##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 20-F
 
 (Mark One)
 o
    
    Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of
1934
 or
 þ
    
    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2007.
 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 or
 o
    
    Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Date of event requiring this shell company report
 Commission file number 001-15128
 
 United Microelectronics Corporation
 (Exact Name of Registrant as Specified in its Charter)
 
 Taiwan, Republic of China
(Jurisdiction of Incorporation or Organization)
No. 3 Li-Hsin Road II, Hsinchu Science Park,
Hsinchu City, Taiwan, Republic of China
(Address of Principal Executive Offices)
 Peter Courture, telephone: +1 (650) 968-8855, peter@courture.com,
Law + 978 Highlands Circle, Los Altos, CA 94024, USA
 (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 Securities registered or to be registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on which RegisteredAmerican Depositary Shares, as
evidenced by American Depositary
Receipts, each representing 5
Common Shares
    
    New York Stock Exchange
 Securities registered or to be registered pursuant to Section 12(g) of the Act:
 None
 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
 None
 
  13,214,494,883 Common Shares of Registrant issued as of December 31, 2007 (including
704,298,951 treasury shares)
  þ o
  o þ
  þ o
  þ o o
  o
 o þ
  o þ
  o þ




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##### 



UNITED MICROELECTRONICS CORPORATION
 FORM 20-F ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 2007
 Table of Contents
 PageSUPPLEMENTAL
INFORMATION
    
    
    1PART I
    
    
    
    
    3ITEM 1.
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    3ITEM 2.
    
    OFFER STATISTICS AND
EXPECTED TIMETABLE
    
    
    3ITEM 3.
    
    KEY INFORMATION
    
    
    3ITEM 4.
    
    INFORMATION ON THE
COMPANY
    
    
    21ITEM 4A.
    
    UNRESOLVED STAFF COMMENTS
    
    
    38ITEM 5.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    38ITEM 6.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    57ITEM 7.
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    61ITEM 8.
    
    FINANCIAL INFORMATION
    
    
    62ITEM 9.
    
    THE OFFER AND LISTING
    
    
    63ITEM 10.
    
    ADDITIONAL
INFORMATION
    
    
    65ITEM 11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    83ITEM 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    86PART II
    
    
    
    
    86ITEM 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    86ITEM 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
    
    
    86ITEM 15.
    
    CONTROLS AND
PROCEDURES
    
    
    86ITEM 16.
    
    A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    88ITEM 16.
    
    B. CODE OF ETHICS
    
    
    88ITEM 16.
    
    C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    88ITEM 16
    
    D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    88ITEM 16
    
    E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
    
    
    89PART III
    
    
    
    
    89ITEM 17.
    
    FINANCIAL STATEMENTS
    
    
    89ITEM 18.
    
    FINANCIAL STATEMENTS
    
    
    89ITEM 19.
    
    EXHIBITS
    
    
    90EX-1.1 ARTICLES OF INCORPORATIONEX-8.1 LIST OF SIGNIFICANT SUBSIDIARIESEX-12.1 CERTIFICATION OF CEO PURSUANT TO SEC 302EX-12.2 CERTIFICATION OF CFO PURSUANT TO SEC 302EX-13.1 CERTIFICATION OF CEO PURSUANT TO SEC 906EX-13.2 CERTIFICATION OF CFO PURSUANT TO SEC 906EX-15.1 CONSENT OF ACCOUNTING FIRM




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##### Table of Contents



SUPPLEMENTAL INFORMATION
  
 FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT
MAY NOT BE REALIZED
  
    
    our dependence on frequent introduction of new product services and technologies
based on the latest developments;
    
    the intensely competitive semiconductor, communications, consumer electronics and PC
industries and markets;
    
    risks associated with our international business activities;
    
    our dependence on key personnel;
    
    general economic and political conditions, including those related to the
semiconductor, communications, consumer electronics and PC industries;
    
    natural disasters, such as earthquakes and droughts, which are beyond our control;
    
    possible disruptions in commercial activities caused by natural and human-induced
disasters and outbreaks of contagious diseases;
    
    fluctuations in foreign currency exchange rates;
    
    additional disclosures we make in our previous and future Form 20-F annual reports
and Form 6-K periodic reports to the U.S. Securities and Exchange Commission; and
 1




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##### Table of Contents




    
    those other risks identified in the Item 3. Key InformationD. Risk Factors
section of this annual report.
  GLOSSARY
 ASIC
    
    Application Specific Integrated Circuit. A custom-designed integrated circuit that performs
specific functions which would otherwise require a number of off-the-shelf integrated
circuits to perform.Cell
    
    Semiconductor structure in an electrical state which can store a bit of information, mainly
used as the building block of memory array.Die
    
    A piece of a semiconductor wafer containing the circuitry of an unpackaged single chip.DRAM
    
    Dynamic Random Access Memory. A type of volatile memory product that is used in electronic
systems to store data and program instructions. It is the most common type of RAM and must be
refreshed with electricity hundreds of times per second or else it will fade away.FPGA
    
    Field Programmable Gate Array. A programmable integrated circuit.Integrated circuit
    
    Entire electronic circuit built on a single piece of solid substrate and
enclosed in a small package. The package is equipped with leads needed to electrically
integrate the integrated circuit with a larger electronic system. Monolithic and hybrid
integrated circuits are distinguished by the type of substrate used.Interconnect
    
    The conductive path made from copper or aluminum that is required to achieve
connection from one circuit element to the other circuit elements within a circuit.Mask
    
    Photomask. A piece of glass on which an integrated circuit circuitry design is laid out.Memory
    
    A group of integrated circuits that a computer uses to store data and programs, such as
ROM, RAM, DRAM and SRAM.Micron
    
    A unit of spatial measurement that is one-millionth of a meter.Nanometer
    
    A unit of spatial measurement that is one-billionth of a meter.PC
    
    Personal computer.RAM
    
    Random Access Memory. A type of volatile memory forming the main memory of a computer where
applications and files are run.ROM
    
    Read-Only Memory. Memory that is programmed by the manufacturer and cannot be changed.
Typically, ROM is used to provide start-up data when a computer is first turned on.
 2




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Scanner
    
    A photolithography tool used in the production of semiconductor devices. This camera-like
step-and-scan tool projects the image of a circuit from a master image onto a photosensitized
silicon wafer.Semiconductor
    
    A material with electrical conducting properties in between those of metals and
insulators. Essentially, semiconductors transmit electricity only under certain
circumstances, such as when given a positive or negative electric charge. Therefore, a
semiconductors ability to conduct can be turned on or off by manipulating those charges and
this allows the semiconductor to act as an electric switch. The most common semiconductor
material is silicon, used as the base of most semiconductor chips today because it is
relatively inexpensive and easy to create.SoC
    
    System-on-Chip. A chip that incorporates functions currently performed by several chips on
a cost-effective basis.SOI
    
    Silicon-On-Insulator. Silicon wafer consisting of a thin layer of oxide, on top of which
semiconductor devices are built.SRAM
    
    Static Random Access Memory. A type of volatile memory product that is used in electronic
systems to store data and program instructions. Unlike the more common DRAM, it does not need
to be refreshed.Transistor
    
    Tri-terminal semiconductor device in which input signal (voltage or current depending
on the type of transistor) controls output current. An individual circuit that can amplify or
switch electric current. This is the building block of all integrated circuits.Volatile memory
    
    Memory products which lose their data content when the power supply is switched
off.Wafer
    
    Thin, round, flat piece of silicon that is the base of most integrated circuits.8-inch wafer equivalents
    
    Standard unit describing the equivalent amount of 8-inch wafers produced
after conversion, used to quantify levels of wafer production for purposes of comparison.
Figures of 8-inch wafer equivalents are derived by converting the number of wafers of all
dimensions (e.g., 6-inch, 8-inch and 12-inch) into their equivalent figures for 8-inch
wafers. 100 6-inch wafers are equivalent to 56.25 8-inch wafers. 100 12-inch wafers are
equivalent to 225 8-inch wafers.
 
 PART I
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
 A. Selected Financial Data
  3




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Year Ended December 31,2003
    
    2004
    
    2005
    
    2006
    
    2007NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    US$(in millions , except per share and per ADS data)Consolidated Statement of Income Data:ROC GAAPNet operating revenues
    
    
    95,704
    
    
    
    129,191
    
    
    
    100,316
    
    
    
    112,004
    
    
    
    113,311
    
    
    
    3,494Costs of goods sold
    
    
    73,938
    
    
    
    92,393
    
    
    
    90,643
    
    
    
    90,638
    
    
    
    89,768
    
    
    
    2,768Gross profit
    
    
    21,766
    
    
    
    36,798
    
    
    
    9,673
    
    
    
    21,366
    
    
    
    23,543
    
    
    
    726Operating expenses:Sales and marketing
    
    
    2,171
    
    
    
    2,775
    
    
    
    3,739
    
    
    
    3,366
    
    
    
    4,069
    
    
    
    125General and administrative
    
    
    3,996
    
    
    
    4,853
    
    
    
    4,387
    
    
    
    3,422
    
    
    
    3,724
    
    
    
    115Research and development
    
    
    5,859
    
    
    
    7,364
    
    
    
    9,634
    
    
    
    9,419
    
    
    
    9,631
    
    
    
    297Total operating expenses
    
    
    12,026
    
    
    
    14,992
    
    
    
    17,760
    
    
    
    16,207
    
    
    
    17,424
    
    
    
    537Operating income (loss)
    
    
    9,740
    
    
    
    21,806
    
    
    
    (8,087
    )
    
    
    5,159
    
    
    
    6,119
    
    
    
    189Net non-operating income
    
    
    4,956
    
    
    
    9,938
    
    
    
    13,693
    
    
    
    31,428
    
    
    
    13,551
    
    
    
    418Income before income tax and minority
interest
    
    
    14,696
    
    
    
    31,744
    
    
    
    5,606
    
    
    
    36,587
    
    
    
    19,670
    
    
    
    607Income tax expense
    
    
    (980
    )
    
    
    (374
    )
    
    
    (67
    )
    
    
    (3,261
    )
    
    
    (2,809
    )
    
    
    (87
    )Cumulative effect of changes in accounting
principles (the net amount after deducted
tax expense $0)(1)
    
    
    
    
    
    
    
    
    
    
    (113
    )
    
    
    (1,189
    )
    
    
    
    
    
    
    Minority interest loss
    
    
    304
    
    
    
    473
    
    
    
    1,601
    
    
    
    482
    
    
    
    101
    
    
    
    3Net income
    
    
    14,020
    
    
    
    31,843
    
    
    
    7,027
    
    
    
    32,619
    
    
    
    16,962
    
    
    
    523Earnings per share:(2)(3)Basic
    
    
    0.75
    
    
    
    1.68
    
    
    
    0.38
    
    
    
    1.81
    
    
    
    1.09
    
    
    
    0.03Diluted(5)
    
    
    0.73
    
    
    
    1.65
    
    
    
    0.37
    
    
    
    1.75
    
    
    
    1.06
    
    
    
    0.03Shares used in earnings per share
calculation:(3)Basic
    
    
    18,788
    
    
    
    18,995
    
    
    
    18,647
    
    
    
    18,051
    
    
    
    15,618
    
    
    
    15,618Diluted(5)
    
    
    19,218
    
    
    
    19,298
    
    
    
    18,934
    
    
    
    18,675
    
    
    
    16,073
    
    
    
    16,073Earnings per ADS:(3)Basic
    
    
    3.75
    
    
    
    8.40
    
    
    
    1.90
    
    
    
    9.05
    
    
    
    5.45
    
    
    
    0.17Diluted(5)
    
    
    3.65
    
    
    
    8.25
    
    
    
    1.85
    
    
    
    8.75
    
    
    
    5.30
    
    
    
    0.16US GAAPNet operating revenues
    
    
    95,704
    
    
    
    129,191
    
    
    
    96,782
    
    
    
    112,004
    
    
    
    113,311
    
    
    
