1934 Act Registration No. 1-14700

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934

Taiwan Semiconductor Manufacturing Company Ltd.

(Translation of Registrant’s Name Into English)

No. 8, Li-Hsin Rd. 6,
Hsinchu Science Park,
Taiwan
(Address of Principal Executive Offices)

     (Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

     Form 20-F þ     Form 40-F o

     (Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

     Yes o      No þ

(If “Yes” is marked, indicated below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82:                 .)

 

 

Taiwan Semiconductor Manufacturing Company Limited

Financial Statements for the
Years Ended December 31, 2009 and 2008 and
Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders
Taiwan Semiconductor Manufacturing Company Limited

We have audited the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company Limited as of December 31, 2009 and 2008, and the related statements of income, changes in shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Taiwan Semiconductor Manufacturing Company Limited as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting with respect to financial accounting standards, and accounting principles generally accepted in the Republic of China.

As discussed in Note 3 to the financial statements, effective January 1, 2009, Taiwan Semiconductor Manufacturing Company Limited adopted the newly revised Statements of Financial Accounting Standards No. 10, “Accounting for Inventories.” In addition, effective January 1, 2008, Taiwan Semiconductor Manufacturing Company Limited adopted Interpretation 2007-052, “Accounting for Bonuses to Employees, Directors and Supervisors,” issued by the Accounting Research and Development Foundation of the Republic of China and relevant requirements promulgated by the Financial Supervisory Commission of the Executive Yuan.

We have also audited, in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China, the consolidated financial statements of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of and for the years ended December 31, 2009 and 2008, and expressed an unqualified opinion with an explanatory paragraph relating to the adoption of the newly revised Statement of Financial Accounting Standard, Accounting for Inventories, and the adoption of Interpretation 2007-052, respectively, on such consolidated financial statements.

January 22, 2010

Notice to Readers

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

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

Taiwan Semiconductor Manufacturing Company Limited

BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
(In Thousands of New Taiwan Dollars, Except Par Value)

		2009								2008
ASSETS		Amount				%				Amount				%
CURRENT ASSETS
Cash and cash equivalents (Notes 2 and 4)		$	117,043,543				20			$	138,208,360				26
Financial assets at fair value through profit or loss (Notes 2, 5 and 23)			181,743				—				42,460				—
Held-to-maturity financial assets (Notes 2, 7 and 23)			9,944,843				2				5,881,999				1
Receivables from related parties (Note 24)			22,541,773				4				11,728,204				2
Notes and accounts receivable			19,884,520				3				11,441,176				2
Allowance for doubtful receivables (Notes 2 and 8)			(431,000	)			—				(436,746	)			—
Allowance for sales returns and others (Notes 2 and 8)			(8,583,632	)			(1	)			(5,868,582	)			(1	)
Other receivables from related parties (Note 24)			246,003				—				489,742				—
Other financial assets (Note 25)			1,104,072				—				711,755				—
Inventories (Notes 2, 3 and 9)			18,830,216				3				12,807,936				2
Deferred income tax assets (Notes 2 and 17)			4,063,410				1				3,650,700				1
Prepaid expenses and other current assets			1,006,046				—				1,192,475				—
Total current assets			185,831,537				32				179,849,479				33
LONG-TERM INVESTMENTS (Notes 2, 6, 7, 10, 11 and 23)
Investments accounted for using equity method			104,660,098				18				109,871,178				20
Available-for-sale financial assets			1,046,672				1				2,032,658				1
Held-to-maturity financial assets			12,219,055				2				11,761,325				2
Financial assets carried at cost			501,988				—				519,502				—
Total long-term investments			118,427,813				21				124,184,663				23
PROPERTY, PLANT AND EQUIPMENT (Notes 2, 12 and 24)
Cost
Buildings			124,522,047				22				114,014,588				21
Machinery and equipment			713,426,126				123				635,008,261				118
Office equipment			10,781,099				2				9,748,869				2
			848,729,272				147				758,771,718				141
Accumulated depreciation			(627,764,323	)			(109	)			(557,247,254	)			(103	)
Advance payments and construction in progress			33,786,577				6				17,758,038				3
Net property, plant and equipment			254,751,526				44				219,282,502				41
INTANGIBLE ASSETS
Goodwill (Note 2)			1,567,756				—				1,567,756				—
Deferred charges, net (Notes 2 and 13)			5,891,685				1				6,401,461				1
Total intangible assets			7,459,441				1				7,969,217				1
OTHER ASSETS
Deferred income tax assets (Notes 2 and 17)			7,763,643				1				6,497,972				1
Refundable deposits			2,698,116				1				2,719,737				1
Others (Note 2)			494,546				—				55,677				—
Total other assets			10,956,305				2				9,273,386				2
TOTAL		$	577,426,622				100			$	540,559,247				100

