United Microelectronics Corporation
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
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o |
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Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934 |
or
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þ |
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2007.
or
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o |
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
or
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o |
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Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Date of event requiring this shell company report
Commission file number 001-15128
United Microelectronics Corporation
(Exact Name of Registrant as Specified in its Charter)
Taiwan, Republic of China
(Jurisdiction of Incorporation or Organization)
No. 3 Li-Hsin Road II, Hsinchu Science Park,
Hsinchu City, Taiwan, Republic of China
(Address of Principal Executive Offices)
Peter Courture, telephone: +1 (650) 968-8855, peter@courture.com,
Law + 978 Highlands Circle, Los Altos, CA 94024, USA
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
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Name of Each Exchange on which Registered |
American Depositary Shares, as
evidenced by American Depositary
Receipts, each representing 5
Common Shares
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New York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the Issuers classes of capital or common
stock as of the close of the period covered by the annual report.
13,214,494,883 Common Shares of Registrant issued as of December 31, 2007 (including
704,298,951 treasury shares)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
Yes þ No o
If this report is an annual or transition report, indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.
Yes o No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:
U.S. GAAP o
International Financial Reporting Standards as issued by the International Accounting
Standards Board o
Other þ
Indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 o Item 18 þ
If this is an annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes o No þ
UNITED MICROELECTRONICS CORPORATION
FORM 20-F ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 2007
Table of Contents
SUPPLEMENTAL INFORMATION
The references to United Microelectronics, we, us, our and our company in this
annual report refer to United Microelectronics Corporation and its consolidated subsidiaries,
unless the context suggests otherwise. The references to United Semiconductor, United Silicon,
UTEK Semiconductor and United Integrated Circuits are to United Semiconductor Corporation,
United Silicon Incorporated, UTEK Semiconductor Corporation and United Integrated Circuits
Corporation, respectively. The references to Taiwan and ROC refer to Taiwan, Republic of China.
The references to shares and common shares refer to our common shares, par value NT$10 per
share, and ADSs refers to our American depositary shares, each representing five common shares.
The ADSs are issued under the Deposit Agreement, dated as of September 21, 2000, as amended,
supplemented or modified from time to time, among United Microelectronics, Citibank N.A. and the
holders and beneficial owners from time to time of American Depositary Receipts issued thereunder.
ROC GAAP means the generally accepted accounting principles in the Republic of China and US
GAAP means the generally accepted accounting principles in the United States. Any discrepancies in
any table between totals and sums of the amounts listed are due to rounding.
We publish our financial statements in New Taiwan dollars, the lawful currency of the ROC. In
this annual report, NT$ and NT dollars mean New Taiwan dollars, $, US$ and U.S. dollars
mean United States dollars, ¥ means Japanese Yen, SGD$ means Singapore dollars and means
Euro.
FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT
MAY NOT BE REALIZED
Our disclosure and analysis in this annual report contain or incorporate by reference some
forward-looking statements. Our forward-looking statements contain information regarding, among
other things, our financial condition, future expansion plans and business strategy. We have based
these forward-looking statements on our current expectations and projections about future events.
You can identify these statements by the fact that they do not relate strictly to historical or
current facts. Although we believe that these expectations and projections are reasonable, such
forward-looking statements are inherently subject to risks, uncertainties and assumptions about us,
including, among other things:
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our dependence on frequent introduction of new product services and technologies
based on the latest developments; |
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the intensely competitive semiconductor, communications, consumer electronics and PC
industries and markets; |
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risks associated with our international business activities; |
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our dependence on key personnel; |
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general economic and political conditions, including those related to the
semiconductor, communications, consumer electronics and PC industries; |
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natural disasters, such as earthquakes and droughts, which are beyond our control; |
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possible disruptions in commercial activities caused by natural and human-induced
disasters and outbreaks of contagious diseases; |
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fluctuations in foreign currency exchange rates; |
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additional disclosures we make in our previous and future Form 20-F annual reports
and Form 6-K periodic reports to the U.S. Securities and Exchange Commission; and |
1
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those other risks identified in the Item 3. Key InformationD. Risk Factors
section of this annual report. |
The words may, will, is/are likely to, anticipate, believe, estimate, expect,
intend, plan and similar expressions are intended to identify a number of these forward-looking
statements. We do not and will not undertake the obligation to update or revise any forward-looking
statements contained in this annual report whether as a result of new information, future events or
otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events
discussed in this annual report might not occur and our actual results could differ materially from
those anticipated in these forward-looking statements.
GLOSSARY
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ASIC
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Application Specific Integrated Circuit. A custom-designed integrated circuit that performs
specific functions which would otherwise require a number of off-the-shelf integrated
circuits to perform. |
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Cell
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Semiconductor structure in an electrical state which can store a bit of information, mainly
used as the building block of memory array. |
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Die
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A piece of a semiconductor wafer containing the circuitry of an unpackaged single chip. |
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DRAM
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Dynamic Random Access Memory. A type of volatile memory product that is used in electronic
systems to store data and program instructions. It is the most common type of RAM and must be
refreshed with electricity hundreds of times per second or else it will fade away. |
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FPGA
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Field Programmable Gate Array. A programmable integrated circuit. |
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Integrated circuit
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Entire electronic circuit built on a single piece of solid substrate and
enclosed in a small package. The package is equipped with leads needed to electrically
integrate the integrated circuit with a larger electronic system. Monolithic and hybrid
integrated circuits are distinguished by the type of substrate used. |
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Interconnect
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The conductive path made from copper or aluminum that is required to achieve
connection from one circuit element to the other circuit elements within a circuit. |
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Mask
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Photomask. A piece of glass on which an integrated circuit circuitry design is laid out. |
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Memory
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A group of integrated circuits that a computer uses to store data and programs, such as
ROM, RAM, DRAM and SRAM. |
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Micron
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A unit of spatial measurement that is one-millionth of a meter. |
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Nanometer
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A unit of spatial measurement that is one-billionth of a meter. |
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PC
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Personal computer. |
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RAM
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Random Access Memory. A type of volatile memory forming the main memory of a computer where
applications and files are run. |
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ROM
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Read-Only Memory. Memory that is programmed by the manufacturer and cannot be changed.
Typically, ROM is used to provide start-up data when a computer is first turned on. |
2
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Scanner
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A photolithography tool used in the production of semiconductor devices. This camera-like
step-and-scan tool projects the image of a circuit from a master image onto a photosensitized
silicon wafer. |
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Semiconductor
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A material with electrical conducting properties in between those of metals and
insulators. Essentially, semiconductors transmit electricity only under certain
circumstances, such as when given a positive or negative electric charge. Therefore, a
semiconductors ability to conduct can be turned on or off by manipulating those charges and
this allows the semiconductor to act as an electric switch. The most common semiconductor
material is silicon, used as the base of most semiconductor chips today because it is
relatively inexpensive and easy to create. |
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SoC
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System-on-Chip. A chip that incorporates functions currently performed by several chips on
a cost-effective basis. |
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SOI
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Silicon-On-Insulator. Silicon wafer consisting of a thin layer of oxide, on top of which
semiconductor devices are built. |
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SRAM
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Static Random Access Memory. A type of volatile memory product that is used in electronic
systems to store data and program instructions. Unlike the more common DRAM, it does not need
to be refreshed. |
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Transistor
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Tri-terminal semiconductor device in which input signal (voltage or current depending
on the type of transistor) controls output current. An individual circuit that can amplify or
switch electric current. This is the building block of all integrated circuits. |
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Volatile memory
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Memory products which lose their data content when the power supply is switched
off. |
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Wafer
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Thin, round, flat piece of silicon that is the base of most integrated circuits. |
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8-inch wafer equivalents
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Standard unit describing the equivalent amount of 8-inch wafers produced
after conversion, used to quantify levels of wafer production for purposes of comparison.
Figures of 8-inch wafer equivalents are derived by converting the number of wafers of all
dimensions (e.g., 6-inch, 8-inch and 12-inch) into their equivalent figures for 8-inch
wafers. 100 6-inch wafers are equivalent to 56.25 8-inch wafers. 100 12-inch wafers are
equivalent to 225 8-inch wafers. |
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. Selected Financial Data
The selected balance sheet data as of December 31, 2006 and 2007 and the selected statements
of income and cash flow data for the years ended December 31, 2005, 2006 and 2007 are derived from
our audited consolidated financial statements included elsewhere in this annual report. The selected
balance sheet data as of December 31, 2003, 2004 and 2005 and the selected statements of income and
cash flow data for the years ended December 31, 2003 and 2004 are derived from our audited
consolidated financial statements not included in this annual report.
3
Our financial statements have been prepared and presented in accordance with ROC GAAP, which
differs in many material respects from US GAAP. For the discussion of these differences, see Note
35 to our audited consolidated financial statements included elsewhere in this annual report. Some
of the items in the statements of income, cash flow and balance sheets have been reconciled to US
GAAP and are set forth below. The summary financial data set forth below should be read in
conjunction with Item 5. Operating and Financial Review and Prospects and our financial
statements and the notes to those statements included elsewhere in this annual report.
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Year Ended December 31, |
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2003 |
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2004 |
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2005 |
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2006 |
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2007 |
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NT$ |
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NT$ |
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NT$ |
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NT$ |
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NT$ |
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US$ |
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(in millions , except per share and per ADS data) |
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Consolidated Statement of Income Data: |
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ROC GAAP |
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Net operating revenues |
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95,704 |
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129,191 |
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100,316 |
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112,004 |
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113,311 |
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3,494 |
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Costs of goods sold |
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73,938 |
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92,393 |
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90,643 |
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90,638 |
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89,768 |
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2,768 |
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Gross profit |
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21,766 |
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36,798 |
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9,673 |
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21,366 |
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23,543 |
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726 |
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Operating expenses: |
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Sales and marketing |
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2,171 |
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2,775 |
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3,739 |
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3,366 |
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4,069 |
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125 |
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General and administrative |
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3,996 |
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4,853 |
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4,387 |
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3,422 |
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3,724 |
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115 |
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Research and development |
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5,859 |
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7,364 |
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9,634 |
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9,419 |
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9,631 |
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297 |
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Total operating expenses |
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12,026 |
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14,992 |
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17,760 |
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16,207 |
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17,424 |
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537 |
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Operating income (loss) |
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9,740 |
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21,806 |
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(8,087 |
) |
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5,159 |
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6,119 |
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189 |
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Net non-operating income |
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4,956 |
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9,938 |
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13,693 |
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31,428 |
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13,551 |
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418 |
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Income before income tax and minority
interest |
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14,696 |
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31,744 |
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5,606 |
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36,587 |
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19,670 |
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607 |
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Income tax expense |
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(980 |
) |
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(374 |
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(67 |
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(3,261 |
) |
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(2,809 |
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(87 |
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Cumulative effect of changes in accounting
principles (the net amount after deducted
tax expense $0)(1) |
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(113 |
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(1,189 |
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Minority interest loss |
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304 |
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473 |
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1,601 |
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482 |
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101 |
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3 |
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Net income |
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14,020 |
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31,843 |
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7,027 |
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32,619 |
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16,962 |
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523 |
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Earnings per share:(2)(3) |
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Basic |
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0.75 |
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1.68 |
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0.38 |
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1.81 |
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1.09 |
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0.03 |
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Diluted(5) |
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0.73 |
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1.65 |
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0.37 |
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1.75 |
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1.06 |
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0.03 |
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Shares used in earnings per share
calculation:(3) |
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Basic |
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18,788 |
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18,995 |
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18,647 |
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18,051 |
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15,618 |
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15,618 |
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Diluted(5) |
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19,218 |
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19,298 |
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18,934 |
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18,675 |
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16,073 |
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16,073 |
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Earnings per ADS:(3) |
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Basic |
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3.75 |
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8.40 |
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1.90 |
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9.05 |
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5.45 |
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0.17 |
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Diluted(5) |
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3.65 |
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8.25 |
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1.85 |
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8.75 |
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5.30 |
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0.16 |
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US GAAP |
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Net operating revenues |
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95,704 |
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129,191 |
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96,782 |
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112,004 |
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113,311 |
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3,494 |
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Costs of goods sold |
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(77,473 |
) |
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(96,895 |
) |
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(89,743 |
) |
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(93,326 |
) |
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(92,081 |
) |
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(2,839 |
) |
Operating income (loss) |
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5,632 |
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(24,681 |
) |
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(29,072 |
) |
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2,162 |
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(20,061 |
) |
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(619 |
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Net income (loss) |
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12,331 |
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(14,237 |
) |
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(15,669 |
) |
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21,797 |
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(9,264 |
) |
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(286 |
) |
Other comprehensive income (loss) |
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14,636 |
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(16,451 |
) |
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23,708 |
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(8,194 |
) |
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(4,863 |
) |
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(150 |
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Comprehensive income (loss) |
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26,967 |
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(30,688 |
) |
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8,039 |
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13,602 |
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(14,127 |
) |
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(436 |
) |
Earnings (losses) per share:(2)(4) |
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Basic |
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0.81 |
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(0.92 |
) |
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(1.01 |
) |
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1.48 |
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(0.66 |
) |
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(0.02 |
) |
Diluted(5) |
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0.80 |
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(0.92 |
) |
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(1.01 |
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1.44 |
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(0.66 |
) |
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(0.02 |
) |
Shares used in earnings (loss) per share
calculation:(4) |
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Basic |
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15,184 |
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15,444 |
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15,488 |
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14,689 |
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13,971 |
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13,971 |
|
Diluted(5) |
|
|
15,456 |
|
|
|
15,444 |
|
|
|
15,488 |
|
|
|
15,207 |
|
|
|
13,971 |
|
|
|
13,971 |
|
Earnings (loss) per ADS:(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
4.06 |
|
|
|
(4.61 |
) |
|
|
(5.06 |
) |
|
|
7.42 |
|
|
|
(3.32 |
) |
|
|
(0.10 |
) |
Diluted(5) |
|
|
3.99 |
|
|
|
(4.61 |
) |
|
|
(5.06 |
) |
|
|
7.18 |
|
|
|
(3.32 |
) |
|
|
(0.10 |
) |
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2003 |
|
2004 |
|
2005 |
|
2006 |
|
2007 |
|
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
US$ |
|
|
(in million) |
Consolidated Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROC GAAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
154,322 |
|
|
|
132,936 |
|
|
|
144,863 |
|
|
|
132,344 |
|
|
|
81,111 |
|
|
|
2,501 |
|
Long-term investment |
|
|
38,859 |
|
|
|
32,712 |
|
|
|
30,797 |
|
|
|
71,964 |
|
|
|
69,813 |
|
|
|
2,153 |
|
Property, plant and equipment |
|
|
149,557 |
|
|
|
192,024 |
|
|
|
159,114 |
|
|
|
151,828 |
|
|
|
137,219 |
|
|
|
4,231 |
|
Total assets |
|
|
354,514 |
|
|
|
376,305 |
|
|
|
347,049 |
|
|
|
367,653 |
|
|
|
299,558 |
|
|
|
9,237 |
|
Current liabilities |
|
|
44,140 |
|
|
|
36,598 |
|
|
|
36,960 |
|
|
|
36,104 |
|
|
|
45,288 |
|
|
|
1,396 |
|
Long-term debt (excluding current portion) |
|
|
60,334 |
|
|
|
61,288 |
|
|
|
41,692 |
|
|
|
30,383 |
|
|
|
7,495 |
|
|
|
231 |
|
Total liabilities |
|
|
107,203 |
|
|
|
101,202 |
|
|
|
82,429 |
|
|
|
70,251 |
|
|
|
56,561 |
|
|
|
1,744 |
|
Stockholders equity |
|
|
232,233 |
|
|
|
266,374 |
|
|
|
258,284 |
|
|
|
291,165 |
|
|
|
236,467 |
|
|
|
7,292 |
|
US GAAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
89,196 |
|
|
|
55,558 |
|
|
|
63,508 |
|
|
|
61,649 |
|
|
|
47,678 |
|
|
|
1,470 |
|
Working capital(6) |
|
|
108,539 |
|
|
|
96,690 |
|
|
|
105,846 |
|
|
|
95,927 |
|
|
|
35,273 |
|
|
|
1,088 |
|
Total assets |
|
|
486,307 |
|
|
|
452,630 |
|
|
|
426,706 |
|
|
|
401,628 |
|
|
|
310,614 |
|
|
|
9,578 |
|
Total liabilities |
|
|
107,533 |
|
|
|
101,599 |
|
|
|
83,943 |
|
|
|
71,226 |
|
|
|
56,795 |
|
|
|
1,751 |
|
Stockholders equity |
|
|
363,736 |
|
|
|
342,420 |
|
|
|
336,425 |
|
|
|
324,162 |
|
|
|
247,302 |
|
|
|
7,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2003 |
|
2004 |
|
2005 |
|
2006 |
|
2007 |
|
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
US$ |
|
|
(in millions , except per share and per ADS data) |
Other Consolidated Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROC GAAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure |
|
|
24,820 |
|
|
|
81,110 |
|
|
|
22,163 |
|
|
|
33,240 |
|
|
|
28,299 |
|
|
|
873 |
|
Cash provided by operating activities |
|
|
49,625 |
|
|
|
72,490 |
|
|
|
45,046 |
|
|
|
47,078 |
|
|
|
48,079 |
|
|
|
1,483 |
|
Cash used in investing activities |
|
|
(24,114 |
) |
|
|
(72,380 |
) |
|
|
(7,487 |
) |
|
|
(16,511 |
) |
|
|
(21,799 |
) |
|
|
(672 |
) |
Cash provided (used) by financing activities |
|
|
17,581 |
|
|
|
(16,137 |
) |
|
|
(29,592 |
) |
|
|
(45,056 |
) |
|
|
(72,694 |
) |
|
|
(2,242 |
) |
Net increase (decrease) in cash and cash
equivalents |
|
|
43,869 |
|
|
|
(17,390 |
) |
|
|
7,245 |
|
|
|
(14,774 |
) |
|
|
(46,175 |
) |
|
|
(1,424 |
) |
Gross profit margin |
|
|
22.7 |
% |
|
|
28.5 |
% |
|
|
9.6 |
% |
|
|
19.1 |
% |
|
|
20.8 |
% |
|
|
20.8 |
% |
Operating profit (loss) margin |
|
|
10.2 |
% |
|
|
16.9 |
% |
|
|
(8.1 |
)% |
|
|
4.6 |
% |
|
|
5.4 |
% |
|
|
5.4 |
% |
Net profit margin |
|
|
14.6 |
% |
|
|
24.6 |
% |
|
|
7.0 |
% |
|
|
29.1 |
% |
|
|
15.0 |
% |
|
|
15.0 |
% |
Capacity utilization rate (on an actual basis) |
|
|
84.8 |
% |
|
|
90.8 |
% |
|
|
72.4 |
% |
|
|
79.5 |
% |
|
|
81.9 |
% |
|
|
81.9 |
% |
Dividends declared per share (7) |
|
|
0.4 |
|
|
|
0.8 |
|
|
|
1.1 |
|
|
|
0.5 |
|
|
|
0.7 |
|
|
|
0.02 |
|
US GAAP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure |
|
|
24,827 |
|
|
|
81,127 |
|
|
|
22,163 |
|
|
|
33,240 |
|
|
|
28,299 |
|
|
|
873 |
|
Cash provided by operating activities |
|
|
49,543 |
|
|
|
72,312 |
|
|
|
45,019 |
|
|
|
46,339 |
|
|
|
45,739 |
|
|
|
1,410 |
|
Cash used in investing activities |
|
|
(32,923 |
) |
|
|
(88,402 |
) |
|
|
(6,036 |
) |
|
|
(9,691 |
) |
|
|
10,405 |
|
|
|
321 |
|
Cash provided (used) by financing activities |
|
|
17,587 |
|
|
|
(16,124 |
) |
|
|
(29,565 |
) |
|
|
(38,222 |
) |
|
|
(70,354 |
) |
|
|
(2,169 |
) |
Net increase (decrease) in cash and cash
equivalents |
|
|
34,977 |
|
|
|
(33,639 |
) |
|
|
7,951 |
|
|
|
(1,859 |
) |
|
|
(13,971 |
) |
|
|
(431 |
) |
Gross profit margin |
|
|
19.0 |
% |
|
|
25.0 |
% |
|
|
7.3 |
% |
|
|
16.7 |
% |
|
|
18.7 |
% |
|
|
18.7 |
% |
Operating profit (loss) margin |
|
|
5.9 |
% |
|
|
(19.1 |
)% |
|
|
(30.0 |
)% |
|
|
1.9 |
% |
|
|
(17.7 |
%) |
|
|
(17.7 |
%) |
Net profit (loss) margin |
|
|
12.9 |
% |
|
|
(11.0 |
)% |
|
|
(16.2 |
)% |
|
|
19.5 |
% |
|
|
(8.2 |
%) |
|
|
(8.2 |
%) |
|
|
|
(1) |
|
Refer to Note 3 to the audited consolidated financial statements included elsewhere in this
annual report. |
|
(2) |
|
Earnings (losses) per share is calculated by dividing net income by the weighted average
number of shares outstanding during the year. |
|
(3) |
|
Retroactively adjusted for all subsequent stock dividends and employee stock bonuses. |
|
(4) |
|
Retroactively adjusted for all subsequent stock dividends and capital reduction completed in
2007. |
|
(5) |
|
Diluted securities include convertible bonds and employee stock options. |
|
(6) |
|
Working capital equals current assets minus current liabilities. |
|
(7) |
|
Dividends declared per share are in connection with earnings and accumulated additional
paid-in capital. |
|
(8) |
|
Refer to Note 35 to the audited consolidated financial statements included elsewhere in this
annual report. |
5
Currency Translations and Exchange Rates
In portions of this annual report, we have translated New Taiwan dollar amounts into U.S.
dollars for the convenience of readers. The rate we used for the translations was NT$32.43 =
US$1.00, which was the noon buying rate announced by the Federal Reserve Bank of New York on
December 31, 2007. The translation does not mean that New Taiwan dollars could actually be
converted into U.S. dollars at that rate. The following table shows the noon buying rates for New
Taiwan dollars expressed in New Taiwan dollar per US$1.00.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At |
|
|
Average(1) |
|
High |
|
Low |
|
Period-End |
2003 |
|
|
34.40 |
|
|
|
34.98 |
|
|
|
33.72 |
|
|
|
33.99 |
|
2004 |
|
|
33.27 |
|
|
|
34.16 |
|
|
|
31.74 |
|
|
|
31.74 |
|
2005 |
|
|
32.13 |
|
|
|
33.77 |
|
|
|
30.65 |
|
|
|
32.80 |
|
2006 |
|
|
32.51 |
|
|
|
33.31 |
|
|
|
31.28 |
|
|
|
32.59 |
|
2007 |
|
|
32.85 |
|
|
|
33.41 |
|
|
|
32.26 |
|
|
|
32.43 |
|
October |
|
|
32.55 |
|
|
|
32.61 |
|
|
|
32.39 |
|
|
|
32.39 |
|
November |
|
|
32.33 |
|
|
|
32.40 |
|
|
|
32.26 |
|
|
|
32.26 |
|
December |
|
|
32.41 |
|
|
|
32.43 |
|
|
|
32.30 |
|
|
|
32.43 |
|
2008 (through April 30) |
|
|
31.23 |
|
|
|
32.49 |
|
|
|
29.99 |
|
|
|
30.45 |
|
January |
|
|
32.36 |
|
|
|
32.49 |
|
|
|
32.15 |
|
|
|
32.15 |
|
February |
|
|
31.61 |
|
|
|
32.03 |
|
|
|
30.90 |
|
|
|
30.92 |
|
March |
|
|
30.58 |
|
|
|
31.09 |
|
|
|
29.99 |
|
|
|
30.37 |
|
April (through April 30) |
|
|
30.35 |
|
|
|
30.52 |
|
|
|
30.26 |
|
|
|
30.45 |
|
|
|
|
Source: Federal Reserve Statistical Release, Board of Governors of the Federal Reserve System. |
|
(1) |
|
Determined by averaging the rates on the last business day of each month during the relevant
period for annual periods and the rates on each business day for monthly periods. |
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Our business and operations are subject to various risks, many of which are beyond our
control. If any of the risks described below actually occurs, our business, financial condition or
results of operations could be seriously harmed.
Risks Related to Our Business and Financial Condition
Our operating results fluctuate from quarter to quarter, which makes it difficult to predict our
future performance.
Our revenues, expenses and results of operations have varied significantly in the past and may
fluctuate significantly from quarter to quarter in the future due to a number of factors, many of
which are beyond our control. Our business and operations have at times in the past been negatively
affected by, and are expected to continue to be subject to the risk of, the following factors:
|
|
|
the seasonality and cyclical nature of both the semiconductor industry and the
markets served by our customers; |
|
|
|
|
our customers adjustments in their inventory; |
6
|
|
|
the loss of a key customer or the postponement of orders from a key customer; |
|
|
|
|
the rescheduling and cancellation of large orders; |
|
|
|
|
our ability to obtain equipment, raw materials, electricity, water and other
required utilities on a timely and economic basis; |
|
|
|
|
outbreaks of contagious diseases, including severe acute respiratory syndrome and
avian flu; |
|
|
|
|
environmental events, such as fires and earthquakes, or industrial accidents; and |
|
|
|
|
technological changes. |
Due to the factors noted above and other risks discussed in this section, many of which are
beyond our control, you should not rely on quarter-to-quarter comparisons to predict our future
performance. Unfavorable changes in any of the above factors may seriously harm our business,
financial condition and results of operations. In addition, our operating results may be below the
expectations of public market analysts and investors in some future periods. In this event, the
price of the shares or ADSs may underperform or fall.
The seasonality and cyclical nature of the semiconductor industry and periodic overcapacity make us
particularly vulnerable to significant and sometimes prolonged economic downturns.
The semiconductor industry has historically been highly cyclical and, at various times, has
experienced significant downturns. Since most of our customers operate in semiconductor-related
industries, variations in order levels from our customers can result in volatility in our revenues
and earnings. Because our business is, and will continue to be, largely dependent on the
requirements of semiconductor companies for our services, downturns in the semiconductor industry
will lead to reduced demand for our services. For example, the semiconductor industry experienced a
slowdown in most of 2005 until early 2006 to reflect industry-wide inventory correction.
Our net operating revenues are also typically affected by seasonal variations in market
conditions that contribute to the fluctuation of the average selling prices of semiconductor
services and products. The seasonal sales trends for semiconductor services and products closely
mirror those for consumer electronics, communication, and computer sales. We generally experience
seasonal lows in the demand for semiconductor services and products during the first half of the
year, primarily as a result of inventory correction by our customers. Any change in the general
seasonal variations, which we cannot anticipate may result in materially adverse effects on our
revenues, operations and businesses.
A decrease in demand for or selling prices of communication devices, consumer electronics and PCs
may decrease the demand for our services and reduce our margins.
Our customers generally use the semiconductors produced in our fabs in a wide variety of
applications. We derive a significant percentage of our operating revenues from customers who use
our manufacturing services to make semiconductors for communication devices, consumer electronics
and PCs. The communications and PC markets experienced a sudden and substantial market downturn and
inventory correction in most part of 2005. This downturn resulted in a reduced demand for our
services and hence decreased our revenues and earnings. Any significant decrease in the demand for
communication devices, consumer electronics or PCs may further decrease the demand for our
services. In addition, if the average selling prices of communication devices, consumer electronics
or PCs decline significantly, we will be pressured to further reduce our selling prices, which may
reduce our revenues and, therefore, reduce our margins significantly. As demonstrated by the
downturn in demand for high technology products, market conditions can change rapidly, without
apparent warning or advance notice. In such instances, our customers will experience inventory
buildup and/or difficulties in selling their products and, in turn, will reduce or cancel orders
for wafers from us. The timing, severity and recovery of these downturns cannot be predicted
accurately or at all. When they occur, our business, profitability and price of the shares and ADSs
are likely to suffer.
7
Overcapacity in the semiconductor industry may reduce our revenues, earnings and margins.
The prices that we can charge our customers for our services are significantly related to the
overall worldwide supply of integrated circuits and semiconductor products. The overall supply of
semiconductor products is based in part on the capacity of other companies, which is outside of our
control. Periods of overcapacity, if we are unable to offset the adverse effects of overcapacity
through, among other things, our technology and product mix, we may have to lower the prices we
charge our customers for our services and/or we may have to operate at significantly less than full
capacity. Such actions could reduce our margin and weaken our financial condition and results of
operations. We cannot give any assurance that an increase in the demand for foundry services in the
future will not lead to overcapacity again in the near future, which could materially adversely
affect our revenues, earnings and margins.
Any problem in the semiconductor outsourcing infrastructure can adversely affect our net operating
revenues and profitability.
Many of our customers depend on third parties to provide mask tooling, assembly and test
services. If these customers cannot timely obtain these services on reasonable terms, they may not
order any foundry services from us. This may significantly reduce our net operating revenues and
negatively affect our profitability.
We may be unable to implement new technology as it becomes available, which may result in our loss
of customers and market share.
The semiconductor industry is developing rapidly and the related technology is constantly
evolving. If we do not anticipate the technology evolution and rapidly adopt new and innovative
technology, we may not be able to produce sufficiently advanced products at competitive prices.
There is a risk that our competitors may adopt new technology before we do, resulting in our loss
of market share. If we are unable to begin offering these products on a competitive and timely
basis, we may lose to our competitors providing similar technologies to customers, which may cause
our net operating revenues to decline unless we can replace lost customers with new customers.
We may be unable to provide leading technology to our customers if we lose the support of our
technology partners.
Enhancing our manufacturing process technologies is critical to our ability to provide
services for our customers. We intend to continue to advance our process technologies through
internal research and development and alliances with other companies. Although we have an internal
research and development team focused on certain customers developing new semiconductor
manufacturing process technologies, we are dependent on our technology partners to advance our
portfolio of process technologies. We currently have patent cross-licensing agreements with several
companies, including Agere Systems Inc., or Agere (which was acquired by LSI Logic Corporation, or
LSI, in December 2006), International Business Machines Corporation, or IBM, Texas Instruments
Incorporated, or Texas Instruments, Freescale Semiconductor Inc., or Freescale and Renesas
Technology Corp., or Renesas. We also depend upon mask and equipment vendors to supply our
technology development teams with the masks and equipment needed to continuously develop more
advanced processing technologies. If we are unable to continue any of our joint development
arrangements, patent cross-licensing agreements and other agreements, on mutually beneficial
economic terms, if we re-evaluate the technological and economic benefits of such relationships, if
we are unable to enter into new technology alliances with other leading semiconductor suppliers, or
if we fail to secure masks and equipment from our vendors in a timely manner sufficient to support
our ongoing technology development, we may lose important customers because we are unable to
continue providing our customers with leading edge mass-producible process technologies.
Our business may suffer if we cannot compete successfully in our industry.
The worldwide semiconductor foundry industry is highly competitive. We compete with dedicated
foundry service providers such as Taiwan Semiconductor Manufacturing Company Limited, Semiconductor
Manufacturing International (Shanghai) Corporation and Chartered Semiconductor Manufacturing Ltd.,
as well as the foundry operation services of some integrated device manufacturers, such as IBM and
Toshiba Corporation, or Toshiba.
Integrated device manufacturers principally manufacture and sell their own proprietary
semiconductor products, but may also offer foundry service. Other competitors such as Samsung,
DongbuAnam Semiconductor, Grace Semiconductor Manufacturing Corp., X-FAB Semiconductors Foundries
AG and Silterra Malaysia Sdn. Bhd. have initiated efforts to develop substantial new foundry
capacity. New entrants in the foundry business are likely to initiate a trend of competitive
pricing and create potential overcapacity in legacy technology. Some of our competitors have
greater access to capital and substantially greater production, research and development, marketing
and other resources than we do. As a result, these companies may be able to compete more
aggressively over a longer period of time than we can.
8
The principal elements of competition in the wafer foundry market include:
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technical competence; |
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time-to-volume production and cycle time; |
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time-to-market; |
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research and development quality; |
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available capacity; |
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manufacturing yields; |
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customer service; |
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price; |
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management expertise; and |
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strategic alliances. |
Our ability to compete successfully also depends on factors partially outside of our control,
including product availability and industry and general economic trends. If we cannot compete
successfully in our industry, our business may suffer.
Our profit margin may substantially decline if we are unable to continuously improve our
manufacturing yields, maintain high capacity utilization and optimize the technology mix of our
silicon wafer production.
Our ability to maintain our profitability depends, in part, on our ability to:
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maintain our capacity utilization, that is, the wafer-out quantity of 8-inch wafer
equivalents divided by estimated total 8-inch equivalent capacity in a specified
period. The estimated capacity numbers may differ depending upon equipment delivery
schedules, pace of migration to more advanced process technologies and other factors
affecting production ramp-ups; |
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maintain or improve our manufacturing yield, that is, the percentage of usable
manufactured devices on a wafer; and |
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optimize the technology mix of our production, that is, the relative number of
wafers manufactured utilizing different process technologies. |
Our manufacturing yields directly affect our ability to attract and retain customers, as well
as the price of our services. Our capacity utilization affects our operating results because a
large percentage of our operating costs are fixed. Our technology mix affects utilization of our
equipment and process technologies, which can affect our
margins. If we are unable to continuously improve our manufacturing yields, maintain high
capacity utilization or optimize the technology mix of our wafer production, our profit margin may
substantially decline.
9
We may not be able to implement our planned growth if we are unable to obtain the financing
necessary to fund the substantial capital expenditures we expect to incur.
Our business and the nature of our industry require us to make substantial capital
expenditures leading to a high level of fixed costs. We expect to incur significant capital
expenditures in connection with our growth plans. These capital expenditures will be made in
advance of any additional sales to be generated by new or upgraded fabs as a result of these
expenditures. Given the fixed-cost nature of our business, we have in the past incurred, and may in
the future incur, operating losses if our revenues do not adequately offset our capital
expenditures. Additionally, our actual expenditures may exceed our planned expenditures for a
variety of reasons, including changes in:
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our growth plan; |
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our process technology; |
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market conditions; |
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interest rates; |
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exchange rate fluctuations; and |
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prices of equipment. |
We cannot assure you that additional financing will be available on satisfactory terms, if at
all. If adequate funds are not available on satisfactory terms, we may be forced to curtail our
expansion plans or delay the deployment of our services, which could result in a loss of customers
and limit the growth of our business.
We depend on a small number of customers for a significant portion of our net operating revenues
and a loss of some of these customers would result in the loss of a significant portion of our net
operating revenues.
We have been largely dependent on a small number of customers for a substantial portion of our
business. In 2007, our top ten customers accounted for 59.3% of our net operating revenues. Our top
two customers each accounted for 13.7% and 13.2%, respectively, of our net operating revenues in
2007. We expect that we will continue to be dependent upon a relatively limited number of customers
for a significant portion of our net operating revenues. We cannot assure you that our net
operating revenues generated from these customers, individually or in the aggregate, will reach or
exceed historical levels in any future period. Loss or cancellation of business from significant
changes in scheduled deliveries to, or decreases in the prices of services sold to, any of these
customers could significantly reduce our net operating revenues.
Our customers generally do not place purchase orders far in advance, which makes it difficult for
us to predict our future revenues, adjust production costs and allocate capacity efficiently on a
timely basis.
Our customers generally do not place purchase orders far in advance (usually two months before
shipment). In addition, due to the cyclical nature of the semiconductor industry, our customers
purchase orders have varied significantly from period to period. As a result, we do not typically
operate with any significant backlog. The lack of significant backlog makes it difficult for us to
forecast our revenues in future periods. Moreover, our expense levels are based in part on our
expectations of future revenues and we may be unable to adjust costs in a timely manner to
compensate for revenue shortfalls. We expect that in the future our net operating revenues in any
quarter will continue to be substantially dependent upon purchase orders received in that quarter.
10
Our inability to obtain, preserve and defend intellectual property rights could harm our
competitive position.
Our ability to compete successfully and achieve future growth will depend, in part, on our
ability to protect our proprietary technology and to secure critical processing technology that we
do not own at commercially reasonable terms. We cannot assure you that in the future we will be
able to independently develop, or secure from any third party, the technology required for
upgrading our production facilities. Our failure to successfully obtain such technology may
seriously harm our competitive position.
Our ability to compete successfully also depends on our ability to operate without infringing
on the proprietary rights of others. We have no means of knowing what patent applications have been
filed in the United States until they are granted. The semiconductor industry, because of the
complexity of the technology used and the multitude of patents, copyrights and other overlapping
intellectual property rights, is characterized by frequent litigation regarding patent, trade
secret and other intellectual property rights. It is common for patent owners to assert their
patents against semiconductor manufacturers. We have received from time to time communications from
third parties asserting patents that cover certain of our technologies and alleging infringement of
intellectual property rights of others, and we expect to continue to receive such communications in
the future. We do not believe that we are currently infringing on any patent rights. In the event
any third party were to make a valid claim against us or our customers, we could be required to:
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seek to acquire licenses to the infringed technology which may not be available on
commercially reasonable terms, if at all; |
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discontinue using certain process technologies, which could cause us to stop
manufacturing certain semiconductors; |
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pay substantial monetary damages; or |
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seek to develop non-infringing technologies, which may not be feasible. |
Any one of these developments could place substantial financial and administrative burdens on
us and hinder our business. Litigation, which could result in substantial costs to us and diversion
of our resources, may also be necessary to enforce our patents or other intellectual property
rights or to defend us or our customers against claimed infringement of the rights of others. If we
fail to obtain necessary licenses or if litigation relating to patent infringement or other
intellectual property matters occurs, it could hurt our reputation as a technology leader in our
industry and prevent us from manufacturing particular products or applying particular technologies,
which could reduce opportunities to generate revenues.
Two of our former executives were charged with criminal offenses and our company was fined for
violations of the Act Governing Relations Between Peoples of the Taiwan Area and the Mainland Area
in connection with our alleged involvement in the operation of Hejian Technology (Suzhou) Co.,
Ltd., a semiconductor manufacturer in China.
Hejian Technology (Suzhou) Co., Ltd., or Hejian, a semiconductor manufacturer in Suzhou,
China, was set up in December 2001. Soon after the establishment of Hejian, there were various
rumors that Hejian was set up by us, which we denied immediately because we did not inject any
capital into nor did we transfer any technology to Hejian.
In early 2006, Hsinchu District Prosecutors Office brought criminal charges with the Hsinchu
District Court against our former Chairman, Robert H. C. Tsao and our former Vice Chairman, John
Hsuan in connection with their alleged breach of fiduciary duties and certain violations of the ROC
Commercial Accounting Act. Prior to such charges, both our former Chairman and former Vice Chairman
resigned from their respective positions with our company. The Hsinchu District Court found our
former Chairman and formal Vice Chairman not guilty in October 2007, and the Prosecutors office
filed an appeal with the Taiwan High Court in November 2007. The case is still pending in the
Taiwan High Court.
11
The ROC Financial Supervisory Commission, or the ROC FSC, a regulatory authority that
supervises securities, banking, futures, and insurance activities in Taiwan, also began their
investigation into any violation of ROC securities laws by us. In April 2005, our former Chairman
was fined (1) in the amount of NT$2.4 million by the ROC FSC for our delay in making timely public
disclosure (within two days) regarding the information relating to Hejian, which was resolved in
our board meeting on March 4, 2005 (the March 4 Resolution), and (2) in the amount of NT$0.6
million for our failure to disclose the information regarding the assistance we had provided to
Hejian. Our former Chairmans appeal in relation to such fines was overruled in early 2006, and a
lawsuit had been filed by our former Chairman with the Taipei Administrative High Court. In
December 2007, the Taipei Administrative High Court revoked the ROC FSCs decision and ruled in
favor of our former Chairman. In January 2008, the ROC FSC filed an appeal with the Supreme
Administrative Court. The case is still pending in the Supreme Administrative Court.
In connection with the March 4 Resolution, our company was also fined in the amount of
NT$30,000 by the Taiwan Stock Exchange for a delay in making public disclosure. After our former
Chairman and former Vice Chairman were indicted by the prosecutor, our company was found by the ROC
Ministry of Economic Affairs (the ROC MOEA) to be in violation of the Act Governing Relations
Between Peoples of the Taiwan Area and the Mainland Area and fined in the amount of NT$5 million
for our alleged illegal investment in Hejian. Our appeal to the ROC MOEA in relation to such fines
was denied in late 2006. We filed an administrative lawsuit in December 2006 with the Taipei
Administrative High Court. In July 2007, the Taipei Administrative High Court revoked the ROC
MOEAs decision and ruled in favor of us. In August 2007, the ROC MOEA filed an appeal with the
Supreme Administrative Court. The case is still pending in the Supreme Administrative Court.
We have been offered a 15% interest in a holding company that owns Hejian, but such investment may
not materialize.
ROC law prohibits investment in China by Taiwanese makers of semiconductors without government
approval. In March 2005, the Chairman of the holding company of Hejian offered us a 15% interest in
the holding company of Hejian. Immediately after we received the offer, we filed an application
with the Investment Commission for their executive guidance and disclosed our receipt of such offer
to investors and the public. As of the date of this annual report, we have not entered into any
agreement to formalize the terms and conditions in connection with the transfer of the 15%
interest. Pending ROC regulatory approval, we will endeavor to include this 15% interest in our
assets, which will then be reflected on our financial statements. We cannot assure you at present
that the ROC government will approve our acceptance of this 15% interest, or if such acceptance is
approved by the ROC government, the agreement that formalizes the terms and conditions will be on
the terms that are favorable to us.
Our operations and business will suffer if we lose one or more of our key personnel without
adequate replacements.
Our future success to a large extent depends on the continued service of our Chairman and key
executive officers. We do not carry key person insurance on any of our personnel. If we lose the
services of any of our Chairman or key executive officers, it could be difficult to find and
integrate replacement personnel in a short period of time, which could harm our operations and the
growth of our business.
We may have difficulty attracting and retaining skilled employees, who are critical to our future
success.
