UMC(US:UMC)2021-11-16 16:00markdown [Consolidated Financial Statements](index=1&type=section&id=Consolidated%20Financial%20Statements) [Review Report of Independent Auditors](index=2&type=section&id=Review%20Report%20of%20Independent%20Auditors) Ernst & Young, Taiwan, reviewed consolidated financial statements, concluding no material misstatements based on limited scope and reliance on other auditors for certain investments - The auditors expressed a review conclusion, not an audit opinion, indicating no material modifications are needed for conformity with accounting standards[4](index=4&type=chunk) - The review's scope is substantially less than a full audit, primarily involving inquiries and analytical procedures[3](index=3&type=chunk) - Reliance was placed on other independent auditors for certain investments in associates and joint ventures, representing **8.43% of total consolidated assets** and **13.58% of consolidated income before tax** for the nine-month period[5](index=5&type=chunk) [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets grew to **NT$428.8 billion** by September 30, 2021, with liabilities increasing to **NT$171.2 billion**, leading to total equity of **NT$257.6 billion** Consolidated Balance Sheet Summary (in thousands of NTD) | Account | Sep 30, 2021 | Dec 31, 2020 | Sep 30, 2020 | | :--- | :--- | :--- | :--- | | **Total Current Assets** | $211,603,426 | $164,305,911 | $163,476,888 | | **Total Non-Current Assets** | $217,189,205 | $213,210,464 | $204,767,041 | | **Total Assets** | **$428,792,631** | **$377,516,375** | **$368,243,929** | | **Total Current Liabilities** | $84,545,361 | $78,243,526 | $59,150,624 | | **Total Non-Current Liabilities** | $86,643,546 | $63,499,747 | $88,178,342 | | **Total Liabilities** | **$171,188,907** | **$141,743,273** | **$147,328,966** | | **Total Equity** | **$257,603,724** | **$235,773,102** | **$220,914,963** | | **Total Liabilities and Equity** | **$428,792,631** | **$377,516,375** | **$368,243,929** | [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Operating revenues reached **NT$153.9 billion** for the nine months ended September 30, 2021, with net income attributable to the parent company more than doubling to **NT$39.8 billion** Consolidated Comprehensive Income Summary (in thousands of NTD) | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | :--- | :--- | | **Operating Revenues** | $55,906,677 | $44,870,454 | $153,911,430 | $131,524,561 | | **Gross Profit** | $20,544,011 | $9,769,269 | $48,946,285 | $28,149,009 | | **Operating Income** | $15,135,136 | $7,132,884 | $34,069,981 | $16,392,621 | | **Net Income** | $17,351,943 | $9,009,588 | $39,107,442 | $16,290,911 | | **Net Income (Parent)** | $17,460,235 | $9,106,271 | $39,831,225 | $17,993,985 | | **Total Comprehensive Income** | $16,981,870 | $10,399,993 | $40,358,455 | $17,144,918 | | **Basic EPS (NTD)** | $1.43 | $0.75 | $3.26 | $1.50 | | **Diluted EPS (NTD)** | $1.41 | $0.75 | $3.21 | $1.44 | [Consolidated Statements of Changes in Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Equity) Total equity attributable to the parent company increased to **NT$257.4 billion** by September 30, 2021, primarily driven by net income and other comprehensive income, partially offset by cash dividends - Total equity increased to **NT$257.6 billion** as of September 30, 2021, from **NT$235.8 billion** at the beginning of the year[12](index=12&type=chunk) - Key changes in equity for the nine-month period ended Sep 30, 2021, include **net income of NT$39.8 billion**, **cash dividends paid of NT$19.9 billion**, and **total comprehensive income of NT$41.1 billion**[12](index=12&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating activities generated **NT$63.5 billion** in cash for the nine months ended September 30, 2021, with **NT$48.8 billion** used in investing activities, leading to a **NT$19.1 billion** net increase in cash Consolidated Cash Flow Summary (in thousands of NTD) | Cash