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 March 25, 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
Reports of Independent Auditors........................................ F-2
Consolidated Balance Sheets at December 31, 2001 and 2002 ............. F-3
Consolidated Statements of Operations for each of the three years in
the period ended December 31, 2000, 2001 and 2002 ................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the
period ended December 31, 2000 ...................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the
period ended December 31, 2001 ...................................... F-6
Consolidated Statements of Changes in Stockholders' Equity for the
period ended December 31, 2002 ...................................... F-7
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 2000, 2001 and 2002 ....................... F-8
Notes to the Consolidated Financial Statements.......................... F-10
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 the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the years ended December 31, 2000, 2001 and 2002.
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 51.47% 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 the consolidated results of
their operations and their cash flows for the years ended December 31, 2000,
2001 and 2002, in conformity with 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 the consolidated
results of operations for the years ended December 31, 2000, 2001 and 2002, to
the extent summarized in Note 28 to the consolidated financial statements.
DIWAN, ERNST & YOUNG
CERTIFIED PUBLIC ACCOUNTANTS
/s/ Diwan, Ernst & Young
------------------------
Taipei, Taiwan
Republic of China
January 16, 2003
F-2
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Expressed in thousands)
Notes As of December 31,
------------------------------------
2001 2002
----------- -----------------------
NT$ NT$ US$
Assets
Current assets:
Cash and cash equivalents 2, 4 76,904,068 80,883,408 2,330,934
Marketable securities, net 2, 5 1,286,434 2,526,365 72,806
Notes receivable 6 215,692 85,371 2,460
Accounts receivable, net 2, 7, 21 8,887,600 12,001,652 345,869
Inventories, net 2, 8 5,717,203 8,440,005 243,228
Other current assets 7,775,543 6,985,376 201,308
----------- ----------- ----------
Total current assets 100,786,540 110,922,177 3,196,605
Long-term investments 2, 9 40,756,678 38,673,496 1,114,510
Property, plant and equipment, net 2, 10, 21 169,121,168 167,076,910 4,814,896
Deferred charges 2 3,685,581 3,564,721 102,730
Deferred tax assets 2, 18 4,371,231 5,232,928 150,805
Other assets 1,708,359 1,558,655 44,918
Restricted deposits 21 264,700 - -
----------- ----------- ----------
Total assets 320,694,257 327,028,887 9,424,464
=========== =========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term loans 11, 21 753,450 1,178,800 33,971
Notes and accounts payable 15,433,730 13,697,183 394,731
Income tax payable 2 219,877 284,678 8,204
Accrued expenses 5,678,713 4,032,474 116,210
Current portion of long-term debts 12, 13, 21 9,720,178 7,781,598 224,254
Current portion of capacity deposits 22 2,512,536 1,917,096 55,248
Other current liabilities 205,721 255,584 7,365
----------- ----------- ----------
Total current liabilities 34,524,205 29,147,413 839,983
Long-term liabilities:
Bonds payable 2, 12 38,450,511 49,441,484 1,424,827
Long-term loans 13, 21 16,244,823 12,879,512 371,167
Capacity deposits and other deposits 22 865,546 2,698 78
Other long-term liabilities 1,692,451 2,109,409 60,790
----------- ----------- ----------
Total long-term liabilities 57,253,331 64,433,103 1,856,862
----------- ----------- ----------
Total liabilities 91,777,536 93,580,516 2,696,845
Minority interests 15,594,468 16,023,886 461,784
Stockholders' equity:
Capital stock 15 133,356,954 154,748,456 4,459,610
Capital reserve 2 82,115,682 81,875,491 2,359,524
Retained earnings 17 34,152,379 20,004,054 576,486
Unrealized loss on long-term investments 2 (470,931) (1,349,248) (38,883)
Cumulative translation adjustment 2 (160,470) 728,851 21,004
Treasury stock 2, 3, 16 (35,671,361) (38,583,119) (1,111,906)
----------- ----------- ----------
Total stockholders' equity 213,322,253 217,424,485 6,265,835
----------- ----------- ----------
Total liabilities and stockholders' equity 320,694,257 327,028,887 9,424,464
=========== =========== ==========
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 2,173,641
Costs of goods sold (57,411,045) (60,567,909) (62,887,302) (1,812,314)
------------- ------------- -------------- -----------
Gross profit 58,198,294 9,248,890 12,538,054 361,327
------------- ------------- -------------- -----------
Operating expenses:
Sales and marketing (1,153,160) (2,275,884) (1,526,907) (44,003)
General and administrative (3,195,464) (4,425,568) (3,530,756) (101,751)
Research and development 2 (6,306,273) (8,959,691) (7,368,133) (212,338)
------------- ------------- -------------- -----------
(10,654,897) (15,661,143) (12,425,796) (358,092)
------------- ------------- -------------- -----------
Operating income (loss) 47,543,397 (6,412,253) 112,258 3,235
------------- ------------- -------------- -----------
Non-operating income:
Interest revenue 2,018,926 2,487,485 1,644,100 47,380
Investment income, net 2 1,726,345 - - -
Gain on disposal of investments, net 588,202 2,347,219 8,473,213 244,185
Gain on disposal of property, plant and equipment 2 372,938 186,013 66,236 1,909
Gain on foreign currency exchange, net 2 2,922,412 648,169 - -
Other income 826,581 601,414 701,815 20,225
------------- ------------- -------------- -----------
8,455,404 6,270,300 10,885,364 313,699
------------- ------------- -------------- -----------
Non-operating expenses:
Interest expenses 10 (2,367,401) (2,525,937) (1,455,374) (41,942)
Investment loss, net 2 - (1,828,341) (931,756) (26,852)
Loss on disposal of property, plant and equipment 2 (273,238) (231,536) (45,814) (1,320)
Loss on foreign currency exchange, net 2 - - (103,703) (2,988)
Other losses (1,029,004) (1,838,270) (1,444,727) (41,635)
------------- ------------- -------------- -----------
(3,669,643) (6,424,084) (3,981,374) (114,737)
------------- ------------- -------------- -----------
Income (loss) before income taxes and minority interests 52,329,158 (6,566,037) 7,016,248 202,197
Income tax benefit (expense) 2, 18 91,062 3,039,989 (270,731) (7,802)
Minority interests (income) loss 2 (1,639,842) 368,746 326,515 9,410
------------- ------------- -------------- -----------
Net income (loss) 50,780,378 (3,157,302) 7,072,032 203,805
============= ============= ============== ===========
Earnings (loss) per share - basic and diluted (in dollars) 2, 19 3.49 (0.21) 0.48
============= ============= ==============
Shares used in per share calculation- basic 14,545,699 14,920,842 14,753,187
============= ============= ==============
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
Net income 7,072,032
============
Earnings per share - basic and diluted (in dollars) 19 0.48
============
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
-------------------- ------------------------
Unrealized
Loss on
Common Capital Legal Unappropriated Long-term
Stock Shares Reserve Reserve Earnings Investments
---------- --------- ---------- --------- -------------- -----------
NT$ NT$ NT$ NT$ NT$
Balance at January 1, 2000 66,549,966 6,654,997 36,836,033 4,579,516 11,130,347 (319,448)
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 - - - - - (1,194,849)
Changes in unrealized loss on long-term investments of
investees - - - - - (750,982)
Shares issued for American Depository 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 (2,265,279)
=========== ========== ========== ========= ========== ===========
Cumulative
Translation Treasury
Adjustment Stock Total
----------- ----------- -----------
NT$ NT$ NT$
Balance at January 1, 2000 535,234 (16,691,822) 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)
Changes in unrealized loss on long-term investments of
investees - - (750,982)
Shares issued for American Depository 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 24,202 (31,071,718) 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 Retained Earnings
--------------------- -----------------------------------
Common Capital Special Legal Unappropriated
Stock Shares Reserve Reserve Reserve Earnings
----- ------ ------- ------- ------- --------
NT$ NT$ NT$ NT$ NT$
Balance at January 1, 2001 114,714,519 11,471,452 82,161,068 - 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 1,715,104 - - - (17,151,040)
Directors' and supervisors' remuneration - - - - - (433,039)
Employees' bonus 1,491,395 149,139 - - - (1,491,395)
Issuance cost adjustment for American
Depository 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 2,242,284 10,686,225 21,223,870
=========== ========== ========== ========= ========== ==========
Unrealized
Loss on Cumulative
Long-term Translation Treasury
Investments Adjustment Stock Total
----------- ---------- ----- -----
NT$ NT$ NT$ NT$
Balance at January 1, 2001 (2,265,279) 24,202 (31,071,718) 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
Depository 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 (470,931) (160,470) (35,671,361) 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 treasury 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 (in NT$) 154,748,456 15,474,845 81,875,491 631,982 10,686,225 8,685,847
=========== ========== ========== ======= ========== =========
Balance at December 31, 2002 (in US$) 4,459,610 2,359,524 18,213 307,960 250,313
=========== ========== ======= ========== =========
Unrealized
Loss on Cumulative
Long-term Translation Treasury
Investments Adjustment Stock Total
----------- ---------- ----- -----
NT$ NT$ NT$ NT$
Balance at January 1, 2002 (470,931) (160,470) (35,671,361) 213,322,253
Purchase of treasury 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 (in NT$) (1,349,248) 728,851 (38,583,119) 217,424,485
========== ======= =========== ===========
Balance at December 31, 2002 (in US$) (38,883) 21,004 (1,111,906) 6,265,835
========== ======= =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements
F-7
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) 7,072,032 203,805
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Minority interests income (loss) 1,639,842 (368,746) (326,515) (9,410)
Depreciation 24,403,320 34,390,192 36,567,535 1,053,819
Amortization 1,176,713 1,877,551 1,699,766 48,985
Provision (reversal) for bad
debts expense 52,940 (108,892) (66,512) (1,917)
Loss on decline in market value
of marketable securities - - 10,806 311
Provision for inventory loss 610,327 1,529,823 955,074 27,524
Cash dividends received under
equity method 18,900 227,025 156,820 4,519
Long-term investment (income) loss
accounted for under equity
method (2,077,487) 1,554,402 (230,600) (6,646)
Impairment loss of long-term investments 414,560 535,890 1,408,565 40,593
Gain on disposal of investments (588,202) (2,347,219) (8,473,213) (244,185)
(Gain) loss on disposal of property,
plant and equipment (37,903) 73,683 30,532 880
Exchange loss (gain) on long-term loans - 431,142 (145,671) (4,198)
Forfeited interest on converted bonds 74,313 - - -
Patent rights return - (93,990) - -
Gain on reacquisition of bonds - - (256,204) (7,383)
Changes in assets and liabilities:
Notes receivable 1,394,574 261,920 217,922 6,280
Accounts receivable (7,426,562) 11,341,957 (3,380,836) (97,430)
Inventories (6,428,624) 3,493,492 (3,638,525) (104,857)
Other current assets (1,180,410) (1,784,024) (57,474) (1,656)
Deferred tax assets (7,239) (3,394,095) 125,072 3,604
Notes and accounts payable (1,075,912) (4,229,047) 444,129 12,799
Income tax payable (18,625) (754,950) 283,728 8,177
Accrued expenses 2,667,916 689,462 (1,373,026) (39,568)
Other current liabilities 269,347 (693,509) 2,674 77
Compensation interest payable (11,494) 4,415 78,977 2,276
Other long-term liabilities 342,934 471,411 450,060 12,970
Capacity deposits 3,083,578 236,902 (1,028,162) (29,630)
---------- ---------- ---------- -------
Net cash provided by operating activities 68,077,184 40,187,493 30,526,954 879,739
---------- ---------- ---------- -------
Cash flows from investing activities:
Decrease (increase) in marketable
securities, net 1,838,352 (1,256,567) (839,551) (24,194)
(Increase) decrease in restricted deposits (2,580,724) 2,660,800 - -
Acquisition of long-term investments (10,041,492) (4,417,786) (4,627,478) (133,357)
Proceeds from disposal of long-term investments 1,723,271 4,878,280 12,385,637 356,935
Withdrawal of prepayments for long-term investments 1,000,000 1,772 - -
Acquisition of property, plant and equipment (83,482,670) (43,050,831) (35,977,747) (1,036,823)
Proceeds from disposal of property, plant and
equipment 1,509,680 544,099 333,180 9,602
Cash proceeds from merger 19,162,146 - - -
Acquisition of subsidiaries - - (65,988) (1,902)
Increase in deferred charges (2,579,618) (2,409,062) (1,695,110) (48,850)
(Increase) decrease in other assets (231,642) (207,749) 29,293 844
----------- ----------- ----------- --------
Net cash used in investing activities (73,682,697) (43,257,044) (30,457,764) (877,745)