The success of our business depends upon attracting and retaining experienced executives,
engineers and other employees to implement our strategy. The competition for skilled employees is
intense. We expect demand for personnel in Taiwan to increase in the future as new wafer
fabrication facilities and other businesses are established in Taiwan. We do not have long-term
employment contracts with any of our employees. If we were unable to retain our existing personnel
or attract, assimilate and recruit new experienced personnel in the future, it could seriously
disrupt our operations and delay or restrict the growth of our business.
12
Our transactions with affiliates and shareholders may hurt our profitability and competitive
position.
We have provided foundry services to several of our affiliates and shareholders. These
transactions were conducted on an arms-length basis. Other than capacity commitments to our former
foundry venture partners, we currently do not provide any preferential treatment to any of these
affiliates and shareholders. However, we may in the future reserve or allocate our production
capacity to these companies if there is a shortage of foundry services in the market to enable
these companies to maintain their operations and/or to protect our investments in them. This
reservation or allocation may reduce our capacity available for our other customers, which may
damage our relationships with other customers and discourage them from using our services. This may
hurt our profitability and competitive position.
We could experience a loss in investor confidence in the reliability of our financial statements if
we restate our financial statements again in the future, thus could negatively impact the market
price of the shares or ADSs.
Subsequent to the filing of our initial annual report on Form 20-F for the year ended December
31, 2004, and in the process of addressing certain comments received from the Securities and
Exchange Commission on such initial annual report, we discovered that certain US GAAP-related
financial information was miscalculated. As a result, we restated our consolidated financial
statements for the years ended December 31, 2002, 2003 and 2004 with respect to certain US GAAP
financial information relating to non-cash charges and adjustments to goodwill, derivative
instruments and employee stock bonuses. We filed our restated financial statements in an amendment
to our annual report on Form 20-F/A for the year ended December 31, 2004 on February 13, 2006. If
we are required to revise, amend or restate our financial statements again in the future, we could
experience a loss in investor confidence in the reliability of our financial statements, which
could negatively impact the market price of the shares or ADSs.
The differences between ROC and U.S. accounting standards affect the amount of our net income.
Our financial statements are prepared under ROC GAAP, which differ in certain significant
respects from US GAAP. For example, ROC GAAP does not require the recognition of the market value
of our shares distributed as bonuses to our employees in the calculation of net income. As a
result, our net income (loss) in 2005, 2006 and 2007 under US GAAP was NT$(15,669) million,
NT$21,797 million and NT$(9,264) million (US$(286) million), respectively, as compared to net
income under ROC GAAP of NT$7,027 million, NT$32,619 million and NT$16,962 million (US$523 million)
in 2005, 2006 and 2007, respectively. For a discussion of these differences, see Note 35 to our
audited consolidated financial statements included elsewhere in this annual report.
Any future outbreak of contagious diseases may materially and adversely affect our business and
operations, as well as our financial condition and results of operations.
Any future outbreak of contagious diseases, such as avian influenza or severe acute
respiratory syndrome, may disrupt our ability to adequately staff our business and may generally
disrupt our operations. If any of our employees is suspected of having contracted any contagious
disease, we may under certain circumstances be required to quarantine such employees and the
affected areas of our premises. Therefore, we may have to temporarily suspend part of or all of our
operations. Furthermore, any future outbreak may restrict the level of economic activity in
affected regions, including Taiwan, which may also adversely affect our business and prospects. As
a result, we cannot assure you that any future outbreak of contagious diseases would not have a
material adverse effect on our financial condition and results of operations.
Risks Relating to Manufacturing
Our manufacturing processes are highly complex, costly and potentially vulnerable to impurities and
other disruptions that can significantly increase our costs and delay product shipments to our
customers.
Our manufacturing processes are highly complex, require advanced and costly equipment and are
continuously being modified to improve manufacturing yields and product performance. Impurities or
other difficulties in the manufacturing process or defects with respect to equipment or supporting
facilities can lower
manufacturing yields, interrupt production or result in losses of products in process. As
system complexity has increased and process technology has become more advanced, manufacturing
tolerances have been reduced and requirements for precision have become even more demanding.
Although we have been enhancing our manufacturing capabilities and efficiency, from time to time we
have experienced production difficulties that have caused delivery delays and quality control
problems, as is common in the semiconductor industry. In the past we have encountered the following
problems:
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capacity constraints due to changes in product mix or the delayed delivery of
equipment critical to our production, including scanners, steppers and chemical
stations; |
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construction delays during expansions of our clean rooms and other facilities; |
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difficulties in increasing production at new and existing facilities; |
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difficulties in upgrading or expanding existing facilities; |
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manufacturing execution system or automatic transportation system failure; |
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changing or upgrading our process technologies; and |
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raw materials shortages and impurities. |
We cannot guarantee that we will be able to increase our manufacturing capacity and efficiency
in the future to the same extent as in the past.
We may have difficulty in ramping up production in accordance with our schedule, which could cause
delays in product deliveries and decreases in manufacturing yields.
As is common in the semiconductor industry, we have from time to time experienced difficulties
in ramping up production at new or existing facilities or effecting transitions to new
manufacturing processes. As a result, we have suffered delays in product deliveries or reduced
manufacturing yields. We may encounter similar difficulties in connection with:
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the migration to more advanced process technologies, such as 65- and 45-nanometer
process technology; |
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the joint development with vendors for more powerful tools (both in production and
inspection) needed in the future to meet advanced process technology requirements; and |
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the adoption of new materials in our manufacturing processes. |
We may face construction delays, interruptions, infrastructure failure and delays in upgrading
or expanding existing facilities, or changing our process technologies, any of which might
adversely affect our production schedule. Our failure to follow our production schedule could delay
the time required to recover our investments and seriously affect our profitability.
Our production schedules could be delayed and we may lose customers if we are unable to obtain raw
materials and equipment in a timely manner.
We depend on our suppliers for raw materials. To maintain competitive manufacturing
operations, we must obtain from our suppliers, in a timely manner, sufficient quantities of quality
materials at acceptable prices. Although we source our raw materials from several suppliers, a
small number of these suppliers account for a substantial amount of our supply of raw materials
because of the consistent quality of these suppliers wafers. For example, in 2007, we purchased a
majority of our silicon wafers from three makers, Shin-Etsu Handotai Corporation, or Shin-Etsu,
MEMC Electronic Materials, Inc. and Sumco Croup (including Sumco Corporation and
Formosa Sumco Technology Corporation). We do not have long-term contracts with most of our
suppliers. From time to time, our suppliers have extended lead time or limited the supply of
required materials to us because of capacity constraints. Consequently, from time to time, we have
experienced difficulty in obtaining the quantities of raw materials we need on a timely basis.
14
In addition, from time to time we may reject materials that do not meet our specifications,
resulting in declines in output or manufacturing yields. We cannot assure you that we will be able
to obtain sufficient quantities of raw materials and other supplies in a timely manner. If the
supply of materials is substantially diminished or if there are significant increases in the costs
of raw materials, we may be forced to incur additional costs to acquire sufficient quantities of
raw materials to sustain our operations, which may increase our marginal costs and reduce
profitability.
We also depend on a limited number of manufacturers and vendors that make and maintain the
complex equipment we use in our manufacturing processes. We also rely on these manufacturers and
vendors to improve our technology to meet our customers demands as technology improves. In periods
of unpredictable and highly diversified market demand, the lead time from order to delivery of this
equipment can be as long as six to 12 months. If there are delays in the delivery of equipment or
if there are increases in the cost of equipment, it could cause us to delay our introduction of new
manufacturing capacity or technologies and delay product deliveries, which may result in the loss
of customers and revenues.
We may be subject to the risk of loss due to fire because the materials we use in our manufacturing
processes are highly flammable.
We use highly flammable materials such as silane and hydrogen in our manufacturing processes
and may therefore be subject to the risk of loss arising from fires. The risk of fire associated
with these materials cannot be completely eliminated. We maintain insurance policies to reduce
losses caused by fire, including business interruption insurance. While we believe that our
insurance coverage for damage to our property and business interruption due to fire is consistent
with semiconductor industry practice, our insurance coverage is subject to deductibles and
self-insured retention and may not be sufficient to cover all of our potential losses. If any of
our fabs were to be damaged or cease operations as a result of a fire, it would temporarily reduce
manufacturing capacity and reduce revenues.
We and many of our customers and suppliers are vulnerable to natural disasters and other events
outside of our control, which may seriously disrupt our operations.
Most of our assets and many of our customers and suppliers are located in certain parts of
Taiwan. Our operations and the operations of our customers and suppliers are vulnerable to
earthquakes, floods, droughts, power losses and similar events that affect the locations of our
operations. The occurrence of any of these events could interrupt our services and cause severe
damages to wafers in process, or cause significant business interruptions. Although we maintain
property and business interruption insurance for such risks, there is no guarantee that future
damages or business loss from earthquakes will be covered by such insurance, that we will be able
to collect from our insurance carriers, should we choose to claim under our insurance policies, or
that such coverage will be sufficient. In addition, insufficient quantity of power supplies to the
Hsinchu Science Park has occasionally occurred, and has disrupted our operations.
Our operations may be delayed or interrupted and our business could suffer if we violate
environmental regulations.
We are always subject to environmental regulations and a failure or a claim that we have
failed to comply with these environmental regulations could cause delays in our production and
capacity expansion and affect our public image, either of which could harm our business. In
addition, as environmental regulations are becoming more comprehensive and stringent, we may incur
a greater amount of capital expenditures in technology innovation and materials substitution in
order to comply with such regulations, which may adversely affect our results of operations.
15
Disruptions
in the international trading environment may seriously decrease our international sales.
A substantial portion of our net operating revenues is derived from sales to customers located
in countries other than those where our fabs are located, including Taiwan, Singapore and Japan. In
2005, 2006 and 2007, sales to our overseas customers accounted for 56.9%, 65.8% and 62.0%,
respectively, of our net operating revenues. We expect sales to customers outside of Taiwan,
Singapore and Japan to continue to represent a significant portion of our net operating revenues.
The success and profitability of our international activities depend on certain factors beyond our
control, such as general economic conditions, labor conditions, political stability, tax laws,
import duties and foreign exchange controls of the countries in which we sell our products, and the
political and economic relationships between Taiwan, Singapore and Japan and these countries. As a
result, our manufacturing services will continue to be vulnerable to disruptions in the
international trading environment, including adverse changes in foreign government regulations,
political unrest and international economic downturns.
These disruptions in the international trading environment affect the demand for our
manufacturing services and change the terms upon which we provide our manufacturing services
overseas, which could seriously decrease our international sales.
Political, Economic and Regulatory Risks
We face substantial political risks associated with doing business in Taiwan, particularly due to
the tense relationship between the ROC and the Peoples Republic of China, or the PRC, that could
negatively affect the value of your investment.
Our principal executive offices and most of our assets and operations are located in Taiwan.
Accordingly, our business, financial condition and results of operations and the market price of
our shares and the ADSs may be affected by changes in ROC governmental policies, taxation,
inflation or interest rates and by social instability and diplomatic and social developments in or
affecting Taiwan which are outside of our control. Taiwan has a unique international political
status. Since 1949, Taiwan and the Chinese mainland have been separately governed. The PRC claims
that it is the sole government in China and that Taiwan is part of China. Although significant
economic and cultural relations have been established during recent years between the ROC and the
PRC, relations have often been strained. The PRC government has refused to renounce the use of
military force to gain control over Taiwan and, in March 2005, further passed an Anti-Secession Law
that authorizes non-peaceful means and other necessary measures should Taiwan move to gain
independence from the PRC. Past developments in relations between the ROC and the PRC have on
occasions depressed the market prices of the securities of companies in the ROC. Such initiatives
and actions are commonly viewed as having a detrimental effect to reunification efforts between the
ROC and the PRC. Relations between the ROC and the PRC and other factors affecting military,
political or economic conditions in Taiwan could materially and adversely affect our financial
condition and results of operations, as well as the market price and the liquidity of our
securities.
Our business depends on the support of the ROC government, and a decrease in this support may
increase our labor costs and decrease our net income after tax.
The ROC government has been very supportive of technology companies such as us. For instance,
the ROCs labor laws and regulations do not require employees of semiconductor companies, including
our company, to be unionized, and permit these employees to work shifts of 10 hours each day on a
two-days-on, two-days-off basis. We cannot assure you, however, that these labor laws and
regulations will not change in the future. In the event that the ROC government requires our
employees to be unionized or decreases the number of hours our employees may work in a given day,
our labor costs may increase significantly which could result in lower margins.
We, like many ROC technology companies, have benefited from substantial tax incentives
provided by the ROC government. In 2007, such incentives resulted in a tax credit in the amount of
NT$926 million (US$29 million). If these incentives are curtailed or eliminated, our net income
after tax may decrease substantially.
16
The trading price of the shares and ADSs may be adversely affected by the general activities of the
Taiwan Stock Exchange and U.S. stock exchanges, the trading price of our shares, increases in
interest rates and the economic performance of Taiwan.
Our shares are listed on the Taiwan Stock Exchange. The trading price of our ADSs may be
affected by the trading price of our shares on the Taiwan Stock Exchange and the economic
performance of Taiwan. The Taiwan Stock Exchange is smaller and, as a market, more volatile than
the securities markets in the United States and a number of European countries. The Taiwan Stock
Exchange has experienced substantial fluctuations in the prices and volumes of sales of listed
securities, and there are currently limits on the range of daily price movements on the Taiwan
Stock Exchange. The Taiwan Stock Exchange is particularly volatile during times of political
instability, such as when relations between Taiwan and the PRC are strained. Moreover, the Taiwan
Stock Exchange has experienced problems such as market manipulation, insider trading and payment
defaults, and the government of Taiwan has from time to time intervened in the stock market by
purchasing stocks listed on the Taiwan Stock Exchange. The recurrence of these or similar problems
could decrease the market price and liquidity of the shares and ADSs.
From September 19, 2000, the commencement date of the listing of our ADSs on the New York
Stock Exchange, or the NYSE, to December 31, 2007, the daily reported closing prices of our ADSs
ranged from US$14.88 per ADS to US$2.85 per ADS. The market price of the ADSs may also be affected
by general trading activities on the U.S. stock exchanges, which recently have experienced
significant price volatility with respect to shares of technology companies. Fluctuation in
interest rates and other general economic conditions may also have an effect on the market price of
the ADSs.
Currency fluctuations could increase our costs relative to our revenues, which could adversely
affect our profitability.
More than half of our net operating revenues are denominated in currencies other than New
Taiwan dollars, primarily U.S. dollars and Japanese Yen. On the other hand, more than half of our
costs of direct labor, raw materials and overhead are incurred in New Taiwan dollars. Although we
hedge a portion of the resulting net foreign exchange position through the use of forward exchange
contracts, we are still affected by fluctuations in exchange rates among the U.S. dollar, the
Japanese Yen, the New Taiwan dollar and other currencies. Any significant fluctuation in exchange
rates may be harmful to our financial condition. In addition, fluctuations in the exchange rate
between the U.S. dollar and the New Taiwan dollar will affect the U.S. dollar value of the ADSs and
the U.S. dollar value of any cash dividends we pay, which could have a corresponding effect on the
market price of the ADSs.
Our future tax obligations may adversely affect our profitability.
The ROC government enacted the ROC Income Basic Tax Act, also known as the Minimum Income Tax
Statute, or the Statute, which became effective on January 1, 2006 and imposes an alternative
minimum tax, or AMT. The AMT is designed to remedy the current excessive tax incentives for
individuals and businesses. The AMT imposed under the Statute is a supplemental tax which is
payable if the income tax payable pursuant to the ROC Income Tax Act is below the minimum amount
prescribed under the Statute. For the purpose of calculating the AMT, the taxable income defined
under the Statute includes most income that is exempted from income tax under various legislations,
such as those providing tax holidays and investment tax credits. For businesses, the incomes which
previously enjoyed tax-exemption privileges under relevant tax regulations, such as the Act for the
Establishment and Administration of the Science Parks and the Statute for Upgrading Industries will
be subject to the new AMT system for the calculation of business taxpayers aggregate incomes. The
AMT rate for business entities is 10%. Under the Statute, a company will be subject to a 10% AMT if
its annual taxable income under the Statute exceeds NT$2 million. However, the Statute
grandfathered certain tax exemptions granted prior to the enactment of the AMT. For example,
businesses already qualified for five-year tax holidays and having obtained the applicable
permission issued by the competent authority before December 31, 2005 may continue to enjoy tax
incentives, and the income exempted thereunder will not to be added to the taxable income for the
purpose of calculating the AMT, so long as the construction of their investment projects breaks
ground within one year from January 1, 2006 and is completed within three years commencing from the
day immediately following their receipts of the applicable permission issued by the competent
authority. In the event of the expiration of the tax exemption
periods or an increase in other taxable income subject to the Statute, such 10% AMT may
adversely reduce our net income after tax.
17
Risks Related to the Shares and ADSs and Our Trading Markets
Restrictions on the ability to deposit shares into our ADS program may adversely affect the
liquidity and price of the ADSs.
The ability to deposit shares into our ADS program is restricted by ROC law. Under current ROC
law, no person or entity, including you and us, may deposit shares into our ADS program without
specific approval of the ROC FSC except for the deposit of the shares into our ADS program and for
the issuance of additional ADSs in connection with:
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(1) |
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distribution of share dividends or free distribution of our shares; |
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(2) |
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exercise of the preemptive rights of ADS holders applicable to the shares
evidenced by ADSs in the event of capital increases for cash; or |
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(3) |
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delivery of our shares which are purchased in the domestic market in Taiwan
directly by the investor or through the depositary or are already in the possession of
the investor to the custodian for deposit into our ADS program, subject to the
following conditions: (a) the re-issuance is permitted under the deposit agreement and
custody agreement, (b) the depositary may accept deposit of those shares and issue the
corresponding number of ADSs with regard to such deposit only if the total number of
ADSs outstanding after the issuance does not exceed the number of ADSs previously
approved by the ROC FSC, plus any ADSs issued pursuant to the events described in (1)
and (2) above and (c) this deposit may only be made to the extent previously issued
ADSs have been withdrawn. |
As a result of the limited ability to deposit shares into our ADS program, the prevailing
market price of our ADSs on the NYSE may differ from the prevailing market price of the equivalent
number of our shares on the Taiwan Stock Exchange.
Holders of our ADSs will not have the same proposal or voting rights as the holders of our shares,
which may affect the value of your investment.
Except for treasury shares and shares held by our subsidiaries which meet certain criteria
provided under the ROC Company Act, each common share is generally entitled to one vote and no
voting discount will be applied. However, except as described in this annual report and in the
deposit agreement, holders of our ADSs will not be able to exercise voting rights attached to the
shares evidenced by our ADSs on an individual basis. Holders of our ADSs will appoint the
depositary or its nominee as their representative to exercise the voting rights attached to the
shares represented by the ADSs. The voting rights attached to the shares evidenced by our ADSs must
be exercised as to all matters brought to a vote of shareholders collectively in the same manner.
Moreover, holders of the ADSs do not have individual rights to propose any matter for
shareholders votes at our shareholders meetings. However, holders of at least 51% of the ADS
outstanding at the relevant record date may request the depositary to submit to us one proposal per
year for consideration at our annual ordinary shareholders meeting, provided that such proposal
meets certain submission criteria and limitations, including the language and the length of the
proposal, the time of submission, the required certification or undertakings, and the attendance at
the annual ordinary shareholders meeting. A qualified proposal so submitted by the depositary will
still be subject to review by our board of directors and there is no assurance that the proposal
will be accepted by our board of directors for inclusion in the agenda of our annual ordinary
shareholders meeting. Furthermore, if we determine, at our discretion, that the proposal submitted
by the depositary does not qualify, we have no obligation to notify the depositary or to allow the
depositary to modify such proposal.
Furthermore, if holders of at least 51% of the ADSs outstanding at the relevant record date
instruct the depositary to vote in the same manner regarding a resolution, including election of
directors and/or supervisors, the
depositary will appoint our Chairman, or his designee, to represent the ADS holders at the
shareholders meetings and to vote the shares represented by the ADSs outstanding in the manner so
instructed. If by the relevant record date the depositary has not received instructions from
holders of ADSs holding at least 51% of the ADSs to vote in the same manner for any resolution,
then the holders will be deemed to have instructed the depositary to authorize and appoint our
Chairman, or his designee, to vote all the shares represented by ADSs at his sole discretion, which
may not be in your interest.
18
The rights of holders of our ADSs to participate in our rights offerings may be limited, which may
cause dilution to their holdings.
We may from time to time distribute rights to our shareholders, including rights to acquire
our securities. Under the deposit agreement, the depositary will not offer those rights to ADS
holders unless both the rights and the underlying securities to be distributed to ADS holders are
either registered under the Securities Act or exempt from registration under the Securities Act. We
are under no obligation to file a registration statement with respect to any such rights or
underlying securities or to endeavor to cause such a registration statement to be declared
effective. Accordingly, holders of our ADSs may be unable to participate in our rights offerings
and may experience dilution in their holdings.
Changes in exchange controls that restrict your ability to convert proceeds received from your
ownership of ADSs may have an adverse effect on the value of your investment.
Your ability to convert proceeds received from your ownership of ADSs depends on existing and
future exchange control regulations of the Republic of China. Under the current laws of the
Republic of China, an ADS holder or the depositary, without obtaining further approvals from the
ROC Central Bank of China, or the CBC, or any other governmental authority or agency of the
Republic of China, may convert NT dollars into other currencies, including U.S. dollars, in respect
of:
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the proceeds of the sale of shares represented by ADSs or received as share
dividends with respect to the shares and deposited into the depositary receipt
facility; and |
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any cash dividends or distributions received from the shares represented by ADSs. |
In addition, the depositary may also convert into NT dollars incoming payments for purchases
of shares for deposit in the depositary receipt facility against the creation of additional ADSs.
If you withdraw the shares underlying your ADSs and become a holder of our shares, you may convert
into NT dollars subscription payments for rights offerings. The depositary may be required to
obtain foreign exchange approval from the CBC on a payment-by-payment basis for conversion from NT
dollars into foreign currencies of the proceeds from the sale of subscription rights of new shares.
Although it is expected that the CBC will grant approval as a routine matter, required approvals
may not be obtained in a timely manner, or at all.
Under the Republic of China Foreign Exchange Control Law, the Executive Yuan of the Republic
of China may, without prior notice but subject to subsequent legislative approval, impose foreign
exchange controls or other restrictions in the event of, among other things, a material change in
international economic conditions.
Our public shareholders may have more difficulty protecting their interests than they would as
shareholders of a U.S. corporation.
Our corporate affairs are governed by our articles of incorporation and by laws governing ROC
corporations. The rights of our shareholders to bring shareholders suits against us or our board
of directors under ROC law are much more limited than those of the shareholders of U.S.
corporations. Therefore, our public shareholders may have more difficulty protecting their
interests in connection with actions taken by our management, members of our board of directors or
controlling shareholders than they would as shareholders of a U.S. corporation. Please refer to
Item 10. Additional InformationB. Memorandum and Articles of AssociationRights to Bring
Shareholders Suits included elsewhere in this annual report for a detailed discussion of the
rights of our shareholders to bring legal actions against us or our directors under ROC law.
19
Holders of our ADSs will be required to appoint several local agents in Taiwan if they withdraw
shares from our ADS program and become our shareholders, which may make ownership burdensome.
Non-ROC persons wishing to withdraw shares represented by their ADSs from our ADS program and
hold our shares represented by those ADSs are required to, among other things, appoint a local
agent or representative with qualifications set forth by the ROC FSC to open a securities trading
account with a local brokerage firm, pay ROC taxes, remit funds and exercise shareholders rights.
In addition, the withdrawing holders are also required to appoint a custodian bank with
qualifications set forth by the ROC FSC to hold the securities in safekeeping, make confirmations,
settle trades and report all relevant information. Without making this appointment and opening of
the accounts, the withdrawing holders would not be able to subsequently sell our shares withdrawn
from a depositary receipt facility on the Taiwan Stock Exchange. Under ROC law and regulations,
citizens of the PRC are not permitted to hold our shares or withdraw shares represented by ADSs
from our ADS program unless they obtain the approval from the competent authority. Due to the
absence of relevant rules or guidelines, PRC persons are currently not able to conduct investments
in the ROC.
You may not be able to enforce a judgment of a foreign court in the ROC.
We are a company limited by shares incorporated under the ROC Company Act. Most of our assets
and most of our directors, supervisors and executive officers and experts named in the registration
statement are located in Taiwan. As a result, it may be difficult for you to enforce judgments
obtained outside Taiwan upon us or such persons in Taiwan. We have been advised by our ROC counsel
that any judgment obtained against us in any court outside the ROC arising out of or relating to
the ADSs will not be enforced by ROC courts if any of the following situations shall apply to such
final judgment:
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the court rendering the judgment does not have jurisdiction over the subject matter
according to ROC law; |
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the judgment is contrary to the public order or good morals of the ROC; |
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the judgment was rendered by default, except where the summons or order necessary
for the commencement of the action was legally served on us within the jurisdiction of
the court rendering the judgment within a reasonable period of time or with judicial
assistance of the ROC; or |
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judgments of ROC courts are not recognized in the jurisdiction of the court
rendering the judgment on a reciprocal basis. |
We may be considered a passive foreign investment company, which could result in adverse U.S. tax
consequences for U.S. investors.
We do not believe that we were a passive foreign investment company, or PFIC, for 2007 and we
do not expect to become one in the future, although there can be no assurance in this regard. Based
upon the nature of our business activities, we may be classified as a passive foreign investment
company for U.S. federal income tax purposes. Such characterization could result in adverse U.S.
tax consequences to you if you are a U.S. investor.
For example, if we are a PFIC, our U.S. investors may become subject to increased tax
liabilities under U.S. tax laws and regulations and will become subject to burdensome reporting
requirements. The determination of whether or not we are a PFIC is made on an annual basis and will
depend on the composition of our income and assets from time to time. Specifically, for any taxable
year we will be classified as a PFIC for U.S. tax purposes if either (i) 75% or more of our gross
income in a taxable year is passive income or (ii) the average percentage of our assets (which
includes cash) by value in a taxable year which produce or are held for the production of passive
income is at least 50%. The calculation of the value of our assets will be based, in part, on the
quarterly market value of shares and ADSs, which is subject to change. In addition, the composition
of our income and assets will be affected by how, and how quickly, we spend the cash we have raised
in prior offerings. See Taxation U.S. Federal Income Tax Considerations For U.S. Persons
Passive foreign investment company.
20
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Our legal and commercial name is United Microelectronics Corporation, commonly known as UMC.
We were incorporated under the ROC Company Law as a company limited by shares in May 1980 and our
shares were listed on the Taiwan Stock Exchange in 1985. Our principal executive office is located
at No. 3 Li-Hsin Road II, Hsinchu Science Park, Hsinchu, Taiwan, Republic of China, and our
telephone number is 886-3-578-2258. Our Internet website address is www.umc.com. The information on
our website does not form part of this annual report. Our ADSs have been listed on the NYSE under
the symbol UMC since September 19, 2000.
We are one of the worlds largest independent semiconductor foundries and a leader in
semiconductor manufacturing process technologies. Our primary business is the manufacture, or
fabrication, of semiconductors, sometimes called chips or integrated circuits, for others.
Using our own proprietary processes and techniques, we make chips to the design specifications of
our many customers. Our company maintains a diversified customer base across industries, including
communication, consumer electronics, computer, memory and others, while continuing to focus on
manufacturing for high growth, large volume applications, including networking, telecommunications,
Internet, multimedia, PCs and graphics. We sell and market mainly wafers which in turn are used in
a number of different applications by our customers. Percentages of our net wafer sales derived
from our products used in communication devices, consumer electronics, PCs, memory and other
applications were 53.7%, 19.1%, 25.0%, 0.7% and 1.5%, respectively, in 2007.
We focus on the development of leading mass-producible manufacturing process technologies. We
were among the first in the foundry industry to go into commercial operation with such advanced
capabilities as producing integrated circuits with line widths of 0.25, 0.18, 0.15, 0.13 micron and
90, 65 and 45 nanometer. Advanced technologies have enabled electronic products, especially in
relation to computer, communication and consumer products, to integrate their functions in new and
innovative methods. Networking capabilities have allowed electronic products such as computers,
cell phones, televisions, PDAs, CD-ROMs and digital cameras to communicate with each other to
exchange information. More powerful semiconductors are required to drive multimedia functions (e.g.
processing visual data) and to resolve network bandwidth issues. At the same time, the trend toward
personal electronic devices has resulted in products that are becoming physically smaller and
consume less power. Process technology must also shrink the volumes of products aggressively to
cater to this trend of integrating multiple functions, reducing the number of components needed for
operation and lowering IC power consumption. Dedicated semiconductor foundries need to achieve this
process improvement and at the same time develop multiple process technologies to satisfy the
varying needs of computer, communication and consumer products. We believe our superior process
technologies will enable us to continue to offer our customers significant performance benefits for
their products, faster time-to-market production, cost savings and other competitive advantages.
We provide high quality service based on our performance. In todays marketplace, we believe
it is important to make available not only the most manufacturable processes, but also the best
solutions to enable customers to design integrated circuits that include entire systems on a chip.
Through these efforts, we intend to be the foundry solution for SoC customer needs. To achieve this
goal, we believe it is necessary to timely develop and offer the intellectual property and design
support that customers need to ensure their specific design blocks work with the other design
blocks of the integrated circuit system in the manner intended. Accordingly, we have a dedicated
intellectual property and design support team which focuses on timely development of the
intellectual property and process specific design blocks our customers need in order to develop
products that operate and perform as intended. Our design service team actively cooperates with our
customers and vendors of cell libraries and intellectual property offerings to identify, early in
the product/market cycle, the offerings needed to ensure that these coordinated offerings are
available to our customers in silicon verified form in a streamlined and easy-to-use manner. As a
result, we are able to ensure the timely delivery of service offerings from the earliest time in
the customer design cycle, resulting in a shorter time-to-volume production. We also provide our
customers with real-time Internet access to their confidential production data, resulting in
superior communication and efficiency. We further address our customers needs using our advanced
technology and proven methodology to achieve fast cycle time, high yield, production flexibility
and close customer communication. For example, we select and configure our clean rooms and
equipment and develop our processes to maximize the flexibility in meeting and adapting to rapidly
changing customer and industry needs. As a result, our cycle time, or the period from customer
order to wafer delivery, and our responsiveness to customer request changes are among the fastest
in the dedicated foundry industry. We also provide high quality service and engineering
infrastructure.
21
Our production capacity is comparable to that of the largest companies in the semiconductor
industry, and we believe our leading edge and high volume capability is a major competitive
advantage.
Our technology and service have attracted three principal types of foundry industry customers:
fabless design companies, integrated device manufacturers and system companies. Fabless design
companies design, develop and distribute proprietary semiconductor products, but do not maintain
internal manufacturing capacity. Instead, these companies depend on outside manufacturing sources.
Integrated device manufacturers, in contrast, traditionally integrated all functions
manufacturing as well as design, development, sales and distribution. System companies design and
develop integrated circuits to be components within their end or intermediate products and
generally do not maintain internal manufacturing capacity. For example, system companies market and
sell cellular telephones and/or Internet appliances into which they incorporate semiconductor
products.
Our primary customers, in terms of our sales revenues, include premier integrated device
manufacturers, such as Infineon, LSI Logic, STMicroelectronics, Texas Instruments, Freescale, AMD
(ATI) and Philips, and leading fabless design companies, such as Broadcom, Marvell, MediaTek,
Novatek, Realtek, SanDisk and Xilinx. In 2007, our companys top ten customers accounted for 59.3%
of our net operating revenues. Our top two customers accounted for 13.7% and 13.2% of our net
operating revenues in 2007, respectively. We believe our success in attracting these customers is a
direct result of our commitment to high quality service and our intense focus on customer needs and
performance.
Please
refer to Item 5. Operating and Financial Review and
Prospects B. Liquidity and
Capital Resources for a discussion of our capital expenditures in the past three years and the
plan for the current year.
Our Strategy
To maintain and enhance our position as a market leader, we have adopted a business strategy
with a focus on a partnership business model designed to accommodate our customers business needs
and objectives and to promote their interests as our partners. We believe that our success and
profitability are inseparable from the success of our customers. The goal in this business model is
to create a network of partnerships or alliances among system companies and integrated device
manufacturers, intellectual property and design houses, as well as foundry companies. We believe
that we and our partners will benefit from the synergy generated through such long-term
partnerships or alliances and the added value to be shared among the partners. The key elements of
our strategy are:
Operate as a SoC Solution Foundry. We plan to operate as a SoC solution foundry. This involves
collaborating closely with customers as well as partners throughout the entire SoC technology
supply chain, including equipment, Electronic Design Automation tool and IP vendors, to work
synergistically towards a SoC solution for each customer. Our implementation of our SoC solution
strategy has resulted in a broad range of options available to SoC designers, including
silicon-validated reference flows, in-depth IP portfolio and know-how and extensive libraries of
IPs, to better provide value to their customers. Capitalizing on our advanced process technology,
extensive packaging and testing capabilities and state-of-art 300mm manufacturing facilities, we
believe we are in a better position to deliver integrated SoC solutions for customers than most of
our competitors.
Build up Customer-focused Partnership Business Model. We have focused on building partnership
relationships with our customers, and we strive to help our customers to achieve their objectives
through close cooperation. Unlike the traditional buy-and-sell relationship between a foundry and
its customers, we believe our partnership business model will help us understand our customers
requirements and, accordingly, better accommodate our customers needs in a number of ways, such as
customized processes and services that optimize the entire value chain (not just the foundry
portion) and intellectual property-related support. We believe that this business model will enable
us to deliver our products to our customers at the earliest time our customers require for their
design cycle, resulting in shorter time-to-market and time-to-volume production. Furthermore, we
believe we will render more cost-effective services by focusing our research and development
expenditures on the specific
requirements of our customers. We believe our partnership business model will help us not only
survive a market downturn, but also achieve a better competitive position.
22
Continue to Focus on High Growth Applications and Customers. We believe one measure of a
successful foundry company is the quality of its customers. We focus our sales and marketing on
customers who are established or emerging leaders in industries with high growth potential. Our
customers include industry leaders such as AMD (ATI), Broadcom, Marvell, Infineon, LSI Logic,
MediaTek, Novatek, Realtek, SanDisk, STMicroelectronics, Texas Instruments, Freescale, Philips and
Xilinx. We seek to maintain and expand our relationships with these companies. We strive to
demonstrate to these customers the superiority and flexibility of our manufacturing, technology and
service capabilities and to provide them with production and design assistance. We are also making
efforts to further diversify our customer portfolio by actively pursuing customers in the
PC-related area in order to maintain a balanced exposure to different applications. We believe
these efforts strengthen our relationships with our customers and enhance our reputation in the
semiconductor industry as a leading foundry service provider.
Maintain Our Leading Position in Mass-Producible Semiconductor Technology and Selectively
Pursue Strategic Investments in New Technologies. We believe that maintaining and enhancing our
leadership in mass-producible semiconductor manufacturing technology is critical to attract and
retain customers. Our reputation for technological excellence has attracted both established and
emerging leaders in the semiconductor industries who work closely with us on technology
development. In addition, we believe our superior processing expertise has enabled us to provide
flexible production schedules to meet our customers particular needs. We plan to continue building
internal research and development expertise, to focus on process development and to establish
alliances with leading semiconductor companies to accelerate access to next-generation
technologies. For example, our 45-nanometer technology, which will be delivered to our customers by
2008, is expected to significantly increase the competitive advantages of our customers by
providing better device performance in a smaller die size. We believe our progress in developing
more advanced process technologies has benefited our customers in the fields of computers,
communications, consumer electronics and others with special preferences in certain aspects of the
products, such as the ultimate performance, density and power consumption.
We also recognize every company has limited resources and that the foundry industry is
ever-evolving. Accordingly, we believe we should invest in new research and development technology
intelligently and in a cost-effective manner to achieve the ultimate output of the resulting
technology. In doing so, we balance the rate of return of our research and development with the
importance of developing a technology at the right time to enhance our competitive edge without
unduly diluting our profitability. We intend to avoid investments in technologies that do not
present a commercial potential for volume production. We believe that to develop the earliest and
most advanced semiconductor technology without regard to its potential for near term volume
production may prove costly to our operations and would not strengthen our competitive position. We
perceive a benefit to defer investment in the premature equipment needed to claim the earliest
advanced technology and instead to purchase a more advanced and less expensive version of equipment
from vendors who design such equipment based on pre-production lessons learned from the earliest
technology.
Maintain Scale and Capacity Capabilities to Meet Customer Requirements, with a Focus on
12-inch Wafer Facilities for Future Expansion. We believe that maintaining our foundry capacity
with advanced technology and facilities is critical to the maintenance of our industry leadership.
Our production capacity is currently among the largest of all semiconductor foundries in the world.
We intend to increase our 12-inch wafer production capacity to meet the needs of our customers and
to fully capitalize on the expected growth of our industry. Our future capacity expansion plans
will focus on 12-inch wafer facilities in order to maintain our technology leadership. 12-inch
wafers offer manufacturing advantages over 8-inch wafers because of the greater number of chips on
each wafer. In addition, 12-inch wafer facilities present a more cost-effective solution in
achieving an economic scale of production. We intend to carefully monitor current market conditions
in order to optimize the timing of our capital spending.
23
B. Business Overview
Manufacturing Facilities
To maintain a leading position in the foundry business, we have placed great emphasis on
achieving and maintaining a high standard of manufacturing quality. As a result, we seek to design
and implement manufacturing processes that produce consistent, high manufacturing yields to enable
our customers to estimate, with reasonable certainty, how many wafers they need to order from us.
In addition, we continuously seek to enhance our production capacity and process technology, two
important factors that characterize a foundrys manufacturing capability. Our large production
capacity and advanced process technologies enable us to provide our customers with volume
production and flexible and quick-to-market manufacturing services. All of our fabs operate 24
hours per day, seven days per week. Substantially all maintenance at each of the fabs is performed
concurrently with production.
The construction of our second 300mm fab in Taiwan is underway, as a step in our continuing
expansion of our manufacturing complex in the Tainan Science Park in southern Taiwan. Total
investment for this fab is estimated to be US$5 billion, with a maximum designed monthly production
capacity of approximately 50,000 wafers. The construction of this new fab is expected to be
completed by the end of 2008, and equipment is expected to be moved into this fab in early 2009.
The following table sets forth operational data of each of our manufacturing facilities as of
December 31, 2007.
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Fab 6A |
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Fab 8AB |
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Fab 8C |
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Fab 8D |
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Fab 8E |
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Fab 8F |
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Fab 8S |
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Fab 12A |
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Fab 12i |
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UMCJ |
Commencement of volume production |
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1989 |
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1995 for the module formerly named Fab 8A; 1996 for the module formerly named Fab 8B |
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1998 |
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2000 |
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FABII 1998 FAB2A 2000 |
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2000 |
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2000 |
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2002 |
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2004 |
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1996 |
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Estimated full capacity (1) (2) |
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49,300 wafers per month |
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68,000 wafers per month |
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33,500 wafers per month |
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22,000 wafers per month |
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34,000 wafers per month |
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31,000 wafers per month |
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23,000 wafers per month |
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35,000 wafers per month |
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26,000 wafers per month |
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20,000 wafers per month |
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Wafer size |
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6-inch (150mm) |
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8-inch (200mm) |
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8-inch (200mm) |
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8-inch (200mm) |
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8-inch (200mm) |
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8-inch (200mm) |
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8-inch (200mm) |
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12-inch (300mm) |
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12-inch (300mm) |
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8-inch (200mm) |
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Clean room area (3) |
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5,250 sq. meters |
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25,029 sq. meters |
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19,764 sq. meters |
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16,589 sq. meters |
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21,576 sq. meters |
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13,812 sq. meters |
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8,163 sq. meters |
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24,860 sq. meters |
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26,366 sq. meters |
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10,367 sq. meters |
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Type of clean rooms (4) |
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Class-10 @0.1um, clean tunnel |
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Class-0.1 @0.1um, clean tunnel |
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Class-0.1 @0.1um, clean tunnel |
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Class100 @0.3um, SMIF/mini-environment |
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FABII: Class-1000@0.3 um FAB2A: Class100@0.3um, SMIF/mini-environment |
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Class 100 @0.3um, SMIF/mini-environment |
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Class 1000 @0.3um, SMIF/mini-environment |
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Class 100 @0.3um, SMIF/mini-environment |
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Class 100 @0.3um, SMIF/mini-environment |
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Class-1 @0.1um, clean tunnel |
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(1) |
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Measured in original wafer size. |
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(2) |
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The capacity of a fab is determined based on the capacity ratings given by manufacturers of
the equipment used in the fab, adjusted for, among other factors, actual output during
uninterrupted trial runs, expected down time due to set up for production runs and maintenance
and expected product mix. |
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(3) |
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Area represents the total area of clean rooms within a fab. Clean room area of Fab 12i area
includes Module B area of 11,737 square meters. |
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(4) |
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Class represents the cleanliness of clean rooms in the fab. Class-10@0.1um means a standard
of air purity under which the amount of dust is limited to fewer than 10 particles of
contaminants of 0.1 micron or greater per one cubic foot per minute of air flow.
Class-0.1@0.1um means a standard of air purity under which the amount of dust is limited to
fewer than one particle of contaminant of 0.1 micron or greater per 10 cubic feet per minute
of air flow. Class-100@0.3um means a standard of air purity under which the amount of dust is
limited to fewer than 100 particles of contaminants of 0.3 micron or greater per one cubic
foot per minute of air flow. Class-1000@0.3um means a standard of air purity under which the
amount of dust is limited to fewer than 1,000 particles of contaminants of 0.3 micron or greater per one cubic foot per minute of air
flow. The general production environment may be organized into clean tunnels or mini
environments. In a clean tunnel environment, the clean room is divided into many tunnels with
partitions. A higher level of cleanliness is kept inside the tunnel for production.
Mini-environments within a clean room use Standard Mechanical Interface technology, or SMIF,
which employs input/output devices designed to protect products from contamination while
providing a standard mechanical interface to wafer production tools. Mini-environment is
generally a preferred approach because it reduces building structural costs and operating costs,
allows flexibility in equipment layout and facilitates the ramping-up process during capacity
expansion.
