SECURITIES AND EXCHANGE COMMISSION
o | Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934 |
þ | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
o | Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Date of event requiring this shell company report |
(Jurisdiction of Incorporation or Organization)
Hsinchu City, Taiwan, Republic of China
(Address of Principal Executive Offices)
978 Highlands Circle, Los Altos, CA 94024, USA
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Title of Each Class | Name of Each Exchange on which Registered | |
American Depositary Shares, as evidenced by American | New York Stock Exchange | |
Depositary Receipts, each representing 5 Common Shares |
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Large accelerated filerþ | Accelerated filero | Non-accelerated filero |
FORM 20-F ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 2010
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• | our dependence on frequent introduction of new product services and technologies based on the latest developments; |
• | the intensely competitive semiconductor, communications, consumer electronics and PC 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 PC 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; and |
• | those other risks identified in the “Item 3. Key Information—D. Risk Factors” section of this annual report. |
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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. | |
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 | Photomask. A piece of glass on which an integrated circuit circuitry design is laid out. | |
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. |
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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 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
ITEM 3. | KEY INFORMATION |
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Year Ended December 31, | ||||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | US$ | |||||||||||||||||||
(in millions, except per share and per ADS data) | ||||||||||||||||||||||||
Consolidated Statement of Income Data: | ||||||||||||||||||||||||
R.O.C. GAAP | ||||||||||||||||||||||||
Net operating revenues | 112,004 | 113,311 | 96,814 | 91,390 | 126,442 | 4,339 | ||||||||||||||||||
Cost of goods sold | (91,690 | ) | (90,072 | ) | (84,102 | ) | (75,975 | ) | (89,518 | ) | (3,072 | ) | ||||||||||||
Gross profit | 20,314 | 23,239 | 12,712 | 15,415 | 36,924 | 1,267 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Sales and marketing | (3,366 | ) | (4,069 | ) | (3,483 | ) | (2,800 | ) | (2,566 | ) | (88 | ) | ||||||||||||
General and administrative | (3,422 | ) | (3,724 | ) | (3,055 | ) | (2,724 | ) | (3,598 | ) | (123 | ) | ||||||||||||
Research and development | (9,419 | ) | (9,631 | ) | (8,274 | ) | (8,044 | ) | (8,740 | ) | (300 | ) | ||||||||||||
Total operating expenses | (16,207 | ) | (17,424 | ) | (14,812 | ) | (13,568 | ) | (14,904 | ) | (511 | ) | ||||||||||||
Operating income (loss) | 4,107 | 5,815 | (2,100 | ) | 1,847 | 22,020 | 756 | |||||||||||||||||
Net non-operating income (loss) | 32,480 | 13,855 | (19,886 | ) | (174 | ) | 3,364 | 115 | ||||||||||||||||
Income (Loss) before income tax and minority interests | 36,587 | 19,670 | (21,986 | ) | 1,673 | 25,384 | 871 | |||||||||||||||||
Income tax expense | (3,261 | ) | (2,809 | ) | (997 | ) | (651 | ) | (1,606 | ) | (55 | ) | ||||||||||||
Cumulative effect of changes in accounting principles (the net amount after deducted tax expense $0)(1) | (1,189 | ) | — | — | — | — | — | |||||||||||||||||
Extraordinary gain | — | — | — | 649 | 68 | 2 | ||||||||||||||||||
Net income (loss) | 32,137 | 16,861 | (22,983 | ) | 1,671 | 23,846 | 818 | |||||||||||||||||
Attributable to: | ||||||||||||||||||||||||
the Company | 32,619 | 16,962 | (22,320 | ) | 3,874 | 23,899 | 820 | |||||||||||||||||
minority interests | (482 | ) | (101 | ) | (663 | ) | (2,203 | ) | (53 | ) | (2 | ) | ||||||||||||
Earnings (Losses) per share:(2)(3) | ||||||||||||||||||||||||
Basic | 1.71 | 1.03 | (1.70 | ) | 0.31 | 1.91 | 0.07 | |||||||||||||||||
Diluted(5) | 1.66 | 1.00 | (1.70 | ) | 0.30 | 1.87 | 0.06 | |||||||||||||||||
Shares used in earnings (losses) per share calculation:(3) | ||||||||||||||||||||||||
Basic | 19,029 | 16,464 | 13,111 | 12,699 | 12,496 | 12,496 | ||||||||||||||||||
Diluted(5) | 19,687 | 16,943 | 13,170 | 12,786 | 12,768 | 12,768 | ||||||||||||||||||
Earnings (Losses) per ADS:(3) | ||||||||||||||||||||||||
Basic | 8.55 | 5.15 | (8.50 | ) | 1.55 | 9.55 | 0.35 | |||||||||||||||||
Diluted(5) | 8.30 | 5.00 | (8.50 | ) | 1.50 | 9.35 | 0.30 | |||||||||||||||||
U.S. GAAP | ||||||||||||||||||||||||
Net operating revenues | 112,004 | 113,311 | 96,814 | 91,390 | 126,442 | 4,339 | ||||||||||||||||||
Cost of goods sold | (93,288 | ) | (92,012 | ) | (85,923 | ) | (76,209 | ) | (89,929 | ) | (3,086 | ) | ||||||||||||
Operating income (loss) | 2,200 | (19,992 | ) | (22,431 | ) | (2,323 | ) | 21,394 | 734 | |||||||||||||||
Net income (loss) | 21,271 | (9,398 | ) | (29,632 | ) | 364 | 23,544 | 808 | ||||||||||||||||
Attributable to: | ||||||||||||||||||||||||
the Company | 21,797 | (9,264 | ) | (28,955 | ) | 2,572 | 23,616 | 810 | ||||||||||||||||
noncontrolling interests | (526 | ) | (134 | ) | (677 | ) | (2,208 | ) | (72 | ) | (2 | ) | ||||||||||||
Other comprehensive income (loss) attributable to the Company | (8,194 | ) | (4,863 | ) | (25,239 | ) | 24,540 | (8,629 | ) | (296 | ) | |||||||||||||
Comprehensive income (loss) attributable to the Company | 13,602 | (14,127 | ) | (54,194 | ) | 27,112 | 14,987 | 514 | ||||||||||||||||
Earnings (Losses) per share:(2)(4) | ||||||||||||||||||||||||
Basic | 1.42 | (0.63 | ) | (2.25 | ) | 0.21 | 1.91 | 0.07 | ||||||||||||||||
Diluted(5) | 1.37 | (0.63 | ) | (2.25 | ) | 0.20 | 1.90 | 0.07 | ||||||||||||||||
Shares used in earnings (losses) per share calculation:(4) | ||||||||||||||||||||||||
Basic | 15,350 | 14,599 | 12,870 | 12,538 | 12,335 | 12,335 | ||||||||||||||||||
Diluted(5) | 15,891 | 14,599 | 12,870 | 12,560 | 12,399 | 12,399 | ||||||||||||||||||
Earnings (Losses) per ADS:(4) | ||||||||||||||||||||||||
Basic | 7.10 | (3.17 | ) | (11.25 | ) | 1.03 | 9.57 | 0.33 | ||||||||||||||||
Diluted(5) | 6.87 | (3.17 | ) | (11.25 | ) | 1.02 | 9.52 | 0.33 |
4
Year Ended December 31, | ||||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | US$ | |||||||||||||||||||
(in millions, except per share and per ADS data) | ||||||||||||||||||||||||
Consolidated Balance Sheet Data: | ||||||||||||||||||||||||
R.O.C. GAAP | ||||||||||||||||||||||||
Current assets | 132,344 | 81,111 | 68,888 | 102,363 | 93,769 | 3,218 | ||||||||||||||||||
Long-term investment | 71,964 | 69,813 | 32,441 | 55,227 | 47,179 | 1,619 | ||||||||||||||||||
Property, plant and equipment | 151,828 | 137,219 | 108,410 | 89,596 | 132,762 | 4,556 | ||||||||||||||||||
Total assets | 367,653 | 299,558 | 216,399 | 253,638 | 280,887 | 9,639 | ||||||||||||||||||
Current liabilities | 35,851 | 45,357 | 13,033 | 35,246 | 45,445 | 1,560 | ||||||||||||||||||
Long-term debt (excluding current portion) | 30,383 | 7,495 | 8,130 | 767 | 6,799 | 233 | ||||||||||||||||||
Total liabilities | 70,251 | 56,561 | 24,740 | 39,542 | 55,751 | 1,913 | ||||||||||||||||||
Stockholders’ equity | 297,402 | 242,997 | 191,659 | 214,096 | 225,136 | 7,726 | ||||||||||||||||||
U.S. GAAP | ||||||||||||||||||||||||
Cash and cash equivalents | 61,649 | 47,678 | 40,017 | 54,413 | 51,034 | 1,751 | ||||||||||||||||||
Working capital(6) | 95,779 | 35,111 | 55,525 | 67,162 | 48,322 | 1,658 | ||||||||||||||||||
Total assets | 401,628 | 310,614 | 214,990 | 252,705 | 281,387 | 9,657 | ||||||||||||||||||
Total liabilities | 71,226 | 56,795 | 24,099 | 39,465 | 56,264 | 1,931 | ||||||||||||||||||
Stockholders’ equity | 330,402 | 253,819 | 190,891 | 213,240 | 225,123 | 7,726 |
Year Ended December 31, | ||||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | US$ | |||||||||||||||||||
(in millions, except per share and per ADS data) | ||||||||||||||||||||||||
Other Consolidated Data: | ||||||||||||||||||||||||
R.O.C. GAAP | ||||||||||||||||||||||||
Cash flow: | ||||||||||||||||||||||||
Capital expenditure | 33,240 | 28,299 | 11,515 | 17,618 | 61,290 | 2,103 | ||||||||||||||||||
Cash provided by operating activities | 47,124 | 48,124 | 45,251 | 32,427 | 53,560 | 1,838 | ||||||||||||||||||
Cash used in investing activities | (16,595 | ) | (21,844 | ) | (11,423 | ) | (19,234 | ) | (57,843 | ) | (1,985 | ) | ||||||||||||
Cash provided by (used in) financing activities | (45,056 | ) | (72,694 | ) | (34,380 | ) | 4,944 | (10,174 | ) | (349 | ) | |||||||||||||
Net increase (decrease) in cash and cash equivalents | (14,774 | ) | (46,175 | ) | 889 | 17,586 | (14,882 | ) | (511 | ) | ||||||||||||||
Gross profit margin | 18.1 | % | 20.5 | % | 13.1 | % | 16.9 | % | 29.2 | % | 29.2 | % | ||||||||||||
Operating profit (loss) margin | 3.7 | % | 5.1 | % | (2.2 | )% | 2.0 | % | 17.4 | % | 17.4 | % | ||||||||||||
Net profit (loss) margin | 29.1 | % | 15.0 | % | (23.0 | )% | 4.2 | % | 18.9 | % | 18.9 | % | ||||||||||||
Capacity utilization rate (on an actual basis) | 79.5 | % | 81.9 | % | 70.7 | % | 69.4 | % | 93.7 | % | 93.7 | % | ||||||||||||
Dividends declared per share(7) | 0.5 | 0.7 | 1.2 | — | 0.5 | 0.02 | ||||||||||||||||||
U.S. GAAP | ||||||||||||||||||||||||
Cash flow: | ||||||||||||||||||||||||
Capital expenditure | 33,240 | 28,299 | 11,515 | 17,618 | 61,290 | 2,103 | ||||||||||||||||||
Cash provided by operating activities | 46,385 | 45,785 | 44,953 | 32,427 | 53,560 | 1,838 | ||||||||||||||||||
Cash provided by (used in) investing activities | (9,775 | ) | 10,360 | (19,973 | ) | (22,424 | ) | (46,341 | ) | (1,590 | ) | |||||||||||||
Cash provided by (used in) financing activities | (38,222 | ) | (70,354 | ) | (34,081 | ) | 4,944 | (10,174 | ) | (349 | ) | |||||||||||||
Net increase (decrease) in cash and cash equivalents | (1,859 | ) | (13,971 | ) | (7,661 | ) | 14,396 | (3,379 | ) | (116 | ) | |||||||||||||
Gross profit margin | 16.7 | % | 18.8 | % | 11.3 | % | 16.6 | % | 28.9 | % | 28.9 | % | ||||||||||||
Operating profit (loss) margin | 2.0 | % | (17.6 | )% | (23.2 | )% | (2.5 | )% | 16.9 | % | 16.9 | % | ||||||||||||
Net profit (loss) margin | 19.5 | % | (8.2 | )% | (29.9 | )% | 2.8 | % | 18.7 | % | 18.7 | % |
(1) | We adopted R.O.C. SFAS No. 34, “Financial Instruments: Recognition and Measurement” and SFAS No. 36, “Financial Instruments: Disclosure and Presentation” to account for the financial instruments effective January 1, 2006. The changes in accounting principles resulted in an unfavorable cumulative effect of changes in accounting principles of NT$1,189 million to be deducted from consolidated net income for the year ended December 31, 2006. | |
(2) | Earnings (Losses) per share is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the year. | |
(3) | Retroactively adjusted for all subsequent stock dividends; retroactively adjusted for employee stock bonus before 2008. | |
(4) | Retroactively adjusted for the capital reduction completed in 2007 and all subsequent stock dividends. | |
(5) | Diluted securities include convertible bonds and employee stock options, if any. | |
(6) | Working capital equals current assets minus current liabilities. | |
(7) | Dividends declared per share are in connection with earnings and accumulated additional paid-in capital. | |
(8) | Refer to Note 34 to the audited consolidated financial statements included elsewhere in this annual report. |
5
At | ||||||||||||||||
Average(1) | High | Low | Period-End | |||||||||||||
2006 | 32.51 | 33.31 | 31.28 | 32.59 | ||||||||||||
2007 | 32.85 | 33.41 | 32.26 | 32.43 | ||||||||||||
2008 | 31.52 | 33.58 | 29.99 | 32.76 | ||||||||||||
2009 | 33.02 | 35.21 | 31.95 | 31.95 | ||||||||||||
2010 | 31.50 | 32.43 | 29.14 | 29.14 | ||||||||||||
October | 30.81 | 31.30 | 30.42 | 30.60 | ||||||||||||
November | 30.32 | 30.52 | 30.12 | 30.47 | ||||||||||||
December | 29.90 | 30.37 | 29.14 | 29.14 | ||||||||||||
2011 (through April 22) | 29.25 | 29.76 | 28.78 | 28.88 | ||||||||||||
January | 29.11 | 29.36 | 28.98 | 29.03 | ||||||||||||
February | 29.28 | 29.76 | 28.78 | 29.74 | ||||||||||||
March | 29.49 | 29.63 | 29.35 | 29.40 | ||||||||||||
April (through April 22) | 29.04 | 29.31 | 28.85 | 28.88 |
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 the rates on each business day for monthly periods. |
6
• | 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; |
7
• | 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. |
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• | technical competence; |
• | time-to-volume production and cycle time; |
• | time-to-market; |
• | research and development quality; |
• | available capacity; |
• | manufacturing yields; |
• | customer service; |
• | price; |
• | management expertise; and |
• | strategic alliances. |
10
• | technical competence of UMCJ; |
• | management and engineering abilities of UMCJ; |
• | our ability to adapt UMCJ to our processes, practices and management approaches; |
• | our ability to optimize the process, equipment, capacity, customer and technology mix in our global operations; |
11
• | communication and coordination between different locations; and |
• | cultural compatibility. |
• | maintain our capacity utilization, that is, the wafer-out quantity of 8-inch wafer equivalents divided by estimated total 8- inch equivalent capacity in a specified period. The estimated capacity numbers may differ depending upon equipment delivery schedules, pace of migration to more advanced process technologies and other factors affecting production ramp-ups; |
• | maintain or improve our manufacturing yield, that is, the percentage of usable manufactured devices on a wafer; and |
• | optimize the technology mix of our production, that is, the relative number of wafers manufactured utilizing different process technologies. |
• | our growth plan; |
• | our process technology; |
• | market conditions; |
• | interest rates; |
• | exchange rate fluctuations; and |
• | prices of equipment. |
12
• | 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. |
13
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• | 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 tools |
16
• | the migration to more advanced process technologies, such as 45/40- and 28 nanometer 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. |
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(1) | distribution of share dividends or free distribution of our shares; |
(2) | exercise of the preemptive rights of ADS holders applicable to the shares evidenced by ADSs in the event of capital increases for cash; or |
(3) | delivery of our 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 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. |
21
• | the proceeds of the sale of shares represented by ADSs or received as share dividends with respect to the shares and deposited into the depositary receipt facility; and |
• | any cash dividends or distributions received from the shares represented by ADSs. |
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• | 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 R.O.C. courts are not recognized in the jurisdiction of the court rendering the judgment on a reciprocal basis. |
ITEM 4. | INFORMATION ON THE COMPANY |
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Fab 6A | Fab 8A | Fab 8C | Fab 8D | Fab 8E | Fab 8F | Fab 8S | Fab 12A | Fab 12i | UMCJ | |||||||||||||||||||||||||||||||
Commencement of volume production | 1989 | 1995 | 1998 | 2000 | 1998 | 2000 | 2000 | 2002 | 2004 | 1996 | ||||||||||||||||||||||||||||||
Estimated full capacity(1)(2) | 49,300 wafers per months | 68,000 wafers per months | 30,000 wafers per months | 28,000 wafers per months | 35,100 wafers per months | 32,500 wafers per months | 25,500 wafers per months | 32,170 wafers per months | 43,807 wafers per months | 20,000 wafers per Months | ||||||||||||||||||||||||||||||
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) |
(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. |
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Building | ||||||||
Size | Land | (Owned or | ||||||
Location | (Land/Building) | Primary Use | (Owned or Leased) | Leased) | ||||
(in square meters) | ||||||||
Fab 6A, 10 Innovation 1st Rd., Hsinchu Science Park, Hsinchu, Taiwan 30076, R.O.C. | 27,898/34,609 6-inch wafer production | 6-inch wafer production | Leased (expires in December 2026) | Owned | ||||
Fab 8A, 3 Li-Hsin 2nd Rd., Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C. | 43,468/83,699 8-inch wafer production | 8-inch wafer production | Leased (expires in March 2014) | Owned | ||||
Fab 8C, 6 Li-Hsin 3rd Rd., Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C. | 24,678/71,427 8-inch wafer production | 8-inch wafer production | Leased (expires in March 2016) | Owned | ||||
Fab 8D, 8 Li-Hsin 3rd Rd., Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C. | 8,036/29,181 8-inch wafer production | 8-inch wafer production | Leased (expires in March 2016) | Owned | ||||
Fab 8E, 17 Li-Hsin Rd., Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C. | 35,000/76,315 8-inch wafer production | 8-inch wafer production | Leased (expires in February 2016) | Owned | ||||
Fab 8F, 3 Li-Hsin 6th Rd., Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C. | 24,180/65,736 8-inch wafer production | 8-inch wafer production | Leased (expires in February 2018) | Owned | ||||
Fab 8S, 16 Creation 1st Rd., Hsinchu Science Park, Hsinchu, Taiwan 30077, R.O.C. | 20,404/65,614 8-inch wafer production | 8-inch wafer production | Leased (expires in December 2023) | Owned | ||||
Fab 12A, 18, 20 Nan-Ke 2nd Rd., Tainan Science Park, Sinshih, Tainan, Taiwan 74147, R.O.C. | 113,661/316,456 12-inch wafer production | 12-inch wafer production | Leased (expires in November 2030) | Owned | ||||
Fab 12i, 3 Pasir Ris Drive 12 Singapore 519528 | 85,737/142,169 12-inch wafer production | 12-inch wafer production | Leased (expires in March 2031) | Owned | ||||
UMCJ, 1580, Yamamoto, Tateyama-City, Chiba, Japan | 387,551/61,111 8-inch wafer production | 8-inch wafer production | 83% owned, 17% leased (expires in June 2049) | 96% Owned, 4% Leased | ||||
United Tower, 3 Li-Hsin 2nd Rd., Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C. | 8,818/85,224 Administration office | Administration office | Leased (expires in March 2014) | Owned | ||||
Neihu Rd. office, 8F,68.Sec. 1,Neihu Rd., Taipei Taiwan 11493, R.O.C. | 626/4,817 Administration office | Administration office | Owned | Owned | ||||
Testing Building, 1, Chin-Shan, St. 7, Hsinchu, Taiwan 30080, R.O.C. | 10,762/41,318 Leased to several companies | Leased to several companies | Owned | Owned | ||||
R&D Building, 18 Nan-Ke 2nd Rd., Tainan Science Park, Sinshih, Tainan, Taiwan 74147, R.O.C. | 42,000/47,501 Research and development | Research and development | Leased (expires in December 2023) | Owned |
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Building | ||||||||
Size | Land | (Owned or | ||||||
Location | (Land/Building) | Primary Use | (Owned or Leased) | Leased) | ||||
(in square meters) | ||||||||
Nexpower, No.2, Houke S.Rd., Houli Township, Taichung, Taiwan 42152, R.O.C. | 90,634/78,212 Sun power production | Sun power production | Leased (expires in December 2026) | Owned | ||||
Topcell, No. 1560, Sec. 1, Zhongshan Rd., Guanyin Township, Taoyuan, Taiwan 32852, R.O.C. | 16,873/29,124 6-inch cell production | 6-inch cell production | Leased (expires in March 2018) | Leased (expires in March 2018) |
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Year ended | ||||||||||||||||||||
December 31, | ||||||||||||||||||||
2010 | ||||||||||||||||||||
Range of | Year Ended December 31, | |||||||||||||||||||
Year of | Process) | 2008 | 2009 | 2010 | ||||||||||||||||
Commencement | Technologies | (in thousands of 8-inch wafer | ||||||||||||||||||
of Operation | (in microns) | equivalents, except percentages) | ||||||||||||||||||
Fab | ||||||||||||||||||||
Fab 6A | 1989 | 0.5 | 328 | 328 | 332 | |||||||||||||||
Fab 8A | 1995 | 0.5 to 0.25 | 816 | 816 | 816 | |||||||||||||||
Fab 8C | 1998 | 0.35 to 0.13 | 400 | 402 | 366 | |||||||||||||||
Fab 8D | 2000 | 0.18 to 0.09 | 260 | 270 | 314 | |||||||||||||||
Fab 8E | 1998 | 0.5 to 0.15 | 408 | 408 | 410 | |||||||||||||||
Fab 8F | 2000 | 0.25 to 0.13 | 374 | 381 | 387 | |||||||||||||||
Fab 8S | 2000 | 0.25 to 0.13 | 294 | 300 | 303 | |||||||||||||||
Fab 12A | 2002 | 0.18 to 0.028 | 884 | 888 | 842 | |||||||||||||||
Fab 12i | 2004 | 0.13 to 0.065 | 743 | 815 | 1,022 | |||||||||||||||
UMCJ | 1996 | 0.35 to 0.15 | 240 | 240 | 240 | |||||||||||||||
Total estimated capacity | — | — | 4,747 | 4,848 | 5,031 | |||||||||||||||
Total output (actual) | — | — | 3,355 | 3,362 | 4,713 | |||||||||||||||
Average capacity utilization | — | — | 70.7 | % | 69.4 | % | 93.7 | % |
Year Ended December 31, | ||||||||||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||||||||||
(in thousands of 8-inch wafer equivalents, except percentages) | ||||||||||||||||||||||||
Technology | ||||||||||||||||||||||||
65 nanometers and under | 147 | 4.3 | % | 270 | 8.0 | % | 761 | 16.1 | % | |||||||||||||||
90 nanometers | 701 | 21.0 | 605 | 18.0 | 584 | 12.4 | ||||||||||||||||||
0.13 micron | 555 | 16.5 | 602 | 17.9 | 997 | 21.2 | ||||||||||||||||||
0.15 micron | 258 | 7.7 | 269 | 8.0 | 367 | 7.8 | ||||||||||||||||||
0.18 micron | 587 | 17.5 | 587 | 17.4 | 611 | 13.0 | ||||||||||||||||||
0.25 micron | 110 | 3.3 | 76 | 2.3 | 144 | 3.0 | ||||||||||||||||||
0.35 micron | 728 | 21.7 | 655 | 19.5 | 766 | 16.3 | ||||||||||||||||||
0.50 micron or higher | 269 | 8.0 | 298 | 8.9 | 483 | 10.2 | ||||||||||||||||||
Total | 3,355 | 100.0 | % | 3,362 | 100.0 | % | 4,713 | 100.0 | % | |||||||||||||||
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Year Ended December 31, | ||||||||||||
Region | 2008 | 2009 | 2010 | |||||||||
Taiwan | 29.8 | % | 38.2 | % | 37.5 | % | ||||||
Asia (excluding Taiwan) | 5.1 | 10.6 | 15.2 | |||||||||
North America | 55.4 | 50.2 | 47.3 | |||||||||
Europe | 9.7 | 1.0 | 0.0 | |||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Year Ended December 31, | ||||||||||||
Customer Type | 2008 | 2009 | 2010 | |||||||||
Fabless design companies | 73.2 | % | 79.2 | % | 78.1 | % | ||||||
Integrated device manufacturers | 26.8 | 20.8 | 21.9 | |||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
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• | 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; |
• | To educate employees about environmentally sound ethics and practices. |
• | 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. |
• | To encourage all employees to actively participate in safety and health training and promotional activities. |
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• | Selected as a member of Dow Jones Sustainability Indexes for 3 years since 2008. |
• | Awarded the Taiwan Environmental Heroes award, by Global Views Magazine in 2010. |
• | Awarded “Taiwan Corporate Sustainability Report Award” by Taiwan Institute for Sustainable Energy. (2008-2010) |
• | Awarded “Enterprises Environmental Award of the Republic of China” by the Environmental Protection Administration of Executive Yuan, R.O.C.. (totally 11 times since 2001) |
• | Awarded “Excellent Performance in Waste Management and Resource Reduction, Recycle and Reuse” by EPA. (2010) |
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• | In April 2008, LSI filed a petition with the U.S. International Trade Commission naming us and eighteen other companies as proposed respondents (including AMIC Technology, one of our customers). LSI’s petition was based on alleged infringement of U.S. Patent Number 5,227,335, claiming certain methods for forming nitrided glue layers for tungsten processing in semiconductor fabrication. LSI’s petition sought an order prohibiting import and/or sale of the accused devices in the U.S.. Under established ITC practice, the ITC initiated an investigation on the petition. |
• | On April 18 2008, LSI also filed a complaint in Federal District Court in the Eastern District of Texas, alleging an infringement of the same patent by the same parties. This complaint sought an injunction or order prohibiting the alleged infringement along with a reasonable royalty, and other damages in a trebled amount on the basis of alleged willfulness. Based on our motion, this court case was stayed pending the outcome of the ITC matter. |
• | On October 31, 2008, we filed a counter-suit against LSI in the Federal District Court in the Northern District of California alleging infringement of two our patents, U.S. Patent Numbers 5,459,354 and 5,652,689. Our complaint sought an injunction or order prohibiting the alleged infringement along with a reasonable royalty, and other damages, trebled on the basis of alleged willfulness. |
• | On December 24, 2008, LSI filed its response to our complaint, denying infringement and alleging invalidity and unenforceability. In addition, LSI included counterclaims against us, alleging invalidity and unenforceability of our patents and further alleging infringement of four LSI U.S. Patents, U.S. Patent Numbers 5,149,672; 6,153,543; 5,599,739; and 5,693,561. LSI’s counterclaim sought an order invalidating and/or rendering the our patents unenforceable, together with an injunction or order prohibiting the alleged infringement along with a reasonable royalty, and other damages, trebled on the basis of alleged willfulness. On January 15, 2009, LSI dismissed that counterclaim without prejudice, and reasserted the same claims in the same court against us and our U.S. subsidiary. |
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• | On January 9, 2009, we filed a second complaint in the Federal District Court in the Northern District of California, alleging infringement by LSI and Agere of our U.S. Patent Number 5,393,701. Our complaint sought an injunction or order prohibiting the alleged infringement along with a reasonable royalty, and other damages, trebled on the basis of alleged willfulness. |
• | Uniqueness in risk management |
• | Maturity in property loss control |
• | Continuous improvement in BCP |
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Percentage of | ||||||
Jurisdiction of | Ownership as of | |||||
Company | Incorporation | December 31, 2010 | ||||
UMC Group (USA) | California, 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 | % | |||
Alpha Wisdom Limited | Cayman Islands | 100.00 | % | |||
Green Earth Limited | Samoa | 100.00 | % | |||
Fortune Venture Capital Corp. | Taiwan, R.O.C. | 100.00 | % | |||
UMC Japan | Japan | 100.00 | % | |||
Unitruth Investment Corp. | Taiwan, R.O.C. | 100.00 | % | |||
UMC Capital (U.S.A) | California, U.S.A. | 100.00 | % | |||
ECP VITA Ltd. | British Virgin Islands | 100.00 | % | |||
Soaring Capital Corp. | Samoa | 100.00 | % | |||
Unitruth Advisor (Shanghai) Co., Ltd. | China | 100.00 | % | |||
Mos Art Pack Corp. | Taiwan, R.O.C. | 73.34 | % | |||
Nexpower Technology Corp. | Taiwan, R.O.C. | 57.67 | % | |||
Wavetek Microelectronics Corporation | Taiwan, R.O.C. | 99.79 | % | |||
United Lighting Opto-Electronic Inc. | Taiwan, R.O.C. | 94.65 | % | |||
United Lighting Opto-Electronic Investment (HK) Limited | China | 94.65 | % | |||
Everrich Energy Corp. | Taiwan, R.O.C. | 91.12 | % | |||
Everrich Energy Investment (HK) Limited | China | 91.12 | % | |||
Everrich (Shandong) Energy Co. (formerly Yongsheng (Shandong) Energy Co.) | China | 91.12 | % | |||
Unistars Corp. | Taiwan, R.O.C. | 65.63 | % | |||
Topcell Solar International Co. Ltd. | Taiwan, R.O.C. | 51.49 | % | |||
Jenenergy System Corporation | Taiwan, R.O.C. | 38.45 | % | |||
Smart Energy Enterprises Limited | China | 38.45 | % | |||
Smart Energy ShanDong Corporation | China | 38.45 | % |
Note 1: | On November 4, 2010, United Microelectronics Corp. (Samoa) filed for liquidation as a result of a decision of its stockholders’ meeting. We ceased accounting for our ownership of United Microelectronics Corp. (Samoa) under the equity method from November 4, 2010, and United Microelectronics Corp. (Samoa) was not our consolidated subsidiary as of December 31, 2010. | |
Note 2: | On July 30, 2010, UMCi Ltd. filed for liquidation as a result of a decision of its stockholders’ meeting. We ceased accounting for our ownership of UMCi Ltd. under the equity method from July 30, 2010, and UMCi Ltd. was not our consolidated subsidiary as of December 31, 2010. |
ITEM 4A. | UNRESOLVED STAFF COMMENTS |
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ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
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• | 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. |
• | 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. |
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• | 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. |
• | 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. |
• | interest income, which has been 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; |
• | dividend income, which has been 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; |
• | gain on valuation of financial assets and liabilities, which have been primarily derived from disposal of and changes in the values of financial assets and liabilities classified as FVTPL according to R.O.C. SFAS No. 34 “Financial Instruments: Recognition and Measurement”, or R.O.C. SFAS 34; and |
• | other income, which has been primarily derived from our branch’s grant income received from the government in Singapore. |
• | loss on valuation of financial assets and liabilities, which have been primarily derived from disposal of and changes in the values of financial assets and liabilities classified as FVTPL according to R.O.C. SFAS 34; |
• | investment loss accounted for under the equity method, which has been primarily derived from the recognition of investee companies’ net loss based on the percentage of their ownership we hold; and |
• | impairment loss, which have been primarily derived from the loss recognized in long-term investments and long-live assets. |
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Year Ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
Net operating revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of goods sold | (86.9 | ) | (83.1 | ) | (70.8 | ) | ||||||
Gross profit | 13.1 | 16.9 | 29.2 | |||||||||
Operating expenses: | ||||||||||||
Sales and marketing | (3.6 | ) | (3.1 | ) | (2.0 | ) | ||||||
General and administrative | (3.1 | ) | (3.0 | ) | (2.9 | ) | ||||||
Research and development | (8.6 | ) | (8.8 | ) | (6.9 | ) | ||||||
Operating income (loss) | (2.2 | ) | 2.0 | 17.4 | ||||||||
Net non-operating income (loss) | (20.5 | ) | (0.2 | ) | 2.7 | |||||||
Income (Loss) before income tax and minority interests | (22.7 | ) | 1.8 | 20.1 | ||||||||
Income tax expense | (1.0 | ) | (0.7 | ) | (1.3 | ) | ||||||
Extraordinary gain | — | 0.7 | 0.1 | |||||||||
Net income (loss) | (23.7 | ) | 1.8 | 18.9 | ||||||||
Attributable to: | ||||||||||||
the Company | (23.0 | ) | 4.2 | 18.9 | ||||||||
minority interests | (0.7 | ) | (2.4 | ) | (0.0 | ) |
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Year Ended December 31, | ||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
(in millions) | ||||||||||||||||
Net income (loss) attributable to the Company | ||||||||||||||||
Net income (loss) attributable to the Company, R.O.C. GAAP | (22,320 | ) | 3,874 | 23,899 | 820 | |||||||||||
U.S. GAAP adjustments | ||||||||||||||||
Compensation | (1,925 | ) | (802 | ) | (397 | ) | (14 | ) | ||||||||
Equity investees | (80 | ) | (32 | ) | (41 | ) | (1 | ) | ||||||||
Investments in debt and equity securities | 1,486 | (830 | ) | (234 | ) | (8 | ) | |||||||||