----------- ----------- ----------- --------
The accompanying notes are an integral part of these consolidated financial
statements
F-8
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 11,184
Proceeds from long-term loans 9,423,941 5,185,910 4,425,000 127,522
Repayment of long-term loans (6,681,765) (21,427,663) (10,047,079) (289,541)
Proceeds from bonds issued 6,896,000 35,596,096 13,097,062 377,437
Proceeds from issuance of American Depository Shares 38,514,773 - - -
Redemption of bonds (33,015) - (1,140,000) (32,853)
Reacquisition of bonds - - (879,100) (25,334)
Cash payment for fraction of one
share arising from bonds conversion (4) - - -
Proceeds from minority shareholders on stock issuance of
subsidiaries 1,976,031 7,106,287 194,341 5,600
Purchase of treasury stock (1,479,064) (4,599,643) (2,877,190) (82,916)
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 91,132
Effect of exchange rate changes on cash and cash equivalents (137,522) (680,808) 747,864 21,552
---------- ---------- ---------- ---------
Net increase in cash and cash equivalents 35,667,638 14,433,995 3,979,340 114,678
Cash and cash equivalents at beginning of year 26,802,435 62,470,073 76,904,068 2,216,256
---------- ---------- ---------- ---------
Cash and cash equivalents at end of year 62,470,073 76,904,068 80,883,408 2,330,934
========== ========== ========== =========
Supplemental disclosures of cash flow information :
Cash paid for interest (excluding interest capitalized ) 2,155,932 2,189,369 1,446,326 41,681
========== ========== ========== =========
Cash paid for income tax 436,766 1,196,418 198,036 5,707
========== ========== ========== =========
Investing activities partially paid by cash :
Acquisition of property, plant and equipment 86,325,850 41,541,665 32,284,302 930,384
Add: Payable at beginning of year 7,099,954 13,991,449 12,482,283 359,720
Add: Increase on payable from merger 4,048,315 - - -
Less: Payable at end of year (13,991,449) (12,482,283) (8,788,838) (253,281)
----------- ----------- ---------- --------
Cash paid 83,482,670 43,050,831 35,977,747 1,036,823
========== ========== ========== =========
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 - - -
========== ========== ========== =========
The accompanying notes are an integral part of these consolidated financial
statements
F-9
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
the dedicated full service semiconductor wafer foundry. 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, testing, etc. The Company's common shares were publicly listed on
the Taiwan Stock Exchange in July 1985 and its American Depository Shares
("ADSs") were listed on the New York Stock Exchange in September of 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,
the Company, on January 3, 2000.
2. Summary of Significant Accounting Policies
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 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-10
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"), incorporated on December 31,
1999, was created for the purpose of merging the following six companies as of
that date: Hung Tien Investment Corporation ("Hung Tien"), Ta Lien Investment
Corporation ("Ta Lien"), Hung Lien Investment Corporation ("Hung Lien"), Tung
Hsin Investment Corporation, Hsun Chieh Corporation and Holtek Investment
Corporation. The Company owned 99.97% of interest in Hsun Chieh as of December
31, 2001 and 2002, respectively. Hsun Chieh was consolidated for the years ended
December 31, 2000, 2001 and 2002.
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%
and 51.47% of interest in UMCJ as of December 31, 2001 and 2002, 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.
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. 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
the year ended December 31, 2001.
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 was consolidated as well.
F-11
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.
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.
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, are presented solely for the
convenience of the readers and were translated at the Federal Reserve noon
buying rate of NT$34.70 to US$1.00 in effect on December 31, 2002. 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.
F-12
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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.
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 or 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-ended 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.
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 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.
F-13
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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 Group's investments in less than 20% owned unlisted companies are
accounted for under the cost method, unless an other than temporary impairment
is evident, in which case they are written down to fair value as a new cost
basis.
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.
Unrealized intercompany gains and losses are eliminated under the equity method.
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 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.
F-14
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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, net of
income tax, is included in the income statement and subsequently transferred to
capital reserve in the same year. However, according to amendments in ROC
Company Law, such transfer of gain 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 shareholders' approval.
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 - 3 years; facilities use
rights - 15 years; bond 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.
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.
F-15
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Pension Plan
------------
The Group has funded defined benefit pension plans covering regular employees.
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. The unrecognized net
asset or obligation at transition is amortized on a straight-line basis over 15
years. The pension fund is managed by an independently administered pension fund
association.
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.
Income Tax
----------
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. The Group recognized the tax benefit from the tax
credit incurred in the year equipment is acquired, or the year the expenditure
arises from research and development.
Income taxes (10%) on unappropriated earnings are recorded as expenses in the
year when the shareholders have resolved that the earnings shall be retained.
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 return
and allowances taken into consideration of 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.
F-16
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Research and Development
------------------------
Costs incurred by the Group in research and development activities are expensed
as incurred.
Minority Interests
------------------
Minority interests in the income statement 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.
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 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 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.
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.
Treasury Stock
--------------
Under ROC SFAS No. 30, treasury stock is 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 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.
F-17
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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.
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$172 million, respectively,
representing the treasury stock held by an unconsolidated subsidiary. The net
impact caused by the accounting changes is considered insignificant.
4. Cash and Cash Equivalents
As of December 31,
----------------------------------------
2001 2002
-------------------- -------------------
NT$'000 NT$'000
Cash:
Cash on hand 4,050 4,849
Checking and savings accounts 19,837,524 2,415,088
Certificates of deposit 47,070,856 69,116,470
-------------------- -------------------
Subtotal 66,912,430 71,536,407
Cash equivalents:
Commercial paper 9,991,638 9,347,001
-------------------- -------------------
Total 76,904,068 80,883,408
==================== ===================
F-18
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
5. Marketable Securities, Net
As of December 31,
----------------------------------------------
2001 2002
---------------------- ----------------------
NT$'000 NT$'000
Mutual funds 1,003,900 -
Listed equity securities 242,634 35,423
Convertible bonds 39,900 2,501,748
---------------------- ----------------------
Subtotal 1,286,434 2,537,171
Less: Allowance for loss on decline in market value - (10,806)
---------------------- ----------------------
Net 1,286,434 $2,526,365
====================== ======================
6. Notes Receivable
As of December 31,
----------------------------------------------
2001 2002
---------------------- ----------------------
NT$'000 NT$'000
Notes receivable 215,692 85,371
====================== ======================
7. Accounts Receivable, Net
As of December 31,
----------------------------------------------
2001 2002
---------------------- ----------------------
NT$'000 NT$'000
Accounts receivable 9,484,042 12,785,534
Less: Allowance for sales returns and discounts (448,037) (666,095)
Less: Allowance for doubtful accounts (148,405) (117,787)
---------------------- ----------------------
Net 8,887,600 12,001,652
====================== ======================
Please refer to Note 21 for accounts receivable pledged as collateral.
F-19
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
8. Inventories, Net
As of December 31,
----------------------------------------------
2001 2002
---------------------- ----------------------
NT$'000 NT$'000
Raw materials 219,166 269,519
Supplies and spare parts 1,206,801 1,434,987
Work in process 3,863,899 6,489,834
Finished goods 1,284,206 660,562
---------------------- ----------------------
Subtotal 6,574,072 8,854,902
Less: Allowance for loss on decline in market value and
obsolescence (856,869) (414,897)
---------------------- ----------------------
Net 5,717,203 8,440,005
====================== ======================
(1) The insurance coverage for inventories was sufficient as of December 31,
2001 and 2002, respectively.
(2) Inventories were not pledged.
F-20
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
9. Long-term Investments
Details of long-term investments are as follows:
As of December 31,
---------------------------------------------------------
2001 2002
------------------------- ---------------------------
Percentage of Percentage of
Ownership or Ownership or
Invested Company Voting Rights Amount Voting Rights Amount
------------------------------------------------- ------------- -------- --------------- ---------
Investments accounted for under the equity method: NT$'000 NT$'000
--------------------------------------------------
UMC Capital Corporation 100.00 338,228 100.00 1,007,444
United Foundry Service, Inc. 100.00 78,226 100.00 82,960
United Microelectronics Corp. (Samoa) - - 100.00 7,114
Fortune Venture Capital Corporation 99.99 3,413,388 99.99 3,115,317
Pacific Venture Capital Co., Ltd. 49.99 351,420 49.99 316,270
Afa Technologies Inc. - - 47.30 23,650
Star Semiconductor Corp. - - 46.82 22,030
DuPont Photomasks Taiwan Ltd. 46.32 1,093,113 45.51 1,145,403
Unitech Capital Inc. - - 42.00 731,255
Unimicron Technology Corp. (formerly known as World
Wiser Electronics Incorporated) (Note A) 36.87 4,283,241 36.28 4,542,159
VistaPoint, Inc. - - 35.65 34,224
UC Fund II 35.45 161,225 35.45 174,264
Accelerated Communications, Inc. - - 33.33 100,000
RiRa Electronics, Inc. 31.50 30,322 32.50 59,232
United Radiotek Incorporation 26.90 13,450 29.37 29,185
Archtek Telecom Corporation - - 26.49 -
Novatek Microelectronics Corp. 26.82 1,019,532 25.83 1,193,740
Holtek Semiconductor Inc. 28.76 555,441 25.61 568,554
Faraday Technology Corp. 26.68 1,686,448 25.61 1,776,389
Integrated Technology Express Inc. 28.78 330,522 24.58 309,672
Applied Component Technology Corporation 31.00 154,821 23.66 91,581
Harvatek Corp. 26.14 179,295 21.99 277,203
High Bandwidth Access, Inc. 11.92 19,191 20.13 82,934
Integrated Telecom Express, Inc. (Note B) 18.99 818,348 18.97 652,747
Patentop, Ltd. (Note B) 18.00 20,963 18.00 16,543
Advance Materials Corporation (Note B) 15.78 183,209 15.78 169,836
AMIC Technology (Taiwan), Inc. (Note B) 13.62 37,120 13.62 53,225
SerComm Corporation (Note B) 7.81 58,619 11.48 159,465
Plato Electronics (Cayman) Limited 24.50 657,858 - -
Trecenti Technologies, Inc. 40.00 1,789,838 - -
Broadmedia, Inc. 39.28 - - -
----------- ------------
Subtotal 17,273,818 16,742,396
----------- ------------
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: For 2002, significant influence was exercised by the Group over the
investees, therefore, equity method applied.
