##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(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 1934
 For the fiscal year ended December 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number 1-14700
 (GHRPHIC)
 (Exact Name of Registrant as Specified in Its Charter)
 Taiwan Semiconductor Manufacturing Company Limited
(Translation of Registrants Name Into English)
    
    Republic of China
(Jurisdiction of Incorporation or Organization)
 (Address of Principal Executive Offices)
 
  Title of Each Class
    
    Name of Each Exchange
on Which RegisteredCommon Shares, par value NT$10.00 each*
    
    The New York Stock Exchange, Inc.
 
 
   þ o
 o þ
  þ o
  o o
  Large Accelerated Filer þ
    
    Accelerated Filero
    
    Non-Accelerated Filero
  U.S. GAAP o
    
    International Financial Reporting Standards as issued o
    
    Other þby the International Accounting Standards Board
  Item 17 o   Item 18 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
    
    
    45ITEM 8. FINANCIAL INFORMATION
    
    
    46ITEM 9. THE OFFER AND LISTING
    
    
    48ITEM 10. ADDITIONAL INFORMATION
    
    
    49ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
    
    
    65ITEM 12D. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    67PART II
    
    
    67ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    67ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE
OF PROCEEDS
    
    
    67ITEM 15. CONTROLS AND PROCEDURES
    
    
    67ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    69ITEM 16B. CODE OF ETHICS
    
    
    69ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    69ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    70ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
    
    
    70ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
    
    
    70ITEM 16G. CORPORATE GOVERNANCE
    
    
    70PART III
    
    
    74ITEM 17. FINANCIAL STATEMENTS
    
    
    74ITEM 18. FINANCIAL STATEMENTS
    
    
    74ITEM 19. EXHIBITS
    
    
    74EX-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
   i




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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 312006
    
    2007
    
    2008
    
    2009
    
    2010
    
    2010NT$
    
    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
    
    
    317,407
    
    
    
    322,630
    
    
    
    333,158
    
    
    
    295,742
    
    
    
    419,538
    
    
    
    14,397Cost of sales(7)
    
    
    (161,597
    )
    
    
    (180,280
    )
    
    
    (191,408
    )
    
    
    (166,413
    )
    
    
    (212,484
    )
    
    
    (7,292
    )Gross profit
    
    
    155,810
    
    
    
    142,350
    
    
    
    141,750
    
    
    
    129,329
    
    
    
    207,054
    
    
    
    7,105Operating expenses(7)
    
    
    (28,545
    )
    
    
    (30,628
    )
    
    
    (37,315
    )
    
    
    (37,367
    )
    
    
    (47,879
    )
    
    
    (1,643
    )Income from operations
    
    
    127,265
    
    
    
    111,722
    
    
    
    104,435
    
    
    
    91,962
    
    
    
    159,175
    
    
    
    5,462Non-operating income and gains(6)
    
    
    9,839
    
    
    
    11,934
    
    
    
    10,822
    
    
    
    5,654
    
    
    
    13,136
    
    
    
    451Non-operating expenses and losses(6)
    
    
    (3,742
    )
    
    
    (2,014
    )
    
    
    (3,785
    )
    
    
    (2,153
    )
    
    
    (2,041
    )
    
    
    (70
    )Income before income tax and minority interests
    
    
    133,362
    
    
    
    121,642
    
    
    
    111,472
    
    
    
    95,463
    
    
    
    170,270
    
    
    
    5,843Income tax expense
    
    
    (7,774
    )
    
    
    (11,710
    )
    
    
    (10,949
    )
    
    
    (5,997
    )
    
    
    (7,988
    )
    
    
    (274
    )Income before cumulative effect of changes in
accounting principles
    
    
    125,588
    
    
    
    109,932
    
    
    
    100,523
    
    
    
    89,466
    
    
    
    162,282
    
    
    
    5,569Cumulative effect of changes in accounting
principles
    
    
    1,607
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income before minority interests
    
    
    127,195
    
    
    
    109,932
    
    
    
    100,523
    
    
    
    89,466
    
    
    
    162,282
    
    
    
    5,569Minority interests in loss (income) of
subsidiaries
    
    
    (185
    )
    
    
    (755
    )
    
    
    (590
    )
    
    
    (248
    )
    
    
    (677
    )
    
    
    (23
    )Net income attributable to shareholders of the
parent
    
    
    127,010
    
    
    
    109,177
    
    
    
    99,933
    
    
    
    89,218
    
    
    
    161,605
    
    
    
    5,546Basic earnings per share(1)
    
    
    4.70
    
    
    
    4.04
    
    
    
    3.84
    
    
    
    3.45
    
    
    
    6.24
    
    
    
    0.21Diluted earnings per share(1)
    
    
    4.69
    
    
    
    4.04
    
    
    
    3.81
    
    
    
    3.44
    
    
    
    6.23
    
    
    
    0.21Basic earnings per ADS equivalent(1)
    
    
    23.49
    
    
    
    20.21
    
    
    
    19.19
    
    
    
    17.27
    
    
    
    31.19
    
    
    
    1.07
 2




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##### Table of Contents



Year ended and as of December 312006
    
    2007
    
    2008
    
    2009
    
    2010
    
    2010NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    US$(in millions, except for percentages,earnings per share and per ADS, and operating data)Diluted earnings per ADS
equivalent(1)
    
    
    23.47
    
    
    
    20.20
    
    
    
    19.05
    
    
    
    17.21
    
    
    
    31.17
    
    
    
    1.07Basic weighted average shares
outstanding(1)
    
    
    27,031
    
    
    
    27,005
    
    
    
    26,039
    
    
    
    25,836
    
    
    
    25,906
    
    
    
    25,906Diluted weighted average
shares
outstanding(1)
    
    
    27,053
    
    
    
    27,026
    
    
    
    26,235
    
    
    
    25,913
    
    
    
    25,920
    
    
    
    25,920U.S. GAAPNet sales
    
    
    317,979
    
    
    
    323,221
    
    
    
    334,340
    
    
    
    296,109
    
    
    
    419,988
    
    
    
    14,413Cost of sales
    
    
    (179,175
    )
    
    
    (202,046
    )
    
    
    (203,734
    )
    
    
    (167,122
    )
    
    
    (212,771
    )
    
    
    (7,302
    )Operating expenses
    
    
    (37,050
    )
    
    
    (44,775
    )
    
    
    (44,424
    )
    
    
    (37,627
    )
    
    
    (48,434
    )
    
    
    (1,662
    )Income from operations
    
    
    101,754
    
    
    
    76,400
    
    
    
    86,182
    
    
    
    91,360
    
    
    
    158,783
    
    
    
    5,449Income before income tax and
noncontrolling interests
    
    
    106,647
    
    
    
    85,973
    
    
    
    91,884
    
    
    
    94,253
    
    
    
    170,088
    
    
    
    5,837Income tax expense
    
    
    (10,954
    )
    
    
    (14,012
    )
    
    
    (10,062
    )
    
    
    (4,960
    )
    
    
    (5,768
    )
    
    
    (198
    )Cumulative effect of changes
in accounting principles
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    95,711
    
    
    
    71,658
    
    
    
    81,473
    
    
    
    89,102
    
    
    
    164,320
    
    
    
    5,639Income attributable to common
shareholders
    
    
    95,711
    
    
    
    71,658
    
    
    
    81,473
    
    
    
    89,102
    
    
    
    163,639
    
    
    
    5,616Basic earnings per
share(2)
    
    
    3.68
    
    
    
    2.71
    
    
    
    3.15
    
    
    
    3.45
    
    
    
    6.32
    
    
    
    0.22Diluted earnings per
share(2)
    
    
    3.68
    
    
    
    2.71
    
    
    
    3.13
    
    
    
    3.44
    
    
    
    6.31
    
    
    
    0.22Basic earnings per ADS
equivalent(2)
    
    
    18.40
    
    
    
    13.57
    
    
    
    15.77
    
    
    
    17.24
    
    
    
    31.58
    
    
    
    1.08Diluted earnings per ADS
equivalent(2)
    
    
    18.38
    
    
    
    13.56
    
    
    
    15.65
    
    
    
    17.19
    
    
    
    31.57
    
    
    
    1.08Basic weighted average shares
outstanding(2)
    
    
    26,011
    
    
    
    26,409
    
    
    
    25,826
    
    
    
    25,836
    
    
    
    25,906
    
    
    
    25,906Diluted weighted average
shares
outstanding(2)
    
    
    26,033
    
    
    
    26,430
    
    
    
    26,022
    
    
    
    25,913
    
    
    
    25,920
    
    
    
    25,920Balance Sheet Data:R.O.C. GAAPWorking capital
    
    
    213,457
    
    
    
    201,116
    
    
    
    195,812
    
    
    
    180,671
    
    
    
    138,328
    
    
    
    4,747Long-term investments
    
    
    53,895
    
    
    
    36,461
    
    
    
    39,982
    
    
    
    37,845
    
    
    
    39,776
    
    
    
    1,365Properties
    
    
    254,094
    
    
    
    260,252
    
    
    
    243,645
    
    
    
    273,675
    
    
    
    388,444
    
    
    
    13,330Goodwill
    
    
    5,985
    
    
    
    5,988
    
    
    
    6,044
    
    
    
    5,931
    
    
    
    5,705
    
    
    
    196Total assets
    
    
    587,485
    
    
    
    570,865
    
    
    
    558,917
    
    
    
    594,696
    
    
    
    718,929
    
    
    
    24,672Long-term bank borrowing
    
    
    654
    
    
    
    1,722
    
    
    
    1,420
    
    
    
    579
    
    
    
    302
    
    
    
    10Long-term bonds payable
    
    
    12,500
    
    
    
    12,500
    
    
    
    4,500
    
    
    
    4,500
    
    
    
    4,500
    
    
    
    154Guaranty deposit-in and other
liabilities(3)
    
    
    18,333
    
    
    
    17,251
    
    
    
    15,817
    
    
    
    11,436
    
    
    
    12,231
    
    
    
    420Total liabilities
    
    
    78,347
    
    
    
    80,179
    
    
    
    78,544
    
    
    
    95,648
    
    
    
    140,224
    
    
    
    4,812
 3




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##### Table of Contents



Year ended and as of December 312006
    
    2007
    
    2008
    
    2009
    
    2010
    
    2010NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    US$(in millions, except for percentages,earnings per share and per ADS, and operating data)Capital stock
    
    
    258,297
    
    
    
    264,271
    
    
    
    256,254
    
    
    
    259,027
    
    
    
    259,101
    
    
    
    8,892Cash dividend on common shares
    
    
    61,825
    
    
    
    77,489
    
    
    
    76,881
    
    
    
    76,876
    
    
    
    77,708
    
    
    
    2,667Shareholders equity
attributable to shareholders
of the parent
    
    
    507,981
    
    
    
    487,092
    
    
    
    476,377
    
    
    
    495,083
    
    
    
    574,145
    
    
    
    19,703Minority interests in
subsidiaries
    
    
    1,157
    
    
    
    3,594
    
    
    
    3,996
    
    
    
    3,965
    
    
    
    4,560
    
    
    
    157U.S. GAAPGoodwill
    
    
    46,940
    
    
    
    46,926
    
    
    
    47,028
    
    
    
    46,825
    
    
    
    46,419
    
    
    
    1,593Total assets
    
    
    626,108
    
    
    
    610,843
    
    
    
    599,484
    
    
    
    635,275
    
    
    
    759,266
    
    
    
    26,056Total liabilities
    
    
    92,549
    
    
    
    94,021
    
    
    
    84,424
    
    
    
    99,278
    
    
    
    144,109
    
    
    
    4,945Capital Stock
    
    
    258,297
    
    
    
    264,271
    
    
    
    256,254
    
    
    
    259,027
    
    
    
    259,101
    
    
    
    8,892Shareholders equity
attributable to common
shareholders of the parent
    
    
    532,403
    
    
    
    513,228
    
    
    
    511,089
    
    
    
    532,043
    
    
    
    610,597
    
    
    
    20,954Noncontrolling interests in
subsidiaries
    
    
    1,156
    
    
    
    3,594
    
    
    
    3,971
    
    
    
    3,954
    
    
    
    4,560
    
    
    
    157Year ended and as of December 312006
    
    2007
    
    2008
    
    2009
    
    2010
    
    2010NT$
    
    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
    
    
    49%
    
    
    
    44%
    
    
    
    42%
    
    
    
    44%
    
    
    
    49%
    
    
    
    49%Operating margin
    
    
    40%
    
    
    
    35%
    
    
    
    31%
    
    
    
    31%
    
    
    
    38%
    
    
    
    38%Net margin
    
    
    40%
    
    
    
    34%
    
    
    
    30%
    
    
    
    30%
    
    
    
    39%
    
    
    
    39%Capital expenditures
    
    
    78,737
    
    
    
    84,001
    
    
    
    59,223
    
    
    
    87,785
    
    
    
    186,944
    
    
    
    6,415Depreciation and
amortization
    
    
    73,715
    
    
    
    80,005
    
    
    
    81,512
    
    
    
    80,815
    
    
    
    87,810
    
    
    
    3,013Cash provided by operating
activities
    
    
    204,997
    
    
    
    183,766
    
    
    
    221,494
    
    
    
    159,966
    
    
    
    229,476
    
    
    
    7,875Cash used in investing
activities
    
    
    (119,724
    )
    
    
    (70,689
    )
    
    
    (8,042
    )
    
    
    (96,468
    )
    
    
    (202,086
    )
    
    
    (6,935
    )Cash used in financing
activities
    
    
    (63,783
    )
    
    
    (135,410
    )
    
    
    (115,393
    )
    
    
    (85,471
    )
    
    
    (48,638
    )
    
    
    (1,669
    )Net cash inflow (outflow)
    
    
    21,353
    
    
    
    (22,851
    )
    
    
    99,628
    
    
    
    (23,338
    )
    
    
    (23,389
    )
    
    
    (803
    )Operating Data:Wafer (200mm equivalent)
shipment(4)
    
    
    7,215
    
    
    
    8,005
    
    
    
    8,467
    
    
    
    7,737
    
    
    
    11,860
    
    
    
    11,860Billing Utilization
Rate(5)
    
    
    102%
    
    
    
    93%
    
    
    
    88%
    
    
    
    75%
    
    
    
    101%
    
    
    
    101%
 
 (1)
    
    Retroactively adjusted for stock dividends for earning year 2006 to earning year
2008 and profit sharing to employees in stock for earning year 2006 to earning year 2007.(2)
    
    Retroactively adjusted for stock dividends for earning year 2006 to earning year
2008.(3)
    
    Consists of other long-term payables, obligations under capital leases and total
other liabilities.(4)
    
    In thousands.(5)
    
    Billing Utilization Rate is equal to annual wafer shipment divided by annual
capacity. Capacity for the years 2007, 2008, 2009 and 2010 includes wafers committed by
Vanguard. Please see Item 7. Major Shareholders and Related Party Transaction  Related
Party Transactions  Vanguard International Semiconductor Corporation for a discussion of
certain Vanguard contract terms.(6)
    
    The specified 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.


4



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##### Table of Contents



(7)
    
    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 our consolidated financial statements for more
details. Exchange Rates
   NT dollars per U.S. dollarAverage(1)
    
    High
    
    Low
    
    Period-End2005
    
    
    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
    
    
    
    31.952010
    
    
    31.39
    
    
    
    32.27
    
    
    
    29.14
    
    
    
    29.14October 2010
    
    
    30.81
    
    
    
    31.30
    
    
    
    30.42
    
    
    
    30.60November 2010
    
    
    30.32
    
    
    
    30.52
    
    
    
    30.12
    
    
    
    30.47December 2010
    
    
    29.90
    
    
    
    30.37
    
    
    
    29.14
    
    
    
    29.14January 2011
    
    
    29.11
    
    
    
    29.36
    
    
    
    28.98
    
    
    
    29.03February 2011
    
    
    29.28
    
    
    
    29.76
    
    
    
    28.78
    
    
    
    29.74March 2011
    
    
29.49
    
    
    
29.63
    
    
    
29.35
    
    
    
29.40April 2011 (through April 8, 2011)
    
    
29.11
    
    
    
29.31
    
    
    
28.92
    
    
    
28.92
 
 (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




---



##### Table of Contents



Risks Relating to Our Business
 Any global systemic political, economic and financial crisis or catastrophe caused or induced by
natural disasters 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 obtain
sufficient financial resources to 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.
  7




---



##### Table of Contents



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.
  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.
  9




---



##### Table of Contents



Any failure to achieve and maintain effective internal controls could have a material adverse
effect on our business and results of operations.
    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 R.O.C., which could negatively affect our business and financial status and
therefore the market value of your investment.
   Our operational results could also be materially and 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 our suppliers operate.
  10




---



##### Table of Contents



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




---



##### Table of Contents



Adverse
fluctuations in exchange rates could decrease our operating margin.
  Fluctuations in inflationary and deflationary market expectations could negatively affect costs of
and 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
  13




---



##### Table of Contents



Our Principal Office
  Business Overview of the Company
    New Businesses
    Our Semiconductor Facilities
  14




---



##### Table of Contents



TM
  Semiconductor Manufacturing Capacity and Technology
 ® ® ®
  Current mostadvanced technologyYear of
    
    for volume
    
    Monthly capacity(3)(4)Fab(1)
    
    commencement
    
    production(2)
    
    2006
    
    2007
    
    2008
    
    2009
    
    20102
    
    
    1990
    
    
    
    0.45
    
    
    
    50,506
    
    
    
    51,685
    
    
    
    51,609
    
    
    
    53,649
    
    
    
    48,2443
    
    
    1995
    
    
    
    0.15
    
    
    
    89,900
    
    
    
    90,500
    
    
    
    92,400
    
    
    
    95,377
    
    
    
    100,9575
    
    
    1997
    
    
    
    0.15
    
    
    
    51,500
    
    
    
    55,800
    
    
    
    54,200
    
    
    
    48,600
    
    
    
    47,5006
    
    
    2000
    
    
    
    0.11
    
    
    
    83,400
    
    
    
    94,000
    
    
    
    95,100
    
    
    
    96,800
    
    
    
    94,9978
    
    
    1998
    
    
    
    0.11
    
    
    
    83,500
    
    
    
    89,400
    
    
    
    91,600
    
    
    
    85,750
    
    
    
    85,75310
    
    
    2004
    
    
    
    0.15
    
    
    
    32,000
    
    
    
    31,000
    
    
    
    43,000
    
    
    
    45,500
    
    
    
    49,60011
    
    
    1998
    
    
    
    0.15
    
    
    
    35,500
    
    
    
    35,500
    
    
    
    35,500
    
    
    
    36,565
    
    
    
    36,30012
    
    
    2001
    
    
    
    0.04
    
    
    
    131,175
    
    
    
    160,755
    
    
    
    167,910
    
    
    
    199,283
    
    
    
    238,92714
    
    
    2004
    
    
    
    0.04
    
    
    
    79,650
    
    
    
    133,279
    
    
    
    179,258
    
    
    
    186,443
    
    
    
    311,447SSMC(5)
    
    
    2000
    
    
    
    0.15
    
    
    
    17,700
    
    
    
    20,700
    
    
    
    24,600
    
    
    
    22,010
    
    
    
    23,146Total
    
    
    
    
    
    
    
    
    
    
    654,831
    
    
    
    762,619
    
    
    
    835,177
    
    
    
    869,977
    
    
    
    1,036,871
 
 (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.(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)
    
    Represents that portion of the total capacity that we had the option to utilize as
of December 31, 2006, December 31, 2007, December 31, 2008, December 31, 2009 and December 31,
2010. This fab commenced production in September 2000.  15




---



##### Table of Contents



Capacity Management and Technology Upgrade Plans
  (1)
 
    
    adding capacity to our 300mm and 200mm wafer fabs;
 
    
    development of process technologies in 28nm, 20nm, and 14nm nodes and other research
and development projects;
 
    
    Fab 12, Fab 14, and Fab 15 buildings/facilities;
 
    
    backend capacity;
 
    
    new technologies development for mask operations; and
 
    
    solar and LED businesses.
  
 (1)
    
    Translated from weighted average exchange rate of NT$31.491 to US$1.00. Markets and Customers
  Year ended December 312008
    
    2009
    
    2010Customer Type
    
    Net Sales
    
    Percentage
    
    Net Sales
    
    Percentage
    
    Net Sales
    
    Percentage(in millions, except percentages)Fabless semiconductor
companies/systems
companies
    
    NT$239,981
    
    
    72.0
    %
    
    NT$237,572
    
    
    80.3
    %
    
    NT$331,264
    
    
    78.9
    %Integrated device
manufacturers
    
93,136
    
    
    28.0
    %
    
58,108
    
    
    19.7
    %
    
88,054
    
    
    21.0
    %Others
    
41
    
    
    0.0
    %
    
62
    
    
    0.0
    %
    
220
    
    
    0.1
    %Total
    
NT$333,158
    
    
    100.0
    %
    
NT$295,742
    
    
    100.0
    %
    
NT$419,538
    
    
    100.0
    %
 16




---



##### Table of Contents



Year ended December 312008
    
    2009
    
    2010Region
    
    Net Sales
    
    Percentage
    
    Net Sales
    
    Percentage
    
    Net Sales
    
    Percentage(in millions, except percentages)North America
    
    NT$245,268
    
    
    73.6
    %
    
    NT$203,870
    
    
    69.0
    %
    
    NT$282,498
    
    
    67.3
    %Asia Pacific
    
    
    
    37,762
    
    
    11.3
    %
    
    
    
    41,554
    
    
    14.0
    %
    
    
    
    60,796
    
    
    14.5
    %Europe
    
    
    
    33,946
    
    
    10.2
    %
    
    
    
    30,407
    
    
    10.3
    %
    
    
    
    44,360
    
    
    10.6
    %Japan
    
    
    
    10,475
    
    
    3.2
    %
    
    
    
    10,124
    
    
    3.4
    %
    
    
    
    18,539
    
    
    4.4
    %China
    
    
    
    5,707
    
    
    1.7
    %
    
    
    
    9,787
    
    
    3.3
    %
    
    
    
    13,345
    
    
    3.2
    %Total
    
    NT$333,158
    
    
    100.0
    %
    
    NT$295,742
    
    
    100.0
    %
    
    NT$419,538
    
    
    100.0
    %
   ®
 Commitments by Customers.
  The Semiconductor Fabrication Process
  Our Foundry Services
 Range of Services.
 17




---



##### Table of Contents



Fabrication Processes.
 Types of Semiconductors We Manufacture.
  Logic Semiconductors.
 Mixed-Signal/RF Semiconductors. ®
 Memory Semiconductors.
 CMOS Image Sensor Semiconductors.
 High Voltage Semiconductors.
  Year ended December 312008
    
    2009
    
    2010Semiconductor Type
    
    Net Sales
    
    Percentage
    
    Net Sales
    
    Percentage
    
    Net Sales
    
    Percentage(in millions, except percentages)CMOSLogic
    
    NT$245,489
    
    
    73.7
    %
    
    NT$213,160
    
    
    72.1
    %
    
    NT$300,753
    
    
    71.7
    %Memory
    
    
    
    2,784
    
    
    0.8
    %
    
    
    
    2,068
    
    
    0.7
    %
    
    
    
    1,949
    
    
    0.5
    %Mixed-Signal(1)
    
    
    
    82,018
    
    
    24.6
    %
    
    
    
    77,427
    
    
    26.2
    %
    
    
    
    112,715
    
    
    26.9
    %BiCMOS(2)
    
    
    
    2,374
    
    
    0.7
    %
    
    
    
    2,912
    
    
    1.0
    %
    
    
    
    3,548
    
    
    0.8
    %Others
    
    
    
    493
    
    
    0.2
    %
    
    
    
    175
    
    
    0.0
    %
    
    
    
