1934 Act Registration No. 1-14700

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 6-K

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

For the month of April 2011

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
Three Months Ended March 31, 2011 and 2010 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 March 31, 2011 and 2010, and the related statements of income and cash flows for the three 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.

We have also reviewed, in accordance with the Statement on Auditing Standards No. 36, the consolidated financial statements of Taiwan Semiconductor Manufacturing Company Limited and subsidiaries as of and for the three months ended March 31, 2011 on which we have issued an unqualified review report.

April 22, 2011

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
MARCH 31, 2011 and 2010
(In Thousands of New Taiwan Dollars, Except Par Value)
(Reviewed, Not Audited)

		2011								2010
		Amount				%				Amount				%
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 2 and 4)		$	93,336,868				13			$	117,507,201				19
Financial assets at fair value through profit or loss (Notes 2, 5 and 23)			11,605				—				81,703				—
Available-for-sale financial assets (Notes 2, 6 and 23)			4,069,307				—				—				—
Held-to-maturity financial assets (Notes 2, 7 and 23)			4,792,967				1				7,944,656				1
Receivables from related parties (Notes 3 and 24)			27,778,241				4				22,260,749				4
Notes and accounts receivable (Note 3)			24,160,358				3				22,614,938				4
Allowance for doubtful receivables (Notes 2, 3 and 8)			(488,000	)			—				(453,000	)			—
Allowance for sales returns and others (Notes 2 and 8)			(6,771,655	)			(1	)			(7,003,204	)			(1	)
Other receivables from related parties (Notes 3 and 24)			1,852,676				—				295,654				—
Other financial assets (Note 25)			375,679				—				1,129,976				—
Inventories (Notes 2 and 9)			28,893,528				4				20,309,253				4
Deferred income tax assets (Notes 2 and 18)			4,864,903				1				6,072,089				1
Prepaid expenses and other current assets			1,102,143				—				1,387,580				—
Total current assets			183,978,620				25				192,147,595				32
LONG-TERM INVESTMENTS (Notes 2, 6, 7, 10, 11 and 23)
Investments accounted for using equity method			113,973,080				16				110,955,652				18
Available-for-sale financial assets			1,036,044				—				1,043,306				—
Held-to-maturity financial assets			1,405,140				—				6,214,948				1
Financial assets carried at cost			497,835				—				497,835				—
Total long-term investments			116,912,099				16				118,711,741				19
PROPERTY, PLANT AND EQUIPMENT (Notes 2, 12 and 24)
Cost
Buildings			144,102,555				20				125,872,902				21
Machinery and equipment			919,031,062				125				757,039,382				124
Office equipment			12,397,508				2				11,275,851				2
			1,075,531,125				147				894,188,135				147
Accumulated depreciation			(729,610,275	)			(100	)			(646,763,515	)			(106	)
Advance payments and construction in progress			65,400,509				9				34,006,978				5
Net property, plant and equipment			411,321,359				56				281,431,598				46
INTANGIBLE ASSETS
Goodwill (Note 2)			1,567,756				—				1,567,756				—
Deferred charges, net (Notes 2 and 13)			5,116,739				1				5,779,842				1
Total intangible assets			6,684,495				1				7,347,598				1
OTHER ASSETS
Deferred income tax assets (Notes 2 and 18)			6,386,238				1				6,555,961				1
Refundable deposits			4,793,553				1				2,525,862				1
Others (Notes 2 and 24)			1,421,263				—				478,615				—
Total other assets			12,601,054				2				9,560,438				2
TOTAL		$	731,497,627				100			$	609,198,970				100
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Short-term loans (Note 14)		$	34,176,368				5			$	—				—
Financial liabilities at fair value through profit or loss (Notes 2, 5 and 23)			15,028				—				11,410				—
Accounts payable			10,328,555				1				8,945,670				1
Payables to related parties (Note 24)			3,071,311				—				2,758,431				—
Income tax payable (Notes 2 and 18)			9,702,596				1				10,990,083				2
Accrued profit sharing to employees and bonus to directors (Notes 2 and 20)			13,415,809				2				9,046,820				1
Payables to contractors and equipment suppliers			32,410,632				4				28,369,183				5
Accrued expenses and other current liabilities (Notes 16 and 23)			11,677,636				2				11,281,871				2
Current portion of bonds payable (Notes 15 and 23)			4,500,000				1				—				—
Total current liabilities			119,297,935				16				71,403,468				11
LONG-TERM LIABILITIES
Bonds payable (Notes 15 and 23)			—				—				4,500,000				1
Other long-term payables (Notes 16 and 23)			—				—				413,647				—
Total long-term liabilities			—				—				4,913,647				1
OTHER LIABILITIES
Accrued pension cost (Notes 2 and 17)			3,830,337				1				3,808,052				1
Guarantee deposits (Note 27)			695,472				—				912,151				—
Deferred credits (Notes 2 and 24)			—				—				23,936				—
Total other liabilities			4,525,809				1				4,744,139				1
Total liabilities			123,823,744				17				81,061,254				13
CAPITAL STOCK — NT$10 PAR VALUE (Note 20)
Authorized: 28,050,000 thousand shares Issued: 25,914,193 thousand shares in 2011 25,903,769 thousand shares in 2010			259,141,933				35				259,037,692				43
CAPITAL SURPLUS (Notes 2 and 20)			55,781,482				8				55,530,845				9
RETAINED EARNINGS (Note 20)
Appropriated as legal capital reserve			86,239,494				12				77,317,710				13
Appropriated as special capital reserve			1,313,047				—				—				—
Unappropriated earnings			214,504,803				29				138,228,089				22
			302,057,344				41				215,545,799				35
OTHERS (Notes 2 and 23)
Cumulative translation adjustments			(9,351,749	)			(1	)			(2,378,010	)			—
Unrealized gain on financial instruments			44,873				—				401,390				—
			(9,306,876	)			(1	)			(1,976,620	)			—
Total shareholders’ equity			607,673,883				83				528,137,716				87
TOTAL		$	731,497,627				100			$	609,198,970				100