F-21
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As of December 31,
-------------------------------------------------------------
2001 2002
--------------------------- -----------------------------
Percentage of Percentage of
Ownership or Ownership or
Invested Company Voting Rights Amount Voting Rights Amount
---------------------------------------------------------- -------------- ----------- -------------- --------------
Investments accounted for under the cost method or the
------------------------------------------------------
lower of cost or market value method:
-------------------------------------
Aptos Corp. (Note C) 26.07 104,861 26.07 104,861
Pacific United Technology, L.P. (Note C) 25.00 34,600 25.00 34,600
Elite Flash Storage Technology Inc. 19.50 19,500 19.50 19,500
Giga Solution Technology Co., Ltd. 19.44 105,000 19.44 105,000
Vialta, Inc. - 1,248,457 17.80 1,248,457
PixTech, Inc. 17.63 561,080 17.63 -
Kits On Line Technology Corp. 16.41 38,656 16.41 38,656
InComm Technologies Co., Ltd. 16.00 44,480 16.00 44,480
Everglory Resource Technology Co., Ltd. 19.03 74,000 15.14 74,000
Enovation Group Inc. 14.34 73,807 14.34 11,809
MediaTek Incorporation (Note D) 15.17 1,339,839 13.21 1,213,655
Smart Idea Holding Limited - - 11.88 205,069
Integrated Photonics, Inc. 11.46 6,244 11.46 -
AU Optronics Corp. (Note D and E) 18.86 8,317,535 11.37 6,758,766
Sino-Aerospace Investment Corp. 11.11 25,748 11.11 -
Subtron Technology Co., Ltd. 11.02 339,000 11.02 339,000
Ayuttha Technology Corp. - - 11.00 16,500
Golden Technology Venture Capital Investment Corp. 10.67 80,000 10.67 80,000
NCTU Spring I Technology Venture Capital Investment 10.06 43,482 10.06 43,482
Corp.
Pacific Technology Partners, L. P. 9.85 104,755 9.85 208,256
RF Integration Corporation 4.51 98,610 9.76 98,610
TECO Nanotech Co., Ltd. 9.26 167,602 9.26 -
Ascend Semiconductor Corp. 9.00 36,000 9.00 14,400
Union Technology Corp. 15.00 18,000 9.00 18,000
Fortune Semiconductor Corporation 5.13 40,000 8.72 71,500
United Industrial Gases Co., Ltd. 8.52 146,250 8.44 146,250
ProSys Technology Integration, Inc. 6.70 18,000 6.70 4,258
NCTU Spring Venture Capital Co., Ltd. 6.28 20,000 6.28 20,000
Advanced Microelectronic Products, Inc. 5.50 126,000 5.50 126,000
Cosmos Technology Venture Capital Investment Corp. 5.03 40,000 5.03 40,000
Industrial Bank of Taiwan Corp. 5.00 1,150,000 5.00 1,150,000
Parawin Venture Capital Corp. - - 5.00 50,000
Coretronic Corp. 5.49 276,192 4.59 276,192
F-22
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As of December 31,
--------------------------------------------------------------
2001 2002
------------------------------ -------------------------------
Percentage of Percentage of
Ownership or Ownership or
Invested Company Voting Rights Amount Voting Rights Amount
-------------------------------------------------------- -------------- --------------- -------------- ---------------
Silicon Integrated Systems Corp. - - 4.46 1,267,580
Taiwan Asia Pacific Venture Fund 4.15 29,295 4.15 29,295
TECO Electric & Machinery Co., Ltd. 3.94 1,535,895 4.02 1,535,298
IBT Venture Co. 3.81 90,000 3.81 90,000
Prokia Technology Co., Ltd. 3.13 48,000 3.13 48,000
Hantek Technology Co., Ltd. 3.14 42,330 2.70 42,330
Sheng-Hua Venture Capital Corp. 2.50 50,000 2.50 50,000
Pixart Imaging Inc. 2.00 10,000 1.95 10,140
SAMPO Corporation 2.95 443,598 1.73 224,044
Largan Optoelectronics, Co., Ltd. 1.96 102,380 1.45 79,989
Mega Financial Holding Company 4.98 4,991,630 1.35 4,991,630
Premier Image Technology Corporation 0.70 27,964 0.64 27,964
Ingenus Corp. 0.65 29,812 0.62 29,812
Lattice Semiconductor Corporation - - 0.44 65,740
King Yuan Electronics Co., Ltd. 0.37 70,000 0.35 70,000
Averlogic Corporation - - 0.22 1,600
Amkor Technology, Inc. 0.09 99,541 0.13 101,696
LightCross, Inc. - 206,880 - 206,880
Linden Technologies, Inc. - 92,385 - 92,385
Aurora Systems, Inc. - 72,226 - 72,226
Chip Express Corporation - - - 68,198
ForteMedia, Inc. - 65,000 - 65,000
ChinaYES InfoMedia (Cayman), Inc. - 63,146 - 63,146
Alpha and Omega Semiconductor, Inc. - 46,883 - 46,883
SandCraft, Inc. - 43,063 - 43,063
VenGlobal Capital Fund III, L.P. - 33,195 - 33,195
Primarion, Inc. - 31,800 - 38,816
Formerica International Holding, Inc. - 30,898 - 30,898
Triscend Corp. - 17,409 - 17,409
Broadcom Communications - 7,092 - 7,092
Netlogic Microsystems, Inc. - 3,195 - 3,195
Tonbu, Inc. - 428,767 - -
NetEmpower Software Technologies, Inc. - 92,388 - -
Octillion Communications, Inc. - 65,740 - -
Epogy Communication, Inc. - 49,704 - -
AEM Technology, Inc. - 28,715 - -
The Supply, Inc. - - - -
Stark Technology Inc. 0.19 1,824 - -
National Venture Capital Corp. 11.09 60,000 - -
--------------- ---------------
Subtotal 23,708,453 22,014,805
--------------- ---------------
F-23
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As of December 31,
----------------------------------------------------------------
2001 2002
------------------------------- --------------------------------
Percentage of Percentage of
Ownership or Ownership or
Invested Company Voting Rights Amount Voting Rights Amount
------------------------------------------------ ---------------- -------------- ---------------- ---------------
Others:
Golf Club Membership Card 60,000 60,000
Morgan Stanley Repackage Bond - 873,000
-------------- ---------------
Subtotal 60,000 933,000
-------------- ---------------
Prepaid long-term investments:
Ascend Semiconductor Corp. - 30,036
Ayuttha Technology Corp. - 24,450
-------------- ---------------
Subtotal - 54,486
-------------- ---------------
Cumulative translation adjustment 183,710 209,339
Allowance for loss on decline in market value (469,303) (1,108,690)
Treasury stock held by unconsolidated - (171,840)
subsidiaries
-------------- ---------------
Total $40,756,678 $38,673,496
============== ===============
Note C : As the Group was not able to exercise significant influence 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 : Among the shares held by the Group in AU Optronics Corp.,
approximately 139,770 thousand shares with the book value of
NT$2,075 million was utilized as reference shares for the Group's
zero couple exchangeable bonds issued in May 2002.
Note F : The long-term investments were not pledged.
F-24
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
10. Property, Plant and Equipment
As of December 31, 2001
------------------------------------------------------------
Accumulated
Cost Depreciation Book Value
------------------- ------------------- -------------------
NT$'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
=================== =================== ===================
(1) Depreciation expense of NT$24,403 million, NT$34,390 million and NT$36,568
million was incurred for each of the three years ended December 31, 2000,
2001 and 2002, respectively.
(2) Total capitalized interest amounted to NT$813 million, NT$204 million
and NT$551 million for each of the three years ended December 31, 2000,
2001 and 2002, respectively.
(3) The insurance coverage for property, plant and equipment was sufficient as
of December 31, 2001 and 2002, respectively.
(4) Please refer to Note 21 for property, plant and equipment pledged as
collateral.
F-25
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
11. Short-term Loans
As of December 31,
----------------------------------------------
2001 2002
---------------------- -----------------------
NT$'000 NT$'000
Unsecured bank loans 403,050 1,178,800
Secured bank loans 350,400 -
---------------------- -----------------------
Total 753,450 1,178,800
====================== =======================
Interest rates 0.59% - 9.50% 1.60%-2.02%
====================== =======================
(1) The Group's unused short-term lines of credits amounted to NT$20,272
million and NT$17,538 million as of December 31, 2001 and 2002,
respectively.
(2) Please refer to Note 21 for assets pledged for short-term loans.
12. Bonds Payable
As of December 31,
----------------------------------------------
2001 2002
---------------------- -----------------------
NT$'000 NT$'000
Secured domestic bonds payable 3,990,000 2,850,001
Unsecured domestic bonds payable 25,000,000 25,000,000
Euro convertible bonds payable 10,596,096 14,465,390
Exchangeable bonds payable - 8,182,700
Compensation interest payable 4,415 83,392
---------------------- -----------------------
Subtotal 39,590,511 50,581,483
Less: Current portion (1,140,000) (1,139,999)
---------------------- -----------------------
Net 38,450,511 49,441,484
====================== =======================
(1) On April 27, 2000, the Company issued five-year secured bond 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, with
face value of NT$7,500 million, and stated interest rates of 5.1850%
through 5.1195% and 5.2850% through 5.2170%, 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%.
F-26
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(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:
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.
F-27
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
d. Conversion Price
The conversion price
(a) In respect of the Shares, will be NT$69.60 per Share, and
(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.
(5) On May 10, 2002, the Company issued a LSE listed zero coupon exchangeable
bonds exchangeable for common shares of AU Optronics, Corp. ("AU") 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 AU 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.
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%.
F-28
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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 AU shares or AU ADSs at an
exchange price of NT$58.25 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 AU common shares by
AU; subdivision, consolidation or reclassification of AU common
shares, distribution of stock dividends by AU, right issues and other
dilutive events.
(6) 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.
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.
F-29
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(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.
13. Long-term Loans
As of December 31,
-----------------------------------------------
2001 2002
---------------------- ------------------------
NT$'000 NT$'000
Secured long-term loans 21,802,126 13,989,861
Unsecured long-term loans 3,022,875 5,531,250
Less: Current portion (8,580,178) (6,641,599)
---------------------- ------------------------
Net 16,244,823 12,879,512
====================== ========================
Interest rates 1.55% - 5.34% 0.95% - 3.35%
====================== ========================
(1) The above long-term loans will be repaid by installments with the last
payment on May 14, 2009.