		2009								2008
LIABILITIES AND SHAREHOLDERS’ EQUITY		Amount				%				Amount				%
CURRENT LIABILITIES
Financial liabilities at fair value through profit or loss (Notes 2, 5 and 23)		$	—				—			$	83,618				—
Accounts payable			9,678,849				2				4,314,265				1
Payables to related parties (Note 24)			2,039,342				—				1,202,350				—
Income tax payable (Notes 2 and 17)			8,761,120				2				9,222,811				2
Salary and bonus payable			8,677,299				1				1,601,897				—
Accrued profit sharing to employees and bonus to directors (Notes 2, 3 and 19)			6,771,338				1				15,148,057				3
Payables to contractors and equipment suppliers			28,756,884				5				7,574,891				1
Accrued expenses and other current liabilities (Notes 15 and 23)			7,886,263				1				5,951,578				1
Current portion of bonds payable (Notes 14 and 23)			—				—				8,000,000				2
Total current liabilities			72,571,095				12				53,099,467				10
LONG-TERM LIABILITIES
Bonds payable (Notes 14 and 23)			4,500,000				1				4,500,000				1
Other long-term payables (Notes 15 and 23)			416,390				—				931,252				—
Total long-term liabilities			4,916,390				1				5,431,252				1
OTHER LIABILITIES
Accrued pension cost (Notes 2 and 16)			3,807,176				1				3,710,009				1
Guarantee deposits (Note 27)			1,001,376				—				1,479,152				—
Deferred credits (Notes 2 and 24)			47,873				—				462,256				—
Total other liabilities			4,856,425				1				5,651,417				1
Total liabilities			82,343,910				14				64,182,136				12
CAPITAL STOCK — NT$10 PAR VALUE (Notes 19 and 21)
Authorized: 28,050,000 thousand shares
Issued: 25,902,706 thousand shares in 2009 25,625,437 thousand shares in 2008			259,027,066				45				256,254,373				47
CAPITAL SURPLUS (Notes 2 and 19)			55,486,010				10				49,875,255				9
RETAINED EARNINGS (Note 19)
Appropriated as legal capital reserve			77,317,710				13				67,324,393				13
Appropriated as special capital reserve			—				—				391,857				—
Unappropriated earnings			104,564,972				18				102,337,417				19
			181,882,682				31				170,053,667				32
OTHERS (Notes 2, 21 and 23)
Cumulative translation adjustments			(1,766,667	)			—				481,158				—
Unrealized gain/loss on financial instruments			453,621				—				(287,342	)			—
			(1,313,046	)			—				193,816				—
Total shareholders’ equity			495,082,712				86				476,377,111				88
TOTAL		$	577,426,622				100			$	540,559,247				100

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

(With Deloitte & Touche audit report dated January 22, 2010)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

		2009								2008
		Amount				%				Amount				%
GROSS SALES (Notes 2 and 24)		$	299,471,214							$	330,228,027
SALES RETURNS AND ALLOWANCES (Notes 2 and 8)			13,728,346								8,460,944
NET SALES			285,742,868				100				321,767,083				100
COST OF SALES (Notes 3, 9, 18 and 24)			159,106,619				56				183,589,540				57
GROSS PROFIT			126,636,249				44				138,177,543				43
REALIZED (UNREALIZED) GROSS PROFIT FROM AFFILIATES (Note 2)			(160,279	)			—				72				—
REALIZED GROSS PROFIT			126,475,970				44				138,177,615				43
OPERATING EXPENSES (Notes 18 and 24)
Research and development			19,688,032				7				19,737,038				6
General and administrative			10,238,131				3				9,895,617				3
Marketing			2,027,454				1				2,254,728				1
Total operating expenses			31,953,617				11				31,887,383				10
INCOME FROM OPERATIONS			94,522,353				33				106,290,232				33
NON-OPERATING INCOME AND GAINS
Settlement income (Note 27)			1,464,915				1				951,180				—
Interest income (Note 2)			1,117,374				—				2,728,892				1
Valuation gain on financial instruments, net (Notes 2, 5 and 23)			587,151				—				—				—
Technical service income (Notes 24 and 27)			375,118				—				619,237				—
Gain on settlement and disposal of financial assets, net (Notes 2 and 23)			53,364				—				452,159				—
Foreign exchange gain, net (Note 2)			—				—				1,113,406				1
Equity in earnings of equity method investees, net (Notes 2 and 10)			—				—				72,568				—
Others (Notes 2 and 24)			523,587				—				788,183				—
Total non-operating income and gains			4,121,509				1				6,725,625				2

