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o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITEIS EXCHANGE ACT OF 1934 |
Taiwan Semiconductor Manufacturing Company Limited (Translation of Registrant’s Name Into English) | Republic of China (Jurisdiction of Incorporation or Organization) |
Hsinchu Science Park
Hsinchu, Taiwan
Republic of China
(Address of Principal Executive Offices)
Title of Each Class | Name of Each Exchange on Which Registered | |
Common Shares, par value NT$10.00 each | The New York Stock Exchange, Inc.* |
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
(Title of Class)
* | Not for trading, but only in connection with the listing on the New York Stock Exchange, Inc. of American Depositary Shares representing such Common Shares |
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EX-1.1 ARTICLES OF INCORPORATION | ||||||||
EX-8.1 MANUFACTURING SUBSIDIARIES OF REGISTRANT | ||||||||
EX-12.1 CEO CERTIFICATION | ||||||||
EX-12.2 CFO CERTIFICATION | ||||||||
EX-13.1 CEO CERTIFICATION PURSUANT TO 18 USC & 1350 | ||||||||
EX-13.2 CFO CERTIFICATION PURSUANT TO 18 USC & 1350 | ||||||||
EX-99.1 Consent of Deloitte & Touche |
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• | the volatility of the semiconductor and microelectronics industry; | ||
• | overcapacity in the semiconductor industry; | ||
• | the increased competition from other companies and our ability to retain and increase our market share; | ||
• | our ability to develop new technologies successfully and remain a technological leader; | ||
• | our ability to maintain control over expansion and facility modifications; | ||
• | our ability to generate growth or profitable growth; | ||
• | our ability to hire and maintain qualified personnel; | ||
• | our ability to acquire required equipment and supplies necessary to meet customer demand; | ||
• | our reliance on certain major customers; | ||
• | the political stability of our local region; and | ||
• | general local and global economic conditions. |
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Year ended and as of December 31, | ||||||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | 2006 | |||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | US$ | |||||||||||||||||||
(in millions, except for percentages, | ||||||||||||||||||||||||
earnings per share and per ADS, and operating data) | ||||||||||||||||||||||||
Income Statement Data: | ||||||||||||||||||||||||
R.O.C. GAAP | ||||||||||||||||||||||||
Net sales | 162,301 | 202,997 | 257,213 | 266,565 | 317,407 | 9,739 | ||||||||||||||||||
Cost of sales | (109,988 | ) | (128,113 | ) | (141,394 | ) | (148,362 | ) | (161,597 | ) | (4,958 | ) | ||||||||||||
Gross profit | 52,313 | 74,884 | 115,819 | 118,203 | 155,810 | 4,781 | ||||||||||||||||||
Operating expenses | (20,724 | ) | (23,583 | ) | (27,337 | ) | (27,234 | ) | (28,545 | ) | (876 | ) | ||||||||||||
Income from operations | 31,589 | 51,301 | 88,482 | 90,969 | 127,265 | 3,905 | ||||||||||||||||||
Non-operating income and gains(1) | 2,350 | 5,669 | 8,581 | 9,399 | 9,705 | 298 | ||||||||||||||||||
Non-operating expenses and losses(1) | (6,717 | ) | (5,791 | ) | (5,097 | ) | (6,105 | ) | (3,608 | ) | (111 | ) | ||||||||||||
Income before income tax and minority interest | 27,222 | 51,179 | 91,966 | 94,263 | 133,362 | 4,092 | ||||||||||||||||||
Income tax benefit (expense) | (5,637 | ) | (3,923 | ) | 363 | (630 | ) | (7,774 | ) | (238 | ) | |||||||||||||
Income before cumulative effect of changes in accounting principles | 21,585 | 47,256 | 92,329 | 93,633 | 125,588 | 3,854 | ||||||||||||||||||
Cumulative effect of changes in accounting principles | — | — | — | — | 1,607 | 49 | ||||||||||||||||||
Income before minority interest | 21,585 | 47,256 | 92,329 | 93,633 | 127,195 | 3,903 | ||||||||||||||||||
Minority interest in loss (income) of subsidiaries | 25 | 3 | (13 | ) | (58 | ) | (185 | ) | (6 | ) | ||||||||||||||
Net income attributable to shareholders of the parent | 21,610 | 47,259 | 92,316 | 93,575 | 127,010 | 3,897 | ||||||||||||||||||
Basic earnings per share(2) | 0.82 | 1.82 | 3.58 | 3.63 | 4.93 | 0.15 | ||||||||||||||||||
Diluted earnings per share(2) | 0.82 | 1.82 | 3.58 | 3.63 | 4.92 | 0.15 | ||||||||||||||||||
Basic earnings per ADS equivalent(2) | 4.09 | 9.09 | 17.89 | 18.16 | 24.63 | 0.76 |
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Year ended and as of December 31, | ||||||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | 2006 | |||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | US$ | |||||||||||||||||||
(in millions, except for percentages, | ||||||||||||||||||||||||
earnings per share and per ADS, and operating data) | ||||||||||||||||||||||||
Diluted earnings per ADS equivalent(2) | 4.09 | 9.09 | 17.88 | 18.15 | 24.60 | 0.75 | ||||||||||||||||||
Basic weighted average shares outstanding(2) | 25,880 | 25,883 | 25,804 | 25,763 | 25,789 | 25,789 | ||||||||||||||||||
Diluted weighted average shares outstanding(2) | 25,880 | 25,893 | 25,810 | 25,776 | 25,813 | 25,813 | ||||||||||||||||||
U.S. GAAP | ||||||||||||||||||||||||
Net sales | 162,990 | 203,600 | 260,035 | 267,028 | 317,979 | 9,757 | ||||||||||||||||||
Cost of sales | (115,374 | ) | (133,493 | ) | (154,785 | ) | (161,808 | ) | (179,175 | ) | (5,498 | ) | ||||||||||||
Operating expenses(3) | (21,154 | ) | (27,369 | ) | (32,191 | ) | (32,764 | ) | (37,050 | ) | (1,137 | ) | ||||||||||||
Income from operations | 26,462 | 42,738 | 73,059 | 72,456 | 101,754 | 3,122 | ||||||||||||||||||
Income before income tax and minority interest | 20,210 | 42,441 | 76,838 | 75,983 | 106,647 | 3,272 | ||||||||||||||||||
Income tax expense | (5,638 | ) | (3,881 | ) | (508 | ) | (483 | ) | (10,954 | ) | (336 | ) | ||||||||||||
Cumulative effect of changes in accounting principles | — | — | — | — | 38 | 1 | ||||||||||||||||||
Net income | 14,534 | 38,661 | 76,253 | 75,418 | 95,711 | 2,937 | ||||||||||||||||||
Cumulative preferred dividends | (455 | ) | (184 | ) | — | — | — | — | ||||||||||||||||
Income attributable to common shareholders | 14,079 | 38,477 | 76,253 | 75,418 | 95,711 | 2,937 | ||||||||||||||||||
Basic earnings per share(4) | 0.57 | 1.55 | 3.04 | 2.98 | 3.73 | 0.11 | ||||||||||||||||||
Diluted earnings per share(4) | 0.57 | 1.55 | 3.04 | 2.98 | 3.73 | 0.11 | ||||||||||||||||||
Basic earnings per ADS equivalent(4) | 2.85 | 7.74 | 15.22 | 14.90 | 18.67 | 0.57 | ||||||||||||||||||
Diluted earnings per ADS equivalent(4) | 2.85 | 7.74 | 15.22 | 14.89 | 18.66 | 0.57 | ||||||||||||||||||
Basic weighted average shares outstanding(4) | 24,691 | 24,847 | 25,044 | 25,308 | 25,629 | 25,629 | ||||||||||||||||||
Diluted weighted average shares outstanding(4) | 24,691 | 24,857 | 25,050 | 25,320 | 25,650 | 25,650 | ||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||
R.O.C. GAAP | ||||||||||||||||||||||||
Working capital(1) (5) | 62,705 | 136,121 | 120,574 | 177,179 | 213,457 | 6,550 | ||||||||||||||||||
Long-term investments(1) | 10,635 | 10,748 | 38,058 | �� | 42,383 | 53,895 | 1,654 | |||||||||||||||||
Properties | 246,498 | 211,854 | 258,911 | 244,823 | 254,094 | 7,797 | ||||||||||||||||||
Goodwill | 10,159 | 8,721 | 7,116 | 6,011 | 5,985 | 184 | ||||||||||||||||||
Total assets | 390,542 | 407,401 | 499,454 | 519,510 | 587,485 | 18,027 | ||||||||||||||||||
Long term bank borrowing | 11,051 | 8,800 | 1,915 | 663 | 654 | 20 | ||||||||||||||||||
Long-term bonds payable | 35,000 | 30,000 | 19,500 | 19,500 | 12,500 | 384 | ||||||||||||||||||
Guaranty deposit-in and other liabilities(5)(6) | 8,710 | 8,876 | 15,079 | 17,986 | 18,333 | 563 | ||||||||||||||||||
Total liabilities | 94,594 | 78,098 | 100,413 | 73,271 | 78,347 | 2,404 | ||||||||||||||||||
Capital stock | 199,229 | 202,666 | 232,520 | 247,300 | 258,297 | 7,926 | ||||||||||||||||||
Cash dividend on common shares | — | — | 12,160 | 46,504 | 61,825 | 1,897 | ||||||||||||||||||
Shareholders’ equity attributable to shareholders of the parent | 295,853 | 329,214 | 398,965 | 445,631 | 507,981 | 15,587 | ||||||||||||||||||
Minority interest in subsidiaries | 95 | 89 | 76 | 608 | 1,157 | 36 | ||||||||||||||||||
U.S. GAAP | ||||||||||||||||||||||||
Goodwill | 47,476 | 47,287 | 46,757 | 46,993 | 46,940 | 1,440 | ||||||||||||||||||
Total assets | 420,528 | 439,853 | 536,286 | 558,919 | 626,108 | 19,212 | ||||||||||||||||||
Total liabilities | 96,747 | 81,977 | 108,416 | 80,962 | 92,549 | 2,840 | ||||||||||||||||||
Capital Stock | 186,229 | 202,666 | 232,520 | 247,300 | 258,297 | 7,926 | ||||||||||||||||||
Mandatory redeemable preferred stock | 13,000 | — | — | — | — | — | ||||||||||||||||||
Shareholders’ equity attributable to common shareholders of the parent | 310,623 | 357,173 | 427,125 | 477,297 | 532,403 | 16,336 | ||||||||||||||||||
Minority interest in subsidiaries | 158 | 703 | 745 | 660 | 1,156 | 36 |
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Year ended and as of December 31, | ||||||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | 2006 | |||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | US$ | |||||||||||||||||||
(in millions, except for percentages, | ||||||||||||||||||||||||
earnings per share and per ADS, and operating data) | ||||||||||||||||||||||||
Other Financial Data: | ||||||||||||||||||||||||
R.O.C. GAAP | ||||||||||||||||||||||||
Gross margin | 32 | % | 37 | % | 45 | % | 44 | % | 49 | % | 49 | % | ||||||||||||
Operating margin | 19 | % | 25 | % | 34 | % | 34 | % | 40 | % | 40 | % | ||||||||||||
Net margin | 13 | % | 23 | % | 36 | % | 35 | % | 40 | % | 40 | % | ||||||||||||
Capital expenditures | 55,236 | 37,871 | 81,095 | 79,879 | 78,737 | 2,416 | ||||||||||||||||||
Depreciation and amortization | 65,001 | 69,161 | 69,819 | 75,649 | 73,715 | 2,262 | ||||||||||||||||||
Cash provided by operating activities(1) | 98,507 | 116,037 | 153,523 | 157,225 | 204,997 | 6,290 | ||||||||||||||||||
Cash used in investing activities(1)(7) | (62,190 | ) | (53,702 | ) | (148,359 | ) | (77,652 | ) | (119,724 | ) | (3,674 | ) | ||||||||||||
Cash used in financing activities(7) | (6,346 | ) | (27,073 | ) | (32,181 | ) | (57,969 | ) | (63,783 | ) | (1,957 | ) | ||||||||||||
Net cash inflow (outflow) | 30,234 | 35,199 | (28,687 | ) | 22,181 | 21,353 | 655 | |||||||||||||||||
Operating Data: | ||||||||||||||||||||||||
Wafer (200mm equivalent) shipment(8) | 2,675 | 3,700 | 5,008 | 5,622 | 7,215 | 7,215 | ||||||||||||||||||
Billing Utilization Rate(9) | 69 | % | 92 | % | 105 | % | 94 | % | 102 | % | 102 | % |
(1) | As a result of the adoption of the newly released R.O.C. Statements of Financial Accounting Standards No. 34, “Financial Instruments: Recognition and Measurement” (R.O.C. SFAS No. 34), and R.O.C. Statements of Financial Accounting Standards No. 36, “Financial Instruments: Disclosure and Presentation” (R.O.C. SFAS No. 36), the balances in 2004 and 2005 were reclassified to be consistent with the classification used in our consolidated financial statements for 2006 included herein. Amounts in 2004 reflect the reclassification of NT$2,565 million gains from non-operating expenses and losses to non-operating income and gains, NT$44 million from long-term investments to current investments in marketable financial instruments, and NT$372 million from cash used in investing activities to cash provided by operating activities. Amounts in 2005 reflect the reclassification of NT$2,331 million gains from non-operating expenses and losses to non-operating income and gains, NT$46 million from long-term investments to current investments in marketable financial instruments, and NT$212 million from cash used in investing activities to cash provided by operating activities. Balances in 2002 and 2003 were not reclassified accordingly. See note 4 to our consolidated financial statements for additional details about these new accounting standards. | |
(2) | Retroactively adjusted for all subsequent stock dividends and employee stock bonuses. | |
(3) | Amounts in 2006 include share-based compensation expenses as a result of the adoption of U.S. Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment”, effective January 1, 2006. See note 30.i. to our consolidated financial statements for additional details about this new accounting standard. Amounts in 2002, 2003, and 2005 reflect the reclassification of NT$390 million, NT$1,625 million, and NT$159 million, respectively, from net non-operating expenses to operating expenses. Amounts in 2004 reflect the reclassification of NT$232 million from net non-operating income to operating expenses. | |
(4) | Retroactively adjusted for all subsequent stock dividends. | |
(5) | Amounts in 2003 reflect the reclassification of NT$727 million from current liabilities to long-term liabilities. | |
(6) | Consists of other long term payables and total other liabilities. | |
(7) | Amounts in 2003 reflect the reclassification of NT$300 million from cash used in investing activities to cash used in financing activities. | |
(8) | In thousands. | |
(9) | “Billing Utilization Rate” is equal to annual wafer shipment divided by annual capacity. |
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NT dollars per U.S. dollar | ||||||||||||||||
Average(1) | High | Low | Period-End | |||||||||||||
2002 | 34.53 | 35.16 | 32.85 | 34.70 | ||||||||||||
2003 | 34.41 | 34.98 | 33.72 | 33.99 | ||||||||||||
2004 | 33.37 | 34.16 | 31.74 | 31.74 | ||||||||||||
2005 | 32.16 | 33.77 | 30.65 | 32.80 | ||||||||||||
2006 | 32.51 | 33.31 | 31.28 | 32.59 | ||||||||||||
October 2006 | 33.19 | 33.31 | 32.05 | 33.26 | ||||||||||||
November 2006 | 32.81 | 33.16 | 32.35 | 32.35 | ||||||||||||
December 2006 | 32.51 | 32.74 | 32.27 | 32.59 | ||||||||||||
January 2007 | 32.77 | 32.99 | 32.38 | 32.95 | ||||||||||||
February 2007 | 32.97 | 33.08 | 32.86 | 32.98 | ||||||||||||
March 2007 | 33.01 | 33.13 | 32.84 | 33.01 | ||||||||||||
April 2007 (through April 16, 2007) | 33.10 | 33.15 | 33.05 | 33.15 |
(1) | Annual averages calculated from month-end rates. |
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• | our future financial condition, results of operations and cash flow; | ||
• | general market conditions for financing activities by semiconductor companies; and | ||
• | economic, political and other conditions in Taiwan and elsewhere. |
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Current most | ||||||||||||||||||||||||||||
advanced technology | ||||||||||||||||||||||||||||
Year of | for volume | Monthly capacity(3)(4) | ||||||||||||||||||||||||||
Fab(1) | commencement | production(2) | 2002 | 2003 | 2004 | 2005 | 2006 | |||||||||||||||||||||
1(5) | 1987 | — | — | — | — | — | — | |||||||||||||||||||||
2 | 1990 | 0.45 | 43,540 | 42,977 | 47,584 | 47,584 | 50,506 | |||||||||||||||||||||
3(6) | 1995 | 0.18 | 71,000 | 71,600 | 83,300 | 83,300 | 89,900 | |||||||||||||||||||||
5 | 1997 | 0.15 | 34,920 | 37,800 | 42,500 | 42,500 | 51,500 | |||||||||||||||||||||
6 | 2000 | 0.13 | 48,700 | 63,500 | 73,000 | 73,000 | 83,400 | |||||||||||||||||||||
7(8) | 1995 | 0.35 | 22,500 | 11,800 | 13,400 | 13,400 | — | |||||||||||||||||||||
8 | 1998 | 0.15 | 52,600 | 63,500 | 76,500 | 76,500 | 83,500 | |||||||||||||||||||||
10 | 2004 | 0.25 | — | — | 500 | 15,600 | 32,000 | |||||||||||||||||||||
12 | 2001 | 0.065 | 11,475 | 31,797 | 60,300 | 106,875 | 131,175 | |||||||||||||||||||||
14 | 2004 | 0.065 | — | — | 6,750 | 46,125 | 79,650 | |||||||||||||||||||||
WaferTech | 1998 | 0.15 | 30,000 | 30,000 | 32,500 | 33,500 | 35,500 | |||||||||||||||||||||
SSMC(7) | 2000 | 0.18 | 8,000 | 9,600 | 13,400 | 16,700 | 17,700 | |||||||||||||||||||||
Total | 322,735 | 362,574 | 449,734 | 555,084 | 654,831 |
(1) | Fab 2 produces 150mm wafers. Fabs 3, 5, 6, 8, 10, WaferTech and SSMC produce 200mm wafers. Fab 12 and Fab 14 produce 300mm wafers. Fabs 2, 3, 5, 7, 8 and 12 are located in Hsinchu Science Park. (Please refer to Note (8) below for Fab 7.) Fab 6 and Fab 14 are located in the Southern Taiwan Science Park. WaferTech is located in the United States, SSMC is located in Singapore and Fab 10 is located in Shanghai. | |
(2) | In microns, as of year-end. | |
(3) | Estimated capacity in 200mm equivalent wafers as of year-end for the total technology range available for production. Actual capacity during each year will be lower as new production capacity is phased in during the course of the year. | |
(4) | Under an agreement with Vanguard, TSMC is required to use its best commercial efforts to maintain utilization of a fixed amount of reserved capacity within a range of 5,000 wafers per month. Please see “Item 7. Major Shareholders and Related Party Transaction – Related Party Transactions – Vanguard International Semiconductor Corporation” for a discussion of certain of the Vanguard contract terms. The amounts to be used at Vanguard are not included in our monthly capacity figures. | |
(5) | We decommissioned Fab 1, a 150mm fab located at ITRI, on March 31, 2002, because of our decision not to renew our land lease agreement with ITRI since it was an outdated fab. | |
(6) | Fab 4, which commenced operation in 1999 with initial technology of 0.5 micron, was consolidated into Fab 3 during the fourth quarter of 2001. | |
(7) | Represents that portion of the total capacity that we had the option to utilize as of December 31, 2002, December 31, 2003, December 31, 2004, December 31, 2005 and December 31, 2006. This fab commenced production in September 2000. | |
(8) | Fab 7 was decommissioned in June 2006 as we decided to replace this fab with 300 mm capacity at that site. Currently, facilities for 300 mm production are being moved-in. |
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• | ramping up production at Fab 12 (Phases II and III), Fab 14 (Phase II) and Fab 10; | ||
• | capacity expansion for mask operations; | ||
• | development of process technologies which include 32- and 45-nanometer nodes; and | ||
• | other research and development projects. |
Year ended December 31, | ||||||||||||||||||||||||
2004 | 2005 | 2006 | ||||||||||||||||||||||
Customer Type | Net Sales | Percentage | Net Sales | Percentage | Net Sales | Percentage | ||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||
Fabless semiconductor companies/systems companies | NT$176,705 | 68.7 | % | NT$187,662 | 70.4 | % | NT$229,168 | 72.2 | % | |||||||||||||||
Integrated device manufacturers | 80,508 | 31.3 | % | 78,903 | 29.6 | % | 88,239 | 27.8 | % | |||||||||||||||
Total | NT$257,213 | 100.0 | % | NT$266,565 | 100.0 | % | NT$317,407 | 100.0 | % |
Year ended December 31, | ||||||||||||||||||||||||
2004 | 2005 | 2006 | ||||||||||||||||||||||
Region | Net Sales | Percentage | Net Sales | Percentage | Net Sales | Percentage | ||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||
North America | NT$191,624 | 74.5 | % | NT$205,255 | 77.0 | % | NT$247,895 | 78.1 | % | |||||||||||||||
Asia | 47,584 | 18.5 | % | 40,785 | 15.3 | % | 43,167 | 13.6 | % | |||||||||||||||
Europe | 18,005 | 7.0 | % | 20,525 | 7.7 | % | 26,345 | 8.3 | % | |||||||||||||||
Total | NT$257,213 | 100.0 | % | NT$266,565 | 100.0 | % | NT$317,407 | 100.0 | % |
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Year ended December 31, | ||||||||||||||||||||||||
2004 | 2005 | 2006 | ||||||||||||||||||||||
Semiconductor Type | Net Sales | Percentage | Net Sales | Percentage | Net Sales | Percentage | ||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||
CMOS | ||||||||||||||||||||||||
Logic | NT$174,905 | 68.0 | % | NT$199,657 | 74.9 | % | NT$240,278 | 75.7 | % | |||||||||||||||
Memory | 22,120 | 8.6 | % | 2,133 | 0.8 | % | 3,174 | 1.0 | % | |||||||||||||||
Mixed-Signal(1) | 50,414 | 19.6 | % | 63,442 | 23.8 | % | 71,734 | 22.6 | % | |||||||||||||||
BiCMOS(2) | 1,029 | 0.4 | % | 1,066 | 0.4 | % | 1,904 | 0.6 | % | |||||||||||||||
Others | 8,745 | 3.4 | % | 267 | 0.1 | % | 317 | 0.1 | % | |||||||||||||||
Total | NT$257,213 | 100.0 | % | NT$266,565 | 100.0 | % | NT$317,407 | 100.0 | % |
(1) | Mixed-signal semiconductors made with the CMOS process. | |
(2) | Mixed-signal and other semiconductors made with the BiCMOS process. |
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• | firmly established customer-oriented culture, which emphasizes close interaction with our customers on a multifaceted basis, from senior management, sales and marketing, customer service staff to product and line engineers in the fabs and research and development staff; | ||
• | ability to deliver ordered wafers of consistent quality, on time and in the desired quantities; | ||
• | responsiveness to customer’s requirements in terms of engineering change orders and special wafer handling; | ||
• | flexibility in manufacturing processes, order size requirements and design changes, attributable in part to our technical capability and ability to plan and manage effectively many production runs; | ||
• | ability to reduce customer costs through the sharing, to the extent permissible, of ever increasing silicon verification costs through our multi-project wafer service, which combines multiple designs on a single mask set; | ||
• | eFoundry service which features real-time on-line information exchange throughout product design, engineering and logistic phases, including WIP (work in progress) performance reports for both in-house and subcontracted activities, for the processes of handling, assembly and final testing, before the products are shipped to our customers; and | ||
• | Virtual fab™, which is a customer service program designed to make our manufacturing services as transparent and easy to deal with for our customers as their own in-house fabs, with well coordinated resource management. The Virtual fab™ provides customers with the benefits of in-house fabs, including confidentiality of proprietary information, quality of service and products, on-time delivery and flexibility in scheduling and capacity. |
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• | the worldwide demand for semiconductor products; | ||
• | the worldwide semiconductor production capacity as well as our production capacity; | ||
• | capacity utilization; | ||
• | technology migration; | ||
• | pricing; and |
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• | fluctuation in foreign currency exchange rate. |
Year ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
Percentage of total wafer | Percentage of total wafer | Percentage of total wafer | ||||||||||
Resolution | revenue(1) | revenue(1) | revenue(1) | |||||||||
£0.09 micron | 0 | % | 9 | % | 23 | % | ||||||
0.13 micron | 28 | % | 36 | % | 26 | % | ||||||
0.15 micron | 13 | % | 9 | % | 10 | % | ||||||
0.18 micron | 27 | % | 24 | % | 22 | % | ||||||
0.25 micron | 15 | % | 10 | % | 8 | % | ||||||
0.35 micron | 10 | % | 6 | % | 6 | % | ||||||
³0.5 micron | 7 | % | 6 | % | 5 | % | ||||||
Total | 100 | % | 100 | % | 100 | % |
(1) | Percentages represent wafer revenue by technology as a percentage of total revenue from wafer sales, which exclude revenue not associated with wafer sales, such as revenue from testing and masks. Total wafer revenue excludes sales returns and allowances. |
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• | significant under performance relative to historical or projected future operating results; | ||
• | significant changes in the manner of our use of the acquired assets or our overall business strategy; and | ||
• | significant unfavorable industry or economic trends. |
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• | significant decline in our stock price for a sustained period; and | ||
• | significant decline in our market capitalization relative to net book value. |
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For the year ended December 31, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of sales | (55.0 | )% | (55.7 | )% | (50.9 | )% | ||||||
Gross profit | 45.0 | % | 44.3 | % | 49.1 | % | ||||||
Operating expenses | ||||||||||||
General and administrative | (4.4 | )% | (3.4 | )% | (2.7 | )% | ||||||
Sales and marketing | (1.3 | )% | (1.6 | )% | (1.2 | )% | ||||||
Research and development | (4.9 | )% | (5.3 | )% | (5.1 | )% | ||||||
Total operating expenses | (10.6 | )% | (10.3 | )% | (9.0 | )% | ||||||
Income from operations | 34.4 | % | 34.0 | % | 40.1 | % | ||||||
Non-operating income and gains | 3.4 | % | 3.5 | % | 3.0 | % | ||||||
Non-operating expenses and losses | (2.0 | )% | (2.2 | )% | (1.1 | )% | ||||||
Income before income tax and minority interest | 35.8 | % | 35.3 | % | 42.0 | % | ||||||
Income tax benefit (expense) | 0.1 | % | (0.2 | )% | (2.4 | )% | ||||||
Income before cumulative effect of changes in accounting principles | 35.9 | % | 35.1 | % | 39.6 | % | ||||||
Cumulative effect of changes in accounting principles | ¾ | ¾ | 0.5 | % | ||||||||
Income before minority interest | 35.9 | % | 35.1 | % | 40.1 | % | ||||||
Minority interest in loss (income) of subsidiaries | 0.0 | % | 0.0 | % | (0.1 | )% | ||||||
Net income | 35.9 | % | 35.1 | % | 40.0 | % |
For the Year Ended December 31, | ||||||||||||||||||||||||
% | ||||||||||||||||||||||||
Change | % Change | |||||||||||||||||||||||
2004 | 2005 | from 2004 | 2006 | from 2005 | ||||||||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||
Net sales | 257,213 | 266,565 | 3.6 | % | 317,407 | 9,739 | 19.1 | % | ||||||||||||||||
Cost of sales | (141,394 | ) | (148,362 | ) | 4.9 | % | (161,597 | ) | (4,958 | ) | 8.9 | % | ||||||||||||
Gross profit | 115,819 | 118,203 | 2.1 | % | 155,810 | 4,781 | 31.8 | % | ||||||||||||||||
Gross margin percentage | 45.0 | % | 44.3 | % | — | 49.1 | % | 49.1 | % | — |
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For the Year Ended December 31 | |||||||||||||||||||||||||||
% Change | % Change | ||||||||||||||||||||||||||
2004 | 2005 | from 2004 | 2006 | from 2005 | |||||||||||||||||||||||
NT$ | NT$ | NT$ | US$ | ||||||||||||||||||||||||
(in millions) | (in millions) | ||||||||||||||||||||||||||
Research and development | 12,516 | 14,017 | 12.0 | % | 16,076 | 493 | 14.7 | % | |||||||||||||||||||
General and administrative | 11,454 | 9,085 | (20.7 | )% | 8,717 | 268 | (4.1 | )% | |||||||||||||||||||
Sales and marketing | 3,367 | 4,132 | 22.7 | % | 3,752 | 115 | (9.2 | )% | |||||||||||||||||||
Total operating expenses | 27,337 | 27,234 | (0.4 | )% | 28,545 | 876 | 4.8 | % | |||||||||||||||||||
Percentage of net sales | 10.6 | % | 10.3 | % | — | 9.0 | % | 9.0 | % | — | |||||||||||||||||
Income from operations | 88,482 | 90,969 | 2.81 | % | 127,265 | 3,905 | 39.9 | % | |||||||||||||||||||
Operating Margin | 34.4 | % | 34.0 | % | — | 40.1 | % | 40.1 | % | — |
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For the Year Ended December 31 | ||||||||||||||||||||||||
2004(1) | 2005(1) | % Change from 2004 | 2006 | % Change from 2005 | ||||||||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||
Non-operating income and gains | 8,581 | 9,399 | 9.5 | % | 9,705 | 298 | 3.3 | % | ||||||||||||||||
Non-operating expenses and losses | (5,097 | ) | (6,105 | ) | 19.8 | % | (3,608 | ) | (111 | ) | (40.9 | )% | ||||||||||||
Net non-operating income (expenses) | 3,484 | 3,294 | (5.4 | )% | 6,097 | 187 | 85.1 | % | ||||||||||||||||
(1) | As a result of the adoption of the newly released R.O.C. SFAS No. 34 and R.O.C. SFAS No. 36, the amounts for the fiscal years ended December 31, 2004 and 2005 were reclassified for comparison purposes. Such reclassifications resulted in a change of non-operating income and gains from NT$6,016 million and NT$7,068 million to NT$8,581 million and NT$9,399 million for the years ended December 31, 2004 and 2005, respectively, and in a change of non-operating expenses and losses from NT$2,532 million and NT$3,773 million to NT$5,097 million and NT$6,105 million for the years ended December 31, 2004 and 2005, respectively. See note 4 to our consolidated financial statements for additional details about these new accounting standards. |
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For the Year Ended December 31 | ||||||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||||
2004 | 2005 | from 2004 | 2006 | from 2005 | ||||||||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||
Income tax benefit (expense) | 363 | (630 | ) | — | (1) | (7,774 | ) | (238 | ) | 1,132.8 | % | |||||||||||||
Cumulative effect of changes in accounting principles | — | — | — | (1) | 1,607 | 49 | — | (1) | ||||||||||||||||
Net income | 92,316 | 93,575 | 1.4 | % | 127,010 | 3,897 | 35.7 | % | ||||||||||||||||
Net margin | 35.9 | % | 35.1 | % | — | 40.0 | % | 40.0 | % | — |
(1) | Not meaningful. |
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For the year ended December 31, | ||||||||||||||||
2004(1) | 2005(1) | 2006 | ||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Net cash provided by operating activities | 153,523 | 157,225 | 204,997 | 6,290 | ||||||||||||
Net cash used in investing activities | (148,359 | ) | (77,652 | ) | (119,724 | ) | (3,674 | ) | ||||||||
Net cash used in financing activities | (32,181 | ) | (57,969 | ) | (63,783 | ) | (1,957 | ) | ||||||||
Net increase/(decrease) in cash | (28,687 | ) | 22,181 | 21,353 | 655 |
(1) | As a result of the adoption of the newly released R.O.C. SFAS No. 34 and SFAS No. 36, the amounts for the fiscal years ended December 31, 2004 and 2005 were reclassified for comparison purposes. Such reclassifications resulted in a change of net cash provided by operating activities from NT$153,151 million and NT$157,013 million to NT$153,523 million and NT$157,225 million for the years ended December 31, 2004 and 2005, respectively, and in a change of net cash used in investing activities from NT$147,987 million and NT$77,440 million to NT$148,359 million and NT$77,652 million for the years ended December 31, 2004 and 2005, respectively. See note 4 to our consolidated financial statements for additional details about these new accounting standards. |
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• | ramping up production at Fab 12 (Phases II and III) and Fab 14 (Phase I) and commencing production at Fab 14 (Phase II); | ||
• | capacity expansion for mask operations; | ||
• | developing process technologies such as sub-45 and 65nm nodes; and | ||
• | other research and development projects. |
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Long-term debt | ||||
NT$ | ||||
(in millions) | ||||
During 2007 | 7,004 | |||
During 2008 | 132 | |||
During 2009 | 8,261 | |||
During 2010 | 261 | |||
During 2011 and thereafter | 4,500 |
Payments Due by Period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Contractual Obligations | Total | 1 year | 1-3 Years | 4-5 Years | 5 Years | |||||||||||||||
(in NT$ millions) | ||||||||||||||||||||
Long-Term Debt(1) | 20,158 | 7,004 | 8,393 | 261 | 4,500 | |||||||||||||||
Capital Lease Obligations(2) | 613 | — | — | — | 613 | |||||||||||||||
Operating Leases(3) | 4,090 | 946 | 1,119 | 518 | 1,507 | |||||||||||||||
Other Payments(4) | 9,321 | 618 | 674 | 598 | 7,431 | |||||||||||||||
Capital Purchase or other Purchase Obligations(5) | 30,548 | 27,786 | 1,597 | 675 | 490 | |||||||||||||||
Total Contractual Cash Obligations(6) | 64,730 | 36,354 | 11,783 | 2,052 | 14,541 |
(1) | Includes loan payable and bond payable without interest payments. | |
(2) | Capital lease obligations represent our commitment for leases of property. The obligations are included in the consolidated balance sheets as long-term liabilities. | |
(3) | Operating lease obligations are described in note 27 to our consolidated financial statements. | |
(4) | Includes royalty and license payments, as well as payables for acquisition of property, plant and equipment, but excludes payments that vary based upon our net sales of certain products and our sales volume of certain other products. | |