    573
    
    
    0.1
    %Total
    
    NT$333,158
    
    
    100.0
    %
    
    NT$295,742
    
    
    100.0
    %
    
    NT$419,538
    
    
    100.0
    %
 
 (1)
    
    Mixed-signal semiconductors made with the CMOS process.(2)
    
    Mixed-signal and other semiconductors made with the BiCMOS process. 18




---



##### Table of Contents



Design and Technology Platforms.
  ®
 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; and
 
    
    availability of eFoundry®, the online service which provides in real-time
necessary information in design, engineering, and logistics to ensure seamless services
to our customers throughout product life cycle.
 19




---



##### Table of Contents



Research and Development
 ®
    Equipment
   20




---



##### Table of Contents



Raw Materials
    Competition
  Environmental Regulations
   21




---



##### Table of Contents



Electricity and Water
  Risk Management
   Our Subsidiaries and Affiliates
 Vanguard International Semiconductor Corporation (VIS).
 22




---



##### Table of Contents



WaferTech in the United States.
 Systems on Silicon Manufacturing Company Pte. Ltd. (SSMC).
 Global Unichip Corporation (GUC).
 TSMC 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
  23




---



##### Table of Contents




    
    the worldwide demand for semiconductor products;
    
    pricing;
    
    the worldwide semiconductor production capacity as well as our production capacity;
    
    capacity utilization;
    
    supply chain availability;
    
    technology migration; and
    
    fluctuation in foreign currency exchange rate.
  Pricing.
 Production Capacity.
  Technology Migration.
  Year ended December 312008
    
    2009
    
    2010Percentage of total
    
    Percentage of total
    
    Percentage of totalwafer
    
    wafer
    
    waferResolution
    
    revenue(1)
    
    revenue(1)
    
    revenue(1)≤
45-nanometer
    
    
    
    
    
    
    4
    %
    
    
    17
    %65-nanometer
    
    
    21
    %
    
    
    29
    %
    
    
    29
    %90-nanometer
    
    
    26
    %
    
    
    20
    %
    
    
    14
    %0.11/0.13 micron
    
    
    17
    %
    
    
    14
    %
    
    
    12
    %0.15 micron
    
    
    6
    %
    
    
    4
    %
    
    
    4
    %0.18 micron
    
    
    17
    %
    
    
    17
    %
    
    
    13
    %0.25 micron
    
    
    5
    %
    
    
    5
    %
    
    
    4
    %0.35 micron
    
    
    5
    %
    
    
    4
    %
    
    
    4
    %≥
0.5 micron
    
    
    3
    %
    
    
    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. 24




---



##### Table of Contents



Critical Accounting Policies
  Revenue Recognition.
  Allowance for Doubtful Accounts.
  Inventory valuation.
   25




---



##### Table of Contents



Valuation allowance for deferred tax assets.
   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




---



##### 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.
 27




---



##### Table of Contents



Accounting for investments in private and publicly-traded securities.
  Results of Operations
  For the year ended December 312008
    
    
    2009
    
    
    2010Net sales
    
    
    100.0%
    
    
    
    100.0%
    
    
    
    100.0%Cost of sales
    
    
    (57.5)%
    
    
    
    (56.3)%
    
    
    
    (50.6)%Gross profit
    
    
    42.5%
    
    
    
    43.7%
    
    
    
    49.4%Operating expensesGeneral and administrative
    
    
    (3.3)%
    
    
    
    (3.8)%
    
    
    
    (3.1)%Sales and marketing
    
    
    (1.4)%
    
    
    
    (1.5)%
    
    
    
    (1.3)%Research and development
    
    
    (6.4)%
    
    
    
    (7.3)%
    
    
    
    (7.1)%Total operating expenses
    
    
    (11.1)%
    
    
    
    (12.6)%
    
    
    
    (11.5)%Income from operations
    
    
    31.4%
    
    
    
    31.1%
    
    
    
    37.9%Non-operating income and gains
    
    
    3.2%
    
    
    
    1.9%
    
    
    
    3.2%Non-operating expenses and losses
    
    
    (1.1)%
    
    
    
    (0.7)%
    
    
    
    (0.5)%Income before income tax and minority interests
    
    
    33.5%
    
    
    
    32.3%
    
    
    
    40.6%Income tax expense
    
    
    (3.3)%
    
    
    
    (2.0)%
    
    
    
    (1.9)%Income before cumulative effect of changes in accounting principles
    
    
    30.2%
    
    
    
    30.3%
    
    
    
    38.7%Cumulative effect of changes in accounting principles
    
    
    
    
    
    
    
    
    
    
    Income before minority interests
    
    
    30.2%
    
    
    
    30.3%
    
    
    
    38.7%Minority interests in income of subsidiaries
    
    
    (0.2)%
    
    
    
    (0.1)%
    
    
    
    (0.2)%Net income
    
    
    30.0%
    
    
    
    30.2%
    
    
    
    38.5%
 Year to Year Comparisons
 Net Sales and Gross Margin
 For the year ended December 31% Change
    
    
    
    
    
    
    
    
    
    
    % Change2008
    
    
    2009
    
    
    from 2008
    
    
    2010
    
    
    from 2009NT$
    
    
    NT$
    
    
    
    
    
    
    NT$
    
    
    US$(in millions)
    
    
    
    
    
    
    (in millions)Net sales
    
    
    333,158
    
    
    
    295,742
    
    
    
    (11.2
    %)
    
    
    419,538
    
    
    
    14,397
    
    
    
    41.9
    %Cost of sales
    
    
    (191,408
    )
    
    
    (166,413
    )
    
    
    (13.1
    %)
    
    
    (212,484
    )
    
    
    (7,292
    )
    
    
    27.7
    %Gross profit
    
    
    141,750
    
    
    
    129,329
    
    
    
    (8.8
    %)
    
    
    207,054
    
    
    
    7,105
    
    
    
    60.1
    %Gross margin
percentage
    
    
    42.5%
    
    
    
    43.7%
    
    
    
    
    
    
    
    49.4%
    
    
    
    49.4%
    
    
    
    
 28




---



##### Table of Contents



Net Sales
    Gross Margin
    29




---



##### Table of Contents



Operating Expenses
 For the year ended December 31% Change
    
    
    
    
    
    
    
    
    
    
    % Change2008
    
    
    2009
    
    
    from 2008
    
    
    2010
    
    
    from 2009NT$
    
    
    NT$
    
    
    
    
    
    
    NT$
    
    
    US$(in millions)
    
    
    
    
    
    
    (in millions)Research and
development
    
    
    21,481
    
    
    
    21,593
    
    
    
    0.5
    %
    
    
    29,707
    
    
    
    1,020
    
    
    
    37.6%General and
administrative
    
    
    11,097
    
    
    
    11,286
    
    
    
    1.7
    %
    
    
    12,804
    
    
    
    439
    
    
    
    13.5%Sales and marketing
    
    
    4,737
    
    
    
    4,488
    
    
    
    (5.3
    )%
    
    
    5,368
    
    
    
    184
    
    
    
    19.6%Total operating
expenses
    
    
    37,315
    
    
    
    37,367
    
    
    
    0.1
    %
    
    
    47,879
    
    
    
    1,643
    
    
    
    28.1%Percentage of net
sales
    
    
    11.1%
    
    
    
    12.6%
    
    
    
    
    
    
    
    11.5%
    
    
    
    11.5%
    
    
    
    Income from
operations
    
    
    104,435
    
    
    
    91,962
    
    
    
    (11.9
    )%
    
    
    159,175
    
    
    
    5,462
    
    
    
    73.1%Operating Margin
    
    
    31.4%
    
    
    
    31.1%
    
    
    
    
    
    
    
    37.9%
    
    
    
    37.9%
    
    
    
    
  Research and Development Expenses
  General and Administrative, Sales and Marketing Expenses
   30




---



##### Table of Contents



Non-Operating Income and Expenses
 For the year ended December 31% Change
    
    
    
    
    
    
    
    
    
    % Change2008
    
    2009
    
    from 2008
    
    2010
    
    from 2009NT$
    
    NT$
    
    
    
    
    
    NT$
    
    US$(in millions)
    
    
    
    
    
    
    (in millions)Non-operating
income and gains
    
    
    10,822
    
    
    
    5,654
    
    
    
    (47.8
    )%
    
    
    13,136
    
    
    
    451
    
    
    
    132.3
    %Non-operating
expenses and losses
    
    
    (3,785
    )
    
    
    (2,153
    )
    
    
    (43.1
    )%
    
    
    (2,041
    )
    
    
    (70
    )
    
    
    (5.2
    )%Net non-operating
income (expenses)
    
    
    7,037
    
    
    
    3,501
    
    
    
    (50.2
    )%
    
    
    11,095
    
    
    
    381
    
    
    
    216.9
    %
   Income Tax Benefit (Expense)
 For the year ended December 31% Change
    
    
    
    
    
    
    
    
    
    % Change2008
    
    2009
    
    from 2008
    
    2010
    
    from 2009NT$
    
    NT$
    
    
    
    
    
    NT$
    
    US$(in millions)
    
    
    
    
    
    
    (in millions)Income tax expense
    
    
    (10,949
    )
    
    
    (5,997
    )
    
    
    (45.2
    )%
    
    
    (7,988
    )
    
    
    (274
    )
    
    
    33.2
    %Net income
    
    
    99,933
    
    
    
    89,218
    
    
    
    (10.7
    )%
    
    
    161,605
    
    
    
    5,546
    
    
    
    81.1
    %Net margin
    
    
    30.0%
    
    
    
    30.2%
    
    
    
    
    
    
    
    38.5%
    
    
    
    38.5%
    
    
    
    
    
   31




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##### Table of Contents



Liquidity and Capital Resources
      For the year ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(in millions)
    
    
    (in millions)
    
    
    (in millions)Net cash provided by operating activities
    
    
    221,494
    
    
    
    159,966
    
    
    
    229,476
    
    
    
    7,875Net cash used in investing activities
    
    
    (8,042
    )
    
    
    (96,468
    )
    
    
    (202,086
    )
    
    
    (6,935
    )Net cash used in financing activities
    
    
    (115,393
    )
    
    
    (85,471
    )
    
    
    (48,638
    )
    
    
    (1,669
    )Net increase/(decrease) in cash
    
    
    99,628
    
    
    
    (23,338
    )
    
    
    (23,389
    )
    
    
    (803
    )
  Operating Activities
    32




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##### Table of Contents



Investing Activities
   
    
    adding production capacity to Fab 12 and Fab 14;
    
    expanding buildings/facilities for Fab 12 and Fab 14, and new buildings/facilities
for Fab 15;
    
    capacity expansion for mask and backend operations;
    
    developing process technologies which include 28-nanometer nodes and below; and
    
    other research and development projects.
  Financing Activities
  (US$874 million)(1) (1)
 
 (1)
    
    Based on 2010 year-end revaluation rate of NT$30.368 to US$1.00. 33




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##### Table of Contents



Cash Requirements
  Long-term debt(in NT$ millions)During 2011
    
    
    241During 2012
    
    
    4,742During 2013
    
    
    60During 2014
    
    
    During 2015 and thereafter
    
    
    
  Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 Years(in NT$ millions)Short-Term Debt(1)
    
    
    31,214
    
    
    
    31,214
    
    
    
    
    
    
    
    
    
    
    
    Long-Term Debt(2)
    
    
    5,043
    
    
    
    241
    
    
    
    4,802
    
    
    
    
    
    
    
    Capital Lease Obligations(3)
    
    
    773
    
    
    
    136
    
    
    
    637
    
    
    
    
    
    
    
    Operating Leases(4)
    
    
    6,139
    
    
    
    612
    
    
    
    1,106
    
    
    
    998
    
    
    
    3,423Other Payments(5)
    
    
    7,961
    
    
    
    1,407
    
    
    
    1,245
    
    
    
    5,309
    
    
    
    Capital Purchase or other Purchase
Obligations(6)
    
    
    80,603
    
    
    
    69,814
    
    
    
    9,983
    
    
    
    537
    
    
    
    269Total Contractual Cash Obligations(7)
    
    
    131,733
    
    
    
    103,424
    
    
    
    17,773
    
    
    
    6,844
    
    
    
    3,692
 
 (1)
    
    Our total short-term debt outstanding at December 31, 2010 was NT$31,214
million as compared to nil at December 31, 2009. The maximum amount and average amount of
short-term debt outstanding during the year ended December 31, 2010, was NT$37,910 million and
NT$21,000 million, respectively. The purpose of the short-term debt was mainly to naturally
hedge a portion of our accounts receivable denominated in U.S. dollars. As substantial
portions of our accounts receivable were denominated in U.S. dollars, we use short-term debt
denominated in U.S. dollars to naturally hedge the fluctuation of foreign exchanges rates. See
note 16 to our consolidated financial statements for further information regarding interest
rates and future repayment dates.(2)
    
    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 17 and 18 to our
consolidated financial statements for further information regarding interest rates and future
repayment of long-term debts.(3)
    
    Capital lease obligations represent our commitment for leases of property, which are
described in note 14 to our consolidated financial statements.(4)
    
    Operating lease obligations are described in note 28 to our consolidated financial
statements.(5)
    
    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.(6)
    
    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, 2010, as we have not received related goods or taken title of the property.(7)
    
    Minimum pension funding requirement is not included since such amounts have not been
determined. We made pension contributions of approximately NT$212 million in 2010 and we
estimate that we will contribute approximately NT$216 million to the pension fund in 2011. See
note 20 to our consolidated financial statements for additional details regarding our pension
plan.  34




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##### Table of Contents



(2)
 
 (2)
    
    Translated from weighted average exchange rate of NT$31.491 to US$1.00. U.S. GAAP Reconciliation
  For the year ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(in millions)Net income
attributable to the
shareholders of the
parent in
accordance with:R.O.C. GAAP
    
    
    99,933
    
    
    
    89,218
    
    
    
    161,605
    
    
    
    5,546U.S. GAAP
    
    
    81,473
    
    
    
    89,102
    
    
    
    163,639
    
    
    
    5,616Shareholders
equity attributable
to the shareholders
of the parent in
accordance with:R.O.C. GAAP
    
    
    476,377
    
    
    
    495,083
    
    
    
    574,145
    
    
    
    19,703U.S. GAAP
    
    
    511,089
    
    
    
    532,043
    
    
    
    610,597
    
    
    
    20,954
  Taxation
   35




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##### Table of Contents



Off-Balance Sheet Arrangements
  Inflation & Deflation
  Recent Accounting Pronouncements
    36




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##### Table of Contents



Climate Change Related Issues
  
 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 Directors and Executive Officers
 MANAGEMENT
      37




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##### Table of Contents



Years with ourName
    
    Position with our company
    
    Term Expires
    
    companyMorris Chang
    
    Chairman & Chief Executive Officer
    
    2012
    
    24F.C. Tseng
    
    Vice Chairman
    
    2012
    
    24Johnsee Lee
    
    Director (Representative of the National Development Fund)
    
    2012
    
    1Stan Shih
    
    Independent Director
    
    2012
    
    11Sir Peter Leahy Bonfield
    
    Independent Director
    
    2012
    
    9Thomas J. Engibous
    
    Independent Director
    
    2012
    
    2Rick Tsai
    
    Director & President of New Businesses
    
    2012
    
    21Stephen T. Tso
    
    Senior Vice President & Chief Information Officer
    
    
    
    14Shang-yi Chiang(1)
    
    Senior Vice President of Research & Development
    
    
    
    11Mark Liu
    
    Senior Vice President of Operations
    
    
    
    17C.C. Wei
    
    Senior Vice President of Business Development
    
    
    
    13Richard Thurston
    
    Senior Vice President & General Counsel
    
    
    
    9Lora Ho
    
    Senior Vice President, Chief Financial Officer & Spokesperson
    
    
    
    12Jason C.S. Chen
    
    Senior Vice President of Worldwide Sales & Marketing
    
    
    
    6M.C. Tzeng
    
    Vice President of Operations/Affiliate Fabs
    
    
    
    24Wei-Jen Lo
    
    Vice President of Operations/Manufacturing Technology
    
    
    
    7Jack Sun
    
    Vice President of Research & Development & Chief Technology Officer
    
    
    
    14Y.P. Chin
    
    Vice President of Operations/Product Development
    
    
    
    24N.S. Tsai
    
    Vice President of Quality & Reliability
    
    
    
    22Rick Cassidy
    
    Vice President & President of TSMC North America
    
    
    
    14L.C. Tu
    
    Vice President of Human Resources
    
    
    
    24J.K. Lin
    
    Vice President of Operations/Mainstream Fabs
    
    
    
    24J.K. Wang
    
    Vice President of Operations/300mm Fabs
    
    
    
    24Irene Sun
    
    Vice President of Corporate Planning
    
    
    
    7Burn J. Lin
    
    Vice President of Research & Development
    
    
    
    11
 
 (1)
    
    Shang-yi Chiang was rehired on September 28, 2009. His total service year with our
company is 11 years, from 1997 to 2006 and from 2009 to 2011. Morris Chang
 F.C. Tseng
 Johnsee Lee
 38




---



##### Table of Contents



Stan Shih
 Sir Peter Leahy Bonfield
 Thomas J. Engibous
 Rick Tsai
 Stephen T. Tso
 Shang-yi Chiang
 Mark Liu
 C.C. Wei
 39




---



##### Table of Contents



Richard Thurston
 Lora Ho
 Jason C.S. Chen
 M.C. Tzeng
 Wei-Jen Lo
 Jack Sun
 Y.P. Chin
 N.S. Tsai
 Rick Cassidy
 L.C. Tu
 J.K. Lin
 40




---



##### Table of Contents



J.K. Wang
 Irene Sun
 Burn J. Lin
  Share Ownership
  Percentage of
    
    
    Number of CommonOutstanding
    
    
    Shares UnderlyingNumber of Common
    
    
    Common
    
    
    StockName of Shareholders
    
    Shares Owned(2)
    
    
    Shares(2)
    
    
    Options(3)Morris Chang, Chairman & CEO
    
    
    121,137,914
    
    
    
    0.47%
    
    
    
    F.C. Tseng, Vice Chairman
    
    
    34,662,675
    
    
    
    0.13%
    
    
    
    Johnsee Lee, 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
    
    
    34,481,046
    
    
    
    0.13%
    
    
    
    Stephen T. Tso, Senior Vice President & CIO
    
    
    15,475,064
    
    
    
    0.06%
    
    
    
    Shang-yi Chiang, Senior Vice President
    
    
    2,412,481
    
    
    
    0.01%
    
    
    
    Mark Liu, Senior Vice President
    
    
    12,840,573
    
    
    
    0.05%
    
    
    
    826,541C.C. Wei, Senior Vice President
    
    
    8,390,325
    
    
    
    0.03%
    
    
    
    276,882Richard Thurston, Senior Vice President &
General Counsel(4)
    
    
    1,839,892
    
    
    
    0.01%
    
    
    
    87,710Lora Ho, Senior Vice President, CFO &
Spokesperson(4)
    
    
    6,221,080
    
    
    
    0.02%
    
    
    
    Jason C.S. Chen, Senior Vice President(4)
    
    
    2,453,320
    
    
    
    0.01%
    
    
    
    M.C. Tzeng, Vice President
    
    
    7,663,595
    
    
    
    0.03%
    
    
    
    Wei-Jen Lo, Vice President
    
    
    2,485,127
    
    
    
    0.01%
    
    
    
    Jack Sun, Vice President & CTO
    
    
    4,904,831
    
    
    
    0.02%
    
    
    
    Y.P. Chin, Vice President
    
    
    5,959,823
    
    
    
    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%
    
    
    
    61,373J.K. Lin, Vice President(5)
    
    
    12,182,118
    
    
    
    0.05%
    
    
    
    218,900J.K. Wang, Vice President(5)
    
    
    2,553,947
    
    
    
    0.01%
    
    
    
    Irene Sun, Vice President(5)
    
    
    1,399,709
    
    
    
    0.01%
    
    
    
    Burn J. Lin, Vice President(5)
    
    
    3,023,502
    
    
    
    0.01%
    
    
    
    
 41




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##### Table of Contents



(1)
    
    Represents shares held by the National Development Fund of the Executive Yuan.
Mr. Johnsee Lee was appointed as the representative of the National Development Fund of the
Executive Yuan on August 6, 2010.(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, 2011.(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 2010, 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.(4)
    
    Richard Thurston, Lora Ho and Jason C.S. Chen were promoted to Senior Vice President
on August 10, 2010.(5)
    
    J. K. Lin, J. K. Wang and Irene Sun were promoted to Vice President on August 10,
2010; Burn J. Lin was promoted to Vice President on February 15, 2011. Compensation
  Board Practices
 General
  Audit Committee
     42




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##### Table of Contents



Compensation Committee
    Employees
  As of December 31,Function
    
    2008
    
    
    2009
    
    
    2010Managers
    
    
    2,618
    
    
    
    2,792
    
    
    
    3,142Professionals
    
    
    8,830
    
    
    
    9,861
    
    
    
    12,729Assistant Engineers/Clericals
    
    
    824
    
    
    
    761
    
    
    
    2,650Technicians
    
    
    10,571
    
    
    
    11,052
    
    
    
    14,711Total
    
    
    22,843
    
    
    
    24,466
    
    
    
    33,232
  As of December 31,Location of Facility and Principal Offices
    
    2008
    
    
    2009
    
    
    2010Hsinchu Science Park, Taiwan
    
    
    14,635
    
    
    
    16,010
    
    
    
    20,703Tainan Science Park, Taiwan
    
    
    5,500
    
    
    
    5,920
    
    
    
    9,158Taichung Science Park, Taiwan
    
    
    
    
    
    
    
    
    
    
    29China
    
    
    1,397
    
    
    
    1,270
    
    
    
    1,903North America
    
    
    1,252
    
    
    
    1,198
    
    
    
    1,355Europe
    
    
    28
    
    
    
    36
    
    
    
    48Japan
    
    
    29
    
    
    
    29
    
    
    
    32Korea
    
    
    2
    
    
    
    3
    
    
    
    4Total
    
    
    22,843
    
    
    
    24,466
    
    
    
    33,232
    43




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##### Table of Contents



Outstanding Stock Options under the 2002 Employee Stock Option PlanNumber of CommonShares Underlying
    
    Option AdjustedUnexercised Options
    
    Exercise PriceName
    
    Grant Date
    
    (#)
    
    (NT$)
    
    Expiration DateMark Liu
    
    03/07/2003
    
    826,541
    
    21.7
    
    03/06/2013C.C. Wei
    
    03/07/2003
    
    276,882
    
    21.7
    
    03/06/2013Richard Thurston
    
    03/07/2003
    
    87,710
    
    21.7
    
    03/06/2013L.C. Tu
    
    03/07/2003
    
    61,373
    
    21.7
    
    03/06/2013Rick Cassidy
    
    08/22/2002
    
    42,016
    
    27.6
    
    08/21/201206/06/2003
    
    928,891
    
    30.5
    
    06/05/2013J.K. Lin
    
    03/07/2003
    
    218,900
    
    21.7
    
    03/06/2013
   44




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##### Table of Contents



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)
    
    
    292,928,555
    
    
    
    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.    Related Party Transactions
 Vanguard International Semiconductor Corporation
   45




---



##### Table of Contents



Systems on Silicon Manufacturing Company Pte. Ltd. (SSMC)
   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 common shares atPer Share
    
    
    Per 100 shares
    
    
    stock dividends
    
    
    year endNT$2006
    
    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)
    
    
    
    25,902,706,6222010
    
    2.9997
    
    
    
    
    
    
    
    
    
    
    
    25,910,078,664
 
 (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
  48




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##### Table of Contents



Taiwan Stock Exchange
    
    New York Stock Exchange(1)Closing price percommon share(2)
    
    
    
    
    
    Closing price per ADS(2)Average dailyTrading
    
    
    
