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 15, 2006

For the month of October 2006

 


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 )

 



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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: 11/15/2006

 

By

 

/s/ Chitung Liu

   

Chitung Liu

   

Chief Financial Officer


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Exhibit

 

Exhibit

  

Description

99.1

  

Announcement on October 16, 2006: To announce related materials on disposal of MediaTek Incorporation securities

99.2

  

Announcement on October 25, 2006: To announce unconsolidated operating results for the third quarter of 2006

99.3

  

Announcement on October 25, 2006: To announce related materials on acquisition of machinery and equipment

99.4

  

Announcement on October 26, 2006: To announce related materials on disposal of MediaTek Incorporation securities

99.5

  

Announcement on October 30, 2006: To announce related materials on acquisition of UMC Capital Corporation common shares

99.6

  

Announcement on November 3, 2006: To announce related materials on disposal of MediaTek Incorporation securities

99.7

  

Announcement on November 7, 2006: October Revenue

99.8

  

Announcement on November 8, 2006: To announce UMC Delivers Leading-edge 65nm FPGAs to Xilinx

99.9

  

Announcement on November 13, 2006: To announce UMC will attend investor conferences from 2006/11/14 to 2006/11/17

99.10

  

Announcement on November 14, 2006: To announce related materials on acquisition of machinery and equipment

99.11

  

Announcement on November 14, 2006: To announce related materials on disposal of MediaTek Incorporation securities

99.12

  

Announcement on November 15, 2006: 1) the trading and pledge of UMC common shares by directors, supervisors, executive officers and 10% shareholders of UMC 2) the acquisition and disposition of assets by UMC

99.13

  

United Microelectronics Corporation Financial Statements With Report of Independent Accountants for the Nine-Month Periods Ended September 30, 2006 And 2005


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Exhibit 99.1

To announce related materials on disposal of MediaTek Incorporation securities

 

1.

Name of the securities: Common shares of MediaTek Incorporation

 

2.

Trading date: 2006/10/03~2006/10/16

 

3.

Trading volume, unit price, and total monetary amount of the transaction: trading volume: 1,004,000 shares; average unit price:$ 329.84 NTD; total amount:$ 331,160,500 NTD

 

4.

Gain (or loss) (not applicable in case of acquisition of securities): $ 320,775,687 NTD

 

5.

Relationship with the underlying company of the trade: MediaTek Incorporation, none.

 

6.

Current cumulative volume, amount, and shareholding percentage of holdings of the security being traded (including the current trade) and status of any restriction of rights (e.g. pledges): cumulative volume: 27,749,499 shares; amount: 287,025,173 NTD; percentage of holdings: 2.87%; status of restriction of rights: no

 

7.

Current ratio of long or short term securities investment (including the current trade) to the total assets and shareholder’s equity as shown in the most recent financial statement and the operational capital as shown in the most recent financial statement: ratio of total assets: 14.02 %; ratio of shareholder’s equity: 17.69 %; the operational capital as shown in the most recent financial statement: $ 82,601,170 thousand NTD

 

8.

Concrete purpose/objective of the acquisition or disposal: financing operation

 

9.

Do the directors have any objections to the present transaction?: no

 

10.

Any other matters that need to be specified: none


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Exhibit 99.2

To announce unconsolidated operating results for the third quarter of 2006

 

1.

Date of the investor/press conference: 2006/10/25

 

2.

Location of the investor/press conference: 3rd Floor, Far Eastern Plaza Hotel, 201 Tunhwa South Rd., Sec. 3, Taipei

 

3.

Financial and business related information:

United Microelectronics Corporation (NYSE: UMC; TSE: 2303) (“UMC” or “the Company”) today announced its unconsolidated operating results for the third quarter of 2006. Year-over-year revenue increased by 18.1 % to NT$27.85 billion from NT$23.58 billion, and an 8.2% QoQ increase from NT$25.75 billion in 2Q06. The net income is NT$3.04 billion, increase 86.3% from NT$1.63 billion in 2Q06. The EPS for the third quarter in 2005 was NT$0.48.

Wafer shipments in the third quarter were 799 thousand 8-inch equivalent wafers, the utilization rate for the quarter was 82%. The percentage of revenue from 90nm and below business increased to 21%, and the percentage of revenue from 0.13um and below was 46% in 3Q06.

“We are pleased with our Q3 results,” said UMC Chairman and CEO, Dr. Jackson Hu.“ Wafer shipments increased by 1.7% and ASP increased by 6%.

As a result, revenue increased 8.2% to NT$27.85 billion, with operating profit improving by 86.3% to NT$3.04 billion. Total sales from 90nm and below reached 21% of revenue.”

Dr. Hu continued, “We clearly saw the benefits of high utilization in advanced technology nodes, which was responsible for improving our gross margin and bottom line. Solid demand for 90nm was a significant contributing factor to better results in the quarter. Furthermore, the number of new 90nm customers and products in production for Q3 was still relatively small, and we have many more 90nm customer products in various stages of development that will ramp to production in the following quarters. This validates the direction we have followed for the last two years: to focus on expanding our customer base in advanced technology. For example, for the 65nm generation, two customers are in small volume production and revenue contribution in Q3 was approximately 1%. Today, we are engaged with nine customers from a variety of sectors that include cell phone, FPGA, graphics and broadband applications. Our yield improvement for 65nm has been even faster than for the 90nm generation.”

“For Q4, we do foresee some downward adjustment from certain advanced technology customers, mainly at the 0.13um technology node for the communication sector. Conversely, in emerging markets such as China, the demand from other customers for handset and display driver applications is quite strong. This is likely due to an improvement in the inventory situation in those areas. For the computer sector, the market appears to be anticipating the launch of Vista, which has delayed demand somewhat. Although the market climate varies to some extent for different customers, in general, we believe that the overall inventory situation has improved. Since the build-up for the holiday season will be essentially complete in the October-November time-frame, customers will be monitoring the strength of the holiday season sell-through to get a clearer picture of future demand. The launch of Vista will also be a significant factor.”

 

4.

Any other matters that need to be specified: None


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Exhibit 99.3

To announce related materials on acquisition of machinery and equipment

 

1.

Name and nature of the subject matter (e.g. land located at Sublot XX, Lot XX, North District, Taichung City): Machinery and equipment

 

2.

Date of the occurrence of the event: 2006/06/15~2006/10/24

 

3.

Transaction volume (e.g. XX square meters, equivalent to XX p’ing), unit price, total transaction price: Transaction volume: one lot; average unit price: $ 666,361,877 NTD; total transaction price: $ 666,361,877 NTD

 

4.

Counterparty to the trade and its relationship with the company (if the trading counterpart is a natural person and is not an actual related party of the Company, the name of the trading counterpart is not required to be disclosed): I-Shin Construction Co.; non-related party transaction

 

5.

Where the counterpart to the trade is an actual related party, a public announcement shall also include the reason for choosing the related party as trading counterpart and the identity of the previous owner (including its relationship with the company and the trading counterpart), price of transfer and the date of acquisition: Not applicable

 

6.

Where a person who owned the property within the past five years has been an actual related person of the company, a public announcement shall also include the dates and prices of acquisition and disposal by the related person and the person’s relationship to the company at those times: Not applicable

 

7.

Anticipated loss or profit from the disposal (not applicable in cases of acquisition of assets) (where originally deferred, the status or recognition shall be stated and explained): Not applicable

 

8.

Terms of delivery or payment (including payment period and monetary amount): 1)90% paid upon shipment;10% paid after acceptance 2)100% paid after acceptance

 

9.

The manner of deciding on this transaction (such as tender invitation, price comparison, or price negotiation), the reference basis for the decision on price and the decision-making department: transaction: price negotiation; the reference basis for the decision on price: market price. The decision-making department: the Selection Meeting

 

10.

Name of the professional appraisal institution and its appraisal amount: Not applicable

 

11.

Reason for any significant discrepancy with the transaction amount, and opinion of the certifying CPA: Not applicable

 

12.

Is the appraisal report price a limited price or specific price? Not applicable

 

13.

Has an appraisal report not yet been obtained? Not applicable

 

14.

Reason an appraisal report has not yet been obtained: Not applicable

 

15.

Broker and broker’s fee: Not applicable

 

16.

Concrete purpose or use of the acquisition or disposition: to produce integrated circuits

 

17.

Do the directors have any objection to the present transaction?: no

 

18.

Any other matters that need to be specified: none


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Exhibit 99.4

To announce related materials on disposal of MediaTek Incorporation securities

 

1.

Name of the securities: Common shares of MediaTek Incorporation

 

2.

Trading date: 2006/10/17~2006/10/26

 

3.

Trading volume, unit price, and total monetary amount of the transaction: trading volume: 1,020,000 shares; average unit price:$322.17 NTD; total amount:$ 328,614,000 NTD

 

4.

Gain (or loss) (not applicable in case of acquisition of securities): $ 318,063,691 NTD

 

5.

Relationship with the underlying company of the trade: MediaTek Incorporation, none.

 

6.

Current cumulative volume, amount, and shareholding percentage of holdings of the security being traded (including the current trade) and status of any restriction of rights (e.g. pledges): cumulative volume: 26,729,499 shares; amount: 276,474,864 NTD; percentage of holdings: 2.76%; status of restriction of rights: no

 

7.

Current ratio of long or short term securities investment (including the current trade) to the total assets and shareholder’s equity as shown in the most recent financial statement and the operational capital as shown in the most recent financial statement: ratio of total assets: 13.97 %; ratio of shareholder’s equity: 17.62 %; the operational capital as shown in the most recent financial statement: $ 82,601,170 thousand NTD

 

8.

Concrete purpose/objective of the acquisition or disposal: financing operation

 

9.

Do the directors have any objections to the present transaction?: no

 

10.

Any other matters that need to be specified: none


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Exhibit 99.5

To announce related materials on acquisition of UMC Capital Corporation common shares

 

1.

Name and nature of the subject matter (if preferred shares, the terms and conditions of issuance shall also be indicated, e.g. dividend yield): Common shares of UMC Capital Corporation

 

2.

Date of occurrence of the event: 2006/10/30

 

3.

Volume, unit price, and total monetary amount of the transaction: trading volume: 50,000,000 shares; average unit price:$1 USD; total amount:$50,000,000 USD, about $1,665,000,000 NTD

 

4.

Counterpart to the trade and its relationship to the Company (if the trading counterpart is a natural person and furthermore is not an actual related party of the Company, the name of the trading counterpart is not required to be disclosed): UMC Capital Corporation; investee company which UMC holds 100.00%

 

5.

Where the counterpart to the trade is an actual related party, a public announcement shall also be made of the reason for choosing the related party as trading counterpart and the identity of the previous owner (including its relationship with the company and the trading counterpart), price of transfer, and date of acquisition: n/a

 

6.

Where a person who owned the property within the past five years has been an actual related person of the company, a public announcement shall also include the dates and prices of acquisition and disposal by the related person and the person’s relationship to the company at those times: n/a

 

7.

Matters related to the creditor’s rights currently being disposed of (including types of collateral of the disposed creditor’s rights; if the creditor’s rights are creditor’s rights toward a related person, the name of the related person and the book amount of the creditor’s rights toward such related person currently being disposed of must also be announced): n/a

 

8.

Anticipated profit or loss from the disposal (not applicable in cases of acquisition of securities) (where originally deferred, the status or recognition shall be stated and explained): n/a

 

9.

Terms of delivery or payment (including payment period and monetary amount), restrictive covenants in the contract, and other important stipulations: one-time payment of $50,000,000,000 USD on 2006/10/30;

 

10.

The manner in which the current transaction was decided, the reference basis for the decision on price, and the decision-making department: The decision making manner: New share issuance; The decision-making department: The Chairman & President Office

 

11.

Current cumulative volume, amount, and shareholding percentage of holdings of the security being traded (including the current trade) and status of any restriction of rights (e.g. pledges): cumulative volume: 124,000,000 shares; amount: $3,846,505,440 NTD; percentage of holdings: 100.00%

 

12.

Current ratio of long or short term securities investment (including the current trade) to the total assets and shareholder’s equity as shown in the most recent financial statement and the operating capital as shown in the most recent financial statement: ratio of total assets:14.51% ratio of shareholder’s equity:18.31%; the operational capital as shown in the most recent financial statement: $82,601,170 thousand NTD


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13.

Broker and broker’s fee: n/a

 

14.

Concrete purpose or use of the acquisition or disposition: Long-term investment

 

15.

Net worth per share of company underlying securities acquired or disposed of: n/a

 

16.

Do the directors have any objection to the present transaction?: no

 

17.

Has the CPA issued an opinion on the unreasonableness of the price of the current transaction?: no

 

18.

Any other matters that need to be specified: none


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Exhibit 99.6

To announce related materials on disposal of MediaTek Incorporation securities

 

1.

Name of the securities: Common shares of MediaTek Incorporation

 

2.

Trading date: 2006/10/27~2006/11/03

 

3.

Trading volume, unit price, and total monetary amount of the transaction: trading volume: 920,000 shares; average unit price: $326.51 NTD; total amount: $ 300,388,000 NTD

 

4.

Gain (or loss) (not applicable in case of acquisition of securities): $ 290,872,035 NTD

 

5.

Relationship with the underlying company of the trade: MediaTek Incorporation, none.

 

6.

Current cumulative volume, amount, and shareholding percentage of holdings of the security being traded (including the current trade) and status of any restriction of rights (e.g. pledges): cumulative volume: 25,809,499 shares; amount: 266,958,899 NTD; percentage of holdings: 2.67 %; status of restriction of rights: no

 

7.

Current ratio of long or short term securities investment (including the current trade) to the total assets and shareholder’s equity as shown in the most recent financial statement and the operational capital as shown in the most recent financial statement: ratio of total assets: 14.25 %; ratio of shareholder’s equity: 17.77 %; the operational capital as shown in the most recent financial statement: $ 86,701,109 thousand NTD

 

8.

Concrete purpose/objective of the acquisition or disposal: financing operation

 

9.

Do the directors have any objections to the present transaction? no

 

10.

Any other matters that need to be specified: none


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Exhibit 99.7

United Microelectronics Corporation

November 7, 2006

This is to report the changes or status of 1) Sales volume 2) Funds lent to other parties 3) Endorsements and guarantees 4) Financial derivative transactions for the period of September 2005

 

1)

Sales volume (NT$ Thousand)

 

Period

 

Items

 

2006

 

2005

 

Changes

 

%

October

 

Invoice amount

  7,512,280   9,351,764   (1,839,484)   (19.67)%

2006

 

Invoice amount

  76,943,211   70,988,870   5,954,341   8.39%

October

 

Net sales

  9,049,811   9,037,949   11,862   0.13%

2006

 

Net sales

  87,036,637   72,345,371   14,691,266   20.31%

 

2)

Funds lent to other parties (NT$ Thousand)

 

Balance as of period end

   This Month    Last Month    Limit of lending

UMC

   0    0    38,170,619

UMC’s subsidiaries

   22,998    22,880    545,742

 

3)

Endorsements and guarantees (NT$ Thousand)

 

     Change in This Month     Balance as of period end    Limit of endorsements

UMC

   (1,909,154 )   0    76,341,239

UMC’s subsidiaries

   0     0    7,729,526

UMC endorses for subsidiaries

   0     0   

UMC’s subsidiaries endorse for UMC

   0     0   

UMC endorses for PRC companies

   0     0   

UMC’s subsidiaries endorse for PRC companies

   0     0   

 

4)

Financial derivatives transactions

 

a

Hedging purpose : NT$ thousand

 

Financial instruments

  

Forwards

  

Interests SWAP

Deposit Paid

   0    0

Royalty Income (Paid)

   0    0

Unwritten-off Trading Contracts

   0    0

Net Profit from Fair Value

   0    0

Written-off Trading Contracts

   0    0

Realized profit (loss)

   0    0

 

b

Trading purpose : NT$ thousand

 

Financial instruments

  

Credit-linked Deposits

Deposit Paid

   0

Unwritten-off Trading Contracts

   19,166,855

Net Profit from Market Value

   (1,199,817)

Written-off Trading Contracts

   0

Realized profit (loss)

   0


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Exhibit 99.8

To announce UMC Delivers Leading-edge 65nm FPGAs to Xilinx

 

1.

