Financial Data and Key Metrics Changes - In Q4 2022, consolidated revenue was TWD 67.84 billion, with a gross margin rate of 42.9% and net income attributable to shareholders of TWD 19 billion, resulting in earnings per share (EPS) of TWD 1.54 [6][10] - Revenue declined by 10% sequentially from the previous quarter, while total operating income decreased by approximately 20% to TWD 23.6 billion [6][10] - For the full year 2022, total revenue grew by 31% to TWD 278.7 billion, and operating income more than doubled to TWD 104 billion, with EPS increasing to TWD 7.09 from TWD 4.57 in the previous year [7][10] Business Line Data and Key Metrics Changes - The revenue breakdown showed that the North American market represented about 30% of total revenue, up from 23% in the previous quarter, while the Asian market saw a decline from 52% to 54% [7][10] - The communication segment remained the largest, accounting for 45% of total revenue, while the automotive segment grew by 82% year-over-year, now representing approximately 9% of total sales [8][12] Market Data and Key Metrics Changes - The quarterly breakdown indicated that IDM (Integrated Device Manufacturer) accounted for 19% and Fabless for 81% of revenue, with IDM remaining at about 15% for the full year [8] - The technology breakdown for Q4 showed that 22/28 nanometer technology represented 28% of revenue, while 40 nanometer accounted for about 17% [8] Company Strategy and Development Direction - The company is focusing on enhancing its specialty technology offerings and improving profitability through strategic customer relationships, particularly in the automotive segment [11][12] - UMC plans to implement strict cost control measures and defer certain capital expenditures in response to the soft global economic outlook for 2023 [13] Management's Comments on Operating Environment and Future Outlook - Management expects the current challenging environment to persist through Q1 2023, with wafer shipments projected to decline by high teens percentage range and capacity utilization at approximately 70% [14] - The company remains optimistic about long-term demand driven by digital transformation across industries, despite short-term inventory corrections [13][14] Other Important Information - The company has a cash-based CapEx budget of $3 billion for 2023, with 90% allocated to 12-inch related expansions [9] - The company is also experiencing a minor decline in available capacity due to maintenance but expects to return to normal levels by Q2 2023 [9] Q&A Session Summary Question: Discussion on the business cycle and inventory correction - Management indicated that they are still in the midst of an inventory correction, with some improvement expected in certain segments by the second half of 2023 [16][17] Question: Pricing strategy and customer negotiations - Management stated that pricing adjustments will have limited effects on demand creation, and they intend to maintain firm pricing while supporting customer competitiveness [20][21] Question: 2023 outlook and CapEx details - Management projected a low single-digit decline for the semiconductor industry in 2023, with a CapEx budget primarily focused on new capacity expansion and product mix upgrades [31][32] Question: 28-nanometer technology utilization - Management expects 28-nanometer utilization to hold up slightly better than the overall corporate average, despite a general decline in capacity utilization [29][30] Question: Geopolitical developments and supply chain diversification - Management acknowledged trends in supply chain diversification but noted that significant engagement and order opportunities may not materialize until after 2023 [65][68]

[Review Report of Independent Auditors](index=2&type=section&id=Review%20Report%20of%20Independent%20Auditors) This report presents the independent auditors' review of UMC's consolidated financial statements for the nine-month periods ended September 30, 2022 and 2021 [Introduction](index=2&type=section&id=Introduction) Independent auditors reviewed UMC's consolidated financial statements for the nine-month periods ended September 30, 2022 and 2021, with management responsible for their fair presentation - The consolidated financial statements for the nine-month periods ended September 30, 2022 and 2021 were reviewed by independent auditors[2](index=2&type=chunk) - Management is responsible for preparing and presenting the financial statements in accordance with R.O.C. regulations and IAS 34[2](index=2&type=chunk) [Scope of Review](index=2&type=section&id=Scope%20of%20Review) The review was conducted in accordance with R.O.C. auditing standards, involving inquiries and analytical procedures, which is less extensive than an audit - Reviews were conducted in accordance with Statement of Auditing Standards No. 65 of the Republic of China[3](index=3&type=chunk) - A review is substantially less in scope than an audit, and thus, an audit opinion is not expressed[3](index=3&type=chunk) [Conclusion](index=2&type=section&id=Conclusion) Based on the reviews, the auditors found no material misstatements in the consolidated financial statements for the periods ended September 30, 2022 and 2021 - The consolidated financial statements fairly present the Company's financial position, performance, and cash flows in all material respects as of and for the periods ended September 30, 2022 and 2021[4](index=4&type=chunk) - The statements comply with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34[4](index=4&type=chunk) [Other Matter – Making Reference to the Reviews of Other Independent Auditors](index=3&type=section&id=Other%20Matter%20%E2%80%93%20Making%20Reference%20to%20the%20Reviews%20of%20Other%20Independent%20Auditors) The auditors' review relied on reports from other independent auditors for investments in associates and joint ventures, which significantly impacted consolidated assets and income - The review relied on reports from other independent auditors for certain investments accounted for under the equity method[6](index=6&type=chunk) Impact of Equity Method Investments on Consolidated Financials (NT$ Million) | Metric | September 30, 2022 (NT$ million) | September 30, 2021 (NT$ million) | Percentage of Total Consolidated Assets (2022) | Percentage of Total Consolidated Assets (2021) | |:--------------------------------------------------------------------|:---------------------------------|:---------------------------------|:-----------------------------------------------|:-----------------------------------------------| | Investments accounted for under the equity method balances | 23,922 | 36,168 | 4.61% | 8.43% | | Share of profit or loss from associates and joint ventures (9-month)| (4,013) | 5,926 | (4.92)% of income before tax | 13.58% of income before tax | | Share of other comprehensive income (9-month) | 25 | 2,138 | 0.04% of total comprehensive income | 5.30% of total comprehensive income | [Notice to Readers](index=3&type=section&id=Notice%20to%20Readers) The consolidated financial statements are prepared in accordance with R.O.C. accounting principles and auditing standards, and are not intended for unfamiliar users - The consolidated financial statements are prepared according to R.O.C. accounting principles and practices[7](index=7&type=chunk) - The report is not intended for those unfamiliar with R.O.C. accounting principles or auditing standards[7](index=7&type=chunk) [Consolidated Balance Sheets](index=4&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) The consolidated balance sheets show total assets increased to **NT$519.39 billion** by September 30, 2022, from **NT$464.43 billion** at December 31, 2021, with total equity growing to **NT$315.19 billion** Consolidated Balance Sheet Highlights (NT$ Thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | |:-------------------|:---------------|:---------------|:---------------| | Total assets | $519,393,920 | $464,426,771 | $428,792,631 | | Total liabilities | $204,204,549 | $183,223,887 | $171,188,907 | | Total equity | $315,189,371 | $281,202,884 | $257,603,724 | - Current assets increased to **NT$266.94 billion** as of September 30, 2022, from **NT$233.27 billion** at December 31, 2021, mainly due to a significant rise in cash and cash equivalents[10](index=10&type=chunk) - Non-current assets increased to **NT$252.45 billion** as of September 30, 2022, from **NT$231.15 billion** at December 31, 2021, primarily driven by increases in property, plant and equipment, and prepayment for equipment[10](index=10&type=chunk) - Current liabilities increased to **NT$108.01 billion** as of September 30, 2022, from **NT$105.45 billion** at December 31, 2021, with notable increases in payables on equipment and current tax liabilities[12](index=12&type=chunk) - Non-current liabilities increased to **NT$96.20 billion** as of September 30, 2022, from **NT$77.77 billion** at December 31, 2021, largely due to a substantial increase in guarantee deposits[12](index=12&type=chunk) [Unaudited Consolidated Statements of Comprehensive Income](index=6&type=section&id=UNAUDITED%20CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME) UMC reported significant increases in operating revenues and net income for 9M 2022, with gross profit more than doubling, despite a decrease in non-operating income due to financial asset valuation losses Consolidated Statements of Comprehensive Income Highlights (NT$ Thousands) | Metric | 9M 2022 | 9M 2021 | YoY Change (NT$ Thousands) | YoY Change (%) | |:------------------------------------------------|:---------------|:---------------|:---------------------------|:---------------| | Operating revenues | $210,869,549 | $153,911,430 | $56,958,119 | 37.01% | | Operating costs | $(114,229,111) | $(104,965,145) | $(9,263,966) | 8.83% | | Gross profit | $96,640,438 | $48,946,285 | $47,694,153 | 97.44% | | Operating income | $80,655,450 | $34,069,981 | $46,585,469 | 136.74% | | Income from continuing operations before income tax | $81,571,096 | $43,629,300 | $37,941,796 | 86.96% | | Net income | $68,898,429 | $39,107,442 | $29,790,987 | 76.18% | | Total comprehensive income (loss) | $70,906,619 | $40,358,455 | $30,548,164 | 75.69% | | Earnings per share-basic (NTD) | $5.54 | $3.26 | $2.28 | 69.94% | | Earnings per share-diluted (NTD) | $5.38 | $3.21 | $2.17 | 67.60% | - Non-operating income and expenses decreased significantly from **NT$9.56 billion** in 9M 2021 to **NT$916 million** in 9M 2022, primarily due to a shift from a gain to a loss on financial asset valuations and a negative share of profit/loss from associates[14](index=14&type=chunk) [Unaudited