Corporate Information
Spokesperson Fab 8D ADR Exchange Marketplace Chitung Liu No.8 Li-Hsin 3rd Rd., Hsinchu Science New York Stock Exchange, Inc. Chief Financial Officer Park, Hsinchu, Taiwan 30078, R.O.C. 11 Wall Street 886 (2) 2700 6999 886 (3) 578 2258 New York, NY 10005, U.S.A. [email protected] 1 (212) 656 3000 Fab 8E www.nyse.com Deputy Spokesperson No.17 Li-Hsin Rd., Hsinchu Science Ticker/Search Code: UMC Sandy Yen Park, Hsinchu, Taiwan 30078, R.O.C. The Chairman and CEO Office 886 (3) 578 2258 Exchangeable Bond Exchange Senior Manager Marketplace 886 (2) 2700 6999 Fab 8F Luxembourg Stock Exchange [email protected] No.3 Li-Hsin 6th Rd., Hsinchu Science 11, av de la Porte-Neuve Park, Hsinchu, Taiwan 30078, R.O.C. L-2227 Luxembourg Bowen Huang 886 (3) 578 2258 352 (47) 79 36 - 1 Finance Division www.bourse.lu Senior Manager Fab 8S Ticker: UniMicElexCorp 886 (2) 2700 6999 No.16 Creation 1st Rd., Hsinchu EB Search Code: ISIN XS0147090533 [email protected] Science Park, Hsinchu, Taiwan 30077, ECB Search Code: ISIN XS0231460709 R.O.C. Headquarters 886 (3) 578 2258 Auditors No.3 Li-Hsin 2nd Rd., Hsinchu Science Ernst & Young Park, Hsinchu, Taiwan 30078, R.O.C. Fab 12A James Wang, MY Lee 886 (3) 578 2258 No.18 Nan-Ke 2nd Rd., Tainan Science 9th Fl., 333 Keelung Rd., Sec.1 Park, Sinshih, Tainan, Taiwan 74147, Taipei 11012, Taiwan , R.O.C. Taipei Office R.O.C. www.ey.com/tw 3F, No.76, Sec. 2, Tunhwa S. Rd., 886 (6) 505 4888 886 (2) 2720 4000 Taipei, Taiwan 10683, R.O.C. 886 (2) 2700 6999 Singapore Branch UMC Website Fab 12i www.umc.com Fab 6A No.3 Pasir Ris Drive 12, Singapore No.10 Innovation 1st Rd., Hsinchu 519528 Science Park, Hsinchu, Taiwan 30076, 65 6213 0018 R.O.C. 886 (3) 578 2258 Securities Dealing Institute Horizon Securities Co., Ltd. Fab 8A Stock Registration Department No.3 Li-Hsin 2nd Rd., Hsinchu Science 3F, No.236 Hsin-Yi Rd. Sec. 4, Taipei, Park, Hsinchu, Taiwan 30078, R.O.C. Taiwan 10680, R.O.C. 886 (3) 578 2258 886 (2) 2326 8818 www.honsec.com.tw Fab 8B No.5 Li-Hsin 2nd Rd., Hsinchu ADR Depositary and Registrar Science Park, Hsinchu, Taiwan 30078, Citibank, N.A. R.O.C. Depositary Receipt Services 886 (3) 578 2258 14F, 388 Greenwich Street, New York, NY 10013, U.S.A. Fab 8C 1 (877) 248 4237 (Toll-free) No.6 Li-Hsin 3rd Rd., Hsinchu Science Stockholder Service Representatives Park, Hsinchu, Taiwan 30078, R.O.C. are available Monday through Friday, 886 (3) 578 2258 8:30a.m. to 6:00p.m., Eastern Time. http://wwss.citissb.com/adr/www/ [email protected]
UMC ANNUAL REPORT INFORMATION CAN BE ACCESSED FROM THE FOLLOWING WEBSITES: www.umc.com newmops.tse.com.tw TSE Code : 2303 Printed on March 15, 2007 NYSE Symbol : UMC
United Microelectronics Corporation | Annual Report 2006
Table of Contents
Letter to Shareholders Operation Overview 65 Business Scope Corporate Overview 65 Industry Scope 66 Research & Development Achievements and Plans 11 Corporate Profile 68 Market and Sales Conditions 12 Milestones 72 Employee Analysis 73 Environmental Protection Information Corporate Governance Report 74 Labor Relations 16 Corporate Organization 75 Major Agreements 18 Directors’, Supervisors’ and Managers’ Information 33 Corporate Governance Practices Review of Financial Position, 35 Status of Internal Control Operating Results, Risk Management 37 Auditing Notes and Evaluation 38 Change in Shareholding of Directors, Supervisors, 79 Analysis of Financial Position Managers and Major Shareholders 80 Analysis of Operating Results 39 Information Disclosuring the Relationship Between 81 Liquidity Analysis Any of the Company’s Top Ten Shareholders 81 Major Capital Expenditures and Sources of Funding 40 Total Percentage of Ownership of Investees 82 Analysis for Investment 83 Risk Management and Evaluation Capital Overview
43 Capital and Shares 50 Corporate Bonds 55 Preferred Stock 56 American Depositary Receipts 58 Employee Stock Option Certificates 63 Mergers and Acquisitions 63 Financing Plans and Execution Status
Special Disclosures Financial Review Unconsolidated 87 Summary of Affiliated Enterprises 101 Condensed Balance Sheets 92 Acquisition or Disposal of UMC Shares by 102 Condensed Statements of Income Subsidiaries 103 Financial Analysis 93 Disclosures of Events which May Have a Significant 104 Supervisors’ Report Influence on Stockholders’ Equity or Share Price, in 106 Report of Independent Auditors Compliance with Item 2, Paragraph 2 in Article 36 of the Securities and Exchange Law of the R.O.C. 107 Balance Sheets 108 Statements of Income Disclosure According to 109 Statements of Changes in Stockholders’ Equity US Security Authorities Regulation 110 Statements of Cash Flows 95 Disclosure Committee 112 Notes to Financial Statements 95 Audit Committee 160 Attachments to Notes 95 Corporate Governance Difference 95 Code of Ethics Financial Review Consolidated 95 Employee Code of Conduct 198 Representation Letter 95 US GAAP Financial Information 199 Report of Independent Auditors 96 Consolidated Balance Sheets 200 Consolidated Balance Sheets 98 Consolidated Statements of Income 201 Consolidated Statements of Income 202 Consolidated Statements of Changes in Stockholders’ Equity 203 Consolidated Statements of Cash Flows 205 Notes to Consolidated Financial Statements 260 Attachments to Notes
United Microelectronics Corporation | Annual Report 2006
Letter to Shareholders
DearIn 2006, UMC achieved revenues Shareholders, of NTD 104.10 65-nanometer, with four products in pilot production billion, which was 14.7% above the previous year’s and more than 10 products taped out for various ap- performance. Net income was NTD 32.62 billion plications ranging from handset baseband to FPGA, or 364% above 2005. The positive gains and growth graphics and broadband. Yield improvement for our can be attributed to stronger demand across all ap- 65-nanometer volume production technology has plications, especially for the communications sec- been even faster than for the 90-nanometer genera- tor, and an improvement in product mix resulting tion. in a higher percentage of revenue from leading-edge process technologies. Strategic Expansion UMC has accelerated the expansion of its 300mm fab Technology Leadership complex in the Tainan Science Park to accommodate UMC’s strong 2006 performance was highlighted the next generation of advanced process technolo- by our large percentage of sales from 0.13-micron gies, most recently by adding a new R&D center for and below technologies, which accounted for 40% of nanometer technologies, the first of its kind in the UMC’s total revenue. Sales from our volume pro- Tainan Science Park. The center will become UMC’s duction 90-nanometer technology reached 17% for new R&D headquarters after its scheduled comple- the year. Particularly exciting was the rollout of our tion in April 2007. In 2006, we also began full-scale 65-nanometer process technology, which entered construction on our second 300mm fab at UMC’s volume production for several customer products. By Tainan site, which will give UMC a total of three the end of 2006, UMC had 9 customers engaged at advanced 300mm fabs to serve our customers’ manu- facturing needs. The new fab will add an additional
United Microelectronics Corporation | Annual Report 2006
Letter to Shareholders
50,000 wafer capacity (300 mm) to the site and will techniques, and ultra low-k dielectrics (k=2.5). cost approximately USD 5 billion when fully com- pleted and equipped. The 45-nanometer node is a challenging technology generation that simultaneously introduces new mate- The new fab and R&D center are being constructed rials and process modules. UMC’s wealth of experi- adjacent to UMC’s Fab 12A to allow for the easy ence in semiconductor R&D and manufacturing put transfer of engineering resources, technology, and us among the first companies in the world to produce equipment among the facilities, which will facili- working 45-nanometer silicon, with encouraging tate a more efficient ramp up for leading-edge 65- yield results realized for the initial 45-nanometer nanometer, 45-nanometer, and below processes. wafer lots. UMC will continue to build on its 45- Once the new fab is completed and ready for produc- nanometer momentum to prepare the technology for tion, the transition to mainstream manufacturing is adoption by our foundry customers. expected to be seamless since there is no new learn- ing curve to master; the production lines will be Enhancing Shareholder Value directly expanded from the neighboring Fab 12A. In addition to UMC’s commitment to improving process technology and manufacturing, we are also Next Generation Process Technology taking proactive measures to increase shareholders’ In 2006, UMC also successfully produced functional value. For example, UMC’s Board of Directors passed 45-nanometer SRAM chips. UMC’s independently a resolution to carry out a capital reduction of NTD developed 45-nanometer logic process uses sophisti- 57.394 billion with the cancellation of 5.739 billion of cated immersion lithography for its 12 critical layers its outstanding shares. The measure, which is expect- and incorporates the latest technology advancements ed to be ratified at our Annual General Shareholders such as ultra shallow junction, mobility enhancement meeting, will result in an NTD 3 cash return
United Microelectronics Corporation | Annual Report 2006
Letter to Shareholders
Jackson Hu, Chairman and CEO per share to shareholders. Upon completion of the In 2007, our 300mm fabs in Taiwan and Singapore capital reduction, the paid-in capital of the company will begin high-volume production for 65-nanometer will be approximately NTD 133.92 billion. This ac- products. We will continue preparing our 45- tion will contribute positively to shareholders’ equity nanometer process for pilot production in 2008. through the improvement of the company’s capital Resources will be dedicated to strengthening our structure. Going forward, we will continue to pursue position as the SoC Solution Foundry, with emphasis maximum benefits for UMC’s shareholders, employ- on IP, EDA, and Design-for-Manufacturing (DFM) ees, and our many partners in the global and domestic solutions to ease our customers’ SoC design-in. These semiconductor industry. efforts will increase the competitiveness of UMC’s coming years, and further solidify our position as a Moving Forward leader in the foundry industry. Moving forward, we anticipate even closer coopera- tion with our IDM customers and fabless partners. I would like to thank you for supporting UMC over The trend towards IDMs adopting a “Fab-lite” or the years, and look forward to further building UMC’s fabless strategy is accelerating, underscored by TI strengths to create maximum benefits for our custom- and NXP announcing their new fab-lite strategies. ers and shareholders. Another example of this trend is Cypress Semicon- ductor’s new partnership with UMC for 65-nanometer Sincerely, production and future process development, the first time that Cypress has chosen an external foundry for manufacturing of its flagship SRAM products. This increased outsourcing trend will help contribute to UMC’s long-term growth prospects.
United Microelectronics Corporation | Annual Report 2006
Corporate Overview
11 Corporate Profile
12 Milestones
10 Corporate Overview
Corporate Profile UMC is a world-leading semiconductor foundry that UMC is responsible for many local industry innovations, manufactures advanced process ICs for applications including the introduction of the employee share bonus spanning every major sector of the semiconductor industry. system, often credited as a primary factor in the development The Company’s cutting-edge foundry technologies enable of a prominent electronics industry in Taiwan. UMC employs the creation of faster and more powerful System-on-Chip approximately 13,000 people worldwide. With sales and ICs for today’s demanding applications. UMC’s technology customer service offices in Taiwan, Japan, Singapore, Europe, includes a wide range of advanced processes, 90-nanometer, and the United States, UMC has an extensive service network 65-nanometer, embedded memories, and Mixed-Signal/RF to meet the needs of its global clientele. In the future, UMC CMOS. As an industry pioneer, UMC was the first foundry will continue to offer world leading production processes and to manufacture wafers using copper materials, produce chips the most comprehensive support structure for our customers using 90-nanometer process technology, produce chips on to strengthen its competitive advantages in a rapidly changing 300mm wafers, and deliver functional 65-nanometer ICs to industry. its customers. UMC led the development of the commercial semiconduc- tor industry in Taiwan. It was the first local company to offer foundry services, as well as the first semiconductor company to list on the Taiwan Stock Exchange (1985). Date of Incorporation May 22, 1980
11 United Microelectronics Corporation | Annual Report 2006
Milestones
1980 MAY UMC established.
1985 JUL. Becomes the first IC company to list on the Taiwan Stock Exchange.
1995 JUL. Begins transformation into a pure-play foundry.
JUL. Establishes joint venture foundry USC.
AUG. Establishes joint venture foundry UICC.
SEP. Establishes joint venture foundry USIC.
SEP. 200mm fab begins production.
1996 JAN. 0.35-micron volume production.
1997 OCT. 0.25-micron volume production.
1998 APR. Acquires Holtek Semiconductor.
DEC. Acquires Nippon Steel Semiconductor Corp.; renamed Fab UMCJ in 2001.
1999 MAR. 0.18-micron volume production.
NOV. Begins construction of 300mm fab in Taiwan’s Tainan Science Park, Fab 12A.
12 Corporate Overview
2000 JAN. Completes consolidation of five companies: UMC, USC, UTEK, USIC and UICC.
MAR. Ships first foundry chips using copper process.
MAY Produces foundry industry’s first 0.13-micron integrated circuits.
SEP. Makes its debut on the New York Stock Exchange.
DEC. Announces plan to establish advanced 300mm foundry in Singapore (UMCi).
2003 JAN. Announces equipment move-in at UMCi.
MAR. Delivers foundry’s first customer ICs built on 90-nanometer.
2004 MAR. UMCi moves to full-scale 300mm production.
MAY 90-nanometer full qualification and volume production.
JUL. Completes acquisition of SiS Microelectronics Corp.
DEC. Fully acquires its subsidiary UMCi; renamed UMC Fab 12i.
2005 JUN. Delivered the foundry industry’s first 65-nanometer customer products.
AUG. Achieves record milestone of over 100,000 90-nanometer wafer shipments.
2006 JUN. Becomes first IC company to achieve QC 080000 IECQ HSPM qualification for all fabs.
NOV. Produces working 45-nanometer ICs.
2007 JAN. Expands advanced technology complex in Tainan Science Park.
13 United Microelectronics Corporation | Annual Report 2006
14 Corporate Governance Report
Corporate Governance Report
16 Corporate Organization
18 Directors’, Supervisors’ and Managers’ Information
33 Corporate Governance Practices
35 Status of Internal Control
37 Auditing Notes
38 Change in Shareholding of Directors, Supervisors, Managers and Major Shareholders
39 Information Disclosing the Relationship Between Any of the Company’s Top Ten Shareholders
40 Total Percentage of Ownership of Investees
15 United Microelectronics Corporation | Annual Report 2006
Corporate Organization
Customer
American Japan Asia Europe New Business Business Group Business Group Business Group Business Group Development Group
The Chairman and CEO Office
Board of Directors
16 Corporate Governance Report
Corporate Marketing and Central Sales Operation Divisions Responsible for corporate marketing affairs
Intellectual Property Development & Design Support Division Responsible for intellectual property development & design support affairs
Central R&D and Specialty Technology Divisions Responsible for research and development of new processes and technologies
Fab 6A, Fab 8AB, Fab 8C, Fab 8D, Fab 8E, Fab 8F, Fab 8S, Fab 12A, Fab 12i, 12B Plant Construction Team, Central Manufacturing Planning, Facility Operation & Construction, Group Risk Management & Environmental Safe- ty & Health, Information Technology, Operations Support and Equipment Resources Integration Divisions, and Manufacturing Technology Division Responsible for Fab production, manufacturing, and operational support
Mask Engineering & Service, Product Engineering, Quality Assurance, Reliability Technology & Assurance and Test & Package Engineering Service Divisions, and TQM Committee Responsible for mask engineering, testing and packaging service, and product quality
Intellectual Property Rights Division Responsible for intellectual property rights protection and legal affairs
Finance and Accounting Divisions Responsible for finance and accounting
Human Resources Division Responsible for HR and general affairs
Auditing Division Responsible for auditing March 21, 2005
17 United Microelectronics Corporation | Annual Report 2006
Directors’ and Supervisors’ Information
Name Date Elected Term Shareholding Present Spouse & Minor Title [Date Assumed] (Yrs.) when Elected Shareholding Shareholding (Date First Elected) Common % Common % Common % Shares Shares Shares
Hsun Chieh Investment Co., Ltd. 2006.6.12 (1995.6.21) 3 599,696,356 3.02 605,830,368 3.17 - -
Representatives Jackson Hu 2006.6.12 (2004.2.4) 3 1,875,943 0.01 2,045,131 0.01 - - Chairman and CEO
Peter Chang 2006.6.12 (2001.5.30) 3 8,617,440 0.04 8,855,583 0.05 771,640 0.00 Managing Director Ching-Chang Wen 2006.6.12 (2001.5.30) 3 5,614,913 0.03 5,822,345 0.03 10,401 0.00 Managing Director Fu-Tai Liou 2006.6.12 (2001.5.30) 3 5,527,407 0.03 5,483,944 0.03 - - Director
Silicon Integrated Systems Corp. 2006.6.12 (2005.6.13) 3 428,511,368 2.16 432,894,409 2.26 - -
Representatives Shih-Wei Sun 2006.6.12 (2006.6.12) 3 15,192,341 0.08 14,502,644 0.08 1,033,471 0.01 Director
Stan Hung 2006.6.12 (2001.5.30) 3 17,404,005 0.09 17,732,022 0.09 2,036,700 0.01 Director
Chun-Yen Chang 2006.6.12 (2006.6.12) 3 - - - - 1,435 0.00 Independent Director
Chung Laung Liu 2006.6.12 (2006.6.12) 3 ------Independent Director
Paul S.C. Hsu 2006.6.12 (2004.6.1) 3 ------Independent Director
Hsun Chieh Investment Co., Ltd. 2006.6.12 (1995.6.21) 3 599,696,356 3.02 605,830,368 3.17 - -
Representatives Tzyy-Jang Tseng 2006.6.12 (2002.3.14) 3 19,650,715 0.10 19,851,712 0.10 209,158 0.00 Supervisor
Silicon Integrated Systems Corp. 2006.6.12 (2005.6.13) 3 428,511,368 2.16 432,894,409 2.26 - -
Representatives Ta-Hsing Wang 2006.6.12 (2006.6.12) 3 ------Supervisor
Ting-Yu Lin 2006.6.12 (2006.6.12) 3 16,182,403 0.08 16,947,925 0.09 - - Supervisor
Notes (1) Present shareholding figures are actual number of shares held on February 28, 2007. (2) Directors’ and Supervisors’ election date is the same date they assumed their positions. (3) Directors and Supervisors are not spouses or siblings of other managers, directors, and supervisors. (4) Directors and Supervisors did not hold shares through other parties. (5) Fu-Tai Liou, Shih-Wei Sun, and Stan Hung were elected as Directors at the Annual General Meeting on June 12, 2006. (6) Ta-Hsing Wang and Ting-Yu Lin were elected as Supervisors at the Annual General Meeting on June 12, 2006. 18 Corporate Governance Report
Experience Also Serves Concurrently as Education
- -
Chairman and CEO, UMC Independent Director, Compal Communications, Inc. Ph.D. of Computer Science, University of Illinois at Urbana-Champaign Director, UMC - Master of Electrical Engineering, University of Texas at Austin Director, UMC Director and President, UMC Japan Ph.D. of Electrical Engineering, University of Pennsylvania Director, UMC - Ph.D. of Material Science & Engineering, State University of New York at Stony Brook - -
Director, UMC - Ph.D. of Electronic Materials, Northwestern University Director, UMC Independent Director, A-DATA Technology Co., Ltd.; Director, Fortune Bachelor of Accounting, Venture Capital Corporation; Director, United Microdisplay Optronics Tamkang University Corporation; Director, TLC Capital Co., Ltd.; Supervisor, Novatek Micro- electronics Corp., Ltd.; Supervisor, SpringSoft, Ltd. Academician, Academia Sinica - Ph.D. of Electronics Engineering, National Chiao Tung University Honorary Chair Professor, National Tsing Hua University Independent Director, Macronix International Co., Ltd.; Independent Sc. D. of Massachusetts Institute of Technology Director, Anpec Electronics Corporation; Independent Director, Lightronik Technology Inc.; Independent Director, Mototech Inc. Far East Group Chair Professor of Management, Yuan-Ze University Chairman, Taiwan Assessment and Evaluation Association; Independent Ph.D. of Business Administration, Director, Faraday Technology Corp.; Independent Director, Taiwan Chi University of Michigan Cheng Enterprise Co., Ltd.; Supervisor, Far Eastern International Bank - -
Chairman, Unimicron Technology Corp. Chairman, Unimicron Technology Corp.; Director, Harvatek Corp.; Master of Physics, Chairman, Subtron Technology Co., Ltd.; Supervisor, Fortune National Tsing Hua University Venture Capital Corporation - -
Director, Pacific Technology Group - MBA, Columbia University Chairman, Sunrox International Inc. - Master of International Finance, Meiji University
19 United Microelectronics Corporation | Annual Report 2006
List of Major Shareholders of UMC’s Institutional Shareholders
UMC’s Institutional Shareholders Major Shareholders of UMC’s Institutional Shareholders (Holding Percentage)
Hsun Chieh Investment Co., Ltd. Hsieh Yong Capital Co., Ltd.(63.48%), United Microelectronics Corporation(36.49%)
Silicon Integrated Systems Corp. United Microelectronics Corporation(16.09%); Buddhist Compassion Relief Tzu Chi Foundation Taiwan(1.53%); Crédit Agricole (Suisse) SA (1.29%); Morgan Stanley & Co. In- ternational Limited(1.20%); Chuin Li Investment Corporation(1.15%); Shin-Sen Liu(1.12%); Chuin Tsie Investment Corporation(1.10%); HSBC, as the representative of HKIT-Pacific Glory Finance One Ltd.(1.06%); Samuel Liu(0.81%); R.O.C. Public Service Pension Fund(0.50%)
List of Institutional Shareholders of the Major Shareholders
Institutional Shareholders Major Shareholders of the Institutional Shareholders (Holding Percentage)
Hsieh Yong Capital Co., Ltd. Unimicron Technology Corp.(16.67%), Silicon Integrated Systems Corp. (16.67%), Novatek Microelectronics Corp., Ltd. (15.15%), Faraday Technology Corporation(12.12%), King Yuan Electronics Co., Ltd.(7.58%) Buddhist Compassion Relief Tzu Chi Foundation Taiwan Not Applicable.
Chuin Li Investment Corporation Robert H.C. Tsao(27.69%), John Hsuan(15.89%)
Chuin Tsie Investment Corporation Robert H.C. Tsao(36.00%), John Hsuan(13.33%)
R.O.C. Public Service Pension Fund Not Applicable.
20 Corporate Governance Report
Directors’ and Supervisors’ Professional Knowledge and Independence Information
Name Five or more Years Experience or Independence Status (Note) Number of Professional Qualification Companies also Serves Lecturer or Qualification of Experience in 1 2 3 4 5 6 7 8 9 10 as Indepen- Above in Busi- Justice, Procurator, Business, Law, dent Direc- ness, Law, Attorney, CPA, Finance, tor for Finance, Specialist or Accounting or Accounting or Technician of Corporate Corporate National Examina- Business Business Related tion in Corporate Related Fields Fields Business Related Fields Jackson Hu Yes - - - 1
Peter Chang Yes - - - -
Ching-Chang Wen Yes - - - -
Fu-Tai Liou Yes - - - -
Shih-Wei Sun Yes - - - -
Stan Hung Yes - - - 1
Chun-Yen Chang Yes Yes -
Chung Laung Liu Yes Yes 4
Paul S.C. Hsu Yes Yes 2
Tzyy-Jang Tseng Yes - - - -
Ta-Hsing Wang Yes - -
Ting-Yu Lin Yes -
Notes For those directors and supervisors who match the condition listed below during and two years before assuming period, “ ” is marked in the appropriate space. (1) Is not an employee of the Company or its affiliates. (2) Is not a director or supervisor of the Company or its affiliates. Does not include the independent directors or supervisors in the parent companies and subsidiaries. (3) Does not directly or indirectly own more than 1% of the Company’s outstanding shares; nor is one of the top ten non-institutional shareholders of the Company. (4) Is not a spouse or of immediate relation (child, parent, grandchild, grandparent, or sib- ling) to any person specified in the preceding two columns. (5) Is not a director, supervisor, or employee of a legal entity which directly owns more than 5% of the Company’s issued shares, nor a director, supervisor or employee of the top five legal entities which are owners of the Company’s issued shares. (6) Is not a director, supervisor, or manager of a company which has a business relationship with the Company, nor a shareholder who owns more than 5% of such a company. (7) Is not an owner, partner, director, supervisor, manager or spouse of any sole proprietor business, partnership, company or institution which has provided the Company and its affiliates with financial, business consulting, or legal services in 2006. (8) Is not a spouse or of immediate relation (child, parent, grandchild, grandparent, or sibling) to any of the directors. (9) Is not under any condition pursuant to Article 30 of the ROC Company Law. (10) Is not a legal entity owner or its representative pursuant to Article 27 of the ROC Company Law.
21 United Microelectronics Corporation | Annual Report 2006
Managers’ Information
Title Name Date Elected Present Shareholding Spouse & Minor (Date Assumed) Shareholding
Common Shares % Common Shares %
Chairman and CEO Jackson Hu 2006.1.9 2,045,131 0.01 - -
Vice Chairman Peter Chang 2000.1.3 8,855,583 0.05 771,640 0.00
Business Group President Ching-Chang Wen 2000.1.3 5,822,345 0.03 10,401 0.00
Business Group President Fu-Tai Liou 2002.12.17 5,483,944 0.03 - -
Executive Vice President Shih-Wei Sun 2003.7.29 14,502,644 0.08 1,033,471 0.01
Senior Vice President Stan Hung 2005.10.21 17,732,022 0.09 2,036,700 0.01
Senior Vice President Henry Liu 2003.9.16 11,572,588 0.06 19,861 0.00
Senior Vice President Tai-Sheng Feng 2004.2.23 1,638,510 0.01 - -
Vice President Nick Nee 2000.9.1 2,910,236 0.02 - -
Vice President Wen-Yang Chen 1998.1.1 3,047,599 0.02 54,265 0.00
Vice President Ying-Chih Wu 1999.2.1 11,982,001 0.06 334,020 0.00
Vice President Chia-Pin Lee 2004.9.14 926,010 0.00 28,136 0.00
Vice President Lee Chung 2004.10.18 411,546 0.00 - -
Vice President Shan-Chieh Chien 2004.11.23 4,135,193 0.02 3 0.00
Vice President Po-Wen Yen 2005.10.21 1,022,551 0.01 - -
Vice President Tsung-Hsi Ko 2006.2.28 3,660,076 0.02 66,915 0.00
CFO Chitung Liu 2005.10.21 928,871 0.00 222,841 0.00
Notes (1) Shareholding figures are actual number of shares held on February 28, 2007. (2) Managers did not hold shares through other parties. (3) Managers are not spouses or siblings of other managers. (4) Managers’ election date is the same date they assumed their positions.
22 Corporate Governance Report
Experience Also Serves Concurrently as Education
Chairman and CEO, UMC Independent Director, Compal Communications, Inc. Ph.D. of Computer Science, University of Illinois at Urbana-Champaign
Director, UMC - Master of Electrical Engineering, University of Texas at Austin
Director, UMC Director and President, UMC Japan Ph.D. of Electrical Engineering, University of Pennsylvania
Director, UMC - Ph.D. of Material Science & Engineering, State University of New York at Stony Brook Director, UMC - Ph.D. of Electronic Materials, Northwestern University
Director, UMC Independent Director, A-DATA Technology Co., Ltd.; Director, Fortune Bachelor of Accounting, Tamkang University Venture Capital Corporation; Director, United Microdisplay Optronics Corporation; Director, TLC Capital Co., Ltd.; Supervisor, Novatek Micro- electronics Corp., Ltd.; Supervisor, SpringSoft, Ltd. Senior Vice President, UMC - Bachelor of Electronics Engineering, National Taiwan University of Science and Technology Senior Vice President, UMC - Master of Electrical Engineering, University of Utah
Vice President, UMC - Bachelor of Marine Engineering, National Taiwan Ocean University
Vice President, UMC Director, UMC Japan Master of Electronics Engineering, National Chiao Tung University
Vice President, UMC - Bachelor of Physics, National Changhua University
Vice President, UMC - MBA, University of Oregon State
Vice President, UMC - Master of Materials Science, University of California, L.A.
Vice President, UMC - Bachelor of Chemical Engineering, National Taiwan University
Vice President, UMC - Master of Chemical Engineering, National Taiwan University
Vice President, UMC - EMBA, National Chiao Tung University
CFO, UMC Director, Novatek Microelectronics Corp., Ltd.; National Taiwan University EMBA candidate Supervisor, UMC Japan; Supervisor, TLC Capital Co., Ltd.
23 United Microelectronics Corporation | Annual Report 2006
The Compensation of Directors, Supervisors and Managers Directors’ Compensation Directors’ Compensation The Percentage of Directors’ Compensation Allowance Directors’ Operating to EAIT (%) Remuneration Expenses
UMC UMC’s UMC UMC’s UMC UMC’s UMC UMC’s Consolidated Consolidated Consolidated Consolidated Companies Companies Companies Companies
- - 13,015 13,015 390 390 0.04 0.04
Title Name Representatives
Director Hsun Chieh Investment Co., Ltd. Jackson Hu
Peter Chang
Ching-Chang Wen
Fu-Tai Liou
Director Silicon Integrated Systems Corp. Shih-Wei Sun
Stan Hung
Independent Director Chun-Yen Chang
Independent Director Chung Laung Liu
Independent Director Paul S.C. Hsu
Note Fu-Tai Liou, Shih-Wei Sun, and Stan Hung were elected as Directors at the Annual General Meeting on June 12, 2006.
24 Corporate Governance Report
In thousand NTD
Managers’ Compensation The Percentage of Compensation Total Compensation to from Other Salaries Employees’ Bonus Employee Stock EAIT (%) UMC Investee Options (Shares) Companies UMC UMC’s UMC UMC’s UMC UMC’s UMC UMC’s Consolidated Consolidated Consolidated Consolidated Companies Companies Companies Companies Cash Stock Cash Stock
22,190 28,341 45,000 - 45,000 - - - 0.25 0.27 None
Levels of Amounts of Compensation Number of Directors
Directors’ Compensation Total Compensation
UMC UMC’s Consolidated UMC UMC’s Consolidated Companies Companies Lower than NTD 2,000,000 6 6 - -
NTD 2,000,000~NTD 4,999,999 3 3 3 3
NTD 5,000,000~NTD 9,999,999 - - - -
NTD 10,000,000~NTD 14,999,999 - - 5 5
NTD 15,000,000~NTD 29,999,999 - - 1 1
NTD 30,000,000~NTD 49,999,999 - - - -
NTD 50,000,000~NTD 99,999,999 - - - -
NTD 100,000,000 or More - - - -
Total 9 9 9 9
25 United Microelectronics Corporation | Annual Report 2006 The Compensation of Directors, Supervisors and Managers (cont.)
Supervisors’ Compensation Supervisors’ Compensation
Allowance Supervisors’ Remuneration Operating Expenses
UMC UMC’s Consolidated Companies UMC UMC’s Consolidated Companies UMC UMC’s Consolidated Companies
- - 2,479 2,479 120 120
Title Name Representatives
Supervisor Hsun Chieh Investment Co., Ltd. Tzyy-Jang Tseng
Supervisor Silicon Integrated Systems Corp. Ta-Hsing Wang
Supervisor Ting-Yu Lin
Note Ta-Hsing Wang and Ting-Yu Lin were elected as Supervisors at the Annual General Meeting on June 12, 2006.
26 Corporate Governance Report
In thousand NTD
The Percentage of Supervisors’ Compensation to EAIT (%) Compensation from other UMC investee companies
UMC UMC’s Consolidated Companies
0.01 0.01 None
Levels of Amounts of Compensation Number of Supervisors
Total Compensation
UMC UMC’s Consolidated Companies
Lower than NTD 2,000,000 3 3
NTD 2,000,000~NTD 4,999,999 - -
NTD 5,000,000~NTD 9,999,999 - -
NTD 10,000,000~NTD 14,999,999 - -
NTD 15,000,000~NTD 29,999,999 - -
NTD 30,000,000~NTD 49,999,999 - -
NTD 50,000,000~NTD 99,999,999 - -
NTD 100,000,000 or More - -
Total 3 3
27 United Microelectronics Corporation | Annual Report 2006 The Compensation of Directors, Supervisors and Managers (cont.)
Managers’ Compensation
Salaries Bonus and Special Allowance Employees’ Bonus
UMC UMC’s Consolidated UMC UMC’s Consolidated UMC UMC’s Consolidated Companies Companies Companies
Cash Stock Cash Stock
34,544 40,695 37,116 37,116 98,280 - 98,280 -
Title Name
Chairman and CEO Jackson Hu
Vice Chairman Peter Chang
Former President Hong-Jen Wu
Business Group President Ching-Chang Wen
Business Group President Fu-Tai Liou
Executive Vice President Shih-Wei Sun
Senior Vice President Stan Hung
Senior Vice President Henry Liu
Senior Vice President Tai-Sheng Feng
Vice President Nick Nee
Vice President Wen-Yang Chen
Vice President Ying-Chih Wu
Vice President Chia-Pin Lee
Vice President Lee Chung
Vice President Shan-Chieh Chien
Vice President Po-Wen Yen
Vice President Tsung-Hsi Ko
CFO Chitung Liu
Note Hong-Jen Wu retired on June 30, 2006.
28 Corporate Governance Report
In thousand NTD The Percentage of Total Employee Stock Options(Shares) Compensation from other Compensation to EAIT (%) UMC investee companies
UMC UMC’s Consolidated UMC UMC’s Consolidated Companies Companies
0.52 0.54 - - None
Levels of Amounts of Compensation Number of Managers
UMC UMC’s Consolidated Companies
Lower than NTD 2,000,000 - -
NTD 2,000,000~NTD 4,999,999 1 1
NTD 5,000,000~NTD 9,999,999 10 10
NTD 10,000,000~NTD 14,999,999 5 5
NTD 15,000,000~NTD 29,999,999 2 2
NTD 30,000,000~NTD 49,999,999 - -
NTD 50,000,000~NTD 99,999,999 - -
NTD 100,000,000 or More - -
Total 18 18
29 United Microelectronics Corporation | Annual Report 2006 The Compensation of Directors, Supervisors and Managers (cont.)
Managers’ Bonus In thousand NTD Stock Bonus Cash Bonus Total The Percentage of Total Bonus to EAIT (%)
- 98,280 98,280 0.30
Title Name
Chairman and CEO Jackson Hu
Vice Chairman Peter Chang
Former President Hong-Jen Wu
Business Group President Ching-Chang Wen
Business Group President Fu-Tai Liou
Executive Vice President Shih-Wei Sun
Senior Vice President Stan Hung
Senior Vice President Henry Liu
Senior Vice President Tai-Sheng Feng
Vice President Nick Nee
Vice President Wen-Yang Chen
Vice President Ying-Chih Wu
Vice President Chia-Pin Lee
Vice President Lee Chung
Vice President Shan-Chieh Chien
Vice President Po-Wen Yen
Vice President Tsung-Hsi Ko
CFO Chitung Liu
30 Corporate Governance Report
Comparison of Compensation for Directors, Supervisors and Managers in the Past Two Years
2006 2005
UMC Consolidated UMC Consolidated
EAIT (Thousand NTD) 32,619,313 32,619,313 7,026,692 7,026,692
The Percentage of Directors’ and 0.05 0.05 0.10 0.10 Supervisors’ Compensation to EAIT
The Percentage of Managers’ 0.52 0.54 1.36 1.51 Compensation to EAIT
Notes (1) The directors’ and supervisors’ compensation includes allowance, remuneration and operating expenses; the managers’ compensation includes salaries, spe- cial allowance and employees’ bonus. (2) On March 15, 2007, the Company’s Board proposed to distribute NTD 15,494,130 as Directors’ and Supervisors’ remunera- tion and NTD 2,324,119,405 as employee cash bonus from retained earnings of 2006 and previous years.
The Company’s compensation for Directors, Supervisors and Managers is based on the Company’s Article and formulations, and is distributed in proper ratios.
Compensation Policy for Directors, Supervisors and Managers
Policy for Directors’ and Supervisors’ Compensation Policy for Managers’ Compensation The Company’s Article has stated that Directors’ and Super- The Company annually evaluates its salary level with similar visors’ Compensation is the allocation of 0.1% of the residual industries to ensure the Company’s salary is competitive. amount from net profit after being deducted by payment of The Company’s salary structure can be divided into fixed taxes, making up loss for preceding years and setting aside and variable. The compensation is set to fully reflect the 10% for legal reserve. achievements for individuals and teams.
31 United Microelectronics Corporation | Annual Report 2006
Information of Board Meeting Operation Board meetings were held 12 times in 2006; attendances of directors and supervisors are as follows: Name Title Attendance Proxy Attendance Rate (%) Remarks Attendance (Note)
Hsun Chieh Investment Co., Ltd.
Representatives: Jackson Hu Chairman 11 91.67
Representatives: Peter Chang Managing Director 11 91.67
Representatives: Ching-Chang Wen Managing Director 5 41.67
Representatives: Fu-Tai Liou Director 3 75.00 Elected on 2006.6.12
Silicon Integrated Systems Corp.
Representatives: Shih-Wei Sun Director 3 75.00 Elected on 2006.6.12
Representatives: Stan Hung Director 4 100.00 Elected on 2006.6.12
Chun-Yen Chang Independent 3 1 75.00 Elected on 2006.6.12 Director
Chung Laung Liu Independent 4 100.00 Elected on 2006.6.12 Director
Paul S.C. Hsu Independent 10 83.33 Director
Hsun Chieh Investment Co., Ltd.
Representatives: Tzyy-Jang Tseng Supervisor 8 66.67
Silicon Integrated Systems Corp.
Representatives: Ta-Hsing Wang Supervisor 3 75.00 Elected on 2006.6.12
Ting-Yu Lin Supervisor 3 75.00 Elected on 2006.6.12
Robert H.C. Tsao Former Chairman 2 100.00 Resigned on 2006.1.9
John Hsuan Former Vice Chairman 2 100.00 Resigned on 2006.1.9
Jack K.C. Wang Former Director 8 100.00 Expired on 2006.6.11
Mao-Chung Lin Former Director 8 100.00 Expired on 2006.6.11
Silicon Integrated Systems Corp. Former Director 5 1 62.50 Expired on 2006.6.11
Chuin Tsie Investment Corporation
Representatives: Tsing-Yuan Hwang Former Supervisor 3 37.50 Expired on 2006.6.11
Other disclosures: The board resolved the proportion of directors’ and supervisors’ compensation distribution for 2006 on December 28, 2006; all directors were agreed upon except for Chun-Yen Chang, Chung Laung Liu and Paul S.C. Hsu, who abstained due to their independent status.
Note Attendance rate = Number of meetings each board member actually attends / total number of board meetings held within his or her service period.
Information Regarding Audit Committee Operation
Not Applicable. The audit committee of the Company was instituted under US securities authorities regulation.
32 Corporate Governance Report
Corporate Governance Practices
Item Actions The Reasons for the Differences between the Company’s Governance and Recognized Corporate Governance Corporate Shareholder Structure and Shareholders’ Rights:
(a) How the Company handles shareholders’ The Company has designated a specific body and established an email - recommendations or disputes: address to handle shareholders’ recommendations or disputes.
(b) How the Company regularly monitors There is no single shareholder who holds more than 10% of the - the list of key shareholders who have Company’s total outstanding shares. management control of the Company, or those who have ultimate control of key shareholders: (c) How the Company establishes proper The obligations and rights between the Company and its affiliated en- - risk control mechanisms and firewalls terprises have been clearly defined. Any transaction between the Com- between the Company and its affiliated pany and its affiliated enterprises complies with related regulations. enterprises:
The Structure and Responsibilities of the Board:
(a) Independent directors on the The Company has instituted three independent directors. - Company’s Board:
(b) How the Company periodically evaluates The Company’s auditor is one of the largest and best regarded in its - the independence of its auditors: industry. The auditor assiduously avoids conflicts of interests.
The Composition and Responsibilities of Supervisors:
(a) How the Company institutes independent - The Company currently has supervisors: no independent supervisors.
(b) How the supervisors communicate with At any time, a supervisor may individually investigate the business and - the Company’s employees and financial conditions of the Company, and may ask the Board of Direc- shareholders: tors or executive managers to prepare a report.
The Company’s Communication Channels The Company has designated a specific unit and established an email - for its Stakeholders: address to handle stakeholders’ concerns.
Information Disclosure:
(a) How the Company establishes a website The Company regularly publishes up-to-date detailed financial and - to disclose financial and corporate corporate governance information on its website in both Chinese and governance information: English.
(b) Other channels for the disclosure of The Company has designated a specific body to collect and disclose in- - the Company’s information: formation about the Company. In addition, the Company has established standard procedures for an authorized spokesperson to make statements on behalf of the Company. The Company has one main spokesperson and two deputy spokespersons. To ensure the quality of information disclosure, the Company has set up a Disclosure Committee designed to provide and control information for government officials in a timely and accurate manner, thus achieving the goal and responsibility to thor- oughly disclose corporate information.
33 United Microelectronics Corporation | Annual Report 2006 Corporate Governance Practices (cont.)
Item Actions The Reasons for the Differences between the Company’s Governance and Recognized Corporate Governance The operation of functional committee The Company has instituted an audit committee. The operation - work within the Board of Directors of the details are disclosed on page 95. Company: The comparison between the Company’s corporate governance mechanism and the recognized corporate governance principles: The Company bases its corporate governance structures and practices on Taiwan’s Company Law, the Securities and Exchange Law, and their related rules and regulations. The Company’s corporate governance mechanism follows recognized corporate governance principles. The Company’s policy and efforts to be socially responsible: When UMC was founded, its long-term policy stated that the Company should contribute to society in addition to focusing on its core business. There- fore, providing public services to address current society issues has become part of UMC’s goals. UMC’s public service scope includes the Company itself, its employees, employees’ families, the local community, and various other social entities. UMC’s public service aspects include education, envi- ronmental protection, cultural activities and childcare. The Company’s public services are handled by two major organizations: the UMC Candlelight Charity Club, whose purpose is to assist disadvantaged minorities, and the UMC Science and Culture Foundation, whose purpose is to support affairs regarding education, culture, sports and environmental protection. The Company also established a “Policy and Procedures for Refraining from Insider Trading” in May 2005 to provide a guideline for the Company’s related parties to prevent insider trading. The descriptions about labor relation- ships, environmental protection and relationships with suppliers are disclosed in the Operations Overview section. Other information disclosures: (a) Has the Company established any educational programs for its board members? The Company provides information related to professional educational opportunities to all board members. (b) The attendance of directors and supervisors to the board meeting: In 2006, the attendance rate of directors was 84%; the attendance rate of supervisors was 61%. (c) Has the Company established a risk management policy and standards for evaluating risk and implementing its risk management policy? Not Applicable. (d) Has the Company established policies to protect consumers or its customers and does it regularly evaluate the policies’ implementation? Not Applicable. (e) Is there a policy to ensure board members avoid introducing topics of discussion that would advance their own vested interests? The board is well disciplined and enforces a strict policy of separating personal and company interests amongst its members. (f) Has the Company purchased liability insurance for its directors and supervisors? The Company has purchased liability insurance for its directors since 2000. (g) The Corporate Governance Statement: http://www.umc.com/english/investors/corp_gov.asp
The result, material deficiency (or suggestion) and improvement of corporate governance assessed by internal audit or professional institutions: None.
34 Corporate Governance Report
Status of Internal Control
Statement of Internal Control to the judgement items for internal control employed by The self-assessment of UMC’s internal control was conduct- the Regulations, such as: (1) Control Environment, (2) Risk ed for the year ended December 31, 2006 based on UMC’s Assessments, (3) Control Activities, (4) Information and internal control system. The results are described as follows: Communication, and (5) Monitoring. Each component consists of certain items, which could be referred to the 1. UMC acknowledges that the Board of Directors and the Regulations. management are responsible for establishing, executing, 4. UMC has employed the judgement items mentioned above and maintaining a sufficient internal control system, to evaluate the effectiveness of the design and execution of which is already in place. The purposes of the internal the internal control system. control system are to provide a reasonable assurance of 5. UMC believes that the effectiveness of the design and achieving the goals of efficiency and effectiveness of the execution of its internal control system (including operations, such as profitability, performance and the subsidiaries) during the above mentioned assessment safeguard of the assets, the reliability of the financial period provides reasonable assurance of achieving the reports and the compliance with applicable laws and goals of efficiency and effectiveness of operations, the regulations. reliability of financial reports and the compliance with 2. The internal control system has its inherent constraints, applicable R.O.C. laws and regulations. and can only provide reasonable assurances of achiev- 6. The Statement of Internal Control will be an integral part ing the three goals mentioned above no matter how well it of UMC’s annual report and prospectus that are open to has been designed. The effectiveness of the internal the public, and within which any illegal acts, such as control system is subject to changes in the environment misstatement or concealment, would be subject to the legal and circumstances. UMC has established an internal liabilities of Code 20, Code 32, Code 171 and Code 174 of control system with the function of self-monitoring, which the Securities Exchange Laws. is designed to take corrective actions whenever a 7. UMC’s Board of Directors approved the Statement of shortcoming is identified. Internal Control (the Statement) on March 15, 2007. 3. UMC’s assessment of the effectiveness of the design and Nine directors attended and agreed with the content of the execution of the internal control system is based on the Statement. Regulations Governing Establistment of Internal Control Systems by Public Companies (the Regulations) currently in effect in the Republic of China (“R.O.C.”), which specify the judgement items for evaluating the effectiveness of internal control. Jackson Hu, The internal control is divided into five components, Chairman and CEO based on the process of management control, according March 15, 2007
The Company was not required to engage with a CPA to attest to the internal control system under R.O.C. regulations; there- fore, there is no CPA audit report on internal control to be disclosed for 2006 in this annual report.
35 United Microelectronics Corporation | Annual Report 2006
Major Resolutions of the Shareholders’ Meeting and the Board of Directors’ Meetings
Shareholders’ Meeting 5. Distribution of 2005 retained earnings. The Company’s 2006 Shareholders’ Meeting was held at 6. Capitalization of retained earnings from 2005 and UMC Recreation Center in Hsinchu Science Park on June previous years and additional paid-in capital. 12, 2006. The shareholders present in person or by proxy ap- 7. Modify the term “Audit Committee” in Chinese to proved the following resolutions: avoid misinterpretation under Taiwan Laws. 1. Acceptance of the 2005 business report and financial 8. The election of the 10th term of Directors and statement. Supervisors. 2. Distribution of 2005 retained earnings. 9. Cancellation of 1,000,000,000 treasury shares. 3. Capitalization of retained earnings and additional paid-in 10. The 11th share buyback program. capital from 2005 and previous years. 11. The election of Managing Directors. 4. Amendment of the Company’s Articles of Incorporation, 12. The election of Audit Committee members. Endorsements and Guarantees Procedure and Financial 13. The execution of ADS conversion sales program for Derivatives Transaction Procedure. UMC’s common shareholders. 5. Election of the Company’s 10th term of Directors and 14. The authorization of Audit Committee to review and Supervisors. approve the compensation for CEO. 15. The Adoption of the Conduct of Board Meeting. Board of Directors’ Meetings 16. Issuance of employee stock options. The major resolutions from the Board of Directors from 17. Capital Reduction. January 1, 2006 to the printing day are summarized below: 18. Acceptance of the 2006 business report and financial 1. The election of Jackson Hu as Chairman. statement. 2. The disposal of 63.48% of the equity of its subsidiary Hsun 19. Distribution of 2006 retained earnings. Chieh Investment Co., Ltd. to Hsieh Yong Capital Co., Ltd. 20. Investment related to mainland China. 3. The 10th share buyback program. 4. Acceptance of the 2005 business report and financial statement.
Description of Violations/Infringement of Regulations and the Company’s Response On December 1, 2006, the Company dismissed an employee of the Company’s Employment Agreement. The Company for violating IT safety regulations of the Company Employee implemented related preventive actions including promoting Discipline Rules and breaching of the confidentiality clause IT safety regulations.
Directors’ or Supervisors’ Objections on the Important Resolution of Board Meetings None.
Information of Resignation or Dismission of the Persons Related to Financial Reports None.
36 Corporate Governance Report
Auditing Notes
Disclosure of Auditing Fee Changes in Independent Auditors (a) The amount of non-auditing relevant fees charged by Kim Chang and MY Lee from Ernst & Young were the the appointed independent auditors and the related Company’s appointed independent auditors. As requested by parties reaches 25% of the Company’s annual auditing Ernst & Young for its internal job rotation purpose, James expenses: Not Applicable. Wang and MY Lee became the Company’s independent (b) If there is any change in the appointed independent auditors since fourth quarter of 2005. auditors and the Company’s annual auditing expenses decreased simultaneously, information regarding the The Company’s chairman, presidents, CFO or amount, percentage and reasons for the decrease in Accounting division director have not worked in the ac- auditing expenses shall be disclosed: Not Applicable. counting firm of the appointed independent auditors or the (c) Auditing expenses decreased by 15% in comparison related parties within the past year. to the previous year, information regarding the amount, percentage and reasons for the decrease in auditing expenses shall be disclosed: Not Applicable.
37 United Microelectronics Corporation | Annual Report 2006
Change in Shareholding of Directors, Supervisors, Managers and Major Shareholders Unit: share Title Name 2007 2006 Holding Pledged Holding Pledged Increase Holding Increase Holding (Decrease) Increase (Decrease) Increase (Decrease) (Decrease) Chairman, Supervisor Hsun Chieh Investment Co., Ltd. - - 6,134,012 5,000,000
Director, Supervisor Silicon Integrated Systems Corp. - - 4,383,041 -
Independent Director Chun-Yen Chang - - - -
Independent Director Chung Laung Liu - - - -
Independent Director Paul S.C. Hsu - - - -
Supervisor Ting-Yu Lin - - 765,522 -
Chairman and CEO Jackson Hu - - 169,188 -
Vice Chairman Peter Chang - - 238,143 -
Business Group President Ching-Chang Wen - - 207,432 -
Business Group President Fu-Tai Liou (30,000) - (13,463) -
Executive Vice President Shih-Wei Sun - - (756,686) -
Senior Vice President Stan Hung - - 328,017 -
Senior Vice President Henry Liu (70,000) - (10,803) -
Senior Vice President Tai-Sheng Feng - - 165,071 -
Vice President Nick Nee - - (1,460,332) (1,100,000)
Vice President Wen-Yang Chen - - (5,829,656) -
Vice President Ying-Chih Wu - - (745,038) -
Vice President Chia-Pin Lee - - 93,515 -
Vice President Lee Chung - - (94,922) -
Vice President Shan-Chieh Chien 2,300,000 1,300,000 117,568 1,800,000
Vice President Po-Wen Yen - - (317,686) 220,000
Vice President Tsung-Hsi Ko - - 236,045 100,000
CFO Chitung Liu - - 88,594 -
Notes (1) No shareholder owns 10% or more of UMC shares. (2) The data represented for 2007 was gathered until February 28, 2007. (3) Counterparts of the sharehold- ing transferred or pledged are not related parties. (4) The share changes for Chun-Yen Chang, Chung Laung Liu, Ting-Yu Lin, Po-Wen Yen, Tsung-Hsi Ko, and Chitung Liu are calculated starting from the assumed date.
38 Corporate Governance Report
Information Disclosing the Relationship Between Any of the Company’s Top Ten Shareholders None.
39 United Microelectronics Corporation | Annual Report 2006
Total Percentage of Ownership of Investees
Investees UMC Investments Investments from Directors, Total Investments Supervisors, Managers, and Directly or Indirectly Con- trolled Businesses Shares % Shares % Shares %
United Fu Shen Chen Technology Corp. 18,460,153 16.60 - - 18,460,153 16.60
Unimicron Technology Corp. 202,366,540 19.89 24,115,891 2.37 226,482,431 22.26
Faraday Technology Corp. 55,611,441 17.27 - - 55,611,441 17.27
Fortune Venture Capital Corporation 499,994,000 99.99 - - 499,994,000 99.99
Hsun Chieh Investment Co., Ltd. 33,624,110 36.49 - - 33,624,110 36.49
Pacific Venture Capital Co., Ltd. 30,000,000 49.99 - - 30,000,000 49.99
Novatek Microelectronics Corp. 60,072,615 11.54 4,123,999 0.79 64,196,614 12.33
ITE Tech. Inc. 24,229,364 21.80 - - 24,229,364 21.80
Holtek Semiconductor Inc. 51,939,380 24.45 - - 51,939,380 24.45
AMIC Technology Corporation 16,200,000 11.86 23,464,808 17.18 39,664,808 29.04
United Microdisplay Optronics Corp. 64,313,176 81.76 - - 64,313,176 81.76
Silicon Integrated Systems Corp. 228,955,885 16.09 - - 228,955,885 16.09
UMC Group (USA) 16,437,500 100.00 - - 16,437,500 100.00
UMC Japan 495,650 50.09 57,880 5.85 553,530 55.94
UMCi Ltd. 880,006,287 100.00 - - 880,006,287 100.00
UMC Capital Corp. 124, 000,000 100.00 - - 124, 000,000 100.00
United Microelectronics Corp. (Samoa) 280,000 100.00 - - 280,000 100.00
United Microelectronics (Europe) B.V. 9,000 100.00 - - 9,000 100.00
Unitech Capital Inc. 21,000,000 42.00 - - 21,000,000 42.00
XGI Technology Inc. 8,757,580 16.48 8,318,744 15.65 17,076,324 32.13
TLC Capital Co.,Ltd. 600,000,000 100.00 - - 600,000,000 100.00
MediaTek Inc. 14,979,499 1.55 1,928 0.00 14,981,427 1.55
AU Optronics Corp. 78,265,799 1.03 126,155 0.00 78,391,954 1.03
Notes (1) The companies listed above are UMC’s funds and investments. (2) Shareholding figures are actual number of shares held on December 31, 2006.
40 Corporate Governance Report
Investees UMC Investments Investments from Directors, Total Investments Supervisors, Managers, and Directly or Indirectly Con- trolled Businesses Shares % Shares % Shares %
C-Com Corporation 3,082,877 4.40 674,702 0.96 3,757,579 5.36
Sino-Aerospace Investment Corp. 28,500,000 11.11 - - 28,500,000 11.11
TECO Nanotech Co., Ltd. 11,000,757 4.56 - - 11,000,757 4.56
United Industrial Gases Co., Ltd. 13,185,529 7.80 - - 13,185,529 7.80
Mega Financial Holding Company 95,576,810 0.86 508 0.00 95,577,318 0.86
Hon Hai Precision Industry Co., Ltd. 1,056,795 0.02 - - 1,056,795 0.02
Industrial Bank of Taiwan Corp. 118,302,849 4.95 - - 118,302,849 4.95
Subtron Technology Co., Ltd. 11,520,000 4.79 10,156,900 4.22 21,676,900 9.01
Taiwan High Speed Rail Corporation 30,000,000 - - - 30,000,000 - Preferred Stock Billionton Systems Inc. 2,047, 819 2.63 - - 2,047, 819 2.63
PixTech, Inc. 9,883,470 17.63 - - 9,883,470 17.63
Pacific Technology Partners, L.P. ------
Pacific United Technology, L.P. ------
Chipbond Technology Corporation 12,329,742 4.15 7,817,152 2.63 20,146,894 6.78
Epitech Technology Corporation 37,221,421 10.06 28,627,486 7.74 65,848,907 17.80
Highlink Technology Corp. 28,500,000 18.97 17,514,550 11.66 46,014,550 30.63
Mega Mission Limited Partnership - 45.00 - - - 45.00
MTIC Holdings Pte Ltd. 4,000,000 49.94 - - 4,000,000 49.94
MTIC Holdings Pte Ltd. Preferred Stock 4,000,000 - - - 4,000,000 -
Springsoft, Inc. 9,466,515 4.78 - - 9,466,515 4.78
King Yuan Electronics Co., Ltd. 35,007,928 3.21 - - 35,007,928 3.21
Rechi Precision Co., Ltd. 1,753,020 0.51 20,163,440 5.84 21,916,460 6.35
41 United Microelectronics Corporation | Annual Report 2006
Capital Overview
43 Capital and Shares
50 Corporate Bonds
55 Preferred Stock
56 American Depositary Receipts
58 Employee Stock Option Certificates
63 Mergers and Acquisitions
63 Financing Plans and Execution Status
42 Capital Overview
Capital and Shares Source of Capital Date Issue Price Authorized Shares Issued Shares Remarks (Per share) Shares Total Shares Total Source of Assets other Other (In thousands) (In thousand NTD) (In thousands) (In thousand NTD) Capital than Cash Used for Capital January, 2006 NTD 10 26,000,000 260,000,000 19,794,703 197,947,033 Note 1 - -
April, 2006 NTD 10 26,000,000 260,000,000 19,845,234 198,452,341 Note 2 - -
June, 2006 NTD 10 26,000,000 260,000,000 18,845,234 188,452,341 Note 3 - -
July, 2006 NTD 10 26,000,000 260,000,000 19,070,111 190,701,112 Note 4 - -
October, 2006 NTD 10 26,000,000 260,000,000 19,085,310 190,853,097 Note 5 - -
January, 2007 NTD 10 26,000,000 260,000,000 19,131,193 191,311,927 Note 6 - -
Notes (1) On January 16, 2006, the Science Park Administration approved the issuance of NTD 288,445 thousand from the execution of employee stock options during the 4th quarter of 2005. The Company’s paid-in capital was increased to NTD 197,947,033 thousand. (2) On April 6, 2006, the Science Park Administration approved the issuance of NTD 505,308 thousand from the execution of employee stock options during the 1st quarter of 2006. The Company’s paid-in capital was increased to NTD 198,452,341 thousand. (3) On June 2, 2006, the Science Park Administration approved the capital reduction of NTD 10,000,000 thousand due to cancellation of treasury shares. The Company’s paid-in capital was decreased to NTD 188,452,341 thousand. (4) On July 11, 2006, the R.O.C. FSC approved the issuance of NTD 2,248,771 thousand from the capitalization of retained earnings and additional paid-in capital. The Company’s paid-in capital was increased to NTD 190,701,112 thousand. (5) On October 14, 2006, the Science Park Administration approved the issuance of NTD 151,985 thousand from the execution of employee stock options during the 3rd quarter of 2006. The Company’s paid-in capital was increased to NTD 190,853,097 thousand. (6) On January 16, 2007, the Science Park Administra- tion approved the issuance of NTD 458,830 thousand from the execution of employee stock options during the 4th quarter of 2006. The Company’s paid-in capital was increased to NTD 191,311,927 thousand.
Unit: share Share Type Authorized Shares Allotment for Allotment for Stock Convertible Option Certificates Issued Shares Un-issued Shares Total Bonds (Units) Common stock 19,131,192,690 6,868,807,310 26,000,000,000 1,500,000,000 2,000,000,000
Securities under General Application System Not applicable.
43 United Microelectronics Corporation | Annual Report 2006 Capital and Shares (cont.)
Status of Shareholders Stock: common share Item Government Financial Other Legal Domestic Foreign Total Agencies Institutions Entities Individuals Institutions & Individuals Number of shareholders 21 39 1,016 849,042 1,109 851,227
Shareholding (Shares) 27,731,900 262,007,234 3,777,439,768 7,972,544,290 7,030,387,998 19,070,111,190
Percentage (%) 0.14 1.37 19.81 41.81 36.87 100.00
Note The data shown above was recorded on August 8, 2006, which was the record date for the distribution of 2005 stock dividends.
Distribution of Common Shares Class of Shareholding (Unit: Share) Number of Shareholders Shareholding (Shares) %
1 ~ 999 246,819 91,068,242 0.48
1,000 ~ 5,000 338,221 825,523,709 4.33
5,001 ~ 10,000 117,291 812,198,939 4.26
10,001 ~ 15,000 56,790 676,797,401 3.55
15,001 ~ 20,000 23,791 410,420,036 2.15
20,001 ~ 30,000 27,432 656,512,957 3.44
30,001 ~ 40,000 12,546 428,552,736 2.25
40,001 ~ 50,000 6,611 292,776,398 1.53
50,001 ~ 100,000 12,431 833,846,481 4.37
100,001 ~ 200,000 5,331 710,697,195 3.73
200,001 ~ 400,000 2,126 568,453,555 2.98
400,001 ~ 600,000 561 270,684,876 1.42
600,001 ~ 800,000 279 192,002,576 1.01
800,001 ~ 1,000,000 139 123,552,092 0.65
Over 1,000,001 859 12,177,023,997 63.85
Total 851,227 19,070,111,190 100.00
Note The data shown above was recorded on August 8, 2006, which was the record date for the distribution of 2005 stock dividends.
Preferred Stock None.
44 Capital Overview
List of Major Shareholders
Shareholder’s Name Shareholding
Common Shares %
Citicorp Financial Service Ltd., as representative of holders of the ADRs and as 1,398,258,888 7.33 nominee for Citibank, N.A., as Depositary, pursuant to a Deposit Agreement, dated as of September 21, 2000 among United Microelectronics Corporation, the Depositary and holders and beneficial owners from time to time of the ADRs issued thereunder Hsun Chieh Investment Co., Ltd. 605,830,368 3.18
Xilinx Holding Three Ltd. 441,396,924 2.31
Silicon Integrated Systems Corp. 432,894,409 2.27
TECO Electric & Machinery Co., Ltd. 200,110,944 1.05
JP Morgan Chase Bank N.A., Taipei Branch, in custody of the Oppenheimer 181,412,798 0.95 Developing Markets Fund managed by Oppenheimer Fund Administrative Committee, Yao Hua Glass Co., Ltd. 149,494,020 0.78
iSHARES Inc. 133,395,262 0.70
Deutsche Bank AG 132,562,233 0.70
Citicorp Financial Service Ltd., as representative of 125,767,460 0.66 the Singapore Government Fund
Note The data shown above was recorded on August 8, 2006, which was the record date for the distribution of 2005 stock dividends.
45 United Microelectronics Corporation | Annual Report 2006
Market Price, Net Worth, Earnings, and Dividends per Share Unit: NTD Item 2007 (Note 7) 2006 2005
Market price per share Highest market price 22.40 22.90 25.25
Adjusted highest market price (Note 1) – 22.61 22.37
Lowest market price 18.50 17.35 16.35
Adjusted lowest market price (Note 1) – 17.18 15.59
Average market price 20.32 19.36 20.23
Adjusted average market price (Note 1) – 19.11 17.92
Net worth per share Before distribution – 16.39 14.17
After distribution – * 13.59
Earnings per share Weighted average shares – 18,050,962,111 18,410,921,978 shares shares
Earnings per share (Note 2) – 1.81 0.38
Earnings per share (Note 3) – * 0.38
Dividends per share Cash dividends – * 0.40
Stock dividends Dividends from retained earnings – * 0.05
Dividends from additional paid–in capital – * 0.05
Accumulated unappropriated dividends – – –
Return on investment Price / Earnings ratio (Note 4) – 10.59 53.42
Price / Dividends ratio (Note 5) – * 50.75
Cash dividends yield rate (Note 6) – * 0.02
* Subject to change following the 2007 shareholders’ meeting resolution.
Notes (1) The calculation of adjusted market price was based on retroactive adjustment for capitalization of unappropriated earnings, additional paid-in capital and bonus to employees. (2) The calculation of EPS was based on weighted average shares outstanding for the year. (3) The calculation of EPS was based on retroactive adjustment for capitalization of unappropriated earnings, additional paid-in capital and bonus to employees. (4) Price / Earnings ratio = Average closing price / Earnings per share. (5) Price / Dividends ratio = Average closing price / Cash dividends per share. (6) Cash dividends yield rate = Cash dividends per share / Average closing price. (7) The data represented for 2007 was gathered until March 15, 2007. (8) The average closing prices for years 2005, 2006 and 2007 were NTD 20.30, NTD 19.17, and NTD 19.98, respectively.
46 Capital Overview
Dividend Policy and Status
Dividend Policy in the Company’s (f) The distribution of the remaining portion, if any, will be Articles of Incorporation recommended by the board of directors and approved According to the Company’s Articles of Incorporation, through the shareholders’ meeting. current year’s earnings, if any, shall be distributed in the The Company is in its growth stage; the policy for divi- following order: dend distribution should reflect factors such as the current (a) Payment of all taxes and dues; and future investment environment, fund requirements, do- (b) Offset prior years’ operating losses; mestic and international competition and capital budgets; as (c) Set aside 10% of the remaining amount after deducting well as the benefit of shareholders, share bonus equilibrium, items (a) and (b) as a legal reserve; and long-term financial planning. The board of directors (d) Set aside 0.1% of the remaining amount after deducting shall make the distribution proposal annually and present items (a), (b), and (c) as directors’ and supervisors’ remu- it at the shareholders’ meeting. The Company’s Articles of neration; and Incorporation further provide that no more than 80% of the (e) After deducting items (a), (b), and (c) above from the dividends to shareholders, if any, must be paid in the form of current year’s earnings, no less than 5% of the remaining stock dividends. Accordingly, at least 20% of the dividends amount together with the prior years’ unappropriated must be paid in the form of cash. earnings is to be allocated as employees’ bonus which will be settled through issuance of new Company shares Proposed Distribution of Dividend or cash. Employees of the Company’s subsidiaries, meet- The Company’s proposal for 2006 earnings distribution ing certain requirements determined by the board of was passed on the 6th board meeting of the 10th term. This directors, are also eligible for the employees’ bonus. proposal, a cash dividend of NTD 0.70 per share, will be discussed at the annual shareholders’ meeting.
Impact of Stock Dividends on Operating Results, EPS and ROE
Not Applicable.
47 United Microelectronics Corporation | Annual Report 2006
Employee Bonus and Directors’ & Supervisors’ Remuneration
According to the Company’s Articles of Incorporation, The Company’s resolution on earnings distribution was current year’s earnings, if any, shall be distributed in the passed on the 6th board meeting of the 10th term. Details manner described on page 47. regarding earnings distribution are as follows: (a) A cash bonus for employees of NTD 2,324,119,405. The Information on the earnings per share and amount of em- remuneration paid to directors and supervisors is ployee bonus and remuneration to directors and supervi- NTD 15,494,130. sors passed by the board of directors: (b) In consideration of employee bonus and remuneration to directors and supervisors, pro forma diluted EPS is NTD 1.68.
Details of the 2005 employee bonus settlement and directors’ & supervisors’ remuneration are as follows: For the year ended December 31, 2005 Details As Approved at the As Recommended by the Differences Reasons for Shareholders’ Meeting Board of Directors Differences
Settlement of employ- Number of shares (In thousands) 45,846 45,846 – – ees’ bonus by issuance of new shares Amount (In thousand NTD) 458,455 458,455 – – Percentage on total number of outstanding 0.24 0.24 – – shares at year end
Settlement of employees’ bonus by cash 305,636 305,636 – – (In thousand NTD) Remuneration paid to directors and supervisors 6,324 6,324 – – (In thousand NTD) Effect on earnings per Earnings per share (NTD) Basic 0.38 0.38 – – share before retroactive adjustments Diluted 0.38 0.38 – – Pro forma earnings per share tak- Basic 0.34 0.34 – – ing into consideration employees’ bonus and directors’ & supervi- Diluted 0.34 0.34 – – sors’ remuneration (NTD)
48 Capital Overview
Share Buy-back History
Instance 11th Round 10th Round
Purpose To transfer to employees To maintain the Company’s credit and shareholders’ equity
Buy-back period 2006.5.23~2006.7.22 2006.2.16~2006.4.15
Price range (NTD) 13.90~32.15 12.35~27.50
Classification and volume (Shares) 400,000,000 1,000,000,000 Common Shares Common Shares
Amount (NTD) 7,648,334,032 19,640,228,401
Cancellation and transfer volume (Shares) - 1,000,000,000
Cumulative cancellation and transfer volume (Shares) 1,335,462,000 1,335,462,000
Cumulative holding (Shares) 1,342,067,000 942,067,000
Cumulated holding as a percentage of total issued shares 7.02 4.92
Note The data shown above includes transactions from January 1, 2006 to March 15, 2007.
49 United Microelectronics Corporation | Annual Report 2006
Corporate Bonds
Type Unsecured Corporate Bonds
Issue date 2001.4.16~2001.4.27
Face amount NTD 1,000,000
Listing exchange R.O.C. OTC Securities Exchange
Issue amount NTD 1,000,000
Issue size NTD 15 billion
Coupon rate 1A01~1A10: 5.1850% 1A11~1A19: 5.1195% 1B01~1B10: 5.2850% 1B11~1B19: 5.2170% Maturity 1A–5 years; 2006.4.16~2006.4.27 1B–7 years; 2008.4.16~2008.4.27
Guarantor -
Trustee Trust Dept., Mega International Commercial Bank Co., Ltd.
Address of trustee 2F, 550, Sec. 4, Chung Hsiao E. Road, Taipei, Taiwan R.O.C.
Underwriter -
Registrar, principal paying, conversion and - transfer agent
Address of agent -
Legal counsel Chen & Lin Attorneys-at-Law
Auditor Diwan, Ernst & Young
Redemption 1A is a five-year term, and total size is NTD 7.5 billion. Principal will be paid after three, four, and five years at 30%, 30%, and 40% respectively. 1B is a seven-year term, and total size is NTD 7.5 billion. Principal will be paid after five, six, and seven years at 30%, 30%, and 40% respec- tively. Interest will be paid annually. Principal payable NTD 5.25 billion
Redemption -
Covenant -
Name of rating company, Taiwan Ratings Corporation, date and result of rating 2001.3.8, twAA
Other obligation -
Effect due to dilution -
Name of custodian -
50 Capital Overview Corporate Bonds (cont.)
Type Zero Coupon Exchangeable Bonds Due 2007
Issue date 2002.5.10
Face amount USD 10,000
Listing exchange Luxembourg Stock Exchange
Issue amount USD 10,000
Issue size USD 235,000,000
Coupon rate 0%
Maturity 5 years; 2007.5.10
Guarantor -
Trustee Citibank, N.A.
Address of trustee Cottons Centre, Hays Lane, London SE1 2QT, United Kingdom
Underwriter Lehman Brothers Inc.