    3,494Costs of goods sold
    
    
    (77,473
    )
    
    
    (96,895
    )
    
    
    (89,743
    )
    
    
    (93,326
    )
    
    
    (92,081
    )
    
    
    (2,839
    )Operating income (loss)
    
    
    5,632
    
    
    
    (24,681
    )
    
    
    (29,072
    )
    
    
    2,162
    
    
    
    (20,061
    )
    
    
    (619
    )Net income (loss)
    
    
    12,331
    
    
    
    (14,237
    )
    
    
    (15,669
    )
    
    
    21,797
    
    
    
    (9,264
    )
    
    
    (286
    )Other comprehensive income (loss)
    
    
    14,636
    
    
    
    (16,451
    )
    
    
    23,708
    
    
    
    (8,194
    )
    
    
    (4,863
    )
    
    
    (150
    )Comprehensive income (loss)
    
    
    26,967
    
    
    
    (30,688
    )
    
    
    8,039
    
    
    
    13,602
    
    
    
    (14,127
    )
    
    
    (436
    )Earnings (losses) per share:(2)(4)Basic
    
    
    0.81
    
    
    
    (0.92
    )
    
    
    (1.01
    )
    
    
    1.48
    
    
    
    (0.66
    )
    
    
    (0.02
    )Diluted(5)
    
    
    0.80
    
    
    
    (0.92
    )
    
    
    (1.01
    )
    
    
    1.44
    
    
    
    (0.66
    )
    
    
    (0.02
    )Shares used in earnings (loss) per share
calculation:(4)Basic
    
    
    15,184
    
    
    
    15,444
    
    
    
    15,488
    
    
    
    14,689
    
    
    
    13,971
    
    
    
    13,971Diluted(5)
    
    
    15,456
    
    
    
    15,444
    
    
    
    15,488
    
    
    
    15,207
    
    
    
    13,971
    
    
    
    13,971Earnings (loss) per ADS:(4)Basic
    
    
    4.06
    
    
    
    (4.61
    )
    
    
    (5.06
    )
    
    
    7.42
    
    
    
    (3.32
    )
    
    
    (0.10
    )Diluted(5)
    
    
    3.99
    
    
    
    (4.61
    )
    
    
    (5.06
    )
    
    
    7.18
    
    
    
    (3.32
    )
    
    
    (0.10
    )
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Year Ended December 31,2003
    
    2004
    
    2005
    
    2006
    
    2007NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    US$(in million)Consolidated Balance Sheet Data:ROC GAAPCurrent assets
    
    
    154,322
    
    
    
    132,936
    
    
    
    144,863
    
    
    
    132,344
    
    
    
    81,111
    
    
    
    2,501Long-term investment
    
    
    38,859
    
    
    
    32,712
    
    
    
    30,797
    
    
    
    71,964
    
    
    
    69,813
    
    
    
    2,153Property, plant and equipment
    
    
    149,557
    
    
    
    192,024
    
    
    
    159,114
    
    
    
    151,828
    
    
    
    137,219
    
    
    
    4,231Total assets
    
    
    354,514
    
    
    
    376,305
    
    
    
    347,049
    
    
    
    367,653
    
    
    
    299,558
    
    
    
    9,237Current liabilities
    
    
    44,140
    
    
    
    36,598
    
    
    
    36,960
    
    
    
    36,104
    
    
    
    45,288
    
    
    
    1,396Long-term debt (excluding current portion)
    
    
    60,334
    
    
    
    61,288
    
    
    
    41,692
    
    
    
    30,383
    
    
    
    7,495
    
    
    
    231Total liabilities
    
    
    107,203
    
    
    
    101,202
    
    
    
    82,429
    
    
    
    70,251
    
    
    
    56,561
    
    
    
    1,744Stockholders equity
    
    
    232,233
    
    
    
    266,374
    
    
    
    258,284
    
    
    
    291,165
    
    
    
    236,467
    
    
    
    7,292US GAAPCash and cash equivalents
    
    
    89,196
    
    
    
    55,558
    
    
    
    63,508
    
    
    
    61,649
    
    
    
    47,678
    
    
    
    1,470Working capital(6)
    
    
    108,539
    
    
    
    96,690
    
    
    
    105,846
    
    
    
    95,927
    
    
    
    35,273
    
    
    
    1,088Total assets
    
    
    486,307
    
    
    
    452,630
    
    
    
    426,706
    
    
    
    401,628
    
    
    
    310,614
    
    
    
    9,578Total liabilities
    
    
    107,533
    
    
    
    101,599
    
    
    
    83,943
    
    
    
    71,226
    
    
    
    56,795
    
    
    
    1,751Stockholders equity
    
    
    363,736
    
    
    
    342,420
    
    
    
    336,425
    
    
    
    324,162
    
    
    
    247,302
    
    
    
    7,626
 Year Ended December 31,2003
    
    2004
    
    2005
    
    2006
    
    2007NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    US$(in millions , except per share and per ADS data)Other Consolidated Data:ROC GAAPCash flow:Capital expenditure
    
    
    24,820
    
    
    
    81,110
    
    
    
    22,163
    
    
    
    33,240
    
    
    
    28,299
    
    
    
    873Cash provided by operating activities
    
    
    49,625
    
    
    
    72,490
    
    
    
    45,046
    
    
    
    47,078
    
    
    
    48,079
    
    
    
    1,483Cash used in investing activities
    
    
    (24,114
    )
    
    
    (72,380
    )
    
    
    (7,487
    )
    
    
    (16,511
    )
    
    
    (21,799
    )
    
    
    (672
    )Cash provided (used) by financing activities
    
    
    17,581
    
    
    
    (16,137
    )
    
    
    (29,592
    )
    
    
    (45,056
    )
    
    
    (72,694
    )
    
    
    (2,242
    )Net increase (decrease) in cash and cash
equivalents
    
    
    43,869
    
    
    
    (17,390
    )
    
    
    7,245
    
    
    
    (14,774
    )
    
    
    (46,175
    )
    
    
    (1,424
    )Gross profit margin
    
    
    22.7
    %
    
    
    28.5
    %
    
    
    9.6
    %
    
    
    19.1
    %
    
    
    20.8
    %
    
    
    20.8
    %Operating profit (loss) margin
    
    
    10.2
    %
    
    
    16.9
    %
    
    
    (8.1
    )%
    
    
    4.6
    %
    
    
    5.4
    %
    
    
    5.4
    %Net profit margin
    
    
    14.6
    %
    
    
    24.6
    %
    
    
    7.0
    %
    
    
    29.1
    %
    
    
    15.0
    %
    
    
    15.0
    %Capacity utilization rate (on an actual basis)
    
    
    84.8
    %
    
    
    90.8
    %
    
    
    72.4
    %
    
    
    79.5
    %
    
    
    81.9
    %
    
    
    81.9
    %Dividends declared per share (7)
    
    
    0.4
    
    
    
    0.8
    
    
    
    1.1
    
    
    
    0.5
    
    
    
    0.7
    
    
    
    0.02US GAAPCash flow:Capital expenditure
    
    
    24,827
    
    
    
    81,127
    
    
    
    22,163
    
    
    
    33,240
    
    
    
    28,299
    
    
    
    873Cash provided by operating activities
    
    
    49,543
    
    
    
    72,312
    
    
    
    45,019
    
    
    
    46,339
    
    
    
    45,739
    
    
    
    1,410Cash used in investing activities
    
    
    (32,923
    )
    
    
    (88,402
    )
    
    
    (6,036
    )
    
    
    (9,691
    )
    
    
    10,405
    
    
    
    321Cash provided (used) by financing activities
    
    
    17,587
    
    
    
    (16,124
    )
    
    
    (29,565
    )
    
    
    (38,222
    )
    
    
    (70,354
    )
    
    
    (2,169
    )Net increase (decrease) in cash and cash
equivalents
    
    
    34,977
    
    
    
    (33,639
    )
    
    
    7,951
    
    
    
    (1,859
    )
    
    
    (13,971
    )
    
    
    (431
    )Gross profit margin
    
    
    19.0
    %
    
    
    25.0
    %
    
    
    7.3
    %
    
    
    16.7
    %
    
    
    18.7
    %
    
    
    18.7
    %Operating profit (loss) margin
    
    
    5.9
    %
    
    
    (19.1
    )%
    
    
    (30.0
    )%
    
    
    1.9
    %
    
    
    (17.7
    %)
    
    
    (17.7
    %)Net profit (loss) margin
    
    
    12.9
    %
    
    
    (11.0
    )%
    
    
    (16.2
    )%
    
    
    19.5
    %
    
    
    (8.2
    %)
    
    
    (8.2
    %)
 
 (1)
    
    Refer to Note 3 to the audited consolidated financial statements included elsewhere in this
annual report.(2)
    
    Earnings (losses) per share is calculated by dividing net income by the weighted average
number of shares outstanding during the year.(3)
    
    Retroactively adjusted for all subsequent stock dividends and employee stock bonuses.(4)
    
    Retroactively adjusted for all subsequent stock dividends and capital reduction completed in
2007.(5)
    
    Diluted securities include convertible bonds and employee stock options.(6)
    
    Working capital equals current assets minus current liabilities.(7)
    
    Dividends declared per share are in connection with earnings and accumulated additional
paid-in capital.(8)
    
    Refer to Note 35 to the audited consolidated financial statements included elsewhere in this
annual report. 5




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##### Table of Contents



Currency Translations and Exchange Rates
  AtAverage(1)
    
    High
    
    Low
    
    Period-End2003
    
    
    34.40
    
    
    
    34.98
    
    
    
    33.72
    
    
    
    33.992004
    
    
    33.27
    
    
    
    34.16
    
    
    
    31.74
    
    
    
    31.742005
    
    
    32.13
    
    
    
    33.77
    
    
    
    30.65
    
    
    
    32.802006
    
    
    32.51
    
    
    
    33.31
    
    
    
    31.28
    
    
    
    32.592007
    
    
    32.85
    
    
    
    33.41
    
    
    
    32.26
    
    
    
    32.43October
    
    
    32.55
    
    
    
    32.61
    
    
    
    32.39
    
    
    
    32.39November
    
    
    32.33
    
    
    
    32.40
    
    
    
    32.26
    
    
    
    32.26December
    
    
    32.41
    
    
    
    32.43
    
    
    
    32.30
    
    
    
    32.432008      (through April 30)
    
    
    31.23
    
    
    
    32.49
    
    
    
    29.99
    
    
    
    30.45January
    
    
    32.36
    
    
    
    32.49
    
    
    
    32.15
    
    
    
    32.15February
    
    
    31.61
    
    
    
    32.03
    
    
    
    30.90
    
    
    
    30.92March
    
    
    30.58
    
    
    
    31.09
    
    
    
    29.99
    
    
    
    30.37April (through April 30)
    
    
    30.35
    
    
    
    30.52
    
    
    
    30.26
    
    
    
    30.45
 
 Source: Federal Reserve Statistical Release, Board of Governors of the Federal Reserve System.(1)
    
    Determined by averaging the rates on the last business day of each month during the relevant
period for annual periods and the rates on each business day for monthly periods. B. Capitalization and Indebtedness
  C. Reasons for the Offer and Use of Proceeds
  D. Risk Factors
 Our business and operations are subject to various risks, many of which are beyond our
control. If any of the risks described below actually occurs, our business, financial condition or
results of operations could be seriously harmed.
 Risks Related to Our Business and Financial Condition
 Our operating results fluctuate from quarter to quarter, which makes it difficult to predict our
future performance.
  
