1934 Act Registration No. 1-14700
SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2003
Taiwan Semiconductor Manufacturing Company Ltd.
(Translation of Registrant's Name Into English)
No. 8, Li-Hsin Rd. 6,
Science-Based Industrial Park,
Hsin-Chu, Taiwan
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F x Form 40-F _______
-------
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes _______ No x
-------
(If "Yes" is marked, indicated below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82: _______.)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Taiwan Semiconductor Manufacturing Company Ltd.
Date: August 28, 2003 By /s/ Harvey Chang
-------------------------------------------------
Harvey Chang
Senior Vice President & Chief Financial Office
Taiwan Semiconductor Manufacturing Company Ltd.
Financial Statements for the Six Months Ended
June 30, 2003 and 2002
Together with Independent Auditors' Report
Readers are advised that the original version of these financial statements is
in Chinese. This English translation is solely for the readers' convenience. If
there is any conflict between these financial statements and the Chinese version
or any difference in the interpretation of the two versions, the
Chinese-language financial statements shall prevail.
English Translation of a Report Originally Issued in Chinese
Independent Auditors' Report
July 15, 2003
The Board of Directors and Shareholders
Taiwan Semiconductor Manufacturing Company Ltd.
We have audited the accompanying balance sheets of Taiwan Semiconductor
Manufacturing Company Ltd. as of June 30, 2003 and 2002, and the related
statements of income, changes in shareholders' equity and cash flows for the
periods then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Regulations for Auditing of Financial
Statement by Certified Public Accountants, and auditing standards generally
accepted in the Republic of China. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Taiwan Semiconductor
Manufacturing Company Ltd. as of June 30, 2003 and 2002, and the results of its
operations and its cash flows for the periods then ended in conformity with the
Guidelines for Securities Issuers' Financial Reporting and accounting principles
generally accepted in the Republic of China.
-4-
As disclosed in Note 3 to the financial statements, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 30, "Accounting for
Treasury Stock" on January 1, 2002. SFAS No. 30 requires a parent company to
record stock held by its subsidiary as treasury stock.
Deloitte & Touche
(T N Soong & Co and Deloitte & Touche Taiwan
Establish Deloitte & Touche Effective June 1, 2003)
Taipei, Taiwan
The Republic of China
Notice to Readers
The accompanying financial statements are intended only to present the financial
position, results of operations and cash flows in accordance with accounting
principles and practices generally accepted in the Republic of China and not
those of any other jurisdictions. The standards, procedures and practices to
audit such financial statements are those generally accepted and applied in the
Republic of China.
-5-
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
BALANCE SHEETS
June 30, 2003 and 2002
(In Thousand New Taiwan Dollars, Except Par Value)
2003 2002
---------------------- ----------------------
A S S E T S Amount % Amount %
----------- -------------- ---- -------------- ----
CURRENT ASSETS
Cash and cash equivalents (Notes 2 and 4) $ 66,546,050 18 $ 66,385,580 18
Short-term investments (Notes 2 and 5) 3,054,050 1 - -
Receivables from related parties (Note 18) 15,186,990 4 13,072,628 3
Notes receivable 13,459 - 124,293 -
Accounts receivable 12,834,737 4 12,026,411 3
Allowance for doubtful receivables (Note 2) (975,547) - (1,169,253) -
Allowance for sales returns and others (Note 2) (2,069,722) (1) (3,327,586) (1)
Other financial assets 798,672 - 2,078,966 1
Inventories - net (Notes 2 and 6) 11,355,534 3 11,701,048 3
Deferred income taxes assets (Notes 2 and 13) 3,320,000 1 4,547,082 1
Prepaid expenses and other current assets (Notes 2 and 21) 955,192 - 924,973 -
-------------- ---- -------------- ----
Total Current Assets 111,019,415 30 106,364,142 28
-------------- ---- -------------- ----
FUNDS AND LONG-TERM INVESTMENTS (Notes 2, 3, 7
and 21)
Equity method 34,029,484 10 35,597,922 10
Cost method 849,666 - 915,750 -
Funds 242,837 - 200,056 -
-------------- ---- -------------- ----
Total Funds and Long-term Investments 35,121,987 10 36,713,728 10
-------------- ---- -------------- ----
PROPERTY, PLANT, AND EQUIPMENT (Notes 2 and 8)
Cost
Buildings 70,341,223 19 65,255,239 17
Machinery and equipment 320,043,036 88 274,042,646 73
Office equipment 5,948,653 2 5,505,224 2
-------------- ---- -------------- ----
Total cost 396,332,912 109 344,803,109 92
Accumulated depreciation (218,915,472) (60) (164,539,550) (44)
Advance payments and construction in progress 18,376,849 5 30,969,493 8
-------------- ---- -------------- ----
Net Property, Plant, and Equipment 195,794,289 54 211,233,052 56
-------------- ---- -------------- ----
GOODWILL (Note 2) 2,438,731 1 2,787,122 1
-------------- ---- -------------- ----
OTHER ASSETS
Deferred income taxes assets (Notes 2 and 13) 9,177,560 3 11,874,084 3
Deferred charges - net (Notes 2 and 9) 8,731,444 2 5,332,764 2
Refundable deposits (Notes 18 and 20) 375,715 - 577,552 -
Idle assets (Note 2) 107,552 - - -
Assets leased to others (Note 2) 85,796 - 88,686 -
Miscellaneous - - 9,250 -
-------------- ---- -------------- ----
Total Other Assets 18,478,067 5 17,882,336 5
-------------- ---- -------------- ----
TOTAL ASSETS $ 362,852,489 100 $ 374,980,380 100
============== ==== ============== ====
2003 2002
---------------------- ----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY Amount % Amount %
------------------------------------ -------------- ---- -------------- ----
CURRENT LIABILITIES
Payables to related parties (Note 18) $ 3,591,017 1 $ 3,014,435 1
Accounts payable 5,154,006 1 5,407,261 1
Payables to contractors and equipment suppliers 6,559,597 2 16,881,543 5
Accrued expenses and other current liabilities (Notes 2, 7 and
21) 6,669,201 2 6,181,629 2
Current portion of long-term bonds payable (Note 10) - - 9,000,000 2
-------------- ---- -------------- ----
Total Current Liabilities 21,973,821 6 40,484,868 11
-------------- ---- -------------- ----
LONG-TERM LIABILITIES
Bonds payable (Note 10) 35,000,000 10 35,000,000 9
Other long-term payable (Notes 11 and 20) 3,921,540 1 1,470,000 1
-------------- ---- -------------- ----
Total Long-term Liabilities 38,921,540 11 36,470,000 10
-------------- ---- -------------- ----
OTHER LIABILITIES
Guarantee deposits (Note 20) 1,225,310 - 6,620,526 2
Accrued pension cost (Notes 2 and 12) 2,431,939 1 2,049,025 -
Deferred gain on sale and leaseback (Note 2) 38,309 - 191,547 -
-------------- ---- -------------- ----
Total Other Liabilities 3,695,558 1 8,861,098 2
-------------- ---- -------------- ----
Total Liabilities 64,590,919 18 85,815,966 23
-------------- ---- -------------- ----
SHAREHOLDERS' EQUITY (Note 15)
Capital stock - $10 par value
Authorized: 24,600,000 thousand shares
Issued: Preferred - 1,300,000 thousand shares - - 13,000,000 3
Common - 18,622,887 thousand shares 186,228,867 51 186,228,867 50
To be issued 16,437,322 5 - -
Capital surplus:
Merger and others (Note 2) 56,797,280 16 56,961,753 15
Treasury stock (Note 3) 43,471 - 43,036 -
Retained earnings:
Appropriated as legal reserve 20,802,137 6 18,641,108 5
Appropriated as special reserve 68,945 - - -
Unappropriated earnings (Note 2) 19,058,142 5 16,438,149 4
Other:
Unrealized loss on long-term investments (Note 2) (7,981) - - -
Cumulative translation adjustments (Note 2) 755,436 - (233,799) -
Treasury stock (at cost) - 41,961 thousand shares in 2003 and
42,001 thousand shares in 2002 (Notes 2, 3 and 16) (1,922,049) (1) (1,914,700) -
-------------- ---- -------------- ----
Total Shareholders' Equity 298,261,570 82 289,164,414 77
-------------- ---- -------------- ----
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 362,852,489 100 $ 374,980,380 100
============== ==== ============== ====
The accompanying notes are an integral part of the financial statements.
(With Deloitte & Touche auditors' report dated July 15, 2003)
-6-
English Translation of Financial Statements Originally Issued in Chinese
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
STATEMENTS OF INCOME
For the Six Months Ended June 30, 2003 and 2002
(In Thousand New Taiwan Dollars, Except Earnings Per Share)
2003 2002
------------------- --------------------
Amount % Amount %
------------- ---- ------------- ----
GROSS SALES (Notes 2 and 18) $ 91,227,434 $ 82,094,962
SALES RETURNS AND ALLOWANCES (Note 2) 1,979,969 2,122,793
------------- -------------
NET SALES 89,247,465 100 79,972,169 100
COST OF SALES (Notes 14 and 18) 60,510,165 68 51,522,407 65
------------- ---- ------------- ----
GROSS PROFIT 28,737,300 32 28,449,762 35
------------- ---- ------------- ----
OPERATING EXPENSES (Notes 14 and 18)
Research and development 5,589,164 6 5,237,094 6
General and administrative 2,958,075 3 2,459,717 3
Marketing 655,343 1 595,467 1
------------- ---- ------------- ----
Total Operating Expenses 9,202,582 10 8,292,278 10
------------- ---- ------------- ----
INCOME FROM OPERATIONS 19,534,718 22 20,157,484 25
------------- ---- ------------- ----
NON-OPERATING INCOME AND GAIN
Interest (Note 2) 370,789 1 479,021 1
Gain on sales of property, plant and equipment (Note 2) 295,796 - 250,815 1
Technical service income (Notes 18 and 20) 76,527 - 84,437 -
Gain on sales of short-term investments (Note 2) 19,192 - 21,286 -
Premium income from option contracts - net (Note 2) - - 11,755 -
Other (Note 18) 125,878 - 174,420 -
------------- ---- ------------- ----
Total Non-operating Income and Gain 888,182 1 1,021,734 2
------------- ---- ------------- ----
NON-OPERATING EXPENSES AND LOSS
Loss on property, plant, and equipment, and idle assets
(Note 2) 1,401,585 2 - -
Interest (Notes 2, 8 and 21) 946,124 1 1,111,150 2
Investment loss recognized by equity method - net
(Notes 2 and 7) 705,431 1 1,733,052 2
Loss on disposal of property, plant, and equipment
(Note 2) 262,208 - 92,155 -
Foreign exchange loss - net (Notes 2 and 21) 246,919 - 60,433 -
Premium expense from option contracts - net
(Notes 2 and 21) 96,648 - - -
(Forward)
-7-
English Translation of Financial Statements Originally Issued in Chinese
2003 2002
------------------- -------------------
Amount % Amount %
------------- ---- ------------- ----
Casualty loss - net (Note 2) $ - - $ 117,470 -
Other 11,540 - 60,674 -
------------- ---- ------------- ----
Total Non-operating Expenses and Loss 3,670,455 4 3,174,934 4
------------- ---- ------------- ----
INCOME BEFORE INCOME TAX 16,752,445 19 18,004,284 23
INCOME TAX EXPENSE (Notes 2 and 13) 664,611 1 2,106,933 3
------------- ---- ------------- ----
NET INCOME $ 16,087,834 18 $ 15,897,351 20
============= ==== ============= ====
2003 2002
---------------------- ----------------------
Before After Before After
Income Tax Income Tax Income Tax Income Tax
---------- ---------- ---------- ----------
EARNINGS PER SHARE (Note 17)
Basic and diluted earnings per share $ 0.82 $ 0.79 $ 0.88 $ 0.77
========== ========== ========== ==========
The pro forma net income and earnings per share for the adoption of SFAS No. 30
"Accounting for Treasury Stock" is as follows (Notes 3 and 16):
2003 2002
-------------------------- ---------------------------
Before After Before After
Income Tax Income Tax Income Tax Income Tax
------------ ------------ ------------- ------------
NET INCOME $ 17,007,461 $ 16,342,850 $ 18,047,320 $ 15,940,387
============ ============ ============= ============
EARNINGS PER SHARE
Basic and diluted earnings per share $ 0.83 $ 0.80 $ 0.88 $ 0.78
============ ============ ============= ============
The accompanying notes are an integral part of the financial statements.