Date of occurrence of the event: 2006/11/08

 

2.

Company name: United Microelectronics Corp.

 

3.

Relationship to the Company (please enter “head office” or “affiliate company”): Listed company

 

4.

Reciprocal shareholding ratios: N/A

 

5.

Cause of occurrence:

UMC Delivers Leading-edge 65nm FPGAs to Xilinx

World’s largest FPGA features 11 metal layers and industry’s highest gate count

HSINCHU, Taiwan, November 8, 2006 —UMC (NYSE: UMC; TSE: 2303), a leading global semiconductor foundry, announced that it has delivered the world’s largest 65nm FPGAs to Xilinx. These new devices deliver a 65 percent logic capacity increase over previous generation FPGAs to enable the industry’s highest gate count, with approximately 1.1 billion transistors. The chips, which feature triple gate oxide technology and 11 copper metal layers, have demonstrated excellent initial yields and are expected to be ready for full production in several months.

Jackson Hu, chairman and CEO of UMC, said, “UMC’s 65nm technology has seen widespread acceptance from leading-edge manufacturers of cell phones, FPGA, graphics and broadband applications. Particularly noteworthy, is the number of new customers engaged at this technology node. This demonstrates the confidence that customers have in the competitiveness of our 65nm process. UMC’s longstanding partnership with Xilinx continues to strengthen with each technology generation, with this latest product success representing yet another significant milestone for our two companies. We look forward in the coming months to bringing their newest products to full production.”

Wim Roelandts, chairman, president and CEO of Xilinx, said, “Xilinx is currently ramping 65nm wafer starts at UMC. We are quite pleased with our progress—in fact, UMC’s yields have exceeded our expectations for our most advanced products. We’ll continue to leverage UMC’s advanced 65nm technology for our upcoming product lines to strengthen our leading position in the FPGA industry.”

UMC is the foundry leader in 65nm process technology, which delivered the foundry industry’s first 65nm customer products in June of 2005. UMC is currently in volume production for multiple customers using the leading-edge process, and has engaged with nine customers so far, for a variety of market applications. Yield improvement for 65nm has been even faster than for the 90nm process generation. Though performance gains vary across applications, compared with the 90nm generation, 65nm products exhibit an average of 30 percent higher performance, and a 35 percent reduction in dynamic power consumption.

 

6.

Countermeasures: none

 

7.

Any other matters that need to be specified: none


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Exhibit 99.9

To announce UMC will attend investor conferences from 2006/11/14 to 2006/11/17

 

1.

Date of the investor/press conference: 2006/11/14~2006/11/17

 

2.

Location of the investor/press conference: Singapore and London

 

3.

Financial and business related information:

(1) The Company will attend the Asia Pacific Summit 2006 held by Morgan Stanley from 2006/11/14 to 2006/11/15 in Singapore.

(2) The Company will attend the Taiwan Conference 2006 held by ABN AMRO from 2006/11/16 to 2006/11/17 in London.

 

4.

Any other matters that need to be specified: Please refer to MOPS or Company website for more information.


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Exhibit 99.10

To announce related materials on acquisition of machinery and equipment

 

1.

Name and nature of the subject matter (e.g. land located at Sublot XX, Lot XX, North District, Taichung City): Machinery and equipment

 

2.

Date of the occurrence of the event: 2006/08/31~2006/11/13

 

3.

Transaction volume (e.g.XX square meters, equivalent to XX p’ing), unit price, total transaction price: Transaction volume: a batch; average unit price: $ 534,457,301 NTD; total transaction price: $ 534,457,301 NTD

 

4.

Counterparty to the trade and its relationship with the company (if the trading counterpart is a natural person and is not an actual related party of the Company, the name of the trading counterpart is not required to be disclosed): TOKYO ELECTRON LIMITED; non-related party transaction

 

5.

Where the counterpart to the trade is an actual related party, a public announcement shall also include the reason for choosing the related party as trading counterpart and the identity of the previous owner (including its relationship with the company and the trading counterpart), price of transfer and the date of acquisition: Not applicable

 

6.

Where a person who owned the property within the past five years has been an actual related person of the company, a public announcement shall also include the dates and prices of acquisition and disposal by the related person and the person’s relationship to the company at those times: Not applicable

 

7.

Anticipated loss or profit from the disposal (not applicable in cases of acquisition of assets) (where originally deferred, the status or recognition shall be stated and explained): Not applicable

 

8.

Terms of delivery or payment (including payment period and monetary amount): 1) 90% paid upon shipment; 10% paid after acceptance 2)100% paid after acceptance

 

9.

The manner of deciding on this transaction (such as tender invitation, price comparison, or price negotiation), the reference basis for the decision on price and the decision-making department: transaction: price negotiation; the reference basis for the decision on price: market price. The decision-making department: the Selection Meeting

 

10.

Name of the professional appraisal institution and its appraisal amount: Not applicable

 

11.

Reason for any significant discrepancy with the transaction amount, and opinion of the certifying CPA: Not applicable

 

12.

Is the appraisal report price a limited price or specific price? Not applicable

 

13.

Has an appraisal report not yet been obtained? Not applicable

 

14.

Reason an appraisal report has not yet been obtained: Not applicable

 

15.

Broker and broker’s fee: Not applicable

 

16.

Concrete purpose or use of the acquisition or disposition: to produce integrated circuits

 

17.

Do the directors have any objection to the present transaction? no

 

18.

Any other matters that need to be specified: none


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Exhibit 99.11

To announce related materials on disposal of MediaTek Incorporation securities

 

1.

Name of the securities: Common shares of MediaTek Incorporation

 

2.

Trading date: 2006/11/06~2006/11/14

 

3.

Trading volume, unit price, and total monetary amount of the transaction: trading volume: 1,052,000 shares; average unit price: $317.35 NTD; total amount: $ 332,755,000 NTD

 

4.

Gain (or loss) (not applicable in case of acquisition of securities): $ 322,971,202 NTD

 

5.

Relationship with the underlying company of the trade: MediaTek Incorporation, none.

 

6.

Current cumulative volume, amount, and shareholding percentage of holdings of the security being traded (including the current trade) and status of any restriction of rights (e.g. pledges): cumulative volume: 24,757,499 shares; amount: 256,007,601 NTD; percentage of holdings: 2.56%; status of restriction of rights: no

 

7.

Current ratio of long or short term securities investment (including the current trade) to the total assets and shareholder’s equity as shown in the most recent financial statement and the operational capital as shown in the most recent financial statement: ratio of total assets: 14.33 %; ratio of shareholder’s equity: 17.86 %; the operational capital as shown in the most recent financial statement: $ 86,701,109 thousand NTD

 

8.

Concrete purpose/objective of the acquisition or disposal: financing operation

 

9.

Do the directors have any objections to the present transaction? no

 

10.

Any other matters that need to be specified: none


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Exhibit 99.12

United Microelectronics Corporation

For the month of October, 2006

This is to report 1) the trading of directors, supervisors, executive officers and 10% shareholders of United Microelectronics Corporation (“UMC”) (NYSE: UMC) 2) the pledge and clear of pledge of UMC common shares by directors, supervisors, executive officers and 10% shareholders of UMC 3) the acquisition assets by UMC 4) the disposition of assets by UMC for the month of October, 2006.

 

1)

The trading of directors, supervisors, executive officers and 10% shareholders

 

Title

 

Name

 

Number of shares

held as of

September 30, 2006

 

Number of shares

held as of

October 31, 2006

 

Changes

Vice President

  Henry Liu   11,902,588   11,892,588   (10,000)

Vice President

  Fu-Tai Liou   5,733,944   5,703,944   (30,000)

 

2)

The pledge and clear of pledge of UMC common shares by directors, supervisors, executive officers and 10% shareholders:

 

Title

 

Name

 

Number of shares

pledge as of

September 30, 2006

 

Number of shares

pledge as of

October 31, 2006

 

Changes

  —     —     —     —  

 

3)

The acquisition assets (NT$ Thousand)

 

Description of assets

   October    2006

Semiconductor Manufacturing Equipment

   4,085,047    24,989,595

Fixed assets

   67,467    361,738

 

4)

The disposition of assets (NT$ Thousand)

 

Description of assets

   October    2006

Semiconductor Manufacturing Equipment

   17    212,831

Fixed assets

   0    0


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Exhibit 99.13

United Microelectronics Corporation Financial Statements With Report of Independent Accountants for the Nine-Month Periods Ended September 30, 2006 And 2005


 

 

UNITED MICROELECTRONICS CORPORATION

FINANCIAL STATEMENTS

WITH REVIEW REPORT OF INDEPENDENT ACCOUNTANTS

FOR THE NINE-MONTH PERIODS ENDED

SEPTEMBER 30, 2006 AND 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Address:

 

No. 3 Li-Hsin Road II, Hsinchu Science Park, Hsinchu City, Taiwan, R.O.C.

Telephone:

 

886-3-578-2258

 

The reader is advised that these financial statements have been prepared originally in Chinese. In the event of a conflict between these financial statements and the original Chinese version or difference in interpretation between the two versions, the Chinese language financial statements shall prevail.


REVIEW REPORT OF INDEPENDENT ACCOUNTANTS

English Translation of a Report Originally Issued in Chinese

To the Board of Directors and Shareholders of

United Microelectronics Corporation

We have reviewed the accompanying balance sheets of United Microelectronics Corporation as of September 30, 2006 and 2005, and the related statements of income and cash flows for the nine-month periods ended September 30, 2006 and 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to issue the review reports based on our reviews. As described in Note 4(10) to the financial statements, certain long-term investments were accounted for under the equity method based on financial statements as of September 30, 2006 and 2005 of the investees, which were reviewed by other auditors. Our review insofar as it relates to the investment income amounting to NT$797 million and NT$474 million for the nine-month periods ended September 30, 2006 and 2005, respectively, and the related long-term investment balances of NT$5,621 million and NT$4,479 million as of September 30, 2006 and 2005, respectively, is based solely on the reports of the other auditors.

We conducted our reviews in accordance with the Statements of Auditing Standards No. 36, “Review of Financial Statements” of the Republic of China. A review is limited primarily to applying analytical procedures to financial data and making inquiries 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 of “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, “Accounting for Financial Instruments” and No. 36, “Disclosure and Presentation of Financial Instruments” to account for the financial instruments.

As described in Note 3 to the financial statements, effective from January 1, 2005, United Microelectronics Corporation has adopted the R.O.C. Statement of Financial Accounting Standards No. 35, “Accounting for Asset Impairment” to account for the impairment of its assets. Effective from January 1, 2006, goodwill is no longer subject to amortization.

 

 

 

October 16, 2006

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.


English Translation of Financial Statements Originally Issued in Chinese

UNITED MICROELECTRONICS CORPORATION

UNAUDITED BALANCE SHEETS

September 30, 2006 and 2005

(Expressed in Thousands of New Taiwan Dollars)

 

        As of September 30,    

Liabilities and Stockholders’ Equity

      As of September 30,  

Assets

  Notes   2006     2005       Notes   2006     2005  

Current assets

       

Current liabilities

     

Cash and cash equivalents

 

2, 4 (1)

  $ 83,003,846     $ 71,791,902    

Short-term loans

 

4 (13)

  $ -     $ 830,250  

Financial assets at fair value through profit or loss, current

 

2, 3, 4 (2)

    8,688,759       2,119,420    

Financial liabilities at fair value through profit or loss, current

 

2, 3, 4 (14)

    1,187,095       82,329  

Available-for-sale financial assets, current

 

2, 3, 4 (3)

    -       1,004,878    

Accounts payable

      4,394,783       4,505,476  

Held-to-maturity financial assets, current

 

2, 3, 4 (4)

    978,240       66,220    

Income tax payable

 

2

    1,589,000       60,422  

Notes receivable

 

4 (5)

    18,524       2,787    

Accrued expenses

      6,528,993       6,431,701  

Notes receivable - related parties

 

5

    53,579       56,463    

Payable on equipment

      8,902,134       3,747,203  

Accounts receivable, net

 

2, 4 (6)

    5,086,587       6,354,359    

Current portion of long-term liabilities

 

2, 4 (15)

    10,393,523       5,250,000  

Accounts receivable - related parties, net

 

2, 5

    9,314,379       6,958,394    

Other current liabilities

      1,412,137       906,397  
                         

Other receivables

 

2

    556,047       664,725    

Total current liabilities

      34,407,665       21,813,778  
                         

Inventories, net

 

2, 4 (7)

    10,787,264       9,381,141          

Prepaid expenses

      690,356       591,088    

Long-term liabilities

     

Deferred income tax assets, current

 

2, 4 (22)

    1,931,193       3,519,989    

Bonds payable

 

2, 4 (15)

    30,565,723       28,500,927  
                                     

Total current assets

      121,108,774       102,511,366    

Total long-term liabilities

      30,565,723       28,500,927  
                                     

Funds and investments

       

Other liabilities

     

Available-for-sale financial assets, noncurrent

 

2, 3, 4 (8)

    34,015,176       5,501,855    

Accrued pension liabilities

 

2, 4 (16)

    3,065,514       3,098,527  

Held-to-maturity financial assets, noncurrent

 

2, 3, 4 (4)

    -       986,176    

Deposits-in

      16,632       20,826  

Financial assets measured at cost, noncurrent

 

2, 3, 4 (9)

    2,265,728       2,298,870    

Deferred credits - intercompany profits

 

2

    3,579       9,806  

Long-term investments accounted for under the equity method

 

2, 3, 4 (10)

    37,719,756       37,245,154    

Other liabilities - others

      560,560       629,723  
                                     

Total funds and investments

      74,000,660       46,032,055    

Total other liabilities

      3,646,285       3,758,882  
                                     

Property, plant and equipment

 

2, 4 (11), 7

     

Total liabilities

      68,619,673       54,073,587  
                         

Land

      1,132,576       1,132,576          

Buildings

      16,311,528       16,001,974    

Capital

     

Machinery and equipment

      386,630,912       360,899,914    

Common stock

 

2, 4 (17), 4 (18), 4 (20)

    190,853,097       197,658,588  

Transportation equipment

      79,248       88,498    

Capital collected in advance

      9,035       5,305  

Furniture and fixtures

      2,325,183       2,182,011    

Capital reserve

 

2, 4 (17)

   
                         

Total cost

      406,479,447       380,304,973    

Premiums

      60,805,219       64,411,138  

Less : Accumulated depreciation

      (284,607,533 )     (240,517,566 )  