    
    the seasonality and cyclical nature of both the semiconductor industry and the
markets served by our customers;
    
    our customers adjustments in their inventory;
 6




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##### Table of Contents




    
    the loss of a key customer or the postponement of orders from a key customer;
    
    the rescheduling and cancellation of large orders;
    
    our ability to obtain equipment, raw materials, electricity, water and other
required utilities on a timely and economic basis;
    
    outbreaks of contagious diseases, including severe acute respiratory syndrome and
avian flu;
    
    environmental events, such as fires and earthquakes, or industrial accidents; and
    
    technological changes.
  The seasonality and cyclical nature of the semiconductor industry and periodic overcapacity make us
particularly vulnerable to significant and sometimes prolonged economic downturns.
   A decrease in demand for or selling prices of communication devices, consumer electronics and PCs
may decrease the demand for our services and reduce our margins.
  7




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Overcapacity in the semiconductor industry may reduce our revenues, earnings and margins.
  Any problem in the semiconductor outsourcing infrastructure can adversely affect our net operating
revenues and profitability.
  We may be unable to implement new technology as it becomes available, which may result in our loss
of customers and market share.
  We may be unable to provide leading technology to our customers if we lose the support of our
technology partners.
  Our business may suffer if we cannot compete successfully in our industry.
  8




---



##### Table of Contents




    
    technical competence;
    
    time-to-volume production and cycle time;
    
    time-to-market;
    
    research and development quality;
    
    available capacity;
    
    manufacturing yields;
    
    customer service;
    
    price;
    
    management expertise; and
    
    strategic alliances.
  Our profit margin may substantially decline if we are unable to continuously improve our
manufacturing yields, maintain high capacity utilization and optimize the technology mix of our
silicon wafer production.
  
    
    maintain our capacity utilization, that is, the wafer-out quantity of 8-inch wafer
equivalents divided by estimated total 8-inch equivalent capacity in a specified
period. The estimated capacity numbers may differ depending upon equipment delivery
schedules, pace of migration to more advanced process technologies and other factors
affecting production ramp-ups;
    
    maintain or improve our manufacturing yield, that is, the percentage of usable
manufactured devices on a wafer; and
    
    optimize the technology mix of our production, that is, the relative number of
wafers manufactured utilizing different process technologies.
  9




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##### Table of Contents



We may not be able to implement our planned growth if we are unable to obtain the financing
necessary to fund the substantial capital expenditures we expect to incur.
  
    
    our growth plan;
    
    our process technology;
    
    market conditions;
    
    interest rates;
    
    exchange rate fluctuations; and
    
    prices of equipment.
  We depend on a small number of customers for a significant portion of our net operating revenues
and a loss of some of these customers would result in the loss of a significant portion of our net
operating revenues.
  Our customers generally do not place purchase orders far in advance, which makes it difficult for
us to predict our future revenues, adjust production costs and allocate capacity efficiently on a
timely basis.
  10




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##### Table of Contents



Our inability to obtain, preserve and defend intellectual property rights could harm our
competitive position.
   
    
    seek to acquire licenses to the infringed technology which may not be available on
commercially reasonable terms, if at all;
    
    discontinue using certain process technologies, which could cause us to stop
manufacturing certain semiconductors;
    
    pay substantial monetary damages; or
    
    seek to develop non-infringing technologies, which may not be feasible.
  Two of our former executives were charged with criminal offenses and our company was fined for
violations of the Act Governing Relations Between Peoples of the Taiwan Area and the Mainland Area
in connection with our alleged involvement in the operation of Hejian Technology (Suzhou) Co.,
Ltd., a semiconductor manufacturer in China.
   11




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##### Table of Contents



We have been offered a 15% interest in a holding company that owns Hejian, but such investment may
not materialize.
  Our operations and business will suffer if we lose one or more of our key personnel without
adequate replacements.
  We may have difficulty attracting and retaining skilled employees, who are critical to our future
success.
  12




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##### Table of Contents



Our transactions with affiliates and shareholders may hurt our profitability and competitive
position.
  We could experience a loss in investor confidence in the reliability of our financial statements if
we restate our financial statements again in the future, thus could negatively impact the market
price of the shares or ADSs.
  The differences between ROC and U.S. accounting standards affect the amount of our net income.
  Any future outbreak of contagious diseases may materially and adversely affect our business and
operations, as well as our financial condition and results of operations.
  Risks Relating to Manufacturing
 Our manufacturing processes are highly complex, costly and potentially vulnerable to impurities and
other disruptions that can significantly increase our costs and delay product shipments to our
customers.
  13




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##### Table of Contents




    
    capacity constraints due to changes in product mix or the delayed delivery of
equipment critical to our production, including scanners, steppers and chemical
stations;
    
    construction delays during expansions of our clean rooms and other facilities;
    
    difficulties in increasing production at new and existing facilities;
    
    difficulties in upgrading or expanding existing facilities;
    
    manufacturing execution system or automatic transportation system failure;
    
    changing or upgrading our process technologies; and
    
    raw materials shortages and impurities.
  We may have difficulty in ramping up production in accordance with our schedule, which could cause
delays in product deliveries and decreases in manufacturing yields.
  
    
    the migration to more advanced process technologies, such as 65- and 45-nanometer
process technology;
    
    the joint development with vendors for more powerful tools (both in production and
inspection) needed in the future to meet advanced process technology requirements; and
    
    the adoption of new materials in our manufacturing processes.
  Our production schedules could be delayed and we may lose customers if we are unable to obtain raw
materials and equipment in a timely manner.
  14




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##### Table of Contents



We may be subject to the risk of loss due to fire because the materials we use in our manufacturing
processes are highly flammable.
  We and many of our customers and suppliers are vulnerable to natural disasters and other events
outside of our control, which may seriously disrupt our operations.
  Our operations may be delayed or interrupted and our business could suffer if we violate
environmental regulations.
  15




---



##### Table of Contents



Disruptions
in the international trading environment may seriously decrease our international sales.
   Political, Economic and Regulatory Risks
 We face substantial political risks associated with doing business in Taiwan, particularly due to
the tense relationship between the ROC and the Peoples Republic of China, or the PRC, that could
negatively affect the value of your investment.
  Our business depends on the support of the ROC government, and a decrease in this support may
increase our labor costs and decrease our net income after tax.
   16




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##### Table of Contents



The trading price of the shares and ADSs may be adversely affected by the general activities of the
Taiwan Stock Exchange and U.S. stock exchanges, the trading price of our shares, increases in
interest rates and the economic performance of Taiwan.
   Currency fluctuations could increase our costs relative to our revenues, which could adversely
affect our profitability.
  Our future tax obligations may adversely affect our profitability.
  17




---



##### Table of Contents



Risks Related to the Shares and ADSs and Our Trading Markets
 Restrictions on the ability to deposit shares into our ADS program may adversely affect the
liquidity and price of the ADSs.
  (1)
    
    distribution of share dividends or free distribution of our shares;(2)
    
    exercise of the preemptive rights of ADS holders applicable to the shares
evidenced by ADSs in the event of capital increases for cash; or(3)
    
    delivery of our shares which are purchased in the domestic market in Taiwan
directly by the investor or through the depositary or are already in the possession of
the investor to the custodian for deposit into our ADS program, subject to the
following conditions: (a) the re-issuance is permitted under the deposit agreement and
custody agreement, (b) the depositary may accept deposit of those shares and issue the
corresponding number of ADSs with regard to such deposit only if the total number of
ADSs outstanding after the issuance does not exceed the number of ADSs previously
approved by the ROC FSC, plus any ADSs issued pursuant to the events described in (1)
and (2) above and (c) this deposit may only be made to the extent previously issued
ADSs have been withdrawn.
  Holders of our ADSs will not have the same proposal or voting rights as the holders of our shares,
which may affect the value of your investment.
    18




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##### Table of Contents



The rights of holders of our ADSs to participate in our rights offerings may be limited, which may
cause dilution to their holdings.
  Changes in exchange controls that restrict your ability to convert proceeds received from your
ownership of ADSs may have an adverse effect on the value of your investment.
  
    
    the proceeds of the sale of shares represented by ADSs or received as share
dividends with respect to the shares and deposited into the depositary receipt
facility; and
    
    any cash dividends or distributions received from the shares represented by ADSs.
   Our public shareholders may have more difficulty protecting their interests than they would as
shareholders of a U.S. corporation.
  19




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##### Table of Contents



Holders of our ADSs will be required to appoint several local agents in Taiwan if they withdraw
shares from our ADS program and become our shareholders, which may make ownership burdensome.
  You may not be able to enforce a judgment of a foreign court in the ROC.
  
    
    the court rendering the judgment does not have jurisdiction over the subject matter
according to ROC law;
    
    the judgment is contrary to the public order or good morals of the ROC;
    
    the judgment was rendered by default, except where the summons or order necessary
for the commencement of the action was legally served on us within the jurisdiction of
the court rendering the judgment within a reasonable period of time or with judicial
assistance of the ROC; or
    
    judgments of ROC courts are not recognized in the jurisdiction of the court
rendering the judgment on a reciprocal basis.
 We may be considered a passive foreign investment company, which could result in adverse U.S. tax
consequences for U.S. investors.
   20




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##### Table of Contents



ITEM 4. INFORMATION ON THE COMPANY
 A. History and Development of the Company
     21




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##### Table of Contents



Our Strategy
  Operate as a SoC Solution Foundry.
 Build up Customer-focused Partnership Business Model.
 22




---



##### Table of Contents



Continue to Focus on High Growth Applications and Customers.
 Maintain Our Leading Position in Mass-Producible Semiconductor Technology and Selectively
Pursue Strategic Investments in New Technologies.
  Maintain Scale and Capacity Capabilities to Meet Customer Requirements, with a Focus on
12-inch Wafer Facilities for Future Expansion.
 23




---



##### Table of Contents



B. Business Overview
 Manufacturing Facilities
    Fab 6A
    
    Fab 8AB
    
    Fab 8C
    
    Fab 8D
    
    Fab 8E
    
    Fab 8F
    
    Fab 8S
    
    Fab 12A
    
    Fab 12i
    
    UMCJCommencement of volume production
    
    1989
    
    1995 for the module formerly named Fab 8A; 1996 for the module formerly named Fab 8B
    
    1998
    
    2000
    
    FABII 1998 FAB2A 2000
    
    2000
    
    2000
    
    2002
    
    2004
    
    1996Estimated full capacity (1) (2)
    
    49,300 wafers per month
    
    68,000 wafers per month
    
    33,500 wafers per month
    
    22,000 wafers per month
    
    34,000 wafers per month
    
    31,000 wafers per month
    
    23,000 wafers per month
    
    35,000 wafers per month
    
    26,000 wafers per month
    
    20,000 wafers per monthWafer size
    
    6-inch (150mm)
    
    8-inch (200mm)
    
    8-inch (200mm)
    
    8-inch (200mm)
    
    8-inch (200mm)
    
    8-inch (200mm)
    
    8-inch (200mm)
    
    12-inch (300mm)
    
    12-inch (300mm)
    
    8-inch (200mm)Clean room area (3)
    
    5,250 sq. meters
    
    25,029 sq. meters
    
    19,764 sq. meters
    
    16,589 sq. meters
    
    21,576 sq. meters
    
    13,812 sq. meters
    
    8,163 sq. meters
    
    24,860 sq. meters
    
    26,366 sq. meters
    
    10,367 sq. metersType of clean rooms (4)
    
    Class-10 @0.1um, clean tunnel
    
    Class-0.1 @0.1um, clean tunnel
    
    Class-0.1 @0.1um, clean tunnel
    
    Class100 @0.3um, SMIF/mini-environment
    
    FABII: Class-1000@0.3 um FAB2A: Class100@0.3um, SMIF/mini-environment
    
    Class 100 @0.3um, SMIF/mini-environment
    
    Class 1000 @0.3um, SMIF/mini-environment
    
    Class 100 @0.3um, SMIF/mini-environment
    
    Class 100 @0.3um, SMIF/mini-environment
    
    Class-1 @0.1um, clean tunnel
 
 (1)
    
    Measured in original wafer size.(2)
    
    The capacity of a fab is determined based on the capacity ratings given by manufacturers of
the equipment used in the fab, adjusted for, among other factors, actual output during
uninterrupted trial runs, expected down time due to set up for production runs and maintenance
and expected product mix.(3)
    
