FORM 6-K

1934 Act Registration No. 1-15128

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 


FORM 6-K

 


REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF

THE SECURITIES EXCHANGE ACT OF 1934

Dated November 16, 2007

 


United Microelectronics Corporation

(Translation of Registrant’s Name into English)

 


No. 3 Li Hsin Road II

Science Park

Hsinchu, Taiwan, R.O.C.

(Address of Principal Executive Office)

 


(Indicate by check mark whether the registrant files or will file annual reports under cover of form 20-F or Form 40-F.)

Form 20-F      V        Form 40-F              

(Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)

Yes                  No      V    

(If “Yes” is marked, indicated below the file number assigned to the registrant in connection with Rule 12g3-2(b): Not applicable )

 



LOGO

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    United Microelectronics Corporation
Date: 11/16/2007   By  

/s/ Chitung Liu

    Chitung Liu
    Chief Financial Officer


LOGO

 

Exhibit

 

Exhibit

 

Description

99.1

  United Microelectronics Corporation (and Subsidiaries) Financial Statements With Report of Independent Accountants for the Nine-Month Periods Ended September 30, 2007 And 2006


LOGO

 

Exhibit 99.1

United Microelectronics Corporation (and Subsidiaries) Financial Statements With Report of Independent Accountants for the Nine-Month Periods Ended September 30, 2007 And 2006


UNITED MICROELECTRONICS CORPORATION

FINANCIAL STATEMENTS

WITH REPORT OF INDEPENDENT ACCOUNTANTS

FOR THE NINE-MONTH PERIODS ENDED

SEPTEMBER 30, 2007 AND 2006

 

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.

 

1


REVIEW REPORT OF INDEPENDENT ACCOUNTANTS

English Translation of a Report Originally Issued in Chinese

To United Microelectronics Corporation

We have reviewed the accompanying balance sheets of United Microelectronics Corporation (the Company) as of September 30, 2007 and 2006, and the related statements of income and cash flows for the nine-month periods ended September 30, 2007 and 2006. These financial statements are the responsibility of the Companys management. Our responsibility is to issue the review report based on our reviews. As described in Note 4(8) to the financial statements, certain long-term investments were accounted for under the equity method based on financial statements as of September 30, 2007 and 2006 of the investees, which were reviewed by other auditors. Our review insofar as it relates to the investment income amounting to NT$848 million and NT$797 million for the nine-month periods ended September 30, 2007 and 2006, respectively, and the related long-term investment balances of NT$6,099 million and NT$5,621 million as of September 30, 2007 and 2006, respectively, is based solely on the reports of the other auditors.

We conducted our reviews in accordance with the Statement of Auditing Standards No. 36, “Review of Financial Statement” of the Republic of China. A review is limited primarily to applying analytical procedures to financial data and making inquires of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statement taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews and the reports of other auditors, we are not aware of any material modifications or adjustments that should have been made to the financial statements referred to above in order for them to be in conformity with the “Business Entity Accounting Act”, the “Regulation on Business Entity Accounting Handling”, the “Guidelines Governing the Preparation of Financial Reports by Securities Issuers”, and generally accepted accounting principles 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 R.O.C. Statement of Financial Accounting Standards No. 34, “Financial Instruments: Recognition and Measurement” and No. 36, “Financial Instruments: Disclosure and Presentation”.

As described in Note 3 to the financial statements, effective from January 1, 2006, goodwill is no longer amortized.

October 26, 2007

Taipei, Taiwan

Republic of China

Notice to Readers

The accompanying 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 practices to review such financial statements are those generally accepted and applied in the Republic of China.

 

2


English Translation of Financial Statements Originally Issued in Chinese

UNITED MICROELECTRONICS CORPORATION

UNAUDITED BALANCE SHEETS

September 30, 2007 and 2006

(Expressed in Thousands of New Taiwan Dollars)

 

          As of September 30,  

Assets

  

Notes

   2007     2006  

Current assets

       

Cash and cash equivalents

   2, 4(1)    $ 76,787,162     $ 83,003,846  

Financial assets at fair value through profit or loss, current

   2, 3, 4(2)      5,770,280       8,688,759  

Held-to-maturity financial assets, current

   2, 3, 4(3)      —         978,240  

Notes receivable

        46,747       72,103  

Accounts receivable, net

   2, 4(4)      7,849,121       5,277,929  

Accounts receivable—related parties, net

   2, 5      9,305,762       9,123,037  

Other receivables

   2      666,242       556,047  

Inventories, net

   2, 4(5)      10,889,073       10,787,264  

Prepaid expenses

        920,809       690,356  

Deferred income tax assets, current

   2, 4(20)      1,137,674       1,931,193  
                   

Total current assets

        113,372,870       121,108,774  
                   

Funds and investments

       

Available-for-sale financial assets, noncurrent

   2, 3, 4(6), 4(11)      50,781,477       34,015,176  

Financial assets measured at cost, noncurrent

   2, 3, 4(7), 4(11)      2,321,538       2,265,728  

Long-term investments accounted for under the equity method

   2, 3, 4(8), 4(11)      40,849,073       37,719,756  

Prepayment for long-term investments

        81,244       —    
                   

Total funds and investments

        94,033,332       74,000,660  
                   

Property, plant and equipment

   2, 4(9), 7     

Land

        1,132,576       1,132,576  

Buildings

        17,073,478       16,311,528  

Machinery and equipment

        425,154,992       386,630,912  

Transportation equipment

        74,254       79,248  

Furniture and fixtures

        2,580,336       2,325,183  
                   

Total cost

        446,015,636       406,479,447  

Less : Accumulated depreciation

        (319,892,779 )     (284,607,533 )

Add : Construction in progress and prepayments

        7,296,294       17,444,020  
                   

Property, plant and equipment, net

        133,419,151       139,315,934  
                   

Intangible assets

       

Goodwill

   2, 3      3,745,122       3,745,122  

Technological know-how

   2      —         278,691  
                   

Total intangible assets

        3,745,122       4,023,813  
                   

Other assets

       

Deferred charges

   2      1,365,895       1,572,453  

Deferred income tax assets, noncurrent

   2, 4(20)      4,007,797       4,710,395  

Other assets—others

   2, 4(10), 6      1,914,898       1,945,703  
                   

Total other assets

        7,288,590       8,228,551  
                   

Total assets

      $ 351,859,065     $ 346,677,732  
                   
          As of September 30,  

Liabilities and Stockholders’ Equity

  

Notes

   2007     2006  

Current liabilities

       

Financial liabilities at fair value through profit or loss, current

   2, 3, 4(12)    $ 379,306     $ 1,187,095  

Accounts payable

        5,323,400       4,394,783  

Income tax payable

   2      645,100       1,589,000  

Accrued expenses

        7,240,866       6,528,993  

Payable on equipment

        2,832,686       8,902,134  

Other payables

   4(15)      53,910,992       —    

Current portion of long-term liabilities

   2, 4(13)      22,923,647       10,393,523  

Other current liabilities

        789,614       1,412,137  
                   

Total current liabilities

        94,045,611       34,407,665  
                   

Long-term liabilities

       

Bonds payable

   2, 4(13)      7,495,033       30,565,723  
                   

Total long-term liabilities

        7,495,033       30,565,723  
                   

Other liabilities

       

Accrued pension liabilities

   2, 4(14)      3,148,584       3,065,514  

Deposits-in

        13,543       16,632  

Deferred credits—intercompany profits

   2      3,579       3,579  

Other liabilities—others

   2      503,672       560,560  
                   

Total other liabilities

        3,669,378       3,646,285  
                   

Total liabilities

        105,210,022       68,619,673  
                   

Capital

   2, 4(15), 4(16), 4(18)     

Common stock

        132,128,269       190,853,097  

Capital collected in advance

        —         9,035  

Additional paid-in capital

   2, 4(15)     

Premiums

        59,413,279       60,805,219  

Change in equities of long-term investments

        6,635,819       6,632,509  

Retained earnings

   4(15), 4(18)     

Legal reserve

        18,476,942       16,699,508  

Special reserve

        824,922       322,150  

Unappropriated earnings

        10,990,175       12,027,279  

Adjusting items in stockholders’ equity

   2, 4(6)     

Cumulative translation adjustment

        (822,697 )     228,201  

Unrealized gain or loss on financial instruments

        35,871,422       19,875,725  

Treasury stock

   2, 4(8), 4(15), 4(17)      (16,869,088 )     (29,394,664 )
                   

Total stockholders’ equity

        246,649,043       278,058,059  
                   

Total liabilities and stockholders’ equity

      $ 351,859,065     $ 346,677,732  
                   

The accompanying notes are an integral part of the financial statements.

 

3


English Translation of Financial Statements Originally Issued in Chinese

UNITED MICROELECTRONICS CORPORATION

UNAUDITED STATEMENTS OF INCOME

For the nine-month periods ended September 30, 2007 and 2006

(Expressed in Thousands of New Taiwan Dollars, Except for Earnings per Share)

 

          For the nine-month periods ended September 30,  
    

Notes

   2007     2006  

Operating revenues

   2, 5     

Sales revenues

      $        77,597,690     $         76,634,926  

Less: Sales returns and discounts

        (597,939)       (843,772)  
                   

Net sales

        76,999,751       75,791,154  

Other operating revenues

        2,150,727       2,195,672  
                   

Net operating revenues

        79,150,478       77,986,826  
                   

Operating costs

   4(19)     

Cost of goods sold

        (61,024,764)       (61,395,325)  

Other operating costs

        (1,268,370)       (1,400,045)  
                   

Operating costs

        (62,293,134)       (62,795,370)  
                   

Gross profit

        16,857,344       15,191,456  

Unrealized intercompany profit

   2      (106,726)       (71,416)  

Realized intercompany profit

   2      105,892       120,153  
                   

Gross profit-net

        16,856,510       15,240,193  
                   

Operating expenses

   2, 4(19)     

Sales and marketing expenses

        (2,303,782)       (2,055,704)  

General and administrative expenses

        (2,121,490)       (1,890,423)  

Research and development expenses

   2      (6,952,445)       (6,542,455)  
                   

Subtotal

        (11,377,717)       (10,488,582)  
                   

Operating income

        5,478,793       4,751,611  
                   

Non-operating income

       

Interest revenue

        975,490       1,092,472  

Investment gain accounted for under the equity method, net

   2, 4(8)      2,720,853       1,403,134  

Dividend income

        2,089,647       842,222  

Gain on disposal of property, plant and equipment

   2      135,210       133,182  

Gain on disposal of investments

   2      7,694,679       22,729,700  

Exchange gain, net

   2, 10      33,435       182,188  

Gain on valuation of financial liabilities

   2      351       110,755  

Other income

        696,658       609,260  
                   

Subtotal

        14,346,323       27,102,913  
                   

Non-operating expenses

       

Interest expense

   2, 4(9)      (117,894)       (534,529)  

Loss on disposal of property, plant and equipment

   2      (74,293)       (31,400)  

Loss on decline in market value and obsolescence of inventories

   2      (62,311)       (426,296)  

Financial expenses

        (118,989)       (197,721)  

Impairment loss

   2, 4(11)      (246,144)       (21,807)  

Loss on valuation of financial assets

   2      (2,018,705)       (236,111)  

Other losses

        (43,225)       (50,845)  
                   

Subtotal

        (2,681,561)       (1,498,709)  
                   

Income from continuing operations before income tax

        17,143,555       30,355,815  

Income tax expense

   2, 4(20)      (1,540,845)       (2,237,071)  
                   

Net income from continuing operations

        15,602,710       28,118,744  

Cumulative effect of changes in accounting principles

(the net amount after deducted tax expense $ 0)

   3      —         (1,188,515)  
                   

Net income

      $        15,602,710     $         26,930,229  
                   
          Pre-tax    Post-tax     Pre-tax     Post-tax  

Earnings per share-basic (NTD)

   2, 4(21)          

Income from continuing operations

      $ 1.03    $ 0.93     $ 1.67     $ 1.55  

Cumulative effect of changes in accounting principles

        —        —         (0.07 )     (0.07 )
                                  

Net income

      $ 1.03    $ 0.93     $ 1.60     $ 1.48  
                                  

Earnings per share-diluted (NTD)

   2, 4(21)          

Income from continuing operations

      $ 0.99    $ 0.91     $ 1.62     $ 1.50  

Cumulative effect of changes in accounting principles

        —        —         (0.06 )     (0.06 )
                                  

Net income

      $ 0.99    $ 0.91     $ 1.56     $ 1.44  
                                  

Pro forma information on earnings as if subsidiaries’ investment in the Company is not treated as treasury stock

   2, 4(21)     

Net income

      $        15,618,159     $         26,930,229  
                   

Earnings per share-basic (NTD)

      $        0.93     $         1.48  
                   

Earnings per share-diluted (NTD)

      $        0.91     $         1.43  
                   

The accompanying notes are an integral part of the financial statements.