(2) The Group's long-term loans denominated in foreign currency amounted to
US$176 million, (Yen)18,423 million and US$100 million, (Yen)18,750 million
as of December 31, 2001 and 2002, respectively.
(3) Assets pledged as collateral to secure these loans are detailed in Note 21,
Assets Pledged as Collateral.
F-30
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(4) As of December 31, 2002, long-term loans payments that will become due
during the next five years are (NT$'000):
January 1, 2003 - December 31, 2003 6,641,599
January 1, 2004 - December 31, 2004 6,354,682
January 1, 2005 - December 31, 2005 3,804,140
January 1, 2006 - December 31, 2006 1,687,612
January 1, 2007 - December 31, 2007 668,078
January 1, 2008 & thereafter 365,000
----------------
Total 19,521,111
================
14. 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%
As of December 31,
----------------------------------------------
2001 2002
---------------------- ----------------------
NT$'000 NT$'000
Change in benefit obligation during the year:
Projected benefit obligation at January 1 (2,549,107) (2,637,063)
Service cost (375,812) (427,082)
Interest cost (142,885) (110,230)
Benefits paid 7,881 9,379
Gain (loss) on projected benefit obligation 422,860 (119,325)
Transition obligation - (3,006)
---------------------- ----------------------
Projected benefit obligation at year end (2,637,063) (3,287,327)
====================== ======================
F-31
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As of December 31,
---------------------------------------------
2001 2002
---------------------- ---------------------
NT$'000 NT$'000
Change in pension assets during the year:
Fair value of plan assets at January 1 693,559 824,092
Actual return on plan assets 22,096 16,250
Employer contributions 130,615 143,477
Benefits paid (7,881) (9,379)
Others (14,297) 16,618
---------------------- ---------------------
Fair value of plan assets at year end 824,092 991,058
====================== =====================
As of December 31,
---------------------------------------------
2001 2002
---------------------- ----------------------
Funded status at year end: NT$'000 NT$'000
Fair value of plan assets 824,092 991,058
Projected benefit obligation (2,637,063) (3,287,327)
---------------------- ----------------------
Funded status (1,812,971) (2,296,269)
Unrecognized transition obligation 326,000 296,565
Unrecognized net actuarial loss 63,354 160,577
Accrued pension payable (89,760) (127,706)
Intangible assets (74,946) (63,953)
Others (2,699) -
---------------------- ----------------------
Accrued pension liabilities (1,591,022) (2,030,786)
====================== ======================
For the year ended December 31,
-------------------------------------------------------
2000 2001 2002
------------------ ------------------ -----------------
Components of net periodic cost for the year: NT$'000 NT$'000 NT$'000
Service cost 413,264 375,812 427,082
Interest cost 115,600 142,885 110,230
Expected return on plan assets (34,870) (38,335) (30,258)
Recognition of transition asset 39,367 38,523 39,537
Recognition of actuarial loss 13,636 11,433 6,129
------------------ ------------------ -----------------
Net periodic cost 546,997 530,318 552,720
================== ================== =================
F-32
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
15. Capital Stock
(1) As recommended by the board of directors and approved by the
shareholders' meeting on May 30, 2001, the Company issued
1,864,243,516 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
2,139,150,230 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 of December 31, 2002, 22,000,000,000 common shares were authorized
to be issued and 15,474,845,646 common shares were issued, each at par
of NT$10.
(4) The Company has issued 173,693 thousand ADSs as of December 31, 2002.
The number of common shares represented by the ADSs is 868,467
thousand shares.
(5) 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. The
total number of option units outstanding as of December 31, 2002 was
928,059 thousand units and the exercise price for the options is NT$20
per share.
F-33
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
16. Treasury Stock
The Company bought back its own shares from the open market during the
years ended December 31, 2001 and 2002. Details of the treasury stock
transactions are as follows:
Shares bought during the year
(In thousand shares) ended December 31, As of December 31,
-------------------------------- -------------------------
Purpose 2001 2002 2002
--------------------------------------------------- ---------------- -------------- -------------------------
For transfer to employees 4,990 49,114 86,539
For conversion of the convertible bonds into shares 129,035 20,693 149,728
---------------- -------------- -------------------------
Total Shares 134,025 69,807 236,267
================ ============== =========================
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 the sum of retained earnings and capital
reserve-premiums and realized capital reserve. The Company's treasury stock
possession did not, at any time during 2002, violate the regulation stated
above. As of December 31, 2002, the Company held 236,267 thousand shares of
treasury stock, which amounted to NT$8,819 million.
Treasury stock shall not be pledged, nor does it possess voting rights or
receive dividends, in compliance with Stock Exchange Regulations of Taiwan.
17. 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' operating losses;
(3) Set aside 10% of the remaining amount after deducting items (1) and (2)
as 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; and
(6) The distribution of the remaining portion, if any, will be recommended
by the board of directors and approved by the shareholders' meeting.
F-34
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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.
The appropriation of 2002 retained earnings has not yet been recommended by
the board of directors as of the date of the Report of Independent
Auditors. Information on board of directors' recommendations and
shareholders' approvals can be obtained from the "Market Observation Post
System" on the website of Taiwan Stock Exchange Corporation.
Details of the settlement of 2001 employees' bonus and remuneration of
directors and supervisors are as follows:
------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2001
-------------------------------------------------------------------------
As approved by the As recommended by the
shareholders' meeting board of directors Differences
------------------------------------------------------------------------------------------------------------------------
1. Settlement of employees' bonus by
issuance of new shares
a. Number of shares (in thousands) 171,132 171,132 -
b. Amount (in thousands) NT$1,711,320 NT$1,711,320 -
c. Percentage on total number of
outstanding shares at end of year 1.30% 1.30% -
2. Remuneration of directors and supervisors
- - -
------------------------------------------------------------------------------------------------------------------------
3. Effect on earnings per share before
retroactive adjustments
a. Original basic and diluted loss per share NT$(0.24) NT$(0.24) -
b. Revised basic and diluted loss per
share taking into consideration
the employees' bonus NT$(0.37) NT$(0.37) -
------------------------------------------------------------------------------------------------------------------------
F-35
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
18. Income Tax
Reconciliation between the income tax expense (benefit) and the income tax
calculated on pre-tax financial income based on the statutory tax rate is as
follows:
For the year ended December 31,
--------------------------------------------------------
2000 2001 2002
------------------ ------------------ ------------------
NT$'000 NT$'000 NT$'000
Tax on pre-tax income (loss) at statutory tax rate 13,082,290 (1,641,509) 1,663,022
Reduction in tax rate for technology park companies (2,527,904) - -
Variation in statutory tax rates for non-technology park
companies and oversea entities 335,723 (227,044) 166,997
Change in tax rate - (1,142,582) -
Tax exemption due to 4-year tax holiday (3,889,913) - -
Investment (income) loss (1,126,984) 300,371 55,445
Gain on disposal of investments (95,689) (558,838) (1,602,035)
Change in valuation allowance against tax credit 1,171,575 6,861,925 2,957,538
Increase in investment tax credit (6,459,674) (8,842,305) (3,999,022)
Change in valuation allowance against loss carry-forward (1,410,160) - (224,994)
Estimated 10% corporate income tax on un-appropriated earnings - 1,909,261 46,705
Adjustment of prior year's tax expense (136,744) 201,480 37,916
Tax on interest income separately taxed 30,342 21,688 12,062
Other permanent differences 936,076 77,564 1,157,097
------------------ ------------------ ------------------
Income tax (benefit) expense (91,062) (3,039,989) 270,731
================== ================== ==================
F-36
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 and 2002. Significant components of deferred tax assets and
liabilities were as follows:
As of December 31,
-----------------------------------------------
2001 2002
---------------------- -----------------------
Deferred tax assets NT$'000 NT$'000
Investment tax credit 18,626,824 22,625,846
Loss carry-forward 3,846,362 4,315,169
Allowance on sales returns and discounts 112,009 135,077
Allowance for loss on obsolescence of inventories 214,217 101,584
Pension 352,229 469,056
Organization Cost 30,382 509
Others 317,680 224,112
---------------------- -----------------------
Total deferred tax assets 23,499,703 27,871,353
Valuation allowance (10,932,530) (14,037,226)
---------------------- -----------------------
Net deferred tax assets 12,567,173 13,834,127
---------------------- -----------------------
Deferred tax liabilities
Depreciation 4,195,274 5,282,085
Other 45,801 324,542
---------------------- -----------------------
Total deferred tax liabilities 4,241,075 5,606,627
---------------------- -----------------------
Total net deferred tax assets 8,326,098 8,227,500
====================== =======================
Net deferred tax assets - current 3,954,867 2,994,572
Net deferred tax assets - noncurrent 4,371,231 5,232,928
---------------------- -----------------------
Total net deferred tax assets 8,326,098 8,227,500
====================== =======================
The Company's income tax returns through the year 1999 have been assessed
and approved by the Tax Authority except that of 1998.
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-37
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 Hsin Chu Science-Based Industrial Park. The starting date
of the exemption period attributable to the expansion in 1999 was not yet been
elected by the Company. The other exemption periods will expire in December of
2007.
An enterprise earns an investment tax credit for the amount invested in
emerging, important and strategic industries, 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 December 31, 2002, the Group's unused investment tax credit is as follows:
Expiration Year Investment tax credits
--------------- ----------------------
NT$'000
2002 3,280,896
2003 3,974,393
2004 5,899,913
2005 3,493,821
2006 5,976,823
----------------------
22,625,846
======================
Under the rules of the Income Tax Law, operating loss can be carried forward for
five years. As of December 31, 2002, the unutilized accumulative loss brought
forward amounted to NT$16,402 million, which will expire in 2006 and 2007.
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.
F-38
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The ending balance of unappropriated earnings available for 2002 appropriation
amounted to NT$23,005 million, of which NT$64 million was earned prior to
January 1, 1998.
As of December 31, 2002, the balance of imputation credit account ("ICA") was
NT$90 million. The actual creditable ratio for the appropriation of 2000 and
2001 retained earnings was 1.04% and 1.79%, respectively.