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The following table sets forth the size and primary use of our facilities and whether such
facilities, including land and buildings, are owned or leased. Our land in the Hsinchu and Tainan
Science Parks is leased from the ROC government.
|
|
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|
|
|
|
|
|
|
|
Size |
|
|
|
Land |
|
Building |
Location |
|
(Land/Building) |
|
Primary Use |
|
(Owned or Leased) |
|
(Owned or Leased) |
|
|
(in square meters) |
|
|
|
|
|
|
Fab 6A, 10
Innovation 1st Rd.,
Hsinchu Science
Park, Hsinchu,
Taiwan 300, ROC
|
|
27,898/34,981
|
|
6-inch wafer production
|
|
Leased (expires in
December 2026)
|
|
Owned |
|
|
|
|
|
|
|
|
|
Fab 8AB, 3 Li-Hsin
2nd Rd.,
Hsinchu Science
Park, Hsinchu,
Taiwan 300, ROC.
|
|
62,114/81,751
|
|
8-inch wafer production
|
|
Leased (expires in
March 2014)
|
|
Owned |
|
|
|
|
|
|
|
|
|
Fab 8C, 6 Li-Hsin
3rd Rd.,
Hsinchu Science
Park, Hsinchu,
Taiwan 300, ROC
|
|
9,007/28,984
|
|
8-inch wafer production
|
|
Leased (expires in
March 2016)
|
|
Owned |
|
|
|
|
|
|
|
|
|
Fab 8D, 8 Li-Hsin
3rd Rd.,
Hsinchu Science
Park, Hsinchu,
Taiwan 300, ROC
|
|
9,089/29,181
|
|
8-inch wafer production
|
|
Leased (expires in
March 2016)
|
|
Owned |
|
|
|
|
|
|
|
|
|
Fab 8E, 17 Li-Hsin
Rd., Hsinchu
Science Park,
Hsinchu, Taiwan
300, ROC
|
|
35,000/74,067
|
|
8-inch wafer production
|
|
Leased (expires in
February 2016)
|
|
Owned |
|
|
|
|
|
|
|
|
|
Fab 8F, 3 Li-Hsin
6th Rd.,
Hsinchu Science
Park, Hsinchu,
Taiwan 300, ROC.
|
|
24,180/65,744
|
|
8-inch wafer production
|
|
Leased (expires in
February 2018)
|
|
Owned |
|
|
|
|
|
|
|
|
|
Fab 8S, 16 Creation
1st Rd.,
Hsinchu Science
Park, Hsinchu,
Taiwan 300, ROC.
|
|
20,404/65,614
|
|
8-inch wafer production
|
|
Leased (expires in
December 2023)
|
|
Owned |
|
|
|
|
|
|
|
|
|
Fab 12A, 18 Nan-Ke
2nd Rd.,
Tainan Science
Park, Sinshih,
Tainan, Taiwan 741,
ROC.
|
|
56,000/165,607
|
|
12-inch wafer production
|
|
Leased (expires in
October 2017)
|
|
Owned |
|
|
|
|
|
|
|
|
|
Fab 12i, 3 Pasir
Ris Drive 12
Singapore 519528
|
|
84,836/142,340
|
|
12-inch wafer production
|
|
Leased (expires in
March 2031)
|
|
Owned |
|
|
|
|
|
|
|
|
|
UMCJ, 1580,
Yamamoto,
Tateyama-City,
Chiba, Japan
|
|
388,402/21,639
|
|
8-inch wafer production
|
|
71% owned, 29%
leased (expires in
June 2049)
|
|
Owned |
|
|
|
|
|
|
|
|
|
United Tower, 3
Li-Hsin 2nd Rd.,
Hsinchu Science
Park, Hsinchu,
Taiwan 300, ROC.
|
|
5,737/85,224
|
|
Administration office
|
|
Leased (expires in
March 2014)
|
|
Owned |
|
|
|
|
|
|
|
|
|
Tunhwa South Rd.
Office, 3F, 76,
Sec. 2, Tunhwa S.
Rd., Taipei, Taiwan
106, ROC
|
|
166/2,221
|
|
Administration office
|
|
Owned
|
|
Owned |
|
|
|
|
|
|
|
|
|
Testing Building,
1, Chin-Shan, St.
7, Hsinchu, Taiwan
300, ROC.
|
|
10,762/41,318
|
|
Leased to several companies
|
|
Owned
|
|
Owned |
25
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|
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|
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|
Size |
|
|
|
Land |
|
Building |
Location |
|
(Land/Building) |
|
Primary Use |
|
(Owned or Leased) |
|
(Owned or Leased) |
|
|
(in square meters) |
|
|
|
|
|
|
R&D Building, 18
Nan-Ke
2nd Rd.,
Tainan Science
Park, Sinshih,
Tainan, Taiwan 741,
ROC.
|
|
99,661/46,712
|
|
Research and development
|
|
Leased (expires in
December 2023)
|
|
Owned |
Process Technology
Process technology is a set of specifications and parameters that we implement for
manufacturing the critical dimensions of the patterned features of the circuitry of semiconductors.
Our process technologies are currently among the most advanced in the foundry industry. These
advanced technologies have enabled us to provide flexible production schedules to meet our
customers particular needs.
The continued enhancement of our process technologies has enabled us to manufacture
semiconductor devices with smaller geometries, allowing us to produce more dice on a given wafer.
We pioneered the production of semiconductor products with 0.25 and 0.18 micron process technology
in 1997 and 1999, respectively, and used copper interconnect metallurgic to allow better
reliability and higher conductibility than traditional aluminum interconnects. We began volume
production using 0.13-micron process technology in 2002. Our extensive experience in the
0.13-micron process technology has helped smooth our transition to 90-nanometer pilot production.
Our 90-nanometer process marks further advance in our technology achievements, incorporating up to
nine copper metal layers, triple gate oxide and other advanced features and using chrom-less
phase-shift masks. This technology has been in volume production since the second quarter of 2004
after passing several product certifications. In 2005, our research and development teams continued
to work closely with the manufacturing staff to finalize our 90-nanometer technology portfolio.
These collaborative efforts, performed in our best-in-class 300mm facilities, contributed to the
improvement of high density 6T-SRAM yield to the maturity level of more than 90%. Our
accomplishments led to multiple design awards followed by first silicon success, including a PC
graphic IC and the worlds first 90-nanometer Wireless Local Area Network (WLAN) RF chip featuring
a unique and specially developed inductor scheme. In addition, we were able to develop, within 6
months, several customized 90-nanometer processes tailored to our customers device specifications,
and demonstrated product success by delivering record high yield for the first product lots. Our
first fully-functional 65-nanometer wireless digital baseband customer IC was produced in July of
2005, after only a year since this research and development project began at this facility.
Since the third quarter of 2006, we have begun the mass production of a next-generation
65-nanometer FPGA product, which features a 65% logic capacity increase over previous generation of
FPGAs with triple gate oxide and 11 copper metal layers. Our 65-nanometer development team is not
only independently developing our technologies in-house but is also bringing up customized process
technologies to match customer specific needs. Furthermore, our 45-nanometer process technologies,
which are jointly developed by us and our strategic partners and will be available to our customers
by 2008, are expected to significantly increase the competitive advantages of our customers by
providing better device performance in a smaller die size.
The table below sets forth our actual process technology range, categorized by line widths, or
the minimum physical dimensions of the transistor gate of integrated circuits in production by each
fab, in 2007, and the estimated annual full capacity of each fab, actual total annual output and
capacity utilization rates in 2005, 2006 and 2007:
26
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|
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Year Ended |
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
2007 Range of |
|
|
|
|
Year of |
|
Process |
|
Year Ended December 31, |
|
|
Commencement of |
|
Technologies (in |
|
2005 |
|
2006 |
|
2007 |
|
|
Operation |
|
microns) |
|
(in thousands of 8-inch wafer equivalents, except percentages) |
|
|
|
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|
|
|
|
|
Fab |
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
Fab 6A |
|
|
1989 |
|
|
|
0.5 |
|
|
|
344 |
|
|
|
328 |
|
|
|
328 |
|
Fab 8AB |
|
|
1995 |
|
|
|
0.5 to 0.25 |
|
|
|
816 |
|
|
|
816 |
|
|
|
816 |
|
Fab 8C |
|
|
1998 |
|
|
|
0.35 to 0.15 |
|
|
|
401 |
|
|
|
400 |
|
|
|
400 |
|
Fab 8D |
|
|
2000 |
|
|
|
0.18 to 0.09 |
|
|
|
274 |
|
|
|
252 |
|
|
|
260 |
|
Fab 8E |
|
|
1998 |
|
|
|
0.5 to 0.18 |
|
|
|
404 |
|
|
|
406 |
|
|
|
408 |
|
Fab 8F |
|
|
2000 |
|
|
|
0.25 to 0.15 |
|
|
|
378 |
|
|
|
372 |
|
|
|
372 |
|
Fab 8S |
|
|
2000 |
|
|
|
0.25 to 0.15 |
|
|
|
278 |
|
|
|
276 |
|
|
|
276 |
|
Fab 12A |
|
|
2002 |
|
|
|
0.18 to 0.065 |
|
|
|
597 |
|
|
|
754 |
|
|
|
847 |
|
Fab 12i |
|
|
2004 |
|
|
|
0.13 to 0.065 |
|
|
|
363 |
|
|
|
413 |
|
|
|
601 |
|
UMCJ |
|
|
1996 |
|
|
|
0.35 to 0.15 |
|
|
|
369 |
|
|
|
378 |
|
|
|
348 |
|
Total estimated capacity |
|
|
|
|
|
|
|
|
|
|
4,224 |
|
|
|
4,395 |
|
|
|
4,656 |
|
Total output (actual) |
|
|
|
|
|
|
|
|
|
|
3,059 |
|
|
|
3,495 |
|
|
|
3,813 |
|
Capacity utilization |
|
|
|
|
|
|
|
|
|
|
72.4 |
% |
|
|
79.5 |
% |
|
|
81.9 |
% |
The table below sets forth a breakdown of number and percentage of wafer output by process
technologies in 2005, 2006 and 2007. We began commercial operation of our 0.13-micron, 90-nanometer
and 65-nanometer process technologies in the first quarter of 2002, the second quarter of 2003 and
the first quarter of 2006, respectively.
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2005 |
|
2006 |
|
2007 |
|
|
(in thousands of 8-inch wafer equivalents, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65 nanometers and under |
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
0.5 |
% |
|
|
34 |
|
|
|
0.9 |
% |
90 nanometers |
|
|
183 |
|
|
|
6.0 |
% |
|
|
320 |
|
|
|
9.2 |
|
|
|
492 |
|
|
|
12.9 |
|
0.13 micron |
|
|
335 |
|
|
|
10.9 |
|
|
|
477 |
|
|
|
13.6 |
|
|
|
595 |
|
|
|
15.6 |
|
0.15 micron |
|
|
313 |
|
|
|
10.3 |
|
|
|
301 |
|
|
|
8.6 |
|
|
|
354 |
|
|
|
9.3 |
|
0.18 micron |
|
|
489 |
|
|
|
16.0 |
|
|
|
677 |
|
|
|
19.4 |
|
|
|
784 |
|
|
|
20.5 |
|
0.25 micron |
|
|
282 |
|
|
|
9.2 |
|
|
|
252 |
|
|
|
7.2 |
|
|
|
206 |
|
|
|
5.4 |
|
0.35 micron |
|
|
1,045 |
|
|
|
34.1 |
|
|
|
1,004 |
|
|
|
28.7 |
|
|
|
971 |
|
|
|
25.5 |
|
0.50 micron or higher |
|
|
412 |
|
|
|
13.5 |
|
|
|
446 |
|
|
|
12.8 |
|
|
|
377 |
|
|
|
9.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,059 |
|
|
|
100.0 |
% |
|
|
3,495 |
|
|
|
100.0 |
% |
|
|
3,813 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capacity and Utilization
The fabs in Taiwan that we own directly are named Fab 6A, Fab 8AB, Fab 8C, Fab 8D, Fab 8E, Fab
8F and Fab 8S, all of which are located in the Hsinchu Science Park in Taiwan, and Fab 12A, which
is located in the Tainan Science Park in Taiwan. The fab in Singapore that is owned by our
wholly-owned subsidiary, UMCSG, is named Fab 12i.
Our average capacity utilization rate was 72.4% in 2005, 79.5% in 2006 and 81.9% in 2007.
Equipment
Considering the performance and productivity of our manufacturing capability highly rely on
the quality of our capital equipment, we generally purchase equipment that can not only meet the
demand of our existing process technology, but also has the capability to be upgraded to match our
future needs. The principal equipment we use to manufacture semiconductor devices are
scanners/steppers, cleaners and track equipment, inspection equipment, etchers, furnaces, wet
stations, strippers, implanters, sputters, CVD equipment, probers, testers and so on. We own all of
the production equipment except for a few demonstration tools.
27
Our policy is to purchase high-quality equipment that demonstrates stable performance from
vendors with dominate market share to ensure our continued competitiveness in the semiconductor
field.
Some of the equipment is available from a limited number of qualified vendors and/or is
manufactured in relatively limited quantities, and some equipment has only recently been developed.
We believe that our relationships with equipment suppliers are strong enough that we can leverage
our position as a major purchaser to purchase equipment on better terms, including shorter lead
time, than the terms received by several other foundries.
Although we face the challenge of procuring the right equipment in sufficient quantity
necessary for ramp-up or expansion of our fabrication facilities under constraint of short lead
times, we have not in the past experienced any material problems in procuring the latest generation
equipment on a timely basis even in periods of unpredictably high market demand. We manage the
risks in the procurement process through timely internal communications among different divisions,
efficient market information collection, early reservation of appropriate delivery slots and
constant communications with our suppliers as well as by utilizing our good relationships with the
vendors.
Raw Materials
Our manufacturing processes use many raw materials, primarily silicon wafers, chemicals, gases
and various types of precious sputtering targets. These raw materials are generally available from
several suppliers. Our policy with respect to raw material purchases, similar to that for equipment
purchases, is to select only a small number of qualified vendors who have demonstrated quality and
reliability on delivery time of the raw materials. We generally do not have any long-term supply
contracts with our vendors.
Our general inventory policy is to maintain sufficient stock of each principal raw material
for production and rolling forecasts of near-term requirements received from customers. In
addition, we have agreements with several key material suppliers under which they hold similar
levels of inventory in their warehouses for our use. However, we are not under any obligation to
purchase raw material inventory that is held by our vendors for our benefit until we actually order
it. We typically work with our vendors to plan our raw material requirements on a quarterly basis,
with indicative pricing generally set on a quarterly basis. The actual purchase price is generally
determined based on the prevailing market conditions. In the past, prices of our principal raw
materials have not been volatile to a significant degree. Although we have not experienced any
shortage of raw materials that had a material effect on our operations, and supplies of raw
materials we use currently are adequate, shortages could occur in various critical materials due to
interruption of supply or an increase in industry demand.
The most important raw material used in our production processes is silicon wafer, which is
the basic raw material from which integrated circuits are made. The principal makers for our wafers
are Shin-Etsu, MEMC Electronic Materials, Inc. and Sumco Group (including Sumco Group Corporation
and Formosa Sumco Technology Corporation). We have in the past obtained and believe that we will
continue to be able to obtain a sufficient supply of silicon wafers. We believe that we have close
working relationships with our wafer suppliers. Based on such long-term relationships, we believe
that these major suppliers will use their best efforts to accommodate our demand.
We use a large amount of water in our manufacturing process. We obtain water supplies from
government-owned entities and recycle approximately 85% of the water that we use during the
manufacturing process. We also use substantial amounts of dual loop electricity supplied by Taiwan
Power Company in the manufacturing process.
We maintain back-up generators that are capable of providing adequate amounts of electricity
to maintain the required air pressure in our clean rooms in case of power interruptions. We believe
our back-up devices are adequate in preventing business interruptions caused by power outages and
emergency situations.
28
Quality Control
We believe that our advanced process technologies and reputation for high quality and reliable
services and products have been important factors in attracting and retaining leading international
and domestic semiconductor companies as customers.
Our process technologies and fabrication facilities have been qualified by our customers
after satisfying their stringent quality and reliability requirements. Generally, our customers
perform on-site fab audits in addition to conducting their own product qualifications. These audits
normally address quality management, documentation control, procurement and material incoming
inspection, product final inspection, calibration and certification training systems. These audits
include both data/record review and physical fabrication area tours for verification of conformity
to specifications and procedures. If the audit findings are satisfactory, then the fab facility is
termed qualified for proceeding with further product qualification and later volume production.
Most of our established customers, including AMD (ATI), Conexant Systems, Kawasaki, Infineon, LSI
Logic, Freescale, Broadcom, MediaTek, Novatek, Pixart, SiS, STMicroelectronics, Texas Instruments,
Xilinx, NXP, Sony, Davicom, Holtek, Cypress, Faraday, nVIDIA, Atmel, AMIS, Solomon and Micronas
have audited our fabrication, and our fabs have successfully passed their qualification
requirements.
Our policy is to implement quality control measures to ensure the delivery of consistent high
yield production with reliable performance for our customers. We test and monitor the quality of
raw materials, process and products at various stages in the manufacturing process before shipment
to customers. Reliability assurance also includes in-process wafer level reliability monitoring as
well as packaged level reliability compliance. Our quality control is also continually enhanced
through our top down annual Policy Management and bottom up Total Quality Management, or TQM,
activities, involving various independent quality control teams from our various foundries, such as
Quality Improvement and Innovation Team, Employee Suggestion System and Project Management Team. We
also have Quality Assurance Division and Reliability Technology and Assurance Division, which in
aggregate consist of 515 engineers, technicians and other staff as of March 31, 2008. These
divisions are responsible for incoming materials quality inspection, in process quality audit,
outgoing product quality inspection, quality system and standards maintenance, reliability
assurance, reliability engineering and customer queries. In addition, our efforts to observe
benchmark and best practices among fabs in the industry have also contributed to the improvement of
our overall quality control procedures.
All our fabs are ISO/TS 16949:2002 certified and also registered under the Year 2000 version
of ISO9001. ISO/TS 16949:2002 sets the criteria for developing a fundamental quality management
system. It focuses on continual improvement, defect prevention and the reduction of variation and
waste. The Year 2000 version of ISO9001 emphasizes customer satisfaction and resource management.
Services and Products
We primarily engage in wafer fabrication for foundry customers. To optimize fabrication
services for our customers, we work closely with them as they finalize circuit design and contract
for the preparation of masks to be used in the manufacturing process. We also offer our customers
turnkey services by providing them with subcontracted assembly and test services. We believe that
this ability to deliver a variety of foundry services in addition to wafer fabrication enables us
to accommodate the needs of a full array of integrated device manufacturers, system companies and
fabless design customers with different in-house capabilities.
Wafer manufacturing requires many distinct and intricate steps. Each step in the manufacturing
process must be completed with precision in order for finished semiconductor devices to work as
intended. The processes require taking raw wafers and turning them into finished semiconductor
devices generally through five steps: circuit design, mask tooling, wafer fabrication, assembly and
test. The services we offer to our customers in each of these five steps are described below.
Circuit Design. At this initial design stage, our engineers generally work with our customers
to ensure that their designs can be successfully and cost-effectively manufactured in our
facilities. We have assisted an increasing number of our customers in the design process by
providing them with access to our partners electronic design analysis tools, intellectual property
and design services as well as by providing them with custom embedded memory macro-cells. In our
Silicon Shuttle program, we offer customers and intellectual property providers early access to
actual silicon samples with their desired intellectual property and content in order to enable
early and rapid use of our advanced technologies. The Silicon Shuttle program is a multi-chip test
wafer program that allows silicon verification of intellectual property elements. In the Silicon
Shuttle program, several different vendors can test their intellectual property using a single mask
set, greatly reducing the cost of silicon verification for us and the participating vendors. The
high cost of masks for advanced processes makes this program attractive to intellectual property
vendors. ARM Limited, Faraday Technology Corp., or Faraday Technology, MIPS Technologies
International, Virage Logic Corporation and Virtual Silicon Technology have utilized our Silicon
Shuttle program. In our Gold IP program, we coordinate with leading suppliers of intellectual
property, design and ASIC services to ensure their offerings are available to our customers in an
integrated, easy to use manner which matches customers need to our technologies. With a view to
lowering customer design barriers, we expanded our design support functions from conventional
design support to adding intellectual property development to complement third-party intellectual
properties and to provide customers with the widest range of silicon-verified choices. Our
offerings range from design libraries to basic analog mixed-mode intellectual properties which,
together, have been proved helpful in shortening our customers design cycle time.
29
Mask Tooling. Our engineers generally assist our customers to design and/or obtain masks that
are optimized for our advanced process technologies and equipment. Actual mask production is
usually provided by independent third parties specializing in mask tooling.
Wafer Fabrication. As described above, our manufacturing service provides all aspects of the
wafer fabrication process by utilizing a full range of advanced process technologies. During the
wafer fabrication process, we perform procedures in which a photosensitive material is deposited on
the wafer and exposed to light through the mask to form transistors and other circuit elements
comprising a semiconductor. The unwanted material is then etched away, leaving only the desired
circuit pattern on the wafer. As part of our wafer fabrication services, we also offer wafer
probing services, which test, or probe, individual die on the processed wafers and identify dice
that fail to meet required standards. We prefer to conduct wafer probing internally to obtain
speedier and more accurate data on manufacturing yield rates.
Assembly and Testing. We offer our customers turnkey services by providing the option to
purchase finished semiconductor products that have been assembled and tested. We outsource assembly
and test services to leading local assembly and test service providers, including Siliconware
Precision Industries Co., Ltd., or Siliconware, and Advanced Semiconductor Engineering Inc. in
Taiwan. After final testing, the semiconductors are shipped to our customers designated locations.
Customers and Markets
Our primary customers, in terms of our sales revenues, include premier integrated device
manufacturers, such as Infineon, LSI Logic, STMicroelectronics, Texas Instruments, Freescale, AMD
(ATI) and Philips, and leading fabless design companies, such as Broadcom, Marvell, MediaTek,
Novatek, Realtek, SanDisk and Xilinx. Although we are not dependent on any single customer, a
significant portion of our net operating revenues have been generated from sales to a few
customers. Our top ten customers accounted for approximately 59.3% of our net operating revenues in
2007. Our top two customers each accounted for 13.7% and 13.2% of our net operating revenues in
2007. Set forth below is a geographic breakdown of our operating revenues in 2005, 2006 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
Region |
|
2005 |
|
2006 |
|
2007 |
Taiwan |
|
|
43.1 |
% |
|
|
34.2 |
% |
|
|
38.0 |
% |
Asia (excluding Taiwan) |
|
|
6.6 |
|
|
|
8.5 |
|
|
|
6.9 |
|
North America |
|
|
43.4 |
|
|
|
49.7 |
|
|
|
46.9 |
|
Europe |
|
|
6.9 |
|
|
|
7.6 |
|
|
|
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
We believe our success in attracting these end customers is a direct result of our commitment
to high quality service and our intense focus on customer needs and performance. Because we are an
independent semiconductor foundry, most of our operating revenue is generated by our sales of
wafers. Net wafer sales represents 97.3% of our net operating revenue, and excludes revenue from
testing, mask and other services. The following table presents the percentages of our net wafer
sales by types of customers during the last three years.
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
Customer Type |
|
2005 |
|
2006 |
|
2007 |
Fabless design companies |
|
|
65.2 |
% |
|
|
62.0 |
% |
|
|
73.7 |
% |
Integrated device manufacturers |
|
|
34.7 |
|
|
|
38.0 |
|
|
|
26.1 |
|
System companies |
|
|
0.1 |
|
|
|
0.0 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
We focus on providing a high level of customer service in order to attract customers and
maintain their ongoing loyalty. Our culture emphasizes responsiveness to customer needs with a
focus on flexibility, speed and accuracy throughout our manufacturing and delivery processes. Our
customer-oriented approach is especially evident in two types of services: customer design
development services and manufacturing services. We believe that our large production capacity and
advanced process technology enable us to provide better customer service than many other foundries
through shorter turn-around time, greater manufacturing flexibility and higher manufacturing
yields.
We work closely with our customers throughout the design development and prototyping
processes. Our design support team closely interacts with customers and intellectual property
vendors to facilitate the design process and to identify their specific requirements for
intellectual property offerings. We are responsive to our customers requirements in terms of
overall turn-around time and production time-to-market by, for example, helping our customers
streamline their IP offering processes and delivering prototypes in a timely and easy-to-use
fashion. We also maintain flexibility and efficiency in our technical capability and respond
quickly to our customers design changes.
For IP offerings, we work with several leading IP vendors from digital, memory and analog
fields in the semiconductor industry, such as ARM Limited, Faraday Technology, Virage Logic
Corporation, Rambus Inc., Chipidea Microelectronica S.A. (acquired by MIPS Technologies Inc.),
Silicon Image Inc. and Synopsys Inc., to deliver quality IP blocks that have been silicon validated
using our advanced processes. Our alliance programs with major electronic design automation
vendors, such as Cadence, Magma, Mentor, Synopsys and Ansoft, provide our customers with
digital/analog reference design procedures and easy-to-use design solutions. By continuously
enhancing our IP offerings, reference design procedures and design services through collaboration
with major vendors, we aim to provide complete, accurate and user-friendly SoC solutions to our
customers.
As a design moves into manufacturing production, we continue to provide ongoing customer
support through all phases of the manufacturing process. The local account manager works with our
customer service representative to ensure the quality of our services, drawing upon our marketing
and customer engineering support teams as required.
In 1996, we introduced our original on line service, through which we provided our customers
secure access via the Internet to critical manufacturing data, including process step location,
start date, estimated ship-out date and quantity as their products move through our fabs. In
October 2000, we officially launched our web-based customer information service system, known as
MyUMC, which gives our customers easy access to our foundry services by providing a total online
supply chain solution. MyUMC offers 24-hour access to detailed account information such as
manufacturing, engineering and design support documents through each customers own customized
start page. Some of the features available to customers through MyUMC include:
|
|
|
viewing the status of orders from the start of production to the final shipping
stages; |
|
|
|
|
viewing design layouts to shorten customers tape out time; |
|
|
|
|
collecting customer engineering requests; |
31
|
|
|
gathering and downloading documents for design purposes; and |
|
|
|
|
accessing online and in real time the same manufacturing data used by our fab
engineers. |
MyUMC provides our customers with a level of information previously enjoyed only by integrated
device manufacturers that conducted each step of the manufacturing and material procurement
processes internally.
To enhance our ability to provide online services to our customers, we are currently in
various stages of implementing a business project that provides customers with design support
through our help desk and IP/Library information and responses to their mask tooling requests.
Moreover, we continuously enrich the content of UMC customers services website and provide
customers system-to-system links over the Internet (B2B) with open technology to efficiently meet
our customers requests.
We price our products on a per die or per wafer basis, taking into account the complexity of
the technology, the prevailing market conditions, the order size, the cycle time, the strength and
history of our relationship with the customer and our capacity utilization. Our main sales office
is located in Taiwan, which is in charge of our sales activities in Asia. Our sales in Europe are
currently made through United Microelectronics (Europe) BV, our wholly-owned subsidiary based in
Amsterdam. Our sales in North America are made through UMC Group (USA), our subsidiary located in
Sunnyvale, California. In addition, we opened a customer support office in Hyderabad Technology
Park, India in mid-2007.
We designate a portion of our wafer manufacturing capacity to some of our customers primarily
under two types of agreements: reciprocal commitment agreements and deposit agreements. Under a
reciprocal commitment agreement, the customer agrees to pay for, and we agree to supply, a
specified capacity at a specified time in the future. Under a deposit agreement, the customer makes
in advance a cash deposit for an option on a specified capacity at our fabs for a similar period of
time. Option deposits are credited to wafer purchase prices as shipments are made. If this customer
does not use the specified capacity, it will forfeit the deposit but, in certain circumstances and
with our permission, the customer may arrange for a substitute customer to utilize such capacity.
We are also obligated in some cases to make available capacity to customers under other types of
agreements, such as our capacity commitment arrangement with our venture partners.
We advertise in trade journals, organize technology seminars, hold a variety of regional and
international sales conferences and attend a number of industry trade fairs to promote our products
and services. We also publish a bi-monthly corporate newsletter for our customers.
Competition
The worldwide semiconductor foundry industry is highly competitive, particularly during
periods of overcapacity and inventory correction. We compete internationally and domestically with
dedicated foundry service providers as well as with integrated device manufacturers and final
product manufacturers which have in-house manufacturing capacity or foundry operations. Some of our
competitors have substantially greater production, financial, research and development and
marketing resources than we have. As a result, these companies may be able to compete more
aggressively over a longer period of time than we can. In addition, several new dedicated foundries
have commenced operations and compete directly with us. Any significant increase in competition may
erode our profit margins and weaken our earnings.
We believe that our primary competitors in the foundry services market are Taiwan
Semiconductor Manufacturing Company Limited, Semiconductor Manufacturing International (Shanghai)
Corporation and Chartered Semiconductor Manufacturing Ltd., as well as the foundry operation
services of some integrated device manufacturers such as IBM and Toshiba. Other competitors such as
Samsung, DongbuAnam Semiconductor, Grace Semiconductor Manufacturing Corp., X-FAB Semiconductors
Foundries AG and Silterra Malaysia Sdn. Bhd. have
initiated efforts to develop substantial new foundry capacity, although much of such capacity
involves less cost-effective production than the 12-inch fabs for which we possess technical
know-how. New entrants in the foundry business are likely to initiate a trend of competitive
pricing and create potential overcapacity in legacy technology. The principal elements of
competition in the semiconductor foundry industry include technical competence, production speed
and cycle time, time-to-market, research and development quality, available capacity, manufacturing
yields, customer service and price. We believe that we compete favorably with the new competitors
on each of these elements, particularly our technical competence and research and development
capabilities.
32
Intellectual Property
Our success depends in part on our ability to obtain patents, licenses and other intellectual
property rights covering our production processes and activities. To that end, we have acquired
certain patents and patent licenses and intend to continue to seek patents on our production
processes. As of December 31, 2007, we held 3,175 U.S. patents and 5,558 patents issued outside of
the United States.
Our ability to compete also depends on our ability to operate without infringing on the
proprietary rights of others. The semiconductor industry is generally characterized by frequent
litigation regarding patent and other intellectual property rights. As is the case with many
companies in the semiconductor industry, we have from time to time received communications from
third parties asserting patents that cover certain of our technologies and alleging infringement of
certain intellectual property rights of others. We expect that we will receive similar
communications in the future. Irrespective of the validity or the successful assertion of such
claims, we could incur significant costs and devote significant management resources to the defense
of these claims, which could seriously harm our company.
In order to minimize our risks from claims based on our manufacture of semiconductor devices
or end-use products whose designs infringe on others intellectual property rights, we in general
accept orders only from companies that we believe enjoy satisfactory reputation and for products
that are not identified as risky for potential infringement claims. Furthermore, we obtain
indemnification rights from customers. We also generally obtain indemnification rights from
equipment vendors to hold us harmless from any losses resulting from any suit or proceedings
brought against our company involving allegation of infringement of intellectual property rights on
account of our use of the equipment supplied by them.
We have entered into various patent cross-licenses with major technology companies, including
a number of leading international semiconductor companies such as IBM, Renesas and Freescale. We
may choose to renew our present licenses or to obtain additional technology licenses in the future.
Our license agreement with Texas Instruments expired in December 2007, and we are now in the
process of negotiating to renew this license agreement.
Research and Development
We spent NT$9,634 million, NT$9,419 million and NT$9,631 million (US$297 million) in 2005,
2006 and 2007, respectively, on research and development, which represented 9.6%, 8.4% and 8.5%,
respectively, of our net operating revenues for these periods. Our research and development efforts
are mainly focused on delivering SoC foundry solutions that consist of the worlds leading process
technologies, customer support services and manufacturing techniques. These resources provide our
foundry customers with improved opportunities to develop SoC products that supply the global
market. Our commitment to research and development can be illustrated by our 2007 research and
development expenditures, which reached approximately 8.5% of net operating revenues. In June 2007,
we completed the construction of a research and development center for nanometer technologies in
the Tainan Science Park. The research and development center allows for seamless application of
advanced process technology in the research and development phase to the manufacturing phase, such
as our 45 nanometer process technology that has been recently used to fabricate SRAM chips. Our
research and development center and our new 300mm fab under construction are being built
strategically adjacent to our Fab 12A to allow for easy transfers of engineering resources,
technology and equipment among the facilities.
As of March 31, 2008, we employed 1,096 professionals in our research and development
activities. In addition, other management and operational personnel are also involved in research
and development activities but are not separately identified as research and development
professionals.
33
Our Investments
Depending on the market conditions, we intend to gradually reduce our investments through
secondary equity offerings, exchangeable bond offerings and other measures available to our
company.
We sold nil, 2 million, and 78 million common shares of AU Optronics in 2005, 2006 and 2007,
respectively. We issued Exchangeable Bonds of US$235 million due 2007 in May 2002, and Exchangeable
Bonds of US$206 million due 2008 in July 2003. The first bonds were exchangeable, at the option of
the bondholders, into common shares or American depositary shares of AU Optronics, and the second
bonds were exchangeable into common shares of AU Optronics. As of December 31, 2004, all
bondholders of the Exchangeable Bonds due 2008 had exercised their rights to exchange their bonds
into common shares of AU Optronics. Prior to the maturity date of May 10, 2007, 99.9% of the
bondholders of the Exchangeable Bonds due 2007 had exercised their rights to exchange their bonds
into common shares or American depositary shares of AU Optronics. We redeemed all of the remaining
bonds outstanding in the principal amount of US$0.3 million. As of December 31, 2007, we had sold
all of the common shares of AU Optronics.
In 2005, we sold 25 million common shares of Novatek for NT$3,354 million and 29 million
common shares of MediaTek for NT$7,605 million. In 2006, we sold 42 million common shares of
MediaTek for NT$14,259 million. In 2007, we sold 9 million common shares of MediaTek for NT$5,100
million (US$157 million). As of March 31, 2008, we held 11.32% and 0.48% in Novatek and MediaTek,
respectively.
In addition, we sold 1.95 million common shares of ITE Tech. Inc., or ITE, for NT$260 million
(US$8 million) and 10.1 million common shares of Holtek Semiconductor Inc., or Holtek, for NT$720
million (US$22 million) in 2007. As of March 31,2008, we held 19.73% and 18.85% in ITE and Holtek,
respectively.
In connection with the settlement of our litigations with Silicon Integrated Systems, or SiS,
we reached an agreement with SiS in late 2002 to enter into business cooperation, including, among
other things, exchange of process patents, production support and our board representation in SiS.
In July 2004, we acquired SiSMC, a wafer foundry company spun off from SiS in 2003. As of March 31,
2008, we held 16.24% of SiSs outstanding share capital.
In January 2006, we sold our 63.48% stake in Hsun Chieh Investment Co., Ltd., or Hsun Chieh,
to Hsieh Yong Capital Co., Ltd. and recorded a net gain of NT$13,152 million. The percentage of our
ownership in Hsun Chieh decreased from 99.97% to 36.49% after the sale. Our representative
currently holds one out of three board seats of Hsun Chieh. As a result of the sale, Hsun Chieh is
no longer our consolidated subsidiary.
The net gain realized from the sale of our stake in Hsun Chieh consists of three components.
The first component was a gain of NT$1,624 million calculated as the excess of cash consideration
received over the net book value of the 63.48% stake sold. The second component was a gain of
NT$14,149 million recorded to reclassify a portion of the additional paid-in capital from a merger
which formed Hsun Chieh in 1999. This component was related to the merger of six companies which
resulted in the formation of Hsun Chieh. The fair value of the net assets received was deemed to be
the value of the consideration for the acquisition of the interests in the six companies and was
reflected in the common stock and additional paid-in capital accounts on the balance sheet. The
excess of such fair value of net assets received over the assumed liabilities and payment for
shares held by the shareholders of the six companies was recorded in the additional paid-in capital
account on our consolidated balance sheet. As a result of the sale of 63.48% of ownership interests
in Hsun Chieh, we reversed a proportionate share of the Hsun Chiehs additional paid-in capital
account, which had a balance of NT$22,282 million on the date of disposal, and recognized a gain in
the consolidated statement of income of NT$14,149 million. These two components were offset in part
by a NT$2,621 million loss from a decrease in the current quoted market price of our shares held
by Hsun Chieh compared to their original cost.
34
Environmental Matters
The semiconductor production process generates gaseous wastes, liquid wastes, waste water and
other industrial wastes in various stages of the manufacturing process. We have installed various
types of anti-pollution equipment in our fabrication facilities to reduce, treat and, where
feasible, recycle the wastes generated in our manufacturing process. We receive assistance with
disposal of industrial waste from the Science Park Administration and Southern Taiwan Science Park
Administration. Our operations are subject to regulation and periodic monitoring by Taiwans
Environmental Protection Administration and local environmental protection authorities.
We believe that we have adopted anti-pollution measures for the effective maintenance of
environmental protection standards consistent with the practice of the semiconductor industry in
Taiwan. In 2007, we spent approximately NT$168 million (US$5 million) for pollution control
equipment. Our monthly waste disposal fees were approximately NT$4.1 million (US$0.1 million), and
our annual cost for environmental monitoring was approximately NT$3.1 million (US$0.1 million). We
also believe that we are in compliance in all material respects with applicable environmental laws
and regulations.
Environmental, Safety and Health Management Systems
We have implemented extensive environmental, safety and health management systems. These
systems enable our operations to identify applicable environmental, safety and health regulations,
assist in evaluating compliance status and timely establish loss preventive and control measures.
The systems we implemented in all our fabs have been certified as meeting the ISO 14001 and OHSAS
18001 standards. ISO 14001 consists of a set of standards that provide guidance to the management
of organizations to achieve an effective environmental management system. Procedures are
established at manufacturing locations to ensure that all accidental spills and discharges are
properly addressed. OHSAS 18001 is a recognizable occupational health and safety management system
standard, which may be applied to assess and certify our management systems. Our goal in
implementing ISO 14001 and OHSAS 18001 systems is to continually improve our environmental, health
and safety management.
Litigation
Hejian, a semiconductor manufacturer in Suzhou, China, was set up in December 2001. Soon after
the establishment of Hejian, there were various rumors that Hejian was set up by us, which we
denied immediately because we did not inject any capital into nor did we transfer any technology to
Hejian.
In early 2006, Hsinchu District Prosecutors Office brought criminal charges with the Hsinchu
District Court against our former Chairman, Robert H. C. Tsao and our former Vice Chairman, John
Hsuan in connection with their alleged breach of fiduciary duties and certain violations of the ROC
Commercial Accounting Act. Prior to such charges, both our former Chairman and former Vice Chairman
resigned from their respective positions with our company. The Hsinchu District Court found our
former Chairman and formal Vice Chairman not guilty in October 2007, and the Prosecutors office
filed an appeal with the Taiwan High Court in November 2007. The case is still pending in the
Taiwan High Court.
The ROC FSC, a regulatory authority that supervises securities, banking, futures, and
insurance activities in Taiwan, also began their investigation into any violation of ROC securities
laws by us. In April 2005, our former Chairman was fined (1) in the amount of NT$2.4 million by the
ROC FSC for our delay in making public disclosure timely (within two days) regarding the
information relating to Hejian, which was resolved in the March 4 Resolution, and (2) in the amount
of NT$0.6 million for our failure to disclose the information regarding the assistance we had
provided to Hejian. Our former Chairmans appeal in relation to such fines was overruled in early
2006, and a lawsuit had been filed by our former Chairman with the Taipei Administrative High
Court. In December 2007, the Taipei Administrative High Court revoked the ROC FSCs decision and
ruled in favor of our former Chairman. In January 2008, the ROC FSC filed an appeal with the
Supreme Administrative Court. The case is still pending in the Supreme Administrative Court.
35
In connection with the March 4 Resolution, our company was also fined in the amount of
NT$30,000 by the Taiwan Stock Exchange for a delay in making public disclosure. After our former
Chairman and former Vice Chairman were indicted by the prosecutor, our company was found by the ROC
MOEA to be in violation of the Act Governing Relations Between Peoples of the Taiwan Area and the
Mainland Area and fined in the amount of NT$5 million for our alleged illegal investment in Hejian.
Our appeal to the ROC MOEA in relation to such fines was denied in late 2006. We filed an
administrative lawsuit in December 2006 with the Taipei Administrative High Court. In July 2007,
the Taipei Administrative High Court revoked the ROC MOEAs decision and ruled in favor of us. In
August 2007, the ROC MOEA filed an appeal with the Supreme Administrative Court. The case is still
pending in the Supreme Administrative Court.
In June 2005, our Singapore Branch as plaintiff issued a Writ of Summons against Tokio Marine
& Fire Insurance Company (Singapore) Pte. Ltd. or Tokio Marine, as defendant under a marine cargo
insurance policy for the replacement cost of a 300mm Endura System damaged in transit. We believe a
chamber of that equipment was damaged in shipment and incurred a cost of approximate US$1.24
million to replace the damaged chamber. Our Singapore Branch filed suit to recover under the
insurance policy on the grounds that the equipment was damaged in shipment as a result of rough
handling or conditions. Tokio Marine has denied that the incident was a covered event under the
policy. In April 2008, trial court entered a judgment in our favor in the amount of US$1.24 million
with costs to be taxed in accordance with Singapore law. Although the time for Tokio Marine to
appeal has not yet passed, Tokio Marine has paid us US $1.24 million plus interest in accordance
with the judgment.
In February 2006, Taiwan Power Company, or TPC, filed a civil litigation case in Taiwan
Hsinchu District Court against us and other Taiwan companies, claiming that (1) we and the other
defendants collectively pay electrical fees of NT$13.3 million with accrued interest to TPC, and
(2) we pay electrical lines fees of NT$21.2 million to TPC. The case is under trial. We believe
TPCs claims are without merit.