 

4


English Translation of Financial Statements Originally Issued in Chinese

UNITED MICROELECTRONICS CORPORATION

UNAUDITED STATEMENTS OF CASH FLOWS

For the nine-month periods ended September 30, 2007 and 2006

(Expressed in Thousands of New Taiwan Dollars)

 

     For the nine-month periods ended September 30,  
     2007     2006  

Cash flows from operating activities:

    

Net income

   $ 15,602,710     $ 26,930,229  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation

     27,061,096       32,955,266  

Amortization

     1,020,200       1,335,126  

Bad debt expenses (reversal)

     (270 )     21,773  

Loss on decline in market value and obsolescence of inventories

     62,311       426,296  

Cash dividends received under the equity method

     582,530       1,076,020  

Investment gain accounted for under the equity method

     (2,720,853 )     (1,403,134 )

Loss on valuation of financial assets and liabilities

     2,018,354       1,313,871  

Impairment loss

     246,144       21,807  

Gain on disposal of investments

     (7,694,679 )     (22,729,700 )

Gain on disposal of property, plant and equipment

     (60,917 )     (101,782 )

Exchange gain on financial assets and liabilities

     (15,845 )     (5,132 )

Exchange loss on long-term liabilities

     173,185       117,221  

Amortization of bond discounts

     46,593       71,856  

Amortization of deferred income

     (110,011 )     (62,523 )

Changes in assets and liabilities:

    

Financial assets and liabilities at fair value through profit or loss, current

     539,042       (6,743,256 )

Notes and accounts receivable

     (4,839,889 )     (2,096,025 )

Other receivables

     111,547       216,323  

Inventories

     (851,371 )     (1,211,925 )

Prepaid expenses

     (277,510 )     (265,613 )

Deferred income tax assets

     909,763       694,316  

Accounts payable

     1,308,758       276,749  

Accrued expenses

     (330,768 )     442,495  

Other current liabilities

     50,569       342,067  

Capacity deposits

     (755,832 )     5,000  

Accrued pension liabilities

     61,809       61,736  

Other liabilities—others

     98,254       35,641  
                

Net cash provided by operating activities

     32,234,920       31,724,702  
                

Cash flows from investing activities:

    

Acquisition of available-for-sale financial assets

     (365,918 )     (296,823 )

Proceeds from disposal of available-for-sale financial assets

     3,231,877       11,134,765  

Acquisition of financial assets measured at cost

     (119,875 )     —    

Proceeds from disposal of financial assets measured at cost

     400       31,188  

Acquisition of long-term investments accounted for under the equity method

     (494,598 )     (5,687,363 )

Proceeds from disposal of long-term investments accounted for under the equity method

     965,655       7,801,029  

Proceeds from expiration of held-to-maturity financial assets

     976,000        

Prepayment for long-term investments

     (81,244 )     —    

Proceeds from liquidation of long-term investments

     45,505       —    

Acquisition of property, plant and equipment

     (25,372,210 )     (18,718,724 )

Proceeds from disposal of property, plant and equipment

     239,146       237,966  

Increase in deferred charges

     (885,589 )     (860,846 )

Decrease in other assets—others

     34,622       71,842  
                

Net cash used in investing activities

     (21,826,229 )     (6,286,966 )
                

 

5


English Translation of Financial Statements Originally Issued in Chinese

UNITED MICROELECTRONICS CORPORATION

UNAUDITED STATEMENTS OF CASH FLOWS

For the nine-month periods ended September 30, 2007 and 2006

(Expressed in Thousands of New Taiwan Dollars)

 

     For the nine-month periods ended September 30,  
     2007     2006  

(continued)

    

Cash flows from financing activities:

    

Redemption of bonds

   $ (2,259,992 )   $ (5,250,000 )

Cash dividends

     (12,461,529 )     (7,155,864 )

Payment of employee bonus

     (2,324,120 )     (305,636 )

Remuneration paid to directors and supervisors

     (15,494 )     (6,324 )

Exercise of employee stock options

     187,493       999,128  

Purchase of treasury stock

     —         (27,286,340 )

Decrease in deposits-in

     (903 )     (4,197 )
                

Net cash used in financing activities

     (16,874,545 )     (39,009,233 )
                

Effect of exchange rate changes on cash and cash equivalents

     (141,786 )     (21,280 )
                

Decrease in cash and cash equivalents

     (6,607,640 )     (13,592,777 )

Cash and cash equivalents at beginning of period

     83,394,802       96,596,623  
                

Cash and cash equivalents at end of period

   $ 76,787,162     $ 83,003,846  
                

Supplemental disclosures of cash flow information:

    

Cash paid for interest

   $ 502,693     $ 777,632  
                

Cash paid (refunded) for income tax

   $ 1,907,088     $ (1,080 )
                

Investing activities partially paid by cash:

    

Acquisition of property, plant and equipment

   $ 18,103,129     $ 22,342,995  

Add: Payable at beginning of period

     10,101,767       5,277,863  

Less: Payable at end of period

     (2,832,686 )     (8,902,134 )
                

Cash paid for acquiring property, plant and equipment

   $ 25,372,210     $ 18,718,724  
                

Investing and financing activities not affecting cash flows:

    

Principal amount of exchangeable bonds exchanged by bondholders

   $ 3,285,254     $ 69,621  

Book value of available-for-sale financial assets delivered for exchange

     (895,055 )     (20,242 )

Elimination of related balance sheet accounts

     392,118       15,302  
                

Recognition of gain on disposal of investments

   $ 2,782,317     $ 64,681  
                

Cash paid for capital reduction:

    

Payment of the cash distribution pursuant to the capital reduction

   $ 53,910,992     $ —    

Less: Payable at end of period

     (53,910,992 )     —    
                

Cash paid for capital reduction

   $ —       $ —    
                

The accompanying notes are an integral part of the financial statements.

 

6


UNITED MICROELECTRONICS CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

September 30, 2007 and 2006

(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. 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.

The numbers of employees as of September 30, 2007 and 2006 were 13,786 and 12,553, respectively.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements were prepared in conformity with the “Business Entity Accounting Act”, “Regulation on Business Entity Accounting Handling”, “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 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. The actual results may differ from those estimates.

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.

 

7


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 Company’s Singapore branch (the Branch) are translated into New Taiwan Dollars using the spot rates as of each financial statement date for asset and liability accounts and average exchange rates for profit and loss accounts. The cumulative translation effects from the Branch using functional currencies other than 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 Assets and Financial Liabilities

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.

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.

 

  a. Financial assets and financial liabilities 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.

 

8


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.

 

  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 impairment 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 period’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.

 

9


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 recorded at acquisition cost. Investments acquired by 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, goodwill arising from new acquisitions is 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.

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 ownership percentage at end of period 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.

 

10


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.

Depreciation is recognized on a straight-line basis using the estimated economic life of the assets less salvage value, if any. 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.

 

11


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.

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 Bank of Taiwan 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 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.

 

12


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.

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. Cash dividends received by subsidiaries from the Company are recorded as additional paid-in capital - treasury stock transactions.

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 collectability 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 collectability. Such allowances are recorded in the same period in which sales are made.

Research and Development Expenditures

Research and development expenditures are charged to expenses as incurred.

 

13


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. 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 the 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 when 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 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.

 

14


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 having 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 CHANGE

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 September 30, 2006 are NT$644 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 nine-month period ended September 30, 2006, are NT$644 million and NT$0.04 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.

 

  (2) 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$0.07 for the nine-month period ended September 30, 2006.

 

15


4. CONTENTS OF SIGNIFICANT ACCOUNTS

 

  (1) CASH AND CASH EQUIVALENTS

 

     As of September 30,
     2007    2006

Cash:

     

Cash on hand

   $ 1,913    $ 1,912

Checking and savings accounts

     49,937,037      1,655,011

Time deposits

     16,936,040      72,273,801
             

Subtotal

     66,874,990      73,930,724
             

Cash equivalents:

     9,912,172      9,073,122
             

Total

   $ 76,787,162    $ 83,003,846
             

 

  (2) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS, CURRENT

 

     As of September 30,
      2007    2006
Held for trading      

Listed stocks

   $ 5,659,080    $ 8,232,992

Convertible bonds

     111,200      400,584

Open-end funds

     —        55,183
             

Total

   $ 5,770,280    $ 8,688,759
             

During the nine-month periods ended September 30, 2007 and 2006, net losses arising from the changes in fair value of financial assets at fair value through profit or loss, current, were NT$1,999 million and NT$226 million, respectively.

 

  (3) HELD-TO-MATURITY FINANCIAL ASSETS

 

     As of September 30,
     2007    2006

Credit-linked deposits and repackage bonds

   $ —      $ 978,240
             

 

  (4) ACCOUNTS RECEIVABLE, NET

 

     As of September 30,  
     2007     2006  

Accounts receivable

   $ 8,016,957     $ 5,570,239  

Less: Allowance for sales returns and discounts

     (167,836 )     (230,725 )

Less: Allowance for doubtful accounts

     —         (61,585 )
                

Net

   $ 7,849,121     $ 5,277,929  
                

 

16


  (5) INVENTORIES, NET

 

     As of September 30,  
     2007     2006  

Raw materials

   $ 984,389     $ 1,245,632  

Supplies and spare parts

     1,909,176       1,693,410  

Work in process

     8,174,611       7,733,348  

Finished goods

     573,075       731,037  
                

Total

     11,641,251       11,403,427  

Less: Allowance for loss on decline in market value and obsolescence

     (752,178 )     (616,163 )
                

Net

   $ 10,889,073     $ 10,787,264  
                

Inventories were not pledged.

 

  (6) AVAILABLE-FOR-SALE FINANCIAL ASSETS, NONCURRENT

 

     As of September 30,
     2007    2006

Common stock

   $ 50,619,690    $ 34,015,176

Funds

     161,787      —  
             

Total

   $ 50,781,477    $ 34,015,176
             

During the nine-month periods ended September 30, 2007 and 2006, the total unrealized gain adjustments to stockholders’ equity due to changes in fair value of available-for-sale assets were NT$14,244 million and NT$7,634 million, respectively.