    
    
    
    
    
    
    Average dailyvolume
    
    
    
    
    
    
    
    
    
    Trading volume(in thousands
    
    
    
    
    
    
    
    
    
    (in thousandsHigh
    
    Low
    
    of shares)(2)
    
    High
    
    Low
    
    of ADSs)(2)(NT$)
    
    (NT$)
    
    
    
    
    
    (US$)
    
    (US$)2006
    
    
    54.56
    
    
    
    41.78
    
    
    
    42,967
    
    
    
    9.47
    
    
    
    6.73
    
    
    
    9,8092007
    
    
    61.63
    
    
    
    49.39
    
    
    
    63,033
    
    
    
    10.34
    
    
    
    8.02
    
    
    
    13,9942008
    
    
    58.59
    
    
    
    32.96
    
    
    
    63,140
    
    
    
    10.48
    
    
    
    5.39
    
    
    
    17,527First Quarter
    
    
    56.90
    
    
    
    41.87
    
    
    
    66,824
    
    
    
    9.78
    
    
    
    7.04
    
    
    
    17,601Second Quarter
    
    
    58.59
    
    
    
    52.17
    
    
    
    63,434
    
    
    
    10.48
    
    
    
    8.98
    
    
    
    15,077Third Quarter
    
    
    54.81
    
    
    
    45.67
    
    
    
    62,996
    
    
    
    9.84
    
    
    
    7.98
    
    
    
    19,941Fourth Quarter
    
    
    47.02
    
    
    
    32.96
    
    
    
    59,765
    
    
    
    8.59
    
    
    
    5.39
    
    
    
    17,4952009
    
    
    61.82
    
    
    
    35.46
    
    
    
    63,800
    
    
    
    11.01
    
    
    
    6.45
    
    
    
    19,433First Quarter
    
    
    46.93
    
    
    
    35.46
    
    
    
    65,917
    
    
    
    8.59
    
    
    
    6.45
    
    
    
    22,507Second Quarter
    
    
    54.09
    
    
    
    44.96
    
    
    
    81,028
    
    
    
    10.92
    
    
    
    8.36
    
    
    
    21,825Third Quarter
    
    
    61.35
    
    
    
    48.72
    
    
    
    55,648
    
    
    
    10.71
    
    
    
    8.46
    
    
    
    14,408Fourth Quarter
    
    
    61.82
    
    
    
    56.31
    
    
    
    53,557
    
    
    
    11.01
    
    
    
    9.15
    
    
    
    19,1722010
    
    
    72.90
    
    
    
    54.41
    
    
    
    46,661
    
    
    
    12.69
    
    
    
    9.07
    
    
    
    14,140First Quarter
    
    
    61.73
    
    
    
    54.41
    
    
    
    48,643
    
    
    
    11.14
    
    
    
    9.20
    
    
    
    16,443Second Quarter
    
    
    61.25
    
    
    
    55.55
    
    
    
    46,187
    
    
    
    10.83
    
    
    
    9.07
    
    
    
    15,460Third Quarter
    
    
    63.00
    
    
    
    57.07
    
    
    
    46,715
    
    
    
    10.57
    
    
    
    9.40
    
    
    
    13,772Fourth Quarter
    
    
    72.90
    
    
    
    60.50
    
    
    
    45,350
    
    
    
    12.69
    
    
    
    10.20
    
    
    
    11,012October
    
    
    62.80
    
    
    
    60.50
    
    
    
    37,697
    
    
    
    10.91
    
    
    
    10.20
    
    
    
    11,435November
    
    
    64.50
    
    
    
    63.00
    
    
    
    37,147
    
    
    
    11.26
    
    
    
    10.74
    
    
    
    9,975December
    
    
    72.90
    
    
    
    64.60
    
    
    
    60,183
    
    
    
    12.69
    
    
    
    11.11
    
    
    
    11,5982011January
    
    
    78.00
    
    
    
    69.80
    
    
    
    65,980
    
    
    
    13.68
    
    
    
    12.36
    
    
    
    17,019February
    
    
    75.50
    
    
    
    70.50
    
    
    
    72,795
    
    
    
    13.66
    
    
    
    12.12
    
    
    
    15,149March

    
    
    71.80
    
    
    
    67.40
    
    
    
    53,282
    
    
    
    12.52
    
    
    
    11.43
    
    
    
    16,291April (through
April 12,
2011)

    
    
    72.90
    
    
    
    70.10
    
    
    
    56,577
    
    
    
    12.77
    
    
    
    12.18
    
    
    
    11,002
 
 Source: Bloomberg(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$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, a
NT$2.9999 cash dividend per share and a 0.49998% stock dividend in July 2009 and a
NT$2.9997 cash dividend per share in July 2010. 
 ITEM 10. ADDITIONAL INFORMATION
 Description of Common Shares
  General
  49




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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.
  50




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Meetings of Shareholders
  Voting Rights
     Other Rights of Shareholders
  51




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Register of Shareholders and Record Dates
   Annual Financial Statements
  Acquisition of Common Shares by Us
     52




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Liquidation Rights
  Transaction Restrictions
  Material Contracts
  Foreign Investment in the R.O.C.
     53




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Depositary Receipts
   54




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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.
   55




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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 or those that have obtained the approval of the
Investment Commission of the Ministry of Economic Affairs, 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.
   56




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Voting of Deposited Securities
       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
 59




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United States Federal Income Taxation
  
    
    dealers or traders in securities or foreign currencies;
    
    banks and certain other financial institutions;
    
    brokers;
    
    traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;
    
    tax-exempt organizations, retirement plans, individual retirement accounts and other tax-deferred accounts;
    
    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 or integrated transaction for tax purposes; or
    
    persons who are former citizens or former long-term residents of the United States, 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;
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
    
    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.
  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
    61




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Taxation of Capital Gains
  Medicare Tax
  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.
   62




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
    
    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.
      63




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Non-U.S. Holders
  Information reporting and backup withholding
  Information with Respect to Foreign Financial Assets
  Documents on Display
  64




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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
  Interest Rate Risks:
  As of December 31, 2010Expected Maturity Dates
    
    
    As of December 31, 20092015 and
    
    
    
    
    
    
    Aggregate
    
    
    
    
    
    
    Aggregate2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    thereafter
    
    
    Total
    
    
    Fair Value
    
    
    Total
    
    
    Fair ValueLong-term debt (in
millions)US$ denominated debtVariable rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    US$20
    
    
    
    US$20Average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.89%
    
    
    
    NT$ denominated debtVariable rate
    
    NT$241
    
    
    NT$242
    
    
    NT$60
    
    
    
    
    
    
    
    
    
    
    NT$543
    
    
    NT$543
    
    
    NT$887
    
    
    NT$887Average interest rate
    
    
    1.39%
    
    
    
    1.86%
    
    
    
    2.38%
    
    
    
    
    
    
    
    
    
    
    
    1.71%(2)
    
    
    
    
    
    
    
    1.67%(2)
    
    
    
    Fixed rate
    
    
    
    
    
    NT$4,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NT$4,500
    
    
    NT$4,539
    (1)
    
    NT$4,500
    
    
    NT$4,575
    (1)Average interest rate
    
    
    
    
    
    
    3.00%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.00%
    
    
    
    
    
    
    
    3.00%
    
    
    
    Interest rate swaps
(in millions)Variable to fixed rate
    
    NT$48
    
    
    NT$80
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NT$128
    
    
    NT$(1)
    
    
    
    
    
    
    
    Average pay fixed rate
    
    
    1.38%
    
    
    
    1.38%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.38%
    
    

    


    
    
    
    
    
    
    
 
 (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. Foreign Currency Risk:
  65




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Forward ExchangeAgreements
    
    As of December 31, 2010(in millions)
    
    Expected Maturity Dates
    
    As of December 31, 2009Aggregate2015 and
    
    
    
    
    
    Aggregate
    
    
    
    
    
    Fair2011
    
    2012
    
    2013
    
    2014
    
    thereafter
    
    Total
    
    Fair Value(1)
    
    Total
    
    Value(1)(Sell US$/Buy NT$)
Contract amount
    
    US$11.8
    
    
    
    
    
    
    
    
    
    
    US$11.8
    
    
    NT$(5.1)
    
    US$21.3
    
    
    NT$4.3Average contractual
exchange rate
(against NT$
dollars)
    
    
    29.92
    
    
    
    
    
    
    
    
    
    
    
    29.92
    
    
    
    
    
    32.24
    
    
    (Sell NT$/Buy JPY)
Contract amount
    
    NT$814.9
    
    
    
    
    
    
    
    
    
    
    NT$814.9
    
    
    NT$(7.8)
    
    
    
    
    
    Average contractual
exchange rate
(against NT$
dollars)
    
    
    0.36
    
    
    
    
    
    
    
    
    
    
    
    0.36
    
    
    
    
    
    
    
    
    (Sell RMB/Buy US$)
Contract amount
    
    RMB529.2
    
    
    
    
    
    
    
    
    
    
    RMB529.2
    
    
    NT$0.8
    
    
    
    
    
    Average contractual
exchange rate
(against US$
dollars)
    
    
    6.61
    
    
    
    
    
    
    
    
    
    
    
    6.61
    
    
    
    
    
    
    
    
    (Sell EUR/Buy US$)
Contract amount
    
    EUR3.1
    
    
    
    
    
    
    
    
    
    
    EUR3.1
    
    NT$(0.0)
    
    
    
    
    
    Average contractual
exchange rate
(against US$
dollars)
    
    
    1.33
    
    
    
    
    
    
    
    
    
    
    
    1.33
    
    
    
    
    
    
    
    
    
 Cross Currency Swap
    
    As of December 31, 2010
    
    
    As of(in millions)
    
    Expected Maturity Dates
    
    
    December 31, 2009Aggregate
    
    
    
    
    
    
    Aggregate2011
    
    
    2012
    
    
    2013
    
    
    2014
    
    
    2015 onward
    
    
    Total
    
    
    Fair Value(1)
    
    
    Total
    
    
    Fair Value(1)(Sell US$/Buy NT$)
Contract amount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    US$750
    
    
    NT$181.8Range of interest rate paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.24%-0.70
    %
    
    
    Range of
interest rate received
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.00%-0.38
    %
    
    
    
 
 (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:
 66




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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
  Depositary Payment
  Reimbursement of proxy process expenses (printing, postage and distribution):
    
    US$
    289,338.32Total
    
    US$
    289,338.32
 
 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.
 67




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Managements Annual Report on Internal Control over Financial Reporting.
   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
   68




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##### Table of Contents



Internal ControlIntegrated Framework
  
 
 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM 16B. CODE OF ETHICS
  invest@tsmc.com
 
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  69




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2009
    
    
    2010NT$
    
    
    NT$(In thousands)Audit Fees
    
    
    74,166
    
    
    
    68,089Audit-Related Fees
    
    
    285
    
    
    
    771All Other Fees
    
    
    600
    
    
    
    6,095Total
    
    
    75,051
    
    
    
    74,955
 Audit Fees.
 Audit-Related Fees
 All Other Fees
  
 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
   70




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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.NYSE 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.
    
    A new law in Taiwan requires a public
company with the size like TSMC to establish
a compensation committee by September 30,
2011. TSMC, however, has established its
compensation committee in 2003, which has
met the requirements under the Taiwan law.
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
    
    A new law in Taiwan requires a public
company with the size like TSMC to establish
a compensation committee by September 30,
2011. TSMC, however, has established its
 71




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NYSE Standards for US Companiesunder Listed Company ManualSection 303A
    
    TSMC Corporate Practicesevaluation of the committees
performance.
    
    compensation committee in 2003, which has
met the requirements under the Taiwan law,
and 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.NYSE 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(a)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(b)
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 Rule
10A-3(b)(2), (3), (4) & (5) 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(b)(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
    
    TSMCs written audit committee charter
establishes the same audit committee
objectives.
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NYSE Standards for US Companiesunder Listed Company ManualSection 303A
    
    TSMC Corporate Practicesguidelines relating to its
earnings that are supplied to
analysts and rating agencies.NYSE Section
303A.07(b)(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(c)
requires each company to have
an internal audit function
that provides to the
management and to the audit
committee ongoing 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.NYSE 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).
 73




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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, 2008.3.3(3)
    
    Rules and Procedures of Shareholders Meetings, as amended and restated on May 7,
2002.4.1(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.
 74




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##### Table of Contents



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).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. 75




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##### Table of Contents



(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. 76




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##### Table of Contents



SIGNATURE
   TAIWAN SEMICONDUCTOR MANUFACTURING
COMPANY LIMITEDBy:
    /s/ Lora HoName:
    Lora HoTitle:
    Senior Vice President, Chief Financial Officer &
Spokesperson 77




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##### Table of Contents



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-9
 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
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    US$(Note 3)ASSETSCURRENT ASSETSCash and cash equivalents
    
    2, 5
    
    $
    171,276.3
    
    
    $
    147,887.0
    
    
    $
    5,075.1Financial assets at fair value through profit or loss
    
    2, 6, 25
    
    
    186.1
    
    
    
    6.9
    
    
    
    0.2Available-for-sale financial assets
    
    2, 7, 25
    
    
    14,389.9
    
    
    
    28,883.7
    
    
    
    991.2Held-to-maturity financial assets
    
    2, 8, 25
    
    
    9,944.8
    
    
    
    4,796.6
    
    
    
    164.6Receivables from related parties
    
    26
    
    
    12.5
    
    
    
    2.7
    
    
    
    0.1Notes and accounts receivable, net
    
    2, 9
    
    
    35,369.8
    
    
    
    42,979.6
    
    
    
    1,474.9Other receivables from related parties
    
    26
    
    
    121.3
    
    
    
    124.6
    
    
    
    4.3Other financial assets
    
    27
    
    
    1,850.0
    
    
    
    1,021.6
    
    
    
    35.1Inventories
    
    2, 4, 10
    
    
    20,913.8
    
    
    
    28,405.9
    
    
    
    974.8Deferred income tax assets
    
    2, 21
    
    
    4,370.3
    
    
    
    5,373.1
    
    
    
    184.4Prepaid expenses and other current assets
    
    
    
    
    1,368.9
    
    
    
    2,037.6
    
    
    
    69.9Total current assets
    
    
    
    
    259,803.7
    
    
    
    261,519.3
    
    
    
    8,974.6LONG-TERM INVESTMENTS
    
    2, 7, 8, 11, 13, 25Investments accounted for using equity method
    
    
    
    
    17,871.2
    
    
    
    25,815.4
    
    
    
    886.0Available-for-sale financial assets
    
    
    
    
    1,358.1
    
    
    
    1,033.1
    
    
    
    35.4Held-to-maturity financial assets
    
    
    
    
    15,553.2
    
    
    
    8,502.8
    
    
    
    291.8Financial assets carried at cost
    
    
    
    
    3,063.0
    
    
    
    4,424.2
    
    
    
    151.8Total long-term investments
    
    
    
    
    37,845.5
    
    
    
    39,775.5
    
    
    
    1,365.0PROPERTY, PLANT AND EQUIPMENT, NET
    
    2, 14, 26, 27
    
    
    273,674.8
    
    
    
    388,444.0
    
    
    
    13,330.3INTANGIBLE ASSETSGoodwill
    
    2
    
    
    5,931.3
    
    
    
    5,704.9
    
    
    
    195.8Deferred charges, net
    
    2, 15
    
    
    6,458.6
    
    
    
    6,027.1
    
    
    
    206.8Total intangible assets
    
    
    
    
    12,389.9
    
    
    
    11,732.0
    
    
    
    402.6OTHER ASSETSDeferred income tax assets
    
    2, 21
    
    
    7,988.3
    
    
    
    7,362.8
    
    
    
    252.7Refundable deposits
    
    
    
    
    2,733.1
    
    
    
    8,678.0
    
    
    
    297.8Others
    
    2, 27
    
    
    260.9
    
    
    
    1,417.3
    
    
    
    48.6Total other assets
    
    
    
    
    10,982.3
    
    
    
    17,458.1
    
    
    
    599.1TOTAL ASSETS
    
    
    
    $
    594,696.2
    
    
    $
    718,928.9
    
    
    $
    24,671.6




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##### Table of Contents



December 31Notes
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    US$(Note 3)LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESShort-term loans
    
    16
    
    $
    
    
    
    $
    31,213.9
    
    
    $
    1,071.2Financial liabilities at fair value through profit or loss
    
    2, 6, 25
    
    
    
    
    
    
    19.0
    
    
    
    0.7Hedging derivative financial liabilities
    
    2, 12, 25
    
    
    
    
    
    
    0.8
    
    
    
    Accounts payable
    
    
    
    
    10,905.9
    
    
    
    12,104.2
    
    
    
    415.4Payable to related parties
    
    26
    
    
    783.0
    
    
    
    867.1
    
    
    
    29.8Income tax payable
    
    2, 21
    
    
    8,800.3
    
    
    
    7,184.7
    
    
    
    246.5Salary and bonus payable
    
    
    
    
    9,317.0
    
    
    
    6,424.1
    
    
    
    220.4Accrued profit sharing to employees and bonus to directors and supervisors
    
    2, 4, 22
    
    
    6,818.3
    
    
    
    11,096.1
    
    
    
    380.8Payables to contractors and equipment suppliers
    
    
    
    
    28,924.3
    
    
    
    43,259.9
    
    
    
    1,484.6Accrued expenses and other current liabilities
    
    19, 25, 29
    
    
    12,635.2
    
    
    
    10,779.9
    
    
    
    369.9Current portion of long-term bank loans
    
    18, 25, 27
    
    
    949.3
    
    
    
    241.4
    
    
    
    8.3Total current liabilities
    
    
    
    
    79,133.3
    
    
    
    123,191.1
    
    
    
    4,227.6LONG-TERM LIABILITIESBonds payable
    
    17, 25
    
    
    4,500.0
    
    
    
    4,500.0
    
    
    
    154.4Long-term bank loans
    
    18, 25, 27
    
    
    578.6
    
    
    
    301.6
    
    
    
    10.3Other long-term payables
    
    19, 25, 29
    
    
    5,602.4
    
    
    
    6,554.2
    
    
    
    224.9Obligations under capital leases
    
    2, 25
    
    
    707.5
    
    
    
    695.0
    
    
    
    23.9Total long-term liabilities
    
    
    
    
    11,388.5
    
    
    
    12,050.8
    
    
    
    413.5OTHER LIABILITIESAccrued pension cost
    
    2, 20
    
    
    3,797.0
    
    
    
    3,812.3
    
    
    
    130.8Guarantee deposits
    
    29
    
    
    1,006.0
    
    
    
    789.1
    
    
    
    27.1Deferred credits
    
    
    
    
    185.7
    
    
    
    126.5
    
    
    
    4.4Others
    
    
    
    
    137.2
    
    
    
    254.7
    
    
    
    8.7Total other liabilities
    
    
    
    
    5,125.9
    
    
    
    4,982.6
    
    
    
    171.0Total liabilities
    
    
    
    
    95,647.7
    
    
    
    140,224.5
    
    
    
    4,812.1COMMITMENTS AND CONTINGENCIES
    
    29EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENTCapital stock  NT$10 par value
    
    22Authorized: 28,050,000 thousand sharesIssued:
        25,902,706 thousand shares in 2009
               
25,910,078 thousand shares in 2010
    
    
    
    
    259,027.1
    
    
    
    259,100.8
    
    
    
    8,891.6Capital surplus
    
    2, 22
    
    
    55,486.0
    
    
    
    55,698.4
    
    
    
    1,911.4Retained earnings
    
    22
    
    
    181,882.7
    
    
    
    265,779.6
    
    
    
    9,120.8Unrealized gain on financial instruments
    
    2, 12, 25
    
    
    453.6
    
    
    
    109.3
    
    
    
    3.8Cumulative translation adjustments
    
    
    
    
    (1,766.7
    )
    
    
    (6,543.2
    )
    
    
    (224.6
    )Equity attributable to shareholders of the parent
    
    
    
    
    495,082.7
    
    
    
    574,144.9
    
    
    
    19,703.0MINORITY INTERESTS
    
    2
    
    
    3,965.8
    
    
    
    4,559.5
    
    
    
    156.5Total shareholders equity
    
    
    
    
    499,048.5
    
    
    
    578,704.4
    
    
    
    19,859.5TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    
    
    $
    594,696.2
    
    
    $
    718,928.9
    
    
    $
    24,671.6
   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
    
    2008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 3)NET SALES
    
    2, 26
    
    $
    333,157.7
    
    
    $
    295,742.2
    
    
    $
    419,537.9
    
    
    $
    14,397.3COST OF SALES
    
    4, 10, 26
    
    
    191,408.1
    
    
    
    166,413.6
    
    
    
    212,484.3
    
    
    
    7,291.8GROSS PROFIT
    
    
    
    
    141,749.6
    
    
    
    129,328.6
    
    
    
    207,053.6
    
    
    
    7,105.5OPERATING EXPENSESResearch and development
    
    26
    
    
    21,480.9
    
    
    
    21,593.4
    
    
    
    29,706.7
    
    
    
    1,019.4General and administrative
    
    
    
    
    11,096.6
    
    
    
    11,285.5
    
    
    
    12,804.0
    
    
    
    439.4Marketing
    
    
    
    
    4,736.7
    
    
    
    4,487.8
    
    
    
    5,367.6
    
    
    
    184.2Total operating expenses
    
    
    
    
    37,314.2
    
    
    
    37,366.7
    
    
    
    47,878.3
    
    
    
    1,643.0INCOME FROM OPERATIONS
    
    
    
    
    104,435.4
    
    
    
    91,961.9
    
    
    
    159,175.3
    
    
    
    5,462.5NON-OPERATING INCOME AND GAINSSettlement income
    
    29
    
    
    951.2
    
    
    
    1,464.9
    
    
    
    6,939.8
    
    
    
    238.2Equity in earnings of equity method investees, net
    
    2, 11
    
    
    701.5
    
    
    
    46.0
    
    
    
    2,298.2
    
    
    
    78.9Interest income
    
    2
    
    
    5,373.8
    
    
    
    2,600.9
    
    
    
    1,665.2
    
    
    
    57.1Gain on settlement and disposal of financial assets, net
    
    2, 25
    
    
    721.0
    
    
    
    16.0
    
    
    
    736.8
    
    
    
    25.3Technical service income
    
    26, 29
    
    
    1,182.0
    
    
    
    367.0
    
    
    
    450.5
    
    
    
    15.5Valuation gain on financial instruments, net
    
    2, 6, 25
    
    
    
    
    
    
    594.7
    
    
    
    320.7
    
    
    
    11.0Foreign exchange gain, net
    
    2
    
    
    1,227.7
    
    
    
    
    
    
    
    
    
    
    
    Others
    
    2, 26
    
    
    664.2
    
    
    
    564.0
    
    
    
    724.9
    
    
    
    24.8Total non-operating income and gains
    
    
    
    
    10,821.4
    
    
    
    5,653.5
    
    
    
    13,136.1
    
    
    
    450.8NON-OPERATING EXPENSES AND LOSSESLoss on disposal of property, plant and equipment
    
    2
    
    
    0.6
    
    
    
    68.5
    
    
    
    849.3
    
    
    
    29.1Interest expense
    
    
    
    
    615.0
    
    
    
    391.5
    
    
    
    425.4
    
    
    
    14.6Casualty loss
    
    10
    
    
    
    
    
    
    
    
    
    
    191.0
    
    
    
    6.6Impairment of financial assets
    
    2, 7, 13, 25
    
    
    1,560.1
    
    
    
    913.2
    
    
    
    159.8
    
    
    
    5.5Foreign exchange loss, net
    
    2
    
    
    
    
    
    
    627.0
    
    
    
    99.1
    
    
    
    3.4Loss on idle assets
    
    2
    
    
    210.5
    
    
    
    
    
    
    