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

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2011 and 2010
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
(Reviewed, Not Audited)

		2011								2010
		Amount				%				Amount				%
GROSS SALES (Notes 2 and 24)		$	103,940,307							$	91,922,386
SALES RETURNS AND ALLOWANCES (Notes 2 and 8)			1,391,829								2,747,878
NET SALES			102,548,478				100				89,174,508				100
COST OF SALES (Notes 9, 19 and 24)			53,489,888				52				46,657,769				52
GROSS PROFIT			49,058,590				48				42,516,739				48
REALIZED GROSS PROFIT FROM AFFILIATES (Note 2)			56,207				—				14,015				—
REALIZED GROSS PROFIT			49,114,797				48				42,530,754				48
OPERATING EXPENSES (Notes 19 and 24)
Research and development			7,314,458				7				5,908,449				7
General and administrative			2,985,064				3				2,206,107				2
Marketing			664,712				1				630,103				1
Total operating expenses			10,964,234				11				8,744,659				10
INCOME FROM OPERATIONS			38,150,563				37				33,786,095				38
NON-OPERATING INCOME AND GAINS
Equity in earnings of equity method investees, net (Notes 2 and 10)			1,577,135				2				559,908				1
Foreign exchange gain, net (Note 2)			380,003				—				—				—
Interest income			149,283				—				178,667				—
Settlement income (Note 27)			—				—				637,580				1
Valuation gain on financial instruments, net (Notes 2, 5 and 23)			—				—				304,292				—
Others (Notes 2 and 24)			353,387				—				176,336				—
Total non-operating income and gains			2,459,808				2				1,856,783				2

(Continued)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2011 and 2010
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
(Reviewed, Not Audited)

		2011								2010
		Amount				%				Amount				%
NON-OPERATING EXPENSES AND LOSSES
Valuation loss on financial instruments, net (Notes 2, 5 and 23)		$	256,988				—			$	—				—
Loss on disposal of property, plant and equipment (Note 2)			164,502				—				—				—
Interest expense			71,582				—				33,750				—
Foreign exchange loss, net (Note 2)			—				—				286,109				1
Casualty loss (Note 9)			—				—				194,137				—
Others (Note 2)			34,083				—				37,799				—
Total non-operating expenses and losses			527,155				—				551,795				1
INCOME BEFORE INCOME TAX			40,083,216				39				35,091,083				39
INCOME TAX EXPENSE (Notes 2 and 18)			3,805,443				4				1,427,966				1
NET INCOME		$	36,277,773				35			$	33,663,117				38