Additionally, the Company recognized gains of NT$5,957 million and NT$9,374 million due to the disposal of available-for-sale assets during the nine-month periods ended September 30, 2007 and 2006, respectively.

 

  (7) FINANCIAL ASSETS MEASURED AT COST, NONCURRENT

 

     As of September 30,
     2007    2006

Common stock

   $ 1,495,556    $ 1,458,246

Preferred stock

     467,645      300,000

Funds

     358,337      507,482
             

Total

   $ 2,321,538    $ 2,265,728
             

 

17


  (8) 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 September 30,
     2007    2006

Investee Company

   Amount    Percentage of
Ownership or
Voting Rights
   Amount    Percentage of
Ownership or
Voting Rights
Listed companies            

UMC JAPAN

   $ 6,044,752    50.09    $ 6,090,751    50.09

HOLTEK SEMICONDUCTOR INC. (HOLTEK) (Note A)

     —      —        819,670    24.48

ITE TECH. INC. (Note B)

     —      —        333,566    22.00

UNIMICRON TECHNOLOGY CORP. (UNIMICRON) (Note C)

     —      —        4,556,547    20.09
                   

Subtotal

     6,044,752         11,800,534   
                   
Unlisted companies            

UMC GROUP (USA)

     1,078,653    100.00      910,626    100.00

UNITED MICROELECTRONICS (EUROPE) B.V.

     309,875    100.00      287,065    100.00

UMC CAPITAL CORP.

     3,909,319    100.00      2,181,505    100.00

UNITED MICROELECTRONICS CORP. (SAMOA)

     3,513    100.00      10,442    100.00

UMCI LTD.

     96    100.00      91    100.00

TLC CAPITAL CO., LTD.

     9,231,569    100.00      6,334,183    100.00

FORTUNE VENTURE CAPITAL CORP. (Note D)

     10,758,238    99.99      8,014,345    99.99

UNITED MICRODISPLAY OPTRONICS CORP. (UMO) (Note E)

     202,925    85.24      219,537    86.72

PACIFIC VENTURE CAPITAL CO., LTD. (PACIFIC) (Note F)

     127,379    49.99      280,145    49.99

MTIC HOLDINGS PTE LTD.

     79,330    49.94      —      —  

MEGA MISSION LIMITED PARTNERSHIP

     2,601,300    45.00      2,332,509    45.00

UNITECH CAPITAL INC.

     1,177,242    42.00      836,129    42.00

HSUN CHIEH INVESTMENT CO., LTD. (HSUN CHIEH) (Note G)

     4,921,899    36.49      4,144,049    36.49

NEXPOWER TECHNOLOGY CORP.

     307,050    35.46      —      —  

XGI TECHNOLOGY INC. (Note H)

     45,814    16.44      61,576    16.50

AMIC TECHNOLOGY CORP. (Note H)

     50,119    11.55      58,092    11.86

THINTEK OPTRONICS CORP. (THINTEK) (Note E)

     —      —        4,152    27.82

HIGHLINK TECHNOLOGY CORP. (HIGHLINK) (Notes H, I)

     —      —        244,776    18.99
                   

Subtotal

     34,804,321         25,919,222   
                   

Total

   $ 40,849,073       $ 37,719,756   
                   

 

18


  Note A: As the Company did not have significant influence after decreasing its percentage of ownership in HOLTEK in September 2007, 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 ITE TECH in August 2007, the investee was classified as available-for-sale financial asset.

 

  Note C: As the Company did not have significant influence after decreasing its percentage of ownership in UNIMICRON in November 2006, the investee was classified as available-for-sale financial asset.

 

  Note D: As of September 30, 2007 and 2006, the costs of investment were NT$10,878 million and NT$8,186 million, respectively. After deducting the Company’s stock held by the subsidiary (treated as treasury stock by the Company) of NT$120 million and NT$172 million, respectively, the residual book values totalled NT$10,758 million and NT$8,014 million as of September 30, 2007 and 2006, respectively.

 

  Note E: THINTEK was merged into UMO on October 1, 2006. The exchange ratio was 2.31 to 1.

 

  Note F: On June 27, 2006, PACIFIC set July 3, 2006 as its liquidation date through decision at its shareholders’ meeting. The liquidation has not been completed as of September 30, 2007.

 

  Note G: 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.

 

  Note H: The equity method was applied for investees, in which the total ownership held by the Company and its subsidiaries is over 20%.

 

  Note I: As of March 1, 2007, HIGHLINK (an equity method investee) and EPITECH TECHNOLOGY CORP. (EPITECH) (accounted for as a noncurrent available-for-sale financial asset) merged into EPISTAR CORP. and were continued as EPISTAR CORP. (classified as a noncurrent available-for-sale financial asset after the merger). During the transaction, 5.5 shares of the HIGHLINK and 3.08 shares of the EPITECH were exchanged for 1 share of EPISTAR CORP.

 

  b. Total gains arising from investments accounted for under the equity method, based on the reviewed financial statements of the investees, were NT$2,721 million and NT$1,403 million for the nine-month periods ended September 30, 2007 and 2006, respectively. Investment income amounting to NT$848 million and NT$797 million for the nine-month periods ended September 30, 2007 and 2006, respectively, and the related long-term investment balances of NT$6,099 million and NT$5,621 million as of September 30, 2007 and 2006, respectively, were determined based on the investees’ financial statements reviewed by other auditors.

 

  c. The long-term equity investments were not pledged.

 

19


  (9) PROPERTY, PLANT AND EQUIPMENT

 

     As of September 30, 2007
     Cost    Accumulated
Depreciation
    Book Value

Land

   $ 1,132,576    $ —       $ 1,132,576

Buildings

     17,073,478      (5,958,241 )     11,115,237

Machinery and equipment

     425,154,992      (311,856,519 )     113,298,473

Transportation equipment

     74,254      (59,587 )     14,667

Furniture and fixtures

     2,580,336      (2,018,432 )     561,904

Construction in progress and prepayments

     7,296,294      —         7,296,294
                     

Total

   $ 453,311,930    $ (319,892,779 )   $ 133,419,151
                     
     As of September 30, 2006
     Cost    Accumulated
Depreciation
    Book Value

Land

   $ 1,132,576    $ —       $ 1,132,576

Buildings

     16,311,528      (5,217,832 )     11,093,696

Machinery and equipment

     386,630,912      (277,616,456 )     109,014,456

Transportation equipment

     79,248      (56,856 )     22,392

Furniture and fixtures

     2,325,183      (1,716,389 )     608,794

Construction in progress and prepayments

     17,444,020      —         17,444,020
                     

Total

   $ 423,923,467    $ (284,607,533 )   $ 139,315,934
                     

 

  a. Total interest expense before capitalization amounted to NT$195 million and NT$535 million for the nine-month periods ended September 30, 2007 and 2006, respectively.

Details of capitalized interest are as follows:

 

     For the nine-month periods ended September 30,
     2007     2006

Machinery and equipment

   $ 76,240     $ —  

Other property, plant and equipment

     1,258       —  
              

Total interest capitalized

   $ 77,498     $ —  
              

Interest rates applied

     0.67%~0.92 %     —  
              

 

  b. The property, plant, and equipment were not pledged.

 

20


  (10) OTHER ASSETS-OTHERS

 

     As of September 30,
     2007    2006

Leased assets

   $ 1,213,639    $ 1,344,464

Deposits-out

     641,943      542,121

Others

     59,316      59,118
             

Total

   $ 1,914,898    $ 1,945,703
             

Please refer to Note 6 for deposits-out pledged as collateral.

 

  (11) IMPAIRMENT LOSS

 

     For the nine-month periods
ended September 30,
     2007    2006

Available for sale financial assets, noncurrent

   $ 162,481    $ —  

Financial assets measured at cost, noncurrent

     83,663      —  

Long-term investments accounted for under the equity method

     —        21,807
             

Total

   $ 246,144    $ 21,807
             

 

  (12) FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS, CURRENT

 

     As of September 30,
     2007    2006

Interest rate swaps

   $ 379,306    $ 610,545

Derivatives embedded in exchangeable bonds

     —        576,550
             

Total

   $ 379,306    $ 1,187,095
             

During the nine-month periods ended September 30, 2007 and 2006, net gains arising from the changes in fair value of financial liabilities at fair value through profit or loss, current were NT$386 million and NT$105 million, respectively.

 

  (13) BONDS PAYABLE

 

     As of September 30,  
     2007     2006  

Unsecured domestic bonds payable

   $ 18,000,000     $ 25,250,000  

Convertible bonds payable

     12,441,268       12,635,782  

Exchangeable bonds payable

     —         3,170,872  

Less: discounts on bonds payable

     (22,588 )     (97,408 )
                

Total

     30,418,680       40,959,246  

Less: Current portion

     (22,923,647 )     (10,393,523 )
                

Net

   $ 7,495,033     $ 30,565,723  
                

 

21


  a. 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 due 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.

 

  b. 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.

 

  c. 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.

 

  iii. The Company may redeem all, but not part, of the bonds, at any time, in the event of certain changes in the R.O.C. tax rules which would require the Company to gross up for payments of principal, or to gross up for payments of interest or premium.

 

22


  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 September 30, 2007 and 2006, certain bondholders have exercised their rights to exchange their bonds with the total principal amount of US$235 million and US$139 million into AUO shares, respectively. Gains arising from the exercise of exchange rights during the nine-month periods ended September 30, 2007 and 2006 amounted NT$2,782 million and NT$65 million, respectively, and were recognized as gain on disposal of investment.

 

  (f) Redemption at maturity date

At the maturity date of May 10, 2007, the Company had redeemed the bonds at 100% of the unpaid principal amount of US$0.3 million outstanding.

 

  d. 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.

 

23


  e. 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

 

  (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 cease to be listed or admitted for trading on the NYSE or the TSE, 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 significant change of control occurs with respect to the Company, 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.

 

  vi. The Company will pay the principal amount of the bonds at its maturity date, February 15, 2008.

 

24


  (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$3.558 per ADS. The applicable conversion price will be subject to adjustments upon the occurrence of certain events set out in the indenture.

 

  f. Repayments of the above-mentioned bonds in the future years are as follows:

 

Bonds repayable in

   Amount

2007

   $ —  

2008

     22,941,268

2009

     —  

2010

     7,500,000

2011 and thereafter

     —  
      

Total

   $ 30,441,268
      

 

  (14) 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 of NT$290 million and NT$273 million were contributed by the Company for the nine-month periods ended September 30, 2007 and 2006, respectively. Pension benefits for employees of the Branch are provided in accordance with the local regulations and during the nine-month periods ended September 30, 2007 and 2006, the Company has made contributions of NT$88 million and NT$71 million, 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 Bank of Taiwan in the name of an administered pension fund committee. Pension costs amounting to NT$141 million and NT$143 million were recognized for the nine-month periods ended September 30, 2007 and 2006, respectively. The corresponding balances of the pension fund were NT$1,253 million and NT$1,162 million as of September 30, 2007 and 2006, respectively.

 

25


  (15) CAPITAL STOCK

 

  a. The Company had 26,000 million common shares authorized to be issued, and 19,085 million shares were issued as of September 30, 2006, each at a par value of NT$10.

 

  b. The Company has issued a total of 284 million ADSs, which were traded on the NYSE as of September 30, 2006. The total number of common shares of the Company represented by all issued ADSs was 1,420 million shares as of September 30, 2006. One ADS represents five common shares.

