Form 6-K

1934 Act Registration No. 1-15128

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

THE SECURITIES EXCHANGE ACT OF 1934

Dated September 17, 2008

 

 

United Microelectronics Corporation

(Translation of Registrant’s Name into English)

 

 

No. 3 Li Hsin Road II

Science Park

Hsinchu, Taiwan, R.O.C.

(Address of Principal Executive Office)

 

 

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

Form 20-F      V            Form 40-F              

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

Yes                      No      V    

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

 

 

 


LOGO    www.umc.com

 

SIGNATURE

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

 

    United Microelectronics Corporation
Date: 9/17/2008     By  

/s/ Chitung Liu

      Chitung Liu
      Chief Financial Officer


LOGO    www.umc.com

 

Exhibit

 

Exhibit

 

Description

99.1

  United Microelectronics Corporation (and Subsidiaries) Financial Statements With Report of Independent Auditors for the Six-Month Periods Ended June, 30, 2008 And 2007


Exhibit 99.1

 

LOGO    www.umc.com

United Microelectronics Corporation (and Subsidiaries) Financial Statements With Report of Independent Auditors for the Six-Month Periods Ended June 30, 2008 And 2007


UNITED MICROELECTRONICS CORPORATION

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

WITH REPORT OF INDEPENDENT AUDITORS

FOR THE SIX-MONTH PERIODS ENDED

JUNE 30, 2008 AND 2007

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

Telephone: 886-3-578-2258

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


REPORT OF INDEPENDENT AUDITORS

English Translation of a Report Originally Issued in Chinese

To United Microelectronics Corporation

We have audited the accompanying consolidated balance sheets of United Microelectronics Corporation and subsidiaries (the “Company”) as of June 30, 2008 and 2007, the related consolidated statements of income, changes in stockholders’ equity, and cash flows for the six-month periods ended June 30, 2008 and 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. As described in Note 4(9) to the consolidated financial statements, certain long-term investments were accounted for under the equity method based on the June 30, 2008 and 2007 financial statements of the investees, which were audited by other auditors. Our audits insofar as it relates to the investment income (loss) amounted to NT$(25) million and NT$463 million for the six-month periods ended June 30, 2008 and 2007, respectively, and the related long-term investment balances of NT$4,616 million and NT$7,219 million as of June 30, 2008 and 2007, respectively, are based solely on the reports of other auditors.

We conducted our audits in accordance with auditing standards generally accepted in the Republic of China and “Guidelines for Certified Public Accountants’ Examination and Reports on Financial Statements”, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Microelectronics Corporation and subsidiaries as of June 30, 2008 and 2007, and the results of their consolidated operations and their consolidated cash flows for the six-month periods ended June 30, 2008 and 2007, in conformity with requirements of the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, and accounting principles generally accepted in the Republic of China.

As described in Note 3 to the consolidated financial statements, effective from January 1, 2008, the Company adopted Accounting Research and Development Foundation Interpretation No. 96-052, and recognized share-based employee bonuses and remunerations to directors and supervisors as expenses rather than as a distribution of retained earnings.

July 22, 2008

Taipei, Taiwan

Republic of China

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China.

 

1


English Translation of Consolidated Financial Statements Originally Issued in Chinese

UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

June 30, 2008 and 2007

(Expressed in Thousands of New Taiwan Dollars)

 

          As of June 30,  
    

Notes

   2008     2007  
Assets        

Current assets

       

Cash and cash equivalents

   2, 4(1)    $ 36,496,163     $ 85,608,440  

Financial assets at fair value through profit or loss, current

   2, 4(2)      3,312,669       7,802,258  

Held-to-maturity financial assets, current

   2, 4(3)      —         200,000  

Notes receivable

   2      62,234       47,228  

Accounts receivable, net

   2, 4(4)      15,264,473       15,557,762  

Accounts receivable - related parties, net

   2, 5      368,390       221,622  

Other receivables

   2      808,948       601,463  

Inventories, net

   2, 4(5)      12,721,591       11,484,971  

Prepaid expenses

        846,156       1,197,494  

Deferred income tax assets, current

   2, 4(22)      1,139,303       2,161,102  
                   

Total current assets

        71,019,927       124,882,340  
                   

Funds and investments

       

Financial assets at fair value through profit or loss, noncurrent

   2, 4(6)      6,790       —    

Available-for-sale financial assets, noncurrent

   2, 4(7), 4(12)      33,350,304       60,571,122  

Financial assets measured at cost, noncurrent

   2, 4(8), 4(12)      8,490,466       7,882,650  

Long-term investments accounted for under the equity method

   2, 4(9)      8,157,631       11,782,254  

Prepayment for long-term investments

        270,000       247,712  
                   

Total funds and investments

        50,275,191       80,483,738  
                   

Property, plant and equipment

   2, 4(10), 4(12), 7     

Land

        2,029,131       1,857,774  

Buildings

        22,333,936       21,639,715  

Machinery and equipment

        448,390,261       431,657,331  

Transportation equipment

        83,795       85,883  

Furniture and fixtures

        3,447,158       3,067,345  

Leasehold improvements

        40,008       43,351  

Total cost

        476,324,289       458,351,399  

Less : Accumulated depreciation

        (362,897,041 )     (329,091,059 )

Add : Construction in progress and prepayments

        5,877,829       19,660,008  
                   

Property, plant and equipment, net

        119,305,077       148,920,348  
                   

Intangible assets

       

Goodwill

   2      3,498,687       3,498,687  

Other intangible assets

        305       —    
                   

Total intangible assets

        3,498,992       3,498,687  
                   

Other assets

       

Deferred charges

   2      1,252,195       1,429,880  

Deferred income tax assets, noncurrent

   2, 4(22)      3,703,563       3,442,669  

Other assets - others

   2, 4(11), 6      2,125,466       2,229,680  
                   

Total other assets

        7,081,224       7,102,229  
                   

Total assets

      $ 251,180,411     $ 364,887,342  
                   

 

        As of June 30,  
    

Notes

   2008     2007  
Liabilities and Stockholders’ Equity        

Current liabilities

       

Short-term loans

   4(13)    $ 686,517     $ 364,329  

Financial liabilities at fair value through profit or loss, current

   2, 4(14)      33,189       224,775  

Accounts payable

        5,248,886       5,767,183  

Income tax payable

   2      544,686       329,952  

Accrued expenses

   2, 3, 4(20)      7,984,656       7,020,820  

Cash dividends payable

   4(20)      9,382,799       12,461,529  

Payable on equipment

        2,130,260       4,277,063  

Other payables

   4(20)      308,993       2,344,717  

Current portion of long-term liabilities

   2, 4(15)      —         24,426,911  

Other current liabilities

        541,139       872,815  

Deferred income tax liabilities, current

   2, 4(22)      —         148  
                   

Total current liabilities

        26,861,125       58,090,242  
                   

Long-term liabilities

       

Financial liabilities at fair value through profit or loss, noncurrent

   2, 4(14)      42,606       198,451  

Bonds payable

   2, 4(15)      7,496,027       7,494,762  
                   

Total long-term liabilities

        7,538,633       7,693,213  
                   

Other liabilities

       

Accrued pension liabilities

   2, 4(16)      3,217,046       3,143,027  

Deposits-in

        11,912       11,018  

Deferred income tax liabilities, noncurrent

   2, 4(22)      13,728       24,526  

Other liabilities - others

   2      551,079       522,018  
                   

Total other liabilities

        3,793,765       3,700,589  
                   

Total liabilities

        38,193,523       69,484,044  
                   

Capital

   2, 4(17), 4(18), 4(20)     

Common stock

        132,144,949       191,442,517  

Stock dividends for distribution

        6,775,754       —    

Additional paid in capital

   2, 4(17)     

Premiums

        54,806,788       61,138,863  

Treasury stock transactions

        274       8,938  

Change in equities of long-term investments

        6,712,611       6,623,992  

Retained earnings

   4(17), 4(20)     

Legal reserve

        19,711,865       18,476,942  

Special reserve

        —         824,922  

Unappropriated earnings

        2,714,327       7,062,654  

Adjustment items in stockholders’ equity

   2, 4(7)     

Cumulative translation adjustment

        (5,048,103 )     (578,030 )

Unrealized gain or loss on financial instruments

        3,923,031       33,939,144  

Treasury stock

   2, 4(17), 4(19)      (15,003,247 )     (29,394,664 )
                   

Total stockholders’ equity of parent company

        206,738,249       289,545,278  
                   

Minority interests

        6,248,639       5,858,020  
                   

Total stockholders’ equity

        212,986,888       295,403,298  
                   

Total liabilities and stockholders’ equity

      $ 251,180,411     $ 364,887,342  
                   

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

 

2


English Translation of Consolidated Financial Statements Originally Issued in Chinese

UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the six-month periods ended June 30, 2008 and 2007

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

 

          For the six-month period ended June 30,  
    

Notes

   2008     2007  

Operating revenues

   2, 5     

Sales revenues

      $ 50,510,896     $ 49,976,272  

Less : Sales returns and discounts

        (199,663 )     (326,829 )
                   

Net Sales

        50,311,233       49,649,443  

Other operating revenues

        1,396,161       1,704,194  
                   

Net operating revenues

        51,707,394       51,353,637  
                   

Operating costs

   2, 3, 4(21)     

Cost of goods sold

        (41,295,298 )     (41,509,432 )

Other operating costs

        (661,628 )     (992,305 )
                   

Operating costs

        (41,956,926 )     (42,501,737 )
                   

Gross profit

        9,750,468       8,851,900  

Unrealized intercompany profit

   2      (81,280 )     (96,448 )

Realized intercompany profit

   2      85,543       105,892  
                   

Gross profit-net

        9,754,731       8,861,344  
                   

Operating expenses

   2, 3, 4(21)     

Sales and marketing expenses

        (1,693,071 )     (1,782,962 )

General and administrative expenses

        (1,756,615 )     (1,685,391 )

Research and development expenses

   2      (4,177,719 )     (4,705,534 )
                   

Subtotal

        (7,627,405 )     (8,173,887 )
                   

Operating income

        2,127,326       687,457  
                   

Non-operating income

       

Interest revenue

        378,066       767,355  

Investment gain accounted for under the equity method, net

   2, 4(9)      —         530,417  

Dividend income

        42,747       59,796  

Gain on disposal of property, plant and equipment

   2      54,446       119,545  

Gain on disposal of investments

   2      2,087,458       5,271,930  

Other income

        609,219       306,587  
                   

Subtotal

        3,171,936       7,055,630  
                   

Non-operating expenses

       

Interest expense

   2, 4(10)      (44,580 )     (90,327 )

Investment loss accounted for under the equity method, net

   2, 4(9)      (659,526 )     —    

Loss on disposal of property, plant and equipment

   2      (9,470 )     (84,214 )

Exchange loss, net

   2      (692,748 )     (19,433 )

Loss on decline in market value and obsolescense of inventories

   2      (178,901 )     (38,891 )

Financial expenses

        (63,586 )     (88,687 )

Impairment loss

   2, 4(12)      (194,693 )     (248,555 )

Loss on valuation of financial assets

   2      (718,836 )     (88,169 )

Loss on valuation of financial liabilities

   2, 4(14)      (55,341 )     (44,586 )

Other losses

        (73,883 )     (113,054 )
                   

Subtotal

        (2,691,564 )     (815,916 )
                   

Income from continuing operations before income tax

        2,607,698       6,927,171  

Income tax expense

   2, 4(22)      (242,818 )     (792,999 )
                   

Net income

      $ 2,364,880     $ 6,134,172  
                   

Attributable to:

       

Shareholders of the parent

      $ 2,603,210     $ 6,369,668  

Minority interests

        (238,330 )     (235,496 )
                   

Net income

      $ 2,364,880     $ 6,134,172  
                   

 

          Pre-tax    Post-tax    Pre-tax    Post-tax

Earnings per share-basic (NTD)

   2, 4(23)            

Net income attributable to shareholders of the parent

      $ 0.23    $ 0.21    $ 0.40    $ 0.36
                              

Earnings per share-diluted (NTD)

   2, 4(23)            

Net income attributable to shareholders of the parent

      $ 0.21    $ 0.20    $ 0.39    $ 0.35
                              

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

 

3


English Translation of Consolidated Financial Statements Originally Issued in Chinese

UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the six-month periods ended June 30, 2008 and 2007

(Expressed in Thousands of New Taiwan Dollars)

 

        Capital           Retained Earnings     Unrealized
Gain/Loss

on
Financial
Instruments
    Cumulative
Translation
Adjustment
    Treasury
Stock
             
   

Notes

  Common
Stock
  Stock
Dividends

for
Distribution
  Collected in
Advance
    Additional
Paid-in
Capital
    Legal
Reserve
  Special
Reserve
    Unappropriated
Earnings
          Minority
Interests
    Total  

Balance as of January 1, 2007

  4(17)   $ 191,311,927   $ —     $ 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

  4(20)                        

Legal reserve

      —       —       —         —         1,777,434     —         (1,777,434)       —         —         —         —         —    

Special reserve

      —       —       —         —         —       502,772       (502,772)       —         —         —         —         —    

Cash dividends

      —       —       —         —         —       —         (12,461,529 )     —         —         —         —         (12,461,529 )

Remuneration to directors and supervisors

      —       —       —         —         —       —         (15,494 )     —         —         —         —         (15,494 )

Employee bonus - cash

      —       —       —         —         —       —         (2,324,120 )     —         —         —         —         (2,324,120 )

Net income in the first half of 2007

      —       —       —         —         —       —         6,369,668       —         —         —         (235,496 )     6,134,172  

Adjustment of additional paid-in capital accounted for under the equity method

  2     —       —       —         1,713       —       —         —         —         —         —         —         1,713  

Adjustment of funds and investments disposal

  2     —       —       —         (5,515 )     —       —         —         —         —         —         —         (5,515 )

Changes in unrealized gain on available-for-sale financial assets

  2, 4(7)     —       —       —         —         —       —         —         5,273,095       —         —         —         5,273,095  

Changes in unrealized gain on financial instruments of investees

  2     —       —       —         —         —       —         —         1,108,204       —         —         —         1,108,204  

Exercise of employee stock options

  2, 4(17), 4(18)     119,185     —       —         68,308       —       —         —         —         —         —         —         187,493  

Common stock transferred from capital collected in advance

      11,405     —       (11,405 )     —         —       —         —         —         —         —         —         —    