(5) | Represents commitments for construction or purchase of equipment, raw material and other property or services. These commitments are not recorded on our balance sheet as of December 31, 2006, as we have not received related goods or taken title of the property. | |
(6) | Minimum pension funding requirement is not included since such amounts have not been determined. We made pension contributions of approximately NT$233 million in 2006 and we estimate that we will contribute approximately NT$215 million to the pension fund in 2007. See note 19 to our consolidated financial statements for additional details regarding our pension plan. |
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Year ended and as of December 31, | ||||||||||||||||
2004 | 2005 | 2006 | 2006 | |||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
(in NT$ millions) | ||||||||||||||||
Net income in accordance with: | ||||||||||||||||
R.O.C. GAAP | 92,316 | 93,575 | 127,010 | 3,897 | ||||||||||||
U.S. GAAP | 76,253 | 75,418 | 95,711 | 2,937 | ||||||||||||
Shareholders’ equity attributable to the shareholders of the parent in accordance with: | ||||||||||||||||
R.O.C. GAAP | 398,965 | 445,631 | 507,981 | 15,587 | ||||||||||||
U.S. GAAP | 427,125 | 477,297 | 532,403 | 16,336 |
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Years | ||||||
Term | with our | |||||
Name | Position with our company | Expires | company | |||
Morris Chang | Chairman | 2009 | 20 | |||
F.C. Tseng | Vice Chairman | 2009 | 20 | |||
J.C. Lobbezoo(1) | Director (Representative of Philips) | 2007 | 13 | |||
Stan Shih | Director | 2009 | 7 | |||
Chintay Shih | Director (Representative of the National | |||||
Development Fund) | 2009 | 10 | ||||
Sir Peter Leahy Bonfield | Director | 2009 | 5 | |||
Lester Carl Thurow | Director | 2009 | 5 | |||
Carleton (Carly) S. Fiorina | Director | 2009 | 1 | |||
Rick Tsai | Director, President and Chief Executive Officer | 2009 | 17 | |||
Steve Tso | Senior Vice President and Chief Information | |||||
Officer, Information Technology/Materials | ||||||
Management and Risk Management | — | 10 | ||||
Kenneth Kin | Senior Vice President of Worldwide Sales and Services | — | 6 | |||
C.C. Wei | Senior Vice President of Operations I | — | 9 | |||
Mark Liu | Senior Vice President of Operations II | — | 13 | |||
Richard Thurston | Vice President and General Counsel | — | 5 | |||
M.C. Tzeng | Vice President of Operations, Operations I | — | 20 | |||
Lora Ho | Vice President, Chief Financial Officer and Spokesperson | — | 8 | |||
P.H. Chang | Vice President of Corporate Human Resources | — | 7 |
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Years | ||||||||||
Term | with our | |||||||||
Name | Position with our company | Expires | company | |||||||
W.J. Lo | Vice President of Research & Development | — | 3 | |||||||
Jason Chen | Vice President of Corporate Development | — | 3 | |||||||
Fu-Chieh Hsu | Vice President of Design and Technology Platform | — | 1 | |||||||
Jack Sun | Vice President of Research & Development | — | 10 |
(1) | J.C. Lobbezoo resigned effective March 9, 2007. |
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Percentage of | ||||||||||||
Total | Number of | |||||||||||
Outstanding | Common Shares | |||||||||||
Number of Common | Common | Underlying | ||||||||||
Name of Shareholders | Shares Owned(3) | Shares | Stock Options(4) | |||||||||
Morris Chang, Chairman | 116,057,019 | 0.45 | % | 787,986 | ||||||||
F.C. Tseng, Vice Chairman | 38,204,647 | 0.15 | % | — | ||||||||
J.C. Lobbezoo, Director(1) | 4,187,989,024 | 16.21 | % | — | ||||||||
Stan Shih, Director | 1,458,244 | 0.01 | % | — | ||||||||
Chintay Shih, Director(2) | 1,629,084,227 | 6.31 | % | — | ||||||||
Lester Carl Thurow, Director | 0 | 0.00 | % | — | ||||||||
Sir Peter Leahy Bonfield, Director | 0 | 0.00 | % | — | ||||||||
Carleton (Carly) S. Fiorina, Director | 0 | 0.00 | % | — | ||||||||
Rick Tsai, Director, President & CEO | 27,813,033 | 0.11 | % | 787,986 | ||||||||
Steve Tso, Senior Vice President and Chief Information Officer, Information Technology/Materials Management and Risk Management | 12,679,960 | 0.05 | % | 399,809 | ||||||||
Kenneth Kin, Senior Vice President | 4,115,712 | 0.02 | % | 382,431 | ||||||||
C.C. Wei, Senior Vice President | 6,575,457 | 0.03 | % | 263,967 | ||||||||
Mark Liu, Senior Vice President | 10,878,953 | 0.04 | % | 787,986 | ||||||||
Richard Thurston, Vice President & General Counsel | 2,733,369 | 0.01 | % | 83,619 | ||||||||
M.C. Tzeng, Vice President | 6,166,082 | 0.02 | % | — | ||||||||
Lora Ho, Vice President & CFO & Spokesperson | 4,549,431 | 0.02 | % | — | ||||||||
P.H. Chang, Vice President | 2,612,397 | 0.01 | % | — | ||||||||
W.J. Lo, Vice President | 1,050,576 | 0.00 | % | — | ||||||||
Jason Chen, Vice President | 930,991 | 0.00 | % | — | ||||||||
Fu-Chieh Hsu, Vice President | 175,000 | 0.00 | % | — | ||||||||
Jack Sun, Vice President | 4,613,385 | 0.02 | % | 121,778 |
(1) | Represents shares held by Koninklijke Philips Electronics N.V. Mr. Lobbezoo resigned on March 9, 2007. | |
(2) | Represents shares held by the National Development Fund of the Executive Yuan. |
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(3) | Except for the number of shares held by Koninklijke Philips Electronics N.V. and the National Development Fund of the Executive Yuan, the disclosed number of shares owned by the directors and executive officers does not include any common shares held in ADS form by such individuals as such individual ownership of ADSs has not been disclosed to shareholders or otherwise made public and each of these individuals owns less than one percent of all common shares outstanding as of February 28, 2007. | |
(4) | The stock options granted to our officers on March 7, 2003 under the 2002 Stock Option Plan all have an adjusted exercise price of NT$27.6 and all will expire on March 6, 2013 if not previously exercised. The options were granted to certain of our officers as a result of their voluntary selection to exchange part of their profit sharing to stock options. The number of common shares underlying stock options include additional shares due to stock dividends distributed in 2004, 2005 and 2006. |
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As of December 31, | ||||||||||||
Function | 2004 | 2005 | 2006 | |||||||||
Managers | 1,948 | 2,077 | 2,313 | |||||||||
Professionals | 7,158 | 7,769 | 8,222 | |||||||||
Assistant Engineers/Clericals | 1,268 | 950 | 893 | |||||||||
Technicians | 9,793 | 10,700 | 10,818 | |||||||||
Total | 20,167 | 21,496 | 22,246 |
As of December 31, | ||||||||||||
Location of Facility and Office | 2004 | 2005 | 2006 | |||||||||
Hsinchu Science Park, Taiwan | 14,081 | 14,869 | 14,772 | |||||||||
Southern Taiwan Science Park, Taiwan | 4,298 | 4,543 | 5,035 | |||||||||
China | 561 | 860 | 1,180 | |||||||||
United States | 1,173 | 1,171 | 1,204 | |||||||||
Europe | 23 | 23 | 26 | |||||||||
Japan | 31 | 30 | 28 | |||||||||
Korea | 0 | 0 | 1 | |||||||||
Total | 20,167 | 21,496 | 22,246 |
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Common Shares Issuable under | ||||||||||||
2002 Employee Stock | ||||||||||||
Option Plan (December 31, | 2003 Employee Stock | 2004 Employee Stock | ||||||||||
Name | 2006 vesting) | Option Plan | Option Plan | |||||||||
Morris Chang | 787,986 | — | — | |||||||||
Rick Tsai | 787,986 | — | — | |||||||||
Mark Liu | 787,986 | — | — | |||||||||
Steve Tso | 399,809 | — | — | |||||||||
Kenneth Kin | 382,431 | — | — | |||||||||
C.C. Wei | 263,967 | — | — | |||||||||
Richard Thurston | 83,619 | �� | — | — | ||||||||
Jack Sun | 121,778 | — | — |
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Percentage of Total | ||||||||
Number of Common | Outstanding Common | |||||||
Names of Shareholders | Shares Owned | Shares | ||||||
Philips | 4,187,989,024 | 16.21 | % | |||||
National Development Fund(1) | 1,629,084,227 | 6.31 | % | |||||
Capital Research and Management Company(2) | 2,262,904,040 | 8.76 | % | |||||
Directors and executive officers as a group(3) | 240,614,256 | 0.94 | % |
(1) | Excludes any common shares that may be owned by other funds controlled by the R.O.C. government. The National Development Fund was previously named Development Fund. | |
(2) | According to the Schedule 13G of Capital Research and Management Corporation (“CRMC”) filed with the Securities and Exchange Commission on February 12, 2007, CRMC beneficially owned 2,262,904,040 common shares as of February 6, 2007. According to this Schedule 13G, CRMC is an investment adviser registered under the Investment Advisers Act of 1940. We do not have further information with respect to CRMC’s ownership in us subsequent to CRMC’s Schedule 13G filed on February 12, 2007. | |
(3) | Excludes ownership of Philips and the National Development Fund. |
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• | A technical cooperation agreement signed in 1987 between ITRI and TSMC whereby ITRI granted TSMC the license to use its metal-oxide-semiconductor technology and related patents and copyrights to manufacture silicon MOS wafers and agreed to provide certain associated assets and relevant technical assistance and information to us, in exchange for a limited license from us for certain improvements and refinements related to earlier research and development protects. The agreement also provides that the R.O.C. Ministry of Economic Affairs, or the entity designated by the R.O.C. Ministry of Economic Affairs, has an option to purchase up to 35% of certain of our capacity as agreed in the agreement on favorable terms and conditions, provided that the exercise of such option would not prejudice TSMC’s outstanding customer commitments. The original term of this agreement was for five years beginning January 1, 1987, is to be automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice. The agreement was automatically renewed in 1992, 1997, 2002, and on January 1, 2007. | ||
• | A patent license agreement dated September 29, 2005 exists between ITRI and TSMC whereby ITRI grants TSMC the exclusive license to use certain patents in connection with semiconductor technology in exchange for a fixed royalty payment. The term of this agreement is from the effectiveness of the agreement to the end of the patent term for each of the patents concerned. | ||
• | From time to time, we provide foundry services to ITRI. In 2005 and 2006, we had total sales to ITRI of NT$90 million and NT$42 million (US$1.3 million), respectively, representing less than 1% of our net sales in each year. |
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• | On December 31, 1986, we entered into a technology cooperation agreement with Philips pursuant to which Philips initially had provided us with certain process and technical information for the production of unencapsulated MOS integrated circuits in wafer form. This agreement was amended on May 12, 1997 and extended for ten years. The agreement was further modified on June 20, 2004 and extended to December 31, 2008 (the “Technology Cooperation Agreement”). Under the June 20, 2004 amendments, which took retroactive effect on January 1, 2004, we agreed with Philips to cross license certain patents to each other on a non-exclusive, royalty-free basis. In addition, Philips obtained coverage for TSMC under certain of its patent cross licensing arrangements with other companies (as identified in the agreement) and TSMC has been paying the agreed upon consideration. The Technology Cooperation Agreement will not be automatically renewed upon expiration; however, the patent cross license arrangement between TSMC and Philips will survive the expiration of Technical Cooperation Agreement. | ||
• | In 2004, 2005 and 2006, we had total sales to Philips and its affiliates of NT$5,464 million, NT$3,299 million and NT$4,025 million (US$124 million), representing 2.1%, 1.2% and 1.3% of total net sales in 2004, 2005 and 2006, respectively. Subsequent to the sale by Philips in September 2006 of an 80.1% equity interest in Philips Semiconductors to a consortium of private equity investors, Philips Semiconductors was renamed as NXP and ceased to be a related party of us. | ||
• | In March 30, 1999, we entered into an agreement with Philips, and EDB Investment Pte. Ltd. to found a joint venture to build the SSMC fab in Singapore (the “SSMC Shareholders Agreement”). See “Item 4. Information on the Company — Our History and Structure — Systems on Silicon Manufacturing Company Pte. Ltd. (“SSMC”)” for a discussion of our agreement with Philips (and its successor-in-interest, NXP) and EDB Investment to build our SSMC fab and “— Systems on Silicon Manufacturing Company Pte. Ltd.” below for a detailed discussion of the contract terms we entered into with SSMC. | ||
• | Effective January 1, 2006, we entered into a Joint Technology Cooperation Agreement with Philips, Freescale Semiconductor, Inc. and ST Microelectronics to jointly develop 45-nanometers and beyond advanced CMOS Logic and e-DRAM technologies. We will contribute process technologies and share a portion of the costs associated with this joint development project. This agreement will expire on December 31, 2008. | ||
• | On September 25, 2006, in connection with the sale by Philips in September 2006 of an 80.1% equity interest in Philips Semiconductors, its semiconductor subsidiary, to a consortium of private equity investors, we, Philips and Philips Semiconductors, which was subsequently renamed as NXP, entered into the TSMC-Royal Philips-PSI Agreement, an assumption and assignment agreement (the “Assignment and Assumption Agreement”). Pursuant to the Assignment and Assumption Agreement, Philips assigned to NXP all of its rights, and NXP assumed all of Philips’ obligations, under specified agreements, including, among other things, the Technology Cooperation Agreement and the SSMC Shareholders Agreement. |
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Cash Dividends | Stock dividends | Total shares issued | Outstanding common | |||||||||||||
Per Share | Per 100 shares | as stock dividends | shares at year end | |||||||||||||
NT$ | ||||||||||||||||
2002 | — | 10.0 | 1,683,255,306 | 18,622,886,745 | ||||||||||||
2003 | — | 8.0 | 1,489,830,940 | 20,266,618,984 | ||||||||||||
2004 | 0.6037 | 14.08668 | 2,837,326,658 | 23,251,963,693 | ||||||||||||
2005 | 1.9998 | 4.99971 | 1,162,602,422 | 24,730,024,647 | ||||||||||||
2006 | 2.4991 | 2.99903 | (1) | 741,900,740 | (1) | 25,829,687,846 |
(1). | 50% of the stock dividends were paid out of retained earnings and 50% were from capitalization of capital surplus. |
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Taiwan Stock Exchange | ||||||||||||||||||||||||
Average daily | New York Stock Exchange(1) | |||||||||||||||||||||||
Closing price per | Trading volume | Average daily | ||||||||||||||||||||||
common share(2) | (in thousands of | Closing price per ADS(2) | Trading volume (in | |||||||||||||||||||||
High | Low | shares)(2) | High | Low | thousands of ADSs)(2) | |||||||||||||||||||
(NT$) | (NT$) | (US$) | (US$) | |||||||||||||||||||||
2002 | 60.79 | 24.42 | 67,213 | 13.31 | 3.77 | 7,957 | ||||||||||||||||||
2003 | 52.96 | 27.57 | 57,614 | 9.85 | 4.52 | 9,026 | ||||||||||||||||||
2004 | 50.74 | 34.98 | 57,181 | 8.86 | 5.79 | 7,635 | ||||||||||||||||||
2005 | 59.43 | 40.03 | 54,111 | 9.47 | 6.70 | 8,164 | ||||||||||||||||||
First Quarter | 47.04 | 40.03 | 50,736 | 8.23 | 6.70 | 7,008 | ||||||||||||||||||
Second Quarter | 53.20 | 42.42 | 46,780 | 8.85 | 7.04 | 6,348 | ||||||||||||||||||
Third Quarter | 53.11 | 47.44 | 42,826 | 8.82 | 7.32 | 9,869 | ||||||||||||||||||
Fourth Quarter | 59.43 | 45.76 | 75,443 | 9.47 | 7.17 | 9,394 | ||||||||||||||||||
2006 | 67.90 | 51.99 | 41,988 | 11.18 | 7.94 | 9,663 | ||||||||||||||||||
First Quarter | 63.34 | 54.88 | 44,165 | 10.26 | 9.21 | 10,853 | ||||||||||||||||||
Second Quarter | 65.01 | 51.99 | 49,122 | 10.57 | 7.95 | 9,465 | ||||||||||||||||||
Third Quarter | 60.90 | 52.90 | 36,915 | 9.92 | 8.00 | 9,303 | ||||||||||||||||||
Fourth Quarter | 67.90 | 58.50 | 38,130 | 11.18 | 9.46 | 10,224 | ||||||||||||||||||
October | 65.00 | 58.50 | 39,989 | 10.33 | 9.46 | 10,506 | ||||||||||||||||||
November | 65.50 | 60.00 | 40,666 | 10.75 | 9.46 | 10,645 | ||||||||||||||||||
December | 67.90 | 64.10 | 33,702 | 11.18 | 10.57 | 9,473 | ||||||||||||||||||
2007 | ||||||||||||||||||||||||
First Quarter | 71.20 | 63.30 | 66,665 | 11.55 | 10.11 | 12,649 | ||||||||||||||||||
January | 71.20 | 64.20 | 56,676 | 11.49 | 10.62 | 15,420 | ||||||||||||||||||
February | 69.30 | 65.80 | 49,671 | 11.55 | 10.68 | 9,723 | ||||||||||||||||||
March | 70.20 | 63.30 | 85,087 | 11.55 | 10.11 | 12,658 | ||||||||||||||||||
April (through April 16, 2007) | 69.30 | 67.50 | 29,800 | 10.97 | 10.70 | 10,518 |
(1) | Trading in ADSs commenced on October 8, 1997 on the New York Stock Exchange. Each ADS represents the right to receive five common shares. | |
(2) | As adjusted for a 10% stock dividend in July 2002, a 8% stock dividend in July 2003, a 14.08668% stock dividend in July 2004, a 4.99971% stock dividend in July 2005 and a 2.99903% stock dividend in July 2006. |
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• | offerings by shareholders of outstanding shares; and | ||
• | offerings of new shares through a private placement approved at a shareholders’ meeting. |
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• | dividends on or free distributions of shares; | ||
• | the exercise by holders of existing depositary receipts of their pre-emptive rights in connection with capital increases for cash; or |
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• | if permitted under the deposit agreement and custody agreement, the deposit of common shares purchased by any person directly or through a depositary bank on the Taiwan Stock Exchange or the GreTai Securities Market (as applicable) or held by such person for deposit in the depositary receipt facility. |
• | open a securities trading account with a local securities brokerage firm; | ||
• | remit funds; and | ||
• | exercise rights on securities and perform other matters as may be designated by the holder. |
• | the net payment indicated on the withholding tax voucher issued by the tax authority; | ||
• | the net investment gains as indicated on the holder’s certificate of tax payment; or | ||
• | the aggregate transfer price as indicated on the income tax return for transfer of tax-deferred dividend shares, whichever is applicable. |
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• | converted by bondholders, other than citizens of the PRC and entities organized under the laws of the PRC, into shares of R.O.C. companies; or | ||
• | subject to R.O.C. Financial Supervisory Commission approval, converted into depositary receipts issued by the same R.O.C. company or by the issuing company of the exchange shares, in the case of exchangeable bonds. |
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• | an individual who is not an R.O.C. citizen, who owns ADSs and who is not physically present in the R.O.C. for 183 days or more during any calendar year; or | ||
• | a corporation or a non-corporate body that is organized under the laws of a jurisdiction other than the R.O.C. for profit-making purposes and has no fixed place of business or other permanent establishment in the R.O.C. |
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• | 35% of the gains realized if you are a natural person; or | ||
• | 25% of the gains realized if you are an entity that is not a natural person. |
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• | dealers in securities; | ||
• | traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; | ||
• | tax-exempt organizations; | ||
• | life insurance companies; | ||
• | persons liable for alternative minimum tax; | ||
• | persons that actually or constructively own 10% or more of our voting stock; | ||
• | persons that hold common shares or ADSs as part of a straddle or a hedging or conversion transaction; or | ||
• | persons whose functional currency is not the U.S. dollar. |
• | a citizen or resident of the United States; | ||
• | a domestic corporation; | ||
• | an estate whose income is subject to United States federal income tax regardless of its source; or | ||
• | a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust. |
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• | at least 75% of our gross income for the taxable year is passive income; or | ||
• | at least 50% of the value, determined on the basis of a quarterly average, of our assets is attributable to assets that produce or are held for the production of passive income. |
• | any gain you realize on the sale or other disposition of your common shares or ADSs; and | ||
• | any excess distribution that we make to you (generally, any distributions to you during a single taxable year that are greater than 125% of the average annual distributions received by you in respect of the common shares or ADSs during the three preceding taxable years or, if shorter, your holding period for the common shares or ADSs). |
• | the gain or excess distribution will be allocated ratably over your holding period for the common shares or ADSs, | ||
• | the amount allocated to the taxable year in which you realized the gain or excess distribution will be taxed as ordinary income, | ||
• | the amount allocated to each prior year, with certain exceptions, will be taxed at the highest tax rate in effect for that year, and | ||
• | the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year. |
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As of December 31, 2006 | ||||||||||||||||||||||||||||||||||||||||
Expected Maturity Dates | As of December 31, 2005 | |||||||||||||||||||||||||||||||||||||||
2011 and | Aggregate | Aggregate | ||||||||||||||||||||||||||||||||||||||
2007 | 2008 | 2009 | 2010 | thereafter | Total | Fair Value | Total | Fair Value | ||||||||||||||||||||||||||||||||
Long-term debt (in millions) | ||||||||||||||||||||||||||||||||||||||||
US$-denominated debt | ||||||||||||||||||||||||||||||||||||||||
Variable rate | — | US$ | 4 | US$ | 8 | US$ | 8 | — | US$ | 20 | US$ | 20 | US$ | 20 | US$ | 20 | ||||||||||||||||||||||||
Average interest rate | — | 5.34 | % | 5.48 | % | 5.42 | % | — | 5.43 | %(2) | — | 5.31 | %(2) | — | ||||||||||||||||||||||||||
NT$-denominated debt | ||||||||||||||||||||||||||||||||||||||||
Fixed rate | NT$ | 7,004 | NT$ | 2 | NT$ | 8,000 | — | NT$ | 4,500 | NT$ | 19,506 | NT$ | 19,823 | (1) | NT$ | 19,511 | NT$ | 19,936 | (1) | |||||||||||||||||||||
Average interest rate | 4.37 | % | 0.00 | % | 2.75 | % | — | 3.00 | % | 3.39 | %(2) | — | 3.39 | %(2) | — |
(1) | Represents the present value of expected cash flow discounted using the interest rate TSMC may obtain for similar long-term debts. | |
(2) | Average interest rates under “Total” are the weighted average of the average interest rates of each year for loan outstanding. |
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As of December 31, 2006 | As of | |||||||||||||||||||||||||||||||||||
Forward | Expected Maturity Dates | December 31, 2005 | ||||||||||||||||||||||||||||||||||
Exchange Contracts | 2011 and | Aggregate | Aggregate | |||||||||||||||||||||||||||||||||
(in millions) | 2007 | 2008 | 2009 | 2010 | thereafter | Total | Fair Value(1) | Total | Fair Value(1) | |||||||||||||||||||||||||||
(Sell US$/buy NT$) | ||||||||||||||||||||||||||||||||||||
Contract amount | 0 | 0 | 0 | 0 | 0 | US$ | 0 | NT$ | 0 | US$ | 60 | NT$ | 28.5 | |||||||||||||||||||||||
Average contractual exchange rate (against NT dollars) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 33.2675 | 0 | |||||||||||||||||||||||||||
(Buy JPY/Sell US$) | ||||||||||||||||||||||||||||||||||||
Contract amount | US$ | 0.3 | 0 | 0 | 0 | 0 | US$ | 0.3 | NT$ | (0.1 | ) | 0 | 0 | |||||||||||||||||||||||
Average contractual exchange rate (against U.S. dollars) | 117.52 | 0 | 0 | 0 | 0 | 117.52 | 0 | 0 | 0 |
As of December 31, 2006 | As of | |||||||||||||||||||||||||||||||||||
Expected Maturity Dates | December 31, 2005 | |||||||||||||||||||||||||||||||||||
Cross Currency Swap | 2011 and | Aggregate | Aggregate | |||||||||||||||||||||||||||||||||
(in millions) | 2007 | 2008 | 2009 | 2010 | thereafter | Total | Fair Value(1) | Total | Fair Value(1) | |||||||||||||||||||||||||||
(Sell US$/buy NT$) | ||||||||||||||||||||||||||||||||||||
Contract amount | 820 | — | — | — | — | US$ | 820 | NT$ | (33.85 | ) | US$ | 2,089 | NT$ | 789.9 | ||||||||||||||||||||||
Range of interest rate paid | 3.19%-5.91 | % | — | — | — | — | — | — | 4.15%-4.54 | % | — | |||||||||||||||||||||||||
Range of interest rate received | 0.90%-3.25 | % | — | — | — | — | — | — | 0.02%-2.12 | % | — |
(1) | Fair value represents the amount of the receivable from or payable to the counter-parties if the contracts were terminated on the balance sheet date. |
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Taiwan Semiconductor Manufacturing Company Limited
Deloitte & Touche
Taipei, Taiwan
The Republic of China
March 30, 2007
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2005 | 2006 | |||||||
NT$ | NT$ | |||||||
(In thousands) | ||||||||
Audit Fees | 55,002 | 59,570 | ||||||
Audit Related Fees | 5,567 | 4,813 | ||||||
Tax Fees | 458 | 964 | ||||||
All Other Fees | 124 | — | ||||||
Total | 61,151 | 65,347 | ||||||
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Page | ||||
Report of Independent Registered Public Accounting Firm | F-1 | |||
Consolidated Balance Sheets | F-2 | |||
Consolidated Statements of Income | F-4 | |||
Consolidated Statements of Changes in Shareholders’ Equity | F-6 | |||
Consolidated Statements of Cash Flows | F-8 | |||
Notes to Consolidated Financial Statements | F-11 |
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(a) | See Item 18 for a list of the financial statements filed as part of this annual report. | |
(b) | Exhibits to this Annual Report: | |
1.1 | Articles of Incorporation of Taiwan Semiconductor Manufacturing Company Limited, as amended and restated on May 16, 2006. | |
2b.1 | The Company hereby agrees to furnish to the Securities and Exchange Commission, upon request, copies of instruments defining the rights of holders of long-term debt of the Company and its subsidiaries. | |
3.1(2) | Rules for Election of Directors and Supervisors, as amended and restated on May 7, 2002. | |
3.2(2) | Rules and Procedures of Shareholders’ Meetings, as amended and restated on May 7, 2002. | |
4.1(2) | Land Lease with Southern Taiwan Science Park Administration (formerly Tainan Science Park Administration) relating to the fabs located in Southern Taiwan Science Park (effective August 1, 1997 to July 31, 2017) (in Chinese with English summary). | |
4.2(3) | Land Lease with Southern Taiwan Science Park Administration (formerly Tainan Science Park Administration) relating to the fabs located in Southern Taiwan Science Park (effective May 1, 1998 to April 30, 2018) (in Chinese with English summary). | |
4.3(3) | Land Lease with Southern Taiwan Science Park Administration (formerly Tainan Science Park Administration) relating to the fabs located in Southern Taiwan Science Park (effective November 1, 1999 to October 31, 2019) (in Chinese with English summary). | |
4.4(3) | Land Lease with Hsinchu Science Park Administration relating to Fab 7 (effective December 4, 1989 to December 3, 2009) (in Chinese with English summary). | |
4.5(2) | Land Lease with Hsinchu Science Park Administration relating to the Fab 7 (effective July 1, 1995 to June 30, 2015) (in Chinese with English summary). | |
4.6(2) | Land Lease with Hsinchu Science Park Administration relating to Fab 8 (effective March 15, 1997 to March 14, 2017) (in Chinese with English summary). | |
4.7(3) | Land Lease with Hsinchu Science Park Administration relating to Fab 12 (Phase I) (effective December 1, 1999 to November 30, 2019) (in Chinese with English summary). | |
+4.8a(1) | Technology Cooperation Agreement between Taiwan Semiconductor Manufacturing Company Ltd. and Philips Electronics N.V., as amended and restated on June 30, 2004. | |
4.9a(4) | Taiwan Semiconductor Manufacturing Company Limited 2002 Employee Stock Option Plan, as revised by the board of directors on March 4, 2003. | |
4.9aa(5) | Taiwan Semiconductor Manufacturing Company Limited 2003 Employee Stock Option Plan. |
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4.9aaa(6) | Taiwan Semiconductor Manufacturing Company Limited 2004 Employee Stock Option Plan. | |
4.9aaaa(1) | Taiwan Semiconductor Manufacturing Company Limited 2004 Employee Stock Option Plan, as revised on February 22, 2005. | |
4.9b(4) | TSMC North America 2002 Employee Stock Option Plan, as revised on June 5, 2003. | |
4.9bb(5) | TSMC North America 2003 Employee Stock Option Plan. | |
4.9c(4) | WaferTech, LLC 2002 Employee Stock Option Plan, as revised on June 5, 2003. | |
4.9cc(5) | WaferTech, LLC 2003 Employee Stock Option Plan. | |
4.9ccc(6) | WaferTech, LLC 2004 Employee Stock Option Plan. | |
4.9cccc(1) | WaferTech, LLC 2004 Employee Stock Option Plan, as revised on February 22, 2005. | |
+4.10(7) | Shareholders Agreement, dated as of March 15, 1999, by and among EDB Investments Pte. Ltd., Koninklijke Philips Electronics N.V. and Taiwan Semiconductor Manufacturing Company Ltd. | |
4.11(9) | Land Lease with Hsinchu Science Park Administration relating to Fabs 2 and 5 and Corporate Headquarters (effective April 1, 1988 to March 31, 2008) (in Chinese with English summary). | |
4.12(9) | Land Lease with Hsinchu Science Park Administration relating to Fabs 3 and 4 (effective May 16, 1993 to May 15, 2013) (in Chinese with English summary). | |
4.13(8) | Land Lease with Hsinchu Science Park Administration relating to Fab 12 (Phase II) (effective May 1, 2001 to December 31, 2020) (English summary). | |
4.14(8) | Land Lease with Southern Taiwan Science Park Administration relating to fabs located in Southern Taiwan Science Park (effective November 1, 2000 to October 31, 2020) (English summary). | |
8.1 | List of manufacturing subsidiaries of Taiwan Semiconductor Manufacturing Company Limited. | |
12.1 | Certification of Chief Executive Officer required by Rule 13a-14(a) under the Exchange Act. | |
12.2 | Certification of Chief Financial Officer required by Rule 13a-14(a) under the Exchange Act. | |
13.1 | Certification of Chief Executive Officer required by Rule 13a-14(b) under the Exchange Act. | |
13.2 | Certification of Chief Financial Officer required by Rule 13a-14(b) under the Exchange Act. | |
99.1 | Consent of Deloitte & Touche. |
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(1) | Previously filed in TSMC’s annual report on Form 20-F for the fiscal year ended December 31, 2004, filed by TSMC on May 16, 2005. | |
(2) | Previously filed in TSMC’s annual report on Form 20-F for the fiscal year ended December 31, 2001, filed by TSMC on May 9, 2002. | |
(3) | Previously filed in TSMC’s annual report on Form 20-F for the fiscal year ended December 31, 1999, filed by TSMC on June 29, 2000. | |
(4) | Previously filed in TSMC’s annual report on Form 20-F for the fiscal year ended December 31, 2002, filed by TSMC on June 23, 2003. | |
(5) | Previously filed in TSMC’s registration statement on Form S-8, filed by TSMC on October 20, 2003. | |
(6) | Previously filed in TSMC’s registration statement on Form S-8, filed by TSMC on January 6, 2005. | |
