6-K 1 d6k.txt FORM 6-K 1934 Act Registration No. 1-14700 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 6-K REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934 For the month of April 2003 Taiwan Semiconductor Manufacturing Company Ltd. (Translation of Registrant's Name into English) No.121 Park Avenue III 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: April 30, 2003 By /S/ Harvey Chang ---------------------------------- Harvey Chang Senior Vice President & Chief Financial Officer
Taiwan Semiconductor Manufacturing Company Ltd. Financial Statements for the Three Months Ended March 31, 2003 and 2002 Together with Independent Accountants' 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 Accountants' Report April 17, 2003 The Board of Directors and Shareholders Taiwan Semiconductor Manufacturing Company Ltd. We have reviewed the accompanying balance sheets of Taiwan Semiconductor Manufacturing Company Ltd. as of March 31, 2003 and 2002, and the related statements of income and cash flows for the three months then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to issue a report on these financial statements based on our reviews. We conducted our reviews in accordance with Statement on Auditing Standards No. 36 "Review of Financial Statements" issued by the Auditing Committee of the Accounting Research and Development Foundation of the Republic of China. A review consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the Republic of China, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with the Guidelines for Securities Issuers' Financial Reporting and accounting principles generally accepted in the Republic of China. - 1 - 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. T N Soong & Co An Associate Member Firm of Deloitte Touche Tohmatsu Effective April 22, 2002 (Formerly a Member Firm of Andersen Worldwide, SC) 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. - 2 - English Translation of Financial Statements Originally Issued in Chinese TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. BALANCE SHEETS (Unaudited) March 31, 2003 and 2002 (In Thousand New Taiwan Dollars, Except Par Value)
2003 2002 ------------------ ------------------ Amount % Amount % A S S E T S ------------- --- ------------- --- CURRENT ASSETS Cash and cash equivalents (Notes 2 and 4) $ 67,449,389 18 $ 58,349,042 16 Short-term investments (Note 2) - - 2,449,999 1 Receivables from related parties (Notes 6 and 17) 11,056,070 3 10,957,806 3 Notes receivable 4,120 - 137,039 - Accounts receivable 9,358,733 3 9,880,577 3 Allowance for doubtful receivables (Note 2) (976,864) - (950,194) - ------------- --- ------------- --- Allowance for sales returns and others (Note 2) (1,834,097) (1) (3,600,882) (1) ------------- --- ------------- --- Other financial assets (Note 20) 749,584 - 894,030 - Inventories - net (Notes 2 and 5) 10,178,043 3 9,718,279 3 Deferred income taxes assets (Notes 2 and 12) 5,371,000 2 2,785,951 1 Prepaid expenses and other current assets (Notes 2 and 17) 1,629,391 - 1,812,293 - ------------- --- ------------- --- Total Current Assets 102,985,369 28 92,433,940 26 ------------- --- ------------- --- FUNDS AND LONG-TERM INVESTMENTS (Notes 2, 6, 15 and 19) Equity method 33,119,011 9 30,456,698 9 Other 1,027,607 - 962,618 - ------------- --- ------------- --- Total Funds and Long-term Investments 34,146,618 9 31,419,316 9 ------------- --- ------------- --- PROPERTY, PLANT, AND EQUIPMENT (Notes 2 and 7) Cost Buildings.............................................. 69,976,415 19 63,650,731 18 Machinery and equipment................................ 314,492,740 87 261,659,631 73 Office equipment....................................... 5,812,295 2 5,163,351 1 ------------- --- ------------- --- 390,281,450 108 330,473,713 92 Accumulated depreciation (202,845,400) (56) (151,352,016) (42) Advance payments and construction in progress 18,157,888 5 29,904,214 8 ------------- --- ------------- --- Net Property, Plant, and Equipment 205,593,938 57 209,025,911 58 ------------- --- ------------- --- GOODWILL (Note 2) 2,525,829 1 2,874,219 1 ------------- --- ------------- --- OTHER ASSETS Deferred charges--net (Notes 2, 8 and 19) 9,198,057 3 5,289,354 2 Deferred income taxes assets (Notes 2 and 12) 7,968,768 2 15,309,154 4 Refundable deposits (Notes 17 and 19) 478,385 - 735,820 - Idle assets (Note 2) 270,152 - - - Assets leased to others (Note 2) 86,526 - 89,406 - Miscellaneous 9,250 - 9,250 - ------------- --- ------------- --- Total Other Assets 18,011,138 5 21,432,984 6 ------------- --- ------------- --- TOTAL ASSETS $ 363,262,892 100 $ 357,186,370 100 ============= === ============= ===
2003 2002 ----------------- ----------------- LIABILITIES AND SHAREHOLDERS' EQUITY Amount % Amount % ------------------------------------ ------------ --- ------------ --- CURRENT LIABILITIES Payables to related parties (Note 17) $ 2,632,038 1 $ 2,676,481 1 Accounts payable 4,497,685 1 1,755,303 - Payables to contractors and equipment suppliers 7,738,073 2 11,392,482 3 Accrued expenses and other current liabilities (Notes 2, 6, 10 and 20) 5,479,353 1 5,044,385 1 Current portion of long-term bonds payable (Note 9) - - 9,000,000 3 ------------ --- ------------ --- Total Current Liabilities 20,347,149 5 29,868,651 8 ------------ --- ------------ --- LONG-TERM LIABILITIES Bonds payable (Note 9) 35,000,000 10 35,000,000 10 Other long-term payable (Notes 10 and 19) 4,281,200 1 1,470,000 - ------------ --- ------------ --- Total Long-term Liabilities 39,281,200 11 36,470,000 10 ------------ --- ------------ --- OTHER LIABILITIES Guarantee deposits (Note 19) 1,375,672 - 6,969,569 2 Accrued pension cost (Notes 2 and 11) 2,297,786 1 1,939,619 1 Deferred gain on sale and leaseback (Note 2) 76,619 - 229,856 - ------------ --- ------------ --- Total Other Liabilities 3,750,077 1 9,139,044 3 ------------ --- ------------ --- Total Liabilities 63,378,426 17 75,477,695 21 ------------ --- ------------ --- SHAREHOLDERS' EQUITY (Notes 2 and 14) Capital stock - $10 par value Authorized: 24,600,000 thousand shares 13,000,000 4 13,000,000 4 ------------ --- ------------ --- Issued: Preferred - 1,300,000 thousand shares; Common - 18,622,887 thousand shares in 2003 and 16,832,554 thousand shares in 2002 186,228,867 51 168,325,531 47 ------------ --- ------------ --- Capital surplus: Merger and others 56,796,854 16 57,128,433 16 Treasury stock (Note 3) 43,036 - 30,539 - ------------ --- ------------ --- Retained earnings: Appropriated as legal reserve 18,641,108 5 17,180,067 5 Appropriated as special reserve - - 349,941 - Unappropriated earnings 26,508,956 7 26,565,234 7 Other: Unrealized loss on long-term investments (Note 2) (293,612) - - - Cumulative translation adjustments (Note 2) 882,749 - 1,232,851 - Treasury stock (at cost) - 42,001 thousand shares in 2003 and 38,497 shares in 2002 (Notes 3 and 15) (1,923,492) - (2,103,921) - ------------ --- ------------ --- Total Shareholders' Equity 299,884,466 83 281,708,675 79 ------------ --- ------------ --- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $363,262,892 100 $357,186,370 100 ============ === ============ ===
The accompanying notes are an integral part of the financial statements (With T N Soong & Co. report dated April 17, 2003) 6 English Translation of Financial Statements Originally Issued in Chinese TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. STATEMENTS OF INCOME (Unaudited) For the Three Months Ended March 31, 2003 and 2002 (In Thousand New Taiwan Dollars, Except Earnings Per Share)
2003 2002 ---------------- ---------------- Amount % Amount % ----------- --- ----------- --- GROSS SALES (Notes 2 and 17) $39,633,381 $37,324,313 SALES RETURNS AND ALLOWANCES (Note 2) (308,068) (1,534,598) ----------- ----------- NET SALES 39,325,313 100 35,789,715 100 COST OF SALES (Notes 13 and 17) 28,939,421 73 23,763,009 66 ----------- --- ----------- --- GROSS PROFIT 10,385,892 27 12,026,706 34 ----------- --- ----------- --- OPERATING EXPENSES (Notes 13 and 17) Research and development 2,511,843 6 2,539,567 7 General and administrative 1,395,451 4 1,007,328 3 Marketing 283,933 1 297,807 1 ----------- --- ----------- --- Total Operating Expenses 4,191,227 11 3,844,702 11 ----------- --- ----------- --- INCOME FROM OPERATIONS 6,194,665 16 8,182,004 23 ----------- --- ----------- --- NON-OPERATING INCOME AND GAIN Interest (Note 2) 188,929 1 214,746 - Insurance compensation - net 52,562 - - - Technical service income (Notes 17 and 19) 21,153 - 13,806 - Gain on sales of short-term investments (Note 2) 7,894 - 7,103 - Gain on sales of property, plant, and equipment (Note 2) 5,876 - 254,581 1 Premium income from option contracts - net (Notes 2 and 20) - - 60,591 - Other (Note 17) 17,393 - 81,203 - ----------- --- ----------- --- Total Non-operating Income and Gain 293,807 1 632,030 1 ----------- --- ----------- --- NON-OPERATING EXPENSE AND LOSS Investment loss recognized by equity method - net (Notes 2 and 6) 1,515,850 4 946,289 3 Interest (Notes 7 and 20) 500,301 1 541,343 2 Foreign exchange loss - net (Notes 2 and 20) 159,298 1 60,847 - Loss on idle assets (Note 2) 63,111 - - -
