
    
    346.0
    
    
    
    389.0
    
    
    
    287.1
    
    
    
    9.0Total non-operating income and gains
    
    
    
    
    11,933.8
    
    
    
    10,821.4
    
    
    
    5,653.5
    
    
    
    176.9NON-OPERATING EXPENSES AND LOSSESImpairment of financial assets
    
    2, 7, 12, 24
    
    
    54.2
    
    
    
    1,560.1
    
    
    
    913.2
    
    
    
    28.6Foreign exchange loss, net
    
    2
    
    
    
    
    
    
    
    
    
    
    627.0
    
    
    
    19.6Interest expense
    
    
    
    
    842.2
    
    
    
    615.0
    
    
    
    391.5
    
    
    
    12.2Loss on disposal of property, plant and equipment
    
    2
    
    
    6.2
    
    
    
    0.6
    
    
    
    68.5
    
    
    
    2.1Valuation loss on financial instruments, net
    
    2, 6, 24
    
    
    
    
    
    
    1,081.0
    
    
    
    
    
    
    
    Loss on idle assets
    
    2
    
    
    
    
    
    
    210.5
    
    
    
    
    
    
    
    Provision for litigation loss
    
    
    
    
    1,008.6
    
    
    
    99.1
    
    
    
    
    
    
    
    Others
    
    
    
    
    102.5
    
    
    
    218.3
    
    
    
    152.6
    
    
    
    4.8Total non-operating expenses and losses
    
    
    
    
    2,013.7
    
    
    
    3,784.6
    
    
    
    2,152.8
    
    
    
    67.3INCOME BEFORE INCOME TAX
    
    
    
    
    121,642.0
    
    
    
    111,472.2
    
    
    
    95,462.6
    
    
    
    2,987.9INCOME TAX EXPENSE
    
    2, 19
    
    
    11,709.6
    
    
    
    10,949.0
    
    
    
    5,996.4
    
    
    
    187.7
  F-4




---



##### Table of Contents



Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
 CONSOLIDATED STATEMENTS OF INCOME
(In Millions of New Taiwan or U.S. Dollars, Except Earnings Per Share that are in New Taiwan or U.S. Dollars)
 Year Ended December 31Notes
    
    2007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 3)NET INCOME
    
    
    
    $
    109,932.4
    
    
    $
    100,523.2
    
    
    $
    89,466.2
    
    
    $
    2,800.2ATTRIBUTABLE TO:Shareholders of the parent
    
    
    
    $
    109,177.1
    
    
    $
    99,933.2
    
    
    $
    89,217.8
    
    
    $
    2,792.4Minority interests
    
    
    
    
    755.3
    
    
    
    590.0
    
    
    
    248.4
    
    
    
    7.8$
    109,932.4
    
    
    $
    100,523.2
    
    
    $
    89,466.2
    
    
    $
    2,800.2BASIC EARNINGS PER SHARE
    
    2, 23Before income tax
    
    
    
    $
    4.48
    
    
    $
    4.26
    
    
    $
    3.68
    
    
    $
    0.12After income tax
    
    
    
    $
    4.04
    
    
    $
    3.84
    
    
    $
    3.45
    
    
    $
    0.11DILUTED EARNINGS PER SHARE
    
    2, 23
    
    $
    4.47
    
    
    $
    4.23
    
    
    $
    3.67
    
    
    $
    0.12Before income tax
    
    
    
    $
    4.04
    
    
    $
    3.81
    
    
    $
    3.44
    
    
    $
    0.11After income taxBASIC EARNINGS PER EQUIVALENT ADS
    
    2Before income tax
    
    
    
    $
    22.38
    
    
    $
    21.28
    
    
    $
    18.42
    
    
    $
    0.58After income tax
    
    
    
    $
    20.21
    
    
    $
    19.19
    
    
    $
    17.27
    
    
    $
    0.54DILUTED EARNINGS PER EQUIVALENT ADS
    
    2Before income tax
    
    
    
    $
    22.37
    
    
    $
    21.13
    
    
    $
    18.37
    
    
    $
    0.57After income tax
    
    
    
    $
    20.20
    
    
    $
    19.05
    
    
    $
    17.21
    
    
    $
    0.54BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING (THOUSANDS)
    
    2, 23
    
    
    27,005,032
    
    
    
    26,039,186
    
    
    
    25,835,802DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING (THOUSANDS)
    
    2, 23
    
    
    27,026,254
    
    
    
    26,235,679
    
    
    
    25,913,603
  (With Deloitte & Touche audit report dated April 6, 2010)
    
    (Concluded)
 F-5




---



##### Table of Contents



Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(In Millions of New Taiwan Dollars, Except Dividends Per Share)
 Equity Attributable to Shareholders of the ParentCapital Stock
    
    
    
    
    
    
    
    
    
    
    Unrealized(NT$10 Par Value)
    
    
    
    
    
    
    
    
    
    
    Gain (Loss)
    
    
    Cumulative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Capital
    
    
    Retained
    
    
    on Financial
    
    
    Translation
    
    
    Treasury
    
    
    
    
    
    
    Minority
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Surplus
    
    
    Earnings
    
    
    Instruments
    
    
    Adjustments
    
    
    Stock
    
    
    Total
    
    
    Interests
    
    
    Equity(Thousands)
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$BALANCE, JANUARY 1, 2007
    
    
    25,829,688
    
    
    $
    258,296.9
    
    
    $
    54,107.5
    
    
    $
    197,124.5
    
    
    $
    561.6
    
    
    $
    (1,191.1
    )
    
    $
    (918.1
    )
    
    $
    507,981.3
    
    
    $
    1,156.8
    
    
    $
    509,138.1Appropriations of prior
years earningsProfit sharing to
employees  in cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,572.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,572.8
    )
    
    
    
    
    
    
    (4,572.8
    )Profit sharing to
employees  in stock
    
    
    457,280
    
    
    
    4,572.8
    
    
    
    
    
    
    
    (4,572.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash dividends to
shareholders  NT$3.00
per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77,489.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77,489.1
    )
    
    
    
    
    
    
    (77,489.1
    )Stock dividends to
shareholders  NT$0.02
per share
    
    
    51,659
    
    
    
    516.6
    
    
    
    
    
    
    
    (516.6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Bonus to directors and
supervisors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (285.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (285.8
    )
    
    
    
    
    
    
    (285.8
    )Capital surplus transferred
to capital stock
    
    
    77,489
    
    
    
    774.9
    
    
    
    (774.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income in 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109,177.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109,177.1
    
    
    
    755.3
    
    
    
    109,932.4Adjustment arising from
changes in percentage of
ownership in equity method
investees
    
    
    
    
    
    
    
    
    
    
    (28.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28.7
    )
    
    
    31.9
    
    
    
    3.2Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    118.2
    
    
    
    
    
    
    
    118.2
    
    
    
    (99.3
    )
    
    
    18.9Issuance of stock from
exercising employee stock
options
    
    
    10,988
    
    
    
    109.9
    
    
    
    327.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    436.9
    
    
    
    
    
    
    
    436.9Cash dividends received by
subsidiaries from TSMC
    
    
    
    
    
    
    
    
    
    
    101.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101.8
    
    
    
    
    
    
    
    101.8Valuation gain on
available-for-sale financial
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    241.8
    
    
    
    
    
    
    
    
    
    
    
    241.8
    
    
    
    19.5
    
    
    
    261.3Net change in unrealized gain
(loss) on financial
instruments from equity
method investees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (122.4
    )
    
    
    
    
    
    
    
    
    
    
    (122.4
    )
    
    
    
    
    
    
    (122.4
    )Treasury stock repurchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48,466.9
    )
    
    
    (48,466.9
    )
    
    
    
    
    
    
    (48,466.9
    )Increase in minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,729.9
    
    
    
    1,729.9BALANCE, DECEMBER 31, 2007
    
    
    26,427,104
    
    
    
    264,271.1
    
    
    
    53,732.7
    
    
    
    218,864.5
    
    
    
    681.0
    
    
    
    (1,072.9
    )
    
    
    (49,385.0
    )
    
    
    487,091.4
    
    
    
    3,594.1
    
    
    
    490,685.5Appropriations of prior
years earningsProfit sharing to
employees  in cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,939.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,939.9
    )
    
    
    
    
    
    
    (3,939.9
    )Profit sharing to
employees  in stock
    
    
    393,988
    
    
    
    3,939.9
    
    
    
    
    
    
    
    (3,939.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash dividends to
shareholders  NT$3.00
per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76,881.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76,881.3
    )
    
    
    
    
    
    
    (76,881.3
    )Stock dividends to
shareholders  NT$0.02
per share
    
    
    51,254
    
    
    
    512.5
    
    
    
    
    
    
    
    (512.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Bonus to directors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (176.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (176.9
    )
    
    
    
    
    
    
    (176.9
    )Capital surplus transferred
to capital stock
    
    
    76,881
    
    
    
    768.8
    
    
    
    (768.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income in 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99,933.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99,933.2
    
    
    
    590.0
    
    
    
    100,523.2Adjustment arising from
changes in percentage of
ownership in equity method
investees
    
    
    
    
    
    
    
    
    
    
    (137.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (137.1
    )
    
    
    11.8
    
    
    
    (125.3
    )Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,554.0
    
    
    
    
    
    
    
    1,554.0
    
    
    
    (68.8
    )
    
    
    1,485.2Issuance of stock from
exercising employee stock
options
    
    
    6,027
    
    
    
    60.3
    
    
    
    166.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    227.2
    
    
    
    
    
    
    
    227.2Cash dividends received by
subsidiaries from TSMC
    
    
    
    
    
    
    
    
    
    
    102.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102.3
    
    
    
    
    
    
    
    102.3Valuation loss on
available-for-sale financial
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (826.2
    )
    
    
    
    
    
    
    
    
    
    
    (826.2
    )
    
    
    (17.0
    )
    
    
    (843.2
    )Net change in unrealized gain
(loss) on financial
instruments from equity
method investees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (142.1
    )
    
    
    
    
    
    
    
    
    
    
    (142.1
    )
    
    
    
    
    
    
    (142.1
    )Treasury stock repurchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,427.5
    )
    
    
    (30,427.5
    )
    
    
    
    
    
    
    (30,427.5
    )Treasury stock retired
    
    
    (1,329,817
    )
    
    
    (13,298.2
    )
    
    
    (3,220.8
    )
    
    
    (63,293.5
    )
    
    
    
    
    
    
    
    
    
    
    79,812.5
    
    
    
    
    
    
    
    
    
    
    
    Decrease in minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (114.7
    )
    
    
    (114.7
    )BALANCE, DECEMBER 31, 2008
    
    
    25,625,437
    
    
    
    256,254.4
    
    
    
    49,875.2
    
    
    
    170,053.7
    
    
    
    (287.3
    )
    
    
    481.1
    
    
    
    
    
    
    
    476,377.1
    
    
    
    3,995.4
    
    
    
    480,372.5Appropriations of prior
years earningsCash dividends to
shareholders  NT$3.00
per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76,876.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76,876.3
    )
    
    
    
    
    
    
    (76,876.3
    )Stock dividends to
shareholders  NT$0.02
per share
    
    
    51,251
    
    
    
    512.5
    
    
    
    
    
    
    
    (512.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Profit
sharing to employees 
in stock
    
    
    141,870
    
    
    
    1,418.7
    
    
    
    6,076.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,495.0
    
    
    
    
    
    
    
    7,495.0Capital surplus transferred
to capital stock
    
    
    76,876
    
    
    
    768.8
    
    
    
    (768.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income in 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89,217.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89,217.8
    
    
    
    248.4
    
    
    
    89,466.2Adjustment arising from
changes in percentage of
ownership in equity method
investees
    
    
    
    
    
    
    
    
    
    
    115.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115.5
    
    
    
    (39.0
    )
    
    
    76.5Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,247.8
    )
    
    
    
    
    
    
    (2,247.8
    )
    
    
    39.8
    
    
    
    (2,208.0
    )Issuance of stock from
exercising employee stock
options
    
    
    7,272
    
    
    
    72.7
    
    
    
    187.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260.5
    
    
    
    
    
    
    
    260.5Valuation gain on
available-for-sale financial
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    622.5
    
    
    
    
    
    
    
    
    
    
    
    622.5
    
    
    
    6.0
    
    
    
    628.5Net change in unrealized gain
(loss) on financial
instruments from equity
method investees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    118.4
    
    
    
    
    
    
    
    
    
    
    
    118.4
    
    
    
    
    
    
    
    118.4Decrease in minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (284.8
    )
    
    
    (284.8
    )BALANCE, DECEMBER 31, 2009
    
    
    25,902,706
    
    
    $
    259,027.1
    
    
    $
    55,486.0
    
    
    $
    181,882.7
    
    
    $
    453.6
    
    
    $
    (1,766.7
    )
    
    $
    
    
    
    $
    495,082.7
    
    
    $
    3,965.8
    
    
    $
    499,048.5BALANCE, DECEMBER 31, 2009 (IN
MILLIONS OF US$  Note 3)
    
    
    
    
    
    $
    8,107.3
    
    
    $
    1,736.7
    
    
    $
    5,692.7
    
    
    $
    14.2
    
    
    $
    (55.3
    )
    
    $
    
    
    
    $
    15,495.6
    
    
    $
    124.1
    
    
    $
    15,619.7
    F-6




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##### Table of Contents



Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions of New Taiwan or U.S. Dollars)
 Year Ended December 312007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 3)CASH FLOWS FROM OPERATING ACTIVITIESNet income attributable to shareholders of the parent
    
    $
    109,177.1
    
    
    $
    99,933.2
    
    
    $
    89,217.8
    
    
    $
    2,792.4Net income attributable to minority interests
    
    
    755.3
    
    
    
    590.0
    
    
    
    248.4
    
    
    
    7.8Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    80,005.4
    
    
    
    81,512.2
    
    
    
    80,814.7
    
    
    
    2,529.4Amortization of premium/discount of financial assets
    
    
    (117.2
    )
    
    
    (93.4
    )
    
    
    21.5
    
    
    
    0.7Impairment of financial assets
    
    
    54.2
    
    
    
    1,560.1
    
    
    
    913.2
    
    
    
    28.6Loss (gain) on disposal of available-for-sale financial assets, net
    
    
    (610.2
    )
    
    
    (637.2
    )
    
    
    20.3
    
    
    
    0.6Gain on held-to-maturity financial assets redeemed by the issuer
    
    
    
    
    
    
    
    
    
    
    (16.1
    )
    
    
    (0.5
    )Gain on disposal of financial assets carried at cost, net
    
    
    (264.5
    )
    
    
    (83.8
    )
    
    
    (20.2
    )
    
    
    (0.6
    )Equity in earnings of equity method investees, net
    
    
    (2,507.9
    )
    
    
    (701.5
    )
    
    
    (46.0
    )
    
    
    (1.4
    )Dividends received from equity method investees
    
    
    625.1
    
    
    
    1,661.1
    
    
    
    1,239.5
    
    
    
    38.8Gain on disposal of property, plant and equipment and other assets,
net
    
    
    (85.0
    )
    
    
    (100.3
    )
    
    
    (45.5
    )
    
    
    (1.4
    )Loss on idle assets
    
    
    
    
    
    
    210.5
    
    
    
    
    
    
    
    Deferred income tax
    
    
    943.8
    
    
    
    2,279.4
    
    
    
    (1,752.4
    )
    
    
    (54.8
    )Changes in operating assets and liabilities:Decrease (increase) in:Financial assets and liabilities at fair value through profit or loss
    
    
    (187.1
    )
    
    
    1,412.6
    
    
    
    (215.6
    )
    
    
    (6.7
    )Receivables from related parties
    
    
    629.5
    
    
    
    10.5
    
    
    
    (12.1
    )
    
    
    (0.4
    )Notes and accounts receivable, net
    
    
    (10,977.0
    )
    
    
    23,916.7
    
    
    
    (16,873.2
    )
    
    
    (528.1
    )Other receivables from related parties
    
    
    13.2
    
    
    
    143.7
    
    
    
    (21.4
    )
    
    
    (0.7
    )Other financial assets
    
    
    842.1
    
    
    
    (426.0
    )
    
    
    7.9
    
    
    
    0.2Inventories
    
    
    (2,226.1
    )
    
    
    8,985.7
    
    
    
    (6,037.2
    )
    
    
    (189.0
    )Prepaid expenses and other current assets
    
    
    290.4
    
    
    
    (443.5
    )
    
    
    585.5
    
    
    
    18.3Increase (decrease) in:Accounts payable
    
    
    3,218.3
    
    
    
    (6,021.7
    )
    
    
    4,916.9
    
    
    
    153.9Payables to related parties
    
    
    (375.7
    )
    
    
    (1,013.5
    )
    
    
    293.1
    
    
    
    9.2Income tax payable
    
    
    3,179.7
    
    
    
    (1,794.3
    )
    
    
    (531.5
    )
    
    
    (16.6
    )Salary and bonus payable
    
    
    165.8
    
    
    
    (17.7
    )
    
    
    7,101.2
    
    
    
    222.3Accrued profit sharing to employees and bonus to directors and
supervisors
    
    
    
    
    
    
    15,369.7
    
    
    
    (1,056.4
    )
    
    
    (33.1
    )Accrued expenses and other current liabilities
    
    
    748.1
    
    
    
    (3,936.8
    )
    
    
    1,356.3
    
    
    
    42.4Accrued pension cost
    
    
    125.5
    
    
    
    36.1
    
    
    
    95.4
    
    
    
    3.0Deferred credits
    
    
    343.9
    
    
    
    (858.2
    )
    
    
    (237.7
    )
    
    
    (7.4
    )Net cash provided by operating activities
    
    
    183,766.7
    
    
    
    221,493.6
    
    
    
    159,966.4
    
    
    
    5,006.9CASH FLOWS FROM INVESTING ACTIVITIESAcquisitions of:Property, plant and equipment
    
    
    (84,001.0
    )
    
    
    (59,222.6
    )
    
    
    (87,784.9
    )
    
    
    (2,747.6
    )Available-for-sale financial assets
    
    
    (87,550.2
    )
    
    
    (85,273.9
    )
    
    
    (38,800.6
    )
    
    
    (1,214.4
    )Held-to-maturity financial assets
    
    
    
    
    
    
    (16,523.3
    )
    
    
    (12,224.4
    )
    
    
    (382.6
    )Investments accounted for using equity method
    
    
    (5,803.8
    )
    
    
    (55.9
    )
    
    
    (42.9
    )
    
    
    (1.3
    )Financial assets carried at cost
    
    
    (911.3
    )
    
    
    (463.2
    )
    
    
    (321.2
    )
    
    
    (10.1
    )Proceeds from disposal or redemption of:Available-for-sale financial assets
    
    
    94,908.7
    
    
    
    138,515.0
    
    
    
    36,040.0
    
    
    
    1,128.0Held-to-maturity financial assets
    
    
    17,325.1
    
    
    
    15,634.6
    
    
    
    7,944.8
    
    
    
    248.7Financial assets carried at cost
    
    
    410.5
    
    
    
    199.4
    
    
    
    131.1
    
    
    
    4.1Property, plant and equipment and other assets
    
    
    60.5
    
    
    
    194.9
    
    
    
    24.2
    
    
    
    0.8Proceeds from return of capital by investees
    
    
    
    
    
    
    2,345.9
    
    
    
    
    
    
    
    Increase in deferred charges
    
    
    (3,059.2
    )
    
    
    (3,395.3
    )
    
    
    (1,469.8
    )
    
    
    (46.0
    )Decrease (increase) in refundable deposits
    
    
    (1,434.9
    )
    
    
    10.6
    
    
    
    34.1
    
    
    
    1.0Net cash paid for acquisition of subsidiaries
    
    
    (404.4
    )
    
    
    
    
    
    
    
    
    
    
    Decrease (increase) in other assets
    
    
    (228.8
    )
    
    
    (8.1
    )
    
    
    1.2
    
    
    
    Net cash used in investing activities
    
    
    (70,688.8
    )
    
    
    (8,041.9
    )
    
    
    (96,468.4
    )
    
    
    (3,019.4
    )(Continued)
 F-7




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##### Table of Contents



Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions of New Taiwan or U.S. Dollars)
 Year Ended December 312007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 3)CASH FLOWS FROM FINANCING ACTIVITIESDecrease in short-term bank loans
    
    $
    (89.7
    )
    
    $
    
    
    
    $
    
    
    
    $
    Proceeds from long-term bank loans
    
    
    653.0
    
    
    
    98.4
    
    
    
    286.6
    
    
    
    9.0Repayments of:Long-term bank loans
    
    
    (196.2
    )
    
    
    (468.4
    )
    
    
    (378.7
    )
    
    
    (11.9
    )Bonds payable
    
    
    (7,000.0
    )
    
    
    
    
    