Changes in cumulative translation adjustment

  2     —       —       —         —         —       —         —         —         246,892       —         —         246,892  

Changes in minority interests

      —       —       —         —         —       —         —         —         —         —         (144,502 )     (144,502 )
                                                                                           

Balance as of June 30, 2007

  4(17)   $ 191,442,517   $ —     $ —       $ 67,771,793     $ 18,476,942   $ 824,922     $ 7,062,654     $ 33,939,144     $ (578,030 )   $ (29,394,664 )   $ 5,858,020     $ 295,403,298  
                                                                                           

Balance as of January 1, 2008

  4(17)   $ 132,144,949   $ —     $ —       $ 66,126,806     $ 18,476,942   $ 824,922     $ 12,349,227     $ 22,413,852     $ (866,562 )   $ (15,003,247 )   $ 6,530,810     $ 242,997,699  

Appropriation of 2007 retained earnings

  4(17), 4(20)                        

Legal reserve

      —       —       —         —         1,234,923     —         (1,234,923 )     —         —         —         —         —    

Special reserve

      —       —       —         —         —       (824,922 )     824,922       —         —         —         —         —    

Cash dividends

      —       —       —         —         —       —         (9,382,647 )     —         —         —         —         (9,382,647 )

Stock dividends

      —       1,000,816     —         —         —       —         (1,000,816 )     —         —         —         —         —    

Remuneration to directors and supervisors

      —       —       —         —         —       —         (11,939 )     —         —         —         —         (11,939 )

Employee bonus - cash

      —       —       —         —         —       —         (286,541 )     —         —         —         —         (286,541 )

Employee bonus - stock

      —       1,146,166     —         —         —       —         (1,146,166 )     —         —         —         —         —    

Additional paid - in capital transferred to common stock

  4(17)     —       4,628,772     —         (4,628,772 )     —       —         —         —         —         —         —         —    

Net income in the first half of 2007

      —       —       —         —         —       —         2,603,210       —         —         —         (238,330 )     2,364,880  

Adjustment of additional paid-in capital accounted for under the equity method

  2     —       —       —         12,212       —       —         —         —         —         —         —         12,212  

Adjustment of funds and investments disposal

  2     —       —       —         9,427       —       —         —         —         —         —         —         9,427  

Changes in unrealized gain on available-for-sale financial assets

  2, 4(7)     —       —       —         —         —       —         —         (13,608,153 )     —         —         —         (13,608,153 )

Changes in unrealized gain on financial instruments of investees

  2     —       —       —         —         —       —         —         (4,882,668 )     —         —         —         (4,882,668 )

Changes in cumulative translation adjustment

  2     —       —       —         —         —       —         —         —         (4,181,541 )     —         —         (4,181,541 )

Changes in minority interests

      —       —       —         —         —       —         —         —         —         —         (43,841 )     (43,841 )
                                                                                           

Balance as of June 30, 2008

  4(17)   $ 132,144,949   $ 6,775,754   $ —       $ 61,519,673     $ 19,711,865   $ —       $ 2,714,327     $ 3,923,031     $ (5,048,103 )   $ (15,003,247 )   $ 6,248,639     $ 212,986,888  
                                                                                           

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

 

4


English Translation of Consolidated Financial Statements Originally Issued in Chinese

UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six-month periods ended June 30, 2008 and 2007

(Expressed in Thousands of New Taiwan Dollars)

 

     For the six-month period ended June 30,  
     2008     2007  

Cash flows from operating activities:

    

Net income attributable to shareholders of the parent

   $ 2,603,210     $ 6,369,668  

Net loss attributable to minority interests

     (238,330 )     (235,496 )

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

    

Depreciation

     18,906,807       18,559,324  

Amortization

     664,664       648,598  

Bad debt expenses (reversal)

     3,159       (1,409 )

Loss on decline in market value and obsolescence of inventories

     178,901       38,891  

Cash dividends received under the equity method

     134,924       353,592  

Investment loss (gain) accounted for under the equity method

     659,526       (530,417 )

Loss on valuation of financial assets and liabilities

     774,177       132,755  

Impairment loss

     194,693       248,555  

Gain on disposal of investments

     (2,087,458 )     (5,271,930 )

Gain on disposal of property, plant and equipment

     (44,976 )     (35,331 )

Gain on reacquisition of bonds

     —         (6,112 )

Amortization of bond discounts

     6,747       34,725  

Exchange loss (gain) on financial assets and liabilities

     (34,023 )     12,554  

Exchange loss (gain) on long-term liabilities

     (178,877 )     283,791  

Amortization of deferred income

     (79,263 )     (71,874 )

Changes in assets and liabilities:

    

Financial assets and liabilities at fair value through profit or loss

     508,204       475,612  

Notes and accounts receivable

     (969,652 )     (1,427,707 )

Other receivables

     168,368       246,744  

Inventories

     (1,234,033 )     (654,002 )

Prepaid expenses

     (245,676 )     (428,482 )

Deferred income tax assets

     (267,007 )     476,033  

Other current assets

     —         (9,807 )

Accounts payable

     126,750       (23,056 )

Income tax payable

     (64,079 )     (10,465 )

Accrued expenses

     (732,725 )     (680,904 )

Other current liabilities

     95,342       (65,813 )

Accrued pension liabilities

     29,906       30,149  

Capacity deposits

     (4,446 )     (714,685 )

Other liabilities - others

     119,233       (11,655 )
                

Net cash provided by operating activities

     18,994,066       17,731,846  
                

Cash flows from investing activities:

    

Acquisition of available-for-sale financial assets

     (683,740 )     (3,233,873 )

Proceeds from disposal of available-for-sale financial assets

     2,534,105       2,996,582  

Acquisition of financial assets measured at cost

     (470,262 )     (496,143 )

Proceeds from disposal of financial assets measured at cost

     108,139       139,338  

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

     (88,562 )     (438,042 )

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

     825       676,095  

Proceeds from maturities of held-to-maturity financial assets

     —         908,200  

Prepayment for long-term investments

     (270,000 )     (247,712 )

Proceeds from capital reduction and liquidation of long-term investments

     69,027       60,800  

Acquisition of property, plant and equipment

     (8,238,821 )     (21,590,411 )

Proceeds from disposal of property, plant and equipment

     100,981       350,872  

Deferred charges

     (496,859 )     (618,191 )

Other assets-others

     11,401       (5,091 )
                

Net cash used in investing activities

     (7,423,766 )     (21,497,576 )
                

 

5


English Translation of Consolidated Financial Statements Originally Issued in Chinese

UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six-month periods ended June 30, 2008 and 2007

(Expressed in Thousands of New Taiwan Dollars)

 

     For the six-month period ended June 30,  
     2008     2007  

(continued)

    

Cash flows from financing activities:

    

Increase in short-term loans

   $ 350,013     $ 20,000  

Redemption of bonds

     (22,716,624 )     (3,701,837 )

Reacquisition of bonds

     —         (753,384 )

Decrease in deposits-in

     (2,460 )     (1,269 )

Exercise of employee stock options

     —         187,493  

Increase in minority shareholders

     —         2,202  
                

Net cash used in financing activities

     (22,369,071 )     (4,246,795 )
                

Effect of exchange rate changes on cash and cash equivalents

     (383,213 )     (232,243 )
                

Decrease in cash and cash equivalents

     (11,181,984 )     (8,244,768 )

Cash and cash equivalents at beginning of period

     47,678,147       93,853,208  
                

Cash and cash equivalents at end of period

   $ 36,496,163     $ 85,608,440  
                

Supplemental disclosures of cash flow information:

    

Cash paid for interest

   $ 393,137     $ 512,535  
                

Cash paid for income tax

   $ 935,186     $ 2,018,344  
                

Investing activities partially paid by cash:

    

Acquisition of property, plant and equipment

   $ 4,332,807     $ 15,737,107  

Add: Payable at beginning of period

     6,036,274       10,130,367  

Less: Payable at end of period

     (2,130,260 )     (4,277,063 )
                

Cash paid for acquiring property, plant and equipment

   $ 8,238,821     $ 21,590,411  
                

Investing and financing activities not affecting cash flows:

    

Principal amount of exchangeable bonds exchanged by bondholders

   $ —       $ 3,285,254  

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

     —         (895,055 )

Elimination of related balance sheet accounts

     —         392,118  
                

Recognition of gain on disposal of available-for-sale financial assets

   $ —       $ 2,782,317  
                

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

 

6


UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2008 and 2007

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

 

1. HISTORY AND ORGANIZATION

United Microelectronics Corporation (UMC) was incorporated in May 1980 and commenced operations in April 1982. UMC is a full service semiconductor wafer foundry, and provides a variety of services to satisfy customer needs. UMC’s common shares were publicly listed on the Taiwan Stock Exchange (TSE) in July 1985 and its American Depositary Shares (ADSs) were listed on the New York Stock Exchange (NYSE) in September 2000.

The numbers of employees as of June 30, 2008 and 2007 were 14,461 and 14,495, respectively.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements were prepared in conformity with requirements of the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China (R.O.C.).

Summary of significant accounting policies is as follows:

General Descriptions of Reporting Entities

 

  (1) Principles of Consolidation

Investees in which UMC, directly or indirectly, holds more than 50% of voting rights or de facto control with less than 50% of voting rights, are consolidated into UMC’s financial statements. (UMC and the consolidated entities are hereinafter referred to as the “Company”.)

Transactions between consolidated entities are eliminated in the consolidated financial statements. Prior to January 1, 2006, the difference between the acquisition cost and the net equity of a subsidiary as of the acquisition date was amortized over 5 years; however effective January 1, 2006, goodwill arising from new acquisitions is analyzed and accounted for under the ROC Statement of Financial Accounting Standard (SFAS) No. 25, “Business Combination – Accounting Treatment under Purchase Method”, and goodwill is not subject to amortization.

 

7


  (2) The consolidated entities are as follows:

As of June 30, 2008

 

Investor

  

Subsidiary

  

Business nature

   Percentage of
ownership (%)
UMC    UMC GROUP (USA)(UMC-USA)    IC Sales    100.00
UMC    UNITED MICROELECTRONICS (EUROPE) B.V (UME BV)    IC Sales    100.00
UMC    UMC CAPITAL CORP.    Investment holding    100.00
UMC    UNITED MICROELECTRONICS CORP. (SAMOA)    Investment holding    100.00
UMC    TLC CAPITAL CO., LTD. (TLC)    Consulting and planning for investment in new business    100.00
UMC    UMCI LTD. (UMCI)    Sales and manufacturing of integrated circuits    100.00
UMC    FORTUNE VENTURE CAPITAL CORP. (FORTUNE)    Consulting and planning for investment in new business    99.99
UMC    UNITED MICRODISPLAY OPTRONICS CORP. (UMO)    Sales and manufacturing of LCOS    85.24
UMC    UMC JAPAN (UMCJ)    Sales and manufacturing of integrated circuits    50.09
FORTUNE    UNITRUTH INVESTMENT CORP. (UNITRUTH)    Investment holding    100.00
UMC CAPITAL CORP.    UMC CAPITAL (USA)    Investment holding    100.00
UMC CAPITAL CORP.    ECP VITA LTD.    Insurance    100.00
UMO    UMO (HK) LIMITED    Investment holding    100.00
TLC    SOARING CAPITAL CORP.    Investment holding    100.00

 

8


As of June 30, 2007

 

Investor

  

Subsidiary

  

Business nature

   Percentage of
ownership (%)
UMC    UMC-USA    IC Sales    100.00
UMC    UME BV    IC Sales    100.00
UMC    UMC CAPITAL CORP.    Investment holding    100.00
UMC    UNITED MICROELECTRONICS CORP. (SAMOA)    Investment holding    100.00
UMC    TLC    Consulting and planning for investment in new business    100.00
UMC    UMCI    Sales and manufacturing of integrated circuits    100.00
UMC    FORTUNE    Consulting and planning for investment in new business    99.99
UMC    UMO    Sales and manufacturing of LCOS    85.24
UMC    UMCJ    Sales and manufacturing of integrated circuits    50.09
FORTUNE    UNITRUTH    Investment holding    100.00
UMC CAPITAL CORP.    UMC CAPITAL (USA)    Investment holding    100.00
UMC CAPITAL CORP.    ECP VITA LTD.    Insurance    100.00

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with generally accepted accounting principles requires management to make reasonable estimates and assumptions that will affect the amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. The actual results may differ from those estimates.

Foreign Currency Transactions

Transactions denominated in foreign currencies are remeasured into the local functional currencies and recorded based on the exchange rates prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are remeasured into the local functional currencies at the exchange rates prevailing at the balance sheet date, with the related exchange gains or losses included in the consolidated statements of income. Translation gains or losses from investments in foreign entities are recognized as a cumulative translation adjustment in stockholders’ equity.

 

9


Non-monetary assets and liabilities denominated in foreign currencies that are reported at fair value with changes in fair value charged to the consolidated statements of income, are remeasured at the exchange rate at the balance sheet date, with related exchange gains or losses recorded in the consolidated statements of income. Non-monetary assets and liabilities denominated in foreign currencies that are reported at fair value with changes in fair value charged to stockholders’ equity, are remeasured at the exchange rate at the balance sheet date, with related exchange gains or losses recorded as a cumulative adjustment items translation adjustment into consolidated stockholders’ equity. Non-monetary assets and liabilities denominated in foreign currencies and reported at cost are remeasured at historical exchange rates.

Translation of Foreign Currency Financial Statements

The financial statements of foreign subsidiaries and UMC’s Singapore branch (the Branch) are translated into New Taiwan Dollars using the spot rates at the balance sheet date for asset and liability accounts and average exchange rates for profit and loss accounts. The cumulative translation effects from the subsidiaries and the Branch using functional currencies other than New Taiwan Dollars are included in the cumulative translation adjustment in consolidated stockholders’ equity.

Cash Equivalents

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and with maturity dates that do not present significant risks on changes in value resulting from changes in interest rates, including commercial paper with original maturities of three months or less.

Financial assets and financial liabilities

In accordance with ROC Statement of Financial Accounting Standard (SFAS) No. 34, “Financial Instruments: Recognition and Measurement” and the “Guidelines Governing the Preparation of Financial Reports by Securities Issuers”, financial assets are classified as either financial assets at fair value through profit or loss, held-to-maturity financial assets, financial assets measured at cost, or available-for-sale financial assets. Financial liabilities are recorded at fair value through profit or loss.