Goodwill and Business Combinations | (14,571 | ) | — | 470 | 16 | |||||||||||
Treasury stock and related disposal | 8,817 | — | (81 | ) | (3 | ) | ||||||||||
Inventory | (362 | ) | 362 | — | — | |||||||||||
Net income (loss) attributable to the Company, U.S. GAAP | (28,955 | ) | 2,572 | 23,616 | 810 | |||||||||||
Stockholders’ equity | ||||||||||||||||
Stockholders’ equity, R.O.C. GAAP | 191,659 | 214,096 | 225,136 | 7,726 | ||||||||||||
Compensation | 63 | 65 | 32 | 1 | ||||||||||||
Equity investees | (199 | ) | (150 | ) | (142 | ) | (5 | ) | ||||||||
Investments in debt and equity securities | — | 1,717 | 1,765 | 61 | ||||||||||||
Goodwill and Business Combinations | (8 | ) | (8 | ) | 1,301 | 45 | ||||||||||
Treasury stock and related disposal | (1,196 | ) | (2,769 | ) | (2,624 | ) | (90 | ) | ||||||||
Pension | 934 | 289 | (345 | ) | (12 | ) | ||||||||||
Inventory | (362 | ) | — | — | — | |||||||||||
Stockholders’ equity, U.S. GAAP | 190,891 | 213,240 | 225,123 | 7,726 | ||||||||||||
Note. Refer to Note 34 to our audited financial statements included elsewhere in this annual report. |
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Payments Due by Period | ||||||||||||||||||||
Less than 1 | After | |||||||||||||||||||
Total | Year | 1-3 Years | 4-5 Years | 5-Years | ||||||||||||||||
(consolidated) (in NT$ millions) | ||||||||||||||||||||
Long-term debt(1) | ||||||||||||||||||||
Unsecured bonds | 5,887 | — | — | 5,887 | — | |||||||||||||||
Long-term loans | 7,522 | 711 | 3,808 | 3,003 | — | |||||||||||||||
Operating lease obligations(2) | 3,010 | 406 | 659 | 483 | 1,462 | |||||||||||||||
Purchase obligations(3) | 2,311 | 2,311 | — | — | — | |||||||||||||||
Other long-term obligations(4) | 1,616 | 1,536 | 15 | — | 65 | |||||||||||||||
Total contractual cash obligations | 20,346 | 4,964 | 4,482 | 9,373 | 1,527 | |||||||||||||||
(1) | Assuming the exchangeable bonds are paid off upon maturity. | |
(2) | Represents our obligations to make lease payments to use machineries, equipments 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 and UMCJ. |
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(3) | Represents commitments for construction and purchase of raw materials. These commitments are not recorded on our balance sheet as of December 31, 2010. | |
(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 |
Name | Age | Position | Years with Us | |||
Stan Hung | 50 | Chairman and Director | 19 | |||
Shih-Wei Sun | 53 | Director (Representative of Silicon Integrated Systems Corp.) and Chief | 16 | |||
Executive Officer | ||||||
Wen-Yang Chen | 58 | Director (Representative of Hsun Chieh Investment Co.) and Chief Operating | 31 | |||
Officer | ||||||
Po-Wen Yen | 54 | Director (Representative of Hsun Chieh Investment Co.) and Senior Vice President | 24 | |||
Ting-Yu Lin | 50 | Director | 5 | |||
Paul S.C. Hsu(1) | 75 | Independent Director | 7 | |||
Chung-Laung Liu(1) | 77 | Independent Director | 5 | |||
Chun-Yen Chang(1) | 74 | Independent Director | 5 | |||
Cheng-Li Huang(1) | 62 | Independent Director | 2 | |||
Chitung Liu | 45 | Chief Financial Officer | 10 |
(1) | Member of the Audit Committee. |
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As of December 31, | ||||||||||||
Employees | 2008 | 2009 | 2010 | |||||||||
Engineers | 6,461 | 6,579 | 7,365 | |||||||||
Technicians | 4,734 | 5,290 | 5,835 | |||||||||
Administrative Staff | 509 | 465 | 471 | |||||||||
Total | 11,704 | 12,334 | 13,671 | |||||||||
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ITEM 7. | MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONS |
As of | As of | As of | As of | |||||||||||||||||||||
As of April 17 | April 17, | April 12, | April 15, | April 13, | ||||||||||||||||||||
2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||||||
Number | Percentage | Percentage | Percentage | Percentage | Percentage | |||||||||||||||||||
of shares | of shares | of shares | of shares | of shares | of shares | |||||||||||||||||||
beneficially | beneficially | beneficially | beneficially | beneficially | beneficially | |||||||||||||||||||
Name of Beneficial Owner | owned | owned | owned | owned | owned | owned | ||||||||||||||||||
Hsun Chieh Investment Co., Ltd.(1) | 441 | 3.4 | % | 3.4 | % | 3.3 | % | 3.2 | % | 3.2 | % | |||||||||||||
Xilinx, Inc. | 0 | 0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.6 | % | |||||||||||||
Silicon Integrated Systems Corp. | 315 | 2.4 | % | 2.4 | % | 2.4 | % | 2.3 | % | 2.3 | % | |||||||||||||
Directors, supervisors and executive officers as a group | 808 | 6.22 | % | 6.2 | % | 5.7 | % | 5.6 | % | 6.2 | % |
(1) | 36.5% owned by United Microelectronics as of March 31, 2011. |
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Name | Ownership% | |||
AMIC Technology (Taiwan), Inc. | 18.77 | |||
Silicon Integrated Systems Corp. | 16.94 |
ITEM 8. | FINANCIAL INFORMATION |
Total Number of | Number of | |||||||||||||||
Cash Dividend per | Stock Dividend per | Shares Issued as | Outstanding Shares | |||||||||||||
Share | Share | Stock Dividend | at Year End | |||||||||||||
NT$ | NT$ | |||||||||||||||
1997 | — | 3.0 | 868,629,276 | 4,117,758,265 | ||||||||||||
1998 | — | 2.9 | 1,199,052,940 | 5,480,221,725 | ||||||||||||
1999 | — | 1.5 | 834,140,790 | 6,638,054,462 | ||||||||||||
2000 | — | 2.0 | 1,809,853,716 | 11,439,016,900 | ||||||||||||
2001 | — | 1.5 | 1,715,104,035 | 13,169,235,416 | ||||||||||||
2002 | — | 1.5 | 1,968,018,212 | 15,238,578,646 | ||||||||||||
2003 | — | 0.4 | 607,925,145 | 15,941,901,463 | ||||||||||||
2004 | — | 0.8 | 1,288,558,185 | 17,550,800,859 | ||||||||||||
2005 | 0.1029 | 1.029 | 1,758,736,435 | 18,856,632,324 | ||||||||||||
2006 | 0.409141420 | 0.10228530 | 179,031,672 | 19,131,192,690 | ||||||||||||
2007 | 0.7 | — | — | 13,214,494,883 | ||||||||||||
2008 | 0.75 | 0.45 | 562,958,816 | 12,987,771,315 | ||||||||||||
2009 | — | — | — | 12,987,771,315 | ||||||||||||
2010 | 0.5 | — | — | 12,987,912,315 |
(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 shares. The amount of shares distributed to each stockholder is calculated by multiplying the dividend declared by the number of shares held by the given stockholder, divided by the par value of NT$10 per share. Fractional shares are not issued but are paid in cash. |
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ITEM 9. | THE OFFER AND LISTING |
Closing Price Per Share(1) | Average Daily | |||||||||||
High | Low | Trading Volume | ||||||||||
NT$ | NT$ | (in thousands of shares) | ||||||||||
2005 | 25.20 | 16.75 | 84,868.00 | |||||||||
2006 | 22.60 | 17.60 | 67,133.00 | |||||||||
2007 | 23.45 | 17.15 | 53,166.86 | |||||||||
2008 | 20.30 | 6.80 | 37,521.00 | |||||||||
2009 | 17.20 | 7.10 | 85,869.55 | |||||||||
First Quarter | 12.00 | 7.10 | 65,283.37 | |||||||||
Second Quarter | 14.95 | 10.30 | 135,721.42 | |||||||||
Third Quarter | 16.15 | 10.95 | 83,937.95 | |||||||||
Fourth Quarter | 17.20 | 15.40 | 57,964.97 | |||||||||
2010 | 18.6 | 12.95 | 53,660.37 | |||||||||
First Quarter | 18.6 | 15.45 | 61,199.41 | |||||||||
Second Quarter | 17.2 | 13.8 | 44,109.17 | |||||||||
Third Quarter | 14.85 | 12.95 | 41,111.93 | |||||||||
Fourth Quarter | 16.7 | 13.3 | 68,624.75 | |||||||||
October | 14.55 | 13.3 | 64,308.25 | |||||||||
November | 15.4 | 14.4 | 72,114.45 | |||||||||
December | 16.7 | 15.35 | 69,227.94 | |||||||||
2011 (through April 27) | 18.10 | 14.10 | 63,196.90 | |||||||||
First Quarter | 18.1 | 14.1 | 70,662.07 | |||||||||
January | 18.1 | 15.55 | 90,482.50 | |||||||||
February | 17.6 | 15.4 | 64,251.73 | |||||||||
March | 15.9 | 14.1 | 57,328.86 | |||||||||
Second Quarter (through April 27) | 15.60 | 14.75 | 38,166.63 | |||||||||
April (through April 27) | 15.60 | 14.75 | 38,166.63 |
Source: Taiwan Stock Exchange. | ||
(1) | Information has been adjusted to give effect to 758,736,435 Shares and 197,285,530 Shares issued as stock dividend and employee bonus, respectively, in August 2005; 179,031,672 Shares, NT$7,161,266,830, 45,845,444 Shares and NT$305,636,291 issued as stock dividend, cash dividend, stock employee bonus and cash employee bonus, respectively, in August 2006; NT$12,461,529,283 and NT$2,324,119,405 issued as cash dividend and cash employee bonus, respectively, in August 2007; and 562,958,816 Shares and 114,616,567 Shares issued as stock dividend and employee bonus, respectively, in August 2008. |
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Closing Price Per ADS(1) | Average ADS Daily | |||||||||||
High | Low | Trading Volume | ||||||||||
US$ | US$ | |||||||||||
2005 | 4.43 | 2.80 | 4,279,929 | |||||||||
2006 | 3.90 | 2.82 | 5,804,766 | |||||||||
2007 | 4.48 | 2.93 | 6,536,888 | |||||||||
2008 | 3.71 | 1.51 | 5,784,055 | |||||||||
2009 | 3.53 | 1.65 | 4,784,033 | |||||||||
First Quarter | 2.82 | 1.65 | 4,100,685 | |||||||||
Second Quarter | 3.53 | 2.36 | 6,364,041 | |||||||||
Third Quarter | 3.82 | 2.54 | 4,099,427 | |||||||||
Fourth Quarter | 3.88 | 3.25 | 5,828,853 | |||||||||
2010 | 4.22 | 2.55 | 3,929,367 | |||||||||
First Quarter | 4.22 | 3.34 | 5,840,361 | |||||||||
Second Quarter | 3.89 | 2.87 | 4,404,338 | |||||||||
Third Quarter | 3.21 | 2.55 | 2,943,675 | |||||||||
Fourth Quarter | 3.28 | 2.6 | 2,626,094 | |||||||||
November | 3.23 | 2.85 | 2,376,990 | |||||||||
December | 3.28 | 2.96 | 3,110,836 | |||||||||
2011 (through April 27) | 3.46 | 2.50 | 4,000,139 | |||||||||
First Quarter | 3.46 | 2.50 | 4,125,455 | |||||||||
January | 3.46 | 3.09 | 5,257,485 | |||||||||
February | 3.43 | 2.80 | 4,650,800 | |||||||||
March | 2.94 | 2.50 | 2,707,100 | |||||||||
Second Quarter (through April 27) | 2.84 | 2.65 | 3,568,493 | |||||||||
April (through April 27) | 2.84 | 2.65 | 3,568,493 |
Sources: Bloomberg | ||
(1) | Information has been adjusted to give effect to 1,758,736,435 Shares and 197,285,530 Shares issued as stock dividend and employee bonus, respectively, in August 2005; 179,031,672 Shares, NT$7,161,266,830, 45,845,444 Shares and NT$305,636,291 issued as stock dividend, cash dividend, stock employee bonus and cash employee bonus, respectively, in August 2006; NT$12,461,529,283 and NT$2,324,119,405 issued as cash dividend and cash employee bonus, respectively, in August 2007; and 562,958,816 Shares and 114,616,567 Shares issued as stock dividend and employee bonus, respectively, in August 2008. |
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ITEM 10. | ADDITIONAL INFORMATION |
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April | August | September | January | |||||||||||||||||||||
2005 | 2005 | 2005 | 2006 | |||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Number of Options Granted | 23 | 54 | 52 | 39 | ||||||||||||||||||||
Number of Options Outstanding as of March 31, 2011 | 5 | 17 | 23 | 9 | ||||||||||||||||||||
Shares available to option holders as of March 31, 2011 | 5 | 17 | 23 | 9 |
May | August | December | June | |||||||||||||
2006 | 2006 | 2007 | 2009 | |||||||||||||
(in millions) | ||||||||||||||||
Number of Options Granted | 42 | 28 | 500 | 300 | ||||||||||||
Number of Options Outstanding as of March 31, 2011 | 14 | 8 | 367 | 264 | ||||||||||||
Shares available to option holders as of March 31, 2011 | 14 | 8 | 367 | 264 |
Note: | The employee stock options granted prior to August 7, 2007, the effective date of capital reduction, were adjusted in accordance with capital reduction rate. Each option unit entitles an optionee to subscribe for about 0.7 share of the Company’s common stock. The exercise price of the options was also adjusted according to the capital reduction rate. Each stock option unit granted after August 7, 2007 remains to be subscribed for one share of the Company’s common stock. |
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• | payment of all taxes and dues; |
• | deduction of any past losses; and |
• | allocation of 10% of our net income as a legal reserve. |
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• | to transfer 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 shares so purchased shall be canceled thereafter. |
• | 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. |
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• | 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 who have continuously held 3% or more of our issued shares for a period of one year or longer may request in writing that the audit committee institute 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 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 shares or any respective spouses or minor children and/or nominees of any of them sells shares within six months after acquisition of such shares, or repurchases the 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 fail to claim for recovery, any stockholder may set forth a 30-day period for our board of directors to exercise the right. In the event our directors 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. |
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(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 shares or purchase through the depositary in the domestic market or the surrender of shares under the possession of investors and then delivery of such 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. |
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• | 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. |
• | 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 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. |
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• | 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. |
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• | the excess distribution or gain will be allocated ratably over your holding period for 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. |
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ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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As of December 31, 2010 | ||||||||
Book Value | Fair Value | |||||||
(in NT$ millions) | ||||||||
Foreign exchange rate contracts: Non-Trading Purpose | $ | 3 | $ | 3 | ||||
Time Deposits: Non-Trading Purpose | $ | 34,360 | $ | 34,360 | ||||
Short-term Loans: Non-Trading Purpose | $ | 4,124 | $ | 4,124 | ||||
Bonds: Non-Trading Purpose | $ | 4,996 | $ | 5,158 | ||||
Long-term loans: Non-Trading Purpose | $ | 7,522 | $ | 7,522 |
Notional Amount | Contract Period | Interest Rate Received | Interest Rate Paid | |||||
As of December 31, 2010 | ||||||||
NT$0 million | — | — | — | |||||
As of December 31, 2009 | ||||||||
NT$7,500 million | May 21, 2003 to June 24, 2010 | 4.3% minus US$12-month LIBOR | 1.48 | % |
Expected Maturity Dates | ||||||||||||||||||||||||||||
As of December 31, 2010 | 2015 and | |||||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | thereunder | Total | Fair Value | ||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||
Time Deposits: | ||||||||||||||||||||||||||||
Fixed Rate (US$) | 144 | — | — | — | — | 144 | 144 | |||||||||||||||||||||
Average Interest Rate | 0.3 | % | — | — | — | — | 0.3 | % | 0.3 | % | ||||||||||||||||||
Fixed Rate (¥) | 4,400 | — | — | — | — | 4,400 | 4,400 | |||||||||||||||||||||
Average Interest Rate | 0.1136 | % | — | — | — | — | 0.1136 | % | 0.1136 | % | ||||||||||||||||||
Fixed Rate (NT$) | 18,710 | — | — | — | — | 18,710 | 18,710 | |||||||||||||||||||||
Average Interest Rate | 0.3 | % | — | — | — | — | 0.3 | % | 0.3 | % | ||||||||||||||||||
Unsecured Long-term Loans: | ||||||||||||||||||||||||||||
Variable Rate (NT$) | 132 | 187 | 124 | 61 | 61 | 566 | 566 | |||||||||||||||||||||
Average Interest Rate | 1.503 | % | 1.503 | % | 1.503 | % | 1.503 | % | 1.503 | % | 1.503 | % | 1.503 | % | ||||||||||||||
Secured Long-term Loans: | ||||||||||||||||||||||||||||
Variable Rate (NT$) | 233 | 233 | 233 | — | — | 700 | 700 | |||||||||||||||||||||
Average Interest Rate | 1.375 | % | 1.375 | % | 1.375 | % | — | — | 1.375 | % | 1.375 | % | ||||||||||||||||
Bonds: | ||||||||||||||||||||||||||||
Unsecured (NT$) | — | — | — | — | — | — | — | |||||||||||||||||||||
Variable Rate | — | — | — | — | — | — | — | |||||||||||||||||||||
Unsecured (US$) | — | — | — | 127 | — | 127 | 109 | |||||||||||||||||||||
Fixed Rate | — | — | — | 0 | % | — | 0 | % | 0 | % | ||||||||||||||||||
Unsecured (US$) | — | — | — | 80 | — | 80 | 68 | |||||||||||||||||||||
Fixed Rate | — | — | — | 0 | % | — | 0 | % | 0 | % | ||||||||||||||||||
Interest Rate Derivatives | ||||||||||||||||||||||||||||
Average pay rate | — | — | — | — | — | — | — | |||||||||||||||||||||
Interest Rate Swaps: | ||||||||||||||||||||||||||||
Variable to Fixed (denomination) | — | — | — | — | — | — | — | |||||||||||||||||||||
Average receive rate | — | — | — | — | — | — | — |
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Expected Maturity Dates | ||||||||||||||||||||||||||||
As of December 31, 2009 | 2014 and | |||||||||||||||||||||||||||
2010 | 2011 | 2012 | 2013 | thereunder | Total | Fair Value | ||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||
Time Deposits: | ||||||||||||||||||||||||||||
Fixed Rate (US$) | 177 | — | — | — | — | 177 | 177 | |||||||||||||||||||||
Average Interest Rate | 0.1228 | % | — | — | — | — | 0.1228 | % | 0.1228 | % | ||||||||||||||||||
Fixed Rate (¥) | 2,000 | — | — | — | — | 2,000 | 2,000 | |||||||||||||||||||||
Average Interest Rate | 0.1 | % | — | — | — | — | 0.1 | % | 0.1 | % | ||||||||||||||||||
Fixed Rate (NT$) | 33,940 | — | — | — | — | 33,940 | 33,940 | |||||||||||||||||||||
Average Interest Rate | 0.1659 | % | — | — | — | — | 0.1659 | % | 0.1659 | % | ||||||||||||||||||
Unsecured Long-term Loans: | ||||||||||||||||||||||||||||
Variable Rate (NT$) | 33 | 45 | 22 | — | — | 100 | 100 | |||||||||||||||||||||
Average Interest Rate | 1.63 | % | 1.63 | % | 1.63 | % | — | — | 1.63 | % | 1.63 | % | ||||||||||||||||
Secured Long-term Loans: | ||||||||||||||||||||||||||||
Variable Rate (NT$) | — | 233 | 233 | 233 | — | 700 | 700 | |||||||||||||||||||||
Average Interest Rate | — | 1.275 | % | 1.275 | % | 1.275 | % | — | 1.275 | % | 1.275 | % | ||||||||||||||||
Bonds: | ||||||||||||||||||||||||||||
Unsecured (NT$) | 7,500 | — | — | — | — | 7,500 | 7,187 | |||||||||||||||||||||
Variable Rate | 0%-4.3 | % | — | — | — | — | 0%-4.3 | % | 0%-4.3 | % | ||||||||||||||||||
Unsecured (US$) | — | — | — | — | 127 | 127 | 99 | |||||||||||||||||||||
Fixed Rate | — | — | — | — | 0 | % | 0 | % | 0 | % | ||||||||||||||||||
Unsecured (US$) | — | — | — | — | 80 | 80 | 62 | |||||||||||||||||||||
Fixed Rate | — | — | — | — | 0 | % | 0 | % | 0 | % | ||||||||||||||||||
Interest Rate Derivatives | ||||||||||||||||||||||||||||
Interest Rate Swaps: | ||||||||||||||||||||||||||||
Variable to Fixed (denomination) | NT$7,500 million | — | — | — | — | NT$7,500 million | NT$88 million | |||||||||||||||||||||
Average pay rate | 1.48 | % | — | — | — | — | 1.48 | % | 1.48 | % | ||||||||||||||||||
Average receive rate | 4.3% minus US$12- month LIBOR | — | — | — | — | 4.3% minus US$12- month LIBOR | 4.3 minus US$12- month LIBOR | % |
Expected Maturity Dates | ||||||||||||||||||||||||||||
As of December 31, 2010 | 2015 and | |||||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | thereunder | Total | Fair Value | ||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||
Foreign Currency Forward Contracts: | ||||||||||||||||||||||||||||
Sell US$ against NT$ | ||||||||||||||||||||||||||||
Contract Amount | US$ | 26 | — | — | — | — | US$ | 26 | NT$3 | |||||||||||||||||||
Average Contractual Exchange Rate | US$ | 1=NT$29.8950 | — | — | — | — | US$ | 1=NT$29.8950 | — |
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Expected Maturity Dates | ||||||||||||||||||||||||||||
As of December 31, 2009 | 2014 and | |||||||||||||||||||||||||||
2010 | 2011 | 2012 | 2013 | thereunder | Total | Fair Value | ||||||||||||||||||||||
(in millions, except percentages) | ||||||||||||||||||||||||||||
Foreign Currency Forward Contracts: | ||||||||||||||||||||||||||||
Sell US$ against NT$ | ||||||||||||||||||||||||||||
Contract Amount | US$ | 267 | — | — | — | — | US$ | 267 | NT $75 | |||||||||||||||||||
Average Contractual Exchange Rate | US$ | 1=NT$32.2910 | — | — | — | — | US$ | 1=NT$32.2910 | — |
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
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$0.02 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$0.05 per ADS held |
• | taxes (including applicable interest and penalties) and other governmental charges; |
• | such registration fees as may from time to time be in effect for the registration of common shares or other deposited securities on the share register and applicable to transfers of common shares or other deposited securities to or from the name of the custodian, the depositary or any nominees upon the making of deposits and withdrawals, respectively; |
• | such cable, telex and facsimile transmission and delivery expenses as are expressly provided in the deposit agreement to be at the expense of ADS holders and beneficial owners of ADSs; |
• | the expenses and charges incurred by the depositary in the conversion of foreign currency; |
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• | such fees and expenses as are incurred by the depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to common shares, deposited securities, ADSs and ADRs; and |
• | the fees and expenses incurred by the depositary, the custodian or any nominee in connection with the servicing or delivery of deposited securities. |
Service | Fees | |||
Reimbursement of listing fees | US$ | 213,499.00 | ||
Reimbursement of SEC filing fees | US$ | 7,775.00 | ||
Reimbursement of accounting supporting fees for FASB and Public Company Accounting Oversight Board | US$ | 10,700.00 | ||
Reimbursement of annual ordinary stockholders’ meeting expenses | US$ | 31,106.14 | ||
Reimbursement of fees in connection with annual financial and Sarbanes-Oxley Act of 2002 audit | US$ | 824,120.00 | ||
Contribution to our company’s investor relations efforts | US$ | 7,537.75 | ||
Others | US$ | 29,059.99 | ||
Total | US$ | 1,123,797.88 |
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
ITEM 15. | CONTROLS AND PROCEDURES |
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Republic of China
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ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |
ITEM 16B. | CODE OF ETHICS |
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
For the year ended December 31, | ||||||||||||
2009 | 2010 | |||||||||||
NT$ | NT$ | US$ | ||||||||||
(in thousands) | ||||||||||||
Audit Fees (1) | 66,712 | 65,568 | 2,250 | |||||||||
Audit-related Fees (2) | 1,520 | 1,513 | 52 | |||||||||
Tax Fees (3) | 2,460 | 2,966 | 102 | |||||||||
All Other Fees(4) | — | 14,570 | 500 | |||||||||
Total | 70,692 | 84,617 | 2,904 | |||||||||
(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 related services that are reasonably related to the performance of the audit or review of our financial statements but not described in footnote (1) above. These services include review of regulatory checklist for the adoption of our employee stock option plan, certification of our Singapore Branch to Singapore authorities and application for corporation registration. | |
(3) | Tax fees include fees billed for professional services rendered by Ernst & Young, primarily in connection with our tax compliance activities. | |
(4) | All Other Fees consists of professional services rendered by the Ernst&Young for IFRS adoption. |
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
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ITEM 16E. | PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
Maximum | ||||||||||||||||
Number | ||||||||||||||||
Total Number of | of Shares that | |||||||||||||||
Common Shares | May | |||||||||||||||
Average Price | Purchased as Part | Yet be | ||||||||||||||
Paid | of | Purchased | ||||||||||||||
Total Number of | per Common | Publicly | Under the Plans | |||||||||||||
Common Shares | Share | Announced | or | |||||||||||||
Period | Purchased | (NT$) | Plans or Program | Program | ||||||||||||
2007 | — | — | — | — | ||||||||||||
(1)August (from August 28, 2008) | 15,913,000 | 13.21 | 15,913,000 | 184,087,000 | ||||||||||||
September | 171,205,000 | 11.32 | 187,118,000 | 12,882,000 | ||||||||||||
October (to October 2, 2008) | 12,882,000 | 10.17 | 200,000,000 | — | ||||||||||||
(2)December (from December 17, 2008) | — | — | — | 300,000,000 | ||||||||||||
January | 110,412,000 | 7.81 | 110,412,000 | 189,588,000 | ||||||||||||
February (to February 16, 2009) | 189,588,000 | 8.08 | 300,000,000 | — | ||||||||||||
(3)February (from February 3, 2010) | 147,845,000 | 15.98 | 147,845,000 | 152,155,000 | ||||||||||||
March (to March 22) | 152,155,000 | 16.31 | 300,000,000 | — |
(1) | The 12th share buy-back plan was announced on August 27, 2008 to repurchase 200 million shares during the period from August 28, 2008 to October 27, 2008. | |
(2) | The 13th share buy-back plan was announced on December 16, 2008 to repurchase 300 million shares during the period from December 17, 2008 to February 16, 2009. | |
(3) | The 14th share buy-back plan was announced on February 2, 2010 to repurchase 300 million shares during the period from February 3, 2010 to April 2, 2010. |
ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
ITEM 16G. | CORPORATE GOVERNANCE |
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ITEM 17. | FINANCIAL STATEMENTS |
ITEM 18. | FINANCIAL STATEMENTS |
Page | ||||
Consolidated Financial Statements of United Microelectronics Corporation and Subsidiaries | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-8 | ||||
F-10 |
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ITEM 19. | EXHIBITS |
Exhibit | ||||
Number | Description of Exhibits | |||
*1.1 | Articles of Incorporation of the Company as last amended on June 13, 2008 | |||
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 (1) | |||
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 (2) | |||
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) (3) | |||
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) | |||
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) (5) | |||
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) (6) | |||
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) (7) | |||
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) (8) | |||
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) (9) | |||
4.8 | Merger Agreement, entered into as of February 26, 2004, between United Microelectronics Corporation and SiS Microelectronics Corporation (English Translation) (10) | |||
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) (11) | |||
4.10 | Lease Agreement with JTC Corporation in relation to land located at Pasir Ris Wafer Fab Park, Singapore, the site of Fab12i (summary) (12) | |||
4.11 | Merger Agreement, entered into as of April 29, 2009, among United Microelectronics Corporation, Infoshine Technology Limited and Best Elite International Limited (13) | |||
*8.1 | List of Significant Subsidiaries of United Microelectronics Corporation | |||
11.1 | Code of Ethics for Directors, Supervisors and Officers (14) | |||
11.2 | Employee Code of Conduct (15) | |||
*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 | |||
99.1 | Form 6-K furnished to the Commission on April 29, 2009 (File No. 001-15128) (16) | |||
99.2 | Form 6-K furnished to the Commission on October 28, 2009 (File No. 001-15128) (17) | |||
99.3 | Form 6-K furnished to the Commission on December 21, 2009 (File No. 001-15128) (18) |
* | Filed herewith. | |
(1) | 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. | |
(2) | 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. | |
(3) | 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. | |
(4) | 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. |
95
(5) | 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. | |
(6) | 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. | |
(7) | 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. | |
(8) | 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. | |
(9) | 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. | |
(10) | 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. | |
(11) | 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. | |
(12) | 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. | |
(13) | Incorporated by reference to Exhibit 99.1 to the Form 6-K furnished to the Commission on May 8, 2009. | |
(14) | Incorporated by reference to Exhibit 99.1 to the Form 6-K furnished to the Commission on May 25, 2005. | |
(15) | Incorporated by reference to Exhibit 99.2 to the Form 6-K furnished to the Commission on March 26, 2006. | |
(16) | Incorporated by reference to Exhibit 99 to the Form 6-K furnished to the Commission on April 29, 2009. | |
(17) | Incorporated by reference to Exhibit 99 to the Form 6-K furnished to the Commission on October 28, 2009. | |
(18) | Incorporated by reference to Exhibit 99 to the Form 6-K furnished to the Commission on December 21, 2009. |
96
By: | /S/ CHITUNG LIU | |||
Title:Chief Financial Officer |
97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CERTIFIED PUBLIC ACCOUNTANTS
Republic of China
F-2
As of December 31, | ||||||||||||||||
Notes | 2009 | 2010 | ||||||||||||||
NT$ | NT$ | US$ | ||||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | 2, 4 | 66,152,960 | 51,271,105 | 1,759,475 | ||||||||||||
Financial assets at fair value through profit or loss, current | 2, 5 | 2,096,091 | 1,139,943 | 39,119 | ||||||||||||
Available-for-sale financial assets, current | 2, 8 | 6,250,694 | 7,044,673 | 241,753 | ||||||||||||
Notes receivable | 429,762 | 115,833 | 3,975 | |||||||||||||
Accounts receivable, net | 2, 6 | 16,417,801 | 18,110,521 | 621,500 | ||||||||||||
Accounts receivable-related parties, net | 2, 26 | 240,708 | 759,644 | 26,069 | ||||||||||||
Other receivables | 2 | 401,783 | 569,559 | 19,545 | ||||||||||||
Inventories, net | 2, 3, 7 | 9,141,385 | 13,032,623 | 447,242 | ||||||||||||
Prepaid expenses | 692,509 | 848,349 | 29,113 | |||||||||||||
Non-current assets held for sale | 2 | — | 16,233 | 557 | ||||||||||||
Deferred income tax assets, current | 2, 24 | 538,923 | 834,737 | 28,646 | ||||||||||||
Restricted assets | — | 26,077 | 895 | |||||||||||||
Total current assets | 102,362,616 | 93,769,297 | 3,217,889 | |||||||||||||
Funds and investments | ||||||||||||||||
Financial assets at fair value through profit or loss, noncurrent | 2, 5 | — | 79,920 | 2,743 | ||||||||||||
Available-for-sale financial assets, noncurrent | 2, 8 | 35,106,942 | 30,254,065 | 1,038,231 | ||||||||||||
Financial assets measured at cost, noncurrent | 2, 9, 13 | 7,628,523 | 7,651,864 | 262,590 | ||||||||||||
Long-term investments accounted for under the equity method | 2, 10, 13, 26, 32 | 12,168,942 | 9,193,239 | 315,485 | ||||||||||||
Prepayment for long-term investments | 322,290 | — | — | |||||||||||||
Total funds and investments | 55,226,697 | 47,179,088 | 1,619,049 | |||||||||||||
Property, plant and equipment | 2, 11, 13, 27, 28 | |||||||||||||||
Land | 1,056,823 | 1,555,904 | 53,394 | |||||||||||||
Buildings | 21,097,255 | 26,156,284 | 897,608 | |||||||||||||
Machinery and equipment | 453,597,613 | 498,122,888 | 17,094,128 | |||||||||||||
Transportation equipment | 68,580 | 72,938 | 2,503 | |||||||||||||
Furniture and fixtures | 3,324,352 | 3,594,261 | 123,345 | |||||||||||||
Leasehold improvements | 53,411 | 728,030 | 24,984 | |||||||||||||
Total cost | 479,198,034 | 530,230,305 | 18,195,962 | |||||||||||||
Less: Accumulated depreciation | (405,899,110 | ) | (428,492,265 | ) | (14,704,608 | ) | ||||||||||
Less: Accumulated impariment | (1,868,968 | ) | (1,725,272 | ) | (59,206 | ) | ||||||||||
Add: Construction in progress and prepayments | 18,166,404 | 32,749,232 | 1,123,858 | |||||||||||||
Property, plant and equipment, net | 89,596,360 | 132,762,000 | 4,556,006 | |||||||||||||
Goodwill | 2 | 7,615 | 304,728 | 10,457 | ||||||||||||