Consolidated Statements of Changes in Equity](index=7&type=section&id=UNAUDITED%20CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20EQUITY) Total equity attributable to the parent company increased from **NT$280.98 billion** to **NT$314.81 billion** by September 30, 2022, driven by net income and other comprehensive income Key Changes in Equity Attributable to Parent Company (NT$ Thousands) | Metric | Jan 1, 2022 | Sep 30, 2022 | Change (NT$ Thousands) | |:--------------------------------------------------------------------|:---------------|:---------------|:-----------------------| | Total equity attributable to the parent company (Adjusted) | $280,825,860 | $314,810,397 | $33,984,537 | | Net income for the nine-month period ended September 30, 2022 | - | $68,130,535 | $68,130,535 | | Other comprehensive income (loss) for the nine-month period ended September 30, 2022 | - | $2,008,101 | $2,008,101 | | Cash distributed from additional paid-in capital | - | $(37,446,370) | $(37,446,370) | | Legal reserve | $15,734,416 | $21,566,986 | $5,832,570 | | Special reserve | $8,164,648 | $4,914,214 | $(3,250,434) | - Non-controlling interests increased from **NT$157 million** (adjusted) at January 1, 2022, to **NT$379 million** at September 30, 2022, mainly due to net income attributable to non-controlling interests[16](index=16&type=chunk) [Unaudited Consolidated Statements of Cash Flows](index=8&type=section&id=UNAUDITED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) UMC generated substantial cash from operating activities in 9M 2022, while investing cash usage decreased and financing activities shifted to a net outflow due to bond redemptions and dividends Consolidated Statements of Cash Flows Highlights (NT$ Thousands) | Cash Flow Category | 9M 2022 | 9M 2021 | YoY Change (NT$ Thousands) | |:------------------------------------|:---------------|:---------------|:---------------------------| | Net cash provided by operating activities | $104,904,755 | $63,529,695 | $41,375,060 | | Net cash used in investing activities | $(18,382,680) | $(48,824,511) | $30,441,831 | | Net cash provided by (used in) financing activities | $(48,069,484) | $6,123,589 | $(54,193,073) | | Net increase in cash and cash equivalents | $48,027,009 | $19,056,824 | $28,970,185 | | Cash and cash equivalents at end of period | $180,649,140 | $113,104,860 | $67,544,280 | - The significant increase in cash from operating activities was driven by higher net income before tax and various income and expense adjustments[18](index=18&type=chunk) - Cash used in financing activities was primarily due to redemption of bonds (**NT$10.76 billion**) and cash dividends/distributions (**NT$37.45 billion**)[21](index=21&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=10&type=section&id=NOTES%20TO%20UNAUDITED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section provides detailed disclosures on UMC's accounting policies, significant accounts, financial instruments, risk management, and other relevant financial information [1. History and Organization](index=10&type=section&id=1.%20HISTORY%20AND%20ORGANIZATION) United Microelectronics Corporation (UMC) was established in May 1980 in R.O.C. and began operations in April 1982 as a semiconductor wafer foundry - UMC was incorporated in May 1980 and commenced operations in April 1982 as a full-service semiconductor wafer foundry[24](index=24&type=chunk) - UMC's ordinary shares are listed on the Taiwan Stock Exchange (TWSE) since July 1985, and its American Depositary Shares (ADSs) on the New York Stock Exchange (NYSE) since September 2000[24](index=24&type=chunk) [2. Date and Procedures of Authorization of Financial Statements for Issue](index=10&type=section&id=2.%20DATE%20AND%20PROCEDURES%20OF%20AUTHORIZATION%20OF%20FINANCIAL%20STATEMENTS%20FOR%20ISSUE) The consolidated financial statements were authorized for issue by a resolution of the Board of Directors' meeting on October 26, 2022 - The consolidated financial statements were authorized for issue by the Board of Directors on October 26, 2022[25](index=25&type=chunk) [3. Newly Issued or Revised Standards and Interpretations](index=10&type=section&id=3.%20NEWLY%20ISSUED%20OR%20REVISED%20STANDARDS%20AND%20INTERPRETATIONS) This section details the adoption of new or revised accounting standards and interpretations, including amendments to IAS 37, and evaluates the impact of other unadopted standards - The Company adopted amendments to IAS 37, 'Onerous Contracts - Cost of Fulfilling a Contract,' effective January 1, 2022[27](index=27&type=chunk)[380](index=380&type=chunk) Impact of IAS 37 Amendments (as of January 1, 2022, NT$ Million) | Item | Impact (NT$ Million) | |:--------------------------|:---------------------| | Increase in other current liabilities | $220 | | Decrease in retained earnings | $(154) | | Decrease in non-controlling interest | $(66) | - Standards issued by IASB but not yet adopted by the Company include amendments to IAS 1, IAS 8, IAS 12 (effective January 1, 2023), and IFRS 16 (effective January 1, 2024), as well as IFRS 10 and IAS 28 (effective date to be determined)[30](index=30&type=chunk)[31](index=31&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk)[383](index=383&type=chunk)[384](index=384&type=chunk)[385](index=385&type=chunk)[387](index=387&type=chunk)[388](index=388&type=chunk) - The Company is currently evaluating the potential impact of these unadopted standards on its financial position and performance[32](index=32&type=chunk)[38](index=38&type=chunk)[386](index=386&type=chunk)[392](index=392&type=chunk) [4. Summary of Significant Accounting Policies](index=13&type=section&id=4.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) The consolidated financial statements adhere to R.O.C. Securities Issuers' Regulations and IAS 34, prepared on a historical cost basis with fair value measurements for financial instruments - Consolidated financial statements are prepared in accordance with R.O.C. Regulations Governing the Preparation of Financial Reports by Securities Issuers and IAS 34[39](index=39&type=chunk)[393](index=393&type=chunk) - The statements are prepared on a historical cost basis, with exceptions for financial instruments measured at fair value[40](index=40&type=chunk)[394](index=394&type=chunk) - The principles of consolidation are consistent with those applied for the year ended December 31, 2021[41](index=41&type=chunk)[395](index=395&type=chunk) - The Company's consolidated entities include various subsidiaries involved in IC sales, marketing support, investment holding, venture capital, and manufacturing of integrated circuits, with UMC holding **100% ownership** in most direct subsidiaries[42](index=42&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk)[396](index=396&type=chunk)[397](index=397&type=chunk)[398](index=398&type=chunk)[399](index=399&type=chunk) [5. Significant Accounting Judgments, Estimates and Assumptions](index=16&type=section&id=5.%20SIGNIFICANT%20ACCOUNTING%20JUDGMENTS%2C%20ESTIMATES%20AND%20ASSUMPTIONS) The significant accounting judgments, estimates, and assumptions applied in the consolidated financial statements for 9M 2022 are consistent with those used for the year ended December 31, 2021 - Significant accounting judgments, estimates, and assumptions remain consistent with the prior year's consolidated financial statements (December 31, 2021)[47](index=47&type=chunk)[401](index=401&type=chunk) [6. Contents of Significant Accounts](index=17&type=section&id=6.%20CONTENTS%20OF%20SIGNIFICANT%20ACCOUNTS) This comprehensive section details the balances and movements of various significant accounts, including cash, financial assets, receivables, inventories, investments, property, plant and equipment, intangible assets, loans, bonds, equity, and operating results [6(1) Cash and Cash Equivalents](index=17&type=section&id=6(1)%20Cash%20and%20Cash%20Equivalents) Cash and cash equivalents significantly increased to **NT$180.65 billion** as of September 30, 2022, from **NT$132.62 billion** at December 31, 2021, primarily driven by a substantial rise in time deposits Cash and Cash Equivalents (NT$ Thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | |:----------------------------------------------------------|:---------------|:---------------|:---------------| | Cash on hand and petty cash | $5,784 | $5,684 | $5,976 | | Checking and savings accounts | 38,973,472 | 33,738,883 | 32,083,517 | | Time deposits | 133,821,549 | 88,876,572 | 70,906,502 | | Repurchase agreements collateralized by government bonds and corporate notes | 7,848,335 | 10,000,992 | 10,108,865 | | Total | $180,649,140 | $132,622,131 | $113,104,860 | - Time deposits saw a significant increase of **NT$44.94 billion** from December 31, 2021, to September 30, 2022[49](index=49&type=chunk)[403](index=403&type=chunk) [6(2) Financial Assets at Fair Value through Profit or Loss](index=17&type=section&id=6(2)%20Financial%20Assets%20at%20Fair%20Value%20through%20Profit%20or%20Loss) Total financial assets at fair value through profit or loss slightly decreased to **NT$19.34 billion** as of September 30, 2022, mainly due to a decrease in common stocks Financial Assets at Fair Value through Profit or Loss (NT$ Thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | |:-----------------|:---------------|:---------------|:---------------| | Common stocks | $10,488,811 | $13,289,438 | $11,175,964 | | Preferred stocks | 3,068,375 | 2,602,622 | 2,886,963 | | Funds | 5,469,630 | 3,862,932 | 3,671,038 | | Convertible bonds| 310,048 | 691,303 | 491,877 | | Total | $19,336,864 | $20,446,295 | $18,225,842 | | Current | $674,821 | $945,021 | $939,421 | | Non-current | 18,662,043 | 19,501,274 | 17,286,421 | - UMC's subsidiary, FORTUNE VENTURE CAPITAL CORP., exchanged shares with CHIPBOND TECHNOLOGY CORPORATION on November 5, 2021, obtaining **14 million** common shares[50](index=50&type=chunk)[404](index=404&type=chunk) [6(3) Financial Assets at Fair Value through Other Comprehensive Income](index=18&type=section&id=6(3)%20Financial%20Assets%20at%20Fair%20Value%20through%20Other%20Comprehensive%20Income) Total financial assets at fair value through other comprehensive income decreased to **NT$12.79 billion** as of September 30, 2022, primarily due to a decrease in common stocks, with dividend income of **NT$1.43 billion** Financial Assets at Fair Value through Other Comprehensive Income (NT$ Thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | |:-----------------|:---------------|:---------------|:---------------| | Common stocks | $12,622,827 | $19,683,806 | $13,519,470 | | Preferred stocks | 170,891 | 