(With Deloitte & Touche auditors' report dated July 15, 2003)
-8-
English Translation of Financial Statements Originally Issued in Chinese
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Six Months Ended June 30, 2003 and 2002
(In Thousand New Taiwan Dollars)
CAPITAL STOCK
-------------------------------------------------------------------------------
Preferred Stocks Common Stocks To Be Issued (Note 15)
------------------------ ------------------------- -------------------------
Shares Shares Shares
(Thousand) Amount (Thousand) Amount (Thousand) Amount
---------- ---------- ---------- ---------- ----------- -----------
BALANCE, JANUARY 1, 2003 1,300,000 $ 13,000,000 18,622,887 $186,228,867 - $ -
Appropriations of prior year's earnings
Legal reserve - - - - - -
Special reserve - - - - - -
Bonus to employees - stock - - - - 153,901 1,539,013
Cash dividends paid for preferred stocks - - - - - -
Stock dividends - 8% - - - - 1,489,831 14,898,309
Remuneration to directors and supervisors - - - - - -
Net income for the six months ended June 30, 2003 - - - - - -
Redemption and retirement of preferred stocks (1,300,000) (13,000,000) - - - -
Reversal of unrealized loss on long term
investment of subsidiaries - - - - - -
Reversal of unrealized loss on long term
investment of investees - - - - - -
Adjustment arising from changes in
ownership percentage in investees - - - - - -
Translation adjustments - - - - - -
Capital surplus from gain on sale of
treasury stock - - - - - -
---------- ------------ ---------- ------------ ----------- -----------
BALANCE, JUNE 30, 2003 - $ - 18,622,887 $186,228,867 1,643,732 $16,437,322
========== ============ ========== ============ =========== ===========
BALANCE, JANUARY 1, 2002 1,300,000 $ 13,000,000 16,832,554 $168,325,531 - $ -
Appropriations of prior year's earnings
Legal reserve - - - - - -
Special reserve - - - - - -
Bonus to employees - stock - - 107,078 1,070,783 - -
Cash dividends paid for preferred stocks - - - - - -
Stock dividends - 10% - - 1,683,255 16,832,553 - -
Remuneration to directors and supervisors - - - - - -
Transfer of the capital surplus from gain on
sales of property, plant and equipment to
retained earnings - - - - - -
Transfer of the capital surplus from gain on
sales of property, plant and equipment of
investees to retained earnings - - - - - -
Net income for the six months ended June 30, 2002 - - - - - -
Translation adjustments - - - - - -
Reclassification of parent company stock
held by subsidiaries from short/long-term
investments to treasury stock - - - - - -
Capital surplus from gain on sale of
treasury stock - - - - - -
---------- ------------ ---------- ------------ ----------- -----------
BALANCE, JUNE 30, 2002 1,300,000 $ 13,000,000 18,622,88 $186,228,867 - $ -
========== ============ ========== ============ =========== ===========
CAPITAL SURPLUS
-------------------------------------------------------------------------------
Excess on
Additional From Foreign Gain on
From Paid-in Long-term Bond Sales of
Merger Capital Investments Investments Properties Donation
----------- ------------ ----------- ------------ ---------- ----------
BALANCE, JANUARY 1, 2003 $24,132,297 $ 23,172,550 $ 246,219 $ 9,410,632 $ - $ 55
Appropriations of prior year's earnings
Legal reserve - - - - - -
Special reserve - - - - - -
Bonus to employees - stock - - - - - -
Cash dividends paid for preferred stocks - - - - - -
Stock dividends - 8% - - - - - -
Remuneration to directors and supervisors - - - - - -
Net income for the six months ended June 30, 2003 - - - - - -
Redemption and retirement of preferred stocks - - - - - -
Reversal of unrealized loss on long term
investment of subsidiaries - - - - - -
Reversal of unrealized loss on long term
investment of investees - - - - - -
Adjustment arising from changes in
ownership percentage in investees - - (164,473) - - -
Translation adjustments - - - - - -
Capital surplus from gain on sale of
treasury stock - - - - - -
----------- ------------ ----------- ------------ ---------- -----------
BALANCE, JUNE 30, 2003 $24,132,297 $ 23,172,550 $ 81,746 $ 9,410,632 $ - $ 55
=========== ============ =========== ============ ========== ===========
BALANCE, JANUARY 1, 2002 $24,132,297 $ 23,172,550 $ 246,381 $ 9,410,632 $ 166,518 $ 55
Appropriations of prior year's earnings
Legal reserve - - - - - -
Special reserve - - - - - -
Bonus to employees - stock - - - - - -
Cash dividends paid for preferred stocks - - - - - -
Stock dividends - 10% - - - - - -
Remuneration to directors and supervisors - - - - - -
Transfer of the capital surplus from gain on
sales of property, plant and equipment to
retained earnings - - - - (166,518) -
Transfer of the capital surplus from gain on
sales of property, plant and equipment of
investees to retained earnings - - (162) - - -
Net income for the six months ended June 30, 2002 - - - - - -
Translation adjustments - - - - - -
Reclassification of parent company stock
held by subsidiaries from short/long-term
investments to treasury stock - - - - - -
Capital surplus from gain on sale of
treasury stock - - - - - -
----------- ------------ ----------- ------------ ---------- -----------
BALANCE, JUNE 30, 2002 $24,132,297 $ 23,172,550 $ 246,219 $ 9,410,632 $ - $ 55
=========== ============ =========== ============ ========== ===========
-------------------------
RETAINED EARNINGS
------------------------------------------------------
Treasury Legal Special Unappropriated
Stock Total Reserve Reserve Earnings Total
----------- ------------ ----------- ---------- -------------- ----------
BALANCE, JANUARY 1, 2003 $ 43,036 $ 57,004,789 $18,641,108 $ - $ 22,151,089 $40,792,197
Appropriations of prior year's earnings
Legal reserve - - 2,161,029 - (2,161,029) -
Special reserve - - - 68,945 (68,945) -
Bonus to employees - stock - - - - (1,539,013) (1,539,013)
Cash dividends paid for preferred stocks - - - - (455,000) (455,000)
Stock dividends - 8% - - - - (14,898,309) (14,898,309)
Remuneration to directors and supervisors - - - - (58,485) (58,485)
Net income for the six months ended June 30, 2003 - - - - 16,087,834 16,087,834
Redemption and retirement of preferred stocks - - - - - -
Reversal of unrealized loss on long term
investment of subsidiaries - - - - - -
Reversal of unrealized loss on long term
investment of investees - - - - - -
Adjustment arising from changes in
ownership percentage in investees - (164,473) - - - -
Translation adjustments - - - - - -
Capital surplus from gain on sale of
treasury stock 435 435 - - - -
----------- ------------ ----------- ---------- ------------ -----------
BALANCE, JUNE 30, 2003 $ 43,471 $ 56,840,751 $20,802,137 $ 68,945 $ 19,058,142 $39,929,224
=========== ============ =========== ========== ============ ===========
BALANCE, JANUARY 1, 2002 $ - $ 57,128,433 $17,180,067 $ 349,941 $ 19,977,402 $37,507,410
Appropriations of prior year's earnings
Legal reserve - - 1,488,317 - (1,448,317) -
Special reserve - - - (349,941) 349,941 -
Bonus to employees - stock - - - - (1,070,783) (1,070,783)
Cash dividends paid for preferred stocks - - - - (455,000) (455,000)
Stock dividends - 10% - - - - (16,832,553) (16,832,553)
Remuneration to directors and supervisors - - - - (133,848) (133,848)
Transfer of the capital surplus from gain on
sales of property, plant and equipment to
retained earnings - (166,518) 12,724 - 153,794 166,518
Transfer of the capital surplus from gain on
sales of property, plant and equipment of
investees to retained earnings - (162) - - 162 162
Net income for the six months ended June 30, 2002 - - - - 15,897,351 15,897,351
Translation adjustments - - - - - -
Reclassification of parent company stock
held by subsidiaries from short/long-term
investments to treasury stock - - - - - -
Capital surplus from gain on sale of
treasury stock 43,036 43,036 - - - -
----------- ------------ ----------- ---------- ------------ -----------
BALANCE, JUNE 30, 2002 $ 43,036 $ 57,004,789 $18,641,108 $ - $ 16,438,149 $35,079,257
=========== ============ =========== ========== ============ ===========
UNREALIZED
LOSS ON CUMULATIVE TOTAL
LONG-TERM TRANSLATIONS TREASURY SHAREHOLDERS'
INVESTMENTS ADJUSTMENTS STOCK EQUITY
----------- ------------ ----------- ------------
BALANCE, JANUARY 1, 2003 ($194,283) $ 945,129 ($1,923,492) $295,853,207
Appropriations of prior year's earnings
Legal reserve - - - -
Special reserve - - - -
Bonus to employees - stock - - - -
Cash dividends paid for preferred stocks - - - (455,000)
Stock dividends - 8% - - - -
Remuneration to directors and supervisors - - - (58,485)
Net income for the six months ended June 30, 2003 - - - 16,087,834
Redemption and retirement of preferred stocks - - - (13,000,000)
Reversal of unrealized loss on long term
investment of subsidiaries 20,647 - - 20,647
Reversal of unrealized loss on long term
investment of investees 165,655 - - 165,655
Adjustment arising from changes in
ownership percentage in investees - - - (164,473)
Translation adjustments - (189,693) - (189,693)
Capital surplus from gain on sale of
treasury stock - - 1,443 1,878
----------- ------------ ----------- ------------
BALANCE, JUNE 30, 2003 ($7,981) $ 755,436 ($1,922,049) $298,261,570
=========== ============ =========== ============
BALANCE, JANUARY 1, 2002 $ - $ 1,228,701 $ - $277,190,075
Appropriations of prior year's earnings
Legal reserve - - - -
Special reserve - - - -
Bonus to employees - stock - - - -
Cash dividends paid for preferred stocks - - - (455,000)
Stock dividends - 10% - - - -
Remuneration to directors and supervisors - - - (133,848)
Transfer of the capital surplus from gain on
sales of property, plant and equipment to
retained earnings - - - -
Transfer of the capital surplus from gain on
sales of property, plant and equipment of - - - -
investees to retained earnings
Net income for the six months ended June 30, 2002 - - - 15,897,351
Translation adjustments - (1,462,500) - (1,462,500)
Reclassification of parent company stock
held by subsidiaries from short/long-term
investments to treasury stock - - (1,914,700) (1,914,700)
Capital surplus from gain on sale of
treasury stock - - - 43,036
----------- ------------ ----------- ------------
BALANCE, JUNE 30, 2002 $ - ($233,799) ($1,914,700) $289,164,414
=========== ============ =========== ============
The accompanying notes are an integral part of the financial statements.
(With Deloitte & Touche auditors' report dated July 15, 2003)
-9-
English Translation of Financial Statements Originally Issued in Chinese
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2003 and 2002
(In Thousand New Taiwan Dollars)
2003 2002
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 16,087,834 $ 15,897,351
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 30,840,186 26,886,981
Deferred income taxes 535,007 2,100,904
Investment loss recognized by equity method - net 705,431 1,733,052
Loss on property, plant, and equipment, and idle assets 1,401,585 -
Loss (gain) on sales of long-term investments - net (200) 1,766
Gain on disposal of property, plant and equipment - net (33,588) (158,660)
Pension cost accrued 221,397 194,172
Allowance for doubtful receivables 45,683 68,761
Allowance for sales returns and others (293,345) 746,035
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables from related parties (5,003,502) (12,548,767)
Notes receivable 46,781 52,289
Accounts receivable (3,339,290) 7,931,225
Inventories - net (1,015,198) (3,196,630)
Other financial assets (12,064) (242,024)
Forward exchange contract receivable 183,061 (1,128,064)
Prepaid expenses and other current assets 1,059,169 1,002,451
Increase (decrease) in:
Payables to related parties 1,124,019 931,829
Accounts payable 304,772 4,283,367
Forward exchange contract payable 142,985 (306,486)
Accrued expenses and other current liabilities 249,984 1,508,292
------------- -------------
Net Cash Provided by Operating Activities 43,250,707 45,757,844
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in short-term investments - net (3,054,050) -
Acquisitions of:
Long-term investments (1,015,301) (8,855,797)
Property, plant and equipment (16,207,787) (16,956,359)
Proceeds from disposal of:
Property, plant and equipment 132,387 438,837
Long-term investments 592 632
Increase in deferred charges (711,056) (1,419,349)
Decrease in refundable deposits 167,754 195,360
Decrease in other assets - miscellaneous 9,250 -
------------- -------------
Net Cash Used in Investing Activities (20,678,211) (26,596,676)
------------- -------------
(Forward)
-10-
English Translation of Financial Statements Originally Issused in Chinese
2003 2002
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of (repayment on) long-term bonds ($ 4,000,000) $ 15,000,000
Redemption of preferred stock (13,000,000) -
Decrease in guarantee deposits (169,756) (590,446)
Remuneration to directors and supervisors (58,485) (133,848)
Cash dividend paid for preferred stocks (455,000) (455,000)
------------- -------------
Net Cash Provided by (Used in) Financing Activities (17,683,241) 13,820,706
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,889,255 32,981,874
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 61,656,795 33,403,706
------------- -------------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 66,546,050 $ 66,385,580
============= =============
SUPPLEMENTAL INFORMATION
Interest paid (excluding the amounts capitalized of NT$2,932 thousand
and NT$48,636 thousand in 2003 and 2002, respectively) (Note 8) $ 688,371 $ 230,036
============= =============
Income tax paid $ 2,500 $ 51,059
============= =============
Non-cash investing and financing activities:
Reclassification of parent company stock held by subsidiaries
from short/long-term investments to treasury stock $ 1,443 $ 1,914,700
============= =============
Credit balances of long-term investments reclassified as part of
other current liabilities $ - $ 58,154
============= =============
Current portion of bonds $ - $ 9,000,000
============= =============
Partial cash investing and financing activities:
Total acquisitions of property, plant and equipment $ 8,763,001 $ 21,470,583
Payables to contractors and equipment suppliers 7,444,786 (4,514,224)
------------- -------------
$ 16,207,787 $ 16,956,359
============= =============
The accompanying notes are an integral part of the financial statements.