(Forward) - 4 - English Translation of Financial Statements Originally Issued in Chinese
2003 2002 ------------- -------------- Amount % Amount % ---------- -- ---------- -- Loss on disposal of property, plant, and equipment (Note 2) $ 37,083 - $ 91,224 - Premium expense from option contracts - net (Notes 2 and 20) 26,556 - - - Amortization of bond issuance costs (Note 2) 3,580 - 5,548 - Casualty loss - net (Note 2) - - 104,828 - Loss on sales of long-term investments - net (Note 2) - - 1,766 - Other 2,423 - 44,342 - ---------- -- ---------- -- Total Non-operating Expense and Loss 2,308,202 6 1,796,187 5 ---------- -- ---------- -- INCOME BEFORE INCOME TAX 4,180,270 11 7,017,847 19 INCOME TAX BENEFIT (EXPENSE) (Notes 2 and 12) 177,597 - (430,015) (1) ---------- -- ---------- -- NET INCOME $4,357,867 11 $6,587,832 18 ========== == ========== ==
2003 2002 ------------- ------------- Before After Before After Income Income Income Income Tax Tax Tax Tax ------ ------ ------ ------ EARNINGS PER SHARE (Note 16) Basic and diluted earnings per share $0.22 $0.23 $0.37 $0.35 ===== ===== ===== =====
The pro forma net income and earnings per share on the assumption that the stock of parent company held by its subsidiary is treated as an investment instead of the treasury stock, are shown as follows (Notes 3 and 15):
2003 2002 --------------------- --------------------- Before Income After Before After Tax Income Tax Income Tax Income Tax ---------- ---------- ---------- ---------- NET INCOME $4,185,773 $4,363,370 $7,048,386 $6,618,371 ========== ========== ========== ========== EARNINGS PER SHARE Basic and diluted earnings per share $ 0.22 $ 0.23 $ 0.37 $ 0.35 ========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements. (With T N Soong & Co. report dated April 17, 2003) - 5 - English Translation of Financial Statements Originally Issued in Chinese TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. STATEMENTS OF CASH FLOWS (Unaudited) For the Three Months Ended March 31, 2003 and 2002 (In Thousand New Taiwan Dollars)
2003 2002 ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 4,357,867 $ 6,587,832 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 15,360,867 12,842,345 Deferred income taxes (307,201) 426,965 Investment loss recognized by equity method - net 1,515,850 946,289 Loss on idle assets 63,111 - Loss (gain) on sales of property, plant and equipment - net 31,207 (163,357) Loss on sales of long-term investments - net - 1,766 Pension cost accrued 87,244 84,766 Allowance for doubtful receivables 47,000 (150,298) Allowance for sales returns and others (528,970) 1,019,331 Changes in operating assets and liabilities: Decrease (increase) in: Receivables from related parties (872,582) (10,517,670) Notes receivable 56,120 39,543 Accounts receivable 136,714 10,077,059 Inventories - net 162,293 (1,213,861) Other financial assets 25,759 (40,424) Prepaid expenses and other current assets 384,970 (99,605) Forward exchange contract receivable 194,326 (144,728) Increase (decrease) in: Payables to related parties 165,040 593,875 Accounts payable (351,549) 631,409 Forward exchange contract payable 62,093 (367,166) Accrued expenses and other current liabilities (461,226) 432,961 ----------- ------------ Net Cash Provided by Operating Activities....................... 20,128,933 20,987,032 ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES Increase in short-term investments - (2,449,999) Acquisitions of: Long-term investments (1,010,581) (1,422,609) Property, plant, and equipment (9,052,961) (6,599,047) Proceeds from sales of: Long-term investments - 632 Property, plant, and equipment 41,841 438,829
(Forward) - 6- English Translation of Financial Statements Originally Issued in Chinese
2003 2002 ------------- ------------- Increase in deferred charges ($ 360,328) ($ 805,191) Decrease in refundable deposits 65,084 37,092 ------------- ------------- Net Cash Used in Investing Activities (10,316,945) (10,800,293) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of (repayment on) long-term bonds (4,000,000) 15,000,000 Decrease in guarantee deposits (19,394) (241,403) ------------- ------------- Net Cash Provided by (Used in) Financing Activities (4,019,394) 14,758,597 ------------- ------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 5,792,594 24,945,336 CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 61,656,795 33,403,706 ------------- ------------- CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 67,449,389 $ 58,349,042 ============= ============= SUPPLEMENTAL INFORMATION Interest paid (excluding the amounts capitalized of NT$2,315 thousand and NT$24,068 thousand in 2003 and 2002, respectively) $ 608,040 $ 161,784 ============= ============= Income tax paid $ 2,500 $ 3,050 ============= ============= Non-cash investing and financing activities: Reclassification of a parent company stock held by subsidiaries from long-term investments to treasury stock $ 1,923,492 $ 2,103,291 ============= ============= Effect of exchange rate changes on cash and cash equivalents $ 36,697 $ 232 ============= ============= Credit balances of long-term investments reclassified as part of receivables from related parties $ - $ 83,725 ============= ============= Credit balances of long-term investments reclassified as part of other current liabilities $ - $ 61,510 ============= ============= Partial cash investing and financing activities: Total acquisition of property, plant and equipment $ 2,786,651 $ 5,624,210 Payables to contractors and equipment suppliers 6,266,310 974,837 ------------- ------------- $ 9,052,961 $ 6,599,047 ============= =============
The accompanying notes are an integral part of the financial statements. (With T N Soong & Co. report dated April 17, 2003) - 7 - TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. NOTES TO FINANCIAL STATEMENTS (Unaudited) (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. 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 are provided based on a review of the collectibility of accounts receivables. - 8 - 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. 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 customer. 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. 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 record stock held by its subsidiary as treasury stock. When acquiring shares of stock, the difference between cost of investment and its book value is amortized using straight-line method over five years. 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. - 9 - 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 investment but recorded only as an increase in the number of shares held. An allowance is recognized for any decline in the market value of investments using quoted market prices with the corresponding amount charged 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 are lower than their net asset values, with the corresponding amount charged 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 such gains or losses are realized through a transaction with a third party. The entire amount of gains or losses on sales to majority-owned subsidiaries are deferred until such gains or losses are realized through a subsequent transaction with a third party. 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. 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 date of the lease. The lessee's periodic rent payment includes the purchase price of the leased property and the 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. - 10 - Goodwill Goodwill represents the excess of the consideration paid for acquisition over the fair market value of net identifiable assets acquired. Goodwill is amortized using the straight-line method over the estimated life of 10 years. 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 lease; whichever is shorter. Casualty loss Casualty losses 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 operating loss carryforwards. Valuation allowances are provided to the extent, if any, that it is more likely than not that the deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or non-current according to the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or 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. - 11 - As of January 1, 1998, income taxes on unappropriated earnings of 10% are expensed in the year of shareholder approval which is usually the year subsequent to the year of earnings. 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 operation. Reclassification Certain accounts in the financial statement as of and for the three months ended March 31, 2002 have been reclassified to conform to the financial statements as of and for the three months ended March 31, 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 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$2,103,921 thousand as of March 31, 2002, and a decrease in net income for the three months ended March 31, 2002 by and NT$30,539 thousand. - 12 - 4. CASH AND CASH EQUIVALENTS
