-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RaydHZCXyg5e2r/Uuof3H7EOMYgn6pEHvP8dpSeQJlBNMxBkgb5UR9GGfa/WyDip PJuKIykZG4LM2ouQ1zwxjA== 0001193125-03-053223.txt : 20030924 0001193125-03-053223.hdr.sgml : 20030924 20030924085347 ACCESSION NUMBER: 0001193125-03-053223 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030924 FILED AS OF DATE: 20030924 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED MICROELECTRONICS CORP CENTRAL INDEX KEY: 0001033767 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 000000000 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-15128 FILM NUMBER: 03906996 BUSINESS ADDRESS: STREET 1: 993 HIGHLAND CIRCLE CITY: LOS ALTOS STATE: CA ZIP: 94024 BUSINESS PHONE: 0118863577 MAIL ADDRESS: STREET 1: 993 HIGHLAND CIRCLE CITY: LOS ALTOS STATE: CA ZIP: 94024 6-K 1 d6k.txt FORM 6-K 1934 Act Registration No. 1-15128 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 6-K REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934 Dated September 24, 2003 United Microelectronics Corporation (Translation of Registrant's Name into English) No. 3 Li Hsin Road II Science-Based Industrial Park Hsinchu, Taiwan, R.O.C. (Address of Principal Executive Office) (Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.) Form 20-F X Form 40-F ___ --- (Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.) Yes ____ No X --- (If "Yes" is marked, indicated below the file number assigned to the registrant in connection with Rule 12g3-2(b): Not applicable ) This current report on Form 6-K is hereby incorporated by reference into our Registration Statement on Form F-3 filed with the Commission on January 2, 2002, as amended (File No.333-14256). INDEX TO THE FINANCIAL STATEMENTS
Page ---- United Microelectronics Corporation and Subsidiaries Report of Independent Auditors .................................................. F-2 Consolidated Balance Sheets at December 31, 2001 and 2002 and June 30, 2003 ..... F-3 Consolidated Statements of Operations for each of the three years in the period ended December 31, 2000, 2001 and 2002 and for the six-month periods ended June 30, 2002 and 2003 ....................................................... F-4 Consolidated Statements of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 2000, 2001 and 2002 and for the six-month periods ended June 30, 2002 and 2003 ........................... F-5 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2000, 2001 and 2002 and for the six-month periods ended June 30, 2002 and 2003 ................................................. F-10 Notes to the Consolidated Financial Statements .................................. F-12 Independent Auditor's Report of UMC (Group) USA by PricewaterhouseCoopers LLP (1) Independent Auditor's Report of Nippon Foundry Inc. by ChuoAoyama Audit Corporation (2)
- ---------- (1) Incorporated by reference to p. F-71 of the Registrant's Annual Report on Form 20-F (File No. 1-15128) for the fiscal year ended December 31, 2000, filed with the SEC on June 28, 2001. (2) Incorporated by reference to p. F-72 of the Registrant's Annual Report on Form 20-F (File No. 1-15128) for the fiscal year ended December 31, 2000, filed with the SEC on June 28, 2001. F-1 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of United Microelectronics Corporation We have audited the accompanying consolidated balance sheets of United Microelectronics Corporation and subsidiaries as of December 31, 2001 and 2002 and June 30, 2003, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years ended December 31, 2000, 2001 and 2002 and for the six-month periods ended June 30, 2002 and 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of UMC Group (USA), a wholly-owned subsidiary, and UMC Japan, a 52.00% owned subsidiary, whose statements reflect total assets of NT$10,171 million and NT$25,759 million, respectively, as of December 31, 2000, and total revenues of NT$43,491 million and NT$10,542 million, respectively, for the year then ended. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for UMC Group (USA) and UMC Japan, is based solely on the reports of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Microelectronics Corporation and subsidiaries as of December 31, 2001 and 2002 and June 30, 2003 and the consolidated results of their operations and their cash flows for the years ended December 31, 2000, 2001 and 2002 and for the six-month periods ended June 30, 2002 and 2003, in conformity with the "Guidelines Governing the Preparation of Financial Reports by Securities Issuers" and accounting principles generally accepted in the Republic of China. Accounting principles generally accepted in the Republic of China vary in certain significant respects from accounting principles generally accepted in the United States. The application of accounting principles generally accepted in the United States would have affected the consolidated stockholders' equity and financial position as of December 31, 2001 and 2002 and June 30, 2003, and the consolidated results of operations for the years ended December 31, 2000, 2001 and 2002 and for the six-month periods ended June 30, 2002 and 2003, to the extent summarized in Note 30 to the consolidated financial statements. DIWAN, ERNST & YOUNG CERTIFIED PUBLIC ACCOUNTANTS Taipei, Taiwan Republic of China July 16, 2003 F-2 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Expressed in thousands)
Notes As of December 31, ---------------------------------------- 2001 2002 As of June 30, 2003 ------------ --------------------------- --------------------------- NT$ NT$ US$ NT$ US$ Assets Current assets: Cash and cash equivalents 2, 4 76,904,068 74,902,448 2,164,185 89,692,086 2,591,508 Marketable securities, net 2, 5 1,286,434 2,526,365 72,995 1,049,768 30,332 Notes receivable 6 215,692 85,371 2,467 396,300 11,450 Accounts receivable, net 2, 7, 23 8,887,600 12,001,652 346,769 14,681,535 424,199 Other financial assets, current 8 - 5,980,960 172,810 1,704,726 49,255 Inventories, net 2, 9 5,717,203 8,440,005 243,860 8,357,686 241,482 Other current assets 7,775,543 6,985,376 201,831 5,193,143 150,048 ----------- ----------- ---------- ----------- ---------- Total current assets 100,786,540 110,922,177 3,204,917 121,075,244 3,498,274 Long-term investments 2, 10 40,756,678 37,800,496 1,092,184 41,044,566 1,185,917 Other financial assets, noncurrent 8 - 873,000 25,224 2,563,920 74,080 Property, plant and equipment, net 2, 11, 23 169,121,168 167,076,910 4,827,417 155,449,821 4,491,471 Deferred charges 2 3,685,581 3,564,721 102,997 3,214,523 92,878 Deferred income tax assets 2, 20 4,371,231 5,232,928 151,197 5,548,192 160,306 Other assets 1,708,359 1,558,655 45,035 1,763,194 50,945 Restricted deposits 23 264,700 - - - - ----------- ----------- ---------- ----------- ---------- Total assets 320,694,257 327,028,887 9,448,971 330,659,460 9,553,871 =========== =========== ========== =========== ========== Liabilities and Stockholders' Equity Current liabilities: Short-term loans 12, 23 753,450 1,178,800 34,060 1,920,035 55,477 Notes and accounts payable 15,433,730 13,697,183 395,758 12,468,768 360,265 Income tax payable 2 219,877 284,678 8,225 225,805 6,524 Accrued expenses 5,678,713 4,032,474 116,512 6,009,783 173,643 Current portion of long-term interest-bearing liabilities 13, 14, 23 9,720,178 7,781,598 224,837 17,453,968 504,304 Current portion of capacity deposit 24 2,512,536 1,917,096 55,391 1,782,115 51,491 Other current liabilities 205,721 255,584 7,385 409,435 11,830 ----------- ----------- ---------- ----------- ---------- Total current liabilities 34,524,205 29,147,413 842,168 40,269,909 1,163,534 Long-term liabilities: Bonds payable 2, 13 38,450,511 49,441,484 1,428,532 49,865,823 1,440,792 Long-term loans 14, 23 16,244,823 12,879,512 372,132 6,931,084 200,263 Capacity deposits and other deposits 24 865,546 2,698 78 2,729 79 Other long-term liabilities 1,692,451 2,109,409 60,948 2,210,169 63,859 ----------- ----------- ---------- ----------- ---------- Total long-term liabilities 57,253,331 64,433,103 1,861,690 59,009,805 1,704,993 ----------- ----------- ---------- ----------- ---------- Total liabilities 91,777,536 93,580,516 2,703,858 99,279,714 2,868,527 Minority interests 15,594,468 16,023,886 462,984 15,410,157 445,252 Stockholders' equity: Capital stock 16 133,356,954 154,748,456 4,471,207 154,748,456 4,471,207 Stock to be issued 16 - - - 6,658,979 192,400 Capital reserve 2 82,115,682 81,875,491 2,365,660 79,955,082 2,310,173 Retained earnings 18 34,152,379 20,004,054 577,985 16,429,954 474,717 Unrealized loss on long-term investments 2 (470,931) (1,349,248) (38,985) (1,414,257) (40,863) Cumulative translation adjustment 2 (160,470) 728,851 21,059 399,741 11,550 Treasury stock 2, 3, 17 (35,671,361) (38,583,119) (1,114,797) (40,808,366) (1,179,092) ----------- ----------- ---------- ----------- ---------- Total stockholders' equity 213,322,253 217,424,485 6,282,129 215,969,589 6,240,092 ----------- ----------- ---------- ----------- ---------- Total liabilities and stockholders' equity 320,694,257 327,028,887 9,448,971 330,659,460 9,553,871 =========== =========== ========== =========== ==========
The accompanying notes are an integral part of these consolidated financial statements F-3 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Expressed in thousands, except per share data)
Notes For the year ended December 31, --------------------------------------------------- 2000 2001 2002 ----------- ------------ ------------------------ NT$ NT$ NT$ US$ Net operating revenues 2 115,609,339 69,816,799 75,425,356 2,179,294 Costs of goods sold (57,411,045) (60,567,909) (62,887,302) (1,817,027) ----------- ----------- ----------- ---------- Gross profit 58,198,294 9,248,890 12,538,054 362,267 ----------- ----------- ----------- ---------- Operating expenses: Sales and marketing (1,153,160) (2,275,884) (1,526,907) (44,118) General and administrative (3,195,464) (4,425,568) (3,530,756) (102,015) Research and development 2 (6,306,273) (8,959,691) (7,368,133) (212,890) ----------- ----------- ----------- --------- (10,654,897) (15,661,143) (12,425,796) (359,023) ----------- ----------- ----------- --------- Operating income (loss) 47,543,397 (6,412,253) 112,258 3,244 ----------- ----------- ----------- --------- Non-operating income: Interest revenue 2,018,926 2,487,485 1,644,100 47,503 Investment income accounted for under the equity method, net 2 2,077,488 - 185,690 5,365 Dividend income 63,417 246,700 256,543 7,412 Gain on disposal of investments, net 588,202 2,347,219 8,473,213 244,820 Gain on disposal of property, plant and equipment 2 372,938 186,013 66,236 1,914 Exchange gain, net 2 2,922,412 648,169 - - Other income 826,581 601,414 701,815 20,278 ----------- ----------- ----------- --------- 8,869,964 6,517,000 11,327,597 327,292 ----------- ----------- ----------- --------- Non-operating expenses: Interest expenses 11 (2,367,401) (2,525,937) (1,455,374) (42,051) Investment loss accounted for under the equity method, net 2 - (1,632,859) - - Other investment loss (414,560) (442,182) (1,373,989) (39,699) Loss on disposal of property, plant and equipment 2 (273,238) (231,536) (45,814) (1,324) Exchange loss, net 2 - - (103,703) (2,996) Other losses (1,029,004) (1,838,270) (1,444,727) (41,743) ----------- ----------- ---------- ---------- (4,084,203) (6,670,784) (4,423,607) (127,813) ----------- ----------- ---------- ---------- Income (loss) before income tax and minority interests 52,329,158 (6,566,037) 7,016,248 202,723 Income tax benefit (expense) 2, 20 91,062 3,039,989 (270,731) (7,822) Minority interests (income) loss 2 (1,639,842) 368,746 326,515 9,434 ----------- ----------- ---------- --------- Net income (loss) 50,780,378 (3,157,302) 7,072,032 204,335 =========== =========== ========== ========= Earnings (loss) per share - basic (in dollars) 2, 21 3.49 (0.21) 0.48 =========== =========== ========== Shares used in per share calculation - basic 14,545,699 14,920,842 14,753,187 =========== =========== ========== Earnings (loss) per share - diluted (in dollars) 3.49 (0.21) 0.48 =========== =========== ========== Shares used in per share calculation- diluted 14,545,699 14,920,842 14,944,510 =========== =========== ========== Pro forma information on earnings as if unconsolidated subsidiaries' investment in the Company is not treated as treasury stock Earnings per share - basic (in dollars) 21 0.48 ========== Earnings per share - diluted (in dollars) 21 0.48 ========== Notes For the six-month period ended June 30, ----------------------------------------- 2002 2003 ------------- -------------------------- NT$ NT$ US$ Net operating revenues 2 34,559,728 44,145,337 1,275,508 Costs of goods sold (29,004,723) (35,822,009) (1,035,019) ----------- ----------- ---------- Gross profit 5,555,005 8,323,328 240,489 ----------- ----------- ---------- Operating expenses: Sales and marketing (595,397) (1,002,682) (28,971) General and administrative (2,065,465) (1,570,388) (45,374) Research and development 2 (4,203,600) (2,869,405) (82,907) ----------- ---------- ---------- (6,864,462) (5,442,475) (157,252) ----------- ---------- ---------- Operating income (loss) (1,309,457) 2,880,853 83,237 ----------- ----------- ---------- Non-operating income: Interest revenue 874,227 591,564 17,092 Investment income accounted for under the equity method, net 2 - 182,368 5,269 Dividend income 68,107 9,928 287 Gain on disposal of investments, net 7,959,716 1,352,570 39,080 Gain on disposal of property, plant and equipment 2 6,943 110,176 3,184 Exchange gain, net 2 - 138,516 4,002 Other income 510,950 293,058 8,468 ----------- ----------- ---------- 9,419,943 2,678,180 77,382 ----------- ----------- ---------- Non-operating expenses: Interest expenses 11 (805,180) (611,411) (17,666) Investment loss accounted for under the equity method, net 2 (160,974) - - Other investment loss (1,314,297) (304,717) (8,804) Loss on disposal of property, plant and equipment 2 (19,274) (88,811) (2,566) Exchange loss, net 2 (280,787) - - Other losses (764,406) (1,307,095) (37,767) ----------- ----------- ---------- (3,344,918) (2,312,034) (66,803) ----------- ----------- ---------- Income (loss) before income tax and minority interests 4,765,568 3,246,999 93,816 Income tax benefit (expense) 2, 20 (187,622) (450,355) (13,012) Minority interests (income) loss 2 83,809 293,560 8,482 ----------- ----------- ---------- Net income (loss) 4,661,755 3,090,204 89,286 =========== =========== ========== Earnings (loss) per share - basic (in dollars) 2, 21 0.32 0.21 =========== =========== Shares used in per share calculation - basic 14,768,741 14,682,742 =========== =========== Earnings (loss) per share - diluted (in dollars) 0.31 0.21 =========== =========== Shares used in per share calculation- diluted 14,918,805 14,880,389 =========== =========== Pro forma information on earnings as if unconsolidated subsidiaries' investment in the Company is not treated as treasury stock Earnings per share - basic (in dollars) 21 0.32 0.21 =========== =========== Earnings per share - diluted (in dollars) 21 0.31 0.21 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-4 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Expressed in thousands)
Capital Stock Retained Earnings ------------------------ ------------------------ Common Capital Legal Unappropriated Stock Shares Reserve Reserve Earnings ------------ ---------- ------------ ----------- -------------- NT$ NT$ NT$ NT$ Balance at January 1, 2000 66,549,966 6,654,997 36,836,033 4,579,516 11,130,347 New shares issued due to merger on January 3, 2000 23,836,503 2,383,650 17,152,454 - - Appropriation of 1999 retained earnings Legal reserve - - - 1,045,718 (1,045,718) Stock dividends 9,049,268 904,927 - - (9,049,268) Directors' and supervisors' remuneration - - - - (95,737) Employees' bonus 786,893 78,689 - - (786,893) Capitalization of capital reserve 9,049,269 904,927 (9,049,269) - - Purchase of treasury stock - - - - - Net income for 2000 - - - - 50,780,378 Gain on disposal of property, plant and equipment - - 170,473 - (170,473) Gain on disposal of property, plant and equipment from investees - - 2,715 - (2,715) Conversion of convertible bonds issued 942,620 94,262 2,486,512 - - Adjustment of capital reserve accounted for under equity method - - 547,377 - - Changes in unrealized loss on long-term investments - - - - - Changes in unrealized loss on long-term investments of investees - - - - - Shares issued for American Depositary Shares 4,500,000 450,000 34,014,773 - - Changes in cumulative translation adjustment - - - - - Treasury stock due to consolidation - - - - - ------------ ---------- ---------- ---------- ----------- Balance at December 31, 2000 114,714,519 11,471,452 82,161,068 5,625,234 50,759,921 ============ ========== =========== ========== =========== Unrealized Loss on Cumulative Treasury Long-term Translation Stock Investments Adjustment Total -------------- ------------ ------------ ------------- NT$ NT$ NT$ NT$ Balance at January 1, 2000 (16,691,822) (319,448) 535,234 102,619,826 New shares issued due to merger on January 3, 2000 - - (1,083) 40,987,874 Appropriation of 1999 retained earnings Legal reserve - - - - Stock dividends - - - - Directors' and supervisors' remuneration - - - (95,737) Employees' bonus - - - - Capitalization of capital reserve - - - - Purchase of treasury stock (1,479,064) - - (1,479,064) Net income for 2000 - - - 50,780,378 Gain on disposal of property, plant and equipment - - - - Gain on disposal of property, plant and equipment from investees - - - - Conversion of convertible bonds issued - - - 3,429,132 Adjustment of capital reserve accounted for under equity method - - - 547,377 Changes in unrealized loss on long-term investments - (1,194,849) - (1,194,849) Changes in unrealized loss on long-term investments of investees - (750,982) - (750,982) Shares issued for American Depositary Shares - - - 38,514,773 Changes in cumulative translation adjustment - - (509,949) (509,949) Treasury stock due to consolidation (12,900,832) - - (12,900,832) ----------- ---------- --------- ----------- Balance at December 31, 2000 (31,071,718) (2,265,279) 24,202 219,947,947 =========== ========== ========= ===========
The accompanying notes are an integral part of these consolidated financial statements F-5 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Continued) (Expressed in thousands)
Capital Stock -------------------------------- Common Capital Stock Shares Reserve ------------ ------------------ ---------------- NT$ NT$ Balance at January 1, 2001 114,714,519 11,471,452 82,161,068 Purchase of treasury stock - - - Net loss for 2001 - - - Appropriation of 2000 retained earnings Legal reserve - - - Special reserve - - - Stock dividends 17,151,040 1,715,104 - Directors' and supervisors' remuneration - - - Employees' bonus 1,491,395 149,139 - Issuance cost adjustment for American Depositary Shares - - 147,086 Changes in unrealized loss on long-term investments - - - Changes in unrealized loss on long-term investments of investees - - - Adjustment of capital reserve accounted for under equity method - - (192,472) Changes in cumulative translation adjustment - - - ------------- ----------- ----------- Balance at December 31, 2001 133,356,954 13,335,695 82,115,682 ============= =========== =========== Retained Earnings --------------------------------------------------- Special Legal Unappropriated Reserve Reserve Earnings --------------- ----------------- ----------------- NT$ NT$ NT$ Balance at January 1, 2001 - 5,625,234 50,759,921 Purchase of treasury stock - - - Net loss for 2001 - - (3,157,302) Appropriation of 2000 retained earnings Legal reserve - 5,060,991 (5,060,991) Special reserve 2,242,284 - (2,242,284) Stock dividends - - (17,151,040) Directors' and supervisors' remuneration - - (433,039) Employees' bonus - - (1,491,395) Issuance cost adjustment for American Depositary Shares - - - Changes in unrealized loss on long-term investments - - - Changes in unrealized loss on long-term investments of investees - - - Adjustment of capital reserve accounted for under equity method - - - Changes in cumulative translation adjustment - - - ------------- ----------- ----------- Balance at December 31, 2001 2,242,284 10,686,225 21,223,870 ============= =========== =========== Unrealized Loss on Cumulative Treasury Long-term Translation Stock Investments Adjustment Total ----------------- ------------------ ----------- ----------- NT$ NT$ NT$ NT$ Balance at January 1, 2001 (31,071,718) (2,265,279) 24,202 219,947,947 Purchase of treasury stock (4,599,643) - - (4,599,643) Net loss for 2001 - - - (3,157,302) Appropriation of 2000 retained earnings Legal reserve - - - - Special reserve - - - - Stock dividends - - - - Directors' and supervisors' remuneration - - - (433,039) Employees' bonus - - - - Issuance cost adjustment for American Depositary Shares - - - 147,086 Changes in unrealized loss on long-term investments - 1,514,297 - 1,514,297 Changes in unrealized loss on long-term investments of investees - 280,051 - 280,051 Adjustment of capital reserve accounted for under equity method - - - (192,472) Changes in cumulative translation adjustment - - (184,672) (184,672) ------------- ----------- ----------- ------------- Balance at December 31, 2001 (35,671,361) (470,931) (160,470) 213,322,253 ============= =========== =========== =============
The accompanying notes are an integral part of these consolidated financial statements F-6 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Continued) (Expressed in thousands)
Capital Stock Retained Earnings --------------------------- ------------------------------------- Common Capital Special Legal Unappropriated Stock Shares Reserve Reserve Reserve Earnings -------------- ----------- ----------- ----------- ---------- -------------- NT$ NT$ NT$ NT$ NT$ Balance at January 1, 2002 133,356,954 13,335,695 82,115,682 2,242,284 10,686,225 21,223,870 Purchase of treasruy stock - - - - - - Treasury stock held by unconsolidated subsidiaries - - - - - - Net income for 2002 - - - - - 7,072,032 Appropriation of 2001 retained earnings Special reserve - - - (1,610,302) - 1,610,302 Stock dividends 19,680,182 1,968,018 - - - (19,680,182) Employees' bonus 1,711,320 171,132 - - - (1,711,320) Changes in unrealized loss on long-term investments of investees - - - - - - Gain on disposal of property, plant and equipment adjusted from capital reserve - - (170,473) - - 170,473 Investees' gain on disposal of property, plant and equipment adjusted from capital reserve - - (672) - - 672 Adjustment of capital reserve accounted for under equity method - - (69,046) - - - Changes in cumulative translation adjustment - - - - - - ------------ ----------- ----------- -------- ----------- ---------- Balance at December 31, 2002(NT$) 154,748,456 15,474,845 81,875,491 631,982 10,686,225 8,685,847 ============ =========== =========== ======== =========== ========== Balance at December 31, 2002(US$) 4,471,207 2,365,660 18,260 308,761 250,964 ============ =========== ======== =========== ========== Unrealized Loss on Cumulative Treasury Long-term Translation Stock Investments Adjustment Total ---------------- ---------------- --------------- ------------- NT$ NT$ NT$ NT$ Balance at January 1, 2002 (35,671,361) (470,931) (160,470) 213,322,253 Purchase of treasruy stock (2,739,918) - - (2,739,918) Treasury stock held by unconsolidated subsidiaries (171,840) - - (171,840) Net income for 2002 - - - 7,072,032 Appropriation of 2001 retained earnings Special reserve - - - - Stock dividends - - - - Employees' bonus - - - - Changes in unrealized loss on long-term investments of investees - (878,317) - (878,317) Gain on disposal of property, plant and equipment adjusted from capital reserve - - - - Investees' gain on disposal of property, plant and equipment adjusted from capital reserve - - - - Adjustment of capital reserve accounted for under equity method - - - (69,046) Changes in cumulative translation adjustment - - 889,321 889,321 -------------- ----------- -------- ------------ Balance at December 31, 2002(NT$) (38,583,119) (1,349,248) 728,851 217,424,485 ============== =========== ======== ============ Balance at December 31, 2002(US$) (1,114,797) (38,985) 21,059 6,282,129 ============== =========== ======== ============
The accompanying notes are an integral part of these consolidated financial statements F-7 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Continued) (Expressed in thousands)
Capital Stock Retained Earnings ------------------------- ------------------------- Common Stock to be Capital Special Legal Stock Shares issued Reserve Reserve Reserve ------------ ----------- ------------ ------------ ------------ ------------ NT$ NT$ NT$ NT$ NT$ Balance at January 1, 2002 133,356,954 13,335,695 - 82,115,682 2,242,284 10,686,225 Purchase of treasury stock - - - - - - Treasury stock held by unconsolidated subsidiaries - - - - - - Net income for six months ended June 30, 2002 - - - - - - Appropriation of 2001 retained earnings Special reserve - - - - (1,610,302) - Stock dividends - - 19,680,182 - - - Employees' bonus - - 1,711,320 - - - Gain on disposal of property, plant and equipment adjusted from capital reserve - - - (170,473) - - Changes in unrealized loss on long-term investments of investees - - - - - - Adjustment of capital reserve accounted for under equity method - - - 26,864 - - Changes in cumulative translation adjustment - - - - - - ----------- ---------- ---------- ---------- ---------- ---------- Balance at June 30, 2002 133,356,954 13,335,695 21,391,502 81,972,073 631,982 10,686,225 =========== ========== ========== ========== ========== ========== --------------- Unrealized Loss on Cumulative Unappropriated Treasury Long-term Translation Earnings Stock Investments Adjustment Total --------------- -------------- ------------- ------------- ---------------- NT$ NT$ NT$ NT$ NT$ Balance at January 1, 2002 21,223,870 (35,671,361) (470,931) (160,470) 213,322,253 Purchase of treasury stock - (2,178,200) - - (2,178,200) Treasury stock held by unconsolidated subsidiaries - (171,840) - - (171,840) Net income for six months ended June 30, 2002 4,661,755 - - - 4,661,755 Appropriation of 2001 retained earnings Special reserve 1,610,302 - - - - Stock dividends (19,680,182) - - - - Employees' bonus (1,711,320) - - - - Gain on disposal of property, plant and equipment adjusted from capital reserve 170,473 - - - - Changes in unrealized loss on long-term investments of investees - - 150,900 - 150,900 Adjustment of capital reserve accounted for under equity method - - - - 26,864 Changes in cumulative translation adjustment - - - 134,120 134,120 ----------- ----------- -------- -------- ----------- Balance at June 30, 2002 6,274,898 (38,021,401) (320,031) (26,350) 215,945,852 =========== =========== ======== ======== ===========