(With Deloitte & Touche auditors' report dated July 15, 2003)
-11-
English Translation of Financial Statements Originally Issued in Chinese
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousand New Taiwan Dollars, Unless Specified Otherwise)
1. GENERAL
Taiwan Semiconductor Manufacturing Company Ltd. (The "Company" or "TSMC"),
a Republic of China corporation, was incorporated as a venture among the
Government of the Republic of China, acting through the Development Fund of
the Executive Yuan; Philips Electronics N.V. and certain of its affiliates
(Philips); and certain other private investors. In September 1994, its
shares were listed on the Taiwan Stock Exchange. On October 8, 1997, TSMC
listed its shares of stock on the New York Stock Exchange in the form of
American Depositary Shares (ADSs).
TSMC is engaged mainly in the manufacturing, selling, packaging, testing
and designing of integrated circuits and other semiconductor devices, and
the manufacturing of masks.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements are presented in conformity with the Guidelines
for Securities Issuers' Financial Reporting and accounting principles
generally accepted in the Republic of China. Significant accounting
policies are summarized as follows:
Classification of current and non-current assets and liabilities
Current assets are those expected to be converted to cash, sold or consumed
within one year. Current liabilities are obligations due on demand within
one year from the balance sheet date. Assets and liabilities that are not
classified as current are non-current assets and liabilities, respectively.
Cash equivalents
Government bonds acquired with maturities less than three months from the
date of purchase are classified as cash equivalents.
Short-term investments
Short-term investments are carried at the lower of cost or market value.
The costs of investments sold are determined by the specific identification
method.
Allowance for doubtful receivables
Allowance for doubtful receivables is provided based on a review of the
collectibility of accounts receivables.
-12-
Revenue recognition and allowance for sales returns and others
The four criteria that we use to recognize revenue are the existence of
evidence of a contractual arrangement, delivery or performance has
occurred, the selling price is fixed or determinable and collectibility is
reasonably assured. Allowance for sales returns and others is estimated
based on historical experience and any known factors that would affect the
allowance. Such provisions are deducted from sales in the year the products
are sold and the estimated related costs are deducted from cost of sales.
Sales are determined using the fair value taking into account related sales
discounts agreed to by the Company and customers. Since the receivables
from sales are collectible within one year and such transactions are
frequent, the fair value of receivables is equivalent to the nominal amount
of cash received.
Inventories
Inventories are stated at the lower of cost or market value. Inventories
are recorded at standard cost and adjusted to approximate weighted-average
cost at the end of each period. Market value represents net realizable
value for finished goods and work in process, and replacement value for raw
materials, supplies and spare parts.
Long-term investments
Investments in shares of stock of companies wherein the Company exercises
significant influence on the operating and financial policy decisions are
accounted for using the equity method. The Company's proportionate share in
the net income or net loss of investee companies are recognized as
components of the "Investment income/loss recognized by equity method -
net" account. When acquiring shares of stock, the difference between the
cost of investment and investee's net book value is amortized using
straight-line method over five years, and also recorded as components of
investment income/loss recognized by equity method - net. The Company
adopted Statements of Financial Accounting Standards ("SFAS") No. 30,
"Accounting for Treasury Stock" on January 1, 2002. SFAS No. 30 requires a
parent company to reclassify its capital stock held by its subsidiaries
from short/long-term investments to treasury stock.
When the Company subscribes to additional investee shares at a percentage
different from its existing equity interest, the resulting carrying amount
of the investment in equity investee differs from the amount of Company's
proportionate share in the investee's net equity. The Company records such
difference as an adjustment to "capital surplus" as well as the "long-term
investments" accounts. In the event an investee has an accumulated deficit,
it will record an offset to its capital surplus, excluding the reserve for
asset revaluation, through retained earnings. The Company will also record
a corresponding entry equivalent to its proportionate share of the investee
capital surplus, excluding the reserve for asset revaluation, that was
generated subsequent to any acquisition of equity interest in the investee.
If an investee's functional currency is a foreign currency, "cumulative
translation adjustments" would result from the process of translating the
investees' financial statements into the functional currency of the
Company.
Other stock investments are accounted for using the cost method. Cash
dividends are recognized as income in the year received but are accounted
for as reduction in the carrying values of the long-term investments if the
dividends are received in the same year that the related investments are
acquired. Stock dividends are recognized neither as investment income nor
increase of long-term investments but recorded only as an increase in the
number of shares held.
-13-
An allowance is recognized for any decline in the market value of
investments using quoted market prices with the corresponding amount
debited to shareholders' equity. A reversal of the allowance will result
from a subsequent recovery of the market value. The carrying values of
investments with no quoted market price are reduced to reflect an other
than temporary decline in their values with the related impairment loss
charged to income.
Investments in foreign mutual funds are stated at the lower of aggregate
cost or net asset value (NAV). An allowance is recognized when the cost of
the funds is lower than their net asset values, with the corresponding
amount debited to shareholders' equity. A reversal of the allowance will
result from a subsequent recovery of the net asset value.
The costs of investments sold are determined using the weighted-average
method.
If an investee company has an unrealized loss on a long-term investment
evaluated using the lower-of-cost-or-market method, the Company recognizes
a corresponding unrealized loss in proportion to its equity interest and
records the amount as a component of its own shareholders' equity.
Gains or losses on transactions with investee companies wherein the Company
owns at least 20% of the outstanding common stock but less than a
controlling interest are deferred in proportion to the Company's ownership
percentage until realized through a transaction with a third party. The
entire amount of the gains or losses on sales to majority-owned
subsidiaries are deferred until such gains or losses are realized through
the subsequent sale of the related products to third parties. Gains or
losses from sales by investee companies to the Company are deferred in
proportion to the ownership percentage until realized through transactions
with third parties.
Property, plant and equipment, assets leased to others and idle assets
Property, plant and equipment and assets leased to others are stated at
cost less accumulated depreciation. When significant loss occurs, the
related assets are stated at the lower of fair value or the book value.
Idle assets are stated at the lower of book value or net realizable value.
Significant additions, renewals, betterments, and interest expense incurred
during the construction period are capitalized. Maintenance and repairs are
expensed in the period incurred. Property, plant and equipment covered by
agreements qualifying as capital leases are carried at the lower of the
present value of future minimum rent payments, or the market value of the
property at the inception dates of the leases. The effective interest
method is used to allocate each lease payment between principal and
interest expense.
Depreciation is computed using the straight-line method over the following
estimated service lives: buildings - 10 to 20 years; machinery and
equipment - 5 years; and office equipment - 3 to 5 years.
Upon sale or disposal of property, plant and equipment, the related cost
and accumulated depreciation are removed with any gains or losses credited
or charged to income in the period of disposal.
Goodwill
Goodwill represents the excess of the consideration paid for acquisitions
over the fair market value of identifiable net assets acquired and the
difference between the investment cost and the Company's proportionate
share in the net assets of acquired investee companies. Goodwill is
amortized using the straight-line method over the estimated life of 10
years.
-14-
Deferred charges
Deferred charges consist of software and system design costs, technology
know-how, bond issuance costs and technology license fees. The amounts are
amortized as follows: software and system design costs - 3 years,
technology know-how - 5 years, bond issuance costs - the term of the bonds,
technology license fee - the shorter of the estimated life of the
technology or the term of the technology transfer contract.
Pension costs
Net periodic pension costs are recorded on the basis of actuarial
calculations. Unrecognized net transition obligation and unrecognized net
gain/loss are amortized over 25 years.
Deferred gain on sale and leaseback
The gain on the sale of property that is simultaneously leased back is
deferred by the Company. This deferred gain on sales and leaseback
transactions is amortized as follows: (a) operating leases - adjustment of
rental expenses over the term of the leases, and (b) capital leases -
adjustment of depreciation expenses over the estimated useful life or term
of the leases; whichever is shorter.
Casualty loss
Casualty loss mainly caused from the March 31, 2002 earthquake are recorded
when incurred and any insurance recoveries are recorded when probable up to
the amount of the loss. Recoveries in excess of the amount of the loss are
recorded when realized.
Income tax
The Company uses an inter-period tax allocation method for income tax.
Deferred income tax assets and liabilities are recognized for the tax
effects of temporary differences, unused tax credits and net operating loss
carryforwards. 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, according to the
classification of its related asset or liability, classified as current or
non-current. However, if a deferred asset or liability does not relate to
an asset or liability in the financial statements, then it is classified as
either current or non-current based on the expected length of time before
it is realized.
Any tax credit arising from the purchase of machinery, equipment and
technology, research and development expenditures, personnel training,
investments in important technology-based enterprise are recognized using
the current method.
Adjustments of prior years' tax liabilities are added to or deducted from
the current year's tax provision.
As of January 1, 1998, income taxes on unappropriated earnings of 10% are
expensed in the year of shareholder approval which is the year subsequent
to the year incurred.
-15-
Derivative financial instruments
The Company enters into foreign currency forward contracts to manage
currency exposures in cash flow and in foreign currency-denominated assets
and liabilities. The differences in the New Taiwan dollar amounts
translated using the spot rate and the amounts translated using the
contracted forward rates on the contract date are amortized over the terms
of the forward contracts using the straight-line method. At the balance
sheet dates, the receivables or payables arising from forward contracts are
restated using the prevailing spot rate and the resulting differences are
charged to income. Also, the receivables and payables related to the
forward contract are netted with the resulting amount presented as either
an asset or liability. Any resulting gain or loss upon settlement is
credited or charged to income in the period of settlement.
The Company enters into interest rate swap transactions to manage exposures
from changes in interest rates on existing liabilities. These transactions
are accounted for on an accrual basis, in which the cash settlement
receivable or payable is recorded as an adjustment to interest income or
expense.
The notional amount of foreign currency option contracts entered into for
hedging purposes are not recognized as an asset or liability on the
contract dates. The premiums paid or received for the call or put options
are amortized and charged to income on a straight-line basis over the term
of the related contract. Any resulting gain or loss upon settlement is
credited or charged to income in the period of settlement.
Foreign-currency transactions
Foreign-currency transactions are recorded in New Taiwan dollars at the
current rate of exchange in effect when the transaction occurs. Gains or
losses derived from foreign currency transactions or monetary assets and
liabilities denominated in a foreign currency are recognized in current
operations. At the end of each period, foreign-currency assets and
liabilities are revalued at the prevailing exchange rate with the resulting
gains or losses recognized in current operations.
Reclassification
Certain accounts in the financial statements as of and for the six months
ended June 30, 2002 have been reclassified to conform to the financial
statements as of and for the six months ended June 30, 2003.
3. NEW ACCOUNTING PRONOUNCEMENTS
In accordance with the Statement of Financial Accounting Standards ("SFAS")
No. 30, "Accounting for Treasury Stock" and other relevant regulations from
Securities and Futures Commission (SFC), the Company is required to
reclassify its common stock held by its subsidiaries from short/long-term
investments to treasury stock. The reclassification is based on the
carrying value recorded by the Company's subsidiaries as of January 1,
2002. The adoption of SFAS No. 30 resulted in the decrease of long-term
investments and the increase of treasury stock by NT$1,922,049 thousand as
of June 30, 2003, and the decrease in net income for the six months ended
June 30, 2003 by NT$255,016 thousand.
-16-
4. CASH AND CASH EQUIVALENTS June 30
-------------------------------
2003 2002
------------- -------------
Cash and bank deposits $ 63,513,247 $ 65,087,779
Government bonds acquired under repurchase agreements 3,032,803 1,297,801
------------- -------------
$ 66,546,050 $ 66,385,580
============= =============
5. SHORT-TERM INVESTMENTS June 30
-------------------------------
2003 2002
------------- -------------
Government bonds $ 3,054,050 $ -
============= =============
Market value $ 3,057,705 $ -
============= =============
6. INVENTORIES - NET June 30
-------------------------------
2003 2002
------------- -------------
Finished goods $ 1,872,790 $ 1,651,255
Work in process 10,522,974 10,099,627
Raw materials 374,667 387,233
Supplies and spare parts 677,276 743,002
------------- -------------
13,447,707 12,881,117
Less - inventory reserve (2,092,173) (1,180,069)
------------- -------------
$ 11,355,534 $ 11,701,048
============= =============
7. LONG-TERM INVESTMENTS June 30
------------------------------------------
2003 2002
-------------------- --------------------
% of % of
Carrying Owner- Carrying Owner-
Value ship Value ship
----------- -------- ----------- --------
Shares of stock
---------------
Equity method:
TSMC International Investment Ltd. (TSMC
International) $21,954,303 100 $24,381,606 100
TSMC Partners Ltd. (TSMC Partners) 3,931,378 100 3,627,725 100
Vanguard International Semiconductor
Corporation (VIS) 3,848,018 28 3,102,902 25
Systems on Silicon Manufacturing Company
Pte Ltd. (SSMC) 2,609,934 32 3,449,332 32
Emerging Alliance Fund LLP (Emerging
Alliance) 879,128 99 708,245 99
Global UniChip Corp. (GUC) 387,376 47 - -
(Forward)
-17-
June 30
----------------------------------------------------
2003 2002
------------------------ ------------------------
% of % of
Carrying Owner- Carrying Owner-
Value ship Value ship
------------- -------- ------------ --------
TSMC North America (TSMC - North America) $ 240,294 100 $ 80,570 100
TSMC Japan K. K. (TSMC - Japan) 91,333 100 89,727 100
Chi Cherng Investment Ltd. (Chi Cherng) 38,514 36 62,148 25
Hsin Ruey Investment Ltd. (Hsin Ruey) 38,216 36 62,092 25
Taiwan Semiconductor Manufacturing
Company Europe B.V. (TSMC - Europe) 10,990 100 9,406 100
Chi Hsin Investment Ltd. (Chi Hsin) - - 24,169 25
------------ ------------
34,029,484 35,597,922
------------ ------------
Cost method:
Publicly traded stock
Amkor Technology 280,748 - 280,748 -
Monolithic System Tech. 104,289 2 104,289 2
Taiwan Mask Corp. 32,129 2 32,129 2
Non-publicly traded stock
United Technology 193,584 11 193,584 11
Shin-Etsu Handotai Taiwan Company Ltd. 105,000 7 105,000 7
Hon Tung Venture Capital 83,916 10 150,000 10
W.K. Technology Fund IV 50,000 2 50,000 2
------------ ------------
849,666 915,750
------------ ------------
Funds
-----
Horizon Ventures 195,452 - 160,599 -
Crimson Asia Capital 47,385 - 39,457 -
------------ ------------
242,837 200,056
------------ ------------
$ 35,121,987 $ 36,713,728
============ ============
Credit balances of long-term investments
----------------------------------------
Presented as part of other current liabilities:
Kung Cherng Investment Ltd. (Kung Cherng) $ - - $ 41,959 25
Cherng Huei Investment Ltd. (Cherng Huei) - - 13,279 25
Po Cherng Investment Ltd. (Po Cherng) - - 2,916 25
------------ ------------
$ - $ 58,154
============ ============
On January 8, 2003, the Company's investee company, VIS, issued 600,000
thousand shares of common stock at a price of NT$7 per share. In this round
of equity offering, the Company purchased a total of 230,882 thousand
shares of VIS. As a result, its ownership in VIS increased from 25% to 28%.