(7) | Previously filed in TSMC’s annual report on Form 20-F for the fiscal year ended December 31, 1998, filed by TSMC on April 30, 1999. | |
(8) | Previously filed in TSMC’s annual report on Form 20-F for the fiscal year ended December 31, 2003, filed by TSMC on May 28, 2004. | |
(9) | Previously filed in TSMC’s registration statement on Form F-1, filed by TSMC on September 15, 1997. | |
+ | Contains portions for which confidential treatment has been requested. |
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TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED | ||||||
By: Name: | /s/ Lora Ho | |||||
Title: | Vice President and Chief Financial Officer |
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Taiwan Semiconductor Manufacturing Company Limited
Deloitte & Touche
Taipei, Taiwan
The Republic of China
March 30, 2007
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(In Millions of New Taiwan or U.S. Dollars, Except Par Value)
December 31 | ||||||||||||||||
Notes | 2005 | 2006 | 2006 | |||||||||||||
NT$ | NT$ | US$ | ||||||||||||||
(Note 3) | ||||||||||||||||
ASSETS | ||||||||||||||||
CURRENT ASSETS | ||||||||||||||||
Cash and cash equivalents | 2, 5 | 96,483.7 | 117,837.2 | 3,615.7 | ||||||||||||
Financial assets at fair value through profit or loss | 2, 4, 6 | 1,770.4 | 1,206.9 | 37.0 | ||||||||||||
Available-for-sale financial assets | 2, 4, 7 | 46,452.8 | 67,523.9 | 2,071.9 | ||||||||||||
Held-to-maturity financial assets | 2, 4, 8 | 602.5 | 8,510.8 | 261.1 | ||||||||||||
Notes and accounts receivable, net | 2, 9 | 37,784.3 | 31,337.0 | 961.6 | ||||||||||||
Receivables from related parties | 26 | 693.3 | 252.3 | 7.7 | ||||||||||||
Other receivables from related parties | 26 | 597.9 | 256.9 | 7.9 | ||||||||||||
Other financial assets | 4 | 1,617.8 | 2,356.5 | 72.3 | ||||||||||||
Inventories, net | 2, 10 | 17,728.3 | 21,430.7 | 657.6 | ||||||||||||
Deferred income tax assets, net | 2, 20 | 7,149.3 | 8,014.0 | 245.9 | ||||||||||||
Prepaid expenses and other current assets | 4 | 1,420.5 | 1,591.0 | 48.9 | ||||||||||||
Total current assets | 212,300.8 | 260,317.2 | 7,987.6 | |||||||||||||
LONG-TERM INVESTMENTS | 2, 4, 7, 8, 11, 12 | |||||||||||||||
Investments accounted for using equity method | 10,287.4 | 15,000.9 | 460.3 | |||||||||||||
Available-for-sale financial assets | 117.3 | 6,648.5 | 204.0 | |||||||||||||
Held-to-maturity financial assets | 28,775.3 | 28,973.5 | 889.0 | |||||||||||||
Financial assets carried at cost | 3,202.5 | 3,272.3 | 100.4 | |||||||||||||
Total long-term investments | 42,382.5 | 53,895.2 | 1,653.7 | |||||||||||||
PROPERTY, PLANT AND EQUIPMENT, NET | 2, 13, 26 | 244,823.3 | 254,094.2 | 7,796.7 | ||||||||||||
GOODWILL | 2 | 6,010.6 | 5,985.0 | 183.6 | ||||||||||||
OTHER ASSETS | ||||||||||||||||
Deferred income tax assets, net | 2, 20 | 6,788.4 | 5,802.1 | 182.2 | ||||||||||||
Deferred charges, net | 2, 14 | 7,006.3 | 5,936.9 | 178.0 | ||||||||||||
Refundable deposits | 106.8 | 1,331.2 | 40.8 | |||||||||||||
Others | 90.9 | 123.4 | 3.9 | |||||||||||||
Total other assets | 13,992.4 | 13,193.6 | 404.9 | |||||||||||||
TOTAL ASSETS | 519,509.6 | 587,485.2 | 18,026.5 | |||||||||||||
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(In Millions of New Taiwan or U.S. Dollars, Except Par Value)
December 31 | ||||||||||||||||
Notes | 2005 | 2006 | 2006 | |||||||||||||
NT$ | NT$ | US$ | ||||||||||||||
(Note 3) | ||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||
Short-term bank loans | 15 | 328.5 | — | — | ||||||||||||
Financial liabilities at fair value through profit or loss | 2, 4, 6 | 234.3 | 10.9 | 0.4 | ||||||||||||
Accounts payable | 9,421.4 | 7,934.4 | 243.5 | |||||||||||||
Payable to related parties | 26 | 1,743.1 | 1,867.7 | 57.3 | ||||||||||||
Income tax payable | 2, 20 | 4,015.5 | 7,946.5 | 243.8 | ||||||||||||
Payable to contractors and equipment suppliers | 9,066.0 | 10,768.6 | 330.4 | |||||||||||||
Accrued expenses and other current liabilities | 2, 4, 18 | 10,307.9 | 11,328.3 | 347.6 | ||||||||||||
Current portion of bonds payable and long-term liabilities | 16, 17 | 5.5 | 7,004.1 | 214.9 | ||||||||||||
Total current liabilities | 35,122.2 | 46,860.5 | 1,437.9 | |||||||||||||
LONG-TERM LIABILITIES | ||||||||||||||||
Bonds payable | 16 | 19,500.0 | 12,500.0 | 383.5 | ||||||||||||
Long-term bank loans | 17 | 663.1 | 654.0 | 20.1 | ||||||||||||
Other long-term payables | 18, 28 | 8,548.9 | 8,703.3 | 267.0 | ||||||||||||
Other payables to related parties | 26, 28 | 1,100.5 | 403.4 | 12.4 | ||||||||||||
Obligations under capital leases | 2 | 597.7 | 612.9 | 18.8 | ||||||||||||
Total long-term liabilities | 30,410.2 | 22,873.6 | 701.8 | |||||||||||||
OTHER LIABILITIES | ||||||||||||||||
Accrued pension cost | 2, 19 | 3,474.4 | 3,540.1 | 108.7 | ||||||||||||
Guarantee deposits | 28 | 2,896.4 | 3,817.1 | 117.1 | ||||||||||||
Deferred credits | 2, 26 | 1,344.0 | 1,177.1 | 36.1 | ||||||||||||
Others | 23.7 | 78.7 | 2.4 | |||||||||||||
Total other liabilities | 7,738.5 | 8,613.0 | 264.3 | |||||||||||||
COMMITMENTS AND CONTINGENCIES | 28 | |||||||||||||||
EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT | ||||||||||||||||
Capital stock — NT$10 par value | ||||||||||||||||
Authorized: 27,050,000 thousand shares | ||||||||||||||||
Issued: 24,730,025 thousand shares in 2005 and 25,829,688 thousand shares in 2006 | 247,300.2 | 258,296.9 | 7,925.6 | |||||||||||||
Capital surplus | 2, 21 | 57,117.9 | 54,107.5 | 1,660.2 | ||||||||||||
Retained earnings | 21 | �� | 142,771.0 | 197,124.5 | 6,048.7 | |||||||||||
Unrealized gain on financial instruments | 2, 4 | — | 561.6 | 17.2 | ||||||||||||
Cumulative translation adjustments | 2 | (640.7 | ) | (1,191.1 | ) | (36.5 | ) | |||||||||
Treasury stock — 32,938 thousand shares in 2005 and 33,926 thousand shares in 2006 | 2, 23 | (918.1 | ) | (918.1 | ) | (28.2 | ) | |||||||||
Total equity attributable to shareholders of the parent | 445,630.3 | 507,981.3 | 15,587.0 | |||||||||||||
MINORITY INTEREST IN SUBSIDIARIES | 2 | 608.4 | 1,156.8 | 35.5 | ||||||||||||
Total shareholders’ equity | 446,238.7 | 509,138.1 | 15,622.5 | |||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 519,509.6 | 587,485.2 | 18,026.5 | |||||||||||||
The accompanying notes are an integral part of the consolidated financial statements. | (Concluded) |
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(In Millions of New Taiwan or U.S. Dollars, Except Earnings Per Share that are in New Taiwan or U.S. Dollars)
Year Ended December 31 | ||||||||||||||||||
Notes | 2004 | 2005 | 2006 | |||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||||
(Note 3) | ||||||||||||||||||
NET SALES | 2, 26, 29 | 257,212.6 | 266,565.1 | 317,407.2 | 9,739.4 | |||||||||||||
COST OF SALES | 26 | 141,393.4 | 148,362.2 | 161,597.1 | 4,958.5 | |||||||||||||
GROSS PROFIT | 115,819.2 | 118,202.9 | 155,810.1 | 4,780.9 | ||||||||||||||
OPERATING EXPENSES | 26 | |||||||||||||||||
Research and development | 12,516.4 | 14,016.5 | 16,076.4 | 493.3 | ||||||||||||||
General and administrative | 11,454.4 | 9,085.5 | 8,716.7 | 267.5 | ||||||||||||||
Marketing | 3,366.7 | 4,132.3 | 3,752.3 | 115.1 | ||||||||||||||
Total operating expenses | 27,337.5 | 27,234.3 | 28,545.4 | 875.9 | ||||||||||||||
INCOME FROM OPERATIONS | 88,481.7 | 90,968.6 | 127,264.7 | 3,905.0 | ||||||||||||||
NON-OPERATING INCOME AND GAINS | ||||||||||||||||||
Interest income | 2, 4 | 1,783.7 | 2,806.2 | 4,542.1 | 139.4 | |||||||||||||
Equity in earnings of equity method investees, net | 2, 11 | 2,094.1 | 1,433.2 | 2,347.2 | 72.0 | |||||||||||||
Settlement income | 28 | — | 964.7 | 979.2 | 30.0 | |||||||||||||
Technical service income | 26, 28 | 423.8 | 462.6 | 571.5 | 17.5 | |||||||||||||
Gain on disposal of property, plant and equipment and other assets | 2, 26 | 242.8 | 342.8 | 421.1 | 12.9 | |||||||||||||
Subsidy income | 2 | — | 321.9 | 334.5 | 10.3 | |||||||||||||
Foreign exchange gain, net | 2, 4 | — | 2,610.0 | — | — | |||||||||||||
Gain on disposal of financial instruments, net | 2, 4 | 3,480.4 | — | — | — | |||||||||||||
Others | 26 | 556.6 | 458.0 | 510.0 | 15.7 | |||||||||||||
Total non-operating income and gains | 8,581.4 | 9,399.4 | 9,705.6 | 297.8 | ||||||||||||||
NON-OPERATING EXPENSES AND LOSSES | ||||||||||||||||||
Valuation loss on financial instruments, net | 2, 4, 6 | 75.2 | 337.2 | 812.9 | 24.9 | |||||||||||||
Loss on settlement and disposal of financial instruments, net | 2, 4, 6 | — | 3,602.8 | 798.6 | 24.5 | |||||||||||||
Interest expense | 4 | 1,366.0 | 1,413.4 | 890.6 | 27.3 | |||||||||||||
Foreign exchange loss, net | 2, 4 | 3,036.3 | — | 400.9 | 12.3 | |||||||||||||
Loss on impairment of financial assets | 2, 4 | 350.6 | 128.9 | 279.7 | 8.6 | |||||||||||||
Loss on disposal of property, plant and equipment | 2 | 131.1 | 60.1 | 241.4 | 7.4 | |||||||||||||
Others | 138.3 | 562.3 | 184.0 | 5.7 | ||||||||||||||
Total non-operating expenses and losses | 5,097.5 | 6,104.7 | 3,608.1 | 110.7 | ||||||||||||||
- F4 -
Table of Contents
(In Millions of New Taiwan or U.S. Dollars, Except Earnings Per Share that are in New Taiwan or U.S. Dollars)
Year Ended December 31 | ||||||||||||||||||
Notes | 2004 | 2005 | 2006 | |||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||||
(Note 3) | ||||||||||||||||||
INCOME BEFORE INCOME TAX | 91,965.6 | 94,263.3 | 133,362.2 | 4,092.1 | ||||||||||||||
INCOME TAX BENEFIT (EXPENSE) | 2, 20 | 363.4 | (630.6 | ) | (7,773.7 | ) | (238.5 | ) | ||||||||||
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES | 92,329.0 | 93,632.7 | 125,588.5 | 3,853.6 | ||||||||||||||
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES, NET OF TAX BENEFIT OF NT$82.1 MILLION | 4 | — | — | 1,606.7 | 49.3 | |||||||||||||
NET INCOME | 92,329.0 | 93,632.7 | 127,195.2 | 3,902.9 | ||||||||||||||
ATTRIBUTABLE TO: | ||||||||||||||||||
Shareholders of the parent | 92,316.1 | 93,575.0 | 127,009.7 | 3,897.2 | ||||||||||||||
Minority interest | 2 | 12.9 | 57.7 | 185.5 | 5.7 | |||||||||||||
92,329.0 | 93,632.7 | 127,195.2 | 3,902.9 | |||||||||||||||
BASIC EARNINGS PER SHARE | 2, 24 | |||||||||||||||||
Before tax | 3.56 | 3.66 | 5.22 | 0.16 | ||||||||||||||
Net income | 3.58 | 3.63 | 4.93 | 0.15 | ||||||||||||||
DILUTED EARNINGS PER SHARE | 2, 24 | |||||||||||||||||
Before tax | 3.56 | 3.66 | 5.22 | 0.16 | ||||||||||||||
Net income | 3.58 | 3.63 | 4.92 | 0.15 | ||||||||||||||
BASIC EARNINGS PER EQUIVALENT ADS | 2 | |||||||||||||||||
Before tax | 17.82 | 18.28 | 26.12 | 0.80 | ||||||||||||||
Net income | 17.89 | 18.16 | 24.63 | 0.76 | ||||||||||||||
DILUTED EARNINGS PER EQUIVALENT ADS | 2 | |||||||||||||||||
Before tax | 17.81 | 18.28 | 26.09 | 0.80 | ||||||||||||||
Net income | 17.88 | 18.15 | 24.60 | 0.75 | ||||||||||||||
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING (THOUSANDS) | 2, 24 | 25,804,488 | 25,763,320 | �� | 25,788,555 | |||||||||||||
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING (THOUSANDS) | 2, 24 | 25,810,416 | 25,775,967 | 25,813,183 | ||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements. | (Concluded) |
- F5 -
Table of Contents
(In Millions of New Taiwan Dollars, Except Dividends Per Share)
Equity Attributable to Shareholders of the Parent | ||||||||||||||||||||||||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||||||||||||||||||||||
Capital Stock | Gain (Loss) | Unrealized | ||||||||||||||||||||||||||||||||||||||||||
(NT$10 Par Value) | on | Cumulative | Gain on | Minority | Total | |||||||||||||||||||||||||||||||||||||||
Common stock | Capital | Retained | Long-term | Translation | Financial | Treasury | Interest in | Shareholders’ | ||||||||||||||||||||||||||||||||||||
Shares | Amount | Surplus | Earnings | Investments | Adjustments | Instruments | Stock | Total | Subsidiaries | Equity | ||||||||||||||||||||||||||||||||||
(Thousands) | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | ||||||||||||||||||||||||||||||||||
BALANCE, JANUARY 1, 2004 | 20,266,619 | 202,666.2 | 56,855.9 | 71,100.1 | (0.1 | ) | 225.4 | — | (1,633.2 | ) | 329,214.3 | 89.0 | 329,303.3 | |||||||||||||||||||||||||||||||
Appropriations of prior year’s earnings | ||||||||||||||||||||||||||||||||||||||||||||
Employees’ profit sharing — in cash | — | — | — | (681.6 | ) | — | — | — | — | (681.6 | ) | — | (681.6 | ) | ||||||||||||||||||||||||||||||
Employees’ profit sharing — in stock | 272,651 | 2,726.5 | — | (2,726.5 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Cash dividends to preferred shareholders | — | — | — | (184.5 | ) | — | — | — | — | (184.5 | ) | — | (184.5 | ) | ||||||||||||||||||||||||||||||
Cash dividends to common shareholders — NT$0.6 per share | — | — | — | (12,160.0 | ) | — | — | — | — | (12,160.0 | ) | — | (12,160.0 | ) | ||||||||||||||||||||||||||||||
Stock dividends to common shareholders — NT$1.4 per share | 2,837,327 | 28,373.3 | — | (28,373.3 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Bonus to directors and supervisors | — | — | — | (127.8 | ) | — | — | — | — | (127.8 | ) | — | (127.8 | ) | ||||||||||||||||||||||||||||||
Net income in 2004 | — | — | — | 92,316.1 | — | — | — | — | 92,316.1 | 12.9 | 92,329.0 | |||||||||||||||||||||||||||||||||
Adjustment arising from changes in percentage of ownership in investees | — | — | 34.0 | — | — | — | — | — | 34.0 | — | 34.0 | |||||||||||||||||||||||||||||||||
Reversal of unrealized loss on long-term investments of investees | — | — | — | — | 0.1 | — | — | — | 0.1 | — | 0.1 | |||||||||||||||||||||||||||||||||
Translation adjustments | — | — | — | — | — | (2,451.8 | ) | — | — | (2,451.8 | ) | — | (2,451.8 | ) | ||||||||||||||||||||||||||||||
Issuance of stock from exercising stock options | 87 | 0.8 | 2.8 | — | — | — | — | — | 3.6 | — | 3.6 | |||||||||||||||||||||||||||||||||
Cash dividends received by subsidiaries from parent company | — | — | 22.8 | — | — | — | — | — | 22.8 | — | 22.8 | |||||||||||||||||||||||||||||||||
Treasury stock transactions — sales of parent company’s stock held by subsidiaries | — | — | 1.9 | — | — | — | — | 38.0 | 39.9 | — | 39.9 | |||||||||||||||||||||||||||||||||
Common stock repurchases | — | — | — | — | — | — | — | (7,059.8 | ) | (7,059.8 | ) | — | (7,059.8 | ) | ||||||||||||||||||||||||||||||
Retirement of treasury stock | (124,720 | ) | (1,247.2 | ) | (380.1 | ) | (5,432.5 | ) | — | — | — | 7,059.8 | — | — | — | |||||||||||||||||||||||||||||
Decrease in minority interest | — | — | — | — | — | — | — | — | — | (26.2 | ) | (26.2 | ) | |||||||||||||||||||||||||||||||
BALANCE, DECEMBER 31, 2004 | 23,251,964 | 232,519.6 | 56,537.3 | 113,730.0 | — | (2,226.4 | ) | — | (1,595.2 | ) | 398,965.3 | 75.7 | 399,041.0 | |||||||||||||||||||||||||||||||
Appropriations of prior year’s earnings | ||||||||||||||||||||||||||||||||||||||||||||
Employees’ profit sharing — in cash | — | — | — | (3,086.2 | ) | — | — | — | — | (3,086.2 | ) | — | (3,086.2 | ) | ||||||||||||||||||||||||||||||
Employees’ profit sharing — in stock | 308,622 | 3,086.2 | — | (3,086.2 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Cash dividends to common shareholders — NT$2.00 per share | — | — | — | (46,504.1 | ) | — | — | — | — | (46,504.1 | ) | — | (46,504.1 | ) | ||||||||||||||||||||||||||||||
Stock dividends to common shareholders — NT$0.50 per share | 1,162,602 | 11,626.0 | — | (11,626.0 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Bonus to directors and supervisors | — | — | — | (231.5 | ) | — | — | — | — | (231.5 | ) | — | (231.5 | ) | ||||||||||||||||||||||||||||||
Net income in 2005 | — | — | — | 93,575.0 | — | — | — | — | 93,575.0 | 57.7 | 93,632.7 | |||||||||||||||||||||||||||||||||
Adjustment arising from changes in percentage of ownership in investees | — | — | 71.4 | — | — | — | — | — | 71.4 | — | 71.4 | |||||||||||||||||||||||||||||||||
Translation adjustments | — | — | — | — | — | 1,585.7 | — | — | 1,585.7 | (51.8 | ) | 1,533.9 | ||||||||||||||||||||||||||||||||
Issuance of stock from exercising stock options | 6,837 | 68.4 | 202.5 | — | — | — | — | — | 270.9 | — | 270.9 | |||||||||||||||||||||||||||||||||
Cash dividends received by subsidiaries from parent company | — | — | 84.3 | — | — | — | — | — | �� | 84.3 | — | 84.3 | ||||||||||||||||||||||||||||||||
Treasury stock transactions — sales of parent company’s stock held by subsidiaries | — | — | 222.4 | — | — | — | — | 677.1 | 899.5 | — | 899.5 | |||||||||||||||||||||||||||||||||
Increase in minority interests | — | — | — | — | — | — | — | — | — | 526.8 | 526.8 | |||||||||||||||||||||||||||||||||
BALANCE, DECEMBER 31, 2005 | 24,730,025 | 247,300.2 | 57,117.9 | 142,771.0 | — | (640.7 | ) | — | (918.1 | ) | 445,630.3 | 608.4 | 446,238.7 | |||||||||||||||||||||||||||||||
Appropriations of prior year’s earnings | ||||||||||||||||||||||||||||||||||||||||||||
Employees’ profit sharing — in cash | — | — | — | (3,432.1 | ) | — | — | — | — | (3,432.1 | ) | — | (3,432.1 | ) | ||||||||||||||||||||||||||||||
Employees’ profit sharing — in stock | 343,213 | 3,432.1 | — | (3,432.1 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Cash dividends to common shareholders — NT$2.50 per share | — | — | — | (61,825.1 | ) | — | — | — | — | (61,825.1 | ) | — | (61,825.1 | ) | ||||||||||||||||||||||||||||||
Stock dividends to common shareholders — NT$0.15 per share | 370,950 | 3,709.5 | — | (3,709.5 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Bonus to directors and supervisors | — | — | — | (257.4 | ) | — | — | — | — | (257.4 | ) | — | (257.4 | ) |
- F6 -
Table of Contents
(In Millions of New Taiwan Dollars, Except Dividends Per Share)
Equity Attributable to Shareholders of the Parent | ||||||||||||||||||||||||||||||||||||||||||||
Unrealized | ||||||||||||||||||||||||||||||||||||||||||||
Capital Stock | Gain (Loss) | Unrealized | ||||||||||||||||||||||||||||||||||||||||||
(NT$10 Par Value) | on | Cumulative | Gain on | Minority | Total | |||||||||||||||||||||||||||||||||||||||
Common stock | Capital | Retained | Long-term | Translation | Financial | Treasury | Interest in | Shareholders’ | ||||||||||||||||||||||||||||||||||||
Shares | Amount | Surplus | Earnings | Investments | Adjustments | Instruments | Stock | Total | Subsidiaries | Equity | ||||||||||||||||||||||||||||||||||
(Thousands) | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | ||||||||||||||||||||||||||||||||||
Capital surplus transferred to capital stock | 370,950 | 3,709.5 | (3,709.5 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Net income in 2006 | — | — | — | 127,009.7 | — | — | — | — | 127,009.7 | 185.5 | 127,195.2 | |||||||||||||||||||||||||||||||||
Adjustment arising from changes in percentage of ownership in investees | — | — | 187.1 | — | — | — | — | — | 187.1 | — | 187.1 | |||||||||||||||||||||||||||||||||
Translation adjustments | — | — | — | — | — | (550.4 | ) | — | — | (550.4 | ) | (126.2 | ) | (676.6 | ) | |||||||||||||||||||||||||||||
Issuance of stock from exercising stock options | 14,550 | 145.6 | 429.7 | — | — | — | — | — | 575.3 | — | 575.3 | |||||||||||||||||||||||||||||||||
Cash dividends received by subsidiaries from parent company | — | — | 82.3 | — | — | — | — | — | 82.3 | — | 82.3 | |||||||||||||||||||||||||||||||||
Valuation gain on available-for-sale financial assets | — | — | — | — | — | — | 386.0 | — | 386.0 | 2.1 | 388.1 | |||||||||||||||||||||||||||||||||
Equity in the valuation gain on available-for-sale financial assets of equity method investees | — | — | — | — | — | — | 175.6 | — | 175.6 | — | 175.6 | |||||||||||||||||||||||||||||||||
Increase in minority interests | — | — | — | — | — | — | — | — | — | 487.0 | 487.0 | |||||||||||||||||||||||||||||||||
BALANCE, DECEMBER 31, 2006 | 25,829,688 | 258,296.9 | 54,107.5 | 197,124.5 | — | (1,191.1 | ) | 561.6 | (918.1 | ) | 507,981.3 | 1,156.8 | 509,138.1 | |||||||||||||||||||||||||||||||
BALANCE, DECEMBER 31, 2006 (IN MILLIONS OF US$ — Note 3) | 7,925.6 | 1,660.2 | 6,048.7 | — | (36.5 | ) | 17.2 | (28.2 | ) | 15,587.0 | 35.5 | 15,622.5 | ||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements. | (Concluded) |
- F7 -
Table of Contents
(In Millions of New Taiwan or U.S. Dollars)
Year Ended December 31 | ||||||||||||||||
2004 | 2005 | 2006 | ||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
(Note 3) | ||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||
Net income attributable to shareholders of the parent | 92,316.1 | 93,575.0 | 127,009.7 | 3,897.2 | ||||||||||||
Net income attributable to minority interest | 12.9 | 57.7 | 185.5 | 5.7 | ||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 69,818.5 | 75,649.4 | 73,715.2 | 2,261.9 | ||||||||||||
Amortization of premium/discount of financial assets | 28.7 | 120.9 | 2.4 | 0.1 | ||||||||||||
Loss on impairment of financial assets | 350.6 | 128.9 | 279.7 | 8.6 | ||||||||||||
Loss (gain) on disposal of available-for-sale financial assets, net | 69.2 | 150.1 | (90.8 | ) | (2.8 | ) | ||||||||||
Equity in earnings of equity method investees, net | (2,094.1 | ) | (1,433.2 | ) | (2,347.2 | ) | (72.0 | ) | ||||||||
Dividends received from equity method investees | — | 668.5 | 614.6 | 18.9 | ||||||||||||
Gain on disposal of investments accounted for using equity method | — | (0.6 | ) | — | — | |||||||||||
Gain on disposal of financial assets carried at cost, net | (2.2 | ) | (14.7 | ) | (16.2 | ) | (0.5 | ) | ||||||||
Gain on disposal of property, plant and equipment and other assets, net | (227.8 | ) | (282.6 | ) | (179.7 | ) | (5.5 | ) | ||||||||
Deferred income taxes | (1,058.4 | ) | (3,353.0 | ) | 121.6 | 3.7 | ||||||||||
Loss on idle assets | 116.2 | 131.8 | 44.1 | 1.4 | ||||||||||||
Donation of idle assets | — | 7.2 | — | — | ||||||||||||
Net changes in operating assets and liabilities: | ||||||||||||||||
Decrease (increase) in: | ||||||||||||||||
Financial assets and liabilities at fair value through profit or loss | (930.7 | ) | 72.8 | 340.2 | 10.4 | |||||||||||
Notes and accounts receivable, net | (1,540.3 | ) | (10,601.0 | ) | 6,447.3 | 197.8 | ||||||||||
Receivables from related parties | 266.0 | (101.9 | ) | 440.9 | 13.5 | |||||||||||
Other receivables from related parties | (9.8 | ) | (88.0 | ) | 341.1 | 10.5 | ||||||||||
Other financial assets | 281.3 | (306.0 | ) | (738.7 | ) | (22.7 | ) | |||||||||
Inventories, net | (3,420.6 | ) | (2,006.2 | ) | (3,702.4 | ) | (113.6 | ) | ||||||||
Prepaid expenses and other current assets | 1.3 | 120.1 | (170.5 | ) | (5.2 | ) | ||||||||||
Increase (decrease) in: | ||||||||||||||||
Accounts payable | 825.8 | 2,088.6 | (1,487.1 | ) | (45.6 | ) | ||||||||||
Payables to related parties | (1,500.0 | ) | (1,629.2 | ) | (572.4 | ) | (17.6 | ) | ||||||||
Income tax payable | 266.5 | 3,611.5 | 3,931.0 | 120.6 | ||||||||||||
Accrued expenses and other current liabilities | (546.5 | ) | 181.7 | 862.4 | 26.4 | |||||||||||
Accrued pension cost | 500.3 | 360.1 | 65.7 | 2.0 | ||||||||||||
Deferred credits | — | 117.3 | (99.3 | ) | (3.0 | ) | ||||||||||
Net cash provided by operating activities | 153,523.0 | 157,225.2 | 204,997.1 | 6,290.2 | ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||||
Acquisitions of: | ||||||||||||||||
Available-for-sale financial assets | (75,119.2 | ) | (99,436.2 | ) | (119,291.7 | ) | (3,660.4 | ) | ||||||||
Held-to-maturity financial assets | (34,274.5 | ) | (14,199.1 | ) | (18,554.0 | ) | (569.3 | ) | ||||||||
Investments accounted for using equity method | — | (621.9 | ) | (2,613.0 | ) | (80.2 | ) | |||||||||
Financial assets carried at cost | (75.1 | ) | (456.9 | ) | (511.6 | ) | (15.7 | ) | ||||||||
Property, plant and equipment | (81,094.5 | ) | (79,878.7 | ) | (78,737.3 | ) | (2,416.0 | ) |
- F8 -
Table of Contents
(In Millions of New Taiwan or U.S. Dollars)
Year Ended December 31 | ||||||||||||||||
2004 | 2005 | 2006 | ||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
(Note 3) | ||||||||||||||||
Proceeds from disposal of: | ||||||||||||||||
Available-for-sale financial assets | 28,801.3 | 102,577.8 | 91,620.4 | 2,811.3 | ||||||||||||
Investments accounted for using equity method | — | 65.1 | — | — | ||||||||||||
Financial assets carried at cost | 7.8 | 76.1 | 126.5 | 3.9 | ||||||||||||
Held-to-maturity financial assets upon maturity | 13,843.5 | 14,595.4 | 10,410.0 | 319.4 | ||||||||||||
Property, plant and equipment and other assets | 1,812.6 | 480.7 | 518.7 | 15.9 | ||||||||||||
Increase in deferred charges | (2,405.7 | ) | (856.0 | ) | (1,414.8 | ) | (43.4 | ) | ||||||||
Decrease (increase) in refundable deposits | 93.1 | 0.8 | (1,224.5 | ) | (37.6 | ) | ||||||||||
Decrease (increase) in other assets | 51.6 | 0.7 | (52.1 | ) | (1.5 | ) | ||||||||||
Net cash used in investing activities | (148,359.1 | ) | (77,652.2 | ) | (119,723.4 | ) | (3,673.6 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||||
Increase (decrease) in guarantee deposits | (351.0 | ) | 2,483.5 | 920.7 | 28.2 | |||||||||||
Cash dividends paid for common stock | (12,137.2 | ) | (46,419.8 | ) | (61,742.7 | ) | (1,894.5 | ) | ||||||||
Cash dividends paid for preferred stock | (184.5 | ) | — | — | — | |||||||||||
Cash bonus paid to employees | (681.6 | ) | (3,086.2 | ) | (3,432.1 | ) | (105.3 | ) | ||||||||
Bonus to directors and supervisors | (127.8 | ) | (231.5 | ) | (257.4 | ) | (7.9 | ) | ||||||||
Repurchase of treasury stock | (7,059.8 | ) | — | — | — | |||||||||||
Repayments of: | ||||||||||||||||
Short-term bank loans | — | (54.5 | ) | (328.5 | ) | (10.0 | ) | |||||||||
Bonds payable | (5,000.0 | ) | (10,500.0 | ) | — | — | ||||||||||
Long-term bank loans | (6,656.1 | ) | (1,337.4 | ) | (5.5 | ) | (0.2 | ) | ||||||||
Proceeds from: | ||||||||||||||||
Exercise of employee stock options | 3.6 | 270.9 | 575.1 | 17.6 | ||||||||||||
Disposal of treasury stock | 39.9 | 899.5 | — | — | ||||||||||||
Increase (decrease) in minority interests | (26.1 | ) | 6.8 | 487.0 | 14.9 | |||||||||||
Net cash used in financing activities | (32,180.6 | ) | (57,968.7 | ) | (63,783.4 | ) | (1,957.2 | ) | ||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (27,016.7 | ) | 21,604.3 | 21,490.3 | 659.4 | |||||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | (1,669.8 | ) | 348.9 | (136.8 | ) | (4.2 | ) | |||||||||
EFFECT OF FIRST INCLUSION FOR CONSOLIDATION OF CERTAIN SUBSIDIARIES | — | 228.1 | — | — | ||||||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 102,988.9 | 74,302.4 | 96,483.7 | 2,960.5 | ||||||||||||
CASH AND CASH EQUIVALENTS, END OF YEAR | 74,302.4 | 96,483.7 | 117,837.2 | 3,615.7 | ||||||||||||
SUPPLEMENTAL INFORMATION | ||||||||||||||||
Interest paid | 1,470.3 | 1,378.6 | 951.5 | 29.2 | ||||||||||||
Income tax paid | 389.2 | 341.7 | 3,630.0 | 111.4 |
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(In Millions of New Taiwan or U.S. Dollars)
Year Ended December 31 | ||||||||||||||||
2004 | 2005 | 2006 | ||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
(Note 3) | ||||||||||||||||
INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS | ||||||||||||||||
Acquisition of property, plant and equipment | 113,043.5 | 56,166.2 | 80,675.3 | 2,475.5 | ||||||||||||
Decrease (increase) in payables to contractors and equipment suppliers | (26,195.6 | ) | 24,361.7 | (1,702.5 | ) | (52.3 | ) | |||||||||
Decrease in obligations under capital leases | 160.3 | — | — | — | ||||||||||||
Increase in other long-term payables | (5,913.7 | ) | (649.2 | ) | (235.5 | ) | (7.2 | ) | ||||||||
Cash paid | 81,094.5 | 79,878.7 | 78,737.3 | 2,416.0 | ||||||||||||
NON-CASH FINANCING ACTIVITIES | ||||||||||||||||
Current portion of long-term liabilities | 10,500.0 | 5.5 | 7,004.1 | 214.9 | ||||||||||||
Current portion of other long-term payables (under accrued expenses and other current liabilities) | 1,505.3 | 869.1 | 617.9 | 19.0 | ||||||||||||
Current portion of other payables to related parties (under payables to related parties) | 469.5 | 694.0 | 688.6 | 21.1 |
The accompanying notes are an integral part of the consolidated financial statements. | (Concluded) |
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1. | GENERAL |
Taiwan Semiconductor Manufacturing Company Limited (TSMC), a Republic of China (R.O.C.) corporation, was incorporated as a venture among the Government of the R.O.C., acting through the Development Fund of the Executive Yuan; Philips Electronics N.V. and certain of its affiliates (Philips); and certain other private investors. 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). |
TSMC is engaged mainly in the manufacturing, selling, packaging, testing and computer-aided designing of integrated circuits and other semiconductor devices and the manufacturing of masks. |
2. | SIGNIFICANT ACCOUNTING POLICIES |
The consolidated financial statements are presented in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the R.O.C. |
Significant accounting policies are summarized as follows: |
Principles of Consolidation |
The accompanying consolidated financial statements include the accounts of all directly and indirectly majority owned subsidiaries of TSMC, and the accounts of investees in which TSMC’s ownership percentage is less than 50% but over which TSMC has a controlling interest. All significant intercompany balances and transactions are eliminated upon consolidation. |
The consolidated entities were as follows: |
Percentage of | ||||||
Ownership at | ||||||
December 31, | ||||||
Name of Investor | Name of Investee | 2006 | Remark | |||
TSMC | TSMC Global, Ltd. (TSMC Global) | 100% | TSMC Global was acquired in August 2006. | |||
TSMC North America (TSMC-NA) | 100% | — | ||||
TSMC Japan K. K. (TSMC-Japan) | 100% | — | ||||
Taiwan Semiconductor Manufacturing Company Korea (TSMC-Korea) | 100% | TSMC-Korea was established in May 2006. | ||||
TSMC International Investment Ltd. (TSMC International) | 100% | — | ||||
Taiwan Semiconductor Manufacturing Company Europe B.V. (TSMC-Europe) | 100% | — | ||||
TSMC Partners, Ltd. (TSMC Partners) | 100% | — | ||||
TSMC (Shanghai) Company Limited (TSMC-Shanghai) | 100% | — | ||||
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Percentage of | ||||||
Ownership at | ||||||
December 31, | ||||||
Name of Investor | Name of Investee | 2006 | Remark | |||
Chi Cherng Investment Co., Ltd. (Chi Cherng) | 36% | TSMC and Hsin Ruey held in aggregate a 100% ownership of Chi Cherng. As of December 31, 2006, Chi Cherng held 16,947 thousand common shares in TSMC (approximately 0.07% of outstanding common shares). | ||||
Hsin Ruey Investment Co., Ltd. (Hsin Ruey) | 36% | TSMC and Chi Cherng held in aggregate a 100% ownership of Hsin Ruey. As of December 31, 2006, Hsin Ruey held 16,979 thousand common shares in TSMC (approximately 0.07% of outstanding common shares). | ||||
Emerging Alliance Fund, L.P. (Emerging Alliance) | 99.5% | — | ||||
VentureTech Alliance Fund II, L.P. (VTAF II) | 98% | — | ||||
VentureTech Alliance Fund III, L.P. (VTAF III) | 98% | VTAF III was established in April 2006. | ||||
Global Unichip Corporation (GUC) | 38% | GUC became a consolidated entity of TSMC as GUC’s president was assigned by TSMC and TSMC has control over the financial, operating and personnel hiring decisions of GUC. | ||||
VisEra Technology Company, Ltd. (VisEra) | — | Due to the changes in investment structure, TSMC no longer had a controlling interest in VisEra beginning in November 2005 resulting in VisEra being deconsolidated. | ||||
TSMC Partners | VisEra Holding Company (VisEra Holding) | 49% | Due to the changes in investment structure, TSMC Partners no longer had a controlling interest in VisEra beginning in November 2005 resulting in VisEra Holding being deconsolidated. | |||
TSMC International | TSMC Technology, Inc. (TSMC Technology) | 100% | — | |||
TSMC Development, Inc. (TSMC Development) | 100% | — | ||||
InveStar Semiconductor Development Fund, Inc. (ISDF) | 97% | — | ||||