Change in equities of long-term investments

      6,632,509       20,720,089  

Add : Construction in progress and prepayments

      17,444,020       13,810,913    

Retained earnings

 

4 (17), 4 (20)

   
                         

Property, plant and equipment, net

      139,315,934       153,598,320    

Legal reserve

      16,699,508       15,996,839  
                         
       

Special reserve

      322,150       1,744,171  

Intangible assets

       

Unappropriated earnings

      12,027,279       5,787,840  

Goodwill

 

2, 3

    3,745,122       3,957,059    

Adjusting items in stockholders’ equity

 

2, 4 (8)

   

Technological know-how

 

2

    278,691       391,112    

Cumulative translation adjustment

      228,201       469,429  
                         

Total intangible assets

      4,023,813       4,348,171    

Unrealized gain or loss on financial
instruments

      19,875,725       (9,458,866 )
                         
       

Treasury stock

 

2, 4 (10), 4 (17), 4 (19)

    (29,394,664 )     (37,082,498 )
                         

Other assets

       

Total stockholders’ equity

      278,058,059       260,252,035  
                         

Deferred charges

 

2

    1,572,453       1,958,664          

Deferred income tax assets, noncurrent

 

2, 4 (22)

    4,710,395       3,815,915          

Other assets - others

 

2, 4 (12), 6

    1,945,703       2,061,131          
                         

Total other assets

      8,228,551       7,835,710          
                         

Total assets

    $ 346,677,732     $ 314,325,622    

Total liabilities and stockholders’ equity

    $ 346,677,732     $ 314,325,622  
                                     

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


English Translation of Financial Statements Originally Issued in Chinese

UNITED MICROELECTRONICS CORPORATION

UNAUDITED STATEMENTS OF INCOME

For the nine-month periods ended September 30, 2006 and 2005

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

 

          For the nine-month period ended September 30,  
     Notes    2006     2005  

Operating revenues

  

2, 5

         

Sales revenues

      $         76,634,926     $        63,359,239  

Less : Sales returns and discounts

          (843,772 )        (1,329,963 )
                   

Net sales

          75,791,154          62,029,276  

Other operating revenues

          2,195,672          1,278,147  
                   

Net operating revenues

          77,986,826          63,307,423  
                   

Operating costs

  

4 (21), 5

         

Cost of goods sold

          (61,395,325 )        (56,628,264 )

Other operating costs

          (1,400,045 )        (503,115 )
                   

Operating costs

          (62,795,370 )        (57,131,379 )
                   

Gross profit

          15,191,456          6,176,044  

Unrealized intercompany profit

  

2

       (71,416 )        (107,954 )

Realized intercompany profit

  

2

       120,153          154,417  
                   

Gross profit-net

          15,240,193          6,222,507  
                   

Operating expenses

  

4(21), 5

         

Sales and marketing expenses

          (2,055,704 )        (1,668,483 )

General and administrative expenses

          (1,890,423 )        (2,175,558 )

Research and development expenses

          (6,542,455 )        (5,975,207 )
                   

Subtotal

          (10,488,582 )        (9,819,248 )
                   

Operating income (loss)

          4,751,611          (3,596,741 )
                   

Non-operating income

            

Interest revenue

  

2, 5

       1,092,472          643,405  

Investment gain accounted for under the equity method, net

  

2, 4 (10)

       1,403,134          -  

Dividend income

          842,222          764,728  

Gain on disposal of property, plant and equipment

  

2

       133,182          53,326  

Gain on disposal of investments

  

2

       23,073,639          8,572,950  

Exchange gain, net

  

2

       182,188          212,008  

Gain on recovery of market value of inventories

  

2

       -          548,230  

Gain on valuation of financial liabilities

  

2

       110,755          -  

Other income

          609,260          530,176  
                   

Subtotal

          27,446,852          11,324,823  
                   

Non-operating expenses

            

Interest expense

  

4 (11)

       (534,529 )        (653,562 )

Investment loss accounted for under the equity method, net

  

2, 4 (10)

       -          (2,761,674 )

Loss on disposal of property, plant and equipment

  

2

       (31,400 )        (64,799 )

Loss on decline in market value and obsolescence of inventories

  

2

       (426,296 )        -  

Financial expenses

          (197,721 )        (212,911 )

Impairment loss

  

2, 4 (10)

       (21,807 )        -  

Loss on valuation of financial assets

  

2

       (580,050 )        -  

Other losses

          (50,845 )        (51,723 )
                   

Subtotal

          (1,842,648 )        (3,744,669 )
                   

Income from continuing operations before income tax

          30,355,815          3,983,413  

Income tax expense

  

2, 4 (22)

       (2,237,071 )        (662 )
                   

Net income from continuing operations

          28,118,744          3,982,751  

Cumulative effect of changes in accounting principles
(the net amount after deducted tax expense $0)

  

3

       (1,188,515 )        -  
                   

Net income

      $         26,930,229     $        3,982,751  
                   
          Pre-tax     Post-tax     Pre-tax    Post-tax  

Earnings per share-basic (NTD)

  

2, 4 (23)

         

Income from continuing operations

      $ 1.67     $ 1.55     $ 0.21    $ 0.21  

Cumulative effect of changes in accounting principles

        (0.07 )     (0.07 )     -      -  
                                  

Net income

      $ 1.60     $ 1.48     $ 0.21    $ 0.21  
                                  

Earnings per share-diluted (NTD)

  

2, 4 (23)

         

Income from continuing operations

      $ 1.61     $ 1.49     $ 0.21    $ 0.21  

Cumulative effect of changes in accounting principles

        (0.06 )     (0.06 )     -      -  
                                  

Net income

      $ 1.55     $ 1.43     $ 0.21    $ 0.21  
                                  

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

  

2, 4 (23)

         

Net income

      $         26,930,229     $        3,982,751  
                   

Earnings per share-basic (NTD)

      $         1.48     $        0.20  
                   

Earnings per share-diluted (NTD)

      $         1.42     $        0.20  
                   

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


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, 2006 and 2005

(Expressed in Thousands of New Taiwan Dollars)

 

     For the nine-month period ended September 30,  
     2006     2005  

Cash flows from operating activities:

    

Net income

   $ 26,930,229     $ 3,982,751  

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

    

Depreciation

     32,955,266       34,064,535  

Amortization

     1,335,126       1,721,927  

Bad debt expenses (reversal)

     21,773       (120,266 )

Loss (gain) on decline (recovery) in market value and obsolescence of inventories

     426,296       (548,230 )

Cash dividends received under the equity method

     1,076,020       724,511  

Investment (gain) loss accounted for under the equity method

     (1,403,134 )     2,761,674  

Loss on valuation of financial assets and liabilities

     1,657,810       -  

Impairment loss

     21,807       -  

Gain on disposal of investments

     (23,073,639 )     (8,572,950 )

Loss (gain) on disposal of property, plant and equipment

     (101,782 )     11,473  

Exchange gain on financial assets and liabilities

     (5,132 )     (8,592 )

Exchange loss on long term liabilities

     117,221       143,898  

Amortization of bond discounts

     71,856       -  

Amortization of deferred income

     (62,523 )     (55,974 )

Changes in assets and liabilities:

    

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

     (6,743,256 )     83,111  

Notes and accounts receivable

     (2,096,025 )     (1,677,615 )

Other receivables

     216,323       (111,614 )

Inventories

     (1,211,925 )     324,578  

Prepaid expenses

     (265,613 )     (275,113 )

Accounts payable

     (750,999 )     (232,167 )

Accrued expenses

     1,470,243       (2,194,935 )

Other current liabilities

     342,067       (64,207 )

Capacity deposits

     5,000       (171,699 )

Accrued pension liabilities

     61,736       408,017  

Other liabilities - others

     729,957       229,690  
                

Net cash provided by operating activities

     31,724,702       30,422,803  
                

Cash flows from investing activities:

    

Cash proceeds from merger

     -       943,862  

Acquisition of available-for-sale financial assets

     (296,823 )     (318,396 )

Proceeds from disposal of available-for-sale financial assets

     11,134,765       6,266,207  

Proceeds from disposal of held-to-maturity financial assets

     -       639,520  

Acquisition of financial assets measured at cost

     -       (385,477 )

Proceeds from disposal of financial assets measured at cost

     31,188       33,423  

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

     (5,687,363 )     (2,663,676 )

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

     7,801,029       3,318,016  

Proceeds from liquidation of long-term investments

     -       95,090  

Acquisition of property, plant and equipment

     (18,718,724 )     (11,379,767 )

Proceeds from disposal of property, plant and equipment

     237,966       120,175  

Increase in deferred charges

     (860,846 )     (1,058,709 )

Decrease (increase) in other assets - others

     71,842       (114,149 )

Increase in other receivables

     -       (5,137,760 )
                

Net cash used in investing activities

     (6,286,966 )     (9,641,641 )
                


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, 2006 and 2005

(Expressed in Thousands of New Taiwan Dollars)

 

     For the nine-month period
ended September 30,
 
     2006     2005  

(continued)

    

Cash flows from financing activities:

    

Decrease in short-term loans, net

   $ -     $ (1,074,150 )

Repayment of long-term loans

     -       (16,153,714 )

Redemption of bonds

     (5,250,000 )     (2,820,004 )

Decrease in deposits-in, net

     (4,197 )     (1,258 )

Cash dividends

     (7,155,864 )     (1,758,736 )

Payment of employee bonus

     (305,636 )     -  

Remuneration paid to directors and supervisors

     (6,324 )     (27,005 )

Exercise of employee stock options

     999,128       1,133,330  

Purchase of treasury stock

     (27,286,340 )     (11,575,235 )
                

Net cash used in financing activities

     (39,009,233 )     (32,276,772 )
                

Effect of exchange rate changes on cash and cash equivalents

     (21,280 )     (59,817 )
                

Decrease in cash and cash equivalents

     (13,592,777 )     (11,555,427 )

Cash and cash equivalents at beginning of period

     96,596,623       83,347,329  
                

Cash and cash equivalents at end of period

   $ 83,003,846     $ 71,791,902  
                

Supplemental disclosures of cash flow information:

    

Cash paid for interest

   $ 777,632     $ 1,144,137  
                

Cash refunded for income tax

   $ 1,080     $ 11,836  
                

Investing activities partially paid by cash:

    

Acquisition of property, plant and equipment

   $ 22,342,995     $ 8,849,034  

Add: Payable at beginning of period

     5,277,863       4,704,299  

 Payable transferred in from the Branch at beginning of period

     -       1,573,637  

Less: Payable at end of period

     (8,902,134 )     (3,747,203 )
                

Cash paid for acquiring property, plant and equipment

   $ 18,718,724     $ 11,379,767  
                

Investing and financing activities not affecting cash flows:

    

Principal amount of exchangeable bonds exchanged by bondholders

   $ 69,621     $ -  

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

     (20,242 )     -  

Elimination of related balance sheet accounts

     15,302       -  
                

Recognition of gain on disposal of investments

   $ 64,681     $ -  
                

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


UNITED MICROELECTRONICS CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

September 30, 2006 and 2005

(Expressed in Thousands of New Taiwan Dollars unless Otherwise Specified)

 

1.

HISTORY AND ORGANIZATION

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 individual customer needs. These services include intellectual property, embedded IC design, design verification, mask tooling, wafer fabrication, and testing. The Company’s common shares were publicly listed on the Taiwan Stock Exchange (TSE) in July 1985 and its American Depositary Shares (ADSs) were listed on the New York Stock Exchange (NYSE) in September 2000.

Based on the resolution of the board of directors’ meeting on February 26, 2004, the effective date of the Company’s merger with SiS MICROELECTRONICS CORP. (SiSMC) was July 1, 2004. The Company was the surviving company, and SiSMC was the dissolved company. The merger was approved by the relevant government authorities. All the assets, liabilities, rights, and obligations of SiSMC have been fully incorporated into the Company since July 1, 2004.

Based on the resolution of the board of directors’ meeting on August 26, 2004, UMCI LTD. had transferred its businesses, operations, and assets to the Company’s Singapore branch (“the Branch”) since April 1, 2005.

 

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements were prepared in conformity with the “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 translated into New Taiwan Dollars at the exchange rates prevailing at the transaction dates. Receivables, other monetary assets, and liabilities denominated in foreign currencies are translated into New Taiwan Dollars at the exchange rates prevailing at the balance sheet date. Exchange gains or losses are included in the current reporting periods results. However, exchange gains or losses from investments in foreign entities are recognized as cumulative translation adjustments in stockholders’ equity.


Non-currency assets and liabilities denominated in foreign currencies and marked to market with changes in market value charged to the statement of income, are valued at the spot exchange rate at the balance sheet date, with arising exchange gains or losses recognized in the current reporting period. For similar assets and liabilities where the changes in market value are charged to stockholders’ equity, the spot exchange rate at the balance sheet date is used and any resulting exchange gains or losses are recorded as adjustment items to stockholders’ equity. The exchange rate at the date of transaction is used to record non-currency assets and liabilities which are denominated in foreign currencies and measured at cost.

Translation of Foreign Currency Financial Statements

The financial statements of the Branch are translated into New Taiwan Dollars using the spot rates as of each financial statement date for asset and liability accounts, 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

Based on the R.O.C. Statement of Financial Accounting Standard (SFAS) No. 34, “Accounting for Financial Instruments” and the “Guidelines Governing the Preparation of Financial Reports by Securities Issuers”, financial assets are classified as financial assets at fair value through profit or loss, held-to-maturity financial assets, financial assets measured at cost, and available-for-sale financial assets. Financial liabilities are classified as financial liabilities at fair value through profit or loss.

The Company’s purchases and sales of financial assets and liabilities are recognized on the trade date, the date that Company commits to purchasing or selling the asset and liability. Financial assets and financial liabilities are initially recognized at fair value plus the acquisition or issuance costs. Accounting policies prior to, and including, December 31, 2005 are described in Note 3.

 

 

a.

Financial assets and financial liabilities at fair value through profit or loss

Financial assets and financial liabilities held for short-term sale or repurchase purposes, and derivative financial instruments not qualified for hedging purposes are classified as either financial assets or financial liabilities at fair value through profit or loss.


Financial assets or financial liabilities are subsequently measured at fair value and changes in fair value are recognized as profit or loss. Stocks of listed companies, convertible bonds, and close-end funds are measured at closing prices at the balance sheet date. Open-end funds are measured at the unit price of the net assets at the balance sheet date. The fair value of derivative financial instruments is determined by using valuation techniques commonly used by market participants to price the instrument.

 

 

b.

Held-to-maturity financial assets

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity where the Company has the positive intention and ability to hold to maturity. Investments that are intended to be held to maturity are subsequently measured at amortized cost.

If there is any objective evidence of impairment, impairment loss is recognized by the Company. If subsequently the impairment loss has recovered, and such recovery is evidently related to improvements in events or factors that have originally caused the impairment loss, the Company shall reverse the amount, which will be recorded as profit in the current period. The new cost basis as a result of the reversal shall not exceed the amortized cost prior to the impairment.

 

 

c.

Financial assets measured at cost

Unlisted stocks, funds, and others without reliable market prices are measured at cost. Where objective evidence of impairment exists, the Company shall recognize impairment loss, which shall not be reversed in subsequent periods.

 

 

d.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets neither classified as financial assets at fair value through profit or loss, nor held-to-maturity financial assets, loans and receivables. Subsequent measurement is measured at fair value. Stocks of listed companies are measured at closing prices at the balance sheet date. The gain or loss arising from the change in fair value, excluding impairment loss and exchange gain or loss, 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 income statement.