Flow Activity | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $63,529,695 | $49,672,885 | | **Net cash used in investing activities** | ($48,824,511) | ($22,674,228) | | **Net cash provided by (used in) financing activities** | $6,123,589 | ($22,448,834) | | **Effect of exchange rate changes** | ($1,771,949) | ($1,203,221) | | **Net increase in cash and cash equivalents** | $19,056,824 | $3,346,602 | | **Cash and cash equivalents at end of period** | $113,104,860 | $98,839,079 | - The increase in cash used for investing activities was primarily due to a significant rise in the acquisition of property, plant, and equipment, which grew to **NT$33.3 billion** in 9M 2021 from **NT$14.6 billion** in 9M 2020[14](index=14&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) [1. History and Organization](index=10&type=section&id=1.%20HISTORY%20AND%20ORGANIZATION) United Microelectronics Corporation (UMC), a semiconductor wafer foundry incorporated in May 1980, is listed on both the Taiwan Stock Exchange and the New York Stock Exchange - UMC is a semiconductor wafer foundry incorporated in May 1980 and commenced operations in April 1982[16](index=16&type=chunk) - The company's shares are publicly listed on both the Taiwan Stock Exchange (TWSE) and the New York Stock Exchange (NYSE)[16](index=16&type=chunk) [3. Newly Issued or Revised Standards and Interpretations](index=10&type=section&id=3.%20NEWLY%20ISSUED%20OR%20REVISED%20STANDARDS%20AND%20INTERPRETATIONS) The company adopted new IFRS standards effective January 1, 2021, with no material impact, and expects no material impact from upcoming standards effective January 1, 2022 - The company applied all new and revised IFRS standards effective January 1, 2021, with no material impact on its financial position or performance[18](index=18&type=chunk) - Upcoming standards effective January 1, 2022, including amendments to IFRS 3, IAS 16, and IAS 37, are not expected to materially impact the company[19](index=19&type=chunk)[22](index=22&type=chunk) [4. Summary of Significant Accounting Policies](index=13&type=section&id=4.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Consolidated financial statements are prepared on a historical cost basis, complying with IAS 34, detailing consolidation principles and accounting for embedded derivatives in exchangeable bonds - The financial statements were prepared in accordance with IAS 34 "Interim Financial Reporting" on a historical cost basis, except for financial instruments measured at fair value[28](index=28&type=chunk)[29](index=29&type=chunk) - The report provides a comprehensive list of consolidated subsidiaries and their respective ownership percentages across reporting periods[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) - For exchangeable bonds, embedded derivatives are separated and accounted for as financial liabilities at fair value through profit or loss if not closely related to the host contract[36](index=36&type=chunk) [6. Contents of Significant Accounts](index=17&type=section&id=6.%20CONTENTS%20OF%20SIGNIFICANT%20ACCOUNTS) This section details significant balance sheet and income statement accounts, including cash, receivables, inventories, property, plant, equipment, liabilities, equity, and revenue disaggregation [6(1) Cash and Cash Equivalents](index=17&type=section&id=6(1)%20Cash%20and%20Cash%20Equivalents) Cash and Cash Equivalents (in thousands of NTD) | Category | Sep 30, 2021 | Dec 31, 2020 | Sep 30, 2020 | | :--- | :--- | :--- | :--- | | Checking and savings accounts | $32,083,517 | $20,163,007 | $22,749,618 | | Time deposits | $70,906,502 | $66,939,601 | $66,620,686 | | Repurchase agreements | $10,108,865 | $6,939,663 | $9,462,999 | | **Total** | **$113,104,860** | **$94,048,036** | **$98,839,079** | [6(4) Accounts Receivable, Net](index=19&type=section&id=6(4)%20Accounts%20Receivable,%20Net) - Net accounts receivable increased to **NT$32.7 billion** as of September 30, 2021, from **NT$27.1 billion** at the end of 2020[46](index=46&type=chunk) - The majority of accounts receivable (**NT$29.7 billion**) were not past due as of September 30, 2021[47](index=47&type=chunk) [6(5) Inventories, Net](index=20&type=section&id=6(5)%20Inventories,%20Net) Inventories, Net (in thousands of NTD) | Category | Sep 30, 2021 | Dec 31, 2020 | Sep 30, 2020 | | :--- | :--- | :--- | :--- | | Raw materials | $4,003,039 | $5,507,002 | $5,789,390 | | Supplies and spare parts | $4,776,513 | $4,290,672 | $4,409,770 | | Work in process | $13,793,221 | $11,872,971 | $11,611,815 | | Finished goods | $576,919 | $881,841 | $1,052,435 | | **Total** | **$23,149,692** | **$22,552,486** | **$22,863,410** | [6(8) Property, Plant and Equipment](index=24&type=section&id=6(8)%20Property,%20Plant%20and%20Equipment) - The net carrying amount of property, plant, and equipment was **NT$125.7 billion** as of September 30, 2021, a decrease from **NT$132.8 billion** at the end of 2020[7](index=7&type=chunk)[67](index=67&type=chunk)[69](index=69&type=chunk) - For the nine-month period ended September 30, 2021, additions to construction in progress and equipment awaiting inspection amounted to **NT$25.4 billion**[65](index=65&type=chunk) [6(13) Bonds Payable](index=32&type=section&id=6(13)%20Bonds%20Payable) - Total bonds payable increased to **NT$35.5 billion** as of Sep 30, 2021, from **NT$18.7 billion** at year-end 2020, primarily due to new domestic and exchangeable bond issuances[93](index=93&type=chunk) - In April 2021, the company issued three tranches of domestic unsecured corporate bonds totaling **NT$9.6 billion** with maturities of five, seven, and ten years[94](index=94&type=chunk) - On July 7, 2021, UMC issued **US$400 million** in zero-coupon exchangeable bonds due 2026, exchangeable into common shares of Novatek Microelectronics Corporation[98](index=98&type=chunk) [6(18) Equity](index=42&type=section&id=6(18)%20Equity) - As of September 30, 2021, UMC had **12,423 million common shares** issued out of an authorized **26,000 million shares**[116](index=116&type=chunk) - The shareholders' meeting on July 7, 2021, approved the appropriation of 2020 earnings, including a cash dividend of **NT$1.60 per share**, totaling **NT$19.88 billion**[124](index=124&type=chunk)[125](index=125&type=chunk) - The dividend policy allows for **20% to 100% of distributable earnings** as cash dividends and **0% to 80%** as stock dividends, reflecting the company's capital-intensive nature and growth phase[123](index=123&type=chunk) [6(20) Operating Revenues](index=48&type=section&id=6(20)%20Operating%20Revenues) Revenue by Product (in thousands of NTD) | Product | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | | Wafer | $147,874,101 | $126,504,900 | | Others | $6,037,329 | $5,019,661 | | **Total** | **$153,911,430** | **$131,524,561** | Revenue by Geography (in thousands of NTD) | Geography | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | | United States | $57,538,173 | $48,646,272 | | Taiwan | $21,501,077 | $19,107,943 | | China | $22,124,839 | $16,160,546 | | Japan | $10,110,553 | $12,938,723 | | Europe | $17,834,727 | $18,250,342 | | Singapore | $4,121,772 | $4,868,267 | | Other Asia | $20,680,289 | $11,552,468 | | **Total** | **$153,911,430** | **$131,524,561** | [6(26) Earnings Per Share](index=60&type=section&id=6(26)%20Earnings%20Per%20Share) Earnings Per Share (NTD) | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | :--- | :--- | | **Basic EPS** | $1.43 | $0.75 | $3.26 | $1.50 | | **Diluted EPS** | $1.41 | $0.75 | $3.21 | $1.44 | [7. Related Party Transactions](index=63&type=section&id=7.