InveStar Semiconductor Development Fund, Inc. (II) LDC (ISDF II) | 97% | — | ||||
TSMC Development | WaferTech, LLC (WaferTech) | 99.996% | — |
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Percentage of | ||||||
Ownership at | ||||||
December 31, | ||||||
Name of Investor | Name of Investee | 2006 | Remark | |||
GUC | Global Unichip Corp.-North America (GUC-NA) | 100% | GUC-NA, a subsidiary of GUC, became a consolidated entity of TSMC since TSMC has control over GUC. | |||
Global Unichip Japan Co., Ltd. (GUC-Japan) | 100% | GUC-Japan, a subsidiary of GUC, became a consolidated entity of TSMC since TSMC has control over GUC. |
The following diagram presents information regarding the relationship and ownership percentages between TSMC and its consolidated subsidiaries as of December 31, 2006: |
TSMC-NA is engaged in selling and marketing of integrated circuits and semiconductor devices. TSMC-Japan, TSMC-Korea and TSMC-Europe are engaged mainly in marketing activities. TSMC International is engaged in investment in companies involved in the design, manufacture, and other related business in the semiconductor industry. TSMC Global, TSMC Partners, TSMC Development, Chi Cherng and Hsin Ruey are engaged in investing activities. TSMC-Shanghai is engaged in the manufacturing and selling of integrated circuits pursuant to the orders from and product design specifications provided by customers. Emerging Alliance, VTAF II, VTAF III, ISDF and ISDF II are engaged in investing in new start-up technology companies. TSMC Technology is engaged mainly in engineering support activities. WaferTech is engaged in the manufacturing, selling, testing and computer-aided designing of integrated circuits and other semiconductor devices. GUC is engaged in researching, developing, manufacturing, testing and marketing of integrated circuits. GUC-NA and GUC-Japan are engaged in providing products consulting in North America and Japan, respectively. |
TSMC together with its consolidated subsidiaries are hereinafter referred to collectively as the “Company”. |
Minority interests in the aforementioned subsidiaries are presented as a separate component of shareholders’ equity. |
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Use of Estimates |
The preparation of consolidated 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, corporate notes and treasury bills 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 and financial assets acquired principally for the purpose of selling them in the near term are initially recognized at fair value, with transaction costs expensed as incurred. The derivatives and financial assets 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 determined as follows: Publicly-traded stocks — closing prices at the end of the year; and derivatives — 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 |
Investments designated as available-for-sale financial assets include debt securities and equity securities. 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. |
Fair value is determined as follows: Structured time deposits — using valuation techniques; open-end mutual funds and money market funds — net asset value at the end of the year; publicly-traded stocks — closing prices at the end of the year; and other debt securities - average of bid and asked prices at the end of the year. |
Cash dividends are recognized as investment income upon resolution of shareholders of an investee but are accounted for as reductions to the original cost of investments if such dividends are declared on the earnings of the investees attributable to periods prior to the purchase of the investments. 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. 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. |
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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. 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 accounts receivable. The Company determines the amount of allowance for doubtful receivables by examining the aging analysis of outstanding 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, shipment is made, price is fixed or determinable, and collectibility is reasonably assured. Revenues from the design and manufacturing of photo masks, which are used as manufacturing tools in the fabrication process, are recognized when the photo masks are accepted by customers. Provisions for estimated sales returns and others are generally 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 stated at the lower of cost or market value. Inventories are recorded at standard cost and adjusted to the approximate weighted-average cost at the balance sheet date. Market value represents replacement cost for raw materials, supplies and spare parts and net realizable value for work in process and finished goods. The Company assesses the impact of changing technology on its inventories on hand and writes off inventories that are considered obsolete. Year-end inventories are evaluated for estimated excess quantities and obsolescence based on a demand forecast within a specific time horizon, which is generally 180 days or less. Estimated losses on scrap and slow-moving items are recognized and included in the allowance for losses. |
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. Prior to January 1, 2006, the difference, if any, between the cost of investment and the Company’s proportionate share of the investee’s equity was amortized by the straight-line method over five years, with the amortization recorded in the “equity in earnings/losses of equity method investees, net” account. Effective January 1, 2006, pursuant to the revised Statement of Financial Accounting Standards No. 5, “Long-term Investments in Equity Securities” (SFAS No. 5), the cost of an investment shall be analyzed and the difference between the cost of investment and the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized and instead shall be tested for impairment annually. The accounting treatment for the investment premiums acquired before January 1, 2006 is the same as that for goodwill which is no longer being amortized; while investment discounts continue to be amortized over the remaining periods. When an indication of impairment is identified, the carrying amount of the investment is reduced, with the related impairment loss recognized in earnings. |
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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 percentage in the investees until such gains or losses are realized through transactions with 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. |
If an investee’s functional currency is a foreign currency, translation adjustments will result from the translation of the investee’s financial statements into the reporting currency of the Company. Such adjustments are accumulated and reported as a separate component of shareholders’ equity. |
Financial Assets Carried at Cost |
Investments in 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 are carried at their original cost, such as non-publicly traded stocks and mutual funds. 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. |
The accounting treatment for cash dividends and stock dividends arising from financial assets carried at cost is the same as that for cash and stock dividends arising from available-for-sale financial assets. |
Property, Plant and Equipment |
Property, plant and equipment are stated at cost less accumulated depreciation. Properties covered by agreements qualifying as capital leases are carried at the lower of the leased equipment’s market value or the present value of the minimum lease payments at the inception date of the lease, with the corresponding amount recorded as obligations under capital leases. 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: Land improvements — 20 years; buildings — 10 to 20 years; machinery and equipment — 3 to 10 years; office equipment — 3 to 15 years; and leased assets — 20 years. |
Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are deducted from the corresponding accounts, with any gain or loss recorded as non-operating gains or losses in the year of sale or disposal. |
Goodwill |
Goodwill represents the excess of the consideration paid for an acquisition over the fair value of identifiable net assets acquired. Prior to January 1, 2006, goodwill was amortized using the straight-line method over the estimated life of 10 years. Effective January 1, 2006, pursuant to the newly revised SFAS No. 25, “Business Combinations — Accounting Treatment under Purchase Method” (SFAS No. 25), goodwill is no longer amortized and instead is tested for impairment annually. If an event occurs or circumstances change which indicates that the fair value of goodwill is more likely than not below its carrying amount, an impairment loss is recognized. A subsequent recovery in the fair value of goodwill is not allowed. |
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Deferred Charges |
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 — 2 to 5 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. |
Pension Costs |
For employees under 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 under defined benefit pension plans, pension costs are recorded based on actuarial calculations. |
Government Subsidies |
Income-related subsidies from foreign governments are recognized in earnings when the requirements for subsidies are met. |
Income Tax |
The Company applies intra-period and inter-period allocations for its income tax, whereby (1) a portion of current income tax expense is allocated to the cumulative effect of changes in accounting principles; and (2) 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, and investments in important technology-based enterprises are recognized using the flow-through method. |
Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision. |
Income tax on unappropriated earnings (excluding earnings from foreign consolidated subsidiaries) 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. |
The R.O.C. government enacted the Alternative Minimum Tax Act (the AMT Act), which became effective on January 1, 2006. The alternative minimum tax (AMT) imposed under the AMT Act is a supplemental tax levied at a rate of 10% which is payable if the income tax payable determined pursuant to the Income Tax Law is below the minimum amount prescribed under the AMT Act. The taxable income for calculating the AMT includes most of the income that is exempted from income tax under various laws and statutes. The Company has considered the impact of the AMT Act in the determination of its tax liabilities. |
Stock-based Compensation |
Employee stock option plans that are amended or have options granted on or after January 1, 2004 are accounted for by the interpretations issued by the Accounting Research and Development Foundation (the ARDF). The Company adopted the intrinsic value method and any compensation cost determined using this method is recognized in earnings over the employee vesting period. |
Treasury Stock |
TSMC’s stock held by 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 TSMC are recorded under capital surplus — treasury stock transactions. |
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Foreign-currency Transactions |
Foreign-currency transactions 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. |
Translation of Foreign-currency Financial Statements |
Statement of Financial Accounting Standards No. 14, “Accounting for Foreign-currency Translation” applies to foreign subsidiaries that use the local currency as their functional currency. The financial statements of foreign subsidiaries are translated into New Taiwan dollars at the following exchange rates: Assets and liabilities — spot rates at year-end; shareholders’ equity — historical rates; income and expenses — average rates during the year. The resulting translation adjustments are recorded as a separate component of shareholders’ equity. |
Concentration of Credit Risk |
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, receivables, investments and deposits. The Company limits its exposure to credit loss by depositing its cash and cash equivalents with high credit rating financial institutions. The Company’s sales are primarily denominated in U.S. dollars. Sales to top ten customers represented 49%, 52% and 53% of the consolidated sales for the years ended December 31, 2004, 2005 and 2006, respectively. The Company routinely assesses the financial strength of substantially all customers. The financial condition of the counter-party to investments and deposits is assessed by management on a regular basis. |
Fair Values of Financial Instruments |
The carrying amount of cash equivalents approximates fair value due to the short period of time to maturity. Fair values of investments in equity or debt securities and derivative financial instruments are based on quoted market prices or pricing models using current market data. Receivables, other financial assets, payables and short-term loans are financial instruments with carrying amounts that approximate fair values. Fair value of long-term loans with floating interest rates is their carrying amount. Fair value of long-term loans with fixed interest rates is the present value of expected cash flows discounted using the interest rate the Company may obtain for similar long-term loans. For the Company’s investment portfolio without immediately available market quotes, management believes that the carrying amount of the portfolio approximates the fair value at December 31, 2005 and 2006. Management believes that the differences between the estimated fair values and carrying amounts of these financial instruments were not significant at December 31, 2005 and 2006. |
Earnings Per Share |
Earnings per share is computed by dividing income attributable to shareholders of the parent by the weighted-average number of shares outstanding in each year, which is retroactively adjusted to the beginning of the year for stock dividends and stock bonuses issued subsequently. Earnings per equivalent ADS is calculated by multiplying earnings per share by five (one ADS represents five common shares). |
Recent Accounting Pronouncements |
In July 2006, the ARDF issued R.O.C. SFAS No. 37, “Accounting for Intangible Assets”, which is required to be applied by the Company on January 1, 2007. The standard provides guidance on initial recognition and measurement, amortization, presentation and disclosure of intangible assets. An intangible asset should be measured initially at cost. For an intangible asset of a finite useful life; the carrying amount shall be amortized over its useful life. On the other hand, for an intangible asset with an indefinite useful life, the carrying amount shall not be amortized. Intangible assets shall be evaluated for impairment at least annually as required by R.O.C. SFAS No.35 “Accounting for Impairment of Assets”. Upon adoption of the standard on January 1, 2007, the Company expects no significant impact on its current accounting treatment. |
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In November 2006, the ARDF issued R.O.C. SFAS No. 38, “Accounting for Non-current Assets Held-for-sale and discontinued operations”, which is required to be applied by the Company on January 1, 2007. Under R.O.C. SFAS No.38, assets classified as held-for-sale shall be measured at the lower of carrying values or fair values and ceased to be depreciated or amortized. Any impairment loss shall be recognized in current earnings. Assets classified as held-for-sale shall be presented separately on the balance sheet. R.O.C. SFAS No.38 also requires the Company to disclose information of discontinued operations separately on the statements of income and cash flow or in a footnote. Upon adoption of the standard on January 1, 2007, the Company expects no significant impact on its current accounting treatment. | ||
In March 2007, the ARDF issued an interpretation which requires R.O.C. companies to recognize compensation expenses for bonuses paid to employees, directors and supervisors beginning January 1, 2008. Such bonuses are currently recorded as appropriation of earnings under R.O.C. GAAP. On March 30, 2007, the R.O.C. Financial Supervisory Commission also issued an interpretation which requires that bonuses granted to employees, directors and supervisors in the form of shares be valued at fair market value for purposes of compensation expenses. While definitive implementing accounting pronouncements have not yet been issued, the Company currently expects a significant increase in total compensation expenses upon adoption of the aforementioned interpretations on January 1, 2008. |
Reclassifications |
Certain accounts in the consolidated financial statements as of and for the years ended December 31, 2004 and 2005 have been reclassified to conform to the consolidated financial statements as of and for the year ended December 31, 2006. |
3. | U.S. DOLLAR AMOUNTS |
The Company maintains its accounts and expresses its consolidated financial statements in New Taiwan dollars. For convenience only, U.S. dollar amounts presented in the accompanying consolidated financial statements have been translated from New Taiwan dollars at the noon buying rate in The City of New York for cable transfers in New Taiwan dollars as certified for customs purposes by the Federal Reserve Bank of New York as of December 31, 2006, which was NT$32.59 to US$1.00. The convenience translations should not be construed as representations that the New Taiwan dollar amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange. |
4. | ACCOUNTING CHANGES |
On January 1, 2006, the Company adopted the newly released R.O.C. Statements of Financial Accounting Standards No. 34, “Financial Instruments: Recognition and Measurement” (R.O.C. SFAS No. 34) and No. 36, “Financial Instruments: Disclosure and Presentation” and related revisions of previously released R.O.C. SFASs. |
a. | Effect of adopting the newly released R.O.C. SFASs and related revisions of previously released R.O.C. SFASs |
The Company had categorized its financial assets and liabilities upon initial adoption of the newly released R.O.C. SFASs. The adjustments made to the carrying amounts of the financial instruments categorized as financial assets or financial liabilities at fair value through profit or loss were included in the cumulative effect of changes in accounting principles; the adjustments made to the carrying amounts of those categorized as available-for-sale financial assets were recognized as adjustments to shareholders’ equity. |
The effect of adopting the newly released R.O.C. SFASs is summarized as follows: |
Recognized as | ||||||||
Cumulative | ||||||||
Effect of | Recognized as a | |||||||
Changes in | Separate | |||||||
Accounting | Component of | |||||||
Principles | Shareholders’ | |||||||
(Net of Tax) | Equity | |||||||
Financial assets/liabilities at fair value through profit or loss | $ | 1,606.7 | $ | — | ||||
Available-for-sale financial assets | — | 306.5 | ||||||
$ | 1,606.7 | $ | 306.5 | |||||
The adoption of the newly released R.O.C. SFASs resulted in a decrease in net income before cumulative effect of changes in accounting principles of NT$1,083.5 million, an increase in net income of NT$523.2 million, and an increase in basic earnings per share (after income tax) of NT$0.02 for the year ended December 31, 2006. |
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Effective January 1, 2006, the Company adopted the newly revised R.O.C. SFAS No. 5 and SFAS No. 25, which prescribe that investment premiums, representing goodwill, be assessed for impairment at least on an annual basis instead of being amortized. Such a change in accounting principle did not have a material effect on the Company’s consolidated financial statements as of and for the year ended December 31, 2006. |
b. | Reclassifications |
Upon adoption of R.O.C. SFAS No. 34, certain accounts in the consolidated financial statements as of and for the years ended December 31, 2004 and 2005 were reclassified to conform to the consolidated financial statements as of and for the year ended December 31, 2006. The previously issued consolidated financial statements as of and for the year ended December 31, 2004 and 2005 were not required to be restated. |
Certain accounting policies prior to the adoption of the newly released R.O.C. SFASs are summarized as follows: |
1) | Short-term investments |
Short-term investments that were publicly-traded, easily converted to cash, and not acquired for the purpose of controlling the investees or establishing close business relationship with the investees were carried at the lower of cost or market value at the balance sheet date, with any temporary decline in value charged to current income. The market value of publicly-traded stocks was determined using the average-closing prices for the last month of the year. |
2) | Derivative financial instruments |
The Company entered into forward exchange contracts to manage foreign exchange exposures on foreign-currency-denominated assets and liabilities. The contracts were recorded in New Taiwan dollars at the current rate of exchange at the contract date. The differences in the New Taiwan dollar amounts translated using the current rates and the amounts translated using the contracted forward rates were amortized over the terms of the forward contracts using the straight-line method. At the end of each year, the receivables or payables arising from forward contracts were restated using the prevailing exchange rates with the resulting differences credited or charged to income. In addition, the receivables and payables related to the same forward contracts were netted with the resulting amount presented as either an asset or a liability. Any resulting gain or loss upon settlement was credited or charged to income in the year of settlement. |
The Company entered into cross currency swap contracts to manage currency exposures on foreign-currency-denominated assets and liabilities. The principal amount was recorded using the current rates of exchange at the contract date. The differences in the New Taiwan dollar amounts translated using the current rates and the amounts translated using the contracted rates were amortized over the terms of the contracts using the straight-line method. At the end of each year, the receivables or payables arising from cross-currency swap contracts were restated using prevailing exchange rate with the resulting differences credited or charged to income. In addition, the receivables and payables related to the contracts of the same counter party were netted with the resulting amount presented as either an asset or a liability. The difference in interest computed pursuant to the contracts on each settlement date or the balance sheet date was recorded as an adjustment to the interest income or expense associated with the hedged items. Any resulting gain or loss upon settlement was credited or charged to income in the year of settlement. |
The Company entered into interest rate swap contracts to manage exposures to changes in interest rates on existing assets or liabilities. These transactions were accounted for on an accrual basis, in which the cash settlement receivable or payable was recorded as an adjustment to interest income or expense associated with the hedged items. |
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Certain accounts in the consolidated financial statements as of and for the years ended December 31, 2004 and 2005 have been reclassified to conform to the classifications prescribed by the newly released R.O.C. SFASs. The reclassifications of the whole or a part of the account balances of certain accounts are summarized as follows: |
Before | After | |||||||
Reclassification | Reclassification | |||||||
NT$ | NT$ | |||||||
Balance sheet | (In Millions) | |||||||
Short-term investments, net | 47,399.3 | — | ||||||
Other financial assets | 2,915.7 | 1,617.8 | ||||||
Prepaid expenses and other current assets | 1,503.4 | 1,420.5 | ||||||
Long-term investments accounted for using cost method | 3,365.4 | — | ||||||
Long-term bond investments | 18,548.3 | — | ||||||
Other long-term investments | 10,227.0 | — | ||||||
Accrued expenses and other current liabilities | (10,542.2 | ) | (10,307.9 | ) | ||||
Financial assets at fair value through profit or loss | — | 1,770.4 | ||||||
Financial liabilities at fair value through profit or loss | — | (234.3 | ) | |||||
Available-for-sale financial assets | — | 46,570.1 | ||||||
Held-to-maturity financial assets | — | 29,377.8 | ||||||
Financial assets carried at cost | — | 3,202.5 | ||||||
73,416.9 | 73,416.9 | |||||||
Statement of income for the year ended December 31, 2004 | ||||||||
Gain on sales of investments, net | 914.5 | — | ||||||
Interest expense | (1,454.2 | ) | (1,366.0 | ) | ||||
Foreign exchange loss, net | (382.2 | ) | (3,036.3 | ) | ||||
Loss on impairment of long-term investments | (350.6 | ) | — | |||||
Unrealized valuation loss on short-term investments | (75.2 | ) | — | |||||
Gain on disposal of financial instruments, net | — | 3,480.4 | ||||||
Loss on impairment of financial assets | — | (350.6 | ) | |||||
Valuation loss on financial instruments, net | — | (75.2 | ) | |||||
(1,347.7 | ) | (1,347.7 | ) | |||||
Statement of income for the year ended December 31, 2005 | ||||||||
Interest income | 3,069.4 | 2,806.2 | ||||||
Foreign exchange gain, net | 3.0 | 2,610.0 | ||||||
Interest expense | (2,662.5 | ) | (1,413.4 | ) | ||||
Unrealized valuation loss on short-term investments | (337.2 | ) | — | |||||
Loss on disposal of investment, net | (9.9 | ) | — | |||||
Valuation loss on financial instruments, net | — | (337.2 | ) | |||||
Loss on settlement and disposal of financial instruments, net | — | (3,602.8 | ) | |||||
62.8 | 62.8 | |||||||
5. | CASH AND CASH EQUIVALENTS |
December 31 | ||||||||
2005 | 2006 | |||||||
NT$ | NT$ | |||||||
(In Millions) | ||||||||
Cash and deposits in banks | 48,107.3 | 85,496.1 | ||||||
Repurchase agreements collaterized by government bonds | 47,963.2 | 31,241.6 | ||||||
Corporate notes | 413.2 | 1,026.5 | ||||||
Treasury bills | — | 73.0 | ||||||
96,483.7 | 117,837.2 | |||||||
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6. | FINANCIAL ASSETS/LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS |
December 31 | ||||||||
2005 | 2006 | |||||||
NT$ | NT$ | |||||||
(In Millions) | ||||||||
Trading financial assets | ||||||||
Publicly-traded stocks | 389.5 | 1,162.3 | ||||||
Forward exchange contracts | 26.7 | — | ||||||
Cross currency swap contracts | 1,354.2 | 44.6 | ||||||
1,770.4 | 1,206.9 | |||||||
Trading financial liabilities | ||||||||
Forward exchange contracts | — | 0.1 | ||||||
Cross currency swap contracts | 234.3 | 10.8 | ||||||
234.3 | 10.9 | |||||||
The Company entered into derivative contracts during the years ended December 31, 2005 and 2006 to manage exposures due to the fluctuations of foreign exchange rates. The derivative contracts entered into by the Company did not meet the criteria for hedge accounting prescribed by R.O.C. SFAS No. 34. Therefore, effective from January 1, 2006, the Company discontinued applying hedge accounting treatment for its derivative financial contracts. | ||
Outstanding forward contracts as of December 31, 2005 and 2006: |
Contract | ||||||||
Amount | ||||||||
Currency | Maturity Date | (in Millions) | ||||||
December 31, 2005 | ||||||||
Sell | US$/NT$ | January 2006 | US$ | 60.0 | ||||
December 31, 2006 | ||||||||
Buy | US$/JPY$ | January 2007 | JPY$ | 38.6 |
Outstanding cross currency swap contracts as of December 31, 2005 and 2006: |
Range of | ||||||||
Contract Amount | Range of | Interest Rates | ||||||
Maturity Date | (in Millions) | Interest Rates Paid | Received | |||||
December 31, 2005 | ||||||||
January 2006 to March 2006 | US$ | 2,089.0 | 4.15%-4.54% | 0.02%-2.12% | ||||
December 31, 2006 | ||||||||
January 2007 to February 2007 | US$ | 820.0 | 3.19%-5.91% | 0.90%-3.25% |
The Company did not enter into any interest rate swap contracts during the year ended December 31, 2006. The Company rescinded all interest rate swap contracts in the first quarter of 2005 before their original maturities. The rescission loss of NT$28.3 million has been reclassified and included in the “loss on settlement and disposal of financial instruments” account. |
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Net losses arising from derivative financial instruments for the year ended December 31, 2006 were NT$1,613.4 million (including realized settlement losses of NT$1,647.1 million and a valuation gain of NT$33.7 million). |
7. | AVAILABLE-FOR-SALE FINANCIAL ASSETS |
December 31 | ||||||||
2005 | 2006 | |||||||
NT$ | NT$ | |||||||
(In Millions) | ||||||||
Open-end mutual funds | 6,199.0 | 26,147.3 | ||||||
Corporate bonds | 11,853.0 | 16,494.3 | ||||||
Agency bonds | 14,496.7 | 12,691.6 | ||||||
Corporate issued asset-backed securities | 11,582.6 | 10,541.7 | ||||||
Government bonds | 1,776.3 | 6,921.5 | ||||||
Money market funds | 260.7 | 667.8 | ||||||
Structured time deposits | — | 499.3 | ||||||
Publicly-traded stocks | 138.5 | 208.9 | ||||||
Corporate notes | 263.3 | — | ||||||
46,570.1 | 74,172.4 | |||||||
Current portion | (46,452.8 | ) | (67,523.9 | ) | ||||
117.3 | 6,648.5 | |||||||
Starting from 2004, the Company entered into investment management agreements with three well-known financial institutions (fund managers) to manage its investment portfolios. In accordance with the investment guidelines and terms specified in these agreements, the securities invested by the fund managers cannot be below a pre-defined credit rating. As of December 31, 2006, the Company’s investment portfolios managed by these fund managers aggregated to an original amount of US$1,206.2 million. The investment portfolios included securities such as corporate bonds, agency bonds, asset-backed securities, government bonds and others. Securities acquired with maturities of less than three months from the date of purchase were classified as cash equivalents. | ||
As of December 31, 2006, structured time deposits categorized as available-for-sale financial assets consisted of the following: |
Principal | Carrying | Range of | ||||||||||
Amount | Amount | Interest Rates | Maturity Date | |||||||||
NT$ | NT$ | |||||||||||
(In Millions) | ||||||||||||
Step-up callable deposits | ||||||||||||
Domestic deposits | 500.0 | 499.3 | 1.76% | March 2008 | ||||||||
The interest rate of the step-up callable deposits was pre-determined by the Company and the banks. |
8. | HELD-TO-MATURITY FINANCIAL ASSETS |
December 31 | ||||||||
2005 | 2006 | |||||||
NT$ | NT$ | |||||||
(In Millions) | ||||||||
Corporate bonds | 8,927.3 | 13,742.5 | ||||||
Structured time deposits | 10,227.0 | 11,671.1 | ||||||
Government bonds | 10,223.5 | 12,070.7 | ||||||
29,377.8 | 37,484.3 | |||||||
Current portion | (602.5 | ) | (8,510.8 | ) | ||||
28,775.3 | 28,973.5 | |||||||
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Structured time deposits categorized as held-to-maturity financial assets consisted of the following: |
Principal | Interest | Range of | ||||||||||
Amount | Receivable | Interest Rates | Maturity Date | |||||||||
NT$ | NT$ | |||||||||||
(In Millions) | ||||||||||||
December 31, 2005 | ||||||||||||
Step-up callable deposits | ||||||||||||
Domestic deposits | 3,000.0 | 8.1 | 1.40%-1.50% | June 2007 to October 2007 | ||||||||
Callable range accrual deposits | ||||||||||||