    Area represents the total area of clean rooms within a fab. Clean room area of Fab 12i area
includes Module B area of 11,737 square meters.(4)
    
    Class represents the cleanliness of clean rooms in the fab. Class-10@0.1um means a standard
of air purity under which the amount of dust is limited to fewer than 10 particles of
contaminants of 0.1 micron or greater per one cubic foot per minute of air flow.
Class-0.1@0.1um means a standard of air purity under which the amount of dust is limited to
fewer than one particle of contaminant of 0.1 micron or greater per 10 cubic feet per minute
of air flow. Class-100@0.3um means a standard of air purity under which the amount of dust is
limited to fewer than 100 particles of contaminants of 0.3 micron or greater per one cubic
foot per minute of air flow. Class-1000@0.3um means a standard of air purity under which the
amount of dust is limited to fewer than 1,000 particles of contaminants of 0.3 micron or greater per one cubic foot per minute of air
flow. The general production environment may be organized into clean tunnels or mini
environments. In a clean tunnel environment, the clean room is divided into many tunnels with
partitions. A higher level of cleanliness is kept inside the tunnel for production.
Mini-environments within a clean room use Standard Mechanical Interface technology, or SMIF,
which employs input/output devices designed to protect products from contamination while
providing a standard mechanical interface to wafer production tools. Mini-environment is
generally a preferred approach because it reduces building structural costs and operating costs,
allows flexibility in equipment layout and facilitates the ramping-up process during capacity
expansion. 24




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##### Table of Contents



Size
    
    
    
    Land
    
    BuildingLocation
    
    (Land/Building)
    
    Primary Use
    
    (Owned or Leased)
    
    (Owned or Leased)(in square meters)Fab 6A, 10
Innovation 1st Rd., 
Hsinchu Science
Park, Hsinchu,
Taiwan 300, ROC
    
    27,898/34,981
    
    6-inch wafer production
    
    Leased (expires in
December 2026)
    
    OwnedFab 8AB, 3 Li-Hsin
2nd Rd.,
Hsinchu Science
Park, Hsinchu,
Taiwan 300, ROC.
    
    62,114/81,751
    
    8-inch wafer production
    
    Leased (expires in
March 2014)
    
    OwnedFab 8C, 6 Li-Hsin
3rd Rd.,
Hsinchu Science
Park, Hsinchu,
Taiwan 300, ROC
    
    9,007/28,984
    
    8-inch wafer production
    
    Leased (expires in
March 2016)
    
    OwnedFab 8D, 8 Li-Hsin
3rd Rd.,
Hsinchu Science
Park, Hsinchu,
Taiwan 300, ROC
    
    9,089/29,181
    
    8-inch wafer production
    
    Leased (expires in
March 2016)
    
    OwnedFab 8E, 17 Li-Hsin
Rd., Hsinchu
Science Park,
Hsinchu, Taiwan
300, ROC
    
    35,000/74,067
    
    8-inch wafer production
    
    Leased (expires in
February 2016)
    
    OwnedFab 8F, 3 Li-Hsin
6th Rd., 
Hsinchu Science
Park, Hsinchu,
Taiwan 300, ROC.
    
    24,180/65,744
    
    8-inch wafer production
    
    Leased (expires in
February 2018)
    
    OwnedFab 8S, 16 Creation
1st Rd., 
Hsinchu Science
Park, Hsinchu,
Taiwan 300, ROC.
    
    20,404/65,614
    
    8-inch wafer production
    
    Leased (expires in
December 2023)
    
    OwnedFab 12A, 18 Nan-Ke
2nd Rd., 
Tainan Science
Park, Sinshih,
Tainan, Taiwan 741,
ROC.
    
    56,000/165,607
    
    12-inch wafer production
    
    Leased (expires in
October 2017)
    
    OwnedFab 12i, 3 Pasir 
Ris Drive 12
Singapore 519528
    
    84,836/142,340
    
    12-inch wafer production
    
    Leased (expires in
March 2031)
    
    OwnedUMCJ, 1580,
Yamamoto, 
Tateyama-City,
Chiba, Japan
    
    388,402/21,639
    
    8-inch wafer production
    
    71% owned, 29%
leased (expires in
June 2049)
    
    OwnedUnited Tower, 3
Li-Hsin 2nd Rd.,
Hsinchu Science
Park, Hsinchu,
Taiwan 300, ROC.
    
    5,737/85,224
    
    Administration office
    
    Leased (expires in
March 2014)
    
    OwnedTunhwa South Rd.
Office, 3F, 76,
Sec. 2, Tunhwa S.
Rd., Taipei, Taiwan
106, ROC
    
    166/2,221
    
    Administration office
    
    Owned
    
    OwnedTesting Building,
1, Chin-Shan, St.
7, Hsinchu, Taiwan
300, ROC.
    
    10,762/41,318
    
    Leased to several companies
    
    Owned
    
    Owned
 25




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##### Table of Contents



Size
    
    
    
    Land
    
    BuildingLocation
    
    (Land/Building)
    
    Primary Use
    
    (Owned or Leased)
    
    (Owned or Leased)(in square meters)R&D Building, 18
Nan-Ke
2nd Rd.,
Tainan Science
Park, Sinshih,
Tainan, Taiwan 741,
ROC.
    
    99,661/46,712
    
    Research and development
    
    Leased (expires in 
December 2023)
    
    Owned
 Process Technology
     26




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##### Table of Contents



Year EndedDecember 31,2007 Range ofYear of
    
    Process
    
    Year Ended December 31,Commencement of
    
    Technologies (in
    
    2005
    
    2006
    
    2007Operation
    
    microns)
    
    (in thousands of 8-inch wafer equivalents, except percentages)FabFab 6A
    
    
    1989
    
    
    
    0.5
    
    
    
    344
    
    
    
    328
    
    
    
    328Fab 8AB
    
    
    1995
    
    
    
    0.5 to 0.25
    
    
    
    816
    
    
    
    816
    
    
    
    816Fab 8C
    
    
    1998
    
    
    
    0.35 to 0.15
    
    
    
    401
    
    
    
    400
    
    
    
    400Fab 8D
    
    
    2000
    
    
    
    0.18 to 0.09
    
    
    
    274
    
    
    
    252
    
    
    
    260Fab 8E
    
    
    1998
    
    
    
    0.5 to 0.18
    
    
    
    404
    
    
    
    406
    
    
    
    408Fab 8F
    
    
    2000
    
    
    
    0.25 to 0.15
    
    
    
    378
    
    
    
    372
    
    
    
    372Fab 8S
    
    
    2000
    
    
    
    0.25 to 0.15
    
    
    
    278
    
    
    
    276
    
    
    
    276Fab 12A
    
    
    2002
    
    
    
    0.18 to 0.065
    
    
    
    597
    
    
    
    754
    
    
    
    847Fab 12i
    
    
    2004
    
    
    
    0.13 to 0.065
    
    
    
    363
    
    
    
    413
    
    
    
    601UMCJ
    
    
    1996
    
    
    
    0.35 to 0.15
    
    
    
    369
    
    
    
    378
    
    
    
    348Total estimated capacity
    
    
    
    
    
    
    
    
    
    
    4,224
    
    
    
    4,395
    
    
    
    4,656Total output (actual)
    
    
    
    
    
    
    
    
    
    
    3,059
    
    
    
    3,495
    
    
    
    3,813Capacity utilization
    
    
    
    
    
    
    
    
    
    
    72.4
    %
    
    
    79.5
    %
    
    
    81.9
    %
  Year Ended December 31,2005
    
    2006
    
    2007(in thousands of 8-inch wafer equivalents, except percentages)Technology65 nanometers and under
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    0.5
    %
    
    
    34
    
    
    
    0.9
    %90 nanometers
    
    
    183
    
    
    
    6.0
    %
    
    
    320
    
    
    
    9.2
    
    
    
    492
    
    
    
    12.90.13 micron
    
    
    335
    
    
    
    10.9
    
    
    
    477
    
    
    
    13.6
    
    
    
    595
    
    
    
    15.60.15 micron
    
    
    313
    
    
    
    10.3
    
    
    
    301
    
    
    
    8.6
    
    
    
    354
    
    
    
    9.30.18 micron
    
    
    489
    
    
    
    16.0
    
    
    
    677
    
    
    
    19.4
    
    
    
    784
    
    
    
    20.50.25 micron
    
    
    282
    
    
    
    9.2
    
    
    
    252
    
    
    
    7.2
    
    
    
    206
    
    
    
    5.40.35 micron
    
    
    1,045
    
    
    
    34.1
    
    
    
    1,004
    
    
    
    28.7
    
    
    
    971
    
    
    
    25.50.50 micron or higher
    
    
    412
    
    
    
    13.5
    
    
    
    446
    
    
    
    12.8
    
    
    
    377
    
    
    
    9.9Total
    
    
    3,059
    
    
    
    100.0
    %
    
    
    3,495
    
    
    
    100.0
    %
    
    
    3,813
    
    
    
    100.0
    %
 Capacity and Utilization
   Equipment
  27




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Raw Materials
     28




---



##### Table of Contents



Quality Control
     Services and Products
   Circuit Design.
 29




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##### Table of Contents



Mask Tooling.
 Wafer Fabrication.
 Assembly and Testing.
 Customers and Markets
  Year Ended December 31,Region
    
    2005
    
    2006
    
    2007Taiwan
    
    
    43.1
    %
    
    
    34.2
    %
    
    
    38.0
    %Asia (excluding Taiwan)
    
    
    6.6
    
    
    
    8.5
    
    
    
    6.9North America
    
    
    43.4
    
    
    
    49.7
    
    
    
    46.9Europe
    
    
    6.9
    
    
    
    7.6
    
    
    
    8.2Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  30




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##### Table of Contents



Year Ended December 31,Customer Type
    
    2005
    
    2006
    
    2007Fabless design companies
    
    
    65.2
    %
    
    
    62.0
    %
    
    
    73.7
    %Integrated device manufacturers
    
    
    34.7
    
    
    
    38.0
    
    
    
    26.1System companies
    
    
    0.1
    
    
    
    0.0
    
    
    
    0.2Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
      
    
    viewing the status of orders from the start of production to the final shipping
stages;
    
    viewing design layouts to shorten customers tape out time;
    
    collecting customer engineering requests;
 31




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##### Table of Contents




    
    gathering and downloading documents for design purposes; and
    
    accessing online and in real time the same manufacturing data used by our fab
engineers.
      Competition
   32




---



##### Table of Contents



Intellectual Property
     Research and Development
   33




---



##### Table of Contents



Our Investments
        34




---



##### Table of Contents



Environmental Matters
   Environmental, Safety and Health Management Systems
  Litigation
    35




---



##### Table of Contents



36




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##### Table of Contents



Risk Management
    Insurance
  C. Organizational Structure
  Percentage of OwnershipCompany
    
    Jurisdiction of Incorporation
    
    as of December 31, 2007UMC Group (USA)
    
    California, USA
    
    
    100.00
    %United Microelectronics (Europe) B.V.
    
    The Netherlands
    
    
    100.00
    %UMC Capital Corporation
    
    Cayman Islands
    
    
    100.00
    %United Microelectronics Corp. (Samoa)
    
    Samoa
    
    
    100.00
    %TLC Capital Co., Ltd
    
    Taiwan, ROC
    
    
    100.00
    %UMCi Ltd.
    
    Singapore
    
    
    100.00
    %Fortune Venture Capital Corporation
    
    Taiwan, ROC
    
    
    99.99
    %United Microdisplay Optronics Corp.
    
    Taiwan, ROC
    
    
    85.24
    %UMC Japan
    
    Japan
    
    
    50.09
    %Unitruth Investment Corp.
    
    Taiwan, ROC
    
    
    100.00
    %UMC Capital (USA)
    
    California, USA
    
    
    100.00
    %ECP VITA Ltd.
    