(Continued)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

		2009								2008
		Amount				%				Amount				%
NON-OPERATING EXPENSES AND LOSSES
Equity in losses of equity method investees, net (Notes 2 and 10)		$	2,695,720				1			$	—				—
Foreign exchange loss, net (Note 2)			630,455				—				—				—
Interest expense			142,026				—				355,056				—
Valuation loss on financial instruments, net (Notes 2, 5 and 23)			—				—				1,230,966				1
Impairment of financial assets (Notes 2 and 11)			—				—				247,488				—
Loss on idle assets (Note 2)			—				—				210,477				—
Others (Note 2)			194,639				—				213,052				—
Total non-operating expenses and losses			3,662,840				1				2,257,039				1
INCOME BEFORE INCOME TAX			94,981,022				33				110,758,818				34
INCOME TAX EXPENSE (Notes 2 and 17)			5,763,186				2				10,825,650				3
NET INCOME		$	89,217,836				31			$	99,933,168				31

		2009								2008
		Before				After				Before				After
		Income				Income				Income				Income
		Tax				Tax				Tax				Tax
EARNINGS PER SHARE (NT$, Note 22)
Basic earnings per share		$	3.68			$	3.45			$	4.25			$	3.84
Diluted earnings per share		$	3.67			$	3.44			$	4.22			$	3.81

Certain pro forma information (after income tax) is shown as follows, based on the assumption that the Company’s stock held by subsidiaries is treated as available-for-sale financial assets instead of treasury stock for the year ended December 31, 2008 (Notes 2 and 21):

		2008
NET INCOME		$	100,035,447
EARNINGS PER SHARE (NT$)
Basic earnings per share		$	3.84
Diluted earnings per share		$	3.81

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

(With Deloitte & Touche audit report dated January 22, 2010)		(Concluded)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(In Thousands of New Taiwan Dollars, Except Dividends Per Share)