The accompanying notes are an integral part of these consolidated financial statements F-8 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Continued) (Expressed in thousands)
Capital Stock Retained Earnings ------------------------ ----------------------- Common Stock to Capital Special Legal Stock Shares be issued Reserve Reserve Reserve ------------ ----------- ------------- ------------ ---------- ------------ NT$ NT$ NT$ NT$ NT$ Balance at January 1, 2003 154,748,456 15,474,845 - 81,875,491 631,982 10,686,225 Purchase of treasury stock - - - - - - Purchase of treasury stock by investees - - - - - - Net income for six months ended June 30, 2003 - - - - - - Appropriation of 2002 retained earnings Legal reserve - - - - - 724,250 Special reserve - - - - 715,012 - Stock dividends - - 6,079,252 - - - Directors' and supervisors' remuneration - - - - - - Employees' bonus - - 579,727 - - - Investees' gain on disposal of property, plant and equipment adjusted from capital reserve - - - (325) - - Changes in unrealized loss on long-term investments of investees - - - - - - Adjustment of capital reserve accounted for under equity method - - - (1,920,084) - - Changes in cumulative translation adjustment - - - - - - ----------- ---------- --------- ---------- --------- ---------- Balance at June 30, 2003 (in NT$) 154,748,456 15,474,845 6,658,979 79,955,082 1,346,994 11,410,475 =========== ========== ========= ========== ========= ========== Balance at June 30, 2003 (in US$) 4,471,207 192,400 2,310,173 38,919 329,687 =========== ========= ========== ========= ========== --------------- Unrealized Loss on Cumulative Unappropriated Treasury Long-term Translation Earnings Stock Investments Adjustment Total --------------- ------------ ------------- ------------- -------------- NT$ NT$ NT$ NT$ NT$ Balance at January 1, 2003 8,685,847 (38,583,119) (1,349,248) 728,851 217,424,485 Purchase of treasury stock - (2,056,064) - - (2,056,064) Purchase of treasury stock by investees - (169,183) - - (169,183) Net income for six months ended June 30, 2003 3,090,204 - - 3,090,204 Appropriation of 2002 retained earnings Legal reserve (724,250) - - - - Special reserve (715,012) - - - - Stock dividends (6,079,252) - - - - Directors' and supervisors' remuneration (5,650) - - - (5,650) Employees' bonus (579,727) - - - - Investees' gain on disposal of property, plant and equipment adjusted from capital reserve 325 - - - - Changes in unrealized loss on long-term investments of investees - - (65,009) - (65,009) Adjustment of capital reserve accounted for under equity method - - - - (1,920,084) Changes in cumulative translation adjustment - - - (329,110) (329,110) ---------- ----------- ---------- -------- ----------- Balance at June 30, 2003 (in NT$) 3,672,485 (40,808,366) (1,414,257) 399,741 215,969,589 ========== =========== ========== ======== =========== Balance at June 30, 2003 (in US$) 106,111 (1,179,092) (40,863) 11,550 6,240,092 ========== =========== ========== ======== ===========
The accompanying notes are an integral part of these consolidated financial statements F-9 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in thousands)
For the year ended December 31, ------------------------------------------------------- 2000 2001 2002 ------------ ------------- ---------------------------- NT$ NT$ NT$ US$ Cash flows from operating activities: Net income (loss) 50,780,378 (3,157,302) 7,072,032 204,335 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Minority interests income (loss) 1,639,842 (368,746) (326,515) (9,434) Depreciation 24,403,320 34,390,192 36,567,535 1,056,560 Amortization 1,176,713 1,877,551 1,699,766 49,112 Allowance (reversal) for bad debts expense 52,940 (108,892) (66,512) (1,922) Loss on decline in market value of marketable securities - - 10,806 312 Loss on decline in market value and obsolescence of inventories 610,327 1,529,823 955,074 27,595 Cash dividends received under equity method 18,900 227,025 156,820 4,531 Long-term investment (income) loss accounted for under equity method (2,077,487) 1,554,402 (230,600) (6,663) Impairment loss of long-term investments 414,560 535,890 1,408,565 40,698 Gain on disposal of investments (588,202) (2,347,219) (8,473,213) (244,820) (Gain) loss on disposal of property, plant and equipment (37,903) 73,683 30,532 882 Exchange loss (gain) on long-term loans - 431,142 (145,671) (4,209) Forfeited interest on converted bonds 74,313 - - - Patent rights return - (93,990) - - Gain on reacquisition of bonds - - (256,204) (7,403) Changes in assets and liabilities: Notes receivable 1,394,574 261,920 217,922 6,297 Accounts receivable (7,426,562) 11,341,957 (3,380,836) (97,684) Inventories (6,428,624) 3,493,492 (3,638,525) (105,129) Other current assets (1,180,410) (1,784,024) (57,474) (1,660) Deferred tax assets (7,239) (3,394,095) 125,072 3,614 Notes and accounts payable (1,075,912) (4,229,047) 444,129 12,832 Income tax payable (18,625) (754,950) 283,728 8,198 Accrued expenses 2,667,916 689,462 (1,373,026) (39,671) Other current liabilities 269,347 (693,509) 2,674 77 Compensation interest payable (11,494) 4,415 78,977 2,282 Other long-term liabilities 342,934 471,411 450,060 13,004 Capacity deposits 3,083,578 236,902 (1,028,162) (29,707) ----------- ----------- ----------- ---------- Net cash provided by operating activities 68,077,184 40,187,493 30,526,954 882,027 ----------- ----------- ----------- ---------- Cash flows from investing activities: Decrease (increase) in marketable securities, net 1,838,352 (1,256,567) (839,551) (24,257) (Increase) decrease in restricted deposits (2,580,724) 2,660,800 - - (Increase) decrease in other financial assets, net - - (6,853,960) (198,034) Acquisition of long-term investments (10,041,492) (4,417,786) (3,754,478) (108,480) Proceeds from disposal of long-term investments 1,723,271 4,878,280 12,385,637 357,863 Proceeds from partial disposal of a subsidiary - - - - Withdrawal of prepayments for long-term investments 1,000,000 1,772 - - Acquisition of minority interests - - - - Acquisition of property, plant and equipment (83,482,670) (43,050,831) (35,977,747) (1,039,519) Proceeds from disposal of property, plant and equipment 1,509,680 544,099 333,180 9,627 Cash proceeds from merger 19,162,146 - - - Acquisition of subsidiaries - - (65,988) (1,907) Increase in deferred charges (2,579,618) (2,409,062) (1,695,110) (48,977) (Increase) decrease in other assets (231,642) (207,749) 29,293 846 ----------- ----------- ----------- ---------- Net cash used in investing activities (73,682,697) (43,257,044) (36,438,724) (1,052,838) ----------- ----------- ----------- ---------- For the six-month period ended June 30, --------------------------------------------- 2002 2003 ------------ -------------------------------- NT$ NT$ US$ Cash flows from operating activities: Net income (loss) 4,661,755 3,090,204 89,286 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Minority interests income (loss) (83,809) (293,560) (8,482) Depreciation 17,758,258 19,302,814 557,724 Amortization 977,268 836,677 24,174 Allowance (reversal) for bad debts expense (13,274) 58,457 1,689 Loss on decline in market value of marketable securities 27,099 769 22 Loss on decline in market value and obsolescence of inventories 128,369 1,051,432 30,379 Cash dividends received under equity method 39,600 - - Long-term investment (income) loss accounted for under equity method 134,104 (182,368) (5,269) Impairment loss of long-term investments 1,314,298 303,948 8,782 Gain on disposal of investments (7,959,716) (1,352,570) (39,080) (Gain) loss on disposal of property, plant and equipment 38,221 43,806 1,266 Exchange loss (gain) on long-term loans (960,774) (89,862) (2,596) Forfeited interest on converted bonds - - - Patent rights return - - - Gain on reacquisition of bonds - (69,153) (1,998) Changes in assets and liabilities: Notes receivable (242,574) (243,645) (7,040) Accounts receivable (4,438,746) (2,908,382) (84,033) Inventories (2,336,774) (975,780) (28,194) Other current assets 431,482 2,867,016 82,838 Deferred tax assets (99) 330,736 9,556 Notes and accounts payable 1,247,108 1,316,102 38,027 Income tax payable 286,736 (5,430) (157) Accrued expenses (314,799) 620,587 17,931 Other current liabilities 33,130 145,564 4,206 Compensation interest payable 37,921 38,771 1,120 Other long-term liabilities 250,129 78,549 2,270 Capacity deposits (482,966) 61,913 1,789 ----------- ----------- -------- Net cash provided by operating activities 10,531,947 24,026,595 694,210 ----------- ----------- -------- Cash flows from investing activities: Decrease (increase) in marketable securities, net (461,774) 1,444,880 41,747 (Increase) decrease in restricted deposits - - - (Increase) decrease in other financial assets, net (5,633,250) 2,574,514 74,386 Acquisition of long-term investments (1,080,629) (5,548,842) (160,325) Proceeds from disposal of long-term investments 10,253,972 980,561 28,332 Proceeds from partial disposal of a subsidiary - 12,406 359 Withdrawal of prepayments for long-term investments - - - Acquisition of minority interests - (93,393) (2,698) Acquisition of property, plant and equipment (13,813,526) (11,904,678) (343,966) Proceeds from disposal of property, plant and equipment 69,885 224,663 6,491 Cash proceeds from merger - - - Acquisition of subsidiaries (65,988) - - Increase in deferred charges (532,791) (298,021) (8,611) (Increase) decrease in other assets (306,475) 217,073 6,272 ----------- ----------- -------- Net cash used in investing activities (11,570,576) (12,390,837) (358,013) ----------- ----------- --------
The accompanying notes are an integral part of these consolidated financial statements F-10 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Expressed in thousands)
For the year ended December 31, ---------------------------------------------------- 2000 2001 2002 ----------- ----------- ------------------------ NT$ NT$ NT$ US$ Cash flows from financing activities: (Decrease) increase in short-term loans, net (7,111,095) (3,243,955) 388,100 11,214 Proceeds from long-term loans 9,423,941 5,185,910 4,425,000 127,853 Repayment of long-term loans (6,681,765) (21,427,663) (10,047,079) (290,294) Proceeds from bonds issued 6,896,000 35,596,096 13,097,062 378,418 Proceeds from issuance of American Depositary Shares 38,514,773 - - - Redemption of bonds (33,015) - (1,140,000) (32,938) Reacquisition of bonds - - (879,100) (25,400) Cash payment for fraction of one share arising from bonds conversion (4) - - - Proceeds from minority shareholders on stock issue of subsidiaries 1,976,031 7,106,287 194,341 5,615 Purchase of treasury stock (1,479,064) (4,599,643) (2,877,190) (83,132) Increase in deposits-in, net 608 361 1,152 33 Directors' and supervisors' remuneration paid (95,737) (433,039) - - ----------- ----------- ----------- --------- Net cash provided by financing activities 41,410,673 18,184,354 3,162,286 91,369 Effect of exchange rate changes on cash and cash equivalents (137,522) (680,808) 747,864 21,608 ----------- ----------- ----------- --------- Net increase (decrease) in cash and cash equivalents 35,667,638 14,433,995 (2,001,620) (57,834) Cash and cash equivalents at beginning of period 26,802,435 62,470,073 76,904,068 2,222,019 ----------- ----------- ----------- --------- Cash and cash equivalents at end of period 62,470,073 76,904,068 74,902,448 2,164,185 =========== =========== =========== ========= Supplemental disclosures of cash flow information: Cash paid for interest 2,895,147 2,339,333 1,993,014 57,585 =========== =========== =========== ========= Cash paid for income tax 436,766 1,196,418 198,036 5,722 =========== =========== =========== ========= Investing activities partially paid by cash: Acquisition of property, plant and equipment 86,325,850 41,541,665 32,284,302 932,803 Add: Payable at beginning of period 7,099,954 13,991,449 12,482,283 360,655 Add: Increase on payable from merger 4,048,315 - - - Less: Payable at end of period (13,991,449) (12,482,283) (8,788,838) (253,939) ----------- ----------- ----------- --------- Cash paid 83,482,670 43,050,831 35,977,747 1,039,519 =========== =========== =========== ========= Investing and financing activities partially affecting cash flows: New shares issued due to merger 23,836,503 - - - Elimination of book value of United Microelectronics' investment in the merged companies 23,227,738 - - - Capital reserve increased due to merger 17,152,454 - - - Net assets, excluding cash, increased due to merged companies (45,054,549) - - - ----------- ----------- ----------- --------- Cash increased due to merger 19,162,146 - - - =========== =========== =========== ========= Financing activities not affecting cash flows: Convertible bonds (at par value) converted into common stock and certificates exchangeable for common stocks 7,255,492 - - - =========== =========== =========== ========= For the six-month period ended June 30, --------------------------------------- 2002 2003 ---------- -------------------------- NT$ NT$ US$ Cash flows from financing activities: (Decrease) increase in short-term loans, net (759,500) 754,399 21,797 Proceeds from long-term loans - 693,200 20,029 Repayment of long-term loans (6,250,400) (7,582,932) (219,097) Proceeds from bonds issued 12,895,098 15,000,000 433,401 Proceeds from issuance of American Depositary Shares - - - Redemption of bonds (569,999) (569,999) (16,469) Reacquisition of bonds - (2,711,161) (78,335) Cash payment for fraction of one share arising from bonds conversion - - - Proceeds from minority shareholders on stock issue of subsidiaries 55,696 - - Purchase of treasury stock (2,178,438) (2,259,557) (65,286) Increase in deposits-in, net 1,164 31 1 Directors' and supervisors' remuneration paid - - - ---------- ----------- ----------- Net cash provided by financing activities 3,193,621 3,323,981 96,041 Effect of exchange rate changes on cash and cash equivalents 20,601 (170,101) (4,915) ---------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 2,175,593 14,789,638 427,323 Cash and cash equivalents at beginning of period 76,904,068 74,902,448 2,164,185 ---------- ----------- ----------- Cash and cash equivalents at end of period 79,079,661 89,692,086 2,591,508 ========== =========== =========== Supplemental disclosures of cash flow information : Cash paid for interest 1,272,782 1,071,679 30,964 ========== =========== =========== Cash paid for income tax 1,337,572 105,258 3,041 ========== =========== =========== Investing activities partially paid by cash : Acquisition of property, plant and equipment 12,816,174 10,544,780 304,674 Add: Payable at beginning of period 12,482,283 8,788,838 253,939 Add: Increase on payable from merger - - - Less: Payable at end of period (11,484,931) (7,428,940) (214,647) ---------- ----------- ----------- Cash paid 13,813,526 11,904,678 343,966 ========== =========== =========== Investing and financing activities partially affecting cash flows: New shares issued due to merger - - - Elimination of book value of United Microelectronics' investment in the merged companies - - - Capital reserve increased due to merger - - - Net assets, excluding cash, increased due to merged companies - - - ---------- ----------- ----------- Cash increased due to merger - - - ========== =========== =========== Financing activities not affecting cash flows: Convertible bonds (at par value) converted into common stock and certificates exchangeable for common stocks - - - ========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements F-11 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. History and Organization United Microelectronics Corporation ("the Company") was incorporated in May 1980 and commenced operations in April 1982. The Company's major business activity is providing dedicated semiconductor wafer foundry services. The Company provides a variety of services to fit individual customer's needs, including intellectual property, embedded IC design, design verification, mask tooling, wafer fabrication, and testing. The Company's common shares were publicly listed on the Taiwan Stock Exchange in July 1985 and its American Depositary Shares ("ADSs") were listed on the New York Stock Exchange in September 2000. United Microelectronics Corporation, United Integrated Circuits Corporation ("United Integrated Circuits"), United Silicon Incorporated ("United Silicon"), United Semiconductor Corporation ("United Semiconductor") and UTEK Semiconductor Corporation ("UTEK Semiconductor") were merged into one publicly traded entity, United Microelectronics Corporation, on January 3, 2000. 2. Summary of Significant Accounting Policies The financial statements were prepared in conformity with "Guidelines Governing the Preparation of Financial Reports by Securities Issuers" and accounting principles generally accepted in the Republic of China. Summary of significant accounting polices is as follows: Principles of Consolidation The consolidated financial statements include the accounts of the Company and certain majority owned (50% or more) subsidiaries (hereinafter referred to collectively as "the Group") in accordance with the requirements of ROC Statement of Financial Accounting Standard ("ROC SFAS") No.7 and the regulations of the Taiwan Securities and Futures Commission ("Taiwan SFC"). All intercompany accounts and transactions have been eliminated in the consolidated financial statements. Pursuant to ROC SFAS NO.7 and the regulations of the Taiwan SFC, if the total assets and operating revenues of a subsidiary are less than 10% of the non-consolidated total assets and operating revenues of the Company, respectively, the subsidiary's financial statements may, at the option of the Company, not be consolidated. Irrespective of the above test, when the total combined assets or operating revenues of all such non-consolidated subsidiaries constitute up to 30% of the Company's non-consolidated total assets or operating revenues, then each individual subsidiary with total assets or operating revenues up to 3% of the Company's non-consolidated total assets or operating revenues has to be included in the consolidation. Such subsidiaries are included in the consolidated financial statements thereafter, unless the percentage of the combined total assets or operating revenues for all such subsidiaries becomes less than 20% of the Company's respective unconsolidated amount. F-12 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The consolidated financial statements include the financial statements of the Company and the following subsidiaries: Hsun Chieh Investment Co., Ltd. ("Hsun Chieh") was incorporated on December 31, 1999. The Company owned 99.97% of interest in Hsun Chieh as of December 31, 2001 and 2002, and June 30, 2003, respectively. Nippon Foundry Inc. ("Nippon Foundry") was incorporated in May 1984 in Japan and is in the business of manufacturing semiconductor products. During the year 2001, Nippon Foundry was renamed to UMC Japan ("UMCJ"). The Group owned 51.51%, 51.47%, and 52.00% of interest in UMCJ as of December 31, 2001 and 2002, and June 30, 2003, respectively. UMC Group (USA) ("UMC-USA") was incorporated on August 5, 1997, and is engaged in the business of sales of semiconductor products and providing related foundry services. The Company owned 100% of interest in UMC-USA as of December 31, 2001 and 2002, and June 30, 2003, respectively. UMCi Pte. Ltd. ("UMCi") was incorporated in January 2001. The Company held a 49.82% equity interest in UMCi as of December 31, 2001 and 2002, and a 49.74% as of June 30, 2003. In accordance with the Foundry Venture Agreement with other shareholders of UMCi, the Company obtained the controlling influence over UMCi's decisions on its operations, personnel, and financial policies since incorporation. Therefore, UMCi has been included in the consolidation despite an equity interest of less than 50% since incorporation. United Microelectronics (Europe) B.V. ("UMC BV") was incorporated on May 23, 1989 and is engaged in the business of sales of semiconductor products and providing related foundry services. The Company acquired a 100% interest in UMC BV on May 15, 2002 and since then, UMC BV became a wholly-owned subsidiary of the Company. United Microdisplay Optronics Corp. ("UMO") was incorporated on September 11, 2002 and is engaged in the business of manufacturing and sales of chips for Liquid Crystal On Silicon ("LCOS"). The Company owned an 85% equity interest in UMO as of December 31, 2002 and June 30, 2003, respectively. F-13 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Fortune Venture Capital Corporation, United MicroMachining Corporation and United Foundry Service, Inc. were excluded from consolidation in accordance with the aforementioned exclusion rules for the year ended December 31, 2000. Fortune Venture Capital Corporation, United Foundry Services, Inc. and UMC Capital Corporation were excluded from consolidation in accordance with the aforementioned exclusion rules for the year ended December 31, 2001. Fortune Venture Capital Corporation, United Foundry Services, Inc., UMC Capital Corporation and United Microelectronics Corp. (Samoa) were excluded from consolidation in accordance with the aforementioned exclusion rules for the year ended December 31, 2002 and for the six-month period ended June 30, 2002, respectively. Fortune Venture Capital Corporation, United Foundry Services, Inc., UMC Capital Corporation, United Microelectronics Corp. (Samoa) and Sigence Inc. were excluded from consolidation in accordance with the aforementioned exclusion rules for the six-month period ended June 30, 2003. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ significantly from those estimates. Certain Risks and Uncertainties The Group is engaged in the foundry business of manufacturing semiconductor products and sells its products primarily in Taiwan, Asia, North America and Europe, generally without requiring collateral. The Group's products are concentrated in the semiconductor industry, which is highly competitive and rapidly changing, and its inventories are subject to rapid technological obsolescence. While the Group has programs to minimize the required inventories on hand and considers technological obsolescence in estimating required allowances to reduce amounts to fair market value, such estimates could change in the future. Significant technological changes in the industry could affect operating results adversely. F-14 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Translation of Foreign Currency Transactions The accounts of the Company are maintained in New Taiwan dollars, the functional currency. Transactions denominated in foreign currencies are translated into New Taiwan dollars at the exchange rates prevailing on the transaction dates. Receivables, other monetary assets, and liabilities denominated in foreign currencies are translated into New Taiwan dollars at the exchange rates prevailing at the balance sheet date. Exchange gains or losses are included in the current year's results. The financial statements of foreign subsidiaries and investees are translated into New Taiwan dollars using the spot rates as of each financial statement date for asset and liability accounts, average exchange rates for profit and loss accounts and historical exchange rates for equity accounts. The cumulative translation effects for subsidiaries and investees using functional currencies other than the New Taiwan dollars are included in the cumulative translation adjustment in stockholders' equity. Convenience Translation into US Dollars The Company prepares its financial statements in New Taiwan ("NT") dollars, its reporting currency. The United States ("US") dollar amounts disclosed in the financial statements as of December 31, 2002 and June 30, 2003, respectively, are presented solely for the convenience of the readers and were translated at the Federal Reserve Bank of New York noon buying rate of NT$34.61 to US$1.00 in effect on June 30, 2003. Such translation amounts are unaudited and it should not be construed that the NT dollar amounts represent, or have been, or could be, converted into US dollars at that or any other rate. 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. Marketable Securities Marketable securities are recorded at cost when acquired and are stated at the lower of aggregate cost or market value at the balance sheet date. The market value of listed debt and equity securities, or closed-end funds is determined by the average closing price during the last month of the fiscal year. The market value for open-end funds is determined by their equity per unit at the balance sheet date. The amount by which aggregate cost exceeds market value is reported as a loss in the current year. In subsequent periods, recoveries of market value are recognized as a gain to the extent that the market value does not exceed the original aggregate cost of the investment. F-15 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Allowance for Doubtful Accounts The allowance for doubtful accounts is provided based on management's judgment and on the evaluation of collectibility and aging analysis of accounts and other receivables. Inventories Inventories are accounted for on a perpetual basis and recorded at cost when acquired and stated at the lower of aggregate cost, based on the weighted average method, or market value at the balance sheet date. The market values of raw materials and supplies are determined on the basis of replacement cost while the work in process and finished goods are determined by net realizable values. An allowance for loss on decline in market value and obsolescence is provided, when necessary. Long-term Investments Long-term investments are recorded at cost when acquired. Investments acquired by contribution of technological know-how are credited to deferred credits among affiliates, which will be amortized to income over a period of five years. Investments in less than 20% owned listed companies where significant influence on operational decisions of the investees does not reside with the Group, are accounted for by the lower of aggregate cost or market value method. The unrealized loss resulting from the decline in market value of investments that are held for long-term investment purposes is deducted from the stockholders' equity. The market value is determined by the average closing price during the last month of the fiscal year. The Group's investments in less than 20% owned unlisted companies are accounted for under the cost method. Impairment losses for the investees will be recognized if an other than temporary impairment is evident and the book value after recognizing the losses shall be treated as a new cost basis of such investment. Investment income or loss from investments in both listed and unlisted companies is accounted for under the equity method provided that the Group owns at least 20% of the outstanding voting shares of the investees and has significant influence on operational decisions of the investees. The difference of the acquisition cost and the underlying equity in the investee's net assets is amortized over five years. F-16 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Unrealized intercompany gains and losses arisen from transactions with equity investees are eliminated in proportion to the Group's ownership percentage while those from transactions with majority-owned subsidiaries are eliminated entirely in consolidation. Profit from sales of depreciable assets between the investee and the Company is amortized and recognized based on the assets' economic service lives. Profit from other types of intercompany transactions is recognized when realized. The increase in the Group's proportionate share in the net assets of its investee resulting from its subscription to additional shares of stock, issued by such investee, at the rate not proportionate to its existing equity ownership in such investee, is credited to a capital reserve account. Any decrease in the Group's proportionate share in the net assets of the investee is debited against the existing balance of the similar capital reserve account, where the credit balance can only be offset to zero. If any excess amount exists, it will be debited against unappropriated retained earnings. 