 

  c. Among the employee stock options issued by the Company on October 7, 2002 and January 3, 2003, 63 million shares were exercised during the nine-month period ended September 30, 2006. The issuance process through the authority had been completed.

 

  d. On May 22, 2006, the Company cancelled 1,000 million shares of treasury stocks, 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.

 

  e. 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.

 

  f. The Company had 26,000 million common shares authorized to be issued, and 13,213 million shares was issued as of September 30, 2007, each at a par value of NT$10.

 

  g. As of September 30, 2007, the Company had a total of 220 million ADSs traded on the NYSE after accounting for the capital reduction transaction. The total number of common shares of the Company represented by all issued ADSs was 1,098 million shares as of September 30, 2007. One ADS represents five common shares.

 

  h. Among the employee stock options issued by the Company on October 7, 2002, January 3, 2003 and October 13, 2004, 12 million shares were exercised during the nine-month period ended September 30, 2007. The issuance process through the authority had been completed.

 

26


  i. As resolved during the shareholders’ meeting on June 11, 2007, the Company carried out a capital reduction of NT$57,394 million, which represented approximately 5,739 million shares or 30% of its outstanding shares, for the purpose of increasing shareholders’ return on equity and reducing idle funds. The capital reduction is comprised of NT$53,911 million of cash distributions, which are currently accounted for as other payables, and the proportionate cancellation of 348 million shares of treasury stock. The effective date of capital reduction was August 7, 2007 and the transaction was submitted and approved by the competent authority.

 

  j. On July 17, 2007, the Company cancelled 192 million shares of treasury stock, which were repurchased during the period from May 10, 2004 to May 21, 2004 for transferring to employees.

 

  (16) 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
options granted

(in thousands)

   Total number of
options outstanding
(in thousands)
  

Exercisable

number of options

(Note)

  

Exercise price

(NTD) (Note)

October 7, 2002

   939,000    531,986    370,883    $ 22.52

January 3, 2003

   61,000    44,411    30,962    $ 25.39

November 26, 2003

   57,330    44,380    30,940    $ 35.43

March 23, 2004

   33,330    21,300    14,850    $ 32.85

July 1, 2004

   56,590    43,323    30,203    $ 29.69

October 13, 2004

   20,200    12,077    8,420    $ 25.53

April 29, 2005

   23,460    16,900    11,782    $ 23.52

August 16, 2005

   54,350    37,470    26,123    $ 30.98

September 29, 2005

   51,990    43,724    30,483    $ 28.27

January 4, 2006

   39,290    26,580    18,531    $ 24.36

May 22, 2006

   42,058    33,980    23,690    $ 26.48

August 24, 2006

   28,140    22,770    15,874    $ 25.32

Total

   1,406,738    878,901    612,741   

 

27


  Note: If there is any change in the equity structure of the Company, the exercise price and exercise rate for each issued stock option plan will be adjusted in accordance with “The Rule of Issuing and Exercising Stock Option Plans”.

 

  a. A summary of the Company’s stock option plans, and related information for the nine-month periods ended September 30, 2007 and 2006, are as follows:

 

     For the nine-month periods ended September 30,
     2007    2006
    

Option

(in thousands)

    Weighted-average
Exercise Price
(NTD)
  

Option

(in thousands)

   

Weighted-average
Exercise Price

(NTD)

Outstanding at beginning of period

     913,958     $ 25.0      975,320     $ 24.7

Granted

     —       $ —        109,488     $ 25.4

Exercised

     (11,918 )   $ 22.6      (62,973 )   $ 22.5

Forfeited

     (23,139 )   $ 27.8      (46,130 )   $ 26.6
                     

Outstanding at end of period

     878,901     $ 24.9      975,705     $ 24.9
                     

Exercisable at end of period

     713,522     $ 24.3      507,441     $ 23.9
                     

Weighted-average fair value of options granted during the period (NTD)

   $ —          $ 5.7    

 

  b. The information of the Company’s outstanding stock options as of September 30, 2007, is as follows:

 

          Outstanding Stock Options    Exercisable Stock Options

Authorization Date

   Range of
Exercise Price
  

Option

(in thousands)

   Weighted-average
Expected
Remaining Years
  

Weighted-average
Exercise Price

(NTD)

  

Option

(in thousands)

  

Weighted-average
Exercise Price

(NTD)

2002.09.11

   $ 22.5~$25.4    576,397    1.04    $ 22.7    576,133    $ 22.7

2003.10.08

   $ 29.7~$35.4    109,003    2.45    $ 32.6    83,043    $ 32.7

2004.09.30

   $ 23.5~$31.0    110,171    3.78    $ 28.2    54,346    $ 28.2

2005.12.22

   $ 24.4~$26.5    83,330    4.59    $ 25.5    —      $ —  
                     
      878,901    1.89    $ 24.9    713,522    $ 24.3
                     

 

28


  c. The Company used the intrinsic value method to recognize compensation costs for its employee stock options issued since January 1, 2004. The compensation costs for the nine-month periods ended September 30, 2007 and 2006 are NT$0. Pro forma information using the fair value method on net income and earnings per share is as follows:

 

     For the nine-month period ended September 30, 2007
     Basic earnings per share    Diluted earnings per share

Net Income

   $ 15,602,710    $ 15,628,193

Earnings per share (NTD)

   $ 0.93    $ 0.91

Pro forma net income

   $ 15,319,413    $ 15,344,896

Pro forma earnings per share (NTD)

   $ 0.92    $ 0.89
     For the nine-month period ended September 30, 2006
     Basic earnings per share    Diluted earnings per share

Net Income

   $ 26,930,229    $ 27,027,225

Earnings per share (NTD)

   $ 1.48    $ 1.44

Pro forma net income

   $ 26,617,994    $ 26,714,990

Pro forma earnings per share (NTD)

   $ 1.47    $ 1.42

The fair value of the options granted was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for the nine-month periods ended September 30, 2006: expected dividend yields of 1.37%; volatility factors of the expected market price of the Company’s common stock of 38.41%; risk-free interest rate of 2.07 %; and a weighted-average expected life of the options of 4~5 years.

 

  (17) TREASURY STOCK

 

  a. The Company bought back its own shares from the open market during the nine-month periods ended September 30, 2007 and 2006. Details of the treasury stock transactions are as follows:

For the nine-month period ended September 30, 2007

(In thousands of shares)

 

Purpose

   As of
January 1, 2007
   Increase    Decrease   

As of

September 30, 2007

For transfer to employees

   842,067    —      388,909    453,158

For conversion of the convertible bonds into shares

   500,000    —      151,417    348,583
                   

Total shares

   1,342,067    —      540,326    801,741
                   

 

29


For the nine-month period ended September 30, 2006

(In thousands of shares)

 

Purpose

   As of
January 1, 2006
   Increase    Decrease   

As of

September 30, 2006

For transfer to employees

   442,067    400,000    —      842,067

For conversion of the convertible bonds into shares

   500,000    —      —      500,000

For retainment of the Company’s creditability and stockholders’ interests

   —      1,000,000    1,000,000    —  
                   

Total shares

   942,067    1,400,000    1,000,000    1,342,067
                   

 

  b. According to the Securities and Exchange Law of the R.O.C., the total shares of treasury stock shall not exceed 10% of the Company’s issued stock, and the total purchase amount shall 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 September 30, 2007 and 2006, was 1,321 million shares and 1,909 million shares, while the ceiling amount was NT$88,880 million and NT$89,532 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 to voting rights or receiving 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, stocks held by subsidiaries no longer have voting rights according to the revised Companies Act.

 

  d. As of September 30, 2007, the Company’s subsidiary, FORTUNE VENTURE CAPITAL CORP., held 15 million shares of the Company’s stock, with a book value of NT$19.20 per share. The closing price on September 30, 2007 was NT$19.20.

As of September 30, 2006, the Company’s subsidiary, FORTUNE VENTURE CAPITAL CORP., held 22 million shares of the Company’s stock, with a book value of NT$18.55 per share. The closing price on September 30, 2006 was NT$18.55.

 

30


  (18) 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 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 resolved in the shareholders’ meeting.

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, must be paid in the form of stock dividends. Accordingly, at least 20% of the dividends must be paid in the form of cash.

The distributions of retained earnings for the years 2006 and 2005 were approved through the shareholders’ meetings held on June 11, 2007 and June 12, 2006, respectively. The details of distribution are as follows:

 

     2006    2005

Cash Dividend

   $ 0.70 per share    $ 0.40 per share

Stock Dividend

     —      $ 0.05 per share

Employees’ bonus – Cash Dividend (NTD thousands)

     2,324,120      305,636

Employees’ bonus – Stock Dividend (NTD thousands)

     —        458,455

Directors’ and Supervisors’ remuneration (NTD thousands)

     15,494      6,324

 

31


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 the merger which was recognized by the Company in proportion to the Company’s ownership percentage:

 

  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 period-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.

 

  (19) OPERATING COSTS AND EXPENSES

The Company’s personnel, depreciation, and amortization expenses are summarized as follows:

 

     For the nine-month periods ended September 30,
     2007    2006
     Operating
costs
   Operating
expenses
   Total    Operating
costs
   Operating
expenses
   Total

Personnel expenses

                 

Salaries

   $ 7,152,272    $ 2,251,634    $ 9,403,906    $ 5,635,959    $ 1,727,784    $ 7,363,743

Labor and health insurance

     335,047      97,291      432,338      325,042      91,151      416,193

Pension

     397,524      121,568      519,092      370,636      116,035      486,671

Other personnel expenses

     75,163      24,041      99,204      64,660      18,246      82,906

Depreciation

     25,521,768      1,532,081      27,053,849      31,331,318      1,613,511      32,944,829

Amortization

     47,383      972,817      1,020,200      146,582      1,188,544      1,335,126

 

32


  (20) 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 nine-month periods ended
September 30,
 
     2007     2006  

Income tax on pre-tax income at statutory tax rate

   $ 5,092,692     $ 7,484,757  

Permanent differences

     (4,206,070 )     (6,147,392 )

Change in investment tax credit

     1,770,172       (725,688 )

Change in valuation allowance

     (1,747,031 )     82,639  

Income basic tax

     631,082       1,541,809  

Income tax on interest revenue separately taxed

     —         946  
                

Income tax expense

   $ 1,540,845     $ 2,237,071  
                

 

  b. Significant components of deferred income tax assets and liabilities are as follows:

 

     As of September 30,  
     2007     2006  
     Amount     Tax effect     Amount     Tax effect  

Deferred income tax assets

        

Investment tax credit

     $ 13,094,786       $ 14,334,733  

Loss carry-forward

   $ 350,751       87,688     $ 6,340,664       1,585,166  

Pension

     3,143,608       785,902       3,062,898       765,725  

Allowance on sales returns and discounts

     415,209       103,802       1,010,345       252,586  

Allowance for loss on obsolescence of inventories

     712,281       178,070       497,836       124,459  

Unrealized exchange loss

     134,906       33,726       —         —    

Others

     749,051       187,263       776,107       194,027  
                    

Total deferred income tax assets

       14,471,237         17,256,696  

Valuation allowance

       (7,364,082 )       (8,758,000 )
                    

Net deferred income tax assets

       7,107,155         8,498,696  
                    

Deferred income tax liabilities

        

Unrealized exchange gain

     —         —         (99,055 )     (24,764 )

Depreciation

     (5,806,935 )     (1,451,734 )     (5,287,895 )     (1,321,974 )

Others

     (2,039,801 )     (509,950 )     (2,041,481 )     (510,370 )
                    

Total deferred income tax liabilities

       (1,961,684 )       (1,857,108 )
                    

Total net deferred income tax assets

     $ 5,145,471       $ 6,641,588  
                    

 

33


     As of September 30,  
     2007     2006  
     Amount    Tax effect     Amount    Tax effect  

Deferred income tax assets – current

      $ 5,902,906        $ 5,650,534  

Deferred income tax liabilities – current

        (204,373 )        (230,262 )

Valuation allowance

        (4,560,859 )        (3,489,079 )
                      

Net

        1,137,674          1,931,193  
                      

Deferred income tax assets – non-current

        8,568,331          11,606,162  

Deferred income tax liabilities – non-current

        (1,757,311 )        (1,626,846 )

Valuation allowance

        (2,803,223 )        (5,268,921 )
                      

Net

        4,007,797          4,710,395  
                      

Total net deferred income tax assets

      $ 5,145,471        $ 6,641,588  
                      

 

  c. The Company’s income tax returns for all the fiscal years up to 2004 have been assessed and approved by the R.O.C. Tax Authority.