151,859 | 141,897 | | Total | $12,793,718 | $19,835,665 | $13,661,367 | | Current | $2,446,101 | $8,482,334 | $6,452,239 | | Non-current | 10,347,617 | 11,353,331 | 7,209,128 | Dividend Income from Equity Instruments (NT$ Thousands) | Period | 9M 2022 | 9M 2021 | |:---------------------------------------|:-------------|:-------------| | Held at end of period | $1,431,931 | $465,679 | | Derecognized during the period | - | - | | Total | $1,431,931 | $465,679 | - UMC exchanged shares with CHIPBOND on November 5, 2021, obtaining **53 million** common shares for strategic cooperation[52](index=52&type=chunk)[406](index=406&type=chunk) - UMC issued unsecured exchangeable bonds, allowing bondholders to exchange them for NOVATEK common shares, which are accounted for as equity instruments measured at fair value through other comprehensive income[54](index=54&type=chunk)[408](index=408&type=chunk) [6(4) Financial assets measured at amortized cost](index=19&type=section&id=6(4)%20Financial%20assets%20measured%20at%20amortized%20cost) Financial assets measured at amortized cost significantly decreased to **NT$912.38 million** as of September 30, 2022, primarily due to a large reduction in time deposits Financial Assets Measured at Amortized Cost (NT$ Thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | |:----------------------------------------------------|:-------------|:-------------|:-------------| | Time deposits with original maturities of over three months | $892,380 | $28,843,470 | $30,569,746 | | Bonds | 20,000 | 20,000 | - | | Total | $912,380 | $28,863,470 | $30,569,746 | | Current | $896,103 | $28,854,684 | $30,560,960 | | Non-current | 16,277 | 8,786 | 8,786 | - The substantial decrease in current financial assets measured at amortized cost is mainly attributed to the reduction in time deposits[56](index=56&type=chunk)[410](index=410&type=chunk) [6(5) Accounts Receivable, Net](index=19&type=section&id=6(5)%20Accounts%20Receivable%2C%20Net) Net accounts receivable increased to **NT$43.59 billion** as of September 30, 2022, with the majority not past due and a slight increase in loss allowance Accounts Receivable, Net (NT$ Thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | |:---------------------|:-------------|:-------------|:-------------| | Accounts receivable | $43,800,850 | $34,818,600 | $32,930,659 | | Less: loss allowance | (214,431) | (194,491) | (193,024) | | Net | $43,586,419 | $34,624,109 | $32,737,635 | Aging Analysis of Accounts Receivable (NT$ Thousands) | Aging Category | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | |:-----------------|:-------------|:-------------|:-------------| | Neither past due | $39,021,589 | $30,758,397 | $29,652,119 | | Past due: ≤ 30 days | 3,899,226 | 3,294,617 | 2,527,432 | | Past due: ≥ 121 days | 652,576 | 575,293 | 580,691 | Movement of Loss Allowance for Accounts Receivable (NT$ Thousands) | Period | 9M 2022 | 9M 2021 | |:------------------------------------------|:-----------|:-----------| | Beginning balance | $194,491 | $206,084 | | Net recognize (reversal) for the period | 19,940 | (13,060) | | Ending balance | $214,431 | $193,024 | - The expected credit loss rates for receivables past due within 60 days were not greater than **0.2%** for both 2022 and 2021 periods[60](index=60&type=chunk)[414](index=414&type=chunk) [6(6) Inventories, Net](index=20&type=section&id=6(6)%20Inventories%2C%20Net) Net inventories increased to **NT$30.10 billion** as of September 30, 2022, driven by increases in raw materials, supplies, and work in process Inventories, Net (NT$ Thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | |:-------------------------|:-------------|:-------------|:-------------| | Raw materials | $5,364,918 | $3,371,520 | $4,003,039 | | Supplies and spare parts | 7,298,158 | 5,106,770 | 4,776,513 | | Work in process | 16,409,826 | 14,043,143 | 13,793,221 | | Finished goods | 1,028,796 | 489,750 | 576,919 | | Total | $30,101,698 | $23,011,183 | $23,149,692 | - For the nine-month period ended September 30, 2022, operating costs related to inventories were **NT$109.27 billion**, including **NT$442 million** from reversal of write-down of inventories[61](index=61&type=chunk)[415](index=415&type=chunk) - For the nine-month period ended September 30, 2021, operating costs related to inventories were **NT$101.31 billion**, including **NT$412 million** from reversal of write-down of inventories[61](index=61&type=chunk)[415](index=415&type=chunk) [6(7) Investments Accounted for Under the Equity Method](index=21&type=section&id=6(7)%20Investments%20Accounted%20for%20Under%20the%20Equity%20Method) Investments accounted for under the equity method decreased to **NT$32.91 billion** as of September 30, 2022, with significant influence over listed and unlisted associates Investments Accounted for Under the Equity Method (NT$ Thousands) | Investee Company (Type) | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | Ownership (%) | |:------------------------|:-------------|:-------------|:-------------|:--------------| | FARADAY TECHNOLOGY CORP. (Listed) | $1,781,475 | $1,779,618 | $1,715,969 | 13.78% | | UNIMICRON TECHNOLOGY CORP. (Listed) | 12,642,854 | 10,418,777 | 9,790,131 | 13.27% | | HSUN CHIEH INVESTMENT CO., LTD. (Unlisted) | 8,726,089 | 14,092,662 | 13,378,381 | 36.49% | | YANN YUAN INVESTMENT CO., LTD. (Unlisted) | 6,793,743 | 9,741,234 | 8,710,349 | 26.78% | | Total | $32,909,670 | $41,692,084 | $38,321,811 | | - UMC accounts for investments in FARADAY and UNIMICRON as associates due to significant influence through Board representation[72](index=72&type=chunk)[426](index=426&type=chunk) Share of Profit/Loss and Comprehensive Income from Associates (NT$ Thousands) | Metric | 9M 2022 | 9M 2021 | |:----------------------------------------------|:-------------|:-------------| | Share of profit or loss of associates and joint ventures | $(3,557,052) | $6,003,910 | | Share of other comprehensive income (loss) of associates and joint ventures | $(3,503,477) | $2,237,570 | | Total comprehensive income (loss) | $(7,060,529) | $8,241,480 | - The fair value of listed equity method investments was **NT$27.63 billion** as of September 30, 2022, compared to a carrying amount of **NT$14.42 billion**[73](index=73&type=chunk)[427](index=427&type=chunk) [6(8) Property, Plant and Equipment](index=24&type=section&id=6(8)%20Property%2C%20Plant%20and%20Equipment) The net carrying amount of property, plant and equipment was **NT$147.28 billion** as of September 30, 2022, with **NT$45.11 billion** in additions during the nine-month period Net Carrying Amount of Property, Plant and Equipment (NT$ Thousands) | Category | Sep 30, 2022 | Sep 30, 2021 | |:----------------------------------------|:-------------|:-------------| | Assets Used by the Company | $147,281,709 | $123,708,498 | | Assets Subject to Operating Leases | $1,836,942 | $1,993,411 | - Additions to assets used by the Company amounted to **NT$45.11 billion** for the nine-month period ended September 30, 2022[435](index=435&type=chunk) Interest Expense Capitalized (NT$ Thousands) | Period | 9M 2022 | 9M 2021 | |:--------------------------------------|:--------|:--------| | Interest expense capitalized | $827 | $- | | Interest rates applied | 1.46%-1.61% | - | [6(9) Leases](index=27&type=section&id=6(9)%20Leases) Right-of-use assets totaled **NT$7.90 billion** as of September 30, 2022, with additions of **NT$1.09 billion**, and lease liabilities amounted to **NT$5.84 billion** Right-of-Use Assets, Net (NT$ Thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | |:--------------------------------|:-------------|:-------------|:-------------| | Land (including land use right) | $5,864,483 | $4,877,702 | $4,940,327 | | Buildings | 220,997 | 284,011 | 269,300 | | Machinery and equipment | 1,798,110 | 1,940,084 | 1,999,879 | | Transportation equipment | 15,606 | 18,704 | 21,505 | | Other equipment | 3,698 | 6,344 | 7,514 | | Net | $7,902,894 | $7,126,845 | $7,238,525 | - Additions to right-of-use assets amounted to **NT$1.09 billion** for the nine-month period ended September 30, 2022[447](index=447&type=chunk) Lease Liabilities (NT$ Thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | |:------------|:-------------|:-------------|:-------------| | Current | $559,355 | $557,873 | $549,414 | | Non-current | 5,283,862 | 4,510,881 | 4,621,991 | | Total | $5,843,217 | $5,068,754 | $5,171,405 | [6(10) Intangible Assets](index=29&type=section&id=6(10)%20Intangible%20Assets) The net carrying amount of intangible assets was **NT$4.20 billion** as of September 30, 2022, with **NT$2.46 billion** in additions, primarily software Net Carrying Amount of Intangible Assets (NT$ Thousands) | Category | Sep 30, 2022 | Sep 30, 2021 | |:--------------------------|:-------------|:-------------| | Goodwill | $7,614 | $7,614 | | Software | 2,749,140 | 2,285,221 | | Patents and technology license fees | 991,582 | 1,243,610 | | Others | 452,555 | 655,280 | | Total | $4,200,891 | $4,191,725 | - Additions to intangible assets for the nine-month period ended September 30, 2022, amounted to **NT$2.46 billion**, mainly in software[452](index=452&type=chunk) Amortization of Intangible Assets (NT$ Thousands) | Category | 9M 2022 | 9M 2021 | |:-----------------|:-------------|:-------------| | Operating costs | $1,008,714 | $607,019 | | Operating expenses | $1,036,174 | $1,515,334 | [6(11) Short-Term Loans](index=30&type=section&id=6(11)%20Short-Term%20Loans) Short-term loans significantly decreased to **NT$217.29 million** as of September 30, 2022, with interest rates ranging from 0.33% to 3.60% Short-Term Loans (NT$ Thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | |:-------------------|:-------------|:-------------|:-------------| | Unsecured bank loans | $217,285 | $1,924,124 | $2,134,625 | - Interest rates applied for short-term loans ranged from **0.33% to 3.60%** for the nine-month period ended September 30, 2022[457](index=457&type=chunk) [6(12) Financial Liabilities at Fair Value through Profit or Loss, Current](index=31&type=section&id=6(12)%20Financial%20Liabilities%20at%20Fair%20Value%20through%20Profit%20or%20Loss%2C%20Current) Current financial liabilities at fair value through profit or loss decreased substantially to **NT$313.38 million** as of September 30, 2022, mainly due to embedded derivatives Financial Liabilities at Fair Value through Profit or Loss, Current (NT$ Thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | |:---------------------------------------------|:-------------|:-------------|:-------------| | Embedded derivatives in exchangeable bonds | $313,377 | $2,380,599 | $1,417,422 | | Forward contracts | - | - | 8,350 | | Total | $313,377 | $2,380,599 | $1,425,772 | - The decrease is mainly attributed to the change in valuation of embedded derivatives in exchangeable bonds[458](index=458&type=chunk) [6(13) Bonds Payable](index=31&type=section&id=6(13)%20Bonds%20Payable) Net bonds payable remained stable at **NT$23.08 billion** as of September 30, 2022, following the repurchase and cancellation of **US$166.5 million** in exchangeable bonds Bonds Payable, Net (NT$ Thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | |:----------------------------------------------|:-------------|:-------------|:-------------| | Unsecured domestic bonds payable | $25,100,000 | $31,300,000 | $26,300,000 | | Unsecured exchangeable bonds payable | 6,314,451 | 10,817,047 | 10,817,047 | | Less: Discounts on bonds payable | (785,523) | (1,580,389) | (1,654,536) | | Total | 30,628,928 | 40,536,658 | 35,462,511 | | Less: Current or exchangeable portion due within one year | (7,547,302) | (17,458,959) | (15,379,660) | | Net | $23,081,626 | $23,077,699 | $20,082,851 | - UMC issued SGX-ST listed currency-linked zero coupon exchangeable bonds in July 2021, with an issue amount of **US$400 million** and a maturity date of July 7, 2026[463](index=463&type=chunk) - During the nine-month period ended September 30, 2022, the Company repurchased and cancelled **US$166.5 million** of outstanding exchangeable bonds[467](index=467&type=chunk) [6(14) Long-Term Loans](index=35&type=section&id=6(14)%20Long-Term%20Loans) Net long-term loans increased to **NT$23.06 billion** as of September 30, 2022, with interest rates ranging from 0.86% to 4.66% Long-Term Loans, Net (NT$ Thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | |:--------------------|:-------------|:-------------|:-------------| | Subtotal | $27,491,188 | $36,624,907 | $37,754,537 | | Less: Current portion | (4,427,860) | (19,873,011) | (6,748,436) | | Total | $23,063,328 | $16,751,896 | $31,006,101 | - Interest rates applied for long-term loans ranged from **0.86% to 4.66%** for the nine-month period ended September 30, 2022[471](index=471&type=chunk) - UMC has various revolving credit lines with banks, with unused lines of credit ranging from **NT$0.3 billion** to **NT$3.4 billion** as of September 30, 2022[474](index=474&type=chunk)[475](index=475&type=chunk)[476](index=476&type=chunk)[478](index=478&type=chunk)[479](index=479&type=chunk) [6(15) Post-Employment Benefits](index=39&type=section&id=6(15)%20Post-Employment%20Benefits) Total pension expenses for 9M 2022 were **NT$1.41 billion** for defined contribution and **NT$25 million** for defined benefit plans - For the defined contribution plan, UMC and its domestic subsidiaries contribute **6%** of each employee's salary monthly[479](index=479&type=chunk) Total Pension Expenses (NT$ Thousands) | Plan Type | 9M 2022 | 9M 2021 | |:----------------------|:-------------|:-------------| | Defined contribution | $1,413,000 | $1,221,000 | | Defined benefit | $25,000 | $17,000 | - For the defined benefit plan, UMC contributes **2%** of employees' total salaries and wages monthly to a pension fund managed by government-designated authorities[481](index=481&type=chunk) [6(16) Deferred Government Grants](index=40&type=section&id=6(16)%20Deferred%20Government%20Grants) Deferred government grants decreased to **NT$5.69 billion** as of September 30, 2022, and are amortized as income over the useful lives of related equipment Deferred Government Grants (NT$ Thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | |:---------------------------------------|:-------------|:-------------|:-------------| | Beginning balance | $8,543,798 | $10,207,109 | $10,207,109 | | Arising during the period | 112,055 | 2,498,990 | 2,466,153 | | Recorded in profit or loss: Other operating income | (3,184,168) | (4,069,055) | (3,027,832) | | Exchange effect | 216,416 | (93,246) | (170,530) | | Ending balance | $5,688,101 | $8,543,798 | $9,474,900 | | Current (classified under other current liabilities) | $3,266,874 | $4,096,742 | $4,136,795 | | Non-current (classified under other noncurrent liabilities-others) | 2,421,227 | 4,447,056 | 5,338,105 | - Government grants related to equipment acquisitions are amortized as income over the useful lives of the related equipment[482](index=482&type=chunk) [6(17) Refund Liabilities](index=41&type=section&id=6(17)%20Refund%20Liabilities) Refund liabilities, classified under other current liabilities, amounted to **NT$778.46 million** as of September 30, 2022 Refund Liabilities (NT$ Thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | |:-----------------|:-------------|:-------------|:-------------| | Refund liabilities | $778,463 | $724,207 | $832,031 | [6(18) Decommissioning liabilities](index=41&type=section&id=6(18)%20Decommissioning%20liabilities) Decommissioning liabilities were recognized at **NT$336.97 million** as of September 30, 2022, for dismantling and restoration costs Decommissioning Liabilities (NT$ Thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | |:-------------------------|:-------------|:-------------|:-------------| | Decommissioning liabilities | $336,966 | $- | $- | - The Company recognized decommissioning liabilities for the present value of estimated dismantling and restoration costs during the nine-month period ended September 30, 2022[485](index=485&type=chunk) [6(19) Equity](index=41&type=section&id=6(19)%20Equity) UMC's capital stock consists of **12.48 billion** issued common shares, with **140 million** ADSs traded on the NYSE, and retained earnings policies prioritize various distributions - UMC had **26 billion** common shares authorized and **12.48 billion** shares issued as of September 30, 2022, each with a par value of **NT$10**[486](index=486&type=chunk) - As of September 30, 2022, **140 million** ADSs were traded on the NYSE, representing **698 million** common shares (1 ADS = 5 common shares)[486](index=486&type=chunk) - UMC issued **1 million** restricted stocks for employees in June 2021 and has recalled/cancelled restricted stocks in April 2021, November 2021, and March 2022[487](index=487&type=chunk)[488](index=488&type=chunk) - On September 3, 2021, UMC approved a share exchange with CHIPBOND, issuing **61 million** common shares for **53 million** newly issued CHIPBOND common shares[488](index=488&type=chunk) Appropriation of Earnings (NT$ Thousands) | Item | 2021 | 2020 | |:----------------|:-------------|:-------------| | Legal reserve | $5,832,570 | $3,197,890 | | Special reserve | (3,250,434) | (2,857,666) | | Cash dividends | - | 19,875,842 | - The shareholders' meeting on May 27, 2022, approved a cash distribution from additional paid-in capital of **NT$37.45 billion** (**NT$3 per share**)[493](index=493&type=chunk) [6(20) Share-Based Payment](index=44&type=section&id=6(20)%20Share-Based%20Payment) Total compensation costs for share-based payments were **NT$1.12 billion** for restricted stock and **NT$170 million** for stock appreciation rights in 9M 2022 - In September 2020, UMC offered **105 million** shares of treasury stock to employees, with compensation costs recognized at fair value[496](index=496&type=chunk) - Shareholders approved a restricted stock plan in May 2022 to issue up to **50 million** common shares to employees without consideration, vesting over four years based on service and performance conditions[497](index=497&type=chunk) Compensation Costs for Share-Based Payments (9M, NT$ Thousands) | Plan Type | 9M 2022 | 9M 2021 | |:------------------------------|:-------------|:-------------| | Restricted stock plan | $1,117,000 | $1,134,000 | | Stock appreciation right plan | $170,000 | $205,000 | - The cash-settled stock appreciation right plan grants employees rights to the intrinsic value of UMC common shares, with compensation costs measured at fair value using the Black-Scholes Option Pricing Model[501](index=501&type=chunk)[503](index=503&type=chunk) [6(21) Operating Revenues](index=46&type=section&id=6(21)%20Operating%20Revenues) Operating revenues for 9M 2022 increased to **NT$210.87 billion**, primarily from wafer sales, with Taiwan, Singapore, and China as major geographic contributors Operating Revenues by Product (NT$ Thousands) | Product | 9M 2022 | 9M 2021 | |:--------|:---------------|:---------------| | Wafer | $202,364,060 | $147,874,101 | | Others | 8,505,489 | 6,037,329 | | Total | $210,869,549 | $153,911,430 | Operating Revenues by Geography (9M 2022, NT$ Thousands) | Region | 9M 2022 | 9M 2021 | |:---------------------------|:---------------|:---------------| | Taiwan | $73,215,198 | $57,538,173 | | Singapore | 28,638,192 | 21,501,077 | | China (includes Hong Kong) | 35,024,280 | 22,124,839 | | Japan | 12,912,201 | 10,110,553 | | USA | 24,755,406 | 17,834,727 | | Europe | 6,306,530 | 4,121,772 | | Others | 30,017,742 | 20,680,289 | | Total | $210,869,549 | $153,911,430 | Operating Revenues by Timing of Recognition (NT$ Thousands) | Timing of Revenue Recognition | 9M 2022 | 9M 2021 | |:------------------------------|:---------------|:---------------| | At a point in time | $208,896,833 | $152,495,014 | | Over time | 1,972,716 | 1,416,416 | | Total | $210,869,549 | $153,911,430 | - Contract assets, net, increased to **NT$384.06 million** as of September 30, 2022, from **NT$319.62 million** at December 31, 2021[508](index=508&type=chunk) - Contract liabilities increased to **NT$4.83 billion** as of September 30, 2022, from **NT$4.08 billion** at December 31, 2021[509](index=509&type=chunk) [6(22) Operating Costs and Expenses](index=49&type=section&id=6(22)%20Operating%20Costs%20and%20Expenses) Total employee benefit expenses increased to **NT$36.18 billion** in 9M 2022, with depreciation and amortization expenses totaling **NT$31.33 billion** and **NT$2.16 billion**, respectively Employee Benefit Expenses (9M, NT$ Thousands) | Category | Operating costs (2022) | Operating expenses (2022) | Total (2022) | Operating costs (2021) | Operating expenses (2021) | Total (2021) | |:------------------------------|:-----------------------|:--------------------------|:-------------|:-----------------------|:--------------------------|:-------------| | Salaries | $22,466,502 | $10,491,518 | $32,958,020 | $17,181,506 | $8,565,319 | $25,746,825 | | Labor and health insurance | 1,045,579 | 363,791 | 1,409,370 | 892,549 | 355,072 | 1,247,621 | | Pension | 1,120,567 | 318,292 | 1,438,859 | 937,769 | 300,218 | 1,237,987 | | Other employee benefit expenses | 259,322 | 112,285 | 371,607 | 205,603 | 84,123 | 289,726 | | Total Employee Benefits | $24,891,970 | $11,285,486 | $36,177,856 | $19,217,427 | $9,304,732 | $28,522,159 | Depreciation and Amortization Expenses (9M, NT$ Thousands) | Category | Operating costs (2022) | Operating expenses (2022) | Total (2022) | Operating costs (2021) | Operating expenses (2021) | Total (2021) | |:-------------|:-----------------------|:--------------------------|:-------------|:-----------------------|:--------------------------|:-------------| | Depreciation | $29,992,188 | $1,339,357 | $31,331,545 | $31,483,928 | $1,423,580 | $32,907,508 | | Amortization | 1,112,216 | 1,043,723 | 2,155,939 | 630,632 | 1,518,049 | 2,148,681 | - UMC's Articles of Incorporation mandate allocating no less than **5%** of profit as employees' compensation and no more than **0.2%** as directors' compensation[515](index=515&type=chunk) Employees' and Directors' Compensation (NT$ Thousands) | Compensation Type | 2021 | 2020 | |:--------------------------|:-------------|:-------------| | Employees' compensation – Cash | $4,770,909 | $2,581,675 | | Directors' compensation | 25,264 | 32,369 | [6(23) Net Other Operating Income and Expenses](index=51&type=section&id=6(23)%20Net%20Other%20Operating%20Income%20and%20Expenses) Net other operating income and expenses increased slightly to **NT$4.03 billion** in 9M 2022, driven by government grants and gains on asset disposal Net Other Operating Income and Expenses (NT$ Thousands) | Category | 9M 2022 | 9M 2021 | |:------------------------------------------|:-------------|:-------------| | Government grants | $3,736,949 | $3,947,701 | | Rental income from property, plant and equipment | 141,026 | 141,485 | | Gain on disposal of property, plant and equipment | 441,140 | 71,404 | | Others | (290,515) | (267,764) | | Total | $4,028,600 | $3,892,826 | - Government grants were the largest component of other operating income, contributing **NT$3.74 billion** in 9M 2022[518](index=518&type=chunk) [6(24) Non-Operating Income and Expenses](index=51&type=section&id=6(24)%20Non-Operating%20Income%20and%20Expenses) Non-operating income and expenses resulted in a net loss of **NT$830.07 million** in 9M 2022, a significant shift from a prior-year gain, primarily due to financial asset valuation losses Other Gains and Losses (NT$ Thousands) | Category | 9M 2022 | 9M 2021 | |:----------------------------------------------------------------------|:-------------|:-------------| | Gain (loss) on valuation of financial assets and liabilities at fair value through profit or loss | $(896,807) | $2,987,600 | | Loss on disposal of investments | - | (10,977) | | Others | 66,738 | 79,543 | | Total | $(830,069) | $3,056,166 | Finance Costs (NT$ Thousands) | Category | 9M 2022 | 9M 2021 | |:-------------------|:-------------|:-------------| | Interest expenses | | | | Bonds payable | $386,387 | $286,468 | | Bank loans | 832,672 | 974,247 | | Lease liabilities | 122,082 | 110,236 | | Others | 27,789 | 113 | | Financial expenses | 64,868 | 84,333 | | Total | $1,433,798 | $1,455,397 | [6(25) Components of Other Comprehensive Income (Loss)](index=52&type=section&id=6(25)%20Components%20of%20Other%20Comprehensive%20Income%20(Loss)) Total other comprehensive income was a gain of **NT$2.01 billion** in 9M 2022, influenced by large exchange differences on foreign operations translation Components of Other Comprehensive Income (Loss) (9M, NT$ Thousands) | Category | 9M 2022 | 9M 2021 | |:------------------------------------------------------------------------------------------------------|:---------------|:---------------| | Unrealized gains or losses from equity instruments investments measured at fair value through other comprehensive income | $(7,041,947) | $3,135,224 | | Share of other comprehensive income (loss) of associates and joint ventures (not reclassified) | $(3,558,905) | $2,259,582 | | Exchange differences on translation of foreign operations | 12,755,060 | $(4,002,655) | | Share of other comprehensive income (loss) of associates and joint ventures (may be reclassified) | 166,724 | (44,344) | | Total other comprehensive income (loss) (before tax) | $2,320,932 | $1,347,807 | | Income tax effect | $(312,742) | $(96,794) |\ | Total other comprehensive income (loss) (net of tax) | $2,008,190 | $1,251,013 | - A significant positive impact came from exchange differences on translation of foreign operations, which shifted from a loss of **NT$4.00 billion** in 9M 2021 to a gain of **NT$12.76 billion** in 9M 2022[526](index=526&type=chunk)[527](index=527&type=chunk) [6(26) Income Tax](index=55&type=section&id=6(26)%20Income%20Tax) Income tax expense significantly increased to **NT$12.67 billion** in 9M 2022, primarily due to higher current income tax charges Income Tax Expense Recorded in Profit or Loss (9M, NT$ Thousands) | Category | 9M 2022 | 9M 2021 | |:----------------------------------------------------------------------|:---------------|:---------------| | Current income tax charge | $12,987,039 | $3,457,508 | | Adjustments in respect of current income tax of prior periods | (585,806) | 86,308 | | Deferred income tax related to origination and reversal of temporary differences | 216,636 | 302,888 | | Deferred income tax related to recognition and derecognition of tax losses and unused tax credits | 60,651 | 1,000,917 | | Adjustment of prior year's deferred income tax | 8,264 | (308,116) | | Deferred income tax arising from write-down or reversal of write-down of deferred tax assets | (14,117) | (17,647) | | Income tax expense recorded in profit or loss | $12,672,667 | $4,521,858 | Deferred Income Tax Related to Other Comprehensive Income (Loss) (9M, NT$ Thousands) | Category | 9M 2022 | 9M 2021 | |:------------------------------------------------------------------------------------------------------|:-------------|:-------------| | Unrealized gains or losses from equity instruments investments measured at fair value through other comprehensive income | $(190,740) | $(117,822) | | Exchange differences on translation of foreign operations | $(99,743) | $16,638 | | Share of other comprehensive income (loss) of associates and joint ventures (may be reclassified) | $(22,259) | 4,390 |\ | Total income tax related to items that may be reclassified subsequently to profit or loss | $(122,002) | $21,028 | - UMC's Singapore branch received two tax incentives from the Singapore government, providing tax-exempt or concessionary tax rates for five years from August 2020 to July 2025[534](index=534&type=chunk) [6(27) Earnings Per Share](index=57&type=section&id=6(27)%20Earnings%20Per%20Share) Basic earnings per share increased to **NT$5.54** and diluted EPS to **NT$5.38** for 9M 2022, reflecting higher net income attributable to the parent company Earnings Per Share (NTD) | Metric | 9M 2022 | 9M 2021 | |:--------------------------------------------------------------------|:-------------|:-------------| | Net income attributable to the parent company | $68,130,535 | $39,831,225 | | Weighted-average number of ordinary shares for basic EPS (thousand shares) | 12,290,906 | 12,206,293 | | Earnings per share-basic | $5.54 | $3.26 | | Weighted-average number of ordinary shares after dilution (thousand shares) | 12,657,611 | 12,415,993 | | Earnings per share-diluted | $5.38 | $3.21 | - The increase in both basic and diluted EPS is primarily driven by the higher net income attributable to the parent company[538](index=538&type=chunk)[539](index=539&type=chunk) [6(28) Reconciliation of Liabilities Arising from Financing Activities](index=59&type=section&id=6(28)%20Reconciliation%20of%20Liabilities%20Arising%20from%20Financing%20Activities) Total liabilities from financing activities increased to **NT$175.24 billion** as of September 30, 2022, mainly due to increases in guarantee deposits and other financial liabilities Reconciliation of Liabilities from Financing Activities (NT$ Thousands) | Item | Jan 1, 2022 | Cash Flows | Non-cash changes (Foreign exchange) | Others (Note A) | Sep 30, 2022 | |:------------------------------------------|:---------------|:---------------|:------------------------------------|:----------------|:---------------| | Short-term loans | $1,924,124 | $(1,759,376) | $52,537 | $- | $217,285 | | Long-term loans (current portion included) | 36,624,907 | (10,940,671) | 1,806,952 | - | 27,491,188 | | Bonds payable (current portion included) | 40,536,658 | (10,763,239) | - | 855,509 | 30,628,928 | | Guarantee deposits (current portion included) | 14,369,769 | 15,374,267 | 2,202,442 | - | 31,946,478 | | Lease liabilities | 5,068,754 | (538,134) | 98,151 | 1,214,446 | 5,843,217 | | Other financial liabilities | 20,966,209 | - | 620,509 | 137,282 | 21,724,000 | - Guarantee deposits saw a substantial increase of **NT$17.58 billion**, primarily due to deposits for capacity reservation[541](index=541&type=chunk)[543](index=543&type=chunk) - Bonds payable decreased due to cash outflows from redemptions, while long-term loans also decreased due to repayments[541](index=541&type=chunk) [7. Related Party Transactions](index=60&type=section&id=7.%20RELATED%20PARTY%20TRANSACTIONS) Operating revenues from related parties significantly increased to **NT$4.84 billion** in 9M 2022, with key management personnel compensation also rising substantially - Related parties include FARADAY TECHNOLOGY CORP., UNIMICRON TECHNOLOGY CORP. (associates), SILICON INTEGRATED SYSTEMS CORP. (Company's director), and PHOTRONICS DNP MASK CORPORATION (other related party)[545](index=545&type=chunk) Operating Revenues from Related Parties (NT$ Thousands) | Category | 9M 2022 | 9M 2021 | |:-----------|:-------------|:-------------| | Associates | $4,797,869 | $1,797,271 | | Others | 39,399 | 25,762 | | Total | $4,837,268 | $1,823,033 | Key Management Personnel Compensation (NT$ Thousands) | Category | 9M 2022 | 9M 2021 | |:-------------------------|:-------------|:-------------| | Short-term employee benefits | $1,365,232 | $487,587 | | Post-employment benefits | 2,092 | 1,525 | | Share-based payment | 678,549 | 868,946 | | Others | 487 | 433 | | Total | $2,046,360 | $1,358,491 | - Accounts receivable from related parties, net, increased to **NT$1.26 billion** as of September 30, 2022, from **NT$566.34 million** at December 31, 2021[548](index=548&type=chunk) [8. Assets Pledged as Collateral](index=63&type=section&id=8.