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. Depreciation is provided on the straight-line basis using the economic service lives of the assets less any salvage value. When the economic service lives are completed, property, plant and equipment, which are still in use, are depreciated over the newly estimated remaining useful lives of the salvage value. The economic service lives of the property, plant and equipment are as follows: buildings - 3 to 55 years; machinery and equipment - 5 years; transportation equipment - 2 to 5 years; furniture and fixtures - 2 to 20 years; leased assets and leasehold improvements - the lease period, or economic service lives, whichever is shorter. Maintenance and repairs are charged to expense as incurred. Significant renewals and improvements are treated as capital expenditures and are depreciated accordingly. When property, plant and equipment are disposed of, their original cost and accumulated depreciation are written off and the related gain or loss is included as non-operating income or expenses. Deferred Charges Deferred charges are stated at cost and amortized on a straight-line basis as follows: intellectual property and technology license fee - the term of contract or economic lives of the related technology; software - 2 to 5 years; facilities use rights - 15 years; bonds issuance costs - over the life of the bonds; patents - over economic service lives; and acquired technological know-how - over the estimated useful life of the know-how. F-17 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) At each balance sheet date, the Group assesses whether there is any indication of impairment other than temporary. If any such indication exists, the recoverable amount is estimated and provision for impairment losses is provided accordingly. Convertible and Exchangeable Bonds The excess of the stated redemption price over the par value is accrued as compensation interest payable over the redemption period, using the effective interest method. When convertible bondholders exercise their conversion rights, the book value of bonds is credited to common stock at an amount equal to the par value of the common stock and the excess is credited to capital reserve; no gain or loss is recognized on bond conversion. When exchangeable bondholders exercise their rights to exchange for the reference shares, the book value of bonds is to be offset with the book value of the investment in reference shares and the related stockholder's equities accounts, with the difference recognized as gain or loss on disposal of investments. Pension Plan The Group has funded defined benefit pension plans covering regular employees and the pension fund is managed by independently administered pension fund associations. The net pension cost is computed based on an actuarial valuation in accordance with the provision of ROC SFAS No. 18, which requires consideration of pension cost components such as service cost, interest cost, expected return on plan assets and amortization of net obligation at transition. Capital Reserve The following shall accrue as capital reserve: (1) any premiums on capital stock; (2) the net appraisal surplus of each fiscal year; (3) any gain on disposal of assets (not applicable for 2001 and after); (4) the fair market value of assets received from a merged company in excess of assumed liabilities and payment for shares held by shareholders of the merged company; (5) any donated surplus; and (6) change in an equity investee's capital structure. Capital reserve shall be exclusively used to cover accumulated deficits when the legal reserve is insufficient to cover the deficits or distribution of stock dividends. F-18 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Treasury Stock The Group adopted the ROC SFAS No. 30, which requires that treasury stock held by the companies themselves be accounted for under the cost method. Cost of treasury stock is shown as a deduction to stockholders' equity, while gain or loss of selling treasury stock is treated as an adjustment to capital reserves. The Company's stock held by its subsidiaries is also treated as treasury stock in the Company's stand-alone account since January 1, 2002. Revenue Recognition Revenue is recognized when title and liability for risk of loss or damage to the products have been transferred to customers usually upon shipment. Sales returns and discounts taking into consideration customers' complaint and past experience are accrued in the same year of sales. The connected cost is to be deducted from the total cost of goods sold. Capital Expenditures versus Operating Expenses An expenditure is treated as an asset when it is probable that future economic benefits associated with the expenditure will flow to the Group and the total amount exceeds certain level. Otherwise it is charged to expense as incurred. Research and Development Costs incurred by the Group in research and development activities are expensed as incurred. Derivative Financial Instruments Hedging instruments are accounted for on a net accrual basis in accordance with the contractual interest rate or foreign exchange rate. Other derivative instruments are carried at fair value on the balance sheet date with any changes in unrealized gain or loss charged or credited to earnings for the year. Minority Interests Minority interests in the statement of operations includes interest in the earnings or losses of less than wholly-owned subsidiaries and the pre-acquisition earnings or losses of companies acquired during the year that the Group was not entitled to recognize. F-19 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Income Tax The Group adopted the ROC SFAS No. 22 "Accounting for Income Taxes" for inter-period and intra-period income tax allocation. Provision for income tax includes deferred tax resulting from temporary differences and investment tax credits. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements using enacted tax rates and laws that will be in effect when the difference is expected to reverse. Valuation allowance on deferred tax assets is provided to the extent that it is more likely than not that the tax benefits will not be realized. Income taxes (10%) on unappropriated earnings are recorded as expenses in the year when the shareholders have resolved that the earnings shall be retained. According to the ROC SFAS No. 12, the Group recognized the tax benefit from the tax credit incurred at the year equipment acquired, or the year the expenditure arises from research and development. Earnings per Share Earnings per share is calculated according to the ROC SFAS No.24. Basic earnings per share is computed by dividing net income (loss) by weighted average number of shares outstanding during the year. Diluted earnings per share is 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 (loss) would also be adjusted for the interest derived from any underlying dilutive share equivalents. The weighted-average outstanding shares are restated for stock dividends and bonus share issues. 3. Accounting Changes On September 1, 2001, UNIPAC Optoelectronics Corp. ("UNIPAC") was merged into Acer Display Technology Inc. which was the surviving corporate entity and was renamed AU Optronics Corp. As the Group has lost its significant influence over the investee, the investment was then accounted for under the lower of cost or market value method. Similarly, upon the listing of MediaTek Incorporation on the Taiwan Stock Exchange in 2001, the Group lost its significant influence over MediaTek and therefore, the investment in MediaTek was accounted for under the lower of cost or market value method since then. Prior to these transactions, the Group's investments in UNIPAC and MediaTek Incorporation were accounted for by equity method. F-20 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Prior to January 1, 2002, treasury stock held by the Company's subsidiaries was accounted for in the consolidation level only. Since January 1, 2002, the Company has adopted ROC SFAS No. 30 to further include the Company's stock held by its subsidiaries as treasury stock in the Company's stand-alone account. This adoption has decreased the amount of long-term investment and stockholder's equity in the consolidated balance sheet by NT$172 million, respectively, representing the treasury stock held by an unconsolidated subsidiary. The net impact caused by the accounting changes is considered insignificant. During the six-month period ended June 30, 2003, the Company has acquired additional interests in Silicon Integrated Systems Corp., an investee acquired and accounted for under the lower of cost or market value method in December 2002, and was able to exercise significant influence over the investee since January 2003. As a result, the investment was accounted for under the equity method since then. 4. Cash and Cash Equivalents
As of December 31, ------------------------------- As of June 2001 2002 30, 2003 --------------- --------------- ---------------- NT$'000 NT$'000 NT$'000 Cash: Cash on hand 4,050 4,849 3,730 Checking and savings accounts 19,837,524 2,415,088 4,193,375 Certificates of deposit 47,070,856 63,829,910 77,610,825 --------------- --------------- ---------------- Subtotal 66,912,430 66,249,847 81,807,930 Cash equivalents: Commercial paper 9,991,638 8,652,601 7,884,156 --------------- --------------- ---------------- Total 76,904,068 74,902,448 89,692,086 =============== =============== ================
F-21 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 5. Marketable Securities, Net
As of December 31, As of June ------------------------------ 2001 2002 30, 2003 ------------- ------------ ----------- NT$'000 NT$'000 NT$'000 Mutual funds 1,003,900 - 99,000 Listed equity securities 242,634 35,423 35,423 Convertible bonds 39,900 2,501,748 926,920 ------------- ------------ ----------- Subtotal 1,286,434 2,537,171 1,061,343 Less: Allowance for loss on decline in market value - (10,806) (11,575) ------------- ------------ ----------- Net 1,286,434 2,526,365 1,049,768 ============= ============ ===========
6. Notes Receivable
As of December 31, As of June ------------------------------ 2001 2002 30, 2003 ------------- ------------ ----------- NT$'000 NT$'000 NT$'000 Notes receivable 215,692 85,371 396,300 ============= ============ ===========
7. Accounts Receivable, Net
As of December 31, As of June ------------------------------ 2001 2002 30, 2003 ------------- ------------ ----------- NT$'000 NT$'000 NT$'000 Accounts receivable 9,484,042 12,785,534 15,615,219 Less: Allowance for sales returns and discounts (448,037) (666,095) (782,456) Less: Allowance for doubtful accounts (148,405) (117,787) (151,228) ------------- ------------ ----------- Net 8,887,600 12,001,652 14,681,535 ============= ============ ===========
Please refer to Note 23 for accounts receivable pledged as collateral. F-22 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 8. Other Financial Assets, Current
As of December 31, As of June ------------------------------ 2001 2002 30, 2003 ------------- ------------ ----------- NT$'000 NT$'000 NT$'000 Credit-linked deposits - 6,853,960 4,253,680 Interest rate swaps - - 14,966 Less: noncurrent portion - (873,000) (2,563,920) ------------- ------------ ----------- Net - 5,980,960 1,704,726 ============= ============ ===========
Credit-linked deposits and repackage bonds were included in "cash and cash equivalents" and "long-term investments" respectively in 2002. However, during the six-month period ended June 30, 2003, the Taiwan SFC has amended its "Guidelines Governing the Preparation of Financial Reports by Securities Issuers" and defined a new account "other financial assets". As the credit-linked deposits and repackage bonds fall within the definition of this new account, they are now classified as "other financial assets" in accordance with the amended regulations and the comparatives were reclassified to conform to the new presentation. 9. Inventories, Net
As of December 31, As of June ------------------------------ 2001 2002 30, 2003 ------------- ------------ ----------- NT$'000 NT$'000 NT$'000 Raw materials 219,166 269,519 186,873 Supplies and spare parts 1,206,801 1,434,987 1,451,928 Work in process 3,863,899 6,489,834 7,005,331 Finished goods 1,284,206 660,562 550,011 ------------- ------------ ----------- Subtotal 6,574,072 8,854,902 9,194,143 Less: Allowance for loss on decline in market value and obsolescence (856,869) (414,897) (836,457) ------------- ------------ ----------- Net 5,717,203 8,440,005 8,357,686 ============= ============ ===========
(1) The insurance coverage for inventories was sufficient as of December 31, 2001 and 2002, and June 30, 2003, respectively. (2) Inventories were not pledged. F-23 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FIANCIAL STATEMENTS-(Continued) 10. Long-term Investments (1) Details of long-term investments are as follows: (Equity securities refer to common shares unless otherwise stated)
As of December 31, -------------------------------------------------- 2001 2002 As of June 30, 2003 ------------------------ ------------------------- ------------------------ Percentage of Percentage of Percentage of Ownership or Ownership or Ownership or Invested Company Voting Rights Amount Voting Rights Amount Voting Rights Amount --------------------------------------------------- ------------- ---------- ------------- ---------- ------------- ---------- Investments accounted for under the equity method NT$'000 NT$'000 NT$'000 UMC Capital Corporation 100.00 348,084 100.00 1,028,460 100.00 1,011,904 United Foundry Service, Inc. 100.00 87,123 100.00 91,270 100.00 92,639 United Microelectronics Corp. (Samoa) - - 100.00 6,680 100.00 10,402 Fortune Venture Capital Corporation 99.99 3,491,844 99.99 3,013,016 99.99 2,458,565 Sigence Inc. - - - - 94.00 15,747 Pacific Venture Capital Co., Ltd. 49.99 351,420 49.99 316,270 49.99 306,937 VistaPoint, Inc. - - 35.65 34,224 48.77 62,030 Chariotek Inc. - - - - 47.50 28,500 Afa Technology Inc. - - 47.30 23,650 47.30 20,567 Star Semiconductor Corp. - - 46.82 22,030 46.82 21,659 DuPont Photomasks Taiwan Ltd. 46.32 1,093,113 45.51 1,145,403 45.51 1,116,379 Unitech Capital Inc. - - 42.00 729,999 42.00 732,757 Ubit Technology Inc. - - - - 39.80 19,900 Unimicron Technology Corp. (formerly known as World Wiser Electronics Incorporated)(Note A) 36.87 4,306,709 36.28 4,562,245 36.28 4,569,863 UC Fund II 35.45 161,225 35.45 174,264 35.45 164,162 VastView Technology Inc. - - - - 33.81 60,567 Accelerated Communications, Inc. - - 33.33 100,000 33.33 99,972 RiRa Electronics Inc. 31.50 30,322 32.50 59,232 32.50 43,355 United Radiotek Incorporation 26.90 13,450 29.37 29,185 29.37 21,796 Holtek Semiconductor Inc. 28.76 551,507 25.61 563,906 27.78 694,654 Ayuttha Technology Corp. - - - - 27.30 40,950 Novatek Microelectronics Corp. 26.82 1,019,824 25.83 1,195,123 26.45 1,505,041 Faraday Technology Corp. 26.68 1,686,592 25.61 1,776,611 25.61 1,855,376 Wiseware Technology Corporation - - - - 25.00 37,500 Integrated Technology Express Inc. 28.78 330,243 24.58 309,445 24.58 323,961 Archtek Telecom Corporation - - 26.49 - 23.13 62,474 Applied Component Technology Corp. 31.00 158,414 23.66 94,055 21.81 72,460 Harvatek Corp. 26.14 179,295 21.99 277,203 20.67 285,378 High Bandwidth Access, Inc. 11.92 19,191 20.13 82,934 20.04 43,710 Patentop, Ltd. (Note B) 18.00 20,963 18.00 16,543 18.00 11,688 Silicon Integrated Systems Corp. (Note E) - - - - 16.18 5,478,584 Advance Materials Corporation (Note B) 15.78 183,209 15.78 169,836 15.78 166,443 AMIC Technology (Taiwan), Inc. (Note B) 13.62 72,402 13.62 56,894 13.62 55,937 SerComm Corporation (Note B) 7.81 58,619 11.48 159,465 11.13 173,513 Integrated Telecom Express, Inc. (Note B) 18.99 847,826 18.97 733,647 - - Plato Electronics (Cayman) Limited 24.50 657,858 - - - - Trecenti Technologies, Inc. 40.00 1,779,990 - - - - Broadmedia, Inc. 39.28 - - - - - ---------- ---------- ---------- Subtotal 17,449,223 16,771,590 21,665,370 ---------- ---------- ----------
F-24 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As of December 31, ------------------------------------------------- 2001 2002 As of June 30, 2003 ------------------------ ------------------------ ------------------------ Percentage of Percentage of Percentage of Ownership or Ownership or Ownership or Invested Company Voting Rights Amount Voting Rights Amount Voting Rights Amount - ------------------------------------------------------- ------------- ---------- ------------- ---------- ------------- ---------- NT$'000 NT$'000 NT$'000 Investments accounted for under the cost method or the lower of cost or market value method Aptos Corp. (Note C) 26.07 112,076 26.07 112,076 26.07 - Pacific United Technology, L.P. (Fund) (Note C) 25.00 34,600 25.00 34,600 25.00 34,600 Giga Solution Tech. Co., Ltd. 19.44 105,000 19.44 105,000 19.44 105,000 Vialta, Inc. - 1,248,457 17.80 1,248,457 17.80 1,248,457 PixTech, Inc. 17.63 561,080 17.63 - 17.63 - Kits On Line Technology Corp. 16.41 38,656 16.41 38,656 16.41 38,656 InComm Technologies Co., Ltd. 16.00 44,480 16.00 44,480 16.00 44,480 Everglory Resource Technology Co., Ltd. 19.03 74,000 15.14 74,000 15.14 74,000 Enovation Group Inc. 14.34 73,807 14.34 11,809 14.34 11,809 MediaTek Incorporation (Note D) 15.17 1,339,839 13.21 1,213,655 13.13 1,206,469 Integrated Photonics, Inc. 11.46 6,244 11.46 - 11.46 - AU Optronics Corp. (Note D and F) 18.86 8,318,624 11.37 6,759,855 11.31 6,759,855 Sino-Aerospace Investment Corp. 11.11 25,748 11.11 - 11.11 - Golden Technology Venture Capital Investment Corp. 10.67 80,000 10.67 80,000 10.67 80,000 PrintTek International Inc. - - - - 10.53 30,000 NCTU Spring I Technology Venture Capital Investment Corp. 10.06 43,482 10.06 43,482 10.06 43,482 RF Integration Corporation 4.51 98,610 9.76 98,610 9.76 98,610 TECO Nanotech Co., Ltd. 9.26 167,602 9.26 - 9.26 - Ascend Semiconductor Corp. 9.00 36,000 9.00 14,400 9.00 14,400 Union Technology Corporation 15.00 18,000 9.00 18,000 9.00 18,000 Fortune Semiconductor Corporation 5.13 40,000 8.72 71,500 8.72 71,500 United Industrial Gases Co., Ltd. 8.52 146,250 8.44 146,250 8.44 146,250 Subtron Technology Co., Ltd. 11.02 339,000 11.02 339,000 8.07 244,080 Pacific Technology Partners, L. P. (Fund) 9.85 104,755 9.85 208,256 7.09 259,800 ProSys Technology Integration, Inc. 6.70 18,000 6.70 4,258 6.70 4,258 NCTU Spring Venture Capital Co., Ltd. 6.28 20,000 6.28 20,000 6.28 20,000 Advanced Microelectronic Products, Inc. 5.50 126,000 5.50 126,000 5.50 126,000 Cosmos Technology Venture Capital Investment Corp. 5.03 40,000 5.03 40,000 5.03 40,000 Industrial Bank of Taiwan Corp. 5.00 1,150,000 5.00 1,150,000 5.00 1,150,000 Parawin Venture Capital Corp. - - 5.00 50,000 5.00 50,000 Leadtek Resarch Inc. - - - - 4.78 99,875 Coretronic Corporation. 5.49 276,192 4.59 276,192 4.59 276,192 Taiwan Asia Pacific Venture Fund (Fund) 4.15 29,295 4.15 29,295 4.15 29,295 TECO Electric & Machinery Co., Ltd. 3.94 1,535,895 4.02 1,535,298 4.06 1,535,099 IBT Venture Co. 3.81 90,000 3.81 90,000 3.81 90,000 Ultra Chip Inc. - - - - 3.70 38,000 Billionton Systems Inc. - - - - 3.32 30,948 Sheng-Hua Venture Capital Corp. 2.50 50,000 2.50 50,000 2.50 50,000 Princeton Technology Corporation - - - - 2.50 102,453 Pixart Imaging Inc. 2.00 10,000 1.95 10,140 1.95 10,140 Largan Optoelectronics, Co., Ltd. 1.96 102,380 1.45 79,989 1.45 79,989 Mega Financial Holding Company 4.98 4,991,630 1.35 4,991,630 1.35 4,991,630
F-25 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As of December 31, -------------------------------------------------- 2001 2002 As of June 30, 2003 ------------------------ ----------------------- ------------------------- Percentage of Percentage of Percentage of Ownership or Ownership or Ownership or Invested Company Voting Rights Amount Voting Rights Amount Voting Rights Amount - -------------------------------------------- ------------- ------ ------------- ------ ------------- ------ NT$'000 NT$'000 NT$'000 Investments accounted for under the cost method or the lower of cost or market value method (continued) Hantek Technology Co., Ltd. 3.14 42,330 2.70 42,330 0.82 11,026 Premier Image Technology Corporation 0.70 27,964 0.64 27,964 0.64 27,964 Ingenus Corp. 0.65 29,812 0.62 29,812 0.62 - SAMPO Corporation 2.95 443,598 1.73 224,044 0.51 65,022 King Yuan Electronics Co., Ltd. 0.37 70,000 0.35 70,000 0.35 70,000 Averlogic Corporation - - 0.22 1,600 0.19 1,391 Lattice Semiconductor Corporation - - 0.44 65,740 0.11 15,851 Broadcom Communications - 7,093 - 7,093 - 7,093 VenGlobal Capital Fund III, L.P. (Fund) - 33,195 - 33,195 - 33,195 Taiwan High Speed Rail Corporation - - - - - 300,000 (Preferred shares) LightCross, Inc. (Preferred shares) - 206,880 - 206,880 - 206,880 Linden Technologies, Inc. (Preferred shares) - 92,385 - 92,385 - 92,385 Aurora Systems, Inc. (Preferred shares) - 72,226 - 72,226 - 6,355 Chip Express Corporation (Preferred - - - 68,198 - 68,198 shares) ForteMedia, Inc. (Preferred shares) - 65,000 - 65,000 - 108,456 ChinaYES InfoMedia (Cayman), Inc. - 63,146 - 63,146 - 63,146 (Preferred shares) Alpha & Omega Semiconductor Inc. - 46,883 - 46,883 - 46,883 (Preferred shares) SandCraft, Inc. (Preferred shares) - 43,063 - 43,063 - 43,063 Primarion, Inc. (Preferred shares) - 31,800 - 38,816 - 38,816 Formerica International Holding, Inc. - 30,898 - 30,898 - 30,898 (Preferred shares) Triscend Corp. (Preferred shares) - 17,409 - 17,409 - 8,925 Netlogic Microsystems, Inc. (Preferred - 3,195 - 3,195 - 3,195 shares) Tonbu, Inc. (Preferred shares) - 428,767 - - - - NetEmpower Software Technologies, Inc. - 92,388 - - - - (Preferred shares) Octillion Communications, Inc. - 65,740 - - - - (Preferred shares) Epogy Communication, Inc. (Preferred - 49,704 - - - shares) - AEM Technology, Inc. (Preferred shares) - 28,715 - - - - Prokia Technology Co., Ltd. 3.13 48,000 3.13 48,000 - - Ayuttha Technology Corp. - - 11.00 16,500 - - Silicon Integrated Systems Corp. (Note E) - - 4.46 1,267,580 - - Smart Idea Holding Limited - - 11.88 205,069 - - Elite Flash Storage Technology Inc. 19.50 19,500 19.50 19,500 - - Amkor Technology, Inc. 0.09 99,541 0.13 101,696 - - Stark Technology Inc. 0.19 1,824 - - - - National Venture Capital Corp. 11.09 60,000 - - - - ----------- ----------- ----------- Subtotal 23,716,758 22,023,110 20,502,069 ----------- ----------- ----------- Other long-term investment 60,000 60,000 60,000 ----------- ----------- ----------- Prepaid long-term investments - 54,486 - ----------- ----------- ----------- Allowance for loss on decline in market value (469,303) (1,108,690) (1,182,873) ----------- ----------- ----------- Total $40,756,678 $37,800,496 $41,044,566 =========== =========== ===========
F-26 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Note A: Investment in UniMicron Technology Corp. was previously accounted for under the equity method. As of October 31, 2001, UniMicron Technology Corp. was merged into World Wiser Electronics Incorporated which is the surviving corporate entity and renamed as Unimicron Technology Corp. Note B: Significant influences were exercised by the Group over the investees, therefore, equity method applied. Note C: As the Group was not able to exercise significant influences over the investees, the investments were accounted for under the cost method. Note D: Starting from the third quarter of 2001, the Group was unable to exercise significant influence over AU Optronics Corp. and MediaTek Incorporation's operations, personnel and financial policies. Accordingly, the Group changed its method of accounting for its investments in AU Optronics Corp. and MediaTek Incorporation from the equity method to lower of aggregate cost or market value method. Note E: Starting from January 2003, the Group was able to exercise significant influence over Silicon Integrated Systems Corp. and therefore the method of accounting has been changed from lower of cost or market value to equity method. Note F: Among the shares held by the Group in AU Optronics Corp., approximately 148,271 thousand shares with the book value of NT$2,096 million was utilized as reference shares for the Group's zero coupon exchangeable bonds issued in May 2002. (2) The long-term investments were not pledged. F-27 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 11. Property, Plant and Equipment
