UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
¨ | Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934 |
or
x | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 20122014
or
¨ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
or
¨ | Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Date of event requiring this shell company report
Commission file number 001-15128
United Microelectronics Corporation
(Exact Name of Registrant as Specified in its Charter)
Taiwan, Republic of China
(Jurisdiction of Incorporation or Organization)
No. 3 Li-Hsin Road II, Hsinchu Science Park,
Hsinchu City, Taiwan, Republic of China
(Address of Principal Executive Offices)
Peter Courture, +1 (650) 968-8855, peter@courture.com,Chitung Liu, +886-2-2658-9168,chitung_liu@umc.com,
978 Highlands Circle, Los Altos, CA 94024, USA8F, No. 68, Section 1, Neihu Road., Taipei 11493, Taiwan R.O.C.
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on which Registered | |
American Depositary Shares, as evidenced by American Depositary Receipts, each representing 5 Common Shares | New York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
12,951,805,54012,725,207,790 Common Shares of Registrant issued as of December 31, 20122014 (including 300,000,000194,510,000 treasury shares)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x �� Accelerated filer ¨ Non-accelerated filer ¨
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ¨
International Financial Reporting Standards as issued
U.S. GAAP ¨ | International Financial Reporting Standards as issued by the International Accounting Standards Board x | Other ¨ |
If “Other” has been checked in response to the International Accounting Standards Board ¨ Other x
Indicateprevious question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ¨ Item 18 x¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No x
UNITED MICROELECTRONICS CORPORATION
FORM 20-F ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 20122014
Page | ||||||
1 | ||||||
3 | ||||||
ITEM 1. | 3 | |||||
ITEM 2. | 3 | |||||
ITEM 3. | 3 | |||||
ITEM 4. | ||||||
ITEM 4A. | ||||||
ITEM 5. | ||||||
ITEM 6. | 58 | |||||
ITEM 7. | 62 | |||||
ITEM |
| |||||
ITEM | 65 | |||||
ITEM 10. | 67 | |||||
ITEM | ||||||
| ||||||
| ||||||
ITEM 12. | ||||||
ITEM 13. | ||||||
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | |||||
ITEM 15. | ||||||
ITEM 16. | 93 | |||||
ITEM 16A. | ||||||
ITEM 16B. | ||||||
ITEM 16C. | ||||||
ITEM 16D. | ||||||
ITEM 16E. | PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | |||||
ITEM 16F. | ||||||
ITEM 16G. | ||||||
ITEM 16H. | ||||||
ITEM 17. | ||||||
ITEM 18. | ||||||
ITEM 19. |
i
The references to “United Microelectronics”, “we”, “us”, “our”, “our company” and “the Company” in this annual report refer to United Microelectronics Corporation and its consolidated subsidiaries, unless the context suggests otherwise. The references to “Taiwan” and “R.O.C.” refer to Taiwan, Republic of China. The references to “PRC” refer to People’s Republic of China. The references to “shares” and “common shares” refer to our common shares, par value NT$10 per share, and “ADSs” refers to our American depositary shares, each representing five common shares. The ADSs are issued under the Deposit Agreement, dated as of October 21, 2009, as amended, supplemented or modified from time to time, among United Microelectronics, JPMorgan Chase Bank, N.A. and the holders and beneficial owners from time to time of American Depositary Receipts issued thereunder. The references to “TIFRSs” refers to the Taiwan International Reporting Standards as issued by the Financial Supervisory Commission in the Republic of China, “IFRSs” refers to International Financial Reporting Standards as issued by the International Accounting Standards Board, or IASB, “R.O.C. GAAP” meansrefers to the generally accepted accounting principles in the Republic of China, and “U.S. GAAP” meansrefers to the generally accepted accounting principles in the United States. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding.
We publish our financial statements in New Taiwan dollars, the lawful currency of the R.O.C. In this annual report, “NT$” and “NT dollars” mean New Taiwan dollars, “$”, “US$” and “U.S. dollars” mean United States dollars, “¥” means Japanese Yen, and “€” means EURO.
FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT MAY NOT BE REALIZED
Our disclosure and analysis in this annual report contain or incorporate by reference some forward-looking statements. Our forward-looking statements contain information regarding, among other things, our financial condition, future expansion plans and business strategy. We have based these forward-looking statements on our current expectations and projections about future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Although we believe that these expectations and projections are reasonable, such forward-looking statements are inherently subject to risks, uncertainties and assumptions about us, including, among other things:
our dependence on frequent introduction of new product services and technologies based on the latest developments;
the intensely competitive semiconductor, communications, consumer electronics and computer industries and markets;
risks associated with our international business activities;
our dependence on key personnel;
general economic and political conditions, including those related to the semiconductor, communications, consumer electronics and computer industries;
natural disasters, such as earthquakes and droughts, which are beyond our control;
possible disruptions in commercial activities caused by natural and human-induced disasters, and outbreaks of contagious diseases;
fluctuations in foreign currency exchange rates;
additional disclosures we make in our previous and future Form 20-F annual reports and Form 6-K periodic reports to the U.S. Securities and Exchange Commission;Commission, or the U.S. SEC; and
those other risks identified in the “Item 3. Key Information-D. Risk Factors” section of this annual report.
The words “may”, “will”, “is/are likely to”, “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan” and similar expressions are intended to identify a number of these forward-looking statements. We do not and will not undertake the obligation to update or revise any forward-looking statements contained in this annual report whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this annual report might not occur and our actual results could differ materially from those anticipated in these forward-looking statements.
GLOSSARY
ASIC | Application Specific Integrated Circuit. A custom-designed integrated circuit that performs specific functions which would otherwise require a number of off-the-shelf integrated circuits to perform. | |
Cell | Semiconductor structure in an electrical state which can store a bit of information, mainly used as the building block of memory array. | |
Die | A piece of a semiconductor wafer containing the circuitry of an unpackaged single chip. | |
DRAM | Dynamic Random Access Memory. A type of volatile memory product that is used in electronic systems to store data and program instructions. It is the most common type of RAM and must be refreshed with electricity hundreds of times per second or else it will fade away. | |
EUV Lithography | Extreme Ultraviolet Lithography | |
FinFET | Fin Field-Effect Transistor | |
FPGA | Field Programmable Gate Array. A programmable integrated circuit. | |
Integrated Circuit | Entire electronic circuit built on a single piece of solid substrate and enclosed in a small package. The package is equipped with leads needed to electrically integrate the integrated circuit with a larger electronic system. Monolithic and hybrid integrated circuits are distinguished by the type of substrate used. | |
Interconnect | The conductive path made from copper or aluminum that is required to achieve connection from one circuit element to the other circuit elements within a circuit. | |
Mask or Photomask | ||
Memory | A group of integrated circuits that a computer uses to store data and programs, such as ROM, RAM, DRAM and SRAM. | |
Micron | A unit of spatial measurement that is one-millionth of a meter. | |
Nanometer | A unit of spatial measurement that is one-billionth of a meter. | |
PC | Personal computer. | |
RAM | Random Access Memory. A type of volatile memory forming the main memory of a computer where applications and files are run. | |
ROM | Read-Only Memory. Memory that is programmed by the manufacturer and cannot be changed. Typically, ROM is used to provide start-up data when a computer is first turned on. |
Scanner | A photolithography tool used in the production of semiconductor devices. This camera-like step-and-scan tool projects the image of a circuit from a master image onto a photosensitized silicon wafer. | |
Semiconductor | A material with electrical conducting properties in between those of metals and insulators. Essentially, semiconductors transmit electricity only under certain circumstances, such as when given a positive or negative electric charge. Therefore, a semiconductor’s ability to conduct can be turned on or off by manipulating those charges and this allows the semiconductor to act as an electric switch. The most common semiconductor material is silicon, used as the base of most semiconductor chips today because it is relatively inexpensive and easy to create. |
SoC | System-on-Chip. A chip that incorporates functions currently performed by several chips on a cost effective basis. | ||
SOI | Silicon-On-Insulator. Silicon wafer consisting of a thin layer of oxide, on top of which semiconductor devices are built. | ||
SRAM | Static Random Access Memory. A type of volatile memory product that is used in electronic systems to store data and program instructions. Unlike the more common DRAM, it does not need to be refreshed. | ||
Transistor | Tri-terminal semiconductor device in which input signal (voltage or current depending on the type of transistor) controls output current. An individual circuit that can amplify or switch electric current. This is the building block of all integrated circuits. | ||
Volatile memory | Memory products which lose their data content when the power supply is switched off. | ||
Wafer | Thin, round, flat piece of silicon that is the base of most integrated circuits. | ||
8-inch wafer equivalents | Standard unit describing the equivalent amount of 8-inch wafers produced after conversion, used to quantify levels of wafer production for purposes of comparison. Figures of 8-inch wafer equivalents are derived by converting the number of wafers of all dimensions (e.g., 6-inch, 8-inch and 12-inch) into their equivalent figures for 8-inch wafers. 100 6-inch wafers are equivalent to 56.25 8-inch wafers. 100 12-inch wafers are equivalent to 225 8-inch wafers. |
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
ITEM 3. | KEY INFORMATION |
A. Selected Financial Data
A. | Selected Financial Data |
The selected consolidated balance sheetsheets data as of January 1, 2012, December 31, 20112012, 2013 and 20122014 and the selected consolidated statements of comprehensive income and cash flow data for the years ended December 31, 2010, 20112012, 2013 and 20122014 are derived from our audited consolidated financial statements included elsewhere in this annual report. The selected balance sheet dataIn accordance with the requirements of the Taiwan Financial Supervisory Commission, or FSC, beginning on January 1, 2013, we have adopted Taiwan-IFRSs, which is translated and published by Accounting Research and Development Foundation, or ARDF, referred to as of December 31, 2008, 2009“TIFRSs” for reporting our annual and 2010 andinterim consolidated financial statements in the selected statements of income and cash flow dataR.O.C. At the same time, we have adopted IFRSs as issued by the IASB for our annual reports on Form 20-F with the yearsU.S. SEC beginning with the year ended December 31, 2008 and 2009 are derived from2013. However, since January 1, 2013, we only prepare our audited consolidatedinterim unaudited quarterly financial statements under TIFRSs, which are furnished to the SEC on Form 6-K.
In accordance with rule amendments adopted by the U.S. SEC for foreign private issuers reporting under IFRSs, we are not includedrequired to provide reconciliations to U.S. GAAP in this annual report.report following our adoption of IFRSs.
Our financial statements have been prepared and presented in accordance with R.O.C. GAAP, which differs in many material respects from U.S. GAAP. For the discussion of these differences, see Note 36 to our audited consolidated financial statements included elsewhere in this annual report. Some of the items in the statements of income, cash flow and balance sheets have been reconciled to U.S. GAAP and are set forth below. The summary financial data set forth below should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements and the notes to those statements included elsewhere in this annual report.
Years Ended December 31, | ||||||||||||||||
2012 | 2013 | 2014 | ||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
(in millions, except per share and per ADS data) | ||||||||||||||||
Consolidated Statements of Comprehensive Income Data | ||||||||||||||||
Net operating revenues | 115,675 | 123,812 | 140,012 | 4,431 | ||||||||||||
Operating costs | (96,365 | ) | (100,249 | ) | (108,159 | ) | (3,423 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 19,310 | 23,563 | 31,853 | 1,008 | ||||||||||||
Operating expenses | (15,697 | ) | (19,406 | ) | (21,238 | ) | (672 | ) | ||||||||
Net other operating income and expenses | (2,791 | ) | (125 | ) | (539 | ) | (17 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Operating income | 822 | 4,032 | 10,076 | 319 | ||||||||||||
Non-operating income and expenses | 5,473 | 10,309 | 3,496 | 111 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income from continuing operations before income tax | 6,295 | 14,341 | 13,572 | 430 | ||||||||||||
Income tax expense | (2,146 | ) | (2,257 | ) | (3,125 | ) | (99 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net income | 4,149 | 12,084 | 10,447 | 331 | ||||||||||||
Other comprehensive income (loss) | (6,381 | ) | 198 | 6,069 | 192 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total comprehensive income (loss) | (2,232 | ) | 12,282 | 16,516 | 523 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income attributable to: | ||||||||||||||||
Stockholders of the parent | 6,094 | 12,609 | 11,109 | 352 | ||||||||||||
Non-controlling interests | (1,945 | ) | (525 | ) | (662 | ) | (21 | ) | ||||||||
Total comprehensive income (loss) attributable to: | ||||||||||||||||
Stockholders of the parent | (281 | ) | 12,796 | 17,035 | 539 | |||||||||||
Non-controlling interests | (1,951 | ) | (514 | ) | (519 | ) | (16 | ) | ||||||||
Earnings per share: (1) | ||||||||||||||||
Basic | 0.49 | 1.02 | 0.90 | 0.03 | ||||||||||||
Diluted (2) | 0.46 | 0.96 | 0.89 | 0.03 | ||||||||||||
Common shares used in earnings per share calculation: | ||||||||||||||||
Basic | 12,464 | 12,346 | 12,334 | 12,334 | ||||||||||||
Diluted (2) | 13,289 | 13,150 | 12,719 | 12,719 | ||||||||||||
Earnings per ADS equivalent: | ||||||||||||||||
Basic | 2.44 | 5.11 | 4.50 | 0.14 | ||||||||||||
Diluted (2) | 2.32 | 4.82 | 4.44 | 0.14 |
As of | ||||||||||||||||||||
January 1, 2012 | December 31, 2012 | December 31, 2013 | December 31, 2014 | |||||||||||||||||
NT$ | NT$ | NT$ | NT$ | US$ | ||||||||||||||||
(in millions, except per share data) | ||||||||||||||||||||
Consolidated Balance Sheets Data | ||||||||||||||||||||
Total assets | 279,336 | 281,214 | 293,914 | 310,648 | 9,831 | |||||||||||||||
Total liabilities | 69,780 | 79,526 | 84,270 | 90,309 | 2,858 | |||||||||||||||
Stockholders’ equity | 209,556 | 201,688 | 209,644 | 220,339 | 6,973 | |||||||||||||||
Capital stock (3) | 130,845 | 129,521 | 126,946 | 127,303 | 4,029 | |||||||||||||||
Dividends declared per share (4) | 1.11 | 0.50 | 0.40 | 0.50 | 0.02 |
Consolidated Statement of Income Data: R.O.C. GAAP Net operating revenues Cost of goods sold Gross profit Operating expenses: Sales and marketing General and administrative Research and development Total operating expenses Operating income (loss) Net non-operating income (loss) Income (Loss) before income tax and minority interests Income tax expense Extraordinary gain Net income (loss) Attributable to: the Company minority interests Earnings (Losses) per share: (1)(2) Basic Diluted (3) Shares used in earnings (losses) per share calculation: (2) Basic Diluted (3) Earnings (Losses) per ADS: (2) Basic Diluted (3) U.S. GAAP Net operating revenues Cost of goods sold Operating income (loss) Net income (loss) Attributable to: the Company noncontrolling interests Other comprehensive income (loss) attributable to the Company Comprehensive income (loss) attributable to the Company Earnings (Losses) per share: (1) Basic Diluted (3) Shares used in earnings (losses) per share calculation: Basic Diluted (3) Earnings (Losses) per ADS: Basic Diluted (3) Years Ended December 31, 2008 2009 2010 2011 2012 NT$ NT$ NT$ NT$ NT$ US$ (in millions, except per share and per ADS data) 96,814 91,390 126,442 116,703 115,675 3,982 (84,102 ) (75,975 ) (89,518 ) (95,417 ) (96,263 ) (3,314 ) 12,712 15,415 36,924 21,286 19,412 668 (3,483 ) (2,800 ) (2,566 ) (3,369 ) (2,749 ) (94 ) (3,055 ) (2,724 ) (3,598 ) (3,342 ) (3,371 ) (116 ) (8,274 ) (8,044 ) (8,740 ) (9,395 ) (9,787 ) (337 ) (14,812 ) (13,568 ) (14,904 ) (16,106 ) (15,907 ) (547 ) (2,100 ) 1,847 22,020 5,180 3,505 121 (19,886 ) (174 ) 3,364 4,200 4,498 154 (21,986 ) 1,673 25,384 9,380 8,003 275 (997 ) (651 ) (1,606 ) (913 ) (2,129 ) (73 ) — 649 68 — — — (22,983 ) 1,671 23,846 8,467 5,874 202 (22,320 ) 3,874 23,899 10,610 7,819 269 (663 ) (2,203 ) (53 ) (2,143 ) (1,945 ) (67 ) (1.70 ) 0.31 1.91 0.84 0.62 0.02 (1.70 ) 0.30 1.87 0.81 0.59 0.02 13,111 12,699 12,496 12,561 12,625 12,625 13,170 12,786 12,768 13,241 13,456 13,456 (8.50 ) 1.55 9.55 4.20 3.10 0.11 (8.50 ) 1.50 9.35 4.05 2.95 0.10 96,814 91,390 126,442 116,703 115,675 3,982 (85,923 ) (76,209 ) (89,929 ) (95,594 ) (96,331 ) (3,316 ) (22,431 ) (2,323 ) 21,394 2,573 706 24 (29,632 ) 364 23,544 6,605 3,109 107 (28,955 ) 2,572 23,616 8,746 5,055 174 (677 ) (2,208 ) (72 ) (2,141 ) (1,946 ) (67 ) (25,239 ) 24,540 (8,629 ) (9,551 ) (6,484 ) (223 ) (54,194 ) 27,112 14,987 (805 ) (1,429 ) (49 ) (2.25 ) 0.21 1.91 0.71 0.41 0.01 (2.25 ) 0.20 1.90 0.68 0.38 0.01 12,870 12,538 12,335 12,400 12,464 12,464 12,870 12,560 12,399 12,859 13,140 13,140 (11.25 ) 1.03 9.57 3.53 2.03 0.07 (11.25 ) 1.02 9.52 3.40 1.92 0.07
Consolidated Balance Sheet Data: R.O.C. GAAP Current assets Long-term investment Property, plant and equipment Total assets Current liabilities Long-term debt (excluding current portion) Total liabilities Capital stock (4) Stockholders’ equity U.S. GAAP Cash and cash equivalents Working capital (5) Total assets Total liabilities Stockholders’ equity Other Consolidated Data: R.O.C. GAAP Cash flow: Capital expenditure Cash provided by operating activities Cash used in investing activities Cash provided by (used in) financing activities Net increase (decrease) in cash and cash equivalents Gross profit margin Operating profit (loss) margin Net profit (loss) margin Capacity utilization rate (on an actual basis) Dividends declared per share (6) U.S. GAAP Cash flow: Capital expenditure Cash provided by operating activities Cash used in investing activities Cash provided by (used in) financing activities Net increase (decrease) in cash and cash equivalents Gross profit margin Operating profit (loss) margin Net profit (loss) margin Segment Data Net operating revenues Wafer fabrication New business Net income (loss) (5) Wafer fabrication New business Years Ended December 31, 2008 2009 2010 2011 2012 NT$ NT$ NT$ NT$ NT$ US$ (in millions, except per share and per ADS data) 68,888 102,363 93,769 84,058 80,918 2,785 32,441 55,227 47,179 38,574 34,979 1,204 108,410 89,596 132,762 149,324 158,854 5,468 216,399 253,638 280,887 279,832 280,959 9,672 13,033 35,246 45,445 42,906 40,034 1,378 8,130 767 6,799 21,095 32,155 1,107 24,740 39,542 55,751 67,707 75,938 2,614 129,877 129,877 129,879 130,845 129,521 4,459 191,659 214,096 225,136 212,125 205,021 7,058 40,017 54,413 51,034 49,062 42,488 1,463 55,525 67,162 48,322 41,109 41,066 1,414 214,990 252,705 281,387 279,460 279,052 9,606 24,099 39,465 56,264 68,820 77,423 2,665 190,891 213,240 225,123 210,640 201,629 6,941 Years Ended December 31, 2008 2009 2010 2011 2012 NT$ NT$ NT$ NT$ NT$ US$ (in millions, except per share and per ADS data) 11,515 17,618 61,323 53,326 52,186 1,796 45,251 32,422 53,495 41,654 40,535 1,395 (11,423 ) (19,229 ) (57,779 ) (55,120 ) (49,148 ) (1,692 ) (34,380 ) 4,944 (10,174 ) 9,923 3,588 124 889 17,586 (14,882 ) (2,201 ) (6,477 ) (223 ) 13.1 % 16.9 % 29.2 % 18.2 % 16.8 % 16.8 % (2.2 )% 2.0 % 17.4 % 4.4 % 3.0 % 3.0 % (23.0 )% 4.2 % 18.9 % 9.1 % 6.8 % 6.8 % 70.7 % 69.4 % 93.7 % 78.6 % 78.8 % 78.8 % 1.2 — 0.5 1.11 0.5 0.02 11,515 17,618 61,323 53,326 52,186 1,796 44,953 32,422 53,495 41,654 40,535 1,395 (19,973 ) (22,419 ) (46,277 ) (54,891 ) (49,245 ) (1,695 ) (34,081 ) 4,944 (10,174 ) 9,923 3,588 124 (7,661 ) 14,396 (3,379 ) (1,971 ) (6,574 ) (226 ) 11.3 % 16.6 % 28.9 % 18.1 % 16.7 % 16.7 % (23.2 )% (2.5 )% 16.9 % 2.2 % 0.6 % 0.6 % (29.9 )% 2.8 % 18.7 % 7.5 % 4.4 % 4.4 % For the years ended December 31, 2012 2013 2014 NT$ NT$ NT$ US$ (in millions) 108,624 116,782 129,449 4,097 7,051 7,030 10,563 334 6,094 12,710 11,260 356 (5,583 ) (2,553 ) (2,489 ) 79
(1) | Earnings |
(2) |
Diluted securities include convertible bonds, |
Dividends declared per share are in connection with earnings and accumulated additional paid-in capital. |
(5) | There are adjustments primarily consisted of intragroup elimination entries. |
Currency Translations and Exchange Rates
In portions of this annual report, we have translated New Taiwan dollar amounts into U.S. dollars for the convenience of readers. The rate we used for the translations was NT$29.0531.60 = US$1.00, which was the noon buying rate as certified for customs purposes by the Federal Reserve Bank of New York on December 31, 2012.2014. The translation does not mean that New Taiwan dollars could actually be converted into U.S. dollars at that rate. The following table shows the noon buying rates for New Taiwan dollars expressed in New Taiwan dollar per US$1.00. On April 19, 2012,17, 2015, the noon buying rate was NT$29.7731.05 to US$1.00.
Average (1) | High | Low | At Period-End | Average (1) | High | Low | At Period- End | |||||||||||||||||||||||
2008 | 31.51 | 33.58 | 29.99 | 32.76 | ||||||||||||||||||||||||||
2009 | 33.02 | 35.21 | 31.95 | 31.95 | ||||||||||||||||||||||||||
2010 | 31.50 | 32.43 | 29.14 | 29.14 | 31.50 | 32.43 | 29.14 | 29.14 | ||||||||||||||||||||||
2011 | 29.38 | 30.67 | 28.50 | 30.27 | 29.38 | 30.67 | 28.50 | 30.27 | ||||||||||||||||||||||
2012 | 29.56 | 30.28 | 28.96 | 29.05 | 29.56 | 30.28 | 28.96 | 29.05 | ||||||||||||||||||||||
2013 | 29.73 | 30.20 | 29.93 | 29.83 | ||||||||||||||||||||||||||
2014 | 30.38 | 31.80 | 29.85 | 31.60 | ||||||||||||||||||||||||||
October | 29.24 | 29.31 | 29.15 | 29.20 | 30.40 | 30.49 | 30.31 | 30.45 | ||||||||||||||||||||||
November | 29.11 | 29.26 | 28.96 | 29.07 | 30.73 | 30.99 | 30.48 | 30.99 | ||||||||||||||||||||||
December | 29.04 | 29.10 | 29.00 | 29.05 | 31.35 | 31.80 | 31.03 | 31.60 | ||||||||||||||||||||||
2013 (through April 19) | 29.57 | 30.06 | 28.93 | 29.77 | ||||||||||||||||||||||||||
2015 (through April 17) | 31.37 | 32.00 | 30.87 | 31.05 | ||||||||||||||||||||||||||
January | 29.10 | 29.54 | 28.93 | 29.54 | 31.64 | 32.00 | 31.06 | 31.75 | ||||||||||||||||||||||
February | 29.63 | 29.73 | 29.52 | 29.67 | 31.55 | 31.76 | 31.31 | 31.44 | ||||||||||||||||||||||
March | 29.74 | 29.88 | 29.63 | 29.81 | 31.44 | 31.71 | 31.19 | 31.24 | ||||||||||||||||||||||
April (through April 19) | 29.91 | 30.06 | 29.77 | 29.77 | ||||||||||||||||||||||||||
April (through April 17) | 31.12 | 31.33 | 30.87 | 31.05 |
Source: Federal Reserve Statistical Release, Board of Governors of the Federal Reserve System.
(1) | Determined by averaging the rates on the last business day of each month during the relevant period for annual periods, and by averaging the rates on each business day for monthly periods. |
B. Capitalization and Indebtedness
B. | Capitalization and Indebtedness |
Not applicable.
C. | Reasons for the Offer and Use of Proceeds |
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
D. | Risk Factors |
Our business and operations are subject to various risks, many of which are beyond our control. If any of the risks described below actually occurs, our business, financial condition or results of operations could be seriously harmed.
Risks Related to Our Business and Financial Condition
Any global systemic political, economic and financial crisis or catastrophic natural disasters (as well as the indirect effects flowing therefrom) could negatively affect our business, results of operations, and financial condition.
In recent times, several major systemic economic and financial crises and natural disasters negatively affected global business, banking and financial sectors, including the semiconductor industry and markets. These types of crises cause turmoil in global markets that often result in declines in electronic products sales from which we generate our income through our goods and services. In addition, these crises may cause a number of indirect effects such as undermining the ability of our customers to remain competitive vis-à-viswhen faced with the financial and economic challenges created by insolvent countries and companies still struggling to survive in the wake of these crises. For example, there could be in the future knock-on effects from these types of crises on our business, including significant decreases in orders from our customers; insolvency of key suppliers resulting in product delays; inability of customers to obtain credit to finance purchases of our products; customer insolvencies; and counterparty failures negatively impacting our treasury operations. Any future systemic political, economic or financial crisiscrises or catastrophic natural disasterdisasters (as well as the indirect effects flowing from these crises or disasters) could cause revenues for the semiconductor industry as a whole to decline dramatically, and if the economic conditions or financial condition of our customers were to deteriorate, additional accounting related allowances may be required in the future and such additional allowances could increase our operating expenses and therefore reduce our operating income and net income. Thus, any future global economic crisis or catastrophic natural disaster (and their indirect effects) could materially and adversely affect our results of operations.
In 2009, we established a 100% owned subsidiary, UMC New Business Investment Corporation, or NBI, to focus on investments in the solar energy, and light emitting diodes, or LED, light source module design, epi wafer manufacturing, and packaging. In recent years, the growth of solar energy and LED industries is adversely affected by the on-going anti-subsidy and anti-dumping investigations from various regions, the combination of an increase in supply coupled with a decrease in the availability of government subsidies and the decrease in the price of international crude oil resulted in an excess of supply in the solar energy and LED industries and negative pressure on the pricing. As a result, we recognized impairment for our investments in these industries made through NBI. If the solar energy and LED industries continue to encounter significant downturns or significant reductions of government subsidies, our investments made through NBI will be adversely affected which could adversely affect our results of operations.
The seasonality and cyclical nature of the semiconductor industry and periodic overcapacity make us particularly vulnerable to significant and sometimes prolonged economic downturns.
The semiconductor industry has historically been highly cyclical and, at various times, has experienced significant downturns. Since most of our customers operate in semiconductor-related industries, variations in order levels from our customers can result in volatility in our revenues and earnings. Because our business is, and will continue to be, largely dependent on the requirements of semiconductor companies for our services, downturns in the semiconductor industry will lead to reduced demand for our services.
Our net operating revenues are also typically affected by seasonal variations in market conditions that contribute to the fluctuationfluctuations of the average selling pricesprice of semiconductor services and products. The seasonal sales trends for semiconductor services and products closely mirror those for consumer electronics, communication and computer sales. We generally experience seasonal lows in the demand for semiconductor services and products during the first half of the year, primarily as a result of inventory correction by our customers. Any change in the general seasonal variations, which we cannot anticipate, may result in materially adverse effects on our revenues, operations and businesses.
Our operating results fluctuate from quarter to quarter, which makes it difficult to predict our future performance.
Our revenues, expenses and results of operations have varied significantly in the past and may fluctuate significantly from quarter to quarter in the future due to a number of factors, many of which are beyond our control. Our business and operations have at times in the past been negatively affected by, and are expected to continue to be subject to the risk of the following factors:
the seasonality and cyclical nature of both the semiconductor industry and the markets served by our customers;
our customers’ adjustments in their inventory;
the loss of a key customer or the postponement of orders from a key customer;
the rescheduling and cancellation of large orders;
our ability to obtain equipment, raw materials, electricity, water and other required utilities on a timely and economic basis;
outbreaks of contagious diseases, including severe acute respiratory syndrome, avian flu and swine flu;
environmental events, such as fires and earthquakes, or industrial accidents; and
technological changes.
Due to the factors noted above and other risks discussed in this section, many of which are beyond our control, you should not rely on quarter-to-quarter comparisons to predict our future performance. Unfavorable changes in any of the above factors may seriously harm our business, financial condition and results of operations. In addition, our operating results may be below the expectations of public market analysts and investors in some future periods. In this event, the price of the common shares or ADSs may underperform or fall.
A decrease in demand for or selling prices of communication devices, consumer electronics and computer goods may decrease the demand for our services and reduce our margins.
Our customers generally use the semiconductors produced in our fabs in a wide variety of applications. We derive a significant percentage of our operating revenues from customers who use our manufacturing services to make semiconductors for communication devices, consumer electronics, PCs and other computers. The semiconductor industry experienced several downturns due to recent major financial crises and natural disasters. These downturns resulted in a reduced demand for our services and hence decreased our revenues and earnings. Any significant decrease in the demand for communication devices, consumer electronics, PCs or other computers may further decrease the demand for our services. In addition, if the average selling pricesprice of communication devices, consumer electronics, PCs or other computers decline significantly, we will be pressured to further reduce our selling prices, which may reduce our revenues and, therefore, reduce our margins significantly. As demonstrated by downturns in demand for high technology products in the past, market conditions can change rapidly, without apparent warning or advance notice. In such instances, our customers will experience inventory buildup and/or difficulties in selling their products and, in turn, will reduce or cancel orders for wafers from us. The timing, severity and recovery of these downturns cannot be predicted accurately or at all. When they occur, our business, profitability and price of the common shares and ADSs are likely to suffer.
Overcapacity in the semiconductor industry may reduce our revenues, earnings and margins.
The prices that we can charge our customers for our services are significantly related to the overall worldwide supply of integrated circuits and semiconductor products. The overall supply of semiconductor products is based in part on the capacity of other companies, which is outside of our control. For example, in light of the current market conditions, some companies, including our largest competitors, have announced plans to increase capacity expenditures significantly. We believe such plans, if carried out as planned, will increase the industry-wide capacity and are likely to result in overcapacity in the future. In periods of overcapacity, if we are unable to offset the adverse effects of overcapacity through, among other things, our technology and product mix, we may have to lower the prices we charge our customers for our services and/or we may have to operate at significantly less than full capacity. Such actions could reduce our margin and weaken our financial condition and results of operations. We cannot give any assurance that an increase in the demand for foundry services in the future will not lead to overcapacity in the near future, which could materially adversely affect our revenues, earnings and margins.
Any problem in the semiconductor outsourcing infrastructure can adversely affect our net operating revenues and profitability.
Many of our customers depend on third parties to provide mask tooling, assembly and test services. If these customers cannot timely obtain these services on reasonable terms, they may not order any foundry services from us. This may significantly reduce our net operating revenues and negatively affect our profitability.
We may be unable to implement new technologytechnologies as it becomesthey become available, which may result in the decrease of our profitability and the loss of customers and market share.
The semiconductor industry is developing rapidly and the related technology is constantly evolving. If we do not anticipate the technology evolution and rapidly adopt new and innovative technology, we may not be able to produce sufficiently advanced services at competitive prices. There is a risk that our competitors may adopt new technology before we do, resulting in our loss of market share. If we are unable to begin offering advanced services and processes on a competitive and timely basis, we may lose customers to our competitors providing similar technologies, which may cause our net operating revenues to decline unless we can replace lost customers with new customers.
In addition, the market prices for advanced technology and services tend to fall over time. As a result, if we are unable to offer new advanced services and processes on a competitive and timely basis, we need to decrease the prices that we set for our existing services and processes, which would have a negative effect on our profitability. We also depend upon the introduction of new technologies on a timely basis in order to benefit from the relatively higher prices such new technologies offer in the earlier stages of their life cycles. If we are unable to introduce new technologies on a timely and competitive basis, we may not be able to benefit from the relatively higher prices for new technologies, and our average selling price and profits would decrease accordingly.We may be unable to provide leading technology to our customers if we lose the support of our technology partners.
Enhancing our manufacturing process technologies is critical to our ability to provide services for our customers. We intend to continue to advance our process technologies through internal research and development and alliances with other companies. Although we have an internal research and development team focused on developing new and improved semiconductor manufacturing process technologies, we are also dependent on some of our technology partners to advance certain process technology portfolios. In addition, we currently have patent cross-licensing agreements with several companies, including International Business Machines Corporation, or IBM. Some mask and equipment vendors also supply our technology development teams with masks and equipment needed to develop more advanced processing technologies. If we are unable to continue any of our joint development arrangements, patent cross-licensing agreements and other agreements, on mutually beneficial economic terms, if we re-evaluate the technological and economic benefits of such relationships, if we are unable to enter into new technology alliances and arrangements with other leading and specialty semiconductor companies, or if we fail to secure masks and equipment from our vendors in a timely manner sufficient to support our ongoing technology development, we may be unable to continue providing our customers with leading edge mass-producible process technologies and may, as a result, lose important customers, which would have a materially adverse effect on our businesses, results of operations and financial condition.
In addition, some of our customers rely upon third partythird-party vendors, or IP Vendors,intellectual property vendors, for the intellectual property they embed into their designs. Although we work and collaborate with IP Vendorsintellectual property vendors with respect to such matters, there can be no guarantee that we will be successful or that the vendors will deliver according to our requirements or the needs of our customers. Failures to meet the targets or to deliver on a timely basis could cause customers to cancel orders and/or shift capacity to other suppliers.
Our business may suffer if we cannot compete successfully in our industry.
The worldwide semiconductor foundry industry is highly competitive. We compete with dedicated foundry service providers such as Taiwan Semiconductor Manufacturing Company Limited, Semiconductor Manufacturing International (Shanghai) Corporation and Globalfoundries Inc., as well as the foundry operation services of some integrated device manufacturers, such as IBM, Intel, Samsung Electronics, or Samsung, and Toshiba Corporation, or Toshiba. Integrated device manufacturers principally manufacture and sell their own proprietary semiconductor products, but may also offer foundry services. Other competitors such as DongbuAnam Semiconductor, Grace Semiconductor Manufacturing Corp., X-FAB Semiconductors Foundries AG and Silterra Malaysia Sdn. Bhd. have initiated efforts to expand and develop substantial additional foundry capacity. New entrants and consolidations in the foundry business, such as the acquisition of Chartered Semiconductor by Globalfoundries in 2009, are likely to initiate a trend of competitive pricing and create potential overcapacity in legacy technology. Some of our competitors have greater access to capital and substantially greater production, research and development, marketing and other resources than we do. As a result, these companies may be able to compete more aggressively over a longer period of time than we can.
The principal elements of competition in the wafer foundry market include:
technical competence;
time-to-volume production and cycle time;
time-to-market;
research and development quality;
available capacity;
manufacturing yields;
customer service and design support;
price;
management expertise; and
strategic alliances.
Our ability to compete successfully also depends on factors partially outside of our control, including product availability, intellectual property, or IP, including cell libraries that our customers embed in their product designs, and industry and general economic trends. If we cannot compete successfully in our industry, our business may suffer.
We may not succeed in our efforts to acquire operations in China.
R.O.C. law prohibits Taiwan entities from investment in mainland China-based semiconductor manufacturers without government approval. Since 2005, we have entered into several transactions to increase our ownership of Hejian Technology (Suzhou) Co., Ltd., or Hejian, a semiconductor manufacturer owning an 8-inch fab in Suzhou, China. Hejian is a fully owned subsidiary of Infoshine Technology Limited, or Infoshine, and Infoshine is a fully owned subsidiary of Best Elite International Limited, or Best Elite. For more information about the transactions with Hejian and its holding companies, Infoshine and Best Elite, please see “Item 4. Information on the Company—A. History and Development of the Company”.
As part of these transactions, we need to obtain approvals from the Investment Commission of the R.O.C. Ministry of Economic Affairs, or the R.O.C. MOEA. Investments made by R.O.C. companies in PRC companies that engage in the semiconductor foundry business are strictly regulated by the R.O.C. government. For example, the investee may only manufacture semiconductor wafers of 8 inches or smaller, and the number of total investment projects in the semiconductor foundry business undertaken by the R.O.C. companies, taken as a whole, is limited by a quota. As of March 31, 2013,2015, our cumulative ownership in Best Elite was 86.88%. While we have received approvals of the Investment Commission, Ministry of Economic Affairs, Executive Yuan for our acquisition of Best Elite’s ordinary and preferred shares as well as the technology transfer between Hejian and us, we cannot assure you that we will be able to continue to receive approvals from the R.O.C. government authorities for further acquisitions or transactions in the future.
In addition, in October 2014, our board of directors resolved to enter into a three-way agreement to establish a new company named United Semiconductor (Xiamen) Co., Ltd., or UMC (Xiamen), to be based in Xiamen, China with the Xiamen Municipal People’s Government and Fujian Electronics & Information Group. While we believe that this investment will comply with R.O.C. rules and regulations, we still need to obtain the requisite approvals from the PRC and R.O.C. government authorities. Although we have obtained the relevant approvals for the initial investment of US$710 million from the R.O.C. government on December 31, 2014, we cannot assure you that we will be able to obtain the other necessary approvals in the PRC and R.O.C. in the future. We also cannot assure you that this investment will fulfill our expectations of expanding our manufacturing scale, increasing our global foundry market share and stimulating revenue growth. If we are unable to obtain and maintain the required government approvals or achieve our business objectives with this company, our business prospects and results of operations could be materially and adversely affected. For more information about the investment, please see “Item 4. Information on the Company—A. History and Development of the Company”.
We compete for business on a global basis, and we believe it is necessary to establish and develop operations in multiple strategic geographic regions. We cannot assure you that the mergers and acquisitions we have undertaken will be closed successfully or that they will be fully closed on the terms we proposed. The failure to close these transactions or the failure to close them on terms as favorable as we have entered into and announced may impair our ability to realize the benefits we intend to achieve and have a material and adverse effect on our operations and business.
We may not be able to implement our planned growth if we are unable to obtain the financing necessary to fund the substantial capital expenditures we expect to incur.
Our business and the nature of our industry require us to make substantial capital expenditures leading to a high level of fixed costs. The costs of facilities, tools and equipment to make semiconductors with advanced technology continue to rise, with each generation typically significantly more expensive than the larger-in-size more mature technologies which preceded. We expect to incur significant capital expenditures in connection with our growth plans. These capital expenditures will be made in advance of any additional sales to be generated by new or upgraded fabs as a result of these expenditures. Given the fixed-cost nature of our business, we have in the past incurred, and may in the future incur, operating losses if our revenues do not adequately offset our capital expenditures. Additionally, our actual expenditures may exceed our planned expenditures for a variety of reasons, including changes in:
our growth plan;
our process technology;
market conditions;
interest rates;
prices of equipment.
We cannot assure you that additional financing will be available on satisfactory terms, if at all. If adequate funds are not available on satisfactory terms, we may be forced to curtail our expansion plans or delay the deployment of our services, which could result in a loss of customers and limit the growth of our business.
We depend on a small number of customers for a significant portion of our net operating revenues and aany loss of some of these customers would result in the loss of a significant portion ofdeclines in our net operating revenues.
We have been largely dependent on a small number of customers for a substantial portion of our business. In 2012,2014, our top ten customers accounted for 64.5%54.6% of our net operating revenues. We expect that we will continue to be dependentdepend upon a relatively limited number of customers for a significant portion of our net operating revenues. We cannot assure you that our net operating revenues generated from these customers, individually or in the aggregate, will reach or exceed historical levels in any future period. Loss or cancellation of business from significant changes in scheduled deliveries to, or decreases in the prices of services sold to any of these customers could significantly reduce our net operating revenues.
Our customers generally do not place purchase orders far in advance, which makes it difficult for us to predict our future revenues, adjust production costs and allocate capacity efficiently on a timely basis.
Our customers generally do not place purchase orders far in advance. In addition, due to the cyclical nature of the semiconductor industry, our customers’ purchase orders have varied significantly from period to period. As a result, we do not typically operate with any significant backlog, except in periods of extreme capacity shortage such as that experienced in late 2009 and early 2010. The lack of significant backlog and the unpredictable length and timing of semiconductor cycles make it difficult for us to forecast our revenues in future periods. Moreover, our expense levels are based in part on our expectations of future revenues, and we may be unable to adjust costs in a timely manner to compensate for revenue shortfalls. We expect that in the future our net operating revenues in any quarter will continue to be substantially dependent upon purchase orders received in that quarter.
Our inability to obtain, preserve and defend intellectual property rights could harm our competitive position.
Our ability to compete successfully and achieve future growth will depend, in part, on our ability to protect our proprietary technology and to secure critical processing technology that we do not own at commercially reasonable terms. We cannot assure you that in the future we will be able to independently develop, or secure from any third party, the technology required for upgrading our production facilities or for meeting our customer needs. Our failure to successfully obtain such technology may seriously harm our competitive position.
Our ability to compete successfully also depends on our ability to operate without infringing on the proprietary rights of others. We have no means of knowing what patent applications have been filed in the United States or in certain other countries until months after they are filed. The semiconductor industry, because of the complexity of the technology used and the multitude of patents, copyrights and other overlapping intellectual property rights, is characterized by frequent litigation regarding patent, trade secret and other intellectual property rights. It is common for patent owners to assert their patents against semiconductor manufacturers. We have received from time to time communications from third parties asserting patents that cover certain of our technologies and alleging infringement of intellectual property rights of others, and we expect to continue to receive such communications in the future. See “Item 4. Information on the Company—B. Business Overview—Litigation” for more details of our ongoing litigation. In the event any third party was to make a valid claim against us or against our customers, we could be required to:
seek to acquire licenses to the infringed technology which may not be available on commercially reasonable terms, if at all;
discontinue using certain process technologies, which could cause us to stop manufacturing certain semiconductors;
pay substantial monetary damages; and/or
seek to develop non-infringing technologies, which may not be feasible.
Any one of these developments could place substantial financial and administrative burdens on us and hinder our business. Litigation, which could result in substantial costs toexpenses for us and diversion of our resources, may also be necessary to enforce our patents or other intellectual property rights or to defend us or our customers against claimed infringement of the rights of others. If we fail to obtain necessary licenses or if litigation relating to patent infringement or other intellectual property matters occurs, it could hurt our reputation as a technology leader in our industry and prevent us from manufacturing particular products or applying particular technologies, which could reduce opportunities to generate revenues.
Our operations and business will suffer if we lose one or more of our key personnel without adequate replacements.
Our future success to a large extent depends on the continued serviceservices of our Chairman and key executive officers. We do not carry key person insurance on any of our personnel. If we lose the services of any of our Chairman or key executive officers, it could be difficult to find and integrate replacement personnel in a short period of time, which could harm our operations and the growth of our business.
We may have difficulty attracting and retaining skilled employees, who are critical to our future success.
The success of our business depends upon attracting and retaining experienced executives, engineers and other employees to implement our strategy. The competition for skilled employees is intense. We expect demand for personnel in Taiwan to increase in the future as new wafer fabrication facilities and other businesses are established in Taiwan. We also expect demand for experienced personnel in other locations to increase significantly as our competitors establish and expand their operations. Some of our competitors are willing to offer better compensation than that we do to our executives, engineers and other employees. We do not have long-term employment contracts with any of our employees. If we were unable to retain our existing personnel or attract, assimilate and recruit new experienced personnel in the future, it could seriously disrupt our operations and delay or restrict the growth of our business.
Our transactions with affiliates and stockholders may hurt our profitability and competitive position.
We have provided foundry services to several of our affiliates and stockholders. These transactions were conducted on an arm’s-arm’s length basis. We currently do not provide any preferential treatment to any of these affiliates and stockholders. However, we may in the future reserve or allocate our production capacity to these companies if there is a shortage of foundry services in the market to enable these companies to maintain their operations and/or to protect our investments in them. This reservation or allocation may reduce our capacity available for our other customers, which may damage our relationships with other customers and discourage them from using our services. This may hurt our profitability and competitive position.
The differences between R.O.C. and U.S. accounting standards affect the amount of our net income.
Our financial statements are prepared under R.O.C. GAAP, which differ in certain significant respects from U.S. GAAP. For a discussion of these differences, see Note 36 to our audited consolidated financial statements included elsewhere in this annual report. As a result, our net income attributable to us in 2010, 2011 and 2012 under U.S. GAAP was NT$23,616 million, NT$8,746 million and NT$5,055 million (US$174 million), respectively, as compared to net income attributable to us under R.O.C. GAAP of NT$23,899 million, NT$10,610 million and NT$7,819 million (US$269 million) in 2010, 2011 and 2012, respectively.
Starting from January 1, 2013, we will prepare consolidated financial statements in accordance with International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”) for our future SEC filing. As such, our 2012 consolidated financial statements under IFRSs to be included in our 2013 Form 20-F may be different from the accompanying 2012 consolidated ones prepared based on the R.O.C. GAAP.
The trend of adopting protectionist measures in certain countries, including the United States, could have a material adverse impact on our results of operations and financial condition.
Governments in the United States, China and certain other countries have implemented fiscal and monetary programs to stimulate economic growth as a result of the recent economic downturn, and many of these programs include protectionist measures that encourage the use of domestic products and labor. Recent policy developments by the governments in China and elsewhere also suggest an increased unwillingness to allow international companies to invest in or acquire local businesses. Since many of our direct customers and other downstream customers in the supply chain are located in or have operations in the countries where protectionist measures were adopted, such protectionist measures may have a material adverse effect on demand for our manufacturing services.
Any future outbreak of contagious diseases may materially and adversely affect our business and operations, as well as our financial condition and results of operations.
Any future outbreak of contagious diseases, such as avian or swine influenza or severe acute respiratory syndrome, may disrupt our ability to adequately staff our business and may generally disrupt our operations. If any of our employees is suspected of having contracted any contagious disease, we may under certain circumstances be required to quarantine such employees and the affected areas of our premises. Therefore, we may have to temporarily suspend part of or all of our operations. Furthermore, any future outbreak may restrict the level of economic activityactivities in affected regions, including Taiwan, and affect the willingness and ability of our employees and customers to travel, which may also adversely affect our business and prospects. As a result, we cannot assure you that any future outbreak of contagious diseases would not have a material adverse effect on our financial condition and results of operations.
Currency fluctuations could increase our costs relative to our revenues, which could adversely affect our profitability.
More than half of our net operating revenues are denominated in currencies other than New Taiwan dollars, primarily in U.S. dollars and Japanese Yen.dollars. On the other hand, more than half of our costs of direct labor, raw materials and overhead are incurred in New Taiwan dollars. Although we hedge a portion of the resulting net foreign exchange position through the use of foreign exchange spot transactions, or currency forward contracts, we are still affected by fluctuations in foreign exchange rates among the U.S. dollar, the Japanese Yen, the New Taiwan dollar and other currencies. Any significant fluctuation in exchange rates may impact on our financial condition and the U.S. dollar value of the ADSs and the U.S. dollar value of any cash dividends we distributed, which could have a corresponding effect on the market price of the ADSs.
Risks Relating to Manufacturing
Our manufacturing processes are highly complex, costly and potentially vulnerable to impurities and other disruptions that can significantly increase our costs and delay product shipments to our customers.
Our manufacturing processes are highly complex, require advanced and costly equipment and are continuously being modified to improve manufacturing yields and product performance. Impurities or other difficulties in the manufacturing process or defects with respect to equipment or supporting facilities can lower manufacturing yields, interrupt production or result in losses of products in process. As system complexity has increased and process technology has become more advanced, manufacturing tolerances have been reduced and requirements for precision have become even more demanding. Although we have been enhancing our manufacturing capabilities and efficiency, from time to time we have experienced production difficulties that have caused delivery delays and quality control problems, as is common in the semiconductor industry. In the past we have encountered the following problems:
capacity constraints due to changes in product mix or the delayed delivery of equipment critical to our production, including scanners, steppers and chemical stations;
construction delays during expansions of our clean rooms and other facilities;
difficulties in upgrading or expanding existing facilities;
manufacturing execution system or automatic transportation system failure;
unexpected breakdowns in our manufacturing equipment and/or related facilities;
changing or upgrading our process technologies;
raw materials shortages and impurities; and
delays in delivery and shortages of spare parts and in maintenance for our equipment and toolstools.
Should these problems repeat, we may suffer delays in delivery and/or loss of business and revenues. In addition, we cannot guarantee that we will be able to increase our manufacturing capacity and efficiency in the future to the same extent as in the past.
Our profit margin may substantially decline if we are unable to continuously improve our manufacturing yields, maintain high capacity utilization and optimize the technology mix of our silicon wafer production.
Our ability to maintain our profitability depends, in part, on our ability to:
maintain high capacity utilization, which is defined as the ratio of the wafer-out quantity of 8-inch wafer equivalents divided by our estimated total 8- inch8-inch equivalent capacity in a specified period. The estimated capacity figures may vary depending upon equipment delivery schedules, pace of migration to more advanced processing technologies and other factors affecting production ramp-ups;
maintain or improve our manufacturing yields, which is defined as the percentage of usable devices manufactured on a wafer; and
optimize the technology mix of our production by increasing the number of wafers manufactured by utilizing different processing technologies.
Our manufacturing yields directly affect our ability to attract and retain customers, as well as the price of our services. Our capacity utilization affects our operating results because a large percentage of our operating costs are fixed. Our technology mix affects utilization of our equipment and process technologies, as well as the prices we can charge, either of which can affect our margins. If we are unable to continuously improve our manufacturing yields, maintain high capacity utilization or optimize the technology mix of our wafer production, our profit margin may substantially decline.
We may have difficulty in ramping up production in accordance with our schedule, which could cause delays in product deliveries and decreases in manufacturing yields.
As is common in the semiconductor industry, we have from time to time experienced difficulties in ramping up production at new or existing facilities or effecting transitions to new manufacturing processes. As a result, we have suffered delays in product deliveries or reduced manufacturing yields. We may encounter similar difficulties in connection with:
the migration to more advanced process technologies, such as 45/40 and 28-nanometer and more advanced process technology;
the joint development with vendors for more powerful tools (both in production and inspection) needed in the future to meet advanced process technology requirements; and
the adoption of new materials in our manufacturing processes.
We may face construction delays, interruptions, infrastructure failure and delays in upgrading or expanding existing facilities, or changing our process technologies, any of which might adversely affect our production schedule. Our failure to achieve our production schedule could delay the time required to recover our investments and seriously affect our profitability.
Our production schedules could be delayed and we may lose customers if we are unable to obtain raw materials and equipment in a timely manner.
We depend on our suppliers for raw materials. To maintain competitive manufacturing operations, we must obtain from our suppliers, in a timely manner, sufficient quantities of quality materials at acceptable prices. Although we source our raw materials from several suppliers, a small number of these suppliers account for a substantial amount of our supply of raw materials because of the consistent quality of these suppliers’ goods.their products. For example, in 2012,2013 and 2014, we purchased a majority of our silicon wafers from four makers, Shin-Etsu Handotai Corporation, or Shin-Etsu, Siltronic AG, MEMCSunEdison Corporation and Sumco Group (including Sumco Corporation and Formosa Sumco Technology Corporation). We may have long-term contracts with most of our suppliers if necessary. From time to time, our suppliers have extended lead time or limited the supply of required materials to us because of capacity constraints. Consequently, from time to time, we have experienced difficulty in obtaining the quantities of raw materials we need on a timely basis.
In addition, from time to time we may reject materials that do not meet our specifications, resulting in declines in output or manufacturing yields. We cannot assure you that we will be able to obtain sufficient quantities of raw materials and other supplies in a timely manner. If the supply of materials is substantially diminished or if there are significant increases in the costs of raw materials, we may be forced to incur additional costs to acquire sufficient quantities of raw materials to sustain our operations, which may increase our marginal costs and reduce profitability.
We also depend on a limited number of manufacturers and vendors that make and maintain the complex equipment we use in our manufacturing processes. We also rely on these manufacturers and vendors to improve our technology to meet our customers’ demands as technology improves. In periods of unpredictable and highly diversified market demand, the lead time from order to delivery of this equipment can be as long as six to twelve months. If there are delays in the delivery of equipment or in the availability or performance of necessary maintenance, or if there are increases in the cost of equipment, it could cause us to delay our introduction of new manufacturing capacity or technologies and delay product deliveries, which may result in the loss of customers and revenues.
We may be subject to the risk of loss due to fire because the materials we use in our manufacturing processes are highly flammable.
We use highly flammable materials such as silane and hydrogen in our manufacturing processes and may therefore be subject to the risk of loss arising from fires. The risk of fire associated with these materials cannot be completely eliminated. We maintain insurance policies to reduce losses caused by fire, including business interruption insurance. While we believe that our insurance coverage for damage to our property and business interruption due to fire is consistent with semiconductor industry practice, our insurance coverage is subject to deductibles and self-insured retention and may not be sufficient to cover all of our potential losses. If any of our fabs were to be damaged or cease operations as a result of a fire, it would temporarily reduce manufacturing capacity and reduce revenues.
We and many of our customers and suppliers are vulnerable to natural disasters and other events outside of our control, which may seriously disrupt our operations.
Most of our assets and many of our customers and suppliers are located in certain parts of Taiwan. Our operations and the operations of our customers and suppliers are vulnerable to earthquakes, floods, droughts, power losses and similar events that affect the locations of our operations. The occurrence of any of these events could interrupt our services and cause severe damages to wafers in process, or cause significant business interruptions. Although we maintain property damage and business interruption insurance for such risks, there is no guarantee that future damages or business loss from earthquakes will be covered by such insurance, that we will be able to collect from our insurance carriers, should we choose to claim under our insurance policies, or that such coverage will be sufficient. In addition, our manufacturing facilities have occasionally experienced insufficient power supplies, and our operations have been disrupted.
Our operations may be delayed or interrupted and our business could suffer if we violate environmental, safety and health, or ESH, regulations.
The semiconductor manufacturing process requires the use of various gases, chemicals, hazardous materials and other substances such as solvents and sulfuric acid which may have an impact on the environment. We are always subject to ESH regulations, and a failure to manage the use, storage, transportation, emission, discharge, recycling or disposal of raw materials or to comply with these ESH regulations could result in (i) regulatory penalties, fines and other legal liabilities, (ii) suspension of production or delays in operation and capacity expansion, (iii) a decrease in our sales, (iv) an increase in pollution cleaning fees and other operation costs, or (v) damage to our public image, any of which could harm our business. In addition, as ESH regulations are becoming more comprehensive and stringent, we may incur a greater amount of capital expenditures in technology innovation and materials substitution in order to comply with such regulations, which may adversely affect our results of operations.
Climate change may negatively affect our business.
There is increasing concern that climate change is occurring and may have dramatic effects on human activity without aggressive remediation steps. A modest change in temperature would result in increased coastal flooding, changing precipitation patterns and increasing risk of extinction for the world’s species. Public expectations for reductions in greenhouse gas emissions could result in increased energy, transportation and raw material costs.
Scientific examination of, political attention to and rules and regulations on issues surrounding the existence and extent of climate change may result in an increase in the cost of production due to increase in the prices of energy and introduction of energy or carbon tax. Various regulatory developments have been introduced that focus on restricting or managing emissions of carbon dioxide, methane and other greenhouse gases. Enterprises may need to purchase at higher costs emission credits, new equipment or raw materials with lower carbon footprints. These developments and further legislation that is likely to be enacted could affect our operations negatively. Changes in environmental regulations, such those on the use of perfluorinated compounds, could increase our production costs, which could adversely affect our results of operation and financial condition.
In addition, more frequent droughts and floods, extreme weather conditions and rising sea levels could occur due to climate change. The impact of such changes could be significant as most of our factories are located in islands including Taiwan and Singapore. For example, transportation suspension caused by extreme weather conditions could harm the distribution of our products. Similarly, our operations depend upon adequate supplies of water, and extended or serious droughts may affect our ability to obtain adequate supplies of water and threaten our production. We cannot predict the economic impact, if any, of disasters or climate change.
Disruptions in the international trading environment may seriously decrease our international sales.
A substantial portion of our net operating revenues is derived from sales to customers located in countries other than Taiwan, Singapore and Japanthe countries where our fabs are located, which accounted for 35.5%located. In 2012, we operated fabs in Taiwan, Singapore and Japan. In 2013, we operated fabs in Taiwan, Singapore, Japan and China. In 2014, we operated fabs in Taiwan, Singapore and China. For the years ended December 31, 2012, 2013 and 2014, we generated approximately 33.4%, 40.2%30.1% and 33.4% in 2010, 2011 and 2012, respectively,42.6% of our net operating revenues.revenues, respectively, from other than the countries where our fabs are located. We expect sales to customers from countries outside of Taiwan, Singapore and Japan toChina will continue to represent a significant portion of our net operating revenues. The success and profitability of our international activities depend on certain factors beyond our control, such as general economic conditions, labor conditions, political stability, tax laws, import duties and foreign exchange controls of the countries in which we sell our products, and the political and economic relationships between Taiwan, Singapore, Japan and these countries. As a result, our manufacturing services will continue to be vulnerable to disruptions in the international trading environment, including adverse changes in foreign government regulations, political unrest and international economic downturns.
These disruptions in the international trading environment affect the demand for our manufacturing services and change the terms upon which we provide our manufacturing services overseas, which could seriously decrease our international sales.
Political, Economic and Regulatory Risks
We face substantial political risks associated with doing business in Taiwan, particularly due to the tense relationship between the R.O.C. and the People’s Republic of China, or the PRC, that could negatively affect the value of your investment.
Our principal executive offices and most of our assets and operations are located in Taiwan. Accordingly, our business, financial condition and results of operations and the market price of our common shares and the ADSs may be affected by changes in R.O.C. governmental policies, taxation, inflation or interest rates and by social instability and diplomatic and social developments in or affecting Taiwan which are outside of our control. Taiwan has a unique international political status. Since 1949, Taiwan and the Chinese mainland have been separately governed. The PRC claims that it is the sole government in China and that Taiwan is part of China. Although significant economic and cultural relations have been established between the R.O.C. and the PRC in the past few years, such as the adoption of the Economic Cooperation Framework Agreement and memorandum regarding cross-straightcross-strait financial supervision, we cannot assure you that relations between the R.O.C. and PRC will not become strained again. For example, the PRC government has refused to renounce the use of military force to gain control over Taiwan and, in March 2005, further passed an Anti-Secession Law that authorizesauthorized non-peaceful means and other necessary measures should Taiwan move to gain independence from the PRC. Past developments in relations between the R.O.C. and the PRC have on occasions depressed the market prices of the securities of companies in the R.O.C. Such initiatives and actions are commonly viewed as having a detrimental effect to reunification efforts between the R.O.C. and the PRC. Relations between the R.O.C. and the PRC and other factors affecting military, political or economic conditions in Taiwan could materially and adversely affect our financial condition and results of operations, as well as the market price and the liquidity of our securities.
Our business depends on the support of the R.O.C. government, and a decrease in this support may increase our labor costs and decrease our net income after tax.
The R.O.C. government has been very supportive of technology companies such as us.companies. For instance, the R.O.C.’s labor laws and regulations do not requirepermit employees of semiconductor companies including our company, to be unionized, and permit these employees to work shifts of 10 hours each day on a two-days-on, two-days-off basis.basis and do not require these employees to be unionized. We cannot assure you, however, that these labor laws and regulations will not be changed in the future. In the event that the R.O.C. government requires our employees to be unionized or decreases the number of hours our employees may work in a given day, our labor costs may increase significantly which could result in lower margins.
We, like many R.O.C. technology companies, have benefited from substantial tax incentives provided by the R.O.C. government. In 2012, such incentives resulted in a tax credit in the amount of NT$184 million (US$6 million). Among the incentives broadly enjoyed by R.O.C. technology companies, various tax benefits granted under Chapter 2 and Article 70-1 of the Statute for Upgrading Industries expired on December 31, 2009. Despite the fact that we can still enjoy the five-year tax holidays for the relevant investment plans approved by R.O.C. tax authority before the expiration of the Statute for Upgrading Industries which is currently expected to expire in 2020, if more incentives are curtailed or eliminated, our net income attributable to us may decrease.
Our future tax obligations may adversely affect our profitability.
The R.O.C. government enacted the R.O.C. Income Basic Tax Act, also known as the “Minimum Income“Alternative Minimum Tax Statute”Act”, or the Statute,AMT Act, which became effective on January 1, 2006. This Statute imposes2006 to impose an alternative minimum tax or AMT. The AMT is designedand to remedy the currentcurrently excessive tax incentives for individuals and businesses. The AMT imposed under the Statute is a supplemental tax which is payable if the income tax payable pursuant to the R.O.C. Income Tax Act is below the minimum amount prescribed under the Statute.AMT Act. For the purpose of calculating the AMT, the taxable income defined under the StatuteAMT Act includes most income that is exempted from income tax under various legislations, such as those providing tax holidays and investment tax credits.
For businesses, the incomes whichincome that previously enjoyed tax-exemption privileges under relevant tax regulations, such as the Act for the Establishment and Administration of the Science Parks and the Statute for Upgrading Industries, will be subject to the new AMT system for the calculation of business taxpayers’ aggregate incomes. The AMT rate for business entities was 10% prior to 2013 and will increasehas increased to 12% commencing fromsince 2013. Under the Statute,AMT Act, a company will be subject to a 12% AMT if its annual taxable income under the Statute exceeds NT$0.5 million. However, the StatuteAMT Act grandfathered certain tax exemptions granted prior to the enactment of the AMT. For example, businesses who already qualified for five-year tax holidays and having obtained the applicable permission issued by the competent authority before December 31, 2005 may continue to enjoy such tax incentives, and the income exempted thereunder will not to be added to the taxable income for the purpose of calculating the AMT, so long as the construction of their investment projects breaks ground within one year from January 1, 2006 and iswas completed within three years commencing from the day immediately following their receipts of the applicable permission issued by the competent authority. As the tax exemption periods expire or in the event of an increase in other taxable income subject to the Statute, such AMT StatuteAct, it may adversely impact our net income after tax.
Compliance with laws such as the US Conflict Minerals Law may affect our ability or the ability of our suppliers to purchase raw materials at an effective cost.
Many industries rely on materials which are subject to regulationregulations concerning certain minerals sourced from the Democratic Republic of Congo, or the DRC, or adjoining countries, including: Sudan; Uganda; Rwanda; Burundi; United Republic of Tanzania; Zambia; Angola; Congo; and Central African Republic. These minerals are commonly referred to as conflict minerals. Conflict minerals which may be used in our industry or by our suppliers include Columbite-tantalite (derivative of tantalum [Ta]), Cassiterite (derivative of tin [Sn]), gold [Au], Wolframite (derivative of tungsten [W]), and Cobalt [Co]. Under present U.S. regulations, we and our customers are required to survey and disclose whether our processes or products use or rely on conflict materials. On August 22, 2012, the U.S. SEC adopted the final rule for disclosing the use of conflict minerals that require companies similar to oursus to make a report in a type and format similar to Form D to disclose the use of conflict materials on an annual basis on or prior to each May 31 and our first report will be filed by May 31, 2014.each year. In order to comply with the aforementioned rules and regulations promulgated by the U.S. SEC, we will spare no effortcontinue to verify the relevant information with our vendors all relevant factual data and file the required report. Although we expect that we and our vendors will be able to comply with the requirements of the US Conflict Minerals law and any new related regulations promulgated by the U.S. SEC, there can be no guaranteewe cannot assure you that we will be able to gather all the information required. In addition, there is increasing public sentiment that companies should avoid using conflict materials from the DRC and adjoining countries. Althoughrequired to comply with such regulations. While we believe our suppliers do not rely on such conflict materials, there can be no guaranteewe cannot assure you that we will continue to be able to obtain adequate supplies of materials needed in our production from supply chains outside the DRC and adjoining countries. AThe failure to obtain necessary information or to maintain adequate supplies of materials from supply chains outside the DRC and adjoining countries may delay our production, increasing the risk of losing customers and business.
Similarly, many countries are consideringjurisdictions have promulgated regulations concerning disclosurewith the intention to deter disregard and enforcement ofcontempt for human rights within supply chains. Although our own operations comply with the employment and employee rightsrelevant requirements under the laws of the countriesjurisdictions where we have operations, such proposals extendpossible violation by our suppliers may not be known to the operations of suppliers, wherever they may be located.us and beyond our control. While we believe our suppliers comply with applicable human rights requirements, there can be no guarantee that they will continue to do so, or that we will be able to obtain the necessary information on their activities to comply with whatever future requirements may be enacted.
Data security and data privacy considerations and regulations may adversely affect our operations.
Our operations depend upon reliable and uninterrupted information technology services, including the integrity of our web-based and electronic customer service systems. Although we have put in place what we believe are reasonable precautions to prevent accidental and/or malicious disruption of these services, there can be no assurance that our preventive measures will preclude failure of the information technology, web-based and electronic customer service systems upon which our business depends. Disruption of these systems could adversely affect our ability to manufacture and to serve our customers.
In addition, in the course of our operations, we receive confidential information from and about our customers, vendors, employeespartners and partners.employees. Although we take what we believe are reasonable precautions to protect such information from disclosure to or interruption, there are no guarantees our precautions will prevent accidental or malicious access to such information. In the event of such access, our reputation could be adversely affected, customers and others may hesitate to entrust us with their confidential information, which would negatively affect our operations, and we would incur costs to remedy the breach.
Moreover, many jurisdictions have proposed regulations concerning data privacy. Although we have taken measures to comply with existing law and regulations in this regard, future laws may impose requirements that make our operations more expensive and/or less efficient. In addition, should we experience a breakdown in our systems or failure in our precautions that results in a violation of such regulations, we may suffer adverse customer reaction and face governmental penalties.
Changing statutory accounting principle from R.O.C. GAAP to IFRSs may have a difference adjustment of our stockholder’s equity.
In May 2009, the R.O.C. government announced that listed, over-the-counter and emerging stock companies should adopt International Financial Reporting Standards (“IFRSs”) which is translated and published by Accounting Research and Development Foundation, or ARDF, as the criteria for preparation of financial reports, beginning from January 1, 2013. Compared to our previous reporting standards under R.O.C. GAAP, IFRSs provides for differing reporting requirements with respect to, among others, employee benefits, investment in associate, business combination and measurement of financial instruments, which make a difference adjustment of our stockholder’s equity between IFRSs and R.O.C. GAAP. For significant reconciliation of consolidated balance sheet and consolidated statement of comprehensive income, please refer to Note 34 to our audited consolidated financial statements included elsewhere in this annual report.
Risks Related to the Common Shares and ADSs and Our Trading Markets
Restrictions on the ability to deposit common shares into our ADS program may adversely affect the liquidity and price of the ADSs.
The ability to deposit common shares into our ADS program is restricted by R.O.C. law. Under current R.O.C. law, no person or entity, including you and us, may deposit common shares into our ADS program without specific approval of the R.O.C. FSC except for the deposit of the common shares into our ADS program and for the issuance of additional ADSs in connection with:
(1) | distribution of share dividends or free distribution of our common shares; |
(2) | exercise of the preemptive rights of ADS holders applicable to the common shares evidenced by ADSs in the event of capital increases for cash; or |
(3) | delivery of our common shares which are purchased in the domestic market in Taiwan directly by the investor or through the depositary or are already in the possession of the investor to the custodian for deposit into our ADS program, subject to the following conditions: (a) the re-issuance is permitted under the deposit agreement and custody agreement, (b) the depositary may accept deposit of those common shares and issue the corresponding number of ADSs with regard to such deposit only if the total number of ADSs outstanding after the issuance does not exceed the number of ADSs previously approved by the R.O.C. FSC, plus any ADSs issued pursuant to the events described in (1) and (2) above and (c) this deposit may only be made to the extent previously issued ADSs have been withdrawn. |
As a result of the limited ability to deposit common shares into our ADS program, the prevailing market price of our ADSs on the NYSE may differ from the prevailing market price of the equivalent number of our common shares on the Taiwan Stock Exchange.
Holders of our ADSs will not have the same proposal or voting rights as the holders of our common shares, which may affect the value of your investment.
Except for treasury common shares and common shares held by our subsidiaries which meet certain criteria provided under the R.O.C. Company Act, each common share is generally entitled to one vote and no voting discount will be applied. However, except as described in this annual report and in the deposit agreement, holders of our ADSs will not be able to exercise voting rights attached to the common shares evidenced by our ADSs on an individual basis. Holders of our ADSs will appoint the depositary or its nominee as their representative to exercise the voting rights attached to the common shares represented by the ADSs. The voting rights attached to the common shares evidenced by our ADSs must be exercised as to all matters brought to a vote of stockholders collectively in the same manner.
Moreover, holders of the ADSs do not have individual rights to propose any matter for stockholders’ votes at our stockholders’ meetings. However, holders of at least 51% of the ADS outstanding at the relevant record date may request the depositary to submit to us one proposal per year for consideration at our annual ordinary stockholders’ meeting, provided that such proposal meets certain submission criteria and limitations, including the language and the length of the proposal, the time of submission, the required certification or undertakings, and the attendance at the annual ordinary stockholders’ meeting. A qualified proposal so submitted by the depositary will still be subject to review by our board of directors and there is no assurance that the proposal will be accepted by our board of directors for inclusion in the agenda of our annual ordinary stockholders’ meeting. Furthermore, if we determine, at our discretion, that the proposal submitted by the depositary does not qualify, we have no obligation to notify the depositary or to allow the depositary to modify such proposal.
Furthermore, if holders of at least 51% of the ADSs outstanding at the relevant record date instruct the depositary to vote in the same manner regarding a resolution, including election of directors, the depositary will appoint our Chairman, or his designee, to represent the ADS holders at the stockholders’ meetings and to vote the common shares represented by the ADSs outstanding in the manner so instructed. If by the relevant record date the depositary has not received instructions from holders of ADSs holding at least 51% of the ADSs to vote in the same manner for any resolution, then the holders will be deemed to have instructed the depositary to authorize and appoint our Chairman, or his designee, to vote all the common shares represented by ADSs at his sole discretion, which may not be in your interest.
The rights of holders of our ADSs to participate in our rights offerings may be limited, which may cause dilution to their holdings.
We may from time to time distribute rights to our stockholders, including rights to acquire our securities. Under the deposit agreement, the depositary will not offer those rights to ADS holders unless both the rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or underlying securities or to endeavor to cause such a registration statement to be declared effective. Accordingly, holders of our ADSs may be unable to participate in our rights offerings and may experience dilution in their holdings.
Changes in exchange controls that restrict your ability to convert proceeds received from your ownership of ADSs may have an adverse effect on the value of your investment.
Your ability to convert proceeds received from your ownership of ADSs depends on existing and future exchange control regulations of the Republic of China. Under the current laws of the Republic of China, an ADS holder or the depositary, without obtaining further approvals from the R.O.C. Central Bank of China, or the CBC, or any other governmental authority or agency of the Republic of China, may convert NT dollars into other currencies, including U.S. dollars, in respect of:
the proceeds of the sale of common shares represented by ADSs or received as share dividends with respect to the common shares and deposited into the depositary receipt facility; and
any cash dividends or distributions received from the common shares represented by ADSs.
In addition, the depositary may also convert into NT dollars incoming payments for purchases of common shares for deposit in the depositary receipt facility against the creation of additional ADSs. If you withdraw the common shares underlying your ADSs and become a holder of our common shares, you may convert into NT dollars subscription payments for rights offerings. The depositary may be required to obtain foreign exchange approval from the CBC on a payment-by-payment basis for conversion from NT dollars into foreign currencies of the proceeds from the sale of subscription rights of new common shares. Although it is expected that the CBC will grant approval as a routine matter, required approvals may not be obtained in a timely manner, or at all.
Under the Republic of China Foreign Exchange Control Law, the Executive Yuan of the Republic of China may, without prior notice but subject to subsequent legislative approval, impose foreign exchange controls or other restrictions in the event of, among other things, a material change in international economic conditions.
Our public stockholders may have more difficulty protecting their interests than they would as stockholders of a U.S. corporation.
Our corporate affairs are governed by our articles of incorporation and by laws governing R.O.C. corporations. The rights of our stockholders to bring stockholders’ suits against us or our board of directors under R.O.C. law are much more limited than those of the stockholders of U.S. corporations. Therefore, our public stockholders may have more difficulty protecting their interests in connection with actions taken by our management, members of our board of directors or controlling stockholders than they would as stockholders of a U.S. corporation. Please refer to “Item 10. Additional Information—B. Memorandum and Articles of Association—Rights to Bring Stockholders’ Suits” included elsewhere in this annual report for a detailed discussion of the rights of our stockholders to bring legal actions against us or our directors under R.O.C. law.
Holders of our ADSs will be required to appoint several local agents in Taiwan if they withdraw common shares from our ADS program and become our stockholders, which may make ownership burdensome.
Non-R.O.C. persons wishing to withdraw common shares represented by their ADSs from our ADS program and hold our common shares represented by those ADSs are required to, among other things, appoint a local agent or representative with qualifications set forth by the applicable R.O.C. FSClaws and regulations to open a securities trading account with a local brokerage firm, pay R.O.C. taxes, remit funds and exercise stockholders’ rights. In addition, the withdrawing holders are also required to appoint a custodian bank or a securities firm with qualifications set forth by the R.O.C. FSC to hold the securities in safekeeping, make confirmations, settle trades and report all relevant information.information, in which the securities firm is appointed as the custodian, the payments shall be held in safekeeping in a special account opened in a bank approved by the R.O.C. FSC. Without making this appointment and opening of the accounts, the withdrawing holders would not be able to subsequently sell our common shares withdrawn from a depositary receipt facility on the Taiwan Stock Exchange. Under R.O.C. law and regulations, except under limited circumstances, PRC persons are not permitted to withdraw the common shares underlying the ADSs or to register as a stockholder of our company. Under the Regulations Governing Securities Investment and Futures Trading in Taiwan by Mainland Area Investors promulgated by the R.O.C. Executive Yuan on April 30, 2009, as amended, only qualified domestic institutional investors, or QDIIs and limited entities or individuals, are permitted to withdraw the common shares underlying the ADSs, subject to compliance with the withdrawal relevant requirements, and only QDIIs, and limited entities or individuals who meet the qualification requirements set forth therein are permitted to own common shares of an R.O.C. company listed for trading on the Taiwan Stock Exchange or the GreTai Securities Market, provided that among other restrictions generally applicable to investments made by PRC persons, their shareholdings are subject to certain restrictions as set forth in the abovementioned regulations and that such mainland area investors shall apply for a separate approval if their investment, individually or in aggregate, amounts to or exceeds 10 percent of the common shares of any R.O.C. listing company.
You may not be able to enforce a judgment of a foreign court in the R.O.C.
We are a company limited by shares incorporated under the R.O.C. Company Act. Most of our assets and most of our directors, and executive officers and experts named in the registration statement are located in Taiwan. As a result, it may be difficult for you to enforce judgments obtained outside Taiwan upon us or such persons in Taiwan. We have been advised by our R.O.C. counsel that any judgment obtained against us in any court outside the R.O.C. arising out of or relating to the ADSs will not be enforced by R.O.C. courts if any of the following situations shall apply to such final judgment:
the court rendering the judgment does not have jurisdiction over the subject matter according to R.O.C. law;
the judgment or the court procedure resulting in the judgment is contrary to the public order or good morals of the R.O.C.;
the judgment was rendered by default, except where the summons or order necessary for the commencement of the action was legally served on us within the jurisdiction of the court rendering the judgment within a reasonable period of time or with judicial assistance of the R.O.C.; or
judgments of the R.O.C. courts are not recognized in the jurisdiction of the court rendering the judgment on a reciprocal basis.
We may be considered a passive foreign investment company, which could result in adverse U.S. tax consequences for U.S. investors.
We do not believe that we were a passive foreign investment company, or PFIC, for 20122014 and we do not expect to become one in the future, although there can be no assurance in this regard. Based upon the nature of our business activities, we may be classified as a passive foreign investment company for U.S. federal income tax purposes. Such characterization could result in adverse U.S. tax consequences to you if you are a U.S. investor.
For example, if we are a PFIC, our U.S. investors may become subject to increased tax liabilities under U.S. tax laws and regulations and will become subject to burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, for any taxable year we will be classified as a PFIC for U.S. tax purposes if either (i) 75% or more of our gross income in a taxable year is passive income or (ii) the average percentage of our assets (which includes cash) by value in a taxable year which produce or are held for the production of passive income is at least 50%. The calculation of the value of our assets will be based, in part, on the quarterly market value of common shares and ADSs, which is subject to change. In addition, the composition of our income and assets will be affected by how, and how quickly, we spend the cash we have raised in prior offerings. See “Taxation—U.S. Federal Income Tax Considerations For U.S. Persons—Passive Foreign Investment Company.”
The trading price of the common shares and ADSs may be adversely affected by the general activities of the Taiwan Stock Exchange and U.S. stock exchanges, the trading price of our common shares, increases in interest rates and the economic performance of Taiwan.
Our common shares are listed on the Taiwan Stock Exchange. The trading price of our ADSs may be affected by the trading price of our common shares on the Taiwan Stock Exchange and the economic performance of Taiwan. The Taiwan Stock Exchange is smaller and, as a market, more volatile than the securities markets in the United States and some European countries. The Taiwan Stock Exchange has experienced substantial fluctuations in the prices and volumes of sales of listed securities, and there are currently limits on the range of daily price movements on the Taiwan Stock Exchange. The Taiwan Stock Exchange is particularly volatile during times of political instability, such as when the relationship between Taiwan and the PRC becomes tense. Moreover, the Taiwan Stock Exchange has experienced disturbance caused by market manipulation, insider trading and payment defaults, and the government of Taiwan has from time to time intervened in the stock market by purchasing stocks listed on the Taiwan Stock Exchange. The recurrence of these or similar events could deteriorate the price and liquidity of our common shares and ADSs.
The market price of the ADSs may also be affected by general trading activities on the U.S. stock exchanges, which recently have experienced significant price volatility with respect to sharestrading prices of technology companies. Fluctuation in interest rates and other general economic conditions may also influence the market price of the ADSs.
ITEM 4. INFORMATION ON THE COMPANY
ITEM 4. | INFORMATION ON THE COMPANY |
A. History and Development of the Company
A. | History and Development of the Company |
Our legal and commercial name is United Microelectronics Corporation, commonly known as “UMC”. We were incorporated under the R.O.C. Company Law as a company limited by shares in May 1980 and our common shares were listed on the Taiwan Stock Exchange in 1985. Our principal executive office is located at No. 3 Li-Hsin Road II, Hsinchu Science Park, Hsinchu, Taiwan, Republic of China, and our telephone number is 886-3-578-2258. Our Internet website address is www.umc.com. The information on our website does not form part of this annual report. Our ADSs have been listed on the NYSE under the symbol “UMC” since September 19, 2000.
We are one of the world’s largest independent semiconductor foundries and a leader in semiconductor manufacturing process technologies. Our primary business is the manufacture, or “fabrication”, of semiconductors, sometimes called “chips” or “integrated circuits”, for others. Using our own proprietary processes and techniques, we make chips to the design specifications of our many customers. Our company maintains a diversified customer base across industries, including communication, consumer electronics, computer, and others, while continuing to focus on manufacturing for high growth, large volume applications, including networking, telecommunications, internet, multimedia, PCs and graphics. We sell and market mainly wafers which in turn are used in a number of different applications by our customers. Percentages of our netgross wafer sales derived from our products used in communication devices, consumer electronics, computer and other applications were 49.4%50.6%, 28.3%28.8%, 18.9%16.3% and 3.4%4.3%, respectively, in 2012.2014.
We focus on the development of leading mass-producible manufacturing process technologies. We were among the first in the foundry industry to go into commercial operation with such advanced capabilities as producing integrated circuits with line widths of 0.25, 0.18, 0.15, 0.13 micron and 90, 65, 45/40, 28, 14 and 2810 nanometer. Advanced technologies have enabled electronic products, especially in relation to computer, communication, consumer and consumercomputer products, to integrate their functions in new and innovative methods. Networking capabilities have allowed electronic products such as computers, tablets, cell phones, televisions, PDAs, CD-ROMs and digital cameras to communicate with each other to exchange information. More powerful semiconductors are required to drive multimedia functions (e.g., processing visual data) and to resolve network bandwidth issues. At the same time, the trend toward personal electronic devices has resulted in products that are becoming physically smaller and consume less power. Process technology must also shrink the volumes of products aggressively to cater to this trend of integrating multiple functions, reducing the size of components needed for operation and lowering IC power consumption. Dedicated semiconductor foundries need to achieve this process improvement and at the same time develop multiple process technologies to satisfy the varying needs of computer, communication, consumer and consumercomputer products. We believe our superior process technologies will enable us to continue to offer our customers significant performance benefits for their products, faster time-to-market production, cost savings and other competitive advantages.
We provide high quality service based on our performance. In today’s marketplace, we believe it is important to make available not only the most manufacturable processes, but also the best solutions to enable customers to design integrated circuits that include entire systems on a chip. Through these efforts, we intend to be the foundry solution for SoC customer needs. To achieve this goal, we believe it is necessary to timely develop and offer the intellectual property and design support that customers need to ensure their specific design blocks work with the other design blocks of the integrated circuit system in the manner intended. Accordingly, we have a dedicated intellectual property and design support team which focuses on timely development of the intellectual property and process specific design blocks our customers need in order to develop products that operate and perform as intended. Our design service team actively cooperates with our customers and vendors of cell libraries and intellectual property offerings to identify, early in the product/market cycle, the offerings needed to ensure that these coordinated offerings are available to our customers in silicon verified form in a streamlined and easy-to-use manner. As a result, we are able to ensure the timely delivery of service offerings from the earliest time in the customer design cycle, resulting in a shorter time-to-volume production. We also provide our customers with real-time online access to their confidential production data, resulting in superior communication and efficiency. We further address our customers’ needs using our advanced technology and proven methodology to achieve fast cycle time, high yield, production flexibility and close customer communication. For example, we select and configure our clean rooms and equipment and develop our processes to maximize the flexibility in meeting and adapting to rapidly changing customer and industry needs. As a result, our cycle time, or the period from customer order to wafer delivery, and our responsiveness to customer request changes are among the fastest in the dedicated foundry industry. We also provide high quality service and engineering infrastructure.
Our production capacity is comparable to that of certain largest companies in the semiconductor industry, and we believe our leading edge and high volume capability is a major competitive advantage.
Our technology and service have attracted two principal types of foundry industry customers: fabless design companies and integrated device manufacturers. Fabless design companies design, develop and distribute proprietary semiconductor products but do not maintain internal manufacturing capacity. Instead, these companies depend on outside manufacturing sources. Integrated device manufacturers, in contrast, traditionally have integrated internally all functions—manufacturing as well as design, development, sales and distribution.
Our primary customers, in terms of our sales revenues, include premier integrated device manufacturers, such as Texas Instruments, Intel Mobile and STMicroelectronics, and leading fabless design companies, such as Xilinx, Broadcom, MediaTek, Realtek and Novatek. In 2012,2014, our company’s top ten customers accounted for 64.5%54.6% of our net operating revenues. We believe our success in attracting these customers is a direct result of our commitment to high quality service and our intense focus on customer needs and performance.
In addition to our semiconductor foundry business, we also established UMC New Business Investment Corporation to focus on investments in the solar energy and LED industries.
On March 16, 2011, our Boardboard of Directorsdirectors proposed an offer to the stockholders of Best Elite International Limited, a British Virgin Islands corporation, or Best Elite, to acquire up to an additional 30% equity interest of Best Elite. Hejian is a wholly owned subsidiary of Infoshine, which is a wholly owned subsidiary of Best Elite. Hejian engages in the semiconductor foundry business and owns an 8- inch8-inch fab in Suzhou, China. We received approval from the Investment Commission, Ministry of Economic Affairs, Executive Yuan on November 1, 2011, and as of December 31, 2012, we held a 35.03% equity stake in Best Elite, which included the 15.34% equity stake held by the trustee that was originally offered to us in March 2005, plus an additional 19.69% equity stake that was purchased from shareholders pursuant to the March 2011 offer. In order to further integrate and increase our ownership of Best Elite, on April 25, 2012, our Boardboard of Directorsdirectors proposed a new offer to the shareholders of Best Elite to acquire up to 64.97% of the sharesissued and outstanding share capital of Best Elite. We received approval from the Investment Commission, Ministry of Economic Affairs, Executive Yuan on December 21, 2012 and acquired an additional 51.85% of the sharesissued and outstanding share capital of Best Elite which we purchased through the April 25, 2012 offer. As of March 31, 2013,2015, our cumulative ownership in Best Elite was 86.88%.
We and Alpha Wisdom Limited, or AWL, together held 94.79% of UMCJ sharesUMCJ’s issued and outstanding share capital as of December 31, 2009 and UMCJ then delisted from the Jasdaq Securities Exchange in accordance with its listing rules on March 19, 2010. Since not all of the outstanding equity securities of UMCJ were acquired, we initiated certain squeeze-out procedures as provided in the Japanese Companies Act. Pursuant to such procedures, as of the end of 2010, we, together with AWL, owned 100% of UMCJ. On May 19, 2011, we acquired the remaining sharesoutstanding equity securities of UMCJ from AWL, and AWL filed for liquidation on August 30, 2011.
On August 21, 2012, our Boardboard of Directorsdirectors approved the dissolution and liquidation of UMCJ. We decided to close our foundry operations in Japan to focus on our manufacturing facilities in Taiwan and Singapore and reduce operating expenses. We believe thatOn November 28, 2013, we can stillsold all our equity securities of UMCJ to Mach Semiconductor Co., Ltd., and, to continuously serve our Japanese customers, we established UMC Group Japan as our new regional sales hub.
On August 29, 2014, we and Fujitsu Semiconductor Limited, or Fujitsu, announced an agreement where we invested ¥5 billion as an initial investment and received approximately 9.3% of the issued and outstanding share capital to became a minority shareholder of a newly formed subsidiary of Fujitsu named Mie Fujitsu Semiconductor Limited, or MIFS, which will operate a 300mm wafer manufacturing facility located in Kuwana, Mie, Japan. Through this relationship with us, MIFS will aim to expand its business globally as a pure-play foundry company by strengthening its production and development capacity in a cost competitive manner.
On October 9, 2014, our board of directors approved an agreement with the Xiamen Municipal People’s Government and Fujian Electronics & Information Group to found a new company named United Semiconductor (Xiamen) Co., Ltd., or UMC (Xiamen), based in Xiamen, China that will focus on 12-inch wafer foundry services. We anticipate that we may invest up to US$1.35 billion in UMC (Xiamen) over the next five years, with our manufacturing capacityinvestment starting in Taiwan2015 that will be deployed in installments based on the progress of this company. UMC (Xiamen) will manufacture 12-inch wafers and Singapore alonginitially offer 55 nanometer and 40 nanometer process technologies. Our participation in UMC (Xiamen) will comply with R.O.C. rules and regulations and will be subject to the review and approval by the relevant R.O.C. authorities. We have obtained the initial investment approval from the R.O.C. government on December 31, 2014.
On December 24, 2014, we transferred our global logistics6-inch fabrication plant, or FAB6A, including machinery equipment and building facilities to our subsidiary, Wavetek Microelectronics Corporation, or Wavetek, in order to further satisfy customer service networks.needs in the fast growing GaAs market and to improve the 6-inch fabrication operational efficiency among our group by fully utilizing the existing assets and resources.
On December 26, 2014, our subsidiary, Topcell Solar International Co., Ltd., or Topcell, announced its plans to merge with Motech Industries, Inc., or Motech, through a share exchange transaction. The share exchange conversion will be six ordinary shares of Topcell into one newly-issued ordinary share of Motech. Upon completion of the merger, Motech will be the surviving company while Topcell Solar will be absorbed. Our share ownership of Motech after the completion of the merger will be approximately 9% of the issued and outstanding share capital of Motech, which would make us the second largest shareholder of Motech. Although the proposed record date of the merger transaction is currently set on July 1, 2015, the merger must be subject to the approvals from both provisional shareholders’ meeting and the relevant government authorities.
Please refer to “Item 5. Operating and Financial Review and Prospects-B. Liquidity and Capital Resources” for a discussion of our capital expenditures in the past three years and the plan for the current year.
Our Strategy
To maintain and enhance our position as a market leader, we have adopted a business strategy with a focus on a partnership business model designed to accommodate our customers’ business needs and objectives and to promote their interests as our partners. We believe that our success and profitability are inseparable from the success of our customers. The goal in this business model is to create a network of partnerships or alliances among integrated device manufacturers, intellectual property and design houses, as well as foundry companies. We believe that we and our partners will benefit from the synergy generated through such long-term partnerships or alliances and the added value to be shared among the partners. The key elements of our strategy are:
Operate as a Customer-Driven Foundry. We plan to operate as a customer-driven foundry. The increasing complexity of 40-40 nanometer, 28 nanometer, and more advanced technologies has impacted the entire chip industry, as ICs can now be designed with greater gate density and higher performance while incorporating the functions of an entire system. These advanced designs have created a new proliferating market of advanced mobile digital devices such as smart phones, which have decreased in size but greatly increased in functionality. We collaborate closely with our customers as well as partners throughout the entire supply chain, including equipment, electronic design automation tool and intellectual property or IP, vendors to work synergistically toward each customer’s SoC solution. We also possess experience and know-how in system design and architecture to integrate customer designs with advanced process technologies and IP.intellectual property. We believe the result is a higher rate of first-pass silicon success for our SoC solutions. Our customer-driven foundry solutions begin with a common logic-based platform, where designers can choose the process technologies and transistor options that best fit their specific application. From there, technologies such as radio frequency complementary metaloxide-semiconductor,metal-oxide-semiconductor, or RF CMOS, and embedded Flash memories can be used to further fine-tune the process for customers’ individual needs. Furthermore, as IPintellectual property has become critical resources for SoCs, our portfolio includes basic design building blocks as well as more complex IPintellectual property of optimized portability and cost, developed both internally and by third-party partners. With advanced technology, a broad IPintellectual property portfolio, system knowledge and advanced 300-millimeter manufacturing, we offer comprehensive solutions that help customers deliver successful results in a timely fashion.
Build up Customer-focused Partnership Business Model. We have focused on building partnership relationships with our customers, and we strive to help our customers achieve their objectives through close cooperation. Unlike the traditional buy-and-sell relationship between a foundry and its customers, we believe our partnership business model will help us understand our customers’ requirements and, accordingly, better accommodate our customers’ needs in a number of ways, such as customized processes and services that optimize the entire value chain (not just the foundry portion) and intellectual property-related support. We believe that this business model will enable us to deliver our products to our customers at the earliest time our customers require for their design cycle, resulting in shorter time-to-market and time-to-volume production. Furthermore, we believe we will render more cost-effective services by focusing our research and development expenditures on the specific requirements of our customers. We believe our partnership business model will help us not only survive a market downturn, but also achieve a better competitive position.
Continue to Focus on High Growth Applications and Customers and Actively Explore New Market Opportunities. We believe one measure of a successful foundry company is the quality of its customers. We focus our sales and marketing on customers who are established or emerging leaders in industries with high growth potential. Our customers include industry leaders such as Broadcom, MediaTek, Realtek, Texas Instruments, Xilinx and Xilinx.Qualcomm. We seek to maintain and expand our relationships with these companies. We strive to demonstrate to these customers the superiority and flexibility of our manufacturing, technology and service capabilities and to provide them with production and design assistance. We are also making efforts to further diversify our customer portfolio in order to maintain a balanced exposure to different applications and different customers. We believe these efforts strengthen our relationships with our customers and enhance our reputation in the semiconductor industry as a leading foundry service provider.
In addition to customer diversification, we also endeavor to actively exploring new market opportunities. Since renewable energy has become an area of focus for both developed and developing countries, we have strategically invested in the crystalline silicon and thin film solar sectors, and our investees have made improvements in power conversion efficiency with photovoltaic applications for buildings and vehicles. Maintain Our Leading Position in Mass-Producible Semiconductor Technology and Selectively Pursue Strategic Investments in New Technologies. We believe that maintaining and enhancing our leadership in mass-producible semiconductor manufacturing technology is critical to attract and retain customers. Our reputation for technological excellence has attracted both established and emerging leaders in the semiconductor industries who work closely with us on technology development. In addition, we believe our superior processing expertise has enabled us to provide flexible production schedules to meet our customers’ particular needs. We plan to continue enhancing capital expenditures in research and development and building internal research and development expertise, to focus on process development and to establish alliances with leading and specialty semiconductor companies to accelerate access to next-generation and specialized technologies. For example, we introduced our 28-nanometer technology to customers in 2011 to significantly increase the competitive advantages of our customers by providing better device performance in a smaller die size. In 2011, we achieved more than 10 customers and tapeouts for our 28-nanometer technology in 2011 and delivered pilot production on this generation to our lead customer. In 2014, our 28-nanometer technology further led to over 40 tapeouts. We believe our progress in developing more advanced process technologies has benefited our customers in the fields of computers, communications, consumer electronics and others with special preferences in certain aspects of the products, such as the ultimate performance, density and power consumption.
Moreover, we expect to strengthen our leading position and increase our market share by licensing our technologies to several corporate partners. For example, in 2014, we licensed to MIFS, which is expected to be a pure-play foundry company, our advanced 40 nanometer technology under a technology transfer and license agreement. In addition, we also entered into an agreement with the Xiamen Municipal People’s Government and Fujian Electronics & Information Group in 2014 in connection with the newly established UMC (Xiamen) to be located in China, which will be focusing on the manufacturing of 12-inch wafers with initial offering of 55 nanometer and 40 nanometer process technologies. We believe that such strategy enables us to take advantage of our established research and development capabilities while expanding our footprint globally in a cost-effective manner.
We also recognize that every company has limited resources and that the foundry industry is ever-evolving. Accordingly, we believe we should invest in new research and development technology intelligently and in a cost-effective manner to achieve the ultimate output of the resulting technology. In doing so, we balance the rate of return of our research and development with the importance of developing a technology at the right time to enhance our competitive edge without unduly diluting our profitability. We intend to avoid investments in technologies that do not present a commercial potential for volume production. We believe that to develop the earliest and most advanced semiconductor technology without regard to its potential for near term volume production may prove costly to our operations and would not strengthen our competitive position. We perceive a benefit to defer investment in the premature equipment needed to claim the earliest advanced technology and instead to purchase a more advanced and less expensive version of equipment from vendors who design such equipment based on pre-production lessons learned from the earliest technology.