    
    (8,000.0
    )
    
    
    (250.4
    )Decrease in guarantee deposits
    
    
    (1,574.1
    )
    
    
    (758.5
    )
    
    
    (478.5
    )
    
    
    (15.0
    )Proceeds from exercise of employee stock options
    
    
    436.8
    
    
    
    227.2
    
    
    
    260.5
    
    
    
    8.1Cash dividends
    
    
    (77,387.3
    )
    
    
    (76,779.0
    )
    
    
    (76,876.3
    )
    
    
    (2,406.1
    )Profit sharing to employees in cash
    
    
    (4,572.8
    )
    
    
    (3,939.9
    )
    
    
    
    
    
    
    Bonus to directors
    
    
    (285.8
    )
    
    
    (176.9
    )
    
    
    
    
    
    
    Repurchase of treasury stock
    
    
    (45,413.4
    )
    
    
    (33,481.0
    )
    
    
    
    
    
    
    Increase (decrease) in minority interests
    
    
    19.0
    
    
    
    (114.7
    )
    
    
    (284.8
    )
    
    
    (8.9
    )Net cash used in financing activities
    
    
    (135,410.5
    )
    
    
    (115,392.8
    )
    
    
    (85,471.2
    )
    
    
    (2,675.2
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (22,332.6
    )
    
    
    98,058.9
    
    
    
    (21,973.2
    )
    
    
    (687.7
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
    
    
    (518.1
    )
    
    
    1,568.4
    
    
    
    (1,364.3
    )
    
    
    (42.7
    )CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    117,837.2
    
    
    
    94,986.5
    
    
    
    194,613.8
    
    
    
    6,091.2CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    94,986.5
    
    
    $
    194,613.8
    
    
    $
    171,276.3
    
    
    $
    5,360.8SUPPLEMENTAL INFORMATIONInterest paid
    
    $
    922.1
    
    
    $
    676.3
    
    
    $
    580.4
    
    
    $
    18.2Income tax paid
    
    $
    7,585.7
    
    
    $
    10,477.0
    
    
    $
    8,088.1
    
    
    $
    253.1INVESTING AND FINANCING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMSAcquisition of property, plant and equipment
    
    $
    78,890.0
    
    
    $
    60,978.5
    
    
    $
    109,151.2
    
    
    $
    3,416.3Decrease (increase) in payables to contractors and equipment suppliers
    
    
    5,111.0
    
    
    
    (1,742.1
    )
    
    
    (21,361.3
    )
    
    
    (668.6
    )Nonmonetary exchange trade-out price
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    Increase in obligations under capital leases
    
    
    
    
    
    
    (13.8
    )
    
    
    (4.2
    )
    
    
    (0.1
    )Cash paid
    
    $
    84,001.0
    
    
    $
    59,222.6
    
    
    $
    87,784.9
    
    
    $
    2,747.6Disposal of property, plant and equipment and other assets
    
    $
    60.5
    
    
    $
    194.9
    
    
    $
    25.0
    
    
    $
    0.8Nonmonetary exchange trade-out price
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    Cash received
    
    $
    60.5
    
    
    $
    194.9
    
    
    $
    24.2
    
    
    $
    0.8Repurchase of treasury stock
    
    $
    48,466.9
    
    
    $
    30,427.5
    
    
    $
    
    
    
    $
    Decrease (increase) in accrued expenses and other current liabilities
    
    
    (3,053.5
    )
    
    
    3,053.5
    
    
    
    
    
    
    
    Cash paid
    
    $
    45,413.4
    
    
    $
    33,481.0
    
    
    $
    
    
    
    $
    NON-CASH FINANCING ACTIVITIESCurrent portion of bonds payable and long-term bank loans
    
    $
    280.8
    
    
    $
    8,222.4
    
    
    $
    949.3
    
    
    $
    29.7Current portion of other long-term payables (under accrued expenses and
other current liabilities)
    
    $
    3,735.9
    
    
    $
    1,126.5
    
    
    $
    4,005.3
    
    
    $
    125.4(Continued)
 F-8




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##### Table of Contents



Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions of New Taiwan or U.S. Dollars)
  NT$Current assets
    
    $
    3,101.7Property, plant and equipment
    
    
    2,339.6Other assets
    
    
    436.7Current liabilities
    
    
    (1,937.4
    )Long-term liabilities
    
    
    (701.9
    )Net amount
    
    $
    3,238.7Purchase price for Xintec and Mutual-Pak
    
    $
    1,413.5Less: Cash balance of Xintec and Mutual-Pak at acquisition
    
    
    (1,009.1
    )Net cash paid for acquisition of Xintec and Mutual-Pak
    
    $
    404.4
  (With Deloitte & Touche audit report dated April 6, 2010)
    
    (Concluded)
 F-9




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##### Table of Contents



Taiwan Semiconductor Manufacturing Company Limited and Subsidiaries
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    GENERALTaiwan Semiconductor Manufacturing Company, Limited (TSMC), a Republic of China (R.O.C.)
corporation, was incorporated on February 21, 1987. TSMC is a dedicated foundry in the
semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing
and computer-aided designing of integrated circuits and other semiconductor devices and the
manufacturing of masks. On September 5, 1994, its shares were listed on the Taiwan Stock
Exchange (TSE). On October 8, 1997, TSMC listed some of its shares of stock on the New York
Stock Exchange (NYSE) in the form of American Depositary Shares (ADSs).2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe 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.Significant accounting policies are summarized as follows:Principles of ConsolidationThe 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.The consolidated entities were as follows:
 Percentage of OwnershipDecember 31Name of Investor
    
    Name of Investee
    
    2008
    
    2009
    
    RemarkTSMC
    
    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
    %
    
    Taiwan
Semiconductor
Manufacturing
Company Europe B.V.
(TSMC Europe)
    
    
    100
    %
    
    
    100
    %
    
    TSMC International
Investment Ltd.
(TSMC
International)
    
    
    100
    %
    
    
    
    
    
    In June 2009, TSMC
International was
merged into TSMC
Partners.TSMC Global Ltd.
(TSMC Global)
    
    
    100
    %
    
    
    100
    %
    
    TSMC China Company
Limited (TSMC
China)
    
    
    100
    %
    
    
    100
    %
    
    VentureTech
Alliance Fund III,
L.P. (VTAF III)
    
    
    98
    %
    
    
    98
    %
    
    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)
    
    
    36
    %
    
    
    35
    %
    
    TSMC has a
controlling
interest over the
financial,
operating and
personnel hiring
decisions of GUC.Xintec Inc. (Xintec)
    
    
    42
    %
    
    
    41
    %
    
    TSMC obtained three
out of five
director positions
and has a
controlling
interest in Xintec.
 F-10




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##### Table of Contents



Percentage of OwnershipDecember 31Name of Investor
    
    Name of Investee
    
    2008
    
    2009
    
    RemarkTSMC Partners
    
    TSMC Design Technology
Canada Inc. (TSMC Canada)
    
    
    100
    %
    
    
    100
    %
    
    TSMC Technology, Inc.
(TSMC Technology)
    
    
    
    
    
    
    100
    %
    
    Its previous
shareholder, TSMC
International, was
merged into TSMC
Partners in June
2009.TSMC Development, Inc.
(TSMC Development)
    
    
    
    
    
    
    100
    %
    
    Its previous
shareholder, TSMC
International, was
merged into TSMC
Partners in June
2009.InveStar Semiconductor
Development Fund, Inc.
(ISDF)
    
    
    
    
    
    
    97
    %
    
    Its previous
shareholder, TSMC
International, was
merged into TSMC
Partners in June
2009.InveStar Semiconductor
Development Fund, Inc.
(II) LDC. (ISDF II)
    
    
    
    
    
    
    97
    %
    
    Its previous
shareholder, TSMC
International, was
merged into TSMC
Partners in June
2009.TSMC Development
    
    WaferTech, LLC (WaferTech)
    
    
    99.9
    %
    
    
    99.9
    %
    
    VTAF III
    
    Mutual-Pak Technology
Co., Ltd. (Mutual-Pak)
    
    
    51
    %
    
    
    59
    %
    
    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
Corporation-NA (GUC-NA)
    
    
    100
    %
    
    
    100
    %
    
    Global Unichip Japan Co.,
Ltd. (GUC-Japan)
    
    
    100
    %
    
    
    100
    %
    
    Global Unichip Europe
B.V. (GUC-Europe)
    
    
    100
    %
    
    
    100
    %
    
    Global Unichip (BVI) Corp.
(GUC- BVI)
    
    
    
    
    
    
    100
    %
    
    Newly established
in February 2009.
  
 F-11




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##### Table of Contents



Use of Estimates
  Classification of Current and Noncurrent Assets and Liabilities
  Cash Equivalents
  Financial Assets/Liabilities at Fair Value Through Profit or Loss
   Available-for-sale Financial Assets
  F-12




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##### Table of Contents



Held-to-maturity Financial Assets
   Allowance for Doubtful Receivables
  Revenue Recognition and Allowance for Sales Returns and Others
   Inventories
  F-13




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##### Table of Contents



Investments Accounted for Using Equity Method
     Financial Assets Carried at Cost
   Property, Plant and Equipment, Assets Leased to Others and Idle Assets
  F-14




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##### Table of Contents



Intangible Assets
    Pension Costs
  Government Subsidies
  Income Tax
    F-15




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##### Table of Contents



Stock-based Compensation
  Profit Sharing to Employees and Bonus to Directors and Supervisors
  Treasury Stock
   Foreign-currency Transactions
   Translation of Foreign-currency Financial Statements
  Concentration of Credit Risk
  F-16




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##### Table of Contents



Fair Values of Financial InstrumentsThe carrying amount of cash equivalents approximates fair value due to the short period of time
to maturity. Fair values of investments in equity or debt securities and derivative financial
instruments are based on quoted market prices or pricing models using current market data.
Receivables, other financial assets, payables and short-term loans are financial instruments
with carrying amounts that approximate fair values. Fair value of long-term loans with floating
interest rates is their carrying amount. Fair value of long-term loans with fixed interest rates
is the present value of expected cash flows discounted using the interest rate the Company may
obtain for similar long-term loans. For the Companys investment portfolio without immediately
available market quotes, management believes that the carrying amount of the portfolio
approximates the fair value at December 31, 2008 and 2009.Earnings Per ShareEarnings per share is computed by dividing income attributable to shareholders of the parent by
the weighted-average number of shares outstanding in each year, which is retroactively adjusted
for stock dividends until 2008 and profit sharing to employees in stock until 2007. Earnings per
equivalent ADS is calculated by multiplying earnings per share by five (one ADS represents five
common shares)3.
    
    U.S. DOLLAR AMOUNTSThe Company maintains its accounts and expresses its consolidated
financial statements in New Taiwan dollars. For convenience only, U.S.
dollar amounts presented in the accompanying consolidated financial
statements have been translated from New Taiwan dollars at the noon
buying rate in The City of New York for cable transfers in New Taiwan
dollars as certified for customs purposes by the Federal Reserve Bank
of New York as of December 31, 2009, which was NT$31.95 to US$1.00.
The convenience translations should not be construed as
representations that the New Taiwan dollar amounts have been, could
have been, or could in the future be, converted into U.S. dollars at
this or any other rate of exchange.4.
    
    ACCOUNTING CHANGESEffect of Adopting the Newly Released and Revised R.O.C. SFASsEffective January 1, 2009, the Company adopted the newly revised Statement of Financial
Accounting Standards (SFAS) No. 10, Accounting for Inventories. The main revisions are (1)
inventories are stated at the lower of cost or net realizable value, and inventories are
written down to net realizable value on an item-by-item basis except when the grouping of
similar or related items is appropriate; (2) unallocated overheads are recognized as expenses
in the year in which they are incurred; and (3) abnormal cost, write-downs of inventories and
any reversal of write-downs are recorded as cost of sales for the year. Such a change in
accounting principle did not have significant effect on the Companys consolidated financial
statements as of and for the year ended December 31, 2009.Effective January 1, 2008, the Company adopted Interpretation 2007-052, Accounting for Bonuses
to Employees, Directors and Supervisors, issued in March 2007 by the ARDF, which requires
companies to record profit sharing to employees and bonus to directors and supervisors as an
expense rather than as an appropriation of earnings. The adoption of this interpretation
resulted in a decrease in net income and earnings per share (after income tax and retroactively
adjusted for the issuance of stock dividend) of NT$12,827.6 million and NT$0.49, respectively,
for the year ended December 31, 2008.Effective January 1, 2008, the Company adopted SFAS No. 39, Accounting for Share-based
Payment, which requires companies to record share-based payment transactions in the financial
statements at fair value. Such a change in accounting principle did not have any effect on the
Companys consolidated financial statements as of and for the year ended December 31, 2008.
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5.
    
    CASH AND CASH EQUIVALENTS
 December 312008
    
    
    2009NT$
    
    
    NT$(In Millions)Cash and deposits in banks
    
    $
    185,943.5
    
    
    $
    167,449.0Repurchase agreements collaterized by government bonds
    
    
    8,670.3
    
    
    
    3,359.8Agency bonds
    
    
    
    
    
    
    253.0Corporate issued notes
    
    
    
    
    
    
    160.1Corporate bonds
    
    
    
    
    
    
    54.4$
    194,613.8
    
    
    $
    171,276.3
 6.
    
    FINANCIAL ASSETS/LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
 December 312008
    
    
    2009NT$
    
    
    NT$(In Millions)Trading financial assetsForward exchange contracts
    
    $
    28.4
    
    
    $
    4.3Cross currency swap contracts
    
    
    14.0
    
    
    
    181.8Publicly traded stocks
    
    
    13.3
    
    
    
    $
    55.7
    
    
    $
    186.1Trading financial liabilitiesForward exchange contracts
    
    $
    35.8
    
    
    $
    Cross currency swap contracts
    
    
    49.4
    
    
    
    $
    85.2
    
    
    $
    
   Contract AmountMaturity Date
    
    (In Millions )December 31, 2008Sell US$/buy NT$
    
    January 2009 to February 2009
    
    US$138.9/NT$4,558.7Sell EUR/buy NT$
    
    January 2009
    
    EUR1.5/NT$63.2Sell RMB/buy US$
    
    January 2009 to April 2009
    
    RMB55.0/US$8.0Sell US$/buy JPY
    
    January 2009 to February 2009
    
    US$0.1/JPY11.8December 31, 2009Sell US$/buy NT$
    
    February 2010
    
   US$21.3/NT$686.8
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Outstanding cross currency swap contracts consisted of the following:
 Range ofContract Amount
    
    Range of
    
    Interest RatesMaturity Date
    
    (in Millions)
    
    Interest Rates Paid
    
    ReceivedDecember 31, 2008January 2009
    
    US$
    307.0/NT$10,061.2
    
    
    
    0.54%-5.00
    %
    
    
    0.00%-3.83
    %December 31, 2009January 2010 to February 2010
    
    US$
    750.0/NT$24,201.7
    
    
    
    0.24%-0.70
    %
    
    
    0.00%-0.38
    %
 For the years ended December 31, 2008 and 2009, changes in fair value related to derivative
financial instruments recognized in earnings was a net loss of NT$1,081.0 million and a net gain
of NT$594.7 million, respectively.7.
    
    AVAILABLE-FOR-SALE FINANCIAL ASSETS
 December 312008
    
    
    2009NT$
    
    
    NT$(In Millions)Corporate bonds
    
    $
    3,279.1
    
    
    $
    7,042.2Agency bonds
    
    
    5,696.5
    
    
    
    5,032.0Government bonds
    
    
    340.9
    
    
    
    2,341.8Publicly traded stocks
    
    
    279.9
    
    
    
    574.9Corporate issued notes
    
    
    
    
    
    
    303.4Money market funds
    
    
    1,000.1
    
    
    
    283.7Open-end mutual funds
    
    
    
    
    
    
    170.0Corporate issued asset-backed securities
    
    
    2,334.9
    
    
    
    12,931.4
    
    
    
    15,748.0Current portion
    
    
    (10,898.7
    )
    
    
    (14,389.9
    )$
    2,032.7
    
    
    $
    1,358.1
 For the years ended December 31, 2008 and 2009, the Company recognized impairment on
available-for-sale financial assets of NT$934.6 million and NT$201.3 million, respectively.8.
    
    HELD-TO-MATURITY FINANCIAL ASSETS
 December 312008
    
    
    2009NT$
    
    
    NT$(In Millions)Corporate bonds
    
    $
    18,158.7
    
    
    $
    15,120.0Structured time deposits
    
    
    1,643.0
    
    
    
    7,000.0Government bonds
    
    
    1,506.5
    
    
    
    3,378.021,308.2
    
    
    
    25,498.0Current portion
    
    
    (5,882.0
    )
    
    
    (9,944.8
    )$
    15,426.2
    
    
    $
    15,553.2
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Structured time deposits categorized as held-to-maturity financial assets consisted of the
following:
 Principal
    
    
    Interest
    
    
    Range ofAmount
    
    
    Receivable
    
    
    Interest Rates
    
    
    Maturity DateNT$
    
    
    NT$(In Millions)December 31, 2008Callable foreign deposits
    
    $
    1,643.0
    
    
    $
    0.7
    
    
    
    4.82%
    
    
    December 2011December 31, 2009Callable domestic deposits
    
    $
    7,000.0
    
    
    $
    4.3
    
    
    
    0.36%-0.95%
    
    
    July 2010 to August 2011
 As of December 31, 2008, the principal of the structured time deposits that resided in banks
located in Hong Kong amounted to US$50.0 million, which was called back in March 2009.9.
    
    RECEIVABLES, NET
 December 312008
    
    
    2009NT$
    
    
    NT$(In Millions)Notes receivable
    
    $
    5.9
    
    
    $
    44.1Accounts receivable
    
    
    25,017.4
    
    
    
    44,593.525,023.3
    
    
    
    44,637.6Allowance for doubtful receivables
    
    
    (455.7
    )
    
    
    (543.3
    )Allowance for sales returns and others
    
    
    (6,071.0
    )
    
    
    (8,724.5
    )(6,526.7
    )
    
    
    (9,267.8
    )$
    18,496.6
    
    
    $
    35,369.8
 Changes in the allowances are summarized as follows:
 Year Ended December 312007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$(In Millions)Allowance for doubtful receivablesBalance, beginning of year
    
    $
    749.9
    
    
    $
    701.8
    
    
    $
    455.7Provision
    
    
    3.0
    
    
    
    14.9
    
    
    
    331.5Write-off
    
    
    (51.1
    )
    
    
    (261.0
    )
    
    
    (243.9
    )Balance, end of year
    
    $
    701.8
    
    
    $
    455.7
    
    
    $
    543.3Allowance for sales returns and othersBalance, beginning of year
    
    $
    2,870.8
    
    
    $
    4,089.0
    
    
    $
    6,071.0Effect of inclusion of newly consolidated subsidiaries
    
    
    12.9
    
    
    
    
    
    
    
    Provision
    
    
    5,705.6
    
    
    
    8,825.7
    
    
    
    13,913.4Write-off
    
    
    (4,500.3
    )
    
    
    (6,843.7
    )
    
    
    (11,259.9
    )Balance, end of year
    
    $
    4,089.0
    
    
    $
    6,071.0
    
    
    $
    8,724.5
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10.
    
    INVENTORIES
 December 312008
    
    
    2009NT$
    
    
    NT$(In Millions)Finished goods
    
    $
    5,782.7
    
    
    $
    2,743.5Work in process
    
    
    7,606.6
    
    
    
    15,302.0Raw materials
    
    
    334.3
    
    
    
    1,541.6Supplies and spare parts
    
    
    1,153.0
    
    
    
    1,326.7$
    14,876.6
    
    
    $
    20,913.8
 Write-down of inventories to net realizable value in the amount of NT$1,660.9 million, and
reversal of inventories within the original write-down amount to net realizable value in the
amount of NT$428.2 million were included in the cost of sales for the years ended December 31,
2008 and 2009, respectively.11.
    
    INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD
 December 312008
    
    
    2009% of
    
    
    
    
    
    
    % ofCarrying
    
    
    Owner-
    
    
    Carrying
    
    
    Owner-Amount
    
    
    ship
    
    
    Amount
    
    
    shipNT$
    
    
    
    
    
    
    NT$(In Millions)
    
    
    
    
    
    
    (In Millions)Common stockVanguard International Semiconductor Corporation (VIS)
    
    $
    9,787.3
    
    
    
    37
    
    
    $
    9,365.2
    
    
    
    37Systems on Silicon Manufacturing Company Pte Ltd.
(SSMC)
    
    
    6,808.2
    
    
    
    39
    
    
    
    6,157.2
    
    
    
    39VisEra Holding Company (VisEra Holding)
    
    
    2,277.1
    
    
    
    49
    
    
    
    2,273.1
    
    
    
    49Mcube Inc. (Mcube)
    
    
    
    
    
    
    
    
    
    
    25.6
    
    
    
    70Aiconn Technology Corporation (Aiconn)
    
    
    34.6
    
    
    
    44
    
    
    
    18.1
    
    
    
    42Preferred stockMcube
    
    
    
    
    
    
    
    
    
    
    32.0
    
    
    
    10$
    18,907.2
    
    
    
    
    
    
    $
    17,871.2
 The Company will subscribe through a private placement for new shares of Motech Industries Inc.
(Motech) under a Share Subscription Agreement entered into on December 9, 2009. The total
consideration is approximately NT$6.2 billion (US$193 million). After the subscription of
shares, the Company will own 20% of the Motech shares. The transaction was approved by Motechs
Extraordinary General Shareholders Meeting on January 26, 2010.
 In September 2009, the Company acquired common stock and preferred stock of Mcube for NT$58.0
million. The Company took both ownership of stock and controlling power into consideration and
concluded that the Company did not have controlling interest over Mcube. Accordingly, the
Company applied equity method to account for this investment and the related equity in
earnings/losses.
 For the years ended December 31, 2007, 2008 and 2009, equity in earnings/losses of equity
method investees was a net gain of NT$2,507.9 million, NT$701.5 million and NT$46.0 million,
respectively. Related equity in earnings/losses of equity method investees were determined
based on the audited financial statements, except for Mcube for the year ended December 31,
2009. The Company believes that, had Mcubes financial statements been audited, any adjustments
arising would have had no material effect on the Companys consolidated financial statements.
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As of December 31, 2008 and 2009, fair values of publicly traded stocks in investments accounted
for using equity method (VIS) was NT$4,680.3 million and NT$10,114.4 million, respectively.
 Movements of the difference between the cost of investment and the Companys share in investees
net assets allocated to depreciable assets were as follows:
 Year Ended December 312007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$(In Millions)Balance, beginning of year
    
    $
    952.2
    
    
    $
    2,589.7
    
    
    $
    1,990.6Additions
    
    
    1,968.6
    
    
    
    
    
    
    
    Amortization
    
    
    (331.1
    )
    
    
    (599.1
    )
    
    
    (599.1
    )Balance, end of year
    
    $
    2,589.7
    
    
    $
    1,990.6
    
    
    $
    1,391.5
 As of December 31, 2008 and 2009, the ending balances of the aforementioned difference allocated
to goodwill were both NT$1,061.9 million.12.
    
    FINANCIAL ASSETS CARRIED AT COST
 December 312008
    
    
    2009NT$
    
    
    NT$(In Millions)Non-publicly traded stocks
    
    $
    3,453.4
    
    
    $
    2,899.6Mutual funds
    
    
    162.0
    
    
    
    163.4$
    3,615.4
    
    
    $
    3,063.0
 In August 2009, the common stock of Leadtrend Technology Corporation (Leadtrend) was listed
on the Taiwan Stock Exchange. Thus, the Company reclassified its investment in Leadtrend from
financial assets carried at cost to available-for-sale financial assets-noncurrent.
 For the years ended December 31, 2008 and 2009, the Company recognized impairment on financial
assets carried at cost of NT$625.5 million and NT$711.9 million, respectively.
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13.
    
    PROPERTY, PLANT AND EQUIPMENT
 December 312008
    
    
    2009NT$
    
    
    NT$(In Millions)CostLand and land improvements
    
    $
    953.9
    
    
    $
    934.1Buildings
    
    
    132,250.0
    
    
    
    142,294.6Machinery and equipment
    
    
    697,498.8
    
    
    
    775,653.5Office equipment
    
    
    12,430.8
    
    
    
    13,667.7Leased assets
    
    
    722.3
    
    
    
    714.4843,855.8
    
    
    
    933,264.3Advance payments and construction in progress
    
    
    18,605.9
    
    
    
    34,154.4862,461.7
    
    
    
    967,418.7Accumulated depreciationLand and land improvements
    
    
    295.9
    
    
    
    317.6Buildings
    
    
    72,681.7
    
    
    
    81,821.7Machinery and equipment
    
    
    535,962.3
    
    
    
    600,795.5Office equipment
    
    
    9,693.8
    
    
    
    10,589.3Leased assets
    
    
    182.6
    
    
    
    219.8618,816.3
    
    
    
    693,743.9Net
    
    $
    243,645.4
    
    
    $
    273,674.8
 Depreciation expense on property, plant and equipment was NT$77,171.3 million, NT$78,736.8
million and NT$78,662.4 million for the years ended December 31, 2007, 2008 and 2009,
respectively.
 The Company entered into agreements to lease buildings that qualify as capital leases. The term
of the leases ranged from December 2003 to December 2013. The future minimum lease payments as
of December 31, 2009 is NT$787.1million.
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##### Table of Contents



14.
    
    DEFERRED CHARGES, NET
 December 312008
    
    
    2009NT$
    
    
    NT$(In Millions)Technology license fees
    
    $
    4,125.2
    
    
    $
    3,230.6Software and system design costs
    
    
    1,801.8
    
    
    
    1,834.6Patent and others
    
    
    1,198.8
    
    
    
    1,393.4$
    7,125.8
    
    
    $
    6,458.6
 Amortization expense on deferred charges was NT$2,793.0 million, NT$2,716.3 million and
NT$2,130.4 million for the years ended December 31, 2007, 2008 and 2009, respectively.As of December 31, 2009, the Companys estimated aggregate amortization expense for each of
the five succeeding fiscal years and thereafter is as follows:
 AmountNT$Year
    
    (In Millions)2010
    
    $
    2,127.52011
    
    
    1,677.32012
    
    
    988.82013
    
    
    472.02014
    
    
    368.42015 and thereafter
    
    
    824.6$
    6,458.6
 15.
    
    BONDS PAYABLE
 December 312008
    
    
    2009NT$
    
    
    NT$(In Millions)Domestic unsecured bonds:Issued in January 2002 and repayable in 2009 and 2012 in two
installments, 2.75% and 3.00% interest payable annually, respectively
    
    $
    12,500.0
    
    
    $
    4,500.0Current portion
    
    
    (8,000.0
    )
    
    
    $
    4,500.0
    
    
    $
    4,500.0
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16.
    
    LONG-TERM BANK LOANS
 December 312008
    
    
    2009NT$
    
    
    NT$(In Millions)Secured loans:Repayable from August 2009 in 17 quarterly installments, annual
interest at 2.56%- 3.67% in 2008 and 0.67%-2.70% in 2009
    
    $
    728.4
    
    
    $
    788.3US$20.0 million, repayable in full in one lump sum payment in
November 2010, annual interest at 3.62% in 2008 and 0.68%-0.97% in 2009
    
    
    658.7
    
    
    
    640.9Repayable from December 2007 in 8 semi-annual installments,
annual interest at 2.42%- 3.23% in 2008 and 1.10%- 2.42% in 2009
    
    
    168.8
    
    
    
    98.7Repayable from May 2007 in 16 quarterly installments, fully repaid in
June 2009, annual interest at 2.42%-3.00%
    
    
    37.8
    
    
    
    Repayable from March 2007 in 12 quarterly installments, fully repaid in
June 2009, annual interest at 2.53%-3.21%
    
    
    32.5
    
    
    
    Repayable from April 2005 in 16 quarterly installments, annual interest
at 2.42%-3.00%
    
    
    9.0
    
    
    
    Repayable from February 2005 in 17 quarterly installments, annual
interest at 2.56%-3.15%
    
    
    7.7
    
    
    
    1,642.9
    
    
    
    1,527.9Current portion
    
    
    (222.4
    )
    
    
    (949.3
    )$
    1,420.5
    
    
    $
    578.6
 Pursuant to the loan agreements, financial ratios calculated based on annual audited financial
statements of TSMC China have to meet certain financial covenants. As of December 31, 2009, TSMC
China was not in compliance with part of the aforementioned financial covenants. However, this
did not have a significant effect on the Companys financial position. According to the terms of
Xintecs loan agreements, semi-annual and annual financial statements of Xintec must comply with
predetermined financial covenants. As of December 31, 2009, Xintec was in compliance with all
such financial covenants.As of December 31, 2009, future principal repayments for the long-term bank loans were as
follows:
 AmountNT$Year of Repayment
    
    (In Millions)2010
    
    $
    949.32011
    
    
    275.52012
    
    
    242.62013
    
    
    60.5$
    1,527.9
 17.
    
    OTHER LONG-TERM PAYABLES
 December 312008
    
    
    2009NT$
    
    
    NT$(In Millions)Payables for acquisition of property, plant and equipment (Note 28g)
    
    $
    8,579.7
    
    
    $
    8,355.4Payables for royalties
    
    
    2,095.0
    
    
    
    1,252.310,674.7
    
    
    
    9,607.7Current portion (classified under accrued expenses and other current
liabilities)
    
    
    (1,126.5
    )
    
    
    (4,005.3
    )$
    9,548.2
    
    
    $
    5,602.4
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##### Table of Contents



The payables for royalties were primarily attributable to several license arrangements that the
Company entered into for certain semiconductor-related patents.As of December 31, 2009, future payments for other long-term payables were as follows:
 AmountNT$Year of Payment
    
    (In Millions)2010
    
    $
    4,005.32011
    
    
    3,075.12012
    
    
    2,527.3$
    9,607.7
 18.
    
    PENSION PLANSThe pension mechanism under the Labor Pension Act is deemed a defined contribution plan.
Pursuant to the Act, TSMC, GUC, Xintec and Mutual-Pak have made monthly contributions equal to
6% of each employees monthly salary to employees pension accounts. Furthermore, TSMC North
America, TSMC China, TSMC Europe and TSMC Canada are required by local regulations to make
monthly contributions at certain percentages of the basic salary of their employees. Pursuant to
the aforementioned Act and local regulations, the Company recognized pension costs of NT$725.8
million, NT$779.6 million and NT$748.1 million (US$23.4 million) for the years ended December
31, 2007, 2008 and 2009, respectively.TSMC, GUC and Xintec have defined benefit plans under the Labor Standards Law that provide
benefits based on an employees service years and average monthly salary for the six-month
period prior to retirement. The aforementioned companies contribute an amount equal to 2% of
salaries paid each month to their respective pension funds (the Funds), which are administered
by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the name of the
committees in the Bank of Taiwan.TSMC, GUC, Xintec and Mutual-Pak use December 31 as the measurement date for their pension
plans.
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##### Table of Contents



Changes in projected benefit obligation and plan assets for the years ended December 31, 2007,
2008 and 2009 are summarized as follows:
 Year Ended December 312007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$(In Millions)Projected benefit obligationBalance, beginning of year
    
    $
    6,956.1
    
    
    $
    6,043.7
    
    
    $
    7,560.8Effect of inclusion of newly consolidated subsidiaries
    
    
    19.0
    
    
    
    
    
    
    
    Service cost
    
    
    184.2
    
    
    
    151.7
    
    
    
    166.5Interest cost
    
    
    156.4
    
    
    
    171.3
    
    
    
    150.6Plan amendments
    
    
    
    
    
    
    (173.7
    )
    
    
    Actuarial loss (gain)
    
    
    (1,257.0
    )
    
    
    1,396.8
    
    
    
    (1,282.3
    )Benefits paid
    
    
    (15.0
    )
    
    
    (29.0
    )
    
    
    (37.8
    )Balance, end of year
    
    $
    6,043.7
    
    
    $
    7,560.8
    
    
    $
    6,557.8Plan assetsBalance, beginning of year
    
    $
    1,958.6
    
    
    $
    2,239.0
    
    
    $
    2,487.6Effect of inclusion of newly consolidated subsidiaries
    
    
    17.0
    
    
    
    
    
    
    
    Actual return of plan assets
    
    
    69.0
    
    
    
    70.7
    
    
    
    17.6Employer contribution
    
    
    209.4
    
    
    
    206.9
    
    
    
    194.2Benefits paid
    
    
    (15.0
    )
    
    
    (29.0
    )
    
    
    (37.8
    )Balance, end of year
    
    $
    2,239.0
    
    
    $
    2,487.6
    
    
    $
    2,661.6
 Other information of defined benefit plans was as follows:
 a.
    
    Components of net periodic pension cost
 Year Ended December 312007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$(In Millions)Service cost
    
    $
    184.3
    
    
    $
    151.7
    
    
    $
    166.5Interest cost
    
    
    156.4
    
    
    
    171.3
    
    
    
    150.6Projected return on plan assets
    
    
    (51.3
    )
    
    
    (68.4
    )
    
    
    (57.3
    )Amortization
    
    
    35.8
    
    
    
    4.5
    
    
    
    29.9Net periodic pension cost
    
    $
    325.2
    
    
    $
    259.1
    
    
    $
    289.7
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b.
    
    Reconciliation of funded status of the plans and accrued pension cost at December 31,
2008 and 2009
 December 312008
    
    
    2009NT$
    
    
    NT$(In Millions)Benefit obligationVested benefit obligation
    
    $
    114.9
    
    
    $
    123.5Nonvested benefit obligation
    
    
    4,182.5
    
    
    
    3,790.6Accumulated benefit obligation
    
    
    4,297.4
    
    
    
    3,914.1Additional benefits based on future salaries
    
    
    3,263.4
    
    
    
    2,643.7Projected benefit obligation
    
    
    7,560.8
    
    
    
    6,557.8Fair value of plan assets
    
    
    (2,487.6
    )
    
    
    (2,661.6
    )Funded status
    
    
    5,073.2
    
    
    
    3,896.2Unrecognized net transition obligation
    
    
    (101.3
    )
    
    
    (92.8
    )Prior service cost
    
    
    169.2
    
    
    
    162.0Unrecognized net loss
    
    
    (1,439.5
    )
    
    
    (168.4
    )Accrued pension cost
    
    $
    3,701.6
    
    
    $
    3,797.0Vested benefit
    
    $
    126.3
    
    
    $
    135.5
 c.
    
    Actuarial assumptions at December 31, 2008 and 2009
 Discount rate used in determining present values
    
    
    2.00%-2.50
    %
    
    
    2.25
    %Future salary increase rate
    
    
    2.00%-3.00
    %
    
    
    3.00
    %Expected rate of return on plan assets
    
    
    2.25%-2.50
    %
    
    
    1.50%-2.00
    %
 d.
    
    Expected benefit payments
 AmountNT$Year
    
    (In Millions)2010
    
    $
    77.02011
    
    
    21.12012
    
    
    31.52013
    
    
    50.22014
    
    
    79.62015 and thereafter
    
    
    1,025.2
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e.
    
    TSMC, GUC and Xintec expect to make contributions to their pension funds in 2010 of
NT$177.6 million, NT$2.4 million and NT$1.9 million, respectively.
 Year Ended December 312007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$(In Millions)f.      Contributions to the Funds for the
year
    
    $
    209.4
    
    
    $
    206.9
    
    
    $
    194.2g.      Payments from the Funds for the year
    
    $
    15.0
    
    
    $
    29.0
    
    
    $
    37.8
 h.
    
    Plan assets allocation
 The government is responsible for the administration of all the defined benefit plans for
the companies in Taiwan under the Labor Standards Law. The government also sets investment
policies and strategies, determines investment allocation and selects investment managers.
As of December 31, 2008 and 2009, the asset allocation was primarily in cash, equity
securities and debt securities. Furthermore, under the Labor Standards Law, the rate of
return on assets shall not be less than the average interest rate on a two-year time deposit
published by the local banks and the government is responsible for any shortfall in the
event that the rate of return is less than the required rate of return. However, information
on how investment allocation decisions are made, inputs and valuation techniques used to
measure the fair value of plan assets, the effect of fair value measurements using
significant unobservable inputs on changes in plan assets for the period and significant
concentrations of risk within plan assets is not fully made available to the companies by
the government. Therefore, the Company is unable to provide the required fair value
disclosures related to pension plan assets.
 19.
    
    INCOME TAX
 a.
    
    Income tax expense consisted of:
 Year Ended December 312007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$(In Millions)CurrentDomestic
    
    $
    10,595.9
    
    
    $
    8,580.7
    
    
    $
    7,499.0Foreign
    
    
    170.6
    
    
    
    82.8
    
    
    
    258.610,766.5
    
    
    
    8,663.5
    
    
    
    7,757.6DeferredDomestic
    
    
    976.9
    
    
    
    2,307.2
    
    
    
    (1,700.6
    )Foreign
    
    
    (33.8
    )
    
    
    (21.7
    )
    
    
    (60.6
    )943.1
    
    
    
    2,285.5
    
    
    
    (1,761.2
    )Income tax expense
    
    $
    11,709.6
    
    
    $
    10,949.0
    
    
    $
    5,996.4
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b.
    
    A reconciliation of income tax expense based on income before income tax at statutory
rates and income tax currently payable was as follows:
 Year Ended December 312007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$(In Millions)Income tax expense based on income before income tax
statutory rates
    
    $
    30,829.4
    
    
    $
    27,970.4
    
    
    $
    24,182.9The effect of the following:Tax-exempt income
    
    
    (7,668.4
    )
    
    
    (9,670.5
    )
    
    
    (8,652.0
    )Temporary and permanent differences
    
    
    (150.9
    )
    
    
    2,122.8
    
    
    
    3,136.0Others
    
    
    
    
    
    
    44.1
    
    
    
    247.0Additional tax at 10% on unappropriated earnings
    
    
    2,710.9
    
    
    
    13.9
    
    
    
    30.7Net operating loss carryforwards used
    
    
    (814.1
    )
    
    
    (205.2
    )
    
    
    (66.1
    )Income tax credits used
    
    
    (13,899.6
    )
    
    
    (11,109.3
    )
    
    
    (9,984.6
    )Income tax currently payable
    
    $
    11,007.3
    
    
    $
    9,166.2
    
    
    $
    8,893.9
 c.
    
    Income tax expense consisted of the following:
 Year Ended December 312007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$(In Millions)Income tax currently payable
    
    $
    11,007.3
    
    
    $
    9,166.2
    
    
    $
    8,893.9Income tax adjustments on prior years
    
    
    4.4
    
    
    
    (707.3
    )
    
    
    (1,159.3
    )Other income tax adjustments
    
    
    (245.2
    )
    
    
    204.6
    
    
    
    23.0Net change in deferred income tax assetsInvestment tax credits
    
    
    5,122.5
    
    
    
    1,060.6
    
    
    
    (1,291.1
    )Net operating loss carryforwards
    
    
    841.5
    
    
    
    411.4
    
    
    
    59.9Temporary differences
    
    
    (800.4
    )
    
    
    (2,129.1
    )
    
    
    (1,042.3
    )Valuation allowance
    
    
    (4,220.5
    )
    
    
    2,942.6
    
    
    
    512.3Income tax expense
    
    $
    11,709.6
    
    
    $
    10,949.0
    
    
    $
    5,996.4
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##### Table of Contents



d.
    
    Net deferred income tax assets consisted of the following:
 December 312008
    
    
    2009NT$
    
    
    NT$(In Millions)Current deferred income tax assetsInvestment tax credits
    
    $
    2,885.7
    
    
    $
    3,304.1Temporary differencesAllowance for sales returns and others
    
    
    710.1
    
    
    
    814.5Others
    
    
    846.4
    
    
    
    665.6Valuation allowance
    
    
    (472.9
    )
    
    
    (413.9
    )$
    3,969.3
    
    
    $
    4,370.3Noncurrent deferred income tax assetsInvestment tax credits
    
    $
    11,311.9
    
    
    $
    12,184.6Net operating loss carryforwards
    
    
    3,589.0
    
    
    
    3,440.8Temporary differencesDepreciation
    
    
    (2,134.5
    )
    
    
    (1,573.0
    )Others
    
    
    506.2
    
    
    
    1,106.8Valuation allowance
    
    
    (6,635.7
    )
    
    
    (7,170.9
    )$
    6,636.9
    
    
    $
    7,988.3
 In May 2009, the amendment of Article 5 of the Income Tax Law of the Republic of China
announced that the income tax rate of profit-seeking enterprises will be reduced from 25% to
20%, and will be effective starting in 2010. TSMC and its domestic subsidiaries which are
subject to the Income Tax Law of the Republic of China had recalculated their deferred tax
assets in accordance with the amended Article and adjusted the resulting difference as an
income tax expense.
 As of December 31, 2009, the net operating loss carryforwards generated by WaferTech, TSMC
Development, Xintec and Mutual-Pak would expire on various dates through 2026.
 e.
    
    Integrated income tax information:The balance of the imputation credit account (ICA) of TSMC as of December 31, 2008 and 2009 was NT$521.6 million and
NT$369.3 million, respectively.The actual and estimated creditable ratios for distribution of TSMCs earnings of 2008 and 2009 were 9.10% and 0.35%,
respectively.The imputation credit allocated to the shareholders is based on its balance as of the date of dividend distribution. The
estimated creditable ratio may change when the actual distribution of imputation credit is made.f.
    