As of December 31, 2001 ------------------------------------------------------- Accumulated Cost Depreciation Book Value ----------------- ------------------- ---------------- NT$'000 NT$'000 NT$'000 Land 1,854,306 - 1,854,306 Buildings 15,458,094 (3,399,963) 12,058,131 Machinery and equipment 214,158,546 (90,988,564) 123,169,982 Furniture and fixtures 1,785,562 (893,914) 891,648 Leasehold improvements 93,535 (44,800) 48,735 Construction in progress and prepaid equipment 31,098,366 - 31,098,366 ----------------- ---------------- ---------------- 264,448,409 (95,327,241) 169,121,168 ================= ================ ================ As of December 31, 2002 ------------------------------------------------------- Accumulated Cost Depreciation Book Value ----------------- ------------------- ---------------- NT$'000 NT$'000 NT$'000 Land 1,796,419 - 1,796,419 Buildings 16,985,813 (3,849,351) 13,136,462 Machinery and equipment 254,010,057 (126,402,766) 127,607,291 Furniture and fixtures 2,424,267 (1,161,371) 1,262,896 Leasehold improvements 86,319 (47,985) 38,334 Construction in progress and prepaid equipment 23,235,508 - 23,235,508 ----------------- ---------------- ---------------- 298,538,383 (131,461,473) 167,076,910 ================= ================ ================ As of June 30, 2003 ------------------------------------------------------- Accumulated Cost Depreciation Book Value ----------------- ------------------- ---------------- NT$'000 NT$'000 NT$'000 Land 1,559,454 - 1,559,454 Buildings 17,001,975 (3,924,227) 13,077,748 Machinery and equipment 258,383,260 (143,280,029) 115,103,231 Furniture and fixtures 2,362,874 (1,150,975) 1,211,899 Leasehold improvements 83,238 (50,704) 32,534 Construction in progress and prepaid equipment 24,464,955 - 24,464,955 ----------------- ---------------- ---------------- 303,855,756 (148,405,935) 155,449,821 ================= ================ ================
F-28 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (1) Depreciation expense of NT$24,403 million, NT$34,390 million, NT$36,568 million, NT$17,758 million and NT$19,303 million was incurred for each of the three years ended December 31, 2000, 2001 and 2002 and for the six-month periods ended June 30, 2002 and 2003, respectively. (2) The total amount of interest expenses incurred before capitalization amounted to NT$3,181 million, NT$2,730 million, NT$2,006 million, NT$1,080 million and NT$923 million for each of the three years ended December 31, 2000, 2001 and 2002 and for the six-month periods ended June 30, 2002 and 2003, respectively. The total capitalized interest amounted to NT$813 million, NT$204 million, NT$551 million, NT$275 million and NT$311 million for the three years ended December 31, 2000, 2001 and 2002 and for the six-month periods ended June 30, 2002 and 2003, respectively. (3) The insurance coverage for property, plant and equipment was sufficient as of December 31, 2001 and 2002, and June 30, 2003, respectively. (4) Please refer to Note 23 for property, plant and equipment pledged as collateral. 12. Short-term Loans
As of December 31, As of June 30, -------------------------------------- 2001 2002 2003 --------------------- ---------------- --------------------- NT$'000 NT$'000 NT$'000 Unsecured bank loans 403,050 1,178,800 1,920,035 Secured bank loans 350,400 - - ---------------- --------------- ------------- Total 753,450 1,178,800 1,920,035 ================ ============== ============= Interest rates 0.59% - 9.50% 1.60% - 2.02% 1.61% - 1.86% ================ ============== =============
(1) The Group's unused short-term lines of credits amounted to NT$20,272 million, NT$17,538 million and NT$16,753 million as of December 31, 2001 and 2002, and June 30, 2003, respectively. (2) Please refer to Note 23 for assets pledged for short-term loans. F-29 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 13. Bonds Payable
As of December 31, As of June 30, ----------------------------------- 2001 2002 2003 --------------- -------------- -------------- NT$'000 NT$'000 NT$'000 Secured domestic bonds payable 3,990,000 2,850,001 2,280,002 Unsecured domestic bonds payable 25,000,000 25,000,000 40,000,000 Euro convertible bonds payable 10,596,096 14,465,390 11,173,728 Exchangeable bonds payable - 8,182,700 8,145,100 Compensation interest payable 4,415 83,392 97,596 --------------- -------------- -------------- Subtotal 39,590,511 50,581,483 61,696,426 Less: Current portion (1,140,000) (1,139,999) (11,830,603) --------------- -------------- -------------- Net 38,450,511 49,441,484 49,865,823 =============== ============== ==============
(1) On April 27, 2000, the Company issued five-year secured bonds amounting to NT$3,990 million with stated interest rate of 5.6%. The bonds are repayable in installments every six months from April 27, 2002 to April 27, 2005. (2) During the period from April 16 to April 27, 2001, the Company issued five-year and seven-year unsecured bonds totaling NT$15,000 million, each with face value of NT$7,500 million, and stated interest rates of 5.1195% through 5.1850% and 5.2170% through 5.2850%, respectively. The five-year bonds and seven-year bonds are repayable starting from April 2004 to April 2006 and April 2006 to April 2008, respectively, both in three yearly installments at the rates of 30%, 30% and 40%. (3) During the period from October 2 to October 15, 2001, the Company issued three-year and five-year unsecured bonds totaling NT$10,000 million, each with face value of NT$5,000 million, and with stated interest rates of 3.3912% through 3.420% and 3.4896% through 3.520%, respectively. The three-year bonds and five-year bonds are repayable in October 2004 and October 2006, respectively, upon the maturity of the bonds. (4) On December 12, 2001, the Company issued zero coupon convertible bonds amounting to US$302.4 million on the Luxembourg Stock Exchange ("LSE"). The terms and conditions of the bonds are as follows: F-30 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) a. Final Redemption Unless previously redeemed, repurchased, cancelled or converted, the bonds will be redeemed at 101.675% of their principal amount on March 1, 2004. b. Redemption at the Option of the Company The Company may redeem all, but not some only, of the bonds, subject to giving no less than 30 nor more than 60 days' advance notice, at the early redemption amount, provided that: (a) On or at any time after June 13, 2003, the closing price of the ADSs on the New York Stock Exchange or other applicable securities exchange on which the ADSs are listed on any ADS trading day for 20 out of 30 consecutive ADS trading days ending at any time within the period of five ADS trading days prior to the date of the redemption notice shall have been at least 130% of the conversion price or last adjusted conversion price, as the case may be, on each such day, or (b) At any time prior to maturity at least 90% in principal amount of the bonds have already been redeemed, repurchased, cancelled or converted. c. Conversion Period (a) In respect of the Shares, on or after January 22, 2002 up to and including February 20, 2004 or (b) In respect of the ADSs, on or after the later of January 22, 2002 and the date on which the shelf registration statement covering resales of certain ADSs issuable upon conversion of the bonds has been declared effective by the US SEC, up to and including February 20, 2004. d. Conversion Price The conversion price (a) In respect of the Shares, will be NT$69.60 per Share, and F-31 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (b) In respect of the ADSs, will be US$10.098 per ADS. The applicable conversion price will be subject to adjustment for, among other things, subdivision or consolidation of Shares, including Shares represented by ADSs, bonus issues, right issues, distributions of cash and stock dividends and other dilutive events. e. Reacquisition of the Bonds As of June 30, 2003, the Company has reacquired a total amount of US$61.7 million of the bonds from the public securities market. The corresponding loss on reacquisition amounting to NT$5 million for the six-month period ended June 30, 2003 was recognized as other losses. (5) On May 10, 2002, the Company issued LSE listed zero coupon exchangeable bonds exchangeable for common shares or ADSs of AU Optronics Corp. ("AUO") with an aggregate principal amount of US$235 million. The terms and conditions of the bonds are as follows: a. Final Redemption Unless previously redeemed, exchanged or purchased and cancelled, the bonds will be redeemed at their principal amounts in US dollars on May 10, 2007. b. Redemption at the Option of the Company The Company may redeem the bonds, in whole or in part, in principal amount thereof, on or after August 10, 2002 and prior to May 10, 2007 at their principal amount, if the market price of the AUO common shares, 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 120% of the exchange price then in effect translated into US dollars at the rate of NT$34.645=US$1.00. The Company may also redeem the bonds, in whole, but not in part, at their principal amount if at least 90% in principal amount of the bonds has already been exchanged, redeemed or purchased and cancelled. c. Redemption at the Option of Bondholders The Company will, at the option of the holders, redeem such bonds on February 10, 2005 at its principal amount. F-32 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) d. Tax Redemption The Company may redeem all, but not part, of the bond, at any time at their principal amount in US dollars, in the event of certain changes in the ROC's tax rules which would require the Company to gross up for payments of principal, or to gross up for payments of interest or premium, if any, at a rate exceeding 20%. e. Exchange Subject to prior permitted redemption and as otherwise provided in the offering, the bonds are exchangeable at any time on or after June 19, 2002 and prior to April 10, 2007, into AUO shares or AUO ADSs at an exchange price of NT$54.91 per share, determined on the basis of a fixed exchange rate of NT$34.645=US$1.00; provided however, that if the exercise date falls within five 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 restriction. The exchange price will be subject to adjustment upon the occurrence of certain events including free distribution of AUO common shares by AUO; subdivision, consolidation or reclassification of AUO common shares, distribution of stock dividends by AUO, right issues and other dilutive events. (6) During the period from May 21 to June 24, 2003, the Company issued five-year and seven-year unsecured bonds totaling NT$15,000 million, each with face value of NT$7,500 million, and with stated interest rates of 4.0% minus USD 12-Month LIBOR and 4.3% minus USD 12-Month LIBOR, respectively. Interests are payable annually starting from one year after the issue. The five-year bonds and seven-year bonds are paid off in 2008 and 2010, respectively, upon the maturity of the bonds. (7) On March 25, 2002, the Company's subsidiary UMCJ issued LSE listed zero coupon convertible bonds with an aggregate principal amount of (Yen)17,000 million and the issue price was set at 101.75% of the principal amount. The terms and conditions of the bonds are as follows: a. Final Redemption Unless previously converted, purchased and cancelled or redeemed, the bonds will be redeemed on March 26, 2007 at 100% of their principal amount. F-33 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) b. Early Redemptions (a) On or at any time after March 25, 2005, UMCJ may redeem all but not some of the bonds if the last selling price of the shares reported on the OTC Market in Japan is at least 120% of the conversion price then in effect for at least 20 out of 30 consecutive trading days ending on the trading day immediately prior to the date of the notice of redemption; or the principal amount that have not been redeemed, repurchased and cancelled or converted is equal to or less than 10% of original aggregate principal amount. (b) In case of a Corporate Split or Share Exchange/ Share Transfer, UMCJ may redeem all but not some of the bonds on or prior to the effective date of the transaction, subject to giving no less than 30 nor more than 60 days' notice at the redemption amount, provided that UMCJ is not able to ensure holders of the bonds to be able to convert them into shares of stock and other securities and property which they would have received had the bonds been converted into shares immediately prior to the transaction or if such supplemental indenture is objected by holders of bonds of at least a majority in principal amount. (c) If a change in who controls UMCJ occurs, holders of the bonds will be able to require UMCJ to redeem their bonds on the date that is 85 days after the change of control occurs. c. Conversion Period At any time on or after May 3, 2002 to and including March 19, 2007. d. Conversion Price The conversion price was set at (Yen)400,000 per share and may be adjusted for subdivision or consolidation of shares, rights issues, distribution of cash and stock dividends and other dilutive events. F-34 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (8) Repayments of the above bonds in the future years are as follows: (assuming the convertible bonds and exchangeable bonds are both paid off upon maturity)
Bonds repayable in Amount ----------------------------------------------------------------- ------------------------- NT$'000 2003 (from July 1, 2003 to December 31, 2003 only) 569,999 2004 16,830,604 2005 2,820,003 2006 10,250,000 2007 13,225,820 2008 and thereafter 18,000,000 ------------------------- 61,696,426 =========================
14. Long-term Loans
As of December 31, As of June 30, ------------------------------------- 2001 2002 2003 --------------------- --------------- ----------------- NT$'000 NT$'000 NT$'000 Secured long-term loans 21,802,126 13,989,861 8,183,449 Unsecured long-term loans 3,022,875 5,531,250 4,371,000 Less: Current portion (8,580,178) (6,641,599) (5,623,365) ---------------- ------------ -------------------- Net 16,244,823 12,879,512 6,931,084 ================ ============ ==================== Interest rates 1.55% - 5.34% 0.95% - 3.35% 0.95% - 2.68% ================ ============ ====================
(1) The above long-term loans will be repaid by installments with the last payment on May 14, 2009. Repayments in the coming years respectively are as follows:
Long-term loans repayable in Amount ----------------------------------------------------------------- ----------------------- NT$'000 2003 (from July 1, 2003 to December 31, 2003 only) 2,811,162 2004 5,336,727 2005 3,001,333 2006 900,821 2007 290,377 2008 and thereafter 214,029 ----------------------- 12,554,449 =======================
F-35 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (2) The Group's long-term loans denominated in foreign currency amounted to US$176 million, (Yen)18,423 million and US$100 million, (Yen)18,750 million as of December 31, 2001 and 2002, respectively. As of June 30, 2003, the long-term loans denominated in foreign currency amounted to US$97 million and (Yen)15,000 million. (3) Assets pledged as collateral to secure these loans are detailed in Note 23. 15. Pension Plan and Net Pension Cost The following tables set forth the actuarial assumptions, funded status and amounts recognized for the Group's defined benefit pension plans:
For the year ended December 31, --------------------------------------------------------------------------------------- 2000 2001 2002 ------------------------ -------------------------- ----------------------------------- The Company UMCJ The Company UMCJ The Company UMO UMCJ ------------- ---------- -------------- ----------- ------------- ---------- ---------- Discount rate 6.00% 3.00% 4.50% 2.00% 4.00% 4.00% 2.00% Rate of compensation increase 6.00% 3.71% 6.50% 3.71% 5.50% 6.00% 3.71% Expected return on plan assets 6.00% 4.62% 4.50% 1.00% 3.25% 3.25% 1.00%
For the six-month period ended June 30, --------------------------------------------------------------------------------------- 2002 2003 ------------------------------------ -------------------------------------------------- The Company UMCJ The Company UMO UMCJ ------------------- ---------------- --------------- ----------------- ---------------- Discount rate 4.00% 2.00% 3.25% 3.25% 2.00% Rate of compensation increase 6.00% 3.71% 5.00% 5.00% 3.71% Expected return on plan assets 4.00% 1.00% 2.50% 2.50% 1.00%
F-36 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As of December 31, As of June 30, --------------------------- 2001 2002 2003 ----------- ----------- --------------- NT$'000 NT$'000 NT$'000 Change in benefit obligation during the period: Projected benefit obligation at January 1, (2,549,107) (2,637,063) (3,287,327) Service cost (375,812) (427,082) (238,660) Interest cost (142,885) (110,230) (61,145) Benefits paid 7,881 9,379 3,254 Gain (loss) on projected benefit obligation 422,860 (119,325) 38,267 Transition obligation - (3,006) - ---------- ---------- ---------- Projected benefit obligation at period end (2,637,063) (3,287,327) (3,545,611) ========== ========== ==========
As of December 31, As of June 30, -------------------------- 2001 2002 2003 ----------- ---------- ---------- NT$'000 NT$'000 NT$'000 Change in pension assets during the period: Fair value of plan assets at January 1, 693,559 824,092 991,058 Actual return on plan assets 22,096 16,250 16,904 Employer contributions 130,615 143,477 97,369 Benefits paid (7,881) (9,379) (3,254) Others (14,297) 16,618 (4,772) ---------- ---------- ---------- Fair value of plan assets at period end 824,092 991,058 1,097,305 ========== ========== ==========
As of December 31, As of June 30, --------------------------- 2001 2002 2003 ----------- ----------- ---------- Funded status at period end: NT$'000 NT$'000 NT$'000 Fair value of plan assets 824,092 991,058 1,097,305 Projected benefit obligation (2,637,063) (3,287,327) (3,545,611) ---------- ---------- ---------- Funded status (1,812,971) (2,296,269) (2,448,306) Unrecognized transition obligation 326,000 296,565 275,932 Unrecognized net actuarial loss 63,354 160,577 125,128 Accrued pension payable (89,760) (127,706) - Intangible assets (74,946) (63,953) - Others (2,699) - (404) ---------- ---------- ---------- Accrued pension liabilities (1,591,022) (2,030,786) (2,047,650) ========== ========== ==========
F-37 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
For the six-month period For the year ended December 31, ended June 30, ------------------------------------------ ---------------------------- 2000 2001 2002 2002 2003 ------------- ------------- -------------- ------------- -------------- Components of net periodic cost for the period: NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 Service cost 413,264 375,812 427,082 212,542 238,660 Interest cost 115,600 142,885 110,230 54,951 61,145 Expected return on plan assets (34,870) (38,335) (30,258) (15,085) (13,241) Recognition of transition asset 39,367 38,523 39,537 19,538 19,799 Recognition of actuarial loss 13,636 11,433 6,129 2,940 2,956 ------------- ------------- -------------- ------------- -------------- Net periodic cost 546,997 530,318 552,720 274,886 309,319 ============= ============= ============== ============= ==============
16. Capital Stock (1) As recommended by the board of directors and approved by the shareholders' meeting on May 30, 2001, the Company issued 1,864,243 thousand new shares from the capitalization of retained earnings of NT$17,151 million and employees' bonus of NT$1,491 million with the effective date on July 21, 2001. (2) As recommended by the board of directors and approved by the shareholders' meeting on June 3, 2002, the Company issued 2,139,150 thousand new shares from the capitalization of retained earnings of NT$19,680 million and employees' bonus of NT$1,711 million. The effective date of the issuance was on August 11, 2002. (3) As recommended by the board of directors and approved by the shareholder's meeting on June 9, 2003, the Company issued 665,898 thousand new shares from the capitalization of retained earnings of NT$6,079 million and employees' bonus of NT$580 million. The effective date of the issuance will be on July 21, 2003. (4) As of June 30, 2003, 22,000,000 thousand common shares were authorized to be issued and 15,474,845 thousand common shares were issued, each at par of NT$10. (5) The Company has issued 173,693 thousand ADSs as of June 30, 2003. The number of common shares represented by the ADSs is 868,467 thousand shares. F-38 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (6) On September 11, 2002, the Company was authorized by the relevant government authorities to issue Employee Stock Options. The total number of options to be granted under the plan is one billion units, with each unit entitling the optionee to subscribe for one share of the Company's common stock. Settlement upon the exercise of the stock options will be made through the issuance of new shares by the Company. The grant period for options is six years and an optionee may exercise his/her options in accordance with certain schedules as prescribed by the plan starting from two years after the grant. Detailed information relevant to the Employee Stock Options is disclosed as follows:
Total number of Total number of options granted options outstanding Exercise price Date of grant (in thousands) (in thousands) (in NT$) ------------------------- ---------------------- ------------------------- ------------------- October 7, 2002 939,000 896,506 $20.0 January 3, 2003 61,000 54,950 $22.5
17. Treasury Stock The Company bought back its own shares from the open market during the years ended December 31, 2001, 2002 and the six-month period ended June 30, 2003. Details of the treasury stock transactions are as follows:
Shares bought during As of the year ended As of (In thousand shares) January 1, December 31, December 31, --------------- -------------------------- ---------------- Purpose 2001 2001 2002 2002 ---------------------------------------------------- --------------- ------------- ------------ ---------------- For transfer to employees 32,435 4,990 49,114 86,539 For conversion of the convertible bonds into shares - 129,035 20,693 149,728 --------------- ------------- ------------ ---------------- Total Shares 32,435 134,025 69,807 236,267 =============== ============= ============ ================
(In thousand shares) Shares bought during the six-month period ended Purpose June 30, 2003 As of June 30, 2003 ---------------------------------------------------- ----------------------------- ------------------------- For transfer to employees 99,195 185,734 For conversion of the convertible bonds into shares - 149,728 ----------------------------- ------------------------- Total Shares 99,195 335,462 ============================= =========================
F-39 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) According to Stock Exchange Regulations of Taiwan, total shares of treasury stock shall not exceed 10% of the Company's stock issued. Total purchase amount shall not exceed sum of retained earnings and capital reserve-premiums and realized capital reserve. As such, the maximum number of shares of treasury stock that the Company can hold as of June 30, 2003 is 1,547,485 thousand shares while the ceiling of the amount is NT$56,813 million. As of June 30, 2003, the Company held 335,462 thousand shares of treasury stock, which amounted to NT$10,875 million. Treasury stock shall not be pledged, nor does it possess voting rights or receive dividends, in compliance with Stock Exchange Regulations of Taiwan. As of June 30, 2003, The Company's subsidiaries Hsun Chieh and Fortune Venture held 484,045 thousand shares and 17,633 thousand shares of the Company's stock, with a book value of NT$23.39 and NT$9.75 per share, respectively. The average closing price during June 2003 was NT$23.39. 18. Retained Earnings In accordance with the Company's Articles of Incorporation, current year's earnings, if any, shall be distributed in the following order: (1) Payment of all taxes and dues; (2) Offset prior years' operation losses; (3) Set aside 10% of the remaining amount after deducting items (1) and (2) as a legal reserve; (4) Set aside 0.1% of the remaining amount after deducting items (1), (2) and (3) as directors' and supervisors' remuneration; (5) After deducting items (1), (2) and (3) above from the current year's earnings, any portion of the remaining amount together with the prior years' unappropriated earnings is to be allocated as follows: no less than 5% as employees' bonus which will be settled through issuance of new shares of the Company. Employees of the Company's subsidiaries meeting certain requirements determined by the board of directors are also eligible for the employees' bonus; (6) The distribution of the remaining portion, if any, will be recommended by the board of directors and approved by the shareholders' meeting. The Company's Articles of Incorporation further provides that at least 50% of the dividends to the Company's shareholders, if any, must be paid in the form of stock dividends. Accordingly, no more than 50% of the dividends can be paid in the form of cash. F-40 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Details of the distribution of 2000, 2001 and 2002 dividends and employees' bonus approved by the shareholders' meeting on May 30, 2001, June 3, 2002, and June 9, 2003, respectively, were as follows: 2000 2001 2002 ---------- ---------- ---------- NT$'000 NT$'000 NT$'000 Cash dividends per share (in dollars) - - - Stock dividends per share (in dollars) 1.5 1.5 0.401 Employees' cash bonus - - - Employees' stock bonus 1,491,395 1,711,320 579,727 19. Operating Costs and Expenses The Group's personnel, depreciation, and amortization expenses are summarized as follows:
For the year ended December 31, ------------------------------------------------------------------------------------------------------- 2000 2001 2002 ---------------------------------- -------------------------------- ---------------------------------- 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$'000 Personnel expenses Salaries 5,867,225 1,865,045 7,732,270 4,251,480 2,276,768 6,528,248 5,083,606 2,122,316 7,205,922 Labor and health insurance 391,719 100,686 492,405 394,672 140,628 535,300 405,291 145,184 550,475 Pension 435,696 121,886 557,582 443,603 183,189 626,792 463,178 146,772 609,950 Other personnel expenses 615,934 266,475 882,409 102,392 169,049 271,441 201,463 200,235 401,788 Depreciation 23,260,723 1,142,597 24,403,320 32,939,545 1,450,647 34,390,192 34,895,683 1,671,852 36,567,535 Amortization 303,782 838,330 1,142,112 383,920 1,325,479 1,709,399 326,379 1,164,565 1,490,944