%20ASSETS%20PLEDGED%20AS%20COLLATERAL) As of September 30, 2022, assets totaling **NT$24.83 billion** were pledged as collateral for various guarantees and loans Assets Pledged as Collateral (NT$ Thousands) | Asset Category | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | |:---------------------------|:-------------|:-------------|:-------------| | Refundable Deposits | $2,469,352 | $2,224,483 | $2,223,807 | | Buildings | 4,964,508 | 5,014,814 | 5,032,554 | | Machinery and equipment | 16,803,294 | 25,189,533 | 27,900,685 | | Transportation equipment | 815 | 1,802 | 2,119 | | Furniture and fixtures | 75,458 | 161,604 | 189,324 | | Right-of-use assets | 284,037 | 280,697 | 280,319 | | Total | $24,832,227 | $32,899,544 | $35,658,908 | - The pledged assets serve various purposes, including customs duty guarantees, collateral for land/dormitory leases, bank performance guarantees, letters of credit, and long-term loans[557](index=557&type=chunk)[559](index=559&type=chunk)[560](index=560&type=chunk) [9. Significant Contingencies and Unrecognized Contract Commitments](index=65&type=section&id=9.%20SIGNIFICANT%20CONTINGENCIES%20AND%20UNRECOGNIZED%20CONTRACT%20COMMITMENTS) UMC has significant contingencies including unused letters of credit (**NT$0.8 billion**), performance guarantees (**NT$1.8 billion**), and construction contracts (**NT$24.9 billion** unrecognized portion) - As of September 30, 2022, unused letters of credit for importing machinery and equipment amounted to **NT$0.8 billion**[561](index=561&type=chunk) - The Company has performance guarantees totaling **NT$1.8 billion**, mainly for litigations and customs tax[561](index=561&type=chunk) - Unrecognized royalties and development fees from patent license and intellectual property development contracts amounted to **NT$1.2 billion** as of September 30, 2022[561](index=561&type=chunk) - Unrecognized portions of construction contracts for operational expansion totaled approximately **NT$24.9 billion** as of September 30, 2022[561](index=561&type=chunk) - UMC settled legal proceedings with MICRON TECHNOLOGY, INC. regarding trade secrets in November 2021, resulting in a **NT$20 million** fine and no material financial or operational effect[566](index=566&type=chunk)[567](index=567&type=chunk)[568](index=568&type=chunk)[569](index=569&type=chunk) - UMC has a financial liability for purchasing other investors' stakes in UNITED SEMICONDUCTOR (XIAMEN) CO., LTD. (USCXM) for **RMB 4.9 billion**, starting from 2022[563](index=563&type=chunk) [10. Significant Disaster Loss](index=67&type=section&id=10.%20SIGNIFICANT%20DISASTER%20LOSS) There were no significant disaster losses reported for the periods presented - No significant disaster losses were reported[570](index=570&type=chunk) [11. Significant Subsequent Events](index=67&type=section&id=11.%20SIGNIFICANT%20SUBSEQUENT%20EVENTS) There were no significant subsequent events reported after the reporting period - No significant subsequent events were reported[570](index=570&type=chunk) [12. Others](index=67&type=section&id=12.%20OTHERS) This section provides details on the Company's financial instruments, risk management objectives and policies, and capital management, including market, credit, and liquidity risks [12(1) Categories of financial instruments](index=67&type=section&id=12(1)%20Categories%20of%20financial%20instruments) Total financial assets amounted to **NT$264.96 billion** and total financial liabilities were **NT$174.36 billion** as of September 30, 2022 Categories of Financial Instruments (NT$ Thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | Sep 30, 2021 | |:----------------------------------------------------------|:---------------|:---------------|:---------------| | **Financial Assets** | | | | | Financial assets at fair value through profit or loss | $19,336,864 | $20,446,295 | $18,225,842 | | Financial assets at fair value through other comprehensive income | 12,793,718 | 19,835,665 | 13,661,367 | | Financial assets measured at amortized cost (Cash and cash equivalents excluded) | 180,643,356 | 132,616,447 | 113,098,884 | | Receivables | 46,457,303 | 36,047,680 | 34,120,512 | | Refundable deposits | 2,757,248 | 2,358,549 | 2,410,884 | | Other financial assets | 2,969,600 | 28,863,470 | 30,639,713 | | **Total Financial Assets** | $264,958,089 | $240,168,106 | $212,157,202 | | **Financial Liabilities** | | | | | Financial liabilities at fair value through profit or loss | $313,377 | $2,380,599 | $1,425,772 | | Financial liabilities measured at amortized cost | | | | | Short-term loans | 217,285 | 1,924,124 | 2,134,625 | | Payables | 56,195,305 | 37,657,300 | 34,116,095 | | Guarantee deposits (current portion included) | 31,946,478 | 14,369,769 | 11,556,560 | | Bonds payable (current portion included) | 30,628,928 | 40,536,658 | 35,462,511 | | Long-term loans (current portion included) | 27,491,188 | 36,624,907 | 37,754,537 | | Lease liabilities | 5,843,217 | 5,068,754 | 5,171,405 | | Other financial liabilities | 21,724,000 | 20,966,209 | 20,683,185 | | **Total Financial Liabilities** | $174,359,778 | $159,528,320 | $148,304,690 | [12(2) Financial risk management objectives and policies](index=68&type=section&id=12(2)%20Financial%20risk%20management%20objectives%20and%20policies) The Company's financial risk management aims to manage market, credit, and liquidity risks through established policies, procedures, and internal controls - The Company's risk management objectives are to manage market risk, credit risk, and liquidity risk related to its operating activities[572](index=572&type=chunk) - Financial risk management involves established policies, procedures, and internal controls, with significant activities requiring Board and Audit Committee approval[572](index=572&type=chunk) [12(3) Market risk](index=68&type=section&id=12(3)%20Market%20risk) UMC is exposed to market risks including foreign currency, interest rate, and equity price risks, managed through natural hedges and financial instruments - Market risk includes currency risk, interest rate risk, and other price risk (e.g., equity price risk)[573](index=573&type=chunk) - Foreign currency risk is managed using natural hedges and spot/forward exchange contracts, with net investments in foreign subsidiaries not hedged[574](index=574&type=chunk) Foreign Currency Sensitivity Analysis (9M, NT$ Millions) | Currency | 10% Change in Exchange Rate | 9M 2022 Profit Impact | 9M 2021 Profit Impact | |:---------|:----------------------------|:----------------------|:----------------------| | USD | Strengthens/Weakens | Decrease/Increase by $455 | Decrease/Increase by $1,284 | | RMB | Strengthens/Weakens | Decrease/Increase by $405 | Increase/Decrease by $723 | | JPY | Strengthens/Weakens | Decrease/Increase by

Financial Data and Key Metrics Changes - In Q3 2022, consolidated revenue was TWD 75.39 billion, with a gross margin of 47.3% and net income attributable to shareholders of TWD 27 billion, resulting in earnings per share (EPS) of TWD 2.19, a significant increase from TWD 1.74 in the previous quarter [6][7] - Revenue grew by 4.6% sequentially, and the gross margin rate was 47%, translating to TWD 35.66 billion in absolute terms [6][7] - For the first three quarters of 2022, cumulative revenue increased by 37%, with a gross margin rate of approximately 45.8% [7][8] Business Line Data and Key Metrics Changes - The revenue percentage from the Asian market declined from 55% in the previous quarter to 52% in Q3 2022, while the IDM segment outperformed fabless, contributing about 17% of total revenue [8][9] - The 22/20 nanometer segment reached 25% of total revenue for the first time, driven by increased capacity from the P5 facility [9] Market Data and Key Metrics Changes - The automotive segment showed continuous double-digit growth, while consumer segments like PC and smartphone experienced prolonged inventory corrections [30][31] - The overall wafer shipment and average selling price (ASP) remained stable, with ASP expected to stay flat in Q4 2022 [10][12] Company Strategy and Development Direction - The company revised its 2022 capital expenditures down to USD 3 billion, focusing on capacity expansion in Tainan and Singapore to meet long-term supply commitments [12][13] - UMC aims to strengthen its position in the automotive and industrial segments while continuing to innovate in technology to capture growth opportunities in 5G, AIoT, and other markets [10][12] Management's Comments on Operating Environment and Future Outlook - Management acknowledged headwinds from demand weakness due to inflation and geopolitical factors, indicating that the semiconductor industry is expected to decline in 2023 [11][19] - Despite the challenges, UMC remains committed to its long-term growth strategy, focusing on technology differentiation and maintaining strong customer relationships [12][36] Other Important Information - The company plans to maintain its cash dividend policy, having paid out TWD 3 per share in Q3 2022, with cash on hand around TWD 180 billion post-dividend [8] - UMC is closely monitoring geopolitical risks and U.S. export controls, which have had limited impact on its operations so far [39][40] Q&A Session Summary Question: Outlook for Q4 and inventory correction - Management indicated that the consumer segment, particularly PC and smartphone, is undergoing a prolonged inventory correction, while the automotive segment remains stable [16][17] Question: CapEx reduction implications - The reduction in CapEx from USD 3.6 billion to USD 3 billion was due to equipment delays and a need to reprioritize projects amid market downturns [23][24] Question: Pricing strategy during downturn - Management emphasized that pricing strategies will reflect technology leadership and long-term partnerships, with limited changes expected unless significant market benefits arise [36][37] Question: Geopolitical risks and market share - UMC is monitoring geopolitical developments closely, with limited immediate impact on order flows, but remains open to potential opportunities arising from market shifts [39][40] Question: Automotive and industrial segment stability - The automotive segment is expected to remain stable, with ongoing collaboration with both IDM and fabless customers to expand business [42] Question: LTA commitments and capacity adjustments - Management confirmed that LTA commitments remain strong, and adjustments will be made to align with market conditions while fulfilling obligations [45][51]

United Microelectronics Corporation (NYSE:UMC) Q2 2022 Earnings Conference Call July 27, 2022 5:00 AM ET Company Participants Michael Lin - Head of Investor Relations Jason Wang - President Qi Dong Liu - Chief Financial Officer Conference Call Participants Randy Abrams - Credit Suisse Brett Simpson - Arete Research Laura Chen - Citigroup Szeho Ng - China Renaissance Sunny Lin - UBS Charlie Chan - Morgan Stanley Gokul Hariharan - JPMorgan Frank Lee - HSBC Operator Welcome everyone to UMC's 2022 Second Quarte ...