    0.3
    
    
    
    Valuation loss on financial instruments, net
    
    2, 6, 25
    
    
    1,081.0
    
    
    
    
    
    
    
    
    
    
    
    Others
    
    
    
    
    317.4
    
    
    
    152.6
    
    
    
    316.1
    
    
    
    10.9Total non-operating expenses and losses
    
    
    
    
    3,784.6
    
    
    
    2,152.8
    
    
    
    2,041.0
    
    
    
    70.1INCOME BEFORE INCOME TAX
    
    
    
    
    111,472.2
    
    
    
    95,462.6
    
    
    
    170,270.4
    
    
    
    5,843.2INCOME TAX EXPENSE
    
    2, 21
    
    
    10,949.0
    
    
    
    5,996.4
    
    
    
    7,988.5
    
    
    
    274.2NET INCOME
    
    
    
    $
    100,523.2
    
    
    $
    89,466.2
    
    
    $
    162,281.9
    
    
    $
    5,569.0ATTRIBUTABLE TO:Shareholders of the parent
    
    
    
    $
    99,933.2
    
    
    $
    89,217.8
    
    
    $
    161,605.0
    
    
    $
    5,545.8Minority interests
    
    
    
    
    590.0
    
    
    
    248.4
    
    
    
    676.9
    
    
    
    23.2$
    100,523.2
    
    
    $
    89,466.2
    
    
    $
    162,281.9
    
    
    $
    5,569.0
  F - 4




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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
    
    2008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 3)BASIC EARNINGS PER SHARE
    
    2, 24Before income tax
    
    
    
    $
    4.26
    
    
    $
    3.68
    
    
    $
    6.54
    
    
    $
    0.22After income tax
    
    
    
    $
    3.84
    
    
    $
    3.45
    
    
    $
    6.24
    
    
    $
    0.21DILUTED EARNINGS PER SHARE
    
    2, 24
    
    $
    4.23
    
    
    $
    3.67
    
    
    $
    6.54
    
    
    $
    0.22Before income tax
    
    
    
    $
    3.81
    
    
    $
    3.44
    
    
    $
    6.23
    
    
    $
    0.21After income taxBASIC EARNINGS PER EQUIVALENT ADS
    
    2Before income tax
    
    
    
    $
    21.28
    
    
    $
    18.42
    
    
    $
    32.72
    
    
    $
    1.12After income tax
    
    
    
    $
    19.19
    
    
    $
    17.27
    
    
    $
    31.19
    
    
    $
    1.07DILUTED EARNINGS PER EQUIVALENT ADS
    
    2Before income tax
    
    
    
    $
    21.13
    
    
    $
    18.37
    
    
    $
    32.70
    
    
    $
    1.12After income tax
    
    
    
    $
    19.05
    
    
    $
    17.21
    
    
    $
    31.17
    
    
    $
    1.07BASIC WEIGHTED AVERAGE SHARES
OUTSTANDING (THOUSANDS)
    
    2, 24
    
    
    26,039,186
    
    
    
    25,835,802
    
    
    
    25,905,832DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING (THOUSANDS)
    
    2, 24
    
    
    26,234,925
    
    
    
    25,913,121
    
    
    
    25,920,094
  (With Deloitte & Touche
audit report dated April 15, 2011)
    
    (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, 2008
    
    
    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 shareholders equity 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 shareholders equity 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
    
    
    
    499,048.5Appropriations of prior years earningsCash dividends to shareholders  NT$3.00 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77,708.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77,708.1
    )
    
    
    
    
    
    
    (77,708.1
    )Net income in 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    161,605.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    161,605.0
    
    
    
    676.9
    
    
    
    162,281.9Adjustment arising from changes in percentage of ownership in equity method investees
    
    
    
    
    
    
    
    
    
    
    (17.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17.9
    )
    
    
    4.4
    
    
    
    (13.5
    )Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,776.5
    )
    
    
    
    
    
    
    (4,776.5
    )
    
    
    7.3
    
    
    
    (4,769.2
    )Issuance of stock from exercising employee stock options
    
    
    7,372
    
    
    
    73.7
    
    
    
    171.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    244.8
    
    
    
    
    
    
    
    244.8Valuation gain (loss) on available-for-sale financial assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (338.0
    )
    
    
    
    
    
    
    
    
    
    
    (338.0
    )
    
    
    4.0
    
    
    
    (334.0
    )Net change in shareholders equity from equity method investees
    
    
    
    
    
    
    
    
    
    
    59.2
    
    
    
    
    
    
    
    (6.0
    )
    
    
    
    
    
    
    
    
    
    
    53.2
    
    
    
    31.7
    
    
    
    84.9Net change in unrealized loss on hedging derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.5
    )
    
    
    (0.8
    )Decrease in minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (130.1
    )
    
    
    (130.1
    )BALANCE, DECEMBER 31, 2010
    
    
    25,910,078
    
    
    $
    259,100.8
    
    
    $
    55,698.4
    
    
    $
    265,779.6
    
    
    $
    109.3
    
    
    $
    (6,543.2
    )
    
    $
    
    
    
    $
    574,144.9
    
    
    $
    4,559.5
    
    
    $
    578,704.4BALANCE, DECEMBER 31, 2010 (IN MILLIONS OF US$ Note 3)
    
    
    
    
    
    $
    8,891.6
    
    
    $
    1,911.4
    
    
    $
    9,120.8
    
    
    $
    3.8
    
    
    $
    (224.6
    )
    
    $
    
    
    
    $
    19,703.0
    
    
    $
    156.5
    
    
    $
    19,859.5
   F - 6




---



##### 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 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 3)CASH FLOWS FROM OPERATING ACTIVITIESNet income attributable to shareholders of the parent
    
    $
    99,933.2
    
    
    $
    89,217.8
    
    
    $
    161,605.0
    
    
    $
    5,545.8Net income attributable to minority interests
    
    
    590.0
    
    
    
    248.4
    
    
    
    676.9
    
    
    
    23.2Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    81,512.2
    
    
    
    80,814.7
    
    
    
    87,810.1
    
    
    
    3,013.4Amortization of premium/discount of financial assets
    
    
    (93.4
    )
    
    
    21.5
    
    
    
    34.2
    
    
    
    1.2Impairment of financial assets
    
    
    1,560.1
    
    
    
    913.2
    
    
    
    159.8
    
    
    
    5.5Loss (gain) on disposal of available-for-sale financial assets, net
    
    
    (637.2
    )
    
    
    20.3
    
    
    
    (603.3
    )
    
    
    (20.7
    )Gain on held-to-maturity financial assets redeemed by the issuer
    
    
    
    
    
    
    (16.1
    )
    
    
    
    
    
    
    Gain on disposal of financial assets carried at cost, net
    
    
    (83.8
    )
    
    
    (20.2
    )
    
    
    (133.5
    )
    
    
    (4.6
    )Equity in earnings of equity method investees, net
    
    
    (701.5
    )
    
    
    (46.0
    )
    
    
    (2,298.2
    )
    
    
    (78.9
    )Cash dividends received from equity method investees
    
    
    1,661.1
    
    
    
    1,239.5
    
    
    
    320.0
    
    
    
    11.0Loss (gain) on disposal of property, plant and equipment and other assets,
net
    
    
    (100.3
    )
    
    
    (45.5
    )
    
    
    633.2
    
    
    
    21.7Settlement income from receiving equity securities
    
    
    
    
    
    
    
    
    
    
    (4,434.4
    )
    
    
    (152.2
    )Loss on idle assets
    
    
    210.5
    
    
    
    
    
    
    
    0.3
    
    
    
    Deferred income tax
    
    
    2,279.4
    
    
    
    (1,752.4
    )
    
    
    (377.3
    )
    
    
    (12.9
    )Changes in operating assets and liabilities:Decrease (increase) in:Financial assets and liabilities at fair value through profit or loss
    
    
    1,412.6
    
    
    
    (215.6
    )
    
    
    198.2
    
    
    
    6.8Receivables from related parties
    
    
    10.5
    
    
    
    (12.1
    )
    
    
    9.8
    
    
    
    0.3Notes and accounts receivable, net
    
    
    23,916.7
    
    
    
    (16,873.2
    )
    
    
    (7,609.8
    )
    
    
    (261.1
    )Other receivables from related parties
    
    
    143.7
    
    
    
    (21.4
    )
    
    
    (3.3
    )
    
    
    (0.1
    )Other financial assets
    
    
    (426.0
    )
    
    
    7.9
    
    
    
    741.0
    
    
    
    25.4Inventories
    
    
    8,985.7
    
    
    
    (6,037.2
    )
    
    
    (7,492.1
    )
    
    
    (257.1
    )Prepaid expenses and other current assets
    
    
    (443.5
    )
    
    
    585.5
    
    
    
    (752.4
    )
    
    
    (25.8
    )Increase (decrease) in:Accounts payable
    
    
    (6,021.7
    )
    
    
    4,916.9
    
    
    
    933.9
    
    
    
    32.0Payables to related parties
    
    
    (1,013.5
    )
    
    
    293.1
    
    
    
    84.1
    
    
    
    2.9Income tax payable
    
    
    (1,794.3
    )
    
    
    (531.5
    )
    
    
    (1,615.6
    )
    
    
    (55.4
    )Salary and bonus payable
    
    
    (17.7
    )
    
    
    7,101.2
    
    
    
    (2,892.9
    )
    
    
    (99.3
    )Accrued profit sharing to employees and bonus to directors and
supervisors
    
    
    15,369.7
    
    
    
    (1,056.4
    )
    
    
    4,277.8
    
    
    
    146.8Accrued expenses and other current liabilities
    
    
    (3,936.8
    )
    
    
    1,356.3
    
    
    
    248.2
    
    
    
    8.5Accrued pension cost
    
    
    36.1
    
    
    
    95.4
    
    
    
    15.3
    
    
    
    0.5Deferred credits
    
    
    (858.2
    )
    
    
    (237.7
    )
    
    
    (59.2
    )
    
    
    (2.0
    )Net cash provided by operating activities
    
    
    221,493.6
    
    
    
    159,966.4
    
    
    
    229,475.8
    
    
    
    7,874.9CASH FLOWS FROM INVESTING ACTIVITIESAcquisitions of:Property, plant and equipment
    
    
    (59,222.6
    )
    
    
    (87,784.9
    )
    
    
    (186,944.2
    )
    
    
    (6,415.4
    )Available-for-sale financial assets
    
    
    (85,273.9
    )
    
    
    (38,800.6
    )
    
    
    (48,340.3
    )
    
    
    (1,658.9
    )Held-to-maturity financial assets
    
    
    (16,523.3
    )
    
    
    (12,224.4
    )
    
    
    (4,101.5
    )
    
    
    (140.8
    )Investments accounted for using equity method
    
    
    (55.9
    )
    
    
    (42.9
    )
    
    
    (6,242.4
    )
    
    
    (214.2
    )Financial assets carried at cost
    
    
    (463.2
    )
    
    
    (321.2
    )
    
    
    (1,812.9
    )
    
    
    (62.2
    )Proceeds from disposal or redemption of:Available-for-sale financial assets
    
    
    138,515.0
    
    
    
    36,040.0
    
    
    
    37,816.3
    
    
    
    1,297.7Held-to-maturity financial assets
    
    
    15,634.6
    
    
    
    7,944.8
    
    
    
    15,943.0
    
    
    
    547.1Financial assets carried at cost
    
    
    199.4
    
    
    
    131.1
    
    
    
    242.3
    
    
    
    8.3Property, plant and equipment and other assets
    
    
    194.9
    
    
    
    24.2
    
    
    
    115.5
    
    
    
    4.0Proceeds from return of capital by investees
    
    
    2,345.9
    
    
    
    
    
    
    
    
    
    
    
    Increase in deferred charges
    
    
    (3,395.3
    )
    
    
    (1,469.8
    )
    
    
    (1,801.7
    )
    
    
    (61.8
    )Decrease (increase) in refundable deposits
    
    
    10.6
    
    
    
    34.1
    
    
    
    (5,944.9
    )
    
    
    (204.0
    )Decrease (increase) in other assets
    
    
    (8.1
    )
    
    
    1.2
    
    
    
    (1,015.4
    )
    
    
    (34.8
    )Net cash used in investing activities
    
    
    (8,041.9
    )
    
    
    (96,468.4
    )
    
    
    (202,086.2
    )
    
    
    (6,935.0
    )(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 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$
    
    
    US$(Note 3)CASH FLOWS FROM FINANCING ACTIVITIESIncrease in short-term loans
    
    $
    
    
    
    $
    
    
    
    $
    31,213.9
    
    
    $
    1,071.2Proceeds from long-term bank loans
    
    
    98.4
    
    
    
    286.6
    
    
    
    
    
    
    
    Repayments of:Long-term bank loans
    
    
    (468.4
    )
    
    
    (378.7
    )
    
    
    (967.0
    )
    
    
    (33.2
    )Bonds payable
    
    
    
    
    
    
    (8,000.0
    )
    
    
    
    
    
    
    Decrease in other long-term payables
    
    
    
    
    
    
    
    
    
    
    (1,107.3
    )
    
    
    (38.0
    )Decrease in guarantee deposits
    
    
    (758.5
    )
    
    
    (478.5
    )
    
    
    (232.9
    )
    
    
    (8.0
    )Proceeds from donation
    
    
    
    
    
    
    
    
    
    
    49.0
    
    
    
    1.7Proceeds from exercise of employee stock options
    
    
    227.2
    
    
    
    260.5
    
    
    
    244.8
    
    
    
    8.4Cash dividends
    
    
    (76,779.0
    )
    
    
    (76,876.3
    )
    
    
    (77,708.1
    )
    
    
    (2,666.7
    )Profit sharing to employees in cash
    
    
    (3,939.9
    )
    
    
    
    
    
    
    
    
    
    
    Bonus to directors
    
    
    (176.9
    )
    
    
    
    
    
    
    
    
    
    
    Repurchase of treasury stock
    
    
    (33,481.0
    )
    
    
    
    
    
    
    
    
    
    
    Decrease in minority interests
    
    
    (114.7
    )
    
    
    (284.8
    )
    
    
    (130.1
    )
    
    
    (4.5
    )Net cash used in financing activities
    
    
    (115,392.8
    )
    
    
    (85,471.2
    )
    
    
    (48,637.7
    )
    
    
    (1,669.1
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    98,058.9
    
    
    
    (21,973.2
    )
    
    
    (21,248.1
    )
    
    
    (729.2
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
    
    
    1,568.4
    
    
    
    (1,364.3
    )
    
    
    (2,141.2
    )
    
    
    (73.4
    )CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    94,986.5
    
    
    
    194,613.8
    
    
    
    171,276.3
    
    
    
    5,877.7CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    194,613.8
    
    
    $
    171,276.3
    
    
    $
    147,887.0
    
    
    $
    5,075.1SUPPLEMENTAL INFORMATIONInterest paid
    
    $
    676.3
    
    
    $
    580.4
    
    
    $
    392.8
    
    
    $
    13.5Income tax paid
    
    $
    10,477.0
    
    
    $
    8,088.1
    
    
    $
    9,818.4
    
    
    $
    336.9INVESTING AND FINANCING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMSAcquisition of property, plant and equipment
    
    $
    60,978.5
    
    
    $
    109,151.2
    
    
    $
    201,696.5
    
    
    $
    6,921.6Increase in payables to contractors and equipment suppliers
    
    
    (1,742.1
    )
    
    
    (21,361.3
    )
    
    
    (14,600.0
    )
    
    
    (501.0
    )Nonmonetary exchange trade-out price
    
    
    
    
    
    
    (0.8
    )
    
    
    (124.7
    )
    
    
    (4.3
    )Increase in other liabilities
    
    
    
    
    
    
    
    
    
    
    (27.6
    )
    
    
    (0.9
    )Increase in obligations under capital leases
    
    
    (13.8
    )
    
    
    (4.2
    )
    
    
    
    
    
    
    Cash paid
    
    $
    59,222.6
    
    
    $
    87,784.9
    
    
    $
    186,944.2
    
    
    $
    6,415.4Acquisition of available-for-sale financial assets
    
    $
    85,273.9
    
    
    $
    38,800.6
    
    
    $
    48,405.8
    
    
    $
    1,661.1Increase in accrued expenses and other current liabilities
    
    
    
    
    
    
    
    
    
    
    (65.5
    )
    
    
    (2.2
    )Cash paid
    
    $
    85,273.9
    
    
    $
    38,800.6
    
    
    $
    48,340.3
    
    
    $
    1,658.9Disposal of property, plant and equipment and other assets
    
    $
    194.9
    
    
    $
    25.0
    
    
    $
    458.5
    
    
    $
    15.8Increase in other financial assets
    
    
    
    
    
    
    
    
    
    
    (218.3
    )
    
    
    (7.5
    )Nonmonetary exchange trade-out price
    
    
    
    
    
    
    (0.8
    )
    
    
    (124.7
    )
    
    
    (4.3
    )Cash received
    
    $
    194.9
    
    
    $
    24.2
    
    
    $
    115.5
    
    
    $
    4.0Repurchase of treasury stock
    
    $
    30,427.5
    
    
    $
    
    
    
    $
    
    
    
    $
    Decrease in accrued expenses and other current liabilities
    
    
    3,053.5
    
    
    
    
    
    
    
    
    
    
    
    Cash paid
    
    $
    33,481.0
    
    
    $
    
    
    
    $
    
    
    
    $
    NON-CASH FINANCING ACTIVITIESCurrent portion of bonds payable and long-term bank loans
    
    $
    8,222.4
    
    
    $
    949.3
    
    
    $
    241.4
    
    
    $
    8.3Current portion of other long-term payables (under accrued expenses and
other current liabilities)
    
    $
    1,126.5
    
    
    $
    4,005.3
    
    
    $
    1,406.6
    
    
    $
    48.3The accompanying notes are an integral part of the consolidated financial statements.(With Deloitte & Touche audit report dated
April 15, 2011)
    
    (Concluded)
 F - 8




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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. Beginning in 2010, TSMC also engages in the researching, developing,
designing, manufacturing and selling of LED lighting devices and related applications products
and systems, and renewable energy and efficiency related technologies and products. On September
5, 1994, its shares were listed on the Taiwan Stock Exchange (TSE). On October 8, 1997, TSMC
listed some of its shares of stock on the New York Stock Exchange (NYSE) in the form of American
Depositary Shares (ADSs).
 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 ofOwnership December 31Name of Investor
    
    Name of Investee
    
    2009
    
    2010
    
    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
    %
    
    TSMC Europe B.V. (TSMC Europe)
    
    
    100
    %
    
    
    100
    %
    
    TSMC Global Ltd. (TSMC Global)
    
    
    100
    %
    
    
    100
    %
    
    TSMC China Company Limited
(TSMC China)
    
    
    100
    %
    
    
    100
    %
    
    VentureTech Alliance Fund III,
L.P. (VTAF III)
    
    
    98
    %
    
    
    99
    %
    
    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)
    
    
    35
    %
    
    
    35
    %
    
    TSMC has a controlling
interest over the financial,
operating and personnel
hiring decisions of GUC.Xintec Inc. (Xintec)
    
    
    41
    %
    
    
    41
    %
    
    TSMC obtained three out of
five director positions and
has a controlling interest in
Xintec.TSMC Solar North America, Inc.
(TSMC Solar NA)
    
    
    
    
    
    
    100
    %
    
    Established in September 2010.TSMC Lighting North America,
Inc. (TSMC Lighting NA)
    
    
    
    
    
    
    100
    %
    
    Established in September 2010.TSMC Solar Europe B.V. (TSMC
Solar Europe)
    
    
    
    
    
    
    100
    %
    
    Established in September 2010.
 F - 9




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##### Table of Contents



Percentage of OwnershipDecember 31Name of Investor
    
    Name of Investee
    
    2009
    
    2010
    
    RemarkTSMC Partners
    
    TSMC Design Technology
Canada Inc. (TSMC Canada)
    
    
    100
    %
    
    
    100
    %
    
    TSMC Technology, Inc.
(TSMC Technology)
    
    
    100
    %
    
    
    100
    %
    
    TSMC Development, Inc.
(TSMC Development)
    
    
    100
    %
    
    
    100
    %
    
    InveStar Semiconductor
Development Fund, Inc.
(ISDF)
    
    
    97
    %
    
    
    97
    %
    
    InveStar Semiconductor
Development Fund, Inc.
(II) LDC. (ISDF II)
    
    
    97
    %
    
    
    97
    %
    
    TSMC Development
    
    WaferTech, LLC (WaferTech)
    
    
    99.9
    %
    
    
    100
    %
    
    VTAF III
    
    Mutual-Pak Technology
Co., Ltd. (Mutual-Pak)
    
    
    59
    %
    
    
    57
    %
    
    Growth Fund Limited (Growth Fund)
    
    
    100
    %
    
    
    100
    %
    
    VTAF III, VTAF II
and Emerging
Alliance
    
    VentureTech Alliance
Holdings, LLC 
(VTA
Holdings)
    
    
    100
    %
    
    
    100
    %
    
    GUC
    
    Global Unichip Corp. NA
(GUC-NA)
    
    
    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
    %
    
    
    100
    %
    
    GUC-BVI
    
    Global Unichip (Shanghai) Company, Limited
(GUC-Shanghai)
    
    
    
    
    
    
    100
    %
    
    Established in January 2010.TSMC Solar Europe
    
    TSMC Solar Europe GmbH
    
    
    
    
    
    
    100
    %
    
    Established in December 2010.
  
