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
Nine Months Ended September 30, 2009 and 2008 and
Independent Accountants’ Review Report

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors and Shareholders
Taiwan Semiconductor Manufacturing Company Limited

We have reviewed the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company Limited as of September 30, 2009 and 2008, and the related statements of income and cash flows for the nine months then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these financial statements based on our reviews.

We conducted our reviews in accordance with Statement on Auditing Standards No. 36, “Review of Financial Statements,” issued by the Auditing Standards Committee of the Accounting Research and Development Foundation of the Republic of China. A review consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the Republic of China, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with the Guidelines 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 reviewed, in accordance with Statement on Auditing Standards No. 36, the consolidated financial statements of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of and for the nine months ended September 30, 2009 and 2008, and have issued thereon an unqualified review report 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.

October 9, 2009

Notice to Readers

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

For the convenience of readers, the accountants’ review 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 accountants’ review report and financial statements shall prevail.

Taiwan Semiconductor Manufacturing Company Limited

BALANCE SHEETS
SEPTEMBER 30, 2009 AND 2008
(In Thousands of New Taiwan Dollars, Except Par Value)
(Reviewed, Not Audited)

		2009								2008
		Amount				%				Amount				%
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 2 and 4)		$	102,286,286				20			$	71,356,901				13
Financial assets at fair value through profit or loss (Notes 2, 5 and 23)			367,461				—				12,970				—
Available-for-sale financial assets (Notes 2, 6 and 23)			—				—				16,936,633				3
Held-to-maturity financial assets (Notes 2, 7 and 23)			8,374,389				2				5,063,096				1
Receivables from related parties (Note 24)			22,464,807				4				27,255,916				5
Notes and accounts receivable			20,825,053				4				22,662,860				4
Allowance for doubtful receivables (Notes 2 and 8)			(436,000	)			—				(686,143	)			—
Allowance for sales returns and others (Notes 2 and 8)			(8,874,199	)			(2	)			(5,339,469	)			(1	)
Other receivables from related parties (Note 24)			321,499				—				315,293				—
Other financial assets (Note 25)			903,842				—				564,972				—
Inventories (Notes 2, 3 and 9)			17,194,184				3				19,429,551				4
Deferred income tax assets (Notes 2 and 17)			4,287,040				1				2,915,006				1
Prepaid expenses and other current assets			613,580				—				1,208,644				—
Total current assets			168,327,942				32				161,696,230				30
LONG-TERM INVESTMENTS (Notes 2, 6, 7, 10, 11 and 23)
Investments accounted for using equity method			105,085,064				20				109,129,339				21
Available-for-sale financial assets			1,033,473				—				4,003,970				1
Held-to-maturity financial assets			13,278,683				3				11,416,050				2
Financial assets carried at cost			501,563				—				748,263				—
Total long-term investments			119,898,783				23				125,297,622				24
PROPERTY, PLANT AND EQUIPMENT (Notes 2, 12 and 24)
Cost
Buildings			123,783,029				24				113,146,254				21
Machinery and equipment			674,274,132				129				632,130,632				119
Office equipment			10,337,123				2				9,597,292				2
			808,394,284				155				754,874,178				142
Accumulated depreciation			(610,117,838	)			(117	)			(538,829,638	)			(101	)
Advance payments and construction in progress			18,320,302				4				10,960,925				2
Net property, plant and equipment			216,596,748				42				227,005,465				43
INTANGIBLE ASSETS
Goodwill (Note 2)			1,567,756				—				1,567,756				—
Deferred charges, net (Notes 2 and 13)			5,453,680				1				6,466,929				1
Total intangible assets			7,021,436				1				8,034,685				1
OTHER ASSETS
Deferred income tax assets (Notes 2 and 17)			6,973,800				1				7,504,585				1
Refundable deposits			2,754,296				1				2,666,676				1
Others (Note 2)			487,358				—				57,111				—
Total other assets			10,215,454				2				10,228,372				2
TOTAL		$	522,060,363				100			$	532,262,374				100
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Financial liabilities at fair value through profit or loss (Notes 2, 5 and 23)		$	—				—			$	314,630				—
Accounts payable			8,297,913				1				6,948,805				1
Payables to related parties (Note 24)			2,294,155				—				2,573,875				1
Income tax payable (Notes 2 and 17)			5,726,656				1				9,071,046				2
Bonuses payable to employees and directors (Notes 2, 3 and 19)			8,618,411				2				13,265,568				3
Payables to contractors and equipment suppliers			15,520,005				3				7,390,905				1
Accrued expenses and other current liabilities (Note 15)			8,675,196				2				11,153,920				2
Current portion of bonds payable (Note 14)			—				—				8,000,000				1
Total current liabilities			49,132,336				9				58,718,749				11
LONG-TERM LIABILITIES
Bonds payable (Note 14)			4,500,000				1				4,500,000				1
Other long-term payables (Note 15)			579,600				—				1,071,214				—
Total long-term liabilities			5,079,600				1				5,571,214				1
OTHER LIABILITIES
Accrued pension cost (Notes 2 and 16)			3,786,616				1				3,695,766				1
Guarantee deposits (Note 27)			1,104,704				—				1,618,686				—
Deferred credits (Notes 2 and 24)			71,809				—				582,206				—
Total other liabilities			4,963,129				1				5,896,658				1
Total liabilities			59,175,065				11				70,186,621				13
CAPITAL STOCK — NT$10 PAR VALUE (Notes 19 and 21)
Authorized: 28,050,000 thousand shares
Issued:         25,900,662 thousand shares in 2009
25,904,166 thousand shares in 2008			259,006,623				50				259,041,660				49
CAPITAL SURPLUS (Notes 2 and 19)			55,439,919				10				50,463,438				9
RETAINED EARNINGS (Note 19)
Appropriated as legal capital reserve			77,317,710				15				67,324,393				13
Appropriated as special capital reserve			—				—				391,857				—
Unappropriated earnings			71,898,923				14				103,062,463				19
			149,216,633				29				170,778,713				32
OTHERS (Notes 2, 21 and 23)
Cumulative translation adjustments			(1,272,298	)			—				(1,584,029	)			—
Unrealized gain/loss on financial instruments			494,421				—				(124,039	)			—
Treasury stock: 278,875 thousand shares			—				—				(16,499,990	)			(3	)
			(777,877	)			—				(18,208,058	)			(3	)
Total shareholders’ equity			462,885,298				89				462,075,753				87
TOTAL		$	522,060,363				100			$	532,262,374				100