Registrar, principal paying, exchange and Citibank, N.A. transfer agent Address of agent 5 Carmelite Street, London EC4Y 0PA, United Kingdom
Legal counsel Simpson Thacher & Bartlett
Auditor Diwan, Ernst & Young
Redemption On the maturity date, the issuer will redeem the bonds at their principal amount, unless, prior to such date:(a) The issuer shall have redeemed the bonds at the option of the issuer, or the bonds shall have been redeemed at the option of the bondholders.(b) The bondholders shall have exercised the conversion right before maturity; or (c) The bonds shall have been purchased by the issuer and cancelled. Principal payable USD 93,830,000
Redemption or early redemption clause (a) The issuer has the option to call all or any portion of the bonds on or at any time after three months after the issue date and prior to the maturity date based on the price to be agreed upon, if the closing price of the common shares on the Taiwan Stock Exchange in US dollars, calculated at the prevailing exchange rate, for each of the 20 consecutive trading days, the last of which occurring not more than 10 days prior to the date of the notice of such redemption, is at least 120% of the exchange price in effect on each such trading day translated into US dollars at the rate of exchange established on the pricing date.(b) The Company may redeem the out- standing bonds in whole, but not in part, at their principal amount in the event that 90% of the bonds have been previously exchanged, redeemed or purchased and cancelled.(c) The issuer may redeem all, but not part of, the bonds at their principal amount in the event of changes in R.O.C. taxation resulting in additional costs to the issuer. Covenant -
Name of rating company, date and result of rating -
Other obligation Balance of amount The balance of amount exchanged to common shares of AU Optronics Corp. (“AUO”) is USD converted to (exchangeable or 6,060,000. The balance of amount exchanged to ADSs of AUO is USD 135,110,000. warrant) shares, ADSs, or other types of securities as of printing date Policy of issuing or converting (a) Bondholders have the right hereunder to exchange the bonds into common shares or ADSs of (exchangeable or warrant) AUO.(b) The bondholders may, from 40 days after the last issue date to the 30 days prior to the maturity date, exchange the bonds into the common shares or ADSs of AUO as a substitute for the issuer’s cash redemption. The detailed exchanging procedures and the rights and obligations of bondholders who exchange within five business days prior to and during the closed period will be subject to the indenture and the paying, exchange and registrar agency agreement. Effect on the current shareholders due to dilution The bonds are eligible to be exchanged into common shares or ADSs of AUO. This will not result in any dilution effect to UMC shareholders. Name of custodian Citibank, N.A.
51 United Microelectronics Corporation | Annual Report 2006 Corporate Bonds (cont.)
Type Unsecured Corporate Bonds
Issue date 2003.5.21~2003.6.24
Face amount NTD 5,000,000
Listing exchange R.O.C. OTC Securities Exchange
Issue amount NTD 5,000,000
Issue size NTD 15 billion
Coupon rate 3A: The annual coupon rate is 4.0% minus the floating rate, but no less than 0%. The rate is adjusted annually based on the “floating rate” of the second London business date prior to the issued date of each “interest accrued period”. The interest is calculated per annum. 3B: The annual coupon rate is 4.3% minus the floating rate, but no less than 0%. The rate is adjusted annually based on the “floating rate” of the second London business date prior to the issued date of each “interest accrued period”. The interest is calculated per annum. “Interest accrued period” is the period starting from a year prior to the interest payout date to one day prior to the interest payout date. “Interest accrued method” is defined as the coupon rate times the number of days in the interest period divided by actual days of the year. The rate is calculated to five figures after the decimal point. “Business date” is referred to the London financial busi- ness date, or is otherwise referred to the Taiwan, Taipei and Kaohsiung financial business date. “Floating rate” is referred to the USD 12-Month LIBOR rate shown on London time 11am, Moneyline Telerate pg. 3750. The initial interest pricing date is set as the second London busi- ness date prior to the bond issuance date.
Maturity 3A – 5 years; 2008.5.21~2008.6.24 3B – 7 years; 2010.5.21~2010.6.24
Guarantor -
Trustee Trust Dept., Mega International Commercial Bank Co., Ltd.
Address of trustee 2F, 550, Sec. 4, Chung Hsiao E. Road, Taipei, Taiwan R.O.C.
Underwriter -
Registrar, principal paying, - conversion and transfer agent
Address of agent -
Legal counsel Chen & Lin Attorneys-at-Law
Auditor Diwan, Ernst & Young
Redemption 3A is a five-year term, and total size is NTD 7.5 billion. Principal will be paid in full at matu- rity. 3B is a seven-year term, and total size is NTD 7.5 billion. Principal will be paid in full at maturity. Interest will be paid annually. Principal payable NTD 15 billion
Redemption -
Covenant -
Name of rating company, Taiwan Ratings Corporation, date and result of rating 2003.4.24, twAA-
Other obligation -
Effect on the current shareholders due to dilution -
Name of custodian -
52 Capital Overview Corporate Bonds (cont.)
Type Euro Convertible Bonds Due 2008
Issue date 2005.10.05
Face amount USD 10,000
Listing exchange EuroMTF Market of the Luxembourg Stock Exchange
Issue amount USD 10,000
Issue size USD 381,400,000
Coupon rate 0%
Maturity 2008.2.15
Guarantor -
Trustee Citibank, N.A.
Address of trustee Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, United Kingdom
Underwriter Morgan Stanley Services Limited and Lehman Brothers International (Europe)
Registrar, principal paying, Citibank, N.A. conversion and transfer agent
Address of agent 5 Carmelite Street, London EC4Y 0PA, United Kingdom
Legal counsel Simpson Thacher & Bartlett
Auditor Diwan, Ernst & Young
Redemption The bonds will be redeemed at 100% of their principal amount by the Company on the maturity date unless:(a) The issuer shall have redeemed the bonds at the option of the issuer, or the bonds shall have been redeemed at the option of the bondholders.(b) The bondholders shall have exercised the conversion right before maturity; or (c) The bonds shall have been purchased by the issuer and cancelled.
Principal payable USD 381,400,000
Redemption or early redemption clause (a)On or at any time after April 5, 2007, if the closing price of the ADSs listed on the NYSE has been at least 130% of either the conversion price or the last adjusted conversion price, for 20 out of 30 consecutive ADS trading days, the Company may redeem all, but not some only, of the bonds. (b)If at least 90% in principal amount of the bonds has already been redeemed, repur- chased, cancelled or converted, the Company may redeem all, but not some only, of the bonds. (c)In the event that the Company’s ADSs or shares officially cease to be listed or admitted for trading on the New York Stock Exchange or the Taiwan Stock Exchange, as the case may be, each bondholder shall have the right, at such bondholder’s option, to require the Company to repurchase all, but not in part of, such bondholder’s bonds at their principal amount. (d)In the event of certain changes in taxation in the R.O.C. resulting in the Company becoming required to pay additional amounts, the Company may redeem all, but not part of, the bonds at their principal amount. Bondholders may elect not to have their bonds redeemed by the Company in such event, in which case the bondholders shall not be entitled to receive payments of such additional amounts. (e)If a change of control occurs with respect to the Company, each bond- holder shall have the right at such bondholder’s option, to require the Company to repurchase all, but not in part of, such bondholder’s bonds at their principal amount.
53 United Microelectronics Corporation | Annual Report 2006 Corporate Bonds (cont.)
Type Euro Convertible Bonds Due 2008
Covenant -
Name of rating company, Taiwan Ratings Corporation, date and result of rating 2005.8.15, twAA
Other obligation Balance of amount converted - to (exchangeable or warrant) shares, ADSs, or other types of securities as of printing date Policy of issuing or converting (a) Bondholders have the right hereunder to convert the bonds into the Company’s ADSs.(b) (exchangeable or warrant) The bondholders may from November 4, 2005 to February 5, 2008 convert the bonds into the Company’s ADSs as a substitute for the issuer’s cash redemption. In addition, the bondholders will not be able to effect conversions into ADSs during any closed period.
Effect on the current shareholders due to dilution The underlying conversion for ECB is treasury shares. If the ECB is fully converted, the dilu- tion ratio to original shareholders is 2.6%. The impact to the dilution is minimal.
Name of custodian Citibank, N.A.
54 Capital Overview Corporate Bonds (cont.)
Exchangeable Bonds Information Zero Coupon Exchangeable Bonds Due 2007 2007 2006 2005 2004 2003 2002 2002. 5.10 (Issue Date)
The quantity of holding exchanged securities 73,380,144 74,836,861 73,566,140 66,109,143 148,271,262 139,769,528 137,202,140 (Common shares)
Exchangeable price NTD 44.30 NTD 44.30 NTD 46.10 NTD 51.30 NTD 54.91 NTD 58.25 NTD 59.34
Market price High 117.50 123.50 121.50 156.00 109.56 100.00 -
Low 107.50 109.00 101.50 104.00 94.50 92.65 -
Average 113.90 117.75 112.81 115.88 99.59 95.18 -
Reference shares Common Shares or ADSs of AU Optronics Corp.
Note The data represented for 2007 was gathered until March 15, 2007.
Euro Convertible Bonds Information Zero Coupon Convertible Bonds Due 2008 2007 2006 2005 2005. 10.05 (Issue Date)
The quantity of holding converted securities 500,000,000 500,000,000 500,000,000 500,000,000 (Common shares) Convertible price USD 3.693 USD 3.693 USD 3.814 USD 3.814
Market price High 110.84 112.50 105.25 -
Low 103.22 98.38 97.50 -
Average 106.15 103.65 102.12 -
Reference shares UMC ADS
Note The data represented for 2007 was gathered until March 15, 2007.
Warrant Bonds Information None.
Preferred Stock None.
55 United Microelectronics Corporation | Annual Report 2006
American Depositary Receipts
Issue Date 2006.11.6 2006.9.1 2005.9.1 2005.1.20 2004.11.16 2004.8.19
Listing exchange New York Stock New York Stock New York Stock New York Stock New York Stock New York Stock Exchange Exchange Exchange Exchange Exchange Exchange
Issue amount USD 108.2 million Stock dividend Stock dividend USD 84.2 million USD 76.3 million Stock dividend
Listing price / unit USD 3.05 - - USD 3.33 USD 3.47 -
Issue units 35,456,000 2,831,464 25,833,137 25,290,000 22,000,000 15,088,684
Underlying representing shares UMC common UMC common UMC common UMC common UMC common UMC common shares shares shares shares shares shares
Number of equivalent local 5 shares 5 shares 5 shares 5 shares 5 shares 5 shares shares per ADS
Rights and obligations of ADS Same as the com- Same as the com- Same as the com- Same as the com- Same as the com- Same as the com- holder mon shareholder mon shareholder mon shareholder mon shareholder mon shareholder mon shareholder
Trustee N/A N/A N/A N/A N/A N/A
Depositary bank Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A.
Custodian bank Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A. Taipei Branch Taipei Branch Taipei Branch Taipei Branch Taipei Branch Taipei Branch
Outstanding balance (Units) The total outstanding balance is 315,107,776 units.
Issuing expenses and Except for IPO and dividends, the issuing expenses will be borne by the selling shareholders. The maintenance fees will maintenance fees be borne by the Company.
Important terms and conditions ------of depositary agreement and custodian agreement
Note The data shown above was gathered until March 15, 2007.
American Depositary Receipt Trading Data
Closing Price per Share (USD) 2007 2006
High Low Average High Low Average
3.83 3.12 3.44 3.94 2.79 3.22
Note The data represented for 2007 was gathered until March 15, 2007.
56 Capital Overview
2004.1.2 2003.12.23 2003.8.15 2002.9.9 2002.3.19 2001.8.17 2000.9.19
New York Stock New York Stock New York Stock New York Stock New York Stock New York Stock New York Stock Exchange Exchange Exchange Exchange Exchange Exchange Exchange
USD 13.8 million USD 24.4 million Stock dividend Stock dividend USD 439.7 million Stock dividend USD 1,291.5 million
USD 4.92 USD 4.75 - - USD 9.25 - USD 14.35
2,804,000 5,146,000 6,965,107 22,655,667 47,537,780 13,500,000 90,000,000
UMC common UMC common UMC common UMC common UMC common UMC common UMC common shares shares shares shares shares shares shares
5 shares 5 shares 5 shares 5 shares 5 shares 5 shares 5 shares
Same as the com- Same as the com- Same as the com- Same as the com- Same as the com- Same as the com- Same as the com- mon shareholder mon shareholder mon shareholder mon shareholder mon shareholder mon shareholder mon shareholder
N/A N/A N/A N/A N/A N/A N/A
Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A.
Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A. Taipei Branch Taipei Branch Taipei Branch Taipei Branch Taipei Branch Taipei Branch Taipei Branch
The total outstanding balance is 315,107,776 units.
Except for IPO and dividends, the issuing expenses will be borne by the selling shareholders. The maintenance fees will be borne by the Company.
------
57 United Microelectronics Corporation | Annual Report 2006
Employee Stock Option Certificates Status of Stock Option Plan and Impact on Stockholders’ Equity
Type Employee Stock Option Certificates
3rd Issued, 2nd Issued, 1st Issued, 1st Round 2005 1st Round 2005 1st Round 2005
Date of approval 2005.12.22 2005.12.22 2005.12.22
Issue date 2006.8.24 2006.5.22 2006.1.4
Units issued 28,140,000 42,058,000 39,290,000
Ratio of issue shares to outstanding shares (%) 0.15 0.22 0.21
Option duration 2006.8.24~2012.8.23 2006.5.22~2012.5.21 2006.1.4~2012.1.3
Method for performance of contract The issue of new shares The issue of new shares The issue of new shares
Vesting schedule The grant period for employee options is six years. Employees may exercise up to 50% of the options after two years, up to 75% after three years and up to 100% after four years.
Exercised shares - - -
Exercised amount - - -
Un-exercised shares 28,140,000 42,058,000 39,290,000
Exercise price NTD 18.35 NTD 19.80 (Original) NTD 18.30 (Original) NTD 19.16 (After Dividend) NTD 17.68 (After Dividend)
Ratio of un-exercised shares to outstanding shares (%) 0.15 0.22 0.21
Effect on current shareholders due to dilution The strike price for the shares is the market price at the time of issuance and the vesting period for employee options is from two years to four years. The dilution effect to current shareholders is insignificant.
Notes (1) The data shown above was gathered until March 15, 2007. (2) The date of approval refers to the date when the R.O.C. FSC approved the Stock Option Plan. (3) Each unit of the stock option entitles the recipient to subscribe to one share of the Company’s common shares.
58 Capital Overview Employee Stock Option Certificates (cont.)
Type Employee Stock Option Certificates
4th Issued, 3rd Issued, 2nd Issued, 1st Round 2004 1st Round 2004 1st Round 2004
Date of approval 2004.9.30 2004.9.30 2004.9.30
Issue date 2005.9.29 2005.8.16 2005.4.29
Units issued 51,990,000 54,350,000 23,460,000
Ratio of issue shares to outstanding shares (%) 0.27 0.28 0.12
Option duration 2005.9.29~2011.9.28 2005.8.16~2011.8.15 2005.4.29~2011.4.28
Method for performance of contract The issue of new shares The issue of new shares The issue of new shares
Vesting schedule The grant period for employee options is six years. Employees may exercise up to 50% of the options after two years, up to 75% after three years and up to 100% after four years.
Exercised shares - - -
Exercised amount - - -
Un-exercised shares 51,990,000 54,350,000 23,460,000
Exercise price NTD 19.95 (Original) NTD 21.9 (Original) NTD 18.4 (Original) NTD 19.71 (After Dividend) NTD 21.6 (After Dividend) NTD 16.4 (After Dividend)
Ratio of un-exercised shares to outstanding shares (%) 0.27 0.28 0.12
Effect on current shareholders due to dilution The strike price for the shares is the market price at the time of issuance and the vesting period for employee options is from two years to four years. The dilution effect to current shareholders is insignificant.
59 United Microelectronics Corporation | Annual Report 2006 Employee Stock Option Certificates (cont.)
Type Employee Stock Option Certificates
1st Issued, 3rd Issued, 2nd Issued, 1st Round 2004 1st Round 2003 1st Round 2003
Date of approval 2004.9.30 2003.10.8 2003.10.8
Issue date 2004.10.13 2004.7.1 2004.3.23
Units issued 20,200,000 56,590,000 33,330,000
Ratio of issue shares to outstanding shares (%) 0.11 0.30 0.17
Option duration 2004.10.13~2010.10.12 2004.7.1~2010.6.30 2004.3.23~2010.3.22
Method for performance of contract The issue of new shares The issue of new shares The issue of new shares
Vesting schedule The grant period for employee options is six years. Employees may exercise up to 50% of the options after two years, up to 75% after three years and up to 100% after four years.
Exercised shares 907,000 - -
Exercised amount 16,144,600 - -
Un-exercised shares 19,293,000 56,590,000 33,330,000
Exercise price NTD 20.0 (Original) NTD 25.2 (Original) NTD 27.9 (Original) NTD 17.8 (After Dividend) NTD 20.7 (After Dividend) NTD 22.9 (After Dividend)
Ratio of un-exercised shares to outstanding shares (%) 0.10 0.30 0.17
Effect on current shareholders due to dilution The strike price for the shares is the market price at the time of issuance and the vesting period for employee options is from two years to four years. The dilution effect to current shareholders is insignificant.
60 Capital Overview Employee Stock Option Certificates (cont.)
Type Employee Stock Option Certificates
1st Issued, 2nd Issued, 1st Issued, 1st Round 2003 1st Round 2002 1st Round 2002
Date of approval 2003.10.8 2002.9.11 2002.9.11
Issue date 2003.11.26 2003.1.3 2002.10.7
Units issued 57,330,000 61,000,000 939,000,000
Ratio of issue shares to outstanding shares (%) 0.30 0.32 4.91
Option duration 2003.11.26~2009.11.25 2003.1.3~2009.1.2 2002.10.7~2008.10.6
Method for performance of contract The issue of new shares The issue of new shares The issue of new shares
Vesting schedule The grant period for employee options is six years. Employees may exercise up to 50% of the options after two years, up to 75% after three years and up to 100% after four years.
Exercised shares - 1,849,000 261,866,750
Exercised amount - 33,129,900 4,294,284,525
Un-exercised shares 57,330,000 59,151,000 677,133,250
Exercise price NTD 30.2 (Original) NTD 22.5 (Original) NTD 20.0 (Original) NTD 24.7 (After Dividend) NTD 17.7 (After Dividend) NTD 15.7 (After Dividend)
Ratio of un-exercised shares to outstanding shares (%) 0.30 0.31 3.54
Effect on current shareholders due to dilution The strike price for the shares is the market price at the time of issuance and the vesting period for employee options is from two years to four years. The dilution effect to current shareholders is insignificant.
61 United Microelectronics Corporation | Annual Report 2006 Employee Stock Option Certificates (cont.)
List of Managers and Top 10 Employees Participating in Employee Stock Option Plan Units Granted Units Exercised Units Exercise Price Exercised Amount Granted / Total (NTD) (In thousand NTD) Outstanding Shares (%) 95,300,000 0.50 850,000 15.9 13,515
- - 2,300,000 15.7 36,110
5,000,000 0.03 - - -
2,000,000 0.01 - - -
15,000,000 0.08 - - -
Title Name
Chairman and CEO Jackson Hu
Vice Chairman Peter Chang
Former President Hong-Jen Wu
Business Group President Ching-Chang Wen
Business Group President Fu-Tai Liou
Executive Vice President Shih-Wei Sun
Senior Vice President Stan Hung
Senior Vice President Henry Liu
Senior Vice President Tai-Sheng Feng
Vice President Nick Nee
Vice President Wen-Yang Chen
Vice President Ying-Chih Wu
Vice President Chia-Pin Lee
Vice President Lee Chung
Vice President Shan-Chieh Chien
Vice President Po-Wen Yen
Vice President Tsung-Hsi Ko
CFO Chitung Liu
Notes (1) The data shown above was gathered until March 15, 2007. (2) Employees listed in this table are the top 10 holders of stock options and each subscription amount exceeds NTD 30 million. (3) Hong-Jen Wu retired on June 30, 2006 and the data represented his acquisition until June 30, 2006.
62 Capital Overview
Units Un-exercised Units Exercise Price Un-exercised Amount Units Un-exercised/Total Exercised / Total (NTD) (In thousand NTD) Outstanding Shares (%) Outstanding Shares (%) 0.01 92,150,000 15.7 1,446,755 0.48
0.01 - - - -
- 5,000,000 17.7 88,500 0.03
- 2,000,000 22.9 45,800 0.01
- 15,000,000 24.7 370,500 0.08
Mergers and Acquisitions or the Issue of New Shares to Acquire Another Company’s Shares
None.
Financing Plans and Execution Status
Plan Description
Plan Title Issue Date Estimated Plan Capital Purpose Changes Date for Announcement Completion Date of Plan on MOPS
Euro Convertible Bonds Due 2008 October 5, 2005 September 30, 2006 Purchasing raw None September 29, 2005 materials overseas
Capital Execution Summary
Quarterly Capital Execution Report
2nd Quarter, 2006
Planned Capital Execution in 2nd Quarter, 2006 NTD 4,280,100 thousand, 34.01% Completed
Actual Capital Execution in 2nd Quarter, 2006 NTD 5,248,093 thousand, 41.70% Completed
Planned Accumulated Capital Execution NTD 11,705,100 thousand, 92.99% Completed
Actual Accumulated Capital Execution NTD 13,948,090 thousand, 110.82% Completed
Reasons for Capital Execution Discrepancies No significant differences from the plan
63 United Microelectronics Corporation | Annual Report 2006
Operation Overview
65 Business Scope
65 Industry Scope
66 Research & Development Achievements and Plans
68 Market and Sales Conditions
72 Employee Analysis
73 Environmental Protection Information
74 Labor Relations
75 Major Agreements
64 Operation Overview
Business Scope
Major Business introduction of advanced deep sub-micron processes. UMC Full Service Semiconductor Wafer Foundry. has been in volume production for advanced 65-nanometer technology since 1Q 2006. Furthermore, with 45-nanometer Current Products and Services test wafers produced in 4Q 2006, UMC is actively deve- UMC provides a variety of services to fit individual loping 45-nanometer process technologies for customer customer’s needs, including silicon intellectual property product validation to significantly increase the competitive (IP), IC design support, design verification, mask tooling, advantages of its customers. wafer fabrication, and testing. Wafer fabrication accounts for 97% of 2006 revenues. SoC Process Technologies In response to the growing trend towards System-on-Chip Future Products and Services (SoC) products, UMC continues to develop resources Advanced 65-nanometer and 45-nanometer Processes for SoC designers including embedded memory macros, UMC has reached world-class manufacturing levels and Mixed-Signal/RF CMOS processes, and other system inte- leads most of the major semiconductor companies in the gration technologies used for SoC designs.
Industry Scope
Current Industry Products & Development and Consumer sectors, to merge their functions in ways The functions of electronic products increase and evolve on previously unseen. Networking capabilities have allowed a daily basis, leading to an enormous increase in design and electronic products such as computers, cell phones, televi- process complexity for today’s semiconductors. As far as sions, PDAs, CD-ROMs, and digital cameras to com- manufacturing efficiency is concerned, wafer sizes have also municate with each other to exchange information. More migrated to the next generation of larger 300mm wafers. powerful chips are required to drive multimedia func- The combination of both advancing technologies and larger tions (processing visual data, etc.) and to resolve network wafers has somewhat slowed overall development, while bandwidth issues. At the same time, the trend towards investment has increased to bring these new technologies to more personalized electronic devices means that products maturity. are becoming smaller and consuming less power. Process This trend has increased the challenges involved in semi- technology must also shrink aggressively to accommodate conductor design, production, packaging, and testing. For this trend to integrate more functions, reduce the number the most part, semiconductor companies find it difficult to of parts needed to operate, and lower IC power consump- manage every aspect of the IC supply chain, adding to the at- tion. Dedicated semiconductor foundries will need to traction of the vertically disintegrated business model. achieve this process improvement, and at the same time develop multiple process technologies to satisfy The Relationship Between Up-, Mid-, and Down-stream the varying needs of Computer, Communication, and Supply Chain Services Consumer applications. The semiconductor industry has continuously evolved in order to support down-stream (end-user) electronic prod- A Competitive Market ucts. Therefore, IC manufacturers must develop new pro- The double-digit growth rate that is seen every year for the cess technologies early to enable up-stream chip developers’ foundry industry has attracted more and more competitors, sophisticated designs for more powerful ICs. This in turn including IDM companies such as Samsung, and pure- allows down-stream companies to innovate new applica- play foundries like China’s SMIC and HHNEC and Korea’s tions and products that can take advantage of the better Dongbu. With the increasing number of competitors, the performing semiconductors. Company has enhanced its competitiveness by expanding 300mm wafer capacity strategically and effectively. Mean- Development Trends while, the Company continuously strengthens its advantage Advanced technologies have enabled electronic prod- through on-going development in advanced and specialty ucts, especially those in the Computer, Communication, process technologies.
65 United Microelectronics Corporation | Annual Report 2006
Research & Development Achievements and Plans
UMC’s research and development group is committed to among the first companies in the world to produce working pushing the forefront of technology and providing the lat- 45-nanometer silicon, with successful results realized for the est market-driven, customer-focused and cost effective initial 45-nanometer wafer lots. UMC will continue to build System-On-Chip (SoC) foundry technology solutions. on its 45-nanometer momentum to enhance yields and pre- UMC’s commitment to R&D can be illustrated by the pare the technology for adoption by our foundry customers Company’s 2006 R&D expenditures, which reached 8.88% during 2008. of corporate revenues. The Company is also construct- In terms of memory development, UMC’s embed- ing a new R&D center for nanometer technologies in the ded 6T-SRAM exhibits an industry leading footprint with Tainan Science Park, the first of its kind at the southern excellent performance and functionality at the lowest pos- Taiwan site, along with a new 300mm wafer plant that sible sustaining voltage, which has always been the key will host 32-nanometer technology development. The yield driver for leading 65-nanometer and 45-nanometer R&D center will be completed in April 2007, while the processes. Furthermore, a high density, low cost fully logic- new fab will be ready in early 2008. These are all strong compatible embedded memory solution has been developed testimonies for UMC’s commitment to develop the most to replace traditional embedded DRAM that was used up advanced SoC solutions for our customers. Going for- until 90-nanometer. UMC completed its process and design ward, the Company will continue to dedicate its most IP offerings for the 90-nanometer technology node in 2006, significant resources to further process technology devel- with the 65-nanometer node scheduled for 2007. Embed- opment. ded 0.18-micron flash (e-Flash) memory cells featuring 1.7 UMC delivered the foundry industry’s first 65- megabit macro functionality and 25 nanosecond access nanometer customer products in June of 2005. During the time performance are also in production for multiple cus- course of 2006, competitive progress was made in perfecting tomer products for the automotive, MCU and PC security 65-nanometer technology for production. The technology applications. In addition, a 0.13-micron e-Flash macro has gained widespread acceptance from a variety of custom- is in the final stage of reliability verification for product ers including leading-edge manufacturers of cell phones, applications. The 0.13 e-Flash process has been success- FPGA, graphics and broadband, many of which are cur- fully integrated into customer products to produce the rently in volume production. This was highlighted with industry’s lowest power field-programmable gate arrays UMC’s delivery of the world’s largest 65-nanometer FPGAs (FPGAs) that feature power consumption as low as 5mW, to one of its customers. The enhanced product features a 65 a new standard for the industry. percent logic capacity increase over previous generation On the specialty technology front, UMC’s 0.18-micron FPGAs to enable the industry’s highest gate count, with high voltage (HV) technology targeted for the growing approximately 1.1 billion transistors. The chips, which portable liquid crystal display (LCD) driver market is now feature triple gate oxide technology and 11 copper metal in mass production. To improve overall HV process perfor- layers, have demonstrated excellent yields and are expected mance, UMC is piloting 0.162-micron HV chips and further to be ready for full production in early 2007. In addition, developing its advanced 0.135-micron node. Supplement- UMC is in the final process optimization of a shrink ver- ing UMC’s LCD driver process is its “super high voltage sion of its 65-nanometer process technology, called the (≥600V)” process, which is in development for customers UMC 55SP process (shrinking L65 feature sizes to 90% of designing for special applications such as transformers and its original size). This offering is expected to help custom- frequency conversion motors. UMC has also completed the ers migrate their 65-nanometer products for more density development of its CMOS Image Sensor (CIS) technology at and performance while delivering more competitive cost the 0.13-micron process node. This technology enables high- incentives to further extend their product life. resolution camera phones to operate more cost effectively by On the 45-nanometer development front, UMC has suc- allowing higher density sensors within the same area. cessfully produced functional SRAM chips that feature an SoC designers today require proven design support solu- impressive bit cell size of less than 0.25um2. The process used tions to help overcome the challenges encountered during sophisticated immersion lithography for its 12 critical layers the design cycle in the deep sub-micron era. UMC continu- and incorporated the latest technology advancements such ously introduces new design support resources, such as the as ultra shallow junction, mobility enhancement techniques, most updated Reference Design Flow with silicon-proven and ultra low-k dielectrics (k=2.5). The 45-nanometer node design methodologies in 90-nanometer and 65-nanometer is a challenging technology generation that simultaneously technologies, and in particular adding more focus on Design introduces new materials and process modules. UMC is for Manufacturing (DFM) support. UMC provides opti-
66 Operation Overview Research & Development Achievements and Plans (cont.)
mized DFM resources that customers can easily incorporate audio/video applications. They can be utilized in customers’ into their existing design environments to address issues SoC designs to help them shorten the product design cycle such as timing closure, signal integrity and leakage power. with the shortest time-to-market capability. UMC’s enhanced DFM solutions include Lithography Pro- UMC has always actively pursued new inventions cess Check (LPC), Critical Area Analysis (CAA), Litho and throughout its technology advancement. For 2006, UMC Chemical Metal Polishing (CMP) variation aware extraction, filed 524 patent applications, and has been granted 298 pat- thermal impact analysis and Static Statistical Timing Analy- ents in the same period of time; the total of granted patents sis (SSTA). To develop its comprehensive 65-nanometer has reached 8,417. This reflects UMC’s commitment to inno- offering, UMC partnered with every major EDA vendor as vation and intellectual properties during its technology de- well as newer DFM companies that provide specialized DFM velopment stage. Additionally, over the past few years, UMC solutions. In addition, UMC successfully developed a series has won numerous awards from the R.O.C. government for of reliable, high-quality design intellectual properties (IP), its outstanding achievements in semiconductor technology including DFM-compliant, process-tuned 90-nanometer research. UMC is strongly positioned in the foundry indus- and 65-nanometer libraries, ultra high-speed PLL, and vari- try through its continuous innovation. ous state-of-the-art analog mixed-signal IP for advanced
R&D Expenditures In thousand NTD 2007 2006
Expenditures 1,655,036 9,237,616
Note The data represented for 2007 was gathered until March 15, 2007; the figure represented was unaudited.
Long-term and Short-term Business Development Plan
UMC operates as the SoC Solution Foundry, dedicated to of resources available to SoC designers, including silicon providing comprehensive SoC solutions for its customers. validated reference flows, a broad IP portfolio, free-of-charge This approach involves collaborating closely with custom- libraries and extensive test and packaging capabilities. Com- ers as well as partners throughout the entire supply chain, bine these with UMC’s advanced process technology and including equipment, EDA tool, IP and test and packaging state-of-the-art 300mm manufacturing, and the result is vendors to work synergistically towards each customer’s SoC shortened time-to-market for customers’ SoC products. silicon success. This strategy has resulted in a broad range
67 United Microelectronics Corporation | Annual Report 2006
Market and Sales Conditions
Major Sales Regions than the overall semiconductor industry. UMC’s technologies and services have proven themselves by Competitive Advantages contributing to the success of its customers, many of whom IC design companies in Taiwan are performing well, and are are major players in the global IC industry. Currently, the second only to North American IC design firms. UMC has majority of the Company’s customers are located in North a high market share in the Taiwan market and can directly America and Asia, with Europe following closely behind. enjoy the advantages accompanying the rapid growth of Japanese customers’ orders primarily go to UMC’s subsid- Taiwan’s IC design companies. iary in Japan, UMCJ, although a few customers deal directly The IC industry in Taiwan is well structured and is with UMC. UMC will enhance its partnerships with world- very competitive in terms of efficiency and cost. UMC’s class customers around the globe by continuing to develop technology leadership leveraged with the advantages of customers’ high-end products to ensure the steady growth Taiwan’s IC industry will result in greater competitive- of UMC for the mid- and long-terms. ness for the Company.
Market Share Positive Factors Relating to Future Development UMC is a leading company in the foundry industry, with a Considering the long-term steady growth of the IC indus- 2006 sales revenue figure of USD 3.196 billion. UMC pos- try, the relative advantages of foundry manufacturing, and sessed a global pure-play foundry market share of 19%. UMC’s technical excellence, we believe that the following TSMC, SMIC and Chartered are considered major competi- factors will contribute positively to the future development tors. Together in 2006, UMC, TSMC, SMIC and Chartered of the Company: are estimated to account for approximately 84% of the UMC has distinguished itself as a top-tier company in the pure-play foundry market share. In 2006, sales revenues for foundry industry. The trend towards increased disintegra- TSMC, SMIC and Chartered were USD 9.662 billion, USD tion within the industry will create new opportunities for 1.465 billion and USD 1.414 billion, respectively. TSMC, the Company as the market for foundry services SMIC and Chartered had a market share of 50%, 8% and 7% continues to grow. respectively (market share information and revenues of the Major IDMs are shifting their strategy to increase their competitors are based on their financial releases and data use of external foundry services, which will help the from IC Insights). growth of the foundry service market. UMC maintains stable long-term orders through its Future Market Supply, Demand, and Growth Potential strategic alliances with global industry leaders. According to reports by the World Semiconductor Trade UMC has an exceptional management team that strongly Statistics (WSTS), the Semiconductor Industry Associa- emphasizes the research and development of advanced tion (SIA), Dataquest, and In-Stat and IC Insights, the process technologies. global semiconductor market in 2007 is estimated to exhibit UMC is the industry leader in the implementation growth in the range of 12% to 14%, following growth of 8% of 300mm wafer production. The Company has two in 2006. 300mm facilities, Fab 12A in the Tainan Science To provide an indicator of future market supply, de- Park, and Fab 12i in Singapore. Furthermore, a third mand and growth potential by industry breakdown, Fabless 300mm facility is under construction in the Tainan design companies have historically outperformed the overall Science Park. UMC’s aggressive expansion into semiconductor market. Furthermore, increasing numbers of 300mm manufacturing will help attract more Integrated Device Manufacturers (IDMs) are adopting the outsourcing orders from IDMs and fabless companies. strategy of using external foundry services. Therefore, the foundry service market is expected to grow at a faster rate
68 Operation Overview Market and Sales Conditions (cont.)
UMC is in volume production for 65-nanometer process tion needs while helping customers to reduce overall technology. UMC is one of the few foundries in the costs. world that is capable of providing this technology UMC will strengthen its marketing effectiveness, capability. As the Company produces more advanced strive for service excellence, and continue with efforts technology products, the Company reaps higher profits to increase customer satisfaction. while offering customers value-added benefits. UMC will strengthen its partnerships with existing In response to the trend of producing greater numbers customers to facilitate enhanced growth for both the of SoC products, UMC continues to develop embedded Company and its customers. memory macros, Mixed-Signal/RF CMOS processes, and other system integration technologies used in SoC Applications of Major Processes designs to meet customers’ needs and firmly establish the CMOS logic processes: Chips for logic-calculation company’s leading position for the development of SoC functions, e.g. graphics chips, audio chips, and micro- technologies. processors. As the need continues to rise for consumer products such Mixed-Signal processes: Chips for processing analog/ as digital televisions, LCD televisions, DVD players, MP3 digital mixed signals, e.g. broadband communications players and smart phones, the semiconductor industry is and optical storage chips. expected to enter another growth stage. RF CMOS processes: Chips for wireless communications, e.g. cellular phones, WLAN, and Bluetooth chips. Negative Factors Relating to Future Development Embedded memory processes: Chips combining logic and Today’s trend has seen softening demand for personal memory functions for high performance, low power computers (PC), which may cause a negative impact consumption chips, e.g. graphics and router chips. to the industry’s growth. High Voltage processes: for manufacturing LCD Driver The recent prosperity of the foundry market has at- ICs and Power Management ICs. tracted many new competitors into the market; this may CMOS Image Sensor processes: for manufacturing CMOS negatively impact the market balance. Image Sensors used in digital cameras, cell phones and PC cameras. Adaptations to Market Situation In response to other foundry market entrants, UMC will Product Manufacturing Process build on its competitive advantages, such as leading-edge The IC manufacturing process can be broken down into five technologies, high manufacturing yields, and comprehen- major steps including circuit design, mask tooling, wafer sive customer services. This will widen the gap with these fabrication, assembly and test. UMC excels in the research new competitors, and differentiate UMC from the and development of pioneering IC process technologies, and rest of the industry. This strategy will ensure UMC provides leading manufacturing technologies, materials and remains a primary choice for foundry customers. equipment for its customers to rapidly realize their designs The Company will strive to provide the most advanced in silicon. technologies for various IC applications and simultane- ously meet high performance and low power consump-
69 United Microelectronics Corporation | Annual Report 2006
Major Raw Materials Status
Material Categories Major Vendors Vendors’ Market Position UMC’s Procurement Strategies
Raw Silicon Wafers S.E.H. UMC’s vendors are major raw sili- (a) UMC maintains good relationships with the (manufactured in the U.S., Japan, con wafer suppliers to the world. world’s major silicon wafer suppliers to assure Taiwan and Malaysia) Their factories, located in the U.S., a stable supply. MEMC Japan, Taiwan and throughout (b) UMC’s decision to procure wafers made locally (manufactured in the U.S. and Taiwan) Southeast Asia, can consistently has not only reduced logistical risks, but has SUMCO Group supply high-quality silicon wafers also reduced costs. (manufactured in Japan and Taiwan) in sizes ranging from 150mm to (c) UMC allocates procurement among its 300mm. vendors according to their overall perfor- mance, which is evaluated quarterly by UMC’s internal Suppliers Management Com- mittee.
Major Vendors and Customers
Major Vendors In thousand NTD 2006 2005
Name Amount Percentage of Name Amount Percentage of Net Purchases Net Purchases
Shin-Etsu Handotai Taiwan 3,353,721 13 Shin-Etsu Handotai Taiwan 2,611,052 11 Co., Ltd. Co., Ltd.
Reasons for changes in procurement amount: UMC’s purchasing amount with Shin-Etsu increased in 2006 due to an increase in quantity purchased to reflect a rise in 300mm wafer demand.
Major Customers In thousand NTD 2006 2005
Name Amount Percentage of Name Amount Percentage of Net Operating Net Operating Revenues Revenues UMC Group (USA) 54,476,329 52 UMC Group (USA) 43,226,036 48
Reasons for changes in sales amount: Sales to UMC Group (USA) accounted for more than 10% of net operating revenues in 2006. This resulted primarily from the recovery of the semiconductor industry in 2006 and the increased in demand of communication, consumer and computer products.
70 Operation Overview
Production and Sales Figures
Production Figures 2006 2005
Quantity Amount (In thousand NTD) Quantity Amount (In thousand NTD)
Wafers (Pcs) 3,030,999 76,232,056 2,669,672 74,201,369
Chips (In thousands) 84,918 6,635,478 64,807 4,971,589
Packaged ICs (In thousands) 599 43,148 1,192 125,226
Total amount 82,910,682 79,298,184
Capacity (Pcs) 4,017,000 3,855,000
Note Wafer quantity and capacity are expressed in 200mm wafer equivalents.
Sales Figures 2006 2005
Quantity Amount (In thousand NTD) Quantity Amount (In thousand NTD)
Wafers (Pcs) Domestic 1,372,006 32,839,086 1,388,520 34,285,040
Export 1,618,731 62,001,889 1,257,667 49,530,126
Chips Domestic 56 58,508 685 141,548 (In thousands) Export 84,807 5,677,686 64,150 4,156,586
Packaged ICs Domestic 374 26,803 2 74 (In thousands) Export 203 16,579 1,189 109,147
Others Domestic 122,026 81,655
Export 570,829 635,819
Total Domestic 33,046,423 34,508,317
Export 68,266,983 54,431,678
Note Wafer quantity is expressed in 200mm wafer equivalents.
71 United Microelectronics Corporation | Annual Report 2006
Employee Analysis Number of Employees 2007 2006 2005
Engineers 6,837 6,774 5,745
Administrators 559 550 582
Clerks 61 60 70
Technicians 5,855 5,881 5,671
Total 13,312 13,265 12,068
Average Age
2007 2006 2005
Average age 30.7 30.6 30.3
Average Years of Employment
2007 2006 2005
Average number of years 5.6 5.4 5.2
Level of Education (%)
2007 2006 2005
Ph.D. 1.2 1.2 1.3
Masters degree 21.9 21.8 20.9
Bachelors / Associate degree 48.2 48.7 48.3
Secondary school and others 28.7 28.3 29.5
Note The data represented for 2007 was gathered until March 15, 2007.
72 Operation Overview
Environmental Protection Information UMC considers CSR as an integral part of its corporate value UMC’s environmental protection and pollution control and operation strategies. UMC’s multi-dimensional CSR plan addresses all aspects of the environment. In 2006, capi- program is integrated into every aspect of our operations tal expenditures for pollution control equipment were NTD and is also the foundation of the Company’s sustainable 317 million and the average monthly operating cost was development. This commitment is illustrated through the NTD 28 million. Monthly waste disposal fees were NTD 4.2 Company’s award of the runner up position for Environ- million and the annual cost for the environmental monitor- mental Excellence from the Asian Institute of Management ing program was NTD 3.2 million. Major environmental at their 2004 Asian CSR Awards held in Kuala Lumpur, protection expenses in the future will include: (a) the costs Malaysia, the 5th Industrial Sustainable Excellence Award required to maintain or upgrade existing systems; (b) oper- from the Industry Development Bureau in 2004, and the 2nd ating costs for pollution control equipment (NTD 28 mil- Taiwan Sustainable Development Award from the National lion per month); (c) waste disposal fees (NTD 4 million per Council for Sustainable Development, Executive Yuan in month); and (d) the cost for the environmental monitoring 2005. In addition, UMC gained the highest “5 heart” rat- program (NTD 4 million annually). ing by CommonWealth Magazine in their 2006 Enterprise In the past year, UMC met all environmental regulation Citizen Investigation for environmental protection, public standards and distinguished itself with its environmental welfare and contributions to education. These honors affirm protection performance. Over the years, UMC has received UMC’s performance in environmental protection and social many honors such as the Enterprises Environmental Pro- responsibility. UMC’s environmental protection policy is tection Award of the R.O.C., the Water Conservation Award, guided by the Company’s belief in the importance of corpo- Excellent Performance in Waste Management and Resource rate integrity and commitment to long-term partnerships Reduction, Recycle and Reuse, the Tainan Science Park’s Ex- with its customers and the community. The Company takes cellent Performance in Environmental Protection for both proactive actions and has comprehensive environmental company and professionals and Top Honors in Hsinchu Sci- protection programs in place to ensure that sustainable ence Park’s “Protection of the Environment” Competition. growth and development is environmentally friendly at the same time.
73 United Microelectronics Corporation | Annual Report 2006
Labor Relations
UMC places great importance on employee salaries and growth and development. benefits, employee development, the enforcement of all labor To protect the rights and interests of employees, UMC laws, and the protection of employee rights, in an effort to follows the Labor Standards Law. UMC’s employee retire- provide the best possible working environment. ment policy also corresponds with existing related labor UMC makes every effort to develop a positive working laws. relationship between employees and management. Employ- The Council of Labor Affairs and other organizations ees can communicate with their superiors through many have recognized UMC’s efforts in developing good labor channels, including departmental meetings, colleague relations. These organizations awarded UMC the honors of symposiums, and opinion boxes. The mental and physical Model Institution for the Promotion of Labor Welfare, Mod- well-being of UMC employees are equally as important, and el Enterprise for the Promotion of Labor Education, and the the Company offers employee-counseling services and has a Model Enterprise for Industrial Relations distinctions. health clinic on-site. In recent years, up to the publish date of the annual re- UMC has its own employee recreation center to provide port, there have been no disputes between employees and its employees with a facility to improve their quality of life employers, nor has the Company realized any financial and encourage social interaction among company person- impact resulting from disputes between employees and em- nel. The employee recreation center is equipped to support a ployers. Disputes within the organization or financial loss variety of activities, such as sports, entertainment, arts, and could be averted by following the complete administrative community meetings. practices listed above and through constant efforts to avoid UMC follows a training policy that is implemented to such circumstances. not only benefit the Company, but also cultivate individual
74 Operation Overview
Major Agreements
Major Long-term Supply and Marketing Agreements addition, UMC has maintained long-term supply business In order to maintain a worldwide marketing presence, UMC relationships with major wafer material suppliers. The major has entered into long-term distribution, sales, service and contents of these agreements are described below: support agreements with the companies listed below. In
Company Name Contract Period Major Contents Limitations
UMC Group (USA) 2006.1.1~2007.12.31 Semiconductor products sales and relevant services None material
United Microelectronics (Europe) B.V. 2005.1.1~2006.12.31 Semiconductor products sales and relevant services None material
UMC Japan 2006.1.1~2007.12.31 Semiconductor products sales and relevant services None material
Shin-Etsu Handotai Taiwan Co., Ltd. Indefinite period 150mm, 200mm and 300mm raw wafer supply None material
Major License Agreements in the semiconductor field. UMC also has cross-licensing UMC is committed to the protection and enhancement of agreements with major semiconductor patent holders to intellectual property. Based on more than 20 years of invest- ensure that customers do not face infringement claims as a ment, UMC holds a leading position among independent result of UMC services. Some of the major licenses include: foundries worldwide for our number of US patents issued
Cross License (Company Name) License Period Fields of Protection Limitations
Agere Systems Inc. 2004.1.1~2008.12.31 Process and topography None material
International Business Machines Corporation 2006.1.1~2010.12.31 Process, topography and design None material
Texas Instruments Incorporated 1998.8.28~2007.12.31 Process, topography and memory content None material
Freescale Semiconductor, Inc. 2005.12.7~2010.12.31 Process and topography None material
Renesas Technology Corp. 2006.1.1~2010.12.31 Process and topography None material
75 United Microelectronics Corporation | Annual Report 2006 Major Agreements (cont.)
Major Construction Agreements
Company Name Contract Period Major Contents Limitations
Various construction or engineering compa- 2006.1.1~2007.12.31 UMC has contracts with major construction and None material nies, such as: Yih-Shin Construction Co., Ltd., engineering companies to expand semiconductor Yuan Lih Electrical Engineering Co., Ltd., facilities in the Tainan Science Park. Total contract GO-IN Engineering Co., Ltd. amounts exceed NTD 0.8 billion.
Major Long-term Loan Agreements foundry and maintain the capacity needed to support its UMC is committed to building and maintaining state-of- continued growth. In order to provide the necessary capital the-art wafer fabrication facilities that will allow UMC to required to support such projects, UMC has, from time to maintain its position as a premier independent wafer time, obtained loans from commercial banks. Some of these loans include:
Company Name Contract Period Major Contents Limitations
Mega International Commercial Bank Co., Ltd. 1996.9.20~2005.5.26 Mega International Commercial Bank Co., Ltd. None material and 17 other participant banks. arranged the syndicated loan and the facility amount (Note This case had been paid off in 2004) was approximately NTD 12.3 billion. The loan was for Fab 8C’s capital expenditure. Mega International Commercial Bank Co., Ltd. 1998.2.18~2005.9.18 Mega International Commercial Bank Co., Ltd. None material and 8 other participant banks. arranged the syndicated loan and the facility amount (Note This case had been paid off in 2004) was approximately NTD 4.3 billion. The loan was for Fab 8E’s capital expenditure. Mega International Commercial Bank Co., Ltd. 1999.11.22~2007.9.25 Mega International Commercial Bank Co., Ltd. None material and 13 other participant banks. arranged the syndicated loan and the facility amount (Note This case had been paid off in 2004) was approximately NTD 3.9 billion. The loan was for Fab 8E’s capital expenditure. Mega International Commercial Bank Co., Ltd. 2000.1.28~2007.1.28 Mega International Commercial Bank Co., Ltd. None material and 20 other participant banks. arranged the syndicated loan and the facility amount (Note This case had been paid off in April of was approximately NTD 8 billion. The loan was for 2005) Fab 8F’s capital expenditure.
76 Financial Report
Financial Report 2006
78 Review of Financial Position, Operating Results, Risk Management and Evaluation
86 Special Disclosures
94 Disclosure According to US Security Authorities Regulation
100 Financial Review Unconsolidated
196 Financial Review Consolidated
77 United Microelectronics Corporation | Annual Report 2006
Review of Financial Position,
Operating Results, Risk Management
and Evaluation
79 Analysis of Financial Position
80 Analysis of Operating Results
81 Liquidity Analysis
81 Major Capital Expenditures and Sources of Funding
82 Analysis for Investment
83 Risk Management and Evaluation
78 Review of Financial Position, Operating Results, Risk Management and Evaluation
Analysis of Financial Position In thousand NTD 2006 2005 Difference % Change
Current assets 118,430,216 128,267,746 (9,837,530) (8)
Funds and investments 82,746,430 39,238,167 43,508,263 111
Property, plant and equipment 142,647,435 149,809,616 (7,162,181) (5)
Other assets 7,659,590 7,970,867 (311,277) (4)
Total assets 355,228,793 329,391,074 25,837,719 8
Current liabilities 30,060,546 28,303,962 1,756,584 6
Long-term interest-bearing liabilities 30,383,076 36,009,055 (5,625,979) (16)
Total liabilities 64,063,922 71,107,521 (7,043,599) (10)
Capital 191,323,332 197,983,633 (6,660,301) (3)
Additional paid-in capital 67,707,287 85,381,599 (17,674,312) (21)
Retained earnings 34,795,993 26,572,792 8,223,201 31
Total equity 291,164,871 258,283,553 32,881,318 13
Explanation for significant changes (over 20%) in financial Recognition and Measurement”. position include: 2. The decrease in additional paid-in capital mainly resulted 1. The increase in funds and investments is mainly due to from the adjustment of funds and investments disposal for an effect of the subsequent valuation in “Available-for-sale 2006. financial assets, noncurrent” originated from the imple- 3. The increase in retained earnings mainly resulted from mentation of ROC SFAS No. 34, “Financial Instruments: the increase in net income over the previous year.
79 United Microelectronics Corporation | Annual Report 2006
Analysis of Operating Results In thousand NTD 2006 2005 Difference % Change
Sales revenues 102,023,597 90,780,340 11,243,257 12
Sales returns and discounts (710,191) (1,840,345) 1,130,154 (61)
Net sales 101,313,406 88,939,995 12,373,411 14
Other operating revenues 2,785,205 1,835,444 949,761 52
Net operating revenues 104,098,611 90,775,439 13,323,172 15
Operating costs (83,419,400) (79,614,153) (3,805,247) 5
Gross profit 20,679,211 11,161,286 9,517,925 85
Realized (unrealized) intercompany profit 14,261 34,264 (20,003) (58)
Gross profit-net 20,693,472 11,195,550 9,497,922 85
Operating expenses (14,569,334) (13,864,269) (705,065) 5
Operating (loss) income 6,124,138 (2,668,719) 8,792,857 (329)
Non-operating income 33,871,592 13,871,542 20,000,050 144
Non-operating expenses (2,979,691) (4,175,293) 1,195,602 (29)
Income from continuing operations before income tax 37,016,039 7,027,530 29,988,509 427
Income tax expense (3,208,211) (838) (3,207,373) 382,741
Cumulative effect of changes in accounting principles (1,188,515) - (1,188,515) -
Net income 32,619,313 7,026,692 25,592,621 364
Explanation for significant changes (over 20%) in operat- (c) Non-operating income and expenses: ing results include : Mainly resulted from an increase in gain on disposal of (a) Net operating revenues: investments, and Investment gain accounted for under the The increase in net operating revenues primarily resulted equity method. from the recovery of the semiconductor industry, and subse- (d) Cumulative effect of changes in accounting principles: quently the increased number of orders received. Resulted from the implementation of ROC SFAS No. 34, (b) Gross profit analysis: “Financial Instruments: Recognition and Measurement” to The increase in gross profit for 2006 was due primarily to account for the financial instruments effective January 1, increases in sales quantity and the capacity utilization rate, 2006. and a decrease in the product unit cost. Reasons for differ- (e) Income tax expense: ence in gross profit are as follows: The increase of income tax expense resulted from the in- crease in sales revenues and the net income for 2006, and the In thousand NTD impact of The Income Basic Tax Act of the R.O.C. Reasons for Difference Gross Profit Estimated Sales Quantities Average selling price 299,724 With the industry shifting towards the vertical disintegra- Unit cost 7,937,397 tion business model, UMC, with its position as an industry
Product mix - leader and pioneer in 300mm manufacturing and SoC (System-on-Chip) technologies, should be able to reach a Quantity 1,366,350 revenue growth rate higher than that of the overall semi- Others (85,546) conductor industry. Based on our capacity and customers’ demand forecast, the estimated sales quantity for 2007 is Difference 9,517,925 approximately 3.70 million 200mm wafer equivalents.
80 Review of Financial Position, Operating Results, Risk Management and Evaluation
Liquidity Analysis Analysis of Cash Flows for 2006 In thousand NTD Cash Balance at Net Cash Provided by Net Cash Used in Cash Balance at End Source of Funding in case of Beginning of Year Operating Activities Investing and of Year Cash Shortfall Financing Activities Investing Plan Financing Plan
96,596,623 46,049,174 (59,250,995) 83,394,802 - -
Note Net cash used in investing and financing activities includes factoring for currency exchange, which amounts to (85,133) thousand.
(a) Cash inflows from operating activities are the result of for-sale financial assets and long-term investment under the net income reconciled to net cash with depreciation as the equity method. largest adjustment. (c) Cash outflows from financing activities resulted from the (b) Cash outflows from investing activities are attributed to repayment of bonds payable, purchase of treasury stocks and the increase of capital expenditures, while cash inflows from payment of cash dividends. investing activities are attributed to proceeds from available-
Projected Cash Flows for 2007 In thousand NTD Cash Balance at Projected Cash Inflows Projected Cash Projected Cash Source of Funding in case of Beginning of Year from Operating Outflows from Balance at End of Cash Shortfall Activities investing and Year financing activities Investing Plan Financing Plan 83,394,802 44,222,821 (98,068,887) 29,548,736 - -
Impact on the Company’s Financial Operations and Contingency Action Regarding Major Capital Expenditures
Execution Status of Major Capital Expenditures and Sources of Funding In thousand NTD Project Actual or Expected Sources of Funding Completion Total Capital Expenditures Plan Status Amount (up to 2006) (up to 2006) 2006 2005 Production Equipment Cash flows generated from operations, bank loans and Completed 44,632,783 28,132,964 16,499,819 issuance of bonds
R&D Equipment Cash flows generated from operations, bank loans and Completed 5,158,223 3,071,455 2,086,768 issuance of bonds
Expected Benefit from Capital Expenditures more as a percentage of total production capacity due to the Starting from 2007, production capability for the Company’s above mentioned capital expenditures. 0.25-micron and below technologies will increase to 68% or
81 United Microelectronics Corporation | Annual Report 2006
Investment Policy, Causes of Profit /Loss and Future Investment Plans
The Company held a meeting of its Board of Directors on under long-term investments and stockholders’ equity, January 27, 2006, and passed a resolution to sell 63.48% of respectively. the equity of its subsidiary, Hsun Chieh Investment Co., Ltd. Both the Company and Hsieh Yong set the terms of the (Hsun Chieh), to Hsieh Yong Capital Co., Ltd. (Hsieh Yong). sale, in consideration of the future prospects of the industry, Before this transaction, the Company held a 99.97% and the technical and management capabilities of Hsun stake in Hsun Chieh. After completing the sale of a 63.48% Chieh’s invested companies. The companies that make up stake to Hsieh Yong, the Company holds a 36.49% stake Hsun Chieh’s investment portfolio come from a wide range in Hsun Chieh and retains one of the three seats on the of sectors within the electronics supply chain. Over 97% of Company’s Board of Directors. After the transaction, Hsun the value of Hsun Chieh’s investment portfolio is in publicly Chieh Investments Co., Ltd. was no longer a subsidiary of listed companies. The value of Hsun Chieh was determined the Company and thus any share of the Company held by based on the closing stock price of its portfolio companies at Hsun Chieh Investments Co., Ltd. shall be reclassified from the end of trading on January 25, 2006 and was reviewed by treasury stocks to long-term investments in the Company’s securities and accounting specialists, confirming the reason- books, of which NTD 10,881 million was recorded in effect ableness of this transaction.
82 Review of Financial Position, Operating Results, Risk Management and Evaluation
Risk Management and Evaluation
Impact on Corporate Profitability from Fluctuating Inter- on increasing 65-nanometer and 90-nanometer IP. For 65- est Rates, Exchange Rates, and Inflation nanometer design support, the foundation will be built upon The impact on the Company from fluctuating interest rates, DFM compliance libraries, memory compilers and reference exchange rates, and inflation has been minimal due to ef- design flows. State-of-the-art analog mixed-signal IP will fective monitoring and control. The Company will continue further complement customers’ SoC design needs, espe- to watch market movement with regard to interest and cially those supporting industry standards (such as PCI-E, exchange rates to avoid losses. SATA, HDMI, etc.), advanced video, audio and consumer applications. UMC will leverage its success in delivering 90- Profit or Loss from Activities in High Risk and Highly nanometer libraries and analog mixed-signal devices to de- Leveraged Investments, Loans Provided to Others, En- velop 65-nanometer solutions while expanding its partner- dorsements and Guarantees, and Derivatives ship base with the world’s IP community to offer the most Starting from November 2005, the Company provided comprehensive design support resources for SoC designs. guarantees of NTD 7.5 billion to its subsidiary, UMCJ. As the SoC Solution Foundry, UMC continues to The guarantees had expired on October 31, 2006. develop innovative yet practical technology solutions The Company has not engaged in any transaction of to help SoC designers maximize the competitiveness high risk and highly leveraged investments. Any deriva- of their products. UMC’s continuous advancements in tives transaction is to elevate the Company’s operating leading-edge and emerging technology areas are criti- performance and reduce operating and financial risks. cal for customers’ product success. UMC will complete its specialized R&D center and continue to build its Upcoming R&D Plans and Their Status methodology designed to accelerate leading-edge nano- UMC is determined to maintain its position as a semicon- electronic technology to the marketplace. ductor industry leader by addressing the challenges of semi- conductor scaling and continuing the advancement of tran- Impact on the Company’s Financial Operations and Con- sistor technology. The accomplishments being unveiled at tingency Action Regarding Recent Changes in Domestic 65-nanometer and 45-nanometer development demonstrate and International Policies and Regulations UMC’s capabilities and confidence in the development and The Company strictly follows governing policies and regula- delivery of advanced process technologies for 45-nanometer tions. All of the related departments constantly monitor any and beyond. With the upcoming completion of UMC’s new changes in related policies and regulations, and adjust inter- R&D center and new wafer plant for nanometer technologies nal operating procedures and business activities accordingly in Tainan, Taiwan, the development momentum moving so that business operations continue smoothly. to 45-nanometer, 40-nanometer (shrunk version of 45- As to the revisions of ROC “Business Entity Accounting nanometer) and 32-nanometer is accelerating, with extraor- Law” announced on May 24, 2006, Financial Supervisory dinary achievements expected in the coming year. Commission, Executive Yuan (FSC) proposed a policy of 65-nanometer product ramp is on track for several “identification of employee dividend and bonus payouts as customers for 2007 and 55-nanometer technology qualifi- expenses” (the “Policy”) to be enforced from January 1, cation is expected to be completed during the second half 2008. The Company’s financial/business impact from this of 2007. The development pace for 45-nanometer technol- new Policy and action measures for resolution will be: ogy is accelerating as well. Continued enhancements to (1) Impact: the Company will follow the Policy and related process margin and volume production windows will be accounting principles and regulations in financial re- the Company’s current focus for UMC’s 45-nanometer Low porting. Leakage process. Further mobility enhancement for the high (2) Action Measures: related regulations and principles of performance chip segment is an on-going challenge that has the Policy have not been proposed by FSC; as such the been determined to be resolved in 2007. The 45-nanometer Company will monitor them and consult with its ac- release schedule has been aligned with UMC’s strategic counting service firm for an implementation plan for the customers’ product roadmap for 2008. The definition of Policy. 32-nanometer technology and device specification discus- sion have been initiated with UMC’s leading customers. Impact on the Company’s Financial Operations and Con- The Company is also co-working with a leading technology tingency Action Regarding Recent Changes in Technology company at Advanced Technology Development Facility The Company has been sharply focused on the development (ATDF) to develop leading-edge transistor structures incor- of advanced technology. In 2006, the Company’s R&D ex- porating new materials (high-k dielectrics and metal gate penses were approximately NTD 9.2 billion. The Company electrode, Silicon-on-insulator (SOI) and non-classical has taken the lead position in the foundry industry in both CMOS schemes (multiple-gate field emission transistor) volume production of 90-nanometer and the development for future generation devices on new technology. of 65-nanometer technologies. The Company has migrated UMC will continue to strengthen its silicon validated 90-nanometer chips to mainstream volume production; 90- intellectual property portfolio, with a particular emphasis nanometer and below chips represented 21% of total revenue 83 United Microelectronics Corporation | Annual Report 2006 Risk Management and Evaluation (cont.) in the 4th quarter, 2006; 65-nanometer chips represented 1% Risk of Excess Capacity from Fluctuating Economic Condi- of total revenue in 2006. The Company’s current financial tions situation is sound and cash on hand is sufficient for future The Company increases its production capabilities through technology development. fab expansion in order to accommodate more customer orders, thus providing the means to increase revenue, Impact on the Company’s Risk Management and Con- profits and market share. When production capacity reaches tingency Action Regarding Recent Changes in Corporate economies of scale, manufacturing costs can be dramatically Image reduced. However, the significant potential for fluctuations To ensure the long-term success of the Company and to fur- in the semiconductor industry economic cycle creates finan- ther the corporate goal of building long-term partnerships cial risk, as any excess capacity still must be accounted for with our customers and our community, the Company holds under depreciation of plants and equipment during demand Shareholder Meetings and Investor Conferences regularly softening caused by economic conditions. This risk would be to maintain a high-level of financial transparency. The considered a burden to the Company. Company consistently meets its obligations as an exemplary The Company’s capacity expansion is under deliberate corporate citizen by participating in a wide range of public capital expenditure plans, which focus on satisfying cus- activities that benefit the community and society as a whole. tomers’ needs while optimizing capital utilization. Disci- In addition, the Company has established a comprehensive plined capital expenditure can help to develop a healthy and robust set of response procedures aimed at addressing industry environment. the needs of a highly diverse range of emergency conditions, reducing management uncertainty to the lowest achievable Risk and Countermeasures of the Company Encounter- level. ing Material Shortage from Suppliers Failing to Provide Materials due to Circumstances Created by Natural or Risk from the Company Encountering an Economic Down- Unnatural Factors turn during Expansion by Acquisition or Merger The Risk of Material Shortage: Through future acquisitions, UMC is expected to integrate Material shortage may result from suppliers encountering resources, lower operating costs, widen its business scope, situations such as insufficient capacity, industrial accidents raise profitability and add to its overall international com- in factories or natural disasters. petitiveness, which will help the Company to contend in a Solution for Material Shortage: capital and technology intensive industry that is constantly UMC currently uses consignment contracts to offset its risk. changing. The cyclical fluctuation in the semiconductor indus- Risk of Profit Loss if Sales are Concentrated on a Single try is volatile and uncertain. Once a company encounters or a Few Customers, and a Major Customer Reduces its an economic downturn during expansion by acquisition Orders or merger, there would exist the possibility of an excess UMC has established long-term and steady partnerships capacity situation. The risk might temporarily damage the with numerous world-class customers. The combined Company’s profitability but such a situation would also help strengths of both UMC and these customers will ensure the to eliminate companies with poor operations and restruc- long-term steady growth of the Company. The ten larg- ture the industry composition. The other possible risk would est customers of UMC accounted for 63% of sales in 2006. be that the acquired company would encounter difficulties UMC mitigates its risk through dispersed sales to lower the when integrating with the acquiring company. Factors such potentially significant impact that a single or a few custom- as unsuccessful production integration or issues brought ers may cause. by differences in corporate culture would partly offset the contribution from the acquired company. Risk of Change of Control and Stock Price Fluctuation To avoid the negative effects from improper acquisition, from Large Scale Transfer of Shares for future operations, the Company will conduct thorough If Company’s directors, supervisors or major shareholders evaluations to prevent unfavorable acquisition conditions holding more than 10% of issued and outstanding shares caused by improper information disclosure. Following transfer a significant portion of their shareholdings in the any acquisition, the Company’s corporate culture will be Company, then a change of control may occur. Furthermore, introduced to its new employees to create a unified team that such transfer may give rise to investor concerns on the op- will work hard towards the common goal of increasing the eration of the Company and may cause the market price Company’s competitiveness. of Company shares to fluctuate. The share withholding status of the Company’s direc- tors, supervisors and managers have been reported based on official regulations and laws. Meanwhile, there has been no significant share transfer activity.
84 Review of Financial Position, Operating Results, Risk Management and Evaluation Risk Management and Evaluation (cont.)
Risk of the Company Losing One or More Key Personnel On February 15, 2006, Taiwan Ministry of Economic without Adequate Replacement Due to Any Change of Affairs, Executive Yuan (MOEA) fined UMC NTD 5 million Company Control for UMC’s alleged violation of Governing Relations between UMC’s future success depends to a large extent on the con- Peoples of the Taiwan Area and the Mainland Area Act tinued service of the Company’s Chairman and key execu- (Article 35, failure to gain government’s approval for con- tive officers. If the Chairman or key executive officers leave ducting investment in China Mainland). UMC had filed an their positions as a result of a change in Company control, administrative appeal against MOEA on March 16, 2006. On and qualified replacement personnel cannot be found and October 19, 2006, Executive Yuan denied the administrative integrated in a short period of time, operations may be appeal filed by UMC. Up until this Annual Report’s editing adversely affected. deadline, UMC had filed an administrative litigation case The Company’s management focuses its operations with against MOEA on December 8, 2006. the intent to maximize value for its shareholders, thus gain- UMC’s Singapore Branch (as UMCi Ltd., prior to the ing their trust and recognition. If there were a replacement conversion of that business to UMC Singapore Branch) as of management, the succeeding personnel would have to plaintiffs issued a Writ of Summons against Tokio Marine & recognize corporate culture, be qualified to assume profes- Fire Insurance Company (Singapore) Pte. Ltd. as defendants sional duties, and be able to execute the Company’s policy. on June 6, 2005 under a marine cargo insurance policy for the replacement cost of a 300mm Endura System damaged Litigation and Non-litigated Incidents in transit. UMC’s Singapore Branch believes a chamber of On February 15, 2005, Taiwan’s Hsinchu District Court that equipment was damaged in shipment, incurring a cost Prosecutor’s Office conducted a search at UMC offices, of approximately USD 1.2 million to replace the damaged assertively investigating whether there was any evidence of chamber. UMC’s Singapore Branch filed suit to recover violation of Taiwan Securities and Exchange Act. UMC’s under the insurance policy on the grounds that the equip- former Chairman, Mr. Robert H.C. Tsao, and former Vice ment was damaged in shipment as a result of rough han- Chairman, Mr. John Hsuan, had received summons as the dling or conditions. Tokio Marine has denied the incident defendants. On the afternoon of January 9, 2006, Taiwan’s was a covered event under the policy. Discovery has been Hsinchu District Court Prosecutor’s Office announced that completed and the parties are preparing their affidavits of UMC’s former Chairman, Mr. Robert H.C. Tsao, and for- evidence-in-chief for exchange. Based on results to date, mer Vice Chairman, Mr. John Hsuan, had been prosecuted UMC feels its Singapore Branch has a meritorious case. Trial due to their violations of Article 71 of Business Entity Ac- is expected for the first half of 2007. Although it is too early counting Act and Article 342 paragraph 1 of Criminal Law. to determine the possible outcome, the maximum exposure In actuality, Mr. Robert H.C. Tsao and Mr. John Hsuan had to UMC’s Singapore Branch would be the loss of its claim for both resigned from their director positions from the Board reimbursement plus no more than a few hundred thousand of Directors on the morning of the same day. This case is dollars more in assessments, fees and costs. waiting for Taiwan Hsinchu District Court’s trial. Mr. C.F. Shih, a workman of a subcontractor hired by On July 12, 2005, one of UMC’s Taiwan shareholders, Yih-Shin Construction Co., Ltd. (“Yih-Shin”), one of compa- Mr. T.Y. Huang brought a civil litigation action against UMC nies engaged by UMC for Fab 12A dormitory construction, and the other Taiwan listed companies and claimed that all was severely injured during construction. Mr. C.F. Shih’s of the resolutions in this aforesaid companies’ 2005 annual wife filed a request to Taiwan Tainan Prosecutors’ Office shareholders meetings were null and void. This case had to file charges against UMC and other related parties for been overruled by Taiwan Hsinchu District Court on March personal injury. Taiwan Tainan Prosecutor’s Office denied 7, 2006. Mr. T.Y. Huang appealed. On September 12, 2006, this request. On March 30, 2006, Mr. C.F. Shih also filed a Taiwan High Court ruled in favor of UMC. Mr. T.Y. Huang civil litigation case against Yih-Shin, UMC and other related did not appeal to Taiwan Supreme Court within the statu- parties. Mr. C.F. Shih claimed that Yih-Shin, UMC and tory time limit; this case is closed. other related parties should collectively pay NTD 20,967,400. On February 13, 2006, Taiwan Hsinchu District Court Mr. C.F. Shih’s mother and wife each requested for com- delivered a notice to UMC and informed UMC that Taiwan pensatory damages in the amount of NTD 300,000 and Mr. Power Company (“TPC”) had filed a civil litigation case C.F. Shih’s three children each requested for compensatory against UMC and other Taiwan companies. TPC claimed: (1) damages in the amount of NTD 100,000. Mr. Shih and his UMC and the other Taiwan companies should collectively families also claimed that an annual interest rate of 5% to pay NTD 13,348,056 with interest to TPC for electrical fees, be accrued for the claimed damages. This case is waiting for and (2) UMC should pay NTD 21,210,000 to TPC for the Taiwan Tainan District Court’s trial. electrical line’s fees. Up until this Annual Report’s editing deadline, UMC had provided the defense documents. This Other Important Risks case is under Taiwan Hsinchu District Court’s trial. None.
Other Necessary Supplements None. 85 United Microelectronics Corporation | Annual Report 2006
Special Disclosures
87 Summary of Affiliated Enterprises
92 Acquisition or Disposal of UMC Shares by Subsidiaries
93 Disclosures of Events which May Have a Significant Influence on Stockholders’ Equity or Share Price, in Compliance with Item 2, Paragraph 2 in Article 36 of the Securities and Exchange Law of the R.O.C.