																														Others
																																		Unrealized Gain
		Capital Stock — Common Stock												Retained Earnings																Cumulative				(Loss) on								Total
		Shares (In												Legal Capital				Special Capital				Unappropriated								Translation				Financial								Shareholders’
		Thousands)				Amount				Capital Surplus				Reserve				Reserve				Earnings				Total				Adjustments				Instruments				Treasury Stock				Equity
BALANCE, JANUARY 1, 2008			26,427,104			$	264,271,037			$	53,732,682			$	56,406,684			$	629,550			$	161,828,337			$	218,864,571			$	(1,072,853	)		$	680,997			$	(49,385,032	)		$	487,091,402
Appropriations of prior year’s earnings
Legal capital reserve			—				—				—				10,917,709				—				(10,917,709	)			—				—				—				—				—
Reversal of special capital reserve			—				—				—				—				(237,693	)			237,693				—				—				—				—				—
Profit sharing to employees — in cash			—				—				—				—				—				(3,939,883	)			(3,939,883	)			—				—				—				(3,939,883	)
Profit sharing to employees — in stock			393,988				3,939,883				—				—				—				(3,939,883	)			(3,939,883	)			—				—				—				—
Cash dividends to shareholders — NT$3.00 per share			—				—				—				—				—				(76,881,311	)			(76,881,311	)			—				—				—				(76,881,311	)
Stock dividends to shareholders — NT$0.02 per share			51,254				512,542				—				—				—				(512,542	)			(512,542	)			—				—				—				—
Bonus to directors			—				—				—				—				—				(176,890	)			(176,890	)			—				—				—				(176,890	)
Capital surplus transferred to capital stock			76,881				768,813				(768,813	)			—				—				—				—				—				—				—				—
Net income in 2008			—				—				—				—				—				99,933,168				99,933,168				—				—				—				99,933,168
Adjustment arising from changes in percentage of ownership in equity method investees			—				—				(137,063	)			—				—				—				—				—				—				—				(137,063	)
Translation adjustments			—				—				—				—				—				—				—				1,554,011				—				—				1,554,011
Issuance of stock from exercising stock options			6,027				60,266				166,884				—				—				—				—				—				—				—				227,150
Cash dividends received by subsidiaries from the Company			—				—				102,279				—				—				—				—				—				—				—				102,279
Valuation loss on available-for-sale financial assets			—				—				—				—				—				—				—				—				(233,915	)			—				(233,915	)
Net change in unrealized gain (loss) on financial instruments from equity method investees			—				—				—				—				—				—				—				—				(734,424	)			—				(734,424	)
Treasury stock repurchased			—				—				—				—				—				—				—				—				—				(30,427,413	)			(30,427,413	)
Treasury stock retired			(1,329,817	)			(13,298,168	)			(3,220,714	)			—				—				(63,293,563	)			(63,293,563	)			—				—				79,812,445				—
BALANCE, DECEMBER 31, 2008			25,625,437				256,254,373				49,875,255				67,324,393				391,857				102,337,417				170,053,667				481,158				(287,342	)			—				476,377,111
Appropriations of prior year’s earnings
Legal capital reserve			—				—				—				9,993,317				—				(9,993,317	)			—				—				—				—				—
Reversal of special capital reserve			—				—				—				—				(391,857	)			391,857				—				—				—				—				—
Cash dividends to shareholders — NT$3.00 per share			—				—				—				—				—				(76,876,312	)			(76,876,312	)			—				—				—				(76,876,312	)
Stock dividends to shareholders — NT$0.02 per share			51,251				512,509				—				—				—				(512,509	)			(512,509	)			—				—				—				—
Profit sharing to employees — in stock			141,870				1,418,699				6,076,289				—				—				—				—				—				—				—				7,494,988
Capital surplus transferred to capital stock			76,876				768,763				(768,763	)			—				—				—				—				—				—				—				—
Net income in 2009			—				—				—				—				—				89,217,836				89,217,836				—				—				—				89,217,836
Adjustment arising from changes in percentage of ownership in equity method investees			—				—				115,418				—				—				—				—				—				—				—				115,418
Translation adjustments			—				—				—				—				—				—				—				(2,247,825	)			—				—				(2,247,825	)
Issuance of stock from exercising stock options			7,272				72,722				187,811				—				—				—				—				—				—				—				260,533
Valuation gain on available-for-sale financial assets			—				—				—				—				—				—				—				—				14,014				—				14,014
Net change in unrealized gain (loss) on financial instruments from equity method investees			—				—				—				—				—				—				—				—				726,949				—				726,949
BALANCE, DECEMBER 31, 2009			25,902,706			$	259,027,066			$	55,486,010			$	77,317,710			$	—			$	104,564,972			$	181,882,682			$	(1,766,667	)		$	453,621			$	—			$	495,082,712

Note:

Profit sharing to employees and bonus to directors in the amount of NT$6,771,338 thousand and NT$15,148,057 thousand, respectively, had been charged against earnings of 2009 and 2008.

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

(With Deloitte & Touche audit report dated January 22, 2010)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(In Thousands of New Taiwan Dollars)