-15-
The Company's investees, Hsin Ruey, Chi Hsin and Kung Cherng were merged on
October 30, 2002, with Hsin Ruey as the surviving company. In addition, The
Company's investees, Chi Cherng, Cherng Huei and Po Cherng were merged on
October 30, 2002 with Chi Cherng as the surviving company. The mergers were
accounted for as a pooling of interest. The Company's ownership is
approximately 36% in Hsin Ruey and approximately 36% in Chi Cherng
subsequent to the merger.
The Company established Ya Xin Technology ("Ya Xin") in November 2002 and
subsequently signed a merger agreement with GUC in December 2002. The
merger was effective on January 4, 2003 and GUC is the surviving company.
The carrying value of investments accounted for using the equity method and
the related investment gains or losses were determined based on the audited
financial statements of the investees in the same periods. The investment
gains or (losses) of investee companies consisted of the following:
Six Months
Ended June 30
-----------------------------
2003 2002
------------ ------------
SSMC $ (515,188) $ (683,005)
TSMC International (204,832) (1,835,187)
VIS (172,437) (274,625)
TSMC Partners 194,465 996,711
Others (7,439) 63,054
----------- ------------
$ (705,431) $ (1,733,052)
=========== ============
The market values of publicly traded stocks accounted for the cost method
were $5,449,083 thousand and $11,370,141 thousand as of June 30, 2003 and
2002, respectively.
8. PROPERTY, PLANT AND EQUIPMENT
Accumulated depreciation consisted of the following:
June 30
-----------------------------------
2003 2002
--------------- ---------------
Buildings $ 26,377,185 $ 19,241,074
Machinery and equipment 189,172,205 142,577,849
Office equipment 3,366,082 2,720,627
--------------- ---------------
$ 218,915,472 $ 164,539,550
=============== ===============
-16-
Information on the status of the expansion or construction plans of the
Company's manufacturing facilities as of June 30, 2003 is as follows:
Estimated Actual Date Expected Date
Complete Accumulated of Starting of Starting
Construction/Expansion Plan Cost Expenditures Operations Operations
--------------------------- ------------- ------------- ------------ --------------
Fab 6 $ 93,932,000 $ 87,699,400 March 2000 -
Fab 12 - Phase 1 80,318,400 61,581,700 March 2002 -
Fab 14 - Phase 1 30,411,000 13,690,400 - 2005
Interest expense (before deducting capitalized amounts of NT$2,932 thousand
in 2003 and NT$48,636 thousand in 2002) for the six months ended June 30,
2003 and 2002 was NT$949,056 thousand and NT$1,159,786 thousand,
respectively. The interest rate used for purposes of calculating the
capitalized amount was 5.283% for the six months ended June 30, 2003 and
2002.
9. DEFERRED CHARGES - NET
June 30
-------------------------------
2003 2002
------------- -------------
Technology license fee $ 5,711,412 $ 2,304,971
Software and system design costs 2,955,771 2,875,999
Bond issuance costs 38,949 54,236
Technology know-how 22,500 76,500
Others 2,812 21,058
------------- -------------
$ 8,731,444 $ 5,332,764
============= =============
10. BONDS
June 30
-------------------------------
2003 2002
------------- -------------
Domestic unsecured bonds:
Issued on March 4, 1998 and paid on March 4, 2003 in one lump sum
payment, 7.71% annual interest payable semi-annually $ - $ 4,000,000
Issued on October 21, 1999 and payable on October 21, 2002
and 2004 in two equal payments, 5.67% and 5.95% annual
interest payable annually, respectively 5,000,000 10,000,000
Issued on December 4 to 15, 2000 and payable in December
2005 and 2007 in two equal payments, 5.25% and 5.36%
annual interest payable annually, respectively 15,000,000 15,000,000
Issued on January 10 to 24, 2002 and payable in January 2007,
2009 and 2012 in three equal payments, 2.6%, 2.75% and 3%
annual interest payable annually, respectively 15,000,000 15,000,000
------------- -------------
$ 35,000,000 $ 44,000,000
============= =============
-17-
As of June 30, 2003, future principal payments for the Company's bonds
arrangements are as follows:
Year of Repayment Amount
----------------- --------------
2004 $ 5,000,000
2005 10,500,000
2006 -
2007 7,000,000
2008 and thereafter 12,500,000
-------------
$ 35,000,000
=============
11. OTHER LONG-TERM PAYABLES
The Company entered into several license arrangements for certain
semiconductor patents. Future payments under the agreements as of June 30,
2003 are as follows:
Year Amount
----------------------- -------------
July to December, 2003 $ 809,921
2004 1,221,804
2005 982,981
2006 467,262
2007 484,568
2008 and thereafter 1,107,584
------------
$ 5,074,120
============
12. PENSION PLAN
The Company has a pension plan for all regular employees that provides
benefits based on length of service and average monthly salary for the
six-month period prior to retirement.
The Company contributes at an amount equal to 2% of salaries paid every
month to a Pension Fund (the "Fund"). The Fund is administered by a pension
fund monitoring committee (the "Committee") and deposited in the
Committee's name in the Central Trust of China.
-18-
The changes in the Fund and accrued pension cost are summarized as follows:
Six Months Ended
June 30
-------------------------------
2003 2002
-------------- -------------
Pension fund
Balance, beginning of the period $ 993,404 $ 804,437
Contribution 91,010 87,347
Interest 20,682 29,606
Payment (3,473) (5,360)
------------- ------------
Balance, end of the period $ 1,101,623 $ 916,030
============= ============
Accrued pension cost
Balance, beginning of the period $ 2,210,542 $ 1,854,853
Accruals 221,397 194,172
------------- ------------
Balance, end of the period $ 2,431,939 $ 2,049,025
============= ============
13. INCOME TAX
a. A reconciliation of income tax expense on income before income tax at
the statutory rate and current income tax expense before tax credits is
shown below:
Six Months Ended
June 30
-------------------------------
2003 2002
------------- -------------
Income tax expense based on "income before income tax" at
statutory rate (25%) $ 4,188,111 $ 4,501,071
Tax-exempt income (2,027,750) (2,665,000)
Temporary and permanent differences (162,898) 164,807
------------- -------------
Current income tax expense before tax credits $ 1,997,463 $ 2,000,878
============= =============
b. Income tax expense consists of the following:
Current income tax expense before tax credits $ 1,997,463 $ 2,000,878
Additional 10% tax on the unappropriated earnings 1,271,759 162,938
Income tax credits (3,269,222) (2,163,816)
Other income tax 2,500 6,029
------------- -------------
Income tax paid in current period 2,500 6,029
Net change in deferred income tax liabilities (assets)
Investment tax credits (2,573,210) (2,268,492)
Temporary differences 476,739 (496,212)
Valuation allowances 2,758,582 4,865,608
------------- -------------
Income tax expense $ 664,611 $ 2,106,933
============= =============
-19-
c. Deferred income tax assets (liabilities) consist of the following:
June 30
-------------------------------
2003 2002
------------- -------------
Current:
Investment tax credits $ 3,320,000 $ 4,547,082
============= =============
Noncurrent:
Investment tax credits $ 25,820,863 $ 21,778,871
Temporary differences (4,042,580) (1,997,543)
Valuation allowances (12,600,723) (7,907,244)
------------- -------------
$ 9,177,560 $ 11,874,084
============= =============
d. Integrated income tax information:
The balances of the imputation credit account (ICA) as of June 30, 2003
and 2002 were NT$14,748 thousand and NT$2,543 thousand, respectively.
The actual creditable ratio for 2002 and 2001 were 0.08% and 0.04%,
respectively.
e. As of June 30, 2003 and 2002, there was no unappropriated retained
earnings generated before December 31, 1997.
f. As of June 30, 2003, investment tax credits consist of the following:
Total Remaining
Creditable Creditable Expire
Regulation Items Amounts Amounts Year
--------------------- ------------------------ ------------- ------------- ------
Statute for Upgrading Purchase of machinery $ 4,767,347 $ 1,798,490 2003
Industries and equipment 8,210,558 8,210,558 2004
3,814,363 3,814,363 2005
4,905,920 4,905,920 2006
332,338 332,338 2007
------------- -------------
$ 22,030,526 $ 19,061,669
============= =============
Statute for Upgrading Research and development $ 671,545 $ 376,600 2003
Industries expenditures 1,974,321 1,974,321 2004
3,111,472 3,111,472 2005
3,322,453 3,322,453 2006
836,277 836,277 2007
------------- -------------
$ 9,916,068 $ 9,621,123
============= =============
Statute for Upgrading Personnel training $ 16,108 $ 16,108 2003
Industries 43,265 43,265 2004
28,886 28,886 2005
27,311 27,311 2006
------------- -------------
$ 115,570 $ 115,570
============= =============
(Forward)
-23-
Total Remaining
Creditable Creditable Expire
Regulation Items Amounts Amounts Year
--------------------- ------------------------ ------------- ------------- ------
Statute for Upgrading Reputation setting
Industries $ 318 $ 318 2003
============= =============
Statute for Upgrading Investments in important $ 5,420 $ - 2003
Industries technology based 203,319 203,319 2004
enterprise 138,864 138,864 2005
------------- -------------
$ 347,603 $ 342,183
============= =============
g. The sales generated from the following expansion and construction of the
Company's manufacturing plants are exempt from income tax during the
period specified:
Tax-Exemption Period
--------------------
Construction of Fab 6 2001 to 2004
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
h. The tax authorities have examined income tax returns of the Company
through 1999. However, the Company is contesting the assessment by the
tax authority for 1992, 1993, 1996, 1997 and 1998.
14. LABOR COST, DEPRECIATION AND Six Months Ended June 30, 2003
AMORTIZATION EXPENSE --------------------------------------------
Classified as
Classified as Operating
Cost of Sales Expense Total
------------- ------------- -------------
Labor cost
Salary $ 3,421,909 $ 1,469,436 $ 4,891,345
Labor and health insurance 223,533 112,100 335,633
Pension 207,039 103,983 311,022
Other 88,871 47,921 136,792
Depreciation 27,768,264 1,152,407 28,920,671
Amortization 755,793 1,190,504 1,946,297
------------- ------------- -------------
$ 32,465,409 $ 4,076,351 $ 36,541,760
============= ============= =============
-24-
Six Months Ended June 30, 2002
--------------------------------------------
Classified as
Classified as Operating
Cost of Sales Expense Total
------------- ------------- -------------
Labor cost
Salary $ 3,259,941 $ 1,541,307 $ 4,801,248
Labor and health insurance 191,383 95,774 287,157
Pension 190,790 95,503 286,293
Other 84,610 65,535 150,145
Depreciation 24,413,797 1,301,769 25,715,566
Amortization 312,449 938,054 1,250,503
------------- ------------- -------------
$ 28,452,970 $ 4,037,942 $ 32,490,912
============= ============= =============
15. SHAREHOLDERS' EQUITY
The Company has 369,019 thousand ADSs issued on the New York Stock Exchange
as of June 30, 2003. The number of common shares represented by the ADSs is
1,845,097 thousand shares (one ADS represents five common shares).
On June 3, 2003, the Board of Director approved the Company's sponsorship
of the offer by certain existing shareholders of up to 450,000 thousand
common shares in the form of ADSs. The resolution to sponsor the offering
of common shares in the form of ADSs has been approved by the SFC on June
30, 2003. The offering is still in process as of July 15, 2003.