PART I [ITEM 3 KEY INFORMATION](index=7&type=section&id=ITEM%203%20KEY%20INFORMATION) [Risk Factors](index=7&type=section&id=D.%20Risk%20Factors) The company faces risks from industry cyclicality, customer concentration, manufacturing complexity, and geopolitical tensions - The company identifies the **cyclical nature of the semiconductor industry**, periodic overcapacity, and vulnerability to economic downturns as significant risks to its business[21](index=21&type=chunk) - A significant portion of revenue comes from a small number of customers; in 2021, the top ten customers accounted for **54.5% of operating revenues**, making the company vulnerable to the loss of any key customer[41](index=41&type=chunk) - Substantial political risks are associated with operations in Taiwan, particularly due to the **tense relationship with the People's Republic of China (PRC)**, which could negatively affect business and investment value[73](index=73&type=chunk)[74](index=74&type=chunk) - The ability to deposit common shares into the ADS program is **restricted by R.O.C. law**, which may adversely affect the liquidity and price of the ADSs and cause a divergence from the common share price on the Taiwan Stock Exchange[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk) [ITEM 4 INFORMATION ON THE COMPANY](index=22&type=section&id=ITEM%204%20INFORMATION%20ON%20THE%20COMPANY) [History and Development of the Company](index=22&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) UMC operates a customer-driven foundry model, expanding its global footprint through strategic acquisitions and partnerships Wafer Sales by Application (2019-2021) | Application | 2019 % | 2020 % | 2021 % | | :--- | :--- | :--- | :--- | | Communication | 52.2 | 52.1 | 46.2 | | Consumer | 26.4 | 24.3 | 26.6 | | Computer | 13.6 | 13.9 | 16.7 | | Others | 7.8 | 9.7 | 10.5 | | **Total** | **100.0** | **100.0** | **100.0** | - The company's strategy focuses on a **customer-driven, partnership-based business model** to create a network of alliances among IDMs, IP/design houses, and foundries, aiming for synergistic growth[118](index=118&type=chunk)[120](index=120&type=chunk) - Strategic expansion includes the 2019 acquisition of the remaining 84.1% of Mie Fujitsu Semiconductor (now USJC) in Japan and the establishment of USCXM in Xiamen, China, to **bolster 12-inch wafer capacity** for advanced nodes[111](index=111&type=chunk)[112](index=112&type=chunk) - In September 2021, UMC entered into a strategic share exchange with Chipbond Technology Corporation, resulting in UMC and its subsidiary FORTUNE jointly holding approximately **9.09% of Chipbond's equity**[117](index=117&type=chunk) [Business Overview](index=26&type=section&id=B.%20Business%20Overview) The company operates global manufacturing facilities, achieving high capacity utilization while facing intense industry competition Capacity and Utilization (in thousands of 8-inch wafer equivalents) | Metric | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Total Estimated Capacity | 8,148 | 9,188 | 9,453 | | Total Output (Actual) | 7,227 | 8,902 | 9,871 | | Average Capacity Utilization | 88.7% | 96.9% | 104.4% | Geographic Breakdown of Operating Revenues (by Customer Location) | Region | 2019 % | 2020 % | 2021 % | | :--- | :--- | :--- | :--- | | Taiwan | 36.4 | 36.8 | 37.9 | | Singapore | 16.2 | 14.7 | 13.7 | | China (incl. Hong Kong) | 12.9 | 12.8 | 14.6 | | USA | 13.5 | 13.9 | 11.4 | | Japan | 6.6 | 8.7 | 6.4 | | Europe | 4.7 | 3.6 | 2.6 | | Others | 9.7 | 9.5 | 13.4 | | **Total** | **100.0** | **100.0** | **100.0** | - The company's primary competitors include **TSMC, SMIC, and Globalfoundries**, as well as the foundry operations of IDMs like Samsung and Intel[182](index=182&type=chunk) - UMC has pledged to reach **net-zero carbon emissions by 2050** and joined the RE100 initiative, committing to use 100% renewable energy by 2050[201](index=201&type=chunk) [Organizational Structure](index=40&type=section&id=C.%20Organizational%20Structure) UMC operates through a global network of subsidiaries in key regions to support its international manufacturing and sales footprint - The company's organizational structure includes key wholly-owned subsidiaries such as UMC Group (USA), United Microelectronics (Europe) B.V., and United Semiconductor Japan Co., Ltd., which support its **global sales and manufacturing operations**[213](index=213&type=chunk) - UMC holds significant majority or full ownership in its manufacturing subsidiaries in China, including **Hejian Technology (Suzhou) Co., Ltd. (99.9985%)** and **United Semiconductor (Xiamen) Co., Ltd. (69.95%)**[213](index=213&type=chunk) [ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS](index=41&type=section&id=ITEM%205%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) [Operating Results](index=43&type=section&id=A.%20Operating%20Results) The company achieved significant growth in 2021, with a 20.5% revenue increase and a substantial expansion in gross margin to 33.8% Key Financial Performance (2020 vs. 2021) | Metric | 2020 (NT$ million) | 2021 (NT$ million) | Change (%) | | :--- | :--- | :--- | :--- | | Operating Revenues | 176,821 | 213,011 | +20.5% | | Gross Profit | 38,997 | 72,050 | +84.8% | | Operating Income | 21,931 | 51,686 | +135.7% | | Net Income (Parent) | 22,861 | 51,246 | +124.2% | Wafer Sales by Process Technology (2019-2021) | Process Technology | 2019 % | 2020 % | 2021 % | | :--- | :--- | :--- | :--- | | 14nm and under | 0.0 | 0.0 | 0.1 | | 28nm | 11.3 | 13.6 | 19.8 | | 40nm | 23.1 | 23.3 | 18.8 | | 65nm | 14.7 | 17.4 | 18.8 | | 90nm | 13.6 | 11.5 | 8.2 | | 0.11/0.13 micron | 12.6 | 11.1 | 11.5 | | 0.15/0.18 micron | 13.1 | 12.8 | 12.5 | | 0.25/0.35 micron | 8.7 | 7.8 | 7.8 | | 0.50 micron or higher | 2.9 | 2.5 | 2.5 | - The average capacity utilization rate increased significantly, from 96.9% in 2020 to **104.4% in 2021**, reflecting strong demand and contributing to improved margins[218](index=218&type=chunk)[222](index=222&type=chunk) [Liquidity and Capital Resources](index=47&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) UMC maintains a strong liquidity position, funding significant capital expenditures through operating cash flow and debt financing Cash Flow Summary (in NT$ millions) | Cash Flow from | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Operating Activities | 54,904 | 65,745 | 90,352 | | Investing Activities | (31,682) | (40,112) | (62,163) | | Financing Activities | (9,867) | (25,601) | 12,490 | - Capital expenditures have been increasing, reaching **NT$50,120 million in 2021**, up from NT$28,104 million in 2020, primarily for equipment purchases[271](index=271&type=chunk) - The company is pursuing major expansion projects in Taiwan and Singapore to meet strong wafer demand, supported by **multi-year supply agreements** with customers[272](index=272&type=chunk) - In 2021, the company issued new domestic unsecured corporate bonds totaling **NT$14,600 million** and zero-coupon exchangeable bonds of **US$400 million** to fund capital expenditures[263](index=263&type=chunk)[264](index=264&type=chunk) [Research, Development, Patents and Licenses, Etc.](index=50&type=section&id=C.%20Research%2C%20Development%2C%20Patents%20and%20Licenses%2C%20Etc.) The company maintains a strong focus on R&D, investing 6.1% of operating revenues in 2021 to develop cost-effective technologies R&D Expenditures (2019-2021) | Year | R&D Expense (NT$ million) | % of Operating Revenues | | :--- | :--- | :--- | | 2019 | 11,860 | 8.0% | | 2020 | 12,896 | 7.3% | | 2021 | 12,935 | 6.1% | [ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES](index=50&type=section&id=ITEM%206%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) [Directors and Senior Management](index=50&type=section&id=A.%20Directors%20and%20Senior%20Management) UMC's leadership includes an experienced executive team and a board composed of nine directors, including five independents - The board of directors is composed of nine members, with **five being independent directors**, indicating a majority-independent board structure[280](index=280&type=chunk) - Key leadership includes **Stan Hung as Chairman & Chief Strategic Officer**, **SC Chien and Jason Wang as Co-presidents**, and **Chitung Liu as Chief Financial Officer**[280](index=280&type=chunk)[281](index=281&type=chunk)[282](index=282&type=chunk)[283](index=283&type=chunk)[289](index=289&type=chunk) [Compensation](index=52&type=section&id=B.%20Compensation) In 2021, aggregate compensation for directors was NT$31.3 million, while executive officers received NT$1,366.6 million 2021 Compensation Summary (in NT$ millions) | Group | Total Compensation | Bonus Component | | :--- | :--- | :--- | | Directors | 31.3 | - | | Executive Officers | 1,366.6 | 197.1 | | Directors & Senior Management | 473.0 | 46.1 | [Board Practices](index=52&type=section&id=C.%20Board%20Practices) The company's board operates with three-year terms and has established Audit, Remuneration, and Nominating committees - The board has established an Audit Committee, a Remuneration Committee, and a Nominating Committee, each **composed entirely of the company's five independent directors**[292](index=292&type=chunk)[293](index=293&type=chunk)[295](index=295&type=chunk) - Directors are elected for a **three-year term** at the annual general meeting of shareholders[291](index=291&type=chunk) [Employees](index=53&type=section&id=D.%20Employees) As of year-end 2021, the company had 19,741 employees, primarily engineers and technicians, who participate in a profit-sharing plan Employee Headcount by Role (2019-2021) | Role | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Engineers | 11,328 | 11,377 | 11,606 | | Technicians | 7,416 | 7,211 | 7,318 | | Administrative Staff | 833 | 798 | 817 | | **Total** | **19,577** | **19,386** | **19,741** | - The board proposed an employee cash bonus of **NT$4,771 million (US$172 million)** related to 2020 retained earnings[297](index=297&type=chunk) [ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS](index=54&type=section&id=ITEM%207%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) [Major Shareholders](index=54&type=section&id=A.%20Major%20Shareholders) As of March 2022, major shareholders include Hsun Chieh Investment (3.54%) and Silicon Integrated Systems (2.29%) Beneficial Ownership of Major Shareholders (as of March 29, 2022) | Name of Beneficial Owner | Number of Common Shares | Percentage (%) | | :--- | :--- | :--- | | Hsun Chieh Investment Co., Ltd. | 441,371,000 | 3.54% | | Silicon Integrated Systems Corp. | 285,380,424 | 2.29% | | Directors and executive officers as a group | 853,071,669 | 6.83% | [Related Party Transactions](index=54&type=section&id=B.