The Company accounts for purchase or sale of financial instruments as of the trade date, which is the date the Company commits to purchase or sell the asset or liability. Financial assets and financial liabilities are initially recognized at fair value plus acquisition or issuance costs.

 

10


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

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

This category of financial instruments is measured at fair value and changes in fair value are recognized in the consolidated statements of income. Stock of listed companies, convertible bonds, and closed-end funds are measured at closing prices as of the balance sheet date. Open-end funds are measured at the unit price of the net assets as of the balance sheet date. The fair value of derivative financial instruments is determined by using valuation techniques commonly used by market participants in the industry.

 

  b. Held-to-maturity financial assets

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

The Company recognizes an impairment loss if objective evidence of impairment loss exists. However, the impairment loss may be reversed if the value of asset recovers subsequently and the Company concludes the recovery is related to improvements in events or factors that originally caused the impairment loss. The new cost basis as a result of the reversal cannot exceed the amortized cost prior to the impairment.

 

  c. Financial assets measured at cost

Unlisted stock, funds, and other securities without reliable market prices are measured at cost. When objective evidence of impairment exists, the Company recognizes an impairment loss, which cannot be reversed in subsequent periods.

 

  d. Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial instruments not classified as financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables. Subsequent measurement is calculated at fair value. Investments in listed companies are measured at closing prices as of the balance sheet date. Any gain or loss arising from the change in fair value, excluding impairment loss and exchange gain or loss arising from monetary financial assets denominated in foreign currencies, is recognized as an adjustment to consolidated stockholders’ equity until such investment is reclassified or disposed of, upon which the cumulative gain or loss previously charged to consolidated stockholders’ equity will be recorded in the consolidated statement of income.

 

11


The Company recognizes an impairment loss when objective evidence of impairment exists. Any reduction in the impairment loss of equity investments in subsequent periods will be recognized as an adjustment to consolidated stockholders’ equity. The impairment loss of a debt security may be reversed and recognized in the current period’s consolidated statement of income if the security recovers and the Company concludes the recovery is related to improvements in the factors or events that originally caused the impairment.

Allowance for Doubtful Accounts

An allowance for doubtful accounts is provided based on management’s judgment of the collectibility and aging analysis of accounts and other receivables.

Inventories

Inventories are accounted for on a perpetual basis. Raw materials are recorded at actual purchase costs, while the work in process and finished goods are recorded at standard costs and subsequently adjusted to actual costs using the weighted-average method at the end of each month. Inventories are stated individually by category at the lower of aggregate cost or market value as of the balance sheet date. The market values of raw materials and supplies are determined on the basis of replacement cost while the market values of work in process and finished goods are determined by net realizable values. An allowance for loss on decline in market value or obsolescence is provided, when necessary.

Long-term Investments Accounted for Under the Equity Method

Long-term investments are recorded at acquisition cost. Investments acquired by the contribution of technological know-how are credited to deferred credits among affiliates, which will be amortized over a period of 5 years.

Investments in which the Company has ownership of at least 20% or exercises significant influence on operating decisions are accounted for under the equity method. Prior to January 1, 2006, the difference of the acquisition cost and the underlying equity in the investee’s net assets as of acquisition date was amortized over 5 years; however, effective January 1, 2006, goodwill arising from new acquisitions is analyzed and accounted for under the ROC SFAS No. 25, “Business Combination – Accounting Treatment under Purchase Method”, where goodwill is not subject to amortization.

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

 

12


Unrealized intercompany gains and losses arising from sales from the Company to equity method investees are eliminated in proportion to the Company’s ownership percentage at the end of the period until realized through transactions with third parties. Intercompany gains and losses arising from transactions between the Company and majority-owned (above 50%) subsidiaries are eliminated entirely until realized through transactions with third parties.

Unrealized intercompany gains and losses due to sales from equity method investees to the Company are eliminated in proportion to the Company’s weighted-average ownership percentage of the investee until realized through transactions with third parties.

Unrealized intercompany gains and losses arising from transactions between two equity method investees are eliminated in proportion to the Company’s multiplied weighted-average ownership percentage with the investees until realized through transactions with third parties. Those intercompany gains and losses arising from transactions between two majority-owned subsidiaries are eliminated in proportion to the Company’s weighted-average ownership percentage in the subsidiary that incurred the gain or loss.

If the recoverable amount of investees accounted for under the equity method is less than its carrying amount, the difference is to be recognized as impairment loss in the current period.

The total value of an investment and related receivables cannot be negative. If, after the investment loss is recognized, the net book value of the investment is less than zero, the investment is reclassified to other liabilities on the consolidated balance sheet.

The Company ceases to use the equity method upon a loss of ability to exercise significant influence over an investee. In accordance with ROC SFAS No. 34, “Financial Instrument: Recognition and Measurement”, the carrying value of the investment upon the loss of significant influence remains as the carrying value of the investment. Any amount of the investee’s additional paid-in capital and other adjustment items under stockholders’ equity recorded in the consolidated stockholders’ equity of the Company are eliminated in proportion to the amount of the investment sold and recorded as gain or loss on disposal of investments. Cash dividends received during the year of change would be applied as a reduction of the carrying amount of the investment. Dividends received in subsequent years are recorded in accordance with ROC SFAS No. 32, “Accounting for Revenue Recognition.”

 

13


Gain or loss on disposal of long-term investments is based on the difference between selling price and book value of investments sold. Any amount of the investee’s additional paid-in capital and other adjustment items under stockholders’ equity recorded in the stockholders’ equity of the Company are eliminated in proportion to the amount of the investment sold and recorded as gain or loss on disposal of investments.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Interest incurred on loans used to finance the construction of property, plant and equipment is capitalized and depreciated accordingly. Maintenance and repairs are charged to expense as incurred. Significant renewals and improvements are treated as capital expenditures and are depreciated over their estimated useful lives. Upon disposal of property, plant and equipment, the cost and accumulated depreciation are written off and the related gain or loss is classified as non-operating income or expense. Idle assets are classified as other assets at the lower of net book or net realizable value, with the difference charged to non-operating expenses. Depreciation is recognized on a straight-line basis using the estimated economic life of the assets less salvage value. The estimated economic life of the property, plant and equipment is as follows:

 

Buildings    3 ~ 55 years
Machinery and equipment    5 ~ 6 years
Transportation equipment    4 ~ 5 years
Furniture and fixtures    2 ~ 20 years
Leased assets and leasehold improvements    The lease period or estimated economic life, whichever is shorter

Intangible Assets

Effective January 1, 2006, goodwill generated from business combinations is no longer subject to amortization.

An impairment loss will be recognized when the decrease in fair value of intangible assets are other than temporary. The book value after recognizing the impairment loss is recorded as the new cost.

Deferred Charges

Deferred charges are stated at cost and amortized on a straight-line basis as follows: intellectual property license fees - the shorter of contract term or estimated economic life of the related technology; and software - 3 years.

 

14


Originally, the issuance costs of convertible and exchangeable bonds were classified as deferred charges and amortized over the life of the bonds. Effective from January 1, 2006, the unamortized amounts as of December 31, 2005 were reclassified as a bond discount and recorded as a deduction to bonds payable. The amounts are amortized using the effective interest method over the remaining life of the bonds. If the difference between the straight-line method and the effective interest method is immaterial, the amortization of the bond discount may be amortized using the straight-line method and recorded as interest expenses.

Convertible and Exchangeable Bonds

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

When convertible bondholders exercise their conversion rights, the book value of the bonds is credited to common stock at an amount equal to the par value of the common stock with the excess credited to additional paid-in capital. No gain or loss is recognized upon bond conversion.

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

In accordance with ROC SFAS No. 34, “Financial Instruments: Recognition and Measurement,” effective as of January 1, 2006, since the economic and risk characteristics of the embedded derivative instrument and the host contract are not clearly and closely related, derivative financial instruments embedded in exchangeable bonds shall be bifurcated and accounted as financial liabilities at fair value through profit or loss.

Pension Plan

All regular employees are entitled to a defined benefit pension plan that is managed by an independently administered pension fund committee. Fund assets are deposited under the committee’s name in the Bank of Taiwan and hence, not associated with the Company. Therefore, fund assets are not to be included in the Company’s financial statements. Pension benefits for employees of the Branch and overseas subsidiaries are provided in accordance with the local regulations.

 

15


The Labor Pension Act of the R.O.C. (the Act), which adopts a defined contribution plan, became effective on July 1, 2005. Employees eligible to the Labor Standards Law, a defined benefit plan, were allowed to elect either the pension calculation under the Act or continue to be subject to the pension calculation under the Labor Standards Law. Those employees that elected to be subject to the Act will have their seniority achieved under the Labor Standards Law retained upon election of the Act, and the Company will make monthly contributions of no less than 6% of these employees’ monthly wages to the employees’ individual pension accounts.

The accounting for UMC’s pension liability is computed in accordance with ROC SFAS No.18. Net pension costs of the defined benefit plan are recorded based on an independent actuarial valuation. Pension cost components such as service cost, interest cost, expected return on plan assets, the amortization of net obligation at transition, pension gain or loss, and prior service cost, are all taken into consideration. UMC recognizes expenses from the defined contribution pension plan in the period in which the contribution becomes due.

Employee Stock Option Plan

The Company uses intrinsic value method to recognize compensation cost for its employee stock options issued between January 1, 2004 and December 31, 2007, in accordance with Accounting Research and Development Foundation interpretation Nos. 92-070~072. For stock options granted on or after January 1, 2008, the Company recognizes compensation cost using the fair value method in accordance with ROC SFAS No. 39 “Accounting for Share-Based Payment.”

Share-Based Employee Bonuses and Remunerations Paid to Directors and Supervisors

In accordance with Accounting Research and Development Foundation interpretation No. 96-052 effective January 1, 2008, share-based employee bonuses and remunerations paid to directors and supervisors are charged to expense at fair value and are no longer accounted for as a reduction of retained earnings.

Treasury Stock

In accordance with ROC SFAS No. 30, “Accounting for Treasury Stock”, treasury stock held by the Company is accounted for under the cost method. The cost of treasury stock is shown as a deduction to consolidated stockholders’ equity, while any gain or loss from selling treasury stock is treated as an adjustment to additional paid-in capital. Prior to December 31, 2007, treasury stock transferred to employees was accounted as treasury stock transaction and no compensation expense is recorded. The Company’s stock held by its subsidiaries is also treated as treasury stock. Cash dividends received by subsidiaries from the Company are recorded as additional paid-in capital - treasury stock transactions.

 

16


Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, the product or service has been delivered, the seller’s price to the buyer is fixed or determinable and collectibility is reasonably assured. Most of the Company’s sales transactions have shipping terms of Free on Board (FOB) or Free Carrier (FCA) shipment in which title and the risk of loss or damage is transferred to the customer upon delivery of the product to a carrier approved by the customer.

Allowance for sales returns and discounts are estimated based on history 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.

Research and Development Expenditures

Research and development expenditures are charged to expenses as incurred.

Capital Expenditures Versus Operating Expenditures

Expenditures are capitalized when it is probable that the Company will receive future economic benefits associated with the expenditures.

Income Tax

The Company adopted ROC SFAS No. 22, “Accounting for Income Taxes” for inter-period and intra-period income tax allocation. The provision for income taxes includes deferred income tax assets and liabilities that are a result of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, loss carry-forward and investment tax credits. A valuation allowance on deferred income tax assets is provided to the extent that it is more likely than not that the tax benefits will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, its classification is based on the expected reversal date of the temporary difference.

According to ROC SFAS No. 12, “Accounting for Income Tax Credits”, the Company recognizes the tax benefit from the purchase of equipment and technology, research and development expenditure, employee training, and certain equity investment by the flow-through method.

 

17


Income tax (10%) on unappropriated earnings is recorded as expense in the year when the shareholders have resolved that the earnings shall be retained.

The Income Basic Tax Act of the R.O.C. (the IBTA) became effective on January 1, 2006. Set up by the Executive Yuan, the IBTA is a supplemental 10% tax that is payable if the income tax payable determined by the ROC Income Tax Act is below the minimum amount as prescribed by the IBTA. The IBTA is calculated based on taxable income as defined by the IBTA, which includes most income that is exempted from income tax under various legislations. The impact of the IBTA has been considered in the Company’s income tax for the current reporting period.

Earnings per Share

Earnings per share is computed according to ROC SFAS No. 24, “Earnings Per Share” Basic earnings per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the current reporting period. Diluted earnings per share is computed by taking basic earnings per share into consideration plus additional common shares that would have been outstanding if the dilutive share equivalents had been issued. Net income (loss) is also adjusted for interest and other income or expenses derived from any underlying dilutive share equivalents. The weighted-average of outstanding shares is adjusted retroactively for stock dividends and bonus share issues.

Asset Impairment

Pursuant to ROC SFAS No. 35, the Company assesses indicators of impairment for all its assets (except for goodwill) within the scope of the standard at each balance sheet date. If impairment is indicated, the Company compares the asset’s carrying amount with the recoverable amount of the assets or the cash-generating unit (CGU) associated with the asset and writes down the carrying amount to the recoverable amount where applicable. The recoverable amount is defined as the higher of fair value less the costs to sell, and the values in use. For previously recognized losses, the Company assesses at the balance sheet date if any indication that the impairment loss no longer exists or may have diminished. If there is any such indication, the Company recalculates the recoverable amount of the asset, and if the recoverable amount has increased as a result of the increase in the estimated service potential of the assets, the Company reverses the impairment loss so that the resulting carrying amount of the asset does not exceed the amount (net of amortization or depreciation) that would otherwise result had no impairment loss been recognized for the assets in prior years.

 

18


In addition, a goodwill-allocated CGU or group of CGUs is tested for impairment each year, regardless of whether impairment is indicated. If an impairment test reveals that the carrying amount, including goodwill, of CGU or group of CGUs is greater than its recoverable amount, it results in an impairment loss. The loss is first recorded against the CGU’s goodwill, with any remaining loss allocated to other assets on a pro rata basis proportionate to their carrying amounts. The write-down of goodwill cannot be reversed in subsequent periods under any circumstances.

Impairment losses and reversals are classified as non-operating expenses and income, respectively.

 

3. ACCOUNTING CHANGES

Employee Stock Options

Effective from January 1, 2008, the Company adopted ROC SFAS No. 39, “Accounting for Share-Based Payment” to account for share-based payments. This change in accounting principles had no effect on consolidated net income or consolidated earnings per share for the six-month period ended June 30, 2008.