Maintain Scale and Capacity Capabilities to Meet Customer Requirements, with a Focus on 12-inch Wafer Facilities for Future Expansion.Expansion. We believe that maintaining our foundry capacity with advanced technology and facilities is critical to the maintenance of our industry leadership. Our production capacity is currently among the largest of all semiconductor foundries in the world. We intend to increase our 12-inch wafer production capacity to meet the needs of our customers and to fully capitalize on the expected growth of our industry. We expect our future capacity expansion plans will focus on 12-inch wafer facilities in order to maintain our technology leadership. 12-inch wafers offer manufacturing advantages over 8-inch wafers due to, among other reasons, the greater number of chips on each wafer and the advantages only offered on newer 12-inch capable equipment. In addition, 12-inch wafer facilities present a more cost-effective solution in achieving an economic scale of production. We intend to carefully monitor current market conditions in order to optimize the timing of our capital spending. We plan to also expand our capacity and capabilities to meet customer requirements in different markets by making strategic investments in other companies. For example, in 2014, we announced investments in Japan with Fujitsu Semiconductor Limited and in China with the Xiamen Municipal People’s Government and Fujian Electronics & Information Group that will focus on manufacturing semiconductors using 12-inch wafers.
B. Business Overview
B. | Business Overview |
Manufacturing Facilities
To maintain a leading position in the foundry business, we have placed great emphasis on achieving and maintaining a high standard of manufacturing quality. As a result, we seek to design and implement manufacturing processes that produce consistent, high manufacturing yields to enable our customers to estimate, with reasonable certainty, how many wafers they need to order from us. In addition, we continuously seek to enhance our production capacity and process technology, two important factors that characterize a foundry’s manufacturing capability. Our large production capacity and advanced process technologies enable us to provide our customers with volume production and flexible and quick-to-market manufacturing services. All of our fabs operate 24 hours per day, seven days per week. Substantially all maintenance at each of the fabs is performed concurrently with production.
As a step in our continuing expansion of our manufacturing complex in the Tainan Science Park in southern Taiwan, we completed the construction of our second 300mm fab in Taiwan in May 2009, and moved the equipment into this fab in July 2010.
The following table sets forth operational data of each of our manufacturing facilities as of December 31, 2012.2014.
Fab 6A | Fab 8A | Fab 8C | Fab 8D | Fab 8E | Fab 8F | Fab 8S | Fab 12A | Fab 12i | UMCJ | Fab 6A | Fab 8A | Fab 8C | Fab 8D | Fab 8E | Fab 8F | Fab 8S | Fab 8N | Fab 12A | Fab 12i | |||||||||||||||||||||
Commencement of volume production | 1989 | 1995 | 1998 | 2000 | 1998 | 2000 | 2000 | 2002 | 2004 | 1996 | 1989 | 1995 | 1998 | 2000 | 1998 | 2000 | 2000 | 2003 | 2002 | 2004 | ||||||||||||||||||||
Estimated full capacity (1)(2) | 37,500 wafers per months | 68,000 wafers per months | 30,000 wafers per months | 31,000 wafers per months | 37,500 wafers per months | 32,500 wafers per months | 29,000 wafers per months | 52,801 wafers per months | 44,782 wafers per months | 20,000 wafers per months | ||||||||||||||||||||||||||||||
Estimated full capacity(1)(2) | 37,500 | 68,000 | 29,000 | 28,500 | 35,000 | 32,500 | 28,000 | 46,800 | 60,102 | 45,107 | ||||||||||||||||||||||||||||||
wafers per month | wafers per month | wafers per month | wafers per month | wafers per month | wafers per month | wafers per month | wafers per month | wafers per month | wafers per month | |||||||||||||||||||||||||||||||
Wafer size | 6-inch (150mm) | 8-inch (200mm) | 8-inch (200mm) | 8-inch (200mm) | 8-inch (200mm) | 8-inch (200mm) | 8-inch (200mm) | 12-inch (300mm) | 12-inch (300mm) | 8-inch (200mm) | 6-inch | 8-inch | 8-inch | 8-inch | 8-inch | 8-inch | 8-inch | 8-inch | 12-inch | 12-inch | ||||||||||||||||||||
(150mm) | (200mm) | (200mm) | (200mm) | (200mm) | (200mm) | (200mm) | (200mm) | (300mm) | (300mm) |
(1) | Measured in stated wafer size. |
(2) | The capacity of a fab is determined based on the capacity ratings given by manufacturers of the equipment used in the fab, adjusted for, among other factors, actual output during uninterrupted trial runs, expected down time due to set up for production runs and maintenance and expected product mix. |
The following table sets forth the size and primary use of our facilities and whether such facilities, including land and buildings, are owned or leased. Our land in the Hsinchu and Tainan Science Parks is leased from the R.O.C. government.
Location | Size
| Primary Use | Land (Owned or Leased) | Building (Owned or Leased) | ||||
(in square meters) | ||||||||
Fab 6A, 10 Innovation Hsinchu Science Park, Hsinchu, Taiwan 30076, R.O.C. |
| 6-inch wafer production | Leased (expires in December 2026) | Owned |
Location | Size (Land/Building) | Primary Use | Land (Owned or Leased) | Building (Owned or Leased) | ||||
(in square meters) | ||||||||
Fab 8A, 3, 5 Li-Hsin Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C. |
| 8-inch wafer production | Leased (expires in December 2033) | Owned | ||||
Fab 8C, 6 Li-Hsin Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C. |
| 8-inch wafer production | Leased (expires in December 2033) | Owned | ||||
Fab 8D, 8 Li-Hsin Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C. |
| 8-inch wafer production | Leased (expires in December 2033) | Owned | ||||
Fab 8E, 17 Li-Hsin Rd., Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C. |
| 8-inch wafer production | Leased (expires in February 2016) | Owned | ||||
Fab 8F, 3 Li-Hsin Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C. |
| 8-inch wafer production | Leased (expires in February 2018) | Owned | ||||
Fab 8S, 16 Creation Hsinchu Science Park, Hsinchu, Taiwan 30077, R.O.C. |
| 8-inch wafer production | Leased (expires in December 2023) | Owned |
Suzhou Industrial Park, Suzhou, Jiangsu Province 215025, People’s Republic of China | 215,621 / 100,908 | 8-inch wafer
| December 2052) | |||||||||
Fab 12A, 18, 20 Nan-Ke Tainan Science Park, Sinshih,
Taiwan 74147, R.O.C. |
| 12-inch wafer production | Leased (expires in November | Owned | ||||||||
Fab 12i, 3 Pasir Ris Drive 12 Singapore 519528 |
| 12-inch wafer production | Leased (expires in March 2031) | |||||||||
|
| Owned | ||||||||||
United Tower, 3 Li-Hsin Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C. |
| Administration office | Leased (expires in December 2033) | Owned | ||||||||
Neihu Rd. office,
Taiwan 11493, R.O.C. |
| Administration office | Owned | Owned | ||||||||
Testing Building, 1, Chin-Shan, 7th St.,
|
| Leased to several companies | Owned | Owned | ||||||||
R&D Building, 18 Nan-Ke Tainan Science Park, Sinshih, Tainan, Taiwan 74147, R.O.C. |
| Research and development | Leased (expires in December 2023) | Owned | ||||||||
Nexpower,
District, Taichung, Taiwan 42152, R.O.C. |
| Solar PV modules production | Leased (expires in December 2026) | Owned |
Location | Size (Land/Building) | Primary Use | Land (Owned or Leased) | Building (Owned or Leased) | ||||
(in square meters) | ||||||||
Topcell, 1560, Sec. 1, Zhongshan Rd., Guanyin Township, Taoyuan, Taiwan 32852, R.O.C. | - / 35,643 | 6-inch cell production | N/A | Leased (expires in March 2018) | ||||
Hsinchu, Taiwan | - / 1,955 | High-power LED
| Leased (expires in May 2017) | |||||
Wavetek, 10, Chuangxin 1st Rd., Baoshan Township, Hsinchu, Taiwan 30076, R.O.C. | - / 6,345 | 6-inch wafer production | N/A | Leased (expires in July 2015) |
Process Technology
Process technology is a set of specifications and parameters that we implement for manufacturing the critical dimensions of the patterned features of the circuitry of semiconductors. Our process technologies are currently among the most advanced in the foundry industry. These advanced technologies have enabled us to provide flexible production schedules to meet our customers’ particular needs.
The continued enhancement of our process technologies has enabled us to manufacture semiconductor devices with smaller geometries, allowing us to produce more dice on a given wafer. We pioneered the production of semiconductor products with 0.25 and 0.18 micron process technology in 1997 and 1999, respectively, and used copper interconnect metallurgic to allow better reliability and higher conductibility than traditional aluminum interconnects. We began volume production using 0.13-micron process technology in 2002. Our extensive experience in the 0.13-micron process technology has helped smooth our transition to 90-nanometer pilot production. Our 90-nanometer process marks further advance in our technology achievements, incorporating up to nine copper metal layers, triple gate oxide and other advanced features and using chrome-less phase-shift masks. This technology has been in volume production since the second quarter of 2004 after passing several product certifications. In 2005, our research and development teams continued to work closely with the manufacturing staff to finalize our 90-nanometer technology portfolio. These collaborative efforts, performed in our best-in-class 300mm facilities, contributed to the improvement of high density 6T-SRAM yield to the maturity level of more than 90%. Our accomplishments led to multiple design awards followed by first silicon success, including a PC graphic IC and the world’s first 90-nanometer Wireless Local Area Network (WLAN) RF chip featuring a unique and specially developed inductor scheme. In addition, we were able to develop, within 6 months, several customized 90-nanometer processes tailored to our customers’ device specifications, and demonstrated product success by delivering record high yield for the first product lots. Our first fully-functional 65-nanometer wireless digital baseband customer IC was produced in July of 2005, after only a year since this research and development project began at this facility.
Since the third quarter of 2006, we have begun the mass production of a next-generation 65-nanometer FPGA product, which features a 65% logic capacity increase over previous generation of FPGAs with triple gate oxide and 11 copper metal layers. Our 65/55- nanometer55-nanometer development team is not only independently developing our technologies in-house but is also bringing up customized process technologies to match customer specific needs. Furthermore, our 45/40-nanometer process technologies, which are jointly developed by us and our strategic partners have been in production since the first half of 2009, significantly increasing the competitive advantages of our customers by providing better device performance in a smaller die size. UMC’sOur 28nm process technology istechnologies with Poly-SiON and High-k/metal gate are developed for low power consumption and high performance applications, that require the highest performance process technology.respectively. In October 2008, we were the first foundry to deliver fully functional 28nm SRAM chips, and have proven in customer silicon the High-k/metal gate solution used for this technology node. UMC’s 28nm progress was also recognized by the industry with the foundry being selected to present at the 2009 IEDM on a hybrid High-k/metal gate approach. Currently, we are already working with several customers to adopt their products on UMC’s 28nm technology. In 2013, we successfully developed and released into production 28nm Poly-SiON and High-k/metal gate technologies. Furthermore, we joined the International Business Machines Corporation, or IBM chip alliance, for the 10nm process development. With IBM’s know-how and support, we aim to continue to improve our internally developed 14nm FinFET to offer competitive low-power technology enhancements for mobile computing and communication products, as well as develop a baseline 10nm process technology to meet the needs of our customers.
The table below sets forth our actual process technology range, categorized by line widths, or the minimum physical dimensions of the transistor gate of integrated circuits in production by each fab, in 2012,2014, and the estimated annual full capacity of each fab, actual total annual output and capacity utilization rates in 2010, 20112012, 2013 and 2012:2014:
Years of Commencement of Operation | Year ended December 31, 2012 Range of Process Technologies (in microns) |
Years Ended December 31, | Year ended December 31, 2014 Range of | Years Ended December 31, | ||||||||||||||||||||||||||
2010 | 2011 | 2012 | Years of | Process | 2012 | 2013 | 2014 | |||||||||||||||||||||||
(in thousands of 8-inch wafer equivalents, except percentages | Commencement of Operation | Technologies (in microns) | (in thousands of 8-inch wafer equivalents, except percentages) | |||||||||||||||||||||||||||
Fab | ||||||||||||||||||||||||||||||
Fab 6A | 1989 | 0.5 | 332 | 303 | 271 | 1989 | 0.5 | 271 | 252 | 252 | ||||||||||||||||||||
Fab 8A | 1995 | 0.5 to 0.25 | 816 | 813 | 815 | 1995 | 0.5 to 0.25 | 815 | 813 | 813 | ||||||||||||||||||||
Fab 8C | 1998 | 0.35 to 0.13 | 366 | 359 | 360 | 1998 | 0.35 to 0.11 | 360 | 347 | 347 | ||||||||||||||||||||
Fab 8D | 2000 | 0.13 to 0.09 | 314 | 364 | 371 | 2000 | 0.13 to 0.09 | 371 | 382 | 358 | ||||||||||||||||||||
Fab 8E | 1998 | 0.5 to 0.18 | 410 | 469 | 449 | 1998 | 0.5 to 0.18 | 449 | 418 | 418 | ||||||||||||||||||||
Fab 8F | 2000 | 0.18 to 0.13 | 387 | 388 | 389 | 2000 | 0.18 to 0.11 | 389 | 388 | 388 | ||||||||||||||||||||
Fab 8S | 2000 | 0.18 to 0.13 | 303 | 307 | 348 | 2000 | 0.18 to 0.11 | 348 | 335 | 335 | ||||||||||||||||||||
Fab 8N(1) | 2003 | 0.5 to 0.13 | — | 469 | 547 | |||||||||||||||||||||||||
Fab 12A | 2002 | 0.18 to 0.028 | 842 | 1,128 | 1,304 | 2002 | 0.13 to 0.028 | 1,304 | 1,465 | 1,576 | ||||||||||||||||||||
Fab 12i | 2004 | 0.13 to 0.040 | 1,022 | 1,192 | 1,207 | 2004 | 0.13 to 0.040 | 1,207 | 1,238 | 1,289 | ||||||||||||||||||||
UMCJ | 1996 | 0.35 to 0.15 | 240 | 240 | 240 | |||||||||||||||||||||||||
UMCJ(2) | 1996 | 0.35 to 0.15 | 240 | — | — | |||||||||||||||||||||||||
Total estimated capacity | — | — | 5,031 | 5,563 | 5,754 | — | — | 5,754 | 6,107 | 6,323 | ||||||||||||||||||||
Total output (actual) | — | — | 4,713 | 4,370 | 4,533 | — | — | 4,533 | 5,026 | 5,629 | ||||||||||||||||||||
Average capacity utilization | — | — | 93.7% | 78.6% | 78.8% | — | — | 78.8 | % | 82.3 | % | 89.0 | % |
(1) | In 2013, we obtained controlling interests in Best Elite, which owns 100% interests in Fab 8N. |
(2) | Starting November 2013, we lost our controlling interests in UMCJ. |
The table below sets forth a breakdown of number and percentage of wafer output by process technologies in 2010, 20112012, 2013 and 2012.2014.
Years Ended December 31, | ||||||||||||||||||||||||
2010 | 2011 | 2012 | ||||||||||||||||||||||
Technology | (in thousands of 8-inch wafer equivalents, except percentages) | |||||||||||||||||||||||
40 nanometers and under | 65 | 1.3 | % | 159 | 3.6 | % | 349 | 7.7 | % | |||||||||||||||
65 nanometers | 696 | 14.8 | 980 | 22.4 | 1,296 | 28.6 | ||||||||||||||||||
90 nanometers | 584 | 12.4 | 333 | 7.6 | 225 | 5.0 | ||||||||||||||||||
0.13 micron | 997 | 21.2 | 1,049 | 24.0 | 799 | 17.6 | ||||||||||||||||||
0.15 micron | 367 | 7.8 | 134 | 3.1 | 112 | 2.5 | ||||||||||||||||||
0.18 micron | 611 | 13.0 | 510 | 11.7 | 432 | 9.4 | ||||||||||||||||||
0.25 micron | 144 | 3.0 | 165 | 3.8 | 176 | 3.9 | ||||||||||||||||||
0.35 micron | 766 | 16.3 | 621 | 14.2 | 742 | 16.4 | ||||||||||||||||||
0.50 micron or higher | 483 | 10.2 | 419 | 9.6 | 402 | 8.9 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 4,713 | 100.0 | % | 4,370 | 100.0 | % | 4,533 | 100.0 | % | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, | ||||||||||||||||||||||||
2012 | 2013 | 2014 | ||||||||||||||||||||||
(in thousands of 8-inch wafer equivalents, except percentages) | ||||||||||||||||||||||||
Technology | % | % | % | |||||||||||||||||||||
28 nanometers and under | 15 | 0.3 | 10 | 0.2 | 76 | 1.5 | ||||||||||||||||||
40 nanometers | 334 | 7.4 | 622 | 12.4 | 766 | 13.6 | ||||||||||||||||||
65 nanometers | 1,296 | 28.6 | 1,140 | 22.7 | 1,138 | 20.2 | ||||||||||||||||||
90 nanometers | 225 | 5.0 | 235 | 4.7 | 306 | 5.4 | ||||||||||||||||||
0.11/0.13 micron | 799 | 17.6 | 828 | 16.5 | 875 | 15.6 | ||||||||||||||||||
0.15/0.18 micron | 544 | 11.9 | 796 | 15.8 | 904 | 16.0 | ||||||||||||||||||
0.25/0.35 micron | 918 | 20.3 | 1,033 | 20.5 | 1,174 | 20.8 | ||||||||||||||||||
0.50 micron or higher | 402 | 8.9 | 362 | 7.2 | 390 | 6.9 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 4,533 | 100.0 | 5,026 | 100.0 | 5,629 | 100.0 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Capacity and Utilization
The fabs in Taiwan that we own directly are named Fab 6A, Fab 8A, Fab 8C, Fab 8D, Fab 8E, Fab 8F and Fab 8S, all of which are located in the Hsinchu Science Park in Taiwan, and Fab 12A, which is located in the Tainan Science Park in Taiwan. The fab in Singapore is named Fab 12i. The12i and the fab in JapanChina is named UMCJ.Fab 8N.
Our average capacity utilization rate was 93.7% in 2010, 78.6% in 2011, and 78.8% in 2012.2012, 82.3% in 2013 and 89.0% in 2014.
Equipment
Considering the performance and productivity of our manufacturing capability highly relyrelies on the quality of our capital equipment, we generally purchase equipment that cannotnot only meet the demand of our existing process technology, but also hashave the capability to be upgraded to match our future needs. The principal equipment we use to manufacture semiconductor devices are scanners/steppers, cleaners and track equipment, inspection equipment, etchers, furnaces, wet stations, strippers, implanters, sputters, CVD equipment, probers, testers and so on. We own all of the production equipment except for a few demonstration tools.
Our policy is to purchase high-quality equipment that demonstrates stable performance from vendors with dominatedominant market share to ensure our continued competitiveness in the semiconductor field.
Some of the equipment is available from a limited number of qualified vendors and/or is manufactured in relatively limited quantities, and some equipment has only recently been developed. We believe that our relationships with equipment suppliers are strong enough that we can leverage our position as a major purchaser to purchase equipment on bettercompetitive terms, including shorter lead time, thancompared with the terms received by several other foundries.
Although we face the challenge of procuring the right equipment in sufficient quantity necessary for ramp-up or expansion of our fabrication facilities under constraint of short lead times, we have not in the past experienced any material problems in procuring the latest generation equipment on a timely basis even in periods of unpredictably high market demand. We manage the risks in the procurement process through timely internal communications among different divisions, efficient market information collection, early reservation of appropriate delivery slots and constant communications with our suppliers as well as by utilizing our good relationships with the vendors.
Raw Materials
Our manufacturing processes use many raw materials, primarily silicon wafers, chemicals, gases and various types of precious sputtering targets. These raw materials are generally available from several suppliers. Our policy with respect to raw material purchases, similar to that for equipment purchases, is to select only a small number of qualified vendors who have demonstrated quality and reliability on delivery time of the raw materials. We may have any long-term supply contracts with our vendors if necessary.
Our general inventory policy is to maintain sufficient stock of each principal raw material for production and rolling forecasts of near-term requirements received from customers. In addition, we have agreements with several key material suppliers under which they hold similar levels of inventory in their warehouses for our use. However, we are not under any obligation to purchase raw material inventory that is held by our vendors for our benefit until we actually order it. We typically work with our vendors to plan our raw material requirements on a quarterlymonthly basis, with indicative pricing generally set on a quarterly basis. The actual purchase price is generally determined based on the prevailing market conditions. In the past, prices of our principal raw materials have not been volatile to a significant degree. Although we have not experienced any shortage of raw materials that had a material effect on our operations, and supplies of raw materials we use currently are adequate, shortages could occur in various critical materials due to interruption of supply or an increase in industry demand.
The most important raw material used in our production processes is silicon wafer, which is the basic raw material from which integrated circuits are made. The principal makers for our wafers are Shin-Etsu, Siltronic AG, MEMCSunEdison Corporation and Sumco Group. We have in the past obtained and believe that we will continue to be able to obtain a sufficient supply of silicon wafers. We believe that we have close working relationships with our wafer suppliers. Based on such long-term relationships, we believe that these major suppliers will use their best efforts to accommodate our demand.
We use a large amount of water in our manufacturing process. We obtain water supplies from government-owned entities and recycle approximately 85% of the water that we use during the manufacturing process. We also use substantial amounts of dual loop electricity supplied by Taiwan Power Company in the manufacturing process. We maintain back-up generators that are capable of providing adequate amounts of electricity to maintain the required air pressure in our clean rooms in case of power interruptions. We believe our back-up devices are reasonably adequate in preventing business interruptions caused by power outages and emergency situations.
Quality Management
We believe that our advanced process technologies and reputation for high quality and reliable services and products have been important factors in attracting and retaining leading international and domestic semiconductor companies as customers.
We structure our quality management system in accordance with the latest international quality standards and our customers’ strict quality and reliability requirements. Our quality management system incorporates comprehensive quality control programs into the entire business flow of foundry operation including, among others, new process development management, production release control, incoming raw material inspection, statistical process control and methodology development, process change management, technical documentation control, product final inspection, metrology tool calibration and measurement system analysis, quality audit program, nonconformity management, customer complaint disposition, eight-discipline problem solving and customer satisfaction monitoring.
We set a high quality goal to ensure consistent high yielding and reliable product performance. Our quality program is continually enhanced through top-down annual Business Policy Management and bottom-up Total Quality Management activities. In addition, our efforts to observe best practices among fabs in the foundry industry have also contributed to the improvement of our overall quality management system.
Many of our customers perform physical production site qualification process in the early development phase and routine quality conformance audits in the volume production phase. These audits include both quality system review and physical fabrication area inspection for verification of conformity with the international quality standard and customers’ quality requirement. Our quality management system and quality control programs have been qualified and routinely audited by numerous customers who are recognized as world-class semiconductor companies with best-in-class quality standards.
Our Quality Assurance Division and Reliability Technology and Assurance Division collaborate to provide quality and reliability performance to customers. With our wafer processing quality and reliability conformance monitor program, we monitor the product quality and reliability at various stages of the entire manufacturing process before shipment to customers.
All our fabs are certified in compliance with ISO/TS 16949 and QC080000 IECQ HSPM standards. ISO/TS 16949 sets the criteria for developing a fundamental quality management system emphasizing on customer satisfaction in quality management, continual improvement, defect prevention and variation and waste reduction. QC080000 IECQ HSPM sets the criteria for developing a process management system for hazardous substances and focuses on developing environmentally friendly manufacturing processes. We are committed to continuously improve our quality management system and to deliver high quality product to our customers.
Services and Products
We primarily engage in wafer fabrication for foundry customers. To optimize fabrication services for our customers, we work closely with them as they finalize circuit design and contract for the preparation of masks to be used in the manufacturing process. We also offer our customers turnkey services by providing subcontracted assembly and test services. We believe that this ability to deliver a variety of foundry services in addition to wafer fabrication enables us to accommodate the needs of a full array of integrated device manufacturers, system companies and fabless design customers with different in-house capabilities.
Wafer manufacturing requires many distinct and intricate steps. Each step in the manufacturing process must be completed with precision in order for finished semiconductor devices to work as intended. The processes require taking raw wafers and turning them into finished semiconductor devices generally through five steps: circuit design, mask tooling, wafer fabrication, assembly and test. The services we offer to our customers in each of these five steps are described below.
Circuit Design. At this initial design stage, our engineers generally work with our customers to ensure that their designs can be successfully and cost-effectively manufactured in our facilities. We have assisted an increasing number of our customers in the design process by providing them with access to our partners’ electronic design analysis tools, intellectual property and design services as well as by providing them with custom embedded memory macro-cells. In our Silicon Shuttle program, we offer customers and intellectual property providers early access to actual silicon samples with their desired intellectual property and content in order to enable early and rapid use of our advanced technologies. The Silicon Shuttle program is a multi-chip test wafer program that allows silicon verification of intellectual property and design elements. In the Silicon Shuttle program, several different vendors can test their intellectual property using a single mask set, greatly reducing the cost of silicon verification for us and the participating vendors. The high cost of masks for advanced processes makes this program attractive to intellectual property vendors. ARM Limited, Faraday Technology Corp., or Faraday Technology, MIPS Technologies International, Virage Logic Corporation (acquired by Synopsys) and Synopsys Inc. have utilized our Silicon Shuttle program. In our Alliance Program,alliances with them, we coordinate with leading suppliers of intellectual property, design and ASIC services to ensure their offerings are available to our customers in an integrated, easy to use manner which matches customers’ need to our technologies. With a view to lowering customer design barriers, we expanded our design support functions from conventional design support to adding intellectual property development to complement third-party intellectual properties and to provide customers with the widest range of silicon-verified choices. Our offerings range from design libraries to basic analog mixed-mode intellectual properties which, together, have helped shorten our customer’s design cycle time.
Mask Tooling. Our engineers generally assist our customers to design and/or obtain masks that are optimized for our advanced process technologies and equipment. Actual mask production is usually provided by independent third parties specializing in mask tooling.
Wafer Fabrication. As described above, our manufacturing service provides all aspects of the wafer fabrication process by utilizing a full range of advanced process technologies. During the wafer fabrication process, we perform procedures in which a photosensitive material is deposited on the wafer and exposed to light through the mask to form transistors and other circuit elements comprising of a semiconductor. The unwanted material is then etched away, leaving only the desired circuit pattern on the wafer. As part of our wafer fabrication services, we also offer wafer probing services, which test, or probe, individual die on the processed wafers and identify dice that fail to meet required standards. We prefer to conduct wafer probing internally to obtain speedier and more accurate data on manufacturing yield rates.
Assembly and Testing. We offer our customers turnkey services by providing the option to purchase finished semiconductor products that have been assembled and tested. We outsource assembly and test services to leading assembly and test service providers, including Siliconware Precision Industries Co., Ltd., or Siliconware, and Advanced Semiconductor Engineering Inc. in Taiwan. After final testing, the semiconductors are shipped to our customers’ designated locations.
In addition to our foundry business, we also engage in the research, development and manufacture of products in the solar energy and LED industries.
Customers and Markets
Our primary customers, in terms of our sales revenues, include premier integrated device manufacturers, such as Texas Instruments, Intel Mobile and STMicroelectronics, and leading fabless design companies, such as Xilinx, Broadcom, MediaTek, Realtek and Novatek. Although we are not dependent on any single customer, a significant portion of our net operating revenues havehas been generated from sales to a few customers. Our top ten customers accounted for approximately 64.5%54.6% of our net operating revenues in 2012.2014. Set forth below is a geographic breakdown of our operating revenues in 2010, 20112012, 2013 and 20122014 by the location of our customers.
Years Ended December 31, | ||||||||||||
Region | 2012 | 2013 | 2014 | |||||||||
% | % | % | ||||||||||
Taiwan | 36.4 | 32.9 | 34.2 | |||||||||
Singapore | 27.7 | 23.8 | 12.5 | |||||||||
China (including Hong Kong) | 5.3 | 9.5 | 10.7 | |||||||||
Japan | 2.5 | 3.7 | 5.4 | |||||||||
USA | 13.3 | 12.4 | 8.9 | |||||||||
Europe | 6.6 | 9.8 | 19.6 | |||||||||
Others | 8.2 | 7.9 | 8.7 | |||||||||
|
|
|
|
|
| |||||||
Total | 100.0 | 100.0 | 100.0 | |||||||||
|
|
|
|
|
|
Region Taiwan Singapore China (includes Hong Kong) Japan USA Others Total Years Ended December 31, 2010 2011 2012 33.6 % 33.1 % 36.4 % 28.8 24.8 27.7 3.4 4.2 5.3 2.1 1.9 2.5 16.9 17.9 13.3 15.2 18.1 14.8 100.0 % 100.0 % 100.0 %
We believe our success in attracting these end customers is a direct result of our commitment to high quality service and our intense focus on customer needs and performance. Because we areAs an independent semiconductor foundry, most of our operating revenue is generated by our sales of wafers. For 2012, net2014, gross wafer sales represents 91.1%represented 88.8% of our net operating revenue, and excludes revenue from testing, mask and other services.revenue. The following table presentspresented the percentages of our netgross wafer sales by types of customers duringfor the last three years.years ended December 31, 2012, 2013 and 2014.
Years Ended December 31, | Years Ended December 31, | |||||||||||||||||||||||
Customer Type | 2010 | 2011 | 2012 | 2012 | 2013 | 2014 | ||||||||||||||||||
% | % | % | ||||||||||||||||||||||
Fabless design companies | 78.1 | % | 75.8 | % | 83.6 | % | 83.6 | 88.6 | 90.8 | |||||||||||||||
Integrated device manufacturers | 21.9 | 24.2 | 16.4 | 16.4 | 11.4 | 9.2 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | 100.0 | 100.0 | |||||||||||||||
|
|
|
|
|
|
We focus on providing a high level of customer service in order to attract customers and maintain their ongoing loyalty. Our culture emphasizes responsiveness to customer needs with a focus on flexibility, speed and accuracy throughout our manufacturing and delivery processes. Our customer-oriented approach is especially evident in two types of services: customer design development services and manufacturing services. For example, in 2013, we expand our regional business by opening our UMC Korea office, in order to provide local support to our customers in Korea, and shorten time-to-market for our Korea-based customers designing and manufacturing on UMC process technologies. We believe that our large production capacity and advanced process technology enable us to provide better customer service than many other foundries through shorter turn-around time, greater manufacturing flexibility and higher manufacturing yields.
We work closely with our customers throughout the design development and prototyping processes. Our design support team closely interacts with customers and intellectual property vendors to facilitate the design process and to identify their specific requirements for intellectual property offerings. We are responsive to our customers’ requirements in terms of overall turn-around time and production time-to-market by, for example, helping our customers streamline their IPintellectual property offering processes and delivering prototypes in a timely and easy-to-use fashion. We also maintain flexibility and efficiency in our technical capability and respond quickly to our customers’ design changes.
For IPintellectual property offerings, we work with several leading IPintellectual property vendors from digital, memory and analog fields in the semiconductor industry, such as Faraday Technology Corp., Synopsys Inc., ARM Limited, Silicon Image Inc. Sidense Corp., and Kilopass Technology, eMemory Technology Inc., True Circuits, Inc., Silicon Storage Technology, Inc., eSilicon Corp., Krivi Semiconductor Private Limited, Cadence Design System, Inc., Cypress Semiconductor Corporation and Dolphin Integration SA, to deliver quality IPintellectual property blocks that have been silicon validated using our advanced processes. Our alliance programsalliances with major electronic design automation vendors, such as Cadence, Magma, Mentor and Synopsys Inc., provide our customers with digital/analog reference design procedures and easy-to-use design solutions. By continuously enhancing our IPintellectual property offerings, reference design procedures and design services through collaboration with major vendors, we aim to provide complete, accurate and user-friendly design solutions to our customers.
As a design moves into manufacturing production, we continue to provide ongoing customer support through all phases of the manufacturing process. The local account manager works with our customer service representative to ensure the quality of our services, drawing upon our marketing and customer engineering support teams as required.
We offer an online service, “MyUMC”, which gives our customers easy access to our foundry services by providing a total online supply chain solution. MyUMC offers 24-hour access to detailed account information such as manufacturing, engineering and design support documents through each customer’s own customized start page. The features that are available to customers through MyUMC include (i) viewing the status of orders from the start of production to the final shipping stages; (ii) designing layouts to shorten customers’ tape out time; (iii) collecting customer engineering requests; (iv) gathering and downloading documents for design purposespurposes; and (v) and accessing online in real-time the same manufacturing data used by our fab engineers. In addition, we have a system-to-system connecting services to provide direct data exchange between our system and our customers’ systems. These services, which include our “UMC Design View Room Cloud Service”, facilitate our design collaborations with our customers to help reduce the cost of chip designs and reduce the time to market. In order to continue to improve our information security management, our Information Technology Division received the certification of ISO/IEC 27001:2005 in March 2008.
We price our products on a per die or per wafer basis, taking into account the complexity of the technology, the prevailing market conditions, the order size, the cycle time, the strength and history of our relationship with the customer and our capacity utilization. Our main sales office is located in Taiwan, which is in charge of our sales activities in Asia. United Microelectronics (Europe) BV, our wholly-owned subsidiary based in Amsterdam, assists our sales to customers in Europe. Our sales in North America are made through UMC Group (USA), our subsidiary located in Sunnyvale, California. We also have sales offices in China, Japan and Korea to support our customers in those regions.
We typically designate a portion of our wafer manufacturing capacity to some of our customers primarily under two types of agreements: reciprocal commitment agreements and deposit agreements. Under a reciprocal commitment agreement, the customer agrees to pay for, and we agree to supply, a specified capacity at a specified time in the future. Under a deposit agreement, the customer makes in advance a cash deposit for an option on a specified capacity at our fabs for a stated period of time. Option deposits are credited to wafer purchase prices as shipments are made. If this customer does not use the specified capacity, it will forfeit the deposit but, in certain circumstances and with our permission, the customer may arrange for a substitute customer to utilize such capacity. In some cases, we also make available capacity to customers under other types of agreements, such as capacity commitment arrangements with technology partners.
We advertise in trade journals, organize technology seminars, hold a variety of regional and international sales conferences and attend a number of industry trade fairs to promote our products and services. We also publish a corporate newsletter for our customers.
Competition
The worldwide semiconductor foundry industry is highly competitive, particularly during periods of overcapacity and inventory correction. We compete internationally and domestically with dedicated foundry service providers as well as with integrated device manufacturers and final product manufacturers which have in-house manufacturing capacity or foundry operations. Some of our competitors have substantially greater production, financial, research and development and marketing resources than we have. As a result, these companies may be able to compete more aggressively over a longer period of time than we can. In addition, several new dedicated foundries have commenced operations and compete directly with us. Any significant increase in competition may erode our profit margins and weaken our earnings.
We believe that our primary competitors in the foundry services market are Taiwan Semiconductor Manufacturing Company Limited, Semiconductor Manufacturing International (Shanghai) Corporation and Globalfoundries Inc., as well as the foundry operation services of some integrated device manufacturers such as IBM, Samsung, Intel and Toshiba. Other competitors such as DongbuAnam Semiconductor, Grace Semiconductor Manufacturing Corp., X-FAB Semiconductors Foundries AG and Silterra Malaysia Sdn. Bhd. have initiated efforts to develop substantial new foundry capacity, although much of such capacity involves less cost-effective production than the 12-inch fabs for which we possess technical know-how. New entrants in the foundry business are likely to initiate a trend of competitive pricing and create potential overcapacity in legacy technology. The principal elements of competition in the semiconductor foundry industry include technical competence, production speed and cycle time, time-to-market, research and development quality, available capacity, manufacturing yields, customer service and price. We believe that we compete favorably with the new competitors on each of these elements, particularly our technical competence and research and development capabilities.
Intellectual Property
Our success depends in part on our ability to obtain patents, licenses and other intellectual property rights covering our production processes and activities. To that end, we have acquired certain patents and patent licenses and intend to continue to seek patents on our production processes. As of December 31, 2012,2014, we held 3,9304,409 U.S. patents and 6,2756,416 patents issued outside of the United States.
Our ability to compete also depends on our ability to operate without infringing on the proprietary rights of others. The semiconductor industry is generally characterized by frequent claims and litigation regarding patent and other intellectual property rights. As is the case with many companies in the semiconductor industry, we have from time to time received communications from third parties asserting patents that allegedly cover certain of our technologies and alleging infringement of certain intellectual property rights of others. We expect that we will receive similar communications in the future. Irrespective of the validity or the successful assertion of such claims, we could incur significant costs and devote significant management resources to the defense of these claims, which could seriously harm our company. See “Item 3. Key Information—D. Risk Factors—Our inability to obtain, preserve and defend intellectual property rights could harm our competitive position.”
In order to minimize our risks from claims based on our manufacture of semiconductor devices or end-use products whose designs infringe on others’ intellectual property rights, we in general accept orders only from companies that we believe enjoy satisfactory reputation and for products that are not identified as risky for potential infringement claims. Furthermore, we obtain indemnification rights from customers. We also generally obtain indemnification rights from equipment vendors to hold us harmless from any losses resulting from any suit or proceedings brought against our company involving allegation of infringement of intellectual property rights on account of our use of the equipment supplied by them.
We have entered into various patent cross-licenses with major technology companies, including a number of leading international semiconductor companies, such as IBM and LSI. Our cross licenses may have different terms and expiry dates. Depending upon our competitive position and strategy, we may or may not renew our cross licenses and further, we may enter into different and/or additional technology and/or intellectual property licenses in the future.
Research and Development
WeIn 2012, 2013 and 2014, we spent NT$8,7409,787 million, NT$9,39512,493 million and NT$9,78713,664 million (US$337432 million) in 2010, 2011, and 2012,, respectively, on research and development, which represented 6.9%8.5%, 8.0%10.1% and 8.5%9.8%, respectively, of our net operating revenues for these periods.of such years. Our research and development efforts are mainly focusedfocus on delivering SoC foundry solutions that consist of the world’s leading process technologies, customer support services and manufacturing techniques. These resources provide our foundry customers with improved opportunities to develop SoC products that supply the global market. Our commitment to research and development can be illustrated by our 20122014 research and development expenditures, which reached approximately 8.5%9.8% of net operating revenues. In June 2007, we completed the construction of a research and development center for nanometer technologies in the Tainan Science Park. The research and development center allows for seamless application of advanced process technology in the research and development phase to the manufacturing phase.
As of March 31, 2013,2015, we employed 1,1271,590 professionals in our research and development activities. In addition, other management and operational personnel are also involved in research and development activities but are not separately identified as research and development professionals.
Our Investments
Depending on the market conditions, we intend to gradually reduce our investments through exchangeable bond offerings and other measures available to our company.
In December 2009, we issued two tranches of zero coupon exchangeable bonds due 2014. The two exchangeable bond offerings consist of $127.2US$127.2 million bonds exchangeable into common shares of Unimicron Technology Corporation, or Unimicron, and $80US$80 million bonds exchangeable into common shares of Novatek Microelectronics Corp., Ltd., or Novatek. As of December 31, 2011, no bonds had been exchanged into common shares of Unimicron2012 and Novatek, respectively. As of December 31, 2012,2013, certain bondholders have exercised their rights to exchange their bonds with the total principal amount of US$43 million and US$77 million into Novatek shares.common shares of Novatek. On July 22, 2013, we called back all the outstanding amount of the US$3 million bonds exchangeable into common shares of Novatek. We recognized a gain of NT$45 million from the redemption and classified the gain as other gains and losses. Gains arising from the exercise of exchange rights during the yearyears ended December 31, 2012 and 2013, respectively, amounted NT$1,5221,389 million (US$52 million)and NT$1,137 million and was recognized as gain on disposal of investment.
In 2010, we sold 96 We redeemed all of the outstanding bonds of the US$127.2 million zero coupon bonds exchangeable into common shares of Mega Financial Holding Company for NT$1,903 million.Unimicron that we originally issued in December 2009, at their 97.53% of principal amount of each bond on December 2, 2014, which was the final maturity date.
In 2011, we sold 1 million, 1 million, 6 million, 5 million and 7 million common sharesThe following table sets forth the sales of Maxlinear, Inc., Alpha & Omega Semiconductor Ltd., Coretronic Corp., Epistar Corp., and Davicom Semiconductor , Inc. for NT$330 million, NT$305 million, NT$292 million, NT$277 million and NT$205 million, respectively.our investments in 2012:
In 2012, we sold 33 million, 10 million, 2 million, 2 million, 5 million and 2 million common shares
Investees | Number of shares sold (in millions) | Proceeds from disposal (in NT$ millions) | ||||||
Novatek Microelectronics Corp. | 18 | $ | 1,728 | |||||
Epistar Corp. | 10 | 671 | ||||||
Parade Technologies, Ltd. | 2 | 549 | ||||||
Sandforce, Inc. | 2 | 498 | ||||||
Pixart Imaging, Inc. | 5 | 448 | ||||||
Simplo Technology Co., Ltd. | 2 | 360 |
The following table sets forth the sales of Novatek Microelectronics Corp., Epistar Corp., Parade Technologies, Ltd., Sandforce, Inc., Pixart Imaging, Inc. and Simplo Technology Co., Ltd. for NT$3,490 million (US$120 million), NT$671 million (US$23 million), NT$549 million (US$19 million), NT$498 million (US$17 million), NT$448 million (US$15 million) and NT$360 million (US$12 million), respectively.our investments in 2013:
Investees | Number of shares sold (in millions) | Proceeds from disposal (in NT$ millions) | ||||||
Industrial Bank of Taiwan Corp. | 118 | $ | 772 | |||||
Parade Technologies, Ltd. | 3 | 632 | ||||||
Pixart Imaging Inc. | 6 | 373 |
The following table sets forth the sales of our investments in 2014:
Number of shares sold | Proceeds from disposal | |||||||||||
Investees | (in millions) | (in NT$ millions) | (in US$ millions) | |||||||||
Montage Technology Group Ltd. | 1 | $ | 915 | 29 | ||||||||
Epistar Corp. | 11 | 726 | 23 | |||||||||
Parade Technologies, Ltd. | 1 | 460 | 15 | |||||||||
Dexon Dynamic Investment Fund VIII | 0 | 359 | 11 |
Environmental, Safety and Health Matters
UMC implemented extensive ESH management systems since 1996. These systems enable our operations to identify applicable ESH regulations, assist in evaluating compliance status and timely establish loss preventive and control measures. The systems we implemented in all our fabs have been certified as meeting the ISO 14001 and OHSAS 18001 standards. ISO 14001 consists of a set of standards that provide guidance to the management of organizations to achieve an effective environmental management system. Procedures are established at manufacturing locations to ensure that all accidental spills and discharges are properly addressed. OHSAS 18001 is a recognizable occupational health and safety management system standard, which may be applied to assess and certify our management systems. Our goal in implementing ISO 14001 and OHSAS 18001 systems is to continually improve our ESH management, comply with ESH regulations and to be a sustainable green foundry. UMC’s major ESH policies include:
Environmental Protection Aspects:
To be an environmentally friendly enterprise characterized by continual improvement with a goal of pollution-free production;
To incorporate our environmental management system into the general organizational management system;
To take initiatives to reduce waste production and prevent pollution by introducing and developing environmentally friendly technology for design, production and operation;
To conserve energy and recycle resources in order to be a model of environmental protection for the international community;
To fulfill corporate social responsibilities by playing an active role in public and community affairs to improve and protect the environment; and
To educate employees about environmentally sound ethics and practices.
Safety and Health Aspects:
To achieve a goal of zero accidents and comply with all applicable safety and regulatory requirements to ensure safety is the top priority for UMC’s sustainable development;
To reinforce best safety and health management practice to reach international ESH and risk management standards;
To adopt risk control advanced ESH management and rescue technologies to enhance company’s standards;
To provide safe work environment and operation through preventive management and audit;
To eliminate hazard factors and prevent incidents through each and every ownership of responsibilities in safety and health; and
To encourage all employees to actively participate in safety and health training and promotional activities.
As a member of the global community and a semiconductor industry leader, we have implemented measures to deal with environmental problems and mitigate climate change. We have introduced green concepts in our operations, including green commitment, management, procurement, production, products, recycling, office, education and marketing.
In order to conquer the green barrier formed by the RoHS (the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment) Directive, we established a cross-division HSPM (Hazardous Substances Process Management) committee to manage all development and implementation of related work. We completed the final system audit for QC 080000 ICEQ HSPM qualification, a certification for having a hazardous substance process management system that meets the RoHS Directive, on June 9, 2006 and became the first semiconductor manufacturer worldwide to achieve HSPM certification for all fabs. In 2009, we completed the report on the carbon footprint verification for integrated circuit wafers produced at our facilities, the first such report in the foundry industry. In 2010, UMCwe completed water footprint verification for our 200 mm and 300 mm wafers. These verifications provide scientific and reliable statistics on the carbon and water information of products manufactured in our fabs as well as self-reviews of environmental impact.
With respect to safety and health management, we realized that lowering the risks in equipment and processes can reduce accidents, but cannot guarantee the safety of all employees. In order to achieve the goal of “zero-accident”, we intend to promote the concept of “safety is my responsibility”. We have educated the employees with the concepts of “be aware of your own safety well as the safety of others” and “safety is everyone’s responsibility, and my personal accountability.”
Furthermore, we have implemented the FMEA method to foster employees’ capabilities in risk analysis. Therefore, we established a channel for communication to encourage and ensure the employees to fully express their opinions for professional response and assistance. By doing so, we hope to establish a working attitude of “Safety and health first” to further improve the quality of our working environment, and eventually to become a good example of global safety and hygiene management.
The following list sets forth some of the important awards that we received in environmental protection, safety and health.health:
Selected as a member of Dow Jones Sustainability Indexes for 5seven years since 2008;
Awarded “Taiwan Green Classics Award” by Taiwan Ministry of Economic Affairs . (2012);
Awarded “Taiwan Corporate Sustainability Report Award” by Taiwan Institute for Sustainable Energy. (2008-2012)(2008-2014);
Awarded “The Best Participation of Green Procurement for Enterprises” by the Environmental Protection Administration of Executive Yuan, R.O.C.(2012) (2012 -2014);
Awarded “Workplace Safety & Health Performance Awards- Silver Award” by Ministry of Manpower. (2012); and
Awarded “Excellent Industrial Safety and Health Executive Organization of Hsinchu Science Park” by The Science Park Administration. (2012)(1998-2014).
Climate Change
We hope to contribute to energy saving and carbon reduction through breakthroughs in green technology development and applications and establish our company as a leader in the green technology industry by injecting fresh enthusiasm for sustainable development.
We announced the climate change policy and carbon emission reduction plans on April 22, 2010. The new plans included a reduction of 33% for normalized perfluorinated compounds, or PFC, emissions and 3% for electricity usage by 2012 compared with the base year 2009. Our climate change policies during this post-Kyoto Protocol period includes:announced on April 22, 2010 include: (i) achieving carbon neutral status via carbon management, (ii) becoming a comprehensive low-carbon emissions solution provider, and (iii) leveraging corporate resources to cultivate a low-carbon emissions economy.
In order to implement these policies, we completed a carbon emission reduction plan named “333-project”, which consisted of reducing electrical energy consumption by 3% and per-fluorinated compounds emissions by 33% per wafer by 2012. We weresurpassed these targets by implementing cleaner gases and various energy saving technologies and reached the leadertargets of reducing normalized per-fluorinated compounds, or PFC, emissions by 39% and electricity usage by 4% by 2013 compared with the base year 2009. Thereafter, we started another aggressive project named “369+-project” in 2013. We are in the foundry industryprocess of reducing the usage of electricity by 3%, the usage of pipe water by 6% and the waste generation by 9% by 2015 compared with the base year 2012. Meanwhile, we also endeavor to complete the replacement of C3F8 with C4F8 in 2011. UMC has made significant progress in reaching the voluntary reduction goals. It was estimated to bring the total relative CO2 emission reduction by approximately 0.55 million tons during 2010 to 2012. Currently, UMC reducesreduce carbon emissions through the following two aspects: 1. UMC continuesmeasures: (1) we continue to implement a greenhouse gas emissionsemission reduction plan to assist customers in establishing a low-carbon emissions supply chain, and 2. UMC continues its(2) we continue to enhance our research and development in advanced processes to provide low powerlow-power products and reduce carbon emissions at the consumer level.
Since 1999, we have been a pioneer in the foundry industry to implement measures to reduce per-fluorinated compounds, and we completed the replacement of C3F8 with C4F8 in 2011. We have made a significant achievement by reducing normalized per-fluorinated compounds by approximately 67%, which is one of the major greenhouse gas reduction objectives of the World Semiconductor Council, during 2000 to 2013. Although the Greenhouse Gas Reduction Act proposal is still under the Legislative Yuan’s review, the Environmental Protection Administration of the Executive Yuan, or EPA, is governing the matters related to greenhouse gases, including without limitation the allocation of carbon emission credits, the maintenance of carbon emission credit accounts, and the sales and transfer procedures thereof by its administrative orders. In 2013, we received 2,873,000 tons of carbon emissions credits from EPA. In 2014, we and Dragon Steel Corporation executed a contract to trade 2,000,000 tons of carbon emission credits. It was the first trade of carbon emissions credits that was reviewed and recorded by the EPA, indicating a significant milestone in Taiwan’s carbon emissions credits trading market. We plan to use all of the gains from our carbon emissions credit sales, if any, to enforce environmental protection and promote the sustainable development of the environment.
We also support timely disclosure of carbon information and ensuring data quality. Since 2006, we have participated in the Carbon Disclosure Project formed by global institutional investors and disclosed our annual greenhouse gas emission volume, reduction goals and results. In 2014, we were selected as the CDP’s Climate Disclosure Leadership Index for two years. We recorded the highest foundry’s score among all participating Taiwanese semiconductor companies. Moreover, we engage third-party verifiers to ensure the quality of the data. We completed verification on greenhouse gas emission and reduction records during 2000 to 20112010 for all of our fabs in Taiwan.Taiwan and during 2011 to 2013 for all of our fabs in both Taiwan and Singapore. We planexpect to complete the 2012 GHG2014 greenhouse gas emissions data verification within this year.by the end of 2015.
In addition, our environmental efforts include the establishment of our New Business Development Center, which promoteshelps promote a low carbon economy by investing across the entire supply chain of the green technology industry, including renewable energy,the solar energy, and new generation LEDs. TheLED industries. Our New Business Development Center focuscurrently focuses its primary investments onin the LED and solar energy and LED industries.
Risk Management
Risk and safety matters are administered by our Group’s Risk Management and Environmental Safety Health Division, or the GRM & ESH, established in 1998. We are pursuing the goal of a highly protected risk status in the semiconductor industry through the implementation of strict engineering safety procedures, regular enforcement of safety codes and standards, and compliance of detailed industry safety guidelines.
Our hazards risk management slogans are set forth below:
Uniqueness in risk management,
Maturity in property loss control; and
Continuous improvement in BCP.
We have also adopted the Triple Star Ranking System of ChartisAIG Insurance, a global leader in risk management and insurance, since 1999. All fabs have been ranked as top-class following Chartis’sAIG’s risk evaluation and risk improvement recommendations. The ranking system focuses on 20 items, including ten Physical Protection Elements and ten Human Elements. Our latest 12-inch lines, Fab 12A P1/2, 12A P3/4 and 12i, obtained triple-stars in all 20 elements in the very first Triple Star Audit. Furthermore, we were awarded the “Outstanding Performance Award in Risk Management” by AIG Insurance again in 2013. The newly expanded 12-inch line, Fab12A P5/6, is built in accordance with the international loss control standards, and we anticipate that this facility will achieve the top-class ranking by AIG within six months after becoming operational in 2015.
We have also implemented proactive efforts in earthquake risk prevention. We believe our efforts contributed to our quick and exemplary recovery from two major earthquakes in Taiwan on September 21, 1999 and March 4, 2010, respectively. Our Hsinchu fabs and Fab 12A in Tainan sustained only minor impact to their operations from the earthquake without interruption to the power system or water service. Normal operations resumed shortly after the incidents.
Besides,Extreme weather also presents a risk to various business operations. In order to understand the potential impact on us, we are fully awareimplemented a flood risk simulation project in 2014. Since Hsinchu Science-Based Industrial Park is located at a relatively higher elevation, we concluded that there is no potential flood risk. However, we have concluded that there is theoretical flood risk for Fab 12A in Tainan, and as a result, we have scheduled a physical improvement plan to upgrade the flood protection level of the impact posed by business interruption. this facility.
We are also devoted in the pursuit of corporate resilience and continuity by committing non-interrupted services to satisfy our valued customers and important stakeholders. In 2011,2013, we announced our Business Continuity Management policy, objective and management organization. In 2012, we followwere the most update standard, ISO22301 and established Business Continuity Management Systemfirst foundry in the world to ensure UMC’s ability to minimize any impact from incidents that may affect operation and to provide resilience to the UMC’sreceive ISO 22301 certification for its business continuity with minimal loss.
Insurance
We maintain industrial all risk insurance for our buildings, facilities, equipment and inventories as well as third partythird-party properties. The insurance for fabs and their equipment covers losses from physical damage and business interruption up to their respective policy limits except for policy exclusions. We purchase directors and officers liability insurance for our board directors and executive officers, covering the liabilities incurred in relation to his/her/its operation of business and legally responsible for. We also maintain public liability insurance for losses to third parties arising from our business operations. We believe that our insurance arrangement is adequate to cover all major types of losses relevant to the semiconductor industry practice. However, significant damage to any of our production facilities, whether as a result of fire or other causes, could seriously harm our business.
C. Organizational Structure
C. | Organizational Structure |
The following list shows our corporate structure as of December 31, 2012:2014:
Company | Jurisdiction of | Percentage of Ownership as of December 31, | ||||
UMC Group (USA) | U.S.A. | 100.00 | % | |||
United Microelectronics (Europe) B.V. | The Netherlands | 100.00 | % | |||
UMC Capital Corp. | Cayman Islands | 100.00 | % | |||
TLC Capital Co., Ltd. | Taiwan, R.O.C. | 100.00 | % | |||
UMC New Business Investment Corp. | Taiwan, R.O.C. | 100.00 | % | |||
Green Earth Limited | Samoa | 100.00 | % | |||
Fortune Venture Capital Corp. | Taiwan, R.O.C. | |||||
| 100.00 | % | ||||
UMC Investment (Samoa) Limited | Samoa | 100.00 | % | |||
Unitruth Investment Corp. | Taiwan, R.O.C. | 100.00 | % | |||
UMC Capital | U.S.A. | 100.00 | % | |||
ECP VITA PTE. LTD. | Singapore | 100.00 | % | |||
Soaring Capital Corp. | Samoa | 100.00 | % | |||
Unitruth Advisor (Shanghai) Co., Ltd. | China | 100.00 | % | |||
Tera Energy Development Co., Ltd. | Taiwan, R.O.C. | 100.00 | % | |||
Nexpower Technology Corp. | Taiwan, R.O.C. | % | ||||
Wavetek Microelectronics Corporation | Taiwan, R.O.C. | |||||
| % | |||||
Everrich Energy Investment (HK) Limited | China | % | ||||
Everrich (Shandong) Energy Co., Ltd. | China | % | ||||
Unistars Corp. | Taiwan, R.O.C. | % | ||||
Topcell Solar International Co., Ltd. | Taiwan, R.O.C. | % | ||||
Smart Energy Enterprises Limited | China | |||||
| ||||||
| % | |||||
NPT Holding Limited | Samoa | % | ||||
NLL Holding Limited | Samoa | % | ||||
| Italy | % | ||||
| U.S.A. | 100.00 | % | |||
UMC | China | 100.00 | % | |||
Wavetek Microelectronics Investment (Samoa) Limited | Samoa | 81.53 | % | |||
Wavetek Microelectronics Corporation (USA) | U.S.A. | 81.53 | % | |||
Best Elite International Limited | British Virgin Islands | 86.88 | % | |||
Infoshine Technology Limited | British Virgin Islands | 86.88 | % | |||
Oakwood Associates Limited | British Virgin Islands | 86.88 | % | |||
Hejian Technology (Suzhou) Co., Ltd. | China | 86.88 | % | |||
UnitedDS Semiconductor (Shandong) Co., Ltd. | China | 86.88 | % | |||
UMC Group JAPAN | Japan | 100.00 | % | |||
UMC Korea Co., Ltd. | Korea | 100.00 | % | |||
Omni Global Limited | Samoa | 100.00 | % | |||
United Microtechnology Corporation (California) | U.S.A. | 100.00 | % | |||
United Microtechnology Corporation (New York) | U.S.A. | 100.00 | % |
D. Property, Plants and Equipment
D. | Property, Plants and Equipment |
Please refer to “—B. Business Overview—Manufacturing Facilities” for a discussion of our property, plants and equipment.
ITEM 4A. UNRESOLVED STAFF COMMENTS
ITEM 4A. | UNRESOLVED STAFF COMMENTS |
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
Unless stated otherwise, the discussion and analysis of our financial condition and results of operations in this section apply to our financial information as prepared in accordance with R.O.C. GAAP.IFRSs. You should read the following discussion of our financial condition and results of operations together with the consolidated financial statements and the notes to such statements included in this annual report. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information-D. Risk Factors” or in other parts of this annual report on Form 20-F. R.O.C. GAAP varies in certain significant respects from U.S. GAAP. These differences and their effects on our financial statements are described in Note 36 to our audited consolidated financial statements included in this annual report.
For the convenience of readers, NT dollar amounts used in this section for, and as of, the year ended December 31, 20122014 have been translated into U.S. dollar amounts using US$1.00 = NT$29.05,31.60, the noon buying rate as certified for customs purposes by the Federal Reserve Bank of New York on December 31, 2012.2014. The U.S. dollar translation appears in parentheses next to the relevant NT dollar amount.
Overview
We are one of the world’s leading independent semiconductor foundries, providing comprehensive wafer fabrication services and technologies to our customers based on their designs.
Cyclicality of the Semiconductor Industry
As the semiconductor industry is highly cyclical, revenues varied significantly over this period. It can take several years to plan and construct a fab and bring it to operations. Therefore, during periods of favorable market conditions, semiconductor manufacturers often begin building new fabs or acquiring existing fabs in response to anticipated demand growth for semiconductors. In addition, after commencement of commercial operations, fabs can increase production volumes rapidly. As a result, large amounts of semiconductor manufacturing capacity typically become available during the same time period. Absent a proportional growth in demand, this increase in supply often results in semiconductor manufacturing overcapacity, which has led to a sharp decline in semiconductor prices and significant capacity under-utilization. Our average capacity utilization rate was 93.7%78.8%, 78.6%82.3% and 78.8%89.0% for the years ended December 31, 2010, 20112012, 2013 and 2012,2014, respectively. We believe that our operating results in 2010, 20112012, 2013 and 20122014 continue to reflect the ongoing uncertainty in the global economy, conservative corporate information technology spending and low visibility with respect to end market demand.
Pricing
We price our products on either a per die or a per wafer basis, taking into account the complexity of the technology, the prevailing market conditions, the order size, the cycle time, the strength and history of our relationship with the customer and our capacity utilization. Because semiconductor wafer prices tend to fluctuate frequently, we in general review our pricing on a quarterly basis. As a majority of our costs and expenses are fixed or semi-fixed, fluctuations in our products’ average selling pricesprice historically have had a substantial impact on our margins. Our average selling price decreased approximately 3.2%5.5% in 20122013 compared to 2011,2012 and further decreased approximately 3.7% in 2014 compared to 2013, respectively, primarily due to nominal price erosion.
We believe that our current level of pricing is comparable to that of other leading foundries in each respective geometry. We believe that our ability to provide a wide range of advanced foundry services and process technologies as well as large manufacturing capacity will enable us to compete effectively with other leading foundries at a comparable price level.
Capacity Utilization Rates
Our operating results are characterized by relatively high fixed costs. In 2010, 20112012, 2013 and 2012,2014, approximately 61.5%65.7%, 63.8%66.8% and 65.7%67.1%, respectively, of our manufacturing costs consisted of depreciation, a portion of indirect material costs, amortization of license fees and indirect labor costs.
If our utilization rates increase, our costs would be allocated over a larger number of units, which generally leads to lower unit costs. As a result, our capacity utilization rates can significantly affect our margins. Our utilization rates have varied from period to period to reflect our production capacity and market demand. Our average capacity utilization rate was 93.7%78.8%, 78.6%82.3% and 78.8%89.0% for the years ended December 31, 2010, 20112012, 2013 and 2012,2014, respectively. Utilization rates were primarily affected by global macroeconomic factors. Other factors affecting utilization rates are efficiency in production facilities, product flow management, the complexity and mix of the wafers produced, overall industry conditions, the level of customer orders, mechanical failure, disruption of operations due to expansion of operations, relocation of equipment or disruption of power supply and fire or natural disaster.
Our production capacity is determined by us based on the capacity ratings given by manufacturers of the equipment used in the fab, provided by the engineers, adjusted for, among other factors, actual output during uninterrupted trial runs, expected down time due to set up for production runs and maintenance, expected product mix and research and development. Because these factors include subjective elements, our measurement of capacity utilization rates may not be comparable to those of our competitors.
Change in Product Mix and Technology Migration
Because the price of wafers processed with different technologies varies significantly, the mix of wafers that we produce is among the primary factors that affect our revenues and profitability. The value of a wafer is determined principally by the complexity and performance of the processing technology used to produce the wafer, as well as by the yield and defect density. Production of devices with higher levels of functionality and performance, with better yields and lower defect density as well as with greater system-level integration requires better manufacturing expertise and generally commands higher wafer prices. The increase in price generally has more than offset associated increases in production cost once an appropriate economy of scale is reached.
Prices for wafers of a given level of technology generally decline over the processing technology life cycle. As a result, we have continuously been migrating to increasingly sophisticated technologies to maintain the same level of profitability. We began our volume production with 90-nanometer65-nanometer and 65-nanometer40-nanometer technologies in 20042006 and 2006,2009, respectively. We introduced our 28-nanometer technology to customers in 2011 and started 40-nanometerlarge-scale commercial production since 2014, which contributed approximately 7% of our foundry revenue in the first half of 2009.2014. These types of technology migration require continuous capital and research and development investment. Because developing and acquiring advanced technologies involve substantial capital investment, we expect to continue to spend a substantial amount of capital on upgrading our technologies and capabilities. We introduced our 28-nanometer technology to customers in 2011 to significantly increase the competitive advantages of our customers by providing better device performance in a smaller die size.
Manufacturing Yields
Manufacturing yield per wafer is measured by the number of functional dice on that wafer over the maximum number of dice that can be produced on that wafer. A small portion of our products is priced on a per die basis, and our high manufacturing yields have assisted us in achieving higher margins. In addition, with respect to products that are priced on a per wafer basis, we believe that our ability to deliver high manufacturing yields generally has allowed us to either charge higher prices per wafer or attract higher order volumes, resulting in higher margins.
We continually upgrade our process technologies. At the beginning of each technological upgrade, the manufacturing yield utilizing the new technology is generally lower, sometimes substantially lower, than the yield under the current technology. The yield is generally improved through the expertise and cooperation of our research and development personnel and process engineers, as well as equipment and at times raw material suppliers. Our policy is to offer customers new process technologies as soon as the new technologies have passed our internal reliability tests.
Investments
Most of our investments were made to improve our market position and for strategy considerations, a significant portion of which are in foundry-related companies including fabless design customers, raw material suppliers and intellectual property vendors. In addition, we also invest in non-foundry-related businesses, such as Cathay Financial Holding Co., Ltd. composed of insurance, securities, banking and other diversified financial institutions. We have established the New Business Development Centerour NBI to identify and make strategic investments in high growthdeveloping industries such as solar energy and LED.
In recent years, many developed and developing countries have listed energy saving and carbon reduction as primary administrative policies to tackle the challenge of potential energy shortages in future. Technologies for renewablesolar energy and energy saving are expected to become a focus in future technology development and the growth of green energy related industries is predictable.development. On August 24, 2009, our Boardboard of Directorsdirectors approved the establishment of our New Business Development Center and its 100% owned subsidiary, UMC New Business Investment Corporation. We established the New Business Development CenterNBI to capitalizefocus on high growth and high profitinvestments in potential industries such as solar, light-emitting diode, LED, and semiconductor through timely strategic investment. Although our revenues from the solar energy and LED section have been adversely affected by short-term market conditions, we believe that the long-term potential of solar and LED sectors still appears promising. We believe that these two sectors have great potential for growth and have invested an additional NT$3 billion to our UMC New Business Investment Corporation in 2011 that was allocated to research and development and capital expenditures forindustries.
In the solar manufacturing industry, our investments consist of companies engaged in the manufacturing of crystalline PV cells and thin-film PV modules, providing engineering procurement and construction (EPC) services, and financings. Majority of our investments in the LED sectors. However, theindustry focus on epi wafer manufacturing, as well as developing advanced wafer technology - chip scale packaging.
The solar energy and LED markets were adversely affected by over-supply in 2012, so2013 and 2014. Therefore, we have been focused on improving the operational efficiency and develop leading-end technologies, while continuously to strengthen the financial structure of our subsidiaries instead of making additional investments into these subsidiaries.investments. We continue to remain committed to further developingoptimize our investments in the solar energy and LED sectorsindustries and believe that such investments will position us well for future growth.
We Other than our investments through our NBI, we have, from time to time, disposed of investments for financial, strategic or other purposes in recent years. See “Item 4. Information on the Company—B. Business Overview—Our Investments” for a description of our investments.
Treasury Share Programs
We have from time to time announced plans, none of which waswere binding on us, to buy back up to a fixed amount of our common shares on the Taiwan Stock Exchange at the price range set forth in the plans. In 2010, 2011, and 2012, we purchased an aggregate of 300 million, nil and nil, respectively, of our shares under these plans. From February 3, 2010 to April 2, 2010, we purchased 300 million of our shares at an average price of NT$16.15 per share to transfer to employees. In addition, onOn March 13, 2013, the Boardour board of Directorsdirectors resolved to purchase up to 200 million common shares on the Taiwan Stock Exchange at a price between NT$7.80 and NT$16.90 per share during the period from March 14, 2013 to May 13, 2013 to transfer to employees.our employees as employee compensation. During 2012, 2013 and 2014, we purchased an aggregate of nil, 200 million and nil common shares, respectively, and transferred nil, nil and 5.49 million of such common shares that we repurchased under these plans to our employees as employee compensation in 2012, 2013 and 2014, respectively.
Critical Accounting Policies
General
Our discussion and analysisThe preparation of our financial condition and results of operations are based upon our consolidated financial statements includedrequires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities, the accompanying disclosures and the disclosure of contingent liabilities. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
The key assumptions concerning the future and other key sources of estimation for uncertainty at the reporting date that would have a significant risk for a material adjustment to the carrying amounts of assets or liabilities within the next fiscal year are discussed below. We based our assumptions and estimates on information available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond our control. Such changes are reflected in the annual report, which have been prepared inassumptions when they occur.
Classification and Measurement of Financial Instruments
Financial assets and financial liabilities are recognized when we become a party to the contractual provisions of the instrument. We determine the classification of our financial assets at initial recognition. In accordance with R.O.C. GAAP, which varies in certain respects from U.S. GAAP. These differences“IAS 39 - Financial Instruments: Recognition and their effects onMeasurement”, our financial statementsassets are describedclassified as financial assets at fair value through profit or loss, available-for-sale financial assets, held-to-maturity financial assets and notes, accounts and other receivables. Our financial liabilities are classified as financial liabilities at fair value through profit or loss and financial liabilities carried at amortized cost. Purchase or sale of financial assets and liabilities are recognized using trade date accounting. All financial instruments are recognized initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable costs, and are subsequently measured at fair value or amortized cost using the effective interest method, less impairment, based on the classification. We assess whether objective evidence of impairment exists for a financial asset or a group of financial assets at each reporting date.
Where the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be derived from active markets, they are determined using valuation techniques including income approach (for example, the discounted cash flows model) or the market approach. Changes in assumptions about these factors could affect the reported fair value of the financial instruments. Please refer to Note 3611 to our audited consolidated financial statements included elsewhere in this annual report. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis and base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basisreport for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies involve significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, the product or service has been delivered, the seller’s price to the buyer is fixed or determinable and collectability is reasonably assured. Most of our sales transactions have shipping terms of Free Carrier, or FCA, by which title and the risk of loss or damage for the shipment are transferred to the customer upon delivery of the product to a carrier approved by the customer.
Allowance for sales returns and discounts are estimated based on the information of customer complaints, historical experiences, management judgment and any other known factors that might significantly affect collectability. Such allowances are recorded in the same period in which sales are made. Shipping and handling costs are included in sales expenses.
Allowance for Doubtful Accounts
Prior to December 31, 2010, recognition of an allowance for doubtful accounts was based on historical experience in analyzing the aging and determining the collectability of notes, accounts and other receivables as of the balance sheet date. Effective January 1, 2011, we first assess as of balance sheet date whether objective evidence of impairment exists for notes, accounts and other receivables that are individually significant. If there is objective evidence that an impairment loss has occurred, the amount of impairment loss is assessed individually. For notes, accounts and other receivables other than those mentioned above, we group those assets with similar credit risk characteristics and collectively assess them for impairment. If, in a subsequent period, the amount of the impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed and recognized through profit or loss. The reversal shall not result in a carrying amount of notes, accounts and other receivables that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed. Considerable judgment is required in assessing the ultimate realization of these receivables including the current credit worthiness and the past collection history of each customer. A deterioration of economic conditions either in the R.O.C. or in other major overseas markets may contribute to the deterioration of financial conditions of our customers, resulting in an impairment of their ability to make payments.
Inventory
Inventories are accounted for on a perpetual basis. Raw materials are recorded at actual purchase costs, while the work in process and finished goods are recorded at standard costs and subsequently adjusted to costs using the weighted-average method at the end of each month. The cost of work in progress and finished goods comprises raw materials, direct labor, other direct costs and related production overheads. Allocation of fixed production overheads to the costs of conversion is based on the normal capacity of the production facilities. Cost associated with underutilization of capacity is expensed as incurred.
Inventories are valued at the lower of cost and net realizable value item by item. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Net realizable value of the Company’s work in progress and finished goods is measured at the contractual sales price less predictable costs of completion, while that of the raw materials is the replacement cost by purchase. Costs of completion include direct labor and overhead, including depreciation and maintenance of production equipment, indirect labor costs, indirect material costs, supplies, utilities and royalties that is expected to be incurred at normal production level. The Company estimates normal production level taking into account the loss of capacity resulting from planned maintenance, based on historical experience and current production capacity.
Inventories are reduced for the estimated losses arising from excess, obsolescence, and the decline in value. This reduction is determined by estimating market value based on future customer demand. The losses on inventory obsolescence are recorded as a part of cost of sales.
Income Taxes
Most of our existing tax benefits arise from investment tax credits, and others from net operating loss carry-forward and temporary differences. We recognize these tax benefits as deferred tax assets. Income tax expense or benefit is recognized when there is a net change in deferred tax assets and liabilities. A valuation allowance is recorded to reduce our deferred tax assets to the extent that we believe it is more likely than not that the tax benefits will not be realized. The assessment of the valuation allowance involves subjective assumptions and estimates as it principally depends on the estimation of future taxable income. If future taxable income is lower than expected due to future market conditions or other reasons or in the event we determine that we will not be able to realize all or part of our net deferred tax assets in the future, an adjustment to our deferred tax assets valuation allowance may be required with the adjusting amount charged to income in this period. Likewise, should future taxable income be higher than expected due to future market conditions or other reasons or in the event we determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to our deferred tax assets valuation allowance would increase income in this period.
Long-lived Assets Impairment
We review the long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of the long-lived assets might not be recoverable. Such review may include assessing whether there is a significant decrease in market values of long-lived assets or significant deterioration of market conditions to indicate the carrying value of such assets may not be recovered through future cash flows, any change in the use of long-lived assets to negatively affect their fair values, and any obsolescence issues that would lead to a lower fair value determination. If there is an indication that an asset might be impaired, we proceed with a further impairment test, which is performed for asset groups related to the lowest level of identifiable independent cash flows. We compare the carrying amount with the recoverable amount derived from discounted cash flow analysis to determine whether the asset is impaired and recognize impairment loss to the extent that its carrying amount exceeds its recoverable amount. If there is evidence that impairment losses recognized previously no longer exists, or has diminished, and the recoverable amount of the long-lived assets increases because of an increase in the asset’s estimated service potential, the amount of loss may be reversed to the extent that the resulting carrying value should not exceed the carrying value had no impairment loss been recognized in prior years.
Due to our asset usage model and the interchangeable nature of our semiconductor manufacturing capacity, we must make subjective judgments and estimates in determining the independent cash flows that can be related to specific asset groups, including the service potential of long-lived assets through its estimated useful life, cash flow generating capacity, physical output capacity, potential fluctuation of economic cycle in the semiconductor industry and our operating situation.
Goodwill Impairment
Goodwill is subject to impairment tests on an annual basis, or more frequently whenever events occur or circumstances change indicating that goodwill might be impaired. The assessment on impairment of goodwill is subject to significant judgment. Such judgment includes identifying the cash generating unit, or CGU, making assumptions for discounted cash flow analysis to derive the fair value of the CGU and properly assigning relevant assets, liabilities and goodwill to the CGU. Ultimately, we compare the fair value of goodwill to its carrying value and determine the impairment loss, if any. If the relevant assumptions and estimates change in the future, they will impact our goodwill impairment test.
Pension
Under the defined benefit pension plan of the Labor Standards Law, we have significant pension benefit costs and liabilities that are developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates and expected return on plan assets. We consider current market conditions, including changes in interest rates, in selecting these assumptions. In addition to changes resulting from fluctuations in our related headcount, changes in the related pension costs or liabilities may also occur in the future due to changes in assumptions. Under the defined contribution pension plan of the R.O.C. Labor Pension Act, we are required to make monthly contributions to employees’ individual pension accounts and recognize expenses in the periods in which the contributions become due.
Net pension costs of the defined benefit plan are recorded based on an independent actuarial valuation. Pension cost components such as service cost, interest cost, expected return on plan assets, the amortization of net obligation at transition, pension gain or loss, and prior service cost, are all taken into consideration. We recognize expenses from the defined contribution pension plan in the period in which the contribution becomes due.
Investments in Debt and Equity Securities
In accordance with R.O.C. GAAP, equity securities over which we exercise no significant influence or control and with readily determinable fair values and debt securities are to be classified as financial assets at fair value through profit or loss, or FVTPL, available-for-sale or held-to-maturity securities. Debt securities that we have the intent and ability to hold to maturity are classified as held-to-maturity securities and reported at their amortized cost. Debt and equity securities that are bought and traded for short-term profit are classified as FVTPL and reported at fair value, with unrealized gains and losses included in earnings. Debt and equity securities not classified as either held-to-maturity or FVTPL are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses reported in other comprehensive income under stockholders’ equity. Unrealized losses that are deemed to be other than temporary are charged to earnings. For individual securities classified as either available-for-sale or held-to-maturity, we consider, among other factors, information concerning significant adverse changes in market conditions in which the investee operates and operating issues specific to the investee in determining whether a decline in value is temporary. In general, we consider a decline in market value below cost for a continuous period of six months to be other than temporary unless there is persuasive evidence to the contrary. If the decline in fair value is judged to be other than temporary, the cost basis of the individual security is written down to fair value with a charge against earnings.
Derivative Instruments
UMC has exchangeable bonds where the bondholders may exchange the bonds into shares of certain public entities which UMC holds as available-for-sale financial assets. In accordance with IAS 39, if the economic characteristics and risks of the embedded call or put options are not clearly and closely related to the host contract, the derivative financial instruments embedded in exchangeable bonds would be recognized separately as financial assets or liabilities at fair value through profit or loss.
Both the host contract and bifurcated embedded derivative financial instrument in exchangeable bonds are classified as current liabilities if the bondholders have the right to demand settlement by exercising the exchange option of the bonds.
The embedded derivative features contained in exchangeable bonds are bifurcated and separately accounted for if the economic characteristics and risks of the embedded derivative instruments are not clearly and closely related to those of the host contracts. Those bifurcated embedded derivatives are fair valued at the end of each reporting period by using the option pricing model with the changes in fair value included in earnings. The valuation model uses the market-based observable inputs including share price, volatility, credit spread and swap rates.
Inventories
Inventories are accounted for on a perpetual basis. Raw materials are stated at actual purchase costs, while the work in process and finished goods are stated at standard costs and subsequently adjusted to weighted-average costs at the end of each month. The cost of work in progress and finished goods comprises raw materials, direct labor, other direct costs and related production overheads. Allocation of fixed production overheads to the costs of conversion is based on the normal capacity of the production facilities. Cost associated with underutilization of capacity is expensed as incurred.
Inventories are valued at lower of cost and net realizable value item by item. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Please refer to Note 6(4) to our audited consolidated financial statements included elsewhere in this annual report. Costs of completion include direct labor and overhead, including depreciation and maintenance of production equipment, indirect labor costs, indirect material costs, supplies, utilities and royalties that is expected to be incurred at normal production level. We also hold certain freestanding derivative instruments suchestimate normal production level taking into account loss of capacity resulting from planned maintenance, based on historical experience and current production capacity.
Post-Employment Benefits
All regular employees are entitled to a defined benefit pension plan that is managed by an independently administered pension fund committee. Fund assets are deposited under the committee’s name with the Bank of Taiwan and hence, not associated with us. Therefore, fund assets are not to be included in our consolidated financial statements. Pension benefits for employees of the overseas branch and subsidiaries are provided in accordance with the local regulations.
Post-employment benefit plan that is classified as interesta defined benefit plan is accounted for under the Projected Unit Credit Method to measure its obligations and costs based on actuarial assumptions. We recognize all remeasurements of defined benefit pension plans in the periods which they occur in other comprehensive income, which then are immediately recognized in retained earnings.
Cost of post-employment benefit pension plan and the present value of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future. These include the determination of the discount rate, swapfuture salary increases and forward contracts, whichmortality rates. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are fair valuedreviewed at each reporting period end.date. The assumptions used for measuring pension cost and the present value of the pension obligation are disclosed in Note 6(14) to our audited consolidated financial statements included elsewhere in this annual report.
In determining the appropriate discount rate, management considers the interest rates of the government bonds extrapolated from maturity corresponding to the expected duration of the defined benefit obligation. As for the rate of future salary increase, management takes account of past experiences, comparisons within the industry and the geographical region, inflation and the discount rate.
Share-Based Payment Transactions
The cost of equity-settled transactions between our employees and us is measured based on the fair value at the date on which they are granted. The fair valuesvalue of thesethe equity instruments areis determined using an appropriate pricing model.
The cost of equity-settled transactions is recognized, together with a corresponding increase in other capital reserves in equity, over the periods in which the performance and/or service conditions are being fulfilled. The cumulative expense recognized for equity-settled transactions at each reporting date reflects the extent to which the vesting period has passed and our best estimate of the quantity of equity instruments that will ultimately vest. The charge to profit or loss for a period represents the movement in cumulative expense recognized between the beginning and the end of that period. No expense will be recognized for awards that do not ultimately vest, except for equity-settled transactions for which vesting is conditional upon a market establishedor non-vesting condition. These are treated as vested irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.
Where the terms of an equity-settled transaction award are modified, the minimum expense recognized is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employees as measured at the date of modification.
We measure the cost of equity-settled transactions with employees based on reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation techniques,model, which involve certain keyis dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs such asto the valuation model including the expected interest forward rate, expectedlife of the share option, volatility and dividend yield and making assumptions about them. Please refer to Note 6(16) to our audited consolidated financial statements included elsewhere in interest rates,this annual report for more details.
Revenue Recognition-Sales Returns and spot exchange rate. Any changeDiscounts
Revenue is recognized to the extent that it is probable that the economic benefits will flow to us and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable.
Sales returns and discounts are estimated based on customer complaints, historical experiences and any other known factors that might significantly affect the estimation.
Impairment of Property, Plant and Equipment
At each reporting date or whenever events indicate that the asset’s value has declined or significant changes in such key inputsthe market with an adverse effect have taken place, we assess whether there is an indication that an asset in the scope of “IAS 36 - Impairment of Assets” may be impaired. If any indication exists, we complete impairment testing for the cash-generating unit (CGU) to which the individual assets belong. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. The recoverable amount of an individual asset or CGU is the higher of fair value less costs of disposal and its value in use. The fair value less costs of disposal is based on best information available to reflect the amount that an entity could materially impactobtain from the disposal of the asset in an arm’s length transaction between knowledgeable, willing parties, after deducting the costs of disposal. The value in use is measured at the net present value of the future cash flows the entity expects to derive from the asset or CGU. Cash flow projection involves subjective judgments and estimates which include the estimated useful lives of property, plant and equipment, capacity that generates future cash flows, capacity of physical output, potential fluctuations of economic cycle in the industry and our operating situation.
Income Tax
Income tax expense (benefit) is the aggregate amount of current income tax and deferred income tax included in the determination of fair value of these derivative instruments.
Employee Stock Options
Under R.O.C. GAAP,profit or loss for stock options granted to our employees, we recognize compensation costthe period. Current income tax assets and liabilities for the current period and prior periods are measured using the Black-Scholes option- pricing model in accordance with R.O.C. SFAS No. 39 “Accounting for Share-Based Payment”,tax rates and tax laws that have been enacted or R.O.C. SFAS 39. The Black-Scholes option-pricing model requiressubstantively enacted by the use of input assumptions, including expected volatility, expected life, expected dividend rate and expected risk-free rate of return. We applied the historical realized volatility, which calculates volatility based on the historical stock price volatility over the time period equal to the expected termend of the employee stock option,reporting period. Current income tax relating to items recognized directly in estimating expected volatility because our shares have been publicly traded for a long time. We determined the expected term based on historical stock option exercise data and we used the historical pattern of dividend yield for estimating the expected dividend of the underlying employee stock options. For entities based in jurisdictions outside the United States, the risk-free interest rate is the implied yield of zero-coupon government bonds currently available in the market in which the shares are primarily traded. Hence, we use the average yield of Taiwan Government Bond with the remaining term similar to the expected option term as the risk-free interest rate. We adjust employee stock option expenses on an annual basis for changes in expected forfeitures based on the examination of latest employee stock option forfeiture activity. The effect of adjusting the forfeiture rate used for expense amortizationother comprehensive income or equity is recognized in other comprehensive income or equity rather than profit or loss.
Deferred income tax is provided using the corresponding periodliability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts in financial statements at the reporting date. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date. The measurement of deferred tax assets and liabilities reflects the tax consequences that would follow the manner in which we expect, at the expected forfeiture rateend of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax relating to items not relating to profit or loss is changed.not recognized in profit or loss but rather in other comprehensive income or directly in equity. Deferred tax assets are reassessed and recognized at each reporting date. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax assets to be recovered. Deferred tax assets and liabilities offset each other, if a legally enforceable right exists to set off current income tax assets against current income tax liabilities, and the deferred taxes relate to the same taxable entity and the same taxation authority.
Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. We establish provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and different interpretations of tax regulations made by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in our respective domicile.
Deferred tax assets are recognized for all carry forward of unused tax losses tax credits and deductible temporary differences to the extent that it is probable that future taxable profit will be available or there are sufficient taxable temporary differences against which the unused tax losses, unused tax credits or deductible temporary differences can be utilized. The amount of deferred tax assets determined to be recognized is based upon the likely timing and the level of future taxable profits and taxable temporary differences. Please refer to Note 6(22) to our audited consolidated financial statements included elsewhere in this annual report for more details on unrecognized deferred tax assets.
TransitionClassification of Joint Arrangements
A joint venture is a type of joint arrangement whereby we that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement with no single party controls the arrangement on its own, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.
We hold significant percentage of the voting rights of our joint arrangements. We have joint control over these arrangements as under the contractual agreements, unanimous consent is required from all parties to the agreements for all relevant activities.
Our joint arrangements are structured as limited companies and provide us and the parties to the agreements with rights to the net assets of the limited companies under the arrangements. Therefore, these entities are classified as our joint ventures.
A. | Operating Results |
Effect of Adopting IFRSs in 2013
Starting from January 1, 2013, we willWe started to prepare our annual consolidated financial statements in accordance with IFRSs as of and for the year ended December 31, 2013 and thereafter. Prior to December 31, 2012, we prepared our annual consolidated financial statements in accordance with R.O.C. GAAP. Effective January 1, 2013, companies listed on the Taiwan Stock Exchange, including us, must report their financial statements under TIFRSs pursuant to the requirements of the Framework for Adoption of International Financial Reporting Standards (“IFRSs”)by Companies in the R.O.C. promulgated by the FSC on May 14, 2009. Accordingly, we have adopted TIFRSs for reporting in the R.O.C. our annual consolidated financial statements starting from the year ended December 31, 2013. We also prepare our interim unaudited quarterly financial statements beginning in the first quarter of 2013 under TIFRSs, which are furnished to the SEC on Form 6-K. At the same time, we have adopted IFRSs as issued by the International Accounting Standards Board (“IASB”)IASB for our futureannual reports on Form 20-F with the U.S. SEC filing. Our transition date to IFRSs is January 1, 2012. As such, our 2012 consolidated financial statementsstarting from the year ended December 31, 2013.
In accordance with rule amendments adopted by the U.S. SEC for foreign private issuers reporting under IFRSs, we are not required to be includedprovide reconciliations to U.S. GAAP in this annual report following our 2013 Form 20-F may be different from the accompanying 2012 consolidated ones prepared based on the R.O.C. GAAP.adoption of IFRSs.
A. Operating Results
Net Operating Revenues
We generate our net operating revenues primarily from the manufacture and sales of wafer fabricating semiconductor devices.devices, solar energy and new generation LED. We also derive a small portion of our net operating revenues from wafer probe services that we perform internally as well as mask tooling services and assembly and test services that we subcontract out.to other companies.
Cost of Goods SoldOperating Costs
Our operating costs of goods sold consist principally of:
overhead, including depreciation and maintenance of production equipment, indirect labor costs, indirect material costs, supplies, utilities and royalties;
wafer costs;
direct labor costs; and
service charges paid to subcontractors for mask tooling, assembly and test services.
Our total depreciation expenses were NT$29,95135,118 million, NT$31,91537,242 million and NT$35,01138,786 million (US$1,2051,227 million) in 2010, 20112012, 2013 and 2012,2014, respectively.
Operating Expenses
Our operating expenses consist of the following:
Sales and marketing expenses. Sales and marketing expenses consist primarily of intellectual property development expenses, salaries and related personnel expenses, wafer sample expenses and related marketing expenses. Wafer samples are actual silicon samples of our customers’ early design ideas made with our most advanced processes and provided to those customers;
General and administrative expenses. General and administrative expenses consist primarily of salaries for our administrative, finance and human resource personnel, fees for professional services, and cost of computer and communication systems to support our operations; and
Research and development expenses. Research and development expenses consist primarily of research testing related expenses, salaries and related personnel expenses and depreciation on the equipment used for our research and development.
Net Other Operating Income and Expenses
Net other operating income and expenses consist primarily of:
Non-operating Income and Expenses
Our non-operating income principally consists of:and expenses primarily consist of the following:
1. | Other income, which consists of: |
interest income, which has beenis primarily derived from time deposits;
investment income accounted for under the equity method, which has been primarily derived from the recognition of investee companies’ net income based on the percentage of their ownership we hold;
gain on disposal of investments, which has been primarily derived from our disposal of long-term investments accounted for under the equity method, available-for-sale financial assets and financial assets measured at cost;
gain on disposal of property, plant and equipment;
dividend income, which has beenis primarily derived from the financial instruments of financial assets at fair value through profit or loss, available-for-sale financial assets and financial assets measured at cost;
2. | Other gains and losses, which principally consist of: |
gaingains or losses on valuation of financial assets and liabilities, which have beenare primarily derived from disposal of and changes in the values of financial assets and liabilities classified as FVTPLfair value through profit or loss, according to R.O.C. SFAS No. 34 “Financial Instruments: Recognition and Measurement”, or R.O.C. SFAS 34; and
Our non-operating expenses principally consist of:
3. | Finance costs, which principally consist of: |
loss on valuation of financial assets and liabilities,interest expenses, which have beenare primarily derived from disposal ofbonds payable and changes in the values of financial assetsbank loans; and liabilities classified as FVTPL according to R.O.C. SFAS 34;
investment loss accounted for under the equity method,financial expenses, which has beenare primarily derived from the recognition of investee companies’ net loss based on the percentage of their ownership we hold; and
4. | Share of profit or loss of associates and joint ventures, which is primarily derived from the recognition of investee companies’ net profit based on the ownership percentage we hold. |
impairment loss, which have been primarily derived from the loss recognized in long-term investments and long-lived assets.
5. | Bargain purchase gain, which is mainly derived from the acquisition of Best Elite. The purchase consideration was less than the fair value of Best Elite’s net assets due to our unique position to better utilize the assets, such as improving utilization, and the lack of liquidity of Best Elite’s ordinary and preferred shares. |
Taxation
Based on our status as a company engaged in the semiconductor business in Taiwan, we have been granted exemptions from income taxes in Taiwan with respect to income attributable to capital increases for the purpose of purchasing equipment related to the semiconductor business for a period of four or five years following each such capital increase. This tax exemption resulted in tax savings of approximately NT$990 million, NT$292 million and NT$55 million, nil and NT$182 million (US$26 million) in 2010, 20112012, 2013 and 2012,2014, respectively. Our tax rate was 17% in 2012,2014, the same rate applicable to companies outside the Hsinchu Science Park, and the statutory tax rate was changed from 25% to 17% effective January 1, 2010.
Park. We also benefit from other tax incentives generally available to technology companies in Taiwan, includingsuch as tax credits applicable against corporate income tax that range from 30% to 50% of the amount of certain research and development and employee training expenses and 5% to 20% of the amount of investment in certain qualified equipment and technology. These tax incentives resulted in tax savings of approximately NT$947343 million, NT$30138 million and NT$343549 million (US$1217 million) in 2010, 20112012, 2013 and 2012,2014, respectively.
After taking into account the tax exemptions and tax incentives discussed above, we recorded NT$1,606 million, NT$913 million and NT$2,129 million (US$73 million) of tax expenses in 2010, 2011 and 2012, respectively. Our effective income tax rate in 2012 was 26.60%.
In 1997, the R.O.C. Income Tax Law was amended to integrate corporate income tax and stockholder dividend tax to eliminate the double taxation effect for resident stockholders of Taiwan companies. Under the amendment, all retained earnings generated from January 1, 1998 and not distributed to stockholders as dividends in the following year will be assessed a 10% retained earnings tax.
See “Item 10. Additional Information-E. R.O.C. Tax Considerations-Dividends”. As a result, if we do not distribute all of our annual retained earnings generated beginning January 1, 1998 as either cash and/or stock dividends in the following year, these earnings will be subject to the 10% retained earnings tax.
In addition, the R.O.C. government enacted the R.O.C. Income Basic Tax Act, also known as the “Minimum Income“Alternative Minimum Tax Statute”Act”, or the Statute,AMT Act, which became effective on January 1, 2006 and imposesto impose an alternative minimum tax, or AMT. Thetax. AMT imposed under the Statute is a supplemental tax which is payable if the income tax payable pursuant to the R.O.C. Income Tax Act is below the minimum amount prescribed under the Statute. In accordance with the Statute,AMT Act. Prior to 2013, a company will beis subject to a 10% AMT if its annual taxable income under the StatuteAMT Act exceeds NT$2 million. According to R.O.C. “Minimum Income Tax Statute” amendedEffective on January 1, 2013, after the amendment on August 8, 2012, effective January 1, 2013, the statutory tax rate was increased formfrom 10% to 12%, if its annual taxable income under the StatuteAMT Act exceeds NT$0.5 million.
After taking into account the tax exemptions and tax incentives discussed above, we recorded NT$2,146 million, NT$2,257 million and NT$3,125 million (US$99 million) of income tax expenses in 2012, 2013 and 2014, respectively. Our effective income tax rate in 2014 was 23.03%.
Comparisons of Results of Operations
The following table sets forth some of our results of operations data as a percentage of our net operating revenues for the periods indicated.
Years Ended December 31, | ||||||||||||||||||||||||
Years Ended December 31, | 2012 | 2013 | 2014 | |||||||||||||||||||||
2010 | 2011 | 2012 | % | % | % | |||||||||||||||||||
Net operating revenues | 100.0 | % | 100.0 | % | 100 | % | 100.0 | 100.0 | 100.0 | |||||||||||||||
Cost of goods sold | (70.8 | ) | (81.8 | ) | (83.2 | ) | ||||||||||||||||||
Operating costs | (83.3 | ) | (81.0 | ) | (77.2 | ) | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Gross profit | 29.2 | 18.2 | 16.8 | 16.7 | 19.0 | 22.8 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||
Sales and marketing | (2.0 | ) | (2.9 | ) | (2.4 | ) | (2.4 | ) | (2.6 | ) | (2.9 | ) | ||||||||||||
General and administrative | (2.9 | ) | (2.9 | ) | (2.9 | ) | (2.7 | ) | (2.9 | ) | (2.5 | ) | ||||||||||||
Research and development | (6.9 | ) | (8.0 | ) | (8.5 | ) | (8.5 | ) | (10.1 | ) | (9.8 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Subtotal | (13.6 | ) | (15.6 | ) | (15.2 | ) | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Net other operating income and expenses | (2.4 | ) | (0.1 | ) | (0.4 | ) | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Operating income | 17.4 | 4.4 | 3.0 | 0.7 | 3.3 | 7.2 | ||||||||||||||||||
Net non-operating income | 2.7 | 3.6 | 3.9 | |||||||||||||||||||||
Non-operating income and expenses | 4.7 | 8.3 | 2.5 | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Income before income tax and minority interests | 20.1 | 8.0 | 6.9 | |||||||||||||||||||||
Income from continuing operations before income tax | 5.4 | 11.6 | 9.7 | |||||||||||||||||||||
Income tax expense | (1.3 | ) | (0.7 | ) | (1.8 | ) | (1.8 | ) | (1.8 | ) | (2.2 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Extraordinary gain | 0.1 | — | — | |||||||||||||||||||||
Net income | 18.9 | 7.3 | 5.1 | 3.6 | 9.8 | 7.5 | ||||||||||||||||||
Total other comprehensive income (loss), net of tax | (5.5 | ) | 0.1 | 4.3 | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Attributable to: | ||||||||||||||||||||||||
the Company | 18.9 | 9.1 | 6.8 | |||||||||||||||||||||
minority interests | (0.0 | ) | (1.8 | ) | (1.7 | ) | ||||||||||||||||||
Total comprehensive income (loss) | (1.9 | ) | 9.9 | 11.8 | ||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Net income attributable to: | ||||||||||||||||||||||||
Stockholders of the parent | 5.3 | 10.2 | 7.9 | |||||||||||||||||||||
Non-controlling interests | (1.7 | ) | (0.4 | ) | (0.4 | ) | ||||||||||||||||||
Total comprehensive income (loss) attributable to: | ||||||||||||||||||||||||
Stockholders of the parent | (0.2 | ) | 10.3 | 12.2 | ||||||||||||||||||||
Non-controlling interests | (1.7 | ) | (0.4 | ) | (0.4 | ) |
We obtained a controlling interest in Best Elite in 2013, and therefore its results of its operations have been included in our consolidated financial statements since 2013. We integrated our operating resources with Best Elite to reach cooperative synergy and provide enhanced manufacturing solutions to customers that help increase the competiveness of their products. As a result of our acquisition, Best Elite’s operational efficiency has improved with the integration of its assets with our advanced technologies and manufacturing platforms as well as leveraging on our purchasing power, which contributed to an increase of 64.6% in Best Elite’s operating income in 2014 as compared to 2013.
Year Ended December 31, 20122014 Compared to Year Ended December 31, 20112013
Net operating revenues. Net operating revenues decreasedincreased by 0.9%13.1% from NT$116,703123,812 million in 20112013 to NT$115,675140,012 million (US$3,9824,431 million) in 20122014, primarily due to the decreaseincreased demand from our customers, resulting in average selling price.
Cost of goods soldOperating Costs. Cost of goods soldOperating costs increased by 0.9%7.9% from NT$95,417100,249 million in 20112013 to NT$96,263108,159 million (US$3,3143,423 million) in 20122014, primarily due to the net effect of the increase in fixed costs, such as depreciation expensesshipments and electricity prices.the higher capacity utilization in response to the increased customer demand.