		2011								2010
		Before				After				Before				After
		Income				Income				Income				Income
		Tax				Tax				Tax				Tax
EARNINGS PER SHARE (NT$, Note 22)
Basic earnings per share		$	1.55			$	1.40			$	1.35			$	1.30
Diluted earnings per share		$	1.55			$	1.40			$	1.35			$	1.30

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

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2011 and 2010
(In Thousands of New Taiwan Dollars)
(Reviewed, Not Audited)

		2011				2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	36,277,773			$	33,663,117
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			23,872,606				19,697,427
Realized gross profit from affiliates			(56,207	)			(14,015	)
Amortization of premium/discount of financial assets			4,180				4,294
Loss on disposal of financial assets carried at cost			—				1,263
Equity in earnings of equity method investees, net			(1,577,135	)			(559,908	)
Loss (gain) on disposal of property, plant and equipment, net			68,332				(17,461	)
Deferred income tax			1,011,225				(800,997	)
Changes in operating assets and liabilities:
Decrease (increase) in:
Financial assets and liabilities at fair value through profit or loss			(4,411	)			111,450
Receivables from related parties			(2,044,267	)			281,024
Notes and accounts receivable			(1,909,453	)			(2,730,418	)
Allowance for doubtful receivables			—				22,000
Allowance for sales returns and others			(569,789	)			(1,580,428	)
Other receivables from related parties			(66,347	)			(49,651	)
Other financial assets			42,527				(25,904	)
Inventories			(3,247,180	)			(1,479,037	)
Prepaid expenses and other current assets			250,101				(483,601	)
Increase (decrease) in:
Accounts payable			(1,521,635	)			(1,064,746	)
Payables to related parties			496,861				719,089
Income tax payable			2,593,727				2,228,963
Accrued profit sharing to employees and bonus to directors			2,456,340				2,275,482
Accrued expenses and other current liabilities			(2,177,677	)			(5,270,419	)
Accrued pension cost			5,736				876
Deferred credits			—				(23,937	)
Net cash provided by operating activities			53,905,307				44,904,463
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Property, plant and equipment			(77,193,490	)			(45,824,671	)
Investments accounted for using equity method			(423,220	)			(6,377,184	)
Financial assets carried at cost			—				(480	)
Proceeds from disposal or redemption of:
Held-to-maturity financial assets			—				8,000,000
Financial assets carried at cost			—				3,370
Property, plant and equipment			553,698				11,224

(Continued)

Taiwan Semiconductor Manufacturing Company Limited

STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2011 and 2010
(In Thousands of New Taiwan Dollars)
(Reviewed, Not Audited)

		2011				2010
Increase in deferred charges		$	(181,158	)		$	(372,884	)
Decrease in refundable deposits			3,845,196				172,254
Increase in other assets			(23,199	)			—
Net cash used in investing activities			(73,422,173	)			(44,388,371	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term loans			3,267,731				—
Decrease in guarantee deposits			(52,415	)			(89,225	)
Proceeds from exercise of employee stock options			127,288				36,791
Net cash provided by (used in) financing activities			3,342,604				(52,434	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(16,174,262	)			463,658
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			109,511,130				117,043,543
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	93,336,868			$	117,507,201
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid		$	181,409			$	135,000
Income tax paid		$	213,963			$	8,891
INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS
Acquisition of property, plant and equipment		$	68,902,831			$	45,891,338
Decrease in payables to contractors and equipment suppliers			8,290,659				56,134
Nonmonetary exchange trade-out price			—				(122,801	)
Cash paid		$	77,193,490			$	45,824,671
Disposal of property, plant and equipment		$	1,037,746			$	134,025
Increase in other receivables from related parties			(484,048	)			—
Nonmonetary exchange trade-out price			—				(122,801	)
Cash received		$	553,698			$	11,224
NON-CASH FINANCING ACTIVITIES
Current portion of bonds payable		$	4,500,000			$	—
Current portion of other long-term payables (under accrued expenses and other current liabilities)		$	912,591			$	737,350

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

Taiwan Semiconductor Manufacturing Company Limited

NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2011 and 2010
(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 engages mainly in the manufacturing, selling, packaging, testing and computer-aided design of integrated circuits and other semiconductor devices and the manufacturing of masks. Beginning in 2010, the Company also engages in the researching, developing, designing, manufacturing and selling of 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).