Share-Based Employee Bonuses and Remunerations Paid to Directors and Supervisors

Effective from January 1, 2008, the Company adopted Accounting Research and Development Foundation interpretation No. 96-052 to account for share-based employee bonuses and remunerations paid to directors and supervisors. The adoption resulted in an unfavorable effect on consolidated net income in the amount of NT$171 million, thereby reducing consolidated earnings per share by NT$0.01 for the six-month period ended June 30, 2008.

 

4. CONTENTS OF SIGNIFICANT ACCOUNTS

 

  (1) CASH AND CASH EQUIVALENTS

 

     As of June 30,
     2008    2007

Cash:

     

Cash on hand

   $ 2,810    $ 2,880

Checking and savings accounts

     6,780,322      5,879,774

Time deposits

     23,134,423      60,197,601
             

Subtotal

     29,917,555      66,080,255
             

Cash equivalents:

     6,578,608      19,528,185
             

Total

   $ 36,496,163    $ 85,608,440
             

 

19


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

 

     As of June 30,

Held for trading

   2008    2007

Listed stocks

   $ 3,279,771    $ 7,686,348

Convertible bonds

     —        111,010

Forward contracts

     29,243      —  

Open-end fund

     3,655      4,900
             

Total

   $ 3,312,669    $ 7,802,258
             

During the six-month periods ended June 30, 2008 and 2007, net loss of financial assets at fair value through profit or loss, current, were net losses of NT$707 million and NT$69 million, respectively.

 

(3) HELD-TO-MATURITY FINANCIAL ASSETS

 

     As of June 30,
     2008    2007

Credit-linked deposits and repackage bonds

   $ —      $ 200,000
             

 

(4) ACCOUNTS RECEIVABLE, NET

 

     As of June 30,  
     2008     2007  

Accounts receivable

   $ 15,928,932     $ 16,016,908  

Less: Allowance for sales returns and discounts

     (662,454 )     (456,667 )

Less: Allowance for doubtful accounts

     (2,005 )     (2,479 )
                

Net

   $ 15,264,473     $ 15,557,762  
                

 

(5) INVENTORIES, NET

 

     As of June 30,  
     2008     2007  

Raw materials

   $ 1,035,507     $ 899,609  

Supplies and spare parts

     2,328,484       2,065,283  

Work in process

     8,958,658       8,454,566  

Finished goods

     1,363,249       885,390  
                

Total

     13,685,898       12,304,848  

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

     (964,307 )     (819,877 )
                

Net

   $ 12,721,591     $ 11,484,971  
                

Inventories were not pledged.

 

20


(6) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS, NONCURRENT

 

     As of June 30,
     2008    2007

Convertible bonds

   $ 6,790    $ —  
             

During the six-month periods ended June 30, 2008 and 2007, net gain (loss) of financial assets at fair value through profit or loss, noncurrent, were a net gain of NT$2 million and a net loss of NT$17 million, respectively.

 

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

 

     As of June 30,
     2008    2007

Common stock

   $ 32,995,736    $ 60,571,122

Depositary receipts

     264,031      —  

Funds

     90,537      —  
             

Total

   $ 33,350,304    $ 60,571,122
             

During the six-month periods ended June 30, 2008 and 2007, the total unrealized gain (loss) adjustments to consolidated stockholders’ equity due to changes in fair value of available-for-sale assets were a loss of NT$15,206 million and a gain of NT$10,042 million, respectively. The Company recognized gains of NT$1,910 million and NT$4,273 million due to the disposal of available-for-sale assets during the six-month periods ended June 30, 2008 and 2007, respectively. Among the available-for-sale assets, five million shares of EPITECH TECHNOLOGY CORP. (EPITECH) were acquired on March 1, 2007 through the exchange of HIGHLINK TECHNOLOGY CORP. (HIGHLINK) shares, which were previously obtained by the Company through private placement since February 2006. On March 1, 2007, HIGHLINK was merged into EPISTAR CORP. The Company’s holding of EPISTAR CORP. is classified as available-for-sale. Additionally, the Company acquired 5.5 million shares of Simplo Technology Co., LTD were acquired through private placement in July 2006. The exchanges of these shares listed above are restricted by the provisions in Article 43 paragraph 8 of the Securities and Exchange Law.

 

21


(8) FINANCIAL ASSETS MEASURED AT COST, NONCURRENT

 

     As of June 30,
     2008    2007

Common stock

   $ 5,285,245    $ 4,976,467

Preferred stock

     2,516,578      2,457,709

Convertible bond

     15,322      —  

Funds

     673,321      448,474
             

Total

   $ 8,490,466    $ 7,882,650
             

The Company acquired 0.074 million shares of Ralink Technology Corp. through private placement in July 2007, 4 million shares of INPAQ Technology Co., LTD through private placement in November 2007, and 4.6 million shares of First International Telecom Corp. through private placement in March 2008. The exchanges of these shares listed above are restricted by the provision in Article 43 paragraph 8 of the Securities and Exchange Law.

 

(9) LONG-TERM INVESTMENTS ACCOUNTED FOR UNDER THE EQUITY METHOD

 

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

 

     As of June 30,
     2008    2007

Investee Company

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

HOLTEK SEMICONDUCTOR INC. (HOLTEK) (Note A)

   $ —      —      $ 903,961    23.12

ITE TECH. INC. (ITE) (Note B)

     —      —        380,738    21.62
                   

Subtotal

     —           1,284,699   
                   
Unlisted companies            

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

     127,379    49.99      127,379    49.99

MTIC HOLDING PTE LTD.

     80,111    49.94      78,805    49.94

UWAVE TECHNOLOGY CORP.(UWAVE) (Note D)

     —      48.64      —      48.64

AEVOE INTERNATIONAL LTD.

     28,368    45.31      9,256    44.33

YUNG LI INVESTMENTS, INC.

     270,588    45.16      202,724    37.04

MEGA MISSION LIMITED PARTNERSHIP

     1,654,006    45.00      2,551,817    45.00

SMEDIA TECHNOLOGY CORP.

     153,493    44.86      130,963    47.72

ACHIEVE MADE INTERNATIONAL LTD.

     20,364    43.29      25,610    43.29

UNITECH CAPITAL INC.

     624,819    42.00      1,122,669    42.00

ANOTO TAIWAN CORP.

     19,982    39.20      27,169    49.00

 

22


     As of June 30,
     2008    2007

Investee Company

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

HSUN CHIEH INVESTMENT CO., LTD.

     3,042,954    36.49      4,943,314    36.49

UC FUND II

     124,319    35.45      252,127    35.45

WALTOP INTERNATIONAL CORP.

     159,089    34.79      117,669    40.00

NEXPOWER TECHNOLOGY CORP.

     749,227    34.55      295,176    36.66

UNIMICRON HOLDING LIMITED

     568,699    33.78      —      —  

CRYSTAL MEDIA INC.

     42,212    32.87      51,300    34.03

CTC CAPITAL PARTNERS I, L.P.

     136,867    32.11      —      —  

XGI TECHNOLOGY INC.

     60,944    29.28      72,600    31.56

ALLIANCE OPTOTEK CORP.

     66,816    27.76      36,664    29.09

AMIC TECHNOLOGY CORP.

     62,486    25.87      140,832    28.88

HIGH POWER LIGHTING CORP.

     44,548    23.00      53,051    23.00

MOBILE DEVICES INC.

     47,996    21.31      24,791    21.16

TRANSLINK CAPITAL PARTNERS I L.P. (TRANSLINK) (Note E)

     72,364    15.77      —      —  

Y.S. FINANCIAL ADVISORY CO., LTD

     —      —        70,000    48.95

UCA TECHNOLOGY INC.

     —      —        35,179    48.33

PARADE TECHNOLOGIES, LTD.

     —      —        47,871    23.30

AFA TECHNOLOGY, INC.

     —      —        80,589    22.32
                   

Subtotal

     8,157,631         10,497,555   
                   

Total

   $ 8,157,631       $ 11,782,254   
                   

 

Note A:

  As UMC did not have significant influence after decreasing its percentage of ownership in HOLTEK in September 2007, the investee was classified as available-for-sale financial asset.

Note B:

  As UMC did not have significant influence after decreasing its percentage of ownership in ITE in August 2007, the investee was classified as available-for-sale financial asset.

Note C:

  On June 27, 2006, PACIFIC set July 3, 2006 as its liquidation date through a decision at its shareholders’ meeting. The liquidation has not been completed as of June 30, 2008.

Note D:

  On June 29, 2007, UWAVE reached the decision to liquidate the company at its shareholders’ meeting. The liquidation has not been completed as of June 30, 2008.

 

23


  Note E: According to the partnership contract, the Company has significant influence over TRANSLINK, and it is accounted for under the equity method.

 

  b. Total gains (loss) arising from investments accounted for under the equity method, based on the audited financial statements of the investees, were a loss of NT$660 million and a gain of NT$530 million for the six-month periods ended June 30, 2008 and 2007, respectively. Investment income (loss) amounting to a loss of NT$25 million and a gain of NT$463 million for the six-month periods ended June 30, 2008 and 2007, respectively, and the related long-term investment balances of NT$4,616 million and NT$7,219 million as of June 30, 2008 and 2007, respectively, were determined based on the investees’ financial statements audited by other auditors.

 

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

 

(10) PROPERTY, PLANT AND EQUIPMENT

 

     As of June 30, 2008
     Cost    Accumulated
Depreciation
    Book Value

Land

   $ 2,029,131    $ —       $ 2,029,131

Buildings

     22,333,936      (8,385,529 )     13,948,407

Machinery and equipment

     448,390,261      (351,727,821 )     96,662,440

Transportation equipment

     83,795      (68,233 )     15,562

Furniture and fixtures

     3,447,158      (2,676,866 )     770,292

Leasehold improvement

     40,008      (38,592 )     1,416

Construction in progress and prepayments

     5,877,829      —         5,877,829
                     

Total

   $ 482,202,118    $ (362,897,041 )   $ 119,305,077
                     

 

     As of June 30, 2007
     Cost    Accumulated
Depreciation
    Book Value

Land

   $ 1,857,774    $ —       $ 1,857,774

Buildings

     21,639,715      (7,188,345 )     14,451,370

Machinery and equipment

     431,657,331      (319,394,572 )     112,262,759

Transportation equipment

     85,883      (60,896 )     24,987

Furniture and fixtures

     3,067,345      (2,406,341 )     661,004

Leasehold improvement

     43,351      (40,905 )     2,446

Construction in progress and prepayments

     19,660,008      —         19,660,008
                     

Total

   $ 478,011,407    $ (329,091,059 )   $ 148,920,348
                     

 

24


  a. Total interest expense before capitalization amounted to NT$62 million and NT$153 million for the six-month periods ended June 30, 2008 and 2007, respectively.

Details of capitalized interest are as follows:

 

     For the six-month period ended June 30,
     2008    2007

Machinery and equipment

   $ 12,830    $ 54,965

Other property, plant and equipment

     4,858      7,680
             

Total interest capitalized

   $ 17,688    $ 62,645
             

Interest rates applied

     0.11%~0.91%      0.67%~0.92%
             

 

  b. Property, plant, and equipment were not pledged.

 

(11) OTHER ASSETS - OTHERS

 

     As of June 30,
     2008    2007

Leased assets

   $ 1,180,110    $ 1,224,825

Deposits-out

     744,601      752,062

Others

     200,755      252,793
             

Total

   $ 2,125,466    $ 2,229,680
             

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

 

(12) IMPAIRMENT

 

     For the six-month period ended June 30,
     2008    2007

Available for sale financial assets, noncurrent

   $ 135,586    $ 162,481

Financial assets measured at cost, noncurrent

     49,117      86,074

Fixed assets

     9,990      —  
             

Total

   $ 194,693    $ 248,555
             

 

(13) SHORT-TERM LOANS

 

     As of June 30,
     2008    2007

Unsecured bank loans

   $ 686,517    $ 364,329
             
     For the six-month period ended June 30,
     2008    2007

Interest rates

     2.96%~3.67%      3.28%~5.835%
             

The Company’s unused short-term lines of credits amounted to NT$13,279 million and NT$12,145 million as of June 30, 2008 and 2007, respectively.

 

25


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

 

     As of June 30,  
     2008     2007  

Interest rate swaps

   $ 75,795     $ 423,226  

Less: Current portion

     (33,189 )     (224,775 )
                

Total

   $ 42,606     $ 198,451  
                

During the six-month periods ended June 30, 2008 and 2007, net gain (loss) arising from financial liabilities at fair value through profit or loss were a net loss of NT$55 million and a net gain of NT$341 million, respectively.

 

(15) BONDS PAYABLE

 

     As of June 30,  
     2008     2007  

Unsecured domestic bonds payable

   $ 7,500,000     $ 18,000,000  

Convertible bonds payable

     —         13,956,129  

Less: discounts on bonds payable

     (3,973 )     (34,456 )
                

Total

     7,496,027       31,921,673  

Less: Current portion

     —         (24,426,911 )
                

Net

   $ 7,496,027     $ 7,494,762  
                

 

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

 

  B. On May 10, 2002, UMC issued zero coupon exchangeable bonds listed on the Euro MTF Market of the Luxembourg Stock Exchange (LSE). The terms and conditions of the bonds were as follows:

 

  (a) Issue Amount: US$235 million

 

  (b) Period: May 10, 2002 ~ May 10, 2007

 

26


  (c) Redemption

 

  i. UMC may have redeemed the bonds, in whole or in part, after three months of the issuance and prior to the maturity date, at their principal amount if the closing price of the AU Optronics Corp. (AUO) common shares on the TSE, translated into US dollars at the prevailing exchange rate, for a period of 20 consecutive trading days, the last of which occurs not more than 10 days prior to the date upon which notice of such redemption is published, is at least 120% of the exchange price then in effect translated into US dollars at the rate of NT$34.645=US$ 1.00.

 

  ii. UMC may have redeemed the bonds, in whole, but not in part, if at least 90% in principal amount of the bonds has already been exchanged, redeemed or purchased and cancelled.

 

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

 

  iv. UMC could have, at the option of the bondholders, redeemed such bonds on February 10, 2005 at its principal amount.

 

  (d) Terms of Exchange

 

  i. Underlying Securities: ADSs or common shares of AUO.

 

  ii. Exchange Period: The bonds were exchangeable at any time on or after June 19, 2002 and prior to April 10, 2007, into AUO common shares or AUO ADSs; provided, however, that if the exercise date falls within 5 business days from the beginning of, and during, any closed period, the right of the exchanging holder of the bonds to vote with respect to the shares it received were subject to certain restrictions.