%20Related%20Party%20Transactions) The company engages in arm's-length transactions with affiliated companies, primarily providing foundry services - The company generated **NT$2,816 million (US$102 million)** in operating revenues in 2021 from providing foundry services to two major related fabless design companies[303](index=303&type=chunk) [ITEM 8 FINANCIAL INFORMATION](index=54&type=section&id=ITEM%208%20FINANCIAL%20INFORMATION) [Consolidated Statements and Other Financial Information](index=54&type=section&id=A.%20Consolidated%20Statements%20and%20Other%20Financial%20Information) The company settled legal proceedings with Micron Technology in 2021 with no material financial or operational effect - In November 2021, UMC and Micron Technology announced a global settlement agreement for all legal proceedings worldwide related to trade secret allegations, with **no material financial or operational effect** on UMC[308](index=308&type=chunk)[310](index=310&type=chunk) [Dividend Policy](index=55&type=section&id=Dividend%20Policy) The company's dividend policy balances shareholder returns and financial planning, with a proposed NT$3 per share distribution for 2022 Cash Dividend Per Share (2019-2021) | Year | Cash Dividend per Share (NT$) | | :--- | :--- | | 2019 | 0.58989396 | | 2020 | 0.80395653 | | 2021 | 1.59988820 | - On February 24, 2022, the board proposed a cash distribution from capital surplus of approximately **NT$3 per common share**, to be approved at the May 27, 2022 annual general meeting[312](index=312&type=chunk) [ITEM 10 ADDITIONAL INFORMATION](index=57&type=section&id=ITEM%2010%20ADDITIONAL%20INFORMATION) [Memorandum and Articles of Association](index=57&type=section&id=B.%20Memorandum%20and%20Articles%20of%20Association) The company's articles outline its governance structure, including a nine-member board and shareholder rights - The board of directors consists of nine members, five of whom are independent directors, and has established an **Audit Committee composed of all independent directors**[324](index=324&type=chunk)[326](index=326&type=chunk) - The company's dividend policy targets a cash portion between **20% and 100% of the total dividend payout** for shareholders[344](index=344&type=chunk)[345](index=345&type=chunk) - The company is authorized to repurchase up to **10% of its issued common shares** for purposes such as employee compensation or maintaining credit[349](index=349&type=chunk) [Material Contracts](index=64&type=section&id=C.%20Material%20Contracts) UMC maintains material contracts for global sales, technology licensing with firms like IBM, and major facility construction - The company has ongoing sales and marketing support service contracts with its subsidiaries in key global markets, including the **USA, Europe, Korea, China, and Japan**[363](index=363&type=chunk) - UMC holds long-term patent cross-license agreements with major technology companies such as **IBM (until 2029 and 2035)** and **Avago Technologies (until 2023)**[365](index=365&type=chunk) - Significant construction contracts are active for building facilities at Fab 12A in Taiwan, with a total contracted amount exceeding **NTD 12.6 billion**[366](index=366&type=chunk) [Exchange Controls](index=67&type=section&id=D.%20Exchange%20Controls) Taiwan's liberalized exchange controls permit foreign investment in the securities market with annual remittance limits for residents - Foreign ownership limits in Taiwan Stock Exchange-listed companies have been lifted, allowing foreign investors to hold investments **without percentage limitations** unless specific laws impose restrictions[370](index=370&type=chunk) - R.O.C. companies may remit up to **US$50 million per calendar year**, and residents up to **US$5 million**, for transactions involving currency conversion[377](index=377&type=chunk) - Deposits of common shares into a depositary receipt facility are **restricted and require specific R.O.C. FSC approval**[382](index=382&type=chunk) [Taxation](index=69&type=section&id=E.%20Taxation) This section outlines R.O.C. and U.S. tax implications for security holders, including withholding taxes and capital gains treatment - For non-R.O.C. resident holders, dividends distributed by the company are subject to a **21% withholding tax** in Taiwan[386](index=386&type=chunk) - Gains from the sale of R.O.C. securities are generally **exempt from R.O.C. income tax**, though a 0.3% securities transaction tax applies to common share sales[387](index=387&type=chunk)[388](index=388&type=chunk) - The company does not believe it was a **Passive Foreign Investment Company (PFIC)** for the 2021 tax year, which would have adverse U.S. tax consequences for investors[408](index=408&type=chunk) [ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=75&type=section&id=ITEM%2011%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is exposed to market risks from interest rate and foreign currency fluctuations, which it manages via hedging strategies - The company's primary market risk exposures are from **interest rate movements** on borrowings and **foreign exchange rate movements**, particularly involving the U.S. dollar[420](index=420&type=chunk)[421](index=421&type=chunk) - A **10 basis point change in interest rates** would cause the profit for 2021 to decrease/increase by NT$39 million[805](index=805&type=chunk) - A **10% strengthening/weakening of the NTD against the USD** would decrease/increase the 2021 profit by NT$1,104 million[804](index=804&type=chunk) PART II [ITEM 15 CONTROLS AND PROCEDURES](index=80&type=section&id=ITEM%2015%20CONTROLS%20AND%20PROCEDURES) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of year-end 2021 - Management concluded that the company's **disclosure controls and procedures were effective** as of December 31, 2021[436](index=436&type=chunk) - Based on the COSO criteria, management assessed the **internal control over financial reporting as effective** as of December 31, 2021[438](index=438&type=chunk) - The independent registered public accounting firm, Ernst & Young, issued an **unqualified opinion** on the effectiveness of the company's internal control over financial reporting[438](index=438&type=chunk)[442](index=442&type=chunk) [ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT](index=83&type=section&id=ITEM%2016A.%20AUDIT%20COMMITTEE%20FINANCIAL%20EXPERT) The board has identified three independent directors who qualify as audit committee financial experts under SEC rules - The board has determined that independent directors **Wenyi Chu, Wen-Hsin Hsu, and Kuang Si Shiu** are audit committee financial experts[449](index=449&type=chunk) [ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES](index=83&type=section&id=ITEM%2016C.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) In 2021, the company paid its principal auditor, Ernst & Young, a total of NT$67.5 million in fees for various services Principal Accountant Fees (in thousands NT$) | Fee Category | 2020 | 2021 | | :--- | :--- | :--- | | Audit Fees | 61,508 | 56,226 | | Audit-related Fees | 11,538 | 7,577 | | Tax Fees | 3,977 | 3,719 | | **Total** | **77,023** | **67,522** | [ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS](index=84&type=section&id=ITEM%2016E.%20PURCHASE%20OF%20EQUITY%20SECURITIES%20BY%20THE%20ISSUER%20AND%20AFFILIATED%20PURCHASERS) The company periodically conducts share buy-back plans, with the most recent plan announced in June 2020 - The company has conducted several share buy-back plans, with the 21st plan announced on June 5, 2020, to purchase up to **200 million shares**[457](index=457&type=chunk) Share Repurchases (June 2020) | Month | Total Shares Purchased | Average Price (NT$) | Shares Purchased as Part of Plan | Max Shares Remaining Under Plan | | :--- | :--- | :--- | :--- | :--- | | June 2020 | 76,000,000 | 15.80 | 76,000,000 | 124,000,000 | [ITEM 16G. CORPORATE GOVERNANCE](index=84&type=section&id=ITEM%2016G.%20CORPORATE%20GOVERNANCE) The company's governance practices are governed by R.O.C. law but are largely aligned with NYSE standards - UMC's board has a **majority of independent directors** (five out of nine), aligning with NYSE standards[461](index=461&type=chunk) - The company has established nominating and remuneration committees **composed entirely of independent directors**, similar to NYSE requirements[462](index=462&type=chunk)[463](index=463&type=chunk) - A key difference from NYSE standards is that shareholder approval for equity compensation plans **follows R.O.C. requirements**, which grant more authority to the board[464](index=464&type=chunk) PART III [ITEM 18 FINANCIAL STATEMENTS](index=86&type=section&id=ITEM%2018%20FINANCIAL%20STATEMENTS) The company's audited financial statements received an unqualified opinion, with slow-moving inventory valuation as a critical audit matter - The independent auditor, Ernst & Young, issued an **unqualified opinion** on the consolidated financial statements for the three years ended December 31, 2021[477](index=477&type=chunk) - The critical audit matter identified by the auditor was the **'Valuation for Slow-Moving Inventories'** due to the significant management judgment involved in estimating the reserve[481](index=481&type=chunk)[483](index=483&type=chunk) Consolidated Balance Sheet Highlights (in NT$ thousands) | Account | Dec 31, 2020 | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **366,454,101** | **450,955,341** | | Total Current Assets | 164,305,911 | 233,273,433 | | Total Non-Current Assets | 202,148,190 | 217,681,908 | | **Total Liabilities** | **143,314,539** | **186,580,294** | | Total Current Liabilities | 79,481,143 | 108,249,378 | | Total Non-Current Liabilities | 63,833,396 | 78,330,916 | | **Total Equity** | **223,139,562** | **264,375,047** | Consolidated Income Statement Highlights (in NT$ thousands) | Account | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Operating Revenues | 148,201,641 | 176,820,914 | 213,011,018 | | Gross Profit | 21,314,972 | 38,997,101 | 72,049,629 | | Operating Income | 4,883,545 | 21,931,227 | 51,686,286 | | Net Income | 4,576,250 | 20,851,667 | 50,578,180 | | Basic EPS (NTD) | 0.71 | 1.93 | 4.27 |

United Microelectronics Corporation (NYSE:UMC) Q1 2022 Earnings Conference Call April 27, 2022 5:00 AM ET Company Participants Michael Lin - Head of IR Qi Dong Liu - CFO, SVP, Head of Corporate Governance & Company Secretary Jason Wang - President Conference Call Participants Randy Abrams - Credit Suisse Brett Simpson - Arete Research Bruce Lu - Goldman Sachs Charlie Chan - Morgan Stanley Gokul Hariharan - JPMorgan Sunny Lin - UBS Szeho Ng - China Renaissance Nicolas Baratte - Macquarie Frank Lee - HSBC Pat ...