86 Special Disclosures
Summary of Affiliated Enterprises Organization Chart
United Microelectronics Corporation
TLC Capital Co., Ltd. 100.00%
Fortune Venture Capital Corporation 99.99% Unitruth Investment Corporation 100.00%
UMC Group (USA) 100.00%
UMC Japan 50.09%
UMC Capital Corp. 100.00% UMC Capital (USA) 100.00%
UMCi Ltd. 100.00% ECP VITA Ltd. 100.00%
United Microelectronics Corp. (Samoa) 100.00%
United Microelectronics (Europe) B.V. 100.00%
United Microdisplay Optronics Corp. 81.76%
Basic Data of Affiliated Enterprises In thousand NTD Name of Corporation Date of Address Capital Major Business / Establishment Production Items
Fortune Venture Capital 1993.9.21 2F, 76, Sec. 2, Tunhwa S. Rd., 5,000,000 Consulting and planning for Corporation Taipei, Taiwan 10683, R.O.C. investment in new business
Unitruth Investment Co. 2004.7.22 2F, 76, Sec. 2, Tunhwa S. Rd., 800,000 Investment holding Taipei, Taiwan 10683, R.O.C.
TLC Capital Co., Ltd. 2005.10.14 2F, 76, Sec. 2, Tunhwa S. Rd., 6,000,000 Consulting and planning for Taipei, Taiwan 10683, R.O.C. investment in new business
UMC Group (USA) 1997.8.11 488 De Guigne Drive, 535 IC sales Sunnyvale, CA 94085, USA (USD16,437.5)
UMC Japan 1984.5.15 1580, Yamamoto, 7,588,397 Sales and manufacturing of Tateyama-City, Chiba 294-8502, Japan (JPY27,140,188,000) integrated circuits
UMC Capital Corp. 2001.1.16 P.O. Box 1034GT, 4,033,472 Investment holding Grand Cayman, Cayman Islands (USD124,000,000)
UMC Capital (USA) 2001.2.13 488 De Guigne Drive, 6,506 Investment holding Sunnyvale, CA 94085, USA (USD200,000)
UMCi Ltd. 2001.1.18 3 Pasir Ris Drive 12, 28,625 Sales and manufacturing of Singapore 519528 (USD880,006) integrated circuits
United Microelectronics Corp. 2000.10.12 Offshore Chambers, P.O. Box 217, 9,108 Investment holding (Samoa) Apia, Samoa (USD280,000)
United Microelectronics 1989.5.23 World Trade Center, H-Tower, 126,056 IC sales (Europe) B.V. Schipholboulevard 243 1118 BH Schiphol, (USD3,875,309) The Netherlands United Microdisplay Optronics 2002.9.11 2F, 3, Li-Hsin 2nd Rd., 786,584 Sales and manufacturing of Corporation Hsinchu Science Park, Taiwan 30078, R.O.C. LCOS
ECP VITA Ltd. 2005.7.27 Romasco Place, Wickhams Cay 1, 32,528 Insurance P.O. Box 3140, Road Town, (USD1,000,000) Tortola, British Virgin Islands
Notes (1) USD:NTD =1:32.528; JPY:NTD = 1:0.2796. (2) The data is dated December 31,2006.
87 United Microelectronics Corporation | Annual Report 2006 Summary of Affiliated Enterprises (cont.)
Data for Common Shareholders of Treated-as Controlled Companies and Affiliates None.
Business of United Microelectronics Corporation (UMC) and its Affiliated Enterprises The business of UMC and its affiliated enterprises includes semiconductor wafer manufacturing, electronics, optronics, invest- ment activities, insurance and trade.
88 Special Disclosures Summary of Affiliated Enterprises (cont.)
Directors, Supervisors and Presidents of Affiliated Enterprises
Name of Corporation Title Name or Representative Shareholding
Shares %
Fortune Venture Capital Corporation Chairman United Microelectronics Corporation 499,994,000 99.99
Representative: Robert H.C. Tsao - -
Director United Microelectronics Corporation 499,994,000 99.99
Representative: John Hsuan - -
Director United Microelectronics Corporation 499,994,000 99.99
Representative: Stan Hung - -
Director United Microelectronics Corporation 499,994,000 99.99
Representative: Duen-Chian Cheng - -
Director United Microelectronics Corporation 499,994,000 99.99
Representative: Isabel Liu - -
Supervisor United Microelectronics Corporation 499,994,000 99.99
Representative: Tzyy-Jang Tseng - -
President Duen-Chian Cheng - -
Unitruth Investment Co. Chairman Fortune Venture Capital Corporation 80,000,000 100.00
Representative: Stan Hung - -
Director Fortune Venture Capital Corporation 80,000,000 100.00
Representative: Jean Tien - -
Director Fortune Venture Capital Corporation 80,000,000 100.00
Representative: Duen-Chian Cheng - -
Supervisor Fortune Venture Capital Corporation 80,000,000 100.00
Representative: Isabel Liu - -
TLC Capital Co., Ltd. Chairman United Microelectronics Corporation 600,000,000 100.00
Representative: Stan Hung - -
Director United Microelectronics Corporation 600,000,000 100.00
Representative: Jean Tien - -
Director United Microelectronics Corporation 600,000,000 100.00
Representative: Duen-Chian Cheng - -
Supervisor United Microelectronics Corporation 600,000,000 100.00
Representative: Chitung Liu - -
89 United Microelectronics Corporation | Annual Report 2006 Summary of Affiliated Enterprises (cont.)
Name of Corporation Title Name or Representative Shareholding
Shares %
UMC Group (USA) Director Peter J. Courture - -
Director Tony Yu - -
UMC Japan Chairman Jackson Hu - -
Director and President Ching-Chang Wen - -
Director Robert H.C. Tsao - -
Director John Hsuan - -
Director Wen-Yang Chen - -
Director Oliver Chang - -
Director Toshiji Sugawara 920 0.09
Director Masahide Tanihira 40 0.00
Director T.Y. Hwang - -
Supervisor Chitung Liu - -
Supervisor Yoshihiro Matsumoto 210 0.02
Supervisor Eiichi Arakawa 172 0.02
Supervisor Grace Li - -
UMC Capital Corp. Director United Microelectronics Corporation 124,000,000 100.00
Representative: Robert H.C. Tsao - -
UMC Capital (USA) Director and President Peter J. Courture - -
Director Stan Hung - -
UMCi Ltd. Director Robert H.C. Tsao - -
Director Jackson Hu - -
Director and President Peter Chang - -
Director Po-Wen Yen - -
Director Peter J. Courture - -
United Microelectronics Corp. (Samoa) Director United Microelectronics Corporation 280,000 100.00
Representative: Stan Hung - -
United Microelectronics (Europe) B.V. Director Robert H.C. Tsao - -
Director John Hsuan - -
United Microdisplay Optronics Corporation Chairman United Microelectronics Corporation 64,313,176 81.76
Representative: John Hsuan - -
Director United Microelectronics Corporation 64,313,176 81.76
Representative: Robert H.C. Tsao - -
Director United Microelectronics Corporation 64,313,176 81.76
Representative: Stan Hung - -
Supervisor United Microelectronics Corporation 64,313,176 81.76
Representative: Duen-Chian Cheng - -
90 Special Disclosures Summary of Affiliated Enterprises (cont.)
Directors, Supervisors and Presidents of Affiliated Enterprises
Name of Corporation Title Name or Representative Shareholding
Shares %
ECP VITA Ltd. Director Angel Sun - -
Director Stan Hung - -
Director Chitung Liu - -
Note The data is dated December 31, 2006.
Summarized Operation Results of Affiliated Enterprises In thousand NTD Name of Corporation Capital Total Total Net Net Operating Net Earnings Assets Liabilities Worth Operating Income Income (Loss) Per Revenues (Loss) (Loss) Share (NTD) TLC Capital Co., Ltd. 6,000,000 7,061,109 61,372 6,999,737 2,253,785 359,631 329,178 0.68
Fortune Venture Capital Corp. 5,000,000 11,724,554 13,108 11,711,446 1,729,901 397,527 374,046 0.75
UMC Group (USA) 535 6,647,947 5,623,910 1,024,037 55,616,919 216,468 260,573 15.85
UMC Japan 7,588,397 18,933,989 6,120,617 12,813,372 9,624,737 (861,313) (833,067) (841.87)
UMC Capital Corp. 4,033,472 3,615,733 1,349 3,614,384 144,017 (49,736) (49,736) (0.60)
UMCi Ltd. 28,625 19,239,995 - 19,239,995 - (1,664) 12,463 0.01
United Microelectronics Corp. (Samoa) 9,108 8,556 74 8,482 - (5,626) (5,588) (5.77)
United Microelectronics (Europe) B.V. 126,056 1,032,890 754,034 278,856 8,564,771 8,126 7,058 784.17
United Microdisplay Optronics Corp. 786,584 270,913 66,398 204,515 10,830 (165,395) (186,142) (2.58)
Unitruth Investment Corp. 800,000 743,543 333 743,210 84,737 (44,005) (44,024) (0.70)
UMC Capital (USA) 6,506 11,291 685 10,606 22,842 1,088 974 4.87
ECP VITA Ltd. 32,528 62,512 12,108 50,404 8,731 7,039 9,295 9.30
Note USD:NTD = 1:32.528; JPY:NTD = 1:0.2796
91 United Microelectronics Corporation | Annual Report 2006
Issuance of Private Placement Securities None.
Acquisition or Disposal of UMC Shares by Subsidiaries In thousand NTD, Shares
Subsidiary Paid-in Source of Holding Acquisition Shares Acquired Disposal Profit/ As of Annual Report Capital Capital % by the or Disposal and Amount Shares and Loss Printing Date Company Date Amount Shares Amount
Fortune Venture 5,000,000 New shares 99.99 2006 223,456 (Note 1) None None 22,069,842 446,914 Capital for cash Corporation 2007 None None None 22,069,842 446,914
Notes (1) 223,456 shares were distributed as dividends in 2006. (2) Data represented for 2007 was gathered up until March 15, 2007. (3) None of the above companies pledged UMC shares as collateral. (4) The Company did not provide endorsements or guarantees to these subsidiaries. (5) The Company did not provide loans to these subsidiaries.
Other Necessary Supplements None.
92 Special Disclosures
Disclosures of Events which may Have a Significant Influence on Stockholders’ Equity or Share Price, in Compliance with Item 2, Paragraph 2 in Article 36 of the Securities and Exchange Law of the R.O.C.
On February 15, 2005, the Hsinchu District Prosecutor’s dividend distributed in the future until the R.O.C. laws and Office conducted a search of the Company’s facilities. On regulations allow the Company to acquire and exercise. In February 18, 2005, the Company’s former Chairman, Mr. the event that any stock dividend or cash dividend is dis- Robert H.C. Tsao, released a public statement explaining tributed, the Company’s stake in the holding company of that its assistance to Hejian Technology Corp. (Hejian) Hejian will accumulate accordingly. did not involve any investment or technology transfer . On February 15, 2006, the Company was fined in the Furthermore, from the very beginning, there was a verbal amount of NTD 5 million on the grounds of unauthorized indication that, at the proper time, the Company would be investment activities in Mainland China, implicating the compensated appropriately for its assistance, and circum- violation of Article 35 of the Act “Governing Relations Be- stances permitting, at some time in the future, it will push tween Peoples of the Taiwan Area and the Mainland Area” through the merger between two companies. However, no by the R.O.C. Ministry of Economic Affairs (MOEA). How- promise was made by the Company and no written agree- ever, as the Company believes it was illegally and improper- ment was made and executed. Upon the Company’s request ly fined, the Company had filed an administrative appeal to materialize the said verbal indication by compensating in against MOEA to the Executive Yuan on March 16, 2006. the form of either cash or equity, the Chairman of the hold- The Company’s administrative appeal was dismissed by the ing company of Hejian offered 15% of the approximately Executive Yuan, R.O.C. on October 19, 2006. The Company 700 million outstanding shares of the holding company of filed an administrative action against the R.O.C. Ministry Hejian in return for the Company’s past assistance and for of Economic Affairs to Taipei High Administrative Court continued assistance in the future. on December 8, 2006. As of December 31, 2006, the result of Immediately after the Company had received such offer, such administrative action has not been finalized. it filed an application with the Investment Commission of The company has entered a stage of sustained growth. the Ministry of Economic Affairs on March 18, 2005 (Ref. The Company determined that cash flows generated from No. 94-Lian-Tung-Tzu-0222), for their executive guidance UMC’s future operations will be sufficient for the research for the successful transfer of said shares to the Company. and development of advanced process technologies and the The shareholders meeting dated June 13, 2005 resolved that continued expansion of advanced manufacturing capacity, to the extent permitted by law the Company shall try to including the second 300mm fab in Taiwan’s Tainan Science get the 15% of the outstanding shares offered by the hold- Park. In order to avoid future cash levels becoming exces- ing company of Hejian as an asset of the Company. The sive and to better respond to the expectations of today’s holding company of Hejian offered 106 million shares of its capital markets, the Company has resolved to carry out a outstanding common shares in return for the Company’s capital reduction of NTD 57,394 million with the cancella- assistance. The holding company of Hejian has put all such tion of 5,739 million of its outstanding shares, following a shares in escrow. The Company was informed of such es- resolution passed at a meeting of the Board of Directors. The crow on August 4, 2006. The subscription price per share of board of directors will decide the date of the capital reduc- the holding company of Hejian in the last offering was USD tion after the approval at the stockholders’ meeting and the 1.1. Therefore, the total market value of the said shares is authorization of the government. The exact exchange ratio worth more than USD 110 million. However, the Company for shares and the amount of the capital reduction is to be may not acquire the ownership of nor exercise the rights of set on the record date for capital reduction. the said shares with any potential stock dividend or cash
93 United Microelectronics Corporation | Annual Report 2006
Disclosure According to US Security Authorities Regulation
95 Disclosure Committee
95 Audit Committee
95 Corporate Governance Difference
95 Code of Ethics
95 Employee Code of Conduct
95 US GAAP Financial Information
96 Consolidated Balance Sheets
98 Consolidated Statements of Income
94 Disclosure According to US Security Authorities Regulation
Disclosure Committee
The primary purpose of the Disclosure Committee is to assist the Company in establishing and maintaining “disclosure con- trols and procedures” designed to ensure the quality of filing reports on a timely basis.
Audit Committee To meet the requirement of Section 404 of the Sarbanes-Oxley Act, UMC’s Audit Committee was established in March 2005, with the purpose of assisting the Board of Directors in fulfilling its responsibility relating to the Company‘s accounting and reporting practices and quality and integrity of financial reporting. The Committee shall have the responsibilities regarding the oversight of independent auditors and reviewing internal audits, the annual external audit, and the financial statements. According to the Audit Committee Charter, the Committee is authorized to conduct or authorize investigations or special audits into any matters within the scope of the Committee’s responsibilities. The Committee shall communicate directly with the management, independent auditors and internal auditors respectively, and receive anonymous submissions by employees of the Company regarding concerns related to questionable accounting or auditing matters. As of March 2007, there were three members in the Committee; all of which were independent directors of UMC. The Committee shall meet and determine the future meeting frequency and intervals needed to carry out its duties and responsibilities.
Disclosure of the Differences between UMC’s Corporate Governance Practices and Those Required of Domestic Companies under NYSE Listing Standards http://www.umc.com/english/investors/Corp_gov_difference.asp
Disclosure of the UMC Code of Ethics for Directors, Supervisors and Managers http://www.umc.com/english/pdf/Code_of_Ethics.pdf
Disclosure of the UMC Employee Code of Conduct http://www.umc.com/english/pdf/Code_of_Conduct.pdf
US GAAP Financial Information The Company’s complete 2006 US GAAP reconciled financial statements and footnotes will be available in the Form 20-F, which will be filed to the US Securities and Exchange Commission (“SEC”) on or before June 30, 2007, and be accessible on both the SEC and UMC websites.
95 United Microelectronics Corporation | Annual Report 2006
Consolidated Balance Sheets As of December 31,
Assets 2006 2005 NTD USD NTD Current assets Cash and cash equivalents 93,853,208 2,879,816 108,626,800 Financial assets at fair value through profit or loss, current 8,538,007 261,982 2,468,968 Available-for-sale financial assets, current - - 2,414,153 Held-to-maturity financial assets, current 1,110,422 34,073 - Notes receivable 3,733 115 193 Notes receivable - related parties 50,648 1,554 62,136 Accounts receivable, net 14,028,084 430,441 13,628,434 Accounts receivable - related parties, net 323,645 9,931 1,420,977 Other receivables 849,742 26,074 891,058 Inventories, net 10,878,182 333,789 10,712,535 Prepaid expenses 762,799 23,406 694,669 Deferred income tax assets, current 1,945,082 59,683 3,386,790 Restricted deposits - - 555,800 Total current assets 132,343,552 4,060,864 144,862,513 Funds and investments Financial assets at fair value through profit or loss, noncurrent 474,738 14,567 - Available-for-sale financial assets, noncurrent 52,311,172 1,605,130 6,812,103 Held-to-maturity financial assets, noncurrent - - 1,116,806 Financial assets measured at cost, noncurrent 7,515,945 230,621 6,574,800 Long-term investments accounted for under the equity method 11,662,599 357,858 16,262,856 Prepaid long-term investments - - 30,000 Total funds and investments 71,964,454 2,208,176 30,796,565 Property, plant and equipment Land 1,879,442 57,669 1,893,522 Buildings 21,076,844 646,727 21,260,902 Machinery and equipment 415,225,873 12,740,898 386,920,282 Transportation equipment 90,706 2,783 89,580 Furniture and fixtures 2,964,369 90,960 2,804,967 Leasehold improvements 42,968 1,319 43,037 Total cost 441,280,202 13,540,356 413,012,290 Less : Accumulated depreciation (311,696,923) (9,564,189) (269,508,148) Add : Construction in progress and prepayments 22,244,850 682,567 15,609,497 Property, plant and equipment, net 151,828,129 4,658,734 159,113,639 Intangible assets Goodwill 3,498,687 107,354 3,491,072 Technological know-how - - 359,556 Other intangible assets 1,330 41 182,793 Total intangible assets 3,500,017 107,395 4,033,421 Other assets Deferred charges 1,501,064 46,059 2,034,569 Deferred income tax assets, noncurrent 4,184,091 128,386 4,012,314 Other assets-others 2,332,154 71,560 2,196,238 Total other assets 8,017,309 246,005 8,243,121 Total assets (as reported under ROC GAAP) 367,653,461 11,281,174 347,049,259 US GAAP Adjustments: Goodwill 38,301,535 1,175,255 38,283,481 Treasury stock (4,476,369) (137,354) - Compensation 105,426 3,234 62,336 Equity Investments 44,350 1,361 2,079,220 Change in fair value of investments in securities - - 38,869,884 Income tax effect - - 361,441 Total assets (as reported under US GAAP) 401,628,403 12,323,670 426,705,621 Notes (1) The USD amounts are presented solely for the convenience of the readers and were translated at the noon buying rate of NTD 32.59 to USD 1.0 in effect on December 29, 2006 at the Federal Reserve, the central bank of the United States. (2) Certain comparative amounts have been reclassified to conform to the current year’s presentation.
96 Disclosure According to US Security Authorities Regulation
In thousands
Liabilities and Stockholder's Equity 2006 2005 NTD USD NTD Liabilities Current liabilities Short-term loans 342,549 10,511 6,136,336 Financial liabilities at fair value through profit or loss, current 985,267 30,232 95,634 Accounts payable 4,864,771 149,272 5,501,159 Income tax payable 2,071,394 63,559 277,953 Accrued expenses 7,025,328 215,567 7,932,949 Other payables 77,319 2,372 140,735 Payable on equipment 10,130,367 310,843 5,315,695 Current portion of long-term liabilities 9,068,283 278,254 10,250,000 Deferred income tax liabilities, current 62 2 - Other current liabilities 1,538,450 47,206 1,309,579 Total current liabilities 36,103,790 1,107,818 36,960,040 Long-term liabilities Bonds payable 30,383,076 932,282 41,692,159 Total long-term liabilities 30,383,076 932,282 41,692,159 Other liabilities Accrued pension liabilities 3,115,420 95,594 3,014,998 Deposits-in 12,282 377 18,664 Deferred income tax liabilities, noncurrent 52,585 1,614 51,870 Deferred credits - intercompany profits 13,245 407 - Other liabilities - others 570,174 17,495 691,290 Total other liabilities 3,763,706 115,487 3,776,822 Total liabilities (as reported under ROC GAAP) 70,250,572 2,155,587 82,429,021 US GAAP Adjustments: Compensation 790,200 24,247 6,324 Pension 153,081 4,697 - Income tax effect 32,328 992 182,045 Convertible / Exchangeable bond liabilities - - 702,299 Derivative instruments - - 623,410 Total liabilities (as reported under US GAAP) 71,226,181 2,185,523 83,943,099 Minority interests (as reported under ROC GAAP) 6,238,018 191,409 6,336,685 US GAAP Adjustments: Consolidation of not wholly-owned subsidiaries 2,189 67 842 Minority interests (as reported under US GAAP) 6,240,207 191,476 6,337,527 Stockholders’ equity Capital Common stock 191,311,927 5,870,265 197,947,033 Capital collected in advance 11,405 350 36,600 Additional Paid-in Capital Premiums 61,070,555 1,873,905 64,600,076 Treasury stock transactions 8,938 274 - Change in equities of long-term investments 6,627,794 203,369 20,781,523 Retained earnings Legal reserve 16,699,508 512,412 15,996,839 Special reserve 322,150 9,885 1,744,171 Unappropriated earnings 17,774,335 545,392 8,831,782 Adjustment items to stockholders’ equity Cumulative translation adjustment (824,922) (25,312) (241,153) Unrealized gain or loss on financial instruments 27,557,845 845,592 (80,989) Treasury stock (29,394,664) (901,954) (51,332,329) Total stockholders’ equity (as reported under ROC GAAP) 291,164,871 8,934,178 258,283,553 US GAAP Adjustments: Goodwill 38,113,709 1,169,491 38,113,709 Treasury stock (4,476,369) (137,354) - Compensation (684,774) (21,012) 56,012 Equity investments 209,354 6,424 2,247,379 Pension (164,776) (5,056) - Change in fair value of investments in securities - - 38,869,884 Convertible / exchangeable bond liabilities - - (702,299) Derivative instruments - - (623,410) Income tax effect - - 180,167 Total stockholders’ equity (as reported under US GAAP) 324,162,015 9,946,671 336,424,995 Total liabilities and stockholders’ equity (as reported under US GAAP) 401,628,403 12,323,670 426,705,621
97 United Microelectronics Corporation | Annual Report 2006
Consolidated Statements of Income For the years ended December 31, In thousands
Contents 2006 2005 NTD USD NTD Operating revenues Sales revenues 109,857,465 3,370,895 97,172,846 Less : Sales returns and discounts (867,150) (26,608) (1,959,994) Net Sales 108,990,315 3,344,287 95,212,852 Other operating revenues 3,013,504 92,467 5,103,130 Net operating revenues 112,003,819 3,436,754 100,315,982 Operating costs Cost of goods sold (88,452,676) (2,714,105) (86,409,480) Other operating costs (2,198,540) (67,461) (4,266,217) Operating costs (90,651,216) (2,781,566) (90,675,697) Gross profit 21,352,603 655,188 9,640,285 Unrealized intercompany profit (105,892) (3,249) (118,815) Realized intercompany profit 118,815 3,646 151,192 Gross profit - net 21,365,526 655,585 9,672,662 Operating expenses Sales and marketing expenses (3,365,678) (103,273) (3,738,469) General and administrative expenses (3,422,340) (105,012) (4,387,406) Research and development expenses (9,418,877) (289,011) (9,633,607) Subtotal (16,206,895) (497,296) (17,759,482) Operating income (loss) 5,158,631 158,289 (8,086,820) Non-operating income Interest revenue 1,562,704 47,950 1,055,138 Investment gain accounted for under the equity method, net 1,178,103 36,149 1,096,985 Dividend income 950,546 29,167 1,051,813 Gain on disposal of property, plant and equipment 331,767 10,180 177,397 Gain on disposal of investments 28,651,109 879,138 10,276,618 Exchange gain, net 316,006 9,696 295,179 Gain on recovery of market value of inventories - - 837,315 Gain on valuation of financial assets 750,378 23,025 58,853 Gain on valuation of financial liabilities 306,140 9,394 - Other income 862,750 26,473 1,038,821 Subtotal 34,909,503 1,071,172 15,888,119 Non-operating expenses Interest expense (648,408) (19,896) (1,098,854) Loss on disposal of property, plant and equipment (107,962) (3,313) (218,525) Loss on decline in market value and obsolescence of inventories (1,089,490) (33,430) - Financial expenses (230,757) (7,081) (268,985) Impairment loss (1,330,293) (40,819) (460,542) Other losses (73,799) (2,264) (148,606) Subtotal (3,480,709) (106,803) (2,195,512) Income from continuing operations before income tax 36,587,425 1,122,658 5,605,787 Income tax expense (3,261,622) (100,080) (67,052) Income from continuing operations 33,325,803 1,022,578 5,538,735 Cumulative effect of changes in accounting principles (1,188,515) (36,469) (112,898) (the net amount after deducted tax expense $0) Minority interests loss 482,025 14,790 1,600,855 Net income (as reported under ROC GAAP) 32,619,313 1,000,899 7,026,692 US GAAP Adjustments: Treasury stock (10,842,272) (332,686) 101,955 Compensation (2,106,043) (64,622) (2,441,003) Derivative instruments 1,126,322 34,560 (1,611,969) Equity investments 1,117,384 34,286 571,228 Convertible / Exchangeable bond liabilities 199,389 6,118 (39,287) Income tax effect (180,167) (5,528) (232,428) Change in fair value of investments in securities (137,196) (4,210) 288,388 Goodwill - - (19,332,968) Net lncome (as reported under US GAAP) 21,796,730 668,817 (15,669,392) Notes (1) The USD amounts are presented solely for the convenience of the readers and were translated at the noon buying rate of NTD 32.59 to USD 1.0 in effect on December 29, 2006 at the Federal Reserve, the central bank of the United States. (2) Certain comparative amounts have been reclassified to conform to the current year’s presentation.
98 Disclosure According to US Security Authorities Regulation
99 United Microelectronics Corporation | Annual Report 2006
Financial Review Unconsolidated
101 Condensed Balance Sheets
102 Condensed Statements of Income
103 Financial Analysis
104 Supervisors’ Report
106 Report of Independent Auditors
107 Balance Sheets
108 Statements of Income
109 Statements of Changes in Stockholders’ Equity
110 Statements of Cash Flows
112 Notes to Financial Statements
160 Attachments to Notes
100 Financial Review Unconsolidated
Condensed Balance Sheets In thousand NTD 2006 2005 2004 2003 2002
Current assets 118,430,216 128,267,746 110,373,653 122,306,834 86,658,337
Funds and investments 82,746,430 39,238,167 71,568,002 72,218,479 56,246,744
Property, plant and equipment 142,647,435 149,809,616 137,355,251 117,184,749 146,075,886
Intangible assets 3,745,122 4,104,678 1,214,956 6,956 18,880
Other assets 7,659,590 7,970,867 7,747,985 7,527,580 8,332,799
Total assets 355,228,793 329,391,074 329,563,491 320,113,838 297,332,646
Current liabilities Before distribution 30,060,546 28,303,962 23,277,031 32,751,363 20,949,418
After distribution * 35,777,189 25,062,773 32,763,981 20,955,068
Long-term interest-bearing liabilities 30,383,076 36,009,055 33,607,029 48,552,355 55,066,424
Other liabilities 3,620,300 6,794,504 6,296,677 6,568,196 3,883,441
Total liabilities Before distribution 64,063,922 71,107,521 63,180,737 87,871,914 79,899,283
After distribution * 78,580,748 64,966,479 87,884,532 79,904,933
Capital 191,323,332 197,983,633 177,923,859 161,407,435 154,748,456
Additional paid-in capital 67,707,287 85,381,599 84,933,195 80,074,184 81,875,491
Retained earnings Before distribution 34,795,993 26,572,792 42,401,701 26,794,291 20,004,054
After distribution * 17,745,952 21,055,740 13,446,116 13,339,425
Unrealized gain or loss on financial instruments 27,557,845 (9,527,362) (9,871,086) (9,537,237) (10,795,621)
Cumulative translation adjustment (824,922) (241,153) (1,319,452) 913,877 728,851
Unrecognized pension cost, contra equity account, - - - - - charge to stockholders’ equity (excess of additional pension liability over unrecognized prior service cost) Total equity Before distribution 291,164,871 258,283,553 266,382,754 232,241,924 217,433,363
After distribution * 250,810,326 264,597,012 232,229,306 217,427,713
*Subject to change following resolutions decided during the 2007 shareholders’ meeting.
101 United Microelectronics Corporation | Annual Report 2006
Condensed Statements of Income In thousand NTD 2006 2005 2004 2003 2002
Net operating revenues 104,098,611 90,775,439 117,311,840 84,862,070 67,425,745
Gross profit 20,693,472 11,195,550 35,820,944 19,442,269 11,195,150
Operating income (loss) 6,124,138 (2,668,719) 24,454,992 9,936,334 140,971
Non-operating income 33,871,592 13,871,542 14,895,451 9,033,180 10,483,535
Non-operating expenses 2,979,691 4,175,293 7,473,153 4,154,145 3,540,412
Income from continuing operations before 37,016,039 7,027,530 31,877,290 14,815,369 7,084,094 income tax
Income from continuing operations 33,807,828 7,026,692 31,843,381 14,020,257 7,072,032
Discontinued operations - - - - -
Extraordinary items - - - - -
Cumulative effect of change in accounting principle (1,188,515) - - - -
Net income 32,619,313 7,026,692 31,843,381 14,020,257 7,072,032
Earnings per share (NTD) 1.81 0.38 1.68 0.75 0.38
Note The EPS calculations for 2002-2005 were based on the retroactive adjustment for capitalization of unappropriated earnings, additional paid-in capital and bonuses to employees, and the EPS calculation for 2006 was based on weighted average shares outstanding for the period.
Auditors’ Opinion
Year CPA Auditors’ Opinion
2002 James Wang, Thomas Yue A modified unqualified opinion
2003 James Wang, Thomas Yue A modified unqualified opinion
2004 Kim Chang, MY Lee A modified unqualified opinion
2005 James Wang, MY Lee A modified unqualified opinion
2006 James Wang, MY Lee A modified unqualified opinion
102 Financial Review Unconsolidated
Financial Analysis
2006 2005 2004 2003 2002 Capital structure analysis (%) Debts ratio 18.03 21.59 19.17 27.45 26.87 Long-term funds to fixed assets 225.41 196.44 218.40 239.62 186.55 Liquidity analysis (%) Current ratio 393.97 453.18 474.17 373.44 413.66 Quick ratio 351.82 404.71 421.28 340.19 359.62 Times interest earned 57.80 7.01 23.58 9.58 4.32 Operating performance analysis Average collection turnover (times) 8.42 7.87 9.45 7.23 8.12 Average collection days 43 46 39 50 45 Average inventory turnover (times) 8.17 8.51 10.01 8.45 8.40 Average payable turnover (times) 20.21 18.43 18.61 18.77 21.58 Average inventory turnover days 45 43 36 43 43 Fixed assets turnover (times) 0.71 0.63 0.92 0.64 0.45 Total assets turnover (times) 0.30 0.28 0.36 0.27 0.22 Profitability analysis (%) Return on total assets 9.67 2.34 10.08 4.84 2.65 Return on equity 11.87 2.68 12.77 6.24 3.14 Operating income(loss) to capital 3.20 (1.35) 13.74 6.16 0.09 Income before income tax to capital 18.73 3.55 17.92 9.18 4.58 Net income to sales 31.34 7.74 27.14 16.52 10.49 Earnings per share (NTD) 1.81 0.38 1.68 0.75 0.38 Cash Flow (%) Cash flow ratio 153.19 156.32 296.49 139.22 133.89 Cash flow adequacy ratio 151.32 148.68 115.97 105.92 87.59 Cash flow reinvestment ratio 6.32 7.73 13.64 10.37 7.06 Leverage Operating leverage 12.58 (24.95) 3.66 6.65 421.35 Financial leverage 1.11 0.74 1.05 1.14 (0.11)
Explanation for significant changes (over 20%) in financial an increase in income before income tax over the previous analysis include: year. 1. Times interest earned: Mainly resulted from an increase in 6. Net income to sales: Mainly resulted from an increase of earnings before interest and taxes over the previous year. operating income over the previous year. 2. Return on total assets: Mainly resulted from an increase in 7. Earnings per share (NTD): Mainly resulted from the in- net income over the previous year. crease of net income over the previous year. 3. Return on equity: Mainly resulted from an increase in net 8. Operating leverage: Mainly resulted from the operating income over the previous year. loss for 2005. 4. Operating income to capital: Mainly resulted from an in- 9. Financial leverage: Mainly resulted from the operating loss crease in operating income over the previous year. for 2005. 5. Income before income tax to capital: Mainly resulted from
Notes (1) The EPS calculations for 2002-2005 were based on the retroactive adjustment for capitalization of unappropriated earnings and bonus to employees; the EPS calculation for 2006 was based on weighted average shares outstanding for the period. (2) The calculation formulas of financial analysis are listed as follows Capital structure analysis (1) Debts ratio = Total liabilities / Total assets (2) Long-term funds to fixed assets = (Stockholders’ equity + Long-term interest-bearing liabilities) / Net fixed assets Liquidity analysis (1) Current ratio = Current assets / Current liabilities (2) Quick ratio= (Current assets - Inventories - Prepaid expenses - Current deferred income tax assets ) / Current liabilities (3) Times interest earned = Earnings before interest and taxes / Interest expense Operating performance analysis (1) Average collection turnover (times)=Net sales / Average trade receivables (2) Average collection days=365 / Average collection turnover (times) (3) Average inventory turnover (times)=Cost of goods sold / Average inventory (4) Average payable turnover (times)=Cost of goods sold / Average trade payables (5) Average inventory turnover days=365 / Average inventory turnover (times) (6) Fixed assets turnover (times)=Net sales / Average fixed assets (7) Total assets turnover (times)=Net sales / Average total assets Profitability analysis (1) Return on total assets={Net income+Interest expense × (1-Tax rate)} / Average total assets (2) Return on equity=Net income / Average stockholders’ equity (3) Operating income to capital=Operating income / Capital (4) Income before income tax to capital=Income before income tax / Capital (5) Net income to sales=Net income / Net sales (6) Earnings per share=(Net income-Preferred stock dividend) / Weighted average number of shares outstanding Cash flow (1) Cash flow ratio=Net cash provided by operating activities / Current liabilities (2) Cash flow adequacy ratio=Five-year sum of cash from operation / Five-year sum of capital expenditures, Inventory additions, and Cash dividends (3) Cash flow reinvestment ratio=(Cash provided by operating activities-Cash dividends) / (Gross fixed assets+Long-term investments+Other assets+Working capital) Leverage (1) Operating leverage=(Net sales-Variable cost) / Operating income (2) Financial leverage=Operating income(loss) / (Operating income(loss)-Interest expense)
103 United Microelectronics Corporation | Annual Report 2006
Supervisors’ Report The board of directors has prepared and submitted to us the Company’s 2006 financial statements. These statements have been audited by Ernst & Young. The financial statements present fairly the financial position of the Company and the results of its operations and cash flows. We, as the Supervi- sors of the Company, have reviewed these statements, the report of operations and the proposals relating to distribu- tion of net profit. According to article 219 of the Company Law, we hereby submit this report.
United Microelectronics Corporation Supervisors:
Tzyy-Jang Tseng
Ta-Hsing Wang
Ting-Yu Lin
March 15, 2007
104 Financial Review Unconsolidated
UNITED MICROELECTRONICS CORPORATION FINANCIAL STATEMENTS WITH REPORT OF INDEPENDENT AUDITORS FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
Address: No. 3 Li-Hsin Road II, Hsinchu Science Park, Hsinchu City, Taiwan, R.O.C. Telephone: 886-3-578-2258
The reader is advised that these financial statements have been prepared originally in Chinese. In the event of a conflict between these financial statements and the original Chinese version or difference in interpretation between the two versions, the Chinese language financial statements shall prevail.
105 United Microelectronics Corporation | Annual Report 2006
REPORT OF INDEPENDENT AUDITORS
English Translation of a Report Originally Issued in Chinese
To United Microelectronics Corporation
We have audited the accompanying balance sheets of United Microelectronics Corporation as of December 31, 2006 and 2005, and the related statements of income, statements of changes in stockholders’ equity, and cash flows for the years ended December 31, 2006 and 2005. These financial statements are the responsibility of the Company’s management. Our respon- sibility is to express an opinion on these financial statements based on our audits. As described in Note 4(10) to the financial statements, certain long-term investments were accounted for under the equity method based on financial statements as of December 31, 2006 and 2005 of the investees, which were audited by other auditors. Our opinion insofar as it relates to the investment income amounting to NT$911 million and NT$821 million for the years ended December 31, 2006 and 2005, respectively, and the related long-term investment balances of NT$1,186 million and NT$5,898 million as of December 31, 2006 and 2005, respectively, is based solely on the reports of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the Republic of China and “Guidelines for Certified Public Accountants’ Examination and Reports on Financial Statements”, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of United Microelectronics Corporation as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the years ended December 31, 2006 and 2005, in conformity with the “Business Entity Accounting Law”, “Guidelines Governing the Preparation of Financial Reports by Securities Issuers” and accounting principles generally accepted in the Republic of China. As described in Note 3 to the financial statements, effective from January 1, 2006, United Microelectronics Corporation has adopted the ROC Statement of Financial Accounting Standards No. 34, “Financial Instruments:Recognition and Measurement” and No. 36, “Financial Instruments:Disclosure and Presentation” to account for the financial instruments. As described in Note 3 to the financial statements, effective from January 1, 2005, United Microelectronics Corporation has adopted the ROC Statement of Financial Accounting Standards No. 35, “Accounting for Asset Impairment” to account for the impairment of its assets. Effective from January 1, 2006, goodwill is no longer subject to amortization. We have also audited the consolidated financial statements of United Microelectronics Corporation as of and for the years ended December 31, 2006 and 2005, and have expressed an unqualified opinion with explanatory paragraph on such financial statements.
February 9, 2007 Taipei, Taiwan Republic of China
Notice to Readers
The accompanying audited financial statements are intended only to present the financial position and results of operations and cash flows in accordance with
accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and prac-
tices to audit such financial statements are those generally accepted and applied in the Republic of China. 106 Financial Review Unconsolidated - 9,806 36,600 60,389 95,634 20,827 60,093 922,641 (241,153) 5,277,863 3,7 3,003,778 8,831,782 4,100,708 7,596,727 6,794,504 1,744,171 (9,527,362) 10,250,000 20,781,523 28,303,962 36,009,055 36,009,055 71,107,521 64,600,076 15,996,839 197,947,033 258,283,553 329,391,074 2005 $
$ 3,579 8,938 11,405 14,448 As of December 31, 985,267 515,499 322,150 (824,922) 5,355,883 6,627,794 1,335,177 2,018,673 3,086,774 4,018,368 6,245,411 3,620,300 10,101,767 27,557,845 17,774,335 30,060,546 30,383,076 30,383,076 64,063,922 61,070,555 16,699,508 291,164,871 355,228,793 2006 $
$ Notes 2, 4 (15) 2, 4 (10) 2 2 2, 4 (16) 2, 4 (15) 2, 4 (17), (18), (20) 191,311,927 2, 4 (17) 4 (17), (20) 2, 4 (8) 2, 4 (10), (17), (19) (29,394,664) (41,885,956) Liabilities and Stockholders' Equity Current liabilities Total current liabilities Long-term liabilities Total long-term liabilities Other liabilities Accrued pension liabilities Total other liabilities Total liabilities Financial liabilities at fair value through profit or loss, currentat fair value through profit or loss, Financial liabilities 2, 3, 4 (14) Retained earnings Special reserve Treasury stock Total stockholders' equity Capital Additional Paid-in Capital Unappropriated earnings Adjusting items in stockholders' equity Total liabilities and stockholders' equity Legal reserve - Accrued expenses 193 Payable on equipment 62,136 liabilities Current portion of long-term 88,413 708,552 977,856 Deferred credits - intercompany profits 359,556 Cumulative translation adjustment 421,787 Bonds payable 6,097,343 9,963,253 2,265,467 Other liabilities - others 2,468,968 Accounts payable 6,200,228 Other current liabilities 3,334,510 2,199,773 Premiums 4,001,394 3,745,122 1,963,950 1,132,576 2,414,153 Income tax payable 5,513,284 Deposits-in 4,104,678 7,970,867 2,005,523 30,481,560 15,592,805 96,596,623 39,238,167 16,287,803 Common stock December 31, 2006 and 2005 366,982,250 Capital collected in advance 128,267,746 149,809,616 329,391,074 386,690,815 Treasury stock transactions 2005 $
$ Unrealized gain or loss on financial instruments
(Expressed in Thousands of New Taiwan Dollars) UNITED MICROELECTRONICS CORPORATION - - - 3,733 50,648 79,117 As of December 31, The accompanying notes are an integral part of the financial statements. BALANCE SHEETS English Translation of Financial Statements Originally Issued in Chinese 486,242 974,272 638,117 6,048,376 2,285,326 8,538,007 6,262,985 1,913,513 2,369,060 4,159,214 3,745,122 2,034,731 1,465,645 1,132,576 3,745,122 7,659,590 10,119,521 83,394,802 22,228,255 82,746,430 16,274,780 41,218,780 394,330,240 118,430,216 414,185,773 142,647,435 355,228,793 2006 (293,766,593) (252,474,004) Change in equities of long-term investments $
$
Notes 2, 5 2 5 2, 3, 4 (4) 2, 3, 4 (9) 2, 4 (1) 2, 4 (6) 2, 4 (22) 2, 4 (22) 2, 4 (12), (13), 6 2, 3 2, 4(13) 2 2, 3, 4 (3) 2, 3, 4 (8), 4(13) 2, 4 (11), 7 2, 3, 4 (4) 2, 4 (7) 4 (5) Assets Available-for-sale financial assets, current Available-for-sale financial assets, noncurrent Current assets Cash and cash equivalents Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, 2, 3, 4 (2) Held-to-maturity financial assets, current Notes receivable Notes receivable - related parties net Accounts receivable, net Accounts receivable - related parties, Other receivables net Inventories, Prepaid expenses current Deferred income tax assets, Total current assets Funds and investments Held-to-maturity financial assets, noncurrent Financial assets measured at cost, noncurrent Long-term investments accounted for under the equity method 2, 3, 4 (10), 4(13) 39,242,324 Total funds and investments Property, plant and equipment Land Buildings Machinery and equipment Transportation equipment Furniture and fixtures Total cost Less : Accumulated depreciation Add : Construction in progress and prepayments Property, plant and equipment, net Intangible assets Goodwill Technological know-how Total intangible assets Other assets Deferred charges noncurrent Deferred income tax assets, Other assets - others Total other assets Total assets
107 United Microelectronics Corporation | Annual Report 2006
English Translation of Financial Statements Originally Issued in Chinese UNITED MICROELECTRONICS CORPORATION STATEMENTS OF INCOME For the years ended December 31, 2006 and 2005 (Expressed in Thousands of New Taiwan Dollars, Except for Earnings per Share )
For the year ended December 31, Notes 2006 2005 Operating revenues 2, 5 Sales revenues $ 102,023,597 $ 90,780,340 Less : Sales returns and discounts (710,191) (1,840,345) Net sales 101,313,406 88,939,995 Other operating revenues 2,785,205 1,835,444 Net operating revenues 104,098,611 90,775,439 Operating costs 4 (21), 5 Cost of goods sold (81,618,123) (78,836,403) Other operating costs (1,801,277) (777,750) Operating costs (83,419,400) (79,614,153) Gross profit 20,679,211 11,161,286 Unrealized intercompany profit 2 (105,892) (120,153) Realized intercompany profit 2 120,153 154,417 Gross profit-net 20,693,472 11,195,550 Operating expenses 4 (21), 5 Sales and marketing expenses (2,601,671) (2,280,674) General and administrative expenses (2,730,047) (3,225,165) Research and development expenses (9,237,616) (8,358,430) Subtotal (14,569,334) (13,864,269) Operating income (loss) 6,124,138 (2,668,719) Non-operating income Interest revenue 2, 5 1,453,040 945,610 Investment gain accounted for under the equity method, net 2, 4 (10) 1,873,777 - Dividend income 860,977 922,562 Gain on disposal of property, plant and equipment 2 133,212 62,884 Gain on disposal of investments 2 27,501,643 10,096,375 Exchange gain, net 2, 10 296,044 252,303 Gain on recovery of market value of inventories 2 - 919,884 Gain on valuation of financial assets 2 660,106 - Gain on valuation of financial liabilities 2 306,140 - Other income 786,653 671,924 Subtotal 33,871,592 13,871,542 Non-operating expenses Interest expense 4 (11) (630,738) (918,173) Investment loss accounted for under the equity method, net 2, 4 (10) - (2,677,263) Loss on disposal of property, plant and equipment 2 (32,480) (81,544) Loss on decline in market value and obsolescence of inventories 2 (918,253) - Financial expenses (229,602) (258,110) Impairment loss 2, 4(13) (1,103,812) (160,191) Other losses (64,806) (80,012) Subtotal (2,979,691) (4,175,293) Income from continuing operations before income tax 37,016,039 7,027,530 Income tax expense 2, 4 (22) (3,208,211) (838) Net income from continuing operations 33,807,828 7,026,692 Cumulative effect of changes in accounting principles 3 (1,188,515) - (the net amount after deducted tax expense $0) Net income $ 32,619,313 $ 7,026,692
Pre-tax Post-tax Pre-tax Post-tax Earnings per share-basic (NTD) 2, 4 (23) Income from continuing operations $ 2.05 $ 1.87 $ 0.38 $ 0.38 Cumulative effect of changes in accounting principles (0.06) (0.06) - - Net income $ 1.99 $ 1.81 $ 0.38 $ 0.38
Earnings per share-diluted (NTD) 2, 4 (23) Income from continuing operations $ 1.98 $ 1.81 $ 0.37 $ 0.37 Cumulative effect of changes in accounting principles (0.06) (0.06) - - Net income $ 1.92 $ 1.75 $ 0.37 $ 0.37
Pro forma information on earnings as if subsidiaries' investment in 2, 4 (23) the Company is not treated as treasury stock Net income $ 32,686,223 $ 7,026,692 Earnings per share-basic (NTD) $ 1.80 $ 0.36 Earnings per share-diluted (NTD) $ 1.75 $ 0.36
The accompanying notes are an integral part of the financial statements.
108 Financial Review Unconsolidated ------(6,324) 66,910 (27,006) (28,491) (62,686) 343,724 (305,636) (603,486) 1,078,299 7,026,692 1,664,839 9,301,230 1,725,665 1,645,009 (1,758,736) (7,161,267) 23,510,550 32,619,313 13,501,422 291,164,871 266,382,754 258,283,553 Total $ $ ------(14,082,873) - - - - (29,394,664) (27,685,463) $ $ Treasury Stock ------(16,378,692) (16,378,692) - - - - 19,640,228 - 20,137,403 ------(27,286,339) (27,286,339) - 2,178,199 - 8,170 11,547 (824,922) (1,319,452) Translation Cumulative Adjustment $ $ - 1,078,299 ------(603,486) ------(9,871,086) 27,557,845 Finanaical Unrealized Instruments Gain/Loss on $ $ - 343,724 - - - - 23,499,003 ------1,664,839 9,301,230 ------(6,324) (27,006) (305,636) (458,455) (895,158) (702,669) 7,026,692 8,831,782 (9,527,362) (241,153) (41,885,956) 1,422,021 (1,758,736) (1,972,855) (3,184,338) (1,653,300) (6,371,128) (9,198,144) 2,620,135 (7,161,267) (1,509,640) 17,774,335 32,619,313 29,498,329 Earnings Unappropriated $ $ ------(17,587,364) ------90,871 322,150 (1,422,021) Retained Earnings $ $ ------1,653,300 ------702,669 16,699,508 12,812,501 Legal Reserve Special Reserve $ $ ------3,184,338 ------66,910 (62,686) (28,491) (57,972) 634,737 654,314 67,707,287 84,933,195 Additional Paid-in Capital $ $ ------(14,091,043) - - - - (3,269,100) ------(895,158) - - - - - (177,419) 4,040 (4,040) 11,405 36,600 85,381,599 15,996,839 1,744,171 11,405 36,600 For the years ended December 31, 2006 and 2005 (Expressed in Thousands of New Taiwan Dollars) UNITED MICROELECTRONICS CORPORATION Advance Collected in STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY $ $ The accompanying notes are an integral part of the financial statements. English Translation of Financial Statements Originally Issued in Chinese ------Capital 4,040 36,600 (36,600) 458,455 895,158 895,158 954,095 (491,140) 1,079,523 1,972,855 17,587,364 191,311,927 177,919,819 197,947,033 $ $ Notes Common Stock 2 2 4 (20) 4 (17) 4 (17) 2 2 2, 4 (19) 2 4 (17) 2, 4 (18) 2 2, 4 (17), (19) (10,000,000) 4 (20) 2, 4 (19) 2, 4 (18) 4 (17) 2, 4 (8) 2, 4 (19) 3 (3) Changes in cumulative translation adjustment Balance as of December 31, 2006 Common stock transferred from capital collected in advance Changes in unrealized gain on financial instruments of investees Exercise of emloyee stock options Changes in unrealized gain on available-for-sale financial assets Adjustment of funds and investments disposal Cash dividends allocated to subsidaries Adjustment of treasury stock due to loss control over subsidiary Net income in 2006 Adjustment of additional paid-in capital accounted for under the equity method 2 Cancellation of treasury stock Cash dividends Stock dividends Remuneration to directors and supervisors bonus - cash Employee bonus - stock Employee Additional paid-in capital transferred to common stock Purchase of treasury stock Balance as of January 1, 2005 The effect of adopting SFAS NO. 34 Appropriation of 2005 retained earnings Legal reserve Special reserve Appropriation of 2004 retained earnings Legal reserve Special reserve Cash dividends Stock dividends Remuneration to directors and supervisors Employee bonus-stock Purchase of treasury stock Cancellation of treasury stock Net income in 2005 Adjustment of additional paid-in capital accounted for under the equity method 2 Changes in unrealized loss on long-term investments of investees Exercise of emloyee stock options Common stock transferred from capital collected in advance Changes in cumulative translation adjustment Balance as of December 31, 2005
109 United Microelectronics Corporation | Annual Report 2006
English Translation of Financial Statements Originally Issued in Chinese UNITED MICROELECTRONICS CORPORATION STATEMENTS OF CASH FLOWS For the years ended December 31, 2006 and 2005 (Expressed in Thousands of New Taiwan Dollars)
For the year ended December 31, 2006 2005 Cash flows from operating activities: Net income $ 32,619,313 $ 7,026,692 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 42,512,610 46,129,225 Amortization 1,780,590 2,387,679 ΓBad debt reversal (164,908) (151,042) Loss (gain) on decline (recovery) in market value and obsolescence of inventories 918,253 (919,884) Cash dividends received under the equity method 1,076,020 724,510 Investment (gain) loss accounted for under the equity method (1,873,777) 2,677,263 Loss on valuation of financial assets and liabilities 222,269 - Transfer of property, plant and equipment to losses and expenses - 9,370 Impairment loss 1,103,812 160,191 Gain on disposal of investments (27,501,643) (10,096,375) Loss (gain) on disposal of property, plant and equipment (100,732) 18,660 Exchange gain on financial assets and liabilities (13,009) (2,352) Exchange (gain) loss on long-term liabilities (126,106) 65,827 Amortization of bond discounts 94,896 - Amortization of deferred income (99,210) (89,762) Changes in assets and liabilities: Financial assets and liabilities at fair value through profit or loss, current (5,803,828) 46,605 Notes and accounts receivable 159,629 (658,907) Other receivables 270,444 (128,727) Inventories (1,071,401) 104,968 Prepaid expenses (220,048) (108,025) Accounts payable (1,624,382) (1,087,713) Accrued expenses 2,135,234 (547,542) Other current liabilities 407,389 (57,471) Capacity deposits (5,200) (193,249) Accrued pension liabilities 82,996 313,267 Other liabilities - others 1,269,963 263,017 Net cash provided by operating activities 46,049,174 45,886,225
Cash flows from investing activities: Cash proceeds from merger - 943,862 Acquisition of available-for-sale financial assets (296,823) (2,013,681) Proceeds from disposal of available-for-sale financial assets 15,788,568 7,705,917 Proceeds from disposal of held-to-maturity financial assets - 707,820 Acquisition of financial assets measured at cost (85,080) (385,477) Proceeds from disposal of financial assets measured at cost 254,261 92,457 Acquisition of long-term investments accounted for under the equity method (7,437,443) (6,298,288) Proceeds from disposal of long-term investments accounted for under the equity method 7,801,029 3,354,361 Proceeds from liquidation of long-term investments 150,000 13,346,789 Acquisition of property, plant and equipment (31,204,419) (18,586,587) Proceeds from disposal of property, plant and equipment 248,962 129,468 Increase in deferred charges (1,082,648) (1,356,305) Increase in other assets - others (17,391) (161,341) Increase in other receivables - (5,137,760) Net cash used in investing activities (15,880,984) (7,658,765) 110 Financial Review Unconsolidated
English Translation of Financial Statements Originally Issued in Chinese UNITED MICROELECTRONICS CORPORATION STATEMENTS OF CASH FLOWS For the years ended December 31, 2006 and 2005 (Expressed in Thousands of New Taiwan Dollars)
For the year ended December 31, 2006 2005 (continued)
Cash flows from financing activities: Decrease in short-term loans, net $ - $ (1,904,400) Repayment of long-term loans - (16,153,714) Redemption of bonds (10,250,000) (2,820,004) Issuance of bonds - 12,478,603 Cash dividends (7,155,865) (1,758,736) Payment of employee bonus (305,636) - Remuneration paid to directors and supervisors (6,324) (27,006) Exercise of employee stock options 1,725,665 1,642,009 Purchase of treasury stock (27,286,339) (16,378,692) Decrease in deposits-in (6,379) (1,255) Net cash used in financing activities (43,284,878) (24,923,195) Effect of exchange rate changes on cash and cash equivalents (85,133) (54,971)
Increase (decrease) in cash and cash equivalents (13,201,821) 13,249,294 Cash and cash equivalents at beginning of year 96,596,623 83,347,329 Cash and cash equivalents at end of year $ 83,394,802 $ 96,596,623
Supplemental disclosures of cash flow information: Cash paid for interest $ 953,685 $ 1,334,219 Cash paid (refunded) for income tax $ 27,260 $ (163,469)
Investing activities partially paid by cash: Acquisition of property, plant and equipment $ 36,028,323 $ 17,586,514 Add: Payable at beginning of year 5,277,863 4,704,299 Payable transferred in from the Branch at beginning of year - 1,573,637 Less: Payable at end of year (10,101,767) (5,277,863) Cash paid for acquiring property, plant and equipment $ 31,204,419 $ 18,586,587
Investing and financing activities not affecting cash flows: Principal amount of exchangeable bonds exchanged by bondholders $ 69,621 $ - Book value of available-for-sale financial assets delivered for exchange (20,242) - Elimination of related balance sheet accounts 15,302 - Recognition of gain on disposal of investments $ 64,681 $ -
The accompanying notes are an integral part of the financial statements.
111 United Microelectronics Corporation | Annual Report 2006
UNITED MICROELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS December 31, 2006 and 2005 (Expressed in Thousands of New Taiwan Dollars unless Otherwise Specified)
1. HISTORY AND ORGANIZATION United Microelectronics Corporation (the Company) was incorporated in May 1980 and commenced operations in April 1982. The Company is a full service semiconductor wafer foundry, and provides a variety of services to satisfy customer needs. These services include intellectual property, embedded IC design, design verification, mask tooling, wafer fabrication, and testing. The Company’s common shares were publicly listed on the Taiwan Stock Exchange (TSE) in July 1985 and its American Depositary Shares (ADSs) were listed on the New York Stock Exchange (NYSE) in September 2000.
Based on the resolution of the board of directors’ meeting on February 26, 2004, the effective date of the Company’s merger with SiS MICROELECTRONICS CORP. (SiSMC) was July 1, 2004. The Company was the surviving company, and SiSMC was the dissolved company. The merger was approved by the relevant government authorities. All the assets, liabilities, rights, and obligations of SiSMC have been fully incorporated into the Company since July 1, 2004.
Based on the resolution of the board of directors’ meeting on August 26, 2004, UMCI LTD had transferred its businesses, operations, and assets to the Company’s Singapore branch (the Branch) since April 1, 2005.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements were prepared in conformity with the “Business Entity Accounting Law”, “Guidelines Governing the Preparation of Financial Reports by Securities Issuers” and accounting principles generally accepted in the Republic of China (R.O.C.).
Summary of significant accounting policies is as follows:
Use of Estimates The preparation of the Company’s Financial Statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that will affect the amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results may differ from those estimates.
112 Financial Review Unconsolidated
Foreign Currency Transactions Transactions denominated in foreign currencies are remeasured into the local functional currencies and recorded based on the exchange rates prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are remeasured into the local functional currencies at the exchange rates prevailing at the balance sheet date, with the related exchange gains or losses included in the statements of income. Translation gains or losses from investments in foreign entities are recognized as cumulative translation adjustment in stockholders’ equity.
Non-monetary assets and liabilities denominated in foreign currencies that are reported at fair value with changes in fair value charged to the statements of income, are remeasured at the exchange rate at the balance sheet date, with related exchange gains or losses recorded in the statements of income. Non-monetary assets and liabilities denominated in foreign currencies that are reported at fair value with changes in fair value charged to stockholders’ equity, are remeasured at the exchange rate at the balance sheet date, with related exchange gains or losses recorded as adjustment items to stockholders’ equity. Non-monetary assets and liabilities denominated in foreign currencies and reported at cost are remeasured at historical exchange rates.
Translation of Foreign Currency Financial Statements The financial statements of the Branch are translated into New Taiwan Dollars using the spot rates as of each financial statement date for asset and liability accounts, average exchange rates for profit and loss accounts. The cumulative translation effects from the Branch using functional currencies other than the New Taiwan Dollars are included in the cumulative translation adjustment in stockholders’ equity.
Cash Equivalents Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and with maturity dates that do not present significant risks on changes in value resulting from changes in interest rates, including commercial paper with original maturities of three months or less.
Financial Instruments In accordance with ROC Statement of Financial Accounting Standard (SFAS) No. 34, “Financial Instruments: Recognition and Measurement” and the “Guidelines Governing the Preparation of Financial Reports by Securities Issuers”, financial assets are classified as either financial assets at fair value through profit or loss, held-to-maturity financial assets, financial assets measured at cost, or available-for-sale financial assets. Financial liabilities are recorded at fair value through profit or loss.
113 United Microelectronics Corporation | Annual Report 2006
The Company accounts for purchase or sale of financial instruments as of the trade date, which is the date the Company commits to purchasing or selling the asset or liability. Financial assets and financial liabilities are initially recognized at fair value plus acquisition or issuance costs. Accounting policies prior to December 31, 2005 are described in Note 3.
a. Financial instruments at fair value through profit or loss Financial instruments held for short-term sale or repurchase purposes, and derivative financial instruments not qualified for hedge accounting, are classified as financial assets or liabilities at fair value through profit or loss.
This category of financial instruments is measured at fair value, and changes in fair value are recognized in the statements of income. Stock of listed companies, convertible bonds, and close-end funds are measured at closing prices as of the balance sheet date. Open-end funds are measured at the unit price of the net assets as of the balance sheet date. The fair value of derivative financial instruments is determined by using valuation techniques commonly used by market participants.
b. Held-to-maturity financial assets Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity financial assets if the Company has both the positive intention and ability to hold the financial assets to maturity. Investments intended to be held to maturity are measured at amortized cost.
The Company recognizes an impairment loss if objective evidence of impairment loss exists. However, the impairment loss may be reversed if the value of asset recovers subsequently and the Company concludes the recovery is related to improvements in events or factors that originally caused the impairment loss. The new cost basis as a result of the reversal cannot exceed the amortized cost prior to the impairment.
c. Financial assets measured at cost Unlisted stock, funds, and other securities without reliable market prices are measured at cost. When objective evidence of impairment exists, the Company recognizes an impairment loss, which cannot be reversed in subsequent periods.
114 Financial Review Unconsolidated
d. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial instruments not classified as financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables. Subsequent measurement is calculated at fair value. Investments in listed companies are measured at closing prices as of the balance sheet date. Any gain or loss arising from the change in fair value, excluding impairment loss and exchange gain or loss arising from monetary financial assets denominated in foreign currencies, is recognized as an adjustment to stockholders’ equity until such investment is reclassified or disposed of, upon which the cumulative gain or loss previously charged to stockholders’ equity will be recorded in the statement of income.
The Company recognizes an impairment loss when objective evidence of impairment exists. Any reduction in the loss of equity investments in subsequent periods will be recognized as an adjustment to stockholders’ equity. The impairment loss of a debt security may be reversed and recognized in the current year’s statement of income if the security recovers and the Company concludes the recovery is clearly related to improvements in the factors or events that originally caused the impairment.
Allowance for Doubtful Accounts An allowance for doubtful accounts is provided based on management’s judgment of the collectibility and aging analysis of accounts and other receivables.
Inventories Inventories are accounted for on a perpetual basis. Raw materials are recorded at actual purchase costs, while the work in process and finished goods are recorded at standard costs and adjusted to actual costs using the weighted-average method at the end of each month. Inventories are stated individually by category at the lower of aggregate cost or market value as of the balance sheet date. The market values of raw materials and supplies are determined on the basis of replacement cost while the market values of work in process and finished goods are determined by net realizable values. An allowance for loss on decline in market value or obsolescence is provided, when necessary.
Long-term Investments Accounted for Under the Equity Method Long-term investments are initially recorded at acquisition cost. Investments acquired by the contribution of technological know-how are credited to deferred credits among affiliates, which will be amortized to income over a period of 5 years.
Investments in which the Company has ownership of at least 20% or exercises significant influence on operating decisions are accounted for under the equity method. Prior to January 1, 2006, the difference of the acquisition cost and the underlying equity in the investee’s net assets as of acquisition date was amortized over 5 years; however, effective January 1, 2006, arising differences from new acquisitions are analyzed and accounted for under the ROC SFAS No. 25, “Business Combination – Accounting Treatment under Purchase Method”, where goodwill is no longer to be amortized.
115 United Microelectronics Corporation | Annual Report 2006
The change in the Company’s proportionate share in the net assets of an investee resulting from its acquisition of additional stock issued by the investee at a rate not proportionate to its existing equity ownership is charged to the additional paid-in capital and long-term investments accounts.
Unrealized intercompany gains and losses arising from sales from the Company to equity method investees are eliminated in proportion to the Company’s year end ownership percentage until realized through transactions with third parties. Intercompany gains and losses arising from transactions between the Company and majority-owned (above 50%) subsidiaries are eliminated entirely until realized through transactions with third parties.
Unrealized intercompany gains and losses due to sales from equity method investees to the Company are eliminated in proportion to the Company’s weighted-average ownership percentage of the investee until realized through transactions with third parties.
Unrealized intercompany gains and losses arising from transactions between two equity method investees are eliminated in proportion to the Company’s multiplied weighted-average ownership percentage with the investees until realized through transactions with third parties. Those intercompany gains and losses arising from transactions between two majority-owned subsidiaries are eliminated in proportion to the Company’s weighted-average ownership percentage in the subsidiary that incurred the gain or loss.
If the recoverable amount of investees accounted for under the equity method is less than its carrying amount, the difference is to be recognized as impairment loss in the current period.
The total value of an investment and related receivables cannot be negative. If, after the investment loss is recognized, the net book value of the investment is less than zero, the investment is reclassified to other liabilities-others on the balance sheet.
Property, Plant and Equipment Property, plant and equipment are stated at cost. Interest incurred on loans used to finance the construction of property, plant and equipment is capitalized and depreciated accordingly. Maintenance and repairs are charged to expense as incurred. Significant renewals and improvements are treated as capital expenditures and are depreciated over their estimated useful lives. When property, plant and equipment are disposed, their original cost and accumulated depreciation are written off and the related gain or loss is classified as non-operating income or expense. Idle assets are classified as other assets at the lower of net book or net realizable value, with the difference charged to non-operating expenses.
116 Financial Review Unconsolidated
Depreciation is recognized on a straight-line basis using the estimated economic life of the assets less salvage value, if any. If the main property, plant and equipment are fully depreciated and sub property, plant and equipment are still in use , the depreciation is based on the newly estimated remaining useful life. The estimated economic life of the property, plant and equipment is as follows: buildings – 20 to 55 years; machinery and equipment – 5 years; transportation equipment – 5 years; furniture and fixtures – 5 years.
Intangible Assets Effective January 1, 2006, goodwill generated from business combinations is no longer subject to amortization.
Technological know-how is stated at cost and amortized over its estimated economic life using the straight-line method.
An impairment loss will be recognized when the decreases in fair value of intangible assets are other than temporary. The book value after recognizing the impairment loss is recorded as the new cost.
Deferred Charges Deferred charges are stated at cost and amortized on a straight-line basis as follows: intellectual property license fees—select the shorter term of contract or estimated economic life of the related technology; and software—3 years.
Prior to December 31, 2005, the issuance costs of convertible and exchangeable bonds were classified as deferred charges and amortized over the life of the bonds. Effective January 1, 2006, the unamortized amounts as of December 31, 2005 were reclassified as a bond discount and recorded as a deduction to bonds payable. The amounts are amortized using the effective interest method over the remaining life of the bonds. If the difference between the straight-line method and the effective interest method is immaterial, the amortization of the bond discount may be amortized using the straight-line method and recorded as the adjustment of interest expenses.
Convertible and Exchangeable Bonds The excess of the stated redemption price over par value is accrued as interest payable and expensed over the redemption period using the effective interest method.
When convertible bondholders exercise their conversion rights, the book value of the bonds is credited to common stock at an amount equal to the par value of the common stock with the excess credited to additional paid-in capital. No gain or loss is recognized on bond conversion.
117 United Microelectronics Corporation | Annual Report 2006
When exchangeable bondholders exercise their right to exchange their bonds for reference shares, the book value of the bonds is offset against the book value of the investments in reference shares and the related stockholders’ equity accounts, with the difference recognized as a gain or loss on disposal of investments.
In accordance with ROC SFAS No. 34, “Financial Instruments: Recognition and Measurement,” effective as of January 1, 2006, since the economic and risk characteristics of the embedded derivative instrument and the host contract are not clearly and closely related, derivative financial instruments embedded in exchangeable bonds shall be bifurcated and accounted as financial liabilities at fair value through profit or loss.
Pension Plan All regular employees are entitled to a defined benefit pension plan that is managed by an independently administered pension fund committee. Fund assets are deposited in the committee’s name in the Central Trust of China and hence, not associated with the Company. Therefore, fund assets are not to be included in the Company’s financial statements. Pension benefits for employees of the Branch are provided in accordance with the local regulations.
The Labor Pension Act of the ROC (the Act), which adopts a defined contribution plan, became effective on July 1, 2005. Employees subject to the Labor Standards Law, a defined benefit plan, were allowed to choose to either elect the pension calculation under the Act or continue to be subject to the pension calculation under the Labor Standards Law. Those employees that elected to be subject to the Act will have their seniority achieved under the Labor Standards Law retained upon election of the Act, and the Company will make monthly contributions of no less than 6% of these employees’ monthly wages to the employees’ individual pension accounts.
The accounting for the Company’s pension liability is computed in accordance with ROC SFAS No.18. Net pension costs of the defined benefit plan are recorded based on an actuarial valuation. Pension cost components such as service cost, interest cost, expected return on plan assets, the amortization of net obligation at transition, pension gain or loss, and prior service cost, are all taken into consideration by the actuary. The Company recognizes expenses from the defined contribution pension plan in the period in which the contribution becomes due.
Employee Stock Option Plan The Company uses intrinsic value method to recognize compensation cost for its employee stock options issued since January 1, 2004. Under the intrinsic value method, the Company recognizes the difference between the market price of the stock on date of grant and the exercise price of its employee stock option as compensation cost. The Company also discloses pro forma net income and earnings per share under the fair value method for options granted since January 1, 2004.
118 Financial Review Unconsolidated
Treasury Stock The Company adopted ROC SFAS No. 30, “Accounting for Treasury Stocks” which requires that treasury stock held by the Company to be accounted for under the cost method. The cost of treasury stock is shown as a deduction to stockholders’ equity, while any gain or loss from selling treasury stock is treated as an adjustment to additional paid-in capital. The Company’s stock held by its subsidiaries is also treated as treasury stock.
Revenue Recognition The Company recognizes revenue when persuasive evidence of an arrangement exists, the product or service has been delivered, the seller’s price to the buyer is fixed or determinable and collectibility is reasonably assured. Most of the Company’s sales transactions have shipping terms of Free on Board (FOB) or Free Carrier (FCA) shipment in which title and the risk of loss or damage is transferred to the customer upon delivery of the product to a carrier approved by the customer.
Allowance for sales returns and discounts are estimated taking into consideration customer complaints, historical experiences, management judgment and any other known factors that might significantly affect collectibility. Such allowances are recorded in the same period in which sales are made.
Capital Expenditures Versus Operating Expenditures An expenditure is capitalized when it is probable that the Company will receive future economic benefits associated with the expenditure and the expenditure amount exceeds a predetermined amount. Otherwise, the expenditure is expensed as incurred.
Income Tax The Company adopted ROC SFAS No. 22, “Accounting for Income Taxes” for inter-period and intra-period income tax allocation. The provision for income taxes includes deferred income tax assets and liabilities that are a result of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, loss carry-forward and investment tax credits. A valuation allowance on deferred income tax assets is provided to the extent that it is more likely than not that the tax benefits will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected reversal date of the temporary difference.
According to ROC SFAS No. 12, “Accounting for Income Tax Credits”, the Company recognizes the tax benefit from the purchase of equipment and technology, research and development expenditure, employee training, and certain equity investment by the flow-through method.
Income tax (10%) on unappropriated earnings is recorded as expense in the year in which the shareholders have resolved that the earnings shall be retained.
119 United Microelectronics Corporation | Annual Report 2006
The Income Basic Tax Act of the R.O.C. (the IBTA) became effective on January 1, 2006. Set up by the Executive Yuan, the IBTA is a supplemental 10% tax that is payable if the income tax payable determined by the ROC Income Tax Act is below the minimum amount as prescribed by the IBTA. The IBTA is calculated based on taxable income as defined by the IBTA, which includes most income that is exempted from income tax under various legislations. The impact of the IBTA has been considered in the Company’s income tax for the current reporting period.
Earnings per Share Earnings per share is computed according to ROC SFAS No. 24, “Earnings Per Share.” Basic earnings per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the current reporting period. Diluted earnings per share is computed by taking basic earnings per share into consideration plus additional common shares that would have been outstanding if the dilutive share equivalents had been issued. Net income (loss) is also adjusted for interest and other income or expenses derived from any underlying dilutive share equivalents. The weighted-average of outstanding shares is adjusted retroactively for stock dividends and bonus share issues.
Asset Impairment Pursuant to ROC SFAS No. 35, the Company assesses indicators of impairment for all its assets (except for goodwill) within the scope of the standard at each balance sheet date. If impairment is indicated, the Company compares the asset’s carrying amount with the recoverable amount of the assets or the cash-generating unit (CGU) associated with the asset and writes down the carrying amount to the recoverable amount where applicable. The recoverable amount is defined as the higher of fair value less the costs to sell and the values in use. For previously recognized losses, the Company assesses at the balance sheet date any indication that the impairment loss no longer exists or may have diminished. If there is any such indication, the Company recalculates the recoverable amount of the asset, and if the recoverable amount has increased as a result of the increase in the estimated service potential of the assets, the Company reverses the impairment loss so that the resulting carrying amount of the asset does not exceed the amount (net of amortization or depreciation) that would otherwise result had no impairment loss been recognized for the assets in prior years.