For the six-month period ended June 30, -------------------------------------------------------------------------------------------- 2002 2003 --------------------------------------------- ---------------------------------------------- Operating Operating Operating Operating costs expenses Total costs expenses Total ------------- --------------- -------------- -------------- -------------- --------------- NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 Personnel expenses Salaries 2,415,225 1,096,860 3,511,905 2,915,552 1,199,625 4,115,177 Labor and health insurance 181,012 76,291 257,303 226,650 73,222 299,872 Pension 220,904 104,900 325,804 102,088 99,118 201,206 Other personnel expenses 95,483 74,725 170,208 103,063 164,751 267,814 Depreciation 16,903,958 854,300 17,758,258 18,375,341 927,473 19,302,814 Amortization 118,981 782,081 901,062 73,974 652,973 726,947
The numbers of employees as of December 31, 2001, 2002 and June 30, 2003 were 9,534, 10,167 and 10,174, respectively. F-41 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 20. Income Tax Reconciliation between the income tax expense (benefit) and the income tax calculated on pre-tax financial statement income based on the statutory tax rate is as follows:
For the six-month period For the year ended December 31, ended June 30, --------------------------------------------- ------------------------------ 2000 2001 2002 2002 2003 --------------- -------------- ------------------------------ ------------- NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 Tax on pre-tax income (loss) at statutory tax rate 13,082,290 (1,641,509) 1,663,022 1,091,651 729,369 Reduction in tax rate for Science-Based Industrial Park (2,527,904) - - - - Variation in statutory tax rates for non-technology park companies and oversea entities 335,723 (227,044) 166,997 32,143 42,904 Change in tax rate - (1,142,582) - - 797 Tax exemption due to 4-year tax holiday (3,889,913) - - - - Investment (income) loss (1,126,984) 300,371 55,445 245,274 43,577 Gain on disposal of investments (95,689) (558,838) (1,602,035) (1,656,857) (66,249) Change in valuation allowance against tax credit 1,171,575 6,861,925 2,957,538 1,257,911 1,019,271 Increase in investment tax credit (6,459,674) (8,842,305) (3,999,022) (1,209,668) (1,622,420) Change in valuation allowance against loss carry-forward (1,410,160) - (224,994) (868,215) 3,726 Estimated 10% corporate income tax on un-appropriated earnings - 1,909,261 46,705 93,410 126,794 Adjustment of prior year's tax expense (136,744) 201,480 37,916 146,922 2,870 Tax on interest income separately taxed 30,342 21,688 12,062 5,936 3,252 Other permanent differences 936,076 77,564 1,157,097 1,049,115 166,464 ----------- ----------- ----------- ----------- ----------- Income tax (benefit) expense (91,062) (3,039,989) 270,731 187,622 450,355 =========== =========== =========== =========== ===========
F-42 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Net current deferred tax assets are included in other current assets as of December 31, 2001, 2002 and June 30, 2003. Significant components of deferred tax assets and liabilities were as follows:
As of December 31, As of June 30, -------------------------------- 2001 2002 2003 ------------ ------------ ----------- Deferred tax assets NT$'000 NT$'000 NT$'000 Investment tax credit 18,626,824 22,625,846 21,114,291 Loss carry-forward 3,846,362 4,315,169 4,307,359 Allowance on sales returns and discounts 112,009 135,077 144,401 Allowance for loss on obsolescence of inventories 214,217 101,584 207,141 Pension 352,229 469,056 488,548 Organization Cost 30,382 509 812 Others 317,680 224,112 220,094 ----------- ----------- ----------- Total deferred tax assets 23,499,703 27,871,353 26,482,646 Valuation allowance (10,932,530) (14,037,226) (12,955,465) ----------- ----------- ----------- Net deferred tax assets 12,567,173 13,834,127 13,527,181 ----------- ----------- ----------- Deferred tax liabilities Depreciation 4,195,274 5,282,085 5,400,990 Others 45,801 324,542 231,696 ----------- ----------- ----------- Total deferred tax liabilities 4,241,075 5,606,627 5,632,686 ----------- ----------- ----------- Total net deferred tax assets 8,326,098 8,227,500 7,894,495 =========== =========== =========== Net deferred tax assets - current 3,954,867 2,994,572 2,346,303 Net deferred tax assets - noncurrent 4,371,231 5,232,928 5,548,192 ----------- ----------- ----------- Total net deferred tax assets 8,326,098 8,227,500 7,894,495 =========== =========== ===========
The Company's income tax returns for all fiscal years through 1999 have been assessed and approved by the Tax Authority. The Company is located in the Hsin-Chu Science-Based Industrial Park (HSIP). In order for business operations to be eligible to locate in the HSIP, the operations must be high technology related manufacturing activities. Based on the HSIP regulations, a preferential income tax rate of 20%, instead of 25% applicable to other business entities located in Taiwan, is imposed on profits generated from HSIP business operations through the year 2000. Starting from 2001, the preferential income tax rate of 20% is no longer available to HSIP business operations and the standard tax rate of 25% is applied. F-43 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Pursuant to the "Statute for the Establishment and Administration of Science-Based Industrial Park", the Company was granted several four-year income tax exemption periods with respect to income derived from expansion of operations located in HSIP. The starting date of the exemption period attributable to the expansion in 1999 has not yet been decided by the Company. The other exemption periods will expire in December 2007. An enterprise earns an investment tax credit for the amount invested in production equipment, research and development expenditure, employee training expenditure and other related costs. This credit may be applied over a period of five years. As of June 30, 2003, the Group's unused investment tax credit is as follows: Expiration Year Investment tax credits ---------------------------- ------------------------ NT$'000 2003 3,969,745 2004 6,396,267 2005 5,094,171 2006 2,901,673 2007 2,752,435 ------------------------ 21,114,291 ======================== Under the rules of the Income Tax Law, operating loss can be carried forward for five years. As of June 30, 2003, the unutilized accumulative loss brought forward amounted to NT$16,393 million, which will expire in 2006 through 2008. The new Taiwan imputation tax system requires that any undistributed current earnings, on tax basis of a company derived on or after January 1, 1998, be subject to an additional 10% corporate income tax if the earnings are not distributed before a specific time. This 10% additional tax on undistributed earnings paid by the company can be used as tax credit by shareholders, including foreign shareholders, against the withholding tax on dividends. In addition, the domestic shareholders can claim a proportionate share in the company's corporate income tax as tax credit against its individual income tax liability effective 1998. As of June 30, 2003, the balance of imputation credit account ("ICA") was NT$93 million. The actual creditable ratio for the appropriation of 2000 and 2001 retained earnings was 1.04% and 1.79%, respectively, while the expected creditable ratio for the appropriation of 2002 retained earnings was 1.08%. The ending balance of unappropriated earnings available for 2003 appropriation amounted to NT$3,672 million, of which NT$64 million was earned prior to January 1, 1998. F-44 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 21. Earnings Per Share (shares expressed in thousands) (1) Basic and diluted earnings (loss) per share are disclosed as follows:
For the six-month period ended For the year ended December 31, June 30, --------------------------------------------- ------------------------------ 2000 2001 2002 2002 2003 ------------- --------------- ------------- --------------- ------------- NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 Net income (loss) 50,780,378 (3,157,302) 7,072,032 4,661,755 3,090,204 Effect of dilution: Convertible bonds - 3,311 59,233 28,441 29,079 ------------- -------------- ------------- --------------- ------------- Adjusted net income (loss) assuming dilution 50,780,378 (3,153,991) 7,131,265 4,690,196 3,119,283 ============= ============== ============= =============== ============= Weighted average outstanding common shares 10,754,127 12,829,615 14,753,187 12,698,832 14,682,742 Effect of dilution: Employee stock options - - 41,590 - 47,914 Convertible bonds - - 149,733 129,032 149,733 ------------- -------------- ------------- --------------- ------------- Adjusted weighted average common shares assuming dilution 10,754,127 12,829,615 14,944,510 12,827,864 14,880,389 ============= ============== ============= =============== ============= Retroactively adjusted weighted average outstanding common shares 14,545,699 14,920,842 14,768,741 ============= ============== =============== Retroactively adjusted weighted average outstanding common shares assuming dilution 14,545,699 14,920,842 14,918,805 ============= ============== =============== Earnings (loss) per share (in dollars) - basic 3.49 (0.21) 0.48 0.32 0.21 ============= ============== ============= =============== ============= Earnings (loss) per share (in dollars) - diluted 3.49 (0.21) 0.48 0.31 0.21 ============= ============== ============= =============== =============
According to financial guidelines issued in 2000, the Company's stock held by its subsidiaries are to be considered as treasury stock effective from 2002. According to ROC SFAS No.30, "Accounting for Treasury Stock", the calculation of basic earnings per share for the year ended December 31, 2001 is not required to be adjusted retroactively the Company's stock held by subsidiaries. F-45 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (2) Pro forma information on earnings as if the Company's unconsolidated subsidiary Fortune Venture's investment in the Company is not treated as treasury stock is set out as follows:
For the year ended December 31, 2002 ------------------------------------------ Basic Diluted -------------- -------------- NT$'000 NT$'000 Net income $ 7,072,032 $ 7,131,265 ============ ============ Outstanding common shares at beginning 12,748,327 12,748,327 Stock dividends and employees' bonus at 16.30% 2,077,977 2,077,977 Weighted average treasury stock (55,284) (55,284) Weighted average employee stock options accounted for under treasury stock method - 41,590 Weighted average shares assume converted from convertible bonds - 149,733 ------------ ------------ Outstanding weighted average shares 14,771,020 14,962,343 ============ ============ Earnings per share Net income (in dollars) $ 0.48 $ 0.48 ============ ============
For the six-month period ended June 30, 2002 -------------------------------------------- Basic Diluted ------------ ------------ NT$'000 NT$'000 Net income $ 4,661,755 $ 4,690,196 ============ ============ Outstanding common shares at beginning 12,748,327 12,748,327 Stock dividends and employees' bonus at 16.30% 2,077,977 2,077,977 Weighted average treasury stock (39,730) (39,730) Weighted average shares assume converted from convertible bonds - 150,064 ------------ ------------ Outstanding weighted average shares 14,786,574 14,936,638 ============ ============ Earnings per share Net income (in dollars) $ 0.32 $ 0.31 ============ ============
F-46 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
For the six-month period ended June 30, 2003 -------------------------------------------- Basic Diluted ------------ ------------- NT$'000 NT$'000 Net income 3,090,204 3,119,283 =========== =========== Outstanding common shares at beginning 14,754,533 14,754,533 Weighted average treasury stock (54,158) (54,158) Weighted average employee stock options accounted for under treasury stock method - 47,914 Weighted average shares assume converted from convertible bonds - 149,733 ----------- ----------- Outstanding weighted average shares 14,700,375 14,898,022 =========== =========== Earnings per share Net income (in dollars) 0.21 0.21 =========== ===========
(3) Pro forma information on earnings as if the distribution of 2002 stock dividends and employees' bonus at 4.4% on July 21, 2003 is adjusted retroactively:
For the six-month period For the year ended December 31, ended June 30, ------------------------------------------ -------------------------- 2000 2001 2002 2002 2003 ---------- ------------ -------------------------- ----------- NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 Net income (loss) 50,780,378 (3,157,302) 7,072,032 4,661,755 3,090,204 =========== =========== =========== =========== =========== Adjusted net income (loss) assuming dilution 50,780,378 (3,153,991) 7,131,265 4,690,196 3,119,283 =========== =========== =========== =========== =========== Weighted average outstanding common shares 15,185,710 15,577,359 15,402,327 15,418,566 15,328,783 Adjusted weighted average outstanding common shares assuming dilution 15,185,710 15,577,359 15,602,068 15,574,877 15,569,268 Earnings (loss) per share - basic and diluted (in dollars) 3.34 (0.20) 0.46 0.30 0.20 =========== =========== =========== =========== ===========
F-47 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 22. Related Party Transactions
Name of Related Parties Relationship ------------------------------------------------------- ------------------------------------------------ DuPont Photomasks Taiwan Ltd. Equity investee Novatek Microelectronics Corp. Equity investee Holtek Semiconductor Inc. (Holtek) Equity investee Integrated Technology Express Inc. Equity investee Unimicron Technology Corp. (UTC) Equity investee Faraday Technology Corp. Equity investee Applied Component Technology Corp. Equity investee Silicon Integrated Systems Corp. Equity investee AMIC Technology (Taiwan), Inc. (AMIC-Taiwan) Equity investee United Microelectronics (Europe) B.V. (UMC BV) (Note 1) Equity investee Ayuttha Technology Corp. Equity investee High Bandwidth Access, Inc. Equity investee United Radiotek Incorporation Equity investee Ubit Technology Inc. Equity investee RiRa Electronics Inc. Equity investee Davicom Semiconductor, Inc. (Davicom) Equity investee (Note 2) MediaTek Incorporation (MediaTek) The Company is its supervisor TECO Electric & Machinery Co., Ltd. The Company is its director and supervisor AU Optronics Corp. The Company is its director and supervisor Chiao Tung Bank (Chiao Tung) The Company is its parent company's director and supervisor Industrial Bank of Taiwan Corp. (IBT) The Company is its major shareholder Ascend Semiconductor Corp. The Company's subsidiary is its director and supervisor Averlogic Corporation The Company's subsidiary is its director and supervisor Trident Technologies, Inc. The Company's subsidiary is its director and supervisor Fortune Semiconductor Corporation The Company's subsidiary is its director Princeton Technology Corporation The Company's subsidiary is its director Silicon 7, Inc. The Company's subsidiary is its director Shin-Etsu Handotai Taiwan Co., Ltd. (Shin-Etsu) The Company's subsidiary is its director Giga Solution Tech. Co., Ltd. The Company's subsidiary is its director Infineon Technologies, Asia Pacific Pte Ltd. Affiliated Company of UMCi
Note 1: UMC BV was a related party of the Group in the prior years since the Company's Chairman is a director of UMC BV. On May 15, 2002, the Company has acquired 100% interest in UMC BV and has included it in consolidation accordingly. Note 2: Davicom is the equity investee of an unconsolidated subsidiary of the Company. F-48 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Significant Related Party Transactions: (1) Operating revenues
For the year ended December 31, For the six-month period ended June 30, ---------------------------------------------------------------------- --------------------------------------------- 2000 2001 2002 2002 2003 ----------------------- ----------------------- ---------------------- ---------------------- ---------------------- Amount Percentage Amount Percentage Amount Percentage Amount Percentage Amount Percentage ----------- ----------- ----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------- NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 UMC BV 11,922,113 11 6,038,583 9 - - - - - - MediaTek 4,938,704 4 3,776,580 6 9,637,752 13 6,029,302 17 4,484,359 10 Others 11,856,181 10 5,249,313 7 6,682,023 9 3,568,971 10 4,367,729 10 ----------- ----------- ----------- ----------- ---------- ----------- ----------- ---------- ---------- ---------- Total 28,716,998 25 15,064,476 22 16,319,775 22 9,598,273 27 8,852,088 20 =========== =========== =========== =========== ========== ========== =========== ========== ========== ==========
The sales to the above related parties were dealt with in the ordinary course of business with the sales price made in the way similar to the sales to third-party customers. The collection period for overseas sales was net 45 days for the related parties and third-party customers, while the terms for domestic sales were month-end 30~60 days for both the related parties as well as the third-party customers. (2) Purchases
For the year ended December 31, For the six-month period ended June 30, ---------------------------------------------------------------------- -------------------------------------------- 2000 2001 2002 2002 2003 ----------------------- ----------------------- ---------------------- --------------------- ---------------------- Amount Percentage Amount Percentage Amount Percentage Amount Percentage Amount Percentage ----------- ----------- ----------- ----------- ---------- ----------- ---------- ---------- ---------- ---------- NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 Shin-Etsu 2,530,281 5 1,805,200 11 2,273,128 14 1,168,037 15 1,129,833 10 Others 1,455,213 3 255,872 2 219,235 1 133,306 2 103,853 1 ----------- ----------- ----------- ----------- ---------- ----------- ---------- ---------- ---------- ----------- Total 3,985,494 8 2,061,072 13 2,492,363 15 1,301,343 17 1,233,686 11 =========== =========== =========== =========== ========== =========== ========== ========== ========== ===========
The purchases from the above related parties were dealt with in the ordinary course of business similar to those from third-party suppliers. The payment terms for purchase from overseas were net 30~90 days for the related parties and the third-party suppliers, while the terms for domestic purchase were month-end 90 days for the related parties and month-end 30~90 days for the third-party suppliers. F-49 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (3) Notes receivable
As of December 31, ------------------------------------------------------------ 2001 2002 As of June 30, 2003 ----------------------------- ------------------------------ ---------------------------- Amount Percentage Amount Percentage Amount Percentage -------------- -------------- -------------- --------------- ------------- ------------- NT$'000 NT$'000 NT$'000 Holtek 77,843 36 - - 164,068 41 AMIC - - - - 2,000 1 Others 24,168 11 2,370 3 511 - -------------- -------------- -------------- --------------- ------------- ------------- Total 102,011 47 2,370 3 166,579 42 ============== ============== ============== =============== ============= =============
(4) Accounts receivable, net
As of December 31, ------------------------------------------------------------ 2001 2002 As of June 30, 2003 ----------------------------- ------------------------------ ----------------------------- Amount Percentage Amount Percentage Amount Percentage --------------- ------------- -------------- -------------- -------------- -------------- NT$'000 NT$'000 NT$'000 MediaTek 1,046,372 12 1,431,362 12 1,271,175 9 Others 1,100,888 12 1,291,185 11 1,717,924 12 --------------- ------------- -------------- -------------- -------------- -------------- Subtotal 2,147,260 24 2,722,547 23 2,989,099 21 Less: Allowance for sales returns and discounts (290,832) (3) (451,009) (4) (567,499) (4) Less: Allowance for doubtful accounts (95,540) (1) (70,493) (1) (92,930) (1) --------------- ------------- -------------- -------------- -------------- -------------- Net 1,760,888 20 2,201,045 18 2,328,670 16 =============== ============= ============== ============== ============== ==============
(5) Other current assets
As of December 31, ------------------------------------------------------------ 2001 2002 As of June 30, 2003 ----------------------------- ------------------------------ ----------------------------- Amount Percentage Amount Percentage Amount Percentage --------------- ------------- -------------- -------------- -------------- -------------- NT$'000 NT$'000 NT$'000 ITAP 1,922,207 63 1,910,268 60 - - Others 28,095 1 - - - - --------------- ------------- -------------- -------------- -------------- -------------- 1,950,302 64 1,910,268 60 - - Less: Allowance for doubtful accounts (705) - - - - - --------------- ------------- -------------- -------------- -------------- -------------- Net 1,949,597 64 1,910,268 60 - - =============== ============= ============== ============== ============== ==============
F-50 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (6) Accounts payable
As of December 31, ------------------------------------------------------------ 2001 2002 As of June 30, 2003 ----------------------------- ------------------------------ ---------------------------- Amount Percentage Amount Percentage Amount Percentage -------------- -------------- -------------- --------------- ------------- ------------- NT$'000 NT$'000 NT$'000 Shin-Estu 455,749 16 375,116 8 581,249 10 Others 34,678 1 23,565 - 71,082 1 -------------- -------------- -------------- --------------- ------------- ------------- Total 490,427 17 398,681 8 652,331 11 ============== ============== ============== =============== ============= =============
(7) Loans
For the year ended December 31, 2001 -------------------------------------------------------------------------------------- Maximum balance Ending Interest -------------------------------- Amount Month balance Interest rate expense ---------------- -------------- ---------------- ------------------ ---------------- NT$'000 NT$'000 NT$'000 Chiao Tung 4,091,316 January 1,224,575 4.00%-7.00% 221,359 IBT 998,750 January 998,750 3.94%-6.42% 54,582 ---------------- ---------------- 2,223,325 275,941 ================ ================
For the year ended December 31, 2002 ------------------------------------------------------------------------------------ Maximum balance Ending Interest -------------------------------- Amount Month balance Interest rate expense --------------- --------------- ---------------- ----------------- -------------- NT$'000 NT$'000 NT$'000 Chiao Tung 1,224,575 January 868,195 2.07%-4.00% 32,717 IBT 998,750 January 783,296 2.89%-3.94% 16,216 ---------------- -------------- 1,651,491 48,933 ================ ==============
For the six-month period ended June 30, 2003 ------------------------------------------------------------------------------------- Maximum balance Ending Interest -------------------------------- Amount Month balance Interest rate expense --------------- --------------- ---------------- ----------------- --------------- NT$'000 NT$'000 NT$'000 Chiao Tung 865,796 January 686,046 1.94%-2.68% 9,967 IBT 783,296 January - 2.54%-2.89% 2,535 ---------------- --------------- 686,046 12,502 ================ ===============
F-51 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (8) Disposal of long-term investments
For the year ended December 31, 2000 -------------------------------------------------------------------------------------- Item Amount Loss ------------------------------------------------------ --------------- --------------- NT$'000 NT$'000 AMIC-Taiwan Common stocks of AMIC Technology Inc. 135,000 80,517 =============== ===============
The Group had no significant disposal of long-term investments to related parties for the year ended December 31, 2001 and 2002, and for the six-month periods ended June 30, 2002 and 2003. (9) Disposal of property, plant and equipment The Group had no significant disposal of property, plant and equipment to related parties for the year ended December 31, 2000.
For the year ended December 31, 2001 ------------------------------------------------------------------------------- Item Amount Gain --------------------------------------------- ----------------- --------------- NT$'000 NT$'000 Holtek Building and facilities 173,250 31,468 ================= ===============
The Group had no significant disposal of property, plant and equipment to related parties for the year ended December 31, 2002, and for the six-month periods ended June 30, 2002 and 2003. (10) Other significant related parties transactions
For the six-month period For the year ended December 31, ended June 30, ----------------------------------------- --------------------------- Item 2000 2001 2002 2002 2003 ------------------------------------ ------------- ------------- ------------- ------------- ------------- NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 UTC Processing expenditures 299,239 92,170 1,257 1,257 179 Others Service charges and processing expenditures, etc. 174,611 156,863 361,292 200,669 202,103 ------------- ------------- ------------- ------------- ------------- 473,850 249,033 362,549 201,926 202,282 ============= ============= ============= ============= =============
F-52 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
For the six-month period For the year ended December 31, ended June 30, ----------------------------------------- --------------------------- Item 2000 2001 2002 2002 2003 ------------------------------------ ------------- ------------- ------------- ------------- ------------- NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 Others Facility revenues, etc. 109,696 115,959 99,279 57,950 33,195 ============= ============= ============= ============= =============
23. Assets Pledged as Collateral As of December 31, 2001, 2002 and June 30, 2003, the following assets have been pledged as collateral against certain obligations of the Group.
