UMC(UMC) - 2022 Q4 - Annual Report

Independent Auditors' Report Opinion The auditors issued an unqualified opinion on the consolidated financial statements for 2022 and 2021, affirming fair presentation in accordance with TIFRSs - The auditors have issued an unqualified opinion on the company's consolidated financial statements for the years ended December 31, 2022 and 2021[4] Key Audit Matters Valuation of slow-moving inventories was the key audit matter for 2022, reflecting the complexity of estimating reserves in a rapidly changing semiconductor industry - The primary key audit matter was the valuation for slow-moving inventories, which amounted to a net value of NT$31.1 billion as of December 31, 2022[8] - The audit procedures included testing internal controls, evaluating management's reserve methodology, comparing reserves to historical data, and recalculating the inventory reserve[9] Other Matter – Making Reference to the Audits of Component Auditors The audit opinion partially relies on reports from other auditors for equity method investments, representing 4.84% of total assets in 2022 and impacting pre-tax income Equity Method Investments Audited by Other Auditors | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Investment Value (NT$ million) | 25,801 | 39,806 | | % of Total Assets | 4.84% | 8.57% | | Share of Profit/(Loss) (NT$ million) | (2,553) | 8,380 | | % of Pre-Tax Income | (2.41)% | 13.56% | Consolidated Financial Statements Consolidated Balance Sheets Total assets grew to NT$533.1 billion in 2022, driven by cash and PPE increases, while total liabilities and equity also rose, reflecting strong earnings retention Consolidated Balance Sheet Summary (in thousands of NT$) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Total Current Assets | 252,371,038 | 233,273,433 | | Total Non-Current Assets | 280,681,054 | 231,153,338 | | Total Assets | 533,052,092 | 464,426,771 | | Total Current Liabilities | 108,565,165 | 105,453,729 | | Total Non-Current Liabilities | 89,035,988 | 77,770,158 | | Total Liabilities | 197,601,153 | 183,223,887 | | Total Equity | 335,450,939 | 281,202,884 | - Cash and cash equivalents increased significantly to NT$173.8 billion in 2022 from NT$132.6 billion in 2021[27] - Property, plant and equipment grew to NT$171.0 billion in 2022 from NT$129.9 billion in 2021, indicating significant capital investment[27] Consolidated Statements of Comprehensive Income Operating revenues increased by 30.8% to NT$278.7 billion in 2022, with gross profit surging by 74.6% and net income attributable to the parent growing by 56.3% Consolidated Income Statement Highlights (in thousands of NT$) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Operating Revenues | 278,705,264 | 213,011,018 | | Gross Profit | 125,764,377 | 72,049,629 | | Operating Income | 104,292,225 | 51,686,286 | | Net Income (Parent) | 87,198,291 | 55,780,255 | | Basic EPS (NT$) | 7.09 | 4.57 | | Diluted EPS (NT$) | 6.87 | 4.48 | Consolidated Statements of Changes in Equity Total equity increased to NT$335.5 billion in 2022, primarily due to net income and other comprehensive income, partially offset by cash distributions - Total equity attributable to the parent company grew from NT$281.0 billion in 2021 to NT$335.1 billion in 2022[35] - Key changes in equity for 2022 included net income of NT$87.2 billion, other comprehensive income of NT$2.4 billion, and a cash distribution from additional paid-in capital of NT$37.4 billion[35] Consolidated Statements of Cash Flows Operating cash flow significantly increased to NT$145.9 billion in 2022, while investing activities focused on PPE acquisition and financing involved dividend payments and bond redemption Consolidated Cash Flow Summary (in thousands of NT$) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | 145,860,529 | 90,351,891 | | Net Cash used in Investing Activities | (54,427,266) | (62,163,400) | | Net Cash from (used in) Financing Activities | (57,254,750) | 12,490,107 | | Net Increase in Cash | 41,196,646 | 38,574,095 | | Cash and Cash Equivalents at End of Year | 173,818,777 | 132,622,131 | - Acquisition of property, plant and equipment was a major cash outflow in investing activities, amounting to NT$80.1 billion in 2022, up from NT$48.0 billion in 2021[40] - Financing activities in 2022 were dominated by cash dividends and distributions from additional paid-in capital totaling NT$37.4 billion, and redemption of bonds amounting to NT$13.3 billion[40] Notes to Consolidated Financial Statements Summary of Significant Accounting Policies The consolidated financial statements are prepared on a historical cost basis, adhering to TIFRSs, with key policies covering consolidation, revenue recognition, and inventory valuation - The financial statements are prepared on a historical cost basis, except for financial instruments measured at fair value, and comply with TIFRSs[61][62] - Revenue from contracts with customers is recognized when performance obligations are satisfied, following the five-step model of IFRS 15[162][163] - Inventories are valued at the lower of cost (weighted-average) and net realizable value[110] Contents of Significant Accounts This note provides detailed breakdowns of significant balance sheet and income statement items, including inventories, PPE, bonds, equity, revenues, and earnings