  F - 10




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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
   Hedging Derivative Financial Instruments
  Available-for-sale Financial Assets
   F - 11




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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 - 12




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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 - 13




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##### Table of Contents



Intangible Assets
    Pension Costs
  Income Tax
     Stock-based Compensation
  Profit Sharing to Employees and Bonus to Directors and Supervisors
  F - 14




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##### Table of Contents



Foreign-currency Transactions
   Translation of Foreign-currency Financial Statements
  Concentration of Credit Risk
  Fair Values of Financial Instruments
  Earnings Per Share
  3. U.S. DOLLAR AMOUNTS
  4. ACCOUNTING CHANGES
   F - 15




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##### Table of Contents



5. CASH AND CASH EQUIVALENTS
 December 312009
    
    
    2010NT$
    
    
    NT$(In Millions)Cash and deposits in banks
    
    $
    167,449.0
    
    
    $
    146,622.9Repurchase agreements collateralized by
government bonds
    
    
    3,359.8
    
    
    
    960.4Corporate bonds
    
    
    54.4
    
    
    
    151.9Agency bonds
    
    
    253.0
    
    
    
    151.8Corporate issued notes
    
    
    160.1
    
    
    
    $
    171,276.3
    
    
    $
    147,887.0
 6. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
 December 312009
    
    
    2010NT$
    
    
    NT$(In Millions)Trading financial assetsForward exchange contracts
    
    $
    4.3
    
    
    $
    6.9Cross currency swap contracts
    
    
    181.8
    
    
    
    $
    186.1
    
    
    $
    6.9Trading financial liabilitiesForward exchange contracts
    
    $
    
    
    
    $
    19.0
  F - 16




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##### Table of Contents



Contract AmountMaturity Date
    
    (In Millions)December 31, 2009Sell US$/buy NT$
    
    February 2010
    
    US$21.3/NT$686.8December 31, 2010Sell NT$/buy JPY
    
    January 2011 to February 2011
    
    NT$814.9/JPY2,278.4Sell EUR/buy US$
    
    February 2011
    
    EUR3.1/US$4.1Sell RMB/buy US$
    
    May 2011 to June 2011
    
    RMB529.2/US$80.0Sell US$/buy NT$
    
    January 2011 to March 2011
    
    US$11.8/NT$353.1
  Range ofContract Amount
    
    Range of
    
    Interest RatesMaturity Date
    
    (in Millions)
    
    Interest Rates Paid
    
    ReceivedDecember 31, 2009January 2010 to February 2010
    
    US$750.0/NT$24,201.7
    
    0.24%-0.70%
    
    0.00%-0.38%
  7. AVAILABLE-FOR-SALE FINANCIAL ASSETS
 December 312009
    
    
    2010NT$
    
    
    NT$(In Millions)Corporate bonds
    
    $
    7,042.2
    
    
    $
    14,871.1Agency bonds
    
    
    5,032.0
    
    
    
    8,021.2Publicly traded stocks
    
    
    574.9
    
    
    
    4,634.2Government bonds
    
    
    2,341.8
    
    
    
    2,014.1Money market funds
    
    
    283.7
    
    
    
    376.2Corporate issued notes
    
    
    303.4
    
    
    
    Open-end mutual funds
    
    
    170.0
    
    
    
    15,748.0
    
    
    
    29,916.8Current portion
    
    
    (14,389.9
    )
    
    
    (28,883.7
    )$
    1,358.1
    
    
    $
    1,033.1
  F - 17




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##### Table of Contents



8. HELD-TO-MATURITY FINANCIAL ASSETS
 December 312009
    
    
    2010NT$
    
    
    NT$(In Millions)Corporate bonds
    
    $
    15,120.0
    
    
    $
    12,843.9Government bonds
    
    
    3,378.0
    
    
    
    455.5Structured time deposits
    
    
    7,000.0
    
    
    
    25,498.0
    
    
    
    13,299.4Current portion
    
    
    (9,944.8
    )
    
    
    (4,796.6
    )$
    15,553.2
    
    
    $
    8,502.8
  Principal
    
    Interest
    
    Range ofAmount
    
    Receivable
    
    Interest Rates
    
    Maturity DateNT$
    
    NT$(In Millions)December 31, 2009Callable domestic deposits
    
    
    $7,000.0
    
    
    
    $4.3
    
    
    0.36%-0.95%
    
    July 2010 to August 2011 (redeemed by the issuer from February 2010 to July 2010)
 9. RECEIVABLES, NET
 December 312009
    
    
    2010NT$
    
    
    NT$(In Millions)Notes receivable
    
    $
    44.1
    
    
    $
    21.2Accounts receivable
    
    
    44,593.5
    
    
    
    51,008.744,637.6
    
    
    
    51,029.9Allowance for doubtful receivables
    
    
    (543.3
    )
    
    
    (504.0
    )Allowance for sales returns and others
    
    
    (8,724.5
    )
    
    
    (7,546.3
    )(9,267.8
    )
    
    
    (8,050.3
    )$
    35,369.8
    
    
    $
    42,979.6
  Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$(In Millions)Allowance for doubtful receivablesBalance, beginning of year
    
    $
    701.8
    
    
    $
    455.7
    
    
    $
    543.3Provision (reversal)
    
    
    14.9
    
    
    
    331.5
    
    
    
    (37.0
    )Write-off
    
    
    (261.0
    )
    
    
    (243.9
    )
    
    
    (2.3
    )Balance, end of year
    
    $
    455.7
    
    
    $
    543.3
    
    
    $
    504.0
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Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$(In Millions)Allowance for sales returns and othersBalance, beginning of year
    
    $
    4,089.0
    
    
    $
    6,071.0
    
    
    $
    8,724.5Provision
    
    
    8,825.7
    
    
    
    13,913.4
    
    
    
    12,093.0Write-off
    
    
    (6,843.7
    )
    
    
    (11,259.9
    )
    
    
    (13,271.2
    )Balance, end of year
    
    $
    6,071.0
    
    
    $
    8,724.5
    
    
    $
    7,546.3
 10. INVENTORIES
 December 312009
    
    
    2010NT$
    
    
    NT$(In Millions)Finished goods
    
    $
    2,743.5
    
    
    $
    5,118.0Work in process
    
    
    15,302.0
    
    
    
    19,376.4Raw materials
    
    
    1,541.6
    
    
    
    1,947.4Supplies and spare parts
    
    
    1,326.7
    
    
    
    1,964.1$
    20,913.8
    
    
    $
    28,405.9
  11. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD
 December 312009
    
    
    2010% of
    
    
    
    
    
    
    % ofCarrying
    
    
    Owner-
    
    
    Carrying
    
    
    Owner-Amount
    
    
    ship
    
    
    Amount
    
    
    shipNT$
    
    
    
    
    
    
    NT$(In Millions)
    
    
    
    
    
    
    (In Millions)Common stockVanguard International Semiconductor Corporation (VIS)
    
    $
    9,365.2
    
    
    
    37
    
    
    $
    9,422.4
    
    
    
    38Systems on Silicon Manufacturing Company Pte Ltd.
(SSMC)
    
    
    6,157.2
    
    
    
    39
    
    
    
    7,120.7
    
    
    
    39Motech Industries Inc. (Motech)
    
    
    
    
    
    
    
    
    
    
    6,733.4
    
    
    
    20VisEra Holding Company (VisEra Holding)
    
    
    2,273.1
    
    
    
    49
    
    
    
    2,522.3
    
    
    
    49Aiconn Technology Corporation (Aiconn)
    
    
    18.1
    
    
    
    42
    
    
    
    16.6
    
    
    
    43Mcube Inc. (Mcube)
    
    
    25.6
    
    
    
    70
    
    
    
    
    
    
    
    70Preferred stockMcube
    
    
    32.0
    
    
    
    10
    
    
    
    
    
    
    
    10$
    17,871.2
    
    
    
    
    
    
    $
    25,815.4
  F - 19




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Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$(In Millions)Balance, beginning of year
    
    $
    2,589.7
    
    
    $
    1,990.6
    
    
    $
    1,391.5Additions
    
    
    
    
    
    
    
    
    
    
    2,055.7Amortization
    
    
    (599.1
    )
    
    
    (599.1
    )
    
    
    (955.3
    )Balance, end of year
    
    $
    1,990.6
    
    
    $
    1,391.5
    
    
    $
    2,491.9
  Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$(In Millions)Balance, beginning of year
    
    $
    1,061.9
    
    
    $
    1,061.9
    
    
    $
    1,061.9Additions
    
    
    
    
    
    
    
    
    
    
    353.7Balance, end of year
    
    $
    1,061.9
    
    
    $
    1,061.9
    
    
    $
    1,415.6
 12. HEDGING DERIVATIVE FINANCIAL INSTRUMENTS
 December 31,2010NT$(In Millions)Hedging derivative financial liabilitiesInterest rate swap contract
    
    $
    0.8
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Contract Amount
    
    
    
    Range of
    
    Range ofNT$
    
    
    
    Interest Rates
    
    Interest Rates(In Million)
    
    Maturity Date
    
    Paid
    
    ReceivedNT$128.0
    
    August 31, 2012
    
    
    1.38
    %
    
    0.56%-0.63%
  13. FINANCIAL ASSETS CARRIED AT COST
 December 312009
    
    
    2010NT$
    
    
    NT$(In Millions)Non-publicly traded stocks
    
    $
    2,899.6
    
    
    $
    4,264.9Mutual funds
    
    
    163.4
    
    
    
    159.3$
    3,063.0
    
    
    $
    4,424.2
    14. PROPERTY, PLANT AND EQUIPMENT
 December 312009
    
    
    2010NT$
    
    
    NT$(In Millions)CostLand and land improvements
    
    $
    934.1
    
    
    $
    891.2Buildings
    
    
    142,294.6
    
    
    
    145,966.0Machinery and equipment
    
    
    775,653.5
    
    
    
    913,155.2Office equipment
    
    
    13,667.7
    
    
    
    14,856.6Leased assets
    
    
    714.4
    
    
    
    701.6933,264.3
    
    
    
    1,075,570.6Advance payments and construction in progress
    
    
    34,154.4
    
    
    
    86,151.6967,418.7
    
    
    
    1,161,722.2(Continued
    )
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December 312009
    
    
    2010NT$
    
    
    NT$(In Millions)Accumulated depreciationLand and land improvements
    
    $
    317.6
    
    
    $
    328.8Buildings
    
    
    81,821.7
    
    
    
    90,472.7Machinery and equipment
    
    
    600,795.5
    
    
    
    671,268.6Office equipment
    
    
    10,589.3
    
    
    
    10,957.7Leased assets
    
    
    219.8
    
    
    
    250.4693,743.9
    
    
    
    773,278.2Net
    
    $
    273,674.8
    
    
    $
    388,444.0(Concluded
    )
 Depreciation expense on property, plant and equipment was NT$78,736.8 million, NT$78,662.4
million and NT$85,551.4 million for the years ended December 31, 2008, 2009 and 2010,
respectively.The Company entered into agreements to lease buildings that qualify as capital leases. The term
of the leases is from December 2003 to December 2013. The future minimum lease payments as of
December 31, 2010 is NT$773.2 million.
 15.
    
    DEFERRED CHARGES, NET
 December 312009
    
    
    2010NT$
    
    
    NT$(In Millions)Technology license fees
    
    $
    3,230.6
    
    
    $
    2,455.3Software and system design costs
    
    
    1,834.6
    
    
    
    2,333.3Patent and others
    
    
    1,393.4
    
    
    
    1,238.5$
    6,458.6
    
    
    $
    6,027.1
 Amortization expense on deferred charges was NT$2,716.3 million, NT$2,130.4 million and
NT$2,236.7 million for the years ended December 31, 2008, 2009 and 2010, respectively.As of December 31, 2010, the Companys estimated aggregate amortization expense for each of the
five succeeding fiscal years and thereafter is as follows:
 AmountNT$Year
    
    (In Millions)2011
    
    $
    2,249.72012
    
    
    1,564.62013
    
    
    896.02014
    
    
    421.72015
    
    
    284.52016 and thereafter
    
    
    610.6$
    6,027.1
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16.
    
    SHORT-TERM LOANS
 December 31,2010NT$(In Millions)Unsecured loans:US$874.0 million and EUR114.9 million, due from January 2011 to February 2011,
annual interest at 0.38%-1.84%
    
    $
    31,213.9
 17.
    
    BONDS PAYABLE
 December 312009
    
    
    2010NT$
    
    
    NT$(In Millions)Domestic unsecured bonds:Issued in January 2002 and repayable in 2012, 3.00% interest payable annually
    
    $
    4,500.0
    
    
    $
    4,500.0
 18.
    
    LONG-TERM BANK LOANS
 December 312009
    
    
    2010NT$
    
    
    NT$(In Millions)Secured loans:Repayable from August 2009 in 17 quarterly installments, annual
interest at 0.67%-2.70% in 2009 and 0.66%-1.24% in 2010
    
    $
    788.3
    
    
    $
    543.0US$20.0 million, repayable in full in one lump sum payment in
November 2010, annual interest at 0.68%-0.97% in 2009
    
    
    640.9
    
    
    
    Repayable from December 2007 in 8 semi-annual installments,
fully repaid in June 2010, annual interest at 1.10%-2.42%
    
    
    98.7
    
    
    
    1,527.9
    
    
    
    543.0Current portion
    
    
    (949.3
    )
    
    
    (241.4
    )$
    578.6
    
    
    $
    301.6
 Pursuant to the loan agreements, financial ratios calculated based on semi-annual and annual
audited financial statements of Xintec must comply with predetermined financial covenants. As of
December 31, 2010, Xintec was in compliance with all such financial covenants.As of December 31, 2010, future principal repayments for the long-term bank loans were as
follows:
 AmountNT$Year of Repayment
    
    (In Millions)2011
    
    $
    241.42012
    
    
    241.42013
    
    
    60.2$
    543.0
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19.
    
    OTHER LONG-TERM PAYABLES
 December 312009
    
    
    2010NT$
    
    
    NT$(In Millions)Payables for acquisition of property, plant and equipment (Note 29j)
    
    $
    8,355.4
    
    
    $
    7,112.2Payables for royalties
    
    
    1,252.3
    
    
    
    848.69,607.7
    
    
    
    7,960.8Current portion (classified under accrued expenses and other current
liabilities)
    
    
    (4,005.3
    )
    
    
    (1,406.6
    )$
    5,602.4
    
    
    $
    6,554.2
 The payables for royalties were primarily attributable to several license arrangements that the
Company entered into for certain semiconductor-related patents.As of December 31, 2010, future payments for other long-term payables were as follows:
 AmountNT$Year of Payment
    
    (In Millions)2011
    
    $
    1,406.62012
    
    
    675.72013
    
    
    569.62014
    
    
    5,308.9$
    7,960.8
 20.
    

    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, TSMC Canada and TSMC Solar NA are required by local
regulations to make monthly contributions at certain percentages of the basic salary of their
employees. Pursuant to the aforementioned Act and local regulations, the Company recognized
pension costs of NT$779.6 million, NT$748.1 million and NT$1,121.7 million (US$38.5 million) for
the years ended December 31, 2008, 2009 and 2010, 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 and Xintec use December 31 as the measurement date for their pension plans.
 F - 24




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Changes in projected benefit obligation and plan assets for the years ended December 31, 2008,
2009 and 2010 are summarized as follows:
 Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$(In Millions)Projected benefit obligationBalance, beginning of year
    
    $
    6,043.7
    
    
    $
    7,560.8
    
    
    $
    6,557.8Service cost
    
    
    151.7
    
    
    
    166.5
    
    
    
    129.7Interest cost
    
    
    171.3
    
    
    
    150.6
    
    
    
    146.7Plan amendments
    
    
    (173.7
    )
    
    
    
    
    
    
    Actuarial loss (gain)
    
    
    1,396.8
    
    
    
    (1,282.3
    )
    
    
    2,474.6Benefits paid
    
    
    (29.0
    )
    
    
    (37.8
    )
    
    
    (20.0
    )Balance, end of year
    
    $
    7,560.8
    
    
    $
    6,557.8
    
    
    $
    9,288.8Plan assetsBalance, beginning of year
    
    $
    2,239.0
    
    
    $
    2,487.6
    
    
    $
    2,661.6Actual return of plan assets
    
    
    70.7
    
    
    
    17.6
    
    
    
    44.4Employer contribution
    
    
    206.9
    
    
    
    194.2
    
    
    
    212.2Benefits paid
    
    
    (29.0
    )
    
    
    (37.8
    )
    
    
    (11.0
    )Balance, end of year
    
    $
    2,487.6
    
    
    $
    2,661.6
    
    
    $
    2,907.2
  a.
    
    Components of net periodic pension cost
 Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$(In Millions)Service cost
    
    $
    151.7
    
    
    $
    166.5
    
    
    $
    129.7Interest cost
    
    
    171.3
    
    
    
    150.6
    
    
    
    146.6Projected return on plan assets
    
    
    (68.4
    )
    
    
    (57.3
    )
    
    
    (40.9
    )Amortization
    
    
    4.5
    
    
    
    29.9
    
    
    
    2.2Net periodic pension cost
    
    $
    259.1
    
    
    $
    289.7
    
    
    $
    237.6
 b.
    
    Reconciliation of funded status of the plans and accrued pension cost at December 31, 2009
and 2010
 December 312009
    
    
    2010NT$
    
    
    NT$(In Millions)Benefit obligationVested benefit obligation
    
    $
    123.5
    
    
    $
    189.0Nonvested benefit obligation
    
    
    3,790.6
    
    
    
    5,432.7Accumulated benefit obligation
    
    
    3,914.1
    
    
    
    5,621.7Additional benefits based on future salaries
    
    
    2,643.7
    
    
    
    3,667.1Projected benefit obligation
    
    
    6,557.8
    
    
    
    9,288.8Fair value of plan assets
    
    
    (2,661.6
    )
    
    
    (2,907.2
    )Funded status
    
    
    3,896.2
    
    
    
    6,381.6Unrecognized net transition obligation
    
    
    (92.8
    )
    
    
    (84.2
    )(Continued
    )
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December 312009
    
    
    2010NT$
    
    
    NT$(In Millions)Prior service cost
    
    $
    162.0
    
    
    $
    154.7Unrecognized net loss
    
    
    (168.4
    )
    
    
    (2,639.8
    )Accrued pension cost
    
    $
    3,797.0
    
    
    $
    3,812.3Vested benefit
    
    $
    135.5
    
    
    $
    208.2
 c.
    
    Actuarial assumptions at December 31, 2009 and 2010
 Discount rate used in determining present values
    
    
    2.25
    %
    
    
    1.75%-2.25
    %Future salary increase rate
    
    
    3.00
    %
    
    
    3.00
    %Expected rate of return on plan assets
    
    
    1.50%-2.00
    %
    
    
    2.00%-2.50
    %
 d.
    
    Expected benefit payments
 AmountNT$Year
    
    (In Millions)2011
    
    $
    111.22012
    
    
    35.62013
    
    
    57.22014
    
    
    93.72015
    
    
    141.12016 and thereafter
    
    
    1,442.1
 e.
    
    TSMC, GUC and Xintec expect to make contributions to their pension funds in 2011 of
NT$215.7 million, NT$2.2 million and NT$2.0 million, respectively.
 Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$(In Millions)f.    Contributions to the Funds for the
year
    
    $
    206.9
    
    
    $
    194.2
    
    
    $
    212.2g.    Payments from the Funds for the year
    
    $
    29.0
    
    
    $
    37.8
    
    
    $
    20.0
 h.
    
    Plan assets allocationThe 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, 2009 and 2010, 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.
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21.
    
    INCOME TAX
 a.
    
    Income tax expense consisted of:
 Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$(In Millions)CurrentDomestic
    
    $
    8,580.7
    
    
    $
    7,499.0
    
    
    $
    8,131.6Foreign
    
    
    82.8
    
    
    
    258.6
    
    
    
    159.48,663.5
    
    
    
    7,757.6
    
    
    
    8,291.0DeferredDomestic
    
    
    2,307.2
    
    
    
    (1,700.6
    )
    
    
    (327.9
    )Foreign
    
    
    (21.7
    )
    
    
    (60.6
    )
    
    
    25.42,285.5
    
    
    
    (1,761.2
    )
    
    
    (302.5
    )Income tax expense
    
    $
    10,949.0
    
    
    $
    5,996.4
    
    
    $
    7,988.5
 b.
    
    A reconciliation of income tax expense based on income before income tax at the
statutory rates and income tax currently payable was as follows:
 Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$(In Millions)Income tax expense based on income before income tax
statutory rates
    
    $
    27,970.4
    
    
    $
    24,182.9
    
    
    $
    30,456.4The effect of the following:Tax-exempt income
    
    
    (9,670.5
    )
    
    
    (8,652.0
    )
    
    
    (17,410.2
    )Temporary and permanent differences
    
    
    2,122.8
    
    
    
    3,136.0
    
    
    
    (827.0
    )Others
    
    
    44.1
    
    
    
    247.0
    
    
    
    Additional tax at 10% on unappropriated earnings
    
    
    13.9
    
    
    
    30.7
    
    
    
    138.2Net operating loss carryforwards used
    
    
    (205.2
    )
    
    
    (66.1
    )
    
    
    (529.3
    )Income tax credits used
    
    
    (11,109.3
    )
    
    
    (9,984.6
    )
    
    
    (4,888.0
    )Income tax currently payable
    
    $
    9,166.2
    
    
    $
    8,893.9
    
    
    $
    6,940.1
 c.
    
    Income tax expense consisted of the following:
 Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$(In Millions)Income tax currently payable
    
    $
    9,166.2
    
    
    $
    8,893.9
    
    
    $
    6,940.1Income tax adjustments on prior years
    
    
    (707.3
    )
    
    
    (1,159.3
    )
    
    
    977.9Other income tax adjustments
    
    
    204.6
    
    
    
    23.0
    
    
    
    373.1Net change in deferred income tax assetsInvestment tax credits
    
    
    1,060.6
    
    
    
    (1,291.1
    )
    
    
    (7,129.5
    )Net operating loss carryforwards
    
    
    411.4
    
    
    
    59.9
    
    
    
    546.2Temporary differences
    
    
    (2,129.1
    )
    
    
    (1,042.3
    )
    
    
    (78.2
    )Valuation allowance
    
    
    2,942.6
    
    
    
    512.3
    
    
    
    6,358.9Income tax expense
    
    $
    10,949.0
    
    
    $
    5,996.4
    
    
    $
    7,988.5
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d.
    
    Net deferred income tax assets consisted of the following:
 December 312009
    
    
    2010NT$
    
    
    NT$(In Millions)Current deferred income tax assetsInvestment tax credits
    
    $
    3,304.1
    
    
    $
    4,282.1Temporary differencesAllowance for sales returns and others
    
    
    814.5
    
    
    
    653.5Unrealized gain/loss on financial instruments
    
    
    
    
    
    
    87.7Others
    
    
    394.9
    
    
    
    488.8Valuation allowance
    
    
    (143.2
    )
    
    
    (139.0
    )$
    4,370.3
    
    
    $
    5,373.1Noncurrent deferred income tax assetsInvestment tax credits
    
    $
    12,184.6
    
    
    $
    18,336.1Net operating loss carryforwards
    
    
    3,440.8
    
    
    
    2,735.3Temporary differencesDepreciation
    
    
    1,986.4
    
    
    
    2,160.3Others
    
    
    481.9
    
    
    
    414.8Valuation allowance
    
    
    (10,105.4
    )
    
    
    (16,283.7
    )$
    7,988.3
    
    
    $
    7,362.8
 Effective in May 2009 and June 2010, the Article 5 of the Income Tax Law of the Republic of
China was amended, in which the income tax rate of profit-seeking enterprises would be
reduced from 25% to 20% and from 20% to 17%, respectively. The last amended income tax rate
of 17% is retroactively applied on January 1, 2010. TSMC and its domestic subsidiaries
which are subject to the Income Tax Law of the Republic of China recalculated their deferred
tax assets in accordance with the new amended Article as well as the related valuation
allowance and adjusted the resulting difference as an income tax expense in 2009 and 2010,
respectively. The higher valuation allowance in 2010 was primarily attributed to
an anticipated increased amount of tax credits expiring unused due to the lower regular
corporate income tax rate which has decreased from 25% to 17% from 2010.Under Article 10 of the Statute for Industrial Innovation (SII) legislated and effective in
May 2010, a profit-seeking enterprise may deduct up to 15% of its research and development
expenditures from its income tax payable for the year in which these expenditures are
incurred, but this deduction should not exceed 30% of the income tax payable for that year.
This incentive is retroactive to January 1, 2010 and effective until December 31, 2019.As of December 31, 2010, the net operating loss carryforwards generated by WaferTech, TSMC
Development and Mutual-Pak would expire on various dates through 2026.e.
    
    Integrated income tax information:The balance of the imputation credit account (ICA) of TSMC as of December 31, 2009 and 2010 was NT$369.3 million and
NT$1,669.5 million, respectively.The actual and estimated creditable ratios for distribution of TSMCs earnings of 2009 and 2010 were 9.85% and 4.70%,
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, 2010, investment tax credits of TSMC, GUC, Xintec and Mutual-Pak
consisted of the following:
 Total
    
    
    RemainingCreditable
    
    
    CreditableAmount
    
    
    Amount
    
    
    ExpiryNT$
    
    
    NT$
    
    
    YearLaw/Statute

    

    Item
    
    
    (In Millions)Statute for Upgrading Industries
    
    Purchase of machinery and equipment
    
    $
    114.7
    
    
    $
    
    
    
    
    201066.3
    
    
    
    66.3
    
    
    
    20113,220.4
    
    
    
    2,519.9
    
    
    
    20126,052.8
    
    
    
    6,052.8
    
    
    
    20136,369.5
    
    
    
    6,369.5
    
    
    
    2014$
    15,823.7
    
    
    $
    15,008.5Statute for Upgrading Industries
    
    Research and development expenditures
    
    $
    1,020.2
    
    
    $
    
    
    
    
    20101,192.8
    
    
    
    114.4
    
    
    
    20112,921.0
    
    
    
    2,921.0
    
    
    
    20124,523.4
    
    
    
    4,523.4
    
    
    
    2013$
    9,657.4
    
    
    $
    7,558.8Statute for Upgrading Industries
    
    Personnel training expenditures
    
    $
    0.7
    
    
    $
    
    
    
    
    201020.1
    
    
    
    0.8
    
    
    
    201132.3
    
    
    
    32.3
    
    
    
    201217.8
    
    
    
    17.8
    
    
    
    2013$
    70.9
    
    
    $
    50.9Statute for Industrial Innovation
    
    Research and development expenditures
    
    $
    2,050.0
    
    
    $
    
    
    
    
    2010
 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 and expansion of 2001 by TSMC
    
    2006 to 2010Construction and expansion of 2003 by TSMC
    
    2007 to 2011Construction and expansion of 2004 by TSMC
    
    2008 to 2012Construction and expansion of 2005 by TSMC
    
    2010 to 2014Construction and expansion of 2003 by GUC
    
    2007 to 2011Construction and expansion of 2005 and 2006 by GUC
    
    To be determinedConstruction and expansion of 2003 by Xintec
    
    2007 to 2011Construction and expansion of 2002, 2003 and 2006 by Xintec
    
    2010 to 2014
 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.
 22.
    