Capital surplus can only be used to offset a deficit under the ROC Company
Law. However, the components of capital surplus generated from donations
(donated capital) and the excess of the issue price over the par value of
capital stock (including the stock issued for new capital, mergers, and the
purchase of treasury stock) can be transferred to capital as stock
dividends.
The Company's Articles of Incorporation provide that the following shall be
appropriated from annual net income if in excess of any cumulative deficit:
a. 10% legal reserve;
b. Special reserve in accordance with relevant laws or regulations;
c. Remuneration to directors and supervisors and bonus to employees equals
to 0.3% and at least 1% of the remainder, respectively. Individuals
eligible for the employee bonus may include employees of affiliated
companies as approved by the board of directors or a representative of
the board of directors; and
d. The appropriation of any remaining balance shall be approved by the
shareholders.
Dividends are distributed in cash, shares of common stock or a combination
of cash and common stock. Distributions of profits are preferably made in
the form of stock dividend. The total of cash dividends paid in any given
year may not exceed 50% of total dividends distributed.
Any appropriations of net income shall be approved at the shareholders'
meeting in the following year and are recorded in the financial statement
in the year of shareholder approval.
-25-
The appropriation for legal reserve shall be made until the reserve is
equal to the aggregate par value of the Company's outstanding capital
stock. The reserve can only be used to offset a deficit or distribute as
dividend up to half of the reserve balance when the reserve balance has
reached 50% of the aggregate par value of the outstanding capital stock of
the Company.
The appropriations of the earnings of 2002 and 2001 were approved in the
shareholders' meeting on June 3, 2003 and May 7, 2002, respectively. The
appropriations and dividend per share are as follows:
Dividend Per Share
Appropriation of Earnings (NT$)
------------------------------- ----------------------------
For Fiscal For Fiscal For Fiscal For Fiscal
Year 2002 Year 2001 Year 2002 Year 2001
------------- ------------- ------------- -------------
Legal reserve $ 2,161,029 $ 1,448,317 $ - $ -
Special reserve 68,945 (349,941) - -
Bonus paid to employees - in stock 1,539,013 1,070,783 - -
Preferred stock dividend - in cash 455,000 455,000 0.35 0.35
Common stock dividend - in stock 14,898,309 16,832,553 0.80 1.00
Remuneration to directors and supervisors - in cash 58,485 133,848 - -
------------- -------------
$ 19,180,781 $ 19,590,560
============= =============
The above appropriation of the earnings in fiscal year 2002 and 2001 is
consistent with the resolution of the meetings of board of directors on
March 4, 2003 and March 26, 2002, respectively. If the above employee bonus
and remuneration to directors and supervisors were paid in cash and charged
against income for 2002 and 2001, the basic earnings per share for the
years ended December 31, 2002 and 2001 would decrease from NT$1.14 to
NT$1.05 and NT$0.83 to NT$0.76, respectively. The shares distributed as a
bonus to employees represented 0.83% and 0.64% of the Company's total
outstanding common shares as of December 31, 2002 and 2001, respectively.
The above information associated with the appropriations of bonus to
employees and remuneration to directors and supervisors is available at
Market Observation System website.
A special reserve equivalent to the debit balance of any account shown in
the shareholder's equity section of the balance sheet (except for the
recorded cost of treasury stock held by subsidiaries), shall be made from
unappropriated retained earnings pursuant to existing regulations
promulgated by the Securities and Futures Commission. The special reserve
is allowed to be appropriated to the extent that the debit balance of such
accounts is reversed.
Under the Integrated Income Tax System that became effective on January 1,
1998, ROC resident shareholders are allowed a tax credit for the income tax
paid by the Company on earnings generated on or after January 1, 1998. An
Imputation Credit Account (ICA) is maintained by the Company for such
income tax and the tax credit allocated to each shareholder.
-26-
On June 25, 2002, the SFC approved the Company's Employee Stock Option Plan
("the Plan"). The Plan provides qualified employees with 100,000 thousand
units of option rights with each unit representing one common share of
stock. The option rights are valid for 10 years and are exercisable at
certain percentages subsequent to the second anniversary of issuance. Under
the terms of the Plan, the option rights are granted at an exercise price
equal to the closing price of the Company's common shares listed on Taiwan
Stock Exchange at the date of grant. Information as of June 30, 2003 with
respect to stock option rights activities under the Plan is as follows:
Option Rights Outstanding Option Rights
--------------------------------
Available for Number of
Grant Option Rights Exercise Price
(In Thousand) (In Thousand) (NT$)
------------- ------------- --------------
Balance, January 1, 2003 80,631 19,369 51.0-53.0
Options granted (21,792) 21,792 41.6-58.5
Options cancelled 600 (600) 41.6-58.5
------- -------
Balance, June 30, 2003 59,439 40,561
======= =======
The Company issued 1,300,000 thousand shares of unlisted Series A -
preferred stock to certain investors on November 29, 2000. The following
are the rights of the preferred shareholders and the related terms and
conditions:
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).
c. Have priority over the holders of common shares to the assets of the
Company available for distribution to shareholders upon liquidation or
dissolution. However, the pre-emptive rights to the assets shall not
exceed the issue value 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 the date of
issuance. The preferred shareholders have the aforementioned rights and
the Company's related obligations remain the same until the preferred
shares are redeemed by the Company.
All the preferred stocks were redeemed at par value and retired on May 29,
2003.
-27-
16. TREASURY STOCK (COMMON STOCK)
(Shares in Thousand)
Beginning Ending
Purpose of Purchase Shares Increase Decrease Shares
--------------------------------------------------- --------- -------- -------- ------
Six months ended June 30, 2003
------------------------------
Reclassification of parent company stock held by
subsidiaries from short/long-term investment 42,001 - 40 41,961
====== ======== ======== ======
Six months ended June 30, 2002
------------------------------
Reclassification of parent company stock held by
subsidiaries from short/long-term investment 39,270 3,818 1,087 42,001
====== ======== ======== ======
Proceeds from the sale of treasury stock for the six months ended June 30,
2003 and 2002 were NT$1,876 thousand and NT$96,501 thousand, respectively.
As of June 30, 2003 and 2002, the book value of the treasury stock was
NT$1,922,049 thousand and NT$1,914,700 thousand; the market value was
NT$2,463,723 thousand and NT$3,120,392 thousand, respectively. Capital
stock held by a subsidiary as an investment is recorded as treasury stock
with the holder having the same rights as other common shareholders.
17. EARNINGS PER SHARE (EPS)
Earnings per share (EPS) is computed as follows:
EPS (NT$)
Amounts (Numerator) ----------------
-------------------------- Shares Before After
Before After (Denominator) Income Income
Income Tax Income Tax (Thousand) Tax Tax
---------- ---------- ------------- ------ ------
Six months ended June 30, 2003
------------------------------
Net income $16,752,445 $16,087,834
Less - preferred stock dividends (184,493) (184,493)
----------- -----------
Basic and diluted earnings per share
Income available to common shareholders $16,567,952 $15,903,341 20,221,270 $ 0.82 $ 0.79
=========== =========== =========== ====== ======
Six months ended June 30, 2002
------------------------------
Net income $18,004,284 $15,897,351
Less - preferred stock dividends (227,500) (227,500)
----------- -----------
Basic and diluted earnings per share
Income available to common shareholders $17,776,784 $15,669,851 20,220,835 $ 0.88 $ 0.77
=========== =========== ========== ====== ======
The potential common shares from the employee stock option plan (see Note
15) are included in the denominator of the diluted earning-per-share
computation but such shares result in a non-dilutive per share amount by
using the treasury stock method under the Statement of Financial Accounting
Standards No. 24, "Earnings Per Share". The average number of shares
outstanding for EPS calculation has been adjusted retroactively for
issuance of stock dividends and stock bonuses. The retroactive adjustment
caused the basic EPS before income tax and after income tax for the six
months ended June 30, 2002 to decrease from NT$0.96 to NT$0.84 and NT$0.88
to NT$0.77 , respectively.
-28-
18. RELATED PARTY TRANSACTIONS
The Company engages in business transactions with the following related
parties:
a. Industrial Technology Research Institute (ITRI); the Chairman of the
Company is one of its directors
b. Philips Electronics N.V. (Philips); a major shareholder of the Company
c. Subsidiaries
TSMC - North America
TSMC - Europe
TSMC - Japan
TSMC International
d. Investees
VIS
SSMC
GUC
e. Indirect subsidiaries
WaferTech, LLC (WaferTech)
TSMC Technology
The transactions with the aforementioned parties in addition to those
disclosed in other Notes, are summarized as follows:
Six Months Ended June 30
------------------------------------------------
2003 2002
---------------------- ----------------------
Amount % Amount %
------------- ---- ------------- ----
For the period
--------------
Sales
TSMC - North America $ 52,570,870 58 $ 47,926,681 58
Philips and its affiliates 1,396,502 2 1,293,472 2
GUC 343,507 - - -
ITRI 24,634 - 31,227 -
SSMC 874 - 6,374 -
VIS - - 91,810 -
WaferTech - - 964 -
------------- ---- ------------- ----
$ 54,336,387 60 $ 49,350,528 60
============= ==== ============= ====
Purchases
WaferTech $ 4,669,299 32 $ 5,973,798 46
SSMC 2,676,309 19 988,288 7
VIS 2,286,535 16 1,663,520 13
------------- ---- ------------- ----
$ 9,632,143 67 $ 8,625,606 66
============= ==== ============= ====
(Forward)
-29-
Six Months Ended June 30
------------------------------------------------
2003 2002
---------------------- ----------------------
Amount % Amount %
------------- ---- ------------- ----
Rental expense - ITRI $ - - $ 40,401 6
============= ==== ============= ====
Manufacturing expenses
Philips - technical assistance fee $ 1,493,877 3 $ 1,455,853 3
============= ==== ============= ====
Marketing expenses
TSMC - Japan (commission) $ 63,642 10 $ 105,856 18
TSMC - Europe (commission) 47,577 7 79,445 13
------------- ---- ------------- ----
$ 111,219 17 $ 185,301 31
============= ==== ============= ====
Sale of property, plant, and equipment - VIS $ 8,098 1 $ - -
============= ==== ============= ====
Non-operating income and gain
SSMC (mainly technical service income) $ 54,811 6 $ 46,804 5
VIS 271 - - -
WaferTech 81 - 1,001 -
------------- ---- ------------- ----
$ 55,163 6 $ 47,805 5
============= ==== ============= ====
At end of the period
--------------------
Receivables
TSMC - North America $ 14,490,662 96 $ 12,716,601 98
Philips and its affiliates 508,535 3 253,311 2
GUC 149,441 1 - -
SSMC 12,998 - 42,623 -
ITRI 11,480 - 9,135 -
TSMC Technology 5,842 - 7,310 -
VIS 5,467 - 42,695 -
WaferTech 2,565 - 953 -
------------- ---- ------------- ----
$ 15,186,990 100 $ 13,072,628 100
============= ==== ============= ====
Payables
Philips and its affiliates $ 1,160,377 32 $ 651,425 22
VIS 996,832 28 1,165,292 39
WaferTech 930,867 26 1,083,633 36
SSMC 395,253 11 11,146 -
TSMC - Europe 35,695 1 49,694 2
TSMC - Japan 35,242 1 30,897 1
TSMC - North America 29,140 1 12,286 -
TSMC Technology 7,611 - 10,062 -
------------- ---- ------------- ----
$ 3,591,017 100 $ 3,014,435 100
============= ==== ============= ====
Refundable deposits - VIS $ 349,204 93 $ 550,660 95
============= ==== ============= ====
-30-
Except for TSMC - North America and WaferTech, sales to related parties are
based on normal selling prices and collection terms. The payables to
WaferTech represent the purchase of finished goods. The purchase prices of
finished goods were determined in accordance with the related contractual
agreements. The selling prices to TSMC - North America are approximately
99% of the comparable selling prices to third parties and the payment terms
are thirty days from the date of invoice, which is not significantly
different from payment terms with third parties.
19. SIGNIFICANT LONG-TERM OPERATING LEASES
The Company leases land from the Science-Based Industrial Park
Administration where its Fab 2 through Fab 14 manufacturing facilities
reside. These agreements expire on various dates from March 2008 to
December 2020 and have annual rent payments aggregating NT$225,576
thousand. The agreements can be renewed upon their expiration.
Future remaining lease payments are as follows:
Year Amount
---------------------- ------------
July to December, 2003 $ 112,788
2004 225,576
2005 225,576
2006 225,576
2007 225,576
2008 201,533
2009 and thereafter 1,540,880
------------
$ 2,757,505
============
20. SIGNIFICANT COMMITMENTS AND CONTINGENCIES
The significant commitments and contingencies as of June 30, 2003 are as
follows:
a. Under a Technical Cooperation Agreement with Philips, as amended on May
12, 1997, the Company shall pay technical assistance fees at a
percentage of net sales (as defined in the agreement) of certain
products. The agreement shall remain in force through July 8, 2007 and
may be automatically renewed for successive periods of three years
thereafter. Under the amended agreement, starting from the fifth
anniversary date of the amended agreement, the fees are subject to
reduction by the amounts the Company pays to any third party for
settling any licensing/infringement disputes, provided that the fees to
be paid after reduction will not be below a certain percentage of the
net sales.
b. Subject to certain equity ownership and notification requirements,
Philips and its affiliates can avail themselves each year of up to 30%
of the Company's production capacity.
c. Under a technical cooperation agreement with ITRI, the Company shall
reserve and allocate up to 35% of certain of its production capacity
for use by the Ministry of Economic Affairs (MOEA) or any other party
designated by the MOEA.