Gross profit and gross margin. Gross profit increased from NT$23,563 million in 2013 to NT$31,853 million (US$1,008 million) in 2014. Our gross margin decreasedincreased from 18.2%19.0% in 20112013 to 16.8%22.8% in 20122014, primarily due to the decreasehigher capacity utilization in average selling price.response to the increased customer demand and a perpetual 40nm licensing fee from Fujitsu.
Operating income and operating margin. Operating income decreasedincreased from NT$5,1804,032 million in 20112013 to NT$3,50510,076 million (US$121319 million) in 2012.2014. Our operating margin decreasedincreased from 4.4%3.3% in 20112013 to 3.0%7.2% in 2012.2014. The decreaseincrease in operating margin iswas largely due to the decreaseincrease in gross margin.margin, partially offset by the increase in operating expenses and net other operating expenses. Operating expenses decreasedincreased by 1.2%9.4% from NT$16,10619,406 million in 20112013 to NT$15,90721,238 million (US$547672 million) in 2012.2014.
Sales and marketing expenses. Our sales and marketing expenses decreasedincreased by 18.4%23.5% from NT$3,3693,247 million in 20112013 to NT$2,7494,012 million (US$94127 million) in 2012.2014. The decreaseincrease in sales and marketing expenses was mainly due to an increase of NT$600 million (US$19 million) in intellectual property royalty expenses as a decrease in sample expenses and bad debt expenses.result of the increased number of intellectual property under which we are granted licenses. Our sales and marketing expenses as a percentage of our net operating revenues decreasedincreased from 2.6% in 2013 to 2.9% in 2011 to 2.4% in 2012.2014.
General and administrative expenses. Our general and administrative expenses slightly decreased by 2.8% from NT$3,666 million in 2013 to NT$3,562 million (US$113 million) in 2014, primarily as a result of the decrease in employee welfare expenses, which was mainly due to deconsolidation of UMCJ in 2013. Our general and administrative expenses as a percentage of our net operating revenues were 2.9% and 2.5% in 2013 and 2014, respectively.
Research and development expenses. Our research and development expenses increased by 9.4% from NT$12,493 million in 2013 to NT$13,664 million (US$432 million) in 2014. The increase in research and development expenses resulted primarily from an increase of NT$490 million (US$16 million) in personnel expenses, NT$460 million (US$15 million) in research expenses for advanced technologies, NT$290 million (US$9 million) in depreciation on the equipment used for research and development. Our research and development expenses as a percentage of our net operating revenues decreased from 10.1% in 2013 to 9.8% in 2014.
Net other operating income and expenses. Net other operating expenses increased by 331.2% from NT$125 million in 2013 to NT$539 million (US$17 million) in 2014, mainly due to an impairment loss of property, plant and equipment of NT$597 million (US$19 million) in 2014, all of which came from new business segment. Net other operating expense as a percentage of our net operating revenue increased from 0.1% in 2013 to 0.4% in 2014.
Non-operating income and expenses. Non-operating income decreased by 66.1% from NT$10,309 million in 2013 to NT$3,496 million (US$111 million) in 2014, mainly due to a bargain purchase gain of NT$7,154 million in 2013.
Other comprehensive income (loss), net of tax. Our other comprehensive income increased from NT$198 million in 2013 to NT$6,069 million (US$192 million) in 2014. We attributed this change primarily to the increase in the income of exchange differences on translation of foreign operations from NT$270 million in 2013 to NT$4,330 million (US$137 million) in 2014, and the increase in an unrealized gain on available-for-sale financial assets from a loss of NT$784 million in 2013 to a gain of NT$1,465 million (US$46 million) in 2014, partially offset by the decrease in remeasurements of defined benefit pension plans from an income of NT$379 million in 2013 to a loss of NT$2 million (US$0.06 million) in 2014.
Net income attributable to the stockholders of the parent. Due to the factors described above, our net income decreased by 11.9% from NT$12,609 million in 2013 to NT$11,109 million (US$352 million) in 2014.
Total comprehensive income attributable to the stockholders of the parent. Due to the factors described above, our comprehensive income increased by 33.1% from NT$12,796 million in 2013 to NT$17,035 million (US$539 million) in 2014.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Net operating revenues. Net operating revenues increased by 7.0% from NT$115,675 million in 2012 to NT$123,812 million in 2013, primarily due to the increased demand from our customers, resulting in a 12.3% increase in foundry wafer shipments from 4,449 thousand 8-inch equivalent wafers in 2012 to 4,997 thousand 8-inch equivalent wafers in 2013. Due to nominal price erosion, these increases were partially offset by the lower average selling price in 2013, which decreased approximately 5.5% from 2012.
Operating Cost. Operating costs increased by 4.0% from NT$96,365 million in 2012 to NT$100,249 million in 2013, primarily due to the net effect of the increase in shipments and the higher capacity utilization in response to the increased customer demand.
Gross profit and gross margin. Gross profit increased from NT$19,310 million in 2012 to NT$23,563 million in 2013. Our gross margin increased from 16.7% in 2012 to 19.0% in 2013, primarily due to the increase in shipments, the decrease in sales returns and allowances and the improvement of operating efficiency of our new business segment.
Operating income and operating margin. Operating income increased from NT$822 million in 2012 to NT$4,032 million in 2013. Our operating margin increased from 0.7% in 2012 to 3.3% in 2013. The increase in operating margin is largely due to the increase in gross margin and the decrease in net other operating expenses, partially offset by the increase in operating expenses. Operating expenses increased by 23.6% from NT$15,697 million in 2012 to NT$19,406 million in 2013.
Sales and marketing expenses. Our sales and marketing expenses increased by 18.1% from NT$2,749 million in 2012 to NT$3,247 million in 2013. The increase in sales and marketing expenses was mainly due to an increase of NT$180 million in mask expenses and NT$380 million in intellectual property royalty expenses as a result of an increase in intellectual property under which we are granted a license. Our sales and marketing expenses as a percentage of our net operating revenues increased from 2.4% in 2012 to 2.6% in 2013.
General and administrative expenses. Our general and administrative expenses increased by 0.9%15.9% from NT$3,3423,161 million in 20112012 to NT$3,3713,666 million (US$116 million) in 20122013 primarily as a result of an increase of NT$200 million in personnel expenses. Our general and administrative expenses as a percentage of our net operating revenues was equal towere 2.7% and 2.9% in 20112012 and 2012,2013, respectively.
Research and development expenses. Our research and development expenses increased by 4.2%27.6% from NT$9,395 million in 2011 to NT$9,787 million (US$337 million) in 2012.2012 to NT$12,493 million in 2013. The increase in research and development expenses resulted primarily from an increase of NT$1,160 million in computer usageresearch expenses for advanced technologies and maskan increase of NT$710 million in RD wafers expenses. Our research and development expenses as a percentage of our net operating revenues increased from 8.0% in 2011 to 8.5% in 2012.2012 to 10.1% in 2013.
Net non-operatingother operating income and expenses. Net non-operatingother operating expenses decreased by 95.5% from NT$2,791 million in 2012 to NT$125 million in 2013. The decrease in net other operating expenses is resulted primarily from a decrease of NT$3,190 million in losses arising from impairment of property, plant and equipment. Net other operating expense as a percentage of our net operating revenue decreased from 2.4% in 2012 to 0.1% in 2013.
Non-operating income and expenses. Non-operating income increased by 7.1%88.4% from income of NT$4,2005,473 million in 20112012 to NT$4,49810,309 million (US$154 million) in 2012,2013, mainly due to an increasea bargain purchase gain of NT$7,154 million in 2013 and a decrease in gain on disposal of investments from NT$1,6884,830 million in 20112012 to NT$5,3462,224 million (US$184 million) in 2012, offset by2013.
Other comprehensive income (loss), net of tax. Our other comprehensive income was NT$198 million in 2013, compared to our other comprehensive loss of NT$6,381 million in 2012. We attributed this change primarily to an increase in lossexchange differences on valuationtranslation of financial liabilitiesforeign operations from gain of NT$1,341 million in 2011 toa loss of NT$6673,228 million (US$23 million) in 2012 to an income of NT$270 million in 2013, and a decrease in other incomeunrealized loss on available-for-sale financial assets from NT$2,0552,492 million in 20112012 to NT$815784 million (US$28 million) in 2012.2013.
Net income attributable to the Companystockholders of the parent. Due to the factors described above, our net income decreasedincreased by 26.3%106.9% from NT$10,6106,094 million in 2011 compared2012 to NT$7,819 million (US$269 million) in 2012.
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Net operating revenues. Net operating revenues decreased by 7.7% from NT$126,44212,609 million in 2010 to NT$116,703 million in 2011 primarily due to a decrease in volume of products shipped.2013.
Cost of goods sold. Cost of goods sold increased by 6.6% from NT$89,518 million in 2010 to NT$95,417 million in 2011 primarily due to the decrease of the utilization rate from 93.7% in 2010 to 78.6% in 2011 as a result of decreased customer demand.
Gross profit and gross margin. Gross margin decreased from 29.2% in 2010 to 18.2% in 2011 primarily due to the lower utilization rate in 2011.
OperatingTotal comprehensive income and operating margin. Operating income decreased from NT$22,020 million in 2010 to NT$5,180 million in 2011. Our operating margin decreased from 17.4% in 2010 to 4.4% in 2011. The decrease in operating margin is largely due to a decrease in gross margin. Operating expenses increased by 8.1% from NT$14,904 million in 2010 to NT$16,106 million in 2011.
Sales and marketing expenses. Our sales and marketing expenses increased by 31.3% from NT$2,566 million in 2010 to NT$3,369 million in 2011. The increase in sales and marketing expenses was mainly due to an increase in sample expenses and bad debt expenses. Our sales and marketing expenses as a percentage of our net operating revenues increased slightly from 2.0% in 2010 to 2.9% in 2011.
General and administrative expenses. Our general and administrative expenses decreased by 7.1% from NT$3,598 million in 2010 to NT$3,342 million in 2011 primarily as a result of a decrease in personnel expenses. Our general and administrative expenses as a percentage of our net operating revenues was equal to 2.9% in 2010 and 2011, respectively.
Research and development expenses. Our research and development expenses increased by 7.5% from NT$8,740 million in 2010 to NT$9,395 million in 2011. The increase in research and development expenses resulted primarily from an increase in research and development wafer expenses and mask expenses. Our research and development expenses as a percentage of our net operating revenues increased from 6.9% in 2010 to 8.0% in 2011.
Net non-operating income. Net non-operating income increased by 24.9% from income of NT$3,364 million in 2010 to NT$4,200 million in 2011, mainly due to an increase in gain on valuation of financial liabilities from loss of NT$(665) million in 2010 to gain of NT$1,341 million in 2011, an increase in other income from NT$1,019 million in 2010 to NT$2,055 million in 2011 and an increase in impairment loss from NT$114 million in 2010 to NT$2,246 million in 2011.
Net income(loss) attributable to the Companystockholders of the parent. Due to the factors described above, we incurred a netour comprehensive income ofamounted to NT$23,89912,796 million in 2010,2013 compared withto a net incomecomprehensive loss of NT$10,610281 million in 2011.2012.
B. Liquidity and Capital Resources
B. | Liquidity and Capital Resources |
The foundry business is highly capital intensive. Our development over the past three years has required significant investments. Additional expansion for the future generally will continue to require significant cash for acquisition of plant and equipment to support increased capacities, particularly for the production of 12-inch wafers, although our expansion program will be adjusted from time to time to reflect market conditions. In addition, the semiconductor industry has historically experienced rapid changes in technology. To maintain competitiveness at the same capacity, we are required to make adequate investments in plant and equipment. In addition to our need for liquidity to support the large fixed costs of capacity expansion and the upgrading of our existing plants and equipment for new technologies, as we ramp up production of new plant capacity, we require significant working capital to support purchases of raw materials for our production and to cover variable operating costs such as salaries until production yields provide sufficiently positive margins for a fabrication facility to produce operating cash flows.
We have financed our capital expenditure requirements in recent years with cash flows from operations as well as from bank borrowings, the issuance of bonds and equity-linked securities denominated in NT dollars and U.S. dollars. We incurred capital expenditures of NT$61,32352,186 million, NT$53,32632,911 million and NT$52,18643,237 million (US$1,7961,368 million) in 2010, 20112012, 2013 and 2012, respectively, requiring2014, respectively. Constructing a fab requires a significant amount of funding from financing activities. Once a fab is in operation at acceptable capacity and yield rates, it can provide significant cash flows. Cash flows
We have financed our capital expenditure requirements in recent years from operating cash inflows as well as from bank borrowings, the issuance of bonds and equity-linked securities denominated in NT dollars and U.S. dollars. Operating cash inflows significantly exceed operating income, reflecting the significant non-cash depreciation expense. We generated cash flows from operations of NT$53,49540,398 million, NT$43,472 million and NT$41,65444,788 million (US$1,417 million) in 2012, 2013 and NT$40,535 million (US$1,395million) in 2010, 2011 and 2012,2014, respectively.
On May 24, 2011, we issued US$500 million aggregate principal amount of currency linked zero coupon convertible bonds due 2016. Each bond, at the option of the holder, will be convertible into our ADS.ADSs. The proceeds of this offering will be used for purchasing machinery and equipment. As of December 31, 20112012 and 2012,2013, no bonds had been converted into our ADS,ADSs, and we have repurchased and cancelled US$64 million and US$5142 million principal amount of these bonds in the open market transactions forin prior years. On May 27, 2014, we redeemed US$324 million principal amount of these bonds as requested by investors and on June 27, 2014, we further redeemed another US$34 million principal amount of these bonds, which represented all of the years ended December 31, 2011 and 2012, respectively.remaining outstanding bonds. As of June 27, 2014, all of our currency linked zero coupon bonds due 2016 were redeemed.
In early June 2012, we issued five-year and seven-year domestic unsecured corporate bonds totaling NT$10,000 million, with a face value of NT$1 million per unit. The five-year domestic unsecured corporate bond was issued in the amount of NT$7,500 million. Interest will be paid annually at 1.43%, and the principal will be repayable in June 2017 upon maturity. The seven-year domestic unsecured corporate bond was issued in the amount of NT$2,500 million. Interest will be paid annually at 1.63%, and the principal will be repayable in June 2019 upon maturity. The proceeds of this offering will beare used for purchasing machinery and equipment. As of December 31, 2012,2014, NT$10 billion10,000 million aggregate principal amount of these bonds were outstanding.
In mid March,mid-March 2013, we issued another five-year and seven-year domestic unsecured corporate bonds totaling NT$10,000 million, with a face value of NT$1 million per unit. The five-year domestic unsecured corporate bond was issued in the amount of NT$7,500 million. Interest will be paid annually at 1.35%, and the principal will be repayable in March 2018 upon maturity. The seven-year domestic unsecured corporate bond was issued in the amount of NT$2,500 million. Interest will be paid annually at 1.50%, and the principal will be repayable in March 2020 upon maturity. The proceeds of this offering will beare used for purchasing machinery and equipment. As of December 31, 2014, NT$10,000 million aggregate principal amount of these bonds were outstanding.
In mid-June 2014, we issued an aggregate principal amount of NT$5,000 million of seven-year and ten-year domestic unsecured corporate bonds, with a denomination of NT$1 million per bond. The seven-year domestic unsecured corporate bond was issued with an aggregate principal amount of NT$2,000 million with an annual coupon bearing an interest rate of 1.7%. The ten-year domestic unsecured corporate bond was issued with an aggregate principal amount of NT$3,000 million with an annual coupon bearing an interest rate of 1.95%. The proceeds of this offering were used for repay debts. As of December 31, 2014, NT$5,000 million aggregate principal amount of these bonds were outstanding.
As of December 31, 2012,2014, we had NT$42,59345,701 million (US$1,4661,446 million) of cash and cash equivalents and NT$656740 million (US$23 million) of FVTPL,financial assets at fair value through profit or loss, current. Cash equivalents included reversetime deposits and commercial paper with original maturities of three months or less and repurchase agreements collateralized by government bonds or other highly secure assets for short-term liquidity management.and corporate bonds. These agreements bore interest rates ranging from 0.25% to 0.41%; 0.45% to 0.62%; and 0.46% to 0.60%; 0.48% to 0.56% and 0.48% to 0.51% in 2010, 20112012, 2013 and 2012,2014, respectively. The terms of these agreements were typically less than two weeks. As of December 31, 2010, 2011,2012, 2013 and 2012,2014, we held reverse repurchase agreements in the amount of NT$3,7574,585 million, NT$3,5325,669 million and NT$4,585 million4,526 (US$158143 million), respectively.
We believe that our working capital, cash flowinflows from operations and unused lines of credit are sufficient for our present requirements.
At our 20122014 annual general meeting, our stockholders authorized the Boardour board of directors to raise capital from private placement, through issuing instruments such as common shares, depositary receipts (including but not limited to ADS), or Euro/Domestic convertible bonds (including secured or unsecured corporate bonds), based on market conditions and our needs. The amount of common shares issued or convertible is proposed to be no more than 10% of our total shares issued and outstanding share capital (i.e., no more than 1,292,640,7161,269,208,166 common shares). According to Item 6, Article 43-6 of the R.O.C. Security and Exchange Act, any private placement of our common shares must be conducted separately within one year after approval at the annual general meeting of stockholders. The approval to conduct a private placement of our common shares will expire on June 11, 2013.10, 2015. Considering market conditions, the Boardour board of directors has resolved to terminate any plans for a private placement of our common shares under the 20122014 general meeting authorization..authorization.
Operating Activities
Our operating activities generatedNet cash of NT$40,535 million (US$1,395 million) in 2012. Cash generated from our operating activities for 2012 significantly exceeded net income due to the add-back of non-cash items, such as depreciation and amortization in the amount of NT$35,738 million (US$1,230 million). Cash generated by operating activities decreasedincreased from NT$41,65443,472 million in 20112013 to NT$40,53544,788 million (US$1,3951,417 million) in 2012,2014, primarily due to a decreasean increase in cash collected from our customers. Net cash generated by operating activities increased from NT$40,398 million in 2012 to NT$43,472 million in 2013.
InvestmentInvesting Activities
Net cash used in our investmentinvesting activities wasincreased from NT$49,14831,516 million in 2013 to NT$42,606 million (US$1,6921,348 million) in 2012. In 2012,2014, primarily due to the cash we used cash of NT$52,186 million (US$1,796 million) to purchase equipment primarily used at our fabs. This wasfabs increased from NT$32,911 million in 2013 to NT$43,237 million (US$1,368 million) in 2014. Net cash used in our investing activities decreased from NT$49,123 million in 2012 to NT$31,516 million in 2013, primarily due to the cash we used to purchase equipment at our fabs decreased from NT$52,186 million in 2012 to NT$32,911 million in 2013, partially offset by the decrease in net cash provided by acquisition and disposal of available-for-sale financial assets offrom NT$4,2883,965 million (US$148 million).in 2012 to NT$2,232 million in 2013.
Financing Activities
Net cash providedused in our financing activities increased from NT$3,924 million in 2013 to NT$8,258 million (US$261 million) in 2014, primarily due to an increase in redemption of bonds from NT$2,153 million in 2013 to NT$14,137 million (US$447 million) in 2014, a decrease in proceeds from bonds issued from NT$10,000 million in 2013 to NT$5,000 million (US$158 million) in 2014 and the increase in cash dividends and cash paid from additional paid-in capital from NT$5,061 million in 2013 to NT$6,253 million (US$198 million) in 2014. Such increase in net cash used was partially offset by drawing down bank loans of NT$4,684 million in 2013 and an increase in bank loans of NT$6,560 million (US$208 million) in 2014, as well as our acquisition of treasury stock of NT$2,245 million in 2013.
Net cash used in our financing activities was NT$3,924 million in 2013, compared to net cash provided by financing activities of NT$3,588 million (US$124 million) in 2012. WeThis was primarily due to increase in the bank loans we drew down bank loansfrom NT$424 million in 2012 to NT$4,684 million in 2013 and increase in redemption of bonds from NT$13,518139 million (US$465 million), issued domestic bondsin 2012 to NT$2,153 million in 2013, as well as our acquisition of treasury stock of NT$10,0002,245 million (US$344 million), paidin 2013. Such increase in net cash used is partially offset by decrease in cash dividends ofpaid from NT$6,316 million (US$217 million) and repaid long-term loans ofin 2012 to NT$13,9425,061 million (US$480 million).in 2013.
We had NT$5,7736,251 million (US$199198 million) outstanding short-term loans as of December 31, 2012.2014. We had total availability under existing short-term lines of credit of NT$8,29319,650 million (US$285622 million) as of December 31, 2012.2014.
We had bonds payable of NT$26,22424,978 million (US$903790 million) in the aggregate as of December 31, 2012.2014.
As of December 31, 2012,2014, our outstanding long-term debts primarily consisted of NT$4631,231 million (US$39 million) unsecured and NT$1,618150 million secured long-term bank loans due in 2013, NT$600 million secured long-term bank loans due in 2014, NT$3,692 million unsecured and NT$1,293 million(US$5 million) secured long-term bank loans due in 2015, NT$3,5003,667 million (US$116 million) unsecured and NT$2,4471,385 million (US$44 million) secured long-term bank loans due in 2016, and NT$1,0004,200 million (US$133 million) unsecured and NT$208168 million (US$5 million) secured long-term bank loans due in 2017.2017, NT$300 million (US$9 million) unsecured and NT$100 million (US$3 million) secured long-term bank loans due in 2018, and NT$1,000 million (US$32 million) unsecured long-term bank loans due in 2019. The interest rates of our long-term bank loans range from 1.24%1.23% to 2.51%.
As of December 31, 2012, the2014, we had no current portion of bonds due within one year was NT$4,292 million (US$148 million), andyear. As of the same date, the current portion of long-term bank loans due within one year was NT$4,5953,775 million (US$158119 million).
Capital Expenditures
We have continued to expand our manufacturing capacity, especially our 40 nanometer and 28 nanometer technology processes. As a result, our capital expenditures have been used for expanding our factory space and purchasing equipment for both research and development and production purposes. We have entered into several construction contracts for the expansion of our factory space in both Taiwan and Singapore.Taiwan. As of December 31, 2012,2014, these construction contracts amounted to NT$7,81011,657 million (US$269369 million) with an unaccruedunpaid portion of the contracts, which would be accrued, of approximately NT$4,7225,233 million (US$163166 million). In 20112012, 2013 and 2012,2014, we spent approximately NT$53,32652,186 million, NT$32,911 million and NT$52,18643,237 million (US$1,7961,368 million), respectively, primarily to purchase equipment for research and development and production purposes.
We continue to maintain high levels of capital expenditures as we believe there are promising opportunities for 28 – nanometer28-nanometer and 40 – nanometer40-nanometer technologies. We continue to devote most of our capital expenditure to improvement of advanced technology within 12-inch fabs. We will focus on our addressable markets (i.e., 40 & 28 – nanometer)28-nanometer) and continue to build up our production capacity. We believe our 28—nanometer28-nanometer technology progress will propel our advanced process growth, strengthen our future competitiveness, and enhance our portfolio of comprehensive foundry solutions available to our customers.
We believe that our existing cash and cash equivalents and short-term investments will be sufficient to meet our working capital and capital expenditure requirements at least through the end of 2013.2015. Due to rapid changes in technology in the semiconductor industry, however, we have frequent demand for investment in new manufacturing technologies. We cannot assure you that we will be able to raise additional capital, should that become necessary, on terms acceptable to us, or at all. If financing is not available on terms acceptable to us, management intends to reduce expenditures so as to delay the need for additional financing. To the extent that we do not generate sufficient cash flows from our operations to meet our cash requirements, we may rely on external borrowings and securities offerings to finance our working capital needs or our future expansion plans. The sale of additional equity or equity-linked securities may result in additional dilution to our stockholders. Our ability to meet our working capital needs from cash flow from operations will be affected by the demand for our products and change in our product mix, which in turn may be adversely affected by several factors. Many of these factors are beyond our control, such as economic downturns and declines in the average selling pricesprice of our products. The average selling pricesprice of our products have been subjected to downward pressure in the past and are reasonably likely to be subject to further downward pressure in the future. We have not historically relied on, and we do not plan to rely on in the foreseeable future, on off-balance sheet financing arrangements to finance our operations or expansion.
Transactions with Related Parties
Our transactions with related parties have been conducted on arm’s-length terms. See “Item 7. Major Stockholders and Related Party Transactions-B.Transactions—B. Related Party Transactions” and Note 277 to our audited consolidated financial statements included in this annual report.
Inflation/Deflation
We do not believe that inflation in the R.O.C. has had a material impact on our results of operations.
U.S. GAAP Reconciliation
Our consolidated financial statements are prepared in accordance with R.O.C. GAAP, which differs in certain significant respects from U.S. GAAP. Such differences include methods for measuring the amounts shown in the financial statements and additional disclosures required by U.S. GAAP. Note 36 to our audited financial statements, included in this annual report, provides a discussion and quantification of the differences between R.O.C. GAAP and U.S. GAAP as they related to us. We provide a summary of material differences included therein below.
The following table sets forth a comparison of our net income and stockholders’ equity in accordance with R.O.C. GAAP and U.S. GAAP for the periods indicated.
Years Ended December 31, | ||||||||||||||||
2010 | 2011 | 2012 | ||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
(in millions) | ||||||||||||||||
Consolidated net income | ||||||||||||||||
Consolidated net income, R.O.C. GAAP | 23,846 | 8,467 | 5,874 | 202 | ||||||||||||
U.S. GAAP adjustments | ||||||||||||||||
Compensation | (397 | ) | (106 | ) | (10 | ) | — | |||||||||
Equity investees | (42 | ) | (11 | ) | 3 | — | ||||||||||
Investments in debt and equity securities | (234 | ) | (210 | ) | (1,957 | ) | (67 | ) | ||||||||
Convertible bond liabilities | — | 21 | 27 | 1 | ||||||||||||
Goodwill and business combinations | 452 | (1,308 | ) | — | — | |||||||||||
Treasury stock and related disposal | (81 | ) | (179 | ) | (80 | ) | (3 | ) | ||||||||
Capital reduction and return from foreign operation | — | — | (233 | ) | (8 | ) | ||||||||||
Tax effect of U.S. GAAP adjustments | — | (69 | ) | (515 | ) | (18 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Consolidated net income, U.S. GAAP | 23,544 | 6,605 | 3,109 | 107 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Stockholders’ equity | ||||||||||||||||
Stockholders’ equity, R.O.C. GAAP | 225,136 | 212,125 | 205,021 | 7,058 | ||||||||||||
Compensation | 32 | 4 | 1 | — | ||||||||||||
Equity investees | (142 | ) | (261 | ) | 131 | 4 | ||||||||||
Investments in debt and equity securities | 1,765 | 1,669 | (247 | ) | (8 | ) | ||||||||||
Convertible bond liabilities | — | (522 | ) | (489 | ) | (17 | ) | |||||||||
Goodwill and business combinations | 1,301 | (8 | ) | (8 | ) | — | ||||||||||
Treasury stock and related disposal | (2,624 | ) | (2,044 | ) | (1,883 | ) | (65 | ) | ||||||||
Pension | (345 | ) | (254 | ) | (722 | ) | (25 | ) | ||||||||
Tax effect of U.S. GAAP adjustments | — | (69 | ) | (175 | ) | (6 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Stockholders’ equity, U.S. GAAP | 225,123 | 210,640 | 201,629 | 6,941 | ||||||||||||
|
|
|
|
|
|
|
|
The differences between R.O.C. GAAP and U.S. GAAP that have a material effect on our net income and stockholders’ equity under R.O.C. GAAP were described as follows:
Compensation expenses
Pursuant to our articles of incorporation, we are required, under certain circumstances, to distribute a certain percentage of unappropriated earnings as employee bonus and remuneration to directors. Please refer to “Item 10. Additional Information-B. Memorandum and Articles of Association-Dividends and Distributions”. Remuneration to directors is settled in cash. Our Articles of Incorporation specifies that employee bonus can be settled in cash or shares or a combination of both. Under both R.O.C. and U.S. GAAP, employee bonus is charged to compensation expense and accrued based on management’s estimate. The employee bonus is initially accrued during the current year based on management’s estimate according to our Article of Association with adjustment in the subsequent year after stockholders’ approval. Compensation expense relating to stock bonus is determined based on the fair market value of our common stock on the grant date. According to the R.O.C. ARDF Interpretation 96-052, “Accounting for Employee Bonus and Remunerations to Directors and Supervisors”, compensation expense relating to stock bonus is determined based on the fair value of our common stock at the date before the stockholders’ meeting. Under U.S. GAAP, compensation expense relating to stock bonus is measured at the fair market value on the date of stock distribution.
Under R.O.C. GAAP, we apply the intrinsic value method to recognize compensation cost for employee stock options granted before January 1, 2008. For stock options granted on or after January 1, 2008, we adopted R.O.C. SFAS 39 to recognize compensation cost using the fair value method, which is consistent with U.S. GAAP. We amortized share-based compensation expense over the vesting period based on the grant-date fair value. The fair value of liability awards is re-measured at each reporting date with fair value changes charged to compensation expenses accordingly. Compensation expense is recognized on a graded-vesting basis over the requisite service period of the options.
Investments in debt and equity securities
Under R.O.C. GAAP, investment in restricted stock, for which sale is restricted by governmental or contractual requirement is accounted for as an available-for-sale security, or a cost method investment and its fair value should be adjusted for the effect of restriction. Under U.S. GAAP, however, a restricted investment with restricted period over one year does not meet the definition of an equity security with readily determinable fair value, and therefore, it is accounted for as a cost method investment. In 2011, certain investments were reclassified from cost method investment under R.O.C. GAAP to available-for-sale securities under U.S. GAAP as the restricted period of these investments terminates within one year from the reporting date. These restricted investments were also classified as available-for-sale securities under R.O.C. GAAP at December 31, 2012, because the restriction expired in 2012.
When we lose our significant influence on an investment accounted for under the equity method and reclassify it as an available-for-sale security, the proportionate share of an investee’s equity adjustments for other comprehensive income should remain as a part of the carrying amount of the investment under R.O.C. GAAP and the dividends received from the available-for-sale security which were declared from pre-acquisition profits are deducted from the cost of the security. However, under U.S. GAAP, all of the investee’s equity adjustments for other comprehensive income should be offset against the carrying amount of the investment at the time significant influence is lost, and the dividends received from the available-for-sale security are accounted for as dividend income.
Our ownership interest in a subsidiary or equity investee may change, for example, (1) when an equity investee or a subsidiary issues additional shares and we subscribe for these shares at a percentage higher or lower than its current ownership percentage in the equity investees or subsidiaries, (2) when the employees of our subsidiaries or equity investees exercise their stock options, or (3) when the convertible bondholders of our subsidiaries or equity investees exercise their conversion rights. Under R.O.C. GAAP, the change in our proportionate share in the net assets of our equity investees or subsidiaries resulting from the issuance of additional shares of the investee’s stock, at the rate not proportionate to our existing equity ownership in such investees, is recorded to the additional paid-in capital and long-term investments account for an equity method investee, or noncontrolling interest for a subsidiary. Under U.S. GAAP, pursuant to ASC 810-10-45,Changes in a Parent’s Ownership Interest in a Subsidiary, a change in our ownership interest while the Company retains its controlling financial interest in its subsidiary shall be accounted for as equity transactions. Nevertheless, a dilution of ownership interest in an equity-method investee is recognized as a gain or loss, while an increase of ownership interest is accounted for as additional acquisition interest in an equity method investee, with the difference between the total cost of the additional investment and the proportionate share of the fair value of net assets treated as equity method goodwill.
In June 2010, we acquired additional ownership interests in one of our subsidiaries. Under R.O.C. GAAP, the acquisition was accounted for using the purchase method of accounting. However, under U.S. GAAP, the acquisition was accounted for as an equity transaction. The difference between the fair value of the consideration paid and the book value of the noncontrolling interests is adjusted against stockholders’ equity.
In June 2010, a non-affiliated company invested for newly issued shares of one of our consolidated entities, reducing our ownership interest from 100% to 50%. Due to this transaction, we jointly controlled the entity and accounted for the entity as a joint venture. Under R.O.C. GAAP, the reduction of equity interest is adjusted against additional paid-in capital. However, under U.S. GAAP, we accounted for the transaction as a deconsolidation of a subsidiary and remeasured the remaining holding interests by recognizing a loss in net income attributable to us.
Under R.O.C. GAAP, if the carrying amount of non-current asset or disposal group will be recovered principally through sale rather than through continuing use and the asset or disposal group meets the criteria to be available for immediate sale in its present condition subject only to terms that are usual and customary for a sale and the sale is highly probable, the asset or disposal group would be classified as held-for-sale asset measured at the lower of carrying amount and fair value less costs to sell and separately presented in the balance sheet. For the sale to be highly probable, the management must be committed to a plan to sell the asset completely within one year, and the asset must be actively marketed for sale at a price that is reasonable compared to its current fair value. Equity-method investment shall be classified as held-for-sale asset if it meets all the above criteria. Under U.S. GAAP, ASC 360-10Property, Plant, and Equipment, the criteria to classify long-lived asset or disposal group to held-for-sale asset is similar to R.O.C. GAAP. However, ASC 360-10 does not apply to financial instruments including investments in equity securities accounted for under the cost or equity method. As such, equity method investments are not classified as held-for-sale assets but shall continue to be accounted for under equity method until the significance influence is lost. In 2012, there is reclassification between R.O.C. GAAP and U.S. GAAP of one of our equity-method investments based on the above difference. The proportional equity pick up from the equity investment was insignificant for the year ended December 31, 2012.
Under R.O.C. GAAP, when an investor company holds 20% or more of an investee company’s outstanding voting securities but without the controlling power, unless it is evidenced that the investor company does not have significant influence over the investee company, the investor’s investment in the investee company’s equity securities, including preferred shares, shall be accounted for using the equity method. When an investor company invests in preferred stock of an investee company, equity method accounting is necessary if the investor has the ability to exercise its significant influence over the investee. Therefore, when determining the excess of cost of investment over underlying equity in net assets of the investee, and recognizing subsequent pick up of equity method gains or losses, we take these preferred shareholdings into consideration. In addition, excess of investment cost over the underlying net assets will be treated as equity-method goodwill as a component of the carrying value of the equity-method investment. If, however, there is excess of underlying net assets over the investment cost, the investee’s non-current assets, as components of the equity-method investment balance, will be subject to pro rata reduction with the remaining unallocated bargain purchase recognized immediately as an extraordinary gain.
Under U.S. GAAP, however, equity-method accounting generally applies only to investments in common stock and in-substance common stock that give the investor the ability to exercise significant influence over operating and financial policies of an investee. Unless when the investment in common stock and in-substance common stock is reduced to zero, at which time the Company’s other forms of investment, including preferred shares, may be required to report losses up to the Company’s investment carrying amount. Pursuant to ASC 323-10-15-13, in-substance common stock is an investment in an entity that has risk and reward characteristics that are substantially similar to that entity’s common stock. An investor shall consider all of the characteristics of the securities: subordination, risks and rewards of ownership and obligation to transfer value, when determining whether an investment in an entity is substantially similar to an investment in the entity’s common stock.
In December 2011, after considering all the above mentioned characteristics, we conclude that our investment in an investee’s preferred shares is not in-substance common stock. Therefore, under U.S. GAAP the investment of preferred shares was reclassified from long-term investment accounted for under the equity method to financial assets measured at cost. We also reversed the effects of the pro rata reduction for the bargain purchase recognized, and recognized an equity-method goodwill as a component of the equity-method investment balance for our investment in common stocks. Additionally, we reversed the investment gain from the preferred shares recognized under R.O.C. GAAP.
Convertible bond liabilities
We issued convertible bonds in May 2011. Under R.O.C. GAAP, the bonds contain both a liability component and an equity component. The conversion right is classified in stockholders’ equity at its fair value at issuance. Under U.S. GAAP, the conversion right was determined to be a contract indexed to our own stock and, if it existed on a freestanding basis, would be classified in stockholders’ equity, meeting the scope exception described in ASC 815-10-15-74. As such, the conversion right is not considered to be a derivative instrument that is required to be bifurcated from the host contract.
In addition, under R.O.C. GAAP, the issuance costs are allocated proportionally to the equity and liability components. The amount allocated to the equity components is accounted for as a reduction of equity as well as the amount allocated to the liability component is accounted for as a bond discount. The issuance costs allocated to the liability component are amortized over the contractual life of the bonds using the effective interest rate method. Under U.S. GAAP, however, the entire issuance costs are reported as deferred charges and amortized over the contractual life of the bonds using the effective interest rate method.
Based on the above differences, we reclassified the equity component under R.O.C. GAAP to bonds payable under U.S. GAAP, and reclassified the issuance costs which are allocated to the liability and equity component under R.O.C. GAAP to deferred charges under U.S. GAAP. We also adjusted the differences resulting from the subsequent amortization of the bond discount and deferred charges as well as the subsequent redemption of the bonds.
Goodwill and business combinations
In accordance with R.O.C. GAAP, goodwill is measured separately on each acquisition, and it excludes goodwill in non-controlling interest. In a step acquisition, the acquirer does not re-measure its previously held equity interest in the acquiree, therefore, the acquisition does not result in gains or losses from re-measurements. Goodwill is not amortized and is subject to annual impairment tests or whenever events and circumstances change indicating goodwill may be impaired. The assessment of impairment includes identifying the goodwill-allocated cash generating unit (CGU), determining the recoverable amount of CGU by using a discounted cash flow analysis, and ultimately comparing the recoverable amount with the carrying amount of CGU including goodwill. If the CGU’s carrying amount is greater than its recoverable amount, an impairment loss is recognized. The impairment of goodwill cannot be reversed. When the fair value of identifiable net assets acquired exceeds the cost, the difference should be assigned to non-current assets acquired (except for financial assets not under equity method, assets to be disposed, deferred tax assets, prepaid pension or other retirement benefits cost) proportionate to their respective fair values. If these assets are all reduced to zero value, the remaining excess should be recognized as extraordinary gain.
Under U.S. GAAP, in a business combination achieved in stages, the acquirer shall re-measure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss. The acquirer shall recognize goodwill as of the acquisition date measured as the excess of (a) the aggregate of: (i) the consideration transferred, (ii) the fair value of any non-controlling interest in the acquiree, and (iii) the fair value of any previously held equity interest in the acquiree; over (b) the fair value of identifiable assets acquired and the liabilities assumed on the acquisition date; or gain on bargain purchase in which the amount as the excess of (b) exceeds the aggregate of the amounts specified in (a), after performing required reassessment of measurement procedures. Goodwill is not amortized and is subject to an annual impairment test or more frequently when events and circumstances indicate a possible impairment may exist. The first step of the impairment test is to compare the fair value of the reporting unit with its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step of the impairment test is to compare the implied fair value of the reporting unit goodwill with its carrying value. If the carrying amount of goodwill exceeds its fair value, the excess is recognized as impairment loss on the consolidated statements of income. Impairment of goodwill cannot be subsequently reversed.
On November 30, 2010, we acquired additional stocks issued by one of our equity investee, which increased our ownership interest from 45.79% to 57.67%. Prior to the acquisition date, we accounted for its 45.79% interest as an equity-method investment. As a result of the acquisition, we obtained control over the acquiree and the results of the acquiree’s operations have been included in the consolidated financial statements since that date.
Under R.O.C. GAAP, a change in our proportionate share in the net assets of an equity investee resulting from our acquisition of additional stock issued by the equity investee at a rate not proportionate to our existing equity ownership is charged to the additional paid-in capital and long-term investments accounts. However, under U.S. GAAP, the acquisition of a controlling interest in acquiree is regarded as a business combination. The sum of the fair value of the consideration transferred, non-controlling interests and equity interest previously held by the acquirer exceeding the fair value of identifiable net assets is recorded as goodwill.
In September 2011, due to operating profits and cash flows were lower than expected since November 2010, given sharp deterioration in market condition, the acquiree determined some of its long lived assets were impaired pursuant to ASC360. The impairment loss also served as an indicator that goodwill might also be impaired. Accordingly, we conducted a two-step process to identify and measure the amount of impairment loss, if any. As the carrying amount of the subsidiary exceeded its fair value which was estimated by using the discounted cash flow based on earnings forecasts, its goodwill was considered to be impaired. To calculate the implied fair value of goodwill, we allocated the fair value to each asset and liability account as described in Note 36(7) of our audited financial statements. The excess of the reporting unit’s fair value over the total amounts allocated to each asset (except goodwill) and liability account would be the implied fair value of goodwill. As the carrying amount exceeded the implied fair value of the subsidiary’s goodwill, we recognized a goodwill impairment loss of in 2011 under U.S. GAAP. While the impairment assessment resulted in a full write down of goodwill under both R.O.C. GAAP and U.S. GAAP, the amount of the charge was different due to the difference in carrying values of goodwill under each GAAP.
Treasury stock and related disposal
Some of our subsidiaries and equity method investees also hold our shares as investments. Under R.O.C. GAAP, reciprocal shareholdings held by subsidiaries, but not equity investees, are recorded as treasury stocks on our books. Under U.S. GAAP, however, reciprocal shareholdings, whether being held by subsidiaries or equity investees, are recorded as treasury stocks on our books. Accordingly, we recognized treasury stocks for reciprocal shareholdings held by equity-method investees and eliminated the related unrealized gain (loss) or investment gain (loss) as they are accounted for as treasury stock under U.S. GAAP.
Pension
Under R.O.C. GAAP, a minimum pension liability should be measured as the excess of accumulated benefit obligation over the fair value of the plan assets and allowed the unrecognized items, including prior service costs and credits, gains or losses, and transition obligations or assets to be reported in disclosure shown as a plan’s funded status. Under U.S. GAAP, ASC 715-30,Defined Benefit Plans-Pension, requires an employer to recognize an asset for a plan’s overfunded status or a liability for a plan’s underfunded status with an offsetting adjustment to accumulated other comprehensive income.
Impairment of long-lived assets (excluding goodwill and other indefinite lived assets)
Under R.O.C. GAAP and U.S. GAAP, long-lived assets are evaluated for impairment at each balance sheet date or whenever events and changes in circumstances indicate that an asset or asset group may be impaired and the carrying amounts of these assets may not be recoverable. Under R.O.C. GAAP, the Company determines whether an asset is impaired by comparing the carrying amount to its recoverable amount, which is the higher of the asset’s fair value less costs to sell or the value in use determined by the future discounted cash flows to be generated by the asset and recognize an impairment loss, if any, to the extent that its carrying amount exceeds its recoverable amount.
Under U.S. GAAP, pursuant to ASC 360, a two-step impairment test is required if impairment is indicated and the measurement model is as follows:
1. The carrying amount is first compared with the undiscounted cash flows. If the carrying amount is lower than the undiscounted cash flows, no impairment loss is recognized.
2. If the carrying amount is higher than the undiscounted cash flows, an impairment loss in measured as the difference between the carrying amount and fair value.
In 2011 and 2012, given the sharp deterioration in market condition, two of our subsidiaries had lower expected operating profits and cash flows and revised its earnings forecast for the next five years and determined that some of its long lived assets were impaired pursuant to ASC360. While the impairment assessment resulted in a adjusted carrying amount as fair value of long-lived assets under both R.O.C. GAAP and U.S. GAAP, the amount of the charge was different due to the difference in carrying values of long-lived assets under each GAAP as described in Note 36(3) for difference in application of equity accounting.
Additionally, under R.O.C. GAAP, for previously recognized losses, if there is evidence that impairment losses recognized no longer exists or has diminished, and the recoverable amount of the long-lived assets increase because of an increase in the assets’ estimated service potential, the losses may be reversed to the extent that the resulting carrying value of the assets do not exceed the carrying value had no impairment loss been recognized in prior years. Whereas impairment losses recognized cannot be reversed under U.S. GAAP. There were no reversal of impairment recognized on long-lived assets under R.O.C. GAAP for the years ended December 31, 2010, 2011 and 2012.
Inventory
Under R.O.C. GAAP, the write down of inventory for the lower of cost or net realizable value may be reversed in subsequent periods if market conditions improve. Under U.S. GAAP, the write down to lower of cost or market creates a new cost basis that subsequently cannot be marked up. Upon the sale of the related inventory, the difference between these two GAAPs is resolved.
Under R.O.C. GAAP, inventory is stated at the lower of cost or net realizable value, while under U.S. GAAP, inventory is stated at the lower of cost or market. ASC 330-10-20 defines “market” as current replacement cost (by purchase or reproduction) provided it meets both of the following conditions: (1) market should not exceed the net realizable value; and (2) market should not be less than net realizable value reduced by an allowance for an approximately normal profit margin. Net realizable value is defined as the estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal. The market value of the Company’s work in progress and finished goods is measured at the contractual sales price less predictable costs of completion, while that of the raw materials is the replacement cost by purchase. Normally, the market floor of net realizable value reduced by an allowance for a normal profit margin is not applicable because the Company’s inventory is manufactured by contract, serving the specific requirements of its customers. Additionally, as the rule of lower of cost or market is intended to provide a means of measuring the residual usefulness of an inventory expenditure and the term “market” may be thought of in terms of the equivalent expenditure which would have to be made in the ordinary course at that date to procure corresponding utility, in the event when the estimated selling price, reduced by the costs of completion, is lower than current replacement cost, net realizable value would be determined to be the more appropriate measurement of utility. Therefore, the accounting for inventory at the lower of cost or net realizable value under R.O.C. GAAP is not materially different from the accounting for inventory at the lower of cost or market under U.S. GAAP.
Capital reduction and return from foreign subsidiaries
Under R.O.C. GAAP, as the Company decreases its equity interests in a foreign operation through capital reduction and return of capital, the proportional difference of the accumulated currency translation adjustments before and after the capital reduction is recognized in profit or loss. However, under U.S. GAAP, foreign currency translation gains and losses that have been recorded as a component of other comprehensive income during the period for which settlement was not planned or anticipated remain in that account until partial or complete sale or complete or substantially complete liquidation of the investment in the foreign entity. In 2012, two of the Company’s foreign subsidiaries returned part of its capital by cash. Under R.O.C. GAAP, the difference of the accumulated currency translation adjustments before and after the capital reduction was recognized as exchange gain. Given the capital return was not made in connection with the sale or substantially complete liquidation of these foreign subsidiaries, the Company reversed the exchange gain under R.O.C. GAAP, and recorded as cumulative translation adjustment under U.S. GAAP.
Tax effect of U.S. GAAP adjustments
According to ASC 740-10,Income Taxes, our uncertain tax positions are accounted for based on a two-step process. The first step is to evaluate the tax position for recognition by determining if it is more likely than not that the position will be sustained based on the technical merits. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Although ASC 740-10 provides further clarification of the accounting for uncertainty in income taxes recognized in the financial statements, significant management judgment must be made and used in connection with the recognition threshold and measurement attribute. Determination of our uncertain tax positions involves the legal and factual interpretation with respect to the application of relevant tax laws and regulations, along with our assessment of other factors including changes in facts or circumstances, changes in tax law, and/or effectively settled issues under audit. As mentioned above, the application of tax laws and regulations is inherently subject to legal and factual interpretation, judgment and uncertainty. In addition, tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the final settlement of these uncertain tax positions might be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities. Unlike ASC 740-10, R.O.C. SFAS 22 contained no guidance on uniform criteria for an enterprise to recognize and measure potential tax benefits associated with uncertain tax positions.
Under R.O.C. GAAP, the 10% tax on undistributed earnings is recorded as an expense at the time shareholders resolve that its earnings shall be retained. Under U.S. GAAP, 10% income tax impact is provided in the period the income is earned, assuming that no earnings are distributed. Any reduction in the liability will be recognized when the income is distributed upon the stockholders’ approval in the subsequent year. Tax on undistributed earnings may be offset by the Company’s available tax credits carried forward, where applicable. As such, the incremental tax accrued on undistributed earnings may be offset by a corresponding reduction in valuation allowance, where applicable.
Moreover, additional tax benefit (expense) and deferred tax assets or liabilities would be adjusted for the reconciled items between R.O.C. GAAP and U.S. GAAP due to temporary difference in connection with the recognition of the book-to-tax basis difference of the Company’s investment in UMCJ, immediately following its decision to dissolve and liquidate UMCJ. While R.O.C. GAAP requires subsequent changes in deferred tax balances as of the beginning of the year to be recorded in equity, if the deferred tax is related to an equity classified item, ASC 740, Income Taxes, requires all such changes to be recognized as current income tax expense.
Recent Accounting Pronouncements
In December 2011, the FASB issued ASU 2011-11Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities. The new requirement is about disclosure of the nature of an entity’s rights of setoff and related arrangements associated with its financial instruments and derivative instruments. The Update is designed to make financial statements that are prepared under U.S. GAAP more comparable to those prepared under IFRSs. The ASU is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods, with retrospective application required. This standard is not expected to have a material impact on our future consolidated financial statements.
In July 2012, the FASB issued ASU 2012-02Intangibles—Goodwill and Other(Topic 350) Testing Indefinite-Lived Intangible Assets for Impairment. The amendment is intended to simplify testing of indefinite-lived intangible assets for impairment providing the option to perform “qualitative” assessments first. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, the requirement to perform quantitative impairment test is eliminated by this standard. The amendment is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. This standard is not expected to have a material impact on our consolidated financial statements.
In January 2013, the FASB issued ASU 2013-01Balance Sheet (Topic 210) Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The amendments in this Update clarify that the scope of the disclosures under U.S. GAAP is limiting the scope of the new balance sheet offsetting disclosures to derivatives, repurchase agreement and reverse repurchase agreement, and securities lending and securities borrowing transactions to the extent that they are (1) offset in the financial statements or (2) subject to an enforceable master netting arrangement or similar agreement. The ASU is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods, with retrospective for all comparative periods presented required. This standard is not expected to have a material impact on our consolidated financial statements.
In February 2013, the FASB issued ASU 2013-02Comprehensive Income (Topic 220) Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendment requires an entity to provide information about reclassification adjustments out of accumulated other comprehensive income by component, either on the face of the statement where net income is presented or in the notes, based on its source and the income statement line items affected by the reclassification. If a component is not required to be reclassified to net income in its entirety (e.g., the net periodic pension cost), we would instead cross reference to the related footnote for additional information (e.g., the pension footnote). The amendment is effective prospectively for reporting periods beginning after December 15, 2012. We are currently evaluating the impact that the adoption of ASU 2013-02 will have on our consolidated financial statements.
In February 2013, the FASB issued ASU 2013-04Liabilities (Topic 405) Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. This Update requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of (a) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (b) any additional amount the reporting entity expects to pay on behalf of its co-obligors. It also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The ASU is effective for fiscal years beginning after December 15, 2013 with early adoption permitted. This standard is not expected to have a material impact on our consolidated financial statements.
In February 2013, the FASB issued ASU 2013-05Foreign Currency Matters (Topic 830) Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The amendments in this Update clarify the applicable guidance for the release of the cumulative translation adjustment under current U.S. GAAP. The amendment clarifies the cumulative translation adjustment should be released into net income when the sale of an investment in a foreign entity includes both (1) events that result in the loss of a controlling financial interest in a foreign entity and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date. The ASU is effective for fiscal years beginning after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. An entity is permitted to early adopt the amendments, and should apply them as of the beginning of the entity’s fiscal year of adoption. We are currently evaluating the potential impact, if any, that the adoption of ASU 2013-05 will have on our consolidated financial statements.
C. Research, Development, Patents and Licenses, Etc.
C. | Research, Development, Patents and Licenses, Etc. |
The semiconductor industry is characterized by rapid changes in technology, frequently resulting in obsolescence of process technologies and products. As a result, effective research and development is essential to our success. We invested approximately NT$8,7409,787 million, NT$9,39512,493 million, and NT$9,78713,664 million (US$337432 million) in 2010, 20112012, 2013 and 2012,2014, respectively, in research and development, which represented 6.9%8.5%, 8.0%10.1% and 8.5%9.8%, respectively, of net operating revenues for such years. We believe that our continuous spending on research and development will help us maintain our position as a technological leader in the foundry industry. As of March 31, 2013,2015, we employed 1,1271,590 professionals in our research and development division.
Our current research and development activities seek to upgrade and integrate manufacturing technologies and processes, as well as to drive 28 nanometer High-k/metal gate technology in mass production, and to develop 14 nanometer technology including EUV (Extreme Ultraviolet) lithography, and FinFET (Fin Field-Effect Transistor). Although we emphasize firm-wide participation in the research and development process, we maintain central research and development teams primarily responsible for developingcost-effective technologies that can serve the manufacturing needs of our customers. Monetary incentives are provided to our employees if projects result in successful patents. We believe we have a strong foundation in research and development and intend to continue our efforts on technology developments. Our top management believes in the value of continued support of research and development efforts and intends to continue our foundry leadership position by providing customers with comprehensive technology and SoC solutions in the industry.
D. Trend Information
D. | Trend Information |
Please refer to “Item 5. Operating and Financial Review and Prospects—Overview” for a discussion of the most significant recent trends in our production, sales, costs and selling prices. In addition, please refer to discussions included in this Item for a discussion of known trends, uncertainties, demands, commitments and events that we believe are reasonably likely to have a material effect on our net operating revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.
E. Off-balance Sheet Arrangements
E. | Off-balance Sheet Arrangements |
We do not generally provide letters of credit to, or guarantees for, or engage in any repurchase financing transactions with any entity other than our consolidated subsidiaries. We have, from time to time, entered into foreign currency forward contracts to hedge our existing assets and liabilities denominated in foreign currencies and identifiable foreign currency purchase commitments. We do not engage in any speculative activities using derivative instruments. See “Item 11. Quantitative and Qualitative Disclosure About Market Risk”.
F. Tabular Disclosure of Contractual Obligations
F. | Tabular Disclosure of Contractual Obligations |
The following table sets forth our contractual obligations and commitments with definitive payment terms on a consolidated basis which will require significant cash outlays in the future as of December 31, 2012.2014.
Payments Due by Period | ||||||||||||||||||||
Total | Less than 1 Year | 1-3 Years | 4-5 Years | After 5-Years | ||||||||||||||||
(in NT$ millions) | ||||||||||||||||||||
Long-term debt (1) | ||||||||||||||||||||
Unsecured bonds | 26,930 | — | 4,651 | 12,279 | 10,000 | |||||||||||||||
Long-term loans | 14,821 | 4,595 | 5,315 | 4,911 | — | |||||||||||||||
Operating lease obligations (2) | 4,178 | 466 | 786 | 657 | 2,269 | |||||||||||||||
Purchase obligations (3) | 390 | 152 | 238 | — | — | |||||||||||||||
Other long-term obligations (4) | 3,357 | 3,088 | 251 | 7 | 11 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total contractual cash obligations | 49,676 | 8,301 | 11,241 | 17,854 | 12,280 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
Long-term debt (1) Unsecured bonds Long-term loans Operating lease obligations(2) Purchase obligations(3) Other long-term obligations(4) Total contractual cash obligations Payments Due by Period Total Less than
1 Year 1-3 Years 4-5 Years After
5 Years (in NT$ millions) 25,000 — 7,500 10,000 7,500 12,201 3,775 7,313 1,113 — 4,218 427 740 504 2,547 103 103 — — — 3,177 2,896 275 3 3 44,699 7,201 15,828 11,620 10,050
(1) | Assuming the |
(2) | Represents our obligations to make lease payments to use machineries, equipment and land on which our fabs are located, primarily in the Hsinchu Science Park and the Tainan Science Park in Taiwan, Pasir Ris Wafer Fab Park in Singapore. |
(3) | Represents commitments for purchase of raw materials. These commitments are not recorded on our balance sheet as of December 31, |
(4) | Represents intellectual properties and royalties payable under our technology license agreements. The amounts of payments due under these agreements are determined based on fixed contract amounts. |
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. Directors and Senior Management
A. | Directors and Senior Management |
The following table sets forth the name, age, position, tenure and biography of each of our directors and executives as of March 31, 2013.2015. There is no family relationship among any of these persons.
In the stockholders’ meeting held on June 12, 2012, our stockholders elected nine new directors, Stan Hung, Wen-Yang Chen, Ting-Yu Lin, Po-Wen Yen, Shih-Wei Sun, Paul S.C. Hsu, Chung-Laung Liu, Chun-Yen Chang and Cheng-Li Huang. The newly elected directors took their offices on June 12, 2012. The business address of our directors and executive officers is the same as our registered address.
Name | Age | Position | Years with Us | Age | Position | Years with Us | ||||||||||
Stan Hung | 52 | Chairman and Director | 21 | 54 | Chairman and Director | 23 | ||||||||||
Shih-Wei Sun | 55 | Vice-Chairman and Director (Representative of Silicon Integrated Systems Corp.) | 18 | |||||||||||||
Po-Wen Yen | 56 | Chief Executive Officer and Director (Representative of Hsun Chieh Investment Co.) | 26 | 58 | Chief Executive Officer and Director (Representative of Hsun Chieh Investment Co.) | 28 | ||||||||||
Jann-Hwa Shyu (1) | 56 | Director (Representative of Silicon Integrated Systems Corp.) and Senior Vice President | 29 | |||||||||||||
Wen-Yang Chen | 60 | Director (Representative of UMC Science and Culture Foundation) and Chief Operating Officer | 33 | 62 | Director (Representative of UMC Science and Culture Foundation) and Chief Operating Officer | 35 | ||||||||||
Ting-Yu Lin | 52 | Director | 7 | 53 | Director | 9 | ||||||||||
Paul S.C. Hsu | 77 | Independent Director | 9 | 79 | Independent Director | 11 | ||||||||||
Chung-Laung Liu | 79 | Independent Director | 7 | 81 | Independent Director | 9 | ||||||||||
Chun-Yen Chang | 76 | Independent Director | 7 | 78 | Independent Director | 9 | ||||||||||
Cheng-Li Huang | 64 | Independent Director | 4 | 66 | Independent Director | 6 | ||||||||||
Chitung Liu | 47 | Chief Financial Officer | 12 | 49 | Chief Financial Officer | 14 |
(1) | Jann-Hwa Shyu was appointed as a representative of Representative of Silicon Integrated Systems Corp. on January 9, 2015. |
(2) | Member of the Audit Committee. |
Stan Hung is a director and the Chairman of our company. Mr. Hung was our CFO & Senior Vice President from 2000 to 2007. He was also the Chairman of Epitech Technology Corporation in 2007 and ITE Technology Corporation for a portion of 2008, respectively. Prior to re-joining United Microelectronics Corporation in 1991, Mr. Hung was a financial manager at Optoelectronics Corporation. He is also the Chairman of Fortune Venture Capital Corporation, TLC Capital Co., Nexpower Technology Corporation, UMC New Business Investment Corporation, Best Elite International Limited, Crystalwise Technology Inc., and a Director of Epistar Corporation.Corporation, Crystalwise Technology Inc. and Altek Corporation as well as an independent director of United BioPharma, Inc. Mr. Hung received a bachelor’s degree in accounting from Tam Kang University in 1982.
Shih-Wei Sun is a director and the Vice-Chairman of our company. Dr. Sun is a representative of Silicon Integrated Systems Corp. Dr. Sun joined us in 1995 and has been responsible for the operation of our Fabs 6A, 8A, 8D and 12A, along with Central Research & Development. Prior to joining us, Dr. Sun worked for Motorola in the Advanced Products Research and Development Laboratory for ten years. Dr. Sun is also the Chairman of UMC Science and Culture Foundation. Dr. Sun holds a Ph.D. degree in electronics materials from Northwestern University in 1986.
Po-Wen Yen is a director of our company and our Chief Executive Officer. Prior to becoming our Chief Executive Officer, Mr. Yen was our senior vice president responsible for 12-inch operations. Mr. Yen is a representative of Hsun Chieh Investment Co. Mr. Yen joined us in 1986 and was responsible for the operation of Fabs 8A and 8C. He also served as the vice president for UMC-SG, our 300mm operation in Singapore. He is also a director of Fortune Venture Capital Corporation, TLC Capital Co., and UMC New Business Investment Corporation, and Best Elite International Limited.Corporation. In 2003, Mr. Yen received the National Manager Excellence Award from Chinese Professional Management Association. Mr. Yen earned a bachelor’s degree in Chemical Engineering from National Tsing Hua University and his master’s degree in chemical engineering from National Taiwan University.
Jann-Hwa Shyu is a director and our senior vice president. Mr.Shyu is a representative of Silicon Integrated Systems Corp. Mr.Shyu is responsible for operation management of 10 fabs in Hsinchu, Tainan, Singapore, and Suzhou, China. Mr. Shyu joined us in 1986 as an engineer, specializing in semiconductor process development, process integration, and fab operation management. In 2002, Mr. Shyu established Hejian in Suzhou Industrial Park and served as its president. Under his leadership, Hejian has been ranked one of the “China’s Top 10 IC & Discrete Device Manufacturer” every year since 2004. In 2006, Mr. Shyu received China’s Semiconductor Industry Leadership Award. Following our acquisition of Hejian in 2013, Mr. Shyu was appointed to his current position as a senior vice president. He earned his master’s degree in Chemical Engineering from National Cheng-Kung University,
Wen-Yang Chen is a director of our company and in 2012 served as our Chief Operating Officer responsible for fab operations.company. Mr. Chen is a representative of UMC Science and Culture Foundation. Mr. Chen was our Chief Operating Officer from 2009 to 2013. Prior to joining us, Mr. Chen worked for companies including Digital Equipment Corporation and Vishay. Mr. Chen joined us in 1980 and was responsible for the operation of our 6A, 8A, 8E, 8D and 8F Fabs, specializing in development and integration of semiconductor processes and factory management. Mr. Chen is also the Chairman of Wavetek Microelectronics Corporation as well as a director of Fortune Venture Capital Corporation, TLC Capital Co., UMC New Business Investment Corporation, and a director of UMC Science and Culture Foundation. Mr. Chen received Award of the Excellent Engineers from Chinese Institute of Engineers in 1994 and Manager Excellence Award in 2002.
Ting-Yu Lin is a director of our company. Mr. Lin is also the chairman of Sunrox International Inc. Mr. Lin received a master’s degree in international finance from Meiji University in 1993.
Paul S.C. Hsu is an independent director of our company. Professor Hsu is a Kao Reyan Chair Professor & University Professor of Yuan-ZeFeng Chia University, Taiwan, the Chairman of Social Ethics Association and the Chairman of Taiwan Institute of Directors. Professor Hsu is an independent director of Gintech Energy Corporation and Yummy Town (Cayman) Holdings Corporation, a director of Faraday Technology Corporation and Gintech Energy Corporation andFar Eastern Electronic Toll Collection Co, Ltd as well as a supervisor of Far Eastern International Bank. Professor Hsu received a Ph.D. degree in business administration from the University of Michigan in 1974.
Chung-Laung Liu is an independent director of our company. Professor Liu is the William M.W. Mong Honorary Chair Professor of National Tsing Hua University, Taiwan. Professor Liu is also the Chairman of DRAMeXchange Corporation,TrendForce Corp., a supervisor of MediaTek Incorporation, an independent director of Richteck Technology Corp., and Powerchip semiconductor Corp., as well as a director of Macronix International Co., Ltd. Professor Liu received a doctorate degree in science from Massachusetts Institute of Technology in 1962.
Chun-Yen Chang is an independent director of our company. Professor Chang is an academician of Academia Sinica and a chair professor and president of National Chiao Tung University, Taiwan. Professor Chang is also an independent director of BizLink Holding Inc. and GlobalWafers Co., Ltd. Professor Chang received a Ph.D. degree in electrical engineering from National Chiao Tung University in 1970.
Cheng-Li Huang is an independent director of our company. Dr. Huang was a professor of Tamkang University and served as its Comptroller. He was also the chief executive of Tamkang Accounting Education Foundation and the publisher of Journal of Contemporary Accounting. Professor Huang is also a supervisor of Win Semiconductors Corp. Professor Huang received a Ph.D. degree in accounting from University of Warwick in 1999.
Chitung Liu is the Chief Financial Officer of our company. Prior to joining our company in 2001, Mr. Liu was a managing director of UBS. Mr. Liu is also a director of Unimicron Corporation, UMC New Business Investment Corporation Fortune Venture Capital Corporation, TLC Capital Co., Ltd. and Nexpower Technology Corp., Mr. Liu received an executive MBA degree from National Taiwan University in 2009.
B. Compensation
B. | Compensation |
The aggregate compensation paid and benefits in kind granted to our directors in 20122014 were approximately NT$11 million (US$0.36million).16.6 million. The remuneration was out of our 20122014 earnings distribution plan, and the distribution percentage for directors is 0.1%[0.1]%. See “Item 10. Additional Information-B.Information—B. Memorandum and Articles of Association-DividendsAssociation—Dividends and Distributions”. Some of the remuneration was paid to the legal entities which some of ourthat certain directors represent. The aggregate compensation paid and benefits in kind granted to our executive officers in 20122014 were approximately NT$138134 million, (US$4.75 million), which include NT$5147 million as bonus. Certain of our directors who also served as executive officers held stock options to purchase 10.76.3 million common shares as of March 31, 2013.
C. Board Practices
C. | Board Practices |
All of our directors were elected in June 2012 for a term of three years. Neither we nor any of our subsidiaries has entered into a contract with any of our directors by which our directors are expected to receive benefits upon termination of their employment.
Our board of directors established an audit committee in March 2005. In the annual ordinary stockholders’ meeting held on June 13, 2008, we amended our articles of incorporation to introduce the mechanism of an Audit Committee. See “Item 10. Additional Information—B. Memorandum and Articles of Association—Directors”. After the re-election of directors in the stockholders’ meeting on June 12, 2012, our board of directors appointed Paul S.C. Hsu, Chung-Laung Liu, Chun-Yen Chang and Cheng-Li Huang to be the members of the audit committee. Each audit committee member is an independent director who is financially literate with accounting or related financial management expertise. The audit committee meets as often as it deems necessary to carry out its responsibilities. Pursuant to an audit committee charter, the audit committee has responsibility for, among other things, overseeing the qualifications, independence and performance of our internal audit function and independent auditors, and overseeing the accounting policies and financial reporting and disclosure practices of our company. The audit committee also has the authority to engage special legal, accounting or other consultants it deems necessary in the performance of its duties.
Remuneration Committee
The R.O.C. Securities and Exchange Act, as amended on November 24, 2010, further introduced the mechanism of a “Remuneration Committee”, which requires all the publicly listed companies in the R.O.C., including our company, to adopt a remuneration committee. On March 18, 2011, R.O.C. FSC promulgated the Regulations Governing the Establishment and Exercise of Powers by Compensation Committees of Public Companies, according to which, listingpublic listed companies of our size shall set up the compensationremuneration committee no later than September 30, 2011 and the remuneration committee shall be composed of no less than three members commissioned by the board of directors. In addition, for a company with independent directors, such as us, at least one of the remuneration committee members shall be the independent director of such company. We established a remuneration committee in accordance with Article 14-6 of the R.O.C. Securities and Exchange Act on April 27, 2011. The members of the remuneration committee are independent directors Chun-Yen Chang, Chung-Laung Liu, Paul S.C. Hsu, and Cheng-Li Huang, with Chun-Yen Chang serving as convener and chairperson. We amended our articles of incorporation to introduceimplement the mechanism of our remuneration committee induring the annual ordinary stockholders’ meeting held on June 15, 2011.
In November 2003, the Securities and Exchange Commission approved changes to the NYSE’s listing standards related to the corporate governance practices of listed companies. Under these rules, listed foreign private issuers, like us, must disclose any significant ways in which their corporate governance practices differ from those followed by NYSE-listed U.S. domestic companies under the NYSE’s listing standards. A copy of the significant differences between our corporate governance practices and NYSE corporate governance rules applicable to U.S. companies is available on our websitehttp://www.umc.com/english/investors/Corpgovdifference.asp.
D. Employees
D. | Employees |
As of March 31, 2013,2015, we had 13,72218,538 employees, which includes 7,85710,272 engineers, 5,3927,461 technicians and 473805 administrative staff performing administrative functions in Taiwan and our Singapore branch.on a consolidated basis. We have in the past implemented, and may in the future evaluate the need to implement, labor redundancy plans based on the work performance of our employees.
As of December 31, | ||||||||||||
2010 | 2011 | 2012 | ||||||||||
Employees | ||||||||||||
Engineers | 7,365 | 7,581 | 7,857 | |||||||||
Technicians | 5,835 | 5,456 | 5,392 | |||||||||
Administrative Staff | 471 | 462 | 473 | |||||||||
|
|
|
|
|
| |||||||
Total | 13,671 | 13,499 | 13,722 | |||||||||
|
|
|
|
|
|
Employees Engineers Technicians Administrative Staff Total As of December 31, 2012 2013 2014 8,640 9,698 10,272 6,215 7,232 7,558 769 854 793 15,624 17,784 18,623
Employee salaries are reviewed annually. Salaries are adjusted based on industry standards, inflation and individual performance. As an incentive, additional bonuses in cash may be paid at the discretion of management based on the performance of individuals. In addition, except under certain circumstances, R.O.C. law requires us to reserve from 10% to 15% of any offerings of our new common shares for employees’ subscription.
Our employees participate in our profit distribution pursuant to our articles of incorporation. Employees are entitled to receive additional bonuses based on a certain percentage of our allocable surplus income. On March 13, 2013, the18, 2015, our board of directors proposed an employee bonus in cash in the amount of NT$1,0401,459 million (US$35.8146.17 million) in relation to retained earnings in 2012.2014.
Our employees are not covered by any collective bargaining agreements. We believe we have a good relationship with our employees.
E. Share Ownership
E. | Share Ownership |
As of March 31, 2013,2015, each of our directors and executive officers held common shares and/or ADSs of United Microelectronics, either directly for their own account or indirectly as the representative of another legal entity on our board of directors, except for Chung-Laung Liu, Paul S.C. Hsu, Chun-Yen Chang and Cheng-Li Huang, our independent directors. As of March 31, 2013, none of our directors or executive officers held, for their own account, 0.1% or more of our outstanding shares. As of April 13, 2013,11, 2015, our most recent record date, Hsun Chieh Investment Co. held approximately 441 million of our common shares, representing approximately 3.4%3.47% of our issued shares.and outstanding share capital. Silicon Integrated Systems Corp. held approximately 315 million of our common shares, representing approximately 2.4%2.48% of our issued shares.and outstanding share capital. Stan Hung held approximately 14 million of our common shares, representing approximately 0.1%0.11% of our issued shares.and outstanding share capital. Ting-Yu Lin held approximately 13 million of our common shares, representing approximately 0.1% of our issued shares. and outstanding share capital.
We have an Employee Stock Options Plan,adopted employee stock option plans in the past, pursuant to which options may be granted to our full-time regular employees, including those of our domestic and overseas subsidiaries. The exercise price for the options would be the closing price of our common shares on the Taiwan Stock Exchange on the day the options are granted, while the expiration date for such options is 6 years from the date of its issuance. In September 2004, December 2005, October 2007 and May 2009, we obtained approvals from relevant R.O.C. authorities for the grant of up to 150 million, 350 million, 500 million and 500 million stock options, respectively, to acquire our common shares under our Employee Stock Options Plan. In April 2005, August 2005, September 2005, January 2006, May 2006, August 2006, December 2007 and June 2009, we granted 23 million, 54 million, 52 million, 39 million, 42 million, 28 million, 500 million andThe 300 million stock options respectively, to our employees, with an exercise price of 22.37, 29.47, 26.89, 23.17, 25.19, 24.09, 18.03 and 10.40, respectively. The 23 million stock options with exercise price of 22.37NT$10.4 that we granted in April 2005,June 2009 will expire on June 18, 2015. Except for the 54 milliongrant in the prior sentence, all stock options with exercise price of 29.47 that we previously granted in August 2005, the 52 million stock options with exercise price of 26.89 that we granted in September 2005, and the 39 million stock options with exercise price of 23.17 that we granted in January 2006,had expired on April 28, 2011, August 15, 2011, September 28, 2011 and January 3, 2012, respectively.prior to 2013.
According to our Employee Stock Options Plan, an option holder may exercise an increasing portion of his or her options starting two years after the grant of the options. According to the vesting schedule, 50%, 75% and 100% of such option holder’s options shall vest two, three and four years after the grant of the options, respectively. Upon a voluntary termination or termination in accordance with the R.O.C. Labor Law, the option holder shall exercise his or her vested options within 30 days, subject to exceptions provided therein, and after the termination otherwise such options shall terminate. If termination was due to death, the heirs of such option holder have one year starting from the date of the death to exercise his or her vested options. If termination was due to retirement or occupational casualty, the option holder or his or her heirs may exercise all his or her options within a certain period as provided. The options are generally not transferable or pledgeable by the option holders. The total number of common shares issuable upon exercise of option held by our directors and executive officers as of March 31, 20132015 was 23.314.9 million. The units granted to each of our directors and executive officers as a percentage of our total sharesissued and outstanding share capital as of March 31, 20132015 were less than 1%.
ITEM 7. | MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONS |
ITEM 7. MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Stockholders
A. | Major Stockholders |
The following table sets forth information known to us with respect to the beneficial ownership of our common shares as of (i) April 13, 2013,11, 2015, our most recent record date and (ii) as of certain record dates in each of the preceding three years, for (1) the stockholders known by us to beneficially own more than 2% of our common shares and (2) all directors and executive officers as a group. Beneficial ownership is determined in accordance with Securities and Exchange Commission rules.
As of April 17, 2011 | As of April 14, 2012 | As of April 13, 2013 | As of April 13, 2013 | As of April 13, 2014 | As of April 11, 2015 | |||||||||||||||||||||||||
Percentage of shares beneficially owned | Percentage of shares beneficially owned | Percentage of shares beneficially owned | Number of shares beneficially owned | Percentage of common shares beneficially owned | Percentage of common shares beneficially owned | Percentage of common shares beneficially owned | Number of common shares beneficially owned | |||||||||||||||||||||||
Name of Beneficial Owner | ||||||||||||||||||||||||||||||
Hsun Chieh Investment Co., Ltd. (1) | 3.4 | % | 3.4 | % | 3.4 | % | 441,371,000 | 3.4 | % | 3.48 | % | 3.47 | % | |||||||||||||||||
Silicon Integrated Systems Corp. | 2.4 | % | 2.4 | % | 2.4 | % | 315,380,424 | 2.4 | % | 2.48 | % | 2.48 | % | |||||||||||||||||
Directors and executive officers as a group | 6.22 | % | 6.26 | % | 6.27 | % | 811,875,046 | 6.27 | % | 6.39 | % | 6.28 | % |
(1) | 36.5% owned by United Microelectronics Corp. as of March 31, |
None of our major stockholders have different voting rights from those of our other stockholders. To the best of our knowledge, we are not directly or indirectly controlled by another corporation, by any foreign government or by any other natural or legal person severally or jointly.
For information regarding our common shares held or beneficially owned by persons in the United States, see “Item 9. The Offer and Listing-A.Listing—A. Offer and Listing Details-MarketDetails—Market Price Information for Our American Depositary Shares” in this annual report.
B. Related Party Transactions
B. | Related Party Transactions |
From time to time we have engaged in a variety of transactions with our affiliates. We generally conduct transactions with our affiliates on an arm’s-length basis. The sales and purchase prices with related parties are determined through negotiation, generally based on market price.
The following table shows our aggregate ownership interest, on a consolidated basis, in major related fabless design companies that we enter into transactions from time to time as of December 31, 2012.2014.
Name | Ownership % | |||
Silicon Integrated Systems Corp. |
We provide foundry services to thesethis fabless design companiescompany and the sales price was determined on arm’s-lengtharm’s length prices and terms.terms, through mutual agreement based on the market conditions. We derived NT$777 million, NT$237156 million and NT$256117 million (US$94 million) of our net operating revenues in 2010, 20112013 and 2012,2014, respectively, from the provision of our foundry servicesservices. For more information, please refer to these fabless design companies.Note 7 to our audited consolidated financial statements included in this annual report.
C. Interests of Experts and Counsel
C. | Interests of Experts and Counsel |
Not applicable.
ITEM 8. | FINANCIAL INFORMATION |
A. Consolidated Statements and Other Financial Information
A. | Consolidated Statements and Other Financial Information |
Please refer to Item 18 for a list of all financial statements filed as part of this annual report on Form 20-F.
Except as described in “Item 4. Information on the Company-B.Company—B. Business Overview-Litigation”Overview—Litigation”, we are not currently involved in material litigation or other proceedings that may have, or have had in the recent past, significant effects on our financial position or profitability.
As for our policy on dividend distributions, see “Item 10. Additional Information—B. Memorandum and Articles of Association— Dividends and Distributions”. On June 15, 2010, our stockholders approved a cash dividend of NT$0.5 per share for an aggregate of NT$6,233,001,658. On June 15, 2011, our stockholders approved a cash dividend of NT$1.12 per share for an aggregate of NT$14,033,575,265. On July 8, 2011, the Board of Directors resolved to adjust the cash dividend ratio to NTD$1.11164840 per share, because the outstanding common shares had increased accordingly as a result of the exercise of employee stock options. On June 12, 2012, our stockholders approved a cash dividend of NT$0.5 per share for an aggregate of NT$6,316,434,833. On June 20, 2012, the Boardour board of Directorsdirectors resolved to adjust the cash dividend ratio to NTD$ NT$0.49980232 per common share, because the outstanding common shares had increased accordingly as a result of the exercise of employee stock options. On June 11, 2013, our stockholders approved a cash dividend of NT$0.4 per common share for an aggregate of NT$5,061,310,216. On June 19, 2013, our board of directors resolved to adjust the cash dividend ratio to NT$0.40639654 per common share because the number of outstanding common shares had changed as a result of the exercise of employee stock options and our repurchase of treasury common shares. On June 11, 2014 our stockholders approved a cash distribution of NT$0.5 per common share for an aggregate of NT$6,253,157,145, among which NT$0.49 per common share was from additional paid-in capital while the remaining was from earnings. On March 13, 2013, the18, 2015, our board of directors proposed dividends of NT$ 5,061,310,2166,939,321,835 (approximately NT$0.40.55 per common share). which are expected to be approved at our annual general stockholders’ meeting on June 9, 2015.
The following table sets forth the cash dividends per share and stock dividends per share as a percentage of common shares outstanding paid during each of the years indicated in respect of common shares outstanding at the end of each such year, except as otherwise noted.
Cash Dividend per Share | Stock Dividend per Share | Total Number of Shares Issued as Stock Dividend | Number of Outstanding Shares at Year End | Cash Dividend per Share | Stock Dividend per Share | Total Number of Common Shares Issued as Stock Dividend | Number of Outstanding Common Shares at Year End | |||||||||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | |||||||||||||||||||||||||||||
1997 | — | 3.0 | 868,629,276 | 4,117,758,265 | — | 3.0 | 868,629,276 | 4,117,758,265 | ||||||||||||||||||||||||
1998 | — | 2.9 | 1,199,052,940 | 5,480,221,725 | — | 2.9 | 1,199,052,940 | 5,480,221,725 | ||||||||||||||||||||||||
1999 | — | 1.5 | 834,140,790 | 6,638,054,462 | — | 1.5 | 834,140,790 | 6,638,054,462 | ||||||||||||||||||||||||
2000 | — | 2.0 | 1,809,853,716 | 11,439,016,900 | — | 2.0 | 1,809,853,716 | 11,439,016,900 | ||||||||||||||||||||||||
2001 | — | 1.5 | 1,715,104,035 | 13,169,235,416 | — | 1.5 | 1,715,104,035 | 13,169,235,416 | ||||||||||||||||||||||||
2002 | — | 1.5 | 1,968,018,212 | 15,238,578,646 | — | 1.5 | 1,968,018,212 | 15,238,578,646 | ||||||||||||||||||||||||
2003 | — | 0.4 | 607,925,145 | 15,941,901,463 | — | 0.4 | 607,925,145 | 15,941,901,463 | ||||||||||||||||||||||||
2004 | — | 0.8 | 1,288,558,185 | 17,550,800,859 | — | 0.8 | 1,288,558,185 | 17,550,800,859 | ||||||||||||||||||||||||
2005 | 0.1029 | 1.029 | 1,758,736,435 | 18,856,632,324 | 0.1029 | 1.029 | 1,758,736,435 | 18,856,632,324 | ||||||||||||||||||||||||
2006 | 0.409141420 | 0.10228530 | 179,031,672 | 19,131,192,690 | 0.409141420 | 0.10228530 | 179,031,672 | 19,131,192,690 | ||||||||||||||||||||||||
2007 | 0.7 | — | — | 13,214,494,883 | 0.7 | — | — | 13,214,494,883 | ||||||||||||||||||||||||
2008 | 0.75 | 0.45 | 562,958,816 | 12,987,771,315 | 0.75 | 0.45 | 562,958,816 | 12,987,771,315 | ||||||||||||||||||||||||
2009 | — | — | — | 12,987,771,315 | — | — | — | 12,987,771,315 | ||||||||||||||||||||||||
2010 | 0.5 | — | — | 12,987,912,315 | 0.5 | — | — | 12,987,912,315 | ||||||||||||||||||||||||
2011 | 1.11164840 | — | — | 13,084,341,565 | 1.11164840 | — | — | 13,084,341,565 | ||||||||||||||||||||||||
2012 | 0.49980232 | 12,951,805,540 | 0.49980232 | — | — | 12,951,805,540 | ||||||||||||||||||||||||||
2013 | 0.40639654 | — | — | 12,692,081,665 | ||||||||||||||||||||||||||||
2014 | 0.5 | — | — | 12,725,207,790 |
(1) | We declare stock dividends in a NT dollar amount per share, but we pay the stock dividends to our stockholders in the form of common shares. The amount of common shares distributed to each stockholder is calculated by multiplying the dividend declared by the number of common shares held by the given stockholder, divided by the par value of NT$10 per share. Fractional common shares are not issued but are paid in cash. |
B. Significant Changes
B. | Significant Changes |
For the significant subsequent events following the close of the last financial year up to the date of this annual report on Form 20-F, please refer to Note 3110 to theour audited consolidated financial statements.statements included elsewhere in this annual report.
ITEM 9. | THE OFFER AND LISTING |
A. Offer and Listing Details
A. | Offer and Listing Details |
Market Price Information for Our Common Shares
Our common shares have been listed on the Taiwan Stock Exchange since July 1985. There is no public market outside Taiwan for our common shares. The table below shows, for the periods indicated, the high and low closing prices and the average daily volume of trading activity on the Taiwan Stock Exchange for our common shares. The closing price for our common shares on the Taiwan Stock Exchange on April 24, 2013April17, 2015 was NT$11.4014.30 per share.
High | Low | Average Daily Trading Volume | High | Low | Average Daily Trading Volume | |||||||||||||||||||
NT$ | NT$ | (in thousands of shares) | NT$ | NT$ | (in thousands of shares) | |||||||||||||||||||
2008 | 20.30 | 6.80 | 37,521.00 | |||||||||||||||||||||
2009 | 17.20 | 7.10 | 85,869.55 | |||||||||||||||||||||
2010 | 18.60 | 12.95 | 53,660.37 | 18.60 | 12.95 | 53,660.37 | ||||||||||||||||||
2011 | 18.10 | 10.45 | 44,048.44 | 18.10 | 10.45 | 44,048.44 | ||||||||||||||||||
2012 | 15.65 | 10.10 | 39,247.79 | |||||||||||||||||||||
2013 | 12.40 | 10.90 | 41,684.47 | |||||||||||||||||||||
First Quarter | 18.10 | 14.10 | 70,662.07 | 12.40 | 10.90 | 3,528.18 | ||||||||||||||||||
Second Quarter | 15.60 | 13.95 | 37,160.89 | 14.50 | 11.00 | 82,540.32 | ||||||||||||||||||
Third Quarter | 14.45 | 10.45 | 43,958.27 | 15.05 | 11.75 | 74,070.55 | ||||||||||||||||||
Fourth Quarter | 13.35 | 11.30 | 27,100.94 | 13.10 | 11.90 | 37,050.69 | ||||||||||||||||||
2012 | 15.65 | 10.10 | 39,247.79 | |||||||||||||||||||||
2014 | 16.50 | 12.00 | 55,017.35 | |||||||||||||||||||||
First Quarter | 15.65 | 12.60 | 43,434.55 | 13.05 | 12.00 | 50,562.17 | ||||||||||||||||||
Second Quarter | 15.55 | 11.80 | 37,797.20 | 15.10 | 12.80 | 53,799.21 | ||||||||||||||||||
Third Quarter | 13.40 | 11.65 | 32,337.63 | 16.50 | 12.60 | 62,688.43 | ||||||||||||||||||
Fourth Quarter | 12.10 | 10.10 | 43,721.73 | 14.85 | 12.05 | 52,503.20 | ||||||||||||||||||
October | 12.10 | 10.85 | 22,459.78 | 13.40 | 12.05 | 42,408.72 | ||||||||||||||||||
November | 11.25 | 10.10 | 45,008.93 | 14.05 | 13.20 | 51,824.47 | ||||||||||||||||||
December | 12.00 | 11.10 | 64,647.67 | 14.85 | 13.55 | 62,322.08 | ||||||||||||||||||
2013 (through April 24) | 12.40 | 10.90 | 41,684.47 | |||||||||||||||||||||
2015 (through April17) | 16.05 | 14.30 | 64,158.78 | |||||||||||||||||||||
First Quarter | 12.40 | 10.90 | 43,751.54 | 16.05 | 14.70 | 66,976.26 | ||||||||||||||||||
January | 12.40 | 11.20 | 49,116.86 | 15.75 | 14.70 | 92,357.28 | ||||||||||||||||||
February | 11.65 | 11.10 | 34,449.92 | 16.05 | 15.40 | 63,900.50 | ||||||||||||||||||
March | 11.60 | 10.90 | 43,293.25 | 16.00 | 15.20 | 45,720.09 | ||||||||||||||||||
Second Quarter (through April 24) | 11.40 | 11.00 | 35,231.50 | |||||||||||||||||||||
April (through April 24) | 11.40 | 11.00 | 35,231.50 | |||||||||||||||||||||
Second Quarter (through April17) | 15.80 | 14.30 | 50,071.37 | |||||||||||||||||||||
April (through April17) | 15.80 | 14.30 | 50,071.37 |
Source: Taiwan Stock Exchange.
Market Price Information for Our American Depositary Shares
Our ADSs have been listed on the NYSE under the symbol “UMC” since September 19, 2000. The outstanding ADSs are identified by the CUSIP number 910873 40 5. The table below shows, for the periods indicated, the high and low closing prices and the average daily volume of trading activity on the NYSE for our ADSs. The closing price for our ADSs on the New York Stock Exchange on April 23, 201317, 2015 was US$1.852.23 per ADS. Each of our ADSs represents the right to receive five common shares.
High | Low | Average Daily Trading Volume | High | Low | Average Daily Trading Volume | |||||||||||||||||||
NT$ | NT$ | (in thousands of shares) | NT$ | NT$ | (in thousands of shares) | |||||||||||||||||||
2008 | 3.71 | 1.51 | 5,780,890 | |||||||||||||||||||||
2009 | 3.88 | 1.65 | 5,106,249 | |||||||||||||||||||||
2010 | 4.22 | 2.55 | 3,932,515 | 4.22 | 2.55 | 3,932,515 | ||||||||||||||||||
2011 | 3.46 | 1.79 | 3,454,527 | 3.46 | 1.79 | 3,454,527 | ||||||||||||||||||
2012 | 2.72 | 1.75 | 2,733,811 | |||||||||||||||||||||
2013 | 2.43 | 1.77 | 1,862,883 | |||||||||||||||||||||
First Quarter | 3.46 | 2.50 | 4,156,134 | 2.15 | 1.80 | 2,651,914 | ||||||||||||||||||
Second Quarter | 2.84 | 2.46 | 3,632,388 | 2.34 | 1.77 | 2,145,941 | ||||||||||||||||||
Third Quarter | 2.56 | 1.79 | 3,540,807 | 2.43 | 1.88 | 1,638,086 | ||||||||||||||||||
Fourth Quarter | 2.35 | 1.85 | 2,498,545 | 2.15 | 1.94 | 1,064,906 | ||||||||||||||||||
2012 | 2.72 | 1.75 | 2,733,811 | |||||||||||||||||||||
2014 | 2.58 | 1.95 | 1,043,726 | |||||||||||||||||||||
First Quarter | 2.72 | 2.14 | 3,363,260 | 2.15 | 1.97 | 995,294 | ||||||||||||||||||
Second Quarter | 2.72 | 1.95 | 3,401,801 | 2.45 | 2.05 | 1,476,770 | ||||||||||||||||||
Third Quarter | 2.24 | 1.98 | 2,305,720 | 2.58 | 1.99 | 1,088,724 | ||||||||||||||||||
Fourth Quarter | 2.10 | 1.75 | 1,860,593 | 2.32 | 1.95 | 618,612 | ||||||||||||||||||
October | 2.10 | 1.88 | 1,452,582 | 2.19 | 1.95 | 857,701 | ||||||||||||||||||
November | 1.96 | 1.75 | 1,985,330 | 2.21 | 2.12 | 508,377 | ||||||||||||||||||
December | 2.05 | 1.89 | 2,158,031 | 2.32 | 2.14 | 463,859 | ||||||||||||||||||
2013 (through April 23) | 2.15 | 1.77 | 2,458,650 | |||||||||||||||||||||
2015 (through April 17) | 2.54 | 2.22 | 861,128 | |||||||||||||||||||||
First Quarter | 2.15 | 1.80 | 2,651,914 | 2.54 | 2.22 | 885,775 | ||||||||||||||||||
January | 2.15 | 1.92 | 3,887,406 | 2.49 | 2.22 | 1,247,122 | ||||||||||||||||||
February | 1.95 | 1.81 | 2,092,008 | 2.54 | 2.43 | 755,601 | ||||||||||||||||||
March | 1.91 | 1.80 | 1,886,557 | 2.53 | 2.35 | 669,702 | ||||||||||||||||||
Second Quarter (through April 23) | 1.85 | 1.77 | 1,776,543 | |||||||||||||||||||||
April (through April 23) | 1.85 | 1.77 | 1,776,543 | |||||||||||||||||||||
Second Quarter (through April 17) | 2.51 | 2.23 | 735,836 | |||||||||||||||||||||
April (through April 17) | 2.51 | 2.23 | 735,836 |
Sources: BloombergThomson One
As of March 31, 2013,2015, there were a total of 229,568,276140,554,847 ADSs listed on the NYSE. With certain limited exceptions, holders of common shares that are not R.O.C. persons are required to hold these common shares through a brokerage or custodial account in the R.O.C. As of March 31, 2013, 1,147,841,380 ordinary2015, 702,774,235 common shares were registered in the name of a nominee of JPMorgan Chase & Co., the depositary under the deposit agreement. JPMorgan Chase & Co. has advised us that, as of March 31, 2013, 229,351,5592015, 140,356,457 ADSs representing these 1,146,757,795701,782,285 common shares were held of record by Cede & Co., and 216,717198,390 ADSs were held by U.S. registered stockholders. We have no further information as to common shares held or beneficially owned by U.S. persons.
B. Plan of Distribution
B. | Plan of Distribution |
Not applicable.
C. Markets
C. | Markets |
The principal trading markets for our common shares are the Taiwan Stock Exchange and the New York Stock Exchange, on which our common shares trade in the form of ADSs.
D. Selling Stockholders
Not applicable.
E. Dilution
D. | Selling Stockholders |
Not applicable.
F. Expenses of the Issue
E. | Dilution |
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
F. | Expenses of the Issue |
Not applicable.
B. Memorandum and Articles of Association
ITEM 10. | ADDITIONAL INFORMATION |
A. | Share Capital |
Not applicable.
B. | Memorandum and Articles of Association |
The following statements summarize the material elements of our capital structure and the more important rights and privileges of stockholders conferred by the R.O.C. law and our articles of incorporation.
Objects and Purpose
The scope of business of United Microelectronics as set forth in Article 2 of our articles of incorporation, includes (i) integrated circuits; (ii) semiconductor parts and components; (iii) parts and components of microcomputers, microprocessors, peripheral support and system products; (iv) parts and components of semiconductor memory systems products; (v) semiconductor parts and components for digital transceiver product and system products; (vi) semiconductor parts and components for telecom system and system products; (vii) testing and packaging of integrated circuits; (viii) mask production; (ix) research and development, design, production, sales, promotion and after-sale services related to our business; and (x) export/import trade related to our business.
Directors
The R.O.C. Company Act and our articles of incorporation provide that our board of directors is elected by stockholders and is responsible for the management of our business. As of March 31, 2013,2015, our board of directors consisted of nine directors, out of which four are independent directors. In the annual ordinary stockholders’ meeting held on June 11, 2007, we amended our articles of incorporation to abolish the managing director mechanism. In the annual ordinary stockholders’ meeting held on June 13, 2008, we amended our articles of incorporation to introduce the mechanism of an Audit Committee. The Chairman presides at all meetings of our board of directors, and also has the authority to represent our company. The term of office for our directors is three years, and our directors are elected by our stockholders by means of cumulative voting. The amendment to our articles of incorporation on June 11, 2007 also adopts a nomination system which provides that holders of one percent or more of the total issued and outstanding shares of our company would be entitled to submit a roster of candidates to be considered for nomination to our company’s board of directors at a stockholders’ meeting involving the election of directors. Pursuant to the R.O.C. Company Act, a person may serve as our director in his or her personal capacity or as the representative of another legal entity. A legal entity that owns our common shares may be elected as a director, in which case a natural person must be designated to act as the legal entity’s representative. A legal entity that is our stockholder may designate its representative to be elected as our director on its behalf. In the event several representatives are designated by the same legal entity, any or all of them may be elected. A director who serves as the representative of a legal entity may be removed or replaced at any time at the discretion of such legal entity, and the replacement director may serve the remainder of the term of office of the replaced director. As of March 31, 2013,2015, three of our nine directors are representatives of other legal entities, as shown in “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management”.
According to the R.O.C. Company Act and the rules promulgated under the R.O.C. Securities and Exchange Act, a director who has a personal interest in a matter to be discussed at the meeting of the board of directors, the outcome of which may conflict with his interests, shall explain the essential contents of such personal interest in the meeting of the board of directors and thendirectors. In case that such personal interest may impair the interests of us, such director shall abstain from joining the discussion and voting on such matter. In case that such director is the representative designated by a legal entity stockholder to be elected as our director and such legal entity stockholder has personal interest in the matter to be discussed at the meeting of the board of directors, the rules provided in the preceding two sentences shall also apply. Our articles of incorporation, as amended on June 13, 2008, provide that theour board of directors is authorized, by taking into account of the extent of his/her/its involvement of our operation activities and the value of his/her/its contribution, to determine the compensation for each director at a comparable rate adopted by other companies of the same industry regardless of the profit received by our company. In addition, according to our articles of incorporation, we may distribute 0.1% of the balance of our earnings after deduction of payment of all taxes and dues, deduction of any past losses, allocation of 10% of our net income as a legal reserve, and allocation of special reserve according to applicable laws and regulations or the order of the competent authority, if any, as remuneration to directors. Our articles of incorporation do not impose a mandatory retirement age limit for our directors. Furthermore, our articles of incorporation do not impose a shareholding qualification for each director, while the laws and regulations require the aggregate shareholding of all directors, excluding independent directors, to meet certain thresholds considering the paid-in capital and the numbers of the independent directors. According to our current internal Loan Procedures, as amended in our annual stockholders’ meeting held in June 15, 2010, we shall not extend any loan to our directors.
In order to strengthen corporate governance of companies in Taiwan, effective from January 1, 2007, the amended R.O.C. Securities and Exchange Act authorizes the R.O.C. FSC, after considering certain factors, including the scale, shareholding structure and business nature of a public company, to require that a public company, such as our company, meet certain criteria, including having at least two independent directors but not less than one fifth of the total number of directors.