    All of TSMCs earnings generated prior to December 31, 1997 have been appropriated.
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g.
    
    As of December 31, 2009, investment tax credits of TSMC, GUC, Xintec and Mutual-Pak
consisted of the following:
 Total
    
    
    RemainingCreditable
    
    
    Creditable
    
    
    ExpiryLaw/Statute
    
    Item
    
    Amount
    
    
    Amount
    
    
    YearNT$
    
    
    NT$(In Millions)Statute for
Upgrading Industries
    
    Purchase of machinery and equipment
    
    $
    587.1
    
    
    $
    
    
    
    
    20091,331.2
    
    
    
    110.5
    
    
    
    20104,711.0
    
    
    
    66.3
    
    
    
    20113,464.9
    
    
    
    3,464.9
    
    
    
    20123,315.5
    
    
    
    3,315.5
    
    
    
    2013$
    13,409.7
    
    
    $
    6,957.2Statute for
Upgrading Industries
    
    Research and development expenditures
    
    $
    2,711.8
    
    
    $
    9.4
    
    
    
    20102,809.8
    
    
    
    2,090.3
    
    
    
    20112,968.2
    
    
    
    2,968.2
    
    
    
    20123,409.7
    
    
    
    3,409.7
    
    
    
    2013$
    11,899.5
    
    
    $
    8,477.6Statute for
Upgrading Industries
    
    Personnel training expenditures
    
    $
    23.9
    
    
    $
    0.8
    
    
    
    201020.1
    
    
    
    20.1
    
    
    
    201132.5
    
    
    
    32.5
    
    
    
    20120.5
    
    
    
    0.5
    
    
    
    2013$
    77.0
    
    
    $
    53.9Statute for
Upgrading Industries
    
    Investments in important technology-based enterprises
    
    $
    7.3
    
    
    $
    
    
    
    
    200979.8
    
    
    
    
    
    
    
    2010$
    87.1
    
    
    $
    
 h.
    
    The profits generated from the following projects of TSMC, GUC and Xintec are exempt
from income tax for a five-year period:
 Tax-Exemption PeriodConstruction
of Fab 14  Module A
    
    2006 to 2010Construction of Fab 12  Module B and expansion of Fab 14  Module A
    
    2007 to 2011Construction of Fab 14  Module B and expansion of Fab 12 and others
    
    2008 to 20122003 plant expansion of GUC
    
    2007 to 20112005 and 2006 plant expansion of GUC
    
    To be determined2003 plant expansion of Xintec
    
    2007 to 2011
 i.
    
    The tax authorities have examined income tax returns of TSMC through 2007. All
investment tax credit adjustments assessed by the tax authorities have been recognized
accordingly.
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##### Table of Contents



20.
    
    SHAREHOLDERS EQUITYCommon Stock, Capital Surplus and EarningsAs of December 31, 2009, 1,097,513 thousand ADSs of TSMC were
traded on the NYSE. The number of common shares represented by
the ADSs was 5,487,565 thousand (one ADS represents five common
shares).Capital surplus can only be used to offset a deficit under the
Company Law. However, the capital surplus generated from
donations and the excess of the issuance price over the par value
of capital stock (including the stock issued for new capital,
mergers, convertible bonds and the surplus from treasury stock
transactions) may be appropriated as stock dividends, which are
limited to a certain percentage of TSMCs paid-in capital. Also,
the capital surplus from long-term investment may not be used for
any purpose.Capital surplus consisted of the following:
 December 312008
    
    
    2009NT$
    
    
    NT$(In Millions)Additional paid-in capital
    
    $
    17,962.5
    
    
    $
    23,457.8From merger
    
    
    22,805.4
    
    
    
    22,805.4From convertible bonds
    
    
    8,893.2
    
    
    
    8,893.2From long-term investments
    
    
    214.1
    
    
    
    329.6$
    49,875.2
    
    
    $
    55,486.0
 As of December 31, 2008 and 2009, retained earnings consisted of:
 December 312008
    
    
    2009NT$
    
    
    NT$(In Millions)Unappropriated earnings
    
    $
    102,337.4
    
    
    $
    104,565.0Legal capital reserve
    
    
    67,324.4
    
    
    
    77,317.7Special capital reserve
    
    
    391.9
    
    
    
    $
    170,053.7
    
    
    $
    181,882.7
 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;
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c.
    
    Bonus to directors and profit sharing to employees of TSMC of not more than 0.3% and
not less than 1% of the remainder, respectively. Directors who also serve as executive
officers of TSMC are not entitled to receive the bonus to directors. TSMC may issue profit
sharing to employees in stock of an affiliated company meeting the conditions set by the
Board of Directors or, by the person duly authorized by the Board of Directors;d.
    
    Any balance left over shall be allocated according to the resolution of the
shareholders meeting.
 TSMCs Articles of Incorporation also provide that profits of TSMC may be distributed by way of
cash dividend and/or stock dividend. However, distribution of profits shall be made preferably
by way of cash dividend. Distribution of profits may also be made by way of stock dividend;
provided that the ratio for stock dividend shall not exceed 50% of the total distribution.Any appropriations of the profits are subject to shareholders approval in the following year.TSMC has recorded profit sharing to employees as a charge to earnings of approximately 15% and
7.5% of net income for the years ended December 2008 and 2009, respectively; bonuses to
directors were accrued with an estimate based on historical experience. If the actual amounts
subsequently resolved by the shareholders differ from the estimated amounts, the differences are
recorded in the year of shareholders resolution as a change in accounting estimate. If profit
sharing is resolved to be distributed to employees in stock, the number of shares is determined
by dividing the amount of profit sharing by the closing price (after considering the effect of
dividends) of the shares on the day preceding the shareholders meeting.TSMC no longer has supervisors since January 1, 2007. The required duties of supervisors are
being fulfilled by the Audit Committee.The appropriation for legal capital reserve shall be made until the reserve equals TSMCs
paid-in capital. The reserve may be used to offset a deficit, or be distributed as dividends and
bonuses for the portion in excess of 50% of the paid-in capital if TSMC has no unappropriated
earnings and the reserve balance has exceeded 50% of TSMCs paid-in capital. The Company Law
also prescribes that, when the reserve has reached 50% of TSMCs paid-in capital, up to 50% of
the reserve may be transferred to capital.A special capital reserve equivalent to the net debit balance of the other components of
shareholders equity (for example, cumulative translation adjustments and unrealized loss on
financial instruments, but excluding treasury stock) shall be made from unappropriated earnings
pursuant to existing regulations promulgated by the Securities and Futures Bureau (SFB). Any
special reserve appropriated may be reversed to the extent that the net debit balance reverses.The appropriations of earnings for 2007 and 2008 had been approved in TSMCs shareholders
meetings held on June 13, 2008 and June 10, 2009, respectively. The appropriations of earnings
of 2009 were approved by the Board of Directors on February 9, 2010. The appropriations of
earnings of 2009 have not yet been resolved by the shareholders. The appropriations and
dividends per share were as follows:
 Appropriations of Earnings
    
    
    Dividends Per ShareFor Fiscal
    
    
    For Fiscal
    
    
    For Fiscal
    
    
    For Fiscal
    
    
    For Fiscal
    
    
    For FiscalYear 2007
    
    
    Year 2008
    
    
    Year 2009
    
    
    Year 2007
    
    
    Year 2008
    
    
    Year 2009NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Millions)Legal capital reserve
    
    $
    10,917.7
    
    
    $
    9,993.3
    
    
    $
    8,921.8Special capital reserve
    
    
    (237.7
    )
    
    
    (391.9
    )
    
    
    1,313.1Profit sharing to employees  in cash
    
    
    3,939.9
    
    
    
    
    
    
    
    Profit sharing to employees  in stock
    
    
    3,939.9
    
    
    
    
    
    
    
    Cash dividends to shareholders
    
    
    76,881.3
    
    
    
    76,876.3
    
    
    
    77,708.1
    
    
    
    3.00
    
    
    
    3.00
    
    
    
    3.00Stock dividends to shareholders
    
    
    512.5
    
    
    
    512.5
    
    
    
    
    
    
    
    0.02
    
    
    
    0.02
    
    
    
    Bonus to directors
    
    
    176.9
    
    
    
    
    
    
    
    $
    96,130.5
    
    
    $
    86,990.2
    
    
    $
    87,943.0
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TSMCs profit sharing to employees and bonus to directors that will be paid in cash in the
amounts of NT$6,691.3 million and NT$67.7 million for the year ended December 31, 2009,
respectively, were resolved in the meeting of the Board of Directors held on February 9, 2010.
Such amounts were not materially different from the amounts that have been charged against
earnings for the year ended December 31, 2009.The 2009 earnings appropriations related to employee profit sharing and bonus to directors will
be resolved by the shareholders. TSMCs annual shareholders meeting is scheduled for June 15,
2010.TSMCs profit sharing to employees that have been paid in cash and in stock as well as bonus to
directors in the amounts of NT$7,495.0 million, NT$7,495.0 million and NT$158.1 million for 2008,
respectively, had been approved in the shareholders meeting held on June 10, 2009. The profit
sharing to employee in stock of 141.9 million shares was determined by the closing price of
TSMCs common shares (after considering the effect of dividends) of the day immediately preceding
the shareholders meeting, which was NT$52.83. The resolved amounts of the profit sharing to
employees and bonus to directors were consistent with the resolutions of meeting of the Board of
Directors held on February 10, 2009 and same amount had been charged against earnings of 2008.TSMCs shareholders meeting held on June 10, 2009 also resolved to distribute stock dividends out
of capital surplus, and stock dividends to shareholders as well as profit sharing to employees to
be paid in stock in the amount of NT$768.8 million, NT$512.5 million and NT$7,495.0 million,
respectively. The aforementioned capital increase had taken effect on July 21, 2009.The amount of the appropriations of earnings for 2007 was consistent with the resolutions of the
meetings of the Board of Directors held on February 19, 2008. If the above bonus to employees,
directors and supervisors had been paid entirely in cash and charged to earnings of 2007, the
basic earnings per share (after income tax) for the year ended December 31, 2007 shown in the
respective financial statements would have decreased from NT$4.56 to NT$4.93. The shares
distributed as a bonus to employees represented 1.49% of TSMCs total outstanding common shares
as of December 31, 2007.The information about the appropriations of profit sharing to employees, directors and
supervisors 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
TSMC on earnings generated since January 1, 1998.
 21.
    
    STOCK-BASED COMPENSATION PLANSTSMCs Employee Stock Option Plans, consisting of the TSMC 2002 Plan,
TSMC 2003 Plan, and TSMC 2004 Plan, were approved by the SFB on June
25, 2002, October 29, 2003 and January 6, 2005, respectively. The
maximum number of options authorized to be granted under the TSMC 2002
Plan, TSMC 2003 Plan and TSMC 2004 Plan was 100,000 thousand, 120,000
thousand and 11,000 thousand, respectively, with each option eligible
to subscribe for one common share of TSMC when exercisable. The
options may be granted to qualified employees of TSMC or any of its
domestic or foreign subsidiaries, in which TSMCs shareholding with
voting rights, directly or indirectly, is more than fifty percent
(50%). The options of all the plans are valid for ten years and
exercisable at certain percentages subsequent to the second
anniversary of the grant date. Under the terms of the plans, the
options are granted at an exercise price equal to the closing price of
TSMCs common shares listed on the TSE on the grant date.Options of the aforementioned plans that had never been granted or had
been granted but subsequently canceled had expired as of December 31,
2009.
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##### Table of Contents



Information about TSMCs outstanding stock options for the years ended
December 31, 2007, 2008 and 2009 was as follows:
 Weighted- averageNumber of Options
    
    Exercise Price(In Thousands)
    
    (NT$)Year ended December 31, 2007Balance, beginning of year
    
    
    52,814
    
    
    $
    37.9Options granted
    
    
    1,094
    
    
    
    37.9Options exercised
    
    
    (10,988
    )
    
    
    39.8Options canceled
    
    
    (1,045
    )
    
    
    45.9Balance, end of year
    
    
    41,875
    
    
    
    37.4Year ended December 31, 2008Balance, beginning of year
    
    
    41,875
    
    
    $
    35.6Options granted
    
    
    767
    
    
    
    35.2Options exercised
    
    
    (6,027
    )
    
    
    37.7Options canceled
    
    
    (381
    )
    
    
    46.5Balance, end of year
    
    
    36,234
    
    
    
    35.3Year ended December 31, 2009Balance, beginning of year
    
    
    36,234
    
    
    $
    34.0Options granted
    
    
    175
    
    
    
    34.0Options exercised
    
    
    (7,272
    )
    
    
    35.8Options canceled
    
    
    (327
    )
    
    
    46.5Balance, end of year
    
    
    28,810
    
    
    
    33.5
 The number of outstanding options and exercise prices had been adjusted to reflect the
distribution of earnings by TSMC in accordance with the plans. The options granted were the
result of the aforementioned adjustment.As of December 31, 2009, information about TSMCs outstanding options was as follows:
 Options OutstandingWeighted-averageRange of Exercise
    
    Number of Options
    
    Remaining Contractual
    
    Weighted- averagePrice (NT$)
    
    (in Thousands)
    
    Life (Years)
    
    Exercise Price (NT$)$22.8-$32.0
    
    
    21,179
    
    
    
    3.18
    
    
    $
    29.138.0 - 50.1
    
    
    7,631
    
    
    
    4.88
    
    
    
    45.528,810
    
    
    
    3.63
    
    
    
    33.5
 As of December 31, 2009, all of the above outstanding options were exercisable.GUCs Employee Stock Option Plans, consisting of the GUC 2002 Plan and GUC 2003 Plan, were
approved by its Board of Directors on July 1, 2002 and January 23, 2003, respectively. The
maximum number of options authorized to be granted under the GUC 2002 Plan and GUC 2003 Plan was
5,000 and 7,535, respectively, with each option eligible to subscribe for one thousand common
shares of GUC when exercisable. The options may be granted to qualified employees of GUC. The
options of all the plans are valid for six years and exercisable at certain percentages
subsequent to the second anniversary of the grant date.
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Moreover, the GUC 2004 Plan, GUC 2006 Plan, and GUC 2007 Plan were approved by the SFB on August
16, 2004, July 3, 2006, and November 28, 2007 to grant a maximum of 2,500 options, 3,665 options
and 1,999 options, respectively, with each option eligible to subscribe for one thousand common shares of
GUC when exercisable. The options may be granted to qualified employees of GUC or any of its
subsidiaries. Except for the options of the GUC 2006 Plan which are valid until August 15, 2011,
the options of the other two GUC option Plans are valid for six years. Options of all three Plans
are exercisable at certain percentages subsequent to the second anniversary of the grant date.
 Information about GUCs outstanding stock options for the years ended December 31, 2007, 2008
and 2009 was as follows:
 Weighted-averageExercise PricesNumber of Options
    
    (NT$)Year ended December 31, 2007Balance, beginning of year
    
    
    7,342
    
    
    $
    14.0Options granted
    
    
    2,053
    
    
    
    183.6Options exercised
    
    
    (1,563
    )
    
    
    10.2Options canceled
    
    
    (234
    )
    
    
    13.5Balance, end of year
    
    
    7,598
    
    
    
    60.3Year ended December 31, 2008Balance, beginning of year
    
    
    7,598
    
    
    $
    60.3Options granted
    
    
    284
    
    
    
    14.8Options exercised
    
    
    (2,115
    )
    
    
    14.0Options canceled
    
    
    (210
    )
    
    
    168.4Balance, end of year
    
    
    5,557
    
    
    
    66.6Year ended December 31, 2009Balance, beginning of year
    
    
    5,557
    
    
    $
    63.9Options granted
    
    
    87
    
    
    
    13.8Options exercised
    
    
    (1,475
    )
    
    
    11.0Options canceled
    
    
    (359
    )
    
    
    63.4Balance, end of year
    
    
    3,810
    
    
    
    83.5
 The number of outstanding options and exercise prices have been adjusted to reflect the
appropriation of earnings by GUC in accordance with the plans. The options granted were the
result of the aforementioned adjustment.As of December 31, 2009, information about GUCs outstanding and exercisable options was as
follows:
 Options Outstanding
    
    Options ExercisableWeighted-Range of
    
    
    
    
    
    Weighted-average
    
    average
    
    
    
    
    
    Weighted-averageExercise Price
    
    Number of
    
    Remaining Contractual
    
    Exercise Price
    
    Number of
    
    Exercise Price(NT$)
    
    Options
    
    Life (Years)
    
    (NT$)
    
    Options
    
    (NT$)$8.4
    
    
    374
    
    
    
    1.00
    
    
    $
    8.4
    
    
    
    374
    
    
    $
    8.415.5
    
    
    1,796
    
    
    
    1.67
    
    
    
    15.5
    
    
    
    154
    
    
    
    15.5175.0
    
    
    1,640
    
    
    
    4.00
    
    
    
    175.0
    
    
    
    
    
    
    
    3,810
    
    
    
    2.61
    
    
    
    83.5
    
    
    
    528
    
    
    
    10.5
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Xintecs Employee Stock Option Plans, consisting of the Xintec 2006 Plan and Xintec 2007 Plan,
were approved by the SFB on July 3, 2006 and June 26, 2007, respectively. The maximum number of
options authorized to be granted under the Xintec 2006 Plan and Xintec 2007 Plan was 6,000 thousand
each, with each option eligible to subscribe for one common share of Xintec when exercisable.
The options may be granted to qualified employees of Xintec or any of its subsidiaries. The
options of all the plans are valid for ten years and exercisable at certain percentages
subsequent to the second anniversary of the grant date.
 Information about Xintecs outstanding options for the years ended December 31, 2007, 2008 and
2009 was as follows:
 Weighted-Number of
    
    averageOptions
    
    Exercise(in Thousands)
    
    Price (NT$)Year ended December 31, 2007Balance, beginning of year
    
    
    4,968
    
    
    $
    13.0Options granted
    
    
    5,555
    
    
    
    17.3Options canceled
    
    
    (881
    )
    
    
    14.1Balance, end of year
    
    
    9,642
    
    
    
    15.1Year ended December 31, 2008Balance, beginning of year
    
    
    9,642
    
    
    $
    15.1Options granted
    
    
    (728
    )
    
    
    12.4Options canceled
    
    
    (1,472
    )
    
    
    15.5Balance, end of year
    
    
    7,442
    
    
    
    14.8Year ended December 31, 2009Balance, beginning of year
    
    
    7,442
    
    
    $
    14.8Options granted
    
    
    (2,552
    )
    
    
    13.5Options canceled
    
    
    (930
    )
    
    
    17.1Balance, end of year
    
    
    3,960
    
    
    
    14.7
 The exercise prices have been adjusted to reflect the appropriation of earnings by Xintec in
accordance with the plans.As of December 31, 2009, information about Xintecs outstanding and exercisable options was as
follows:
 Options Outstanding
    
    Options ExercisableWeighted-average
    
    Weighted-
    
    
    
    
    
    Weighted-Range of
    
    Number of
    
    Remaining
    
    average
    
    Number of
    
    averageExercise
    
    Options (in
    
    Contractual
    
    Exercise
    
    Options (in
    
    ExercisePrice (NT$)
    
    Thousands)
    
    Life (Years)
    
    Price (NT$)
    
    Thousands)
    
    Price (NT$)$12.2-$14.1
    
    
    2,092
    
    
    
    6.79
    
    
    $
    12.5
    
    
    
    904
    
    
    $
    12.515.2-  19.2
    
    
    1,868
    
    
    
    7.68
    
    
    
    17.2
    
    
    
    550
    
    
    
    17.23,960
    
    
    
    7.21
    
    
    
    14.7
    
    
    
    1,454
    
    
    
    14.4
 The requisite service period under the TSMC 2002 Plan, 2003 Plan, and 2004 Plan is 4 years,
which is the same as the vesting period. Based on the vesting schedule, 50% of the options vest
two years after the date of grant, 25% of the options vest three years after the date of grant,
and the remaining 25% of the options vest four years after the date of grant. If employment is
terminated voluntarily by an employee or by the Company, any vested options must be exercised
within three months of the employment termination date. For the GUC 2002 Plan, 2003 Plan, 2004
Plan, 2006 Plan and 2007 Plan, the requisite service period is also four years,
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which is the same as the vesting period. Based on the vesting schedule, 50% of the options vest
two years after the date of grant and 50% of the options vest four years after the date of
grant. If employment is terminated voluntarily by an employee or by the Company, any vested
options must be exercised within three days of the employment termination date. For the Xintec
2006 Plan and 2007 Plan, the requisite service period is also 4 years, with 50% of the options
vested two years after the date of grant, 25% of the options vested three years after the date
of grant, and the remaining 25% of the options vested four years after the date of grant. If
employment is terminated voluntarily by an employee or by the Company, any vested options must
be exercised within three months of the employment termination date.
 No compensation cost was recognized under the intrinsic value method for the years ended
December 31, 2007, 2008 and 2009. Had the Company used the fair value based method to evaluate
the options using the Black-Scholes model, the assumptions and pro forma results of the Company
for the years ended December 31, 2007, 2008 and 2009 would have been as follows:
 Year Ended December 312007
    
    2008
    
    2009Assumptions:TSMC
    
    Weighted average fair value of grants
    
    
    
    
    
    Expected dividend yield
    
    1.00%-3.44%
    
    1.00%-3.44%
    
    1.00%-3.44%Expected volatility
    
    43.77%-46.15%
    
    43.77%-46.15%
    
    43.77%-46.15%Risk free interest rate
    
    3.07%-3.85%
    
    3.07%-3.85%
    
    3.07%-3.85%Expected life
    
    5 years
    
    5 years
    
    5 yearsGUC
    
    Weighted average fair value of grants
    
    63.74
    
    
    
    Expected dividend yield
    
    0.00%-0.60%
    
    0.00%-0.60%
    
    0.00%-0.60%Expected volatility
    
    22.65%-45.47%
    
    22.65%-45.47%
    
    22.65%-45.47%Risk free interest rate
    
    2.12%-2.56%
    
    2.12%-2.56%
    
    2.12%-2.56%Expected life
    
    3-6 years
    
    3-6 years
    
    3-6 yearsXintec
    
    Weighted average fair value of grants
    
    2.84
    
    
    
    Expected dividend yield
    
    0.80%
    
    0.80%
    
    0.80%Expected volatility
    
    31.79%-47.42%
    
    31.79%-47.42%
    
    31.79%-47.42%Risk free interest rate
    
    1.88%-2.45%
    
    1.88%-2.45%
    
    1.88%-2.45%Expected life
    
    3 years
    
    3 years
    
    3 years
 Year Ended December 312007
    
    2008
    
    2009NT$
    
    NT$
    
    NT$(In Millions)Net income attributable to shareholders of the parent:As reported
    
    $
    109,177.1
    
    
    $
    99,933.2
    
    
    $
    89,217.8Pro forma
    
    
    109,054.9
    
    
    
    100,037.6
    
    
    
    88,838.2Earnings per share (EPS)  after income tax (NT$):Basic EPS as reported
    
    $
    4.04
    
    
    $
    3.84
    
    
    $
    3.45Pro forma basic EPS
    
    
    4.04
    
    
    
    3.84
    
    
    
    3.44Diluted EPS as reported
    
    
    4.04
    
    
    
    3.81
    
    
    
    3.44Pro forma diluted EPS
    
    
    4.04
    
    
    
    3.81
    
    
    
    3.43
 The expected volatility is determined based on the historical stock price trends. The expected
life computation is based on business environment and the option plan itself. The risk-free
interest rate for periods within the contractual life of the option is based on the treasury
yield curve in effect at the time of grant. The dividend yield is based on the anticipated
future cash dividends yield at the time of grant.
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22.
    