per share Inventories, Net Net inventories increased to NT$31.1 billion in 2022, with work in process remaining the largest component, reflecting growth across all categories Inventory Breakdown (in thousands of NT$) | Category | 2022 | 2021 | | :--- | :--- | :--- | | Raw materials | 6,335,428 | 3,371,520 | | Supplies and spare parts | 7,161,216 | 5,106,770 | | Work in process | 14,897,926 | 14,043,143 | | Finished goods | 2,675,390 | 489,750 | | Total | 31,069,960 | 23,011,183 | Property, Plant and Equipment Net PPE increased to NT$171.0 billion in 2022, driven by NT$72.6 billion in additions, primarily for construction and equipment, indicating ongoing capacity expansion PPE Movement in 2022 (in thousands of NT$) | Category | As of Jan 1, 2022 | Additions | Disposals | As of Dec 31, 2022 (Net) | | :--- | :--- | :--- | :--- | :--- | | Assets Used by the Company | 127,989,504 | 72,596,881 | (6,560,736) | 169,163,819 | | Assets Subject to Operating Leases | 1,952,199 | - | (660) | 1,818,247 | | Total PPE (Net) | 129,941,703 | - | - | 170,982,066 | Bonds Payable Total bonds payable decreased to NT$28.2 billion in 2022, following the repurchase and cancellation of US$187.1 million of exchangeable bonds - On July 7, 2021, UMC issued US$400 million in zero-coupon exchangeable bonds due 2026, which are exchangeable into common shares of NOVATEK MICROELECTRONICS CORPORATION[230] - In 2022, the company repurchased and cancelled US$187.1 million of the principal amount of these exchangeable bonds[234] Equity UMC had 12.505 billion common shares issued in 2022, with a proposed cash dividend of NT$3.60 per share for 2022 earnings and a NT$37.4 billion distribution for 2021 2022 Proposed vs. 2021 Approved Earnings Appropriation | Item | 2022 (Proposed) | 2021 (Approved) | | :--- | :--- | :--- | | Legal Reserve (NT$M) | 8,905 | 5,833 | | Cash Dividends (NT$M) | 45,017 | - | | Cash Dividend per Share (NT$) | 3.60 | - | | Cash from Add'l Paid-in Capital (NT$M) | - | 37,446 | - The dividend policy allows for 20% to 100% of distributable earnings to be paid as cash dividends, determined based on investment needs, competitive landscape, and capital expenditure forecasts[261] Operating Revenues Operating revenues reached NT$278.7 billion in 2022, predominantly from wafer sales, with Taiwan, China, and Singapore being the largest geographic markets Revenue by Geography (in thousands of NT$) | Region | 2022 | 2021 | | :--- | :--- | :--- | | Taiwan | 87,500,215 | 80,655,096 | | Singapore | 39,093,439 | 29,068,748 | | China (includes Hong Kong) | 46,146,545 | 31,176,136 | | Japan | 17,667,412 | 13,705,192 | | USA | 35,175,569 | 24,270,210 | | Europe | 8,831,645 | 5,628,998 | | Others | 44,290,439 | 28,506,638 | | Total | 278,705,264 | 213,011,018 | Earnings Per Share Basic EPS increased to NT$7.09 in 2022 from NT$4.57 in 2021, with diluted EPS also rising, reflecting strong net income growth Earnings Per Share (in NT$) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Basic EPS | 7.09 | 4.57 | | Diluted EPS | 6.87 | 4.48 | Significant Contingencies and Unrecognized Contract Commitments Future commitments include NT$42 billion for construction and NT$1.1 billion for patent licenses, alongside a global settlement with Micron Technology for trade secret litigation - UMC and Micron announced a global settlement agreement on November 26, 2021, resolving all legal proceedings worldwide concerning trade secret allegations[321] - The settlement resulted in a fine of NT$20 million and a one-time payment to Micron, which were recorded as non-operating losses with no material ongoing financial effect[321][325] - As of December 31, 2022, the company had unrecognized commitments of approximately NT$42 billion for construction contracts and NT$1.1 billion for patent license agreements[322][321] Others (Financial Instruments and Risk Management) The company's debt-to-capital ratio improved to 6.62% in 2022, with risk management strategies addressing foreign currency, interest rate, equity price, and credit risks Capital Structure Analysis | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total Liabilities (NT$M) | 197,601 | 183,224 | | Net Debt (NT$M) | 23,782 | 50,602 | | Total Equity (NT$M) | 335,451 | 281,203 | | Total Capital (NT$M) | 359,233 | 331,805 | | Debt to Capital Ratio | 6.62% | 15.25% | - A 10% strengthening of the NTD against the USD would decrease profit by NT$1.31 billion in 2022[334] - Accounts receivable from the top ten customers represented 56% of the total accounts receivable in 2022, indicating some customer concentration risk[343] Operating Segment Information The company operates as a single wafer fabrication segment, with Taiwan holding the largest share of non-current assets and one major customer contributing significantly to revenues - The company operates under a single operating segment, which is wafer fabrication[383] - One customer (Customer A) accounted for a significant portion of revenue, representing NT$24.1 billion in 2022 and NT$21.9 billion in 2021[385] Geographic Non-Current Assets (in thousands of NT$) | Region | 2022 | 2021 | | :--- | :--- | :--- | | Taiwan | 130,812,383 | 81,505,018 | | Singapore | 29,080,766 | 10,610,974 | | China (includes Hong Kong) | 37,213,538 | 48,667,135 | | Japan | 10,736,562 | 10,010,255 | | Total | 207,863,887 | 150,838,197 |