 

  iii. Exchange Price and Adjustment: The exchange price was NT$44.3 per share, determined on the basis of a fixed exchange rate of NT$34.645=US$1.00. The exchange price will be subject to adjustments upon the occurrence of certain events set out in the indenture.

 

  (e) Exchange of the Bonds

As of June 30, 2007, certain bondholders exercised their rights to exchange their bonds with the total principal amount of US$235 million into AUO shares. Gains arising from the exercise of exchange rights during the six-month period ended June 30, 2007 amounted to NT$2,782 million, and was recognized as gain on disposal of investments.

 

27


  (f) Redemption at maturity date

At the maturity date of May 10, 2007, UMC redeemed all of the remaining bonds outstanding in the principal amount of US$0.3 million.

 

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

 

  D. On October 5, 2005, UMC issued zero coupon convertible bonds on the LSE. The terms and conditions of the bonds are as follows:

 

  (a) Issue Amount: US$381.4 million

 

  (b) Period: October 5, 2005 ~ February 15, 2008 (Maturity date)

 

  (c) Redemption:

 

  i. On or at any time after April 5, 2007, if the closing price of the ADSs listed on the NYSE has been at least 130% of either the conversion price or the last adjusted conversion price, for 20 out of 30 consecutive ADS trading days, UMC may have redeemed all, but not in part, of the bonds.

 

  ii. If at least 90% in principal amount of the bonds have already been redeemed, repurchased, cancelled or converted, UMC may have redeemed all, but not in part, of the bonds.

 

  iii. In the event that UMC’s ADSs or shares have officially ceased to be listed or admitted for trading on the NYSE or the TSE, as the case may be, each bondholder would have had the right, at such bondholder’s option, to require UMC to repurchase all, but not in part, of such bondholder’s bonds at their principal amount.

 

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

 

28


  v. If a significant change of control occurs with respect to UMC, each bondholder would have had the right at such bondholder’s option, to require UMC to repurchase all, but not in part, of such bondholder’s bonds at their principal amount.

 

  vi. UMC paid the principal amount of the bonds at its maturity date, February 15, 2008.

 

  (d) Conversion:

 

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

 

  ii. Conversion Price and Adjustment: The conversion price was US$4.253 per ADS. The applicable conversion price was subject to adjustments upon the occurrence of certain events set out in the indenture.

 

  (e) Redemption at maturity date

At the maturity date of February 15, 2008, UMC had redeemed the bonds at the principal amount.

 

E. On March 25, 2002, UMC’s subsidiary, UMC JAPAN (UMCJ), issued LSE- listed zero coupon convertible bonds with an aggregate principal amount of JPY17,000 million, and the issue price was set at 101.75% of the principal amount. The terms and conditions of the bonds are as follows:

 

  (a) Final Redemption

Unless previously converted, purchased and cancelled or redeemed, the bonds were redeemed on March 26, 2007 at their principal amount.

 

  (b) Redemption at the Option of UMCJ

 

  i. On or at any time after March 25, 2005, UMCJ may have redeemed all, but not part, of the bonds if the closing price of the shares on the Japan OTC Market is at least 120% of the conversion price then in effect for at least 20 out of 30 consecutive trading days ending on the trading day immediately prior to the date of the notice of redemption; or if the principal amount that has not been redeemed, repurchased and cancelled or converted was equal to or less than 10% of original aggregate principal amount.

 

29


  ii. In case of a corporate split or share exchange share transfer, UMCJ may have redeemed all, but not part, of the bonds on or prior to the effective date of the transaction, provided that UMCJ was not able to ensure that the bondholders have the right to receive shares which they would have received had the conversion rights been exercised prior to the transaction.

 

  iii. If a change in controls of had UMCJ occurred, bondholders would have been able to require UMCJ to redeem their bonds on the date that was 85 days after the change of control occurs.

 

  (c) Conversion Period

At any time on or after May 3, 2002, up to and including March 19, 2007, the bonds may have been converted into the common shares of UMCJ.

 

  (d) Conversion Price

The conversion price was set at JPY400,000 per share, subject to adjustments upon the occurrence of certain events set out in the indenture.

 

  (e) Reacquisition of the Bonds

As of June 30, 2007, UMCJ reacquired and cancelled a total amount of JPY11,630 million of the bonds from the open market. There was no reacquisition during the six-month period ended June 30, 2007.

 

  (f) Redemption at maturity date

At the maturity date of March 26, 2007, UMCJ redeemed all the remaining bonds in the principal amount of JPY5,370 million.

 

F. On November 25, 2003, UMCJ issued its second LSE-listed zero coupon convertible bonds with an aggregate principal amount of JPY21,500 million and the issue price was set at 101.25% of the principal amount. The terms and conditions of the bonds were as follows:

 

  (a) Final Redemption

Unless previously converted, purchased and cancelled or redeemed, the bonds must be redeemed on November 25, 2013 at their principal amount.

 

  (b) Redemption at the Option of UMCJ

 

  i. On or at any time after November 27, 2006, UMCJ may have redeemed all, but not part, of the bonds if the closing price of the shares on the Japan OTC Market is at least 120% of the conversion price then in effect for at least 20 out of 30 consecutive trading days ending on the trading day immediately prior to the date of the notice of redemption; or if the principal amount that had been redeemed, repurchased and cancelled or converted is equal to or less than 10% of original aggregate principal amount.

 

30


  ii. In case of a corporate split or share exchange share transfer, UMCJ may have redeemed all, but not part, of the bonds on or prior to the effective date of the transaction, provided that UMCJ is not able to ensure that the bondholders have the right to receive shares which they would have received had the conversion rights been exercised prior to the transaction.

 

  iii. If a change in controls of UMCJ had occurred, bondholders would have been able to require UMCJ to redeem their bonds on the date that was 70 days after the change of control occurs.

 

  iv. UMCJ would have, at the option of the bondholders, redeemed such bonds on November 26, 2007 at its principal amount.

 

  (c) Conversion Period

The conversion period was any time on or after January 5, 2004 and on or prior to November 11, 2013. The bonds may have been converted into the common shares of UMCJ.

 

  (d) Conversion Price

The conversion price was set at JPY187,500 per share, subject to adjustment upon the occurrence of certain events set out in the indenture.

 

  (e) Reacquisition of the Bonds

As of June 30, 2007, UMCJ reacquired and cancelled JPY162,700 million and JPY8,430 million, respectively, of the bonds from the open market. The gain on the reacquisition amounting to JPY22 million was recognized as other income for the six-month period ended June 30, 2007. As of June 30, 2008, UMCJ redeemed bonds in the principal amount of JPY5,230 million upon request from the bondholders.

 

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

 

Bonds repayable in

   Amount

2010

   $ 7,500,000
      

 

31


(16) PENSION PLAN

 

  a. The Labor Pension Act of the R.O.C.(Act), which adopts a defined contribution plan, became effective on July 1, 2005. Employees eligible for the Labor Standards Law, a defined benefit plan, were offered the option to elect the pension calculation under the Act or continue to be subject to the pension calculation under the Labor Standards Law. Those employees that elected to be subject to the Act will have their seniority achieved under the Labor Standards Law retained upon election of the Act, and the Company will make monthly contributions of no less than 6% of these employees’ monthly wages to the employees’ individual pension accounts. The Company has made monthly contributions based on each individual employee’s salary or wage to employees’ pension accounts beginning July 1, 2005 and a total of NT$203 million and NT$196 million were contributed by the Company for the six-month periods ended June 30, 2008 and 2007, respectively. Pension benefits for employees of the Branch and subsidiaries overseas are provided in accordance with the local regulations, and during the six-month periods ended June 30, 2008 and 2007, the Company made contributions of NT$67 million and NT$63 million, respectively.

 

  b. The defined benefit plan under the Labor Standards Law is disbursed based on the units of service years and the average salary in the last month of the service year. Two units per year are awarded for the first 15 years of services while one unit per year is awarded after the completion of the fifteenth year. The total units shall not exceed 45 units. In accordance to the plan, the Company contributes an amount equivalent to 2% of the employees’ total salaries and wages on a monthly basis to the pension fund deposited at the Bank of Taiwan in the name of an administered pension fund committee. Pension costs amounting to NT$110 million and NT$111 million were recognized for the six-month periods ended June 30, 2008 and 2007, respectively. The corresponding liability balances of the pension fund were NT$1,361 million and NT$1,253 million as of June 30, 2008 and 2007, respectively.

 

(17) CAPITAL STOCK

 

  a. UMC had 26,000 million common shares authorized to be issued, and 19,144 million shares were issued as of June 30, 2007, each at a par value of NT$10.

 

  b. UMC has issued a total of 315 million ADSs, which were traded on the NYSE as of June 30, 2007. The total number of common shares of UMC represented by all issued ADSs was 1,576 million shares as of June 30, 2007. One ADS represents five common shares.

 

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

 

32


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

 

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

 

  f. UMC sold 32 million and 65 million shares of treasury stock, which were repurchased during the periods from September 30 to November 29, 2005 and May 23 to July 13, 2006, respectively, to employees in December 2007. An additional 97 million shares were added to the total amount of shares outstanding.

 

  g. As recommended by the board of directors, and approved by the shareholders at the meeting held on June 13, 2008, UMC issued 678 million new shares from capitalization of retained earnings and additional paid-in capital that amounted to NT$6,776 million, of which NT$1,001 million was stock dividend, NT$1,146 million was employee bonus, and NT$4,629 million was additional paid-in capital. The effective date of capital increase is August 16, 2008, the decision made by the chairman who is authorized by the board of directors.

 

  h. UMC had 26,000 million common shares authorized to be issued, and 13,214 million shares were issued as of June 30, 2008, each at a par value of NT$10.

 

  i. UMC had issued a total of 1,098 million ADSs, which were traded on the NYSE as of June 30, 2008. The total number of common shares of UMC represented by all issued ADSs was 220 million shares as of June 30, 2008. One ADS represents five common shares.

 

33


(18) EMPLOYEE STOCK OPTIONS

On September 11, 2002, October 8, 2003, September 30, 2004, December 22, 2005, and October 9, 2007, UMC was authorized by the Securities and Futures Bureau of the Financial Supervisory Commission, Executive Yuan, to issue employee stock options with a total number of 1 billion, 150 million, 150 million, 350 million, and 500 million units, respectively. Each unit entitles an optionee to subscribe for 1 share of UMC’s common stock. Settlement upon the exercise of the options will be made through the issuance of new shares by UMC. The exercise price of the options was set at the closing price of UMC’s common stock on the date of grant. The contractual life of the options is 6 years and an optionee may exercise the options in accordance with certain schedules as prescribed by the plan starting 2 years from the date of grant. Detailed information relevant to the employee stock options is disclosed as follows:

 

Date of grant

   Total number of
options granted

(in thousands)
   Total number of
options outstanding
(in thousands)
   Shares available to
option holders

(in thousands)
(Note)
   Exercise price
(NTD) (Note)

October 7, 2002

   939,000    397,997    277,470    $ 22.52

January 3, 2003

   61,000    41,191    28,717    $ 25.39

November 26, 2003

   57,330    42,257    29,460    $ 35.43

March 23, 2004

   33,330    19,120    13,330    $ 32.85

July 1, 2004

   56,590    40,273    28,077    $ 29.69

October 13, 2004

   20,200    9,821    6,846    $ 25.53

April 29, 2005

   23,460    12,573    8,766    $ 23.52

August 16, 2005

   54,350    34,844    24,292    $ 30.98

September 29, 2005

   51,990    41,716    29,083    $ 28.27

January 4, 2006

   39,290    21,971    15,318    $ 24.36

May 22, 2006

   42,058    30,220    21,068    $ 26.48

August 24, 2006

   28,140    20,540    14,320    $ 25.32

December 13, 2007

   500,000    481,523    481,523    $ 18.95

Total

   1,906,738    1,194,046    978,270   

 

Note:    The employee stock options granted prior to August 7, 2007, effective date of capital reduction, are adjusted in accordance with capital reduction rate. Each option unit entitles an optionee to subscribe for about 0.7 share of UMC’s common stock. The exercise price of the options is also adjusted according to capital reduction rate. Each stock option unit granted after August 7, 2007 remains to be subscribed for 1 share of UMC’s common stock.