Deferred charges | 2 | 1,368,418 | 1,287,212 | 44,173 | ||||||||||||
Deferred income tax assets, noncurrent | 2, 24 | 3,152,277 | 2,889,902 | 99,173 | ||||||||||||
Other assets-others | 2, 12, 13, 27 | 1,924,468 | 2,694,769 | 92,477 | ||||||||||||
Total assets | 253,638,451 | 280,886,996 | 9,639,224 | |||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||
Current liabilities | ||||||||||||||||
Short-term loans | 14 | 128,682 | 4,124,115 | 141,528 | ||||||||||||
Financial liabilities at fair value through profit or loss, current | 2, 15 | 1,914,879 | 2,254,937 | 77,383 | ||||||||||||
Notes and accounts payable | 5,505,895 | 7,024,359 | 241,055 | |||||||||||||
Income tax payable | 2 | 181,173 | 1,563,391 | 53,651 | ||||||||||||
Accrued expenses | 2, 22 | 8,611,231 | 11,263,161 | 386,519 | ||||||||||||
Payable on equipment | 5,487,908 | 12,619,400 | 433,061 | |||||||||||||
Current portion of long-term liabilities | 2, 16, 17, 27 | 12,800,587 | 5,706,189 | 195,820 | ||||||||||||
Deferred income tax liabilities, current | 2, 24 | 5,700 | 11,586 | 398 | ||||||||||||
Other current liabilities | 609,821 | 877,487 | 30,113 | |||||||||||||
Total current liabilities | 35,245,876 | 45,444,625 | 1,559,528 | |||||||||||||
Long-term liabilities | ||||||||||||||||
Long-term loans | 17, 27 | 766,550 | 6,799,390 | 233,335 | ||||||||||||
Accrued pension liabilities | 2, 18 | 3,261,457 | 3,299,416 | 113,226 | ||||||||||||
Deposits-in | 15,217 | 24,205 | 831 | |||||||||||||
Deferred income tax liabilities, noncurrent | 2, 24 | 9,751 | 20,807 | 714 | ||||||||||||
Other liabilities-others | 2, 10 | 243,344 | 162,524 | 5,577 | ||||||||||||
Total long-term liabilities | 4,296,319 | 10,306,342 | 353,683 | |||||||||||||
Total liabilities | 39,542,195 | 55,750,967 | 1,913,211 | |||||||||||||
Commitments and Contingent | 28 | |||||||||||||||
Capital Stock | 2, 19, 20 | 129,877,713 | 129,879,123 | 4,457,074 | ||||||||||||
Additional Paid-in Capital | 2, 10, 20, 22 | 44,365,049 | 45,048,975 | 1,545,950 | ||||||||||||
Retained earnings | 2, 10, 22 | 10,648,813 | 28,195,559 | 967,589 | ||||||||||||
Cumulative translation adjustment | 2, 10 | (318,188 | ) | (5,279,000 | ) | (181,160 | ) | |||||||||
Unrealized gain or loss on financial instruments | 2, 8 | 30,915,079 | 27,715,983 | 951,132 | ||||||||||||
Treasury stock | 2, 19, 21 | (1,890,145 | ) | (6,223,357 | ) | (213,568 | ) | |||||||||
Total stockholders’ equity of the Company | 213,598,321 | 219,337,283 | 7,527,017 | |||||||||||||
Minority interests | 497,935 | 5,798,746 | 198,996 | |||||||||||||
Total stockholders’ equity | 214,096,256 | 225,136,029 | 7,726,013 | |||||||||||||
Total liabilities and stockholders’ equity | 253,638,451 | 280,886,996 | 9,639,224 | |||||||||||||
F-3
For the years ended December 31, | ||||||||||||||||||||
Notes | 2008 | 2009 | 2010 | |||||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||||||
Net operating revenues | 2, 26 | 96,813,546 | 91,389,765 | 126,441,544 | 4,339,106 | |||||||||||||||
Cost of goods sold | 2, 3, 7, 18, 20, 23 | (84,101,685 | ) | (75,974,607 | ) | (89,517,205 | ) | (3,071,970 | ) | |||||||||||
Gross profit | 12,711,861 | 15,415,158 | 36,924,339 | 1,267,136 | ||||||||||||||||
Operating expenses | 2, 18, 20, 23 | |||||||||||||||||||
Sales and marketing expenses | (3,483,628 | ) | (2,800,226 | ) | (2,565,821 | ) | (88,052 | ) | ||||||||||||
General and administrative expenses | (3,054,683 | ) | (2,723,288 | ) | (3,598,361 | ) | (123,485 | ) | ||||||||||||
Research and development expenses | (8,274,070 | ) | (8,044,155 | ) | (8,740,479 | ) | (299,948 | ) | ||||||||||||
(14,812,381 | ) | (13,567,669 | ) | (14,904,661 | ) | (511,485 | ) | |||||||||||||
Operating income (loss) | (2,100,520 | ) | 1,847,489 | 22,019,678 | 755,651 | |||||||||||||||
Non-operating income | ||||||||||||||||||||
Interest revenue | 686,268 | 170,495 | 143,480 | 4,924 | ||||||||||||||||
Investment gain accounted for under the equity method, net | 2, 10 | — | 180,263 | 114,608 | 3,933 | |||||||||||||||
Dividend income | 2,093,528 | 941,170 | 1,344,017 | 46,123 | ||||||||||||||||
Gain on disposal of property, plant and equipment | 2 | 88,930 | 12,721 | 50,383 | 1,729 | |||||||||||||||
Gain on disposal of investments | 2, 26 | 3,386,004 | 1,965,468 | 2,020,797 | 69,348 | |||||||||||||||
Exchange gain, net | 2 | 381,696 | — | — | — | |||||||||||||||
Gain on valuation of financial assets | 2, 5 | — | 512,586 | — | — | |||||||||||||||
Other income | 905,520 | 1,258,535 | 1,019,469 | 34,985 | ||||||||||||||||
7,541,946 | 5,041,238 | 4,692,754 | 161,042 | |||||||||||||||||
Non-operating expenses | ||||||||||||||||||||
Interest expense | 2, 11 | (71,161 | ) | (58,255 | ) | (16,800 | ) | (576 | ) | |||||||||||
Investment loss accounted for under the equity method, net | 2, 10 | (10,464,849 | ) | — | — | — | ||||||||||||||
Loss on disposal of property, plant and equipment | 2 | (33,559 | ) | (2,529 | ) | (9,259 | ) | (318 | ) | |||||||||||
Exchange loss, net | 2 | — | (135,202 | ) | (150,905 | ) | (5,179 | ) | ||||||||||||
Financial expenses | (90,735 | ) | (90,957 | ) | (64,595 | ) | (2,217 | ) | ||||||||||||
Impairment loss | 2, 13 | (13,179,858 | ) | (4,007,078 | ) | (113,879 | ) | (3,908 | ) | |||||||||||
Loss on valuation of financial assets | 2, 5 | (2,397,962 | ) | — | (217,895 | ) | (7,477 | ) | ||||||||||||
Loss on valuation of financial liabilities | 2, 15 | (1,046,081 | ) | (822,321 | ) | (665,116 | ) | (22,825 | ) | |||||||||||
Other losses | (143,392 | ) | (99,385 | ) | (90,362 | ) | (3,101 | ) | ||||||||||||
(27,427,597 | ) | (5,215,727 | ) | (1,328,811 | ) | (45,601 | ) | |||||||||||||
Income (loss) before income tax and minority interests | (21,986,171 | ) | 1,673,000 | 25,383,621 | 871,092 | |||||||||||||||
Income tax expense | 2, 24 | (996,921 | ) | (651,068 | ) | (1,606,114 | ) | (55,117 | ) | |||||||||||
Extraordinary gain | 32 | — | 648,958 | 68,449 | 2,349 | |||||||||||||||
Net income (loss) | (22,983,092 | ) | 1,670,890 | 23,845,956 | 818,324 | |||||||||||||||
Attributable to: | ||||||||||||||||||||
the Company | (22,320,075 | ) | 3,874,028 | 23,898,905 | 820,141 | |||||||||||||||
Minority interests | (663,017 | ) | (2,203,138 | ) | (52,949 | ) | (1,817 | ) | ||||||||||||
Net income (loss) | (22,983,092 | ) | 1,670,890 | 23,845,956 | 818,324 | |||||||||||||||
Earnings (losses) per share-basic (in dollars) | 2, 25 | (1.70 | ) | 0.31 | 1.91 | |||||||||||||||
Shares used in per share calculation-basic | 13,110,984 | 12,699,072 | 12,496,485 | |||||||||||||||||
Earnings (losses) per share-diluted (in dollars) | 2, 25 | (1.70 | ) | 0.30 | 1.87 | |||||||||||||||
Shares used in per share calculation-diluted | 13,170,391 | 12,786,448 | 12,767,590 | |||||||||||||||||
F-4
Capital | Retained Earnings | |||||||||||||||||||||||||||||||||||||||||||
Unappropriated | Unrealized | |||||||||||||||||||||||||||||||||||||||||||
Earnings | Cumulative | Gain/Loss on | ||||||||||||||||||||||||||||||||||||||||||
Additional Paid-in | (Accumulated | Translation | Financial | |||||||||||||||||||||||||||||||||||||||||
Common Stock | Shares | Capital | Legal Reserve | Special Reserve | deficit) | Adjustment | Instruments | Treasury Stock | Minority Interests | Total | ||||||||||||||||||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | |||||||||||||||||||||||||||||||||||
Balance as of January 1, 2008 | 132,144,949 | 13,214,495 | 66,126,806 | 18,476,942 | 824,922 | 12,349,227 | (866,562 | ) | 22,413,852 | (15,003,247 | ) | 6,530,810 | 242,997,699 | |||||||||||||||||||||||||||||||
Appropriation and distribution of 2007 retained earnings | ||||||||||||||||||||||||||||||||||||||||||||
Legal reserve | — | — | — | 1,234,923 | — | (1,234,923 | ) | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Special reserve | — | — | — | — | (824,922 | ) | 824,922 | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Cash dividends | — | — | — | — | — | (9,382,647 | ) | — | — | — | — | (9,382,647 | ) | |||||||||||||||||||||||||||||||
Stock dividends | 1,000,816 | 100,081 | — | — | — | (1,000,816 | ) | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Remuneration to directors and supervisors | — | — | — | — | — | (11,939 | ) | — | — | — | — | (11,939 | ) | |||||||||||||||||||||||||||||||
Employee bonus-cash | — | — | — | — | — | (286,541 | ) | — | — | — | — | (286,541 | ) | |||||||||||||||||||||||||||||||
Employee bonus-stock | 1,146,166 | 114,617 | — | — | — | (1,146,166 | ) | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Additional paid-in capital transferred to common stock | 4,628,772 | 462,877 | (4,628,772 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Treasury stock acquired | — | — | — | — | — | — | — | — | (2,278,456 | ) | — | (2,278,456 | ) | |||||||||||||||||||||||||||||||
Treasury stock retired | (9,042,990 | ) | (904,299 | ) | (3,579,454 | ) | — | — | (4,539,458 | ) | — | — | 17,161,902 | — | — | |||||||||||||||||||||||||||||
Net loss in 2008 | — | — | — | — | — | (22,320,075 | ) | — | — | — | (663,017 | ) | (22,983,092 | ) | ||||||||||||||||||||||||||||||
Adjustment of additional paid-in capital accounted for under the equity method | — | — | 202,610 | — | — | — | — | — | — | — | 202,610 | |||||||||||||||||||||||||||||||||
Adjustment of funds and investments disposal | — | — | 16,783 | — | — | — | (267 | ) | — | — | — | 16,516 | ||||||||||||||||||||||||||||||||
Cash dividends allocated to subsidaries | — | — | 11,540 | — | — | — | — | — | — | — | 11,540 | |||||||||||||||||||||||||||||||||
Changes in unrealized loss on available-for-sale financial assets | — | — | — | — | — | — | — | (21,771,498 | ) | — | — | (21,771,498 | ) | |||||||||||||||||||||||||||||||
Changes in unrealized gain on financial instruments of investees | — | — | — | — | — | — | — | 1,815,568 | — | — | 1,815,568 | |||||||||||||||||||||||||||||||||
Changes in cumulative translation adjustment | — | — | — | — | — | — | 2,214,202 | — | — | — | 2,214,202 | |||||||||||||||||||||||||||||||||
Changes in minority interests | — | — | — | — | — | — | — | — | — | 1,114,332 | 1,114,332 | |||||||||||||||||||||||||||||||||
Balance as of December 31, 2008 | 129,877,713 | 12,987,771 | 58,149,513 | 19,711,865 | — | (26,748,416 | ) | 1,347,373 | 2,457,922 | (119,801 | ) | 6,982,125 | 191,658,294 | |||||||||||||||||||||||||||||||
F-5
Capital | Retained Earnings | |||||||||||||||||||||||||||||||||||||||||||
Unappropriated | Unrealized | |||||||||||||||||||||||||||||||||||||||||||
Earnings | Cumulative | Gain/Loss on | ||||||||||||||||||||||||||||||||||||||||||
Additional Paid-in | (Accumulated | Translation | Financial | |||||||||||||||||||||||||||||||||||||||||
Common Stock | Shares | Capital | Legal Reserve | Special Reserve | deficit) | Adjustment | Instruments | Treasury Stock | Minority Interests | Total | ||||||||||||||||||||||||||||||||||
NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | NT$ | |||||||||||||||||||||||||||||||||||
Balance as of January 1, 2009 | 129,877,713 | 12,987,771 | 58,149,513 | 19,711,865 | — | (26,748,416 | ) | 1,347,373 | 2,457,922 | (119,801 | ) | 6,982,125 | 191,658,294 | |||||||||||||||||||||||||||||||
Treasury stock acquired | — | — | — | — | — | — | — | — | (2,393,337 | ) | — | (2,393,337 | ) | |||||||||||||||||||||||||||||||
Legal reserve and additional paid-in capital used to cover accumulated deficits | — | — | (7,036,551 | ) | (19,711,865 | ) | — | 26,748,416 | — | — | — | — | — | |||||||||||||||||||||||||||||||
Net income in 2009 | — | — | — | — | — | 3,874,028 | — | — | — | (2,203,138 | ) | 1,670,890 | ||||||||||||||||||||||||||||||||
Compensation cost of employee stock options | — | — | 136,306 | — | — | — | — | — | — | — | 136,306 | |||||||||||||||||||||||||||||||||
Treasury stock sold to employees | — | — | 26,147 | — | — | — | — | — | 622,993 | — | 649,140 | |||||||||||||||||||||||||||||||||
Adjustment of additional paid-in capital accounted for under the equity method | — | — | (6,911,617 | ) | — | — | — | — | — | — | — | (6,911,617 | ) | |||||||||||||||||||||||||||||||
Adjustment of funds and investments disposal | — | — | 1,251 | — | — | — | (991 | ) | (10,592 | ) | — | — | (10,332 | ) | ||||||||||||||||||||||||||||||
Adjustment of retained earnings accounted for under the equity method | — | — | — | — | — | 6,774,785 | — | — | — | — | 6,774,785 | |||||||||||||||||||||||||||||||||
Changes in unrealized gain on available-for-sale financial assets | — | — | — | — | — | — | — | 20,143,875 | — | — | 20,143,875 | |||||||||||||||||||||||||||||||||
Changes in unrealized gain on financial instruments of investees | — | — | — | — | — | — | — | 8,323,874 | — | — | 8,323,874 | |||||||||||||||||||||||||||||||||
Changes in cumulative translation adjustment | — | — | — | — | — | — | (1,664,570 | ) | — | — | — | (1,664,570 | ) | |||||||||||||||||||||||||||||||
Changes in minority interests | — | — | — | — | — | — | — | — | — | (4,281,052 | ) | (4,281,052 | ) | |||||||||||||||||||||||||||||||
Balance as of December 31, 2009 | 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 | |||||||||||||||||||||||||||||||
F-6
Unrealized | ||||||||||||||||||||||||||||||||||||||||||||
Capital | Retained Earnings | Cumulative | Gain/Loss on | |||||||||||||||||||||||||||||||||||||||||
Additional Paid-in | Unappropriated | Translation | Financial | |||||||||||||||||||||||||||||||||||||||||
Common Stock | Shares | Capital | Legal Reserve | Special Reserve | Earnings | Adjustment | Instruments | Treasury Stock | Minority Interests | Total | ||||||||||||||||||||||||||||||||||
NT$ | 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 subsidaries | — | — | 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 | |||||||||||||||||||||||||||||||
F-7
For the years ended December 31, | ||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income (loss) attributable to stockholders of the Company | (22,320,075 | ) | 3,874,028 | 23,898,905 | 820,141 | |||||||||||
Net loss attributable to minority interests | (663,017 | ) | (2,203,138 | ) | (52,949 | ) | (1,817 | ) | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||
Extraordinary gain | — | (648,958 | ) | (82,469 | ) | (2,830 | ) | |||||||||
Depreciation | 37,197,219 | 33,530,254 | 29,951,312 | 1,027,842 | ||||||||||||
Amortization | 1,314,885 | 699,541 | 544,321 | 18,679 | ||||||||||||
Bad debt expense (reversal) | 95,348 | (22,225 | ) | 20,748 | 712 | |||||||||||
Loss (Gain) on decline (recovery) in market value, scrap and obsolescence of inventories | 3,273,425 | (2,414,592 | ) | 82,453 | 2,829 | |||||||||||
Cash dividends received under the equity method | 134,924 | 901 | 48,753 | 1,673 | ||||||||||||
Investment loss (gain) accounted for under the equity method | 10,464,849 | (180,263 | ) | (114,608 | ) | (3,933 | ) | |||||||||
Loss on valuation of financial assets and liabilities | 3,444,043 | 309,735 | 883,011 | 30,302 | ||||||||||||
Impairment loss | 13,179,858 | 4,007,078 | 113,879 | 3,908 | ||||||||||||
Gain on disposal of investments | (3,386,004 | ) | (1,965,468 | ) | (2,020,797 | ) | (69,348 | ) | ||||||||
Gain on disposal of property, plant and equipment | (55,371 | ) | (10,192 | ) | (41,124 | ) | (1,411 | ) | ||||||||
Gain on disposal of non-current assets held for sale | — | (91,413 | ) | (449 | ) | (15 | ) | |||||||||
Amortization of financial assets discounts | — | — | (7,253 | ) | (249 | ) | ||||||||||
Amortization of bond discounts | 7,830 | 20,018 | 227,139 | 7,795 | ||||||||||||
Amortization of administrative expenses from syndicated loans | — | — | 273 | 9 | ||||||||||||
Exchange loss (gain) on financial assets and liabilities | (43,865 | ) | 4,754 | (327,341 | ) | (11,233 | ) | |||||||||
Exchange gain on long-term liabilities | (178,877 | ) | (27,466 | ) | (498,520 | ) | (17,108 | ) | ||||||||
Exchange loss on disposal of non-current assets held for sale | — | — | 266 | 9 | ||||||||||||
Amortization of deferred income | (173,303 | ) | (202,460 | ) | (145,764 | ) | (5,002 | ) | ||||||||
Stock-based payment | — | 162,157 | 646,968 | 22,202 | ||||||||||||
Effect from subsidiaries over which significant control is no longer held | — | 4,014 | 7,063 | 242 | ||||||||||||
Write-off of deferred changes | 12,867 | — | — | — | ||||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Financial assets and liabilities at fair value through profit or loss | (774,040 | ) | 182,985 | 612,802 | 21,029 | |||||||||||
Notes and accounts receivable | 7,425,151 | (8,370,011 | ) | (2,315,832 | ) | (79,473 | ) | |||||||||
Other receivables | 139,861 | 397,038 | 1,388,687 | 47,656 | ||||||||||||
Inventories | 699,986 | 1,292,621 | (3,334,002 | ) | (114,413 | ) | ||||||||||
Prepaid expenses | 187,747 | (295,626 | ) | (530,125 | ) | (18,192 | ) | |||||||||
Deferred income tax assets and liabilities | 266,193 | 462,075 | 69,112 | 2,372 | ||||||||||||
Notes and accounts payable | (3,488,163 | ) | 3,103,407 | 1,776,366 | 60,960 | |||||||||||
Accrued expenses | (1,556,394 | ) | 1,116,047 | 5,449,005 | 186,994 | |||||||||||
Other current liabilities | 8,224 | (359,497 | ) | (2,833,837 | ) | (97,249 | ) | |||||||||
Accrued pension liabilities | 49,401 | 41,432 | 38,378 | 1,317 | ||||||||||||
Other liabilities-others | (6,971 | ) | 10,670 | 105,629 | 3,625 | |||||||||||
Capacity deposits | (4,447 | ) | — | — | — | |||||||||||
Net cash provided by operating activities | 45,251,284 | 32,427,446 | 53,560,000 | 1,838,023 | ||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Acquisition of financial assets at fair value through profit or loss | (50,000 | ) | (388,701 | ) | (163,620 | ) | (5,615 | ) | ||||||||
Proceeds from disposal of financial assets at fair value through profit or loss | 42,596 | 275,400 | — | — | ||||||||||||
Acquisition of available-for-sale financial assets | (670,264 | ) | (108,222 | ) | (232,092 | ) | (7,965 | ) | ||||||||
Proceeds from disposal of available-for-sale financial assets | 4,285,844 | 2,790,430 | 3,485,293 | 119,605 | ||||||||||||
Acquisition of financial assets measured at cost | (917,424 | ) | (984,369 | ) | (835,525 | ) | (28,673 | ) | ||||||||
Proceeds from disposal of financial assets measured at cost | 425,865 | 316,295 | 333,977 | 11,461 | ||||||||||||
Acquisition of long-term investments accounted for under the equity method | (2,450,628 | ) | (3,063,705 | ) | (863,841 | ) | (29,644 | ) | ||||||||
Proceeds from disposal of long-term investments accounted for under the equity method | 824 | — | 157,734 | 5,413 | ||||||||||||
Acquisition of held-to-maturity financial assets | (352,645 | ) | (64,233 | ) | — | — | ||||||||||
Proceeds from disposal of held-to-maturity financial assets | — | 408,364 | — | — | ||||||||||||
Prepayment for long-term investments | (5,160 | ) | (322,290 | ) | — | — | ||||||||||
Proceeds from capital reduction and liquidation of investments | 289,915 | 239,284 | 52,914 | 1,816 | ||||||||||||
Net cash received from acquisition of subsidiaries | — | 7,500 | 1,859,186 | 63,802 | ||||||||||||
Net cash paid for disposal of subsidiaries | — | (23,890 | ) | (269,865 | ) | (9,261 | ) | |||||||||
Other receivables | — | — | 27,108 | 930 | ||||||||||||
Acquisition of property, plant and equipment | (11,514,548 | ) | (17,617,854 | ) | (61,290,347 | ) | (2,103,306 | ) | ||||||||
Proceeds from disposal of property, plant and equipment | 261,583 | 38,458 | 76,044 | 2,610 | ||||||||||||
Proceeds from disposal of non-current assets held for sale | — | 462,376 | 405,098 | 13,902 | ||||||||||||
Increase in deferred charges | (770,262 | ) | (1,146,421 | ) | (382,050 | ) | (13,111 | ) | ||||||||
Increase in restricted assets | — | — | (26,077 | ) | (895 | ) | ||||||||||
Decrease (increase) in other assets-others | 1,301 | (52,637 | ) | (177,321 | ) | (6,085 | ) | |||||||||
Net cash used in investing activities | (11,423,003 | ) | (19,234,215 | ) | (57,843,384 | ) | (1,985,016 | ) | ||||||||
F-8
For the years ended December 31, | ||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||
NT$ | NT$ | NT$ | US$ | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||
Increase (decrease) in short-term loans | (293,051 | ) | (8,240 | ) | 4,202,660 | 144,223 | ||||||||||
Proceeds from long-term loans | 700,000 | 400,000 | 1,345,000 | 46,156 | ||||||||||||
Repayments of long-term loans | — | (300,000 | ) | (33,450 | ) | (1,148 | ) | |||||||||
Increase in financial liabilities at fair value through profit or loss | — | 1,340,741 | — | — | ||||||||||||
Proceeds from bonds issued | — | 5,330,477 | — | — | ||||||||||||
Bond issuance costs | — | (51,202 | ) | — | — | |||||||||||
Redemption of bonds | (22,716,624 | ) | — | (7,500,000 | ) | (257,378 | ) | |||||||||
Cash dividends | (9,371,107 | ) | — | (6,224,963 | ) | (213,622 | ) | |||||||||
Remuneration paid to directors and supervisors | (11,939 | ) | — | — | — | |||||||||||
Payment of employee bonus | (286,541 | ) | — | — | — | |||||||||||
Exercise employee stock options | — | — | 2,542 | 87 | ||||||||||||
Treasury stock acquired | (2,278,456 | ) | (2,393,337 | ) | (4,843,588 | ) | (166,218 | ) | ||||||||
Treasury stock sold to employees | — | 623,166 | 510,517 | 17,519 | ||||||||||||
Proceeds from disposal of treasury stock | — | — | 27,211 | 934 | ||||||||||||
Increase (decrease) in deposits-in | (4,436 | ) | 6,422 | 9,620 | 330 | |||||||||||
Increase (decrease) in minority stockholders | (117,496 | ) | (4,239 | ) | 2,330,577 | 79,979 | ||||||||||
Net cash provided by (used in) financing activities | (34,379,650 | ) | 4,943,788 | (10,173,874 | ) | (349,138 | ) | |||||||||
Effect of exchange rate changes on cash and cash equivalents | 1,439,871 | (550,708 | ) | (424,597 | ) | (14,571 | ) | |||||||||
Net increase (decrease) in cash and cash equivalents | 888,502 | 17,586,311 | (14,881,855 | ) | (510,702 | ) | ||||||||||
Cash and cash equivalents at beginning of period | 47,678,147 | 48,566,649 | 66,152,960 | 2,270,177 | ||||||||||||
Cash and cash equivalents at end of period | 48,566,649 | 66,152,960 | 51,271,105 | 1,759,475 | ||||||||||||
Supplemental disclosures of cash flow information: | ||||||||||||||||
Cash paid for interest | 400,238 | 124,244 | 239,265 | 8,211 | ||||||||||||
Less: Cash paid for capitalized interest | (70,982 | ) | (39,106 | ) | (224,029 | ) | (7,688 | ) | ||||||||
Cash paid for interest excluding capitalized interest | 329,256 | 85,138 | 15,236 | 523 | ||||||||||||
Cash paid for income tax | 1,000,974 | 709,186 | 117,584 | 4,035 | ||||||||||||
Investing activities partially paid by cash: | ||||||||||||||||
Acquisition of property, plant and equipment | 7,196,408 | 21,387,628 | 67,591,402 | 2,319,540 | ||||||||||||
Discount on property, plant and equipment | — | — | (1,592 | ) | (55 | ) | ||||||||||
Add: Payable at beginning of period | 6,036,274 | 1,718,134 | 5,487,908 | 188,329 | ||||||||||||
Add: Effect of acquisition of subsidiaries | — | — | 833,110 | 28,590 | ||||||||||||
Less: Payable at end of period | (1,718,134 | ) | (5,487,908 | ) | (12,620,481 | ) | (433,098 | ) | ||||||||
Cash paid for acquiring property, plant and equipment | 11,514,548 | 17,617,854 | 61,290,347 | 2,103,306 | ||||||||||||
F-9
1. | HISTORY AND ORGANIZATION |
United Microelectronics Corporation (UMC) was incorporated 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 common 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 numbers of employees as of December 31, 2009 and 2010 were 13,051 and 15,656, respectively. |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The consolidated financial statements were prepared in conformity with requirements of the Guidelines Governing 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 or de facto control with less 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 as of the acquisition date was amortized, and goodwill arising from new acquisitions is analyzed and accounted for under the R.O.C. Statement 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. |
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2009
Percentage of | ||||||||
Investor | Subsidiary | Business nature | ownership (%) | |||||
UMC | UMC GROUP (USA) (UMC-USA) | IC Sales | 100.00 | |||||
UMC | UNITED MICROELECTRONICS (EUROPE) B.V. (UME BV) | Market development | 100.00 | |||||
UMC | UMC CAPITAL CORP. | Investment holding | 100.00 | |||||
UMC | UNITED MICROELECTRONICS CORP. (SAMOA) (Note A) | Investment holding | 100.00 | |||||
UMC | TLC CAPITAL CO., LTD. (TLC) | New business investment | 100.00 | |||||
UMC | UMCI LTD. (UMCI) (Note B) | Sales and manufacturing of integrated circuits | 100.00 | |||||
UMC | UMC NEW BUSINESS INVESTMENT CORP. (NBI) | Investment holding | 100.00 | |||||
UMC | ALPHA WISDOM LIMITED (AWL) | Investment holding | 100.00 | |||||
UMC | GREEN EARTH LIMITED | Investment holding | 100.00 | |||||
UMC | FORTUNE VENTURE CAPITAL CORP. (FORTUNE) | Consulting and planning for investment in new business | 99.99 | |||||
UMC | UMC JAPAN (UMCJ) | Sales and manufacturing of integrated circuits | 52.26 | |||||
FORTUNE | UNITRUTH INVESTMENT CORP. (UNITRUTH) | Investment holding | 100.00 | |||||
UMC CAPITAL CORP. | UMC CAPITAL (USA) | Investment holding | 100.00 | |||||
UMC CAPITAL CORP. | ECP VITA LTD. | Insurance | 100.00 | |||||
TLC | SOARING CAPITAL CORP. | Investment holding | 100.00 | |||||
SOARING CAPITAL CORP. | UNITRUTH ADVISOR (SHANGHAI) CO., LTD. | Investment holding and advisory | 100.00 | |||||
NBI | UNITED LIGHTING OPTO-ELECTRONIC INC. (UNITED LIGHTING) | LED lighting manufacturing and sale | 95.54 | |||||
NBI | EVERRICH ENERGY CORP. (EVERRICH) | Solar engineering integrated design services | 93.75 | |||||
EVERRICH | EVERRICH ENERGY INVESTMENT (HK) LIMITED (EVERRICH-HK) | Investment holding | 100.00 | |||||
EVERRICH-HK | YONGSHENG (SHANDONG) ENERGY CO.,LTD | Solar engineering integrated design services | 100.00 | |||||
AWL | UMCJ | Sales and manufacturing of integrated circuits | 42.53 |
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Percentage of | ||||||||
Investor | Subsidiary | Business nature | ownership (%) | |||||
UMC | UMC-USA | IC Sales | 100.00 | |||||
UMC | UME BV | Market development | 100.00 | |||||
UMC | UMC CAPITAL CORP. | Investment holding | 100.00 | |||||
UMC | GREEN EARTH LIMITED | Investment holding | 100.00 | |||||
UMC | TLC | New business investment | 100.00 | |||||
UMC | NBI | Investment holding | 100.00 | |||||
UMC | AWL | Investment holding | 100.00 | |||||
UMC | FORTUNE | Consulting and planning for investment in new business | 100.00 | |||||
UMC | UMCJ | Sales and manufacturing of integrated circuits | 55.56 | |||||
UMC | NEXPOWER TECHNOLOGY CORP. (NEXPOWER) | Sales and manufacturing of solar power batteries | 44.42 | |||||
FORTUNE | UNITRUTH | Investment holding | 100.00 | |||||
FORTUNE | MOS ART PACK CORP. (MOS) | IC Packaging | 54.72 | |||||
FORTUNE | NEXPOWER | Sales and manufacturing of solar power batteries | 5.08 | |||||
UNITRUTH | MOS | IC Packaging | 18.62 | |||||
UNITRUTH | NEXPOWER | Sales and manufacturing of solar power batteries | 2.27 | |||||
UMC CAPITAL CORP. | UMC CAPITAL (USA) | Investment holding | 100.00 | |||||
UMC CAPITAL CORP. | ECP VITA LTD. | Insurance | 100.00 | |||||
TLC | SOARING CAPITAL CORP. | Investment holding | 100.00 | |||||
TLC | NEXPOWER | Sales and manufacturing of solar power batteries | 5.90 | |||||
SOARING CAPITAL CORP. | UNITRUTH ADVISOR (SHANGHAI) CO., LTD. | Investment holding and advisory | 100.00 |
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Percentage of | ||||||||
Investor | Subsidiary | Business nature | ownership (%) | |||||
NBI | WAVETEK MICROELECTRONICS CORPORATION | GaAs Foundry service | 99.79 | |||||
NBI | UNITED LIGHTING | Sales and manufacturing of LED lighting | 94.65 | |||||
NBI | EVERRICH | Solar engineering integrated design services | 91.12 | |||||
NBI | UNISTARS CORP. | High brightness LED packages | 65.63 | |||||
NBI | TOPCELL SOLAR INTERNATIONAL CO., LTD. (TOPCELL) | Solar power cell manufacturing and sale | 51.49 | |||||
UNITED LIGHTING | UNITED LIGHTING OPTO-ELECTRONIC INVESTMENT (HK) LIMITED | Investment holding | 100.00 | |||||
EVERRICH | EVERRICH-HK | Investment holding | 100.00 | |||||
EVERRICH-HK | EVERRICH (SHANDONG) ENERGY CO., LTD (formerly YONGSHENG (SHANDONG) ENERGY CO.) | Solar engineering integrated design services | 100.00 | |||||
AWL | UMCJ | Sales and manufacturing of integrated circuits | 44.44 | |||||
NEXPOWER | JENENERGY SYSTEM CORPORATION (JENENERGY) | Energy Technology Service | 66.67 | |||||
JENENERGY | SMART ENERGY ENTERPRISES LIMITED (SMART ENERGY) | Investment holding | 100.00 | |||||
SMART ENERGY | SMART ENERGY SHANDONG CORPORATION | Design of photovoltaic system and consulting services related to photovoltaic technology, etc. | 100.00 |
Note A: | On November 4, 2010, UNITED MICROELECTRONICS CORP. (SAMOA) has filed for liquidation through a decision at its stockholders’ meeting. The Company ceased using the equity method from that day, and SAMOA is not included as a consolidated subsidiary as of December 31, 2010. | |
Note B: | On July 30, 2010, UMCI has filed for liquidation through a decision at its stockholders’ meeting. The Company ceased using the equity method from that day, and UMCI is not included as a consolidated subsidiary as of December 31, 2010. |
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates |
The preparation of the Company’s consolidated financial statements in conformity with generally accepted accounting principles requires management to make reasonable estimates and assumptions that will affect the amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of 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 Transactions |
Transactions denominated in foreign currencies are remeasured into the local functional currencies and recorded based on the exchange rates prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are remeasured into the local functional currencies at the exchange rates prevailing at the balance sheet date, with the related exchange gains or losses included in the consolidated statements of income. Translation gains or losses from investments in foreign entities are recognized as a cumulative translation adjustment in consolidated stockholders’ equity. |
Non-monetary assets and liabilities denominated in foreign currencies that 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-monetary assets and liabilities denominated 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 using functional currencies other than New Taiwan Dollars are included in the cumulative translation adjustment in consolidated stockholders’ equity. |
Convenience Translation into US Dollars |
Translations of amount from New Taiwan dollars (NT$) into United States dollars for the reader’s convenience were calculated at the noon buying rate of US$1.00 to NT$29.14 on December 30, 2010 in The City of New York for cable transfers of NT$ as certified for customs purposes by the Federal Reserve Bank of New York. No representation is made that the NT$ amounts could have been, or could be, converted into United States dollars at such rate. |
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 reverse repurchase agreements with banks in Taiwan for commercial paper, government bonds, or other highly secure assets for short-term liquidity management. |
Financial Assets and Financial Liabilities |
In accordance with R.O.C. Statement of Financial Accounting Standard (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”, financial assets are classified as either financial assets at fair value through profit or loss, financial assets measured at cost, or available-for-sale financial assets. Financial liabilities are recorded at fair value through profit or loss. |
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. |
a. | Financial assets and financial liabilities at fair value through profit or loss | ||
Financial instruments held for short-term sale or repurchase purposes and derivative financial instruments not qualified for hedge accounting are classified as financial assets or liabilities at fair value through profit or loss. | |||