    SHAREHOLDERS EQUITY
 Common Stock, Capital Surplus and EarningsAs of December 31, 2010, 1,096,448 thousand ADSs of TSMC were traded
on the NYSE. The number of common shares represented by the ADSs was
5,482,242 thousand (one ADS represents five common shares).
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Capital surplus can only be used to offset a deficit under the Company
Law. However, the capital surplus generated from donations and the
excess of the issuance price over the par value of capital stock
(including the stock issued for new capital, mergers, convertible
bonds and the surplus from treasury stock transactions) may be
appropriated as stock dividends, which are limited to a certain percentage of TSMCs paid-in capital. In addition, the
capital surplus from long-term investment may not be used for any purpose.Capital surplus consisted of the following:
 December 312009
    
    
    2010NT$
    
    
    NT$(In Millions)Additional paid-in capital
    
    $
    23,457.8
    
    
    $
    23,628.9From merger
    
    
    22,805.4
    
    
    
    22,805.4From convertible bonds
    
    
    8,893.2
    
    
    
    8,893.2From long-term investments
    
    
    329.6
    
    
    
    370.9$
    55,486.0
    
    
    $
    55,698.4
 As of December 31, 2009 and 2010, retained earnings consisted of:
 December 312009
    
    
    2010NT$
    
    
    NT$(In Millions)Unappropriated earnings
    
    $
    104,565.0
    
    
    $
    178,227.0Legal capital reserve
    
    
    77,317.7
    
    
    
    86,239.5Special capital reserve
    
    
    
    
    
    
    1,313.1$
    181,882.7
    
    
    $
    265,779.6
 TSMCs Articles of Incorporation provide that, when allocating the net profits for each fiscal
year, TSMC shall first offset its losses in previous years and then set aside the following
items accordingly:
 a.
    
    Legal capital reserve at 10% of the profits left over, until the accumulated legal
capital reserve equals TSMCs paid-in capital;b.
    
    Special capital reserve in accordance with relevant laws or regulations or as requested
by the authorities in charge;c.
    
    Bonus to directors and profit sharing to employees of TSMC of not more than 0.3% and
not less than 1% of the remainder, respectively. Directors who also serve as executive
officers of TSMC are not entitled to receive the bonus to directors. TSMC may issue profit
sharing to employees in stock of an affiliated company meeting the conditions set by the
Board of Directors or, by the person duly authorized by the Board of Directors;d.
    
    Any balance left over shall be allocated according to the resolution of the
shareholders meeting.
 TSMCs Articles of Incorporation also provide that profits of TSMC may be distributed by way of
cash dividend and/or stock dividend. However, distribution of profits shall be made preferably
by way of cash dividend. Distribution of profits may also be made by way of stock dividend;
provided that the ratio for stock dividend shall not exceed 50% of the total distribution.Any appropriations of the profits are subject to shareholders approval in the following year.TSMC accrued profit sharing to employees as a charge to earnings of certain percentage of net
income during the year amounted to NT$6,691.3 million and NT$10,908.3 million for the years
ended December 2009 and 2010, 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.
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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 2008 and 2009 had been approved in TSMCs shareholders
meetings held on June 10, 2009 and June 15, 2010, respectively. The appropriations of earnings
of 2010 were approved by the Board of Directors on February 15, 2011. The appropriations of
earnings of 2010 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 2008
    
    
    Year 2009
    
    
    Year 2010
    
    
    Year 2008
    
    
    Year 2009
    
    
    Year 2010NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Millions)Legal capital reserve
    
    $
    9,993.3
    
    
    $
    8,921.8
    
    
    $
    16,160.5Special capital reserve
    
    
    (391.9
    )
    
    
    1,313.1
    
    
    
    5,120.8Cash dividends to shareholders
    
    
    76,876.3
    
    
    
    77,708.1
    
    
    
    77,730.2
    
    
    
    3.00
    
    
    
    3.00
    
    
    
    3.00Stock dividends to shareholders
    
    
    512.5
    
    
    
    
    
    
    
    
    
    
    
    0.02
    
    
    
    
    
    
    
    $
    86,990.2
    
    
    $
    87,943.0
    
    
    $
    99,011.5
 TSMCs profit sharing to employees and bonus to directors that will be paid in cash in the
amounts of NT$10,908.3 million and NT$51.1 million for the year ended December 31, 2010,
respectively, were resolved in the meeting of the Board of Directors held on February 15, 2011.
Such amounts were not materially different from the amounts that have been charged against
earnings for the year ended December 31, 2010.The 2010 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 9,
2011.TSMCs profit sharing to employees to be paid in cash and bonus to directors in the amounts of
NT$6,691.3 million and NT$67.7 million for 2009, respectively, had been approved in the
shareholders meeting held on June 15, 2010. The resolved amounts of the profit sharing to
employees and bonus to directors were consistent with the resolutions of meeting of the Board of
Directors held on February 9, 2010. Such amounts were not materially different from the amounts
that have been charged against earnings for the year ended December 31, 2009.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.The shareholders meeting held on June 10, 2009 also resolved to distribute stock dividends out
of capital surplus, and stock dividends to shareholders as well as profit sharing to employees
to be paid in stock in the amount of NT$768.8 million, NT$512.5 million and NT$7,495.0 million,
respectively.The information about the appropriations of TSMCs profit sharing to employees and bonus to
directors is available at the Market Observation Post System website.Under the Integrated Income Tax System that became effective on January 1, 1998, 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.
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##### Table of Contents



23.
    
    STOCK-BASED COMPENSATION PLANS
 TSMC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 exercised. The options
may be granted to qualified employees of TSMC or any of its domestic
or foreign subsidiaries, in which TSMCs shareholding with voting
rights, directly or indirectly, is more than fifty percent (50%). The
options of all the plans are valid for ten years and exercisable at
certain percentages subsequent to the second anniversary of the grant
date. Under the terms of the plans, the options are granted at an
exercise price equal to the closing price of TSMCs common shares
listed on the TSE on the grant date.Options of the plans that had never been granted or had been granted
but subsequently canceled had expired as of December 31, 2010.Information about TSMCs outstanding stock options for the years ended
December 31, 2008, 2009 and 2010 was as follows:
 Weighted- averageNumber of Options
    
    
    Exercise Price(In Thousands)
    
    
    (NT$)Year 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
    
    
    
    33.5Year ended December 31, 2010Balance, beginning of year
    
    
    28,810
    
    
    
    $32.4Options exercised
    
    
    (7,372
    )
    
    
    33.2Options canceled
    
    
    (1
    )
    
    
    50.1Balance, end of year
    
    
    21,437
    
    
    
    32.3
 The number of outstanding options and exercise prices have been adjusted to reflect the
distribution of earnings by TSMC in accordance with the plans.As of December 31, 2010, 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$)$21.7- $30.5
    
    
    16,438
    
    
    
    2.20
    
    
    $
    28.238.0 -  50.1
    
    
    4,999
    
    
    
    3.91
    
    
    
    45.621,437
    
    
    
    2.60
    
    
    
    32.3
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As of December 31, 2010, 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 exercised. The options may be granted to qualified employees of GUC. The
options of all the plans are valid for six years and exercisable at certain percentages
subsequent to the second anniversary of the grant date.Moreover, the GUC 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 exercised. The options may be granted to qualified employees of GUC or any of
its subsidiaries. Except for the options of the GUC 2006 Plan which are valid until August 15,
2011, the options of the other two GUC option plans are valid for six years. Options of all
three plans are exercisable at certain percentages subsequent to the second anniversary of the
grant date.Information about GUCs outstanding stock options for the years ended December 31, 2008, 2009
and 2010 was as follows:
 Weighted-averageExercise PricesNumber of Options
    
    
    (NT$)Year ended December 31, 2008Balance, beginning of year
    
    
    7,598
    
    
    $
    54.1Options granted
    
    
    284
    
    
    
    13.9Options exercised
    
    
    (2,115
    )
    
    
    13.3Options canceled
    
    
    (210
    )
    
    
    156.6Balance, end of year
    
    
    5,557
    
    
    
    63.8Year ended December 31, 2009Balance, beginning of year
    
    
    5,557
    
    
    $
    63.8Options granted
    
    
    87
    
    
    
    13.6Options exercised
    
    
    (1,475
    )
    
    
    10.5Options canceled
    
    
    (359
    )
    
    
    62.2Balance, end of year
    
    
    3,810
    
    
    
    83.4Year ended December 31, 2010Balance, beginning of year
    
    
    3,810
    
    
    $
    83.4Options exercised
    
    
    (1,592
    )
    
    
    13.7Options canceled
    
    
    (431
    )
    
    
    143.3Balance, end of year
    
    
    1,787
    
    
    
    130.9
 The number of outstanding options and exercise prices have been adjusted to reflect the
distribution of earnings by GUC in accordance with the plans.
 F - 33




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As of December 31, 2010, information about GUCs outstanding and exercisable options was as
follows:
 Options Outstanding
    
    
    Options ExercisableWeighted-average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Range of
    
    
    
    
    
    Remaining
    
    
    average
    
    
    
    
    
    
    averageExercise Price
    
    Number of
    
    
    Contractual
    
    
    Exercise
    
    
    Number of
    
    
    Exercise(NT$)
    
    Options
    
    
    Life (Years)
    
    
    Price (NT$)
    
    
    Options
    
    
    Price (NT$)$  15.3
    
    
    493
    
    
    
    0.67
    
    
    $
    15.3
    
    
    
    493
    
    
    $
    15.3175.0
    
    
    1,294
    
    
    
    3.00
    
    
    
    175.0
    
    
    
    646
    
    
    
    175.01,787
    
    
    
    2.36
    
    
    
    130.9
    
    
    
    1,139
    
    
    
    105.9
 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
exercised. The options may be granted to qualified employees of Xintec or any of its
subsidiaries. The options of all the plans are valid for ten years and exercisable at certain
percentages subsequent to the second anniversary of the grant date.Information about Xintecs outstanding options for the years ended December 31, 2008, 2009 and
2010 was as follows:
 Number of
    
    
    Weighted-averageOptions
    
    
    Exercise Price(in Thousands)
    
    
    (NT$)Year ended December 31, 2008Balance, beginning of year
    
    
    9,642
    
    
    $
    15.1Options exercised
    
    
    (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 exercised
    
    
    (2,552
    )
    
    
    13.9Options canceled
    
    
    (930
    )
    
    
    16.6Balance, end of year
    
    
    3,960
    
    
    
    14.7Year ended December 31, 2010Balance, beginning of year
    
    
    3,960
    
    
    $
    14.7Options exercised
    
    
    (1,856
    )
    
    
    13.9Options canceled
    
    
    (272
    )
    
    
    17.3Balance, end of year
    
    
    1,832
    
    
    
    15.1
 The exercise prices have been adjusted to reflect the distribution of earnings by Xintec in
accordance with the plans.
 F - 34




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##### Table of Contents



As of December 31, 2010, 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$)$12.1- $14.0
    
    
    793
    
    
    
    5.75-6.04
    
    
    $
    12.5
    
    
    
    664
    
    
    $
    12.515.2 -  19.1
    
    
    1,039
    
    
    
    6.50-6.69
    
    
    
    17.0
    
    
    
    497
    
    
    
    17.01,832
    
    
    
    
    
    
    
    15.1
    
    
    
    1,161
    
    
    
    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, 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 thirty 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, 2008, 2009 and 2010. Had the Company used the fair value based method to evaluate
the options using the Black-Scholes model, the assumptions at the various grant dates and pro
forma results of the Company for the years ended December 31, 2008, 2009 and 2010 would have
been as follows:
  TSMC
    
    Expected dividend yield
    
    
    1.00%-3.44
    %Expected volatility
    
    
    43.77%-46.15
    %Risk free interest rate
    
    
    3.07%-3.85
    %Expected life
    
    5 yearsGUC
    
    Expected dividend yield
    
    
    0.00%-0.60
    %Expected volatility
    
    
    22.65%-45.47
    %Risk free interest rate
    
    
    2.12%-2.56
    %Expected life
    
    3-6 yearsXintec
    
    Expected dividend yield
    
    
    0.80
    %Expected volatility
    
    
    31.79%-47.42
    %Risk free interest rate
    
    
    1.88%-2.45
    %Expected life
    
    3 years
 Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$(In Millions)Net income attributable to shareholders of the parent:As reported
    
    $
    99,933.2
    
    
    $
    89,217.8
    
    
    $
    161,605.0Pro forma
    
    
    100,037.6
    
    
    
    88,838.2
    
    
    
    161,470.0
  F - 35




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Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$(In Millions)Earnings per share (EPS)  after income tax (NT$):Basic EPS as reported
    
    $
    3.84
    
    
    $
    3.45
    
    
    $
    6.24Pro forma basic EPS
    
    
    3.84
    
    
    
    3.44
    
    
    
    6.23Diluted EPS as reported
    
    
    3.81
    
    
    
    3.44
    
    
    
    6.23Pro forma diluted EPS
    
    
    3.81
    
    
    
    3.43
    
    
    
    6.23
  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.24.
    
    EARNINGS PER SHARE
 Amounts (Numerator)
    
    
    Number of
    
    
    EPSBefore
    
    
    After
    
    
    Shares
    
    
    Before
    
    
    AfterIncome Tax
    
    
    Income Tax
    
    
    (Denominator)
    
    
    Income
    
    
    IncomeNT$
    
    
    NT$
    
    
    (In Thousands)
    
    
    Tax
    
    
    Tax(In Millions)
    
    
    
    
    
    
    NT$
    
    
    NT$Year 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
    
    
    
    
    
    
    
    
    
    
    195,739Diluted EPSEarnings available to common shareholders of the
parent
(including effect of dilutive potential common shares)
    
    $
    110,847.8
    
    
    $
    99,933.2
    
    
    
    26,234,925
    
    
    $
    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
    
    
    
    
    
    
    
    
    
    
    77,319Diluted EPSEarnings available to common shareholders of the
parent
(including effect of dilutive potential common shares)
    
    $
    95,189.8
    
    
    $
    89,217.8
    
    
    
    25,913,121
    
    
    $
    3.67
    
    
    $
    3.44Year ended December 31, 2010Basic EPSEarnings available to common shareholders of the
parent
    
    $
    169,520.1
    
    
    $
    161,605.0
    
    
    
    25,905,832
    
    
    $
    6.54
    
    
    $
    6.24Effect of dilutive potential common shares
    
    
    
    
    
    
    
    
    
    
    14,262Diluted EPSEarnings available to common shareholders of the
parent
(including effect of dilutive potential common shares)
    
    $
    169,520.1
    
    
    $
    161,605.0
    
    
    
    25,920,094
    
    
    $
    6.54
    
    
    $
    6.23
 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.
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The average number of shares outstanding for EPS calculation has been considered for the effect
of retroactive adjustment. This adjustment caused each of the basic and diluted after income tax
EPS for the year ended December 31, 2008 to decrease from NT$3.86 to NT$3.84 and NT$3.83 to
NT$3.81, respectively. This adjustment caused each of the basic and diluted after income tax EPS
for the year ended December 31, 2009 to remain at NT$3.45 and NT$3.44, respectively.25.
    
    DISCLOSURES FOR FINANCIAL INSTRUMENTS
 a.
    
    Fair values of financial instruments were as follows:
 December 312009
    
    
    2010Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Millions)
    
    
    (In Millions)AssetsFinancial assets at fair value through profit or
loss
    
    $
    186.1
    
    
    $
    186.1
    
    
    $
    6.9
    
    
    $
    6.9Available-for-sale financial assets
    
    
    15,748.0
    
    
    
    15,748.0
    
    
    
    29,916.8
    
    
    
    29,916.8Held-to-maturity financial assets
    
    
    25,498.0
    
    
    
    25,671.7
    
    
    
    13,299.4
    
    
    
    13,457.7Financial assets carried at cost
    
    
    3,063.0
    
    
    
    
    
    
    
    4,424.2
    
    
    
    LiabilitiesFinancial liabilities at fair value through profit
or loss
    
    
    
    
    
    
    
    
    
    
    19.0
    
    
    
    19.0Hedging derivative financial liabilities
    
    
    
    
    
    
    
    
    
    
    0.8
    
    
    
    0.8Bonds payable
    
    
    4,500.0
    
    
    
    4,575.0
    
    
    
    4,500.0
    
    
    
    4,538.7Long-term bank loans (including current
portion)
    
    
    1,527.9
    
    
    
    1,527.9
    
    
    
    543.0
    
    
    
    543.0Other long-term payables (including current
portion)
    
    
    9,607.7
    
    
    
    9,607.7
    
    
    
    7,960.8
    
    
    
    7,960.8Obligations under capital leases
    
    
    707.5
    
    
    
    707.5
    
    
    
    695.0
    
    
    
    695.0
 b.
    
    Methods and assumptions used in the estimation of fair values of financial instruments
 1)
    
    The aforementioned financial instruments do not include cash and cash
equivalents, receivables, other financial assets, refundable deposits, short-term
loans, payables and guarantee deposits. The carrying amounts of these financial
instruments approximate their fair values due to their short maturities.2)
    
    Except for derivatives and structured time deposits, available-for-sale and
held-to-maturity financial assets were based on their quoted market prices.3)
    
    The fair values of those derivatives and structured time deposits are
determined using valuation techniques incorporating estimates and assumptions that were
consistent with prevailing market conditions.4)
    
    Financial assets carried at cost have no quoted prices in an active market and
entail an unreasonably high cost to obtain verifiable fair values. Therefore, no fair
value is presented.5)
    
    Fair value of the bonds payable was based on their quoted market price.6)
    
    Fair values of long-term bank loans, other long-term payables and obligations
under capital leases were based on the present value of expected cash flows, which
approximate their carrying amounts.
 c.
    
    The changes in fair value of derivatives contracts which were outstanding as of
December 31, 2008, 2009 and 2010 estimated using valuation techniques were recognized as
valuation losses of NT$42.7 million, a net gain of NT$186.1 million and a net loss of
NT$12.1 million, respectively.
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d.
    
    As of December 31, 2009 and 2010, financial assets exposed to fair value interest rate
risk were NT$40,857.3 million and NT$38,589.0 million, respectively; financial liabilities
exposed to fair value interest rate risk were NT$13,542.9 million and NT$43,235.6 million,
respectively, and financial liabilities exposed to cash flow interest rate risk were
NT$1,527.9 million and NT$848.3 million, respectively.e.
    
    Movements of the unrealized gain or loss on financial instruments for the years ended
December 31, 2009 and 2010 were as follows:
 Year Ended December 31, 2009From Available-
    
    
    
    
    
    
    Gain (Loss) on Cashfor-sale Financial
    
    
    Equity Method
    
    
    FlowAssets
    
    
    Investments
    
    
    Hedges
    
    
    TotalNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$Balance, 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
 Year Ended December 31, 2010From Available-
    
    
    
    
    
    
    Gain (Loss) on Cashfor-sale Financial
    
    
    Equity Method
    
    
    FlowAssets
    
    
    Investments
    
    
    Hedges
    
    
    TotalNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$Balance, beginning of year
    
    $
    424.1
    
    
    $
    29.5
    
    
    $
    
    
    
    $
    453.6Recognized directly in shareholders equity
    
    
    250.4
    
    
    
    (6.0
    )
    
    
    (0.3
    )
    
    
    244.1Removed from shareholders equity and
recognized
in earnings
    
    
    (588.4
    )
    
    
    
    
    
    
    
    
    
    
    (588.4
    )Balance, end of year
    
    $
    86.1
    
    
    $
    23.5
    
    
    $
    (0.3
    )
    
    $
    109.3
 f.
    
    Information about financial risk
 1)
    
    Market risk. The derivative financial instruments categorized as financial
assets/liabilities at fair value through profit or loss are mainly used to hedge the
market exchange rate fluctuations of foreign-currency assets and liabilities;
therefore, the market exchange rate risk of derivatives will be offset by the foreign
exchange risk of these hedged items. Available-for-sale financial assets and
held-to-maturity financial assets held by the Company are mainly fixed-interest-rate
debt securities and publicly traded stock; therefore, the fluctuations in market
interest rates and market price will result in changes in fair values of these debt
securities.2)
    
    Credit risk. Credit risk represents the potential loss that would be incurred
by the Company if the counter-parties or third-parties breached contracts. Financial
instruments with positive fair values at the balance sheet date are evaluated for
credit risk. The Company evaluated whether the financial instruments for any possible
counter-parties or third-parties are reputable financial institutions, business
enterprises, and government agencies and accordingly, the Company believed that the
Companys exposure to credit risk was not significant.3)
    
    Liquidity risk. The Company has sufficient operating capital to meet cash
needs upon settlement of derivative financial instruments, bonds payable and bank
loans. Therefore, the liquidity risk is low.4)
    
    Cash flow interest rate risk. The Company mainly invests in
fixed-interest-rate debt securities. Therefore, cash flows are not expected to
fluctuate significantly due to changes in market interest rates. A protion of the
short-term loans and the long-term bank loans were floating-rate loans. Therefore,
changes in the market interest rates will result in changes in the interest rate of the
long-term bank loans, which will affect future cash flows.
 F - 38




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##### Table of Contents



g.
    
    The Company seeks to reduce the effects of future cash flow related interest rate
changes by primarily using derivative financial instruments.The Companys long-term bank loans bear floating interest rates; therefore, changes in the
market interest rate may cause future cash flows to be volatile. Accordingly, the Company
entered into an interest rate swap contract in order to hedge cash flow risk caused by
floating interest rates. Information about outstanding interest rate swap contract
consisted of the following:
 Hedging
    
    Fair Value
    
    Expected
    
    Expected Timing for theFinancial
    
    December 31, 2010
    
    Cash Flow
    
    Recognition of GainsHedged Item
    
    Instrument
    
    (In Millions)
    
    Generated Period
    
    or Losses from HedgeLong-term bank loans
    
    Interest rate swap contract
    
    $(0.8)
    
    2010 to 2012
    
    2010 to 2012
 26.
    
    RELATED PARTY TRANSACTIONSExcept as disclosed in the consolidated financial statements and other notes, the following is a summary of significant related
party transactions:
 a.
    
    Investees of TSMCVIS (accounted for using equity method)

SSMC (accounted for using equity method)b.
    
    VisEra Technology Company, Ltd. (VisEra), an indirect investee accounted for using equity method by TSMC.c.
    