    British Virgin Islands
    
    
    100.00
    %UMO (HK) Limited
    
    Hong Kong
    
    
    100.00
    %
 37




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##### Table of Contents



D. Property, Plants and Equipment
  
 ITEM 4A. UNRESOLVED STAFF COMMENTS
  
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 Unless stated otherwise, the discussion and analysis of our financial condition and results of
operations in this section apply to our financial information as prepared in accordance with ROC
GAAP. You should read the following discussion of our financial condition and results of operations
together with the consolidated financial statements and the notes to such statements included in
this annual report. ROC GAAP varies in certain significant respects from US GAAP. These differences
and their effects on our financial statements are described in Note 35 to our audited consolidated
financial statements included in this annual report.
 For the convenience of readers, NT dollar amounts used in this section for, and as of, the
year ended December 31, 2007 have been translated into U.S. dollar amounts using US$1.00 =
NT$32.43, the noon buying rate of the Federal Reserve Bank of New York on December 31, 2007. The
U.S. dollar translation appears in parentheses next to the relevant NT dollar amount.
 Overview
   Cyclicality of the Semiconductor Industry
  38




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Pricing
   Capacity Utilization Rates
    Change in Product Mix and Technology Migration
  39




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##### Table of Contents



Manufacturing Yields
   Investments
   Treasury Share Programs
  Critical Accounting Policies
 General
  40




---



##### Table of Contents



Revenue Recognition
   Accounts Receivable and Allowance for Doubtful Accounts
   Inventory
  Income Taxes
  41




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##### Table of Contents



Long-lived Assets Impairment
  42




---



##### Table of Contents



Goodwill Impairment
  Pension
   Investments in Debt and Equity Securities
  43




---



##### Table of Contents



Derivative Instruments
  Employee Stock Options
    A. Operating Results
 Net Operating Revenues
  44




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##### Table of Contents



Costs of Goods Sold
  
    
    overhead, including depreciation and maintenance of production equipment, indirect
labor costs, indirect material costs, supplies, utilities and royalties;
    
    wafer costs;
    
    direct labor costs; and
    
    service charges paid to subcontractors for mask tooling, assembly and test services.
  Operating Expenses
  
    
    Sales and marketing expenses. Sales and marketing expenses consist primarily of
intellectual property development expenses, salaries and related personnel expenses,
wafer sample expenses and related marketing expenses. Wafer samples are actual silicon
samples of our customers early design ideas made with our most advanced processes and
provided to those customers.
    
    General and administrative expenses. General and administrative expenses consist
primarily of salaries for our administrative, finance and human resource personnel,
fees for professional services, and cost of computer and communication systems to
support our operations.
    
    Research and development expenses. Research and development expenses consist
primarily of research testing related expenses, salaries and related personnel expenses
and depreciation on the equipment used for our research and development.
 Non-operating Income and Expenses
  
    
    interest income, which has been primarily derived from time deposits;
    
    investment income accounted for under the equity method, which has been primarily
derived from the recognition of investee companies net income based on the percentage
of their ownership we hold;
    
    gain on disposal of investments, which has been primarily derived from our disposal
of long-term investments accounted for under the equity method, available-for-sale
financial assets and financial assets measured at cost;
    
    dividend income, which has been primarily derived from the financial instruments of
financial assets at fair value through profit or loss, available-for-sale financial
assets and financial assets measured at cost; and
    
    other income, which has been primarily derived from our branchs grant income
received from the government in Singapore.
 45




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##### Table of Contents




    
    loss on valuation of financial assets and liabilities, which have been primarily
derived from disposal of and changes in the values of financial assets and liabilities
classified as FVTPL according to ROC SFAS 34;
    
    impairment loss, which have been primarily derived from the loss recognized in our
long-term investments; and
    
    loss on decline in market value and obsolescence of inventories, which have been
primarily derived from an allowance for loss on decline in market value or obsolescence
of inventories.
 Taxation
     Comparisons of Results of Operations
  Year Ended December 31,2005
    
    2006
    
    2007Net operating revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Costs of goods sold
    
    
    90.4
    
    
    
    80.9
    
    
    
    79.2Gross profit
    
    
    9.6
    
    
    
    19.1
    
    
    
    20.8Operating expenses:Sales and marketing
    
    
    3.7
    
    
    
    3.0
    
    
    
    3.6General and administrative
    
    
    4.4
    
    
    
    3.1
    
    
    
    3.3Research and development
    
    
    9.6
    
    
    
    8.4
    
    
    
    8.5Operating income (loss)
    
    
    (8.1
    )
    
    
    4.6
    
    
    
    5.4Net non-operating income
    
    
    13.7
    
    
    
    28.1
    
    
    
    12.0Income before income tax and minority interest
    
    
    5.6
    
    
    
    32.7
    
    
    
    17.4Income tax expense
    
    
    (0.1
    )
    
    
    (2.9
    )
    
    
    (2.5
    )Cumulative effect of changes in accounting
principles (the net amount after deducted tax
expense)
    
    
    (0.1
    )
    
    
    (1.1
    )
    
    
    Minority interest loss
    
    
    1.6
    
    
    
    0.4
    
    
    
    0.1Net income
    
    
    7.0
    
    
    
    29.1
    
    
    
    15.0
 46




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##### Table of Contents



2006 Compared with 2007
 Net operating revenues.
 Cost of goods sold.
 Gross profit and gross margin.
 Operating income and operating margin.
 Sales and marketing expenses.
 General and administrative expenses.
 Research and development expenses.
 Net non-operating income.
 47




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##### Table of Contents



Net income.
 2005 Compared with 2006
 Net operating revenues.
 Cost of goods sold.
 Gross profit and gross margin.
 Operating income and operating margin.
 Sales and marketing expenses.
 General and administrative expenses.
 Research and development expenses.
 Net non-operating income.
 48




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##### Table of Contents



Net income.
 B. Liquidity and Capital Resources
     Operating Activities
  Investment Activities
  Financing Activities
  49




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
    
    NT$3 billion unsecured domestic bonds due April 2008;
    
    NT$15 billion unsecured domestic bonds, consisting of two tranches: NT$7.5 billion
five-year unsecured bonds with interest rates of 4.0% minus 12-month U.S. dollar LIBOR
but at the minimum of 0%, and NT$7.5 billion seven-year unsecured bonds with interest
rates of 4.3% minus 12-month U.S. dollar LIBOR but at the minimum of
0%; and
    
    US$381.4 million Zero Coupon Convertible Bonds due 2008.
   Capital Expenditures
    50




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##### Table of Contents



Transactions with Related Parties
  Inflation/Deflation
  US GAAP Reconciliation
   Year Ended December 31,2005
    
    2006
    
    2007NT$
    
    NT$
    
    NT$
    
    US$(in millions)Net income (loss)Net income, ROC GAAP
    
    
    7,027
    
    
    
    32,619
    
    
    
    16,962
    
    
    
    523US GAAP adjustmentsCompensation
    
    
    (2,441
    )
    
    
    (2,106
    )
    
    
    (2,648
    )
    
    
    (82
    )Equity investees
    
    
    690
    
    
    
    (56
    )
    
    
    (4
    )
    
    
    Investment in debt and equity securities.
    
    
    169
    
    
    
    1,037
    
    
    
    319
    
    
    
    10Exchangeable bond liabilities
    
    
    (39
    )
    
    
    199
    
    
    
    
    
    
    
    Goodwill amortization and impairment loss
    
    
    (19,333
    )
    
    
    
    
    
    
    (23,761
    )
    
    
    (733
    )Treasury stock and related disposal
    
    
    102
    
    
    
    (10,842
    )
    
    
    (132
    )
    
    
    (4
    )Derivative instruments
    
    
    (1,612
    )
    
    
    1,126
    
    
    
    
    
    
    
    Income tax effect
    
    
    (232
    )
    
    
    (180
    )
    
    
    
    
    
    
    Net income (loss), US GAAP
    
    
    (15,669
    )
    
    
    21,797
    
    
    
    (9,264
    )
    
    
    (286
    )Stockholders equityStockholders equity, ROC GAAP
    
    
    258,284
    
    
    
    291,165
    
    
    
    236,467
    
    
    
    7,292Compensation
    
    
    56
    
    
    
    (685
    )
    
    
    (513
    )
    
    
    (16
    )Equity investees
    
    
    3,784
    
    
    
    22
    
    
    
    (498
    )
    
    
    (15
    )Investment in debt and equity securities.
    
    
    37,333
    
    
    
    353
    
    
    
    236
    
    
    
    7Exchangeable bond liabilities
    
    
    (702
    )
    
    
    
    
    
    
    
    
    
    
    Goodwill amortization and impairment loss
    
    
    38,114
    
    
    
    37,948
    
    
    
    14,187
    
    
    
    438Treasury stock and related disposal
    
    
    
    
    
    
    (4,476
    )
    
    
    (3,104
    )
    
    
    (96
    )Derivative instruments
    
    
    (624
    )
    
    
    
    
    
    
    
    
    
    
    Income tax effect
    
    
    180
    
    
    
    
    
    
    
    
    
    
    
    Pension
    
    
    
    
    
    
    (165
    )
    
    
    527
    
    
    
    16Stockholders equity, US GAAP
    
    
    336,425
    
    
    
    324,162
    
    
    
    247,302
    
    
    
    7,626
 
 Note.
    
    Refer to Note 35 to our audited financial statements included elsewhere in this annual
report. 51




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Compensation Expenses
   Investments in Debt and Equity Securities
   52




---



##### Table of Contents



Goodwill
   Treasury stock and related disposal
  Derivative Instruments
  53




---



##### Table of Contents



Pension
  Recent Accounting Pronouncements
    54




---



##### Table of Contents



55




---



##### Table of Contents



C. Research, Development, Patents and Licenses, Etc.
   D. Trend Information
  E. Off-balance Sheet Arrangements
  F. Tabular Disclosure of Contractual Obligations
  56




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##### Table of Contents



Payments Due by PeriodLess than 1
    
    
    
    
    
    
    
    
    
    After 5Total
    
    Year
    
    1-3 Years
    
    4-5 Years
    
    Years(consolidated) (in NT$ millions)Long-term debt(1)Unsecured bonds
    
    
    30,396
    
    
    
    22,896
    
    
    
    7,500
    
    
    
    
    
    
    
    Capital lease obligations(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating leases obligations(3)
    
    
    3,209
    
    
    
    296
    
    
    
    531
    
    
    
    492
    
    
    
    1,890Purchase obligations(4)
    
    
    3,737
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other long-term obligations(5)
    
    
    3,820
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    
    41,162
    
    
    
    27,012
    
    
    
    8,031
    
    
    
    4,229
    
    
    
    1,890
 
 (1)
    
    Assuming the convertible bonds are paid off upon maturity.(2)
    
    Represents our obligations to make lease payments for equipment.(3)
    
    Represents our obligations to make lease payments to use machineries, equipments and land on
which our fabs are located, primarily in the Hsinchu Science Park and the Tainan Science Park
in Taiwan and, Pasir Ris Wafer Fab Park in Singapore, and UMCJ.(4)
    
    Represents commitments for construction and purchase of raw materials. These commitments are
not recorded on our balance sheet as of December 31, 2007.(5)
    
    Represents intellectual properties and royalties payable under our technology license
agreements. The amounts of payments due under these agreements are determined based on fixed
contract amounts. 
 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 A. Directors, Supervisors and Senior Management
   Name
    
    Age
    
    Position
    
    Years with UsJackson Hu (1)
    
    
    59
    
    
    Chairman, Director
(Representative of
Hsun Chieh
Investment Co.) and
Chief Executive
Officer
    
    
    5Ching-Chang Wen (2)
    
    
    58
    
    
    Director
(Representative of
Hsun Chieh
Investment Co.) and
President of
Central Integrated
Manufacturing &
Technology
    
    
    10Wen-Yang Chen (3)
    
    
    55
    
    
    Director
(Representative of
Hsun Chieh
Investment Co.) and
Senior Vice
President
    
    
    28Fu-Tai Liou
    
    
    55
    
    
    Director
(Representative of
Hsun Chieh
Investment Co.) and
President of
Quality &
Reliability
Assurance
    
    
    11Shih-Wei Sun (4)
    
    
    51
    
    
    Director
(Representative of
Silicon Integrated
Systems Corp.) and
Chief Operating
Officer
    
    
    13Chitung Liu (5)
    
    
    42
    
    
    Director
(Representative of
Silicon Integrated
Systems Corp.) and
Chief Financial
Officer
    
    
    7Paul S.C. Hsu (6)
    
    
    72
    
    
    Independent Director
    
    
    4Chung-Laung Liu (6)
    
    
    74
    
    
    Independent Director
    
    
    2Chun-Yen Chang (6)
    
    
    71
    
    
    Independent Director
    
    
    2Tzyy-Jang Tseng
    
    
    58
    
    
    Supervisor
(Representative of
Hsun Chieh
Investment Co.,
Ltd.)
    