		2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	89,217,836			$	99,933,168
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			74,327,868				74,569,562
Unrealized (realized) gross profit from affiliates			160,279				(72	)
Amortization of premium/discount of financial assets			6,322				(97,381	)
Impairment of financial assets			—				247,488
Gain on disposal of available-for-sale financial assets, net			(37,370	)			(443,404	)
Gain on held-to-maturity financial assets redeemed by the issuer			(16,091	)			—
Loss (gain) on disposal of financial assets carried at cost, net			97				(8,755	)
Equity in losses (earnings) of equity method investees, net			2,695,720				(72,568	)
Dividends received from equity method investees			1,402,592				1,804,351
Gain on disposal of property, plant and equipment and other assets, net			(138,613	)			(298,769	)
Loss on idle assets			—				210,477
Deferred income tax			(1,678,381	)			2,361,261
Changes in operating assets and liabilities:
Decrease (increase) in:
Financial assets and liabilities at fair value through profit or loss			(222,901	)			(164,405	)
Receivables from related parties			(10,813,569	)			14,973,444
Notes and accounts receivable			(8,443,344	)			6,470,152
Allowance for doubtful receivables			(5,746	)			(252,226	)
Allowance for sales returns and others			2,715,050				2,011,897
Other receivables from related parties			235,470				43,835
Other financial assets			(392,317	)			(380,057	)
Inventories			(6,022,280	)			8,179,206
Prepaid expenses and other current assets			290,470				(330,664	)
Increase (decrease) in:
Accounts payable			4,925,758				(5,171,553	)
Payables to related parties			836,992				(1,797,280	)
Income tax payable			(461,691	)			(1,766,153	)
Salary and bonus payable			7,075,402				(30,280	)
Accrued profit sharing to employees and bonus to directors			(881,731	)			15,148,057
Accrued expenses and other current liabilities			1,259,544				(3,112,220	)
Accrued pension cost			97,167				52,330
Deferred credits			(230,487	)			(129,494	)
Net cash provided by operating activities			155,902,046				211,949,947
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Property, plant and equipment			(86,970,843	)			(56,766,192	)
Available-for-sale financial assets			—				(23,697,000	)
Held-to-maturity financial assets			(10,803,805	)			(12,371,965	)

     (Continued)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(In Thousands of New Taiwan Dollars)

		2009				2008
Investments accounted for using equity method		$	(320,443	)		$	(494,765	)
Financial assets carried at cost			(1,411	)			(20,681	)
Proceeds from disposal or redemption of:
Available-for-sale financial assets			1,037,370				45,584,934
Held-to-maturity financial assets			6,293,000				15,004,000
Financial assets carried at cost			18,828				10,606
Property, plant and equipment and other assets			71,850				2,042,899
Proceeds from return of capital by investees			27,753				2,465,293
Cash from merger of subsidiaries			—				270,650
Increase in deferred charges			(1,347,228	)			(3,199,813	)
Decrease in refundable deposits			21,621				21,801
Net cash used in investing activities			(91,973,308	)			(31,150,233	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of bonds payable			(8,000,000	)			—
Decrease in guarantee deposits			(477,776	)			(761,525	)
Proceeds from exercise of employee stock options			260,533				227,150
Cash dividends			(76,876,312	)			(76,881,311	)
Profit sharing to employees in cash			—				(3,939,883	)
Bonus to directors			—				(176,890	)
Repurchase of treasury stock			—				(33,480,997	)
Net cash used in financing activities			(85,093,555	)			(115,013,456	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(21,164,817	)			65,786,258
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR			138,208,360				72,422,102
CASH AND CASH EQUIVALENTS, END OF YEAR		$	117,043,543			$	138,208,360
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid		$	351,803			$	355,056
Income tax paid		$	7,791,196			$	10,282,464
INVESTING AND FINANCING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS
Acquisition of property, plant, and equipment		$	108,592,471			$	58,951,343
Increase in payables to contractors and equipment suppliers			(21,620,819	)			(2,185,151	)
Nonmonetary exchange trade-out price			(809	)			—
Cash paid		$	86,970,843			$	56,766,192

     (Continued)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(In Thousands of New Taiwan Dollars)

		2009				2008
Disposal of property, plant and equipment and other assets		$	64,390			$	2,051,168
Decrease (increase) in other receivables from related parties			8,269				(8,269	)
Nonmonetary exchange trade-out price			(809	)			—
Cash received		$	71,850			$	2,042,899
Repurchase of treasury stock		$	—			$	30,427,413
Decrease in accrued expenses and other current liabilities			—				3,053,584
Cash paid		$	—			$	33,480,997
NON-CASH FINANCING ACTIVITIES
Current portion of bonds payable		$	—			$	8,000,000
Current portion of other long-term payable (under accrued expenses and other current liabilities)		$	769,144			$	1,026,421

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

(With Deloitte & Touche audit report dated January 22, 2010)

(Concluded)

Taiwan Semiconductor Manufacturing Company Limited

NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)