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

(With Deloitte & Touche review report dated October 9, 2009)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
(Reviewed, Not Audited)

		2009								2008
		Amount				%				Amount				%
GROSS SALES (Notes 2 and 24)		$	206,462,258							$	266,527,657
SALES RETURNS AND ALLOWANCES (Notes 2 and 8)			9,715,735								5,586,784
NET SALES			196,746,523				100				260,940,873				100
COST OF SALES (Notes 3, 9, 18 and 24)			113,516,518				58				142,456,953				55
GROSS PROFIT			83,230,005				42				118,483,920				45
UNREALIZED GROSS PROFIT FROM AFFILIATES (Note 2)			128,152				—				164,705				—
REALIZED GROSS PROFIT			83,101,853				42				118,319,215				45
OPERATING EXPENSES (Notes 18 and 24)
Research and development			13,686,108				7				15,359,634				5
General and administrative			7,246,047				3				7,829,752				3
Marketing			1,427,041				1				1,845,955				1
Total operating expenses			22,359,196				11				25,035,341				9
INCOME FROM OPERATIONS			60,742,657				31				93,283,874				36
NON-OPERATING INCOME AND GAINS
Interest income (Note 2)			938,369				1				2,084,519				1
Valuation gain on financial instruments, net (Notes 2, 5 and 23)			576,910				—				—				—
Settlement income (Note 27)			494,070				—				456,195				—
Technical service income (Notes 24 and 27)			279,644				—				521,366				—
Gain on settlement and disposal of financial assets, net (Notes 2 and 23)			53,364				—				396,865				—
Equity in earnings of equity method investees, net (Notes 2 and 10)			—				—				1,306,897				1
Foreign exchange gain, net (Note 2)			—				—				146,196				—
Others (Notes 2 and 24)			355,793				—				651,716				—
Total non-operating income and gains			2,698,150				1				5,563,754				2

(Continued)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
(Reviewed, Not Audited)