    
    7Ta-Hsing Wang
    
    
    35
    
    
    Supervisor
(Representative of
Silicon Integrated
Systems Corp.)
    
    
    2Ting-Yu Lin
    
    
    47
    
    
    Supervisor
    
    
    2
 57




---



##### Table of Contents



(1)
    
    Jackson Hu is a representative of Hsun Chieh Investment Co. after the shareholders meeting
on June 12, 2006.(2)
    
    Ching-Chang Wen is a representative of Hsun Chieh Investment Co. after the shareholders
meeting on June 12, 2006.(3)
    
    Wen-Yang Chen was appointed as a representative of Hsun Chieh Investment Co. on October 1,
2007.(4)
    
    Shih-Wei Sun is a representative of Silicon Integrated Systems Corp. after the shareholders
meeting on June 12, 2006.(5)
    
    Chitung Liu was appointed as a representative of Silicon Integrated Systems Corp. on December
21, 2007.(6)
    
    Member of the Audit Committee. Jackson Hu
 Ching-Chang Wen
 Fu-Tai Liou
 Shih-Wei Sun
 Wen-Yang Chen
 Chitung Liu
 Paul S.C. Hsu
 Chung-Laung Liu
 Chun-Yen Chang
 58




---



##### Table of Contents



Tzyy Jang Tseng
 Ta-Hsing Wang
 Ting-Yu Lin
 B. Compensation
  C. Board Practices
    D. Employees
  59




---



##### Table of Contents



As of December 31,Employees
    
    2005
    
    2006
    
    2007Engineers
    
    
    5,745
    
    
    
    6,774
    
    
    
    7,046Technicians
    
    
    5,671
    
    
    
    5,881
    
    
    
    6,067Administrative Staff
    
    
    652
    
    
    
    610
    
    
    
    607Total
    
    
    12,068
    
    
    
    13,265
    
    
    
    13,720
    E. Share Ownership
    60




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##### Table of Contents



ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 A. Major Shareholders
  As of April 13,
    
    As of April 14,
    
    As of April 15,As of April 15, 2008
    
    2007
    
    2006
    
    2005Number of
    
    Percentage
    
    Percentage of
    
    Percentage of
    
    Percentage ofshares
    
    of shares
    
    shares
    
    shares
    
    sharesbeneficially
    
    beneficially
    
    beneficially
    
    beneficially
    
    beneficiallyName of Beneficial Owner
    
    owned
    
    owned
    
    owned
    
    owned
    
    ownedHsun Chieh Investment Co., Ltd.(1)
    
    
    422,364,594
    
    
    
    3.2
    %
    
    
    3.2
    %
    
    
    3.0
    %
    
    
    3.1
    %Xilinx, Inc.
    
    
    0
    
    
    
    0.0
    %
    
    
    0.6
    %
    
    
    2.2
    %
    
    
    2.2
    %Silicon Integrated Systems Corp.
    
    
    301,799,449
    
    
    
    2.3
    %
    
    
    2.3
    %
    
    
    2.2
    %
    
    
    2.2
    %Directors, supervisors and executive
officers as a group
    
    
    735,979,567
    
    
    
    5.6
    %
    
    
    6.2
    %
    
    
    6.9
    %
    
    
    6.4
    %
 
 (1)
    
    36.5% owned by United Microelectronics as of March 31, 2008.   B. Related Party Transactions
    Name
    
    Ownership%AMIC Technology (Taiwan), Inc.
    
    
    25.95Silicon Integrated Systems Corp.
    
    
    16.26
  61




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##### Table of Contents



C. Interests of Experts and Counsel
  
 ITEM 8. FINANCIAL INFORMATION
 A. Consolidated Statements and Other Financial Information
    Number ofTotal Number of
    
    OutstandingCash Dividend per
    
    Stock Dividend
    
    Shares Issued as
    
    Shares at YearShare
    
    per Share(1)
    
    Stock Dividend
    
    EndNT$
    
    NT$1997
    
    
    
    
    
    
    3.0
    
    
    
    868,629,276
    
    
    
    4,117,758,2651998
    
    
    
    
    
    
    2.9
    
    
    
    1,199,052,940
    
    
    
    5,480,221,7251999
    
    
    
    
    
    
    1.5
    
    
    
    834,140,790
    
    
    
    6,638,054,4622000
    
    
    
    
    
    
    2.0
    
    
    
    1,809,853,716
    
    
    
    11,439,016,9002001
    
    
    
    
    
    
    1.5
    
    
    
    1,715,104,035
    
    
    
    13,169,235,4162002
    
    
    
    
    
    
    1.5
    
    
    
    1,968,018,212
    
    
    
    15,238,578,6462003
    
    
    
    
    
    
    0.4
    
    
    
    607,925,145
    
    
    
    15,941,901,4632004
    
    
    
    
    
    
    0.8
    
    
    
    1,288,558,185
    
    
    
    17,550,800,8592005
    
    
    0.1029
    
    
    
    1.029
    
    
    
    1,758,736,435
    
    
    
    18,856,632,3242006
    
    
    0.409141420
    
    
    
    0.10228530
    
    
    
    179,031,672
    
    
    
    19,131,192,6902007
    
    
    0.7
    
    
    
    0
    
    
    
    0
    
    
    
    13,214,494,883
 
 (1)
    
    We declare stock dividends in a NT dollar amount per share, but we pay the stock dividends to
our shareholders in the form of shares. The amount of shares distributed to each shareholder
is calculated by multiplying the dividend declared by the number of shares held by the given
shareholder, divided by the par value of NT$10 per share. Fractional shares are not issued but
are paid in cash. B. Significant Changes
   62




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##### Table of Contents



ITEM 9. THE OFFER AND LISTING
 A. Offer and Listing Details
 Market Price Information for Our Shares
  AverageDailyClosing Price Per
    
    TradingShare(1)
    
    VolumeHigh
    
    Low
    
    (in thousandsNT$
    
    NT$
    
    of shares)2002
    
    
    38.52
    
    
    
    15.54
    
    
    
    95,422.372003
    
    
    26.03
    
    
    
    14.92
    
    
    
    121,904.892004
    
    
    27.56
    
    
    
    16.93
    
    
    
    102,012.192005
    
    
    22.05
    
    
    
    15.58
    
    
    
    89,939.56First Quarter
    
    
    18.33
    
    
    
    16.24
    
    
    
    87,313.40Second Quarter
    
    
    21.43
    
    
    
    15.58
    
    
    
    89,780.57Third Quarter
    
    
    22.05
    
    
    
    18.96
    
    
    
    63,890.57Fourth Quarter
    
    
    21.33
    
    
    
    16.20
    
    
    
    118,076.962006
    
    
    21.86
    
    
    
    17.02
    
    
    
    67,590.51First Quarter
    
    
    19.83
    
    
    
    17.02
    
    
    
    98,045.17Second Quarter
    
    
    21.86
    
    
    
    17.65
    
    
    
    73,833.23Third Quarter
    
    
    19.20
    
    
    
    17.02
    
    
    
    45,218.11Fourth Quarter
    
    
    21.25
    
    
    
    18.05
    
    
    
    56,491.872007
    
    
    23.45
    
    
    
    17.15
    
    
    
    53,166.86First Quarter
    
    
    21.60
    
    
    
    18.65
    
    
    
    54,027.04Second Quarter
    
    
    20.30
    
    
    
    19.00
    
    
    
    47,434.35Third Quarter
    
    
    21.00
    
    
    
    17.15
    
    
    
    65,808.65Fourth Quarter
    
    
    23.45
    
    
    
    18.85
    
    
    
    46,147.02November
    
    
    21.50
    
    
    
    18.85
    
    
    
    49,526.64December
    
    
    20.15
    
    
    
    18.95
    
    
    
    31,898.482008 (through April 30)
    
    
    20.05
    
    
    
    16.60
    
    
    
    33,591.82First Quarter
    
    
    20.05
    
    
    
    16.60
    
    
    
    37,877.00January
    
    
    20.05
    
    
    
    16.60
    
    
    
    38,262.86February
    
    
    18.70
    
    
    
    16.80
    
    
    
    25,514.57March
    
    
    19.60
    
    
    
    16.60
    
    
    
    37,572.57Second Quarter (through April 30)
    
    
    19.40
    
    
    
    18.10
    
    
    
    30,103.48April
    
    
    19.40
    
    
    
    18.10
    
    
    
    30,103.48
 
 Source: Bloomberg; Taiwan Stock Exchange.(1)
    
    Information has been adjusted to give effect to 1,968,018,212 Shares and 171,132,018 Shares
issued as stock dividend and employee bonus, respectively, in August 2002; 607,925,145 Shares
and 57,972,672 Shares issued as stock dividend and employee bonus, respectively, in July 2003;
1,288,558,185 Shares and 111,127,354 Shares issued as stock dividend and employee bonus,
respectively, in July 2004; 1,758,736,435 Shares and 197,285,530 Shares issued as stock
dividend and employee bonus, respectively, in August 2005; 179,031,672 Shares,
NT$7,161,266,830, 45,845,444 Shares and NT$305,636,291 issued as stock dividend, cash
dividend, stock employee bonus and cash employee bonus, respectively, in August 2006; and
NT$12,461,529,283 and NT$2,324,119,405 issued as cash dividend and cash employee bonus,
respectively, in August 2007. Market Price Information for Our American Depositary Shares
  63




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AverageADS DailyClosing Price PerADS(1)
    
    TradingHigh
    
    Low
    
    VolumeUS$
    
    IS$2003
    
    
    4.63
    
    
    
    2.33
    
    
    
    4,687,6382004
    
    
    5.02
    
    
    
    2.86
    
    
    
    3,692,4642005
    
    
    3.90
    
    
    
    2.73
    
    
    
    4,279,9292006
    
    
    3.80
    
    
    
    2.75
    
    
    
    5,804,766First Quarter
    
    
    3.32
    
    
    
    2.94
    
    
    
    6,713,483Second Quarter
    
    
    3.80
    
    
    
    2.86
    
    
    
    5,581,998Third Quarter
    
    
    3.30
    
    
    
    2.75
    
    
    
    4,647,865Fourth Quarter
    
    
    3.57
    
    
    
    2.96
    
    
    
    6,290,143November
    
    
    3.54
    
    
    
    2.98
    
    
    
    5,712,129December
    
    
    3.57
    
    
    
    3.23
    
    
    
    5,878,0402007 (through April 30)
    
    
    4.48
    
    
    
    2.93
    
    
    
    6,536,888First Quarter
    
    
    3.77
    
    
    
    3.12
    
    
    
    6,816,844Second Quarter
    
    
    3.59
    
    
    
    3.18
    
    
    
    5,783,324Third Quarter
    
    
    3.76
    
    
    
    2.93
    
    
    
    7,104,648Fourth Quarter
    
    
    4.48
    
    
    
    3.25
    
    
    
    6,454,188November
    
    
    3.66
    
    
    
    3.28
    
    
    