Book Value ------------------------------------------------ As of December 31, As of June -------------------------------- Assets Pledged 2001 2002 30, 2003 Purpose of collateral ---------------------------------- ---------------- --------------- -------------- --------------------------------------- NT$'000 NT$'000 NT$'000 Accounts receivable 2,798,906 - - Short-term loans Restricted deposits 264,700 - - Long-term loans Land 614,544 452,916 452,915 Long-term loans Buildings 6,126,811 2,533,152 1,238,437 Long-term loans Machinery and equipment 33,513,570 21,537,463 15,857,707 Long-term and short-term loans ---------------- --------------- -------------- Total 43,318,531 24,523,531 17,549,059 ================ =============== ==============
24. Commitments and Contingencies (1) The Group's unused letters of credit for imports of machinery and equipment were approximately NT$76 million as of June 30, 2003. (2) The Group has entered into contracts, amounting to approximately NT$16 billion, with third parties for rights to use patents registered by the third parties. Royalty payables for the future years are set out as follows: F-53 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
For the year ended December 31, Amount ------------------------------------------------------- ------------------ NT$'000 2003 (from July 1, 2003 to December 31, 2003 only) 2,367,899 2004 1,194,911 2005 1,283,949 2006 1,183,321 2007 1,281,896 2008 and thereafter - ------------- 7,311,976 =============
(3) The Group has signed several construction contracts for the expansion of its factory. As of June 30, 2003, these construction contracts amounted to approximately NT$10.2 billion and the unaccrued portion of the contracts was approximately NT$1.58 billion. (4) On October 27, 1997, Oak Technology Inc. ("Oak") filed a complaint seeking a damage of US$750 million in the Northern District of California alleging that the Company breached a Settlement Agreement entered on July 31, 1997 with respect to a settlement of a dispute between the Company and Oak concerning certain CD ROM controller products made by the Company and a patent owned by Oak. The Company denied Oak's allegations and on December 24, 1997, filed its answer and affirmative defenses refuting Oak's claims. Based on the allegations that it is Oak which has breached the Settlement, the Company simultaneously filed a counterclaim against Oak, seeking damages and a return of the millions paid to Oak under the Settlement. In addition, the Company further seeks a declaration that the Oak patent is invalid and/or unenforceable. Though Oak filed a complaint later with the International Trade Commission ("ITC") repeating the allegations made in the District Court, both the ITC and the Court of Appeals for the Federal Circuit issued a ruling affirming that there was no infringement and no violation. Oak filed enforceable commitments that it would no longer seek recoveries in connection with the Oak patent and accordingly, the District Court concluded there was no longer dispute between Oak and the Company on the patent and the Company's claim for a declaration of invalidity and unenforceability will be dismissed. The Company intends to continue to defend these matters vigorously. Furthermore, the management does not believe the Oak complaints will have any material adverse impact on the Company's operations and/or financial performance. F-54 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (5) The Group entered into several operating lease contracts for land. These operating leases expire in various years through 2020 and are renewable. Future minimum lease payments under those leases are as follows:
For the year ended December 31, Amount ------------------------------------------------------ ------------- NT$'000 2003 (from July 1, 2003 to December 31, 2003 only) 86,569 2004 173,013 2005 171,095 2006 166,776 2007 153,892 2008 and thereafter 2,157,335 ---------- 2,908,680 ==========
(6) The Group entered into several wafer-processing contracts with its main clients. According to the contracts, the Group shall guarantee processing capacity, while the clients make deposits to the Group. In case the clients' orders do not meet the capacity guaranteed, the clients need to pay the Company penalties. (7) As a condition precedent to the making of the loan contemplated by a US$600 million Amortizing Term Loan Facility Agreement among UMCi Pte. Ltd. (UMCi), a subsidiary of the Company, and several financial institutions, the Company has provided a letter of undertaking to the financial institutions and Citicorp Investment Bank (Singapore) Ltd., the facility agent, to undertake that: a. The Company shall continue to own and control, directly or indirectly, a minimum of 40% of the total issued and outstanding shares of UMCi. The Company shall also provide technical support to UMCi and maintain management control with no less than half of the seats of the board of directors. b. The Company shall take necessary actions to ensure UMCi to have at least US$600 million of issued and paid-in capital in cash by December 31, 2003, to make investments necessary to complete the 300mm fab plant on time, and to meet all the obligations under the Facility Agreement. F-55 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 25. Significant Disaster Loss None. 26. Significant Subsequent Event On July 15, 2003, the Company issued its second LSE listed zero coupon exchangeable bonds due July 15, 2008 with an aggregate principal amount of US$206 million and the issue price was set at 103% of the principal amount. The bonds are exchangeable, at the option of the holder thereof, at any time on or after August 14, 2003 and prior to June 30, 2008, into common shares of AU Optronics Corp. at an exchange price of NT$36.387 per reference share, determined on the basis of a fixed exchange rate of NT$34.390 = US$1.00. 27. Certain comparative amounts have been reclassified to conform to the current period's presentation. 28. Financial Instruments (1) The Group uses derivative financial instruments to manage its exposure to market risks associated with foreign currency exchange rate and interest rate fluctuations. a. The Company utilizes interest rate swap agreements to manage its interest rate risks on its floating rate domestic bonds. The details are summarized as follows: There were no interest rate swap agreements outstanding as of December 31, 2001 and 2002. As of June 30, 2003, the Company had the following interest rate swap agreements in effect:
Notional Amount Contract Period Interest Rate Received Interest Rate Paid ------------------- ------------------------------ ------------------------- ----------------------- NT$7,500 million May 20, 2003 to May 20, 2008 4.0% minus USD 12-month 1.52% LIBOR NT$7,500 million May 20, 2003 to May 20, 2010 4.3% minus USD 12-month 1.48% LIBOR
The carrying amount of the interest rate swaps at June 30, 2003 was NT$15 million and the fair value based on quotes from financial institutions was NT$216 million. No interest was paid or received during the six-month period ended June 30, 2003 as the interest is settled annually starting from May 20, 2004. Net interest receivable accrued as of June 30, 2003 amounted to NT$15 million. F-56 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) b. UMCJ, a subsidiary of the Company, entered into foreign currency forward exchange contract to manage certain risks arising from adverse fluctuations in foreign currency exchange rates. The major information is as follows: Notional amount and contract period:
As of December 31, 2001 ----------------------------------------------- Type Notional Amount Maturity ------------------ ----------------------- ------------------ Purchase USD US$3 million January 31, 2002
There was no foreign currency forward exchange contract outstanding as of December 31, 2002.
As of June 30, 2003 ----------------------------------------------- Type Notional Amount Maturity ------------------ ----------------------- ------------------ Purchase USD US$5 million July 31, 2003 Sell USD US$4 million July 31, 2003
c. Transaction risk (a) Credit risk There is no significant credit risk exposures with respect to the above transactions because the counterparties are usually reputable financial institutions with good global standing. (b) Market risk The Group entered into forward exchange contracts to hedge the effect of exchange rate fluctuations on its receivables and payables and entered into interest rate swaps to manage the interest rate risk on its floating rate domestic bonds by converting it to fixed-rate basis. As a result, no significant exposure to market risk from exchange rate and interest rate fluctuations is anticipated. (c) Liquidity and cashflow risk The cash flow requirements on the above derivative financial instruments are limited to the net differences between the spot rates and contracted forward rates at settlement dates for forward exchange contracts and net interest payables, if any, arising from the difference in pay and receive rates for interest rate swaps. Therefore, no significant liquidity and cash flow risk is anticipated as the Group has sufficient working capital to meet the cash flow requirements on settlement. F-57 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (3) Non-derivative financial instruments The carrying value and fair value (and methodologies used in estimating the fair value) of the Group's financial instruments at December 31, 2001, 2002 and June 30, 2003 were as follows:
As of December 31, As of June 30, --------------------------------------------------------- 2001 2002 2003 --------------------------- ------------------------- -------------------------- Carrying Carrying Carrying Value Fair Value Value Fair Value Value Fair Value --------- ------------ ---------- ------------ --------- ----------- NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 Financial assets Assets with carrying value approximating fair value 86,007,360 86,007,360 93,843,431 93,843,431 109,023,601 109,023,601 Marketable securities 1,286,434 1,461,610 2,526,365 2,542,241 1,049,768 1,076,805 Long-term investments 40,756,678 82,879,283 37,800,496 34,606,778 41,044,566 69,809,364 As of December 31, As of June 30, --------------------------------------------------------- 2001 2002 2003 --------------------------- ------------------------- -------------------------- Carrying Carrying Carrying Value Fair Value Value Fair Value Value Fair Value --------- ------------ ---------- ------------ --------- ----------- NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 Financial liabilities Liabilities with carrying value approximating fair value 22,085,770 22,085,770 19,193,135 19,193,135 20,624,391 20,624,391 Bonds payable 39,590,511 41,805,353 50,581,483 51,137,649 61,696,426 62,672,324 Long-term loans 24,825,001 24,825,001 19,521,111 19,521,111 12,554,449 12,554,449
The carrying amounts of short-term financial instruments and other financial assets (credit-linked deposits) approximate fair values due to their short maturities. Short-term financial instruments include cash and cash equivalents, notes receivable, accounts receivable, short-term loans, notes payable, accounts payable, income tax payable and accrued expenses. The fair value of marketable securities, long-term investments and bonds payable is based on the quoted market value. If the market values of marketable securities and long-term investments are unavailable, net assets of the investees are used as fair value. The carrying value of long-term loans approximates the fair value as the loans bear floating rates. F-58 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (4) The Group held several credit-linked deposits and repackage bonds principally for the earning of interest income. Details are disclosed as follows: a. Principal amount in original currency
As of December 31, As of June 30, --------------------------------------------- 2001 2002 2003 ---------------------- --------------------- ---------------------- Credit-linked deposits and repackage bonds referenced to Principal amount Principal amount Principal amount ----------------------------------------------- ---------------------- --------------------- ---------------------- Euro convertible bonds (in NT$'000) - - 310,000 Euro convertible bonds (in US$'000) - 155,500 87,500 Euro convertible bonds (in JPY'000) - 5,000,000 3,200,000
b. Credit Risk The counter parties of the above investments are major international financial institutions. The repayment in full of these deposits is subject to the non-occurrence of one or more credit events, which are referenced to the entities' fulfillment of their own obligations as well as repayment of their corporate bonds. Upon the occurrence of one or more of such credit events, the Group may receive nil or less than full amount of these deposits. The Group has undertaken to minimize the credit risk by selecting reference entities with high credit ratings. c. Liquidity Risk Though early withdrawal is not allowed for the above credit-linked deposits unless called by the issuer, the anticipated liquidity risk is low as most of the contracts are mature within one year. d. Market Risk There is no market risk for the above investments except for the fluctuations in the exchange rates of US dollars and Japanese Yen to NT dollars. F-59 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 29. Segment Information (1) Operations in different industries The Group operates principally in one industry. The Group's major business activity is providing dedicated semiconductor wafer foundry services. (2) Operations in different geographic areas
For the year ended December 31, For the six-month period ended June 30, --------------------------------------------------------------------- -------------------------------------------- 2000 2001 2002 2002 2003 ----------------------- ----------------------- ---------------------- ---------------------- --------------------- Net Net Net Net Net operating Long-lived operating Long-lived operating Long-lived operating Long-lived operating Long-lived revenues assets revenues assets revenues assets revenues assets revenues assets ----------- ----------- ----------- ----------- ---------- ----------- ---------- ----------- ---------- ----------- NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 Taiwan 29,331,178 154,190,745 20,205,163 157,851,031 29,735,077 148,650,597 17,873,908 152,002,350 14,696,009 132,173,089 Asia, excluding Taiwan 13,328,814 11,585,225 9,170,626 15,015,062 8,919,717 22,088,806 3,493,914 16,638,800 6,631,980 27,135,233 North America 50,452,837 123,529 26,394,408 120,366 28,393,289 66,722 10,517,113 90,954 16,811,102 46,473 Europe and others 22,496,510 - 14,046,602 - 8,377,273 27,898 2,674,793 31,281 6,006,246 24,300 ----------- ----------- ----------- ----------- ---------- ----------- ---------- ----------- ---------- ----------- 115,609,339 165,899,499 69,816,799 172,986,459 75,425,356 170,834,023 34,559,728 168,763,385 44,145,337 159,379,095 =========== =========== =========== =========== ========== =========== ========== =========== ========== ===========
F-60 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 30. US GAAP Reconciliation The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the Republic of China ("ROC GAAP"), which differ in certain material respects from generally accepted accounting principles in the United States ("US GAAP"). Such differences include methods of consolidation and methods for measuring the amounts shown in the financial statements, as well as additional disclosures required by US GAAP. Material GAAP differences are as follows: (1) Compensation
For the six-month period For the year ended December 31, ended June 30, --------------------------------------------- ------------------------------- Net income impact of compensation 2000 2001 2002 2002 2003 adjustments -------------- -------------- --------------- --------------- --------------- NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 US GAAP adjustments: Remuneration to directors and supervisors (433,039) - (6,365) (1,354) (2,066) -------------- -------------- --------------- --------------- --------------- Employee bonuses Accrual (3,429,670) - (823,702) (139,834) (374,990) Adjustment to fair market value (6,764,918) (3,238,647) (6,592,188) (6,592,188) (433,422) -------------- -------------- --------------- --------------- --------------- Total employee bonuses (10,194,588) (3,238,647) (7,415,890) (6,732,022) (808,412) Allocation to inventories, net of allocations to inventories in prior period and sold in current period 1,287,138 (1,287,138) 73,338 1,085,112 (18,825) -------------- -------------- --------------- --------------- --------------- Total net income adjustment relating to compensation (9,340,489) (4,525,785) (7,348,917) (5,648,264) (829,303) ============== ============== =============== =============== =============== As December 31, As of June 30, ---------------- --------------- Stockholders' equity impact of compensation adjustments 2001 2002 2003 ---------------- --------------- -------------- NT$'000 NT$'000 NT$'000 US GAAP adjustments: Remuneration to directors and supervisors - (6,365) (2,781) Employee bonuses - 73,338 54,513 ---------------- --------------- -------------- Total stockholders' equity adjustment relating to compensation - 66,973 51,732 ================ =============== ==============
F-61 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Remuneration to Directors and Supervisors - The Company's Articles of Incorporation requires a cash remuneration payment to its directors and supervisors. Under ROC GAAP, such payments are charged directly to retained earnings in the period shareholders approve such payment. Under US GAAP, such cash payments should be recorded as compensation expense in the period when services are rendered. The difference between US GAAP and ROC GAAP in this area would result in adjustments to net income and stockholders' equity as shown in the above schedules. Employee Bonuses - Certain employees of the Company are entitled to bonuses in accordance with provisions of the Company's Articles of Incorporation. Employee bonuses are determined as discussed in Note 18. Under ROC GAAP, such bonuses are appropriated from retained earnings in the period shareholders' approval is obtained, the amount charged against retained earnings is based on the par value of the common shares issued. Under US GAAP, employee bonus expense is initially accrued when services are rendered and both the number of shares to be issued and the price per share are known. When bonuses are approved by the shareholders in the subsequent year, an additional compensation expense is recorded for the difference between the amount initially recorded and the fair market value of shares granted to employees. The difference between US GAAP and ROC GAAP in this area would result in adjustments to net income and shareholders' equity as shown in the above schedules. In addition, there is also a reclassification from retained earnings to capital reserve of NT$24,128 million, NT$27,367 million, NT$29,305 million, NT$29,305 million and NT$34,186 million at December 31, 2000, 2001 and 2002, and June 30, 2002 and 2003. (2) Equity Investments - Net income variance between US GAAP and ROC GAAP The Group's proportionate share of the income (loss) from an equity investee may differ if the equity investee's net income (loss) under ROC GAAP differs from US GAAP. The differences between ROC GAAP and US GAAP for the equity investees include accounting for compensation, technological know-how and investment in marketable securities, etc. F-62 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (3)Marketable Securities and Long-term Investments Under ROC GAAP, marketable securities are carried at the lower of aggregate cost or market value. Under US GAAP Statement of Financial Accounting Standards, ("SFAS") 115, "Accounting for Certain Investments in Debt and Equity Securities," debt and equity securities that have readily determinable fair values are to be classified as either trading, available-for-sale or held-to-maturity securities. Debt securities that the Group has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Debt and equity securities that are bought and traded for short-term profit are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. Debt and equity securities not classified as either held-to-maturity or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of stockholders' equity. The Group holds marketable securities that are mainly classified as trading securities. The portion of trading gains and losses for the years ended December 31, 2000, 2001 and 2002, and for the six-month periods ended June 30, 2002 and 2003 on trading securities still held at each of the respective balance sheet dates were NT$0, NT$19,868, NT$1,771,439, NT$(1,325,424) and NT$180,688 respectively. The Group holds long-term investments in equity securities where the Group does not have the ability to exercise significant influence that are classified as available-for-sale securities. Information on sales of available-for-sale equity securities for the years ended December 31, 2000, 2001 and 2002, and for the six-month periods ended June 30, 2002 and 2003 are as follows:
Proceeds from Gross realized Gross realized sales gains losses ----------------- ------------------ ----------------- NT$'000 NT$'000 NT$'000 For the year ended December 31, 2000 1,755,924 488,748 62,887 For the year ended December 31, 2001 2,743,503 1,987,304 137,178 For the year ended December 31, 2002 8,530,551 6,520,197 264 For the six-month period ended June 30, 2002 8,075,591 6,254,109 5,602 For the six-month period ended June 30, 2003 777,549 480,372 44,732
F-63 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Information on available-for-sale equity securities still held at each balance sheet date is as follows:
Total unrealized Total unrealized Net unrealized Fair Value gains losses gains (losses) -------------- ------------------ ------------------ ------------------ NT$'000 NT$'000 NT$'000 NT$'000 As of December 31, 2001 54,485,301 40,367,986 (313,750) 40,054,236 As of December 31, 2002 35,127,937 19,322,091 (574,484) 18,747,607 As of June 30, 2003 41,650,720 24,456,049 (1,173,494) 23,282,555
The Group did not transfer any available-for-sale securities to trading securities for the years ended December 31, 2000, 2001 and 2002, and for the six-month periods ended June 30, 2002 and 2003. The amount of gains (losses) reclassified from accumulated other comprehensive income into earnings on available-for-sale securities were NT$46,229, NT$169,049, NT$5,034,105, NT$4,574,600 and NT$105,576 for the years ended December 31, 2000, 2001 and 2002, and for the six-month periods ended June 30, 2002 and 2003, respectively. Under ROC GAAP, if an investor company invests in equity securities that are traded in an open market and uses the cost method for valuation purposes, then an investor company shall recognize losses if evidence suggests that the value of an investment has been impaired and it is unlikely that the stock price will recover. The new cost of the long-term investment is the book value after recognizing the losses. Under US GAAP, for individual securities classified as either available-for-sale or held-to-maturity, an enterprise shall determine whether a decline in fair value below the amortized cost basis is other than temporary. If the decline in fair value is judged to be other than temporary, the cost basis of the individual security shall be written down to fair value as a new cost basis and the amount of the write-down shall be included in earnings. The new cost basis shall not be changed for subsequent recoveries in fair value. Subsequent increases in the fair value of available-for-sale securities shall be included in the other comprehensive income. The Group has written down NT$415 million, NT$536 million, NT$1,409 million, NT$1,314 million and NT$304 million under ROC GAAP against certain available-for-sale securities for the years ended December 31, 2000, 2001 and 2002, and for the six-month periods ended June 30, 2002 and 2003. For US GAAP purpose, the Group further wrote down an additional NT$296 million, NT$3,305 million, NT$781 million, NT$385 million and NT$522 million for the years ended December 31, 2000, 2001 and 2002, and for the six-month periods ended June 30, 2002 and 2003. Among the NT$1,409 million recognized under ROC GAAP for the year ended December 31, 2002, NT$432 million had already been written down under US GAAP for the year ended December 31, 2001, which therefore has led to an increase in net income under US GAAP for the year ended December 31, 2002. F-64 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Under ROC GAAP, equity investments where a company has an ownership interest of at least 20% are generally required to be accounted for under the equity method. However, when there is evidence indicating that the investor company does not have significant influence over the equity investee, despite an ownership interest of 20% or more, the investor company should not account for the equity investee under equity method. On the contrary, when there is evidence indicating that the investor company has significant influence over the equity investee's operating and financial policies, despite an ownership interest of less than 20%, the investor company will account for the equity investee under equity method. Under US GAAP, the Group is required to use the equity method of accounting for an investment in common stock when the investment in voting stock gives it the ability to exercise significant influence over operating and financial policies of an investee. An investment (direct or indirect) of 20% or more of the voting stock of an investee leads to a presumption that in the absence of evidence to the contrary an investor has the ability to exercise significant influence over an investee. There were no significant differences between ROC GAAP and US GAAP on balance sheets as of December 31, 2001 and 2002, and on statements of operations for the three years ended December 31, 2000, 2001 and 2002, and for the six-month period ended June 30, 2002. Under ROC GAAP, when an investor company's ownership percentage of an investee's outstanding common stock is the highest among shareholders, the investor company is considered to have significant influence over the investee and equity accounting shall be applied, despite an ownership interest of less than 20%. However, under US GAAP, this does not qualify for a relationship of significant influence and hence equity accounting shall not be applied unless the investor holds more than 20% of the voting rights. The difference between US GAAP and ROC GAAP in this area would result in a decrease in equity in loss of investees of NT$255 million and an increase in unrealized loss on available-for-sale securities of NT$664 million, respectively, for the six-month period ended June 30, 2003. (4) Treasury Stock and Gain on Disposal of Treasury Stock Under ROC GAAP, when the Group's equity investee sells the Company's stock it recognizes the gain or loss in its statement of operations. Under US GAAP, the Group's equity in income (loss) of an investee is adjusted to eliminate the Company's proportionate share of any such gains or losses. Further, the Company's stock owned by an investee is proportionately deducted from the investment as treasury stock. (5) Technological Know-how The Group entered into three joint ventures from 1995 through 1996. Both the Group and the joint venture partner contributed cash to the joint ventures. In addition, the Group contributed technological know-how to the joint ventures for shares of the joint venture companies. Both parties mutually agreed to the value of this transferred technological know-how before the transfer of shares. The technological know-how contributed has not been recognized on the Group's balance sheet, as these were internally generated intangible assets with no carrying value. F-65 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Under ROC GAAP, the Group recognized the cash contributed as the initial cost of the investment. The difference between the proportionate share of the net assets in the joint venture and the cash