In March 2006, the spouse of Mr. C.F. Shih, a workman employed by Yih-Shin Construction Co.,
Ltd, or Yih-Shin, one of the subcontractors engaged by us for the construction of the Fab 12A
dormitory, filed a request to Taiwan Tainan Prosecutors Office for charges against us and other
related parties in connection with Mr. Shihs severe injury in connection with the construction
work. While Taiwan Tainan Prosecutors Office denied this request, Mr. Shih filed a civil
litigation lawsuit against us, Yih-Shin and other related parties in April 2006. Mr. Shih claimed
that we, Yih-Shin and other related parties collectively pay NT$21.0 million. In addition, Mr.
Shihs mother and spouse each requested for compensatory damages of NT$0.3 million, and each of Mr.
Shihs three children requested for compensatory damages of NT$0.1 million. This lawsuit is pending
Taiwan Tainan District Courts trial.
Due to the recent merger between LSI and Agere Systems, Inc., we have, under the applicable
Alternate Payment Provisions and Supplemental Licenses with effective date January 1, 2004, or APP,
between us and Agere, exercised our option to terminate its payments under the APP. As a result,
under the terms of the APP, the licenses granted to Agere and Lucent under our patents and the
licenses granted to us under the semiconductor patents owned by Agere, Lucent Technologies and AT&T
are terminated. In light of the merger, we believe we can secure more favorable terms than those
afforded under the APP, and have entered negotiations with LSI/Agere toward that goal. Based on
past experience, we expect to reach a negotiated solution without a material adverse effect on the
operations or financial performance of us as a whole.
In the meantime, in April 2008, LSI filed a petition with the US International Trade
Commission naming us and eighteen other companies as proposed respondents (including AMIC
Technology, one of our customers). LSIs petition is based on alleged infringement of US 5,227,335,
claiming certain methods for forming nitrided glue layers for tungsten processing in semiconductor
fabrication. LSIs petition seeks an order prohibiting import and/or sale of the accused devices in
the US. Under established ITC practice, the ITC has 30 days to decide whether or not to initiate
an investigation on the petition.
On
April 18 2008, LSI also filed a complaint in Federal District Court in the Eastern District
of Texas, alleging an infringement of the same patent by the same parties. This complaint seeks an
injunction or order prohibiting the alleged infringement along with a reasonable royalty, and other
damages in a trebled amount on the basis of alleged willfulness. Under the established procedure,
if the ITC initiates an investigation, it is likely that this court case will be stayed pending the
outcome of the ITC matter.
36
Based on an investigation of the patent involved, we believe we have meritorious defenses to
LSIs claims. Moreover, given LSIs apparent goal to license its patents on non-discriminatory and
reasonable terms, we do not expect that these legal proceedings will have a material adverse effect
on our operations or financial results as a whole.
Risk Management
Risk and safety matters are administered by our Group Risk Management and Environmental Safety
Health Division, or the GRM & ESH, established in 1998. We are pursuing the goal of a highly
protected risk status in the semiconductor industry through the implementation of strict
engineering safety procedures, regular enforcement of safety codes and standards, and compliance of
detailed industry safety guidelines. Our initiatives include promoting a culture of safety within
the organization and equipping each fab with Business Continuity Plan, or BCP, programs and BCP
drills to lower the risk of business interruption. The professionally-trained full-time fire
brigade is on duty 24-hours a day and armed with state-of-the-art fire fighting equipment to
provide services for us as well as other companies in the region and is equipped with
self-developed mobile smoke discharging system in cleanrooms without dedicated smoke control
systems. We have also adopted the Triple Star Audit Program of AIG Insurance, a global leader in
risk management and insurance, since 1999. All fabs have been ranked as top-class following AIGs
risk evaluation and risk improvement recommendations. The audit program focuses on 20 items,
including ten Physical Protection Elements and ten Human Elements. Our latest 12-inch fabs, Fab 12A
and 12i, obtained triple-stars in all 20 elements in the very first Triple Star Audit.
We believe due to our proactive efforts in earthquake risk exposure prevention, we had quick
and exemplary recovery from two major earthquakes in Taiwan on September 21, 1999 and December 26,
2006, respectively. Our Hsinchu fabs and Fab 12A in Tainan sustained only minor impact to their
operations from the earthquake without interruption to the power system or water service. Normal
operations resumed shortly after the incidents.
Our continuous efforts in risk improvement and mitigation programs were recognized by the
clean room risk identification and mitigation Gold Medal we received in the National Quality
Control Circle competition held by the ROC MOEA in 2005. In addition, we were awarded Outstanding
Performance Award in Risk Management in 2006 by AIG Insurance as a result of our outstanding risk
management program.
Insurance
We maintain industrial all risk insurance for our buildings, facilities, equipment and
inventories. The insurance for fabs and their equipment covers physical damage and business
interruption losses up to their respective policy limits except for exclusions as defined in the
policy. We purchase directors and officers liability insurance for our directors and supervisors,
covering the liabilities incurred in relation to his/her/its operation of business and legally
responsible for. We also maintain public liability insurance for losses to third parties arising
from our business operations. We believe that our insurance coverage is adequate to cover all major
types of losses relevant to the semiconductor industry practice. However, significant damage to any
of our production facilities, whether as a result of fire or other causes, could seriously harm our
business.
C. Organizational Structure
The following diagram shows our corporate structure as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
Percentage of Ownership |
Company |
|
Jurisdiction of Incorporation |
|
as of December 31, 2007 |
|
|
|
|
|
|
|
UMC Group (USA) |
|
California, USA |
|
|
100.00 |
% |
United Microelectronics (Europe) B.V. |
|
The Netherlands |
|
|
100.00 |
% |
UMC Capital Corporation |
|
Cayman Islands |
|
|
100.00 |
% |
United Microelectronics Corp. (Samoa) |
|
Samoa |
|
|
100.00 |
% |
TLC Capital Co., Ltd |
|
Taiwan, ROC |
|
|
100.00 |
% |
UMCi Ltd. |
|
Singapore |
|
|
100.00 |
% |
Fortune Venture Capital Corporation |
|
Taiwan, ROC |
|
|
99.99 |
% |
United Microdisplay Optronics Corp. |
|
Taiwan, ROC |
|
|
85.24 |
% |
UMC Japan |
|
Japan |
|
|
50.09 |
% |
Unitruth Investment Corp. |
|
Taiwan, ROC |
|
|
100.00 |
% |
UMC Capital (USA) |
|
California, USA |
|
|
100.00 |
% |
ECP VITA Ltd. |
|
British Virgin Islands |
|
|
100.00 |
% |
UMO (HK) Limited |
|
Hong Kong |
|
|
100.00 |
% |
37
D. Property, Plants and Equipment
Please
refer to B. Business Overview Manufacturing Facilities for a discussion of our
property, plants and equipment.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Unless stated otherwise, the discussion and analysis of our financial condition and results of
operations in this section apply to our financial information as prepared in accordance with ROC
GAAP. You should read the following discussion of our financial condition and results of operations
together with the consolidated financial statements and the notes to such statements included in
this annual report. ROC GAAP varies in certain significant respects from US GAAP. These differences
and their effects on our financial statements are described in Note 35 to our audited consolidated
financial statements included in this annual report.
For the convenience of readers, NT dollar amounts used in this section for, and as of, the
year ended December 31, 2007 have been translated into U.S. dollar amounts using US$1.00 =
NT$32.43, the noon buying rate of the Federal Reserve Bank of New York on December 31, 2007. The
U.S. dollar translation appears in parentheses next to the relevant NT dollar amount.
Overview
We are one of the worlds leading independent semiconductor foundries, providing comprehensive
wafer fabrication services and technologies to our customers based on their designs. We manage our
business and measure our results of operations based on a single industry segment.
Our production capacity has increased modestly in the last three years from approximately
358,000 8-inch wafer equivalents in December 2005 to approximately 382,000 8-inch wafer equivalents
in December 2006, to approximately 397,000 8-inch wafer equivalents in December 2007. The larger
economies of scale when capacity utilization rate is high have better enabled us to reduce our per
unit production cost, which improves margins. However, when capacity utilization rate is low, this
increased capacity has led to higher per unit production cost and decreased margins.
Cyclicality of the Semiconductor Industry
As the semiconductor industry is highly cyclical, revenues varied significantly over this
period. It can take several years to plan and construct a fab and bring it to operations.
Therefore, during periods of favorable market conditions, semiconductor manufacturers often begin
building new fabs or acquiring existing fabs in response to anticipated demand growth for
semiconductors. In addition, after commencement of commercial operations, fabs can increase
production volumes rapidly. As a result, large amounts of semiconductor manufacturing capacity
typically become available during the same time period. Absent a proportional growth in demand,
this increase in supply often results in semiconductor manufacturing overcapacity, which has led to
a sharp decline in semiconductor prices and significant capacity under-utilization. With a general
recovery in the worldwide
semiconductor industry, our average capacity utilization rate decreased to 72.4% in 2005 but
increased to 79.5% in 2006 and increased to 81.9% in 2007. We believe that our results in 2005,
2006 and 2007 reflect the ongoing uncertainty in the global economy, conservative corporate
information technology spending and low visibility with respect to end market demand.
38
Pricing
We price our products on either a per die or a per wafer basis, taking into account the
complexity of the technology, the prevailing market conditions, the order size, the cycle time, the
strength and history of our relationship with the customer and our capacity utilization. Because
semiconductor wafer prices tend to fluctuate frequently, we in general review our pricing on a
quarterly basis. As a majority of our costs and expenses are fixed or semi-fixed, fluctuations in
our products average selling prices historically have had a substantial impact on our margins. Our
average selling price decreased approximately 7.4% from 2006 to 2007, mainly due to the reduction
of average selling price by our customers in spite of our shift towards higher-priced product mix
using more advanced technology.
We believe that our current level of pricing is comparable to that of other leading foundries
in each respective geometry. We believe that our ability to provide a wide range of advanced
foundry services and process technologies as well as large manufacturing capacity will enable us to
compete effectively with other leading foundries at a comparable price level.
Capacity Utilization Rates
Our operating results are characterized by relatively high fixed costs. In 2005, 2006 and
2007, approximately 74.0%, 69.5% and 64.8%, respectively, of our manufacturing costs consisted of
depreciation, a portion of indirect material costs, amortization of license fees and indirect labor
costs. Our variable costs increased in 2007 due to (i) an increase in direct material costs from
NT$7,584 million in 2006 to NT$8,803 million (US$268 million) in 2007 due to higher wafer-start
quantities and (ii) an increase in costs of spare parts in Fab 12A and Fab 12i from NT$1,810
million and NT$1,296 million in 2006, respectively, to NT$2,771 million (US$84 million) and
NT$2,037 million (US$62 million) in 2007, respectively, as a result of more wafer production.
If our utilization rates increase, our costs would be allocated over a larger number of units,
which generally leads to lower unit costs. As a result, our capacity utilization rates can
significantly affect our margins. Our utilization rates have varied from period to period to
reflect our production capacity and market demand. Due to the cyclical nature of the worldwide
semiconductor industry, our average capacity utilization rate increased to 79.5% in 2006 from 72.4%
in 2005 and increased to 81.9% in 2007. Utilization rates can also be affected by efficiency in
production facility and product flow management. Other factors affecting utilization rates are the
complexity and mix of the wafers produced, overall industry conditions, the level of customer
orders, mechanical failure, disruption of operations due to expansion of operations, relocation of
equipment or disruption of power supply and fire or natural disaster.
Our production capacity is determined by us based on the capacity ratings given by
manufacturers of the equipment used in the fab, adjusted for, among other factors, actual output
during uninterrupted trial runs, expected down time due to set up for production runs and
maintenance, expected product mix and research and development. Because these factors include
subjective elements, our measurement of capacity utilization rates may not be comparable to those
of our competitors.
Change in Product Mix and Technology Migration
Because the price of wafers processed with different technologies varies significantly, the
mix of wafers that we produce is among the primary factors that affect our revenues and
profitability. The value of a wafer is determined principally by the complexity of the processing
technology used to produce the wafer. Production of devices with higher levels of functionality and
greater system-level integration requires more manufacturing steps and generally commands higher
wafer prices. The increase in price generally has more than offset associated increases in
production cost once an appropriate economy of scale is reached.
39
Prices for wafers of a given level of technology generally decline over the processing
technology life cycle. As a result, we have continuously been migrating to increasingly
sophisticated technologies to maintain the same level of profitability. We began our volume
production with 90 nanometer and 65 nanometer technologies in 2004 and 2006, respectively. We
expect to see a small amount of 45 nanometer production by the second half of 2008. These types of
technology migration require continuous capital and research and development investment. Because
developing and acquiring advanced technologies involve substantial capital investment, we expect to
continue to spend a substantial amount of capital on upgrading our technologies.
Manufacturing Yields
Manufacturing yield per wafer is measured by the number of functional dice on that wafer over
the maximum number of dice that can be produced on that wafer. A small portion of our products is
priced on a per die basis, and our high manufacturing yields have assisted us in achieving higher
margins. In addition, with respect to products that are priced on a per wafer basis, we believe
that our ability to deliver high manufacturing yields generally has allowed us to either charge
higher prices per wafer or attract higher order volumes, resulting in higher margins.
We continually upgrade our process technologies. At the beginning of each technological
upgrade, the manufacturing yield utilizing the new technology is generally lower, sometimes
substantially lower, than the yield under the current technology. The yield is generally improved
through the expertise and cooperation of our research and development personnel and process
engineers, as well as equipment and at times raw material suppliers. Our policy is to offer
customers new process technologies as soon as the new technologies have passed our internal
reliability tests.
Investments
Most of our investments were made to improve our market position and for strategy
considerations, a significant portion of which are in foundry-related companies including fabless
design customers, raw material suppliers and intellectual property vendors. In addition, we also
invest in non-foundry-related businesses, such as Mega Financial Holding Co. Ltd., or Mega
Financial, and ProMOS Technologies. In recent years, we have from time to time disposed of
investments for financial, strategic or other purposes.
See Item 4. Information on the Company B. Business Overview Our Investments for a
description of our investments.
Treasury Share Programs
We have from time to time announced plans, none of which was binding on us, to buy back up to
a fixed amount of our shares on the Taiwan Stock Exchange at the price range set forth in the
plans. As of December 31, 2005, 2006 and 2007, we purchased an aggregate of 1,278 million, 2,678
million and 2,678 million, respectively, of our shares under these plans. From February 16, 2006 to
April 15, 2006, we also purchased 1,000 million of our shares for cancellation. On May 22, 2006, we
announced a plan, which is not binding on us, to buy back up to 400 million of our shares on the
Taiwan Stock Exchange at a price ranging from NT$13.90 to NT$32.15 per share between May 23, 2006
and July 22, 2006 to transfer to employees. We have no buy back program in 2007. Of the repurchased
shares, 137 million and 97 million shares were purchased by our employees in November 2003 and
December 2007, respectively; and 1,739 million shares in aggregate were cancelled as of March 31,
2008.
Critical Accounting Policies
General
Our discussion and analysis of our financial condition and results of operations are based
upon our consolidated financial statements included in the annual report, which have been prepared
in accordance with ROC GAAP. ROC GAAP varies in certain respects from US GAAP. These differences
and their effects on our financial statements are described in Note 35 to our audited consolidated
financial statements included in this annual report.
The preparation of our consolidated financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing
basis and base our estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different assumptions or
conditions.
40
We believe the following critical accounting policies involve significant judgments and
estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, the product or service
has been delivered, the sellers price to the buyer is fixed or determinable and collectibility is
reasonably assured. Most of our sales transactions have shipping terms of Free on Board (FOB) or
Free Carrier (FCA) shipment under which title and the risk of loss or damage are transferred to the
customer upon delivery of the product to a carrier approved by the customer.
Allowance for sales returns and discounts are estimated taking into consideration of customer
complaints, historical experiences, management judgment and any other known factors that might
significantly affect collectibility. Such allowances are recorded in the same period in which sales
are made. Shipping and handling costs are included in sales expenses.
Accounts Receivable and Allowance for Doubtful Accounts
The allowance for doubtful accounts is provided based on the evaluation of collectibility and
aging analysis of accounts and on managements judgment. In circumstances where the ability of a
specific customer to meet its financial obligations is in doubt, a specific allowance will be
provided. Considerable judgment is required in assessing the ultimate realization of these
receivables including the current credit worthiness and the past collection history of each
customer. If the financial conditions of our customers were to worsen, additional allowances would
be required. A deterioration of economic conditions either in the ROC or in other major overseas
markets may contribute to the deterioration of financial conditions of our customers, resulting in
an impairment of their ability to make payments.
The allowances for doubtful accounts accounted for 0.01% and 0.02% of our accounts receivables
as of December 31, 2006 and 2007, respectively. Even if we were to change our estimated rate on
allowance for doubtful receivables either upward or downward by 10%, there would not have been a
material impact on our operating income.
Inventory
Inventories are recorded at cost when acquired and stated at the lower of aggregate cost,
based on the weighted average method, 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 net realizable
values determined by the average selling price of the most recent periods are used as market values
of work-in-process and finished goods. In addition, allowances for obsolete and slow-moving
inventories are determined by analyzing the age and sales condition of the inventories.
Income Taxes
Most of our existing tax benefits arise from investment tax credits, and others from net
operating loss carry-forward and temporary differences. We recognize these tax benefits as deferred
tax assets. Income tax expense or benefit is recognized when there is a net change in deferred tax
assets and liabilities. A valuation allowance is recorded to reduce our deferred tax assets to the
extent that we believe it is more likely than not that the tax benefits will not be realized. The
assessment of the valuation allowance involves subjective assumptions and estimates as it
principally depends on the estimation of future taxable income and prudent and feasible tax
planning strategies. If future taxable income is lower than expected due to future market
conditions or other reasons or in the event we determine that we will not be able to realize all or
part of our net deferred tax assets in the future, an adjustment to our deferred tax assets
valuation allowance may be required with the adjusting amount charged to income in this period.
Likewise, should future taxable income be higher than expected due to future market conditions or
other reasons or in the event we determine that we would be able to realize our deferred tax assets
in the future in excess of our net recorded amount, an adjustment to our deferred tax assets
valuation allowance would increase income in this period.
41
On January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes An Interpretation of FASB Statement No.109, or FIN 48 for US GAAP accounting. As
a result of the implementation of FIN 48, our uncertain tax positions are accounted for based on
the two-step process prescribed in the interpretation. The first step is to evaluate the tax
position for recognition by determining if it is more likely than not that the position will be
sustained based on the technical merits. The second step requires us to estimate and measure the
tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate
settlement. Although FIN 48 provides further clarification of the accounting for uncertainty in
income taxes recognized in the financial statements, significant management judgment must be made
and used in connection with the recognition threshold and measurement attribute prescribed by FIN
48. Determination of our uncertain tax positions involves the legal and factual interpretation with
respect to the application of relevant tax laws and regulations, along with our assessment of other
factors including changes in facts or circumstances, changes in tax law, and/or effectively settled
issues under audit. As mentioned above, the application of tax laws and regulations is inherently
subject to legal and factual interpretation, judgment and uncertainty. In addition, tax laws and
regulations themselves are subject to change as a result of changes in fiscal policy, changes in
legislation, the evolution of regulations and court rulings. Therefore, the final settlement of
these uncertain tax positions might be materially different from our estimates, which could result
in the need to record additional tax liabilities or potentially reverse previously recorded tax
liabilities.
Long-lived Assets Impairment
Pursuant to ROC GAAP effective from January 1, 2005, and US GAAP effective from January 1,
2002, we are required to review the long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying value of the long-lived assets might not be recoverable.
Such review may include assessing whether there is a significant decrease in market values of
long-lived assets or significant deterioration of market conditions to indicate the carrying value
of such assets may not be recovered through future cash flows, any change in the use of long-lived
assets to negatively affect their fair values, and any obsolescence issues that would lead to a
lower fair value determination. If there is an indication that an asset might be impaired, we
proceed with a further impairment test, which is performed for asset groups related to the lowest
level of identifiable independent cash flows. Due to our asset usage model and the interchangeable
nature of our semiconductor manufacturing capacity, we must make subjective judgments and estimates
in determining the independent cash flows that can be related to specific asset groups, including
the service potential of long-lived assets through its estimated useful life, cash-flow-generating
capacity, physical output capacity, potential fluctuation of economic cycle in the semiconductor
industry and operating situation of the Company. Under ROC GAAP, we compare the carrying amount
with the recoverable amount derived from discounted cash flow analysis to determine whether the
asset is impaired and recognize impairment loss to the extent that its carrying amount exceeds its
recoverable amount. If there is evidence that impairment losses recognized previously no longer
exists, or has diminished, and the recoverable amount of the long-lived assets increases because of
an increase in the assets estimated service potential, the amount of loss may be reversed to the
extent that the resulting carrying value should not exceed the carrying value had no impairment
loss been recognized in prior years. Under US GAAP, we compare the carrying amount with
undiscounted cash flows to evaluate whether the asset is impaired and recognize an impairment loss
equal to the excess of its carrying amount over its fair value derived from discounted cash flow
analysis. Such impairment cannot be reversed. Having performed the above impairment tests, no
impairment was recognized for the year. However, changes in the estimates of expected cash flows
may result in impairment charges in the future.
42
Goodwill Impairment
Pursuant to ROC GAAP effective January 1, 2005, and US GAAP effective January 1, 2002,
goodwill is subject to impairment tests on an annual basis, or more frequently whenever events
occur or circumstances change indicating that goodwill might be impaired. Furthermore, goodwill
shall cease to be amortized since January 1, 2006 under ROC GAAP. The assessment on impairment of
goodwill is subject to significant judgment. Under ROC GAAP, such judgment includes identifying the
cash generating unit (CGU), making assumptions for discounted cash flow analysis to derive the
fair value of the CGU and properly assigning relevant assets, liabilities and goodwill to the CGU.
Under US GAAP, we are required to identify the reporting unit, use the appropriate stock price to
derive the fair value of reporting unit, and assign the fair value of relevant assets and
liabilities to the reporting unit. Ultimately, we compare the fair value of goodwill to its
carrying value and determine the impairment loss, if any. If the relevant assumptions and estimates
change in the future, they will impact our goodwill impairment test.
Pension
All of our regular employees were entitled to a defined benefit pension plan under the ROC
Labor Standards Law, or Labor Standards Law, prior to July 1, 2005. Such pension plan was managed
by an independently administered pension fund committee, and fund assets are deposited under the
committees name at the Bank of Taiwan. On July 1, 2005, the ROC Labor Pension Act, or the Labor
Pension Act, became effective, under which qualified employees may elect to apply the pension
calculation either under the ROC Labor Standards Law or under the ROC Labor Pension Act in
accordance with a new defined contribution plan. The employees that selected to apply the Labor
Pension Act may have their seniority previously accrued under the Labor Standards Law retained.
Under the defined benefit pension plan of the Labor Standards Law, we have significant pension
benefit costs and liabilities that are developed from actuarial valuations. Inherent in these
valuations are key assumptions including discount rates and expected return on plan assets. We
consider current market conditions, including changes in interest rates, in selecting these
assumptions. In addition to changes resulting from fluctuations in our related headcount, changes
in the related pension costs or liabilities may also occur in the future due to changes in
assumptions. Under the defined contribution pension plan of the ROC Labor Pension Act, we are
required to make monthly contributions to employees individual pension accounts and recognize
expenses in the periods in which the contributions become due.
Investments in Debt and Equity Securities
Under US GAAP and ROC GAAP, equity securities over which we exercise no significant influence
or control and with readily determinable fair values and debt securities are to be classified as
either trading (which are known as financial assets at fair value through profit or loss, or
FVTPL, under ROC GAAP), available-for-sale or held-to-maturity securities. Debt securities that
we have the intent and ability to hold to maturity are classified as held-to-maturity securities
and reported at their amortized cost. Debt and equity securities that are bought and traded for
short-term profit are classified as trading securities and reported at fair value, with unrealized
gains and losses included in earnings. Debt and equity securities not classified as either
held-to-maturity or trading securities are classified as available-for-sale securities and reported
at fair value, with unrealized gains and losses reported in other comprehensive income under
stockholders equity. Unrealized losses that are deemed to be other than temporary are charged to
earnings. For individual securities classified as either available-for-sale or held-to-maturity, we
would determine whether a decline in fair value below cost is other than temporary pursuant to
guidance provided by SFAS No.115, Accounting for Certain Investments in Debt and Equity
Securities, or SFAS 115, and FSP FAS 115-1/124-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments, or FSP FAS 115-1/124-1. We consider,
among other factors, information concerning significant adverse changes in market conditions in
which the investee operates and operating issues specific to the investee in determining whether a
decline in value is temporary. In general, we consider a decline in market value below cost for a
continuous period of six months to be other than temporary decline. If the decline in fair value is
judged to be non-temporary, the cost basis of the individual security is written down to fair value
with a charge against earnings.
43
Derivative Instruments
Certain freestanding derivative instruments such as interest rate swap and foreign exchange
forward agreements are fair valued at each reporting period end. The fair values of these
instruments are determined using market established valuation techniques, which involve certain key
inputs such as the expected interest forward rate, expected volatility in interest rates, spot
exchange rate and swap point. Any change in such key inputs could materially impact the
determination of fair value of these derivative instruments.
Employee Stock Options
Under ROC GAAP, we apply the intrinsic value method to recognize the difference between the
market price of the stock at grant date and the exercise price of the employee stock option as
compensation expense. Under US GAAP, for years prior to 2006, we selected to follow Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, or APB 25 and
applied the intrinsic value method for the accounting of employee stock options. We also disclosed
pro forma information regarding net income and earnings per share according to SFAS No. 123,
Accounting for Share-Based Compensation, or SFAS 123. The pro forma net income is determined
as if the fair values of the employee stock options were used to determine the compensation expense
recognized for the period. Effective January 1, 2006, we adopted the modified prospective
transition method provided by SFAS No. 123(R), Share-Based Payment, or SFAS 123(R) to account
for its employee stock options. For equity-settled employee stock options, the corresponding
increase in equity is measured at the fair value of the options. For cash-settled employee stock
options, the corresponding liability incurred is measured at the fair value of the liability and
such fair value is remeasured subsequently at each reporting date through the settlement date.
The Black-Scholes option-pricing model requires the use of input assumptions, including
expected volatility, expected life, expected dividend rate and expected risk-free rate of return.
We applied the historical realized volatility, which calculates volatility based on the historical
stock price volatility over the time period equal to the expected term of the employee stock
option, in estimating expected volatility because our shares have been publicly traded for a long
time. We adopted the simplified method stated in Staff Accounting Bulletin 107 in estimating the
expected term for the employee stock option. The expected term is determined as the mid-point
between the vesting period and the contractual term. On the other hand, we believed that historical
pattern of dividend yield should be considered for estimating the expected dividend of the
underlying employee stock options. SFAS 123(R) stated that for entities based in jurisdictions
outside the United States, the risk-free interest rate is the implied yield of zero-coupon
government bonds currently available in the market in which the shares are primarily traded. Hence,
we use the average yield of Taiwan Government Bond with the remaining term similar to the expected
term as the risk-free interest rate. The estimates of option fair value are not expected to foresee
future events or the values realized by employees who receive stock option at the end of plans. In
addition, later events are not indicative of the rationality of the initial estimates of the fair
value of options used by us.
Employee stock options granted prior to our adoption of SFAS 123(R) that have not vested by
the adoption date will be expensed over the remaining portion of the vesting period, based on the
fair value on the grant date estimated in accordance with the original provisions of SFAS 123. The
expense is distributed to manufacturing cost, sales and marketing, general and administrative and
research and development according to the employees respective function. Pursuant to SFAS 123(R),
we adjust employee stock option expenses on an annual basis for changes in expected forfeitures
based on the examination of latest employee stock option forfeiture activity. The effect of
adjusting the forfeiture rate used for expense amortization after January 1, 2006 is recognized in
the corresponding period in which the expected forfeiture rate is changed.
A. Operating Results
Net Operating Revenues
We generate our net operating revenues primarily from fabricating semiconductor devices. We
also derive a small portion of our net operating revenues from wafer probe services that we perform
internally as well as mask tooling services and assembly and test services that we subcontract out.
44
Costs of Goods Sold
Our costs of goods sold consist principally of:
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overhead, including depreciation and maintenance of production equipment, indirect
labor costs, indirect material costs, supplies, utilities and royalties; |
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wafer costs; |
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direct labor costs; and |
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service charges paid to subcontractors for mask tooling, assembly and test services. |
Our total depreciation expenses decreased from NT$51,366 million in 2005 to NT$44,256 million
in 2006 and decreased to NT$37,785 million (US$1,150 million) in 2007. This was due to benefits we
have received from the reduced depreciation of 200mm facilities and equipment since 2006 which were
offset by increased expenditures related to the purchase of equipment and the capacity expansion in
300mm manufacturing facilities in 2005.
Operating Expenses
Our operating expenses consist of the following:
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Sales and marketing expenses. Sales and marketing expenses consist primarily of
intellectual property development expenses, salaries and related personnel expenses,
wafer sample expenses and related marketing expenses. Wafer samples are actual silicon
samples of our customers early design ideas made with our most advanced processes and
provided to those customers. |
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General and administrative expenses. General and administrative expenses consist
primarily of salaries for our administrative, finance and human resource personnel,
fees for professional services, and cost of computer and communication systems to
support our operations. |
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Research and development expenses. Research and development expenses consist
primarily of research testing related expenses, salaries and related personnel expenses
and depreciation on the equipment used for our research and development. |
Non-operating Income and Expenses
Our non-operating income principally consists of:
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interest income, which has been primarily derived from time deposits; |
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investment income accounted for under the equity method, which has been primarily
derived from the recognition of investee companies net income based on the percentage
of their ownership we hold; |
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gain on disposal of investments, which has been primarily derived from our disposal
of long-term investments accounted for under the equity method, available-for-sale
financial assets and financial assets measured at cost; |
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dividend income, which has been primarily derived from the financial instruments of
financial assets at fair value through profit or loss, available-for-sale financial
assets and financial assets measured at cost; and |
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other income, which has been primarily derived from our branchs grant income
received from the government in Singapore. |
45
Our non-operating expenses principally consist of:
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loss on valuation of financial assets and liabilities, which have been primarily
derived from disposal of and changes in the values of financial assets and liabilities
classified as FVTPL according to ROC SFAS 34; |
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impairment loss, which have been primarily derived from the loss recognized in our
long-term investments; and |
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loss on decline in market value and obsolescence of inventories, which have been
primarily derived from an allowance for loss on decline in market value or obsolescence
of inventories. |
Taxation
Based on our status as a company engaged in the semiconductor business in Taiwan, we have been
granted exemptions from income taxes in Taiwan with respect to income attributable to capital
increases for the purpose of purchasing equipment related to the semiconductor business for a
period of four or five years following each such capital increase. This tax exemption resulted in
tax savings of approximately NT$271 million, NT$176 million and NT$939 million (US$29 million) in
2005, 2006 and 2007, respectively. Our current tax rate is 25%, the same rate applicable to
companies outside the Hsinchu Science Park.
We also benefit from other tax incentives generally available to technology companies in
Taiwan, including tax credits applicable against corporate income tax that range from 30% to 50% of
the amount of certain research and development and employee training expenses and 5% to 20% of the
amount of investment in certain qualified equipment and technology. These tax incentives resulted
in tax savings of approximately NT$3,564 million, nil and NT$1,072 million (US$33 million) in 2005,
2006 and 2007, respectively.
After taking into account the tax exemptions and tax incentives discussed above, we recorded
NT$67 million, NT$3,261 million and NT$2,810 million (US$87 million) of tax expense in 2005, 2006
and 2007, respectively. Our effective income tax rate in 2007 was 14.28%.
In 1997, the ROC Income Tax Law was amended to integrate corporate income tax and shareholder
dividend tax to eliminate the double taxation effect for resident shareholders of Taiwan companies.
Under the amendment, all retained earnings generated from January 1, 1998 and not distributed to
shareholders as dividends in the following year will be assessed a 10% retained earnings tax. See
Item 10. Additional InformationE. ROC Tax ConsiderationsDividends. As a result, if we do not
distribute all of our annual retained earnings generated beginning January 1, 1998 as either cash
and/or stock dividends in the following year, these earnings will be subject to the 10% retained
earnings tax. In addition, the ROC government enacted the ROC Income Basic Tax Act, also known as
the Minimum Income Tax Statute, or the Statute, which became effective on January 1, 2006 and
imposes an alternative minimum tax, or AMT. The AMT imposed under the Statute is a supplemental
tax which is payable if the income tax payable pursuant to the ROC Income Tax Act is below the
minimum amount prescribed under the Statute. In accordance with the Statute, a company will be
subject to a 10% AMT if its annual taxable income under the Statute exceeds NT$2 million.
Comparisons of Results of Operations
The following table sets forth some of our results of operations data as a percentage of our
net operating revenues for the periods indicated.
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Year Ended December 31, |
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2005 |
|
2006 |
|
2007 |
Net operating revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Costs of goods sold |
|
|
90.4 |
|
|
|
80.9 |
|
|
|
79.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
9.6 |
|
|
|
19.1 |
|
|
|
20.8 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
3.7 |
|
|
|
3.0 |
|
|
|
3.6 |
|
General and administrative |
|
|
4.4 |
|
|
|
3.1 |
|
|
|
3.3 |
|
Research and development |
|
|
9.6 |
|
|
|
8.4 |
|
|
|
8.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(8.1 |
) |
|
|
4.6 |
|
|
|
5.4 |
|
Net non-operating income |
|
|
13.7 |
|
|
|
28.1 |
|
|
|
12.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax and minority interest |
|
|
5.6 |
|
|
|
32.7 |
|
|
|
17.4 |
|
Income tax expense |
|
|
(0.1 |
) |
|
|
(2.9 |
) |
|
|
(2.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of changes in accounting
principles (the net amount after deducted tax
expense) |
|
|
(0.1 |
) |
|
|
(1.1 |
) |
|
|
|
|
Minority interest loss |
|
|
1.6 |
|
|
|
0.4 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
7.0 |
|
|
|
29.1 |
|
|
|
15.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
2006 Compared with 2007
Net operating revenues. Net operating revenues increased by 1.2% from NT$112,004 million in
2006 to NT$113,311 million in 2007, largely attributable to an increase in customer demand, which
resulted in a 8.3% increase in wafers sold, from 3,458 thousand wafers in 2006 to 3,745 thousand
wafers in 2007, and our shift towards higher-priced product mix using more advanced technology.
Cost of goods sold. Cost of goods sold decreased by 1.0% from NT$90,638 million in 2006 to
NT$89,768 million in 2007. Our capacity utilization rate increased from 79.5% in 2006 to 81.9% in
2007.
Gross profit and gross margin. Our gross margin fluctuation depends on the level of
manufacturing capacity, wafer shipments and product mix. Gross margin increased from 19.1% in 2006
to 20.8% in 2007, which was primarily driven by higher capacity utilization in 2007. As our
utilization rates increased, our costs were allocated over a larger number of units, which led to
lower unit costs.
Operating income and operating margin. Operating income increased substantially from NT$5,159
million in 2006 to NT$6,119 million (US$189 million) in 2007. Our operating margin increased from
4.6% in 2006 to 5.4% in 2007. The increase in operating margin is largely due to an increase in
gross margin.
Sales and marketing expenses. Our sales and marketing expenses increased by 20.9% from
NT$3,366 million in 2006 to NT$4,069 million (US$125 million) in 2007. The increase in sales and
marketing expenses was mainly due to increases in sample and mask expenses for sales promotion. Our
sales and marketing expenses as a percentage of our net operating revenues increased from 3.0% in
2006 to 3.6% in 2007.
General and administrative expenses. Our general and administrative expenses increased by 8.8%
from NT$3,422 million in 2006 to NT$3,724 million (US$115 million) in 2007. The increase in general
and administrative expenses was primarily due to increases in personnel related expenses as a
result of increases in headcounts and salaries in 2007. Our general and administrative expenses as
a percentage of our net operating revenues increased from 3.1% in 2006 to 3.3% in 2007.
Research and development expenses. Our research and development expenses increased by 2.3%
from NT$9,419 million in 2006 to NT$9,631 million (US$297 million) in 2007. The increase in
research and development expenses resulted primarily from our continued development of 90-nanometer
and 65-nanometer process technologies. Our research and development expenses as a percentage of our
net operating revenues increased from 8.4% in 2006 to 8.5% in 2007.
Net non-operating income. Net non-operating income substantially decreased by 56.9% from
NT$31,429 million in 2006 to NT$13,551 million (US$418 million) in 2007 mainly due to the decrease
in gain on disposal of investments. Gain on disposal of investments decreased from NT$28,651
million in 2006 to NT$12,041 million
(US$371 million) in 2007. Our gain on disposal of investment in 2006 consists of NT$13,152
million which we recognized from our disposal of investment in Hsun Chieh in that year.
47
Net income. Due to the factors described above, we earned a net income of NT$16,962 million
(US$523 million) in 2007, compared to a net income of NT$32,619 million in 2006.
2005 Compared with 2006
Net operating revenues. Net operating revenues increased by 11.7% from NT$100,316 million in
2005 to NT$112,004 million in 2006, largely attributable to an increase in customer demand, which
resulted in a 15.3% increase in wafers sold, from 2,999 thousand wafers in 2005 to 3,458 thousand
wafers in 2006. The increase in our net operating revenues was attributable to an increase in our
sales volume in 2006, partially offset by a 1.3% decrease in average selling price as compared to
2005 as a result of a fall in market pricing in spite of a shift towards higher-priced product mix
using more advanced technology. Our 0.15 micron and more advanced technologies had contributed
approximately 46.4% of our net wafer sales in 2006, as compared to 39.0% in 2005.
Cost of goods sold. Cost of goods sold were NT$90,643 million and NT$90,638 million in 2005
and 2006, respectively. Our capacity utilization rate increased from 72.4% in 2005 to 79.5% in
2006.
Gross profit and gross margin. Our gross margin fluctuation depends on the level of
manufacturing capacity, wafer shipments and product mix. Gross margin increased from 9.6% in 2005
to 19.1% in 2006, which was primarily driven by higher capacity utilization. As our utilization
rates increased from 72.4% in 2005 to 79.5% in 2006, our costs were allocated over a larger number
of units, which led to lower unit costs and higher gross margin, partially offset by a decrease in
average selling price.
Operating income and operating margin. Our operating loss was NT$8,087 million in 2005
compared to an operating income of NT$5,159 million in 2006. Our operating margin increased from
(8.1)% in 2005 to 4.6% in 2006. The increase in operating margin is largely due to an increase in
gross margin. Operating expenses decreased by 8.7% from NT$17,760 million in 2005 to NT$16,207
million in 2006.
Sales and marketing expenses. Our sales and marketing expenses decreased by 10% from NT$3,739
million in 2005 to NT$3,366 million in 2006. The decrease in sales and marketing expenses was
mainly derived from consolidating different subsidiaries in 2006 than in 2005, partially offset by
an increase in our purchase of intellectual properties from third parties to assist our customers
to develop SoC. Our sales and marketing expenses as a percentage of our net operating revenues
decreased from 3.7% in 2005 to 3.0% in 2006.
General and administrative expenses. Our general and administrative expenses decreased by
22.0% from NT$4,387 million in 2005 to NT$3,422 million in 2006. The decrease in general and
administrative expenses was largely due to consolidating different subsidiaries in 2006 than in
2005, as well as the absence of amortization of goodwill generated from business combinations since
January 1, 2006 pursuant to the ROC SFAS 25, Business Combination Accounting Treatment under
Purchase Method. If we had accounted for goodwill in accordance with the requirements in the prior
year, net income in 2006 would have decreased NT$859 million. Our general and administrative
expenses as a percentage of our net operating revenues decreased from 4.4% in 2005 to 3.1% in 2006.
Research and development expenses. Our research and development expenses decreased by 2.2%
from NT$9,634 million in 2005 to NT$9,419 million in 2006, primarily due to the offset effect as a
result of the decrease in our consolidated subsidiaries, in spite of the increase in research and
development expenses of UMC in connection with its continued development of 90-nanometer and
65-nanometer process technologies. Our research and development expenses as a percentage of our net
operating revenues decreased from 9.6% in 2005 to 8.4% in 2006.
Net non-operating income. Net non-operating income substantially increased by 129.5% from
NT$13,693 million in 2005 to NT$31,428 million in 2006 mainly due to the gain on disposal of
investments. Gain on disposal
of investments increased from NT$10,277 million in 2005 to NT$28,651 million in 2006, of which
we recognized NT$13,152 million gain on disposal of investment in Hsun Chieh, one of our
subsidiaries in and prior to 2005 but an equity-method investee in 2006.
48
Net income. Due to the factors described above, we incurred a net income of NT$32,619 million
in 2006, compared to a net income of NT$7,027 million in 2005.
B. Liquidity and Capital Resources
The foundry business is highly capital intensive. Our development over the past three years
has required significant investments. Additional expansion for the future generally will continue
to require significant cash for acquisition of plant and equipment to support increased capacities,
particularly for the production of 12-inch wafers, although our expansion program will be adjusted
from time to time to reflect market conditions. In addition, the semiconductor industry has
historically experienced rapid changes in technology. To maintain competitiveness at the same
capacity, we are required to make adequate investments in plant and equipment. In addition to our
need for liquidity to support the large fixed costs of capacity expansion and the upgrading of our
existing plants and equipment for new technologies, as we ramp up production of new plant capacity,
we require significant working capital to support purchases of raw materials for our production and
to cover variable operating costs such as salaries until production yields provide sufficiently
positive margins for a fabrication facility to produce operating cash flows.
We have financed our capital expenditure requirements with cash flows from operations as well
as from bank borrowings, the issuance of bonds and equity-linked securities denominated in NT
dollars and U.S. dollars and the proceeds from our ADS offering in September 2000. We incurred
capital expenditures of NT$22,163 million, NT$33,240 million and NT$28,299 million (US$873 million)
in 2005, 2006 and 2007, respectively, requiring a significant amount of funding from financing
activities. Once a fab is in operation at acceptable capacity and yield rates, it can provide
significant cash flows. Cash flows significantly exceed operating income, reflecting the
significant non-cash depreciation expense. We generated cash flows from operations of NT$45,046
million, NT$47,078 million and NT$48,079 million (US$1,483 million) in 2005, 2006 and 2007,
respectively.