The Company recognizes impairment loss when there is any objective evidence of impairment. Any reduction in the loss of equity investments in subsequent periods will be recognized as an adjustment to stockholders’ equity. For debt instruments, if the reduction is clearly related to improvements in the factors or events that have originally caused the impairment, the amount shall be reversed and recognized in the current period’s statement of income.


Allowance for Doubtful Accounts

The allowance for doubtful accounts is provided based on management’s judgment and on the evaluation of 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 at the lower of aggregate cost or market value at the balance sheet date. The market values of raw materials and supplies are determined on the basis of replacement cost while the work in process and finished goods are determined by net realizable values. An allowance for loss on decline in market value and 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.

Investment income or loss from investments in both listed and unlisted investees is accounted for under the equity method provided that the Company owns at least 20% of the outstanding voting rights of the investees or has significant influence on operating decisions of the investees. The difference of the acquisition cost and the underlying equity in the investee’s net assets is amortized over 5 years. However, effective from January 1, 2006, such a difference is no longer amortized. Arising differences from new acquisitions are analyzed and accounted for in the manner similar to the allocation of acquisition cost as provided in the R.O.C. SFAS No. 25, “Business Combination – Accounting Treatment under Purchase Method”, where goodwill is not subject to amortization.

The change in the Company’s proportionate share in the net assets of its investee resulting from its subscription to additional stock, issued by such investee, at a rate not proportionate to its existing equity ownership in such investee, is charged to the capital reserve and long-term investments account.

Unrealized intercompany gains and losses arising from downstream transactions with investees accounted for under the equity method are eliminated in proportion to the Company’s ownership percentage, while those from transactions with majority-owned (above 50%) subsidiaries are eliminated entirely.


Unrealized intercompany gains and losses arising from upstream transactions with investees accounted for under the equity method are eliminated in proportion to the Company’s ownership percentage. Unrealized intercompany gains and losses arising from transactions between investees accounted for under the equity method are eliminated in proportion to the Company’s ownership percentage, while those arising from transactions between majority-owned subsidiaries are eliminated in proportion to the Company’s ownership percentage in the subsidiary incurred with a 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.

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 recognized as expense as incurred. Significant renewals and improvements are treated as capital expenditure and are depreciated accordingly. When property, plant and equipment are disposed, their original cost and accumulated depreciation shall be written off and the related gain or loss is classified as non-operating income or expenses. Idle assets are transferred to other assets according to the lower of net book or net realizable value, with the difference charged to non-operating expenses.

Depreciation is provided on a straight-line basis using the estimated economic life of the assets less salvage value, if any. When the estimated economic life expires, property, plant and equipment which are still in use, are depreciated over the newly estimated remaining useful life using the salvage value. 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 from January 1, 2006, goodwill generated from consolidation 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.

The Company assesses whether there is any indication of impairment other than temporary. If any such indication exists, the recoverable amount is estimated and impairment loss is recognized accordingly. 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 - the term of contract or estimated economic life of the related technology; and software - 3 years.

Prior to, and including December 31, 2005, the issuance costs of convertible and exchangeable bonds were classified as deferred charges and amortized over the life of the bonds. Since January 1, 2006, the amortized amounts as of December 31, 2005 were reclassified as discount of bonds as a deduction to bonds payable. The amounts are amortized based on the interest method during remaining life of the bonds. Where the difference between straight-line method and interest method is slight, the bond discounts shall be amortized based on the straight-line method.

The Company assesses whether there is any indication of other than temporary impairment. If any such indication exists, the recoverable amount is estimated and impairment loss is recognized accordingly. The book value after recognizing the impairment loss is recorded as the new cost basis.

Convertible and Exchangeable Bonds

The excess of the stated redemption price over the par value is accrued as compensation interest payable over the redemption period, using the effective interest method.

When convertible bondholders exercise their conversion rights, the book value of bonds is credited to common stock at an amount equal to the par value of the common stock and the excess is credited to the capital reserve; no gain or loss is recognized on bond conversion.

When exchangeable bondholders exercise their rights to exchange for the reference shares, the book value of the bonds is to be offset against the book value of the investments in reference shares and the related stockholders’ equity accounts, with the difference recognized as gain or loss on disposal of investments.

Based on the R.O.C. SFAS No. 34, “Accounting for Financial Instruments”, as of January 1, 2006, derivative financial instruments embedded in convertible bonds shall be bifurcated and accounted as financial liabilities with changes in market value recognized in earnings if the economic and risk characteristics of the embedded derivative instrument and the host contract are not clearly and closely related.


Pension Plan

All regular employees are entitled to a defined benefit pension plan that is managed by an independently administered pension fund committee within the Company. The fund is deposited under the committee’s name in the Central Trust of China and hence, not associated with the Company. Therefore the fund shall not 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. In accordance with the Act, employees may choose to elect either the Act, by retaining their seniority before the enforcement of the Act, or the pension mechanism of the Labor Standards Law. For employees who elect the Act, the Company will make monthly contributions of no less than 6% of the employees’ monthly wages to the employees’ individual pension accounts.

The accounting for pension is computed in accordance with the R.O.C. SFAS No. 18. For the defined benefit pension plan, the net pension cost is calculated based on an actuarial valuation, and 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. For the defined contribution pension plan, the Company recognizes the pension amount as expense in the period in which the contribution becomes due.

Employee Stock Option Plan

The Company applies the intrinsic value method to recognize the difference between the market price of the stock and the exercise price of its employee stock option as compensation cost. Starting January 1, 2004, the Company also discloses pro forma net income and earnings per share under the fair value method only for options granted since January 1, 2004.

Treasury Stock

The Company adopted the R.O.C. SFAS No. 30, “Accounting for Treasury Stocks”, which requires that treasury stock held by the Company to be accounted for under the cost method. Cost of treasury stock is shown as a deduction to stockholders’ equity, while gain or loss from selling treasury stock is treated as an adjustment to capital reserve. The Company’s stock held by its subsidiaries is also treated as treasury stock in the Company’s account.

Revenue Recognition

The main sales term of the Company is Free on Board (FOB) or Free Carrier (FCA). Revenue is recognized when the ownership and risk of the products have been transferred to customers and the possibility of sales collection is reasonably assured. Allowance for sales returns and discounts is estimated based on customer complaints and historical experiences. Such provisions are recognized in the reporting period the products are sold.


Capital Expenditure versus Operating Expenditure

Expenditure shall be capitalized when it is probable that future economic benefits associated with the expenditure will flow to the Company and the expenditure amount exceeds a predetermined level. Otherwise it is charged as expense when incurred.

Income Tax

The Company adopted the R.O.C. SFAS No. 22, “Accounting for Income Taxes” for inter-period and intra-period income tax allocation. Provision for income tax includes deferred income tax resulting from temporary differences, loss carry-forward and investment tax credits. Deferred income tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements using enacted tax rates and laws that will be in effect when the difference is expected to reverse. 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 R.O.C. 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. The IBTA is a supplemental tax at 10% (set up by the Executive Yuan) that is payable if the income tax payable pursuant to the R.O.C. Income Tax Act is below the minimum amount as prescribed by the IBTA, and is calculated based on taxable income defined under 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 the R.O.C. 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. The net income (loss) would also be adjusted for the interest and other income or expenses derived from any underlying dilutive share equivalents. The weighted-average outstanding shares are adjusted retroactively for stock dividends and bonus share issues.


Asset Impairment

Pursuant to the R.O.C. 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 carrying amount with the recoverable amount of the assets or the cash-generating unit (CGU) 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, whether there is any indication that the impairment loss may no longer exist or may have diminished. If there is any such indication, the Company recalculates the recoverable amount of the asset. If the recoverable amount increases as a result of the increase in the estimated service potential of the assets, the Company reverses the impairment loss such that the resulting carrying amount of the asset shall not exceed the amount (net of amortization or depreciation), that would otherwise result had no impairment loss been recognized for the assets in prior years.

In addition, a goodwill-allocated CGU or group of CGUs is tested for impairment each year, regardless of whether impairment is indicated. If an impairment test reveals that the carrying amount (including goodwill) of CGU or group of CGUs is greater than its recoverable amount, there is an impairment loss. In allocating impairment losses, the portion of goodwill allocated is to be written down first. After goodwill has been written off, the remaining impairment loss, if any, is to be shared among other assets pro rata to their carrying amount. The write-down in goodwill cannot be reversed under any circumstance in subsequent periods.

Impairment loss (reversal) is classified as non-operating losses (income).

 

3.

ACCOUNTING CHANGE

Asset Impairment

The Company adopted the R.O.C. SFAS No. 35, “Accounting for Asset Impairment” to account for the impairment of its assets for its financial statements effective on January 1, 2005. No retroactive adjustment is required under the standard. Such a change in accounting principles did not have any impact on the Company’s net income, basic earnings per share after tax for the nine-month period ended September 30, 2005 as well as the total assets as of September 30, 2005.

Goodwill

The Company adopted the amendments to the R.O.C. 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”, which have all discontinued the amortization of goodwill effective on January 1, 2006. The above changes in accounting principles has increased the Company’s total assets as of September 30, 2006 by NT$644 million, and increased the Company’s net income and earnings per share by NT$644 million and NT$0.04 , respectively, for the nine-month period ended September 30, 2006.


Financial Instruments

 

(1)

The Company adopted the R.O.C. SFAS No. 34, “Accounting for Financial Instruments” and SFAS No. 36, “Disclosure and Presentation of Financial Instruments” to account for the financial instruments for its financial statements beginning on and after January 1, 2006. Some items have already been reclassified according to the R.O.C. “Guidelines Governing the Preparation of Financial Reports by Securities Issuers”, SFAS No. 34 and No. 36 for the nine-month period ended September 30, 2005.

 

 

(2)

The accounting policies prior to, and including, December 31, 2005 are as follows:

 

a.

Marketable Securities

Marketable securities are recorded at cost at acquisition and are stated at the lower of aggregate cost or market value at the balance sheet date. Cash dividends are recognized as dividend income at the point of receipt. Costs of money market funds and short-term notes are identified specifically while other marketable securities are determined by the weighted-average method. The market values of listed debts, equity securities and closed-end funds are determined by the average closing price during the last month of the fiscal year. The market value for open-end funds is determined by the net asset value at the balance sheet date. The amount by which the aggregate cost exceeds the market value is reported as a loss in the current year. In subsequent periods, recoveries of the market value are recognized as a gain to the extent that the market value does not exceed the original aggregate cost of the investment.

 

 

b.

Long-Term Investment – Cost Method or Lower of Cost or Market Value Method

Investments of less than 20% of the outstanding voting rights in listed investees, where significant influence on operating decisions of the investees does not reside with the Company, are accounted for by the lower of aggregate cost or market value method. The unrealized loss resulting from the decline in market value of investments that are held for the purpose of long-term investment is deducted from the stockholders’ equity. The market value at the balance sheet date is determined by the average closing price during the last month of the reporting period. Investments of less than 20% of the outstanding voting rights in unlisted investees are accounted for under the cost method. Impairment losses for the investees will be recognized if an other than temporary impairment is evident and the book value after recognizing the losses shall be treated as the new cost basis of such investment.

 

 

c.

Derivative Financial Instruments

The net receivables or payables resulting from interest rate swap and forward contracts were recorded under current assets or current liabilities before December 31, 2005.


 

(3)

The above changes in accounting principles increased the Company’s total assets, total liabilities, and stockholders’ equity as of January 1, 2006 by NT$23,648 million, NT$1,326 million, and NT$22,322 million, respectively; and resulted in an unfavorable cumulative effect of changes in accounting principles of NT$1,189 million to be deducted from net income, thereby reducing earnings per share by NT$0.07 for the nine-month period ended September 30, 2006.

 

4.

CONTENTS OF SIGNIFICANT ACCOUNTS

 

 

(1)

CASH AND CASH EQUIVALENTS

 

     As of September 30,
     2006    2005

Cash:

     

Cash on hand

   $1,912        $1,705    

Checking and savings accounts

   3,364,090        1,595,213    

Time deposits

   72,273,801        61,325,143    
         

Subtotal

   75,639,803        62,922,061    
         

Cash equivalents:

     

Government bonds acquired under repurchase agreements

   7,364,043        8,869,841    
         

Total

   $83,003,846        $71,791,902    
         

 

 

(2)

FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS, CURRENT

 

     As of September 30,

Held for trading

   2006    2005

Listed stocks

   $8,232,992        $628,747    

Convertible bonds

   400,584        1,490,673    

Open-end funds

   55,183        —      
         

Total

   $8,688,759        $2,119,420    
         

During the nine-month period ended September 30, 2006, net loss arising from the changes in fair value of financial assets at fair value through profit or loss, current, was NT$529 million.

 

 

(3)

AVAILABLE-FOR-SALE FINANCIAL ASSET, CURRENT

 

     As of September 30,
     2006    2005

Common stock

   $-        $1,004,878    
         


 

(4)

HELD-TO-MATURITY FINANCIAL ASSETS

 

     As of September 30,
     2006    2005

Credit-linked deposits and repackage bonds

   $978,240        $1,052,396    

Less: Non-current portion

   -        (986,176)   
         

Total

   $978,240        $66,220    
         

 

 

(5)

NOTES RECEIVABLE

 

     As of September 30,
     2006    2005

Notes receivable

   $18,524        $2,787    
         

 

 

(6)

ACCOUNTS RECEIVABLE, NET

 

     As of September 30,
     2006    2005

Accounts receivable

   $5,373,375        $6,458,803    

Less: Allowance for sales returns and discounts

   (226,685)       (7,345)   

Less: Allowance for doubtful accounts

   (60,103)       (97,099)   
         

Net

   $5,086,587        $6,354,359    
         

 

 

(7)

INVENTORIES, NET

 

     As of September 30,
     2006    2005

Raw materials

   $1,245,632        $281,061    

Supplies and spare parts

   1,693,410        1,704,681    

Work in process

   7,733,348        7,985,061    

Finished goods

   731,037        387,012    
         

Total

   11,403,427        10,357,815    

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

   (616,163)       (976,674)   
         

Net

   $10,787,264    $9,381,141
         

Inventories were not pledged.


 

(8)

AVAILABLE-FOR-SALE FINANCIAL ASSETS, NONCURRENT

 

     As of September 30,
     2006    2005

Common stock

   $34,015,176        $5,501,855    
         

The Company recognized net loss of NT$1,740 million due to the changes in fair value as an adjustment to stockholders’ equity for the nine-month period ended September 30, 2006.

 

 

(9)

FINANCIAL ASSETS MEASURED AT COST, NONCURRENT

 

     As of September 30,
     2006    2005

Common stock

   $1,458,246        $1,458,246    

Preferred stock

   300,000        300,000    

Funds

   507,482        540,624    
         

Total

   $2,265,728        $2,298,870    
         

 

 

(10)

LONG-TERM INVESTMENTS ACCOUNTED FOR UNDER THE EQUITY METHOD

 

a.

Details of long-term investments accounted for under the equity method are as follows:

 

    As of September 30,
    2006   2005

                Investee Company

  Amount   Percentage of
Ownership or
Voting Rights
  Amount   Percentage of
Ownership or
Voting Rights

Listed companies

       

UMC JAPAN

  $6,090,751       50.09       $7,051,351       48.95    

HOLTEK SEMICONDUCTOR INC.