    OthersRelated parties over which the Company has significant influence but with which the Company had no
material transactions.
 Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$(In Millions)For the yearSalesVIS
    
    $
    80.1
    
    
    $
    139.5
    
    
    $
    223.6VisEra
    
    
    30.8
    
    
    
    15.5
    
    
    
    82.6Others
    
    
    1.9
    
    
    
    0.3
    
    
    
    11.4$
    112.8
    
    
    $
    155.3
    
    
    $
    317.6PurchasesVIS
    
    $
    3,260.2
    
    
    $
    3,330.3
    
    
    $
    4,959.1SSMC
    
    
    4,441.8
    
    
    
    3,537.6
    
    
    
    4,521.0Others
    
    
    0.5
    
    
    
    
    
    
    
    39.1$
    7,702.5
    
    
    $
    6,867.9
    
    
    $
    9,519.2Manufacturing expensesVisEra (primarily outsourcing and rent)
    
    $
    131.4
    
    
    $
    82.6
    
    
    $
    102.2VIS (primarily rent)
    
    
    
    
    
    
    
    
    
    
    10.2$
    131.4
    
    
    $
    82.6
    
    
    $
    112.4
 F - 39




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##### Table of Contents



Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$(In Millions)Research and development expensesVisEra
    
    $
    0.5
    
    
    $
    0.4
    
    
    $
    12.1VIS (primarily rent)
    
    
    
    
    
    
    1.3
    
    
    
    12.0Others
    
    
    
    
    
    
    
    
    
    
    0.1$
    0.5
    
    
    $
    1.7
    
    
    $
    24.2Sales of property, plant and equipmentVIS
    
    $
    
    
    
    $
    
    
    
    $
    37.0VisEra
    
    
    
    
    
    
    1.1
    
    
    
    4.4SSMC
    
    
    
    
    
    
    
    
    
    
    2.4$
    
    
    
    $
    1.1
    
    
    $
    43.8Purchase of property, plant and equipment and intangible assetsVIS
    
    $
    
    
    
    $
    
    
    
    $
    109.9Non-operating income and gainsVIS (primarily technical service income, see Note 29e)
    
    $
    296.2
    
    
    $
    224.8
    
    
    $
    267.4SSMC (primarily technical service income, see Note 29d)
    
    
    244.9
    
    
    
    141.5
    
    
    
    198.2VisEra
    
    
    101.6
    
    
    
    0.1
    
    
    
    $
    642.7
    
    
    $
    366.4
    
    
    $
    465.6As of December 31Other receivablesVIS
    
    $
    43.0
    
    
    $
    81.7
    
    
    $
    70.8SSMC
    
    
    56.9
    
    
    
    39.6
    
    
    
    53.8$
    99.9
    
    
    $
    121.3
    
    
    $
    124.6PayablesSSMC
    
    $
    162.8
    
    
    $
    238.7
    
    
    $
    430.2VIS
    
    
    317.9
    
    
    
    531.5
    
    
    
    428.8Others
    
    
    9.2
    
    
    
    12.8
    
    
    
    8.1$
    489.9
    
    
    $
    783.0
    
    
    $
    867.1
 The sales prices and payment terms to related parties were not significantly different from
those of sales to third parties. For other related party transactions, prices and terms were
determined in accordance with mutual agreements.The Company leased certain office space and facilities from VIS. The lease terms and prices
were determined in accordance with mutual agreements. The office rental was prepaid by the
Company and the facilities rental was paid quarterly. The related rental expenses were
classified under research and development expenses and manufacturing expenses.The Company leased certain factory building from VisEra. The lease terms and prices were
determined in accordance with mutual agreements. The rental expense was paid monthly and
classified under manufacturing expenses.
 F - 40




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##### Table of Contents



27.
    

    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 312009
    
    
    2010Other financial assets
    
    $
    949.4
    
    
    $
    163.5Property, plant and equipment, net
    
    
    2,808.0
    
    
    
    1,109.3Other assets
    
    
    20.0
    
    
    
    40.0$
    3,777.4
    
    
    $
    1,312.8
 28.
    

    SIGNIFICANT LONG-TERM LEASESThe Company leases several parcels of land, factory and office premises from the Science Park
Administration and Jhongli Industrial Park Service Center. These operating leases expire on
various dates from April 2011 to July 2030 and can be renewed upon expiration.The Company entered into lease agreements for its office premises and certain equipment located
in the United States, Europe, Japan, Shanghai and Taiwan. These operating leases expire between
2011 and 2018 and can be renewed upon expiration.As of December 31, 2010, future lease payments were as follows:
 Year
    
    AmountNT$(In Millions)2011
    
    $
    612.42012
    
    
    568.72013
    
    
    537.22014
    
    
    515.32015
    
    
    483.02016 and thereafter
    
    
    3,422.4$
    6,139.0
 Rent expense for the years ended December 31, 2008, 2009 and 2010 was NT$1,620.6 million,
NT$1,293.3 million and NT$1,907.1 million, respectively.29.
    

    SIGNIFICANT COMMITMENTS AND CONTINGENCIESSignificant commitments and contingencies of the Company as of December 31, 2010, excluding
those disclosed in other notes, were as follows:
 a.
    
    Under a technical cooperation agreement with ITRI, the R.O.C. Government or its
designee approved by TSMC can use up to 35% of TSMCs capacity if TSMCs outstanding
commitments to its customers are not prejudiced. The term of this agreement is for five
years beginning from January 1, 1987 and is automatically renewed for successive periods
of five years unless otherwise terminated by either party with one year prior notice.b.
    
    Under several foundry agreements, TSMC shall reserve a portion of its production
capacity for certain major customers that have guarantee deposits with TSMC. As of
December 31, 2010 TSMC had a total of US$22.7 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.
 F - 41




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##### Table of Contents



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.f.
    
    In August 2006, TSMC filed a lawsuit against Semiconductor Manufacturing
International Corporation, SMIC (Shanghai) and SMIC Americas (aggregately referred to as
SMIC) in the Superior Court of California for Alameda County for breach of a 2005
agreement that settled an earlier trade secret misappropriation and patent infringement
litigation between the parties, as well as for trade secret misappropriation, seeking
injunctive relief and monetary damages. In September 2006, SMIC filed a cross-complaint
against TSMC in the same court alleging breach of settlement agreement, implied covenant
of good faith and fair dealing. SMIC also filed a civil action against TSMC in November
2006 with the Beijing Peoples High Court alleging defamation and breach of good faith. On
June 10, 2009, the Beijing Peoples High Court ruled in favor of TSMC and dismissed SMICs
lawsuit. On November 4, 2009, after a two-month trial, a jury in the California action
found SMIC to have both breached the 2005 settlement agreement and misappropriated TSMCs
trade secrets. TSMC has subsequently settled both lawsuits with SMIC. Pursuant to the new
settlement agreement, the parties have agreed to the entry of a stipulated judgment in
favor of TSMC in the California action, and to the dismissal of SMICs appeal against the
Beijing High Courts finding in favor of TSMC. Under the new settlement agreement and the
related stipulated judgment, SMIC has agreed to make cash payments by installments to TSMC
totaling US$200.0 million, which are in addition to the US$135.0 million previously paid
to TSMC under the 2005 settlement agreement, and, conditional upon relevant government
regulatory approvals, to issue to TSMC a total of 1,789,493,218 common shares of
Semiconductor Manufacturing International Corporation and a three-year warrant to purchase
695,914,030 common shares (subject to adjustment) of Semiconductor Manufacturing
International Corporation at HK$1.30 per share (subject to adjustment). TSMC has received
the approval from the Investment Commission of Ministry of Economic Affairs and acquired
the above mentioned common shares on July 5, 2010, representing approximately 7.37% of
Semiconductor Manufacturing International Corporations total shares outstanding, and
recognized settlement income amounting to NT$4,434.4 million.g.
    
    In June 2010, STC.UNM, the technology transfer arm of the University of New Mexico,
filed a complaint in the U.S. International Trade Commission (USITC) accusing TSMC and
one other company of allegedly infringing a single U.S. patent. Based on this complaint,
the USITC initiated an investigation in July 2010. TSMC and STC.UNM have subsequently
reached a settlement agreement and, on November 15, 2010, filed a joint motion to
terminate the investigation based on the settlement agreement. As a result, the
Administrative Law Judge (ALJ) assigned to the investigation has made an initial
determination to terminate the investigation based on the settlement agreement. The
USITC, on December 21, 2010, decided not to review the ALJs initial determination, which
officially terminates this investigation. The outcome from that settlement agreement is
not expected to have a material effect on the Companys result of operations, financial
position and cash flows.h.
    
    In June 2010, Keranos, LLC. filed a lawsuit in the U.S. District Court for the
Eastern District of Texas alleging that TSMC, TSMC North America, and several other
leading technology companies infringe three expired U.S. patents. The outcome of this
litigation cannot be determined at this time.i.
    
    In December 2010, Ziptronix, Inc. filed a complaint in the U.S. District Court for
the Northern District of California accusing TSMC, TSMC North America and one other
company of allegedly infringing six U.S. patents. This litigation is in its very early
stages and therefore the outcome of the case cannot be determined at this time.j.
    
    The Company entered into an agreement with a counterparty in 2003 whereby TSMC China
is obligated to purchase certain property, plant and equipment at the agreed-upon price
within the contract period. If the purchase is not completed, TSMC China is obligated to
compensate the counterparty for the loss incurred. The property, plant and equipment have
been in use by TSMC China since 2004 and are being depreciated over their estimated
service lives.
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The related obligation totaled NT$7,112.2 million and NT$8,355.4 million as of December 31,
2010 and 2009, respectively, which is included in other long-term payables.k.
    
    Amounts available under unused letters of credit as of December 31, 2010 were NT$94.8 million.
 30.
    

    OTHERSThe significant financial assets and liabilities denominated in foreign currencies were as
follows:
 December 312009
    
    
    2010Foreign Currency
    
    
    Exchange Rate
    
    
    Foreign Currency
    
    
    Exchange Rate(In Millions)
    
    
    (Note)
    
    
    (In Millions)
    
    
    (Note)Financial assetsMonetary assetsUSD
    
    $
    3,649.6
    
    
    
    31.99-32.03
    
    
    $
    3,944.8
    
    
    
    29.13-30.368EUR
    
    
    62.7
    
    
    
    46.10-46.25
    
    
    
    233.2
    
    
    
    38.92-40.65JPY
    
    
    32,431.0
    
    
    
    0.3472-0.3484
    
    
    
    29,779.7
    
    
    
    0.3582-0.3735RMB
    
    
    207.9
    
    
    
    4.693
    
    
    
    251.3
    
    
    
    4.3985-4.61Non-monetary assetsUSD
    
    
    133.2
    
    
    
    32.03
    
    
    
    189.3
    
    
    
    30.368HKD
    
    
    
    
    
    
    
    
    
    
    1,002.1
    
    
    
    3.91Investments
accounted for using
equity methodUSD
    
    
    249.2
    
    
    
    32.03
    
    
    
    306.1
    
    
    
    30.368Financial liabilitiesMonetary liabilitiesUSD
    
    
    886.7
    
    
    
    31.99-32.03
    
    
    
    2,021.7
    
    
    
    29.13-30.368EUR
    
    
    74.6
    
    
    
    46.10-46.25
    
    
    
    265.4
    
    
    
    38.92-40.65JPY
    
    
    34,661.5
    
    
    
    0.3472-0.3484
    
    
    
    31,561.6
    
    
    
    0.3582-0.3735RMB
    
    
    772.9
    
    
    
    4.693
    
    
    
    566.8
    
    
    
    4.3985-4.61
 Note: Exchange rate represents the number of N.T. dollars for which one foreign currency could be exchanged.31.
    

    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.b.
    
    Geographic information:
 AdjustmentsNorth America
    
    
    
    
    
    
    andand Others
    
    
    Taiwan
    
    
    Elimination
    
    
    ConsolidatedNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Millions)Year ended December 31, 2008Sales to other than consolidated entities
    
    $
    193,727.6
    
    
    $
    139,430.1
    
    
    $
    
    
    
    $
    333,157.7
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AdjustmentsNorth America
    
    
    
    
    
    
    andand Others
    
    
    Taiwan
    
    
    Elimination
    
    
    ConsolidatedNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Millions)Sales 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
interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    590.0Identifiable assets
    
    $
    122,781.6
    
    
    $
    425,545.2
    
    
    $
    (29,391.7
    )
    
    $
    518,935.1Long-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,981.5Total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    558,916.6Year 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
interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    248.4Identifiable assets
    
    $
    113,023.5
    
    
    $
    468,112.3
    
    
    $
    (24,285.1
    )
    
    $
    556,850.7Long-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,845.5Total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    594,696.2Year ended December 31, 2010Sales to other than consolidated entities
    
    $
    222,048.1
    
    
    $
    197,489.8
    
    
    $
    
    
    
    $
    419,537.9Sales among consolidated entities
    
    
    19,158.1
    
    
    
    223,707.2
    
    
    
    (242,865.3
    )
    
    
    Total sales
    
    $
    241,206.2
    
    
    $
    421,197.0
    
    
    $
    (242,865.3
    )
    
    $
    419,537.9Gross profit
    
    $
    8,776.1
    
    
    $
    199,903.3
    
    
    $
    (1,625.8
    )
    
    $
    207,053.6Operating expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47,878.3
    )Non-operating income and gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,136.1Non-operating expenses and losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,041.0
    )Income before income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    170,270.4
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AdjustmentsNorth America
    
    
    
    
    
    
    andand Others
    
    
    Taiwan
    
    
    Elimination
    
    
    ConsolidatedNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Millions)Net income attributable to minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    676.9Identifiable assets
    
    $
    118,440.2
    
    
    $
    593,558.5
    
    
    $
    (32,845.3
    )
    
    $
    679,153.4Long-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,775.5Total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    718,928.9
  c.
    
    Net sales
 Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$(In Millions)AreasTaiwan
    
    $
    44,663.5
    
    
    $
    40,430.4
    
    
    $
    57,486.0United States
    
    
    203,998.8
    
    
    
    171,989.3
    
    
    
    230,790.8Europe
    
    
    35,710.6
    
    
    
    30,401.4
    
    
    
    48,631.6Asia and others
    
    
    57,610.5
    
    
    
    66,834.5
    
    
    
    94,722.5341,983.4
    
    
    
    309,655.6
    
    
    
    431,630.9Sales returns and allowances
    
    
    (8,825.7
    )
    
    
    (13,913.4
    )
    
    
    (12,093.0
    )Net sales
    
    $
    333,157.7
    
    
    $
    295,742.2
    
    
    $
    419,537.9
 The net sales information is presented by billed regions.
 d.
    
    Major customers representing at least 10% of gross sales
 Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    %
    
    
    NT$
    
    
    %
    
    
    NT$

    
    %(In Millions)Customer A
    
    $
    46,523.1
    
    
    
    14
    
    
    $
    33,025.5
    
    
    
    11
    
    
    $
    41,022.2
    
    10Customer B
    
    $
    30,271.1
    
    
    
    9
    
    
    $
    31,995.0
    
    
    
    10
    
    
    $
    37,962.0
    
    9
 e.
    
    Net sales by product categories:
 Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$(In Millions)Product CategoryWafer fabrication
    
    $
    295,535.9
    
    
    $
    260,386.0
    
    
    $
    375,060.8Mask making
    
    
    19,081.8
    
    
    
    17,333.3
    
    
    
    19,796.9Others
    
    
    18,540.0
    
    
    
    18,022.9
    
    
    
    24,680.2$
    333,157.7
    
    
    $
    295,742.2
    
    
    $
    419,537.9
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32.
    

    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.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 guidelines 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.
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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, 2008, 2009 and 2010.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, 2008, 2009 and 2010. 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.
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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.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, for the year ended 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. For the year
ended December 31, 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. For the year ended December 31,
2010, as all the profit sharing to employees was paid in cash, no U.S.
GAAP reconciling adjustment for profit sharing in stock was required.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 U.S. 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 33d 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, which gives rise to a R.O.C.
GAAP difference in the recognition of stock-based compensation expense.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, 2008,
2009 and 2010.Effective January 1, 2008, the Company adopted SFAS 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 24. 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 32h 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).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.
 F - 49




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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 has the power to direct the activities that
most significantly impact the VIEs economics and has the right to receive benefits or the
obligation to absorb the losses that could potentially be significant to 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.The following reconciles consolidated net income and shareholders equity under R.O.C. GAAP
as reported in the consolidated financial statements to the consolidated net income and
shareholders equity determined under U.S. GAAP, giving effect to the differences listed
above.
 Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$
    
    
    US$ (Note 3)(In Millions Except Per Share Amounts)Net incomeConsolidated net income based on
R.O.C. GAAP
    
    $
    100,523.2
    
    
    $
    89,466.2
    
    
    $
    162,281.9
    
    
    $
    5,569.0Adjustments:1. Realization of unrealized loss
on marketable securities
    
    
    (98.0
    )
    
    
    
    
    
    
    
    
    
    
    2. U.S. GAAP adjustments on equity-
method investees
    
    
    (16.4
    )
    
    
    (6.3
    )
    
    
    (7.0
    )
    
    
    (0.2
    )3. Reversal of depreciation on assets
impaired under U.S. GAAP
    
    
    675.6
    
    
    
    
    
    
    
    
    
    
    
    4. 10% tax on undistributed earnings
    
    
    983.4
    
    
    
    966.9
    
    
    
    2,208.4
    
    
    
    75.85. Profit sharing to employees and bonus to
directors and supervisors5-1. Current year accrual
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5-2. Fair market value adjustment
of prior year accrual
    
    
    (20,369.3
    )
    
    
    (648.1
    )
    
    
    
    
    
    
    6. Pension expense
    
    
    4.3
    
    
    
    3.9
    
    
    
    4.2
    
    
    
    0.17. Stock-based compensation
    
    
    215.7
    
    
    
    (559.1
    )
    
    
    (179.7
    )
    
    
    (6.1
    )Income tax effect of U.S. GAAP
adjustments
    
    
    (96.3
    )
    
    
    69.9
    
    
    
    12.6
    
    
    
    0.4Net adjustment
    
    
    (18,701.0
    )
    
    
    (172.8
    )
    
    
    2,038.5
    
    
    
    70.0
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Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$ (Note 3)(In Millions Except Per Share Amounts)Consolidated net income based on
U.S. GAAP
    
    $
    81,822.2
    
    
    $
    89,293.4
    
    
    $
    164,320.4
    
    
    $
    5,639.0Attributable toShareholders of the parent
    
    $
    81,473.2
    
    
    $
    89,102.2
    
    
    $
    163,638.6
    
    
    $
    5,615.6Noncontrolling interests
    
    
    349.0
    
    
    
    191.2
    
    
    
    681.8
    
    
    
    23.4$
    81,822.2
    
    
    $
    89,293.4
    
    
    $
    164,320.4
    
    
    $
    5,639.0Earnings per common share based on
U.S. GAAPBasic
    
    $
    3.15
    
    
    $
    3.45
    
    
    $
    6.32
    
    
    $
    0.22Diluted
    
    $
    3.13
    
    
    $
    3.44
    
    
    $
    6.31
    
    
    $
    0.22Earnings per ADSBasic
    
    $
    15.77
    
    
    $
    17.24
    
    
    $
    31.58
    
    
    $
    1.08Diluted
    
    $
    15.65
    
    
    $
    17.19
    
    
    $
    31.57
    
    
    $
    1.08Number of weighted average shares
outstanding under U.S. GAAP
(in thousands)Basic
    
    
    25,826,062
    
    
    
    25,835,802
    
    
    
    25,905,832Diluted
    
    
    26,021,801
    
    
    
    25,913,121
    
    
    
    25,920,094
  December 312009
    
    
    2010NT$
    
    
    NT$
    
    
    US$ (Note 3)(In Millions)Shareholders equityTotal shareholders equity based on R.O.C. GAAP
    
    $
    499,048.5
    
    
    $
    578,704.4
    
    
    $
    19,859.5Adjustments:1. U.S. GAAP adjustments on equity-method investees
    
    
    (449.9
    )
    
    
    (516.3
    )
    
    
    (17.8
    )2. Impairment of long-lived assets2-1.Loss on impairment of assets
    
    
    (10,439.1
    )
    
    
    (9,897.5
    )
    
    
    (339.7
    )2-2.Reversal of depreciation on assets impaired under
U.S. GAAP
    
    
    10,439.1
    
    
    
    9,897.5
    
    
    
    339.73. 10% tax on undistributed earnings
    
    
    (3,588.0
    )
    
    
    (1,379.6
    )
    
    
    (47.3
    )4. Goodwill4-1.Carrying amount difference from 68% equity
interest in TASMCs share acquisition
    
    
    52,212.7
    
    
    
    52,212.7
    
    
    
    1,791.84-2.Reversal of amortization of goodwill recognized
under R.O.C. GAAP
    
    
    (11,318.9
    )
    
    
    (11,499.1
    )
    
    
    (394.6
    )5. Pension benefits5-1.Accrued pension cost
    
    
    (31.7
    )
    
    
    (27.5
    )
    
    
    (0.9
    )5-2.Accrual for deferred pension loss
    
    
    (10.7
    )
    
    
    (2,477.7
    )
    
    
    (85.1
    )Income tax effect of U.S. GAAP adjustments
    
    
    134.3
    
    
    
    139.3
    
    
    
    4.8Net adjustment
    
    
    36,947.8
    
    
    
    36,451.8
    
    
    
    1,250.9Total equity based on U.S. GAAP
    
    $
    535,996.3
    
    
    $
    615,156.2
    
    
    $
    21,110.4
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December 312009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$ (Note 3)(In Millions)Attributable toShareholders of the parent
    
    $
    532,042.8
    
    
    $
    610,596.7
    
    
    $
    20,953.9Noncontrolling interests
    
    
    3,953.5
    
    
    
    4,559.5
    
    
    
    156.5$
    535,996.3
    
    
    $
    615,156.2
    
    
    $
    21,110.4
  Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$
    
    
    US$ (Note 3)(In Millions)Changes in equity based on U.S. GAAPBalance, beginning of year
    
    $
    516,822.1
    
    
    $
    515,060.3
    
    
    $
    535,996.3
    
    
    $
    18,393.8Net income for the year
    
    
    81,822.2
    
    
    
    89,293.4
    
    
    
    164,320.4
    
    
    
    5,639.0Unrealized gain (loss) on available-for-sale
marketable securities and hedging derivative
financial instrumentsTSMC
    
    
    (728.2
    )
    
    
    622.5
    
    
    
    (338.3
    )
    
    
    (11.6
    )Equity-method investees
    
    
    (142.1
    )
    
    
    118.4
    
    
    
    (6.0
    )
    
    
    (0.2
    )Noncontrolling interests
    
    
    (17.0
    )
    
    
    6.0
    
    
    
    4.0
    
    
    
    0.1Common shares issued as profit sharing to
employeesTSMC
    
    
    24,213.8
    
    
    
    8,152.3
    
    
    
    
    
    
    
    Equity-method investees
    
    
    52.0
    
    
    
    (0.2
    )
    
    
    
    
    
    
    Noncontrolling interests
    
    
    214.0
    
    
    
    (9.2
    )
    
    
    
    
    
    
    Adjustment arising from changes of ownership
percentage in investeesTSMC
    
    
    (137.1
    )
    
    
    115.5
    
    
    
    41.3
    
    
    
    1.4Equity-method investees
    
    
    (1.8
    )
    
    
    (1.9
    )
    
    
    (3.7
    )
    
    
    (0.1
    )Noncontrolling interests
    
    
    11.8
    
    
    
    (39.0
    )
    
    
    4.4
    
    
    
    0.2Translation adjustmentsTSMC
    
    
    1,554.0
    
    
    
    (2,247.8
    )
    
    
    (4,776.5
    )
    
    
    (163.9
    )Equity-method investees
    
    
    62.9
    
    
    
    (93.9
    )
    
    
    (187.9
    )
    
    
    (6.5
    )Noncontrolling interests
    
    
    (68.8
    )
    
    
    39.8
    
    
    