Domestic deposits | 3,942.0 | 4.9 | (See below) | September 2009 to December 2009 | ||||||||
Foreign deposits | 3,285.0 | 5.1 | (See below) | October 2009 to January 2010 | ||||||||
10,227.0 | 18.1 | |||||||||||
December 31, 2006 | ||||||||||||
Step-up callable deposits | ||||||||||||
Domestic deposits | 4,500.0 | 13.9 | 1.40%-1.83% | June 2007 to October 2008 | ||||||||
Callable range accrual deposits | ||||||||||||
Domestic deposits | 3,911.5 | 4.8 | (See below) | September 2009 to December 2009 | ||||||||
Foreign deposits | 3,259.6 | 5.0 | (See below) | October 2009 to January 2010 | ||||||||
11,671.1 | 23.7 | |||||||||||
The amount of interest earned by the Company for the callable range accrual deposits is based on a pre-defined range as determined by the 3-month or 6-month LIBOR plus an agreed upon rate ranging between 2.10% and 3.45%. Based on the terms of the contracts, if the 3-month or 6-month LIBOR moves outside of the pre-defined range, the interest paid to the Company is at a fixed rate between zero and 1.5%. Under the terms of the contracts, the bank has the right to cancel the contracts prior to the maturity date. | ||
As of December 31, 2005 and 2006, the principal of the deposits that resided in banks located in Hong Kong amounted to US$80.0 million; those resided in banks located in Singapore amounted to US$20.0 million. |
9. | RECEIVABLES, NET |
December 31 | ||||||||
2005 | 2006 | |||||||
NT$ | NT$ | |||||||
(In Millions) | ||||||||
Notes receivable | 76.3 | 60.3 | ||||||
Accounts receivable | 43,006.0 | 34,897.4 | ||||||
43,082.3 | 34,957.7 | |||||||
Allowance for doubtful receivables | (980.6 | ) | (749.9 | ) | ||||
Allowance for sales returns and others | (4,317.4 | ) | (2,870.8 | ) | ||||
(5,298.0 | ) | (3,620.7 | ) | |||||
37,784.3 | 31,337.0 | |||||||
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Changes in the allowances are summarized as follows: |
Year Ended December 31 | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
NT$ | NT$ | NT$ | ||||||||||
(In Millions) | ||||||||||||
Allowance for doubtful receivables | ||||||||||||
Balance, beginning of year | 1,020.4 | 982.8 | 980.6 | |||||||||
Effect of inclusion of a newly consolidated subsidiary, GUC | — | 3.5 | — | |||||||||
Additions | — | 1.1 | 54.7 | |||||||||
Deductions | (37.6 | ) | (6.8 | ) | (285.4 | ) | ||||||
Balance, end of the year | 982.8 | 980.6 | 749.9 | |||||||||
Allowance for sales returns and others | ||||||||||||
Balance, beginning of the year | 2,135.8 | 3,342.5 | 4,317.4 | |||||||||
Additions | 4,650.2 | 5,805.5 | 5,382.2 | |||||||||
Deductions | (3,443.5 | ) | (4,830.6 | ) | (6,828.8 | ) | ||||||
Balance, end of the year | 3,342.5 | 4,317.4 | 2,870.8 | |||||||||
10. | INVENTORIES, NET |
December 31 | ||||||||
2005 | 2006 | |||||||
NT$ | NT$ | |||||||
(In Millions) | ||||||||
Finished goods | 2,964.0 | 5,146.8 | ||||||
Work in process | 13,359.2 | 14,688.7 | ||||||
Raw materials | 1,765.3 | 1,674.0 | ||||||
Supplies and spare parts | 1,325.6 | 926.1 | ||||||
19,414.1 | 22,435.6 | |||||||
Allowance for losses | (1,685.8 | ) | (1,004.9 | ) | ||||
17,728.3 | 21,430.7 | |||||||
Changes in the allowance are summarized as follows: |
Year Ended December 31 | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
NT$ | NT$ | NT$ | ||||||||||
(In Millions) | ||||||||||||
Balance, beginning of the year | 1,364.2 | 1,577.5 | 1,685.8 | |||||||||
Effect of inclusion of a newly consolidated subsidiary, GUC | — | 0.2 | — | |||||||||
Additions | 1,771.6 | 159.0 | 172.1 | |||||||||
Write-offs | (1,558.3 | ) | (50.9 | ) | (853.0 | ) | ||||||
Balance, end of the year | 1,577.5 | 1,685.8 | 1,004.9 | |||||||||
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11. | INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD |
December 31 | ||||||||||||||||
2005 | 2006 | |||||||||||||||
% of | % of | |||||||||||||||
Carrying | Owner- | Carrying | Owner- | |||||||||||||
Amount | ship | Amount | ship | |||||||||||||
NT$ | NT$ | |||||||||||||||
(In Millions) | (In Millions) | |||||||||||||||
Systems on Silicon Manufacturing Company Pte Ltd. (SSMC) | 4,215.2 | 32 | 7,960.9 | 39 | ||||||||||||
Vanguard International Semiconductor Corporation (VIS) | 5,419.7 | 27 | 5,931.7 | 27 | ||||||||||||
VisEra Holding | 652.5 | 50 | 1,108.3 | 49 | ||||||||||||
10,287.4 | 15,000.9 | |||||||||||||||
In November 2006, the Company acquired 81 thousand shares in SSMC from EDB Investments Pte Ltd. under a Shareholders Agreement. After the acquisition, the number of SSMC shares owned by the Company increased from 382 thousand to 463 thousand; the percentage of ownership increased from 32% to 39%. | ||
For the years ended December 31, 2004, 2005 and 2006, net equity in earnings of NT$2,094.1million, NT$1,433.2 million and NT$2,347.2 million were recognized, respectively. The carrying amounts of the investments accounted for using the equity method and the related equity in earnings of equity method investees were determined based on the audited financial statements of the investees for the same periods as the Company. |
12. | FINANCIAL ASSETS CARRIED AT COST |
December 31 | ||||||||
2005 | 2006 | |||||||
NT$ | NT$ | |||||||
(In Millions) | ||||||||
Non-publicly traded stocks | 2,867.5 | 2,924.4 | ||||||
Mutual funds | 335.0 | 347.9 | ||||||
3,202.5 | 3,272.3 | |||||||
13. | PROPERTY, PLANT AND EQUIPMENT, NET |
December 31 | ||||||||
2005 | 2006 | |||||||
NT$ | NT$ | |||||||
(In Millions) | ||||||||
Cost | ||||||||
Land improvements | 851.2 | 844.7 | ||||||
Buildings | 105,832.0 | 112,595.1 | ||||||
Machinery and equipment | 510,922.1 | 579,825.3 | ||||||
Office equipment | 9,670.6 | 10,646.7 | ||||||
Leased assets | 597.7 | 612.9 | ||||||
627,873.6 | 704,524.7 | |||||||
Advance payments and construction in progress | 15,074.3 | 12,607.6 | ||||||
642,947.9 | 717,132.3 | |||||||
Accumulated depreciation | ||||||||
Land improvements | 206.4 | 234.4 | ||||||
Buildings | 46,560.1 | 54,288.2 | ||||||
Machinery and equipment | 344,431.0 | 400,579.6 | ||||||
Office equipment | 6,862.5 | 7,839.3 | ||||||
Leased assets | 64.6 | 96.6 | ||||||
398,124.6 | 463,038.1 | |||||||
Net | 244,823.3 | 254,094.2 | ||||||
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Depreciation expense on property, plant and equipment was NT$64,276.5 million, NT$71,385.8 million and NT$71,225.2 million for the years ended December 31, 2004, 2005 and 2006, respectively. | ||
Interest expense for the year ended December 31, 2004 was NT$1,644.3 million (before deducting capitalized interest of NT$278.3 million). The interest rates used for the purpose of calculating the capitalized interest were 1.89% to 2.89% for the years ended December 31, 2004. No interest was capitalized during the years ended December 31, 2005 and 2006. | ||
The Company entered into agreements to lease buildings that qualify as capital leases. The term of the leases is from December 2003 to December 2013. |
14. | DEFERRED CHARGES, NET |
December 31 | ||||||||
2005 | 2006 | |||||||
NT$ | NT$ | |||||||
(In Millions) | ||||||||
Technology license fees | 5,099.2 | 4,132.2 | ||||||
Software and system design costs | 1,737.4 | 1,669.8 | ||||||
Others | 169.7 | 134.9 | ||||||
7,006.3 | 5,936.9 | |||||||
Amortization expense on deferred charges was NT$5,548.9 million, NT$4,341.3 million and NT$2,472.4 million for the years ended December 31, 2004, 2005 and 2006, respectively. | ||
As of December 31, 2006, the Company’s estimated aggregate amortization expense for each of the five succeeding fiscal years and thereafter is as follows: |
Year | Amount | |||
NT$ | ||||
(In Millions) | ||||
2007 | 1,998.4 | |||
2008 | 1,647.5 | |||
2009 | 1,169.6 | |||
2010 | 538.8 | |||
2011 | 437.5 | |||
2012 and thereafter | 145.1 | |||
5,936.9 | ||||
15. | SHORT-TERM BANK LOANS |
December 31 | ||||||||
2005 | 2006 | |||||||
NT$ | NT$ | |||||||
(In Millions) | ||||||||
Unsecured loans: | ||||||||
US$10 million repayable by June 2006, annual interest at 4.77% | 328.5 | — | ||||||
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16. | BONDS PAYABLE |
December 31 | ||||||||
2005 | 2006 | |||||||
NT$ | NT$ | |||||||
(In Millions) | ||||||||
Domestic unsecured bonds: | ||||||||
Issued in December 2000 and repayable in December 2005 and 2007 in two installments, 5.25% and 5.36% interest payable annually, respectively | 4,500.0 | 4,500.0 | ||||||
Issued in January 2002 and repayable in January 2007, 2009 and 2012 in three installments, 2.60%, 2.75% and 3.00% interest payable annually, respectively | 15,000.0 | 15,000.0 | ||||||
19,500.0 | 19,500.0 | |||||||
Current portion | — | (7,000.0 | ) | |||||
19,500.0 | 12,500.0 | |||||||
As of December 31, 2006, future principal repayments for the Company’s bonds were as follows: |
Year of Repayment | Amount | |||||||
NT$ | ||||||||
(In Millions) | ||||||||
2007 | $ | 7,000.0 | ||||||
2009 | 8,000.0 | |||||||
2012 | 4,500.0 | |||||||
$ | 19,500.0 | |||||||
17. | LONG-TERM BANK LOANS |
December 31 | ||||||||
2005 | 2006 | |||||||
NT$ | NT$ | |||||||
(In Millions) | ||||||||
Secured loan: | ||||||||
US$20.0 million, repayable by November 2008 in 5 payments, annual interest at 5.91% | 656.9 | 651.9 | ||||||
Unsecured loans: | ||||||||
Science Park Administration (SPA) SOC loan, repayable by July 2008 in 20 payments, interest-free | 7.7 | 4.9 | ||||||
SPA DSP loan, repayable by April 2007 in 20 payments, interest-free | 4.0 | 1.3 | ||||||
668.6 | 658.1 | |||||||
Current portion | (5.5 | ) | (4.1 | ) | ||||
663.1 | 654.0 | |||||||
As of December 31, 2006, assets of TSMC-Shanghai with an aggregate carrying amount of NT$4,293.6 million (RMB1,028.7 million) were provided as collateral for the aforementioned secured loan. Pursuant to the loan agreement, the annual audited financial statements of TSMC-Shanghai must comply with certain financial covenants. As of December 31, 2006, TSMC-Shanghai was in compliance with all such financial covenants. |
As of December 31, 2006, future principal repayments under the Company’s long-term bank loans were as follows: |
Year of Repayment | Amount | |||||||
NT$ | ||||||||
(In Millions) | ||||||||
2007 | $ | 4.2 | ||||||
2008 | 132.5 |
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Year of Repayment | Amount | |||||||
NT$ | ||||||||
(In Millions) | ||||||||
2009 | 260.7 | |||||||
2010 | 260.7 | |||||||
$ | 658.1 | |||||||
18. | OTHER LONG-TERM PAYABLES |
December 31 | ||||||||
2005 | 2006 | |||||||
NT$ | NT$ | |||||||
(In Millions) | ||||||||
Payables for acquisition of property, plant and equipment (Note 28k) | 7,037.8 | 7,431.4 | ||||||
Payables for royalties | 2,380.2 | 1,889.8 | ||||||
9,418.0 | 9,321.2 | |||||||
Current portion (under accrued expenses and other current liabilities) | (869.1 | ) | (617.9 | ) | ||||
8,548.9 | 8,703.3 | |||||||
The payables for royalties were primarily attributable to several license arrangements that the Company entered into for certain semiconductor-related patents. |
As of December 31, 2006, future payments for other long-term payables were as follows: |
Year of Payment | Amount | |||||||
NT$ | ||||||||
(In Millions) | ||||||||
2007 | $ | 617.9 | ||||||
2008 | 337.0 | |||||||
2009 | 337.0 | |||||||
2010 | 337.0 | |||||||
2011 | 260.8 | |||||||
2012 and thereafter | 7,431.5 | |||||||
$ | 9,321.2 | |||||||
19. | PENSION PLANS |
The Labor Pension Act (the Act) became effective on July 1, 2005. The employees of TSMC and GUC who were subject to the Labor Standards Law prior to July 1, 2005 were allowed to choose to be subject to the pension mechanism under the Act with their seniority as of July 1, 2005 retained or continue to be subject to the pension mechanism under the Labor Standards Law. Employees who joined TSMC and GUC after July 1, 2005 can only be subject to the pension mechanism under the Act. | ||
The pension mechanism under the Act is deemed a defined contribution plan. Pursuant to the Act, TSMC and GUC have made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts starting from July 1, 2005. Furthermore, TSMC-NA and TSMC-Shanghai are required by local regulations to make monthly contributions, at a certain percentage of the monthly basic salary of their local employees. Pursuant to the aforementioned Act and local regulations, the Company has made monthly contributions and recognized pension costs of NT$7.5 million, NT$305.3 million and NT$679.9 million for the years ended December 31, 2004, 2005 and 2006, respectively. | ||
TSMC and GUC have defined benefit plans under the Labor Standards Law that provide benefits based on an employee’s length of service and average monthly salary at retirement. TSMC and GUC contribute an amount equal to 2% of salaries paid each month to their respective pension funds (the Funds), which are administered by the pension fund monitoring committees and deposited in the names of the committees in the Central Trust of China. Under the R.O.C. regulation, government authority will then collect the Fund as a Labor Retirement Fund and determine the assets allocation and investment policy. |
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TSMC and GUC use December 31 as the measurement date for their pension plans. | ||
Changes in benefit obligation and plan assets for the years ended December 31, 2004, 2005 and 2006 are summarized as follows: |
Year Ended December 31 | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
NT$ | NT$ | NT$ | ||||||||||
(In Millions) | ||||||||||||
Benefit obligation | ||||||||||||
Projected benefit obligation at beginning of year | 3,958.7 | 4,904.1 | 5,976.9 | |||||||||
Effect of inclusion of a newly consolidated subsidiary, GUC | — | 16.1 | — | |||||||||
Service cost | 632.6 | 470.9 | 178.5 | |||||||||
Interest cost | 128.3 | 163.8 | 164.2 | |||||||||
Actuarial gain | 185.9 | 436.6 | 653.4 | |||||||||
Benefits paid | (1.4 | ) | (14.6 | ) | (16.9 | ) | ||||||
Projected benefit obligation at end of year | 4,904.1 | 5,976.9 | 6,956.1 | |||||||||
Plan assets | ||||||||||||
Balance, beginning of year | 1,207.3 | 1,447.5 | 1,691.6 | |||||||||
Effect of inclusion of a newly consolidated subsidiary, GUC | — | 7.6 | — | |||||||||
Actual return of plan assets | 15.3 | 18.7 | 44.7 | |||||||||
Employer contribution | 226.3 | 226.2 | 233.1 | |||||||||
Benefits paid | (1.4 | ) | (8.4 | ) | (10.8 | ) | ||||||
Balance, end of year | 1,447.5 | 1,691.6 | 1,958.6 | |||||||||
Other information of defined benefit plans was as follows: |
a. | Components of net periodic pension cost |
Year Ended December 31 | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
NT$ | NT$ | NT$ | ||||||||||
(In Millions) | ||||||||||||
Service cost | 632.6 | 470.9 | 178.5 | |||||||||
Interest cost | 128.3 | 163.8 | 164.2 | |||||||||
Projected return on plan assets | (41.9 | ) | (49.8 | ) | (49.4 | ) | ||||||
Amortization | 8.3 | 8.3 | 12.0 | |||||||||
Net periodic pension cost | 727.3 | 593.2 | 305.3 | |||||||||
b. | Reconciliation of funded status of the plans and accrued pension cost |
December 31 | |||||||||||
2005 | 2006 | ||||||||||
NT$ | NT$ | ||||||||||
(In Millions) | |||||||||||
Benefit obligation | |||||||||||
Vested benefit obligation | 62.3 | 102.9 | |||||||||
Nonvested benefit obligation | 3,364.3 | 3,883.4 | |||||||||
Accumulated benefit obligation | 3,426.6 | 3,986.3 | |||||||||
Additional benefits based on future salaries | 2,550.3 | 2,969.8 | |||||||||
Projected benefit obligation | 5,976.9 | 6,956.1 | |||||||||
Fair value of plan assets | (1,691.6 | ) | (1,958.6 | ) | |||||||
Funded status | 4,285.3 | 4,997.5 | |||||||||
Unrecognized net transition obligation | (127.0 | ) | (118.4 | ) |
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Unrecognized net loss | (684.4 | ) | (1,339.0 | ) | ||||
Accrued pension cost | 3,473.9 | 3,540.1 | ||||||
Vested benefit | 67.8 | 106.6 | ||||||
c. | Actuarial assumptions: |
December 31 | ||||
2005 | 2006 | |||
NT$ | NT$ | |||
Discount rate used in determining present values | 2.75%-3.50% | 2.25%-3.50% | ||
Future salary increase rate | 2.00%-3.00% | 2.00%-3.00% | ||
Expected rate of return on plan assets | 2.50%-2.75% | 2.50% |
d. | Expected benefits payments |
Amount | ||||
NT$ | ||||
(In Millions) | ||||
2007 | 78.0 | |||
2008 | 11.2 | |||
2009 | 24.3 | |||
2010 | 39.4 | |||
2011 | 70.6 | |||
2012 and thereafter | 701.2 |
e. | TSMC and GUC expect to make contributions to their pension funds in 2007 of NT$212.9 million and NT$2.2 million, respectively. |
Year Ended December 31 | |||||||||||||||
2004 | 2005 | 2006 | |||||||||||||
NT$ | NT$ | NT$ | |||||||||||||
(In Millions) | |||||||||||||||
f. | Contributions to the Funds | 226.3 | 226.2 | 233.1 | |||||||||||
g. | Payments from the Funds | 1.5 | 8.4 | 7.4 | |||||||||||
20. | INCOME TAX |
a. | Income tax benefit (expense) consisted of: |
Year Ended December 31 | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
NT$ | NT$ | NT$ | ||||||||||
(In Millions) | ||||||||||||
Current | ||||||||||||
Domestic | (566.5 | ) | (3,531.8 | ) | (7,395.2 | ) | ||||||
Foreign | (173.7 | ) | (485.3 | ) | (283.1 | ) | ||||||
(740.2 | ) | (4,017.1 | ) | (7,678.3 | ) | |||||||
Deferred | ||||||||||||
Domestic | 1,101.4 | 3,295.7 | (173.7 | ) | ||||||||
Foreign | 2.2 | 90.8 | 78.3 | |||||||||
1,103.6 | 3,386.5 | (95.4 | ) | |||||||||
Income tax benefit (expense) | 363.4 | (630.6 | ) | (7,773.7 | ) | |||||||
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b. | A reconciliation of income tax expense based on “income before income tax” at statutory rates and income tax currently payable was as follows: |
Year Ended December 31 | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
NT$ | NT$ | NT$ | ||||||||||
(In Millions) | ||||||||||||
Income tax expense based on “income before income tax” at statutory rates | (23,840.5 | ) | (23,658.5 | ) | (34,786.3 | ) | ||||||
Tax effect of the following: | ||||||||||||
Tax-exempt income | 14,712.5 | 12,243.4 | 12,281.4 | |||||||||
Temporary and permanent differences | (658.2 | ) | (1,123.7 | ) | 2,817.1 | |||||||
Additional tax at 10% on unappropriated earnings | (823.9 | ) | (1,494.8 | ) | (1,170.1 | ) | ||||||
Cumulative effect of changes in accounting principles | — | — | 82.1 | |||||||||
Investment tax credits used | 10,470.9 | 10,133.8 | 12,769.4 | |||||||||
Income tax currently payable | (139.2 | ) | (3,899.8 | ) | (8,006.4 | ) | ||||||
c. | Income tax benefit (expense) consisted of the following: |
Year Ended December 31 | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
NT$ | NT$ | NT$ | ||||||||||
(In Millions) | ||||||||||||
Income tax currently payable | (139.2 | ) | (3,899.8 | ) | (8,006.4 | ) | ||||||
Other income tax adjustments | (555.8 | ) | (117.3 | ) | 328.2 | |||||||
Net change in deferred income tax assets | ||||||||||||
Investment tax credits | 234.7 | (1,965.9 | ) | (3,914.8 | ) | |||||||
Temporary differences | 1,131.3 | 2,402.4 | 2,181.5 | |||||||||
Net operating loss carryforwards | (1,653.0 | ) | (690.6 | ) | (1,412.9 | ) | ||||||
Adjustment in valuation allowance | 1,345.4 | 3,640.6 | 3,050.7 | |||||||||
Income tax benefit (expense) | 363.4 | (630.6 | ) | (7,773.7 | ) | |||||||
d. | Net deferred income tax assets consisted of the following: |
December 31 | ||||||||
2005 | 2006 | |||||||
NT$ | NT$ | |||||||
(In Millions) | ||||||||
Current deferred income tax assets | ||||||||
Investment tax credits | 7,033.6 | 7,870.8 | ||||||
Temporary differences | 454.1 | 584.2 | ||||||
Net operating loss carryforwards | 15.8 | — | ||||||
Valuation allowance | (354.2 | ) | (441.0 | ) | ||||
7,149.3 | 8,014.0 | |||||||
December 31 | ||||||||
2005 | 2006 | |||||||
NT$ | NT$ | |||||||
(In Millions) | ||||||||
Noncurrent deferred income tax assets | ||||||||
Investment tax credits | 17,004.3 | 12,252.3 | ||||||
Temporary differences | 14.1 | 895.5 | ||||||
Net operating loss carryforwards | 6,261.5 | 4,816.8 | ||||||
Valuation allowance | (10,836.9 | ) | (7,686.3 | ) | ||||
12,443.0 | 10,278.3 | |||||||
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December 31 | ||||||||
2005 | 2006 | |||||||
NT$ | NT$ | |||||||
(In Millions) | ||||||||
Noncurrent deferred income tax liabilities | ||||||||
Temporary differences | ||||||||
Depreciation | (4,975.3 | ) | (4,475.7 | ) | ||||
Others | (679.3 | ) | (0.5 | ) | ||||
(5,654.6 | ) | (4,476.2 | ) | |||||
Net noncurrent deferred income tax assets | 6,788.4 | 5,802.1 | ||||||
As of December 31, 2006, the net operating loss carryforwards were generated by WaferTech, TSMC Development and TSMC Technology and will expire on various dates through 2026. |
e. | Integrated income tax information: |
The balance of the imputation credit account as of December 31, 2005 and 2006 was NT$20.1 million and NT$828.6 million, respectively. |
The actual and expected estimated creditable ratio for distribution of TSMC’s earnings of 2005 and 2006 was 2.88% and 0.54%, respectively. |
The imputation credit allocated to shareholders is based on its balance as of the date of dividend distribution. The estimated creditable ratio may change when the actual distribution of imputation credit is made. |
f. | All of TSMC’s earnings generated prior to December 31, 1997 have been appropriated. |
g. | As of December 31, 2006, the Company’s investment tax credits consisted of the following: |
Total | Remaining | |||||||||||||
Creditable | Creditable | Expiry | ||||||||||||
Regulation | Item | Amount | Amount | Year | ||||||||||
NT$ | NT$ | |||||||||||||
(In Millions) | ||||||||||||||
Statute for Upgrading Industries | Purchase of machinery and equipment | 2,686.0 | — | 2006 | ||||||||||
4,113.4 | — | 2007 | ||||||||||||
6,803.0 | 3,956.0 | 2008 | ||||||||||||
6,030.3 | 6,030.3 | 2009 | ||||||||||||
5,114.8 | 5,114.7 | 2010 | ||||||||||||
24,747.5 | 15,101.0 | |||||||||||||
Statute for Upgrading Industries | Research and development expenditures | 1,800.9 | — | 2006 | ||||||||||
1,283.7 | 38.6 | 2007 | ||||||||||||
1,668.8 | 1,668.8 | 2008 | ||||||||||||
1,572.2 | 1,572.1 | 2009 | ||||||||||||
1,580.6 | 1,580.6 | 2010 | ||||||||||||
7,906.2 | 4,860.1 | |||||||||||||
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Total | Remaining | |||||||||||||
Creditable | Creditable | Expiry | ||||||||||||
Regulation | Item | Amount | Amount | Year | ||||||||||
NT$ | NT$ | |||||||||||||
(In Millions) | ||||||||||||||
Statute for Upgrading Industries | Personnel training | 27.4 | — | 2006 | ||||||||||
16.3 | 0.2 | 2007 | ||||||||||||
40.8 | 40.8 | 2008 | ||||||||||||
40.6 | 40.6 | 2009 | ||||||||||||
0.6 | 0.6 | 2010 | ||||||||||||
125.7 | 82.2 | |||||||||||||
Statute for Upgrading Industries | Investments in important technology-based enterprises | 79.8 | 79.8 | 2010 | ||||||||||
h. | The profits generated from the following expansion and construction projects of TSMC are exempt from income tax: |
Tax-Exemption Periods | ||
Construction of Fab 8 — module B | 2002 to 2005 | |
Expansion of Fab 2 — modules A and B, Fab 3, Fab 4, Fab 5 and Fab 6 | 2003 to 2006 | |
Construction of Fab 12 | 2004 to 2007 | |
Construction of Fab 14 | 2006 to 2010 |
i. | The tax authorities have examined income tax returns of TSMC through 2003. |
21. | SHAREHOLDERS’ EQUITY |
Common Stock, Capital Surplus and Earnings |
As of December 31, 2006, 889.7 million ADSs of TSMC were traded on the NYSE. The number of common shares represented by the ADSs was 4,448.7 million (one ADS represents five common shares). | ||
Capital surplus can only be used to offset a deficit under the Company Law. However, the capital surplus generated from donations and the excess of the issuance price over the par value of capital stock (including the stock issued for new capital, mergers, convertible bonds and the surplus from treasury stock transactions) may be appropriated as stock dividends, which are limited to a certain percentage of the TSMC’s paid-in capital. |
As of December 31, 2005 and 2006, capital surplus consisted of the following: |
December 31 | ||||||||
2005 | 2006 | |||||||
NT$ | NT$ | |||||||
(In Millions) | ||||||||
From merger | 24,003.6 | 24,003.6 | ||||||
Additional paid-in capital | 23,254.2 | 19,974.4 | ||||||
From convertible bonds | 9,360.4 | 9,360.4 | ||||||
From treasury stock transactions | 306.9 | 389.2 | ||||||
From long-term investments | 192.8 | 379.9 | ||||||
Donations | — | — | ||||||
57,117.9 | 54,107.5 | |||||||
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As of December 31, 2005 and 2006, retained earnings consisted of: |
December 31 | ||||||||
2005 | 2006 | |||||||
NT$ | NT$ | |||||||
(In Millions) | ||||||||
Unappropriated earnings | 106,196.4 | 152,778.1 | ||||||
Legal capital reserve | 34,348.2 | 43,705.7 | ||||||
Special capital reserve | 2,226.4 | 640.7 | ||||||
Total | 142,771.0 | 197,124.5 | ||||||
TSMC’s Articles of Incorporation provide that, when allocating the net profits for each fiscal year, TSMC shall first offset its losses in previous years and then set aside the following items accordingly: |
a. | Legal capital reserve at 10% of the profits left over, until the accumulated legal capital reserve has equaled TSMC’s paid-in capital; |
b. | Special capital reserve in accordance with relevant laws or regulations or as requested by the authorities in charge; |
c. | Bonus to directors and supervisors and bonus to employees of TSMC of not more than 0.3% and not less than 1% of the remainder, respectively. Directors who also serve as executive officers of TSMC are not entitled to receive the bonus to directors and supervisors. TSMC may issue stock bonuses to employees of an affiliated company meeting the conditions set by the Board of Directors or, by the person duly authorized by the Board of Directors; |
d. | Any balance left over shall be allocated according to the resolution of the shareholders’ meeting. |
The Articles of Incorporation also provide that profits of TSMC may be distributed by way of cash dividend and/or stock dividend. However, distribution of profits shall be made preferably by way of cash dividend. Distribution of profits may also be made by way of stock dividend; provided that the ratio for stock dividend shall not exceed 50% of the total distribution. | ||
Any appropriations of the profits are recorded in the year of shareholder approval and given effect to in the financial statements of that year. | ||
The appropriation for legal capital reserve shall be made until the reserve equals TSMC’s paid-in capital. The reserve may be used to offset a deficit, or be distributed as dividends and bonuses for the portion in excess of 50% of the paid-in capital if TSMC has no unappropriated earnings and the reserve balance has exceeded 50% of TSMC’s paid-in capital. The Company Law also prescribes that, when the reserve has reached 50% of TSMC’s paid-in capital, up to 50% of the reserve may be transferred to capital. | ||
A special capital reserve equivalent to the net debit balance of the other components of shareholders’ equity (for example, cumulative translation adjustments and unrealized loss on financial assets, but excluding treasury stock) shall be made from unappropriated earnings pursuant to existing regulations promulgated by the Securities and Futures Bureau (SFB). Any special reserve appropriated may be reversed to the extent that the net debit balance reverses. |
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The appropriations of earnings for 2004, and 2005 had been approved in the shareholders’ meetings held on May 10, 2005, and May 16, 2006, respectively. The appropriations of earnings of 2006 were approved by the Board of Directors on February 6, 2007. The appropriations and dividends per share were as follows: |
Appropriations of Earnings | Dividends Per Share | |||||||||||||||||||||||
For Fiscal | For Fiscal | For Fiscal | For Fiscal | For Fiscal | For Fiscal | |||||||||||||||||||
Year 2004 | Year 2005 | Year 2006 | Year 2004 | Year 2005 | Year 2006 | |||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | |||||||||||||||||||
(In Millions) | ||||||||||||||||||||||||
Legal capital reserve | 8,820.2 | 9,357.5 | 12,701.0 | |||||||||||||||||||||
Special capital reserve | 2,226.4 | (1,585.7 | ) | (11.2 | ) | |||||||||||||||||||
Employees’ profit sharing in cash | 3,086.2 | 3,432.1 | 4,572.8 | |||||||||||||||||||||
Employees’ profit sharing in stock | 3,086.2 | 3,432.1 | 4,572.8 | |||||||||||||||||||||
Cash dividends to common shareholders | 46,504.1 | 61,825.1 | 77,489.1 | 2.00 | 2.50 | 3.00 | ||||||||||||||||||
Stock dividends to common shareholders | 11,626.0 | 3,709.5 | 516.6 | 0.50 | 0.15 | 0.02 | ||||||||||||||||||
Bonus to directors and supervisors | 231.5 | 257.4 | 285.8 | |||||||||||||||||||||
75,580.6 | 80,428.0 | 100,126.9 | ||||||||||||||||||||||
The shareholders’ meeting held on May 16, 2006 also resolved to distribute stock dividends out of capital surplus in the amount of NT$3,709.5 million. The Board of Directors also resolved to distribute stock dividends out of capital surplus in the amount of NT$774.9 million on February 6, 2007. However, the Company Law prescribes that TSMC, as a holder of treasury stock, shall not participate in the appropriations of earnings. Therefore, the actual cash dividend per share and stock dividend per share are slightly more than those in the aforementioned resolutions. |
The amounts of the appropriations of earnings for 2003, 2004 and 2005 are consistent with the resolutions of the meetings of the Board of Directors held on February 17, 2004, February 22, 2005 and February 14, 2006, respectively. If the above bonus to employees, directors and supervisors had been paid entirely in cash and charged to earnings of 2004 and 2005, the basic earnings per share (after income tax) for the years ended December 31, 2004 and 2005 shown in the respective financial statements would have decreased from NT$3.97 to NT$3.70 and NT$3.79 to NT$3.50, respectively. |
The shares distributed as a bonus to employees represented 1.33% and 1.39% of TSMC’s total outstanding common shares as of December 31, 2004 and 2005, respectively. |
The above information about the appropriations of bonus to employees, directors and supervisors is available at the Market Observation Post System website. |
Under the Integrated Income Tax System that became effective on January 1, 1998, R.O.C. resident shareholders are allowed a tax credit for their proportionate share of the income tax paid by TSMC on earnings generated since January 1, 1998. |
As of March 30, 2007, the appropriations of earnings for 2006 had not been approved by shareholders. |
Preferred Stock |
TSMC issued 1,300,000 thousand shares of unlisted Series A — preferred stock to certain investors on November 29, 2000. All of the preferred stock was redeemed at par value and retired on May 29, 2003. Under TSMC’s Articles of Incorporation, TSMC is no longer authorized to issue preferred stock. |
The terms and conditions of the preferred shares were as follows: |
Preferred shareholders |
a. | Are entitled to receive cumulative cash dividends at an annual rate of 3.5%. |
b. | Are not entitled to receive any common stock dividends (whether declared out of unappropriated earnings or capital surplus). |
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c. | Have priority over the holders of common shares to the assets of TSMC available for distribution to shareholders upon liquidation or dissolution; however, the pre-emptive rights to the assets shall not exceed the issue price of the shares. |
d. | Have voting rights similar to that of the holders of common shares. |
e. | Have no right to convert their shares into common shares. The preferred shares are to be redeemed within thirty months from their issuance. The preferred shareholders have the aforementioned rights and TSMC’s related obligations remain the same until the preferred shares are redeemed by TSMC. |