    7,322,624December
    
    
    3.63
    
    
    
    3.25
    
    
    
    4,764,5052008 (through April 30)
    
    
    3.70
    
    
    
    2.75
    
    
    
    5,673,404First Quarter
    
    
    3.70
    
    
    
    2.75
    
    
    
    6,211,315January
    
    
    3.51
    
    
    
    2.75
    
    
    
    8,298,410February
    
    
    3.46
    
    
    
    2.79
    
    
    
    4,653,210March
    
    
    3.70
    
    
    
    2.92
    
    
    
    5,577,970Second Quarter (through April 30)
    
    
    3.58
    
    
    
    3.23
    
    
    
    4,181,923April
    
    
    3.58
    
    
    
    3.23
    
    
    
    4,181,923
 
 Sources: Bloomberg(1)
    
    Information has been adjusted to give effect to 1,968,018,212 Shares and 171,132,018 Shares
issued as stock dividend and employee bonus, respectively, in August 2002; 607,925,145 Shares
and 57,972,672 Shares issued as stock dividend and employee bonus, respectively, in July 2003;
1,288,558,185 Shares and 111,127,354 Shares issued as stock dividend and employee bonus,
respectively, in July 2004; and 1,758,736,435 Shares and 197,285,530 Shares issued as stock
dividend and employee bonus, respectively, in August 2005; and 179,031,672 Shares,
NT$7,161,266,830, 45,845,444 Shares, and NT$305,636,291 issued as stock dividend, cash
dividend, stock employee bonus and cash employee bonus, respectively, in August 2006; and
NT$12,461,529,283 and NT$2,324,119,405 issued as cash dividend and cash employee bonus,
respectively, in August 2007.  B. Plan of Distribution
  C. Markets
  64




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##### Table of Contents



D. Selling Shareholders
  E. Dilution
  F. Expenses of the Issue
  
 ITEM 10. ADDITIONAL INFORMATION
 A. Share Capital
  B. Memorandum and Articles of Association
 The following statements summarize the material elements of our capital structure and the more
important rights and privileges of shareholders conferred by ROC law and our articles of
incorporation.
 Objects and Purpose
  Directors
  65




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##### Table of Contents



Shares
  Employee Stock Option
  66




---



##### Table of Contents



October 2002
    
    January 2003
    
    November 2003
    
    March 2004
    
    July 2004
    
    October 2004(in millions)Number of Options Granted
    
    
    939
    
    
    
    61
    
    
    
    57
    
    
    
    33
    
    
    
    57
    
    
    
    20Number of Options
Outstanding as of March
31, 2008
    
    
    82
    
    
    
    6
    
    
    
    22
    
    
    
    12
    
    
    
    26
    
    
    
    6
 April 2005
    
    August 2005
    
    September 2005
    
    January 2006
    
    May 2006
    
    August 2006(in millions)Number of Options Granted
    
    
    23
    
    
    
    54
    
    
    
    52
    
    
    
    39
    
    
    
    42
    
    
    
    28Number of Options
Outstanding as of March
31, 2008
    
    
    9
    
    
    
    10
    
    
    
    27
    
    
    
    15
    
    
    
    27
    
    
    
    20
 December 2007(in millions)Number of Options Granted
    
    
    500Number of Options
Outstanding as of March
31, 2008
    
    
    500
 New Shares and Preemptive Rights
  Shareholders
  Transfer of Shares
  67




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##### Table of Contents



Shareholders Meetings
  Voting Rights
     68




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##### Table of Contents



Dividends and Distributions
    
    
    payment of all taxes and dues;
    
    deduction of any past losses;
    
    allocation of 10% of our net income as a legal reserve; and
    
    as remuneration to directors and supervisors.
     Acquisition of Our Shares by Us
  69




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##### Table of Contents




    
    to transfer shares to our employees;
    
    to transfer upon conversion of bonds with warrants, preferred shares with warrants,
convertible bonds, convertible preferred shares or certificates of warrants issued by
us; and
    
    if necessary, to maintain our credit and our shareholders equity; provided that the
            shares so purchased shall be cancelled thereafter.
     Liquidation Rights
  Rights to Bring Shareholders Suits
  
    
    within 30 days from the date on which a shareholders resolution is adopted, a
shareholder may file a lawsuit to annul a shareholders resolution if the procedure for
convening a shareholders meeting or the method of resolution violates any law or
regulation or our articles of incorporation. However, if the court is of the opinion
that such violation is not material and does not affect the result of the resolution,
the court may reject the shareholders claim.
    
    if the substance of a resolution adopted at a shareholders meeting contradicts any
applicable law or regulation or our articles of incorporation, a shareholder may bring
a suit to determine the validity of such resolution.
  70




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
    
    Shareholders who have continuously held 3% or more of our issued shares for a period
of one year or longer may request in writing that a supervisor institute an action
against a director on our behalf. In case the supervisor fails to institute an action
within 30 days after receiving such request, the shareholders may institute an action
on our behalf. In the event shareholders institute an action, a court may, upon the
defendants motion, order such shareholders to furnish appropriate security.
    
    Shareholders who hold more than 3% or more of our total issued shares may institute
an action with a court to remove a director of ours who has materially violated the
applicable laws or our articles of incorporation or has materially damaged the
interests of our company if a resolution for removal on such grounds has first been
voted on and rejected by our shareholders and such suit is filed within 30 days of such
shareholders vote.
    
    In the event that any director, supervisor, manager or shareholder holding more than
10% of our shares or any respective spouses or minor children and/or nominees of any of
them sells shares within six months after acquisition of such shares, or repurchases
the shares within six months after the sale, we may claim for recovery of any profits
realized from the sale and purchase. If our board of directors or our supervisors fail
to claim for recovery, any shareholder may set forth a 30-day period for our board of
directors or our supervisors to exercise the right. In the event our directors or our
supervisors fail to exercise the right during such 30-day period, such requesting
shareholder shall have the right to claim such recovery on our behalf. Our directors
and supervisors shall be jointly and severally liable for damages suffered by us as a
result of their failure to exercise the right of claim.
 Other Rights of Shareholders
    Financial Statements
  Transfer Restrictions
  71




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##### Table of Contents



C. Material Contracts
 Cross License Agreement, dated as of December 7, 2005, between United Microelectronics Corporation
and Freescale Semiconductor, Inc.
  Cross License Agreement, dated as of January 1, 2006, between United Microelectronics Corporation
and International Business Machine Corporation.
  Cross License Agreement, dated as of January 1, 2006, between United Microelectronics Corporation
and Renesas Technology Corp.
  Guarantee Agreement
  D. Exchange Controls
 Foreign Investment and Exchange Controls in Taiwan
 We have extracted from publicly available documents the information presented in this section.
Please note that citizens of the Peoples Republic of China and entities organized in the Peoples
Republic of China are subject to special ROC laws, rules and regulations, which are not discussed
in this section.
 General
  72




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Foreign Ownership Limitations
   Foreign Investors
   Foreign Investment Approval
   73




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Exchange Controls
     Depositary Receipts
    74




---



##### Table of Contents



(1)
    
    stock dividends;(2)
    
    free distributions of common shares;(3)
    
    due to the exercise by a holder of his or her preemptive rights in the event of
capital increases for cash; or(4)
    
    permitted under the deposit agreement and the custody agreement, due to the
direct purchase of shares or purchase through the depositary in the domestic market or
the surrender of shares under the possession of investors and then delivery of such
            shares to the custodian for deposit in the depositary receipt facility, provided that
the total number of depositary receipts outstanding after an issuance cannot exceed the
number of issued depositary shares previously approved by the ROC FSC in connection
with the offering plus any depositary shares issued pursuant to the events described in
(1), (2) and (3) above. These issuances may only be made to the extent previously
issued depositary shares have been withdrawn.
   E. Taxation
 ROC Tax Considerations
  Dividends
  75




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##### Table of Contents



Capital Gains
  Securities Transaction Tax
  Preemptive Rights
  Estate Taxation and Gift Tax
  Tax Treaties
  76




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##### Table of Contents



Tax Reform
   U.S. Federal Income Tax Considerations For U.S. Persons
  
    
    an individual citizen or resident of the United States;
    
    a corporation (or other entity treated as a corporation for U.S. federal income tax
purposes) created or organized in or under the laws of the United States, any state
thereof or the District of Columbia;
    
    an estate the income of which is subject to U.S. federal income taxation regardless
of its source;
    
    a trust that is subject to the primary supervision of a court within the United
States and that has one or more U.S. persons with the authority to control all
substantial decisions of the trust; or
    
    a trust that has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person.
  
    
    a dealer in securities or currencies;
    
    a trader in securities if you elect to use a mark-to-market method of accounting for
your securities holdings;
    
    a financial institution or an insurance company;
    
    a tax-exempt organization;
    
    a regulated investment company;
 77




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##### Table of Contents




    
    a real estate investment trust;
    
    a person liable for alternative minimum tax;
    
    a person holding shares or ADSs as part of a hedging, integrated or conversion
transaction, constructive sale or straddle;
    
    a partnership or other pass-through entity for U.S. federal income tax purposes;
    
    a person owning, actually or constructively, 10% or more of our voting stock; or
    
    a U.S. holder whose functional currency is not the U.S. dollar.
   You should consult your own tax advisor concerning the particular U.S. federal income tax
consequences to you of the ownership and disposition of the shares or ADSs, as well as the
consequences to you arising under the laws of any other taxing jurisdiction.
  Taxation of Dividends
   78




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79




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##### Table of Contents



Taxation of Capital Gains
   Passive Foreign Investment Company
   
    
    at least 75% of its gross income is passive income, which generally includes income
derived from certain dividends, interest, royalties and rents (other than royalties and
rents derived in the active conduct of a trade or business and not derived from a
related person), annuities or property transactions; or
    
    at least 50% of the value of its assets is attributable to assets that produce or
are held for the production of passive income.
     80




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##### Table of Contents




    
    the excess distribution or gain will be allocated ratably over your holding period
for shares or ADSs;
    
    the amount allocated to the current taxable year, and any taxable year prior to the
first taxable year in which we were a PFIC, will be treated as ordinary income; and
    
    the amount allocated to each other year will be subject to tax at the highest tax
rate in effect for that year and the interest charge generally applicable to
underpayments of tax will be imposed on the resulting tax attributable to each such
year.
        81




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##### Table of Contents



Information Reporting and Backup Withholding
   Inheritance and Gift Tax
   F. Dividends and Paying Agents
  G. Statement by Experts
  H. Documents on Display
    I. Subsidiary Information
  82




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##### Table of Contents



ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
      As of December 31, 2007Book Value
    
    Fair Value(in NT$ millions)Interest Rate Swaps: Trading Purpose
    
    $
    (319
    )
    
    $
    (319
    )Time Deposit: Non-Trading Purpose
    
    $
    35,698
    
    
    $
    35,698Unsecured Short-term Loans: Non-Trading Purpose
    
    $
    (359
    )
    
    $
    (359
    )Bonds: Non-Trading Purpose
    
    $
    (30,385
    )
    
    $
    (29,900
    )
 Interest Rate Risk
  Notional Amount
    
    Contract Period
    
    Interest Rate Received
    
    Interest Rate PaidAs of December 31, 2007May 21, 2003 to
    
    4.0% minus US$12-month
    
    
    1.52
    %NT$7,500 millions
    
    June 24, 2008
    
    LIBORMay 21, 2003 to
    
    4.3% minus US$12-month
    
    
    1.48
    %NT$7,500 millions
    
    June 24, 2010
    
    LIBORAs of December 31, 2006May 21, 2003 to
    
    4.0% minus US$12-month
    
    
    1.52
    %NT$7,500 millions
    
    June 24, 2008
    
    LIBORMay 21, 2003 to
    
    4.3% minus US$12-month
    
    
    1.48
    %NT$7,500 millions
    
    June 24, 2010
    
    LIBOR
 83




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##### Table of Contents



Expected Maturity Dates
As of December 31, 2007
 2008
    
    2009
    
    2010
    
    2011
    
    2012 and thereafter
    
    Total(in millions, except percentages)Time Deposit:Fixed Rate (US$)
    