As of December 31, 2007, we had NT$47,678 million (US$1,470 million) of cash and cash
equivalents and NT$4,805 million (US$148 million) of FVTPL.
We believe that our working capital, cash flow from operations and unused lines of credit are
sufficient for our present requirements.
Operating Activities
Our operating activities generated cash of NT$48,079 million (US$1,483 million) in 2007. Cash
generated from our operating activities for 2007 significantly exceeded net income due to the
add-back of non-cash items, such as depreciation and amortization in the amount of NT$39,168
million (US$1,208 million).
Investment Activities
Net cash used in our investment activities was NT$21,799 million (US$672 million) in 2007. In
2007, we used cash of NT$28,299 million (US$873 million) to purchase equipment primarily used at
our fabs. This was offset by the net cash provided by acquisition and disposal of
available-for-sale financial assets in the amount of NT$5,314 million (US$164 million).
Financing Activities
Net cash used in our financing activities was NT$72,694 million (US$2,242 million) in 2007. In
2007, we carried out a capital reduction plan, and cancelled 5,739 million or about 30% of our
outstanding shares, for the purpose of increasing shareholders return on equity and reducing idle
funds. The net cash used in the capital
reduction was NT$53,844 million (US$1,660 million). We also repaid long-term loans and bonds
of NT$5,355 million (US$165 million) in cash in 2007.
49
We had NT$359 million (US$11 million) outstanding short-term loans as of December 31, 2007. We
had total availability under existing short-term lines of credit, which can be drawn in NT dollars,
U.S. dollars, Japanese Yen, Singapore dollars and/or Euros at our discretion, of NT$12,197 million
(US$376 million) as of December 31, 2007. All of our short-term loans are revolving facilities with
terms of three months, six months or one year, which may be extended for terms of six months or one
year each with lender consent. The weighted average annual effective interest rate under these
facilities ranged between 3.43% and 5.43% as of December 31, 2007. Our obligations under our
short-term loans are unsecured.
We had bonds payable of NT$30,385 million (US$937 million) in the aggregate as of December 31,
2007.
As of December 31, 2007, our outstanding long-term liabilities primarily consisted of:
|
|
|
NT$3 billion unsecured domestic bonds due April 2008; |
|
|
|
|
NT$15 billion unsecured domestic bonds, consisting of two tranches: NT$7.5 billion
five-year unsecured bonds with interest rates of 4.0% minus 12-month U.S. dollar LIBOR
but at the minimum of 0%, and NT$7.5 billion seven-year unsecured bonds with interest
rates of 4.3% minus 12-month U.S. dollar LIBOR but at the minimum of
0%; and |
|
|
|
|
US$381.4 million Zero Coupon Convertible Bonds due 2008. |
In October 2005, we issued US$381.4 million Zero Coupon Convertible Bonds due 2008. The
proceeds of this offering have been used to purchase of raw materials abroad. The bonds are
convertible at the option of the bondholders into our ADSs at an initial conversion price of
US$3.814 per ADS at any time on or after November 4, 2005 and are redeemable by us under certain
circumstances on or any time after April 5, 2007. The applicable conversion price will be subject
to adjustments upon the occurrence of certain events set out in the indenture. The conversion price
was US$4.253 per ADS effective on October 8, 2007. As none of the bondholders had exercised their
conversion right prior to the maturity date, we redeemed all of the remaining bonds outstanding in
the principal amount of US$381.4 million in February 2008.
The current portion of bonds due within one year was NT$22,889 million (US$706 million).
Capital Expenditures
We have entered into several construction contracts for the expansion of our factory space. As
of December 31, 2007, these construction contracts amounted to NT$3,152 million (US$97 million)
with an unaccrued portion of the contracts of NT$1,094 million (US$34 million).
In
2007, we spent approximately NT$28,299 million (US$873 million) primarily to purchase 8-inch
and 12-inch wafer-processing equipment and other equipment for research and development and
production purposes. Our initial budget for purchases of semiconductor manufacturing equipment for
2008 is approximately US$500 million to 700 million. We may adjust the amount of our capital
expenditures upward or downward based on the progress of our capital projects, market conditions
and our anticipation of future business outlook.
We believe that our existing cash and cash equivalents and short-term investments will be
sufficient to meet our working capital and capital expenditure requirements at least through the
end of 2008. We also expect to fund a portion of our capital requirements in 2008 through the cash
provided by operating activities. Due to rapid changes in technology in the semiconductor industry,
however, we have frequent demand for investment in new manufacturing technologies. We cannot assure
you that we will be able to raise additional capital, should that become necessary, on terms
acceptable to us, or at all. If financing is not available on terms acceptable to us, management
intends to reduce expenditures so as to delay the need for additional financing. To the extent that
we do not generate sufficient cash flows from our operations to meet our cash requirements, we may
rely on external
borrowings and securities offerings to finance our working capital needs or our future
expansion plans. The sale of additional equity or equity-linked securities may result in additional
dilution to our shareholders. Our ability to meet our working capital needs from cash flow from
operations will be affected by the demand for our products and change in our product mix, which in
turn may be adversely affected by several factors. Many of these factors are beyond our control,
such as economic downturns and declines in the average selling prices of our products. The average
selling prices of our products have been subjected to downward pressure in the past and are
reasonably likely to be subject to further downward pressure in the future. We have not
historically relied, and we do not plan to rely in the foreseeable future, on off-balance sheet
financing arrangements to finance our operations or expansion.
50
Transactions with Related Parties
Our transactions with related parties have been conducted on arms-length terms. See Item 7.
Major Shareholders and Related Party TransactionsB. Related Party Transactions and Note 27 to
our audited consolidated financial statements included in this annual report.
Inflation/Deflation
We do not believe that inflation in the ROC has had a material impact on our results of
operations.
US GAAP Reconciliation
Our consolidated financial statements are prepared in accordance with ROC GAAP, which differs
in certain significant respects from US GAAP. Such differences include methods of consolidation and
methods for measuring the amounts shown in the financial statements, as well as additional
disclosures required by US GAAP. Note 35 to our audited financial statements, included in this
annual report, provides a discussion and quantification of the differences between ROC GAAP and US
GAAP as they related to us. We provide a summary of some material differences included therein
below.
The following table sets forth a comparison of our net income and stockholders equity in
accordance with ROC GAAP and US GAAP for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2005 |
|
2006 |
|
2007 |
|
|
NT$ |
|
NT$ |
|
NT$ |
|
US$ |
|
|
(in millions) |
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, ROC GAAP |
|
|
7,027 |
|
|
|
32,619 |
|
|
|
16,962 |
|
|
|
523 |
|
US GAAP adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation |
|
|
(2,441 |
) |
|
|
(2,106 |
) |
|
|
(2,648 |
) |
|
|
(82 |
) |
Equity investees |
|
|
690 |
|
|
|
(56 |
) |
|
|
(4 |
) |
|
|
|
|
Investment in debt and equity securities. |
|
|
169 |
|
|
|
1,037 |
|
|
|
319 |
|
|
|
10 |
|
Exchangeable bond liabilities |
|
|
(39 |
) |
|
|
199 |
|
|
|
|
|
|
|
|
|
Goodwill amortization and impairment loss |
|
|
(19,333 |
) |
|
|
|
|
|
|
(23,761 |
) |
|
|
(733 |
) |
Treasury stock and related disposal |
|
|
102 |
|
|
|
(10,842 |
) |
|
|
(132 |
) |
|
|
(4 |
) |
Derivative instruments |
|
|
(1,612 |
) |
|
|
1,126 |
|
|
|
|
|
|
|
|
|
Income tax effect |
|
|
(232 |
) |
|
|
(180 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss), US GAAP |
|
|
(15,669 |
) |
|
|
21,797 |
|
|
|
(9,264 |
) |
|
|
(286 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity, ROC GAAP |
|
|
258,284 |
|
|
|
291,165 |
|
|
|
236,467 |
|
|
|
7,292 |
|
Compensation |
|
|
56 |
|
|
|
(685 |
) |
|
|
(513 |
) |
|
|
(16 |
) |
Equity investees |
|
|
3,784 |
|
|
|
22 |
|
|
|
(498 |
) |
|
|
(15 |
) |
Investment in debt and equity securities. |
|
|
37,333 |
|
|
|
353 |
|
|
|
236 |
|
|
|
7 |
|
Exchangeable bond liabilities |
|
|
(702 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill amortization and impairment loss |
|
|
38,114 |
|
|
|
37,948 |
|
|
|
14,187 |
|
|
|
438 |
|
Treasury stock and related disposal |
|
|
|
|
|
|
(4,476 |
) |
|
|
(3,104 |
) |
|
|
(96 |
) |
Derivative instruments |
|
|
(624 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax effect |
|
|
180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension |
|
|
|
|
|
|
(165 |
) |
|
|
527 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity, US GAAP |
|
|
336,425 |
|
|
|
324,162 |
|
|
|
247,302 |
|
|
|
7,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note. |
|
Refer to Note 35 to our audited financial statements included elsewhere in this annual
report. |
51
Differences between ROC GAAP and US GAAP that have a material effect on our net income and
stockholders equity under ROC GAAP include compensation expenses, investments in debt and equity
securities, goodwill, treasury stock and related disposal, derivative instruments, and pension.
Compensation Expenses
Pursuant to our articles of incorporation, we are required, under certain circumstances, to
distribute a certain percentage of unappropriated earnings as employee bonuses and remuneration to
directors and supervisors. Please refer to Item 10. Additional InformationB. Memorandum and
Articles of AssociationDividends and Distributions. Remuneration to directors and supervisors is
settled in cash. For years starting from 2005, our articles of incorporation were revised to
specify that employee bonuses can be settled in cash or shares or a combination of both. The number
of shares distributed as employee bonuses is determined by dividing the total nominal NT dollar
amount of the bonuses to be settled in shares by the par value of the shares, which is NT$10 per
share, rather than their market value, which is generally been substantially higher than the par
value. Under ROC GAAP, the distribution of employee bonuses and remuneration to directors and
supervisors are treated as appropriation of retained earnings, and we are not required to charge,
and have not charged, them to earnings. Under US GAAP, however, we are required to charge the
market value of the shares and the cash amount for employee bonus remuneration as compensation
expenses, correspondingly reducing our net income and earnings per share. After shareholders
approve the employee bonuses in the subsequent year, adjustment of compensation expense, if any, is
recorded for the difference between minimum employee bonuses accrued and the final amount paid to
employees at the grant date fair value. Accordingly, our net income and earnings per share
calculated under ROC GAAP and US GAAP will be different. See Note 35 to our audited consolidated
financial statements.
Under ROC GAAP, we apply the intrinsic value method to recognize the compensation expense for
employee stock options. Since January 1, 2004, we also disclose pro forma net income and earnings
per share as if fair value method were adopted. Under US GAAP, we applied the intrinsic value
method for the accounting of employee stock options and disclosed pro forma information regarding
net income and earnings per share required by SFAS 123 for years prior to 2006. Effective January
1, 2006, we adopted the modified prospective transition method provided by SFAS 123(R). As of
December 31, 2007, there was NT$2,179 million (US$67 million) of total unrecognized compensation
cost related to non-vested share-based compensation arrangements granted under the employee stock
option plan. The cost is expected to be recognized over a period of 3.5 years on a weighted-average
basis. For equity-settled employee stock options, the corresponding increase in equity is measured
at the grant date fair value. For cash-settled employee stock options, the corresponding liability
incurred is measured at the fair value on the cash-settlement date, and is remeasured at each
reporting date through the settlement date.
Investments in Debt and Equity Securities
Under ROC GAAP, investment in restricted stock, for which sale is restricted by governmental
or contractual requirement is accounted for as available-for-sale or cost-method securities. Under
US GAAP, however, our restricted investment does not meet the definition of an equity security with
readily determinable fair values and therefore is accounted for as cost method investment.
When we loses our significant influence on an investment accounted for under equity method and
reclassifies it as available-for-sale securities, the proportionate share of an investees other
comprehensive income should remain as a part of the carrying amount of the investment under ROC
GAAP and the dividends received from available-for-sale securities which were declared from
pre-acquisition profits are deducted from the cost of the securities. Under US GAAP, the
proportionate share of an investees other comprehensive income should be offset
against the carrying amount of the investment at the time significant influence is lost, and
the dividends received from available-for-sale securities are accounted for as dividend income.
52
Goodwill
Under ROC GAAP, the fair value of the net assets received is deemed to be the value of the
consideration for the acquisition of the remaining interests in United Semiconductor, United
Silicon, UTEK Semiconductor and United Integrated Circuits in January 2000. The acquisition cost of
SiSMC was determined using the market price of the shares exchanged by us. Under US GAAP, EITF No.
99-12, Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in
a Purchase Business Combination (EITF 99-12) requires that the securities exchanged should be
valued based on the market prices a few days before and after the date when the terms of the
acquisition are agreed to and announced. The acquisition was accounted for using the purchase
method of accounting and the purchase price was determined by the market value of the shares
exchanged. The difference between the fair value of the shares exchanged and the fair value of the
net assets acquired created goodwill.
Goodwill is subject to an annual impairment test or more frequently whenever events and
circumstances change indicating the goodwill may be impaired. Under ROC GAAP, our assessment
includes identifying the goodwill-allocated cash generating unit (CGU), determining the
recoverable amount of CGU by using cash flow analysis, and ultimately comparing the recoverable
amount with the carrying amount of CGU including goodwill. If CGUs carrying amount is greater than
its recoverable amount, an impairment loss is recognized and the written-down of goodwill cannot be
reversed. Under US GAAP, we have identified only one reporting unit, whose fair value is best
determined by its quoted market prices on the New York Stock Exchange (for our ADS securities) and
on the Taiwan Stock Exchange (for our common stock). The fair value of the reporting unit is
allocated to relevant individual asset and liability to determine the fair value of the goodwill
assigned to the reporting unit. If the carrying value of the goodwill is greater than its fair
value, we write down the goodwill and recognize the impairment loss. Such write-down cannot be
reversed. The derived fair value of goodwill as of December 31, 2005 and 2007 were below its
carrying values. As such, we recognized a goodwill impairment charge of NT$20,660 million, nil and
NT$23,761 million for the years ended December 31, 2005, 2006 and 2007, respectively. The goodwill
impairment charge of NT$23,761 for the year ended December 31, 2007 was based on our best estimate,
and a full evaluation of the goodwill impairment is expected to be completed in 2008. There could
be adjustments to the preliminary goodwill impairment charge once the full evaluation of the
goodwill impairment analysis is further refined and completed. These adjustments to the impairment
loss could be material. Any adjustments to our preliminary estimates as a result of completing
this evaluation will be recorded in our consolidated statement of operations for the year ended
December 31, 2008.
Treasury stock and related disposal
Some of our subsidiaries and equity method investees also hold our shares as investments.
Under ROC GAAP, reciprocal shareholdings held by subsidiaries, but not equity investees, are
recorded as treasury stocks on our books. Under US GAAP, however, reciprocal shareholdings, whether
being held by subsidiaries or equity investees, are recorded as treasury stocks on our books.
During 2006, we disposed part of our investment in one of our consolidated entities in 2005. As a
result, we lost our control over such entity and have accounted for it under the equity method.
Under ROC GAAP, since we no longer possess controlling power over such entity, we recognized gain
from disposal of investments. Under US GAAP, however, since such entity holds our shares as
investments, the disposal gain related to the reciprocal shareholdings was recognized as additional
paid-in capital.
Derivative Instruments
Under US GAAP, as prescribed by SFAS 133, the embedded derivative features contained in
exchangeable bonds and credit-linked deposits are bifurcated and separately accounted for, if the
economic characteristics and risks of the embedded derivative instruments and the host contracts
are not clearly and closely related. Those bifurcated embedded derivatives are accounted for at
fair value with the changes in fair value included in earnings of the year. Freestanding
derivatives such as interest rate swap agreements are recorded at fair value with changes in fair
value charged to earnings unless hedge accounting has been applied. Under ROC GAAP, those
derivative instruments are neither bifurcated nor required to be accounted for as a hedging
instrument before
the adoption of ROC SFAS 34 and SFAS 36 effective January 1, 2006. See Note 35 to our audited
consolidated financial statements.
53
Pension
Under ROC GAAP, a minimum pension liability should be measured as the excess of accumulated
benefit obligation over the fair value of the plan assets and allowed the unrecognized items,
including prior service costs and credits, gains or losses and transition obligations and assets to
be reported in disclosure shown as a plans funded status. Under US GAAP, SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans or SFAS 158, effective
from the fiscal year ended December 15, 2006, replaced the requirement to report a minimum pension
liability and required an employer to recognize an asset for a plans overfunded status or a
liability for a plans underfunded status with an offsetting adjustment to accumulated other
comprehensive income, or AOCI.
Recent Accounting Pronouncements
In November 2007, the Accounting Research and Development Foundation in Taiwan (ARDF) issued
ROC SFAS No. 10, Accounting for Inventory, or ROC SFAS 10, which provides guidance on initial
recognition, measurement, presentation and disclosure of inventory. Last-In-First-Out is not
permitted. Idle facility expense and wasted material (spoilage) shall be recognized as
current-period charges. The allocation of fixed production overheads to the costs of conversion
shall be based on the normal capacity of the production facilities. Inventories are carried at the
lower of cost and net realizable value. The rule of cost or net realizable value, whichever is
lower, should be applied directly to each item, not to the total of the inventory. The standard is
effective from January 1, 2009. We do not expect this statement to have a material impact on our
consolidated financial statements.
In August 2007, ARDF issued ROC SFAS No. 39, Accounting for share-based payment, or ROC
SFAS 39, which provides guidance on accounting treatment for share-based payment. A share-based
payment is a transaction in which the entity receives or acquires goods (inventories, property,
plant, and equipment, intangible assets, and other non-financial assets) or services either as
consideration for its equity instruments (stocks or stock options) or by incurring liabilities for
amounts based on the price of the entitys share or other equity instruments of the entity. The
accounting requirement for an entitys share-based payment depends on how the transaction will be
settled. Equity-settled share-based payment transactions, in which the entity receives goods or
services as consideration for equity instruments of the entity (including stocks or stock options),
and cash-settled share-based payment transactions, in which the entity acquires goods or services
by incurring liabilities to the supplier of those goods or services, are based on the price (or
value) of the entitys shares or other equity instruments of the entity. In addition, the fair
value of the equity instruments granted is used and measured on the grant date for transactions
with employees; for transactions with parties other than employees, the fair value should be
measured at the date the entity receives the relevant goods or services. ROC SFAS No. 39 is
effective for the entity beginning January 1, 2008. Upon adopting ROC SFAS 39, we will change our
accounting treatment of share-based payment for options granted on or after January 1, 2008.
In September 2006, FASB issued SFAS No. 157, Fair Value Measurements, or SFAS 157. SFAS
157 defines fair value, provides a framework for measuring fair value under current standards in
GAAP, and requires additional disclosure about fair value measurements. In accordance with SFAS
157, the definition of fair value retains the exchange price notion, and exchange price is defined
as the price in an orderly transaction between market participants to sell an asset or transfer a
liability. If there is a principal market for the asset or liability, the fair value measurement
should reflect that price, whether that price is directly observable or otherwise used in a
valuation technique. Depending on the asset or liability being valued, the inputs used to
determine fair value can range from observable inputs (i.e. prices based on market data independent
from the entity) and unobservable inputs (i.e. entitys own assumptions about the assumptions that
market participants would use). SFAS 157 applies to other accounting pronouncements that require
or permit fair value measurements and will be effective for fiscal years beginning after November
15, 2007. In February 2008, the FASB issued FASB Staff Position No. 157-1, or FSP FAS 157-1 and
FASB Staff Position No. 157-2, or FSP FAS 157-2. FSP FAS 157-1 was issued to exclude FASB Statement
No. 13 Accounting for Leases, or SFAS 13 and its related interpretive accounting pronouncements
that address leasing transactions in order to allow it to more broadly consider the use of fair
value measurements for
these transactions as part of its project to comprehensively reconsider the accounting for
leasing transactions. FSP FAS 157-2 was issued to postpone the effective date of SFAS 157 for
nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed
at fair value in the financial statements on a recurring basis (at least annually). We are
currently evaluating the potential impact, if any, that the adoption of SFAS 157 will have on our
financial statements.
54
In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities , or SFAS 159, which amends SFAS 115 and allows companies to measure many
financial instruments and certain other items at fair value that are not currently required to be
measured at fair value. Unrealized gains and losses on items for which the fair value option has
been elected will be recognized in earnings at each subsequent reporting date. SFAS 159 also
provides presentation and disclosure requirements that will enable users to compare similar types
of assets and liabilities of different entities that have different measurement attributes. SFAS
159 is effective for an entitys fiscal year beginning after November 15, 2007. We are currently
evaluating the impact, if any, the adoption of SFAS 159 will have on our financial statements.
In December 2007, FASB issued SFAS No. 141 (revised 2007), Business Combinations, or SFAS
141(R). SFAS 141(R) will significantly change how business acquisitions are accounted for and will
impact financial statements both on the acquisition date and in subsequent periods. Some of the
changes, such as the accounting for contingent consideration, will introduce more volatility into
earnings, and may impact a companys acquisition strategy. SFAS 141(R) is effective for all
business combinations for which the acquisition date is on or after the beginning of the first
annual period subsequent to December 15, 2008, with the exception of the accounting for valuation
allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends SFAS 109 such that
adjustments made to valuation allowances on deferred taxes and acquired tax contingencies
associated with acquisitions that closed prior to the effective date of SFAS 141(R) would also
apply the provisions of SFAS 141(R). The impact that adoption of SFAS 141(R) will have on our
financial position and results of operation will be dependent upon the specific terms of any
applicable future business combinations.
In December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements, or SFAS 160, which amends of ARB No. 51. SFAS 160 changes the accounting
and reporting for minority interests, which will be recharacterized as noncontrolling interests and
classified as a component of equity. It also requires retroactive adoption of the presentation and
disclosure requirements for existing minority interests. All other requirements of SFAS 160 shall
be applied prospectively. SFAS 160 is effective for both public and private companies for fiscal
years beginning on or after December 15, 2008, and early adoption is prohibited. We are currently
evaluating the impact, if any, the adoption of SFAS 160 will have on our financial statements.
In December 2007, SEC issued SAB 110, The use of a simplified method in developing an
estimate of expected term of plain vanilla share options in accordance with Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment, or SAB 110. In particular,
the staff indicated in SAB 107 that it will accept a companys election to use the simplified
method, regardless of whether the company has sufficient information to make more refined estimates
of expected term. At the time SAB 107 was issued, the staff believed that more detailed external
information about employee exercise behavior would, over time, become readily available to
companies. Therefore, the staff stated in SAB 107 that it would not expect a company to use the
simplified method for share option grants after December 31, 2007. The staff understands that such
detailed information about employee exercise behavior may not be widely available by December 31,
2007. Accordingly, the staff will continue to accept, under certain circumstances, the use of the
simplified method beyond December 31, 2007. SAB 110 is effective for an entitys fiscal year
beginning after January 1, 2008. This standard is not expected to have a material impact on the
Companys consolidated financial statements in the near future.
55
In March 2008, FASB issued SFAS No. 161, Disclosure about Derivative Instruments and Hedging
Activities an amendment of FASB Statement No. 133, or SFAS 161. This statement changes the
disclosure requirements for derivative instruments and hedging activities. Entities are required
to provide enhanced disclosures about how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for under Statement 133 and its
related interpretations, and how derivative instruments and related hedged items affect an entitys
financial position, financial performance, and cash flows. SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November 15, 2008. This
standard is not expected to have a material impact on our future consolidated financial statements.
C. Research, Development, Patents and Licenses, Etc.
The semiconductor industry is characterized by rapid changes in technology, frequently
resulting in obsolescence of process technologies and products. As a result, effective research and
development is essential to our success. We invested approximately NT$9,634 million, NT$9,419
million and NT$9,631 million (US$297 million) in 2005, 2006 and 2007, respectively, in research and
development, which represented 9.6%, 8.4% and 8.5%, respectively, of net operating revenues for
such years. We believe that our continuous spending on research and development will help us
maintain our position as a technological leader in the foundry industry. As of March 31, 2008, we
employed 1,096 professionals in our research and development division.
Our current research and development activities seek to upgrade and integrate manufacturing
technologies and processes, as well as to develop embedded memory technologies, including DRAM,
SRAM, 1T-SRAM, 6T-SRAM and nonvolatile memories, and advanced device technologies, including SOI
and strained silicon. Although we emphasize firm-wide participation in the research and development
process, we maintain a central research and development team primarily responsible for developing
cost-effective technologies that can serve the manufacturing needs of our customers. Monetary
incentives are provided to our employees if projects result in successful patents. We believe we
have a strong foundation in research and development and intend to continue our efforts on
technology developments. Our top management believes in the value of continued support of research
and development efforts and intends to continue our foundry leadership position by providing
customers with comprehensive technology and SoC solutions in the industry.
D. Trend Information
Please refer to Item 5. Operating and Financial Review and ProspectsOverview for a
discussion of the most significant recent trends in our production, sales, costs and selling
prices. In addition, please refer to discussions included in this Item for a discussion of known
trends, uncertainties, demands, commitments and events that we believe are reasonably likely to
have a material effect on our net operating revenues, income from continuing operations,
profitability, liquidity or capital resources, or that would cause reported financial information
not necessarily to be indicative of future operating results or financial condition.
E. Off-balance Sheet Arrangements
We do not generally provide letters of credit to, or guarantees for, or engage in any
repurchase financing transactions with any entity other than our consolidated subsidiaries. We
have, from time to time, entered into interest rate swaps to manage our interest rate risks on our
floating rate debt instruments and foreign currency forward contracts to hedge our existing assets
and liabilities denominated in foreign currencies and identifiable foreign currency purchase
commitments. We do not engage in any speculative activities using derivative instruments. See Item
11. Quantitative and Qualitative Disclosure about Market Risk.
F. Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations and commitments with definitive
payment terms on a consolidated basis which will require significant cash outlays in the future as
of December 31, 2007.
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
Less than 1 |
|
|
|
|
|
|
|
|
|
After 5 |
|
|
Total |
|
Year |
|
1-3 Years |
|
4-5 Years |
|
Years |
|
|
(consolidated) (in NT$ millions) |
Long-term debt(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured bonds |
|
|
30,396 |
|
|
|
22,896 |
|
|
|
7,500 |
|
|
|
|
|
|
|
|
|
Capital lease obligations(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases obligations(3) |
|
|
3,209 |
|
|
|
296 |
|
|
|
531 |
|
|
|
492 |
|
|
|
1,890 |
|
Purchase obligations(4) |
|
|
3,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term obligations(5) |
|
|
3,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations |
|
|
41,162 |
|
|
|
27,012 |
|
|
|
8,031 |
|
|
|
4,229 |
|
|
|
1,890 |
|
|
|
|
(1) |
|
Assuming the convertible bonds are paid off upon maturity. |
|
(2) |
|
Represents our obligations to make lease payments for equipment. |
|
(3) |
|
Represents our obligations to make lease payments to use machineries, equipments and land on
which our fabs are located, primarily in the Hsinchu Science Park and the Tainan Science Park
in Taiwan and, Pasir Ris Wafer Fab Park in Singapore, and UMCJ. |
|
(4) |
|
Represents commitments for construction and purchase of raw materials. These commitments are
not recorded on our balance sheet as of December 31, 2007. |
|
(5) |
|
Represents intellectual properties and royalties payable under our technology license
agreements. The amounts of payments due under these agreements are determined based on fixed
contract amounts. |
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors, Supervisors and Senior Management
The following table sets forth the name, age, position, tenure and biography of each of our
directors, supervisors and executive as of March 31, 2008. There is no family relationship among
any of these persons.
In the shareholders meeting held on June 12, 2006, our shareholders elected five new
directors, Fu-Tai Liou, Shih-Wen Sun, Stan Hung, Chung-Laung Liu and Chun-Yen Chang, and two new
supervisors, Ta-Sing Wang and Ting-Yu Lin. The newly elected directors and supervisors took their
offices on June 12, 2006. Wen-Yang Chen was appointed as a representative of Hsun Chieh Investment
Co. to replace Peter Chang on October 1, 2007. Chitung Liu was appointed as a representative of
Silicon Integrated Systems Corp. to replace Stan Hung on December 21, 2007. The business address of
our directors, supervisors and executive officers is the same as our registered address.
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
|
Years with Us |
Jackson Hu (1)
|
|
|
59 |
|
|
Chairman, Director
(Representative of
Hsun Chieh
Investment Co.) and
Chief Executive
Officer
|
|
|
5 |
|
Ching-Chang Wen (2)
|
|
|
58 |
|
|
Director
(Representative of
Hsun Chieh
Investment Co.) and
President of
Central Integrated
Manufacturing &
Technology
|
|
|
10 |
|
Wen-Yang Chen (3)
|
|
|
55 |
|
|
Director
(Representative of
Hsun Chieh
Investment Co.) and
Senior Vice
President
|
|
|
28 |
|
Fu-Tai Liou
|
|
|
55 |
|
|
Director
(Representative of
Hsun Chieh
Investment Co.) and
President of
Quality &
Reliability
Assurance
|
|
|
11 |
|
Shih-Wei Sun (4)
|
|
|
51 |
|
|
Director
(Representative of
Silicon Integrated
Systems Corp.) and
Chief Operating
Officer
|
|
|
13 |
|
Chitung Liu (5)
|
|
|
42 |
|
|
Director
(Representative of
Silicon Integrated
Systems Corp.) and
Chief Financial
Officer
|
|
|
7 |
|
Paul S.C. Hsu (6)
|
|
|
72 |
|
|
Independent Director
|
|
|
4 |
|
Chung-Laung Liu (6)
|
|
|
74 |
|
|
Independent Director
|
|
|
2 |
|
Chun-Yen Chang (6)
|
|
|
71 |
|
|
Independent Director
|
|
|
2 |
|
Tzyy-Jang Tseng
|
|
|
58 |
|
|
Supervisor
(Representative of
Hsun Chieh
Investment Co.,
Ltd.)
|
|
|
7 |
|
Ta-Hsing Wang
|
|
|
35 |
|
|
Supervisor
(Representative of
Silicon Integrated
Systems Corp.)
|
|
|
2 |
|
Ting-Yu Lin
|
|
|
47 |
|
|
Supervisor
|
|
|
2 |
|
57
|
|
|
(1) |
|
Jackson Hu is a representative of Hsun Chieh Investment Co. after the shareholders meeting
on June 12, 2006. |
|
(2) |
|
Ching-Chang Wen is a representative of Hsun Chieh Investment Co. after the shareholders
meeting on June 12, 2006. |
|
(3) |
|
Wen-Yang Chen was appointed as a representative of Hsun Chieh Investment Co. on October 1,
2007. |
|
(4) |
|
Shih-Wei Sun is a representative of Silicon Integrated Systems Corp. after the shareholders
meeting on June 12, 2006. |
|
(5) |
|
Chitung Liu was appointed as a representative of Silicon Integrated Systems Corp. on December
21, 2007. |
|
(6) |
|
Member of the Audit Committee. |
Jackson Hu is the Chairman, director and the Chief Executive Officer of our company. Dr. Hu is
a representative of Hsun Chieh Investment Co. Dr. Hu earned his Bachelors degree in electrical
engineering from National Taiwan University in 1971 and Masters and Ph.D. degrees in Computer
Science from the University of Illinois at Urbana-Champaign. He also obtained an MBA from Santa
Clara University. Dr. Hu joined us at the beginning of 2003 as the president of our New Business
Development Group and head of the Design Support Division. Prior to joining us, Dr. Hu served as
the president and chief executive officer of SiRF Technology Inc. from 1996 to 2002 and the senior
vice president and general manager of S3 from 1994 to 1996. Dr. Hu is also an independent director
of Compal Communications, Inc.
Ching-Chang Wen is a director and the President of Central Integrated Manufacturing &
Technology of our company. Dr. Wen is a representative of Hsun Chieh Investment Co. He received a
Ph.D. degree in Electrical Engineering from the University of Pennsylvania in 1979. Prior to
joining United Microelectronics Corporation in 1996, Dr. Wen served as a vice president of Winbond
Electronics Corp. Dr. Wen is also a director and president of UMCJ.
Fu-Tai Liou is a director and the President of Quality & Reliability Assurance of our company.
Dr. Liou is a representative of Hsun Chieh Investment Co. Dr. Liou was a director of our company
from May 2001 to May 2004. Dr. Liou received a Ph.D. degree in Material Science and Engineering
from the State University of New York at Stony Brook in 1979. Prior to joining United
Microelectronics Corporation in 1997, Dr. Liou was a vice president of SGS-Thompson.
Shih-Wei Sun is a director and the Chief Operating Officer of our company and is in charge of
our 12 operations and Research and Development Department. Dr. Sun is a representative of Silicon
Integrated Systems Corp. Dr. Sun holds a Ph.D. degree in Electronics Materials from Northwestern
University in 1986.
Wen-Yang Chen is a Senior Vice President and a director of our company and is in charge of our
6-inch and 8-inch fab operations. Mr. Chen is a representative of Hsun Chieh Investment Co. Mr.
Chen holds a Master of Electronics Engineering from the National Chiao Tung University in 1986.
Chitung Liu is a director and the Chief Financial Officer of our company. Mr. Liu is an EMBA
candidate of National Taiwan University. Prior to joining our company in 2001, Mr. Liu was a
managing director of UBS. Mr. Liu is also a director of Novatek Microelectronics Corp. and Fortune
Venture Capital Corporation, and a supervisor of UMC Japan, TLC Capital Co., Ltd. and Nexpower
Technology Corp.
Paul S.C. Hsu is a director of our company. Professor Hsu received a Ph.D. degree in Business
Administration from The University of Michigan in 1974. Professor Hsu is Far East Group Chair
Professor of Management, Yuan-Ze University, Taiwan, and the Chairman of Taiwan Assessment and
Evaluation Association. Professor Hsu is an independent director of Faraday Technology Corporation
and Taiwan Chi Cheng Enterprise Co. and a supervisor of Far Eastern International Bank.
Chung-Laung Liu is a newly elected director of our company. Professor Liu received a Doctor
degree in Science from Massachusetts Institute of Technology in 1962. Professor Liu is the William
M.W. Mong Honorary Chair Professor of National Tsing Hua University, Taiwan. Professor Liu is also
the Chairman of Dramexchange Corporation, a supervisor of MediaTek Incorporation and an independent
director of Mototech Technology Corporation, and Anpec Electronics Corporation.
Chun-Yen Chang is a newly elected director of our company. Professor Chang received a Ph.D.
degree in Electronics Engineering from National Chiao Tung University in 1970. Professor Chang is
an academician of
Academia Sinica and a chair professor and president of National Chiao Tung University, Taiwan.
Professor Chang is also an independent director of Himax Technologies, Inc.
58
Tzyy Jang Tseng is a supervisor of our company. Mr. Tseng is a representative of Hsun Chieh
Investment Co. Mr. Tseng received a Masters degree in Physics from the National Tsing Hua
University of Taiwan. Mr. Tseng is also the Chairman of Unimicron Technology and Subtron Technology
Co., Ltd., and a supervisor of Fortune Venture Capital Corporation and a director of Harvatek Corp.
Ta-Hsing Wang is a newly elected supervisor of our company and a representative of Silicon
Integrated System Corp. Mr. Wang received an MBA degree from Columbia University. Mr. Wang is also
a director of Pacific Online Limited..
Ting-Yu Lin is a newly elected supervisor of our company. Mr. Lin received a Master degree in
International Finance from Meiji University in 1993. Mr. Lin is also the Chairman of Sunrox
International Inc.
B. Compensation
The aggregate compensation paid and benefits in kind granted to our directors and supervisors
in 2007 were approximately NT$12 million (US$0.4 million). The remuneration was out of our 2006
earnings distribution plan, and the distributing percentage for directors and supervisors is 0.1%,
See Item 10: B. Memorandum and Articles of Association Dividends and Distributions). Some of the
remuneration was paid to the legal entities which some of our directors or supervisors represent.
The aggregate compensation paid and benefits in kind granted to our executive officers in 2007 were
approximately NT$221 million (US$7 million), which include NT$133 million as bonus. In 2007, some
of our directors who also served as executive officers received stock options to purchase 4.1
million shares.
C. Board Practices
All of our directors and supervisors were elected in June 2006 for a term of three years.
Neither we nor any of our subsidiaries has entered into a contract with any of our directors and
supervisors by which our directors or supervisors are expected to receive benefits upon termination
of their employment.
Our board of directors established an audit committee in March 2005. The audit committee was
appointed by the board of directors and consisted of Jack K.C.Wang, Mao-Chung Lin, and Paul S.C.
Hsu from March 2005 to June 2006. After the re-election of directors in the shareholders meeting
on June 12, 2006, our board of directors appointed Chung-Laung Liu, Chun-Yen Chang and Paul S.C.
Hsu to be the members of the audit committee. Each audit committee member is an independent
director who is financially literate with accounting or related financial management expertise. The
audit committee meets as often as it deems necessary to carry out its responsibilities. Pursuant to
an audit committee charter, the audit committee has responsibility for, among other things,
overseeing the qualifications, independence and performance of our internal audit function and
independent auditors, and overseeing the accounting policies and financial reporting and disclosure
practices of our company. The audit committee also has the authority to engage special legal,
accounting or other consultants it deems necessary in the performance of its duties.
In November 2003, the Securities and Exchange Commission approved changes to the NYSEs
listing standards related to the corporate governance practices of listed companies. Under these
rules, listed foreign private issuers, like us, must disclose any significant ways in which their
corporate governance practices differ from those followed by NYSE-listed U.S. domestic companies
under the NYSEs listing standards. A copy of the significant differences between our corporate
governance practices and NYSE corporate governance rules applicable to U.S. companies is available
on our website http://www.umc.com/english/investors/Corp_gov_difference.asp.
D. Employees
As of March 31, 2008, we had 13,571 employees, which included 7,054 engineers, 5,923
technicians and 594 clerical workers performing administrative functions at our plants in Taiwan.
We have in the past implemented,
and may in the future evaluate the need to implement, labor redundancy plans based on the work
performance of our employees.
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
Employees |
|
2005 |
|
2006 |
|
2007 |
Engineers |
|
|
5,745 |
|
|
|
6,774 |
|
|
|
7,046 |
|
Technicians |
|
|
5,671 |
|
|
|
5,881 |
|
|
|
6,067 |
|
Administrative Staff |
|
|
652 |
|
|
|
610 |
|
|
|
607 |
|
Total |
|
|
12,068 |
|
|
|
13,265 |
|
|
|
13,720 |
|
Employee salaries are reviewed annually. Salaries are adjusted based on industry standards,
inflation and individual performance. As an incentive, additional bonuses in cash may be paid at
the discretion of management based on the performance of individuals. In addition, except under
certain circumstances, ROC law requires us to reserve from 10% to 15% of any offerings of our new
shares for employees subscription.
Our employees participate in our profit distribution pursuant to our articles of
incorporation. Employees are entitled to receive additional bonuses based on a certain percentage
of our allocable surplus income. The amount allocated for employees in 2007 in relation to retained
earnings in 2006 totaled NT$2,324 million (US$72 million),
which was paid in cash. On March 17,
2008, the Board has proposed employee bonus from retained earnings of 2007, which includes cash of
NT$287 million and stock of NT$1,146 million. The proposal will be submitted for approval in annual
ordinary shareholders meeting on June 13, 2008. The number of shares issued as employee share
bonus is calculated by valuing the shares at their par value, or NT$10 per share, rather than their
fair market value. Accordingly, the value of the shares received by employees is significantly more
than the cash amount employees would receive if all of the employee share bonus were paid in cash.
See Item 5. Operating and Financial Review and ProspectsB. Liquidity and Capital ResourcesUS
GAAP Reconciliation.
Our employees are not covered by any collective bargaining agreements. We believe we have a
good relationship with our employees.
E. Share Ownership
As of March 31, 2008, each of our directors, supervisors and executive officers held shares
and/or ADSs of United Microelectronics, either directly for their own account or indirectly as the
representative of another legal entity on our board of directors, except for Chung Laung Liu and
Paul S.C. Hsu, two of our independent directors. As of March 31, 2008, none of our directors,
supervisors or executive officers held, for their own account, 0.1% or more of our outstanding
shares. As of April 15, 2008, our most recent record date, Hsun Chieh Investment Co. held
approximately 422 million of our shares, representing approximately 3.2% of our issued shares.
We have an Employee Stock Options Plan, pursuant to which options may be granted to our
full-time regular employees, including those of our domestic and overseas subsidiaries. The
exercise price for the options would be the closing price of our common shares on the Taiwan Stock
Exchange on the day the options are granted, while the expiration date for such options is 6 years
from the date of its issuance. In September 2002, October 2003, September 2004, December 2005 and
October 2007, we obtained approvals from relevant ROC authorities for the grant of up to 1,000
million, 150 million, 150 million, 350 million and 500 million stock options, respectively, to
acquire our common shares under our Employee Stock Options Plan. In October 2002, January 2003,
November 2003, March 2004, July 2004, October 2004, April 2005, August 2005, September 2005,
January 2006, May 2006, August 2006 and December 2007, we granted 939 million, 61 million, 57
million, 33 million, 57 million, 20 million, 23 million, 54 million, 52 million, 39 million, 42
million, 28 million and 500 million stock options, respectively, to our employees.