19. Earnings Per Share (shares expressed in thousands)
For the year ended December 31,
--------------------------------------------------------
2000 2001 2002
------------------ ------------------ ------------------
NT$'000 NT$'000 NT$'000
Net income (loss) 50,780,378 (3,157,302) 7,072,032
Effect of dilution:
Convertible bonds - 3,311 59,233
------------------ ------------------ ------------------
Adjusted net income (loss) assuming dilution 50,780,378 (3,153,991) 7,131,265
================== ================== ==================
Weighted average outstanding common shares 10,754,127 12,829,615 14,753,187
Effect of dilution:
Employee stock options - - 41,590
Convertible bonds - - 149,733
------------------ ------------------ ------------------
Adjusted weighted average common shares assuming dilution 10,754,127 12,829,615 14,944,510
================== ================== ==================
Retroactively adjusted weighted average outstanding common
shares 14,545,699 14,920,842
Retroactively adjusted weighted average outstanding common
shares assuming dilution 14,545,699 14,920,842
Earnings (loss) per share (in dollars) - basic and diluted 3.49 (0.21) 0.48
================== ================== ==================
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-39
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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:
(shares expressed in thousands)
For the year ended December 31, 2002
---------------------------------------------------
Basic Diluted
------------------------ --------------------------
NT$'000 NT$'000
Net income $7,072,032 $7,131,265
======================== ==========================
Outstanding weighted average 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 $0.48
======================== ==========================
20. Related Party Transactions
Name of Related Parties Relationship
---------------------------------------------------------- ------------------------------------------------
AMIC Technology (Taiwan), Inc. (AMIC-Taiwan) Investee company
Unimicron Technology Corp. (UTC) Investee company
Holtek Semiconductor Inc. (Holtek) Investee company
United Microelectronics (Europe) B.V. (UMC BV)(Note) Investee company
MediaTek Incorporation (MediaTek) The Company is its supervisor
Chiao Tung Bank (Chiao Tung) The Company is its parent company's director
and supervisor
Industrial Bank of Taiwan Corp. (IBT) The Company is its major shareholder
Shin-Etsu Handotia Taiwan Co., Ltd. (Shin-Etsu) The Company's investee is its director
Infineon Technologies, Asia Pacific Pte Ltd. (ITAP) Affiliated company of UMCi
Note: UMC BV was a related party of the Group in the prior years since the
Company's Chairman is a director of UMC BV. On May 15, 2002, the Company
has acquired 100% interest in UMC BV and has included it in consolidation
accordingly.
F-40
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Significant transactions with related parties:
(1) Operating revenues
For the year ended December 31,
-----------------------------------------------------------------------------------------------------
2000 2001 2002
---------------------------------- -------------------------------- ---------------------------------
Amount Percentage Amount Percentage Amount Percentage
---------------- ----------------- ---------------- --------------- ----------------- ---------------
NT$'000 NT$'000 NT$'000
MediaTek 4,938,704 4 3,776,580 6 9,637,752 13
UMC BV 11,922,113 11 6,038,583 9 - -
Others 11,856,181 10 5,249,313 7 6,682,023 9
---------------- ----------------- ---------------- --------------- ----------------- ---------------
Total 28,716,998 25 15,064,476 22 16,319,775 22
================ ================= ================ =============== ================= ===============
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 45~60
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,
-----------------------------------------------------------------------------------------------------
2000 2001 2002
---------------------------------- -------------------------------- ---------------------------------
Amount Percentage Amount Percentage Amount Percentage
---------------- ----------------- ---------------- --------------- ----------------- ---------------
NT$'000 NT$'000 NT$'000
Shin-Etsu 2,530,281 5 1,805,200 11 2,273,128 14
Others 1,455,213 3 255,872 2 219,235 1
---------------- ----------------- ---------------- --------------- ----------------- ---------------
Total 3,985,494 8 2,061,072 13 2,492,363 15
================ ================= ================ =============== ================= ===============
The purchases from the above related parties were dealt with in the ordinary
course of business similar to those from third-party suppliers. The payment
terms for purchase from overseas were net 30~60 days for the related parties and
third-party suppliers, respectively, while the terms for domestic purchase were
month-end 30~60 days and month-end 30~90 days for the related parties and
third-party suppliers, respectively.
F-41
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(3) Notes receivable
As of December 31,
---------------------------------------------------------------------------------
2001 2002
--------------------------------------- ---------------------------------------
Amount Percentage Amount Percentage
------------------- ------------------ ------------------- -----------------
NT$'000 NT$'000
Holtek 77,843 36 - -
Others 24,168 11 2,370 3
------------------- ------------------ ------------------- -----------------
Total 102,011 47 2,370 3
=================== ================== =================== =================
(4) Accounts receivable, net
As of December 31,
---------------------------------------------------------------------------------
2001 2002
--------------------------------------- ---------------------------------------
Amount Percentage Amount Percentage
------------------- ------------------ ------------------- -----------------
NT$'000 NT$'000
MediaTek 1,046,372 12 1,431,362 12
Others 1,100,888 12 1,291,185 11
------------------- ------------------ ------------------- -----------------
Subtotal 2,147,260 24 2,722,547 23
Less: Allowance for
sales returns
and discounts (290,832) (3) (451,009) (4)
Less: Allowance for
doubtful accounts (95,540) (1) (70,493) (1)
------------------- ------------------ ------------------- -----------------
Net 1,760,888 20 2,201,045 18
=================== ================== =================== =================
(5) Other current assets
As of December 31,
---------------------------------------------------------------------------------
2001 2002
--------------------------------------- ---------------------------------------
Amount Percentage Amount Percentage
------------------- ------------------ ------------------- -----------------
NT$'000 NT$'000
ITAP 1,922,207 63 1,910,268 60
Others 28,095 1 - -
------------------- ------------------ ------------------- -----------------
1,950,302 64 1,910,268 60
Less: Allowance for
doubtful accounts (705) - - -
------------------- ------------------ ------------------- -----------------
Net 1,949,597 64 1,910,268 60
=================== ================== =================== =================
F-42
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(6) Accounts payable
As of December 31,
---------------------------------------------------------------------------------
2001 2002
--------------------------------------- ---------------------------------------
Amount Percentage Amount Percentage
------------------- ------------------ ------------------- -----------------
NT$'000 NT$'000
Shin-Estu 455,749 16 375,116 8
Others 34,678 1 23,565 -
------------------- ------------------ ------------------- -----------------
Total 490,427 17 398,681 8
=================== ================== =================== =================
(7) Loans
For the year ended December 31, 2001
----------------------------------------------------------------------------------------
Maximum balance
--------------------------------- Ending Interest
Amount Month balance Interest rate expense
----------------- -------------- ---------------- ------------------ -----------------
NT$'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$'000
Chiao Tung 1,224,575 January 868,195 2.07%-4.00% 32,717
IBT 998,750 January 783,296 2.89%-3.94% 16,216
---------------- -----------------
1,651,491 48,933
================ =================
(8) Disposal of long-term investments
For the year ended December 31, 2000
-----------------------------------------------------------------------------------------
Item Amount Loss
------------------------------------------------------ ---------------- ----------------
NT$'000 NT$'000
AMIC-Taiwan Common stocks of AMIC Technology Inc. 135,000 80,517
================ ================
The Group had no significant disposal of long-term investments to related parties for the years ended December 31, 2001 and 2002.
F-43
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(9) Disposal of property, plant and equipment
The Group had no significant disposal of property, plant and equipment to
related parties for the years ended December 31, 2000 and 2002.
For the year ended December 31, 2001
----------------------------------------------------------------------------
Item Amount Gain
----------------------------------------- ----------------- ----------------
NT$'000 NT$'000
Holtek Building and facilities 173,250 31,468
================= ================
(10) Other significant related parties transactions
For the year ended December 31,
------------------------------------------
Item 2000 2001 2002
----------------------------------------------------------- ------------- -------------- -------------
NT$'000 NT$'000 NT$'000
UTC Processing expenditures 299,239 92,170 1,257
Others Service charges and processing expenditures, etc. 174,611 156,863 361,292
------------- -------------- -------------
473,850 249,033 362,549
============= ============== =============
For the year ended December 31,
------------------------------------------
Item 2000 2001 2002
----------------------------------------------------------- ------------- -------------- -------------
NT$'000 NT$'000 NT$'000
Others Facility revenues, etc. 109,696 115,959 99,279
============= ============== =============
21. Assets Pledged as Collateral
As of December 31, 2001 and 2002, the following assets have been pledged as
collateral against certain obligations of the Group.
Book Value
----------------------------------------
As of December 31,
----------------------------------------
Assets Pledged 2001 2002 Purpose of collateral
------------------------------------- ------------------- -------------------- -----------------------------------------
NT$'000 NT$'000
Accounts receivable, net 2,798,906 - Short-term loans
Restricted deposits 264,700 - Long-term loans
Land 614,544 452,916 Long-term loans
Buildings 6,126,811 2,533,152 Long-term loans
Machinery and equipment 33,513,570 21,537,463 Long-term and short-term loans
------------------- --------------------
Total 43,318,531 24,523,531
=================== ====================
F-44
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
22. Commitments and Contingencies
(1) The Group's unused letters of credit for imports of machinery were
approximately NT$76 million as of December 31, 2002.
(2) The Group has entered into contracts, amounted to approximately
NT$15.6 billion, with third parties for rights to use patents
registered by the third parties. The contract period was from 1995 to
2011. Royalty payables for the consecutive 5 years starting from 2003
through 2007 are approximately NT$2.5 billion, NT$1.3 billion, NT$1.3
billion, NT$1.2 billion, and NT$1.3 billion, respectively.
(3) The Group has signed several construction contracts for the expansion
of factory space. As of December 31, 2002, these construction
contracts amounted to approximately NT$10.3 billion and the unaccrued
portion of the contracts was approximately NT$4.8 billion.
(4) On October 27, 1997, Oak Technology Inc. ("Oak") filed a complaint
seeking a damage of US$750 million in the Northern District of
California alleging that the Company breached a Settlement Agreement
entered on July 31, 1997 with respect to a settlement of a dispute
between the Company and Oak concerning certain CD ROM controller
products made by the Company and a patent owned by Oak. The Company
denied Oak's allegations and on December 24, 1997, filed its answer
and affirmative defenses refuting Oak's claims. Based on the
allegations that it is Oak which has breached the Settlement, the
Company simultaneously filed a counterclaim against Oak, seeking
damages and a return of the millions paid to Oak under the Settlement.
In addition, the Company further seeks a declaration that the Oak
patent is invalid and/or unenforceable. Though Oak filed a complaint
later with the International Trade Commission ("ITC") repeating the
allegations made in the District Court, both the ITC and the Court of
Appeals for the Federal Circuit issued a ruling affirming that there
was no infringement and no violation.
Oak filed enforceable commitments that it would no longer seek
recoveries in connection with the Oak patent and accordingly, the
District Court concluded there was no longer dispute between Oak and
the Company on the patent and the Company's claim for a declaration of
invalidity and unenforceability will be dismissed. The Company intends
to continue to defend these matters vigorously. Furthermore, the
management does not believe the Oak complaints will have any material
adverse impact on the Company's operations and/or financial
performance.
F-45
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(5) The Group entered into several operating lease contracts. Future
minimum lease payments under those leases with original maturities,
which extend for more than one year as of December 31, 2002, are as
follows:
For the year ended Amount (NT$'000)
-------------------------------------- ---------------------------------
December 31, 2003 207,633
December 31, 2004 211,732
December 31, 2005 202,364
December 31, 2006 168,738
December 31, 2007 154,116
January 1, 2008 and thereafter 2,160,103
---------------------------------
Total 3,104,686
=================================
(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 Group penalties.
(7) The Company entered into two three-year purchase agreements in January
2000 that committed the Company to purchase at least 75% of its 8-inch
wafer consumption from two of its suppliers for the contract period.
(8) As a condition precedent to the making of the loan contemplated by a
US$600 million Amortizing Term Loan Facility Agreement among 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
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
12-inch Fab Plant on time, and to meet all the obligations under
the Facility Agreement.
23. Significant Disaster Loss
None.
F-46
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
24. Significant Subsequent Event
(1) The Company has granted 61 million in units of employee stock options
on January 3, 2003 with an exercise price of NT$22.5 per share.