  819,670       24.48       747,910       24.88    

ITE TECH. INC.

  333,566       22.00       301,000       23.78    

UNIMICRON TECHNOLOGY CORP.

  4,556,547       20.09       3,731,268       20.83    

FARADAY TECHNOLOGY CORP.
(Note A)

  -       -       816,914       18.33    

SILICON INTEGRATED SYSTEMS
CORP. (Note A)

  -       -       4,098,440       16.50    

NOVATEK MICROELECTRONICS
CORP. (Note A)

  -       -       1,221,906       11.80    
           

Subtotal

  11,800,534         17,968,789      
           


    As of September 30,
    2006   2005

                Investee Company

  Amount   Percentage of
Ownership or
Voting Rights
  Amount   Percentage of
Ownership or
Voting Rights

Unlisted companies

       

UMC GROUP (USA)

  $910,626       100.00       $684,830       100.00    

UNITED MICROELECTRONICS (EUROPE) B.V.

  287,065       100.00       286,536       100.00    

UMC CAPITAL CORP.

  2,181,505       100.00       1,366,315       100.00    

UNITED MICROELECTRONICS CORP. (SAMOA)

  10,442       100.00       15,020       100.00    

UMCI LTD. (Note B)

  91       100.00       9,440       100.00    

TLC CAPITAL CO., LTD.

  6,334,183       100.00       -       -    

FORTUNE VENTURE CAPITAL CORP. (Note C)

  8,014,345       99.99       4,282,373       99.99    

UNITED MICRODISPLAY OPTRONICS CORP.

  219,537       86.72       361,689       86.72    

PACIFIC VENTURE CAPITAL CO., LTD.

  280,145       49.99       287,236       49.99    

MEGA MISSION LIMITED PARTNERSHIP

  2,332,509       45.00       —         —      

UNITECH CAPITAL INC.

  836,129       42.00       692,177       42.00    

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

  4,144,049       36.49       9,933,386       99.97    

THINTEK OPTRONICS CORP. (THINTEK)
(Notes E, F)

  4,152       27.82       26,047       14.26    

HIGHLINK TECHNOLOGY CORP. (HIGHLINK)
(Notes E, F)

  244,776       18.99       -       -    

XGI TECHNOLOGY INC. (Note E)

  61,576       16.50       224,613       16.54    

AMIC TECHNOLOGY CORP. (Note E)

  58,092       11.86       52,290       11.86    

TOPPAN PHOTOMASKS TAIWAN LTD.
(formerly DUPONT PHOTOMASKS
TAIWAN LTD.)

  -       -       1,054,413       45.35    
           

Subtotal

  25,919,222         19,276,365      
           

Total

  $37,719,756         $37,245,154      
           

 

 

Note A:

In the beginning of 2006 as the Company determined it did not have significant influence over the investee, and in compliance with the R.O.C. SFAS No. 34, the investment in the investee was classified as available-for-sale financial asset.

 

 

Note B:

Based on the resolution of the board of directors’ meeting on August 26, 2004, UMCI has transferred its business, operations, and assets to the Branch since April 1, 2005.

 

 

Note C:

As of September 30, 2006 and 2005, the cost of investment was NT$8,186 million and NT$4,454 million, respectively. After deducting the Company’s stock held by the subsidiary (treated as treasury stock by the Company) of NT$172 million in both years, the residual book values totalled NT$8,014 million and NT$4,282 million as of September 30, 2006 and 2005, respectively.


 

Note D:

As of January 27, 2006, the Company sold 58,500 thousand shares of HSUN CHIEH. The share ownership decreased from 99.97% to 36.49%. As the company ceased to be a subsidiary, the Company’s stock held by HSUN CHIEH was no longer treated as treasury stock. Consequently, the effect on the Company’s long-term investment accounted for under the equity method and stockholders’ equity simultaneously amounted to NT$10,881 million.

 

 

    

The ending balance as of September 30, 2005 of NT$30,070 million was computed by deducting the Company’s stock held by the investee (treated as treasury stock by the Company), amounting NT$20,137 million from the cost of investment balance at period-end of NT$9,933 million.

 

 

Note E:

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

 

 

Note F:

The book value of the Company’s investment in THINTEK and HIGHLINK exceeded the net equity by NT$14 million and NT$8 million, respectively. Equivalent amounts of impairment have been accordingly recognized.

 

 

b.

Total gain (loss) arising from investments accounted for under the equity method, based on the reviewed financial statements of the investees, were NT$1,403 million and NT$2,762 million for the nine-month periods ended September 30, 2006 and 2005, respectively. Among which, investment income amounting to NT$797 million and NT$474 million for the nine-month periods ended September 30, 2006 and 2005, respectively, and the related long-term investment balances of NT$5,621 million and NT$4,479 million as of September 30, 2006 and 2005, respectively, were determined based on the investees’ financial statements reviewed by other auditors.

 

 

c.

The long-term equity investments were not pledged.

 

 

(11)

PROPERTY, PLANT AND EQUIPMENT

 

     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    
                


     As of September 30, 2005
     Cost    Accumulated
Depreciation
   Book Value

Land

     $1,132,576          $-          $1,132,576    

Buildings

     16,001,974          (4,487,400)         11,514,574    

Machinery and equipment

     360,899,914          (234,520,219)         126,379,695    

Transportation equipment

     88,498          (60,199)         28,299    

Furniture and fixtures

     2,182,011          (1,449,748)         732,263    

Construction in progress and prepayments

     13,810,913          -          13,810,913    
                    

Total

   $ 394,115,886          $(240,517,566)       $ 153,598,320    
                    

 

 

a.

Total interest expense before capitalization amounted to NT$535 million and NT$894 million for the nine-month periods ended September 30, 2006 and 2005, respectively.

Details of capitalized interest are as follows :

 

     For the nine-month period ended September 30,
             2006            2005

Machinery and equipment

   $-        $235,855    

Other property, plant and equipment

   -        4,397    
         

Total interest capitalized

   $-        $240,252    
         

Interest rates applied

   -        2.86%~4.20%    
         

 

 

b.

The property, plant, and equipment were not pledged.

 

 

(12)

OTHER ASSETS-OTHERS

 

     As of September 30,
     2006    2005

Leased assets

   $ 1,344,464        $ 1,362,190    

Deposits-out

     542,121          579,823    

Others

     59,118          119,118    
             

Total

   $ 1,945,703        $ 2,061,131    
             

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

 

 

(13)

SHORT-TERM LOANS

 

     As of September 30,
             2006            2005

Unsecured bank loans

   $-        $830,250    
         

Interest rates

   -        3.22%~3.93%    
         


The Company’s unused short-term lines of credits amounted to NT$8,391 million and NT$8,237 million as of September 30, 2006 and 2005, respectively.

 

 

(14)

FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS, CURRENT

 

     As of September 30,
     2006    2005

Interest rate swaps

   $610,545        $53,346    

Derivatives embedded in exchangeable bonds

   576,550        -    

Forward contracts

   -        28,983    
         

Total

   $1,187,095        $82,329    
         

 

 

a.

During the nine-month period ended September 30, 2006, net gain arising from the changes in fair value of financial liabilities at fair value through profit or loss, current, was NT$105 million.

 

 

b.

As of September 30, 2006, interest receivable arising from credit-linked deposits, as well as the derivative financial liabilities embedded therein, both amounted to NT$10 million. The resulting net value was therefore NT$0.

 

 

(15)

BONDS PAYABLE

 

     As of September 30,
     2006    2005

Unsecured domestic bonds payable

   $25,250,000        $30,500,000    

Convertible bonds payable

   12,635,782        -    

Exchangeable bonds payable

   3,170,872        3,250,927    

Less: discounts on bonds payable

   (97,408)       -    
         

Total

   40,959,246        33,750,927    

Less: Current portion

   (10,393,523)       (5,250,000)   
         

Net

   $30,565,723        $28,500,927    
         

 

 

a.

On April 27, 2000, the Company issued five-year secured bonds amounting to NT$3,990 million. The interest was paid semi-annually with a stated interest rate of 5.6%. The bonds were repayable in installments every six months from April 27, 2002 to April 27, 2005. On April 27, 2005, the bonds were fully repaid.


 

b.

During the period from April 16 to April 27, 2001, the Company issued five-year and seven-year unsecured bonds totaling NT$15,000 million, each with a face value of NT$7,500 million. The interest is paid annually with stated interest rates of 5.1195% through 5.1850% and 5.2170% through 5.2850%, respectively. The five-year bonds and seven-year bonds are repayable starting from April 2004 to April 2006 and April 2006 to April 2008, respectively, both in three yearly installments at the rates of 30%, 30% and 40%. On April 27, 2006, the five-year bonds were fully repaid.

 

 

c.

During the period from October 2 to October 15, 2001, the Company issued three-year and five-year unsecured bonds totaling NT$10,000 million, each with a face value of NT$5,000 million. The interest is paid annually with stated interest rates of 3.3912% through 3.420% and 3.4896% through 3.520%, respectively. The three-year bonds were repaid at 100% of its principal amount during the period from October 2 to October 15, 2004. The five-year bonds will be repayable in October 2006, upon the maturity of the bonds.

 

 

d.

On May 10, 2002, the Company issued LSE listed zero coupon exchangeable bonds. 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 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.


 

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 AU OPTRONICS CORP.

 

 

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, 2006 and 2005, certain bondholders have exercised their rights to exchange their bonds with the total principal amount of US$139 million and US$137 million into AUO shares, respectively. Gains arising from the exercise of exchange rights during the nine-month period ended September 30, 2006 amounted NT$65 million and was recognized as gain on disposal of investment. No bonds were exchanged during the nine-month period ended September 30, 2005.

 

 

e.

During the period from May 21 to June 24, 2003, the Company issued five-year and seven-year unsecured bonds totaling NT$15,000 million, each with a face value of NT$7,500 million. The interest is paid annually with stated interest rates of 4.0% minus USD 12-Month LIBOR and 4.3% minus USD 12-Month LIBOR, respectively. Stated interest rates are reset annually based on the prevailing USD 12-Month LIBOR. The five-year bonds and seven-year bonds are repayable in 2008 and 2010, respectively, upon the maturity of the bonds.

 

 

f.

On October 5, 2005, the Company issued zero coupon convertible bonds on the EuroMTF Market of Luxembourg Stock Exchange (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 New York Stock Exchange or the Taiwan Stock Exchange, as the case may be, each bondholder shall have the right, at such bondholder’s option, to require the Company to repurchase all, but not in part, of such bondholder’s bonds at their principal amount.

 

 

iv.

In the event of certain changes in taxation in the R.O.C. resulting in the Company becoming required to pay additional amounts, the Company may redeem all, but not part, of the bonds at their principal amount; bondholders may elect not to have their bonds redeemed by the Company in such event, in which case the bondholders shall not be entitled to receive payments of such additional amounts.

 

 

v.

If a change of control occurs with respect to the Company, each bondholder shall have the right at such bondholder’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.

 

 

(d)

Conversion:

 

i

Conversion Period: Except for the closed period, the bonds may be converted into the Company’s ADSs on or after November 4, 2005 and on or prior to February 5, 2008.

 

 

ii

Conversion Price and Adjustment: The conversion price is US$3.693 per ADS. The applicable conversion price will be subject to adjustments upon the occurrence of certain events set out in the indenture.


 

g.

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

(assuming the convertible bonds and exchangeable bonds are both paid off upon maturity)

 

Bonds repayable in

   Amount

    2006 (4th quarter)

   $ 5,000,000    

    2007

     5,420,872    

    2008

     23,135,782    

    2009

     -    

    2010

     7,500,000    
      

    Total

   $ 41,056,654    
      

 

 

(16)

PENSION FUND

Pension costs amounting to NT$487 million and NT$613 million were recognized for the nine-month periods ended September 30, 2006 and 2005, respectively. The corresponding balances of the pension fund were NT$1,162 million and NT$1,036 million as of September 30, 2006 and 2005, respectively.

 

 

(17)

CAPITAL STOCK

 

a.

As of September 30, 2005, 26,000,000 thousand common shares were authorized to be issued and 19,765,859 thousand common shares were issued, each at a par value of NT$10.

 

 

b.

The Company has issued a total of 276,820 thousand ADSs which were traded on the NYSE as of September 30, 2005. The total number of common shares of the Company represented by all issued ADSs was 1,384,102 thousand shares (one ADS represents five common shares).

 

 

c.

On April 26, 2005, the Company cancelled 49,114 thousand shares of treasury stocks, which were bought back during the period from February 20 to April 19, 2002 for transfer to employees.

 

 

d.

As recommended by the board of directors, and amended and approved by the shareholders on the meeting held on June 13, 2005, the Company issued 1,956,022 thousand new shares from capitalization of retained earnings that amounted to NT$19,560 million, of which NT$17,587 million was stock dividend and NT$1,973 million was employee bonus.

 

 

e.

Among the employee stock options issued by the Company on October 7, 2002 and January 3, 2003, 67,095 thousand shares were exercised during the nine-month period ended September 30, 2005.


 

f.

As of September 30, 2006, 26,000,000 thousand common shares were authorized to be issued and 19,085,310 thousand common shares were issued, each at a par value of NT$10.

 

 

g.

Among the employee stock options issued by the Company on October 7, 2002 and January 3, 2003, 62,973 thousand shares were exercised during the nine-month period ended September 30, 2006. The exercise of employee stock options of 46,871 thousand shares and 15,198 thousand shares were issued on March 15, 2006 and September 25, 2006, respectively.

 

 

h.

On May 22, 2006 the Company cancelled 1,000,000 thousand shares of treasury stocks, which were bought back during the period from February 16, 2006 to April 11, 2006 for retainment of the company’s creditability and stockholders’ interests.

 

 

i.

As recommended by the board of directors, and amended and approved by the shareholders on the meeting held on June 12, 2006, the Company issued 224,877 thousand new shares from capitalization of retained earnings and capital reserve 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 capital reserve.

 

 

j.

As of September 30, 2006, the Company has issued a total of 283,914 thousand ADSs which were traded on the NYSE. The total number of common shares of the Company represented by all issued ADSs was 1,419,569 thousand shares (one ADS represents five common shares).

 

 

(18)

EMPLOYEE STOCK OPTIONS

On September 11, 2002, October 8, 2003, September 30, 2004, and December 22, 2005, the Company was authorized by the Securities and Futures Bureau of the Financial Supervisory Commission, Executive Yuan, to issue employee stock options with a total number of 1 billion, 150 million, 150 million, and 350 million units, respectively. Each unit entitles an optionee to subscribe to 1 share of the Company’s common stock. Settlement upon the exercise of the options will be made through the issuance of new shares by the Company. The exercise price of the options was set at the closing price of the Company’s common stock on the date of grant. The grant period for the options 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)
   Exercise price
(NTD)

October 7, 2002

   939,000        598,807        $15.7

January 3, 2003

   61,000        48,304        $17.7

November 26, 2003

   57,330        46,460        $24.7

March 23, 2004

   33,330        22,930        $22.9

July 1, 2004

   56,590        45,570        $20.7

October 13, 2004

   20,200        15,320        $17.8

April 29, 2005

   23,460        18,350        $16.4

August 16, 2005

   54,350        43,230        $21.6

September 29, 2005

   51,990        48,204        $19.7

January 4, 2006

   39,290        31,650        $17.7

May 22, 2006

   42,058        38,240        $19.2

August 24, 2006

   28,140        27,640        $18.4

 

 

a.

