UMC(UMC) - 2022 Q3 - Quarterly Report

Review Report of Independent Auditors 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 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] - Management is responsible for preparing and presenting the financial statements in accordance with R.O.C. regulations and IAS 34[2] Scope of Review 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] - A review is substantially less in scope than an audit, and thus, an audit opinion is not expressed[3] 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] - The statements comply with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Accounting Standard 34[4] Other Matter – Making Reference to the Reviews of Other Independent Auditors 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] 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 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] - The report is not intended for those unfamiliar with R.O.C. accounting principles or auditing standards[7] Consolidated Balance Sheets 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] - 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] - 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] - Non-current liabilities increased to NT$96.20 billion as of September 30, 2022, from NT$77.77 billion at December 31, 2021, largely due to a substantial increase in guarantee deposits[12] Unaudited Consolidated Statements of Comprehensive Income UMC reported significant increases in operating revenues and net income for 9M 2022, with gross profit more than doubling, despite a decrease in non-operating income due to financial asset valuation losses Consolidated Statements of Comprehensive Income Highlights (NT$ 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] Unaudited Consolidated Statements of Changes in Equity 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$379 million at September 30, 2022, mainly due to net income attributable to non-controlling interests[16] Unaudited Consolidated Statements of Cash Flows UMC generated substantial cash from operating activities in 9M 2022, while investing cash usage decreased and financing activities shifted to a net outflow due to bond redemptions and dividends Consolidated Statements of Cash Flows Highlights (NT$ 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] - Cash used in financing activities was primarily due to redemption of bonds (NT$10.76 billion) and cash dividends/distributions (NT$37.45 billion)[21] Notes to Unaudited Consolidated Financial Statements This section provides detailed disclosures on UMC's accounting policies, significant accounts, financial instruments, risk management, and other relevant financial information 1. History and Organization United Microelectronics Corporation (UMC) was established in May 1980 in R.O.C. and began operations in April 1982 as a semiconductor wafer foundry - UMC was incorporated in May 1980 and commenced operations in April 1982 as a full-service semiconductor wafer foundry[24] - UMC's ordinary shares are listed on the Taiwan Stock Exchange (TWSE) since July 1985, and its American Depositary Shares (ADSs) on the New York Stock Exchange (NYSE) since September 2000[24] 2. Date and Procedures of Authorization of Financial Statements for Issue The consolidated financial statements were authorized for issue by a resolution of the Board of Directors' meeting on October 26, 2022 - The consolidated financial statements were authorized for issue by the Board of Directors on October 26, 2022[25] 3. Newly Issued or Revised Standards and Interpretations This section details the adoption of new or revised accounting standards and interpretations, including amendments to IAS 37, and evaluates the impact of other unadopted standards - The Company adopted amendments to IAS 37, 'Onerous Contracts - Cost of Fulfilling a Contract,' effective January 1, 2022[27][380] Impact of IAS 37 Amendments (as of January 1, 2022, NT$ 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][31][33][34][383][384][385][387][388] - The Company is currently evaluating the potential impact of these unadopted standards on its financial position and performance[32][38][386][392] 4. Summary of Significant Accounting Policies 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][393] - The statements are prepared on a historical cost basis, with exceptions for financial instruments measured at fair value[40][394] - The principles of consolidation are consistent with those applied for the year ended December 31, 2021[41][395] - 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][43][44][45][396][397][398][399] 5. Significant Accounting Judgments, Estimates and Assumptions 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][401] 6. Contents of Significant Accounts 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 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][403] 6(2) Financial Assets at Fair Value through Profit or Loss 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][404] 6(3) Financial Assets at Fair Value through Other Comprehensive Income 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][406] - 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][408] 6(4) Financial assets measured at amortized cost 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][410] 6(5) Accounts Receivable, Net 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][414] 6(6) Inventories, Net 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][415] - 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][415] 6(7) Investments Accounted for Under the Equity Method 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 | $38,321,811 | | - UMC accounts for investments in FARADAY and UNIMICRON as associates due to significant influence through Board representation[72][426] Share of Profit/Loss and Comprehensive Income from Associates (NT$ 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][427] 6(8) Property, Plant and Equipment 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$45.11 billion for the nine-month period ended September 30, 2022[435] Interest Expense Capitalized (NT$ Thousands) | Period | 9M 2022 | 9M 2021 | |:--------------------------------------|:--------|:--------| | Interest expense capitalized | $827 | $- | | Interest rates applied | 1.46%-1.61% | - | 6(9) Leases 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$1.09 billion for the nine-month period ended September 30, 2022[447] Lease Liabilities (NT$ 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 