In addition, pursuant to the amended R.O.C. Securities and Exchange Act, a public company is required to either establish an audit committee, or R.O.C. Audit Committee, or retain supervisors, provided that the R.O.C. FSC may, after considering the scale and business nature of a public company and other necessary situation, require the company to establish an audit committee in place of its supervisors. Currently, the R.O.C. FSC has not promulgated such compulsory rules, and all public companies may, at their discretion, retain either an R.O.C. Audit Committee or supervisors. We have amended our articles of incorporation in the annual ordinary stockholders’ meeting held on June 13, 2008, introducing the mechanism of an R.O.C. Audit Committee. On February 20, 2013, the R.O.C. FSC has ruled that a public company with certain scale or of certain business nature, including us, shall establish an R.O.C. Audit Committee instead of the supervisors. According to our latest amended articles of incorporation and audit committee charter, our R.O.C. Audit Committee is composed of all independent directors and performs the power and duties provided by applicable laws and regulations, including without limitation the powers and the duties of supervisors provided under the R.O.C. Company Act. A company is not allowed to maintain both supervisors and a R.O.C. Audit Committee, so we chose to eliminate our superviserssupervisors when we established our R.O.C. Audit Committee in 2009.
According to our current articles of incorporation, as amended on June 13, 2008, we may purchase directors and officers liability insurance for our directors, covering the liabilities incurred in relation to his/her/its operation of business and legally responsible for.
Common Shares
As of December 31, 2012,2014, our authorized share capital was NT$260 billion, divided into 26 billion common shares, of which 12,951,805,54012,730,304,790 common shares were issued and 12,951,805,54012,730,304,790 common shares were outstanding (including 303,7505,097,000 common shares of capital collected in advance). All common shares presently issued are fully paid and in registered form, and existing stockholders are not subject to any capital calls. We had US$428 million convertible bondsdo not have any outstanding as of March 31, 2013. As of March 31, 2013, we had neither warrant norwarrants or option onto purchase our common shares, except for the options exercisable for 460.779 million common shares granted to our employees under our Employee Stock Options Plan discussed below.
Employee Stock Option
According to our Employee Stock Options Plan, options may be granted to our full-time regular employees, including those of our domestic and overseas subsidiaries. In SeptemberSince 2004 December 2005, October 2007 and Mayto 2009, we obtained approvalapprovals by relevant R.O.C. authorities to grant up to 150 million, 350 million, 500 million and 500an aggregate of 1,500 million stock options respectively, to acquire our common shares under our Employee Stock Option Plan. According to the plan, an option holder may exercise an increasing portion of his or her options in time starting two years after the grant of the options. According to the vesting schedule, 50%, 75% and 100% of such option holder’s options shall vest two, three and four years after the grant of the options, respectively.
The table below shows the number of outstanding options granted and outstanding and the month in which they were granted:
Number of Options Granted | ||||
Number of Options Outstanding as of March 31, | ||||
Common Shares |
Except for the employee stock options disclosed in the table above, there was no other outstanding options as of March 31, 2015.
May 2006 | August 2006 | December 2007 | June 2009 | |||||||||||||
Number of Options Granted | 42 | 28 | 500 | 300 | ||||||||||||
Number of Options Outstanding as of March 31, 2013 | 0 | 0 | 330.7 | 130.0 | ||||||||||||
Shares available to option holders as of March 31, 2013 | 0 | 0 | 330.7 | 130.0 |
New Common Shares and Preemptive Rights
New common shares may only be issued with the prior approval of our board of directors. If our issuance of any new common shares will result in any change in our authorized share capital, we are required under R.O.C. law to amend our articles of incorporation and obtain approval of our stockholders in a stockholders’ meeting. We must also obtain the approval of, or submit a registration with, the R.O.C. FSC and the Science Park Administration. According to the R.O.C. Company Act, when a company issues capital stock for cash, 10% to 15% of the issue must be offered to its employees. In addition, if a listed company intends to offer new common shares for cash, at least 10% of the issue must also be offered to the public. This percentage can be increased by a resolution passed at a stockholders’ meeting, which will reduce the number of new common shares in which existing stockholders may have preemptive rights. Unless the percentage of the common shares offered to the public is increased by a resolution, existing stockholders of the company have a preemptive right to acquire the remaining 75% to 80% of the issue in proportion to their existing shareholdings. According to the Corporate Merger and Acquisition Act of the R.O.C., as effective on February 8, 2002, and amended on May 5, 2004, if new common shares issued by our company are solely for the purpose of acquisition, share swap or spin-off, the above-mentioned restrictions, including the employee stock ownership plan, the preemptive rights of the existing stockholders and the publicity requirement of a listed company, to such issuance of new common shares may not be applied.
Stockholders
We only recognize persons registered in our register as our stockholders. We may set a record date and close our register of stockholders for specified periods to determine which stockholders are entitled to various rights pertaining to our common shares.
Transfer of Common Shares
Under the R.O.C. Company Act, a public company, such as our company, may issue individual share certificates, one master certificate or no certificate at all, to evidence common shares. Our articles of incorporation, as amended on June 13, 2008, provide that we may deliver common shares in book-entry form instead of by means of issuing physical share certificates. We have issued our common shares in uncertificated/scripless form since 2007. Therefore, the transfer of our common shares is carried out on the book-entry system. The settlement of trading of our common shares is normally carried out on the book-entry system maintained by the Taiwan Depositary and Clearing Corporation. Transferees must have their names and addresses registered on our register in order to assert stockholder’s rights against us. Our stockholders are required to file their respective specimen seals with our share registrar, Horizon Securities Co., Ltd.
Stockholders’ Meetings
We are required to hold an annual ordinary stockholders’ meeting once every calendar year within six months from the end of each fiscal year. Our board of directors may convene an extraordinary meeting whenever the directors deem necessary, and they must do so if requested in writing by stockholders holding no less than 3% of our paid-in share capitalissued common shares who have held these common shares for more than a year. At least 15 days’ advance written notice must be given of every extraordinary stockholders’ meeting and at least 30 days’ advance written notice must be given of every annual ordinary stockholders’ meeting. Unless otherwise required by law or by our articles of incorporation, voting for an ordinary resolution requires an affirmative vote of a simple majority of those present. A distribution of cash dividends would be an example of an ordinary resolution. The R.O.C. Company Act also provides that in order to approve certain major corporate actions, including any amendment of our articles of incorporation, dissolution, merger or spin-off, entering into, amendment, or termination of any contract for lease of the company’s business in whole, or for entrusted business, or for joint operation with others, on regular basis, the transfer of all or an essential part of the business or assets, accept all of the business or assets of any other company which would have a significant impact inon our operations, removing directors or the distribution of dividend in stock form, a special resolution shall be adopted by the holders of the majority of our common shares represented at a stockholders’ meeting at which holders of at least two-thirds of our issued and outstanding common shares are present. However, in the case of a public company, such as our company, such resolution may be adopted by the holders of at least two-thirds of the common shares represented at a stockholders’ meeting at which holders of at least a majority of our issued and outstanding common shares are present. However, if we are the controlling company and hold no less than 90% of our subordinate company’s outstanding common shares, our merger with the subordinate company can be approved by a board resolution adopted by majority consent at a meeting with at least two-thirds of our directors present without stockholders’ approval. In addition, according to the Corporate Merger and Acquisition Act of the R.O.C., if a company intends to transfer all or an essential part of its business or assets to its wholly-owned subsidiary, subject to the qualifications set forth in the said act, such transaction only needs to be approved by majority board resolution rather than special resolution by the stockholder’s meeting as required by the R.O.C. Company Act.
Voting Rights
Each common share is generally entitled to one vote and no voting discount will be applied. However, treasury common shares and our common shares held by (i) an entity in which we own more than 50% of the voting shares or paid-in capital, or (ii) a third party in which we and an entity controlled by us jointly own, directly or indirectly, more than 50% of the voting shares or paid-in capital are not entitled to any vote. Except as otherwise provided by law or our articles of incorporation, a resolution can be adopted by the holders of a simple majority of the total issued and outstanding common shares represented at a stockholders’ meeting. The quorum for a stockholders’ meeting to discuss the ordinary resolutions is a majority of the total issued and outstanding common shares. Pursuant to the R.O.C Company Act amended on December 28, 2011, the election of directors by our stockholders shall be conducted by means of cumulative voting rather than other voting mechanisms adopted in our articles of incorporation. InExcept as otherwise provided under applicable laws and regulations, in all other matters, a stockholder must cast all his or her votes in the same manner when voting on any of these matters.
Our stockholders may be represented at an ordinary or extraordinary stockholders’ meeting by proxy if a valid proxy form is delivered to us five days before the commencement of the ordinary or extraordinary stockholders’ meeting, unless such proxy has been revoked no later than two days before the date of the stockholders’ meeting. Voting rights attached to our common shares exercised by our stockholders’ proxy are subject to the proxy regulation promulgated by the R.O.C. FSC.
Authorized by latest amendment of the R.O.C Company Act, the R.O.C. FSC has issued an administrative order inon February 20, 2012 to require Taiwan Stock Exchange-listed companies, such as our company, and GreTai Securities Market-listed companies in the R.O.C. with NT$10 billion or more of paid-in share capital and with 10,000 or more stockholders as of the first date of the close period applicable to the stockholders’ meeting to adopt an e-voting system for stockholders’ meeting. The e-voting system provides a new platform for stockholders to exercise their voting rights online. As a company that meets the foregoing criteria, we have successfully adopted the e-voting system in the 2012 stockholders’ meeting and voted by poll on each agenda for discussion.
Any stockholder who has a personal interest in a matter to be discussed at our stockholders’ meeting, the outcome of which may impair our interests, shall not vote or exercise voting rights on behalf of another stockholder on such matter.
According to the R.O.C. Company Act newly amended on January 4, 2012, a stockholder of a public company who holds common shares for others, such as a depositary, may choose to exercise his/her/its voting power separately. On April 13, 2012, R.O.C. FSC promulgated the Regulations Governing the Split Voting of the Stockholders and Compliance Matters for Public Companies, the implementation rules of such split voting method, which stipulates that the depository of the overseas depositary receipts may exercise its voting power separately in accordance with the instructions of the respective holders of the ADS. Notwithstanding the foregoing, before any amendment to the currently effective Deposit Agreement is made, holders of our ADSs generally will not be able to exercise voting rights on the common shares underlying their ADSs on an individual basis.
Dividends and Distributions
We are not allowed under R.O.C. law to pay dividends on our treasury common shares. We may distribute dividends on our issued and outstanding common shares if we have earnings. Before distributing a dividend to stockholders, among other things, we must recover any past losses, pay all outstanding taxes and set aside a legal reserve equivalent to 10% of our net income until our legal reserve equals our paid-in capital, and a special reserve, if any.
At an annual ordinary stockholders’ meeting, our board of directors submits to the stockholders for their approval proposals for the distribution of dividends or the making of any other distribution to stockholders from our net income or reserves for the preceding fiscal year. Dividends are paid to stockholders proportionately. Dividends may be distributed either in cash or in common shares or a combination of cash and common shares, as determined by the stockholders at such meeting.
Our articles of incorporation provide that we may distribute as remuneration to directors 0.1% of the balance of our earnings deducted by:
payment of all taxes and dues;
deduction of any past losses;
allocation of 10% of our net income as a legal reserve; and
special reserve, if any.
The amount of no less than 5% of the residual amount after the deductions illustrated above, plus, at discretion, any undistributed earnings from previous years, shall be distributed as bonus to employees. Originally, the distribution of employee bonus were in the form of new common shares; in the annual ordinary stockholders’ meeting held in June 2005, our stockholders approved an amendment of our articles of incorporation to enable the distribution of employee bonus in the form of cash or in common shares. Employees eligible for such distribution may include certain qualified employees from our subordinate companies and the qualification of such employees is to be determined by our board of directors. The remaining amount may be distributed according to the distribution plan proposed by our board of directors based on our dividend policy, and submitted to the stockholders’ meeting for approval.
In the annual ordinary stockholders’ meeting held in June 2005, our stockholders approved a change of the percentage of stock dividend issued to our stockholders, if any, to no more than 80% and cash dividend, if any, to no less than 20%.
In addition to permitting dividends to be paid out of net income, we are permitted under the R.O.C. Company Act to make distributions to our stockholders of additional common shares by capitalizing reserves, including the legal reserve and capital surplus of premiums from issuing stock and earnings from gifts received, or make such distributions by cash, if we do not have losses. However, where legal reserve is distributed by capitalization or in cash, only the portion of legal reserve which exceeds 25 percent of the paid-in capital may be distributed.
For information as to R.O.C. taxes on dividends and distributions, see “—E. R.O.C. Tax Considerations” in this Item.
Acquisition of Our Common Shares by Us
An R.O.C. company may not acquire its own common shares, except under certain exceptions provided in the R.O.C. Company Act or the R.O.C. Securities and Exchange Act. Under the amendments to the R.O.C. Company Act, which took effect on November 14, 2001, a company may purchase up to 5% of its issued common shares for transfer to employees as employee compensation in accordance with a resolution of its board of directors, passed by a majority vote, at a meeting with at least two-thirds of the directors present.
Under Article 28-2, an amendment to the R.O.C. Securities and Exchange Act, which took effect on July 21, 2000, we may, by a board resolution adopted by majority consent at a meeting with two-thirds or more of our directors present, purchase up to 10% of our issued common shares on the Taiwan Stock Exchange or by a tender offer, in accordance with the procedures prescribed by the R.O.C. FSC, for any of the following purposes:
to transfer our common shares to our employees;
to transfer upon conversion of bonds with warrants, preferred shares with warrants, convertible bonds, convertible preferred shares or certificates of warrants issued by us; and
if necessary, to maintain our credit and our stockholders’ equity; provided that the common shares so purchased shall be canceled thereafter.
We have from time to time announced plans, none of which was binding on us, to buy back up to a fixed amount of our common shares on the Taiwan Stock Exchange at the price range set forth in the plans. In 2009 and 2010, we purchased an aggregate of 300 million and 300 million, respectively, of our shares under these plans. From December 17, 2008 to February 16, 2009, we purchased 300 million of our shares on the Taiwan Stock Exchange at an average price of $7.98 per share to transfer to our employees. From February 3, 2010 to April 2, 2010, we purchased 300 million of our shares on the Taiwan Stock Exchange at an average price of NT$16.15 per share to transfer to our employees.plans disclosed in “Item 16E.— Purchase Of the repurchased shares, 137 million, 97 million, 78 million and 64 million shares were purchased by our employees in November 2003, December 2007, December 2009, and December 2010, respectively. On March 14, 2012, the board of directors approved the cancellation on treasury share of 157,934,400 shares which was bought from December 17, 2008 to February 16, 2009.
In addition, weEquity Securities By The Issuer And Affiliated Purchasers.” We may not spend more than the aggregate amount of the retained earnings, the premium from issuing stock and the realized portion of the capital reserve to purchase our common shares. Historically, we have cancelled some of the repurchased common shares and transferred some of the repurchased common shares to our employees as employee compensation. In 2010 and 2013, we purchased an aggregate of 300 million and 200 million, respectively, of our common shares under these plans. From February 3, 2010 to April 2, 2010, we purchased 300 million of our common shares on the Taiwan Stock Exchange at an average price of NT$16.15 per share to transfer to our employees as employee compensation. From March 14, 2013 to May 13, 2013, we purchased 200 million of our common shares on the Taiwan Stock Exchange at an average price of NT$11.23 per share to transfer to our employees as employee compensation.
On March 14, 2012, our board of directors approved the cancellation of 157,934,400 treasury common shares, which were purchased from December 17, 2008 to February 16, 2009. On April 24, 2013, our board of directors approved the cancellation of 300,000,000 treasury common shares, which were purchased from February 3, 2010 to April 2, 2010.
We may not pledge or hypothecate any purchased common shares. In addition, we may not exercise any stockholders’ rights attached to such common shares. In the event that we purchase our common shares on the Taiwan Stock Exchange, our affiliates, directors, managers and their respective spouses and minor children and/or nominees are prohibited from selling any of our common shares during the period in which we purchase our common shares.
In addition to the share purchase restriction, the Company Act provides that our subsidiaries may not acquire our common shares or the sharesequity securities of our majority-owned subsidiaries if the majority of the outstanding voting sharesequity securities or paid-in capital of such subsidiary is directly or indirectly held by us.
Liquidation Rights
In a liquidation, you will be entitled to participate in any surplus assets after payment of all debts, liquidation expenses and taxes proportionately.
Rights to Bring Stockholders’ Suits
Under the R.O.C. Company Act, a stockholder may bring suit against us in the following events:
within 30 days from the date on which a stockholders’ resolution is adopted, a stockholder may file a lawsuit to annul a stockholders’ resolution if the procedure for convening a stockholders’ meeting or the method of resolution violates any law or regulation or our articles of incorporation. However, if the court is of the opinion that such violation is not material and does not affect the result of the resolution, the court may reject the stockholder’s claim.
if the substance of a resolution adopted at a stockholders’ meeting contradicts any applicable law or regulation or our articles of incorporation, a stockholder may bring a suit to determine the validity of such resolution.
Stockholders may bring suit against our directors under the following circumstances:
Stockholders who have continuously held 3% or more of our issued common shares for a period of one year or longer may request in writing that the audit committee instituteinstitutes an action against a director on our behalf. In case the audit committee fails to institute an action within 30 days after receiving such request, the stockholders may institute an action on our behalf. In the event stockholders institute an action, a court may, upon the defendant’s motion, order such stockholders to furnish appropriate security.
Stockholders who hold more than 3% or more of our total issued common shares may institute an action with a court to remove a director of ours who has materially violated the applicable laws or our articles of incorporation or has materially damaged the interests of our company if a resolution for removal on such grounds has first been voted on and rejected by our stockholders and such suit is filed within 30 days of such stockholders’ vote.
In the event that any director, manager or stockholder holding more than 10% of our common shares or any respective spouses or minor children and/or nominees of any of them sells common shares within six months after acquisition of such common shares, or repurchases the common shares within six months after the sale, we may claim for recovery of any profits realized from the sale and purchase. If our board of directors or audit committee fail to claim for recovery, any stockholder may set forth a 30-day period for our board of directors or audit committee to exercise the right. In the event our directors or audit committee fail to exercise the right during such 30-day period, such requesting stockholder shall have the right to claim such recovery on our behalf. Our directors shall be jointly and severally liable for damages suffered by us as a result of their failure to exercise the right of claim.
Other Rights of Stockholders
Under the R.O.C. Company Act and the Corporate Merger and Acquisition Act, dissenting stockholders are entitled to appraisal rights in the event of a spin-off or a merger and various other major corporate actions. Dissenting stockholders may request us to redeem all their common shares at a then fair market price to be determined by mutual agreement. If no agreement can be reached, the valuation will be determined by a court. Subject to applicable law, dissenting stockholders may, among other things, exercise their appraisal rights by notifying us in writing before the related stockholders’ meeting and/or by raising and registering their dissent at the stockholders’ meeting and also waive their voting rights.
One or more stockholders who have held 3% or more of the issued and outstanding common shares one year or longer may require our board of directors to call an extraordinary stockholders’ meeting by sending a written request to our board of directors.
Effective from June 24, 2005, the R.O.C. Company Law allows stockholder(s) holding 1% or more of the total issued common shares of a company to, during the period of ten days or more prescribed by the company, submit one proposal in writing containing no more than three hundred words (in terms of Chinese characters) for discussion at the annual ordinary stockholders’ meeting.
Financial Statements
For a period of at least 10 days before our annual ordinary stockholders’ meeting, we must make available our annual financial statements at our principal offices in Hsinchu, Taiwan, and our share registrar in Taipei for our stockholders’ inspection.
Transfer Restrictions
Our directors, managers and stockholders holding more than 10% of our common shares are required to report any changes in their shareholding to us on a monthly basis. In addition, the number of common shares that they can sell or transfer on the Taiwan Stock Exchange on a daily basis is limited by R.O.C. law. Further, they may sell or transfer our common shares on the Taiwan Stock Exchange only after reporting to the R.O.C. FSC at least three days before the transfer, provided that such reporting is not required if the number of common shares transferred does not exceed 10,000 in one business day.
C. Material Contracts
C. | Material Contracts |
Cross License Agreement, dated as of January 1, 2006, between United Microelectronics Corporation and International Business MachineMachines Corporation.
We entered into a five-year cross license agreement with IBM effective as of January 1, 2006, which provides for the cross license of certain semiconductor patents including process, topography and design. Under this agreement, IBM had granted to us and our subsidiaries, nonexclusive and non-transferable licenses, without the right to grant sublicenses, for making our and our subsidiaries’ licensed products in R.O.C., Japan and Singapore and selling, leasing, licensing, using and/or transferring our and our subsidiaries’ licensed products worldwide under IBM’s patents filed prior to January 1, 2011; we granted IBM, royalty-free, worldwide and non-transferable licenses, without the right to grant sublicenses, for the term of the cross license for making, selling, leasing, licensing, using and/or transferring IBM’s licensed products under our patents filed prior to January 1, 2011. We also agreed to pay IBM certain royalty fees under this agreement. This five-year cross license agreement with IBM terminated on December 31, 2010. We entered into a new “life-of-the-patents” cross license agreement with IBM that will be effective until June 30, 2029, the expiration date of the last-to-expire of the licensed patents thereunder. Under this agreement, IBM has granted to us and our subsidiaries, nonexclusive and non-transferable licenses, without the right to grant sublicenses, for making our and our subsidiaries’ licensed products in R.O.C., Japan, Singapore and PRC and selling, leasing, licensing, using and/or transferring our and our subsidiaries’ licensed products worldwide under IBM’s patents filed effectively prior to July 1, 2009; we granted IBM, royalty-free, worldwide and non-transferable licenses, without the right to grant sublicenses, for the term of the cross license for making, selling, leasing, licensing, using and/or transferring IBM’s licensed products under our patents filed effectively prior to July 1, 2009. We also agreed to pay IBM certain royalty fees under this agreement.
Settlement and Cross License Agreement, dated as of April 1, 2009, between United Microelectronics Corporation and LSI Corporation (and its subsidiary Agere)
We entered into a multi-year In addition, we have renewed the aforesaid patent cross license agreement with LSIIBM on June 13, 2013, under which IBM grants us a license under all its patents entitling to an effective as of May 10, 2007 through December 31, 2012, which provides for the cross license of certain semiconductor patents, including process and design patents. Under this agreement, LSI granted to us and our subsidiaries, nonexclusive and non-transferable licenses, without the right to grant sublicenses, for making, selling, importing or otherwise disposing of our and our subsidiaries’ licensed products under LSI’s patents filed prior to April 1, 2009. We granted LSI, royalty-free, worldwide and non-transferable licenses, without the right to grant sublicenses, for making, selling, using or otherwise disposing of LSI’ licensed products under our patents filed prior to April 1, 2009. The parties further agreed not to assert patent claims against each otherfiling date prior to December 31, 2012. We also agreed to pay LSI certain royalty fees under this agreement.2015.
Technology Agreement, dated as of June 29, 2012, between United Microelectronics Corporation and International Business MachineMachines Corporation.
We entered into a technology license agreement with International Business MachineMachines Corporation (“IBM”) on June 29, 2012. Under this agreement, IBM grant togranted us a perpetual license under its 20nm bulk industry standard CMOS technology and developmental processes associated with manufacturing integrated circuits using a three dimensional FinFet device technology for using, offering for sale, selling, importing or otherwise transferring our licensed products.
Membership Participation Agreement, dated as of June 13, 2013, between United Microelectronics Corporation and International Business Machines Corporation.
We entered into a membership participation agreement with IBM to participate in its 10nm CMOS process technology development project, which was closed on March 31, 2014.
Patent Portfolio License Agreement, dated as of February 19,8, 2013, between United Microelectronics Corporation and Mosaid Technologies Incorporated.
We entered into a Patent Portfolio License Agreement with Mosaid Technologies Incorporated, (“Mosaid”) onor Mosaid, effective from February 19,8, 2013, which provides for the license under its semiconductor manufacturing process patents during the period from February 8, 2013 to February 8, 2018. Under this agreement, Mosaid grants to us and our subsidiaries, a nonexclusive and non-transferable license for making, selling, importing or otherwise disposing of our and our subsidiaries’ licensed products. The parties further agree not to assert patent claims against each other prior to February 8, 2018. We also agree to pay Mosaid certain royalty fees under this agreement.
Major Long-term Supply and Marketing Agreements
We have entered into long-term distribution, sales, service and marketing agreements with the following companies: UMC Group (USA), an agreement effective from January 1, 2013 through December 3, 2018; United Microelectronics (Europe) B.V., an agreement effective from January 1, 2013 through December 3, 2017. We also entered into a long-term supply agreement with Shin-Etsu Handotai Taiwan2017; UMC Group Japan Co., Ltd., or Shin-Etsu Handotai, under which Shin-Etsu Handotai agrees to provide us with 150mm, 200mman agreement effective from February 8, 2013 through December 31, 2017; UMC Korea Co. Ltd., an agreement effective from January 1, 2015 through December 31, 2015 and 300mm raw wafer materials forUMC (Beijing) Limited, an indefinite period unless the agreement is otherwise terminated.effective from January 1, 2015 through December 31, 2015.
Major Construction Agreements
We entered into various major facility construction agreements in connection with the cleanroom’s facility, piping, and various material supply systems, with major companies such as PanM+W High Projects Taiwan co., Ltd., Apex Science & Engineering Corp., Nova technology Corp., Asia Corp. and Fu Tsu Construction Corp.IC Mic-Process, Inc., Wholetech System Hitech Limited, for the phase 5 and 6 expansion of major buildingfacilities in our Fab12A in the Tainan Science Park. These agreements are effective from July 18, 20122014 to December 31, 2013,August 2015, and the total contractual amount exceeds NT$ 43.5 billion.
Major Long-term Loan Agreements
We entered into a long-term secured loan agreement effective from November 28, 2008 through November 28, 2018 with the Bank of Taiwan. We pledged the equipment at our semiconductor facilities in Tainan Science Park as collateral in an amount up to NT$4.8 billion for the loan, on April 1, 2013, we repaid the loan in full and the loan agreement expired accordingly. We also entered into a long-term secured loan agreement effective from January 30, 2013 through January 30, 2020 with the Land Bank of Taiwan it is for up to NT$6 billion. We pledged the equipment at our semiconductor facilities in Tainan Science Park as collateral in an amount upcollateral. Before the expiration of the utilization period of the long-term secured loan on January 30, 2015, we did not apply for any disbursements of the long-term secured loan and we have no intention to NT$6 billion forrenew or extend the loan.agreement upon its expiration.
D. Exchange Controls
D. | Exchange Controls |
Foreign Investment and Exchange Controls in Taiwan
We have extracted from publicly available documents the information presented in this section. Please note that citizens of the People’s Republic of China and entities organized in the People’s Republic of China are subject to special R.O.C. laws, rules and regulations, which are not discussed in this section.
General
Historically, foreign investments in the securities market of Taiwan were restricted. However, commencing in 1983, the Taiwan government has from time to time enacted legislation and adopted regulations to make foreign investment in the Taiwan securities market possible. Initially, only overseas investment trust funds of authorized securities investment trust enterprises established in Taiwan were permitted to invest in the Taiwan securities market. Since January 1, 1991, qualified foreign institutional investors are allowed to make investments in the Taiwan public securities market. Since March 1, 1996, non-resident foreign institutional and individual investors, called “general foreign investors”, are permitted to make direct investments in the Taiwan public securities market. On September 30, 2003, the Executive Yuan amended the Regulations Governing Investment in Securities by Overseas Chinese and Foreign Nationals, or the Investment Regulations, under which the “Qualified Foreign Institutional Investors”, or QFII, designations have been abolished and the restrictions on foreign portfolio investors have been revised. According to the Investment Regulations, “Foreign Institutional Investor”, or FINI, means an entity which is incorporated under the laws of countries other than the R.O.C. or the branch of a foreign entity whichthat is established within the territory of the R.O.C., and “Foreign Individual Investor”, or FIDI, means an overseas Chinese or a foreign natural person. In addition, the Investment Regulations also lifted some restrictions and simplified procedures of investment application.
On April 30, 2009, the R.O.C. FSC promulgated regulations allowing QDIIs under PRC regulations and certain other PRC persons to invest in the securities of R.O.C. companies. However, prior approval from the Investment Commission of the R.O.C. Ministry of Economic Affairs is required for QDIIs or certain other PRC persons to own 10% or more of the issued and outstanding sharesshare capital of a listed R.O.C. company.
Foreign Ownership Limitations
Foreign ownership of the issued share capital in a Taiwan Stock Exchange-listed company or a GreTai Securities Market-listed company has been limited to 50% in the past. Since December 30, 2000, the 50% limit has been lifted. Foreign investors can now hold such investments without any foreign ownership percentage limitations, unless the law has imposed restrictions otherwise.
Foreign Investors
Each FINI who wishes to invest directly in the R.O.C. securities market is required to register with the Taiwan Stock Exchange and obtain an investment identification number if the FINI is a non-resident and has no sub-investment accounts in the R.O.C. Each FIDI who wishes to invest directly in the R.O.C. securities market is also required to register with the Taiwan Stock Exchange and obtain an investment identification number. The R.O.C. FSC has lifted the limitation on the amount of investment in the R.O.C. securities market for a non-resident FIDI Except for some restrictions imposed by specific laws and regulations, the individual and aggregate foreign ownership of the issued share capital in a Taiwan Stock Exchange-listed company or a GreTai Securities Market-listed company is not restricted. An R.O.C. custodian for a non-resident FINI or FIDI is required to submit to the CBC, and the Taiwan Stock Exchange a report of trading activities, inward and outward remittance of capital and status of assets under custody and other matters every month. Foreign institutional investors are not subject to any ceiling for investment in the R.O.C. securities market.
Each FIDI who wishes to invest directly in the R.O.C. securities market is also required to register with the Taiwan Stock Exchange and obtain an investment identification number. The R.O.C. FSC has lifted the limitation on the amount of investment in the R.O.C. securities market for a non-resident FIDI.
Foreign Investment Approval
Foreign investors (both institutional and individual) who wish to make direct investments in the common shares of R.O.C. companies are required to submit a “foreign investment approval” application to the Investment Commission of the R.O.C. MOEA, or other government authority and enjoy benefits granted under the Statute for Foreigner’s Investment and the Statute for Overseas Chinese’s Investment. The Investment Commission of the R.O.C. MOEA or other government authority reviews each foreign investment approval application and approves or disapproves the application after consultation with other governmental agencies, if necessary. Any non-R.O.C. person possessing a foreign investment approval may repatriate annual net profits and interests attributable to an approved investment. Investment capital and capital gains attributable to the investment may be repatriated with approval of the Investment Commission of the R.O.C. MOEA or other government authority.
In addition to the general restrictions against direct investments by foreign investors in R.O.C. companies, foreign investors are currently prohibited from investing in certain prohibited industries in Taiwan under the “Negative List”. The prohibition on direct foreign investment in the prohibited industries in the Negative List is absolute in the absence of a specific exemption from the application of the Negative List. Under the Negative List, some other industries are restricted so that foreign investors may directly invest only up to a specified level and with the specific approval of the relevant authority responsible for enforcing the legislation whichthat the Negative List is intended to implement. Our business isdoes not operate in a restricted industry under the Negative List.
In June of 2009, the R.O.C. MOEA further allowed PRC persons to make direct investments in Taiwan. However, such direct investment is still subject to various restrictions, such as that that only the industries listed in the Positive List, as promulgated by the Executive Yuan, are legally permitted targets and that all the PRC persons who wish to make direct investments in R.O.C. are required to submit an “investment approval” application to the Investment Commission of the R.O.C. MOEA.
Exchange Controls
Taiwan’s Foreign Exchange Control Statute and regulations provide that all foreign exchange transactions must be executed by banks designeddesignated to handle foreign exchange transactions by the Ministry of Finance and by the CBC. Current regulations favor trade-related foreign exchange transactions. Consequently, foreign currency earned from exports of merchandise and services may now be retained and used freely by exporters. All foreign currency needed for the importation of merchandise and services may be purchased from the designated foreign exchange banks.
Aside from trade-related foreign exchange transactions, R.O.C. companies and residents may remit to and from Taiwan foreign currencies of up to US$50 million (or its equivalent) and US$5 million, (or its equivalent) respectively in each calendar year. These limits apply to remittances involving a conversion between NT dollars and U.S. dollars or other foreign currencies. A requirement is also imposed on all private enterprises to register all mediummedium- and long-term foreign debt with the CBC.
In addition, foreign currency earned from or needed to be paid for direct investment or portfolio investments, which are approved by the competent authorities, may be retained or sold by the investors or purchased freely from the designated bank.
Aside from the transactions discussed above, a foreign person without an alien resident card (or who has relevant resident card with a validity of less than one year) or an unrecognized foreign entity may remit to and from Taiwan foreign currencies of up to US$100,000 per remittance without obtaining prior approval or permit if required documentation is provided to Taiwan authorities. This limit applies to remittances involving a conversion between NT dollars and U.S. dollars or other foreign currencies.
Depositary Receipts
In April 1992, the R.O.C. SFB (the predecessor of the R.O.C. FSC) began allowing R.O.C. companies listed on the Taiwan Stock Exchange to sponsor the issuance and sale of depositary receipts evidencing depositary shares. Notifications for these issuances are still required. In December 1994, the Ministry of Finance began allowing companies whose shares are traded on the GreTai Securities Market to sponsor the issuance and sale of depositary receipts evidencing depositary shares. On October 24, 2002, the R.O.C. SFB began allowing public companies that are not listed on the Taiwan Stock Exchange or the GreTai Securities Market to sponsor the issuance and sale of depositary receipts by way of private placements outside the R.O.C.
A holder of depositary shares wishing to withdraw common shares underlying depositary shares is required to appoint a local agent or representative with qualifications set forth by the R.O.C. FSC to, among other things, open a securities trading account with a local brokerage firm, pay R.O.C. taxes, remit funds, and exercise stockholders’ right. In addition, the withdrawing holder is also required to appoint a custodian bank or a securities firm with qualifications set forth by the R.O.C. FSC to hold payments and the securities in safekeeping, make confirmations, settle trades and report all relevant information.information in which the securities firm is appointed as the custodian, and the payments be held in safekeeping in a special account opened in a bank approved by the R.O.C. FSC. Without making this appointment and the opening of accounts, the withdrawing holder would be unable to subsequently sell the common shares withdrawn from a depositary receipt facility on either the Taiwan Stock Exchange or the GreTai Securities Market.
After the issuance of a depositary share, a holder of the depositary share may immediately, comparing to a three-month waiting period restriction which was lifted in 2003, request the depositary issuing the depositary share to cause the underlying common shares to be sold in the R.O.C. or to withdraw the common shares represented by the depositary receipt and deliver the common shares to the holder. On April 30, 2009 and July 3, 2009, the R.O.C. Executive Yuan approved the Regulations Governing Securities Investment and Futures Trading in Taiwan by Mainland Area Investors and the Regulations Governing Investment in Taiwan by Mainland Area Persons, respectively, under which qualified PRC persons are permitted to invest in Taiwan companies under limited circumstances, including purchase of the depositary receipts issued by a Taiwan company. However, prior approval from the Investment Commission of the R.O.C. Ministry of Economic Affairs is required for a qualified PRC person’s ownership of 10% or more of the issued and outstanding sharesshare capital of a listed R.O.C. company or certain other manners of investment by a qualified PRC person.
No deposits of common shares may be made in a depositary receipt facility and no depositary receipts may be issued against deposits without specific R.O.C. FSC approval, unless they are:
(1) | stock dividends; |
(2) | free distributions of common shares; |
(3) | due to the exercise by a holder of his or her preemptive rights in the event of capital increases for cash; or |
(4) | permitted under the deposit agreement and the custody agreement, due to the direct purchase of common shares or purchase through the depositary in the domestic market or the surrender of common shares under the possession of investors and then delivery of such common shares to the custodian for deposit in the depositary receipt facility, provided that the total number of depositary receipts outstanding after an issuance cannot exceed the number of issued depositary shares previously approved by the R.O.C. FSC in connection with the offering plus any depositary shares issued pursuant to the events described in (1), (2) and (3) above. These issuances may only be made to the extent previously issued depositary shares have been withdrawn. |
A depositary may convert New Taiwan dollars from the proceeds of the sale of common shares or cash distributions received into other currencies, including U.S. dollars. A depositary may be required to obtain foreign exchange approval from the CBC on a payment-by-payment basis for conversion into New Taiwan dollars of subscription payments for rights offerings or conversion into foreign currencies from the proceeds from the sale of subscription rights for new common shares. It is expected that the CBC will grant this approval as a routine matter.
A holder of depositary shares may convert NT dollars into other currencies from proceeds from the sale of any underlying common shares. Proceeds from the sale of the underlying common shares withdrawn from the depositary receipt facility may be used for reinvestment in securities listed on both the Taiwan Stock Exchange and the GreTai Securities Market, provided that the investor designates a local securities firm or financial institution as agent to open an NT dollar bank account in advance.
E. Taxation
E. | Taxation |
R.O.C. Tax Considerations
The following summarizes the principal R.O.C. tax consequences of owning and disposing of the ADSs or common shares to a holder of ADSs or common shares that is not a resident of the R.O.C. AnA foreign individual holder will be considered as not a resident of the R.O.C., or a non-R.O.C. resident, for the purposes of this section if he or she is not physically present in Taiwan for 183 days or more during any calendar year, except if the individual holder has both R.O.C. and non-R.O.C. nationalities and has a registered address in the R.O.C.year. An entity holder will be considered as not a resident of the R.O.C., or a non-R.O.C. resident, if it is organized under the laws of a jurisdiction other than Taiwan for profit making purpose and has no fixed place of business or other permanent establishment or business agent in the R.O.C. Prospective purchasers of ADSs or common shares should consult their own tax advisors concerning the tax consequences of owning ADSs or common shares in the R.O.C. and any other relevant taxing jurisdiction to which they are subject.
Dividends
Dividends, whether in cash or common shares, declared by us out of retained earnings and paid out to a holder that is not an R.O.C. resident in respect of common shares represented by ADSs are subject to R.O.C. withholding tax at the time of distribution. The rate of withholding for non-resident individuals and non-resident entities is currently 20% of the amount of the distribution in the case of cash dividends or of the par value of the common shares distributed in the case of stock dividends. Under current practice adopted by tax authorities, a 20% withholding rate is applied to a non-residentnon-R.O.C. resident ADS holder without requiring the holder to apply for or obtain foreign investment approval. As discussed in the section “—Tax Reform” below, certain of our retained earnings will be subject to a 10% undistributed retained earnings tax. To the extent dividends are paid out of retained earnings whichthat have been subject to the retained earnings tax, up to a maximum amount of half of the amount of such tax will be used by us to offset a non-resident’snon-R.O.C. resident’s withholding tax liability on such dividend. Consequently, the effective rate of withholding on dividends paid out of retained earnings previously subject to the retained earnings tax may be less than 20%. There is no withholding tax with respect to stock dividends declared out of our capital reserve.surplus of premiums from issuing stock resulting from the capital paid by the shareholders.
Capital Gains
The R.O.C. Income Tax Act as amended on August 8, 2012 restored the securities income tax provisions. Starting from January 1, 2013, the non-R.O.C. resident entities remain exempt from income tax on capital gains from the sale or disposal of common shares, while the non-R.O.C. resident individuals are subject to income tax on any capital gain generated from the sale or disposal of securities by such individuals. According to the R.O.C. Income Tax Act, during the period starting from January 1, 2013 to December 31, 2014, any capital gain generated from the sale of common shares listed on the Taiwan Stock Exchange, Gre-Tai Securities Market or Emerging Stock Market by any individual willshall be subject todeemed zero except for the following situations, in which the capital gain shall be the net capital gain (after deduction of any losses incurred by the seller from trading of common shares within the year) calculated in accordance with the applicable formula as provided under the tax based on either of the following two formulas:
Notwithstanding the foregoing,relevant laws and rules: if the seller is an individual who (i) sells more than 100,000 common shares on the Emerging Stock Market within a year; (ii) sells common shares, which had been obtained before the initial public offering of such common shares (“IPO”), on the Taiwan Stock Exchange or Gre-Tai Securities Market (unless such IPO is completed before December 31, 2012 or the common shares were acquired (x) during the pre-IPO underwriting process and (y) in the volume of no more than 10,000 common shares); or (iii) is a non-R.O.C. resident. The capital gains are taxed at a flat rate of 15% and only half of the capital gains are subject to income tax if the common shares so sold or disposed of have been held for one year or longer.
Further, effective from January 1, 2018, if an individual who is a R.O.C. resident or (iv) sells common shares neither listed on the Taiwan Stock Exchange, Gre-TaiGreTai Securities Market nor theor Emerging Stock Market then the second formula must be applied to determine the capital gain tax payable. For disposal of shares obtained before the IPO, if the individual holder continuously holds such shares for at least three (3) years after IPO, only one-fourth (1/4) of the amount of actual capital gain generated from the sale of shares (after deduction of any losses incurred by the seller from trading of shares within the year) is subject to 15% income tax.
Effective from January 1, 2015, if an individual who (i) sells more than 100,000 shares on the Emerging Stock Market within a year; (ii) sells shares, which had been obtained before the IPO, on the Taiwan Stock Exchange or Gre-Tai Securities Market (unless such IPO is completed before December 31, 2012 or the shares were acquired (x) during the pre-IPO underwriting process and (y) in the volume of no more than 10,000 shares); (iii) sells securities for more than NT$1 billion within a year; or (iv)year, 0.5% of the amount in excess of NT$1 billion shall be deemed as the capital gain and shall be subject to the tax at the rate of 20%; provided, however, that such individual may choose to calculate the net capital gain in accordance with the applicable formula and have such gain be taxed as provided in the preceding paragraph.
It is unclear whether a non-R.O.C. resident such individualholder of ADSs will be subjectconsidered to a 15% tax againstbe the amountultimate holder and seller for the purpose of calculation and application of capital gain generated from his saletax when the holder of securities (after deduction of any losses from trading securities withinADSs withdraws the year) or against half of such amountADSs and requests the depositary to sell the underlying common shares in the case the shares have been held for one year or longer. For disposal of shares obtained before the IPO, if the individual holder continuously holds such shares for at least three (3) years after IPO, only one-fourth (1/4) of the amount of actual capital gain generated from the sale of shares (after deduction of any losses incurred by the seller from trading of shares within the year) is subject to 15% income tax.R.O.C.
Subject to the Alternative Minimum Income Tax Statute (the ���Statute”),Act, gains realized from various securities transactions by an R.O.C.-resident entity shall be calculated as taxable income for the purpose of the StatuteAMT Act and may further be subject to income tax. If the above entity has held common shares for more than three (3) years, 50% of capital gain may be exempted from AMT. In addition, gains realized from transfers of ADSs by non-R.O.C. resident holders are not regarded as sales ofincome from sources in the R.O.C. securities and, as a result, any gains derived therefrom are currently not subject to R.O.C. income tax.
Securities Transaction Tax
The R.O.C. government imposes a securities transaction tax that will apply to sales of common shares, but not to sales of ADSs. The securities transaction tax, which is payable by the seller, is generally levied on sales of common shares at the rate of 0.3% of the sales proceeds. Withdrawals of our common shares from our depositary facility are not subject to the R.O.C. securities transaction tax.
Preemptive Rights
Distribution of statutory preemptive rights for common shares by us in compliance with the R.O.C. Company Act is not subject to R.O.C. tax. Proceeds derived from sales of statutory preemptive rights evidenced by securities by a non-resident holder may beare subject to the R.O.C. securities transaction tax, currently at the rate of 0.3% of the gross amount received.received, as well as the R.O.C. securities income tax. Proceeds derived from sales of statutory preemptive rights whichthat are not evidenced by securities are subject to capital gains tax at the rate of 20% of the gains realized for non-R.O.C. entity holdersresident entities and non-R.O.C. individual holders.resident individuals . Subject to compliance with the R.O.C. law, we have sole discretion to determine whether statutory preemptive rights are evidenced by securities or not.
Estate Taxation and Gift Tax
R.O.C. estate tax is payable on any property within the R.O.C. of a deceased individual who is a non-resident individual or a non-ROC citizen and R.O.C. gift tax is payable on any property located within the R.O.C. donated by any such person. Under the newly amended Articles 13 and 19 of the R.O.C. Estate and Gift Tax Act, which became effective on January 23, 2009, estate tax is currently payable at the rate of 10% and gift tax is payable at the rate of 10%. Under R.O.C. estate and gift tax laws, the common shares will be deemed located in the R.O.C. irrespective of the location of the owner. It is unclear whether a holder of ADSs will be considered to own common shares for this purpose.
Tax Treaties
The Republic of China does not have an income tax treaty with the United States. On the other hand, the Republic of China has income tax treaties with Indonesia, Singapore, South Africa, Australia, Vietnam, New Zealand, Malaysia, Macedonia, Swaziland, the Netherlands, the United Kingdom, Gambia, Senegal, Sweden, Belgium, Denmark, Israel, Paraguay, Hungary, France, India, Slovakia, Switzerland, Germany, Thailand, Kiribati, Luxembourg , and ThailandAustria which may limit the rate of Republic of China withholding tax on dividends paid with respect to common shares in Taiwan companies. It is unclear whether a non-R.O.C. holder of ADSs will be considered to own common shares for the purposes of such treaties. Accordingly, a holder of ADSs who is otherwise entitled to the benefit of a treaty should consult its own tax advisors concerning eligibility for benefits under the treaty with respect to the ADSs.
Tax Reform
In order to increase Taiwan’s competitiveness, an amendment to the R.O.C. Income Tax law was enacted on January 1, 1998, to integrate the corporate income tax and the stockholder dividend tax with the aim of eliminating the double taxation effect for resident stockholders of Taiwanese corporations.
Under this amendment, a 10% retained earnings tax will be imposed on a company for its after-tax earnings generated after January 1, 1998 whichthat are not distributed in the following year. The retained earnings tax so paid will further reduce the retained earnings available for future distribution. When the company declareswe declare dividends out of those retained earnings, up to a maximum amount of 10%half of the amount of such tax of the declared dividends will be credited against the 20% withholding tax imposed on the non-residentnon-R.O.C. resident holders of its shares.our ADRs or common shares from January 1, 2015 onwards.
U.S. Federal Income Tax Considerations Forfor U.S. Persons
The following is a summary of certain U.S. federal income tax consequences for beneficial owners of our common shares or ADSs, that hold the common shares or ADSs as capital assets and that are U.S. holders that are not citizens of the R.O.C., do not have a permanent establishment in the R.O.C. and are not physically present in the R.O.C. for 183 days or more within a calendar year. You are a U.S. holder if you are, for U.S. federal income tax purposes, any of the following:
an individual citizen or resident of the United States;
a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
an estate the income of which is subject to U.S. federal income taxation regardless of its source;
a trust that is subject to the primary supervision of a court within the United States and that has one or more U.S. persons with the authority to control all substantial decisions of the trust; or
a trust that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, or the Code, and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be replaced, revoked or modified so as to result in U.S. federal income tax consequences different from those discussed below. It is for general purposes only and you should not consider it to be tax advice. In addition, it is based in part on representations by the depositary and assumes that each obligation under the deposit agreement and any related agreement will be performed in accordance with its terms. This summary does not represent a detailed description of all the U.S. federal income tax consequences to you in light of your particular circumstances and does not address the Medicare tax on net investment income or the effects of any state, local or non-U.S. tax laws (or other U.S. federal tax consequences, such as U.S. federal estate or gift tax consequences). In addition, it does not represent a detailed description of the U.S. federal income tax consequences applicable to you if you are subject to special treatment under the U.S. federal income tax laws, including if you are:
a dealer in securities or currencies;
a trader in securities if you elect to use a mark-to-market method of accounting for your securities holdings;
a financial institution or an insurance company;
a tax-exempt organization;
a regulated investment company;
a real estate investment trust;
a person liable for alternative minimum tax;
a person holding common shares or ADSs as part of a hedging, integrated or conversion transaction, constructive sale or straddle;
a partnership or other pass-through entity for U.S. federal income tax purposes;
a person owning, actually or constructively, 10% or more of our voting stock; or
a U.S. holder whose “functional currency” is not the U.S. dollar.
We cannot assure you that a later change in law will not alter significantly the tax considerations that we describe in this summary.
If a partnership holds our common shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our common shares or ADSs, you should consult your tax advisor.
You should consult your own tax advisor concerning the particular U.S. federal income tax consequences to you of the ownership and disposition of the common shares or ADSs, as well as the consequences to you arising under the laws of any other taxing jurisdiction.
In general, for U.S. federal income tax purposes, a U.S. person who is the beneficial owner of an ADS will be treated as the owner of the common shares underlying its ADS. Accordingly, deposits or withdrawals of common shares by U.S. holders for ADSs generally will not be subject to U.S. federal income tax.
Taxation of Dividends
Except as discussed below with respect to the passive foreign investment company rules, the amount of distributions (including net amounts withheld in respect of R.O.C. withholding taxes) you receive on your common shares or ADSs (other than certain pro rata distributions of common shares to all stockholders) will generally be treated as dividend income to you if the distributions are made from our current and accumulated earnings and profits as calculated according to U.S. federal income tax principles. In determining the net amounts withheld in respect of R.O.C. taxes, any reduction in the amount withheld on account of an R.O.C. credit in respect of the 10% retained earnings tax imposed on us is not considered a withholding tax and will not be treated as distributed to you or creditable by you against your U.S. federal income tax. Such income (including withheld taxes) will be includible in your gross income as ordinary income on the day you actually or constructively receive it, which in the case of an ADS will be the date actually or constructively received by the depositary. The amount of any distribution of property other than cash will be the fair market value of such property on the date it is distributed. You will not be entitled to claim a dividend received deduction with respect to distributions you receive from us.
With respect to non-corporate U.S. holders (including individuals), certain dividends received from a qualified foreign corporation may be subject to reduced rates of taxation. A foreign corporation is treated as a qualified foreign corporation with respect to dividends paid by that corporation on common shares (or ADSs backed by such common shares) that are readily tradable on an established securities market in the United States. U.S. Treasury Department guidance indicates that our ADSs (which are listed on the NYSE), but not our common shares, are readily tradable on an established securities market in the United States. Thus, subject to the discussion below with respect to the passive foreign investment company rules, we believe that dividends we pay on our ADSs will meet the conditions required for these reduced tax rates. Since we do not expect that our common shares will be listed on an established securities market in the United States, we do not believe that dividends we pay on our common shares that are not backed by ADSs currently meet the conditions required for these reduced tax rates. Moreover, there can be no assurance that our ADSs will continue to be readily tradable on an established securities market in later years. Non-corporate U.S. holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. Non-corporate U.S. holders will also not be eligible for the reduced rates of taxation on dividends if we are a passive foreign investment company in the taxable year in which such dividends are paid or in the preceding taxable year. Holders should consult their own tax advisors regarding the application of these rules given their particular circumstances.
The amount of any dividend paid in NT dollars will equal the U.S. dollar value of the NT dollars you receive (calculated by reference to the exchange rate in effect on the date you actually or constructively receive the dividend, which in the case of an ADS will be the date actually or constructively received by the depositary), regardless of whether the NT dollars are actually converted into U.S. dollars. If the NT dollars received as a dividend are converted into U.S. dollars on the date they are actually or constructively received, you generally will not be required to recognize foreign currency gain or loss with respect of the dividend income. If the NT dollars received as a dividend are not converted into U.S. dollars on the date of receipt, you will have a basis in the NT dollars equal to their U.S. dollar value on the date of receipt. Any gain or loss you realize if you subsequently sell or otherwise dispose of the NT dollars will be ordinary income or loss from sources within the United States for foreign tax credit limitation purposes.
Subject to certain limitations under the Code, you may be entitled to a credit or deduction against your U.S. federal income taxes for the net amount of any R.O.C. taxes that are withheld from dividend distributions made to you. The election to receive a credit or deduction must be made annually, and applies to all foreign taxes for the applicable tax year. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends we pay with respect to common shares or ADS will generally be considered passive category income from sources outside the United States. Furthermore, you will not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on common shares or ADSs if you (1) have held the common shares or ADSs for less than a specified minimum period during which you are not protected from risk of loss, or (2) are obligated to make payments related to the dividends. The rules governing the foreign tax credit are complex. We therefore urge you to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances.
To the extent that the amount of any distribution you receive exceeds our current and accumulated earnings and profits for a taxable year, as determined under U.S. federal income tax principles, the distribution will first be treated as a tax-free return of capital, causing a reduction in your adjusted basis in the common shares or ADSs and thereby increasing the amount of gain, or decreasing the amount of loss, you will recognize on a subsequent disposition of the common shares or ADSs. The balance in excess of adjusted basis, if any, will be taxable to you as capital gain recognized on a sale or exchange. However, we do not expect to keep earnings and profits in accordance with U.S. federal income tax principles. Therefore, you should expect that a distribution will generally be treated as a dividend (as discussed above).
It is possible that pro rata distributions of common shares or ADSs to all stockholders may be made in a manner that is not subject to U.S. federal income tax. In the event that such distributions are tax-free, the basis of any new common shares or ADSs so received will generally be determined by allocating the U.S. holder’s basis in the old common shares or ADSs between the old common shares or ADSs and the new common shares or ADSs, based on their relative fair market values on the date of distribution. For U.S. tax purposes, any such tax-free share or ADS distribution generally would not result in foreign source income to you. Consequently, you may not be able to use the foreign tax credit associated with any R.O.C. withholding tax imposed on such distributions unless you can use the credit against U.S. tax due on other foreign source income in the appropriate category for foreign tax credit purposes. You should consult your own tax advisors regarding all aspects of the foreign tax credit.
Taxation of Capital Gains
Except as discussed below with respect to the passive foreign investment company rules, when you sell or otherwise dispose of your common shares or ADSs, you will generally recognize capital gain or loss in an amount equal to the difference between the U.S. dollar value of the amount realized for the common shares or ADSs and your basis in the common shares or ADSs, determined in U.S. dollars. If you are an individual or other non-corporate holder, and the common shares or ADSs being sold or otherwise disposed of ourare capital assets that you have held for more than one year, your gain recognized will be eligible for reduced rates of taxation. Your ability to deduct capital losses is subject to limitations. Any gain or loss you recognize will generally be treated as U.S. source gain or loss.loss for foreign tax credit limitation purposes. Consequently, you may not be able to use the foreign tax credit arising from any R.O.C. tax imposed on the disposition of common shares or ADSs unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from foreign sources.
If you pay any R.O.C. securities transaction tax, such tax is not treated as an income tax for U.S. federal income tax purposes, and therefore will not be a creditable foreign tax for U.S. federal income tax purposes. However, subject to limitations under the Code, such tax may be deductible. You are urged to consult your tax advisors regarding the U.S. federal income tax consequences of these taxes.
Passive Foreign Investment Company
Based on the current and projected composition of our income and valuation of our assets, including goodwill, we do not believe that we are currently (or that we were in 2012)2014) a passive foreign investment company, or PFIC, and we do not expect to become one in the future, although there can be no assurance in this regard.
In general, a company is considered a PFIC for any taxable year if either:
at least 75% of its gross income is passive income, which generally includes income derived from certain dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person), annuities or property transactions; or
at least 50% of the value of its assets is attributable to assets that produce or are held for the production of passive income.
The 50% of value test is based on the average of the value of our assets for each quarter during the taxable year. If we own at least 25% by value of another company’s stock, we will be treated, for purposes of the PFIC rules, as owning our proportionate share of the assets and receiving our proportionate share of the income of that company.
In determining that we do not expect to be a PFIC, we are relying on our projected capital expenditure plans and projected revenues for the current year and for future years. In addition, our determination is based on a current valuation of our assets, including goodwill. In calculating goodwill, we have valued our total assets based on our total market value, which is based on the market value of our shares and ADSs and is subject to change. In addition, we have made a number of assumptions regarding the allocation of goodwill to active and passive assets. We believe our valuation approach is reasonable. However, it is possible that the Internal Revenue Service will challenge the valuation or allocation of our goodwill, which may also result in us being classified as a PFIC.
In addition, the determination of whether we are a PFIC is made annually. Accordingly, it is possible that we may become a PFIC in the current or any future taxable year due to changes in our asset or income composition. Because we have valued our goodwill based on the market value of our common shares, a decrease in the price of our common shares may also result in our becoming a PFIC. If we are a PFIC for any taxable year during which you hold common shares or ADSs, you will be subject to special tax rules discussed below.
If we are a PFIC for any taxable year during which you hold common shares or ADSs, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of common shares or ADSs. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for common shares or ADSs will be treated as excess distributions. Under these special tax rules:
the excess distribution or gain will be allocated ratably over your holding period for common shares or ADSs;
the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income; and
the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.
If you hold common shares or ADSs in any year in which we are a PFIC, you are required to file Internal Revenue Service Form 8621.
If we are a PFIC for any taxable year and any of our non-U.S. subsidiaries is also a PFIC, a U.S. Holder would be treated as owning a proportionate amount (by value) of the common shares of the lower-tier PFIC for purposes of the application of these rules. You are urged to consult your tax advisors about the application of the PFIC rules to any of our subsidiaries.
Under certain circumstances, a U.S. holder, in lieu of being subject to the PFICexcess distribution rules discussed above, may make an election to include gain on the stock of a PFIC as ordinary income under a mark-to-market method provided that such stock is regularly traded on a qualified exchange. Under this method, any difference between the stock’s fair market value and its adjusted basis at the end of the year is accounted for by either an inclusion in income or, subject to limitations, a deduction from income, as described below. Under current U.S. Treasury Department guidance, the mark-to-market election may be available to holders of ADSs because the ADSs are listed on the NYSE, which constitutes a qualified exchange, although there can be no assurance that the ADSs will be “regularly traded” for purposes of the mark-to-market election. You should also note that only the ADSs and not the common shares are listed on the NYSE. Our common shares are listed on the Taiwan Stock Exchange, which must meet certain trading, listing, financial disclosure and other requirements to be treated as a qualified exchange under applicable U.S. Treasury regulations for purposes of the mark-to-market election, and no assurance can be given that the common shares will be “regularly traded” for purposes of the mark-to-market election.
If you make an effective mark-to-market election, you will include in income each year that we are a PFIC as ordinary income the excess of the fair market value of your common shares or ADSs at the end of the year over your adjusted tax basis in the common shares or ADSs. You will be entitled to deduct as an ordinary loss each year the excess of your adjusted tax basis in the common shares or ADSs over their fair market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. If you make an effective mark-to-market election, in each year that we are a PFIC any gain you recognize upon the sale or other disposition of your common shares or ADSs will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of the net amount of previously included income as a result of the mark-to-market election.
Your adjusted tax basis in common shares or ADSs will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market rules. If you make a mark-to-market election it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the common shares or ADSs are no longer regularly traded on a qualified exchange or the Internal Revenue Service consents to the revocation of the election. You should consult your tax advisors about the availability of the mark-to-market election, and whether making the election would be advisable under your particular circumstances.
Alternatively, a U.S. holder of common shares or ADSs in a PFIC can sometimes avoid the rules described above by electing to treat the PFIC as a “qualified electing fund” under Section 1295 of the Code. This option is not available to you because we do not intend to comply with the requirements necessary to permit you to make this election.
Non-corporate U.S. holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year. You should consult your own tax advisors concerning the U.S. federal income tax consequences of holding common shares or ADSs if we are considered a PFIC in any taxable year.
Information Reporting and Backup Withholding
In general, unless you are an exempt recipient such as a corporation, information reporting will apply to dividends in respect of the common shares or ADSs and to the proceeds from the sale, exchange or redemption of your common shares or ADSs that are paid to you within the United States (and in some cases, outside of the United States). Additionally, if you fail to provide your taxpayer identification number, or fail either to report in full dividend and interest income or to make the necessary certifications of other exempt status, you may be subject to backup withholding.
Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability, provided you furnish the required information to the Internal Revenue Service.
F. Dividends and Paying Agents
F. | Dividends and Paying Agents |
Not applicable.
G. Statement by Experts
G. | Statement by Experts |
Not applicable.
H. Documents on Display
H. | Documents on Display |
We have filed this annual report on Form 20-F, including exhibits, with the Securities and Exchange Commission. As allowed by the Securities and Exchange Commission, in Item 19 of this annual report, we incorporate by reference certain information we filed with the Securities and Exchange Commission. This means that we can disclose important information to you by referring you to another document filed separately with the Securities and Exchange Commission. The information incorporated by reference is considered to be part of this annual report.
You may read and copy this annual report, including the exhibits incorporated by reference in this annual report, at the Securities and Exchange Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and at the Securities and Exchange Commission’s regional offices in New York, New York and Chicago, Illinois. You can also request copies of this annual report, including the exhibits incorporated by reference in this annual report, upon payment of a duplicating fee, by writing information on the operation of the Securities and Exchange Commission’s Public Reference Room.
The Securities and Exchange Commission also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. Our annual report and some of the other information submitted by us to the Securities and Exchange Commission may be accessed through this web site.
I. Subsidiary Information
I. | Subsidiary Information |
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market risk is the risk of loss related to adverse changes in market prices, including interest rates and foreign exchange rates, of financial instruments. We are exposed to various types of market risks, including changes in interest rates and foreign currency exchange rates, in the normal course of business.
We use financial instruments, including variable rate debt and swaps and foreign exchange spot transactions, to manage risks associated with our interest rate and foreign currency exposures through a controlled program of risk management in accordance with established policies. These policies are reviewed and approved by our board of directors and stockholders’ meeting. Our treasury operations are subject to internal audit on a regular basis. We do not hold or issue derivative financial instruments for speculativelyspeculative purposes.
Since export sales are primarily conducted in U.S. dollars, we had U.S. dollar-denominated accounts receivable of US$550633 million as of December 31, 2012.2014. As of the same date, we also had Japanese Yen-denominated accounts receivable of ¥1,889¥10,755 million attributable to our Japanese operations and Europe-denominatedEuro-denominated accounts receivable of €1€4 million attributable to our Europe operations. We had U.S. dollar- and Japanese Yen-denominated accounts payables of US$122 million and ¥2,196¥1,353 million, respectively, as of December 31, 2012.2014.
Our primary market risk exposures relate to interest rate movements on borrowings and exchange rate movements on foreign currency-denominated accounts receivable, capital expenditures relating to equipment used in manufacturing processes (including photo etching and chemical vapor deposition) and purchased primarily from Japan and the United States.
The following table provides information as of December 31, 20122014 on our market risk sensitive financial instruments.
As of December 31, 2012 | As of December 31, 2014 | |||||||||||||||
Book Value | Fair Value | Book Value | Fair Value | |||||||||||||
(in NT$ million) | (in NT$ millions) | |||||||||||||||
Time Deposits: Non-Trading Purpose | 27,348 | 27,348 | 33,917 | 33,917 | ||||||||||||
Short-term Loans: Non-Trading Purpose | 5,773 | 5,773 | 6,251 | 6,251 | ||||||||||||
Bonds: Non-Trading Purpose | 26,224 | 25,584 | 24,978 | 25,043 | ||||||||||||
Long-term loans: Non-Trading Purpose | 14,817 | 14,817 | ||||||||||||||
Long-term Loans: Non-Trading Purpose | 12,198 | 12,198 |
Interest Rate Risk
Our major market risk exposure is changing interest rates. Our exposure to market risk for changes in interest rates relates primarily to our long-term debt obligations. We primarily enter into debt obligations to support general corporate purposes including capital expenditures and working capital needs.
The tables below provide information of UMC as of December 31, 20122014 about our financial instruments that are sensitive to changes in interest rates, including debt obligations and certain assets. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. The information is presented in the currencies in which the instruments are denominated.
Expected Maturity Dates As of December 31, 2012 | 2017 and thereunder | Total | Fair Value | |||||||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | |||||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||
Time Deposits: | ||||||||||||||||||||||||||||
Fixed Rate (US$) | 90 | — | — | — | — | 90 | 90 | |||||||||||||||||||||
Average Interest Rate | 0.30 | % | — | — | — | — | 0.30 | % | 0.30 | % | ||||||||||||||||||
Fixed Rate (¥) | 1,000 | — | — | — | — | 1,000 | 1,000 | |||||||||||||||||||||
Average Interest Rate | 0.10 | % | — | — | — | — | 0.10 | % | 0.10 | % | ||||||||||||||||||
Fixed Rate (NT$) | 4,034 | — | — | — | — | 4,034 | 4,034 | |||||||||||||||||||||
Average Interest Rate | 0.55 | % | — | — | — | — | 0.55 | % | 0.55 | % |
Expected Maturity Dates | As of December 31, 2014 | |||||||||||||||||||||||||||
2015 | 2016 | 2017 | 2018 | 2019 and thereunder | Total | Fair Value | ||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||
Time Deposits: | ||||||||||||||||||||||||||||
Fixed Rate (US$) | 738 | — | — | — | — | 738 | 738 | |||||||||||||||||||||
Average Interest Rate | 0.69 | % | — | — | — | — | 0.69 | % | 0.69 | |||||||||||||||||||
Fixed Rate (¥ CNH) | 883 | — | — | — | — | 883 | 883 | |||||||||||||||||||||
Average Interest Rate | 2.23 | % | — | — | — | — | 2.23 | % | 2.23 | % | ||||||||||||||||||
Fixed Rate (NT$) | 6,020 | — | — | — | — | 6,020 | 6,020 | |||||||||||||||||||||
Average Interest Rate | 0.69 | % | — | — | — | — | 0.69 | % | 0.69 | % | ||||||||||||||||||
Short-term Loans: | ||||||||||||||||||||||||||||
Variable Rate (US$) | 180 | — | — | — | — | 180 | 180 | |||||||||||||||||||||
Average Interest Rate | 0.93 | % | — | — | — | — | 0.93 | % | 0.93 | % | ||||||||||||||||||
Variable Rate (JPY) | 2,000 | — | — | — | — | 2,000 | 2,000 | |||||||||||||||||||||
Average Interest Rate | 0.61 | % | — | — | — | — | 0.61 | % | 0.61 | % | ||||||||||||||||||
Variable Rate (NT$) | 5 | — | — | — | — | 5 | 5 | |||||||||||||||||||||
Average Interest Rate | 2.50 | % | — | — | — | — | 2.50 | % | 2.50 | % | ||||||||||||||||||
Unsecured Long-term Loans: | ||||||||||||||||||||||||||||
Variable Rate (NT$) | 2,980 | 4,498 | 1,827 | 92 | 1,000 | 10.397 | 10,397 | |||||||||||||||||||||
Average Interest Rate | 1.38 | % | 1.38 | % | 1.38 | % | 1.38 | % | 1.38 | % | 1.38 | % | 1.38 | % | ||||||||||||||
Secured Long-term Loans: | ||||||||||||||||||||||||||||
Variable Rate (NT$) | 795 | 922 | 66 | 21 | — | 1,803 | 1,803 | |||||||||||||||||||||
Average Interest Rate | 2.06 | % | 2.11 | % | 2.41 | % | 2.41 | % | — | 2.10 | % | 2.10 | % | |||||||||||||||
Bonds: | ||||||||||||||||||||||||||||
Unsecured (NT$) | — | — | 7,500 | — | — | 7,500 | 7,541 | |||||||||||||||||||||
Fixed Rate | — | — | 1.43 | % | — | — | 1.43 | % | 1.43 | % | ||||||||||||||||||
Unsecured (NT$) | — | — | — | — | 2,500 | 2,500 | 2,514 | |||||||||||||||||||||
Fixed Rate | — | — | — | — | 1.63 | % | 1.63 | % | 1.63 | % | ||||||||||||||||||
Unsecured (NT$) | — | — | — | 7,500 | — | 7,500 | 7,500 | |||||||||||||||||||||
Fixed Rate | — | — | — | 1.35 | % | — | 1.35 | % | 1.35 | % | ||||||||||||||||||
Unsecured (NT$) | — | — | — | — | 2,500 | 2,500 | 2,491 | |||||||||||||||||||||
Fixed Rate | — | — | — | — | 1.50 | % | 1.50 | % | 1.50 | % | ||||||||||||||||||
Unsecured (NT$) | — | — | — | — | 2,000 | 2,000 | 1,998 | |||||||||||||||||||||
Fixed Rate | — | — | — | — | 1.70 | % | 1.70 | % | 1.70 | % | ||||||||||||||||||
Unsecured (NT$) | — | — | — | — | 3,000 | 3,000 | 3,000 | |||||||||||||||||||||
Fixed Rate | — | — | — | — | 1.95 | % | 1.95 | % | 1.95 | % |
Unsecured Long-term Loans: Variable Rate (NT$) Average Interest Rate Secured Long-term Loans: Variable Rate (NT$) Average Interest Rate Bonds: Unsecured (NT$) Fixed Rate Unsecured (NT$) Fixed Rate Unsecured (US$) Fixed Rate Unsecured (US$) Fixed Rate Unsecured (US$) Fixed Rate 1,293 1,231 1,314 3,983 433 8,254 8,254 1.343 % 1.343 % 1.343 % 1.343 % 1.343 % 1.343 % 1.343 % 233 — — — — 233 233 1.575 % — — — — 1.575 % 1.575 % — — — — 7,500 7,500 7,500 — — — — 1.43 % 1.43 % 1.43 % — — — — 2,500 2,500 2,500 — — — — 1.63 % 1.63 % 1.63 % — 124 — — — 124 120 — 0 % — — — 0 % 0 % — 36 — — — 36 35 — 0 % — — — 0 % 0 % — — — 426 — 426 380 — — — 0 % — 0 % 0 %
Foreign Currency Risk
Although the majority of our transactions are in NT dollars, some transactions are based in other currencies. The primary currenciesforeign currency to which we are exposed areis the U.S. dollar and the Japanese Yen.dollar. We have in the past, and may in the future, enter into short-term, foreign currency forward contracts to hedge the impact of foreign currency fluctuations on certain underlying assets, liabilities, and firm commitments for operating expenses and capital expenditures denominated in U.S. dollars and other foreign currencies. The purpose of entering into these hedges is to minimize the impact of foreign currency fluctuations on the results of operations. We use the policy of natural hedging to reduce our foreign exchange exposure arising out of changes in the rates of exchange among the Japanese Yen, the U.S. dollar and other foreign currencies. As a general matter, our natural hedging strategy relies on matching revenues and costs for the same currency or offsetting losses in one currency with gains in another.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
As of December 31, 2014, we had US$104 million outstanding in foreign currency forward contracts to sell U.S. dollars against NT dollars, respectively.
Expected Maturity Dates | As of December 31, 2014 | |||||||||||||||||||||||||||
2015 | 2016 | 2017 | 2018 | 2019 and thereunder | Total | Fair Value | ||||||||||||||||||||||
(in millions, except exchange rates) | ||||||||||||||||||||||||||||
Foreign Currency Forward Contracts: | ||||||||||||||||||||||||||||
Sell US$ against NT$ Contract Amount | US$ | 104 | — | — | — | — | US$ | 104 | NT$ | (42 | ) | |||||||||||||||||
Average Contractual Exchange Rate | US$ | 1=NT$31.241 | — | — | — | — | US$ | 1=NT$31.241 | — |
Except for the market risks mentioned above, we believe that we did not have any other material market risks as of December 31, 2014.
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
A. | Debt Securities |
Not applicable.
B. Warrants and Rights
B. | Warrants and Rights |
Not applicable.
C. Other Securities
C. | Other Securities |
Not applicable.
D. | American Depositary Shares |
D. American Depositary Shares
Depositary Fees and Charges
Under the terms of the deposit agreement for our ADSs, an ADS holder may have to pay the following service fees to the depositary:
Service | Fees | |
Issuance of ADSs | Up to US$0.05 per ADS issued | |
Cancellation of ADSs | Up to US$0.05 per ADS canceled | |
Distribution of cash dividends or other cash distributions | Up to US$0.05 per ADS held | |
Distribution of ADSs pursuant to stock dividends, free stock distributions or exercises of rights | Up to US$0.05 per ADS held | |
Distribution of securities other than ADSs or rights to purchase additional ADSs | Up to US$0.05 per ADS held |
In addition, an ADS holder shall be responsible for the following charges:
taxes (including applicable interest and penalties) and other governmental charges;
such registration fees as may from time to time be in effect for the registration of common shares or other deposited securities on the share register and applicable to transfers of common shares or other deposited securities to or from the name of the custodian, the depositary or any nominees upon the making of deposits and withdrawals, respectively;
such cable, telex and facsimile transmission and delivery expenses as are expressly provided in the deposit agreement to be at the expense of ADS holders and beneficial owners of ADSs;
the expenses and charges incurred by the depositary in the conversion of foreign currency;
such fees and expenses as are incurred by the depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to common shares, deposited securities, ADSs and ADRs; and
the fees and expenses incurred by the depositary, the custodian or any nominee in connection with the servicing or delivery of deposited securities.
Depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary by the brokers (on behalf of their clients) receiving the newly-issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering the ADSs to the depositary for cancellation. The brokers in turn charge these transaction fees to their clients.
Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary to the holders of record of ADSs as of the applicable ADS record date. The depositary fees payable for cash distributions are generally deducted from the cash being distributed. In the case of distributions other than cash (i.e., stock dividends, rights offerings), the depositary charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or un-certificated in direct registration), the depositary sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts via the central clearing and settlement system, The Depository Trust Company, or DTC, the depositary generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary.
In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder.
The fees and charges ADS holders may be required to pay may vary over time and may be changed by us and by the depositary. ADS holders will receive prior notice of such changes.
Depositary Payments
In 2012,2014, we received the following payments from JPMorgan Chase & Co., the depositary for our ADR program through December 31, 2012.2014.
Service | Fees | |||
Reimbursement of listing fees | 283,146.50 | |||
Reimbursement of U.S. SEC filing fees | 10,941.00 | |||
Reimbursement of accounting supporting fees for FASB and Public Company Accounting Oversight Board | 7,070.00 | |||
Reimbursement of annual ordinary stockholders’ meeting expenses | — | |||
Reimbursement of fees in connection with annual financial and Sarbanes-Oxley Act of 2002 audit | 2,066,278.66 | |||
Contribution to our company’s investor relations efforts | 26,660.24 | |||
Others | 709,496.60 | |||
Total | 3,103,593.00 |
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None of these events occurred in any of 2010, 20112012, 2013 and 2012.2014.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
None.
ITEM 15. CONTROLS AND PROCEDURES
ITEM 15. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
As of December 31, 2012,2014, an evaluation has been carried out under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2012.2014.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, for our company. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles.International Financial Reporting Standards as issued by International Accounting Standards Board.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the Securities and Exchange Commission, our management assessed the effectiveness of our internal control over financial reporting as of December 31, 20122014 using the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), or the COSO criteria. Based on this assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 20122014 based on the COSO criteria. Our independent registered public accounting firm, Ernst & Young has issued an attestation report with unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2012,2014, which is included immediately following this report.
Attestation Report of the Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of United Microelectronics Corporation:
We have audited United Microelectronics Corporation and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2012,2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, United Microelectronics Corporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012,2014, based on the COSO criteria.
We also have audited, in accordance with the standards generally accepted in the Republic of China and the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of United Microelectronics Corporation and subsidiaries as of December 31, 20122013 and 2011,2014, and the related consolidated statements of comprehensive income, stockholders’changes in equity and cash flows for each of the three years in the period ended December 31, 20122014 of United Microelectronics Corporation and subsidiaries and our report dated April 26, 201221, 2015 expressed an unqualified opinion thereon.
/s/Ernst & Young
Taipei, Taiwan
Republic of China
April 26, 201321, 2015
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 20122014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16.In 2013, we adopted IFRSs for the first time to prepare our financial statements, and retrospectively adjusted our financial statements for the year ended December 31, 2012. We updated relevant controls in its financial statement process and reserves evaluation process to ensure the effectiveness of internal control over financial reporting. We have performed appropriate tests to ensure the effectiveness of internal control over financial reporting, and did not find any significant issue.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16. |
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |
Our Boardboard of Directors havedirectors has determined that Paul S.C. Hsu and Cheng-Li Huang, two of our independent directors, qualifiesqualify as audit committee financial experts and meet the independence requirement as defined in Item 16A toof Form 20-F.20-F and are independent in accordance with the applicable requirements of Rule 10A-3 of the Securities Exchange Act of 1934 requirement.
The U.S. Securities and Exchange Commission has indicated that the designation of Mr. Hsu and Mr. Huang as the audit committee financial experts does not: (i) make Mr. Hsu or Mr. Huang an “expert” for any purpose, including without limitation for purposes of Section 11 of the Securities Act of 1933, as amended, as a result of this designation; (ii) impose any duties, obligations or liability on Mr. Hsu or Mr. Huang that are greater than those imposed on him as a member of the audit committee and theour board of directors in the absence of such designation; or (iii) affect the duties, obligations or liability of any other member of the audit committee or theour board of directors.
ITEM 16B. | CODE OF ETHICS |
We amended the Code of Ethics for Directors and Officers in June 2009, and the Employee Code of Conduct in October 2011. The Employee Code of Conduct, which is applicable to all employees, replaced the code of ethics filed with the Securities and Exchange Commission in our 2003 annual report on Form 20-F. We have also created a separate code of ethics applicable to our directors and officers. A copy of each of the Code of Ethics for Directors and Officers and the Employee Code of Conduct are displayed on our website at http://www.umc.com/english/pdf/Code of Ethics.pdf and http://www.umc.com/english/pdf/Code of Conduct.pdf, respectively. Stockholders may request a hard copy of the Code of Ethics for Directors and Officers and the Employee Code of Conduct free of charge. Please contact the investor relations department of our company at ir@umc.com.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Ernst & Young, our principal external auditors, for the years indicated.
For the years ended December 31, | ||||||||||||
2011 | 2012 | |||||||||||
NT$ | NT$ | US$ | ||||||||||
(in thousands) | ||||||||||||
Audit Fees (1) | 73,532 | 70,942 | 2,442 | |||||||||
Audit-related Fees (2) | 1,798 | 2,032 | 70 | |||||||||
Tax Fees (3) | 3,266 | 8,189 | 282 | |||||||||
All Other Fees (4) | 15,135 | 5,810 | 200 | |||||||||
|
|
|
|
|
| |||||||
Total | 93,731 | 86,973 | 2,994 | |||||||||
|
|
|
|
|
|
Years ended December 31, | ||||||||||||
2013 | 2014 | |||||||||||
NT$ | NT$ | US$ | ||||||||||
(in thousands) | ||||||||||||
Audit Fees(1) | 61,276 | 65,514 | 2,073 | |||||||||
Audit-related Fees(2) | 1,658 | 1,535 | 49 | |||||||||
Tax Fees(3) | 3,105 | 3,266 | 103 | |||||||||
|
|
|
|
|
| |||||||
Total | 66,039 | 70,315 | 2,225 | |||||||||
|
|
|
|
|
|
(1) | Audit fees consist of fees associated with the annual audit, review of our quarterly financial statements, statutory audits and internal control review. They also include fees billed for those services that are normally provided by the independent accountants in connection with statutory and regulatory filings. |
(2) | Audit-related fees consist of fees billed for assurance and |
(3) | Tax fees include fees billed for professional services rendered by Ernst & Young, primarily in connection with our tax compliance activities. |
All audit and non-audit services performed by Ernst & Young were pre-approved by our audit committee. In certain circumstances, the audit committee delegates to one designated member to pre-approve such audit and non-audit services. Pre-approval by a designated member should be reported to the audit committee at its upcoming meeting.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
None.
ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
ITEM 16E. | PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
Since March 2004, we have from time to time announced plans, which were not binding on us, to buy back our common shares up to a certain amount on the Taiwan Stock Exchange. Set for below contains certain information regarding our share buyback programs in 2010, and weWe did not buy backpurchase any of our common shares during 2011 and 2012.or ADSs in the year ended December 31, 2014
Period | Total Number of Common Shares Purchased | Average Price Paid per Common Share (NT$) | Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Program | Maximum Number of Shares that May Yet be Purchased Under the Plans or Program | ||||||||||||
February 2010 (from February 3, 2010) | 147,845,000 | 15.98 | 147,845,000 | 152,155,000 | ||||||||||||
March 2010 (ended on March 22, 2010) | 152,155,000 | 16.31 | 300,000,000 | — |
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
ITEM 16G. | CORPORATE GOVERNANCE |
As a R.O.C. company listed on the New York Stock Exchange, or NYSE, we are subject to the U.S. corporate governance rules to the extent that these rules are applicable to foreign private issuers. The following summary details the significant differences between our corporate governance practices and corporate governance standards for U.S. companies (i.e. non-foreign private issuers) under the NYSE listing standards.
The Legal Framework. In general, corporate governance principles for Taiwanese companies are set forth in the Company Act of the Republic of China, or the R.O.C. Company Act, the R.O.C. Securities Exchange Act and, to the extent they are listed on the Taiwan Stock Exchange, under listing rules of the Taiwan Stock Exchange. Corporate governance principles under provisions of R.O.C. law may differ in significant ways to corporate governance standards for U.S. companies listed on the NYSE. Committed to high standards of corporate governance, we have generally brought our corporate governance in line with U.S. regulations, including the formation of an audit committee. However, we have not adopted certain recommended NYSE corporate governance standards where such standards are contrary to R.O.C. laws or regulations or generally prevailing business practices in Taiwan.
Independent Board Members. Under the NYSE listing standards applicable to U.S. companies, independent directors must comprise a majority of the board of directors. We currently have four independent directors out of a total of nine directors on our board of directors. Our standards infor determining director independence substantially comply with the NYSE listing standards, which include detailed tests for determining director independence. In addition, even though our independent directors meet in committee meetings of which they are committee members, we will not hold executive sessions of non-management directors. Such requirement is contrary to the R.O.C. Company Act.
Board Committees. Under the NYSE listing standards, companies are required to have a nominating/corporate governance committee, composed entirely of independent directors. In addition to identifying individuals qualified to become board members, the nominating/corporate governance committee must develop and recommend to the board a set of corporate governance principles. We do not currently have a corporate governance committee or a nominating committee. In accordance with an interpretation letter issued under the R.O.C. Company Act, the power to nominate directors shall not vest only in the directors. Any holder of the company’s voting common stock may nominate directors to be voted on by stockholders. Therefore, we do not have a nominating committee because vesting such nominating rights in a body of independent directors may result in conflict with the R.O.C. Company Act. Furthermore, we do not have a corporate governance committee, as such committee is not required under R.O.C. requirements. Our board of directors is responsible for regularly reviewing our corporate governance standards and practices.
Under the NYSE listing standards, companies are required to have a compensation committee, composed entirely of independent directors. Under the R.O.C. Company Act, however, companies incorporated in the R.O.C. are not required to have a compensation committee. Thecommittee with the same standards as the NYSE listing standards, but publicly listed companies in the R.O.C. Company Act requires that director compensation be determined eithermust have a remuneration committee in accordance with the company’sapplicable laws and rules in the R.O.C. Since 2011, we have established a remuneration committee composed of all the independent directors and convened meetings accordance with the applicable laws and rules in the R.O.C. The remuneration committee is responsible for determining the form and amount of compensation for each of our directors and executive officers under our articles of incorporation or byand the approval of the stockholders. Currently, inremuneration committee charter. In addition to the compensation approved at the stockholders’ meeting, in the event we have net income in any fiscal year, we will distribute 0.1% of our earnings after payment of all income taxes, deduction of any past losses and allocation of 10% of our net income for legal reserves, as remunerationsremuneration to our directors pursuant to our articles of incorporation. Currently, our board of directors is responsible for determining the form and amount of compensation for each of our directors and executive officers within the guidelines of our articles of incorporation.
Equity Compensation Plans. The NYSE listing standards also require that a company’s stockholders must approve equity compensation plans. Under the corresponding requirements in the R.O.C. Company Act and the R.O.C. Securities Exchange Act, stockholders’ approval is required for the distribution of employee bonuses in the form of stock, while the board of directordirectors has authority, subject to the approval of the R.O.C. Securities and Futures Bureau, to approve employee stock option plans and to grant options to employees pursuant to such plans and also has also authority to approve share buy-back programs for the purpose of selling common shares so purchased to employees and the sale of such common shares to employees pursuant to such programs. We intend to follow only the R.O.C. requirements.
ITEM 16H. MINE SAFETY DISCLOSURE
ITEM 16H. | MINE SAFETY DISCLOSURE |
Not applicable.
ITEM 17. | FINANCIAL STATEMENTS |
Not applicable.
The Registrant has elected to provide the financial statements and related information specified in Item 18.
ITEM 18. | FINANCIAL STATEMENTS |
The following is a list of the audited consolidated financial statements and report of independent registered public accounting firm included in this annual report beginning on page F-1.
Page | ||||
Consolidated Financial Statements of United Microelectronics Corporation and Subsidiaries | ||||
F-2 | ||||
Consolidated Balance Sheets | F-3 | |||
F-4 | ||||
F-5 | ||||
F-8 | ||||
F-10 |
ITEM 19. | EXHIBITS |
Exhibit
| Description of Exhibits | |
1.1 | Articles of Incorporation of the Company as last amended on June 15, 2011(1) | |
2.1 | Form of Amendment No. 1 to Deposit Agreement among the Company, and Holders and Beneficial Owners of American Depositary Shares issued thereunder, including the form of American Depositary Shares | |
2.2 | Form of Amendment No. 2 to Deposit Agreement among the Company, and Holders and Beneficial Owners of American Depositary Shares issued thereunder, including the form of American Depositary Shares | |
4.1 | Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, Ko-Kuan Section, No. 20-22, Hsinchu, Taiwan, R.O.C., the site of Fab 6A (in Chinese with English summary translation) | |
4.2 | Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, third section of first phase, Hsinchu, Taiwan, R.O.C., the site of Fab 8A and United Tower (in Chinese with English summary translation) | |
4.3 | Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, third section of first phase, Hsinchu, Taiwan, R.O.C., the site of Fab 8C (in Chinese with English summary translation) | |
4.4 | Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, third section of first phase, Hsinchu, Taiwan, R.O.C., the site of Fab 8D (in Chinese with English summary translation) | |
4.5 | Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, third section of second phase, Hsinchu, Taiwan, R.O.C., the site of Fab 8E (in Chinese with English summary translation) | |
4.6 | Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, Gin-Shan section, Hsinchu, Taiwan, R.O.C., the site of Fab 8F (in Chinese with English summary translation) | |
4.7 | Lease Agreement with Southern Taiwan Science Park Administration in relation to government-owned land located at Tainan Science Park, Tainan, Taiwan, R.O.C., the site of Fab 12A (in Chinese with English summary translation) | |
4.8 | Merger Agreement, entered into as of February 26, 2004, between United Microelectronics Corporation and SiS Microelectronics Corporation (English Translation) | |
4.9 | Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, Ko-Kuan section, Hsinchu, Taiwan, R.O.C., the site of Fab 8S (in Chinese with English summary translation) | |
4.10 | Lease Agreement with JTC Corporation in relation to land located at Pasir Ris Wafer Fab Park, Singapore, the site of Fab12i (summary) | |
4.11 | Merger Agreement, entered into as of April 29, 2009, among United Microelectronics Corporation, Infoshine Technology Limited and Best Elite International Limited |
Exhibit | Description of Exhibits | |
*8.1 | List of Significant Subsidiaries of United Microelectronics Corporation | |
11.1 | Code of Ethics for Directors and Officers | |
11.2 | Employee Code of Conduct | |
*12.1 | Certification of our Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
*12.2 | Certification of our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
*13.1 | Certification of our Chief Executive Officer pursuant to 18 U.S.C.§ 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
*13.2 | Certification of our Chief Financial Officer pursuant to 18 U.S.C.§ 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
*15.1 | Consent of Independent Registered Public Accounting Firm |
* | Filed herewith. |
(1) | Incorporated by reference to Exhibit 1.1 to Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2013 (File No. 001-15128) filed with the Commission on April 18, 2014. |
(2) | Incorporated by reference to Exhibit (a) to the Registrant’s Registration Statement on Form F-6 (File No. 333-13796) filed with the Commission on March 2, 2006. |
Incorporated by reference to Exhibit (a)(iii) to the Registrant’s Registration Statement on Form F-6 (File No. 333-98591) filed with the Commission on March 19, 2007. |
Incorporated by reference to Exhibit 4.1 to Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2006 (File No. 001-15128) filed with the Commission on May 9, 2007. |
Incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form F-1 (File No. 333-12444) filed with the Commission on August 28, 2000, as amended. |
Incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form F-1 (File No. 333-12444) filed with the Commission on August 28, 2000, as amended. |
Incorporated by reference to Exhibit 10.9 to the Registrant’s Registration Statement on Form F-1 (File No. 333-12444) filed with the Commission on August 28, 2000, as amended. |
Incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement on Form F-1 (File No. 333-12444) filed with the Commission on August 28, 2000, as amended. |
Incorporated by reference to Exhibit 10.11 to the Registrant’s Registration Statement on F-1 (File No. 333-12444) filed with the Commission on August 28, 2000, as amended. |
Incorporated by reference to Exhibit 10.12 to the Registrant’s Registration Statement on F-1 (File No. 333-12444) filed with the Commission on August 28, 2000, as amended. |
Incorporated by reference to Exhibit 4.8 to the Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2003 (File No. 1-15128) filed with the Commission on June 17, 2004. |
Incorporated by reference to Exhibit 4.9 to Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2006 (File No. 001-15128) filed with the Commission on May 9, 2007. |
Incorporated by reference to Exhibit 4.10 to Registrant’s Annual Report on Form 20-F for the fiscal year ended December 31, 2006 (File No. 001-15128) filed with the Commission on May 9, 2007. |
Incorporated by reference to Exhibit 99.1 to the Form 6-K furnished to the Commission on May 8, 2009. |
Incorporated by reference to Exhibit 99.1 to the Form 6-K furnished to the Commission on May 25, 2005. |
Incorporated by reference to Exhibit 99.2 to the Form 6-K furnished to the Commission on March 26, 2006. |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
UNITED MICROELECTRONICS CORPORATION | ||||
By: | /s/ CHITUNG LIU | |||
Name: | Chitung Liu | |||
Title: | Chief Financial Officer |
Date: April 26, 201321, 2015
United Microelectronics Corporation and Subsidiaries
Consolidated Financial Statements for years ended December 31, 2010, 20112012, 2013 and 20122014
Together with Report of Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of United Microelectronics Corporation
We have audited the accompanying consolidated balance sheets of United Microelectronics Corporation and subsidiaries (the “Company”) as of December 31, 20122013 and 2011, and2014, the related consolidated statements of comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012.2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with standards generally accepted in the Republic of China (“R.O.C.”) and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Microelectronics Corporation and subsidiaries at December 31, 20122013, and 2011,December 31, 2014, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2012,2014, in conformity with International Financial Reporting Standards as issued by the requirements of the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China, which differ in certain respects from U.S. generally accepted accounting principles (see Note 36 to the consolidated financial statements).
As described in Note 3 to the consolidated financial statements, effective from January 1, 2011, the Company has adopted the third revision of the Statement of FinancialInternational Accounting Standards No. 34, “Financial Instruments: Recognition and Measurement”, and the newly issued Statement of Financial Accounting Standards No. 41, “Operating Segments” of the Republic of China.Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), United Microelectronics Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2012,2014, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated April 26, 201321, 2015 expressed an unqualified opinion thereon.