    TREASURY STOCK
 (Shares in Thousands)
 Beginning
    
    
    
    
    
    Stock
    
    
    
    
    
    EndingShares
    
    Addition
    
    Dividends
    
    Retirement
    
    SharesYear ended December 31, 2008Parent company stock held by subsidiaries
    
    
    34,096
    
    
    
    
    
    
    
    171
    
    
    
    34,267
    
    
    
    Repurchase under share buyback plan
    
    
    800,000
    
    
    
    495,549
    
    
    
    
    
    
    
    1,295,549
    
    
    
    834,096
    
    
    
    495,549
    
    
    
    171
    
    
    
    1,329,816
    
    
    
    
 TSMC held a meeting of the Board of Directors on November 13, 2007 and approved a share buyback
plan to repurchase the TSMCs common shares up to 800,000 thousand shares listed on the TSE
during the period from November 14, 2007 to January 13, 2008 for the buyback price in the range
from NT$43.2 to NT$94.2. TSMC had repurchased 800,000 thousand common shares. All the treasury
stock repurchased under this share buyback plan was retired on February 2008.TSMC held a meeting of the Board of Directors on May 13, 2008 and approved a share buyback plan
to repurchase the TSMCs common shares up to 500,000 thousand shares listed on the TSE during
the period from May 14, 2008 to July 13, 2008 for the buyback price in the range from NT$48.25
to NT$100.50. TSMC had repurchased 216,674 thousand common shares. All the treasury stock
repurchased under this share buyback plan was retired on August 2008.TSMC held a meeting of the Board of Directors on August 12, 2008 and approved a share buyback
plan to repurchase the TSMCs common shares up to 283,000 thousand shares listed on the TSE
during the period from August 13, 2008 to October 12, 2008 for the buyback price in the range
from NT$42.85 to NT$86.20. TSMC had repurchased 278,875 thousand common shares. All the treasury
stock repurchased under this share buyback plan was retired in November 2008.TSMC merged Chi Cherng and Hsin Ruey in the third quarter of 2008. TSMCs common shares held by
Chi Cherng and Hsin Ruey in the number of 34,267 thousand shares were retired on August 2008.
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23.
    
    EARNINGS PER SHARE
 Amounts (Numerator)
    
    
    
    
    
    
    EPSBefore
    
    
    After
    
    
    Number of
    
    
    Before
    
    
    AfterIncome Tax
    
    
    Income Tax
    
    
    Shares
    
    
    Income
    
    
    IncomeNT$
    
    
    NT$
    
    
    (Denominator)
    
    
    Tax
    
    
    Tax(In Millions)
    
    
    (In Thousands)
    
    
    NT$
    
    
    NT$Year ended December 31, 2007Basic EPSEarnings available to common shareholders of the
parent
    
    $
    120,890.7
    
    
    $
    109,177.1
    
    
    
    27,005,032
    
    
    $
    4.48
    
    
    $
    4.04Effect of dilutive potential common stocks
    
    
    
    
    
    
    
    
    
    
    21,222Diluted EPSEarnings available to common shareholders of the
parent
(including effect of dilutive potential common stocks)
    
    $
    120,890.7
    
    
    $
    109,177.1
    
    
    
    27,026,254
    
    
    $
    4.47
    
    
    $
    4.04Year ended December 31, 2008Basic EPSEarnings available to common shareholders of the
parent
    
    $
    110,847.8
    
    
    $
    99,933.2
    
    
    
    26,039,186
    
    
    $
    4.26
    
    
    $
    3.84Effect of dilutive potential common shares
    
    
    
    
    
    
    
    
    
    
    196,493Diluted EPSEarnings available to common shareholders of the
parent
(including effect of dilutive potential common stocks)
    
    $
    110,847.8
    
    
    $
    99,933.2
    
    
    
    26,235,679
    
    
    $
    4.23
    
    
    $
    3.81Year ended December 31, 2009Basic EPSEarnings available to common shareholders of the
parent
    
    $
    95,189.8
    
    
    $
    89,217.8
    
    
    
    25,835,802
    
    
    $
    3.68
    
    
    $
    3.45Effect of dilutive potential common shares
    
    
    
    
    
    
    
    
    
    
    77,801Diluted EPSEarnings available to common shareholders of the
parent
(including effect of dilutive potential common stocks)
    
    $
    95,189.8
    
    
    $
    89,217.8
    
    
    
    25,913,603
    
    
    $
    3.67
    
    
    $
    3.44
 As discussed in Note 4, effective January 1, 2008, the Company adopted Interpretation
2007-052 that requires companies to record profit sharing to employees as an expense rather than
as an appropriation of earnings. If the Company may settle the obligation by cash, by issuing shares, or in combination of both cash and shares, profit sharing to employees which will be
settled in shares should be included in the weighted average number of shares outstanding in
calculation of diluted EPS, if the shares have a dilutive effect. The number of shares is
estimated by dividing the amount of profit sharing to employees in stock by the closing price
(after considering the dilutive effect of dividends) of the common shares on the balance sheet
date. Such dilutive effect of the potential shares needs to be included in the calculation of
diluted EPS until the shares of profit sharing to employees are resolved in the shareholders
meeting in the following year.The average number of shares outstanding for EPS calculation has been retroactively adjusted for
stock dividends until 2008 and profit sharing to employees in stock until 2007. This adjustment
caused each of the basic after income tax EPS for the year ended December 31, 2007 and 2008 to
decrease from NT$4.14 to NT$4.04 and NT$3.86 to NT$3.84, respectively. This adjustment caused
diluted after income tax EPS for the year ended December 31, 2007 and 2008 to decrease from
NT$4.14 to NT$4.04 and NT$3.83 to NT$3.81, respectively.
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24.
    
    DISCLOSURES FOR FINANCIAL INSTRUMENTS
 a.
    
    Fair values of financial instruments were as follows:
 December 312008
    
    2009Carrying
    
    
    
    
    
    CarryingAmount
    
    Fair Value
    
    Amount
    
    Fair ValueNT$
    
    NT$
    
    NT$
    
    NT$(In Millions)
    
    (In Millions)AssetsFinancial assets at fair value through profit or loss
    
    $
    55.7
    
    
    $
    55.7
    
    
    $
    186.1
    
    
    $
    186.1Available-for-sale financial assets
    
    
    12,931.4
    
    
    
    12,931.4
    
    
    
    15,748.0
    
    
    
    15,748.0Held-to-maturity financial assets
    
    
    21,308.2
    
    
    
    21,457.0
    
    
    
    25,498.0
    
    
    
    25,671.7LiabilitiesFinancial liabilities at fair value through profit or loss
    
    
    85.2
    
    
    
    85.2
    
    
    
    
    
    
    
    Bonds payable (including current portion)
    
    
    12,500.0
    
    
    
    12,612.4
    
    
    
    4,500.0
    
    
    
    4,575.0Long-term bank loans (including current portion)
    
    
    1,642.9
    
    
    
    1,642.9
    
    
    
    1,527.9
    
    
    
    1,527.9Other long-term payables (including current portion)
    
    
    10,674.7
    
    
    
    10,674.7
    
    
    
    9,607.7
    
    
    
    9,607.7Obligations under capital leases
    
    
    722.3
    
    
    
    722.3
    
    
    
    707.5
    
    
    
    707.5
 b.
    
    Methods and assumptions used in the estimation of fair values of financial instruments
 1)
    
    The aforementioned financial instruments do not include cash and cash
equivalents, receivables, other financial assets, refundable deposits, payables and
guarantee deposits. The carrying amounts of these financial instruments approximate
their fair values due to their short maturities.2)
    
    Except for derivatives and structured time deposits, fair values of financial
assets at fair value through profit or loss, available-for-sale and held-to-maturity
financial assets were based on their quoted market prices.3)
    
    The fair values of those derivatives and structured time deposits are
determined using valuation techniques incorporating estimates and assumptions that were
consistent with prevailing market conditions.4)
    
    Fair value of the bonds payable was based on their quoted market price.5)
    
    Fair values of long-term bank loans, other long-term payables and obligations
under capital leases were based on the present value of expected cash flows, which
approximate their carrying amounts.
 c.
    
    The changes in fair value of derivatives contracts which were outstanding as of
December 31, 2008 and 2009 estimated using valuation techniques were recognized as
valuation losses of NT$42.7 million and net gains of NT$186.1 million, respectively.d.
    
    As of December 31, 2008 and 2009, financial assets exposed to fair value interest rate
risk were NT$34,002.2 million and NT$40,857.3 million, respectively; financial liabilities
exposed to fair value interest rate risk were NT$12,585.2 million and NT$4,500.0 million,
respectively, and financial liabilities exposed to cash flow interest rate risk were
NT$1,642.9 million and NT$1,527.9 million, respectively.e.
    
    Movements of the unrealized gain or loss on financial instruments for the years ended
December 31, 2008 and 2009 were as follows:
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Year Ended December 31, 2008FromFrom
    
    
    Available-Available-
    
    
    for-salefor-sale
    
    
    FinancialFinancial
    
    
    Assets Held byAssets
    
    
    Investees
    
    
    TotalBalance, beginning of year
    
    $
    627.8
    
    
    $
    53.2
    
    
    $
    681.0Recognized directly in shareholders equity
    
    
    (1,130.6
    )
    
    
    (142.1
    )
    
    
    (1,272.7
    )Removed from shareholders equity and recognized in earnings
    
    
    304.4
    
    
    
    
    
    
    
    304.4Balance, end of year
    
    $
    (198.4
    )
    
    $
    (88.9
    )
    
    $
    (287.3
    )
 Year Ended December 31, 2009FromFrom
    
    
    Available-Available-
    
    
    for-salefor-sale
    
    
    FinancialFinancial
    
    
    Assets Held byAssets
    
    
    Investees
    
    
    TotalBalance, beginning of year
    
    $
    (198.4
    )
    
    $
    (88.9
    )
    
    $
    (287.3
    )Recognized directly in shareholders equity
    
    
    391.8
    
    
    
    118.4
    
    
    
    510.2Removed from shareholders equity and recognized in earnings
    
    
    230.7
    
    
    
    
    
    
    
    230.7Balance, end of year
    
    $
    424.1
    
    
    $
    29.5
    
    
    $
    453.6
 f.
    
    Information about financial risk
 1)
    
    Market risk. The publicly traded stocks categorized as financial assets at
fair value through profit or loss are exposed to market price fluctuations. The
derivative financial instruments categorized as financial assets/liabilities at fair
value through profit or loss are mainly used to hedge the exchange rate fluctuations of
foreign-currency assets and liabilities; therefore, the market risk of derivatives will
be offset by the foreign exchange risk of these hedged items. Available-for-sale
financial assets and held-to-maturity financial assets held by the Company are mainly
fixed-interest-rate debt securities; therefore, the fluctuations in market interest
rates would result in changes in fair value of these debt securities. Subject to
turmoil in the global financial market, the Company evaluated its financial assets and
determined that certain impairment for its asset-backed securities is
other-than-temporary. The Company had appropriately recognized related impairment
losses.2)
    
    Credit risk. Credit risk represents the potential loss that would be incurred
by the Company if the counter-parties or third-parties breached contracts. Financial
instruments with positive fair values at the balance sheet date are evaluated for
credit risk. Subject to turmoil in the global financial market, the Company evaluated
the financial instruments for any possible counter-party or third-party default. As a
result of the evaluation, the Company determined that certain financial instruments are
exposed to credit risk and had appropriately recognized related impairment losses.3)
    
    Liquidity risk. The Company has sufficient operating capital to meet cash
needs upon settlement of derivative financial instruments, bonds payable and bank
loans. Therefore, the liquidity risk is low.4)
    
    Cash flow interest rate risk. The Company mainly invests in
fixed-interest-rate debt securities. Therefore, cash flows are not expected to
fluctuate significantly due to changes in market interest rates. The Companys
long-term bank loans were floating-rate loans. Therefore, changes in the market
interest rates will result in changes in the effective rate of the long-term bank
loans, which will affect future cash flows.
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##### Table of Contents



25.
    
    RELATED PARTY TRANSACTIONSExcept as disclosed in the consolidated financial statements and other notes, the following is a
summary of significant related party transactions:
 a.
    
    Philips, one of the major shareholders of TSMC, which has become a non-related party
since March 2007.b.
    
    Investees of TSMCVIS (accounted for using equity method)
SSMC (accounted for using equity method)c.
    
    VisEra Technology Company, Ltd. (VisEra), an indirect investee accounted for using equity method.d.
    
    OthersRelated parties over which the Company exercises significant influence but with which the Company had no material
transactions.
 Year Ended December 312007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$(In Millions)For the yearSalesVIS
    
    $
    59.2
    
    
    $
    80.1
    
    
    $
    139.5VisEra
    
    
    739.9
    
    
    
    30.8
    
    
    
    15.5SSMC
    
    
    2.9
    
    
    
    1.9
    
    
    
    0.2Others
    
    
    
    
    
    
    
    
    
    
    0.1$
    802.0
    
    
    $
    112.8
    
    
    $
    155.3PurchasesSSMC
    
    $
    5,468.4
    
    
    $
    4,441.8
    
    
    $
    3,537.6VIS
    
    
    4,208.2
    
    
    
    3,260.2
    
    
    
    3,330.3VisEra
    
    
    0.6
    
    
    
    0.5
    
    
    
    $
    9,677.2
    
    
    $
    7,702.5
    
    
    $
    6,867.9Non-operating income and gainsVIS (primarily technical service income, see Note 28e)
    
    $
    346.3
    
    
    $
    296.2
    
    
    $
    224.8SSMC (primarily technical service income, see Note 28d)
    
    
    290.6
    
    
    
    244.9
    
    
    
    141.5VisEra
    
    
    321.8
    
    
    
    101.6
    
    
    
    0.1$
    958.7
    
    
    $
    642.7
    
    
    $
    366.4As of December 31PayablesVIS
    
    $
    839.6
    
    
    $
    317.9
    
    
    $
    531.5SSMC
    
    
    655.1
    
    
    
    162.8
    
    
    
    238.7VisEra
    
    
    8.7
    
    
    
    9.2
    
    
    
    12.8$
    1,503.4
    
    
    $
    489.9
    
    
    $
    783.0
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The sales prices and payment terms to related parties were not significantly different
from those of sales to third parties. For other related party transactions, prices and terms
were determined in accordance with mutual agreements.TSMC deferred the net gains (classified under deferred credits) derived from sales of property,
plant and equipment to VisEra, and then recognized such gains (classified under non-operating
income and gains) over the depreciable lives of the disposed assets.TSMC leased certain buildings and facilities to VisEra. The related rental income was
classified under non-operating income and gains. The lease terms and prices were determined in
accordance with mutual agreements. The lease agreement between TSMC and VisEra expired in April
2008.26.
    
    PLEDGED OR MORTGAGED ASSETSThe Company provided certain assets as collateral mainly for long-term
bank loans, land lease agreements and customs duty guarantee, which
were as follows:
 December 312008
    
    
    2009Other financial assets
    
    $
    33.4
    
    
    $
    949.4Property, plant and equipment, net
    
    
    4,032.6
    
    
    
    2,808.0Other assets
    
    
    
    
    
    
    20.0$
    4,066.0
    
    
    $
    3,777.4
 27.
    
    SIGNIFICANT LONG-TERM LEASES
 The Company leases several parcels of land and office premises from the SPA and Jhongli
Industrial Park Service Center. These operating leases expire on various dates from March 2010
to December 2029 and can be renewed upon expiration.
 The Company entered into lease agreements for its office premises and certain equipment located
in the United States, Europe, Japan, Shanghai and Taiwan. These operating leases expire between
2010 and 2018 and can be renewed upon expiration.
 As of December 31, 2009, future lease payments were as follows:
 AmountYear
    
    NT$(In Millions)2010
    
    $
    557.62011
    
    
    504.32012
    
    
    487.12013
    
    
    462.42014
    
    
    444.22015 and thereafter
    
    
    3,293.5$
    5,749.1
 Rent expense for the years ended December 31, 2007, 2008 and 2009 was NT$1,398.3 million,
NT$1,620.6 million and NT$1,293.3 million, respectively.
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28.
    
    SIGNIFICANT COMMITMENTS AND CONTINGENCIESSignificant commitments and contingencies of the Company as of
December 31, 2009, excluding those disclosed in other notes, were as
follows:
 a.
    
    Under a technical cooperation agreement with ITRI, the R.O.C. Government or its
designee approved by TSMC can use up to 35% of TSMCs capacity if TSMCs outstanding
commitments to its customers are not prejudiced. The term of this agreement is for five
years beginning from January 1, 1987 and is automatically renewed for successive periods of
five years unless otherwise terminated by either party with one year prior notice.b.
    
    Under several foundry agreements, TSMC shall reserve a portion of its production
capacity for certain major customers that have guarantee deposits with TSMC. As of December
31, 2009 TSMC had a total of US$29.6 million of guarantee deposits.c.
    
    Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd.
on March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated
circuit foundry in Singapore. TSMCs equity interest in SSMC was 32%. Nevertheless, Philips
parted with its semiconductor company which was renamed as NXP B.V. in September 2006. TSMC
and NXP B.V. purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata
according to the Shareholders Agreement on November 15, 2006. After the purchase, TSMC and
NXP B.V. currently own approximately 39% and 61% of the SSMC shares respectively. TSMC and
Philips (now NXP B.V.) are required, in the aggregate, to purchase at least 70% of SSMCs
capacity, but TSMC alone is not required to purchase more than 28% of the capacity. If any
party defaults on the commitment and the capacity utilization of SSMC fall below a specific
percentage of its capacity, the defaulting party is required to compensate SSMC for all
related unavoidable costs.d.
    