As of March 31, 2011 and 2010, the Company had 30,283 and 23,636 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 due to their short term nature.

Financial Assets/Liabilities at Fair Value Through Profit or Loss

		Derivatives that do not meet the criteria for hedge accounting are initially recognized at fair value, with transaction costs expensed as incurred. The derivatives are remeasured at fair value subsequently with changes in fair value recognized in earnings. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.
		Fair value is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. When the fair value is positive, the derivative is recognized as a financial asset; when the fair value is negative, the derivative is recognized as a financial liability.
		Available-for-sale Financial Assets
		Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. Changes in fair value from subsequent remeasurement are reported as a separate component of shareholders’ equity. The corresponding accumulated gains or losses are recognized in earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is accounted for using settlement date accounting.
		The fair value of overseas publicly traded stock is determined using the closing prices at the end of the period. The fair value of debt securities 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. 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 assesses the collectability of receivables by performing the account aging analysis and examining current trends in the credit quality of its customers.

		The Company’s provision was originally set at 1% of the amount of outstanding receivables. On January 1, 2011, the Company adopted the third revision of Statement of Financial Accounting Standards (SFAS) No. 34, “Financial Instruments: Recognition and Measurement.” One of the main revisions is that the impairment of receivables originated by the Company is subject to the provisions of SFAS No. 34. Companies are required to evaluate for indication of impairment of accounts receivable based on an individual and collective basis at the end of each reporting period. When objective evidence indicates that the estimated future cash flow of accounts receivable decreases as a result of one or more events that occurred after the initial recognition of the accounts receivable, such accounts receivable are deemed to be impaired.
		Because of the Company’s short average collection period, the amount of the impairment loss recognized is the difference between the carrying amount of accounts receivable and estimated future cash flows without considering the discounting effect. Changes in the carrying amount of the allowance account are recognized as bad debt in loss which is recorded in the operating expenses — general and administrative. When accounts receivable are considered uncollectable, the amount is written off against the allowance account.
		Revenue Recognition and Allowance for Sales Returns and Others
		The Company recognizes revenue when evidence of an arrangement exists, the rewards of ownership and significant risk of the goods has been transferred to the buyer, price is fixed or determinable, and collectability is reasonably assured. Provisions for estimated sales returns and other allowances are recorded in the 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.
		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 deferred until they are realized through transactions with third parties.
		If an investee’s functional currency is a foreign currency, differences will result from the translation of the investee’s financial statements into the reporting currency of the Company. Such differences are charged or credited to cumulative translation adjustments, a separate component of shareholders’ equity.
		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 and Assets Leased to Others
		Property, plant and equipment and assets leased to others are stated at cost less accumulated depreciation. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized. Significant additions, renewals and betterments incurred during the construction period are capitalized. Maintenance and repairs are expensed as incurred.
		Depreciation is computed using the straight-line method over the following estimated service lives: buildings — 10 to 20 years; machinery and equipment — 5 years; and office equipment — 3 to 5 years.
		Upon sale or disposal of property, plant and equipment and assets leased to others, the related cost and accumulated depreciation are deducted from the corresponding accounts, with any gain or loss recorded as non-operating gains or losses in the period of sale or disposal.