In addition, a goodwill-allocated CGU or group of CGUs is tested for impairment each year, regardless of whether impairment is indicated. If an impairment test reveals that the carrying amount, including goodwill, of CGU or group of CGUs is greater than its recoverable amount, there is an impairment loss. The loss is first recorded against the CGU’s goodwill, with any remaining loss allocated to other assets on a pro rata basis proportionate to their carrying amounts. The write-down of goodwill cannot be reversed in subsequent periods under any circumstances.
Impairment losses and reversals are classified as non-operating loss and income, respectively.
120 Financial Review Unconsolidated
3. ACCOUNTING CHANGES
Asset Impairment The Company adopted ROC SFAS No. 35, “Accounting for Asset Impairment” to account for the impairment of its assets for its financial statements effective January 1, 2005. No retroactive adjustment is required under the standard. This change in accounting principles did not have any impact on the Company’s net income, or basic earnings per share after tax for the year ended December 31, 2005. Adoption of this standard did not have any impact on total assets as of December 31, 2005.
Goodwill The Company adopted the amendments to ROC SFAS No. 1, “Conceptual Framework of Financial Accounting and Preparation of Financial Statements,” SFAS No. 5, “Long-Term Investments in Equity Securities,” and SFAS No. 25, “Business Combinations—Accounting Treatment under Purchase Method,” all of which have discontinued the amortization of goodwill effective January 1, 2006. As a result of adopting the revised SFAS No.1, revised SFAS No.5 and revised SFAS No.25 on January 1, 2006, the Company’s total assets as of December 31, 2006 are NT$ 859 million higher than if it had continued to account for goodwill under the prior year’s requirements. The net income and earnings per share for the year ended December 31, 2006, are NT$ 859 million and NT$ 0.05 higher, respectively, than if the Company had continued to account for goodwill under the prior year’s requirements.
Financial Instruments (1) The Company adopted ROC SFAS No. 34, “Financial Instruments: Recognition and Measurement” and SFAS No. 36, “Financial Instruments: Disclosure and Presentation” to account for the financial instruments effective January 1, 2006. Some prior year items have been reclassified as required by ROC “Guidelines Governing the Preparation of Financial Reports by Securities Issuers,” SFAS No. 34 and No. 36 to conform with current year’s presentation.
(2) The accounting policies prior to December 31, 2005 are as follows: a. Marketable Securities Marketable securities were recorded at cost at acquisition and were stated at the lower of aggregate cost or market value as of the balance sheet date. Cash dividends were recognized as dividend income at the point of receipt. Costs of money market funds and short-term notes were identified specifically while other marketable securities were determined by the weighted-average method. The market values of listed debts, equity securities and closed-end funds were determined by the average closing price during the last month of the fiscal year. The market value for open-end funds was determined by the net asset value as of the balance sheet date. The amount by which the aggregate cost exceeded the market value was reported as a loss in the current year. In subsequent periods, recovery of the market value was recognized as a gain to the extent that the market value did not exceed the original aggregate cost of the investment.
121 United Microelectronics Corporation | Annual Report 2006
b. Long-Term Investment – Cost Method or Lower of Cost or Market Value Method Investments of less than 20% of the outstanding voting rights in listed investees, where significant influence on operating decisions of the investees does not reside with the Company, were accounted for by the lower of aggregate cost or market value method. The unrealized loss resulting from the decline in market value of investments that were held for the purpose of long-term investment was deducted from the stockholders’ equity. The market value as of the balance sheet date was determined by the average closing price during the last month of the reporting period. Investments of less than 20% of the outstanding voting rights in unlisted investees were accounted for under the cost method. The Company recognized an impairment loss on investments if objective evidence existed demonstrating an other than temporary decline in fair value. The book value of the investment was written down to its fair market value.
c. Derivative Financial Instruments The net receivables or payables resulting from interest rate swap and forward contracts were recorded under current assets or current liabilities before December 31, 2005.
(3) The above changes in accounting principles increased the Company’s total assets, total liabilities, and stockholders’ equity as of January 1, 2006 by NT$23,648 million, NT$1,326 million, and NT$22,322 million, respectively, and resulted in an unfavorable cumulative effect of changes in accounting principles of NT$1,189 million deducted from net income, thereby reducing earnings per share by NT$0.06 for the year ended December 31, 2006.
4. CONTENTS OF SIGNIFICANT ACCOUNTS
(1) CASH AND CASH EQUIVALENTS As of December 31, 2006 2005 Cash: Cash on hand $1,865 $1,697 Checking and savings accounts 874,866 2,201,585 Time deposits 75,294,424 83,180,150 Subtotal 76,171,155 85,383,432
Cash equivalents 7,223,647 11,213,191 Total $83,394,802 $96,596,623
122 Financial Review Unconsolidated
(2) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS, CURRENT
As of December 31, Held for trading 2006 2005 Listed stocks $8,094,274 $1,250,280 Convertible bonds 443,733 1,218,688 Total $8,538,007 $2,468,968
During the year ended December 31, 2006, net gain arising from the changes in fair value of financial assets at fair value through profit or loss, current, was NT$712 million.
(3) AVAILABLE-FOR-SALE FINANCIAL ASSETS, CURRENT
As of December 31, 2006 2005 Common stock $- $1,004,878 Preferred stock - 1,409,275 Total $- $2,414,153
(4) HELD-TO-MATURITY FINANCIAL ASSETS As of December 31, 2006 2005 Credit-linked deposits and repackage bonds $974,272 $977,856 Less: Non-current portion - (977,856) Total $974,272 $-
(5) NOTES RECEIVABLE As of December 31, 2006 2005 Notes receivable $3,733 $193
(6) ACCOUNTS RECEIVABLE, NET As of December 31, 2006 2005 Accounts receivable $6,550,304 $6,417,633 Less: Allowance for sales returns and discounts (287,319) (148,825) Less: Allowance for doubtful accounts - (68,580) Net $6,262,985 $6,200,228 123 United Microelectronics Corporation | Annual Report 2006
(7) INVENTORIES, NET As of December 31, 2006 2005 Raw materials $1,089,684 $266,949 Supplies and spare parts 1,733,527 1,708,187 Work in process 6,740,834 7,561,310 Finished goods 1,524,270 995,654 Total 11,088,315 10,532,100 Less: Allowance for loss on decline in market (968,794) (568,847) value and obsolescence Net $10,119,521 $9,963,253
Inventories were not pledged.
(8) AVAILABLE-FOR-SALE FINANCIAL ASSETS, NONCURRENT As of December 31, 2006 2005 Common stock $41,218,780 $5,513,284
During the year ended December 31, 2006, the Company recognized a net gain of NT$1,665 million due to the changes in fair value as an adjustment to stockholders’ equity.
(9) FINANCIAL ASSETS MEASURED AT COST, NONCURRENT
As of December 31, 2006 2005 Common stock $1,458,246 $1,458,246 Preferred stock 385,080 300,000 Funds 442,000 507,221 Total $2,285,326 $2,265,467
124 Financial Review Unconsolidated
(10) LONG-TERM INVESTMENTS ACCOUNTED FOR UNDER THE EQUITY METHOD a. Details of long-term investments accounted for under the equity method are as follows: As of December 31, 2006 2005 Amount Percentage of Amount Percentage of Investee Companies Ownership or Ownership or Voting Rights Voting Rights Listed companies UMC JAPAN $5,949,999 50.09 $6,341,144 48.95 HOLTEK SEMICONDUCTOR INC. 878,747 24.45 818,681 24.81 ITE TECH. INC. 341,268 21.80 329,704 22.66 FARADAY TECHNOLOGY CORP. (Note A) - - 864,928 18.50 SILICON INTEGRATED SYSTEMS CORP. 3,921,878 16.59 - (Note A) - NOVATEK MICROELECTRONICS CORP. 1,409,421 11.74 - (Note A) - UNIMICRON TECHNOLOGY CORP. - 4,015,626 20.43 - (UNIMICRON)(Note B) Subtotal 7,170,014 17,701,382
Unlisted companies UMC GROUP (USA) 1,006,496 100.00 753,519 100.00 UNITED MICROELECTRONICS (EUROPE) B.V. 284,084 100.00 279,834 100.00 UMC CAPITAL CORP. 3,613,491 100.00 2,051,350 100.00 UNITED MICROELECTRONICS CORP. (SAMOA) 8,480 100.00 14,179 100.00 UMCI LTD. (Note C) 86 100.00 9,484 100.00 TLC CAPITAL CO., LTD. 6,999,737 100.00 2,991,258 100.00 FORTUNE VENTURE CAPITAL CORP. (Note D) 11,114,198 99.99 4,200,105 99.99 UNITED MICRODISPLAY OPTRONICS CORP. 167,217 81.76 318,151 86.72 (UMO) (Note E) PACIFIC VENTURE CAPITAL CO., LTD. 127,379 49.99 296,218 49.99 MTIC HOLDINGS PTE LTD 81,402 49.94 - - MEGA MISSION LIMITED PARTNERSHIP 2,699,491 45.00 - - UNITECH CAPITAL INC. 959,542 42.00 638,946 42.00 HSUN CHIEH INVESTMENT CO., LTD. 4,674,311 36.49 - 99.97 (HSUN CHIEH)(Note F) HIGHLINK TECHNOLOGY CORP. (Notes G) 225,624 18.97 - - XGI TECHNOLOGY INC. (Note G) 53,710 16.48 82,807 16.53 AMIC TECHNOLOGY CORP. (Note G) 57,062 11.86 60,520 11.86 TOPPAN PHOTOMASKS TAIWAN LTD. - - 1,063,671 45.35 (formerly DUPONT PHOTOMASKS TAIWAN LTD.) THINTEK OPTRONICS CORP. (THINTEK) - - 20,136 14.26 (Notes E) Subtotal 32,072,310 12,780,178 Total $39,242,324 $30,481,560
125 United Microelectronics Corporation | Annual Report 2006
Note A: In the beginning of 2006 as the Company determined it did not have significant influence over the investee, and in accordance with ROC SFAS No. 34, the investee was classified as available-for-sale financial asset.
Note B: As the Company did not have significant influence after decreasing its percentage of ownership in UNIMICRON in 2006, the investee was classified as available-for-sale financial asset.
Note C: Based on the resolution of the board of directors’ meeting on August 26, 2004, UMCI has transferred its business, operations, and assets to the Branch effective April 1, 2005.
Note D: As of December 31, 2006 and 2005, the cost of the investment was NT$11,286 million and NT$4,372 million, respectively. After deducting the Company’s stock held by the subsidiary (treated as treasury stock by the Company) of NT$172 million in both years, the residual book values totalled NT$11,114 million and NT$ 4,200 million as of December 31, 2006 and 2005, respectively.
Note E: THINTEK was merged into UMO on October 1, 2006. The exchange ratio was 2.31 to 1.
Note F: As of January 27, 2006, the Company sold 58.5 million shares of HSUN CHIEH. The Company’s ownership percentage decreased from 99.97% to 36.49%. As HSUN CHIEH ceased to be a subsidiary, the Company’s stock held by HSUN CHIEH was reclassified from treasury stock to long-term investments accounted for under the equity method. The reclassification increased long-term investments accounted for under the equity method and stockholders’ equity by NT$10,881 million.
The ending balance as of December 31, 2005 of NT$(3,170) million recorded under other liabilities was computed by deducting the Company’s stock held by the investee (treated as treasury stock by the Company), amounting to NT$20,137 million from the cost of investment balance at period-end of NT$16,967 million.
Note G: The equity method was applied for investees, in which the total ownership held by the Company and its subsidiaries is over 20%.
b. Total gain and loss arising from investments accounted for under the equity method were NT$1,874 million and NT$2,677 million for the years ended December 31, 2006 and 2005, respectively. Among which, investment income amounted to NT$911 million and NT$821 million for the years ended December 31, 2006 and 2005, respectively, and the related long-term investment balances of NT$1,186 million and NT$5,898 million as of December 31, 2006 and 2005, respectively, were determined based on the investees’ financial statements audited by other auditors.
c. Long-term equity investments were not pledged.
126 Financial Review Unconsolidated
(11) PROPERTY, PLANT AND EQUIPMENT As of December 31, 2006 Cost Accumulated Book Value Depreciation Land $1,132,576 $- $1,132,576 Buildings 16,274,780 (5,396,847) 10,877,933 Machinery and equipment 394,330,240 (286,527,429) 107,802,811 Transportation equipment 79,117 (58,812) 20,305 Furniture and fixtures 2,369,060 (1,783,505) 585,555 Construction in progress and 22,228,255 - 22,228,255 prepayments Total $436,414,028 $(293,766,593) $142,647,435
As of December 31, 2005 Cost Accumulated Book Value Depreciation Land $1,132,576 $- $1,132,576 Buildings 16,287,803 (4,668,161) 11,619,642 Machinery and equipment 366,982,250 (246,233,155) 120,749,095 Transportation equipment 88,413 (62,501) 25,912 Furniture and fixtures 2,199,773 (1,510,187) 689,586 Construction in progress and 15,592,805 - 15,592,805 prepayments Total $402,283,620 $(252,474,004) $149,809,616
a. Total interest expense before capitalization amounted to NT$631 million and NT$1,133 million for the years ended December 31, 2006 and 2005, respectively.
Details of capitalized interest are as follows: For the year ended December 31, 2006 2005 Machinery and equipment $- $210,689 Other property, plant and equipment - 4,397 Total interest capitalized $- $215,086
Interest rates applied - 2.86%~4.20%
b. Property, plant, and equipment were not pledged.
127 United Microelectronics Corporation | Annual Report 2006
(12) OTHER ASSETS-OTHERS As of December 31, 2006 2005 Leased assets $1,333,029 $1,366,695 Deposits-out 642,584 579,710 Others 59,118 59,118 Total $2,034,731 $2,005,523
Please refer to Note 6 for deposits-out pledged as collateral.
(13) IMPAIRMENT As of December 31, 2006 2005 Available for sale financial assets, noncurrent $825,863 $- Long-term investment accounted for under the 21,807 100,191 equity method Technology know how 256,142 - Other assets - 60,000 Total $1,103,812 $160,191
(14) FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS, CURRENT
As of December 31, 2006 2005 Interest rate swaps $626,230 $95,634 Derivatives embedded in exchangeable bonds 359,037 - Total $985,267 $95,634
During the year ended December 31, 2006, net gain arising from the changes in fair value of financial liabilities at fair value through profit or loss, current, was NT$312 million.
(15) BONDS PAYABLE As of December 31, 2006 2005 Unsecured domestic bonds payable $20,250,000 $30,500,000 Convertible bonds payable 12,441,268 12,540,432 Exchangeable bonds payable 3,122,060 3,218,623 Less: discounts on bonds payable (74,369) - Total 35,738,959 46,259,055 Less: Current portion (5,355,883) (10,250,000) Net $30,383,076 $36,009,055
128 Financial Review Unconsolidated
a. On April 27, 2000, the Company issued five-year secured bonds amounting to NT$3,990 million. The interest was paid semi-annually with a stated interest rate of 5.6%. The bonds were repaid in installments every six months from April 27, 2002 to April 27, 2005. On April 27, 2005, the bonds were fully repaid. b. During the period from April 16 to April 27, 2001, the Company issued five-year and seven-year unsecured bonds totaling NT$15,000 million, each with a face value of NT$7,500 million. The interest is paid annually with stated interest rates of 5.1195% through 5.1850% and 5.2170% through 5.2850%, respectively. The five-year bonds and seven-year bonds are repaid starting from April 2004 to April 2006 and April 2006 to April 2008, respectively, both in three yearly installments at the rates of 30%, 30% and 40%. On April 27, 2006, the five-year bonds were fully repaid. c. During the period from October 2 to October 15, 2001, the Company issued three-year and five-year unsecured bonds totaling NT$10,000 million, each with a face value of NT$5,000 million. The interest was paid annually with stated interest rates of 3.3912% through 3.420% and 3.4896% through 3.520%, respectively. On October 15, 2006 and 2004, the five-year bonds and the three-year bonds were fully repaid, respectively. d. On May 10, 2002, the Company issued zero coupon exchangeable bonds listed on the EuroMTF Market of the Luxembourg Stock Exchange (LSE). The terms and conditions of the bonds are as follows:
(a) Issue Amount: US$235 million
(b) Period: May 10, 2002 ~ May 10, 2007
(c) Redemption i. The Company may redeem the bonds, in whole or in part, after three months of the issuance and prior to the maturity date, at their principal amount if the closing price of the AU Optronics Corp (AUO) common shares on the TSE, translated into US dollars at the prevailing exchange rate, for a period of 20 consecutive trading days, the last of which occurs not more than 10 days prior to the date upon which notice of such redemption is published, is at least 120% of the exchange price then in effect translated into US dollars at the rate of NT$34.645=US$ 1.00.
ii. The Company may redeem the bonds, in whole, but not in part, if at least 90% in principal amount of the bonds has already been exchanged, redeemed or purchased and cancelled.
129 United Microelectronics Corporation | Annual Report 2006
iii. The Company may redeem all, but not part, of the bonds, at any time, in the event of certain changes in the ROC tax rules which would require the Company to gross up for payments of principal, or to gross up for payments of interest or premium.
iv. The Company will, at the option of the bondholders, redeem such bonds on February 10, 2005 at its principal amount.
(d) Terms of Exchange i. Underlying securities: ADSs or common shares of AUO.
ii. Exchange Period: The bonds are exchangeable at any time on or after June 19, 2002 and prior to April 10, 2007, into AUO common shares or AUO ADSs; provided, however, that if the exercise date falls within 5 business days from the beginning of, and during, any closed period, the right of the exchanging holder of the bonds to vote with respect to the shares it receives will be subject to certain restrictions.
iii. Exchange Price and Adjustment: The exchange price is NT$44.3 per share, determined on the basis of a fixed exchange rate of NT$34.645=US$1.00. The exchange price will be subject to adjustments upon the occurrence of certain events set out in the indenture.
(e) Exchange of the Bonds As of December 31, 2006 and 2005, certain bondholders have exercised their rights to exchange their bonds with the total principal amount of US$139 million and US$137 million into AUO shares, respectively. Gains arising from the exercise of exchange rights during the year ended December 31, 2006 amounted NT$65 million and was recognized as gain on disposal of investment. No bonds were exchanged during the year ended December 31, 2005.
e. During the period from May 21 to June 24, 2003, the Company issued five-year and seven-year unsecured bonds totaling NT$15,000 million, each with a face value of NT$7,500 million. The interest is paid annually with stated interest rates of 4.0% minus USD 12-Month LIBOR and 4.3% minus USD 12-Month LIBOR, respectively. Stated interest rates are reset annually based on the prevailing USD 12-Month LIBOR. The five-year bonds and seven-year bonds are repayable in 2008 and 2010, respectively, upon the maturity of the bonds.
f. On October 5, 2005, the Company issued zero coupon convertible bonds on the LSE. The terms and conditions of the bonds are as follows:
(a) Issue Amount: US$381.4 million
130 Financial Review Unconsolidated
(b) Period: October 5, 2005 ~ February 15, 2008 (Maturity date)
(c) Redemption:
i. On or at any time after April 5, 2007, if the closing price of the ADSs listed on the NYSE has been at least 130% of either the conversion price or the last adjusted conversion price, for 20 out of 30 consecutive ADS trading days, the Company may redeem all, but not some only, of the bonds.
ii. If at least 90% in principal amount of the bonds have already been redeemed, repurchased, cancelled or converted, the Company may redeem all, but not some only, of the bonds.
iii. In the event that the Company’s ADSs or shares have officially ceased to be listed or admitted for trading on the New York Stock Exchange or the Taiwan Stock Exchange, as the case may be, each bondholder shall have the right, at such bondholder’s option, to require the Company to repurchase all, but not in part, of such bondholder’s bonds at their principal amount.
iv. In the event of certain changes in taxation in the R.O.C. resulting in the Company becoming required to pay additional amounts, the Company may redeem all, but not part, of the bonds at their principal amount; bondholders may elect not to have their bonds redeemed by the Company in such event, in which case the bondholders shall not be entitled to receive payments of such additional amounts.
v. If a change of control occurs with respect to the Company, each bondholder shall have the right at such bondholder’ soption, to require the Company to repurchase all, but not in part, of such bondholder’s bonds at their principal amount.
vi. The Company will pay the principal amount of the bonds at its maturity date, February 15, 2008.
(d) Conversion:
i. Conversion Period: Except for the closed period, the bonds may be converted into the Company’s ADSs on or after November 4, 2005 and on or prior to February 5, 2008.
ii. Conversion Price and Adjustment: The conversion price is US$3.693 per ADS. The applicable conversion price will be subject to adjustments upon the occurrence of certain events set out in the indenture.
131 United Microelectronics Corporation | Annual Report 2006
g. Repayments of the above-mentioned bonds in the future years are as follows: (assuming the convertible bonds and exchangeable bonds are both paid off upon maturity)
Bonds repayable in Amount 2007 $5,372,060 2008 22,941,268 2009 - 2010 7,500,000 2011 - Total $35,813,328
(16) PENSION FUND a. The Labor Pension Act of the R.O.C. (the Act), which adopts a defined contribution plan, became effective on July 1, 2005. Employees subject to the Labor Standards Law, a defined benefit plan, were allowed to choose to either elect the pension calculation under the Act or continue to be subject to the pension calculation under the Labor Standards Law. Those employees that elected to be subject to the Act will have their seniority achieved under the Labor Standards Law retained upon election of the Act, and the Company will make monthly contributions of no less than 6% of these employees’ monthly wages to the employees’ individual pension accounts. The Company has made monthly contributions based on each individual employee’s salary or wage to employees’ pension accounts beginning July 1, 2005, and totaled NT$367 million and NT$170 million as of December 31, 2006 and 2005, respectively. Pension benefits for employees of the Branch are provided in accordance with the local regulations, and the Company has contributed the amount of NT$86 million and NT$50 million as of December 31, 2006 and 2005, respectively.
b. The defined benefit plan under the Labor Standards Law is disbursed based on the units of service years and the average salary in the last month of the service year. Two units per year are awarded for the first 15 years of services while one unit per year is awarded after the completion of the fifteenth year. The total units shall not exceed 45 units. In accordance to the plan, the Company contributes an amount equivalent to 2% of the employees’ total salaries and wages on a monthly basis to the pension fund deposited at the Central Trust of China in the name of an administered pension fund committee. The unrecognized net asset or obligation at transition based on actuarial valuation is amortized on a straight-line basis over 15 years.
c. Change in benefit obligation during the year: For the year ended December 31, 2006 2005 Projected benefit obligation at beginning of year $(4,142,309) $(3,790,299) Service cost (72,312) (302,509) Interest cost (124,234) (132,660) Benefits paid 10,024 10,883 Gain (loss) on projected benefit obligation (126,122) 72,276 Projected benefit obligation at end of year $(4,454,953) $(4,142,309)
132 Financial Review Unconsolidated
d. Change in pension assets during the year: For the year ended December 31, 2006 2005 Fair value of plan assets at beginning of year $1,077,661 $959,325 Actual return on plan assets 28,140 14,632 Contributions from employer 107,626 114,587 Benefits paid (10,024) (10,883) Fair value of plan assets at end of year $1,203,403 $1,077,661 e. The funding status of the pension plan is as follows: As of December 31, 2006 2005 Benefit obligation Vested benefit obligation $(55,213) $(39,069) Non-vested benefit obligation (1,853,757) (1,671,097) Accumulated benefit obligation (1,908,970) (1,710,166) Effect from projected salary increase (2,545,983) (2,432,143) Projected benefit obligation (4,454,953) (4,142,309) Fair value of plan assets 1,203,403 1,077,661 Funded status (3,251,550) (3,064,648) Unrecognized net transitional benefit obligation 112,670 140,837 Unrecognized loss (gain) 52,106 (79,967) Accrued pension liabilities recognized on the balance sheet $(3,086,774) $(3,003,778)
f. The components of the net periodic pension cost are as follows:
For the year ended December 31, 2006 2005 Service cost $72,312 $302,509 Interest cost 124,234 132,660 Expected return on plan assets (34,091) (35,482) Amortization of unrecognized transitional net benefit 28,167 28,167 obligation Net periodic pension cost $190,622 $427,854
The actuarial assumptions underlying are as follows:
For the year ended December 31, 2006 2005 Discount rate 2.75% 3.00% Rate of salary increase 4.50% 4.50% Expected return on plan assets 2.50% 3.00%
133 United Microelectronics Corporation | Annual Report 2006
(17) CAPITAL STOCK a. The Company had 26,000 million common shares authorized to be issued, and 19,795 million common shares were issued as of December 31, 2005, each at a par value of NT$10.
b. The Company had issued a total of 277 million ADSs which were traded on the NYSE as of December 31, 2005. The total number of common shares of the Company represented by all issued ADSs was 1,384 million shares as of December 31, 2005. One ADS represents five common shares.
c. On April 26, 2005, the Company cancelled 49 million shares of treasury stock, which were bought back during the period from February 20 to April 19, 2002 for transfer to employees.
d. As recommended by the board of directors, and approved by the shareholders on the meeting held on June 13, 2005, the Company issued 1,956 million new shares from capitalization of retained earnings that amounted to NT$19,560 million, of which NT$17,587 million was stock dividend and NT$1,973 million was employee bonus. The issuance process through the authority had been completed.
e. Among the employee stock options issued by the Company on October 7, 2002 and January 3, 2003, 96 million shares were exercised during the year ended December 31, 2005. The issuance process through the authority had been completed.
f. The Company had 26,000 million common shares authorized to be issued, and 19,131 million was issued as of December 31, 2006, each at a par value of NT$10.
g. Among the employee stock options issued by the Company on October 7, 2002, January 3, 2003 and October 13, 2004, 109 million shares were exercised during the year ended December 31, 2006. The exercise of employee stock options of 47 million shares, 16 million shares and 46 million shares were issued on March 15, 2006, September 25, 2006, and December 27, 2006, respectively. The issuance process through the authority had been completed.
h. On May 22, 2006 the Company cancelled 1,000 million shares of treasury stock, which were bought back during the period from February 16, 2006 to April 11, 2006 for retention of the Company’s creditability and stockholders’ interests.
134 Financial Review Unconsolidated
i. As recommended by the board of directors, and approved by the shareholders on the meeting held on June 12, 2006, the Company issued 225 million new shares from capitalization of retained earnings and additional paid-in capital that amounted to NT$2,249 million, of which NT$895 million was stock dividend, NT$459 million was employee bonus, and NT$895 million was additional paid-in capital. The issuance process through the authority had been completed.
j. The Company had issued a total of 315 million ADSs which were traded on the NYSE as of December 31, 2006. The total number of common shares of the Company represented by all issued ADSs was 1,576 million shares as of December 31, 2006. One ADS represents five common shares.
(18) EMPLOYEE STOCK OPTIONS On September 11, 2002, October 8, 2003, September 30, 2004, and December 22, 2005, the Company was authorized by the Securities and Futures Bureau of the Financial Supervisory Commission, Executive Yuan, to issue employee stock options with a total number of 1 billion, 150 million, 150 million, and 350 million units, respectively. Each unit entitles an optionee to subscribe to 1 share of the Company’s common stock. Settlement upon the exercise of the options will be made through the issuance of new shares by the Company. The exercise price of the options was set at the closing price of the Company’s common stock on the date of grant. The contractual life is 6 years and an optionee may exercise the option in accordance with certain schedules as prescribed by the plan starting 2 years from the date of grant. Detailed information relevant to the employee stock options is disclosed as follows:
Date of grant Total number of options granted Total number of options Exercise price (in thousands) outstanding (in thousands) (NTD) October 7, 2002 939,000 543,834 $15.7 January 3, 2003 61,000 44,571 $17.7 November 26, 2003 57,330 45,443 $24.7 March 23, 2004 33,330 22,110 $22.9 July 1, 2004 56,590 44,460 $20.7 October 13, 2004 20,200 12,905 $17.8 April 29, 2005 23,460 17,790 $16.4 August 16, 2005 54,350 42,610 $21.6 September 29, 2005 51,990 46,675 $19.7 January 4, 2006 39,290 30,690 $17.7 May 22, 2006 42,058 37,040 $19.2 August 24, 2006 28,140 25,830 $18.4
a. A summary of the Company’s stock option plans, and related information for the years ended December 31, 2006 and 2005, are as follows:
135 United Microelectronics Corporation | Annual Report 2006
For the year ended December 31, 2006 2005 Option Weighted-average Option Weighted-average (in thousands) Exercise Price (in thousands) Exercise Price (NTD) (NTD) Outstanding at beginning of 975,320 $17.3 973,858 $16.8 period
Granted 109,488 $18.4 129,800 $19.9 Exercised (109,093) $15.7 (95,814) $15.7 Forfeited (61,757) $18.8 (32,524) $18.5 Outstanding at end of period 913,958 $17.5 975,320 $17.3
Exercisable at end of period 650,268 $16.6 528,373 $16.2
Weighted-average fair value of $5.7 $6.5 options granted during the period (NTD)
b. The information of the Company’s outstanding stock options as of December 31, 2006, is as follows: Outstanding Stock Options Exercisable Stock Options Authorization Range of Option Weighted- Weighted- Option Weighted- Date Exercise (in thousands) average average (in thousands) average Price Remaining Exercise Price Exercise Price Contractual Life (NTD) (NTD) (Years) 2002.09.11 $15.7~$17.7 588,405 1.78 $15.9 577,608 $15.8 2003.10.08 $20.7~$24.7 112,013 3.20 $22.8 67,095 $23.1 2004.09.30 $16.4~$21.6 119,980 4.53 $19.7 5,565 $17.8 2005.12.22 $17.7~$19.2 93,560 5.33 $18.5 - - 913,958 2.68 $17.5 650,268 $16.6
c. The Company uses intrinsic value method to recognize compensation costs for its employee stock options issued since January 1, 2004. The compensation cost for the years ended December 31, 2006 and 2005 are nil because the Company grants options with the exercise price equal to the current market price. Pro forma information using the fair value method on net income and earnings per share is as follows:
136 Financial Review Unconsolidated
For the year ended December 31, 2006 Basic earnings per share Diluted earnings per share Net Income $32,619,313 $32,653,291 Earnings per share (NTD) $1.81 $1.75 Pro forma net income $32,193,259 $32,227,237 Pro forma earnings per share (NTD) $1.78 $1.73
For the year ended December 31, 2005 (retroactively adjusted) Basic earnings per share Diluted earnings per share Net Income $7,026,692 $7,035,187 Earnings per share (NTD) $0.38 $0.37 Pro forma net income $6,782,033 $6,790,528 Pro forma earnings per share (NTD) $0.36 $0.36
The fair value of the options granted was estimated at the date of grant using the Black-Scholes options pricing model with the following weighted-average assumptions for the years ended December 31, 2006 and 2005:
2006 2005 Expected dividend yields 1.37%~1.38% 1.63%~1.64% Volatility factors of the expected market 35.57%~41.14% 40.35%~43.39% price Risk-free interest rate 1.88%~2.28% 1.85%~2.24% Weighted-average expected life of the 4~5 years 4~5 years options
(19) TREASURY STOCK a. The Company bought back its own shares from the open market during the years ended December 31, 2006 and 2005. Details of the treasury stock transactions are as follows:
For the year ended December 31, 2006 (In thousands of shares) Purpose As of Increase Decrease As of January 1, 2006 December 31, 2006 For transfer to employees 442,067 400,000 - 842,067 For conversion of the convertible 500,000 - - 500,000 bonds into shares For retention of the Company’s - 1,000,000 1,000,000 - creditability and stockholder’s interests Total shares 942,067 1,400,000 1,000,000 1,342,067
137 United Microelectronics Corporation | Annual Report 2006
For the year ended December 31, 2005 (In thousands of shares) Purpose As of Increase Decrease As of January 1, 2005 December 31, 2005 For transfer to employees 241,181 250,000 49,114 442,067 For conversion of the convertible - 500,000 - 500,000 bonds into shares Total shares 241,181 750,000 49,114 942,067
b. According to the Securities and Exchange Law of the R.O.C., total shares of treasury stock should not exceed 10% of the Company’s stock issued. Total purchase amount should not exceed the sum of the retained earnings, additional paid-in capital-premiums, and realized additional paid-in capital. As such, the maximum number of shares of treasury stock that the Company could hold as of December 31, 2006 and 2005, were 1,913 million shares and 1,979 million shares with the ceiling of the amounts were NT$ 94,970 million and NT$90,851 million, respectively.
c. In compliance with Securities and Exchange Law of the R.O.C., treasury stock should not be pledged, nor should it be entitled voting rights or receive dividends. Stock held by subsidiaries is treated as treasury stock. These subsidiaries have the same rights as other stockholders except for subscription to new stock issuance. Starting June 22, 2005, stock held by subsidiaries no longer have voting rights according to the revised Companies Act.
d. As of December 31, 2006, the Company’s subsidiary, FORTUNE VENTURE CAPITAL CORP., held 22 million shares of the Company’s stock, with a book value of NT$ 20.25 per share. The closing price on December 31, 2006 was NT$20.25.
As of December 31, 2005, the Company’s subsidiaries, HSUN CHIEH INVESTMENT CO., LTD. and FORTUNE VENTURE CAPITAL CORP., held 600 million shares and 22 million shares, respectively, of the Company’s stock, with a book value of NT$18.98 and NT$7.87 per share, respectively. The average closing price of the Company’s stock during December 2005 was NT$18.98.
(20) RETAINED EARNINGS AND DIVIDEND POLICIES According to the Company’s Articles of Incorporation, current year’s earnings, if any, shall be distributed in the following order:
a. Payment of all taxes and dues; b. Offset prior years’ operation losses; c. Set aside 10% of the remaining amount after deducting items (a) and (b) as a legal reserve; d. Set aside 0.1% of the remaining amount after deducting items (a), (b), and (c) as directors’ and supervisors’ remuneration; and e. After deducting items (a), (b), and (c) above from the current year’s earnings, no less than 5% of the remaining amount together with the prior years’ unappropriated earnings is to be allocated as employees’ bonus, which will be settled
138 Financial Review Unconsolidated
through issuance of new shares of the Company, or cash. Employees of the Company’s subsidiaries, meeting certain requirements determined by the board of directors, are also eligible for the employees’ bonus. f. The distribution of the remaining portion, if any, will be recommended by the board of directors and subject to shareholders’ approval.
The Company has entered a stage of sustained growth; the policy for dividend distribution should reflect factors such as the current and future investment environment, fund requirements, domestic and international competition and capital budgets, as well as the benefit of shareholders, share bonus equilibrium, and long-term financial planning. The board of directors shall make the distribution proposal annually and present it at the shareholders’ meeting. The Company’s Articles of Incorporation further provide that no more than 80% of the dividends to shareholders, if any, may be paid in the form of stock dividends. Accordingly, at least 20% of the dividends must be paid in the form of cash.
The appropriation of 2006 retained earnings has not yet been recommended by the board of directors as of the date of the Report of Independent Auditors. Information on the board of directors’ recommendations and shareholders’ approval can be obtained from the “Market Observation Post System” on the website of the TSE.
Details of the 2005 employee bonus settlement and directors’ and supervisors’ remuneration are as follows:
For the year ended December 31, 2005 As approved by As recommended by Differences the shareholders’ the board of directors meeting
1. Settlement of employees’ bonus by issuance of new shares a. Number of shares (in thousands) 45,846 45,846 - b. Amount $458,455 $458,455 - c. Percentage on total number of outstanding 0.24 0.24 - shares at year-end (%) 2. Settlement of employees’ bonus by cash $305,636 $305,636 3. Remuneration paid to directors and supervisors $6,324 $6,324 -
4. Effect on earnings per share before retroactive adjustments a. Basic and diluted earnings per share (NTD) $0.38/0.38 $0.38/0.38 - b. Pro forma basic and diluted earnings per $0.34/0.34 $0.34/0.34 - share taking into consideration employees’ bonus and directors’ and supervisors’ remuneration (NTD)
Pursuant to Article 41 of the Securities and Exchange Law of the R.O.C., a special reserve is set aside from the current net income and prior unappropriated earnings for items that are accounted for as deductions to stockholders’ equity such as unrealized loss on long-term investments and cumulative translation adjustments. However, there are the following exceptions for the Company’s investees’ unrealized loss on long-term investments arising from a merger that was recognized by the Company in proportion to the Company’s ownership percentage: 139 United Microelectronics Corporation | Annual Report 2006
a. According to the explanatory letter No. 101801 of the Securities and Futures Commission (SFC), if the Company recognizes the investees’ additional paid-in capital—excess from the merger in proportion to the ownership percentage, then the special reserve is exempted for the amount originated from the acquisition of the long-term investments.
b. If the Company and its investees transfer a portion of the additional paid-in capital to increase capital, a special reserve equal to the amount of the transfer shall be provided according to the explanatory letter No.101801-1 of the SFC.
c. In accordance with the explanatory letter No.170010 of the SFC applicable to listed companies, in the case where the market value of the Company’s stock held by its subsidiaries at year-end is lower than the book value, a special reserve shall be provided in the Company’s accounts in proportion to its ownership percentage.
For the 2005 appropriations approved by the shareholders’ meeting on June 12, 2006, unrealized loss on long-term investments exempted from the provision of special reserve pursuant to the above regulations amounted to NT$18,208 million.
(21) OPERATING COSTS AND EXPENSES The Company’s personnel, depreciation, and amortization expenses are summarized as follows: For the year ended December 31, 2006 2005 Operating Operating Total Operating Operating Total costs expenses costs expenses Personnel expenses Salaries $8,159,508 $2,749,890 $10,909,398 $6,252,412 $2,180,082 $8,432,494 Labor and health 437,527 123,780 561,307 410,228 113,429 523,657 insurance Pension 496,293 154,729 651,022 488,932 159,427 648,359 Other personnel 85,210 46,176 131,386 67,096 27,928 95,024 expenses Depreciation 40,377,798 2,122,344 42,500,142 44,221,133 1,888,140 46,109,273 Amortization 187,146 1,593,444 1,780,590 176,459 2,119,210 2,295,669
The numbers of employees as of December 31, 2006 and 2005 were 13,265 and 12,068, respectively.
140 Financial Review Unconsolidated
(22) INCOME TAX a. Reconciliation between the income tax expense and the income tax calculated on pre-tax financial statement income based on the statutory tax rate is as follows:
For the year ended December 31, 2006 2005 Income tax on pre-tax income at statutory tax rate $9,366,541 $2,466,936 Permanent differences (7,280,874) (2,523,713) Change in investment tax credit (1,255,913) 6,942,626 Change in valuation allowance 435,752 (6,885,849) Income Basic Tax 1,940,992 - Income tax on interest revenue separately taxed 1,713 838 Income tax expense $3,208,211 $838
b. Significant components of deferred income tax assets and liabilities are as follows: As of December 31, 2006 2005 Amount Tax effect Amount Tax effect Deferred income tax assets Investment tax credit $14,864,958 $13,609,045 Loss carry-forward $3,815,034 953,758 $14,671,930 3,667,982 Pension 3,083,578 770,895 3,001,282 750,321 Allowance on sales returns and discounts 732,523 183,131 779,688 194,922 Allowance for loss on obsolescence of 685,023 171,256 252,855 63,214 inventories Others 794,686 198,671 571,066 142,766 Total deferred income tax assets 17,142,669 18,428,250 Valuation allowance (9,111,113) (8,675,361) Net deferred income tax assets 8,031,556 9,752,889
Deferred income tax liabilities Unrealized exchange gain (291,144) (72,786) - - Depreciation (5,005,315) (1,251,329) (9,667,939) (2,416,985) Others (2,538,858) (634,714) - - Total deferred income tax liabilities (1,958,829) (2,416,985) Total net deferred income tax assets $6,072,727 $7,335,904
Deferred income tax assets - current $5,803,448 $6,354,040 Deferred income tax liabilities - current (278,284) - Valuation allowance (3,611,651) (3,019,530) Net 1,913,513 3,334,510 Deferred income tax assets - noncurrent 11,339,221 12,074,210 Deferred income tax liabilities - noncurrent (1,680,545) (2,416,985) Valuation allowance (5,499,462) (5,655,831) Net 4,159,214 4,001,394 Total net deferred income tax assets $6,072,727 $7,335,904
141 United Microelectronics Corporation | Annual Report 2006
c. The Company’s income tax returns for all the fiscal years up to 2003 have been assessed and approved by the ROC Tax Authority.
d. The Company was granted several four or five-year income tax exemption periods with respect to income derived from the expansion of operations. The starting date of the exemption period attributable to the expansions in 2002 had not yet been decided. The income tax exemption for other periods will expire on December 31, 2012.
e. The Company earns investment tax credits for the amount invested in production equipment, research and development, and employee training. As of December 31, 2006, the Company’s unused investment tax credit was as follows:
Expiration Year Investment tax credits earned Balance of unused investment tax credits 2006 $2,850,484 $2,850,484 2007 1,613,158 1,613,158 2008 6,275,971 6,275,971 2009 1,737,860 1,737,860 2010 2,387,485 2,387,485 Total $14,864,958 $14,864,958
f. Under the rules of the Income Tax Law of the ROC, net losses can be carried forward for 5 years. As of December 31, 2006, the unutilized accumulated losses were as follows: Expiration Year Accumulated loss Unutilized accumulated loss 2006 $10,856,896 $- 2007 3,773,826 3,773,826 2008 (Transferred in from merger 2,283 2,283 with SiSMC) 2009 (Transferred in from merger 38,925 38,925 with SiSMC) Total $14,671,930 $3,815,034
g. The balance of the Company’s imputation credit accounts as of December 31, 2006 and 2005 were NT$95 million and NT$29 million, respectively. The expected creditable ratio for 2006 and the actual creditable ratio for 2005 was 0.54% and 0%, respectively.
h. The Company’s earnings generated in the year ended December 31, 1997 and prior years have been fully appropriated.
142 Financial Review Unconsolidated
(23) EARNINGS PER SHARE a. The Company’s capital structure is composed mainly of zero coupon convertible bonds and employee stock options. Therefore, in consideration of such complex structure, the calculated basic and diluted earnings per share for the years ended December 31, 2006 and 2005, are disclosed as follows:
For the year ended December 31, 2006 Amount Earnings per share (NTD) Income Net income Shares Income Net income before expressed before income tax in thousands income tax Earning per share-basic (NTD) Income from continuing $37,016,039 $33,807,828 18,050,962 $2.05 $1.87 operations Cumulative effect of changes in (1,188,515) (1,188,515) (0.06) (0.06) accounting principles Net income $35,827,524 $32,619,313 $1.99 $1.81
Effect of dilution Employee stock options $- $- 108,122 Convertible bonds payable $33,978 $33,978 516,383 Earning per share-diluted: Income from continuing $37,050,017 $33,841,806 18,675,467 $1.98 $1.81 operations Cumulative effect of changes in (1,188,515) (1,188,515) (0.06) (0.06) accounting principles Net income $35,861,502 $32,653,291 $1.92 $1.75
For the year ended December 31, 2005 (retroactively adjusted) Amount Earnings per share (NTD) Income Net income Shares Income Net income before expressed before income tax in thousands income tax Earning per share-basic (NTD) Income from continuing operations $7,027,530 $7,026,692 18,647,462 $0.38 $0.38 Cumulative effect of changes in - - - - accounting principles Net income $7,027,530 $7,026,692 $0.38 $0.38
Effect of dilution Employee stock options $- $- 161,651 Convertible bonds payable $8,495 $8,495 124,498 Earning per share-diluted: Income from continuing operations $7,036,025 $7,035,187 18,933,611 $0.37 $0.37 Cumulative effect of changes in - - - - accounting principles Net income $7,036,025 $7,035,187 $0.37 $0.37 143 United Microelectronics Corporation | Annual Report 2006
b. Pro forma information on earnings as if subsidiaries’ investment in the Company is not treated as treasury stock is set out as follows:
(shares expressed in thousands) For the year ended December 31, 2006 Basic Diluted Net income $32,686,223 $32,720,201 Weighted-average of shares outstanding: Beginning balance 18,852,636 18,852,636 Increase in capital through 2006 retained earnings and 242,215 242,215 additional paid-in capital at proportion of 1.3% Purchase of 1,400,000 thousand shares of treasury stock in 2006 (1,024,860) (1,024,860) Weighted-average shares of exercising employee stock options 48,029 48,029 Dilutive shares of employee stock options accounted for under - 108,122 treasury stock method Dilutive shares issued assuming conversion of bonds - 516,383 Ending balance 18,118,020 18,742,525 Earnings per share Net income (NTD) $1.80 $1.75
For the year ended (shares expressed in thousands) December 31, 2005 (retroactively adjusted) Basic Diluted Net income $7,026,692 $7,035,187 Weighted-average of shares outstanding: Beginning balance 17,550,801 17,550,801 Increase in capital through 2006 retained earnings at 247,368 247,368 proportion of 1.3% Increase in capital through 2005 retained earnings at 2,009,072 2,009,072 proportion of 11.4% Purchase of 750,000 thousand shares of treasury stock in 2005 (349,945) (349,945) Weighted-average shares of exercising employee stock options 43,762 43,762 Dilutive shares of employee stock options accounted for under - 161,651 treasury stock method Dilutive shares issued assuming conversion of bonds - 124,498 Ending balance 19,501,058 19,787,207
Earnings per share Net income (NTD) $0.36 $0.36
144 Financial Review Unconsolidated
5. RELATED PARTY TRANSACTIONS (1) Name and Relationship of Related Parties
Name of related parties Relationship with the Company UMC GROUP (USA) (UMC-USA) Equity Investee UNITED MICROELECTRONICS (EUROPE) B.V. (UME BV) Equity Investee UMC CAPITAL CORP. Equity Investee UNITED MICROELECTRONICS CORP. (SAMOA) Equity Investee FORTUNE VENTURE CAPITAL CORP. (FORTUNE) Equity Investee HSUN CHIEH INVESTMENT CO., LTD. (HSUN CHIEH) Equity Investee UMCI LTD. (UMCI) Equity Investee UNITED MICRODISPLAY OPTRONICS CORP. Equity Investee UMC JAPAN Equity Investee HOLTEK SEMICONDUCTOR INC. (HOLTEK) Equity Investee UNITECH CAPITAL INC. Equity Investee ITE TECH. INC. Equity Investee AMIC TECHNOLOGY CORP. Equity Investee PACIFIC VENTURE CAPITAL CO., LTD. Equity Investee XGI TECHNOLOGY INC. Equity Investee TLC CAPITAL CO., LTD. Equity Investee HIGHLINK TECHNOLOGY CORP. Equity Investee MEGA MISSION LIMITED PARTNERSHIP Equity Investee MTIC HOLDINGS PTE. LTD. Equity Investee TOPPAN PHOTOMASKS TAIWAN LTD. (formerly DUPONT Equity Investee PHOTOMASKS TAIWAN LTD.) (TOPPAN) (Disposed in March 2006) THINTEK OPTRONICS CORP. (merged into UMO since October 1, Equity Investee 2006) FARADAY TECHNOLOGY CORP. (No longer an equity investee since Equity Investee January 1, 2006) NOVATEK MICROELECTRONICS CORP. (No longer an equity investee Equity Investee since January 1, 2006) UNIMICRON TECHNOLOGY CORP. (No longer an equity investee Equity Investee since November, 2006) SILICON INTEGRATED SYSTEMS CORP. The Company’s director UNITRUTH INVESTMENT CORP. (UNITRUTH) Subsidiary’s equity investee UWAVE TECHNOLOGY CORP. (formerly UNITED RADIOTEK INC.) Subsidiary’s equity investee UCA TECHNOLOGY INC. Subsidiary’s equity investee AFA TECHNOLOGY, INC. Subsidiary’s equity investee STAR SEMICONDUCTOR CORP. Subsidiary’s equity investee USBEST TECHNOLOGY INC. Subsidiary’s equity investee SMEDIA TECHNOLOGY CORP. Subsidiary’s equity investee U-MEDIA COMMUNICATIONS, INC. Subsidiary’s equity investee CRYSTAL MEDIA INC. Subsidiary’s equity investee NEXPOWER TECHNOLOGY CORP. Subsidiary’s equity investee MOBILE DEVICES INC. Subsidiary’s equity investee ULI ELECTRONICS INC. (Disposed in February 2006) Subsidiary’s equity investee AEVOE INC. (Disposed in October 2006) Subsidiary’s equity investee CHIP ADVANCED TECHNOLOGY INC. (No longer an equity investee Subsidiary’s equity investee since October, 2006) DAVICOM SEMICONDUCTOR, INC. (No longer an equity investee Subsidiary’s equity investee since December, 2006)
145 United Microelectronics Corporation | Annual Report 2006
(2) Significant Related Party Transactions a. Operating revenues For the year ended December 31, 2006 2005 Amount Percentage Amount Percentage UMC-USA $54,476,329 52 $43,226,036 48 Others 15,074,471 15 21,676,804 23 Total $69,550,800 67 $64,902,840 71
The sales price to the above related parties was determined through mutual agreement based on the market conditions. The collection period for overseas sales to related parties was net 60 days, while the terms for domestic sales were month-end 45~60 days. The collection period for third party overseas sales was net 30~60 days, while the terms for third party domestic sales were month-end 30~60 days.
b. Purchases For the year ended December 31, 2006 2005 Amount Percentage Amount Percentage UMCI $- - $1,244,347 5
The purchases from the above related parties were dealt with in the ordinary course of business similar to those from third-party suppliers. The payment terms for purchases were net 60 days for related parties and net 30~90 days for third-party suppliers.
c. Notes receivable As of December 31, 2006 2005 Amount Percentage Amount Percentage HOLTEK $49,924 92 $62,136 100 Others 724 1 - - Total $50,648 93 $62,136 100
d. Accounts receivable As of December 31, 2006 2005 Amount Percentage Amount Percentage UMC-USA $5,118,532 39 $4,559,933 35 Others 1,438,412 11 2,297,194 17 Total 6,556,944 50 6,857,127 52 Less: Allowance for sales returns (506,572) (663,397) and discounts Less: Allowance for doubtful (1,996) (96,387) accounts Net $6,048,376 $6,097,343
146 Financial Review Unconsolidated
e. Financing activities The Company did not conduct any financing activities with related parties during the year ended December 31, 2006.
Other receivables-related parties For the year ended December 31, 2005 Maximum balance Ending Interest Interest Amount Month balance rate revenue UMCI $5,137,760 2005.03 $- 2.74%~3.05% $7,669 f. Significant asset transactions The Company did not undertake any significant asset transactions with related parties during the year ended December 31, 2006.
For the year ended December 31, 2005
Item Amount FORTUNE Purchase of APTOS CORP. (TAIWAN) stock $140,231 FORTUNE Purchase of EPITECH TECHNOLOGY CORP. stock 185,840 HSUN CHIEH Purchase of EPITECH TECHNOLOGY CORP. stock 97,658 UNITRUTH Purchase of EPITECH TECHNOLOGY CORP. stock 16,495 Total $440,224 g. Other transactions The Company was involved in several other transactions with related parties, including service charges, development expenses of intellectual property, and commission, totaling NT$16 million and NT$721 million for the years ended December 31, 2006 and 2005, respectively.
The Company purchased approximately NT$104 million and NT$476 million of masks from TOPPAN during the years ended December 31, 2006 and 2005, respectively.
147 United Microelectronics Corporation | Annual Report 2006
6. ASSETS PLEDGED AS COLLATERAL As of December 31, 2006 Amount Party to which asset(s) was pledged Purpose of pledge Deposit-out $620,846 Customs Customs duty (Time deposit) guarantee
As of December 31, 2005 Amount Party to which asset(s) was pledged Purpose of pledge Deposit-out $520,730 Customs Customs duty (Time deposit) guarantee
7. COMMITMENTS AND CONTINGENT LIABILITIES (1) The Company has entered into several patent license agreements and development contracts of intellectual property for a total contract amount of approximately NT$19.67 billion. Royalties and development fees for future years are NT$5.77 billion as of December 31,2006.
(2) The Company signed several construction contracts for the expansion of its factory space. As of December 31, 2006, these construction contracts have amounted to approximately NT$3.82 billion and the unpaid portion of the contracts, which was not accrued, was approximately NT$1.9 billion.
(3) OAK Technology, Inc. (OAK) and the Company entered into a settlement agreement on July 31, 1997 concerning a complaint filed with the United States International Trade Commission (ITC) by OAK against the Company and others, alleging unfair trade practices based on alleged patent infringement regarding certain CD-ROM controllers (the first OAK ITC case). On October 27, 1997, OAK filed a civil action in a California federal district court, alleging claims for breach of the settlement agreement and fraudulent misrepresentation. In connection with its breach of contract and other claims, OAK sought damages in excess of US$750 million. The Company denied the material allegations of the complaint, and asserted counterclaims against OAK for breach of contract, intentional interference with economic advantage and rescission and restitution based on fraudulent concealment and/or mistake. The Company also asserted declaratory judgment claims for invalidity and unenforceability of the relevant OAK patent. On February 9, 2006, the parties entered a settlement agreement in which the Company, OAK and Zoran (the successor to OAK) fully and finally released one another from any and all claims and liabilities arising out of the facts alleged in the district court case. The terms of settlement are confidential and, except for the obligation to keep the terms confidential, impose no obligation on the Company.
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(4) The Company entered into several operating lease contracts for land. These renewable operating leases are set to expire in various years through to 2032. Future minimum lease payments under those leases are as follows:
For the year ended December 31, Amount 2007 $179,049 2008 176,165 2009 176,321 2010 176,696 2011 177,085 2012 and thereafter 1,606,543 Total $2,491,859
(5) The Company entered into several wafer-processing contracts with its principal customers. According to the contracts, the Company shall guarantee processing capacity after receipts of customers’ deposits.
(6) The Company has entered into contracts for the purchase of materials and masks with certain vendors. These contracts oblige the Company to purchase specified amounts or quantities of materials and masks. Should the Company fail to fulfill the conditions set out in the contracts, the differences between the actual purchase and the required minimum will be reconciled between the Company and its vendors.
(7) On February 15, 2005, the Hsinchu District Prosecutor’s Office conducted a search of the Company’s facilities. On February 18, 2005, the Company’s former Chairman Mr. Robert H.C. Tsao, released a public statement, explaining that its assistance to Hejian Technology Corp. (Hejian) did not involve any investment or technology transfer. Furthermore, from the very beginning there was a verbal indication that, at the proper time, the Company would be compensated appropriately for its assistance, and circumstances permitting, at some time in the future, it will push through the merger between two companies. However, no promise was made by the Company and no written agreement was made and executed. Upon the Company’s request to materialize the said verbal indication by compensating in the form of either cash or equity, the Chairman of the holding company of Hejian offered 15% of the approximately 700 million outstanding shares of the holding company of Hejian in return for the Company’s past assistance and for continued assistance in the future.
Immediately after the Company had received such offer, it filed an application with the Investment Commission of the Ministry of Economic Affairs on March 18, 2005 (Ref. No. 94-Lian-Tung-Tzu-0222), for their executive guidance for the successful transfer of said shares to the Company. The shareholders meeting dated June 13, 2005 resolved that to the extent permitted by law the Company shall try to get the 15% of the outstanding shares offered by the holding company
149 United Microelectronics Corporation | Annual Report 2006
of Hejian as an asset of the Company. The holding company of Hejian offered 106 million shares of its outstanding common shares in return for the Company’s assistance. The holding company of Hejian has put all such shares in escrow. The Company was informed of such escrow on August 4, 2006. The subscription price per share of the holding company of Hejian in the last offering was US$1.1. Therefore, the total market value of the said shares is worth more than US$110 million. However, the Company may not acquire the ownership of nor exercise the rights of the said shares with any potential stock dividend or cash dividend distributed in the future until the ROC laws and regulations allow the Company to acquire and exercise. In the event that any stock dividend or cash dividend is distributed, the Company’s stake in the holding company of Hejian will accumulate accordingly.
In April 2005, the Company’s former Chairman Mr. Robert H.C. Tsao was personally fined with in the aggregate amount of NT$3 million by the Financial Supervisory Commission, Executive Yuan, R.O.C. (ROC FSC) for failure to disclose material information relating to Hejian in accordance with applicable rules. As a result of the imposition of the fines by the ROC FSC, the Company was also fined in the amount of NT$30,000 by Taiwan Stock Exchange (TSE) for the alleged non-compliance with the disclosure rules in relation to the material information. The Company and its former Chairman Mr. Robert H.C. Tsao have filed for administrative appeal and reconsideration with the Executive Yuan, R.O.C. and TSE, respectively. Mr. Robert H.C. Tsao’s administrative appeal was dismissed by the Execution Yuan, R.O.C. on February 21, 2006 and the ROC FSC transferred the case against Mr. Robert H.C. Tsao to the Administrative Enforcement Agency for enforcement of the fine. Mr. Robert H.C. Tsao has filed an administrative action against the ROC FSC with Taipei High Administrative Court on April 14, 2006. As of December 31, 2006, the result of such reconsideration and administrative action has not been finalized.
For the Company’s assistance to Hejian Technology Corp., the Company’s former Chairman Mr. Robert H.C. Tsao, former Vice Chairman Mr. John Hsuan, and Mr. Duen-Chian Cheng, the General Manager of Fortune Venture Capital Corp., which is 99.99% owned by the Company, were indicted for violating the Business Accounting Law and breach of trust under the Criminal Law by Hsinchu District Court’s Prosecutor’s Office on January 9, 2006. Mr. Robert H.C. Tsao and Mr. John Hsuan had officially resigned from their positions of the Company’s Chairman, Vice Chairman and directors prior to the announcement of the prosecution; for this reason, at the time of the prosecution, Mr. Robert H.C. Tsao and Mr. John Hsuan no longer served as the Company’s directors and had not executed their duties as the Company’s Chairman and Vice Chairman. In the future, if a guilty judgment is pronounced by the court, such consequences would be Mr. Robert H.C. Tsao, Mr. John Hsuan and Mr. Duen-Chian Cheng’s personal concerns only; the Company would not be subject to indictment regarding this case.
On February 15, 2006, the Company was fined in the amount of NT$5 million for unauthorized investment activities in Mainland China, implicating violation of Article 35 of the Act “Governing Relations Between Peoples of the Taiwan Area and the Mainland Area” by the R.O.C. Ministry of Economic Affairs (MOEA). However, as the Company believes it was illegally and improperly fined, the Company had filed an administrative appeal against MOEA to the Executive
150 Financial Review Unconsolidated
Yuan on March 16, 2006. The Company’s administrative appeal was dismissed by the Executive Yuan, R.O.C. on October 19, 2006. The Company filed an administrative action against the R.O.C. Ministry of Economic Affairs to Taipei High Administrative Court on December 8, 2006. As of December 31, 2006, the result of such administrative action has not been finalized.
8. SIGNIFICANT DISASTER LOSS None.
9. SIGNIFICANT SUBSEQUENT EVENT The company has entered a stage of sustained growth. The Company determined that cash flows generated from UMC’s future operations will be sufficient for the research and development of advanced process technologies and the continued expansion of advanced manufacturing capacity, including the second 300mm fab in Taiwan’s Tainan Science Park. In order to avoid future cash levels becoming excessive and to better respond to the expectations of today’s capital markets, the Company has resolved to carry out a capital reduction of NT$ 57,394 million with the cancellation of 5,739 million of its outstanding shares, following a resolution passed at a meeting of the Board of Directors on January 23, 2007. The board of directors will decide the date of the capital reduction after the approval at the stockholders’ meeting and the authorization of the government. The exact exchange ratio for shares and the amount of the capital reduction is to be set on the record date for capital reduction.
10. OTHERS (1) Certain comparative amounts have been reclassified to conform to the current year’s presentation.
(2) Financial risk management objectives and policies The Company’s principal financial instruments, other than derivatives, is comprised of cash and cash equivalents, common stock, preferred stock, convertible bonds, open-end funds, bank loans, and bonds payable. The main purpose of these financial instruments is to manage financing for the Company’s operations. The Company also holds various other financial assets and liabilities such as accounts receivable and accounts payables, which arise directly from its operations.
The Company also enters into derivative transactions, including credit-link deposits, interest rate swaps and forward currency contracts. The purpose of these derivative transactions is to mitigate interest rate risk and foreign currency exchange risk arising from the Company’s operations and financing activities. As of December 31, 2006 and 2005, none of the Company’s derivative transactions qualified for hedge accounting.
The main risks arising from the Company’s financial instruments include cash flow interest rate risk, foreign currency risk, commodity price risk, credit risk, and liquidity risk.
151 United Microelectronics Corporation | Annual Report 2006
Cash flow interest rate risk The Company utilizes interest rate swap agreements to mitigate its cash flow interest rate risk on its counter-floating rate of unsecured domestic bonds issued during the period from May 21 to June 24, 2003. The periods of the interest rate swap agreements are the same as those of the domestic bonds, which are five and seven years. The floating rate is reset annually.
Foreign currency risk The Company has foreign currency risk arising from purchases or sales. The Company utilizes spot or forward contracts to mitigate foreign currency risk. The Company buys or sells the same amount of foreign currency with hedged items through forward contracts. In principal, the Company does not carry out any forward contracts for uncertain commitments.
Commodity price risk The Company’s exposure to commodity price risk is minimal.
Credit risk The Company trades only with established and creditworthy third parties. It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis, which consequently minimizes the Company’s exposure to bad debts.
With respect to credit risk arising from the other financial assets of the Company, which are comprised of cash and cash equivalents, available-for-sale financial assets and certain derivative instruments, the Company’s exposure to credit risk arising from the default of counter-parties is limited to the carrying amount of these instruments.
Although the Company trades only with established third parties, it will request collateral to be provided by third parties with less favorable financial positions.
Liquidity risk The Company’s objective is to maintain a balance of funding continuity and flexibility through the use of financial instruments such as cash and cash equivalents, bank loans and bonds.
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(3) Information of financial instruments
a. Fair value of financial instruments As of December 31, 2006 2005 Financial Assets Book Value Fair Value Book Value Fair Value Non-derivative Cash and cash equivalents $83,394,802 $83,394,802 $96,596,623 $96,596,623 Financial assets at fair value 8,538,007 8,538,007 2,468,968 2,438,668 through profit or loss, current
Available-for-sale financial - - 2,414,153 2,900,084 assets, current
Held-to-maturity financial 974,272 974,272 - - assets, current Notes and accounts receivable 12,851,984 12,851,984 13,068,452 13,068,452
Available-for-sale financial 41,218,780 41,218,780 5,513,284 26,748,545 assets, noncurrent Held-to-maturity financial - - 977,856 977,856 assets, noncurrent
Financial assets measured at 2,285,326 - 2,265,467 - cost, noncurrent Long-term investments 39,242,324 40,209,680 30,481,560 53,544,605 accounted for under the equity method
Deposits-out 642,584 642,584 579,710 579,710
Financial Liabilities Non-derivative Payables $22,384,219 $22,384,219 $17,035,687 $17,035,687 Capacity deposits (current 898,265 898,265 657,600 657,600 portion) Bonds payable (current portion 35,738,959 36,739,231 46,259,055 47,028,153 included)
Derivative Interest rate swaps $626,230 $626,230 $95,634 $730,191 Derivatives embedded in 359,037 359,037 - - exchangeable bonds
153 United Microelectronics Corporation | Annual Report 2006
b. The methods and assumptions used to measure the fair value of financial instruments are as follows:
i. The book value of short-term financial instruments approximates their fair value due to their short maturities. Short-term financial instruments include cash and cash equivalents, notes receivable, accounts receivable, short-term loans, current portion of capacity deposits, and payables.
ii. The fair value of financial assets at fair value through profit or loss and available-for-sale financial assets is based on the quoted market price.
iii. The fair value of held-to-maturity financial assets is based on the quoted market prices. If market prices are unavailable, the Company estimates the fair value based on the book value as the held-to-maturity financial assets consist principally of credit-linked deposits agreements with maturity dates less than one year, as well as bonds that can be easily liquidated in the secondary market.
iv. The fair value of financial assets measured at cost is unable to estimate since those unlisted investments are not traded in the open market.
v. The fair value of deposits-out is based on their book value since the deposit periods are principally within one year and renewed upon maturity.
vi. The fair value of bonds payable is determined by the market price.
vii.The fair value of derivative financial instruments is based on the amount the Company expects to receive (positive) or to pay (negative) assuming that the contracts are settled in advance at the balance sheet date.
c. The fair value of the Company’s financial instruments is determined by the quoted prices in active markets, or if the market for a financial instrument is not active, the Company establishes fair value by using a valuation technique:
Active Market Quotation Valuation Technique Non-derivative 2006.12.31 2005.12.31 2006.12.31 2005.12.31 Financial Instruments Financial assets Financial assets at fair value $8,538,007 $2,438,668 $- $- through profit or loss, current
Available-for-sale financial - 2,900,084 - - asset, current Available-for-sale financial 41,218,780 26,748,545 - - assets, noncurrent
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Active Market Quotation Valuation Technique Non-derivative 2006.12.31 2005.12.31 2006.12.31 2005.12.31 Financial Instruments Long-term investments $40,209,680 $53,544,605 $- $- accounted for under the equity method Financial liabilities Bonds payable (current portion 36,739,231 47,028,153 - - included)
Derivative Financial Instruments Financial liabilities Interest rate swaps $- $- $626,230 $730,191 Derivatives embedded in - - 359,037 - exchangeable bonds
d. The Company recognized a gain in NT$312 million arising from the changes in fair value of financial liabilities at fair value through profit or loss for the year ended December 31, 2006.
e. The Company’s financial liability with cash flow interest rate risk exposure as of December 31, 2006 amounted to NT$626 million.
f. During the year ended December 31, 2006, total interest revenue and interest expense for financial assets or liabilities that are not at fair value through profit or loss were NT$1,453 million and NT$631 million, respectively, while interest revenue and expense for the year period ended December 31, 2005 amounted to NT$946 million and NT$918 million, respectively.
(4) The Company and its subsidiary, UMC JAPAN, held credit-linked deposits and repackage bonds recognized as held to maturity financial assets for the earning of interest income. The details are disclosed as follows:
a. Principal amount in original currency
As of December 31, 2006
The Company Credit-linked deposits and repackage bonds referenced to Amount Due Date SILICONWARE PRECISION INDUSTRIES CO., LTD. NTD 400 million 2007.02.05 European Convertible Bonds and Loans
SILICONWARE PRECISION INDUSTRIES CO., LTD. NTD 200 million 2007.02.05 European Convertible Bonds and Loans
UMC JAPAN European Convertible Bonds JPY 640 million 2007.03.28 ADVANCED SEMICONDUCTOR ENGINEERING INC. NTD 200 million 2007.09.25 European Convertible Bonds and Loans
155 United Microelectronics Corporation | Annual Report 2006
UMC JAPAN Credit-linked deposits and repackage bonds referenced to Amount Due Date UMC JAPAN European Convertible Bonds JPY 500 million 2007.03.29
As of December 31, 2005
The Company Credit-linked deposits and repackage bonds referenced to Amount Due Date SILICONWARE PRECISION INDUSTRIES CO., LTD. NTD 400 million 2007.02.05 European Convertible Bonds and Loans SILICONWARE PRECISION INDUSTRIES CO., LTD. NTD 200 million 2007.02.05 European Convertible Bonds and Loans UMC JAPAN European Convertible Bonds JPY 640 million 2007.03.28 ADVANCED SEMICONDUCTOR ENGINEERING INC. NTD 200 million 2007.09.25 European Convertible Bonds and Loans
UMC JAPAN Credit-linked deposits and repackage bonds referenced to Amount Due Date UMC JAPAN European Convertible Bonds JPY 500 million 2007.03.29
b. Credit risk The counterparties of the above investments are major international financial institutions. The repayment in full of these investments is subject to the non-occurrence of one or more credit events, which are referenced to the entities’ fulfillment of their own obligations as well as repayment of their corporate bonds. Upon the occurrence of one or more of such credit events, the Company and its subsidiary, UMC JAPAN, may receive less than the full amount of these investments or nothing. The Company and its subsidiary, UMC JAPAN, have selected reference entities with high credit ratings to minimize the credit risk.
c. Liquidity risk Early withdrawal is not allowed for the above investments unless called by the issuer. However, the anticipated liquidity risk is low since most of the investments will either have matured within one year, or are relatively liquid in the secondary market.
d. Market risk There is no market risk for the above investments except for the fluctuations in the exchange rates of US Dollars and Japanese Yen to NT Dollars at the balance sheet date and the settlement date.
156 Financial Review Unconsolidated
(5) The Company and its subsidiary, UMC JAPAN, entered into interest rate swap and forward contracts for hedging the interest rate risk arising from the counter-floating rate of domestic bonds and for hedging the exchange rate risk arising from the net assets or liabilities denominated in foreign currency. The hedging strategy was developed with the objective to reduce the market risk for non-trading purpose. The relevant information on the derivative financial instruments entered into by the Company is as follows:
a. The Company utilized interest rate swap agreements to hedge its interest rate risk on its counter-floating rate of unsecured domestic bonds issued during the period from May 21 to June 24, 2003. The periods of the interest rate swap agreements are the same as those of the domestic bonds, which are five and seven years. The floating rate is reset annually. The details of interest rate swap agreements are summarized as follows:
As of December 31, 2006 and 2005, the Company had the following interest rate swap agreements in effect:
Notional Amount Contract Period Interest Rate Received Interest Rate Paid NT$7,500 million May 21, 2003 to June 4.0% minus USD 1.52% 24, 2008 12-Month LIBOR NT$7,500 million May 21, 2003 to June 4.3% minus USD 1.48% 24, 2010 12-Month LIBOR
b. Transaction risk
(a) Credit risk There is no significant credit risk exposure with respect to the above transactions as the counter-parties are reputable financial institutions with good global standing.
(b) Liquidity and cash flow risk The cash flow requirements on the interest rate swap agreements are limited to the net interest payables or receivables arising from the differences in the swap rates. The cash flow requirements on forward contracts are limited to the net difference between the forward and spot rates at the settlement date. Therefore, no significant cash flow risk is anticipated since the working capital is sufficient to meet the cash flow requirements.
(c) Market risk Interest rate swap agreements and forward contracts are intended for hedging purposes. Gains or losses arising from the fluctuations in interest rates and exchange rates are likely to be offset against the gains or losses from the hedged items. As a result, no significant exposure to market risk is anticipated.
157 United Microelectronics Corporation | Annual Report 2006
c. The presentation of derivative financial instruments on financial statements
The Company As of December 31, 2006 and 2005, the interest rate swap agreements were classified as current liabilities amounting to NT$626 million and NT$96 million, respectively.
The exchange loss arising from forward contracts was NT$415 million for the year ended December 31, 2005 and recorded in non-operating expenses in the accompanying statement of income.
UMC JAPAN The exchange (loss) gain arising from forward contracts was JPY$(7.5) million and JPY$25.4 million and recorded in non-operating (expense) revenue in the accompanying statements of income for the years ended December 31, 2006 and 2005, respectively.