March 31 ----------------------- 2003 2002 ----------- ----------- Cash and bank deposits $63,593,271 $57,828,814 Government bonds acquired under repurchase agreements 3,856,118 520,228 ----------- ----------- $67,449,389 $58,349,042 =========== ===========
5. INVENTORIES - NET
March 31 ------------------------ 2003 2002 ----------- ----------- Finished goods $ 1,748,237 $ 1,357,142 Work in process 8,636,827 7,977,385 Raw materials 384,315 514,115 Supplies and spare parts 656,082 796,806 ----------- ----------- 11,425,461 10,645,448 Less - inventory reserve (1,247,418) (927,169) ----------- ----------- $10,178,043 $ 9,718,279 =========== ===========
6. LONG-TERM INVESTMENTS
March 31 ------------------------------------------- 2003 2002 --------------------- --------------------- Carrying % of Carrying % of Value Ownership Value Ownership ----------- --------- ----------- --------- Shares of stock --------------- Equity method: TSMC International Investment Ltd. (TSMC International) $21,019,823 100 $18,966,458 100 TSMC Partners Ltd. 3,938,938 100 3,279,489 100 Vanguard International Semiconductor Corporation (VIS) 3,588,892 28 3,267,236 25 Systems on Silicon Manufacturing Company Pte Ltd. (SSMC) 2,859,712 32 3,963,031 32 Emerging Alliance Fund LLP (Emerging Alliance) 933,010 99 741,617 99 Global UniChip Corp. (GUC) 388,177 47 - - TSMC North America (TSMC - North America) 201,573 100 - - TSMC Japan K. K. (TSMC - Japan) 94,062 100 81,394 100 Chi Cherng Investment Ltd. (Chi Cherng) 42,636 36 62,148 25 Hsin Ruey Investment Ltd. (Hsin Ruey) 41,666 36 62,092 25 Taiwan Semiconductor Manufacturing Company Europe B. V (TSMC - Europe) 10,522 100 10,038 100 Chi Hsin Investment Ltd. (Chi Hsin) - - 23,195 25 ----------- ----------- 33,119,011 30,456,698 ----------- -----------
(Forward) - 13 -
March 31 -------------------------------------- 2003 2002 ------------------- ------------------ % of % of Carrying Owner- Carrying Owner- Value ship Value ship ----------- ------ ----------- ------ Cost method - common stock: Publicly traded stock Amkor Technology $ 280,748 - $ 280,748 - Monolithic System Tech. 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 ----------- ----------- 849,666 811,461 ----------- ----------- Funds Horizon Ventures 195,452 - 125,701 - Crimson Asia Capital 43,055 - 25,456 - ----------- ----------- 238,507 151,157 ----------- ----------- Unrealized loss on long-term investments (60,566) - ----------- ----------- $34,146,618 $31,419,316 =========== =========== Credit balances of long-term investments Presented as part of receivables offset against from related parties: TSMC - North America $ - - $ 83,725 100 =========== =========== Presented as part of other current liabilities: Kung Cherng Investment Ltd. (Kung Cherng) $ - - $ 45,316 25 Cherng Huei Investment Ltd. (Cherng Huei) - - 13,278 25 Po Cherng Investment Ltd. (Po Cherng) - - 2,916 25 ----------- ----------- $ - $ 61,510 =========== ===========
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%. 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. - 14 - 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 the investments accounted for using the equity method and the related investment gains or losses were determined based on the reviewed financial statements of the investees in the sameperiods. The investment gains or losses of the investee companies consisted of the following:
Three Months Ended March 31 ------------------------ 2003 2002 ----------- ----------- TSMC International ($1,229,388) ($1,026,669) SSMC (275,997) (366,782) VIS (207,875) (110,290) TSMC Partners 185,361 504,982 Others 12,049 52,470 ----------- ----------- ($1,515,850) ($ 946,289) =========== ===========
The market values and net asset values of the long-term investments are as follows:
March 31 ----------------------- 2003 2002 ----------- ----------- Market value of publicly traded stocks $ 6,204,124 $10,919,296 Equity in the net assets of non-publicly traded stocks 31,980,354 29,666,876 Net asset value of funds 238,507 151,157
7. PROPERTY, PLANT AND EQUIPMENT Accumulated depreciation consisted of the following:
March 31 ------------------------- 2003 2002 ------------ ------------ Buildings $ 23,790,274 $ 17,824,053 Machinery and equipment 175,906,546 130,976,282 Office equipment 3,148,580 2,551,681 ------------ ------------ $202,845,400 $151,352,016 ============ ============
- 15 - Information on the status of the expansion or construction plans of the Company's manufacturing facilities as of March 31, 2003, is as follows:
Estimated Actual Date Complete Accumulated of Starting Construction/Expansion Plan Cost Expenditures Operations --------------------------- ----------- ------------ ----------- Fab 6 $93,932,000 $87,340,200 March 2000 Fab 12 - Phase 1 80,318,400 57,147,300 March 2002 Fab 14 - Phase 1 30,411,000 13,323,400 -
Interest expenses (before deducting capitalized amounts of NT$2,315 thousand in 2003 and NT$24,068 thousand in 2002) for the three months ended March 31, 2003 and 2002 were NT$502,616 thousand and NT$565,411 thousand, respectively. The interest rate used for purposes of calculating the capitalized amount was 5.283% for the three months ended March 31, 2003 and 2002. 8. DEFERRED CHARGES - NET
March 31 --------------------- 2003 2002 ---------- ---------- Technology license fee $6,037,579 $2,525,775 Software and system design costs 3,076,319 2,587,869 Bond issuance costs 42,328 58,884 Technology know-how 36,000 90,000 Others 5,831 26,826 ---------- ---------- $9,198,057 $5,289,354 ========== ==========
9. BONDS
March 31 ----------------------- 2003 2002 ----------- ----------- Domestic unsecured bonds: Issued on March 4, 1998 and paid in March 4, 2003 in one lump sum payment. 7.71% annual interest was 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% 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% 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% interest payable annually, respectively 15,000,000 15,000,000 ----------- ----------- $35,000,000 $44,000,000 =========== ===========
- 16 - As of March 31, 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 ===========
10. OTHER LONG-TERM PAYABLES The Company entered into several license arrangements for certain semiconductor patents. Future payments under the agreements as of March 31, 2003 are as follows:
Year Amount ---- ---------- 2003 $1,157,175 2004 1,226,675 2005 986,900 2006 469,125 2007 486,500 2008 and thereafter 1,112,000 ---------- $5,438,375 ==========
11. 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 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. - 17 - The changes in the Fund and accrued pension cost are summarized as follows:
Three Months Ended March 31 --------------------- 2003 2002 ---------- ---------- Pension fund Balance, beginning of period $ 993,404 $ 804,437 Contribution 55,376 50,121 Interest 20,682 29,606 ---------- ---------- Balance, end of period $1,069,462 $ 884,164 ========== ========== Accrued pension cost Balance, beginning of period $2,210,542 $1,854,853 Accruals 87,244 84,766 ---------- ---------- Balance, end of period $2,297,786 $1,939,619 ========== ==========
12. 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:
Three Months Ended March 31 ------------------------ 2003 2002 ----------- ----------- Income tax expense based on "income before income tax" at statutory rate (25%) ($1,045,068) ($1,754,462) Tax-exempt income 648,750 793,750 Temporary and permanent differences (298,137) 166,763 ----------- ----------- Current income tax expense before tax credits ($ 694,455) ($ 793,949) =========== ===========
b. Income tax benefit (expense) consist of the following:
Three Months Ended March 31 ------------------------- 2003 2002 ----------- ------------ Current income tax expense before tax credits ($ 694,455) ($ 793,949) Income tax credits 694,455 793,949 Other income tax (2,500) (3,050) ----------- ------------ Income tax paid in current period (2,500) (3,050) Net change in deferred income tax assets (liabilities) Investment tax credits 1,192,419 200,409 Temporary differences (457,260) 624,101 Valuation allowance (555,062) (1,251,475) ----------- ------------ Income tax benefit (expense) $ 177,597 ($ 430,015) =========== ============
- 18 - c. Deferred income tax assets (liabilities) consist of the following:
March 31 ------------------------- 2003 2002 ------------ ----------- Current Investment tax credits $ 5,371,000 $ 2,785,951 ============ =========== Noncurrent: Investment tax credits $ 22,389,072 $21,471,919 Temporary differences (4,023,101) (1,869,654) Valuation allowance (10,397,203) (4,293,111) ------------ ----------- $ 7,968,768 $15,309,154 ============ ===========
d. Integrated income tax information: The balances of the imputation credit account (ICA) as of March 31, 2003 and 2002 were NT$98,238 thousand and NT$9,365 thousand, respectively. The expected and actual creditable ratio for 2002 and 2001was 0.03% and 0.04%, respectively. The imputation credit allocated to each shareholder shall be based on the balance in the ICA on the date of the distribution of dividends; thus the expected creditable ratio for 2002 may be adjusted according to the difference between the expected and actual imputation credit allowed under the regulation. e. As of March 31, 2003 and 2002, the unappropriated retained earnings generated before December 31, 1997,were NT$0 and NT$4,827 thousand, respectively. f. As of March 31, 2003, investment tax credits consisted of the following:
Total Remaining Creditable Creditable Expiry Regulation Items Amounts Amounts Year ---------- ------------------------- ----------- ----------- ------ Statute for Upgrading Purchase of machinery and $ 4,767,347 $ 4,072,892 2003 Industries and equipment 8,210,558 8,210,558 2004 3,814,363 3,814,363 2005 3,485,265 3,485,265 2006 25,204 25,204 2007 ----------- ----------- $20,302,737 $19,608,282 =========== =========== Statute for Upgrading Research and development $ 671,545 $ 671,545 2003 Industries expenditures 1,974,321 1,974,321 2004 3,111,472 3,111,472 2005 1,540,000 1,540,000 2006 418,277 418,277 2007 ----------- ----------- $ 7,715,615 $ 7,715,615 =========== ===========
(Forward) - 19 -
Total Remaining Creditable Creditable Expiry Regulation Items Amounts Amounts Year ---------- ----------------------------- ---------- ---------- ------ Statute for Upgrading Personnel training $ 16,104 $ 16,104 2003 Industries 43,264 43,264 2004 28,886 28,886 2005 -------- -------- $ 88,254 $ 88,254 ======== ======== Statute for Upgrading Reputation setting Industries $ 318 $ 318 2003 ======== ======== Statute for Upgrading Investments in important $ 5,420 $ 5,420 2003 Industries technology based enterprise 201,372 201,372 2004 138,864 138,864 2005 1,947 1,947 2006 -------- -------- $347,603 $347,603 ======== ========
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 ------------- Expansion of Fab 2 - modules A and B, Fab 3 and Fab 4, and construction of Fab 5 and Fab 6 2003 to 2006 Construction of Fab 8 - module B 2002 to 2005
h. The tax authorities have examined income tax returns of the Company through 1999. The Company is contesting the assessment by the tax authority for 1992, 1993, 1996, 1997 and 1998. 13. LABOR COST, DEPRECIATION AND AMORTIZATION EXPENSE
Three Months Ended March 31, 2003 --------------------------------------- Classified as Classified as Operating Cost of Sales Expense Total ------------- ------------- ----------- Labor cost Salary $ 1,573,461 $ 674,624 $ 2,248,085 Health insurance 113,659 56,704 170,363 Pension 94,370 47,156 141,526 Other 34,413 19,524 53,937 Depreciation 13,744,774 573,515 14,318,289 Amortization 451,184 590,674 1,041,858 ----------- ---------- ----------- $16,011,861 $1,962,197 $17,974,058 =========== ========== ===========
- 20 -
Three Months Ended March 31, 2002 --------------------------------------- Classified as Classified as Operating Cost of Sales Expense Total ------------- ------------- ----------- Labor cost Salary $ 1,549,587 $ 728,445 $ 2,278,042 Health insurance 88,713 44,062 132,775 Pension 90,245 44,862 135,107 Other 35,190 27,515 62,705 Depreciation 11,515,138 772,138 12,287,276 Amortization 104,940 449,409 554,349 ----------- ---------- ----------- $13,383,813 $2,066,441 $15,450,254 =========== ========== ===========
14. SHAREHOLDERS' EQUITY The Company has 369,019 thousand American Depositary Shares (ADS) issued on the New York Stock Exchange as of March 31, 2003. The number of common shares represented by the ADSs is 1,845,097 thousand shares (one ADS represents five common shares). 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 (less 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 equal 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; d. Dividends to holders of preferred shares equal to a 3.5% annual rate, based on the period during which the preferred shares have been outstanding; e. The appropriation of the remaining balance after the above shall be decided at the shareholder's meeting. Dividends are distributed in cash, shares of common stock or a combination of cash and common stock. Distribution 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. - 21 - The aforementioned 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. When the reserve balance has reached 50% of the aggregate par value of the outstanding capital stock of the Company, the reserve can also be distributed as stock dividend up to half of the reserve balance. The appropriations from the earnings of 2002 and 2001 were approved in the board of directors and shareholders' meeting on March 4, 2003 and May 7, 2002, respectively. The appropriations and dividend per share are as follows:
Dividend Per Share Appropriation of Earnings (NT$) ----------------------- ------------- For For Fiscal Fiscal For Fiscal For Fiscal Year Year Year 2002 Year 2001 2002 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 2001 is consistent with the resolution of the meeting of board of directors on March 26, 2002. If the above employee bonus and remuneration to directors and supervisors were paid in cash and charged against the income of 2002 and 2001, the basic EPS 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$0.76, respectively. The shares distributed as a bonus to employees represented 0.83% and 0.64% of the Company's total outstanding common shares as of December 31, 2002 and 2001, respectively. The above information associated with the appropriations of bonus to employees and remuneration to directors and supervisors is available at Market Observation System website. A special reserve equivalent to the debit balance of any account shown in the shareholder's equity section of the balance sheet (except for the recorded cost of treasury stock held by subsidiaries), shall be made from unappropriated retained earnings pursuant to existing regulations promulgated by the Securities and Futures Commission. The special reserve is allowed to be appropriated to the extent that the debit balance of such accounts is reversed. Under the Integrated Income Tax System that became effective on January 1, 1998, ROC resident shareholders are allowed a tax credit for the income tax paid by the Company on earnings generated on or after January 1, 1998. An Imputation Credit Account (ICA) is maintained by the Company for such income tax and the tax credit allocated to each shareholder. - 22 - On June 25, 2002, the SFC approved the Company's Employee Stock Option Plan ("the Plan"). The Plan provides qualified employees with 100,000 thousand units of option rights with each unit representing one common share of stock. The option rights are valid for 10 years and are exercisable at certain percentages subsequent to the second anniversary of issuance. Under the terms of the Plan, the option rights are granted at an exercise price equal to the closing price of the Company's common shares listed on Taiwan Stock Exchange at the date of grant. Information with respect to stock option rights activities under the Plan is as follows:
Option Outstanding Option Rights Rights Available ------------------- for Number Grant of Option Exercise (In Rights (In Price Thousand) Thousand) (NT$) --------- ---------- -------- Balance, January 1, 2003 80,631 19,369 51~53 Options granted (318) 318 41.6 Options cancelled 471 (471) 51~53 ------ ------ Balance, March 31, 2003 80,784 19,216 ====== ======
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. - 23 - 15. TREASURY STOCK (COMMON STOCK) (Shares in Thousand)