 

  d. The Company was granted several four (five) -year income tax exemption periods with respect to income derived from the expansion of operations. The starting date of the exemption periods attributable to the expansions in 2002 and 2003 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.

 

34


As of September 30, 2007, the Company’s unused investment tax credit was as follows:

 

Expiration Year

   Investment tax credits
earned
   Balance
of unused
investment tax
credits

2007

   $ 1,611,784    $ 695,101

2008

     6,363,061      6,363,061

2009

     2,549,487      2,549,487

2010

     1,633,049      1,633,049

2011

     1,854,088      1,854,088
             

Total

   $ 14,011,469    $ 13,094,786
             

 

  f. Under the rules of the Income Tax Law of the R.O.C., net loss can be carried forward for 5 years. As of September 30, 2007, the unutilized accumulated loss was as follows:

 

Expiration Year

   Accumulated
loss
   Unutilized accumulated
loss
2007    $ 3,773,826    $ 309,543
2008 (Transferred in from merger with SiSMC)      2,283      2,283
2009 (Transferred in from merger with SiSMC)      38,925      38,925
             

Total

   $ 3,815,034    $ 350,751
             

 

  g. The balances of the Company’s imputation credit amounts as of September 30, 2007 and 2006 were NT$168 million and NT$95 million, respectively. The expected creditable ratio for 2006 and actual creditable ratio for 2005 were 11.92% and 0%, respectively.

 

  h. The Company’s earnings generated in the year ended December 31, 1997 and prior years have been fully appropriated.

 

  (21) EARNINGS PER SHARE

 

  a. The Company’s capital structure is composed mainly of zero coupon convertible bonds and employee stock options. Therefore, under the consideration of such complex structure, the calculated basic and diluted earnings per share for the nine-month periods ended September 30, 2007 and 2006, are disclosed as follows:

 

35


     For the nine-month period ended September 30, 2007  
     Amount          Earnings per share (NTD)  
     Income before
income tax
    Net income     Shares
expressed in
thousands
   Income before
income tax
    Net income  

Earning per share-basic (NTD)

           

Income from continuing operations

   $ 17,143,555     $ 15,602,710     16,713,581    $ 1.03     $ 0.93  

Cumulative effect of changes in accounting principles

     —         —            —         —    
                                   

Net income

   $ 17,143,555     $ 15,602,710        $ 1.03     $ 0.93  
                                   

Effect of dilution

           

Employee stock options

   $ —       $ —       15,705     

Convertible bonds payable

     33,978       25,483     535,975     

Earning per share-diluted:

           

Income from continuing operations

   $ 17,177,533     $ 15,628,193     17,265,261    $ 0.99     $ 0.91  

Cumulative effect of changes in accounting principles

     —         —            —         —    
                                   

Net income

   $ 17,177,533     $ 15,628,193        $ 0.99     $ 0.91  
                                   
     For the nine-month period ended September 30, 2006  
     Amount          Earnings per share (NTD)  
     Income before
income tax
    Net income     Shares
expressed in
thousands
   Income before
income tax
    Net income  

Earning per share-basic (NTD)

           

Income from continuing operations

   $ 30,355,815     $ 28,118,744     18,159,112    $ 1.67     $ 1.55  

Cumulative effect of changes in accounting principles

     (1,188,515 )     (1,188,515 )        (0.07 )     (0.07 )
                                   

Net income

   $ 29,167,300     $ 26,930,229        $ 1.60     $ 1.48  
                                   

Effect of dilution

           

Employee stock options

   $ —       $ —       123,162     

Convertible bonds payable

     129,328       96,996     516,382     

Earning per share-diluted:

           

Income from continuing operations

   $ 30,485,143     $ 28,215,740     18,798,656    $ 1.62     $ 1.50  

Cumulative effect of changes in accounting principles

     (1,188,515 )     (1,188,515 )        (0.06 )     (0.06 )
                                   

Net income

   $ 29,296,628     $ 27,027,225        $ 1.56     $ 1.44  
                                   

 

36


  b. Pro forma information on earnings as if subsidiaries’ investment in the Company is not treated as treasury stock is set out as follows:

 

      For the nine-month period ended
September 30, 2007
 
(shares expressed in thousands)    Basic     Diluted  

Net income

   $ 15,618,159     $ 15,643,642  
                

Weighted-average of shares outstanding:

    

Beginning balance

     17,789,126       17,789,126  

Capital reduction of 5,739 million shares

     (1,066,372 )     (1,066,372 )

Exercise of employee stock options from January 1 to September 30, 2007

     11,574       11,574  

Dilutive shares of employee stock options accounted for under treasury stock method

     —         15,705  

Dilutive shares of convertible bonds accounted for under if-converted method

     —         535,975  
                

Ending balance

     16,734,328       17,286,008  
                

Earnings per share

    

Net income (NTD)

   $ 0.93     $ 0.91  
                
     For the nine month period ended
September 30, 2006
 
(shares expressed in thousands)    Basic     Diluted  

Net income

   $ 26,930,229     $ 27,027,225  
                

Weighted-average of shares outstanding:

    

Beginning balance

     18,852,636       18,852,636  

Increase in capital through 2006 retained earnings and capital reserve at proportion of 1.3%

     242,215       242,215  

Purchase of 1,400,000 thousand shares of treasury stock from January 1 to September 30, 2006

     (892,378 )     (892,378 )

Exercise of employee stock options from January 1 to September 30, 2006

     38,839       38,839  

Dilutive shares of employee stock options accounted for under treasury stock method

     —         123,162  

Dilutive shares of convertible bonds accounted for under if-converted method

     —         516,382  
                

Ending balance

     18,241,312       18,880,856  
                

Earnings per share

    

Net income (NTD)

   $ 1.48     $ 1.43  
                

 

37


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

UMCI LTD.

  Equity Investee

UMC JAPAN (UMCJ)

  Equity Investee

UNITECH CAPITAL INC.

  Equity Investee

MEGA MISSION LIMITED PARTNERSHIP

  Equity Investee

MTIC HOLDINGS PTE. LTD.

  Equity Investee

FORTUNE VENTURE CAPITAL CORP.

  Equity Investee

HSUN CHIEH INVESTMENT CO., LTD.

  Equity Investee

UNITED MICRODISPLAY OPTRONICS CORP.

  Equity Investee

HOLTEK SEMICONDUCTOR INC. (No longer an equity investee since September 2007)

  Equity Investee

ITE TECH. INC. (No longer an equity investee since August 2007)

  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. (merged into EPISTAR CORP. since March 2007)

  Equity Investee

NEXPOWER TECHNOLOGY CORP.

  Equity Investee

SILICON INTEGRATED SYSTEMS CORP.

  The Company’s director

UNITRUTH INVESTMENT CORP.

  Subsidiary’s equity investee

UWAVE TECHNOLOGY CORP.

  Subsidiary’s equity investee

UCA TECHNOLOGY INC.

  Subsidiary’s equity investee

AFA TECHNOLOGY, INC.

  Subsidiary’s equity investee

STAR SEMICONDUCTOR CORP. (No longer a subsidiary’s equity investee since March 2007)

  Subsidiary’s equity investee

USBEST TECHNOLOGY INC. (No longer a subsidiary’s equity investee since February 2007)

  Subsidiary’s equity investee

SMEDIA TECHNOLOGY CORP.

  Subsidiary’s equity investee

U-MEDIA COMMUNICATIONS, INC. (No longer an subsidiary’s equity investee since May 2007)

  Subsidiary’s equity investee

CRYSTAL MEDIA INC.

  Subsidiary’s equity investee

MOBILE DEVICES INC.

  Subsidiary’s equity investee

CHIP ADVANCED TECHNOLOGY INC.

  Same chairman with the Company’s subsidiary

 

38


  (2) Significant Related Party Transactions

 

  a. Operating revenues

 

     For the nine-month periods ended September 30,
     2007    2006
     Amount    Percentage    Amount    Percentage

UMC-USA

   $ 37,657,495    48    $ 40,816,686    52

Others

     10,541,608    13      12,027,538    16
                       

Total

   $ 48,199,103    61    $ 52,844,224    68
                       

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. Accounts receivable, net

 

     As of September 30,
     2007    2006
     Amount     Percentage    Amount     Percentage

UMC-USA

   $ 6,737,830     38    $ 8,114,244     52

UME BV

     1,844,457     11      1,305,186     8

Others

     1,078,608     6      670,514     4
                         

Total

     9,660,895     55      10,089,944     64
             

Less: Allowance for sales returns and discounts

     (353,407 )        (845,490 )  

Less: Allowance for doubtful accounts

     (1,726 )        (121,417 )  
                     

Net

   $ 9,305,762        $ 9,123,037    
                     

 

  c. Notes provided for endorsements and guarantees

The Company did not provide any notes as endorsement or guarantee for related parties during the nine-month period ended September 30, 2007.

As of September 30, 2006 the amount of notes provided as endorsement and guarantee by the Company for its subsidiary, UMCJ, amounted to NT$1,909 million.

 

39


6. ASSETS PLEDGED AS COLLATERAL

As of September 30, 2007

 

     Amount    Party to which asset(s)
was pledged
   Purpose of pledge

Deposit-out

(Time deposit)

   $ 620,996    Customs    Customs duty
guarantee
            

As of September 30, 2006

 

     Amount    Party to which asset(s)
was pledged
   Purpose of
pledge

Deposit-out

(Time deposit)

   $ 520,846    Customs    Customs duty
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$19.7 billion. Royalties and development fees for future years are NT$5.3 billion as of September 30, 2007.

 

  (2) The Company signed several construction contracts for the expansion of its factory space. As of September 30, 2007, these construction contracts have amounted to approximately NT$3.9 billion and the unpaid portion of the contracts, which was not accrued, was approximately NT$1.4 billion.

 

  (3) 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 (4th quarter)

   $ 53,505

2008

     212,888

2009

     212,540

2010

     212,917

2011

     213,309

2012 and thereafter

     2,004,436
      

Total

   $ 2,909,595
      

 

  (4) The Company entered into several wafer-processing contracts with its principal customers. According to the contracts, the Company shall guarantee processing capacity, while these customers make deposits to the Company.

 

  (5) The Company has entered into contracts for the purchase of materials and masks with certain vendors. As of September 30, 2007, the commitment of these construction contracts has amounted to approximately NT$1 billion, and the unpaid portion of the contracts, which was not accrued, was approximately NT$0.6 billion.