11. ADDITIONAL DISCLOSURES
(1) The following are additional disclosures for the Company and its affiliates as required by the ROC Securities and Futures Bureau:
a. Financing provided to others for the year ended December 31, 2006: Please refer to Attachment 1.
b. Endorsement/Guarantee provided to others for the year ended December 31, 2006: Please refer to Attachment 2.
c. Securities held as of December 31, 2006: Please refer to Attachment 3.
d. Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT$100 million or 20 percent of the capital stock for the year ended December 31, 2006: Please refer to Attachment 4.
e. Acquisition of individual real estate with amount exceeding the lower of NT$100 million or 20 percent of the capital stock for the year ended December 31, 2006: Please refer to Attachment 5.
f. Disposal of individual real estate with amount exceeding the lower of NT$100 million or 20 percent of the capital stock for the year ended December 31, 2006: Please refer to Attachment 6.
g. Related party transactions for purchases and sales amounts exceeding the lower of NT$100 million or 20 percent of the capital stock for the year ended December 31, 2006: Please refer to Attachment 7.
h. Receivables from related parties with amounts exceeding the lower of NT$100 million or 20 percent of the capital stock as of December 31, 2006: Please refer to Attachment 8.
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i. Names, locations and related information of investees as of December 31, 2006: Please refer to Attachment 9.
j. Financial instruments and derivative transactions: Please refer to Note 10.
(2) Investment in Mainland China None.
12. SEGMENT INFORMATION
(1) Operations in different industries
The Company operates principally in one industry, and the major business is operating as a full service semiconductor foundry.
(2) Operations in different geographic areas
The Company has no foreign operations.
(3) Export sales For the year ended December 31, Area 2006 2005 North America $54,538,785 $43,765,379 Europe 8,550,154 6,740,391 Asia, excluding Taiwan 7,748,732 5,695,477 Total export sales $70,837,671 $56,201,247
(4) Major customers
Individual customers accounting for at least 10% of net sales for the years ended December 31, 2006 and 2005 are as follows:
For the year ended December 31, 2006 2005 Customers Sales amount Percentage Sales amount Percentage Customer A $54,476,329 52 $43,226,036 48
159 United Microelectronics Corporation | Annual Report 2006 N/A Limit of total financing amount N/A counter-party Limit of financing amount for individual Value Collateral Item accounts Allowance for doubtful financing Reason for $- Employee loan $- - - counter-party (purchases from) Amount of sales to financing Nature of 7% Note 2 Interest rate $- Ending balance USD 691 the period Maximum balance for account Financial statement employees Counter-party Lender 1. The Company is coded "0". 2. The subsidiaries are coded consecutively beginning from "1" in the order presented table above. 1 UMC GROUP (USA) Former Employees Receivable from No. (Note 1) ATTACHMENT 1 (Financing provided to others for the year ended December 31, 2006) ޓޓޓ ޓޓޓ (Amount in thousand; Currency denomination NTD unless otherwise specified) Note 1: The Company and its subsidiaries are coded as follows: Note 2 : Need for short-term financing.
160 Financial Review Unconsolidated $76,524,771 Limit of total amount (Note 4) guarantee/endorsement - financial statement guarantee amount to net Percentage of accumulated assets value from the latest $- Amount of collateral guarantee/endorsement $- Ending balance ital stock. p ortion to p ro p uarantee in g period JPY 10,400,000 Maximum balance for the ital stock or 10% of UMC's ca the R.O.C. Securities and Futures Bureau, p y 's ca y art rovided endorsement/ p p g Limit of $7,501,548 uirements. q party (Note 3) amount for receiving guarantee/endorsement Securities Issuers" issued b y interest. resented in the table above. y p uit interest. orts b q y p ital stock as of December 31, 2006. p uit q 2 (Note 2) interest. y Relationship : uit shall not exceed the lower of receivin g q over 50% of e y y with UMC. art p p from "1" in the order g g aration of Financial Re uals 40% of UMC's ca p innin q g over 50% of e and indirectl be y y y invests with other shareholders, and for which UMC has the Pre y g unctl j uarantees to UMC, and vice versa, due contractual re g UMC JAPAN Receiving party e. g rovided that has a business relationshi p y an ercenta p p g is coded "0". y uarantee/endorsement amount e in which UMC holds directl and its subsidiaries are coded as follows: g y an y p arties should be disclosed as one of the followin UMC an to the "Guidelines Governin uarantee/endorsement amount for receivin p p g g g Endorsor/Guarantor 2. The subsidiaries are coded consecutivel 1. The Com ޓ ޓ 0 No. (Note 1) ATTACHMENT 2 (Endorsement/Guarantee provided to others for the year ended December 31, 2006) ޓޓ ޓޓ (Amount in thousand; Currency denomination NTD unless otherwise specified) Note 2: Accordin its shareholdin Note 1: The Com 2. A subsidar 5. An investee that has Note 3: Limit of receivin 1. An investee com 4. An investee in which UMC holds directl 6. An investee in which UMC con Note 4: Limit of total 3. An investee in which UMC and its subsidaries hold over 50% of e
161 United Microelectronics Corporation | Annual Report 2006 collateral Shares as (thousand) 86 None 8,480 None 61,178 None 97,456 None 53,485 None 54,740 None 52,863 None 54,250 None 276,202 None 276,469 None $34,485 None 353,072 None 329,464 None 193,910 None 198,191 None 6,778,711 None Market value/ Net assets value ------0.19 0.14 0.99 0.21 0.44 7.77 0.86 Percentage of ownership (%) 86 100.00 8,480 100.00 61,178 97,456 53,485 54,740 52,863 54,250 276,202 284,084 100.00 $34,485 353,072 329,464 193,910 198,191 December 31, 2006 9 60 280 380 340 402 500 280 5,395 3,254 1,000 1,683 16,438 1,006,496 100.00 1,006,496 None 23,538 16,270 880,006 124,000 3,613,491 100.00 3,613,491 None 477,374 6,778,711 (thousand) Book value bonds/ shares Units (thousand)/ Financial statement account Financial assets at fair value through Financial assets at fair value through under the equity method under the equity method under the equity method under the equity method profit or loss, current Financial assets at fair value through Financial assets at fair value through profit or loss, current under the equity method Financial assets at fair value through Financial assets at fair value through profit or loss, current profit or loss, current profit or loss, current profit or loss, current Financial assets at fair value through profit or loss, current profit or loss, current profit or loss, current profit or loss, current profit or loss, current profit or loss, current profit or loss, current Financial assets at fair value through Financial assets at fair value through Financial assets at fair value through Financial assets at fair value through Financial assets at fair value through Financial assets at fair value through ------Relationship Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Name of securities (SAMOA) B.V. CO., LTD. HOLDING CORP. AG Stock UMCI LTD. StockStock UMC CAPITAL CORP. UNITED MICROELECTRONICS CORP. Stock UNITED MICROELECTRONICS (EUROPE) StockStock SILICONWARE PRECISION INDUSTRIES Stock YANG MING MARINE TRANSPORT CORP. UMC GROUP (USA) Stock CHINA DEVELOPMENT FINANCIAL Stock PROMOS TECHNOLOGIES INC. Stock ACTION ELECTRONICS CO., LTD. StockStock L&K ENGINEERING CO., LTD. MICRONAS SEMICONDUCTOR HOLDING Type of securities Convertible bonds QUANTA STORAGE INC. Convertible bonds EDOM TECHNOLOGY CO., LTD. Convertible bonds TOPOINT TECHNOLOGY CO., LTD. Convertible bonds FIRICH ENTERPRISES CO., LTD Convertible bonds TATUNG CO. Convertible bonds CHANG WAH ELECTRONMATERIALS INC. ATTACHMENT 3 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION
162 Financial Review Unconsolidated collateral Shares as (thousand) 321 None 53,710 None 82,750 None 81,402 None 225,624 None 896,486 None 128,667 None 167,217 None 959,542 None 4,382,181 None Market value/ Net assets value 18.97 21.80 24.45 3,282,569 None 49.99 131,879 None 16.60 81.76 42.00 16.48 45.00 2,699,491 None 11.86 19.89 9,096,376 None 50.09 3,480,760 None 49.94 17.63 36.49 4,532,186 None 17.27 99.99 11,711,305 None Percentage of ownership (%) 321 53,710 57,062 81,402 225,624 341,268 878,747 127,379 128,667 167,217 959,542 December 31, 2006
496 5,949,999 8,758 4,000 9,883 16,200 28,500 24,229 51,939 30,000 33,624 4,674,311 18,460 64,313 21,000 55,611 4,382,181 202,367 9,096,376 600,000499,994 $6,999,737 11,114,198 100.00 $6,999,737 None (thousand) Book value bonds/ shares Units (thousand)/ - 2,699,491 Financial statement account under the equity method noncurrent under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method noncurrent Available-for-sale financial assets, under the equity method under the equity method under the equity method Available-for-sale financial assets, noncurrent noncurrent under the equity method under the equity method Available-for-sale financial assets, Available-for-sale financial assets, - - - - Relationship Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee companyInvestee company Long-term investments accounted for Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Name of securities CORP. CORP. MTIC HOLDINGS PTE LTD. PIXTECH, INC. Fund MEGA MISSION LIMITED PARTNERSHIP Investee company Long-term investments accounted for StockStock UNIMICRON TECHNOLOGY CORP. StockStock XGI TECHNOLOGY INC. AMIC TECHNOLOGY CORP. Stock HIGHLINK TECHNOLOGY CORP. Stock ITE TECH. INC. Stock Stock HOLTEK SEMICONDUCTOR INC. Stock UMC JAPAN Stock PACIFIC VENTURE CAPITAL CO., LTD. Investee company Long-term investments accounted for Stock HSUN CHIEH INVESTMENT CO., LTD. Stock UNITED FU SHEN CHEN TECHNOLOGY Stock UNITECH CAPITAL INC. Stock FARADAY TECHNOLOGY CORP. StockStock TLC CAPITAL CO., LTD. Stock FORTUNE VENTURE CAPITAL CORP. UNITED MICRODISPLAY OPTRONICS Type of securities ATTACHMENT 3 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION
163 United Microelectronics Corporation | Annual Report 2006 collateral Shares as (thousand) Note None Note None Note None Note None Note None 22,197 None 24,676 None 31,116 None 520,658 None 359,412 None 952,216 None 245,705 None 3,545,441 None 2,289,065 None 5,048,091 None Market value/ Net assets value 4.78 4.40 4.15 3.21 2.63 1.03 0.86 0.51 0.02 7.80 4.95 4.79 1.55 Percentage of ownership (%) 22,197 24,676 31,116 520,658 359,412 952,216 245,705 146,250 172,800 December 31, 2006 9,467 3,083 2,048 1,753 1,057 60,073 8,860,711 11.54 8,860,711 None 37,221 1,155,725 10.06 1,155,725 None 12,330 35,008 14,979 5,048,091 78,266 3,545,441 95,577 2,289,065 28,500 - 11.11 13,185 11,520 11,001 - 4.56 228,956 $4,556,222 16.09 $4,556,222 None 118,303 1,139,196 (thousand) Book value bonds/ shares Units (thousand)/ Financial statement account noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Available-for-sale financial assets, noncurrent noncurrent noncurrent noncurrent Available-for-sale financial assets, noncurrent noncurrent noncurrent Available-for-sale financial assets, Available-for-sale financial assets, noncurrent Available-for-sale financial assets, noncurrent Available-for-sale financial assets, noncurrent Available-for-sale financial assets, Available-for-sale financial assets, Financial assets measured at cost, Available-for-sale financial assets, Financial assets measured at cost, Financial assets measured at cost, Available-for-sale financial assets, Financial assets measured at cost, Available-for-sale financial assets, Financial assets measured at cost, Available-for-sale financial assets, ------Relationship N Name of securities Stock SILICON INTEGRATED SYSTEMS CORP. The Company's director Available-for-sale financial assets, Stock NOVATEK MICROELECTRONICS CORP. Stock EPITECH TECHNOLOGY CORP. Stock SPRINGSOFT, INC. Stock C-COM CORP. Stock CHIPBOND TECHNOLOGY CORP. Stock KING YUAN ELECTRONICS CO., LTD. Stock BILLIONTON SYSTEMS INC. Stock MEDIATEK INC. Stock AU OPTRONICS CORP. Stock MEGA FINANCIAL HOLDING COMPANY Stock RECHI PRECISION CO., LTD. Stock HON HAI PRECISION INDUSTRY CO., LTD. Stock SINO-AEROSPACE INVESTMENT CORP. Stock UNITED INDUSTRIAL GASES CO., LTD. Stock INDUSTRIAL BANK OF TAIWAN CORP. Stock SUBTRON TECHNOLOGY CO., LTD. Stock TECO NANOTECH CO. LTD. Type of securities ATTACHMENT 3 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATIO
164 Financial Review Unconsolidated collateral collateral Shares as Shares as (thousand) (thousand) N/A None N/A None N/A None N/A None 32,622 None 33,531 None 32,905 None 17,224 None 54,301 None 10,133 None 11,976 None 37,429 None 37,081 None $743,210 None Market value/ Market value/ Net assets value Net assets value Percentage of Percentage of ownership (%) ownership (%) 11,976 40.00 32,62233,531 49.00 42,288 44.29 42.38 17,224 36.54 88,13437,429 26.00 25.15 12,61088,093 35.80 30.00 85,080 - 161,154 - 300,000 - $280,846 - $743,210 100.00 December 31, 2006 December 31, 2006 800 3,920 5,200 4,493 2,500 6,000 4,000 10,187 11,285 10,212 80,000 30,000 (thousand) Book value (thousand) Book value bonds/ shares bonds/ shares Units (thousand)/ Units (thousand)/ - - Financial statement account Financial statement account under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method noncurrent noncurrent noncurrent noncurrent Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, - - - - Relationship Relationship Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Name of securities Name of securities Fund PACIFIC TECHNOLOGY PARTNERS, L.P. Fund PACIFIC UNITED TECHNOLOGY, L.P. StockStock NEXPOWER TECHNOLOGY CORP. STAR SEMICONDUCTOR CORP. StockStock UNITRUTH INVESTMENT CORP. Stock ANOTO TAIWAN CORP. Stock UWAVE TECHNOLOGY CORP. UCA TECHNOLOGY INC. StockStock TERA XTAL TECHNOLOGY CORP. CRYSTAL MEDIA INC. Stock WALTOP INTERNATIONAL CORP. Type of securities Type of securities Stock-Preferred stock AEVOE INTERNATIONAL LTD. Stock-Preferred stock TAIWAN HIGH SPEED RAIL CORP. Stock-Preferred stock MTIC HOLDINGS PTE LTD. ATTACHMENT 3 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION FORTUNE VENTURE CAPITAL CORP.
165 United Microelectronics Corporation | Annual Report 2006 collateral Shares as (thousand) 435 None Note None Note None Note None Note None Note None Note None Note None Note None 50,949 None 23,889 None 26,912 None 19,288 None 17,869 None 38,327 None 38,502 None $35,960 None 119,225 None Market value/ Net assets value 0.04 Percentage of ownership (%) 755 52,71136,806 21.45 34,349 21.42 19,288 21.21 20,983 20.84 47,559 19.41 18.10 66,50021,600 19.00 60,848 17.05 16,663 16.07 24,344 14.94 46,953 14.06 13.22 32,187 11.83 $37,525 23.57 176,797 19.64 119,225 17.08 142,030 19.89 December 31, 2006 55 9,045 3,646 6,033 3,500 5,000 5,457 4,525 6,650 2,268 4,340 2,660 3,340 4,230 6,281 17,675 23,405 12,848 (thousand) Book value bonds/ shares Units (thousand)/ Financial statement account Financial assets measured at cost, noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method noncurrent Long-term investments accounted for under the equity method noncurrent Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, ------Fortune Fortune Fortune Relationship Investee companyInvestee company Long-term investments accounted for Investee company Long-term investments accounted for Long-term investments accounted for Investee companyInvestee company Long-term investments accounted for Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee of UMC and Investee of UMC and Investee of UMC and Name of securities StockStock KUN YUAN TECHNOLOGY CO., LTD. Stock CION TECHNOLOGY CORP. Stock HITOP COMMUNICATIONS CORP. Stock LIGHTUNING TECH. INC. Stock CHIP ADVANCED TECHNOLOGY INC. UWIZ TECHNOLOGY CO., LTD. StockStock SMEDIA TECHNOLOGY CORP. Stock USBEST TECHNOLOGY INC. Stock AFA TECHNOLOGY, INC. Stock ALLIANCE OPTOTEK CORP. Stock U-MEDIA COMMUNICATIONS, INC. Stock MOBILE DEVICES INC. Stock HIGH POWER LIGHTING CORP. Stock AMIC TECHNOLOGY CORP. XGI TECHNOLOGY INC. Stock HIGHLINK TECHNOLOGY CORP. Stock BCOM ELECTRONICS INC. Stock DAVICOM SEMICONDUCTOR, INC. Type of securities ATTACHMENT 3 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) FORTUNE VENTURE CAPITAL CORP.
166 Financial Review Unconsolidated collateral Shares as (thousand) Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Market value/ Net assets value 6.85 6.67 6.28 6.00 5.03 9.61 9.50 7.94 7.88 7.00 Percentage of ownership (%) 17,306 76,640 13,600 15,000 15,964 21,87527,160 10.23 85,291 10.06 47,880 62,500 37,156 36,18049,280 10.80 10,421 10.67 10.60 $11,891 12.02 105,000 113,017 10.36 December 31, 2006 1,700 8,000 2,000 1,500 6,009 70,179 1,742 5.67 2,500 4,284 8,529 2,660 5,000 4,198 3,487 1,080 5,040 1,060 10,500 11,434 (thousand) Book value bonds/ shares Units (thousand)/ Financial statement account Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Financial assets measured at cost, Financial assets measured at cost, noncurrent noncurrent Financial assets measured at cost, Financial assets measured at cost, noncurrent noncurrent noncurrent noncurrent noncurrent Financial assets measured at cost, noncurrent noncurrent noncurrent noncurrent noncurrent Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, ------Relationship Name of securities LTD. CAPITAL INVESTMENT CORP. CO., LTD. CAPITAL INVESTMENT CORP. CAPITAL INVESTMENT CORP. StockStock ACTI CORP. Stock RISELINK VENTURE CAPITAL CORP. Stock NCTU SPRING VENTURE CAPITAL CO., Stock HIGH POWER OPTOELECTRONICS, INC. Stock SIMPAL ELECTRONICS CO., LTD. COSMOS TECHNOLOGY VENTURE StockStock EVERGLORY RESOURCE TECHNOLOGY Stock NCTU SPRING I TECHNOLOGY VENTURE Stock EXCELLENCE OPTOELECTRONICS INC. Stock JMICRON TECHNOLOGY CORP. Stock ANDES TECHNOLOGY CORP. Stock CHINGIS TECHNOLOGY CORP. SHIN-ETSU HANDOTAI TAIWAN CO., LTD. StockStock VASTVIEW TECHNOLOGY INC. Stock YAYATECH CO., LTD. Stock GOLDEN TECHNOLOGY VENTURE Stock AMOD TECHNOLOGY CO., LTD. ADVANCE MATERIALS CORP. Type of securities ATTACHMENT 3 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) FORTUNE VENTURE CAPITAL CORP.
167 United Microelectronics Corporation | Annual Report 2006 collateral Shares as (thousand) N/A None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Market value/ Net assets value 4.08 3.98 3.08 2.93 5.00 4.90 4.85 4.72 4.65 4.11 3.88 4.89 4.00 Percentage of ownership (%) 4,224 2,457 22,200 3.16 11,325 16,391 22,178 15,086 26,742 14,165 76,142 3.81 39,051 3.45 32,000 24,931 225,000 $41,900 102,459 December 31, 2006 409 540 1,480 5,000 1,750 5,000 2,450 1,300 1,249 3,930 1,183 1,200 - 4.00 9,317 7,614 (thousand) Book value bonds/ shares Units (thousand)/ 1,750 1,504 - Financial statement account Financial assets measured at cost, Financial assets measured at cost, noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Financial assets measured at cost, Financial assets measured at cost, noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, ------Relationship Name of securities CO., LTD. INC. Fund IGLOBE PARTNERS FUND, L.P. StockStock ANIMATION TECHNOLOGIES INC. Stock SUPERALLOY INDUSTRIAL CO., LTD. CHIPSENCE CORP. StockStock PARAWIN VENTURE CAPITAL CORP. Stock MEMOCOM CORP. LUMITEK CORP. StockStock WAVEPLUS TECHNOLOGY CO., LTD. FORTUNE SEMICONDUCTOR CORP. StockStock SUBTRON TECHNOLOGY CO., LTD. IBT VENTURE CORP. StockStock EE SOLUTIONS, INC. Stock TRENDCHIP TECHNOLOGIES CORP. Stock GIGA SOLUTION TECH. CO., LTD. Stock BEYOND INNOVATION TECHNOLOGY PROSYS TECHNOLOGY INTEGRATION, Stock PRINTECH INTERNATIONAL INC. Type of securities ATTACHMENT 3 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) FORTUNE VENTURE CAPITAL CORP.
168 Financial Review Unconsolidated collateral Shares as (thousand) N/A None N/A None N/A None Note None Note None Note None Note None Note None 5,536 None 21,004 None 69,827 None 16,560 None 50,930 None 63,846 None 27,600 None 446,914 None 407,627 None Market value/ Net assets value 0.99 2.50 1.84 1.83 1.68 Percentage of ownership (%) 5,536 0.02 9,342 21,004 0.12 69,827 1.26 16,560 3.40 50,930 3.17 63,846 0.74 27,600 5.89 46,313 - 59,317 - $9,950 24,419 16,095 15,590 446,914 0.12 407,627 3.55 December 31, 2006 8 178 959 162 - 0.83 1,051 1,384 2,190 2,000 1,500 5,133 1,250 2,290 1,500 1,391 22,070 13,128 13,274 6,504,255 12.71 6,504,255 None (thousand) Book value bonds/ shares Units (thousand)/ - Financial statement account noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Financial assets measured at cost, noncurrent noncurrent Financial assets measured at cost, noncurrent noncurrent Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Financial assets measured at cost, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Available-for-sale financial assets, Available-for-sale financial assets, Financial assets measured at cost, ------Relationship Investor company Available-for-sale financial assets, Name of securities INC. TECHNOLOGY INC. Fund CRYSTAL INTERNET VENTURE FUND II StockStock SIMPLO TECHNOLOGY CO., LTD. ATHEROS COMMUNICATION INC. StockStock AIMTRON TECHNOLOGY, INC. Stock TOPOINT TECHNOLOGY CO., LTD. Stock CHIPBOND TECHNOLOGY CORP. UNITED MICROELECTRONICS CORP. Stock AVERLOGIC TECHNOLOGIES CORP. StockStock UNITED ORTHOPEDIC CORP. EPITECH TECHNOLOGY CORP. Stock PIXART IMAGING INC. Stock ARCADIA DESIGN SYSTEMS (TAIWAN), StockStock SHENG-HUA VENTURE CAPITAL CORP. Stock ADVANCED CHIP ENGINEERING Stock TAIMIDE TECHNOLOGY INC. RALINK TECHNOLOGY CORP. Type of securities Stock-Preferred stock ALPHA & OMEGA SEMICONDUCTOR LTD. Stock-Preferred stock AURORA SYSTEMS, INC. ATTACHMENT 3 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) FORTUNE VENTURE CAPITAL CORP.
169 United Microelectronics Corporation | Annual Report 2006 collateral collateral Shares as Shares as (thousand) (thousand) Note None Note None 28,166 None 36,314 None 395,317 None 168,408 None 615,960 None 138,221 None 357,901 None 118,849 None 323,324 None $33,600 None $202,390 None Market value/ Market value/ Net assets value Net assets value 7.02 4.48 3.48 8.40 6.55 5.84 3.92 2.81 Percentage of Percentage of ownership (%) ownership (%) 99,220 18.46 36,314 - 395,317 168,408 615,960 134,999 11.62 100,000 479,250 357,901 118,849 323,324 $33,600 - $202,390 44.44 December 31, 2006 December 31, 2006 300 258 0.20 7,084 5,430 6,192 5,220 17,460 10,000 10,650 20,163 16,858 10,413 (thousand) Book value (thousand) Book value bonds/ shares bonds/ shares Units (thousand)/ Units (thousand)/ Financial statement account Financial statement account under the equity method under the equity method noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent under the equity method profit or loss, noncurrent profit or loss, noncurrent Financial assets at fair value through Financial assets at fair value through Financial assets measured at cost, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Financial assets measured at cost, ------Relationship Relationship Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee of UMC and TLC Long-term investments accounted for . Name of securities Name of securities Stock SMEDIA TECHNOLOGY CORP. Stock HIGHLINK TECHNOLOGY CORP. StockStock ASIA PACIFIC MICROSYSTEMS, INC. Stock SUPERALLOY INDUSTRIAL CO., LTD. Stock TOPOINT TECHNOLOGY CO., LTD. Stock RECHI PRECISION CO., LTD. Stock SERCOMM CORP. Stock HORIZON SECURITIES CO., LTD. Stock SIMPLO TECHNOLOGY CO., LTD. EPITECH TECHNOLOGY CORP. Stock YUNG LI INVESTMENTS, INC. Type of securities Type of securities Convertible bonds ALPHA NETWORKS INC. Convertible bonds TOPOINT TECHNOLOGY CO., LTD. ATTACHMENT 3 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) TLC CAPITAL CO., LTD. FORTUNE VENTURE CAPITAL CORP
170 Financial Review Unconsolidated collateral Shares as (thousand) 7,785 None 8,340 None 54,365 None 49,840 None 33,582 None 32,800 None 12,64816,065 None 30,253 None None 36,256 None 31,120 None 86,520 None 83,16040,018 None 62,265 None None 353,936 None 254,102 None 557,019 None $163,196 None Market value/ Net assets value 2.16 0.15 0.08 0.11 0.10 0.74 0.27 0.23 0.23 0.96 0.90 0.59 0.54 0.41 0.91 Percentage of ownership (%) 7,785 8,340 54,365 49,840 33,582 0.18 32,800 12,648 16,065 30,253 36,256 0.17 31,120 83,160 40,018 62,265 86,520 0.23 254,102 353,936 0.21 557,019 $163,196 December 31, 2006 566 300 400 800 950 500 248 895 343 800 2,060 6,007 3,300 4,764 1,050 4,085 23,596 14,000 38,152 (thousand) Book value bonds/ shares Units (thousand)/ Financial statement account Available-for-sale financial assets, Available-for-sale financial assets, noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Available-for-sale financial assets, noncurrent noncurrent noncurrent Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, ------Relationship Name of securities CONSTRUCTION CO., LTD. CORP. CORP. HOLDING CORP. LTD. StockStock KEE TAI PROPERTIES CO., LTD. Stock YUNGTAY ENGINEERING CO., LTD. TAIWAN FERTILIZER CO., LTD. StockStock GOLDSUN DEVELOPMENT& KINSUS INTERCONNECT TECHNOLOGY Stock SHIHLIN ELECTRIC & ENGINEERING Stock CHINA DEVELOPMENT FINANCIAL StockStock CORETRONIC CORP. Stock INPAQ TECHNOLOGY CO., LTD. Stock HUNG SHENG CONSTRUCTION LTD. Stock ORIENT SEMICONDUCTOR ELECTRONICS, Stock ALI CORP. Stock POWERTECH INDUSTRIAL CO., LTD. Stock CHINA ELECTRIC MFG. CORP. Stock CHONG HONG CONSTRUCTION CO., LTD. HANNSTAR DISPLAY CORP. StockStock AVERMEDIA TECHNOLOGIES, INC. Stock SYSTEX CORP. TATUNG CO. Type of securities ATTACHMENT 3 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) TLC CAPITAL CO., LTD.
171 United Microelectronics Corporation | Annual Report 2006 collateral collateral Shares as Shares as (thousand) (thousand) 1,095 None 3,150 None 7,800 None 4,604 None 43,600 None 53,485 None 39,500 None 18,797 None 13,220 None 32,614 None 293,250 None $12,360 None $12,789 None Market value/ Market value/ Net assets value Net assets value - - - 0.07 9.00 8.88 0.07 0.06 Percentage of Percentage of ownership (%) ownership (%) 1,095 0.01 3,150 0.06 7,800 0.03 4,604 43,600 0.02 39,500 20,816 13,220 53,485 32,614 293,250 $12,789 $29,364 10.00 December 31, 2006 December 31, 2006 40 100 380 580 800 150 500 1,600 2,500 1,000 2,000 1,800 1,587 (thousand) Book value (thousand) Book value bonds/ shares bonds/ shares Units (thousand)/ Units (thousand)/ Financial statement account Financial statement account Financial assets at fair value through Financial assets at fair value through Financial assets at fair value through profit or loss, noncurrent Available-for-sale financial assets, noncurrent noncurrent profit or loss, noncurrent profit or loss, noncurrent Available-for-sale financial assets, noncurrent noncurrent noncurrent noncurrent noncurrent under the equity method under the equity method under the equity method Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, ------Relationship Relationship Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Name of securities Name of securities TECHNOLOGY CORP. COMPANY LTD. CORP. Stock TA CHONG BANK LTD. Stock CHINA INSURANCE INTL Stock YULON MOTOR CO., LTD. StockStock NANTEX INDUSTRY.CO.,LTD. Stock FAR EASTERN INTERNATIONAL BANK CHINATRUST FINANCIAL HOLDING Stock PRINCE HOUSING & DEVELOPMENT StockStock WALTOP INTERNATIONAL CORP. Stock TERA XTAL TECHNOLOGY CORP. CRYSTAL MEDIA INC. Type of securities Type of securities Convertible bonds EPITECH TECHNOLOGY CORP. Convertible bonds TOPOINT TECHNOLOGY CO., LTD. Convertible bonds SOLAR APPLIED MATERIALS ATTACHMENT 3 (Securities held as of December 31, 2006) UNITRUTH INVESTMENT CORP. (Amount in thousand; Currency denomination NTD unless otherwise specified) TLC CAPITAL CO., LTD.
172 Financial Review Unconsolidated collateral Shares as (thousand) Note None Note None Note None Note None Note None Note None Note None 4,621 None 4,822 None 2,193 None 4,093 None 3,292 None 3,960 None $9,996 None 10,217 None 10,376 None 10,788 None Market value/ Net assets value 4.90 9.30 7.88 6.70 4.90 3.31 7.18 6.03 5.11 4.91 5.95 5.21 4.65 4.45 4.35 3.55 5.83 Percentage of ownership (%) 7,920 7,840 4,822 2,193 4,093 3,292 3,960 3,059 16,415 17,085 12,875 10,788 63,739 25,850 62,427 10,500 $12,758 December 31, 2006 930 490 1,300 2,570 1,585 1,250 1,225 1,300 1,250 1,000 1,000 1,760 6,374 1,748 1,386 5,637 1,200 (thousand) Book value bonds/ shares Units (thousand)/ Financial statement account Financial assets measured at cost, under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method Long-term investments accounted for under the equity method noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, ------Unitruth Relationship Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee companyInvestee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee of UMC and Name of securities CO., LTD. StockStock ALLIANCE OPTOTEK CORP. Stock SMEDIA TECHNOLOGY CORP. Stock UCA TECHNOLOGY INC. Stock U-MEDIA COMMUNICATIONS, INC. Stock HIGH POWER LIGHTING CORP. Stock STAR SEMICONDUCTOR CORP. Stock MOBILE DEVICES INC. Stock UWAVE TECHNOLOGY CORP. Stock AFA TECHNOLOGY, INC. Stock XGI TECHNOLOGY INC. Stock AMOD TECHNOLOGY CO., LTD. Stock EXCELLENCE OPTOELECTRONICS INC. Stock VASTVIEW TECHNOLOGY INC. Stock CHIP ADVANCED TECHNOLOGY INC. Stock ADVANCE MATERIALS CORP. Stock EVERGLORY RESOURCE TECHNOLOGY YAYATECH CO., LTD. Type of securities ATTACHMENT 3 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITRUTH INVESTMENT CORP.
173 United Microelectronics Corporation | Annual Report 2006 collateral Shares as (thousand) Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None 14,932 None Market value/ Net assets value 2.98 4.72 3.98 4.89 4.85 4.79 4.73 4.59 4.30 4.01 3.62 Percentage of ownership (%) 5,262 2,457 5,000 2.00 5,889 1.52 8,844 11,100 14,755 31,218 16,317 13,747 13,416 17,747 12,256 2.13 14,570 1.57 72,000 0.98 14,932 3.19 $32,000 December 31, 2006 840 540 740 500 910 1,750 1,300 1,340 2,518 1,470 1,138 2,005 1,361 1,801 1,300 1,600 1,082 (thousand) Book value bonds/ shares Units (thousand)/ Financial statement account Financial assets measured at cost, Financial assets measured at cost, noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Available-for-sale financial assets, Financial assets measured at cost, ------Relationship Name of securities StockStock LUMITEK CORP. Stock EE SOLUTIONS, INC. Stock JMICRON TECHNOLOGY CORP. Stock CHINGIS TECHNOLOGY CORP. Stock LIGHTUNING TECH. INC. Stock UWIZ TECHNOLOGY CO., LTD. Stock TRENDCHIP TECHNOLOGIES CORP. Stock MEMOCOM CORP. Stock PRINTECH INTERNATIONAL INC. Stock FORTUNE SEMICONDUCTOR CORP. Stock ACTI CORP. Stock GIGA SOLUTION TECH. CO., LTD. Stock HIGH POWER OPTOELECTRONICS, INC. Stock RALINK TECHNOLOGY CORP. Stock CHIPSENCE CORP. Stock SUPERALLOY INDUSTRIAL CO., LTD. UNITED ORTHOPEDIC CORP. Type of securities ATTACHMENT 3 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITRUTH INVESTMENT CORP.
174 Financial Review Unconsolidated collateral collateral Shares as Shares as (thousand) (thousand) N/A None N/A None N/A None N/A None N/A None N/A None N/A None $53,485 None Market value/ Market value/ Net assets value Net assets value Percentage of Percentage of ownership (%) ownership (%) $53,485 - December 31, 2006 December 31, 2006 380 200 USD 326 100.00 USD 326 None 508 USD 948 44.44 USD 415 None 1,000 USD 1,5505,0003,125 100.00 USD 3,7722,537 USD 2,016 USD 1,5502,000 35.45 USD 1,281 None - 1,649 23.30 USD 1,000 USD 3,772 - 1,678 USD 1,436 None USD 1,113 - 1,571 USD 2,000 None - 5,235 USD 1,000 - USD 4,381 - 10,066 USD 4,053 - (thousand) Book value (thousand) Book value bonds/ shares bonds/ shares Units (thousand)/ Units (thousand)/ Financial statement account Financial statement account profit or loss, noncurrent under the equity method under the equity method under the equity method under the equity method under the equity method noncurrent Financial assets measured at cost, noncurrent noncurrent Financial assets measured at cost, noncurrent noncurrent Financial assets measured at cost, noncurrent Financial assets measured at cost, noncurrent Financial assets at fair value through Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, ------Relationship Relationship Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Name of securities Name of securities Fund UC FUND II StockStock UMC CAPITAL (USA) ECP VITA LTD. Type of securities Type of securities Convertible bonds TOPOINT TECHNOLOGY CO., LTD. Stock-Preferred stock ACHIEVE MADE INTERNATIONAL LTD.Stock-Preferred stock Investee company PARADE TECHNOLOGIES, LTD. Stock-Preferred stock Long-term investments accounted for MAXXAN SYSTEMS, INC. Stock-Preferred stock AICENT, INC. Stock-Preferred stock SPREADTRUM COMMUNICATIONS, INC. Stock-Preferred stock SILICON 7, INC. Stock-Preferred stock GCT SEMICONDUCTOR, INC. Stock-Preferred stock INTELLON CORP. Stock-Preferred stock FORTEMEDIA, INC. ATTACHMENT 3 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITRUTH INVESTMENT CORP. UMC CAPITAL CORP.
175 United Microelectronics Corporation | Annual Report 2006 collateral Shares as (thousand) N/AN/A None None N/A None N/A None N/A None N/A None N/A None N/A None N/A None N/A None N/A None N/A None N/A None N/A None N/A None Note None Note None Note None Market value/ Net assets value 0.00 Percentage of ownership (%) December 31, 2006 10 USD 1,186 - 31 USD 1,094 153 USD 1,596 - 550 USD 242 - 477 USD 3,000 - 720 - 18.00 0.59 - 0.00 2,7701,500 USD 4,820 - USD 3,375 - 2,0705,750 USD 4,052 - USD 6,500 - 4,0004,850 USD 4,000 - USD 4,850 - 1,471 USD 1,500 - 1,8004,373 USD 555 - USD 4,500 - 12,422 USD 3,000 - (thousand) Book value bonds/ shares Units (thousand)/ - USD 712 - t Financial statement account noncurrent noncurrent Financial assets measured at cost, noncurrent noncurrent noncurrent noncurrent noncurren noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Financial assets measured at cost, noncurrent Financial assets measured at cost, noncurrent noncurrent noncurrent Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, ------Relationship Name of securities Fund VENGLOBAL CAPITAL FUND III, L.P. Stock MAGNACHIP SEMICONDUCTOR LLC StockStock PATENTOP, LTD. KOTURA, INC. Type of securities Stock-Preferred stock ALPHA & OMEGA SEMICONDUCTOR LTD. Stock-Preferred stock AURORA SYSTEMS, INC. Stock-Preferred stock MAXLINEAR, INC. Stock-Preferred stock SMART VANGUARD LTD. Stock-Preferred stock WISAIR, INC. Stock-Preferred stock AMALFI SEMICONDUCTOR, INC. Stock-Preferred stock EAST VISION TECHNOLOGY LTD. Stock-Preferred stock VERIPRECISE TECHNOLOGY, INC. Stock-Preferred stock PACTRUST COMMUNICATION, INC. Stock-Preferred stock LUMINUS DEVICES, INC. Stock-Preferred stock REALLUSION HOLDING INC. Stock-Preferred stock DIBCOM, INC. Stock-Preferred stock FORCE10 NETWORKS, INC. Stock-Preferred stock QSECURE, INC. ATTACHMENT 3 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) UMC CAPITAL CORP.
176 Financial Review Unconsolidated ares as collateral Sh (thousand) N/A None N/A None Market value/ Net assets value Percentage of ownership (%) December 31, 2006 301 - - 750 - - d)/ ousan (th s (thousand) Book value it bonds/ shares n U able as of December 31, 2006. Financial statement account Financial assets measured at cost, noncurrent noncurrent Financial assets measured at cost, - - Relationship Name of securities Type of securities Stock-Preferred stock TERABURST NETWORKS Stock-Preferred stock ZYLOGIC SEMICONDUCTOR CORP. ATTACHMENT 3 (Securities held as of December 31, 2006) Note : The net asset values for unlisted investees classified as "Financial assets measured at cost, noncurrent" were not avail (Amount in thousand; Currency denomination NTD unless otherwise specified) UMC CAPITAL CORP.
177 United Microelectronics Corporation | Annual Report 2006 - - - $- 276,202 329,464 353,072 5,048,091 (Note1) Amount - - - - 402 52,863 14,979 Ending balance (Note6) (Note7) (Note8) (Note10) bonds/ Units (thousand)/ shares (thousand) (Note9) (Note 3) Gain (Loss) from disposal - - 23,538 270,120 21,594 322,200 111,927 152,778 (8,436) 1,000 34,485 Cost $271,600 $38,284 (Note 2) Disposal (Note4) (Note4) (Note4) (Note5) Amount 800 $309,884 580 78,464 65,879 12,585 6,150 292,416 243,280 49,136 5,395 bonds/ - - - - 16,270 Units (thousand)/ shares (thousand) -- 8,000 291,714 10,000 434,127 - 37,872 581,041 456,571 124,470 - 42,407 14,259,393 458,508 13,771,261 $- (Note4) (Note4) Amount - - - - Addition 982 111,540 bonds/ Units (thousand)/ shares (thousand) percent of capital stock for the year ended December 31, 2006) (Note1) Amount 800 $340,912 8,000 310,099 4,500 144,191 1,000 32,5783,700 170,385 4,500 144,342 6,832 291,714 10,000 402,375 37,872 565,344 53,916 20,865,597 - Beginning balance bonds/ Units (thousand)/ shares (thousand) ------14,791 - 434,127 526,750 - - - 6,831,114 23,200 49,376 298,433 - - 709,895 640,329 69,566 477,374 6,778,711 Relationship Counter-party KING YUAN ELECTRONICS CO., LTD. SILICONWARE PRECISION INDUSTRIES CO., LTD. ACTION ELECTRONICS CO., LTD. QUANTA STORAGE INC. Open market Open market SILICONWARE PRECISION INDUSTRIES CO., LTD. ACTION ELECTRONICS CO., LTD. Open market Open market Open market account Financial statement Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, current Available-for- sale financial assets, noncurrent Name of the securities LTD. PRECISION INDUSTRIES CO., LTD. ELECTRONICS CO., LTD. TECHNOLOGIES INC. DEVELOPMENT FINANCIAL HOLDING CORP. KING YUAN ELECTRONICS CO., LTD. SILICONWARE PRECISION INDUSTRIES CO., LTD. ACTION ELECTRONICS CO., LTD. QUANTA STORAGE INC. TATUNG CO. Stock SAMSON HOLDING Stock SILICONWARE Stock ACTION Stock PROMOS Stock CHINA Stock MEDIATEK INC. bonds bonds bonds bonds bonds Type of securities Convertible Convertible Convertible Convertible Convertible ATTACHMENT 4 (Individual securities acquired or disposed of with accumulated amount exceeding the lower NT$100 million 20 (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION 178 Financial Review Unconsolidated - 31,116 - ,155,725 $952,216 (Note1) Amount - 33,624 4,674,311 Ending balance (Note11) (Note12) bonds/ - Units (thousand)/ shares (thousand) $- 35,008 (Note16) (Note17) (Note 3) Gain (Loss) from disposal $- 27,964 216,965 - - Cost (Note 2) $- Disposal 244,929 (Note14) Amount (Note13) bonds/ - - - - - 1,057 245,705 Units (thousand)/ shares (thousand) - 58,500 - 6,521,580 5,865,917 106,621 13,152,475 1,279,449 1,053,204 197,633 (Note4) (Note14) Amount Addition 9,653 $309,884 bonds/ - Units (thousand)/ shares (thousand) percent of capital stock for the year ended December 31, 2006) (Note15) (Note1) Amount 3,497 154,043 - - 3,602 4,810 206,830 - - 4,810 192,400 207,482 (15,082) - 23,040 $828,272 23,729 716,630 12,412 13,492 331,400 - - 296,823 - - - 12,677 - 223,636 37,221 205,245 1 18,391 44,530 1,753 1,202,310 - - 92,124 44,530 (3,169,837) 1,113,250 1,201,794 (88,544) - 106,621 1,063,671 - Beginning balance bonds/ Units (thousand)/ shares (thousand) ------1,057 - 244,929 - - Relationship Counter-party KING YUAN ELECTRONICS CO., LTD. Proceeds from new issues Open market PREMIER IMAGE TECHNOLOGY CORP. HON HAI PRECISION INDUSTRY CO., LTD. CHINATRUST FINANCIAL HOLDING CO., LTD. TAIWAN CEMENT CORP. HSIEH YONG CAPITAL CO., TOPPAN PHOTOMASKS TAIWAN LTD. account Financial statement Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Name of the securities ELECTRONICS CO., LTD. TECHNOLOGY CORP. CO., LTD. TECHNOLOGY CORP. PRECISION INDUSTRY CO., LTD. INVESTMENT CO., LTD. PHOTOMASKS TAIWAN LTD. CHINATRUST FINANCIAL HOLDING CO., LTD. TAIWAN CEMENT CORP. Stock KING YUAN Stock EPITECH Stock RECHI PRECISION Stock PREMIER IMAGE Stock HON HAI Stock HSUN CHIEH Stock TOPPAN Stock- Stock- Type of securities ATTACHMENT 4 (Individual securities acquired or disposed of with accumulated amount exceeding the lower NT$100 million 20 Preferred stock Preferred stock (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION 179 United Microelectronics Corporation | Annual Report 2006 ) Note21 (Note18) (Note19) (Note20) (Note22) ( 2,699,491 (Note1) Amount - 496 5,949,999 Ending balance (Note22) bonds/ Units (thousand)/ shares (thousand) - - 124,000 3,613,491 - - 600,000 6,999,737 (Note 3) Gain (Loss) from disposal - - - - $- $- 28,500 $225,624 Cost (Note 2) - - - - $- Disposal Amount - - - - bonds/ Units (thousand)/ shares (thousand) 2,222,100 Amount - 12 132,462 Addition (Note22) bonds/ Units (thousand)/ shares (thousand) percent of capital stock for the year ended December 31, 2006) gnition and Measurement'', is applied. (Note1) Amount 29,624) thousand. ofit or loss" on the balance sheet. sale are recorded at the prevailing market prices. fit or loss" on the balance sheet. 484 6,341,144 the valuation of financial assets. 74,000 2,051,350 50,000 1,665,000 300,000 2,991,258 300,000 3,000,000 Beginning balance bonds/ Units (thousand)/ shares (thousand) - - - $- - 28,500 $285,000 - - - - - Relationship Counter-party Proceeds from new issues Open market Proceeds from new issues Proceeds from new issues Proceeds from new issues account Financial statement Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Name of the securities TECHNOLOGY CORP. LTD. CORP. LIMITED PARTNERSHIP Fund MEGA MISSION Stock HIGHLINK Stock UMC JAPAN Stock TLC CAPITAL CO., Stock UMC CAPITAL Type of securities ATTACHMENT 4 (Individual securities acquired or disposed of with accumulated amount exceeding the lower NT$100 million 20 Note 1: The amounts of beginning and ending balances financial assets at fair value through profit or loss available for As for the gain/loss from disposal of financial assets at fair value through profit/loss transfers to on Note 4: Exercise of conversion rights the Company's convertible bond classified as "Financial asset at fair value through pr Note 10: The ending balance includes stock dividend of 3,470 thousand shares. Note 2: The disposal cost represents historical . Note 3: Gain/Loss from disposal includes realized exchange gain/loss to which the ROC SFAS No. 34, "Financial Instruments: Reco Note 5: Exercise of call back rights the Company's convertible bond classified as "Financial asset at fair value through pro Note 6: The ending balance includes stock dividend of 1,013 thousand shares. Note 7: The ending balance includes stock dividend of 1,479 thousand shares. Note 8: The ending balance includes stock dividend of 338 thousand shares. Note 9: The gain/loss on disposal of investment includes adjustments to long-term additional paid-in capital NT$( (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION 180 Financial Review Unconsolidated - - $- (Note3) (Note1) (Note1) Amount Amount - n Chieh of Ending balance Ending balance assets cial assets bonds/ bonds/ Units (thousand)/ Units (thousand)/ shares (thousand) shares (thousand) - 80,000 743,210 (Note2) (Note 3) Gain (Loss) Gain (Loss) from disposal from disposal - Cost Cost (Note 2) - Disposal Disposal Amount Amount - 255 218,469181 71,775 185,353 146,694 - 24,652 160,701 - bonds/ bonds/ Units (thousand)/ Units (thousand)/ shares (thousand) shares (thousand) $- 12,655 $240,451 $252,307 $(11,607) Amount Amount Addition Addition bonds/ bonds/ Units (thousand)/ Units (thousand)/ shares (thousand) shares (thousand) percent of capital stock for the year ended December 31, 2006) ore accounted for as treasury stock) of NT$20,137,403 thousand from the Company's long-term investment beginning balance in Hsu and long-term investment additional paid-in capital adjustment of NT$117 thousand. capital adjustment of NT$2,543 thousand, cumulative translation adjustments NT$10 thousand and unrealized gain on financial n capital adjustment of NT$1 thousand and cumulative translation adjustments NT$(114,685) thousand. capital adjustment of NT$930 thousand, cumulative translation adjustments NT$(55,147) thousand and unrealized gain on finan nd, cumulative translation adjustments of NT$(8,157) thousand, unrealized loss available for sale NT$(1,644,252) thousand. . (Note1) (Note1) Amount Amount NT$504,936 thousand and cumulative translation adjustments of NT$(27,545) thousand. 255 150,565 - - 181 176,419 - - 12,655 $252,307 - 40,000 366,683 40,000 400,000 Beginning balance Beginning balance bonds/ bonds/ Units (thousand)/ Units (thousand)/ shares (thousand) shares (thousand) - - - Subsidiary Relationship Relationship Counter-party Counter-party NVIDIA BVI HOLDINGS LTD. Proceeds from new issues Open market Open market account account Financial Financial statement statement Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Name of the securities Name of the securities INC. INVESTMENT CORP. MICROSYSTEMS, INC. TECHNOLOGY HOLDINGS, INC. Stock ULI ELECTRONICS Stock UNITRUTH Stock TRIDENT Stock SIRF Type of Type of securities securities ATTACHMENT 4 (Individual securities acquired or disposed of with accumulated amount exceeding the lower NT$100 million 20 Note 11: The ending balance includes stock dividend of 2,315 thousand shares. Note 12: The ending balance includes stock dividend of 2,018 thousand shares. Note 13: The disposal shares include stock dividend of 105 thousand shares. Note 14: On December 1, 2006, Premier Image Technology Corporation merged into Hon Hai Precision Industry Co., Ltd. Note 15: The ending balance of NT$(3,169,837) thousand is computed by deducting the Company's stocks held Hsun Chieh (theref NT$16,967,566 thousand. Note 16: The gain/loss on disposal includes long-term investment additional paid-in capital adjustments of NT$14,149,221 thousa Note 17: The gain/loss on disposal includes long-term investment additional paid-in capital adjustments of NT$(28,612) thousand Note 18: The ending balance includes impairment loss of NT$(7,774) thousand, long-term investment NT$(51,719) thousand Note 19: The ending balance includes long-term investment loss of NT$(408,923) thousand, additional paid-i Note 20: The ending balance includes long-term investment gain of NT$329,178 thousand, additional paid-in of NT$676,748 thousand. Note 21: The ending balance includes long-term investment loss of NT$(49,736) thousand, additional paid-in (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION of NT$1,094 thousand. Note 22: No shares since it belongs to partnership fund organization. The ending balance includes long-term investment loss of FORTUNE VENTURE CAPITAL CORP. 181 United Microelectronics Corporation | Annual Report 2006 ,627 Amount (Note1) 00 225,000 178 $21,004 Ending balance etained earning bonds/ Units (thousand)/ shares (thousand) Gain (Loss) from disposal Cost Disposal 111,552 93,633 17,919 - - 232,190 34,413 197,777 - - Amount 240 (Note4) (Note5) bonds/ Units (thousand)/ shares (thousand) Amount Addition 8,767 257,000 - - - - 13,128 407 bonds/ Units (thousand)/ shares (thousand) percent of capital stock for the year December 31, 2006) f NT$17,428 thousand due to disproportionate changes in shareholding, cumulative translation adjustments of NT$(99) thousand, r ket prices. - 5,000 225,000 - - - - 5,0 Amount (Note1) - 120 34,413 - - 5,000 133,500 - - 4,361 131,705 5,461 Beginning balance bonds/
Units (thousand)/ shares (thousand) - - - - $-- 1,518 $128,913- 1,340 $127,011 $113,977 $13,034 Relationship Counter-party Open market Open market Open market ANALOG DEVICES HOLDINGS B.V. Taiwan Special Opportunities Fund III / Proceeds from new issues account Financial statement Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Financial assets measured at cost, noncurrent Financial assets measured at cost, noncurrent Name of the securities TCHNOLOGY CO., LTD. CO., LTD. TECHNOLOGY CORP. INDUSTRIAL CO., LTD. INTEGRANT TECHNOLOGIES, INC. Stock SIMPLO Stock RECHI PRECISION Stock EPITECH Stock SUPERALLOY Stock- Type of securities ATTACHMENT 4 (Individual securities acquired or disposed of with accumulated amount exceeding the lower NT$100 million 20 Preferred stock adjustments of NT$246 thousand and unrealized loss available-for-sale financial assets NT$2,976 thousand. Note 4: The disposal shares includes stock dividend of 461 thousand shares. Note 5: 2 for 1 Stock splits. Note 1: The amounts of beginning and ending balances available-for-sale financial assets are recorded at the prevailing mar Note 2: The loss on disposal of investment includes cumulative translation adjustments NT$249 thousand. Note 3: The ending balance includes long-term investment loss of NT$(44,024) thousand, additional paid-in capital adjustments o (Amount in thousand; Currency denomination NTD unless otherwise specified) FORTUNE VENTURE CAPITAL CORP. 182 Financial Review Unconsolidated 54,365 353,936 254,102 $168,408 (Note1) Amount 566 Ending balance (Note3) (Note6) (Note7) (Note2) bonds/ Units (thousand)/ shares (thousand) - 23,596 - 10,413 323,324 - 6,007 20,058 - - 54,781 - - Gain (Loss) from disposal - - - (Note9) (Note5) Cost - - - Disposal 225,036 204,978 217,570 162,789 Amount - - - 300 30,403 25,617 4,786 5,220 615,960 900 86,560 76,347 10,213 (Note8) (Note4) bonds/ Units (thousand)/ shares (thousand) Amount Addition bonds/ Units (thousand)/ shares (thousand) - 1,741 211,155 1,909 - 23,025- 292,259 19,500- 238,307 19,500- 5,520 330,234 286,030 47,372- 583,045 238,307 10,413 47,723- 9,220 298,327 - - 123,401 4,208- 166,996 113,478 1,300- 9,923 4,460 126,049 38,152 5,983 245,799 557,019 percent of capital stock for the year December 31, 2006) (Note1) Amount - 2,867 $75,499 5,077 $126,954 2,600 $70,109 $59,874 $10,235 6,192 Beginning balance bonds/ ------
Units (thousand)/ shares (thousand) ------Relationship Counter-party Open market Open market Open market Open market / Private Open market Open market Open market Open market Open market Open market account Financial statement Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Name of the securities DEVELOPMENT FINANCIAL HOLDING CORP. TECHNOLOGIES INC. TECHNOLOGY CO., LTD. TECHNOLOGY CORP. INTERCONNECT TECHNOLOGY CORP. CORP. TECHNOLOGY CO., LTD. Stock SERCOMM CORP. Stock CHINA Stock PROMOS Stock SIMPLO Stock TATUNG CO. Stock EPITECH Stock TXC CORP. Stock KINSUS Stock CORETRONIC Stock A-DATA Type of securities ATTACHMENT 4 (Individual securities acquired or disposed of with accumulated amount exceeding the lower NT$100 million 20 (Amount in thousand; Currency denomination NTD unless otherwise specified) TLC CAPITAL CO., LTD.
183 United Microelectronics Corporation | Annual Report 2006 - $- 395,317 (Note12) (Note13) (Note1) Amount - - 0.20 202,390 Ending balance (Note11) bonds/ Units (thousand)/ shares (thousand) - - 7,084 99,220 - 10,000 - 100,000 10,650- 479,250 2,500 293,250 - 5,430 101,439 Gain (Loss) from disposal ------(Note10) Cost ------Disposal Amount ------927 36,788 33,239 3,549 4,085 163,196 bonds/ Units (thousand)/ shares (thousand) Amount Addition 0.20 200,000 2,778 145,609 bonds/ Units (thousand)/ shares (thousand) - 6,874 $102,424 6,874 $114,860 $102,424 $12,436 - 12,483 207,004 - 12,483 5,012 179,713 306,400 204,961 - 7,084- 106,266 - 10,000 100,000 - 10,650 479,250 - 2,500 250,000 percent of capital stock for the year December 31, 2006) (Note1) Amount ------2,263 144,832 Beginning balance bonds/ - -
Units (thousand)/ shares (thousand) ------Relationship Counter-party Open market Open market Open market Open market / Proceeds from new issues Proceeds from new issues Proceeds from new issues Proceeds from new issues Taiwan Special Opportunities Fund III / Proceeds from new issues Open market account Financial statement Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Financial assets measured at cost, noncurrent Financial assets measured at cost, noncurrent Financial assets at fair value through profit or loss, noncurrent Name of the securities CO., LTD. INTERNATIONAL CO., LTD. TECHNOLOGIES, INC. TECHNOLOGY CO., LTD. TECHNOLOGY CORP. INVESTMENTS, INC. MICROSYSTEMS, INC. INDUSTRIAL CO., LTD. EPITECH TECHNOLOGY CORP. Stock ELITE MATERIAL Stock POWER QUOTIENT Stock AVERMEDIA Stock TOPOINT Stock SMEDIA Stock YUNG LI Stock ASIA PACIFIC Stock SUPERALLOY bonds Type of securities Convertible ATTACHMENT 4 (Individual securities acquired or disposed of with accumulated amount exceeding the lower NT$100 million 20 (Amount in thousand; Currency denomination NTD unless otherwise specified) TLC CAPITAL CO., LTD.
184 Financial Review Unconsolidated (Note1) (Note1) Amount Amount Ending balance Ending balance bonds/ bonds/ Units (thousand)/ Units (thousand)/ shares (thousand) shares (thousand) $- 4,373 USD 4,500 Gain (Loss) Gain (Loss) from disposal from disposal $- Cost Cost $- Disposal Disposal Amount Amount - bonds/ bonds/ Units (thousand)/ Units (thousand)/ shares (thousand) shares (thousand) Amount Amount Addition Addition bonds/ bonds/ Units (thousand)/ Units (thousand)/ shares (thousand) shares (thousand) percent of capital stock for the year December 31, 2006) NT$11 thousand. (Note1) (Note1) Amount Amount sale are recorded at the prevailing market prices. Beginning balance Beginning balance bonds/ bonds/ - $- 4,373 USD 4,500 Units (thousand)/ Units (thousand)/ shares (thousand) shares (thousand) - Relationship Relationship Counter-party Counter-party Proceeds from new issues account account Financial Financial statement statement Financial assets measured at cost, noncurrent Name of the securities Name of the securities FORCE10 NETWORKS, INC. Stock- Type of Type of securities securities ATTACHMENT 4 (Individual securities acquired or disposed of with accumulated amount exceeding the lower NT$100 million 20 Preferred stock Note1: The amounts of beginning and ending balances financial assets at fair value through profit or loss available for Note2: The ending balance includes stock dividend of 848 thousand shares. Note3: The ending balance includes stock dividend of 571 thousand shares. Note4: The disposal shares include stock dividend of 252 thousand shares. Note5: The disposal cost includes cash dividend of NT$(4,207) thousand. Note6: The ending balance includes stock dividend of 166 thousand shares. Note7: The ending balance includes stock dividend of 24 thousand shares. Note8: The disposal shares include stock dividend of 168 thousand shares. Note9: The disposal cost includes cash dividend of NT$(6,177) thousand. Note10: The disposal cost includes cash dividend of NT$(2,043) thousand. Note11: The ending balance includes stock dividend of 389 thousand shares. Note12: The ending balance includes long-term investment loss of NT$(7,057) thousand and cumulative translation adjustments Note13: The ending balance includes long-term investment gain of NT$2,390 thousand. UMC CAPITAL CORP. (Amount in thousand; Currency denomination NTD unless otherwise specified) TLC CAPITAL CO., LTD.
185 United Microelectronics Corporation | Annual Report 2006 Other commitments utilization and status of Date of acquisition Price reference amount Transaction Date of transaction of property Relationship between former holder and acquirer property Where counter-party is a related party, details of prior transactions Former holder of stock for the year ended December 31, 2006) Relationship Counter-party status Payment amount Transaction Transaction date Name of properties ATTACHMENT 5 (Acquisition of individual real estate with amount exceeding the lower NT$100 million or 20 percent capital (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION None 186 Financial Review Unconsolidated Other commitments Price reference Reason of disposal Relationship Counter-party ck for the year ended December 31, 2006) disposal Gain (Loss) from Status of proceeds collection amount Transaction Book value acquisition Date of original Transaction date Names of properties ATTACHMENT 6 (Disposal of individual real estate with amount exceeding the lower NT$100 million or 20 percent capital sto (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION None 187 United Microelectronics Corporation | Annual Report 2006 Note Note 0.75 0.32 5.58 0.45 0.10 3.05 0.88 38.89 100.00 receivables (%) receivables (%) Percentage of total Percentage of total 98,861 41,829 59,860 12,869 734,440 401,039 115,670 $5,118,532 Balance Balance Notes and accounts receivable (payable) Notes and accounts receivable (payable) Term Term transaction transaction Unit price Unit price Details of non-arm's length Details of non-arm's length Term Term 1.97 Month-end 45 Days N/A N/A 0.31 Month-end 45 Days N/A N/A 8.12 Net 60 Days N/A N/A 0.22 Month-end 45 Days0.14 Month-end 45 Days N/A N/A N/A N/A 2.72 Net 60 Days0.66 Month-end 60 Days N/A N/A N/A N/A 52.33 Net 60 Days N/A N/A 100.00 Net 60 Days N/A N/A USD 22,584 capital stock for the year ended December 31, 2006) Percentage of total Percentage of total purchases (sales) (%) purchases (sales) (%) Transactions Transactions 322,726 226,662 144,859 688,955 2,046,127 8,455,595 2,835,621 $54,476,329 Amount Amount Sales Sales Sales Sales Sales Sales Sales Sales Purchases USD 260,578 Purchases (Sales) Purchases (Sales) Relationship Relationship Investee company Investee company Investee company Investee company Investee company Investor company The Company's director Subsidiary's investee company Subsidiary's investee company Related party Related party ATTACHMENT 7 (Related party transactions for purchases and sales amounts exceeding the lower of NT$100 million or 20 percent (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION UMC GROUP (USA) UNITED MICROELECTRONICS (EUROPE) B.V. UMC JAPAN SILICON INTEGRATED SYSTEMS CORP. HOLTEK SEMICONDUCTOR INC. ITE TECH. INC. USBEST TECHNOLOGY INC. AFA TECHNOLOGY, INC. UNITED MICROELECTRONICS (EUROPE) B.V. UNITED MICROELECTRONICS CORPORATION
188 Financial Review Unconsolidated Note Note 0.39 0.78 99.50 33.05 receivables (%) receivables (%) Percentage of total Percentage of total Balance Balance Notes and accounts receivable (payable) Notes and accounts receivable (payable) Term Term transaction transaction Unit price Unit price Details of non-arm's length Details of non-arm's length Term Term 0.23 Net 55 Days N/A N/A USD 617 1.35 Net 55 Days N/A N/A JPY 73,364 99.77 Net 60 Days N/A N/A USD 157,396 55.48 Net 60 Days N/A N/A JPY 1,458,726 capital stock for the year December 31, 2006) Percentage of total Percentage of total purchases (sales) (%) purchases (sales) (%) Transactions Transactions Amount Amount Sales JPY 463,508 Purchases USD 1,673,665 Purchases JPY 9,881,648 Purchases USD 3,927 Purchases (Sales) Purchases (Sales) Relationship Relationship Investee of UMC Investee of UMC Investor company Investor company Related party Related party ATTACHMENT 7 (Related party transactions for purchases and sales amounts exceeding the lower of NT$100 million or 20 percent (Amount in thousand; Currency denomination NTD unless otherwise specified) UMC GROUP (USA) UNITED MICROELECTRONICS CORPORATION UMC JAPAN UMC JAPAN UNITED MICROELECTRONICS CORPORATION UMC GROUP(USA)
189 United Microelectronics Corporation | Annual Report 2006 $- - 1,996 Allowance for doubtful accounts ,735 - 40,741 - 99 531,115 $4,900,961 period in subsequent Amount received Collection status 7 Credit Collecting 175,792 $- - Overdue receivables Amount (times) Turnover rate k as of December 31, 2006) Total 4 734,444 13.22 - - $- $5,118,532 11.26 Other receivables Ending balance Accounts receivable $- $5,118,532 49,924 65,746 - 115,670 5.90 - - Notes receivable - 98,861 1,299 100,160 3.07 20,475 Credit Collecting Relationship Investee company - 734,440 Investee company - 401,039 318 401,357 7.72 Investee company The Company's director Related party ATTACHMENT 8 (Receivables from related parties with amounts exceeding the lower of NT$100 million or 20 percent capital stoc (Amount in thousand; Currency denomination NTD unless otherwise specified) UMC GROUP (USA) UNITED MICROELECTRONICS (EUROPE) B.V. UMC JAPAN HOLTEK SEMICONDUCTOR INC. Investee company UNITED MICROELECTRONICS CORPORATION SILICON INTEGRATED SYSTEMS CORP. 190 Financial Review Unconsolidated Note 81 (loss) income recognized Investment investee (loss) of company Net income 86 12,463 12,463 Note2 of (%) Book value ownership Percentage 9 100.00 284,084 7,058 7,058 Investment as of December 31, 2006 shares (thousand) Number of 921,241 33,624 36.49 4,674,311 215,305 357,628 51,939 24.45 878,747 1,058,371 233,441 300,000 30,000 49.99 127,379186,898 (32,936) (20,964) 24,229 21.80 341,268 251,307 47,559 3,000,000 600,000 4,999,940 100.00 499,994 1,008,078 6,999,737 99.99 64,313 11,114,198 329,178 81.76 329,178 374,046 167,217 379,890 (186,142) (158,511) 1,000 USD 1,000 280 100.00 8,480 (5,588) (5,588) 5,421 USD 5,421 4,000 SGD - 4,000 49.94 81,402 (5,097) (2,545) 21,000 USD 21,000 21,000 42.00 959,542 306,447 128,708 16,438 USD 16,438 16,438 100.00 $1,006,496 $260,573 $260,573 336,241 357,628 124,000 USD 74,000 124,000 100.00 3,613,491 (49,736) (49,736) 150,000 186,898 839,880 USD 839,880 880,006 100.00 6,000,000 4,999,940 1,008,078 Initial Investment (Note 1) Ending balance Beginning balance USD USD USD USD SGD USD JPY 20,994,400 JPY 20,537,634 496 50.09 5,949,999 (833,067) (408,923) USD Main businesses and products Sales and manufacturing of IC Sales Investment holding integrated circuits investment in new business investment in new business Sales and manufacturing of LCOS integrated circuits investment in new business Investment holding IC design and production Sales and manufacturing of integrated circuits Investment holding Address California, USA The Netherlands IC Sales Islands Apia, SamoaSingapore Investment holding Taipei, Taiwan Taipei, Taiwan Consulting and planning for Hsinchu Science Consulting and planning for Park, Taiwan Islands Taipei, Taiwan Investment holding Park, Taiwan Hsinchu Science Park, Taiwan Taipei, Taiwan Consulting and planning for Sunnyvale, Cayman, Cayman Chiba, Japan Sales and manufacturing of Investee company ATTACHMENT 9 (Names, locations and related information of investee companies as December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) UMC GROUP (USA) UNITED MICROELECTRONICS (EUROPE) B.V. UMC CAPITAL CORP. UNITED MICROELECTRONICS CORP. (SAMOA) UMCI LTD. TLC CAPITAL CO., LTD. FORTUNE VENTURE CAPITAL CORP. UNITED MICRODISPLAY OPTRONICS CORP. UMC JAPAN PACIFIC VENTURE CAPITAL CO., LTD. MTIC HOLDINGS PTE LTD.UNITECH CAPITAL INC. Singapore HSUN CHIEH INVESTMENT CO., LTD. British Virgin HOLTEK SEMICONDUCTOR INC. Hsinchu Science ITE TECH. INC. UNITED MICROELECTRONICS CORPORATION 191 United Microelectronics Corporation | Annual Report 2006 Note Note (loss) (loss) income income recognized recognized Investment Investment investee investee (loss) of (loss) of company company Net income Net income of of (%) Book value (%) Book value ownership ownership Percentage Percentage Investment as of December 31, 2006 Investment as of December 31, 2006 shares shares (thousand) (thousand) Number of Number of $- 28,500 18.97 $225,624 $(277,489) $(51,719) 8,000 800 40.00 11,976 9,983 3,995 49,311 11,285 42.38 42,288 (84,925) (36,459) 85,471 10,187 44.29 33,531 (69,000) (30,559) 135,000 16,200 11.86 57,062 (61,367) (2,519) 248,795 8,758 16.48 53,710 (175,804) (29,020) $400,000 80,000 100.00 $743,210 $(44,024) $(44,024) UMCI LTD. were transferred to the Branch as of April 1, 2005. 8,000 67,500 USD - - 45.00 2,699,491 1,247,081 504,936 Note3 99,311 39,200 - 3,920 49.00 32,622 (13,425) (6,578) 85,471 135,000 248,795 $800,000 $285,000 Initial Investment Initial Investment (Note 1) Ending balance Beginning balance Ending balance Beginning balance USD ressed in thousands. p arts p n roductio Sales and manufacturing of electronic p IC design, production and sales Tablet transmission systems and chip-set Design of MP3 player chip solar power batteries n currencies are ex g Address Main businesses and products Address Main businesses and products n Park, Taiwan Cayman Islands Investment holding Taiwa Taiwan Taiwan Hsinchu, Taiwan Sales and manufacturing of Taoyuan County, Investee company Investee company XGI TECHNOLOGY INC.AMIC TECHNOLOGY CORP. Hsinchu, TaiwanMEGA MISSION LIMITED Hsinchu Science PARTNERSHIP Cartography chip design and Note 1: Initial investment amounts denominated in forei Note 2: Based on the resolution of board directors meeting August 26, 2004, businesses, operations and assets Note 3: No shares since it belongs to partnership fund organization. ATTACHMENT 9 (Names, locations and related information of investee companies as December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION HIGHLINK TECHNOLOGY CORP. Miao-Li County, UNITRUTH INVESTMENT CORP. Taipei, TaiwanANOTO TAIWAN CORP. Investment holding UWAVE TECHNOLOGY CORP. Hsinchu, TaiwanUCA TECHNOLOGY INC. RF IC Design NEXPOWER TECHNOLOGY CORP. Taipei County, FORTUNE VENTURE CAPITAL CORP. 192 Financial Review Unconsolidated Note (loss) income recognized Investment investee (loss) of company Net income 755 (277,489) (37) of (%) Book value ownership Percentage Investment as of December 31, 2006 shares (thousand) Number of 53,340 6,033 21.42 36,806 (83,173) (19,674) 90,240 9,045 23.57 37,525 (145,821) (41,037) 17,206 4,49354,208 25.15 3,646 37,429 21.4545,750 (20,383) 52,711 50,000 5,000 (5,154) 5,457 20.84 37,313 19.41 8,974 19,288 20,983 (46,892) (140,837) (10,143) (28,677) 291,621 23,405 17.08 119,225 (61,367) (3,624) 270,483 6,281 11.83 32,187 (175,804) (18,775) $44,129 10,212 36.54 $17,224 $(84,661) $(28,052) 912 - 2,500 35.80 12,610 (32,976) (17,175) 792 - 55 0.04 64,544 93,478 90,000 85,200 - - 6,00050,629 5,200 30.00 26.00 41,645 88,093 88,134 (13,516)39,900 (1,907) 45,750 2,015 - 56,102 2,934 3,50054,300 21.21 - 34,349 4,525 (41,909) 18.10 (7,108) 47,559 (57,062) (6,743) 291,621 270,483 $91,194 Initial Investment Ending balance Beginning balance USD Main businesses and products Monitor/module Lithium Tantalate and Niobate, Optical Grade Lithium Niobate Lithium Tetraborate and Sapphire phones sales of IC IC design Design and manufacturing of LED Home ODM PHS &GSM/PHS dual mode B/B Chip High brightness LED package and Lighting module R&D manufacture IC design, production and sales cartography chip Sales and manufacturing of electronic parts Design of VOIP Telephone Address Taoyuan County, Taiwan Taiwan Taiwan Hsinchu, Taiwan WLAN, Broadband, Digital Hsinchu County, Taiwan Taiwan Park, Taiwan Taiwan Hsinchu, Taiwan Tablet PC module, Pen LCD Hsinchu, Taiwan Design of VOIP network Investee company ATTACHMENT 9 (Names, locations and related information of investee companies as December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) TERA XTAL TECHNOLOGY CORP. CRYSTAL MEDIA INC. SMEDIA TECHNOLOGY CORP. Hsinchu, TaiwanUSBEST TECHNOLOGY INC. Multimedia co-processor AFA TECHNOLOGY, INC. Hsinchu, TaiwanALLIANCE OPTOTEK CORP. Design, manufacturing and Taipei County, U-MEDIA COMMUNICATIONS, Hsinchu County, INC. MOBILE DEVICES INC. HIGH POWER LIGHTING CORP. Taipei County, AMIC TECHNOLOGY CORP.XGI TECHNOLOGY INC. Hsinchu Science HIGHLINK TECHNOLOGY CORP. Miao-Li County, Hsinchu, Taiwan Design and manufacturing of WALTOP INTERNATIONAL CORP. STAR SEMICONDUCTOR CORP. Hsinchu, TaiwanAEVOE INTERNATIONAL LTD. IC design, production and sales Samoa FORTUNE VENTURE CAPITAL CORP. 193 United Microelectronics Corporation | Annual Report 2006 Note Note (loss) (loss) income income recognized recognized Investment Investment investee investee (loss) of (loss) of company company Net income Net income Book value of of (%) (%) Book value ownership ownership Percentage Percentage Investment as of December 31, 2006 Investment as of December 31, 2006 shares shares (thousand) (thousand) Number of Number of - 7,084 18.46 99,220 (145,821) (7,057) - 1,800 9.00 - 20,816 1,300 2,015 7.88 1,016 12,758 (41,909) (2,640) $- 0.20 44.44 $202,390 $5,378 $2,390 $- 2,000 10.00 $29,364 $(13,516) $(636) 5,390 1,585 5.95 7,840 (84,925) (5,189) 4,688 1,587 8.88 13,220 (20,383) (1,820) 24,057 2,570 6.70 17,085 (145,821) (11,692) 13,800 1,250 5.21 4,822 (46,892) (2,536) 221,920 17,460 11.62 134,999 (277,489) (35,899) 11,910 24,057 19,800 16,493 14,820 13,800 174,596 106,266 $30,000 $200,000 Initial Investment Initial Investment Ending balance Beginning balance Ending balance Beginning balance Main businesses and products Sales and manufacturing of electronic parts Monitor/module Lithium Tantalate and Niobate, Optical Grade Lithium Niobate Lithium Tetraborate and Sapphire phones Design and manufacturing of LED Design of MP3 player chip Home ODM Address Address Main businesses and products Miao-Li County, Taiwan Hsinchu, TaiwanTaoyuan County, Tablet PC module, Pen LCD Taiwan Taiwan Taiwan Hsinchu, Taiwan WLAN, Broadband, Digital Hsinchu, Taiwan Design of VOIP network Investee company Investee company ATTACHMENT 9 (Names, locations and related information of investee companies as December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) YUNG LI INVESTMENTS, INC. Taipei, TaiwanSMEDIA TECHNOLOGY CORP. Hsinchu, TaiwanHIGHLINK TECHNOLOGY CORP. Investment Multimedia co-processor UNITRUTH INVESTMENT CORP. TLC CAPITAL CO., LTD. CRYSTAL MEDIA INC. ALLIANCE OPTOTEK CORP. Hsinchu County, SMEDIA TECHNOLOGY CORP. Hsinchu, TaiwanUCA TECHNOLOGY INC. Multimedia co-processor U-MEDIA COMMUNICATIONS, Taipei County, INC. WALTOP INTERNATIONAL CORP. TERA XTAL TECHNOLOGY CORP. 194 Financial Review Unconsolidated Note Note (loss) (loss) income income recognized recognized Investment Investment investee investee (loss) of (loss) of company company Net income Net income Book value of of (%) (%) Book value ownership ownership Percentage Percentage Investment as of December 31, 2006 Investment as of December 31, 2006 shares shares (thousand) (thousand) Number of Number of - 508 44.44 USD 948 USD (118) USD (52) $- 1,225 4.90 $12,875 $(57,062) $(1,825) 200 200 100.00 USD 326 USD 30 USD 30 5,600 1,000 3.55 3,960 (83,173) (3,051) 6,617 1,300 4.65 2,193 (84,661) (4,225) 6,950 1,000 4.35 3,292 (69,000) (3,000) 11,463 1,250 4.45 26,400 4,093 1,760 (140,837) 3.31 (6,812) 10,788 (175,804) (5,835) Beginning balance 200 USD 1,000 USD 5,600 1,000 USD 1,000 3,850 USD 1,000 3,850 100.00 USD 1,550 USD 286 USD 286 5,000 35.45 USD 3,772 USD (918) USD (326) 6,617 6,950 2,500 USD 2,500 3,125 23.30 USD 2,016 USD (2,168) USD (515) 11,463 26,400 $14,700 Initial Investment Initial Investment Ending balance Ending balance Beginning balance USD USD USD USD High brightness LED package and Lighting module R&D manufacture PHS &GSM/PHS dual mode B/B chip IC design cartography chip Investment holding Insurance Internet Content ProviderInvestment holding USD IC design Address Main businesses and products Address Main businesses and products Taiwan Hsinchu County, Taiwan Taiwan California, U.S.A. British Virgin Islands British Virgin Islands Islands Sunnyvale, British Virgin Investee company Investee company ATTACHMENT 9 (Names, locations and related information of investee companies as December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) HIGH POWER LIGHTING CORP. Taipei County, STAR SEMICONDUCTOR CORP. Hsinchu, TaiwanMOBILE DEVICES INC. IC design, production and sales UWAVE TECHNOLOGY CORP.AFA TECHNOLOGY, INC. Hsinchu, TaiwanXGI TECHNOLOGY INC. RF IC Design Taipei County, Hsinchu, Taiwan Design and manufacturing of UMC CAPITAL CORP. UMC CAPITAL (USA) ECP VITA LTD. ACHIEVE MADE INTERNATIONAL LTD. UC FUND II PARADE TECHNOLOGIES, LTD. U.S.A. UNITRUTH INVESTMENT CORP. 195 United Microelectronics Corporation | Annual Report 2006
Financial Review Consolidated
198 Representation Letter
199 Report of Independent Auditors
200 Consolidated Balance Sheets
201 Consolidated Statements of Income
202 Consolidated Statements of Changes in Stockholders’ Equity
203 Consolidated Statements of Cash Flows
205 Notes to Consolidated Financial Statements
260 Attachments to Notes
196 Financial Review Consolidated
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS WITH REPORT OF INDEPENDENT AUDITORS FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
Address: No. 3 Li-Hsin Road II, Hsinchu Science Park, Hsinchu City, Taiwan, R.O.C. Telephone: 886-3-578-2258
The reader is advised that these financial statements have been prepared originally in Chinese. In the event of a conflict between these financial statements and the original Chinese version or difference in interpretation between the two versions, the Chinese language financial statements shall prevail.