(2) After the special shareholders' meeting of Silicon Integrated Systems
Corp. on January 14, 2003, the Company has held three seats of the
board of directors. Silicon Integrated Systems Corp. is an investment
of the Company accounted for under the cost method as of December 31,
2002.
25. Certain comparative amounts have been reclassified to conform with the
current year's presentation.
26. 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.
There were no derivative financial instruments outstanding as of
December 31, 2001 and 2002 except for a forward exchange contract
entered into by UMCJ in December 2001 as disclosed below.
(2) UMCJ, a subsidiary of the Company, entered into foreign currency
forward exchange contract with certain bank on December 17, 2001. The
major information is as follows:
a. Purposes: to manage certain risks arising from adverse
fluctuations in foreign currency exchange rates.
b. Notional amount and contract period:
As of December 31, 2001:
Notional amount Contract period
-------------------------------- --------------------------------------------
US$3million January 4, 2002 ~ January 31, 2002
c. Terms and characteristics of the forward exchange:
(a) Term: UMCJ agrees to purchase US$3 million using the
contracted forward rate in USD/(Yen)127.77 during the
contract period.
(b) Credit risk: There is no significant credit risk with
respect to the above transaction because the bank has good
global standing.
(c) Market risk: The market risk is low due to the nature of the
forward exchange.
F-47
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(3) Non-derivative financial instruments
The carrying value and fair value (and methodologies used in estimating the fair
value) of the Group's financial instruments at December 31, 2001 and 2002 were
as follows:
As of December 31, 2001 As of December 31, 2002
------------------------------------- ------------------------------------
Carrying Value Fair Value Carrying Value Fair Value
-------------------- ---------------- ------------------ ----------------
NT$'000 NT$'000 NT$'000 NT$'000
Financial assets
Assets with carrying value
approximating fair value 86,007,360 86,007,360 92,970,431 92,970,431
Marketable securities 1,286,434 1,461,610 2,526,365 2,542,241
Long-term investments 40,756,678 82,879,283 38,673,496 35,479,778
As of December 31, 2001 As of December 31, 2002
------------------------------------- ------------------------------------
Carrying Value Fair Value Carrying Value Fair Value
-------------------- ---------------- ------------------ ----------------
NT$'000 NT$'000 NT$'000 NT$'000
Financial liabilities
Liabilities with carrying value
approximating fair value 22,085,770 22,085,770 19,193,135 19,193,135
Bonds payable 39,590,511 41,805,353 50,581,483 51,137,649
Long-term loans 24,825,001 24,825,001 19,521,111 19,521,111
The carrying amounts of cash and cash equivalents, notes receivable, accounts
receivable, short-term loans, notes payable, accounts payable, income tax
payable and accrued expenses approximate fair value because of their short
maturities.
The fair value of marketable securities, long-term investments and bonds payable
is based on the quoted market value. If the market values of marketable
securities and long-term investments are unavailable, net assets of the investee
companies are used as fair value.
The carrying value of long-term loans approximates the fair value as the loans
bear floating rates.
F-48
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
27. Segment Information
(1) Operations in different industries
The Group operates principally in one industry. The Group's major
business activity is the dedicated full services semiconductor wafer
foundry.
(2) Operations in different geographic areas
For the year ended December 31,
-------------------------------------------------------------------------------------------------
2000 2001 2002
--------------------------------- -------------------------------- ------------------------------
Net Net Net
operating Long-lived operating Long-lived operating Long-lived
revenues assets revenues assets revenues assets
---------------- ---------------- --------------- ---------------- -------------- ---------------
NT$'000 NT$'000 NT$'000 NT$'000 NT$'000 NT$'000
Taiwan 29,331,178 154,190,745 20,205,163 157,851,031 29,735,077 148,650,597
Asia, excluding Taiwan 13,328,814 11,585,225 9,170,626 15,015,062 8,919,717 22,088,806
North America 50,452,837 123,529 26,394,408 120,366 28,393,289 66,722
Europe and others 22,496,510 - 14,046,602 - 8,377,273 27,898
---------------- ---------------- --------------- ---------------- -------------- ---------------
115,609,339 165,899,499 69,816,799 172,986,459 75,425,356 170,834,023
================ ================ =============== ================ ============== ===============
F-49
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
28. US GAAP Reconciliation
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles in the Republic of
China ("ROC GAAP"), which differ in certain material respects from generally
accepted accounting principles in the United States ("US GAAP"). Such
differences include methods of consolidation and methods for measuring the
amounts shown in the financial statements, as well as additional disclosures
required by US GAAP. Material GAAP differences are as follows:
(1) Compensation
For the year ended December 31,
-----------------------------------------
Net income impact of compensation adjustments 2000 2001 2002
----------- ----------- -----------
NT$'000 NT$'000 NT$'000
US GAAP adjustments:
Remuneration to directors (433,039) - (6,365)
----------- ----------- -----------
Employee bonuses
Accrual (3,429,670) - (823,702)
Adjustment to fair market value (6,764,918) (3,238,647) (6,592,188)
----------- ----------- -----------
Total employee bonuses (10,194,588) (3,238,647) (7,415,890)
Allocation to inventories, net of allocations to inventories
in prior period and sold in current period 1,287,138 (1,287,138) 73,338
----------- ----------- -----------
Total net income adjustment relating to compensation (9,340,489) (4,525,785) (7,348,917)
=========== =========== ===========
As of December 31,
------------------------------------
Stockholders' equity impact of compensation adjustments 2001 2002
----------------- -----------------
NT$'000 NT$'000
US GAAP adjustments:
Remuneration to directors - (6,365)
Employee bonuses - 73,338
----------------- -----------------
Total stockholders' equity adjustment relating to compensation - 66,973
================= =================
Remuneration to Directors - The Company's Articles of Incorporation requires a
cash remuneration payment to its directors. 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.
F-50
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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 17. Under ROC GAAP, such bonuses are
appropriated from retained earnings in the period shareholders' approval is
obtained. If such employee bonuses are settled through the issuance of stock,
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 stockholders' 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$27,367 million and NT$ 29,305
million at December 31, 2000, 2001 and 2002.
(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.
(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 on trading securities still held at each of the
respective balance sheet dates were NT$0, NT$19,868 and NT$1,771,439
respectively.
F-51
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The Group holds long-term investments in equity securities that are classified
as available-for-sale securities. Information on sales of available-for-sale
equity securities for the years ended December 31, 2000, 2001 and 2002 are as
follows:
Proceeds from Gross realized Gross realized
sales gains losses
------------------- ------------------ ------------------
NT$'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
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
The Group did not transfer any available-for-sale securities to trading
securities for the years ended December 31, 2000, 2001 and 2002. 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, and
NT$5,034,105 for the years ended December 31, 2000, 2001 and 2002, 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.
F-52
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The Group has written down NT$415 million, NT$536 million and NT$1,409 million
under ROC GAAP against certain available-for-sale securities for the years ended
December 31, 2000, 2001 and 2002. For US GAAP purpose, the Group further wrote
down an additional NT$296 million, NT$3,305 million and NT$781 million for the
years ended December 31, 2000, 2001 and 2002. 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.
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 income statements for the three years ended December 31, 2000, 2001 and
2002.
(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.
F-53
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(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. 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. Both parties mutually agreed
to the value of this transferred technological know-how before the transfer of
shares.
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.
F-54
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(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.
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, relating to the US$302.4 million zero coupon
convertible bonds issued on December 12, 2001.
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
income statement 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, approximately NT$141 million, nil and NT$9.5 million were
reclassified from capital reserve to a gain in the income statement relating to
these transactions.
F-55
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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, NT$93.7 million, and nil being amortized in the
income statement for the years ended December 31, 2000, 2001, and 2002,
respectively. 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 for the year ended December 31, 2002. Details of the new
accounting treatment on goodwill are set out in the footnote "Adoption of SFAS
No.141 & 142" in the "Additional US GAAP Disclosures".
During the year ended December 31, 2002, the Group has invested a total amount
of NT$2,502 million in three 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 in total at date of purchase were separated from the debt host
contracts and were accounted for as trading securities reporting at fair value,
with unrealized loss of NT$25 million included in earnings for the year ended
December 31, 2002. On the other hand, the debt host contracts with the initial
amount of NT$2,397 million were classified as available-for-sale securities,
with an unrealized gain of NT$46 million reported in other comprehensive income.
F-56
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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.
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, the fair value of the option has
decreased by NT$1,752 million, resulting in a gain being recognized for the year
ended December 31, 2002 under US GAAP.
(7) Principle of Acquisition under the Purchase Method
Under ROC GAAP, the fair value of the net assets received is deemed to be
the value of the consideration for the acquisition of the remaining
interests in United Semiconductor, United Silicon, UTEK Semiconductor and
United Integrated Circuits and is reflected in the common stock and capital
reserve in the balance sheet. The Group estimated the fair value of the net
assets acquired through two valuation models, profitability and net worth
model, and a discounted cash flows model. They also used other
considerations such as the valuation of current operations, synergies,
technical knowledge and future prospects. Under US GAAP, the acquisition
was accounted for using the purchase method of accounting and the purchase
price was determined using the market value of the shares exchanged. The
difference between the fair value of the shares exchanged and the fair
value of the net assets acquired creates goodwill. Goodwill was amortized
on a straight-line basis over ten years. Upon the adoption of SFAS No.141 &
142 on January 1, 2002 by the Group, the goodwill ceased to be amortized
and is subject to impairment test only. The details of the adoption of SFAS
No.141 & 142 are set out in the "Additional US GAAP Disclosures". The
purchase price under US GAAP was determined based on the average closing
market price of the Company's stock on the five trading days beginning two
days before June 16, 1999, the first day of trading after the announcement
of the acquisition to determine the fair values of the shares exchanged.
F-57
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The purchase price was allocated to the tangible and intangible assets and
liabilities acquired based on their estimated fair values at January 3, 2000, as
follows (in NT$ 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.
(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 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 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 is calculated by dividing net
income by the weighted average number of shares outstanding during the
year. 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.
F-58
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(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, the Company consolidates those subsidiaries which
are excluded from consolidation under ROC GAAP due to the exclusion rules
(Fortune Venture Capital Corporation, UMC Capital Corporation, United
Microelectronics Corp. (Samoa), and United Foundry Services, 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.
(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 by approximately NT$127,880 million, NT$187,416 million and NT$243,546
million, respectively.
(12) 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. Under US GAAP, the
reclassification of the gain from retained earnings is not permitted. The
effect of this gain would have increased retained earnings and decreased
capital reserve for the years ended December 31, 2000 by NT$173 million.
According to the new amendments in ROC Company Law, such gains transferred
to capital reserve in previous years can be reclassified to retained
earnings subject to shareholder's approval. An amount of NT$171 million was
then transferred from capital reserve to retained earnings during the year
ended December 31, 2002 under ROC GAAP.
(13) Gross Profit
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.
F-59
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(14) 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.
(15) 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.