Beginning Ending Purpose of Purchase Shares Increase Decrease Shares ------------------- --------- -------- -------- ------ Three months ended March 31, 2003 Reclassification of parent company stock held by subsidiaries from short/long-term investment 42,001 - - 42,001 ====== ===== === ====== Three months ended March 31, 2002 Reclassification of parent company stock held by subsidiaries from short/long-term investment 39,270 - 773 38,497 ====== ===== === ======
Proceeds from the sale of treasury stock for the three months ended March 31, 2003 and 2002 were NT$0 and NT$41,139 thousand. As of March 31, 2003 and 2002, the book value of the treasury stock was NT$1,923,492 thousand and NT$2,103,921 thousand; the market value was NT$1,796,615 thousand and NT$3,727,125 thousand, respectively. Capital stock held by a subsidiary as an investment is recorded as treasury stock with the holder having the same right as other common shareholders. 16. EARNINGS PER SHARE (EPS) Earnings per share (EPS) is computed as follows:
Amounts (Numerator) EPS (NT$) ---------------------- ------------- Share Before After Before After (Denominator) Income Income Income Tax Income Tax (Thousand) Tax Tax ---------- ---------- ------------- ------ ------ Three months ended March 31, 2003 Net income $4,180,270 $4,357,867 Less - preferred stock dividends (113,750) (113,750) ---------- ---------- Basic and diluted earnings per share Income available to common shareholders $4,066,520 $4,244,117 18,580,886 $0.22 $0.23 ========== ========== ========== ===== ===== Three months ended March 31, 2002 Net income $7,017,847 $6,587,832 Less - preferred stock dividends (113,750) (113,750) ---------- ---------- Basic and diluted earnings per share Income available to common shareholders $6,904,097 $6,474,082 18,580,336 $0.37 $0.35 ========== ========== ========== ===== =====
The potential common shares from the employee stock option plan (see Note 14) are not included in the denominator of the diluted earning-per-share computation because 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, "Earning Per Share". The average number of shares outstanding for EPS calculation has been adjusted retroactively for issuance of stock dividends - 24 - and stock bonuses. The retroactive adjustment caused the basic EPS before income tax and after income tax for the three months ended March 31, 2002 to decrease from NT$0.41 to NT$0.37 and NT$0.39 to NT$0.35, respectively. 17. RELATED PARTY TRANSACTIONS The Company engages in business transactions with the following related parities: 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 d. Investees VIS SSMC GUC e. Indirect subsidiaries WaferTech, LLC TSMC Technology The transactions with the aforementioned parties in addition to those disclosed in other notes, are summarized as follows:
Three Months Ended March 31 ----------------------------- 2003 2002 -------------- -------------- Amount % Amount % ----------- -- ----------- -- For the period Sales TSMC - North America $22,632,645 57 $22,416,684 60 Philips and its affiliates 690,945 2 484,098 1 GUC 137,430 - - - ITRI 11,130 - 17,456 - SSMC 873 - 10,108 - VIS - - 85,422 - ----------- -- ----------- -- $23,473,023 59 $23,013,768 61 =========== == =========== ==
(Forward) - 25 -
Three Months Ended March 31 -------------------------------- 2003 2002 --------------- ---------------- Amount % Amount % ----------- --- ----------- --- Purchases WaferTech, LLC $ 1,685,740 7 $ 2,772,633 12 SSMC 1,335,511 6 236,421 1 VIS 919,470 4 513,406 2 ----------- --- ----------- --- $ 3,940,721 17 $ 3,522,460 15 =========== === =========== === Rental expense - ITRI $ - - $ 40,401 11 =========== === =========== === Manufacturing expenses Technical assistance fee - Philips $ 758,824 100 $ 681,267 100 =========== === =========== === Marketing expenses - commission TSMC - Japan $ 46,385 16 $ 46,164 29 TSMC - Europe 36,450 13 39,067 25 ----------- --- ----------- --- $ 82,835 29 $ 85,231 54 =========== === =========== === Non-operating income and gain SSMC (mainly technical service income) $ 26,569 9 $ 9,056 2 WaferTech, LLC 409 - 522 - ----------- --- ----------- --- $ 26,978 9 $ 9,578 2 =========== === =========== === At end of the period Receivables TSMC - North America $10,492,134 95 $10,712,510 98 Credit balances of long-term investments (Note 6) - - (83,725) (1) ----------- --- ----------- --- 10,492,134 95 10,628,785 97 Philips and its affiliates 435,739 4 209,148 2 GUC 55,669 1 - - VIS 47,489 - 48,274 1 SSMC 12,814 - 16,392 - TSMC Technology 8,036 - 12,258 - ITRI 4,189 - 17,401 - WaferTech, LLC - - 25,548 - ----------- --- ----------- --- $11,056,070 100 $10,957,806 100 =========== === =========== === Guarantee deposits - VIS $ 450,666 - $ 713,396 97 =========== === =========== ===
(Forward) - 26 -
Three Months Ended March 31 ----------------------------- 2003 2002 -------------- -------------- Amount % Amount % ---------- --- ---------- --- Payables Philips and its affiliates $1,137,937 43 $ 750,811 28 VIS 642,212 25 790,753 30 WaferTech, LLC 443,209 17 960,361 36 SSMC 345,825 13 73,458 3 TSMC - Europe 29,785 1 57,131 2 TSMC - Japan 17,103 1 15,698 - TSMC Technology 9,647 - 12,345 - TSMC - North America 6,320 - 15,924 1 ---------- --- ---------- --- $2,632,038 100 $2,676,481 100 ========== === ========== === Receipts in advance - VIS $ - - $ 47,795 100 ========== === ========== ===
Except for TSMC - North America and WaferTech LLC, sales to related parties are based on normal selling prices and collection terms. The payables to Wafertech, LLC 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. 18. 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 ---- ---------- April to December 2003 $ 169,181 2004 225,576 2005 225,576 2006 225,576 2007 225,576 2008 201,533 2009 and thereafter 1,540,880 ---------- $2,813,898 ==========
- 27 - 19. SIGNIFICANT COMMITMENTS AND CONTINGENCIES The significant commitments and contingencies of the Company as of March 31, 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 reduced fee 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. 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 March, 31, 2003, the Company received a total of US$39,667 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 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, LLC, respectively. - 28 - h. Under a Technology Transfer Agreement ("TTA") with National Semiconductor Corporation ("National") entered into on June 27, 2000, TSMC 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 March 31, 2003, the refundable deposit was NT$450,666 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. k. Unused letter of credits as of March 31, 2003 were NT$6,480 thousand, JP(Yen)5,100 thousand, Euro (Euro) 52 thousand and S$85 thousand. l. As of March 31, 2003, unused credit lines for short-term loans were NT$7,930,000 thousand and US$327,000 thousand. 20. 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 estates 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 estates at prices of at least NT$100 million or 20% of the paid-in capital: None; - 29 - 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; j. Financial instrument transactions: 1) Derivative financial instruments The Company entered into derivative financial instrument transactions in the first quarter of 2003 and 2002 to manage exposures related to foreign-currency denominated receivables or payables, and interest rate fluctuations. The strategy is to manage its market price risks. Certain information on these contracts as of March 31, 2003 is as follows: a) Forward exchange contracts
Contract Amount (Nominal Amount) Financial Instruments Period (In Thousand) Credit Risk --------------------- ------------------------------ ------------- ----------- Sell April 3, 2003 to May 30, 2003 US$1,000,000 - (US$/NT$) Buy April 11, 2003 to May 12, 2003 EUR24,000 - (EUR/US$) April 11, 2003 to May 23, 2003 JPY6,823,385 - (JPY/US$)
As of March 31, 2003, receivables from forward exchange contracts (included in the "other financial assets" account) aggregate to NT$5,283 thousand, and payables from forward exchange contracts (included in the "other current liabilities" account) aggregate to NT$79,631 thousand. Net exchange loss for the three months ended March 31, 2003 was NT$122,925 thousand. The above forward exchange contracts are entered into for the purpose of managing currency exposures in the following foreign currency-denominated net assets:
As of March 31, Net Assets 2003 ---------- --------------- Accounts receivable US$520,275 Accounts payable JPY8,525,939 Accounts payable EUR36,383
- 30 - b) Interest rate swaps The Company entered into interest rate swap contracts to hedge exposure from rising interest rates on its floating rate long-term loans. Interest expense on these transactions for the three months ended March 31, 2003 was NT$71,158 thousand. Outstanding contracts as of March 31, 2003 were as follows:
Amount Credit Contract Date Period (In Thousand) Risk -------------- ------------------------------ ------------- ------ April 28, 1998 May 21, 1998 to May 21, 2003 NT$2,000,000 - April 29, 1998 May 21, 1998 to May 21, 2003 NT$1,000,000 - June 26, 1998 June 26, 1998 to June 26, 2003 NT$1,000,000 - 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 -
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 European currency obligations for purchases of machinery and equipment. Outstanding option contracts as of March 31, 2003 were as follows:
Contract Amount Credit Type Contract (In Thousand) Risk Strike Price Maturity -------- ------------------- ------------- ------ ------------- ----------------------------- European Call option written US$170,000 $- 32.677-33.145 April 3, 2003 - June 25, 2003 (US$/NT$)
For the three months ended March 31, 2003, the Company recognized premium income of NT$50,273 thousand and premium expense of NT$76,829 thousand. d) Transaction risk i) Credit risk. Credit risk represents the positive net settlement amount of those contracts with positive fair value on 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. - 31 - iii) Liquidity and cash flow risk and uncertainty of amount and term of future cash demand As of March 31, 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 ---- ------------- ------------ Within one year NT$34,684,658 US$1,084,200 EUR 24,000 JPY 6,823,385
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 rate of forward foreign exchange contracts and option contracts have been fixed. Therefore, there is no material fund raising risk and cash flow risk. 2) Fair value of financial instruments:
March 31, 2003 March 31, 2002 ------------------------ ------------------------ Carrying Carrying Amount Fair Value Amount Fair Value ----------- ----------- ----------- ----------- Non-derivative financial instruments ------------------------------------ Assets Cash and cash equivalents $67,449,389 $67,449,389 $58,349,042 $58,349,042 Short-term investments - - 2,449,999 2,449,999 Receivables from related parties (excluding credit balance of long-term investments) 11,056,070 11,056,070 11,041,531 11,041,531 Notes and accounts receivable 9,362,853 9,362,853 10,017,616 10,017,616 Other financial assets 749,584 749,584 894,030 894,030 Long-term investments (including credit balance of long-term investments) 34,146,618 38,497,568 31,274,081 40,737,329 Refundable deposits 478,385 478,385 735,820 735,820 Liabilities Payable to related parties 2,632,038 2,632,038 2,676,481 2,676,481 Accounts payable 4,497,685 4,497,685 1,755,303 1,755,303 Payables to contractors and equipment suppliers 7,738,073 7,738,073 11,392,482 11,392,482 Bonds payable (including current portion) 35,000,000 35,568,192 44,000,000 44,904,845 Other long-term payable (including current portion) 5,438,375 5,438,375 1,470,000 1,470,000 Guarantee deposits 1,375,672 1,375,672 6,969,569 6,969,569 Derivative financial instruments -------------------------------- Forward exchange contracts (sell) (65,342) (52,840) 114,777 91,678 Forward exchange contracts (buy) (9,006) (26,791) -- -- Interest rate swaps (11,009) (101,640) (255) 304,620 Option -- (298,144) 3,489 142,004
- 32 - 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 worth or book value. c) Fair value of refundable deposits and guarantee deposits is based on carrying values. d) Bonds payable is discounted to present 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 (positive) or payable (negative) if those contracts are terminated on the relevant balance sheet date. 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. TSMC - Shanghai has not come into existence as of April 17, 2003. - 33 - TABLE 1 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. FINANCING PROVIDED For the Three Months Ended March 31, 2003 (Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
Maximum Balance for Ending Reasons the Period Balance Financing For Short- Financial (US$ in (US$ in Interest Reasons Transaction term No. Financing Name Counter-Party Statement Account Thousand) Thousand) Rate (Note 1) Amounts Financing --- ------------------ --------------- ----------------- ----------- ----------- -------- --------- ----------- ---------- 1. TSMC International TSMC Technology Other receivables $529,430 $529,430 4.25% 2 $ - Operating (US$ 15,235) (US$ 15,235) capital
Financing Financing Limit for Company's Allowance Collateral Each Financing Amount for Bad ---------- Borrowing Limits No. Debt Item Value Company (US$ in Thousand) --- --------- ---- ----- --------- ----------------- 1. $ - - $ - N/A $34,331,896 (US$987,968) (Note 2)
Note 1: The No.2 represents that the short-term financing is necessary for the business. Note 2: Not exceeding the issued capital of the Company. - 34 - TABLE 2 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. ENDORSEMENT/GUARANTEE PROVIDED For the Three Months Ended March 31, 2003 (Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
Value of Counter-Party Limits on Each Maximum Collateral ------------------------ Counter-party's Balance for the Property, Nature of Endorsement/ Period Ending Balance Plant and Endorsement/Guarantee Relationship Guarantee (US$ in (US$ in Equipment No. Provider Name (Note 2) Amounts Thousand) Thousand) (Note 3) --- --------------------- ----------- ------------ --------------- --------------- -------------- ---------- 0 TSMC TSMC 3 Not exceeding $ 6,950,000 $ 6,950,000 $ - Development 10% of the (US$ 200,000) (US$ 200,000) issued capital of TSMC, and also limiting to the issued capital of the transaction entity, unless otherwise approved by board of directors. TSMC - 2 1,390,000 1,390,000 - North (US$ 40,000) (US$ 40,000) America WaferTech, 3 15,290,000 15,290,000 - LLC (US$ 440,000) (US$ 440,000)
Ratio of Accumulated Amount of Maximum Collateral to Net Collateral/Guarantee Equity of the Latest Amounts Allowable No. Financial Statement (Note 1) --- -------------------- -------------------- 0 2.32% $59,768,660 0.46% 5.10%
Note 1: 30% of the issued capital of TSMC. Note 2: The No. 2 represents a subsidiary in which TSMC holds directly over 50% of the equity interest. The No. 3 represents an investee in which TSMC holds directly and indirectly over 50% of the equity interest. Note 3: Promissory notes for collateral. - 35 - TABLE 3 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. MARKETABLE SECURITIES HELD March 31, 2003 (Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
March 31, 2003 ----------------------------------------------- Market Value or Carrying Net Asset Held Relationship Financial Value Value Company Marketable Securities Type with the Statement Shares (US$ in Percentage (US$ in Name and Name Company Account (Thousand) Thousand) of Ownership Thousand) Note ------- -------------------------- ------------ ---------- ---------- ----------- ------------ ----------- ---------------------- TSMC Stock ----- TSMC - North America Subsidiary Long-term 11,000 $ 201,573 100 $ 949,855 The treasury stocks in investment amounts of NT$748,282 thousand are deducted from the carry value. TSMC - Europe Subsidiary Long-term - 10,522 100 10,522 investment TSMC - Japan Subsidiary Long-term 6 94,062 100 94,062 investment VIS Investee Long-term 787,016 3,588,892 28 5,847,527 investment TSMC International Subsidiary Long-term 987,968 21,019,823 100 21,019,823 investment TSMC Partners Subsidiary Long-term 300 3,938,938 100 4,120,047 The treasury stocks in investment amounts of NT$255,692 thousand are deducted from the carry value. SSMC Investee Long-term 382 2,859,712 32 2,859,712 investment Emerging Alliance Subsidiary Long-term - 933,010 99 933,010 investment GUC Investee Long-term 39,040 388,177 47 430,793 investment Taiwan Mask Corp. - Long-term 8,794 32,129 2 147,648 investment United Gas Co., Ltd. - Long-term 16,783 193,584 11 287,615 investment Shin-Etsu Handotai - Long-term 10,500 105,000 7 139,165 Taiwan Co., Ltd. investment W.K. Technology Fund - Long-term 5,000 50,000 2 55,895 IV investment Hon Tung Ventures - Long-term 8,392 83,916 10 76,035 Capital investment Amkor Technology - Long-term 505 280,748 - 88,070 investment Monolithic System - Long-term 470 104,289 2 120,879 Tech. investment Certificate ----------- Chi Cherng Investment Investee Long-term - 42,636 36 501,921 The treasury stocks in investment amounts of NT$459,285 thousand are deducted from the carry value. Hsin Ruey Investment Investee Long-term - 41,666 36 501,899 The treasury stocks in investment amounts of NT$460,233 thousand are deducted from the carry value.