 

34


  a. A summary of the equity-settled share-based payment transaction, and related information for the six-month periods ended June 30, 2008 and 2007, are as follows:

 

     For the six-month period ended June 30,
     2008    2007
     Option
(in thousands)
    Shares
available to
option
holders (in

thousands)
    Weighted-
average
Exercise
Price per
shares
(NTD)
   Option
(in thousands)
    Shares
available to
option
holders (in
thousands)
    Weighted-
average
Exercise
Price per
shares

(NTD)

Outstanding at beginning of period

     1,287,407     1,048,832     $ 22.14      913,958     637,180     $ 24.95

Granted

     —       —       $ —        —       —       $ —  

Exercised

     —       —       $ —        (11,918 )   (8,309 )   $ 22.56

Forfeited

     (93,361 )   (70,562 )   $ 22.04      (14,557 )   (10,148 )   $ 27.80

Expired

     —       —       $ —        —       —       $ —  
                                 

Outstanding at end of period

     1,194,046     978,270     $ 22.15      887,483     618,723     $ 24.94
                                 

Exercisable at end of period

     608,874     424,486     $ 24.90      662,435     461,828     $ 23.91
                                 

Weighted-average fair value of options granted during the period

   $ —            $ —        

 

  b. The information on UMC’s outstanding stock options as of June 30, 2008, is as follows:

 

          Outstanding Stock Options    Exercisable Stock Options

Authorization

Date

   Range of
Exercise Price
   Option
(in thousands)
   Shares
available to
option
holders (in
thousands)
   Weighted-
average
Expected

Remaining
Years
   Weighted-
average
Exercise
Price per
share
(NTD)
   Option
(in thousands)
   Shares
available to
option
holders (in
thousands)
   Weighted-
average
Exercise
Price per
share

(NTD)
2002.09.11    $22.52~$25.39    439,188    306,187    0.29    $ 22.79    438,966    306,032    $ 22.79
2003.10.08    $29.69~$35.43    101,650    70,867    1.70    $ 32.67    91,512    63,799    $ 32.98
2004.09.30    $23.52~$30.98    98,954    68,987    3.05    $ 28.35    53,464    37,273    $ 28.06
2005.12.22    $24.36~$26.48    72,731    50,706    3.85    $ 25.51    24,932    17,382    $ 25.63
2007.10.09    $18.95    481,523    481,523    5.45    $ 18.95    —      —      $ —  
                               
      1,194,046    978,270    2.94    $ 22.15    608,874    424,486    $ 24.90
                               

 

35


  c. UMC used the intrinsic value method to recognize compensation costs for its employee stock options issued between January 1, 2004 and December 31,2007. Compensation costs for the six-month periods ended June 30, 2008 and 2007 are NT$0. UMC granted options prior to adopting ROC SFAS No. 39 “Accounting for Share-Based Payment.” Pro forma information on net income and earnings per share using the fair value method is as follows:

 

     For the six-month period ended June 30, 2008
     Basic earnings per share    Diluted earnings per share

Net Income

   $ 2,603,210    $ 2,473,300

Earnings per share (NTD)

   $ 0.21    $ 0.20

Pro forma net income

   $ 2,131,444    $ 2,001,534

Pro forma earnings per share (NTD)

   $ 0.17    $ 0.16
     For the six-month period ended June 30, 2007
     Basic earnings per share    Diluted earnings per share

Net Income

   $ 6,369,668    $ 6,497,263

Earnings per share (NTD)

   $ 0.36    $ 0.35

Pro forma net income

   $ 6,166,802    $ 6,294,397

Pro forma earnings per share (NTD)

   $ 0.35    $ 0.34

The fair value of the options granted was estimated at the date of grant using the Black-Scholes options pricing model with the following weighted-average assumptions for the six-month periods ended June 30, 2008 and 2007:

 

     For the six-month period ended June 30,
     2008    2007

Expected dividend yields

   1.37%~1.71%    1.37%~1.64%

Volatility factors of the expected market price

   36.29%~49.10%    36.90%~49.10%

Risk-free interest rate

   1.85%~2.85%    1.85%~2.85%

Weighted-average expected remaining years

   4~5    4~5

 

36


(19) TREASURY STOCK

 

  a. Changes in treasury stock during the six-month periods ended June 30, 2008 and 2007 are as follows:

For the six-month period ended June 30, 2008

(In thousands of shares)

 

Purpose

   As of
January 1, 2008
   Increase    Decrease    As of
June 30, 2008

For transfer to employees

   355,716    —      —      355,716

For conversion of the convertible bonds into shares

   348,583    —      —      348,583
                   

Total shares

   704,299    —      —      704,299
                   

For the six-month period ended June 30, 2007

(In thousands of shares)

 

Purpose

   As of
January 1, 2007
   Increase    Decrease    As of
June 30, 2007

For transfer to employees

   842,067    —      —      842,067

For conversion of the convertible bonds into shares

   500,000    —      —      500,000
                   

Total shares

   1,342,067    —      —      1,342,067
                   

 

  b. According to the Securities and Exchange Law of the R.O.C., the total shares of treasury stock shall not exceed 10% of UMC’s issued stock, and the total purchase amount shall not exceed the sum of the retained earnings, additional paid-in capital – premiums, and realized additional paid-in capital. As such, the maximum number of shares of treasury stock that UMC could hold as of June 30, 2008 and 2007, was 1,321 million shares and 1,914 million shares, while the ceiling amount was NT$76,108 million and NT$86,687 million, respectively.

 

  c. In compliance with Securities and Exchange Law of the R.O.C., treasury stock should not be pledged, nor should it be entitled to voting rights or receiving dividends. Stock held by subsidiaries is treated as treasury stock. These subsidiaries have the same rights as other stockholders except for subscription to new stock issuance. Starting June 22, 2005, stocks held by subsidiaries no longer have voting rights according to the revised Companies Act.

 

37


  d. As of June 30, 2008, UMC’s subsidiary, FORTUNE VENTURE CAPITAL CORP., held 15 million shares of UMC’s stock, with a book value of NT$16.10 per share. The closing price on June 30, 2008 was NT$16.10.

As of June 30, 2007, UMC’s subsidiary, FORTUNE VENTURE CAPITAL CORP., held 22 million shares of UMC’s stock, with a book value of NT$19.85 per share. The closing price on June 30, 2007 was NT$19.85.

 

(20) RETAINED EARNINGS AND DIVIDEND POLICIES

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

 

  a. Payment of all taxes and dues;

 

  b. Offset prior years’ operation losses;

 

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

 

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

 

  e. After deducting items (a), (b), and (c) above from the current year’s earnings, no less than 5% of the remaining amount together with the prior years’ unappropriated earnings is to be allocated as employees’ bonus, which will be settled through issuance of new shares of UMC, or cash. Employees of UMC’s subsidiaries, meeting certain requirements determined by the board of directors, are also eligible for the employees’ bonus.

 

  f. The distribution of the remaining portion, if any, will be recommended by the board of directors and resolved in the shareholders’ meeting.

The policy for dividend distribution should reflect factors such as the current and future investment environment, fund requirements, domestic and international competition and capital budgets; as well as the benefit of shareholders, share bonus equilibrium, and long-term financial planning. The board of directors shall make the distribution proposal annually and present it at the shareholders’ meeting. UMC’s Articles of Incorporation further provide that no more than 80% of the dividends to shareholders, if any, must be paid in the form of stock dividends. Accordingly, at least 20% of the dividends must be paid in the form of cash.

During the six-month period ended June 30, 2008, the amounts of the employee bonuses and remunerations to directors and supervisors were estimated at NT$182 million and NT$1 million, respectively. The board of directors estimated the amount by taking consideration of the Company’s Articles of Incorporation, government regulations and industrial average. Estimated amount of employee bonuses and remunerations directors and supervisors were charged to current income. If the board

 

38


modified the estimates significantly in the subsequent periods during the year, the company will recognize the change as an adjustment to current income. Moreover, if the amounts were modified by the shareholders’ meeting of the following year, the adjustment will be regarded as a change of accounting estimate and will be reflected in the consolidated statement of income in the following year.

Details of the 2007 employee bonus settlement and directors’ and supervisors’ remuneration are as follows:

 

     2007    2006

Cash Dividend

   NT$ 0.75 per share    NT$ 0.70 per share

Stock Dividend

     0.08 per share      —  

Employees’ bonus – Cash Dividend (NTD thousands)

     286,541      2,324,120

Employees’ bonus – Stock Dividend (NTD thousands)

     1,146,166      —  

Directors’ and Supervisors’ remuneration (NTD thousands)

     11,939      15,494

Pursuant to Article 41 of the Securities and Exchange Law of the R.O.C., a special reserve is set aside from the current net income and prior unappropriated earnings with an amount equal to the amount of items that are accounted for as deductions to stockholders’ equity such as unrealized loss on long-term investments and cumulative translation adjustments. When the deductions to stockholders’ equity are reversed, the set-aside special reserve can be distributed.

 

(21) OPERATING COSTS AND EXPENSES

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

 

     For the six-month period ended June 30,
     2008    2007
     Operating
costs
   Operating
expenses
   Total    Operating
costs
   Operating
expenses
   Total

Personnel expenses

                 

Salaries

   $ 4,896,300    $ 2,004,018    $ 6,900,318    $ 4,951,304    $ 1,907,137    $ 6,858,441

Labor and health insurance

     270,141      103,256      373,397      276,267      102,040      378,307

Pension

     282,091      97,936      380,027      277,286      92,722      370,008

Other personnel expenses

     118,464      60,420      178,884      52,804      35,903      88,707

Depreciation

     17,725,751      1,132,665      18,858,416      17,511,805      1,019,972      18,531,777

Amortization

     25,676      638,988      664,664      39,973      608,625      648,598

 

39


(22) INCOME TAX

 

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

 

     For six-month period ended June 30,  
     2008     2007  

Income tax on pre-tax income at statutory tax rate

   $ 700,354     $ 1,769,175  

Permanent and temporary differences

     (448,522 )     (1,735,846 )

Change in investment tax credit

     (379,167 )     2,456,272  

Change in loss carry-forward

     (295,674 )     83,766  

Change in valuation allowance

     723,943       (2,081,677 )

Income basic Tax

     47,519       313,163  

Estimated 10% income tax on unappropriated earnings

     34       9  

Adjustment of prior year’s tax expense

     (9,734 )     (26,165 )

Others

     (95,935 )     14,302  
                

Income tax expense

   $ 242,818     $ 792,999  
                

 

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

 

     As of June 30,  
     2008     2007  
     Amount     Tax effect     Amount     Tax effect  

Deferred income tax assets

        

Investment tax credit

     $ 13,528,347       $ 12,536,459  

Depreciation

   $ 24,876       9,770     $ 24,612       9,664  

Loss carry-forward

     7,095,800       2,610,627       9,977,827       3,254,694  

Pension

     3,204,038       799,815       3,144,611       787,587  

Allowance on sales returns and discounts

     603,113       151,453       376,246       94,929  

Allowance for loss on obsolescence of inventories

     895,702       233,956       739,808       192,060  

Others

     3,145,351       831,991       1,827,514       492,290  
                    

Total deferred income tax assets

       18,165,959         17,367,683  

Valuation allowance

       (12,074,135 )       (9,795,583 )
                    

Net deferred income tax assets

       6,091,824         7,572,100  
                    

Deferred income tax liabilities

        

Unrealized exchange gain

     (355 )     (89 )     (613 )     (153 )

Depreciation

     (4,392,450 )     (1,098,113 )     (5,732,562 )     (1,433,140 )

Others

     (739,542 )     (164,484 )     (2,303,760 )     (559,710 )
                    

Total deferred income tax liabilities

       (1,262,686 )       (1,993,003 )
                    

Total net deferred income tax assets

     $ 4,829,138       $ 5,579,097  
                    

 

40


     As of June 30,  
     2008     2007  
     Amount    Tax effect     Amount    Tax effect  

Deferred income tax assets - current

      $ 7,870,006        $ 5,163,000  

Deferred income tax liabilities - current

        (150,845 )        (205,650 )

Valuation allowance

        (6,579,858 )        (2,796,396 )
                      

Net

        1,139,303          2,160,954  
                      

Deferred income tax assets - noncurrent

        10,295,953          12,204,683  

Deferred income tax liabilities - noncurrent

        (1,111,841 )        (1,787,353 )

Valuation allowance

        (5,494,277 )        (6,999,187 )
                      

Net

        3,689,835          3,418,143  
                      

Total net deferred income tax assets

      $ 4,829,138        $ 5,579,097  
                      

 

  c. UMC’s income tax returns for all the fiscal years up to 2005 have been assessed and approved by the Tax Authority.

 

  d. UMC was granted several four- or five-year income tax exemption periods with respect to income derived from the expansion of operations. The starting date of the exemption period attributable to the expansion in 2003 had not yet been decided. The income tax exemption for other periods will expire on December 31, 2014.

 

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

As of June 30, 2008, the Company’s unused investment tax credit was as follows:

 

Expiration Year

   Investment tax credits earned    Balance of unused
investment tax credits
2008    $ 6,384,432    $ 5,997,980
2009      2,517,486      2,517,486
2010      2,221,024      2,221,024
2011      1,825,227      1,825,227
2012      966,630      966,630
             
Total    $ 13,914,799    $ 13,528,347
             

 

41


  f. As of June 30, 2008, the unutilized accumulated losses for the Company were as follows:

 

Expiration Year

   Accumulated loss    Unutilized accumulated loss
2008    $ 188,312    $ 188,312
2009      518,628      518,628
2010      392,049      392,049
2011      183,801      183,801
2012      3,800,596      3,800,596
2013      1,389,828      1,389,828
2014      152,502      152,502
2015      470,084      470,084
             
Total    $ 7,095,800    $ 7,095,800
             

 

  g. The balance of UMC’s imputation credit accounts as of June 30, 2008 and 2007 were NT$1,167 million and NT$2,112 million, respectively. The expected creditable ratio for 2007 and the actual creditable ratio for 2006 were 6.17% and 8.64%, respectively.

 

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

 

(23) EARNINGS PER SHARE

 

  a. There were zero coupon convertible bonds and employee stock options outstanding as of June 30, 2008. Therefore, in consideration of such complex structure, the calculated basic and diluted earnings per share for the six-month periods ended June 30, 2008 and 2007, are disclosed as follows:

 

     For the six-month period ended June 30, 2008
     Amount          Earnings per share
(NTD)
     Income
before
income tax
    Net income     Shares
expressed

in
thousands
   Income
before
income
tax
   Net income

Earning per share-basic (NTD)

            

Income available to common stock shareholders

   $ 2,862,806     $ 2,603,210     12,494,810    $ 0.23    $ 0.21
                    

Effect of dilutive equivalent shares

            

Employee stock options

   $ —       $ —       12,391      

Convertible bonds payable

   $ (173,214 )   $ (129,910 )   113,329      

 

42


     For the six-month period ended June 30, 2008
     Amount         Earnings per share
(NTD)
     Income
before
income tax
   Net income    Shares
expressed

in
thousands
   Income
before
income
tax
   Net income

Earning per share-diluted:

              

Income available to common stock shareholders

   $ 2,689,592    $ 2,473,300    12,620,530    $ 0.21    $ 0.20
                      

The employee stock options were not dilutive when calculating the diluted earning per share for the six-month period ended June 30, 2008; therefore, they were not included in the diluted earning per share calculation.