    TSMC provides technical services to SSMC under a Technical Cooperation Agreement (the
Agreement) effective March 30, 1999. TSMC receives compensation for such services computed
at a specific percentage of net selling price of all products sold by SSMC. The Agreement
shall remain in force for ten years and will be automatically renewed for successive
periods of five years each unless pre-terminated by either party under certain conditions.e.
    
    TSMC provides a technology transfer to VIS under a Manufacturing License and Technology
Transfer Agreement entered into on April 1, 2004. TSMC receives compensation for such
technology transfer in the form of royalty payments from VIS computed at specific
percentages of net selling price of certain products sold by VIS. VIS agreed to reserve its
certain capacity to manufacture for TSMC certain products at prices as agreed by the
parties.
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f.
    
    TSMC, TSMC North America and WaferTech filed a series of lawsuits in late 2003 and 2004
against Semiconductor Manufacturing International Corporation, SMIC (Shanghai) and SMIC
Americas (aggregately referring to as SMIC). The lawsuits alleged that SMIC infringed
multiple TSMC, TSMC North America and WaferTech patents and misappropriated TSMC, TSMC
North America and WaferTechs trade secrets. These suits were settled out of court on
January 30, 2005. As part of the settlement, Semiconductor Manufacturing International
Corporation shall pay US$175.0 million over six years to resolve TSMC, TSMC North America
and WaferTechs claims. As of December 31, 2009, SMIC had paid US$135.0 million in
accordance with the terms of this settlement agreement. In August 2006, TSMC, TSMC North
America and WaferTech filed a lawsuit against SMIC in Alameda County Superior Court in
California for breach of the aforementioned settlement agreement, breach of promissory
notes and trade secret misappropriation, seeking injunctive relief and monetary damages. In
September 2006, SMIC filed a cross-complaint against TSMC, TSMC North America and WaferTech
in the same court, alleging TSMC, TSMC North America and WaferTech of breach of the
settlement agreement and implied covenant of good faith and fair dealing, in response to
TSMC, TSMC North America and WaferTechs August complaint. In November 2006, SMIC filed a
complaint with Beijing Peoples High Court against TSMC, TSMC North America and WaferTech
alleging defamation and breach of good faith. The California State Superior Court of
Alameda County issued an Order on TSMC, TSMC North America and WaferTechs pre-trial motion
for a preliminary injunction against SMIC on September 7, 2007. In the Order, the Court
found TSMC has demonstrated a significant likelihood that it will ultimately prevail on
the merits of its claim for breach of certain paragraphs of the (2005) Settlement
Agreement with SMIC. The Court also found TSMC has
demonstrated a significant probability of establishing that SMIC retains and is using TSMC Information in SMICs 0.13um
and smaller technologies, and there is significant threat of serious irreparable harm to
TSMC if SMIC were to disclose or transfer that information before final resolution of the
case. Therefore, the Court ordered that, effective immediately, SMIC must provide advance
notice and an opportunity for TSMC, TSMC North America and WaferTech to object before
disclosing items enumerated in the Court Order to SMICs third party partners. The Court,
however, did not grant a preliminary injunction as requested by TSMC, TSMC North America and
WaferTech. In January 2009, the court in the California action held a four-day bench trial
to determine whether a Settlement Agreement existed between the parties, and if there were
an agreement, the interpretation of certain terms. SMIC contended that there was no binding
Settlement Agreement, and TSMC, TSMC North America and WaferTech contended that the
Settlement Agreement signed on January 30, 2005 and finalized shortly thereafter and
repeatedly ratified bound by the parties. On March 10, 2009, the Court issued its Statement
of Decision. The Court rejected SMICs contention, and found that the parties were bound by
the Settlement Agreement identified by TSMC, TSMC North America and WaferTech. The Court
also interpreted the meaning of certain provisions within the Settlement Agreement.
Regarding the claims raised by SMIC in the Beijing lawsuit, the Beijing Peoples High Court
has on June 10, 2009 rejected those claims and dismissed the lawsuit. On November 4, 2009,
after a two-month trial, a jury in the California action found SMIC to have both breached
the 2005 settlement agreement and misappropriated TSMC, TSMC North America and WaferTechs
trade secrets. TSMC, TSMC North America and WaferTech have subsequently settled both
lawsuits with SMIC. The new settlement agreement and the stipulated judgment require SMIC
to: (a) make cash payments to TSMC totaling US$200 million, which are in addition to the
US$135 million previously paid to TSMC under the 2005 settlement agreement; and (b)
conditional upon relevant government regulatory approvals, to issue to TSMC a total of
1,789,493,218 common shares of SMIC (representing about 8% of SMICs total shares
outstanding as of December 31, 2009) and a three-year warrant to purchase 695,914,030 SMIC
common shares (subject to adjustment) at HK$1.30 per share (subject to adjustment). Both
parties also agreed to terminate the patent cross-licensing agreement signed in 2005.g.
    
    The Company entered into an agreement with a counterparty in 2003 whereby TSMC China is obligated to purchase certain
property, plant and equipment at the agreed-upon price within the contract period. If the purchase is not completed, TSMC
China is obligated to compensate the counterparty for the loss incurred. The property, plant and equipment have been in use
by TSMC China since 2004 and are being depreciated over their estimated service lives. The related obligation totaled
NT$8,579.7 million and NT$8,355.4 million as of December 31, 2008 and 2009, respectively, which is included in other
long-term payables.h.
    
    Amounts available under unused letters of credit as of December 31, 2009 were NT$16.2 million.
 29.
    
    SEGMENT FINANCIAL INFORMATION
 a.
    
    Industry financial informationThe Company operates in one industry. Therefore, the disclosure of industry financial
information is not applicable to the Company.
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b.
    
    Geographic information:
 AdjustmentsNorth America
    
    
    
    
    
    
    andand Others
    
    
    Taiwan
    
    
    Elimination
    
    
    ConsolidatedNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Millions)Year ended December 31, 2007Sales to other than consolidated entities
    
    $
    193,066.2
    
    
    $
    129,564.4
    
    
    $
    
    
    
    $
    322,630.6Sales among consolidated entities
    
    
    18,084.1
    
    
    
    194,035.5
    
    
    
    (212,119.6
    )
    
    
    Total sales
    
    $
    211,150.3
    
    
    $
    323,599.9
    
    
    $
    (212,119.6
    )
    
    $
    322,630.6Gross profit
    
    $
    3,895.1
    
    
    $
    139,227.5
    
    
    $
    (772.4
    )
    
    $
    142,350.2Operating expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,628.3
    )Non-operating income and gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,933.8Non-operating expenses and losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,013.7
    )Income before income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    121,642.0Net income attributable to minority
interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    755.3Identifiable assets
    
    $
    145,483.4
    
    
    $
    439,675.9
    
    
    $
    (50,755.4
    )
    
    $
    534,403.9Long-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,461.3Total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    570,865.2Year ended December 31, 2008Sales to other than consolidated entities
    
    $
    193,727.6
    
    
    $
    139,430.1
    
    
    $
    
    
    
    $
    333,157.7Sales among consolidated entities
    
    
    16,280.8
    
    
    
    194,731.5
    
    
    
    (211,012.3
    )
    
    
    Total sales
    
    $
    210,008.4
    
    
    $
    334,161.6
    
    
    $
    (211,012.3
    )
    
    $
    333,157.7Gross profit
    
    $
    2,114.1
    
    
    $
    140,540.3
    
    
    $
    (904.8
    )
    
    $
    141,749.6Operating expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,314.2
    )Non-operating income and gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,821.4Non-operating expenses and losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,784.6
    )Income before income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    111,472.2Net income attributable to minority
interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    590.0Identifiable assets
    
    $
    122,781.6
    
    
    $
    425,545.2
    
    
    $
    (29,391.7
    )
    
    $
    518,935.1Long-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,981.5Total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    558,916.6
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AdjustmentsNorth America
    
    
    
    
    
    
    andand Others
    
    
    Taiwan
    
    
    Elimination
    
    
    ConsolidatedNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Millions)Year ended December 31, 2009Sales to other than consolidated entities
    
    $
    162,783.5
    
    
    $
    132,958.7
    
    
    $
    
    
    
    $
    295,742.2Sales among consolidated entities
    
    
    11,891.2
    
    
    
    163,407.4
    
    
    
    (175,298.6
    )
    
    
    Total sales
    
    $
    174,674.7
    
    
    $
    296,366.1
    
    
    $
    (175,298.6
    )
    
    $
    295,742.2Gross profit
    
    $
    2,004.7
    
    
    $
    128,456.5
    
    
    $
    (1,132.6
    )
    
    $
    129,328.6Operating expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,366.7
    )Non-operating income and gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,653.5Non-operating expenses and losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,152.8
    )Income before income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    95,462.6Net income attributable to minority
interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    248.4Identifiable assets
    
    $
    113,023.5
    
    
    $
    468,112.3
    
    
    $
    (24,285.1
    )
    
    $
    556,850.7Long-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,845.5Total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    594,696.2
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c.
    
    Net sales
 Year Ended December 31Areas
    
    2007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$(In Millions)Taiwan
    
    $
    42,876.0
    
    
    $
    44,663.5
    
    
    $
    40,430.4United States
    
    
    163,242.2
    
    
    
    203,998.8
    
    
    
    171,989.3Europe
    
    
    37,416.0
    
    
    
    35,710.6
    
    
    
    30,401.4Asia and others
    
    
    84,802.0
    
    
    
    57,610.5
    
    
    
    66,834.5328,336.2
    
    
    
    341,983.4
    
    
    
    309,655.6Sales returns and allowances
    
    
    (5,705.6
    )
    
    
    (8,825.7
    )
    
    
    (13,913.4
    )Net sales
    
    $
    322,630.6
    
    
    $
    333,157.7
    
    
    $
    295,742.2
 The net sales information is presented by billed regions.d.
    
    Major customers representing at least 10% of gross sales
 Year Ended December 312007
    
    
    2008
    
    
    2009NT$
    
    
    %
    
    
    NT$
    
    
    %
    
    
    NT$
    
    
    %(In Millions)Customer A
    
    $
    37,731.0
    
    
    
    11
    
    
    $
    46,523.1
    
    
    
    14
    
    
    $
    33,025.5
    
    
    
    11Customer B
    
    $
    29,502.8
    
    
    
    9
    
    
    $
    30,271.1
    
    
    
    9
    
    
    $
    31,995.0
    
    
    
    10
 e.
    
    Net sales by product categories:
 Year Ended December 31Product Category
    
    2007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$(In Millions)Wafer fabrication
    
    $
    293,431.3
    
    
    $
    295,535.9
    
    
    $
    260,386.0Mask making
    
    
    16,984.5
    
    
    
    19,081.8
    
    
    
    17,333.3Others
    
    
    12,214.8
    
    
    
    18,540.0
    
    
    
    18,022.9$
    322,630.6
    
    
    $
    333,157.7
    
    
    $
    295,742.2
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30.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING
PRINCIPLES FOLLOWED BY THE COMPANY AND GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICAThe accompanying financial statements have been prepared in accordance with accounting
principles generally accepted in the Republic of China (R.O.C. GAAP), which differ in the
following respects from accounting principles generally accepted in the United States of America
(U.S. GAAP):
 a.
    
    Marketable securitiesUnder R.O.C. GAAP, effective January 1, 2006, the Company adopted R.O.C. SFAS No. 34,
Financial Instruments: Recognition and Measurement, and No. 36, Financial Instruments:
Disclosure and Presentation. Financial instruments including debt securities and equity
securities are categorized as financial assets or liabilities at fair value through profit
or loss (FVTPL), available-for-sale or held-to-maturity securities. FVTPL has two
sub-categories, financial assets designated on initial recognition as one to be measured at
fair value, and those that are classified as held for trading, which are also measured at
fair value with fair value changes recognized in profit and loss. These classifications are
similar to those required by the U.S. GAAP guidance relating to accounting for certain
investments in debt and equity securities.Under the U.S. GAAP guidance relating to accounting for certain investments in debt and
equity securities, debt and equity securities that have readily determinable fair values are
classified as either trading, available-for-sale or held-to-maturity securities. Debt
securities that the Company has the positive intent and ability to hold to maturity are
classified as held-to-maturity securities and reported at amortized cost. Debt and equity
securities that are bought and traded for short-term profit are classified as trading
securities and reported at fair value, with unrealized gains and losses included in
earnings. Debt and equity securities not classified as either held-to-maturity or trading
are classified as available-for-sale securities and reported at fair value, with unrealized
gains and losses excluded from earnings and reported as a separate component of
shareholders equity.Upon adoption of R.O.C. SFAS No. 34 and No. 36 on January 1, 2006, the Company recorded an
accumulated effect of changes in accounting principles of NT$1,606.7 million to adjust the
carrying amount of trading securities, which were recorded at the lower of aggregate cost or
market value, to fair market value, which is a one-time reconciling adjustment between U.S.
GAAP and R.O.C. GAAP in 2006.Upon adoption of R.O.C. SFAS No. 34 and No. 36, the Company also adjusted the carrying
amount of the marketable securities categorized as available-for-sale, which were carried at
the lower of aggregate cost or market with unrealized losses included in earnings, to fair
market value on January 1, 2006. Therefore, prior to January 1 2006, unrealized gains and
losses included in shareholders equity associated with available-for-sale marketable
securities under R.O.C. GAAP were different from those under U.S. GAAP.The Company classified money market funds as available-for-sale marketable securities under
both R.O.C. GAAP and U.S. GAAP.b.
    
    Equity-method investeesThe Companys proportionate share of the net income (loss) from an equity-method investee
may differ if the equity-method investees net income (loss) under R.O.C. GAAP differs from
that under U.S. GAAP. Such differences between R.O.C. GAAP and U.S. GAAP would result in
adjustments to investments accounted for using the equity method and the equity in earnings
(losses) of equity-method investees recorded in net income.c.
    
    Impairment of long-lived assetsUnder U.S. GAAP, an impairment loss is recognized when the carrying amount of an asset or a
group of assets is not recoverable from the expected undiscounted future cash flows and the
impairment loss is measured as the difference between the fair value and the carrying amount
of the asset or group of assets. The impairment loss is recorded in earnings and cannot be
reversed subsequently. Long-lived assets (excluding goodwill and other indefinite lived assets) held and used by the Company are
reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
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Prior to 2005, under R.O.C. GAAP, for purposes of evaluating the recoverability of
long-lived assets, assets purchased for use in the business but subsequently determined to
have no use were written down to fair value and recorded as either idle assets or assets
held for disposition. R.O.C. GAAP did not provide guideline for impairment of assets that
could be used in the business. Effective January 1, 2005, the Company is required to
recognize an impairment loss when an indication is identified that the carrying amount of an
asset or a group of assets is not recoverable from the expected discounted future cash
flows. However, if the recoverable amount increases in a future period, the amount
previously recognized as impairment would be reversed and recognized as a gain. The adjusted
amount may not exceed the carrying amount that would have been determined, net of
depreciation, if no impairment loss had been recognized. Accordingly, the depreciation basis
of long-lived assets impaired prior to January 1, 2005 under U.S. GAAP is different from the
depreciation basis under R.O.C. GAAP.d.
    
    10% tax on unappropriated earningsIn the R.O.C., a 10% tax is imposed on unappropriated earnings (excluding earnings from
foreign consolidated subsidiaries). For R.O.C. GAAP purposes, the Company records the 10%
tax on unappropriated earnings in the year of shareholders approval. Starting from 2002,
the American Institute of Certified Public Accountants International Practices Task Force
concluded that in accordance with U.S. GAAP guidance, the 10% tax on unappropriated earnings
should be accrued during the period the earnings arise and adjusted to the extent that
distributions are approved by the shareholders in the following year. To the extent the
Company does not have sufficient tax credits to offset the 10% tax, additional tax expense
would be recognized under U.S. GAAP.e.
    
    Goodwill and intangible assetsUnder R.O.C. GAAP, goodwill was recorded for the excess of the purchase price over the net
tangible assets for the purchase of a 32% equity interest in TSMC-Acer Semiconductor
Manufacturing Corporation (TASMC) in 1999 and was amortized over ten years. Under U.S. GAAP,
the goodwill was originally amortized over five years.Goodwill was not recorded under R.O.C. GAAP for the acquisition of the remaining 68% equity
interest in TASMC in June 2000, because under R.O.C. GAAP goodwill from a business
combination in the form of a share exchange was charged to capital surplus. Under U.S. GAAP,
the acquisition cost is the fair value of the shares issued in exchange and the difference
between the acquisition cost and the sum of the fair values of the net tangible and
identifiable intangible assets acquired is recorded as goodwill. Accordingly, the goodwill
from the acquisition of the remaining 68% equity interest in TASMC was recorded for U.S.
GAAP purposes and was originally amortized over the estimated life of five years.Effective January 1, 2002, the Company adopted the U.S. GAAP guidance relating to goodwill
and other intangible assets and ceased amortization of goodwill which is now assessed for
impairment annually or more frequently if impairment indicators arise. In accordance with
the U.S. GAAP guidance relating to goodwill and other intangible assets, the Company had
completed its goodwill impairment test at the reporting unit level and found no impairment
as of December 31, 2007, 2008 and 2009.Effective January 1, 2005, the Company adopted R.O.C. SFAS No. 35, Accounting for
Impairment of Assets which required the Company to evaluate impairment of an asset group,
including goodwill allocated to such group. The Company found no impairment as of December
31, 2007, 2008 and 2009. Effective January 1, 2006, the Company adopted R.O.C. SFAS No. 25
(revised 2005), Business Combinations which is similar to U.S. GAAP guidance relating to
goodwill and other intangible assets. Upon adoption of R.O.C. SFAS No.25, the Company ceased
amortization of goodwill which is now assessed for impairment in accordance with the
provisions of the standard and R.O.C. SFAS No. 35.f.
    
    Profit sharing to employees and bonus to directors and supervisorsAccording to R.O.C. regulations and TSMCs Articles of Incorporation,
a portion of the Companys distributable earnings should be set aside
as profit sharing to employees and bonus to directors and supervisors. Bonuses to directors and supervisors are usually paid in cash. However, profit
sharing to employees may be paid in cash or stock, or a combination of both.
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Under R.O.C. GAAP, prior to January 1, 2008, the profit sharing, including profit sharing in
stock which is valued at the par value of NT$10 each, were treated as appropriations of
retained earnings and were charged to retained earnings after such profit sharing is
formally approved by the shareholders in the following year.Under U.S. GAAP, such profit sharing is treated as compensation expense and is charged to
earnings. The amount of compensation expense related to profit sharing in stock is
determined based on the market value of TSMCs common stock at the date of stock
distribution in the following year. The total amount of the aforementioned profit sharing to
be paid in the following year is initially accrued based on managements estimate pursuant
to TSMCs Articles of Incorporation in the year to which it relates. Any difference between
the amount initially accrued and the market value of the profit sharing upon the payment of
cash and the issuance of shares is recognized in the year of approval by shareholders.
Subsidiaries registered in the R.O.C. follow the same accounting treatment as TSMC.Prior to January 1, 2008, the Company recorded two separate U.S. GAAP reconciling
adjustments relating to profit sharing to employees and bonus to directors and supervisors
each year. The first reconciling adjustment, referred to as Profit sharing to employees and
bonus to directors and supervisors  current year accrual, recorded the full profit sharing
earned in the current year, in an amount equal to the product of the total net income for
the current year multiplied by the percentage set forth based on managements estimate
pursuant to TSMCs Articles of Incorporation. The second reconciling adjustment, referred to
as Fair market value adjustment of prior year accrual, was made in the following year to
record the additional compensation expense for prior-year profit sharing paid in stock,
which is measured at the fair market value on the date of stock distribution.Effective January 1, 2008, the Company adopted Interpretation 2007-052, Accounting for
Bonuses to Employees, Directors and Supervisors issued in March 2007 by the ARDF, which
requires companies to record profit sharing to employees, directors and supervisors as an
expense rather than as an appropriation of earnings. The amount of compensation expense
related to profit sharing in stock is determined based on the market value of TSMCs common
stock at the date before the shareholders meeting.Accordingly, as of December 31, 2008, the Company was no longer required to record the first
reconciling adjustment as referred above. However, the Company still recorded the second
reconciling adjustment to reflect the additional compensation expense recognized in 2008 for
2007 profit sharing in stock, which was measured at the fair market value on the date of
stock distribution. Starting from January 1, 2009, the only U.S. GAAP reconciling adjustment
for the profit sharing in stock is the difference of the market value of TSMCs common stock
between the date of stock distribution and the date before the shareholders meeting.g.
    