1.		GENERAL
		Taiwan Semiconductor Manufacturing Company Limited (the “Company” or “TSMC”), a Republic of China (R.O.C.) corporation, was incorporated on February 21, 1987. The Company is a dedicated foundry in the semiconductor industry which engages mainly in the manufacturing, selling, packaging, testing and computer-aided designing of integrated circuits and other semiconductor devices and the manufacturing of masks. On September 5, 1994, its shares were listed on the Taiwan Stock Exchange (TSE). On October 8, 1997, TSMC listed some of its shares of stock on the New York Stock Exchange (NYSE) in the form of American Depositary Shares (ADSs).
		As of December 31, 2009 and 2008, the Company had 22,292 and 20,425 employees, respectively.
2.		SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
		The financial statements are presented in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Business Accounting Law, Guidelines Governing Business Accounting, and accounting principles generally accepted in the R.O.C.
		For the convenience of readers, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the R.O.C. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language financial statements shall prevail.
		Significant accounting policies are summarized as follows:
		Use of Estimates
		The preparation of financial statements in conformity with the aforementioned guidelines, law and principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management’s estimates.
		Classification of Current and Noncurrent Assets and Liabilities
		Current assets are assets held for trading purposes and assets expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations incurred for trading purposes and obligations expected to be settled within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively.
		Cash Equivalents
		Repurchase agreements collateralized by government bonds acquired with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value.

		Financial Assets/Liabilities at Fair Value Through Profit or Loss
		Derivatives that do not meet the criteria for hedge accounting are initially recognized at fair value, with transaction costs expensed as incurred. The derivatives are remeasured at fair value subsequently with changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.
		Fair value is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. When the fair value is positive, the derivative is recognized as a financial asset; when the fair value is negative, the derivative is recognized as a financial liability.
		Available-for-sale Financial Assets
		Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value from subsequent remeasurement are reported as a separate component of shareholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.
		The fair value of debt securities is determined using the average of bid and asked prices at the end of the year.
		Any difference between the initial carrying amount of a debt security and the amount due at maturity is amortized using the effective interest method, with the amortization recognized in earnings.
		If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized.
		Held-to-maturity Financial Assets
		Debt securities for which the Company has a positive intention and ability to hold to maturity are categorized as held-to-maturity financial assets and are carried at amortized cost. Those financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Gains or losses are recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.
		If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount that exceeds the amortized cost that would have been determined as if no impairment loss had been recognized.
		Allowance for Doubtful Receivables
		An allowance for doubtful receivables is provided based on a review of the collectability of receivables. The Company determines the amount of the allowance for doubtful receivables with a charge of 1% of the amount of outstanding receivables considering the account aging analysis and current trends in the credit quality of its customers.

		Revenue Recognition and Allowance for Sales Returns and Others
		The Company recognizes revenue when evidence of an arrangement exists, the rewards of ownership and significant risk of the goods has been transferred to the buyer, price is fixed or determinable, and collectability is reasonably assured. Provisions for estimated sales returns and others are recorded in the year the related revenue is recognized, based on historical experience, management’s judgment, and any known factors that would significantly affect the allowance.
		Sales prices are determined using fair value taking into account related sales discounts agreed to by the Company and its customers. Sales agreements typically provide that payment is due 30 days from invoice date for a majority of the customers and 30 to 45 days after the end of the month in which sales occur for some customers. Since the receivables from sales are collectible within one year and such transactions are frequent, fair value of the receivables is equivalent to the nominal amount of the cash to be received.
		Inventories
		Inventories are recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date.
		Prior to January 1, 2009, inventories were stated at the lower of cost or market value. Any write-down was made on a total-inventory basis. Market value represented replacement cost for raw materials, supplies and spare parts and net realizable value for work in process and finished goods.
		As stated in Note 3, effective January 1, 2009, inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made on an item-by-item basis, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and necessary selling costs.
		Investments Accounted for Using Equity Method
		Investments in companies wherein the Company exercises significant influence over the operating and financial policy decisions are accounted for using the equity method. The Company’s share of the net income or net loss of an investee is recognized in the “equity in earnings/losses of equity method investees, net” account. The cost of an investment shall be analyzed and the cost of investment in excess of the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized. If the fair value of identifiable net assets acquired exceeds the cost of investment, the excess shall be proportionately allocated as reductions to fair values of non-current assets (except for financial assets other than investments accounted for using the equity method and deferred income tax assets). When an indication of impairment is identified, the carrying amount of the investment is reduced, with the related impairment loss recognized in earnings.
		When the Company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s share of the investee’s equity. The Company records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus.
		Gains or losses on sales from the Company to equity method investees are deferred in proportion to the Company’s ownership percentages in the investees until such gains or losses are realized through transactions with third parties. The entire amount of the gains or losses on sales to investees over which the Company has a controlling interest is deferred until such gains or losses are realized through subsequent sales of the related products to third parties. Gains or losses on sales from equity method investees to the Company are deferred in proportion to the Company’s ownership percentages in the investees until they are realized through transactions with third parties. Gains or losses on sales between equity method investees over each of which the Company has control are deferred in proportion to the Company’s weighted-average ownership percentage in the investee which records gains or losses. In transactions between equity method investees over either or both of which the Company has no control, gains or losses on sales are