(Forward) - 36 -
March 31, 2003 ---------------------------------------------------- Market Value or Net Asset Marketable Relationship Financial Carrying Value Percentage Value Securities Type with the Statement Shares (US$ in of (US$ in Held Company Name and Name Company Account (Thousand) Thousand) Ownership Thousand) Note ----------------- --------------- ------------ ---------- ---------- -------------- ---------- -------------- ------------ Equity Crimson Asia - Long-term N/A $ 43,055 N/A $ 43,055 Capital investment Horizon - Long-term N/A 195,452 N/A 195,452 Ventures investment TSMC--North America Stock TSMC Parent Long-term 12,692 748,282 - 536,883 company investment Chi Cherng Investment Stock TSMC Parent Short-term 12,738 459,285 36 538,819 company investment Certificate Hsin Ruey Major Long-term - 903,419 64 903,419 Investment shareholder investment Hsin Ruey Investment Stock TSMC Parent Short-term 12,762 460,233 36 539,827 company investment Certificate Chi Cherng Major Long-term - 903,459 64 903,459 Investment shareholder investment TSMC International Stock InveStar Subsidiary Long-term 45,000 US$ 45,618 97 US$ 45,516 investment InveStar II Subsidiary Long-term 51,300 US$ 41,236 97 US$ 41,236 investment TSMC Subsidiary Long-term 1 US$ 560,676 100 US$ 560,676 Development. investment TSMC Subsidiary Long-term 1 ( US$ 7,629 ) 100 ( US$ 7,629 ) Technology investment 3DFX - Long-term 68 - - - Interactive Inc. investment Marvell - Short-term 2,555 US$ 2,508 2 US$ 49,088 investment VIS Stock VIS Subsidiary Long-term 41,070 1,205,673 100 1,205,673 Associates, Inc. investment PowerChip Investee Long-term 191,671 1,845,793 7 1,845,793 Semiconductor, investment Inc. Etron Investee Long-term 4,859 79,732 2 79,732 Technology, investment Inc. Walsin Investee Long-term 34,551 302,559 8 280,604 Technology, investment Inc. MEGIC Investee Long-term 16,500 177,000 9 149,894 Corporation investment FormFactor, Investee Long-term 267 64,360 1 64,360 The amount Inc. investment is shown in the carrying value. United Investee Long-term 3,357 38,716 2 57,543 Technology investment Co., Ltd. Bond fund Yuan Da Duo - Short-term 65,271 900,000 - 904,040 Li #2 investment Jihsun - Short-term 46,730 600,000 - 602,911 investment Fu Hua Short-term 4,015 50,000 - 50,259 investment Kai Chi Kai Short-term 64,113 650,000 - 653,077 Xuan investment
(Forward) - 37 -
March 31, 2003 ---------------------------------------------- Market Value Carrying or Net Asset Relationship Financial Value Percentage Value Marketable Securities with the Statement Shares (US$ in of (US$ in Held Company Name Type and Name Company Account (Thousand) Thousand) Ownership Thousand) Note ----------------- --------------------- ------------ ---------- ---------- ----------- ---------- ------------ ---- VIS Associates, Inc. Stock ----- VIS Investment Subsidiary Long-term 63 US$ 404 10 US$ 404 Holding, Inc. investment Equity ------ Silicon Valley - Long-term - US$ 7,317 34 US$ 7,569 Equity Fund investment Silicon Valley - Long-term - US$ 5,355 14 US$ 5,362 Equity Fund II investment Equity certificate ------------------ ABN AMRO Bank - Long-term 3,648 US$ 781 - US$ 781 investment Fund ---- Grand Palace Trust - Long-term - US$ 3,040 100 US$ 3,040 investment VIS Investment Holding, Inc. Stock ----- VIS Micro, Inc. Subsidiary Long-term 200 US$ 287 100 US$ 287 investment TSMC Development Stock ----- WaferTech, LLC Subsidiary Long-term - US$ 308,793 99 US$ 308,793 investment TSMC Partners ADR --- TSMC Parent Short-term 762 US$ 5,211 - US$ 5,211 company investment InveStar Stock ----- WGRD - Short-term 94 US$ 537 - US$ 537 investment Programmable - Long-term 1,580 US$ 496 4 US$ 496 Microelectronics, investment (Taiwan) Inc. Divio, Inc. - Long-term 30 US$ 3 - US$ 3 investment Global Testing - Long-term 13,268 US$ 5,177 12 US$ 5,177 Corp. investment Chipstrate - Long-term 6,660 US$ 301 1 US$ 301 Technologies, Inc. investment Richtek - Long-term 1,023 US$ 346 1 US$ 346 Technology investment Holding Corp. Advanced Power - Long-term 2,750 US$ 1,346 3 US$ 1,346 Electronics, Corp. investment Capella - Long-term 542 US$ 87 - US$ 87 Microsystems, Inc. investment Preferred stock --------------- Integrated - Long-term 1,831 US$ 1,809 - US$ 1,809 Memory Logic, investment Inc. Divio, Inc - Long-term 667 US$ 500 - US$ 500 investment SiRF Technology - Long-term 306 US$ 1,333 - US$ 1,333 Inc. investment Capella - Long-term 1,383 US$ 221 - US$ 221 Microsystems, Inc. investment Sensory, Inc. - Long-term 1,404 US$ 625 - US$ 625 investment LightSpeed - Long-term 2,252 US$ 1,339 - US$ 1,339 Semiconductor investment Corporation Tropian, Inc. - Long-term 1,758 US$ 2,334 - US$ 2,334 investment Sonics, Inc. - Long-term 2,686 US$ 3,530 - US$ 3,530 investment
(Forward) - 38 -
March 31, 2003 ----------------------------------------- Market Value or Carrying Net Asset Marketable Relationship Financial Value Percentage Value Securities Type and with the Statement Shares (US$ in of (US$ in Name Company Account (Thousand) Thousand) Ownership Thousand) Note Held Company Name ------------------- ------------ ----------- ---------- --------- ---------- --------- ---- Atheros, Inc. - Long-term 1,607 US$ 3,593 - US$ 3,593 investment NanoAmp - Long-term 541 US$ 853 - US$ 853 Solutions, Inc. investment Formfactor, Inc. - Long-term 267 US$ 2,000 - US$ 2,000 investment Monolithic - Long-term 2,521 US$ 2,000 - US$ 2,000 Power Systems, investment Inc. Memsic, Inc. - Long-term 2,727 US$ 1,500 - US$ 1,500 investment Reflectivity, Inc. - Long-term 1,064 US$ 1,192 - US$ 1,192 investment Signia - Long-term 3,000 US$ 202 - US$ 202 Technologies, investment Inc. Match Lab, Inc. - Long-term 1,875 US$ 1,125 - US$ 1,125 investment HINT - Long-term 1,000 US$ 1,000 - US$ 1,000 Corporation investment Oridus, Inc. - Long-term 1,500 US$ 300 - US$ 300 (Creosys, Inc.) investment Incentia Design - Long-term 286 US$ 343 - US$ 343 Systems, Inc. investment IP Unity - Long-term 1,008 US$ 1,636 - US$ 1,636 investment InveStar II Stock ----- WGRD - Short- term 95 US$ 543 - US$ 543 investment eChannel - Long-term 358 US$ 251 - US$ 251 Option Holding, investment Inc. Elcos - Long-term 270 US$ 27 - US$ 27 Microdisplay investment Technology, Ltd. Signia - Long-term 351 US$ 101 - US$ 101 Technologies, investment Inc. Procoat - Long-term 3,500 US$ 1,942 4 US$ 1,942 Technology investment Richtek - Long-term 845 US$ 1,006 2 US$ 1,006 Technology investment Corporation Programmable - Long-term 487 US$ 102 - US$ 102 Microelectronics investment (Taiwan), Inc. Auden - Long-term 953 US$ 1,117 2 US$ 1,117 Technology investment MFG Co., Ltd. GeoVision, Inc. - Long-term 180 US$ 130 - US$ 130 investment EoNex - Long-term 55 US$ 2,839 - US$ 2,839 Technologies, investment Inc. Conwise - Long-term 2,800 US$ 1,929 - US$ 1,929 Technology Co., investment Ltd. Yi Yang - Long-term 2,800 US$ 967 - US$ 967 Technology investment Goyatek - Long-term 1,740 US$ 1,787 - US$ 1,787 Technology, investment Inc. TrendChip - Long-term 2,000 US$ 863 - US$ 863 Technologies investment Corp. Preferred stock --------------- - Long-term 2,289 US$ 1,560 - US$ 1,560 Memsic, Inc. investment - Long-term 4,997 US$ 1,317 - US$ 1,317 Oepic, Inc. investment NanoAmp - Long-term 250 US$ 1,000 - US$ 1,000 Solutions, Inc. investment Advanced - Long-term 948 US$ 1,261 - US$ 1,261 Analogic investment Technology, Inc. Monolithic - Long-term 804 US$ 1,946 - US$ 1,946 Power Systems, investment Inc. Ralink - Long-term 1,833 US$ 1,500 - US$ 1,500 Technology, investment Inc. - Long-term 3,082 US$ 3,082 - US$ 3,082 Sonics, Inc. investment Newport - Long-term 1,157 US$ 602 - US$ 602 Opticom, Inc. investment Silicon Data, - Long-term 2,000 US$ 750 - US$ 750 Inc. investment - Long-term 1,596 US$ 1,500 - US$ 1,500 Reflectivity, Inc. investment Capella - Long-term 800 US$ 128 - US$ 128 Microsystems, investment Inc.