 

     For the six-month period ended June 30, 2007
     Amount         Earnings per share
(NTD)
     Income
before
income tax
   Net income    Shares
expressed

in
thousands
   Income
before
income
tax
   Net income

Earning per share-basic (NTD)

              

Income available to common stock shareholders

   $ 7,182,782    $ 6,369,668    17,777,875    $ 0.40    $ 0.36
                      

Effect of dilution

              

Employee stock options

   $ —      $ —      122,417      

Convertible bonds payable

   $ 133,258    $ 127,595    516,382      

Earning per share-diluted:

              

Income available to common stock shareholders

   $ 7,316,040    $ 6,497,263    18,416,674    $ 0.39    $ 0.35
                      

 

43


  b. Pro forma information on retroactively adjusted earnings per share, as if 2008 earnings and capital reserve transferred to common stock are distributed:

 

     For the six-month period ended
June 30, 2008
     Basic    Diluted

Net income

   $ 2,603,210    $ 2,473,300
             

Weighted-average number of shares outstanding (increase in capital through 2008 retained earnings and capital reserve at proportion of 5.4%)

     13,171,552      13,304,081
             

Earnings per share (NTD)

   $ 0.20    $ 0.19
             

 

     For the six-month period ended
June 30, 2007

(retroactively adjusted)
     Basic    Diluted

Net income

   $ 6,369,668    $ 6,497,263
             

Weighted-average number of shares outstanding (increase in capital through 2008 retained earnings and capital reserve at proportion of 5.4%)

     18,740,758      19,414,155
             

Earnings per share (NTD)

   $ 0.34    $ 0.33
             

 

5. RELATED PARTY TRANSACTIONS

 

  (1) Name and Relationship of Related Parties

 

Name of related parties

  

Relationship with the Company

UNITECH CAPITAL INC.    Equity Investee
MEGA MISSION LIMITED PARTNERSHIP    Equity Investee
MTIC HOLDINGS PTE. LTD.    Equity Investee
UNIMICRON HOLDING LIMITED    Equity Investee
HSUN CHIEH INVESTMENT CO., LTD.    Equity Investee
AMIC TECHNOLOGY CORP.    Equity Investee
PACIFIC VENTURE CAPITAL CO., LTD.    Equity Investee
XGI TECHNOLOGY INC.    Equity Investee
NEXPOWER TECHNOLOGY CORP.    Equity Investee
SILICON INTEGRATED SYSTEMS CORP. (SILICON)    The Company’s director
UWAVE TECHNOLOGY CORP.    Subsidiary’s equity investee
UCA TECHNOLOGY INC.    Subsidiary’s equity investee
SMEDIA TECHNOLOGY CORP.    Subsidiary’s equity investee
CRYSTAL MEDIA INC.    Subsidiary’s equity investee
MOBILE DEVICES INC.    Subsidiary’s equity investee

 

44


  (2) Significant Related Party Transactions

 

  a. Operating revenues

 

     For the six-month period ended June 30,
     2008    2007
     Amount    Percentage    Amount    Percentage

SIS

   $ 708,339    1    $ 426,549    1

Others

     375,421    1      255,457    0
                       

Total

   $ 1,083,760    2    $ 682,006    1
                       

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

 

  b. Accounts receivable

 

     As of June 30,
     2008    2007
     Amount     Percentage    Amount     Percentage

AMIC

   $ 172,710     1    $ 149,643     1

Others

     200,147     1      75,910     0
                         

Total

     372,857     2      225,553     1
             

Less : Allowance for sales returns and discounts

     (4,467 )        (3,931 )  
                     

Net

   $ 368,390        $ 221,622    
                     

 

6. ASSETS PLEDGED AS COLLATERAL

As of June 30, 2008

 

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

Deposit-out

(Time deposit)

   $ 620,213    Customs    Customs duty
guarantee
            

As of June 30, 2007

 

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

Deposit-out

(Time deposit)

   $ 621,597    Customs    Customs duty

guarantee

            

 

45


7. COMMITMENTS AND CONTINGENT LIABILITIES

 

  (1) The Company has entered into several patent license agreements and development contracts of intellectual property for a total contract amount of approximately NT$8.2 billion. Royalties and development fees payable in future years are NT$3.4 billion as of June 30, 2008.

 

  (2) The Company signed several construction contracts for the expansion of its factory space. As of June 30, 2008, these construction contracts have amounted to approximately NT$2.8 billion and the unpaid portion of the contracts, which was not accrued, was approximately NT$0.7 billion.

 

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

 

For the year ended December 31,

   Amount

2008 (3rd quarter and thereafter)

   $ 145,528

2009

     273,071

2010

     258,886

2011

     250,995

2012

     241,376

2013 and thereafter

     1,935,288
      

Total

   $ 3,105,144
      

 

  (4) On February 15, 2005, the Hsinchu District Prosecutors Office conducted a search of UMC’s facilities. On February 18, 2005, UMC’s former Chairman Mr. Robert H.C. Tsao, released a public statement, explaining that its assistance to Hejian Technology Corp. (Hejian) did not involve any investment or technology transfer.

Furthermore, from the very beginning there was a verbal indication that, at the proper time, UMC would be compensated appropriately for its assistance, and circumstances permitting, at some time in the future, it will push through the merger between two companies. However, no promise was made by UMC and no written agreement was made and executed. Upon UMC’s request to materialize the said verbal indication by compensating in the form of either cash or equity, the Chairman of the holding company of Hejian offered 15% of the approximately 700 million outstanding shares of the holding company of Hejian in return for UMC’s past assistance and for continued assistance in the future.

Immediately after UMC had received such offer, it filed an application with the Investment Commission of the Ministry of Economic Affairs on March 18, 2005 (Ref. No. 94-Lian-Tung-Tzu-0222), for their executive guidance for the successful transfer of said shares to UMC. The shareholders meeting dated June 13, 2005 resolved that to the extent permitted by law

 

46


UMC shall try to get the 15% of the outstanding shares offered by the holding company of Hejian as an asset of UMC. The holding company of Hejian offered 106 million shares of its outstanding common shares in return for UMC’s assistance. The holding company of Hejian has put all such shares in escrow. UMC was informed of such escrow on August 4, 2006. The subscription price per share of the holding company of Hejian in the last offering was US$1.1. Therefore, the total market value of the said shares is worth more than US$110 million. However, UMC may not acquire the ownership of nor exercise the rights of the said shares with any potential stock dividend or cash dividend distributed in the future until the ROC laws and regulations allow UMC to acquire and exercise. In the event that any stock dividend or cash dividend is distributed, UMC’s stake in the holding company of Hejian will accumulate accordingly.

In April 2005, UMC’s former Chairman Mr. Robert H.C. Tsao was personally fined with in the aggregate amount of NT$3 million by the Financial Supervisory Commission, Executive Yuan, R.O.C. (ROC FSC) for failure to disclose material information relating to Hejian in accordance with applicable rules. As a result of the imposition of the fines by the ROC FSC, UMC was also fined in the amount of NT$30,000 by Taiwan Stock Exchange (TSE) for the alleged non-compliance with the disclosure rules in relation to the material information. UMC and its former Chairman Mr. Robert H.C. Tsao have filed for administrative appeal and reconsideration with the Executive Yuan, R.O.C. and TSE, respectively. Mr. Robert H.C. Tsao’s administrative appeal was dismissed by the Execution Yuan, R.O.C. on February 21, 2006 and the ROC FSC transferred the case against Mr. Robert H.C. Tsao to the Administrative Enforcement Agency for enforcement of the fine. Mr. Robert H.C. Tsao has filed an administrative action against the ROC FSC with Taipei High Administrative Court on April 14, 2006. On December 27, 2007, the Administrative High Court revoked the decision and ruled in favor of Mr. Tsao.

For UMC’s assistance to Hejian Technology Corp., UMC’s former Chairman Mr. Robert H.C. Tsao, former Vice Chairman Mr. John Hsuan, and Mr. Duen-Chian Cheng, the General Manager of Fortune Venture Capital Corp., which is 99.99% owned by UMC, were indicted for violating the Business Entity Accounting Act and breach of trust under the Criminal Law by Hsinchu District Prosecutors Office on January 9, 2006. Mr. Robert H.C. Tsao and Mr. John Hsuan had officially resigned from their positions of UMC’s Chairman, Vice Chairman and directors prior to the announcement of the prosecution; for this reason, at the time of the prosecution, Mr. Robert H.C. Tsao and Mr. John Hsuan no longer served as UMC’s directors and had not executed their duties as UMC’s Chairman and Vice Chairman.

In the future, if a guilty judgment is pronounced by the court, such consequences would be Mr. Robert H.C. Tsao, Mr. John Hsuan and Mr. Duen-Chian Cheng’s personal concerns only; UMC would not be subject to indictment regarding this case. Mr. Robert H.C. Tsao, Mr. John Hsuan and Mr. Duen-Chian Cheng were pronounced innocent of the charge by Hsinchu District Court on October 26, 2007. On November 15, 2007, Taiwan’s Hsinchu District Prosecutors Office filed an appeal, which is currently under trial.

 

47


On February 15, 2006, UMC was fined in the amount of NT$5 million for unauthorized investment activities in Mainland China, implicating violation of Article 35 of the Act “Governing Relations Between Peoples of the Taiwan Area and the Mainland Area” by the R.O.C. Ministry of Economic Affairs (MOEA). However, as UMC believes it was illegally and improperly fined, UMC had filed an administrative appeal against MOEA to the Executive Yuan on March 16, 2006. On October 19, 2006, Executive Yuan denied the administrative appeal filed by UMC. UMC had filed an administrative litigation case against MOEA on December 8, 2006. Taipei High Administrative Court announced and reversed MOEA’s administrative sanction on July 19, 2007. MOEA filed an appeal against UMC on August 10, 2007.

 

8. SIGNIFICANT DISASTER LOSS

None.

 

9. SIGNIFICANT SUBSEQUENT EVENT

None.

 

10. OTHERS

 

  (1) Certain comparative amounts have been reclassified to conform to the current year’s presentation.

 

  (2) Financial risk management objectives and policies

UMC’s principal financial instruments, other than derivatives, is comprised of cash and cash equivalents, common stock, preferred stock, convertible bonds, open-end funds, short-term loans, and bonds payable. The main purpose of these financial instruments is to manage financing for UMC’s operations. UMC also holds various other financial assets and liabilities such as accounts receivable and accounts payable, which arise directly from its operations.

UMC also enters into derivative transactions, including credit-link deposits, interest rate swaps and forward currency contracts. The purpose of these derivative transactions is to mitigate interest rate risk and foreign currency exchange risks arising from UMC’s operations and financing activities.

The main risks arising from UMC’s financial instruments include cash flow interest rate risk, foreign currency risk, commodity price risk, credit risk, and liquidity risk.

 

48


Cash flow interest rate risk

UMC utilizes interest rate swap agreements to avoid its cash flow interest rate risk on the counter-floating rate of its unsecured domestic bonds issued during the period from May 21 to June 24, 2003. The terms of the interest rate swap agreements are the same as those of the domestic bonds, which are five and seven years. The floating rate is reset annually.

Foreign currency risk

UMC has foreign currency risk arising from purchases and sales. UMC utilizes spot or forward contracts to avoid foreign currency risk. The notional amounts of the foreign currency contracts are the same as the amounts of the hedged items. In principal, UMC does not carry out any forward contracts for uncertain commitments.

Commodity price risk

UMC’s exposure to commodity price risk is minimal.

Credit risk

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

With respect to credit risk arising from the other financial assets of UMC, it is comprised of cash and cash equivalents, available-for-sale financial assets and certain derivative instruments. UMC’s exposure to credit risk arising from the default of counter-parties is limited to the carrying amount of these instruments.

Although UMC trades only with established third parties, it will request collateral to be provided by third parties with less favorable financial positions.

Liquidity risk

UMC’s objective is to maintain a balance of funding continuity and flexibility through the use of financial instruments such as cash and cash equivalents, short-term loans and bonds.

 

49


  (3) Information of financial instruments

 

  a. Fair value of financial instruments

 

     As of June 30,
     2008    2007

Financial Assets

   Book Value    Fair Value    Book Value    Fair Value

Non-derivative

           

Cash and cash equivalents

   $ 36,496,163    $ 36,496,163    $ 85,608,440    $ 85,608,440

Financial assets at fair value through profit or loss, current

     3,283,426      3,283,426      7,802,258      7,802,258

Held-to-maturity financial assets, current

     —        —        200,000      200,000

Notes and accounts receivable

     16,504,045      16,504,045      16,428,075      16,428,075

Financial assets at fair value through profit or loss, noncurrent

     6,790      6,790      —        —  

Available-for-sale financial assets, noncurrent

     33,350,304      33,350,304      60,571,122      60,571,122

Financial assets measured at cost, noncurrent

     8,490,466      —        7,882,650      —  

Long-term investments accounted for under the equity method

     8,157,631      7,866,696      11,782,254      15,528,300

Prepayment for long-term investments

     270,000      —        247,712      —  

Deposits-out

     744,601      744,601      752,062      752,062

Derivative

           

Forward contract

     29,243      29,243      —        —  

 

     As of June 30,
     2008    2007

Financial Liabilities

   Book Value    Fair Value    Book Value    Fair Value

Non-derivative

           

Short-term loans

   $ 686,517    $ 686,517    $ 364,329    $ 364,329

Payables

     25,600,280      25,600,280      32,201,264      32,201,264

Capacity deposits (current portion)

     —        —        174,020      174,020

Bonds payable (current portion included)

     7,496,027      7,143,323      31,921,673      31,974,788

Derivative

           

Interest rate swaps

     75,795      75,795      423,226      423,226

 

50


  b. The methods and assumptions used to measure the fair value of financial instruments are as follows:

 

  i. The book values of short-term financial instruments approximate their fair value due to their short maturities. Short-term financial instruments include cash and cash equivalents, notes and accounts receivable, short-term loans, payables, and current portion of capacity deposits.

 

  ii. The fair value of financial assets at fair value through profit or loss and available-for-sale financial assets are based on the quoted market prices. If there are restrictions on the sale or transfer of an available-for-sale financial asset, the fair value of the asset will be determined based on similar but unrestricted financial assets’ quoted market price with appropriate discounts for the restrictions.

 

  iii. The fair value of held-to-maturity financial assets and long-term investments accounted for under the equity method are based on the quoted market prices. If market prices are unavailable, the Company estimates the fair value based on the book values.

 

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

 

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

 

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

 

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

 

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

 

51


     Active Market Quotation    Valuation Technique

Non-derivative Financial Instruments

   2008.06.30    2007.06.30    2008.06.30    2007.06.30

Financial assets

           

Financial assets at fair value through profit or loss, current

   $ 3,283,426    $ 7,802,258    $ —      $ —  

Financial assets at fair value through profit or loss, noncurrent

     6,790      —        —        —  

Available-for-sale financial assets, noncurrent

     32,285,969      60,571,122      1,064,335      —  

Long-term investments accounted for under the equity method

     —        —        7,866,696      15,528,300

Financial liabilities

           

Short-term loans

     —        —      $ 686,517    $ 364,329

Bonds payable (current portion included)

     7,143,323      31,974,788      —        —  

Derivative Financial Instruments

                   

Financial assets

           

Forward contract

     —        —        29,243      —  

Financial liabilities

           

Interest rate swaps

     —        —        75,795      423,226

 

  d. For the six-month periods ended June 30, 2008 and 2007, the total changes in fair value estimated by using a valuation technique and recognized in the consolidated statement of income during periods was NT$684 million and NT$341 million, respectively.