ERNST/s/ Ernst & YOUNGYoung
CERTIFIED PUBLIC ACCOUNTANTS
Taipei, Taiwan
Republic of China
April 26, 201321, 2015
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
(Expressed in Thousands)As of December 31, 2013 and 2014
As of December 31, | ||||||||||||||||
Notes | 2011 | 2012 | ||||||||||||||
NT$ | NT$ | US$ | ||||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | 2, 4 | 49,070,128 | 42,592,725 | 1,466,187 | ||||||||||||
Financial assets at fair value through profit or loss, current | 2, 5 | 695,931 | 655,994 | 22,582 | ||||||||||||
Available-for-sale financial assets, current | 2, 8 | 5,124,780 | 4,330,880 | 149,084 | ||||||||||||
Held-to-maturity financial assets, current | 2 | 13,524 | — | — | ||||||||||||
Notes receivable | 2, 3 | 74,572 | 25,308 | 871 | ||||||||||||
Accounts receivable, net | 2, 3, 6 | 14,390,541 | 16,220,832 | 558,376 | ||||||||||||
Accounts receivable-related parties, net | 2, 3, 27 | 130,553 | 81,741 | 2,814 | ||||||||||||
Other receivables | 2, 3 | 724,563 | 836,234 | 28,786 | ||||||||||||
Inventories, net | 2, 7 | 12,709,276 | 13,023,710 | 448,320 | ||||||||||||
Prepaid expenses | 804,789 | 1,929,401 | 66,417 | |||||||||||||
Non-current assets held for sale | 2 | 583 | 313,171 | 10,780 | ||||||||||||
Deferred income tax assets, current | 2, 25 | 297,943 | 890,391 | 30,650 | ||||||||||||
Restricted assets | 20,331 | 17,135 | 590 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total current assets | 84,057,514 | 80,917,522 | 2,785,457 | |||||||||||||
|
|
|
|
|
| |||||||||||
Funds and investments | ||||||||||||||||
Financial assets at fair value through profit or loss, noncurrent | 2, 5 | 119,711 | 72,706 | 2,503 | ||||||||||||
Available-for-sale financial assets, noncurrent | 2, 8, 14 | 18,835,224 | 15,116,740 | 520,370 | ||||||||||||
Financial assets measured at cost, noncurrent | 2, 9, 14 | 8,298,967 | 7,963,242 | 274,122 | ||||||||||||
Long-term investments accounted for under the equity method | 2, 10, 14, 33 | 11,275,894 | 11,792,007 | 405,921 | ||||||||||||
Prepayment for long-term investments | 44,392 | 34,803 | 1,198 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total funds and investments | 38,574,188 | 34,979,498 | 1,204,114 | |||||||||||||
|
|
|
|
|
| |||||||||||
Property, plant and equipment | 2, 11, 14, 28, 29 | |||||||||||||||
Land | 2,065,194 | 2,112,483 | 72,719 | |||||||||||||
Buildings | 26,631,417 | 25,957,299 | 893,539 | |||||||||||||
Machinery and equipment | 559,032,330 | 595,789,472 | 20,509,104 | |||||||||||||
Transportation equipment | 64,918 | 67,148 | 2,311 | |||||||||||||
Furniture and fixtures | 4,378,308 | 4,882,971 | 168,089 | |||||||||||||
Leasehold improvements | 836,313 | 1,753,124 | 60,348 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total cost | 593,008,480 | 630,562,497 | 21,706,110 | |||||||||||||
Less : Accumulated depreciation | (463,622,840 | ) | (485,931,177 | ) | (16,727,407 | ) | ||||||||||
Less : Accumulated impairment | (3,115,991 | ) | (4,621,310 | ) | (159,081 | ) | ||||||||||
Add : Construction in progress and prepayments | 23,054,651 | 18,844,025 | 648,675 | |||||||||||||
|
|
|
|
|
| |||||||||||
Property, plant and equipment, net | 149,324,300 | 158,854,035 | 5,468,297 | |||||||||||||
|
|
|
|
|
| |||||||||||
Trademarks | 2 | 317 | 572 | 19 | ||||||||||||
Goodwill | 2, 14 | 50,863 | 50,863 | 1,751 | ||||||||||||
Other intangible assets | 2, 12 | 299,680 | 1,306,057 | 44,959 | ||||||||||||
Deferred charges | 2 | 1,513,157 | 1,523,909 | 52,458 | ||||||||||||
Deferred income tax assets, noncurrent | 2, 25 | 2,993,953 | 828,256 | 28,511 | ||||||||||||
Other assets-others | 2, 13, 14, 28 | 3,017,774 | 2,498,206 | 85,997 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total assets | 279,831,746 | 280,958,918 | 9,671,563 | |||||||||||||
|
|
|
|
|
| |||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||
Current liabilities | ||||||||||||||||
Short-term loans | 15 | 9,411,877 | 5,772,615 | 198,713 | ||||||||||||
Financial liabilities at fair value through profit or loss, current | 2, 16 | 741,531 | 767,605 | 26,424 | ||||||||||||
Notes and accounts payable | 5,010,222 | 6,265,920 | 215,694 | |||||||||||||
Income tax payable | 2 | 514,977 | 1,191,790 | 41,026 | ||||||||||||
Accrued expenses | 2, 23 | 9,756,579 | 10,782,582 | 371,173 | ||||||||||||
Payable on equipment | 8,517,694 | 5,382,395 | 185,280 | |||||||||||||
Current portion of long-term liabilities | 2, 17, 18, 28 | 8,002,051 | 8,887,006 | 305,921 | ||||||||||||
Deferred income tax liabilities, current | 2, 25 | 32,985 | 16 | 1 | ||||||||||||
Other current liabilities | 918,038 | 983,892 | 33,869 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total current liabilities | 42,905,954 | 40,033,821 | 1,378,101 | |||||||||||||
|
|
|
|
|
| |||||||||||
Long-term liabilities | ||||||||||||||||
Bonds payable | 2, 17 | 11,984,404 | 21,932,193 | 754,981 | ||||||||||||
Long-term loans | 18, 28 | 9,110,982 | 10,222,620 | 351,897 | ||||||||||||
Accrued pension liabilities | 2, 19 | 3,261,101 | 3,366,143 | 115,874 | ||||||||||||
Deposits-in | 105,617 | 153,745 | 5,292 | |||||||||||||
Deferred income tax liabilities, noncurrent | 2, 25 | 35,908 | 32,304 | 1,112 | ||||||||||||
Other liabilities-others | 302,817 | 197,147 | 6,786 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total long-term liabilities | 24,800,829 | 35,904,152 | 1,235,942 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total liabilities | 67,706,783 | 75,937,973 | 2,614,043 | |||||||||||||
|
|
|
|
|
| |||||||||||
Commitments and contingent | 29 | |||||||||||||||
Capital stock | 2, 20, 21 | 130,844,556 | 129,521,093 | 4,458,557 | ||||||||||||
Additional paid-in capital | 2, 10, 17, 21 | 46,460,665 | 46,994,672 | 1,617,717 | ||||||||||||
Retained earnings | 2, 10, 23 | 24,499,124 | 25,905,225 | 891,746 | ||||||||||||
Cumulative translation adjustment | 2 | (2,268,792 | ) | (5,725,284 | ) | (197,083 | ) | |||||||||
Unrealized gain or loss on financial instruments | 2, 8 | 14,424,891 | 10,717,489 | 368,933 | ||||||||||||
Treasury stock | 2, 20, 22 | (6,223,357 | ) | (4,963,389 | ) | (170,857 | ) | |||||||||
|
|
|
|
|
| |||||||||||
Total stockholders’ equity of the Company | 207,737,087 | 202,449,806 | 6,969,013 | |||||||||||||
|
|
|
|
|
| |||||||||||
Minority interests | 4,387,876 | 2,571,139 | 88,507 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total stockholders’ equity | 212,124,963 | 205,020,945 | 7,057,520 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total liabilities and stockholders’ equity | 279,831,746 | 280,958,918 | 9,671,563 | |||||||||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Expressed in Thousands, Except for Earnings per Share)Par Value)
For the years ended December 31, | ||||||||||||||||||||
Notes | 2010 | 2011 | 2012 | |||||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||||||
Net operating revenues | 2, 27 | 126,441,544 | 116,702,723 | 115,674,763 | 3,981,919 | |||||||||||||||
Cost of goods sold | 2, 7, 19, 21, 24 | (89,517,205 | ) | (95,416,529 | ) | (96,262,902 | ) | (3,313,697 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Gross profit | 36,924,339 | 21,286,194 | 19,411,861 | 668,222 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Operating expenses | 2, 19, 21, 24 | |||||||||||||||||||
Sales and marketing expenses | (2,565,821 | ) | (3,369,589 | ) | (2,748,753 | ) | (94,621 | ) | ||||||||||||
General and administrative expenses | (3,598,361 | ) | (3,341,672 | ) | (3,371,646 | ) | (116,064 | ) | ||||||||||||
Research and development expenses | (8,740,479 | ) | (9,395,066 | ) | (9,786,831 | ) | (336,896 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
(14,904,661 | ) | (16,106,327 | ) | (15,907,230 | ) | (547,581 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Operating income | 22,019,678 | 5,179,867 | 3,504,631 | 120,641 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Non-operating income | ||||||||||||||||||||
Interest revenue | 143,480 | 229,244 | 211,371 | 7,276 | ||||||||||||||||
Investment gain accounted for under the equity method, net | 2, 10 | 114,608 | — | 718,527 | 24,734 | |||||||||||||||
Dividend income | 1,344,017 | 1,715,111 | 1,021,699 | 35,170 | ||||||||||||||||
Gain on disposal of property, plant and equipment | 2 | 50,383 | 30,685 | 661,309 | 22,765 | |||||||||||||||
Gain on disposal of investments | 2 | 2,020,797 | 1,688,016 | 5,345,609 | 184,014 | |||||||||||||||
Exchange gain, net | 2 | — | 463,730 | 353,157 | 12,157 | |||||||||||||||
Gain on valuation of financial assets | 2, 5 | — | — | 49,319 | 1,698 | |||||||||||||||
Gain on valuation of financial liabilities | 2, 16 | — | 1,341,249 | — | — | |||||||||||||||
Other income | 1,019,469 | 2,054,687 | 815,249 | 28,064 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
4,692,754 | 7,522,722 | 9,176,240 | 315,878 | |||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Non-operating expenses | ||||||||||||||||||||
Interest expense | 2, 11 | (16,800 | ) | (306,015 | ) | (458,007 | ) | (15,766 | ) | |||||||||||
Investment loss accounted for under the equity method, net | 2, 10 | — | (312,261 | ) | — | — | ||||||||||||||
Other investment loss | — | (362 | ) | — | — | |||||||||||||||
Loss on disposal of property, plant and equipment | 2 | (9,259 | ) | (8,542 | ) | (30,706 | ) | (1,057 | ) | |||||||||||
Exchange loss, net | 2 | (150,905 | ) | — | — | — | ||||||||||||||
Financial expenses | (64,595 | ) | (53,831 | ) | (80,262 | ) | (2,763 | ) | ||||||||||||
Impairment loss | 2, 14 | (113,879 | ) | (2,246,490 | ) | (3,369,694 | ) | (115,997 | ) | |||||||||||
Loss on valuation of financial assets | 2, 5 | (217,895 | ) | (343,855 | ) | — | — | |||||||||||||
Loss on valuation of financial liabilities | 2, 16 | (665,116 | ) | — | (667,160 | ) | (22,966 | ) | ||||||||||||
Other losses | (90,362 | ) | (50,882 | ) | (72,083 | ) | (2,481 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
(1,328,811 | ) | (3,322,238 | ) | (4,677,912 | ) | (161,030 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Income from continuing operations before income tax and extraordinary gain | 25,383,621 | 9,380,351 | 8,002,959 | 275,489 | ||||||||||||||||
Income tax expense | 2, 25 | (1,606,114 | ) | (913,435 | ) | (2,129,038 | ) | (73,289 | ) | |||||||||||
Extraordinary gain | 68,449 | — | — | — | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net income | 23,845,956 | 8,466,916 | 5,873,921 | 202,200 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Attributable to : | ||||||||||||||||||||
the Company | 23,898,905 | 10,609,695 | 7,819,448 | 269,172 | ||||||||||||||||
Minority interests | (52,949 | ) | (2,142,779 | ) | (1,945,527 | ) | (66,972 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
23,845,956 | 8,466,916 | 5,873,921 | 202,200 | |||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Earnings per share-basic (in dollars) | 2, 26 | 1.91 | 0.84 | 0.62 | ||||||||||||||||
�� |
|
|
|
|
|
| ||||||||||||||
Shares used in per share calculation-basic | 12,496,485 | 12,561,249 | 12,624,817 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Earnings per share-diluted (in dollars) | 2, 26 | 1.87 | 0.81 | 0.59 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Shares used in per share calculation-diluted | 12,767,590 | 13,241,680 | 13,456,168 | |||||||||||||||||
|
|
|
|
|
|
As of December 31, | ||||||||||||||
Notes | 2013 | 2014 | ||||||||||||
NT$ | NT$ | US$ | ||||||||||||
Assets | ||||||||||||||
Current assets | ||||||||||||||
Cash and cash equivalents | 4, 6(1) | 50,830,678 | 45,701,335 | 1,446,245 | ||||||||||
Financial assets at fair value through profit or loss, current | 4, 6(2), 11(6) | 633,264 | 740,129 | 23,422 | ||||||||||
Available-for-sale financial assets, current | 4, 6(5), 11(6) | 2,134,379 | — | — | ||||||||||
Notes receivable | 4 | 194,939 | 126,141 | 3,992 | ||||||||||
Accounts receivable, net | 4, 6(3) | 16,624,352 | 22,207,271 | 702,762 | ||||||||||
Accounts receivable-related parties, net | 4, 7 | 2,854 | 36,022 | 1,140 | ||||||||||
Other receivables | 4 | 725,083 | 658,409 | 20,836 | ||||||||||
Current tax assets | 4 | 54,626 | 34,480 | 1,091 | ||||||||||
Inventories, net | 4, 5, 6(4) | 13,993,259 | 15,242,232 | 482,349 | ||||||||||
Prepayments | 1,604,349 | 2,003,269 | 63,395 | |||||||||||
Non-current assets held for sale | 4, 6(25) | — | 6,978,991 | 220,854 | ||||||||||
Other current assets | 1,998,441 | 3,134,870 | 99,205 | |||||||||||
|
|
|
|
|
| |||||||||
Total current assets | 88,796,224 | 96,863,149 | 3,065,291 | |||||||||||
|
|
|
|
|
| |||||||||
Non-current assets | ||||||||||||||
Financial assets at fair value through profit or loss, noncurrent | 4, 6(2), 11(6) | 60,441 | 45,232 | 1,431 | ||||||||||
Available-for-sale financial assets, noncurrent | 4, 5, 6(5), 7, 11(6) | 19,556,141 | 24,362,104 | 770,953 | ||||||||||
Financial assets measured at cost, noncurrent | 4, 6(6) | 4,085,292 | 3,833,006 | 121,298 | ||||||||||
Investments accounted for under the equity method | 4, 5, 6(7) | 6,420,900 | 6,617,270 | 209,407 | ||||||||||
Property, plant and equipment | 4, 5, 6(8), 8 | 162,352,900 | 166,690,243 | 5,275,008 | ||||||||||
Intangible assets | 4, 6(9) | 4,739,647 | 4,532,938 | 143,447 | ||||||||||
Deferred tax assets | 4, 5, 6(22) | 2,724,257 | 2,267,138 | 71,745 | ||||||||||
Prepayment for equipment | 409,860 | 1,063,353 | 33,650 | |||||||||||
Refundable deposits | 8 | 1,289,975 | 1,145,843 | 36,261 | ||||||||||
Other assets | 3,478,290 | 3,227,257 | 102,128 | |||||||||||
|
|
|
|
|
| |||||||||
Total non-current assets | 205,117,703 | 213,784,384 | 6,765,328 | |||||||||||
|
|
|
|
|
| |||||||||
Total assets | 293,913,927 | 310,647,533 | 9,830,619 | |||||||||||
|
|
|
|
|
| |||||||||
Liabilities and Equity | ||||||||||||||
Current liabilities | ||||||||||||||
Short-term loans | 6(10), 8 | 4,643,573 | 6,250,754 | 197,809 | ||||||||||
Financial liabilities at fair value through profit or loss, current | 4, 5, 6(11), 11(6) | 1,928 | 42,354 | 1,340 | ||||||||||
Notes and accounts payable | 7,414,188 | 6,167,339 | 195,169 | |||||||||||
Other payables | 11,052,981 | 12,421,152 | 393,074 | |||||||||||
Payables on equipment | 6,700,743 | 10,478,714 | 331,605 | |||||||||||
Current tax liabilities | 4 | 961,169 | 3,633,154 | 114,973 | ||||||||||
Liabilities directly associated with non-current assets held for sale | 4, 6(25) | — | 5,594,850 | 177,052 | ||||||||||
Current portion of long-term liabilities | 4, 6(12), 6(13) | 16,545,226 | 3,774,986 | 119,462 | ||||||||||
Other current liabilities | 884,162 | 835,239 | 26,432 | |||||||||||
|
|
|
|
|
| |||||||||
Total current liabilities | 48,203,970 | 49,198,542 | 1,556,916 | |||||||||||
|
|
|
|
|
| |||||||||
Non-current liabilities | ||||||||||||||
Bonds payable | 4, 6(12) | 19,979,354 | 24,977,820 | 790,437 | ||||||||||
Long-term loans | 6(13), 8 | 8,435,851 | 8,423,470 | 266,566 | ||||||||||
Deferred tax liabilities | 4, 5, 6(22) | 3,325,432 | 3,140,251 | 99,375 | ||||||||||
Accrued pension liabilities | 4, 5, 6(14) | 3,797,785 | 3,825,490 | 121,060 | ||||||||||
Guarantee deposits | 321,856 | 451,906 | 14,301 | |||||||||||
Other liabilities | 205,693 | 291,021 | 9,210 | |||||||||||
|
|
|
|
|
| |||||||||
Total non-current liabilities | 36,065,971 | 41,109,958 | 1,300,949 | |||||||||||
|
|
|
|
|
| |||||||||
Total liabilities | 84,269,941 | 90,308,500 | 2,857,865 | |||||||||||
|
|
|
|
|
| |||||||||
Commitments and contingencies | 9 | |||||||||||||
Equity attributable to the parent company | ||||||||||||||
Capital | 4, 5, 6(15), 6(16) | |||||||||||||
Common stock - NT$10 par value | 126,920,817 | 127,252,078 | 4,026,964 | |||||||||||
Authorized: 26,000,000 thousand shares | ||||||||||||||
Issued: 12,692,082 thousand shares as of December 31, 2013 | ||||||||||||||
Issued: 12,725,208 thousand shares as of December 31, 2014 | ||||||||||||||
Capital collected in advance | 25,682 | 50,970 | 1,613 | |||||||||||
Additional paid-in capital | 4, 5, 6(12), 6(15), 6(16) | |||||||||||||
Premiums | 43,156,776 | 37,145,022 | 1,175,475 | |||||||||||
Treasury stock transactions | 1,706,750 | 1,827,713 | 57,839 | |||||||||||
Transactions with noncontrolling interests and proportional recognized from associates or joint ventures | 251,480 | 343,821 | 10,880 | |||||||||||
Employee stock options | 266,314 | 165,837 | 5,248 | |||||||||||
Stock options - conversion right | 406,136 | — | — | |||||||||||
Other | — | 440,932 | 13,955 | |||||||||||
Retained earnings | 6(15) | |||||||||||||
Legal reserve | 5,248,824 | 6,511,844 | 206,071 | |||||||||||
Unappropriated earnings | 33,054,952 | 42,660,570 | 1,350,018 | |||||||||||
Accumulative other comprehensive income | 4 | |||||||||||||
Exchange differences on translation of foreign operations | (5,243,972 | ) | (879,026 | ) | (27,817 | ) | ||||||||
Unrealized gain or loss on available-for-sale financial assets | 9,423,321 | 10,986,762 | 347,682 | |||||||||||
Treasury stock | 4, 6(15) | (9,893,082 | ) | (10,017,288 | ) | (317,003 | ) | |||||||
|
|
|
|
|
| |||||||||
Total equity attributable to the parent company | 205,323,998 | 216,489,235 | 6,850,925 | |||||||||||
|
|
|
|
|
| |||||||||
Non-controlling interests | 6(15) | 4,319,988 | 3,849,798 | 121,829 | ||||||||||
|
|
|
|
|
| |||||||||
Total equity | 209,643,986 | 220,339,033 | 6,972,754 | |||||||||||
|
|
|
|
|
| |||||||||
Total liabilities and equity | 293,913,927 | 310,647,533 | 9,830,619 | |||||||||||
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYCOMPREHENSIVE INCOME
For the years ended December 31, 2012, 2013 and 2014
(Expressed in Thousands)Thousands, Except for Earnings per Share)
Capital | Additional Paid-in Capital | Retained Earnings | Cumulative Translation Adjustment | Unrealized Gain/Loss on Financial Instruments | Treasury Stock | Total | ||||||||||||||||||||||||||||||||||
Common Stock | Shares | Legal Reserve | Unappropriated Earnings | Minority Interests | ||||||||||||||||||||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | ||||||||||||||||||||||||||||||||
Balance as of January 1, 2010 | 129,877,713 | 12,987,771 | 44,365,049 | — | 10,648,813 | (318,188 | ) | 30,915,079 | (1,890,145 | ) | 497,935 | 214,096,256 | ||||||||||||||||||||||||||||
Appropriation and distribution of 2009 retained earnings | ||||||||||||||||||||||||||||||||||||||||
Legal reserve | — | — | — | 1,064,881 | (1,064,881 | ) | — | — | — | — | — | |||||||||||||||||||||||||||||
Cash dividends | — | — | — | — | (6,233,002 | ) | — | — | — | — | (6,233,002 | ) | ||||||||||||||||||||||||||||
Net income in 2010 | — | — | — | — | 23,898,905 | — | — | — | (52,949 | ) | 23,845,956 | |||||||||||||||||||||||||||||
Treasury stock acquired | — | — | — | — | — | — | — | (4,843,588 | ) | — | (4,843,588 | ) | ||||||||||||||||||||||||||||
Compensation cost of employee stock options | — | — | 254,106 | — | — | — | — | — | — | 254,106 | ||||||||||||||||||||||||||||||
Treasury stock sold to employees | — | — | 420,648 | — | — | — | — | 510,376 | — | 931,024 | ||||||||||||||||||||||||||||||
Adjustment of funds and investments disposal | — | — | — | — | — | (30 | ) | — | — | — | (30 | ) | ||||||||||||||||||||||||||||
Adjustment of retained earnings accounted for under the equity method | — | — | — | — | (119,157 | ) | — | — | — | — | (119,157 | ) | ||||||||||||||||||||||||||||
Cash dividends allocated to subsidiaries | — | — | 8,040 | — | — | — | — | — | — | 8,040 | ||||||||||||||||||||||||||||||
Changes in unrealized loss on available-for-sale financial assets | — | — | — | — | — | — | (1,268,275 | ) | — | — | (1,268,275 | ) | ||||||||||||||||||||||||||||
Changes in unrealized loss on financial instruments of investees | — | — | — | — | — | — | (1,930,821 | ) | — | — | (1,930,821 | ) | ||||||||||||||||||||||||||||
Exercise employee stock options | 1,410 | 141 | 1,132 | — | — | — | — | — | — | 2,542 | ||||||||||||||||||||||||||||||
Changes in cumulative translation adjustment | — | — | — | — | — | (4,960,782 | ) | — | — | — | (4,960,782 | ) | ||||||||||||||||||||||||||||
Changes in minority interests | — | — | — | — | — | — | — | — | 5,353,760 | 5,353,760 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Balance as of December 31, 2010 | 129,879,123 | 12,987,912 | 45,048,975 | 1,064,881 | 27,130,678 | (5,279,000 | ) | 27,715,983 | (6,223,357 | ) | 5,798,746 | 225,136,029 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, | ||||||||||||||||||
Notes | 2012 | 2013 | 2014 | |||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||||
Net operating revenues | 4, 5, 6(17), 7 | 115,674,763 | 123,811,636 | 140,012,076 | 4,430,762 | |||||||||||||
Operating costs | 4, 6(4), 6(14), 6(16), 6(18) | (96,365,215 | ) | (100,248,661 | ) | (108,159,398 | ) | (3,422,766 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||||
Gross profit | 19,309,548 | 23,562,975 | 31,852,678 | 1,007,996 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Operating expenses | 4, 6(14), 6(16), 6(18) | |||||||||||||||||
Sales and marketing expenses | (2,748,807 | ) | (3,247,000 | ) | (4,011,478 | ) | (126,946 | ) | ||||||||||
General and administrative expenses | (3,161,271 | ) | (3,665,472 | ) | (3,562,029 | ) | (112,722 | ) | ||||||||||
Research and development expenses | (9,786,506 | ) | (12,493,051 | ) | (13,663,874 | ) | (432,401 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||||
Subtotal | (15,696,584 | ) | (19,405,523 | ) | (21,237,381 | ) | (672,069 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net other operating income and expenses | 4, 6(19) | (2,790,775 | ) | (125,332 | ) | (538,965 | ) | (17,056 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||||
Operating income | 822,189 | 4,032,120 | 10,076,332 | 318,871 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Non-operating income and expenses | ||||||||||||||||||
Other income | 4, 6(20) | 1,243,822 | 1,091,309 | 1,202,449 | 38,052 | |||||||||||||
Other gains and losses | 4, 6(20), 6(26), | 3,983,147 | 1,851,210 | 2,669,133 | 84,466 | |||||||||||||
Finance costs | 6(20) | (538,269 | ) | (678,406 | ) | (746,065 | ) | (23,610 | ) | |||||||||
Share of profit or loss of associates and joint ventures | 4, 6(7) | 663,379 | 697,931 | 37,179 | 1,177 | |||||||||||||
Bargain purchase gain | 4, 6(24) | — | 7,153,529 | — | — | |||||||||||||
Exchange gain, net | 4 | 120,337 | 192,779 | 333,275 | 10,547 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Subtotal | 5,472,416 | 10,308,352 | 3,495,971 | 110,632 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Income from continuing operations before income tax | 6,294,605 | 14,340,472 | 13,572,303 | 429,503 | ||||||||||||||
Income tax expense | 4, 5, 6(22) | (2,145,983 | ) | (2,256,834 | ) | (3,125,115 | ) | (98,896 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||||
Net income | 4,148,622 | 12,083,638 | 10,447,188 | 330,607 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income (loss) | 4, 6(21) | |||||||||||||||||
Items that may be reclassified subsequently to profit or loss | ||||||||||||||||||
Exchange differences on translation of foreign operations | (2,802,004 | ) | (154,613 | ) | 4,289,391 | 135,740 | ||||||||||||
Unrealized gain (loss) on available-for-sale financial assets | (2,589,508 | ) | (856,326 | ) | 1,652,163 | 52,284 | ||||||||||||
Share of other comprehensive income of associates and joint ventures | (263,921 | ) | 362,491 | 312,088 | 9,876 | |||||||||||||
Income tax effect | 6(22) | (307,627 | ) | 468,000 | (182,264 | ) | (5,768 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||||
Subtotal | (5,963,060 | ) | (180,448 | ) | 6,071,378 | 192,132 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Items that will not be reclassified subsequently to profit or loss | ||||||||||||||||||
Remeasurements of defined benefit pension plans | 6(14) | (499,226 | ) | 456,478 | (2,607 | ) | (83 | ) | ||||||||||
Income tax effect | 6(22) | 81,736 | (77,623 | ) | 521 | 17 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Subtotal | (417,490 | ) | 378,855 | (2,086 | ) | (66 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total other comprehensive income (loss), net of tax | (6,380,550 | ) | 198,407 | 6,069,292 | 192,066 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total comprehensive income (loss) | (2,231,928 | ) | 12,282,045 | 16,516,480 | 522,673 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net income attributable to: | ||||||||||||||||||
Stockholders of the parent | 6,094,148 | 12,608,881 | 11,108,940 | 351,549 | ||||||||||||||
Non-controlling interests | (1,945,526 | ) | (525,243 | ) | (661,752 | ) | (20,942 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||||
4,148,622 | 12,083,638 | 10,447,188 | 330,607 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total comprehensive income (loss) attributable to: | ||||||||||||||||||
Stockholders of the parent | (281,240 | ) | 12,796,068 | 17,035,241 | 539,090 | |||||||||||||
Non-controlling interests | (1,950,688 | ) | (514,023 | ) | (518,761 | ) | (16,417 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||||
(2,231,928 | ) | 12,282,045 | 16,516,480 | 522,673 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Earnings per share (NTD) | 4, 6(23) | |||||||||||||||||
Earnings per share-basic | 0.49 | 1.02 | 0.90 | 0.03 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Earnings per share-diluted | 0.46 | 0.96 | 0.89 | 0.03 | ||||||||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the year ended December 31, 2012
(Expressed in Thousands)
Capital | Additional Paid-in | Retained Earnings | Cumulative Translation Adjustment | Unrealized Gain/Loss on Financial Instruments | Treasury Stock | Total | ||||||||||||||||||||||||||||||||||||||
Common Stock | Shares | Collected in Advance | Legal Reserve | Unappropriated Earnings | Minority Interests | |||||||||||||||||||||||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | |||||||||||||||||||||||||||||||||||
Balance as of January 1, 2011 | 129,879,123 | 12,987,912 | — | 45,048,975 | 1,064,881 | 27,130,678 | (5,279,000 | ) | 27,715,983 | (6,223,357 | ) | 5,798,746 | 225,136,029 | |||||||||||||||||||||||||||||||
Appropriation and distribution of 2010 retained earnings | ||||||||||||||||||||||||||||||||||||||||||||
Legal reserve | — | — | — | — | 2,377,975 | (2,377,975 | ) | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Cash dividends | — | — | — | — | — | (14,033,575 | ) | — | — | — | — | (14,033,575 | ) | |||||||||||||||||||||||||||||||
Net income in 2011 | — | — | — | — | — | 10,609,695 | — | — | — | (2,142,779 | ) | 8,466,916 | ||||||||||||||||||||||||||||||||
Compensation cost of employee stock options | — | — | — | 213,639 | — | — | — | — | — | — | 213,639 | |||||||||||||||||||||||||||||||||
Treasury stock sold to employees | — | — | — | 599,139 | — | — | — | — | — | — | 599,139 | |||||||||||||||||||||||||||||||||
Embedded conversion options derived from convertible bonds | — | — | — | 679,612 | — | — | — | — | — | — | 679,612 | |||||||||||||||||||||||||||||||||
Derecognise convertible bonds | — | — | — | (137,088 | ) | — | — | — | — | — | — | (137,088 | ) | |||||||||||||||||||||||||||||||
Adjustment of additional paid-in capital accounted for under the equity method | — | — | — | (103 | ) | — | — | — | — | — | — | (103 | ) | |||||||||||||||||||||||||||||||
Adjustment of funds and investments disposal | — | — | — | — | — | — | (5 | ) | — | — | — | (5 | ) | |||||||||||||||||||||||||||||||
Adjustment of retained earnings accounted for under the equity method | — | — | — | — | — | (272,555 | ) | — | — | — | �� | (272,555 | ) | |||||||||||||||||||||||||||||||
Cash dividends allocated to subsidiaries | — | — | — | 17,874 | — | — | — | — | — | — | 17,874 | |||||||||||||||||||||||||||||||||
Changes in unrealized loss on available-for-sale financial assets | — | — | — | — | — | — | — | (10,470,556 | ) | — | — | (10,470,556 | ) | |||||||||||||||||||||||||||||||
Changes in unrealized loss on financial instruments of investees | — | — | — | — | — | — | — | (2,820,536 | ) | — | — | (2,820,536 | ) | |||||||||||||||||||||||||||||||
Exercise employee stock options | 964,293 | 96,430 | 1,140 | 38,617 | — | — | — | — | — | — | 1,004,050 | |||||||||||||||||||||||||||||||||
Changes in cumulative translation adjustment | — | — | — | — | — | — | 3,010,213 | — | — | — | 3,010,213 | |||||||||||||||||||||||||||||||||
Changes in minority interests | — | — | — | — | — | — | — | — | — | 731,909 | 731,909 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Balance as of December 31, 2011 | 130,843,416 | 13,084,342 | 1,140 | 46,460,665 | 3,442,856 | 21,056,268 | (2,268,792 | ) | 14,424,891 | (6,223,357 | ) | 4,387,876 | 212,124,963 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity attributable to the parent company | ||||||||||||||||||||||||||||||||||||||||||||
Capital | Retained Earnings | |||||||||||||||||||||||||||||||||||||||||||
Common Stock | Collected in Advance | Additional Paid-in Capital | Legal Reserve | Unappropriated Earnings | Exchange Differences on Translation of Foreign Operations | Unrealized Gain or Loss on Available- for-sale Financial Assets | Treasury Stock | Total | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | ||||||||||||||||||||||||||||||||||
Balance as of January 1, 2012 | 130,843,416 | 1,140 | 46,727,676 | 3,442,856 | 27,575,539 | (2,193,611 | ) | 12,522,526 | (13,751,193 | ) | 205,168,349 | 4,387,876 | 209,556,225 | |||||||||||||||||||||||||||||||
Appropriation and distribution of 2011 retained earnings | ||||||||||||||||||||||||||||||||||||||||||||
Legal reserve | — | — | — | 1,033,714 | (1,033,714 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Cash dividends | — | — | — | — | (6,316,435 | ) | — | — | — | (6,316,435 | ) | — | (6,316,435 | ) | ||||||||||||||||||||||||||||||
Net income for the year ended December 31, 2012 | — | — | — | — | 6,094,148 | — | — | — | 6,094,148 | (1,945,526 | ) | 4,148,622 | ||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax for the year ended December 31, 2012 | — | — | — | — | (417,490 | ) | (3,487,244 | ) | (2,470,654 | ) | — | (6,375,388 | ) | (5,162 | ) | (6,380,550 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Total comprehensive income (loss) | — | — | — | — | 5,676,658 | (3,487,244 | ) | (2,470,654 | ) | — | (281,240 | ) | (1,950,688 | ) | (2,231,928 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Share-based payment transaction | 253,983 | 1,898 | 212,998 | — | — | — | — | — | 468,879 | — | 468,879 | |||||||||||||||||||||||||||||||||
Convertible bonds repurchased | — | — | (5,248 | ) | — | — | — | — | — | (5,248 | ) | — | (5,248 | ) | ||||||||||||||||||||||||||||||
Treasury stock cancelled | (1,579,344 | ) | — | 319,376 | — | — | — | — | 1,259,968 | — | — | — | ||||||||||||||||||||||||||||||||
Share of changes in net assets of associates and joint ventures accounted for using equity method | — | — | 2,934 | — | 9,312 | — | — | — | 12,246 | — | 12,246 | |||||||||||||||||||||||||||||||||
Adjustments arising from changes in percentage of ownership in subsidiaries | — | — | 2,567 | — | (10,580 | ) | — | — | — | (8,013 | ) | 165,774 | 157,761 | |||||||||||||||||||||||||||||||
Adjustments due to reciprocal shareholdings held by subsidiaries and associates | — | — | 77,620 | — | — | — | — | — | 77,620 | — | 77,620 | |||||||||||||||||||||||||||||||||
Effect of deconsolidation of subsidiaries | — | — | — | — | — | — | — | — | — | (31,823 | ) | (31,823 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Balance as of December 31, 2012 | 129,518,055 | 3,038 | 47,337,923 | 4,476,570 | 25,900,780 | (5,680,855 | ) | 10,051,872 | (12,491,225 | ) | 199,116,158 | 2,571,139 | 201,687,297 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the year ended December 31, 2013
(Expressed in Thousands)
Capital | Additional Paid-in Capital | Retained Earnings | Cumulative Translation Adjustment | Unrealized Gain/Loss on Financial Instruments | Treasury Stock | Total | ||||||||||||||||||||||||||||||||||||||
Common Stock | Shares | Collected in Advance | Legal Reserve | Unappropriated Earnings | Minority Interests | |||||||||||||||||||||||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | |||||||||||||||||||||||||||||||||||
Balance as of January 1, 2012 | 130,843,416 | 13,084,342 | 1,140 | 46,460,665 | 3,442,856 | 21,056,268 | (2,268,792 | ) | 14,424,891 | (6,223,357 | ) | 4,387,876 | 212,124,963 | |||||||||||||||||||||||||||||||
Appropriation and distribution of 2011 retained earnings | ||||||||||||||||||||||||||||||||||||||||||||
Legal reserve | — | — | — | — | 1,033,714 | (1,033,714 | ) | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Cash dividends | — | — | — | — | — | (6,316,435 | ) | — | — | — | — | (6,316,435 | ) | |||||||||||||||||||||||||||||||
Net income in 2012 | — | — | — | — | — | 7,819,448 | — | — | — | (1,945,527 | ) | 5,873,921 | ||||||||||||||||||||||||||||||||
Treasury stock retired | (1,579,344 | ) | (157,934 | ) | — | 319,376 | — | — | — | — | 1,259,968 | — | — | |||||||||||||||||||||||||||||||
Compensation cost of employee stock options | — | — | — | 77,643 | — | — | — | — | — | — | 77,643 | |||||||||||||||||||||||||||||||||
Treasury stock sold to employees | — | — | — | 125,120 | — | — | — | — | — | — | 125,120 | |||||||||||||||||||||||||||||||||
Derecognise convertible bonds | — | — | — | (6,403 | ) | — | — | — | — | — | — | (6,403 | ) | |||||||||||||||||||||||||||||||
Adjustment of funds and investments disposal | — | — | — | — | — | — | 216 | — | — | — | 216 | |||||||||||||||||||||||||||||||||
Adjustment of retained earnings accounted for under the equity method | — | — | — | — | — | (96,912 | ) | — | — | — | — | (96,912 | ) | |||||||||||||||||||||||||||||||
Cash dividends allocated to subsidiaries | — | — | — | 8,036 | — | — | — | — | — | — | 8,036 | |||||||||||||||||||||||||||||||||
Changes in unrealized loss on available-for-sale financial assets | — | — | — | — | — | — | — | (1,526,507 | ) | — | — | (1,526,507 | ) | |||||||||||||||||||||||||||||||
Changes in unrealized loss on financial instruments of investees | — | — | — | — | — | — | — | (2,180,895 | ) | — | — | (2,180,895 | ) | |||||||||||||||||||||||||||||||
Exercise employee stock options | 253,983 | 25,398 | 1,898 | 10,235 | — | — | — | — | — | — | 266,116 | |||||||||||||||||||||||||||||||||
Changes in cumulative translation adjustment | — | — | — | — | — | — | (3,456,708 | ) | — | — | — | (3,456,708 | ) | |||||||||||||||||||||||||||||||
Changes in minority interests | — | — | — | — | — | — | — | — | — | 128,790 | 128,790 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Balance as of December 31, 2012 | 129,518,055 | 12,951,806 | 3,038 | 46,994,672 | 4,476,570 | 21,428,655 | (5,725,284 | ) | 10,717,489 | (4,963,389 | ) | 2,571,139 | 205,020,945 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity attributable to the parent company | ||||||||||||||||||||||||||||||||||||||||||||
Capital | Retained Earnings | |||||||||||||||||||||||||||||||||||||||||||
Common Stock | Collected in Advance | Additional Paid-in Capital | Legal Reserve | Unappropriated Earnings | Exchange Differences on Translation of Foreign Operations | Unrealized Gain or Loss on Available- for-sale Financial Assets | Treasury Stock | Total | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | ||||||||||||||||||||||||||||||||||
Balance as of January 1, 2013 | 129,518,055 | 3,038 | 47,337,923 | 4,476,570 | 25,900,780 | (5,680,855 | ) | 10,051,872 | (12,491,225 | ) | 199,116,158 | 2,571,139 | 201,687,297 | |||||||||||||||||||||||||||||||
Appropriation and distribution of 2012 retained earnings | ||||||||||||||||||||||||||||||||||||||||||||
Legal reserve | — | — | — | 772,254 | (772,254 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Cash dividends | — | — | — | — | (5,061,310 | ) | — | — | — | (5,061,310 | ) | — | (5,061,310 | ) | ||||||||||||||||||||||||||||||
Net income for the year ended December 31, 2013 | — | — | — | — | 12,608,881 | — | — | — | 12,608,881 | (525,243 | ) | 12,083,638 | ||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax for the year ended December 31, 2013 | — | — | — | — | 378,855 | 436,883 | (628,551 | ) | — | 187,187 | 11,220 | 198,407 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Total comprehensive income (loss) | — | — | — | — | 12,987,736 | 436,883 | (628,551 | ) | — | 12,796,068 | (514,023 | ) | 12,282,045 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Share-based payment transaction | 402,762 | 22,644 | 46,073 | — | — | — | — | — | 471,479 | — | 471,479 | |||||||||||||||||||||||||||||||||
Convertible bonds repurchased | — | — | (57,954 | ) | — | — | — | — | — | (57,954 | ) | — | (57,954 | ) | ||||||||||||||||||||||||||||||
Treasury stock acquired | — | — | — | — | — | — | — | (2,245,445 | ) | (2,245,445 | ) | — | (2,245,445 | ) | ||||||||||||||||||||||||||||||
Treasury stock cancelled | (3,000,000 | ) | — | (1,843,588 | ) | — | — | — | — | 4,843,588 | — | — | — | |||||||||||||||||||||||||||||||
Share of changes in net assets of associates and joint ventures accounted for using equity method | — | — | (5,157 | ) | — | — | — | — | — | (5,157 | ) | — | (5,157 | ) | ||||||||||||||||||||||||||||||
Adjustments arising from changes in percentage of ownership in subsidiaries | — | — | 251,136 | — | — | — | — | — | 251,136 | (600,009 | ) | (348,873 | ) | |||||||||||||||||||||||||||||||
Adjustments due to reciprocal shareholdings held by subsidiaries and associates | — | — | 59,023 | — | — | — | — | — | 59,023 | — | 59,023 | |||||||||||||||||||||||||||||||||
Effect of consolidation of subsidiaries | — | — | — | — | — | — | — | — | — | 2,862,881 | 2,862,881 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Balance as of December 31, 2013 | 126,920,817 | 25,682 | 45,787,456 | 5,248,824 | 33,054,952 | (5,243,972 | ) | 9,423,321 | (9,893,082 | ) | 205,323,998 | 4,319,988 | 209,643,986 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES IN EQUITY
For the year ended December 31, 2014
(Expressed in Thousands)
For the years ended December 31, | ||||||||||||||||
2010 | 2011 | 2012 | ||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income attributable to stockholders of the Company | 23,898,905 | 10,609,695 | 7,819,448 | 269,172 | ||||||||||||
Net loss attributable to minority interests | (52,949 | ) | (2,142,779 | ) | (1,945,527 | ) | (66,972 | ) | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||
Extraordinary gain | (82,469 | ) | — | — | — | |||||||||||
Depreciation | 29,951,312 | 31,915,068 | 35,011,412 | 1,205,212 | ||||||||||||
Amortization | 544,321 | 455,731 | 726,163 | 24,997 | ||||||||||||
Bad debt expense (reversal) | 20,748 | 578,805 | (12,059 | ) | (415 | ) | ||||||||||
Donation income | — | (691,611 | ) | — | — | |||||||||||
Loss on decline in market value, scrap and obsolescence of inventories | 82,453 | 1,754,699 | 533,778 | 18,375 | ||||||||||||
Cash dividends received under the equity method | 48,753 | 305,396 | 85,635 | 2,948 | ||||||||||||
Investment loss (gain) accounted for under the equity method | (114,608 | ) | 312,261 | (718,527 | ) | (24,734 | ) | |||||||||
Loss (Gain) on valuation of financial assets and liabilities | 883,011 | (997,394 | ) | 617,841 | 21,268 | |||||||||||
Impairment loss | 113,879 | 2,246,490 | 3,369,694 | 115,996 | ||||||||||||
Gain on disposal of investments | (2,020,797 | ) | (1,688,016 | ) | (5,345,609 | ) | (184,014 | ) | ||||||||
Loss on other investment | — | — | 26,790 | 922 | ||||||||||||
Gain on disposal of property, plant and equipment | (41,124 | ) | (22,143 | ) | (630,603 | ) | (21,708 | ) | ||||||||
Gain on disposal of non-current assets held for sale | (449 | ) | (193,855 | ) | — | — | ||||||||||
Gain on reacquisition of bonds | — | (167,311 | ) | (105,106 | ) | (3,618 | ) | |||||||||
Amortization of financial assets discounts | (7,253 | ) | — | — | — | |||||||||||
Amortization of bond discounts | 227,139 | 300,389 | 338,217 | 11,643 | ||||||||||||
Amortization of administrative expenses from syndicated loans | 273 | 4,051 | 4,606 | 159 | ||||||||||||
Exchange loss (gain) on financial assets and liabilities | (327,341 | ) | 77,874 | (117,602 | ) | (4,048 | ) | |||||||||
Exchange loss (gain) on long-term liabilities | (498,520 | ) | 188,531 | (122,609 | ) | (4,221 | ) | |||||||||
Exchange gain on capital reduction of long-term investments accounted for under the equity method | — | — | (232,820 | ) | (8,014 | ) | ||||||||||
Exchange loss (gain) on disposal of non-current assets held for sale | 266 | (767 | ) | (279 | ) | (10 | ) | |||||||||
Amortization of deferred income | (145,764 | ) | (98,940 | ) | (101,248 | ) | (3,485 | ) | ||||||||
Stock-based payment | 646,968 | 796,253 | 195,905 | 6,744 | ||||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Financial assets and liabilities at fair value through profit or loss | 612,802 | (140,618 | ) | 80,909 | 2,785 | |||||||||||
Notes receivable and Accounts receivable | (2,315,832 | ) | 3,762,332 | (1,881,414 | ) | (64,765 | ) | |||||||||
Other receivables | 1,380,061 | (124,682 | ) | 43,833 | 1,509 | |||||||||||
Inventories | (3,334,002 | ) | (1,250,546 | ) | (1,008,090 | ) | (34,702 | ) | ||||||||
Prepaid expenses | (586,039 | ) | 65,796 | (645,350 | ) | (22,215 | ) | |||||||||
Deferred income tax assets and liabilities | 69,112 | 469,352 | 1,287,855 | 44,332 | ||||||||||||
Notes and accounts payable | 1,776,366 | (2,054,788 | ) | 1,341,039 | 46,163 | |||||||||||
Accrued expenses | 3,893,450 | (2,811,033 | ) | 1,418,049 | 48,814 | |||||||||||
Other current liabilities | (1,271,666 | ) | 12,722 | 183,892 | 6,330 | |||||||||||
Accrued pension liabilities | 38,378 | (32,378 | ) | 110,826 | 3,815 | |||||||||||
Other liabilities-others | 105,629 | 215,216 | 206,070 | 7,094 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net cash provided by operating activities | 53,495,013 | 41,653,800 | 40,535,119 | 1,395,357 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cash flows from investing activities: | ||||||||||||||||
Acquisition of financial assets at fair value through profit or loss | (163,620 | ) | (85,451 | ) | (22,220 | ) | (765 | ) | ||||||||
Proceeds from disposal of financial assets at fair value through profit or loss | — | 29,656 | — | — | ||||||||||||
Acquisition of available-for-sale financial assets | (232,092 | ) | (98,188 | ) | (600,226 | ) | (20,662 | ) | ||||||||
Proceeds from disposal of available-for-sale financial assets | 3,485,293 | 3,103,136 | 4,888,442 | 168,277 | ||||||||||||
Acquisition of financial assets measured at cost | (835,525 | ) | (1,517,080 | ) | (1,287,971 | ) | (44,336 | ) | ||||||||
Proceeds from disposal of financial assets measured at cost | 333,977 | 409,240 | 881,985 | 30,361 | ||||||||||||
Acquisition of long-term investments accounted for under the equity method | (597,459 | ) | (3,325,272 | ) | (281,695 | ) | (9,697 | ) | ||||||||
Proceeds from disposal of long-term investments accounted for under the equity method | 157,734 | 119,643 | 1,705 | 59 | ||||||||||||
Proceeds from maturity of held-to-maturity financial assets | — | — | 13,524 | 466 | ||||||||||||
Prepayment for long-term investments | — | (43,921 | ) | — | — | |||||||||||
Proceeds from capital reduction and liquidation of investments | 52,914 | 251,584 | 275,377 | 9,479 | ||||||||||||
Net cash received (paid) from acquisition of subsidiaries | 1,859,186 | 29,350 | (1,525 | ) | (53 | ) | ||||||||||
Net cash paid for disposal of subsidiaries | (176,217 | ) | (93,668 | ) | (241,261 | ) | (8,305 | ) | ||||||||
Other receivables | 27,108 | — | — | — | ||||||||||||
Acquisition of minority interests | (266,382 | ) | (111,533 | ) | — | — | ||||||||||
Acquisition of property, plant and equipment | (61,322,819 | ) | (53,326,115 | ) | (52,185,910 | ) | (1,796,417 | ) | ||||||||
Proceeds from disposal of property, plant and equipment | 76,044 | 44,962 | 1,160,719 | 39,956 | ||||||||||||
Proceeds from disposal of non-current assets held for sale | 405,098 | 594,738 | — | — | ||||||||||||
Acquisition of non-current assets held for sale | — | — | (313,171 | ) | (10,781 | ) | ||||||||||
Increase in deferred charges | (382,050 | ) | (392,956 | ) | (631,439 | ) | (21,736 | ) | ||||||||
Acquisition of intangible assets | — | (287,203 | ) | (762,818 | ) | (26,259 | ) | |||||||||
Decrease (Increase) in restricted assets | (26,077 | ) | 4,806 | 27,218 | 937 | |||||||||||
Increase in other assets-others | (174,066 | ) | (425,788 | ) | (69,147 | ) | (2,380 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net cash used in investing activities | (57,778,953 | ) | (55,120,060 | ) | (49,148,413 | ) | (1,691,856 | ) | ||||||||
|
|
|
|
|
|
|
|
Equity attributable to the parent company | ||||||||||||||||||||||||||||||||||||||||||||
Capital | Retained Earnings | |||||||||||||||||||||||||||||||||||||||||||
Common Stock | Collected in Advance | Additional Paid-in Capital | Legal Reserve | Unappropriated Earnings | Exchange Differences on Translation of Foreign Operations | Unrealized Gain or Loss on Available- for-sale Financial Assets | Treasury Stock | Total | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | ||||||||||||||||||||||||||||||||||
Balance as of January 1, 2014 | 126,920,817 | 25,682 | 45,787,456 | 5,248,824 | 33,054,952 | (5,243,972 | ) | 9,423,321 | (9,893,082 | ) | 205,323,998 | 4,319,988 | 209,643,986 | |||||||||||||||||||||||||||||||
Appropriation and distribution of 2013 retained earnings | ||||||||||||||||||||||||||||||||||||||||||||
Legal reserve | — | — | — | 1,263,020 | (1,263,020 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Cash dividends | — | — | — | — | (125,063 | ) | — | — | — | (125,063 | ) | — | (125,063 | ) | ||||||||||||||||||||||||||||||
Cash paid from additional paid-in capital | — | — | (6,128,094 | ) | — | — | — | — | — | (6,128,094 | ) | — | (6,128,094 | ) | ||||||||||||||||||||||||||||||
Net income for the year ended December 31, 2014 | — | — | — | — | 11,108,940 | — | — | — | 11,108,940 | (661,752 | ) | 10,447,188 | ||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of tax for the year ended December 31, 2014 | — | — | — | — | (2,086 | ) | 4,364,946 | 1,563,441 | — | 5,926,301 | 142,991 | 6,069,292 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Total comprehensive income (loss) | — | — | — | — | 11,106,854 | 4,364,946 | 1,563,441 | — | 17,035,241 | (518,761 | ) | 16,516,480 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Share-based payment transaction | 331,261 | 25,288 | 32,889 | — | — | — | — | 61,637 | 451,075 | — | 451,075 | |||||||||||||||||||||||||||||||||
Convertible bonds repurchased | — | — | 48,756 | — | — | — | — | — | 48,756 | — | 48,756 | |||||||||||||||||||||||||||||||||
Share of changes in net assets of associates and joint ventures accounted for using equity method | — | — | (1,237 | ) | — | — | — | — | — | (1,237 | ) | — | (1,237 | ) | ||||||||||||||||||||||||||||||
Adjustments arising from changes in percentage of ownership in subsidiaries | — | — | 93,147 | — | (113,153 | ) | — | — | — | (20,006 | ) | 59,785 | 39,779 | |||||||||||||||||||||||||||||||
Adjustments due to reciprocal shareholdings held by subsidiaries and associates | — | — | 90,408 | — | — | — | — | (185,843 | ) | (95,435 | ) | — | (95,435 | ) | ||||||||||||||||||||||||||||||
Effect of deconsolidation of subsidiaries | — | — | — | — | — | — | — | — | — | (11,214 | ) | (11,214 | ) | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Balance as of December 31, 2014 | 127,252,078 | 50,970 | 39,923,325 | 6,511,844 | 42,660,570 | (879,026 | ) | 10,986,762 | (10,017,288 | ) | 216,489,235 | 3,849,798 | 220,339,033 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Thousands)
For the years ended December 31, | ||||||||||||||||
2010 | 2011 | 2012 | ||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||
Increase (decrease) in short-term loans | 4,202,660 | 5,294,899 | (3,544,490 | ) | (122,013 | ) | ||||||||||
Proceeds from long-term loans | 1,345,000 | 7,861,160 | 17,062,355 | 587,345 | ||||||||||||
Repayments of long-term loans | (33,450 | ) | (3,457,383 | ) | (13,942,144 | ) | (479,936 | ) | ||||||||
Proceeds from bonds issued | — | 14,423,000 | 10,000,000 | 344,234 | ||||||||||||
Bond issuance costs | — | (67,322 | ) | (12,830 | ) | (442 | ) | |||||||||
Redemption of bonds | (7,500,000 | ) | — | — | — | |||||||||||
Reacquisition of bonds | — | (1,725,732 | ) | (139,408 | ) | (4,799 | ) | |||||||||
Cash dividends | (6,224,963 | ) | (14,015,701 | ) | (6,316,420 | ) | (217,433 | ) | ||||||||
Exercise of employee stock options | 2,542 | 1,004,050 | 266,116 | 9,161 | ||||||||||||
Treasury stock acquired | (4,843,588 | ) | — | — | — | |||||||||||
Treasury stock sold to employees | 510,517 | — | — | — | ||||||||||||
Proceeds from disposal of treasury stock | 27,211 | 15,071 | 4,207 | 145 | ||||||||||||
Increase in deposits-in | 9,620 | 81,722 | 55,202 | 1,900 | ||||||||||||
Increase in minority stockholders | 2,330,577 | 509,225 | 155,161 | 5,341 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net cash provided by (used in) financing activities | (10,173,874 | ) | 9,922,989 | 3,587,749 | 123,503 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Effect of exchange rate changes on cash and cash equivalents | (424,041 | ) | 1,342,294 | (1,451,858 | ) | (49,978 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net decrease in cash and cash equivalents | (14,881,855 | ) | (2,200,977 | ) | (6,477,403 | ) | (222,974 | ) | ||||||||
Cash and cash equivalents at beginning of period | 66,152,960 | 51,271,105 | 49,070,128 | 1,689,161 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cash and cash equivalents at end of period | 51,271,105 | 49,070,128 | 42,592,725 | 1,466,187 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Supplemental disclosures of cash flow information: | ||||||||||||||||
Cash paid for interest | 239,265 | 262,459 | 359,643 | 12,380 | ||||||||||||
Less: Cash paid for capitalized interest | (224,029 | ) | (72,495 | ) | (91,215 | ) | (3,140 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Cash paid for interest excluding capitalized interest | 15,236 | 189,964 | 268,428 | 9,240 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cash paid for income tax | 117,584 | 1,452,646 | 105,824 | 3,643 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Investing activities partially paid by cash: | ||||||||||||||||
Acquisition of property, plant and equipment | 67,623,874 | 49,286,693 | 49,075,663 | 1,689,352 | ||||||||||||
Discount on property, plant and equipment | (1,592 | ) | (58,110 | ) | (6,945 | ) | (239 | ) | ||||||||
Add: Payable at beginning of period | 5,487,908 | 12,620,481 | 8,517,694 | 293,208 | ||||||||||||
Add: Effect of acquisition of subsidiaries | 833,110 | — | — | — | ||||||||||||
Less: Payable at end of period | (12,620,481 | ) | (8,517,694 | ) | (5,382,395 | ) | (185,281 | ) | ||||||||
Less: Effect of disposal of subsidiaries | — | (5,255 | ) | (18,107 | ) | (623 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Cash paid for acquiring property, plant and equipment | 61,322,819 | 53,326,115 | 52,185,910 | 1,796,417 | ||||||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2012, 2013 and 2014
(Expressed in Thousands)
For the years ended December 31, | ||||||||||||||||
2012 | 2013 | 2014 | ||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income before tax | 6,294,605 | 14,340,472 | 13,572,303 | 429,503 | ||||||||||||
Adjustments to reconcile net income before tax to net cash provided by operating activities: | ||||||||||||||||
Depreciation | 35,118,398 | 37,241,788 | 38,785,576 | 1,227,392 | ||||||||||||
Amortization | 723,770 | 1,190,524 | 1,871,778 | 59,233 | ||||||||||||
Bad debt expenses (reversal) | (12,059 | ) | (36,821 | ) | 104,841 | 3,318 | ||||||||||
Net loss (gain) of financial assets at fair value through profit or loss | 617,841 | (191,686 | ) | (54,228 | ) | (1,716 | ) | |||||||||
Interest expense | 458,007 | 596,232 | 687,178 | 21,746 | ||||||||||||
Interest income | (211,371 | ) | (301,726 | ) | (495,730 | ) | (15,688 | ) | ||||||||
Dividend income | (1,032,451 | ) | (789,583 | ) | (706,719 | ) | (22,365 | ) | ||||||||
Share-based payment | 195,905 | 28,337 | 24,382 | 772 | ||||||||||||
Share of profit of associates and joint ventures | (663,379 | ) | (697,931 | ) | (37,179 | ) | (1,177 | ) | ||||||||
Gain on disposal of property, plant and equipment | (386,561 | ) | (40,897 | ) | (81,811 | ) | (2,589 | ) | ||||||||
Gain on disposal of investments | (4,830,419 | ) | (2,224,418 | ) | (2,445,259 | ) | (77,382 | ) | ||||||||
Impairment loss on financial assets | 683,487 | 1,275,775 | 304,517 | 9,637 | ||||||||||||
Impairment loss on non-financial assets | 3,496,131 | 56,693 | 596,678 | 18,882 | ||||||||||||
Gain on repurchases of bonds | (105,106 | ) | (83,629 | ) | (13,944 | ) | (441 | ) | ||||||||
Exchange loss (gain) on financial assets and liabilities | (117,602 | ) | 208,493 | 361,191 | 11,430 | |||||||||||
Exchange loss (gain) on long-term liabilities | (103,406 | ) | 190,737 | 119,846 | 3,793 | |||||||||||
Bargain purchase gain | — | (7,153,529 | ) | — | — | |||||||||||
Amortization of deferred income | (101,248 | ) | (44,101 | ) | (41,090 | ) | (1,300 | ) | ||||||||
Exchange gain on disposal of non-current assets held for sale | (279 | ) | — | — | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Income and expense adjustments | 33,729,658 | 29,224,258 | 38,980,027 | 1,233,545 | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Financial assets and liabilities at fair value through profit or loss | 80,909 | 460 | (23,235 | ) | (735 | ) | ||||||||||
Notes receivable and accounts receivable | (1,882,697 | ) | 886,762 | (6,013,039 | ) | (190,286 | ) | |||||||||
Other receivables | 39,022 | 89,343 | (18,507 | ) | (586 | ) | ||||||||||
Inventories | (479,630 | ) | (112,589 | ) | (1,893,932 | ) | (59,934 | ) | ||||||||
Prepayments | (648,202 | ) | 373,795 | (861,497 | ) | (27,263 | ) | |||||||||
Other current assets | (95,711 | ) | (1,889,239 | ) | (985,505 | ) | (31,187 | ) | ||||||||
Notes and accounts payable | 1,341,039 | 845,365 | (711,229 | ) | (22,507 | ) | ||||||||||
Other payables | 1,036,798 | (176,478 | ) | 2,032,810 | 64,330 | |||||||||||
Other current liabilities | 123,726 | (16,168 | ) | 158,440 | 5,014 | |||||||||||
Accrued pension liabilities | (164,547 | ) | 15,020 | 25,098 | 794 | |||||||||||
Other liabilities-others | 159,303 | 62,928 | (3,178 | ) | (101 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Cash generated from operations | 39,534,273 | 43,643,929 | 44,258,556 | 1,400,587 | ||||||||||||
Interest received | 214,841 | 282,564 | 494,148 | 15,638 | ||||||||||||
Dividend received | 1,089,222 | 808,564 | 888,281 | 28,110 | ||||||||||||
Interest paid | (341,100 | ) | (446,070 | ) | (565,845 | ) | (17,906 | ) | ||||||||
Income tax paid | (99,287 | ) | (816,526 | ) | (286,888 | ) | (9,079 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net cash provided by operating activities | 40,397,949 | 43,472,461 | 44,788,252 | 1,417,350 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cash flows from investing activities: | ||||||||||||||||
Acquisition of financial assets at fair value through profit or loss | (22,220 | ) | (79,758 | ) | (180,966 | ) | (5,727 | ) | ||||||||
Proceeds from disposal of financial assets at fair value through profit or loss | — | 104,302 | 22,292 | 705 | ||||||||||||
Acquisition of available-for-sale financial assets | (1,291,681 | ) | (733,034 | ) | (1,941,739 | ) | (61,447 | ) | ||||||||
Proceeds from disposal of available-for-sale financial assets | 5,257,003 | 2,965,245 | 3,311,317 | 104,789 | ||||||||||||
Proceeds from maturity of held-to-maturity financial assets | 13,524 | — | — | — | ||||||||||||
Acquisition of financial assets measured at cost | (597,853 | ) | (1,263,269 | ) | (489,035 | ) | (15,476 | ) | ||||||||
Proceeds from disposal of financial assets measured at cost | 513,424 | 84,120 | 677,339 | 21,435 | ||||||||||||
Acquisition of investments accounted for under the equity method | (281,695 | ) | (8,560 | ) | (182,184 | ) | (5,765 | ) | ||||||||
Proceeds from disposal of investments accounted for under the equity method | 1,705 | 161 | 74,394 | 2,354 | ||||||||||||
Decrease in prepayment for investments | — | 34,803 | — | — | ||||||||||||
Proceeds from capital reduction and liquidation of investments | 299,845 | 372,550 | 131,172 | 4,151 | ||||||||||||
Acquisition of subsidiaries (net of cash acquired) | (1,525 | ) | 2,641,314 | — | — | |||||||||||
Net cash paid for disposal of subsidiaries | (241,261 | ) | (93,284 | ) | (15,617 | ) | (494 | ) | ||||||||
Acquisition of non-current assets held for sale | (313,171 | ) | — | — | — | |||||||||||
Acquisition of property, plant and equipment | (52,185,910 | ) | (32,911,352 | ) | (43,237,007 | ) | (1,368,260 | ) | ||||||||
Proceeds from disposal of property, plant and equipment | 1,157,822 | 576,634 | 338,196 | 10,702 | ||||||||||||
Increase in refundable deposits | (764,415 | ) | (184,306 | ) | (94,112 | ) | (2,978 | ) | ||||||||
Decrease in refundable deposits | 696,309 | 277,333 | 231,107 | 7,314 | ||||||||||||
Acquisition of intangible assets | (1,354,142 | ) | (2,881,754 | ) | (1,153,356 | ) | (36,499 | ) | ||||||||
Increase in other assets-others | (41,848 | ) | (430,857 | ) | (340,611 | ) | (10,779 | ) | ||||||||
Decrease in other assets-others | 32,799 | 13,548 | 242,996 | 7,690 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net cash used in investing activities | (49,123,290 | ) | (31,516,164 | ) | (42,605,814 | ) | (1,348,285 | ) | ||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2012, 2013 and 2014
(Expressed in Thousands)
For the years ended December 31, | ||||||||||||||||
2012 | 2013 | 2014 | ||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||
Increase in short-term loans | 13,480,075 | 13,149,006 | 9,879,359 | 312,638 | ||||||||||||
Decrease in short-term loans | (17,024,565 | ) | (14,371,089 | ) | (5,744,551 | ) | (181,790 | ) | ||||||||
Proceeds from bonds issued | 10,000,000 | 10,000,000 | 5,000,000 | 158,228 | ||||||||||||
Bonds issuance costs | (12,830 | ) | (12,010 | ) | (5,090 | ) | (161 | ) | ||||||||
Redemption of bonds | (139,408 | ) | (2,153,438 | ) | (14,137,308 | ) | (447,383 | ) | ||||||||
Proceeds from long-term loans | 17,062,355 | 2,737,337 | 6,284,000 | 198,861 | ||||||||||||
Repayments of long-term loans | (13,942,144 | ) | (6,199,532 | ) | (3,858,996 | ) | (122,120 | ) | ||||||||
Increase in guarantee deposits | 64,294 | 171,267 | 133,172 | 4,214 | ||||||||||||
Decrease in guarantee deposits | (9,092 | ) | (33,865 | ) | (26,026 | ) | (824 | ) | ||||||||
Cash dividends and cash paid from additional paid-in capital | (6,316,420 | ) | (5,061,303 | ) | (6,253,150 | ) | (197,885 | ) | ||||||||
Exercise of employee stock options | 266,116 | 442,423 | 370,811 | 11,735 | ||||||||||||
Treasury stock acquired | — | (2,245,445 | ) | — | — | |||||||||||
Treasury stock sold to employees | — | — | 61,653 | 1,951 | ||||||||||||
Proceeds from disposal of treasury stock | 4,207 | 967 | — | — | ||||||||||||
Acquisition of non-controlling interests | — | (343,989 | ) | — | — | |||||||||||
Change in non-controlling interests | 155,161 | (4,618 | ) | 38,261 | 1,211 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net cash provided by (used in) financing activities | 3,587,749 | (3,924,289 | ) | (8,257,865 | ) | (261,325 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Effect of exchange rate changes on cash and cash equivalents | (1,436,046 | ) | 310,180 | 1,457,172 | 46,113 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net increase (decrease) in cash and cash equivalents | (6,573,638 | ) | 8,342,188 | (4,618,255 | ) | (146,147 | ) | |||||||||
Cash and cash equivalents at beginning of year | 49,062,128 | 42,488,490 | 50,830,678 | 1,608,565 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cash and cash equivalents at end of year | 42,488,490 | 50,830,678 | 46,212,423 | 1,462,418 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Reconciliation of the balances of cash and cash equivalents at end of year: | ||||||||||||||||
Cash and cash equivalents balances on the consolidated balance sheets | 42,488,490 | 50,830,678 | 45,701,335 | 1,446,245 | ||||||||||||
Cash and cash equivalents included in non-current assets held for sale | — | — | 511,088 | 16,173 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cash and cash equivalents at end of year | 42,488,490 | 50,830,678 | 46,212,423 | 1,462,418 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Investing activities partially paid by cash: | ||||||||||||||||
Cash paid for acquiring property, plant and equipment | ||||||||||||||||
Increase in property, plant and equipment | 49,068,718 | 34,140,108 | 47,278,467 | 1,496,154 | ||||||||||||
Add: Effect of acquisition of subsidiaries | — | 89,592 | — | — | ||||||||||||
Add: Payable at beginning of year | 8,517,694 | 5,382,395 | 6,700,743 | 212,049 | ||||||||||||
Less: Effect of disposal of subsidiaries | (18,107 | ) | — | — | — | |||||||||||
Less: Payable at end of year | (5,382,395 | ) | (6,700,743 | ) | (10,742,203 | ) | (339,943 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Cash paid | 52,185,910 | 32,911,352 | 43,237,007 | 1,368,260 | ||||||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Thousands of New Taiwan Dollars unless Otherwise Specified)
1. | HISTORY AND ORGANIZATION |
United Microelectronics Corporation (UMC) was incorporated in Republic of China ( R.O.C. ) in May 1980 and commenced operations in April 1982. UMC is a full service semiconductor wafer foundry, and provides a variety of services to satisfy customer needs. UMC’s commonordinary shares were publicly listed on the Taiwan Stock Exchange (TSE) in July 1985 and its American Depositary Shares (ADSs) were listed on the New York Stock Exchange (NYSE) in September 2000.
The numbersaddress of employeesits registered office and principal place of business is No. 3, Li-Hsin Road II, Hsinchu Science Park, Hsinchu City, Taiwan. The principal operating activities of UMC and its subsidiaries (collectively as of December 31, 2011“the Company”) are described in Notes 4(3) and 2012 were 15,820 and 15,624, respectively.12.
2. |
The consolidated financial statements were prepared in conformity with requirements of the Guidelines GoverningCompany were approved and authorized for issue by the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China (R.O.C.).
Summary of significant accounting policies is as follows:
General Descriptions of Reporting Entities
Principles of Consolidation
Investees in which UMC, directly or indirectly, holds more than 50% of voting rights are consolidated into UMC’s financial statements. (UMC and the consolidated entities are hereinafter referred to as “the Company”.)
Transactions between consolidated entities are eliminated in the consolidated financial statements. The difference between the acquisition cost and the net equity of a subsidiary asaudit committee of the acquisition date was amortized, and goodwill arising from new acquisitions is analyzed and accounted for under the R.O.C. StatementBoard of Financial Accounting Standard (R.O.C. SFAS) No. 25, “Business Combination—Accounting Treatment under Purchase Method” (R.O.C. SFAS 25), in which goodwill is not subject to amortization.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. | NEW ACCOUNTING PRONOUNCEMENT UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs) |
The consolidated entities are as follows:
As of December 31, 2011
a. | The Company has not early adopted the following new, revised or amended IFRSs that have been issued and will be effective for annual periods beginning on or after January 1, 2015 in preparing its consolidated financial statements: |
|
| Effective for annual | ||||||
IAS 19 | Defined Benefit Plans: Employee Contributions | July 1, 2014 | ||||||
Improvements to International Financial Reporting Standards (2010-2012 cycle) | ||||||||
IFRS 2 | Share-based Payment | July 1, 2014 | ||||||
IFRS 3 | Business | |||||||
IFRS 8 | ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| July 1, 2014 |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| Effective for annual | ||||||
IAS 16 | Property, Plant and Equipment | July 1, 2014 | ||||||
IAS 24 | Related Party Disclosures | July 1, 2014 | ||||||
IAS 38 | Intangible Assets | July 1, 2014 | ||||||
Improvements to International Financial Reporting Standards (2011-2013 cycle) | ||||||||
IFRS 3 | Business | |||||||
IFRS 13 | Fair Value Measurement | July 1, 2014 | ||||||
IAS 40 | Investment Property | July 1, 2014 | ||||||
IFRS 14 | Regulatory Deferral Accounts | January 1, 2016 | ||||||
IFRS 11 | Accounting for Acquisitions of Interests in Joint Operations - Amendments to IFRS 11 | January 1, 2016 | ||||||
IAS 16 and IAS 38 | Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38 | January 1, 2016 | ||||||
IAS 16 and IAS 41 | Agriculture: Bearer Plants - Amendments to IAS 16 and IAS 41 | January 1, 2016 | ||||||
IAS 27 | Equity Method in Separate Financial Statements - Amendments to IAS 27 | January 1, 2016 | ||||||
IFRS 10 and IAS 28 | Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to IFRS 10 and IAS 28 | January 1, 2016 | ||||||
Improvements to International Financial Reporting Standards (2012-2014 cycle) | ||||||||
IFRS 5 |
| |||||||
IFRS 7 | ||||||||
| ||||||||
IAS 19 | ||||||||
| ||||||||
IAS 34 | ||||||||
| ||||||||
IFRS 10, 12 and IAS 28 | ||||||||
| ||||||||
| ||||||||
| ||||||||
|
| |||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| January 1, 2016 |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
| ||||||
IAS 1 | Disclosure Initiative - Amendments to IAS 1 | |||||||
IFRS 15 | ||||||||
| ||||||||
IFRS 9 | ||||||||
|
As of December 31, 2012
|
|
| ||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
| ||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
| 2018 |
IFRS 8 “Operating Segments”
The amendments require an entity to disclose the judgments made by management in applying the aggregation criteria to operating segments. The amendments also clarify that an entity shall only provide reconciliations of the total of the reportable segments’ assets to the entity’s assets if the segment assets are reported regularly to the Chief Operating Decision Maker (CODM). The amendment is effective for annual periods beginning on or after July 1, 2014 and is not expected to have a material impact on the Company’s consolidated financial statements.
IAS 24 “Related Party Disclosures”
The amendment clarifies that an entity providing key management personnel services to the reporting entity or to the parent of the reporting entity is a related party of the reporting entity. The amendment is effective for annual periods beginning on or after July 1, 2014 and is not expected to have a material impact on the Company’s consolidated financial statements.
IFRS 13 “Fair Value Measurement” (IFRS 13)
The amendment clarifies that paragraph 52 of IFRS 13 includes a scope exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis. The objective of this amendment is to clarify that this portfolio exception applies to all contracts within the scope of IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9 Financial Instruments, regardless of whether they meet the definitions of financial assets or financial liabilities as defined in IAS 32 Financial Instruments: Presentation. The amendment is effective for annual periods beginning on or after July 1, 2014 and is not expected to have a material impact on the Company’s consolidated financial statements.
IFRS 11 “Accounting for Acquisitions of Interests in Joint Operations” (Amendment) (IFRS 11)
The amendments to IFRS 11 require that the relevant principles on business combinations accounting in IFRS 3 and other standards should be applied in accounting for the acquisition of an interest in a joint operation in which the activity constitutes a business. The amendments are applicable to both the acquisition of the initial interest in a joint operation with an existing business and the acquisition of an additional interest in the same joint operation. However, a previously held interest is not remeasured when the acquisition of an additional interest in the same joint operation results in retaining joint control. Transactions between an investor and a joint operation under common control are also excluded. The amendment is effective for annual periods beginning on or after January 1, 2016 with earlier application permitted. The impact that adoption of the new amendment will have on our financial position and results of operation will be dependent upon the specific terms of any applicable future acquisition of joint arrangements.
IAS 16 & IAS 38 “Clarification of Acceptable Methods of Depreciation and Amortisation” (Amendment)
The amendment to IAS 16, “Property, Plant and Equipment” (IAS 16) clarifies that depreciation of an item of property, plant and equipment based on revenue generated by using the asset is not appropriate. The amendment to IAS 38, “Intangible Assets” establishes a rebuttable presumption that amortization of an intangible asset based on revenue generated by using the asset is inappropriate. The presumption may only be rebutted in certain limited circumstances where the intangible asset is expressed as a measure of revenue; or where it can be demonstrated that revenue and the consumption of the economic benefits of the intangible asset are highly correlated. The amendment is effective for annual periods beginning on or after January 1, 2016 with earlier application permitted and is not expected to have a material impact on the Company’s consolidated financial statements.
IFRS 10 “Consolidated Financial Statements” & IAS 28 “Investments in Associates and Joint Ventures” - Sale or Contribution of Assets between an Investor and its Associate or Joint Ventures (Amendment)
The amendments address the inconsistency between the requirements in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures, in dealing with the loss of control of a subsidiary that is contributed to an associate or a joint venture. IAS 28 restricts gains and losses arising from contributions of non-monetary assets to an associate or a joint venture to the extent of the interest attributable to the other equity holders in the associate or joint ventures. IFRS 10 requires full profit or loss recognition on the loss of control of the subsidiary. IAS 28 was amended so that the gain or loss resulting from the sale or contribution of assets that constitute a business as defined in IFRS 3 between an investor and its associate or joint venture is recognized in full. IFRS 10 was also amended so that the gains or loss resulting from the sale or contribution of a subsidiary that does not constitute a business as defined in IFRS 3 between an investor and its associate or joint venture is recognized only to the extent of the unrelated investors’ interests in the associate or joint venture. The amendment is effective for annual periods beginning on or after 1 January, 2016 and is not expected to have a material impact on the Company’s consolidated financial statements.
IAS 1 “Presentation of Financial Statements” - “Disclosure Initiative” (Amendment) (IAS 1)
The amendments (1) clarify that an entity must not reduce the understandability of its financial statements by obscuring material information with immaterial information or by aggregating material items that have different natures or functions. The amendments reemphasize that, when a standard requires a specific disclosure, the information must be assessed to determine whether it is material and, consequently, whether presentation or disclosure of that information is warranted, (2) clarify that specific line items in the statement(s) of profit or loss and OCI and the statement of financial position may be disaggregated, and how an entity shall present additional subtotals, (3) clarify that entities have flexibility as to the order in which they present the notes to financial statements, but also emphasize that understandability and comparability should be considered by an entity when deciding on that order, (4) removing the examples of the income taxes accounting policy and the foreign currency accounting policy, as these were considered unhelpful in illustrating what significant accounting policies could be, and (5) clarify that the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, classified between those items that will or will not be subsequently reclassified to profit or loss. The amendment is effective for annual periods beginning on or after 1 January 2016 and is not expected to have a material impact on the Company’s consolidated financial statements.
IFRS 15 “ Revenue from Contracts with Customers” (IFRS 15)
The core principle of IFRS 15 is that revenue is recognised to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. IFRS 15 establishes a five-step model that will apply to revenue earned from a contract with a customer (with limited exceptions), regardless of the type of revenue transaction or the industry. Extensive disclosures will be required, including disaggregation of total revenue; information related to performance obligations; changes in contract asset and liability account balances between periods and key judgments and estimates. The standard will apply to annual periods beginning on or after 1 January 2017, and early adoption is permitted. The Company is currently assessing the impact that the new standard may have on its consolidated financial statements.
IFRS 9 “Financial Instruments” (IFRS 9)
The International Accounting Standard Board (IASB) has issued the final completed version of IFRS 9, which combines classification and measurement, the expected credit loss impairment model and hedge accounting. The standard will replace IAS 39, “Financial Instruments: Recognition and Measurement” (IAS 39) and all previous versions of IFRS 9 which introduced new classification and measurement requirements (in 2009 and 2010) and a new hedge accounting model (in 2013). The final completed version of IFRS 9 requires the followings: (1) Classification and measurement: Financial assets are measured at amortized cost, fair value through profit or loss, or fair value through other comprehensive income, based on both the entity’s business model for managing the financial assets and the financial asset’s contractual cash flow characteristics. Financial liabilities are measured at amortized cost or fair value through profit or loss. Furthermore there is requirement that “own credit risk” adjustments are not recognized in profit or loss. (2) Impairment: Expected credit loss model is used to evaluate impairment. Entities are required to recognize either 12-month or lifetime expected credit losses, depending on whether there has been a significant increase in credit risk since initial recognition. (3) Hedge accounting: Hedge accounting is more closely aligned with risk management activities and hedge effectiveness is measured based on the hedge ratio. The new standard is effective for annual periods beginning on or after January 1, 2018. The Company is currently assessing the impact that may have on its consolidated financial statements.
4. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The Company’s consolidated financial statements were prepared in accordance with IFRSs, including International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations and SIC Interpretations, as issued by IASB.
(2) | Basis of Preparation |
The consolidated financial statements have been prepared on a historical cost basis, except for financial instruments measured at fair value.
(3) | General Description of Reporting Entity |
a. | Principles of consolidation |
Subsidiaries are fully consolidated from the date of acquisition (the date on which the Company obtains control), and continue to be consolidated until the date that such control ceases. The Company controls an entity when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealized gains and losses and dividends resulting from intra-group transactions are eliminated in full.
A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction. Total comprehensive income of subsidiaries is attributed to the stockholders of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
If the Company loses control over a subsidiary, the Company derecognizes the assets and liabilities of the subsidiary, as well as any non-controlling interests previously recorded by the Company. A gain or loss is recognized in profit or loss and is calculated as the difference between: (a) the aggregate of the fair value of consideration received and the fair value of any retained interest at the date when control is lost; and (b) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. Any gain or loss previously recognized in the other comprehensive income would be reclassified to profit or loss or transferred directly to retained earnings if required by other IFRSs. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the cost on initial recognition of an investment.
b. | The |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
Percentage of ownership (%) As of December 31, | ||||||||||||
Investor | Subsidiary | Business nature | 2013 | 2014 | ||||||||
UMC | UMC GROUP (USA) | IC sales | 100.00 | 100.00 | ||||||||
UMC | UNITED MICROELECTRONICS (EUROPE) B.V. | Marketing support activities | 100.00 | 100.00 | ||||||||
UMC | UMC CAPITAL CORP. | Investment holding | 100.00 | 100.00 | ||||||||
UMC | GREEN EARTH LIMITED | Investment holding | 100.00 | 100.00 | ||||||||
UMC | TLC CAPITAL CO., LTD. (TLC) | New business investment | 100.00 | 100.00 | ||||||||
UMC | UMC NEW BUSINESS INVESTMENT CORP. (NBI) | Investment holding | 100.00 | 100.00 | ||||||||
UMC | UMC INVESTMENT (SAMOA) LIMITED | Investment holding | 100.00 | 100.00 | ||||||||
UMC | FORTUNE VENTURE CAPITAL CORP. (FORTUNE) | Consulting and planning for investment in new business | 100.00 | 100.00 | ||||||||
UMC | UMC GROUP JAPAN | IC sales | 100.00 | 100.00 | ||||||||
UMC | UMC KOREA CO., LTD. | Marketing support activities | 100.00 | 100.00 | ||||||||
UMC | OMNI GLOBAL LIMITED (OMNI) | Investment holding | 100.00 | 100.00 | ||||||||
UMC | BEST ELITE INTERNATIONAL LIMITED (BE) | Investment holding | 86.88 | 86.88 | ||||||||
UMC | WAVETEK MICROELECTRONICS CORPORATION (WAVETEK) | GaAs foundry service | 74.69 | 81.53 | ||||||||
UMC | NEXPOWER TECHNOLOGY CORP. (NEXPOWER) | Sales and manufacturing of solar power batteries | 44.16 | 44.16 | ||||||||
FORTUNE | UNITRUTH INVESTMENT CORP. (UNITRUTH) | Investment holding | 100.00 | 100.00 | ||||||||
FORTUNE | TOPCELL SOLAR INTERNATIONAL CO., LTD. (TOPCELL) | Sales and manufacturing of solar power cell | 26.04 | 26.04 | ||||||||
FORTUNE | NEXPOWER | Sales and manufacturing of solar power batteries | 5.99 | 5.99 | ||||||||
FORTUNE | ALLIANCE OPTOTEK CORP. (ALLIANCE) | Design and manufacturing of LED | 21.77 | — | ||||||||
UNITRUTH | NEXPOWER | Sales and manufacturing of solar power batteries | 2.25 | 2.25 | ||||||||
UNITRUTH | TOPCELL | Sales and manufacturing of solar power cell | 1.03 | 1.03 | ||||||||
UNITRUTH | ALLIANCE | Design and manufacturing of LED | 6.86 | — |
Investor Subsidiary Business nature UMC CAPITAL CORP. UMC CAPITAL (USA) Investment holding UMC CAPITAL CORP. ECP VITA PTE. LTD. Insurance TLC SOARING CAPITAL CORP. Investment holding TLC NEXPOWER Sales and manufacturing of solar power batteries TLC TOPCELL Sales and manufacturing of solar power cell TLC ALLIANCE Design and manufacturing of LED SOARING CAPITAL CORP. UNITRUTH ADVISOR (SHANGHAI) CO., LTD. Investment holding and advisory UMC INVESTMENT (SAMOA) LIMITED UMC (BEIJING) LIMITED Marketing support activities NBI TERA ENERGY DEVELOPMENT CO., LTD. (TERA ENERGY) Energy technical services NBI UNISTARS CORP. High brightness LED packages NBI TOPCELL Sales and manufacturing of solar power cell NBI EVERRICH ENERGY CORP. (EVERRICH) Solar engineering integrated design services EVERRICH EVERRICH ENERGY INVESTMENT (HK) LIMITED (EVERRICH-HK) Investment holding EVERRICH SMART ENERGY ENTERPRISES LIMITED (SMART ENERGY) Investment holding TERA ENERGY TERA ENERGY USA INC. Solar project TERA ENERGY EVERRICH-HK Investment holding TERA ENERGY SMART ENERGY Investment holdingNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Percentage of ownership (%)
As of December 31, 2013 2014 100.00 100.00 100.00 100.00 100.00 100.00 5.87 5.87 2.37 2.37 45.88 — 100.00 100.00 100.00 100.00 100.00 100.00 78.02 78.72 62.38 62.38 100.00 — 100.00 — 100.00 — 100.00 100.00 — 100.00 — 100.00
Investor Subsidiary Business nature EVERRICH-HK EVERRICH (SHANDONG) ENERGY CO., LTD. Solar engineering integrated design services SMART ENERGY SMART ENERGY SHANDONG CORPORATION Solar engineering integrated design services OMNI UNITED MICROTECHNOLOGY CORPORATION (NEW YORK) Research and development OMNI UNITED MICROTECHNOLOGY CORPORATION (CALIFORNIA) Research and development WAVETEK WAVETEK MICROELECTRONICS INVESTMENT (SAMOA) LIMITED (WAVETEK-SAMOA) Investment holding WAVETEK WAVETEK MICROELECTRONICS INVESTMENT (HK) LIMITED Investment holding WAVETEK- SAMOA WAVETEK MICROELECTRONICS CORPORATION (USA) Sales and marketing service NEXPOWER NPT HOLDING LIMITED Investment holding NEXPOWER SOCIALNEX ITALIA 1 S.R.L. (SOCIALNEX) Photovoltaic power plant NPT HOLDING LIMITED NLL HOLDING LIMITED Investment holding BE INFOSHINE TECHNOLOGY LIMITED (INFOSHINE) Investment holding INFOSHINE OAKWOOD ASSOCIATES LIMITED (OAKWOOD) Investment holding OAKWOOD HEJIAN TECHNOLOGY (SUZHOU) CO., LTD. (HEJIAN) Sales and manufacturing of integrated circuits HEJIAN UNITEDDS SEMICONDUCTOR (SHANDONG) CO., LTD. Integrated circuits design services ALLIANCE LIGHT HOUSE GLOBAL INCORP. (LIGHT HOUSE) Investment holding LIGHT HOUSE ALLIANCE OPTOTEK DONGGUAN CO., LTD. LED lighting manufacturing and sale Percentage of ownership (%)
As of December 31, 2013 2014 100.00 100.00 100.00 — 100.00 100.00 — 100.00 100.00 100.00 100.00 — 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 — 100.00 100.00 — 100.00 —
(4) | Business Combinations and Goodwill |
Business combinations are accounted for using the acquisition method. The consideration transferred, the identifiable assets acquired and liabilities assumed are measured at the acquisition date fair value. For the components of non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation, the acquirer measures at either fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and are classified under administrative expenses.
When the Company acquires a business, it assesses the assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts held by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured at fair value as at the acquisition date through profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability, will be recognized in accordance with IAS 39, either in profit or loss or other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the difference is recognized as a gain on bargain purchase.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each cash-generating unit (CGU) that is expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each unit or groups of units to which the goodwill is so allocated represents the lowest level within the Company at which the goodwill is monitored for internal management purposes and cannot be larger than an operating segment before aggregation.
Where goodwill forms part of a CGU and part of the operation within that unit is disposed, the goodwill associated with the operation disposed is included in the carrying amount of the operation. Goodwill disposed in these circumstance is measured based on the relative values of the operation disposed and the portion of the CGU retained.
Use of Estimates
The preparation of the Company’s consolidated financial statements are presented in conformity with generally accepted accounting principles requires management to make reasonable estimatesNew Taiwan Dollars (NTD), which is also the parent company’s functional currency. Each entity in the Company determines its own functional currency and assumptions that will affect the amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date ofitems included in the financial statements and the reported amount of revenues and expenses during the reported periods. The actual results may differ from those estimates.
Foreign Currency Transactionseach entity are measured using that functional currency.
Transactions denominated in foreign currencies are remeasured intoinitially recorded by the localCompany’s entities at their respective functional currencies and recorded based on the exchangecurrency rates prevailing at the transaction dates.date. Monetary assets and liabilities denominated in foreign currencies are remeasured intotranslated at the local functional currency closing rates of exchange at the reporting date. Non-monetary items measured at fair value in foreign currencies atare translated using the exchange rates at the date when the fair value is determined. Non-monetary items that are measured at historical cost in foreign currencies are translated using the exchange rates as at the dates of the initial transactions.
All exchange differences arising on the settlement of monetary items or on translating monetary items are taken to profit or loss in the period in which they arise except for the following:
a. | Exchange differences arising from foreign currency borrowings for an acquisition of a qualifying asset to the extent that they are regarded as an adjustment to interest costs are included in the borrowing costs that are eligible for capitalization. |
b. | Foreign currency derivatives within the scope of IAS 39 are accounted for based on the accounting policy for financial instruments. |
c. | Exchange differences arising on a monetary item that is part of a reporting entity’s net investment in a foreign operation are recognized initially in other comprehensive income and reclassified from equity to profit or loss upon disposal of such investment. |
When a gain or loss on a non-monetary item is recognized in other comprehensive income, any exchange component of that gain or loss is recognized in other comprehensive income. When a gain or loss on a non-monetary item is recognized in profit or loss, any exchange component of that gain or loss is recognized in profit or loss.
(6) | Translation of Foreign Currency Financial Statements |
The assets and liabilities of foreign operations are translated into NTD at the closing rate of exchange prevailing at the balance sheetreporting date withand their income and expenses are translated at an average exchange rate for the relatedperiod. The exchange gains or losses includeddifferences arising on the translation are recognized in other comprehensive income. On disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation, recognized in other comprehensive income and accumulated in the consolidated statementsseparate component of income. Translation gainsequity, is reclassified from equity to profit or losses from investmentsloss when the gain or loss on disposal is recognized.
On partial disposal of a subsidiary that includes a foreign operation that does not result in a loss of control, the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income is re-attributed to the non-controlling interests in that foreign entities areoperation. On partial disposal of an associate or a joint venture that includes a foreign operation that does not result in a loss of significant influence or joint control, only the proportionate share of the cumulative amount of the exchange differences recognized as a cumulative translation adjustment in consolidated stockholders’ equity.other comprehensive income is reclassified to profit or loss.
Non-monetaryAny goodwill and any fair value adjustments to the carrying amounts of assets and liabilities denominated inarising from the acquisition of a foreign currencies thatoperation are reported at fair value with changes in fair value charged to the consolidated statements of income, are remeasured at the exchange rate at the balance sheet date, with related exchange gains or losses recorded in the consolidated statements of income. Non-monetarytreated as assets and liabilities denominatedof the foreign operation and expressed in foreign currencies that are reported at fair value with changes in fair value charged to stockholders’ equity, are remeasured at the exchange rate at the balance sheet date, with related exchange gains or losses recorded as adjustment items to a cumulative translation adjustment in consolidated stockholders’ equity. Non-monetary assets and liabilities denominated in foreign currencies and reported at cost are remeasured at historical exchange rates.
Translation of Foreign Currency Financial Statements
The financial statements of foreign subsidiaries and UMC’s Singapore branch (the Branch) are translated into New Taiwan Dollars using the spot rates at the balance sheet date for asset and liability accounts and weighted average exchange rates for profit and loss accounts. The cumulative translation effects from the subsidiaries and the Branch usingits functional currencies other than New Taiwan Dollars are included in the cumulative translation adjustment in consolidated stockholders’ equity.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Convenience Translation into US Dollars
(7) | Convenience Translation into U.S. Dollars |
Translations of amount from New TaiwanNTD into U.S. dollars (NT$) into United States dollars(USD) for the reader’s convenience were calculated at the rate of US$1.00USD1.00 to NT$29.05NTD31.60 on December 31, 20122014 released by Board of Governors of the Federal Reserve System. No representation is made that the NT$NTD amounts could have been, or could be, converted into United States dollarsUSD at suchthis rate.
Cash Equivalents
(8) | Current and Non-Current Distinction |
An asset is classified as current when:
a. | the Company expects to realize the asset, or intends to sell or consume it, in its normal operating cycle; |
b. | the Company holds the asset primarily for the purpose of trading; |
c. | the Company expects to realize the asset within twelve months after the reporting period; or |
d. | the asset is cash or a cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. |
All other assets are classified as non-current.
A liability is classified as current when:
a. | the Company expects to settle the liability in normal operating cycle; |
b. | the Company holds the liability primarily for the purpose of trading; |
c. | the liability is due to be settled within twelve months after the reporting period; or |
d. | the Company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. |
All other liabilities are classified as non-current.
(9) | Cash Equivalents |
Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and with maturity dates that do not present significant risks on changes in value resulting from changes in interest rates, including commercial papertime deposits with original maturities of three months or less and reverse repurchase agreements.agreements collateralized by government bonds and corporate bonds.
(10) | Financial Instruments |
Financial Assetsassets and Financial Liabilitiesfinancial liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument.
The Company determines the classification of its financial assets at initial recognition. In accordance with R.O.C. SFAS No. 34, “Financial Instruments: Recognition and Measurement” (R.O.C. SFAS 34) and the “Guidelines Governing the Preparation of Financial Reports by Securities Issuers”,IAS 39, financial assets of the Company are classified as either financial assets at fair value through profit or loss, financial assets measured at cost, available-for-sale financial assets, or held-to-maturity financial assets. Financialassets and notes, accounts and other receivables.
Purchase or sale of financial assets and liabilities are recordedrecognized using trade date accounting. All financial assets are recognized initially at fair value plus, in the case of investments not at fair value through profit or loss.loss, directly attributable costs.
The Company accounts for purchase or sale of financial instruments as of the trade date, which is the date the Company commits to purchase or sell the asset or liability. Financial assets and financial liabilities are initially recognized at fair value plus acquisition or issuance costs.Assets
a. | Classification and subsequent measurement |
i. | Financial assets |
Financial assets or liabilities at fair value through profit or loss are comprised of financial assets held for trading and financial assets designated asupon initial recognition at fair value through profit or loss.
Financial instruments heldassets acquired for short-term salethe purpose of selling or repurchase purposesrepurchasing in the near term, and derivative financial instruments that are not qualified fordesignated as hedging instruments in hedge accounting are classified as financial assets or liabilities at fair value through profit or loss.
If an entity is required to separate an embedded derivative from its host contract, but is unable to measure the embedded derivative separately either at acquisition or at the subsequent balance sheet dates, the entire hybrid contract is designated as either a financial asset or liability Financial assets at fair value through profit or loss.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
This category of financial instruments isloss are measured at fair value andwith changes in fair value are recognized in the consolidated statements of income. Stock of listed companies, bonds, and closed-end funds are measured at closing prices as of the balance sheet date. Open-end funds are measured at the unit price of the net assets as of the balance sheet date. The fair value of derivative financial instruments is determined by using valuation techniques commonly used by market participants in the industry.profit or loss.
Unlisted stock, funds, and other securities without reliable market prices are measured at cost. When objective evidence of impairment exists, the Company recognizes an impairment loss, which cannot be reversed in subsequent periods.
Available-for-sale financial assets |
Available-for-sale investments are those non-derivative financial assets that are non-derivative financial instrumentsdesignated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to-maturity financial assets, or loans and receivables. Subsequent measurement is calculated
Available-for-sale financial investments are subsequently measured at fair value. Investments in listed companies are measured at closing prices as of the balance sheet date. Any gain or loss arising from the change in fair value, excludingOther than impairment losslosses and foreign exchange gain or lossgains and losses arising from monetary financial assets denominatedwhich are recognized in foreign currencies, isprofit or loss, subsequent measurement of available-for-sale equity instrument financial assets are recognized as an adjustment to consolidated stockholders’ equityin other comprehensive income until suchthe investment is reclassified or disposed of, uponderecognized, at which time the cumulative gain or loss previously charged to consolidated stockholders’ equity will be recorded in the consolidated statements of income.
The Company recognizes an impairment loss when objective evidence of impairment exists. Any reduction in the impairment loss of equity investments in subsequent periods will be recognized as an adjustment to consolidated stockholders’ equity. The impairment loss of a debt security may be reversed andis recognized in profit or loss. If equity instrument investments do not have quoted prices in an active market and their fair value cannot be reliably measured, then they are classified as financial assets measured at cost on the consolidated statement of income if the security recovers and the Company concludes the recovery is related to improvements in the factors or events that originally caused the impairment.balance sheet.
Held-to-maturity financial assets |
Non-derivative financial assets with fixed or determinable payments and fixed maturitymaturities are classified as held-to-maturity financial assets ifwhen the Company has both the positive intention and ability to hold thethem to maturity.
After initial measurement, held-to-maturity financial assets to maturity. Investments intended to be held to maturity are measured at amortized cost.
cost using the effective interest rate (EIR) method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or transaction costs. The Company recognizes anEIR method amortization and impairment, loss if objective evidence of impairment loss exists. However, the impairment loss may be reversed if the value of asset recovers subsequently and the Company concludes the recoveryany, is related to improvementsrecognized in eventsprofit or factors that originally caused the impairment loss. The new cost basis as a result of the reversal cannot exceed the amortized cost prior to the impairment.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes, Accounts and Other Receivables
iv. | Notes, accounts and other receivables |
Notes and accounts receivable are amounts owed to a business by a customercreditors’ rights as a result of a purchasesales of goods or services from it on a credit basis.services. Other receivables are any receivable not classified inas notes and accounts receivable category. When the notes,receivable. Notes, accounts and other receivables are initially measured and recognized the Company measures them at their fair values. After initial recognition,values and subsequently measured at amortized cost using the EIR method, less impairment. If the effect of discounting is immaterial, the short term notes, accounts and other receivables are measured at amortized cost deductingtheir nominal amount.
b. | Derecognition of financial assets |
A financial asset is derecognized when:
i. | the contractual rights to receive cash flows from the asset have expired; |
ii. | the Company has transferred assets and substantially all the risks and rewards of the asset have been transferred; or |
iii. | the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. |
On derecognition of a financial asset in its entirety, the difference between the carrying amount and the consideration received or to be received including any cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss.
If the transferred asset is part of a larger financial asset and the part transferred qualifies for derecognition in its entirety, the Company allocates the previous carrying amount of the larger financial asset between the part that continues to be recognized and the part that is derecognized, based on the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part derecognized and the sum of the consideration received for the part derecognized and any cumulative gain or loss allocated that had been recognized in other comprehensive income, is recognized in profit or loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is derecognized, based on the relative fair values of those parts.
c. | Impairment policy |
The carrying amount of a financial asset is reduced as a result of impairment, usingexcept for accounts receivable for which the effective interest method. Short-term notes, accounts and other receivables with no stated interest rate are measured atcarrying amount is reduced through use of an allowance account. When an account receivable is deemed to be uncollectible, it is written off from the original invoice amount if the effect of discounting is immaterial.allowance account.
i. | Notes, accounts and other receivables |
The Company first assesses as of balance sheetat each reporting date whether objective evidence of impairment exists for notes, accounts and other receivables that are individually significant. If there is objective evidence that an impairment loss has occurred, the amount of impairment loss is assessed individually. For notes, accounts and other receivables other than those mentioned above, the Company groups those assets with similar credit risk characteristics and collectively assess them for impairment. If, in a subsequent period, the amount of the impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed and recognized through profit or loss. The reversal shall not result in a carrying amount of notes, accounts and other receivables that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed.
The Company assesses, at each reporting date, whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more loss events that has occurred since the initial recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows of the individual financial asset or a group of financial assets. For the financial assets carried at amortized cost, the amount of the impairment loss is measured as the difference between the carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. For equity investments classified as available-for-sale, objective evidence of an impairment would include a significant or prolonged decline in the fair value of the investment below its cost. When there is objective evidence of an impairment for available-for-sale equity securities, the full amount of the losses previously recognized in other comprehensive income is reclassified to profit or loss. Impairment losses recognized on equity investments cannot be reversed through profit or loss. Any subsequent increases in their fair value after impairment are recognized in other comprehensive income.ii. Other financial assets InventoriesFinancial Liabilities
a. | Classification and subsequent measurement |
The Company classifies the instrument issued as a financial liability or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability and an equity instrument.
i. | Financial liabilities at fair value through profit or loss |
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Gains or losses on the subsequent measurement, including interest paid, are recognized in profit or loss.
ii. | Financial liabilities carried at amortized cost |
Financial liabilities measured at amortized cost include interest bearing loans and borrowings that are subsequently measured using the EIR method after initial recognition. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR method amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or transaction costs.
b. | Derecognition of financial liabilities |
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified (whether or not attributable to the financial difficulty of the debtor), such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.