22. | STOCK-BASED COMPENSATION PLANS |
TSMC’s Employee Stock Option Plans under the TSMC 2002 Plan, TSMC 2003 Plan and TSMC 2004 Plan were approved by the SFB on June 25, 2002, October 29, 2003 and January 6, 2005, respectively. The maximum number of options authorized to be granted under the TSMC 2002 Plan, TSMC 2003 Plan and TSMC 2004 Plan was 100.0 million, 120.0 million and 11.0 million, respectively, with each option eligible to subscribe for one common share when exercisable. The options may be granted to qualified employees of TSMC or any of its domestic or foreign subsidiaries, in which TSMC’s shareholding with voting rights, directly or indirectly, is more than fifty percent (50%). The options of all the plans are valid for ten years and exercisable at certain percentages subsequent to the second anniversary of the grant date. Under the terms of the plans, the options are granted at an exercise price equal to the closing price of TSMC’s common shares listed on the TSE on the grant date. | ||
Options of the aforementioned TSMC Plans that had never been granted or had been granted but subsequently cancelled had expired as of December 31, 2006. | ||
Information about TSMC’s outstanding stock options for the years ended December 31, 2004, 2005 and 2006 was as follows: |
Weighted- | ||||||||
average | ||||||||
Number of | Exercise | |||||||
Options | Price | |||||||
(In Thousands) | (NT$) | |||||||
Year ended December 31, 2004 | ||||||||
Balance, beginning of year | 49,357 | 43.0 | ||||||
Options granted | 20,400 | 47.3 | ||||||
Options exercised | (87 | ) | 41.8 | |||||
Options cancelled | (5,303 | ) | 45.9 | |||||
Balance, end of year | 64,367 | 44.1 | ||||||
Year ended December 31, 2005 | ||||||||
Balance, beginning of year | 64,367 | 40.5 | ||||||
Options granted | 14,864 | 48.4 | ||||||
Options exercised | (6,837 | ) | 39.6 | |||||
Options canceled | (4,636 | ) | 44.1 | |||||
Balance, end of year | 67,758 | 42.1 | ||||||
Year ended December 31, 2006 | ||||||||
Balance, beginning of year | 67,758 | 39.4 | ||||||
Options granted | 2,758 | 40.1 | ||||||
Options exercised | (14,550 | ) | 40.1 | |||||
Options canceled | (3,152 | ) | 43.7 | |||||
Balance, end of year | 52,814 | 39.6 | ||||||
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Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted- | ||||||||||||||||||||
average | Weighted- | Weighted- | ||||||||||||||||||
Range of | Number of | Remaining | average | Number of | average | |||||||||||||||
Exercise | Options (in | Contractual | Exercise | Options (in | Exercise | |||||||||||||||
Price (NT$) | Thousands) | Life (Years) | Price (NT$) | Thousands) | Price (NT$) | |||||||||||||||
$27.6-$39.7 | 34,584 | 5.15 | $ | 35.5 | 28,351 | $ | 35.5 | |||||||||||||
$45.1-$52.3 | 18,230 | 6.88 | 47.5 | 4,390 | 45.7 | |||||||||||||||
52,814 | 32,741 | |||||||||||||||||||
Weighted- | ||||||||
average | ||||||||
Number of | Exercise | |||||||
Options | Prices (NT$) | |||||||
Year ended December 31, 2004 | ||||||||
Balance, beginning of year | 7,058 | 10.5 | ||||||
Options granted | 831 | 10.5 | ||||||
Balance, end of year | 7,889 | 10.5 | ||||||
Year ended December 31, 2005 | ||||||||
Balance, beginning of year | 7,889 | 10.5 | ||||||
Options granted | 2,499 | 11.0 | ||||||
Options exercised | (2,641 | ) | 10.5 | |||||
Options canceled | (615 | ) | 10.6 | |||||
Balance, end of year | 7,132 | 10.7 | ||||||
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Weighted- | ||||||||
average | ||||||||
Number of | Exercise | |||||||
Options | Prices (NT$) | |||||||
Year ended December 31, 2006 | ||||||||
Balance, beginning of year | 7,132 | $ | 10.7 | |||||
Options granted | 3,689 | 19.5 | ||||||
Options exercised | (2,862 | ) | 10.5 | |||||
Options canceled | (617 | ) | 12.1 | |||||
Balance, end of year | 7,342 | 14.0 | ||||||
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted- | ||||||||||||||||||||
average | Weighted- | Weighted- | ||||||||||||||||||
Range of | Remaining | average | average | |||||||||||||||||
Exercise | Number of | Contractual | Exercise | Number of | Exercise | |||||||||||||||
Price (NT$) | Options | Life (Years) | Price (NT$) | Options | Price (NT$) | |||||||||||||||
$10.0-$18.4 | 7,342 | 1.58-4.75 | $ | 14.0 | 15 | $ | 10.5 |
Year Ended December 31 | ||||||||
2004 | 2005 | 2006 | ||||||
Assumptions: | ||||||||
TSMC | Weighted average fair value of grants | 19.73 | 17.69 | — | ||||
Expected dividend yield | 1.00% | 1.00%-3.44% | 1.00%-3.44% | |||||
Expected volatility | 43.77%-46.15% | 43.77%-46.15% | 43.77%-46.15% | |||||
Risk free interest rate | 3.07%-3.85% | 3.07%-3.85% | 3.07%-3.85% | |||||
Expected life | 5 years | 5 years | 5 years | |||||
GUC | Weighted average fair value of grants | 3.86 | 3.32 | 3.73 | ||||
Expected dividend yield | — | — | — | |||||
Expected volatility | 38.74%-41.74% | 22.65%-28.02% | 22.65%-41.74% | |||||
Risk free interest rate | 2.56% | 2.56% | 2.23%-2.56% | |||||
Expected life | 6 years | 6 years | 3-6 years |
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Year Ended December 31 | |||||||||||||
2004 | 2005 | 2006 | |||||||||||
NT$ | NT$ | NT$ | |||||||||||
(In Millions) | |||||||||||||
Net income attributable to shareholders of the parent: | |||||||||||||
As reported | 92,316.1 | 93,575.0 | $ | 127,009.7 | |||||||||
Pro forma | 92,257.4 | 93,456.5 | 126,887.2 | ||||||||||
Consolidated earnings per share (EPS) — after income tax (NT$): | |||||||||||||
Basic EPS as reported | 3.58 | 3.63 | 4.93 | ||||||||||
Pro forma basic EPS | 3.58 | 3.63 | 4.92 | ||||||||||
Diluted EPS as reported | 3.58 | 3.63 | 4.92 | ||||||||||
Pro forma diluted EPS | 3.57 | 3.63 | 4.92 |
23. | TREASURY STOCK |
Beginning | Stock | Ending | ||||||||||||||
Shares | Dividends | Disposal | Shares | |||||||||||||
(Shares in Thousands) | ||||||||||||||||
Year ended December 31, 2005 | ||||||||||||||||
Parent company stock held by subsidiaries | 45,521 | 2,242 | 14,825 | 32,938 | ||||||||||||
Year ended December 31, 2006 | ||||||||||||||||
Parent company stock held by subsidiaries | 32,938 | 988 | — | 33,926 | ||||||||||||
24. | CONSOLIDATED EARNINGS PER SHARE |
Year Ended December 31 | ||||||||||||||||||||||||
2004 | 2005 | 2006 | ||||||||||||||||||||||
Before | After | Before | After | Before | After | |||||||||||||||||||
Income | Income | Income | Income | Income | Income | |||||||||||||||||||
Tax | Tax | Tax | Tax | Tax | Tax | |||||||||||||||||||
Consolidated basic EPS | ||||||||||||||||||||||||
Income before cumulative effect of changes in accounting principles attributable to shareholders of the parent | $ | 3.56 | $ | 3.58 | $ | 3.66 | $ | 3.63 | $ | 5.16 | $ | 4.87 | ||||||||||||
Cumulative effect of changes in accounting principles attributable to shareholders of the parent | — | — | — | — | 0.06 | 0.06 | ||||||||||||||||||
Income attributable to shareholders of the parent | $ | 3.56 | $ | 3.58 | $ | 3.66 | $ | 3.63 | $ | 5.22 | $ | 4.93 | ||||||||||||
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Year Ended December 31 | ||||||||||||||||||||||||
2004 | 2005 | 2006 | ||||||||||||||||||||||
Before | After | Before | After | Before | After | |||||||||||||||||||
Income | Income | Income | Income | Income | Income | |||||||||||||||||||
Tax | Tax | Tax | Tax | Tax | Tax | |||||||||||||||||||
Consolidated diluted EPS | ||||||||||||||||||||||||
Income before cumulative effect of changes in accounting principles attributable to shareholders of the parent | $ | 3.56 | $ | 3.58 | $ | 3.66 | $ | 3.63 | $ | 5.16 | $ | 4.86 | ||||||||||||
Cumulative effect of changes in accounting principles attributable to shareholders of the parent | — | — | — | — | 0.06 | 0.06 | ||||||||||||||||||
Income attributable to shareholders of the parent | $ | 3.56 | $ | 3.58 | $ | 3.66 | $ | 3.63 | $ | 5.22 | $ | 4.92 | ||||||||||||
Amounts (Numerator) | Number of | EPS | ||||||||||||||||||||||
Shares | Before | After | ||||||||||||||||||||||
Before | After | (Denominator) | Income | Income | ||||||||||||||||||||
Income Tax | Income Tax | (In Thousands) | Tax | Tax | ||||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | |||||||||||||||||||||
(In Millions) | ||||||||||||||||||||||||
Year ended December 31, 2004 | ||||||||||||||||||||||||
Consolidated basic EPS | ||||||||||||||||||||||||
Income available to common shareholders of the parent | 91,952.7 | 92,316.1 | 25,804,488 | 3.56 | 3.58 | |||||||||||||||||||
Effect of dilutive potential common stock — stock options | — | — | 5,928 | |||||||||||||||||||||
Consolidated diluted EPS | ||||||||||||||||||||||||
Income available to common shareholders of the parent (including effect of dilutive potential common stock) | 91,952.7 | 92,316.1 | 25,810,416 | 3.56 | 3.58 | |||||||||||||||||||
Year ended December 31, 2005 | ||||||||||||||||||||||||
Consolidated basic EPS | ||||||||||||||||||||||||
Income available to common shareholders of the parent | 94,214.6 | 93,575.0 | 25,763,320 | 3.66 | 3.63 | |||||||||||||||||||
Effect of dilutive potential common stock — stock options | — | — | 12,647 | |||||||||||||||||||||
Consolidated diluted EPS | ||||||||||||||||||||||||
Income available to common shareholders of the parent (including effect of dilutive potential common stock) | 94,214.6 | 93,575.0 | 25,775,967 | 3.66 | 3.63 | |||||||||||||||||||
Year ended December 31, 2006 | ||||||||||||||||||||||||
Consolidated basic EPS | ||||||||||||||||||||||||
Income available to common shareholders of the parent | 134,698.7 | 127,009.7 | 25,788,555 | 5.22 | 4.93 | |||||||||||||||||||
Effect of dilutive potential common stock — stock options | — | — | 24,628 | |||||||||||||||||||||
Consolidated diluted EPS | ||||||||||||||||||||||||
Income available to common shareholders of the parent (including effect of dilutive potential common stock) | 134,698.7 | 127,009.7 | 25,813,183 | 5.22 | 4.92 | |||||||||||||||||||
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25. | DISCLOSURES FOR FINANCIAL INSTRUMENTS |
a. | Fair values of financial instruments were as follows: |
December 31 | ||||||||||||||||
2005 | 2006 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
NT$ | NT$ | NT$ | NT$ | |||||||||||||
(In Millions) | (In Millions) | |||||||||||||||
Assets | ||||||||||||||||
Financial assets at fair value through profit or loss | 1,770.4 | 3,000.8 | 1,206.9 | 1,206.9 | ||||||||||||
Available-for-sale financial assets | 46,570.1 | 46,560.9 | 74,172.4 | 74,172.4 | ||||||||||||
Held-to-maturity financial assets | 29,377.8 | 29,081.9 | 37,484.3 | 37,375.5 | ||||||||||||
Investments accounted for using equity method (with market price) | 5,419.7 | 10,991.1 | 5,931.8 | 11,027.1 | ||||||||||||
Liabilities | ||||||||||||||||
Financial liabilities at fair value through profit or loss | 234.3 | 0.2 | 10.9 | 10.9 | ||||||||||||
Bonds payable (including current portion) | 19,500.0 | 19,924.9 | 19,500.0 | 19,817.1 | ||||||||||||
Long-term bank loans (including current portion) | 668.6 | 668.6 | 658.1 | 658.1 | ||||||||||||
Other long-term payables (including current portion) | 11,212.4 | 11,212.4 | 10,413.1 | 10,413.1 | ||||||||||||
Obligations under capital leases | 597.7 | 597.7 | 612.9 | 612.9 |
b. | Methods and assumptions used in the determination of fair values of financial instruments |
1) | The aforementioned financial instruments do not include cash and cash equivalents, receivables, other financial assets, short-term bank loans, payables, and payables to contractors and equipment suppliers. The carrying amounts of these financial instruments approximate their fair values. | ||
2) | Fair values of financial assets at fair value through profit or loss, available-for-sale and held-to-maturity financial assets other than derivatives and structured time deposits were based on their quoted market prices. | ||
3) | Fair values of derivatives and structured time deposits were determined using valuation techniques incorporating estimates and assumptions that were consistent with prevailing market conditions. | ||
4) | Fair value of bonds payable was based on their quoted market price. | ||
5) | Fair values of long-term bank loans, other long-term payables and obligations under capital leases were based on the present value of expected cash flows, which approximate their carrying amount. |
c. | Gains recognized for the changes in fair value of derivatives estimated using valuation techniques were NT$33.7 million for the year ended December 31, 2006. | ||
d. | As of December 31, 2005 and 2006, financial assets exposed to fair value interest rate risk were NT$77,190.3 million and NT$111,492.3 million, respectively, financial liabilities exposed to fair value interest rate risk were NT$234.3 million and NT$10.9 million, respectively, and financial assets exposed to cash flow interest rate risk were NT$7,227.0 million and NT$7,171.1 million, respectively. | ||
e. | The Company recognized an unrealized gain of NT$388.1 million (NT$386.0 million attributable to shareholders’ equity of the parent and NT$2.1 million attributable to minority interests) in shareholder’s equity for the changes in fair value of available-for-sale financial assets for the year ended December 31, 2006. The Company also recognized an unrealized gain of NT$175.6 million in shareholders’ equity for the changes in fair value of available-for-sale financial assets held by equity method investees for the year ended December 31, 2006. |
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f. | Information about financial risk |
1) | Market risk. The publicly-traded stocks categorized as financial assets at fair value through profit or loss are exposed to market risk. The derivative financial instruments categorized as financial assets/liabilities at fair value through profit or loss are mainly used to hedge the exchange rate fluctuations of foreign-currency-denominated assets and liabilities. Therefore, the market risk of derivatives will be offset by the foreign exchange risk of these assets and liabilities. Available-for-sale financial assets held by the Company are mainly fixed-interest-rate debt securities. Therefore, the fluctuations in market interest rates would result in changes in fair values of these debt securities. | ||
2) | Credit risk. Credit risk represents the potential loss that would be incurred by the Company if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The counter-parties or third-parties to the foregoing financial instruments are reputable financial institutions, business organizations, and government agencies. Management believes that the Company’s exposure to default by those parties is low. | ||
3) | Liquidity risk. The Company has sufficient operating capital to meet cash needs upon settlement of derivative financial instruments, bonds payable and loans. Therefore, the liquidity risk is low. | ||
4) | Cash flow interest rate risk. The Company mainly engages in investments in fixed-interest-rate debt securities. Therefore, cash flows are not expected to fluctuate significantly due to changes in market interest rates. |
26. | RELATED PARTY TRANSACTIONS |
Except as disclosed in the consolidated financial statements and other notes, the following is a summary of significant related party transactions: |
a. | Industrial Technology Research Institute (ITRI), the chairman of TSMC was one of ITRI’s supervisors, who resigned in October 2006. | ||
b. | Philips, a major shareholder of TSMC | ||
c. | Investees of TSMC | ||
VIS (accounted for using equity method) SSMC (accounted for using equity method) | |||
d. | Indirect investee | ||
VisEra, originally an investee over which the Company had a controlling interest; beginning in November 2005, VisEra became an indirect investee accounted for using the equity method due to changes in investment structure. | |||
XinTec Corporation (XinTec), the chairman of VisEra was previously one of Xintec’s directors. Because VisEra has not been a consolidated entity of the Company since November 2005, XinTec is no longer considered a related party. | |||
e. | Omnivision International Holding, Ltd. (Omnivision), originally a shareholder holding a 25% equity interest in VisEra. Because VisEra has not been a consolidated entity of the Company since November 2005, Omnivision is no longer considered a related party. | ||
f. | Huawei Semiconductor (Shanghai) Co., Ltd. (Huawei), which has the same president as VisEra. However, because VisEra has not been a consolidated entity of the Company since November 2005, Huawei is no longer considered a related party. |
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Year Ended December 31 | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
NT$ | NT$ | NT$ | ||||||||||
(In Millions) | ||||||||||||
For the year | ||||||||||||
Sales | ||||||||||||
Philips | 5,463.6 | 3,298.8 | 4,025.0 | |||||||||
Omnivision | — | 2,489.2 | — | |||||||||
Others | 812.2 | 492.7 | 162.3 | |||||||||
6,275.8 | 6,280.7 | 4,187.3 | ||||||||||
Purchases | ||||||||||||
SSMC | 5,869.1 | 5,729.7 | 6,820.6 | |||||||||
VIS | 9,169.6 | 4,142.4 | 3,919.6 | |||||||||
15,038.7 | 9,872.1 | 10,740.2 | ||||||||||
Manufacturing expenses — technical assistance fees | ||||||||||||
Philips (see Note 28a) | 907.0 | 581.1 | 755.9 | |||||||||
General and administrative expenses — rental | ||||||||||||
GUC | 13.2 | — | — | |||||||||
Research and development expenses | ||||||||||||
GUC | 11.7 | — | — | |||||||||
Proceeds from disposal of property, plant and equipment | ||||||||||||
VisEra | — | 534.3 | — | |||||||||
VIS | 34.0 | — | — | |||||||||
Non-operating income and gains | ||||||||||||
SSMC (primarily technical service income, see Note 28e) | 364.5 | 316.2 | 315.0 | |||||||||
VisEra | 28.9 | 308.1 | 246.2 | |||||||||
VIS (primarily technical service income, see Note 28h) | 117.8 | 210.7 | 261.2 | |||||||||
511.2 | 835.0 | 822.4 | ||||||||||
At end of year | ||||||||||||
Receivables | ||||||||||||
Philips | 581.5 | 573.6 | 250.9 | |||||||||
Others | 72.8 | 119.7 | 1.4 | |||||||||
654.3 | 693.3 | 252.3 | ||||||||||
Other receivables | ||||||||||||
VisEra | 30.3 | 374.2 | 59.0 | |||||||||
SSMC | 63.7 | 149.2 | 69.6 | |||||||||
VIS | 47.6 | 74.5 | 121.9 | |||||||||
Others | — | — | 6.4 | |||||||||
141.6 | 597.9 | 256.9 | ||||||||||
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Year Ended December 31 | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
NT$ | NT$ | NT$ | ||||||||||
(In Millions) | ||||||||||||
Payables | ||||||||||||
Philips | 469.5 | 694.0 | 688.6 | |||||||||
VIS | 1,533.9 | 563.2 | 719.8 | |||||||||
SSMC | 207.8 | 485.9 | 459.3 | |||||||||
GUC | 6.6 | — | — | |||||||||
2,217.8 | 1,743.1 | 1,867.7 | ||||||||||
Other long-term payables | ||||||||||||
Philips (see Note 28a) | 2,318.0 | 1,100.5 | 403.4 | |||||||||
Deferred credits | ||||||||||||
VisEra | — | 186.5 | 124.4 | |||||||||
The terms of sales to related parties were not significantly different from those of sales to third parties. For other related party transactions, prices were determined in accordance with mutual agreements. | ||
The Company leased certain buildings and facilities to VisEra with a monthly rental of NT$7.7 million (classified under non-operating income and gains). The Company deferred the gains (classified under deferred credits) derived from sales of property, plant, and equipment to VisEra, and then recognized such gains (classified under non-operating income and gains) over the depreciable lives of the disposed assets. |
27. | SIGNIFICANT LONG-TERM LEASES |
The Company leases several parcels of land from the SPA. These operating leases expire on various dates from March 2008 to December 2021 and can be renewed upon expiration. | ||
The Company entered into lease agreements for its office premises and certain equipment located in North America, Japan and Shanghai. These operating leases expire between 2007 and 2011 and can be renewed upon expiration. | ||
As of December 31, 2006, future lease payments were as follows: |
Year | Amount | |||
NT$ | ||||
(In Millions) | ||||
2007 | 945.7 | |||
2008 | 697.2 | |||
2009 | 422.4 | |||
2010 | 306.7 | |||
2011 | 211.1 | |||
2012 and thereafter | 1,507.0 | |||
4,090.1 | ||||
Rental expense for the years ended December 31, 2004, 2005 and 2006 was NT$823.0 million, NT$949.4 million and NT$1,368.2 million, respectively. |
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28. | SIGNIFICANT COMMITMENTS AND CONTINGENCIES |
Significant commitments and contingencies of the Company as of December 31, 2006, excluding those disclosed in other notes, were as follows: |
a. | On June 20, 2004, TSMC and Philips amended the Technical Cooperation Agreement, which was originally signed on May 12, 1997. The amended Technical Cooperation Agreement is for five years beginning from January 1, 2004. Upon expiration, this amended Technical Cooperation Agreement will be terminated and will not be automatically renewed; however, the patent cross license arrangement between TSMC and Philips will survive the expiration of the amended Technical Cooperation Agreement. Under this amended Technical Cooperation Agreement, TSMC will pay Philips royalties based on a fixed amount mutually agreed-on, rather than under a certain percentage of TSMC’s annual net sales. TSMC and Philips agreed to cross license the patents owned by each party. TSMC also obtained through Philips a number of cross patent licenses. | ||
b. | Under a technical cooperation agreement with ITRI, the R.O.C. Government or its designee approved by TSMC can use up to 35% of TSMC’s capacity if TSMC’s outstanding commitments to its customers are not prejudiced. The term of this agreement is for five years beginning from January 1, 1987 and is automatically renewed for successive periods of five years unless otherwise terminated by either party with one year prior notice. The agreement was automatically renewed in 1992, 1997, 2002 and on January 1, 2007. | ||
c. | Under several foundry agreements, TSMC shall reserve a portion of its production capacity for certain major customers that have guarantee deposits with TSMC. As of December 31, 2006, TSMC had a total of US$116.3 million of guarantee deposits. | ||
d. | Under a Shareholders Agreement entered into with Philips and EDB Investments Pte Ltd. on March 30, 1999, the parties formed a joint venture company, SSMC, which is an integrated circuit foundry in Singapore. TSMC’s equity interest in SSMC was 32%. Nevertheless, Philips parted with its semiconductor company which was renamed as NXP B.V. in September 2006. TSMC and NXP purchased all the SSMC shares owned by EDB Investments Pte Ltd. pro rata according to the Shareholders Agreement on November 15, 2006. After the purchase, TSMC and NXP B.V. currently own approximately 39% and 61% of the SSMC shares respectively. The Company and Philips (now NXP) committed to buy specific percentages of the production capacity of SSMC. TSMC and Philips (now NXP) are required, in the aggregate, to purchase up to 70% of SSMC’s capacity, but TSMC alone is not required to purchase more than 28% of the capacity. If any party defaults on the commitment and the capacity utilization of SSMC fall below a specific percentage of its capacity, the defaulting party is required to compensate SSMC for all related unavoidable costs. | ||
e. | TSMC provides technical services to SSMC under a Technical Cooperation Agreement (the Agreement) entered into on May 12, 1999. TSMC receives compensation for such services computed at a specific percentage of net selling price of all products sold by SSMC. The Agreement shall remain in force for ten years and may be automatically renewed for successive periods of five years each unless pre-terminated by either party under certain conditions. | ||
f. | Under a Technology Transfer Agreement (TTA) with National Semiconductor Corporation (National) entered into on June 27, 2000, TSMC shall receive payments for the licensing of certain technology to National. The agreement was to remain in force for ten years and could be automatically renewed for successive periods of two years thereafter unless either party gives written notice for early termination under certain conditions. In January 2003, TSMC and National entered into a Termination Agreement whereby the TTA was terminated. Under the Termination Agreement, TSMC will be relieved of any further obligation to transfer any additional technology. In addition, TSMC granted National an option to request the transfer of certain technologies under the same terms and conditions as the terminated TTA. The option will expire in January 2008. | ||
g. | In December 2003, TSMC entered into a Technology Development and License Agreement with Freescale Semiconductor, Inc. to jointly develop 65-nm SOI (silicon on insulator) technology. TSMC will also license related 90-nm SOI technology from Freescale Semiconductor, Inc. Any intellectual properties arising out of the co-development project shall be jointly owned by the parties. In accordance with the agreement, TSMC will pay royalties to Freescale Semiconductor, Inc. and will share a portion of the costs associated with the joint development project. | ||
h. | TSMC provides a technology transfer to VIS under a Manufacturing License and Technology Transfer Agreement entered into on April 1, 2004. TSMC receives compensation for such technology transfer in the form of royalty payments from VIS computed at specific percentages of net selling price of certain products sold by VIS. VIS agreed to reserve its certain capacity to manufacture for TSMC certain products at prices as agreed by the parties. |
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i. | Effective January 1, 2006, the Company entered into the Joint Technology Cooperation Agreement with Philips, Freescale Semiconductor, Inc. and STMicroelectronics to jointly develop 45-nm and beyond advanced CMOS Logic and e-DRAM technologies. The Company will contribute process technologies and share a portion of the costs associated with this joint development project. This agreement will expire on December 31, 2008. | ||
j. | TSMC, TSMC-North America and WaferTech filed a series of lawsuits in late 2003 and 2004 against Semiconductor Manufacturing International Corporation (“SMIC”), SMIC (Shanghai) and SMIC Americas. The lawsuits alleged that SMIC companies infringed multiple TSMC patents and misappropriated TSMC’s trade secrets. These suits were settled out of court on January 30, 2005. As part of the settlement, SMIC shall pay TSMC US$175.0 million over six years to resolve TSMC’s claims. As of December 31, 2006, SMIC had paid US$60.0 million in accordance with the terms of this settlement agreement. In August 2006, TSMC, TSMC-North America and Wafertech filed a lawsuit against SMIC in Alameda County Superior Court in California for breach of aforementioned settlement agreement, breach of promissory notes and trade secret misappropriation, seeking injunctive relief and monetary damages. In September 2006, SMIC filed a cross-complaint against TSMC in the same court, alleging TSMC of breach of the settlement agreement and implied covenant of good faith and fair dealing, in response to TSMC’s August complaint. SMIC also filed a civil action against us in November 2006 with the Beijing People’s High Court alleging defamation and breach of good faith. The matters are pending in both courts. The outcome of the litigation cannot be determined at this time. | ||
k. | TSMC-Shanghai entered into an agreement with a certain foreign company. In accordance with the agreement, TSMC-Shanghai is obligated to purchase certain property, plant and equipment at the agreed-upon price within the contract period. If the purchase is not completed, TSMC-Shanghai is obligated to compensate the counterparty for the loss incurred. | ||
l. | Amounts available under unused letters of credit as of December 31, 2006 were NT$6.5 million. |
29. | SEGMENT FINANCIAL INFORMATION |
a. | Industry financial information |
The Company is engaged mainly in the manufacturing, selling, packaging and testing of integrated circuits. Therefore, the disclosure of industry financial information is not applicable to the Company. |
b. | Geographic information: |
North America | Adjustments | |||||||||||||||
and Others | Taiwan | and Elimination | Consolidated | |||||||||||||
NT$ | NT$ | NT$ | NT$ | |||||||||||||
(In Millions) | ||||||||||||||||
Year ended December 31, 2004 | ||||||||||||||||
Sales to other than consolidated entities | 143,801.1 | 113,411.5 | — | 257,212.6 | ||||||||||||
Sales among consolidated entities | 15,657.8 | 142,580.9 | (158,238.7 | ) | — | |||||||||||
Total sales | 159,458.9 | 255,992.4 | (158,238.7 | ) | 257,212.6 | |||||||||||
Gross profit | 6,173.8 | 110,160.6 | (515.2 | ) | 115,819.2 | |||||||||||
Operating expenses | (27,337.5 | ) | ||||||||||||||
Non-operating income and gains | 8,581.4 | |||||||||||||||
Non-operating expenses and losses | (5,097.5 | ) | ||||||||||||||
Income before income tax | 91,965.6 | |||||||||||||||
Net income attributable to minority interest | 12.9 | |||||||||||||||
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North America | Adjustments | |||||||||||||||
and Others | Taiwan | and Elimination | Consolidated | |||||||||||||
NT$ | NT$ | NT$ | NT$ | |||||||||||||
(In Millions) | ||||||||||||||||
Identifiable assets | 89,045.2 | 416,076.6 | (43,725.3 | ) | 461,396.5 | |||||||||||
Long-term investments | 38,057.6 | |||||||||||||||
Total assets | 499,454.1 | |||||||||||||||
Year ended December 31, 2005 | ||||||||||||||||
Sales to other than consolidated entities | 152,517.8 | 114,047.3 | — | 266,565.1 | ||||||||||||
Sales among consolidated entities | 13,513.2 | 152,132.5 | (165,645.7 | ) | — | |||||||||||
Total sales | 166,031.0 | 266,179.8 | (165,645.7 | ) | 266,565.1 | |||||||||||
Gross profit | 2,858.1 | 115,722.2 | (377.4 | ) | 118,202.9 | |||||||||||
Operating expenses | (27,234.3 | ) | ||||||||||||||
Non-operating income and gains | 9,399.4 | |||||||||||||||
Non-operating expenses and losses | (6,104.7 | ) | ||||||||||||||
Income before income tax | 94,263.3 | |||||||||||||||
Net income attributable to minority interest | 57.7 | |||||||||||||||
Identifiable assets | 92,904.4 | 430,084.0 | (45,861.3 | ) | 477,127.1 | |||||||||||
Long-term investments | 42,382.5 | |||||||||||||||
Total assets | 519,509.6 | |||||||||||||||
Year ended December 31, 2006 | ||||||||||||||||
Sales to other than consolidated entities | 191,511.9 | 125,895.3 | — | 317,407.2 | ||||||||||||
Sales among consolidated entities | 18,998.6 | 191,345.1 | (210,343.7 | ) | — | |||||||||||
Total sales | 210,510.5 | 317,240.4 | (210,343.7 | ) | 317,407.2 | |||||||||||
Gross profit | 5,641.4 | 150,498.0 | (329.3 | ) | 155,810.1 | |||||||||||
Operating expenses | (28,545.4 | ) | ||||||||||||||
Non-operating income and gains | 9,705.6 | |||||||||||||||
Non-operating expenses and losses | (3,608.1 | ) | ||||||||||||||
Income before income tax | 133,362.2 | |||||||||||||||
Net income attributable to minority interest | 185.5 | |||||||||||||||
Identifiable assets | 133,341.6 | 441,339.4 | (41,091.0 | ) | 533,590.0 | |||||||||||
Long-term investments | 53,895.2 | |||||||||||||||
Total assets | 587,485.2 | |||||||||||||||
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c. | Net sales |
Year Ended December 31 | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
NT$ | NT$ | NT$ | ||||||||||
Areas | (In Millions) | |||||||||||
Taiwan | 36,649.6 | 30,908.7 | 34,483.2 | |||||||||
United States | 114,866.0 | 119,792.3 | 155,166.0 | |||||||||
Asia and others | 91,342.4 | 102,977.9 | 105,808.9 | |||||||||