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 December 31, 2002 was
928,059 thousand units and the exercise price for the options is NT$20 per
share.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Group had
accounted for its employee stock options under the fair value method of
that Statement. The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions, respectively: risk-free interest rate of
1.98%; dividend yields of 22.63%; volatility factors of the expected market
price of the Company's common stock of 0.54; and a weighted-average
expected life of the option of 4.4 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Group's employee stock options
have characteristics significantly different from those of traded options,
and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
F-60
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Group's pro forma
information follows (in thousands except for earnings per share information):
For the year ended December 31,
------------------------------------------------------------------
2000 2001 2002
---------------- ----------------- -------------------------------
NT$'000 NT$'000 NT$'000 US$'000
Net income, as reported under US GAAP 27,133,811 (23,246,991) 293,653 8,463
Add: Stock-based employee compensation
expense included in reported net
income, net of related tax effects - - 5,387 155
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) (11,487)
---------------- ----------------- --------------- ---------------
Pro forma net income 26,963,429 (23,531,654) (99,543) (2,869)
================ ================= =============== ===============
Earnings (loss) per share (in dollars):
Basic and diluted - as reported 1.91 (1.58) 0.02
================ ================= ===============
Basic and diluted - pro forma 1.90 (1.60) (0.01)
================ ================= ===============
The pro forma net income effect for the year ended December 31, 2000 and 2001 is
mainly attributable to the employee stock options issued by a subsidiary of the
Company.
F-61
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 years ended December 31, 2002 follows:
2002
---------------------------------------------
Options Weighted-Average
(in thousands) Exercise Price
---------------------- ----------------------
Outstanding-beginning of year - -
Granted 939,000 NT$20
Exercised - -
Forfeited (10,941) 20
----------------------
Outstanding-end of year 928,059 20
----------------------
Exercisable at end of year - -
Weighted-average fair value of options granted
during the year NT$1.07
Exercise price for options outstanding as of December 31, 2002 is NT$20. The
weighted-average remaining contractual life of those options is 5.8 years.
(16) Summarized financial information
Summarized financial information for equity investees is as follows:
As of December 31,
--------------------------------------------------------------
2001 2002
-------------------- ----------------------------------------
NT$'000 NT$'000 US$'000
Current assets 31,945,226 33,313,560 960,045
Noncurrent assets 28,490,053 26,004,109 749,398
Current liabilities 14,219,013 11,641,482 335,489
Noncurrent liabilities 3,700,242 5,396,573 155,521
For the year ended December 31,
------------------------------------------------------------------
2000 2001 2002
---------------- ---------------- -------------------------------
NT$'000 NT$'000 NT$'000 US$'000
Net sales 58,418,686 32,824,736 38,718,123 1,115,796
Gross profit 16,886,102 4,521,406 8,728,242 251,534
Net income (loss) 729,303 (5,411,366) (147,825) (4,260)
F-62
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Reconciliation of Consolidated Net Income
For the year ended December 31,
----------------------------------------------------------------------
2000 2001 2002
------------------ ----------------- ---------------------------------
NT$'000 NT$'000 NT$'000 US$'000
Net income (loss), ROC GAAP 50,780,378 (3,157,302) 7,072,032 203,805
US GAAP adjustments:
(1) Compensation (9,340,489) (4,525,785) (7,348,917) (211,784)
(2) Equity investments:
(1) Compensation (1,083,503) (1,488,490) (471,136) (13,577)
(3) Marketable securities (491,032) 45,989 (64,049) (1,846)
(5) Technological know-how 23,344 22,928 22,527 649
(6) Convertible bonds (414,886) - - -
(4) Treasury stock (20,547) (10,557) - -
Other (116,852) (356,933) (85,114) (2,453)
(3) Investment (loss) income (15,242) 315,737 30,477 879
(3) Impairment loss in marketable securities (295,869) (3,304,929) (349,177) (10,063)
(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 12,950
(6) Embedded derivatives - - 1,752,039 50,491
(6) Convertible/Exchangeable bonds - - (691,394) (19,925)
(7) Consolidated goodwill amortization (12,283,500) (12,283,500) - -
(9) Income tax effect (1,000,000) 700,000 (23,000) (663)
----------------- ------------------ ---------------- ----------------
Net income (loss), US GAAP 27,133,811 (23,246,991) 293,653 8,463
================= ================== ================ ================
(8) Basic and diluted earnings/(loss) per
share under US GAAP (in dollars) 1.91 (1.58) 0.02
================= ================== ================
Weighted-average number of shares outstanding -
basic (in thousands) 14,179,447 14,671,293 14,655,247
================= ================== ================
Weighted-average number of shares outstanding -
diluted (in thousands) 14,179,447 14,671,293 14,729,188
================= ================== ================
Other comprehensive loss, ROC GAAP (2,241,077) (631,401) (620,397) (17,879)
(3) Marketable securities - available for sale 225,636 40,750,908 20,147,099 580,608
Translation adjustments 3,254 59,085 (478) (14)
----------------- ------------------ ---------------- ----------------
Other comprehensive (loss) income, US GAAP (2,012,187) 40,178,592 19,526,224 562,715
================= ================== ================ ================
F-63
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Reconciliation of Gross Profits
For the year ended December 31,
------------------------------------------------------------------
2000 2001 2002
---------------- ----------------- -------------------------------
NT$'000 NT$'000 NT$'000 US$'000
Gross profit, ROC GAAP 58,198,294 9,248,890 12,538,054 361,327
(1) Compensation (6,526,306) (3,434,607) (5,415,162) (156,056)
(13) Inventory loss provision (610,327) (1,529,823) (955,074) (27,524)
Consolidation of unconsolidated subsidiaries (78,753) (136,676) - -
---------------- ----------------- ---------------- -------------
Gross profit, US GAAP 50,982,908 4,147,784 6,167,818 177,747
================ ================= ================ =============
Reconciliation of Operating Revenues
For the year ended December 31,
-------------------------------------------------------------------
2000 2001 2002
----------------- ---------------- --------------------------------
NT$'000 NT$'000 NT$'000 US$'000
Operating income (loss), ROC GAAP 47,543,397 (6,412,253) 112,258 3,235
(1) Compensation (9,340,489) (4,525,785) (7,348,917) (211,784)
(7) Consolidated goodwill amortization (12,332,937) (12,377,169) - -
(13) Inventory loss provision (610,327) (1,529,823) (955,074) (27,524)
(13) Gain on disposal of property, plant and 99,700 (45,523) 14,403 415
equipment
(13) Foreign currency exchange gain 2,920,585 664,794 (104,243) (3,004)
Consolidation of unconsolidated subsidiaries (4,516) 2,480 (24,890) (717)
----------------- ---------------- --------------- ---------------
Operating income (loss), US GAAP 28,275,413 (24,223,279) (8,306,463) (239,379)
================= ================ ================ ===============
F-64
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Reconciliation of Consolidated Stockholders' Equity
As of December 31,
-------------------------------------------------------
2001 2002
----------------- ------------------------------------
NT$'000 NT$'000 US$'000
Total stockholders' equity, ROC GAAP 213,322,253 217,424,485 6,265,835
(1) Compensation - 66,973 1,930
(2) Equity investments:
(1) Compensation (157,231) (127,980) (3,688)
(3) Marketable securities - trading 81,634 24,788 714
(3) Marketable securities - available for sale 443,030 1,560,602 44,974
(5) Technological know-how (57,398) (33,867) (976)
Translation adjustments 5,019 (464) (13)
Other (485,030) (455,226) (13,119)
(3) Change in fair value of marketable securities 40,325,522 18,617,474 536,526
(3) Impairment loss on marketable securities (3,304,929) (3,654,106) (105,306)
(4) Treasury stock (176,221) (8,024) (231)
(6) Adjustments due to change in interest of investee
companies 1,527,584 1,604,517 46,240
(6) Convertible/ Exchangeable bonds - (691,394) (19,925)
(6) Embedded derivatives - 1,752,039 50,491
(7) Unamortized goodwill due to acquisition 98,268,000 98,268,000 2,831,931
(9) Income tax effect (300,000) (323,000) (9,308)
----------------- ----------------- -----------------
Stockholders' equity, US GAAP 349,492,233 334,024,817 9,626,075
================= ================= =================
F-65
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Movements in Stockholders' Equity in Accordance with US GAAP
As of December 31,
---------------------------------------------------------------
2000 2001 2002
-------------- ------------- ----------------------------
NT$'000 NT$'000 NT$'000 US$'000
Balance at January 1, 89,876,907 326,985,321 349,492,233 10,071,822
(1) Compensation 7,551,811 6,668,317 7,415,890 213,713
(2) Adjustment of capital reserve and retained
earnings accounted for under equity method 1,842,027 1,395,559 197,989 5,706
(3) Change in fair value of marketable
securities - the Company (599,340) 41,167,526 (20,936,211) (603,349)
(3) Change in fair value of marketable
securities - equity investees (2,544,912) 1,152,094 (545,915) (15,732)
Common stock for the conversion of convertible
bonds issued 3,429,132 - - -
Adjustment due to change in ownership of
investee companies 2,521,277 (344,213) 20,981 605
(4) Treasury stock (5,159,240) (4,599,643) (2,743,561) (79,065)
(4) Capital reserve from gain on disposal of
treasury stock 20,547 296,018 - -
Cumulative translation adjustment on foreign
long-term investment (507,778) (128,841) 829,758 23,912
(5) Adjustment due to technological know-how
contributed to a joint venture investee 1,082,349 - - -
(7) Issue new shares for the shares swapped
regarding to the merger-par value 23,836,503 - - -
(7) Capital reserve due to merger 139,987,454 - - -
Shares issued for American Depository Shares 38,514,773 147,086 - -
Net income (loss) 27,133,811 (23,246,991) 293,653 8,463
---------------- ---------------- ---------------- -------------
Balance at end of the year 326,985,321 349,492,233 334,024,817 9,626,075
================ ================ ================ =============
F-66
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Summarized US GAAP balance sheet and income statement information is presented
below:
As of December 31,
------------------------------------------------------------
2001 2002
------------------- ---------------------------------------
NT$'000 NT$'000 US$'000
Current assets 101,376,483 102,492,091 2,953,662
Noncurrent assets 355,502,958 340,152,950 9,802,679
Current liabilities 34,538,996 29,987,400 864,190
Noncurrent liabilities 57,253,331 62,608,692 1,804,285
Minority interests 15,594,881 16,024,132 461,791
For the year ended December 31,
-----------------------------------------------------------------------------
2000 2001 2002
------------------- ------------------ ------------------- -----------------
NT$'000 NT$'000 NT$'000 US$'000
Net operating revenues 115,616,117 69,816,030 75,425,356 2,173,641
Cost of goods sold (64,633,209) (65,668,246) (69,257,538) (1,995,894)
Operating income (loss) 28,275,413 (24,223,279) (8,306,463) (239,379)
Net income (loss) 27,133,811 (23,246,991) 293,653 8,463
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
-------------------- ---------------------------------------
NT$'000 NT$'000 US$'000
Cash and cash equivalents:
As reported under ROC GAAP 76,904,068 80,883,408 2,330,934
Consolidation of unconsolidated subsidiaries 564,450 864,733 24,920
Reclassification to marketable securities (19,642,617) (27,529,070) (793,345)
-------------------- ------------------- -------------------
As adjusted under US GAAP 57,825,901 54,219,071 1,562,509
==================== =================== ===================
Marketable Securities, trading:
Reported as marketable securities under ROC GAAP 1,286,434 2,526,365 72,806
Reclassification from cash & cash equivalents 19,642,617 21,548,110 620,983
Reclassification to marketable securities,
available-for-sale - (2,397,448) (69,091)
Change in fair value of marketable securities 19,868 50,074 1,443
-------------------- ------------------- -------------------
As adjusted under US GAAP 20,948,919 21,727,101 626,141
==================== =================== ===================
F-67
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As of December 31,