 

40


  (6) 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 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 September 30, 2007, the result of such reconsideration and administrative action has not been finalized. The case is being processed in Taipei High Administrative Court.

 

41


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 Entity Accounting Act 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. Mr. Robert H.C. Tsao, Mr. John Hsuan and Mr. Duen-Chian Cheng were pronounced innocent of the charge by Hsinchu District Court on October 26, 2007.

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 Yuan on March 16, 2006. On October 19, 2006, Executive Yuan denied the administrative appeal filed by the Company. The Company had filed an administrative litigation case against MOEA on December 8, 2006. Taipei High Administrative Court announced and reversed MOEA’s administrative sanction on July 19, 2007. MOEA has had an appeal against the Company on August 10, 2007.

 

8. SIGNIFICANT DISASTER LOSS

None.

 

9. SIGNIFICANT SUBSEQUENT EVENT

None.

 

42


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, are 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 the interest rate risk and foreign currency exchange risk arising from the Company’s operations and financing activities.

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.

Cash flow interest rate risk

The Company utilizes interest rate swap agreements to avoid 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 avoid foreign currency risk. The Company buys or sells the same amount of foreign currency with hedged through forward hedging items for 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.

 

43


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 comprise 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.

 

  (3) Information of financial instruments

 

  a. Fair value of financial instruments

 

     As of September 30,
     2007    2006

Financial Assets

   Book Value    Fair Value    Book Value    Fair Value
Non-derivative            

Cash and cash equivalents

   $ 76,787,162    $ 76,787,162    $ 83,003,846    $ 83,003,846

Financial assets at fair value through profit or loss, current

     5,770,280      5,770,280      8,688,759      8,688,759

Held-to-maturity financial assets, current

     —        —        978,240      978,240

Notes and accounts receivable

     17,867,872      17,867,872      15,029,116      15,029,116

Available-for-sale financial assets, noncurrent

     50,781,477      50,781,477      34,015,176      34,015,176

Financial assets measured at cost, noncurrent

     2,321,538      —        2,265,728      —  

Long-term investments accounted for under the equity method

     40,849,073      36,604,165      37,719,756      43,151,556

Prepayment for long-term investments

     81,244      —        —        —  

Deposits-out

     641,943      641,943      542,121      542,121

 

44


     As of September 30,
     2007    2006

Financial Liabilities

   Book Value    Fair Value    Book Value    Fair Value

Non-derivative

           

Payables

   $ 69,953,044    $ 69,953,044    $ 21,414,910    $ 21,414,910

Capacity deposits (current portion)

     131,875      131,875      912,309      912,309

Bonds payable (current portion included)

     30,418,680      30,804,530      40,959,246      41,439,620

Derivative

           

Interest rate swaps

     379,306      379,306      610,545      610,545

Derivatives embedded in exchangeable bonds

     —        —        576,550      576,550

 

  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 to the fair value due to their short maturities. Short-term financial instruments include cash and cash equivalents, notes receivable, accounts receivable, 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 and long-term investments accounted for under equity method are based on the quoted market prices. If market prices are unavailable, the Company estimates the fair value based on the book values.

 

  iv. The fair value of financial assets measured at cost and prepayment for long-term investments are unable to estimate since there is no active market in trading those unlisted investments.

 

  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.

 

45


  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
      2007.09.30    2006.09.30    2007.09.30    2006.09.30

Non-derivative Financial Instruments

           

Financial assets

           

Financial assets at fair value through profit or loss, current

   $ 5,770,280    $ 8,688,759    $ —      $ —  

Available-for-sale financial assets, noncurrent

     50,781,477      34,015,176      —        —  

Long-term investments accounted for under the equity method

     1,390,794      16,788,277      35,213,371      26,363,279

Financial liabilities

           

Bonds payable (current portion included)

     30,804,530      41,439,620      —        —  

Derivative Financial Instruments

           

Financial liabilities

           

Interest rate swaps

   $ —      $ —      $ 379,306    $ 610,545

Derivatives embedded in exchangeable bonds

     —        —        —        576,550

 

  d. The Company recognized gains of NT$386 million and NT$105 million arising from the changes in fair value of financial liabilities at fair value through profit or loss for the nine-month periods ended September 30, 2007 and 2006, respectively.

 

  e. The Company’s financial liability with cash flow interest rate risk exposure as of September 30, 2007 and 2006 amounted to NT$379 million and NT$611 million, respectively.

 

  f. During the nine-month periods ended September 30, 2007 and 2006, total interest revenues for financial assets or liabilities that are not at fair value through profit or loss were NT$975 million and NT$1,092 million, while interest expenses for the nine-month periods ended September 30, 2007 and 2006 each amounted to NT$195 million and NT$535 million, respectively.

 

46


  (4) The Company and its subsidiary, UMC JAPAN, held credit-linked deposits and repackage bonds for the earning of interest income. The details are disclosed as follows:

 

  a. Principal amount in original currency

As of September 30, 2007

The Company did not hold any credit-linked deposits or repackage bonds as of September 30, 2007.

As of September 30, 2006

The Company

 

Credit-linked deposits and repackage bonds referenced to

   Amount    Due Date

SILICONWARE PRECISION INDUSTRIES CO., LTD. European Convertible Bonds and Loans

   NTD    400 million    2007.02.05

SILICONWARE PRECISION INDUSTRIES CO., LTD. European Convertible Bonds and Loans

   NTD    200 million    2007.02.05

UMC JAPAN European Convertible Bonds

   JPY    640 million    2007.03.28

ADVANCED SEMICONDUCTOR ENGINEERING INC. European Convertible Bonds and Loans

   NTD    200 million    2007.09.25

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 nil or less than full amount of these investments. 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.

 

47


  (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. 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 September 30, 2007 and 2006, 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 24, 2008    4.0% minus USD
12-Month LIBOR
   1.52 %

NT$7,500 million

   May 21, 2003 to June 24, 2010    4.3% minus USD
12-Month LIBOR
   1.48 %

 

  b. The details of forward contracts entered into by the Company and its subsidiary, UMC JAPAN, are summarized as follows:

As of September 30, 2007

The Company and its subsidiary, UMC JAPAN, did not hold any forward contracts as of September 30, 2007.

As of September 30, 2006

The Company did not hold any forward contracts as of September 30, 2006.

UMC JAPAN

 

Type

  

Notional Amount

  

Contract Period

Forward contracts    Sell USD 3 million    August 28, 2006 to October 31, 2006

 

  c. 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.

 

48


  (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.

 

  d. The presentation of derivative financial instruments on financial statements

The Company

As of September 30, 2007 and 2006, the interest rate swap agreements were classified as current liabilities amounting NT$379 million and NT$611 million, respectively.

UMC JAPAN

As of September 30, 2006, the balance of current liabilities arising from forward contracts was JPY5 million and related exchange loss of JPY7 million and exchange gain of JPY22 million were recorded under non-operating revenue for the nine-month periods ended September 30, 2007 and 2006, respectively.

 

11. ADDITIONAL DISCLOSURES

 

  (1) The following are additional disclosures for the Company and its affiliates as required by the R.O.C. Securities and Futures Bureau:

 

  a. Financing provided to others for the nine-month period ended September 30, 2007: Please refer to Attachment 1.

 

  b. Endorsement/Guarantee provided to others for the nine-month period ended September 30, 2007: Please refer to Attachment 2.

 

  c. Securities held as of September 30, 2007: 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 nine-month period ended September 30, 2007: Please refer to Attachment 4.

 

49


  e. Acquisition of individual real estate with amount exceeding the lower of NT$100 million or 20 percent of the capital stock for the nine-month period ended September 30, 2007: 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 nine-month period ended September 30, 2007: 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 nine-month period ended September 30, 2007: 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 September 30, 2007: Please refer to Attachment 8.

 

  i. Names, locations and related information of investees as of September 30, 2007: Please refer to Attachment 9.

 

  j. Financial instruments and derivative transactions: Please refer to Note 10.

 

  (2) Investment in Mainland China

None.

 

50


ATTACHMENT 1 (Financing provided to others for the nine-month period ended September 30, 2007)

(Amount in thousand; Currency denomination in NTD unless otherwise specified)

 

     Collateral     

No.

  

Lender

   Counter-party    Financial
statement
account
   Maximum balance
for the period
   Ending
balance
   Interest rate    Nature of
financing
   Amount of sales to
(purchases from)
counter-party
   Reason for
financing
   Allowance
for
doubtful
accounts
   Item    Value   

Limit of financing
amount for
individual

counter-party

   Limit of total
financing
amount

None

 

51


ATTACHMENT 2 (Endorsement/Guarantee provided to others for the nine-month period ended September 30, 2007)

(Amount in thousand; Currency denomination in NTD unless otherwise specified)

 

No.

   Endorsor/Guarantor    Receiving party    Relationship    Limit of
guarantee/endorsement
amount for
receiving party
   Maximum balance for
the period
   Ending balance    Amount of collateral
guarantee/endorsement
   Percentage of
accumulated guarantee
amount to net assets
value from the latest
financial statement
   Limit of total
guarantee/endorsement
amount

None

 

52


ATTACHMENT 3 (Securities held as of September 30, 2007)

(Amount in thousand; Currency denomination in NTD unless otherwise specified)

UNITED MICROELECTRONICS CORPORATION

 

                    September 30, 2007     

Type of securities

  

Name of securities

  

Relationship

  

Financial statement
account

   Units
(thousand)/
bonds/ shares
(thousand)
   Book value    Percentage of
ownership
(%)
   Market value/
Net assets value
   Shares as
collateral
(thousand)
Convertible bonds    TATUNG CORP.    -    Financial assets at fair value through profit or loss, current    402    $ 56,200    —      $ 56,200    None
Convertible bonds    CHANG WAH ELECTRONMATERIALS INC.    -    Financial assets at fair value through profit or loss, current    500      55,000    —        55,000    None
Stock    PROMOS TECHNOLOGIES INC.    -    Financial assets at fair value through profit or loss, current    471,400      4,714,000    7.16      4,714,000    None
Stock    L&K ENGINEERING CO., LTD.    -    Financial assets at fair value through profit or loss, current    1,767      82,799    0.98      82,799    None
Stock    MICRONAS SEMICONDUCTOR HOLDING AG    -    Financial assets at fair value through profit or loss, current    280      118,975    0.94      118,975    None
Stock    ACTION ELECTRONICS CO., LTD.    -    Financial assets at fair value through profit or loss, current    16,270      262,758    4.59      262,758    None
Stock    FIRICH ENTERPRISES CO., LTD.    -    Financial assets at fair value through profit or loss, current    53      25,464    0.05      25,464    None
Stock    CHINA DEVELOPMENT FINANCIAL HOLDING CORP.    -    Financial assets at fair value through profit or loss, current    23,538      310,704    0.21      310,704    None
Stock    YANG MING MARINE TRANSPORT CORP.    -    Financial assets at fair value through profit or loss, current    3,514      92,069    0.14      92,069    None
Stock    SILICONWARE PRECISION INDUSTRIES CO., LTD.    -    Financial assets at fair value through profit or loss, current    722      52,311    0.02      52,311    None
Stock    UMC GROUP (USA)    Investee company    Long-term investments accounted for under the equity method    16,438      1,078,653    100.00      1,078,653    None
Stock    UNITED MICROELECTRONICS (EUROPE) B.V.    Investee company    Long-term investments accounted for under the equity method    9      309,875    100.00      302,260    None
Stock    UMC CAPITAL CORP.    Investee company    Long-term investments accounted for under the equity method    124,000      3,909,319    100.00      3,909,319    None
Stock    UNITED MICROELECTRONICS CORP. (SAMOA)    Investee company    Long-term investments accounted for under the equity method    280      3,513    100.00      3,513    None
Stock    UMCI LTD.    Investee company    Long-term investments accounted for under the equity method    880,006      96    100.00      96    None
Stock    TLC CAPITAL CO., LTD.    Investee company    Long-term investments accounted for under the equity method    628,800      9,231,569    100.00      9,231,569    None
Stock    FORTUNE VENTURE CAPITAL CORP.    Investee company    Long-term investments accounted for under the equity method    499,994      10,758,238    99.99      11,263,093    None
Stock    UNITED MICRODISPLAY OPTRONICS CORP.    Investee company    Long-term investments accounted for under the equity method    84,093      202,925    85.24      202,925    None
Stock    UMC JAPAN    Investee company    Long-term investments accounted for under the equity method    496      6,044,752    50.09      1,390,794    None