197 United Microelectronics Corporation | Annual Report 2006
Letter of Representation
We confirm, to the best of our knowledge and belief, the fol- dated financial statements of “United Microelectronics Cor- lowing representations: poration and Subsidiaries” for the year ended December 31, 2006 made in accordance with ROC Statement of Financial 1. The companies represented in the consolidated finan- Accounting Standards No. 7. cial statements of “United Microelectronics Corporation and 3. Accordingly, we will not present separately a set of its Affiliated Enterprises” for the year ended December 31, consolidated financial statements of “United Microelectron- 2006 made in accordance with “The Rules Governing Prepa- ics Corporation and Its Affiliated Enterprises” for the year ration of Affiliated Enterprises Consolidated Operating ended December 31, 2006 made in accordance with “The Report, Affiliated Enterprises Consolidated Financial State- Rules Governing Preparation of Affiliated Enterprises Con- ments and Relationship Report” are the identical companies solidated Operating Report, Affiliated Enterprises Consoli- represented in the consolidated financial statements of dated Financial Statements and Relationship Report”. “United Microelectronics Corporation and Subsidiaries” for the year ended December 31, 2006 made in accordance with ROC Statement of Financial Accounting Standards No. 7. 2. The disclosures to the consolidated financial state- ments of “United Microelectronics Corporation and Its Affiliated Enterprises” for the year ended December 31, 2006 made in accordance with “The Rules Governing Preparation Jackson Hu of Affiliated Enterprises Consolidated Operating Report, Chairman Affiliated Enterprises Consolidated Financial Statements United Microelectronics Corporation and Relationship Report” are fully presented in the consoli- February 9th, 2007
198 Financial Review Consolidated
REPORT OF INDEPENDENT AUDITORS
English Translation of a Report Originally Issued in Chinese To the Board of Directors and Stockholders of United Microelectronics Corporation We have audited the accompanying consolidated balance sheets of United Microelectronics Corporation and Subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of income, change in stockholders’ equity and cash flows for the years ended December 31, 2006 and 2005. The consolidated financial statements are the responsibility of United Microelectronics Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits. As described in Note 4(11) to the consolidated financial statements, certain long-term investments were accounted for under the equity method based on the December 31, 2006 and 2005 financial statements of the investees, which were audited by other auditors. Our opinion insofar as it relates to the investment income amounting to NT$848 million and NT$1,031 million for the years ended December 31, 2006 and 2005, respectively, and the related long-term investment balances of NT$1,719 million and NT$6,253 million as of December 31, 2006 and 2005, respectively, is based solely on the reports of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the Republic of China and “Guidelines for Certified Public Accountants’ Examination and Reports on Financial Statements”, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Microelectronics Corporation and Subsidiaries as of December 31, 2006 and 2005, and the results of their consolidated operations and their consolidated cash flows for the years ended December 31, 2006 and 2005, in conformity with the “Business Entity Accounting Law”, “Guidelines Governing the Preparation of Financial Reports by Securities Issuers” and accounting principles generally accepted in the Republic of China. As described in Note 3 to the consolidated financial statements, effective from January 1, 2006, United Microelectronics Corporation and Subsidiaries have adopted the ROC Statement of Financial Accounting Standards No. 34, “Financial Instruments: Recognition and Measurement” and No. 36, “Financial Instruments: Disclosure and Presentation” to account for the financial instruments. As described in Note 3 to the consolidated financial statements, effective from January 1, 2005, United Microelectronics Corporation and Subsidiaries have adopted the ROC Statement of Financial Accounting Standards No. 35, “Accounting for Asset Impairment” to account for the impairment of its assets. Effective from January 1, 2006, goodwill is no longer subject to amor- tization. As described in Note 3 to the consolidated financial statements, effective from January 1, 2005, United Microelectronics Corporation and Subsidiaries have adopted the amendments to the ROC Statement of Financial Accounting Standards No. 5, “Accounting for Long-term Equity Investment”.
February 9, 2007 Taipei, Taiwan Republic of China Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China. 199 United Microelectronics Corporation | Annual Report 2006 - - - 36,600 51,870 18,664 95,634 (80,989) 277,953 691,290 140,735 (241,153) 1,309,579 3,014,998 8,831,782 6,336,685 5,501,159 3,776,822 1,744,171 7,932,949 5,315,695 6,136,336 36,960,040 41,692,159 10,250,000 2005 347,049,259 258,283,553 $
$
62 8,938 11,405 13,245 52,585 77,319 12,282 As of December 31, 342,549 985,267 322,150 570,174 (824,922) 9,068,283 6,627,794 20,781,523 1,538,450 3,115,420 2,071,394 6,238,018 4,864,771 3,763,706 7,025,328 27,557,845 17,774,335 30,383,076 41,692,159 16,699,508 15,996,839 61,070,555 64,600,076 10,130,367 36,103,790 30,383,076 70,250,572 82,429,021 2006 367,653,461 291,164,871 297,402,889 264,620,238 191,311,927 197,947,033 $
$ Notes 2, 4 (17) 2, 4 (24) 7 2, 4 (18) 2 2 4 (15), 6 2, 4 (17) 2, 4 (24) 2, 4 (11), (19), (21), 6 (29,394,664) (51,332,329) 4 (19), (22) 2, 4 (9) 2, 4 (19) 2, 4 (19), (20), (22) current ntercompany profits Liabilities and Stockholders' Equity Total liabilities and stockholders' equity Treasury stock Total stockholders' equity of holding company Minority interests Total stockholders' equity Current liabilities Special reserve Unappropriated earnings Adjustment items to stockholders' equity Retained earnings Total other liabilities Additional Paid-in Capital Income tax payable Total current liabilities Long-term liabilities Total long-term liabilities Other liabilities Total liabilities Capital Short-term loans Legal reserve Bonds payable - - 193 Accrued expenses 62,136 Other payables 43,037 Premiums 89,580 Capital collected in advance 30,000 Other liabilities - others 182,793 Unrealized gain or loss on financial instruments 891,058 Deferred income tax liabilities, current 359,556 Cumulative translation adjustment 555,800 694,669 1,420,977 Current portion of long-term liabilities 1,116,806 Deposits-in 6,574,800 Deferred income tax liabilities, non 4,012,314 3,386,790 2,034,569 2,196,238 3,491,072 6,812,103 Accrued pension liabilities 2,804,967 1,893,522 2,468,968 Financial liabilities at fair value through profit or loss, current 2, 3, 4 (16) 4,033,421 8,243,121 2,414,153 Accounts payable 30,796,565 2005 347,049,259 159,113,639 144,862,513 108,626,800 December 31, 2006 and 2005 CONSOLIDATED BALANCE SHEETS
$ $
(Expressed in Thousands of New Taiwan Dollars) - - - - - 1,330 3,733 50,648 42,968 90,706 As of December 31, 323,645 849,742 762,799 474,738 1,110,422 7,515,945 4,184,091 1,945,082 1,501,064 2,332,154 3,498,687 3,500,017 8,017,309 8,538,007 2,964,369 1,879,442 11,662,599 16,262,856 Deferred credits - i 14,028,084 13,628,434 Payable on equipment 22,244,850 15,609,497 10,878,182 10,712,535 Other current liabilities 52,311,172 93,853,208 71,964,454 21,076,844 21,260,902 2006 415,225,873 386,920,282 Common stock 151,828,129 367,653,461 441,280,202 413,012,290 Treasury stock transactions 132,343,552 UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES (311,696,923) (269,508,148) Change in equities of long-term investments The accompanying notes are an integral part of the consolidated financial statements. English Translation of Consolidated Financial Statements Originally Issued in Chinese $
$
Notes 2, 3, 4 (4) 5 2,5 2, 3, 4 (4) 2, 3, 4 (10), (14) 2 2, 4 (24) 2, 4 (6) 2, 4 (24) 2, 4 (14) 2 2, 4 (13), (14), 6 2, 4 (1) 2, 3 4 (5) 6 2 2, 4 (7)
2, 3, 4 (3) 2, 3, 4 (9), (14) 2, 3, 4 (12), 7 Assets Available-for-sale financial assets, current Available-for-sale financial assets, noncurrent Total assets Technological know-how Other intangible assets Total intangible assets Other assets Deferred charges Deferred income tax assets, noncurrent Other assets - others Total other assets Property, plant and equipment, net Current assets Cash and cash equivalents Financial assets at fair value through profit or loss, current 2, 3, 4 (2) Intangible assets Goodwill Leasehold improvements Total cost Less : Accumulated depreciation Add : Construction in progress and prepayments Held-to-maturity financial assets, current Property, plant and equipment Notes receivable Notes receivable - related parties Accounts receivable, net Accounts receivable - related parties, net Deferred income tax assets, current Restricted deposits Total current assets Funds and investments Financial assets at fair value through profit or loss, noncurrent Held-to-maturity financial assets, noncurrent 2, 3, 4 (8) Financial assets measured at cost, noncurrent Long-term investments accounted for under the equity method Prepaid long-term investments Total funds and investments 2, 3, 4 (11), (14) Machinery and equipment Transportation equipment Furniture and fixtures Other receivables Inventories, net Prepaid expenses Land Buildings
200 Financial Review Consolidated
English Translation of Consolidated Financial Statements Originally Issued in Chinese UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31, 2006 and 2005 (Expressed in Thousands of New Taiwan Dollars, Except for Earnings per Share )
For the year ended December 31, Notes 2006 2005 Operating revenues 2, 5 Sales revenues $109,857,465 $97,172,846 Less : Sales returns and discounts (867,150) (1,959,994) ΓΓNet Sales 108,990,315 95,212,852 Other operating revenues 3,013,504 5,103,130 ΓΓNet operating revenues 112,003,819 100,315,982 Operating costs 4 (23) Cost of goods sold (88,452,676) (86,409,480) Other operating costs (2,198,540) (4,266,217) Operating costs (90,651,216) (90,675,697) Gross profit 21,352,603 9,640,285 Unrealized intercompany profit 2 (105,892) (118,815) Realized intercompany profit 2 118,815 151,192 ΓΓGross profit-net 21,365,526 9,672,662 Operating expenses 4 (23), 5 ΓSales and marketing expenses (3,365,678) (3,738,469) General and administrative expenses (3,422,340) (4,387,406) Research and development expenses (9,418,877) (9,633,607) ΓΓSubtotal (16,206,895) (17,759,482) Operating income (loss) 5,158,631 (8,086,820) Non-operating income Interest revenue 1,562,704 1,055,138 Investment gain accounted for under the equity method, net 2, 4 (11) 1,178,103 1,096,985 Dividend income 950,546 1,051,813 Gain on disposal of property, plant and equipment 2 331,767 177,397 Gain on disposal of investments 2 28,651,109 10,276,618 Exchange gain, net 2 316,006 295,179 Gain on recovery of market value of inventories 2 - 837,315 Gain on valuation of financial assets 2 750,378 58,853 Gain on valuation of financial liabilities 2 306,140 - Other income 862,750 1,038,821 ΓΓSubtotal 34,909,503 15,888,119 Non-operating expenses Interest expense 4 (12) (648,408) (1,098,854) Loss on disposal of property, plant and equipment 2 (107,962) (218,525) Loss on decline in market value and obsolescence of inventories 2 (1,089,490) - Financial expenses (230,757) (268,985) Impairment loss 2, 3, 4 (14) (1,330,293) (460,542) Other losses 2 (73,799) (148,606) Subtotal (3,480,709) (2,195,512) Income from continuing operations before income tax 36,587,425 5,605,787 Income tax expense 2, 4 (24) (3,261,622) (67,052) Income from continuing operations 33,325,803 5,538,735 Cumulative effect of changes in accounting principles 3 (1,188,515) (112,898) (the net amount after deducted tax expense $0) Net income $32,137,288 $5,425,837 Attributable to: Shareholders of the parent $32,619,313 $7,026,692 Minority interests (482,025) (1,600,855) Net income $32,137,288 $5,425,837
Pre-tax Post-tax Pre-tax Post-tax Earnings per share-basic (NTD) 2, 4 (25) Net income attributable to shareholders of the parent $ 1.99 $ 1.81 $ 0.38 $ 0.38
Earnings per share-diluted (NTD) 2, 4 (25) Net income attributable to shareholders of the parent $ 1.92 $ 1.75 $ 0.37 $ 0.37
The accompanying notes are an integral part of the consolidated financial statements. 201 United Microelectronics Corporation | Annual Report 2006 ------(6,324) 66,910 (27,006) (28,491) (62,686) 343,724 383,358 (305,636) (603,486) 5,425,837 1,645,009 1,078,299 1,066,672 9,301,230 1,725,665 Total (1,758,736) (7,161,267) 24,108,717 13,501,422 32,137,288 (16,378,692) (27,286,339) (14,082,873) 275,102,753 297,402,889 $ $ ------8,728,877 6,238,018 Interests Minority $ $ ------(1,600,855) ------(482,025) - - - - - 383,358 ------(37,140,714) (29,394,664) $ $ Treasury Stock ------(16,378,692) - 2,178,199 - - 8,878- - (791,337)- (782,459) - - - - (27,286,339) 19,640,228 ------29,583,776 (824,922) (1,319,452) Translation Cumulative Adjustment $ $ ------1,078,299 ------8,170 - - - (603,486) ------(80,989) (241,153) (51,332,329) 6,336,685 264,620,238 343,724 (424,713) 1,066,672 9,301,230 (6,826,238) 24,097,170 11,547 27,557,845 Instruments on Financial $ $ Unrealized Gain/Loss ------17,774,335 29,498,329 Earnings $ $ Unappropriated - (1,758,736) - - - (27,006) (1,972,855) - - (1,509,640) 7,026,692 - - - - - (7,161,267) - - (6,324) (305,636) - - (6,371,128) - 32,619,313 ------(3,184,338) - (702,669) - (17,587,364) - - - - (895,158) - - (458,455) - (9,198,144) - - 90,871 322,150 $ $ Retained Earnings - - 1,653,300- (1,653,300) ------(1,422,021)- 1,422,021 ------12,812,501 15,996,839 1,744,171 8,831,782 16,699,508 Legal Reserve Special Reserve $ $ - - 3,184,338 ------702,669 ------66,910 (28,491) (57,972) (62,686) 634,737 654,314 (177,419) (895,158) 67,707,287 84,933,195 Additional Paid-in Capital $ $ ------(3,269,100) - - - - (14,091,043) ------For the years ended December 31, 2006 and 2005 (Expressed in Thousands of New Taiwan Dollars) 4,040 11,405 Advance Collected in $ $ UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES ------Capital The accompanying notes are an integral part of the consolidated financial statements. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY English Translation of Consolidated Financial Statements Originally Issued in Chinese 4,040 (4,040) 36,600 (36,600) 954,095 36,600 895,158 458,455 895,158 (491,140) 1,972,855 1,079,523 11,405 17,587,364 (10,000,000) 177,919,819 197,947,033 36,600 85,381,599 191,311,927 $ $ Notes Common Stock 2 2, 4 (9) 2 2 4 (19) 2 4 (22) 2, 4 (19), (21) 2, 4 (20) 4 (22) 2, 4 (19), (21) 2, 4 (20) 4 (19) 2, 4 (21) 4 (19) 2, 4 (21) 2 4 (19) 3 (3) Balance as of January 1, 2005 Appropriation of 2004 retained earnings Legal reserve Special reserve Cash dividends Stock dividends Remuneration to directors and supervisors Employee bonus - stock Purchase of treasury stock Cancellation of treasury stock Net income in 2005 Adjustment of additional paid-in capital accounted for under the equity methodChanges in unrealized gain on financial instruments of investees 2 Exercise of employee stock options Common stock transferred from capital collected in advance Changes in cumulative translation adjustment Changes in minority interests Balance as of December 31, 2005 The effect of adopting SFAS NO. 34 Appropriation of 2005 retained earnings Legal reserve Special reserve Cash dividends Stock dividends Remuneration to directors and supervisors Employee bonus - cash Employee bonus - stock Additional paid-in capital transferred to common stock Purchase of treasury stock Cancellation of treasury stock Adjustment of treasury stock due to loss control over subsidiary Net income in 2006 Adjustment of additional paid-in capital accounted for under the equity methodAdjustment of funds and investments disposal 2 Cash dividends allocated to subsidaries Changes in unrealized gain on available-for-sale financial assets Changes in unrealized gain on financial instruments of investees Exercise of employee stock options Common stock transferred from capital collected in advance Changes in cumulative translation adjustment Changes in minority interests Balance as of December 31, 2006
202 Financial Review Consolidated
English Translation of Consolidated Financial Statements Originally Issued in Chinese UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2006 and 2005 (Expressed in Thousands of New Taiwan Dollars)
For the year ended December 31, 2006 2005 Cash flows from operating activities: Net income attributable to shareholders of the parent $ 32,619,313 $ 7,026,692 Net loss attributable to minority interests (482,025) (1,600,855) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 44,255,730 51,366,170 Amortization 1,826,622 3,278,290 ΓBad debt reversal (164,908) (149,407) Loss (gain) on decline (recovery) in market value and obsolescence of inventories 1,089,490 (837,315) Loss (gain) on valuation of financial assets and liabilities 131,997 (58,853) Investment gain accounted for under the equity method (1,178,103) (984,087) Cash dividends received under the equity method 1,086,996 870,694 Gain on disposal of investments (28,651,109) (10,276,618) Loss (gain) on disposal of property, plant and equipment (223,805) 41,128 Transfer of property, plant and equipment to losses and expenses - 9,370 Gain on reacquisition of bonds (18,465) (133,042) Amortization of bond discounts (premiums) 87,369 (9,569) Exchange gain on financial assets and liabilities (13,009) (2,352) Exchange (gain) loss on long-term liabilities (127,179) 77,021 Amortization of deferred income (99,210) (89,762) Impairment loss 1,330,293 460,542 Effect from subsidiaries over which significant control is no longer held - (264,467) Changes in assets and liabilities: Financial assets and liabilities at fair value through profit or loss, current (5,803,828) 46,605 Notes and accounts receivable 783,372 (1,668,590) Other receivables 97,674 (243,280) Inventories (1,262,091) 17,184 Prepaid expenses (78,560) (342,885) Deferred income tax assets (2,793) 54,604 Other current assets 13,924 (14,612) Notes payable - (167,875) Accounts payable (1,676,068) (333,824) Income tax payable (106,504) 34,104 Accrued expenses 2,053,791 (691,806) Other payables 51,232 14,366 Other current liabilities 183,773 (732,210) Accrued pension liabilities 110,883 301,796 Capacity deposits (4,953) (193,249) Other liabilities - others 1,248,502 242,200 Net cash provided by operating activities 47,078,351 45,046,108
Cash flows from investing activities: Acquisition of financial assets and liabilities at fair value through profit or loss (427,202) - Acquisition of available-for-sale financial assets (5,145,237) (3,126,417) Acquisition of financial assets measured at cost (2,281,596) (2,834,658) Acquisition of long-term investments accounted for under the equity method (3,524,941) (2,211,922) Proceeds from disposal of financial assets at fair value through profit or loss 74,092 - Proceeds from disposal of available-for-sale financial assets 18,697,235 9,755,644 Proceeds from disposal of financial assets measured at cost 903,019 2,323,314 Proceeds from disposal of long-term investments accounted for under the equity method 8,202,027 7,178,638 Proceeds from disposal of held-to-maturity financial assets - 1,708,260 Proceeds from capital reduction and liquidation of long-term investments 204,352 50,725 Acquisition of property, plant and equipment (33,239,978) (22,162,708) Proceeds from disposal of property, plant and equipment 587,904 3,084,714 Increase in deferred charges (1,095,114) (1,377,043) Decrease (increase) in restricted deposits 555,800 (555,800) Decrease (increase) in other assets (20,958) 679,908 Net cash used in investing activities (16,510,597) (7,487,345) 203 United Microelectronics Corporation | Annual Report 2006
English Translation of Consolidated Financial Statements Originally Issued in Chinese UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2006 and 2005 (Expressed in Thousands of New Taiwan Dollars)
For the year ended December 31, 2006 2005 (continued)
Cash flows from financing activities: Increase in short-term loans $ 204,265 $ 499,929 Repayment of long-term loans - (20,382,214) Issuance of bonds - 12,478,603 Redemption of bonds (10,250,000) (2,820,004) Reacquisition of bonds (1,844,683) (2,662,226) Remuneration paid to directors and supervisors (6,324) (27,006) Decrease in deposits-in (6,379) (204,474) Cash dividends (7,155,865) (1,758,736) Employee bonus (305,636) - Purchase of treasury stock (27,286,339) (16,378,692) Exercise of employee stock options 1,725,665 1,642,008 Increase (decrease) in minority shareholders (130,269) 20,826 Net cash used in financing activities (45,055,565) (29,591,986) Effect of exchange rate changes on cash and cash equivalents (247,242) (1,536,358) Effect of subsidiaries change (38,539) 814,408 Net increase (decrease) in cash and cash equivalents (14,773,592) 7,244,827 Cash and cash equivalents at beginning of year 108,626,800 101,381,973 Cash and cash equivalents at end of year $ 93,853,208 $ 108,626,800
Supplemental disclosures of cash flow information: Cash paid for interest $ 971,038 $ 1,379,098 Cash paid (refunded) for income tax $ 167,433 $ (129,057)
Investing activities partially paid by cash: Acquisition of property, plant and equipment $ 38,054,650 $ 19,407,024 Add: Payable at beginning of year 5,315,695 8,071,379 Less: Payable at end of year (10,130,367) (5,315,695) Cash paid for acquiring property, plant and equipment $ 33,239,978 $ 22,162,708
Investing and financing activities not affecting cash flows: Principal amount of exchangeable bonds exchanged by bondholders $ 69,621 $ - Book value of available-for-sale financial assets delivered for exchange (20,242) - Elimination of related balance sheet accounts 15,302 - Recognition of gain on disposal of available-for-sale financial assets $ 64,681 $ -
The accompanying notes are an integral part of the consolidated financial statements.
204 Financial Review Consolidated
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2006 and 2005 (Expressed in Thousands of New Taiwan Dollars unless Otherwise Specified)
1. HISTORY AND ORGANIZATION United Microelectronics Corporation (“UMC”) was incorporated in May 1980 and commenced operations in April 1982. UMC is a full service semiconductor wafer foundry, and provides a variety of services to satisfy customer needs. These services include intellectual property, embedded IC design, design verification, mask tooling, wafer fabrication, and testing. UMC’s common shares were publicly listed on the Taiwan Stock Exchange (TSE) in July 1985 and its American Depositary Shares (ADSs) were listed on the New York Stock Exchange (NYSE) in September 2000.
Based on the resolution of the board of directors’ meeting on February 26, 2004, the effective date of UMC’s merger with SiS MICROELECTRONICS CORP. (SiSMC) was July 1, 2004. UMC was the surviving company, and SiSMC was the dissolved company. The merger was approved by the relevant government authorities. All the assets, liabilities, rights, and obligations of SiSMC have been fully incorporated into UMC since July 1, 2004.
Based on the resolution of the board of directors’ meeting on August 26, 2004, UMCI LTD. had transferred its businesses, operations, and assets to UMC’s Singapore branch (the Branch) since April 1, 2005.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements were prepared in conformity with the “Business Entity Accounting Law”, “Guidelines Governing the Preparation of Financial Reports by Securities Issuers” and accounting principles generally accepted in the Republic of China (R.O.C.).
Summary of significant accounting policies is as follows:
General Descriptions of Reporting Entities
(1) Principles of Consolidation Effective January 1, 2005, investees in which UMC, directly or indirectly, holds more than 50% of voting rights or de facto control with less than 50% of voting rights, are consolidated into UMC’s financial statements in accordance with the amended ROC Statements of Financial Accounting Standards (SFAS) No. 7, “Consolidation of Financial Statements” (UMC and the consolidated entities are hereinafter referred to as “the Company”.)
Transactions between consolidated entities are eliminated in the consolidated financial statements. Prior to January 1, 2006, the difference between the acquisition cost and the net equity of a subsidiary as of the acquisition date was amortized over 5 years; however effective January 1, 2006, goodwill arising from new acquisitions is analyzed and accounted for under the ROC SFAS No. 25, “Business Combination – Accounting Treatment under Purchase Method”, and goodwill is no longer to be amortized.
205 United Microelectronics Corporation | Annual Report 2006
(2) The consolidated entities are as follows: As of December 31, 2006 Investor Subsidiary Business nature Percentage of ownership (%)
UMC UMC GROUP (USA) (UMC-USA) IC Sales 100.00 UMC UNITED MICROELECTRONICS (EUROPE) IC Sales 100.00 B.V. (UME BV) UMC UMC CAPITAL CORP. Investment holding 100.00 UMC UNITED MICROELECTRONICS CORP. Investment holding 100.00 (SAMOA) UMC TLC CAPITAL CO., LTD. (TLC) Investment holding 100.00 UMC UMCI LTD. (UMCI) (Note 1) Sales and manufacturing of 100.00 integrated circuits UMC FORTUNE VENTURE CAPITAL CORP. Consulting and planning 99.99 (FORTUNE) for investment in new business UMC UNITED MICRODISPLAY OPTRONICS Sales and manufacturing 81.76 CORP. (UMO)(Note 2) of LCOS
UMC UMC JAPAN (UMCJ) Sales and manufacturing 50.09 of integrated circuits
UMC and UMO THINTEK OPTRONICS CORP. (THINTEK) LCOS design, production - (Note 2) and sales FORTUNE UNITRUTH INVESTMENT CORP. Investment holding 100.00 (UNITRUTH) UMC CAPITAL UMC CAPITAL (USA) Investment holding 100.00 CORP. UMC CAPITAL ECP VITA LTD. Insurance 100.00 CORP.
206 Financial Review Consolidated
As of December 31, 2005 Investor Subsidiary Business nature Percentage of ownership (%) UMC UMC-USA IC Sales 100.00 UMC UME BV IC Sales 100.00 UMC UMC CAPITAL CORP. Investment holding 100.00 UMC UNITED MICROELECTRONICS CORP. Investment holding 100.00 (SAMOA) UMC TLC Investment holding 100.00 UMC UNITED FOUNDARY SERVICE, INC. Supervising and monitoring - (Note 3) group projects UMC UMCI (Note 1) Sales and manufacturing of 100.00 integrated circuits UMC FORTUNE Consulting and planning 99.99 for investment in new business UMC HSUN CHIEH INVESTMENT CO., LTD. Investment holding 99.97 (HSUN CHIEH) (Note 4) UMC UMO Sales and manufacturing of 86.72 LCOS UMC SILICON INTEGRATED SYSTEMS Sale and manufacturing of 16.59 CORP.(SIS) (NOTE5) integrated circuit UMC and UMO THINTEK LCOS design, production 54.26 and sales UMC, HSUN UMCJ Sales and manufacturing of 53.49 CHIEH integrated circuits UMC, UNITRUTH XGI TECHNOLOGY INC. (XGI) (Note 5) Cartography chip design, 31.70 and FORTUNE production and sales FORTUNE UNITRUTH Investment holding 100.00 UMC CAPITAL UMC CAPITAL (USA) Investment holding 100.00 CORP. UMC CAPITAL ECP VITA LTD. Insurance 100.00 CORP. SIS SILICON INTEGRATED SYSTEMS CORP. IC sales 100.00 (SIS-HK) (Note 5) SIS SILICON INTEGRATED SYSTEMS CORP. IC sales 100.00 (SIS-USA) (Note 5) SIS INVESTAR CPU VENTURE CAPITAL Investment holding - FUND, INC. LDC (IVCF) (Note 6) XGI XGI TECHNOLOGY INC. (CAYMAN) Investment holding 100.00 (Note 5) XGI XGI TECHNOLOGY INC. (USA) (Note 5) Cartography chip design 100.00 and production
207 United Microelectronics Corporation | Annual Report 2006
Note 1: Based on the resolution of the board of directors’ meeting on August 26, 2004, UMCI has transferred its businesses, operations, and assets to the Branch since April 1, 2005.
Note 2: THINTEK was merged into UMO on October 1, 2006. The exchange ratio was 2.31 to 1.
Note 3: UNITED FOUNDRY SERVICE, INC. completed the liquidation process in April 2005.
Note 4: UMC has ceased to consolidate the gains and losses of the subsidiary and its investees in preparing the consolidated financial statements since January 2006 as UMC no longer possessed control over the subsidiary.
Note 5: In conformity with the ROC SFAS No. 7, “Consolidated Financial Statements”, UMC has ceased to consolidate the gains and losses of the subsidiary and its investees in preparing the consolidated financial statements since June 27, 2005 as UMC no longer possessed control over the subsidiary.
Note 6: Based on the resolution of the board of directors meeting in November 2002, IVCF was to be liquidated. The liquidation process was completed during the first quarter of 2005.
Foreign Currency Transactions Transactions denominated in foreign currencies are remeasured into the local functional currencies and recorded based on the exchange rates prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are remeasured into the local functional currencies at the exchange rates prevailing at the balance sheet date, with the related exchange gains or losses included in the consolidated statements of income. Translation gains or losses from investments in foreign entities are recognized as cumulative translation adjustment in consolidated stockholders’ equity.
Non-monetary assets and liabilities denominated in foreign currencies that are reported at fair value with changes in fair value charged to the consolidated statements of income, are remeasured at the exchange rate at the balance sheet date, with related exchange gains or losses recorded in the consolidated statements of income. Non-monetary assets and liabilities denominated in foreign currencies that are reported at fair value with changes in fair value charged to consolidated stockholders’equity, are remeasured at the exchange rate at the balance sheet date, with related exchange gains or losses recorded as adjustment items to consolidated stockholders’ equity. Non-monetary assets and liabilities denominated in foreign currencies and reported at cost are remeasured at historical exchange rates.
Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that will affect the amount of assets and liabilities, the disclosure of contin- gent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results may differ from those estimates.
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Translation of Foreign Currency Financial Statements The financial statements of foreign subsidiaries and the Branch are translated into New Taiwan Dollars using the spot rates as of each financial statement date for asset and liability accounts, average exchange rates for profit and loss accounts, historical exchange rates for equity accounts, and exchange rates on dividend declaration date for dividends. The cumulative translation effects from the subsidiaries and the Branch using functional currencies other than New Taiwan Dollars are included in the cumulative translation adjustment in consolidated stockholders’ equity.
Cash Equivalents Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and with maturity dates that do not present significant risks on changes in value resulting from changes in interest rates, including commercial paper with original maturities of three months or less.
Financial Instruments In accordance with ROC SFAS No. 34, “Financial Instruments: Recognition and Measurement” and the “Guidelines Govern- ing the Preparation of Financial Reports by Securities Issuers”, financial assets are classified as either financial assets at fair value through profit or loss, held-to-maturity financial assets, financial assets measured at cost, or available-for-sale financial assets. Financial liabilities are recorded at fair value through profit or loss.
The Company accounts for purchase or sale of financial instruments as of the trade date, which is the date that the Company commits to purchasing or selling the asset or liability. Financial assets and financial liabilities are initially recognized at fair value plus acquisition or issuance costs. Accounting policies prior to December 31, 2005 are described in Note 3.
a. Financial instruments at fair value through profit or loss Financial instruments held for short-term sale or repurchase purposes, and derivative financial instruments not qualified for hedge accounting, are classified as financial assets or liabilities at fair value through profit or loss.
This category of financial instruments is measured at fair value, and changes in fair value are recognized in the consolidated statements of income. Stock of listed companies, convertible bonds, and close-end funds are measured at closing prices as of the balance sheet date. Open-end funds are measured at the unit price of the net assets as of the balance sheet date. The fair value of derivative financial instruments is determined by using valuation techniques commonly used by market participants.
b. Held-to-maturity financial assets Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity financial assets if the Company has both the positive intention and ability to hold the financial assets to maturity. Investments intended to be held to maturity are measured at amortized cost.
The Company recognizes an impairment loss if objective evidence of impairment loss exists. However, the impairment loss may be reversed if the value of asset recovers subsequently and the Company concludes the recovery is related to improvements in events or factors that originally caused the impairment loss. The new cost basis as a result of the reversal cannot exceed the amortized cost prior to the impairment.
209 United Microelectronics Corporation | Annual Report 2006
c. Financial assets measured at cost Unlisted stock, funds, and other securities without reliable market prices are measured at cost. When objective evidence of impairment exists, the Company recognizes an impairment loss, which cannot be reversed in subsequent periods.
d. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial instruments not classified as financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables. Subsequent measurement is calculated at fair value. Investments in listed companies are measured at closing prices as of the balance sheet date. Any gain or loss arising from the change in fair value, excluding impairment loss and exchange gain or loss arising from monetary financial assets denominated in foreign currencies, is recognized as an adjustment to consolidated stockholders’ equity until such investment is reclassified or disposed of, upon which the cumulative gain or loss previously charged to consolidated stockholders’ equity will be recorded in the consolidated statement of income.
The Company recognizes an impairment loss when objective evidence of impairment exists. Any reduction in the loss of equity investments in subsequent periods will be recognized as an adjustment to consolidated stockholders’ equity. The impairment loss of a debt security may be reversed and recognized in the current year’s consolidated statement of income if the security recovers and the Company concludes the recovery is clearly related to improvements in the factors or events that originally caused the impairment.
Allowance for Doubtful Accounts An allowance for doubtful accounts is provided based on management’s judgment of the collectibility and aging analysis of accounts and other receivables.
Inventories Inventories are accounted for on a perpetual basis. Raw materials are recorded at actual purchase costs, while the work in process and finished goods are recorded at standard costs and adjusted to actual costs using the weighted-average method at the end of each month. Inventories are stated individually by category at the lower of aggregate cost or market value as of the balance sheet date. The market values of raw materials and supplies are determined on the basis of replacement cost while the market values of work in process and finished goods are determined by net realizable values. An allowance for loss on decline in market value or obsolescence is provided, when necessary.
Long-term Investments Accounted for Under the Equity Method Long-term investments are initially recorded at acquisition cost. Investments acquired by the contribution of technological know-how are credited to deferred credits among affiliates, which will be amortized to income over a period of 5 years.
Investments in which the Company has ownership of at least 20% or exercises significant influence on operating decisions are accounted for under the equity method. Prior to January 1, 2006, the difference of the acquisition cost and the underlying equity in the investee’s net assets as of acquisition date was amortized over 5 years; however, effective January 1, 2006, arising differences from new acquisitions are analyzed and accounted for under the ROC SFAS No. 25, “Business Combination – Ac- counting Treatment under Purchase Method”, where goodwill is no longer to be amortized.
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The change in the Company’s proportionate share in the net assets of an investee resulting from its acquisition of additional stock issued by the investee at a rate not proportionate to its existing equity ownership is charged to the additional paid-in capital and long-term investments accounts.
Unrealized intercompany gains and losses arising from sales from the Company to equity method investees are eliminated in proportion to the Company’s year end ownership percentage until realized through transactions with third parties. Inter- company gains and losses arising from transactions between the Company and majority-owned (above 50%) subsidiaries are eliminated entirely until realized through transactions with third parties.
Unrealized intercompany gains and losses due to sales from equity method investees to the Company are eliminated in pro- portion to the Company’s weighted-average ownership percentage of the investee until realized through transactions with third parties.
Unrealized intercompany gains and losses arising from transactions between two equity method investees are eliminated in proportion to the Company’s multiplied weighted-average ownership percentage with the investees until realized through transactions with third parties. Those intercompany gains and losses arising from transactions between two majority-owned subsidiaries are eliminated in proportion to the Company’s weighted-average ownership percentage in the subsidiary that incurred the gain or loss.
If the recoverable amount of investees accounted for under the equity method is less than its carrying amount, the difference is to be recognized as impairment loss in the current period.
The total value of an investment and related receivables cannot be negative. If, after the investment loss is recognized, the net book value of the investment is less than zero, the investment is reclassified to other liabilities on the consolidated balance sheet.
Property, Plant and Equipment Property, plant and equipment are stated at cost. Interest incurred on loans used to finance the construction of property, plant and equipment is capitalized and depreciated accordingly. Maintenance and repairs are charged to expense as incurred. Sig- nificant renewals and improvements are treated as capital expenditures and are depreciated over their estimated useful lives. When property, plant and equipment are disposed, their original cost and accumulated depreciation are written off and the related gain or loss is classified as non-operating income or expense. Idle assets are classified as other assets at the lower of net book or net realizable value, with the difference charged to non-operating expenses.
Depreciation is recognized on a straight-line basis using the estimated economic life of the assets less salvage value, if any. If the main property, plant and equipment are fully depreciated and sub property, plant and equipment are still in use, the depreciation is based on the newly estimated remaining useful life. The estimated economic life of the property, plant and equipment is as follows: buildings – 3 to 55 years; machinery and equipment – 5 to 6 years; transportation equipment – 4 to 5 years; furniture and fixtures – 2 to 20 years; leased assets and leasehold improvements – the lease period or estimated eco- nomic life, whichever is shorter.
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Intangible Assets Effective January 1, 2006, goodwill generated from business combinations is no longer subject to amortization.
Technological know-how is stated at cost and amortized over its estimated economic life using the straight-line method.
An impairment loss will be recognized when the decreases in fair value of intangible assets are other than temporary. The book value after recognizing the impairment loss is recorded as the new cost.
Deferred Charges Deferred charges are stated at cost and amortized on a straight-line basis as follows: intellectual property license fees—select the shorter term of contract or estimated economic life of the related technology; and software—3 years.
Prior to December 31, 2005, the issuance costs of convertible and exchangeable bonds were classified as deferred charges and amortized over the life of the bonds. Effective January 1, 2006, the unamortized amounts as of December 31, 2005 were reclas- sified as a bond discount and recorded as a deduction to bonds payable. The amounts are amortized using the effective inter- est method over the remaining life of the bonds. If the difference between the straight-line method and the effective interest method is immaterial, the amortization of the bond discount may be amortized using the straight-line method and recorded as the adjustment of interest expenses.
Convertible and Exchangeable Bonds The excess of the stated redemption price over par value is accrued as interest payable and expensed over the redemption pe- riod using the effective interest method.
When convertible bondholders exercise their conversion rights, the book value of the bonds is credited to common stock at an amount equal to the par value of the common stock with the excess credited to additional paid-in capital. No gain or loss is recognized on bond conversion.
When exchangeable bondholders exercise their right to exchange their bonds for reference shares, the book value of the bonds is offset against the book value of the investments in reference shares and the related consolidated stockholders’ equity ac- counts, with the difference recognized as a gain or loss on disposal of investments.
In accordance with ROC SFAS No. 34, “Financial Instruments: Recognition and Measurement” effective as of January 1, 2006, since the economic and risk characteristics of the embedded derivative instrument and the host contract are not clearly and closely related, derivative financial instruments embedded in exchangeable bonds shall be bifurcated and accounted as finan- cial liabilities at fair value through profit or loss.
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Pension Plan All regular employees are entitled to a defined benefit pension plan that is managed by an independently administered pension fund committee. Fund assets are deposited in the committee’s name in the Central Trust of China and hence, not associated with UMC. Therefore, fund assets are not to be included in UMC’s consolidated financial statements. Pension benefits for employees of the Branch and overseas subsidiaries are provided in accordance with the local regulations.
The Labor Pension Act of the ROC (the Act), which adopts a defined contribution plan, became effective on July 1, 2005. - Em ployees subject to the Labor Standards Law, a defined benefit plan, were allowed to choose to either elect the pension calcula- tion under the Act or continue to be subject to the pension calculation under the Labor Standards Law. Those employees that elected to be subject to the Act will have their seniority achieved under the Labor Standards Law retained upon election of the Act, and UMC will make monthly contributions of no less than 6% of these employees’ monthly wages to the employees’ individual pension accounts.
The accounting for UMC’s pension liability is computed in accordance with ROC SFAS No.18. Net pension costs of the de- fined benefit plan are recorded based on an actuarial valuation. Pension cost components such as service cost, interest cost, expected return on plan assets, the amortization of net obligation at transition, pension gain or loss, and prior service cost, are all taken into consideration by the actuary. UMC recognizes expenses from the defined contribution pension plan in the period in which the contribution becomes due.
Employee Stock Option Plan The Company uses intrinsic value method to recognize compensation cost for its employee stock options issued since January 1, 2004. Under the intrinsic value method, the Company recognizes the difference between the market price of the stock on date of grant and the exercise price of its employee stock option as compensation cost. The Company also discloses pro forma net income and earnings per share under the fair value method for options granted since January 1, 2004.
Treasury Stock The Company adopted ROC SFAS No. 30, “Accounting for Treasury Stocks” which requires that treasury stock held by the Company to be accounted for under the cost method. The cost of treasury stock is shown as a deduction to consolidated stock- holders’ equity, while any gain or loss from selling treasury stock is treated as an adjustment to additional paid-in capital. The Company’s stock held by its subsidiaries is also treated as treasury stock.
Revenue Recognition The Company recognizes revenue when persuasive evidence of an arrangement exists, the product or service has been deliv- ered, the seller’s price to the buyer is fixed or determinable and collectibility is reasonably assured. Most of the Company’s sales transactions have shipping terms of Free on Board (FOB) or Free Carrier (FCA) shipment in which title and the risk of loss or damage is transferred to the customer upon delivery of the product to a carrier approved by the customer.
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Allowance for sales returns and discounts are estimated taking into consideration customer complaints, historical experi- ences, management judgment and any other known factors that might significantly affect collectibility. Such allowances are recorded in the same period in which sales are made.
Capital Expenditure versus Operating Expenditure An expenditure is capitalized when it is probable that the Company will receive future economic benefits associated with the expenditure and the expenditure amount exceeds a predetermined amount. Otherwise, the expenditure is expensed as incurred.
Income Tax The Company adopted ROC SFAS No. 22, “Accounting for Income Taxes” for inter-period and intra-period income tax al- location. The provision for income taxes includes deferred income tax assets and liabilities that are a result of temporary dif- ferences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, loss carry-forward and investment tax credits. A valuation allowance on deferred income tax assets is provided to the extent that it is more likely than not that the tax benefits will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected reversal date of the temporary difference.
According to ROC SFAS No. 12, “Accounting for Income Tax Credits”, the Company recognizes the tax benefit from the pur- chase of equipment and technology, research and development expenditure, employee training, and certain equity investment by the flow-through method.
Income tax (10%) on unappropriated earnings is recorded as expense in the year in which the shareholders have resolved that the earnings shall be retained.
The Income Basic Tax Act of the R.O.C. (the IBTA) became effective on January 1, 2006. Set up by the Executive Yuan, the IBTA is a supplemental 10% tax that is payable if the income tax payable determined by the ROC Income Tax Act is below the minimum amount as prescribed by the IBTA. The IBTA is calculated based on taxable income as defined by the IBTA, which includes most income that is exempted from income tax under various legislations. The impact of the IBTA has been consid- ered in the Company’s income tax for the current reporting period.
Earnings per Share Earnings per share is computed according to ROC SFAS No. 24, “Earnings Per Share.” Basic earnings per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the current reporting period. Diluted earnings per share is computed by taking basic earnings per share into consideration plus additional common shares that would have been outstanding if the dilutive share equivalents had been issued. Net income (loss) is also adjusted for interest and other income or expenses derived from any underlying dilutive share equivalents. The weighted-average of outstanding shares is adjusted retroactively for stock dividends and bonus share issues.
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Asset Impairment Pursuant to ROC SFAS No. 35, the Company assesses indicators of impairment for all its assets (except for goodwill) within the scope of the standard at each balance sheet date. If impairment is indicated, the Company compares the asset’s carrying amount with the recoverable amount of the assets or the cash-generating unit (CGU) associated with the asset and writes down the carrying amount to the recoverable amount where applicable. The recoverable amount is defined as the higher of fair value less the costs to sell and the values in use. For previously recognized losses, the Company assesses at the balance sheet date any indication that the impairment loss no longer exists or may have diminished. If there is any such indication, the Company recalculates the recoverable amount of the asset, and if the recoverable amount has increased as a result of the increase in the estimated service potential of the assets, the Company reverses the impairment loss so that the resulting carry- ing amount of the asset does not exceed the amount (net of amortization or depreciation) that would otherwise result had no impairment loss been recognized for the assets in prior years.
In addition, a goodwill-allocated CGU or group of CGUs is tested for impairment each year, regardless of whether impairment is indicated. If an impairment test reveals that the carrying amount, including goodwill, of CGU or group of CGUs is greater than its recoverable amount, there is an impairment loss. The loss is first recorded against the CGU’s goodwill, with any remaining loss allocated to other assets on a pro rata basis proportionate to their carrying amounts. The write-down of goodwill cannot be reversed in subsequent periods under any circumstances.
Impairment losses and reversals are classified as non-operating loss and income, respectively.
3. ACCOUNTING CHANGES Asset Impairment The Company adopted the ROC SFAS No. 35, “Accounting for Asset Impairment” to account for the impairment of its assets for its financial statements effective January 1, 2005. No retroactive adjustment is required under the standard. With such a change, the Company’s consolidated net income was reduced by NT$370 million and the consolidated earnings per share was decreased by NT$0.02.
Goodwill The Company adopted the amendments to ROC SFAS No. 1, “Conceptual Framework of Financial Accounting and Preparation of Financial Statements,” SFAS No. 5, “Long-Term Investments in Equity Securities,” and SFAS No. 25, “Business Combinations—Accounting Treatment under Purchase Method,” all of which have discontinued the amortization of goodwill effective on January 1, 2006. As a result of adopting the revised SFAS No.1, revised SFAS No.5 and revised SFAS No.25 on January 1, 2006, the Company’s total assets as of December 31, 2006 are NT$ 856 million higher than if it had continued to account for goodwill under the prior year’s requirements. The consolidated net income and earnings per share for the year ended December 31, 2006, are NT$856 million and NT$0.05 higher, respectively, than if the Company had continued to account for goodwill under the prior year’s requirements.
215 United Microelectronics Corporation | Annual Report 2006
Financial Instruments (1) The Company adopted ROC SFAS No. 34, “Financial Instruments: Recognition and Measurement” and SFAS No. 36, “Financial Instruments: Disclosure and Presentation” to account for the financial instruments effective January 1, 2006. Some prior year items have been reclassified as required by ROC “Guidelines Governing the Preparation of Financial Reports by Securities Issuers,” SFAS No. 34 and No. 36 to conform with current year’s presentation.
(2) The accounting policies prior to December 31, 2005 are as follows: a. Marketable Securities Marketable securities were recorded at cost at acquisition and were stated at the lower of aggregate cost or market value as of the balance sheet date. Cash dividends were recognized as dividend income at the point of receipt. Costs of money market funds and short-term notes were identified specifically while other marketable securities were determined by the weighted-average method. The market values of listed debts, equity securities and closed-end funds were determined by the average closing price during the last month of the fiscal year. The market value for open-end funds was determined by the net asset value as of the balance sheet date. The amount by which the aggregate cost exceeded the market value was reported as a loss in the current year. In subsequent periods, recovery of the market value was recognized as a gain to the extent that the market value did not exceed the original aggregate cost of the investment.
b. Long-Term Investment – Cost Method or Lower of Cost or Market Value Method Investments of less than 20% of the outstanding voting rights in listed investees, where significant influence on operating decisions of the investees does not reside with the Company, were accounted for by the lower of aggregate cost or market value method. The unrealized loss resulting from the decline in market value of investments that were held for the purpose of long-term investment was deducted from the consolidated stockholders’ equity. The market value as of the balance sheet date was determined by the average closing price during the last month of the reporting period. Investments of less than 20% of the outstanding voting rights in unlisted investees were accounted for under the cost method. The Company recognized an impairment loss on investments if objective evidence existed demonstrating an other than temporary decline in fair value. The book value of the investment was written down to its fair market value.
c. Derivative Financial Instruments The net receivables or payables resulting from interest rate swap and forward contracts were recorded under current assets or current liabilities before December 31, 2005.
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(3) The above changes in accounting principles increased the Company’s total assets, total liabilities, and stockholders’ equity as of January 1, 2006 by NT$24,246 million, NT$1,326 million, and NT$22,920 million, respectively; and resulted in an unfavorable cumulative effect of changes in accounting principles of NT$1,189 million to be deducted from consolidated net income, thereby reducing basic earnings per share by NT$0.06 for the year ended December 31, 2006. Gains and Losses of Equity Method Investees Pursuant to revised ROC SFAS No.5, “Accounting for Long-term Investment” effective on January 1, 2005, certain gains or losses of equity investees were recognized based on the gains or losses incurred in the current period and could not be deferred to the next year. As a result of the amendment, the consolidated net income and the basic earnings per share for the year ended December 31, 2005 were reduced by NT$113 million and NT$0.01, respectively.
4. CONTENTS OF SIGNIFICANT ACCOUNTS
(1) CASH AND CASH EQUIVALENTS As of December 31, 2006 2005 Cash: Cash on hand $2,665 $2,814 Checking and savings accounts 4,527,578 4,150,657 Time deposits 80,909,065 91,976,196 Subtotal 85,439,308 96,129,667
Cash equivalents 8,413,900 12,497,133 Total $93,853,208 $108,626,800
(2) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS, CURRENT As of December 31, Held for trading 2006 2005 Listed stocks $8,094,274 $1,250,280 Convertible bonds 443,733 1,218,688 Total $8,538,007 $2,468,968
During the year ended December 31, 2006, net gain arising from the changes in fair value of financial assets at fair value through profit or loss, current, was NT$712 million.
217 United Microelectronics Corporation | Annual Report 2006
(3) AVAILABLE-FOR-SALE FINANCIAL ASSETS, CURRENT As of December 31, 2006 2005 Common stock $- $1,004,878 Preferred stock - 1,409,275 Total $- $2,414,153
(4) HELD-TO-MATURITY FINANCIAL ASSETS As of December 31, 2006 2005 Credit-linked deposits and repackage bonds $1,110,422 $1,116,806 Less: Non-current portion - (1,116,806) Total $1,110,422 $-
(5) NOTES RECEIVABLE As of December 31, 2006 2005 Notes receivable $3,733 $193
(6) ACCOUNTS RECEIVABLE, NET As of December 31, 2006 2005 Accounts receivable $14,824,524 $14,459,202 Less: Allowance for sales returns and discounts (794,444) (681,449) Less: Allowance for doubtful accounts (1,996) (149,319) Net $14,028,084 $13,628,434
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(7) INVENTORIES, NET As of December 31, 2006 2005 Raw materials $1,157,909 $310,393 Supplies and spare parts 1,974,417 1,917,444 Work in process 7,220,955 8,141,427 Finished goods 1,636,365 1,140,774 Total 11,989,646 11,510,038 Less: Allowance for loss on decline in market value and (1,111,464) (797,503) obsolescence Net $10,878,182 $10,712,535
Inventories were not pledged.
(8) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS, NONCURRENT As of December 31, 2006 2005 Convertible bonds $474,738 $-
During the year ended December 31, 2006, net gain arising from the changes in fair value of financial assets at fair value through profit or loss, noncurrent, was NT$90 million.
(9) AVAILABLE-FOR-SALE FINANCIAL ASSETS, NONCURRENT As of December 31, 2006 2005 Common stock $52,311,172 $6,812,103
During the year ended December 31, 2006, the Company recognized a net gain of NT$8,282 million due to the changes in fair value as an adjustment to consolidated stockholders’ equity.
(10) FINANCIAL ASSETS MEASURED AT COST, NONCURRENT As of December 31, 2006 2005 Common stock $4,614,880 $3,982,342 Preferred stock 2,387,508 1,957,968 Funds 513,557 634,490 Total $7,515,945 $6,574,800
219 United Microelectronics Corporation | Annual Report 2006
(11) LONG-TERM INVESTMENTS ACCOUNTED FOR UNDER THE EQUITY METHOD a. Details of long-term investments accounted for under the equity method are as follows: As of December 31, 2006 2005 Investee Companies Amount Percentage of Amount Percentage of Ownership Ownership or or Voting Voting Rights Rights Listed companies HOLTEK SEMICONDUCTOR INC. $878,747 24.45 $818,681 24.81 ITE TECH. INC. 341,268 21.80 329,704 22.66 UNIMICRON TECHNOLOGY CORP. - - 4,370,256 22.26 (UNIMICRON)(Note A)
FARADAY TECHNOLOGY CORP. (Note B) - - 864,928 18.50 SILICON INTEGRATED SYSTEMS CORP. - - 3,921,878 16.59 (Note B) HARVATEK CORP. (Note C) - - 346,020 16.50 NOVATEK MICROELECTRONICS CORP. - - 1,538,740 12.54 (Note B) SERCOMM CORP. (Note C) - - 267,807 12.15 Subtotal 1,220,015 12,458,014
Unlisted companies PACIFIC VENTURE CAPITAL CO., LTD. 127,379 49.99 296,218 49.99 MTIC HOLDINGS PTE LTD. 81,402 49.94 - - ANOTO TAIWAN CORP. 32,622 49.00 - - SMEDIA TECHNOLOGY CORP. 153,830 48.73 71,848 38.32 UWAVE TECHNOLOGY CORP. 36,823 48.64 74,937 48.64 UCA TECHNOLOGY INC. 50,128 48.33 34,881 45.53 MEGA MISSION LIMITED PARTNERSHIP 2,699,491 45.00 - - YUNG LI INVESTMENTS, INC. 202,390 44.44 - - ACHIEVE MADE INTERNATIONAL LTD. 30,845 44.44 - - UNITECH CAPITAL INC. 959,542 42.00 638,946 42.00 STAR SEMICONDUCTOR CORP. 19,417 41.19 30,962 33.47 WALTOP INTERNATIONAL CORP. 117,457 40.00 - - NEXPOWER TECHNOLOGY CORP. 11,976 40.00 7,982 40.00 HSUN CHIEH INVESTMENT CO., LTD. 4,674,311 36.49 - - (HSUN CHIEH) (Note D) AEVOE INTERNATIONAL LTD. 12,610 35.80 - -
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As of December 31, 2006 2005 Investee Companies Amount Percentage of Amount Percentage of Ownership Ownership or or Voting Voting Rights Rights UC FUND II $122,648 35.45 $133,217 35.45 TERA XTAL TECHNOLOGY CORP. 108,950 35.00 - - CRYSTAL MEDIA INC. 50,649 34.03 12,803 34.36 XGI TECHNOLOGY INC. 96,685 31.62 150,477 31.70 HIGHLINK TECHNOLOGY CORP. 361,378 30.63 208,833 22.18 ALLIANCE OPTOTEK CORP. 47,107 29.09 - - AMIC TECHNOLOGY CORP. 176,287 28.94 186,010 28.95 U-MEDIA COMMUNICATIONS, INC. 24,110 26.05 36,524 26.26 AFA TECHNOLOGY, INC. 40,766 24.97 38,157 30.46 MOBILE DEVICES INC. 25,076 23.86 48,555 26.28 PARADE TECHNOLOGIES, LTD. 65,560 23.30 81,949 24.63 HIGH POWER LIGHTING CORP. 60,434 23.00 - - USBEST TECHNOLOGY INC. 52,711 21.45 69,973 33.80 AEVOE INC. - - 6,674 39.47 DAVICOM SEMICONDUCTOR, INC. - - 145,649 21.56 (Note E) CHIP ADVANCED TECHNOLOGY INC. - - 30,740 21.91 (Note E)
TOPPAN PHOTOMASKS TAIWAN LTD. - - 1,063,671 45.35 (formerly DUPONT PHOTOMASKS TAIWAN LTD.) ULI ELECTRONICS INC. - - 452,203 26.77 PATENTOP, LTD (Note C, F) - - 1,245 18.00 Subtotal 10,442,584 3,822,454 Elimination of upstream and intercompany - (17,612) transaction (Note G) Total $11,662,599 $16,262,856
Note A: As UMC did not have significant influence after decreasing its percentage of ownership in UNIMICRON in 2006, the investee was classified as available-for-sale financial asset.
Note B: In the beginning of 2006 as UMC determined it did not have significant influence over the investee, and in accordance with ROC SFAS No. 34, the investee was classified as available-for-sale financial asset.
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Note C: The equity method was applied for investees in which the Company held the highest percentage of the outstanding voting rights and had significant influence on operating decisions.
Note D: As of January 27, 2006, UMC sold 58.5 million shares of HSUN CHIEH. UMC’s ownership percentage decreased from 99.97% to 36.49%. As HSUN CHIEH ceased to be a subsidiary, UMC’s stock held by HSUN CHIEH was reclassified from treasury stock to long-term investments accounted for under the equity method. The reclassification increased long-term investments accounted for under the equity method and stockholders’ equity by NT$10,881 million.
Note E: As the Company did not have significant influence after decreasing its percentage of ownership, these investments were classified as financial assets measured at cost in 2006.
Note F: In the beginning of 2006, as the Company determined it did not have significant influence over the investee, and in compliance with the ROC SFAS No. 34, the investment in the investee was classified as financial assets measured at cost.
Note G: This balance represents the unrealized balance of deferred gains or losses arising from the transfer of equity investment ownership among the affiliated companies including downstream, upstream, and intercompany transactions. The amount will be realized upon disposal of the affiliate, transactions with a third party, or the change of percentage of ownership.
b. The total gains arising from investments accounted for under the equity method were NT$1,178 million and NT$1,097 million for the years ended December 31, 2006 and 2005, respectively. Among which, investment income amounted to NT$848 million and NT$1,031 million for the years ended December 31, 2006 and 2005, respectively, and the related long-term investment balances of NT$1,719 million and NT$6,253 million as of December 31, 2006 and 2005, respectively, were determined based on the investees’ financial statements audited by other auditors.
c. Pursuant to the revised ROC SFAS No. 5, “Accounting for Long-term Investments” effective on January 1, 2005, investment income (loss) of UWAVE TECHNOLOGY CORP., SERCOMM CORP., HARVATEK CORP., PATENTOP, LTD., UC FUND II, RIRA ELECTRONICS, INC., VISTAPOINT, INC., AFA TECHNOLOGY, INC., STAR SEMICONDUCTOR CORP., USBEST TECHNOLOGY INC., UCA TECHNOLOGY INC., CRYSTAL MEDIA INC., U-MEDIA COMMUNICATIONS, INC., AMOD TECHNOLOGY CO., LTD., SMEDIA TECHNOLOGY CORP., and AEVOE INC. was recognized based on the gain or loss incurred in the current period, instead of the prior period. As a result of the adoption of the amendment, the consolidated net income, and the basic earnings per share for the year of 2005 were reduced by NT$113 million and NT$0.01, respectively.
d. The long-term equity investments were not pledged.
222 Financial Review Consolidated
(12) PROPERTY, PLANT AND EQUIPMENT As of December 31, 2006 Cost Accumulated Book Value Depreciation Land $1,879,442 $- $1,879,442 Buildings 21,076,844 (6,807,389) 14,269,455 Machinery and equipment 415,225,873 (302,547,942) 112,677,931 Transportation equipment 90,706 (61,056) 29,650 Furniture and fixtures 2,964,369 (2,240,443) 723,926 Leasehold improvements 42,968 (40,093) 2,875 Construction in progress and prepayments 22,244,850 - 22,244,850 Total $463,525,052 $(311,696,923) $151,828,129
As of December 31, 2005 Cost Accumulated Book Value Depreciation Land $1,893,522 $- $1,893,522 Buildings 21,260,902 (5,969,469) 15,291,433 Machinery and equipment 386,920,282 (261,499,341) 125,420,941 Transportation equipment 89,580 (63,214) 26,366 Furniture and fixtures 2,804,967 (1,936,607) 868,360 Leasehold improvements 43,037 (39,517) 3,520 Construction in progress and prepayments 15,609,497 - 15,609,497 Total $428,621,787 $(269,508,148) $159,113,639
a. Total interest expense before capitalization amounted to NT$648 million and NT$1,364 million for the years ended December 31, 2006 and 2005, respectively.
Details of capitalized interest are as follows: For the year ended December 31, 2006 2005 Machinery and equipment $- $260,294 Other property, plant and equipment - 4,397 Total interest capitalized $- $264,691
Interest rates applied - 2.86%~4.20%
b. Property, plant, and equipment were not pledged.
223 United Microelectronics Corporation | Annual Report 2006
(13) OTHER ASSETS - OTHERS As of December 31, 2006 2005 Leased assets $1,333,029 $1,366,695 Deposits-out 738,696 678,929 Others 260,429 150,614 Total $2,332,154 $2,196,238
Please refer to Note 6 for deposits-out pledged as collateral.
(14) IMPAIRMENT As of December 31, 2006 2005 Available-for-sale financial assets, noncurrent $825,863 $3,848 Long-term investment accounted for under the equity 33,217 250,435 method Financial assets measured at cost, noncurrent 215,071 86,259 Technology know-how 256,142 - Other assets - 120,000 Total $1,330,293 $460,542
(15) SHORT-TERM LOANS As of December 31, 2006 2005 Secured bank loans $- $6,066,478 Unsecured bank loans 342,549 69,858 Total $342,549 $6,136,336 Interest rates 3.25%~5.85% 1.5%~4.88%
a. The Company’s unused short-term lines of credits amounted to NT$13,057 million and NT$14,658 million in 2006 and 2005, respectively.
b. Assets pledged as collateral to secure these loans are detailed in Note 6.
224 Financial Review Consolidated
(16) FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS, CURRENT As of December 31, 2006 2005 Interest rate swaps $626,230 $95,634 Derivatives embedded in exchangeable bonds 359,037 - Total $985,267 $95,634
During the year ended December 31, 2006, net gain arising from the changes in fair value of financial liabilities at fair value through profit or loss, current, was NT$312 million.
(17) BONDS PAYABLE
As of December 31, 2006 2005 Domestic unsecured bonds: Issued in April 2001 and due on April 2006, $- $3,000,000 5.1195% ~ 5.1850% interest payable annually Issued in April 2001 and due on April 2008, 5,250,000 7,500,000 5.2170% ~ 5.2850% interest payable annually
Issued in October 2001 and due on October 2006, - 5,000,000 3.4896% ~ 3.520% interest payable annually
Issued in May ~ June 2003 and due on May ~ June 7,500,000 7,500,000 2008, 4.0% minus USD 12-Month LIBOR interest payable annually Issued in May ~ June 2003 and due on May ~ June 7,500,000 7,500,000 2010, 4.3% minus USD 12-Month LIBOR interest payable annually Zero coupon convertible bonds: Issued in March 2002 and due on March 2007 1,484,268 2,579,385
Issued in November 2003 and due on November 2,225,020 3,103,719 2013
Issued in October 2005 and due on February 2008 12,441,268 12,540,432
Zero coupon exchangeable bonds: Issued in May 2002 and due on May 2007 3,122,060 3,218,623
(Discounts) premiums on convertible bonds (71,257) - Subtotal 39,451,359 51,942,159 Less: Current portion (9,068,283) (10,250,000) Net $30,383,076 $41,692,159
225 United Microelectronics Corporation | Annual Report 2006
a. On April 27, 2000, UMC issued five-year secured bonds amounting to NT$3,990 million. The interest was paid semi-annually with a stated interest rate of 5.6%. The bonds were repaid in installments every six months from April 27, 2002 to April 27, 2005. On April 27, 2005, the bonds were fully repaid.
b. During the period from April 16 to April 27, 2001, UMC issued five-year and seven-year unsecured bonds totaling NT$15,000 million, each with a face value of NT$7,500 million. The interest is paid annually with stated interest rates of 5.1195% through 5.1850% and 5.2170% through 5.2850%, respectively. The five-year bonds and seven-year bonds are repaid starting from April 2004 to April 2006 and April 2006 to April 2008, respectively, both in three yearly installments at the rates of 30%, 30% and 40%. On April 27, 2006, the five-year bonds were fully repaid.
c. During the period from October 2 to October 15, 2001, UMC issued three-year and five-year unsecured bonds totaling NT$10,000 million, each with a face value of NT$5,000 million. The interest was paid annually with stated interest rates of 3.3912% through 3.420% and 3.4896% through 3.520%, respectively. On October 15, 2006 and 2004, the five-year bonds and the three-year bonds were fully repaid, respectively.
d. On May 10, 2002, UMC issued zero coupon exchangeable bonds listed on the EuroMTF Market of the Luxembourg Stock Exchange (LSE). The terms and conditions of the bonds are as follows:
(a) Issue Amount: US$235 million
(b) Period: May 10, 2002 ~ May 10, 2007
(c) Redemption i. UMC may redeem the bonds, in whole or in part, after three months of the issuance and prior to the maturity date, at their principal amount if the closing price of the AU Optronics Corp (AUO) common shares on the TSE, translated into US dollars at the prevailing exchange rate, for a period of 20 consecutive trading days, the last of which occurs not more than 10 days prior to the date upon which notice of such redemption is published, is at least 120% of the exchange price then in effect translated into US dollars at the rate of NT$34.645=US$ 1.00.
ii. UMC may redeem the bonds, in whole, but not in part, if at least 90% in principal amount of the bonds has already been exchanged, redeemed or purchased and cancelled.
iii. UMC may redeem all, but not part, of the bonds, at any time, in the event of certain changes in the ROC tax rules which would require UMC to gross up for payments of principal, or to gross up for payments of interest or premium.
iv. UMC will, at the option of the bondholders, redeem such bonds on February 10, 2005 at its principal amount.