-31-
d. Under several foundry agreements, the Company shall reserve a portion
of its production capacity for certain major customers who have made
guarantee deposits to the Company. As of June 30, 2003, the Company
received a total of US$34,293 thousand of guarantee deposits.
e. 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" for the purpose of constructing an integrated
circuit foundry in Singapore, and allow the Company to invest in 32% of
SSMC's capital. The Company and Philips committed to buy a specific
percentage of the production capacity of SSMC. If any party defaults on
the commitment and the capacity utilization of SSMC falls below a
specific percentage of its total capacity, the defaulting party is
required to compensate SSMC for all related unavoidable costs.
f. The Company provides technical services to SSMC under a Technical
Cooperation Agreement (the "Agreement") entered into on May 12, 1999.
The Company receives compensation for such services computed at a
specific percentage of net selling prices of certain products sold by
SSMC. The Agreement remains in force for ten years and is automatically
renewed for successive periods of five years unless pre-terminated by
either party under certain conditions.
g. The Company provided guarantees on loans amounting to US$200,000
thousand, US$40,000 thousand and US$440,000 thousand for TSMC
Development, Inc., TSMC - North America and WaferTech, respectively.
h. Under a Technology Transfer Agreement ("TTA") with National
Semiconductor Corporation ("National") entered into on June 27, 2000,
the Company shall receive payments for license of certain technology to
National. The agreement will remain in force for ten years and will be
automatically renewed for successive periods of two years thereafter
unless either party gives notice for early termination under certain
conditions. In January 2003, the Company and National entered into a
Termination Agreement whereby the TTA was terminated for convenience.
Under the termination agreement, the Company will be relieved of any
further obligation to transfer any additional technology. In addition,
the Company granted National an option to request additional technology
transfers under the same terms and conditions as the terminated TTA
through January 2008.
i. The Company entered into a Manufacturing Agreement with VIS. VIS agrees
to reserve certain production capacity for the Company to manufacture
certain logic devices or other technologies required by the Company's
customers at selling prices agreed upon by the parties. The Company
paid NT$1,200,000 thousand to VIS as a guarantee deposit. VIS shall
return portions of the guarantee deposit without any interest to the
Company upon reaching certain levels of purchase commitment by the
Company. The contract will remain in force for five years. As of June
30, 2003, the refundable deposit was NT$349,204 thousand.
j. Starting from 2001, the Company entered into several license
arrangements for certain semiconductor patents. The terms of the
contracts range from five to ten years with payments to be paid in the
form of royalties over the term of the related contracts. The Company
has recorded the related amounts as a liability and a deferred charge
to be amortized to cost of sales on a straight-line basis over the
estimated life of the technology or the term of the contract, whichever
is shorter.
-32-
k. In November 2002, the Company entered into an Amended and Restated
Joint Technology Cooperation Agreement with Philips, Motorola, Inc. and
ST Microelectronic to jointly develop 90-nanometer to 65-nanometer
advanced CMOS Logic and e-DRAM technologies. The Company also agreed to
align 0.12 micron CMOS Logic technology to enhance its foundry business
opportunities. The Company will contribute process technologies and
share a portion of the costs associated with this joint development
project.
l. The Company entered into investment related agreements with Shanghai
Songjiang District People's Government on June 8, 2003. Subject to the
ROC government's approval and market demands, the Company contemplates
establishing semiconductor fabs in Shanghai Songjiang Science and
Technology Park.
m. Unused letter of credits as of June 30, 2003 were NT$6,480 thousand,
US$94 thousand, EUR150 thousand and S$85 thousand.
n. As of June 30, 2003, unused credit lines for short-term loans were
NT$9,930,000 thousand and US$327,000 thousand.
21. ADDITIONAL DISCLOSURES
Following are the additional disclosures required by the SFC for TSMC and
investees:
a. Financing provided: Please see Table 1 attached;
b. Endorsement/guarantee provided: Please see Table 2 attached;
c. Marketable securities held: Please see Table 3 attached;
d. Marketable securities acquired and disposed of at costs or prices of at
least NT$100 million or 20% of the paid-in capital: Please see Table 4
attached;
e. Acquisition of individual real estate at costs of at least NT$100
million or 20% of the paid-in capital: Please see Table 5 attached;
f. Disposal of individual real estate at prices of at least NT$100 million
or 20% of the paid-in capital: None;
g. Total purchase from or sale to related parties amounting to at least
NT$100 million or 20% of the paid-in capital: Please see Table 6
attached;
h. Receivables from related parties amounting to at least NT$100 million
or 20% of the paid-in capital: Please see Table 7 attached;
i. Names, locations, and related information of investees on which the
Company exercises significant influence: Please see Table 8 attached;
-33-
j. Financial instrument transactions:
1) Derivative financial instruments
The Company entered into derivative financial instrument
transactions for the six months ended June 30, 2003 and 2002 to
manage exposures related to exchange rate fluctuations on
foreign-currency denominated receivables or payables, and interest
rate fluctuations. The purpose is to manage market price risks.
Certain information on these contracts as of June 30, 2003 is as
follows:
a) Outstanding forward exchange contracts as of June 30, 2003 are
as follows:
Financial Contract Amount (Nominal)
Instruments Period Amount) (in Thousand) Credit Risk
----------- -------------------------- ------------------------- -----------
Sell July 2003 to December 2003 US$1,290,000 (US$/NT$) -
Buy July 2003 EUR 14,000 (EUR/US$) -
July 2003 to August 2003 JPY6,580,435 (JPY/US$) -
As of June 30, 2003, receivables from forward exchange
contracts (included in the "other financial assets" account)
aggregate approximately NT$16,548 thousand, and payables from
forward exchange contracts (included in the "other current
liabilities" account) aggregate approximately NT$160,523
thousand. Net exchange loss for the six months ended June 30,
2003 was NT$144,011 thousand.
The above forward exchange contracts are entered into for the
purpose of managing currency exposures in the following foreign
currency-denominated net assets/liabilities:
Net Assets As of June 30, 2003
------------------- -------------------
Accounts receivable US$ 721,194
Accounts payable JPY 8,040,071
Accounts payable EUR 35,703
b) Interest rate swaps
The Company entered into interest rate swap contracts to hedge
exposures from rising interest rates on its floating rate
long-term loans. Interest expense on these transactions for the
six months ended June 30, 2003 was NT$114,111 thousand.
Outstanding contracts as of June 30, 2003 were as follows:
Contract Amount
Contract Date Period (In Thousand) Credit Risk
------------- ----------------------------- --------------- -------------
June 26, 1998 July 6, 1998 to July 6, 2003 NT$1,000,000 -
July 1, 1999 July 1, 1999 to June 28, 2004 US$ 8,571 -
-34-
c) Option contracts
The Company entered into foreign currency option contracts to
hedge risks of exchange rate fluctuations arising from its
anticipated U.S. dollar cash receipts from its export sales or
its Japanese currency obligations for purchases of machinery and
equipment.
Outstanding option contracts as of June 30, 2003 were as follows:
Contract
Amount Book Credit
Type Contract (In Thousand) Value Risk Strike Price Maturity
--------- ----------------- ------------- --------- -------- -------------- --------------
European Put option bought US$45,000 NT$ - - 32.915-33.077 2003/7- 2003/8
(US$/NT$)
European Put option bought US$19,000 NT$ 772 - 117-119 2003/7-2003/9
(US$/JPY)
For the six months ended June 30, 2003, the Company recognized
premium income of NT$50,273 thousand and premium expense of
NT$146,921 thousand.
d) Transaction risk
i) Credit risk. Credit risk represents the positive net
settlement amount of those contracts with positive fair
values at the balance sheet date. The positive net
settlement amount represents the loss incurred by the
Company if the counter-parties breached the contracts. The
banks, which are the counter-parties to the foregoing
derivative financial instruments, are reputable financial
institutions. Management believes its exposures related to
the potential default by those counter-parties are low.
ii) Market price risk. All derivative financial instruments are
intended as hedges for fluctuations in currency exchange
rates on the Company's foreign currency denominated
receivables or payables and interest rate fluctuations on
its floating rate long-term loans. Gains or losses from
forward exchange contracts are likely to be offset by gains
or losses from the hedged receivables and payables.
Interest rate risks are also controlled as the expected
cost of capital is fixed. Thus, market price risks are
believed to be minimal.
iii) Liquidity and cash flow risk and uncertainty of amount and
term of future cash demand.
As of June 30, 2003, the Company's future cash demand for
outstanding forward exchange contracts, interest rate swaps
and option contracts are as follows:
Forward Exchange Contracts
-------------------------------------
Term Inflow Outflow
------------------- ------------------ --------------
(In Thousand) (In Thousand)
Within one year NT$ 44,545,275 US$ 1,362,132
EUR 14,000 -
JPY 6,580,435 -
-35-
The Company has sufficient operating capital to meet the above
cash demand. The interest rate of the interest rate swaps has
taken the Company's cost of capital into account. In addition,
the exchange rates of forward foreign exchange contracts and
option contracts are fixed. Therefore, there is no material fund
raising risk and cash flow risk.
2) Fair value of financial instruments:
June 30, 2003 June 30, 2002
------------------------- --------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
---------- ------------ ----------- ------------
Non-derivative financial instruments
------------------------------------
Assets
Cash and cash equivalents $66,546,050 $66,546,050 $66,385,580 $66,385,580
Short-term investments 3,054,050 3,057,705 - -
Receivables from related parties (excluding
credit balance of long-term investments 15,186,990 15,186,990 13,072,628 13,072,628
Notes and accounts receivable 12,848,196 12,848,196 12,150,704 12,150,704
Other financial assets 798,672 798,672 2,078,966 2,078,966
Long-term investments (including credit
balances of long-term investments) 35,121,987 38,358,044 36,655,574 46,481,900
Refundable deposits 375,715 375,715 577,552 577,552
Liabilities
Payables to related parties 3,591,017 3,591,017 3,014,435 3,014,435
Accounts payable 5,154,006 5,154,006 5,407,261 5,407,261
Payables to contractors and equipment
suppliers 6,559,597 6,559,597 16,881,543 16,881,543
Bonds payable (includes current portion) 35,000,000 35,838,341 44,000,000 44,755,325
Other long-term payable (including current
portion) 5,074,120 5,074,120 1,470,000 1,470,000
Guarantee deposits 1,225,310 1,225,310 6,620,526 6,620,526
Derivative financial instruments
--------------------------------
Forward exchange contracts (buy) (39,769) (39,560) (86,940) (11,110)
Forward exchange contracts (sell) (104,205) (65,798) 842,073 1,147,839
Interest rate swaps 986 (22,130) 23,652 (289,227)
Option 772 (87,415) 17,446 27,791
Fair values of financial instruments were determined as follows:
a) The carrying amounts reported in the balance sheets for cash and
cash equivalents, notes and accounts receivable, other financial
assets, accounts payable, payables to contractors and equipment
suppliers are approximate to their fair values.
b) Fair value of short-term and long-term investments is based on
quoted market prices. If quoted market prices are unavailable,
fair value is based on net asset value or book value of
investment.
c) Fair value of refundable deposits and guarantee deposits is based
on carrying values.
d) The fair value of bonds payable is the quoted market value. Fair
value of other long-term payable is equivalent to its carrying
value.
e) Fair value of derivative financial instruments is the estimated
net receivable or (payable) if the contracts are terminated on
the relevant balance sheet date.
-36-
The fair values of non-financial instruments were not included in
the fair values disclosed above. Accordingly, the sum of the fair
values of the financial instruments listed above does not
represent the fair value of the Company as a whole.
3) Investment in Mainland China:
The Company filed an investment project with the Investment
Commission of MOEA to establish a foundry in Mainland China. On
February 27, 2003, the authority approved phase one of the
foregoing project and permitted direct investment in establishing
TSMC - Shanghai. The Company entered into an investment related
agreement with Shanghai Songjiang District People's Government on
June 8, 2003. (See Note 20 l.) As of July 15, 2003, TSMC-Shanghai
has not been established.
-37-
TABLE 1
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
FINANCING PROVIDED
For the Six Months Ended June 30, 2003
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
------------------------------------------------------------------------------------------------------------------------------
Maximum
Balance for the
Financial Period Ending Balance Financial Reasons For
Statement (US$ in (US$ in Interest Reasons Transaction Short-term
No. Financing Name Counter-Party Account Thousand) Thousand Rate (Note 1) Amounts Financing
------------------------------------------------------------------------------------------------------------------------------
1 TSMC TSMC Other $ 541,551 $ 541,551 4,25% 2 $ - Operating
International Technology receivables (US$ 15,646) (US$ 15,646) capital
------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Collateral Financing
-------------------------- Company's
Financing Limit Financing
for Each Amount Limits
Allowance for Borrowing (US$ in
No. Bad Debt Item Value Company Thousand
--------------------------------------------------------------------------------
1 $ - $ - N/A $ 34,195,548
(US $987,968)
(Note 2)
--------------------------------------------------------------------------------
Note 1: The No. 2 represents that the short-term financing is necessary for the
business.
Note 2: Not exceeding the issued capital of the Company.