 

53


ATTACHMENT 3 (Securities held as of September 30, 2007)

(Amount in thousand; Currency denomination in NTD unless otherwise specified)

UNITED MICROELECTRONICS CORPORATION

 

                    September 30, 2007     

Type of securities

  

Name of securities

  

Relationship

  

Financial statement account

   Units
(thousand)/
bonds/ shares
(thousand)
   Book value    Percentage of
ownership
(%)
   Market value/
Net assets value
   Shares as
collateral
(thousand)
Stock    PACIFIC VENTURE CAPITAL CO., LTD.    Investee company    Long-term investments accounted for under the equity method    30,000    $ 127,379    49.99    $ 141,455    None
Stock    MTIC HOLDINGS PTE LTD.    Investee company    Long-term investments accounted for under the equity method    4,000      79,330    49.94      79,330    None
Fund    MEGA MISSION LIMITED PARTNERSHIP    Investee company    Long-term investments accounted for under the equity method    —        2,601,300    45.00      2,601,300    None
Stock    UNITECH CAPITAL INC.    Investee company    Long-term investments accounted for under the equity method    21,000      1,177,242    42.00      1,177,242    None
Stock    HSUN CHIEH INVESTMENT CO., LTD.    Investee company    Long-term investments accounted for under the equity method    33,624      4,921,899    36.49      4,790,244    None
Stock    NEXPOWER TECHNOLOGY CORP.    Investee company    Long-term investments accounted for under the equity method    29,330      307,050    35.46      310,973    None
Stock    XGI TECHNOLOGY INC.    Investee company    Long-term investments accounted for under the equity method    5,868      45,814    16.44      45,814    None
Stock    AMIC TECHNOLOGY CORP.    Investee company    Long-term investments accounted for under the equity method    16,060      50,119    11.55      75,585    None
Stock    ITE TECH. INC.    -    Available-for-sale financial assets, noncurrent    22,279      2,874,038    19.74      2,874,038    None
Stock    UNIMICRON TECHNOLOGY CORP.    -    Available-for-sale financial assets, noncurrent    206,414      12,549,963    19.53      12,549,963    None
Stock    HOLTEK SEMICONDUCTOR INC.    -    Available-for-sale financial assets, noncurrent    42,326      2,683,484    19.46      2,683,484    None
Stock    UNITED FU SHEN CHEN TECHNOLOGY CORP.    -    Available-for-sale financial assets, noncurrent    18,460      158,203    16.60      158,203    None
Stock    FARADAY TECHNOLOGY CORP.    -    Available-for-sale financial assets, noncurrent    56,714      6,380,369    16.58      6,380,369    None
Stock    SILICON INTEGRATED SYSTEMS CORP.    The Company’s director    Available-for-sale financial assets, noncurrent    228,956      3,686,190    16.26      3,686,190    None
Stock    NOVATEK MICROELECTRONICS CORP.    -    Available-for-sale financial assets, noncurrent    61,274      9,007,259    11.32      9,007,259    None
Stock    C-COM CORP.    -    Available-for-sale financial assets, noncurrent    2,312      27,168    4.40      27,168    None
Stock    SPRINGSOFT, INC.    -    Available-for-sale financial assets, noncurrent    8,572      413,180    4.16      413,180    None
Stock    CHIPBOND TECHNOLOGY CORP.    -    Available-for-sale financial assets, noncurrent    12,584      517,188    4.05      517,188    None
Stock    EPISTAR CORP.    -    Available-for-sale financial assets, noncurrent    19,333      3,141,553    3.53      3,141,553    None

 

54


ATTACHMENT 3 (Securities held as of September 30, 2007)

(Amount in thousand; Currency denomination in NTD unless otherwise specified)

UNITED MICROELECTRONICS CORPORATION

 

                    September 30, 2007     

Type of securities

  

Name of securities

  

Relationship

  

Financial statement account

   Units
(thousand)/
bonds/ shares
(thousand)
   Book value    Percentage of
ownership
(%)
   Market value/
Net assets value
   Shares as
collateral
(thousand)

Stock

   KING YUAN ELECTRONICS CO., LTD.    -    Available-for-sale financial assets, noncurrent    38,505    $ 812,460    3.17    $ 812,460    None

Stock

   BILLIONTON SYSTEMS INC.    -    Available-for-sale financial assets, noncurrent    2,048      25,188    2.63      25,188    None

Stock

   TOPOINT TECHNOLOGY CO., LTD.    -    Available-for-sale financial assets, noncurrent    929      101,286    0.97      101,286    None

Stock

   MEDIATEK INC.    -    Available-for-sale financial assets, noncurrent    9,631      5,740,090    0.93      5,740,090    None

Stock

   MEGA FINANCIAL HOLDING COMPANY    -    Available-for-sale financial assets, noncurrent    95,577      1,973,661    0.86      1,973,661    None

Stock

   AU OPTRONICS CORP.    -    Available-for-sale financial assets, noncurrent    3,723      215,176    0.05      215,176    None

Stock

   HON HAI PRECISION INDUSTRY CO., LTD.    -    Available-for-sale financial assets, noncurrent    1,268      313,234    0.02      313,234    None

Fund

   VIETNAM INFRASTRUCTURE LTD.    -    Available-for-sale financial assets, noncurrent    5,000      161,787    —        161,787    None

Stock

   PIXTECH, INC.    -    Financial assets measured at cost, noncurrent    9,883      —      17.63      Note    None

Stock

   UNITED INDUSTRIAL GASES CO., LTD.    -    Financial assets measured at cost, noncurrent    13,185      146,250    7.66      Note    None

Stock

   INDUSTRIAL BANK OF TAIWAN CORP.    -    Financial assets measured at cost, noncurrent    118,303      1,139,196    4.95      Note    None

Stock

   SUBTRON TECHNOLOGY CO., LTD.    -    Financial assets measured at cost, noncurrent    13,864      210,110    4.62      Note    None

Stock

   TECO NANOTECH CO. LTD.    -    Financial assets measured at cost, noncurrent    9,001      —      3.73      Note    None

Stock

   SINO SWEARINGEN AIRCRAFT CORPORATION    -    Financial assets measured at cost, noncurrent    1,124      —      1.50      Note    None

Stock

   TAIWAN AEROSPACE CORP.    -    Financial assets measured at cost, noncurrent    234      —      0.17      Note    None

Fund

   PACIFIC TECHNOLOGY PARTNERS, L.P.    -    Financial assets measured at cost, noncurrent    —        197,183    —        N/A    None

Fund

   PACIFIC UNITED TECHNOLOGY, L.P.    -    Financial assets measured at cost, noncurrent    —        161,154    —        N/A    None

Stock-Preferred stock

   TAIWAN HIGH SPEED RAIL CORP.    -    Financial assets measured at cost, noncurrent    30,000      300,000    —        N/A    None

Stock-Preferred stock

   MTIC HOLDINGS PTE LTD.    -    Financial assets measured at cost, noncurrent    4,000      85,080    —        N/A    None

Stock-Preferred stock

   TONBU, INC.    -    Financial assets measured at cost, noncurrent    938      —      —        N/A    None

 

55


ATTACHMENT 3 (Securities held as of September 30, 2007)

(Amount in thousand; Currency denomination in NTD unless otherwise specified)

UNITED MICROELECTRONICS CORPORATION

 

                    September 30, 2007     

Type of securities

  

Name of securities

  

Relationship

  

Financial statement account

   Units
(thousand)/
bonds/ shares
(thousand)
   Book value    Percentage of
ownership
(%)
   Market value/
Net assets value
   Shares as
collateral
(thousand)
Stock-Preferred stock    AETAS TECHNOLOGY INC.    -    Financial assets measured at cost, noncurrent    781    $ 82,565    —      N/A    None
Stock-Preferred stock    AETAS TECHNOLOGY INC.    -    Prepayment for long-term investments    769      81,244    —      N/A    None

FORTUNE VENTURE CAPITAL CORP.

 

                    September 30, 2007     

Type of securities

  

Name of securities

  

Relationship

  

Financial statement account

   Units
(thousand)/
bonds/ shares
(thousand)
   Book value    Percentage of
ownership
(%)
   Market value/
Net assets value
   Shares as
collateral
(thousand)
Stock    UNITRUTH INVESTMENT CORP.    Investee company    Long-term investments accounted for under the equity method    80,000    $ 1,104,320    100.00    $ 1,104,320    None
Stock    UWAVE TECHNOLOGY CORP.    Investee company    Long-term investments accounted for under the equity method    10,186      —      44.29      —      None
Stock    UCA TECHNOLOGY INC.    Investee company    Long-term investments accounted for under the equity method    11,285      —      42.38      —      None
Stock    ANOTO TAIWAN CORP.    Investee company    Long-term investments accounted for under the equity method    3,920      26,787    39.20      26,787    None
Stock-Preferred stock    AEVOE INTERNATIONAL LTD.    Investee company    Long-term investments accounted for under the equity method    3,155      14,718    37.25      14,718    None
Stock    WALTOP INTERNATIONAL CORP.    Investee company    Long-term investments accounted for under the equity method    6,000      91,566    30.00      40,554    None
Stock    CRYSTAL MEDIA INC.    Investee company    Long-term investments accounted for under the equity method    4,493      37,192    24.29      37,192    None
Stock    SMEDIA TECHNOLOGY CORP.    Investee company    Long-term investments accounted for under the equity method    9,045      18,898    23.06      17,333    None
Stock    ALLIANCE OPTOTEK CORP.    Investee company    Long-term investments accounted for under the equity method    5,789      58,473    20.24      51,037    None
Stock    AFA TECHNOLOGY, INC.    Investee company    Long-term investments accounted for under the equity method    6,713      67,459    19.20      55,438    None
Stock    HIGH POWER LIGHTING CORP.    Investee company    Long-term investments accounted for under the equity method    4,525      39,845    18.10      30,613    None
Stock    MOBILE DEVICES INC.    Investee company    Long-term investments accounted for under the equity method    6,943      37,349    17.90      34,593    None
Stock    AMIC TECHNOLOGY CORP.    Investee of UMC and Fortune    Long-term investments accounted for under the equity method    22,405      103,988    16.33      103,988    None

 

56


ATTACHMENT 3 (Securities held as of September 30, 2007)

(Amount in thousand; Currency denomination in NTD unless otherwise specified)

FORTUNE VENTURE CAPITAL CORP.