(11) | Inventories |
Inventories are accounted for on a perpetual basis. Raw materials are recordedstated at actual purchase costs, while the work in process and finished goods are recordedstated at standard costs and subsequently adjusted to costs using the weighted-average methodcosts at the end of each month. The cost of work in progress and finished goods comprises raw materials, direct labor, other direct costs and related production overheads. Allocation of fixed production overheads to the costs of conversion is based on the normal capacity of the production facilities. Cost associated with underutilized capacity is expensed as incurred. Inventories are valued at the lower of cost and net realizable value item by item. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
Non-current Assets Held for Sale
(12) | Non-current Assets Held for Sale (Disposal Group) |
Non-current assets that(disposal group) are classified as held for sale if they are available for immediate sale in their present condition subject only to terms that are usual and customary for sales of such assets (disposal group) and that are highly probable to be soldcomplete the sale within one year arefrom the date of classification. Non-current assets (disposal group) classified as non-current assets held for sale. A held for sale non-current asset isare measured at the lower of itstheir carrying amount oramounts and fair valuevalues less costs to sellsell. Property, plant and is recorded separately on the balance sheet. No further amortization or depreciation will be recordedequipment and intangible assets once an asset is classified as held for sale.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
sale are not depreciated or amortized.
Impairment losses of non-current assets held for sale (disposal group) are recognized in the income statement in the current period for the excess of the carrying amounts over fair values less costs to sell and reported as losses in the current period. A gain is recognized for anysell. Any subsequent increase in fair value less costscost to sell of an asset but not in excess ofup to the total amount of the accumulatedcumulative impairment loss and the amount allowed to be reversedpreviously recognized in accordance with the R.O.C. SFAS No. 35,IAS 36, “Impairment of Assets” (R.O.C. SFAS 35).(IAS 36) would be recognized as a gain.
(13) |
The Company’s investments in associates and joint ventures are accounted for Underusing the Equity Method (including interests in Joint Ventures)equity method other than those that meet the criteria to be classified as non-current assets held for sale.
Investments inAn associate is an entity over which the Company has ownership of at least 20% or exercises significant influence and that is neither a subsidiary nor a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of an entity, but is not control or joint control over those policies.
A joint venture is a type of joint arrangement whereby the Company that has joint control of the arrangement has rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement where no single party controls the arrangement on operatingits own, which exists only when decisions are accounted for underabout the equity method. Therelevant activities require unanimous consent of the parties sharing control.
Any difference ofbetween the acquisition cost and the underlying equity inCompany’s share of the investee’s net fair value of the identifiable assets asand liabilities of acquisition date is amortizedassociates and goodwill arising from new acquisitions is analyzed and accounted for under the R.O.C. SFAS 25, in which goodwill is not subject to amortization.
Investment in jointly controlled entityjoint ventures is accounted for underas follows:
a. | Any excess of the acquisition cost over the Company’s share of the net fair value of the identifiable assets and liabilities of an associate or a joint venture at the date of acquisition is recognized as goodwill and is included in the carrying amount of the investment. Amortization of goodwill is not permitted. |
b. | Any excess of the Company’s share of the net fair value of the identifiable assets and liabilities of an associate or a joint venture over the acquisition cost, after reassessing the fair value, is recognized as a gain in profit or loss on the acquisition date. |
Under the equity method.
When an equity investee offsets its accumulated deficit with its additional paid-in capital,method, the Company would debit additional paid-in capitalinvestments in associates and credit retained earnings in proportionate to its existing equity ownership to the extent that credit is availablejoint ventures are carried on the additional paid-in capital.
The changebalance sheet at cost plus post acquisition changes in the Company’s proportionate share of profit or loss and other comprehensive income of associates and joint ventures. The Company’s share of changes in the net assets of an investee resulting from its acquisition of additional stock issued by the investee at a rate not proportionate to its existing equity ownership is charged to the additional paid-in capitalassociates’ and long-term investments accounts.
If the balancejoint ventures’ profit or loss and other comprehensive income are recognized directly in profit or loss and other comprehensive income, respectively, of the additional paid-in capital is less thanCompany. Distributions received from an associate or a joint venture reduce the carrying amount needed,of the excess would be charged to the retained earnings.
Unrealized intercompanyinvestment. Any unrealized gains and losses arising from sales from the Company to equity method investees are eliminated in proportion to the Company’s ownership percentage at the end of the period until realized through transactions with third parties. Intercompany gains and losses arisingresulting from transactions between the Company and majority-owned (above 50%) subsidiariesthe associate or the joint venture are eliminated entirely until realized through transactions with third parties.
Unrealized intercompany gains and losses due to sales from equity method investees to the Company are eliminated in proportion toextent of the Company’s weighted-average ownership percentageinterest in the associate or the joint venture.
Financial statements of associates and joint ventures are prepared for the same reporting period as the Company. Where necessary, adjustments are made to bring the accounting policies in line with those of the investee until realized through transactions with third parties.Company.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unrealized intercompany gains and losses arising from transactions between twoUpon an associate’s issuance of new shares, if the Company takes up more shares than its original proportionate holding while maintaining its significant influence over that associate, such increase would be accounted for as an acquisition of an additional equity method investees are eliminated in proportion to the Company’s multiplied weighted-average ownership percentage with the investees until realized through transactions with third parties. Those intercompany gains and losses arising from transactions between two majority-owned subsidiaries are eliminated in proportion to the Company’s weighted-average ownership percentageinterest in the subsidiaryassociate. Upon an associate’s issuance of new shares, if the Company does not take up proportionate shares and reduces its shareholding percentage while maintaining its significant influence over that incurredassociate, the Company will treat the transaction as deemed disposal and reclassify to profit or loss the proportion of the gain or loss.loss previously recognized in other comprehensive income relating to that reduction in ownership interest where appropriate.
If the recoverable amount of investees accounted for under the equity method is less than its carrying amount, the difference is recognized as impairment loss in the current period.
The total value of an investment and advances after recognition of the investment losses cannot be negative. If the Company has the positive intention to continue to support the investees, or the losses of investees are only temporary, the Company will continue to recognize investment losses with its proportionate share. If, after the investment loss is recognized, the net book value of the investment is less than zero, the investment is reclassified to liabilities on the consolidated balance sheet.
The Company ceases to use the equity method upon a loss of ability to exercise significant influence over an investee. In accordance with R.O.C. SFAS 34,associate. Any difference between the carrying valueamount of the investment in an associate upon the loss of significant influence remains asand the carryingfair value of the investment. Anyretained investment plus proceeds from disposal will be recognized in profit or loss. If an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate, the Company continues to apply the equity method and does not remeasure the retained interest.
The Company determines at each reporting date whether there is any objective evidence that the investments in associates and joint ventures are impaired. An impairment loss, being the difference between the recoverable amount of the investee’s additional paid-in capitalassociate and other adjustment items recordedjoint venture and its carrying value, is recognized in profit or loss in the consolidated stockholders’ equitystatement of the Company are eliminated in proportion to the amount of the investment soldcomprehensive income and recorded as a gain or loss on disposal of investments. Cash dividends received during the year of change are applied as a reductionforms part of the carrying amount of the investment. Dividends received in subsequent years are recorded in accordance with R.O.C. SFAS No. 32, “Accounting for Revenue Recognition.”
Gain or loss on disposal of long-term investments is based on the difference between selling price and book value of investments sold. Any amount of the investee’s additional paid-in capital and other adjustment items recorded in the consolidated stockholders’ equity of the Company are eliminated in proportion to the amount of the investment sold and recorded as gain or loss on disposal of investments.
Property, Plant and Equipment
(14) | Property, Plant and Equipment |
Property, plant and equipment areis stated at cost. Interestcost, net of accumulated depreciation and accumulated impairment losses, if any, and any borrowing costs incurred on loans used to financefor long-term construction projects are capitalized if the construction of property, plant and equipment is capitalized and depreciated accordingly. Maintenance and repairsrecognition criteria are charged to expense as incurred.met. Significant renewals, improvements and improvementsmajor inspections meeting the recognition criteria are treated as capital expenditures, and the carrying amounts of those replaced parts are depreciatedderecognized. Maintenance and repairs are recognized in profit or loss as incurred. Any gain or loss arising from derecognition of the assets is recognized in other operating income and expenses.
Depreciation is calculated on a straight-line basis over theirthe estimated usefuleconomic lives. Upon disposalA significant part of an item of property, plant and equipment which has a different useful life from the original costremainder of the item is depreciated separately.
The depreciation methods, useful lives and accumulated depreciationresidual values for the assets are written offreviewed at each fiscal year end, and the related gain or lossdifferences resulted from the previous estimation are recorded as changes in accounting estimates.
Except for land, which is classified as non-operating income or expense. Idle assets are classified as other assets at the lower of net book or net realizable value, with the difference charged to non-operating expenses.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation is recognized on a straight-line basis usingnot depreciated, the estimated economic lifelives of the assets:assets are as follows:
Buildings | ||
Machinery and equipment | ||
Transportation equipment | ||
Furniture and fixtures | ||
Leasehold improvement | The shorter of lease terms or economic useful lives |
Leased assets and leasehold improvements
Intangible Assets |
Intangible Assetsassets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses, if any. Internally generated intangible assets which fail to meet the recognition criteria are not capitalized and the expenditures are reflected in profit or loss in the period incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible assets may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each fiscal year. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and is treated as changes in accounting estimates.
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the CGU level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
Gains or losses arising from derecognition of an intangible asset are recognized in other operating income and expenses.
Accounting policies of the Company’s intangible assets are summarized as follows:
a. |
b. | Software is amortized over |
Deferred Charges
(16) | Impairment of Non-Financial Assets |
The Company assesses at each reporting date whether there is an indication that an asset in the scope of IAS 36 may be impaired. If any indication exists, the Company completes impairment testing for the CGU to which the individual assets belong. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. The recoverable amount of an individual asset or a CGU is the higher of its fair value less costs to sell and its value in use. If circumstances indicate that previously recognized impairment losses may no longer exist or may have decreased at each reporting date, the Company re-assesses the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been an increase in the estimated service potential of an asset which in turn increases the recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation or amortization, had no impairment loss been recognized for the asset in prior years.
Deferred charges are stated
A CGU, or group of CGU, to which goodwill has been allocated is tested for impairment annually at costthe same time every year, irrespective of whether there is any indication of impairment. Where the carrying amount of a CGU (including the carrying amount of goodwill) exceeds its recoverable amount, the CGU is considered impaired. If an impairment loss is to be recognized, it is first allocated to reduce the carrying amount of any goodwill allocated to the CGU (group of units), then to the other assets of the unit (group of units) pro rata on the basis of the carrying amount of each asset in the unit (group of units). Impairment losses relating to goodwill cannot be reversed in future periods.
The recognition or reversal of impairment losses is classified as other operating income and amortized on a straight-line basis as follows:expenses.
(17) | ||
| ||
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIESConvertible bonds
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bonds
Transaction costsUMC evaluates the terms of the convertible bonds issued to determine whether it contains both a liability and an equity component. Furthermore, UMC assesses if the economic characteristics and risks of the put and call options embedded in the convertible bonds are closely related to the issuanceeconomic characteristics and risk of the bonds were allocated to liability and equity components of bonds in proportion to the allocation of the proceeds. For subsequent measurement of the liability components, the host contract before separating the equity element.
For the liability component excluding the derivatives, its fair value is accounted fordetermined based on the effective interest rate applied at that time by the market to instruments of comparable credit status. The liability component is classified as a financial liability measured at amortized cost using the effective interest method. IfEIR method before the difference betweeninstrument is converted or settled. For the straight-line method and the effective interest method is immaterial, the bond discount may be amortized using the straight-line method and recorded as interest expense. Any embedded derivative instruments that are considered liability components andis not clearly and closely related to the host debt instrument arecontract, it is classified as a liability component and subsequently measured at fair value and changes in fair value are recognized as a gainthrough profit or loss on the valuation of the financial liability.unless it qualifies as an equity component. The equity component is measuredrecognized initially at the difference between the fair value of the compound financial instrument as the residual amount after deductinga whole and the fair value of the liability component. Its carrying amount is not remeasured in the subsequent accounting periods. If the convertible bond issued does not have an equity component, it is accounted for as a hybrid instrument in accordance with the requirements under IAS 39.
If the convertible bondholders exercise their conversion right before maturity, UMC shall adjust the carrying amount of the liability component. The adjusted carrying amount of the liability component at dateconversion and the carrying amount of issuance fromequity component are credited to common stock and additional paid-in capital - premiums. No gain or loss is recognized upon bond conversion.
In addition, the proceeds received andliability component of convertible bonds is not subsequently remeasured.
In accordance with R.O.C. SFAS 34, sinceclassified as a current liability if within 12 months the economic and risk characteristicsbondholders may exercise the put right. After the put right expires, the liability component of the embedded derivative instrument andconvertible bonds should be reclassified as a non-current liability if it meets the host contract are not clearly and closely related, derivative financial instruments embeddeddefinition of a non-current liability in all other respects.
Exchangeable bonds
UMC also has exchangeable bonds are bifurcated and accountedwhere the bondholders may exchange the bonds into ordinary shares of certain public entities which UMC holds as available-for-sale financial liabilities at fair value through profit or loss.
assets. When exchangeable bondholders exercise their right to exchange their bonds for reference shares, the book value of the bonds is offset against the book value of the investments in reference shares and the related stockholders’ equity accounts, with the difference recognized as a gain or loss on disposal of investments.
In accordance with R.O.C. SFAS 34, sinceIAS 39, if the economic characteristics and risk characteristicsrisks of the embedded call or put optionoptions are not clearly and closely related to the host contract, the derivative financial instruments embedded in convertibleexchangeable bonds were notwould be recognized separately.
If the convertible bondholders exercise their conversion right before maturity, the Company shall adjust the carrying amount of the liability component. The adjusted carrying amount of the liability componentseparately as financial assets or liabilities at conversion and the carrying amount of equity component are credited to common stock and additional paid-in capital - premiums. No gainfair value through profit or loss is recognized upon bond conversion.loss.
Both the host contract and bifurcated embedded derivative financial instrument in exchangeable bonds are classified as current liabilities if the bondholders have the right to demand settlement by exercising the exchange option of the bonds within 12 months of the bonds become exchangeable. In addition, the liability component of convertible bonds is classified as a current liability within 12 months of the date the bondholders may exercise the put right. After the put right expires, the liability component of the convertible bonds should be reclassified as a long-term liability if it meets the definition of a long-term liability in all other respects.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pension Plan
(18) | Post-Employment Benefits |
All regular employees are entitled to a defined benefit pension plan that is managed by an independently administered pension fund committee. Fund assets are deposited under the committee’s name inwith the Bank of Taiwan and hence, not associated with the Company. Therefore, fund assets are not to be included in the Company’s consolidated financial statements. Pension benefits for employees of the Branchoverseas branch and overseas subsidiaries are provided in accordance with the local regulations.
The Labor Pension Act of the R.O.C. (the Act), which adopts a defined contribution plan, became effective on July 1, 2005. Employees eligible for the Labor Standards Law, a defined benefit plan, were allowed to elect either the pension calculation under the Act or continue to be subject to the pension calculation under the Labor Standards Law. Those employees that elected to be subject to the Act will have their seniority achieved under the Labor Standards Law retained upon election of the Act, and the Company will make monthly contributions and recognize an expense of no less than 6% of these employees’ monthly wages to the employees’ individual pension accounts.
The accounting for UMC’s pension liability Overseas subsidiaries and branches make contributions to the respective benefit plans based on the specific percentage requirement of local regulations. A post-employment benefit plan that is computed in accordance with R.O.C. SFAS No. 18, “Accounting for Pension.” Net pension costs of theclassified as a defined benefit plan are recorded based on an independent actuarial valuation. Pension cost components such as service cost, interest cost, expected return on plan assets, the amortization of net obligation at transition, pension gain or loss, and prior service cost, are all taken into consideration. UMC recognizes expenses from the defined contribution pension plan in the period in which the contribution becomes due.
Share-Based Payment
The Company used the intrinsic value method to recognize compensation cost for its employee stock options issued between January 1, 2004 and December 31, 2007, in accordance with Accounting Research and Development Foundation (ARDF) Interpretation Nos. 92-070~072. For options granted on or after January 1, 2008, the Company recognizes compensation cost using the fair value method in accordance with R.O.C. SFAS No. 39 “Accounting for Share-Based Payment.” (R.O.C. SFAS 39)
Employee Bonus and Remunerations Paid to Directors and Supervisors
Employee bonus and remunerations paid to directors and supervisors are charged to expense at fair value and are no longer accounted for as an appropriation of retained earnings.
Treasury Stock
In accordance with R.O.C. SFAS No. 30, “Accounting for Treasury Stock”, treasury stock held by the Company is accounted for under the Projected Unit Credit Method to measure its obligations and costs based on actuarial assumptions. The Company recognizes all actuarial gains and losses in the periods which they occur in other comprehensive income, which then are immediately recognized in retained earnings.
(19) | Treasury Stock |
UMC’s own equity instruments repurchased (treasury shares) are recognized at repurchase cost method. and deducted from equity. Any difference between the carrying amount and the consideration is recognized in equity.
(20) | Share-Based Payment Transactions |
The cost of treasury stockequity-settled transactions between the Company and its employees is shown asmeasured based on the fair value at the date on which they are granted. The fair value of the equity instruments is determined using an appropriate pricing model.
The cost of equity-settled transactions is recognized, together with a deductioncorresponding increase in other capital reserves in equity, over the periods in which the performance and/or service conditions are being fulfilled. The cumulative expense recognized for equity-settled transactions at each reporting date reflects the extent to consolidated stockholders’which the vesting period has passed and the Company’s best estimate of the quantity of equity while any gaininstruments that will ultimately vest. The charge to profit or loss from selling treasury stockfor a period represents the movement in cumulative expense recognized between the beginning and the end of that period.
No expense will be recognized for awards that do not ultimately vest, except for equity-settled transactions for which vesting is conditional upon a market or non-vesting condition. These are treated as vested irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.
Where the terms of an equity-settled transaction award are modified, the minimum expense recognized is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as an adjustment to additional paid-in capital. The Company’s stock held by its subsidiariesif it fully vests on the date of cancellation, and any expense not yet recognized for the award is alsorecognized immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award substitutes for the cancelled award and is designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as treasury stock. Cash dividends received by subsidiaries from UMC are recordedif they were a modification of the original award.
The dilutive effect of outstanding options is reflected as additional paid-in capital-treasury stock transactions.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(21) | Revenue Recognition |
For treasury stock soldRevenue is recognized to employees,the extent that it is probable that the economic benefits will flow to the Company recognizes compensation cost in accordance with R.O.C. SFAS 39 and ARDF Interpretation No. 96-266 “Accounting for Treasury Stock Purchased by Employees” and ARDF Interpretation No. 98-111 “Determining the Grant Date of Share-Based Payment.”
revenue can be reliably measured. Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists,is measured at the product or service has been delivered, the seller’s price to the buyer is fixed or determinable and collectability is reasonably assured. Mostfair value of the Company’s sales transactionsconsideration received or receivable. The recognition criteria and methods are described below:
Sales revenue
Revenue from sale of goods is recognized when all the following conditions have shipping terms of Free Carrier (FCA), by which title and the risk of loss or damage for the shipment are transferred to the customer upon delivery of the product to a carrier approved by the customer.been satisfied:
Allowance for sales
a. | the significant risks and rewards of ownership of the goods have been transferred to the buyer; |
b. | neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold have been retained; |
c. | the amount of revenue can be measured reliably; |
d. | it is probable that the economic benefits associated with the transaction will flow to the entity; and |
e. | the costs incurred or to be incurred in respect of the transaction can be measured reliably. |
Sales returns and discounts are estimated based on history of customer complaints, historical experiences management judgment and any other known factors that might significantly affect collectability. Such allowances arethe estimation and recorded in the same period in which sales are made. Shipping
Interest income
For financial assets measured at amortized cost (including held-to-maturity financial assets) and handling costs arefinancial assets at fair value through profit or loss, interest income is recorded using the effective interest rate and recognized in profit or loss.
Dividends
Revenue is recognized when the Company’s right to receive the dividends is established.
(22) | Income Tax |
Income tax expense (benefit) is the aggregate amount of current income tax and deferred income tax included in sales expenses.the determination of profit or loss for the period.
Research and Development Expenditures
Research and development expenditures are charged to expenses as incurred.
Capital Expenditure versus Operating Expenditure
Expenditures are capitalized when it is probable that the Company will receive future economic benefits associated with the expenditures.
Income Tax
The Company adopted R.O.C. SFAS No. 22, “Accounting for Income Taxes” for inter-period and intra-periodCurrent income tax allocation. The provision for income taxes includes deferred
Current income tax assets and liabilities for the current period and prior periods are measured using the tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity rather than profit or loss.
Undistributed earnings, calculated based on Business Entity Accounting Act are subject to a result10% tax in accordance with the Income Tax Law of the R.O.C. Accordingly, the undistributed tax impact of 10% is provided in the period the income is earned, assuming that no earnings are distributed. Any reduction in the liability will be recognized when the income is distributed upon the stockholders’ approval in the subsequent year. Tax on undistributed earnings may be offset by the Company’s available tax credits carried forward, where applicable. As such, the incremental tax accrued on undistributed earnings may be offset by a corresponding reduction in deferred income tax assets, where applicable.
Deferred income tax
Deferred income tax is provided using the liability method on temporary differences between carrying amountsthe tax bases of assets and liabilities and their carrying amounts in financial statements at the reporting date.
Deferred tax liabilities are recognized for financial reporting purposes and the amounts used for income tax purposes, loss carry-forward and investment tax credits. A valuation allowance on deferred incomeall taxable temporary differences, except:
a. | When the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; |
b. | In respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not be reversed in the foreseeable future. |
Deferred tax assets is providedare recognized for all deductible temporary differences, the carry forward of unused tax losses and unused tax credits, to the extent that it is more likely than notprobable that future taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax losses and unused tax credits can be utilized, except:
a. | Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; |
b. | In respect of deductible temporary differences associated with investments in subsidiaries, associates and joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized. |
Deferred tax assets and liabilities are measured at the tax benefits will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relaterates that are expected to an asset or liability in the financial statements, its classification is based on the expected reversal date of the temporary difference.
According to R.O.C. SFAS No. 12, “Accounting for Income Tax Credits”, the Company recognizes the tax benefit from the purchase of equipment and technology, research and development expenditures, employee training, and certain equity investment by the flow-through method.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income tax (10%) on unappropriated earnings is recorded as expenseapply in the year when the stockholdersasset is realized or the liability is settled, based on tax rates and tax laws that have resolvedbeen enacted or substantively enacted at the reporting date. The measurement of deferred tax assets and liabilities reflects the tax consequences that would follow the earnings shall be retained.
The Income Basic Tax Actmanner in which the Company expects, at the end of the R.O.C. (the IBTA) became effective on January 1, 2006. Set up byreporting period, to recover or settle the Executive Yuan,carrying amount of its assets and liabilities. Deferred tax relating to items recognized outside profit or loss is not recognized in profit or loss but rather in other comprehensive income or directly in equity. Deferred tax assets are reassessed and recognized at each reporting date. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the IBTA isextent that it has become probable that future taxable profits will allow the deferred tax assets to be recovered.
Deferred tax assets and liabilities offset each other, if a supplemental 10% tax that is payable if thelegally enforceable right exists to set off current income tax payable determined by the R.O.C. Income Tax Act is below the minimum amount as prescribed by the IBTA. The IBTA is calculated based on taxable income as defined by the IBTA, which includes most income that is exempted fromassets against current income tax under various legislations.liabilities, and the deferred taxes relate to the same taxable entity and the same taxation authority.
Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at the acquisition date, would be recognized subsequently if knowing new information about facts and circumstances existed at the acquisition date. The impactadjustment would either be treated as a reduction to goodwill (as long as it does not exceed the carrying amount of goodwill) if it occurs during the IBTA has been consideredmeasurement period or recognized in the Company’s income tax for the current reporting period.profit or loss.
Earnings per Share
(23) | Earnings per Share |
Earnings per share is computed according to R.O.C. SFAS No. 24,IAS 33, “Earnings Per Share”. Basic earnings per share is computed by dividing net income by the weighted-average number of commonordinary shares outstanding during the current reporting period. Diluted earnings per share is computed by taking basic earnings per share into consideration plus additional commonordinary shares that would have been outstanding if the dilutive share equivalents had been issued. Net income is also adjusted for interest and other income or expenses derived from any underlying dilutive share equivalents. The weighted-average of outstanding shares is adjusted retroactively for stock dividends and employee stock bonus issues.
Asset Impairment
5. | SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS |
The preparation of the Company’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities, the accompanying disclosures and the disclosure of contingent liabilities. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
PursuantThe key assumptions concerning the future and other key sources of estimation for uncertainty at the reporting date, that would have a significant risk for a material adjustment to R.O.C. SFAS 35,the carrying amounts of assets or liabilities within the next fiscal year are discussed below.
The Company bases its assumptions and estimates on information available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
(1) | The Fair Value of Financial Instruments |
Where the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be derived from active markets, they are determined using valuation techniques including income approach (for example, the discounted cash flows model) or the market approach. Changes in assumptions about these factors could affect the reported fair value of the financial instruments. Please refer to Note 11 for more details.
(2) | Derivative Instruments |
The embedded derivative features contained in exchangeable bonds are bifurcated and separately accounted for if the economic characteristics and risks of the embedded derivative instruments are not clearly and closely related to those of the host contracts. Those bifurcated embedded derivatives are fair valued at the end of each reporting period by using the option pricing model with the changes in fair value included in earnings. The valuation model uses the market-based observable inputs including share price, volatility, credit spread and swap rates.
(3) | Inventories |
Inventories are valued at lower of cost and net realizable value item by item. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Please refer to Note 6(4). Costs of completion include direct labor and overhead, including depreciation and maintenance of production equipment, indirect labor costs, indirect material costs, supplies, utilities and royalties that is expected to be incurred at normal production level. The Company estimates normal production level taking into account loss of capacity resulting from planned maintenance, based on historical experience and current production capacity.
(4) | Post-Employment Benefits |
Cost of post-employment benefit pension plan and the present value of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. The assumptions used for measuring pension cost and the present value of the pension obligation are disclosed in Note 6(14).
In determining the appropriate discount rate, management considers the interest rates of the government bonds extrapolated from maturity corresponding to the expected duration of the defined benefit obligation. As for the rate of future salary increase, management takes account of past experiences, comparisons within the industry and the geographical region, inflation and the discount rate.
(5) | Share-Based Payment Transactions |
The Company measures the cost of equity-settled transactions with employees based on reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them.
(6) | Revenue Recognition-Sales Returns and Discounts |
The Company estimates sales returns and discounts based on customer complaints, historical experience and other known factors that might significantly affect the estimation.
(7) | Impairment of Property, Plant and Equipment |
At each reporting date or whenever events indicate that the asset’s value has declined or significant changes in the market with an adverse effect have taken place, the Company assesses indicators of impairment for all its assets withinwhether there is an indication that an asset in the scope of the standard at each balance sheet date.IAS 36 may be impaired. If impairment is indicated,any indication exists, the Company comparescompletes impairment testing for the asset’sCGU to which the individual assets belong. Where the carrying amount withof an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. The recoverable amount of the assetsan individual asset or the cash-generating unit (CGU) associated with the asset and writes down the carrying amount to the recoverable amount where applicable. The recoverable amountCGU is defined as the higher of fair value less the costs to sell,of disposal and the valuesits value in use. For previously recognized losses,The fair value less costs of disposal is based on best information available to reflect the Company assesses atamount that an entity could obtain from the balance sheet date if any indication that the impairment loss no longer exists or may have diminished. If there is any such indication, the Company recalculates the recoverable amountdisposal of the asset and ifin an orderly transaction between market participants, after deducting the recoverable amount has increased as a resultcosts of disposal. The value in use is measured at the net present value of the increasefuture cash flows the entity expects to derive from the asset or CGU. Cash flow projection involves subjective judgments and estimates which include the estimated useful lives of property, plant and equipment, capacity that generates future cash flows, capacity of physical output, potential fluctuations of economic cycle in the estimated service potential ofindustry and the assets, the Company reverses the impairment loss so that the resulting carrying amount of the asset does not exceed the amount (net of amortization or depreciation) that would otherwise result had no impairment loss been recognized for the assets in prior years.
In addition, a goodwill-allocated CGU or group of CGUs is tested for impairment each year, regardless of whether impairment is indicated. If an impairment test reveals that the carrying amount, including goodwill, of CGU or group of CGUs is greater than its recoverable amount, it results in an impairment loss. The loss is first recorded against the CGU’s goodwill, with any remaining loss allocated to other assets on a pro rata basis proportionate to their carrying amounts. The write-down of goodwill cannot be reversed in subsequent periods under any circumstances.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment losses and reversals are classified as non-operating expenses and income, respectively.
Operating Segment Information
AnCompany’s operating segment is a component of an entity that has the following characteristics:situation.
Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. The Company establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and different interpretations of tax regulations made by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective domicile of the Company.
Deferred tax assets are recognized for all carryforward of unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profit will be available or there are sufficient taxable temporary differences against which the unused tax losses, unused tax credits or deductible temporary differences can be utilized. The amount of deferred tax assets determined to be recognized is based upon the likely timing and the level of future taxable profits and taxable temporary differences. Please refer to Note 6(22) for more details on unrecognized deferred tax assets.
(9) | Classification of Joint Arrangements |
The Company holds significant percentage of the voting rights of its joint arrangements. The Company has joint control over these arrangements as under the contractual agreements, unanimous consent is required from all parties to the agreements for all relevant activities.
The Company’s joint arrangements are structured as limited companies and provide the Company and the parties to the agreements with rights to the net assets of the limited companies under the arrangements. Therefore, these entities are classified as joint ventures of the Company.
6. | CONTENTS OF SIGNIFICANT ACCOUNTS |
As of December 31, | ||||||||
2013 | 2014 | |||||||
Cash on hand | $ | 3,639 | $ | 3,878 | ||||
Checking and savings accounts | 8,894,827 | 10,389,664 | ||||||
Time deposits | 36,263,171 | 30,782,070 | ||||||
Repurchase agreements collateralized by government bonds and corporate bonds | 5,669,041 | 4,525,723 | ||||||
|
|
|
| |||||
Total | $ | 50,830,678 | $ | 45,701,335 | ||||
|
|
|
|
Please refer to the consolidated statements of cash flows for the reconciliation of the balances of cash and cash equivalents on the consolidated statements of cash flows and on the consolidated balance sheets.
As of December 31, | ||||||||
2013 | 2014 | |||||||
Designated financial assets at fair value through profit or loss | ||||||||
Convertible bonds | $ | 60,441 | $ | 150,550 | ||||
|
|
|
| |||||
Financial assets held for trading | ||||||||
Listed stocks | 234,583 | 246,183 | ||||||
Corporate bonds | 398,681 | 388,628 | ||||||
|
|
|
| |||||
Subtotal | 633,264 | 634,811 | ||||||
|
|
|
| |||||
Total | $ | 693,705 | $ | 785,361 | ||||
|
|
|
| |||||
Current | $ | 633,264 | $ | 740,129 | ||||
Noncurrent | 60,441 | 45,232 | ||||||
|
|
|
| |||||
Total | $ | 693,705 | $ | 785,361 | ||||
|
|
|
|
Notes, Accounts and Other Receivables
Effective January 1, 2011, the Company adopted the third revised R.O.C. SFAS 34. This change in accounting principles had no significant effect on consolidated net income or consolidated earnings per share for the year ended December 31, 2011.
Operating Segment Information
Effective January 1, 2011, the Company adopted R.O.C. SFAS No. 41, “Operating Segments” (R.O.C. SFAS 41), to present operating segment information. The newly issued R.O.C. SFAS 41 replaced R.O.C. SFAS No. 20, “Segment Reporting”, the comparative operating segment information has been presented accordingly. This change in accounting principles had no effect on consolidated net income or consolidated earnings per share for the year ended December 31, 2011.
As of December 31, | ||||||||
2011 | 2012 | |||||||
NT$’000 | NT$’000 | |||||||
Cash | ||||||||
Cash on hand | 4,470 | 3,971 | ||||||
Checking and savings accounts | 13,795,814 | 10,656,261 | ||||||
Time deposits | 31,737,840 | 27,347,736 | ||||||
|
|
|
| |||||
Subtotal | 45,538,124 | 38,007,968 | ||||||
|
|
|
| |||||
Cash equivalents | 3,532,004 | 4,584,757 | ||||||
|
|
|
| |||||
Total | 49,070,128 | 42,592,725 | ||||||
|
|
|
|
As of December 31, | ||||||||
2013 | 2014 | |||||||
Accounts receivable | $ | 17,714,962 | $ | 23,307,624 | ||||
Less: allowance for sales returns and discounts | (516,189 | ) | (828,029 | ) | ||||
Less: allowance for doubtful accounts | (574,421 | ) | (272,324 | ) | ||||
|
|
|
| |||||
Net | $ | 16,624,352 | $ | 22,207,271 | ||||
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, | ||||||||
2013 | 2014 | |||||||
Neither past due nor impaired | $ | 14,204,640 | $ | 17,067,173 | ||||
|
|
|
| |||||
Past due but not impaired: | ||||||||
£ 30 days | 2,113,439 | 4,409,411 | ||||||
31 to 60 days | 279,047 | 313,494 | ||||||
61 to 90 days | 14,204 | 230,086 | ||||||
91 to 120 days | 13,022 | 32,858 | ||||||
> 120 days | — | 154,249 | ||||||
|
|
|
| |||||
Subtotal | 2,419,712 | 5,140,098 | ||||||
|
|
|
| |||||
Total | $ | 16,624,352 | $ | 22,207,271 | ||||
|
|
|
|
Movement on allowance for individually evaluated doubtful accounts:
As of December 31, | ||||||||
2011 | 2012 | |||||||
NT$’000 | NT$’000 | |||||||
Current | ||||||||
Listed stocks | 202,081 | 256,685 | ||||||
Corporate bonds | 493,850 | 399,309 | ||||||
|
|
|
| |||||
Subtotal | 695,931 | 655,994 | ||||||
|
|
|
| |||||
Noncurrent | ||||||||
Preferred stocks | 26,295 | 29,026 | ||||||
Convertible bonds | 93,416 | 43,680 | ||||||
|
|
|
| |||||
Subtotal | 119,711 | 72,706 | ||||||
|
|
|
| |||||
Total | 815,642 | 728,700 | ||||||
|
|
|
|
For the years ended December 31, | ||||||||
2013 | 2014 | |||||||
Beginning balance | $ | 613,288 | $ | 574,421 | ||||
Net charge for the period | (38,867 | ) | 116,789 | |||||
Reclassification | — | (418,886 | ) | |||||
|
|
|
| |||||
Ending balance | $ | 574,421 | $ | 272,324 | ||||
|
|
|
|
DuringThe terms for third party domestic sales were net 30~60 days, while the years endedcollection periods for third party overseas sales were month end 30~60 days.
The impairment losses assessed individually as of December 31, 2010, 20112013 and 2012, net gains (losses) arising2014 primarily resulted from the changes in fairfinancial difficulties of the counter trading parties and the amounts recognized were the difference between the carrying amount of the accounts receivable and the present value of financial assets at fair value through profit or loss were NT$(222) million, NT$(324) million and NT$45 million, respectively.expected collectable amounts. The Company has no collateral with respect to those accounts receivables.
As of December 31, | ||||||||
2011 | 2012 | |||||||
NT$’000 | NT$’000 | |||||||
Accounts receivable | 15,235,258 | 17,426,163 | ||||||
Less: Allowance for sales returns and discounts | (165,000 | ) | (592,043 | ) | ||||
Less: Allowance for doubtful accounts | (679,717 | ) | (613,288 | ) | ||||
|
|
|
| |||||
Net | 14,390,541 | 16,220,832 | ||||||
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, | ||||||||
2011 | 2012 | |||||||
NT$’000 | NT$’000 | |||||||
Raw materials | 2,389,760 | 1,847,533 | ||||||
Supplies and spare parts | 2,281,665 | 2,142,737 | ||||||
Work in process | 7,784,470 | 9,369,975 | ||||||
Finished goods | 3,209,746 | 2,567,077 | ||||||
|
|
|
| |||||
Total | 15,665,641 | 15,927,322 | ||||||
Less: Allowance for loss on decline in market value and obsolescence | (2,956,365 | ) | (2,903,612 | ) | ||||
|
|
|
| |||||
Net | 12,709,276 | 13,023,710 | ||||||
|
|
|
|
(4) | Inventories, Net |
As of December 31, | ||||||||
2013 | 2014 | |||||||
Raw materials | $ | 2,327,044 | $ | 2,287,656 | ||||
Supplies and spare parts | 2,397,733 | 2,631,200 | ||||||
Work in process | 8,894,291 | 10,453,741 | ||||||
Finished goods | 2,351,067 | 1,426,188 | ||||||
|
|
|
| |||||
Total | 15,970,135 | 16,798,785 | ||||||
Less: allowance for inventory valuation losses | (1,976,876 | ) | (1,556,553 | ) | ||||
|
|
|
| |||||
Net | $ | 13,993,259 | $ | 15,242,232 | ||||
|
|
|
|
a. |
b. | Inventories were not pledged. |
Available-For-Sale Financial Assets |
As of December 31, | ||||||||
2011 | 2012 | |||||||
NT$’000 | NT$’000 | |||||||
Current | ||||||||
Common stocks | 5,124,780 | 4,330,880 | ||||||
|
|
|
| |||||
Noncurrent | ||||||||
Common stocks | 18,767,614 | 14,703,506 | ||||||
Depositary receipts | 37,400 | 299,908 | ||||||
Funds | 30,210 | 113,326 | ||||||
|
|
|
| |||||
Subtotal | 18,835,224 | 15,116,740 | ||||||
|
|
|
| |||||
Total | 23,960,004 | 19,447,620 | ||||||
|
|
|
|
During the years ended December 31, 2010, 2011 and 2012, the net unrealized gains (losses) adjustments to consolidated stockholders’ equity due to changes in fair value of available-for-sale assets were NT$(1,003) million, NT$(10,478) million and NT$1,172 million, respectively. Additionally, the Company recognized gains of NT$1,960 million, NT$1,492 million and NT$4,784 million due to the disposal of available-for-sale assets during the years ended December 31, 2010, 2011 and 2012, respectively.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, | ||||||||
2013 | 2014 | |||||||
Common stocks | $ | 21,250,880 | $ | 23,510,084 | ||||
Preferred stocks | 312,600 | 781,148 | ||||||
Funds | 127,040 | 70,872 | ||||||
|
|
|
| |||||
Total | $ | 21,690,520 | $ | 24,362,104 | ||||
|
|
|
| |||||
Current | $ | 2,134,379 | $ | — | ||||
Noncurrent | 19,556,141 | 24,362,104 | ||||||
|
|
|
| |||||
Total | $ | 21,690,520 | $ | 24,362,104 | ||||
|
|
|
|
UMC issued bonds that arewere exchangeable at any time on or after January 1, 2010 and prior to November 22, 2014, intofor common stocks originally owned and classified as available-for-sale financial assets, noncurrent. Therefore, UMC reclassifiedthese common stocks were classified as current assets since the exchangeable shares to current assets.date. The bonds matured on December 2, 2014 and UMC redeemed all the remaining bonds.
Financial Assets Measured at Cost, Non-Current |
As of December 31, | ||||||||||||||||
2011 | 2012 | As of December 31, | ||||||||||||||
NT$’000 | NT$’000 | 2013 | 2014 | |||||||||||||
Common stocks | 5,949,533 | 5,378,876 | $ | 610,006 | $ | 602,429 | ||||||||||
Preferred stocks | 1,898,072 | 2,160,748 | 3,062,449 | 3,100,211 | ||||||||||||
Funds | 451,362 | 423,618 | 412,837 | 130,366 | ||||||||||||
|
|
|
| |||||||||||||
Total | 8,298,967 | 7,963,242 | $ | 4,085,292 | $ | 3,833,006 | ||||||||||
|
|
|
|
The
Since these financial assets mostly consist of non-publicly traded stocks and private venture funds, for which the fair value cannot be reliably measured due to lack of sufficient financial information available, the Company acquired 4.6 million shares of FIRST INTERNATIONAL TELECOM CORP. (FIRST INTERNATIONAL TELECOM) through private placement in March 2008 and 4 million shares of E-ONE MOLI ENERGY CORP. (E-ONE) through private placement in June 2009. The exchange ofmeasures these securities listed above is restricted by Article 43 paragraph 8 of the Securities and Exchange Law. The above-mentioned restriction of FIRST INTERNATIONAL TELECOM and E-ONE were removed on April 25, 2011 and August 31, 2012, respectively.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investments Accounted For Under the Equity Method |
a. | Details of |
As of December 31, | ||||||||||||||||
2011 | 2012 | |||||||||||||||
Investee Companies | Amount | Percentage of Ownership or Voting Rights | Amount | Percentage of Ownership or Voting Rights | ||||||||||||
NT$’000 | % | NT$’000 | % | |||||||||||||
Listed companies | ||||||||||||||||
CRYSTALWISE TECHNOLOGY INC. (CRYSTALWISE) (Note A) | 87,501 | 4.25 | 78,639 | 4.21 | ||||||||||||
|
|
|
| |||||||||||||
Unlisted companies | ||||||||||||||||
NEWENERGY HOLDING LIMITED (NEWENERGY) | — | — | 185,143 | 100.00 | ||||||||||||
ECP VITA LTD. (Note C) | — | — | — | 100.00 | ||||||||||||
ASEPOWER 1 S.R.L. (Note D) | — | — | — | 75.00 | ||||||||||||
MOS ART PACK CORP. (MAP) (Note E) | 238,373 | 72.98 | 238,373 | 72.98 | ||||||||||||
UNITED LIGHTING OPTO-ELECTRONIC INC. (UNITED LIGHTING) (Note F) | — | — | 12,493 | 55.25 | ||||||||||||
SHANDONG HUAHONG ENERGY INVEST CO., INC. (SHANDONG HUAHONG) (Note D) | 725,381 | 50.00 | 688,008 | 50.00 | ||||||||||||
WINAICO SOLAR PROJEKT 1 GMBH (Note D) | 45,573 | 50.00 | 45,647 | 50.00 | ||||||||||||
ACHIEVE MADE INTERNATIONAL LTD. | 42,909 | 44.06 | 55,730 | 49.38 | ||||||||||||
LIST EARN ENTERPRISE INC. | 9,688 | 49.00 | 9,616 | 49.00 | ||||||||||||
ALLIANCE OPTOTEK CORP. | 77,545 | 47.99 | 16,547 | 47.99 | ||||||||||||
MTIC HOLDINGS PTE. LTD. | 214,918 | 46.49 | 189,012 | 45.44 | ||||||||||||
YUNG LI INVESTMENTS, INC. | 213,558 | 45.16 | 206,507 | 45.16 | ||||||||||||
MEGA MISSION LIMITED PARTNERSHIP | 1,298,748 | 45.00 | 1,458,458 | 45.00 |
Investee companies Unlisted companies MOS ART PACK CORP. (MAP) (Note A) UNITED LIGHTING OPTO-ELECTRONIC INC. (UNITED LIGHTING) (Note B) SHANDONG HUAHONG ENERGY INVEST CO., INC. (SHANDONG HUAHONG) (Note C) WINAICO SOLAR PROJEKT 1 GMBH (Note C) LIST EARN ENTERPRISE INC. MTIC HOLDINGS PTE. LTD. YUNG LI INVESTMENTS, INC. MEGA MISSION LIMITED PARTNERSHIP WINAICO IMMOBILIEN GMBH (Note C) UNITECH CAPITAL INC. HSUN CHIEH INVESTMENT CO., LTD. CTC CAPITAL PARTNERS I, L.P. TRANSLINK CAPITAL PARTNERS III, L.P. (Note D) UNITED LED CORPORATION HONG KONG LIMITED ACHIEVE MADE INTERNATIONAL LTD. TRANSLINK CAPITAL PARTNERS I, L.P. (Note D) LTI REENERGY CO., LTD. (LTI) (Note C) UC FUND II EXOJET TECHNOLOGY CORP. Total UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES As of December 31, 2013 2014 Amount Percentage of
Ownership or
Voting Rights Amount Percentage of
Ownership or
Voting Rights $ 238,373 72.98 $ 238,373 72.98 12,473 55.25 9,586 55.25 714,120 50.00 731,565 50.00 45,947 50.00 35,532 50.00 9,798 49.00 10,660 49.00 152,713 45.44 105,872 45.44 258,527 45.16 211,739 45.16 1,977,433 45.00 1,860,202 45.00 300,692 44.78 256,064 44.78 687,078 42.00 682,191 42.00 1,027,624 36.49 1,328,051 36.49 195,622 31.40 183,681 31.40 — — 199,443 29.29 481,227 39.13 518,495 29.03 119,357 49.38 121,567 23.32 106,247 10.38 124,249 10.38 5,503 40.00 — — 3,953 35.45 — — 84,213 33.10 — — $ 6,420,900 $ 6,617,270
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, | ||||||||||||||||
2011 | 2012 | |||||||||||||||
Investee Companies | Amount | Percentage of Ownership or Voting Rights | Amount | Percentage of Ownership or Voting Rights | ||||||||||||
NT$’000 | % | NT$’000 | % | |||||||||||||
UNITED LED CORPORATION HONG KONG LIMITED | 593,479 | 45.00 | 404,409 | 45.00 | ||||||||||||
UNITECH CAPITAL INC. | 700,433 | 42.00 | 667,781 | 42.00 | ||||||||||||
LTI REENERGY CO., LTD. (LTI) (Note D) | 2,918 | 40.00 | 4,264 | 40.00 | ||||||||||||
HSUN CHIEH INVESTMENT CO., LTD. | 2,749,884 | 36.49 | 2,673,856 | 36.49 | ||||||||||||
UC FUND II | 36,584 | 35.45 | 52,304 | 35.45 | ||||||||||||
BEST ELITE INTERNATIONAL LIMITED (Note G, H) | 3,141,108 | 34.90 | 3,776,610 | 35.03 | ||||||||||||
EXOJET TECHNOLOGY CORP. | 104,138 | 33.40 | 95,911 | 33.10 | ||||||||||||
CTC CAPITAL PARTNERS I, L. P. | 127,784 | 31.40 | 124,492 | 31.40 | ||||||||||||
UNIMICRON HOLDING LIMITED | 626,242 | 21.93 | 651,845 | 21.93 | ||||||||||||
DAIWA QUANTUM CAPITAL | 59,984 | 12.50 | 57,721 | 12.50 | ||||||||||||
TRANSLINK CAPITAL PARTNERS I, L. P. (Note I) | 120,097 | 10.38 | 98,641 | 10.38 | ||||||||||||
SHENYANG PIONEER U-LIGHTING | 4,080 | 49.00 | — | — | ||||||||||||
SOLAR GATE TECHNOLOGY CO., LTD. | 39,417 | 32.73 | — | — | ||||||||||||
HIGH POWER LIGHTING CORP. | 15,552 | 20.24 | — | — | ||||||||||||
|
|
|
| |||||||||||||
Subtotal | 11,188,393 | 11,713,368 | ||||||||||||||
|
|
|
| |||||||||||||
Total | 11,275,894 | 11,792,007 | ||||||||||||||
|
|
|
|
Note A: |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On |
Note | On |
Note | The Company uses the equity method to account for its investment in |
Note |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company follows international accounting practices in equity accounting for limited partnerships because no equivalent type of business exists |
No investment accounted for using the equity method was pledged.
b. |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2011 | ||||||||||||||||
Cost | Accumulated Depreciation | Accumulated Impairment | Book Value | |||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | |||||||||||||
Land | 2,065,194 | — | (291,757 | ) | 1,773,437 | |||||||||||
Buildings | 26,631,417 | (11,617,004 | ) | (1,061,634 | ) | 13,952,779 | ||||||||||
Machinery and equipment | 559,032,330 | (448,545,567 | ) | (1,748,713 | ) | 108,738,050 | ||||||||||
Transportation equipment | 64,918 | (51,854 | ) | — | 13,064 | |||||||||||
Furniture and fixtures | 4,378,308 | (3,207,917 | ) | (13,887 | ) | 1,156,504 | ||||||||||
Leasehold improvement | 836,313 | (200,498 | ) | — | 635,815 | |||||||||||
Construction in progress and prepayments | 23,054,651 | — | — | 23,054,651 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 616,063,131 | (463,622,840 | ) | (3,115,991 | ) | 149,324,300 | ||||||||||
|
|
|
|
|
|
|
|
As of December 31, 2012 | ||||||||||||||||
Cost | Accumulated Depreciation | Accumulated Impairment | Book Value | |||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | |||||||||||||
Land | 2,112,483 | — | (251,140 | ) | 1,861,343 | |||||||||||
Buildings | 25,957,299 | (12,304,809 | ) | (1,639,288 | ) | 12,013,202 | ||||||||||
Machinery and equipment | 595,789,472 | (469,573,758 | ) | (2,707,998 | ) | 123,507,716 | ||||||||||
Transportation equipment | 67,148 | (50,426 | ) | (38 | ) | 16,684 | ||||||||||
Furniture and fixtures | 4,882,971 | (3,527,649 | ) | (22,846 | ) | 1,332,476 | ||||||||||
Leasehold improvement | 1,753,124 | (474,535 | ) | — | 1,278,589 | |||||||||||
Construction in progress and prepayments | 18,844,025 | — | — | 18,844,025 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 649,406,522 | (485,931,177 | ) | (4,621,310 | ) | 158,854,035 | ||||||||||
|
|
|
|
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, | ||||||||||||
2010 | 2011 | 2012 | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Land | 383 | — | 143 | |||||||||
Buildings | 48,454 | 78 | 7,516 | |||||||||
Machinery and equipment | 284,605 | 245,844 | 288,987 | |||||||||
Furniture and fixtures | 1,557 | 1,661 | 13 | |||||||||
Others | 29 | 100 | 35 | |||||||||
|
|
|
|
|
| |||||||
Total interest capitalized | 335,028 | 247,683 | 296,694 | |||||||||
|
|
|
|
|
| |||||||
Interest rates applied | 1.04%~3.51% | 1.02%~2.80% | 0.17%~2.29% | |||||||||
|
|
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2011 | ||||||||||||||||
Beginning Balance | Increase | Decrease | Ending Balance | |||||||||||||
Cost | NT$’000 | NT$’000 | NT$’000 | NT$’000 | ||||||||||||
Land-use right and others | — | 301,691 | — | 301,691 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Accumulated amortization | ||||||||||||||||
Land-use right and others | — | (2,011 | ) | — | (2,011 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | — | 299,680 | — | 299,680 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
For the year ended December 31, 2012 | ||||||||||||||||
Beginning Balance | Increase | Decrease | Ending Balance | |||||||||||||
Cost | NT$’000 | NT$’000 | NT$’000 | NT$’000 | ||||||||||||
Technology license fee | — | 1,344,681 | — | 1,344,681 | ||||||||||||
Land-use right and others | 301,691 | 38,793 | (311,067 | ) | 29,417 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Subtotal | 301,691 | 1,383,474 | (311,067 | ) | 1,374,098 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Accumulated amortization | ||||||||||||||||
Technology license fee | — | (67,234 | ) | — | (67,234 | ) | ||||||||||
Land-use right and others | (2,011 | ) | (4,499 | ) | 5,703 | (807 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Subtotal | (2,011 | ) | (71,733 | ) | 5,703 | (68,041 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 299,680 | 1,311,741 | (305,364 | ) | 1,306,057 | |||||||||||
|
|
|
|
|
|
|
|
The estimated aggregate amortization expense was NT$136 million for each of the five succeeding fiscal years.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, | ||||||||
2011 | 2012 | |||||||
NT$’000 | NT$’000 | |||||||
Leased assets | 1,011,383 | 997,579 | ||||||
Deposits-out | 1,349,528 | 1,383,327 | ||||||
Long-term prepayment | 532,200 | 20,460 | ||||||
Others | 124,663 | 96,840 | ||||||
|
|
|
| |||||
Total | 3,017,774 | 2,498,206 | ||||||
|
|
|
|
Please refer to Note 28 for Deposits-out pledged as collateral.
For the years ended December 31, | ||||||||||||
2010 | 2011 | 2012 | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Available-for-sale financial assets, noncurrent | — | 34,560 | 228,200 | |||||||||
Long-term investments accounted for under the equity method | 20,802 | 105,115 | 223,695 | |||||||||
Financial assets measured at cost, noncurrent | 93,077 | 570,725 | 578,612 | |||||||||
Property, plant and equipment | — | 1,238,877 | 2,258,630 | |||||||||
Goodwill | — | 286,007 | — | |||||||||
Others assets-others | — | 11,206 | 80,557 | |||||||||
|
|
|
|
|
| |||||||
Total | 113,879 | 2,246,490 | 3,369,694 | |||||||||
|
|
|
|
|
|
After considering objective evidence and the result of the impairment loss testing, the Company recognized impairment losses amounted to NT$114 million, NT$710 million and NT$1,031 million for its available-for-sale financial assets, noncurrent, long-term investments accounted for under the equity method, and financial assets measured at cost, noncurrent, respectively, for the years ended December 31, 2010, 20112012, 2013 and 2012. 2014 were NT$(118) million, NT$83 million and NT$138 million, respectively, which were not included in the following table.
(i) | The aggregate amount of the Company’s share of its all individually immaterial associates that are accounted for using the equity method was as follows: |
For the years ended December 31, | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Profit from continuing operations | $ | 683,888 | $ | 732,380 | $ | 79,407 | ||||||
Other comprehensive income (loss) | (124,273 | ) | 250,070 | 139,030 | ||||||||
|
|
|
|
|
| |||||||
Total comprehensive income | $ | 559,615 | $ | 982,450 | $ | 218,437 | ||||||
|
|
|
|
|
|
(ii) | The aggregate amount of the Company’s share of its all individually immaterial joint ventures that are accounted for using the equity method was as follows: |
For the years ended December 31, | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Loss from continuing operations | $ | (20,509 | ) | $ | (34,449 | ) | $ | (42,228 | ) | |||
Other comprehensive income (loss) | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Total comprehensive loss | $ | (20,509 | ) | $ | (34,449 | ) | $ | (42,228 | ) | |||
|
|
|
|
|
|
The Company determined that goodwillbegan to use the equity method to account for its investments in SHANDONG HUAHONG, LTI, WINAICO SOLAR PROJEKT 1 GMBH, ASEPOWER I S.R.L. and WINAICO IMMOBILIEN GMBH, on January 7, 2011, September 28, 2011, December 7, 2011, March 31, 2012 and March 31, 2013, respectively. The Company ceased to use the equity method to account for its investments in ASEPOWER I S.R.L. and LTI since September 10, 2013 and March 26, 2014, respectively.
(8) | Property, Plant and Equipment |
As of December 31, | ||||||||
2013 | 2014 | |||||||
Land | $ | 1,925,691 | $ | 1,314,402 | ||||
Buildings | 13,679,387 | 12,955,815 | ||||||
Machinery and equipment | 125,170,755 | 119,069,687 | ||||||
Transportation equipment | 15,047 | 14,630 | ||||||
Furniture and fixtures | 1,148,689 | 942,520 | ||||||
Leasehold improvement | 1,044,943 | 12,210 | ||||||
Construction in progress and equipment awaiting inspection | 19,368,388 | 32,380,979 | ||||||
|
|
|
| |||||
Net | $ | 162,352,900 | $ | 166,690,243 | ||||
|
|
|
|
Cost:
Land | Buildings | Machinery and equipment | Transportation equipment | Furniture and fixtures | Leasehold improvement | Construction in progress and equipment awaiting inspection | Total | |||||||||||||||||||||||||
As of January 1, 2013 | $ | 3,171,351 | $ | 30,451,446 | $ | 601,810,744 | $ | 67,827 | $ | 5,485,951 | $ | 1,753,124 | $ | 18,500,156 | $ | 661,240,599 | ||||||||||||||||
Additions | — | — | — | — | — | — | 31,485,078 | 31,485,078 | ||||||||||||||||||||||||
Acquisitions of subsidiaries | — | 2,298,543 | 3,965,968 | 258 | 25,275 | 1,193 | 34,655 | 6,325,892 | ||||||||||||||||||||||||
Disposals | (106,946 | ) | (95,304 | ) | (3,425,740 | ) | (4,089 | ) | (181,384 | ) | (1,388 | ) | (282,265 | ) | (4,097,116 | ) | ||||||||||||||||
Disposals of subsidiaries | (1,056,531 | ) | (7,180,478 | ) | (6,837,604 | ) | (480 | ) | (195,656 | ) | — | — | (15,270,749 | ) | ||||||||||||||||||
Transfers and reclassifications | 10,626 | 25,455 | 32,616,495 | 2,740 | 170,053 | 46,711 | (30,359,069 | ) | 2,513,011 | |||||||||||||||||||||||
Exchange effect | (92,809 | ) | 347,247 | 2,836,866 | 298 | (18,776 | ) | 1,281 | (10,167 | ) | 3,063,940 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
As of December 31, 2013 | $ | 1,925,691 | $ | 25,846,909 | $ | 630,966,729 | $ | 66,554 | $ | 5,285,463 | $ | 1,800,921 | $ | 19,368,388 | $ | 685,260,655 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land | Buildings | Machinery and equipment | Transportation equipment | Furniture and fixtures | Leasehold improvement | Construction in progress and equipment awaiting inspection | Total | |||||||||||||||||||||||||
As of January 1, 2014 | $ | 1,925,691 | $ | 25,846,909 | $ | 630,966,729 | $ | 66,554 | $ | 5,285,463 | $ | 1,800,921 | $ | 19,368,388 | $ | 685,260,655 | ||||||||||||||||
Additions | — | — | — | — | — | — | 40,655,242 | 40,655,242 | ||||||||||||||||||||||||
Disposals | (10,626 | ) | — | (3,109,952 | ) | (1,535 | ) | (50,820 | ) | (2,880 | ) | — | (3,175,813 | ) | ||||||||||||||||||
Transfers and reclassifications | (600,663 | ) | (294,360 | ) | 27,538,645 | 1,946 | 101,944 | (1,732,413 | ) | (28,055,788 | ) | (3,040,689 | ) | |||||||||||||||||||
Exchange effect | — | 284,999 | 7,095,006 | 718 | 23,322 | 2,652 | 413,137 | 7,819,834 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
As of December 31, 2014 | $ | 1,314,402 | $ | 25,837,548 | $ | 662,490,428 | $ | 67,683 | $ | 5,359,909 | $ | 68,280 | $ | 32,380,979 | $ | 727,519,229 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation and Impairment:
Land | Buildings | Machinery and equipment | Transportation equipment | Furniture and fixtures | Leasehold improvement | Construction in progress and equipment awaiting inspection | Total | |||||||||||||||||||||||||
As of January 1, 2013 | $ | 530,963 | $ | 17,854,186 | $ | 478,239,213 | $ | 51,143 | $ | 4,146,754 | $ | 474,535 | $ | — | $ | 501,296,794 | ||||||||||||||||
Depreciation | — | 1,211,097 | 35,363,090 | 4,014 | 382,267 | 280,885 | — | 37,241,353 | ||||||||||||||||||||||||
Gain from reversal of impairment loss | — | — | (984 | ) | — | — | — | — | (984 | ) | ||||||||||||||||||||||
Disposals | (208 | ) | (93,202 | ) | (3,365,310 | ) | (3,341 | ) | (179,812 | ) | (617 | ) | — | (3,642,490 | ) | |||||||||||||||||
Disposals of subsidiaries | (487,896 | ) | (7,095,675 | ) | (6,708,746 | ) | (462 | ) | (193,201 | ) | — | — | (14,485,980 | ) | ||||||||||||||||||
Transfers and reclassifications | — | — | (572 | ) | — | 51 | — | — | (521 | ) | ||||||||||||||||||||||
Exchange effect | (42,859 | ) | 291,116 | 2,269,283 | 153 | (19,285 | ) | 1,175 | — | 2,499,583 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
As of December 31, 2013 | $ | — | $ | 12,167,522 | $ | 505,795,974 | $ | 51,507 | $ | 4,136,774 | $ | 755,978 | $ | — | $ | 522,907,755 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Land | Buildings | Machinery and equipment | Transportation equipment | Furniture and fixtures | Leasehold improvement | Construction in progress and equipment awaiting inspection | Total | |||||||||||||||||||||||||
As of January 1, 2014 | $ | — | $ | 12,167,522 | $ | 505,795,974 | $ | 51,507 | $ | 4,136,774 | $ | 755,978 | $ | — | $ | 522,907,755 | ||||||||||||||||
Depreciation | — | 1,177,362 | 36,948,450 | 4,492 | 355,951 | 299,321 | — | 38,785,576 | ||||||||||||||||||||||||
Impairment Loss | — | — | 579,222 | — | 17,456 | — | — | 596,678 | ||||||||||||||||||||||||
Disposals | — | — | (2,868,400 | ) | (1,535 | ) | (49,499 | ) | (2,880 | ) | — | (2,922,314 | ) | |||||||||||||||||||
Transfers and reclassifications | — | (526,946 | ) | (2,840,427 | ) | (1,883 | ) | (63,864 | ) | (998,792 | ) | — | (4,431,912 | ) | ||||||||||||||||||
Exchange effect | — | 63,795 | 5,805,922 | 472 | 20,571 | 2,443 | — | 5,893,203 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
As of December 31, 2014 | $ | — | $ | 12,881,733 | $ | 543,420,741 | $ | 53,053 | $ | 4,417,389 | $ | 56,070 | $ | — | $ | 560,828,986 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please refer to Note 8 for property, plant and equipment pledged as collateral. During the year ended December 31, 2014, the Company identified indicators of impairment at certain fixed assets would not generate expected future cash flowssubsidiaries due to some subsidiaries’its net operating profit being lower than expected. The Company determined that certain property, plant and equipment would not generate the recoverable amounts of these assets based on the fair values less costs to sell.expected future cash flows. The impairment test revealed that the total carrying amount of these assets was greater than their total recoverable amount. After considering the relevant objective evidence, the Company recorded an impairment loss of nil, NT$1,536597 million for the year ended December 31, 2014, all of which came from new business segment.
The amounts of total interest expense before capitalization of borrowing costs were NT$755 million, NT$803 million and NT$2,339992 million for the years ended December 31, 2010, 20112012, 2013 and 2012,2014, respectively. Details of capitalized borrowing costs are as follows:
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Land | $ | 143 | $ | — | $ | — | ||||||
Buildings | 7,516 | 43,199 | 85,104 | |||||||||
Machinery and equipment | 288,987 | 163,206 | 218,282 | |||||||||
Others | 13 | 30 | 1,651 | |||||||||
|
|
|
|
|
| |||||||
Total interest capitalized | $ | 296,659 | $ | 206,435 | �� | $ | 305,037 | |||||
|
|
|
|
|
| |||||||
Interest rates applied | 0.17%~2.29% | 0.19%~2.28% | 1.33%~2.21% | |||||||||
|
|
|
|
|
|
Intangible Assets |
As of December 31, | ||||||||
2011 | 2012 | |||||||
NT$’000 | NT$’000 | |||||||
Unsecured bank loans | 9,411,877 | 5,772,615 | ||||||
|
|
|
| |||||
For the years ended December 31, | ||||||||
2011 | 2012 | |||||||
Interest rates | 0.54%~2.82% | 0.55%~2.98% | ||||||
|
|
|
|
As of December 31, | ||||||||
2013 | 2014 | |||||||
Goodwill | $ | 50,863 | $ | 7,791 | ||||
Software | 173,252 | 215,998 | ||||||
Patents and technology license fees | 3,400,769 | 3,021,788 | ||||||
Others | 1,114,763 | 1,287,361 | ||||||
|
|
|
| |||||
Net | $ | 4,739,647 | $ | 4,532,938 | ||||
|
|
|
|
Cost:
Goodwill | Software | Patents and technology license fees | Others | Total | ||||||||||||||||
As of January 1, 2013 | $ | 50,863 | $ | 471,987 | $ | 2,298,527 | $ | 1,433,499 | $ | 4,254,876 | ||||||||||
Additions | — | 490 | 1,823,274 | 1,082,896 | 2,906,660 | |||||||||||||||
Disposals | — | (138,722 | ) | (13,737 | ) | (467,914 | ) | (620,373 | ) | |||||||||||
Reclassifications | — | 74,832 | 39,951 | — | 114,783 | |||||||||||||||
Acquisitions of subsidiaries | — | 36,132 | 9,283 | 61,700 | 107,115 | |||||||||||||||
Disposals of subsidiaries | — | (6,888 | ) | — | — | (6,888 | ) | |||||||||||||
Exchange effect | — | (5,369 | ) | (1,631 | ) | (93 | ) | (7,093 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
As of December 31, 2013 | $ | 50,863 | $ | 432,462 | $ | 4,155,667 | $ | 2,110,088 | $ | 6,749,080 | ||||||||||
|
|
|
|
|
|
|
|
|
|
As of January 1, 2014 Additions Disposals Reclassifications Exchange effect As of December 31, 2014 Goodwill Software Patents and
technology
license fees Others Total $ 50,863 $ 432,462 $ 4,155,667 $ 2,110,088 $ 6,749,080 — — 8,666 1,220,421 1,229,087 — (130,165 ) — (363,593 ) (493,758 ) (43,072 ) 185,462 (287 ) (62,409 ) 79,694 — 2,985 65,698 (8 ) 68,675 $ 7,791 $ 490,744 $ 4,229,744 $ 2,904,499 $ 7,632,778
Accumulated Amortization and Impairment:
Goodwill | Software | Patents and technology license fees | Others | Total | ||||||||||||||||
As of January 1, 2013 | $ | — | $ | 271,197 | $ | 404,416 | $ | 781,104 | $ | 1,456,717 | ||||||||||
Amortization | — | 139,626 | 362,727 | 538,413 | 1,040,766 | |||||||||||||||
Impairment loss | — | — | 677 | 57,000 | 57,677 | |||||||||||||||
Disposals | — | (138,712 | ) | (13,749 | ) | (467,914 | ) | (620,375 | ) | |||||||||||
Reclassifications | — | — | — | 86,818 | 86,818 | |||||||||||||||
Disposals of subsidiaries | — | (6,888 | ) | — | — | (6,888 | ) | |||||||||||||
Exchange effect | — | (6,013 | ) | 827 | (96 | ) | (5,282 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
As of December 31, 2013 | $ | — | $ | 259,210 | $ | 754,898 | $ | 995,325 | $ | 2,009,433 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Goodwill | Software | Patents and technology license fees | Others | Total | ||||||||||||||||
As of January 1, 2014 | $ | — | $ | 259,210 | $ | 754,898 | $ | 995,325 | $ | 2,009,433 | ||||||||||
Amortization | — | 142,963 | 438,518 | 1,047,392 | 1,628,873 | |||||||||||||||
Disposals | — | (130,165 | ) | — | (363,593 | ) | (493,758 | ) | ||||||||||||
Reclassifications | — | 1,398 | (32 | ) | (61,981 | ) | (60,615 | ) | ||||||||||||
Exchange effect | — | 1,340 | 14,572 | (5 | ) | 15,907 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
As of December 31, 2014 | $ | — | $ | 274,746 | $ | 1,207,956 | $ | 1,617,138 | $ | 3,099,840 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The Company’s unused short-term linesamortization amounts of credits amounted tointangible assets are as follows:
For the years ended December 31, | ||||||||
2013 | 2014 | |||||||
Operating cost | $ | 440,342 | $ | 521,588 | ||||
|
|
|
| |||||
Operating expense | $ | 600,424 | $ | 1,107,285 | ||||
|
|
|
|
The carrying amounts of significant technology license fees obtained by the Company were NT$19,6093,211 million and NT$8,2932,858 million as of December 31, 20112013 and 2012,2014, respectively. The remaining amortization periods as of December 31, 2013 and 2014 were 8~9 years and 7~8 years, respectively.
Short Term Loans |
As of December 31, | ||||||||
2011 | 2012 | |||||||
NT$’000 | NT$’000 | |||||||
Derivatives embedded in exchangeable bonds | 741,531 | 767,605 | ||||||
|
|
|
|
During the years ended December 31, 2010, 2011 and 2012, net gains (losses) arising from financial liabilities at fair value through profit or loss were NT$(546) million, NT$1,293 million and NT$643 million, respectively.
As of December 31, | ||||||||
2013 | 2014 | |||||||
Unsecured bank loans | $ | 4,643,573 | $ | 6,250,754 | ||||
|
|
|
|
As of December 31, | ||||||||
2011 | 2012 | |||||||
NT$’000 | NT$’000 | |||||||
Unsecured exchangeable bonds payable | 6,125,110 | 4,651,323 | ||||||
Unsecured convertible bonds payable | 12,420,903 | 12,278,461 | ||||||
Unsecured domestic bonds payable | — | 10,000,000 | ||||||
Less: Discounts on bonds payable | (1,141,225 | ) | (705,431 | ) | ||||
|
|
|
| |||||
Total | 17,404,788 | 26,224,353 | ||||||
Less: Current or exchangeable portion | (5,420,384 | ) | (4,292,160 | ) | ||||
|
|
|
| |||||
Net | 11,984,404 | 21,932,193 | ||||||
|
|
|
|
For the years ended December 31, | ||||||
2012 | 2013 | 2014 | ||||
Interest rates applied | 0.55%~2.98% | 0.57%~4.38% | 0.57%~2.50% | |||
|
|
|
a. | The Company’s unused short-term lines of credits amounted to NT$18,587 million and NT$19,650 million as of December 31, 2013 and 2014, respectively. |
b. | Please refer to Note 8 for property, plant and equipment pledged as collateral for short-term loans. |
(11) | Financial Liabilities at Fair Value through Profit or Loss, Current |
As of December 31, | ||||||||
2013 | 2014 | |||||||
Forward exchange contracts | $ | — | $ | 42,354 | ||||
Derivatives embedded in exchangeable bonds | $ | 1,928 | — | |||||
|
|
|
| |||||
Total | $ | 1,928 | $ | 42,354 | ||||
|
|
|
|
(12) | Bonds Payable |
As of December 31, | ||||||||
2013 | 2014 | |||||||
Unsecured domestic bonds payable | $ | 20,000,000 | $ | 25,000,000 | ||||
Unsecured exchangeable bonds payable | 3,709,339 | — | ||||||
Unsecured convertible bonds payable | 10,255,791 | — | ||||||
Less: Discounts on bonds payable | (358,713 | ) | (22,180 | ) | ||||
|
|
|
| |||||
Total | 33,606,417 | 24,977,820 | ||||||
Less: Current or exchangeable portion due within one year | (13,627,063 | ) | — | |||||
|
|
|
| |||||
Net | $ | 19,979,354 | $ | 24,977,820 | ||||
|
|
|
|
A. | On December 2, 2009, UMC issued SGX-ST listed zero coupon exchangeable bonds. The terms and conditions of the bonds are as follows: |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Issue Amount: US$127.2 million |
Period: December 2, 2009 ~ December 2, 2014 (Maturity date) |
Redemption: |
i. | UMC may redeem the bonds, in whole or in part, after 12 months of the issuance and prior to the maturity date, at the principal amount of the bonds with an interest calculated at the rate of -0.5% per annum (the Early Redemption Price) if the closing price of the |
ii. | UMC may redeem the bonds, in whole, but not in part, at the Early Redemption Price if at least 90% in principal amount of the bonds has already been exchanged, redeemed or purchased and cancelled. |
iii. | UMC may redeem all, but not part, of the bonds, at the Early Redemption Price at any time, in the event of certain changes in the R.O.C.’s tax rules which would require UMC to gross up for payments of principal, or to gross up for payments of interest or premium. |
iv. | All, or any portion, of the bonds |
v. | Bondholders have the right to require UMC to redeem all or any portion of the bonds at the Early Redemption Price if the |
vi. | In the event that a change of control as defined in the indenture of the bonds occurs to UMC or Unimicron, the bondholders shall have the right to require UMC to redeem the bonds, in whole or in part, at the Early Redemption Price. |
Terms of |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
i. | Underlying Securities: |
ii. | Exchange Period: The bonds are exchangeable at any time on or after January 1, 2010 and prior to November 22, 2014, into Unimicron |
iii. | Exchange Price and Adjustment: The exchange price was originally |
Redemption on the Maturity Date: |
The bonds matured on December 2, 2014, and UMC redeemed the bonds at 97.53% of the principal amount. The principal amount of the redeemed bonds was US$127.2 million.
On December 2, 2009, UMC issued SGX-ST listed zero coupon exchangeable bonds. The terms and conditions of the bonds are as follows: |
Issue Amount: US$80 million |
Period: December 2, 2009 ~ December 2, 2014 (Maturity date) |
Redemption: |
i. | UMC may redeem the bonds, in whole or in part, after 12 months of the issuance and prior to the maturity date, at the principal amount of the bonds with an interest calculated at the rate of -0.5% per annum (the Early Redemption Price) if the closing price of the |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ii. | UMC may redeem the bonds, in whole, but not in part, at the Early Redemption Price if at least 90% in principal amount of the bonds has already been exchanged, redeemed or purchased and cancelled. |
iii. | UMC may redeem all, but not part, of the bonds, at the Early Redemption Price at any time, in the event of certain changes in the R.O.C.’s tax rules which would require UMC to gross up for payments of principal, or to gross up for payments of interest or premium. |
iv. | All, or any portion, of the bonds |
v. | Bondholders have the right to require UMC to redeem all or any portion of the bonds at the Early Redemption Price if the |
vi. | In the event that a change of control as defined in the indenture of the bonds occurs to UMC or Novatek, the bondholders shall have the right to require UMC to redeem the bonds, in whole or in part, at the Early Redemption Price. |
Terms of |
i. | Underlying Securities: |
ii. | Exchange Period: The bonds are exchangeable at any time on or after January 1, 2010 and prior to November 22, 2014, into Novatek |
iii. | Exchange Price and Adjustment: The exchange price was originally |
Exchange of the Bonds: |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2012,2013, certain bondholders have exercised their rights to exchange their bonds with the total principal amount of US$4377 million into Novatek shares. Gains arising from the exercisedisposal of investments and gains from exchange of bonds from bondholders exercising exchange rights during the yearyears ended December 31, 2012 and 2013 amounted NT$1,5221,389 million and wasNT$1,137 million, respectively, and were recognized as non-operating income and expenses.
f. | Early Redemption of the Bonds: |
Since over 90% principal amount of the bonds has already been exchanged, UMC redeemed the bonds in whole at the Early Redemption Price on July 22, 2013. The remaining principal amount of the redeemed bonds was US$3 million. UMC recognized a gain on disposal of investment.NT$45 million from the redemption as non-operating income and expenses.
On May 24, 2011, UMC issued SGX-ST listed currency linked zero coupon convertible bonds. The terms and conditions of the bonds are as follows: |
Issue Amount: US$500 million |
Period: May 24, 2011 ~ May 24, 2016 (Maturity date) |
Redemption: |
i. | UMC may redeem the bonds, in whole or in part, after 3 years of the issuance and prior to the maturity date, at the principal amount of the bonds with an interest calculated at the rate of -0.25% per annum (the Early Redemption Amount) if the closing price of UMC’s ADS on the New York Stock Exchange, for a period of 20 out of 30 consecutive ADS trading days, the last of which occurs not more than 5 ADS trading days prior to the date upon which notice of such redemption is published, is at least 130% of the conversion price. The Early Redemption Price will be converted into NTD based on the Fixed Exchange Rate (NTD 28.846=USD 1.00), and this fixed NTD amount will be converted using the prevailing rate at the time of redemption for payment in USD. |
ii. | UMC may redeem the bonds, in whole, but not in part, at the Early Redemption Amount if at least 90% in principal amount of the bonds has already been converted, redeemed or repurchased and cancelled. |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
iii. | UMC may redeem all, but not part, of the bonds, at the Early Redemption Amount at any time, in the event of certain changes in the R.O.C.’s tax rules which would require UMC to gross up for payments of principal, or to gross up for payments of interest or premium. |
iv. | All or any portion of the bonds will be redeemable |
v. | Bondholders have the right to require UMC to redeem all of the bonds at the Early Redemption Amount if UMC’s ADS cease to be listed or admitted for trading on the New York Stock Exchange, or UMC’s |
vi. | In the event that a change of control as defined in the indenture of the bonds occurs to UMC, the bondholders shall have the right to require UMC to redeem the bonds, in whole but not in part, at the Early Redemption Amount. |
Terms of |
i. | Underlying Securities: ADS of UMC |
ii. | Conversion Period: The bonds are convertible at any time on or after July 4, 2011 and prior to May 14, 2016, into UMC’s ADS; provided, however, that if the exercise date falls within 8 business days from the beginning of, and during, any closed period, the right of the converting holder of the bonds to vote with respect to the ADS it receives will be subject to certain restrictions. |
iii. | Conversion Price and |
Early Redemption |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIESUMC redeemed bonds with principal amount of US$324 million as requested by investors on May 27, 2014. The associated convertible rights were deemed cancelled and the consideration paid for the early redemption was fully allocated to the liability components. UMC adjusted the carrying amount of the liability components to reflect actual consideration paid and recognized a loss amount to NT$194 million as non-operating income and expenses. UMC reclassified cancelled convertible rights of NT$441 million from additional paid in capital – stock options to additional paid in capital – others.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAs bondholders’ redemption and UMC’s repurchases of bonds from open market in prior year amounted to US$466 million, which represented over 90% principal being redeemed; therefore, UMC redeemed the remaining bonds in whole at the Early Redemption Price on June 27, 2014. The principal amount of the redeemed bonds was US$34 million. UMC recognized a gain of NT$15 million from the redemption as non-operating income and expense.
In accordance with R.O.C. SFAS No. 36, “Financial Instruments: Disclosure and Presentation”,IAS 32, the value of the conversion right of the convertible bonds was determined at issuance and recognized in additional paid-in capital—capital – stock options amounting to NT$680 million, excludingafter reduction of issuance costs allocated to additional paid-in capital—stock options amounting to NT$3 million. The effective interest rate on the liability component of the convertible bonds was determined to be 0.82%.
In early June, 2012, UMC issued a five-year and a seven-year domestic unsecured corporate bonds |
Bonds repayable (Year) | Amount | |||
NT$’000 | ||||
2014 | 4,651,323 | |||
2016 | 12,278,461 | |||
2017 and thereafter | 10,000,000 | |||
|
| |||
Total | 26,929,784 | |||
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In mid-June, 2014, UMC issued seven-year and ten-year domestic unsecured corporate bonds amounting to NT$5,000 million, with a face value of NT$1 million per unit. The seven-year domestic unsecured corporate bond was issued in the amount of NT$2,000 million. Interest will be paid annually at a rate of 1.70%, and the principal will be repayable in June 2021 upon maturity. The ten-year domestic unsecured corporate bond was issued in the amount of NT$3,000 million. Interest will be paid annually at a rate of 1.95%, and the principal will be repayable in June 2024 upon maturity. |
(13) | Long Term Loans |
a. | Details of long-term loans as of December 31, |
As of December 31, | ||||||||||
Lenders | 2013 | 2014 | Redemption | |||||||
Secured Long-Term Loan from Mega International Commercial Bank (1) | $ | 109,580 | $ | 80,358 | Effective August 1, 2012 to August 1, 2017. Interest-only payment for the first year. Principal is repaid in 17 quarterly payments with monthly interest payments. | |||||
Secured Long-Term Loan from Mega International Commercial Bank (2) | 17,000 | 16,000 | Effective November 21, 2013 to November 21, 2018. Interest-only payment for the first year. Principal is repaid in 17 quarterly payments with monthly interest payments. | |||||||
Secured Long-Term Loan from Taiwan Cooperative Bank (1) | 122,706 | 87,647 | Effective May 25, 2012 to May 25, 2017. Interest-only payment for the first year. Principal is repaid in 17 quarterly payments with monthly interest payments. | |||||||
Secured Long-Term Loan from Taiwan Cooperative Bank (2) | 70,000 | 84,265 | Effective July 10, 2013 to July 10, 2018. Interest-only payment for the first year. Principal is repaid in 17 quarterly payments with monthly interest payments. | |||||||
Secured Syndicated Loans from Bank of Taiwan and 7 others | 1,385,000 | 1,385,000 | Repayable semi-annually from February 7, 2015 to February 7, 2016 with monthly interest payments. | |||||||
Secured Syndicated Loans from Taiwan Cooperative Bank and 5 others | 450,000 | 150,000 | Repayable semi-annually from October 25, 2010 to April 25, 2015 with monthly interest payments. | |||||||
Unsecured Long-Term Loan from Bank of Taiwan | 900,000 | 2,700,000 | Repayable quarterly from October 31, 2015 to July 31, 2017 with monthly interest payments. | |||||||
Unsecured Long-Term Loan from Mega International Commercial Bank (1) | 2,461,538 | 1,230,769 | Repayable quarterly from December 28, 2012 to December 28, 2015 with monthly interest payments. | |||||||
Unsecured Long-Term Loan from Mega International Commercial Bank (2) | 300,000 | 300,000 | Repayable quarterly from October 4, 2015 to October 4, 2018 with monthly interest payments. | |||||||
Unsecured Long-Term Loan from E. Sun Bank | 500,000 | 500,000 | Repayable quarterly from December 24, 2015 to December 24, 2017 with monthly interest payments. | |||||||
Unsecured Revolving Loan from CTBC Bank (Note A) | 1,000,000 | 1,000,000 | Settlement due on August 30, 2016 with monthly interest payments. | |||||||
Unsecured Revolving Loan from Chang Hwa Commercial Bank (Note B) | 1,000,000 | 2,666,667 | Repayable quarterly from December 29, 2014 to December 29, 2016 with monthly interest payments. | |||||||
Unsecured Long-Term Loan from Taiwan Cooperative Bank | 500,000 | 1,000,000 | Repayable quarterly from March 24, 2016 to December 24, 2017 with monthly interest payments. |
Lenders Redemption China Development Industrial Bank (Note C) Settlement due on December 29, 2019 with monthly interest payments. Secured Long-Term Loan from Bank of Taiwan Effective July 13, 2011 to July 13, 2016. Interest-only payment for the first year. Principal is repaid in 16 quarterly payments with monthly interest payments. Secured Long-Term Loan from First Commercial Bank (1) Effective December 31, 2010 to December 31, 2015.Interest-only payment for the first year. Principal is repaid in 8semi-annual payments with monthly interest payments. Secured Long-Term Loan from First Commercial Bank (2) Effective June 24, 2011 to June 24, 2016.Interest-only payment for the first year. Principal is repaid in 8semi-annual payments with monthly interest payments. Secured Long-Term Loan from First Commercial Bank (3) Bullet repayment on May 16, 2015 with monthly interest payments. Secured Long-Term Loan from First Commercial Bank (4) Bullet repayment on June 27, 2015 with monthly interest payments. Secured Long-Term Loan from Mega International Commercial Bank (3) Repayable quarterly from June 30, 2011 to June 30, 2016 with monthly interest payments. Subtotal Less: Administrative expenses from syndicated loans Less: Current portion Total As of December 31, 2013 2014 — 1,000,000 988,048 — 310,000 — 125,000 — 103,000 — 400,000 — 616,470 — 11,358,342 12,200,706 (4,328 ) (2,250 ) (2,918,163 ) (3,774,986 ) $ 8,435,851 $ 8,423,470
For the years ended December 31, | ||||||
2012 | 2013 | 2014 | ||||
Interest Rates | 1.24%~2.51% | 1.23%~2.51% | 1.23%~2.51% | |||
|
|
|
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
Note A: | UMC entered into a 5-year loan agreement with |
Note B: | UMC entered into a 5-year loan agreement with Chang Hwa Commercial Bank, effective from December 29, 2011. The agreement offered UMC a revolving line of credit of NT$3 | |
Note C: | UMC entered into a 5-year loan agreement with China Development Industrial Bank, effective from September 25, 2014. The agreement offered UMC a revolving line of credit of NT$2 billion. This line of credit will be reduced starting from the end of the second year after the first use and every twelve months thereafter, with a total of four adjustments. The expiration date of the agreement is December 29, 2019. As of December 31, 2014, the unused line of credit was NT$ |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
b. |
Long-Term Loans repayable (Year) | Amount | |||
NT$’000 | ||||
2013 | 4,594,846 | |||
2014 | 2,990,554 | |||
2015 | 2,323,887 | |||
2016 | 4,450,002 | |||
2017 | 461,249 | |||
|
| |||
Total | 14,820,538 | |||
|
|
Please refer to Note |
On December 19, 2012, the |
Post-Employment Benefits |
a. |
The Labor Pension Act of the R.O.C. (the Act) is a defined contribution plan. Under the Act, the Labor Standards Law, a defined benefit plan, were offered the options to elect the pension calculation under the Act or continue to be subject to the pension calculation under the Labor Standards Law. Those employees that elected to be subject to the Act will have their seniority achieved under the Labor Standards Law retained upon election of the Act, and the Company will make monthly contributions percentage shall not be less than 6% of these employees’ monthly wages. Accordingly, a total of NT$522 million, NT$554 million and NT$597 million were contributed by the Company for the years ended December 31, 2012, 2013 and 2014, respectively. Pension benefits for employees of the Singapore branch, and other subsidiaries overseas were provided in accordance with the local regulations, and during the years ended December 31, 2012, 2013 and 2014, the Company made total contributions of no less than 6% of these employees’ monthly wages to the employees’ individual pension accounts. The Company has made monthly contributions based on each individual employee’s salary or wage to employees’ pension accounts beginning July 1, 2005 and a total of NT$422 million, NT$503 million and NT$522 million were contributed by the Company for the years ended December 31, 2010, 2011 and 2012, respectively. Pension benefits for employees of the Branch and subsidiaries overseas are provided in accordance with the local regulations, and during the years ended December 31, 2010, 2011 and 2012, the Company made contributions of NT$170 million, NT$165 million and NT$193 million, NT$393 million and NT$445 million, respectively.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
b. |
The employee pension plan mandated by the Labor Standards Act of the R.O.C. is a defined benefit plan. The pension benefits are disbursed based on the units of service years and average monthly salary prior to retirement according to the Labor Standards Act. Two units per year are awarded for the first 15 years of services while one unit per year is awarded after the completion of the 15th year and the total units will not exceed 45 units. The Company contributes an amount equivalent to 2% of the employees’ total salaries and wages on a monthly basis to the pension fund deposited with the Bank of Taiwan under the name of an administered pension fund committee. For the years ended December 31, 2012, 2013 and 2014, total pension expenses of NT$172 million, NT$124 million and NT$113 million, respectively, were recognized by the Company.
For the years ended December 31, | ||||||||
2011 | 2012 | |||||||
NT$’000 | NT$’000 | |||||||
Projected benefit obligation at beginning of year | (5,938,668 | ) | (6,082,644 | ) | ||||
Service cost | (107,189 | ) | (83,084 | ) | ||||
Interest cost | (107,813 | ) | (109,236 | ) | ||||
Benefits paid | 58,482 | 106,322 | ||||||
Gain (Loss) on projected benefit obligation | 94,765 | (414,980 | ) | |||||
Exchange gain (loss) | (82,221 | ) | 143,862 | |||||
|
|
|
| |||||
Projected benefit obligation at end of year | (6,082,644 | ) | (6,439,760 | ) | ||||
|
|
|
|
For the years ended December 31, | ||||||||
2013 | 2014 | |||||||
Balance at January 1 | $ | (6,685,524 | ) | $ | (5,402,350 | ) | ||
Service cost | (60,378 | ) | (37,481 | ) | ||||
Interest cost | (86,420 | ) | (108,047 | ) | ||||
Remeasurements: | ||||||||
Gain from changes in demographic assumptions | — | 59 | ||||||
Gain from changes in financial assumptions | 465,677 | 86,437 | ||||||
Experience adjustments | (5,436 | ) | (94,315 | ) | ||||
Benefits paid | 828,678 | 104,910 | ||||||
Others | 56,169 | — | ||||||
Exchange effect | 84,884 | — | ||||||
|
|
|
| |||||
Balance at December 31 | $ | (5,402,350 | ) | $ | (5,450,787 | ) | ||
|
|
|
|
For the years ended December 31, | ||||||||
2011 | 2012 | |||||||
NT$’000 | NT$’000 | |||||||
Fair value of plan assets at beginning of year | 2,118,193 | 2,276,883 | ||||||
Actual return on plan assets | (19,379 | ) | 35,637 | |||||
Contributions from employer | 167,837 | 158,870 | ||||||
Benefits paid | (58,482 | ) | (106,322 | ) | ||||
Exchange gain (loss) and others | 68,714 | (115,806 | ) | |||||
|
|
|
| |||||
Fair value of plan assets at end of year | 2,276,883 | 2,249,262 | ||||||
|
|
|
|
For the years ended December 31, | ||||||||
2013 | 2014 | |||||||
Balance at January 1 | $ | 2,249,262 | $ | 1,604,565 | ||||
Interest income on plan assets | 22,831 | 32,091 | ||||||
Contribution by employer | 269,289 | 88,339 | ||||||
Payment of benefit obligation | (828,678 | ) | (104,910 | ) | ||||
Remeasurements: | ||||||||
Return on plan assets, excluding amounts included in interest income | (3,763 | ) | 5,212 | |||||
Others | (37,589 | ) | — | |||||
Exchange effect | (66,787 | ) | — | |||||
|
|
|
| |||||
Balance at December 31 | $ | 1,604,565 | $ | 1,625,297 | ||||
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIESEmployee pension fund is deposited under a trust administered by the Bank of Taiwan. Furthermore, the utilization of the fund is determined by the labor pension fund supervisory committee, which also guarantees the minimum earnings to be no less than the earnings attainable from interest rates offered by local banks for two-year time deposits. The deployment and operation of defined benefit plan assets is available on the Council of Labor Affairs websitehttp://www.mol.gov.tw.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, | ||||||||
2011 | 2012 | |||||||
NT$’000 | NT$’000 | |||||||
Benefit obligation | ||||||||
Vested benefit obligation | (1,038,313 | ) | (1,152,480 | ) | ||||
Non-vested benefit obligation | (2,451,362 | ) | (2,728,767 | ) | ||||
|
|
|
| |||||
Accumulated benefit obligation | (3,489,675 | ) | (3,881,247 | ) | ||||
Effect from projected salary increase | (2,592,969 | ) | (2,558,513 | ) | ||||
|
|
|
| |||||
Projected benefit obligation | (6,082,644 | ) | (6,439,760 | ) | ||||
Fair value of plan assets | 2,276,883 | 2,249,262 | ||||||
|
|
|
| |||||
Funded status | (3,805,761 | ) | (4,190,498 | ) | ||||
Unrecognized net transitional benefit obligation | 1,243 | 1,119 | ||||||
Unrecognized loss | 553,642 | 712,925 | ||||||
Prior service cost | (10,224 | ) | — | |||||
Adjustment required to recognize minimum liabilities | (1 | ) | — | |||||
|
|
|
| |||||
Accrued pension liabilities recognized on the consolidated balance sheet | (3,261,101 | ) | (3,476,454 | ) | ||||
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, | ||||||||||||
2010 | 2011 | 2012 | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Service cost | 103,864 | 107,189 | 83,084 | |||||||||
Interest cost | 113,884 | 107,813 | 109,236 | |||||||||
Expected return on plan assets | (55,487 | ) | (50,128 | ) | (61,935 | ) | ||||||
Amortization of unrecognized transitional net benefit obligation | 28,293 | 124 | 124 | |||||||||
Amortization of unrecognized pension loss | 12,069 | 13,664 | 212,257 | |||||||||
Amortization of prior service cost | (5,197 | ) | (46,513 | ) | (8,816 | ) | ||||||
Others | (48 | ) | (1,371 | ) | 52,528 | |||||||
|
|
|
|
|
| |||||||
Net periodic pension cost | 197,378 | 130,778 | 386,478 | |||||||||
|
|
|
|
|
|
As of December 31, | ||||||||
2013 | 2014 | |||||||
Present value of the defined benefit obligation | $ | (5,402,350 | ) | $ | (5,450,787 | ) | ||
Fair value of plan assets | 1,604,565 | 1,625,297 | ||||||
|
|
|
| |||||
Accrued pension liabilities recognized on the consolidated balance sheets | $ | (3,797,785 | ) | $ | (3,825,490 | ) | ||
|
|
|
|
The actuarial assumptions underlying are as follows:
iv. | The principal underlying actuarial assumptions are as follows: |
For the year ended December 31, 2010 | As of December 31, 2013 | |||||||||||||||||||
UMC | FORTUNE | UMC JAPAN | UMC | FORTUNE | ||||||||||||||||
Discount rate | 1.75 | % | 2.00 | % | 2.00 | % | 2.00 | % | 2.00 | % | ||||||||||
Rate of salary increase | 4.00 | % | 3.00 | % | 2.55 | % | 4.00 | % | 3.00 | % | ||||||||||
Expected return on plan assets | 1.75 | % | 2.00 | % | 3.65 | % |
For the year ended December 31, 2011 | As of December 31, 2014 | |||||||||||||||||||
UMC | FORTUNE | UMC JAPAN | UMC | FORTUNE | ||||||||||||||||
Discount rate | 1.90 | % | 2.00 | % | 2.00 | % | 2.10 | % | 2.25 | % | ||||||||||
Rate of salary increase | 4.00 | % | 3.00 | % | 2.55 | % | 4.00 | % | 3.00 | % | ||||||||||
Expected return on plan assets | 1.90 | % | 2.00 | % | 3.20 | % |
For the year ended December 31, 2012 | ||||||||||||
UMC | FORTUNE | UMC JAPAN | ||||||||||
Discount rate | 1.75 | % | 1.75 | % | 2.00 | % | ||||||
Rate of salary increase | 4.00 | % | 3.00 | % | 2.55 | % | ||||||
Expected return on plan assets | 1.75 | % | 1.75 | % | 4.78 | % |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
v. | Expected future benefit payments are as follows: |
Expected future benefit payments are as follows:
Year | Amount | Amount | ||||||
NT$’000 | ||||||||
2013 | 1,044,502 | |||||||
2014 | 21,796 | |||||||
2015 | 32,001 | $ | 29,371 | |||||
2016 | 49,505 | 46,998 | ||||||
2017 | 70,759 | 59,537 | ||||||
2018-2022 | 640,762 | |||||||
2018 | 73,811 | |||||||
2019 | 80,853 | |||||||
2020 and thereafter | 5,379,945 | |||||||
| ||||||||
Total expected payments | $ | 5,670,515 | ||||||
|
The Company expects to make pension fund contributionscontribution of NT$30782 million in 2013.2015. The weighted-average duration of the defined benefit obligation are 17 years and 16 years, respectively, as of December 31, 2013 and 2014.
The sensitivity analysis of the defined benefit obligation to changes in the weighted principal assumptions is: |
As of December 31, 2013 | Assumptions | |||||||||||||||
Discount rate | Salary increase rate | |||||||||||||||
1% increase | 1% decrease | 1% increase | 1% decrease | |||||||||||||
Impact on defined benefit obligation | $ | 805,485 | $ | (980,143 | ) | $ | (888,861 | ) | $ | 753,703 |
As of December 31, 2014 Impact on defined benefit obligation Assumptions Discount rate Salary increase rate 1% increase 1% decrease 1% increase 1% decrease $ 780,187 $ (942,897 ) $ (853,732 ) $ 728,582
The sensitivity analyses above have been determined based on a method that extrapolates the impact on the net defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period.