(Forward) - 39 -
March 31, 2003 ------------------------------------------- Market Value or Carrying Net Asset Marketable Relationship Financial Value Percentage Value Securities Type and with the Statement Shares (US$ in of (US$ in Name Company Account (Thousand) Thousand) Ownership Thousand) Note Held Company Name ------------------- ------------ ---------- ---------- ---------- ---------- ---------- ---- Angstron - Long-term 1,567 US$ 750 - US$ 750 Systems, Inc. investment Tropian, Inc. - Long-term 1,464 US$ 2,000 - US$ 2,000 investment SiRF - Long-term 20 US$ 131 - US$ 131 Technology investment Holdings, Inc. LeadTONE - Long-term 680 US$ 238 - US$ 238 Wireless, Inc. investment Match Lab, Inc. - Long-term 313 US$ 188 - US$ 188 investment eBest!, Inc. - Long-term 185 US$ 97 - US$ 97 investment Kilopass - Long-term 3,887 US$ 2,000 - US$ 2,000 Technologies, investment Inc. Elcos - Long-term 2,667 US$ 3,500 - US$ 3,500 Microdisplay investment Technology, Ltd. Fang Tek, Inc. Long-term 5,556 US$ 2,000 - US$ 2,000 investment Bond ---- eBest!, Inc. - Long-term - US$ 24 - US$ 24 investment Emerging Alliance Stock ----- Global Investee Long-term 10,000 100,000 6 100,000 Investment investment Holding, Inc. Preferred stock --------------- Quake - Long-term 467 US$ 1,000 1 US$ 1,000 Technologies, investment Inc. Pixim, Inc. - Long-term 833 US$ 2,500 3 US$ 2,500 investment Newport - Long-term 962 US$ 1,000 6 US$ 1,000 Opticom, Inc. investment NetLogic - Long-term 602 US$ 1,850 1 US$ 2,932 Microsystems, investment Inc. Ikanos - Long-term 5,116 US$ 2,572 3 US$ 2,572 Communication, investment Inc. Quicksilver - Long-term 902 US$ 2,338 4 US$ 2,338 Technology, Inc. investment Litchfield - Long-term 3,799 US$ 1,000 6 US$ 1,000 Communications investment Mosaic Systems - Long-term 2,481 US$ 500 6 US$ 500 investment Accelerant - Long-term 441 US$ 1,000 1 US$ 1,000 Networks investment Zenesis - Long-term 861 US$ 500 4 US$ 500 Technologies investment Reflectivity, Inc. - Long-term 1,596 US$ 1,500 5 US$ 1,500 investment Iridigm Display - Long-term 254 US$ 502 2 US$ 502 investment XHP - Long-term 2,280 US$ 750 6 US$ 750 Microsystem investment Axiom - Long-term 1,000 US$ 1,000 5 US$ 1,000 Microdevices, investment Inc.
- 40 - 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 Three Months Ended March 31, 2003 (Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
Marketable Beginning Balance Acquisition Securities Financial --------------------- ----------- Type and Statement Nature of Shares Shares Company Name Name Account Counter-Party Relationship (Thousand) Amount (Thousand) ------------ ---------- ---------- ------------- ------------ ---------- ---------- ----------- TSMC Stock ----- Emerging Long-term Emerging Subsidiary - $ 767,239 - Alliance investment Alliance VIS Long-term VIS Investee 677,471 3,264,657 109,545 investment VIS Bond fund --------- Kai Chi Short-term - - - - 64,113 Kai Xuan investment NITC Short-term - - - - 3,225 investment Ta-Hua Short-term - - - - 40,946 investment Jihsun Short-term - - - - 46,730 investment Yuan Da Short-term - - - - 65,271 Duo Li #2 investment
Disposal Ending Balance ------------------------------------- --------------------- Gain (Loss) Shares Carrying on Shares Amount Company Name (Thousand) Amount Value Disposal (Thousand) (Note 1) ------------ ---------- -------- -------- -------- ---------- ---------- TSMC - $ - $ - $ - - $ 933,010 - - - - 787,016 3,588,892 VIS - - - - - - 3,225 500,164 500,000 164 - - 40,946 500,586 500,000 586 - - - - - - 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. - 41 - 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 Three Months Ended March 31, 2003 (Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
Prior Transaction of Related Counter-party Company Types of Transaction Transaction Payment Nature of ------------------------------------------ Name Property Date Amount Term Counter-party Relationship Owner Relationship Transfer Date Amount ------- -------- ----------- ----------- ------------ ------------- ------------ ----- ------------ ------------- ------ TSMC Fab 14 January 20, $180,665 By the United - N/A N/A N/A N/A 2003 construction Integrated progress Services
Company Purpose of Name Price Reference Acquisition Other Terms ------- --------------- ------------- ----------- TSMC Public Manufacturing None bidding purpose
- 42 - 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 Three Months Ended March 31, 2003 (Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
Abnormal Note/Accounts Payable or Transaction Details Transaction Receivable ------------------------------------------------- -------------- ------------------------ Company Nature of % to Unit Payment % to Name Related Party Relationship Purchase/Sale Amount Total Payment Terms Price Terms Ending Balance Total ------- -------------- ------------ ------------- ----------- ----- ----------------- ------ ------- -------------- ----- TSMC TSMC - Subsidiary Sales $22,632,645 57 Net 30 days Note 1 Note 1 $10,492,134 96 North from invoice date America Philips and Major Sales 690,945 2 Net 30 days from None None 435,739 4 its affiliates shareholder invoice date GUC Investee Sales 137,430 - Net 30 days from None None 55,669 1 invoice date WaferTech, Subsidiary Purchases 1,685,740 6 Net 30 days from Note 1 Note 1 (443,209) 17 LLC monthly closing date SSMC Investee Purchases 1,335,511 5 Net 30 days from None None (345,825) 13 invoice date VIS Investee Purchases 919,470 3 Net 30 days from None None (642,212) 25 monthly closing date
Company Name Note ------- ---- TSMC
Note 1: Please refer to footnote 17 in the financial statements. - 43 - 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 March 31, 2003 (Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
Overdue Amounts ---------------------- Received in Allowance Company Nature of Ending Turnover Action Subsequent for Bad Name Related Party Relationship Balance Rate Amount Taken Period Debts ------- -------------------------- ------------ ----------- -------- ---------- ----------- ----------- --------- TSMC TSMC - North America Subsidiary $10,492,134 41 days $2,618,690 Accelerate $1,688,033 $ - demand on account receivables Philips and its affiliates Major 435,739 52 days 113,368 Accelerate 9,035 - shareholder demand on account receivables
- 44 - TABLE 8 TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LTD. NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE March 31, 2003 (Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
Original Investment Amount Balance as of March 31, 2003 ------------------------- --------------------------------- Percentage Carrying Investee Main Businesses March March Shares of Value Investor Company Company Location and Products 31,2003 31,2002 (Thousand) Ownership (Note 1) ---------------- ------------- ----------- --------------- ----------- ----------- ---------- ---------- ----------- TSMC TSMC-North San Jose, Marketing and $ 333,178 $ 333,178 11,000 100 $ 201,573 America California, engineering U.S.A. support TSMC-Europe Amsterdam, Marketing and 2,960 2,960 - 100 10,522 The engineering Netherlands support TSMC-Japan Yokohama, Marketing and 83,760 83,760 6 100 94,062 Japan engineering support VIS Hsin-Chu, IC design and 8,119,816 6,503,640 787,016 28 3,588,892 Taiwan manufacturing TSMC Tortola, Investment 31,445,780 31,445,780 987,968 100 21,019,823 International British Virgin Islands Chi Cherng Taipei, Investment 300,000 300,000 - 36 42,636 Investment Taiwan Hsin Ruey Taipei, Investment 300,000 300,000 - 36 41,666 Investment Taiwan TSMC Tortola, Investment 10,350 10,350 300 100 3,938,938 Partners British Virgin Islands SSMC Singapore Manufacturing 6,408,190 6,408,190 382 32 2,859,712 wafer Emerging Cayman Investment 1,005,660 1,005,660 - 99 933,010 Alliance Islands GUC Hsin-Chu, IC research, 409,920 341,250 39,040 47 388,177 Taiwan development, (Note 3) manufacturing, testing and marketing
Net Income Investment (Loss) of the Gain (Loss) Investor Company Investee (Note 2) Note ---------------- ------------- ----------- ---------- TSMC $ 27,956 $ 27,956 Subsidiary 15 15 Subsidiary 2,229 2,229 Subsidiary (739,565) (207,875) Investee (1,229,388) (1,229,388) Subsidiary 290 742 Investee 277 1,851 Investee 179,804 185,361 Subsidiary (862,491) (275,997) Investee (7,948) (7,908) Subsidiary (31,818) (12,836) Investee
Note 1: The treasury stock is deducted from the carrying value. Note 2: The unrealized losses from 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. - 45 -