226 Financial Review Consolidated
(d) Terms of Exchange i. Underlying securities: ADSs or common shares of AUO.
ii. Exchange Period: The bonds are exchangeable at any time on or after June 19, 2002 and prior to April 10, 2007, into AUO common shares or AUO ADSs; provided, however, that if the exercise date falls within 5 business days from the beginning of, and during, any closed period, the right of the exchanging holder of the bonds to vote with respect to the shares it receives will be subject to certain restrictions.
iii. Exchange Price and Adjustment: The exchange price is NT$44.3 per share, determined on the basis of a fixed exchange rate of NT$34.645=US$1.00. The exchange price will be subject to adjustments upon the occurrence of certain events set out in the indenture.
(e) Exchange of the Bonds As of December 31, 2006 and 2005, certain bondholders have exercised their rights to exchange their bonds with the total principal amount of US$139 million and US$137 million into AUO shares, respectively. Gains arising from the exercise of exchange rights during the year ended December 31, 2006 amounted NT$65 million and was recognized as gain on disposal of investment. No bonds were exchanged during the year ended December 31, 2005. e. During the period from May 21 to June 24, 2003, UMC issued five-year and seven-year unsecured bonds totaling NT$15,000 million, each with a face value of NT$7,500 million. The interest is paid annually with stated interest rates of 4.0% minus USD 12-Month LIBOR and 4.3% minus USD 12-Month LIBOR, respectively. Stated interest rates are reset annually based on the prevailing USD 12-Month LIBOR. The five-year bonds and seven-year bonds are repayable in 2008 and 2010, respectively, upon the maturity of the bonds. f. On October 5, 2005, UMC issued zero coupon convertible bonds on the LSE. The terms and conditions of the bonds are as follows:
(a) Issue Amount: US$381.4 million
(b) Period: October 5, 2005 ~ February 15, 2008 (Maturity date)
(c) Redemption: i. On or at any time after April 5, 2007, if the closing price of the ADSs listed on the NYSE has been at least 130% of either the conversion price or the last adjusted conversion price, for 20 out of 30 consecutive ADS trading days, UMC may redeem all, but not some only, of the bonds.
ii. If at least 90% in principal amount of the bonds have already been redeemed, repurchased, cancelled or converted, UMC may redeem all, but not some only, of the bonds.
227 United Microelectronics Corporation | Annual Report 2006
iii. In the event that UMC’s ADSs or shares have officially ceased to be listed or admitted for trading on the New York Stock Exchange or the Taiwan Stock Exchange, as the case may be, each bondholder shall have the right, at such bondholder’s option, to require UMC to repurchase all, but not in part, of such bondholder’s bonds at their principal amount.
iv. In the event of certain changes in taxation in the R.O.C. resulting in UMC becoming required to pay additional amounts, UMC may redeem all, but not part, of the bonds at their principal amount; bondholders may elect not to have their bonds redeemed by UMC in such event, in which case the bondholders shall not be entitled to receive payments of such additional amounts.
v. If a change of control occurs with respect to UMC, each bondholder shall have the right at such bondholder’s option, to require UMC to repurchase all, but not in part, of such bondholder’s bonds at their principal amount.
vi. UMC will pay the principal amount of the bonds at its maturity date, February 15, 2008.
(d) Conversion: i. Conversion Period: Except for the closed period, the bonds may be converted into UMC’s ADSs on or after November 4, 2005 and on or prior to February 5, 2008.
ii. Conversion Price and Adjustment: The conversion price is US$3.693 per ADS. The applicable conversion price will be subject to adjustments upon the occurrence of certain events set out in the indenture.
g. On March 25, 2002, UMC’s subsidiary, UMC JAPAN (UMCJ), issued LSE-listed zero coupon convertible bonds with an aggregate principal amount of JPY17,000 million and the issue price was set at 101.75% of the principal amount. The terms and conditions of the bonds are as follows:
(a) Final Redemption Unless previously converted, purchased and cancelled or redeemed, the bonds must be redeemed on March 26, 2007 at their principal amount.
(b) Redemption at the Option of UMCJ i. On or at any time after March 25, 2005, UMCJ may redeem all, but not part, of the bonds if the closing price of the shares on the Japan OTC Market is at least 120% of the conversion price then in effect for at least 20 out of 30 consecutive trading days ending on the trading day immediately prior to the date of the notice of redemption; or if the principal amount that has not been redeemed, repurchased and cancelled or converted is equal to or less than 10% of original aggregate principal amount.
ii. In case of a corporate split or share exchange share transfer, UMCJ may redeem all, but not part, of the bonds on or prior to the effective date of the transaction, provided that UMCJ is not able to ensure that the bondholders have the right to receive shares which they would have received had the conversion rights been exercised prior to the transaction. 228 Financial Review Consolidated
iii. If a change in who controls UMCJ occurs, bondholders will be able to require UMCJ to redeem their bonds on the date that is 85 days after the change of control occurs.
(c) Conversion Period At any time on or after May 3, 2002 to and including March 19, 2007.
(d) Conversion Price The conversion price was set at JPY400,000 per share, subject to adjustments upon the occurrence of certain events set out in the indenture.
(e) Reacquisition of the Bonds As of December 31, 2006, UMCJ has reacquired and cancelled JPY11,630 million of the bonds from the open market. The corresponding gain on the reacquisition amounting to JPY28 million as other income during the year ended December 31, 2006.
As of December 31, 2005, UMCJ has reacquired and cancelled JPY7,850 million and JPY7,650 million, respectively, of the bonds from the open market. The corresponding gain on the reacquisition amounting to JPY6 million was recognized as other income during the year ended December 31, 2005. h. On November 25, 2003, UMCJ issued its second LSE-listed zero coupon convertible bonds with an aggregate principal amount of JPY21,500 million and the issue price was set at 101.25% of the principal amount. The terms and conditions of the bonds are as follows:
(a) Final Redemption Unless previously converted, purchased and cancelled or redeemed, the bonds must be redeemed on November 25, 2013 at their principal amount.
(b) Redemption at the Option of UMCJ i. On or at any time after November 27, 2006, UMCJ may redeem all, but not part, of the bonds if the closing price of the shares on the Japan OTC Market is at least 120% of the conversion price then in effect for at least 20 out of 30 consecutive trading days ending on the trading day immediately prior to the date of the notice of redemption; or if the principal amount that has been redeemed, repurchased and cancelled or converted is equal to or less than 10% of original aggregate principal amount.
ii. In case of a corporate split or share exchange share transfer, UMCJ may redeem all, but not part, of the bonds on prior or to the effective date of the transaction, provided that UMCJ is not able to ensure that the bondholders have the right to receive shares which they would have received had the conversion rights been exercised prior to the transaction.
iii. If a change in who controls UMCJ occurs, bondholders will be able to require UMCJ to redeem their bonds on the date that is 70 days after the change of control occurs.
229 United Microelectronics Corporation | Annual Report 2006
iv. UMCJ will, at the option of the bondholders, redeem such bonds on November 26, 2007 at its principal amount.
(c) Conversion Period The conversion period may be any time on or after January 5, 2004 and on or prior to November 11, 2013.
(d) Conversion Price The conversion price was set at JPY187,500 per share, subject to adjustment upon the occurrence of certain events set out in the indenture.
(e) Reacquisition of the Bonds As of December 31, 2006, UMCJ has reacquired and cancelled JPY13,450 million and JPY4,160 million of the bonds from the open market. The corresponding gain on the reacquisition amounting to JPY38 million and it was recognized as other income.
As of December 31, 2005, UMCJ had reacquired JPY10,490 million of bonds from the open market. The corresponding gain on the reacquisition amounting to JPY449 million and it was recognized as other income.
i. Repayments of the above bonds in the future years are as follows: (Assuming the convertible bonds and exchangeable bonds are both paid off upon maturity.)
Bonds repayable in Amount 2007 $9,081,348 2008 22,941,268 2009 - 2010 7,500,000 2011 and thereafter - Total $39,522,616
(18) PENSION FUND a. The Labor Pension Act of the R.O.C. (the Act), which adopts a defined contribution plan, became effective on July 1, 2005. Employees subject to the Labor Standards Law, a defined benefit plan, were allowed to choose to either elect the pension calculation under the Act or continue to be subject to the pension calculation under the Labor Standards Law. Those employees that elected to be subject to the Act will have their seniority achieved under the Labor Standards Law retained upon election of the Act, and UMC will make monthly contributions of no less than 6% of these employees’ monthly wages to the employees’ individual pension accounts. UMC and its domestic subsidiaries have made monthly contributions based on each individual employee’s salary or wage to employees’ pension accounts beginning July 1, 2005, and totaled NT$372 million and NT$173 million as of December 31, 2006 and 2005, respectively. Pension benefits for employees of the Branch and subsidiaries overseas are provided in accordance with the local regulations, and the Company has contributed the amount of NT$97 million and NT$74 million as of December 31, 2006 and 2005, respectively.
230 Financial Review Consolidated
b. The defined benefit plan under the Labor Standards Law is disbursed based on the units of service years and the average salary in the last month of the service year. Two units per year are awarded for the first 15 years of services while one unit per year is awarded after the completion of the fifteenth year. The total units shall not exceed 45 units. In accordance to the plan, UMC contributes an amount equivalent to 2% of the employees’ total salaries and wages on a monthly basis to the pension fund deposited at the Central Trust of China in the name of an administered pension fund committee. The unrecognized net asset or obligation at transition based on actuarial valuation is amortized on a straight-line basis over 15 years.
c. Change in benefit obligation during the year: For the year ended December 31, 2006 2005 Projected benefit obligation at beginning of year $(4,778,045) $(4,354,361) Service cost (128,775) (360,107) Interest cost (136,780) (143,058) Benefits paid 38,829 24,128 Gain (loss) on projected benefit obligation (85,973) 55,353 Projected benefit obligation at end of year $(5,090,744) $(4,778,045)
d. Change in pension assets during the year: For the year ended December 31, 2006 2005 Fair value of plan assets at beginning of year $1,620,201 $1,404,130 Actual return on plan assets 62,850 81,453 Contributions from employer 172,475 200,167 Benefits paid (38,829) (24,128) Others 5,625 (41,421) Fair value of plan assets at end of year $1,822,322 $1,620,201
e. The funding status of the pension plan is as follows: As of December 31, 2006 2005 Benefit obligation Vested benefit obligation $(55,213) $(39,069) Non-vested benefit obligation (2,376,276) (2,188,642) Accumulated benefit obligation (2,431,489) (2,227,711) Effect from projected salary increase (2,659,255) (2,550,334) Projected benefit obligation (5,090,744) (4,778,045) Fair value of plan assets 1,822,322 1,620,201 Funded status (3,268,422) (3,157,844) Unrecognized net transitional benefit obligation 118,332 181,481 Unrecognized loss (gain) 36,656 (29,043) Adjustment required to recognize minimum liabilities (1,986) (9,592) Accrued pension liabilities recognized on the consolidated balance sheet $(3,115,420) $(3,014,998)
231 United Microelectronics Corporation | Annual Report 2006
f. The components of the net periodic pension cost are as follows: For the year ended December 31, 2006 2005 Service cost $128,775 $360,107 Interest cost 136,780 143,059 Expected return on plan assets (44,778) (39,577) Amortization of unrecognized transitional net benefit 60,441 39,232 obligation Amortization of unrecognized pension gain (891) (88) Pension costs from subsidiaries over which significant control - 6,978 is no longer held Net periodic pension cost $280,327 $509,711
The actuarial assumptions underlying are as follows: For the year ended December 31, 2006 UMC FORTUNE UMO UMC JAPAN Discount rate 2.75% 2.75% 3.75% 2.00% Rate of salary increase 4.50% 2.00% 4.00% 2.68% Expected return on plan assets 2.50% 2.75% 2.75% 2.00%
For the year ended December 31, 2005 UMC UMO UMC Thintek JAPAN Discount rate 3.00% 3.75% 2.00% 3.75% Rate of salary increase 4.50% 4.00% 2.68% 4.00% Expected return on plan assets 3.00% 2.75% 1.00% 2.75%
(19) CAPITAL STOCK a. UMC had 26,000 million common shares authorized to be issued, and 19,795 million common shares were issued as of December 31, 2005, each at a par value of NT$10.
b. UMC had issued a total of 277 million ADSs that were traded on the NYSE as of December 31, 2005. The total number of common shares of UMC represented by all issued ADSs was 1,384 million shares as of December 31, 2005. One ADS represents five common shares.
232 Financial Review Consolidated
c. On April 26, 2005, UMC cancelled 49 million shares of treasury stocks, which were bought back during the period from February 20 to April 19, 2002 for transfer to employees. d. As recommended by the board of directors, and approved by the shareholders on the meeting held on June 13, 2005, UMC issued 1,956 million new shares from capitalization of retained earnings that amounted to NT$19,560 million, of which NT$17,587 million was stock dividend and NT$1,973 million was employee bonus. The issuance process through the authority had been completed. e. Among the employee stock options issued by UMC on October 7, 2002 and January 3, 2003, 96 million shares were exercised during the year ended December 31, 2005. The issuance process through the authority had been completed. f. UMC had 26,000 million common shares authorized to be issued, and 19,131 million was issued as of December 31, 2006, each at a par value of NT$10. g. Among the employee stock options issued by UMC on October 7, 2002, January 3, 2003 and October 13, 2004, 109 million shares were exercised during the year ended December 31, 2006. The exercise of employee stock options of 47 million shares, 16 million shares and 46 million shares were issued on March 15, 2006, September 25, 2006, and December 27, 2006, respectively. The issuance process through the authority had been completed. h. On May 22, 2006 UMC cancelled 1,000 million shares of treasury stock, which were bought back during the period from February 16, 2006 to April 11, 2006 for retention of UMC’s creditability and stockholders’ interests. i. As recommended by the board of directors, and approved by the shareholders on the meeting held on June 12, 2006, UMC issued 225 million new shares from capitalization of retained earnings and additional paid-in capital that amounted to NT$2,249 million, of which NT$895 million was stock dividend, NT$459 million was employee bonus, and NT$895 million was additional paid-in capital. The issuance process through the authority had been completed. j. UMC had issued a total of 315 million ADSs, which were traded on the NYSE as of December 31, 2006. The total number of common shares of UMC represented by all issued ADSs was 1,576 million shares as of December 31, 2006. One ADS represents five common shares.
233 United Microelectronics Corporation | Annual Report 2006
(20) EMPLOYEE STOCK OPTIONS On September 11, 2002, October 8, 2003, September 30, 2004, and December 22, 2005, the Company was authorized by the Securities and Futures Bureau of the Financial Supervisory Commission, Executive Yuan, to issue employee stock options with a total number of 1 billion, 150 million, 150 million, and 350 million units, respectively. Each unit entitles an optionee to subscribe to 1 share of the Company’s common stock. Settlement upon the exercise of the options will be made through the issuance of new shares by the Company. The exercise price of the options was set at the closing price of the Company’s common stock on the date of grant. The contractual life is 6 years and an optionee may exercise the options in accordance with certain schedules as prescribed by the plan starting 2 years from the date of grant. Detailed information relevant to the employee stock options is disclosed as follows:
Date of grant Total number of Total number of Exercise price options granted options outstanding (NTD) (in thousands) (in thousands) October 7, 2002 939,000 543,834 $15.7 January 3, 2003 61,000 44,571 $17.7 November 26, 2003 57,330 45,443 $24.7 March 23, 2004 33,330 22,110 $22.9 July 1, 2004 56,590 44,460 $20.7 October 13, 2004 20,200 12,905 $17.8 April 29, 2005 23,460 17,790 $16.4 August 16, 2005 54,350 42,610 $21.6 September 29, 2005 51,990 46,675 $19.7 January 4, 2006 39,290 30,690 $17.7 May 22, 2006 42,058 37,040 $19.2 August 24, 2006 28,140 25,830 $18.4
a. A summary of the Company’s stock option plans, and related information for the years ended December 31, 2006 and 2005, are as follows: For the year ended December 31, 2006 2005 Option Weighted-average Option Weighted-average (in thousands) Exercise Price (in thousands) Exercise Price (NTD) (NTD) Outstanding at beginning of period 975,320 $17.3 973,858 $16.8 Granted 109,488 $18.4 129,800 $19.9 Exercised (109,093) $15.7 (95,814) $15.7 Forfeited (61,757) $18.8 (32,524) $18.5 Outstanding at end of period 913,958 $17.5 975,320 $17.3
234 Financial Review Consolidated
For the year ended December 31, 2006 2005 Option Weighted-average Option Weighted-average (in thousands) Exercise Price (in thousands) Exercise Price (NTD) (NTD) Exercisable at end of period 650,268 $16.6 528,373 $16.2
Weighted-average fair value of $5.7 $6.5 options granted during the period (NTD)
b. The information of the Company’s outstanding stock options as of December 31, 2006, is as follows: Outstanding Stock Options Exercisable Stock Options Authorization Range of Option Weighted- Weighted- Option Weighted- Date Exercise (in thousands) average average (in thousands) average Price Remaining Exercise Price Exercise Price Contractual (NTD) (NTD) Life (Years) 2002.09.11 $15.7~$17.7 588,405 1.78 $15.9 577,608 $15.8 2003.10.08 $20.7~$24.7 112,013 3.20 $22.8 67,095 $23.1 2004.09.30 $16.4~$21.6 119,980 4.53 $19.7 5,565 $17.8 2005.12.22 $17.7~$19.2 93,560 5.33 $18.5 - - 913,958 2.68 $17.5 650,268 $16.6 c. The Company uses intrinsic value method to recognize compensation costs for its employee stock options issued since January 1, 2004. The compensation cost for the years ended December 31, 2006 and 2005 are nil because the Company grants options with the exercise price equal to the current market price. Pro forma information using the fair value method on net income and earnings per share is as follows: For the year ended December 31, 2006 Basic earnings per share Diluted earnings per share Net Income $32,619,313 $32,653,291 Earnings per share (NTD) $1.81 $1.75 Pro forma net income $32,149,409 $32,183,387 Pro forma earnings per share (NTD) $1.78 $1.72
For the year ended December 31, 2005 (retroactively adjusted) Basic earnings per share Diluted earnings per share Net Income $7,026,692 $7,035,187 Earnings per share (NTD) $0.38 $0.37 Pro forma net income $6,776,219 $6,784,714 Pro forma earnings per share (NTD) $0.36 $0.36
235 United Microelectronics Corporation | Annual Report 2006
The fair value of the options granted was estimated at the date of grant using the Black-Scholes options pricing model with the following assumptions for the years ended December 31, 2006 and 2005: 2006 2005 Expected dividend yields 1.37%~1.38% 1.63%~1.64% Volatility factors of the expected 35.57%~41.14% 40.35%~43.39% market price Risk-free interest rate 1.88%~2.28% 1.85%~2.24% Weighted-average expected life of 4~5 years 4~5 years the options
(21) TREASURY STOCK a. UMC bought back its own shares from the open market during the years ended December 31, 2006 and 2005. Details of the treasury stock transactions are as follows:
For the year ended December 31, 2006 (In thousands of shares) Purpose As of Increase Decrease As of January 1, 2006 December 31, 2006 For transfer to employees 442,067 400,000 - 842,067 For conversion of the convertible 500,000 - - 500,000 bonds into shares For retention of UMC’s - 1,000,000 1,000,000 - creditability and stockholder’s interests Total shares 942,067 1,400,000 1,000,000 1,342,067
For the year ended December 31, 2005 (In thousands of shares) Purpose As of Increase Decrease As of January 1, 2005 December 31, 2005 For transfer to employees 241,181 250,000 49,114 442,067 For conversion of the convertible - 500,000 - 500,000 bonds into shares Total shares 241,181 750,000 49,114 942,067
b. According to the Securities and Exchange Law of the R.O.C., total shares of treasury stock should not exceed 10% of UMC’s stock issued. Total purchase amount should not exceed the sum of the retained earnings, additional paid-in capital-premiums, and realized additional paid-in capital. As such, the maximum number of shares of treasury stock that UMC could hold as of December 31, 2006 and 2005, were 1,913 million shares and 1,979 million shares with the ceiling of the amounts were NT$ 94,970 million and NT$90,851 million, respectively.
236 Financial Review Consolidated
c. In compliance with Securities and Exchange Law of the R.O.C., treasury stock should not be pledged, nor should it be entitled voting rights or receive dividends. Stock held by subsidiaries is treated as treasury stock. These subsidiaries have the same rights as other stockholders except for subscription to new stock issuance. Starting June 22, 2005, stock held by subsidiaries no longer have voting rights according to the revised Companies Act.
d. As of December 31, 2006, UMC’s subsidiary, FORTUNE VENTURE CAPITAL CORP., held 22 million shares of UMC’s stock, with a book value of NT$ 20.25 per share. The closing price on December 31, 2006 was NT$20.25.
As of December 31, 2005, UMC’s subsidiaries, HSUN CHIEH INVESTMENT CO., LTD. and FORTUNE VENTURE CAPITAL CORP., held 600 million shares and 22 million shares, respectively, of UMC’s stock, with a book value of NT$18.98 and NT$7.87 per share, respectively. The average closing price of UMC’s stock during December 2005 was NT$18.98.
(22) RETAINED EARNINGS AND DIVIDEND POLICIES According to UMC’s Articles of Incorporation, current year’s earnings, if any, shall be distributed in the following order:
a. Payment of all taxes and dues; b. Offset prior years’ operation losses; c. Set aside 10% of the remaining amount after deducting items (a) and (b) as a legal reserve; d. Set aside 0.1% of the remaining amount after deducting items (a), (b), and (c) as directors’ and supervisors’ remuneration; and e. After deducting items (a), (b), and (c) above from the current year’s earnings, no less than 5% of the remaining amount together with the prior years’ unappropriated earnings is to be allocated as employees’ bonus, which will be settled through issuance of new shares of UMC, or cash. Employees of UMC’s subsidiaries, meeting certain requirements determined by the board of directors, are also eligible for the employees’ bonus. f. The distribution of the remaining portion, if any, will be recommended by the board of directors and subject to shareholders’ approval.
UMC has entered a stage of sustained growth; the policy for dividend distribution should reflect factors such as the current and future investment environment, fund requirements, domestic and international competition and capital budgets; as well as the benefit of shareholders, share bonus equilibrium, and long-term financial planning. The board of directors shall make the distribution proposal annually and present it at the shareholders’ meeting. UMC’s Articles of Incorporation further provide that no more than 80% of the dividends to shareholders, if any, may be paid in the form of stock dividends. Accordingly, at least 20% of the dividends must be paid in the form of cash.
The appropriation of 2006 retained earnings has not yet been recommended by the board of directors as of the date of the Report of Independent Auditors. Information on the board of directors’ recommendations and shareholders’ approval can be obtained from the “Market Observation Post System” on the website of the TSE.
237 United Microelectronics Corporation | Annual Report 2006
Details of the 2005 employee bonus settlement and directors’ and supervisors’ remuneration are as follows: For the year ended December 31, 2005 As approved by As recommended Differences the shareholders’ by the board of meeting directors
1. Settlement of employees’ bonus by issuance of new shares a. Number of shares (in thousands) 45,846 45,846 - b. Amount $458,455 $458,455 - c. Percentage on total number of outstanding 0.24 0.24 - shares at year-end (%) 2. Settlement of employees’ bonus by cash $305,636 $305,636 - 3. Remuneration paid to directors and supervisors $6,324 $6,324 -
4. Effect on earnings per share before retroactive adjustments a. Basic and diluted earnings per share (NTD) $0.38/0.38 $0.38/0.38 - b. Pro forma basic and diluted earnings per $0.34/0.34 $0.34/0.34 - share taking into consideration employees’ bonus and directors’ and supervisors’ remuneration (NTD)
Pursuant to Article 41 of the Securities and Exchange Law of the R.O.C., a special reserve is set aside from the current net income and prior unappropriated earnings for items that are accounted for as deductions to consolidated stockholders’ equity such as unrealized loss on long-term investments and cumulative translation adjustments. However, there are the following exceptions for UMC’s investees’ unrealized loss on long-term investments arising from a merger that was recognized by UMC in proportion to UMC’s ownership percentage:
a. According to the explanatory letter No. 101801 of the Securities and Futures Commission (SFC), if UMC recognizes the investees’ additional paid-in capital—excess from the merger in proportion to the ownership percentage, then the special reserve is exempted for the amount originated from the acquisition of the long-term investments.
b. If UMC and its investees transfer a portion of the additional paid-in capital to increase capital, a special reserve equal to the amount of the transfer shall be provided according to the explanatory letter No.101801-1 of the SFC.
c. In accordance with the explanatory letter No.170010 of the SFC applicable to listed companies, in the case where the market value of UMC’s stock held by its subsidiaries at year-end is lower than the book value, a special reserve shall be provided in UMC’s accounts in proportion to its ownership percentage.
For the 2005 appropriations approved by the shareholders’ meeting on June 12, 2006, unrealized loss on long-term investments exempted from the provision of special reserve pursuant to the above regulations amounted to NT$18,208 million.
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(23) OPERATING COSTS AND EXPENSES The Company’s personnel, depreciation, and amortization expenses are summarized as follows: For the year ended December 31, 2006 2005 Operating Operating Total Operating Operating Total costs expenses costs expenses Personnel expenses Salaries $9,003,173 $3,616,996 $12,620,169 $7,532,447 $3,421,537 $10,953,984 Labor and health 546,631 192,257 738,888 538,484 206,941 745,425 insurance Pension 571,888 184,781 756,669 566,739 191,476 758,215 Other personnel 99,293 72,899 172,192 247,754 155,343 403,097 expenses Depreciation 42,059,492 2,183,770 44,243,262 49,260,694 2,085,525 51,346,219 Amortization 197,673 1,621,260 1,818,933 935,126 2,250,407 3,185,533
The numbers of employees as of December 31, 2006 and 2005 were 14,251 and 13,278, respectively.
(24) INCOME TAX a. Reconciliation between the income tax expense and the income tax calculated on pre-tax financial statement income based on the statutory tax rate is as follows:
For the year ended December 31, 2006 2005 Income tax on pre-tax income at statutory tax rate $9,254,650 $768,584 Permanent and temporary differences (7,303,879) (2,469,797) Change in investment tax credit (1,335,540) 6,930,316 Change in loss carry-forward (105,508) - Change in valuation allowance 885,837 (5,295,125) Income Basic Tax 2,021,375 - Change in tax rate 1,269 - Estimated 10% income tax on unappropriated earnings - 35,501 Adjustment of prior year’s tax expense (164,111) 20,371 Income tax on interest revenue separately taxed 1,713 1,415 Others 5,816 75,787 Income tax expense $3,261,622 $67,052
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b. Significant components of deferred income tax assets and liabilities are as follows: As of December 31, 2006 2005 Amount Tax effect Amount Tax effect Deferred income tax assets Investment tax credit $14,992,731 $13,755,893 Loss carry-forward $9,559,235 3,138,465 $19,854,167 5,585,640 Pension 3,124,419 785,660 3,009,911 751,611 Allowance on sales returns and discounts 753,074 191,304 790,132 199,060 Allowance for loss on obsolescence of 827,079 220,309 317,488 79,372 inventories Others 1,960,409 535,280 3,209,106 1,021,304 Total deferred income tax assets 19,863,749 21,392,880 Valuation allowance (11,775,747) (11,576,791) Net deferred income tax assets $8,088,002 $9,816,089
Deferred income tax liabilities Unrealized exchange gain $ (291,391) $ (72,848) $- $- Depreciation (5,005,315) (1,251,329) (9,667,939) (2,416,985) Others (2,673,529) (687,299) (51,870) (51,870) Total deferred income tax liabilities (2,011,476) (2,468,855) Total net deferred income tax assets $6,076,526 $7,347,234 Deferred income tax assets - current $5,933,725 $6,555,306 Deferred income tax liabilities - current (278,346) - Valuation allowance (3,710,359) (3,168,516) Net 1,945,020 3,386,790
Deferred income tax assets - noncurrent 13,930,024 14,837,574 Deferred income tax liabilities - noncurrent (1,733,130) (2,468,855) Valuation allowance (8,065,388) (8,408,275) Net 4,131,506 3,960,444 Total net deferred income tax assets $6,076,526 $7,347,234
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c. UMC’s income tax returns for all the fiscal years up to 2003 have been assessed and approved by the Tax Authority. d. UMC was granted several four or five-year income tax exemption periods with respect to income derived from the expansion of operations. The starting date of the exemption period attributable to the expansions in 2002 had not yet been decided. The income tax exemption for other periods will expire on December 31, 2012. e. The Company earns investment tax credits for the amount invested in production equipment, research and development, employee training, and investment in high technology industry and venture capital.
As of December 31, 2006, the Company’s unused investment tax credit was as follows: Balance of unused Expiration Year Investment tax credits earned investment tax credits 2006 $2,879,909 $2,879,909 2007 1,638,333 1,638,333 2008 6,298,009 6,298,009 2009 1,780,805 1,780,805 2010 2,395,675 2,395,675 Total $14,992,731 $14,992,731 f. As of December 31, 2006, the unutilized accumulated losses for the Company were as follows: Expiration Year Accumulated loss Unutilized accumulated loss 2006 $11,892,614 $316,509 2007 3,832,326 3,832,326 2008 208,335 208,335 2009 447,237 447,237 2010 254,854 254,854 2011 173,728 173,728 2012 3,404,642 3,404,642 2013 921,604 921,604 Total $21,135,340 $9,559,235 g. The balance of UMC’s imputation credit accounts as of December 31, 2006 and 2005 were NT$95 million and NT$29 million, respectively. The expected creditable ratio for 2006 and the actual creditable ratio for 2005 was 0.54% and 0%, respectively. h. UMC’s earnings generated in the year ended December 31, 1997 and prior years have been fully appropriated.
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(25) EARNINGS PER SHARE The Company’s capital structure is composed mainly of zero coupon convertible bonds and employee stock options. Therefore, in consideration of such complex structure, the calculated basic and diluted earnings per share for the years ended December 31, 2006 and 2005, are disclosed as follows: For the year ended December 31, 2006 Amount Earnings per share (NTD)
Income before Net income Shares expressed Income before Net income income tax in thousands income tax
Earning per share-basic (NTD) Income from operations of $37,067,932 $33,807,828 18,050,962 $2.05 $1.87 continued segments attributable to shareholders of the parent
Cumulative effect of changes in (1,188,515) (1,188,515) (0.06) (0.06) accounting principles attributable to shareholders of the parent
Net income attributable to $35,879,417 $32,619,313 $1.99 $1.81 shareholders of the parent
Effect of dilution Employee stock options $- $- 108,122 Convertible bonds payable $33,978 $33,978 516,383 Earning per share-diluted: Income from operations of $37,101,910 $33,841,806 18,675,467 $1.98 $1.81 continued segments attributable to shareholders of the parent
Cumulative effect of changes in (1,188,515) (1,188,515) (0.06) (0.06) accounting principles attributable to shareholders of the parent Net income attributable to $35,913,395 $32,653,291 $1.92 $1.75 shareholders of the parent
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For the year ended December 31, 2005 (retroactively adjusted) Amount Earnings per share (NTD)
Income before Net income Shares expressed Income before Net income income tax in thousands income tax
Earning per share-basic (NTD) Income from operations of $7,174,027 $7,138,239 18,647,462 $0.39 $0.39 continued segments attributable to shareholders of the parent
Cumulative effect of changes in (111,547) (111,547) (0.01) (0.01) accounting principles attributable to shareholders of the parent
Net income attributable to $7,062,480 $7,026,692 $0.38 $0.38 shareholders of the parent Effect of dilution Employee stock options $- $- 161,651 Convertible bonds payable $8,495 $8,495 124,498 Earning per share-diluted: Income from operations of $7,182,522 $7,146,734 18,933,611 $0.38 $0.38 continued segments attributable to shareholders of the parent
Cumulative effect of changes in (111,547) (111,547) (0.01) (0.01) accounting principles attributable to shareholders of the parent
Net income attributable to $7,070,975 $7,035,187 $0.37 $0.37 shareholders of the parent
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5. RELATED PARTY TRANSACTIONS (1) Name and Relationship of Related Parties
Name of related parties Relationship with UMC HSUN CHIEH INVESTMENT CO., LTD. Equity Investee HOLTEK SEMICONDUCTOR INC. (HOLTEK) Equity Investee UNITECH CAPITAL INC. Equity Investee ITE TECH. INC. Equity Investee AMIC TECHNOLOGY CORP. Equity Investee PACIFIC VENTURE CAPITAL CO., LTD. Equity Investee XGI TECHNOLOGY INC. Eq.uity Investee HIGHLINK TECHNOLOGY CORP. Equity Investee MEGA MISSION LIMITED PARTNERSHIP Equity Investee MTIC HOLDINGS PTE. LTD. Equity Investee TOPPAN PHOTOMASKS TAIWAN LTD. (formerly DUPONT Equity Investee PHOTOMASKS TAIWAN LTD.) (TOPPAN) (Disposed in March 2006) FARADAY TECHNOLOGY CORP. (No longer an equity investee Equity Investee since January 1, 2006)
NOVATEK MICROELECTRONICS CORP. (NOVATEK) (No longer Equity Investee an equity investee since January 1, 2006)
UNIMICRON TECHNOLOGY CORP. (No longer an equity investee Equity Investee since November, 2006) SILICON INTEGRATED SYSTEMS CORP. (SIS) UMC’s director UWAVE TECHNOLOGY CORP. (formerly UNITED RADIOTEK Subsidiary’s equity investee INC.) UCA TECHNOLOGY INC. Subsidiary’s equity investee AFA TECHNOLOGY, INC. Subsidiary’s equity investee STAR SEMICONDUCTOR CORP. Subsidiary’s equity investee USBEST TECHNOLOGY INC. Subsidiary’s equity investee SMEDIA TECHNOLOGY CORP. Subsidiary’s equity investee U-MEDIA COMMUNICATIONS, INC. Subsidiary’s equity investee CRYSTAL MEDIA INC. Subsidiary’s equity investee NEXPOWER TECHNOLOGY CORP. Subsidiary’s equity investee MOBILE DEVICES INC. Subsidiary’s equity investee ULI ELECTRONICS INC. (Disposed in February 2006) Subsidiary’s equity investee AEVOE INC. (Disposed in October 2006) Subsidiary’s equity investee CHIP ADVANCED TECHNOLOGY INC. (No longer an equity Subsidiary’s equity investee investee since October, 2006) DAVICOM SEMICONDUCTOR, INC. (No longer an equity investee Subsidiary’s equity investee since December, 2006)
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(2) Significant Related Party Transactions a. Operating revenues For the year ended December 31, 2006 2005 Amount Percentage Amount Percentage SIS $2,046,127 2 $2,352,259 2 NOVATEK - - 6,159,104 6 Others 2,029,429 2 3,970,927 4 Total $4,075,556 4 $12,482,290 12
The sales price to the above related parties was determined through mutual agreement based on the market conditions. The collection period for overseas sales to related parties was net 60 days, while the terms for domestic sales were month-end 30~60 days. The collection period for third party overseas sales was net 30~60 days, while the terms for third party domestic sales were month-end 30~60 days.
b. Notes receivable As of December 31, 2006 2005 Amount Percentage Amount Percentage HOLTEK $49,924 92 $62,136 100 Others 724 1 - - Total $50,648 93 $62,136 100
c. Accounts receivable, net As of December 31, 2006 2005 Amount Percentage Amount Percentage SIS $99,333 1 $1,235,010 8 Others 231,978 1 226,282 1 Total 331,311 2 1,461,292 9 Less: Allowance for sales (7,666) (24,649) returns and discounts Less: Allowance for doubtful - (15,666) accounts Net $323,645 $1,420,977
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d. Other transactions The Company was involved in several other transactions with related parties, including service charges and development expenses of intellectual property, totaling NT$8 million and NT$518 million for the years ended December 31, 2006 and 2005, respectively. The Company purchased approximately NT$105 million and NT$486 million of masks from TOPPAN during the years ended December 31, 2006 and 2005, respectively.
6. ASSETS PLEDGED AS COLLATERAL The assets pledged of the Company were as follows: As of December 31, 2006 Amount Party to which asset(s) was Purpose of pledge pledged Deposit-out (Time deposit) $625,846 Customs Customs duty guarantee
As of December 31,2005 Amount Party to which asset(s) was Purpose of pledge pledged Deposit-out (Time deposit) $525,730 Customs Customs duty guarantee Restricted deposits 555,800 The International Commercial Short-term loans (Time deposit) Bank of China (Tokyo branch) Deposits-out (Time deposit) 2,500 The Farmer Bank of China Payment guarantee The stocks of UMC held by 21,712,280 Chinatrust Commercial Bank Short-term loans the subsidiaries
Total $22,796,310
7. COMMITMENTS AND CONTINGENT LIABILITIES (1) UMC has entered into several patent license agreements and development contracts of intellectual property for a total contract amount of approximately NT$19.67 billion. Royalties and development fees for future years are NT$5.98 billion as of December 31, 2006.
(2) UMC signed several construction contracts for the expansion of its factory space. As of December 31, 2006, these construction contracts have amounted to approximately NT$3.82 billion and the unpaid portion of the contracts, which was not accrued, was approximately NT$1.9 billion.
(3) OAK Technology, Inc. (OAK) and UMC entered into a settlement agreement on July 31, 1997 concerning a complaint filed with the United States International Trade Commission (ITC) by OAK against UMC and others, alleging unfair trade practices based on alleged patent infringement regarding certain CD-ROM controllers (the first OAK ITC case). On October 27, 1997, OAK filed a civil action in a California federal district court, alleging claims for breach of the settlement agreement and fraudulent misrepresentation. In connection with its breach of contract and other claims,
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OAK sought damages in excess of US$750 million. UMC denied the material allegations of the complaint, and asserted counterclaims against OAK for breach of contract, intentional interference with economic advantage and rescission and restitution based on fraudulent concealment and/or mistake. UMC also asserted declaratory judgment claims for invalidity and unenforceability of the relevant OAK patent. On February 9, 2006, the parties entered a settlement agreement in which UMC, OAK and Zoran (the successor to OAK) fully and finally released one another from any and all claims and liabilities arising out of the facts alleged in the district court case. The terms of settlement are confidential and, except for the obligation to keep the terms confidential, impose no obligation on UMC.
(4) The Company entered into several operating lease contracts for land. These renewable operating leases are set to expire in various years through to 2032. Future minimum lease payments under those leases are as follows: For the year ended December 31, Amount 2007 $234,447 2008 220,066 2009 201,872 2010 194,296 2011 188,944 2012 and thereafter 1,701,017 Total $2,740,642
(5) UMC entered into several wafer-processing contracts with its principal customers. According to the contracts, UMC shall guarantee processing capacity after receipts of customers’ deposits.
(6) UMC has entered into contracts for the purchase of materials and masks with certain vendors. These contracts oblige UMC to purchase specified amounts or quantities of materials and masks. Should UMC fail to fulfill the conditions set out in the contracts, the differences between the actual purchase and the required minimum will be reconciled between UMC and its vendors.
(7) On February 15, 2005, the Hsinchu District Prosecutor’s Office conducted a search of UMC’s facilities. On February 18, 2005, UMC’s former Chairman Mr. Robert H.C. Tsao, released a public statement, explaining that its assistance to Hejian Technology Corp. (Hejian) did not involve any investment or technology transfer. Furthermore, from the very beginning there was a verbal indication that, at the proper time, UMC would be compensated appropriately for its assistance, and circumstances permitting, at some time in the future, it will push through the merger between two companies. However, no promise was made by UMC and no written agreement was made and executed. Upon UMC’s request to materialize the said verbal indication by compensating in the form of either cash or equity, the Chairman of the holding company of Hejian offered 15% of the approximately 700 million outstanding shares of the holding company of Hejian in return for UMC’s past assistance and for continued assistance in the future.
Immediately after UMC had received such offer, it filed an application with the Investment Commission of the Ministry of Economic Affairs on March 18, 2005 (Ref. No. 94-Lian-Tung-Tzu-0222), for their executive guidance for the successful transfer of said shares to UMC. The shareholders meeting dated June 13, 2005 resolved that to the extent permitted by law UMC shall try to get the 15% of the outstanding shares offered by the holding company of Hejian as
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an asset of UMC. The holding company of Hejian offered 106 million shares of its outstanding common shares in return for UMC’s assistance. The holding company of Hejian has put all such shares in escrow. UMC was informed of such escrow on August 4, 2006. The subscription price per share of the holding company of Hejian in the last offering was US$1.1. Therefore, the total market value of the said shares is worth more than US$110 million. However, UMC may not acquire the ownership of nor exercise the rights of the said shares with any potential stock dividend or cash dividend distributed in the future until the ROC laws and regulations allow UMC to acquire and exercise. In the event that any stock dividend or cash dividend is distributed, UMC’s stake in the holding company of Hejian will accumulate accordingly.
In April 2005, UMC’s former Chairman Mr. Robert H.C. Tsao was personally fined with in the aggregate amount of NT$3 million by the Financial Supervisory Commission, Executive Yuan, R.O.C. (ROC FSC) for failure to disclose material information relating to Hejian in accordance with applicable rules. As a result of the imposition of the fines by the ROC FSC, UMC was also fined in the amount of NT$30,000 by Taiwan Stock Exchange (TSE) for the alleged non-compliance with the disclosure rules in relation to the material information. UMC and its former Chairman Mr. Robert H.C. Tsao have filed for administrative appeal and reconsideration with the Executive Yuan, R.O.C. and TSE, respectively. Mr. Robert H.C. Tsao’s administrative appeal was dismissed by the Execution Yuan, R.O.C. on February 21, 2006 and the ROC FSC transferred the case against Mr. Robert H.C. Tsao to the Administrative Enforcement Agency for enforcement of the fine. Mr. Robert H.C. Tsao has filed an administrative action against the ROC FSC with Taipei High Administrative Court on April 14, 2006. As of December 31, 2006, the result of such reconsideration and administrative action has not been finalized.
For UMC’s assistance to Hejian Technology Corp., UMC’s former Chairman Mr. Robert H.C. Tsao, former Vice Chairman Mr. John Hsuan, and Mr. Duen-Chian Cheng, the General Manager of Fortune Venture Capital Corp., which is 99.99% owned by UMC, were indicted for violating the Business Accounting Law and breach of trust under the Criminal Law by Hsinchu District Court’s Prosecutor’s Office on January 9, 2006. Mr. Robert H.C. Tsao and Mr. John Hsuan had officially resigned from their positions of UMC’s Chairman, Vice Chairman and directors prior to the announcement of the prosecution; for this reason, at the time of the prosecution, Mr. Robert H.C. Tsao and Mr. John Hsuan no longer served as UMC’s directors and had not executed their duties as UMC’s Chairman and Vice Chairman. In the future, if a guilty judgment is pronounced by the court, such consequences would be Mr. Robert H.C. Tsao, Mr. John Hsuan and Mr. Duen-Chian Cheng’s personal concerns only; UMC would not be subject to indictment regarding this case.
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On February 15, 2006, UMC was fined in the amount of NT$5 million for unauthorized investment activities in Mainland China, implicating violation of Article 35 of the Act “Governing Relations Between Peoples of the Taiwan Area and the Mainland Area” by the R.O.C. Ministry of Economic Affairs (MOEA). However, as UMC believes it was illegally and improperly fined, UMC had filed an administrative appeal against MOEA to the Executive Yuan on March 16, 2006. UMC’s administrative appeal was dismissed by the Executive Yuan, R.O.C. on October 19, 2006. UMC filed an administrative action against the R.O.C. Ministry of Economic Affairs to Taipei High Administrative Court on December 8, 2006. As of December 31, 2006, the result of such administrative action has not been finalized.
8. SIGNIFICANT DISASTER LOSS None.
9. SIGNIFICANT SUBSEQUENT EVENTS UMC has entered a stage of sustained growth. UMC determined that cash flows generated from UMC’s future operations will be sufficient for the research and development of advanced process technologies and the continued expansion of advanced manufacturing capacity, including the second 300mm fab in Taiwan’s Tainan Science Park. In order to avoid future cash levels becoming excessive and to better respond to the expectations of today’s capital markets, UMC has resolved to carry out a capital reduction of NT$ 57,394 million with the cancellation of 5,739 million of its outstanding shares, following a resolution passed at a meeting of the Board of Directors on January 23, 2007. The board of directors will decide the date of the capital reduction after the approval at the stockholders’ meeting and the authorization of the government. The exact exchange ratio for shares and the amount of the capital reduction is to be set on the record date for capital reduction.
10. OTHERS (1) Certain comparative amounts have been reclassified to conform to the current year’s presentation.
(2) Financial risk management objectives and policies UMC’s principal financial instruments, other than derivatives, is comprised of cash and cash equivalents, stock, convertible bonds, open-end funds, bank loans, and bonds payable. The main purpose of these financial instruments is to manage financing for UMC’s operations. UMC also holds various other financial assets and liabilities such as accounts receivable and accounts payables, which arise directly from its operations.
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UMC also enters into derivative transactions, including credit-link deposits, interest rate swaps and forward currency contracts. The purpose of these derivative transactions is to mitigate interest rate risk and foreign currency exchange risk arising from UMC’s operations and financing activities.
The main risks arising from UMC’s financial instruments include cash flow interest rate risk, foreign currency risk, commodity price risk, credit risk, and liquidity risk.
Cash flow interest rate risk UMC utilizes interest rate swap agreements to mitigate its cash flow interest rate risk on its counter-floating rate of unsecured domestic bonds issued during the period from May 21 to June 24, 2003. The periods of the interest rate swap agreements are the same as those of the domestic bonds, which are five and seven years. The floating rate is reset annually.
Foreign currency risk UMC has foreign currency risk arising from purchases or sales. UMC utilizes spot or forward contracts to mitigate foreign currency risk. UMC buys or sells the same amount of foreign currency with hedged items through forward contracts. In principal, UMC does not carry out any forward contracts for uncertain commitments.
Commodity price risk UMC’s exposure to commodity price risk is minimal.
Credit risk UMC trades only with established and creditworthy third parties. It is UMC’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis, which consequently minimizes UMC’s exposure to bad debts.
With respect to credit risk arising from the other financial assets of UMC, which are comprised of cash and cash equivalents, available-for-sale financial assets and certain derivative instruments, UMC’s exposure to credit risk arising from the default of counter-parties is limited to the carrying amount of these instruments.
Although UMC trades only with established third parties, it will request collateral to be provided by third parties with less favorable financial positions.
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Liquidity risk UMC’s objective is to maintain a balance of funding continuity and flexibility through the use of financial instruments such as cash and cash equivalents, bank loans and bonds.
(3) Information of financial instruments a. Fair value of financial instruments As of December 31, 2006 2005 Financial Assets Book Value Fair Value Book Value Fair Value Non-derivative Cash and cash equivalents $93,853,208 $93,853,208 $108,626,800 $108,626,800 Financial assets at fair value 8,538,007 8,538,007 2,468,968 2,438,668 through profit or loss, current Available-for-sale financial assets, - - 2,414,153 2,900,084 current Held-to-maturity financial assets, 1,110,422 1,110,422 - - current Notes receivable , accounts 15,255,852 15,255,852 16,002,798 16,002,798 receivable and other receivables Restricted deposits - - 555,800 555,800 Financial assets at fair value through 474,738 474,738 - - profit or loss, noncurrent Available-for-sale financial assets, 52,311,172 52,311,172 6,812,103 30,124,523 noncurrent Held-to-maturity financial assets, - - 1,116,806 1,126,018 noncurrent Financial assets measured at cost, 7,515,945 - 6,574,800 - noncurrent Long-term investments accounted 11,662,599 14,234,042 16,262,856 33,755,273 for under the equity method Prepaid long-term investments - - 30,000 30,000 Deposits-out 738,696 738,696 678,929 678,929
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As of December 31, 2006 2005 Financial Liabilities Book Value Fair Value Book Value Fair Value Non-derivative Short-term loans $342,549 $342,549 $6,136,336 $6,136,336 Payables 24,169,179 24,169,179 19,168,491 19,168,491 Capacity deposits (current portion) 898,265 898,265 657,600 657,600 Bonds payable (current portion 39,451,359 40,362,245 51,942,159 52,517,633 included)
Derivative Interest rate swaps $626,230 $626,230 $95,634 $730,191 Derivatives embedded in 359,037 359,037 - - exchangeable bonds b. The methods and assumptions used to measure the fair value of financial instruments are as follows:
i. The book value of short-term financial instruments approximates their fair value due to their short maturities. Short-term financial instruments include cash and cash equivalents, notes receivable, accounts receivable, other receivables, restricted deposits, short-term loans, current portion of capacity deposits, and payables.
ii. The fair value of financial assets at fair value through profit or loss and available-for-sale financial assets is based on the quoted market prices.
iii. The fair value of held-to-maturity financial assets is based on the quoted market prices. If market prices are unavailable, UMC estimates the fair value based on the book value as the held-to-maturity financial assets consist principally of credit-linked deposit agreements with maturity dates less than one year, as well as bonds that can be easily liquidated in the secondary market.
iv. The fair value of financial assets measured at cost is unable to estimate since those unlisted investments are not traded in the open market.
v. The fair value of deposits-out is based on their book value since the deposit periods are principally within one year and renewed upon maturity.
vi. The fair value of bonds payable is determined by the market price.
vii. The fair value of derivative financial instruments is based on the amount UMC expects to receive (positive) or to pay (negative) assuming that the contracts are settled in advance at the balance sheet date.
252 Financial Review Consolidated
c. The fair value of UMC’s financial instruments is determined by the quoted prices in active markets, or if the market for a financial instrument is not active, UMC establishes fair value by using a valuation technique: Active Market Quotation Valuation Technique Non-derivative 2006.12.31 2005.12.31 2006.12.31 2005.12.31 Financial Instruments Financial assets Financial assets at fair value $8,538,007 $2,438,668 $- $- through profit or loss, current
Available-for-sale financial asset, - 2,900,084 - - current Financial assets at fair value 474,738 - - - through profit or loss, noncurrent
Available-for-sale financial assets, 52,311,172 30,124,523 - - noncurrent
Long-term investments accounted 14,234,042 33,755,273 - - for under the equity method
Financial liabilities Bonds payable (current portion 40,362,245 52,517,633 - - included)
Derivative Financial Instruments Financial liabilities Interest rate swaps $- $- $626,230 $730,191
Derivatives embedded in - - 359,037 - exchangeable bonds d. UMC recognized a gain of NT$312 million arising from the changes in fair value of financial liabilities at fair value through profit or loss for the year ended December 31, 2006. e. UMC’s financial liability with cash flow interest rate risk exposure as of December 31, 2006 amounted to NT$626 million. f. During the year ended December 31, 2006, total interest revenue and interest expense for financial assets or liabilities that are not at fair value through profit or loss were NT$1,563 million and NT$648 million, respectively, while interest revenue and expense for the year ended December 31, 2005 amounted to NT$1,055 million and NT$1,099 million, respectively.
253 United Microelectronics Corporation | Annual Report 2006
(4) UMC and its subsidiary, UMC JAPAN, held credit-linked deposits and repackage bonds recognized as held-to- maturity financial assets for the earning of interest income. The details are disclosed as follows:
a. Principal amount in original currency As of December 31, 2006 UMC
Credit-linked deposits and repackage bonds referenced to Amount Due Date
SILICONWARE PRECISION INDUSTRIES CO., LTD. NTD 400 million 2007.02.05 European Convertible Bonds and Loans
SILICONWARE PRECISION INDUSTRIES CO., LTD. NTD 200 million 2007.02.05 European Convertible Bonds and Loans
UMC JAPAN European Convertible Bonds JPY 640 million 2007.03.28 ADVANCED SEMICONDUCTOR ENGINEERING INC. NTD 200 million 2007.09.25 European Convertible Bonds and Loans
UMC JAPAN
Credit-linked deposits and repackage bonds referenced to Amount Due Date
UMC JAPAN European Convertible Bonds JPY 500 million 2007.03.29
As of December 31, 2005 UMC Credit-linked deposits and repackage bonds referenced to Amount Due Date SILICONWARE PRECISION INDUSTRIES CO., LTD. NTD 400 million 2007.02.05 European Convertible Bonds and Loans
SILICONWARE PRECISION INDUSTRIES CO., LTD. NTD 200 million 2007.02.05 European Convertible Bonds and Loans UMC JAPAN European Convertible Bonds JPY 640 million 2007.03.28 ADVANCED SEMICONDUCTOR ENGINEERING INC. NTD 200 million 2007.09.25 European Convertible Bonds and Loans
UMC JAPAN Credit-linked deposits and repackage bonds referenced to Amount Due Date UMC JAPAN European Convertible Bonds JPY 500 million 2007.03.29
254 Financial Review Consolidated
b. Credit risk The counterparties of the above investments are major international financial institutions. The repayment in full of these investments is subject to the non-occurrence of one or more credit events, which are referenced to the entities’ fulfillment of their own obligations as well as repayment of their corporate bonds. Upon the occurrence of one or more of such credit events, UMC and its subsidiary, UMC JAPAN, may receive less than the full amount of these investments or nothing. UMC and its subsidiary, UMC JAPAN, have selected reference entities with high credit ratings to minimize the credit risk.
c. Liquidity risk Early withdrawal is not allowed for the above investments unless called by the issuer. However, the anticipated liquidity risk is low since most of the investments will either have matured within one year, or are relatively liquid in the secondary market.
d. Market risk There is no market risk for the above investments except for the fluctuations in the exchange rates of US Dollars and Japanese Yen to NT Dollars at the balance sheet date and the settlement date.
(5) UMC and its subsidiary, UMC JAPAN, entered into interest rate swap and forward contracts for hedging the interest rate risk arising from the counter-floating rate of domestic bonds and for hedging the exchange rate risk arising from the net assets or liabilities denominated in foreign currency. The hedging strategy was developed with the objective to reduce the market risk for non-trading purpose. The relevant information on the derivative financial instruments entered into by UMC is as follows:
a. UMC utilized interest rate swap agreements to hedge its interest rate risk on its counter-floating rate of unsecured domestic bonds issued during the period from May 21 to June 24, 2003. The periods of the interest rate swap agreements are the same as those of the domestic bonds, which are five and seven years. The floating rate is reset annually. The details of interest rate swap agreements are summarized as follows:
As of December 31, 2006 and 2005, UMC had the following interest rate swap agreements in effect: Notional Amount Contract Period Interest Rate Received Interest Rate Paid NT$7,500 million May 21, 2003 to June 24, 2008 4.0% minus USD 1.52% 12-Month LIBOR
NT$7,500 million May 21, 2003 to June 24, 2010 4.3% minus USD 1.48% 12-Month LIBOR
255 United Microelectronics Corporation | Annual Report 2006
b. Transaction risk (a) Credit risk There is no significant credit risk exposure with respect to the above transactions as the counter-parties are reputable financial institutions with good global standing.
(b) Liquidity and cash flow risk The cash flow requirements on the interest rate swap agreements are limited to the net interest payables or receivables arising from the differences in the swap rates. The cash flow requirements on forward contracts are limited to the net difference between the forward and spot rates at the settlement date. Therefore, no significant cash flow risk is anticipated since the working capital is sufficient to meet the cash flow requirements.
(c) Market risk Interest rate swap agreements and forward contracts are intended for hedging purposes. Gains or losses arising from the fluctuations in interest rates and exchange rates are likely to be offset against the gains or losses from the hedged items. As a result, no significant exposure to market risk is anticipated.
c. The presentation of derivative financial instruments on financial statements
UMC As of December 31, 2006 and 2005, the interest rate swap agreements were classified as current liabilities amounting to NT$626 million and NT$96 million, respectively.
The exchange loss arising from forward contracts was NT$415 million for the year ended December 31, 2005 and recorded in non-operating expenses in the accompanying consolidated statement of income.
UMC JAPAN The exchange (loss) gain arising from forward contracts was JPY$(7.5) million and JPY$25.4 million and recorded in non-operating (expense) revenue in the accompanying consolidated statements of income for the years ended December 31, 2006 and 2005, respectively.
(6) Significant intercompany transactions among consolidated entities for the years ended December 31, 2006 and 2005 are disclosed in Attachment 1.
256 Financial Review Consolidated
(7) Details of subsidiaries that hold UMC’s stock are as follows: As of December 31, 2006 Subsidiary No. of Shares Amount Purpose (in thousands) FORTUNE VENTURE CAPITAL 22,070 $446,914 Long-term investment CORP.
As of December 31, 2005 Subsidiary No. of Shares Amount Purpose (in thousands) HSUN CHIEH INVESTMENT CO., 599,696 $11,379,238 Long-term investment LTD. FORTUNE VENTURE CAPITAL 21,847 171,857 Long-term investment CORP.
11. ADDITIONAL DISCLOSURES (1) The following are additional disclosures for UMC and its affiliates as required by the ROC Securities and Futures Bureau:
a. Financing provided to others for the year ended December 31, 2006: please refer to Attachment 2.
b. Endorsement/Guarantee provided to others for the year ended December 31, 2006: please refer to Attachment 3.
c. Securities held as of December 31, 2006: please refer to Attachment 4.
d. Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT$100 million or 20 percent of capital stock for the year ended December 31, 2006: please refer to Attachment 5.
e. Acquisition of individual real estate with amount exceeding the lower of NT$100 million or 20 percent of capital stock for the year ended December 31, 2006: please refer to Attachment 6.
f. Disposal of individual real estate with amount exceeding the lower of NT$100 million or 20 percent of capital stock for the year ended December 31, 2006: please refer to Attachment 7.
g. Related party transactions for purchases and sales amounts exceeding the lower of NT$100 million or 20 percent of capital stock for the year ended December 31, 2006: please refer to Attachment 8.
h. Receivables from related parties with amounts exceeding the lower of NT$100 million or 20 percent of capital stock as of December 31, 2006: please refer to Attachment 9.
257 United Microelectronics Corporation | Annual Report 2006
i. Names, locations and related information of investees as of December 31, 2006: please refer to Attachment 10.
j. Financial instruments and derivative transactions: Please refer to Note 10.
(2) Investment in Mainland China None.
12. SEGMENT INFORMATION (1) Operations in different industries
The Company’s major business is operating as a full service semiconductor foundry.
(2) Operations in different geographic areas For the year ended December 31, 2006 Taiwan Asia, North Europe and Eliminations Consolidated excluding America others Taiwan Sales to unaffiliated $38,310,762 $9,511,367 $55,616,919 $8,564,771 $- $112,003,819 customers Sales between 50,953,904 14,961,088 - - (65,914,992) - geographic areas Net operating revenues $89,264,666 $24,472,455 $55,616,919 $8,564,771 $(65,914,992) $112,003,819 Gross profit $20,276,206 $46,601 $992,481 $88,680 $(38,442) $21,365,526
For the year ended December 31, 2006 Taiwan Asia, North Europe and Eliminations Consolidated excluding America others Taiwan Operating expenses (16,206,895) Non-operating income 34,909,503 Non-operating (3,480,709) expenses
Income before income $36,587,425 tax and minority interests Minority interests loss $482,025 Identifiable assets $217,650,324 $94,139,276 $6,646,311 $2,544,093 $(25,290,997) $295,689,007 Funds and long-term 71,964,454 investments
Total assets $367,653,461
258 Financial Review Consolidated
For the year ended December 31, 2005 Taiwan Asia, North Europe and Eliminations Consolidated excluding America others Taiwan Sales to unaffiliated $43,245,624 $6,627,031 $43,506,307 $6,937,020 $- $100,315,982 customers Sales between 47,349,058 6,734,820 44,458 - (54,128,336) - geographic areas
Net operating revenues $90,594,682 $13,361,851 $43,550,765 $6,937,020 $(54,128,336) $100,315,982
Gross profit $14,357,973 $(5,427,549) $701,590 $64,214 $(23,566) $9,672,662 Operating expenses (17,759,482)
Non-operating income 15,888,119
Non-operating (2,195,512) expenses Income before income $5,605,787 tax and minority interests Minority interests loss $1,600,855 Identifiable assets $247,228,232 $86,155,818 $5,968,463 $1,149,973 $(24,249,792) $316,252,694 Funds and long-term 30,796,565 investments
Total assets $347,049,259
(3) Export sales Export sales to unaffiliated customers is less than 10% of the total sales amount on the consolidated statements of income; therefore disclosure is not required.
(4) Major customers Individual customers accounting for at least 10% of net sales for the years ended December 31, 2006 and 2005 are as follows: For the year ended December 31, 2006 2005 Sales amount Percentage Sales amount Percentage Customer A $24,475,058 22 $17,844,440 18 Customer B 10,243,818 9 10,528,973 10 Total $34,718,876 31 $28,373,413 28
259 United Microelectronics Corporation | Annual Report 2006 ------8% 3% 1% 1% 49% (Note 4) revenues or consolidated total assets Percentage of consolidated operating days days days days Terms (Note 3) Transactions 650,400 - 734,440 - 401,039 - 132,462 - 129,703 Net 55 400,000 - 5,118,532 - 8,455,595 Net 60 2,835,621 Net 60 3,000,000 - 1,665,000 - Amount $54,476,329 Net 60 Account Sales Accounts receivable Other current liabilities Sales Accounts receivable Sales Accounts receivable Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Sales Long-term investments accounted for under the equity method 1 1 1 1 1 1 1 1 1 1 3 3 (Note 2) the Company Relationship with Counterparty UMC GROUP (USA) UMC GROUP (USA) UMC GROUP (USA) UNITED MICROELECTRONICS (EUROPE) B.V. UNITED MICROELECTRONICS (EUROPE) B.V. UMC JAPAN UMC JAPAN TLC CAPITAL CO., LTD. UMC CAPITAL CORP. UMC JAPAN UNITRUTH INVESTMENT CORP. UMC GROUP (USA) Related Party UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UMC JAPAN FORTUNE VENTURE CAPITAL CORP. 0 0 0 0 0 0 1 0 0 0 0 2 No. (Note1) ATTACHMENT 1 (Significant intercompany transactions between consolidated entities) (Amount in thousand; Currency denomination NTD unless otherwise specified) For the year ended December 31, 2006
260 Financial Review Consolidated ------1% 1% 1% 7% 1% 1% 1% 43% (Note 4) revenues or consolidated total assets Percentage of consolidated operating days days days days Terms 45 Days (Note 3) Transactions 655,600 - 545,166 - 333,157 - 634,612 - 189,625 - 326,071 - 4,559,933 - 6,839,285 Net 60 1,244,347 Net 60 1,107,574 Net 60 2,000,000 - 3,000,000 - 1,433,057 Month-end $43,226,036 Net 60 Amount Account Sales Accounts receivable Other current liabilities Sales Accounts receivable Purchase Sales Accounts receivable Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Sales Available-for-sale financial assets, noncurrent 1 1 1 1 1 1 1 1 1 1 1 1 1 2 (Note 2) the Company Relationship with Counterparty UMC GROUP (USA) UMC GROUP (USA) UMC GROUP (USA) UNITED MICROELECTRONICS (EUROPE) B.V. UNITED MICROELECTRONICS (EUROPE) B.V. UMCI LTD. UMC JAPAN UMC JAPAN FORTUNE VENTURE CAPITAL CORP. TLC CAPITAL CO., LTD. UMC CAPITAL CORP. UNITED MICRODISPLAY OPTRONICS CORP. SILICON INTEGRATED SYSTEMS CORP. UNITED MICROELECTRONICS CORPORATION Related Party UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION UNITED MICROELECTRONICS CORPORATION FORTUNE VENTURE CAPITAL CORP. 0 0 0 0 0 0 0 0 0 0 0 0 0 1 No. (Note1) ATTACHMENT 1 (Significant intercompany transactions between consolidated entities) (Amount in thousand; Currency denomination NTD unless otherwise specified) For the year ended December 31, 2005
261 United Microelectronics Corporation | Annual Report 2006 ------(Note 4) revenues or consolidated total assets Percentage of consolidated operating Terms (Note 3) Transactions 769,598351,108 - - 208,551176,495 - 130,336 - - $140,794 - Amount Account ch item's balance at period-end. Available-for-sale financial assets, noncurrent Financial assets measured at cost, noncurrent Long-term investments accounted for under the equity method Financial assets measured at cost, noncurrent Financial assets measured at cost, noncurrent Long-term investments accounted for under the equity method 3 3 3 3 3 3 (Note 2) the Company Relationship with Counterparty HSUN CHIEH INVESTMENT CO., LTD. FORTUNE VENTURE CAPITAL CORP. FORTUNE VENTURE CAPITAL CORP. UNITRUTH INVESTMENT CORP. UMC CAPITAL CORP. UMC CAPITAL CORP. 㧦 Related Party FORTUNE VENTURE CAPITAL CORP. HSUN CHIEH INVESTMENT CO., LTD. HSUN CHIEH INVESTMENT CO., LTD. HSUN CHIEH INVESTMENT CO., LTD. HSUN CHIEH INVESTMENT CO., LTD. HSUN CHIEH INVESTMENT CO., LTD. For profit or loss items, cumulative balances are used as basis. 1. UMC is coded "0". 2. The subsidiaries are coded consecutively beginning from "1" in the order presented table above. 1. The holding company to subsidiary. 2. Subsidiary to holding company. 3. Subsidiary to subsidiary. ޓ 1 2 2 2 2 2 No. (Note1) ޓޓޓ ޓޓޓ ޓޓޓ ޓޓޓ ޓޓޓ ޓޓ ATTACHMENT 1 (Significant intercompany transactions between consolidated entities) (Amount in thousand; Currency denomination NTD unless otherwise specified) For the year ended December 31, 2005 Note 1: UMC and its subsidiaries are coded as follows: Note 2: Transactions are categorized as follows Note 3: The sales price to the above related parties was determined through mutual agreement based on market conditions. Note 4: The percentage with respect to the consolidated asset/liability for transactions of balance sheet items are based on ea
262 Financial Review Consolidated N/A Limit of total financing amount N/A counter-party Limit of financing amount for individual Value Collateral Item accounts Allowance for doubtful financing Reason for $- Employee loan $- - - counter-party (purchases from) Amount of sales to financing Nature of 7% Note 2 Interest rate $- Ending balance USD 691 the period Maximum balance for account Financial statement employees Counter-party Lender 1. UMC is coded "0". 2. The subsidiaries are coded consecutively beginning from "1" in the order presented table above. 1 UMC GROUP (USA) Former Employees Receivable from No. (Note 1) ATTACHMENT 2 (Financing provided to others for the year ended December 31, 2006) ޓޓޓ ޓޓޓ (Amount in thousand; Currency denomination NTD unless otherwise specified) Note 1: UMC and its subsidiaries are coded as follows: Note 2 : Need for short-term financing.