This category of financial instruments is measured at fair value and 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. | |||
b. | Financial assets measured at cost | ||
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. | |||
c. | Available-for-sale financial assets | ||
Available-for-sale financial assets are non-derivative financial instruments not classified as financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables. Subsequent measurement is calculated 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, excluding impairment loss and exchange gain or loss arising from monetary financial assets denominated in foreign currencies, is recognized as an adjustment to consolidated stockholder’ equity until such investment is reclassified or disposed of, upon which the cumulative gain or loss previously charged to consolidated stockholders’ equity will be recorded in the consolidated statements of income. |
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 and recognized in 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. |
Allowance for Doubtful Accounts |
An allowance for doubtful accounts is provided based on management’s judgment of the collectability and aging analysis of accounts and other receivables. |
Inventories |
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. Allocation of fixed production overheads to the costs of conversion is based on the normal capacity of the production facilities. Prior to January 1, 2009, inventories are stated individually by category at the lower of aggregate cost or market value as of the balance sheet date. The market values of raw materials and supplies are determined on the basis of replacement cost while the market values of work in process and finished goods are determined by net realizable values. Effective January 1, 2009, 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 |
Non-current assets that are available for immediate sale in their present condition subject only to terms that are usual and customary for sales of such assets and that are highly probable to be sold within one year are classified as non-current assets held for sale. A held for sale non-current asset is measured at the lower of its carrying amount or fair value less costs to sell and is recorded separately on the balance sheet. No further amortization or depreciation will be recorded once an asset is classified as held for sale. |
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment losses of non-current assets held for sale are recognized 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 any subsequent increase in fair value less costs to sell of an asset, but not in excess of the total amount of the accumulated impairment loss and the amount allowed to be reversed in accordance with the R.O.C. SFAS No. 35, “Impairment of Assets” (R.O.C. SFAS 35). |
Long-term Investments Accounted for Under the Equity Method (including interests in Joint Ventures) |
Investments in which the Company has ownership of at least 20% or exercises significant influence on operating decisions are accounted for under the equity method. The difference of the acquisition cost and the underlying equity in the investee’s net assets as of acquisition date was amortized, and goodwill arising from new acquisitions is analyzed and accounted for under R.O.C. SFAS 25, in which goodwill is not subject to amortization. |
Investment in jointly controlled entity is accounted for under the equity method. |
When an equity investee offsets its accumulated deficit with its additional paid-in capital, the Company would debit additional paid-in capital and credit retained earnings in proportionate to its existing equity ownership to the extent that credit is available on the additional paid-in capital. |
The change in the Company’s proportionate share 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 capital and long-term investments accounts. |
If the balance of the additional paid-in capital is less than the amount needed, the excess would be charged to the retained earnings. |
Unrealized intercompany 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 arising from transactions between the Company and majority-owned (above 50%) subsidiaries 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 to the Company’s weighted-average ownership percentage of the investee until realized through transactions with third parties. |
Unrealized intercompany gains and losses arising from transactions between two 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 percentage in the subsidiary that incurred the gain or loss. |
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, the carrying value of the investment upon the loss of significant influence remains as the carrying value of the investment. 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 a gain or loss on disposal of investments. Cash dividends received during the year of change are applied as a reduction 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 |
Property, plant and equipment are stated at cost. Interest incurred on loans used to finance the construction of property, plant and equipment is capitalized and depreciated accordingly. Maintenance and repairs are charged to expense as incurred. Significant renewals and improvements are treated as capital expenditures and are depreciated over their estimated useful lives. Upon disposal of property, plant and equipment, the original cost and accumulated depreciation are written off and the related gain or loss 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. |
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation is recognized on a straight-line basis using the estimated economic life of the assets: |
Buildings | 3~55 years | |
Machinery and equipment | 5~8 years | |
Transportation equipment | 4~5 years | |
Furniture and fixtures | 2~20 years | |
Leased assets and leasehold improvements | The lease period or estimated economic life, whichever is shorter |
Intangible Assets |
Goodwill generated from business combinations is no longer subject to amortization. After initial recognition, goodwill shall be carried at cost less any accumulated impairment losses. |
Deferred Charges |
Deferred charges are stated at cost and amortized on a straight-line basis as follows: |
Intellectual property license fees | The shorter of contract term or estimated economic life of the related technology | |
Software | 2~5 years |
Bonds |
Originally, the issuance costs of bonds were classified as deferred charges and amortized over the life of the bonds. Effective January 1, 2006, the unamortized amounts as of December 31, 2005 were reclassified as a bond discount and recorded as a deduction to bonds payable. The amounts are amortized using the effective interest method over the remaining life of the bonds. If the difference between the straight-line method and the effective interest method is immaterial, the amortization of the bond discount may be amortized using the straight-line method and recorded as interest expenses. |
In accordance with R.O.C. SFAS 34, since the economic and risk characteristics of the embedded derivative instrument and the host contract are not clearly and closely related, derivative financial instruments embedded in exchangeable bonds are bifurcated and accounted as financial liabilities at fair value through profit or loss. |
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. |
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pension Plan |
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 in the Bank of Taiwan and hence, not associated with the Company. Therefore, fund assets are not to be included in the Company’s financial statements. Pension benefits for employees of the 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 of no less than 6% of these employees’ monthly wages to the employees’ individual pension accounts. |
The accounting for UMC’s pension liability is computed in accordance with R.O.C. SFAS No.18, “Accounting for Pension”. 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. 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 cost method. The cost of treasury stock is shown as a deduction to consolidated stockholders’ equity, while any gain or loss from selling treasury stock is treated as an adjustment to additional paid-in capital. The Company’s stock held by its subsidiaries is also treated as treasury stock. Cash dividends received by subsidiaries from UMC are recorded as additional paid-in capital-treasury stock transactions. |
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For treasury stock sold to employees, 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 Recognition |
The Company recognizes 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 the Company’s sales transactions have shipping terms of Free on Board (FOB) or Free Carrier (FCA) shipment in which title and the risk of loss or damage 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 history 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. |
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-period income tax allocation. The provision for income taxes includes deferred income tax assets and liabilities that are a result of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, loss carry-forward and investment tax credits. A valuation allowance on deferred income tax assets is provided to the extent that it is more likely than not that 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 relate to an asset or liability in the financial statements, its classification is based on the expected reversal date of the temporary difference. |
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. |
Income tax (10%) on unappropriated earnings is recorded as expense in the year when the stockholders have resolved that the earnings shall be retained. |
The Income Basic Tax Act of the R.O.C. (the IBTA) became effective on January 1, 2006. Set up by the Executive Yuan, the IBTA is a supplemental 10% tax that is payable if the 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 from income tax under various legislations. The impact of the IBTA has been considered in the Company’s income tax for the current reporting period. |
Earnings per Share |
Earnings per share is computed according to R.O.C. SFAS No. 24, “Earnings Per Share”. Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the current reporting period. Diluted earnings per share is computed by taking basic earnings per share into consideration plus additional common 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 bonus share issues that are approved in the stockholders’ meetings prior to 2008. |
Asset Impairment |
Pursuant to R.O.C. SFAS 35, the Company assesses indicators of impairment for all its assets within the scope of the standard at each balance sheet date. If impairment is indicated, the Company compares the asset’s carrying amount with the recoverable amount of the assets or the cash-generating unit (CGU) associated with the asset and writes down the carrying amount to the recoverable amount where applicable. The recoverable amount is defined as the higher of fair value less the costs to sell, and the values in use. For previously recognized losses, the Company assesses at 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 amount of the asset, and if the recoverable amount has increased as a result of the increase in the estimated service potential of 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. |
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. |
Impairment losses and reversals are classified as non-operating expenses and income, respectively. |
New Accounting Pronouncements |
In April 2009, the Accounting Research and Development Foundation in Taiwan issued R.O.C. SFAS No. 41, “Disclosures for Operating Segment Information” (R.O.C. SFAS 41), which establishes disclosure requirements to assist financial statement users to evaluate the different types of business activities in which an enterprise engages and the different economic environments in which it operates. The determination of operating segments is significantly based on how an enterprise’s chief operating decision maker views and manages the business. This standard requires an enterprise to report separately information about each operating segment that meets certain criteria. The standard is effective for fiscal years beginning after January 1, 2011. The impact that the adoption of R.O.C. SFAS 41 will have on our financial reporting disclosure will depend on the applicable future business model. |
3. | ACCOUNTING CHANGES |
Inventories |
Effective January 1, 2009, the Company adopted the newly revised R.O.C. SFAS No.10, “Accounting for Inventories” (R.O.C. SFAS 10). The main revisions are a. inventories are valued at the lower of cost and net realizable value item by item; b. unallocated overheads resulted from low production or idle capacity are recognized as costs of goods sold in the period in which they are incurred; and c. abnormal amounts of production costs, and loss on decline in the market value of inventories (or gains on recovery in market value of inventories) are recognized as cost of goods sold. As a result of adopting the revised R.O.C. SFAS 10, the consolidated net income and consolidated earnings per share for the year ended December 31, 2009, are NT$365 million and NT$0.03 lower, respectively. |
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. | CASH AND CASH EQUIVALENTS |
As of December 31, | ||||||||
2009 | 2010 | |||||||
NT$’000 | NT$’000 | |||||||
Cash | ||||||||
Cash on hand | 3,463 | 4,080 | ||||||
Checking and savings accounts | 10,907,465 | 13,149,234 | ||||||
Time deposits | 46,464,891 | 34,360,417 | ||||||
Subtotal | 57,375,819 | 47,513,731 | ||||||
Cash equivalents | 8,777,141 | 3,757,374 | ||||||
Total | 66,152,960 | 51,271,105 | ||||||
5. | FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS |
As of December 31, | ||||||||
2009 | 2010 | |||||||
NT$’000 | NT$’000 | |||||||
Current | ||||||||
Listed stocks | 1,547,335 | 636,446 | ||||||
Corporate bonds | 384,980 | 494,086 | ||||||
Forward contracts | 75,366 | 9,411 | ||||||
Interest rate swap agreements | 88,410 | — | ||||||
Subtotal | 2,096,091 | 1,139,943 | ||||||
Noncurrent | ||||||||
Convertible bonds | — | 79,920 | ||||||
Total | 2,096,091 | 1,219,863 | ||||||
During the years ended December 31, 2008, 2009 and 2010, net gains (losses) arising from the changes in fair value of financial assets at fair value through profit or loss were NT$(2,366) million, NT$513 million and NT$(222) million, respectively. |
6. | ACCOUNTS RECEIVABLE, NET |
As of December 31, | ||||||||
2009 | 2010 | |||||||
NT$’000 | NT$’000 | |||||||
Accounts receivable | 17,010,650 | 18,363,983 | ||||||
Less: Allowance for sales returns and discounts | (580,618 | ) | (185,612 | ) | ||||
Less: Allowance for doubtful accounts | (12,231 | ) | (67,850 | ) | ||||
Net | 16,417,801 | 18,110,521 | ||||||
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. | INVENTORIES, NET |
As of December 31, | ||||||||
2009 | 2010 | |||||||
NT$’000 | NT$’000 | |||||||
Raw materials | 732,130 | 2,156,204 | ||||||
Supplies and spare parts | 2,041,004 | 2,205,471 | ||||||
Work in process | 6,755,426 | 8,240,687 | ||||||
Finished goods | 1,038,400 | 1,946,170 | ||||||
Total | 10,566,960 | 14,548,532 | ||||||
Less: Allowance for loss on decline in market value and obsolescence | (1,425,575 | ) | (1,515,909 | ) | ||||
Net | 9,141,385 | 13,032,623 | ||||||
a. | The circumstances that caused the net realizable value of inventory to be lower than its cost no longer exist. As a result, the Company recognized gains of NT$2,597 million and NT$90 million on recovery of market value of inventories during the years ended December 31, 2009 and 2010, respectively. | ||
b. | Inventories were not pledged. |
8. | AVAILABLE-FOR-SALE FINANCIAL ASSETS |
As of December 31, | ||||||||
2009 | 2010 | |||||||
NT$’000 | NT$’000 | |||||||
Current | ||||||||
Common stocks | 6,250,694 | 7,044,673 | ||||||
Noncurrent | ||||||||
Common stocks | 34,797,889 | 29,796,192 | ||||||
Depositary receipts | 256,959 | 403,805 | ||||||
Funds | 52,094 | 54,068 | ||||||
Subtotal | 35,106,942 | 30,254,065 | ||||||
Total | 41,357,636 | 37,298,738 | ||||||
During the years ended December 31, 2008, 2009 and 2010, the net unrealized gains (losses) adjustments to consolidated stockholders’ equity due to changes in fair value of available-for-sale assets were NT$(31,619) million, NT$27,726 million and NT$(1,003) million, respectively. Additionally, the Company recognized gains (losses) of NT$(5,532) million, NT$1,858 million and NT$1,960 million due to the disposal of available-for-sale assets during the years ended December 31, 2008, 2009 and 2010, respectively. |
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of March 1, 2007, HIGHLINK (an equity method investee) and EPITECH TECHNOLOGY CORP. (EPITECH) (classified as an available-for-sale financial asset, noncurrent) merged into EPISTAR CORP. and were continued as EPISTAR CORP. (classified as an available-for-sale financial asset, noncurrent after the merger). During the transaction, 5.5 shares of HIGHLINK and 3.08 shares of EPITECH were exchanged for 1 share of EPISTAR CORP. 5 million shares of EPISTAR CORP. were exchanged from HIGHLINK that originally were acquired through private placement of HIGHLINK in February 2006 and its subsequent stock dividends since February 2006. Additionally, the Company acquired 6.7 million shares of SIMPLO TECHNOLOGY CO., LTD. (SIMPLO) through private placement in July 2006 and its subsequent stock dividends. The exchanges of these shares listed above were restricted by Article 43 paragraph 8 of the Securities and Exchange Law. The above-mentioned restriction of EPISTAR and SIMPLO was removed on May 10 and August 23, 2009, respectively. |
UMC issued bonds that are exchangeable at any time on or after January 1, 2010 and prior to November 22, 2014, into common stocks originally classified as available-for-sale financial assets, noncurrent. Therefore, UMC reclassified the exchangeable shares to current assets. |
9. | FINANCIAL ASSETS MEASURED AT COST, NONCURRENT |
As of December 31, | ||||||||
2009 | 2010 | |||||||
NT$’000 | NT$’000 | |||||||
Common stocks | 4,634,168 | 4,972,813 | ||||||
Preferred stocks | 2,273,083 | 2,063,117 | ||||||
Funds | 644,047 | 591,181 | ||||||
Convertible bonds | 77,225 | 24,753 | ||||||
Total | 7,628,523 | 7,651,864 | ||||||
The Company acquired 80 thousand shares of RALINK TECHNOLOGY CORP. (RALINK) through private placement in July 2007 and its subsequent stock dividends, 4.4 million shares of INPAQ TECHNOLOGY CO., LTD. (INPAQ) through private placement in November 2007 and its subsequent stock dividends, 4.6 million shares of FIRST INTERNATIONAL TELECOM CORP. (FIRST INTERNATIONAL TELECOM) through private placement in March 2008, 4 million shares of E-ONE MOLI ENERGY CORP. (E-ONE) through private placement in June 2009, 2 million shares of A-DATA TECHNOLOGY CO., LTD. (A-DATA) through private placement in September 2009 and 2.5 million shares of CRYSTALWISE THCHNOLOGY INC. (CRYSTALWISE) through private placement in August 2010. In addition, 500 units of convertible bonds acquired through private placement in September 2009 were converted to 2 million common shares of TOPOINT TECHNOLOGY CO., LTD. (TOPOINT) in September 2010. The exchange of these securities listed above is restricted by Article 43 paragraph 8 of the Securities and Exchange Law. The above-mentioned restriction of RALINK, INPAQ, FIRST INTERNATIONAL TELECOM, E-ONE, A-DATA, TOPOINT and CRYSTALWISE will be removed on September 29, 2010, January 31, 2011, April 25, 2011, August 31, 2012, September 30, 2012, September 23, 2012 and September 23, 2013, respectively. |
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. | LONG-TERM INVESTMENTS ACCOUNTED FOR UNDER THE EQUITY METHOD |
a. | Details of long-term investments accounted for under the equity method are as follows: |
As of December 31, | ||||||||||||||||
2009 | 2010 | |||||||||||||||
Percentage | Percentage | |||||||||||||||
of | of | |||||||||||||||
Ownership | Ownership | |||||||||||||||
or Voting | or Voting | |||||||||||||||
Investee Companies | Amount | Rights | Amount | Rights | ||||||||||||
NT$’000 | % | NT$’000 | % | |||||||||||||
Unlisted companies | ||||||||||||||||
UMCI LTD. (UMCI) (Note A) | — | — | — | 100.00 | ||||||||||||
UNITED MICRODISPLAY OPTRONICS CORP. (UMO) (Note B) | 35,237 | 89.99 | 35,237 | 89.99 | ||||||||||||
UNITED LED CORPORATION HONG KONG LIMITED (UNITED HK) (Note C) | — | — | 208,260 | 50.00 | ||||||||||||
LIST EARN ENTERPRISE INC. | 9,804 | 49.00 | 9,177 | 49.00 | ||||||||||||
SHENYANG PIONEER U-LIGHTING OPTO-ELECTRONIC CO., LTD. (SHENYANG U-LIGHTING) (Note C) | — | — | 3,022 | 49.00 | ||||||||||||
ACHIEVE MADE INTERNATIONAL LTD. | 60,790 | 48.54 | 43,267 | 48.54 | ||||||||||||
ALLIANCE OPTOTEK CORP. | 207,762 | 48.05 | 165,759 | 48.43 | ||||||||||||
MTIC HOLDINGS PTE. LTD. | 248,901 | 46.49 | 234,732 | 46.49 | ||||||||||||
YUNG LI INVESTMENTS, INC. | 248,873 | 45.16 | 221,710 | 45.16 | ||||||||||||
MEGA MISSION LIMITED PARTNERSHIP | 2,093,900 | 45.00 | 2,115,285 | 45.00 | ||||||||||||
AEVOE INTERNATIONAL LTD. | 46,358 | 43.77 | 88,029 | 43.77 | ||||||||||||
WALTOP INTERNATIONAL CORP. | 223,090 | 46.58 | 219,428 | 42.59 | ||||||||||||
POWER LIGHT TECH CO., LTD. | 121,625 | 42.62 | 41,581 | 42.33 |
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, | ||||||||||||||||
2009 | 2010 | |||||||||||||||
Percentage | Percentage | |||||||||||||||
of | of | |||||||||||||||
Ownership | Ownership | |||||||||||||||
or Voting | or Voting | |||||||||||||||
Investee Companies | Amount | Rights | Amount | Rights | ||||||||||||
NT$’000 | % | NT$’000 | % | |||||||||||||
UNITECH CAPITAL INC. | 900,893 | 42.00 | 801,039 | 42.00 | ||||||||||||
EXOJET TECHNOLOGY CORP. | — | — | 68,311 | 37.52 | ||||||||||||
HSUN CHIEH INVESTMENT CO., LTD. | 3,617,026 | 36.49 | 3,613,285 | 36.49 | ||||||||||||
UC FUND II | 98,655 | 35.45 | 76,967 | 35.45 | ||||||||||||
CRYSTAL MEDIA INC. | 38,735 | 32.27 | 31,761 | 31.80 | ||||||||||||
CTC CAPITAL PARTNERS I, L. P. | 143,863 | 31.40 | 122,277 | 31.40 | ||||||||||||
SOLAR GATE TECHNOLOGY CO., LTD. | — | — | 59,653 | 25.00 | ||||||||||||
SHANDONG HUAHONG ENERGY INVEST CO., INC. | — | — | 314,338 | 24.30 | ||||||||||||
ANOTO TAIWAN CORP. | 5,819 | 24.12 | 3,878 | 24.12 | ||||||||||||
HIGH POWER LIGHTING CORP. | 43,418 | 22.29 | 37,012 | 22.29 | ||||||||||||
UNIMICRON HOLDING LIMITED | 538,880 | 25.25 | 536,709 | 21.93 | ||||||||||||
DAIWA QUANTUM CAPITAL PARTNERS I, L. P. (DAIWA) (Note D) | — | — | 57,644 | 12.50 | ||||||||||||
TRANSLINK CAPITAL PARTNERS I L. P. (TRANSLINK) (Note D) | 74,875 | 10.55 | 77,255 | 10.55 | ||||||||||||
TRANSLINK CAPITAL PARTNERS II L. P. (TRANSLINK) (Note D) | — | — | 7,623 | 9.76 | ||||||||||||
PACIFIC VENTURE CAPITAL CO., LTD. (PACIFIC) (Note E) | 7,379 | 49.99 | — | — | ||||||||||||
NEXPOWER TECHNOLOGY CORP. | 3,301,451 | 45.97 | — | — | ||||||||||||
XGI TECHNOLOGY INC. | 62,977 | 31.93 | — | — | ||||||||||||
AMIC TECHNOLOGY CORP. (AMIC) (Note F) | — | 25.87 | — | — | ||||||||||||
MOBILE DEVICES INC. | 38,631 | 20.18 | — | — | ||||||||||||
Total | 12,168,942 | 9,193,239 | ||||||||||||||
Note A: | On July 30, 2010, UMCI has filed for liquidation through a decision at its stockholders’ meeting. The liquidation has not been completed as of December 31, 2010. As of December 31, 2010, the ending balance of the Company’s long-term investment towards UMCI was a credit balance of NT$0.3 million and it was recorded as Other liabilities-others. |
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note B: | On June 26, 2009, UMO has filed for liquidation through a decision at its stockholders’ meeting. The liquidation has not been completed as of December 31, 2010. | |
Note C: | The Company uses the equity method to account for its investment in UNITED HK and SHENYANG U-LIGHTING, which are jointly controlled entities. | |
Note D: | According to the partnership contract, the Company has significant influence over DAIWA and TRANSLINK, and they are accounted for under the equity method. | |
Note E: | PACIFIC has filed for liquidation through a decision at its stockholders’ meeting on June 27, 2006. PACIFIC obtained the approval of liquidation completion from the Taipei District Court on May 14, 2010. | |
Note F: | The Company’s investment in AMIC was reclassified to “Financial assets measured at cost, noncurrent” in June 2010 because the Company’s ownership in AMIC decreased, and it ceased to have significant influence. |
b. | The change of investees’ equity was charged to the Company’s equity. For the years ended December 31, 2009 and 2010, the changes charged to additional paid-in capital were decreases of NT$6,912 million and nil, respectively, and the changes charged to retained earnings were an increase of NT$6,775 million and a decrease of NT$119 million, respectively. |
c. | Total gains (losses) arising from investments accounted for under the equity method were NT$(10,465) million, NT$180 million and NT$115 million for the years ended December 31, 2008, 2009 and 2010, respectively. Net investment income (loss) amounted to NT$(9,445) million, NT$(11) million and NT$310 million for the years ended December 31, 2008, 2009 and 2010, respectively, and the related long-term investment balances of NT$5,355 million and NT$5,282 million as of December 31, 2009 and 2010, respectively, were determined based on the investees’ financial statements audited by the other independent auditors. |
d. | The long-term equity investments were not pledged. |
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. | PROPERTY, PLANT AND EQUIPMENT |
As of December 31, 2009 | ||||||||||||||||
Accumulated | Accumulated | |||||||||||||||
Cost | Depreciation | Impairment | Book Value | |||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | |||||||||||||
Land | 1,056,823 | — | (287,901 | ) | 768,922 | |||||||||||
Buildings | 21,097,255 | (9,388,142 | ) | (1,057,850 | ) | 10,651,263 | ||||||||||
Machinery and equipment | 453,597,613 | (393,557,900 | ) | (512,540 | ) | 59,527,173 | ||||||||||
Transportation equipment | 68,580 | (61,430 | ) | — | 7,150 | |||||||||||
Furniture and fixtures | 3,324,352 | (2,845,876 | ) | (10,677 | ) | 467,799 | ||||||||||
Leasehold improvement | 53,411 | (45,762 | ) | — | 7,649 | |||||||||||
Construction in progress and prepayments | 18,166,404 | — | — | 18,166,404 | ||||||||||||
Total | 497,364,438 | (405,899,110 | ) | (1,868,968 | ) | 89,596,360 | ||||||||||
As of December 31, 2010 | ||||||||||||||||
Accumulated | Accumulated | |||||||||||||||
Cost | Depreciation | Impairment | Book Value | |||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | |||||||||||||
Land | 1,555,904 | — | (266,981 | ) | 1,288,923 | |||||||||||
Buildings | 26,156,284 | (10,364,578 | ) | (978,742 | ) | 14,812,964 | ||||||||||
Machinery and equipment | 498,122,888 | (415,015,124 | ) | (469,930 | ) | 82,637,834 | ||||||||||
Transportation equipment | 72,938 | (60,302 | ) | — | 12,636 | |||||||||||
Furniture and fixtures | 3,594,261 | (2,979,520 | ) | (9,619 | ) | 605,122 | ||||||||||
Leasehold improvement | 728,030 | (72,741 | ) | — | 655,289 | |||||||||||
Construction in progress and prepayments | 32,749,232 | — | — | 32,749,232 | ||||||||||||
Total | 562,979,537 | (428,492,265 | ) | (1,725,272 | ) | 132,762,000 | ||||||||||
a. | Total interest expense before capitalization amounted to NT$109 million, NT$180 million and NT$352 million for the years ended December 31, 2008, 2009 and 2010, respectively. |
Details of capitalized interest are as follows: |
For the years ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Land | — | — | 383 | |||||||||
Buildings | 16,203 | 43,241 | 48,454 | |||||||||
Machinery and equipment | 21,679 | 78,092 | 284,605 | |||||||||
Furniture and fixtures | 21 | 55 | 1,557 | |||||||||
Others | 41 | 85 | 29 | |||||||||
Total interest capitalized | 37,944 | 121,473 | 335,028 | |||||||||
Interest rates applied | 0.11%~1.22 | % | 1.07%~3.90 | % | 1.04%~3.51 | % | ||||||
b. | Please refer to Note 27 for property, plant and equipment pledged as collateral. |
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. | OTHER ASSETS-OTHERS |
As of December 31, | ||||||||
2009 | 2010 | |||||||
NT$’000 | NT$’000 | |||||||
Leased assets | 1,041,586 | 1,089,990 | ||||||
Deposits-out | 753,990 | 946,414 | ||||||
Long-term prepayment | — | 545,140 | ||||||
Others | 128,892 | 113,225 | ||||||
Total | 1,924,468 | 2,694,769 | ||||||
Please refer to Note 27 for Deposits-out pledged as collateral. |
13. | IMPAIRMENT LOSS |
For the years ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Available-for-sale financial assets, noncurrent | 8,386,596 | — | — | |||||||||
Long-term investments accounted for under the equity method | — | — | 20,802 | |||||||||
Financial assets measured at cost, noncurrent | 943,084 | 494,091 | 93,077 | |||||||||
Goodwill | 3,491,073 | — | — | |||||||||
Property, plant and equipment | 39,148 | 3,331,557 | — | |||||||||
Others assets | 319,957 | 181,430 | — | |||||||||
Total | 13,179,858 | 4,007,078 | 113,879 | |||||||||
After considering objective evidence and the result of the impairment loss testing, the Company recognized impairment losses amounted to NT$9,330 million, NT$494 million and NT$114 million for its available-for-sale financial assets, noncurrent, financial assets measured at cost, noncurrent and long-term investments accounted for under the equity method, respectively, for the years ended December 31, 2008, 2009 and 2010. As of December 31, 2009, the Company determined that certain fixed assets and other assets would not generate future cash flows. The Company determined the recoverable amounts of these assets based on the fair values less costs to sell. The impairment test revealed that the total carrying amount of these assets was greater than their total recoverable amount, and the Company recognized an impairment loss amounted to NT$122 million. According to the assessment report and as a result of the impairment loss testing, the Company recognized an impairment loss amounted to NT$3,391 million for its property, plant, equipment and other assets for the year ended December 31, 2009. |
F-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. | SHORT-TERM LOANS |
As of December 31, | ||||||||
2009 | 2010 | |||||||
NT$’000 | NT$’000 | |||||||
Unsecured bank loans | 128,682 | 4,124,115 | ||||||
For the years ended December 31, | ||||||||
2009 | 2010 | |||||||
Interest rates | 0.58%~3.72 | % | 0.54%~2.37 | % | ||||
The Company’s unused short-term lines of credits amounted to NT$12,088 million and NT$17,271 million as of December 31, 2009 and 2010, respectively. |
15. | FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS, CURRENT |
As of December 31, | ||||||||
2009 | 2010 | |||||||
NT$’000 | NT$’000 | |||||||
Derivatives embedded in exchangeable bonds | 1,914,879 | 2,248,384 | ||||||
Forward contracts | — | 6,553 | ||||||
Total | 1,914,879 | 2,254,937 | ||||||
During the years ended December 31, 2008, 2009 and 2010, net losses arising from financial liabilities at fair value through profit or loss were NT$1,046 million, NT$815 million and NT$546 million, respectively. |
16. | BONDS PAYABLE |
As of December 31, | ||||||||
2009 | 2010 | |||||||
NT$’000 | NT$’000 | |||||||
Unsecured domestic bonds payable | 7,500,000 | — | ||||||
Unsecured exchangeable bonds payable | 6,472,692 | 5,886,654 | ||||||
Less: Discounts on bonds payable | (1,205,555 | ) | (890,898 | ) | ||||
Total | 12,767,137 | 4,995,756 | ||||||
Less: Current or exchangeable portion | (12,767,137 | ) | (4,995,756 | ) | ||||
Net | — | — | ||||||