    86.2
    
    
    
    3.0Treasury stock repurchased by the Company
    
    
    (30,427.5
    )
    
    
    
    
    
    
    
    
    
    
    Cash dividends received by subsidiaries from
parent company
    
    
    102.3
    
    
    
    
    
    
    
    
    
    
    
    Cash dividends to common shareholders
    
    
    (76,881.3
    )
    
    
    (76,876.3
    )
    
    
    (77,708.1
    )
    
    
    (2,666.7
    )Stock-based compensationTSMC
    
    
    (218.6
    )
    
    
    480.7
    
    
    
    172.4
    
    
    
    5.9Equity-method investees
    
    
    (34.0
    )
    
    
    8.2
    
    
    
    (7.8
    )
    
    
    (0.3
    )Noncontrolling interests
    
    
    2.8
    
    
    
    78.3
    
    
    
    7.3
    
    
    
    0.3Issuance of stock from exercising stock options
    
    
    227.2
    
    
    
    260.5
    
    
    
    244.8
    
    
    
    8.4Changes in actuarial gain (loss) and transition
ObligationTSMC
    
    
    (1,201.4
    )
    
    
    1,278.2
    
    
    
    (2,467.0
    )
    
    
    (84.7
    )Equity-method investees
    
    
    (52.3
    )
    
    
    35.3
    
    
    
    (47.8
    )
    
    
    (1.6
    )Decrease in noncontrolling interests
    
    
    (114.7
    )
    
    
    (284.8
    )
    
    
    (177.8
    )
    
    
    (6.1
    )Balance, end of year
    
    $
    515,060.3
    
    
    $
    535,996.3
    
    
    $
    615,156.2
    
    
    $
    21,110.4Attributable toShareholders of the parent
    
    $
    511,089.2
    
    
    $
    532,042.8
    
    
    $
    610,596.7
    
    
    $
    20,953.9Noncontrolling interests
    
    
    3,971.1
    
    
    
    3,953.5
    
    
    
    4,559.5
    
    
    
    156.5$
    515,060.3
    
    
    $
    535,996.3
    
    
    $
    615,156.2
    
    
    $
    21,110.4
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The following U.S. GAAP condensed balance sheets as of December 31, 2009 and 2010, and
statements of operations for the years ended December 31, 2008, 2009 and 2010 have been derived
from the audited consolidated financial statements and reflect the adjustments presented above.Certain accounts have been reclassified to conform to U.S. GAAP. Technical service income is
included in sales with the related costs included in cost of sales. Casualty loss recorded in
non-operating expense was reclassified under cost of sales. Gains or losses on disposal of
property, plant and equipment and other assets, rental income with related costs, impairment
losses on idle assets and certain other items in non-operating income (expense) are included in
operating expenses.
 December 312009
    
    
    2010NT$
    
    
    NT$
    
    
    US$ (Note 3)(In Millions)AssetsCurrent assets
    
    $
    259,803.7
    
    
    $
    261,519.3
    
    
    $
    8,974.6Long-term investments
    
    
    37,395.6
    
    
    
    39,259.2
    
    
    
    1,347.2Property, plant and equipment, net
    
    
    273,674.8
    
    
    
    388,444.0
    
    
    
    13,330.3Goodwill
    
    
    46,825.1
    
    
    
    46,418.5
    
    
    
    1,593.0Other assets
    
    
    17,575.3
    
    
    
    23,624.5
    
    
    
    810.7Total assets
    
    $
    635,274.5
    
    
    $
    759,265.5
    
    
    $
    26,055.8LiabilitiesCurrent liabilities
    
    $
    82,721.3
    
    
    $
    124,570.7
    
    
    $
    4,274.9Long-term liabilities
    
    
    11,388.5
    
    
    
    12,050.8
    
    
    
    413.5Other liabilities
    
    
    5,168.4
    
    
    
    7,487.8
    
    
    
    257.0Equity attributable to shareholders of the parent
    
    
    532,042.8
    
    
    
    610,596.7
    
    
    
    20,953.9Noncontrolling interests
    
    
    3,953.5
    
    
    
    4,559.5
    
    
    
    156.5Total liabilities and equity
    
    $
    635,274.5
    
    
    $
    759,265.5
    
    
    $
    26,055.8
 Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$
    
    
    US$ (Note 3)(In Millions)Net sales
    
    $
    334,339.6
    
    
    $
    296,109.2
    
    
    $
    419,988.4
    
    
    $
    14,412.8Cost of sales
    
    
    203,733.9
    
    
    
    167,122.5
    
    
    
    212,772.1
    
    
    
    7,301.7Gross profit
    
    
    130,605.7
    
    
    
    128,986.7
    
    
    
    207,216.3
    
    
    
    7,111.1Operating expenses
    
    
    44,423.4
    
    
    
    37,626.6
    
    
    
    48,433.6
    
    
    
    1,662.0Income from operations
    
    
    86,182.3
    
    
    
    91,360.1
    
    
    
    158,782.7
    
    
    
    5,449.1Non-operating income, net
    
    
    5,701.9
    
    
    
    2,892.9
    
    
    
    11,305.2
    
    
    
    387.9Income before income tax
    
    
    91,884.2
    
    
    
    94,253.0
    
    
    
    170,087.9
    
    
    
    5,837.0Income tax expense
    
    
    10,062.0
    
    
    
    4,959.6
    
    
    
    5,767.5
    
    
    
    198.0Net income
    
    $
    81,822.2
    
    
    $
    89,293.4
    
    
    $
    164,320.4
    
    
    $
    5,639.0Net income attributable to shareholders of the parent
    
    $
    81,473.2
    
    
    $
    89,102.2
    
    
    $
    163,638.6
    
    
    $
    5,615.6Net income attributable to noncontrolling interests
    
    $
    349.0
    
    
    $
    191.2
    
    
    $
    681.8
    
    
    $
    23.4
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The Company reports comprehensive income (loss) in accordance with the guidance related to
reporting comprehensive income for U.S. GAAP purposes. The guidance related to reporting
comprehensive income requires that in addition to net income (loss), a company should report
other comprehensive income (loss) consisting of the changes in equity of the company during the
year from transactions and other events and circumstance from nonowner sources. It includes all
changes in equity during the year except those resulting from investments by shareholders and
distribution to shareholders. The components of other comprehensive income for the Company
consist of unrealized gains and losses relating to the translation of financial statements maintained in foreign currencies, unrealized
gains and losses relating to the Companys investments in available-for-sale securities and
hedging derivative financial instruments and changes in actuarial gain or loss and transition
obligation of the defined benefit pension plan.Statements of comprehensive income for the years ended December 31, 2008, 2009 and 2010 are as
follows:
 Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$
    
    
    US$ (Note 3)(In Millions)Consolidated net income based on U.S. GAAP
    
    $
    81,822.2
    
    
    $
    89,293.4
    
    
    $
    164,320.4
    
    
    $
    5,639.0Other comprehensive income (loss), net of
tax:Adjustment of unrealized gain (loss) on
financial instruments, net of tax benefit of
nil for 2008 and 2009, and NT$87.7 million
for 2010TSMC
    
    
    (728.2
    )
    
    
    622.5
    
    
    
    (338.3
    )
    
    
    (11.6
    )Equity-method investees
    
    
    (142.1
    )
    
    
    118.4
    
    
    
    (6.0
    )
    
    
    (0.2
    )Noncontrolling interests
    
    
    (17.0
    )
    
    
    6.0
    
    
    
    4.0
    
    
    
    0.1Translation adjustments, net of tax expense
of nilTSMC
    
    
    1,554.0
    
    
    
    (2,247.8
    )
    
    
    (4,776.5
    )
    
    
    (163.9
    )Equity-method investees
    
    
    62.9
    
    
    
    (93.9
    )
    
    
    (187.9
    )
    
    
    (6.5
    )Noncontrolling interests
    
    
    (68.8
    )
    
    
    39.8
    
    
    
    86.2
    
    
    
    3.0Changes in actuarial gain /loss and
transition obligation, net of tax expense of
nilTSMC
    
    
    (1,201.4
    )
    
    
    1,278.2
    
    
    
    (2,467.0
    )
    
    
    (84.7
    )Equity-method investees
    
    
    (52.3
    )
    
    
    35.3
    
    
    
    (47.8
    )
    
    
    (1.6
    )Consolidated comprehensive income
    
    $
    81,229.3
    
    
    $
    89,051.9
    
    
    $
    156,587.1
    
    
    $
    5,373.6Attributable toShareholders of the parent
    
    $
    80,966.1
    
    
    $
    89,462.2
    
    
    $
    155,815.1
    
    
    $
    5,347.1Noncontrolling interests
    
    
    263.2
    
    
    
    (410.3
    )
    
    
    772.0
    
    
    
    26.5$
    81,229.3
    
    
    $
    89,051.9
    
    
    $
    156,587.1
    
    
    $
    5,373.6
 The components of accumulated other comprehensive income (loss) of the parent were as follows:
 December 312009
    
    
    2010NT$
    
    
    NT$
    
    
    US$ (Note 3)(In Millions)Cumulative translation adjustment
    
    $
    (1,925.9
    )
    
    $
    (6,890.3
    )
    
    $
    (236.5
    )Unrealized gain on financial instruments
    
    
    453.6
    
    
    
    109.3
    
    
    
    3.8Actuarial gain or loss and transition obligation
    
    
    3.3
    
    
    
    (2,511.5
    )
    
    
    (86.2
    )Total accumulated other comprehensive loss
    
    $
    (1,469.0
    )
    
    $
    (9,292.5
    )
    
    $
    (318.9
    )
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The Company applies R.O.C. SFAS No. 17, Statement of Cash Flows. Its objectives and principles
are similar to those set out under U.S. GAAP. The principal differences between the two
standards relate to classification. Cash flows from investing activities for changes in deferred
charges, refundable deposits and other assets-miscellaneous, and cash flows from financing
activities for changes in guarantee deposits, and profit sharing to employees in cash, directors
and supervisors are reclassified to operating activities under the guidance related to statement
of cash flows. Summarized cash flow data by operating, investing and financing activities in
accordance with the guidance related to statement of cash flows are as follows:
 Year Ended December 312008
    
    
    2009
    
    
    2010NT$
    
    
    NT$
    
    
    NT$
    
    
    US$ (Note 3)(In Millions)Net cash inflow (outflow) from:Operating activities
    
    $
    214,396.6
    
    
    $
    159,019.1
    
    
    $
    222,028.4
    
    
    $
    7,619.3Investing activities
    
    
    (5,820.2
    )
    
    
    (95,999.6
    )
    
    
    (194,871.7
    )
    
    
    (6,687.4
    )Financing activities
    
    
    (110,517.5
    )
    
    
    (84,992.7
    )
    
    
    (48,404.8
    )
    
    
    (1,661.1
    )Change in cash and cash equivalents
    
    
    98,058.9
    
    
    
    (21,973.2
    )
    
    
    (21,248.1
    )
    
    
    (729.2
    )Cash and cash equivalents at the beginning of
year
    
    
    94,986.5
    
    
    
    194,613.8
    
    
    
    171,276.3
    
    
    
    5,877.7Effect of exchange rate changes
    
    
    1,568.4
    
    
    
    (1,364.3
    )
    
    
    (2,141.2
    )
    
    
    (73.4
    )Cash and cash equivalents at the end of year
    
    $
    194,613.8
    
    
    $
    171,276.3
    
    
    $
    147,887.0
    
    
    $
    5,075.1
 33.

    

    ADDITIONAL DISCLOSURES REQUIRED BY U.S. GAAP
 a.
    
    Recent accounting pronouncementsIn 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. The adoption of the new guidance
did not have a material effect on the Companys result of operations and cash flows for the
year ended December 31, 2010, and financial position as of December 31, 2010.In June 2009, the FASB issued new guidance to improve financial reporting by enterprises
involved with variable interest entities (VIE). The new guidance modifies the approach for
determining the primary beneficiary of a variable interest entity (VIE). Under the
modified approach, an enterprise is required to make a qualitative assessment whether it has
(1) the power to direct the activities of the VIE that most significantly impact the
entitys economic performance and (2) the obligation to absorb losses of the VIE or the
right to receive benefits from the VIE that could potentially be significant to the VIE. If
an enterprise has both of these characteristics, the enterprise is considered the primary
beneficiary and must consolidate the VIE. The new guidance becomes effective for annual
reporting periods beginning after November 15, 2009. Based on the Companys analysis, the
adoption of the new guidance did not result in the identification of additional VIEs where
the Company is the primary beneficiary.In September 2009, the FASB issued an accounting standard update which provides guidance on
how to separate consideration in multiple-deliverable arrangements and significantly expands
disclosure requirements. The standard establishes a hierarchy for determining the selling
price of a deliverable, eliminates the residual method of allocation and requires that
arrangement consideration be allocated at the inception of the arrangement to all
deliverables using the relative selling price method. The update is effective for annual
reporting periods beginning on or after June 15, 2010. 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.In January 2010, the FASB issued an accounting update that amended guidance and clarified
the disclosure requirements about fair market value measurement. These amended standards
require new disclosures for significant transfers of assets or liabilities between Level 1
and Level 2 in the fair value hierarchy; separate disclosures for purchases, sales, issuance
and settlements of Level 3 fair value items on a gross, rather than net basis; and more
robust disclosure of the valuation techniques and inputs used to measure Level 2 and Level 3
assets and liabilities. Except for the detailed disclosures of changes in Level 3 items, which
will be effective for the Company as of January 1, 2011, the remaining new disclosure
requirements were effective for the Company as of January 1, 2010. The Company has included
these new disclosures, as applicable, in Note 33b below.
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In January 2010, the FASB issued an accounting update to clarify the scope of decrease in
ownership provisions of ASC 810-10 and expands the disclosures required upon deconsolidation
of a subsidiary. This guidance requires retrospective application for the Company for the
year ended December 31, 2009. The adoption of the guidance did not have a material effect on
the Companys results of operations and cash flows for the years ended December 31, 2009 and
2010, and financial position as of December 31, 2009 and 2010.In December 2010, the FASB issued an accounting update requiring that supplemental pro forma
information disclosures pertaining to acquisitions be presented as if the business
combination(s) occurred as of the beginning of the prior annual accounting period when
comparative financial statements are presented. This guidance also expands the supplemental
pro forma disclosures to include a description of the nature and amount of material,
nonrecurring pro forma adjustments directly attributable to the business combination
included in the reported pro forma revenue and earnings. This guidance is effective for
business combinations consummated in periods beginning after December 15, 2010. The Company
will make the required disclosures prospectively from the date of the adoption for any
material business combinations or series of immaterial business combinations that are
material in the aggregate.
 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.Level 3  Use inputs that are generally unobservable and reflect the use of significant management judgments and
estimates.The following section describes the valuation methodologies the Company uses to measure financial assets and
liabilities at fair value.The Company uses quoted prices in active markets for identical assets to determine fair value for our Level 1
investments such as corporate bonds, agency bonds, publicly traded stocks, government bonds, money market funds
and open-end mutual-funds.For forward exchange and cross currency swap contracts, fair values are estimated using industry standard
valuation models. These models use market-based observable inputs including interest rate curves, foreign exchange
rates, and forward and spot prices for currencies to project fair value. The forward exchange and cross currency
swap contracts financial assets and liabilities are included in Level 2.The following table presents our assets and liabilities measured at fair value on a recurring basis as of December
31, 2009 and 2010:
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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
 Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalDecember 31, 2010
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Millions)AssetsDerivative financial assetsForward contract
    
    $
    
    
    
    $
    6.9
    
    
    $
    
    
    
    $
    6.9Marketable securities  available-for-saleCorporate bonds
    
    
    14,871.1
    
    
    
    
    
    
    
    
    
    
    
    14,871.1Agency bonds
    
    
    8,021.2
    
    
    
    
    
    
    
    
    
    
    
    8,021.2Publicly traded stocks
    
    
    4,634.2
    
    
    
    
    
    
    
    
    
    
    
    4,634.2Government bonds
    
    
    2,014.1
    
    
    
    
    
    
    
    
    
    
    
    2,014.1Money market funds
    
    
    376.2
    
    
    
    
    
    
    
    
    
    
    
    376.2Total
    
    $
    29,916.8
    
    
    $
    6.9
    
    
    $
    
    
    
    $
    29,923.7LiabilitiesDerivative financial liabilitiesForward contract
    
    $
    
    
    
    $
    19.0
    
    
    $
    
    
    
    $
    19.0
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The table below sets out the balances for those assets required to be measured at fair value
on a nonrecurring basis and the associated losses recognized during the years ended December
31, 2009 and 2010:
 Total LossDecember 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Refer to2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Note 13)NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Millions)AssetsFinancial assets carried at cost
    
    $
    3,063.0
    
    
    $
    
    
    
    $
    
    
    
    $
    3,063.0
    
    
    $
    (711.9
    )
 Total LossDecember 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Refer to2010
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Note 13)NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Millions)AssetsFinancial assets carried at cost
    
    $
    4,424.2
    
    
    $
    
    
    
    $
    
    
    
    $
    4,424.2
    
    
    $
    (159.8
    )
 Financial assets carried at cost consist primarily of non-publicly traded stocks. The
Company reviews the carrying values of financial assets carried at cost when impairment
indicators are present. Due to the absence of quoted market prices, the fair values are
determined significantly based on management judgment with the best information available.
The Company calculates these fair values using the market approach which includes recent
financing activities, valuation of comparable companies, technology development stage,
market condition and other economic factors as their inputs.c.
    
    Marketable securitiesAs of December 31, 2009 and 2010, the marketable securities by category were as follows:
 December 312009
    
    
    2010NT$
    
    
    NT$(In Millions)Marketable securities  available-for-sale
    
    $
    15,748.0
    
    
    $
    29,916.8Marketable securities  held-to-maturity
    
    
    25,498.0
    
    
    
    13,299.4
 The Company uses the average cost method for available-for-sale securities when determining
their cost basis. Proceeds from sales of available-for-sale securities for the years ended
December 31, 2008, 2009 and 2010 were NT$138,515.0 million, NT$36,040.0 million and
NT$37,816.3 million, respectively. The companys gross realized gains on the sale of
marketable securities for the years ended December 31, 2008, 2009 and 2010 were NT$1,021.7
million, NT$504.7 million and NT$749.5 million,
respectively. The Companys gross realized
losses on the sale of marketable securities for the years ended December 31, 2008, 2009 and
2010 were NT$482.5 million, NT$525.0 million and NT$146.2 million, respectively.
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As of December 31, 2009 and 2010, available-for-sale and held-to-maturity securities of the
Company were as follows:
 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
    
    
    
    
    
    
    
    574.9$
    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
 December 31, 2010Gross
    
    
    Gross
    
    
    EstimatedUnrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueNT$
    
    
    NT$
    
    
    NT$
    
    
    NT$(In Millions)Available-for-sale securitiesCorporate bonds
    
    $
    14,859.9
    
    
    $
    81.8
    
    
    $
    (70.6
    )
    
    $
    14,871.1Agency bonds
    
    
    8,038.7
    
    
    
    9.7
    
    
    
    (27.2
    )
    
    
    8,021.2Publicly traded stocks
    
    
    4,622.3
    
    
    
    528.0
    
    
    
    (516.1
    )
    
    
    4,634.2Government bonds
    
    
    2,006.7
    
    
    
    10.7
    
    
    
    (3.3
    )
    
    
    2,014.1Money market funds
    
    
    376.2
    
    
    
    
    
    
    
    
    
    
    
    376.2$
    29,903.8
    
    
    $
    630.2
    
    
    $
    (617.2
    )
    
    $
    29,916.8Held-to-maturity securitiesCorporate bonds
    
    $
    12,843.9
    
    
    $
    182.7
    
    
    $
    (25.3
    )
    
    $
    13,001.3Government bonds
    
    
    455.5
    
    
    
    0.8
    
    
    
    
    
    
    
    456.3Total
    
    $
    13,299.4
    
    
    $
    183.5
    
    
    $
    (25.3
    )
    
    $
    13,457.6
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The following table shows the fair value and gross unrealized losses of the marketable
securities with unrealized losses that are not deemed to be other-than-temporarily impaired,
aggregated by investment category and length of time that such securities have been in a
continuous unrealized loss position as of December 31, 2010:
 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 securitiesCorporate bonds
    
    $
    3,941.6
    
    
    $
    (18.7
    )
    
    $
    4,303.4
    
    
    $
    (51.9
    )
    
    $
    8,245.0
    
    
    $
    (70.6
    )Agency bonds
    
    
    2,782.6
    
    
    
    (17.3
    )
    
    
    1,625.7
    
    
    
    (9.9
    )
    
    
    4,408.3
    
    
    
    (27.2
    )Publicly traded stocks
    
    
    3,918.3
    
    
    
    (516.1
    )
    
    
    
    
    
    
    
    
    
    
    3,918.3
    
    
    
    (516.1
    )Government bonds
    
    
    333.3
    
    
    
    (3.3
    )
    
    
    
    
    
    
    
    
    
    
    333.3
    
    
    
    (3.3
    )Total
    
    $
    10,975.8
    
    
    $
    (555.4
    )
    
    $
    5,929.1
    
    
    $
    (61.8
    )
    
    $
    16,904.9
    
    
    $
    (617.2
    )Held-to-maturity securitiesCorporate bonds
    
    $
    2,603.2
    
    
    $
    (25.2
    )
    
    $
    242.8
    
    
    $
    (0.1
    )
    
    $
    2,846.0
    
    
    $
    (25.3
    )
 The gross unrealized losses related to bonds and publicly traded stock were due to fair
value fluctuations. The Company presently does not intend to sell the above 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 cost.As of December 31, 2010, 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
    
    $
    3,033.0
    
    
    $
    3,019.3Due after one year through two years
    
    
    17,887.7
    
    
    
    17,911.4Due after two years through five years
    
    
    891.8
    
    
    
    893.3Due after five years
    
    
    3,092.8
    
    
    
    3,082.4Total
    
    $
    24,905.3
    
    
    $
    24,906.4Held-to-maturity securitiesDue in one year or less
    
    $
    4,796.6
    
    
    $
    4,829.8Due after one year through two years
    
    
    8,502.8
    
    
    
    8,627.8Total
    
    $
    13,299.4
    
    
    $
    13,457.6
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##### Table of Contents



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.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 23 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, 2010.The weighted average remaining aggregate intrinsic value and
contractual term of options under the foregoing plans as of December
31, 2010 were as follows:
 WeightedAverageRemainingAggregate
    
    
    ContractualIntrinsic Value
    
    
    TermNT$
    
    
    (In Years)(In Millions)TSMC:Options outstanding
    
    
    830.6
    
    
    
    2.6Options exercisable
    
    
    830.6
    
    
    
    2.6GUC:Options outstanding
    
    
    52.6
    
    
    
    2.4Options exercisable
    
    
    52.6
    
    
    
    2.0Xintec:Options outstanding
    
    
    5.2
    
    
    
    6.3Options exercisable
    
    
    4.0
    
    
    
    6.2
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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, 2010 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, 2010.The number of options expected to vest for the years ended December 31, 2009 and 2010 was
4,939 thousand shares and 1,061 thousand shares, respectively.Total intrinsic value of options exercised in the years ended December 31, 2009 and 2010 was
NT$379.7 million and NT$412.3 million, respectively. Total fair value of options vested, net
of taxes, during the years ended December 31, 2009 and 2010 was NT$177.1 million and NT$69.2
million, respectively.As of December 31, 2010, there was NT$10.0 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 0.7 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 rules 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, 2009 and 2010, there was 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 uncertain tax position or unrecognized tax benefits
within 12 months of the reporting date.f.
    
    Settlement incomeSettlement income of NT$951.2 million, NT$1,464.9 million and
NT$6,939.8 million was recognized in the years ended December 31,
2008, 2009 and 2010, 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.
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