 

  e. The Company’s financial liabilities with cash flow interest rate risk exposure were NT$76 million and NT$423 million as of June 30, 2008 and 2007, respectively.

 

  f. During the six-month periods ended June 30, 2008 and 2007, total interest revenue for financial assets or liabilities that are not at fair value through profit or loss were NT$378 million and NT$767 million, respectively, while interest expense for the six-month periods ended June 30, 2008 and 2007 were NT$62 million and NT$153 million, respectively.

 

52


  (4) During the six-month periods ended June 30, 2008 and 2007, the Company held credit-linked deposits and repackage bonds that were recorded as held-to-maturity financial assets for the earning of interest income. The details are disclosed as follows:

 

  a. Principal amount in original currency

As of June 30, 2008

The Company did not hold any credit-linked deposits or repackage bonds as of June 30, 2008.

As of June 30, 2007

UMC

 

Credit-linked deposits and repackage bonds referenced to

   Amount    Due Date

ADVANCED SEMICONDUCTOR ENGINEERING INC. European Convertible Bonds and Loans

   NTD    200 million    2007.09.25

 

  b. Credit risk

The counterparties of the above investments were major international financial institutions. The repayment in full of these investments was subject to the non-occurrence of one or more credit events, which were referenced to the entities’ fulfillment of their own obligations as well as repayment of their corporate bonds. Upon the occurrence of one or more of such credit events, the Company and its subsidiary, UMCJ, may have received less than the full amount of these investments or nothing. The Company and its subsidiary, UMCJ, selected reference entities with high credit ratings to minimize the credit risk.

 

  c. Liquidity risk

Early withdrawal is not allowed for the above investments unless called by the issuer. However, the anticipated liquidity risk is low since most of the investments will either have matured within one year, or are relatively liquid in the secondary market.

 

  d. Market risk

There is no market risk for the above investments.

 

  (5) The Company entered into interest rate swap and forward contracts for hedging interest rate risk arising from the counter-floating rate of its domestic bonds and for hedging the exchange rate risk arising from the net assets or liabilities denominated in foreign currency. The Company entered into these derivative financial instruments in connection with its hedging strategy to reduce the market risk of the hedged items and these financial instruments were not held for trading purposes. The relevant information on the derivative financial instruments entered into by the Company is as follows:

 

53


  a. The Company utilized interest rate swap agreements to hedge its interest rate risk on the counter-floating rate of its unsecured domestic bonds issued during the period from May 21 to June 24, 2003. The terms of the interest rate swap agreements are the same as those of the domestic bonds, which are five and seven years. The floating rate is reset annually. The details of interest rate swap agreements are summarized as follows:

As of June 30, 2008 and 2007, the Company had the following interest rate swap agreements outstanding:

As of June 30, 2008

 

Notional Amount

   Contract Period    Interest Rate Received    Interest Rate Paid

NT$7,500 million

   May 21, 2003 to June 24, 2010    4.3% minus USD

12-Month LIBOR

   1.48%

As of June 30, 2007

 

Notional Amount

   Contract Period    Interest Rate Received    Interest Rate Paid

NT$7,500 million

   May 21, 2003 to June 24, 2008    4.0% minus USD

12-Month LIBOR

   1.52%

NT$7,500 million

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

 

  b. The details of forward contracts entered into by the Company are summarized as follows:

As of June 30, 2008

UMC

 

Type

   Notional Amount    Contract Period

Forward contracts

   Sell USD 343 million    May 12, 2008 to August 12, 2008

As of June 30, 2007

The Company did not hold any forward contracts as of June 30, 2007.

 

  c. Transaction risk

 

  (a) Credit risk

There is no significant credit risk exposure with respect to the above transactions as the counter-parties are reputable financial institutions with good global standing.

 

  (b) Liquidity and cash flow risk

The cash flow requirements on the interest rate swap agreements are limited to the net interest payables or receivables arising from the differences in the swap rates. The cash flow requirements on forward contracts are limited to the net difference between the forward and spot rates at the settlement date. Therefore, no significant cash flow risk is anticipated since the working capital is sufficient to meet the cash flow requirements.

 

54


  (c) Market risk

Interest rate swap agreements and forward contracts are intended for hedging purposes. Gains or losses arising from the fluctuations in interest rates and exchange rates are likely to be offset against the gains or losses from the hedged items. As a result, no significant exposure to market risk is anticipated.

 

  d. The presentation of derivative financial instruments in the consolidated financial statements

UMC

As of June 30, 2008 and 2007, the interest rate swap agreements that were classified as financial liabilities at fair value through profit or loss amounted to NT$76 million and NT$423 million, respectively.

A related valuation gain of NT$18 million and loss of NT$22 million was recorded under non-operating revenue and loss for the six-month periods ended June 30,2008 and 2007, respectively.

As of June 30, 2008, the forward contracts were classified as current assets amounting to NT$29 million and the related valuation gain of NT$666 million was recorded under non-operating revenue for the six-month period ended June 30, 2008.

 

  (6) Significant intercompany transactions among consolidated entities for the six-month periods ended June 30, 2008 and 2007 are disclosed in Attachment 1.

 

  (7) Details of subsidiaries that hold UMC’s stock are as follows:

As of June 30, 2008

 

Subsidiary

   No. of Shares
(in thousands)
   Amount    Purpose

FORTUNE VENTURE CAPITAL CORP.

   15,386    $ 247,720    Long-term investment

As of June 30, 2007

 

Subsidiary

   No. of Shares
(in thousands)
   Amount    Purpose

FORTUNE VENTURE CAPITAL CORP.

   22,070    $ 438,090    Long-term investment

 

11. ADDITIONAL DISCLOSURES

 

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

 

  a. Financing provided to others for the six-month period ended June 30, 2008: Please refer to Attachment 2.

 

55


  b. Endorsement/Guarantee provided to others for the six-month period ended June 30, 2008: Please refer to Attachment 3.

 

  c. Securities held as of June 30, 2008: Please refer to Attachment 4.

 

  d. Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT$100 million or 20 percent of capital stock for the six-month period ended June 30, 2008: Please refer to Attachment 5.

 

  e. Acquisition of individual real estate with amount exceeding the lower of NT$100 million or 20 percent of capital stock for the six-month period ended June 30, 2008: Please refer to Attachment 6.

 

  f. Disposal of individual real estate with amount exceeding the lower of NT$100 million or 20 percent of capital stock for the six-month period ended June 30, 2008: Please refer to Attachment 7.

 

  g. Related party transactions for purchases and sales amounts exceeding the lower of NT$100 million or 20 percent of capital stock for the six-month period ended June 30, 2008: Please refer to Attachment 8.

 

  h. Receivables from related parties with amounts exceeding the lower of NT$100 million or 20 percent of capital stock as of June 30, 2008: Please refer to Attachment 9.

 

  i. Names, locations and related information of investees as of June 30, 2008: Please refer to Attachment 10.

 

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

 

  (2) Investment in Mainland China

 

  a. Investee company name, main businesses and products, total amount of capital, method of investment, accumulated inflow and outflow of investments from Taiwan, percentage of ownership, investment income (loss), book value of investments, cumulated inward remittance of earnings and limits on investment in Mainland China: Please refer to Attachment 11.

 

  b. Directly or indirectly significant transactions through third regions with the investees in Mainland China, including price, payment terms, unrealized gain or loss, and other events with significant effects on the operating results and financial condition: None.

 

56


ATTACHMENT 1 (Significant intercompany transactions between consolidated entities)

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

For the six-month period ended June 30, 2008

 

                    Transactions

No.

(Note1)

  

Related Party

  

Counterparty

   Relationship with
the Company
(Note 2)
   Account    Amount    Terms
(Note 3)
  

Percentage of consolidated operating
revenues or consolidated total assets
(Note 4)

0

  

UNITED MICROELECTRONICS CORPORATION

  

UMC GROUP (USA)

   1    Sales    $ 26,794,854    Net 60
days
   51.82%

0

  

UNITED MICROELECTRONICS CORPORATION

  

UMC GROUP (USA)

   1    Accounts
receivable
     6,211,148    —      2.47%

0

  

UNITED MICROELECTRONICS CORPORATION

  

UNITED MICROELECTRONICS (EUROPE) B.V.

   1    Sales      5,974,877    Net 60
days
   11.56%

0

  

UNITED MICROELECTRONICS CORPORATION

  

UNITED MICROELECTRONICS (EUROPE) B.V.

   1    Accounts
receivable
     2,546,083    —      1.01%

0

  

UNITED MICROELECTRONICS CORPORATION

  

UMC JAPAN

   1    Sales      856,285    Net 60
days
   1.66%

0

  

UNITED MICROELECTRONICS CORPORATION

  

UMC JAPAN

   1    Accounts
receivable
     271,254    —      0.11%

For the six-month period ended June 30, 2007

 

                    Transactions

No.

(Note1)

  

Related Party

  

Counterparty

   Relationship with
the Company
(Note 2)
   Account    Amount    Terms
(Note 3)
  

Percentage of consolidated operating
revenues or consolidated total assets
(Note 4)

0

  

UNITED MICROELECTRONICS CORPORATION

  

UMC GROUP (USA)

   1    Sales    $ 22,337,422    Net 60
days
   43.50%

0

  

UNITED MICROELECTRONICS CORPORATION

  

UMC GROUP (USA)

   1    Accounts
receivable
     5,113,267    —      1.40%

0

  

UNITED MICROELECTRONICS CORPORATION

  

UNITED MICROELECTRONICS (EUROPE) B.V.

   1    Sales      3,561,729    Net 60
days
   6.94%

0

  

UNITED MICROELECTRONICS CORPORATION

  

UNITED MICROELECTRONICS (EUROPE) B.V.

   1    Accounts
receivable
     1,401,612    —      0.38%

0

  

UNITED MICROELECTRONICS CORPORATION

  

UMC JAPAN

   1    Sales      1,302,912    Net 60
days
   2.54%

0

  

UNITED MICROELECTRONICS CORPORATION

  

UMC JAPAN

   1    Accounts
receivable
     379,108    —      0.10%

0

  

UNITED MICROELECTRONICS CORPORATION

  

UNITED MICRODISPLAY OPTRONICS CORP.

   1    Long -term
investments
accounted
for under
the
equity
method
     197,798    —      0.05%

 

57


ATTACHMENT 1 (Significant intercompany transactions between consolidated entities)

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

Note 1: UMC and its subsidiaries are coded as follows:

1. UMC is coded “0”.

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

Note 2: Transactions are categorized as follows :

1. The holding company to subsidiary.

2. Subsidiary to holding company.

3. Subsidiary to subsidiary.

Note 3: The sales price to the above related parties was determined through mutual agreement based on the market conditions.

Note 4: The percentage with respect to the consolidated asset/liability for transactions of balance sheet items are based on each item’s balance at period-end.

For profit or loss items, cumulative balances are used as basis.

 

58


ATTACHMENT 2 (Financing provided to others for the six-month period ended June 30, 2008)

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

UNITED MICROELECTRONICS CORPORATION

 

                                                       Collateral          

No.

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

None

                                         

 

59


ATTACHMENT 3 (Endorsement/Guarantee provided to others for the six-month period ended June 30, 2008)

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

UNITED MICROELECTRONICS CORPORATION

 

          Receiving party                              

No.

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

None

                          

 

60


ATTACHMENT 4 (Securities held as of June 30, 2008)

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

UNITED MICROELECTRONICS CORPORATION

 

                    June 30, 2008     

Type of securities

  

Name of securities

  

Relationship

  

Financial statement account

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

Stock

   PROMOS TECHNOLOGIES INC.    —      Financial assets at fair value through profit or loss, current    471,400    $ 2,771,832    7.03    $ 2,771,832    None

Stock

   ACTION ELECTRONICS CO., LTD.    —      Financial assets at fair value through profit or loss, current    16,270      150,333    4.59      150,333    None

Stock

   MICRONAS SEMICONDUCTOR HOLDING AG    —      Financial assets at fair value through profit or loss, current    280      59,936    0.94      59,936    None

Stock

   CHINA DEVELOPMENT FINANCIAL HOLDING CORP.    —      Financial assets at fair value through profit or loss, current    18,944      232,068    0.17      232,068    None

Stock

   YANG MING MARINE TRANSPORT CORP.    —      Financial assets at fair value through profit or loss, current    3,280      65,602    0.14      65,602    None

Stock

   UMC GROUP (USA)    Investee company    Long-term investments accounted for under the equity method    16,438      1,288,279    100.00      1,288,279    None

Stock

   UNITED MICROELECTRONICS (EUROPE) B.V.    Investee company    Long-term investments accounted for under the equity method    9      305,737    100.00      298,123    None

Stock

   UMC CAPITAL CORP.    Investee company    Long-term investments accounted for under the equity method    124,000      3,540,287    100.00      3,540,287    None

Stock

   UNITED MICROELECTRONICS CORP. (SAMOA)    Investee company    Long-term investments accounted for under the equity method    680      8,470    100.00      8,470    None

Stock

   UMCI LTD.    Investee company    Long-term investments accounted for under the equity method    880,006      167    100.00      167    None

Stock

   TLC CAPITAL CO., LTD.    Investee company    Long-term investments accounted for under the equity method    628,800      6,515,204    100.00      6,515,204    None

Stock

   FORTUNE VENTURE CAPITAL CORP.    Investee company    Long-term investments accounted for under the equity method    499,994      8,854,009    99.99      8,891,593    None

Stock

   UNITED MICRODISPLAY OPTRONICS CORP.    Investee company    Long-term investments accounted for under the equity method    84,093      67,004    85.24      67,004    None

Stock

   UMC JAPAN    Investee company    Long-term investments accounted for under the equity method    496      6,003,704    50.09      1,442,877    None

Stock

   PACIFIC VENTURE CAPITAL CO., LTD.    Investee company    Long-term investments accounted for under the equity method    30,000      127,379    49.99      133,469    None

Stock

   MTIC HOLDINGS PTE LTD.    Investee company    Long-term investments accounted for under the equity method    4,000      80,111    49.94      80,111    None

Fund

   MEGA MISSION LIMITED PARTNERSHIP    Investee company    Long-term investments accounted for under the equity method    —        1,654,006    45.00      1,654,006    None

Stock

   UNITECH CAPITAL INC.    Investee company    Long-term investments accounted for under the equity method    21,000      624,819    42.00      624,819