F-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
a. | During the period from May 21 to June 24, 2003, UMC issued five-year and seven-year unsecured bonds totaled to NT$15,000 million, each with a face value of NT$7,500 million. The interest is paid annually with stated interest rates of 4.0% minus USD 12-Month LIBOR and 4.3% minus USD 12-Month LIBOR, respectively. Stated interest rates are reset annually based on the prevailing USD 12-Month LIBOR. The five-year bonds and seven-year bonds were fully repaid on June 24, 2008 and June 24, 2010, respectively. |
b. | On December 2, 2009, UMC issued SGX-ST listed zero coupon exchangeable bonds. The terms and conditions of the bonds are as follows: |
(a) | Issue Amount: US$127.2 million |
(b) | Period: December 2, 2009 ~ December 2, 2014 (Maturity date) |
(c) | 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 common shares of Unimicron Technology Corporation (Unimicron) on the TSE, translated into US dollars at the prevailing exchange rate, for a period of 20 consecutive trading days, the last of which occurs not more than 10 days prior to the date upon which notice of such redemption is published, is at least 130% of the exchange price then in effect translated into US dollars at the rate of NTD32.197=USD1.00. | ||
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. |
F-33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
iv. | All, or any portion, of the bonds will be redeemable in US dollars at the option of bondholders on December 2, 2011 at 99% of the principal amount. | ||
v. | Bondholders have the right to require UMC to redeem all or any portion of the bonds at the Early Redemption Price if the common shares of the exchanged securities are officially delisted on the TSE for a period of five consecutive trading days. | ||
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. |
(d) | Terms of Exchange |
i. | Underlying Securities: Common shares of Unimicron | ||
ii. | Exchange Period: The bonds are exchangeable at any time on or after January 1, 2010 and prior to November 22, 2014, into Unimicron common shares; provided, however, that if the exercise date falls within 5 business days from the beginning of, and during, any closed period, the right of the exchanging holder of the bonds to vote with respect to the shares it receives will be subject to certain restrictions. | ||
iii. | Exchange Price and Adjustment: The exchange price was originally NTD51.1875 per share, determined on the basis of a fixed exchange rate of NTD32.197=USD1.00. The exchange price will be subject to adjustments upon the occurrence of certain events set out in the indenture. The exchange price is NTD49.6829 per share on December 31, 2010. |
(e) | Redemption on the Maturity Date: On the maturity date, UMC will redeem the bonds at 97.53% of the principal amount unless, prior to such date: |
i. | UMC shall have redeemed the bonds at the option of UMC, or the bonds shall have been redeemed at option of the bondholder; |
ii. | The bondholders shall have exercised the exchange right before maturity; or |
iii. | The bonds shall have been redeemed or purchased by UMC and cancelled. |
F-34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
c. | On December 2, 2009, UMC issued SGX-ST listed zero coupon exchangeable bonds. The terms and conditions of the bonds are as follows: |
(a) | Issue Amount: US$80 million |
(b) | Period: December 2, 2009 ~ December 2, 2014 (Maturity date) |
(c) | 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 common shares of Novatek Microelectronics Corp., Ltd. (Novatek) on the TSE, translated into US dollars at the prevailing exchange rate, for a period of 20 consecutive trading days, the last of which occurs not more than 10 days prior to the date upon which notice of such redemption is published, is at least 130% of the exchange price then in effect translated into US dollars at the rate of NTD32.197=USD1.00. |
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 will be redeemable in US dollars at the option of bondholders on December 2, 2011 at 99% of the principal amount. |
v | Bondholders have the right to require UMC to redeem all or any portion of the bonds at the Early Redemption Price if the common shares of the exchanged securities are officially delisted on the TSE for a period of five consecutive trading days. |
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. |
(d) | Terms of Exchange |
i | Underlying Securities: Common shares of Novatek. |
ii | Exchange Period: The bonds are exchangeable at any time on or after January 1, 2010 and prior to November 22, 2014, into Novatek common shares; provided, however, that if the exercise date falls within 5 business days from the beginning of, and during, any closed period, the right of the exchanging holder of the bonds to vote with respect to the shares it receives will be subject to certain restrictions. |
F-35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
iii | Exchange Price and Adjustment: The exchange price was originally NTD108.58 per share, determined on the basis of a fixed exchange rate of NTD32.197=USD1.00. The exchange price will be subject to adjustments upon the occurrence of certain events set out in the indenture. The exchange price is NTD102.4836 per share on December 31, 2010. |
(e) | Redemption on the Maturity Date: On the maturity date, UMC will redeem the bonds at 97.53% of the principal amount unless, prior to such date: |
i. | UMC shall have redeemed the bonds at the option of UMC, or the bonds shall have been redeemed at option of the bondholder; |
ii. | The bondholders shall have exercised the exchange right before maturity; or |
iii. | The bonds shall have been redeemed or purchased by UMC and cancelled. |
d. | Repayments of the above-mentioned bonds in the future year are as follows: |
Bonds repayable (Year) | Amount | |||
NT$’000 | ||||
2014 | 5,886,654 | |||
17. | LONG-TERM LOANS |
a. | Details of long-term loans as of December 31, 2009 and 2010 are as follows: |
As of December | ||||||||
Lender | 31, 2009 | Redemption | ||||||
NT$’000 | ||||||||
Secured Long-Term Loan from Bank of Taiwan | 700,000 | Repayable quarterly from March 30, 2011 to December 30, 2013 and interest is paid monthly. | ||||||
Unsecured Long-Term Loan from Mega International Commercial Bank | 100,000 | Repayable quarterly from May 25, 2010 to May 25, 2012 and interest is paid monthly. | ||||||
Subtotal | 800,000 | |||||||
Less: Current portion | (33,450 | ) | ||||||
Total | 766,550 | |||||||
For the year ended | ||||||||
December 31, 2009 | ||||||||
Interest Rates | 1.28%~1.82 | % | ||||||
F-36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December | ||||||||
Lender | 31, 2010 | Redemption | ||||||
NT$’000 | ||||||||
Secured Long-Term Loan from Bank of Taiwan (1) | 700,000 | Repayable quarterly from March 30, 2011 to December 30, 2013 and interest is paid monthly. | ||||||
Secured Long-Term Loan from First Commercial Bank (1) | 153,240 | Repayable semiannually from December 6, 2010 to November 14, 2015 and interest is paid monthly. | ||||||
Secured Long-Term Loan from First Commercial Bank (2) | 71,760 | Repayable semiannually from November 15, 2010 to November 14, 2015 and interest is paid monthly. | ||||||
Secured Long-Term Loan from First Commercial Bank (3) | 620,000 | Repayable semiannually from June 30, 2012 to December 31, 2015 and interest is paid monthly. | ||||||
Secured Syndicated Loans from Bank of Taiwan and 7 others | 4,060,000 | Repayable semiannually from February 10, 2012 to August 10, 2015 and interest is paid monthly. | ||||||
Secured Syndicated Loans from Taiwan Cooperative Bank and 5 others | 1,350,000 | Repayable semiannually from October 25, 2010 to April 25, 2015 and interest is paid monthly. | ||||||
Unsecured Long-Term Loan from Mega International Commercial Bank (1) | 66,550 | Repayable quarterly from May 25, 2010 to May 25, 2012 and interest is paid monthly. | ||||||
Unsecured Long-Term Loan from Mega International Commercial Bank (2) | 200,000 | Repayable quarterly from December 28, 2012 to December 28, 2015 and interest is paid monthly. | ||||||
Unsecured Long-Term Loan from First Commercial Bank (1) | 100,000 | Repayable quarterly from May 22, 2011 to February 22, 2013 and interest is paid monthly. |
F-37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December | ||||||||
Lender | 31, 2010 | Redemption | ||||||
NT$’000 | ||||||||
Unsecured Long-Term Loan from First Commercial Bank (2) | 200,000 | Repayable quarterly from September 30, 2011 to June 30, 2013 and interest is paid monthly. | ||||||
Subtotal | 7,521,550 | |||||||
Less: Administrative expenses from syndicated loans | (11,727 | ) | ||||||
Less: Current portion | (710,433 | ) | ||||||
Total | 6,799,390 | |||||||
For the year ended | ||||||||
December 31, 2010 | ||||||||
Interest Rates | 1.14%~2.49 | % | ||||||
According to the syndicated loan agreement, NEXPOWER was subject to maintain certain annual and semi-annual current ratio, debit ratio and interest coverage ratio. As of December 31, 2010, NEXPOWER met the conditions mentioned above. |
b. | The long-term loans on December 31, 2010 will be repaid by installments with the last payment on December 31, 2015. Repayments in the coming years respectively are as follows: |
Long-Term Loans repayable (Year) | Amount | |||
NT$’000 | ||||
2011 | 710,433 | |||
2012 | 1,935,668 | |||
2013 | 1,872,372 | |||
2014 | 1,576,538 | |||
2015 | 1,426,539 | |||
Total | 7,521,550 | |||
c. | Please refer to Note 27 for property, plant and equipment pledged as collateral for long- term loans. |
F-38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. | PENSION PLAN |
a. | 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 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 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$399 million, NT$354 million and NT$422 million were contributed by the Company for the years ended December 31, 2008, 2009 and 2010, 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, 2008, 2009 and 2010, the Company made contributions of NT$112 million, NT$162 million and NT$170 million, respectively. | ||
b. | The defined benefit plan under the Labor Standards Law is disbursed based on the units of service years and the average salary in the last month of the service year. Two units per year are awarded for the first 15 years of services while one unit per year is awarded after the completion of the fifteenth year. The total units shall not exceed 45 units. In accordance to the plan, the Company contributes an amount equivalent to 2% of the employees’ total salaries and wages on a monthly basis to the pension fund deposited at the Bank of Taiwan in the name of an administered pension fund committee. Government authority will collect the fund as a Labor Retirement Fund and determine the allocation and investment policy of the assets. The defined benefit plan assets and obligations are measured as of December 31. The unrecognized net asset or obligation at transition based on actuarial valuation is amortized on a straight-line basis over 15 years. | ||
c. | Change in benefit obligation during the year: |
For the years ended December 31, | ||||||||
2009 | 2010 | |||||||
NT$’000 | NT$’000 | |||||||
Projected benefit obligation at beginning of year | (4,563,300 | ) | (5,189,112 | ) | ||||
Service cost | (109,946 | ) | (103,864 | ) | ||||
Interest cost | (117,538 | ) | (113,884 | ) | ||||
Benefits paid | 166,056 | 72,777 | ||||||
Loss on projected benefit obligation | (607,063 | ) | (577,564 | ) | ||||
Exchange gain (loss) | 42,679 | (27,021 | ) | |||||
Projected benefit obligation at end of year | (5,189,112 | ) | (5,938,668 | ) | ||||
F-39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
d. | Change in pension assets during the year: |
For the years ended | ||||||||
December 31, | ||||||||
2009 | 2010 | |||||||
NT$’000 | NT$’000 | |||||||
Fair value of plan assets at beginning of year | 1,973,407 | 1,995,970 | ||||||
Actual return on plan assets | 78,775 | 15,075 | ||||||
Contributions from employer | 148,389 | 159,049 | ||||||
Benefits paid | (166,057 | ) | (72,777 | ) | ||||
Exchange gain (loss) and others | (38,544 | ) | 20,876 | |||||
Fair value of plan assets at end of year | 1,995,970 | 2,118,193 | ||||||
e. | The funding status of the pension plan is as follows: |
As of December 31, | ||||||||
2009 | 2010 | |||||||
NT$’000 | NT$’000 | |||||||
Benefit obligation | ||||||||
Vested benefit obligation | (866,292 | ) | (874,090 | ) | ||||
Non-vested benefit obligation | (1,973,956 | ) | (2,392,090 | ) | ||||
Accumulated benefit obligation | (2,840,248 | ) | (3,266,180 | ) | ||||
Effect from projected salary increase | (2,348,864 | ) | (2,672,488 | ) | ||||
Projected benefit obligation | (5,189,112 | ) | (5,938,668 | ) | ||||
Fair value of plan assets | 1,995,970 | 2,118,193 | ||||||
Funded status | (3,193,142 | ) | (3,820,475 | ) | ||||
Unrecognized net transitional benefit obligation | 29,662 | 1,368 | ||||||
Unrecognized loss (gain) | (97,977 | ) | 571,661 | |||||
Prior service cost | — | (51,970 | ) | |||||
Accrued pension liabilities recognized on the consolidated balance sheet | (3,261,457 | ) | (3,299,416 | ) | ||||
f. | The components of the net periodic pension cost are as follows: |
For the years ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Service cost | 130,570 | 109,950 | 103,864 | |||||||||
Interest cost | 155,276 | 117,538 | 113,884 | |||||||||
Expected return on plan assets | (67,691 | ) | (44,831 | ) | (55,487 | ) | ||||||
Amortization of unrecognized transitional net benefit obligation | 28,291 | 28,291 | 28,293 | |||||||||
Amortization of unrecognized pension loss (gain) | (15,789 | ) | (21,123 | ) | 12,069 | |||||||
Amortization of prior service cost | — | — | (5,197 | ) | ||||||||
Others | (8,513 | ) | 906 | (48 | ) | |||||||
Net periodic pension cost | 222,144 | 190,731 | 197,378 | |||||||||
F-40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2008 | ||||||||||||
UMC | FORTUNE | UMC JAPAN | ||||||||||
Discount rate | 2.75 | % | 2.50 | % | 2.00 | % | ||||||
Rate of salary increase | 3.50 | % | 3.00 | % | 2.58 | % | ||||||
Expected return on plan assets | 1.50 | % | 2.50 | % | 3.84 | % |
For the year ended December 31, 2009 | ||||||||||||
UMC | FORTUNE | UMC JAPAN | ||||||||||
Discount rate | 2.25 | % | 2.25 | % | 2.00 | % | ||||||
Rate of salary increase | 4.00 | % | 3.00 | % | 2.55 | % | ||||||
Expected return on plan assets | 2.25 | % | 2.25 | % | 4.00 | % |
For the year ended December 31, 2010 | ||||||||||||
UMC | FORTUNE | UMC JAPAN | ||||||||||
Discount rate | 1.75 | % | 2.00 | % | 2.00 | % | ||||||
Rate of salary increase | 4.00 | % | 3.00 | % | 2.55 | % | ||||||
Expected return on plan assets | 1.75 | % | 2.00 | % | 3.65 | % |
Year | Amount | |||
NT$’000 | ||||
2011 | 88,275 | |||
2012 | 64,886 | |||
2013 | 86,965 | |||
2014 | 117,099 | |||
2015 | 137,154 | |||
2016-2020 | 990,890 |
F-41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. | CAPITAL STOCK |
a. | UMC had 26,000 million common shares authorized to be issued, and 12,988 million shares were issued as of December 31, 2009, each at a par value of NT$10. |
b. | UMC had issued a total of 230 million ADSs, which were traded on the NYSE as of December 31, 2009. The total number of common shares of UMC represented by all issued ADSs was 1,148 million shares as of December 31, 2009. One ADS represents five common shares. |
c. | On December 14, 2009, UMC sold 78 million shares of treasury stock to employees, which were repurchased during the periods from January 7 to February 16, 2009, for the purpose of transferring to employees. |
d. | Among the employee stock options issued by UMC on December 13, 2007, 141 thousand shares were exercised during the year ended December 31, 2010. The issuance process through the authority had been completed. |
e. | UMC had 26,000 million common shares authorized to be issued, and 12,988 million shares were issued as of December 31, 2010, each at a par value of NT$10. |
f. | UMC had issued a total of 230 million ADSs, which were traded on the NYSE as of December 31, 2010. The total number of common shares of UMC represented by all issued ADSs was 1,148 million shares as of December 31, 2010. One ADS represents five common shares. |
g. | On December 31, 2010, UMC sold 64 million shares of treasury stock to employees, which were repurchased during the periods from January 7 to February 16, 2009, for the purpose of transferring to employees. |
20. | EMPLOYEE STOCK OPTIONS |
On September 11, 2002, October 8, 2003, 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 1 billion, 150 million, 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: |
F-42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shares | ||||||||||||||||
available to | Exercise | |||||||||||||||
Total number of | Total number of | option holders | price | |||||||||||||
options granted | options outstanding | (in thousands) | (NTD) | |||||||||||||
Date of grant | (in thousands) | (in thousands) | (Note) | (Note) | ||||||||||||
October 7, 2002 | 939,000 | — | — | $ | 21.42 | |||||||||||
January 3, 2003 | 61,000 | — | — | $ | 24.15 | |||||||||||
November 26, 2003 | 57,330 | — | — | $ | 33.70 | |||||||||||
March 23, 2004 | 33,330 | — | — | $ | 31.25 | |||||||||||
July 1, 2004 | 56,590 | — | — | $ | 28.24 | |||||||||||
October 13, 2004 | 20,200 | — | — | $ | 24.28 | |||||||||||
April 29, 2005 | 23,460 | 8,135 | 5,671 | $ | 22.37 | |||||||||||
August 16, 2005 | 54,350 | 24,187 | 16,863 | $ | 29.47 | |||||||||||
September 29, 2005 | 51,990 | 33,335 | 23,240 | $ | 26.89 | |||||||||||
January 4, 2006 | 39,290 | 13,770 | 9,600 | $ | 23.17 | |||||||||||
May 22, 2006 | 42,058 | 20,560 | 14,334 | $ | 25.19 | |||||||||||
August 24, 2006 | 28,140 | 11,705 | 8,160 | $ | 24.09 | |||||||||||
December 13, 2007 | 500,000 | 372,648 | 372,648 | $ | 18.03 | |||||||||||
June 19, 2009 | 300,000 | 268,360 | 268,360 | $ | 10.40 | |||||||||||
Total | 2,206,738 | 752,700 | 718,876 |
Note: | The employee stock options granted prior to August 7, 2007, the effective date of capital reduction, were adjusted in accordance with the capital reduction rate. Each option unit entitles an optionee to subscribe for about 0.7 share of the Company’s common stock. The exercise price of the options is also adjusted according to capital reduction rate. Each stock option unit granted after August 7, 2007 remains to be subscribed for 1 share of the Company’s common stock. |
F-43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
a. | A summary of the Company’s stock option plan, and related information for the years ended December 31, 2009 and 2010, is as follows: |
For the years ended December 31, | ||||||||||||||||||||||||
2009 | 2010 | |||||||||||||||||||||||
Weighted- | ||||||||||||||||||||||||
Shares | average | Shares | Weighted- | |||||||||||||||||||||
available to | Exercise | available to | average | |||||||||||||||||||||
option | Price per | option | Exercise Price | |||||||||||||||||||||
Options | holders | share | Options | holders | per share | |||||||||||||||||||
(in thousands) | (in thousands) | (NTD) | (in thousands) | (in thousands) | (NTD) | |||||||||||||||||||
Outstanding at beginning of period | 709,484 | 627,086 | $ | 20.79 | 861,771 | 809,566 | $ | 16.59 | ||||||||||||||||
Granted | 300,000 | 300,000 | $ | 10.40 | — | — | $ | — | ||||||||||||||||
Exercised | — | — | $ | — | (141 | ) | (141 | ) | $ | 18.03 | ||||||||||||||
Forfeited | (76,492 | ) | (67,867 | ) | $ | 19.43 | (61,477 | ) | (57,466 | ) | $ | 16.42 | ||||||||||||
Expired | (71,221 | ) | (49,653 | ) | $ | 28.41 | (47,453 | ) | (33,083 | ) | $ | 28.56 | ||||||||||||
Outstanding at end of period | 861,771 | 809,566 | $ | 16.59 | 752,700 | 718,876 | $ | 16.05 | ||||||||||||||||
Exercisable at end of period | 355,715 | 308,157 | $ | 21.19 | 385,101 | 351,785 | $ | 19.78 | ||||||||||||||||
Weighted-average fair value of options granted during the period (NTD) | $ | 2.84 | $ | — |
b. | The information on the Company’s outstanding stock options as of December 31, 2010, is as follows: |
Outstanding Stock Options | Exercisable Stock Options | |||||||||||||||||||||||||||||||
Weighted- | Weighted- | |||||||||||||||||||||||||||||||
Shares | Weighted- | average | average | |||||||||||||||||||||||||||||
available to | average | Exercise | Shares | Exercise | ||||||||||||||||||||||||||||
Range of | option | Expected | Price per | available to | Price per | |||||||||||||||||||||||||||
Authorization | Exercise | Options | holders | Remaining | share | Options | option holders | share | ||||||||||||||||||||||||
Date | Price (NTD) | (in thousands) | (in thousands) | Years | (NTD) | (in thousands) | (in thousands) | (NTD) | ||||||||||||||||||||||||
2004.09.30 | $ | 22.37~$29.47 | 65,657 | 45,774 | 0.65 | $ | 27.28 | 65,009 | 45,322 | $ | 27.26 | |||||||||||||||||||||
2005.12.22 | $ | 23.17~$25.19 | 46,035 | 32,094 | 1.34 | $ | 24.31 | 45,005 | 31,376 | $ | 24.30 | |||||||||||||||||||||
2007.10.09 | $ | 18.03 | 372,648 | 372,648 | 2.95 | $ | 18.03 | 275,087 | 275,087 | $ | 18.03 | |||||||||||||||||||||
2009.05.12 | $ | 10.40 | 268,360 | 268,360 | 4.46 | $ | 10.40 | — | — | $ | — | |||||||||||||||||||||
752,700 | 718,876 | 3.30 | $ | 16.05 | 385,101 | 351,785 | $ | 19.78 | ||||||||||||||||||||||||
F-44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
c. | The Company used the intrinsic value method to recognize compensation costs for its employee stock options issued between January 1, 2004 and December 31, 2007. Compensation costs for these options were nil for the years ended December 31, 2008, 2009 and 2010. For options granted on or after January 1, 2008, the Company recognized compensation cost of nil, NT$136 million and NT$254 million using the fair value method in accordance with R.O.C. SFAS 39 for the years ended December 31, 2008, 2009 and 2010, respectively. |
The Company granted options prior to adopting R.O.C. SFAS 39. Pro forma information on net income (loss) and earnings (losses) per share using the fair value method is as follows: |
For the year ended December 31, 2008 | ||||||||
Basic losses per share | Diluted losses per share | |||||||
NT$’000 | NT$’000 | |||||||
Net loss | (22,320,075 | ) | (22,449,985 | ) | ||||
Losses per share (NTD) | $ | (1.70 | ) | $ | (1.70 | ) | ||
Pro forma net loss | (23,245,013 | ) | (23,374,923 | ) | ||||
Pro forma losses per share (NTD) | $ | (1.77 | ) | $ | (1.78 | ) |
For the year ended December 31, 2009 | ||||||||
Basic earnings per share | Diluted earnings per share | |||||||
NT$’000 | NT$’000 | |||||||
Net income | 3,874,028 | 3,874,028 | ||||||
Earnings per share (NTD) | $ | 0.31 | $ | 0.30 | ||||
Pro forma net income | 3,064,107 | 3,064,107 | ||||||
Pro forma earnings per share (NTD) | $ | 0.24 | $ | 0.24 |
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 |
F-45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of the options outstanding as of December 31, 2009 and 2010 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 payment were as follows: |
Factors | Before | After | ||||||
Expected dividend yields | 1.37%~1.71 | % | 1.98 | % | ||||
Volatility factors of the expected market price of the Company’s common stock | 36.29%~49.10 | % | 40.63 | % | ||||
Risk-free interest rate | 1.85%~2.85 | % | 1.01 | % | ||||
Weighted-average expected life | 4~5 years | 3.16~5.03 years |
21. | TREASURY STOCK |
a. | Changes in treasury stock during the years ended December 31, 2008, 2009 and 2010 are as follows: | ||
For the year ended December 31, 2008 (In thousands of shares) |
As of | As of | |||||||||||||||
Purpose | January 1, 2008 | Increase | Decrease | December 31, 2008 | ||||||||||||
For transfer to employees | 355,716 | — | 355,716 | — | ||||||||||||
For conversion of the convertible bonds into shares | 348,583 | — | 348,583 | — | ||||||||||||
To maintain UMC’s credit and stockholders’ equity | — | 200,000 | 200,000 | — | ||||||||||||
Total shares | 704,299 | 200,000 | 904,299 | — | ||||||||||||
For the year ended December 31, 2009 (In thousands of shares) |
As of | As of | |||||||||||||||
Purpose | January 1, 2009 | Increase | Decrease | December 31, 2009 | ||||||||||||
For transfer to employees | — | 300,000 | 78,091 | 221,909 | ||||||||||||
For the year ended December 31, 2010 (In thousands of shares) |
As of | As of | |||||||||||||||
Purpose | January 1, 2010 | Increase | Decrease | December 31, 2010 | ||||||||||||
For transfer to employees | 221,909 | 300,000 | 63,975 | 457,934 | ||||||||||||
F-46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
b. | 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 capital — premiums, and realized additional paid-in capital. As such, the maximum number of shares of treasury stock that UMC could hold as of December 31, 2009 and 2010, were 1,299 million shares and 1,299 million shares, while the ceiling amount were NT$54,852 million and NT$72,540 million, respectively. |
c. | 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 is treated as treasury stock. These subsidiaries have the same rights as other stockholders except for subscription to new stock issuance and voting rights. |
d. | As of December 31, 2009, UMC’s subsidiary, FORTUNE VENTURE CAPITAL CORP., held 16 million shares of UMC’s stock, with a book value of NT$17.20 per share. The closing price on December 31, 2009 was NT$17.20. |
As of December 31, 2010, UMC’s subsidiary, FORTUNE VENTURE CAPITAL CORP., held 16 million shares of UMC’s stock, with a book value of NT$16.30 per share. The closing price on December 31, 2010 was NT$16.30. |
22. | 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: |
a. | Payment of all taxes and dues; |
b. | Offset prior years’ operation losses; |
c. | Set aside 10% of the remaining amount after deducting items (a) and (b) as a legal reserve; |
d. | Set aside 0.1% of the remaining amount after deducting items (a), (b), and (c) as directors’ and supervisors’ remuneration; and |
e. | After deducting items (a), (b), and (c) above from the current year’s earnings, no less than 5% of the remaining amount together with the prior years’ unappropriated earnings is to be allocated as employee bonus, which will be settled through issuance of new shares of UMC, or cash. Employees of UMC’s subsidiaries, meeting certain requirements determined by the board of directors, are also eligible for the employee bonus. |
f. | The distribution of the remaining portion, if any, will be recommended by the board of directors and resolved in the stockholders’ meeting. |
F-47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The policy for dividend distribution should reflect factors such as the current and future investment environment, fund requirements, domestic and international competition and capital budgets; as well as the benefit of stockholders, stock dividend equilibrium, and long-term financial planning. The board of directors shall make the distribution proposal annually and present it at the stockholders’ meeting. UMC’s Articles of Incorporation further provide that no more than 80% of the dividends to stockholders, if any, must 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 regulation of Taiwan SFC, 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, 2009 and 2010, the amounts of the employee bonus and remunerations to directors and supervisors were estimated. The board of directors estimated the amount by taking into consideration of the Company’s Articles of Incorporation, government regulations and industrial average. Estimated amount of employee bonus and remunerations paid to directors and supervisors are charged to current income. If the board modified the estimates significantly in the subsequent periods, the Company will recognize the change as an adjustment to current income. Moreover, if the amounts were modified by the stockholders’ meeting 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 following year. Upon stockholders’ approval of the employee stock bonus, the distribution amount is determined by dividing the total approved bonus amount with the closing market price of the Company’s stock one day prior to the approved date. Information about appropriations of the bonus to employees and directors can be obtained from the “Market Observation Post System” on the website of the TSE. |
The appropriation and compensation of 2010 unappropriated retained earnings, which was recommended by the board of directors but not approved by stockholders yet, can be obtained from the “Market Observation Post System” on the website of the TSE. |
F-48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The distributions of cash dividend, employee bonus and directors’ remuneration for 2009 was approved through stockholders’ meeting held on June 15, 2010. The details of distribution are as follows: |
2009 | ||||
Cash Dividend | NT$0.50 per share | |||
Employee bonus — Cash (in NT thousand dollars) | 965,003 | |||
Directors’ remuneration (in NT thousand dollars) | 9,584 |
Employee bonus and directors’ remuneration which were approved through the stockholders’ meeting, were consistent with the resolutions of meeting of Board of Directors held on March 17, 2010 and were expensed in 2009. |
On June 10, 2009, the stockholders’ meeting approved to offset UMC’s 2008 deficit of NT$26,748 million: by transferring NT$19,712 million from the legal reserve and NT$7,036 million from the additional paid-in capital to unappropriated earnings. |
23. | OPERATING COSTS AND EXPENSES |
The Company’s personnel, depreciation, and amortization expenses are summarized as follows: |
For the years ended December 31, | ||||||||||||||||||||||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||||||||||||||||||||||
Operating | Operating | Operating | Operating | Operating | Operating | |||||||||||||||||||||||||||||||
costs | expenses | Total | costs | expenses | Total | costs | expenses | Total | ||||||||||||||||||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | ||||||||||||||||||||||||||||
Personnel expenses | ||||||||||||||||||||||||||||||||||||
Salaries | 8,982,685 | 3,514,894 | 12,497,579 | 9,838,712 | 3,844,526 | 13,683,238 | 13,201,139 | 5,135,151 | 18,336,290 | |||||||||||||||||||||||||||
Labor and health insurance | 533,776 | 208,522 | 742,298 | 518,137 | 187,090 | 705,227 | 624,384 | 205,606 | 829,990 | |||||||||||||||||||||||||||
Pension | 543,357 | 195,083 | 738,440 | 534,531 | 176,309 | 710,840 | 605,086 | 184,373 | 789,459 | |||||||||||||||||||||||||||
Other personnel expenses | 202,502 | 106,008 | 308,510 | 93,581 | 37,150 | 130,731 | 145,400 | 59,881 | 205,281 | |||||||||||||||||||||||||||
Depreciation | 34,696,769 | 2,407,371 | 37,104,140 | 31,199,053 | 2,273,178 | 33,472,231 | 27,941,023 | 1,972,982 | 29,914,005 | |||||||||||||||||||||||||||
Amortization | 52,172 | 1,262,713 | 1,314,885 | 49,217 | 650,324 | 699,541 | 146,452 | 397,869 | 544,321 |
24. | INCOME TAX |
(1) | Income tax expense consisted of : |
For the years ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Current | ||||||||||||
Domestic | 667,728 | 135,626 | 1,432,898 | |||||||||
Foreign | 28,217 | 52,697 | 84,390 | |||||||||
Subtotal | 695,945 | 188,323 | 1,517,288 | |||||||||
Deferred | ||||||||||||
Domestic | 281,831 | 469,608 | 103,115 | |||||||||
Foreign | 19,145 | (6,863 | ) | (14,289 | ) | |||||||
Subtotal | 300,976 | 462,745 | 88,826 | |||||||||
Income tax expense | 996,921 | 651,068 | 1,606,114 | |||||||||
F-49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) | Reconciliation between the income tax expense and the income tax calculated on pre-tax financial statement income (loss) based on the statutory tax rate is as follows: |
For the years ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Income tax on pre-tax income (loss) at statutory tax rate | (5,496,543 | ) | 418,250 | 4,315,216 | ||||||||
Permanent and temporary differences | ||||||||||||