Europe | 19,089.3 | 18,122.8 | 27,425.4 | |||||||||
261,947.3 | 271,801.7 | 322,883.5 | ||||||||||
Sales returns and allowances | (4,734.7 | ) | (5,236.6 | ) | (5,476.3 | ) | ||||||
Net sales | 257,212.6 | 266,565.1 | 317,407.2 | |||||||||
The net sales information is presented by billed regions. |
d. | Major customers representing at least 10% of gross sales |
Year Ended December 31 | ||||||||||||||||||||||||
2004 | 2005 | 2006 | ||||||||||||||||||||||
NT $ | % | NT $ | % | NT $ | % | |||||||||||||||||||
(In Millions) | ||||||||||||||||||||||||
Customer A | 22,114.6 | 8 | 24,718.3 | 9 | 33,950.4 | 11 | ||||||||||||||||||
Customer B | 25,299.9 | 10 | 29,855.4 | 11 | 25,214.9 | 8 |
e. | Net sales by product categories: |
Year Ended December 31 | ||||||||||||
Product Category | 2004 | 2005 | 2006 | |||||||||
NT$ | NT$ | NT$ | ||||||||||
(In Millions) | ||||||||||||
Wafer fabrication | 233,216.9 | 239,576.6 | 286,452.0 | |||||||||
Mask making | 14,136.6 | 14,448.5 | 15,317.1 | |||||||||
Others | 9,859.1 | 12,540.0 | 15,638.1 | |||||||||
257,212.6 | 266,565.1 | 317,407.2 | ||||||||||
30. | SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE COMPANY AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA |
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the Republic of China (R.O.C. GAAP), which differ in the following respects from accounting principles generally accepted in the United States of America (U.S. GAAP): |
a. | Marketable securities |
Under R.O.C. GAAP, prior to January 1, 2006, marketable securities were carried at the lower of aggregate cost or market value, and debt securities were carried at cost, with only unrealized losses recognized. Effective January 1, 2006, the Company adopted R.O.C. SFAS No. 34, “Financial Instruments: Recognition and Measurement”, and No. 36, “Financial Instruments: Disclosure and Presentation”. Financial instrument including debt securities and equity securities are categorized as financial assets or liabilities at fair value through profit or loss (FVTPL), available-for-sale (AFS) or held-to-maturity (HTM) securities. FVTPL has two sub-categories, financial assets designated on initial recognition as one to be measured at fair value, and those that are classified as held for trading, which are also measured at fair value with fair value changes recognized in profit and loss. These classifications are similar to those required by U.S. GAAP Statement of Financial Accounting Standard (U.S. SFAS) No. 115, “Accounting for Certain Investments in Debt and Equity Securities”. |
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Under U.S. SFAS No.115, debt and equity securities that have readily determinable fair values are classified as either trading, available-for-sale or held-to-maturity securities. Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Debt and equity securities that are bought and traded for short-term profit are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. Debt and equity securities not classified as either held-to-maturity or trading are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders’ equity. | |||
Upon adoption of R.O.C. SFAS No. 34 and No. 36 on January 1, 2006, the Company recorded an accumulated effect of changes in accounting principles of NT$1,606.7 million to adjust the carrying basis of trading securities, which were recorded at the lower of aggregate cost or market value, to fair market value, which is a one-time reconciling adjustment between U.S. GAAP and R.O.C. GAAP in 2006. | |||
Upon adoption of R.O.C. GAAP No. 34 and No. 36, the Company also adjusted the carrying value of the marketable securities categorized as available-for-sale, which were carried at the lower of aggregate cost or market with unrealized losses included in earnings, to fair market value on January 1, 2006, therefore unrealized gains and losses included in shareholders’ equity associated with available-for-sale marketable securities acquired prior to January 1, 2006 under R.O.C. GAAP would be different from that under U.S. GAAP. |
b. | Equity-method investees |
The Company’s proportionate share of the income (loss) from an equity-method investee may differ if the equity-method investee’s net income (loss) under R.O.C. GAAP differs from that under U.S. GAAP. Such differences between R.O.C. GAAP and U.S. GAAP would result in adjustments to investments accounted for using equity method and the equity in earnings (losses) of equity method investee recorded in net income. |
c. | Impairment of long-lived assets |
Under U.S. GAAP, an impairment loss is recognized when the carrying amount of an asset or a group of assets is not recoverable from the expected future cash flows and the impairment loss is measured as the difference between the fair value and the carrying amount of the asset or group of assets. The impairment loss is recorded in earnings and cannot be reversed subsequently. Effective January 1, 2002, long-lived assets (excluding goodwill and other indefinite lived assets) held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. | |||
Under R.O.C. GAAP, for purposes of evaluating the recoverability of long-lived assets, assets purchased for use in the business but subsequently determined to have no use were written down to fair value and recorded as either idle assets or assets held for disposition. Under R.O.C. GAAP, effective January 1, 2005, the Company is required to recognize an impairment loss when an indication is identified that the carrying amount of an asset or a group of assets is not recoverable from the expected future cash flows. However, if the recoverable amount increases in a future period, the amount previously recognized as impairment would be reversed and recognized as a gain. The adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognized. Accordingly, the depreciation basis of long-lived assets impaired prior to January 1, 2005 under U.S. GAAP is different from the depreciation basis under R.O.C. GAAP. However, no impairment charges were recorded by the Company since 2005 under either R.O.C. GAAP or U.S. GAAP. |
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d. | 10% Tax On Unappropriated Earnings |
In R.O.C., a 10% tax is imposed on unappropriated earnings (excluding earnings from foreign consolidated subsidiaries). For R.O.C. GAAP purposes, the Company records the 10% tax on unappropriated earnings in the year of shareholders’ approval. Starting from 2002, the American Institute of Certified Public Accountants International Practices Task Force (the “Task Force”) concluded that in accordance with Emerging Issues Task Force (EITF) 95-10, “Accounting for tax credits related to dividends in accordance with SFAS 109,” the 10% tax on unappropriated earnings should be accrued under U.S. GAAP during the period the earnings arise and adjusted to the extent that distributions are approved by the shareholders in the following year. The adjustment had no effect on the income tax expense under U.S. GAAP in 2005 as a result of a corresponding reduction in the valuation allowance as the previously reserved tax credits became utilizable due to the additional tax. To the extent the Company does not have sufficient tax credits to offset the 10% tax, additional tax expense would be recognized under U.S. GAAP. Therefore, additional tax expense in the amount of NT$878.1 million and NT$3,278.0 million were recognized in 2004 and 2006 under U.S. GAAP, respectively. |
e. | Goodwill and intangible assets |
Under R.O.C. GAAP, goodwill was recorded for the excess of the purchase price over the net tangible assets for the purchase of a 32% equity interest in TSMC-Acer Semiconductor Manufacturing Corporation (TASMC) in 1999 and was being amortized over ten years. Under U.S. GAAP, the goodwill was being amortized over five years. | |||
Goodwill was not recorded under R.O.C. GAAP for the acquisition of the remaining 68% equity interest in TASMC in June 2000, because under R.O.C. GAAP goodwill from a business combination in the form of a share exchange was charged to capital surplus. Under U.S. GAAP, the acquisition cost is the fair value of the shares issued in exchange and the difference between the acquisition cost and the sum of the fair values of the net tangible and identifiable intangible assets acquired is recorded as goodwill. Accordingly, the goodwill from the acquisition of the remaining 68% equity interest in TASMC was recorded for U.S. GAAP purpose and was being amortized over the estimated life of five years. | |||
Effective January 1, 2002, the Company adopted U.S. SFAS No. 142, “Goodwill and Other Intangible Assets” and ceased amortization of goodwill which is now assessed for impairment annually or more frequently if impairment indicators arise. In accordance with U.S. SFAS No. 142, the Company determined that it is comprised of one reporting unit and has completed its goodwill impairment test and found no impairment as of December 31, 2004, 2005 and 2006. | |||
Effective January 1, 2005, the Company adopted R.O.C. SFAS No. 35 “Accounting for Impairment of Asset” which required the Company to evaluate impairment of an asset group, including goodwill allocated to such group. The Company found no impairment as of December 31, 2005 and 2006. Effective January 1, 2006, the Company adopted R.O.C. SFAS No. 25 (revised 2005), “Business Combinations” which is similar to U.S. SFAS No. 142. Upon adoption of R.O.C. SFAS No.25, the Company ceased amortization and reviewed the goodwill impairment in accordance with the provisions of the standard and SFAS No. 35. |
f. | Derivative financial instruments |
Under R.O.C. GAAP, prior to January 1, 2006, the receivables or payables arising from forward contracts were restated using the prevailing exchange rates with the resulting differences credited or charged to income. In addition, the receivables and payables related to forward contracts were netted with the resulting amount presented as either an asset or a liability. The receivables and payables arising from cross-currency swap contracts and interest rate swap contracts that were related to the contracts of the same counter party were netted with the resulting amount presented as either an asset or a liability. The difference in interest computed pursuant to the contracts on each settlement date or the balance sheet date was recorded as an adjustment to the interest income or expense associated with the hedged items. The notional amounts of foreign currency option contracts entered into for hedging purposes were not recognized as an asset or a liability on contract dates. The premiums paid or received for the options bought or written was amortized and charged to income on a straight-line basis over the term of the related contract. Any resulting gain or loss upon settlement was credited or charged to income in the year of settlement. Effective January 1, 2006, the Company adopted R.O.C. SFAS No. 34, “Financial Instruments: Recognition and Measurement,” and derivatives that do not qualify for hedge accounting are recorded as financial assets or liabilities at fair value through profit or loss (FVTPL) and measured at fair value as described in Note 2. |
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Under U.S. GAAP, derivative instruments are accounted for in accordance with U.S. SFAS No. 133, as amended, and require all entities to recognize derivative instruments as assets and liabilities on the balance sheet at fair value. If certain conditions are met, entities may elect to designate a derivative instrument as a hedging instrument. The derivative instruments used by the Company do not qualify for hedge accounting under U.S. SFAS No.133. Therefore, under U.S. GAAP, derivatives have historically been, and continue to be, recorded on the balance sheet at fair value, with the changes in fair values recognized in earnings. |
g. | Bonuses to employees, directors and supervisors |
According to R.O.C. regulations and TSMC’s Articles of Incorporation, a portion of the Company’s distributable earnings should be set aside as bonuses to employees, directors and supervisors. Bonuses to directors and supervisors are usually paid in cash. However, bonuses to employees may be paid in cash or stock, or a combination of both. Under R.O.C. GAAP, the bonuses, including stock bonuses which are valued at the par value of NT$10 each, are treated as appropriations of retained earnings and are charged to retained earnings after such bonuses are formally approved by the shareholders in the following year. | |||
Under U.S. GAAP, such bonuses are treated as compensation expense and are charged to earnings. The amount of compensation expense related to stock bonuses is determined based on the market value of TSMC’s common stock at the date of approval of distribution by shareholders in the following year. The total amount of the aforementioned bonuses to be paid in the following year is initially accrued based on management’s estimate pursuant to TSMC’s Articles of Incorporation in the year to which it relates. Any difference between the amount initially accrued and the market value of the bonuses upon the payment of cash and the issuance of shares is recognized in the year of approval by shareholders. Subsidiaries registered in R.O.C. follow the same accounting treatment as TSMC. | |||
The Company records two separate U.S. GAAP reconciling adjustments relating to bonuses paid to employees, directors and supervisors each year. The first reconciling adjustment, referred to as “Bonuses to employees, directors and supervisors — current year accrual”, records the full bonuses earned in the current year, in an amount equal to the product of the total net income for the current year multiplied by the percentage set forth based on management’s estimate pursuant to TSMC’s Articles of Incorporation. The second reconciling adjustment, referred to as “Fair market value adjustment of prior year accrual”, is made in the following year to record the additional compensation expense for prior-year bonuses paid in stock, which is measured at the fair market value on the date of shareholder approval. |
h. | Pension benefits |
U.S. SFAS No. 87, “Employer’s Accounting for Pensions” requires the Company to determine the accumulated pension obligation and the pension expense on an actuarial basis. The Company adopted U.S. SFAS No. 87 at the beginning of 1993 for U.S. GAAP purposes. | |||
U.S. SFAS No. 87 was amended by U.S. SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (U.S. SFAS No. 158) on September 29, 2006, which requires employers to recognize the overfunded or underfunded status of a defined benefit pension plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. U.S. SFAS No. 158 defines the funded status of a benefit plan as the difference between the fair value of the plan assets and the projected benefit obligation. Previously unrecognized items such as gains or losses, prior service credits and transition assets or liabilities will be recognized in other comprehensive income and will be subsequently recognized through net periodic benefit cost pursuant to the provisions of U.S. SFAS No. 87. | |||
R.O.C. SFAS No. 18 is similar in many respects to U.S. SFAS No. 87 and was adopted by the Company in 1996. However, R.O.C. SFAS No. 18 does not require a company to recognize the overfunded or underfunded status of a defined benefit pension plan as an asset or liability in the statement of financial position. | |||
The difference in the dates of adoption gives rise to a U.S. GAAP difference in the actuarial computation for transition obligation pension expense and the related amortization. |
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i. | Stock-based compensation |
Effective January 1, 2006, the Company adopted the fair value recognition provisions of U.S. Statement of Financial Accounting Standards (“U.S. SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“U.S. SFAS No. 123R), and the modified prospective transition method and therefore has not restated the results for prior periods. Under the transition method, stock-based compensation expense for the year ended December 31, 2006 includes compensation expense for all unvested stock-based compensation awards granted prior to January 1, 2006 that are expected to vest, based on the grant date fair value estimated in accordance with the original provision of U.S. SFAS No. 123, “Accounting for Stock-Based Compensation” (“U.S. SFAS No. 123”). Upon an employee’s termination, unvested awards are forfeited, which affects the quantity of options to be included in the calculation of stock-based compensation expense. Forfeitures do not include vested options that expire unexercised. Stock-based compensation expense for all stock-based compensation awards granted after January 1, 2006 is based on the grant-date fair value estimate in accordance with the provisions of U.S. SFAS No. 123R. The Company recognizes these compensation costs using the graded vesting method over the requisite service period of the award, which is generally the option vesting term of four years. Prior to the adoption of U.S. SFAS No. 123R, the Company recognized stock-based compensation expense in accordance with U.S. Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). See Note 31c for additional stock-based compensation disclosures. | |||
Certain characteristics of the stock options granted under TSMC 2002 Plan and the GUC 2004 Plan are not reasonably estimable using appropriate valuation methodologies as prescribed under U.S. SFAS No. 123 and have been accounted for using the variable accounting method. Upon the adoption of U.S. SFAS No. 123R, the Company continued to account for these stock options based on their intrinsic value, remeasured at each reporting date through the date of exercise or settlement. | |||
Under R.O.C. GAAP, employee stock option plans that are amended or have options granted on or after January 1, 2004 must be accounted for by the interpretations issued by the Accounting Research and Development Foundation in Taiwan (“ARDF”). The Company adopted the intrinsic value method and any compensation expense determined using this method is recognized over the vesting period. No stock-based compensation expense was recognized under R.O.C. GAAP for the years ended December 31, 2004, 2005 and 2006. |
j. | Carry interest |
For marketable security investments of InveStar Semiconductor Development Fund, Inc. (ISDF) managed by fund managers, the Company is required by the investment management contract to pay carry interests upon disposal of financial assets, which is calculated mainly based on total gains from the sale of financial assets multiplied by certain percentages. Therefore, the Company estimates and accrues for such expense based on total unrealized gains recorded during the year. | |||
Under R.O.C. GAAP, carry interest expense was not accrued prior to 2006 as the marketable security investments were carried at the lower of cost or market and no unrealized gains were recognized prior to disposal of investments. Upon adoption of R.O.C. SFAS No. 34 and No. 36 on January 1, 2006, the Company started to accrue carry interest because marketable securities are now carried at fair market value. | |||
Under U.S. GAAP, the Company accrued an expense of NT$193.3 million in 2005 and reversed such accrual in 2006 since the expense was recorded under R.O.C. GAAP in 2006. |
k. | Earnings per share |
Under R.O.C. GAAP, earnings per share is calculated as described in Note 2 and 24. Under U.S. GAAP, earnings per share is calculated by dividing net income by the average number of shares outstanding in each period, adjusted retroactively for any stock dividends issued and stock splits subsequently. Other shares issued from unappropriated earnings, such as stock bonuses to employees, are included in the calculation of weighted-average number of shares outstanding from the date of occurrence. |
Under both R.O.C. GAAP and U.S. GAAP, the unvested stock options are included in the diluted EPS calculation using the treasury stock method if the inclusion of such would be dilutive. The accounting for stock option under R.O.C GAAP is generally the same as U.S. APB 25 in all material aspects, which uses intrinsic value to account for the stock-based compensation. However, under U.S. GAAP, upon the adoption of SFAS No. 123R, the denominator used to calculate diluted EPS is likely to be different from the denominator used under U.S. APB 25 and R.O.C. GAAP. |
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Under U.S. SFAS No.123R paragraph 66 and 67 states that the shares or stock options shall be treated as contingently issuable shares in accordance with U.S. SFAS No. 128, “Earnings per share”. The statement provides guidance on applying the treasury stock method for equity instruments granted in share-based payment transactions in determining diluted earnings per share. In applying the treasury stock method, the assumed proceeds shall be the sum of (a) the exercise price, (b) the amount of compensation cost attributed to future services and not yet recognized, and (c) the amount of excess tax benefits that would be credited to additional paid-in capital assuming exercise of the options. Therefore, the number of shares included in the denominator of the diluted EPS calculation under U.S. SFAS No. 123R will be different from that under R.O.C. GAAP. Earnings per equivalent American Depository Share (ADS) is calculated by multiplying earnings per share by five (one ADS represents five common shares). |
l. | Consolidated entities |
Under R.O.C. GAAP, the Company adopted R.O.C. SFAS No. 7, “Consolidated Financial Statements”, which requires that the accompanying consolidated financial statements include the accounts of all directly and indirectly majority owned subsidiaries of TSMC, and the accounts of investees in which TSMC’s ownership percentage is less than 50% but which TSMC has a controlling interest. All significant intercompany balances and transactions are eliminated upon consolidation. Partially owned, non-controlled equity investees are accounted for under the equity method. The standard is similar to Accounting Research Bulletin (“ARB”) No. 51 “Consolidated Financial Statements” (“ARB No. 51”). | |||
U.S. FASB Interpretation No. 46R (Revised December 2003), “Consolidation of Variable Interest Entities”, which clarifies Accounting Research Bulletin No. 51 “Consolidated Financial Statements” and replaces FASB Interpretation No. 46 “Consolidation of Variable Interest Entities”, addresses consolidation by business enterprises of variable interest entities. The interpretation states that if an enterprise absorbs a majority of the expected losses or receives a majority of the expected residual rewards, or both, of a Variable Interest Entity (VIE) through its variable interests, it is identified as the primary beneficiary and is required to consolidate the VIE. | |||
Under U.S. GAAP, the Company consolidated the accounts of VisEra for the year ended December 31, 2004 and for the ten months period ended October 31, 2005 based on the majority voting interest rule pursuant to Accounting Research Bulletin (“ARB”) No. 51 “Consolidated Financial Statements” (“ARB No. 51”) and U.S. FASB Interpretation No. 46R (Revised December 2003), “Consolidation of Variable Interest Entities”. Subsequent to October 31, 2005, however, VisEra was no longer treated as a consolidated subsidiary of the Company. The Company believes that this accounting treatment is appropriate under U.S. GAAP because: (i) the Company lost its control over VisEra in November 2005 due to changes in the investment structure through which VisEra became a subsidiary of VisEra Holdings (“Cayman”), in which the Company owns only a 50% equity interest; (ii) Cayman is not a variable interest entity (“VIE”) as defined in paragraph 5 of U.S. Financial Accounting Standard Board (“FASB”) Financial Interpretation No. 46R “Consolidation of Variable Interest Entities — an Interpretation of Accounting Research Bulletin (ARB) No. 51” (“FIN 46R”); (iii) Cayman is not a majority owned subsidiary of the Company that would require consolidation under ARB No. 51; and (iv) the Company does not otherwise have control over Cayman. Therefore, the Company deconsolidated VisEra as of November 1, 2005. | |||
Under U.S. GAAP, the Company consolidated the accounts of GUC for the years ended December 31, 2004, 2005, and 2006. GUC is a business entity and an independent operation, which satisfies the exemption defined in paragraph 4h of FIN 46R. Therefore, GUC does not fall under the scope of FIN46R, and the Company follows ARB No. 51 as well as Regulation S-X Rule 1-02(g) to determine whether a parent-subsidiary relationship existed. | |||
Under R.O.C. GAAP, prior to January 1, 2005, the Company did not consolidate VisEra and GUC due to the ownership percentage being less than 50%. In December 2004, the ARDF revised R.O.C. SFAS No. 7, which was required to be adopted by the Company on January 1, 2005. The revised R.O.C. SFAS No. 7 requires the Company to consolidate all investees in which the Company has a controlling interest. As a result of the adoption of this standard, subsequent to December 31, 2004, there has been no difference between R.O.C. GAAP and U.S. GAAP with respect to consolidated entities of the Company. |
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The following reconciles net income and shareholders’ equity under R.O.C. GAAP as reported in the consolidated financial statements to the net income and shareholders’ equity determined under U.S. GAAP, giving effect to the differences listed above. |
Year Ended December 31 | ||||||||||||||||
2004 | 2005 | 2006 | ||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
(Note 3) | ||||||||||||||||
(In Millions Except Per Share Amounts) | ||||||||||||||||
Net income | ||||||||||||||||
Net income attributable to shareholders of the parent based on R.O.C. GAAP | $ | 92,316.1 | $ | 93,575.0 | $ | 127,009.7 | $ | 3,897.2 | ||||||||
Adjustments: | ||||||||||||||||
a. Marketable securities | ||||||||||||||||
1. Adjustment of unrealized gain on trading securities | 365.1 | 1,062.0 | — | — | ||||||||||||
2. Reversal (realization) of unrealized loss on marketable securities | 75.2 | 337.2 | (262.0 | ) | (8.0 | ) | ||||||||||
3. Reversal of cumulative effect of changes in accounting principle for adopting R.O.C. SFAS No. 34 | — | — | (1,606.7 | ) | (49.3 | ) | ||||||||||
b. U.S. GAAP adjustments on equity-method investees | 952.2 | (161.9 | ) | (42.6 | ) | (1.3 | ) | |||||||||
c. Reversal of depreciation on assets impaired under U.S. GAAP | 1,514.7 | 1,398.7 | 1,391.5 | 42.7 | ||||||||||||
d. 10% tax on undistributed earnings | (878.1 | ) | — | (3,278.0 | ) | (100.6 | ) | |||||||||
e. Reversal of amortization of goodwill recognized under R.O.C. GAAP | 1,255.3 | 1,220.3 | — | — | ||||||||||||
f. Adjustment to market value for derivative financial instruments | (142.0 | ) | (225.3 | ) | — | — | ||||||||||
g. Bonuses to employees, directors and supervisors | ||||||||||||||||
1. Current year accrual | (6,403.9 | ) | (7,121.7 | ) | (9,488.6 | ) | (291.1 | ) | ||||||||
2. Fair market value adjustment of prior year accrual | (12,956.7 | ) | (13,795.4 | ) | (18,016.4 | ) | (552.8 | ) | ||||||||
h. Pension expense | 2.6 | (9.9 | ) | 3.9 | 0.1 | |||||||||||
i. Stock-based compensation | ||||||||||||||||
1. Stock-based compensation | 156.2 | (791.4 | ) | (471.7 | ) | (14.5 | ) | |||||||||
2. Cumulative effect of changes in accounting principle for adopting U.S. SFAS 123R | — | — | 37.9 | 1.2 | ||||||||||||
j. Adjustment of carrying interest | — | (193.3 | ) | 170.4 | 5.2 | |||||||||||
Income tax effect of U.S. GAAP adjustments | 7.0 | 147.8 | 98.3 | 3.0 | ||||||||||||
Minority interest effect of U.S. GAAP adjustments | (10.3 | ) | (23.8 | ) | 165.0 | 5.0 | ||||||||||
Net adjustment | (16,062.7 | ) | (18,156.7 | ) | (31,299.0 | ) | (960.4 | ) | ||||||||
Net income based on U.S. GAAP | 76,253.4 | 75,418.3 | 95,710.7 | 2,936.8 | ||||||||||||
Basic earnings per common share | ||||||||||||||||
Income before cumulative effect of changes in accounting principles | 3.04 | 2.98 | 3.73 | 0.11 | ||||||||||||
Cumulative effect of changes in accounting principles | — | — | — | — | ||||||||||||
Net income | 3.04 | 2.98 | 3.73 | 0.11 | ||||||||||||
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Year Ended December 31 | ||||||||||||||||
2004 | 2005 | 2006 | ||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
(Note 3) | ||||||||||||||||
(In Millions Except Per Share Amounts) | ||||||||||||||||
Diluted earnings per common share | ||||||||||||||||
Income before cumulative effect of changes in accounting principles | 3.04 | 2.98 | 3.73 | 0.11 | ||||||||||||
Cumulative effect of changes in accounting principles | — | — | — | — | ||||||||||||
Net income | 3.04 | 2.98 | 3.73 | 0.11 | ||||||||||||
Basic earnings per ADS | ||||||||||||||||
Income before cumulative effect of changes in accounting principles | 15.22 | 14.90 | 18.67 | 0.57 | ||||||||||||
Cumulative effect of changes in accounting principles | — | — | — | — | ||||||||||||
Net income | 15.22 | 14.90 | 18.67 | 0.57 | ||||||||||||
Diluted earnings per ADS | ||||||||||||||||
Income before cumulative effect of changes in accounting principles | 15.22 | 14.89 | 18.66 | 0.57 | ||||||||||||
Cumulative effect of changes in accounting principles | — | — | — | — | ||||||||||||
Net income | 15.22 | 14.89 | 18.66 | 0.57 | ||||||||||||
Basic number of weighted average shares outstanding under U.S. GAAP(thousands) | 25,044,280 | 25,307,690 | 25,628,703 | |||||||||||||
Diluted number of weighted average shares outstanding under U.S. GAAP (thousands) | 25,050,208 | 25,320,337 | 25,650,266 | |||||||||||||
Year Ended December 31 | ||||||||||||
2005 | 2006 | |||||||||||
NT$ | NT$ | US$ | ||||||||||
(Note 3) | ||||||||||||
(In Millions) | ||||||||||||
Shareholders’ equity | ||||||||||||
Equity attributable to shareholders of the parent based on R.O.C. GAAP | 445,630.3 | 507,981.3 | 15,587.0 | |||||||||
Adjustments: | ||||||||||||
a. Marketable securities | ||||||||||||
1. Adjustment of unrealized gain on trading securities | 1,875.9 | — | — | |||||||||
2. Unrealized gain (loss) on available-for-sale marketable securities | ||||||||||||
(1) The Company | (99.7 | ) | — | — | ||||||||
(2) Equity-method investees | 21.3 | — | — | |||||||||
(3) Reversal of unrealized loss on marketable securities under R.O.C. GAAP | 412.4 | — | — | |||||||||
b. U.S. GAAP adjustments on equity-method investees | (463.8 | ) | (445.1 | ) | (13.7 | ) | ||||||
c. Impairment of long-lived assets | ||||||||||||
1. Loss on impairment of assets | (10,740.7 | ) | (10,657.7 | ) | (327.0 | ) | ||||||
2. Reversal of depreciation on assets impaired under U.S. GAAP | 7,223.0 | 8,561.8 | 262.7 |
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Year Ended December 31 | ||||||||||||
2005 | 2006 | |||||||||||
NT$ | NT$ | US$ | ||||||||||
(Note 3) | ||||||||||||
(In Millions) | ||||||||||||
d. 10% tax on undistributed earnings | — | (3,278.0 | ) | (100.6 | ) | |||||||
e. Goodwill | ||||||||||||
1. Carrying amount difference from 68% equity interest in TASMC’s share acquisition | 52,212.7 | 52,212.7 | 1,602.1 | |||||||||
2. Reversal of amortization of goodwill recognized under R.O.C. GAAP | (11,230.0 | ) | (11,257.5 | ) | (345.4 | ) | ||||||
f. Derivative financial instruments | (328.2 | ) | — | — | ||||||||
g. Bonuses to employees, directors and supervisors | (7,121.7 | ) | (9,488.5 | ) | (291.1 | ) | ||||||