 

                    September 30, 2007     

Type of securities

  

Name of securities

  

Relationship

  

Financial statement account

   Units
(thousand)/
bonds/ shares
(thousand)
   Book value    Percentage of
ownership
(%)
   Market value/
Net assets value
   Shares as
collateral
(thousand)
Stock    XGI TECHNOLOGY INC.    Investee of UMC and Fortune    Long-term investments accounted for under the equity method    4,208    $ 28,066    11.81    $ 32,845    None
Stock    DAVICOM SEMICONDUCTOR, INC.    -    Available-for-sale financial assets, noncurrent    12,217      1,044,555    16.29      1,044,555    None
Stock    PIXART IMAGING INC.    -    Available-for-sale financial assets, noncurrent    14,491      3,992,378    12.44      3,992,378    None
Stock    TOPOINT TECHNOLOGY CO., LTD.    -    Available-for-sale financial assets, noncurrent    1,691      184,325    1.77      184,325    None
Stock    AIMTRON TECHNOLOGY, INC.    -    Available-for-sale financial assets, noncurrent    349      19,438    0.79      19,438    None
Stock    EPISTAR CORP.    -    Available-for-sale financial assets, noncurrent    4,354      707,579    0.79      707,579    None
Stock    POWERTECH INDUSTRIAL CO., LTD.    -    Available-for-sale financial assets, noncurrent    595      42,029    0.57      42,029    None
Stock    C SUN MFG LTD.    -    Available-for-sale financial assets, noncurrent    551      12,666    0.41      12,666    None
Stock    UNITED MICROELECTRONICS CORP.    Investor company    Available-for-sale financial assets, noncurrent    15,386      356,906    0.12      356,906    None
Stock    CLIENTRON CORP. (formerly BCOM ELECTRONICS INC.)    -    Financial assets measured at cost, noncurrent    17,675      176,797    19.64      Note    None
Stock    STAR SEMICONDUCTOR CORP.    -    Financial assets measured at cost, noncurrent    3,838      35,174    18.51      Note    None
Stock    KUN YUAN TECHNOLOGY CO., LTD.    -    Financial assets measured at cost, noncurrent    7,650      76,500    16.63      Note    None
Stock    HITOP COMMUNICATIONS CORP.    -    Financial assets measured at cost, noncurrent    4,340      60,849    16.07      Note    None
Stock    USBEST TECHNOLOGY INC.    -    Financial assets measured at cost, noncurrent    3,417      41,374    15.82      Note    None
Stock    U-MEDIA COMMUNICATIONS, INC.    -    Financial assets measured at cost, noncurrent    5,000      15,679    15.44      Note    None
Stock    CHIP ADVANCED TECHNOLOGY INC.    -    Financial assets measured at cost, noncurrent    3,140      22,886    12.81      Note    None
Stock    CION TECHNOLOGY CORP.    -    Financial assets measured at cost, noncurrent    2,268      21,600    11.08      Note    None
Stock    VASTVIEW TECHNOLOGY INC.    -    Financial assets measured at cost, noncurrent    3,864      11,458    11.04      Note    None
Stock    UWIZ TECHNOLOGY CO., LTD.    -    Financial assets measured at cost, noncurrent    4,530      50,553    10.79      Note    None

 

57


ATTACHMENT 3 (Securities held as of September 30, 2007)

(Amount in thousand; Currency denomination in NTD unless otherwise specified)

FORTUNE VENTURE CAPITAL CORP.

 

                    September 30, 2007     

Type of securities

  

Name of securities

  

Relationship

  

Financial statement account

   Units
(thousand)/
bonds/ shares
(thousand)
   Book value    Percentage of
ownership
(%)
   Market value/
Net assets value
   Shares as
collateral
(thousand)

Stock

   GOLDEN TECHNOLOGY VENTURE CAPITAL INVESTMENT CORP.    -    Financial assets measured at cost, noncurrent    4,234    $ 41,216    10.67    Note    None

Stock

   AMOD TECHNOLOGY CO., LTD.    -    Financial assets measured at cost, noncurrent    1,060      10,421    10.60    Note    None

Stock

   EXOJET TECHNOLOGY CORP.    -    Financial assets measured at cost, noncurrent    2,300      23,000    10.57    Note    None

Stock

   YAYATECH CO., LTD.    -    Financial assets measured at cost, noncurrent    1,296      36,180    10.55    Note    None

Stock

   EVERGLORY RESOURCE TECHNOLOGY CO., LTD.    -    Financial assets measured at cost, noncurrent    2,500      21,875    10.23    Note    None

Stock

   ADVANCE MATERIALS CORP.    -    Financial assets measured at cost, noncurrent    11,777      113,017    10.22    Note    None

Stock

   NCTU SPRING I TECHNOLOGY VENTURE CAPITAL INVESTMENT CORP.    -    Financial assets measured at cost, noncurrent    4,284      27,160    10.06    Note    None

Stock

   LIGHTUNING TECH. INC.    -    Financial assets measured at cost, noncurrent    2,660      16,663    9.93    Note    None

Stock

   CHANG-YU TECHNOLOGY CO., LTD.    -    Financial assets measured at cost, noncurrent    2,050      55,350    9.49    Note    None

Stock

   COTECH, INC.    -    Financial assets measured at cost, noncurrent    750      30,289    9.38    Note    None

Stock

   ALLEN PRECISION INDUSTRIES CO., LTD.    -    Financial assets measured at cost, noncurrent    3,000      38,400    9.32    Note    None

Stock

   EXCELLENCE OPTOELECTRONICS INC.    -    Financial assets measured at cost, noncurrent    8,529      85,291    9.09    Note    None

Stock

   BCOM ELECTRONICS INC.    -    Financial assets measured at cost, noncurrent    3,600      43,200    9.00    Note    None

Stock

   ANDES TECHNOLOGY CORP.    -    Financial assets measured at cost, noncurrent    5,000      62,500    7.94    Note    None

Stock

   CHINGIS TECHNOLOGY CORP.    -    Financial assets measured at cost, noncurrent    4,198      37,156    7.83    Note    None

Stock

   SHIN-ETSU HANDOTAI TAIWAN CO., LTD.    -    Financial assets measured at cost, noncurrent    10,500      105,000    7.00    Note    None

Stock

   ACTI CORP.    -    Financial assets measured at cost, noncurrent    1,700      17,306    6.85    Note    None

Stock

   RISELINK VENTURE CAPITAL CORP.    -    Financial assets measured at cost, noncurrent    8,000      76,640    6.67    Note    None

Stock

   NCTU SPRING VENTURE CAPITAL CO., LTD.    -    Financial assets measured at cost, noncurrent    2,000      7,000    6.28    Note    None

Stock

   SIMPAL ELECTRONICS CO., LTD.    -    Financial assets measured at cost, noncurrent    6,009      70,179    5.67    Note    None

 

58


ATTACHMENT 3 (Securities held as of September 30, 2007)

(Amount in thousand; Currency denomination in NTD unless otherwise specified)

FORTUNE VENTURE CAPITAL CORP.

 

                    September 30, 2007     

Type of
securities

  

Name of securities

  

Relationship

  

Financial statement account

   Units
(thousand)/
bonds/ shares
(thousand)
   Book value    Percentage of
ownership
(%)
   Market value/
Net assets value
   Shares as
collateral
(thousand)
Stock    COSMOS TECHNOLOGY VENTURE CAPITAL INVESTMENT CORP.    -    Financial assets measured at cost, noncurrent    1,490    $ 13,444    5.03    Note    None
Stock    PARAWIN VENTURE CAPITAL CORP.    -    Financial assets measured at cost, noncurrent    5,000      41,900    5.00    Note    None
Stock    LUMITEK CORP.    -    Financial assets measured at cost, noncurrent    1,750      32,000    4.86    Note    None
Stock    JMICRON TECHNOLOGY CORP.    -    Financial assets measured at cost, noncurrent    1,670      30,060    4.84    Note    None
Stock    EE SOLUTIONS, INC.    -    Financial assets measured at cost, noncurrent    1,391      22,177    4.80    Note    None
Stock    TRENDCHIP TECHNOLOGIES CORP.    -    Financial assets measured at cost, noncurrent    1,249      15,086    4.72    Note    None
Stock    GIGA SOLUTION TECH. CO., LTD.    -    Financial assets measured at cost, noncurrent    4,245      26,742    4.60    Note    None
Stock    BEYOND INNOVATION TECHNOLOGY CO., LTD.    -    Financial assets measured at cost, noncurrent    1,183      14,165    4.11    Note    None
Stock    SUBTRON TECHNOLOGY CO., LTD.    -    Financial assets measured at cost, noncurrent    11,213      132,634    3.74    Note    None
Stock    IBT VENTURE CORP.    -    Financial assets measured at cost, noncurrent    4,569      45,685    3.81    Note    None
Stock    HIGH POWER OPTOELECTRONICS, INC.    -    Financial assets measured at cost, noncurrent    1,500      15,000    2.36    Note    None
Stock    SUPERALLOY INDUSTRIAL CO., LTD.    -    Financial assets measured at cost, noncurrent    5,400      225,000    3.32    Note    None
Stock    ANIMATION TECHNOLOGIES INC.    -    Financial assets measured at cost, noncurrent    1,480      22,200    3.16    Note    None
Stock    MEMOCOM CORP.    -    Financial assets measured at cost, noncurrent    1,225      8,195    3.06    Note    None
Stock    PRINTECH INTERNATIONAL INC.    -    Financial assets measured at cost, noncurrent    540      2,457    2.69    Note    None
Stock    SHENG-HUA VENTURE CAPITAL CORP.    -    Financial assets measured at cost, noncurrent    750      4,950    2.50    Note    None
Stock    TAIMIDE TECHNOLOGY INC.    -    Financial assets measured at cost, noncurrent    1,500      16,095    1.70    Note    None
Stock    RALINK TECHNOLOGY CORP.    -    Financial assets measured at cost, noncurrent    1,389      14,828    1.41    Note    None
Stock    ADVANCED CHIP ENGINEERING TECHNOLOGY INC.    -    Financial assets measured at cost, noncurrent    2,290      24,419    1.02    Note    None
Stock    ASIA PACIFIC MICROSYSTEMS, INC.    -    Financial assets measured at cost, noncurrent    1,162      9,739    0.66    Note    None

 

59


ATTACHMENT 3 (Securities held as of September 30, 2007)

(Amount in thousand; Currency denomination in NTD unless otherwise specified)

FORTUNE VENTURE CAPITAL CORP.

 

                    September 30, 2007     

Type of securities

  

Name of securities

  

Relationship

  

Financial statement account

   Units
(thousand)/
bonds/ shares
(thousand)
   Book value    Percentage of
ownership
(%)
   Market value/
Net assets value
   Shares as
collateral
(thousand)
Fund    CRYSTAL INTERNET VENTURE FUND II(BVI), L.P.    -    Financial assets measured at cost, noncurrent    —      $ 9,342    1.09    N/A    None
Fund    IGLOBE PARTNERS FUND, L.P.    -    Financial assets measured at cost, noncurrent    —        39,051    —      N/A    None

Stock-Preferred

stock

   AURORA SYSTEMS, INC.    -    Financial assets measured at cost, noncurrent    5,133      59,317    —      N/A    None

Stock-Preferred

stock

   ALPHA & OMEGA SEMICONDUCTOR LTD.    -    Financial assets measured at cost, noncurrent    1,500      46,313    —      N/A