		2009								2008
		Amount				%				Amount				%
NON-OPERATING EXPENSES AND LOSSES
Equity in losses of equity method investees, net (Notes 2 and 10)		$	2,772,157				1			$	—				—
Foreign exchange loss, net (Note 2)			611,098				—				—				—
Interest expense			108,276				—				266,250				—
Valuation loss on financial instruments, net (Notes 2, 5 and 23)			—				—				299,565				—
Loss on idle assets (Note 2)			—				—				210,477				—
Provision for litigation loss			—				—				99,126				—
Others (Note 2)			102,553				—				89,369				—
Total non-operating expenses and losses			3,594,084				1				964,787				—
INCOME BEFORE INCOME TAX			59,846,723				31				97,882,841				38
INCOME TAX EXPENSE (Notes 2 and 17)			3,294,936				2				10,395,449				4
NET INCOME		$	56,551,787				29			$	87,487,392				34

		2009								2008
		Before				After				Before				After
		Income				Income				Income				Income
		Tax				Tax				Tax				Tax
EARNINGS PER SHARE (NT$, Note 22)
Basic earnings per share		$	2.32			$	2.19			$	3.74			$	3.35
Diluted earnings per share		$	2.30			$	2.18			$	3.72			$	3.33

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 nine months ended September 30, 2008 (Notes 2 and 21):

		2008
NET INCOME		$	87,589,671
EARNINGS PER SHARE (NT$)
Basic earnings per share		$	3.35
Diluted earnings per share		$	3.33

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

(With Deloitte & Touche review report dated October 9, 2009)		(Concluded)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(In Thousands of New Taiwan Dollars)
(Reviewed, Not Audited)

		2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	56,551,787			$	87,487,392
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			55,547,956				55,280,082
Unrealized gross profit from affiliates			128,152				164,705
Amortization of premium/discount of financial assets			(6,248	)			(75,112	)
Gain on disposal of available-for-sale financial assets, net			(37,370	)			(397,535	)
Gain on held-to-maturity financial assets redeemed by the issuer			(16,091	)			—
Loss on disposal of financial assets carried at cost			97				670
Equity in losses (earnings) of equity method investees, net			2,772,157				(1,306,897	)
Dividends received from equity method investees			1,402,592				1,804,351
Gain on disposal of property, plant and equipment and other assets, net			(77,173	)			(236,265	)
Loss on idle assets			—				210,477
Deferred income tax			(1,112,168	)			2,090,342
Changes in operating assets and liabilities:
Decrease (increase) in:
Financial assets and liabilities at fair value through profit or loss			(408,619	)			96,097
Receivables from related parties			(10,736,603	)			(554,268	)
Notes and accounts receivable			(9,383,877	)			(4,751,532	)
Allowance for doubtful receivables			(746	)			(2,829	)
Allowance for sales returns and others			3,005,617				1,482,784
Other receivables from related parties			160,152				218,106
Other financial assets			(192,087	)			(233,274	)
Inventories			(4,386,248	)			1,557,591
Prepaid expenses and other current assets			578,895				(346,833	)
Increase (decrease) in:
Accounts payable			4,306,139				(2,537,013	)
Payables to related parties			1,091,805				(425,755	)
Income tax payable			(3,496,155	)			(1,917,918	)
Bonuses payable to employees and directors			965,342				13,265,568
Accrued expenses and other current liabilities			641,917				31,466
Accrued pension cost			76,607				38,087
Deferred credits			(206,551	)			(71,809	)
Net cash provided by operating activities			97,169,279				150,870,678
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Property, plant and equipment			(44,452,382	)			(45,995,935	)
Available-for-sale financial assets			—				(21,697,000	)
Held-to-maturity financial assets			(9,405,409	)			(5,989,999	)
Investments accounted for using equity method			(262,922	)			(380,569	)
Financial assets carried at cost			(986	)			(1,884	)

(Continued)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(In Thousands of New Taiwan Dollars)
(Reviewed, Not Audited)