    Pension benefitsThe U.S. GAAP guidance relating to employers accounting for pensions
requires the Company to determine the accumulated pension obligation
and the pension expense on an actuarial basis. The Company adopted the
U.S. GAAP guidance relating to employers accounting for pensions at
the beginning of 1993 for U.S. GAAP purposes.The U.S. GAAP guidance relating to employers accounting for pensions
was amended on September 29, 2006 to require employers to recognize
the overfunded or underfunded status of a defined benefit pension plan
as an asset or liability in its statement of financial position and to
recognize changes in that funded status in the year in which the
changes occur through comprehensive income. The amended U.S. GAAP
guidance defines the funded status of a benefit plan as the difference
between the fair value of the plan assets and the projected benefit
obligation. Previously unrecognized items such as gains or losses,
prior service credits and the transition asset or obligation are
required to be recognized in other comprehensive income and
subsequently recognized through net periodic benefit cost.R.O.C. SFAS No. 18 is similar in many respects to U.S. GAAP and was
adopted by the Company in 1996. However, R.O.C. SFAS No. 18 does not
require a company to recognize the overfunded or
underfunded status of a defined benefit pension plan as an asset or liability in the
statement of financial position. Due to the GAAP difference in pension accounting, there
were adjustments to US GAAP for the current year pension expense and other comprehensive
income.
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The difference of the overfunded or underfunded status at the date of adoption and hereafter
give rise to a U.S. GAAP difference in the actuarial computation and the related
amortization.h.
    
    Stock-based compensationUnder U.S. GAAP, effective January 1, 2006, the Company adopted the fair value recognition
provisions to account for share-based payments, and applied the modified prospective
transition method and therefore has not restated the results for prior periods. Under this
transition method, stock-based compensation expense for the year ended December 31, 2006
included compensation expense for all unvested stock-based compensation awards granted prior
to January 1, 2006 that were expected to vest, based on the grant-date fair value or the
intrinsic value described in the next paragraph. Upon an employees termination, unvested
awards are forfeited, which affects the quantity of options to be included in the
calculation of stock-based compensation expense. Forfeitures do not include vested options
that expire unexercised. Stock-based compensation expense for all stock-based compensation
awards granted after January 1, 2006 was based on the grant-date fair value. The Company
recognizes these compensation costs using the graded vesting method over the requisite
service period of the award, which is generally the option vesting term of four years. See
Note 31d for additional stock-based compensation disclosures.Certain characteristics of the stock options granted under the TSMC 2002 Plan and GUC 2004
Plan are not reasonably estimable using appropriate valuation methodologies and have been
accounted for using the variable accounting method under U.S. GAAP. Such method requires the
Company to account for these stock options based on their intrinsic value, remeasured at
each reporting date through the date of exercise or settlement.Under R.O.C. GAAP, employee stock option plans 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 ARDF. The Company adopted the intrinsic value method and any compensation expense
determined using this method is recognized over the vesting period. No stock-based
compensation expense was recognized under R.O.C. GAAP for the years ended December 31, 2007,
2008 and 2009.Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards
No. 39, Accounting for Share-based Payment, which is similar in many respects to U.S. GAAP
and requires companies to record share-based payment transactions in the financial
statements at fair value for the employee stock option plans that were granted or modified
after December 31, 2007. The Company did not grant or modify employee stock options since
January 1, 2008.i.
    
    Earnings per shareUnder R.O.C. GAAP, earnings per share is calculated as described in
Notes 2 and 23. Under U.S. GAAP, earnings per share is calculated by
dividing net income by the average number of shares outstanding in
each period, adjusted retroactively for any stock dividends issued and
stock splits subsequently. Other shares issued from unappropriated
earnings, such as profit sharing to employees in stock, are included
in the calculation of weighted-average number of shares outstanding
from the date of issuance.Under both R.O.C. GAAP and U.S. GAAP, the unvested stock options are
included in the diluted EPS calculation using the treasury stock
method if the inclusion of such would be dilutive. However, the
calcuation of shares using the treasury stock method is different
between U.S. GAAP and R.O.C GAAP.In applying the treasury stock method, the assumed proceeds shall be
the sum of (a) the exercise price, (b) the amount of compensation cost
attributed to future services and not yet recognized, and (c) the
amount of excess tax benefits that would be credited to additional
paid-in capital assuming exercise of the options. However, as the
amount of stock-based compensation recognized is different between
R.O.C. GAAP and U.S. GAAP described in Note 30h above, the number of
shares included in the denominator of the diluted EPS calculation will
be different from that under R.O.C. GAAP. Earnings per equivalent
American Depository Share (ADS) is calculated by multiplying earnings per share by five (one ADS
represents five common shares).
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j.
    
    Consolidated entitiesUnder R.O.C. GAAP, the Company adopted R.O.C. SFAS No. 7,
Consolidated Financial Statements, which requires that 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. Partially owned, non-controlled equity investees are
accounted for under the equity method.U.S. GAAP has two different models for determining whether
consolidation is appropriate. If a reporting entity has a variable
interest in another entity that meets the definition of a variable
interest entity (VIE), the VIE model should be applied. Under this
model, consolidation is based on which interest holder absorbs a
majority of the risks and rewards of the VIE. However, if a reporting
entity has an interest in an entity that is not considered a VIE,
consolidation is based on whether the reporting enterprise has a
controlling financial interest in the entity (i.e. the majority voting
interest requirement) which is similar to R.O.C. GAAP.Under U.S. GAAP, the Company consolidated the accounts of VisEra for
the year ended December 31, 2004 and for the ten-month period ended
October 31, 2005 based on the majority voting interest requirement.
Subsequent to October 31, 2005, however, VisEra was no longer treated
as a consolidated subsidiary of the Company. The Company believes that
this accounting treatment is appropriate under U.S. GAAP because: (i)
the Company lost its control over VisEra in November 2005 due to
changes in the investment structure through which VisEra became a
subsidiary of VisEra Holdings (Cayman), in which the Company owns only
a 50% equity interest; (ii) Cayman is not a VIE; (iii) Cayman is not a
majority owned subsidiary of the Company that would require
consolidation; and (iv) the Company does not otherwise have control
over Cayman. Therefore, the Company deconsolidated VisEra as of
November 1, 2005.Under U.S. GAAP, the Company consolidated the accounts of GUC for the
years ended December 31, 2007, 2008 and 2009. GUC is a business entity
and an independent operation, and therefore is not within the scope of
VIE consolidated model. Since the company has a controlling financial
interest in GUC, it has been consolidated.
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Year Ended December 312007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 3)(In Millions Except Per Share Amounts)Net incomeConsolidated net income based on
R.O.C. GAAP
    
    $
    109,932.4
    
    
    $
    100,523.2
    
    
    $
    89,466.2
    
    
    $
    2,800.2Adjustments:a. Realization of unrealized loss
on marketable securities
    
    
    (52.3
    )
    
    
    (98.0
    )
    
    
    
    
    
    
    b. U.S. GAAP adjustments on equity-method investees
    
    
    (69.9
    )
    
    
    (16.4
    )
    
    
    (6.3
    )
    
    
    (0.2
    )c. Reversal of depreciation on assets
impaired under U.S. GAAP
    
    
    1,408.4
    
    
    
    675.6
    
    
    
    
    
    
    
    d. 10% tax on undistributed earnings
    
    
    (2,260.3
    )
    
    
    983.4
    
    
    
    966.9
    
    
    
    30.3e. Profit sharing to employees and
bonus to directors and supervisors1. Current year accrual
    
    
    (8,232.8
    )
    
    
    
    
    
    
    
    
    
    
    2. Fair market value adjustment
of prior year accrual
    
    
    (28,352.0
    )
    
    
    (20,369.3
    )
    
    
    (648.1
    )
    
    
    (20.3
    )f. Pension expense
    
    
    3.9
    
    
    
    4.3
    
    
    
    3.9
    
    
    
    0.1g. Stock-based compensation
    
    
    (373.9
    )
    
    
    215.7
    
    
    
    (559.1
    )
    
    
    (17.5
    )Income tax effect of U.S. GAAP
adjustments
    
    
    (41.9
    )
    
    
    (96.3
    )
    
    
    69.9
    
    
    
    2.2Net adjustment
    
    
    (37,970.8
    )
    
    
    (18,701.0
    )
    
    
    (172.8
    )
    
    
    (5.4
    )Consolidated net income based on U.S.
GAAP
    
    $
    71,961.6
    
    
    $
    81,822.2
    
    
    $
    89,293.4
    
    
    $
    2,794.8Attributable toShareholders of the parent
    
    $
    71,657.6
    
    
    $
    81,473.2
    
    
    $
    89,102.2
    
    
    $
    2,788.8Noncontrolling interests
    
    
    304.0
    
    
    
    349.0
    
    
    
    191.2
    
    
    
    6.0$
    71,961.6
    
    
    $
    81,822.2
    
    
    $
    89,293.4
    
    
    $
    2,794.8Earnings per common share based on
U.S. GAAPBasic
    
    $
    2.71
    
    
    $
    3.15
    
    
    $
    3.45
    
    
    $
    0.11Diluted
    
    $
    2.71
    
    
    $
    3.13
    
    
    $
    3.44
    
    
    $
    0.11Earnings per ADSBasic
    
    $
    13.57
    
    
    $
    15.77
    
    
    $
    17.24
    
    
    $
    0.54Diluted
    
    $
    13.56
    
    
    $
    15.65
    
    
    $
    17.19
    
    
    $
    0.54Number of weighted average shares
outstanding under U.S. GAAP
(in thousands)Basic
    
    
    26,409,174
    
    
    
    25,826,062
    
    
    
    25,835,802Diluted
    
    
    26,430,396
    
    
    
    26,022,555
    
    
    
    25,913,589
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December 312008
    
    
    2009NT$
    
    
    NT$
    
    
    US$(Note 3)(In Millions)Shareholders equityTotal shareholders equity based on R.O.C. GAAP
    
    $
    480,372.5
    
    
    $
    499,048.5
    
    
    $
    15,619.7Adjustments:a. U.S. GAAP adjustments on equity-method investees
    
    
    (485.0
    )
    
    
    (449.9
    )
    
    
    (14.1
    )b. Impairment of long-lived assets1. Loss on impairment of assets
    
    
    (10,709.6
    )
    
    
    (10,439.1
    )
    
    
    (326.8
    )2. Reversal of depreciation on assets impaired
under
U.S. GAAP
    
    
    10,709.6
    
    
    
    10,439.1
    
    
    
    326.8c. 10% tax on undistributed earnings
    
    
    (4,554.9
    )
    
    
    (3,588.0
    )
    
    
    (112.3
    )d. Goodwill1. Carrying amount difference from 68% equity
interest in TASMCs share acquisition
    
    
    52,212.7
    
    
    
    52,212.7
    
    
    
    1,634.22. Reversal of amortization of goodwill recognized
under R.O.C. GAAP
    
    
    (11,228.9
    )
    
    
    (11,318.9
    )
    
    
    (354.3
    )e. Accrued pension cost
    
    
    (35.6
    )
    
    
    (31.7
    )
    
    
    (1.0
    )f. Accrual for deferred pension loss under US SFAS
No. 158
    
    
    (1,288.9
    )
    
    
    (10.7
    )
    
    
    (0.3
    )Income tax effect of U.S. GAAP adjustments
    
    
    68.4
    
    
    
    134.3
    
    
    
    4.2Net adjustment
    
    
    34,687.8
    
    
    
    36,947.8
    
    
    
    1,156.4Total equity based on U.S. GAAP
    
    $
    515,060.3
    
    
    $
    535,996.3
    
    
    $
    16,776.1Attributable toShareholders of the parent
    
    $
    511,089.2
    
    
    $
    532,042.8
    
    
    $
    16,652.4Noncontrolling interests
    
    
    3,971.1
    
    
    
    3,953.5
    
    
    
    123.7$
    515,060.3
    
    
    $
    535,996.3
    
    
    $
    16,776.1
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Year Ended December 312007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 3)(In Millions)Changes in equity based on U.S. GAAPBalance, beginning of year
    
    $
    533,559.7
    
    
    $
    516,822.1
    
    
    $
    515,060.3
    
    
    $
    16,120.8Net income for the year
    
    
    71,961.6
    
    
    
    81,822.2
    
    
    
    89,293.4
    
    
    
    2,794.8Unrealized gain (loss) on available-for-sale
marketable securitiesTSMC
    
    
    290.9
    
    
    
    (728.2
    )
    
    
    622.5
    
    
    
    19.5Equity-method investees
    
    
    (119.2
    )
    
    
    (142.1
    )
    
    
    118.4
    
    
    
    3.7Noncontrolling interests
    
    
    19.5
    
    
    
    (17.0
    )
    
    
    6.0
    
    
    
    0.2Common shares issued as profit sharing to
employeesTSMC
    
    
    32,776.7
    
    
    
    24,213.8
    
    
    
    8,152.3
    
    
    
    255.2Equity-method investees
    
    
    78.7
    
    
    
    52.0
    
    
    
    (0.2
    )
    
    
    Noncontrolling interests
    
    
    262.9
    
    
    
    214.0
    
    
    
    (9.2
    )
    
    
    (0.3
    )Adjustment arising from changes of ownership
percentage in investeesTSMC
    
    
    (28.7
    )
    
    
    (137.1
    )
    
    
    115.5
    
    
    
    3.6Equity-method investees
    
    
    (56.9
    )
    
    
    (1.8
    )
    
    
    (1.9
    )
    
    
    (0.1
    )Noncontrolling interests
    
    
    31.9
    
    
    
    11.8
    
    
    
    (39.0
    )
    
    
    (1.2
    )Translation adjustmentsTSMC
    
    
    118.2
    
    
    
    1,554.0
    
    
    
    (2,247.8
    )
    
    
    (70.4
    )Equity-method investees
    
    
    (24.8
    )
    
    
    62.9
    
    
    
    (93.9
    )
    
    
    (2.9
    )Noncontrolling interests
    
    
    (99.3
    )
    
    
    (68.8
    )
    
    
    39.8
    
    
    
    1.2Treasury stock repurchased by the Company
    
    
    (48,466.9
    )
    
    
    (30,427.5
    )
    
    
    
    
    
    
    Cash dividends received by subsidiaries from
parent company
    
    
    101.8
    
    
    
    102.3
    
    
    
    
    
    
    
    Cash dividends to common shareholders
    
    
    (77,489.1
    )
    
    
    (76,881.3
    )
    
    
    (76,876.3
    )
    
    
    (2,406.1
    )Stock-based compensationTSMC
    
    
    185.5
    
    
    
    (218.6
    )
    
    
    480.7
    
    
    
    15.0Equity-method investees
    
    
    47.9
    
    
    
    (34.0
    )
    
    
    8.2
    
    
    
    0.3Noncontrolling interests
    
    
    188.4
    
    
    
    2.8
    
    
    
    78.3
    
    
    
    2.4Issuance of stock from exercising stock options
    
    
    436.9
    
    
    
    227.2
    
    
    
    260.5
    
    
    
    8.2Changes in actuarial gain (loss) and transition
obligationTSMC
    
    
    1,303.8
    
    
    
    (1,201.4
    )
    
    
    1,278.2
    
    
    
    40.0Equity-method investees
    
    
    12.7
    
    
    
    (52.3
    )
    
    
    35.3
    
    
    
    1.1Decrease in noncontrolling interests
    
    
    1,729.9
    
    
    
    (114.7
    )
    
    
    (284.8
    )
    
    
    (8.9
    )Balance, end of year
    
    $
    516,822.1
    
    
    $
    515,060.3
    
    
    $
    535,996.3
    
    
    $
    16,776.1Attributable toShareholders of the parent
    
    $
    513,228.1
    
    
    $
    511,089.2
    
    
    $
    532,042.8
    
    
    $
    16,652.4Noncontrolling interests
    
    
    3,594.0
    
    
    
    3,971.1
    
    
    
    3,953.5
    
    
    
    123.7$
    516,822.1
    
    
    $
    515,060.3
    
    
    $
    535,996.3
    
    
    $
    16,776.1
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December 312008
    
    
    2009NT$
    
    
    NT$
    
    
    US$(Note 3)(In Millions)AssetsCurrent assets
    
    $
    252,618.4
    
    
    $
    259,803.7
    
    
    $
    8,131.6Long-term investments
    
    
    39,496.5
    
    
    
    37,395.6
    
    
    
    1,170.4Property, plant and equipment, net
    
    
    243,645.4
    
    
    
    273,674.8
    
    
    
    8,565.8Goodwill
    
    
    47,028.2
    
    
    
    46,825.1
    
    
    
    1,465.6Other assets
    
    
    16,695.3
    
    
    
    17,575.3
    
    
    
    550.0Total assets
    
    $
    599,483.8
    
    
    $
    635,274.5
    
    
    $
    19,883.4LiabilitiesCurrent liabilities
    
    $
    61,361.7
    
    
    $
    82,721.3
    
    
    $
    2,589.1Long-term liabilities
    
    
    16,191.0
    
    
    
    11,388.5
    
    
    
    356.4Other liabilities
    
    
    6,870.8
    
    
    
    5,168.4
    
    
    
    161.8Equity attributable to shareholders of the parent
    
    
    511,089.2
    
    
    
    532,042.8
    
    
    
    16,652.4Noncontrolling interests
    
    
    3,971.1
    
    
    
    3,953.5
    
    
    
    123.7Total liabilities and equity
    
    $
    599,483.8
    
    
    $
    635,274.5
    
    
    $
    19,883.4
 Year Ended December 312007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 3)(In Millions)Net sales
    
    $
    323,221.0
    
    
    $
    334,339.6
    
    
    $
    296,109.2
    
    
    $
    9,267.9Cost of sales
    
    
    202,045.7
    
    
    
    203,733.9
    
    
    
    167,122.5
    
    
    
    5,230.7Gross profit
    
    
    121,175.3
    
    
    
    130,605.7
    
    
    
    128,986.7
    
    
    
    4,037.2Operating expenses
    
    
    44,775.0
    
    
    
    44,423.4
    
    
    
    37,626.6
    
    
    
    1,177.8Income from operations
    
    
    76,400.3
    
    
    
    86,182.3
    
    
    
    91,360.1
    
    
    
    2,859.4Non-operating income, net
    
    
    9,573.1
    
    
    
    5,701.9
    
    
    
    2,892.9
    
    
    
    90.6Income before income tax
    
    
    85,973.4
    
    
    
    91,884.2
    
    
    
    94,253.0
    
    
    
    2,950.0Income tax expense
    
    
    14,011.8
    
    
    
    10,062.0
    
    
    
    4,959.6
    
    
    
    155.2Net income
    
    $
    71,961.6
    
    
    $
    81,822.2
    
    
    $
    89,293.4
    
    
    $
    2,794.8Net income attributable to shareholders of the
parent
    
    $
    71,657.6
    
    
    $
    81,473.2
    
    
    $
    89,102.2
    
    
    $
    2,788.8Net income attributable to noncontrolling
interests
    
    $
    304.0
    
    
    $
    349.0
    
    
    $
    191.2
    
    
    $
    6.0
  F-59




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Year Ended December 312007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 3)(In Millions)Consolidated net income based on U.S. GAAP
    
    $
    71,961.6
    
    
    $
    81,822.2
    
    
    $
    89,293.4
    
    
    $
    2,794.8Other comprehensive income (loss), net of
tax:Adjustment of unrealized gain (loss) on
financial instrumentsTSMC
    
    
    290.9
    
    
    
    (728.2
    )
    
    
    622.5
    
    
    
    19.5Equity-method investees
    
    
    (119.2
    )
    
    
    (142.1
    )
    
    
    118.4
    
    
    
    3.7Noncontrolling interests
    
    
    19.5
    
    
    
    (17.0
    )
    
    
    6.0
    
    
    
    0.2Translation adjustmentsTSMC
    
    
    118.2
    
    
    
    1,554.0
    
    
    
    (2,247.8
    )
    
    
    (70.4
    )Equity-method investees
    
    
    (24.8
    )
    
    
    62.9
    
    
    
    (93.9
    )
    
    
    (2.9
    )Noncontrolling interests
    
    
    (99.3
    )
    
    
    (68.8
    )
    
    
    39.8
    
    
    
    1.2Changes in actuarial gain /loss and
transition obligationTSMC
    
    
    1,303.8
    
    
    
    (1,201.4
    )
    
    
    1,278.2
    
    
    
    40.0Equity-method investees
    
    
    12.7
    
    
    
    (52.3
    )
    
    
    35.3
    
    
    
    1.1Consolidated comprehensive income
    
    $
    73,463.4
    
    
    $
    81,229.3
    
    
    $
    89,051.9
    
    
    $
    2,787.2Attributable toShareholders of the parent
    
    $
    73,239.2
    
    
    $
    80,966.1
    
    
    $
    89,462.2
    
    
    $
    2,800.0Noncontrolling interests
    
    
    224.2
    
    
    
    263.2
    
    
    
    (410.3
    )
    
    
    (12.8
    )$
    73,463.4
    
    
    $
    81,229.3
    
    
    $
    89,051.9
    
    
    $
    2,787.2
  December 312008
    
    
    2009NT$
    
    
    NT$
    
    
    US$(Note 3)(In Millions)Cumulative translation adjustment
    
    $
    415.8
    
    
    $
    (1,925.9
    )
    
    $
    (60.3
    )Unrealized gain on financial instruments
    
    
    (287.3
    )
    
    
    453.6
    
    
    
    14.2Actuarial gain or loss and transition obligation
    
    
    (1,310.2
    )
    
    
    3.3
    
    
    
    0.1Total accumulated other comprehensive loss
    
    $
    (1,181.7
    )
    
    $
    (1,469.0
    )
    
    $
    (46.0
    )
  F-60




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##### Table of Contents



Year Ended December 312007
    
    
    2008
    
    
    2009NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 3)(In Millions)Net cash inflow (outflow) from:Operating activities
    
    $
    173,886.5
    
    
    $
    214,396.6
    
    
    $
    159,019.1
    
    
    $
    4,977.1Investing activities
    
    
    (67,241.4
    )
    
    
    (5,820.2
    )
    
    
    (95,999.6
    )
    
    
    (3,004.7
    )Financing activities
    
    
    (128,977.7
    )
    
    
    (110,517.5
    )
    
    
    (84,992.7
    )
    
    
    (2,660.1
    )Change in cash and cash equivalents
    
    
    (22,332.6
    )
    
    
    98,058.9
    
    
    
    (21,973.2
    )
    
    
    (687.7
    )Cash and cash equivalents at the beginning of
year
    
    
    117,837.2
    
    
    
    94,986.5
    
    
    
    194,613.8
    
    
    
    6,091.2Effect of exchange rate changes
    
    
    (518.1
    )
    
    
    1,568.4
    
    
    
    (1,364.3
    )
    
    
    (42.7
    )Cash and cash equivalents at the end of year
    
    $
    94,986.5
    
    
    $
    194,613.8
    
    
    $
    171,276.3
    
    
    $
    5,360.8
 31. ADDITIONAL DISCLOSURES REQUIRED BY U.S. GAAP
 a.
    