		Intangible Assets
		Goodwill represents the excess of the consideration paid for acquisition over the fair value of identifiable net assets acquired. Goodwill is no longer amortized and instead is tested for impairment annually, or more frequently if events or changes in circumstances suggest that the carrying amount may not be recoverable. If an event occurs or circumstances change which indicate that the fair value of goodwill is more likely than not below its carrying amount, an impairment loss is recognized. A subsequent reversal of such impairment loss is not allowed.
		Deferred charges consist of technology license fees, software and system design costs and patent and others. The amounts are amortized over the following periods: Technology license fees — the estimated life of the technology or the term of the technology transfer contract; software and system design costs — 3 years; patent and others — the economic life or contract period. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the previously recognized impairment loss would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized.
		Expenditures related to research activities and those related to development activities that do not meet the criteria for capitalization are charged to expense when incurred.
		Pension Costs
		For employees who participate in defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts during their service periods. For employees who participate in defined benefit pension plans, pension costs are recorded based on actuarial calculations.
		Income Tax
		The Company applies an inter-period allocation for its income tax whereby deferred income tax assets and liabilities are recognized for the tax effects of temporary differences and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.
		Any tax credits arising from purchases of machinery and equipment, research and development expenditures and personnel training expenditures are recognized using the flow-through method.
		Adjustments of prior years’ tax liabilities are added to or deducted from the current 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.
		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

		On January 1, 2011, the Company prospectively adopted the newly revised Statement of Financial Accounting Standards (SFAS) No. 34, “Financial Instruments: Recognition and Measurement.” The main revisions include (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Company are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost when the debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This accounting change did not have a significant effect on the Company’s financial statements as of and for the period ended March 31, 2011.
		On January 1, 2011, the Company adopted the newly issued SFAS No. 41, “Operating Segments.” The statement requires identification and disclosure of operating segments on the basis of how the Company’s chief operating decision maker regularly reviews information in order to allocate resources and assess performance. This statement supersedes SFAS No. 20, “Segment Reporting.” The Company conformed to the disclosure requirements as of and for the period ended March 31, 2011. The information for the period ended March 31, 2010 has been recast to reflect the new segment reporting requirement.

4.

CASH AND CASH EQUIVALENTS

		March 31
		2011				2010
Cash and deposits in banks		$	91,709,652			$	116,704,752
Repurchase agreements collateralized by government bonds			1,627,216				802,449
		$	93,336,868			$	117,507,201

5.

FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

		March 31
		2011				2010
Trading financial assets
Forward exchange contracts		$	11,605			$	2,397
Cross currency swap contracts			—				79,306
		$	11,605			$	81,703
Trading financial liabilities
Forward exchange contracts		$	15,028			$	1,640
Cross currency swap contracts			—				9,770
		$	15,028			$	11,410

		The Company entered into derivative contracts during the three months ended March 31, 2011 and 2010 to manage exposures due to fluctuations of foreign exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge accounting. Therefore, the Company did not apply hedge accounting treatment for its derivative contracts.
		Outstanding forward exchange contracts consisted of the following:

				Contract Amount
		Maturity Date		(In Thousands)
March 31, 2011
Sell NT$/Buy JPY		April 2011		NT$1,173,256/JPY3,268,300
Sell NT$/Buy EUR		April 2011		NT$83,800/EUR2,000
Sell EUR/Buy NT$		April 2011		EUR59,550/NT$2,494,130
March 31, 2010
Sell EUR/Buy NT$		April 2010		EUR7,500/NT$323,205
Sell EUR/Buy US$		April 2010		EUR4,500/US$5,998

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
March 31, 2010
April 2010 to May 2010		US$930,000/NT $29,662,580		0.21%-0.45%		0.00%-0.09%

For the three months ended March 31, 2011 and 2010, changes in fair value related to derivative financial instruments recognized in earnings was a net loss of NT$256,988 thousand and a net gain of NT $304,292 thousand, respectively.