A summary of the Company’s stock option plans, and related information for the nine-month periods ended September 30, 2006 and 2005, are as follows:

 

    For the nine-month period ended September 30,
    2006   2005
   

Option

(in thousands)

  Weighted-average
Exercise Price
(NTD)
 

Option

(in thousands)

 

Weighted-average
Exercise Price

(NTD)

       

Outstanding at beginning of period

  975,320       $17.3   973,858       $16.8

Granted

  109,488       $18.4   129,800       $19.9

Exercised

  (62,973)      $15.7   (67,095)      $15.7

Forfeited

  (46,130)      $18.7   (23,606)      $18.3
           

Outstanding at end of period

  975,705       $17.4   1,012,957       $17.2
           

Exercisable at end of period

  507,441       $16.6   327,153       $15.9
           

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

  $5.7         $6.5      


 

b.

The information of the Company’s outstanding stock options as of September 30, 2006, 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

   $15.7~$17.7        638,111        0.4    $15.9    449,696        $15.9

2003.10.08

   $20.7~$24.7        114,960        1.8    $22.8    57,745        $22.8

2004.09.30

   $16.4~$21.6        125,104        3.1    $19.6    -        -

2005.12.22

   $17.7~$19.2        97,530        4.0    $18.5    -        -
                     
      975,705        1.3    $17.4    507,441        $16.6
                     

 

 

c.

The Company has 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, 2006 and 2005 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, 2006
     Basic earnings per share    Diluted earnings per share

Net Income

   $26,930,229        $26,867,936    

Earnings per share (NTD)

   $1.48        $1.43    

Pro forma net income

   $26,617,994        $26,555,701    

Pro forma earnings per share
(NTD)

   $1.47        $1.41    
    

For the nine-month period ended September 30, 2005

(retroactively adjusted)

     Basic earnings per share    Diluted earnings per share

Net Income

   $3,982,751        $3,982,751    

Earnings per share (NTD)

   $0.21        $0.21    

Pro forma net income

   $3,843,418        $3,843,418    

Pro forma earnings per share
(NTD)

   $0.21        $0.20    

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 and 2005: expected dividend yields of 1.37% and 1.64%; volatility factors of the expected market price of the Company’s common stock of 38.41% and 41.48%; risk-free interest rate of 2.07 % and 1.92%; and a weighted-average expected life of the options of 4.4 years.


 

(19)

TREASURY STOCK

 

a.

The Company bought back its own shares from the open market during the nine-month periods ended September 30, 2006 and 2005. Details of the treasury stock transactions are as follows :

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 stockholder’s
interests

   -      1,000,000      1,000,000      -  
                   

Total shares

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

For the nine-month period ended September 30, 2005

(In thousands of shares)

 

Purpose

   As of
January 1, 2005
   Increase    Decrease   

As of

September 30, 2005

For transfer to employees

   241,181      -      49,114      192,067  

For conversion of the
convertible bonds
into shares

   -      500,000      -      500,000  
                   

Total shares

   241,181      500,000      49,114      692,067  
                   

 

 

b.

According to the Securities and Exchange Law of the R.O.C., total shares of treasury stock should not exceed 10% of the Company’s stock issued. Total purchase amount should not exceed the sum of the retained earnings, capital reserve-premiums, and realized capital reserve. As such, the maximum number of shares of treasury stock that the Company could hold as of September 30, 2006 and 2005, was 1,908,531 thousand shares and 1,976,586 thousand shares while the ceiling of the amount was NT$89,532 million and NT$88,397 million, respectively.

 

 

c.

In compliance with Securities and Exchange Law of the R.O.C., treasury stock should not be pledged, nor should it entitle voting rights or receive dividends.


 

d.

As of September 30, 2006, the Company’s subsidiary, FORTUNE VENTURE CAPITAL CORP., held 22,070 thousand 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.

As of September 30, 2005, the Company’s subsidiaries, HSUN CHIEH INVESTMENT CO., LTD. and FORTUNE VENTURE CAPITAL CORP., held 599,696 thousand shares and 21,847 thousand shares, respectively, of the Company’s stock, with a book value of NT$20.40 and NT$7.87 per share, respectively. The average closing price of the Company’s stock during September 2005 was NT$20.40.

 

 

(20)

RETAINED EARNINGS AND DIVIDEND POLICIES

According to the Company’s Articles of Incorporation, current year’s earnings, if any, shall be distributed in the following order :

 

a.

Payment of all taxes and dues;

 

b.

Offset prior years’ operation losses;

 

c.

Set aside 10% of the remaining amount after deducting items (a) and (b) as a legal reserve;

 

d.

Set aside 0.1% of the remaining amount after deducting items (a), (b), and (c) as directors’ and supervisors’ remuneration; and

 

e.

After deducting items (a), (b), and (c) above from the current year’s earnings, no less than 5% of the remaining amount together with the prior years’ unappropriated earnings is to be allocated as employees’ bonus, which will be settled 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 approved through the shareholders’ meeting.

The Company is currently in its growth stage; 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 2005 and 2004 were approved at the shareholders’ meetings held on June 12, 2006 and June 13, 2005. The details of distribution are as follows:

 

     2005    2004

Cash dividend

   $0.40 per share    $0.10 per share

Stock dividend

   $0.05 per share    $1.03 per share

Employee bonus – cash (NTD thousands)

   305,636          -      

Employee bonus – stock (NTD thousands)

   458,455          1,972,855      

Remuneration to directors and supervisors (NTD thousands)

   6,324          27,005      

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’ capital reserve - 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.

However, if the Company and its investees transfer a portion of the capital reserve to increase capital, a special reserve equal to the amount of the transfer shall be provided according to the explanatory letter No.101801-1 of the SFC.

 

 

c.

In accordance with the explanatory letter No.170010 of the SFC applicable to listed companies, in the case where the market value of the Company’s stock held by its subsidiaries at year-end is lower than the book value, a special reserve shall be provided in the Company’s accounts in proportion to its ownership percentage.

For the 2005 appropriations approved by the shareholders’ meeting on June 12, 2006, unrealized loss on long-term investments exempted from the provision of special reserve pursuant to the above regulations amounted to NT$18,208 million.


 

(21)

OPERATING COSTS AND EXPENSES

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

 

    For the nine-month period ended September 30,
    2006   2005
    Operating
costs
  Operating
expenses
  Total   Operating
costs
  Operating
expenses
  Total

Personnel expenses

           

Salaries

  $5,635,959     $1,727,784     $7,363,743     $3,313,426     $1,264,479     $4,577,905  

Labor and health insurance

  325,042     91,151     416,193     305,836     84,731     390,567  

Pension

  370,636     116,035     486,671     454,420     158,297     612,717  

Other personnel expenses

  64,660     18,246     82,906     50,448     11,285     61,733  

Depreciation

  31,331,318     1,613,511     32,944,829     32,665,449     1,394,653     34,060,102  

Amortization

  146,582     1,188,544     1,335,126     124,500     1,522,327     1,646,827  

The numbers of employees as of September 30, 2006 and 2005, were 12,553 and 12,260, respectively.

 

 

(22)

INCOME TAX

 

a.

Reconciliation between the income tax expense and the income tax calculated on pre-tax financial statement income based on the statutory tax rate is as follows:

 

     For the nine-month period ended
September 30,
     2006    2005

Income tax on pre-tax income at statutory tax rate

   $7,484,757        $1,516,709    

Permanent differences

   (6,147,392)        (1,315,850)    

Change in investment tax credit

   (725,688)        5,870,134    

Change in valuation allowance

   82,639        (6,070,993)    

Tax accrual

   1,541,809        -    

Income tax on interest revenue separately taxed

   946        662    
         

Income tax expense

   $2,237,071      $662    
         


 

b.

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

 

     As of September 30,  
     2006     2005  
     Amount     Tax effect     Amount     Tax effect  

Deferred income tax assets

        

Investment tax credit

     $14,334,733       $15,043,540  

Loss carry-forward

   $6,340,664     1,585,166     $14,671,930     3,667,982  

Pension

   3,062,898     765,725     3,098,528     774,632  

Allowance on sales returns and discounts

   1,010,345     252,586     648,720     162,180  

Allowance for loss on obsolescence of inventories

   497,836     124,459     895,408     223,852  

Others

   776,107     194,027     304,762     76,191  
                

Total deferred income tax assets

     17,256,696       19,948,377  

Valuation allowance

     (8,758,000 )     (9,490,217 )
                

Net deferred income tax assets

     8,498,696       10,458,160  
                

Deferred income tax liabilities

        

Unrealized exchange gain

   (99,055 )   (24,764 )   (434,243 )   (108,560 )

Depreciation

   (5,287,895 )   (1,321,974 )   (12,054,784 )   (3,013,696 )

Others

   (2,041,481 )   (510,370 )   —       —    
                

Total deferred income tax liabilities

     (1,857,108 )     (3,122,256 )
                

Total net deferred income tax assets

     $6,641,588       $7,335,904  
                

Deferred income tax assets - current

     $5,650,534       $6,343,585  

Deferred income tax liabilities - current

     (230,262 )     (108,560 )

Valuation allowance

     (3,489,079 )     (2,715,036 )
                

Net

     1,931,193       3,519,989  
                

Deferred income tax assets – non-current

     11,606,162       13,604,792  

Deferred income tax liabilities – non-current

     (1,626,846 )     (3,013,696 )

Valuation allowance

     (5,268,921 )     (6,775,181 )
                

Net

     4,710,395       3,815,915  
                

Total net deferred income tax assets

     $6,641,588       $7,335,904  
                

 

 

c.

The Company’s income tax returns for all the fiscal years up to 2003 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 period attributable to the expansions in 2002 had not yet been decided. The income tax exemption for other periods will expire on December 31, 2012.


 

e.

The Company earns investment tax credits for the amount invested in production equipment, research and development, and employee training.

As of September 30, 2006, the Company’s unused investment tax credit was as follows:

 

Expiration Year

   Investment tax credits
earned
   Balance of unused
investment tax credits

2006

   $2,850,484        $2,850,484    

2007

   1,613,158        1,613,158    

2008

   6,275,971        6,275,971    

2009

   1,737,860        1,737,860    

2010

   1,857,260        1,857,260    
         

Total

   $14,334,733        $14,334,733    
         

 

 

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, 2006, the unutilized accumulated loss was as follows:

 

Expiration Year

   Accumulated loss    Unutilized accumulated
loss
2006    $10,856,896        $2,525,630    
2007    3,773,826        3,773,826    
2008 (Transferred in from merger with SiSMC)    2,283        2,283    
2009 (Transferred in from merger with SiSMC)    38,925        38,925    
         
Total    $14,671,930        $6,340,664    
         

 

 

g.

The balance of the Company’s imputation credit amounts as of September 30, 2006 and 2005 were NT$95 million and NT$6.1 million, respectively. The creditable ratio for 2005 and 2004 was 0% and 0.35%, respectively.

 

 

h.

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

 

 

(23)

EARNINGS PER SHARE

 

a.

The Company’s capital structure is composed mainly of zero coupon convertible bonds and employee stock options. Therefore, under consideration of such complex structure, the calculated basic and diluted earnings per share for the nine-month periods ended September 30, 2006 and 2005, are disclosed as follows:


    For the nine-month period ended September 30, 2006
    Amount  

Shares
expressed in
thousands

  Earnings per share (NTD)
    Income
before
income tax
  Net income     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

  $-   $-   117,535    

Convertible bonds payable

  $(62,293)   $(62,293)   516,382    

Earning per share-diluted:

         

Income from continuing operations

  $30,293,522   $28,056,451   18,793,029   $1.61   $1.49

Cumulative effect of changes in accounting
principles

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

Net income

  $29,105,007   $26,867,936     $1.55   $1.43
                 
    For nine-month period ended September 30, 2005 (retroactively adjusted)
    Amount  

Shares
expressed in
thousands

  Earnings per share (NTD)
    Income
before
income tax
  Net income     Income before
income tax
  Net income

Earning per share-basic (NTD)

         

Income from continuing operations

  $3,983,413   $3,982,751   18,699,937   $0.21   $0.21

Cumulative effect of changes in accounting
principles

  -   -     -   -
                 

Net income

  $3,983,413   $3,982,751     $0.21   $0.21
                 

Effect of dilution

         

Employee stock options

  $-   $-   176,969    

Earning per share-diluted:

         

Income from continuing operations

  $3,983,413   $3,982,751   18,876,906   $0.21   $0.21

Cumulative effect of changes in accounting
principles

  -   -     -   -
                 

Net income

  $3,983,413   $3,982,751     $0.21   $0.21
                 


 

b.

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

 

(shares expressed in thousands)

 

For the nine month period ended

September 30, 2006

 
    Basic     Diluted  

Net income

  $26,930,229     $26,867,936  
           

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 62,973 thousand units of employee stock options

  38,839     38,839  

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

  —       117,535  

Dilutive shares issued assuming conversion of bonds

  —       516,382  
           

Ending balance

  18,241,312     18,875,229  
           

Earnings per share

   

Net income (NTD)

  $1.48     $1.42  
           
   

 

(shares expressed in thousands)

 

For the nine-month period ended

September 30, 2005

(retroactively adjusted)

 
    Basic     Diluted  

Net income

  $3,982,751     $3,982,751  
           

Weighted-average of shares outstanding:

   

Beginning balance

  17,550,801     17,550,801  

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

  248,963     248,963  

Increase in capital through 2005 retained earnings at proportion of 11.4%

  2,009,072     2,009,072  

Purchase of 500,000 thousand shares of treasury stock from January 1 to
September 30, 2005

  (212,811 )   (212,811 )

Exercise of 67,095 thousand units of employee stock options

  30,797     30,797  

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

  —       176,969  
           

Ending balance

  19,626,822     19,803,791  
           

Earnings per share

   

Net income (NTD)

  $0.20     $0.20  
           


5.

RELATED PARTY TRANSACTIONS

 

(1)

Name and Relationship of Related Parties

 

Name of related parties

  

Relationship with the Company

UMC GROUP (USA) (UMC-USA)

  

Equity Investee

UNITED MICROELECTRONICS (EUROPE) B.V. (UME BV)

  

Equity Investee

UMC CAPITAL CORP.

  

Equity Investee

UNITED MICROELECTRONICS CORP. (SAMOA)

  

Equity Investee

FORTUNE VENTURE CAPITAL CORP. (FORTUNE)

  

Equity Investee

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

  

Equity Investee

UMCI LTD. (UMCI)

  

Equity Investee

UNITED MICRODISPLAY OPTRONICS CORP.

  

Equity Investee

UMC JAPAN (UMCJ)

  

Equity Investee

TOPPAN PHOTOMASKS TAIWAN LTD. (formerly DUPONT PHOTOMASKS
TAIWAN LTD.) (TOPPAN) (Disposed in March 2006)

  

Equity Investee

HOLTEK SEMICONDUCTOR INC. (HOLTEK)

  

Equity Investee

UNITECH CAPITAL INC.

  

Equity Investee

ITE TECH. INC.

  

Equity Investee

UNIMICRON TECHNOLOGY CORP.

  

Equity Investee

AMIC TECHNOLOGY CORP.

  

Equity Investee

PACIFIC VENTURE CAPITAL CO., LTD.