%20RELATED%20PARTY%20TRANSACTIONS) The company engaged in significant related party transactions, including NT$1.8 billion in operating revenues from associates and NT$1.36 billion in key management personnel compensation - Operating revenues from associates for the nine months ended Sep 30, 2021, were **NT$1,797 million**, up from **NT$1,585 million** in the prior year period[180](index=180&type=chunk) - Key management personnel compensation for the nine months ended Sep 30, 2021, totaled **NT$1,358 million**, a significant increase from **NT$426 million** in the same period of 2020, largely due to higher share-based payments[188](index=188&type=chunk) [9. Significant Contingencies and Unrecognized Contract Commitments](index=68&type=section&id=9.%20SIGNIFICANT%20CONTINGENCIES%20AND%20UNRECOGNIZED%20CONTRACT%20COMMITMENTS) UMC faces significant contingencies, including ongoing litigation and a settled class action, alongside substantial unrecognized commitments for construction, patent licenses, and a joint venture share purchase - The company has unrecognized construction contract commitments of approximately **NT$12.5 billion** as of September 30, 2021[191](index=191&type=chunk) - UMC is involved in ongoing litigation with Micron Technology in both Taiwan and the U.S. regarding alleged trade secret misappropriation[194](index=194&type=chunk)[195](index=195&type=chunk) - A financial liability is recognized for the commitment to purchase partners' investments in the USCXM 12" wafer foundry joint venture, amounting to **RMB 4.9 billion** plus interest, beginning in 2022[193](index=193&type=chunk) [12. Others (Financial Risk Management)](index=70&type=section&id=12.%20OTHERS) This section details the company's financial instruments and risk management policies, covering market, credit, and liquidity risks, capital management, and fair value hierarchy disclosures - The company's primary financial risks include market risk (currency, interest rate, equity price), credit risk, and liquidity risk[200](index=200&type=chunk) - The debt-to-capital ratio was **18.40%** as of September 30, 2021, compared to **16.83%** at year-end 2020 and **18.00%** as of September 30, 2020[247](index=247&type=chunk)[248](index=248&type=chunk) - A sensitivity analysis indicates that a **10% strengthening of the NTD against the USD** would decrease profit by **NT$1,284 million** for the nine-month period of 2021[203](index=203&type=chunk) [14. Operating Segment Information](index=86&type=section&id=14.%20OPERATING%20SEGMENT%20INFORMATION) UMC operates as a single reportable segment, wafer fabrication, manufacturing chips based on customer designs for diverse industries including communication, consumer electronics, and computers - The company operates as a single reportable segment: wafer fabrication[253](index=253&type=chunk) [Attachments](index=87&type=section&id=Attachments) [Attachment 11: Investment in Mainland China](index=105&type=section&id=ATTACHMENT%2011%20(Investment%20in%20Mainland%20China%20as%20of%20September%2030,%202021)) This attachment details UMC's investments in Mainland China, including HEJIAN TECHNOLOGY and USCXM, with accumulated investment of **NT$36.0 billion** well within the authorized limit Major Investments in Mainland China (as of Sep 30, 2021) | Investee Company | Main Business | Ownership % | Carrying Amount (NTD thousands) | | :--- | :--- | :--- | :--- | | HEJIAN TECHNOLOGY (SUZHOU) | Integrated circuits manufacturing | 99.9985% | $24,894,691 | | UNITED SEMICONDUCTOR (XIAMEN) | Integrated circuits manufacturing | 67.76% | $12,766,392 | - The total accumulated investment in Mainland China as of September 30, 2021, is **NT$36.0 billion**, against an authorized upper limit of **NT$154.5 billion**[308](index=308&type=chunk) [Attachment 12: Information of Major Shareholders](index=106&type=section&id=ATTACHMENT%2012%20(Information%20of%20major%20shareholders%20as%20of%20September%2030,%202021)) As of September 30, 2021, the only major shareholder listed is JPMorgan Chase Bank, N.A., acting as the depositary for the company's American Depositary Receipts (ADRs) - JPMorgan Chase Bank, N.A., as the depositary for ADRs, held **769,008,005 shares**, representing a **6.19% ownership stake** as of September 30, 2021[309](index=309&type=chunk)