Investment loss (gain) | 5,166,188 | (947,692 | ) | (479,686 | ) | |||||||
Gain on disposal of investments | (799,575 | ) | (493,075 | ) | (289,103 | ) | ||||||
Others | 1,262,988 | (18,835 | ) | (1,220,481 | ) | |||||||
Subtotal | 5,629,601 | (1,459,602 | ) | (1,989,270 | ) | |||||||
Change in investment tax credit | (748,496 | ) | 3,626,357 | 2,363,985 | ||||||||
Change in loss carry-forward | (388,528 | ) | (511,099 | ) | 2,136,325 | |||||||
Change in valuation allowance against deferred income tax assets | ||||||||||||
Investment tax credit | 1,706,802 | (2,996,460 | ) | (3,095,208 | ) | |||||||
Loss carry-forward | 388,528 | 511,099 | (2,136,325 | ) | ||||||||
Others | (57,174 | ) | 624,690 | (295,209 | ) | |||||||
Subtotal | 2,038,156 | (1,860,671 | ) | (5,526,742 | ) | |||||||
Effect of higher tax rate of subsidiary | 20,909 | 15,476 | 41,549 | |||||||||
Change in tax rate | — | 322,857 | 202,628 | |||||||||
Adjustment of prior year’s tax expense | (9,483 | ) | (79 | ) | 1,778 | |||||||
Income tax on interest revenue separately taxed | 14,035 | — | — | |||||||||
Income basic tax | 32,124 | 126,775 | 2,289 | |||||||||
Others | (94,854 | ) | (27,196 | ) | 58,356 | |||||||
Income tax expense | 996,921 | 651,068 | 1,606,114 | |||||||||
F-50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) | Significant components of deferred income tax assets and liabilities are as follows: |
As of December 31, | ||||||||
2009 | 2010 | |||||||
NT$’000 | NT$’000 | |||||||
Deferred income tax assets | ||||||||
Investment tax credit | 9,987,957 | 7,022,761 | ||||||
Depreciation | 1,029,536 | 920,046 | ||||||
Loss carry-forward | 3,907,416 | 4,507,561 | ||||||
Pension | 656,412 | 492,887 | ||||||
Allowance on sales returns and discounts | 117,371 | 45,130 | ||||||
Allowance for loss on decline in market value and obsolescence of inventories | 223,656 | 233,151 | ||||||
Others | 379,023 | 369,780 | ||||||
Total deferred income tax assets | 16,301,371 | 13,591,316 | ||||||
Valuation allowance | (12,504,629 | ) | (9,738,404 | ) | ||||
Net deferred income tax assets | 3,796,742 | 3,852,912 | ||||||
Deferred income tax liabilities | ||||||||
Unrealized exchange gain | (49,481 | ) | (108,200 | ) | ||||
Depreciation | (33,324 | ) | — | |||||
Others | (38,188 | ) | (52,466 | ) | ||||
Total deferred income tax liabilities | (120,993 | ) | (160,666 | ) | ||||
Total net deferred income tax assets | 3,675,749 | 3,692,246 | ||||||
Deferred income tax assets-current | 5,014,780 | 2,581,472 | ||||||
Deferred income tax liabilities-current | (77,918 | ) | (125,839 | ) | ||||
Valuation allowance | (4,403,639 | ) | (1,632,482 | ) | ||||
Net | 533,223 | 823,151 | ||||||
Deferred income tax assets-noncurrent | 11,286,591 | 11,009,844 | ||||||
Deferred income tax liabilities-noncurrent | (43,075 | ) | (34,827 | ) | ||||
Valuation allowance | (8,100,990 | ) | (8,105,922 | ) | ||||
Net | 3,142,526 | 2,869,095 | ||||||
Total net deferred income tax assets | 3,675,749 | 3,692,246 | ||||||
(4) | UMC’s income tax returns for all the fiscal years up to 2007 have been assessed and approved by the R.O.C. Tax Authority. | ||
(5) | UMC was granted several four or five-year income tax exemption periods with respect to income derived from the expansion of operations. The income tax exemption periods will expire on December 31, 2015. |
F-51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) | The Company earns investment tax credits for the amount invested in production equipment, research and development, employee training, and investment in high technology industry and venture capital. | ||
As of December 31, 2010, the Company’s unused investment tax credits were as follows: |
Balance of unused | ||||||||
Expiration Year | Investment tax credits earned | investment tax credits | ||||||
NT$’000 | NT$’000 | |||||||
2011 | 2,126,675 | 2,126,675 | ||||||
2012 | 2,006,005 | 2,006,005 | ||||||
2013 | 1,897,059 | 1,897,059 | ||||||
2014 | 993,022 | 993,022 | ||||||
Total | 7,022,761 | 7,022,761 | ||||||
(7) | As of December 31, 2010, the unutilized accumulated losses for the Company were as follows: |
Expiration Year | Accumulated loss | Unutilized accumulated loss | ||||||
NT$’000 | NT$’000 | |||||||
2012 | 4,445,310 | 4,445,310 | ||||||
2013 | 1,259,973 | 1,259,973 | ||||||
2014 | 189,182 | 189,182 | ||||||
2015 | 1,583,999 | 1,583,999 | ||||||
2016 | 2,280,097 | 2,280,097 | ||||||
2017 | 760,363 | 760,363 | ||||||
2018 | 144,028 | 144,028 | ||||||
2019 | 678,165 | 678,165 | ||||||
2020 | 557,822 | 557,822 | ||||||
2021 | 467,080 | 467,080 | ||||||
Total | 12,366,019 | 12,366,019 | ||||||
(8) | The balance of UMC’s imputation credit accounts as of December 31, 2009 and 2010 were NT$1,100 million and NT$497 million, respectively. The actual creditable ratio for 2009 and the expected creditable ratio for 2010 were 11.45% and 1.83%, respectively. | ||
(9) | UMC’s earnings generated in the year ended December 31, 1997 and prior years have been fully appropriated. | ||
(10) | According to R.O.C. Income Tax Act amended on May 27, 2009, effective January 1, 2010, the statutory tax rate of the Company was decreased from 25% to 20%, which was further reduced to 17% in accordance with the amendment dated June 15, 2010. |
F-52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25. | EARNINGS (LOSSES) PER SHARE |
For the years ended December 31, 2009 and 2010, there were employee stock options outstanding and the Company calculated the effect of employee bonus in accordance with the ARDF Interpretation No. 97-169. The Company is considered as a complex capital structure. Therefore, in consideration of such complex structure, the calculated basic and diluted earnings (losses) per share for the years ended December 31, 2008, 2009 and 2010, are disclosed as follows: |
For the years ended December 31, | ||||||||||||
(shares expressed in thousands) | 2008 | 2009 | 2010 | |||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Net income (loss) | (22,320,075 | ) | 3,874,028 | 23,898,905 | ||||||||
Effect of dilution: | ||||||||||||
Employee stock options | — | — | — | |||||||||
Employee bonus | — | — | — | |||||||||
Convertible bonds | (129,910 | ) | — | — | ||||||||
Adjusted net income (loss) assuming dilution | (22,449,985 | ) | 3,874,028 | 23,898,905 | ||||||||
Weighted average shares outstanding | 13,110,984 | 12,699,072 | 12,496,485 | |||||||||
Effect of dilution: | ||||||||||||
Employee stock options | — | 31,271 | 88,117 | |||||||||
Employee bonus | — | 56,105 | 182,988 | |||||||||
Convertible bonds | 59,407 | — | — | |||||||||
Adjusted weighted average shares outstanding assuming dilution | 13,170,391 | 12,786,448 | 12,767,590 | |||||||||
Retroactively adjusted weighted average shares outstanding | 13,110,984 | 12,699,072 | 12,496,485 | |||||||||
Retroactively adjusted weighted average shares outstanding assuming dilution | 13,170,391 | 12,786,448 | 12,767,590 | |||||||||
Earnings (losses) per share-basic (in dollars) | (1.70 | ) | 0.31 | 1.91 | ||||||||
Earnings (losses) per share-diluted (in dollars) | (1.70 | ) | 0.30 | 1.87 | ||||||||
The employee stock options were not dilutive when calculating the diluted losses per share for the year ended December 31, 2008; therefore, they were not included in the diluted losses per share calculation. |
26. | RELATED PARTY TRANSACTIONS |
(1) | Name and Relationship of Related Parties |
F-53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Name of related parties | Relationship with the Company | |
UNITED MICROELECTRONICS CORP. (SAMOA) | Equity Investee (Liquidation completed on November 30, 2010) | |
UMCI LTD. | Equity Investee (has filed for liquidation on July 30, 2010) | |
UNITECH CAPITAL INC. | Equity Investee | |
MEGA MISSION LIMITED PARTNERSHIP | Equity Investee | |
MTIC HOLDINGS PTE. LTD. | Equity Investee | |
UNIMICRON HOLDING LIMITED | Equity Investee | |
HSUN CHIEH INVESTMENT CO., LTD. | Equity Investee | |
UNITED MICRODISPLAY OPTRONICS CORP. | Equity Investee (has filed for liquidation on June 26, 2009) | |
AMIC TECHNOLOGY CORP. | Equity Investee (ceased to be an equity investee since June 2010) | |
PACIFIC VENTURE CAPITAL CO., LTD. | Equity Investee (Liquidation completed on May 14, 2010) | |
XGI TECHNOLOGY INC. (XGI) | Equity Investee (ceased to be an equity investee since June 2010) | |
SILICON INTEGRATED SYSTEMS CORP. (SIS) | The Company’s director | |
AEVOE INTERNATIONAL LTD. | Subsidiary’s equity investee | |
CRYSTAL MEDIA INC. | Subsidiary’s equity investee | |
MOBILE DEVICES INC. | Subsidiary’s equity investee (ceased to be an equity investee since July 2010) | |
POWER LIGHT TECH CO., LTD. (PLT) | Subsidiary’s equity investee | |
SHENYANG PIONEER U-LIGHTING OPTO-ELECTRONIC CO., LTD. | Subsidiary’s equity investee (since July, 2010) | |
UNITED LED CORPORATION HONG KONG LIMITED | Subsidiary’s equity investee (since February, 2010) | |
ALLIANCE OPTOTEK CORP. | Subsidiary’s equity investee | |
WALTOP INTERNATIONAL CORP. | Subsidiary’s equity investee | |
SOLAR GATE TECHNOLOGY CO., LTD. | Subsidiary’s equity investee (since March, 2010) | |
UNITED LED CORPORATION | Subsidiary’s equity investee (ceased to be an equity investee since June 2010) | |
UNIMICRON CORPORATION | Subsidiary’s director (since October, 2010) | |
CRYSTALWISE TECHNOLOGY INC. | Same chairman with UMC (since September, 2010) | |
JINING SUNRICH SOLARENERGY CORPORATION (JINING SUNRICH) | Same general manager with subsidiaries | |
All members of director, supervisors and key managers | The Company’s key management personnel |
F-54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) | Significant Related Party Transactions |
a. | Operating revenues |
For the years ended December 31, | ||||||||||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||||||||||
Amount | Percentage | Amount | Percentage | Amount | Percentage | |||||||||||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||||||||||||||
SIS | 1,031,393 | 1 | 1,057,278 | 1 | 777,318 | 1 | ||||||||||||||||||
Others | 543,219 | 1 | 128,375 | 0 | 303,829 | 0 | ||||||||||||||||||
Total | 1,574,612 | 2 | 1,185,653 | 1 | 1,081,147 | 1 | ||||||||||||||||||
The sales price to the above-related parties was determined through mutual agreement based on the market conditions. The collection period for overseas sales to related parties was net 60 days, while the terms for domestic sales were month-end 45~60 days. The collection period for third party overseas sales was net 30~60 days, while the terms for third party domestic sales were month-end 30~60 days. | |||
b. | Accounts receivable, net |
As of December 31, | ||||||||||||||||
2009 | 2010 | |||||||||||||||
Amount | Percentage | Amount | Percentage | |||||||||||||
NT$’000 | NT$’000 | |||||||||||||||
JINING SUNRICH | — | — | 613,330 | 3 | ||||||||||||
SIS | 216,237 | 1 | 112,201 | 1 | ||||||||||||
Others | 101,626 | 1 | 34,682 | 0 | ||||||||||||
Total | 317,863 | 2 | 760,213 | 4 | ||||||||||||
Less: Allowance for sales returns and discounts | (2,273 | ) | (569 | ) | ||||||||||||
Less: Allowance for doubtful accounts | (74,882 | ) | — | |||||||||||||
Net | 240,708 | 759,644 | ||||||||||||||
F-55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
c. | Significant asset transactions |
For the year ended December 31, 2010 | ||||||||||||
Item | Disposal amount | Disposal gain | ||||||||||
NT$’000 | NT$’000 | |||||||||||
SIS | Disposal of XGI stock | 38,030 | 14,690 | |||||||||
d. | During the period from October 29 to December 14, 2009, UMC’s subsidiary, AWL acquired 42.53 percent ownership in UMCJ amounting to 403 thousand shares by an open purchase from the Japan Jasdaq Securities Exchange for approximately US$58 million. The purchase price of JPY12,500 per share was made by a tender offer which considered the shares’ current trading value and future industry competition and operating strategies. AWL complied with “Regulations Governing the Acquisition or Disposition of Assets by Public Companies” of R.O.C. and obtained a fairness opinion from a security expert and a Certified Public Accountant to evaluate the reasonableness of the purchase price. Gains arising from the sidestream transaction amounting to NT$330 million were recognized by UMC’s equity investees, including HSUN CHIEH INVESTMENT CO., LTD. and MEGA MISSION LIMITED PARTNERSHIP. UMC eliminated NT$121 million in proportion to its ownership percentage while recognizing the investment gain or loss of these investees. |
e. | Key management personnel compensation disclosure |
For the years ended December 31, | ||||||||||||
Item | 2008 | 2009 | 2010 | |||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Salary, compensation, allowance, income from professional practice and bonus | 203,321 | 507,136 | 343,682 | |||||||||
27. | ASSETS PLEDGED AS COLLATERAL |
Party to which asset(s) | ||||||||
Amount | was pledged | Purpose of pledge | ||||||
NT$’000 | ||||||||
Deposit-out (Time deposit) | 640,623 | Customs | Customs duty guarantee | |||||
Deposit-out (Time deposit) | 26,624 | Securities and Futures Investors Protection Center | Negotiation guarantee | |||||
Machinery and equipment | 4,339,852 | Bank of Taiwan | Collateral for long-term loans | |||||
Total | 5,007,099 | |||||||
F-56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amount | Party to which asset(s) was pledged | Purpose of pledge | ||||||
NT$’000 | ||||||||
Deposit-out (Time deposit) | 645,841 | Customs | Customs duty guarantee | |||||
Deposit-out (Time deposit) | 99,859 | Science Park Administration | Collateral for land lease | |||||
Deposit-out (Time deposit) | 43,800 | Liquefied Natural Gas Business Division, CPC Corporation, Taiwan | Energy resources guarantee | |||||
Deposit-out (Time deposit) | 26,624 | Securities and Futures Investors Protection Center | Negotiation guarantee | |||||
Deposit-out (Time deposit) | 990 | Bureau of Energy, Ministry of Economic Affairs | Energy resources guarantee and construction guarantee | |||||
Machinery and equipment | 8,826,232 | Bank of Taiwan, First 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 loans | |||||
Construction in progress and prepayments | 46,036 | First Commercial Bank | Collateral for long- term loans | |||||
Total | 9,689,382 | |||||||
28. | COMMITMENT AND CONTINGENT LIABILITIES |
(1) | The Company has entered into several patent license agreements and development contracts of intellectual property for a total contract amount of approximately NT$5.7 billion. Royalties and development fees payable in future years are NT$1.6 billion as of December 31, 2010. | ||
(2) | The Company signed several construction contracts for the expansion of its factory premise. As of December 31, 2010, these construction contracts amounted to approximately NT$7.2 billion and the unpaid portion of the contracts, which was not accrued, was approximately NT$1.2 billion. |
F-57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) | The Company entered into several operating lease contracts for land and office. These renewable operating leases will expire in various years through 2049. Future minimum lease payments under those leases are as follows: |
For the years ended December 31, | Amount | |||
NT$’000 | ||||
2011 | 405,596 | |||
2012 | 352,584 | |||
2013 | 306,010 | |||
2014 | 267,482 | |||
2015 | 215,799 | |||
2016 and thereafter | 1,462,150 | |||
Total | 3,009,621 | |||
Rental expense for the years ended December 31, 2008, 2009 and 2010 was NT$373 million, NT$328 million and NT$379 million, respectively. | |||
(4) | On February 15, 2005, the Hsinchu District Prosecutors Office conducted a search of UMC’s facilities. On February 18, 2005, UMC’s former Chairman Mr. Robert H.C. Tsao, released a public statement, explaining that its assistance to HeJian Technology (Suzhou) Co., Ltd. (HeJian) did not involve any investment or technology transfer. | ||
Furthermore, from the very beginning there was a verbal indication that, at the proper time, UMC would be compensated appropriately for its assistance, and circumstances permitting, at some time in the future, it will push through the merger between two companies. However, no promise was made by UMC and no written agreement was made and executed. Upon UMC’s request to materialize the said verbal indication by compensating in the form of either cash or equity, the Chairman of the holding company of HeJian offered 15% of the approximately 700 million outstanding shares of the holding company of HeJian in return for UMC’s past assistance and for continued assistance in the future. | |||
Immediately after UMC had received such offer, it filed an application with the Investment Commission of the Ministry of Economic Affairs on March 18, 2005 (Ref. No. 94-Lian-Tung-Tzu-0222), for their executive guidance for the successful transfer of said shares to UMC. The stockholders meeting dated June 13, 2005 resolved that to the extent permitted by law, UMC shall try to get the 15% of the outstanding shares offered by the holding company of HeJian as an asset of UMC. The holding company of HeJian offered 106 million shares of its outstanding common shares in return for UMC’s assistance. The holding company of HeJian has put all such shares in escrow. UMC was informed of such escrow on August 4, 2006. The subscription price per share of the holding company of HeJian in the last offering was US$1.1. Therefore, the total market value of the said shares is worth more than US$110 million. However, UMC may not acquire the ownership of nor exercise the rights of the said shares with any potential stock dividend or cash dividend distributed in the future until the R.O.C. laws and regulations allow UMC to acquire and exercise. In the event that any stock dividend or cash dividend is distributed, UMC’s stake in the holding company of HeJian will accumulate accordingly. |
F-58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Company’s assistance to HeJian, the Company’s former Chairman Mr. Robert H.C. Tsao, former Vice Chairman Mr. John Hsuan, and Mr. Duen-Chian Cheng, the General Manager of Fortune Venture Capital Corp., which is 100% owned by the Company, were indicted for violating the Business Entity Accounting Act and breach of trust under the Criminal Law by Hsinchu District Prosecutors Office on January 9, 2006. Mr. Robert H.C. Tsao and Mr. John Hsuan had officially resigned from their positions of the Company’s Chairman, Vice Chairman and directors prior to the announcement of the prosecution; for this reason, at the time of the prosecution, Mr. Robert H.C. Tsao and Mr. John Hsuan no longer served as the Company’s directors and had not executed their duties as the Company’s Chairman and Vice Chairman. | |||
In the future, if a guilty judgment is pronounced by the court, such consequences would be Mr. Robert H.C. Tsao, Mr. John Hsuan and Mr. Duen-Chian Cheng’s personal concerns only; UMC would not be subject to indictment regarding this case. Mr. Robert H.C. Tsao, Mr. John Hsuan and Mr. Duen-Chian Cheng were pronounced innocent of the charge by Hsinchu District Court on October 26, 2007. On November 15, 2007, Taiwan’s Hsinchu District Prosecutors Office filed an appeal. On December 31, 2008, Taiwan High Court rejected the prosecutor’s appeal and sustained Hsinchu District Court’s decision. On January 20, 2009, Taiwan High Prosecutors Office filed an appeal against Mr. Robert H.C. Tsao and Mr. John Hsuan with the Supreme Court. On December 3, 2009, the Supreme Court reversed the Taiwan High Court’s decision and remanded the case for new trial. On September 14, 2010, the Taiwan High Court found Mr. Robert H.C. Tsao and Mr. John Hsuan not guilty. The Prosecution Office of the Taiwan High Court did not appeal the ruling and the matter is considered closed. | |||
On February 15, 2006, UMC was fined in the amount of NT$5 million for unauthorized investment activities in Mainland China, implicating violation of Article 35 of the Act “Governing Relations Between Peoples of the Taiwan Area and the Mainland Area” by the R.O.C. Ministry of Economic Affairs (MOEA). However, as UMC believes it was illegally and improperly fined, UMC had filed an administrative appeal against MOEA to the Executive Yuan on March 16, 2006. On October 19, 2006, Executive Yuan denied the administrative appeal filed by UMC. UMC had filed an administrative litigation case against MOEA on December 8, 2006. Taipei High Administrative Court announced and reversed MOEA’s administrative sanction on July 19, 2007. MOEA filed an appeal against UMC on August 10, 2007. On December 10, 2009, the Supreme Administrative Court reversed the Taipei High Administrative Court’s decision and remanded the case for new trial. On July 21, 2010, Taipei High Administrative Court ruled against UMC, and UMC appealed the ruling on August 23, 2010. The case is currently under the review of the Supreme Administrative Court. |
F-59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) | The Company convened its 19th session, 10th term of its Board of Directors meeting on April 29, 2009. During the meeting, its board approved to propose the acquisition (the “Acquisition”) by UMC of the holding company of HeJian. The stockholders’ meeting of the Company on June 10, 2009 approved the Acquisition. However, an investment regulation governing foreigners’ holdings of Taiwanese securities, along with restrictions from the amended Operating Rules of the Taiwan Stock Exchange Corporation for issuing new shares to acquire foreign unlisted companies, precluded the issuance of common shares or ADR as payment options. Furthermore, HeJian’s stockholders did not agree to accept cash-only payments. As such, considering contractual timeliness and changes of the overall environment after signing the contract, the Board resolved at its Board of Directors meeting held on November 18, 2010 to terminate the Merger Agreement and sent out a termination notice in accordance with the Merger Agreement subsequent to the resolution. Going forward, UMC will continue seeking possible alternatives with HeJian’s stockholders and proceed with the acquisition in compliance with related rules and regulations. |
29. | SIGNIFICANT DISASTER LOSS |
30. | SIGNIFICANT SUBSEQUENT EVENT |
On April 1 2011, with the approval of each company’s board of directors, one of the Company’s equity investee, POWER LIGHT merged with UNITED LIGHTING, which is a subsidiary of the Company. The main business of both POWER LIGHT and UNITED LIGHTING is manufacturing and selling LED lighting and the Company expects to integrate group resources and improve operating performance through this merger. POWER LIGHT, the surviving company, was renamed UNITED LIGHTING OPTO-ELECTRONIC INC.. As the Company was still in the process of valuing related assets and liabilities, the adjustments would be recorded in 2011 based on the completion of the final evaluation. After the business combination, the Company’s ownership interest was approximately 55% of the new surviving company. |
On March 14, 2011, MOS, one of the Company’s subsidiaries, filed for liquidation through a decision approved at its stockholders’ meeting. The Company owns 73.34% in MOS and its investment on December 31, 2010 was NT$298 million. The Company does not expect this transaction to have a material impact on the financial statements. |
On March 16, 2011, the Company’s board of directors resolved to issue the 5th unsecured zero coupon euro convertible bonds for purchasing machinery and equipment with the amount of no more than US$500 million. The convertible bonds issuance will be subjected to the approval of Securities and Futures Bureau, Financial Supervisory Commission, Executive Yuan, R.O.C.. |
On March 16, 2011, the Company’s board of directors proposed an offer to the stockholders of Best Elite International Limited, which owns 100% of Infoshine, to purchase approximately 30% of their preferred shares for further integration of HeJian. Referring to the latest book value and market condition, Series A-1 holders would be offered around US$0.261931 per share, and Series B and B-1 stockholders would be offered around US$0.576248 per share. The acquisition amount would total approximately US$87 million, assuming that an equal amount of stockholders from each series accepts this offer. |
F-60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
31. | RECLASSIFICATION |
Certain comparative amounts have been reclassified to conform to the current year’s presentation. |
32. | FINANCIAL INSTRUMENTS |
(1) | Financial risk management objectives and policies | ||
The Company’s principal financial instruments, other than derivatives, are comprised of cash and cash equivalents, common stock, preferred 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 interest rate swap agreements and forward currency contracts. The purpose of these derivative transactions is to mitigate interest rate risk and 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 price risk, credit risk, and liquidity risk | |||
Cash flow interest rate risk | |||
UMC utilizes interest rate swap agreements to avoid its cash flow interest rate risk on the counter-floating rate of its unsecured domestic bonds issued during the period from May 21 to June 24, 2003. The terms of the interest rate swap agreements are the same as those of the domestic bonds, which are five and seven years. The floating rate is reset annually. | |||
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 has foreign currency risk arising from purchases or sales. The Company utilizes spot or forward contracts to avoid foreign currency risk. 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 contracts for uncertain commitments. |
F-61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commodity price risk | |||
The Company’s exposure to commodity price risk is minimal. | |||
Credit risk | |||
The Company only trades with established and creditworthy third parties. It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis, which consequently minimizes the Company’s exposure to bad debts. | |||
With respect to credit risk arising from the other financial assets of the Company, it is comprised of cash and cash equivalents and certain derivative instruments, the Company’s exposure to credit risk arising from the default of counter-parties is limited to the carrying amount of these instruments. | |||
Although the Company only trades with established third parties, it will request collateral to be provided by third parties with less favorable financial positions. | |||
Liquidity risk | |||
The Company’s objective is to maintain a balance of funding continuity and flexibility through the use of financial instruments such as cash and cash equivalents, bank loans and bonds. |
(2) | Information of financial instruments |
a. | Fair value of financial instruments |
As of December 31, | ||||||||||||||||
2009 | 2010 | |||||||||||||||
Financial Assets | Book Value | Fair Value | Book Value | Fair Value | ||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | |||||||||||||
Non-derivative | ||||||||||||||||
Cash and cash equivalents | 66,152,960 | 66,152,960 | 51,271,105 | 51,271,105 | ||||||||||||
Financial assets at fair value through profit or loss | 1,932,315 | 1,932,315 | 1,210,452 | 1,210,452 | ||||||||||||
Receivables | 17,490,054 | 17,490,054 | 19,555,557 | 19,555,557 | ||||||||||||
Restricted assets | — | — | 26,077 | 26,077 | ||||||||||||
Available-for-sale financial assets | 41,357,636 | 41,357,636 | 37,298,738 | 37,298,738 | ||||||||||||
Financial assets measured at cost | 7,628,523 | — | 7,651,864 | — | ||||||||||||
Long-term investments accounted for under the equity method | 12,168,942 | 11,643,258 | 9,193,239 | 8,959,237 | ||||||||||||
Prepayment for long-term investments | 322,290 | — | — | — | ||||||||||||
Deposits-out | 753,990 | 753,990 | 946,414 | 946,414 |
F-62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, | ||||||||||||||||
2009 | 2010 | |||||||||||||||
Financial Assets | Book Value | Fair Value | Book Value | Fair Value | ||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | |||||||||||||
Derivative | ||||||||||||||||
Interest rate swap agreements | 88,410 | 88,410 | — | — | ||||||||||||
Forward contracts | 75,366 | 75,366 | 9,411 | 9,411 | ||||||||||||
Financial Liabilities | ||||||||||||||||
Non-derivative | ||||||||||||||||
Short-term loans | 128,682 | 128,682 | 4,124,115 | 4,124,115 | ||||||||||||
Payables | 19,605,034 | 19,605,034 | 30,906,920 | 30,906,920 | ||||||||||||
Bonds payable (current portion included) | 12,767,137 | 12,352,056 | 4,995,756 | 5,157,977 | ||||||||||||
Long-term loans (current portion included) | 800,000 | 800,000 | 7,509,823 | 7,509,823 | ||||||||||||
Derivative | ||||||||||||||||
Derivatives embedded in exchangeable bonds | 1,914,879 | 1,914,879 | 2,248,384 | 2,248,384 | ||||||||||||
Forward contracts | — | — | 6,553 | 6,553 |
b. | The methods and assumptions used to measure the fair value of financial instruments are as follows: |
i. | The book values of short-term financial instruments approximate their fair value due to their short maturities. Short-term financial instruments include cash and cash equivalents, receivables, restricted assets, short-term loans and payables. |
F-63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ii. | The fair value of financial assets at fair value through profit or loss and available-for-sale financial assets are based on the quoted market prices. If there are restrictions on the sale or transfer of an available-for-sale financial asset, the fair value of the asset will be determined based on similar but unrestricted financial assets’ quoted market price with appropriate discounts for the restrictions. | ||
iii. | The fair value of long-term investments accounted for under equity method are based on the quoted market prices. If market prices are unavailable, the Company estimates the fair value based on the book values. | ||
iv. | The fair value of financial assets measured at cost and prepayment for long-term investments are unable to be estimated since there is no active market in trading those unlisted investments. | ||
v. | Deposits-out is certificates of deposit collateralized at Customs or other institutions. The fair value of deposits-out is based on their carrying amount since the deposit periods are primarily within one year and renewed upon maturity. | ||
vi. | The fair value of bonds payable is determined by the market price or other information. | ||
vii. | The fair value of long-term loans is determined using discounted cash flow analysis, based on the Company’s current incremental borrowing rates for borrowings with similar types. | ||
viii. | The fair value of derivative financial instruments is based on the amount the Company expects to receive (positive) or to pay (negative) assuming that the contracts are settled in advance at the balance sheet date or is determined by the other information. |
F-64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
c. | The fair value of the Company’s financial instruments is determined by the quoted prices in active markets, or if the market for a financial instrument is not active, the Company establishes fair value by using a valuation technique: |
Active Market Quotation | Valuation Technique | |||||||||||||||
Non-derivative Financial Instruments | 2009.12.31 | 2010.12.31 | 2009.12.31 | 2010.12.31 | ||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | |||||||||||||
Financial assets | ||||||||||||||||
Financial assets at fair value through profit or loss | 1,932,315 | 1,210,452 | — | — | ||||||||||||
Available-for-sale financial assets | 40,156,409 | 37,298,738 | 1,201,227 | — | ||||||||||||
Long-term investments accounted for under the equity method | — | — | 11,643,258 | 8,959,237 | ||||||||||||
Financial liabilities | ||||||||||||||||
Short-term loans | — | — | 128,682 | 4,124,115 | ||||||||||||