6.		AVAILABLE-FOR-SALE FINANCIAL ASSETS

		March 31
		2011				2010
Overseas publicly traded stock		$	4,069,307			$	—
Corporate bonds			1,036,044				1,043,306
			5,105,351				1,043,306
Current portion			(4,069,307	)			—
		$	1,036,044			$	1,043,306

7.		HELD-TO-MATURITY FINANCIAL ASSETS

		March 31
		2011				2010
Corporate bonds		$	6,198,107			$	12,260,803
Structured time deposits			—				1,000,000
Government bonds			—				898,801
			6,198,107				14,159,604
Current portion			(4,792,967	)			(7,944,656	)
		$	1,405,140			$	6,214,948

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

Principal

Interest

Range of

Amount

Receivable

Interest Rates

Maturity Date

March 31, 2010

Callable domestic deposits

$

1,000,000

$

809

0.36

%

July 2010

8.		ALLOWANCES FOR DOUBTFUL RECEIVABLES, SALES RETURNS AND OTHERS
		Movements of the allowance for doubtful receivables were as follows:

		Three Months Ended March 31
		2011				2010
Balance, beginning of period		$	488,000			$	431,000
Provision			—				22,000
Balance, end of period		$	488,000			$	453,000

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

		Three Months Ended March 31
		2011				2010
Balance, beginning of period		$	7,341,444			$	8,583,632
Provision			1,391,829				2,747,878
Write-off			(1,961,618	)			(4,328,306	)
Balance, end of period		$	6,771,655			$	7,003,204
9. INVENTORIES
		March 31
		2011				2010
Finished goods		$	6,988,136			$	1,975,182
Work in process			18,111,238				15,914,041
Raw materials			2,566,796				1,484,633
Supplies and spare parts			1,227,358				935,397
		$	28,893,528			$	20,309,253

Write-down of inventories to net realizable value in the amount of NT$650,892 thousand and NT$228,550 thousand, respectively, were included in the cost of sales for the three months ended March 31, 2011 and 2010. Inventories losses related to earthquake damage in the amount of NT$194,137 thousand were classified under non-operating expenses and losses for the three months ended March 31, 2010.

10.		INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

		March 31
		2011								2010
						% of								% of
		Carrying				Owner-				Carrying				Owner-
		Amount				ship				Amount				ship
TSMC Global Ltd. (TSMC Global)		$	42,523,518				100			$	45,245,474				100
TSMC Partners, Ltd. (TSMC Partners)			32,779,954				100				32,637,828				100
Vanguard International Semiconductor Corporation (VIS)			9,456,221				38				9,359,350				37
Systems on Silicon Manufacturing Company Pte Ltd. (SSMC)			7,256,841				39				6,308,810				39
Motech Industries Inc. (Motech)			6,770,069				20				6,210,916				20
TSMC China Company Limited (TSMC China)			4,721,701				100				2,787,558				100
TSMC North America			2,843,416				100				2,726,868				100
VentureTech Alliance Fund III, L.P. (VTAF III)			2,672,382				99				1,351,399				98
Xintec Inc. (Xintec)			1,678,379				41				1,532,384				41
Global UniChip Corporation (GUC)			1,164,288				35				1,039,348				35
VentureTech Alliance Fund II, L.P. (VTAF II)			1,041,270				98				1,140,879				98
TSMC Solar Europe B.V. (TSMC Solar Europe)			406,305				100				—				—
Emerging Alliance Fund, L.P. (Emerging Alliance)			290,203				99				303,768				99

(Continued)

		March 31
		2011								2010
						% of								% of
		Carrying				Owner-				Carrying				Owner-
		Amount				ship				Amount				ship
TSMC Europe B.V. (TSMC Europe)		$	192,329				100			$	158,190				100
TSMC Japan Limited (TSMC Japan)			144,224				100				133,420				100
TSMC Korea Limited (TSMC Korea)			21,093				100				19,460				100
TSMC Solar North America, Inc. (TSMC Solar NA)			7,945				100				—				—
TSMC Lighting North America, Inc. (TSMC Lighting NA)			2,942				100				—				—
		$	113,973,080							$	110,955,652

(Concluded)