TABLE 2
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
ENDORSEMENT/GUARANTEE PROVIDED
For the Six Months Ended June 30, 2003
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
-------------------------------------------------------------------------------------------------------------------------------
Counter-Party
------------------------------------ Limits on Each
Nature of Counter-party's Maximum
Endorsement/Guarantee Relationship Endorsement/ Balance for the Period Ending Balance
No. Provider Name (Note 2) Guarantee Amounts (US$ in Thousand) (US$ in Thousand)
-------------------------------------------------------------------------------------------------------------------------------
0 TSMC TSMC Development 3 Not exceeding 10% $ 6,922,400 $ 6,922,400
of the net assets (US$ 200,000) (US$ 200,000)
of TSMC, and also
limiting to the
issued capital of
the transaction
entity, unless
otherwise
approved by
board of
directors.
TSMC - North America 2 $ 1,384,480 $ 1,384,480
(US$ 40,000) (US$ 40,000)
WaferTech 3 $15,229,280 $15,229,280
(US$ 440,000) (US$ 440,000)
-------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------
Ratio of Accumulated
Value of Collateral Amount of Collateral Maximum
Property, Plant and to Net Equity of the Collateral/Guarantee
Equipment Latest Financial Amounts Allowable
No. (Note 3) Statement (Note 1)
----------------------------------------------------------------------
0 $ - 2.32% $ 74,565,393
- 0.46%
- 5.11%
----------------------------------------------------------------------
Note 1: 25% of the net assets as of June 30, 2003 of TSMC.
Note 2: The No. 2 represents a subsidiary in which TSMC holds directly over 50%
of the equity interest.
The No. 3 represents an investee in which TSMC holds directly and
indirectly over 50% of the equity interest.
Note 3: Promissory notes for collateral.
TABLE 3
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
MARKETABLE SECURITIES HELD
June 30, 2003
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
-------------------------------------------------------------------------------------------------
Relationship with Financial Statement
Held Company Name Marketable Securities Type and Name the Company Account
-------------------------------------------------------------------------------------------------
TSMC Stock
-----
TSMC - North America Subsidiary Long-term investment
TSMC - Europe Subsidiary Long-term investment
TSMC - Japan Subsidiary Long-term investment
VIS Investee Long-term investment
TSMC International Subsidiary Long-term investment
TSMC Partners Subsidiary Long-term investment
SSMC Investee Long-term investment
Emerging Alliance Subsidiary Long-term investment
GUC Investee Long-term investment
Taiwan Mask Corp. - Long-term investment
United Gas Co., Ltd. - Long-term investment
Shin-Etsu Handotai Taiwan Co., Ltd. - Long-term investment
W.K. Technology Fund IV - Long-term investment
Hon Tung Ventures Capital - Long-term investment
Amkor Technology - Long-term investment
Monolithic System Tech. - Long-term investment
Certificate
-----------
Chi Cherng Investment Investee Long-term investment
Hsin Ruey Investment Investee Long-term investment
Equity
------
Crimson Asia Capital - Long-term investment
Horizon Ventures - Long-term investment
-------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
June 30, 2003
-----------------------------------------------------------
Market Value or
Carrying Value Net Asset Value
Shares (US$ in Percentage of (US$ in
Held Company Name (Thousand) Thousand) Ownership Thousand) Note
---------------------------------------------------------------------------------------------------------------------
TSMC
11,000 $ 240,294 100 $ 988,576 The treasury stocks in amounts of
NT$748,282 thousand are deducted
from the carry value.
- 10,990 100 10,990
6 91,333 100 91,334
787,016 3,848,018 28 4,942,459
987,968 21,954,303 100 21,954,303
300 3,931,378 100 4,187,070 The treasury stocks in amounts of
NT$255,692 thousand are deducted
from the carry value.
382 2,609,934 32 2,609,934
- 879,128 99 879,128
39,040 387,376 47 427,346
8,794 32,129 2 162,421
16,783 193,584 11 264,996
10,500 105,000 7 135,431
5,000 50,000 2 50,000
8,392 83,916 10 72,211
505 280,748 - 203,826
470 104,289 2 140,377
- 38,514 36 497,078 The treasury stocks in amounts of
NT$458,564 thousand are deducted
from the carry value.
- 38,216 36 497,727 The treasury stocks in amounts of
NT$459,511 thousand are deducted
from the carry value.
N/A 47,385 N/A 47,385
N/A 195,452 N/A 195,452
---------------------------------------------------------------------------------------------------------------------
(Forward)
-40-
-----------------------------------------------------------------------------------------------------------------------------------
June 30, 2003
-----------------------------------------------------------------------------------------------------------------------------------
Marketable Securities Type Relationship with Financial Statement Shares Carrying Value
Held Company Name and Name the Company Account (Thousand) (US$ in Thousand)
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
TSMC - North America Stock
-----
TSMC Parent company Long-term investment 12,692 $ 748,282
Chi Cherng Investment Stock
-----
TSMC Parent company Short-term investment 12,718 458,564
Certificate
-----------
Hsin Ruey Investment Major shareholder Long-term investment - 896,275
Hsin Ruey Investment Stock
-----
TSMC Parent company Short-term investment 12,742 459,512
VIS - Short-term investment 350 1,512
Certificate
-----------
Chi Cherng Investment Major shareholder Long-term investment - 896,469
TSMC International Stock
-----
InveStar Subsidiary Long-term investment 45,000 US $ 44,025
InveStar II Subsidiary Long-term investment 51,300 US $ 40,081
TSMC Development Subsidiary Long-term investment 1 US $ 547,355
TSMC Technology Subsidiary Long-term investment 1 (US $ 7,594)
3DFX Interactive Inc. - Long-term investment 68 -
Marvell - Short-term investment 1,058 US $ 1,038
BOA Fund - Short-term investment - US $ 24,500
VIS Stock
-----
VIS Associates, Inc. Subsidiary Long-term investment 41,070 1,198,153
PowerChip Semiconductor, Inc. Investee Long-term investment 190,671 2,500,268
Etron Technology, Inc. Investee Long-term investment 4,859 216,852
Walsin Technology, Inc. Investee Long-term investment 34,551 302,559
MEGIC Corporation Investee Long-term investment 16,500 177,000
FormFactor, Inc. Investee Long-term investment 267 64,360
United Technology Co., Ltd. Investee Long-term investment 3,357 38,716
Bond fund
---------
Yuan Da Duo Li #2 - Short-term investment 58,069 800,703
Jihsun - Short-term investment 46,730 600,000
Fu Hua - Short-term investment 4,015 50,000
Well Pool Bond Fund - Short-term investment 88,140 1,050,000
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Market Value or
Net Asset Value
Percentage of (US$ in
Held Company Name Ownership Thousand) Note
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
TSMC - North America
- $ 729,804
Chi Cherng Investment
36 731,287
64 896,275
Hsin Ruey Investment
36 732,657
- 2,198
64 896,469
TSMC International
97 US$ 44,025
97 US$ 40,081
100 US$ 547,355
100 (US$ 7,594)
- -
1 US$ 34,160
- US$ 24,500
VIS
100 1,198,153 The book value is net of allowance
for valuation loss of long-term
Investments, $28,397 thousand.
7 2,566,434
2 105,289
8 265,817
9 144,816
1 159,676
2 53,018
- 808,124
- 606,038
- 50,542
- 1,052,113
-----------------------------------------------------------------------------------------------------------
(Forward)
-41-
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Marketable Securities Type Relationship with Financial Statement Shares
Held Company Name and Name the Company Account (Thousand)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
VIS Associates, Inc. Stock
-----
VIS Investment Holding, Inc. Subsidiary Long-term investment 63
Equity
------
Silicon Valley Equity Fund - Long-term investment -
Silicon Valley Equity Fund II - Long-term investment -
Equity certificate
------------------
ABN AMRO Bank - Long-term investment 3,648
Fund
----
Grand Palace Trust - Long-term investment -
VIS Investment Holding, Inc. Stock
-----
VIS Micro, Inc. Subsidiary Long-term investment 200
TSMC Development Stock
-----
WaferTech Subsidiary Long-term investment -
TSMC Partners ADR
---
TSMC Parent company Short-term investment 762
InveStar Stock
-----
PLX Technology, Inc. - Short-term investment 357
Formfactor, Inc. - Short-term investment 267
WGRD - Short-term investment 86
Programmable Microelectronics, - Long-term investment 1,580
(Taiwan) Inc.
Divio, Inc. - Long-term investment 30
Global Testing Corp. - Long-term investment 13,268
Chipstrate Technologies, Inc. - Long-term investment 6,660
Richtek Technology Holding Corp. - Long-term investment 1,023
Advanced Power Electronics, Corp. - Long-term investment 2,750
Capella Microsystems, Inc. - Long-term investment 542
Preferred stock
---------------
Integrated Memory Logic, Inc. - Long-term investment 1,831
Divio, Inc - Long-term investment 667
SiRF Technology Inc. - Long-term investment 306
Capella Microsystems, Inc. - Long-term investment 1,383
Sensory, Inc. - Long-term investment 1,404
LightSpeed Semiconductor Corporation - Long-term investment 2,252
Tropian, Inc. - Long-term investment 1,758
Sonics, Inc. - Long-term investment 2,686
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
June 30, 2003
------------------------------------------------------------------------------------------------------------
Market Value or
Net Asset Value
Carrying Value Percentage of (US$ in
Held Company Name (US$ in Thousand) Ownership Thousand) Note
------------------------------------------------------------------------------------------------------------
VIS Associates, Inc.
US$ 404 100 US$ 404
US$ 3,157 34 US$ 3,157
US$ 5,355 14 US$ 5,362
US$ 663 - US$ 663
US$ 3,028 100 US$ 3,028
VIS Investment Holding, Inc.
US$ 286 100 US$ 286
TSMC Development
US$ 314,435 99 US$ 314,435
TSMC Partners
US$ 7,357 - US$ 7,800
InveStar
US$ 693 - US$ 693
US$ 2,000 - US$ 2,000
US$ 514 - US$ 514
US$ 498 4 (US$ 498)
US$ 3 - US$ 3
US$ 5,198 12 US$ 5,198
US$ 302 1 US$ 302
US$ 347 1 US$ 347
US$ 1,351 3 US$ 1,351
US$ 87 - US$ 87
US$ 1,221 - US$ 1,221
US$ 500 - US$ 500
US$ 1,333 - US$ 1,333
US$ 221 - US$ 221
US$ 312 - (US$ 312)
US$ 829 - (US$ 829)
US$ 2,334 - US$ 2,334
US$ 3,530 - US$ 3,530
------------------------------------------------------------------------------------------------------------
(Forward)
-42-
----------------
-------------------------------------------------------------------------------------------------------------------------
Held Company Name Marketable Securities Type and Name Relationship with Financial Statement Shares
the Company Account (Thousand)
-------------------------------------------------------------------------------------------------------------------------
Atheros, Inc. - Long-term investment 1,607
NanoAmp Solutions, Inc. - Long-term investment 541
Monolithic Power Systems, Inc. - Long-term investment 2,521
Memsic, Inc. - Long-term investment 2,727
Reflectivity, Inc. - Long-term investment 1,064
Signia Technologies, Inc. - Long-term investment 3,000
Match Lab, Inc. - Long-term investment 1,875
Oridus, Inc. (Creosys, Inc.) - Long-term investment 1,500
Incentia Design Systems, Inc. - Long-term investment 286
IP Unity - Long-term investment 1,008
InveStar II Stock
-----
WGRD - Short-term investment 87
eChannel Option Holding, Inc. - Long-term investment 358
Elcos Microdisplay Technology, Ltd. - Long-term investment 270
Signia Technologies, Inc. - Long-term investment 351
Procoat Technology - Long-term investment 3,500
Richtek Technology Corporation - Long-term investment 845
Programmable Microelectronics - Long-term investment 487
(Taiwan), Inc.