Bonds payable (current portion included) | 7,187,123 | — | 5,164,933 | 5,157,977 | ||||||||||||
Long-term loans (current portion included) | — | — | 800,000 | 7,509,823 | ||||||||||||
Derivative Financial Instruments | ||||||||||||||||
Financial assets | ||||||||||||||||
Interest rate swap agreements | — | — | 88,410 | — | ||||||||||||
Forward contracts | — | — | 75,366 | 9,411 | ||||||||||||
Financial liabilities | ||||||||||||||||
Derivatives embedded in exchangeable bonds | — | — | 1,914,879 | 2,248,384 | ||||||||||||
Forward contracts | — | — | — | 6,553 |
d. | For the years ended December 31, 2008, 2009 and 2010, the total change in fair value estimated by using valuation techniques and recognized in the consolidated statement of income were net losses of NT$143 million, NT$449 million and NT$139 million, respectively. |
e. | UMC’s derivative financial assets with cash flow interest rate risk exposure were NT$88 million and nil as of December 31, 2009 and 2010, respectively. |
F-65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
f. | During the years ended December 31, 2008, 2009 and 2010, total interest revenues for financial assets or liabilities that are not at fair value through profit or loss were NT$686 million, NT$170 million and NT$143 million, respectively, while interest expenses for the years ended December 31, 2008, 2009 and 2010 were NT$109 million, NT$180 million and NT$352 million, respectively. |
(3) | UMC entered into interest rate swap agreements and forward contracts for hedging the interest rate risk arising from the counter-floating rate of its domestic bonds and for hedging the exchange rate risk arising from the net assets or liabilities denominated in foreign currency. | ||
UMC entered into these derivative financial instruments in connection with its hedging strategy to reduce the market risk of the hedged items, and these financial instruments were not held for trading purpose. The relevant information on the derivative financial instruments entered into by UMC is as follows: |
a. | UMC utilized interest rate swap agreements to hedge its interest rate risk on the counter-floating rate of its unsecured domestic bonds issued during the period from May 21 to June 24, 2003. The terms of the interest rate swap agreements were the same as those of the domestic bonds, which were five and seven years. The floating rate was reset annually. The above mentioned five-year and seven-year interest rate swap agreements matured on June 2008 and 2010, respectively. | ||
As of December 2009, UMC had the following interest rate swap agreements outstanding: | |||
As of December 31, 2009 |
Interest Rate | Interest Rate | |||||||
Notional Amount | Contract Period | Received | Paid | |||||
NT$7,500 million | May 21, 2003 to June 24, 2010 | 4.3% minus USD 12-Month LIBOR | 1.48 | % |
b. | The details of forward contracts entered into by UMC are summarized as follows: | ||
As of December 31, 2009 |
Type | Notional Amount | Contract Period | ||
Forward contracts | Sell USD 267 million | November 16, 2009 to January 26, 2010 |
As of December 31, 2010 |
Type | Notional Amount | Contract Period | ||
Forward contracts | Sell USD 26 million | December 20, 2010 to January 27, 2011 |
F-66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
c. | Transaction risk |
(a) | Credit risk | ||
There is no significant credit risk exposure with respect to the above transactions as the counter-parties are reputable financial institutions with good global standing. | |||
(b) | Liquidity and cash flow risk | ||
The cash flow requirements on the interest rate swap agreements are limited to the net interest payables or receivables arising from the differences in the swap rates. The cash flow requirements on forward contracts are limited to the forward contract’s principal amount, which is the same as the underlying net assets or liabilities denominated in their foreign currencies at the settlement day. Therefore, no significant cash flow risk is anticipated since the working capital is sufficient to meet the cash flow requirements. | |||
(c) | Market risk | ||
Interest rate swap agreements and forward contracts are intended for hedging purposes. Gains or losses arising from the fluctuations in interest rates and exchange rates are likely to be offset against the gains or losses from the hedged items. As a result, no significant exposure to market risk is anticipated. |
d. | The presentation of derivative financial instruments in the financial statements is summarized as follows: | ||
As of December 31, 2009 and 2010, UMC’s interest rate swap agreements were classified as financial assets at fair value through profit or loss amounted to NT$88 million and nil, respectively. A related valuation gain (loss) of NT$174 million, NT$(25) million and NT$0.2 million were recorded under non-operating income and expenses for the years ended December 31, 2008, 2009 and 2010, respectively. | |||
As of December 31, 2009 and 2010, the forward contracts were classified as financial assets at fair value through profit or loss amounted to NT$75 million and NT$9 million, respectively, while the forward contracts were classified as financial liabilities at fair value through profit or loss amounted to nil and NT$7 million, respectively. And for the changes in valuation, gains (losses) of NT$(317) million, NT$163 million and NT$194 million were recorded under non-operating income for the years ended December 31, 2008, 2009 and 2010, respectively. |
F-67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) | On June 7, 2010, UMC acquired 59 thousand shares of UMC JAPAN from minority stockholders for approximately JPY 735 million. In accordance with R.O.C. SFAS 25, the fair value of the acquired identifiable net assets in excess of the purchase price was allocated proportionately to UMC JAPAN’s noncurrent assets. After those noncurrent assets acquired were reduced to zero, UMC recognized the remaining excess as an extraordinary gain of NT$82 million. |
(5) | The Company uses the equity method to account for its investments in UNITED LED CORPORATION HONG KONG LIMITED and SHENYANG PIONEER U-LIGHTING OPTO-ELECTRONIC CO., LTD., jointly controlled entities, since June 1, 2010 and July 6, 2010, respectively. The summarized financial information which the Company recognized is as follows: |
Items | As of December 31, 2010 | |||
NT$’000 | ||||
Current assets | 207,895 | |||
Noncurrent assets | 473,221 | |||
Current liabilities | 216,250 | |||
Long-term liabilities | 253,585 |
Items | For the year ended December 31, 2010 | |||
NT$’000 | ||||
Revenues | 23,038 | |||
Expenses | 44,361 |
(6) | The Company acquired controlling interests in MOS, TOPCELL and NEXPOWER through acquiring newly issued shares in February 2010, March 2010 and November 2010, respectively, and consolidated the income/earnings and expenses/losses of these three subsidiaries from the respective acquisition dates. Cash paid for acquisition and cash balance of subsidiaries acquired were as follows: |
For the year ended | ||||
Items | December 31, 2010 | |||
NT$’000 | ||||
Cash paid for acquisition of subsidiaries | 4,348,690 | |||
Add: Cash received from minority stockholders for acquiring newly issued shares | 1,396,310 | |||
Less: Prepayment for long-term investments | (371,310 | ) | ||
Less: Cash balance of subsidiaries | (7,232,876 | ) | ||
Net cash received from acquisition of subsidiaries | (1,859,186 | ) | ||
F-68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) | The functional currency of UMC and some of its subsidiaries is New Taiwan Dollar, while other subsidiaries have functional currencies in US Dollar, Japanese Yen or Chinese RMB. The exchange rates used to translate assets and liabilities denominated in foreign currencies are disclosed as follows: |
As of December 31, 2009 | As of December 31, 2010 | |||||||||||||||||||||||
Foreign | Foreign | |||||||||||||||||||||||
Currency | Exchange | NTD | Currency | Exchange | NTD | |||||||||||||||||||
(thousand) | Rate | (thousand) | (thousand) | Rate | (thousand) | |||||||||||||||||||
Financial Assets | ||||||||||||||||||||||||
Monetary items | ||||||||||||||||||||||||
USD | $ | 926,453 | 31.93 | $ | 29,581,612 | $ | 1,019,599 | 29.04 | $ | 29,610,971 | ||||||||||||||
JPY | 21,091,404 | 0.35 | 7,280,754 | 23,849,754 | 0.36 | 8,484,568 | ||||||||||||||||||
EUR | 1,123 | 45.93 | 51,576 | 32,220 | 38.66 | 1,245,710 | ||||||||||||||||||
SGD | 30,648 | 22.79 | 698,475 | 48,602 | 22.59 | 1,097,930 | ||||||||||||||||||
CNY | — | — | — | 64,473 | 4.38 | 282,291 | ||||||||||||||||||
Non-Monetary items | ||||||||||||||||||||||||
USD | 8,857 | 31.93 | 282,789 | 42,223 | 29.03 | 1,225,740 | ||||||||||||||||||
CHF | 1,106 | 30.95 | 34,231 | 3,080 | 31.01 | 95,511 | ||||||||||||||||||
Long-term investments accounted for under the equity method | ||||||||||||||||||||||||
USD | 124,370 | 31.90 | 3,968,018 | 135,689 | 29.00 | 3,935,272 | ||||||||||||||||||
SGD | 11,010 | 22.61 | 248,901 | 10,409 | 22.55 | 234,732 | ||||||||||||||||||
CNY | — | — | — | 72,663 | 4.33 | 314,338 | ||||||||||||||||||
Joint controlled entities | ||||||||||||||||||||||||
USD | — | — | — | 7,229 | 28.81 | 208,260 | ||||||||||||||||||
CNY | — | — | — | 689 | 4.39 | 3,022 | ||||||||||||||||||
Financial Liabilities | ||||||||||||||||||||||||
Monetary items | ||||||||||||||||||||||||
USD | 542,147 | 32.03 | 17,364,955 | 738,856 | 29.13 | 21,523,131 | ||||||||||||||||||
JPY | 4,563,544 | 0.35 | 1,594,046 | 9,976,591 | 0.36 | 3,584,958 | ||||||||||||||||||
EUR | 2,209 | 46.32 | 102,316 | 22,471 | 39.02 | 876,797 | ||||||||||||||||||
SGD | 22,530 | 22.97 | 517,505 | 25,127 | 22.77 | 572,136 | ||||||||||||||||||
CNY | — | — | — | 5,534 | 4.39 | 24,302 |
F-69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
33. | SEGMENT INFORMATION |
(1) | Operations in different industries | ||
Due to acquisitions and investments in 2010, the Company now has two operating segments. The Company’s semiconductor fabrication operating segment’s revenue, profit and identifiable assets as of and for the year ended December 31, 2010 are more than 98% of the Company’s consolidated totals while the other operating segment represents less than 2% of the Company’s consolidated revenue, profit or loss and identifiable assets and does not meet the quantitative threshold for disclosure. | |||
(2) | Operations in different geographic areas | ||
The geographic region to which revenue is assigned is based on the location of the Company or its subsidiaries to which revenue earned from external customers is attributable. |
For the year ended December 31, | ||||||||||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||||||||||
Net | Net | Net | ||||||||||||||||||||||
operating | Long-lived | operating | Long-lived | operating | Long-lived | |||||||||||||||||||
revenues | assets | revenues | assets | revenues | assets | |||||||||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | |||||||||||||||||||
Taiwan | 28,871,703 | 61,364,804 | 34,893,626 | 51,684,058 | 47,418,808 | 98,349,844 | ||||||||||||||||||
Asia, excluding Taiwan | 4,903,801 | 48,193,900 | 9,690,051 | 38,952,619 | 19,167,739 | 35,800,844 | ||||||||||||||||||
North America | 53,640,645 | 13,787 | 45,894,083 | 7,680 | 59,854,997 | 4,346 | ||||||||||||||||||
Europe | 9,397,397 | 2,843 | 912,005 | 1,204 | — | 1,684 | ||||||||||||||||||
96,813,546 | 109,575,334 | 91,389,765 | 90,645,561 | 126,441,544 | 134,156,718 | |||||||||||||||||||
F-70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
34. | U.S. GAAP RECONCILIATION |
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the Republic of China (R.O.C. GAAP), which differ in certain material respects from generally accepted accounting principles in the United States (U.S. GAAP). Such differences are disclosed below. |
(1) | Compensation | ||
Employee bonus | |||
Pursuant to the Company’s Articles 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 settled in the form of cash 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 as at the year-end 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. |
F-71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. For the options granted prior to 2008, the Company determined the expected term as the mid-point between the vesting period and the contractual term by using the simplified method. For the options granted after 2008, the Company determined 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 events 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 used by the Company. |
The Company adjusts share-based compensation on an annual basis for changes in expected forfeitures based on the examination of latest employee stock options forfeiture activity. The effect of adjusting the forfeiture rate used for expense amortization is recognized in the corresponding period that the expected forfeiture rate is changed. |
On September 11, 2002, October 8, 2003, September 30, 2004, December 22, 2005, October 9, 2007 and May 12, 2009, the Company issued employee stock options. The total number of options approved under these six series was 2.65 billion units, with each unit entitling the optionee to subscribe for 1 share of the Company’s common stock. The exercise price of options was set at the closing price of the Company’s common stock on the date of grant. The Company will issue new shares upon exercise of employee stock options. The contractual life of the options is 6 years. Employees may exercise up to 50% of the options after 2 years, up to 75% after 3 years, and up to 100% after 4 years. The terms of the first four series were modified to reflect the impact of the capital reduction in 2007, that each unit of option is entitled to subscribe for about 0.7 share of the Company’s common stock and the exercise price increased accordingly. The Company did not have any incremental compensation costs associated with this modification. As of December 31, 2010, the total number of option units outstanding was 753 million units and exercise price ranged from NT$10.40 to NT$29.47. |
No stock options were granted in 2008 and 2010. The assumptions used in the Black-Scholes option-pricing model for options granted for the year ended 2009 are as follows: expected dividend yields of 1.98%; volatility factors of the expected market price of UMC’s common stock of 40.63%; risk-free interest rate of 1.01%; and expected life of the option of 3.16 ~ 5.03 years. As of December 31, 2010, the weighted-average remaining contractual life of outstanding options, fully vested and expected to vest options, and exercisable options was 3.3 years, 3.23 years and 2.51 years, respectively. |
F-72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of employee stock options activities as of December 31, 2010 and changes during the year then ended is presented below: |
For the year ended December 31, 2010 | ||||||||||||||||
Available shares | Weighted-average | |||||||||||||||
(adjusted for capital | Exercise Price per | |||||||||||||||
Number of options | reduction) | share as adjusted | ||||||||||||||
(In thousands) | (In thousands) | NT$ | US$ | |||||||||||||
Outstanding at beginning of period | 861,771 | 809,566 | 16.59 | 0.57 | ||||||||||||
Granted | — | — | — | — | ||||||||||||
Exercised | (141 | ) | (141 | ) | 18.03 | 0.62 | ||||||||||
Forfeited | (61,477 | ) | (57,466 | ) | 16.42 | 0.56 | ||||||||||
Expired | (47,453 | ) | (33,083 | ) | 28.56 | 0.98 | ||||||||||
Outstanding at end of period | 752,700 | 718,876 | 16.05 | 0.55 | ||||||||||||
Fully vested and expected to vest at end of period | 709,192 | 675,876 | 16.38 | 0.56 | ||||||||||||
Exercisable at end of period | 385,101 | 351,785 | 19.78 | 0.68 | ||||||||||||
The weighted-average grant-date fair value of options granted during 2008, 2009, and 2010 was nil, NT$2.8 and nil, respectively. There were no options exercised in 2008 and 2009. The total intrinsic value of the options exercised during 2010 was nil. The total fair value of options vested during 2008, 2009 and 2010 was NT$427 million, NT$1,278 million and NT$574 million, respectively. Aggregate intrinsic value of outstanding options, fully vested and expected to vest options, and exercisable options at December 31, 2010 are NT$1,583 million, NT$1,337 million, and nil, respectively. As of December 31, 2010, unrecognized compensation expenses related to nonvested options granted under the employee stock options plan totaled NT$383 million. The weighted-average period of expense expected to be recognized is 2.01 years. |
F-73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under US GAAP, the total share-based compensation effects in income and capitalization as part of inventory relating to employee stock options and treasury stock purchased by employees are summarized as follows: |
For the year ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Net effects in income | (895,191 | ) | (978,077 | ) | (1,006,152 | ) | ||||||
Net effects on inventory capitalization | 62,806 | 64,415 | 64,177 | |||||||||
The following tables reflect the above noted differences between U.S. GAAP and R.O.C. GAAP relating to compensations: |
For the year ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
Net income impact of compensation adjustments: | ||||||||||||
Adjustment for final award | (979,016 | ) | — | — | ||||||||
Total employee bonus | (979,016 | ) | — | — | ||||||||
Employee stock options | (912,888 | ) | (804,065 | ) | (363,953 | ) | ||||||
Allocation to inventories, net of prior period allocations to inventories which are sold in current period | (33,104 | ) | 1,609 | (32,898 | ) | |||||||
Total U.S. GAAP adjustment to net income relating to compensation | (1,925,008 | ) | (802,456 | ) | (396,851 | ) | ||||||
As of December 31, | ||||||||
2009 | 2010 | |||||||
NT$’000 | NT$’000 | |||||||
Stockholders’ equity impact of compensation adjustments: | ||||||||
Employee stock options | 64,415 | 31,517 | ||||||
Total U.S. GAAP adjustment to stockholders’ equity relating to compensation | 64,415 | 31,517 | ||||||
F-74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) | Equity Investees — Variance between U.S. GAAP and R.O.C. GAAP | ||
The Company’s proportionate share of the income (loss) and stockholders’ equity from an equity investee under R.O.C. GAAP may differ from U.S. GAAP if the equity investee’s net income (loss) and stockholders’ equity are different under the two GAAPs. Those differences for the equity investees include accounting for compensation, income tax and investments in debt and equity securities. | |||
(3) | Investments in Debt and Equity Securities | ||
(a) Change in fair value of investments | |||
Unrealized gains (losses) on trading securities held at December 31, 2008, 2009 and 2010 were NT$(3,110) million, NT$91 million and NT$(590) million, respectively. | |||
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, the proportionate share of an 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 available-for-sale securities as of December 31, 2008, 2009 and 2010 were decreased by NT$1,038 million, NT$975 million and NT$975 million, respectively. The difference in cost basis resulted in an adjustment to increase (decrease) disposal gain of NT$16 million, NT$(97) million and NT$(1) million for the year ended December 31, 2008, 2009 and 2010, respectively, under U.S. GAAP for the disposal of these investments. | |||
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 current cost basis under R.O.C. GAAP and U.S. GAAP and resulted in an adjustment to increase accumulated other comprehensive income related to unrealized losses on available-for-sale securities of NT$2,090 million as of December 31, 2008, 2009 and 2010. |
F-75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information on sales of available-for-sale equity securities for the years ended December 31, 2008, 2009 and 2010 is as follows: |
Proceeds from | Gross realized | Gross realized | ||||||||||
sales | gains | losses | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
For the year ended December 31, 2008 | 4,270,983 | 2,983,484 | 129,539 | |||||||||
For the year ended December 31, 2009 | 2,793,590 | 1,767,765 | — | |||||||||
For the year ended December 31, 2010 | 3,694,372 | 1,959,472 | — |
Information on available-for-sale equity securities, including depositary receipts and funds, still held at each balance sheet date is as follows: |
Total | Total | Net | ||||||||||||||||||
unrealized | unrealized | unrealized | Adjusted | |||||||||||||||||
Fair Value | gains | losses | gains | Cost | ||||||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | ||||||||||||||||
As of December 31, 2008 | 16,283,917 | 4,483,928 | 3,730,656 | 753,272 | 15,530,645 | |||||||||||||||
As of December 31, 2009 | 41,357,636 | 26,801,606 | 81,156 | 26,720,450 | 14,637,186 | |||||||||||||||
As of December 31, 2010 | 37,298,738 | 23,853,204 | 45,951 | 23,807,253 | 13,491,485 |
The Company had investments with gross unrealized losses of NT$81 million and NT$46 million as of December 31, 2009 and 2010, respectively, on available-for-sale equity securities with fair value of NT$456 million and NT$190 million as of December 31, 2009 and 2010, respectively. This includes gross unrealized losses related to individual securities of NT$48 million and nil for the years ended December 31, 2009 and 2010, respectively, with fair value of NT$227 million and nil as of December 31, 2009 and 2010, respectively, that had been in a continuous loss position for 12 months or more. The individual securities that were in continuous loss position for more than 12 months at December 31, 2009 subsequently recovered in 2010. For the years ended December 31, 2008, 2009 and 2010, NT$(4,114) million, NT$1,769 million and NT$1,959 million, respectively, were 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, 2008, 2009 and 2010. |
(b) Impairment of investments in securities |
Under R.O.C. GAAP, for long-term investments over which the Company does not have the ability to exercise significant influence or control, 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. Nevertheless, R.O.C. GAAP does not provide additional definition or guidance on how to assess the likelihood of future recovery. Under U.S. GAAP, for individual securities classified as either available-for-sale or held-to-maturity, the Company determines whether a decline in fair value below cost is other than temporary pursuant to guidance from ASC 320-10-35,Investments—Debt and Equity Securities. 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- |
F-76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Accordingly, the impairment losses of certain investments recorded under R.O.C. GAAP were reconciled to increase (decrease) net income by NT$1,415 million, nil and NT$(19) million for the years ended December 31, 2008, 2009 and 2010, respectively, because the different cost recognized under R.O.C. GAAP and U.S. GAAP. | |||
(c) Adjustments due to change in ownership of investees | |||
When an investee issues additional shares and the Company subscribes for these shares at a percentage higher or lower than its current ownership percentage in the investee, when the employees of the Company’s subsidiaries or equity investees exercise their stock options, or when the convertible bondholders of the Company’s subsidiaries or equity investees exercise their conversion rights, the Company’s ownership interest in such subsidiary or equity investee may change. Under R.O.C. GAAP, the change in the Company’s proportionate share in the net assets of its investee resulting from the issuance of additional shares of the investee’s stock, at the rate not proportionate to its existing equity ownership in such investee, is recorded to the additional paid-in capital and long-term investments account. Under U.S. GAAP, prior to January 1, 2009, a dilution of ownership interest is recognized as a gain or loss in the consolidated statements of income. On the other hand, the increase in ownership interest is treated as a purchase of additional shares and the difference between the total cost of the investment and the proportionate share of the fair value of net assets is allocated to goodwill. Effective January 1, 2009, pursuant to ASC 810-10-45,Noncontrolling Interests in a Subsidiary, a change in the Company’s ownership interest that does not result in a change of control shall be accounted for as equity transactions. In December 2009 and May 2010, the Company acquired additional ownership interests in one of its subsidiaries. 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$1,752 million and NT$226 million for the year ended December 31, 2009 and 2010, respectively, to zero, the Company recognized an extraordinary gain of NT$649 million and NT$68 million for the year ended December 31, 2009 and 2010, respectively, as the fair value of the net assets acquired exceeds 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$2,497 million and NT$310 million as of December 31, 2009 and 2010, respectively, under U.S. GAAP. |
F-77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 2010, a non-affiliated company invested NT$259 million for newly issued shares of one of the Company’s consolidated entities, which reduced the Company’s ownership interest from 100% to 50%. Due to this transaction, the Company 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, the Company accounted for the deconsolidation of a subsidiary and fair value remeasurement of the remaining holding interests by recognizing a gain or loss in net income attributable to the Company. Accordingly, the Company recognized an additional NT$5 million net loss for the year ended December 31, 2010 under U.S. GAAP. | |||
(d) Fair value measurement | |||
ASC 820-10, FairValue 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 quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Each level of inputs used are described as following: | |||
Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at 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, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and valuations with inputs which are observable for substantially the full term of the asset or liability. The Company’s derivative financial instruments — forward contracts are classified as assets and liabilities carried at fair value through profit or loss. The fair values are determined by using the market-based observable inputs including the expected interest forward rate, expected volatility in interest rates, spot exchange rate and swap point. On December 2, 2009, 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 by using the option pricing model. The valuation model uses the market-based observable inputs including share price, volatility, credit spread, and swap rates. In 2010, few of the Company’s private equity instruments classified as financial assets measured at cost, noncurrent, were impaired. The fair value of these assets was determined based on the transaction price of their newly issued shares, which the Company considered to be quoted prices in a market that was not active and was supported by valuation analyses using a market approach. |
F-78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Level 3 inputs are unobservable inputs that are significant to the fair value of the asset or liability. In 2010, one of the Company’s long-term investment accounted for under equity method was impaired. Due to the absence of quoted market price, the fair value measurement of the non-publicly traded equity instruments was determined using the discounted cash flow model, considering the investee’s current and future expected operating performance, industry trends, and competitive advantages. |
The following table summarizes the assets and liabilities measured at fair value on a recurring basis at December 31, 2010: |
Fair value measurements at reporting | ||||||||||||||||
date using | ||||||||||||||||
Items | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | |||||||||||||
Financial assets at fair value through profit or loss, current | 1,139,943 | 1,130,532 | 9,411 | — | ||||||||||||
Financial assets at fair value through profit or loss, noncurrent | 79,920 | 79,920 | — | — | ||||||||||||
Available-for-sale financial assets, current | 7,044,673 | 7,044,673 | — | — | ||||||||||||
Available-for-sale financial assets, noncurrent | 30,254,065 | 30,254,065 | — | — | ||||||||||||
Financial liabilities at fair value through profit or loss, current | 2,254,937 | — | 2,254,937 | — |
The following table summarizes the assets measured at fair value on a nonrecurring basis for the year ended December 31, 2010: |
Fair value measurements during | ||||||||||||||||||||
reporting period using | ||||||||||||||||||||
Items | Fair Value | Level 1 | Level 2 | Level 3 | Total Losses | |||||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | NT$’000 | ||||||||||||||||
Financial assets measured at cost, noncurrent | 67,695 | — | 67,695 | — | (93,077 | ) | ||||||||||||||
Long-term investments accounted for under the equity method | 41,581 | — | — | 41,581 | (39,846 | ) |
Financial assets measured at cost and long-term investments accounted for under the equity method with a total carrying amount of NT$242 million were written down to their fair value, NT$109 million, resulting in an NT$133 million impairment charges, included in earnings for the period. | |||
(4) | Goodwill and Business Combinations | ||
Under R.O.C. GAAP, the fair value of the net assets received is deemed to be the value of the consideration for the acquisition of the remaining interests in United Semiconductor, United Silicon, UTEK Semiconductor and United Integrated Circuits in January 2000. The acquisition cost of the merger with SiSMC was determined using the market price of the shares exchanged by the Company. Under U.S. GAAP, before applying ASC 805,Business Combinations, it requires that the securities exchanged be valued based on the market prices a few days before and after the date when the terms of the acquisition are agreed to and announced. The acquisition was accounted for using the acquisition method of accounting and the purchase price was determined using the market value of the shares exchanged. The difference between the fair value of the shares exchanged and the fair value of the net assets acquired created goodwill. |
F-79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under R.O.C. GAAP, in accordance with an amendment to R.O.C. SFAS 25 and R.O.C. SFAS 35, goodwill ceased to be amortized and is subject to annual impairment tests or whenever events and circumstances change indicating goodwill may be impaired. Our 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. |
Under U.S. GAAP, in accordance with ASC 805-30-30,Goodwill or Gain from Bargain Purchase, Including Considerations Transferred,and ASC 350-20-35,Intangibles—Goodwill and Other, goodwill ceased to be amortized and is subject to an annual impairment test or more frequently when events and circumstances indicate a possible impairment may exist. The fair value of the reporting unit is allocated to individual assets and liabilities to derive the fair value of the goodwill assigned to the reporting unit. If the carrying value of the goodwill is greater than its derived fair value, it is written down to its fair value with an impairment loss reported on the consolidated statements 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%. The Company obtained control over NEXPOWER and the results of NEXPOWER’s operations have been included in the consolidated financial statements since that date. As a result of the acquisition, the Company expects to achieve the integration of the Company’s overall resources. |
Under R.O.C. GAAP, the change in the Company’s proportionate share 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 capital and long-term investments accounts. However, under U.S. GAAP, this acquisition 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. 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, which was supported by valuation analysis using 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$5,128 million. |