		For the renewable energy and efficiency related businesses development, the Company established wholly-owned subsidiaries, TSMC Solar NA, TSMC Solar Europe and TSMC Lighting NA, in the third quarter of 2010. In addition, the Company is also considering the formation of another two wholly-owned subsidiaries for solar and solid state lighting businesses as part of the strategic planning.
		For the year ended December 31, 2010, the Company increased its investment in VTAF III for the amount of NT$1,862,278 thousand, and the Company’s percentage of ownership in VTAF III increased from 98% to 99%.
		In February 2010, the Company subscribed to 75,316 thousand shares of Motech through a private placement for NT$6,228,661 thousand; after the subscription, the Company’s percentage of ownership in Motech was 20%. Transfer of the aforementioned common shares within three years is prohibited according to the related regulations.
		For the three months ended March 31, 2011 and 2010, equity in earnings of equity method investees was a net gain of NT$1,577,135 thousand and NT$559,908 thousand, respectively. Related equity in earnings/losses of equity method investees were determined based on the reviewed financial statements, except those of TSMC Solar Europe, Emerging Alliance, TSMC Europe, TSMC Japan, TSMC Korea, TSMC Solar NA and TSMC Lighting NA for the three months ended March 31, 2011 and those of VTAF II, Emerging Alliance, TSMC Europe, TSMC Japan and TSMC Korea for the three months ended March 31, 2010. The Company believes that, had the aforementioned equity method investees’ financial statements been reviewed, any adjustments arising would have no material effect on the Company’s financial statements.
		As of March 31, 2011 and 2010, the quoted market price of publicly traded stocks in unrestricted investments accounted for using the equity method (VIS and GUC) were NT$13,160,444 thousand and NT$16,963,095 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:

		Three Months Ended March 31
		2011				2010
Balance, beginning of period		$	2,504,496			$	1,429,118
Additions			—				2,055,660
Amortization			(238,356	)			(218,611	)
Balance, end of period		$	2,266,140			$	3,266,167

Movements of the difference allocated to goodwill were as follows:

		Three Months Ended March 31
		2011				2010
Balance, beginning of period		$	1,415,565			$	1,061,885
Additions			—				353,680
Balance, end of period		$	1,415,565			$	1,415,565
11. FINANCIAL ASSETS CARRIED AT COST
		March 31
		2011				2010
Non-publicly traded stocks		$	338,584			$	338,584
Mutual funds			159,251				159,251
		$	497,835			$	497,835

12.		PROPERTY, PLANT AND EQUIPMENT

		Three Months Ended March 31, 2011
		Balance,
		Beginning of				Additions												Balance,
		Period				(Deductions)				Disposals				Reclassification				End of Period
Cost
Buildings		$	128,646,942			$	15,465,320			$	(9,707	)		$	—			$	144,102,555
Machinery and equipment			852,733,592				66,496,059				(198,589	)			—				919,031,062
Office equipment			11,730,537				805,809				(138,838	)			—				12,397,508
			993,111,071			$	82,767,188			$	(347,134	)		$	—				1,075,531,125
Accumulated depreciation
Buildings			81,347,877			$	2,112,051			$	(9,707	)		$	—				83,450,221
Machinery and equipment			616,495,207				20,975,058				(196,951	)			—				637,273,314
Office equipment			8,762,361				263,217				(138,838	)			—				8,886,740
			706,605,445			$	23,350,326			$	(345,496	)		$	—				729,610,275
Advance payments and construction in progress			80,348,673			$	(13,864,357	)		$	(1,083,807	)		$	—				65,400,509
		$	366,854,299															$	411,321,359
		Three Months Ended March 31, 2010
		Balance,
		Beginning of																Balance,
		Period				Additions				Disposals				Reclassification				End of Period
Cost
Buildings		$	124,522,047			$	1,350,855			$	—			$	—			$	125,872,902
Machinery and equipment			713,426,126				43,804,758				(191,945	)			443				757,039,382
Office equipment			10,781,099				515,324				(20,129	)			(443	)			11,275,851
			848,729,272			$	45,670,937			$	(212,074	)		$	—				894,188,135
Accumulated depreciation
Buildings			73,525,160			$	2,077,831			$	—			$	—				75,602,991
Machinery and equipment			545,693,910				16,918,504				(191,945	)			443				562,420,912
Office equipment			8,545,253				214,931				(20,129	)			(443	)			8,739,612
			627,764,323			$	19,211,266			$	(212,074	)		$	—				646,763,515
Advance payments and construction in progress			33,786,577			$	220,401			$	—			$	—				34,006,978
		$	254,751,526															$	281,431,598