Auden Technology MFG Co., Ltd. - Long-term investment 953
GeoVision, Inc. - Long-term investment 180
EoNex Technologies, Inc. - Long-term investment 55
Conwise Technology Co., Ltd. - Long-term investment 2,800
Yi Yang Technology - Long-term investment 2,800
Goyatek Technology, Inc. - Long-term investment 1,740
TrendChip Technologies Corp. - Long-term investment 2,000
Preferred stock
---------------
Memsic, Inc. - Long-term investment 2,289
Oepic, Inc. - Long-term investment 4,997
NanoAmp Solutions, Inc. - Long-term investment 250
Advanced Analogic Technology, Inc. - Long-term investment 948
Monolithic Power Systems, Inc. - Long-term investment 804
Ralink Technology, Inc. - Long-term investment 1,833
Sonics, Inc. - Long-term investment 3,082
Newport Opticom, Inc. - Long-term investment 1,157
Silicon Data, Inc. - Long-term investment 2,000
Reflectivity, Inc. - Long-term investment 1,596
Capella Microsystems, Inc. - Long-term investment 800
-------------------------------------------------------------------------------------------------------------------------
(Forward)
---------------------------------------------------------------------------
June 30, 2003
---------------------------------------------------------------------------------------------------
Held Company Name Carrying Value Percentage of Market Value or Note
(US$ in Ownership Net Asset Value
Thousand) (US$ in
Thousand)
---------------------------------------------------------------------------------------------------
US$ 3,593 - US$ 3,593
US$ 853 - US$ 853
US$ 2,000 - US$ 2,000
US$ 1,500 - US$ 1,500
US$ 856 - US$ 856
US$ 203 - US$ 203
US$ 750 - US$ 750
US$ 300 - US$ 300
US$ 343 - US$ 343
US$ 982 - US$ 982
InveStar II
US$ 441 - US$ 441
US$ 251 - US$ 251
US$ 27 - US$ 27
US$ 101 - US$ 101
US$ 1,951 4 US$ 1,951
US$ 1,010 2 US$ 1,010
US$ 102 - US$ 102
US$ 1,122 2 US$ 1,122
US$ 130 - US$ 130
US$ 2,992 - US$ 2,992
US$ 971 - US$ 971
US$ 971 - US$ 971
US$ 1,795 - US$ 1,795
US$ 867 - US$ 867
-
-
US$ 1,560 - US$ 1,560
US$ 1,317 - US$ 1,317
US$ 1,000 - US$ 1,000
US$ 1,261 - US$ 1,261
US$ 1,946 - US$ 1,946
US$ 1,506 - US$ 1,506
US$ 3,082 - US$ 3,082
US$ 602 - US$ 602
US$ 750 - US$ 750
US$ 1,077 - US$ 1,077
US$ 128 - US$ 128
---------------------------------------------------------------------------------------------------
(Forward)
---------------
--------------------------------------------------------------------------------------------------------------------------------
Held Company Name Marketable Securities Type and Name Relationship with Financial Statement Shares
the Company Account (Thousand)
--------------------------------------------------------------------------------------------------------------------------------
Angstron Systems, Inc. - Long-term investment 1,567
Tropian, Inc. - Long-term investment 1,464
SiRF Technology Holdings, Inc. - Long-term investment 20
LeadTONE Wireless, Inc. - Long-term investment 680
Match Lab, Inc. - Long-term investment 313
eBest!, Inc. - Long-term investment 201
Kilopass Technologies, Inc. - Long-term investment 3,887
Elcos Microdisplay Technology, Ltd. - Long-term investment 2,667
Fang Tek, Inc. - Long-term investment 5,556
Alchip Technologies Ltd. - Long-term investment 2,125
--------------------------------------------------------------------------------------------------------------------------------
Emerging Alliance Stock
-----
Global Investment Holding, Inc. Investee Long-term investment 10,000
Preferred stock
---------------
Quake Technologies, Inc. - Long-term investment 467
Pixim, Inc. - Long-term investment 1,924
Newport Opticom, Inc. - Long-term investment 962
NetLogic Microsystems, Inc. - Long-term investment 602
Ikanos Communication, Inc. - Long-term investment 5,116
Quicksilver Technology, Inc. - Long-term investment 902
Litchfield Communications - Long-term investment 3,799
Mosaic Systems - Long-term investment 2,481
Accelerant Networks - Long-term investment 441
Zenesis Technologies - Long-term investment 861
Reflectivity, Inc. - Long-term investment 1,596
Iridigm Display - Long-term investment 254
XHP Microsystem - Long-term investment 2,280
Axiom Microdevices, Inc. - Long-term investment 1,000
Optichron - Long-term investment 714
--------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------
June 30, 2003
-------------------------------------------------------------------------------------------------
Held Company Name Carrying Value Percentage of Market Value or Note
(US$ in Ownership Net Asset Value
Thousand) (US$ in
Thousand)
-------------------------------------------------------------------------------------------------
US$ 750 - US$ 750
US$ 2,000 - US$ 2,000
US$ 131 - US$ 131
US$ 131 - US$ 131
US$ 125 - US$ 125
US$ 81 - US$ 81
US$ 2,000 - US$ 2,000
US$ 3,500 - US$ 3,500
US$ 2,000 - US$ 2,000
US$ 1,700 - US$ 1,700
-------------------------------------------------------------------------------------------------
Emerging Alliance
100,000 6 100,000
US$ 1,000 1 US$ 809
US$ 2,500 3 US$ 2,382
US$ 1,000 6 US$ 500
US$ 1,850 1 US$ 1,850
US$ 2,572 3 US$ 2,572
US$ 2,338 4 US$ 2,338
US$ 1,000 6 US$ 57
US$ 500 6 US$ 12
US$ 1,000 1 US$ 820
US$ 500 4 US$ 500
US$ 1,500 5 US$ 1,500
US$ 502 2 US$ 502
US$ 750 6 US$ 750
US$ 1,000 5 US$ 1,000
US$ 1,000 6 US$ 1,000
-------------------------------------------------------------------------------------------------
TABLE 4
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST
NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL
For the Six Months Ended June 30, 2003
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
--------------------------------------------------------------------------------------------------------------------
Company Name Marketable Securities Type and Name Financial Statement Counter-Party Nature of
Account Relationship
--------------------------------------------------------------------------------------------------------------------
TSMC Stock
-----
Emerging Alliance Long-term investment Emerging Alliance Subsidiary
VIS Long-term investment VIS Investee
VIS Bond fund
---------
Kai Chi Kai Xuan Short-term investment - -
NITC Short-term investment - -
Ta-Hua Short-term investment - -
Jihsun Short-term investment - -
Yuan Da Duo Li #2 Short-term investment - -
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
Company Name Beginning Balance Acquisition Disposal
-------------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount Carrying Gain (Loss)
(Thousand) (Thousand) (Thousand) Value on Disposal
--------------------------------------------------------------------------------------------------------------------------------
TSMC
- $ 767,239 - $ 174,030 - $ - $ - $ -
677,471 3,264,657 109,545 766,815 - - - -
VIS
- - 64,113 650,000 - - - -
- - 3,225 500,000 3,225 500,164 500,000 164
- - 40,946 500,000 40,946 500,586 500,000 586
- - 46,730 600,000 - - - -
- - 65,271 900,000 - - - -
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------
Company Name Ending Balance
--------------------------
Shares Amount
(Thousand) (Note 1)
--------------------------------------------
TSMC
- $ 879,128
787,016 3,848,018
VIS
- -
- -
- -
46,730 600,000
65,271 900,000
-------------------------------------------
Note 1: The ending balance included the recognition of the investment income
(loss) by the equity method, the cumulative translation adjustments and
unrealized loss on long-term investments recognized in proportion of ownership
percentage in subsidiaries.
-42-
TABLE 5
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. AND SUBSIDIARIES
ACQUISITION OF INDIVIDUAL REAL ESTATE AT COSTS OF AT LEAST NT$100 MILLION
OR 20% OF THE PAID-IN CAPITAL
For the Six Months Ended June 30, 2003
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
----------------------------------------------------------------------------------------------------------------------------
Company Name Types of Transaction Date Transaction Payment Term Counter-party
Property Amount
----------------------------------------------------------------------------------------------------------------------------
TSMC Fab 14 January 20, 2003 $ 180,665 By the construction progress United Integrated Services
Fab 12 May 6, 2003 119,000 By the construction progress United Integrated Services
Fab 12 June 17, 2003 134,500 By the construction progress United Integrated Services
Fab 12 June 18, 2003 110,055 By the construction progress Liquid Air Far East Co. Ltd.
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
Company Name Nature of Prior Transaction of Related Counter-party Price Reference Purpose of
Relationship -------------------------------------------------------------- Acquisition
Owner Relationship Transfer Date Amount
----------------------------------------------------------------------------------------------------------------------------------
TSMC - N/A N/A N/A N/A Public bidding Manufacturing
purpose
- N/A N/A N/A N/A Public bidding Manufacturing
purpose
- N/A N/A N/A N/A Public bidding Manufacturing
purpose
- N/A N/A N/A N/A Public bidding Manufacturing
purpose
----------------------------------------------------------------------------------------------------------------------------------
-------------------------------
Company Name Other Terms
-------------------------------
TSMC None
None
None
None
-------------------------------
TABLE 6
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
TOTAL PURCHASE FROM OR SALE TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100
MILLION OR 20% OF THE PAID-IN CAPITAL
For the Six Months Ended June 30, 2003
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
-----------------------------------------------------------------------------------------------------------------
Transaction Details
Company Name Related Party Nature of Relationship
-------------------------------------------
Purchase/Sale Amount % to
Total
-----------------------------------------------------------------------------------------------------------------
TSMC TSMC - North America Subsidiary Sales $ 52,570,870 58
Philips and its affiliates Major shareholder Sales 1,396,502 2
GUC Investee Sales 343,507 -
WaferTech Subsidiary Purchases 4,669,299 32
SSMC Investee Purchases 2,676,309 19
VIS Investee Purchases 2,286,535 16
-----------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Abnormal Transaction Note/Accounts Payable or
Company Name Receivable
------------------------------------------------------------------------------------------------------------- Note
Payment Terms Unit Price Payment Terms Ending Balance % to
Total
------------------------------------------------------------------------------------------------------------------------------------
TSMC Net 30 days from invoice date Note 1 Note 1 $14,490,662 95
Net 30 days from invoice date None None 508,535 3
Net 30 days from invoice date None None 149,441 1
Net 30 days from monthly Note 1 Note 1 (930,867) 26
closing date
Net 30 days from invoice date None None (395,253) 11
Net 45 days from monthly None None (996,832) 28
closing date
------------------------------------------------------------------------------------------------------------------------------------
Note 1: Please refer to footnote 18 in the financial statements.
TABLE 7
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST
NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL
June 30, 2003
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
---------------------------------------------------------------------------------------------------------------------------------
Overdue Amounts
Company Nature of Ending Turnover -------------------------------- Received in Allowance
Name Related Party Relationship Balance Rate Amount Action Taken Subsequent for Bad
Period Debts
---------------------------------------------------------------------------------------------------------------------------------
TSMC TSMC - North America Subsidiary $14,490,662 42 days $3,663,186 Accelerate demand on $ 2,750,748 $ -
account receivables
Philips and its Major shareholder 508,535 56 days 77,014 Accelerate demand on 21,570 -
affiliates account receivables
GUC Investee 149,441 51 days - - 70,582 -
---------------------------------------------------------------------------------------------------------------------------------
TABLE 8
TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD.
NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH
THE COMPANY EXERCISES SIGNIFICANT INFLUENCE
June 30, 2003
(Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
----------------------------------------------------------------------------------------------------------------------------
Original Investment Balance as of June 30, 2003
Amount
-----------------------------------------------------
Investor Investee Location Main Businesses June 30, June 30, Shares Percentage of
Company Company and Products 2003 2002 (Thousand) Ownership
----------------------------------------------------------------------------------------------------------------------------
TSMC - San Jose, Marketing and
TSMC North America California, U.S.A. engineering support $ 333,178 $ 333,178 11,000 100
Amsterdam, Marketing and
TSMC - Europe The Netherlands engineering support 2,960 2,960 - 100
Marketing and
TSMC - Japan Yokohama, Japan engineering support 83,760 83,760 6 100
IC design and
VIS Hsin-Chu, Taiwan manufacturing 8,119,816 6,503,640 787,016 28
TSMC Tortola,
International British Virgin Islands Investment 31,445,780 31,445,780 987,968 100
Chi Cherng
Investment Taipei, Taiwan Investment 300,000 300,000 - 36
Hsin Ruey
Investment Taipei, Taiwan Investment 300,000 300,000 - 36
Tortola,
TSMC Partners British Virgin Islands Investment 10,350 10,350 300 100
SSMC Singapore Manufacturing wafer 6,408,190 6,408,190 382 32
Emerging
Alliance Cayman Islands Investment 1,179,690 1,005,660 - 99
IC research,
GUC Hsin-Chu, Taiwan development, 409,920 341,250 39,040 47
manufacturing,
testing and
marketing (Note 3)
-------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Carrying Net Income Investment
Investor Investee Location Main Businesses Value (Loss) of Gain (Loss) Note
Company Company and Products (Note 1) the Investee (Note 2)
----------------------------------------------------------------------------------------------------------------------------
TSMC - San Jose, Marketing and
TSMC North America California, U.S.A. engineering support $ 240,294 $ 70,590 $ 70,590 Subsidiary
Amsterdam, Marketing and
TSMC - Europe The Netherlands engineering support 10,990 10 10 Subsidiary
Marketing and
TSMC - Japan Yokohama, Japan engineering support 91,333 1,134 1,134 Subsidiary
IC design and
VIS Hsin-Chu, Taiwan manufacturing 3,848,018 (613,487) (172,437) Investee
TSMC Tortola,
International British Virgin Islands Investment 21,954,303 (204,832) (204,832) Subsidiary
Chi Cherng
Investment Taipei, Taiwan Investment 38,514 (11,237) (4,319) Investee
Hsin Ruey
Investment Taipei, Taiwan Investment 38,216 (11,903) (2,538) Investee
Tortola,
TSMC Partners British Virgin Islands Investment 3,931,378 263,450 194,465 Subsidiary
SSMC Singapore Manufacturing wafer 2,609,934 (1,609,976) (515,188) Investee
Emerging
Alliance Cayman Islands Investment 879,128 (58,546) (58,253) Subsidiary
IC research,
GUC Hsin-Chu, Taiwan development, 387,376 (39,103) (14,063) Investee
manufacturing,
testing and
marketing
----------------------------------------------------------------------------------------------------------------------------
Note 1: The treasury stock is deducted from the carrying value.
Note 2: The unrealized gain or loss and the gain or loss on disposal of the
stocks held by subsidiaries are excluded.
Note 3: TSMC's investee, Ya Xin, merged with GUC in January 2002. GUC is the
surviving company.