(15) | Equity |
a. | Capital stock: |
i. | UMC had 26,000 million common shares authorized to be issued as of December 31, 2013 and |
UMC had |
Among the employee stock options issued by UMC on June 19, 2009, |
Among the employee stock options issued by UMC on June 19, 2009, 36 million options had been exercised for the year ended December 31, 2014, of which the issuance process for 31 million shares has been approved by the authority, and the share registry has been updated as of December 31, 2014. The remaining 5 million shares were still pending for authorization as of December 31, 2014, thus, they were classified as Capital collected in advance. |
v. | On |
vi. | On December 30, 2014, UMC sold 5 million shares of treasury stock to employees, which were repurchased during the period from March 15 to May 6, 2013 for the purpose of transferring to employees. |
UMC |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On September 30, 2004, December 22, 2005, October 9, 2007 and May 12, 2009, the Company was authorized by the Securities and Futures Bureau of the Financial Supervisory Commission, Executive Yuan, to issue employee stock options with a total number of 150 million, 350 million, 500 million and 500 million units, respectively. Each unit entitles an optionee to subscribe to 1 share of the Company’s common stock. Settlement upon the exercise of the options will be made through the issuance of new shares by the Company. The exercise price of the options was set at the closing price of the Company’s common stock on the date of grant. The contractual life is 6 years and an optionee may exercise the options in accordance with certain schedules as prescribed by the plan after 2 years from the date of grant. Detailed information relevant to the employee stock options is disclosed as follows:
Date of grant | Total number of options granted (in thousands) | Total number of options outstanding (in thousands) | Shares available to option holders (in thousands) (Note) | Exercise price (NTD) (Note) | ||||||||||||
October 13, 2004 | 20,200 | — | — | $ | 24.28 | |||||||||||
April 29, 2005 | 23,460 | — | — | $ | 22.37 | |||||||||||
August 16, 2005 | 54,350 | — | — | $ | 29.47 | |||||||||||
September 29, 2005 | 51,990 | — | — | $ | 26.89 | |||||||||||
January 4, 2006 | 39,290 | — | — | $ | 23.17 | |||||||||||
May 22, 2006 | 42,058 | — | — | $ | 25.19 | |||||||||||
August 24, 2006 | 28,140 | — | — | $ | 24.09 | |||||||||||
December 13, 2007 | 500,000 | 332,656 | 332,656 | $ | 18.03 | |||||||||||
June 19, 2009 | 300,000 | 132,350 | 132,350 | $ | 10.40 | |||||||||||
Total | 1,059,488 | 465,006 | 465,006 |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, | ||||||||||||||||||||||||
2011 | 2012 | |||||||||||||||||||||||
Options (in thousands) | Shares available to option holders (in thousands) | Weighted- average Exercise Price per share (NTD) | Options (in thousands) | Shares available to option holders (in thousands) | Weighted- average Exercise Price per share (NTD) | |||||||||||||||||||
Outstanding at beginning of period | 752,700 | 718,876 | $ | 16.05 | 560,526 | 547,724 | $ | 16.09 | ||||||||||||||||
Exercised | (96,544 | ) | (96,544 | ) | $ | 10.40 | (25,588 | ) | (25,588 | ) | $ | 10.40 | ||||||||||||
Forfeited | (32,745 | ) | (30,767 | ) | $ | 17.04 | (38,969 | ) | (35,544 | ) | $ | 18.23 | ||||||||||||
Expired | (62,885 | ) | (43,841 | ) | $ | 27.28 | (30,963 | ) | (21,586 | ) | $ | 24.37 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Outstanding at end of period | 560,526 | 547,724 | $ | 16.09 | 465,006 | 465,006 | $ | 15.86 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Exercisable at end of period | 422,148 | 409,652 | $ | 17.85 | 395,142 | 395,142 | $ | 16.71 | ||||||||||||||||
|
|
|
|
|
|
|
|
Outstanding Stock Options | Exercisable Stock Options | |||||||||||||||||||||||||||||||
Authorization Date | Range of Exercise Price(NTD) | Options (in thousands) | Shares available to option holders (in thousands) | Weighted- average Expected Remaining Years | Weighted- average Exercise Price per share (NTD) | Options (in thousands) | Shares available to option holders (in thousands) | Weighted- average Exercise Price per share (NTD) | ||||||||||||||||||||||||
2007.10.09 | $ | 18.03 | 332,656 | 332,656 | 0.95 | $ | 18.03 | 326,924 | 326,924 | $ | 18.03 | |||||||||||||||||||||
2009.05.12 | $ | 10.40 | 132,350 | 132,350 | 2.46 | $ | 10.40 | 68,218 | 68,218 | $ | 10.40 | |||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
465,006 | 465,006 | 1.38 | $ | 15.86 | 395,142 | 395,142 | $ | 16.71 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company granted options prior to adopting R.O.C. SFAS 39. Pro forma information on net income and earnings per share using the fair value method is as follows:
For the year ended December 31, 2010 | ||||||||
Basic earnings per share | Diluted earnings per share | |||||||
NT$’000 | NT$’000 | |||||||
Net income | 23,898,905 | 23,898,905 | ||||||
Earnings per share (NTD) | $ | 1.91 | $ | 1.87 | ||||
Pro forma net income | 23,538,509 | 23,538,509 | ||||||
Pro forma earnings per share (NTD) | $ | 1.88 | $ | 1.84 |
For the year ended December 31, 2011 | ||||||||
Basic earnings per share | Diluted earnings per share | |||||||
NT$’000 | NT$’000 | |||||||
Net income | 10,609,695 | 10,663,057 | ||||||
Earnings per share (NTD) | $ | 0.84 | $ | 0.81 | ||||
Pro forma net income | 10,537,737 | 10,591,099 | ||||||
Pro forma earnings per share (NTD) | $ | 0.84 | $ | 0.80 |
For the year ended December 31, 2012 | ||||||||
Basic earnings per share | Diluted earnings per share | |||||||
NT$’000 | NT$’000 | |||||||
Net income | 7,819,448 | 7,900,786 | ||||||
Earnings per share (NTD) | $ | 0.62 | $ | 0.59 | ||||
Pro forma net income | 7,812,610 | 7,893,948 | ||||||
Pro forma earnings per share (NTD) | $ | 0.62 | $ | 0.59 |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of the options outstanding as of December 31, 2011 and 2012 were estimated at the date of grant using the Black-Scholes options pricing model with the following weighted-average assumptions. The factors before and after the adoption of R.O.C. SFAS 39 to account for share-based payments were as follows:
| ||||||||
| ||||||||
| ||||||||
| ||||||||
|
For the year ended December 31, 20102013
(In thousands of shares)
Purpose | As of January 1, 2010 | Increase | Decrease | As of December 31, 2010 | ||||||||||||
For transfer to employees | 221,909 | 300,000 | 63,975 | 457,934 | ||||||||||||
|
|
|
|
|
|
|
|
For the year ended December 31, 2011
(In thousands of shares)
Purpose | As of January 1, 2011 | Increase | Decrease | As of December 31, 2011 | ||||||||||||
For transfer to employees | 457,934 | — | — | 457,934 | ||||||||||||
|
|
|
|
|
|
|
|
For the year ended December 31, 2012
(In thousands of shares)
Purpose | As of January 1, 2012 | Increase | Decrease | As of December 31, 2012 | ||||||||||||
For transfer to employees | 457,934 | — | 157,934 | 300,000 | ||||||||||||
|
|
|
|
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Purpose | As of January 1, 2013 | Increase | Decrease | As of December 31, 2013 | ||||||||||||
For transfer to employees | 300,000 | 200,000 | 300,000 | 200,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
For the year ended December 31, 2014 (In thousands of shares) |
| |||||||||||||||
Purpose | As of January 1, 2014 | Increase | Decrease | As of December 31, 2014 | ||||||||||||
For transfer to employees | 200,000 | — | 5,490 | 194,510 | ||||||||||||
|
|
|
|
|
|
|
|
According to the Securities and Exchange Law of the R.O.C., the total shares of treasury stock shall not exceed 10% of UMC’s issued stock, and the total purchase amount shall not exceed the sum of the retained earnings, additional paid-in |
In compliance with Securities and Exchange Law of the R.O.C., treasury stock should not be pledged, nor should it be entitled to voting rights or receiving dividends. Stock held by subsidiaries and associates is treated as treasury stock. |
As of December 31, |
As of December 31, 2012, UMC’s subsidiary, FORTUNE VENTURE CAPITAL CORP., held 16 million shares of UMC’s stock, with a book value of NT$11.70 per share. The closing price on December 31, 2012 was NT$11.70.
Retained earnings and dividend policies: |
According to UMC’s Articles of Incorporation, current year’s earnings, if any, shall be distributed in the following order:
Payment of all taxes and dues; |
Offset prior years’ operation losses; |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
After deducting items |
The distribution of the remaining portion, if any, will be recommended by the |
The policy for dividend distribution should reflect factors such as the current and future investment environment, fundfunding requirements, domestic and international competition and capital budgets; as well as the benefit of stockholders, stock dividend equilibrium and long-term financial planning. The boardBoard of directorsDirectors shall make the distribution proposal annually and present it at the stockholders’ meeting. UMC’s Articles of Incorporation further provide that at least 20% of the dividends must be paid in the form of cash. Accordingly, no more than 80% of the dividends to stockholders, if any, may be paid in the form of stock dividends. Accordingly, at least 20% of the dividends must be paid in the form of cash.
According to the regulationregulations of Taiwan SFC,Financial Supervisory Commission (FSC), UMC is required to appropriate a special reserve in the amount equal to the sum of debit elements under stockholders’ equity, such as unrealized loss on financial instruments and negative cumulative translation adjustment, at every year-end. Such special reserve is prohibited from distribution. However, if any of the debit elements is reversed, the special reserve in the amount equal to the reversal may be released for earnings distribution or offsetting accumulated deficit.
During the years ended December 31, 2011 and 2012,The Company estimates the amounts of the employee bonus and remunerationsremuneration to directors were estimated.and recognizes them in the profit or loss during the period when earned. The boardBoard of directorsDirectors estimated the amount by taking into consideration of UMC’s Articles of Incorporation, government regulations and industry average. Estimated amount of employee bonus and remunerations paid to directors are charged to current income.averages. If the board modifiedsubsequently modifies the estimates significantly, in the subsequent periods, UMC will recognize the change as an adjustment to current income. Moreover, ifin the amounts were modified byprofit or loss in the same period. The difference between the estimation and the resolution of the stockholders’ meeting will be recognized in profit or loss in the following year, the adjustment will be regarded as a change in accounting estimate and will be reflected in the consolidated statement of income in the followingsubsequent year. Upon stockholders’ approval, the number of the employee stock bonus, the distribution amountshares distributed as share dividends is determined by dividingcalculated based on the total approved bonus amount withdivided by the closing market price of UMC’s stock one day prior to the approved date. Information about appropriationsdate with the consideration of the impacts of ex-right/ex-dividend. Compensation expense relating to stock bonus is remeasured at fair market value at the date of stock distribution. Information on the above mentioned employee bonus and remuneration to employeesdirectors and directorssupervisors can be obtained from the “Market Observation Post System” on the website of the TSE.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The appropriation and compensation of 20122014 unappropriated retained earnings hashave not yet been approved by the stockholder’sstockholders’ meeting as of the reporting date. Information on the boardBoard of directors’Directors’ recommendations and stockholders’ approval can be obtained from the “Market Observation Post System” on the website of the TSE.
The distributions of cash dividend, employee bonus and directors’ remuneration for 20112013 and 20122014 were approved through the board of stockholders’ meeting and the directors’Board of Directors’ meeting held on June 12, 201211, 2014 and March 13, 2013,18, 2015, respectively. The details of distribution are as follows:
2011 | 2012 | |||||||
Cash Dividend | NT$0.50 per share | NT$0.40 per share | ||||||
Employee bonus – Cash (in thousand NTD) | 1,618,217 | 1,040,179 | ||||||
Directors’ remuneration (in thousand NTD) | 9,303 | 6,950 |
2013 | 2014 | |||||||
Cash Dividend | NT$ | 0.01 per share | NT$ | 0.55 per share | ||||
Employee bonus – Cash (in thousand NT$) | 1,162,656 | 1,458,956 | ||||||
Directors’ remuneration (in thousand NT$) | 11,746 | 10,812 |
EmployeeThe aforementioned 2013 employee bonus and directors’ remuneration for 2011 wereto directors approved through theduring stockholders’ meeting, which were consistent with the resolutions of meeting of Board of Directors held on March 14, 2012.April 16, 2014.
The aforementioned cash dividend for 2011 was adjusted to NT$0.49980232 per share due to the increase in outstanding common stock as a result of newly issued shares to settle employee stock options exercised. The distribution was approved through the Board of Directors’stockholders’ meeting held on June 20, 2012.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-controlling interests: |
For the years ended December 31, | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Balance as of January 1 | $ | 4,387,876 | $ | 2,571,139 | $ | 4,319,988 | ||||||
Attributable to non-controlling interests: | ||||||||||||
Net loss | (1,945,526 | ) | (525,243 | ) | (661,752 | ) | ||||||
Other comprehensive income (loss) | (5,162 | ) | 11,220 | 142,991 | ||||||||
Adjustments arising from changes in percentage of ownership in subsidiaries | 165,774 | (600,009 | ) | 59,785 | ||||||||
Effect of consolidation (deconsolidation) of subsidiaries | (31,823 | ) | 2,862,881 | (11,214 | ) | |||||||
|
|
|
|
|
| |||||||
Balance as of December 31 | $ | 2,571,139 | $ | 4,319,988 | $ | 3,849,798 | ||||||
|
|
|
|
|
|
(16) | Employee Stock Options |
On October 9, 2007 and May 12, 2009, the Company was authorized by the Securities and Futures Bureau of FSC, to issue employee stock options with a total number of 500 million units each. Each unit entitled an optionee to subscribe to 1 share of the Company’s common stock. Settlement upon the exercise of the options would be made through the issuance of new shares by the Company. The exercise prices of the options were set at the closing prices of the Company’s common stock on the dates of grant. The contractual lives were 6 years and an optionee might exercise the options in accordance with certain schedules as prescribed by the plans after 2 years from the dates of grant. Detailed information relevant to the employee stock options is disclosed as follows:
Date of grant | Total number of options granted (in thousands) | Total number of options outstanding as of December 31, 2014 (in thousands) | Shares available to option holders as of December 31, 2014 (in thousands) | Exercise price (NT$) | ||||||||||||
December 13, 2007 | 500,000 | — | — | $ | 18.03 | |||||||||||
June 19, 2009 | 300,000 | 48,729 | 48,729 | $ | 10.40 | |||||||||||
|
|
|
|
|
| |||||||||||
Total | 800,000 | 48,729 | 48,729 | |||||||||||||
|
|
|
|
|
|
a. | A summary of the Company’s stock option plan and related information for the years ended December 31, 2012, 2013 and 2014 is as follows: |
For the year ended December 31, 2012
Options (in thousands) | Shares available to option holders (in thousands) | Weighted - average exercise price per share (NTD) | ||||||||||
Outstanding at beginning of period | 560,526 | 547,724 | $ | 16.09 | ||||||||
Exercised | (25,588 | ) | (25,588 | ) | $ | 10.40 | ||||||
Forfeited | (38,969 | ) | (35,544 | ) | $ | 18.23 | ||||||
Expired | (30,963 | ) | (21,586 | ) | $ | 24.37 | ||||||
|
|
|
| |||||||||
Outstanding at end of period | 465,006 | 465,006 | $ | 15.86 | ||||||||
|
|
|
| |||||||||
Exercisable at end of period | 395,142 | 395,142 | $ | 16.71 | ||||||||
|
|
|
|
For the year ended December 31, 2013
Options (in thousands) | Shares available to option holders (in thousands) | Weighted - average exercise price per share (NTD) | ||||||||||
Outstanding at beginning of period | 465,006 | 465,006 | $ | 15.86 | ||||||||
Exercised | (42,540 | ) | (42,540 | ) | $ | 10.40 | ||||||
Forfeited | (12,000 | ) | (12,000 | ) | $ | 16.73 | ||||||
Expired | (322,698 | ) | (322,698 | ) | $ | 18.03 | ||||||
|
|
|
| |||||||||
Outstanding at end of period | 87,768 | 87,768 | $ | 10.40 | ||||||||
|
|
|
| |||||||||
Exercisable at end of period | 82,839 | 82,839 | $ | 10.40 | ||||||||
|
|
|
|
For the year ended December 31, 2014
Options (in thousands) | Shares available to option holders (in thousands) | Weighted - average exercise price per share (NTD) | ||||||||||
Outstanding at beginning of period | 87,768 | 87,768 | $ | 10.40 | ||||||||
Exercised | (35,655 | ) | (35,655 | ) | $ | 10.40 | ||||||
Forfeited | (3,384 | ) | (3,384 | ) | $ | 10.40 | ||||||
|
|
|
| |||||||||
Outstanding at end of period | 48,729 | 48,729 | $ | 10.40 | ||||||||
|
|
|
| |||||||||
Exercisable at end of period | 44,222 | 44,222 | $ | 10.40 | ||||||||
|
|
|
|
b. | The information on the Company’s outstanding stock options as of December 31, 2014 is as follows: |
Outstanding Stock Options | Exercisable Stock Options | |||||||||||||||||||||||||||||||
Authorization Date | Range of Exercise Price (NTD) | Options (in thousands) | Shares available to option holders (in thousands) | Weighted- average expected remaining years | Weighted- average exercise price per share (NTD) | Options (in thousands) | Shares available to option holders (in thousands) | Weighted- average exercise price per share (NTD) | ||||||||||||||||||||||||
2009.05.12 | $ | 10.40 | 48,729 | 48,729 | 0.46 | $ | 10.40 | 44,222 | 44,222 | $ | 10.40 |
The weighted-average share price at the date of exercise of employee stock options for the years ended December 31, 2012, 2013 and 2014 were NT$13.44, NT$13.46 and NT$14.06, respectively. The compensation expenses for the years ended December 31, 2012, 2013 and 2014 were NT$78 million, NT$29 million and NT$1 million, respectively.
(17) | Operating Revenues |
For the years ended December 31, | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Net sales | ||||||||||||
Sale of goods | $ | 112,473,152 | $ | 119,900,985 | $ | 134,526,268 | ||||||
Other operating revenues | ||||||||||||
Royalty | 1,417 | 10,691 | 1,767,723 | |||||||||
Mask tooling | 3,378,138 | 2,925,145 | 3,137,979 | |||||||||
Others | (177,944 | ) | 974,815 | 580,106 | ||||||||
|
|
|
|
|
| |||||||
Net operating revenues | $ | 115,674,763 | $ | 123,811,636 | $ | 140,012,076 | ||||||
|
|
|
|
|
|
On August 29, 2014, UMC entered into a technology license contract with FUJITSU SEMICONDUCTOR LIMITED (“FUJITSU”) under which UMC granted a perpetual license to its 40LP (low power) process technology to FUJITSU for royalty income. As UMC completed all the performance obligations under the contract by the end of 2014, the royalty income was recognized in 2014.
(18) | Operating Costs and Expenses |
The Company’s personnel, depreciation and amortization expenses are summarized as follows:
For the years ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010 | 2011 | 2012 | For the years ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating costs | Operating expenses | Total | Operating costs | Operating expenses | Total | Operating costs | Operating expenses | Total | 2012 | 2013 | 2014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | Operating costs | Operating expenses | Total | Operating costs | Operating expenses | Total | Operating costs | Operating expenses | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Personnel expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Salaries | 13,201,139 | 5,135,151 | 18,336,290 | 12,265,469 | 4,764,634 | 17,030,103 | 12,096,177 | 4,499,346 | 16,595,523 | $ | 12,096,177 | $ | 4,499,346 | $ | 16,595,523 | $ | 12,591,125 | $ | 4,944,704 | $ | 17,535,829 | $ | 14,066,492 | $ | 5,719,457 | $ | 19,785,949 | |||||||||||||||||||||||||||||||||||||||||||||
Labor and health insurance | 624,384 | 205,606 | 829,990 | 764,487 | 244,986 | 1,009,473 | 781,756 | 259,429 | 1,041,185 | 781,756 | 259,429 | 1,041,185 | 719,009 | 297,857 | 1,016,866 | 794,333 | 318,830 | 1,113,163 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension | 605,086 | 184,373 | 789,459 | 609,855 | 188,812 | 798,667 | 857,142 | 244,204 | 1,101,346 | 650,444 | 237,118 | 887,562 | 799,176 | 281,573 | 1,080,749 | 873,437 | 282,209 | 1,155,646 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other personnel expenses | 145,400 | 59,881 | 205,281 | 142,316 | 72,735 | 215,051 | 141,524 | 53,068 | 194,592 | 141,524 | 53,068 | 194,592 | 178,025 | 74,493 | 252,518 | 212,883 | 75,599 | 288,482 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation | 27,941,023 | 1,972,982 | 29,914,005 | 29,775,956 | 2,103,701 | 31,879,657 | 32,759,537 | 2,223,257 | 34,982,794 | 32,867,330 | 2,224,916 | 35,092,246 | 34,990,350 | 2,180,969 | 37,171,319 | 36,427,088 | 2,307,181 | 38,734,269 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization | 146,452 | 397,869 | 544,321 | 161,501 | 294,230 | 455,731 | 274,753 | 451,410 | 726,163 | 276,070 | 447,700 | 723,770 | 530,897 | 659,627 | 1,190,524 | 633,786 | 1,237,992 | 1,871,778 |
Net Other Operating Income |
For the years ended December 31, | ||||||||||||
2010 | 2011 | 2012 | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Current | ||||||||||||
Domestic | 1,432,898 | 442,326 | 827,889 | |||||||||
Foreign | 84,390 | 40,759 | 15,477 | |||||||||
|
|
|
|
|
| |||||||
Subtotal | 1,517,288 | 483,085 | 843,366 | |||||||||
Deferred | ||||||||||||
Domestic | 103,115 | 406,928 | 1,289,122 | |||||||||
Foreign | (14,289 | ) | 23,422 | (3,450 | ) | |||||||
|
|
|
|
|
| |||||||
Subtotal | 88,826 | 430,350 | 1,285,672 | |||||||||
|
|
|
|
|
| |||||||
Income tax expense | 1,606,114 | 913,435 | 2,129,038 | |||||||||
|
|
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Net rental income (loss) from property | $ | 95,100 | $ | (38,665 | ) | $ | (24,098 | ) | ||||
Gain on disposal of property, plant and equipment | 386,561 | 40,897 | 81,811 | |||||||||
Impairment reversal (loss) of property, plant and equipment | (3,261,341 | ) | 984 | (596,678 | ) | |||||||
Impairment loss of intangible assets | (11,095 | ) | (57,677 | ) | — | |||||||
Others | — | (70,871 | ) | — | ||||||||
|
|
|
|
|
| |||||||
Total | $ | (2,790,775 | ) | $ | (125,332 | ) | $ | (538,965 | ) | |||
|
|
|
|
|
|
a. | Other income |
For the years ended December 31, | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Interest income | ||||||||||||
Bank deposits | $ | 181,413 | $ | 264,320 | $ | 471,153 | ||||||
Others | 29,958 | 37,406 | 24,577 | |||||||||
Dividend income | 1,032,451 | 789,583 | 706,719 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 1,243,822 | $ | 1,091,309 | $ | 1,202,449 | ||||||
|
|
|
|
|
|
b. | Other gains and losses |
For the years ended December 31, | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Gain on valuation of financial assets and liabilities at fair value through profit or loss: | ||||||||||||
Designated financial assets at fair value through profit or loss | $ | 37,452 | $ | 11,446 | $ | 34,816 | ||||||
Financial assets held for trading | 11,866 | — | 44,310 | |||||||||
Embedded derivative financial liabilities | — | 229,262 | 60,064 | |||||||||
Loss on valuation of financial assets and liabilities at fair value through profit or loss: | ||||||||||||
Financial assets held for trading | — | (49,022 | ) | — | ||||||||
Embedded derivative financial liabilities | (667,159 | ) | — | — | ||||||||
Forward exchange contract | — | — | (84,962 | ) | ||||||||
Impairment loss: | ||||||||||||
Available-for-sale financial assets, noncurrent | (501,407 | ) | (1,132,353 | ) | (176,958 | ) | ||||||
Financial assets measured at cost, noncurrent | (182,080 | ) | (143,422 | ) | (127,559 | ) | ||||||
Investments accounted for under the equity method | (223,695 | ) | — | — | ||||||||
Gain on disposal of investments | 4,830,419 | 2,224,418 | 2,445,259 | |||||||||
Others | 677,751 | 710,881 | 474,163 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 3,983,147 | $ | 1,851,210 | $ | 2,669,133 | ||||||
|
|
|
|
|
| |||||||
c. Finance costs | ||||||||||||
For the years ended December 31, | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Interest expenses | ||||||||||||
Bonds payable | $ | 194,034 | $ | 356,586 | $ | 465,577 | ||||||
Bank loans | 263,058 | 239,438 | 221,879 | |||||||||
Others | 915 | 208 | (278 | ) | ||||||||
Financial expenses | 80,262 | 82,174 | 58,887 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 538,269 | $ | 678,406 | $ | 746,065 | ||||||
|
|
|
|
|
|
(21) | Components of Other Comprehensive Income (Loss) |
For the year ended December 31, 2012 | ||||||||||||||||||||
Arising during the period | Reclassification adjustments during the period | Other comprehensive loss, before tax | Income tax effect | Other comprehensive loss, net of tax | ||||||||||||||||
Items that may be reclassified subsequently to profit or loss: |
| |||||||||||||||||||
Exchange differences on translation of foreign operations | $ | (2,802,004 | ) | $ | — | $ | (2,802,004 | ) | $ | (426,326 | ) | $ | (3,228,330 | ) | ||||||
Unrealized gain (loss) on available-for-sale financial assets | 1,563,832 | (4,153,340 | ) | (2,589,508 | ) | 97,021 | (2,492,487 | ) | ||||||||||||
Share of changes in other comprehensive income (loss) of associates and joint ventures accounted for using equity method | (263,908 | ) | (13 | ) | (263,921 | ) | 21,678 | (242,243 | ) | |||||||||||
Items that will not be reclassified subsequently to profit or loss: | ||||||||||||||||||||
Remeasurements of defined benefit pension plans | (499,226 | ) | — | (499,226 | ) | 81,736 | (417,490 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other comprehensive loss | $ | (2,001,306 | ) | $ | (4,153,353 | ) | $ | (6,154,659 | ) | $ | (225,891 | ) | $ | (6,380,550 | ) | |||||
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2013 | ||||||||||||||||||||
Arising during the period | Reclassification adjustments during the period | Other comprehensive income (loss), before tax | Income tax effect | Other comprehensive income (loss), net of tax | ||||||||||||||||
Items that may be reclassified subsequently to profit or loss: |
| |||||||||||||||||||
Exchange differences on translation of foreign operations | $ | 1,416,910 | $ | (1,571,523 | ) | $ | (154,613 | ) | $ | 424,551 | $ | 269,938 | ||||||||
Unrealized gain (loss) on available-for-sale financial assets | 223,917 | (1,080,243 | ) | (856,326 | ) | 72,674 | (783,652 | ) | ||||||||||||
Share of changes in other comprehensive income (loss) of associates and joint ventures accounted for using equity method | 381,170 | (18,679 | ) | 362,491 | (29,225 | ) | 333,266 | |||||||||||||
Items that will not be reclassified subsequently to profit or loss: | ||||||||||||||||||||
Remeasurements of defined benefit pension plans | 456,478 | — | 456,478 | (77,623 | ) | 378,855 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other comprehensive income (loss) | $ | 2,478,475 | $ | (2,670,445 | ) | $ | (191,970 | ) | $ | 390,377 | $ | 198,407 | ||||||||
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2014 | ||||||||||||||||||||
Arising during the period | Reclassification adjustments during the period | Other comprehensive income (loss), before tax | Income tax effect | Other comprehensive income (loss), net of tax | ||||||||||||||||
Items that may be reclassified subsequently to profit or loss: |
| |||||||||||||||||||
Exchange differences on translation of foreign operations | $ | 4,290,260 | $ | (869 | ) | $ | 4,289,391 | $ | 40,380 | $ | 4,329,771 | |||||||||
Unrealized gain (loss) on available-for-sale financial assets | 3,598,159 | (1,945,996 | ) | 1,652,163 | (187,652 | ) | 1,464,511 | |||||||||||||
Share of changes in other comprehensive income (loss) of associates and joint ventures accounted for using equity method | 312,815 | (727 | ) | 312,088 | (34,992 | ) | 277,096 | |||||||||||||
Items that will not be reclassified subsequently to profit or loss: | ||||||||||||||||||||
Remeasurements of defined benefit pension plans | (2,607 | ) | — | (2,607 | ) | 521 | (2,086 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other comprehensive income (loss) | $ | 8,198,627 | $ | (1,947,592 | ) | $ | 6,251,035 | $ | (181,743 | ) | $ | 6,069,292 | ||||||||
|
|
|
|
|
|
|
|
|
|
(22) | Income Tax |
a. | The major components of income tax expense for the years ended December 31, 2012, 2013 and 2014 were as follows: |
i. | Income tax expense recorded in profit or loss |
For the years ended December 31, | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Current income tax expense (benefit): | ||||||||||||
Current income tax charge | $ | 851,782 | $ | 554,592 | $ | 3,439,422 | ||||||
Adjustments in respect of current income tax of prior periods | (13,437 | ) | 55,318 | (485,580 | ) | |||||||
Deferred income tax expense (benefit): | ||||||||||||
Deferred income tax expense (benefit) related to origination and reversal of temporary differences | 877,756 | 1,086,871 | (650,172 | ) | ||||||||
Deferred income tax related to recognition and derecognition of tax losses and unused tax credits | 1,844,276 | 1,402,632 | 1,924,919 | |||||||||
Adjustment of prior year’s deferred income tax | 7,064 | (201,548 | ) | 307,661 | ||||||||
Deferred tax expense arising from write-down or reversal of write-down of deferred tax assets | (1,421,458 | ) | (641,031 | ) | (1,411,135 | ) | ||||||
|
|
|
|
|
| |||||||
Income tax expense recorded in profit or loss | $ | 2,145,983 | $ | 2,256,834 | $ | 3,125,115 | ||||||
|
|
|
|
|
|
ii. | Income tax relating to components of other comprehensive income (loss) |
For the years ended December 31, | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Exchange differences on translation of foreign operations | $ | (426,326 | ) | $ | 424,551 | $ | 40,380 | |||||
Unrealized loss (gain) on available-for-sale financial assets | 97,021 | 72,674 | (187,652 | ) | ||||||||
Share of changes in other comprehensive income (loss) of associates and joint ventures accounted for using equity | 21,678 | (29,225 | ) | (34,992 | ) | |||||||
Remeasurements of defined benefit pension plans | 81,736 | (77,623 | ) | 521 | ||||||||
|
|
|
|
|
| |||||||
Income tax relating to components of other comprehensive income (loss) | $ | (225,891 | ) | $ | 390,377 | $ | (181,743 | ) | ||||
|
|
|
|
|
| |||||||
iii. Deferred income tax charged directly to equity | ||||||||||||
For the years ended December 31, | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Temporary differences arising from the initial recognition of the equity component separately from the liability component | $ | 1,155 | $ | 16,406 | $ | 83,185 | ||||||
Adjustments of changes in net assets of associates and joint ventures accounted for using equity method | 56 | 1,237 | (2,870 | ) | ||||||||
|
|
|
|
|
| |||||||
Income tax charged directly to equity | $ | 1,211 | $ | 17,643 | $ | 80,315 | ||||||
|
|
|
|
|
|
b. | A reconciliation between |
For the years ended December 31, | ||||||||||||
2010 | 2011 | 2012 | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Income tax on pre-tax income from continuing operations at statutory tax rate | 4,315,216 | 1,594,660 | 1,360,503 | |||||||||
Permanent and temporary differences | ||||||||||||
Investment loss | (479,686 | ) | (987,163 | ) | (429,952 | ) | ||||||
Gain on disposal of investments | (289,103 | ) | (157,537 | ) | (775,564 | ) | ||||||
Investment in subsidiary | — | — | 319,229 | |||||||||
Others | (1,220,481 | ) | (459,843 | ) | 230,845 | |||||||
|
|
|
|
|
| |||||||
Subtotal | (1,989,270 | ) | (1,604,543 | ) | (655,442 | ) | ||||||
Change in investment tax credit | 2,363,985 | 441,053 | 1,596,902 | |||||||||
Change in loss carry-forward | 2,136,325 | 99,141 | 2,996,251 | |||||||||
Change in valuation allowance against deferred income tax assets | ||||||||||||
Investment tax credit | (3,095,208 | ) | (720,397 | ) | (1,412,352 | ) | ||||||
Loss carry-forward | (2,136,325 | ) | (104,410 | ) | (2,159,581 | ) | ||||||
Others | (295,209 | ) | 783,105 | 277,774 | ||||||||
|
|
|
|
|
| |||||||
Subtotal | (5,526,742 | ) | (41,702 | ) | (3,294,159 | ) | ||||||
Effect of higher tax rate of subsidiary | 41,549 | 35,333 | 23,819 | |||||||||
Change in tax rate | 202,628 | — | — | |||||||||
Adjustment of prior year’s tax expense | 1,778 | (875 | ) | (13,839 | ) | |||||||
Income basic tax | 2,289 | 18,491 | 7,985 | |||||||||
Others | 58,356 | 371,877 | 107,018 | |||||||||
|
|
|
|
|
| |||||||
Income tax expense | 1,606,114 | 913,435 | 2,129,038 | |||||||||
|
|
|
|
|
|
Income before tax At UMC’s statutory income tax rate of 17% Adjustments in respect of current income tax of prior periods Net change in loss carry-forward and investment tax credits Recognition and derecognition of temporary differences Tax effect of non-taxable income and not-deductible expenses: Tax exempt income Investment gain Dividend income Others Basic tax Effect of different tax rates applicable to UMC and its subsidiaries Taxes withheld in other jurisdictions Additional income tax on unappropriated earnings Others Income tax expense recorded in profit or loss UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES For the years ended December 31, 2012 2013 2014 $ 6,294,605 $ 14,340,472 $ 13,572,303 1,070,083 2,437,880 2,307,291 (13,437 ) 55,318 (485,580 ) 951,777 1,837,319 212,862 545,805 (396,514 ) 427,605 (143,568 ) (97,322 ) (328,456 ) (1,188,791 ) (1,744,070 ) (266,413 ) (171,479 ) (107,915 ) (107,436 ) 398,712 240,408 (181,598 ) 7,985 — 16,379 597,997 (52,235 ) (13,833 ) 18,539 46,257 382,912 — — 1,092,466 72,360 37,708 68,916 $ 2,145,983 $ 2,256,834 $ 3,125,115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant components of deferred income tax assets and liabilities |
As of December 31, | ||||||||
2011 | 2012 | |||||||
NT$’000 | NT$’000 | |||||||
Deferred income tax assets | ||||||||
Investment tax credit | 6,298,868 | 4,339,394 | ||||||
Depreciation | 649,365 | 1,072,627 | ||||||
Loss carry-forward | 7,307,779 | 5,646,652 | ||||||
Pension | 566,051 | 611,482 | ||||||
Allowance on sales returns and discounts | 38,448 | 108,785 | ||||||
Allowance for loss on decline in market value and obsolescence of inventories | 457,013 | 518,072 | ||||||
Foreign investment gain or loss | 787,073 | 539,254 | ||||||
Others | 277,994 | 1,049,639 | ||||||
|
|
|
| |||||
Total deferred income tax assets | 16,382,591 | 13,885,905 | ||||||
Valuation allowance | (12,803,735 | ) | (10,885,246 | ) | ||||
|
|
|
| |||||
Net deferred income tax assets | 3,578,856 | 3,000,659 | ||||||
|
|
|
| |||||
Deferred income tax liabilities | ||||||||
Unrealized exchange gain | (260,015 | ) | (273,810 | ) | ||||
Depreciation | (15 | ) | (983,132 | ) | ||||
Others | (95,823 | ) | (57,390 | ) | ||||
|
|
|
| |||||
Total deferred income tax liabilities | (355,853 | ) | (1,314,332 | ) | ||||
|
|
|
| |||||
Total net deferred income tax assets | 3,223,003 | 1,686,327 | ||||||
|
|
|
| |||||
Deferred income tax assets – current | 2,656,817 | 2,940,973 | ||||||
Deferred income tax liabilities – current | (305,925 | ) | (298,896 | ) | ||||
Valuation allowance | (2,085,934 | ) | (1,751,702 | ) | ||||
|
|
|
| |||||
Net | 264,958 | 890,375 | ||||||
|
|
|
| |||||
Deferred income tax assets – noncurrent | 13,725,774 | 10,944,932 | ||||||
Deferred income tax liabilities – noncurrent | (49,928 | ) | (1,015,436 | ) | ||||
Valuation allowance | (10,717,801 | ) | (9,133,544 | ) | ||||
|
|
|
| |||||
Net | 2,958,045 | 795,952 | ||||||
|
|
|
| |||||
Total net deferred income tax assets | 3,223,003 | 1,686,327 | ||||||
|
|
|
|
As of December 31, | ||||||||||||||||
2013 | 2014 | |||||||||||||||
Amount | Tax effect | Amount | Tax effect | |||||||||||||
Deferred income tax assets | ||||||||||||||||
Investment tax credits | $ | 1,057,519 | $ | 528,390 | ||||||||||||
Depreciation | $ | 2,966,796 | 449,343 | $ | 3,262,978 | 493,580 | ||||||||||
Loss carry-forward | 17,013 | 1,988 | 10,293 | 910 | ||||||||||||
Pension | 3,774,866 | 641,727 | 3,800,509 | 646,087 | ||||||||||||
Allowance for sales returns and discounts | 311,006 | 52,871 | 697,343 | 118,548 | ||||||||||||
Allowance for inventory valuation losses | 1,402,764 | 234,236 | 1,273,730 | 212,525 | ||||||||||||
Investment loss | 1,213,920 | 231,485 | 1,154,706 | 215,782 | ||||||||||||
Others | 230,337 | 55,088 | 207,426 | 51,316 | ||||||||||||
|
|
|
| |||||||||||||
Total deferred income tax assets | 2,724,257 | 2,267,138 | ||||||||||||||
|
|
|
| |||||||||||||
Deferred income tax liabilities | ||||||||||||||||
Unrealized exchange gain | (1,696,869 | ) | (288,468 | ) | (1,652,483 | ) | (280,922 | ) | ||||||||
Depreciation | (10,179,003 | ) | (1,708,899 | ) | (6,527,694 | ) | (1,088,314 | ) | ||||||||
Investment gain | (10,153,845 | ) | (864,082 | ) | (13,287,787 | ) | (1,358,836 | ) | ||||||||
Convertible bond option | (178,868 | ) | (30,407 | ) | — | — | ||||||||||
Amortizable assets | (2,629,442 | ) | (394,416 | ) | (2,714,290 | ) | (407,144 | ) | ||||||||
Others | (258,940 | ) | (39,160 | ) | (36,113 | ) | (5,035 | ) | ||||||||
|
|
|
| |||||||||||||
Total deferred income tax liabilities | (3,325,432 | ) | (3,140,251 | ) | ||||||||||||
|
|
|
| |||||||||||||
Net deferred income tax liabilities | $ | (601,175 | ) | $ | (873,113 | ) | ||||||||||
|
|
|
|
For the years ended December 31, | ||||||||
2013 | 2014 | |||||||
Balance at January 1 | $ | 772,499 | $ | (601,175 | ) | |||
Increase from business combination | (132,264 | ) | — | |||||
Amounts recognized in profit or loss during the period | (1,646,924 | ) | (171,273 | ) | ||||
Amounts recognized in other comprehensive income | 390,377 | (181,743 | ) | |||||
Amounts recognized in equity | 17,643 | 80,315 | ||||||
Exchange adjustments | (2,506 | ) | 763 | |||||
|
|
|
| |||||
Balance at December 31 | $ | (601,175 | ) | $ | (873,113 | ) | ||
|
|
|
|
The Company is subject to taxation in Taiwan and other foreign jurisdictions. As of December 31, 2014, income tax returns of UMC and its subsidiaries in Taiwan have been examined by the tax authorities through 2012 and 2011, respectively, while in other foreign jurisdictions, relevant tax authorities have completed the examination through 2008. UMC has applied for a recheck of the 2011 and 2012 tax return to the competent tax collection authorities as UMC disagreed with the decision made in the tax assessment notice. |
f. | UMC was granted several |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company |
As of December 31, 2012, the Company’s unused investment tax credits were as follows:2013
Expiration Year | Investment tax credits earned | Balance of unused investment tax credits | ||||||
NT$’000 | NT$’000 | |||||||
2013 | 1,890,302 | 1,889,355 | ||||||
2014 | 2,146,028 | 2,146,028 | ||||||
2015 | 304,011 | 304,011 | ||||||
|
|
|
| |||||
Total | 4,340,341 | 4,339,394 | ||||||
|
|
|
|
Expiration year | Investment tax credits earned | Balance of unused investment tax credits | ||||||
2014 | $ | 2,146,004 | $ | 2,140,053 | ||||
2015 | 584,388 | 584,388 | ||||||
2016 | 5,596 | 5,596 | ||||||
|
|
|
| |||||
$ | 2,735,988 | $ | 2,730,037 | |||||
|
|
|
|
As of December 31, 2014
Expiration year | Investment tax credits earned | Balance of unused investment tax credits | ||||||
2015 | $ | 584,388 | $ | 584,388 | ||||
2016 | 5,596 | 5,596 | ||||||
|
|
|
| |||||
$ | 589,984 | $ | 589,984 | |||||
|
|
|
|
As of December 31, 2013
Expiration Year | Accumulated loss | Unutilized accumulated loss | ||||||
NT$’000 | NT$’000 | |||||||
2013 | 1,185,211 | 1,185,211 | ||||||
2014 | 178,024 | 178,024 | ||||||
2015 | 149,827 | 149,827 | ||||||
2016 | 24,588 | 21,616 | ||||||
2017 | 1,447,962 | 1,447,962 | ||||||
2018 | 2,161,114 | 2,161,114 | ||||||
2019 | 1,571,628 | 1,571,274 | ||||||
2020 | 2,230,864 | 2,226,388 | ||||||
2021 | 10,440,087 | 10,430,802 | ||||||
2022 | �� | 4,445,380 | 4,445,380 | |||||
2032 | 13,013 | 12,064 | ||||||
|
|
|
| |||||
Total | 23,847,698 | 23,829,662 | ||||||
|
|
|
|
Expiration year | Accumulated loss | Unutilized accumulated loss | ||||||
2014 | $ | 68 | $ | 68 | ||||
2015 | 149,827 | 149,827 | ||||||
2016 | 60,750 | 60,750 | ||||||
2017 | 79,201 | 79,201 | ||||||
2018 | 232,219 | 232,219 | ||||||
2019 | 657,265 | 657,265 | ||||||
2020 | 893,746 | 889,270 | ||||||
2021 | 9,558,545 | 9,541,695 | ||||||
2022 | 4,502,030 | 4,502,030 | ||||||
2023 | 5,884,261 | 5,884,261 | ||||||
2032 | 7,153 | 6,391 | ||||||
Unlimited duration | 9,650 | 9,650 | ||||||
|
|
|
| |||||
$ | 22,034,715 | $ | 22,012,627 | |||||
|
|
|
|
As of December 31, 2014
Expiration year | Accumulated loss | Unutilized accumulated loss | ||||||
2015 | $ | 149,181 | $ | 149,181 | ||||
2016 | 21,616 | 21,616 | ||||||
2017 | 15,844 | 15,844 | ||||||
2018 | 165,258 | 98,221 | ||||||
2019 | 600,180 | 600,180 | ||||||
2020 | 723,109 | 711,069 | ||||||
2021 | 2,267,432 | 2,262,780 | ||||||
2022 | 4,458,756 | 4,450,630 | ||||||
2023 | 4,120,295 | 4,120,295 | ||||||
2024 | 4,150,414 | 4,150,414 | ||||||
2025 | 295,277 | 295,277 | ||||||
2032 | 7,578 | 6,396 | ||||||
Unlimited duration | 5,524 | 5,524 | ||||||
|
|
|
| |||||
$ | 16,980,464 | $ | 16,887,427 | |||||
|
|
|
|
j. | Imputation credit information |
As of December 31, | ||||||||
2013 | 2014 | |||||||
Balances of imputation credit amounts | $ | 1,107,537 | $ | 1,332,236 | ||||
|
|
|
|
The actual creditable ratio for 2013 and the expected creditable ratio for 2014 were 4.78% and 5.18%, respectively.
UMC’s earnings generated in the year ended December 31, 1997 and prior years have been fully appropriated. |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2011 and 2012, there were unsecured convertible bonds and employee stock options outstanding and the Company calculated the effect of employee bonus in accordance with the ARDF Interpretation No. 97-169. The Company is considered as a complex capital structure. Therefore, in consideration of such complex structure, the calculated basic and diluted earnings per share for the years ended December 31, 2010, 2011 and 2012, are disclosed as follows:
For the years ended December 31, | ||||||||||||
(shares expressed in thousands) | 2010 | 2011 | 2012 | |||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Net income | 23,898,905 | 10,609,695 | 7,819,448 | |||||||||
Effect of dilution: | ||||||||||||
Employee stock options | — | — | — | |||||||||
Employee bonus | — | — | — | |||||||||
Unsecured Convertible bonds | — | 53,362 | 81,338 | |||||||||
|
|
|
|
|
| |||||||
Adjusted net income assuming dilution | 23,898,905 | 10,663,057 | 7,900,786 | |||||||||
|
|
|
|
|
| |||||||
Weighted average shares outstanding | 12,496,485 | 12,561,249 | 12,624,817 | |||||||||
Effect of dilution: | ||||||||||||
Employee stock options | 88,117 | 50,765 | 28,298 | |||||||||
Employee bonus | 182,988 | 209,508 | 151,031 | |||||||||
Unsecured Convertible bonds | — | 420,158 | 652,022 | |||||||||
|
|
|
|
|
| |||||||
Adjusted weighted average shares outstanding assuming dilution | 12,767,590 | 13,241,680 | 13,456,168 | |||||||||
|
|
|
|
|
| |||||||
Retroactively adjusted weighted average shares outstanding | 12,496,485 | 12,561,249 | 12,624,817 | |||||||||
|
|
|
|
|
| |||||||
Retroactively adjusted weighted average shares outstanding assuming dilution | 12,767,590 | 13,241,680 | 13,456,168 | |||||||||
|
|
|
|
|
| |||||||
Earnings per share-basic (in dollars) | 1.91 | 0.84 | 0.62 | |||||||||
|
|
|
|
|
| |||||||
Earnings per share-diluted (in dollars) | 1.87 | 0.81 | 0.59 | |||||||||
|
|
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| |
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIESBasic earnings per share amounts are calculated by dividing the net income for the year attributable to ordinary equity holders of the parent entity by the weighted-average number of ordinary shares outstanding during the year. The reciprocal shareholdings held by subsidiaries and associates are deducted from the computation of weighted-average number of shares outstanding.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Net income attributable to the parent company | $ | 6,094,148 | $ | 12,608,881 | $ | 11,108,940 | ||||||
|
|
|
|
|
| |||||||
Weighted-average number of ordinary shares for basic earnings per share (thousand shares) | 12,463,761 | 12,346,456 | 12,333,913 | |||||||||
|
|
|
|
|
| |||||||
Earnings per share-basic (NTD) | $ | 0.49 | $ | 1.02 | $ | 0.90 | ||||||
|
|
|
|
|
|
b. | Earnings per share-diluted |
Diluted earnings per share is calculated by taking basic earnings per share plus the effect of additional common shares that would have been outstanding if the dilutive share equivalents had been issued. The net income attributable to ordinary equity holders of the parent would be also adjusted for the interest and other income or expenses derived from any underlying dilutive share equivalents, such as convertible bonds. For employee bonus that may be distributed in shares, the number of shares to be distributed is taken into consideration assuming the distribution will be made entirely in shares when calculating diluted earnings per share. Additionally, the dilutive effect of outstanding employee options generally should be reflected in diluted earnings per share by application of treasury stock method. The “assumed proceeds” include the exercise price of the options and the average measured but unrecognized compensation expense during the period.
For the years ended December 31, | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Net income attributable to the parent company | $ | 6,094,148 | $ | 12,608,881 | $ | 11,108,940 | ||||||
Effect of dilution | ||||||||||||
Unsecured convertible bonds | 81,339 | 79,686 | 189,336 | |||||||||
|
|
|
|
|
| |||||||
Income attributable to the Company’s stockholders | $ | 6,175,487 | $ | 12,688,567 | $ | 11,298,276 | ||||||
|
|
|
|
|
| |||||||
Weighted-average number of common stocks for basic earnings per share (thousand shares) | 12,463,761 | 12,346,456 | 12,333,913 | |||||||||
Effect of dilution | ||||||||||||
Employee bonus | 151,031 | 128,787 | 135,940 | |||||||||
Employee stock options | 22,170 | 15,949 | 15,751 | |||||||||
Unsecured convertible bonds | 652,022 | 659,219 | 232,989 | |||||||||
|
|
|
|
|
| |||||||
Weighted-average number of common stocks after dilution (thousand shares) | 13,288,984 | 13,150,411 | 12,718,593 | |||||||||
|
|
|
|
|
| |||||||
Diluted earnings per share (NTD) | $ | 0.46 | $ | 0.96 | $ | 0.89 | ||||||
|
|
|
|
|
|
(24) | Business Combinations |
Acquisition of BEST ELITE INTERNATIONAL LIMITED (BEST ELITE)
The Company acquired additional stocks of Ordinary shares, Series A-1, Series B and B-1 preferred shares representing 48.07% of BEST ELITE’s total outstanding shares on February 1, 2013 from stockholders of BEST ELITE, the holding company of HEJIAN TECHNOLOGY (SUZHOU) CO., LTD. (HEJIAN). Therefore, the Company increased its ownership interest in BEST ELITE from 35.03% to 83.10%. The Company obtained control over BEST ELITE and the results of BEST ELITE’s operations have been included in the consolidated financial statements since that date. As a result of the acquisition, the Company expects to expand overseas market, accelerate the growth of sales and to develop operations in multiple strategic geographic regions through HeJian.
The fair values of the identifiable assets and liabilities of BEST ELITE as of the date of acquisition were:
Fair value recognized on acquisition | ||||
Assets | ||||
Cash and cash equivalents | $ | 7,018,229 | ||
Accounts receivable | 1,180,790 | |||
Inventories | 725,688 | |||
Property, plant and equipment | 6,318,208 | |||
Intangible assets | 43,858 | |||
Deferred tax assets | 433,427 | |||
Other assets | 2,853,479 | |||
Others | 234,050 | |||
|
| |||
18,807,729 | ||||
|
| |||
Liabilities | ||||
Accounts payable | (312,922 | ) | ||
Other payables | (588,621 | ) | ||
Deferred tax liabilities | (565,691 | ) | ||
Others | (48,653 | ) | ||
|
| |||
(1,515,887 | ) | |||
|
| |||
Total identifiable net assets | $ | 17,291,842 | ||
|
|
Gain on bargain purchase:
Acquisition date | ||||
Consideration transferred | $ | 7,328,163 | ||
Add: Value of non-controlling interests | 2,823,193 | |||
Less: Fair value of identifiable net assets | (17,291,842 | ) | ||
|
| |||
Bargain purchase gain | $ | (7,140,486 | ) | |
|
|
The transaction resulted in a bargain purchase gain, which was mainly attributed to the expectation that with the Company’s unique position as a market leading foundry, the Company could better utilize BEST ELITE’s assets, and the lack of liquidity of BEST ELITE’s shares. The Company integrated its operating resources with BEST ELITE to reach cooperative synergy, providing enhanced manufacturing solutions to customers that increase the competiveness of their products. BEST ELITE’s operational efficiency has improved with the integration of its assets with the Company’s advanced technologies and manufacturing platforms as well as leveraging the group’s purchasing power, which led to BEST ELITE’s capacity utilization and operating income to increase in 2014 as compared to 2013.
The Company elected to measure the non-controlling interests in BEST ELITE at the non-controlling interests’ proportionate share of BEST ELITE’s identifiable net assets.
Prior to the acquisition date, the Company accounted for its 35.03% interest in BEST ELITE as an equity-method investment. The Company remeasured the fair value of the previously held equity interest and recognized a loss from disposal of investments of NT$987 million for the year ended December 31, 2013.
The amounts of revenue and profit before tax of BEST ELITE included in the Company’s consolidated income statement from the acquisition date to the year ended December 31, 2013 were NT$6,636 million and NT$1,161 million, respectively. The pro forma revenue and the profit before tax were NT$124,410 million and NT$14,252 million, respectively, as if BEST ELITE had been included in the consolidated results of the Company for the entire year of 2013.
Consideration transferred:
Cash | $ | 4,359,660 | ||
Value of previously held equity interest before acquisition | 2,968,503 | |||
|
| |||
Total | $ | 7,328,163 | ||
|
|
Cash flows analysis of acquisition:
For the year ended December 31, 2013 | ||||
Cash consideration | $ | 4,359,660 | ||
Net cash acquired from the subsidiary | (7,018,229 | ) | ||
|
| |||
Net cash inflows from acquisition | $ | (2,658,569 | ) | |
|
|
Additional purchases of BEST ELITE’s equity interests
The Company purchased additional ordinary shares, Series A-1 and Series B-1 preferred shares representing 3.78% of BEST ELITE’s total outstanding shares on March 14, 2013, and increased its cumulative ownership in BEST ELITE to 86.88%.
A cash consideration of NT$285 million was paid to the non-controlling interest stockholders. The carrying value of the additional interest acquired was NT$629 million. The difference of NT$344 million between the consideration and the carrying value of the interest acquired was recognized in additional paid-in capital within equity during the year ended December 31, 2013.
Obtained controlling interests in ALLIANCE OPTOTEK CORP. (ALLIANCE)
On May 2, 2013, due to the possible future success of LED lighting industry, the Company acquired additional stocks issued by ALLIANCE, which increased the Company’s ownership interest from 47.99% to 74.51%. The Company obtained control over ALLIANCE and the results of ALLIANCE’s operations have been included in the consolidated financial statements since that date.
The fair values of identifiable assets and liabilities of ALLIANCE as of the date of acquisition were:
Fair value recognized on acquisition | ||||
Assets | ||||
Cash and cash equivalents | $ | 65,045 | ||
Accounts receivable | 15,482 | |||
Inventories | 45,732 | |||
Property, plant and equipment | 7,683 | |||
Intangible assets | 63,257 | |||
Others | 7,006 | |||
|
| |||
204,205 | ||||
|
| |||
Liabilities | ||||
Short-term loans | (25,000 | ) | ||
Notes and accounts payable | (9,403 | ) | ||
Other payables | (12,681 | ) | ||
Others | (1,388 | ) | ||
|
| |||
(48,472 | ) | |||
|
| |||
Total identifiable net assets | $ | 155,733 | ||
|
|
Gain on bargain purchase:
Acquisition date | ||||
Consideration transferred | $ | 103,002 | ||
Add: Value of non-controlling interest | 39,688 | |||
Less: Fair value of identifiable net assets | (155,733 | ) | ||
|
| |||
Bargain purchase gain | $ | (13,043 | ) | |
|
|
The Company elected to measure the non-controlling interests in ALLIANCE at the non-controlling interests’ proportionate share of ALLIANCE’s identifiable net assets.
Prior to the acquisition date, the Company accounted for its 47.99% interest in ALLIANCE as an equity-method investment. For the year ended December 31, 2013, the Company remeasured the fair value of the previously held equity interest and recognized a gain from disposal of investments of NT$19 million.
The amounts of revenue and loss of ALLIANCE included in the Company’s consolidated income statement from the acquisition date to the year ended December 31, 2013 were NT$65 million and NT$113 million, respectively. The pro forma revenue and the profit before tax were NT$123,837 million and NT$14,333 million, respectively, as if ALLIANCE had been included in the consolidated results of the Company for the entire year of 2013.
Consideration transferred:
Cash | $ | 74,000 | ||
Value of previously held equity interest before acquisition | 29,002 | |||
|
| |||
Total | $ | 103,002 | ||
|
|
Cash flows analysis of acquisition:
For the year ended December 31, 2013 | ||||
Cash consideration | $ | 74,000 | ||
Net cash acquired from the subsidiary | (65,045 | ) | ||
|
| |||
Net cash outflows from acquisition | $ | 8,955 | ||
|
|
(25) | Non-Current Assets Held For Sale (Disposal Group) |
In order to integrate resources and reduce operating cost by improving operating performance and expanding economies of scale, TOPCELL SOLAR INTERNATIONAL CO., LTD.’s Board of Directors (TOPCELL, one of the Company’s subsidiaries) resolved to offer a merger with MOTECH INDUSTRIES, INC. (MOTECH) on December 26, 2014. Six shares of TOPCELL were exchanged for one share of MOTECH. MOTECH will be the surviving company when the merger is expected to become effective on July 1, 2015 upon the completion of follow-up procedures to be determined when the merger is approved by TOPCELL’s stockholders and the authority. TOPCELL’s assets and liabilities have been reclassified to non-current assets held for sale as a disposal group. This disposal group is classified under new business segment.
Assets and liabilities reclassified to non-current assets held for sale as a disposal group mainly consist of:
Assets | ||||
Cash and cash equivalents | $ | 511,088 | ||
Notes and accounts receivable | 758,839 | |||
Other receivable | 77,579 | |||
Inventories | 823,249 | |||
Prepayment | 325,605 | |||
Non-current assets held for sale | 600,663 | |||
Property, plant and equipment | 3,821,601 | |||
Others | 60,367 | |||
|
| |||
6,978,991 | ||||
|
| |||
Liabilities | ||||
Short-term loans | (2,807,292 | ) | ||
Notes and accounts payable | (623,501 | ) | ||
Other payables | (217,350 | ) | ||
Payables on equipment | (158,537 | ) | ||
Current portion of long-term liabilities | (1,164,878 | ) | ||
Other current liabilities | (205,530 | ) | ||
Long-term loans | (417,762 | ) | ||
|
| |||
(5,594,850 | ) | |||
|
| |||
Net carrying amount of the disposal group | $ | 1,384,141 | ||
|
|
(26) | Deconsolidation of the Company’s Subsidiaries |
Deconsolidation of UMC JAPAN (UMCJ)
In November 2013, the Company lost control over UMCJ due to the Company selling 100% shares of UMCJ to a third party, MACH SEMICONDUCTOR CO.; accordingly, the Company derecognized the related assets and liabilities of UMCJ.
Assets and liabilities of UMCJ over which the Company lost control: |
As of November 30, 2013 | ||||
Assets | ||||
Cash and cash equivalents | $ | 141,501 | ||
Accounts receivable | 603 | |||
Property, plant and equipment | 758,993 | |||
Others | 26,677 | |||
|
| |||
927,774 | ||||
|
| |||
Liabilities | ||||
Accounts payable | (75,201 | ) | ||
Accrued pension liabilities | (18,218 | ) | ||
Others | (22,522 | ) | ||
|
| |||
(115,941 | ) | |||
|
| |||
Net assets deconsolidated | $ | 811,833 | ||
|
|
b. | Consideration received and gain recognized from the transaction: |
Cash received | $ | 48,217 | ||
Less: Net assets of the subsidiary deconsolidated (based on ownership %) | (811,833 | ) | ||
Amounts transferred from other comprehensive income to profit | 1,571,489 | |||
Amounts transferred from deferred unrealized gain to profit | 30,497 | |||
Other amounts transferred to profit | 1,484 | |||
|
| |||
Gain on disposal of the subsidiary | $ | 839,854 | ||
|
|
The gain on disposal of the subsidiary was recognized as non-operating income and expenses in the consolidated statement of comprehensive income for the year ended December 31, 2013.
c. | Analysis of net cash outflow arising from deconsolidation of the subsidiary: |
Cash received | $ | 48,217 | ||
Net cash of subsidiary derecognized | (141,501 | ) | ||
|
| |||
Net cash outflow from deconsolidation | $ | (93,284 | ) | |
|
|
Deconsolidation of ALLIANCE OPTOTEK CORP. (ALLIANCE)
In order to integrate resources and expand operations to improve operating performance and industrial competitiveness, ALLIANCE OPTOTEK CORP.’s Board of Directors (ALLIANCE, one of the Company’s subsidiaries) resolved the merger with WIESON TECHNOLOGIES CO., LTD. (WIESON) on January 23, 2014. WIESON will be the surviving company and the merger became effective on June 3, 2014. ALLIANCE’s assets and liabilities were reclassified to non-current assets held for sale as a disposal group on January 23, 2014 until the Company derecognized the related assets and liabilities of ALLIANCE on June 3, 2014.
a. | ALLIANCE’s derecognized assets and liabilities mainly consist of: |
Assets | ||||
Cash and cash equivalents | $ | 15,617 | ||
Notes and accounts receivable | 14,239 | |||
Inventories | 24,165 | |||
Property, plant and equipment | 6,669 | |||
Others | 6,418 | |||
|
| |||
67,108 | ||||
|
| |||
Liabilities | ||||
Payables | (22,984 | ) | ||
Others | (120 | ) | ||
|
| |||
(23,104 | ) | |||
|
| |||
Net carrying amount of the disposal group | $ | 44,004 | ||
|
|
b. | Consideration received and gain recognized from the transaction: |
Stock received — WIESON | $ | 32,148 | ||
Carrying amount of non-controlling interests | 11,214 | |||
Less: Net assets of the subsidiary deconsolidated | (44,004 | ) | ||
Amounts transferred from other comprehensive income to profit | 869 | |||
|
| |||
Gain on disposal of the shares of subsidiary | $ | 227 | ||
|
|
Gain on disposal of the shares of subsidiary during the year ended December 31, 2014 was recognized as non-operating income and expenses in the consolidated statement of comprehensive income.
c. | Analysis of net cash outflow arising from deconsolidation of the subsidiary: |
Cash received | $ | — | ||
Net cash of subsidiary derecognized | (15,617 | ) | ||
|
| |||
Net cash outflow from deconsolidation | $ | (15,617 | ) | |
|
|
7. | SIGNIFICANT RELATED PARTY TRANSACTIONS |
a. | Significant |
a. Operating revenuesFor the year ended December 31, 2012
For the years ended December 31, | ||||||||||||||||||||||||
2010 | 2011 | 2012 | ||||||||||||||||||||||
Amount | Percentage | Amount | Percentage | Amount | Percentage | |||||||||||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||||||||||||||
SIS | 777,318 | 1 | 237,245 | — | 255,992 | — | ||||||||||||||||||
Others | 303,829 | — | 253,881 | — | 225,196 | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 1,081,147 | 1 | 491,126 | — | 481,188 | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty | Transactions (Note 1) | |||||||||
Entity | Account | Amount | Terms (Note 2) | |||||||
UMC | UMC-USA | Sales | $ | 49,403,054 | Net 60 days | |||||
UMC | UMC-USA | Accounts receivable | 4,645,653 | — | ||||||
UMC | UMCJ | Sales | 1,060,035 | Net 60 days | ||||||
UMC | UMCJ | Accounts receivable | 180,275 | — |
For the year ended December 31, 2013
Counterparty | Transactions (Note 1) | |||||||||
Entity | Account | Amount | Terms (Note 2) | |||||||
UMC | UMC-USA | Sales | $ | 52,581,667 | Net 60 days | |||||
UMC | UMC-USA | Accounts receivable | 5,599,526 | — | ||||||
UMC | UMCJ | Sales | 403,888 | Net 60 days | ||||||
UMC | UMC GROUP JAPAN | Sales | 3,885,762 | Net 60 days | ||||||
UMC | UMC GROUP JAPAN | Accounts receivable | 845,690 | — |
For the year ended December 31, 2014
Counterparty | Transactions (Note 1) | |||||||||
Entity | Account | Amount | Terms (Note 2) | |||||||
UMC | UMC-USA | Sales | $ | 56,095,440 | Net 60 days | |||||
UMC | UMC-USA | Accounts receivable | 7,191,171 | — | ||||||
UMC | UMC GROUP JAPAN | Sales | 5,527,537 | Net 60 days | ||||||
UMC | UMC GROUP JAPAN | Accounts receivable | 1,205,059 | — |
Note 1: | All the significant intercompany transactions listed above are downstream transactions. |
Note 2: | The sales price to the above related parties was determined through mutual agreement based on the market conditions. |
b. | Significant transactions between the Company and other related parties were as follows: |
(i) | Operating revenues |
For the years ended December 31, | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Associates | $ | 2,325 | $ | 4,942 | $ | 120 | ||||||
Joint ventures | 217,971 | 51,154 | 46,230 | |||||||||
Other related parties (Note A) | 260,892 | 156,004 | 117,674 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 481,188 | $ | 212,100 | $ | 164,024 | ||||||
|
|
|
|
|
|
Note A: | Transactions with other related parties are primarily from the operating transactions with SILICON INTEGRATED SYSTEMS CORP. (SIS). The amounts for the years ended December 31, 2012, 2013 and 2014 were NT$256 million, NT$156 million and NT$117 million, respectively. |
(ii) | Accounts receivable, net |
As of December 31, | ||||||||
2013 | 2014 | |||||||
Joint ventures | $ | 1,081 | $ | 18,164 | ||||
Other related parties (Note B) | 1,839 | 18,127 | ||||||
|
|
|
| |||||
Total | 2,920 | 36,291 | ||||||
Less: Allowance for sales returns and discounts | (66 | ) | (269 | ) | ||||
|
|
|
| |||||
Net | $ | 2,854 | $ | 36,022 | ||||
|
|
|
|
Note B: | Balances of other related parties are accounts receivables primarily from SIS. As of December 31, 2013 and 2014, the balances were NT$2 million and NT$17 million, respectively. |
The sales price to the above related parties was determined through mutual agreement based on the market conditions.rates. The collection periodperiods for overseasdomestic sales to related parties was net were month-end 45~60 days, while the termsterm for domestic sales were month-end 45~60 days. The collection period for third party overseas sales was net 30~60 days, while the terms for third party domestic sales were month-end 30~60 days.
b. Accounts receivable, net
(iii) | Significant asset transactions |
Acquisition of available-for-sale financial assets, noncurrent
As of December 31, | ||||||||||||||||
2011 | 2012 | |||||||||||||||
Amount | Percentage | Amount | Percentage | |||||||||||||
NT$’000 | NT$’000 | |||||||||||||||
SIS | 3,954 | — | 70,070 | — | ||||||||||||
JINING SUNRICH | 124,851 | 1 | 12,067 | — | ||||||||||||
Others | 1,825 | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 130,630 | 1 | 82,137 | — | ||||||||||||
|
|
|
| |||||||||||||
Less: Allowance for sales returns and discounts | (77 | ) | (396 | ) | ||||||||||||
|
|
|
| |||||||||||||
Net | 130,553 | 81,741 | ||||||||||||||
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
c. Significant asset transactions
Transaction Amounts (In thousands of shares) | Transaction underlying |
For the years ended December 31 | ||||||||||||||||
2012 | 2013 | 2014 | ||||||||||||||||
Associates | 50,500 | BEAUTY ESSENTIALS INTERNATIONAL LTD. | $ | — | $ | 104,919 | $ | — | ||||||||||
|
|
|
|
|
|
c. | ||||||||||||||||
| ||||||||||||||||
Key management personnel compensation |
d. Key management personnel compensation disclosure
For the years ended December 31, | ||||||||||||||
Item | 2010 | 2011 | 2012 | |||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||||
Salary, compensation, allowance, income from professional practice and bonus | 343,682 | 336,653 | 263,041 | |||||||||||
|
|
|
|
|
|
For the years ended December 31, | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Short-term employee benefits | $ | 253,432 | $ | 221,530 | $ | 212,111 | ||||||
Post-employment benefits | 3,707 | 3,062 | 2,789 | |||||||||
Termination benefits | 3,534 | — | 1,029 | |||||||||
Share-based payments | 8,120 | 1,935 | 12,256 | |||||||||
Others | — | 932 | 467 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 268,793 | $ | 227,459 | $ | 228,652 | ||||||
|
|
|
|
|
|
ASSETS PLEDGED AS COLLATERAL |
As of December 31, 2011
As of December 31, | ||||||||||||
2013 | 2014 | Party to which asset(s) was pledged | Purpose of pledge | |||||||||
Refundable Deposits (Time deposit) | $ | 815,079 | $ | 815,119 | Customs | Customs duty guarantee | ||||||
Refundable Deposits (Time deposit) | 156,658 | 158,094 | Science Park Administration | Collateral for land lease | ||||||||
Refundable Deposits (Time deposit) | 52,800 | 53,202 | Liquefied Natural Gas Business Division, CPC Corporation, Taiwan | Energy resources guarantee | ||||||||
Refundable Deposits (Time deposit) | 1,246 | 1,246 | Bureau of Energy, Ministry of Economic Affairs | Energy resources guarantee | ||||||||
Refundable Deposits (Time deposit) | 870 | 870 | National Pingtung University of Science and Technology | Guarantee for engineering project | ||||||||
Refundable Deposits (Time deposit) | 357 | 357 | National Pei-men Senior High School | Guarantee for engineering project | ||||||||
Refundable Deposits (Time deposit) | 1,110 | — | Hsinchu Kuang-Fu High School | Cooperative education |
Party to which asset(s) was pledged Purpose of pledge Land Collateral for long-term loans Buildings Syndicated Loans from Bank of Taiwan and 7 others and Syndicated Loans from Taiwan Cooperative Bank and 5 others Collateral for long-term loans Machinery and equipment Bank of Taiwan, Cooperative Bank, First Commercial Bank, Mega International Commercial Bank, Syndicated Loans from Bank of Taiwan and 7 others and Syndicated Loans from Taiwan Cooperative Bank and 5 others Collateral for long-term and short-term loans Furniture and fixtures Syndicated Loans from Bank of Taiwan and 7 others and Syndicated Loans from Taiwan Cooperative Bank and 5 others Collateral for long-term loans Construction in progress and equipment awaiting inspection Bank of Taiwan, First Commercial Bank and Mega International Commercial Bank Collateral for long-term loans Total As of December 31, 2013 2014 600,664 — First Commercial Bank 1,630,477 1,074,856 6,285,141 4,764,493 44,373 36,217 87,981 — $ 9,676,756 $ 6,904,454
9. | ||||||||
|
| |||||||
| ||||||||
|
| |||||||
|
| |||||||
|
| |||||||
|
| |||||||
|
| |||||||
|
| |||||||
|
| |||||||
|
| |||||||
|
| |||||||
| ||||||||
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2012
|
| |||||||
|
|
| ||||||
|
|
| ||||||
|
|
| ||||||
|
|
| ||||||
|
|
| ||||||
|
|
| ||||||
|
|
| ||||||
|
|
| ||||||
|
|
| ||||||
| ||||||||
(1) | The Company |
(2) | The Company |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) | The Company entered into several operating lease contracts for land and office. These renewable operating leases will expire in various years through |
For the years ended December 31, | Amount | |||
NT$’000 | ||||
2013 | 465,508 | |||
2014 | 409,259 | |||
2015 | 377,037 | |||
2016 | 348,965 | |||
2017 | 308,400 | |||
2018 and thereafter | 2,269,247 | |||
|
| |||
Total | 4,178,416 | |||
|
|
Rental expense for the years ended December 31, 2010, 2011 and 2012 was NT$379 million, NT$399 million and NT$442 million, respectively.
Year | As of December 31, 2014 | |||
2015 | $ | 427,219 | ||
2016 | 389,346 | |||
2017 | 349,968 | |||
2018 | 258,818 | |||
2019 | 245,390 | |||
2020 and thereafter | 2,547,113 | |||
|
| |||
Total | $ | 4,217,854 | ||
|
|
The Board of Directors of UMC resolved to participate in a 3-way agreement with Xiamen Municipal People’s Government and FUJIAN ELECTRONICS & INFORMATION GROUP to form a company which will focus on 12” wafer foundry services. Based on the agreement, UMC will submit an investment application with R.O.C. government authorities for approval to invest in the company established by Xiamen Municipal People’s Government and FUJIAN ELECTRONICS & INFORMATION GROUP. UMC anticipates that its investment could reach approximately US$1.35 billion in the next five years, with instalment funding starting in 2015. On December 31, 2014, UMC obtained R.O.C. government authority’s approval of the investment application for US$710 million (including indirect investment). Furthermore, according to the agreement, UMC will recognize a financial liability for repurchase from Xiamen Municipal People’s Government and FUJIAN ELECTRONICS & INFORMATION GROUP their investments in the company at their original investment cost plus interest, beginning from the seventh year following the last instalment payment made by Xiamen Municipal People’s Government and FUJIAN ELECTRONICS & INFORMATION GROUP. However, as stipulated in the agreement, in the event that the regulation of Taiwan does not allow UMC to become the sole owner of the company, UMC will not acquire 10% of Xiamen Municipal People’s Government and FUJIAN ELECTRONICS & INFORMATION GROUP’s investment. |
None.
On August 29, 2014, UMC and FUJITSU SEMICONDUCTOR LIMITED (FUJITSU) entered into an agreement for UMC to acquire non-controlling interests of a newly formed subsidiary of FUJITSU that will include its 12” wafer manufacturing facility located in Kuwana, Mie, Japan. The newly formed company is expected to provide high quality foundry services to customers by combining FUJITSU’s low power process and embedded-memory technology with UMC’s foundry expertise and advanced process technology. Under the terms of the agreement, UMC participated in the initial capital raising by investing JPY5 billion and subscribed for approximately 9.28% shares of the new company in March 2015. |
On April 25, 2012, in order to achieve its global market objectives, the Company’s Board of Directors approved an offer to the stockholders of Best Elite International Limited (Best Elite) to purchase up to 64.97% of the shares of Best Elite. In August 2012, the Company filed an application for the purchase of 51.85% of the shares of Best Elite based on the said shareholders’ offering.
Such purchase of 51.85% of the shares of Best Elite was approved on December 21, 2012 in the letter from the Investment Commission of the Ministry of Economic Affairs (Ref. No. Jing-Shen-Er-Zi-10100364120) granting approval for the Company’s purchase of Best Elite shares. Pursuant to such approval, the Company acquired an additional 51.85% ownership in Best Elite by way of purchase at fair value for Ordinary shares, Series A-1, Series B and B-1 preferred shares. As of March 31, 2013, the Company’s cumulative ownership in Best Elite was 86.88%.
In March, 2013, the Company issued another five-year and seven-year domestic unsecured corporate bonds totaling NT$10,000 million, with a face value of NT$1 million per unit. The five-year domestic unsecured corporate bond was issued in the amount of NT$7,500 million. Interest will be paid annually at 1.35%, and the principal will be repayable in March 2018 upon maturity. The seven-year domestic unsecured corporate bond was issued in the amount of NT$2,500 million. Interest will be paid annually at 1.50%, and the principal will be repayable in March 2020 upon maturity.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 29, 2013, the board of UMC Japan, one of the Company’s subsidiaries, resolved to dispose its land and buildings.
(6) | During 2014, NEXPOWER resolved to provide endorsement for SOCIALNEX for the amount up to NT$21 million. As of December 31, 2014, the actual amount provided were NT$21 million. |
None.
(1) | In order to integrate research and development resources, reduce operating cost and improve operating performance, WAVETEK MICROELECTRONICS CORPORATION’s Board of Directors (WAVETEK, one of the Company’s subsidiaries) resolved to merge with EPITRON TECHNOLOGY INC. (EPITRON) on January 26, 2015. Every 3.333 shares of EPITRON will be exchanged for one share of WAVETEK. WAVETEK will become the surviving company when the merger is expected to become effective on April 1, 2015. UMC will remain the controlling interest in WAVETEK after the merger. |
(2) | In reference to the Company’s 3-way agreement with Xiamen Municipal People’s Government and FUJIAN ELECTRONICS & INFORMATION GROUP to form a new company described in Note 9(4), UMC invested RMB610 million in the new company and acquired control of the Board of Directors. |
11. | FINANCIAL RISK AND FAIR VALUE DISCLOSURES |
(1) | Categories of financial instruments |
As of December 31, | ||||||||
Financial Assets | 2013 | 2014 | ||||||
Financial assets at fair value through profit or loss | ||||||||
Designated financial assets at fair value through profit or loss | $ | 60,441 | $ | 150,550 | ||||
Financial assets held for trading | 633,264 | 634,811 | ||||||
|
|
|
| |||||
Subtotal | 693,705 | 785,361 | ||||||
|
|
|
| |||||
Available-for-sale financial assets | 21,690,520 | 24,362,104 | ||||||
|
|
|
| |||||
Financial assets measured at cost | 4,085,292 | 3,833,006 | ||||||
|
|
|
| |||||
Loans and receivables | ||||||||
Cash and cash equivalents (excludes cash on hand) | 50,827,039 | 45,697,457 | ||||||
Receivables | 17,547,228 | 23,027,843 | ||||||
Refundable deposits | 1,289,975 | 1,145,843 | ||||||
Other financial assets, current | 1,997,209 | 3,134,870 | ||||||
|
|
|
| |||||
Subtotal | 71,661,451 | 73,006,013 | ||||||
|
|
|
| |||||
Total | $ | 98,130,968 | $ | 101,986,484 | ||||
|
|
|
|
Financial Liabilities Financial liabilities at fair value through profit or loss Forward exchange contracts Embedded derivative financial liabilities in exchangeable bonds Subtotal Financial liabilities at amortized cost Short-term loans Payables Capacity deposit (current portion included) Bonds payable (current portion included) Long-term loans (current portion included) Subtotal Total As of December 31, 2013 2014 $ — $ 42,354 1,928 — 1,928 42,354 4,643,573 6,250,754 25,167,912 29,172,157 90,863 70,200 33,606,417 24,977,820 11,354,014 12,198,456 74,862,779 72,669,387 $ 74,864,707 $ 72,711,741
(2) | Financial risk management objectives and policies |
The Company’s principal financial instruments, other than derivatives,risk management objectives are comprised of cash and cash equivalents, common stock, bonds, open-end funds, bank loans, and bonds payable. The main purpose of these financial instruments is to manage financing for the Company’s operations. The Company also holds various other financial assets and liabilities such as notes receivable, accounts receivable, notes payable and accounts payable, which arise directly from its operations.
UMC also enters into derivative transactions, including forward currency contracts. The purpose of these derivative transactions is to mitigate foreign currency exchange risks arising from UMC’s operations and financing activities.
The main risks arising from the Company’s financial instruments include cash flow interest rate risk, foreign currency risk, commodity pricemarket risk, credit risk and liquidity risk.risk related to its operating activities. The Company identifies measures and manages the aforementioned risks based on policy and risk preference.
Cash flowThe Company has established appropriate policies, procedures and internal controls for financial risk management. Before entering into significant financial activities, due approval process by the Board of Directors and Audit Committee must be carried out based on related protocols and internal control procedures. The Company complies with its financial risk management policies at all times.
(3) | Market risk |
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks comprise of currency risk, interest rate risk, and other price risk (such as equity price risk).
The Company’s bank loans bear floating interest rates. The fluctuation of market interest will result in changes in the Company’s future cash flows.
Foreign currency risk
The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s operating activities (when revenue or expense is denominated in a different currency from the Company’s functional currency) and the Company’s net investments in foreign subsidiaries.
The Company hasapplies natural hedges on the foreign currency risk arising from purchases or sales. The Companysales, and utilizes spot or forward exchange contracts to avoid foreign currency risk.risk and the net effect of the risks related to monetary financial assets and liabilities is minor. The notional amounts of the foreign currency contracts are the same as the amount of the hedged items. In principle, the Company does not carry out any forward exchange contracts for uncertain commitments. Furthermore, as net investments in foreign subsidiaries are for strategic purposes, they are not hedged by the Company.
The foreign currency sensitivity analysis of the possible change in foreign exchange rates on the Company’s profit is performed on significant monetary items denominated in foreign currencies as of the end of the reporting period. When NTD strengthens/weakens against USD by 10%, the profit for the years ended December 31, 2012, 2013 and 2014 increases/decreases by NT$185 million, NT$172 million and NT$189 million, respectively.
Interest rate risk
The Company is exposed to interest rate risk arising from borrowing at floating interest rates. All of the Company’s bonds have fixed interest rates and are measured at amortized cost. As such, changes in interest rates would not affect the future cash flows. On the other hand, as the interest rates of the Company’s short-term and long-term bank loans are floating, changes in interest rates would affect the future cash flows but not the fair value. Please refer to Note 6(10), 6(12) and 6(13) for the range of interest rate of the Company’s bonds and bank loans.
At the reporting dates, a change of 10 basis points of interest rate in a reporting period could cause the profit for the years ended December 31, 2012, 2013 and 2014 to increase/decrease by NT$21 million, NT$16 million and NT$18 million, respectively.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CommodityEquity price risk
The Company’s exposurelisted and unlisted equity securities are susceptible to commoditymarket price risk arising from uncertainties about future performance of equity markets. The Company’s listed equity investments are classified as financial assets at fair value through profit or loss and available-for-sale financial assets, while unlisted equity securities are classified as available-for-sale financial assets which are subsequently measured using a valuation model and financial assets measured at cost.
The sensitivity analysis for the equity instruments is minimal.based on the change in fair value as of the reporting date. A change of 5% in the price of the aforementioned financial assets at fair value through profit or loss could increase/decrease the Company’s profit for the years ended December 31, 2012, 2013 and 2014 by NT$14 million, NT$12 million and NT$12 million, respectively. A change of 5% in the price of the aforementioned available-for-sale financial instrument could increase/decrease the Company’s other comprehensive income for the years ended December 31, 2012, 2013 and 2014 by NT$1,212 million, NT$1,083 million and NT$1,217 million, respectively.
Credit risk
(4) | Credit risk management |
The Company only trades with establishedapproved and creditworthy third parties. Where the Company trades with third parties which have less favorable financial positions, it will request collateral from them. It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, notenotes and accounts receivable balances are monitored on an ongoing basis, which consequently minimizes the Company’s exposure to bad debts.
With respectThe Company mitigate the credit risks from financial institutions by limiting its counter parties to only reputable domestic or international financial institutions with good credit risk arising from the otherstanding and spreading its holdings among various financial assets of the Company, it is comprised of cash and cash equivalents and certain derivative instruments, theinstitutions. The Company’s exposure to credit risk arising from the default of counter-parties is limited to the carrying amount of these instruments.
AlthoughAs of December 31, 2013 and 2014, accounts receivables from the top ten customers represent 49% and 57% of the total accounts receivables of the Company, only trades with established third parties, it will request collateral to be provided by third parties with less favorable financial positions.respectively. The credit concentration risk of other accounts receivables is insignificant.
Liquidity risk
(5) | Liquidity risk management |
The Company’s objective isobjectives are to maintain a balance between continuity of funding continuity and flexibility through the use of financial instruments such as cash and cash equivalents, bank loans and bonds.
a. Fair valueThe table below summarizes the maturity profile of the Company’s financial instrumentsliabilities based on the contractual undiscounted payments and contractual maturity:
As of December 31, | ||||||||||||||||
2011 | 2012 | |||||||||||||||
Financial Assets | Book Value | Fair Value | Book Value | Fair Value | ||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | |||||||||||||
Non-derivative | ||||||||||||||||
Cash and cash equivalents | 49,070,128 | 49,070,128 | 42,592,725 | 42,592,725 | ||||||||||||
Financial assets at fair value through profit or loss | 815,642 | 815,642 | 728,700 | 728,700 | ||||||||||||
Receivables | 15,320,229 | 15,320,229 | 17,164,115 | 17,164,115 | ||||||||||||
Held-to-maturity financial assets | 13,524 | 13,681 | — | — | ||||||||||||
Restricted assets | 20,331 | 20,331 | �� | 17,135 | 17,135 | |||||||||||
Available-for-sale financial assets | 23,960,004 | 23,960,004 | 19,447,620 | 19,447,620 | ||||||||||||
Financial assets measured at cost | 8,298,967 | — | 7,963,242 | — | ||||||||||||
Long-term investments accounted for under the equity method | 11,275,894 | 11,182,318 | 11,792,007 | 11,818,759 | ||||||||||||
Prepayment for long-term investments | 44,392 | — | 34,803 | — | ||||||||||||
Deposits-out | 1,349,528 | 1,349,528 | 1,383,327 | 1,383,327 |
Non-derivative financial liabilities Short-term loans Payables Capacity deposits Bonds payable Long-term loans Total Non-derivative financial liabilities Short-term loans Payables Capacity deposits Bonds payable Long-term loans Total Derivative financial liabilities Forward exchange contracts Inflow Outflow Net UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES As of December 31, 2013 Less than
1 year 2 to 3
years 4 to 5
years > 5 years Total $ 4,671,351 $ — $ — $ — $ 4,671,351 24,965,039 — — — 24,965,039 8,967 81,896 — — 90,863 14,445,976 573,500 15,325,037 5,062,867 35,407,380 3,068,914 7,601,215 1,101,865 — 11,771,994 $ 47,160,247 $ 8,256,611 $ 16,426,902 $ 5,062,867 $ 76,906,627 As of December 31, 2014 Less than
1 year 2 to 3
years 4 to 5
years > 5 years Total $ 6,299,905 $ — $ — $ — $ 6,299,905 28,816,995 — — 104,952 28,921,947 — 70,200 — — 70,200 622,936 8,197,725 10,339,221 7,818,618 26,978,500 3,947,580 7,528,391 1,144,247 — 12,620,218 $ 39,687,416 $ 15,796,316 $ 11,483,468 $ 7,923,570 $ 74,890,770 $ 3,249,080 $ — $ — $ — $ 3,249,080 (3,291,434 ) — — — (3,291,434 ) $ (42,354 ) $ — $ — $ — $ (42,354 )
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, | ||||||||||||||||
2011 | 2012 | |||||||||||||||
Financial Liabilities | Book Value | Fair Value | Book Value | Fair Value | ||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | |||||||||||||
Non-derivative | ||||||||||||||||
Short-term loans | 9,411,877 | 9,411,877 | 5,772,615 | 5,772,615 | ||||||||||||
Payables | 23,284,495 | 23,284,495 | 22,430,897 | 22,430,897 | ||||||||||||
Capacity deposits due within one year | 3,031 | 3,031 | 34,896 | 34,896 | ||||||||||||
Bonds payable (current portion included) | 17,404,788 | 15,458,061 | 26,224,353 | 25,583,972 | ||||||||||||
Long-term loans (current portion included) | 11,692,649 | 11,692,649 | 14,817,466 | 14,817,466 | ||||||||||||
Derivative | ||||||||||||||||
Derivatives embedded in exchangeable bonds | 741,531 | 741,531 | 767,605 | 767,605 |
b. The methods and assumptions used to measure the fair value of financial instruments are as follows:
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Active Market Quotation | Valuation Technique | |||||||||||||||
As of December 31, | ||||||||||||||||
Non-derivative Financial Instruments | 2011 | 2012 | 2011 | 2012 | ||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | |||||||||||||
Financial assets | ||||||||||||||||
Financial assets at fair value through profit or loss | 815,642 | 728,700 | — | — | ||||||||||||
Available-for-sale financial assets | 23,960,004 | 19,376,858 | — | 70,762 | ||||||||||||
Held-to-maturity financial assets | 13,681 | — | — | — | ||||||||||||
Long-term investments accounted for under the equity method | 77,930 | 94,922 | 11,104,388 | 11,723,837 | ||||||||||||
Financial liabilities | ||||||||||||||||
Bonds payable (current portion included) | — | — | 15,458,061 | 25,583,972 | ||||||||||||
Long-term loans (current portion included) | — | — | 11,692,649 | 14,817,466 | ||||||||||||
Derivative Financial Instruments | ||||||||||||||||
Financial liabilities | ||||||||||||||||
Derivatives embedded in exchangeable bonds | — | — | 741,531 | 767,605 |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2011 and 2012, the forward contracts were classified as financial assets at fair value through profit or loss amounted to nil, while the forward contracts were classified as financial liabilities at fair value through profit or loss amounted to nil. And for the changes in valuation, net gains (losses) of NT$194 million, NT$(143) million and nil were recorded under non-operating expense for the years ended December 31, 2010, 2011 and 2012, respectively.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, | ||||||||
Items | 2011 | 2012 | ||||||
NT$’000 | NT$’000 | |||||||
Current assets | 193,908 | 279,550 | ||||||
Noncurrent assets | 1,316,824 | 1,092,577 | ||||||
Current liabilities | 3,910 | 107,044 | ||||||
Long-term liabilities | 84 | 504,878 |
For the years ended December 31, | ||||||||
Items | 2011 | 2012 | ||||||
NT$’000 | NT$’000 | |||||||
Revenues | 136,475 | 150,858 | ||||||
Expenses | 115,640 | 171,967 |
For the years ended December 31, | ||||||||
Items | 2011 | 2012 | ||||||
NT$’000 | NT$’000 | |||||||
Cash paid for acquisition of subsidiaries | — | 11,857 | ||||||
Less: Remaining cash payable for acquisition | — | (8,300 | ) | |||||
Less: Cash balance of subsidiaries | (29,350 | ) | (2,032 | ) | ||||
|
|
|
| |||||
Net cash paid (received) from acquisition of subsidiaries | (29,350 | ) | 1,525 | |||||
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) |
As of December 31, 2011 | As of December 31, 2012 | |||||||||||||||||||||||
Foreign Currency (thousand) | Exchange Rate | NTD (thousand) | Foreign Currency (thousand) | Exchange Rate | NTD (thousand) | |||||||||||||||||||
Financial Assets | ||||||||||||||||||||||||
Monetary items | ||||||||||||||||||||||||
USD | $ | 1,205,374 | 30.20 | $ | 36,401,034 | $ | 1,494,046 | 28.97 | $ | 43,281,274 | ||||||||||||||
JPY | 17,724,488 | 0.3887 | 6,888,793 | 11,346,947 | 0.3343 | 3,792,840 | ||||||||||||||||||
EUR | 11,088 | 39.07 | 433,230 | 8,333 | 38.09 | 317,432 | ||||||||||||||||||
SGD | 36,370 | 23.22 | 844,517 | 35,696 | 23.66 | 844,562 | ||||||||||||||||||
CNY | 47,833 | 4.79 | 229,150 | 72,813 | 4.61 | 335,485 | ||||||||||||||||||
Non-Monetary items | ||||||||||||||||||||||||
USD | 80,903 | 30.21 | 2,444,092 | 44,993 | 28.98 | 1,303,900 | ||||||||||||||||||
CHF | 1,764 | 32.10 | 56,624 | 2,324 | 31.73 | 73,741 | ||||||||||||||||||
Long-term investments accounted for under the equity method | ||||||||||||||||||||||||
USD | 223,950 | 30.17 | 6,757,058 | 254,210 | 28.94 | 7,357,606 | ||||||||||||||||||
SGD | 9,313 | 23.08 | 214,918 | 8,089 | 23.37 | 189,012 | ||||||||||||||||||
Joint controlled entities | ||||||||||||||||||||||||
EUR | 1,120 | 40.69 | 45,573 | 1,192 | 38.28 | 45,647 | ||||||||||||||||||
CNY | 155,324 | 4.70 | 729,461 | 149,297 | 4.61 | 688,008 | ||||||||||||||||||
Financial Liabilities | ||||||||||||||||||||||||
Monetary items | ||||||||||||||||||||||||
USD | 687,961 | 30.31 | 20,851,703 | 649,042 | 29.08 | 18,874,144 | ||||||||||||||||||
JPY | 7,486,308 | 0.3924 | 2,937,409 | 7,072,521 | 0.3386 | 2,394,756 | ||||||||||||||||||
EUR | 7,230 | 39.36 | 284,563 | 6,931 | 38.68 | 268,109 | ||||||||||||||||||
SGD | 25,851 | 23.40 | 604,925 | 30,192 | 23.84 | 719,785 | ||||||||||||||||||
CNY | 21,482 | 4.81 | 103,337 | 33,241 | 4.62 | 153,688 |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIESUMC entered into forward exchange contracts for hedging the exchange rate risk arising from the net assets or liabilities denominated in foreign currency. The details of forward exchange contracts entered into by UMC are summarized as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the progress to date against the key activities and target dates of the conversion plan:December 31, 2014
| Notional Amount | Contract Period | ||
| ||||
| ||||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
| ||||
|
| |||
|
| |||
|
| |||
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| |||
| ||||
|
| |||
|
| |||
|
|
|
| |
| ||
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| |
| ||
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| |
|
I. Reconciliation of the balance sheet as at January 1, 2012
R.O.C. GAAP | Adjustments | IFRSs | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Current assets (b)(f) | 84,057,514 | (303,514 | ) | 83,754,000 | ||||||||
Available-for-sale financial assets, non-current (a) | 18,835,224 | 4,609,323 | 23,444,547 | |||||||||
Financial assets measured at cost, non-current (a) | 8,298,967 | (5,245,009 | ) | 3,053,958 | ||||||||
Property, plant and equipment (b)(c) | 149,324,300 | (7,462,738 | ) | 141,861,562 | ||||||||
Intangible Assets (d) | 350,860 | 1,132,921 | 1,483,781 | |||||||||
Other non-current assets (a)(b)(c)(d)(f)(g) | 18,964,881 | 8,755,129 | 27,720,010 | |||||||||
|
|
|
|
|
| |||||||
Total Assets | 279,831,746 | 1,486,112 | 281,317,858 | |||||||||
|
|
|
|
|
| |||||||
Current liabilities (f)(g) | 42,905,954 | (66,178 | ) | 42,839,776 | ||||||||
Accrued pension liabilities (e) | 3,261,101 | 704,651 | 3,965,752 | |||||||||
Other non-current liabilities(f)(g) | 21,539,728 | 413,061 | 21,952,789 | |||||||||
|
|
|
|
|
| |||||||
Total liabilities | 67,706,783 | 1,051,534 | 68,758,317 | |||||||||
|
|
|
|
|
| |||||||
Capital | 130,844,556 | — | 130,844,556 | |||||||||
Additional paid-in capital (a)(f)(g) | 46,460,665 | (100,746 | ) | 46,359,919 | ||||||||
Retained earnings (a)(b)(c)(e)(f)(g) | 24,499,124 | 575,195 | 25,074,319 | |||||||||
Other items in stockholders’ equity (a)(b)(c)(e)(f)(g) | 12,156,099 | (39,871 | ) | 12,116,228 | ||||||||
Treasury stock | (6,223,357 | ) | — | (6,223,357 | ) | |||||||
Minority interests/Non-controlling interests | 4,387,876 | — | 4,387,876 | |||||||||
|
|
|
|
|
| |||||||
Stockholders’ equity | 212,124,963 | 434,578 | 212,559,541 | |||||||||
|
|
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
II. Reconciliation of the balance sheet as at December 31, 2012
R.O.C. GAAP | Adjustments | IFRSs | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Current assets (f) | 80,917,522 | (890,391 | ) | 80,027,131 | ||||||||
Available-for-sale financial assets, non-current (a)(h) | 15,116,740 | 4,858,997 | 19,975,737 | |||||||||
Financial assets measured at cost, non-current (a)(h) | 7,963,242 | (4,801,124 | ) | 3,162,118 | ||||||||
Property, plant and equipment (b)(c) | 158,854,035 | 1,089,770 | 159,943,805 | |||||||||
Intangible Assets (d) | 1,357,492 | 1,440,667 | 2,798,159 | |||||||||
Other non-current assets (b)(c)(d)(e)(f)(h) | 16,749,887 | 381,868 | 17,131,755 | |||||||||
|
|
|
|
|
| |||||||
Total Assets | 280,958,918 | 2,079,787 | 283,038,705 | |||||||||
|
|
|
|
|
| |||||||
Current liabilities (e)(f) | 40,033,821 | 86,691 | 40,120,512 | |||||||||
Accrued pension liabilities (e) | 3,366,143 | 873,100 | 4,239,243 | |||||||||
Other non-current liabilities(f) | 32,538,009 | 1,609,901 | 34,147,910 | |||||||||
|
|
|
|
|
| |||||||
Total liabilities | 75,937,973 | 2,569,692 | 78,507,665 | |||||||||
|
|
|
|
|
| |||||||
Capital | 129,521,093 | — | 129,521,093 | |||||||||
Additional paid-in capital (a)(f) (h) | 46,994,672 | (94,146 | ) | 46,900,526 | ||||||||
Retained earnings (a)(b)(c)(e)(f)(g)(h) | 25,905,225 | (1,414,989 | ) | 24,490,236 | ||||||||
Other items in stockholders’ equity(a)(b)(c)(e)(f)(g)(h) | 4,992,205 | 1,019,230 | 6,011,435 | |||||||||
Treasury stock | (4,963,389 | ) | — | (4,963,389 | ) | |||||||
Minority interests/Non-controlling interests | 2,571,139 | — | 2,571,139 | |||||||||
|
|
|
|
|
| |||||||
Stockholders’ equity | 205,020,945 | (489,905 | ) | 204,531,040 | ||||||||
|
|
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
III. Reconciliation of the income statement for the year ended December 31, 2012:
R.O.C. GAAP | Adjustments | IFRSs | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Operating revenues | 115,674,763 | — | 115,674,763 | |||||||||
Operating costs (a)(c) | (96,262,902 | ) | (102,313 | ) | (96,365,215 | ) | ||||||
|
|
|
|
|
| |||||||
Gross profit | 19,411,861 | (102,313 | ) | 19,309,548 | ||||||||
Operating expenses (a)(c) | (15,907,230 | ) | 241,476 | (15,665,754 | ) | |||||||
Other operating income and expenses (c) | — | (2,790,775 | ) | (2,790,775 | ) | |||||||
|
|
|
|
|
| |||||||
Operating income | 3,504,631 | (2,651,612 | ) | 853,019 | ||||||||
Non-operating income and expenses (a)(b)(c) | 4,498,328 | 1,026,237 | 5,524,565 | |||||||||
|
|
|
|
|
| |||||||
Income from continuing operations before income tax | 8,002,959 | (1,625,375 | ) | 6,377,584 | ||||||||
Income tax expense (c) | (2,129,038 | ) | (16,945 | ) | (2,145,983 | ) | ||||||
|
|
|
|
|
| |||||||
Net income | 5,873,921 | (1,642,320 | ) | 4,231,601 | ||||||||
|
|
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Operations in different industries
The Company determined its operating segments based on business activities with discrete financial information regularly reported through the Company’s internal reporting protocols to the Company’s chief operating decision maker. The Company is organized into business units based on its products and services. As of December 31, 2012, the Company had the following segments: wafer fabrication and other. The primary service of the wafer fabrication segment is the manufacture of chipsprice that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the design specifications of our many customers by using our own proprietary processes and techniques.measurement date. The company maintains a diversified customer base across industries, including communication, consumer electronics, computer, memory and others, while continuing to focus on manufacturing for high growth, large volume applications, including networking, telecommunications, internet, multimedia, PCs and graphics. The other segment primarily includes researching, developing, manufacturing, and providing solar energy and new generation light-emitting diode (LED), each of which discrete financial information was not regularly reported to the Company’s chief operating decision maker separately.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reportable segment information for the years ended December 31, 2011 and 2012 are as follows:
For the year ended December 31, 2011 | ||||||||||||||||||||
Wafer fabrication | Other | Subtotal | Adjustment and elimination | Consolidated | ||||||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | ||||||||||||||||
Segment revenues | 108,637,136 | 8,068,373 | 116,705,509 | (2,786 | ) | 116,702,723 | ||||||||||||||
Segment profit (loss) | 10,431,014 | (5,104,211 | ) | 5,326,803 | 3,140,113 | 8,466,916 | ||||||||||||||
Segment assets | 260,337,674 | 29,505,139 | 289,842,813 | (10,011,067 | ) | 279,831,746 | ||||||||||||||
(Note | ) | |||||||||||||||||||
Segment liabilities | 52,090,012 | 15,651,907 | 67,741,919 | (35,136 | ) | 67,706,783 | ||||||||||||||
Capital expenditure | 46,865,115 | 6,461,000 | 53,326,115 | — | 53,326,115 | |||||||||||||||
Depreciation | 30,239,235 | 1,675,833 | 31,915,068 | — | 31,915,068 | |||||||||||||||
Investment gain (loss) accounted for under the equity method | (3,158,287 | ) | (294,087 | ) | (3,452,374 | ) | 3,140,113 | (312,261 | ) | |||||||||||
Income tax expense | 868,431 | 45,004 | 913,435 | — | 913,435 | |||||||||||||||
For the year ended December 31, 2012 | ||||||||||||||||||||
Wafer fabrication | Other | Subtotal | Adjustment and elimination | Consolidated | ||||||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | ||||||||||||||||
Segment revenues | 108,805,499 | 6,871,377 | 115,676,876 | (2,113 | ) | 115,674,763 | ||||||||||||||
Segment profit (loss) | 7,498,447 | (5,501,437 | ) | 1,997,010 | 3,876,911 | 5,873,921 | ||||||||||||||
Segment assets | 267,116,399 | 20,352,264 | 287,468,663 | (6,509,745 | ) | 280,958,918 | ||||||||||||||
(Note | ) | |||||||||||||||||||
Segment liabilities | 63,876,180 | 12,062,932 | 75,939,112 | (1,139 | ) | 75,937,973 | ||||||||||||||
Capital expenditure | 51,403,596 | 782,314 | 52,185,910 | — | 52,185,910 | |||||||||||||||
Depreciation | 32,871,684 | 2,139,728 | 35,011,412 | — | 35,011,412 | |||||||||||||||
Investment gain (loss) accounted for under the equity method | (2,757,382 | ) | (434,389 | ) | (3,191,771 | ) | 3,910,298 | 718,527 | ||||||||||||
Income tax expense | 2,078,176 | 50,862 | 2,129,038 | — | 2,129,038 |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Operations in different geographic areas
The geographic region to which revenue is assignedfair value measurement is based on the location ofpresumption that the external customers.