  

Equity Investee

THINTEK OPTRONICS CORP.

  

Equity Investee

XGI TECHNOLOGY INC.

  

Equity Investee

TLC CAPITAL CO., LTD.

  

Equity Investee

HIGHLINK TECHNOLOGY CORP.

  

Equity Investee

MEGA MISSION LIMITED PARTNERSHIP

  

Equity Investee

FARADAY TECHNOLOGY CORP. ( No longer an equity investee since January 1,
2006)

  

Equity Investee

NOVATEK MICROELECTRONICS CORP. ( No longer an equity investee since
January 1, 2006)

  

Equity Investee

SILICON INTEGRATED SYSTEMS CORP.

  

The Company’s director

DAVICOM SEMICONDUCTOR, INC.

  

Subsidiary’s equity investee

UNITRUTH INVESTMENT CORP. (UNITRUTH)

  

Subsidiary’s equity investee

UWAVE TECHNOLOGY CORP. (formerly UNITED RADIOTEK INC.)

  

Subsidiary’s equity investee

UCA TECHNOLOGY INC.

  

Subsidiary’s equity investee

AFA TECHNOLOGY, INC.

  

Subsidiary’s equity investee

STAR SEMICONDUCTOR CORP.

  

Subsidiary’s equity investee

AEVOE INC.

  

Subsidiary’s equity investee

USBEST TECHNOLOGY INC.

  

Subsidiary’s equity investee

SMEDIA TECHNOLOGY CORP.

  

Subsidiary’s equity investee

U-MEDIA COMMUNICATIONS, INC.

  

Subsidiary’s equity investee

CHIP ADVANCED TECHNOLOGY INC.

  

Subsidiary’s equity investee

CRYSTAL MEDIA INC.

  

Subsidiary’s equity investee

ULI ELECTRONICS INC.

  

Subsidiary’s equity investee

NEXPOWER TECHNOLOGY CORP.

  

Subsidiary’s equity investee

MOBILE DEVICES INC.

  

Subsidiary’s equity investee


 

(2)

Significant Related Party Transactions

 

a.

Operating revenues

 

     For the nine-month period ended September 30,
     2006    2005
   Amount    Percentage    Amount    Percentage

UMC-USA

   $40,816,686    52    $29,549,655    47

UME BV

   6,745,800    9    5,326,652    8

Others

   5,417,947    7    10,036,738    16
                   

Total

   $52,980,433    68    $44,913,045    71
                   

The sales price to the above related parties was determined through mutual agreement based on the market conditions. The collection period for overseas sales to related parties was net 60 days, while the terms for domestic sales were month-end 45~60 days. The collection period for third party overseas sales was net 30~60 days, while the terms for third party domestic sales were month-end 30~60 days.

 

 

b.

Purchases

 

     For the nine-month period ended September 30,
     2006    2005
   Amount    Percentage    Amount    Percentage

UMCI

   $-    -    $1,244,347    7
                   

The purchases from the above related parties were dealt with in the ordinary course of business similar to those from third-party suppliers. The payment terms for purchases were net 60 days for related parties and net 30~90 days for third-party suppliers.

 

 

c.

Notes receivable

 

     As of September 30,
     2006    2005
     Amount    Percentage    Amount    Percentage

HOLTEK

   $53,579    74    $56,463    95
                   


 

d.

Accounts receivable

 

     As of September 30,
     2006    2005
     Amount    Percentage    Amount    Percentage

UMC-USA

     $8,114,244      52      $5,861,839      41

UME BV

     1,305,186      8      612,937      4

SIS

     64,005      -      636,031      5

Others

     803,373      6      587,276      4
                       

Total

     10,286,808      66      7,698,083      54
               

Less : Allowance for sales returns and discounts

     (849,530)          (641,375)    

Less : Allowance for doubtful
accounts

     (122,899)          (98,314)    
                   

Net

   $ 9,314,379         $ 6,958,394     
                   

 

 

e.

Financial activities

 

    

The Company did not conduct any financial activities with related parties during the nine-month period ended September 30, 2006.

 

 

    

Other receivables-related parties

     For the nine-month period ended September 30, 2005
     Maximum balance   

Ending

balance

   Interest rate   

Interest

revenue

   Amount    Month         

UMCI

   $5,137,760      2005.03      $-    2.74%-3.05%     $7,669  
                    

 

 

f.

Significant asset transactions

 

    

The Company did not undertake any significant asset transactions with related parties during the third quarter ended September 30, 2006.

 

    

For the nine-month period ended September 30, 2005

  

Item

   Amount

FORTUNE

  

Purchase of APTOS CORP. (TAIWAN) stock

   $140,231  

FORTUNE

  

Purchase of EPITECH TECHNOLOGY CORP. stock

   185,840  

HSUN CHIEH

  

Purchase of EPITECH TECHNOLOGY CORP. stock

   97,658  

UNITRUTH

  

Purchase of EPITECH TECHNOLOGY CORP. stock

   16,495  
       

Total

      $440,224  
       


 

g.

Notes provided for endorsements and guarantees

 

    

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

 

 

h.

Other transactions

 

    

The Company has made several other transactions, including service charges, development expenses of intellectual property, and commission, totaling NT$11 million and NT$575 million for the nine-month periods ended September 30, 2006 and 2005, respectively.

The Company has purchased approximately NT$104 million and NT$323 million of masks from TOPPAN during the nine-month periods ended September 30, 2006 and 2005, respectively.

 

6.

ASSETS PLEDGED AS COLLATERAL

As of September 30, 2006

 

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

Deposit-out

   $ 520,846    Customs   

Customs duty

            

(Time deposit)

        

guarantee

As of September 30, 2005

 

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

Deposit-out

   $ 520,730    Customs   

Customs duty

            

(Time deposit)

        

guarantee

 

7.

COMMITMENTS AND CONTINGENT LIABILITIES

 

(1)

The Company has entered into several patent license agreements and development contracts of intellectual property for a total contract amount of approximately NT$18 billion. Royalties and development fees for future years are NT$6.8 billion.

 

 

(2)

The Company signed several construction contracts for the expansion of its factory space. As of September 30, 2006, these construction contracts have amounted to approximately NT$2.7 billion and the unpaid portion of the contracts, which was not accrued, was approximately NT$2.1 billion.


 

(3)

OAK Technology, Inc. (OAK) and the Company entered into a settlement agreement on July 31, 1997 concerning a complaint filed with the United States International Trade Commission (ITC) by OAK against the Company and others, alleging unfair trade practices based on alleged patent infringement regarding certain CD-ROM controllers (the first OAK ITC case). On October 27, 1997, OAK filed a civil action in a California federal district court, alleging claims for breach of the settlement agreement and fraudulent misrepresentation. In connection with its breach of contract and other claims, OAK seeks damages in excess of US$750 million. The Company denied the material allegations of the complaint, and asserted counterclaims against OAK for breach of contract, intentional interference with economic advantage and rescission and restitution based on fraudulent concealment and/or mistake. The Company also asserted declaratory judgment claims for invalidity and unenforceability of the relevant OAK patent. On May 2, 2001, the United States Court of Appeals for the Federal Circuit upheld findings by the ITC that there had been no patent infringement and no unfair trade practice arising out of a second ITC case filed by OAK against the Company and others. Based on the Federal Circuit’s opinion and on a covenant not to sue filed by OAK, the Company’s declaratory judgment patent counterclaims were dismissed from the district court case. In November 2002, the Company filed motions for summary judgment on each of OAK Technology’s claims against the Company. In that same period, OAK Technology filed motions seeking summary judgment on the Company’s claims for fraudulent concealment and intentional interference with economic advantage, and on various defenses asserted by the Company. In May 2005, the Court issued the following orders: (i) granting the Company’s motion for summary judgment on OAK Technology’s claim for breach of the settlement agreement; (ii) granting in part and denying in part the Company’s motion for summary judgment on OAK Technology’s claim for breach of the implied covenant of good faith and fair dealing; (iii) denying a motion by the Company for summary judgment on OAK Technology’s fraud claim based on alleged patent invalidity; (iv) granting OAK Technology’s motion for summary judgment on the Company’s fraudulent concealment claims; and (v) granting a motion by OAK Technology for summary judgment on certain of the Company’s defenses. On February 9, 2006, the parties entered a settlement agreement in which the Company, OAK and Zoran (the successor to OAK) fully and finally released one another from any and all claims and liabilities arising out of the facts alleged in the district court case. The terms of settlement are confidential and, except for the obligation to keep the terms confidential, impose no obligation on the Company.

 

 

(4)

The Company entered into several operating lease contracts for land. These operating leases expire in various years through to 2032 and are renewable. Future minimum lease payments under those leases are as follows:


            For the year ended December 31,

   Amount          

2006 (4th quarter)

   $48,555        

2007

   178,658        

2008

   175,461        

2009

   175,805        

2010

   176,162        

2011 and thereafter

   1,747,881        
    

Total

   $2,502,522        
    

 

 

(5)

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.

 

 

(6)

The Company has entered into contracts for the purchase of materials and masks with certain vendors. These contracts oblige the Company to purchase specified amounts or quantities of materials and masks. Should the Company fail to fulfill the conditions set out in the contracts, the differences between the actual purchase and the required minimum will be reconciled between the Company and its vendors.

 

 

(7)

On February 15, 2005, the Hsinchu District Prosecutor’s Office conducted a search of the Company’s facilities. On February 18, 2005, the Company’s former Chairman Mr. Robert H.C. Tsao, released a public statement, explaining that its assistance to Hejian Technology Corp. (Hejian) did not involve any investment or technology transfer. Furthermore, from the very beginning there was a verbal indication that, at the proper time, the Company would be compensated appropriately for its assistance, and circumstances permitting, at some time in the future, it will push through the merger between two companies. However, no promise was made by the Company and no written agreement was made and executed. Upon the Company’s request to materialize the said verbal indication by compensating in the form of either cash or equity, the Chairman of the holding company of Hejian offered 15% of the approximately 700 million outstanding shares of the holding company of Hejian in return for the Company’s past assistance and for continued assistance in the future.

Immediately after the Company had received such offer, it filed an application with the Investment Commission of the Ministry of Economic Affairs on March 18, 2005 (Ref. No. 94-Lian-Tung-Tzu-0222), for their executive guidance for the successful transfer of said shares to the Company. The shareholders meeting dated June 13, 2005 resolved that to the extent permitted by law the Company shall try to get the 15% of the outstanding shares offered by the holding company of Hejian as an asset of the Company. The holding


company of Hejian offered 105,500 thousand 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 R.O.C. 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. (R.O.C. 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 R.O.C. 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 rejected by the Execution Yuan, R.O.C. on February 21, 2006 and the R.O.C. 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 R.O.C. FSC with Taipei High Administrative Court on April 14, 2006. As of September 30, 2006, the result of such reconsideration and administrative action has not been finalized.

For the Company’s assistance to Hejian Technology Corp., the Company’s former Chairman Mr. Robert H.C. Tsao, former Vice Chairman Mr. John Hsuan, and Mr. Duen-Chian Cheng, the General Manager of Fortune Venture Capital Corp., which is 99.99% owned by the Company, where indicted on charges of breaking the Business Accounting Law and giving rise to 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 public prosecution; for this reason, at the time of public 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, the consequences would be Mr. Robert H.C. Tsao, Mr. John Hsuan and Mr. Duen-Chian Cheng’s personal concerns; the Company would not be subject to indictment regarding to such case.


On February 15, 2006, the Company was fined in the amount of NT$5 million on the grounds of unauthorized investment activities in Mainland China, implicating the 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. This case is pending for the Executive Yuan’s decision.

 

8.

SIGNIFICANT DISASTER LOSS

None.

 

9.

SIGNIFICANT SUBSEQUENT EVENT

None.

 

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, comprise 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 is to avoid 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 items through forward contracts. In principal, the Company does not carry out any forward contracts for uncertain commitments.

Commodity price risk

The Company’s exposure to commodity price risk is minimal.

Credit risk

The Company trades only with established and creditworthy third parties. It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis, which consequently minimizes the Company’s exposure to bad debts.

With respect to credit risk arising from the other financial assets of the Company, which 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,
     2006    2005

Financial Assets

   Book Value    Fair Value    Book Value    Fair Value

Non-derivative

           

Cash and cash equivalents

   $83,003,846      $83,003,846      $71,791,902      $71,791,902  

Financial assets at fair value through profit or loss, current

   8,688,759      8,688,759      2,119,420      2,032,107  

Available-for-sale financial assets, current

   -      -      1,004,878      1,337,617  

Held-to-maturity financial assets, current

   978,240      978,240      66,220      66,220  

Notes and accounts receivable

   15,029,116      15,029,116      14,036,728      14,036,728  

Available-for-sale financial assets, noncurrent

   34,015,176      34,015,176      5,501,855      24,549,615  

Held-to-maturity financial assets, noncurrent

   -      -      986,176      986,176  

Financial assets measured at cost, noncurrent

   2,265,728      2,265,728      2,298,870      2,298,870  

Long-term investments accounted for under the equity method

   37,719,756      43,151,556      37,245,154      59,909,416  

Deposits-out

   542,121      542,121      579,823      579,823  

    Financial Liabilities        

           

Non-derivative

           

Short-term loans

   $-      $-      $830,250      $830,250  

Payables

   21,414,910      21,414,910      14,744,802      14,744,802  

Capacity deposits (current portion)

   912,309      912,309      679,150      679,150  

Bonds payable (current portion included)

   40,959,246      41,439,620      33,750,927      33,782,764  

Derivative

           

Interest rate swaps

   610,545      610,545      53,346      684,349  

Derivatives embedded in exchangeable bonds

   576,550      576,550      -      -  

Forward contracts

   -      -      28,983      28,983  


 

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, short-term loans, current portion of capacity deposits, and payables.

 

 

ii.

The fair value of financial assets at fair value through profit or loss and available-for-sale financial assets is based on the quoted market price.

 

 

iii.

The fair value of held-to-maturity financial assets is based on quoted the market price. If the market price is unavailable, the Company estimates the fair value based on the book value as the held-to-maturity financial assets consist principally of credit-linked deposits agreements with maturity dates of less than two years, as well as bonds that can be easily liquidated in the secondary market.

 

 

iv.

The fair value of deposits-out is based on the book value since the deposit periods are principally within one year and renewed upon maturity.

 

 

v.

The fair value of bonds payable is determined by the market price.

 

 

vi.

The fair value of derivative financial instruments is based on the amount the Company expects to receive (positive) or to pay (negative) assuming that the contracts are settled in advance at the balance sheet date.

 

 

c.

The fair value of the Company’s financial instruments is determined by the quoted prices in active markets, or if the market for a financial instrument is not active, the Company establishes fair value by using a valuation technique:

 

     Active Market Quotation    Valuation Technique

Non-derivative Financial Instruments

   2006.9.30    2005.9.30    2006.9.30    2005.9.30

Financial assets

           

Financial assets at fair value through profit or loss, current

   $8,688,759      $2,032,107      $-      $-  

Available-for-sale financial asset, current

   -      1,337,617      -      -  

Available-for-sale financial assets, noncurrent

   34,015,176      24,549,615      -      -  

Long-term investments accounted for under the equity method

   43,151,556      59,909,416      -      -  


     Active Market Quotation    Valuation Technique

Non-derivative Financial Instruments

   2006.9.30    2005.9.30    2006.9.30    2005.9.30

Financial liabilities

           

Bonds payable (current portion included)

   $41,439,620      $33,782,764      $-      $-  

Derivative Financial Instruments

           

Financial liabilities

           

Interest rate swaps

   -      -      610,545      684,349  

Derivatives embedded in exchangeable bonds

   -      -      576,550      -  

 

 

d.