    Recent accounting pronouncementsIn April 2009, the Financial Accounting Standards Board (FASB) issued a standard that
provides additional guidance for estimating fair value when the volume and level of activity
for an asset or liability have significantly decreased. It also included guidance on
identifying circumstances that indicate a transaction is not orderly. This guidance is
effective for interim and annual reporting periods ending after June 15, 2009, and should be
applied prospectively. This standard is effective for the Company for the year ending
December 31, 2009. The adoption of the guidance did not have a material effect on the
Companys results of operations, financial position and cash flows.In April 2009, the FASB issued a standard that provides guidance on the recognition and
presentation of other-than-temporary impairments of debt securities classified as
available-for-sale and held-to-maturity. This standard is effective for interim and annual
reporting periods ending after June 15, 2009. This guidance is effective for the Company for
the year ending December 31, 2009. The adoption of the guidance did not have a material
effect on the Companys results of operations, financial position and cash flows.In May 2009 and subsequently updated in February 2010, the FASB issued new guidance on
subsequent events that establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements are issued.
This standard defines two types of subsequent events, recognized or nonrecognized. The new
guidance is effective for the Company for the year ending December 31, 2009.In June 2009, the FASB issued new guidance relating to the transfer of financial assets. The
new guidance requires entities to provide more information regarding sales of securitized
financial assets and similar transactions, particularly if the entity has continuing
exposure to the risks related to transferred financial assets. It also eliminates the
concept of a qualifying special-purpose entity, changes the requirements for derecognizing
financial assets and requires additional disclosures. The new guidance becomes effective for
annual reporting periods beginning after
November 15, 2009. Based on the Companys analysis,
the Company currently does not anticipate that the new guidance will have a material effect
on the Companys results of operations and financial position or cash flows.
  F-61




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b.
    
    Fair ValueOn January 1, 2008, the Company adopted the guidance related to fair value measurements, which defines fair value,
establishes a framework for measuring fair value and expands disclosures about fair value measurements.The guidance related to fair value measurements defines fair value as the price that would be received upon sale of an
asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date
and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on
assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the
Company.In addition to defining fair value, the guidance related to fair value measurements expands the disclosure requirements
around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into
three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value
measurement is reported in one of the three levels which is determined by the lowest level input that is significant to the
fair value measurement in its entirety. These levels are:Level 1  Use unadjusted quoted prices in active markets for identical assets or liabilities.Level 2  Use observable inputs other than Level 1 prices such as quoted prices for identical or similar instruments in
markets that are not active, quoted prices for similar instruments in
active markets, and model-based valuation in which all significant inputs are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
 F-62




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December 31, 2008
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Millions)AssetsDerivative financial assetsForward and Cross currency swap contract
    
    $
    
    
    
    $
    42.4
    
    
    $
    
    
    
    $
    42.4Marketable securities  tradingPublicly traded stocks
    
    
    13.3
    
    
    
    
    
    
    
    
    
    
    
    13.3Marketable securities  available-for-saleAgency bonds
    
    
    5,696.5
    
    
    
    
    
    
    
    
    
    
    
    5,696.5Corporate bonds
    
    
    3,241.1
    
    
    
    38.0
    
    
    
    
    
    
    
    3,279.1Corporate issued asset-backed securities
    
    
    
    
    
    
    2,334.9
    
    
    
    
    
    
    
    2,334.9Money market funds
    
    
    1,000.1
    
    
    
    
    
    
    
    
    
    
    
    1,000.1Government bonds
    
    
    340.9
    
    
    
    
    
    
    
    
    
    
    
    340.9Publicly traded stocks
    
    
    279.9
    
    
    
    
    
    
    
    
    
    
    
    279.9Total
    
    $
    10,571.8
    
    
    $
    2,415.3
    
    
    $
    
    
    
    $
    12,987.1LiabilitiesDerivative financial liabilitiesForward and Cross currency swap contract
    
    $
    
    
    
    $
    85.2
    
    
    $
    
    
    
    $
    85.2
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Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalDecember 31, 2009
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Millions)Derivative financial assetsForward and Cross currency swap contract
    
    $
    
    
    
    $
    186.1
    
    
    $
    
    
    
    $
    186.1Marketable securities  available-for-saleCorporate bonds
    
    
    7,042.2
    
    
    
    
    
    
    
    
    
    
    
    7,042.2Agency bonds
    
    
    5,032.0
    
    
    
    
    
    
    
    
    
    
    
    5,032.0Government bonds
    
    
    2,341.8
    
    
    
    
    
    
    
    
    
    
    
    2,341.8Publicly traded stocks
    
    
    574.9
    
    
    
    
    
    
    
    
    
    
    
    574.9Corporate issued notes
    
    
    303.4
    
    
    
    
    
    
    
    
    
    
    
    303.4Money market funds
    
    
    283.7
    
    
    
    
    
    
    
    
    
    
    
    283.7Open-end mutual funds
    
    
    170.0
    
    
    
    
    
    
    
    
    
    
    
    170.0Total
    
    $
    15,748.0
    
    
    $
    186.1
    
    
    $
    
    
    
    $
    15,934.1
  December 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total2008
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Gain(Losses)NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Millions)AssetsFinancial assets carried at cost
    
    $
    3,615.4
    
    
    $
    
    
    
    $
    
    
    
    $
    3,615.4
    
    
    $
    (625.5
    )Idle assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (210.5
    )Total
    
    $
    3,615.4
    
    
    $
    
    
    
    $
    
    
    
    $
    3,615.4
    
    
    $
    (836.0
    )
 TotalDecember 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Losses (Refer to2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Note 12)NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Millions)Financial assets carried at cost
    
    $
    3,063.0
    
    
    $
    
    
    
    $
    
    
    
    $
    3,063.0
    
    
    $
    (711.9
    )
  F-64




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c.
    
    Marketable securitiesAs of December 31, 2008 and 2009, the marketable securities by category was as follows:
 December 312008
    
    2009NT$
    
    NT$(In Millions)Marketable securities  trading  publicly traded stock
    
    $
    13.3
    
    
    $
    Marketable securities  available-for-sale
    
    
    12,931.4
    
    
    
    15,748.0Marketable securities  held-to-maturity
    
    
    21,308.2
    
    
    
    25,498.0
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As of December 31, 2008 and 2009, available-for-sale and held-to-maturity securities of
the Company were as follows:
 December 31, 2008Gross
    
    
    Gross
    
    
    EstimatedAdjusted
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Millions)Available-for-sale securitiesAgency bonds
    
    $
    5,583.1
    
    
    $
    118.5
    
    
    $
    (5.1
    )
    
    $
    5,696.5Corporate bonds
    
    
    3,290.7
    
    
    
    41.5
    
    
    
    (53.1
    )
    
    
    3,279.1Corporate issued asset-backed securities
    
    
    2,752.4
    
    
    
    
    
    
    
    (417.5
    )
    
    
    2,334.9Money market funds
    
    
    1,000.1
    
    
    
    
    
    
    
    
    
    
    
    1,000.1Government bonds
    
    
    376.6
    
    
    
    
    
    
    
    (35.7
    )
    
    
    340.9Publicly traded stocks
    
    
    118.7
    
    
    
    161.2
    
    
    
    
    
    
    
    279.9Total
    
    $
    13,121.6
    
    
    $
    321.2
    
    
    $
    (511.4
    )
    
    $
    12,931.4Held-to-maturity securitiesCorporate bonds
    
    $
    18,158.7
    
    
    $
    51.7
    
    
    $
    (64.1
    )
    
    $
    18,146.3Structured time deposits
    
    
    1,643.0
    
    
    
    142.3
    
    
    
    
    
    
    
    1,785.3Government bonds
    
    
    1,506.5
    
    
    
    34.8
    
    
    
    (15.9
    )
    
    
    1,525.4Total
    
    $
    21,308.2
    
    
    $
    228.8
    
    
    $
    (80.0
    )
    
    $
    21,457.0
 December 31, 2009Gross
    
    
    Gross
    
    
    EstimatedUnrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Millions)Available-for-sale securitiesCorporate bonds
    
    $
    7,004.3
    
    
    $
    54.9
    
    
    $
    (17.0
    )
    
    $
    7,042.2Agency bonds
    
    
    5,051.1
    
    
    
    0.3
    
    
    
    (19.4
    )
    
    
    5,032.0Government bonds
    
    
    2,381.6
    
    
    
    0.1
    
    
    
    (39.9
    )
    
    
    2,341.8Corporate issued notes
    
    
    303.4
    
    
    
    
    
    
    
    
    
    
    
    303.4Money market funds
    
    
    283.7
    
    
    
    
    
    
    
    
    
    
    
    283.7Open-ended mutual funds
    
    
    170.0
    
    
    
    
    
    
    
    
    
    
    
    170.0Publicly traded stocks
    
    
    119.1
    
    
    
    455.8
    
    
    
    
    
    
    
    574.9Total
    
    $
    15,313.2
    
    
    $
    511.1
    
    
    $
    (76.3
    )
    
    $
    15,748.0Held-to-maturity securitiesCorporate bonds
    
    $
    15,120.0
    
    
    $
    176.8
    
    
    $
    (5.9
    )
    
    $
    15,290.9Structured time deposits
    
    
    7,000.0
    
    
    
    0.1
    
    
    
    (3.1
    )
    
    
    6,997.0Government bonds
    
    
    3,378.0
    
    
    
    28.6
    
    
    
    (22.8
    )
    
    
    3,383.8Total
    
    $
    25,498.0
    
    
    $
    205.5
    
    
    $
    (31.8
    )
    
    $
    25,671.7
 The following table shows the gross unrealized losses and fair value of the investments with
unrealized losses that are not deemed to be other-than-temporary impaired, aggregated by
investment category and length of time that have been in a continuous unrealized loss
position as of December 31, 2009:
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Less than 12 Months
    
    
    12 Months or Greater
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Millions)Available-for-sale securitiesAgency bonds
    
    $
    4,691.8
    
    
    $
    (19.4
    )
    
    $
    
    
    
    $
    
    
    
    $
    4,691.8
    
    
    $
    (19.4
    )Corporate bonds
    
    
    4,292.4
    
    
    
    (17.0
    )
    
    
    
    
    
    
    
    
    
    
    4,292.4
    
    
    
    (17.0
    )Government bonds
    
    
    1,934.8
    
    
    
    (11.4
    )
    
    
    337.9
    
    
    
    (28.5
    )
    
    
    2,272.7
    
    
    
    (39.9
    )Total
    
    $
    10,919.0
    
    
    $
    (47.8
    )
    
    $
    337.9
    
    
    $
    (28.5
    )
    
    $
    11,256.9
    
    
    $
    (76.3
    )Held-to-maturity securitiesStructured time
deposits
    
    $
    5,996.9
    
    
    $
    (3.1
    )
    
    $
    
    
    
    $
    
    
    
    $
    5,996.9
    
    
    $
    (3.1
    )Corporate bonds
    
    
    2,107.5
    
    
    
    (2.8
    )
    
    
    2,586.4
    
    
    
    (3.1
    )
    
    
    4,693.9
    
    
    
    (5.9
    )Government bonds
    
    
    
    
    
    
    
    
    
    
    275.1
    
    
    
    (22.8
    )
    
    
    275.1
    
    
    
    (22.8
    )Total
    
    $
    8,104.4
    
    
    $
    (5.9
    )
    
    $
    2,861.5
    
    
    $
    (25.9
    )
    
    $
    10,965.9
    
    
    $
    (31.8
    )
 The gross unrealized losses related to bonds and structured time deposits were due to fair
value fluctuations. The Company presently does not intend to sell the above debt securities
and believes that it is not more likely than not that the Company will be required to sell
these securities that are in an unrealized loss position before recovery of the Companys
amortized cost. The Company has recognized the impairment loss related to available for
sale, totaled NT$201.3 million in earnings in 2009.
 As of December 31, 2009, the amortized cost and fair value of the Companys
available-for-sale and held-to-maturity investments in debt securities by contractual
maturity were as follows:
 Cost
    
    
    Fair ValueNT$
    
    
    NT$(In Millions)Available-for-sale securitiesDue in one year or less
    
    $
    2,961.6
    
    
    $
    2,919.2Due after one year through two years
    
    
    7,985.6
    
    
    
    7,974.2Due after two years through five years
    
    
    1,548.0
    
    
    
    1,594.8Due after five years
    
    
    2,245.2
    
    
    
    2,231.2Total
    
    $
    14,740.4
    
    
    $
    14,719.4Held-to-maturity securitiesDue in one year or less
    
    $
    9,944.8
    
    
    $
    9,971.5Due after one year through two years
    
    
    14,145.3
    
    
    
    14,262.5Due after two years through five years
    
    
    1,407.9
    
    
    
    1,437.7Total
    
    $
    25,498.0
    
    
    $
    25,671.7
 d.
    
    Stock-based compensation plansEffective January 1, 2006, TSMC adopted the fair value recognition
provisions to account for share-based payments, using the modified
prospective transition method and therefore has not restated the
results for prior periods. Under the transition method, stock-based
compensation expense in the year ended December 31, 2006 includes
stock-based compensation expense for all share-based payment awards
granted prior to, but not yet vested as of January 1, 2006, based on
the grant-date fair value. In addition, the stock-based compensation
expense also includes intrinsic value of certain outstanding
share-based awards for which it was not possible to reasonably
estimate their grant-date fair value.
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Stock-based compensation expense for all share-based payment awards granted after January 1,
2006 is based on the grant-date fair value. The Company recognizes these compensation costs
using the graded vesting method over the requisite service period of the award, which is
generally a four-year vesting period. The adoption of the guidance relating to share-based
payment resulted in a cumulative gain from accounting change of NT$37.9 million, which
reflects the net cumulative impact of estimating future forfeitures in the determination of
period expense, rather than recording forfeitures when they occur as previously permitted.
In March 2005, the SEC issued an interpretation relating to share-based payment and the
value of share-based payments for public companies. TSMC has applied the interpretation in
its adoption of the guidance relating to share-based payment. In December 2007, the SEC
issued an amendment for prior interpretation regarding the use of the simplified method in
developing estimates of the expected life of stock options in accordance with the guidance
relating to share-based payment. The amendment allowed the continued use, subject to
specific criteria, of the simplified method in estimating the expected life of stock options
granted after December 31, 2008. The Company did not grant any employee stock options since
then.
 The fair values of the options granted under the TSMC 2002 Plan and GUC 2004 Plan were not
reasonably estimable using appropriate valuation methodologies because the terms of such
plans included a provision for a reduction in the exercise price in the event TSMC or GUC
issues additional common shares or issues ADSs at a price lower than the exercise price of a
granted stock option. Accordingly, the expenses for the stock options granted under the TSMC
2002 Plan and GUC 2004 Plan were determined using the variable accounting method. Under such
method, the Company accounts for these stock options based on their intrinsic value,
remeasured at each reporting date through the date of exercise or other settlement.
 Please refer to Note 21 of the Consolidated Financial Statements for other general terms of
TSMCs, GUCs and Xintecs Employee Stock Option Plans, such as the maximum contractual term
and the number of shares authorized for each stock option plan, as well as the supplemental
information such as outstanding options as of December 31, 2009.
 The weighted average remaining contractual term and aggregate intrinsic value of options
under the foregoing plans as of December 31, 2009 were as follows:
 WeightedAverageRemainingAggregate
    
    ContractualIntrinsic Value
    
    TermNT$
    
    (In Years)(In Millions)TSMC:Options outstanding
    
    
    894.4
    
    
    $
    3.6Options exercisable
    
    
    894.4
    
    
    
    3.6GUC:Options outstanding
    
    
    336.8
    
    
    
    2.6Options exercisable
    
    
    84.0
    
    
    
    1.2Xintec:Options outstanding
    
    
    6.3
    
    
    
    7.2Options exercisable
    
    
    2.9
    
    
    
    7.2
 The aggregate intrinsic value in the table above represents the total pre-tax intrinsic
value (the difference between TSMCs or GUCs stock closing price on the last trading date
of the year ended December 31, 2009 and the exercise price, multiplied by the number of
in-the-money options) that would have been received by the option holders had all option
holders exercised their options on December 31, 2009.
 The number of options expected to vest for the years ended December 31, 2008 and 2009 was
10,779 thousand shares and 4,939 thousand shares, respectively.
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##### Table of Contents



Total intrinsic value of options exercised in the years ended December 31, 2008 and 2009 was
NT$508.0 million and NT$379.7 million, respectively. Total fair value of options vested, net
of taxes, during the years ended December 31, 2008 and 2009 was NT$116.3 million and
NT$177.1 million, respectively.
 As of December 31, 2009, there was NT$37.9 million of unrecognized compensation cost related
to stock-based compensation plans. The unrecognized compensation cost is expected to be
recognized over a weighted average period of 1.7 years.e.
    
    Uncertainty in income taxesOn January 1, 2007, the Company adopted new guidance related to
accounting for uncertainty in income taxes, which clarifies the
accounting for uncertainty in income taxes by prescribing a
more-likely-than-not threshold for financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax
return. This guidance also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. As a result of the implementation of this
guidance, the Company did not recognize any cumulative effect
adjustment impacting retained earnings as of the beginning of fiscal
year 2007. As of December 31, 2008 and 2009, there were no material
uncertain tax positions or unrecognized tax benefits identified by the
Company. The Company does not expect there will be any significant
change in this tax position on unrecognized tax benefits within 12
months of the reporting date.f.
    
    Subsidy incomeThe subsidy income of NT$364.3 million, NT$8.0 million and NT$9.0
million recognized in the years ended December 31, 2007, 2008 and
2009, respectively, represented payments granted by the government of
the Peoples Republic of China in connection with the Companys
investment in Mainland China. Under R.O.C. GAAP, such government
grants are recorded as non-operating income when received. In the
absence of specific U.S. GAAP accounting guidance, the Company applied
the International Accounting Standard 20, Accounting for Government
Grants and Disclosure of Government Assistance. Therefore the subsidy
income was recognized when received as non-operating income under U.S.
GAAP as well.g.
    
    Settlement incomeSettlement income of NT$985.1 million, NT$951.2 million and NT$1,464.9
million was recognized in the years ended December 31, 2007, 2008 and
2009, respectively, under the settlement agreement with Semiconductor
Manufacturing International Corporation (SMIC). The dispute settlement
is not a component of the activities that constitute the Companys
ongoing major or central operations and therefore is classified as
non-operating income.The Company recognized such settlement income on a cash basis due to
the Companys serious doubt as to its collectability at the time the
settlement agreement was consummated. The Company continues to analyze
the recognition of the remaining settlement income based on its
collectability, and will evaluate SMICs reported financial condition,
capital resources and liquidity condition on a regular basis.
 F-69