h. Accrued pension cost | (47.7 | ) | (43.8 | ) | (1.3 | ) | ||||||
i. Accrual for accumulated other comprehensive income under U.S. SFAS No. 158 | — | (1,391.3 | ) | (42.7 | ) | |||||||
j. Adjustment of carrying interest | (193.3 | ) | — | — | ||||||||
Income tax effect of U.S. GAAP adjustments | 194.2 | 209.0 | 6.4 | |||||||||
Minority interest effect of U.S. GAAP adjustments | (47.5 | ) | 0.1 | — | ||||||||
Net increase in equity attributable to shareholders of the parent | 31,666.9 | 24,421.7 | 749.4 | |||||||||
Equity attributable to shareholders of the parent based on U.S. GAAP | 477,297.2 | 532,403.0 | 16,336.4 | |||||||||
Year Ended December 31 | ||||||||||||||||
2004 | 2005 | 2006 | ||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
(Note 3) | ||||||||||||||||
(In Millions) | ||||||||||||||||
Changes in equity attributable to shareholders of the parent based on U.S. GAAP | ||||||||||||||||
Balance, beginning of year | 357,173.1 | 427,124.8 | 477,297.2 | 14,645.5 | ||||||||||||
Net income for the year | 76,253.4 | 75,418.3 | 95,710.7 | 2,936.8 | ||||||||||||
Unrealized gain (loss) on available-for-sale marketable securities | ||||||||||||||||
TSMC | (346.1 | ) | (133.3 | ) | 338.7 | 10.4 | ||||||||||
Equity-method investees | 112.0 | (221.4 | ) | 151.1 | 4.6 | |||||||||||
Common shares issued as bonus to employees | ||||||||||||||||
TSMC | 15,677.5 | 16,881.6 | 21,431.1 | 657.6 | ||||||||||||
Equity-method investees | — | 54.4 | 51.6 | 1.6 | ||||||||||||
Adjustment arising from changes of ownership percentage in investees | 34.6 | 73.2 | 186.1 | 5.8 | ||||||||||||
Translation adjustments | (2,273.6 | ) | 1,574.5 | (549.1 | ) | (16.9 | ) | |||||||||
Proceeds from sales of treasury stock | 39.9 | 899.5 | — | — | ||||||||||||
Retirement of treasury stock | (7,059.8 | ) | — | — | — | |||||||||||
Cash dividends received by subsidiaries from parent company | 22.8 | 84.3 | 82.3 | 2.5 | ||||||||||||
Cash dividends to preferred shareholders | (184.5 | ) | — | — | — | |||||||||||
Cash dividends to common shareholders | (12,160.0 | ) | (46,504.1 | ) | (61,825.1 | ) | (1,897.1 | ) | ||||||||
Stock-based compensation | (168.1 | ) | 896.4 | 326.2 | 10.0 | |||||||||||
Issuance of stock from exercising stock options | 3.6 | 270.9 | 575.2 | 17.7 | ||||||||||||
Adjustment of prior year accrual of 10% tax on undistributed earnings | — | 878.1 | — | — | ||||||||||||
Adjustment of pension cost upon adoption of U.S. SFAS No. 158 | ||||||||||||||||
TSMC | — | — | (1,391.3 | ) | (42.7 | ) | ||||||||||
Equity-method investees | — | — | 18.3 | 0.6 | ||||||||||||
Balance, end of year | 427,124.8 | 477,297.2 | 532,403.0 | 16,336.4 | ||||||||||||
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The following U.S. GAAP condensed balance sheets as of December 31, 2005 and 2006, and statements of operations for the years ended December 31, 2004, 2005 and 2006 have been derived from the audited consolidated financial statements and reflect the adjustments presented above. |
Certain accounts have been reclassified to conform to U.S. GAAP. Technical service income is included as sales with the related costs included in cost of sales. Gains and losses on disposal of property, plant and equipment and other assets, losses on idle assets due to decreasing demand for products produced using those assets and certain other items in non-operating income (expense) are included as operating expenses. |
Year Ended December 31 | ||||||||||||
2005 | 2006 | |||||||||||
NT$ | NT$ | US$ | ||||||||||
(Note 3) | ||||||||||||
(In Millions) | ||||||||||||
Assets | ||||||||||||
Current assets | 214,141.3 | 260,317.2 | 7,987.6 | |||||||||
Long-term investments | 42,292.1 | 53,450.1 | 1,640.0 | |||||||||
Property, plant and equipment, net | 241,305.7 | 251,998.4 | 7,732.4 | |||||||||
Goodwill | 46,993.3 | 46,940.2 | 1,440.3 | |||||||||
Other assets | 14,186.6 | 13,402.5 | 411.4 | |||||||||
Total assets | 558,919.0 | 626,108.4 | 19,211.7 | |||||||||
Liabilities | ||||||||||||
Current liabilities | 42,765.4 | 59,627.1 | 1,829.6 | |||||||||
Long-term liabilities | 30,410.2 | 22,873.5 | 701.9 | |||||||||
Other liabilities | 7,786.1 | 10,048.1 | 308.3 | |||||||||
Minority interest in subsidiaries | 660.1 | 1,156.7 | 35.5 | |||||||||
Equity attributable to shareholders of the parent | 477,297.2 | 532,403.0 | 16,336.4 | |||||||||
Total liabilities and shareholders’ equity | 558,919.0 | 626,108.4 | 19,211.7 | |||||||||
Year Ended December 31 | ||||||||||||||||
2004 | 2005 | 2006 | ||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
(Note 3) | ||||||||||||||||
(In Millions) | ||||||||||||||||
Net sales | 260,035.0 | 267,027.7 | 317,978.7 | 9,756.9 | ||||||||||||
Cost of sales | 154,785.3 | 161,808.4 | 179,174.2 | 5,497.8 | ||||||||||||
Gross profit | 105,249.7 | 105,219.3 | 138,804.5 | 4,259.1 | ||||||||||||
Operating expenses | 32,190.9 | 32,763.6 | 37,050.1 | 1,136.9 | ||||||||||||
Income from operations | 73,058.8 | 72,455.7 | 101,754.4 | 3,122.2 | ||||||||||||
Non-operating income (expenses), net | 3,779.2 | 3,526.9 | 4,892.3 | 150.2 | ||||||||||||
Income before income tax and minority interest | 76,838.0 | 75,982.6 | 106,646.7 | 3,272.4 | ||||||||||||
Net income before minority interest and cumulative effect of changes in accounting principles | — | — | 95,693.3 | 2,936.3 | ||||||||||||
Cumulative effect of changes in accounting principles | — | — | 37.9 | 1.2 | ||||||||||||
Net income attributable to shareholders of the parent | 76,253.4 | 75,418.3 | 95,710.7 | 2,936.8 | ||||||||||||
Income attributable to common shareholders of the parent | 76,253.4 | 75,418.3 | 95,710.7 | 2,936.8 | ||||||||||||
The Company reports comprehensive income (loss) in accordance with U.S. SFAS No. 130, “Reporting Comprehensive Income” under U.S. GAAP. U.S. SFAS No. 130 requires that in addition to net income (loss), a company should report other comprehensive income (loss) consisting of the changes in equity of the company during the year from transactions and other events and circumstance from nonowner sources. It includes all changes in equity during the year except those resulting from investments by shareholders and distribution to shareholders. The components of other comprehensive income for the Company consist of unrealised gains and losses relating to the |
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translation of financial statements maintained in foreign currencies and unrealized gains and losses relating to the Company’s investments in available-for-sale securities. | |||
Statements of comprehensive income for the years ended December 31, 2004, 2005 and 2006 are as follows: |
Year Ended December 31 | ||||||||||||||||
2004 | 2005 | 2006 | ||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
(Note 3) | ||||||||||||||||
(In Millions) | ||||||||||||||||
Net income attributable to shareholders of the parent based on U.S. GAAP | 76,253.4 | 75,418.3 | 95,710.7 | 2,936.8 | ||||||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Adjustment of available-for-sale marketable securities | ||||||||||||||||
TSMC | (346.1 | ) | (133.3 | ) | 338.7 | 10.4 | ||||||||||
Equity-method investees | 112.0 | (221.4 | ) | 151.1 | 4.6 | |||||||||||
Translation adjustments | (2,273.6 | ) | 1,574.5 | (549.1 | ) | (16.9 | ) | |||||||||
(2,507.7 | ) | 1,219.8 | (59.3 | ) | (1.9 | ) | ||||||||||
Comprehensive income | 73,745.7 | 76,638.1 | 95,651.4 | 2,934.9 | ||||||||||||
The Company applies R.O.C. SFAS No. 17, “Statement of Cash Flows”. Its objectives and principles are similar to those set out in U.S. SFAS No. 95, “Statement of Cash Flows”. The principal differences between the two standards relate to classification. Cash flows from investing activities for changes in deferred charges, refundable deposits and other assets-miscellaneous, and cash flows from financing activities for changes in guarantee deposits, other liabilities and cash bonuses paid to employees, directors and supervisors are reclassified to operating activities under U.S. SFAS No. 95. Summarized cash flow data by operating, investing and financing activities in accordance with U.S. SFAS No. 95 are as follows: |
Year Ended December 31 | ||||||||||||||||
2004 | 2005 | 2006 | ||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
(Note 3) | ||||||||||||||||
(In Millions) | ||||||||||||||||
Net cash inflow (outflow) from: | ||||||||||||||||
Operating activities | 150,192.4 | 155,445.3 | 199,536.9 | 6,122.6 | ||||||||||||
Investing activities | (146,382.7 | ) | (76,730.2 | ) | (117,032.1 | ) | (3,591.0 | ) | ||||||||
Financing activities | (31,035.5 | ) | (57,111.7 | ) | (61,014.5 | ) | (1,872.2 | ) | ||||||||
Change in cash and cash equivalents | (27,225.8 | ) | 21,603.4 | 21,490.3 | 659.4 | |||||||||||
Cash and cash equivalents at the beginning of year | 103,427.0 | 74,531.4 | 96,483.7 | 2,960.5 | ||||||||||||
Effect of changes in foreign exchange rate | (1,669.8 | ) | 348.9 | (136.8 | ) | (4.2 | ) | |||||||||
Cash and cash equivalents at the end of year | 74,531.4 | 96,483.7 | 117,837.2 | 3,615.7 | ||||||||||||
31. | ADDITIONAL DISCLOSURES REQUIRED BY U.S. GAAP |
a. | Recent accounting pronouncements | ||
In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 and is required to be adopted by the Company in fiscal 2007. The cumulative effects, if any, of applying FIN 48 will be recorded as an adjustment to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the effect that the adoption of FIN 48 will have on its results of operations and financial positions and is not yet in a position to determine such effects. |
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In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement is effective for the Company beginning January 1, 2008. The Company is currently assessing the potential impact that the adoption of SFAS No. 157 will have on its results of operations and financial position and is not yet in a position to determine such effects. | |||
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — An Amendment of FASB Statements Nos. 87, 88, 106, and 132R” (SFAS No. 158). Provisions with respect to the recognition of an asset and liability related to the funded status and the changes in the funded status be reflected in comprehensive income are effective for fiscal years ending after December 15, 2006 and the change in measurement date provisions is effective for fiscal years ending after December 15, 2008. SFAS No. 158 also requires the measurement date of the plan’s funded status be the same as the Company’s fiscal year-end. The Company adopted all requirements of SFAS No. 158 in fiscal year 2006. Upon adoption of SFAS No. 158, the Company recognized a decrease to cumulative other comprehensive income of NT$1,391.3 million as of December 31, 2006. | |||
In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Current Year Misstatements”. SAB No. 108 requires analysis of misstatements using both an income statement (rollover) approach and a balance sheet (iron curtain) approach in assessing materiality and provides for a one-time cumulative effect transition adjustment. SAB No. 108 is effective for the Company’s fiscal year 2006 financial statements. The Company believes that the adoption of SAB No. 108 has no material impact on its results of operations and financial position. | |||
b. | Marketable securities | ||
As of December 31, 2005 and 2006, marketable securities by category are as follows, certain investments as of December 31, 2005 carried at the lower of cost or market value under R.O.C. GAAP were adjusted to fair value for purposes of U.S. GAAP presentation: |
R.O.C. GAAP | U.S. GAAP | |||||||||||||||
December 31 | ||||||||||||||||
2005 | 2006 | 2005 | 2006 | |||||||||||||
NT$ | NT$ | NT$ | NT$ | |||||||||||||
(In Millions) | ||||||||||||||||
Marketable securities — trading | 389.5 | 1,162.3 | 2,265.4 | 1,162.3 | ||||||||||||
Marketable securities — available-for-sale | 46,570.1 | 74,172.4 | 46,560.9 | 74,172.4 | ||||||||||||
Marketable securities — held-to-maturity | 29,377.8 | 37,484.3 | 29,377.8 | 37,484.3 |
The Company uses the average cost method for trading securities and available-for-sale securities when determining their cost basis. Proceeds from sales of available-for-sale securities for the years ended December 31, 2004, 2005 and 2006 were NT$28,801.3 million, NT$102,577.8 million and NT$91,620.4 million, respectively. Net realized gains on these sales were NT$154.5 million for the year ended December 31, 2004 and net realized losses on these sales were NT$137.9 million and NT$190.3 million for the years ended December 31, 2005 and 2006, respectively. |
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As of December 31, 2005 and 2006, available-for-sale and held-to-maturity securities of the Company were as follows: |
December 31, 2005 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Adjusted | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
NT$ | NT$ | NT$ | NT$ | |||||||||||||
(In Millions) | ||||||||||||||||
Corporate bonds | 21,098.6 | 10.4 | (323.5 | ) | 20,785.5 | |||||||||||
Corporate issued asset-backed securities | 11,724.1 | 2.5 | (144.0 | ) | 11,582.6 | |||||||||||
Bond funds | 6,055.6 | 143.4 | — | 6,199.0 | ||||||||||||
Agency bonds | 14,607.7 | 7.6 | (118.6 | ) | 14,496.7 | |||||||||||
Government bonds | 12,010.3 | 1.6 | (21.3 | ) | 11,990.6 | |||||||||||
Money market funds | 260.7 | — | — | 260.7 | ||||||||||||
Publicly traded common stocks | 19.9 | 109.5 | — | 129.4 | ||||||||||||
Corporate notes | 263.2 | — | — | 263.2 | ||||||||||||
Structured time deposits | 10,227.0 | 4.5 | (296.4 | ) | 9,935.1 | |||||||||||
Total | 76,267.1 | 279.5 | (903.8 | ) | 75,642.8 | |||||||||||
Categorized as: | ||||||||||||||||
Current assets | ||||||||||||||||
Available-for-sale securities | 46,452.8 | |||||||||||||||
Held-to-maturity securities | 602.5 | |||||||||||||||
Long-term investments | ||||||||||||||||
Available-for-sale securities | 108.1 | |||||||||||||||
Held-to-maturity securities | 28,479.4 | |||||||||||||||
75,642.8 | ||||||||||||||||
December 31, 2006 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Adjusted | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
NT$ | NT$ | NT$ | NT$ | |||||||||||||
(In Millions) | ||||||||||||||||
Corporate bonds | 30,389.3 | 53.5 | (192.8 | ) | 30,250.0 | |||||||||||
Corporate issued asset-backed securities | 10,600.9 | 14.5 | (73.7 | ) | 10,541.7 | |||||||||||
Bond funds | 25,768.7 | 378.6 | — | 26,147.3 | ||||||||||||
Agency bonds | 12,735.8 | 10.4 | (54.6 | ) | 12,691.6 | |||||||||||
Government bonds | 18,996.2 | 137.5 | (78.2 | ) | 19,055.5 | |||||||||||
Money market funds | 667.8 | — | — | 667.8 | ||||||||||||
Publicly traded common stocks | 89.0 | 119.9 | — | 208.9 | ||||||||||||
Structured time deposits | 12,171.1 | — | (186.0 | ) | 11,985.1 | |||||||||||
Total | 111,418.8 | 714.4 | (585.3 | ) | 111,547.9 | |||||||||||
Categorized as: | ||||||||||||||||
Current assets | ||||||||||||||||
Available-for-sale securities | 67,523.9 | |||||||||||||||
Held-to-maturity securities | 8,522.6 | |||||||||||||||
Long-term investments | ||||||||||||||||
Available-for-sale securities | 6,648.5 | |||||||||||||||
Held-to-maturity securities | 28,852.9 | |||||||||||||||
111,547.9 | ||||||||||||||||
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The following table shows the gross unrealized losses and fair value of the investments with unrealized losses that are not deemed to be other-than-temporary impaired, aggregated by investment category and length of time that have been in a continuous unrealized loss position as of December 31, 2006: |
Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | |||||||||||||||||||
(In Millions) | ||||||||||||||||||||||||
Corporate bonds | 19,619.7 | (80.5 | ) | 3,862.6 | (112.3 | ) | 23,482.3 | (192.8 | ) | |||||||||||||||
Corporate issued asset-backed securities | 5,523.1 | (41.2 | ) | 1,437.3 | (32.5 | ) | 6,960.4 | (73.7 | ) | |||||||||||||||
Agency bonds | 4,324.4 | (22.0 | ) | 1,625.2 | (32.6 | ) | 5,949.6 | (54.6 | ) | |||||||||||||||
Structured time deposits | 1,994.0 | (6.0 | ) | 9,991.1 | (180.0 | ) | 11,985.1 | (186.0 | ) | |||||||||||||||
Government bonds | 15,738.2 | (76.6 | ) | 768.1 | (1.6 | ) | 16,506.3 | (78.2 | ) | |||||||||||||||
47,199.4 | (226.3 | ) | 17,684.3 | (359.0 | ) | 64,883.7 | (585.3 | ) | ||||||||||||||||
The gross unrealized losses related to bonds and structured time deposits were due to changes in interest rates. Because the Company has the ability and intent to hold the investments until a recovery of fair value, which may be maturity, management does not consider the investments to be other-than-temporarily impaired as of December 31, 2006. | |||
As of December 31, 2006, the amortized cost and fair value of the Company’s available-for-sale and held-to-maturity investments in debt securities by contractual maturity were as follows: |
Amortized | ||||||||
Cost | Fair Value | |||||||
NT$ | NT$ | |||||||
(In Millions) | ||||||||
Due in one year or less | 11,733.0 | 11,559.0 | ||||||
Due after one year through two years | 31,318.6 | 31,310.1 | ||||||
Due after two years through five years | 30,191.3 | 30,031.5 | ||||||
Due after five years | 11,650.4 | 11,623.3 | ||||||
84,893.3 | 84,523.9 | |||||||
Total appreciation of trading marketable securities held by the Company as of December 31, 2005 and 2006 were NT$1,876 million and NT$964 million, respectively. Total appreciation as of December 31, 2005 included a gain of NT$221 million that resulted from the transfer of formerly unquoted available-for-sale securities to trading securities as they became marketable. There was no such transfer for the years ended December 31, 2004 and 2006. | |||
c. | Stock-based compensation plans | ||
Effective January 1, 2006, TSMC adopted the fair value recognition provisions of SFAS No. 123 (revised 2004), “Shared-Based Payment” (“SFAS No. 123R”), using the modified prospective transition method and therefore has not restated the results for prior periods. Under the transition method, stock-based compensation expense in the year ended December 31, 2006 includes stock-based compensation expense for all share-based payment awards granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). In addition, the stock-based compensation expense also includes intrinsic value of certain outstanding share-based awards for which it was not possible to reasonably estimate their grant-date fair value under the requirement of SFAS No. 123. Stock-based compensation expense for all share-based payment awards granted after January 1, 2006 is based on the grant-date fair value estimated in accordance with the provision of SFAS No. 123R. The Company recognizes these compensation costs using the graded vesting method over the requisite service period of the award, which is generally a four-year vesting period. The adoption of SFAS No. 123R resulted in a cumulative gain from accounting change of NT$37.9 million, which reflects the net cumulative impact of estimating future forfeitures in the determination of period expense, rather than recording forfeitures when they occur as previously permitted. Prior to the adoption of SFAS No. 123R, the Company accounted for |
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awards granted under the intrinsic value method prescribed by U.S. APB No. 25 and related interpretations, and provided the required pro forma disclosures prescribed by SFAS No. 123. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB No. 107”) regarding the SEC’s interpretation of SFAS No. 123R and the value of share-based payments for public companies. TSMC has applied the provisions of SAB No. 107 in its adoption of SFAS No. 123R. | ||
As a result of adopting U.S. SFAS No. 123R, income before income tax and cumulative effect of changes in accounting principles and net income for the year ended December 31, 2006 were NT$73.1 million and NT$67.1 million, respectively, lower than if the Company had continued to account for stock-based compensation under APB 25. The impact on both basic and diluted earnings per share for the year ended December 31, 2006 was less than NT$0.01. The pro forma table reflects net income and basic and diluted net earnings per share for the years ended December 31, 2004 and 2005 in accordance with the fair value based method provision of SFAS 123: |
Year Ended December 31 | ||||||||
2004 | 2005 | |||||||
NT$ | NT$ | |||||||
(In Millions Except Per Share | ||||||||
Amounts) | ||||||||
Net income based on U.S. GAAP, as reported | 76,253.4 | 75,418.3 | ||||||
Add: stock-based compensation expense (gain) included in reported net income attributable to shareholders of the parent under APB No.25, net of tax | (156.2 | ) | 753.5 | |||||
Less: stock-based compensation expense determined under SFAS No.123, net of tax | (61.6 | ) | (846.8 | ) | ||||
Pro forma net income attributable to shareholders of the parent | 76,035.6 | 75,325.0 | ||||||
Earnings per share: | ||||||||
Pro forma basic and diluted earnings per share | 3.04 | 2.98 | ||||||
Pro forma diluted earnings per share | 3.04 | 2.97 | ||||||
Basic and diluted earnings per share as reported | 3.04 | 2.98 | ||||||
Pro forma basic earnings per ADS | 15.18 | 14.88 | ||||||
Pro forma diluted earnings per ADS | 15.18 | 14.87 | ||||||
Basic earnings per ADS as reported | 15.22 | 14.90 | ||||||
Diluted earnings per ADS as reported | 15.22 | 14.89 |
The fair values of the options granted under the TSMC 2002 Plan and GUC 2004 Plan were not reasonably estimable using appropriate valuation methodologies as prescribed under SFAS No. 123 because the terms of such plans included a provision for a reduction in the exercise price in the event TSMC or GUC issues additional common shares or issues ADSs at a price lower than the exercise price of a granted stock option. Accordingly, the expenses for the stock options granted under the TSMC 2002 Plan and the GUC 2004 Plan were determined using the variable accounting method. Upon adoption of SFAS No. 123R, the Company continued to account for these stock options based on their intrinsic value, remeasured at each reporting date through the date of exercise or other settlement. | ||
Please refer to Note 22 of the Consolidated Financial Statement for other general terms of TSMC’s and GUC’s Employee Stock Option Plans, such as the maximum contractual term and the number of shares authorized for each stock option plan, as well as the supplemental information such as outstanding options as of December 31, 2006. |
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The weighted average remaining contractual term and aggregate intrinsic value of options under the foregoing plans as of December 31, 2006 were as follows: |
Weighted Average | ||||||
Remaining | ||||||
Contractual | Aggregate | |||||
Term | Intrinsic Value | |||||
NT$ | ||||||
(In Years) | (In Millions) | |||||
TSMC: | ||||||
Options outstanding | 5.8 | 1,471.9 | ||||
Options exercisable | 5.3 | 1,004.3 | ||||
GUC: | ||||||
Options outstanding | 4.2 | 1,003.4 | ||||
Options exercisable | 1.9 | 2.1 |
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between TSMC’s or GUC’s stock closing price on the last trading date of the year ended December 31, 2006 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2006. | ||
The number of options that are expected to vest for the years ended December 31, 2005 and 2006 was 42,447 thousand shares and 23,093 thousand shares, respectively. | ||
Total intrinsic value of options exercised in the years ended December 31, 2005 and 2006 was NT$116.3 million and NT$332.2 million, respectively. Total fair value of options vested, net of taxes, during the years ended December 31, 2005 and 2006 was NT$512.6 million and NT$528.8 million, respectively. | ||
d. | Subsidy income | |
The subsidy income of NT$321.9 million and NT$334.5 million recognized in the years ended December 31, 2005 and 2006, respectively, represented payments granted by the government of the People’s Republic of China (“PRC Government”) in connection with the Company’s investment in Mainland China. Under R.O.C. GAAP, such government grants are recorded as non-operating income when received. In the absence of specific U.S. GAAP accounting guidance, the Company applied the International Accounting Standard (“IAS”) 20, “Accounting for Government Grants and Disclosure of Government Assistance”. Therefore the subsidy income was recognized when received as non-operating income under U.S. GAAP as well. | ||
e. | Settlement income | |
Settlement income of NT$964.7 million and NT$979.2 million was recognized in the years ended December 31, 2005 and 2006, respectively, under the settlement agreement with Semiconductor Manufacturing Company Limited (“SMIC”). The dispute settlement is not a component of the activities that constitute the Company’s ongoing major or central operations and therefore is classified as non-operating income in accordance with U.S. GAAP, FASB Standard of Financial Accounting Concept (“SFAC”) No. 6, “Elements of Financial Statements”. | ||
Under paragraph 84 (g) of SFAC No. 5, “Recognition and Measurement in Financial Statements of Business Enterprises”, the Company recognized such settlement income on a cash basis due to the Company’s serious doubt as to its collectibility at the time the settlement agreement was consummated. The Company continues to analyze the recognition of the remaining settlement income based on its collectibility, and will evaluate SMIC’s reported financial condition, capital resources and liquidity condition on a regular basis. |
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(a) | See Item 18 for a list of the financial statements filed as part of this annual report. | |
(b) | Exhibits to this Annual Report: | |
1.1 | Articles of Incorporation of Taiwan Semiconductor Manufacturing Company Limited, as amended and restated on May 16, 2006. | |
2b.1 | The Company hereby agrees to furnish to the Securities and Exchange Commission, upon request, copies of instruments defining the rights of holders of long-term debt of the Company and its subsidiaries. | |
3.1(2) | Rules for Election of Directors and Supervisors, as amended and restated on May 7, 2002. | |
3.2(2) | Rules and Procedures of Shareholders’ Meetings, as amended and restated on May 7, 2002. | |
4.1(2) | Land Lease with Southern Taiwan Science Park Administration (formerly Tainan Science Park Administration) relating to the fabs located in Southern Taiwan Science Park (effective August 1, 1997 to July 31, 2017) (in Chinese with English summary). | |
4.2(3) | Land Lease with Southern Taiwan Science Park Administration (formerly Tainan Science Park Administration) relating to the fabs located in Southern Taiwan Science Park (effective May 1, 1998 to April 30, 2018) (in Chinese with English summary). | |
4.3(3) | Land Lease with Southern Taiwan Science Park Administration (formerly Tainan Science Park Administration) relating to the fabs located in Southern Taiwan Science Park (effective November 1, 1999 to October 31, 2019) (in Chinese with English summary). | |
4.4(3) | Land Lease with Hsinchu Science Park Administration relating to Fab 7 (effective December 4, 1989 to December 3, 2009) (in Chinese with English summary). | |
4.5(2) | Land Lease with Hsinchu Science Park Administration relating to the Fab 7 (effective July 1, 1995 to June 30, 2015) (in Chinese with English summary). | |
4.6(2) | Land Lease with Hsinchu Science Park Administration relating to Fab. 8 (effective March 15, 1997 to March 14, 2017) (in Chinese with English summary). | |
4.7(3) | Land Lease with Hsinchu Science Park Administration relating to Fab 12 (Phase I) (effective December 1, 1999 to November 30, 2019) (in Chinese with English summary). | |
+4.8(1) | Technology Cooperation Agreement between Taiwan Semiconductor Manufacturing Company Ltd. and Philips Electronics N.V., as amended and restated on June 20, 2004. | |
4.9a(4) | Taiwan Semiconductor Manufacturing Company Limited 2002 Employee Stock Option Plan, as revised by the board of directors on March 4, 2003. | |
4.9aa(5) | Taiwan Semiconductor Manufacturing Company Limited 2003 Employee Stock Option Plan. |
Table of Contents
4.9aaa(6) | Taiwan Semiconductor Manufacturing Company Limited 2004 Employee Stock Option Plan. | |
4.9aaaa(1) | Taiwan Semiconductor Manufacturing Company Limited 2004 Employee Stock Option Plan, as revised on February 22, 2005. | |
4.9b(4) | TSMC North America 2002 Employee Stock Option Plan, as revised on June 5, 2003. | |
4.9bb(5) | TSMC North America 2003 Employee Stock Option Plan. | |
4.9c(4) | WaferTech, LLC 2002 Employee Stock Option Plan, as revised on June 5, 2003. | |
4.9cc(5) | Wafer Tech, LLC 2003 Employee Stock Option Plan. | |
4.9ccc(6) | Wafer Tech, LLC 2004 Employee Stock Option Plan. | |
4.9cccc(1) | Wafer Tech, LLC 2004 Employee Stock Option Plan, as revised on February 22, 2005. | |
+4.10(7) | Shareholders Agreement, dated as of March 15, 1999, by and among EDB Investments Pte. Ltd., Koninklijke Philips Electronics N.V. and Taiwan Semiconductor Manufacturing Company Ltd. | |
4.11(9) | Land Lease with Hsinchu Science Park Administration relating to Fabs 2 and 5 and Corporate Headquarters (effective April 1, 1988 to March 31, 2008) (in Chinese with English summary). | |
4.12(9) | Land Lease with Hsinchu Science Park Administration relating to Fabs 3 and 4 (effective May 16, 1993 to May 15, 2013) (in Chinese with English summary). | |
4.13(8) | Land Lease with Hsinchu Science Park Administration relating to Fab 12 (Phase II) (effective May 1, 2001 to December 31, 2020) (English summary). | |
4.14(8) | Land Lease with Southern Taiwan Science Park Administration relating to fabs located in Southern Taiwan Science Park (effective November 1, 2000 to October 31, 2020) (English summary). | |
8.1 | List of manufacturing subsidiaries of Taiwan Semiconductor Manufacturing Company Limited. | |
12.1 | Certification of Chief Executive Officer required by Rule 13a-14(a) under the Exchange Act. | |
12.2 | Certification of Chief Financial Officer required by Rule 13a-14(a) under the Exchange Act. |
Table of Contents
13.1 | Certification of Chief Executive Officer required by Rule 13a-14(b) under the Exchange Act. | |
13.2 | Certification of Chief Financial Officer required by Rule 13a-14(b) under the Exchange Act. | |
99.1 | Consent of Deloitte & Touche. |
(1) | Previously filed in TSMC’s annual report on Form 20-F for the fiscal year ended December 31, 2004, filed by TSMC on May 16, 2005. | |
(2) | Previously filed in TSMC’s annual report on Form 20-F for the fiscal year ended December 31, 2001, filed by TSMC on May 9, 2002. | |
(3) | Previously filed in TSMC’s annual report on Form 20-F for the fiscal year ended December 31, 1999, filed by TSMC on June 29, 2000. | |
(4) | Previously filed in TSMC’s annual report on Form 20-F for the fiscal year ended December 31, 2002, filed by TSMC on June 23, 2003. | |
(5) | Previously filed in TSMC’s registration statement on Form S-8, filed by TSMC on October 20, 2003. | |
(6) | Previously filed in TSMC’s registration statement on Form S-8, filed by TSMC on January 6, 2005. | |
(7) | Previously filed in TSMC’s annual report on Form 20-F for the fiscal year ended December 31, 1998, filed by TSMC on April 30, 1999. | |
(8) | Previously filed in TSMC’s annual report on Form 20-F for the fiscal year ended December 31, 2003, filed by TSMC on May 28, 2004. | |
(9) | Previously filed in TSMC’s registration statement on Form F-1, filed by TSMC on September 15, 1997. | |
+ | Contains portions for which confidential treatment has been requested. |