According to our Employee Stock Options Plan, an option holder may exercise an increasing
portion of his or her options starting two years after the grant of the options. According to the
vesting schedule, 50%, 75% and 100% of such option holders options shall vest two, three and four
years after the grant of the options, respectively. Upon a voluntary termination or termination in
accordance with the ROC Labor Law, the option holder shall exercise his or her vested options
within 30 days, subject to exceptions provided therein, and after the termination otherwise such
options shall terminate. If termination was due to death, the heirs of such option holder have one
year starting from the date of the death to exercise his or her vested options. If termination was
due to retirement or occupational casualty, the option holder or his or her heirs may exercise all
his or her options within a certain period as provided. The options are generally not transferable
or pledgeable by the option holders. The total number of shares issuable upon exercise of option
held by our directors, supervisors and executive officers as of March 31, 2008 was 41.8 million.
The unit granted to each of our directors, supervisors and executive officers as a percentage of
our total shares as of March 31, 2008 was less than 1%.
60
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following table sets forth information known to us with respect to the beneficial
ownership of our shares as of (i) April 15, 2008, our most recent record date and (ii) as of
certain record dates in each of the preceding three years, for (1) the shareholders known by us to
beneficially own more than 2% of our shares and (2) all directors, supervisors and executive
officers as a group. Beneficial ownership is determined in accordance with Securities and Exchange
Commission rules.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 13, |
|
As of April 14, |
|
As of April 15, |
|
|
As of April 15, 2008 |
|
2007 |
|
2006 |
|
2005 |
|
|
Number of |
|
Percentage |
|
Percentage of |
|
Percentage of |
|
Percentage of |
|
|
shares |
|
of shares |
|
shares |
|
shares |
|
shares |
|
|
beneficially |
|
beneficially |
|
beneficially |
|
beneficially |
|
beneficially |
Name of Beneficial Owner |
|
owned |
|
owned |
|
owned |
|
owned |
|
owned |
Hsun Chieh Investment Co., Ltd.(1) |
|
|
422,364,594 |
|
|
|
3.2 |
% |
|
|
3.2 |
% |
|
|
3.0 |
% |
|
|
3.1 |
% |
Xilinx, Inc. |
|
|
0 |
|
|
|
0.0 |
% |
|
|
0.6 |
% |
|
|
2.2 |
% |
|
|
2.2 |
% |
Silicon Integrated Systems Corp. |
|
|
301,799,449 |
|
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
2.2 |
% |
|
|
2.2 |
% |
Directors, supervisors and executive
officers as a group |
|
|
735,979,567 |
|
|
|
5.6 |
% |
|
|
6.2 |
% |
|
|
6.9 |
% |
|
|
6.4 |
% |
|
|
|
(1) |
|
36.5% owned by United Microelectronics as of March 31, 2008. |
None of our major shareholders have different voting rights from those of our other
shareholders. To the best of our knowledge, we are not directly or indirectly controlled by another
corporation, by any foreign government or by any other natural or legal person severally or
jointly.
For information regarding our shares held or beneficially owned by persons in the United
States, see Item 9. The Offer and ListingA. Offer and Listing DetailsMarket Price Information
for Our American Depositary Shares in this annual report.
B. Related Party Transactions
From time to time we have engaged in a variety of transactions with our affiliates. We
generally conduct transactions with our affiliates on an arms-length basis. The sales and purchase
prices with related parties are determined through negotiation, generally based on market price.
In July 2004, we acquired SiSMC, a wafer foundry company spun off from SiS in 2003. As of
December 31, 2007, we held 16.26% of SiS outstanding share capital.
The following table shows our aggregate ownership interest, on a consolidated basis, in major
related fabless design companies that we enter into transactions from time to time as of December
31, 2007.
|
|
|
|
|
Name |
|
Ownership% |
AMIC Technology (Taiwan), Inc. |
|
|
25.95 |
|
Silicon Integrated Systems Corp. |
|
|
16.26 |
|
We provide foundry services to these fabless design companies on arms-length prices and
terms. We derived NT$4,221 million, NT$2,402 million and NT$2,021 million (US$62 million) of our
net operating revenues in 2005, 2006 and 2007, from the provision of our foundry services to these
fabless design companies.
61
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
Please refer to Item 18 for a list of all financial statements filed as part of this annual
report on Form 20-F.
Except as described in Item 4. Information on the CompanyB. Business OverviewLitigation,
we are not currently involved in material litigation or other proceedings that may have, or have
had in the recent past, significant effects on our financial position or profitability.
As for our policy on dividend distributions, see Item 10. Additional InformationB.
Memorandum and Articles of AssociationDividends and Distributions. The following table sets
forth the cash dividends per share and stock dividends per share as a percentage of shares
outstanding paid during each of the years indicated in respect of shares outstanding at the end of
each such year, except as otherwise noted. On June 11, 2007, our shareholders approved a cash
dividend of NT$0.7 per share for an aggregate of NT$12,461,529,283. The board of directors of our
company proposed a cash dividend of NT$0.75 per share for an aggregate of NT$9,382,646,949, a stock
dividend of NT$0.08 per share from retained earnings and NT$0.37 from capital reserve on March 17,
2008. The proposal will be submitted for approval in annual ordinary shareholders meeting on June
13, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Outstanding |
|
|
Cash Dividend per |
|
Stock Dividend |
|
Shares Issued as |
|
Shares at Year |
|
|
Share |
|
per Share(1) |
|
Stock Dividend |
|
End |
|
|
NT$ |
|
NT$ |
|
|
|
|
1997 |
|
|
|
|
|
|
3.0 |
|
|
|
868,629,276 |
|
|
|
4,117,758,265 |
|
1998 |
|
|
|
|
|
|
2.9 |
|
|
|
1,199,052,940 |
|
|
|
5,480,221,725 |
|
1999 |
|
|
|
|
|
|
1.5 |
|
|
|
834,140,790 |
|
|
|
6,638,054,462 |
|
2000 |
|
|
|
|
|
|
2.0 |
|
|
|
1,809,853,716 |
|
|
|
11,439,016,900 |
|
2001 |
|
|
|
|
|
|
1.5 |
|
|
|
1,715,104,035 |
|
|
|
13,169,235,416 |
|
2002 |
|
|
|
|
|
|
1.5 |
|
|
|
1,968,018,212 |
|
|
|
15,238,578,646 |
|
2003 |
|
|
|
|
|
|
0.4 |
|
|
|
607,925,145 |
|
|
|
15,941,901,463 |
|
2004 |
|
|
|
|
|
|
0.8 |
|
|
|
1,288,558,185 |
|
|
|
17,550,800,859 |
|
2005 |
|
|
0.1029 |
|
|
|
1.029 |
|
|
|
1,758,736,435 |
|
|
|
18,856,632,324 |
|
2006 |
|
|
0.409141420 |
|
|
|
0.10228530 |
|
|
|
179,031,672 |
|
|
|
19,131,192,690 |
|
2007 |
|
|
0.7 |
|
|
|
0 |
|
|
|
0 |
|
|
|
13,214,494,883 |
|
|
|
|
(1) |
|
We declare stock dividends in a NT dollar amount per share, but we pay the stock dividends to
our shareholders in the form of shares. The amount of shares distributed to each shareholder
is calculated by multiplying the dividend declared by the number of shares held by the given
shareholder, divided by the par value of NT$10 per share. Fractional shares are not issued but
are paid in cash. |
B. Significant Changes
There have been no significant subsequent events following the close of the last financial
year up to the date of this annual report on Form 20-F that are known to us and require disclosure
in this annual report for which disclosure was not made in this annual report.
Our consolidated net operating revenues for the three months ended March 31, 2008 was
NT$25,140 million (US$775 million). Our consolidated net operating revenues for the three months
ended March 31, 2008 is not indicative of the results that may be expected for any subsequent
period.
62
ITEM 9. THE OFFER AND LISTING
A. Offer and Listing Details
Market Price Information for Our Shares
Our shares have been listed on the Taiwan Stock Exchange since July 1985. There is no public
market outside Taiwan for our shares. The table below shows, for the periods indicated, the high
and low closing prices and the average daily volume of trading activity on the Taiwan Stock
Exchange for our shares. The closing price for our shares on the Taiwan Stock Exchange on April 30,
2008 was NT$18.6 per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Daily |
|
|
Closing Price Per |
|
Trading |
|
|
Share(1) |
|
Volume |
|
|
High |
|
Low |
|
(in thousands |
|
|
NT$ |
|
NT$ |
|
of shares) |
2002 |
|
|
38.52 |
|
|
|
15.54 |
|
|
|
95,422.37 |
|
2003 |
|
|
26.03 |
|
|
|
14.92 |
|
|
|
121,904.89 |
|
2004 |
|
|
27.56 |
|
|
|
16.93 |
|
|
|
102,012.19 |
|
2005 |
|
|
22.05 |
|
|
|
15.58 |
|
|
|
89,939.56 |
|
First Quarter |
|
|
18.33 |
|
|
|
16.24 |
|
|
|
87,313.40 |
|
Second Quarter |
|
|
21.43 |
|
|
|
15.58 |
|
|
|
89,780.57 |
|
Third Quarter |
|
|
22.05 |
|
|
|
18.96 |
|
|
|
63,890.57 |
|
Fourth Quarter |
|
|
21.33 |
|
|
|
16.20 |
|
|
|
118,076.96 |
|
2006 |
|
|
21.86 |
|
|
|
17.02 |
|
|
|
67,590.51 |
|
First Quarter |
|
|
19.83 |
|
|
|
17.02 |
|
|
|
98,045.17 |
|
Second Quarter |
|
|
21.86 |
|
|
|
17.65 |
|
|
|
73,833.23 |
|
Third Quarter |
|
|
19.20 |
|
|
|
17.02 |
|
|
|
45,218.11 |
|
Fourth Quarter |
|
|
21.25 |
|
|
|
18.05 |
|
|
|
56,491.87 |
|
2007 |
|
|
23.45 |
|
|
|
17.15 |
|
|
|
53,166.86 |
|
First Quarter |
|
|
21.60 |
|
|
|
18.65 |
|
|
|
54,027.04 |
|
Second Quarter |
|
|
20.30 |
|
|
|
19.00 |
|
|
|
47,434.35 |
|
Third Quarter |
|
|
21.00 |
|
|
|
17.15 |
|
|
|
65,808.65 |
|
Fourth Quarter |
|
|
23.45 |
|
|
|
18.85 |
|
|
|
46,147.02 |
|
November |
|
|
21.50 |
|
|
|
18.85 |
|
|
|
49,526.64 |
|
December |
|
|
20.15 |
|
|
|
18.95 |
|
|
|
31,898.48 |
|
2008 (through April 30) |
|
|
20.05 |
|
|
|
16.60 |
|
|
|
33,591.82 |
|
First Quarter |
|
|
20.05 |
|
|
|
16.60 |
|
|
|
37,877.00 |
|
January |
|
|
20.05 |
|
|
|
16.60 |
|
|
|
38,262.86 |
|
February |
|
|
18.70 |
|
|
|
16.80 |
|
|
|
25,514.57 |
|
March |
|
|
19.60 |
|
|
|
16.60 |
|
|
|
37,572.57 |
|
Second Quarter (through April 30) |
|
|
19.40 |
|
|
|
18.10 |
|
|
|
30,103.48 |
|
April |
|
|
19.40 |
|
|
|
18.10 |
|
|
|
30,103.48 |
|
|
|
|
Source: Bloomberg; Taiwan Stock Exchange. |
|
(1) |
|
Information has been adjusted to give effect to 1,968,018,212 Shares and 171,132,018 Shares
issued as stock dividend and employee bonus, respectively, in August 2002; 607,925,145 Shares
and 57,972,672 Shares issued as stock dividend and employee bonus, respectively, in July 2003;
1,288,558,185 Shares and 111,127,354 Shares issued as stock dividend and employee bonus,
respectively, in July 2004; 1,758,736,435 Shares and 197,285,530 Shares issued as stock
dividend and employee bonus, respectively, in August 2005; 179,031,672 Shares,
NT$7,161,266,830, 45,845,444 Shares and NT$305,636,291 issued as stock dividend, cash
dividend, stock employee bonus and cash employee bonus, respectively, in August 2006; and
NT$12,461,529,283 and NT$2,324,119,405 issued as cash dividend and cash employee bonus,
respectively, in August 2007. |
Market Price Information for Our American Depositary Shares
Our ADSs have been listed on the NYSE under the symbol UMC since September 19, 2000. The
outstanding ADSs are identified by the CUSIP number 910873 20 7. The table below shows, for the
periods indicated, the high and low closing prices and the average daily volume of trading activity
on the NYSE for our
ADSs. The closing price for our ADSs on the New York Stock Exchange on April 30, 2008 was
US$3.46 per ADS. Each of our ADSs represents the right to receive five shares.
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
ADS Daily |
|
|
Closing Price PerADS(1) |
|
Trading |
|
|
High |
|
Low |
|
Volume |
|
|
US$ |
|
IS$ |
|
|
2003 |
|
|
4.63 |
|
|
|
2.33 |
|
|
|
4,687,638 |
|
2004 |
|
|
5.02 |
|
|
|
2.86 |
|
|
|
3,692,464 |
|
2005 |
|
|
3.90 |
|
|
|
2.73 |
|
|
|
4,279,929 |
|
2006 |
|
|
3.80 |
|
|
|
2.75 |
|
|
|
5,804,766 |
|
First Quarter |
|
|
3.32 |
|
|
|
2.94 |
|
|
|
6,713,483 |
|
Second Quarter |
|
|
3.80 |
|
|
|
2.86 |
|
|
|
5,581,998 |
|
Third Quarter |
|
|
3.30 |
|
|
|
2.75 |
|
|
|
4,647,865 |
|
Fourth Quarter |
|
|
3.57 |
|
|
|
2.96 |
|
|
|
6,290,143 |
|
November |
|
|
3.54 |
|
|
|
2.98 |
|
|
|
5,712,129 |
|
December |
|
|
3.57 |
|
|
|
3.23 |
|
|
|
5,878,040 |
|
2007 (through April 30) |
|
|
4.48 |
|
|
|
2.93 |
|
|
|
6,536,888 |
|
First Quarter |
|
|
3.77 |
|
|
|
3.12 |
|
|
|
6,816,844 |
|
Second Quarter |
|
|
3.59 |
|
|
|
3.18 |
|
|
|
5,783,324 |
|
Third Quarter |
|
|
3.76 |
|
|
|
2.93 |
|
|
|
7,104,648 |
|
Fourth Quarter |
|
|
4.48 |
|
|
|
3.25 |
|
|
|
6,454,188 |
|
November |
|
|
3.66 |
|
|
|
3.28 |
|
|
|
7,322,624 |
|
December |
|
|
3.63 |
|
|
|
3.25 |
|
|
|
4,764,505 |
|
2008 (through April 30) |
|
|
3.70 |
|
|
|
2.75 |
|
|
|
5,673,404 |
|
First Quarter |
|
|
3.70 |
|
|
|
2.75 |
|
|
|
6,211,315 |
|
January |
|
|
3.51 |
|
|
|
2.75 |
|
|
|
8,298,410 |
|
February |
|
|
3.46 |
|
|
|
2.79 |
|
|
|
4,653,210 |
|
March |
|
|
3.70 |
|
|
|
2.92 |
|
|
|
5,577,970 |
|
Second Quarter (through April 30) |
|
|
3.58 |
|
|
|
3.23 |
|
|
|
4,181,923 |
|
April |
|
|
3.58 |
|
|
|
3.23 |
|
|
|
4,181,923 |
|
|
|
|
Sources: Bloomberg |
|
(1) |
|
Information has been adjusted to give effect to 1,968,018,212 Shares and 171,132,018 Shares
issued as stock dividend and employee bonus, respectively, in August 2002; 607,925,145 Shares
and 57,972,672 Shares issued as stock dividend and employee bonus, respectively, in July 2003;
1,288,558,185 Shares and 111,127,354 Shares issued as stock dividend and employee bonus,
respectively, in July 2004; and 1,758,736,435 Shares and 197,285,530 Shares issued as stock
dividend and employee bonus, respectively, in August 2005; and 179,031,672 Shares,
NT$7,161,266,830, 45,845,444 Shares, and NT$305,636,291 issued as stock dividend, cash
dividend, stock employee bonus and cash employee bonus, respectively, in August 2006; and
NT$12,461,529,283 and NT$2,324,119,405 issued as cash dividend and cash employee bonus,
respectively, in August 2007. |
As of March 31, 2008, there were a total of 219,682,656 ADSs listed in the NYSE. With certain
limited exceptions, holders of shares that are not ROC persons are required to hold these shares
through a brokerage or custodial account in the ROC. As of March 31, 2008, 1,098,413,280 ordinary
shares were registered in the name of a nominee of Citibank, N.A., the depositary under the deposit
agreement. Citibank, N.A. has advised us that, as of March 31, 2008, 219,491,838 ADSs representing
these 1,097,459,190 shares were held of record by Cede & Co., of which 190,818 ADSs were held by
U.S. registered shareholders. We have no further information as to shares held or beneficially
owned by U.S. persons.
B. Plan of Distribution
Not applicable.
C. Markets
The principal trading markets for our shares are the Taiwan Stock Exchange and the New York
Stock Exchange, on which our shares trade in the form of ADSs.
64
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
The following statements summarize the material elements of our capital structure and the more
important rights and privileges of shareholders conferred by ROC law and our articles of
incorporation.
Objects and Purpose
The scope of business of United Microelectronics as set forth in Article 2 of our articles of
incorporation, includes (i) integrated circuits; (ii) semiconductor parts and components; (iii)
parts and components of microcomputers, microprocessors, peripheral support and system products;
(iv) parts and components of semiconductor memory systems products; (v) semiconductor parts and
components for digital transceiver product and system products; (vi) semiconductor parts and
components for telecom system and system products; (vii) testing and packaging of integrated
circuits; (viii) mask production; (ix) research and development, design, production, sales,
promotion and after-sale services related to our business; and (x) export/import trade related to
our business.
Directors
The ROC Company Act and our articles of incorporation provide that our board of directors is
elected by shareholders and is responsible for the management of our business. As of March 31,
2008, our board of directors consisted of nine directors, out of which three are independent
directors. In the annual ordinary shareholders meeting held on June 11, 2007, we amended our
articles of incorporation to abolish the managing director mechanism. The Chairman presides at all
meetings of our board of directors, and also has the authority to represent our company. The term
of office for our directors is three years, and our directors are elected by our shareholders by
means of cumulative voting. The election for all of the directors and supervisors was held in June
2006. The amendment to our articles of incorporation on June 11, 2007 also adopts a nomination
system which provides that holders of one percent or more of the total issued and outstanding
shares of our company would be entitled to submit a roster of candidates to be considered for
nomination to our companys board of directors at a shareholders meeting involving the election of
directors. In addition, our articles of incorporation provide that our shareholders also elect
three supervisors whose duties include, among other things, investigating our business and
financial condition, inspecting our corporate records, calling our shareholders meetings under
certain circumstances, representing us in negotiations with our directors and notifying, when
appropriate, our board of directors to cease acting in contravention of applicable law or
regulation or in contravention of our articles of incorporation. The supervisors cannot
concurrently serve as our directors or officers or employees. Pursuant to the ROC Company Act, a
person may serve as our director or supervisor in his or her personal capacity or as the
representative of another legal entity. A legal entity that owns our shares may be elected as a
director or supervisor, in which case a natural person must be designated to act as the legal
entitys representative. A legal entity that is our shareholder may designate its representative to
be elected as our director or supervisor on its behalf. In the event several
representatives are designated by the same legal entity, any or all of them may be elected. A
director or supervisor who serves as the representative of a legal entity may be removed or
replaced at any time at the discretion of such legal entity, and the replacement director or
supervisor may serve the remainder of the term of office of the replaced director or supervisor. In
order to enhance corporate governance, effective from January 1, 2007, under the amended ROC
Securities and Exchange Act, a legal entity shareholder of a public company is no longer permitted
to appoint representatives to be elected and/or serve as directors and supervisors at the same time
unless otherwise permitted by the ROC FSC. The ROC FSC granted an exemption from this restriction
if the terms of such representatives began prior to January 1, 2007. As of March 31, 2008, six of
our nine directors and two of our three supervisors are representatives of other legal entities, as
shown in Item 6. Directors, Senior Management and Employees A. Directors and Senior
Management.
65
According to the Company Act, a director who has a personal interest in a matter to be
discussed at the meeting of the board of directors, the outcome of which may conflict with his
interests, shall abstain from voting on such matter. Our articles of incorporation, as amended on
June 11, 2007, provide that the board of directors is authorized, by taking into account of the
extent of his/her/its involvement of our operation activities and the value of his/her/its
contribution, to determine the compensation for each director and supervisor at a comparable rate
adopted by other companies of the same industry regardless of the profit received by our company.
In addition, according to our articles of incorporation, we may distribute 0.1% of the balance of
our earnings after deduction of payment of all taxes and dues, deduction of any past losses and may
allocate 10% of our net income as a legal reserve as remuneration to directors and supervisors. Our
articles of incorporation do not impose a mandatory retirement age limit for our directors.
Furthermore, our articles of incorporation do not impose a shareholding qualification for each
director. According to our current internal Loan Procedures, as amended in our annual shareholders
meeting held in June 2005, we shall not extend any loan to our directors or our supervisors.
In order to strengthen corporate governance of companies in Taiwan, effective from January 1,
2007, the amended ROC Securities and Exchange Act authorizes the ROC FSC, after considering certain
factors, including the scale, shareholding structure and business nature of a public company, to
require that a public company, such as our company, meet certain criteria, including having at
least two independent directors but not less than one fifth of the total number of directors. The
amended ROC Securities and Exchange Act grants those public companies a grace period until the
expiry of the terms of the incumbent directors who took their office prior to January 1, 2007.
In addition, pursuant to the amended ROC Securities and Exchange Act, a public company is
required to either establish an audit committee (ROC Audit Committee) or retain supervisors,
provided that the ROC FSC may, after considering the scale and business nature of a public company
and other necessary situation, require the company to establish an audit committee in place of its
supervisors. Currently, the ROC FSC has not promulgated such compulsory rules, and all public
companies may, at their discretion, retain either an ROC Audit Committee or supervisors. We have
determined to maintain the office of supervisors and will not establish an ROC Audit Committee
pursuant to the ROC Securities and Exchange Act.
According to our articles of incorporation, as amended on June 11, 2007, we may purchase
directors and officers liability insurance for our directors and supervisors, covering the
liabilities incurred in relation to his/her/its operation of business and legally responsible for.
Shares
As of December 31, 2007, our authorized share capital was NT$260 billion, divided into 26
billion shares, of which 13,214,494,833 shares were issued and 12,494,809,580 shares were
outstanding. All shares presently issued are fully paid and in registered form, and existing
shareholders are not subject to any capital calls. We had no convertible bonds outstanding as of
March 31, 2008. As of March 31, 2008, we had neither warrant nor option on our shares, except for
762 million options we granted to our employees under our Employee Stock Options Plan discussed
below.
Employee Stock Option
According to our Employee Stock Options Plan, options may be granted to our full-time regular
employees, including those of our domestic and overseas subsidiaries. In September 2002, October
2003, September 2004,
December 2005 and October 2007, we obtained approval by relevant ROC authorities to grant up
to 1 billion, 150 million, 150 million, 350 million and 500 million stock options, respectively, to
acquire our common shares under our Employee Stock Option Plan. According to the plan, an option
holder may exercise an increasing portion of his or her options in time starting two years after
the grant of the options. According to the vesting schedule, 50%, 75% and 100% of such option
holders options shall vest two, three and four years after the grant of the options, respectively.
66
The table below shows the number of options granted in the past four years and the
month in which they were granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2002 |
|
January 2003 |
|
November 2003 |
|
March 2004 |
|
July 2004 |
|
October 2004 |
|
|
(in millions) |
Number of Options Granted |
|
|
939 |
|
|
|
61 |
|
|
|
57 |
|
|
|
33 |
|
|
|
57 |
|
|
|
20 |
|
Number of Options
Outstanding as of March
31, 2008 |
|
|
82 |
|
|
|
6 |
|
|
|
22 |
|
|
|
12 |
|
|
|
26 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2005 |
|
August 2005 |
|
September 2005 |
|
January 2006 |
|
May 2006 |
|
August 2006 |
|
|
(in millions) |
Number of Options Granted |
|
|
23 |
|
|
|
54 |
|
|
|
52 |
|
|
|
39 |
|
|
|
42 |
|
|
|
28 |
|
Number of Options
Outstanding as of March
31, 2008 |
|
|
9 |
|
|
|
10 |
|
|
|
27 |
|
|
|
15 |
|
|
|
27 |
|
|
|
20 |
|
|
|
|
|
|
|
|
December 2007 |
|
|
(in millions) |
Number of Options Granted |
|
|
500 |
|
Number of Options
Outstanding as of March
31, 2008 |
|
|
500 |
|
New Shares and Preemptive Rights
New shares may only be issued with the prior approval of our board of directors. If our
issuance of any new shares will result in any change in our authorized share capital, we are
required under ROC law to amend our articles of incorporation and obtain approval of our
shareholders in a shareholders meeting. We must also obtain the approval of, or submit a
registration with, the ROC FSC and the Science Park Administration. According to the ROC Company
Act, when a company issues capital stock for cash, 10% to 15% of the issue must be offered to its
employees. In addition, if a listed company intends to offer new shares for cash, at least 10% of
the issue must also be offered to the public. This percentage can be increased by a resolution
passed at a shareholders meeting, which will reduce the number of new shares in which existing
shareholders may have preemptive rights. Unless the percentage of the shares offered to the public
is increased by a resolution, existing shareholders of the company have a preemptive right to
acquire the remaining 75% to 80% of the issue in proportion to their existing shareholdings.
According to the Corporate Merger and Acquisition Act of the ROC, as effective on February 8, 2002,
if new shares issued by our company are solely for the purpose of acquisition, share swap or
spin-off, the above-mentioned restrictions, including the employee stock ownership plan, the
preemptive rights of the existing shareholders and the publicity requirement of a listed company,
to such issuance of new shares may not be applied.
Shareholders
We only recognize persons registered in our register as our shareholders. We may set a record
date and close our register of shareholders for specified periods to determine which shareholders
are entitled to various rights pertaining to our shares.
Transfer of Shares
Shares in registered form are transferred in book-entry form or by endorsement and delivery of
the related share certificates. Transferees must have their names and addresses registered on our
register in order to assert shareholders rights against us. Our shareholders are required to file
their respective specimen seals with our share registrar, Horizon Securities Co., Ltd. Under the
current ROC Company Act, a public company, such as our company, may issue individual share
certificates, one master certificate or no certificate at all, to evidence common shares. Our
articles of incorporation, as amended on June 11, 2007, provide that we may deliver shares in
book-entry form instead of by means of issuing physical share certificates.
67
Shareholders Meetings
We are required to hold an annual ordinary shareholders meeting once every calendar year
within six months from the end of each fiscal year. Our board of directors may convene an
extraordinary meeting whenever the directors deem necessary, and they must do so if requested in
writing by shareholders holding no less than 3% of our paid-in share capital who have held these
shares for more than a year. In addition, any of our supervisors may convene a shareholders
meeting if our board of directors does not or cannot convene a shareholders meeting and when such
a meeting is necessary for the benefit of the shareholders. At least 15 days advance written
notice must be given of every extraordinary shareholders meeting and at least 30 days advance
written notice must be given of every annual ordinary shareholders meeting. Unless otherwise
required by law or by our articles of incorporation, voting for an ordinary resolution requires an
affirmative vote of a simple majority of those present. A distribution of cash dividends would be
an example of an ordinary resolution. The ROC Company Act also provides that in order to approve
certain major corporate actions, including any amendment of our articles of incorporation,
dissolution, merger or spin-off, the transfer of all or an essential part of the business or
assets, accept all of the business or assets of any other company which would have a significant
impact in our operations, removing directors or the distribution of dividend in stock form, a
special resolution may be adopted by the holders of the majority of our shares represented at a
meeting of shareholders at which holders of at least two-thirds of our issued and outstanding
shares are present. However, in the case of a public company, such as our company, such resolution
may be adopted by the holders of at least two-thirds of the shares represented at a shareholders
meeting at which holders of at least majority of our issued and outstanding shares are present.
However, if we are the controlling company and hold no less than 90% of our subordinate companys
outstanding shares, our merger with the subordinate company can be approved by a board resolution
adopted by majority consent at a meeting with two-thirds of our directors present without
shareholders approval. In addition, according to the Corporate Merger and Acquisition Act of the
ROC, if a company intends to transfer all or an essential part of its business or assets to its
wholly-owned subsidiary, subject to the qualifications set forth in the said act, such transaction
only needs to be approved by majority board resolution rather than super majority vote by the
shareholders meeting as required by the ROC Company Act.
Voting Rights
Each common share is generally entitled to one vote and no voting discount will be applied.
However, treasury shares and our common shares held by (i) an entity in which we own more than 50%
of the voting shares or paid-in capital, or (ii) a third party in which we and an entity controlled
by us jointly own, directly or indirectly, more than 50% of the voting shares or paid-in capital
are not entitled to any vote. Except as otherwise provided by law or our articles of incorporation,
a resolution can be adopted by the holders of a simple majority of the total issued and outstanding
shares represented at a shareholders meeting. The quorum for a shareholders meeting to discuss
the ordinary resolutions is a majority of the total issued and outstanding shares. The election of
directors and supervisors by our shareholders may be conducted by means of cumulative voting or
other voting mechanisms adopted in our articles of incorporation. In all other matters, a
shareholder must cast all his or her votes in the same manner when voting on any of these matters.
Our shareholders may be represented at an ordinary or extraordinary shareholders meeting by
proxy if a valid proxy form is delivered to us five days before the commencement of the ordinary or
extraordinary shareholders meeting, unless such proxy has been revoked no later than one day
before the date of the shareholders meeting. Voting rights attached to our shares exercised by our
shareholders proxy are subject to the proxy regulation promulgated by the ROC FSC.
Any shareholder who has a personal interest in a matter to be discussed at our shareholders
meeting, the outcome of which may impair our interests, shall not vote or exercise voting rights on
behalf of another shareholder on such matter.
Holders of our ADSs generally will not be able to exercise voting rights on the shares
underlying their ADSs on an individual basis.
68
Dividends and Distributions
We are not allowed under ROC law to pay dividends on our treasury shares. We may distribute
dividends on our issued and outstanding shares if we have earnings. Before distributing a dividend
to shareholders, among other things, we must recover any past losses, pay all outstanding taxes and
set aside a legal reserve equivalent to 10% of our net income until our legal reserve equals our
paid-in capital.
At an annual ordinary shareholders meeting, our board of directors submits to the
shareholders for their approval proposals for the distribution of dividends or the making of any
other distribution to shareholders from our net income or reserves for the preceding fiscal year.
Dividends are paid to shareholders proportionately. Dividends may be distributed either in cash or
in shares or a combination of cash and shares, as determined by the shareholders at such meeting.
Our articles of incorporation provide that we may distribute 0.1% of the balance of our
earnings deducted by:
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payment of all taxes and dues; |
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deduction of any past losses; |
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allocation of 10% of our net income as a legal reserve; and |
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as remuneration to directors and supervisors. |
The amount of no less than 5% of the residual amount after the distribution of the items
illustrated above, plus, at discretion, any undistributed earnings from previous years, shall be
distributed as bonus to employees. Originally, the distribution of employee bonus were in the form
of new shares; while in the annual ordinary shareholders meeting held in June 2005, our
shareholders approved an amendment of our articles of incorporation to enable the distribution of
employee bonus in the form of cash or in shares. Employees eligible for such distribution may
include certain qualified employees from our subordinate companies and the qualification of such
employees is to be determined by our board of directors. The remaining amount may be distributed
according to the distribution plan proposed by our board of directors based on our dividend policy,
and submitted to the shareholders meeting for approval.
In the annual ordinary shareholders meeting held in June 2005, our shareholders approved a
change of the percentage of stock dividend issued to our shareholders, if any, to no more than 80%
and cash dividend, if any, to no less than 20%.
In addition to permitting dividends to be paid out of net income, we are permitted under the
ROC Company Act to make distributions to our shareholders of additional shares by capitalizing
reserves, including the legal reserve and capital surplus of premiums from issuing stock and
earnings from gifts received if we do not have losses. However, the capitalized portion payable out
of our legal reserve is limited to 50% of the total accumulated legal reserve, and is payable only
if and to the extent the accumulated legal reserve exceeds 50% of our paid-in capital.
For information as to ROC taxes on dividends and distributions, see E. ROC Tax
Considerations in this Item.
Acquisition of Our Shares by Us
An ROC company may not acquire its own common shares, except under certain exceptions provided
in the ROC Company Act or the ROC Securities and Exchange Act. Under the amendments to the ROC
Company Act, which took effect on November 14, 2001, a company may purchase up to 5% of its issued
common shares for transfer to employees in accordance with a resolution of its board of directors,
passed by a majority vote, at a meeting with at least two-thirds of the directors present.
69
Under Article 28-2, an amendment to the ROC Securities and Exchange Act, which took effect on
July 21, 2000, we may, by a board resolution adopted by majority consent at a meeting with
two-thirds of our directors present, purchase up to 10% of our issued shares on the Taiwan Stock
Exchange or by a tender offer, in accordance with the procedures prescribed by the ROC FSC, for the
following purposes:
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to transfer shares to our employees; |
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to transfer upon conversion of bonds with warrants, preferred shares with warrants,
convertible bonds, convertible preferred shares or certificates of warrants issued by
us; and |
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if necessary, to maintain our credit and our shareholders equity; provided that the
shares so purchased shall be cancelled thereafter. |
We have from time to time announced plans, none of which was binding on us, to buy back up to
a fixed amount of our shares on the Taiwan Stock Exchange at the price range set forth in the
plans. As of December 31, 2005, 2006 and 2007, we purchased an aggregate of 1,278 million, 2,678
million and 0 million, respectively, of our shares under these plans. From February 16, 2006 to
April 15, 2006, we also purchased 1,000 million of our shares for cancellation. Of the repurchased
Shares, 137 million shares in aggregate cancelled as of May, 2005. In addition, on May 22, 2006, we
announced a plan, which is not binding on us, to buy back up to 400 million of our shares on the
Taiwan Stock Exchange at a price ranging from NT$13.90 to NT$32.15 per share between May 23, 2006
and July 22, 2006 to transfer to employees.
In addition, we may not spend more than the aggregate amount of the retained earnings, the
premium from issuing stock and the realized portion of the capital reserve to purchase our shares.
We may not pledge or hypothecate any purchased shares. In addition, we may not exercise any
shareholders rights attached to such shares. In the event that we purchase our shares on the
Taiwan Stock Exchange, our affiliates, directors, supervisors, managers and their respective
spouses and minor children and/or nominees are prohibited from selling any of our shares during the
period in which we purchase our shares.
In addition to the share purchase restriction, the Company Act provides that our subsidiaries
may not acquire our shares or the shares of our majority-owned subsidiaries if the majority of the
outstanding voting shares or paid-in capital of such subsidiary is directly or indirectly held by
us.
Liquidation Rights
In a liquidation, you will be entitled to participate in any surplus assets after payment of
all debts, liquidation expenses and taxes proportionately.
Rights to Bring Shareholders Suits
Under the ROC Company Act, a shareholder may bring suit against us in the following events:
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within 30 days from the date on which a shareholders resolution is adopted, a
shareholder may file a lawsuit to annul a shareholders resolution if the procedure for
convening a shareholders meeting or the method of resolution violates any law or
regulation or our articles of incorporation. However, if the court is of the opinion
that such violation is not material and does not affect the result of the resolution,
the court may reject the shareholders claim. |
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if the substance of a resolution adopted at a shareholders meeting contradicts any
applicable law or regulation or our articles of incorporation, a shareholder may bring
a suit to determine the validity of such resolution. |
Shareholders may bring suit against our directors and supervisors under the following
circumstances:
70
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Shareholders who have continuously held 3% or more of our issued shares for a period
of one year or longer may request in writing that a supervisor institute an action
against a director on our behalf. In case the supervisor fails to institute an action
within 30 days after receiving such request, the shareholders may institute an action
on our behalf. In the event shareholders institute an action, a court may, upon the
defendants motion, order such shareholders to furnish appropriate security. |
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Shareholders who hold more than 3% or more of our total issued shares may institute
an action with a court to remove a director of ours who has materially violated the
applicable laws or our articles of incorporation or has materially damaged the
interests of our company if a resolution for removal on such grounds has first been
voted on and rejected by our shareholders and such suit is filed within 30 days of such
shareholders vote. |
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In the event that any director, supervisor, manager or shareholder holding more than
10% of our shares or any respective spouses or minor children and/or nominees of any of
them sells shares within six months after acquisition of such shares, or repurchases
the shares within six months after the sale, we may claim for recovery of any profits
realized from the sale and purchase. If our board of directors or our supervisors fail
to claim for recovery, any shareholder may set forth a 30-day period for our board of
directors or our supervisors to exercise the right. In the event our directors or our
supervisors fail to exercise the right during such 30-day period, such requesting
shareholder shall have the right to claim such recovery on our behalf. Our directors
and supervisors shall be jointly and severally liable for damages suffered by us as a
result of their failure to exercise the right of claim. |
Other Rights of Shareholders
Under the ROC Company Act and the Corporate Merger and Acquisition Act, dissenting
shareholders are entitled to appraisal rights in the event of a spin-off or a merger and various
other major corporate actions. Dissenting shareholders may request us to redeem all their shares at
a then fair market price to be determined by mutual agreement. If no agreement can be reached, the
valuation will be determined by a court. Subject to applicable law, dissenting shareholders may,
among other things, exercise their appraisal rights by notifying us before the related
shareholders meeting and/or by raising and registering their dissent at the shareholders meeting
and also waive their voting rights.
One or more shareholders who have held more than 3% of the issued and outstanding shares for
more than one year may require our board of directors to call an extraordinary shareholders
meeting by sending a written request to our board of directors.
Effective from June 24, 2005, the ROC Company Law allows shareholder(s) holding 1% or more of
the total issued shares of a company to, during the period of ten days or more prescribed by the
company, submit one proposal in writing containing no more than three hundred words (in terms of
Chinese characters) for discussion at the annual ordinary shareholders meeting.
Financial Statements
For a period of at least 10 days before our annual ordinary shareholders meeting, we must
make available our annual financial statements at our principal offices in Hsinchu, Taiwan, and our
share registrar in Taipei for our shareholders inspection.
Transfer Restrictions
Our directors, supervisors, managers and shareholders holding more than 10% of our shares are
required to report any changes in their shareholding to us on a monthly basis. In addition, the
number of shares that they can sell or transfer on the Taiwan Stock Exchange on a daily basis is
limited by ROC law. Further, they may sell or transfer our shares on the Taiwan Stock Exchange only
after reporting to the ROC FSC at least three days before the transfer, provided that such
reporting is not required if the number of shares transferred does not exceed 10,000 in one
business day.
71
C. Material Contracts
Cross License Agreement, dated as of December 7, 2005, between United Microelectronics Corporation
and Freescale Semiconductor, Inc.
We entered into a five-year cross license agreement with Freescale effective as of December 7,
2005, which provides for the cross license of certain semiconductor manufacturing patents. Under
this agreement, Freescale has granted to UMC and UMCs subsidiaries, nonexclusive, worldwide,
non-transferable licenses, without the right to grant sublicenses (except to sublicense
subsidiaries), for manufacturing inventions of certain semiconductive devices under Freescales
patents filed prior to December 31, 2010, and UMC has granted Freescale, royalty-free, worldwide,
non-transferable licenses, without the right to grant sublicenses (except to sublicense
subsidiaries) for manufacturing inventions of certain semiconductive devices under UMCs patents
filed prior to December 31,2010. UMC also agreed to pay Freescale certain royalty fees under this
agreement.
Cross License Agreement, dated as of January 1, 2006, between United Microelectronics Corporation
and International Business Machine Corporation.
We entered into a five-year cross license agreement with IBM effective as of January 1, 2006,
which provides for the cross license of certain semiconductor patents including process, topography
and design. Under this agreement, IBM has granted to UMC and UMCs subsidiaries, nonexclusive,
non-transferable licenses, without the right to grant sublicenses, for making UMCs and UMCs
subsidiaries licensed products in ROC, Japan and Singapore and selling, leasing, licensing, using
and/or transferring UMCs and UMCs subsidiaries licensed products worldwide under IBMs patents
filed prior to January 1, 2011. UMC has granted IBM, royalty-free, worldwide, non-transferable
licenses, without the right to grant sublicenses, for making, selling, leasing, licensing, using
and/or transferring IBMs licensed products under UMCs patents filed prior to January 1, 2011.
Cross License Agreement, dated as of January 1, 2006, between United Microelectronics Corporation
and Renesas Technology Corp.
We entered into a five-year cross license agreement with Renesas effective as of January 1,
2006, which provides for the cross license of certain semiconductor patents including process and
design. Under this agreement, Renesas has granted to UMC and UMCs subsidiaries, nonexclusive,
non-transferable licenses, without the right to grant sublicenses, for making, selling, importing
and otherwise disposing of UMCs and UMCs subsidiaries licensed products under Renesass patents
filed prior to December 31, 2010. UMC has granted Renesas, royalty-free, worldwide,
non-transferable licenses, without the right to grant sublicenses, for making, selling, using and
otherwise disposed of Renesas licensed products under UMCs patents filed prior to December 31,
2010.
Guarantee Agreement
We entered into a guarantee agreement with IBJ Leasing Co., Ltd., or IBJ Leasing on November
24, 2005 to guarantee the certain obligations of UMCJ under a lease agreement between UMCJ and IBJ
Leasing. This guarantee agreement expired on October 31, 2006.
D. Exchange Controls
Foreign Investment and Exchange Controls in Taiwan
We have extracted from publicly available documents the information presented in this section.
Please note that citizens of the Peoples Republic of China and entities organized in the Peoples
Republic of China are subject to special ROC laws, rules and regulations, which are not discussed
in this section.