contributed is amortized to income over the estimated useful life of the technological know-how, which is the source of this difference. Further, under ROC GAAP, the joint venture recognized a value for the technological know-how as an intangible asset contributed, which is the cause of the difference between the proportionate share of the net assets and the cash contributed. Under US GAAP, the investor initially records its joint venture investment at cost, representing the amount of cash contributed and/or net book value of non-cash assets contributed. The joint venture normally records cash investments at the amount contributed, the non-cash assets at fair value and intangible assets at the predecessor basis, which is normally zero. The difference between the proportionate share of the net assets in the joint venture and the cost of the investments is amortized to income over a period of five years. The joint venture does not recognize value for the technological know-how contributed, thus causing a difference with ROC GAAP. This practice only applies to entities that are being consolidated or accounted for under the equity method. (6) Convertible and Exchangeable Bonds Convertible Bonds When convertible securities are issued, ROC GAAP does not recognize or account for any beneficial conversion feature embedded in the securities. Under US GAAP, as prescribed in the Emerging Issues Task Force ("EITF") Topic D-60, as amended by EITF 98-5, Accounting for the Issuance of Convertible Preferred Stock and Debt Securities with a Non-detachable Conversion Feature, such beneficial conversion features should be recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to capital reserve. That amount should be calculated at the issuance date as the difference between the conversion price and the fair value of the common stock, multiplied by the number of shares into which the security is convertible (intrinsic value). As a result, a bond discount is recognized by allocating a portion of the proceeds equal to the intrinsic value of that feature to capital reserve. The Group recognized interest expense of NT$1,274 million from February 1994, the date of issuance of the bonds, to May 1994, the date of first conversion, relating to a NT$1.5 billion bond. The Group also recognized interest expense of NT$6,086 million from June 1994, the date of issuance of the bonds, to May 1996, the date of first conversion, relating to an US$160 million bond. F-66 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The Group recognized interest expense of approximately NT$800 million from May 10, 2000, the date of issuance of the bonds, to June 1, 2000, the date of first conversion, related to its (Yen)10 billion bond. In addition, according to EITF 85-17, the Group recognized an imputed interest expense together with a compensation interest of NT$570 million in total for the year ended December 31, 2002, and NT$293 million and NT$70 million for the six-month periods ended June 30, 2002 and 2003, respectively, relating to the US$302.4 million zero coupon convertible bonds issued on December 12, 2001. Upon reacquisition of the convertible bonds, the relevant interest expenses accrued in prior periods will be released to gain/loss on requisition of bonds accordingly. When a subsidiary or investee (the "Issuer") issues convertible bonds to other parties, including the parent or investor, and bonds are converted into shares of the Issuer, the parent's or investor's ownership in the Issuer may decrease. Also, the parent's or investor's ownership in the Issuer may increase upon conversion. Under ROC GAAP, this decrease or increase is treated as a one-time decrease or increase to capital reserve and /or retained earnings. Under US GAAP, a decrease in ownership is recognized as a gain or loss in the statement of operations upon conversion, as long as the value of the proceeds can be objectively determined and the realization of the gain is reasonably assured at the time of conversion. Under US GAAP, for the years ended December 31, 2000, 2001 and 2002, and for the six-month periods ended June 30, 2002 and 2003, approximately NT$141 million, nil, NT$9.5 million, NT$9.8 million and nil were reclassified from capital reserve to a gain in the income statement relating to these transactions. Further under US GAAP, an increase in ownership 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 net assets is first allocated to identifiable tangible and intangible assets and the remaining unallocated amounts to goodwill, which was amortized over their respective estimated useful lives up to January 1, 2002. Upon the first adoption of the SFAS No.141, "Business Combination" and SFAS No.142, "Goodwill and Other Intangible Assets" by the Group on January 1, 2002, goodwill created from acquisition is no longer to be amortized. Under US GAAP, for the year ended December 31, 2000, the Group capitalized goodwill of NT$468.3 million related to a subsidiary's convertible bond, with NT$49.4 million and NT$93.7 million being amortized in the statement of operations for the years ended December 31, 2000 and 2001, respectively, and nil for the subsequent periods. Further, upon conversion of an equity investment's bond, which increased the Group's ownership, the difference of NT$519 million between the total cost of the investment and proportionate share of the fair value net assets was being amortized over 5 years, which accounted for NT$54.8 million and NT$103.9 million for the years ended December 31, 2000 and 2001, respectively. Again, due to the first adoption of SFAS No.141 & 142 on January 1, 2002, no amortization was made since then. Details of the accounting treatment on goodwill are set out in the footnote "Adoption of SFAS No.141 & 142". F-67 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The Group has invested in convertible bonds. Under the SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", an embedded derivative instrument shall be separated from the host contract and accounted for as a derivative instrument pursuant to the statement if a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, b) the contract that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value with changes in fair value reported in earnings as they occur and c) a separate instrument with the same terms as the embedded derivative instrument would be a derivative instrument subject to the requirements of SFAS No. 133. For an available-for-sale convertible debt securities, the conversion option embedded must be separated from the debt host contract and accounted for as a derivative instrument provided that the conversion option would, as a freestanding instrument, be a derivative instrument subject to the requirement of SFAS No. 133 since the embedded conversion option satisfied the above three criteria. As a result, the embedded option contracts in the convertible bonds with the initial amount of NT$104 million, NT$57 million and NT$64 million in total, respectively, at date of purchase were separated from the debt host contracts and were accounted for as trading securities reporting at fair value, with an unrealized gain(loss) of NT$(25) million, NT$14 million and NT$122 million included in earnings for the year ended December 31, 2002 and for the six-month periods ended June 30, 2002 and 2003. On the other hand, the debt host contracts with the initial amount of NT$ 2,397 million, NT$1,995 million and NT$755 million were classified as available-for-sale securities, with an unrealized gain(loss) of NT$46 million, NT$(76) million and NT$(83) million reported in other comprehensive income for the year ended December 31, 2002 and for the six-month periods ended June 30, 2002 and 2003, respectively. Exchangeable Bonds Bonds that are exchangeable into common stock of a third party is an expansion on the concept of convertible bonds. Under ROC GAAP, when exchangeable bondholders exercise their rights to exchange for the reference shares, the book value of bonds is to be offset with the book value of the investment in the reference shares together with the related stockholder's equities, with the difference recognized as gain or loss on disposal of investments. F-68 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Under US GAAP, as prescribed by SFAS No.133 and discussed above, the exchangeable feature within exchangeable bonds is an embedded equity derivative within a debt instrument that satisfies the three criteria which requires it to be bifurcated and separately accounted for. The fair value of the exchangeable option feature of the Group's first exchangeable bonds issued in May 2002 was measured as NT$2,025 million as at the date of issuance, which resulted to a reclassification from the bond value to financial instrument liability under US GAAP accordingly. As of December 31, 2002 and June 30, 2003, the fair value of the option was NT$273 million and NT$257 million, respectively, resulting in a gain of NT$1,752 million and NT$16 million being recognized for the year ended December 31, 2002 and for the six-month period ended June 30, 2003 under US GAAP, respectively. (7) Principle of Acquisition under the Purchase Method Under ROC GAAP, the fair value of the net assets received is deemed to be the value of the consideration for the acquisition of the remaining interests in United Semiconductor, United Silicon, UTEK Semiconductor and United Integrated Circuits and is reflected in the common stock and capital reserve in the balance sheet. The Group estimated the fair value of the net assets acquired through two valuation models, profitability and net worth model, and a discounted cash flows model. They also used other considerations such as the valuation of current operations, synergies, technical knowledge and future prospects. Under US GAAP, the acquisition was accounted for using the purchase method of accounting and the purchase price was determined using the market value of the shares exchanged. The difference between the fair value of the shares exchanged and the fair value of the net assets acquired creates goodwill. Goodwill was amortized on a straight-line basis over ten years. Upon the adoption of SFAS No.141 & 142 on January 1, 2002 by the Group, the goodwill ceased to be amortized and is subject to impairment test only. Please refer to "Adoption of SFAS No. 141 and 142" for details. The purchase price under US GAAP was determined based on the average closing market price of the Company's stock on the five trading days beginning two days before June 16, 1999, the first day of trading after the announcement of the acquisition to determine the fair values of the shares exchanged. The purchase price was allocated to the tangible and intangible assets and liabilities acquired based on their estimated fair values at January 3, 2000, as follows (in NT$ millions): Current assets $ 38,188 Other assets 47,673 Liabilities (43,318) Goodwill 122,835 ----------------- Purchase price $165,378 ================= As of January 1, 2002, the carrying value of the unamortized balance of the goodwill was measured as NT$98,268 million. F-69 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (8) Earnings Per Share Under ROC GAAP, basic earnings per share are calculated by dividing net income 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. The net income would also be adjusted for the interest derived from any underlying dilutive share equivalents. The weighted-average outstanding shares are restated for stock dividends issued and shares issued for employee bonuses, as described under (1) Compensation above. Under US GAAP, basic earnings per share are calculated by dividing net income by the weighted average number of shares outstanding during the year. Shares issued for employee bonus will affect the current year's earnings per share only. Diluted earnings per share are calculated by taking into consideration additional common shares that would have been outstanding if the dilutive share equivalents had been issued. The net income would also be adjusted for the interest derived from any underlying dilutive share equivalents. (9) Tax Effect of US GAAP Adjustments Undistributed earnings generated after 1997 are subject to a 10% tax in compliance with the Income Tax Law of the ROC. Under ROC GAAP, the 10% tax on undistributed earnings is recorded as an expense at the time shareholders resolve that its earnings shall be retained. Under US GAAP, the Group would measure its income tax expense, including the tax effects of temporary differences, using the tax rate that includes the tax on undistributed earnings. (10) Principles of Consolidation Under ROC GAAP, certain 50% or more owned subsidiaries are not consolidated if they meet specific exclusion rules detailed in the accounting policies footnote. Under US GAAP, consolidation is generally required when one of the companies in a group directly or indirectly has a controlling financial interest in the other companies. The usual condition for controlling financial interest is ownership of a majority of the voting interest and, therefore, as a general rule ownership by one company, directly or indirectly, of over fifty percent of the outstanding voting shares of another company is a condition pointing towards consolidation. Consolidation of majority-owned subsidiaries is required in the preparation of consolidated financial statements, unless (i) control is considered temporary or (ii) control does not rest with the majority owner. As such, Under US GAAP, the Company consolidates those subsidiaries that are excluded from consolidation under ROC GAAP due to the exclusion rules (Fortune Venture Capital Corporation, UMC Capital Corporation, United Microelectronics Corp. (Samoa), United Foundry Services Inc., and Sigence Inc.) The net income and stockholders' equity variances between US GAAP and ROC GAAP for those entities are included in the adjustment for equity investments. F-70 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (11) Stock Dividends Under ROC GAAP, stock dividends are recorded at par with a charge to retained earnings. Under US GAAP, if the ratio of distribution is less than 25 percent of the same class of shares outstanding, the fair value of the shares issued should be charged to retained earnings. The accumulative effect of these dividends would have decreased retained earnings and increased capital reserve for the years ended December 31, 2000, 2001 and 2002, and for the six-month periods ended June 30, 2002 and 2003, by approximately NT$127,880 million, NT$187,416 million, NT$243,546 million, NT$187,416 million, and NT$243,546 million, respectively. (12) Other financial assets Interest rate swap To eliminate the variability of cash flows in the interest payments of its NT$15 billion variable-rate domestic bonds issued in May to June 2003, the Company entered into interest rate swap agreements with notional amount of NT$15 billion that effectively convert the floating-rate domestic bonds to fixed-rate basis over the term of the bonds. Under ROC GAAP, the periodic cash settlement under the interest rate swap is accrued in the statement of operations as an adjustment to interest expense. The net receivable/payable under the interest rate swap is included as "other financial assets". Changes in fair value of the interest rate swap, as hedging instrument, are not required to be accounted for as of the balance sheet date. Under US GAAP, the SFAS No. 133 requires companies to recognize all of its derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. The Company's interest rate swap agreements were designated as cash flow hedges. For derivative instruments that are designated and qualify as a cash flow hedge to hedge the exposure to variability in expected future cash flows that is attributable to a particular risk, the effective portion of the gain or loss on the derivative instrument is reported as other comprehensive income, a component of stockholders' equity, and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Therefore, to recognize the change in fair value of the interest rate swaps, an amount of NT$216 million was included in other comprehensive income under US GAAP for the six-month period ended June 30, 2003. F-71 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Credit-linked deposits and repackage bonds The Group held several credit-linked deposits and repackage bonds classified as other financial assets under ROC GAAP as of June 30, 2003. As no early withdrawal is allowed under the deposit/repackage agreements, such financial instruments are included in held-to-maturity securities under US GAAP. The repayment in full, including any accrued interest, of these deposits is subject to the non-occurrence of one or more credit events, which are referenced to the entities' fulfillment of their own obligations as well as repayment of their loan or corporate bonds. Upon the occurrence of one or more of such credit events, the Group may receive nil or less than the full amount of these deposits and any payment received may be delayed due to the occurrence of certain events. Since the credit-linked options were, a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the deposit, b) the contract that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value with changes in fair value reported in earnings as they occur and c) a separate instrument with the same terms as the embedded derivative instrument would be a derivative instrument subject to the requirements of SFAS No. 133, these credit-linked options were bifurcated from such deposits with the amount of NT$29 million as of June 30, 2003. The underlying reference entities are summarized as follows:
Principal amount in original currency Reference entities ------------------------------------------- ----------------------------------------------------------------- 20 million in USD Siliconware Precision Industries Co., Ltd ("Siliconware") 19 million in USD King Yuan Electronics Co., Ltd 15 million in USD UMCi Pte. Ltd 6.5 million in USD Unimicron Technology Corp. 5 million in USD Stark Technology, Inc. 5 million in USD Compal Electronics, Inc. and the Company 5 million in USD Fubon Holding Co., Ltd., Siliconware and the Company 5 million in USD Cathay Financial Holding Co., Ltd. 5 million in USD Quanta Display Inc. 3.2 billion in JPY UMCJ 100 million in NTD The Company 210 million in NTD Siliconware
F-72 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (13) Gross Profit and Operating Income Inventory loss provision, gain from disposal of property, plant and equipment, and gain from foreign currency exchange were presented below the operating income subtotal in the statement of operations as permitted under ROC GAAP. Under US GAAP, the inventory loss provision is included in the determination of gross profit. Further, the inventory loss provision, gain from disposal of property, plant and equipment, and gain from foreign currency exchange are included in the determination of operating income. (14) Gain on Disposal of Fixed Assets Under ROC GAAP, gains and losses from the disposal of fixed assets are both recognized in the statement of operations, with gains reclassified from retained earnings to capital reserve. However, according to amendments in ROC Company Law, such transfer of gains to capital reserve shall no longer be required with effect on January 1, 2001. The accumulated gain transferred in prior years can be transferred back from the capital reserve and be treated as a one-time increase in retained earnings subject to shareholder's approval. Under US GAAP, the reclassification of the gain from retained earnings is not permitted. As of June 30, 2003, the accumulated gain transferred in prior years by investees that has not been transferred back from capital reserve under ROC GAAP amounted to NT$1.7 million, which had been transferred under US GAAP. (15) Reclassification of Certificates of Deposit Under ROC GAAP, cash and cash equivalents include certificates of deposit. Under US GAAP, cash equivalents are short-term, highly liquid investments that are readily convertible to cash with original maturities of three months or less. Thus, certificates of deposit with original maturities of greater than three months are classified as cash equivalents under ROC GAAP but should be included in marketable securities for trading purpose under US GAAP. (16) Employee Stock Options The Group has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock-Based Compensation", requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized for the Company. F-73 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) On September 11, 2002, the Company was authorized to issue Employee Stock Options. The total number of options to be granted under the plan is one billion units, with each unit entitling the optionee to subscribe for one share of the Company's common stock. The grant period for options is six years and an optionee may exercise his/her options starting from two years after the grant: employees may exercise up to 50% of the options after two years, up to 75% after three years and up to 100% after four years. The total number of option units outstanding as of June 30, 2003 was 951,456 thousand units. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Group had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the year ended December 31, 2002 and for the six-month period ended June 30, 2003, respectively: risk-free interest rate of 1.98% and 1.96%; dividend yields of 22.63%; volatility factors of the expected market price of the Company's common stock of 0.54 and 0.53; and a weighted-average expected life of the option of 4.4 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Group's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. F-74 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Group's pro forma information follows (in thousands except for earnings per share information):
For the six-month period ended For the year ended December 31, June 30, ---------------------------------------------- --------------------------------- 2000 2001 2002 2002 2003 ---------- ----------- ------------------ --------- --------------------- NT$'000 NT$'000 NT$'000 US$'000 NT$'000 NT$'000 US$'000 Net income, as reported under US GAAP 27,133,811 (23,246,991) 293,653 8,485 149,562 1,219,050 35,222 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects - - 5,387 156 - - - Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (170,382) (284,663) (398,583) (11,517) (123,770) 48,991 1,416 ---------- ----------- -------- -------- --------- ---------- --------- Pro forma net income 26,963,429 (23,531,654) (99,543) (2,876) 25,792 1,268,041 36,638 ========== =========== ======== ======== ========= ========== ========= Earnings (loss) per share (in dollars): Basic and diluted - as reported 1.91 (1.58) 0.02 0.01 0.08 ========== =========== ======== ========= ========== Basic and diluted - pro forma 1.90 (1.60) (0.01) - 0.09 ========== =========== ======== ========= ==========
The pro forma net income effect for the periods prior to September 2002 is mainly attributable to the employee stock options issued by a subsidiary of the Company. F-75 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) A summary of the Company's stock option activity, and related information for the year ended December 31, 2002 and for the six-month period ended June 30, 2003 follows:
For the six-month period ended For the year ended December 31, 2002 June 30, 2003 -------------------------------------- --------------------------------- Options Weighted-Average Options Weighted-Average (in thousands) Exercise Price (in thousands) Exercise Price --------------- ----------------- --------------- ---------------- NT$ NT$ Outstanding-beginning of year - - 928,059 20.0 Granted 939,000 20.0 61,000 22.5 Exercised - - - - Forfeited (10,941) 20.0 (37,603) 20.4 --------------- ------------- Outstanding-end of year 928,059 20.0 951,456 20.1 =============== ------------- Exercisable at end of year - - - - Weighted-average fair value of options granted during the year NT$1.07 NT$1.17
Exercise prices for options outstanding as of June 30, 2003 is ranged from NT$20 to NT$22.5. The weighted-average remaining contractual life of those options is 5.3 years. (17) Summarized financial information Summarized financial information for equity investees is as follows:
As of December 31, -------------------------------- 2001 2002 As of June 30, 2003 ---------- ------------------- --------------------- NT$'000 NT$'000 US$'000 NT$'000 US$'000 Current assets 31,945,226 33,313,560 962,541 29,922,342 864,558 Noncurrent assets 28,490,053 26,004,109 751,347 28,639,124 827,481 Current liabilities 14,219,013 11,641,482 336,362 12,886,916 372,347 Noncurrent liabilities 3,700,242 5,396,573 155,925 5,197,500 150,173
For the six-month period ended For the year ended December 31, June 30 ----------------------------------------------- --------------------------------- 2000 2001 2002 2002 2003 ---------- ---------- ---------------------- ---------- -------------------- NT$'000 NT$'000 NT$'000 US$'000 NT$'000 NT$'000 US$'000 Net sales 58,418,686 32,824,736 38,718,123 1,118,698 18,200,234 21,695,603 626,859 Gross profit 16,886,102 4,521,406 8,728,242 252,188 4,184,463 4,634,381 133,903 Net income (loss) 729,303 (5,411,366) (147,825) (4,271) (336,903) 776,467 22,435
F-76 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Reconciliation of Consolidated Net Income
For the six-month period For the year ended December 31, ended June 30, ------------------------------------------------ -------------------------------- 2000 2001 2002 2002 2003 ----------- ------------ --------------------- ----------- ------------------- NT$'000 NT$'000 NT$'000 US$'000 NT$'000 NT$'000 US$'000 Net income (loss), ROC GAAP 50,780,378 (3,157,302) 7,072,032 204,335 4,661,755 3,090,204 89,286 US GAAP adjustments: (1) Compensation (9,340,489) (4,525,785) (7,348,917) (212,335) (5,648,264) (829,303) (23,961) (2) Equity investments: (1) Compensation (1,083,503) (1,488,490) (471,136) (13,613) (510,228) (287,664) (8,312) (3) Marketable securities (491,032) 45,989 (64,049) (1,851) (33,346) 314 9 (4) Treasury stock (20,547) (10,557) - - - - - (5) Technological know-how 23,344 22,928 22,527 651 11,298 10,657 308 (6) Convertible bonds (414,886) - - - - - - Other (116,852) (356,933) (85,114) (2,459) 15,821 (66,828) (1,931) (3) Investment (loss) income (15,242) 315,737 30,477 881 84,805 (344,127) (9,943) (3) Difference in application of equity accounting - - - - - 255,458 7,381 (3) Impairment loss in marketable securities (295,869) (3,304,929) (349,177) (10,089) 47,254 (522,188) (15,088) (5) Gain on technological know-how contributed to foundry venture investee 828,698 - - - - - - (6) Adjustments due to change in interest of investee companies 563,311 795,851 449,365 12,984 438,505 24,156 698 (6) Embedded derivatives in exchangeable bonds - - 1,752,039 50,622 1,267,989 16,267 470 (6) Convertible/Exchangeable bonds - - (691,394) (19,977) (346,027) (232,594) (6,721) (6) Gain on reacquisition of bonds - - - - - 106,416 3,075 (7) Consolidated goodwill amortization (12,283,500) (12,283,500) - - - - - (9) Income tax effect (1,000,000) 700,000 (23,000) (664) 160,000 44,000 1,272 (12)Credit-linked deposits - - - - - (45,718) (1,321) ----------- ------------ ---------- --------- ----------- ---------- ------- Net income (loss), US GAAP 27,133,811 (23,246,991) 293,653 8,485 149,562 1,219,050 35,222 =========== ============ ========== ========= =========== ========== ======= (8) Basic and diluted earnings/(loss) per share under US GAAP (in dollars) 1.91 (1.58) 0.02 0.01 0.08 =========== ============ ========== =========== ========== Weighted-average number of shares outstanding-basic (in thousands) 14,179,447 14,671,293 14,655,247 14,603,656 14,682,742 =========== ============ ========== =========== ========== Weighted-average number of shares outstanding-diluted (in thousands) 14,179,447 14,671,293 14,729,188 14,603,656 14,737,383 =========== ============ ========== =========== ========== Other comprehensive loss, ROC GAAP (2,241,077) (631,401) (620,397) (17,925) (346,381) (1,014,516) (29,313) (3) Marketable securities-available for sale 225,636 40,750,908 20,147,099 582,118 25,564,600 24,663,873 712,623 (12) Interest rate swaps - - - - - 216,122 6,245 Translation adjustments 3,254 59,085 (478) (14) (35,821) (582) (17) ----------- ------------ ----------- --------- ----------- ---------- -------- Other comprehensive (loss) income, US GAAP (2,012,187) 40,178,592 19,526,224 564,179 25,182,398 23,864,897 689,538 =========== ============ =========== ========= =========== ========== =======