263 United Microelectronics Corporation | Annual Report 2006 $76,524,771 Limit of total amount (Note 4) guarantee/endorsement - financial statement guarantee amount to net Percentage of accumulated assets value from the latest $- Amount of collateral guarantee/endorsement $- Ending balance ital stock. p ortion to p ro p uarantee in g period JPY 10,400,000 Maximum balance for the ital stock or 10% of UMC's ca the R.O.C. Securities and Futures Bureau, p y 's ca y art rovided endorsement/ p p g Limit of $7,501,548 uirements. q party (Note 3) amount for receiving guarantee/endorsement Securities Issuers" issued b y interest. resented in the table above. y p uit interest. orts b q y p ital stock as of December 31, 2006. p uit q 2 (Note 2) interest. y Relationship : uit shall not exceed the lower of receivin g q over 50% of e y y with UMC. art p p from "1" in the order g g aration of Financial Re uals 40% of UMC's ca p innin q g over 50% of e and indirectl be y y y invests with other shareholders, and for which UMC has the Pre y g unctl j uarantees to UMC, and vice versa, due contractual re g UMC JAPAN Receiving party e. g rovided that has a business relationshi p y an ercenta p p g uarantee/endorsement amount e in which UMC holds directl g y arties should be disclosed as one of the followin UMC to the "Guidelines Governin uarantee/endorsement amount for receivin p g g g Endorsor/Guarantor 1. UMC is coded "0". 2. The subsidiaries are coded consecutivel ޓ ޓ 0 No. (Note 1) ATTACHMENT 3 (Endorsement/Guarantee provided to others for the year ended December 31, 2006) ޓޓ ޓޓ (Amount in thousand; Currency denomination NTD unless otherwise specified) its shareholdin Note 2: Accordin 2. A subsidar 5. An investee that has Note 3: Limit of Note 1: UMC and its subsidiaries are coded as follows: receivin 1. An investee com 4. An investee in which UMC holds directl Note 4: Limit of total 3. An investee in which UMC and its subsidaries hold over 50% of e 6. An investee in which UMC con
264 Financial Review Consolidated collateral Shares as (thousand) 86 None 8,480 None 97,456 None 61,178 None 53,485 None 54,740 None 52,863 None 54,250 None 198,191 None 329,464 None 353,072 None 276,202 None $34,485 None 193,910 None 276,469 None 6,778,711 None Market value/ Net assets value ------0.99 0.14 0.86 0.44 0.21 0.19 7.77 Percentage of ownership (%) 86 100.00 8,480 100.00 97,456 61,178 53,485 54,740 52,863 54,250 $34,485 198,191 329,464 353,072 276,202 193,910 284,084 100.00 December 31, 2006 9 60 380 340 402 500 280 280 1,000 1,683 5,395 3,254 16,270 23,538 16,438 1,006,496 100.00 1,006,496 None 477,374 6,778,711 124,000 3,613,491 100.00 3,613,491 None 880,006 (thousand) Book value bonds/ shares Units (thousand)/ Financial statement account Financial assets at fair value through profit or loss, current profit or loss, current profit or loss, current profit or loss, current profit or loss, current profit or loss, current profit or loss, current profit or loss, current profit or loss, current profit or loss, current profit or loss, current profit or loss, current profit or loss, current under the equity method Financial assets at fair value through Financial assets at fair value through under the equity method under the equity method under the equity method under the equity method Financial assets at fair value through Financial assets at fair value through Financial assets at fair value through Financial assets at fair value through Financial assets at fair value through Financial assets at fair value through Financial assets at fair value through Financial assets at fair value through Financial assets at fair value through Financial assets at fair value through ------Relationship Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Name of securities AG HOLDING CORP. CO., LTD. B.V. (SAMOA) StockStock PROMOS TECHNOLOGIES INC. L&K ENGINEERING CO., LTD. Stock ACTION ELECTRONICS CO., LTD. Stock MICRONAS SEMICONDUCTOR HOLDING StockStock CHINA DEVELOPMENT FINANCIAL Stock SILICONWARE PRECISION INDUSTRIES Stock YANG MING MARINE TRANSPORT CORP. Stock UMC GROUP (USA) UNITED MICROELECTRONICS (EUROPE) StockStock UMC CAPITAL CORP. UNITED MICROELECTRONICS CORP. Stock UMCI LTD. Type of securities Convertible bonds QUANTA STORAGE INC. Convertible bonds EDOM TECHNOLOGY CO., LTD. Convertible bonds TOPOINT TECHNOLOGY CO., LTD. Convertible bonds FIRICH ENTERPRISES CO., LTD Convertible bonds TATUNG CO. Convertible bonds CHANG WAH ELECTRONMATERIALS INC. ATTACHMENT 4 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION
265 United Microelectronics Corporation | Annual Report 2006 collateral Shares as (thousand) 321 None 82,750 None 81,402 None 53,710 None 959,542 None 896,486 None 225,624 None 167,217 None 128,667 None 4,382,181 None Market value/ Net assets value 49.99 131,879 None 42.00 24.45 21.80 3,282,56918.97 None 11.86 81.76 49.94 16.48 16.60 17.63 50.09 3,480,760 None 99.99 11,711,305 None 36.49 4,532,186 None 19.89 9,096,376 17.27 None 45.00 2,699,491 None Percentage of ownership (%) 321 57,062 81,402 53,710 127,379 959,542 878,747 341,268 225,624 167,217 128,667 December 31, 2006
496 5,949,999 4,000 8,758 9,883 30,000 21,000 33,62451,939 4,674,311 24,229 28,500 16,200 64,313 55,61118,460 4,382,181 600,000499,994 $6,999,737 11,114,198 100.00 $6,999,737 None 202,367 9,096,376 (thousand) Book value bonds/ shares Units (thousand)/ - 2,699,491 Financial statement account under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method noncurrent under the equity method under the equity method noncurrent noncurrent noncurrent Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, - - - - Relationship Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee companyInvestee company Long-term investments accounted for Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee companyInvestee company Long-term investments accounted for Long-term investments accounted for Investee companyInvestee company Long-term investments accounted for Investee company Long-term investments accounted for Long-term investments accounted for Investee company Long-term investments accounted for Name of securities CORP. CORP. Fund MEGA MISSION LIMITED PARTNERSHIP Investee company Long-term investments accounted for Stock TLC CAPITAL CO., LTD. StockStock FORTUNE VENTURE CAPITAL CORP. UNITED MICRODISPLAY OPTRONICS StockStock PACIFIC VENTURE CAPITAL CO., LTD.Stock MTIC HOLDINGS PTE LTD. Stock Investee company UNITECH CAPITAL INC. Stock Long-term investments accounted for HSUN CHIEH INVESTMENT CO., LTD. Stock HOLTEK SEMICONDUCTOR INC. Stock ITE TECH. INC. Stock HIGHLINK TECHNOLOGY CORP. Stock XGI TECHNOLOGY INC. AMIC TECHNOLOGY CORP. StockStock UNIMICRON TECHNOLOGY CORP. PIXTECH, INC. Stock UMC JAPAN StockStock FARADAY TECHNOLOGY CORP. UNITED FU SHEN CHEN TECHNOLOGY Type of securities ATTACHMENT 4 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION
266 Financial Review Consolidated collateral Shares as (thousand) Note None Note None Note None Note None Note None 22,197 None 24,676 None 31,116 None 520,658 None 359,412 None 952,216 None 245,705 None 5,048,091 None 3,545,441 None 2,289,065 None Market value/ Net assets value 4.78 4.40 4.15 3.21 2.63 0.02 0.51 7.80 4.79 1.03 0.86 4.95 Percentage of ownership (%) 22,197 24,676 31,116 520,658 359,412 952,216 245,705 146,250 172,800 December 31, 2006 Book value 9,467 3,083 2,048 1,753 1,057 60,073 8,860,711 11.54 8,860,711 None 37,221 1,155,725 10.06 1,155,725 None 12,330 35,008 14,979 5,048,091 1.55 78,266 3,545,441 95,577 2,289,065 28,500 - 11.11 13,185 11,520 11,001 - 4.56 228,956 $4,556,222 16.09 $4,556,222 None 118,303 1,139,196 (thousand) bonds/ shares Units (thousand)/ Financial statement account noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Available-for-sale financial assets, noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Available-for-sale financial assets, noncurrent noncurrent Financial assets measured at cost, Available-for-sale financial assets, noncurrent Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Financial assets measured at cost, Financial assets measured at cost, Available-for-sale financial assets, Available-for-sale financial assets, Financial assets measured at cost, Financial assets measured at cost, Available-for-sale financial assets, ------Relationship Name of securities StockStock SILICON INTEGRATED SYSTEMS CORP. The Company's director NOVATEK MICROELECTRONICS CORP. Available-for-sale financial assets, Stock EPITECH TECHNOLOGY CORP. StockStock SPRINGSOFT, INC. Stock C-COM CORP. CHIPBOND TECHNOLOGY CORP. Stock KING YUAN ELECTRONICS CO., LTD. StockStock BILLIONTON SYSTEMS INC. MEDIATEK INC. Stock AU OPTRONICS CORP. Stock MEGA FINANCIAL HOLDING COMPANY StockStock HON HAI PRECISION INDUSTRY CO., LTD. SINO-AEROSPACE INVESTMENT CORP. Stock RECHI PRECISION CO., LTD. Stock UNITED INDUSTRIAL GASES CO., LTD. StockStock INDUSTRIAL BANK OF TAIWAN CORP. SUBTRON TECHNOLOGY CO., LTD. Stock TECO NANOTECH CO. LTD. Type of securities ATTACHMENT 4 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION
267 United Microelectronics Corporation | Annual Report 2006 collateral collateral Shares as Shares as (thousand) (thousand) N/A None N/A None N/A None N/A None 10,133 None 37,081 None 54,301 None 37,429 None 32,622 None 33,531 None 32,905 None 17,224 None 11,976 None $743,210 None Market value/ Market value/ Net assets value Net assets value Percentage of Percentage of ownership (%) ownership (%) 85,080 - 12,61088,093 35.80 88,134 30.00 37,429 26.00 25.15 32,62233,531 49.00 42,288 44.29 42.38 17,224 36.54 11,976 40.00 161,154 - 300,000 - $280,846 - $743,210 100.00 December 31, 2006 December 31, 2006 Book value Book value 800 4,000 2,500 6,000 5,200 4,493 3,920 30,000 80,000 10,187 11,285 10,212 (thousand) (thousand) bonds/ shares bonds/ shares Units (thousand)/ Units (thousand)/ - - Financial statement account Financial statement account noncurrent under the equity method under the equity method under the equity method under the equity method noncurrent noncurrent under the equity method under the equity method under the equity method under the equity method under the equity method under the equity method noncurrent Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, - - - - Relationship Relationship Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Name of securities Name of securities Fund PACIFIC UNITED TECHNOLOGY, L.P. Fund PACIFIC TECHNOLOGY PARTNERS, L.P. StockStock WALTOP INTERNATIONAL CORP. Stock TERA XTAL TECHNOLOGY CORP. CRYSTAL MEDIA INC. Stock ANOTO TAIWAN CORP. StockStock UCA TECHNOLOGY INC. Stock NEXPOWER TECHNOLOGY CORP. STAR SEMICONDUCTOR CORP. Stock UNITRUTH INVESTMENT CORP. Stock UWAVE TECHNOLOGY CORP. Type of securities Type of securities Stock-Preferred stock MTIC HOLDINGS PTE LTD. Stock-Preferred stock AEVOE INTERNATIONAL LTD. Stock-Preferred stock TAIWAN HIGH SPEED RAIL CORP. ATTACHMENT 4 (Securities held as of December 31, 2006) FORTUNE VENTURE CAPITAL CORP. (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION
268 Financial Review Consolidated collateral Shares as (thousand) 435 None Note None Note None Note None Note None Note None Note None Note None Note None 50,949 None 23,889 None 26,912 None 19,288 None 17,869 None 38,327 None 38,502 None $35,960 None 119,225 None Market value/ Net assets value 0.04 Percentage of ownership (%) 755 52,71136,806 21.45 34,349 21.42 19,288 21.21 20,983 20.84 47,559 19.41 18.10 32,187 11.83 66,50021,600 19.00 60,848 17.05 16,663 16.07 24,344 14.94 46,953 14.06 13.22 $37,525 23.57 119,225 17.08 142,030176,797 19.89 19.64 December 31, 2006 55 9,045 3,646 6,033 3,500 5,000 5,457 4,525 6,281 6,650 2,268 4,340 2,660 3,340 4,230 23,405 12,848 17,675 (thousand) Book value bonds/ shares Units (thousand)/ Financial statement account for under the equity method for under the equity method for under the equity method for under the equity method for under the equity method for under the equity method for under the equity method Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, ------Fortune Fortune Fortune Relationship Investee company Long-term investments accounted Investee company Long-term investments accounted Investee company Long-term investments accounted Investee company Long-term investments accounted Investee company Long-term investments accounted Investee company Long-term investments accounted Investee company Long-term investments accounted Investee of UMC and Investee of UMC and Investee of UMC and Name of securities StockStock SMEDIA TECHNOLOGY CORP. Stock USBEST TECHNOLOGY INC. Stock AFA TECHNOLOGY, INC. Stock ALLIANCE OPTOTEK CORP. Stock U-MEDIA COMMUNICATIONS, INC. Stock MOBILE DEVICES INC. Stock HIGH POWER LIGHTING CORP. Stock AMIC TECHNOLOGY CORP. Stock XGI TECHNOLOGY INC. Stock HIGHLINK TECHNOLOGY CORP. Stock DAVICOM SEMICONDUCTOR, INC. Stock BCOM ELECTRONICS INC. Stock KUN YUAN TECHNOLOGY CO., LTD. Stock CION TECHNOLOGY CORP. Stock HITOP COMMUNICATIONS CORP. Stock LIGHTUNING TECH. INC. Stock CHIP ADVANCED TECHNOLOGY INC. UWIZ TECHNOLOGY CO., LTD. Type of securities ATTACHMENT 4 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) FORTUNE VENTURE CAPITAL CORP.
269 United Microelectronics Corporation | Annual Report 2006 collateral Shares as (thousand) Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Market value/ Net assets value 5.03 6.28 6.00 9.61 9.50 7.94 7.88 6.85 6.67 7.00 Percentage of ownership (%) 15,964 13,600 15,000 27,16085,291 10.06 47,880 62,500 37,156 17,306 76,640 21,875 10.23 49,28010,421 10.67 10.60 36,180 10.80 $11,891 12.02 105,000 113,017 10.36 December 31, 2006 1,742 2,000 1,500 6,009 70,179 5.67 4,284 8,529 2,660 5,000 4,198 1,700 8,000 2,500 5,040 1,060 3,487 1,080 10,500 11,434 (thousand) Book value bonds/ shares Units (thousand)/ Financial statement account noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, noncurrent noncurrent Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, ------Relationship Name of securities CAPITAL INVESTMENT CORP. LTD. CAPITAL INVESTMENT CORP. CO., LTD. CAPITAL INVESTMENT CORP. StockStock HIGH POWER OPTOELECTRONICS, INC. Stock SIMPAL ELECTRONICS CO., LTD. COSMOS TECHNOLOGY VENTURE StockStock EXCELLENCE OPTOELECTRONICS INC. Stock JMICRON TECHNOLOGY CORP. Stock ANDES TECHNOLOGY CORP. Stock CHINGIS TECHNOLOGY CORP. Stock SHIN-ETSU HANDOTAI TAIWAN CO., LTD. Stock ACTI CORP. Stock RISELINK VENTURE CAPITAL CORP. NCTU SPRING VENTURE CAPITAL CO., Stock NCTU SPRING I TECHNOLOGY VENTURE StockStock AMOD TECHNOLOGY CO., LTD. Stock ADVANCE MATERIALS CORP. EVERGLORY RESOURCE TECHNOLOGY StockStock YAYATECH CO., LTD. GOLDEN TECHNOLOGY VENTURE Stock VASTVIEW TECHNOLOGY INC. Type of securities ATTACHMENT 4 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) FORTUNE VENTURE CAPITAL CORP.
270 Financial Review Consolidated collateral Shares as (thousand) N/A None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Market value/ Net assets value 4.00 4.89 4.11 4.90 4.85 4.72 4.65 2.93 5.00 3.88 3.08 4.08 3.98 Percentage of ownership (%) 4,224 2,457 24,931 32,000 39,051 3.45 14,165 16,391 22,178 15,086 26,742 76,142 3.81 22,200 3.16 11,325 $41,900 102,459 225,000 December 31, 2006 409 540 1,183 1,200 - 4.00 5,000 2,450 1,300 1,249 3,930 9,317 7,614 1,480 5,000 1,750 (thousand) Book value bonds/ shares Units (thousand)/ 1,504 1,750 - Financial statement account noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, ------Relationship Name of securities INC. CO., LTD. Fund IGLOBE PARTNERS FUND, L.P. StockStock PROSYS TECHNOLOGY INTEGRATION, Stock WAVEPLUS TECHNOLOGY CO., LTD. Stock FORTUNE SEMICONDUCTOR CORP. PRINTECH INTERNATIONAL INC. StockStock PARAWIN VENTURE CAPITAL CORP. Stock MEMOCOM CORP. Stock LUMITEK CORP. Stock EE SOLUTIONS, INC. Stock TRENDCHIP TECHNOLOGIES CORP. Stock GIGA SOLUTION TECH. CO., LTD. BEYOND INNOVATION TECHNOLOGY StockStock SUBTRON TECHNOLOGY CO., LTD. IBT VENTURE CORP. StockStock ANIMATION TECHNOLOGIES INC. Stock SUPERALLOY INDUSTRIAL CO., LTD. CHIPSENCE CORP. Type of securities ATTACHMENT 4 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) FORTUNE VENTURE CAPITAL CORP.
271 United Microelectronics Corporation | Annual Report 2006 collateral Shares as (thousand) N/A None N/A None N/A None Note None Note None Note None Note None Note None 5,536 None 69,827 None 21,004 None 27,600 None 16,560 None 50,930 None 63,846 None 407,627 None 446,914 None Market value/ Net assets value 0.99 1.84 1.83 1.68 2.50 Percentage of ownership (%) 9,342 5,536 0.02 69,827 1.26 21,004 0.12 24,419 16,095 15,590 59,317 - 46,313 - 27,600 5.89 16,560 3.40 50,930 3.17 $9,950 63,846 0.74 407,627 3.55 446,914 0.12 December 31, 2006 8 162 - 0.83 959 178 2,290 1,500 1,391 5,133 1,500 2,000 1,051 1,384 1,250 2,190 13,274 6,504,25513,128 12.71 6,504,255 None 22,070 (thousand) Book value bonds/ shares Units (thousand)/ - Financial statement account noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Financial assets measured at cost, Available-for-sale financial assets, Financial assets measured at cost, Financial assets measured at cost, Available-for-sale financial assets, Available-for-sale financial assets, ------Relationship Investor company Available-for-sale financial assets, Name of securities INC. TECHNOLOGY INC. Fund CRYSTAL INTERNET VENTURE FUND II StockStock TAIMIDE TECHNOLOGY INC. RALINK TECHNOLOGY CORP. Stock ARCADIA DESIGN SYSTEMS (TAIWAN), StockStock PIXART IMAGING INC. Stock UNITED ORTHOPEDIC CORP. Stock EPITECH TECHNOLOGY CORP. Stock AVERLOGIC TECHNOLOGIES CORP. Stock AIMTRON TECHNOLOGY, INC. TOPOINT TECHNOLOGY CO., LTD. StockStock SHENG-HUA VENTURE CAPITAL CORP. ADVANCED CHIP ENGINEERING StockStock CHIPBOND TECHNOLOGY CORP. Stock UNITED MICROELECTRONICS CORP. SIMPLO TECHNOLOGY CO., LTD. Stock ATHEROS COMMUNICATION INC. Type of securities Stock-Preferred stock AURORA SYSTEMS, INC. Stock-Preferred stock ALPHA & OMEGA SEMICONDUCTOR LTD. ATTACHMENT 4 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) FORTUNE VENTURE CAPITAL CORP.
272 Financial Review Consolidated collateral collateral Shares as Shares as (thousand) (thousand) Note None Note None 36,314 None 28,166 None 395,317 None 168,408 None 615,960 None $33,600 None 138,221 None 357,901 None 118,849 None 323,324 None $202,390 None Market value/ Market value/ Net assets value Net assets value 7.02 4.48 3.48 8.40 6.55 5.84 3.92 2.81 Percentage of Percentage of ownership (%) ownership (%) 36,314 - 99,220 18.46 395,317 168,408 615,960 $33,600 - 134,999100,000 11.62 479,250 357,901 118,849 323,324 $202,390 44.44 December 31, 2006 December 31, 2006 300 258 0.20 7,084 5,430 6,192 5,220 17,460 10,000 10,650 20,163 16,858 10,413 (thousand) Book value (thousand) Book value bonds/ shares bonds/ shares Units (thousand)/ Units (thousand)/ Financial statement account Financial statement account profit or loss, noncurrent profit or loss, noncurrent for under the equity method for under the equity method for under the equity method noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Available-for-sale financial assets, Available-for-sale financial assets, Financial assets at fair value through Financial assets at fair value through Financial assets measured at cost, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Financial assets measured at cost, ------Relationship Relationship Investee company Long-term investments accounted Investee company Long-term investments accounted Investee of UMC and TLC Long-term investments accounted Name of securities Name of securities Stock YUNG LI INVESTMENTS, INC. StockStock SMEDIA TECHNOLOGY CORP. Stock HIGHLINK TECHNOLOGY CORP. Stock ASIA PACIFIC MICROSYSTEMS, INC. Stock SUPERALLOY INDUSTRIAL CO., LTD. Stock TOPOINT TECHNOLOGY CO., LTD. Stock RECHI PRECISION CO., LTD. Stock SERCOMM CORP. Stock HORIZON SECURITIES CO., LTD. Stock SIMPLO TECHNOLOGY CO., LTD. EPITECH TECHNOLOGY CORP. Type of securities Type of securities Convertible bonds ALPHA NETWORKS INC. Convertible bonds TOPOINT TECHNOLOGY CO., LTD. ATTACHMENT 4 (Securities held as of December 31, 2006) TLC CAPITAL CO., LTD. (Amount in thousand; Currency denomination NTD unless otherwise specified) FORTUNE VENTURE CAPITAL CORP.
273 United Microelectronics Corporation | Annual Report 2006 collateral Shares as (thousand) 7,785 None 8,340 None 31,120 None 32,800 None 12,648 None 54,365 None 16,065 None 33,582 None 30,253 None 49,840 None 86,520 None 40,01862,265 None None 83,160 None 36,256 None 254,102 None 557,019 None 353,936 None $163,196 None Market value/ Net assets value 0.96 0.74 0.27 0.15 0.23 0.23 0.08 2.16 0.54 0.41 0.90 0.59 0.11 0.10 0.91 Percentage of ownership (%) 7,785 8,340 31,120 32,800 12,648 54,365 16,065 33,582 0.18 30,253 49,840 86,520 0.23 40,018 62,265 83,160 36,256 0.17 254,102 557,019 353,936 0.21 $163,196 December 31, 2006 800 500 248 566 895 950 300 343 400 800 4,085 6,007 4,764 1,050 3,300 2,060 38,152 23,596 14,000 (thousand) Book value bonds/ shares Units (thousand)/ Financial statement account noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, noncurrent noncurrent Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, ------Relationship Name of securities LTD. CORP. CORP. CONSTRUCTION CO., LTD. HOLDING CORP. StockStock AVERMEDIA TECHNOLOGIES, INC. SYSTEX CORP. StockStock CORETRONIC CORP. INPAQ TECHNOLOGY CO., LTD. StockStock ALI CORP. POWERTECH INDUSTRIAL CO., LTD. Stock TATUNG CO. StockStock HUNG SHENG CONSTRUCTION LTD. ORIENT SEMICONDUCTOR ELECTRONICS, Stock CHINA ELECTRIC MFG. CORP. StockStock KINSUS INTERCONNECT TECHNOLOGY KEE TAI PROPERTIES CO., LTD. Stock CHONG HONG CONSTRUCTION CO., LTD. StockStock SHIHLIN ELECTRIC & ENGINEERING GOLDSUN DEVELOPMENT& Stock YUNGTAY ENGINEERING CO., LTD. StockStock HANNSTAR DISPLAY CORP. CHINA DEVELOPMENT FINANCIAL Stock TAIWAN FERTILIZER CO., LTD. Type of securities ATTACHMENT 4 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) TLC CAPITAL CO., LTD.
274 Financial Review Consolidated collateral collateral Shares as Shares as (thousand) (thousand) 4,604 None 3,150 None 7,800 None 1,095 None 32,614 None 53,485 None 39,500 None 18,797 None 13,220 None 43,600 None $12,360 None $12,789 None 293,250 None Market value/ Market value/ Net assets value Net assets value - - - 0.06 0.07 9.00 8.88 0.07 Percentage of Percentage of ownership (%) ownership (%) 4,604 3,150 0.06 7,800 0.03 1,095 0.01 32,614 53,485 39,500 20,816 13,220 43,600 0.02 $29,364 10.00 $12,789 293,250 December 31, 2006 December 31, 2006 40 580 800 150 500 100 380 1,000 2,000 1,800 1,587 1,600 2,500 (thousand) Book value (thousand) Book value bonds/ shares bonds/ shares Units (thousand)/ Units (thousand)/ Financial statement account Financial statement account noncurrent noncurrent for under the equity method for under the equity method for under the equity method noncurrent noncurrent noncurrent noncurrent noncurrent profit or loss, noncurrent profit or loss, noncurrent profit or loss, noncurrent Available-for-sale financial assets, Available-for-sale financial assets, Financial assets at fair value through Financial assets at fair value through Financial assets at fair value through Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, Available-for-sale financial assets, ------Relationship Relationship Investee company Long-term investments accounted Investee company Long-term investments accounted Investee company Long-term investments accounted Name of securities Name of securities CORP. COMPANY LTD. TECHNOLOGY CORP. StockStock PRINCE HOUSING & DEVELOPMENT Stock YULON MOTOR CO., LTD. CHINA INSURANCE INTL Stock WALTOP INTERNATIONAL CORP. StockStock TERA XTAL TECHNOLOGY CORP. CRYSTAL MEDIA INC. Stock NANTEX INDUSTRY.CO.,LTD. Stock FAR EASTERN INTERNATIONAL BANK Stock TA CHONG BANK LTD. Stock CHINATRUST FINANCIAL HOLDING Type of securities Type of securities Convertible bonds EPITECH TECHNOLOGY CORP. Convertible bonds TOPOINT TECHNOLOGY CO., LTD. Convertible bonds SOLAR APPLIED MATERIALS ATTACHMENT 4 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) TLC CAPITAL CO., LTD. UNITRUTH INVESTMENT CORP.
275 United Microelectronics Corporation | Annual Report 2006 collateral Shares as (thousand) Note None Note None Note None Note None Note None Note None Note None 3,960 None 3,292 None 4,093 None 2,193 None 4,822 None 4,621 None 10,788 None 10,376 None 10,217 None $9,996 None Market value/ Net assets value 4.91 5.11 5.83 6.03 4.90 7.18 3.31 3.55 4.35 4.45 9.30 4.65 4.90 5.21 5.95 6.70 7.88 Percentage of ownership (%) 3,059 3,960 3,292 4,093 7,920 2,193 4,822 7,840 10,500 62,427 25,850 16,415 63,739 10,788 12,875 17,085 $12,758 December 31, 2006 490 930 1,200 5,637 1,386 1,748 6,374 1,760 1,000 1,000 1,250 1,300 1,225 1,250 1,585 2,570 1,300 (thousand) Book value bonds/ shares Units (thousand)/ Financial statement account noncurrent Financial assets measured at cost, Financial assets measured at cost, noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Financial assets measured at cost, Long-term investments accounted for under the equity method under the equity method Financial assets measured at cost, under the equity method under the equity method Financial assets measured at cost, under the equity method under the equity method Financial assets measured at cost, under the equity method under the equity method under the equity method under the equity method Financial assets measured at cost, ------Unitruth Relationship Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee company Long-term investments accounted for Investee of UMC and Name of securities CO., LTD. Stock YAYATECH CO., LTD. Stock EVERGLORY RESOURCE TECHNOLOGY Stock ADVANCE MATERIALS CORP. Stock CHIP ADVANCED TECHNOLOGY INC. Stock VASTVIEW TECHNOLOGY INC. Stock EXCELLENCE OPTOELECTRONICS INC. Stock AMOD TECHNOLOGY CO., LTD. Stock XGI TECHNOLOGY INC. Stock AFA TECHNOLOGY, INC. Stock UWAVE TECHNOLOGY CORP. Stock MOBILE DEVICES INC. Stock STAR SEMICONDUCTOR CORP. Stock HIGH POWER LIGHTING CORP. Stock U-MEDIA COMMUNICATIONS, INC. Stock UCA TECHNOLOGY INC. Stock SMEDIA TECHNOLOGY CORP. Stock ALLIANCE OPTOTEK CORP. Type of securities ATTACHMENT 4 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITRUTH INVESTMENT CORP.
276 Financial Review Consolidated collateral Shares as (thousand) Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None Note None 14,932 None Market value/ Net assets value 4.89 4.85 4.73 4.59 4.30 4.01 3.62 4.72 3.98 2.98 4.79 Percentage of ownership (%) 5,262 2,457 5,000 2.00 5,889 1.52 8,844 14,755 31,218 16,317 13,747 13,416 17,747 12,256 2.13 14,570 1.57 72,000 0.98 14,932 3.19 11,100 $32,000 December 31, 2006 840 540 740 500 910 1,750 1,300 1,340 2,518 1,470 1,138 2,005 1,361 1,801 1,300 1,600 1,082 (thousand) Book value bonds/ shares Units (thousand)/ Financial statement account noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Available-for-sale financial assets, ------Relationship Name of securities StockStock LUMITEK CORP. Stock EE SOLUTIONS, INC. Stock JMICRON TECHNOLOGY CORP. Stock CHINGIS TECHNOLOGY CORP. LIGHTUNING TECH. INC. StockStock UWIZ TECHNOLOGY CO., LTD. Stock TRENDCHIP TECHNOLOGIES CORP. Stock MEMOCOM CORP. Stock PRINTECH INTERNATIONAL INC. FORTUNE SEMICONDUCTOR CORP. StockStock ACTI CORP. Stock GIGA SOLUTION TECH. CO., LTD. HIGH POWER OPTOELECTRONICS, INC. StockStock RALINK TECHNOLOGY CORP. Stock CHIPSENCE CORP. Stock SUPERALLOY INDUSTRIAL CO., LTD. UNITED ORTHOPEDIC CORP. Type of securities ATTACHMENT 4 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITRUTH INVESTMENT CORP.
277 United Microelectronics Corporation | Annual Report 2006 collateral collateral Shares as Shares as (thousand) (thousand) N/A None N/A None N/A None N/A None N/A None N/A None N/A None $53,485 None Market value/ Market value/ Net assets value Net assets value Percentage of Percentage of ownership (%) ownership (%) $53,485 - December 31, 2006 December 31, 2006 380 200 USD 326 100.00508 USD 326 USD 948 None 44.44 USD 415 None 1,000 USD 1,550 100.005,000 USD 3,772 USD 1,5503,125 None USD 2,016 35.452,5372,000 USD 1,281 23.30 USD 3,772 - 1,649 None USD 1,000 - USD 1,1131,678 USD 1,436 - None 1,571 USD 2,000 - 5,235 USD 1,000 - USD 4,381 - 10,066 USD 4,053 - (thousand) Book value (thousand) Book value bonds/ shares bonds/ shares Units (thousand)/ Units (thousand)/ Financial statement account Financial statement account profit or loss, noncurrent for under the equity method for under the equity method for under the equity method for under the equity method for under the equity method noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Financial assets at fair value through Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, ------Relationship Relationship Investee company Long-term investments accounted Investee company Long-term investments accounted Investee company Long-term investments accounted Investee company Long-term investments accounted Name of securities Name of securities Fund UC FUND II StockStock UMC CAPITAL (USA) ECP VITA LTD. Type of securities Type of securities Convertible bonds TOPOINT TECHNOLOGY CO., LTD. Stock-Preferred stock ACHIEVE MADE INTERNATIONAL LTD. Investee companyStock-Preferred stock Long-term investments accounted PARADE TECHNOLOGIES, LTD. Stock-Preferred stock MAXXAN SYSTEMS, INC. Stock-Preferred stock AICENT, INC. Stock-Preferred stock SPREADTRUM COMMUNICATIONS, INC. Stock-Preferred stock SILICON 7, INC. Stock-Preferred stock GCT SEMICONDUCTOR, INC. Stock-Preferred stock INTELLON CORP. Stock-Preferred stock FORTEMEDIA, INC. ATTACHMENT 4 (Securities held as of December 31, 2006) UMC CAPITAL CORP. (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITRUTH INVESTMENT CORP.
278 Financial Review Consolidated collateral Shares as (thousand) N/A None N/A None N/A None N/A None N/A None N/A None N/A None N/A None N/A None N/A None N/A None N/A None N/A None N/A None N/A None Note None Note None Note None Market value/ Net assets value 0.00 Percentage of ownership (%) December 31, 2006 10 USD 1,186 - 31 USD 1,094 153 USD 1,596 - 550 USD 242 - 477 USD 3,000 - 720 - 18.00 0.59 - 0.00 2,0705,750 USD 4,052 - USD 6,500 - 1,471 USD 1,500 - 2,7701,500 USD 4,820 - USD 3,375 - 4,0004,850 USD 4,000 - USD 4,850 - 1,8004,373 USD 555 - USD 4,500 - 12,422 USD 3,000 - (thousand) Book value bonds/ shares Units (thousand)/ - USD 712 - Financial statement account noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent noncurrent Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, Financial assets measured at cost, ------Relationship Name of securities Fund VENGLOBAL CAPITAL FUND III, L.P. Stock MAGNACHIP SEMICONDUCTOR LLC Stock PATENTOP, LTD. Stock KOTURA, INC. Type of securities Stock-Preferred stock MAXLINEAR, INC. Stock-Preferred stock SMART VANGUARD LTD. Stock-Preferred stock WISAIR, INC. Stock-Preferred stock AMALFI SEMICONDUCTOR, INC. Stock-Preferred stock DIBCOM, INC. Stock-Preferred stock EAST VISION TECHNOLOGY LTD. Stock-Preferred stock ALPHA & OMEGA SEMICONDUCTOR LTD. Stock-Preferred stock AURORA SYSTEMS, INC. Stock-Preferred stock VERIPRECISE TECHNOLOGY, INC. Stock-Preferred stock PACTRUST COMMUNICATION, INC. Stock-Preferred stock LUMINUS DEVICES, INC. Stock-Preferred stock REALLUSION HOLDING INC. Stock-Preferred stock FORCE10 NETWORKS, INC. Stock-Preferred stock QSECURE, INC. ATTACHMENT 4 (Securities held as of December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) UMC CAPITAL CORP.
279 United Microelectronics Corporation | Annual Report 2006 ares as collateral Sh (thousand) N/A None N/A None Market value/ Net assets value Percentage of ownership (%) December 31, 2006 301 - - 750 - - d)/ ousan (th s (thousand) Book value it bonds/ shares n U able as of December 31, 2006. t Financial statement account Financial assets measured at cost, noncurren noncurrent Financial assets measured at cost, - - Relationship Name of securities Type of securities Stock-Preferred stock TERABURST NETWORKS Stock-Preferred stock ZYLOGIC SEMICONDUCTOR CORP. ATTACHMENT 4 (Securities held as of December 31, 2006) Note : The net asset values for unlisted investees classified as "Financial assets measured at cost, noncurrent" were not avail (Amount in thousand; Currency denomination NTD unless otherwise specified) UMC CAPITAL CORP.
280 Financial Review Consolidated - - - $- 276,202 329,464 353,072 5,048,091 (Note1) Amount - - - - 402 52,863 14,979 Ending balance (Note6) (Note7) (Note8) (Note10) bonds/ Units (thousand)/ shares (thousand) (Note9) (Note 3) Gain (Loss) from disposal - - 23,538 270,120 21,594 322,200 111,927 152,778 (8,436) 1,000 34,485 Cost $271,600 $38,284 (Note 2) Disposal (Note4) (Note4) (Note4) (Note5) Amount 800 $309,884 580 78,464 65,879 12,585 6,150 292,416 243,280 49,136 5,395 bonds/ - - - - 16,270 Units (thousand)/ shares (thousand) -- 8,000 291,714 10,000 434,127 - 37,872 581,041 456,571 124,470 - 42,407 14,259,393 458,508 13,771,261 $- (Note4) (Note4) Amount - - - - Addition 982 111,540 bonds/ Units (thousand)/ shares (thousand) percent of capital stock for the year ended December 31, 2006) (Note1) Amount 800 $340,912 8,000 310,099 4,500 144,191 1,000 32,5783,700 170,385 4,500 144,342 6,832 291,714 10,000 402,375 37,872 565,344 53,916 20,865,597 - Beginning balance bonds/ Units (thousand)/ shares (thousand) ------14,791 - 434,127 526,750 - - - 6,831,114 23,200 49,376 298,433 - - 709,895 640,329 69,566 477,374 6,778,711 Relationship Counter-party KING YUAN ELECTRONICS CO., LTD. SILICONWARE PRECISION INDUSTRIES CO., LTD. ACTION ELECTRONICS CO., LTD. QUANTA STORAGE INC. Open market Open market SILICONWARE PRECISION INDUSTRIES CO., LTD. ACTION ELECTRONICS CO., LTD. Open market Open market Open market account Financial statement Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, current Financial assets at fair value through profit or loss, current Available-for- sale financial assets, noncurrent Name of the securities LTD. PRECISION INDUSTRIES CO., LTD. ELECTRONICS CO., LTD. TECHNOLOGIES INC. DEVELOPMENT FINANCIAL HOLDING CORP. KING YUAN ELECTRONICS CO., LTD. SILICONWARE PRECISION INDUSTRIES CO., LTD. ACTION ELECTRONICS CO., LTD. QUANTA STORAGE INC. TATUNG CO. Stock SAMSON HOLDING Stock SILICONWARE Stock ACTION Stock PROMOS Stock CHINA Stock MEDIATEK INC. bonds bonds bonds bonds bonds Type of securities Convertible Convertible Convertible Convertible Convertible ATTACHMENT 5 (Individual securities acquired or disposed of with accumulated amount exceeding the lower NT$100 million 20 (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION
281 United Microelectronics Corporation | Annual Report 2006 - 31,116 - ,155,725 $952,216 (Note1) Amount - 33,624 4,674,311 Ending balance (Note11) (Note12) bonds/ - Units (thousand)/ shares (thousand) $- 35,008 (Note17) (Note16) (Note 3) Gain (Loss) from disposal $- 27,964 216,965 - - Cost (Note 2) $- Disposal 244,929 (Note14) Amount (Note13) bonds/ - - - - - 1,057 245,705 Units (thousand)/ shares (thousand) - 58,500 6,521,580 5,865,917 13,152,475 - 106,621 1,279,449 1,053,204 197,633 (Note4) (Note14) Amount Addition 9,653 $309,884 bonds/ - Units (thousand)/ shares (thousand) percent of capital stock for the year ended December 31, 2006) (Note15) (Note1) Amount 3,497 154,043 - - 3,602 4,810 206,830 - - 4,810 192,400 207,482 (15,082) - 23,040 $828,272 23,729 716,630 12,412 13,492 331,400 - - 296,823 - - - 12,677 - 223,636 37,221 205,245 1 18,391 44,530 1,753 1,202,310 - - 92,124 (3,169,837) 44,530 1,113,250 1,201,794 (88,544) - 106,621 1,063,671 - Beginning balance bonds/ Units (thousand)/ shares (thousand) ------1,057 - 244,929 - - Relationship Counter-party KING YUAN ELECTRONICS CO., LTD. Proceeds from new issues Open market PREMIER IMAGE TECHNOLOGY CORP. HON HAI PRECISION INDUSTRY CO., LTD. CHINATRUST FINANCIAL HOLDING CO., LTD. TAIWAN CEMENT CORP. HSIEH YONG CAPITAL CO., TOPPAN PHOTOMASKS TAIWAN LTD. account Financial statement Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Name of the securities ELECTRONICS CO., LTD. TECHNOLOGY CORP. CO., LTD. TECHNOLOGY CORP. PRECISION INDUSTRY CO., LTD. INVESTMENT CO., LTD. PHOTOMASKS TAIWAN LTD. CHINATRUST FINANCIAL HOLDING CO., LTD. TAIWAN CEMENT CORP. Stock KING YUAN Stock EPITECH Stock RECHI PRECISION Stock PREMIER IMAGE Stock HON HAI Stock HSUN CHIEH Stock TOPPAN Stock- Stock- Type of securities ATTACHMENT 5 (Individual securities acquired or disposed of with accumulated amount exceeding the lower NT$100 million 20 Preferred stock Preferred stock (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION
282 Financial Review Consolidated ) Note21 (Note18) (Note19) (Note20) (Note22) ( 2,699,491 (Note1) Amount - 496 5,949,999 Ending balance (Note22) bonds/ Units (thousand)/ shares (thousand) - 124,000 3,613,491 - - 600,000 6,999,737 - (Note 3) Gain (Loss) from disposal - - - - $- $- 28,500 $225,624 Cost (Note 2) - - - - $- Disposal Amount - - - - bonds/ Units (thousand)/ shares (thousand) 2,222,100 Amount - 12 132,462 Addition (Note22) bonds/ Units (thousand)/ shares (thousand) percent of capital stock for the year ended December 31, 2006) gnition and Measurement'', is applied. 29,624) thousand. (Note1) Amount sale are recorded at the prevailing market prices. loss" on the balance sheet. or loss" on the balance sheet. 484 6,341,144 the valuation of financial assets. 74,000 2,051,350 50,000 1,665,000 300,000 2,991,258 300,000 3,000,000 Beginning balance bonds/ Units (thousand)/ shares (thousand) - - - $- - 28,500 $285,000 - - - - - Relationship Counter-party Proceeds from new issues Open market Proceeds from new issues Proceeds from new issues Proceeds from new issues account Financial statement Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Name of the securities LIMITED PARTNERSHIP TECHNOLOGY CORP. LTD. CORP. Fund MEGA MISSION Stock HIGHLINK Stock UMC JAPAN Stock TLC CAPITAL CO., Stock UMC CAPITAL Type of securities ATTACHMENT 5 (Individual securities acquired or disposed of with accumulated amount exceeding the lower NT$100 million 20 As for the gain/loss from disposal of financial assets at fair value through profit/loss transfers to on Note 4: Exercise of conversion rights UMC's convertible bond classified as "Financial asset at fair value through profit or Note 5: Exercise of call back rights the UMC's convertible bond classified as "Financial asset at fair value through profit Note 1: The amounts of beginning and ending balances financial assets at fair value through profit or loss available for Note 2: The disposal cost represents historical cost. Note 3: Gain/Loss from disposal includes realized exchange gain/loss to which the ROC SFAS No. 34, "Financial Instruments: Reco Note 6: The ending balance includes stock dividend of 1,013 thousand shares. Note 7: The ending balance includes stock dividend of 1,479 thousand shares. Note 8: The ending balance includes stock dividend of 338 thousand shares. Note 9: The gain/loss on disposal of investment includes adjustments to long-term additional paid-in capital NT$( Note 10: The ending balance includes stock dividend of 3,470 thousand shares. (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION
283 United Microelectronics Corporation | Annual Report 2006 - - $- (Note3) (Note1) (Note1) Amount Amount - Ending balance Ending balance cial bonds/ bonds/ Units (thousand)/ Units (thousand)/ shares (thousand) shares (thousand) - 80,000 743,210 (Note2) (Note 3) Gain (Loss) Gain (Loss) from disposal from disposal - Cost Cost (Note 2) - Disposal Disposal Amount Amount - 255 218,469181 71,775 185,353 146,694 - 24,652 160,701 - bonds/ bonds/ Units (thousand)/ Units (thousand)/ shares (thousand) shares (thousand) $- 12,655 $240,451 $252,307 $(11,607) Amount Amount Addition Addition bonds/ bonds/ Units (thousand)/ Units (thousand)/ shares (thousand) shares (thousand) percent of capital stock for the year ended December 31, 2006) ounted for as treasury stock) of NT$20,137,403 thousand from UMC's long-term investment beginning balance in Hsun Chieh and long-term investment additional paid-in capital adjustment of NT$117 thousand. capital adjustment of NT$2,543 thousand, cumulative translation adjustments NT$10 thousand and unrealized gain on financial n capital adjustment of NT$1 thousand and cumulative translation adjustments NT$(114,685) thousand. capital adjustment of NT$930 thousand, cumulative translation adjustments NT$(55,147) thousand and unrealized gain on finan nd, cumulative translation adjustments of NT$(8,157) thousand, unrealized loss available for sale NT$(1,644,252) thousand. . (Note1) (Note1) Amount Amount NT$504,936 thousand and cumulative translation adjustments of NT$(27,545) thousand. 255 150,565 - - 181 176,419 - - 12,655 $252,307 - 40,000 366,683 40,000 400,000 Beginning balance Beginning balance bonds/ bonds/ Units (thousand)/ Units (thousand)/ shares (thousand) shares (thousand) - - - Subsidiary Relationship Relationship Counter-party Counter-party NVIDIA BVI HOLDINGS LTD. Proceeds from new issues Open market Open market account account Financial Financial statement statement Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Name of the securities Name of the securities INC. INVESTMENT CORP. MICROSYSTEMS, INC. TECHNOLOGY HOLDINGS, INC. Stock ULI ELECTRONICS Stock UNITRUTH Stock TRIDENT Stock SIRF Type of Type of securities securities ATTACHMENT 5 (Individual securities acquired or disposed of with accumulated amount exceeding the lower NT$100 million 20 Note 11: The ending balance includes stock dividend of 2,315 thousand shares. Note 12: The ending balance includes stock dividend of 2,018 thousand shares. Note 13: The disposal shares include stock dividend of 105 thousand shares. Note 14: On December 1, 2006, Premier Image Technology Corporation merged into Hon Hai Precision Industry Co., Ltd. Note 15: The ending balance of NT$(3,169,837) thousand is computed by deducting UMC's stocks held Hsun Chieh (therefore acc NT$16,967,566 thousand. Note 16: The gain/loss on disposal includes long-term investment additional paid-in capital adjustments of NT$14,149,221 thousa Note 17: The gain/loss on disposal includes long-term investment additional paid-in capital adjustments of NT$(28,612) thousand Note 18: The ending balance includes impairment loss of NT$(7,774) thousand, long-term investment NT$(51,719) thousand Note 19: The ending balance includes long-term investment loss of NT$(408,923) thousand, additional paid-i Note 20: The ending balance includes long-term investment gain of NT$329,178 thousand, additional paid-in assets of NT$676,748 thousand. Note 21: The ending balance includes long-term investment loss of NT$(49,736) thousand, additional paid-in (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION assets of NT$1,094 thousand. Note 22: No shares since it belongs to partnership fund organization. The ending balance includes long-term investment loss of FORTUNE VENTURE CAPITAL CORP.
284 Financial Review Consolidated ,627 (Note1) Amount 00 225,000 178 $21,004 Ending balance bonds/ Units (thousand)/ shares (thousand) Gain (Loss) from disposal Cost Disposal 111,552 93,633 17,919 - - 232,190 34,413 197,777 - - Amount 240 (Note4) (Note5) bonds/ Units (thousand)/ shares (thousand) Amount Addition bonds/ Units (thousand)/ shares (thousand) percent of capital stock for the year December 31, 2006) $- 1,518 $128,913 1,340 $127,011 $113,977 $13,034 f NT$17,428 thousand due to disproportionate changes in shareholding, cumulative translation adjustments of NT$(99) thousand, (Note1) Amount ket prices. - 5,000 225,000 - - - - 5,0 ,976 thousand. - 120 34,413 - - 5,000 133,500 - - 4,361 131,705 5,461 8,767 257,000 - - - - 13,128 407 Beginning balance bonds/
Units (thousand)/ shares (thousand) ------Relationship Counter-party Open market Open market Open market ANALOG DEVICES HOLDINGS B.V. Taiwan Special Opportunities Fund III / Proceeds from new issues account Financial statement Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Financial assets measured at cost, noncurrent Financial assets measured at cost, noncurrent Name of the securities TCHNOLOGY CO., LTD. CO., LTD. TECHNOLOGY CORP. INDUSTRIAL CO., LTD. INTEGRANT TECHNOLOGIES, INC. Stock SIMPLO Stock RECHI PRECISION Stock EPITECH Stock SUPERALLOY Stock- Type of securities ATTACHMENT 5 (Individual securities acquired or disposed of with accumulated amount exceeding the lower NT$100 million 20 Preferred stock Note 1: The amounts of beginning and ending balances available-for-sale financial assets are recorded at the prevailing mar Note 2: The loss on disposal of investment includes cumulative translation adjustments NT$249 thousand. Note 3: The ending balance includes long-term investment loss of NT$(44,024) thousand, additional paid-in capital adjustments o retained earning adjustments of NT$246 thousand and unrealized loss available-for-sale financial assets NT$2 Note 4: The disposal shares includes stock dividend of 461 thousand shares. Note 5: 2 for 1 Stock splits. (Amount in thousand; Currency denomination NTD unless otherwise specified) FORTUNE VENTURE CAPITAL CORP.
285 United Microelectronics Corporation | Annual Report 2006 54,365 353,936 254,102 $168,408 (Note1) Amount 566 Ending balance (Note3) (Note6) (Note7) (Note2) bonds/ Units (thousand)/ shares (thousand) - 23,596 - 10,413 323,324 - 6,007 20,058 - - 54,781 - - Gain (Loss) from disposal - - - (Note9) (Note5) Cost - - - Disposal 225,036 204,978 217,570 162,789 Amount - - - 300 30,403 25,617 4,786 5,220900 615,960 86,560 76,347 10,213 (Note8) (Note4) bonds/ Units (thousand)/ shares (thousand) Amount Addition bonds/ Units (thousand)/ shares (thousand) - 1,741 211,155 1,909 -- 23,025 292,259 - 19,500 238,307 - 5,520 19,500 330,234 286,030 47,372- 583,045 238,307 10,413 9,220- 298,327 47,723 - - 123,401- 4,208 166,996 113,478- 1,300 9,923 126,049 4,460 5,983 38,152 245,799 557,019 percent of capital stock for the year December 31, 2006) (Note1) Amount - 2,867 $75,499 5,077 $126,954 2,600 $70,109 $59,874 $10,235 6,192 Beginning balance bonds/ ------
Units (thousand)/ shares (thousand) ------Relationship Counter-party Open market Open market Open market Open market / Private Open market Open market Open market Open market Open market Open market account Financial statement Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Name of the securities DEVELOPMENT FINANCIAL HOLDING CORP. TECHNOLOGIES INC. TECHNOLOGY CO., LTD. TECHNOLOGY CORP. INTERCONNECT TECHNOLOGY CORP. CORP. TECHNOLOGY CO., LTD. Stock SERCOMM CORP. Stock CHINA Stock PROMOS Stock SIMPLO Stock TATUNG CO. Stock EPITECH Stock TXC CORP. Stock KINSUS Stock CORETRONIC Stock A-DATA Type of securities ATTACHMENT 5 (Individual securities acquired or disposed of with accumulated amount exceeding the lower NT$100 million 20 (Amount in thousand; Currency denomination NTD unless otherwise specified) TLC CAPITAL CO., LTD.
286 Financial Review Consolidated - $- 395,317 (Note12) (Note13) (Note1) Amount - - 0.20 202,390 Ending balance (Note11) bonds/ Units (thousand)/ shares (thousand) - 7,084 99,220 - 2,500 293,250 - - 10,000 - 100,000 10,650 479,250 - 5,430 101,439 Gain (Loss) from disposal ------(Note10) Cost ------Disposal Amount ------927 36,788 33,239 3,549 4,085 163,196 bonds/ Units (thousand)/ shares (thousand) Amount Addition 0.20 200,000 2,778 145,609 bonds/ Units (thousand)/ shares (thousand) - 6,874 $102,424 6,874 $114,860 $102,424 $12,436 -- 12,483 207,004 5,012 12,483 179,713 306,400 204,961 - 7,084- 106,266 - 10,000- 100,000 10,650- 479,250 2,500 250,000 percent of capital stock for the year December 31, 2006) (Note1) Amount ------2,263 144,832 Beginning balance bonds/ - -
Units (thousand)/ shares (thousand) ------Relationship Counter-party Open market Open market Open market Open market / Proceeds from new issues Proceeds from new issues Proceeds from new issues Proceeds from new issues Taiwan Special Opportunities Fund III / Proceeds from new issues Open market account Financial statement Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Available-for- sale financial assets, noncurrent Long-term investments accounted for under the equity method Long-term investments accounted for under the equity method Financial assets measured at cost, noncurrent Financial assets measured at cost, noncurrent Financial assets at fair value through profit or loss, noncurrent Name of the securities CO., LTD. INTERNATIONAL CO., LTD. TECHNOLOGIES, INC. TECHNOLOGY CO., LTD. TECHNOLOGY CORP. INVESTMENTS, INC. MICROSYSTEMS, INC. INDUSTRIAL CO., LTD. EPITECH TECHNOLOGY CORP. Stock ELITE MATERIAL Stock POWER QUOTIENT Stock AVERMEDIA Stock TOPOINT Stock SMEDIA Stock YUNG LI Stock ASIA PACIFIC Stock SUPERALLOY bonds Type of securities Convertible ATTACHMENT 5 (Individual securities acquired or disposed of with accumulated amount exceeding the lower NT$100 million 20 (Amount in thousand; Currency denomination NTD unless otherwise specified) TLC CAPITAL CO., LTD.
287 United Microelectronics Corporation | Annual Report 2006 (Note1) (Note1) Amount Amount Ending balance Ending balance bonds/ bonds/ Units (thousand)/ Units (thousand)/ shares (thousand) shares (thousand) $- 4,373 USD 4,500 Gain (Loss) Gain (Loss) from disposal from disposal $- Cost Cost $- Disposal Disposal Amount Amount - bonds/ bonds/ Units (thousand)/ Units (thousand)/ shares (thousand) shares (thousand) Amount Amount Addition Addition bonds/ bonds/ Units (thousand)/ Units (thousand)/ shares (thousand) shares (thousand) percent of capital stock for the year December 31, 2006) $- 4,373 USD 4,500 NT$11 thousand. (Note1) (Note1) Amount Amount sale are recorded at the prevailing market prices. Beginning balance Beginning balance bonds/ bonds/ - Units (thousand)/ Units (thousand)/ shares (thousand) shares (thousand) - Relationship Relationship Counter-party Counter-party Proceeds from new issues account account Financial Financial statement statement Financial assets measured at cost, noncurrent Name of the securities Name of the securities FORCE10 NETWORKS, INC. Stock- Type of Type of securities securities ATTACHMENT 5 (Individual securities acquired or disposed of with accumulated amount exceeding the lower NT$100 million 20 Preferred stock Note1: The amounts of beginning and ending balances financial assets at fair value through profit or loss available for Note2: The ending balance includes stock dividend of 848 thousand shares. Note3: The ending balance includes stock dividend of 571 thousand shares. Note4: The disposal shares include stock dividend of 252 thousand shares. Note5: The disposal cost includes cash dividend of NT$(4,207) thousand. Note6: The ending balance includes stock dividend of 166 thousand shares. Note7: The ending balance includes stock dividend of 24 thousand shares. Note8: The disposal shares includestock dividend of 168 thousand shares. Note9: The disposal cost includes cash dividend of NT$(6,177) thousand. Note10: The disposal cost includes cash dividend of NT$(2,043) thousand. Note11: The ending balance includes stock dividend of 389 thousand shares. Note12: The ending balance includes long-term investment loss of NT$(7,057) thousand and cumulative translation adjustments Note13: The ending balance includes long-term investment gain of NT$2,390 thousand . UMC CAPITAL CORP. (Amount in thousand; Currency denomination NTD unless otherwise specified) TLC CAPITAL CO., LTD.
288 Financial Review Consolidated Other commitments utilization and status of Date of acquisition Price reference amount Transaction Date of transaction of property Relationship between former holder and acquirer property Where counter-party is a related party, details of prior transactions Former holder of stock for the year ended December 31, 2006) Relationship Counter-party status Payment amount Transaction Transaction date Name of properties ATTACHMENT 6 (Acquisition of individual real estate with amount exceeding the lower NT$100 million or 20 percent capital (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION None
289 United Microelectronics Corporation | Annual Report 2006 Other commitments Price reference Reason of disposal Relationship Counter-party ck for the year ended December 31, 2006) disposal Gain (Loss) from Status of proceeds collection amount Transaction Book value acquisition Date of original Transaction date Names of properties ATTACHMENT 7 (Disposal of individual real estate with amount exceeding the lower NT$100 million or 20 percent capital sto (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION None
290 Financial Review Consolidated Note Note 0.75 0.88 0.32 5.58 0.45 0.10 3.05 38.89 100.00 receivables (%) receivables (%) Percentage of total Percentage of total 98,861 41,829 59,860 12,869 115,670 734,440 401,039 $5,118,532 Balance Balance Notes and accounts receivable (payable) Notes and accounts receivable (payable) Term Term transaction transaction Unit price Unit price Details of non-arm's length Details of non-arm's length Term Term 1.97 Month-end 45 Days N/A N/A 0.31 Month-end 45 Days N/A N/A 8.12 Net 60 Days N/A N/A 0.22 Month-end 45 Days0.14 Month-end 45 Days N/A N/A N/A N/A 0.66 Month-end 60 Days N/A N/A 2.72 Net 60 Days N/A N/A 52.33 Net 60 Days N/A N/A 100.00 Net 60 Days N/A N/A USD 22,584 capital stock for the year ended December 31, 2006) Percentage of total Percentage of total purchases (sales) (%) purchases (sales) (%) Transactions Transactions 322,726 226,662 144,859 688,955 2,046,127 8,455,595 2,835,621 $54,476,329 Amount Amount Sales Sales Sales Sales Sales Sales Sales Sales Purchases USD 260,578 Purchases (Sales) Purchases (Sales) Relationship Relationship Investee company Investee company Investee company Investee company Investee company Investor company The Company's director Subsidiary's investee company Subsidiary's investee company Related party Related party ATTACHMENT 8 (Related party transactions for purchases and sales amounts exceeding the lower of NT$100 million or 20 percent (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION UMC GROUP (USA) UNITED MICROELECTRONICS (EUROPE) B.V. UMC JAPAN SILICON INTEGRATED SYSTEMS CORP. HOLTEK SEMICONDUCTOR INC. ITE TECH. INC. USBEST TECHNOLOGY INC. AFA TECHNOLOGY, INC. UNITED MICROELECTRONICS (EUROPE) B.V. UNITED MICROELECTRONICS CORPORATION
291 United Microelectronics Corporation | Annual Report 2006 Note Note 0.39 0.78 99.50 33.05 receivables (%) receivables (%) Percentage of total Percentage of total Balance Balance Notes and accounts receivable (payable) Notes and accounts receivable (payable) Term Term transaction transaction Unit price Unit price Details of non-arm's length Details of non-arm's length Term Term 0.23 Net 55 Days N/A N/A USD 617 1.35 Net 55 Days N/A N/A JPY 73,364 99.77 Net 60 Days N/A N/A55.48 USD 157,396 Net 60 Days N/A N/A JPY 1,458,726 capital stock for the year December 31, 2006) Percentage of total Percentage of total purchases (sales) (%) purchases (sales) (%) Transactions Transactions Amount Amount Sales JPY 463,508 Purchases USD 1,673,665 Purchases JPY 9,881,648 Purchases USD 3,927 Purchases (Sales) Purchases (Sales) Relationship Relationship Investee of UMC Investee of UMC Investor company Investor company Related party Related party ATTACHMENT 8 (Related party transactions for purchases and sales amounts exceeding the lower of NT$100 million or 20 percent (Amount in thousand; Currency denomination NTD unless otherwise specified) UMC GROUP (USA) UNITED MICROELECTRONICS CORPORATION UMC JAPAN UMC JAPAN UNITED MICROELECTRONICS CORPORATION UMC GROUP(USA)
292 Financial Review Consolidated $- - 1,996 Allowance for doubtful accounts ,735 - 40,741 - 99 531,115 $4,900,961 period in subsequent Amount received Collection status 7 Credit Collecting 175,792 $- - Overdue receivables Amount (times) Turnover rate k as of December 31, 2006) Total 4 734,444 13.22 - - $- $5,118,532 11.26 Other receivables Ending balance Accounts receivable $- $5,118,532 49,924 65,746 - 115,670 5.90 - - Notes receivable - 98,861 1,299 100,160 3.07 20,475 Credit Collecting Relationship Investee company - 734,440 Investee company - 401,039 318 401,357 7.72 Investee company The Company's director Related party ATTACHMENT 9 (Receivables from related parties with amounts exceeding the lower of NT$100 million or 20 percent capital stoc (Amount in thousand; Currency denomination NTD unless otherwise specified) UMC GROUP (USA) UNITED MICROELECTRONICS (EUROPE) B.V. UMC JAPAN HOLTEK SEMICONDUCTOR INC. Investee company UNITED MICROELECTRONICS CORPORATION SILICON INTEGRATED SYSTEMS CORP.
293 United Microelectronics Corporation | Annual Report 2006 Note 81 (loss) income recognized Investment investee (loss) of company Net income 86 12,463 12,463 Note2 of (%) Book value ownership Percentage 9 100.00 284,084 7,058 7,058 Investment as of December 31, 2006 shares (thousand) Number of 921,241 33,624 36.49 4,674,311 215,305 357,628 51,939 24.45 878,747 1,058,371 233,441 186,898 24,229 21.80 341,268 251,307 47,559 300,000 30,000 49.99 127,379 (32,936) (20,964) 3,000,000 600,000 4,999,940 100.00 499,994 1,008,078 6,999,737 99.99 64,313 11,114,198 329,178 81.76 329,178 374,046 167,217 379,890 (186,142) (158,511) 1,000 USD 1,000 280 100.00 8,480 (5,588) (5,588) 5,421 USD 5,421 4,000 SGD - 4,000 49.94 81,402 (5,097) (2,545) 21,000 USD 21,000 21,000 42.00 959,542 306,447 128,708 16,438 USD 16,438 16,438 100.00 $1,006,496 $260,573 $260,573 336,241 357,628 124,000 USD 74,000 124,000 100.00 3,613,491 (49,736) (49,736) 186,898 150,000 839,880 USD 839,880 880,006 100.00 6,000,000 4,999,940 1,008,078 Initial Investment (Note 1) Ending balance Beginning balance USD USD USD USD SGD USD JPY 20,994,400 JPY 20,537,634 496 50.09 5,949,999 (833,067) (408,923) USD Sales and manufacturing of IC Sales Investment holding integrated circuits investment in new business investment in new business Sales and manufacturing of LCOS integrated circuits investment in new business Investment holding IC design and production Sales and manufacturing of integrated circuits Investment holding Address Main businesses and products California, USA The Netherlands IC Sales Islands Apia, SamoaSingapore Investment holding Taipei, Taiwan Consulting and planning for Taipei, Taiwan Hsinchu Science Consulting and planning for Park, Taiwan Taipei, Taiwan Consulting and planning for Islands Taipei, Taiwan Investment holding Park, Taiwan Hsinchu Science Park, Taiwan Sunnyvale, Cayman, Cayman Chiba, Japan Sales and manufacturing of Investee company ATTACHMENT 10 (Names, locations and related information of investee companies as December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) UMC GROUP (USA) UNITED MICROELECTRONICS (EUROPE) B.V. UMC CAPITAL CORP. UNITED MICROELECTRONICS CORP. (SAMOA) UMCI LTD. TLC CAPITAL CO., LTD. FORTUNE VENTURE CAPITAL CORP. UNITED MICRODISPLAY OPTRONICS CORP. UMC JAPAN UNITED MICROELECTRONICS CORPORATION PACIFIC VENTURE CAPITAL CO., LTD. MTIC HOLDINGS PTE LTD.UNITECH CAPITAL INC. Singapore HSUN CHIEH INVESTMENT CO., LTD. British Virgin HOLTEK SEMICONDUCTOR INC. Hsinchu Science ITE TECH. INC.
294 Financial Review Consolidated Note Note (loss) (loss) income income recognized recognized Investment Investment investee investee (loss) of (loss) of company company Net income Net income of of (%) Book value (%) Book value ownership ownership Percentage Percentage Investment as of December 31, 2006 Investment as of December 31, 2006 shares shares (thousand) (thousand) Number of Number of $- 28,500 18.97 $225,624 $(277,489) $(51,719) 8,000 800 40.00 11,976 9,983 3,995 49,311 11,285 42.38 42,288 (84,925) (36,459) 85,471 10,187 44.29 33,531 (69,000) (30,559) 135,000 16,200 11.86 57,062 (61,367) (2,519) 248,795 8,758 16.48 53,710 (175,804) (29,020) $400,000 80,000 100.00 $743,210 $(44,024) $(44,024) UMCI LTD. were transferred to the Branch as of April 1, 2005. 8,000 67,500 USD - - 45.00 2,699,491 1,247,081 504,936 Note3 99,311 39,200 - 3,920 49.00 32,622 (13,425) (6,578) 85,471 135,000 248,795 $800,000 $285,000 Initial Investment Initial Investment (Note 1) Ending balance Beginning balance Ending balance Beginning balance USD ressed in thousands. p arts p n roductio Main businesses and products Sales and manufacturing of electronic p IC design, production and sales Design of MP3 player chip solar power batteries Tablet transmission systems and chip-set n currencies are ex g Address Address Main businesses and products n Park, Taiwan Cayman Islands Investment holding Taiwa Taiwan Taiwan Hsinchu, Taiwan Sales and manufacturing of Taoyuan County, Investee company Investee company XGI TECHNOLOGY INC.AMIC TECHNOLOGY CORP. Hsinchu, TaiwanMEGA MISSION LIMITED Hsinchu Science PARTNERSHIP Cartography chip design and Note 1: Initial investment amounts denominated in forei Note 2: Based on the resolution of board directors meeting August 26, 2004, businesses, operations and assets Note 3: No shares since it belongs to partnership fund organization. ATTACHMENT 10 (Names, locations and related information of investee companies as December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) UNITED MICROELECTRONICS CORPORATION HIGHLINK TECHNOLOGY CORP. Miao-Li County, UNITRUTH INVESTMENT CORP. Taipei, TaiwanANOTO TAIWAN CORP. Investment holding UWAVE TECHNOLOGY CORP. Hsinchu, TaiwanUCA TECHNOLOGY INC. RF IC Design NEXPOWER TECHNOLOGY CORP. Taipei County, FORTUNE VENTURE CAPITAL CORP.
295 United Microelectronics Corporation | Annual Report 2006 Note (loss) income recognized Investment investee (loss) of company Net income 755 (277,489) (37) of (%) Book value ownership Percentage Investment as of December 31, 2006 shares (thousand) Number of 53,340 6,033 21.42 36,806 (83,173) (19,674) 17,206 4,49354,208 25.15 3,646 37,429 21.4545,750 (20,383) 52,711 50,000 5,000 (5,154) 5,457 20.84 37,313 19.41 8,974 19,288 20,983 (46,892) (140,837) (10,143) (28,677) 90,240 9,045 23.57 37,525 (145,821) (41,037) 291,621 23,405 17.08 119,225 (61,367) (3,624) 270,483 6,281 11.83 32,187 (175,804) (18,775) $44,129 10,212 36.54 $17,224 $(84,661) $(28,052) 912 - 2,500 35.80 12,610 (32,976) (17,175) 792 - 55 0.04 64,544 90,000 85,200 - - 6,00050,629 5,200 30.00 26.00 41,645 88,093 88,134 (13,516)39,900 (1,907) 45,750 2,015 - 56,102 2,934 3,50054,300 21.21 - 34,349 4,525 (41,909) 18.10 (7,108) 47,559 (57,062) (6,743) 93,478 291,621 270,483 $91,194 Initial Investment Ending balance Beginning balance USD Lithium Tantalate and Niobate, Optical Grade Lithium Niobate Lithium Tetraborate and Sapphire phones sales of IC IC design Design and manufacturing of LED Home ODM PHS &GSM/PHS dual mode B/B Chip High brightness LED package and Lighting module R&D manufacture IC design, production and sales cartography chip Sales and manufacturing of electronic parts Monitor/module Design of VOIP Telephone Address Main businesses and products Taiwan Hsinchu, Taiwan Tablet PC module, Pen LCD Taoyuan County, Taiwan Taiwan Taiwan Hsinchu, Taiwan WLAN, Broadband, Digital Taiwan Taiwan Park, Taiwan Hsinchu County, Hsinchu, Taiwan Design of VOIP network Investee company ATTACHMENT 10 (Names, locations and related information of investee companies as December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) HIGHLINK TECHNOLOGY CORP. Miao-Li County, WALTOP INTERNATIONAL CORP. TERA XTAL TECHNOLOGY CORP. CRYSTAL MEDIA INC. SMEDIA TECHNOLOGY CORP. Hsinchu, TaiwanUSBEST TECHNOLOGY INC. Multimedia co-processor AFA TECHNOLOGY, INC. Hsinchu, TaiwanALLIANCE OPTOTEK CORP. Design, manufacturing and Taipei County, U-MEDIA COMMUNICATIONS, Hsinchu County, INC. MOBILE DEVICES INC. HIGH POWER LIGHTING CORP. Taipei County, AMIC TECHNOLOGY CORP.XGI TECHNOLOGY INC. Hsinchu Science Hsinchu, Taiwan Design and manufacturing of STAR SEMICONDUCTOR CORP. Hsinchu, TaiwanAEVOE INTERNATIONAL LTD. IC design, production and sales Samoa FORTUNE VENTURE CAPITAL CORP. 296 Financial Review Consolidated Note Note (loss) (loss) income income recognized recognized Investment Investment investee investee (loss) of (loss) of company company Net income Net income Book value of of (%) Book value (%) ownership ownership Percentage Percentage Investment as of December 31, 2006 Investment as of December 31, 2006 shares shares (thousand) (thousand) Number of Number of - 7,084 18.46 99,220 (145,821) (7,057) - 1,800 9.00 - 20,816 1,300 2,015 7.88 1,016 12,758 (41,909) (2,640) $- 0.20 44.44 $202,390 $5,378 $2,390 $- 2,000 10.00 $29,364 $(13,516) $(636) 5,390 1,585 5.95 7,840 (84,925) (5,189) 4,688 1,587 8.88 13,220 (20,383) (1,820) 24,057 2,570 6.70 17,085 (145,821) (11,692) 13,800 1,250 5.21 4,822 (46,892) (2,536) 221,920 17,460 11.62 134,999 (277,489) (35,899) 11,910 24,057 19,800 16,493 14,820 13,800 106,266 174,596 $30,000 $200,000 Initial Investment Initial Investment Ending balance Beginning balance Ending balance Beginning balance Main businesses and products Sales and manufacturing of electronic parts Monitor/module Lithium Tantalate and Niobate, Optical Grade Lithium Niobate Lithium Tetraborate and Sapphire phones Design and manufacturing of LED Design of MP3 player chip Home ODM Address Address Main businesses and products Miao-Li County, Taiwan Hsinchu, TaiwanTaoyuan County, Tablet PC module, Pen LCD Taiwan Taiwan Taiwan Hsinchu, Taiwan WLAN, Broadband, Digital Hsinchu, Taiwan Design of VOIP network Investee company Investee company ATTACHMENT 10 (Names, locations and related information of investee companies as December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) YUNG LI INVESTMENTS, INC. Taipei, TaiwanSMEDIA TECHNOLOGY CORP. Hsinchu, TaiwanHIGHLINK TECHNOLOGY CORP. Investment Multimedia co-processor WALTOP INTERNATIONAL CORP. TERA XTAL TECHNOLOGY CORP. CRYSTAL MEDIA INC. ALLIANCE OPTOTEK CORP. Hsinchu County, SMEDIA TECHNOLOGY CORP. Hsinchu, TaiwanUCA TECHNOLOGY INC. Multimedia co-processor U-MEDIA COMMUNICATIONS, Taipei County, INC. TLC CAPITAL CO., LTD. UNITRUTH INVESTMENT CORP.
297 United Microelectronics Corporation | Annual Report 2006 Note Note (loss) (loss) income income recognized recognized Investment Investment investee investee (loss) of (loss) of company company Net income Net income Book value of of (%) (%) Book value ownership ownership Percentage Percentage Investment as of December 31, 2006 Investment as of December 31, 2006 shares shares (thousand) (thousand) Number of Number of - 508 44.44 USD 948 USD (118) USD (52) $- 1,225 4.90 $12,875 $(57,062) $(1,825) 200 200 100.00 USD 326 USD 30 USD 30 5,600 1,000 3.55 3,960 (83,173) (3,051) 6,617 1,300 4.65 2,193 (84,661) (4,225) 6,950 1,000 4.35 3,292 (69,000) (3,000) 11,463 1,250 4.45 26,400 4,093 1,760 (140,837) 3.31 (6,812) 10,788 (175,804) (5,835) Beginning balance 200 USD 1,000 USD 5,600 1,000 USD 1,000 3,850 USD 1,000 3,850 100.00 USD 1,550 USD 286 USD 286 5,000 35.45 USD 3,772 USD (918) USD (326) 6,617 6,950 2,500 USD 2,500 3,125 23.30 USD 2,016 USD (2,168) USD (515) 11,463 26,400 $14,700 Initial Investment Initial Investment Ending balance Ending balance Beginning balance USD USD USD USD High brightness LED package and Lighting module R&D manufacture PHS &GSM/PHS dual mode B/B chip IC design cartography chip Investment holding Insurance Internet Content ProviderInvestment holding USD IC design Address Main businesses and products Address Main businesses and products Taiwan Hsinchu County, Taiwan Taiwan California, U.S.A. British Virgin Islands British Virgin Islands Islands Sunnyvale, British Virgin Investee company Investee company ATTACHMENT 10 (Names, locations and related information of investee companies as December 31, 2006) (Amount in thousand; Currency denomination NTD unless otherwise specified) UWAVE TECHNOLOGY CORP.AFA TECHNOLOGY, INC. Hsinchu, TaiwanXGI TECHNOLOGY INC. RF IC Design Taipei County, Hsinchu, Taiwan Design and manufacturing of HIGH POWER LIGHTING CORP. Taipei County, STAR SEMICONDUCTOR CORP. Hsinchu, TaiwanMOBILE DEVICES INC. IC design, production and sales UMC CAPITAL CORP. UMC CAPITAL (USA) ECP VITA LTD. ACHIEVE MADE INTERNATIONAL LTD. UC FUND II PARADE TECHNOLOGIES, LTD. U.S.A. UNITRUTH INVESTMENT CORP. 298 Financial Review Consolidated UMC and Its Affiliated Enterprises Have Not Faced Financial Difficulties; Therefore, There Has Been No Impact on UMC’s Financial Status.
299