For the years ended December 31, | ||||||||||||||||||||||||
2010 | 2011 | 2012 | ||||||||||||||||||||||
Net operating revenues | Long-lived assets | Net operating revenues | Long-lived assets | Net operating revenues | Long-lived assets | |||||||||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | |||||||||||||||||||
Taiwan | 42,496,346 | 99,747,115 | 38,668,443 | 119,881,448 | 42,129,998 | 138,801,028 | ||||||||||||||||||
Singapore | 36,464,132 | 34,109,669 | 28,960,294 | 29,992,937 | 32,048,567 | 21,989,707 | ||||||||||||||||||
China (includes Hong Kong) | 4,240,244 | 3,204 | 4,860,475 | 300,656 | 6,081,805 | 3,449 | ||||||||||||||||||
Japan | 2,619,626 | 1,906,803 | 2,249,313 | 2,307,902 | 2,918,334 | 500,336 | ||||||||||||||||||
America | 21,343,348 | 29,092 | 20,908,177 | 20,905 | 15,370,089 | 16,406 | ||||||||||||||||||
Others | 19,277,848 | 1,684 | 21,056,021 | 1,855 | 17,125,970 | 181,897 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
126,441,544 | 135,797,567 | 116,702,723 | 152,505,703 | 115,674,763 | 161,492,823 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principlestransaction to sell the asset or transfer the liability takes place either in the Republic of China (R.O.C. GAAP), which differ in certain material respects from generally accepted accounting principlesprincipal market for the asset or liability, or in the United States (U.S. GAAP). Such differences are disclosed below.
Employee bonus
Pursuant to the Company’s Articlesabsence of Incorporation (AOI), certain employees of the Company are entitled to minimum bonus when certain objectively determinable financial criteria are met as at the year-end. The Company’s AOI specifies that employee bonus can be settleda principal market, in the form of cashmost advantageous market for the asset or common shares or a combination of both, subject to stockholders’ approval at the annual stockholder’s meeting in the subsequent year. Under both R.O.C. and U.S. GAAP, employee bonus is charged to compensation expense and accrued based on management’s estimate. The employee bonus is initially accrued during the current year based on management’s estimate according to AOI with adjustment in the subsequent year after stockholders’ approval. Compensation expense relating to stock bonus is determined based on the fair market value of the Company’s common stock on the grant date. According to the R.O.C. ARDF Interpretation 96-052, “Accounting for Employee Bonus and Remunerations to Directors and Supervisors”, compensation expense relating to stock bonus is determined based on the fair value of the Company’s common stock at the date before the stockholders’ meeting. Under U.S. GAAP, compensation expense relating to stock bonus is measured at the fair market value on the date of stock distribution.
Employee stock options
Under R.O.C. GAAP, for stock options granted prior to January 1, 2008, the Company applied the intrinsic value method to recognize the difference between the market price of the stock at grant date and the exercise price of its employee stock options as compensation expense. For stock options granted on or after January 1, 2008, the Company adopted R.O.C. SFAS 39 to recognize compensation cost using the fair value method which is consistent with U.S. GAAP. The Company amortized share-based compensation expense over the vesting period based on the grant-date fair value. The fair value of liability awards is remeasured at each reporting date with fair value changes charged to compensation expenses accordingly. Compensation expense is recognized on a graded-vesting basis over the requisite service period of the options.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
liability.
The Company uses Black-Scholes option-pricing model in estimating the fair value of stock options. The main inputs and assumptions used in the model include the grant date stock price, exercise price of the option, volatility of the Company’s stock, the expected option term, the risk-free rate and the Company’s dividend yield. The Company determines expected volatility based on historical stock price volatility over the time period equal to the expected term of the employee stock options because the Company���s shares have been publicly traded for a long time and determines the expected term based on historical stock option exercise data. The Company uses the average yield at grant date of Taiwan Government Bond with the remaining term similar to the expected option term as the risk-free interest rate. In addition, the Company used the historical distribution of cash dividends and the historical average market price of the Company’s common stock to estimate future dividend yields. The estimates of option fair value are not expected to foresee future eventsprincipal or the values realized by employees who receive stock option. In addition, later events are not indicative of the rationality of the initial estimates of option fair value usedmost advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company adjusts share-based compensation on an annual basisuses valuation techniques that are appropriate in the circumstances and for changeswhich sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in expected forfeituresthe financial statements are categorized within the fair value hierarchy, described as follows, based on the examination of latest employee stock options forfeiture activity. The effect of adjusting the forfeiture rate used for expense amortizationlowest level input that is recognized in the corresponding period that the expected forfeiture rate is changed.
A summary of employee stock options activities as of December 31, 2012 and changes during the year then ended is presented below:
For the year ended December 31, 2012 | ||||||||||||||||
Number of options | Available shares (adjusted for capital reduction) | Weighted-average exercise price per share as adjusted | ||||||||||||||
(In thousands) | (In thousands) | NT$ | US$ | |||||||||||||
Outstanding at beginning of period | 560,526 | 547,724 | 16.09 | 0.55 | ||||||||||||
Granted | — | — | — | — | ||||||||||||
Exercised | (25,588 | ) | (25,588 | ) | 10.40 | 0.36 | ||||||||||
Forfeited | (38,969 | ) | (35,544 | ) | 18.23 | 0.63 | ||||||||||
Expired | (30,963 | ) | (21,586 | ) | 24.37 | 0.84 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Outstanding at end of period | 465,006 | 465,006 | 15.86 | 0.55 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Fully vested and expected to vest at end of period | 458,288 | 458,288 | 15.94 | 0.55 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Exercisable at end of period | 395,142 | 395,142 | 16.71 | 0.58 | ||||||||||||
|
|
|
|
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2012, the total number of option units outstanding was 465 million units, the exercise price of the two remaining outstanding option plans were NT$10.40 and NT$18.03, respectively. The weighted-average remaining contractual life of outstanding options, fully vested and expectedsignificant to vest options, and exercisable options was 1.38 years, 1.36 years and 1.21 years, respectively.
There have been no stock options granted since 2010. The total intrinsic value of the options exercised during 2010, 2011 and 2012 was nil, NT$222 million and NT$33 million, respectively. The total fair value of options vested during 2010, 2011 and 2012 was NT$574 million, NT$842 million and NT$181 million, respectively. Aggregate intrinsic value of outstanding options, fully vested and expected to vest options, and exercisable options at December 31, 2012 was NT$172 million, NT$163 million, and NT$89 million, respectively. As of December 31, 2012, unrecognized compensation expenses related to nonvested options granted under the employee stock options plan totaled NT$20 million. The weighted-average period of expense expected to be recognized is 0.46 years.
Under U.S. GAAP, the total share-based compensation effects in income and capitalization as part of inventory relating to employee stock options and treasury stock purchased by employees are summarized as follows:
For the years ended December 31, | ||||||||||||
2010 | 2011 | 2012 | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Net effects in income | (1,006,152 | ) | (912,934 | ) | (226,301 | ) | ||||||
|
|
|
|
|
| |||||||
Net effects on inventory capitalization | 64,177 | 30,649 | 10,768 | |||||||||
|
|
|
|
|
|
The following tables reflect the above noted differences between U.S. GAAP and R.O.C. GAAP relating to compensations:
For the years ended December 31, | ||||||||||||
2010 | 2011 | 2012 | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Net income impact of compensation adjustments: | ||||||||||||
Employee stock options | (363,953 | ) | (77,592 | ) | (6,838 | ) | ||||||
Allocation to inventories, net of prior period allocations to inventories which are sold in current period | (32,898 | ) | (27,950 | ) | (3,029 | ) | ||||||
|
|
|
|
|
| |||||||
Total U.S. GAAP adjustment to net income relating to compensation | (396,851 | ) | (105,542 | ) | (9,867 | ) | ||||||
|
|
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, | ||||||||
2011 | 2012 | |||||||
NT$’000 | NT$’000 | |||||||
Stockholders’ equity impact of compensation adjustments: | ||||||||
Employee stock options | 3,567 | 538 | ||||||
|
|
|
| |||||
Total U.S. GAAP adjustment to stockholders’ equity relating to compensation | 3,567 | 538 | ||||||
|
|
|
|
The Company’s proportionate share of the income (loss) and stockholders’ equity from an equity investee under R.O.C. GAAP may differ from U.S. GAAP if the equity investee’s net income (loss) and stockholders’ equity are different under the two GAAPs. Those differences for the equity investees include accounting for compensation, income tax and investments in debt and equity securities.
Change in fair value of investments
Unrealized gains (losses) on trading securities held at December 31, 2010, 2011 and 2012 was NT$(590) million, NT$(104) million and NT$11 million, respectively.
Investment in restricted stock, for which sale is restricted by governmental or contractual requirement is accounted for as an available-for-sale security or a cost method investment under R.O.C. GAAP, and its fair value should be adjusted for the effect of restriction. Under U.S. GAAP, however, a restricted investment with restricted period over one year does not meet the definition of an equity security with readily determinable fair value, and therefore, it is accounted for as a cost method investment. In 2011, certain investments were reclassified from cost method investment under R.O.C. GAAP to available-for-sale securities under U.S. GAAP as the restricted period of these investments terminates within one year from the reporting date. The Company recorded an adjustment to decrease other comprehensive income by NT$63 million as of December 31, 2011. These restricted investments were also classified as available-for-sale securities under R.O.C. GAAP at December 31, 2012, because the restriction expired in 2012.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
When the Company loses its significant influence on an investment accounted for under the equity method and reclassifies it as an available-for-sale security, the proportionate share of an investee’s equity adjustments for other comprehensive income should remain as a part of the carrying amount of the investment under R.O.C. GAAP and the dividends received from the available-for-sale security which were declared from pre-acquisition profits are deducted from the cost of the security. However, under U.S. GAAP, all of the investee’s equity adjustments for other comprehensive income should be offset against the carrying amount of the investment at the time significant influence is lost, and the dividends received from the available-for-sale security are accounted for as dividend income. Accordingly, the accumulated other comprehensive income related to the unrealized gains on the same group of available-for-sale securities for each of the years ended December 31, 2010, 2011 and 2012, was decreased by NT$975 million, NT$975 million and NT$981 million, respectively. The difference in cost basis resulted in an adjustment to increase (decrease) disposal gain of NT$(1) million, NT$0.1 million and NT$6 million for the years ended December 31, 2010, 2011 and 2012, respectively, under U.S. GAAP for the disposal of these investments.
Information on sales of available-for-sale equity securities for the years ended December 31, 2010, 2011 and 2012 is as follows:
Proceeds from sales | Gross realized gains | Gross realized losses | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
For the year ended December 31, 2010 | 3,694,372 | 1,959,472 | — | |||||||||
For the year ended December 31, 2011 | 3,254,897 | 1,464,505 | — | |||||||||
For the year ended December 31, 2012 | 4,888,442 | 3,521,415 | 48,048 |
Information on available-for-sale equity securities, including depositary receipts and funds, held at each balance sheet date is as follows:
Fair Value | Total unrealized gains | Total unrealized losses | Net unrealized gains | Adjusted Cost | ||||||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | ||||||||||||||||
As of December 31, 2010 | 37,298,738 | 23,853,204 | 45,951 | 23,807,253 | 13,491,485 | |||||||||||||||
As of December 31, 2011 | 24,054,645 | 12,141,186 | 393,001 | 11,748,185 | 12,306,460 | |||||||||||||||
As of December 31, 2012 | 19,447,620 | 8,309,078 | 85,435 | 8,223,643 | 11,223,977 |
As of December 31, 2011 and 2012, the Company had nine and four investments, respectively, with gross unrealized losses of NT$393 and NT$85 million, respectively, on available-for-sale equity securities with fair value of NT$972 million and NT$443 million, respectively. There were no significant investments that had been in a continuous loss position for 12 months or more as of December 31, 2011 and 2012. For the years ended December 31, 2010, 2011 and 2012, NT$1,959 million, NT$1,430 million and NT$4,748 million, respectively, was reclassified from other comprehensive income to the consolidated statements of income upon the disposal or impairment of available-for-sale securities. Such amounts were determined by average cost method. The Company did not transfer any available-for-sale securities to trading securities for the years ended December 31, 2011 and 2012.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment of investments in securities
For individual securities classified as either available-for-sale or held-to-maturity, unrealized losses would be reported on the consolidated statements of income if evidence indicates that the value of an investment has been impaired and is unlikely to recover in the future. The Company determines whether a decline in fair value below cost is other than temporary pursuant to guidance from U.S. GAAP ASC 320-10-35,Investments—Debt and Equity Securities, since R.O.C. GAAP does not provide additional definition or guidance on how to assess the likelihood of future recovery. In general, a decline in market value below cost for a continuous period of six months is considered to be other than temporary unless there is persuasive evidence to the contrary. When determining the impairment or other-than-temporary decline, the Company considers, among other factors, all available information concerning the future prospects of investments including the investees’ financial statements, analyst reports and industry specific publications, and observes whether there are significant adverse changes in the general market condition where the investees operate, significant deteriorations in their earnings performance, any significant going concerns issues and subsequent market fluctuation and recovery. The Company also considers its ability and intention to hold these investments for a reasonable period of time that will be sufficient to allow for any anticipated recovery in the security’s market value. If the decline in fair value is judged to be other than temporary, the cost basis of the individual security is written down to fair value with a charge against earnings. The differences related to the accounting for impairment of investments in securities between R.O.C. GAAP and U.S. GAAP were insignificant for each of the years ended December 31, 2010, 2011, and 2012.
Adjustments due to change in ownership of equity investees and subsidiaries
The Company’s ownership interest in a subsidiary or equity investee may change, for example, (1) when an equity investee or a subsidiary issues additional shares and the Company subscribes for these shares at a percentage higher or lower than its current ownership percentage in the equity investees or subsidiaries, (2) when the employees of the Company’s subsidiaries or equity investees exercise their stock options, or (3) when the convertible bondholders of the Company’s subsidiaries or equity investees exercise their conversion rights. Under R.O.C. GAAP, the change in the Company’s proportionate share in the net assets of its equity investees or subsidiaries resulting from the issuance of additional shares of the investee’s stock, at the rate not proportionate to its existing equity ownership in such investees, is recorded to the additional paid-in capital and long-term investments account for an equity method investee, or noncontrolling interest for a subsidiary. Under U.S. GAAP, pursuant to ASC 810-10-45,Changes in a Parent’s Ownership Interest in a Subsidiary, a change in the Company’s ownership interest while the Company retains its controlling financial interest in its subsidiary shall be accounted for as equity transactions. Nevertheless, a dilution of ownership interest in an equity method investee is recognized as a gain or loss, while an increase of ownership interest is accounted for as additional acquisition interest in an equity method investee, with the difference between the total cost of the additional investment and the proportionate share of the fair value of net assets treatedmeasurement as equity method goodwill.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 2010, the Company acquired additional ownership interests in a subsidiary. Under R.O.C. GAAP, the acquisition was accounted for using the purchase method of accounting, and after reducing the book values of those non-current assets acquired of NT$226 million to zero, the Company recognized an extraordinary gain of NT$68 million for the year ended December 31, 2010, as the fair value of the net assets acquired exceeded their cost. However, under U.S. GAAP, the acquisition was accounted for as an equity transaction. The difference between the fair value of the consideration paid and the book value of the noncontrolling interests is adjusted against stockholders’ equity. As such, the Company reversed the extraordinary gain and the write-down of non-current assets recognized under R.O.C. GAAP, and recorded additional paid-in capital of NT$310 million as of December 31, 2010 under U.S. GAAP.
In June 2010, a non-affiliated company invested NT$259 million for newly issued shares of one of the Company’s consolidated entities, reducing the Company’s ownership interest from 100% to 50%. Due to this transaction, the Company became to jointly control the entity and accounted for the entity as a joint venture. Under R.O.C. GAAP, the reduction of equity interest is adjusted against additional paid-in capital. However, under U.S. GAAP, the Company accounted for the transaction as a deconsolidation of a subsidiary and remeasured the remaining holding interests by recognizing a gain or loss in net income attributable to the Company. Accordingly, the Company recognized an NT$5 million net loss for the year ended December 31, 2010 under U.S. GAAP.
Difference in application of equity accounting
Prior to 2006, certain available-for-sale investments under U.S. GAAP were accounted as equity method investments under R.O.C. GAAP. The differences in the application of equity method led to different cost basis under R.O.C. GAAP and U.S. GAAP and resulted in an adjustment to accumulated other comprehensive income related to unrealized losses on available-for-sale securities of NT$2,090 million as of December 31, 2010, 2011 and 2012.
Under R.O.C. GAAP, if the carrying amount of non-current asset or disposal group will be recovered principally through sale rather than through continuing use and the asset or disposal group meets the criteria to be available for immediate sale in its present condition subject only to terms that are usual and customary for a sale and the sale is highly probable, the asset or disposal group would be classified as held-for-sale asset measured at the lower of carrying amount and fair value less costs to sell and separately presented in the balance sheet. For the sale to be highly probable, the management must be committed to a plan to sell the asset completely within one year, and the asset must be actively marketed for sale at a price that is reasonable compared to its current fair value. Equity-method investment shall be classified as held-for-sale asset if it meets all the above criteria. Under U.S. GAAP, ASC 360-10Property, Plant, and Equipment, the criteria to classify long-lived asset or disposal group to held-for-sale asset is similar to R.O.C. GAAP. However, ASC 360-10 does not apply to financial instruments including investments in equity securities accounted for under the cost or equity method. As such, equity method investments are not classified as held-for-sale assets but shall continue to be accounted for under the equity method until the significance influence is lost.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2012, the Company reclassified held-for-sale assets of NT$313 million under R.O.C. GAAP to equity method investment under U.S. GAAP. The proportional equity pick up from the equity investment was insignificant for the year ended December 31, 2012.
Under R.O.C. GAAP, when an investor holds 20% or more of an investee’s outstanding voting securities but without the controlling power, unless it is evidenced that the investor does not have significant influence over the investee, the investor’s investment in the investee’s equity securities, including preferred shares, shall be accounted for using the equity method. When an investor invests in preferred stock of an investee, equity method accounting is necessary if the investor has the ability to exercise its significant influence over the investee. Therefore, when determining the excess of cost of investment over underlying equity in net assets of the investee, and recognizing subsequent pick up of equity method gains or losses, the Company takes its preferred shareholdings into consideration. In addition, excess of investment cost over the underlying net assets will be treated as equity-method goodwill as a component of the carrying value of the equity-method investment. If, however, there is excess of underlying net assets over the investment cost, the investee’s non-current assets, as components of the equity-method investment balance, will be subject to pro rata reduction with the remaining unallocated bargain purchase recognized immediately as an extraordinary gain.
Under U.S. GAAP, however, equity-method accounting only applies to investments in common stock and in-substance common stock that give the investor the ability to exercise significant influence over operating and financial policies of an investee. Unless when the investment in common stock and in-substance common stock is reduced to zero, at which time the Company’s other forms of investment, including preferred shares, may be required to report losses up to the Company’s investment carrying amount. Pursuant to ASC 323-10-15-13, in-substance common stock is an investment in an entity that has risk and reward characteristics that are substantially similar to that entity’s common stock. An investor shall consider all of the characteristics of the securities: subordination, risks and rewards of ownership and obligation to transfer value, when determining whether an investment in an entity is substantially similar to an investment in the entity’s common stock.
After considering all the characteristics mentioned above, the Company concluded that its investment in Best Elite Series B and B-1 preferred shares is not in-substance common stock based on certain rights that are substantially different from ordinary shares. In particular, the following factors demonstrate that the Series B and B-1 are not in substance common stock:
(1) Subordination—the Series B and B-1 preferred shares each have a stated liquidation preference of 125% of the original issuance price plus any declared and unpaid preference dividends to such class of preferred shares. The liquidation preference is substantive considering Best Elite’s ordinary shares at the time of the purchase accounted for more than “little or none” of its total equity on a fair value basis, and the Series B and B-1 preferred shares are entitled to receive Series B and B-1 liquidation preference amounts prior to any distribution to other classes of shares of Best Elite in liquidation; and
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Risks and rewards of ownership—the Series B and B-1 preferred shareholders are entitled to dividend in preference to all other classes of equity stock when dividends are declared. Such preference dividend must be paid first, in full, to these shareholders prior to distribution to others. Accordingly, the rights of Series B and B-1 preferred shares to profits are substantially different from ordinary shares. The Series B and B-1 preferred shareholders also participate in the ordinary share dividend on an if-converted basis and they do not participate in losses, except, as with equity generally, their value could potentially become zero in liquidation. In addition, as described above, the risk to the Series B and B-1 is substantially lower than ordinary shares because the Series B and B-1 have substantively more favorable treatment in liquidation.
The investment in the Best Elite preferred shares of NT$2,342 million and NT$2,358 million was reclassified from long-term investment accounted for under the equity method to financial assets measured at cost as of December 31, 2011 and 2012, respectively, under U.S. GAAP. The Company also reversed the effects of the pro rata reduction for the bargain purchase and recognized an equity-method goodwill of NT$521 million, as a component of the equity-method investment balance for its investment in Best Elite ordinary shares. Additionally, the Company reversed the investment gain of NT$105 million and NT$669 million for the years ended December 31, 2011 and 2012, respectively, from the preferred shares recognized under R.O.C. GAAP.
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of The following tables summarize the assets and liabilities measured and recorded at fair value on a recurring basis. Financial assets: Financial assets at fair value through profit or loss, current Available-for-sale financial assets, current Financial assets at fair value through profit or loss, noncurrent Available-for-sale financial assets, noncurrent Financial liabilities: Financial liabilities at fair value through profit or loss, currentASC 820-10,Fair Value Measurements and Disclosures, defines fair value, provides a framework for measuring fair value under current standards in U.S. GAAP, and requires additional disclosure about fair value measurements. The fair value hierarchy gives the highest priority to unadjusted quotedliabilities (Level 1) andliabilities;prioritylevel input that is significant to unobservable inputs (Level 3). Eachthe fair value measurement is directly or indirectly observable;inputs usedeach reporting period.a. Assets and liabilities measured and recorded at fair value: As of December 31, 2013 Level 1 Level 2 Level 3 Total $ 633,264 $ — $ — $ 633,264 2,134,379 — — 2,134,379 22,990 37,451 — 60,441 15,548,402 177,406 3,830,333 19,556,141 — 1,928 — 1,928
Financial assets: Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, noncurrent Available-for-sale financial assets, noncurrent Financial liabilities: Financial liabilities at fair value through profit or loss, current As of December 31, 2014 Level 1 Level 2 Level 3 Total $ 634,811 $ 105,318 $ — $ 740,129 — 45,232 — 45,232 18,174,030 170,922 6,017,152 24,362,104 — 42,354 — 42,354
Fair values of financial assets at fair value through profit or loss and available-for-sale financial assets that are described as following:
Levelcategorized into level 1 inputs are unadjustedbased on the quoted market prices in active markets for identical assets or liabilities thatmarket. If there is no active market, the reporting entity hasCompany estimates the ability to access atfair value by using the measurement date;
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly,market method valuation techniques based on parameters such as quoted prices forrecent fund raising activities, valuation of similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets thatcompanies, individual company’s development, market conditions and other economic indicators. If there are not active, and valuations with inputs which are observable for substantially the full term of the asset or liability. The fair values of the available-for-sale financial assets with restrictions on the sale or transfer of an available-for-sale financial asset, which are a characteristic of the asset, the fair value of the asset will be determined based on identicalsimilar but unrestricted financial assets’ quoted market price with appropriate discounts for the restrictions that are insignificant. One of the Company’s equity fund investments was classified as available-for-sale financial assets and its fair value is determined based on the redemption value provided every quarter. restrictions.
The Company issued exchangeable bonds which contain a compound derivative instrument, comprising of the exchange option with a fixed foreign exchange rate feature and a call option. The compound derivative instrument is classified as liabilities carried at fair value through profit or loss. The derivatives are fair valued using the option pricinga valuation model. The valuation model uses the market-based observable inputs including share price, volatility, credit spread, and swap rates.
During the years ended December 31, 2013 and 2014, there were no significant transfers between Level 1 and Level 2 fair value measurements.
Reconciliations for fair value measurement in Level 3 fair value hierarchy were as follows:
Available-for-sale financial assets | ||||||||||||||||
Common stock | Funds | Preferred stock | Total | |||||||||||||
As of January 1, 2013 | $ | 2,509,737 | $ | 45,278 | $ | 165,300 | $ | 2,720,315 | ||||||||
Recognized in profit (loss) | (737,299 | ) | (8,004 | ) | — | (745,303 | ) | |||||||||
Recognized in other comprehensive income (loss) | 396,061 | 1,932 | 147,300 | 545,293 | ||||||||||||
Acquisition | 795,499 | — | — | 795,499 | ||||||||||||
Disposal | (32,432 | ) | (39,206 | ) | — | (71,638 | ) | |||||||||
Transfer to Level 3 | 646,167 | — | — | 646,167 | ||||||||||||
Transfer out of Level 3 | (60,000 | ) | — | — | (60,000 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
As of December 31, 2013 | $ | 3,517,733 | $ | — | $ | 312,600 | $ | 3,830,333 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Available-for-sale financial assets | ||||||||||||||||
Common stock | Funds | Preferred stock | Total | |||||||||||||
As of January 1, 2014 | $ | 3,517,733 | $ | — | $ | 312,600 | $ | 3,830,333 | ||||||||
Recognized in profit (loss) | (119,274 | ) | — | — | (119,274 | ) | ||||||||||
Recognized in other comprehensive income (loss) | 627,892 | — | (12,600 | ) | 615,292 | |||||||||||
Acquisition | 1,318,039 | — | 469,691 | 1,787,730 | ||||||||||||
Disposal | (14,279 | ) | — | — | (14,279 | ) | ||||||||||
Transfer to Level 3 | 33,641 | — | — | 33,641 | ||||||||||||
Transfer out of Level 3 | (136,249 | ) | — | — | (136,249 | ) | ||||||||||
Exchange effect | 8,501 | — | 11,457 | 19,958 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
As of December 31, 2014 | $ | 5,236,004 | $ | — | $ | 781,148 | $ | 6,017,152 | ||||||||
|
|
|
|
|
|
|
|
The Company’s policy to recognize the transfer into and out of fair value hierarchy levels is based on the event or changes in circumstances that caused the transfer.
The total losses of NT$170 million, NT$644 million and NT$119 million for the years ended December 31, 2012, 2013 and 2014, were included in profit or loss that is attributable to the change in unrealized gains or losses relating to those available-for-sale assets without quoted market prices held at the end of the reporting period.
The following tables summarize the assets measured and recorded at fair value on a nonrecurring basis.
For the year ended December 31, 2012
Fair value measurements during reporting period using | ||||||||||||||||||||
Items | Fair value | Level 1 | Level 2 | Level 3 | Total losses | |||||||||||||||
Financial assets measured at cost, noncurrent | $ | — | $ | — | $ | — | $ | — | $ | 182,080 | ||||||||||
Investments accounted for under the equity method | 201,689 | — | 185,143 | 16,546 | 223,695 | |||||||||||||||
Property, plant and equipment and intangible assets, net | 6,015,699 | — | — | 6,015,699 | 3,272,436 | |||||||||||||||
Financial assets measured at cost, noncurrent, investments accounted for under the equity method, property, plant and equipment and intangible assets, net with a total carrying amount of NT$9,895 million were written down to their fair values in total of NT$6,217 million, resulting in an aggregate impairment charge of NT$3,678 million included in earnings for the year ended December 31, 2012. | ||||||||||||||||||||
For the year ended December 31, 2013 | ||||||||||||||||||||
Fair value measurements during reporting period using | ||||||||||||||||||||
Items | Fair value | Level 1 | Level 2 | Level 3 | Total losses | |||||||||||||||
Financial assets measured at cost, noncurrent | $ | — | $ | — | $ | — | $ | — | $ | 143,422 | ||||||||||
Property, plant and equipment and intangible assets, net | — | — | — | — | 56,693 |
Financial assets measured at cost, noncurrent, property, plant and equipment and intangible assets, net with a total carrying amount of NT$200 million were written down to nil for the year ended December 31, 2013.
For the year ended December 31, 2014
Fair value measurements during reporting period using | ||||||||||||||||||||
Items | Fair value | Level 1 | Level 2 | Level 3 | Total losses | |||||||||||||||
Financial assets measured at cost, noncurrent | $ | 112,838 | $ | — | $ | 112,251 | $ | 587 | $ | 127,559 | ||||||||||
Property, plant and equipment and intangible assets, net | 3,455,621 | — | — | 3,455,621 | 596,678 |
Financial assets measured at cost, noncurrent, property, plant and equipment and intangible assets, net with a total carrying amount of NT$4,292 million were written down to NT$3,568 million for the year ended December 31, 2014.
Some of the Company’s non-public instruments classified as financial assets measured at cost, noncurrent and long-term investments accounted for under the equity method were considered to be impaired. The fair value was determined based on the contract selling price or the transaction price of the newly issued shares which the Company considered to be quoted prices in aan inactive market, that was not active.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Level 3 inputs are unobservable inputs that are significant toor determined using the discounted cash flow model, considering the equity investee’s current and expected operating performance, industry trends, and competitive advantages. As the fair value of the asset or liability. Some of the Company’s equitycertain investments in non-public funds classified as financial assets measured at cost, noncurrent were considered to be impaired. The fair value of the non-publicly traded funds was determined using the net asset values of the funds. The fair value measurements of our private equity instruments classified as financial assets measured at cost, noncurrent are determined using the market approach by reference to the market multiples derived from the inputs include the private company’s current operating and future expected performance based on evaluation of the latest available financial statements; changes in the industry and market prospects of the Company based on publicly available information. Due to the absence of quoted market price, the fair value measurement of some of the Company’s long-term investment in non-publicly traded equity instruments that are accounted for under equity method were determined to be impaired usingzero because the discounted cash flow model, consideringnet assets of these investees were so low that the investee’s current and future expected operating performance, industry trends, and competitive advantages. As fordeficit was unlikely to be recovered.
For the property, plant and equipment impairment, fair valueand intangible assets which were impaired during 2012 and 2013, as their carrying amount exceeds the recoverable amount, recoverable amount of these assets was determined based on observable inputs by reference to comparable sales data and published market price with insignificant adjustmentadjustments for economic lives, local price index, capacity utilization, equipment-relatedequipment related inflation indices and physical condition. Refer to Note 36(6) for goodwill impairment.
The following table summarizes the assets and liabilities measured and recorded at fair value on a recurring basis at December 31, 2011 and 2012:
December 31, 2011 | Fair value measurements at reporting date using | |||||||||||||||
Items | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | |||||||||||||
Financial assets at fair value through profit or loss, current | 695,931 | 695,931 | — | — | ||||||||||||
Financial assets at fair value through profit or loss, noncurrent | 119,711 | 119,711 | — | — | ||||||||||||
Available-for-sale financial assets, current | 5,124,780 | 5,124,780 | — | — | ||||||||||||
Available-for-sale financial assets, noncurrent | 18,929,865 | 18,835,224 | 94,641 | — | ||||||||||||
Financial liabilities at fair value through profit or loss, current | 741,531 | — | 741,531 | — |
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 | Fair value measurements at reporting date using | |||||||||||||||
Items | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | |||||||||||||
Financial assets at fair value through profit or loss, current | 655,994 | 655,994 | — | — | ||||||||||||
Financial assets at fair value through profit or loss, noncurrent | 72,706 | 72,706 | — | — | ||||||||||||
Available-for-sale financial assets, current | 4,330,880 | 4,330,880 | — | — | ||||||||||||
Available-for-sale financial assets, noncurrent | 15,116,740 | 15,045,978 | 70,762 | — | ||||||||||||
Financial liabilities at fair value through profit or loss, current | 767,605 | — | 767,605 | — |
The following table summarizes the assets measured at fair value on a nonrecurring basis for the years ended December 31, 2011 and 2012:
December 31, 2011 | Fair value measurements during reporting period using | |||||||||||||||||||
Items | Fair Value | Level 1 | Level 2 | Level 3 | Total Losses | |||||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | ||||||||||||||||
Financial assets measured at cost, noncurrent | 225,938 | — | 32,447 | 193,491 | (570,725 | ) | ||||||||||||||
Long-term investments accounted for under the equity method | 374,690 | — | 81,348 | 293,342 | (114,463 | ) | ||||||||||||||
Property, plant and equipment, net | 7,532,528 | — | — | 7,532,528 | (1,238,877 | ) | ||||||||||||||
Other assets | — | — | — | — | (11,206 | ) | ||||||||||||||
Goodwill | — | — | — | — | (1,500,344 | ) |
Financial assets measured at cost, long-term investments accounted for under the equity method,Certain property, plant and equipment net, other assets and goodwill with a totalwere impaired during 2014 as their carrying amount exceeded the recoverable amount. The recoverable amount was based on value in use, determined as present value of NT$11,569 million were written downfuture cash flows the Company expects to derive from operating these assets. The present value of future cash flows was calculated based on the Company’s expected cash inflows and outflows related to these assets from continuing use and their fair values in totalultimate disposals, and the discount rate based on Weighted Average Cost of NT$8,133 million, resulting in an aggregate impairment charge of NT$3,436 million included in earnings for the year ended December 31, 2011.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSCapital (WACC) which was 12.6%.
December 31, 2012 | Fair value measurements during reporting period using | |||||||||||||||||||
Items | Fair Value | Level 1 | Level 2 | Level 3 | Total Losses | |||||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | ||||||||||||||||
Financial assets measured at cost, noncurrent | 202,058 | — | 134,125 | 67,933 | (585,060 | ) | ||||||||||||||
Long-term investments accounted for under the equity method | 201,689 | — | 185,143 | 16,546 | (223,695 | ) | ||||||||||||||
Property, plant and equipment, net | 5,961,772 | — | — | 5,961,772 | (3,186,525 | ) | ||||||||||||||
Other assets and deferred charges | 53,927 | — | — | 53,927 | (85,911 | ) |
Financial assets measured at cost, long-term investments accounted for under the equity method, property, plant and equipment, net and other assets and deferred charges with a total carrying amount of NT$10,500 million were written down to their fair values in total of NT$6,419 million, resulting in an aggregate impairment charge of NT$4,081 million included in earnings for the year ended December 31, 2012.
The following table summarizes the financial instruments not recorded at fair value but for which the fair value is disclosed as of December 31, 2011 and 2012:
b. | Assets and liabilities not recorded at fair value on a recurring basis but for which fair value is disclosed: |
The fair value of bonds payables wasis estimated by the market price or estimated using the option pricingvaluation model. The model uses market-based observable inputs including share price, volatility, credit spread and swap rates. The fair value of long-term loans wasis determined using discounted cash flow model, based on the Company’s current incremental borrowing rates of similar loans.
The fair values of the Company’s short-term financial instruments including cash and cash equivalents, held to maturityreceivables, refundable deposits, other financial assets-current, restricted assets, deposits-out,current, short-term loans, payables and capacity deposits approximatedapproximate their carrying amount due to their maturities within one year.
| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012 | Fair value measurements during reporting period using | |||||||||||||||||||||||||||||||
Fair value measurements during reporting period using | ||||||||||||||||||||||||||||||||
Items | Level 1 | Level 2 | Level 3 | Fair value | Level 1 | Level 2 | Level 3 | Book value | ||||||||||||||||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||||||||||||||||||||||
Bonds payables (current portion included) | 10,049,710 | 15,929,060 | — | $ | 33,414,971 | $ | 20,054,158 | $ | 13,360,813 | $ | — | $ | 33,606,417 | |||||||||||||||||||
Long-term loans (current portion included) | — | 14,817,466 | — | 11,354,014 | — | 11,354,014 | — | 11,354,014 | ||||||||||||||||||||||||
Long-term investments accounted for under the equity method with quoted market price | 94,922 | — | — | |||||||||||||||||||||||||||||
As of December 31, 2014
| ||||||||||||||||||||||||||||||||
Fair value measurements during reporting period using | ||||||||||||||||||||||||||||||||
Items | Fair value | Level 1 | Level 2 | Level 3 | Book value | |||||||||||||||||||||||||||
Bonds payables (current portion included) | $ | 25,043,265 | $ | 25,043,265 | $ | — | $ | — | $ | 24,977,820 | ||||||||||||||||||||||
Long-term loans (current portion included) | 12,198,456 | — | 12,198,456 | — | 12,198,456 |
12. | OPERATING SEGMENT INFORMATION |
The Company issued convertible bonds in May 2011. Under R.O.C. GAAP, the bonds contain both a liability component and an equity component. The conversion right is classified in stockholders’ equity at its fair value at issuance. Under U.S. GAAP, the conversion right was determined to be a contract indexed to the Company’s own stock and, if it existed on a freestanding basis, would be classified in stockholders’ equity, meeting the scope exception described in ASC 815-10-15-74. As such, the conversion right is not considered to be a derivative instrument that is required to be bifurcated from the host contract.
In addition, under R.O.C. GAAP, the issuance costs are allocated proportionally to the equity and liability components. The amount allocated to the equity components is accounted for as a reduction of equity and the amount allocated to the liability component is accounted for as a bond discount. The issuance costs allocated to the liability component are amortized over the contractual life of the bonds using the effective interest rate method. Under U.S. GAAP, however, the entire issuance costs are reported as deferred charges and amortized over the contractual life of the bonds using the effective interest rate method. As of December 31, 2011 and 2012, the balance of deferred charges was NT$52 million and NT$39 million under U.S. GAAP, respectively.
Based on the above differences, the Company reclassified the equity component under R.O.C. GAAP to bonds payable under U.S. GAAP, and reclassified issuance costs allocated to the liability and equity components under R.O.C. GAAP to deferred charges under U.S. GAAP. The Company also adjusted the differences resulting from the subsequent amortization of the bond discount and deferred charges as well as the subsequent redemption of the bonds. The difference in cost basis resulted in an adjustment to decrease interest expense of NT$77 million and NT$13 millionReportable segment information for the years ended December 31, 20112012, 2013 and 2012, respectively. Additionally,2014 were as follows:
For the year ended December 31, 2012 | ||||||||||||||||||||
Wafer Fabrication | New Business | Subtotal | Adjustment and Elimination | Consolidated | ||||||||||||||||
Net revenue from external customers | $ | 108,623,475 | $ | 7,051,288 | $ | 115,674,763 | $ | — | $ | 115,674,763 | ||||||||||
Net revenue from sales among intersegments | 72,502 | 2,100 | 74,602 | (74,602 | ) | — | ||||||||||||||
Segment net income (loss), net of tax | 6,094,148 | (5,582,991 | ) | 511,157 | 3,637,465 | 4,148,622 | ||||||||||||||
Capital expenditure | 51,035,489 | 1,150,421 | 52,185,910 | — | 52,185,910 | |||||||||||||||
Depreciation | 32,933,134 | 2,185,264 | 35,118,398 | — | 35,118,398 | |||||||||||||||
Share of profit or loss of associates and joint ventures | (2,807,797 | ) | (199,676 | ) | (3,007,473 | ) | 3,670,852 | 663,379 | ||||||||||||
Income tax expense | 2,095,121 | 50,862 | 2,145,983 | — | 2,145,983 | |||||||||||||||
Impairment loss | 2,657,634 | 1,521,984 | 4,179,618 | — | 4,179,618 |
Net revenue from external customers Net revenue from sales among intersegments Segment net income (loss), net of tax Capital expenditure Depreciation Share of profit or loss of associates and joint ventures Income tax expense Impairment loss For the year ended December 31, 2013 Wafer
Fabrication New Business Subtotal Adjustment
and
Elimination Consolidated $ 116,781,465 $ 7,030,171 $ 123,811,636 $ — $ 123,811,636 94,116 13,190 107,306 (107,306 ) — 12,710,001 (2,553,381 ) 10,156,620 1,927,018 12,083,638 31,970,899 940,453 32,911,352 — 32,911,352 35,008,525 2,233,263 37,241,788 — 37,241,788 (1,244,083 ) 14,996 (1,229,087 ) 1,927,018 697,931 2,224,378 32,456 2,256,834 — 2,256,834 1,047,500 284,968 1,332,468 — 1,332,468
For the year ended December 31, 2014 | ||||||||||||||||||||
Wafer Fabrication | New Business | Subtotal | Adjustment and Elimination | Consolidated | ||||||||||||||||
Net revenue from external customers | $ | 129,448,927 | $ | 10,563,149 | $ | 140,012,076 | $ | — | $ | 140,012,076 | ||||||||||
Net revenue from sales among intersegments | 77,432 | 3,779 | 81,211 | (81,211 | ) | — | ||||||||||||||
Segment net income (loss), net of tax | 11,260,201 | (2,488,644 | ) | 8,771,557 | 1,675,631 | 10,447,188 | ||||||||||||||
Capital expenditure | 42,789,821 | 447,186 | 43,237,007 | — | 43,237,007 | |||||||||||||||
Depreciation | 36,514,624 | 2,270,952 | 38,785,576 | — | 38,785,576 | |||||||||||||||
Share of profit or loss of associates and joint ventures | (1,553,602 | ) | (84,850 | ) | (1,638,452 | ) | 1,675,631 | 37,179 | ||||||||||||
Income tax expense | 3,122,208 | 2,907 | 3,125,115 | — | 3,125,115 | |||||||||||||||
Impairment loss | 303,220 | 597,975 | 901,195 | — | 901,195 |
Segment assets Segment liabilities As of December 31, 2013 Wafer
Fabrication New Business Subtotal Adjustment
and
Elimination
(Note) Consolidated $ 281,932,440 $ 17,775,044 $ 299,707,484 $ (5,793,557 ) $ 293,913,927 $ 74,267,468 $ 10,030,536 $ 84,298,004 $ (28,063 ) $ 84,269,941
As of December 31, 2014 | ||||||||||||||||||||
Wafer Fabrication | New Business | Subtotal | Adjustment and Elimination (Note) | Consolidated | ||||||||||||||||
Segment assets | $ | 301,424,070 | $ | 13,622,342 | $ | 315,046,412 | $ | (4,398,879 | ) | $ | 310,647,533 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Segment liabilities | $ | 82,238,205 | $ | 8,096,635 | $ | 90,334,840 | $ | (26,340 | ) | $ | 90,308,500 | |||||||||
|
|
|
|
|
|
|
|
|
|
Note: The adjustment primarily consisted of intragroup elimination entries.
(2) | Geographic information |
a. | Revenue from external customers |
For the years ended December 31, | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Taiwan | $ | 42,129,998 | $ | 40,749,257 | $ | 47,843,603 | ||||||
Singapore | 32,045,103 | 29,467,778 | 17,500,236 | |||||||||
China (includes Hong Kong) | 6,081,805 | 11,798,261 | 14,982,545 | |||||||||
Japan | 2,918,334 | 4,584,979 | 7,599,531 | |||||||||
USA | 15,370,089 | 15,311,681 | 12,402,440 | |||||||||
Europe | 7,577,709 | 12,105,374 | 27,443,850 | |||||||||
Others | 9,551,725 | 9,794,306 | 12,239,871 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 115,674,763 | $ | 123,811,636 | $ | 140,012,076 | ||||||
|
|
|
|
|
|
The geographic breakdown of the Company recalculatedCompany’s operating revenues was based on the capitalized interest which resulted in an adjustment to decreaselocation of the Company’s customers.
b. | Non-current assets |
As of December 31, | ||||||||
2013 | 2014 | |||||||
Taiwan | $ | 137,691,859 | $ | 134,923,298 | ||||
Singapore | 24,241,732 | 29,891,563 | ||||||
China (includes Hong Kong) | 8,813,088 | 10,476,771 | ||||||
Japan | 90 | 74 | ||||||
USA | 19,591 | 21,906 | ||||||
Europe | 206,532 | 192,416 | ||||||
Others | 7,805 | 7,763 | ||||||
|
|
|
| |||||
Total | $ | 170,980,697 | $ | 175,513,791 | ||||
|
|
|
|
Non-current assets include property, plant and equipment, net by NT$89 millionintangible assets, prepayment for the year ended December 31, 2012. The impact to property, plantequipment and equipment, net was insignificant for the year ended December 31, 2011.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) | Major customers |
AsIndividual customers accounting for at least 10% of December 31, 2011 and 2012, the Company redeemed NT$1,823 million and NT$142 million, respectively, of convertible bonds which resulted in an adjustment to decrease redemption gain of NT$57 million and NT$2 millionnet sales for the years ended December 31, 20112012, 2013 and 2012 under U.S. GAAP, respectively.2014 were as follows:
For the years ended December 31, | ||||||||||||
2012 | 2013 | 2014 | ||||||||||
Customer A from wafer fabrication segment | $ | 15,992,963 | $ | 17,122,660 | $ | 16,911,071 | ||||||
Customer B from wafer fabrication segment | 13,713,938 | 7,836,021 | 6,846,333 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 29,706,901 | $ | 24,958,681 | $ | 23,757,404 | ||||||
|
|
|
|
|
|
13. |
In accordance with R.O.C. GAAP, goodwillThe primary objective of the Company’s capital management is measured separately on each acquisition,to ensure that it maintains a strong credit rating and it excludes goodwill in non-controlling interest. In a step acquisition,healthy capital ratios to support its business and maximize the acquirer does not re-measurestockholders’ value. The Company also ensures its previously held equity interest inability to operate continuously to provide returns to stockholders and the acquiree, therefore,interests of other related parties, while maintaining the acquisition does not result in gainsoptimal capital structure to reduce costs of capital.
To maintain or losses from re-measurements. Goodwill is not amortized and is subjectadjust the capital structure, the Company may adjust the dividend payment to annual impairment testsstockholders, return capital to stockholders, issue new shares or whenever events and circumstances change indicating goodwill may be impaired. The assessment of impairment includes identifying the goodwill-allocated cash generating unit (CGU), determining the recoverable amount of CGU by using a discounted cash flow analysis, and ultimately comparing the recoverable amount with the carrying amount of CGU including goodwill. If the CGU’s carrying amount is greater than its recoverable amount, an impairment loss is recognized. The impairment of goodwill cannot be reversed. When the fair value of identifiable net assets acquired exceeds the cost, the difference should be assigned to non-current assets acquired (except for financial assets not under equity method,dispose assets to be disposed, deferred tax assets, prepaid pension or other retirement benefits cost) proportionateredeem liabilities.
Similar to their respective fair values. If these assets are all reducedits peers, the Company monitors its capital based on debt to zero value, the remaining excess should be recognized as extraordinary gain.
Under U.S. GAAP, in a business combination achieved in stages, the acquirer shall re-measure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss.capital ratio. The acquirer shall recognize goodwill as of the acquisition date measuredratio is calculated as the excess of (a)Company’s net debt divided by its total capital. The net debt is derived by taking the aggregate of: (i) the consideration transferred, (ii) the fair value of any non-controlling interest in the acquiree, and (iii) the fair value of any previously held equity interest in the acquiree; over (b) the fair value of identifiable assets acquired and thetotal liabilities assumed on the acquisition date; or gain on bargain purchase in which the amount as the excess of (b) exceeds the aggregate of the amounts specified in (a), after performing required reassessment of measurement procedures. Goodwill is not amortized and is subject to an annual impairment test or more frequently when events and circumstances indicate a possible impairment may exist. The first step of the impairment test is to compare the fair value of the reporting unit with its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, the second step of the impairment test is to compare the implied fair value of the reporting unit goodwill with its carrying value. If the carrying amount of goodwill exceeds its fair value, the excess is recognized as impairment loss on the consolidated statementsbalance sheets minus cash and cash equivalents. The total capital consists of income. Impairment of goodwill cannot be subsequently reversed.
On November 30, 2010, the Company acquired additional stocks issued by NEXPOWER, which increased the Company’s ownership interest from 45.79% to 57.67%. Prior to the acquisition date, the Company accounted for its 45.79% interest in NEXPOWER as an equity-method investment. As a result of the acquisition, the Company obtained control over NEXPOWER and the results of NEXPOWER’s operations have been included in the consolidated financial statements since that date. The Company expects to achieve the integration of the Company’s overall resources.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under R.O.C. GAAP, a change in the Company’s proportionate share in the net assets of antotal equity investee resulting from its acquisition of additional stock issued by the equity investee at a rate not proportionate to its existing equity ownership is charged to the(including capital, additional paid-in capital, retained earnings, other components of equity and long-term investments accounts. However, the acquisition of a controlling interest in NEXPOWER was regarded as a business combination under U.S. GAAP. The sum of the fair value of the consideration transferred, non-controlling interests and equity interest previously held by the acquirer exceeding the fair value of identifiableinterests) plus net assets is recorded as goodwill.debt.
The fair value of consideration transferred, non-controlling interests and equity interest previously held by the acquirer were determined based on the price of newly issued shares,Company’s strategy, which was supported by valuation analysis using the market approach. The fair value of consideration transferred was NT$3,500 million, paid in cash, and the fair value of noncontrolling interests was NT$5,128 million. The acquisition-date fair value of the previous equity interest was NT$3,487 million and the Company recognized a gain of NT$443 million as a result of remeasuring its equity interest previously held in NEXPOWER before the business combination.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
The goodwill recognized is attributable primarily to expected consolidation synergies of NEXPOWER, and none of the goodwill is expected to be deductible for income tax purposes. As of December 31, 2010, there was no change in the recognized amount of goodwill resulting from the acquisition of NEXPOWER.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In September 2011, due to operating profits and cash flows were lower than expected since November 2010, given sharp deterioration in market condition, NEXTPOWER revised its earnings forecastunchanged for the next five years and determined that some of its long lived assets were impaired pursuantreporting periods, is to ASC 360.maintain a reasonable ratio in order to raise capital with reasonable cost. The impairment loss also served as an indicator that goodwill might also be impaired. Accordingly, the Company conducted a two-step processdebt to identify and measure the amount of impairment loss, if any.
As the carrying amount of NEXPOWER exceeded its fair value which was estimated by using the discounted cash flow based on earnings forecasts, its goodwill was considered to be impaired. To calculate the implied fair value of goodwill, the Company allocated the fair value to each asset and liability account. As most of the value in the reporting unit is in its long lived assets, the fair value of the machinery and equipment was determined and impaired as described in Note 36(7). The fair value of assets and liabilities other than long lived assets were determined to approximate their book values given their short-term nature. The Company did not identify any value to be ascribed to intangible assets not previously identified. The excess of the reporting unit’s fair value over the total amounts allocated to each asset (except goodwill) and liability account would be the implied fair value of goodwill. As the carrying amount exceeded the implied fair value of NEXPOWER’s goodwill, the Company recognized a goodwill impairment loss of NT$ 1,499 million in 2011 under U.S. GAAP, within the Other segment. While the impairment assessment resulted in a full writedown of goodwill under both R.O.C. GAAP and U.S. GAAP, the amount of the charge was different due to the difference in carrying values of goodwill under each GAAP.
Under R.O.C. GAAP and U.S. GAAP, long-lived assets are evaluated for impairment at each balance sheet date or whenever events and changes in circumstances indicate that an asset or asset group may be impaired and the carrying amounts of these assets may not be recoverable. Under R.O.C. GAAP, the Company determines whether an asset is impaired by comparing the carrying amount to its recoverable amount, which is the higher of the asset’s fair value less costs to sell or the value in use determined by the future discounted cash flows to be generated by the asset and recognizes an impairment loss, if any, to the extent that its carrying amount exceeds its recoverable amount.
Under U.S. GAAP, pursuant to ASC 360, a two-step impairment test is required if impairment is indicated and the measurement model is as follows:
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 2011 and 2012, given the sharp deterioration in market condition, two of our subsidiaries had lower than expected operating profits and cash flows and revised its earnings forecast for the next five years and determined that some of their long-lived assets were impaired pursuant to ASC 360.
The impairment loss measured as the difference between the carrying amount and fair value for the years ended December 31, 2010, 2011 and 2012 was nil, NT$1,250 million and NT$3,272 million under U.S. GAAP, respectively. There was no GAAP difference recognized in 2010 and 2011. In 2012, due to the difference in carrying values of long-lived assets under R.O.C. and U.S. GAAP based on different accounting for acquisition of noncontrolling interest as described in Note 36(3), the amount of impairment recognized under R.O.C. GAAP was NT$2,339 million.
Additionally, under R.O.C. GAAP, for previously recognized losses, if there is evidence that impairment losses recognized no longer exist or have diminished, and the recoverable amounts of the long-lived assets increase because of an increase in the assets’ estimated service potential, the losses may be reversed to the extent that the resulting carrying values of the assets do not exceed the carrying values had no impairment loss been recognized in prior years. Whereas impairment losses recognized cannot be reversed under U.S. GAAP. There were no reversal of impairment recognized on long-lived assets under R.O.C. GAAP for the years ended December 31, 2010, 2011 and 2012.
Under R.O.C. GAAP, basic earnings per share is calculated by dividing net income attributable to common stockholders by the weighted-average number of shares outstanding during the year. Diluted earnings per share is calculated by taking basic earnings per share plus the effect of additional common shares that would have been outstanding if the dilutive share equivalents had been issued. Net income is also adjusted for the interest and other income or expenses derived from any underlying dilutive share equivalents, such as convertible bonds. The weighted-average number of shares outstanding are adjusted retroactively for stock dividends issued and capitalization of additional paid-in capital. Anti-dilutive effects are not included in the dilutive EPS calculation. The shares distributed for employee bonus are treated as outstanding as of their grant date in the calculation of basic earnings per share. For employee bonus that may be distributed in shares, the number of shares to be distributed is taken into consideration assuming the distribution will be made entirely in shares when calculating diluted earnings per share.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under U.S. GAAP, basic earnings per share is calculated by dividing net income attributable to common stockholders by the weighted-average number of shares outstanding during the year. The shares distributed for employee bonus are included in the computation of basic earnings per share from the grant date. The reciprocal shareholdings held by equity investees are also deducted from the computation of weighted-average number of shares outstanding. Diluted earnings per share is calculated by taking basic earnings per share plus the effect of additional common shares that would have been outstanding if the dilutive share equivalents had been issued. The net income attributable to common stockholders would also be adjusted for the interest and other income or expenses derived from any underlying dilutive share equivalents as under R.O.C. GAAP. For employee bonus that may be distributed in shares, the number of shares to be distributed is not taken into consideration until they are granted or the stockholders’ approval is obtained. Additionally, the dilutive effect of outstanding employee options generally should be reflected in diluted EPS by application of treasury stock method. The “assumed proceeds” include the exercise price of the options, any tax benefits that will be credited on exercise to additional paid-in capital and the average measured but unrecognized compensation expense during the period. Accordingly, the Company reversed the dilutive adjustment under R.O.C. GAAP and calculated the dilutive effect of outstanding employee options by applying treasury stock method under U.S. GAAP.
The reconciliation of the numerators and denominators used in computing the basic and diluted earnings per share under U.S. GAAP are as below:
For the year Ended December 31, 2012 | ||||||||||||
Income (Numerator) | Shares (Denominator) | Per-Share Amount | ||||||||||
In thousands | In thousands | In dollar NT$ | ||||||||||
Net Income attributable to the Company | 5,055,197 | — | — | |||||||||
Basic EPS | ||||||||||||
Income available to common stockholders | 5,055,197 | 12,463,761 | 0.41 | |||||||||
Effect of dilutive securities | ||||||||||||
Employee stock options | — | 24,034 | — | |||||||||
Unsecured convertible bonds | (16,156 | ) | 652,022 | (0.03 | ) | |||||||
Diluted EPS | ||||||||||||
Income attributable to common stockholders including assumed conversions | 5,039,041 | 13,139,817 | 0.38 |
As of December 31, 2012, there were 332,656 thousand issued and outstanding stock options which were not included in the computation of diluted earnings per share due to their antidilutive effect.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the year Ended December 31, 2011 | ||||||||||||
Income (Numerator) | Shares (Denominator) | Per-Share Amount | ||||||||||
In thousands | In thousands | In dollar NT$ | ||||||||||
Net Income attributable to the Company | 8,745,675 | — | — | |||||||||
Basic EPS | ||||||||||||
Income available to common stockholders | 8,745,675 | 12,400,193 | 0.71 | |||||||||
Effect of dilutive securities | ||||||||||||
Employee stock options | — | 38,534 | — | |||||||||
Unsecured convertible bonds | (10,699 | ) | 420,158 | (0.03 | ) | |||||||
Diluted EPS | ||||||||||||
Income attributable to common stockholders including assumed conversions | 8,734,976 | 12,858,885 | 0.68 |
As of December 31, 2011, there were 397,189 thousand issued and outstanding stock options which were not included in the computation of diluted earnings per share due to their antidilutive effect.
For the year Ended December 31, 2010 | ||||||||||||
Income (Numerator) | Shares (Denominator) | Per-Share Amount | ||||||||||
In thousands | In thousands | In dollar NT$ | ||||||||||
Net Income attributable to the Company | 23,616,120 | — | — | |||||||||
Basic EPS | ||||||||||||
Income available to common stockholders | 23,616,120 | 12,335,428 | 1.91 | |||||||||
Effect of dilutive securities | ||||||||||||
Employee stock options | — | 63,658 | — | |||||||||
Diluted EPS | ||||||||||||
Income attributable to common stockholders including assumed conversions | 23,616,120 | 12,399,086 | 1.90 |
As of December 31, 2010, there were 484,340 thousand issued and outstanding stock options which were not included in the computation of diluted earnings per share due to their antidilutive effect.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Some of the Company’s subsidiaries and investees also hold the Company’s stocks as investments. Under R.O.C. GAAP, reciprocal shareholdings held by subsidiaries, but not equity investees, are recorded as treasury stocks on the Company’s books. Under U.S. GAAP, however, reciprocal shareholdings, whether being held by subsidiaries or equity investees, are recorded as treasury stocks on the Company’s books. Therefore,ratios as of December 31, 20112013 and 2012, the Company recognized treasury stocks of NT$2,092 million for reciprocal shareholdings held by equity-method investees. The Company also reversed accumulated other comprehensive income related to unrealized gains of NT$1,428 million, NT$849 million and NT$688 million for the years ended December 31, 2010, 2011 and 2012, respectively, and eliminated investment gains of NT$81 million, NT$179 million and NT$80 million for the years ended December 31, 2010, 2011 and 2012, respectively.
Under R.O.C. GAAP, the stock dividends are recorded at par value and charged to retained earnings. Under U.S. GAAP, if the ratio of distribution is less than 25 percent of the same kind of outstanding shares, the fair value of the shares issued should be charged to retained earnings. There have been no stock dividends issued since 2009, the adjustment of NT$291,285 million remains the same as of December 31, 2011 and 2012.
Under R.O.C. GAAP, R.O.C. SFAS 18 requires a minimum pension liability to be measured as the excess of accumulated benefit obligation over the fair value of the plan assets, and allows the unrecognized items, including prior service costs or credits, actuarial gains or losses, and transition obligations or assets, to be reported in disclosure shown as a plan’s funded status.
Under U.S. GAAP, ASC 715-30,Defined Benefit Plans—Pension, requires an employer to recognize an asset for a plan’s overfunded status or a liability for a plan’s underfunded status with an offsetting adjustment to accumulated other comprehensive income (AOCI).
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amounts related to pensions recognized in AOCI, net of tax, excluding amounts related to equity-method investees, are shown as below:
As of December 31, 2012 | ||||||||
Net gain/(loss) | Prior service cost | |||||||
NT$’000 | NT$’000 | |||||||
The amounts arose during the period | (418,098 | ) | — | |||||
The amounts reclassified as components of net periodic benefit cost | 232,606 | (47,995 | ) | |||||
The amounts recognized in AOCI as of December 31, 2012 | (721,858 | ) | — | |||||
The amounts expected to be recognized as components of net periodic benefit cost during 2013 | (99,717 | ) | — |
Under U.S. GAAP, the income tax expense was NT$1,624 million, NT$931 million and NT$2,675 million for the years ended December 31, 2010, 2011 and 2012, respectively. Undistributed earnings generated after 1997 are subject to a 10% tax in compliance with the Income Tax Law of the R.O.C. Under R.O.C GAAP, the 10% tax on undistributed earnings is recorded as an expense at the time shareholders resolve that its earnings shall be retained. Under U.S. GAAP, 10% income tax impact is provided in the period the income is earned, assuming that no earnings are distributed. Any reduction in the liability will be recognized when the income is distributed upon the stockholders’ approval in the subsequent year. Tax on undistributed earnings may be offset by the Company’s available tax credits carried forward, where applicable. As such, the incremental tax accrued on undistributed earnings may be offset by a corresponding reduction in valuation allowance, where applicable. In 2010, 2011 and 2012, the Company accrued NT$2,156 million, NT$877 million and NT$650 million, respectively, for 10% tax on undistributed earnings in Taiwan under U.S. GAAP. The additional tax expense was offset by a corresponding reduction in the valuation allowance under U.S. GAAP.
Moreover, additional tax benefit (expense) and deferred tax assets or liabilities would be adjusted for the reconciled items between R.O.C. GAAP and U.S. GAAP due to temporary difference. For the year ended December 31, 2012, the Company recognized total tax expense and other comprehensive income items of NT$584 million and NT$409 million, respectively, to reconcile R.O.C. GAAP to U.S. GAAP, with the balance of NT$175 million adjusted to reduce deferred tax asset, noncurrent, in connection with the recognition of the book-to-tax basis difference on the Company’s investment in UMCJ, immediately following its decision to dissolve and liquidate UMCJ. While R.O.C. GAAP requires subsequent changes in deferred tax balances as of the beginning of the year to be recorded in equity, if the deferred tax is related to an equity classified item, ASC 740,Income Taxes, requires all such changes to be recognized as current income tax expense.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2012, the Company reported valuation allowance NT$9,149 million to reduce deferred tax assets to an amount that is more likely than not realizable, representing a decrease of NT$2,778 million from the prior year.
Under U.S. GAAP, the Company adopted the provisions regarding uncertainty in income tax positions prescribed in ASC 740-10, which clarifies that tax position are measured based on the maximum amount that is more likely than not to be realized. Tax positions that are not at least more likely than not to be sustained on their technical merits are not recognized. Unlike ASC 740-10, R.O.C. SFAS 22 contained no guidance on uniform criteria for an enterprise to recognize and measure potential tax benefits associated with uncertain tax positions.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is2014 were as follows:
For the years ended December 31, | ||||||||
2011 | 2012 | |||||||
NT$ | NT$ | |||||||
(In millions) | ||||||||
Balance at January 1 | 82 | 69 | ||||||
Increases due to positions taken in current year | 69 | 778 | ||||||
Decreases relating to settlements with taxing authorities | (82 | ) | — | |||||
|
|
|
| |||||
Balance at December 31 | 69 | 847 | ||||||
|
|
|
|
As of December 31, 2011 and 2012, unrecognized tax benefit of NT$69 million and NT$429 million, respectively, which if recognized would affect the Company’s effective tax rate. In addition, settlement of the unrecognized tax benefit, if needed, can be by use of cash or deferred tax assets. Further, the Company is unaware of any positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly change within the next twelve months.
The Company reports interest and penalties relating to unrecognized tax benefits as interest expenses and other expenses, respectively. As of December 31, 2011 and 2012, no interest or penalties were accrued.
The Company is subject to taxation in Taiwan and other foreign jurisdictions. As of December 31, 2012, tax year of 2011 is open to Tax Authority’s examination in Taiwan, while in other foreign jurisdictions, years 2007-2011 are open to relevant Tax Authority’s examination.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under R.O.C. GAAP, gains and losses from disposal of property, plant and equipment, gains and losses from foreign currency exchange, and impairment losses of long-lived assets, are presented as non-operating income or expenses in the consolidated statement of income. Under U.S. GAAP, these non-operating income or expenses would be reclassified to be included in the determination of operating income.
Under R.O.C. GAAP, as the Company decreases its equity interests in a foreign operation through capital reduction and return of capital, the proportional difference of the accumulated currency translation adjustments before and after the capital reduction is recognized in profit or loss. However, under U.S. GAAP, foreign currency translation gains and losses that have been recorded as a component of other comprehensive income during the period for which settlement was not planned or anticipated remain in that account until partial or complete sale or complete or substantially complete liquidation of the investment in the foreign entity. In 2012, two of the Company’s foreign subsidiaries returned part of its capital by cash. Under R.O.C. GAAP, the difference of the accumulated currency translation adjustments before and after the capital reduction was recognized as exchange gain. Given the capital return was not made in connection with the sale or substantially complete liquidation of these foreign subsidiaries, the Company reversed the exchange gain under R.O.C. GAAP, and recorded as cumulative translation adjustment of NT$233 million as of December 31, 2012 under U.S. GAAP.
Under R.O.C. GAAP, the write down of inventory for the lower of cost or net realizable value may be reversed in subsequent periods if market conditions improve. Under U.S. GAAP, the write down to lower of cost or market creates a new cost basis that subsequently cannot be marked up. Upon the sale of the related inventory, the difference between these two GAAPs is resolved. During the years ended December 31, 2010, 2011 and 2012, there was no material difference between cost of sales under R.O.C. GAAP and U.S. GAAP as a result of this GAAP difference.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, | ||||||||
2013 | 2014 | |||||||
Total liabilities | $ | 84,269,941 | $ | 90,308,500 | ||||
Less: Cash and cash equivalents | (50,830,678 | ) | (45,701,335 | ) | ||||
|
|
|
| |||||
Net debt | 33,439,263 | 44,607,165 | ||||||
Total equity | 209,643,986 | 220,339,033 | ||||||
|
|
|
| |||||
Total capital | $ | 243,083,249 | $ | 264,946,198 | ||||
|
|
|
| |||||
Debt to capital ratios | 13.76 | % | 16.84 | % | ||||
|
|
|
|
Under R.O.C. GAAP, inventory is stated at the lower of cost or net realizable value, while under U.S. GAAP, inventory is stated at the lower of cost or market. ASC 330-10-20 defines “market” as current replacement cost (by purchase or reproduction) provided it meets both of the following conditions: (1) market should not exceed the net realizable value; and (2) market should not be less than net realizable value reduced by an allowance for an approximately normal profit margin. Net realizable value is defined as the estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal. The market value of the Company’s work in progress and finished goods is measured at the contractual sales price less predictable costs of completion, while that of the raw materials is the replacement cost by purchase. Normally, the market floor of net realizable value reduced by an allowance for a normal profit margin is not applicable because the Company’s inventory is manufactured by contract, serving the specific requirements of its customers. Additionally, as the rule of lower of cost or market is intended to provide a means of measuring the residual usefulness of an inventory expenditure and the term “market” may be thought of in terms of the equivalent expenditure which would have to be made in the ordinary course at that date to procure corresponding utility, in the event when the estimated selling price, reduced by the costs of completion, is lower than current replacement cost, net realizable value would be determined to be the more appropriate measurement of utility. Therefore, the accounting for inventory at the lower of cost or net realizable value under R.O.C. GAAP is not materially different from the accounting for inventory at the lower of cost or market under U.S. GAAP.F-116
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reconciliation of Consolidated Net Income
For the years ended December 31, | ||||||||||||||||
2010 | 2011 | 2012 | ||||||||||||||
NT$’000 | NT$’000 | NT$’000 | US$‘000 | |||||||||||||
Consolidated net income, R.O.C. GAAP | 23,845,956 | 8,466,916 | 5,873,921 | 202,200 | ||||||||||||
Compensation | (396,851 | ) | (105,542 | ) | (9,867 | ) | (340 | ) | ||||||||
Equity investees | (42,404 | ) | (11,475 | ) | 3,168 | 110 | ||||||||||
Investments in debt and equity securities | ||||||||||||||||
Change in fair value of investments in securities | (786 | ) | 137 | (36,207 | ) | (1,246 | ) | |||||||||
Difference in application of equity accounting | — | (104,636 | ) | (669,333 | ) | (23,041 | ) | |||||||||
Adjustments due to change in ownership of investees | (233,761 | ) | (105,626 | ) | (1,251,083 | ) | (43,067 | ) | ||||||||
Convertible bond liabilities | — | 20,580 | 26,967 | 928 | ||||||||||||
Goodwill and business combinations | 452,112 | (1,307,545 | ) | — | — | |||||||||||
Treasury stock and related disposal | (80,524 | ) | (179,028 | ) | (80,492 | ) | (2,771 | ) | ||||||||
Capital reduction and return from foreign subsidiaries | — | — | (232,820 | ) | (8,014 | ) | ||||||||||
Tax effect of U.S. GAAP adjustments | — | (69,326 | ) | (514,769 | ) | (17,720 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Consolidated net income, U.S. GAAP | 23,543,742 | 6,604,455 | 3,109,485 | 107,039 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Attributable to: | ||||||||||||||||
the Company | 23,616,120 | 8,745,675 | 5,055,197 | 174,017 | ||||||||||||
noncontrolling interests | (72,378 | ) | (2,141,220 | ) | (1,945,712 | ) | (66,978 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
23,543,742 | 6,604,455 | 3,109,485 | 107,039 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Basic earnings per share under U.S. GAAP (in dollars) | 1.91 | 0.71 | 0.41 | 0.01 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted earnings per share under U.S. GAAP (in dollars) | 1.90 | 0.68 | 0.38 | 0.01 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted-average number of shares outstanding-basic (in thousands) | 12,335,428 | 12,400,193 | 12,463,761 | 12,463,761 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted-average number of shares outstanding-diluted (in thousands) | 12,399,086 | 12,858,885 | 13,139,817 | 13,139,817 | ||||||||||||
|
|
|
|
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Statement of Comprehensive Income (Loss)
For the years ended December 31, | ||||||||||||||||
2010 | 2011 | 2012 | ||||||||||||||
NT$’000 | NT$’000 | NT$’000 | US$’000 | |||||||||||||
Net income | 23,543,742 | 6,604,455 | 3,109,485 | 107,039 | ||||||||||||
Attributable to: | ||||||||||||||||
the Company | 23,616,120 | 8,745,675 | 5,055,197 | 174,017 | ||||||||||||
noncontrolling interests | (72,378 | ) | (2,141,220 | ) | (1,945,712 | ) | (66,978 | ) | ||||||||
Other comprehensive income (loss), net of tax | ||||||||||||||||
Cumulative translation adjustment | (5,192,884 | ) | 3,176,545 | (2,807,036 | ) | (96,628 | ) | |||||||||
Attributable to: | ||||||||||||||||
the Company | (4,971,823 | ) | 3,162,457 | (2,803,630 | ) | (96,511 | ) | |||||||||
noncontrolling interests | (221,061 | ) | 14,088 | (3,406 | ) | (117 | ) | |||||||||
Unrealized losses on securities | (3,056,478 | ) | (12,745,112 | ) | (3,447,107 | ) | (118,661 | ) | ||||||||
Attributable to: | ||||||||||||||||
the Company | (3,056,478 | ) | (12,745,112 | ) | (3,447,107 | ) | (118,661 | ) | ||||||||
noncontrolling interests | — | — | — | — | ||||||||||||
Unrecognized pension cost | (590,007 | ) | 32,185 | (233,487 | ) | (8,037 | ) | |||||||||
Attributable to: | ||||||||||||||||
the Company | (600,625 | ) | 32,185 | (233,487 | ) | (8,037 | ) | |||||||||
noncontrolling interests | 10,618 | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other comprehensive income (loss) | (8,839,369 | ) | (9,536,382 | ) | (6,487,630 | ) | (223,326 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Comprehensive income (loss) | 14,704,373 | (2,931,927 | ) | (3,378,145 | ) | (116,287 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Attributable to: | ||||||||||||||||
the Company | 14,987,194 | (804,795 | ) | (1,429,027 | ) | (49,192 | ) | |||||||||
noncontrolling interests | (282,821 | ) | (2,127,132 | ) | (1,949,118 | ) | (67,095 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
14,704,373 | (2,931,927 | ) | (3,378,145 | ) | (116,287 | ) | ||||||||||
|
|
|
|
|
|
|
|
Statement of Accumulated Other Comprehensive Income (Loss) attributable to the Company
Cumulative translation adjustment | Unrealized gains (losses) on securities | Unrecognized pension cost | Accumulated other comprehensive income (loss) | |||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | |||||||||||||
Balance at December 31, 2010 | (5,360,151 | ) | 24,743,822 | (520,556 | ) | 18,863,115 | ||||||||||
Other comprehensive income (loss) | 3,162,457 | (12,745,112 | ) | 32,185 | (9,550,470 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at December 31, 2011 | (2,197,694 | ) | 11,998,710 | (488,371 | ) | 9,312,645 | ||||||||||
Other comprehensive loss | �� | (2,803,630 | ) | (3,447,107 | ) | (233,487 | ) | (6,484,224 | ) | |||||||
|
|
|
|
|
|
|
| |||||||||
Balance at December 31, 2012 | (5,001,324 | ) | 8,551,603 | (721,858 | ) | 2,828,421 | ||||||||||
|
|
|
|
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reconciliation of Consolidated Stockholders’ Equity
As of December 31 | ||||||||||||
2011 | 2012 | |||||||||||
NT$’000 | NT$’000 | US$’000 | ||||||||||
Stockholders’ equity, R.O.C. GAAP | 212,124,963 | 205,020,945 | 7,057,520 | |||||||||
Compensation | 3,567 | 538 | 19 | |||||||||
Equity investees | (260,363 | ) | 130,600 | 4,495 | ||||||||
Investments in debt and equity securities | ||||||||||||
Difference in application of equity accounting | (104,636 | ) | (643,765 | ) | (22,161 | ) | ||||||
Adjustments due to change in ownership of investees | 1,773,549 | 397,087 | 13,669 | |||||||||
Convertible bond liabilities | (521,944 | ) | (488,574 | ) | (16,818 | ) | ||||||
Goodwill and business combinations | (7,615 | ) | (7,615 | ) | (263 | ) | ||||||
Treasury stock and related disposal | (2,044,381 | ) | (1,883,334 | ) | (64,831 | ) | ||||||
Pension | (254,179 | ) | (721,858 | ) | (24,849 | ) | ||||||
Tax effect of U.S. GAAP adjustments | (69,326 | ) | (174,666 | ) | (6,013 | ) | ||||||
|
|
|
|
|
| |||||||
Stockholders’ equity, U.S. GAAP | 210,639,635 | 201,629,358 | 6,940,768 | |||||||||
|
|
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Movements in Consolidated Stockholders’ Equity in accordance with U.S. GAAP
For the years ended December 31, | ||||||||||||||||
2010 | 2011 | 2012 | ||||||||||||||
NT$’000 | NT$’000 | NT$’000 | US$’000 | |||||||||||||
Balance at January 1 | 213,240,491 | 225,122,624 | 210,639,635 | 7,250,934 | ||||||||||||
Compensation | 1,549,083 | 890,370 | 209,601 | 7,215 | ||||||||||||
Cash dividends | (6,233,002 | ) | (14,033,575 | ) | (6,316,435 | ) | (217,433 | ) | ||||||||
Adjustment of additional paid-in capital and retained earnings accounted for under the equity method | (52,670 | ) | 1,418 | 8,094 | 278 | |||||||||||
Changes in additional paid-in capital for purchases of subsidiary shares | 408,011 | (310,113 | ) | (12,181 | ) | (419 | ) | |||||||||
Cumulative translation adjustment on foreign long-term investment | (4,971,823 | ) | 3,162,457 | (3,213,059 | ) | (110,605 | ) | |||||||||
Change in fair value of marketable securities | (3,201,421 | ) | (13,324,883 | ) | (3,608,154 | ) | (124,205 | ) | ||||||||
Treasury stock and related disposal | (4,618,121 | ) | 758,799 | 241,539 | 8,314 | |||||||||||
Exercise of employees’ stock options | 2,542 | 1,004,050 | 266,116 | 9,160 | ||||||||||||
Pension | (600,625 | ) | 32,185 | (233,487 | ) | (8,037 | ) | |||||||||
Tax effect of U.S. GAAP adjustments | — | — | 409,429 | 14,094 | ||||||||||||
Changes in noncontrolling interests | 5,984,039 | (1,409,372 | ) | (1,816,937 | ) | (62,545 | ) | |||||||||
Net income attributable to the Company | 23,616,120 | 8,745,675 | 5,055,197 | 174,017 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at December 31 | 225,122,624 | 210,639,635 | 201,629,358 | 6,940,768 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Stockholders’ equity attributable to: | ||||||||||||||||
the Company | 218,650,997 | 205,577,380 | 198,384,040 | 6,829,053 | ||||||||||||
noncontrolling interests | 6,471,627 | 5,062,255 | 3,245,318 | 111,715 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
225,122,624 | 210,639,635 | 201,629,358 | 6,940,768 | |||||||||||||
|
|
|
|
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized U.S. GAAP consolidated balance sheet and statement of operations information is presented below:
As of December 31, | ||||||||||||
2011 | 2012 | |||||||||||
NT$’000 | NT$’000 | US$’000 | ||||||||||
Current assets | 84,055,511 | 80,604,889 | 2,774,695 | |||||||||
Non-current assets | 195,404,755 | 198,447,598 | 6,831,241 | |||||||||
Current liabilities | 42,946,840 | 39,538,661 | 1,361,055 | |||||||||
Non-current liabilities | 25,873,791 | 37,884,468 | 1,304,113 |
For the years ended December 31, | ||||||||||||||||
2010 | 2011 | 2012 | ||||||||||||||
NT$’000 | NT$’000 | NT$’000 | US$’000 | |||||||||||||
Net operating revenues | 126,441,544 | 116,702,723 | 115,674,763 | 3,981,919 | ||||||||||||
Cost of goods sold | (89,929,148 | ) | (95,594,489 | ) | (96,330,930 | ) | (3,316,039 | ) | ||||||||
Operating income | 21,393,686 | 2,572,552 | 706,103 | 24,306 | ||||||||||||
Net income | 23,543,742 | 6,604,455 | 3,109,485 | 107,039 | ||||||||||||
Less: Net loss attributable to noncontrolling interests | (72,378 | ) | (2,141,220 | ) | (1,945,712 | ) | (66,978 | ) | ||||||||
Net income attributable to the Company | 23,616,120 | 8,745,675 | 5,055,197 | 174,017 |
A reconciliation of the significant balance sheet accounts under R.O.C. GAAP to the amounts determined under U.S. GAAP is as follows:
As of December 31, | ||||||||||||
2011 | 2012 | |||||||||||
NT$’000 | NT$’000 | US$’000 | ||||||||||
Cash and cash equivalents: | ||||||||||||
As reported under R.O.C. GAAP | 49,070,128 | 42,592,725 | 1,466,187 | |||||||||
Reclassification to marketable securities | (8,000 | ) | (104,235 | ) | (3,588 | ) | ||||||
|
|
|
|
|
| |||||||
As adjusted under U.S. GAAP | 49,062,128 | 42,488,490 | 1,462,599 | |||||||||
|
|
|
|
|
| |||||||
Held-to-maturity financial assets: | ||||||||||||
As reported under R.O.C. GAAP | 13,524 | — | — | |||||||||
Reclassification from cash & cash equivalents | 8,000 | 104,235 | 3,588 | |||||||||
|
|
|
|
|
| |||||||
As adjusted under U.S. GAAP | 21,524 | 104,235 | 3,588 | |||||||||
|
|
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, | ||||||||||||
2011 | 2012 | |||||||||||
NT$’000 | NT$’000 | US$’000 | ||||||||||
Available-for-sale financial assets: | ||||||||||||
As reported under R.O.C. GAAP | 23,960,004 | 19,447,620 | 669,454 | |||||||||
Reclassification from financial assets measured at cost, noncurrent | 157,253 | — | — | |||||||||
Change in fair value of investment in securities | (62,612 | ) | — | — | ||||||||
|
|
|
|
|
| |||||||
As adjusted under U.S. GAAP | 24,054,645 | 19,447,620 | 669,454 | |||||||||
|
|
|
|
|
| |||||||
Long-term investment under cost method, equity method & others: | ||||||||||||
As reported under R.O.C. GAAP | 19,619,253 | 19,790,052 | 681,241 | |||||||||
Reclassification to available-for-sale financial assets | (157,253 | ) | — | — | ||||||||
Difference in application of equity accounting | (104,636 | ) | (330,594 | ) | (11,380 | ) | ||||||
Equity investees | 49,566 | 136,704 | 4,706 | |||||||||
Treasury stock and related disposal | (2,044,381 | ) | (1,883,334 | ) | (64,831 | ) | ||||||
|
|
|
|
|
| |||||||
As adjusted under U.S. GAAP | 17,362,549 | 17,712,828 | 609,736 | |||||||||
|
|
|
|
|
| |||||||
Property, plant and equipment, total cost: | ||||||||||||
As reported under R.O.C. GAAP | 616,063,131 | 649,406,522 | 22,354,785 | |||||||||
Business combination and ownership change in consolidated entities | 17,703,713 | 8,735,193 | 300,695 | |||||||||
Convertible bond liabilities—capitalized interest | — | (104,078 | ) | (3,583 | ) | |||||||
|
|
|
|
|
| |||||||
As adjusted under U.S. GAAP | 633,766,844 | 658,037,637 | 22,651,897 | |||||||||
|
|
|
|
|
| |||||||
Property, plant and equipment, accumulated depreciation: | ||||||||||||
As reported under R.O.C. GAAP | (463,622,840 | ) | (485,931,177 | ) | (16,727,407 | ) | ||||||
Business combination and ownership change in consolidated entities | (14,103,959 | ) | (6,280,960 | ) | (216,212 | ) | ||||||
Convertible bond liabilities—capitalized interest | — | 15,181 | 523 | |||||||||
|
|
|
|
|
| |||||||
As adjusted under U.S. GAAP | (477,726,799 | ) | (492,196,956 | ) | (16,943,096 | ) | ||||||
|
|
|
|
|
| |||||||
Property, plant and equipment, accumulated impairment: | ||||||||||||
As reported under R.O.C. GAAP | (3,115,991 | ) | (4,621,310 | ) | (159,081 | ) | ||||||
Business combination and ownership change in consolidated entities | (1,845,830 | ) | (2,071,266 | ) | (71,300 | ) | ||||||
|
|
|
|
|
| |||||||
As adjusted under U.S. GAAP | (4,961,821 | ) | (6,692,576 | ) | (230,381 | ) | ||||||
|
|
|
|
|
| |||||||
Bonds Payable: | ||||||||||||
As reported under R.O.C. GAAP | 11,984,404 | 21,932,193 | 754,981 | |||||||||
Conversion right and issuance costs of convertible bonds | 573,523 | 439,033 | 15,113 | |||||||||
|
|
|
|
|
| |||||||
As adjusted under U.S. GAAP | 12,557,927 | 22,371,226 | 770,094 | |||||||||
|
|
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash Flows Information
The Company applies R.O.C. SFAS No. 17, “Statement of Cash Flows” which is similar to U.S. GAAP. The principal differences between the two standards relate to classification. Under R.O.C. GAAP, all certificates of deposit are classified as cash and cash equivalents. Under U.S. GAAP, cash equivalents are short-term, highly liquid investments that are readily convertible to cash with original maturities of three months or less. As of December 31, 2010, 2011 and 2012, the amount of time deposit with original maturities more than three months was NT$238 million, NT$8 million and NT$104 million, respectively. Summarized cash flow information under U.S. GAAP would be presented as follows:
For the years ended December 31, | ||||||||||||||||
2010 | 2011 | 2012 | ||||||||||||||
NT$’000 | NT$’000 | NT$’000 | US$’000 | |||||||||||||
Net cash inflows (outflows) from: | ||||||||||||||||
Operating activities | 53,495,013 | 41,653,800 | 40,535,119 | 1,395,357 | ||||||||||||
Investing activities | (46,276,452 | ) | (54,890,561 | ) | (49,244,648 | ) | (1,695,169 | ) | ||||||||
Financing activities | (10,173,874 | ) | 9,922,989 | 3,587,749 | 123,503 | |||||||||||
Effect of exchange rate changes on cash and cash equivalents | (424,041 | ) | 1,342,294 | (1,451,858 | ) | (49,978 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net decrease in cash and cash equivalents | (3,379,354 | ) | (1,971,478 | ) | (6,573,638 | ) | (226,287 | ) | ||||||||
Cash and cash equivalents at January 1 | 54,412,960 | 51,033,606 | 49,062,128 | 1,688,886 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cash and cash equivalents at December 31 | 51,033,606 | 49,062,128 | 42,488,490 | 1,462,599 | ||||||||||||
|
|
|
|
|
|
|
|
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net income attributable to the Company and transfers (to) from noncontrolling interests are as follows:
For the years ended December 31, | ||||||||||||||||
2010 | 2011 | 2012 | ||||||||||||||
NT$‘000 | NT$‘000 | NT$‘000 | US$‘000 | |||||||||||||
Net income attributable to the Company | 23,616,120 | 8,745,675 | 5,055,197 | 174,017 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Transfers (to) from noncontrolling interests | ||||||||||||||||
Increase (Decrease) in the Company’s paid-in capital for additional purchasing of subsidiaries’ common shares | 408,011 | (310,113 | ) | (12,181 | ) | (419 | ) | |||||||||
Increase (Decrease) in the Company’s paid-in capital for subsidiaries’ employees exercise of the stock options | (25,500 | ) | (15,511 | ) | 3,838 | 132 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net transfers (to) from noncontrolling interests | 382,511 | (325,624 | ) | (8,343 | ) | (287 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Change from net income attributable to the Company and transfers from noncontrolling interests | 23,998,631 | 8,420,051 | 5,046,854 | 173,730 | ||||||||||||
|
|
|
|
|
|
|
|
Exit or disposal activities
During Q3 2012, the Company’s Board of Directors approved the closure of the Company’s foundry operation in Japan. The closure is intended to integrate the Company’s manufacturing resources and reduce operating costs. Following this closure, the Company will maintain its presence in Japan, through its global customer service logistics network, leveraging manufacturing facilities in Taiwan and Singapore.
In connection with the decision to close UMCJ, the Company announced the provision of one-time termination benefits plan in Japan. Total termination cost expected to be recognized was approximately NT$770 million in accordance with ASC 420,Exit or Disposal Cost Obligations, of which NT$628 million was incurred and recognized as operating and manufacturing related expenditures within the Wafer fabrication segment for the year ended December 31, 2012. The Company paid NT$94 million in 2012, with the remaining cost to be paid in 2013 according to the UMCJ closure plan.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Concentration of credit risk
The Company designs, develops, manufactures and markets a variety of semiconductor products. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and trade accounts and notes receivable. The Company limits its exposure to credit loss by depositing its cash and cash equivalents with high credit quality financial institutions. The Company’s revenues and trade accounts and notes receivable are derived primarily from the sale of production foundry wafers, including memory and logic products and wafers. For the years ended December 31, 2010, 2011, and 2012, the Company distributed its products on a global basis but mainly to customers in Asia (67.87%, 64.04%, and 71.91%, respectively), America (16.88%, 17.92%, and 13.29%, respectively) and others (15.25%, 18.04%, and 14.80%, respectively). The Company’s sales are primarily derived from wafer sales and denominated in US Dollars. Two customers’ revenue represented 11% and 11%, respectively, of the consolidated revenue for the year ended December 31, 2010, and two customers’ revenue represented 13% and 10%, respectively, of the consolidated revenue for the year ended December 31, 2011, and two customers’ revenue represented 14% and 12%, respectively, of the consolidated revenue for the year ended December 31, 2012. The Company routinely assesses the financial strength of substantially all customers. The Company also requires collateral for certain sales to mitigate the credit risk.
New accounting pronouncements
In December 2011, the FASB issued ASU 2011-11Balance Sheet (Topic 210) Disclosures about Offsetting Assets and Liabilities. The new requirement is about disclosure of the nature of an entity’s rights of setoff and related arrangements associated with its financial instruments and derivative instruments. The Update is designed to make financial statements that are prepared under U.S. GAAP more comparable to those prepared under IFRSs. The ASU is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods, with retrospective application required. This standard is not expected to have a material impact on the Company’s future consolidated financial statements.
In July 2012, the FASB issued ASU 2012-02Intangibles—Goodwill and Other (Topic 350) Testing Indefinite-Lived Intangible Assets for Impairment. The amendment is intended to simplify testing of indefinite-lived intangible assets for impairment providing the option to perform “qualitative” assessment first. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, the requirement to perform quantitative impairment test is eliminated by this standard. The amendment is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. This standard is not expected to have a material impact on the Company’s consolidated financial statements.
In January 2013, the FASB issued ASU 2013-01Balance Sheet (Topic 210) Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The amendments in this Update clarify that the scope of the disclosures under U.S. GAAP is limiting the scope of the new balance sheet offsetting disclosures to derivatives, repurchase agreement and reverse repurchase agreement, and securities lending and securities borrowing transactions to the extent that they are (1) offset in the financial statements or (2) subject to an enforceable master netting arrangement or similar agreement. The ASU is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods, with retrospective for all comparative periods presented required. This standard is not expected to have a material impact on the Company’s consolidated financial statements.
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In February 2013, the FASB issued ASU 2013-02Comprehensive Income (Topic 220) Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendment requires an entity to provide information about reclassification adjustments out of accumulated other comprehensive income by component, either on the face of the statement where net income is presented or in the notes, based on its source and the income statement line items affected by the reclassification. If a component is not required to be reclassified to net income in its entirety (e.g., the net periodic pension cost), the Company would instead cross reference to the related footnote for additional information (e.g., the pension footnote). The amendment is effective prospectively for reporting periods beginning after December 15, 2012. The Company is currently evaluating the impact that the adoption of ASU 2013-02 will have on its consolidated financial statements.
In February 2013, the FASB issued ASU 2013-04Liabilities (Topic 405) Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. This Update requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of (a) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and (b) any additional amount the reporting entity expects to pay on behalf of its co-obligors. It also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The ASU is effective for fiscal years beginning after December 15, 2013 with early adoption permitted. This standard is not expected to have a material impact on the Company’s consolidated financial statements.
In February 2013, the FASB issued ASU 2013-05Foreign Currency Matters (Topic 830) Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The amendments in this Update clarify the applicable guidance for the release of the cumulative translation adjustment under current U.S. GAAP. The amendment clarifies the cumulative translation adjustment should be released into net income when the sale of an investment in a foreign entity includes both (1) events that result in the loss of a controlling financial interest in a foreign entity and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date. The ASU is effective for fiscal years beginning after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. An entity is permitted to early adopt the amendments, and should apply them as of the beginning of the entity’s fiscal year of adoption. The Company is currently evaluating the potential impact, if any, that the adoption of ASU 2013-05 will have on its consolidated financial statements.
F-125