		2009				2008
Proceeds from disposal or redemption of:
Available-for-sale financial assets		$	1,037,370			$	24,638,222
Held-to-maturity financial assets			5,418,000				9,773,000
Financial assets carried at cost			18,828				1,111
Property, plant and equipment and other assets			68,579				2,033,745
Proceeds from return of capital by investees			20,201				2,460,122
Cash from merger of subsidiaries			—				270,650
Increase in deferred charges			(438,308	)			(2,243,684	)
Decrease (increase) in refundable deposits			(34,559	)			74,862
Net cash used in investing activities			(48,031,588	)			(37,057,359	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of bonds payable			(8,000,000	)			—
Decrease in guarantee deposits			(374,448	)			(621,991	)
Proceeds from exercise of employee stock options			190,995				222,552
Cash dividends			(76,876,312	)			(76,881,311	)
Cash bonus paid to employees			—				(3,939,883	)
Bonus to directors			—				(176,890	)
Repurchase of treasury stock			—				(33,480,997	)
Net cash used in financing activities			(85,059,765	)			(114,878,520	)
NET DECREASE IN CASH AND CASH EQUIVALENTS			(35,922,074	)			(1,065,201	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			138,208,360				72,422,102
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	102,286,286			$	71,356,901
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid		$	351,803			$	355,000
Income tax paid		$	7,770,195			$	10,228,005
INVESTING AND FINANCING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS
Acquisition of property, plant, and equipment		$	52,075,005			$	47,997,100
Increase in payables to contractors and equipment suppliers			(7,622,623	)			(2,001,165	)
Cash paid		$	44,452,382			$	45,995,935
Disposal of property, plant and equipment and other assets		$	60,488			$	2,041,836
Decrease (increase) in other receivables from related parties			8,091				(8,091	)
Cash received		$	68,579			$	2,033,745

(Continued)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(In Thousands of New Taiwan Dollars)
(Reviewed, Not Audited)

		2009				2008
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
Bonus to employees transferred to capital stock		$	7,494,988			$	—
Current portion of bonds payable		$	—			$	8,000,000
Current portion of other long-term payables (under accrued expenses and other current liabilities)		$	775,567			$	1,901,323

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

(With Deloitte & Touche review report dated October 9, 2009)		(Concluded)

Taiwan Semiconductor Manufacturing Company Limited

NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Amounts in Thousands of New Taiwan Dollars, Unless Specified Otherwise)
(Reviewed, Not Audited)

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 engaged 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 September 30, 2009 and 2008, the Company had 20,566 and 20,702 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 structured time deposits is estimated using valuation techniques. Fair value of open-end mutual funds is determined using the net assets value at the end of the period. For debt securities, fair value is determined using the average of bid and asked prices at the end of the period.
		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 under the effective interest method except for structured time deposits which are carried at acquisition 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 collectibility of notes and accounts receivable. The Company determines the amount of the allowance for doubtful receivables by examining the aging analysis of outstanding notes and accounts receivable and current trends in the credit quality of its customers as well as its internal credit policies.

		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 collectibility is reasonably assured. Provisions for estimated sales returns and others are recorded in the period 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 period 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 period’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.

		Bonuses to Employees and Directors
		Effective January 1, 2008, the Company adopted Interpretation 2007-052, “Accounting for Bonuses to Employees, Directors and Supervisors,” which requires companies to record bonuses paid to employees and directors as an expense rather than as an appropriation of earnings.
		Treasury Stock
		Treasury stock is stated at cost and shown as a deduction in shareholders’ equity. When the Company retires treasury stock, the treasury stock account is reduced and the common stock as well as the capital surplus — additional paid-in capital are reversed on a pro rata basis. When the book value of the treasury stock exceeds the sum of the par value and additional paid-in capital, the difference is charged to capital surplus — treasury stock transactions and to retained earnings for any remaining amount.
		The Company’s stock held by its subsidiaries is treated as treasury stock and reclassified from investments accounted for using equity method to treasury stock. The gains resulted from disposal of the treasury stock held by subsidiaries and cash dividends received by subsidiaries from the Company are recorded under capital surplus — treasury stock transactions.
		Foreign-currency Transactions
		Foreign-currency transactions other than derivative contracts are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign-currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in earnings.
		At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at prevailing exchange rates with the resulting gains or losses recognized in earnings.
3.		ACCOUNTING CHANGES
		Effective January 1, 2009, the Company adopted the newly revised SFAS No. 10, “Accounting for Inventories.” The main revisions are (1) inventories are stated at the lower of cost or net realizable value, and inventories are written down to net realizable value item-by-item except when the grouping of similar or related items is appropriate; (2) unallocated overheads are recognized as expenses in the period in which they are incurred; and (3) abnormal cost, write-downs of inventories and any reversal of write-downs are recorded as cost of sales for the period. Such changes in accounting principle did not have significant effect on the Company’s financial statements for the nine months ended September 30, 2009.
		Effective January 1, 2008, the Company adopted Interpretation 2007-052, “Accounting for Bonuses to Employees, Directors and Supervisors,” issued in March 2007 by the ARDF, which requires companies to record bonuses paid to employees, directors and supervisors as an expense rather than as an appropriation of earnings. The adoption of this interpretation resulted in a decrease in net income and earnings per share (after income tax and retroactively adjusted for the issuance of stock dividend) of NT$11,055,454 thousand and NT$0.42, respectively, for the nine months ended September 30, 2008.
		Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 39, “Accounting for Share-based Payment,” which requires companies to record share-based payment transactions in the financial statements at fair value. Such a change in accounting principle did not have any effect on the Company’s financial statements as of and for the nine months ended September 30, 2008.