F-77 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Reconciliation of Gross Profits
For the year ended December 31, For the six-month period ended June 30, ----------------------------------------------------- --------------------------------------- 2000 2001 2002 2002 2003 ------------ ------------ ----------------------- ----------- ------------------------- NT$'000 NT$'000 NT$'000 US$'000 NT$'000 NT$'000 US$'000 Gross profit, ROC GAAP 58,198,294 9,248,890 12,538,054 362,267 5,555,005 8,323,328 240,489 (1) Compensation (6,526,306) (3,434,607) (5,415,162) (156,463) (3,776,912) (635,078) (18,350) (13) Inventory loss provision (610,327) (1,529,823) (955,074) (27,595) (128,369) (1,051,432) (30,379) Consolidation of unconsolidated subsidiaries (78,753) (136,676) - - (49,792) - - ------------ ------------ ----------- ---------- ----------- ----------- ----------- Gross profit, US GAAP 50,982,908 4,147,784 6,167,818 178,209 1,599,932 6,636,818 191,760 ============ ============ =========== ========== =========== =========== ===========
Reconciliation of Operating Revenues
For the six-month period For the year ended December 31, ended June 30, ------------------------------------------------- ----------------------------------- 2000 2001 2002 2002 2003 ------------ ----------- ---------------------- ----------- ---------------------- NT$'000 NT$'000 NT$'000 US$'000 NT$'000 NT$'000 US$'000 Operating income (loss), ROC GAAP 47,543,397 (6,412,253) 112,258 3,244 (1,309,457) 2,880,853 83,237 (1) Compensation (9,340,489) (4,525,785) (7,348,917) (212,335) (5,648,264) (829,303) (23,961) (7) Consolidated goodwill amortization (12,332,937) (12,377,169) - - - - - (13) Inventory loss provision (610,327) (1,529,823) (955,074) (27,596) (128,369) (1,051,432) (30,379) (13) Gain on disposal of property, plant and equipment 99,700 (45,523) 14,403 416 (18,381) 21,365 617 (13) Foreign currency exchange gain 2,920,585 664,794 (104,243) (3,012) (331,025) 115,269 3,331 Consolidation of unconsolidated subsidiaries (4,516) 2,480 (24,890) (719) (12,843) (22,999) (665) ------------ ----------- ----------- --------- ----------- ---------- ---------- Operating income (loss), US GAAP 28,275,413 (24,223,279) (8,306,463) (240,002) (7,448,339) 1,113,753 32,180 ============ =========== =========== ========= =========== ========== ==========
F-78 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Reconciliation of Consolidated Stockholders' Equity
As of December 31, ------------------------------------------- 2001 2002 As of June 30, 2003 -------------- --------------------------- ---------------------------- NT$'000 NT$'000 US$'000 NT$'000 US$'000 Total stockholders' equity, ROC GAAP 213,322,253 217,424,485 6,282,129 215,969,589 6,240,092 (1) Compensation - 66,973 1,935 51,732 1,495 (2) Equity investments: (1) Compensation (157,231) (127,980) (3,698) (80,370) (2,322) (3) Marketable securities - trading 81,634 24,788 716 25,110 725 (3) Marketable securities - available for sale 443,030 1,560,602 45,091 1,617,036 46,721 (5) Technological know-how (57,398) (33,867) (978) (26,347) (761) Translation adjustments 5,019 (464) (13) - - Other (485,030) (455,226) (13,153) (273,832) (7,912) (3) Change in fair value of marketable securities 40,325,522 18,617,474 537,922 23,249,114 671,746 (3) Difference in application of equity accounting - - - 206,281 5,960 (3) Impairment loss on marketable securities (3,304,929) (3,654,106) (105,579) (4,176,023) (120,659) (4) Treasury stock (176,221) (8,024) (232) (8,024) (232) (6) Adjustments due to change in interest of investee companies 1,527,584 1,604,517 46,360 1,628,673 47,058 (6) Convertible/ Exchangeable bonds - (691,394) (19,977) (817,572) (23,622) (6) Embedded derivatives in exchangeable bonds - 1,752,039 50,622 1,768,306 51,092 (7) Unamortized goodwill due to acquisition 98,268,000 98,268,000 2,839,295 98,268,000 2,839,295 (9) Income tax effect (300,000) (323,000) (9,333) (279,000) (8,061) (12) Credit-linked deposits - - - (45,718) (1,321) (12) Interest rate swaps - - - 216,122 6,244 ------------- ------------- ------------ ------------- ------------ Stockholders' equity, US GAAP 349,492,233 334,024,817 9,651,107 337,293,077 9,745,538 ============= ============= ============ ============= ============
F-79 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Movements in Stockholders' Equity in Accordance with US GAAP
For the year ended December 31, For the six-month period ended June 30, ------------------------------------------------- --------------------------------------- 2000 2001 2002 2002 2003 ----------- ---------- ----------------------- ------------ ------------------------- NT$'000 NT$'000 NT$'000 US$000 NT$'000 NT$'000 US$'000 Balance at January 1, 89,876,907 326,985,321 349,492,233 10,098,013 349,492,233 334,024,817 9,651,107 (1) Compensation 7,551,811 6,668,317 7,415,890 214,270 6,592,188 808,412 23,358 (2) Adjustment of capital reserve and retained earnings accounted for under equity method 1,842,027 1,395,559 197,989 5,721 43,605 542,474 15,674 (3) Change in fair value of marketable securities - the Company (599,340) 41,167,526 (20,936,211) (604,918) (14,067,691) 4,474,878 129,295 (3) Change in fair value of marketable securities - equity investees (2,544,912) 1,152,094 (545,915) (15,773) (967,717) (23,113) (668) Common stock for the conversion of convertible bonds issued 3,429,132 - - - - - - Adjustment due to change in ownership of investee companies 2,521,277 (344,213) 20,981 606 263,236 (1,415,102) (40,887) (4) Treasury stock (5,159,240) (4,599,643) (2,743,561) (79,271) (2,178,200) (2,225,247) (64,295) (4) Capital reserve from gain on disposal of treasury stock 20,547 296,018 - - - - - Cumulative translation adjustment on foreign long-term investment (507,778) (128,841) 829,758 23,974 39,214 (329,214) (9,512) (5) Adjustment due to technological know-how contributed to a joint venture investee 1,082,349 - - - - - - (7) Issue new shares for the shares swapped regarding to the merger-par value 23,836,503 - - - - - - (7) Capital reserve due to merger 139,987,454 - - - - - - Shares issued for American Depository Shares 38,514,773 147,086 - - - - - Interest rate swaps - - - - - 216,122 6,244 Net income (loss) 27,133,811 (23,246,991) 293,653 8,485 149,562 1,219,050 35,222 ----------- ----------- ----------- ----------- ----------- ----------- ---------- Balance at end of the period 326,985,321 349,492,233 334,024,817 9,651,107 339,366,430 337,293,077 9,745,538 =========== =========== =========== =========== =========== =========== ==========
F-80 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Summarized US GAAP balance sheet and statement of operations information is presented below:
As of December 31, As of June 30, ----------------------------------- ---------------------- 2001 2002 2003 ----------- ---------------------- ---------------------- NT$'000 NT$'000 US$'000 NT$'000 US$'000 Current assets 101,376,483 102,492,091 2,961,343 118,446,888 3,422,331 Noncurrent assets 355,502,958 340,152,950 9,828,170 332,828,784 9,616,549 Current liabilities 34,538,996 29,987,400 866,438 41,109,805 1,187,801 Noncurrent liabilities 57,253,331 62,608,692 1,808,977 57,461,649 1,660,261 Minority interests 15,594,881 16,024,132 462,991 15,411,141 445,280
For the year ended December 31, For the six-month period ended June 30, ------------------------------------------------------- ----------------------------------------- 2000 2001 2002 2002 2003 ------------ ------------ -------------------------- ------------ -------------------------- NT$'000 NT$'000 NT$'000 US$'000 NT$'000 NT$'000 US$'000 Net operating revenues 115,616,117 69,816,030 75,425,356 2,179,294 34,588,520 44,145,337 1,275,508 Cost of goods sold (64,633,209) (65,668,246) (69,257,538) (2,001,085) (32,988,588) (37,508,519) (1,083,748) Operating income (loss) 28,275,413 (24,223,279) (8,306,463) (240,002) (7,448,339) 1,113,753 32,180 Net income (loss) 27,133,811 (23,246,991) 293,653 8,485 149,562 1,219,050 35,222
A reconciliation of the significant balance sheet accounts under ROC GAAP to the amounts determined under US GAAP is as follows:
As of December 31, ---------------------------------------- 2001 2002 As of June 30, 2003 ------------ -------------------------- -------------------------- NT$'000 NT$'000 US$'000 NT$'000 US$'000 Cash and Cash Equivalents: As reported under ROC GAAP 76,904,068 74,902,448 2,164,185 89,692,086 2,591,508 Consolidation of unconsolidated subsidiaries 564,450 864,733 24,985 767,670 22,180 Reclassification to marketable securities (19,642,617) (21,548,110) (622,598) (36,795,109) (1,063,135) ----------- ----------- ----------- ----------- ----------- As adjusted under US GAAP 57,825,901 54,219,071 1,566,572 53,664,647 1,550,553 =========== =========== =========== =========== =========== Marketable Securities, trading: Reported as marketable securities under ROC GAAP 1,286,434 2,526,365 72,995 1,049,768 30,332 Reclassification from cash & cash equivalents 19,642,617 21,548,110 622,598 36,795,109 1,063,135 Reclassification to marketable securities, available-for-sale - (2,397,448) (69,270) (754,915) (21,812) Credit-linked options - - - 28,875 834 Change in fair value of marketable securities 19,868 50,074 1,447 202,571 5,853 ----------- ----------- ----------- ----------- ----------- As adjusted under US GAAP 20,948,919 21,727,101 627,770 37,321,408 1,078,342 =========== =========== =========== =========== =========== Represented by: Trading securities-current 20,948,919 20,680,374 597,526 35,599,882 1,028,601 Trading securities-noncurrent - 1,046,727 30,244 1,721,526 49,741 ----------- ----------- ----------- ----------- ----------- 20,948,919 21,727,101 627,770 37,321,408 1,078,342 =========== =========== =========== =========== ===========
F-81 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As of December 31, ----------------------------------------- 2001 2002 As of June 30, 2003 ----------- -------------------------- -------------------------- NT$'000 NT$'000 US$'000 NT$'000 US$'000 Other Financial Assets, Current: As reported under ROC GAAP - 5,980,960 172,810 1,704,726 49,255 Reclassification to marketable securities, held to maturity - (5,980,960) (172,810) (1,689,760) (48,822) Interest rate swaps - - - 216,122 6,244 ----------- ----------- ----------- ----------- ----------- As adjusted under US GAAP - - - 231,088 6,677 =========== =========== =========== =========== =========== Long-term Investments: As reported under ROC GAAP 40,756,678 37,800,496 1,092,184 41,044,566 1,185,917 Consolidation of unconsolidated subsidiaries (573,844) (833,683) (24,088) (903,407) (26,103) Equity investments compensation (157,231) (127,980) (3,698) (80,370) (2,322) Change in fair value of marketable securities 40,305,654 18,567,400 536,475 23,046,543 665,893 Impairment loss in marketable securities (3,304,929) (3,654,106) (105,579) (4,176,023) (120,659) Treasury stock (176,221) (8,024) (232) (8,024) (232) Reclassification from ROC GAAP marketable securities - 2,397,448 69,270 754,915 21,812 Difference in application of equity accounting - - - 206,281 5,960 Equity investments 1,189,663 2,375,037 68,623 2,645,326 76,432 ----------- ----------- ----------- ----------- ----------- As adjusted under US GAAP 78,039,770 56,516,588 1,632,955 62,529,807 1,806,698 =========== =========== =========== =========== =========== Marketable Securities, held-to-maturity: As reported under ROC GAAP - - - - - Reclassification from other financial assets - 6,853,960 198,034 4,253,680 122,903 ----------- ----------- ----------- ----------- ----------- As adjusted under US GAAP - 6,853,960 198,034 4,253,680 122,903 =========== =========== =========== =========== =========== Other Financial Assets, Noncurrent: As reported under ROC GAAP - 873,000 25,224 2,563,920 74,080 Reclassification to marketable securities, held to maturity - (873,000) (25,224) (2,563,920) (74,080) ----------- ----------- ----------- ----------- ----------- As adjusted under US GAAP - - - - - =========== =========== =========== =========== ===========
F-82 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As of December 31, ----------------------------------- 2001 2002 As of June 30, 2003 ---------- ---------------------- --------------------- NT$'000 NT$'000 US$'000 NT$'000 US$'000 Other Assets: As reported under ROC GAAP 1,708,359 1,558,655 45,035 1,763,194 50,945 Consolidation of unconsolidated subsidiaries 2,756 1,184 34 1,970 57 ---------- ---------- --------- ---------- --------- As adjusted under US GAAP 1,711,115 1,559,839 45,069 1,765,164 51,002 ========== ========== ========= ========== ========= Goodwill: As reported under ROC GAAP - - - - - Goodwill upon conversion of convertible bonds 325,302 325,302 9,399 325,302 9,399 Goodwill due to acquisition 98,268,000 98,268,000 2,839,295 98,268,000 2,839,295 ---------- ---------- --------- ---------- --------- As adjusted under US GAAP 98,593,302 98,593,302 2,848,694 98,593,302 2,848,694 ========== ========== ========= ========== ========= Accrued Expenses: As reported under ROC GAAP 5,678,713 4,032,474 116,512 6,009,783 173,643 Consolidation of unconsolidated subsidiaries (3,051) 1,575 46 2,168 63 Accrued interest for convertible bonds - 490,545 14,173 521,643 15,072 Release from reacquisition of bonds - - - (106,416) (3,075) Compensation - 6,365 184 2,781 80 ---------- ---------- --------- ---------- --------- As adjusted under US GAAP 5,675,662 4,530,959 130,915 6,429,959 185,783 ========== ========== ========= ========== ========= Financial Instrument Liabilities: As reported under ROC GAAP - - - - - Bifurcated exchangeable feature in exchangeable bonds - 273,221 7,894 256,954 7,424 ---------- ---------- --------- ---------- --------- As adjusted under US GAAP - 273,221 7,894 256,954 7,424 ========== ========== ========= ========== ========= Minority Interests: As reported under ROC GAAP 15,594,468 16,023,886 462,984 15,410,157 445,252 Consolidation of unconsolidated subsidiaries 349 319 9 1,058 30 Others 64 (73) (2) (74) (2) ---------- ---------- --------- ---------- --------- As adjusted under US GAAP 15,594,881 16,024,132 462,991 15,411,141 445,280 ========== ========== ========= ========== =========
F-83 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Cash Flows Information
For the year ended December 31, For the six-month period ended June 30, ------------------------------------------------- -------------------------------------- 2000 2001 2002 2002 2003 ---------- ---------- ----------------------- ----------- ------------------------ NT$'000 NT$'000 NT$'000 US$'000 NT$'000 NT$'000 US$'000 Cash flows from operating activities, ROC GAAP 68,077,184 40,187,493 30,526,954 882,027 10,531,947 24,026,595 694,210 Payments made for directors' remuneration (95,737) (433,039) - - - - - Difference due to principles in consolidation (4,327) 31,012 (20,765) (600) (31,761) (40,566) (1,172) ----------- ---------- ---------- ---------- ---------- ---------- ---------- Cash flows from operating activities, US GAAP 67,977,120 39,785,466 30,506,189 881,427 10,500,186 23,986,029 693,038 Cash flows from investing activities, ROC GAAP (73,682,697) (43,257,044) (36,438,724) (1,052,838) (11,570,576) (12,390,837) (358,013) Net effect of certificates of deposit reclassified to marketable securities 66,175 (17,431,532) (1,905,493) (55,056) (981,816) (15,246,999) (440,537) Difference due to principles in consolidation 100,628 429,379 309,704 8,948 (100,895) (58,260) (1,684) ----------- ---------- ---------- ---------- ---------- ---------- ---------- Cash flows from investing activities, US GAAP (73,515,894) (60,259,197) (38,034,513) (1,098,946) (12,653,287) (27,696,096) (800,234) Cash flows from financing activities, ROC GAAP 41,410,673 18,184,354 3,162,286 91,369 3,193,621 3,323,981 96,041 Payments made for directors' remuneration 95,737 433,039 - - - - - Difference due to principles in consolidation (118,900) - - - - 1,200 35 ----------- ---------- ---------- ---------- ---------- ---------- ---------- Cash flows from financing activities, 41,387,510 18,617,393 3,162,286 91,369 3,193,621 3,325,181 96,076 US GAAP Foreign exchange effect, ROC GAAP (137,522) (680,808) 747,864 21,608 20,601 (170,101) (4,915) Difference due to principles in consolidation (88,799) 12,762 11,344 328 (11,593) 563 16 ----------- ---------- ---------- ---------- ---------- ---------- ---------- Foreign exchange effect, US GAAP (226,321) (668,046) 759,208 21,936 9,008 (169,538) (4,899) Net increase in cash and cash equivalents, ROC GAAP 35,667,638 14,433,995 (2,001,620) (57,834) 2,175,593 14,789,638 427,323 Net effect of certificates of deposit reclassified to marketable securities 66,175 (17,431,532) (1,905,493) (55,056) (981,816) (15,246,999) (440,537) Difference due to principles in consolidation (111,398) 473,153 300,283 8,676 (144,249) (97,063) (2,805) ----------- ---------- ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents, US GAAP 35,622,415 (2,524,384) (3,606,830) (104,214) 1,049,528 (554,424) (16,019) Cash and cash equivalents at the beginning of the period, US GAAP 24,727,870 60,350,285 57,825,901 1,670,786 57,825,901 54,219,071 1,566,572 ----------- ---------- ---------- ---------- ---------- ---------- ---------- Cash and cash equivalents at the end of the period, US GAAP 60,350,285 57,825,901 54,219,071 1,566,572 58,875,429 53,664,647 1,550,553 =========== ========== ========== ========== ========== ========== ==========
F-84 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Concentration of credit risk The Group designs, develops, manufactures and markets a variety of semiconductor products. Financial instruments that potentially subject the Group to significant concentrations of credit risk consist principally of cash and cash equivalents and trade accounts and notes receivable. The Group limits its exposure to credit loss by depositing its cash and cash equivalents with high credit quality financial institutions. The Group'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 year ended December 31, 2002 and for the six-month period ended June 30, 2003, the Group distributes its products on a global basis but mainly to customers in North America (37.64% and 38.08%, respectively), Asia (51.25% and 48.31%, respectively), and Europe and others (11.11% and 13.61%, respectively). The Group's sales are primarily denominated in currencies other than NT Dollars, primarily US Dollars. Two customers' revenue represented 12% and 13%, respectively, of the consolidated revenue for the year ended December 31, 2002 and one customer's revenue represented 10% of the consolidated revenue for the six-month period ended June 30, 2003. The Group routinely assesses the financial strength of substantially all customers. The Group also requires collateral for certain sales to mitigate the credit risk. Adoption of SFAS No.141 and 142 In June 2001, the Financial Accounting Standard Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. SFAS No. 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives should no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets". F-85 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The Group adopted SFAS No.141 & 142 on January 1, 2002. Upon adoption, the Group did not identify additional intangible assets related to previous acquisitions and the goodwill created from the acquisition of the remaining interests in United Semiconductor, United Silicon, UTEK Semiconductor and United Integrated Circuits prior to June 30, 2001 as well as those created from the acquisition of an equity investee were no longer to be amortized but instead subject to impairment test annually or when indication of impairment is noted. Similarly, the goodwill created upon conversion of convertible bonds ceased to be amortized. The annual goodwill impairment test performed by the Group did not result in the recognition of any impairment loss as of December 31, 2002 and no indication of impairment is noted during the six-month period ended June 30, 2003. As of January 1, 2002, the unamortized goodwill amounted to NT$98,593 million, and unamortized equity-method goodwill (included in long-term investment) amounted to NT$526 million. The information on net income exclusive of amortization expense related to the abovementioned goodwill is presented as follows:
For the year ended December 31, For the six-month period ended June 30, ----------------------------------------------------- --------------------------------------- 2000 2001 2002 2002 2003 ---------- ----------- --------------------------- -------- ---------------------------- NT$'000 NT$'000 NT$'000 US$'000 NT$'000 NT$'000 US$'000 Net income (loss) as reported under US GAAP 27,133,811 (23,246,991) 293,653 8,485 149,562 1,219,050 35,222 Add back: amortization of goodwill 12,332,937 12,377,169 - - - - - Add back: amortization of equity-method goodwill 131,758 180,811 - - - - - ---------- ----------- -------- ------ -------- ---------- ------- Adjusted net income 39,598,506 (10,689,011) 293,653 8,485 149,562 1,219,050 35,222 ========== =========== ======== ====== ======== ========== ======= Basic and diluted earnings per share (in dollars): Net income (loss) as reported under US GAAP 1.91 (1.58) 0.02 0.01 0.08 Goodwill amortization 0.87 0.84 - - - Equity-method goodwill amortization 0.01 0.01 - - - ---------- ----------- -------- -------- ---------- Adjusted net income 2.79 (0.73) 0.02 0.01 0.08 ========== =========== ======== ======== ==========
F-86 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) On May 15, 2002, the Company acquired 100% of the interest in UMC BV with a cash consideration of approximately NT$187 million. UMC BV is principally engaged in the business of sales of semiconductor products and providing related foundry services. The Company expected to develop UMC BV into its major communication channel on sales to Europe. The estimated fair value of the assets acquired and liabilities assumed at the date of acquisition are summarized as follows: At May 15,2002 --------------------------------- NT$'000 US$'000 Cash and cash equivalents 121,564 3,512 Other current assets 190,218 5,496 Property, plant and equipment 4,348 126 --------------------------------- Total assets acquired 316,130 9,134 --------------------------------- Current liabilities 128,578 3,715 Long-term debt - - --------------------------------- Total liabilities assumed 128,578 3,715 --------------------------------- Net assets acquired 187,552 5,419 ================================= Consideration paid 187,552 5,419 ================================= Adoption of SFAS No. 143, 146 and FIN 45 In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) normal use of the asset. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, the Group will recognize a gain or loss on settlement. F-87 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) In June 2002, the FASB issued SFAS No.146 "Accounting for Costs Associated with Exit or Disposal Activities." The Statement represents the second and final phase of the FASB's project on accounting for the impairment or disposal of long lived assets and for obligations associated with exit or disposal activities. The adoption of SFAS No. 143 and SFAS No. 146 in January 2003 did not have any material effect on the Group's financial position, results of operations, and cash flows. In November 2002, the FASB issued Interpretation No.45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires certain guarantees to be recorded at fair value, which is different from the general current practice of recording a liability only when a loss is probable and reasonably estimable, as those terms are defined in SFAS No.5, "Accounting for Contingencies." FIN 45 also requires a guarantor to make significant new disclosures for virtually all guarantees even if the likelihood of the guarantor's having to make payments under the guarantee is remote. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002 and the initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. As of June 30, 2003, except for guarantee options in credit-linked deposits, which the Group has bifurcated and fair valued, there is no other guarantees issued or modified by the Group after December 31, 2002. New Accounting Pronouncements In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN46"). FIN 46 requires an investor with a majority of the variable interests in a variable interest entity ("VIE") to consolidate the entity and also requires majority and significant variable interest investors to provide certain disclosures. A VIE is an entity in which the equity investors do not have a controlling interest or the equity investment at risk is insufficient to finance the entity's activities without receiving additional subordinated financial support from the other parties. FIN 46's consolidation provisions apply immediately to variable interests in VIEs created after January 31, 2003 and did not have any material impact on the Group's consolidated financial statements for the six-month period ended June 30, 2003. FIN 46 shall also apply in the first fiscal year or interim period beginning after June 15, 2003 to VIEs in which a public company holds a variable interest that is acquired before February 1, 2003. The Group is currently reviewing its investment portfolio of early stage entities to evaluate the impact of the adoption of the interpretation. F-88 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities". This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003. For those provisions related to SFAS No. 133 that have been effective prior to June 15, 2003, they should continue to be applied in accordance with their respective effective dates. In May 2003, the FASB issued SFAS Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 149 and 150 is not expected to have a material effect on earnings or financial position of the Group. In November 2002, the EITF reached a consensus on EITF No. 00-21, "Revenue Arrangements with Multiple Deliverables". EITF No. 00-21 provides guidance on when and how to separate elements of an arrangement that may involve the delivery or performance of multiple products, services, and/or rights to use assets into separate units of accounting. This consensus, which was modified in May 2003, is applicable to arrangements entered into for reporting periods beginning after June 15, 2003. The Group does not expect a material impact on its financial statements resulting from the adoption of the issue. F-89 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. United Microelectronics Corporation Date: September 24, 2003 By /s/ Stan Hung -------------------------- ------------------------------- Stan Hung Chief Financial Officer EXHIBIT INDEX Exhibit Number Description of Exhibits 23.1 Consent of Diwan, Ernst & Young 23.2 Consent of PricewaterhouseCoopers LLP 23.3 Consent of ChuoAoyama Audit Corporation Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We agree to the inclusion in this Form 6-K of our report dated July 16, 2003, with respect to the consolidated financial statements of United Microelectronics Corporation for the six-month period ended June 30, 2003. /s/ Diwan, Ernst & Young Diwan, Ernst & Young Taipei, Taiwan, Republic of China September 24, 2003 Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form 6-K filed by United Microelectronics Corporation of our report dated January 12, 2001 relating to the financial statements of UMC Group (USA), prepared in accordance with accounting principles generally accepted in the United States of America as of and for the year ended December 31, 2000. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP San Jose, California September 23, 2003 Exhibit 23.3 CONSENT OF INDEPENDENT AUDITORS We hereby consent to the reference to our report dated January 17, 2001 on the financial statements of UMCJ, formerly known as Nippon Foundry Inc., as of and for the year ended December 31, 2000 in the Form 6-K filed by United Microelectronics Corporation. /s/ ChuoAoyama Audit Corporation ChuoAoyama Audit Corporation Tokyo Japan September 24, 2003 -----END PRIVACY-ENHANCED MESSAGE-----