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$2.46 billion, mainly in software[452] Amortization of Intangible Assets (NT$ 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 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] 6(12) Financial Liabilities at Fair Value through Profit or Loss, Current 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] 6(13) Bonds Payable 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] - During the nine-month period ended September 30, 2022, the Company repurchased and cancelled US$166.5 million of outstanding exchangeable bonds[467] 6(14) Long-Term Loans 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] - 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][475][476][478][479] 6(15) Post-Employment Benefits Total pension expenses for 9M 2022 were NT$1.41 billion for defined contribution and NT$25 million for defined benefit plans - For the defined contribution plan, UMC and its domestic subsidiaries contribute 6% of each employee's salary monthly[479] Total Pension Expenses (NT$ 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] 6(16) Deferred Government Grants 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] 6(17) Refund Liabilities 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 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] 6(19) Equity 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$10[486] - As of September 30, 2022, 140 million ADSs were traded on the NYSE, representing 698 million common shares (1 ADS = 5 common shares)[486] - UMC issued 1 million restricted stocks for employees in June 2021 and has recalled/cancelled restricted stocks in April 2021, November 2021, and March 2022[487][488] - On September 3, 2021, UMC approved a share exchange with CHIPBOND, issuing 61 million common shares for 53 million newly issued CHIPBOND common shares[488] Appropriation of Earnings (NT$ 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] 6(20) Share-Based Payment Total compensation costs for share-based payments were NT$1.12 billion for restricted stock and NT$170 million for stock appreciation rights in 9M 2022 - In September 2020, UMC offered 105 million shares of treasury stock to employees, with compensation costs recognized at fair value[496] - Shareholders approved a restricted stock plan in May 2022 to issue up to 50 million common shares to employees without consideration, vesting over four years based on service and performance conditions[497] Compensation Costs for Share-Based Payments (9M, NT$ 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][503] 6(21) Operating Revenues 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] - Contract liabilities increased to NT$4.83 billion as of September 30, 2022, from NT$4.08 billion at December 31, 2021[509] 6(22) Operating Costs and Expenses 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 | $32,907,508 | | Amortization | 1,112,216 | 1,043,723 | 2,155,939 | 630,632 | 1,518,049 | 2,148,681 | - UMC's Articles of Incorporation mandate allocating no less than 5% of profit as employees' compensation and no more than 0.2% as directors' compensation[515] Employees' and Directors' Compensation (NT$ 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 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] 6(24) Non-Operating Income and Expenses 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) 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][527] 6(26) Income Tax 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] 6(27) Earnings Per Share 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][539] 6(28) Reconciliation of Liabilities Arising from Financing Activities 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][543] - Bonds payable decreased due to cash outflows from redemptions, while long-term loans also decreased due to repayments[541] 7. Related Party Transactions Operating revenues from related parties significantly increased to NT$4.84 billion in 9M 2022, with key management personnel compensation also rising substantially - Related parties include FARADAY TECHNOLOGY CORP., UNIMICRON TECHNOLOGY CORP. (associates), SILICON INTEGRATED SYSTEMS CORP. (Company's director), and PHOTRONICS DNP MASK CORPORATION (other related party)[545] Operating Revenues from Related Parties (NT$ 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] 8. Assets Pledged as Collateral 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][559][560] 9. Significant Contingencies and Unrecognized Contract Commitments 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] - The Company has performance guarantees totaling NT$1.8 billion, mainly for litigations and customs tax[561] - 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] - Unrecognized portions of construction contracts for operational expansion totaled approximately NT$24.9 billion as of September 30, 2022[561] - 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][567][568][569] - 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] 10. Significant Disaster Loss There were no significant disaster losses reported for the periods presented - No significant disaster losses were reported[570] 11. Significant Subsequent Events There were no significant subsequent events reported after the reporting period - No significant subsequent events were reported[570] 12. Others 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 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 | $148,304,690 | 12(2) Financial risk management objectives and policies The Company's financial risk management aims to manage market, credit, and liquidity risks through established policies, procedures, and internal controls - The Company's risk management objectives are to manage market risk, credit risk, and liquidity risk related to its operating activities[572] - Financial risk management involves established policies, procedures, and internal controls, with significant activities requiring Board and Audit Committee approval[572] 12(3) Market risk UMC is exposed to market risks including foreign currency, interest rate, and equity price risks, managed through natural hedges and financial instruments - Market risk includes currency risk, interest rate risk, and other price risk (e.g., equity price risk)[573] - Foreign currency risk is managed using natural hedges and spot/forward exchange contracts, with net investments in foreign subsidiaries not hedged[574] Foreign Currency Sensitivity Analysis (9M, NT$ 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