The Company recognized a gain in NT$105 million arising from the changes in fair value of financial liabilities at fair value through profit or loss for the nine-month period ended September 30, 2006.

 

 

e.

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

 

 

f.

During the nine-month period ended September 30, 2006, total interest revenue and interest expense for financial assets or liabilities that are not at fair value through profit or loss were NT$1,092 million and NT$643 million, while interest revenue and expense for the nine-month period ended September 30, 2005 each amounted to NT$535 million and NT$654 million.

 

 

(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, 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

As of September 30, 2005

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

CHI FENG BLINDS INDUSTRY CO., LTD. European Convertible Bonds

   USD    2 million    2005.12.19

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.


 

(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, 2006 and 2005, the Company had the following interest rate swap agreements in effect:

 

Notional Amount

   Contract Period    Interest Rate Received   Interest Rate Paid

NT$7,500 million

  

May 21, 2003 to
June 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, 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

As of September 30, 2005

The Company

 

Type

   Notional Amount    Contract Period

Forward contracts

  

Sell USD 117 million

  

September 6, 2005 to October 24, 2005

Forward contracts

  

Buy JPY 340 million

  

September 27, 2005 to October 7, 2005

Forward contracts

  

Buy EUR 3 million

  

September 27, 2005 to October 7, 2005


UMC JAPAN

Type

   Notional Amount    Contract Period

Forward contracts

  

Sell USD 1.5 million

  

September 20, 2005 to October 31, 2005

Forward contracts

  

Sell USD 1.1 million

  

September 21, 2005 to October 31, 2005

Forward contracts

  

Sell USD 1.5 million

  

September 26, 2005 to November 30, 2005

 

 

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.

 

 

(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, 2006 and 2005, the interest rate swap agreements were classified as current liabilities amounting NT$611 million and NT$53 million, respectively.

As of September 30, 2005, the balance of current liabilities arising from forward contracts was NT$29 million and related exchange loss of NT$377 million for the nine-month period ended September 30, 2005 was recorded under non-operating expenses.

UMC JAPAN

As of September 30, 2006 and 2005, the balance of current liabilities and assets arising from forward contracts were JPY$5 and JPY$6 million, respectively and related exchange gain of JPY$22 million and JPY$44 million were recorded under non-operating revenue for the nine-month periods ended September 30, 2006 and 2005, 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, 2005 : Please refer to Attachment 1.

 

 

b.

Endorsement/Guarantee provided to others for the nine-month period ended September 30, 2006 : Please refer to Attachment 2.

 

 

c.

Securities held as of September 30, 2006 : Please refer to Attachment 3.

 

 

d.

Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT$100 million or 20 percent of the capital stock for the nine-month period ended September 30, 2006 : Please refer to Attachment 4.

 

 

e.

Acquisition of individual real estate with amount exceeding the lower of NT$100 million or 20 percent of the capital stock for the nine-month period ended September 30, 2006 : Please refer to Attachment 5.

 

 

f.

Disposal of individual real estate with amount exceeding the lower of NT$100 million or 20 percent of the capital stock for the nine-month period ended September 30, 2006 : Please refer to Attachment 6.

 

 

g.

Related party transactions for purchases and sales amounts exceeding the lower of NT$100 million or 20 percent of the capital stock for the nine-month period ended September 30, 2006 : Please refer to Attachment 7.

 

 

h.

Receivables from related parties with amounts exceeding the lower of NT$100 million or 20 percent of the capital stock as of September 30, 2006 : Please refer to Attachment 8.

 

 

i.

Names, locations and related information of investees as of September 30, 2006 : Please refer to Attachment 9.

 

 

j.

Financial instruments and derivative transactions: please refer to Note 10.

 

 

(2)

Investment in Mainland China

None.


ATTACHMENT 1 (Financing provided to others for the nine-month period ended September 30, 2006)

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

 

                                                      Collateral          

No.
(Note 1)

   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

1

  

UMC
GROUP
(USA)

 

Former
Employees

  

Receivable
from
employees

   USD 691    USD 691    7%    Note 2    -    Employee loan    -    Securities    Lower    N/A    N/A

 

 

 

Note 1: The Company and its subsidiaries are coded as follows:

1. The Company is coded “0”.

2. The subsidiaries are coded consecutively beginning from “1” in the order presented in the table above.

Note 2 : Need for short-term financing.


ATTACHMENT 2 (Endorsement/Guarantee provided to others for the nine-month period ended September 30, 2006)

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

 

No.

(Note 1)

   Endorsor/Guarantor    Receiving party   

Relationship

(Note 2)

   Limit of
guarantee/endorsement
amount for receiving
party (Note 3)
   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 (Note 4)

0

   UMC    UMC JAPAN    2    $7,667,103    JPY 10,400,000    $1,909,154    $-    0.69%   $76,341,239

 

 

Note 1: The Company and its subsidiaries are coded as follows:

1. The Company is coded “0”.

2. The subsidiaries are coded consecutively beginning from “1” in the order presented in the table above.

Note 2: According to the “Guidelines Governing the Preparation of Financial Reports by Securities Issuers” issued by the R.O.C.

             Securities and Futures Bureau, receiving parties should be disclosed as one of the following:

1. An investee company that has a business relationship with UMC.

2. A subsidary in which UMC holds directly over 50% of equity interest.

3. An investee in which UMC and its subsidaries hold over 50% of equity interest.

4. An investee in which UMC holds directly and indirectly over 50% of equity interest.

5. An investee that has provided guarantees to UMC, and vice versa, due to contractual requirements.

6. An investee in which UMC conjunctly invests with other shareholders, and for which UMC has provided endorsement/

    guarantee in proportion to its shareholding percentage.

Note 3: Limit of guarantee/endorsement amount for receiving party shall not exceed the lower of receiving party’s capital stock or

             10% of UMC’s capital stock.

Note 4: Limit of total guarantee/endorsement amount equals 40% of UMC’s capital stock as of September 30, 2006.


ATTACHMENT 3 (Securities held as of September 30, 2006)

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

UNITED MICROELECTRONICS CORPORATION

 

                    September 30, 2006     

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

  

EDOM TECHNOLOGY CO., LTD.

   -   

Financial assets at fair value through
profit or loss, current

   60    $196,951    -    $196,951    None

Convertible bonds

  

TOPOINT TECHNOLOGY CO., LTD.

   -   

Financial assets at fair value through
profit or loss, current

   380    46,721    -    46,721    None

Convertible bonds

  

HOTA INDUSTRIAL MFG. CO., LTD.

   -   

Financial assets at fair value through
profit or loss, current

   400    47,540    -    47,540    None

Convertible bonds

  

FIRICH ENTERPRISES CO., LTD

   -   

Financial assets at fair value through
profit or loss, current

   340    42,500    -    42,500    None

Convertible bonds

  

TATUNG CO.

   -   

Financial assets at fair value through
profit or loss, current

   582    66,872    -    66,872    None

Stock

  

YANG MING MARINE TRANSPORT CORP.

   -   

Financial assets at fair value through
profit or loss, current

   3,254    55,320    -    55,320    None

Stock

  

L&K ENGINEERING CO., LTD.

   -   

Financial assets at fair value through
profit or loss, current

   1,683    70,777    -    70,777    None

Stock

  

MICRONAS SEMICONDUCTOR HOLDING AG

   -   

Financial assets at fair value through
profit or loss, current

   280    214,863    -    214,863    None

Stock

  

CHINA DEVELOPMENT FINANCIAL HOLDING CORP.

   -   

Financial assets at fair value through
profit or loss, current

   23,538    323,650    -    323,650    None

Stock

  

PROMOS TECHNOLOGIES INC.

   -   

Financial assets at fair value through
profit or loss, current

   526,750    6,847,750    -    6,847,750    None

Stock

  

SILICONWARE PRECISION INDUSTRIES CO., LTD.

   -   

Financial assets at fair value through
profit or loss, current

   11,545    455,434    -    455,434    None

Stock

  

ACTION ELECTRONICS CO., LTD.

   -   

Financial assets at fair value through
profit or loss, current

   16,270    265,198    -    265,198    None

Fund

  

FGIT ASIA PACIFIC GROWTH FUND

   -   

Financial assets at fair value through
profit or loss, current

   500    4,830    -    4,830    None

Fund

  

SINOPAC GLOBAL FIXED INCOME PORTFOLIO FUND

   -   

Financial assets at fair value through
profit or loss, current

   5,000    50,353    -    50,353    None

Stock

  

UMC GROUP (USA)

   Investee company   

Long-term investments accounted for
under the equity method

   16,438    910,626    100.00    910,626    None

Stock

  

UNITED MICROELECTRONICS (EUROPE) B.V.

   Investee company   

Long-term investments accounted for
under the equity method

   9    287,065    100.00    279,451    None

Stock

  

UMC CAPITAL CORP.

   Investee company   

Long-term investments accounted for
under the equity method

   74,000    2,181,505    100.00    2,181,505    None

Stock

  

UNITED MICROELECTRONICS CORP. (SAMOA)

   Investee company   

Long-term investments accounted for
under the equity method

   1,000    10,442    100.00    10,442    None


ATTACHMENT 3 (Securities held as of September 30, 2006)

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

UNITED MICROELECTRONICS CORPORATION

 

                    September 30, 2006     

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

  

UMCI LTD.

   Investee company   

Long-term investments accounted for
under the equity method

   880,006    $91    100.00    $91    None

Stock

  

TLC CAPITAL CO., LTD.

   Investee company   

Long-term investments accounted for
under the equity method

   600,000    6,334,183    100.00    6,334,183    None

Stock

  

FORTUNE VENTURE CAPITAL CORP.

   Investee company   

Long-term investments accounted for
under the equity method

   499,994    8,014,345    99.99    8,590,758    None

Stock

  

UNITED MICRODISPLAY OPTRONICS
CORP.

   Investee company   

Long-term investments accounted for
under the equity method

   60,701    219,537    86.72    219,537    None

Stock

  

UMC JAPAN

   Investee company   

Long-term investments accounted for
under the equity method

   496    6,090,751    50.09    4,838,250    None

Stock

  

PACIFIC VENTURE CAPITAL CO., LTD.

   Investee company   

Long-term investments accounted for
under the equity method

   30,000    280,145    49.99    280,145    None

Stock

  

UNITECH CAPITAL INC.

   Investee company   

Long-term investments accounted for
under the equity method

   21,000    836,129    42.00    836,129    None

Stock

  

HSUN CHIEH INVESTMENT CO., LTD.

   Investee company   

Long-term investments accounted for
under the equity method

   33,624    4,144,049    36.49    3,993,619    None

Stock

  

THINTEK OPTRONICS CORP.

   Investee company   

Long-term investments accounted for
under the equity method

   8,345    4,152    27.82    4,152    None

Stock

  

HOLTEK SEMICONDUCTOR INC.

   Investee company   

Long-term investments accounted for
under the equity method

   51,939    819,670    24.48    2,965,739    None

Stock

  

ITE TECH. INC.

   Investee company   

Long-term investments accounted for
under the equity method

   24,229    333,566    22.00    707,497    None

Stock

  

UNIMICRON TECHNOLOGY CORP.

   Investee company   

Long-term investments accounted for
under the equity method

   202,367    4,556,547    20.09    8,276,791    None

Stock

  

HIGHLINK TECHNOLOGY CORP.

   Investee company   

Long-term investments accounted for
under the equity method

   28,500    244,776    18.99    244,776    None

Stock

  

XGI TECHNOLOGY INC.

   Investee company   

Long-term investments accounted for
under the equity method

   8,758    61,576    16.50    61,576    None

Stock

  

AMIC TECHNOLOGY CORP.

   Investee company   

Long-term investments accounted for
under the equity method

   16,200    58,092    11.86    83,780    None

Fund

  

MEGA MISSION LIMITED PARTNERSHIP

   Investee company   

Long-term investments accounted for
under the equity method

   -    2,332,509    45.00    2,332,509    None

Stock

  

PIXTECH, INC.

   -   

Available-for-sale financial assets,
noncurrent

   9,883    653    17.63    653    None

Stock

  

FARADAY TECHNOLOGY CORP.

   -   

Available-for-sale financial assets,
noncurrent

   55,611    2,880,673    17.50    2,880,673    None


ATTACHMENT 3 (Securities held as of September 30, 2006)

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

UNITED MICROELECTRONICS CORPORATION

 

                    September 30, 2006     

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

  

UNITED FU SHEN CHEN TECHNOLOGY
CORP.

   -   

Available-for-sale financial assets,
noncurrent

   18,460    $130,144    16.60    $130,144    None

Stock

  

SILICON INTEGRATED SYSTEMS CORP.

   The Company’s director   

Available-for-sale financial assets,
noncurrent

   228,956    3,377,099    16.09    3,377,099    None

Stock

  

NOVATEK MICROELECTRONICS CORP.

   -   

Available-for-sale financial assets,
noncurrent

   60,073    9,401,364    11.55    9,401,364    None

Stock

  

EPITECH TECHNOLOGY CORP.

   -   

Available-for-sale financial assets,
noncurrent

   37,221    1,243,195    10.12    1,243,195    None

Stock

  

SPRINGSOFT, INC.

   -   

Available-for-sale financial assets,
noncurrent

   9,467    397,594    4.78    397,594    None

Stock

  

C-COM CORP.

   -   

Available-for-sale financial assets,
noncurrent

   3,083    11,869    4.40    11,869    None

Stock

  

CHIPBOND TECHNOLOGY CORP.

   -   

Available-for-sale financial assets,
noncurrent

   12,330    424,143    4.29    424,143    None

Stock

  

KING YUAN ELECTRONICS CO., LTD.

   -   

Available-for-sale financial assets,
noncurrent

   35,008    857,694    3.21    857,694    None

Stock

  

MEDIATEK INC.

   -   

Available-for-sale financial assets,
noncurrent

   28,753    9,028,599    2.97    9,028,599    None

Stock

  

BILLIONTON SYSTEMS INC.

   -   

Available-for-sale financial assets,
noncurrent

   2,008    18,450    2.67    18,450    None

Stock

  

RECHI PRECISION CO., LTD.

   -   

Available-for-sale financial assets,
noncurrent

   8,545    126,039    2.50    126,039    None

Stock

  

AU OPTRONICS CORP.

   -   

Available-for-sale financial assets,
noncurrent

   78,266    3,666,753    1.28    3,666,753    None

Fund

  

MEGA FINANCIAL HOLDING COMPANY

   -   

Available-for-sale financial assets,
noncurrent

   95,577    2,241,276    0.86    2,241,276    None

Stock

  

PREMIER IMAGE TECHNOLOGY CORP.

   -   

Available-for-sale financial assets,
noncurrent

   3,602    209,631    0.59    209,631    None

Stock

  

UNITED INDUSTRIAL GASES CO., LTD.

   -   

Financial assets measured at cost,
noncurrent

   13,185    146,250    7.80    Note    None

Stock

  

INDUSTRIAL BANK OF TAIWAN CORP.

   -   

Financial assets measured at cost,
noncurrent

   118,303    1,139,196    4.95