General
Historically, foreign investments in the securities market of Taiwan were restricted. However,
commencing in 1983, the Taiwan government has from time to time enacted legislation and adopted
regulations to make foreign
investment in the Taiwan securities market possible. Initially, only overseas investment trust
funds of authorized securities investment trust enterprises established in Taiwan were permitted to
invest in the Taiwan securities market. Since January 1, 1991, qualified foreign institutional
investors are allowed to make investments in the Taiwan public securities market. Since March 1,
1996, non-resident foreign institutional and individual investors, called general foreign
investors, are permitted to make direct investments in the Taiwan public securities market. On
September 30, 2003, the Executive Yuan amended the Regulations Governing Investment in Securities
by Overseas Chinese and Foreign Nationals (the Investment Regulations) under which the Qualified
Foreign Institutional Investors, or QFII, designations have been abolished and the restrictions on
foreign portfolio investors have been revised. According to the Investment Regulations, Foreign
Institutional Investor, or FINI, means an entity which is incorporated under the laws of countries
other than the ROC or the branch of a foreign entity which is established within the territory of
the ROC, and Foreign Individual Investor (FIDI) means an overseas Chinese or a foreign natural
person. In addition, the Investment Regulations also lifted some restrictions and simplified
procedures of investment application.
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Foreign Ownership Limitations
Foreign ownership of the issued share capital in a Taiwan Stock Exchange-listed company or a
GreTai Securities Market-listed company has been limited to 50% in the past. Since December 30,
2000, the 50% limit has been lifted. Foreign investors can now hold such investments without any
foreign ownership percentage limitations, unless the law has imposed restrictions otherwise.
Capital remitted into Taiwan under the foreign investment guidelines may be repatriated at any
time without the approval of the ROC FSC. Capital gains and income on investments may also be
repatriated at any time.
Foreign Investors
Each FINI who wishes to invest directly in the ROC securities market is required to register
with the Taiwan Stock Exchange and obtain an investment identification number if the FINI is a
non-resident and has no sub-investment accounts in the ROC. Except for some restrictions imposed by
specific laws and regulations, the individual and aggregate foreign ownership of the issued share
capital in a Taiwan Stock Exchange-listed company or a GreTai Securities Market-listed company is
not restricted. An ROC custodian for a non-resident FINI is required to submit to the CBC, and the
Taiwan Stock Exchange a report of trading activities, inward and outward remittance of capital and
status of assets under custody and other matters every month.
Each FIDI who wishes to invest directly in the ROC securities market is also required to
register with the Taiwan Stock Exchange and obtain an investment identification number. Any
non-resident FIDI who invests in the ROC securities market is subject to the limitations on
investment amount as jointly determined by the ROC FSC and CBC.
Foreign Investment Approval
Foreign investors (both institutional and individual) who wish to make direct investments in
the shares of ROC companies are required to submit a foreign investment approval application to
the Investment Commission of the Ministry of Economic Affairs (the ROC MOEA) or other government
authority and enjoy benefits granted under the Statute for Foreigners Investment and the Statute
for Overseas Chineses Investment. The Investment Commission or other government authority reviews
each foreign investment approval application and approves or disapproves the application after
consultation with other governmental agencies, if necessary. Any non-ROC person possessing a
foreign investment approval may repatriate annual net profits and interests attributable to an
approved investment. Investment capital and capital gains attributable to the investment may be
repatriated with approval of the Investment Commission or other government authority.
In addition to the general restrictions against direct investments by foreign investors in ROC
companies, foreign investors are currently prohibited from investing in certain prohibited
industries in Taiwan under the Negative List. The prohibition of the Negative List is absolute in
the absence of a specific exemption from the application of the Negative List. The prohibition on
direct foreign investment in the prohibited industries is absolute
in the absence of a specific exemption from the application of the Negative List. Under the
Negative List, some other industries are restricted so that foreign investors may directly invest
only up to a specified level and with the specific approval of the relevant authority responsible
for enforcing the legislation which the Negative List is intended to implement. Our business is not
a restricted industry under the Negative List.
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Exchange Controls
Taiwans Foreign Exchange Control Statute and regulations provide that all foreign exchange
transactions must be executed by banks designed to handle foreign exchange transactions by the
Ministry of Finance and by the CBC. Current regulations favor trade-related foreign exchange
transactions. Consequently, foreign currency earned from exports of merchandise and services may
now be retained and used freely by exporters. All foreign currency needed for the importation of
merchandise and services may be purchased from the designated foreign exchange banks.
Aside from trade-related foreign exchange transactions, ROC companies and residents may remit
to and from Taiwan foreign currencies of up to US$50 million (or its equivalent) and US$5 million,
(or its equivalent) respectively in each calendar year. These limits apply to remittances involving
a conversion between NT dollars and U.S. dollars or other foreign currencies. A requirement is also
imposed on all private enterprises to register all medium and long-term foreign debt with the CBC.
In addition, foreign currency earned from or needed to be paid for direct investment or
portfolio investments, which are approved by the competent authorities, may be retained or sold by
the investors or purchased freely from the designated bank.
Aside from the transactions discussed above, a foreign person without an alien resident card
or an unrecognized foreign entity may remit to and from Taiwan foreign currencies of up to
US$100,000 per remittance without obtaining prior approval or permit if required documentation is
provided to Taiwan authorities. This limit applies only to remittances involving a conversion
between NT dollars and U.S. dollars or other foreign currencies.
Depositary Receipts
In April 1992, the ROC SFB (the predecessor of the ROC FSC) began allowing ROC companies
listed on the Taiwan Stock Exchange to sponsor the issuance and sale of depositary receipts
evidencing depositary shares. Notifications for these issuances are still required. In December
1994, the Ministry of Finance began allowing companies whose shares are traded on the GreTai
Securities Market to sponsor the issuance and sale of depositary receipts evidencing depositary
shares. On October 24, 2002, the ROC SFB began allowing public companies that are not listed on the
Taiwan Stock Exchange or the GreTai Securities Market to sponsor the issuance and sale of
depositary receipts by way of private placements outside the ROC.
A holder of depositary shares wishing to withdraw common shares underlying depositary shares
is required to appoint a local agent or representative with qualifications set forth by the ROC FSC
to, among other things, open a securities trading account with a local brokerage firm, pay ROC
taxes, remit funds, and exercise shareholders right. In addition, the withdrawing holder is also
required to appoint a custodian bank with qualifications set forth by the ROC FSC to hold the
securities in safekeeping, make confirmations, settle trades and report all relevant information.
Without making this appointment and the opening of accounts, the withdrawing holder would be unable
to subsequently sell the common shares withdrawn from a depositary receipt facility on either the
Taiwan Stock Exchange or the GreTai Securities Market.
After the issuance of a depositary share, a holder of the depositary share may immediately,
comparing to a three-month waiting period restriction which was lifted in 2003, request the
depositary issuing the depositary share to cause the underlying common shares to be sold in the ROC
or to withdraw the common shares represented by the depositary receipt and deliver the common
shares to the holder. Citizens of the PRC are not permitted to withdraw and hold our common shares
unless they obtain the approval from the competent authority. Due to the absence of relevant rules
or guidelines, PRC persons are not currently able to conduct investments in the ROC.
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No deposits of shares may be made in a depositary receipt facility and no depositary receipts
may be issued against deposits without specific ROC FSC approval, unless they are:
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stock dividends; |
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free distributions of common shares; |
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due to the exercise by a holder of his or her preemptive rights in the event of
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permitted under the deposit agreement and the custody agreement, due to the
direct purchase of shares or purchase through the depositary in the domestic market or
the surrender of shares under the possession of investors and then delivery of such
shares to the custodian for deposit in the depositary receipt facility, provided that
the total number of depositary receipts outstanding after an issuance cannot exceed the
number of issued depositary shares previously approved by the ROC FSC in connection
with the offering plus any depositary shares issued pursuant to the events described in
(1), (2) and (3) above. These issuances may only be made to the extent previously
issued depositary shares have been withdrawn. |
A depositary may convert New Taiwan dollars from the proceeds of the sale of common shares or
cash distributions received into other currencies, including U.S. dollars. A depositary must obtain
foreign exchange approval from the CBC on a payment-by-payment basis for conversion into New Taiwan
dollars of subscription payments for rights offerings or conversion into foreign currencies from
the proceeds from the sale of subscription rights for new common shares. It is expected that the
CBC will grant this approval as a routine matter.
A holder of depositary shares may convert NT dollars into other currencies from proceeds from
the sale of any underlying common shares. Proceeds from the sale of the underlying common shares
withdrawn from the depositary receipt facility may be used for reinvestment in securities listed on
both the Taiwan Stock Exchange and the GreTai Securities Market, provided that the investor
designates a local securities firm or financial institution as agent to open an NT dollar bank
account in advance.
E. Taxation
ROC Tax Considerations
The following summarizes the principal ROC tax consequences of owning and disposing of the
ADSs or shares to a holder of ADSs or shares that is not a resident of the ROC. An individual
holder will be considered as not a resident of the ROC for the purposes of this section if he or
she is not physically present in Taiwan for 183 days or more during any calendar year, except if
the individual holder has both ROC and non-ROC nationalities and has a registered address in the
ROC. An entity holder will be considered as not a resident of the ROC if it is organized under the
laws of a jurisdiction other than Taiwan and has no fixed place of business or other permanent
establishment or business agent in the ROC. Prospective purchasers of ADSs or shares should consult
their own tax advisors concerning the tax consequences of owning ADSs or shares in the ROC and any
other relevant taxing jurisdiction to which they are subject.
Dividends
Dividends, whether in cash or shares, declared by us out of retained earnings and paid out to
a holder that is not an ROC resident in respect of shares represented by ADSs are subject to ROC
withholding tax at the time of distribution. The current rate of withholding for non-residents is
30% for a non-resident individual and 25% for a non-resident entity of the amount of the
distribution in the case of cash dividends or of the par value of the shares distributed in the
case of stock dividends. However, the rate of withholding is 20% if the non-resident holder obtains
foreign investment approval pursuant to the Statute for Foreigners Investment or the Statute for
Overseas Chineses Investment. Under current practice adopted by tax authorities, a 20% withholding
rate is applied to a non-resident ADS holder without requiring the holder to apply for or obtain
foreign investment approval. As discussed in the
section Tax Reform below, certain of our retained earnings will be subject to a 10%
undistributed retained earnings tax. To the extent dividends are paid out of retained earnings
which have been subject to the retained earnings tax, the amount of such tax will be used by us to
offset a non-residents withholding tax liability on such dividend. Consequently, the effective
rate of withholding on dividends paid out of retained earnings previously subject to the retained
earnings tax may be less than 20%. There is no withholding tax with respect to stock dividends
declared out of our capital reserve.
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Capital Gains
Under current ROC law, gains realized on ROC securities transactions are primarily exempt from
income tax. However, subject to the AMT Act, gains realized from various securities transactions by
an ROC-resident entity and from some securities transactions by an ROC-resident individual, such as
securities not listed on the Taiwan Stock Exchange or the GreTai Securities Market, shall be
calculated as taxable income for the purpose of the AMT and may further be subject to income tax.
In addition, transfers of ADSs by non-resident holders are not regarded as sales of ROC securities
and, as a result, any gains derived therefrom are currently not subject to ROC income tax.
Securities Transaction Tax
The ROC government imposes a securities transaction tax that will apply to sales of shares,
but not to sales of ADSs. The transaction tax, which is payable by the seller, is generally levied
on sales of shares at the rate of 0.3% of the sales proceeds. Withdrawals of our shares from our
depositary facility are not subject to the ROC securities transaction tax.
Preemptive Rights
Distribution of statutory preemptive rights for shares in compliance with the ROC Company Act
is not subject to ROC tax. Proceeds derived from sales of statutory preemptive rights evidenced by
securities by a non-resident holder may be subject to the ROC securities transaction tax, currently
at the rate of 0.3% of the gross amount received. Proceeds derived from sales of statutory
preemptive rights which are not evidenced by securities are subject to capital gains tax at the
rate of (1) 25% of the gains realized for non-ROC entity holders and (2) 35% of the gains realized
for non-ROC individual holders. Subject to compliance with the ROC law, we have sole discretion to
determine whether statutory preemptive rights are evidenced by securities or not.
Estate Taxation and Gift Tax
ROC estate tax is payable on any property within the ROC of a deceased individual who is a
non-resident individual and ROC gift tax is payable on any property located within the ROC donated
by any such person. Estate tax is currently payable at rates ranging from 2% of the first
NT$600,000 to 50% of amounts over NT$100,000,000. Gift tax is payable at rates ranging from 4% of
the first NT$600,000 to 50% of amounts over NT$45,000,000. Under ROC estate and gift tax laws, the
shares will be deemed located in the ROC irrespective of the location of the owner. It is unclear
whether a holder of ADSs will be considered to own shares for this purpose.
Tax Treaties
The Republic of China does not have an income tax treaty with the United States. On the other
hand, the Republic of China has income tax treaties with Indonesia, Singapore, South Africa,
Australia, Vietnam, New Zealand, Malaysia, Macedonia, Swaziland, the Netherlands, the United
Kingdom, Gambia, Senegal, Sweden, Belgium and Denmark, which may limit the rate of Republic of
China withholding tax on dividends paid with respect to common shares in Taiwan companies. It is
unclear whether a non-ROC holder of ADSs will be considered to own shares for the purposes of such
treaties. Accordingly, a holder of ADSs who is otherwise entitled to the benefit of a treaty should
consult its own tax advisors concerning eligibility for benefits under the treaty with respect to
the ADSs.
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Tax Reform
In order to increase Taiwans competitiveness, an amendment to the ROC Income Tax law was
enacted on January 1, 1998, to integrate the corporate income tax and the shareholder dividend tax
with the aim of eliminating the double taxation effect for resident shareholders of Taiwanese
corporations.
Under this amendment, a 10% retained earnings tax will be imposed on a company for its
after-tax earnings generated after January 1, 1998 which are not distributed in the following year.
The retained earnings tax so paid will further reduce the retained earnings available for future
distribution. When the company declares dividends out of those retained earnings, up to a maximum
amount of 10% of the declared dividends will be credited against the 20% withholding tax imposed on
the non-resident holders of its shares.
U.S. Federal Income Tax Considerations For U.S. Persons
The following is a summary of certain U.S. federal income tax consequences for beneficial
owners of our shares or ADSs, that hold the shares or ADSs as capital assets and that are U.S.
holders that are not citizens of the ROC, do not have a permanent establishment in the ROC and are
not physically present in the ROC for 183 days or more within a calendar year. You are a U.S.
holder if you are, for U.S. federal income tax purposes, any of the following:
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an individual citizen or resident of the United States; |
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a corporation (or other entity treated as a corporation for U.S. federal income tax
purposes) created or organized in or under the laws of the United States, any state
thereof or the District of Columbia; |
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an estate the income of which is subject to U.S. federal income taxation regardless
of its source; |
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a trust that is subject to the primary supervision of a court within the United
States and that has one or more U.S. persons with the authority to control all
substantial decisions of the trust; or |
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a trust that has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person. |
This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the
Code), and regulations, rulings and judicial decisions thereunder as of the date hereof, and such
authorities may be replaced, revoked or modified so as to result in U.S. federal income tax
consequences different from those discussed below. It is for general purposes only and you should
not consider it to be tax advice. In addition, it is based in part on representations by the
depositary and assumes that each obligation under the deposit agreement and any related agreement
will be performed in accordance with its terms. This summary does not represent a detailed
description of all the U.S. federal income tax consequences to you in light of your particular
circumstances and does not address the effects of any state, local or non-U.S. tax laws (or other
U.S. federal tax consequences, such as U.S. federal estate or gift tax consequences). In addition,
it does not represent a detailed description of the U.S. federal income tax consequences applicable
to you if you are subject to special treatment under the U.S. federal income tax laws, including if
you are:
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a dealer in securities or currencies; |
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a trader in securities if you elect to use a mark-to-market method of accounting for
your securities holdings; |
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a financial institution or an insurance company; |
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a tax-exempt organization; |
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a regulated investment company; |
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a real estate investment trust; |
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a person liable for alternative minimum tax; |
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a person holding shares or ADSs as part of a hedging, integrated or conversion
transaction, constructive sale or straddle; |
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a partnership or other pass-through entity for U.S. federal income tax purposes; |
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a person owning, actually or constructively, 10% or more of our voting stock; or |
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a U.S. holder whose functional currency is not the U.S. dollar. |
We cannot assure you that a later change in law will not alter significantly the tax
considerations that we describe in this summary.
If a partnership holds our shares or ADSs, the tax treatment of a partner will generally
depend upon the status of the partner and the activities of the partnership. If you are a partner
of a partnership holding our shares or ADSs, you should consult your tax advisor.
You should consult your own tax advisor concerning the particular U.S. federal income tax
consequences to you of the ownership and disposition of the shares or ADSs, as well as the
consequences to you arising under the laws of any other taxing jurisdiction.
In general, for U.S. federal income tax purposes, a U.S. person who is the beneficial owner of
an ADS will be treated as the owner of the shares underlying its ADS. Accordingly, deposits or
withdrawals of shares by U.S. holders for ADSs generally will not be subject to U.S. federal income
tax. However, the U.S. Treasury has expressed concerns that intermediaries in the chain of
ownership between the holder of an ADS and the issuer of the security underlying the ADS may be
taking actions that are inconsistent with the claiming of foreign tax credits by the U.S. holders
of ADSs. Such actions would also be inconsistent with the claiming of the reduced rate of tax,
described below, applicable to dividends received by certain non-corporate holders. Accordingly,
the analysis of the creditability of ROC taxes and the availability of the reduced tax rate for
dividends received by certain non-corporate holders, each described below could be affected by
actions taken by intermediaries in the chain of ownership between the holder of an ADS and our
company.
Taxation of Dividends
Except as discussed below with respect to the passive foreign investment company rules, the
amount of distributions (including net amounts withheld in respect of ROC withholding taxes) you
receive on your shares or ADSs (other than certain pro rata distributions of shares to all
shareholders) will generally be treated as dividend income to you if the distributions are made
from our current and accumulated earnings and profits as calculated according to U.S. federal
income tax principles. In determining the net amounts withheld in respect of ROC taxes, any
reduction in the amount withheld on account of an ROC credit in respect of the 10% retained
earnings tax imposed on us is not considered a withholding tax and will not be treated as
distributed to you or creditable by you against your U.S. federal income tax. Such income will be
includible in your gross income as ordinary income on the day you actually or constructively
receive it, which in the case of an ADS will be the date actually or constructively received by the
depositary. The amount of any distribution of property other than cash will be the fair market
value of such property on the date it is distributed. You will not be entitled to claim a dividend
received deduction with respect to distributions you receive from us.
With respect to non-corporate U.S. holders, certain dividends received from a qualified
foreign corporation in taxable years beginning prior to January 1, 2011 may be subject to reduced
rates of taxation. A foreign corporation is treated as a qualified foreign corporation with respect
to dividends paid by that corporation on shares (or ADSs backed by such shares) that are readily
tradable on an established securities market in the United States. U.S. Treasury Department
guidance indicates that our ADSs (which are listed on the NYSE), but not our shares, are
readily tradable on an established securities market in the United States. Thus, we do not
believe that dividends we pay on our shares that are not backed by ADSs currently meet the
conditions required for these reduced tax rates. Moreover, there can be no assurance that our ADSs
will continue to be readily tradable on an established securities market in later years.
Non-corporate U.S. holders that do not meet a minimum holding period requirement during which they
are not protected from the risk of loss or that elect to treat the dividend income as investment
income pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of
taxation regardless of our status as a qualified foreign corporation. In addition, the rate
reduction will not apply to dividends if the recipient of a dividend is obligated to make related
payments with respect to positions in substantially similar or related property. This disallowance
applies even if the minimum holding period has been met. Non-corporate U.S. holders will also not
be eligible for the reduced rates of taxation on dividends if we are a passive foreign investment
company in the taxable year in which such dividends are paid or in the preceding taxable year.
Holders should consult their own tax advisors regarding the application of these rules given their
particular circumstances.
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The amount of any dividend paid in NT dollars will equal the U.S. dollar value of the NT
dollars you receive (calculated by reference to the exchange rate in effect on the date you
actually or constructively receive the dividend, which in the case of an ADS will be the date
actually or constructively received by the depositary), regardless of whether the NT dollars are
actually converted into U.S. dollars. If the NT dollars received as a dividend are not converted
into U.S. dollars on the date of receipt, you will have a basis in the NT dollars equal to their
U.S. dollar value on the date of receipt. Any gain or loss you realize if you subsequently sell or
otherwise dispose of the NT dollars will be ordinary income or loss from sources within the United
States for foreign tax credit limitation purposes.
Subject to certain limitations under the Code, you may be entitled to a credit or deduction
against your U.S. federal income taxes for the net amount of any ROC taxes that are withheld from
dividend distributions made to you. The election to receive a credit or deduction must be made
annually, and applies to all foreign taxes for the applicable tax year. The limitation on foreign
taxes eligible for credit is calculated separately with respect to specific classes of income. For
this purpose, dividends we pay with respect to shares or ADS will generally be considered passive
category income from sources outside the United States. Furthermore, you will not be allowed a
foreign tax credit for foreign taxes imposed on dividends paid on shares or ADSs if you (1) have
held the shares or ADSs for less than a specified minimum period during which you are not protected
from risk of loss, or (2) are obligated to make payments related to the dividends. The rules
governing the foreign tax credit are complex. We therefore urge you to consult your tax advisors
regarding the availability of the foreign tax credit under your particular circumstances.
To the extent that the amount of any distribution you receive exceeds our current and
accumulated earnings and profits for a taxable year, as determined under U.S. federal income tax
principles, the distribution will first be treated as a tax-free return of capital, causing a
reduction in your adjusted basis in the shares or ADSs and thereby increasing the amount of gain,
or decreasing the amount of loss, you will recognize on a subsequent disposition of the shares or
ADSs. The balance in excess of adjusted basis, if any, will be taxable to you as capital gain
recognized on a sale or exchange. However, we do not expect to keep earnings and profits in
accordance with U.S. federal income tax principles. Therefore, you should expect that a
distribution will generally be treated as a dividend (as discussed above).
It is possible that pro rata distributions of shares or ADSs to all shareholders may be made
in a manner that is not subject to U.S. federal income tax. In the event that such distributions
are tax-free, the basis of any new shares or ADSs so received will generally be determined by
allocating the U.S. holders basis in the old shares or ADSs between the old shares or ADSs and the
new shares or ADSs, based on their relative fair market values on the date of distribution. For
U.S. tax purposes, any such tax-free share or ADS distribution and any distributions in excess of
current and accumulated earnings and profits generally would not result in foreign source income to
you. Consequently, you may not be able to use the foreign tax credit associated with any ROC
withholding tax imposed on such distributions unless you can use the credit against U.S. tax due on
other foreign source income in the appropriate category for foreign tax credit purposes. You should
consult your own tax advisors regarding all aspects of the foreign tax credit.
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Taxation of Capital Gains
Except as discussed below with respect to the passive foreign investment company rules, when
you sell or otherwise dispose of your shares or ADSs, you will generally recognize capital gain or
loss in an amount equal to the difference between the U.S. dollar value of the amount realized for
the shares or ADSs and your basis in the shares or ADSs, determined in U.S. dollars. If you are an
individual, and the shares or ADSs being sold or otherwise disposed of are capital assets that you
have held for more than one year, your gain recognized will be eligible for reduced rates of
taxation. Your ability to deduct capital losses is subject to limitations. Any gain or loss you
recognize will generally be treated as U.S. source gain or loss.
If you pay any ROC securities transaction tax, such tax is not treated as an income tax for
U.S. federal income tax purposes, and therefore will not be a creditable foreign tax for U.S.
federal income tax purposes. However, subject to limitations under the Code, such tax may be
deductible. You are urged to consult your tax advisors regarding the U.S. federal income tax
consequences of these taxes.
Passive Foreign Investment Company
Based on the current and projected composition of our income and valuation of our assets,
including goodwill, we do not believe that we are currently (or that we were in 2007) a passive
foreign investment company (PFIC) and we do not expect to become one in the future, although
there can be no assurance in this regard.
In general, a company is considered a PFIC for any taxable year if either:
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at least 75% of its gross income is passive income, which generally includes income
derived from certain dividends, interest, royalties and rents (other than royalties and
rents derived in the active conduct of a trade or business and not derived from a
related person), annuities or property transactions; or |
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at least 50% of the value of its assets is attributable to assets that produce or
are held for the production of passive income. |
The 50% of value test is based on the average of the value of our assets for each quarter
during the taxable year. If we own at least 25% by value of another companys stock, we will be
treated, for purposes of the PFIC rules, as owning our proportionate share of the assets and
receiving our proportionate share of the income of that company.
In determining that we do not expect to be a PFIC, we are relying on our projected capital
expenditure plans and projected revenues for the current year and for future years. In addition,
our determination is based on a current valuation of our assets, including goodwill. In calculating
goodwill, we have valued our total assets based on our total market value, which is based on the
market value of our shares and ADSs and is subject to change. In addition, we have made a number of
assumptions regarding the allocation of goodwill to active and passive assets. We believe our
valuation approach is reasonable. However, it is possible that the Internal Revenue Service will
challenge the valuation or allocation of our goodwill, which may also result in us being classified
as a PFIC.
In addition, the determination of whether we are a PFIC is made annually. Accordingly, it is
possible that we may become a PFIC in the current or any future taxable year due to changes in our
asset or income composition. Because we have valued our goodwill based on the market value of our
shares, a decrease in the price of our shares may also result in our becoming a PFIC.
If we are a PFIC for any taxable year during which you hold shares or ADSs, you will be
subject to special tax rules with respect to any excess distribution that you receive and any
gain you realize from a sale or other disposition (including a pledge) of shares or ADSs.
Distributions you receive in a taxable year that are greater than 125% of the average annual
distributions you received during the shorter of the three preceding taxable years or your holding
period for shares or ADSs will be treated as excess distributions. Under these special tax rules:
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the excess distribution or gain will be allocated ratably over your holding period
for shares or ADSs; |
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the amount allocated to the current taxable year, and any taxable year prior to the
first taxable year in which we were a PFIC, will be treated as ordinary income; and |
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the amount allocated to each other year will be subject to tax at the highest tax
rate in effect for that year and the interest charge generally applicable to
underpayments of tax will be imposed on the resulting tax attributable to each such
year. |
If you hold shares or ADSs in any year in which we are a PFIC, you are required to file
Internal Revenue Service Form 8621.
If we are a PFIC for any taxable year and any of our non-U.S. subsidiaries is also a PFIC, a
U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the
lower-tier PFIC for purposes of the application of these rules. You are urged to consult your tax
advisors about the application of the PFIC rules to any of our subsidiaries.
In certain circumstances, a U.S. holder, in lieu of being subject to the PFIC rules discussed
above, may make an election to include gain on the stock of a PFIC as ordinary income under a
mark-to-market method provided that such stock is regularly traded on a qualified exchange. Under
this method, any difference between the stocks fair market value and its adjusted basis at the end
of the year is accounted for by either an inclusion in income or , subject to limitations, a
deduction from income, as described below. Under current U.S. Treasury Department guidance, the
mark-to-market election may be available to holders of ADSs because the ADSs are listed on the
NYSE, which constitutes a qualified exchange, although there can be no assurance that the ADSs will
be regularly traded for purposes of the mark-to-market election. You should also note that only
the ADSs and not the shares are listed on the NYSE. Our shares are listed on the Taiwan Stock
Exchange, which must meet certain trading, listing, financial disclosure and other requirements to
be treated as a qualified exchange under applicable U.S. Treasury regulations for purposes of the
mark-to-market election, and no assurance can be given that the shares will be regularly traded
for purposes of the mark-to-market election.
If you make an effective mark-to-market election, you will include in income each year as
ordinary income the excess of the fair market value of your shares or ADSs at the end of the year
over your adjusted tax basis in the shares or ADSs. You will be entitled to deduct as an ordinary
loss each year the excess of your adjusted tax basis in the shares or ADSs over their fair market
value at the end of the year, but only to the extent of the net amount previously included in
income as a result of the mark-to-market election. If you make an effective mark-to-market
election, any gain you recognize upon the sale or other disposition of your shares or ADSs will be
treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of
the net amount of previously included income as a result of the mark-to-market election.
Your adjusted tax basis in shares or ADSs will be increased by the amount of any income
inclusion and decreased by the amount of any deductions under the mark-to-market rules. If you make
a mark-to-market election it will be effective for the taxable year for which the election is made
and all subsequent taxable years unless the shares or ADSs are no longer regularly traded on a
qualified exchange or the Internal Revenue Service consents to the revocation of the election. You
should consult your tax advisors about the availability of the mark-to-market election, and whether
making the election would be advisable in your particular circumstances.
Alternatively, a U.S. holder of shares or ADSs in a PFIC can sometimes avoid the rules
described above by electing to treat the PFIC as a qualified electing fund under Section 1295 of
the Code. This option is not available to you because we do not intend to comply with the
requirements necessary to permit you to make this election.
Non-corporate U.S. holders will not be eligible for reduced rates of taxation on any dividends
received from us in taxable years beginning prior to January 1, 2011, if we are a PFIC in the
taxable year in which such dividends are paid or in the preceding taxable year. You should consult
your own tax advisors concerning the U.S. federal income tax consequences of holding shares or ADSs
if we are considered a PFIC in any taxable year.
81
Information Reporting and Backup Withholding
In general, unless you are an exempt recipient such as a corporation, information reporting
will apply to dividends in respect of the shares or ADSs and to the proceeds from the sale,
exchange or redemption of your shares or ADSs that are paid to you within the United States (and in
some cases, outside of the United States). Additionally, if you fail to provide your taxpayer
identification number, or fail either to report in full dividend and interest income or to make the
necessary certifications of other exempt status, you may be subject to backup withholding.
Any amounts withheld under the backup withholding rules will be allowed as a refund or a
credit against your U.S. federal income tax liability, provided you furnish the required
information to the Internal Revenue Service.
Inheritance and Gift Tax
The ROC imposes an estate tax on a decedent who owns shares, and possibly ADSs, even if the
decedent was not a citizen or resident of the ROC. See E. ROC Tax Considerations in this Item.
The amount of any inheritance tax paid to the ROC may be eligible for credit against the amount of
U.S. federal estate tax imposed on your estate or heirs. You should consult your personal tax
advisors to determine whether and to what extent you may be entitled to such credit.
The ROC also imposes a gift tax on the donation of any property located within the ROC. Under
present law, a U.S. tax credit for foreign gift taxes (such as those imposed by the ROC) is not
available.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We have filed this annual report on Form 20-F, including exhibits, with the Securities and
Exchange Commission. As allowed by the Securities and Exchange Commission, in Item 19 of this
annual report, we incorporate by reference certain information we filed with the Securities and
Exchange Commission. This means that we can disclose important information to you by referring you
to another document filed separately with the Securities and Exchange Commission. The information
incorporated by reference is considered to be part of this annual report.
You may read and copy this annual report, including the exhibits incorporated by reference in
this annual report, at the Securities and Exchange Commissions Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549 and at the Securities and Exchange Commissions regional
offices in New York, New York and Chicago, Illinois. You can also request copies of this annual
report, including the exhibits incorporated by reference in this annual report, upon payment of a
duplicating fee, by writing information on the operation of the Securities and Exchange
Commissions Public Reference Room.
The Securities and Exchange Commission also maintains a website at www.sec.gov that contains
reports, proxy statements and other information regarding registrants that file electronically with
the Securities and Exchange Commission. Our annual report and some of the other information
submitted by us to the Securities and Exchange Commission may be accessed through this web site.
I. Subsidiary Information
Not applicable.
82
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss related to adverse changes in market prices, including
interest rates and foreign exchange rates, of financial instruments. We are exposed to various
types of market risks, including changes in interest rates and foreign currency exchange rates, in
the normal course of business.
We use financial instruments, including variable rate debt and swaps and forward contracts, to
manage risks associated with our interest rate and foreign currency exposures through a controlled
program of risk management in accordance with established policies. These policies are reviewed and
approved by our board of directors. Our treasury operations are subject to internal audit on a
regular basis. We do not hold or issue derivative financial instruments for speculatively purposes.
Since export sales are primarily conducted in U.S. dollars, we had U.S. dollar-denominated
accounts receivables of US$393 million as of December 31, 2007. As of the same date, we also had
Japanese Yen-denominated accounts receivable of ¥5,307 million attributable to our Japanese
operations. We had U.S. dollar- and Japanese Yen-denominated accounts payables of US$77 million and
¥4,640 million.
Our primary market risk exposures relate to interest rate movements on borrowings and exchange
rate movements on foreign currency-denominated capital expenditures relating to equipment used in
manufacturing processes (including photo etching and chemical vapor deposition) and purchased
primarily from Japan and the United States. The fair value of forward exchange contracts and
interest rate swaps has been determined by obtaining the estimated amount from our bankers that
would be received/(paid) to terminate the contracts.
The following table provides information as of December 31, 2007 on our market risk sensitive
financial instruments.
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007 |
|
|
Book Value |
|
Fair Value |
|
|
(in NT$ millions) |
Interest Rate Swaps: Trading Purpose |
|
$ |
(319 |
) |
|
$ |
(319 |
) |
Time Deposit: Non-Trading Purpose |
|
$ |
35,698 |
|
|
$ |
35,698 |
|
Unsecured Short-term Loans: Non-Trading Purpose |
|
$ |
(359 |
) |
|
$ |
(359 |
) |
Bonds: Non-Trading Purpose |
|
$ |
(30,385 |
) |
|
$ |
(29,900 |
) |
Interest Rate Risk
Our major market risk exposure is changing interest rates. Our exposure to market risk for
changes in interest rates relates primarily to our long-term debt obligations. We primarily enter
into debt obligations to support general corporate purposes including capital expenditures and
working capital needs. We use interest rate swaps from time to time to modify our exposure to
interest rate movements and reduce borrowing costs. Interest rate swaps limit the risks of
fluctuating interest rates by allowing us to convert a portion of the interest on our borrowings
from a variable rate to a fixed rate. As of December 31, 2007 and 2006, we had the following
interest rate swaps in effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount |
|
Contract Period |
|
Interest Rate Received |
|
Interest Rate Paid |
As of December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 21, 2003 to |
|
4.0% minus US$12-month |
|
|
1.52 |
% |
NT$7,500 millions |
|
June 24, 2008 |
|
LIBOR |
|
|
|
|
|
|
May 21, 2003 to |
|
4.3% minus US$12-month |
|
|
1.48 |
% |
NT$7,500 millions |
|
June 24, 2010 |
|
LIBOR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 21, 2003 to |
|
4.0% minus US$12-month |
|
|
1.52 |
% |
NT$7,500 millions |
|
June 24, 2008 |
|
LIBOR |
|
|
|
|
|
|
May 21, 2003 to |
|
4.3% minus US$12-month |
|
|
1.48 |
% |
NT$7,500 millions |
|
June 24, 2010 |
|
LIBOR |
|
|
|
|
83
The tables below provide information as of December 31, 2007 and 2006 about our financial
instruments that are sensitive to changes in interest rates, including debt obligations and certain
assets. For debt obligations, the table presents principal cash flows and related weighted average
interest rates by expected maturity dates. The information is presented in the currencies in which
the instruments are denominated.
Expected Maturity Dates
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 and thereafter |
|
Total |
|
|
(in millions, except percentages) |
Time Deposit: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate (US$) |
|
385 |
|
|
|
|
|
|
|
|
|
385 |
Average Interest Rate |
|
4.3% - 5.1% |
|
|
|
|
|
|
|
|
|
4.3% - 5.1% |
Fixed Rate (¥) |
|
2,260 |
|
|
|
|
|
|
|
|
|
2,260 |
Average Interest Rate |
|
0.2% - 0.35% |
|
|
|
|
|
|
|
|
|
0.2% - 0.35% |
Fixed Rate (NT$) |
|
16,652 |
|
|
|
|
|
|
|
|
|
16,652 |
Average Interest Rate |
|
1.46% - 2.26% |
|
|
|
|
|
|
|
|
|
1.46% - 2.26% |
Fixed Rate (Euro) |
|
17 |
|
|
|
|
|
|
|
|
|
17 |
Average Interest Rate |
|
3.6% |
|
|
|
|
|
|
|
|
|
3.6% |
Unsecured Short-term
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate (US$) |
|
11.1 |
|
|
|
|
|
|
|
11.1 |
|
11.1 |
Average Interest Rate |
|
3.43% - 5.43% |
|
|
|
|
|
|
|
3.43% - 5.43% |
|
3.43% - 5.43% |
Variable Rate (¥) |
|
|
|
|
|
|
|
|
|
|
|
|
Average Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate (NT$) |
|
|
|
|
|
|
|
|
|
|
|
|
Average Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
Secured Short-term Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate (¥) |
|
|
|
|
|
|
|
|
|
|
|
|
Average Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate (NT$) |
|
|
|
|
|
|
|
|
|
|
|
|
Average Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
Bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured (NT$) |
|
3,000 |
|
|
|
|
|
|
|
|
|
3,000 |
Fixed Rate |
|
5.2170%-.2850% |
|
|
|
|
|
|
|
|
|
5.2170%-.2850% |
Unsecured (NT$) |
|
7,500 |
|
|
|
7,500 |
|
|
|
|
|
15,000 |
Variable Rate |
|
0%-4% |
|
|
|
0%-4.3% |
|
|
|
|
|
0%-4.3% |
Unsecured Convertible
(US$) (1) |
|
381 |
|
|
|
|
|
|
|
|
|
381 |
Fixed Rate |
|
0% |
|
|
|
|
|
|
|
|
|
0% |
Unsecured Exchangeable
(US$) (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate |
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Convertible
(¥) (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate |
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
Variable to Fixed
(denomination) |
|
NT$7,500 million |
|
|
|
|
|
|
|
|
|
NT$7,500 million |
Average pay rate |
|
1.52% |
|
|
|
|
|
|
|
|
|
1.52% |
Average receive rate |
|
4.0% minus |
|
|
|
|
|
|
|
|
|
4.0% minus |
|
|
US$12-month LIBOR |
|
|
|
|
|
|
|
|
|
US$12-month LIBOR |
Variable to Fixed
(denomination) |
|
NT$7,500 million |
|
NT$7,500 million |
|
NT$7,500 million |
|
|
|
|
|
NT$7,500 million |
Average pay rate |
|
1.48% |
|
1.48% |
|
1.48% |
|
|
|
|
|
1.48% |
Average receive rate |
|
4.3% minus |
|
4.3% minus |
|
4.3% minus |
|
|
|
|
|
4.3% minus |
|
|
US$12-month LIBOR |
|
US$12-month LIBOR |
|
US$12-month LIBOR |
|
|
|
|
|
US$12-month LIBOR |
|
|
|
(1) |
|
Assuming the convertible bonds and exchangeable bonds are both paid off upon maturity. |
84
Expected Maturity Dates
As of December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
2011 and thereafter |
|
Total |
|
Fair Value |
|
|
(in millions except percentages) |
Time Deposit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate (US$) |
|
147 |
|
|
|
|
|
|
|
|
|
147 |
|
147 |
Average Interest Rate |
|
5.26% |
|
|
|
|
|
|
|
|
|
5.26% |
|
5.26% |
Fixed Rate (¥) |
|
20,602 |
|
|
|
|
|
|
|
|
|
20,602 |
|
20,602 |
Average Interest Rate |
|
0.001%-0.25% |
|
|
|
|
|
|
|
|
|
0.001%-0.25% |
|
0.001%-0.25% |
Fixed Rate (NT$) |
|
70,732 |
|
|
|
|
|
|
|
|
|
70,732 |
|
70,732 |
Average Interest Rate |
|
1.41% |
|
|
|
|
|
|
|
|
|
1.41% |
|
1.41% |
Fixed Rate (Euro) |
|
1 |
|
|
|
|
|
|
|
|
|
1 |
|
1 |
Average Interest Rate |
|
3.1% |
|
|
|
|
|
|
|
|
|
3.1% |
|
3.1% |
Unsecured Short-term
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate (US$) |
|
9.5 |
|
|
|
|
|
|
|
|
|
9.5 |
|
9.5 |
Average Interest Rate |
|
5.665%-5.845% |
|
|
|
|
|
|
|
|
|
5.665%-5.845% |
|
5.665%-5.845% |
Variable Rate (¥)
Average Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate (NT$) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured Short-term
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate (¥) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate (NT$) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Interest Rate
Bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured (NT$) |
|
2,250 |
|
3,000 |
|
|
|
|
|
|
|
5,250 |
|
5,344 |
Fixed Rate |
|
5.2170%-5.2850% |
|
5.2170%-.2850% |
|
|
|
|
|
|
|
5.2170%-5.2850% |
|
5.2170%-5.2850% |
Unsecured (NT$) |
|
|
|
7,500 |
|
|
|
7,500 |
|
|
|
15,000 |
|
14,477 |
Variable Rate |
|
|
|
0%-4% |
|
|
|
0%-4.3% |
|
|
|
0%-4.3% |
|
0%-4.3% |
Unsecured
Convertible (US$)
(1) |
|
|
|
381 |
|
|
|
|
|
|
|
381 |
|
406 |
Fixed Rate |
|
|
|
0% |
|
|
|
|
|
|
|
0% |
|
0% |
Unsecured
Exchangeable (US$)
(1) |
|
96 |
|
|
|
|
|
|
|
|
|
96 |
|
112 |
Fixed Rate |
|
0% |
|
|
|
|
|
|
|
|
|
0% |
|
0% |
Unsecured
Convertible(¥) |
|
13,420 |
|
|
|
|
|
|
|
|
|
13,420 |
|
13,108 |
Fixed rate |
|
0% |
|
|
|
|
|
|
|
0% |
|
0% |
|
0% |
Interest Rate
Derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to
Fixed (denomination)
|
|
NT$7,500 million |
|
NT$7,500 million |
|
|
|
|
|
|
|
NT$7,500 million |
|
NT$224 million |
Average pay rate |
|
1.52% |
|
1.52% |
|
|
|
|
|
|
|
1.52% |
|
1.52% |
|
|
4.0% minus |
|
4.0% minus |
|
|
|
|
|
|
|
4.0% minus |
|
4.0% minus |
Average receive rate |
|
US$12-month LIBOR |
|
US$12-month LIBOR |
|
|
|
|
|
|
|
US$12-month LIBOR |
|
US$12-month LIBOR |
Variable to Fixed
(denomination) |
|
NT$7,500 million |
|
NT$7,500 million |
|
NT$7,500 million |
|
NT$7,500 million |
|
|
|
NT$7,500 million |
|
NT$402 million |
Average pay rate |
|
1.48% |
|
1.48% |
|
1.48% |
|
1.48% |
|
|
|
1.48% |
|
1.48% |
Average receive rate |
|
4.3% minus |
|
4.3% minus |
|
4.3% minus |
|
4.3% minus |
|
|
|
4.3% minus |
|
4.3 minus |
|
|
US$12-month LIBOR |
|
US$12-month LIBOR |
|
US$12-month LIBOR |
|
US$12-month LIBOR |
|
|
|
US$12-month LIBOR |
|
US$12-month LIBOR |
Foreign Currency Risk
Although the majority of our transactions are in NT dollars, some transactions are based in
other currencies. The primary currencies to which we are exposed are the U.S. dollar and the
Japanese Yen. We have in the past, and may in the future, enter into short-term, forward exchange
contracts to hedge the impact of foreign currency fluctuations on certain underlying assets,
liabilities, and firm commitments for operating expenses and capital expenditures denominated in
U.S. dollars. The purpose of entering into these hedges is to minimize the impact of foreign
currency fluctuations on the results of operations. Gains and losses on foreign currency contracts
and foreign currency-denominated assets and liabilities are recorded in the period of the exchange
rate changes. The contracts have maturity dates that do not exceed three months.