-------------------------------------------------------------
2001 2002
-------------------- ---------------------------------------
NT$'000 NT$'000 US$'000
Represented by:
Trading securities - current 20,948,919 20,680,374 595,976
Trading securities - noncurrent - 1,046,727 30,165
-------------------- ------------------- -------------------
20,948,919 21,727,101 626,141
==================== =================== ===================
Long-term Investments:
As reported under ROC GAAP 40,756,678 38,673,496 1,114,510
Consolidation of unconsolidated subsidiaries (573,844) (833,683) (24,026)
Equity investments compensation (157,231) (127,980) (3,688)
Change in fair value of marketable securities 40,305,654 18,567,400 535,083
Impairment loss in marketable securities (3,304,929) (3,654,106) (105,306)
Treasury stock (176,221) (8,024) (231)
Reclassification from ROC GAAP marketable securities - 2,397,448 69,091
Reclassification to held-to-maturity securities - (873,000) (25,158)
Equity investments 1,189,663 2,375,037 68,445
-------------------- ------------------- -------------------
As adjusted under US GAAP 78,039,770 56,516,588 1,628,720
==================== =================== ===================
Marketable Securities, held-to-maturity
As reported under ROC GAAP - - -
Reclassification from long-term investments - 873,000 25,158
Reclassification from cash and cash equivalents - 5,980,960 172,362
-------------------- ------------------- -------------------
As adjusted under US GAAP - 6,853,960 197,520
==================== =================== ===================
Other Assets:
As reported under ROC GAAP 1,708,359 1,558,655 44,918
Consolidation of unconsolidated subsidiaries 2,756 1,184 34
-------------------- ------------------- -------------------
As adjusted under US GAAP 1,711,115 1,559,839 44,952
==================== =================== ===================
Goodwill:
As reported under ROC GAAP - - -
Goodwill upon conversion of convertible bonds 325,302 325,302 9,375
Goodwill due to acquisition 98,268,000 98,268,000 2,831,931
-------------------- ------------------- -------------------
As adjusted under US GAAP 98,593,302 98,593,302 2,841,306
==================== =================== ===================
F-68
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As of December 31,
-------------------------------------------------------------
2001 2002
-------------------- ------------------- -------------------
NT$'000 NT$'000 US$'000
Accrued Expenses:
As reported under ROC GAAP 5,678,713 4,032,474 116,210
Consolidation of unconsolidated subsidiaries (3,051) 1,575 45
Accrued interest for convertible bonds - 490,545 14,137
Compensation - 6,365 183
-------------------- ------------------- -------------------
As adjusted under US GAAP 5,675,662 4,530,959 130,575
==================== =================== ===================
Financial Instrument Liabilities:
As reported under ROC GAAP - - -
Bifurcated exchangeable feature in exchangeable bonds - 273,221 7,874
-------------------- ------------------- -------------------
As adjusted under US GAAP - 273,221 7,874
==================== =================== ===================
Minority Interests:
As reported under ROC GAAP 15,594,468 16,023,886 461,784
Consolidation of unconsolidated subsidiaries 349 319 9
Others 64 (73) (2)
-------------------- ------------------- -------------------
As adjusted under US GAAP 15,594,881 16,024,132 461,791
==================== =================== ===================
F-69
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Cash Flows Information
For the year ended December 31,
------------------------------------------------------------------------
2000 2001 2002
----------------- ----------------- ------------------------------------
NT$'000 NT$'000 NT$'000 US$'000
Cash flows from operating activities, ROC GAAP 68,077,184 40,187,493 30,526,954 879,739
Payments made for directors' remuneration (95,737) (433,039) - -
Difference due to principles in consolidation (4,327) 31,012 (20,765) (598)
----------------- ----------------- ---------------- ------------------
Cash flows from operating activities, US GAAP 67,977,120 39,785,466 30,506,189 879,141
Cash flows from investing activities, ROC GAAP (73,682,697) (43,257,044) (30,457,764) (877,745)
Net effect of certificates of deposit reclassified
to marketable securities 66,175 (17,431,532) (7,886,453) (227,275)
Difference due to principles in consolidation 100,628 429,379 309,704 8,925
----------------- ----------------- ---------------- ------------------
Cash flows from investing activities, US GAAP (73,515,894) (60,259,197) (38,034,513) (1,096,095)
Cash flows from financing activities, ROC GAAP 41,410,673 18,184,354 3,162,286 91,132
Payments made for directors' remuneration 95,737 433,039 - -
Difference due to principles in consolidation (118,900) - - -
----------------- ----------------- ---------------- ------------------
Cash flows from financing activities, US GAAP 41,387,510 18,617,393 3,162,286 91,132
Foreign exchange effect, ROC GAAP (137,522) (680,808) 747,864 21,552
Difference due to principles in consolidation (88,799) 12,762 11,344 327
----------------- ----------------- ---------------- ------------------
Foreign exchange effect, US GAAP (226,321) (668,046) 759,208 21,879
Net increase in cash and cash equivalents, ROC GAAP 35,667,638 14,433,995 3,979,340 114,678
Net effect of certificates of deposit reclassified
to marketable securities 66,175 (17,431,532) (7,886,453) (227,275)
Difference due to principles in consolidation (111,398) 473,153 300,283 8,654
----------------- ----------------- ---------------- ------------------
Net increase (decrease) in cash and cash equivalents, US 35,622,415 (2,524,384) (3,606,830) (103,943)
GAAP
Cash and cash equivalents at beginning of year, US GAAP 24,727,870 60,350,285 57,825,901 1,666,452
----------------- ----------------- ---------------- ------------------
Cash and cash equivalents at end of year, US GAAP 60,350,285 57,825,901 54,219,071 1,562,509
================= ================= ================ ==================
F-70
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 years ended
December 31, 2001 and 2002, the Group distributes its products on a global basis
but mainly to customers in North America (37.81% and 37.64%, respectively), Asia
(42.07% and 51.25%, respectively,) and Europe and others (20.12% and 11.11%,
respectively). The Group's sales are primarily denominated in currencies other
than NT Dollars, primarily US Dollars. One customer's revenue represented 11% of
the consolidated revenue for the year ended December 31, 2001 while two
customers' revenue represented 12% and 13%, respectively, of the consolidated
revenue for the year ended December 31, 2002. The Group routinely assesses the
financial strength of substantially all customers. For significant domestic
sales the Group also requires certain collateral 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".
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.
F-71
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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$526 million. The information on net income exclusive of
amortization expense related to the above mentioned goodwill is presented as
follows:
For the year ended December 31,
----------------------------------------------------------------------
2000 2001 2002
---------------- ----------------- ----------------------------------
NT$'000 NT$'000 NT$'000 US$'000
Net income (loss) as reported under US GAAP 27,133,811 (23,246,991) 293,653 8,463
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 8,463
================ ================= ================ =================
Basic and diluted earnings per share:
Net income (loss) as reported under US GAAP 1.91 (1.58) 0.02
Goodwill amortization 0.87 0.84 -
Equity-method goodwill amortization 0.01 0.01 -
--------------- ---------------- ----------------
Adjusted net income 2.79 (0.73) 0.02
=============== ================ ================
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 3,503
Other current assets 190,218 5,482
Property, plant and equipment 4,348 125
---------------------- ------------------
Total assets acquired 316,130 9,110
---------------------- ------------------
Current liabilities 128,578 3,705
Long-term debt - -
---------------------- ------------------
Total liabilities assumed 128,578 3,705
---------------------- ------------------
Net assets acquired 187,552 5,405
====================== ==================
Consideration paid 187,552 5,405
====================== ==================
F-72
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Adoption of SFAS No.144
-----------------------
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which supersedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for
recognition and measurement of the impairment of long-lived assets to be held
and used and measurement of long-lived assets to be disposed of by sale. SFAS
No. 144 addresses certain implementation issues related to SFAS No. 121. This
Statement also supersedes the accounting and reporting provisions of APB Opinion
No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions", for segments of a business to be disposed
of. SFAS No. 144 retains the basic provisions of APB Opinion No. 30 for the
presentation of discontinued operations in the income statement but broadens
that presentation to include a component of an entity, rather than a segment of
a business. The adoption of SFAS No. 144 on January 1, 2002 did not have any
material effect on the Group's financial position or results of operations.
New Accounting Pronouncements
-----------------------------
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. SFAS No. 143 is effective for the Group
beginning January 2003 and the Group is currently evaluating the effect that
implementation of the new standard will have on its financial position, results
of operations, and cash flows.
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. 146 in January 2003 is not expected to have a material
effect on the Group's financial position or results of operations.
F-73
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
During the year ended December 31, 2002, the FASB has issued SFAS No.145,
"Rescission of FASB Statements No.4, 44 and 64, Amendment of FASB Statement
No.13, and Technical Corrections", SFAS No.147 "Acquisition of Certain Financial
Institutions" and SFAS No.148 "Accounting for Stock-Based
Compensation-Transition and Disclosure." These Statements were effective for the
Group during the year ended December 31, 2002 and did not have any material
effect on the earnings or financial position of the Group for the year then
ended.
In November 2002, the FASB issued Interpretation No.45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN45"). FIN45 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." FIN45 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 FIN45 are
effective for financial statements of interim or annual periods ending after
December 15, 2002.
The Group held several cash deposits with a total amount of approximately
NT$6,854 million as of December 31, 2002. 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 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. The underlying reference
entities are summarized as follows:
Principal amount in original currency Reference entities
------------------------------------------ -------------------------------------------------------------------------------------
30 million in USD Fubon Holding Co., Ltd. ("Fubon"), Cathay Financial Holding Co., Ltd ("Cathay
Financial") and the Company
25 million in USD Siliconware Precision Industries Co., Ltd ("Siliconware")
20 million in USD China Development Financial Holding Corporation
19 million in USD King Yuan Electronics Co., Ltd
15 million in USD Cathy Financial
10 million in USD Fubon, Cathay Financial and the Company
6.5 million in USD Unimicron Technology Corp.
5 million in USD Gigabyte Technology Co., Ltd
5 million in USD Stark Technology, Inc.
5 million in USD Compal Electronics, Inc. and the Company
5 million in USD Fubon Holding, Siliconware and the Company
5 million in USD The Company
5 million in USD BENQ Corporation
4 billion in JPY UMCJ
1 billion in JPY Nikon Corporation
F-74
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
In addition, the Group has made several commitments under different contracts
such as operating lease contracts or other agreements. Please refer to Note 22
for details.
The initial recognition and initial measurement provisions of FIN45 are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The Group believes that the adoption of the standard will not
have a material impact on its financial statements.
F-75
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: March 25, 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