		deferred in proportion to the multiplication of the Company’s weighted-average ownership percentages in the investees. Such gains or losses are recorded until they are realized through transactions with third parties.
		If an investee’s functional currency is a foreign currency, differences will result from the translation of the investee’s financial statements into the reporting currency of the Company. Such differences are charged or credited to cumulative translation adjustments, a separate component of shareholders’ equity.
		Financial Assets Carried at Cost
		Investments for which the Company does not exercise significant influence and that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, such as non-publicly traded stocks and mutual funds, are carried at their original cost. The costs of non-publicly traded stocks and mutual funds are determined using the weighted-average method. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed.
		Cash dividends are recognized as investment income upon resolution of shareholders of an investee but are accounted for as a reduction to the original cost of investment if such dividends are declared on the earnings of the investee attributable to the period prior to the purchase of the investment. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new total number of shares.
		Property, Plant and Equipment, Assets Leased to Others and Idle Assets
		Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed as incurred.
		Depreciation is computed using the straight-line method over the following estimated service lives: buildings — 10 to 20 years; machinery and equipment — 5 years; and office equipment — 3 to 5 years.
		Upon sale or disposal of property, plant and equipment and assets leased to others, the related cost and accumulated depreciation are deducted from the corresponding accounts, with any gain or loss recorded as non-operating gains or losses in the year of sale or disposal.
		When property, plant and equipment are determined to be idle or useless, they are transferred to idle assets at the lower of the net realizable value or carrying amount. Depreciation on the idle assets is provided continuously, and the idle assets are tested for impairment on a periodical basis.
		Intangible Assets
		Goodwill represents the excess of the consideration paid for acquisition over the fair value of identifiable net assets acquired. Goodwill is no longer amortized and instead is tested for impairment annually. If an event occurs or circumstances change which indicate that the fair value of goodwill is more likely than not below its carrying amount, an impairment loss is recognized. A subsequent reversal of such impairment loss is not allowed.

		Deferred charges consist of technology license fees, software and system design costs and other charges. The amounts are amortized over the following periods: Technology license fees — the shorter of the estimated life of the technology or the term of the technology transfer contract; software and system design costs and other charges — 3 years. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the previously recognized impairment loss would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized.
		Expenditures related to research activities and those related to development activities that do not meet the criteria for capitalization are charged to expenses when incurred.
		Pension Costs
		For employees who participate in defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts during their service periods. For employees who participate in defined benefit pension plans, pension costs are recorded based on actuarial calculations.
		Income Tax
		The Company applies an inter-period allocation for its income tax whereby deferred income tax assets and liabilities are recognized for the tax effects of temporary differences and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.
		Any tax credits arising from purchases of machinery, equipment and technology, research and development expenditures, personnel training expenditures, and investments in important technology-based enterprises are recognized using the flow-through method.
		Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.
		Income tax on unappropriated earnings at a rate of 10% is expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated.
		Stock-based Compensation
		Employee stock options that were granted or modified in the period from January 1, 2004 to December 31, 2007 are accounted for by the interpretations issued by the Accounting Research and Development Foundation of the Republic of China. The Company adopted the intrinsic value method and any compensation cost determined using this method is recognized in earnings over the employee vesting period. Employee stock option plans that were granted or modified after December 31, 2007 are accounted for using fair value method in accordance with Statement of Financial Accounting Standards No. 39, “Accounting for Share-based Payment.” The Company did not grant or modify any employee stock options since January 1, 2008.
		Profit Sharing to Employees and Bonus to Directors
		Effective January 1, 2008, the Company adopted Interpretation 2007-052, “Accounting for Bonuses to Employees, Directors and Supervisors,” which requires companies to record profit sharing to employees and bonus to directors as an expense rather than as an appropriation of earnings.