F-80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. |
As of November 30, 2010 | NT$ million | |||
Cash | 5,853 | |||
Receivables | 938 | |||
Inventories | 1,133 | |||
Property, plant and equipment | 9,403 | |||
Other assets | 144 | |||
Total identifiable assets acquired | 17,471 | |||
Current liabilities | 1,433 | |||
Non-current liabilities | 5,422 | |||
Total liabilities assumed | 6,855 | |||
Net identifiable assets acquired | 10,616 | |||
Goodwill | 1,499 | |||
Net assets acquired | 12,115 | |||
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 were no changes in the recognized amounts of goodwill resulting from the acquisition of NEXPOWER. |
Prior to the acquisition date, the Company accounted for its 45.79% interest in NEXPOWER as an equity-method investment. 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 amounts of revenue and losses of NEXPOWER included in the Company’s consolidated income statement from the acquisition date to the period ending December 31 2010 are NT$590 million and NT$(75) million, respectively. |
The following represents the pro forma consolidated income statement as if NEXPOWER had been included in the consolidated results of the Company for entire years ending December 31, 2009 and 2010: |
For the year ended December 31, | ||||||||
2009 | 2010 | |||||||
NT$ million | NT$ million | |||||||
Revenue | 92,152 | 129,440 | ||||||
Earnings | 2,478 | 23,550 |
F-81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) | Earnings per Share (EPS) | ||
Under R.O.C. GAAP, basic earnings per share are calculated by dividing net income attributable to common stockholders by the weighted average number of shares outstanding during the year. Diluted earnings per share are calculated by taking basic earnings per share into consideration plus additional common shares that would have been outstanding if the dilutive share equivalents had been issued. Net income was also adjusted for the interest and other income or expenses derived from any underlying dilutive share equivalents. The weighted average 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. | |||
Under U.S. GAAP, basic earnings per share are 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 are calculated by taking basic earnings per share into consideration plus 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. 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. |
F-82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2010 | ||||||||||||
Income | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | 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. |
For the year Ended December 31, 2009 | ||||||||||||
Income | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
In thousands | In thousands | In dollar NT$ | ||||||||||
Net Income attributable to the Company | 2,571,988 | — | — | |||||||||
Basic EPS | ||||||||||||
Income available to common stockholders | 2,571,988 | 12,538,016 | 0.21 | |||||||||
Effect of dilutive securities | ||||||||||||
Employee stock options | — | 21,812 | — | |||||||||
Diluted EPS | ||||||||||||
Income attributable to common stockholders including assumed conversions | 2,571,988 | 12,559,828 | 0.20 |
F-83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2009, there were 572,107 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, 2008 | ||||||||||||
Income | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
In thousands | In thousands | In dollar NT$ | ||||||||||
Net Loss attributable to the Company | (28,955,100 | ) | — | — | ||||||||
Basic EPS and diluted EPS | ||||||||||||
Loss available to common stockholders | (28,955,100 | ) | 12,870,072 | (2.25 | ) |
As of December 31, 2008, there were 709,484 thousand issued and outstanding stock options which were not included in the computation of diluted earnings per share due to their antidilutive effect. The effects of the zero coupon convertible bonds with principal amount of US$381.4 million that matured on February 15, 2008 were also excluded in the computation of diluted earnings per share due to their antidilutive effect. | |||
(6) | Treasury Stock and related Disposal | ||
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, as of December 31, 2009 and 2010, 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 nil, NT$1,573 million and NT$1,428 million for the years ended December 31, 2008, 2009 and 2010, respectively, and eliminated investment gains (losses) of NT$(8,817) million, nil and NT$81 million for the years ended December 31, 2008, 2009 and 2010, respectively. | |||
(7) | Stock Dividends | ||
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. Since no stock dividends were issued during 2009 and 2010, the cumulative effect of reconciling stock dividends decreased retained earnings and increased additional paid-in capital remains the same as of December 31, 2009 and 2010 by approximately NT$291,285 million. | |||
(8) | Reclassification of Time Deposits | ||
Under R.O.C. GAAP, cash and cash equivalents include time deposits. Under U.S. GAAP, cash equivalents are short-term, highly liquid investments that are readily convertible to cash with original maturities of three months or less. Thus, time deposits with original maturities of more than three months are classified as cash equivalents under R.O.C. GAAP but should be included in marketable securities under U.S. GAAP. |
F-84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) | Pension | ||
Under R.O.C. GAAP, R.O.C. SFAS 18 requires a minimum pension liability to be measured as the excess of accumulated benefit obligation over the fair value of the plan assets, and allows the unrecognized items, including prior service costs and credits, gains or losses, and transition obligations or assets, to be reported in disclosure shown as a plan’s funded status. | |||
Under U.S. GAAP, ASC 715-30, Defined Benefit Plans—Pension, requires an employer to recognize an asset for a plan’s overfunded status or a liability for a plan’s underfunded status with an offsetting adjustment to accumulated other comprehensive income (AOCI). | |||
The amounts related to pensions recognized in AOCI, net of tax, excluding amounts related to equity-method investees, are shown as below: |
As of December 31, 2010 | ||||||||||||
Prior | Transition | |||||||||||
Net gain/(loss) | service cost | obligation | ||||||||||
NT$’000 | NT$’000 | NT$’000 | ||||||||||
The amounts arose during the period | (689,411 | ) | 57,119 | — | ||||||||
The amounts reclassified as components of net periodic benefit cost | 12,131 | (5,193 | ) | 28,169 | ||||||||
The amounts recognized in AOCI as of December 31, 2010 | (572,482 | ) | 51,926 | — | ||||||||
The amounts expected to be recognized as components of net periodic benefit cost during 2011 | (7,478 | ) | 3,093 | — |
(10) | Tax Effect of U.S. GAAP Adjustments |
Under U.S. GAAP, the income tax expense was NT$896 million, NT$641 million and NT$1,624 million for the years ended December 31, 2008, 2009 and 2010, 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 stockholders 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 2008, 2009 and 2010, the Company accrued nil, NT$307 million and NT$2,156 million, respectively, for 10% tax on undistributed earnings in Taiwan under U.S. GAAP. The additional tax expense was offset by a corresponding reduction in the valuation allowance under U.S. GAAP. Further, in 2008, 2009 and 2010, certain subsidiaries incurred NT$(91) million, NT$(14) million and NT$10 million of tax on undistributed earnings in Taiwan for which no tax credits were available for offset, and the income tax expense was recognized accordingly. |
F-85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2010, the Company reported valuation allowance NT$7,501 million to reduce deferred tax assets to an amount that is more likely than not realizable, representing a decrease of NT$4,636 million from the prior year. The majority of the R.O.C. GAAP to U.S. GAAP reconciliation adjustments are permanent in nature with no incremental impact on income taxes under U.S. GAAP as a result of corresponding valuation allowances. |
Under U.S. GAAP, the Company adopted the provisions regarding uncertainty in income tax positions prescribed in ASC 740-10,Income Taxes. ASC 740-10 clarifies that tax position are measured based on the maximum amount that is more likely than not to be realized. Tax positions that are not at least more likely than not to be sustained on their technical merits are not recognized. Unlike ASC 740-10, R.O.C. SFAS 22 contained no guidance on uniform criteria for an enterprise to recognize and measure potential tax benefits associated with uncertain tax positions. |
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows: |
For the year ended December 31, | ||||||||
2009 | 2010 | |||||||
NT$ | NT$ | |||||||
(In millions) | ||||||||
Balance at January 1, | 58 | 60 | ||||||
Additions based on tax positions taken during the current year | 14 | — | ||||||
Reductions related to settlements with taxing authorities | (39 | ) | — | |||||
Additions for tax positions of prior years | 27 | 22 | ||||||
Balance at December 31, | 60 | 82 | ||||||
None of the aforementioned unrecognized tax benefits, if recognized, would affect the Company’s effective tax rate. In addition, settlement of any of the uncertain tax positions would not require the use of cash as any adjustment would be offset in total by available tax loss carry-forward and/or tax credits in open tax years. Further, the Company is unaware of any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease 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, 2009 and 2010, no interest or penalties were accrued. |
F-86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is subject to taxation in Taiwan and other foreign jurisdictions. As of December 31, 2010, tax years of 2008-2010 are open to Tax Authority’s examination in Taiwan, while in other foreign jurisdictions, years 2005-2010 are open to relevant Tax Authority’s examination. |
(11) | Gross Profit and Operating Income |
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. |
(12) | Inventory |
Under U.S. GAAP, the allocation of fixed production overhead to inventory is based on the normal capacity of the production facilities. Unallocated overheads are recognized as an expense in the period in which they are incurred. Other items such as abnormal freight, handling costs and amounts of wasted materials are treated as current period charges rather than as a portion of the inventory cost pursuant to ASC 330,Inventory. Before the adoption of R.O.C. SFAS 10 on January 1, 2009, R.O.C. GAAP did not provide definite guidance for such abnormal items and the use of normal capacity was not mandatory. Accordingly, the Company recognized an adjustment to the cost of goods sold of NT$362 million for the year ended December 31, 2008. As R.O.C. SFAS 10 and ASC 330 are essentially the same, the inventory difference from 2008 reversed in 2009 when the associated inventory was sold, and there would be no further adjustments from January 1, 2010. |
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, 2008, 2009 and 2010, 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. |
(13) | Quasi reorganization |
In June 2009, the Company and one of its equity-method investees reduced its additional paid-in-capital by NT$7,037 million and NT$8,134 million, respectively, to eliminate the accumulated deficit in the preceding years without revaluing the assets of the Company under R.O.C. GAAP. Since all conditions necessary under the U.S. GAAP quasi reorganization rules were not met, the Company reversed the deficit reclassification under U.S. GAAP. |
F-87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reconciliation of Consolidated Net Income (Loss) |
For the year ended December 31, | ||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||
NT$’000 | NT$’000 | NT$’000 | US$’000 | |||||||||||||
Net income (loss) attributable to the Company, R.O.C. GAAP | (22,320,075 | ) | 3,874,028 | 23,898,905 | 820,141 | |||||||||||
Compensation | (1,925,008 | ) | (802,456 | ) | (396,851 | ) | (13,619 | ) | ||||||||
Equity investees | (80,182 | ) | (32,247 | ) | (40,759 | ) | (1,399 | ) | ||||||||
Investments in debt and equity securities | ||||||||||||||||
Change in fair value of investments in securities | 15,913 | (96,591 | ) | (786 | ) | (27 | ) | |||||||||
Impairment of investments in securities | 1,415,330 | — | — | — | ||||||||||||
Adjustments due to change in ownership of investees | 54,838 | (732,643 | ) | (233,761 | ) | (8,021 | ) | |||||||||
Goodwill and Business Combinations | (14,571,104 | ) | — | 469,896 | 16,125 | |||||||||||
Treasury stock and related disposal | 8,817,085 | — | (80,524 | ) | (2,763 | ) | ||||||||||
Inventory | (361,897 | ) | 361,897 | — | — | |||||||||||
Net income (loss) attributable to the Company, U.S. GAAP | (28,955,100 | ) | 2,571,988 | 23,616,120 | 810,437 | |||||||||||
Add: Net loss attributable to noncontrolling interests, U.S. GAAP | (676,938 | ) | (2,207,629 | ) | (72,378 | ) | (2,484 | ) | ||||||||
Net income (loss), U.S. GAAP | (29,632,038 | ) | 364,359 | 23,543,742 | 807,953 | |||||||||||
Basic earnings (losses) per share under U.S. GAAP (in dollars) | (2.25 | ) | 0.21 | 1.91 | 0.07 | |||||||||||
Diluted earnings (losses) per share under U.S. GAAP (in dollars) | (2.25 | ) | 0.20 | 1.90 | 0.07 | |||||||||||
Weighted-average number of shares outstanding-basic (in thousands) | 12,870,072 | 12,538,016 | 12,335,428 | 12,335,428 | ||||||||||||
Weighted-average number of shares outstanding-diluted (in thousands) | 12,870,072 | 12,559,828 | 12,399,086 | 12,399,086 | ||||||||||||
F-88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, | ||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||
NT$’000 | NT$’000 | NT$’000 | US$’000 | |||||||||||||
Net income (loss) | (29,632,038 | ) | 364,359 | 23,543,742 | 807,953 | |||||||||||
Attributable to: | ||||||||||||||||
the Company | (28,955,100 | ) | 2,571,988 | 23,616,120 | 810,437 | |||||||||||
noncontrolling interests | (676,938 | ) | (2,207,629 | ) | (72,378 | ) | (2,484 | ) | ||||||||
Other comprehensive income (loss), net of tax | ||||||||||||||||
Cumulative translation adjustment | 3,670,946 | (1,890,175 | ) | (5,192,884 | ) | (178,205 | ) | |||||||||
Attributable to: | ||||||||||||||||
the Company | 2,214,202 | (1,723,657 | ) | (4,971,823 | ) | (170,619 | ) | |||||||||
noncontrolling interests | 1,456,744 | (166,518 | ) | (221,061 | ) | (7,586 | ) | |||||||||
Unrealized gains (losses) on securities | (27,731,377 | ) | 26,982,940 | (3,056,478 | ) | (104,889 | ) | |||||||||
Attributable to: | ||||||||||||||||
the Company | (27,731,377 | ) | 26,982,940 | (3,056,478 | ) | (104,889 | ) | |||||||||
noncontrolling interests | — | — | — | — | ||||||||||||
Unrecognized pension cost | 167,890 | (606,330 | ) | (590,007 | ) | (20,248 | ) | |||||||||
Attributable to: | ||||||||||||||||
the Company | 278,486 | (719,680 | ) | (600,625 | ) | (20,612 | ) | |||||||||
noncontrolling interests | (110,596 | ) | 113,350 | 10,618 | 364 | |||||||||||
Other comprehensive income (loss) | (23,892,541 | ) | 24,486,435 | (8,839,369 | ) | (303,342 | ) | |||||||||
Comprehensive income (loss) | (53,524,579 | ) | 24,850,794 | 14,704,373 | 504,611 | |||||||||||
Comprehensive income (loss) attributable to noncontrolling interests | 669,210 | (2,260,797 | ) | (282,821 | ) | (9,706 | ) | |||||||||
Comprehensive income (loss) attributable to the Company | (54,193,789 | ) | 27,111,591 | 14,987,194 | 514,317 |
F-89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accumulated | ||||||||||||||||
Cumulative | Unrealized | other | ||||||||||||||
translation | gains (losses) | Unrecognized | comprehensive | |||||||||||||
adjustment | on securities | pension cost | income (loss) | |||||||||||||
NT$’000 | NT$’000 | NT$’000 | NT$’000 | |||||||||||||
Balance at December 31, 2008 | 1,335,329 | 817,360 | 799,749 | 2,952,438 | ||||||||||||
Other comprehensive income (loss) | (1,723,657 | ) | 26,982,940 | (719,680 | ) | 24,539,603 | ||||||||||
Balance at December 31, 2009 | (388,328 | ) | 27,800,300 | 80,069 | 27,492,041 | |||||||||||
Other comprehensive income (loss) | (4,971,823 | ) | (3,056,478 | ) | (600,625 | ) | (8,628,926 | ) | ||||||||
Balance at December 31, 2010 | (5,360,151 | ) | 24,743,822 | (520,556 | ) | 18,863,115 | ||||||||||
As of December 31 | ||||||||||||
2009 | 2010 | |||||||||||
NT$’000 | NT$’000 | US$’000 | ||||||||||
Stockholders’ equity, R.O.C. GAAP | 214,096,256 | 225,136,029 | 7,726,013 | |||||||||
Compensation | 64,415 | 31,517 | 1,082 | |||||||||
Equity investees | (149,798 | ) | (142,469 | ) | (4,889 | ) | ||||||
Investments in debt and equity securities | ||||||||||||
Adjustments due to change in ownership of investees | 1,717,221 | 1,765,401 | 60,583 | |||||||||
Goodwill and Business Combinations | (7,615 | ) | 1,301,125 | 44,652 | ||||||||
Treasury stock and related disposal | (2,769,095 | ) | (2,624,152 | ) | (90,053 | ) | ||||||
Pension | 289,107 | (344,827 | ) | (11,833 | ) | |||||||
Stockholders’ equity, U.S. GAAP | 213,240,491 | 225,122,624 | 7,725,555 | |||||||||
F-90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, | ||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||
NT$’000 | NT$’000 | NT$’000 | US$’000 | |||||||||||||
Balance at January 1, | 253,819,436 | 190,891,667 | 213,240,491 | 7,317,793 | ||||||||||||
Compensation | 2,202,324 | 969,277 | 1,549,083 | 53,160 | ||||||||||||
Cash dividends | (9,382,647 | ) | — | (6,233,002 | ) | (213,898 | ) | |||||||||
Adjustment of additional paid-in capital and retained earnings accounted for under the equity method | 263,934 | (84,851 | ) | (52,670 | ) | (1,807 | ) | |||||||||
Changes in additional paid-in capital for purchases of subsidiary shares from noncontrolling interests | — | 2,497,039 | 408,011 | 14,002 | ||||||||||||
Cumulative translation adjustment on foreign long-term investment | 2,214,202 | (1,722,666 | ) | (4,971,823 | ) | (170,619 | ) | |||||||||
Change in fair value of marketable securities | (20,707,489 | ) | 28,556,633 | (3,201,421 | ) | (109,863 | ) | |||||||||
Treasury stock and related disposal | (9,186,760 | ) | (3,343,777 | ) | (4,618,121 | ) | (158,480 | ) | ||||||||
Exercise of employees’ stock options | — | — | 2,542 | 87 | ||||||||||||
Pension | 278,486 | (719,680 | ) | (600,625 | ) | (20,612 | ) | |||||||||
Changes in noncontrolling interests | 345,281 | (6,375,139 | ) | 5,984,039 | 205,355 | |||||||||||
Net income (loss) attributable to the Company | (28,955,100 | ) | 2,571,988 | 23,616,120 | 810,437 | |||||||||||
Balance at December 31, | 190,891,667 | 213,240,491 | 225,122,624 | 7,725,555 | ||||||||||||
F-91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized U.S. GAAP consolidated balance sheet and statement of operations information is presented below: |
As of December 31, | ||||||||||||
2009 | 2010 | |||||||||||
NT$’000 | NT$’000 | US$’000 | ||||||||||
Current assets | 102,427,031 | 93,790,493 | 3,218,618 | |||||||||
Non-current assets | 150,278,758 | 187,596,718 | 6,437,775 | |||||||||
Current liabilities | 35,265,487 | 45,468,186 | 1,560,337 | |||||||||
Non-current liabilities | 4,199,811 | 10,796,401 | 370,501 |
For the year ended December 31, | ||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||
NT$’000 | NT$’000 | NT$’000 | US$’000 | |||||||||||||
Net operating revenues | 96,813,546 | 91,389,765 | 126,441,544 | 4,339,106 | ||||||||||||
Cost of goods sold | (85,923,000 | ) | (76,209,202 | ) | (89,929,148 | ) | (3,086,107 | ) | ||||||||
Operating income (loss) | (22,431,492 | ) | (2,322,977 | ) | 21,393,686 | 734,169 | ||||||||||
Net income (loss) | (29,632,038 | ) | 364,359 | 23,543,742 | 807,953 | |||||||||||
Less: Net loss attributable to noncontrolling interests | (676,938 | ) | (2,207,629 | ) | (72,378 | ) | (2,484 | ) | ||||||||
Net income (loss) attributable to the Company | (28,955,100 | ) | 2,571,988 | 23,616,120 | 810,437 |
F-92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, | ||||||||||||
2009 | 2010 | |||||||||||
NT$’000 | NT$’000 | US$’000 | ||||||||||
Cash and Cash Equivalents: | ||||||||||||
As reported under R.O.C. GAAP | 66,152,960 | 51,271,105 | 1,759,475 | |||||||||
Reclassification to marketable securities | (11,740,000 | ) | (237,499 | ) | (8,150 | ) | ||||||
As adjusted under U.S. GAAP | 54,412,960 | 51,033,606 | 1,751,325 | |||||||||
Long-term Investment under cost method, equity method & others: | ||||||||||||
As reported under R.O.C. GAAP | 20,119,755 | 16,845,103 | 578,075 | |||||||||
Equity Investees | 92,909 | 56,821 | 1,950 | |||||||||
Treasury stock and related disposal | (2,769,095 | ) | (2,624,152 | ) | (90,053 | ) | ||||||
As adjusted under U.S. GAAP | 17,443,569 | 14,277,772 | 489,972 | |||||||||
Held-to-maturity financial assets: | ||||||||||||
As reported under R.O.C. GAAP | — | — | — | |||||||||
Reclassification from cash and cash equivalents | 11,740,000 | 237,499 | 8,150 | |||||||||
As adjusted under U.S. GAAP | 11,740,000 | 237,499 | 8,150 | |||||||||
Inventory: | ||||||||||||
As reported under R.O.C. GAAP | 9,141,385 | 13,032,623 | 447,242 | |||||||||
Compensation | 64,415 | 31,517 | 1,082 | |||||||||
Ownership change in consolidated entities | — | (10,321 | ) | (355 | ) | |||||||
As adjusted under U.S. GAAP | 9,205,800 | 13,053,819 | 447,969 | |||||||||
Property, plant and equipment, net: | ||||||||||||
As reported under R.O.C. GAAP | 89,596,360 | 132,762,000 | 4,556,005 | |||||||||
Business combination and ownership change in consolidated entities | 1,613,779 | 1,803,820 | 61,902 | |||||||||
As adjusted under U.S. GAAP | 91,210,139 | 134,565,820 | 4,617,907 | |||||||||
Goodwill: | ||||||||||||
As reported under R.O.C. GAAP | 7,615 | 304,728 | 10,457 | |||||||||
Business combination and ownership change in consolidated entities | 98,778,711 | 99,993,048 | 3,431,471 | |||||||||
Accumulated impairment loss on goodwill | (98,786,326 | ) | (98,786,326 | ) | (3,390,059 | ) | ||||||
As adjusted under U.S. GAAP | — | 1,511,450 | 51,869 | |||||||||
Other assets: | ||||||||||||
As reported under R.O.C. GAAP | 1,924,468 | 2,694,769 | 92,477 | |||||||||
Ownership change in consolidated entities | 72,945 | 35,808 | 1,230 | |||||||||
As adjusted under U.S. GAAP | 1,997,413 | 2,730,577 | 93,707 | |||||||||
F-93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, | ||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||
NT$’000 | NT$’000 | NT$’000 | US$’000 | |||||||||||||
Cash flows from operating activities, R.O.C. GAAP | 45,251,284 | 32,427,446 | 53,560,000 | 1,838,023 | ||||||||||||
Remuneration paid to directors and supervisors | (11,939 | ) | — | — | — | |||||||||||
Employee bonus | (286,541 | ) | — | — | — | |||||||||||
Cash flows from operating activities, U.S. GAAP | 44,952,804 | 32,427,446 | 53,560,000 | 1,838,023 | ||||||||||||
Cash flows from investing activities, R.O.C. GAAP | (11,423,003 | ) | (19,234,215 | ) | (57,843,384 | ) | (1,985,016 | ) | ||||||||
Net effect of time deposits reclassified to marketable securities | (8,550,000 | ) | (3,190,000 | ) | 11,502,501 | 394,733 | ||||||||||
Cash flows from investing activities, U.S. GAAP | (19,973,003 | ) | (22,424,215 | ) | (46,340,883 | ) | (1,590,283 | ) | ||||||||
Cash flows from financing activities, R.O.C. GAAP | (34,379,650 | ) | 4,943,788 | (10,173,874 | ) | (349,138 | ) | |||||||||
Remuneration paid to directors and supervisors | 11,939 | — | — | — | ||||||||||||
Employee bonus | 286,541 | — | — | — | ||||||||||||
Cash flows from financing activities, U.S. GAAP | (34,081,170 | ) | 4,943,788 | (10,173,874 | ) | (349,138 | ) | |||||||||
Net increase (decrease) in cash and cash equivalents, R.O.C. GAAP | 888,502 | 17,586,311 | (14,881,855 | ) | (510,702 | ) | ||||||||||
Net effect of time deposits reclassified to marketable securities | (8,550,000 | ) | (3,190,000 | ) | 11,502,501 | 394,733 | ||||||||||
Net increase (decrease) in cash and cash equivalents, U.S. GAAP | (7,661,498 | ) | 14,396,311 | (3,379,354 | ) | (115,969 | ) | |||||||||
Cash and cash equivalents at beginning of year, U.S. GAAP | 47,678,147 | 40,016,649 | 54,412,960 | 1,867,294 | ||||||||||||
Cash and cash equivalents at end of year, U.S. GAAP | 40,016,649 | 54,412,960 | 51,033,606 | 1,751,325 | ||||||||||||
F-94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, | ||||||||||||
2009 | 2010 | |||||||||||
NT$’000 | NT$’000 | US$’000 | ||||||||||
Net income attributable to the Company | 2,571,988 | 23,616,120 | 810,437 | |||||||||
Transfers (to) from noncontrolling interests | ||||||||||||
Increase in the Company’s paid-in capital for purchase of subsidiaries’ common shares from noncontrolling interests | 2,497,039 | 408,011 | 14,002 | |||||||||
Increase in the Company’s paid-in capital for a subsidiary acquisition of its own common shares | 7,536 | — | — | |||||||||
Decrease in the Company’s paid-in capital for subsidiaries’ employees exercise of the stock options | (14,536 | ) | (25,500 | ) | (875 | ) | ||||||
Net transfers from noncontrolling interests | 2,490,039 | 382,511 | 13,127 | |||||||||
Change from net income attributable to the Company and transfers from noncontrolling interests | 5,062,027 | 23,998,631 | 823,564 | |||||||||
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, 2008, 2009, and 2010, the Company distributed its products on a global basis but mainly to divisions in North America (55.41%, 50.22%, and 47.34%, respectively), Asia (34.89%, 48.78%, and 52.66%, respectively), and Europe and others (9.70%, 1.00%, and nil, respectively). The Company’s sales are primarily derived from wafer sales and denominated in currencies other than NT Dollars, primarily US Dollars. One customer’s revenue represented 14% of the consolidated revenue for the year ended December 31, 2008, one customer’s revenue represented 12% of the consolidated revenue for the year ended December 31, 2009, and two customers’ revenue represented 11% and 11%, respectively, of the consolidated revenue for the year ended December 31, 2010. The Company routinely assesses the financial strength of substantially all customers. The Company also requires collateral for certain sales to mitigate the credit risk. |
F-95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, | ||||||||
2009 | 2010 | |||||||
NT$ | NT$ | |||||||
(In millions) | ||||||||
Current assets | 17,660 | 15,371 | ||||||
Non-current assets | 25,402 | 19,793 | ||||||
Current liabilities | 7,212 | 7,308 | ||||||
Long-term liabilities | 5,065 | 1,047 | ||||||
Redeemable Preferred Stock | 574 | 587 |
For the year ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
NT$ | NT$ | NT$ | ||||||||||
(In millions) | ||||||||||||
Net sales | 4,967 | 6,224 | 9,611 | |||||||||
Gross Profit (loss) | (26,751 | ) | 2,173 | 2,208 | ||||||||
Income (loss) from continuing operations before extraordinary items and cumulative effect of a change in accounting principle | (28,478 | ) | 612 | 254 | ||||||||
Net income (loss) | (28,498 | ) | 615 | 244 |
As of December 31, | ||||||||
2009 | 2010 | |||||||
NT$ | NT$ | |||||||
(In millions) | ||||||||
Current assets | 7,556 | 7,786 | ||||||
Current liabilities | 2,569 | 2,434 |
For the year ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
NT$ | NT$ | NT$ | ||||||||||
(In millions) | ||||||||||||
Net sales | (1,711 | ) | 1,685 | 785 | ||||||||
Gross Profit (loss) | (1,766 | ) | 1,609 | 684 | ||||||||
Income (loss) from continuing operations before extraordinary items and cumulative effect of a change in accounting principle | (1,766 | ) | 1,609 | 684 | ||||||||
Net income (loss) | (1,766 | ) | 1,609 | 684 |
F-96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
New Accounting Pronouncements |
In October 2009, the FASB issued ASU 2009-13Revenue recognition (Topic 605) Multiple-Deliverable Revenue Arrangements. Multiple-deliverable arrangements will be separated in more circumstances than under existing U.S. GAAP. The amendment establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, or otherwise on third-party evidence; if neither vendor-specific objective evidence nor third-party evidence is available, it will be based on estimated selling price. The amendments replaced the term fair value in the revenue allocation guidance with selling price, eliminated the residual method of allocation and expanded the disclosure requirements. The amendments are expected to be effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company does not expect this amendment to have a material impact on our consolidated financial statements. |
In March 2010, the FASB updated ASC 815,Derivatives and Hedging. The amended guidance clarifies whether embedded credit derivatives should be bifurcated and accounted for separately. In general, an embedded credit derivative feature that transfers credit risk “only in the form of subordination of one financial instrument to another” is not required to be analyzed for potential bifurcation and separate accounting. If this scope exception does not apply, other embedded derivative features should be analyzed to determine if they should be bifurcated and accounted for separately. This Update is effective at the beginning of the first fiscal quarter beginning after June 15, 2010. The Company does not expect this amendment to have a material impact on our consolidated financial statements. |
In April 2010, FASB issued ASU 2010-13Compensation-Stock Compensation (Topic 718) Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. This Update provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, such an award is not to be classified as a liability if it otherwise qualifies as equity classification. The amendments in this Update are effective for interim and annual periods beginning on or after December 15, 2010, with earlier application permitted. The guidance should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings for all outstanding awards as of the beginning of the fiscal year in which the amendments are initially applied. The Company does not expect this amendment to have a material impact on our consolidated financial statement. |
F-97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April 2010, the FASB issued ASU 2010-17Revenue Recognition (Topic 605) Milestone Method of Revenue Recognition. The amendment provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. The amendment states that in order to use the milestone method, the milestone must be considered substantive in its entirety. As a result, each milestone should be evaluated whether to meet all the criteria to be considered substantive and additional disclosures are required. The new pronouncement will be effective prospectively for milestones achieved in fiscal years, and interim periods within those years beginning on or after June 15, 2010. The Company does not expect this statement to have a material impact on our consolidated financial statements. |
In December 2010, the FASB issued ASU 2010-28Intangibles—Goodwill and Other (Topic 350) When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. This ASU addresses how companies should test for goodwill impairment when the book value of a reporting entity is zero or negative. For reporting units with zero or negative carrying amounts, an entity is required to assess the qualitative factors listed in ASC 350-20-35-30 if it is more likely than not that the goodwill impairment exists. If an entity concludes that goodwill impairment exists, the entity must perform step 2 of the goodwill impairment test. This update will be effective for fiscal years beginning after December 15, 2010. The Company does not expect this statement to have a material impact on our consolidated financial statements. |
F-98