As of December 31, 2006 and 2007, we had nil and NT$239 million outstanding foreign currency
forward contracts to sell US$/NT$, respectively. As of March 31, 2008, we had foreign currency
forward contracts to sell US$/NT$ amounted US$348 million.
85
Except for the market risk mentioned above, we believe that we did not have any other material
market risk as of December 31, 2007.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None of these events occurred in any of 2005, 2006 or 2007.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this annual report, an evaluation has been carried out
under the supervision and with the participation of our management, including our Chief Executive
Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e)
promulgated under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and
procedures are effective in ensuring that material information required to be disclosed in this
annual report is recorded, processed, summarized and reported to them for assessment, and required
disclosure is made within the time period specified in the rules and forms of the Securities and
Exchange Commission.
Managements Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934, as amended, for our company. A companys internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements in accordance with generally
accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated
by the Securities and Exchange Commission, our management assessed the effectiveness of our
internal control over financial reporting as of December 31, 2007 using the criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Based on this assessment, our management concluded that
our internal control over financial reporting was effective as of December 31, 2007 based on the
COSO criteria. Our independent registered public accounting firm, Ernst & Young has issued an
attestation report with unqualified opinion on the effectiveness of our internal control over
financial reporting as of December 31, 2007, which is included immediately following this report.
86
Attestation Report of the Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To United
Microelectronics Corporation:
We have audited United Microelectronics Corporation and Subsidiaries (the Company) internal
control over financial reporting of as of December 31, 2007, based on criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). The Companys management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Managements Annual Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, United Microelectronics Corporation and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2007, based on the
COSO criteria.
We also have audited, in accordance with the standards generally accepted in the Republic of China
and the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of United Microelectronics Corporation and subsidiaries as of December
31, 2007 and 2006, and the related consolidated statements of income, changes in stockholders
equity and cash flows for each of the three years in the period ended December 31, 2007 and our
report dated April 30, 2008 expressed an unqualified opinion thereon.
Ernst & Young
Taipei, Taiwan
Republic of China
April 30, 2008
87
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during
the year ended December 31, 2007 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 16. A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors have determined that Paul S.C. Hsu, one of our independent directors,
qualifies as audit committee financial experts and meet the independence requirement as defined in
Item 16A to Form 20-F.
ITEM 16. B. CODE OF ETHICS
In March 2005, we adopted the Code of Ethics for Directors, Supervisors and Officers and the
Employee Code of Conduct. The Employee Code of Conduct, which is applicable to all employees,
replaced the code of ethics filed with the Securities and Exchange Commission in our 2003 annual
report on Form 20-F. We have also created a separate code of ethics applicable to our directors,
supervisors and officers. A copy of each of the Code of Ethics for Directors, Supervisors and
Officers and the Employee Code of Conduct are displayed on our website at
http://www.umc.com/english/pdf/Code_of_Ethics.pdf and
http://www.umc.com/english/pdf/Code_of_Conduct.pdf, respectively.
ITEM 16. C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection
with certain professional services rendered by Ernst & Young, our principal external auditors, for
the years indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
2006 |
|
|
2007 |
|
|
|
NT$ |
|
|
NT$ |
|
|
US$ |
|
|
|
(in thousands) |
|
Audit Fees (1) |
|
|
118,832 |
|
|
|
91,895 |
|
|
|
2,834 |
|
Audit-related Fees (2) |
|
|
463 |
|
|
|
1,688 |
|
|
|
52 |
|
Tax Fees (3) |
|
|
4,016 |
|
|
|
5,967 |
|
|
|
184 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
123,311 |
|
|
|
99,550 |
|
|
|
3,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Audit fees consist of fees associated with the annual audit, review of our quarterly
financial statements, statutory audits and internal control review. They also include fees
billed for those services that are normally provided by the independent accountants in
connection with statutory and regulatory filings. |
|
(2) |
|
Audit-related fees consist of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of our financial statements but
not described in footnote (1) above. These services include review of capitalization of
retained earnings, employee stock option application, treasury share buy-back programs,
certification of UMCi to Singapore authorities. |
|
(3) |
|
Tax fees include fees billed for professional services rendered by Ernst & Young, primarily
in connection with our tax compliance activities. |
All audit and non-audit services provided by Ernst & Young were pre-approved by our audit
committee.
ITEM 16 D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
88
|
|
|
ITEM 16 |
|
E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
Since March 2004, we have from time to time announced plans, which were not binding on us, to
buy back our shares up to a certain amount on the Taiwan Stock Exchange. Set for below contains
certain information regarding our share buy back programs in 2005, 2006 and 2007.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number |
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
of |
|
|
|
|
|
|
|
|
|
|
Common Shares |
|
Shares that May |
|
|
|
|
|
|
|
|
|
|
Purchased as Part |
|
Yet be |
|
|
Total Number of |
|
Average Price Paid |
|
of |
|
Purchased |
|
|
Common Shares |
|
per Common Share |
|
Publicly Announced |
|
Under the Plans or |
Period |
|
Purchased |
|
(NT$) |
|
Plans or Program |
|
Program |
May (from March 16, 2005) |
|
|
57,297,000 |
|
|
|
20.83 |
|
|
|
57,297,000 |
|
|
|
442,703,000 |
|
June |
|
|
317,663,000 |
|
|
|
23.19 |
|
|
|
374,960,000 |
|
|
|
125,040,000 |
|
July (to July 15, 2005) |
|
|
125,040,000 |
|
|
|
24.03 |
|
|
|
500,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number |
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
of |
|
|
|
|
|
|
|
|
|
|
Common Shares |
|
Shares that May |
|
|
|
|
|
|
|
|
|
|
Purchased as Part |
|
Yet be |
|
|
Total Number of |
|
Average Price Paid |
|
of |
|
Purchased |
|
|
Common Shares |
|
per Common Share |
|
Publicly Announced |
|
Under the Plans or |
Period |
|
Purchased |
|
(NT$) |
|
Plans or Program |
|
Program |
September (from September 30, 2005) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000,000 |
|
October |
|
|
248,934,000 |
|
|
|
19.20 |
|
|
|
248,934,000 |
|
|
|
1,066,000 |
|
November (to November 29, 2005) |
|
|
1,066,000 |
|
|
|
17.47 |
|
|
|
250,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Maximum Number of |
|
|
|
|
|
|
|
|
|
|
Common Shares |
|
Shares that May |
|
|
|
|
|
|
|
|
|
|
Purchased as Part |
|
Yet be |
|
|
Total Number of |
|
Average Price Paid |
|
of |
|
Purchased |
|
|
Common Shares |
|
per Common Share |
|
Publicly Announced |
|
Under the Plans or |
Period |
|
Purchased |
|
(NT$) |
|
Plans or Program |
|
Program |
February (from February 16, 2006) |
|
|
239,528,000 |
|
|
|
19.01 |
|
|
|
239,528,000 |
|
|
|
760,472,000 |
|
March |
|
|
576,219,000 |
|
|
|
19.32 |
|
|
|
815,747,000 |
|
|
|
184,253,000 |
|
April (to April 15, 2006) |
|
|
184,253,000 |
|
|
|
21.36 |
|
|
|
1,000,000,000 |
|
|
|
|
|
May (from May 23, 2006) |
|
|
30,691,000 |
|
|
|
19.88 |
|
|
|
30,691,000 |
|
|
|
369,309,000 |
|
June |
|
|
218,316,000 |
|
|
|
18.46 |
|
|
|
249,007,000 |
|
|
|
150,993,000 |
|
July (to July 22, 2006) |
|
|
150,993,000 |
|
|
|
19.20 |
|
|
|
400,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Maximum Number of |
|
|
|
|
|
|
|
|
|
|
Common Shares |
|
Shares that May |
|
|
|
|
|
|
|
|
|
|
Purchased as Part |
|
Yet be |
|
|
Total Number of |
|
Average Price Paid |
|
of |
|
Purchased |
|
|
Common Shares |
|
per Common Share |
|
Publicly Announced |
|
Under the Plans or |
Period |
|
Purchased |
|
(NT$) |
|
Plans or Program |
|
Program |
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PART III
|
|
|
ITEM 17. |
|
FINANCIAL STATEMENTS |
The Registrant has elected to provide the financial statements and related information
specified in Item 18.
|
|
|
ITEM 18. |
|
FINANCIAL STATEMENTS |
The following is a list of the audited consolidated financial statements and report of
independent registered public accounting firm included in this annual report beginning on page F-1.
89
|
|
|
|
|
Page |
Consolidated Financial Statements of United Microelectronics Corporation and Subsidiaries |
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
F-2 |
|
|
|
Consolidated Balance Sheets at December 31, 2006 and 2007
|
|
F-3 |
|
|
|
Consolidated Statements of Income for each of the three years ended December 31, 2005, 2006 and 2007
|
|
F-4 |
|
|
|
Consolidated Statements of Changes in Stockholders Equity for each of the three years ended
December 31, 2005, 2006 and 2007
|
|
F-5 |
|
|
|
Consolidated Statements of Cash Flows for each of the three years ended December 31, 2005, 2006 and
2007
|
|
F-8 |
|
|
|
Notes to the Consolidated Financial Statements
|
|
F-10 |
|
|
|
Exhibit Number |
|
Description of Exhibits |
|
|
|
*1.1
|
|
Articles of Incorporation of the Company as last amended on June 11, 2007 |
|
|
|
2.1
|
|
Form of Amendment No. 1 to Deposit Agreement among the Company, and Holders
and Beneficial Owners of American Depositary Shares issued thereunder,
including the form of American Depositary Shares(2) |
|
|
|
2.2
|
|
Form of Amendment No. 2 to Deposit Agreement among the Company, and Holders
and Beneficial Owners of American Depositary Shares issued thereunder,
including the form of American Depositary Shares(3) |
|
|
|
4.1
|
|
Lease Agreement with Hsinchu Science Park Administration in relation to
government-owned land located at Hsinchu Science Park, Ko-Kuan Section, No.
20-22, Hsinchu, Taiwan, ROC, the site of Fab 6A (in Chinese with English
summary translation) (4) |
|
|
|
4.2
|
|
Lease Agreement with Hsinchu Science Park Administration in relation to
government-owned land located at Hsinchu Science Park, third section of
first phase, Hsinchu, Taiwan, ROC, the site of Fab 8AB and United Tower (in
Chinese with English summary translation)(5) |
|
|
|
4.3
|
|
Lease Agreement with Hsinchu Science Park Administration in relation to
government-owned land located at Hsinchu Science Park, third section of
first phase, Hsinchu, Taiwan, ROC, the site of Fab 8C (in Chinese with
English summary translation)(6) |
|
|
|
4.4
|
|
Lease Agreement with Hsinchu Science Park Administration in relation to
government-owned land located at Hsinchu Science Park, third section of
first phase, Hsinchu, Taiwan, ROC, the site of Fab 8D (in Chinese with
English summary translation)(7) |
|
|
|
4.5
|
|
Lease Agreement with Hsinchu Science Park Administration in relation to
government-owned land located at Hsinchu Science Park, third section of
second phase, Hsinchu, Taiwan, ROC, the site of Fab 8E (in Chinese with
English summary translation)(8) |
|
|
|
4.6
|
|
Lease Agreement with Hsinchu Science Park Administration in relation to
government-owned land located at Hsinchu Science Park, Gin-Shan section,
Hsinchu, Taiwan, ROC, the site of Fab 8F (in Chinese with English summary
translation)(9) |
90
|
|
|
Exhibit Number |
|
Description of Exhibits |
|
|
|
4.7
|
|
Lease Agreement with Southern Taiwan Science Park Administration in
relation to government-owned land located at Tainan Science Park, Tainan,
Taiwan, ROC, the site of Fab 12A (in Chinese with English summary
translation)(10) |
|
|
|
4.8
|
|
Merger Agreement, entered into as of February 26, 2004, between United
Microelectronics Corporation and SiS Microelectronics Corporation (English
Translation) (11) |
|
|
|
4.9
|
|
Lease Agreement with Hsinchu Science Park Administration in relation to
government-owned land located at Hsinchu Science Park, Ko-Kuan section,
Hsinchu, Taiwan, ROC, the site of Fab 8S (in Chinese with English summary
translation) (12) |
|
|
|
4.10
|
|
Lease Agreement with JTC Corporation in relation to land located at Pasir
Ris Wafer Fab Park, Singapore, the site of Fab 12i (summary) (13) |
|
|
|
*8.1
|
|
List of Significant Subsidiaries of United Microelectronics Corporation |
|
|
|
11.1
|
|
Code of Ethics for Directors, Supervisors and Officers (14) |
|
|
|
11.2
|
|
Employee Code of Conduct (15) |
|
|
|
*12.1
|
|
Certification of our Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
|
|
*12.2
|
|
Certification of our Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
|
|
*13.1
|
|
Certification of our Chief Executive Officer pursuant to 18 U.S.C.§ 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
*13.2
|
|
Certification of our Chief Financial Officer pursuant to 18 U.S.C.§ 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
*15.1
|
|
Consent of Independent Registered Public Accounting Firm |
|
|
|
* |
|
Filed here with. |
|
(1) |
|
Incorporated by reference to Exhibit (a) to the Registrants Registration Statement on Form F-6 (File No.
333-13796) filed with the Commission on March 2, 2006. |
|
(2) |
|
Incorporated by reference to Exhibit (a)(iii) to the Registrants Registration Statement on Form F-6
(File No. 333-98591) filed with the Commission on March 19, 2007. |
|
(3) |
|
Incorporated by reference to Exhibit 4.1 to Registrants Annual Report on Form 20-F for the fiscal year
ended December 31, 2006 (File No. 001-15128) filed with the Commission on May 9, 2007. |
|
(4) |
|
Incorporated by reference to Exhibit 10.7 to the Registrants Registration Statement on Form F-1 (File
No. 333-12444) filed with the Commission on August 28, 2000, as amended. |
|
(5) |
|
Incorporated by reference to Exhibit 10.8 to the Registrants Registration Statement on Form F-1 (File
No. 333-12444) filed with the Commission on August 28, 2000, as amended. |
|
(6) |
|
Incorporated by reference to Exhibit 10.9 to the Registrants Registration Statement on Form F-1 (File
No. 333-12444) filed with the Commission on August 28, 2000, as amended. |
|
(7) |
|
Incorporated by reference to Exhibit 10.10 to the Registrants Registration Statement on Form F-1 (File
No. 333-12444) filed with the Commission on August 28, 2000, as amended.. |
|
(8) |
|
Incorporated by reference to Exhibit 10.11 to the Registrants Registration Statement on F-1 (File No.
333-12444) filed with the Commission on August 28, 2000, as amended. |
|
(9) |
|
Incorporated by reference to Exhibit 10.12 to the Registrants Registration Statement on F-1, 2006 (File
No. 333-12444) filed with the Commission on August 28, 2000, as amended. |
|
(10) |
|
Incorporated by reference to Exhibit 4.8 to the Registrants Annual Report on Form 20-F for the fiscal
year ended December 31, 2003 (File No. 1-15128) filed with the Commission on June 17, 2004. |
|
(11) |
|
Incorporated by reference to Exhibit 4.9 to Registrants Annual Report on Form 20-F for the fiscal year
ended December 31, 2006 (File No. 001-15128) filed wit the Commission on May 9, 2007. |
|
(12) |
|
Incorporated by reference to Exhibit 4.10 to Registrants Annual Report on Form 20-F for the fiscal year
ended December 31, 2006 (File No. 001-15128) filed with the Commission on May 9, 2007. |
|
(13) |
|
Incorporated by reference to Exhibit 99.1 to the Form 6-K filed with the Commission on May 25, 2005. |
|
(14) |
|
Incorporated by reference to Exhibit 99.2 to the Form 6-K filed with the Commission on March 26, 2006. |
91
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F
and that it has duly caused and authorized the undersigned to sign this annual report on its
behalf.
UNITED MICROELECTRONICS CORPORATION
|
|
|
|
|
|
|
|
By: |
/s/ Chitung Liu
|
|
|
Name: |
Chitung Liu |
|
|
Title: |
Chief Financial Officer |
|
|
|
Date: May 2, 2008
|
|
|
|
|
|
|
|
|
|
|
|
92
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
United Microelectronics Corporation and Subsidiaries
Consolidated Financial Statements for years ended December 31, 2005, 2006 and 2007
Together with Report of Independent Registered Public Accounting Firm
F-1
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To United Microelectronics Corporation
We have audited the accompanying consolidated balance sheets of United Microelectronics Corporation
and subsidiaries (the Company) as of December 31, 2007 and 2006, and the related consolidated
statements of income, changes in stockholders equity and cash flows for each of the three years in
the period ended December 31, 2007. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the Republic of
China (ROC) and the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of United Microelectronics Corporation and
subsidiaries at December 31, 2007 and 2006, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31, 2007, in conformity
with the requirements of the Business Entity Accounting Act and Regulation on Business Entity
Accounting Handling with respect to financial accounting standards, Guidelines Governing the
Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted
in the Republic of China, which differ in certain respects from U.S. generally accepted accounting
principles (see Note 35 to the consolidated financial statements).
As described in Note 3 to the consolidated financial statements, effective from January 1, 2006,
the Company adopted the ROC Statement of Financial Accounting Standards No. 34, Financial
Instruments: Recognition and Measurement and No. 36, Financial Instruments: Disclosure and
Presentation.
As described in Note 3 to the consolidated financial statements, effective from January 1, 2005,
the Company adopted the amendments to the ROC Statement of Financial Accounting Standards No. 5,
Accounting for Long-term Equity Investment, adopted the amendments to the ROC Statement of
Financial Accounting Standards No. 7, Consolidated Financial Statements, and adopted the ROC
Statement of Financial Accounting Standards No. 35, Impairment of Assets. Effective from January
1, 2006, goodwill is no longer subject to amortization.
We also have audited, in accordance with the standards of Public Company Accounting Oversight Board
(United States), United Microelectronics Corporation and subsidiaries internal control over
financial reporting as of December 31, 2007, based on criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated April 30, 2008 expressed an unqualified opinion thereon.
/s/ Ernst & Young
ERNST & YOUNG
CERTIFIED PUBLIC ACCOUNTANTS
Taipei, Taiwan
Republic of China
April 30, 2008
F-2
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Expressed in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,R:32.43 |
|
|
Notes |
|
2006 |
|
2007 |
|
|
|
|
NT$ |
|
NT$ |
|
US$ |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
2, 4 |
|
|
|
93,853,208 |
|
|
|
47,678,147 |
|
|
|
1,470,186 |
|
Financial assets at fair value through profit or loss, current |
|
|
2, 3, 5 |
|
|
|
8,538,007 |
|
|
|
4,804,935 |
|
|
|
148,163 |
|
Held-to-maturity financial assets, current |
|
|
2, 3, 6 |
|
|
|
1,110,422 |
|
|
|
|
|
|
|
|
|
Notes receivable |
|
|
|
|
|
|
54,381 |
|
|
|
32,712 |
|
|
|
1,009 |
|
Accounts receivable, net |
|
|
2, 7 |
|
|
|
14,201,718 |
|
|
|
15,010,279 |
|
|
|
462,852 |
|
Accounts receivable related parties, net |
|
|
2, 27 |
|
|
|
150,011 |
|
|
|
348,303 |
|
|
|
10,740 |
|
Other receivables |
|
|
2 |
|
|
|
849,742 |
|
|
|
457,148 |
|
|
|
14,096 |
|
Inventories, net |
|
|
2, 8 |
|
|
|
10,878,182 |
|
|
|
11,867,832 |
|
|
|
365,952 |
|
Prepaid expenses |
|
|
|
|
|
|
762,799 |
|
|
|
692,030 |
|
|
|
21,339 |
|
Deferred income tax assets, current |
|
|
2, 25 |
|
|
|
1,945,082 |
|
|
|
219,881 |
|
|
|
6,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
132,343,552 |
|
|
|
81,111,267 |
|
|
|
2,501,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds and investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets at fair value through profit or loss, noncurrent |
|
|
2, 3, 9 |
|
|
|
474,738 |
|
|
|
47,598 |
|
|
|
1,468 |
|
Available-for-sale financial assets, noncurrent |
|
|
2, 3, 10, 15 |
|
|
|
52,311,172 |
|
|
|
50,911,643 |
|
|
|
1,569,893 |
|
Financial assets measured at cost, noncurrent |
|
|
2, 3, 11, 15 |
|
|
|
7,515,945 |
|
|
|
8,295,679 |
|
|
|
255,803 |
|
Long-term investments accounted for under the equity method |
|
|
2, 3, 12, 15 |
|
|
|
11,662,599 |
|
|
|
9,909,595 |
|
|
|
305,569 |
|
Prepayment for long-term investments |
|
|
|
|
|
|
|
|
|
|
648,360 |
|
|
|
19,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total funds and investments |
|
|
|
|
|
|
71,964,454 |
|
|
|
69,812,875 |
|
|
|
2,152,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
2, 3, 13, 29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
|
|
|
|
|
|
1,879,442 |
|
|
|
1,922,230 |
|
|
|
59,273 |
|
Buildings |
|
|
|
|
|
|
21,076,844 |
|
|
|
22,529,856 |
|
|
|
694,723 |
|
Machinery and equipment |
|
|
|
|
|
|
415,225,873 |
|
|
|
446,198,339 |
|
|
|
13,758,814 |
|
Transportation equipment |
|
|
|
|
|
|
90,706 |
|
|
|
85,877 |
|
|
|
2,648 |
|
Furniture and fixtures |
|
|
|
|
|
|
2,964,369 |
|
|
|
3,429,067 |
|
|
|
105,737 |
|
Leasehold improvements |
|
|
|
|
|
|
42,968 |
|
|
|
42,809 |
|
|
|
1,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost |
|
|
|
|
|
|
441,280,202 |
|
|
|
474,208,178 |
|
|
|
14,622,515 |
|
Less : Accumulated depreciation |
|
|
|
|
|
|
(311,696,923 |
) |
|
|
(346,920,945 |
) |
|
|
(10,697,531 |
) |
Add : Construction in progress and prepayments |
|
|
|
|
|
|
22,244,850 |
|
|
|
9,931,551 |
|
|
|
306,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
|
|
|
|
151,828,129 |
|
|
|
137,218,784 |
|
|
|
4,231,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
2,3 |
|
|
|
3,498,687 |
|
|
|
3,498,687 |
|
|
|
107,884 |
|
Deferred charges |
|
|
2 |
|
|
|
1,502,394 |
|
|
|
1,435,126 |
|
|
|
44,253 |
|
Deferred income tax assets, noncurrent |
|
|
2,25 |
|
|
|
4,184,091 |
|
|
|
4,268,053 |
|
|
|
131,608 |
|
Other assets others |
|
|
2, 14, 15, 28 |
|
|
|
2,332,154 |
|
|
|
2,213,497 |
|
|
|
68,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
367,653,461 |
|
|
|
299,558,289 |
|
|
|
9,237,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term loans |
|
|
16 |
|
|
|
342,549 |
|
|
|
359,071 |
|
|
|
11,072 |
|
Financial liabilities at fair value through profit or loss, current |
|
|
2, 3, 17 |
|
|
|
985,267 |
|
|
|
340,230 |
|
|
|
10,491 |
|
Accounts payable |
|
|
|
|
|
|
4,864,771 |
|
|
|
5,687,627 |
|
|
|
175,382 |
|
Income tax payable |
|
|
2 |
|
|
|
2,071,394 |
|
|
|
1,092,129 |
|
|
|
33,677 |
|
Accrued expenses |
|
|
|
|
|
|
7,025,328 |
|
|
|
8,214,951 |
|
|
|
253,313 |
|
Other payables |
|
|
|
|
|
|
77,319 |
|
|
|
23,538 |
|
|
|
726 |
|
Payable on equipment |
|
|
|
|
|
|
10,130,367 |
|
|
|
6,036,274 |
|
|
|
186,132 |
|
Current portion of long-term liabilities |
|
|
2, 18 |
|
|
|
9,068,283 |
|
|
|
22,889,476 |
|
|
|
705,812 |
|
Deferred income tax liabilities, current |
|
|
2, 25 |
|
|
|
62 |
|
|
|
18 |
|
|
|
1 |
|
Other current liabilities |
|
|
29 |
|
|
|
1,538,450 |
|
|
|
645,143 |
|
|
|
19,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
36,103,790 |
|
|
|
45,288,457 |
|
|
|
1,396,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds payable |
|
|
2, 18 |
|
|
|
30,383,076 |
|
|
|
7,495,304 |
|
|
|
231,123 |
|
Accrued pension liabilities |
|
|
2, 19 |
|
|
|
3,115,420 |
|
|
|
3,171,562 |
|
|
|
97,797 |
|
Deposits-in |
|
|
|
|
|
|
12,282 |
|
|
|
14,415 |
|
|
|
444 |
|
Deferred income tax liabilities, noncurrent |
|
|
2, 25 |
|
|
|
52,585 |
|
|
|
47,548 |
|
|
|
1,466 |
|
Deferred credits intercompany profits |
|
|
2 |
|
|
|
13,245 |
|
|
|
9,666 |
|
|
|
298 |
|
Other liabilities others |
|
|
|
|
|
|
570,174 |
|
|
|
533,638 |
|
|
|
16,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
|
|
|
|
34,146,782 |
|
|
|
11,272,133 |
|
|
|
347,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
70,250,572 |
|
|
|
56,560,590 |
|
|
|
1,744,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests |
|
|
|
|
|
|
6,238,018 |
|
|
|
6,530,810 |
|
|
|
201,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Stock |
|
|
2, 20, 21, 23 |
|
|
|
191,323,332 |
|
|
|
132,144,949 |
|
|
|
4,074,775 |
|
Additional Paid-in Capital |
|
|
2, 20 |
|
|
|
67,707,287 |
|
|
|
66,126,806 |
|
|
|
2,039,063 |
|
Retained earnings |
|
|
20, 23 |
|
|
|
34,795,993 |
|
|
|
31,651,091 |
|
|
|
975,982 |
|
Cumulative translation adjustment |
|
|
|
|
|
|
(824,922 |
) |
|
|
(866,562 |
) |
|
|
(26,722 |
) |
Unrealized gain or loss on financial instruments |
|
|
|
|
|
|
27,557,845 |
|
|
|
22,413,852 |
|
|
|
691,146 |
|
Treasury stock |
|
|
2, 12, 20, 22 |
|
|
|
(29,394,664 |
) |
|
|
(15,003,247 |
) |
|
|
(462,635 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
|
|
|
|
291,164,871 |
|
|
|
236,466,889 |
|
|
|
7,291,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
|
|
|
|
|
367,653,461 |
|
|
|
299,558,289 |
|
|
|
9,237,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
F-3
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Expressed in Thousands, Except for Earnings per Share )
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,R:32.43 |
|
|
Notes |
|
2005 |
|
2006 |
|
2007 |
|
|
|
|
NT$ |
|
NT$ |
|
NT$ |
|
US$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating revenues |
|
|
2,27 |
|
|
|
100,315,982 |
|
|
|
112,003,819 |
|
|
|
113,311,298 |
|
|
|
3,494,027 |
|
Cost of goods sold |
|
|
2,24 |
|
|
|
(90,643,320 |
) |
|
|
(90,638,293 |
) |
|
|
(89,768,276 |
) |
|
|
(2,768,063 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
9,672,662 |
|
|
|
21,365,526 |
|
|
|
23,543,022 |
|
|
|
725,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
24,27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses |
|
|
|
|
|
|
(3,738,469 |
) |
|
|
(3,365,678 |
) |
|
|
(4,068,984 |
) |
|
|
(125,470 |
) |
General and administrative expenses |
|
|
|
|
|
|
(4,387,406 |
) |
|
|
(3,422,340 |
) |
|
|
(3,723,916 |
) |
|
|
(114,829 |
) |
Research and development expenses |
|
|
|
|
|
|
(9,633,607 |
) |
|
|
(9,418,877 |
) |
|
|
(9,631,227 |
) |
|
|
(296,985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,759,482 |
) |
|
|
(16,206,895 |
) |
|
|
(17,424,127 |
) |
|
|
(537,284 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
(8,086,820 |
) |
|
|
5,158,631 |
|
|
|
6,118,895 |
|
|
|
188,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest revenue |
|
|
|
|
|
|
1,055,138 |
|
|
|
1,562,704 |
|
|
|
1,330,418 |
|
|
|
41,024 |
|
Investment gain accounted for under the equity method, net |
|
|
2,12 |
|
|
|
1,096,985 |
|
|
|
1,178,103 |
|
|
|
625,752 |
|
|
|
19,296 |
|
Dividend income |
|
|
|
|
|
|
1,051,813 |
|
|
|
950,546 |
|
|
|
2,171,720 |
|
|
|
66,967 |
|
Gain on disposal of property, plant and equipment |
|
|
2 |
|
|
|
177,397 |
|
|
|
331,767 |
|
|
|
669,076 |
|
|
|
20,631 |
|
Gain on disposal of investments |
|
|
2 |
|
|
|
10,276,618 |
|
|
|
28,651,109 |
|
|
|
12,040,872 |
|
|
|
371,288 |
|
Exchange gain, net |
|
|
2 |
|
|
|
295,179 |
|
|
|
316,006 |
|
|
|
137,414 |
|
|
|
4,237 |
|
Gain on recovery of market value of inventories |
|
|
2 |
|
|
|
837,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on valuation of financial assets |
|
|
2 |
|
|
|
58,853 |
|
|
|
750,378 |
|
|
|
|
|
|
|
|
|
Gain on valuation of financial liabilities |
|
|
2 |
|
|
|
|
|
|
|
306,140 |
|
|
|
20,633 |
|
|
|
636 |
|
Other income |
|
|
|
|
|
|
1,038,821 |
|
|
|
862,750 |
|
|
|
933,808 |
|
|
|
28,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,888,119 |
|
|
|
34,909,503 |
|
|
|
17,929,693 |
|
|
|
552,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
13 |
|
|
|
(1,098,854 |
) |
|
|
(648,408 |
) |
|
|
(181,262 |
) |
|
|
(5,589 |
) |
Loss on disposal of property, plant and equipment |
|
|
2 |
|
|
|
(218,525 |
) |
|
|
(107,962 |
) |
|
|
(124,071 |
) |
|
|
(3,826 |
) |
Loss on decline in market value and obsolescence of inventories |
|
|
2 |
|
|
|
|
|
|
|
(1,089,490 |
) |
|
|
(372,359 |
) |
|
|
(11,482 |
) |
Financial expenses |
|
|
|
|
|
|
(268,985 |
) |
|
|
(230,757 |
) |
|
|
(137,134 |
) |
|
|
(4,229 |
) |
Impairment loss |
|
|
2, 3, 15 |
|
|
|
(460,542 |
) |
|
|
(1,330,293 |
) |
|
|
(575,784 |
) |
|
|
(17,755 |
) |
Loss on valuation of financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,788,343 |
) |
|
|
(85,980 |
) |
Other losses |
|
|
2 |
|
|
|
(148,606 |
) |
|
|
(73,799 |
) |
|
|
(199,292 |
) |
|
|
(6,145 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,195,512 |
) |
|
|
(3,480,709 |
) |
|
|
(4,378,245 |
) |
|
|
(135,006 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax and minority interests |
|
|
|
|
|
|
5,605,787 |
|
|
|
36,587,425 |
|
|
|
19,670,343 |
|
|
|
606,548 |
|
Income tax expense |
|
|
2,25 |
|
|
|
(67,052 |
) |
|
|
(3,261,622 |
) |
|
|
(2,809,874 |
) |
|
|
(86,644 |
) |
Cumulative effect of changes in accounting principles |
|
|
3 |
|
|
|
(112,898 |
) |
|
|
(1,188,515 |
) |
|
|
|
|
|
|
|
|
Minority interests loss |
|
|
|
|
|
|
1,600,855 |
|
|
|
482,025 |
|
|
|
101,293 |
|
|
|
3,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
7,026,692 |
|
|
|
32,619,313 |
|
|
|
16,961,762 |
|
|
|
523,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share-basic (in dollars) |
|
|
2,26 |
|
|
|
0.38 |
|
|
|
1.81 |
|
|
|
1.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share calculation basic |
|
|
|
|
|
|
18,647,462 |
|
|
|
18,050,962 |
|
|
|
15,618,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share-diluted (in dollars) |
|
|
2,26 |
|
|
|
0.37 |
|
|
|
1.75 |
|
|
|
1.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share calculation diluted |
|
|
|
|
|
|
18,933,611 |
|
|
|
18,675,467 |
|
|
|
16,072,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-4
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Expressed in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
|
|
|
Retained Earnings |
|
Gain/Loss on |
|
Cumulative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collected in |
|
Additional |
|
|
|
|
|
Special |
|
Unappropriated |
|
Financial |
|
Translation |
|
Treasury |
|
Minority |
|
|
|
|
Common Stock |
|
Shares |
|
Advance |
|
paid-in capital |
|
Legal Reserve |
|
Reserve |
|
Earnings |
|
Instruments |
|
Adjustment |
|
Stock |
|
Interests |
|
Total |
|
|
NT$ |
|
|
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
Balance as of
January 1, 2005 |
|
|
177,919,819 |
|
|
|
17,791,982 |
|
|
|
4,040 |
|
|
|
84,933,195 |
|
|
|
12,812,501 |
|
|
|
90,871 |
|
|
|
29,498,329 |
|
|
|
(424,713 |
) |
|
|
(1,319,452 |
) |
|
|
(37,140,714 |
) |
|
|
8,728,877 |
|
|
|
275,102,753 |
|
Appropriation of
2004 retained
earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,184,338 |
|
|
|
|
|
|
|
(3,184,338 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,653,300 |
|
|
|
(1,653,300 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,758,736 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,758,736 |
) |
Stock dividends |
|
|
17,587,364 |
|
|
|
1,758,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,587,364 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remuneration
to directors
and
supervisors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,006 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,006 |
) |
Employee bonus
- stock |
|
|
1,972,855 |
|
|
|
197,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,972,855 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of
treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,378,692 |
) |
|
|
|
|
|
|
(16,378,692 |
) |
Cancellation of
treasury stock |
|
|
(491,140 |
) |
|
|
(49,114 |
) |
|
|
|
|
|
|
(177,419 |
) |
|
|
|
|
|
|
|
|
|
|
(1,509,640 |
) |
|
|
|
|
|
|
|
|
|
|
2,178,199 |
|
|
|
|
|
|
|
|
|
Net income in 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,026,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,600,855 |
) |
|
|
5,425,837 |
|
Adjustment of
additional paid-in
capital accounted
for under the
equity method |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,491 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,491 |
) |
Changes in
unrealized gain on
financial
instruments of
investees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
343,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
343,724 |
|
Exercise of
employee stock
options |
|
|
954,095 |
|
|
|
95,409 |
|
|
|
36,600 |
|
|
|
654,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,645,009 |
|
Common stock
transferred from
capital collected
in advance |
|
|
4,040 |
|
|
|
404 |
|
|
|
(4,040 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in
cumulative
translation
adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,078,299 |
|
|
|
|
|
|
|
|
|
|
|
1,078,299 |
|
Changes in minority
interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,878 |
|
|
|
(791,337 |
) |
|
|
(782,459 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
December 31, 2005 |
|
|
197,947,033 |
|
|
|
19,794,703 |
|
|
|
36,600 |
|
|
|
85,381,599 |
|
|
|
15,996,839 |
|
|
|
1,744,171 |
|
|
|
8,831,782 |
|
|
|
(80,989 |
) |
|
|
(241,153 |
) |
|
|
(51,332,329 |
) |
|
|
6,336,685 |
|
|
|
264,620,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in NT$) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-5
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Expressed in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Capital |
|
Additional |
|
Retained Earnings |
|
Gain/Loss on |
|
Cumulative |
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
Collected |
|
Paid-in |
|
Legal |
|
Special |
|
Unappropriated |
|
Financial |
|
Translation |
|
Treasury |
|
Minority |
|
|
|
|
Stock |
|
Shares |
|
in Advance |
|
Capital |
|
Reserve |
|
Reserve |
|
Earnings |
|
Instruments |
|
Adjustment |
|
Stock |
|
Interests |
|
Total |
|
|
NT$ |
|
|
|
|
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
Balance as of January 1, 2006 |
|
|
197,947,033 |
|
|
|
19,794,703 |
|
|
|
36,600 |
|
|
|
85,381,599 |
|
|
|
15,996,839 |
|
|
|
1,744,171 |
|
|
|
8,831,782 |
|
|
|
(80,989 |
) |
|
|
(241,153 |
) |
|
|
(51,332,329 |
) |
|
|
6,336,685 |
|
|
|
264,620,238 |
|
The effect of adopting SFAS NO. 34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,097,170 |
|
|
|
11,547 |
|
|
|
|
|
|
|
|
|
|
|
24,108,717 |
|
Appropriation of 2005 retained earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
702,669 |
|
|
|
|
|
|
|
(702,669 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,422,021 |
) |
|
|
1,422,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,161,267 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,161,267 |
) |
Stock dividends |
|
|
895,158 |
|
|
|
89,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(895,158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remuneration to directors and supervisors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,324 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,324 |
) |
Employee bonus cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(305,636 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(305,636 |
) |
Employee bonus stock |
|
|
458,455 |
|
|
|
45,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(458,455 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital reserve transferred to common stock |
|
|
895,158 |
|
|
|
89,516 |
|
|
|
|
|
|
|
(895,158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,286,339 |
) |
|
|
|
|
|
|
(27,286,339 |
) |
Cancellation of treasury stock |
|
|
(10,000,000 |
) |
|
|
(1,000,000 |
) |
|
|
|
|
|
|
(3,269,100 |
) |
|
|
|
|
|
|
|
|
|
|
(6,371,128 |
) |
|
|
|
|
|
|
|
|
|
|
19,640,228 |
|
|
|
|
|
|
|
|
|
Adjustment of treasury stock due to loss of
control over subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57,972 |
) |
|
|
|
|
|
|
|
|
|
|
(9,198,144 |
) |
|
|
(6,826,238 |
) |
|
|
|
|
|
|
29,583,776 |
|
|
|
|
|
|
|
13,501,422 |
|
Net income in 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,619,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(482,025 |
) |
|
|
32,137,288 |
|
Adjustment of additional paid-in capital
accounted for under the equity method |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,686 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,686 |
) |
Adjustment of funds and investments disposal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,091,043 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,170 |
|
|
|
|
|
|
|
|
|
|
|
(14,082,873 |
) |
Cash dividends allocated to subsidaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,910 |
|
Changes in unrealized gain on
available-for-sale financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,066,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,066,672 |
|
Changes in unrealized gain on financial
instruments of investees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,301,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,301,230 |
|
Exercise of employee stock options |
|
|
1,079,523 |
|
|
|
107,952 |
|
|
|
11,405 |
|
|
|
634,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,725,665 |
|
Common stock transferred from capital
collected in advance |
|
|
36,600 |
|
|
|
3,660 |
|
|
|
(36,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in cumulative translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(603,486 |
) |
|
|
|
|
|
|
|
|
|
|
(603,486 |
) |
Changes in minority interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
383,358 |
|
|
|
383,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006 (in NT$) |
|
|
191,311,927 |
|
|
|
19,131,193 |
|
|
|
11,405 |
|
|
|
67,707,287 |
|
|
|
16,699,508 |
|
|
|
322,150 |
|
|
|
17,774,335 |
|
|
|
27,557,845 |
|
|
|
(824,922 |
) |
|
|
(29,394,664 |
) |
|
|
6,238,018 |
|
|
|
297,402,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-6
UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Expressed in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
Capital |
|
Additional |
|
Retained Earnings |
|
Gain/Loss on |
|
Cumulative |
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
Collected |
|
Paid-in |
|
Legal |
|
Special |
|
Unappropriated |
|
Financial |
|
Translation |
|
Treasury |
|
Minority |
|
|
|
|
Stock |
|
Shares | |
in Advance |
|
Capital |
|
Reserve |
|
Reserve |
|
Earnings |
|
Instruments |
|
Adjustment |
|
Stock |
|
Interests |
|
Total |
|
|
NT$ |
|
|
|
|
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2007 |
|
|
191,311,927 |
|
|
|
19,131,193 |
|
|
|
11,405 |
|
|
|
67,707,287 |
|
|
|
16,699,508 |
|
|
|
322,150 |
|
|
|
17,774,335 |
|
|
|
27,557,845 |
|
|
|
(824,922 |
) |
|
|
(29,394,664 |
) |
|
|
6,238,018 |
|
|
|
297,402,889 |
|
Appropriation of 2006 retained
earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,777,434 |
|
|
|
|
|
|
|