4.

CASH AND CASH EQUIVALENTS

		September 30
		2009				2008
Cash and deposits in banks		$	91,703,367			$	64,366,513
Repurchase agreements collateralized by government bonds			10,582,919				6,990,388
		$	102,286,286			$	71,356,901

5.

FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

		September 30
		2009				2008
Trading — financial assets
Forward exchange contracts		$	—			$	12,970
Cross currency swap contracts			367,461				—
		$	367,461			$	12,970
Trading — financial liabilities
Forward exchange contracts		$	—			$	136,050
Cross currency swap contracts			—				178,580
		$	—			$	314,630

The Company entered into derivative contracts during the nine months ended September 30, 2009 and 2008 to manage exposures due to fluctuations of foreign exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge accounting. Therefore, the Company did not apply hedge accounting treatment for its derivative contracts.

As of September 30, 2009, no forward exchange contracts was outstanding. As of September 30, 2008, outstanding forward exchange contracts consisted of the following:

				Contract Amount
		Maturity Date		(in Thousands)
Sell EUR/buy NT$		October 2008		EUR15,000/NT$691,465
Sell EUR/buy US$		October 2008		EUR7,000/US$10,175
Sell US$/buy NT$		October 2008 to December 2008		US$565,000/NT$18,054,010

Outstanding cross currency swap contracts consisted of the following:

Range of

Range of

Contract Amount

Interest Rates

Interest Rates

Maturity Date

(in Thousands)

Paid

Received

September 30, 2009

October 2009 to December 2009

US$

950,000/NT$30,935,532

0.30%-1.00

%

0.00%-0.61

%

September 30, 2008

October 2008 to November 2008

US$

536,000/NT$17,080,480

2.48%-14.00

%

0.00%-2.40

%

For the nine months ended September 30, 2009 and 2008, valuation on financial instruments arising from derivative financial instruments was a net gain of NT$576,910 thousand and a net loss of NT$299,565 thousand, respectively.

6.

AVAILABLE-FOR-SALE FINANCIAL ASSETS

		September 30
		2009				2008
Corporate bonds		$	1,033,473			$	2,790,337
Open-end mutual funds			—				14,146,296
Structured time deposits			—				4,003,970
			1,033,473				20,940,603
Current portion			—				(16,936,633	)
		$	1,033,473			$	4,003,970

Structured time deposits categorized as available-for-sale financial assets consisted of the following:

		Principal				Carrying
		Amount				Amount				Interest Rate				Maturity Date
September 30, 2008
Callable deposits Domestic deposits		$	4,000,000			$	4,003,970				2.71%-2.80	%		September 2011

The interest rate of the callable deposits was pre-determined by the Company and the banks.

7.

HELD-TO-MATURITY FINANCIAL ASSETS

		September 30
		2009				2008
Corporate bonds		$	12,748,902			$	10,778,406
Structured time deposits			6,000,000				3,500,000
Government bonds			2,904,170				2,200,740
			21,653,072				16,479,146
Current portion			(8,374,389	)			(5,063,096	)
		$	13,278,683			$	11,416,050

     Structured time deposits categorized as held-to-maturity financial assets consisted of the following:

										Range of
		Principal				Interest				Interest
		Amount				Receivable				Rates				Maturity Date
September 30, 2009
Callable domestic deposits		$	6,000,000			$	3,404				0.67%-0.95	%		March 2011 to August 2011
September 30, 2008
Callable domestic deposits
		$	3,500,000			$	12,287				1.83%-2.90	%		October 2008 to September 2011

8.

ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS

     Movements of the allowance for doubtful receivables were as follows:

		Nine Months Ended
		September 30
		2009				2008
Balance, beginning of period		$	436,746			$	688,972
Provision			243,061				—
Write-off			(243,807	)			(2,829	)
Balance, end of period		$	436,000			$	686,143

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

		Nine Months Ended
		September 30
		2009				2008
Balance, beginning of period		$	5,868,582			$	3,856,685
Provision			9,715,735				5,586,784
Write-off			(6,710,118	)			(4,104,000	)
Balance, end of period		$	8,874,199			$	5,339,469

9.

INVENTORIES

		September 30
		2009				2008
Finished goods		$	2,013,527			$	4,054,388
Work in process			13,654,961				13,966,641
Raw materials			907,655				863,378
Supplies and spare parts			618,041				545,144
		$	17,194,184			$	19,429,551

Write-down of inventories to net realizable value in the amount of NT$313,175 thousand and NT$448,520 thousand, respectively, were included in the cost of sales for sales for the nine months ended September 30, 2009 and 2008.

10.

INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

		September 30
		2009								2008
						% of								% of
		Carrying				Owner-				Carrying				Owner-
		Amount				ship				Amount				ship
TSMC Global Ltd. (TSMC Global)		$	45,492,790				100			$	44,368,847				100
TSMC Partners, Ltd. (TSMC Partners)			32,627,788				100				3,667,050				100
Vanguard International Semiconductor Corporation (VIS)			9,410,696				37				10,151,846				37
Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)			5,899,305				39				6,761,630				39
TSMC China Company Limited (TSMC China)			3,606,012				100				7,308,098				100
TSMC North America			2,686,753				100				2,390,713				100
Xintec Inc. (Xintec)			1,372,699				41				1,445,512				42
VentureTech Alliance Fund III, L.P. (VTAF III)			1,341,398				98				1,208,584				98
VentureTech Alliance Fund II, L.P. (VTAF II)			1,059,820				98				1,016,435				98
Global UniChip Corporation (GUC)			960,442				36				891,783				36
Emerging Alliance Fund, L.P. (Emerging Alliance)			319,571				99				418,709				99
Taiwan Semiconductor Manufacturing Company Europe B.V. (TSMC Europe)			152,965				100				116,122				100
TSMC Japan Limited (TSMC Japan)			136,710				100				116,484				100
TSMC Korea Limited (TSMC Korea)			18,115				100				14,940				100
TSMC International Investment Ltd. (TSMC International)			—				—				29,252,586				100
		$	105,085,064							$	109,129,339

		TSMC Partners and TSMC International were both 100% owned subsidiaries of the Company. To simplify the organization structure of investment, TSMC Partners merged TSMC International in June 2009.
		Chi Cherng and Hsin Ruey, both 100% owned subsidiaries of the Company, were engaged in investing activities. To simplify the organization structure of investment, the Company merged Chi Cherng and Hsin Ruey in the third quarter of 2008.
		For the nine months ended September 30, 2009 and 2008, equity in earnings/losses of equity method investees was a net loss of NT$2,772,157 thousand and a net gain of NT$1,306,897 thousand, respectively. Related equity in earnings/losses of equity method investees were determined based on the reviewed financial statements, except those of Emerging Alliance, TSMC Japan, TSMC Europe and TSMC Korea for the nine months ended September 30, 2009. The Company believes that, had Emerging Alliance, TSMC Japan, TSMC Europe and TSMC Korea’s financial statements been reviewed, any adjustments arising would have had no material effect on the Company’s financial statements.
		As of September 30, 2009 and 2008, fair value of publicly traded stocks in investments accounted for using equity method (VIS and GUC) was NT$15,891,684 thousand and NT$15,446,393 thousand, respectively.

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

		Nine Months Ended
		September 30
		2009				2008
Balance, beginning of period		$	2,053,253			$	2,677,388
Amortization			(468,101	)			(468,101	)
Balance, end of period		$	1,585,152			$	2,209,287