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