    385
    
    
    
    
    
    
    
    
    
    385Average Interest Rate
    
    4.3% - 5.1%
    
    
    
    
    
    
    
    
    
    4.3% - 5.1%Fixed Rate (¥)
    
    2,260
    
    
    
    
    
    
    
    
    
    2,260Average Interest Rate
    
    0.2% - 0.35%
    
    
    
    
    
    
    
    
    
    0.2% - 0.35%Fixed Rate (NT$)
    
    16,652
    
    
    
    
    
    
    
    
    
    16,652Average Interest Rate
    
    1.46% - 2.26%
    
    
    
    
    
    
    
    
    
    1.46% - 2.26%Fixed Rate (Euro)
    
    17
    
    
    
    
    
    
    
    
    
    17Average Interest Rate
    
    3.6%
    
    
    
    
    
    
    
    
    
    3.6%Unsecured Short-term
Loans:Variable Rate (US$)
    
    11.1
    
    
    
    
    
    
    
    11.1
    
    11.1Average Interest Rate
    
    3.43% - 5.43%
    
    
    
    
    
    
    
    3.43% - 5.43%
    
    3.43% - 5.43%Variable Rate (¥)Average Interest RateVariable Rate (NT$)Average Interest RateSecured Short-term Loans:Variable Rate (¥)Average Interest RateVariable Rate (NT$)Average Interest RateBonds:Unsecured (NT$)
    
    3,000
    
    
    
    
    
    
    
    
    
    3,000Fixed Rate
    
    5.2170%-.2850%
    
    
    
    
    
    
    
    
    
    5.2170%-.2850%Unsecured (NT$)
    
    7,500
    
    
    
    7,500
    
    
    
    
    
    15,000Variable Rate
    
    0%-4%
    
    
    
    0%-4.3%
    
    
    
    
    
    0%-4.3%Unsecured Convertible
(US$) (1)
    
    381
    
    
    
    
    
    
    
    
    
    381Fixed Rate
    
    0%
    
    
    
    
    
    
    
    
    
    0%Unsecured Exchangeable
(US$) (1)Fixed RateUnsecured Convertible
(¥) (1)Fixed RateInterest Rate DerivativesInterest Rate Swaps:Variable to Fixed
(denomination)
    
    NT$7,500 million
    
    
    
    
    
    
    
    
    
    NT$7,500 millionAverage pay rate
    
    1.52%
    
    
    
    
    
    
    
    
    
    1.52%Average receive rate
    
    4.0% minus
    
    
    
    
    
    
    
    
    
    4.0% minusUS$12-month LIBOR
    
    
    
    
    
    
    
    
    
    US$12-month LIBORVariable to Fixed
(denomination)
    
    NT$7,500 million
    
    NT$7,500 million
    
    NT$7,500 million
    
    
    
    
    
    NT$7,500 millionAverage pay rate
    
    1.48%
    
    1.48%
    
    1.48%
    
    
    
    
    
    1.48%Average receive rate
    
    4.3% minus
    
    4.3% minus
    
    4.3% minus
    
    
    
    
    
    4.3% minusUS$12-month LIBOR
    
    US$12-month LIBOR
    
    US$12-month LIBOR
    
    
    
    
    
    US$12-month LIBOR
 
 (1)
    
    Assuming the convertible bonds and exchangeable bonds are both paid off upon maturity. 84




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##### Table of Contents



Expected Maturity Dates
As of December 31, 2006
 2007
    
    2008
    
    2009
    
    2010
    
    2011 and thereafter
    
    Total
    
    Fair Value(in millions except percentages)Time Deposit:Fixed Rate (US$)
    
    147
    
    
    
    
    
    
    
    
    
    147
    
    147Average Interest Rate
    
    5.26%
    
    
    
    
    
    
    
    
    
    5.26%
    
    5.26%Fixed Rate (¥)
    
    20,602
    
    
    
    
    
    
    
    
    
    20,602
    
    20,602Average Interest Rate
    
    0.001%-0.25%
    
    
    
    
    
    
    
    
    
    0.001%-0.25%
    
    0.001%-0.25%Fixed Rate (NT$)
    
    70,732
    
    
    
    
    
    
    
    
    
    70,732
    
    70,732Average Interest Rate
    
    1.41%
    
    
    
    
    
    
    
    
    
    1.41%
    
    1.41%Fixed Rate (Euro)
    
    1
    
    
    
    
    
    
    
    
    
    1
    
    1Average Interest Rate
    
    3.1%
    
    
    
    
    
    
    
    
    
    3.1%
    
    3.1%Unsecured Short-term
Loans:Variable Rate (US$)
    
    9.5
    
    
    
    
    
    
    
    
    
    9.5
    
    9.5Average Interest Rate
    
    5.665%-5.845%
    
    
    
    
    
    
    
    
    
    5.665%-5.845%
    
    5.665%-5.845%Variable Rate (¥)
Average Interest RateVariable Rate (NT$)Average Interest RateSecured Short-term
Loans:Variable Rate (¥)Average Interest RateVariable Rate (NT$)Average Interest Rate
Bonds:Unsecured (NT$)
    
    2,250
    
    3,000
    
    
    
    
    
    
    
    5,250
    
    5,344Fixed Rate
    
    5.2170%-5.2850%
    
    5.2170%-.2850%
    
    
    
    
    
    
    
    5.2170%-5.2850%
    
    5.2170%-5.2850%Unsecured (NT$)
    
    
    
    7,500
    
    
    
    7,500
    
    
    
    15,000
    
    14,477Variable Rate
    
    
    
    0%-4%
    
    
    
    0%-4.3%
    
    
    
    0%-4.3%
    
    0%-4.3%Unsecured
Convertible (US$)
(1)
    
    
    
    381
    
    
    
    
    
    
    
    381
    
    406Fixed Rate
    
    
    
    0%
    
    
    
    
    
    
    
    0%
    
    0%Unsecured
Exchangeable (US$)
(1)
    
    96
    
    
    
    
    
    
    
    
    
    96
    
    112Fixed Rate
    
    0%
    
    
    
    
    
    
    
    
    
    0%
    
    0%Unsecured
Convertible(¥)
    
    13,420
    
    
    
    
    
    
    
    
    
    13,420
    
    13,108Fixed rate
    
    0%
    
    
    
    
    
    
    
    0%
    
    0%
    
    0%Interest Rate
DerivativesInterest Rate Swaps:Variable to
Fixed (denomination)
    
    NT$7,500 million
    
    NT$7,500 million
    
    
    
    
    
    
    
    NT$7,500 million
    
    NT$224 millionAverage pay rate
    
    1.52%
    
    1.52%
    
    
    
    
    
    
    
    1.52%
    
    1.52%4.0% minus
    
    4.0% minus
    
    
    
    
    
    
    
    4.0% minus
    
    4.0% minusAverage receive rate
    
    US$12-month LIBOR
    
    US$12-month LIBOR
    
    
    
    
    
    
    
    US$12-month LIBOR
    
    US$12-month LIBORVariable to Fixed
(denomination)
    
    NT$7,500 million
    
    NT$7,500 million
    
    NT$7,500 million
    
    NT$7,500 million
    
    
    
    NT$7,500 million
    
    NT$402 millionAverage pay rate
    
    1.48%
    
    1.48%
    
    1.48%
    
    1.48%
    
    
    
    1.48%
    
    1.48%Average receive rate
    
    4.3% minus
    
    4.3% minus
    
    4.3% minus
    
    4.3% minus
    
    
    
    4.3% minus
    
    4.3 minusUS$12-month LIBOR
    
    US$12-month LIBOR
    
    US$12-month LIBOR
    
    US$12-month LIBOR
    
    
    
    US$12-month LIBOR
    
    US$12-month LIBOR
 Foreign Currency Risk
   85




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##### Table of Contents



ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  
 PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
  
 ITEM 15. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Managements Annual Report on Internal Control over Financial Reporting
    86




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Attestation Report of the Independent Registered Public Accounting Firm
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Internal ControlIntegrated Framework
    .
   
  87




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  
 ITEM 16. A. AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM 16. B. CODE OF ETHICS
  
 ITEM 16. C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  For the year ended December 31,2006
    
    
    2007NT$
    
    
    NT$
    
    
    US$(in thousands)Audit Fees (1)
    
    
    118,832
    
    
    
    91,895
    
    
    
    2,834Audit-related Fees (2)
    
    
    463
    
    
    
    1,688
    
    
    
    52Tax Fees (3)
    
    
    4,016
    
    
    
    5,967
    
    
    
    184Total
    
    
    123,311
    
    
    
    99,550
    
    
    
    3,070
 
 (1)
    
    Audit fees consist of fees associated with the annual audit, review of our quarterly
financial statements, statutory audits and internal control review. They also include fees
billed for those services that are normally provided by the independent accountants in
connection with statutory and regulatory filings.(2)
    
    Audit-related fees consist of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of our financial statements but
not described in footnote (1) above. These services include review of capitalization of
retained earnings, employee stock option application, treasury share buy-back programs,
certification of UMCi to Singapore authorities.(3)
    
    Tax fees include fees billed for professional services rendered by Ernst & Young, primarily
in connection with our tax compliance activities.  
 ITEM 16 D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  88




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##### Table of Contents



ITEM 16
    
    E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  Maximum NumberTotal Number of
    
    ofCommon Shares
    
    Shares that MayPurchased as Part
    
    Yet beTotal Number of
    
    Average Price Paid
    
    of
    
    PurchasedCommon Shares
    
    per Common Share
    
    Publicly Announced
    
    Under the Plans orPeriod
    
    Purchased
    
    (NT$)
    
    Plans or Program
    
    ProgramMay (from March 16, 2005)
    
    
    57,297,000
    
    
    
    20.83
    
    
    
    57,297,000
    
    
    
    442,703,000June
    
    
    317,663,000
    
    
    
    23.19
    
    
    
    374,960,000
    
    
    
    125,040,000July (to July 15, 2005)
    
    
    125,040,000
    
    
    
    24.03
    
    
    
    500,000,000
    
    
    
    
 Maximum NumberTotal Number of
    
    ofCommon Shares
    
    Shares that MayPurchased as Part
    
    Yet beTotal Number of
    
    Average Price Paid
    
    of
    
    PurchasedCommon Shares
    
    per Common Share
    
    Publicly Announced
    
    Under the Plans orPeriod
    
    Purchased
    
    (NT$)
    
    Plans or Program
    
    ProgramSeptember (from September 30, 2005)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000,000October
    
    
    248,934,000
    
    
    
    19.20
    
    
    
    248,934,000
    
    
    
    1,066,000November (to November 29, 2005)
    
    
    1,066,000
    
    
    
    17.47
    
    
    
    250,000,000
    
    
    
    
 Total Number of
    
    Maximum Number ofCommon Shares
    
    Shares that MayPurchased as Part
    
    Yet beTotal Number of
    
    Average Price Paid
    
    of
    
    PurchasedCommon Shares
    
    per Common Share
    
    Publicly Announced
    
    Under the Plans orPeriod
    
    Purchased
    
    (NT$)
    
    Plans or Program
    
    ProgramFebruary (from February 16, 2006)
    
    
    239,528,000
    
    
    
    19.01
    
    
    
    239,528,000
    
    
    
    760,472,000March
    
    
    576,219,000
    
    
    
    19.32
    
    
    
    815,747,000
    
    
    
    184,253,000April (to April 15, 2006)
    
    
    184,253,000
    
    
    
    21.36
    
    
    
    1,000,000,000
    
    
    
    May (from May 23, 2006)
    
    
    30,691,000
    
    
    
    19.88
    
    
    
    30,691,000
    
    
    
    369,309,000June
    
    
    218,316,000
    
    
    
    18.46
    
    
    
    249,007,000
    
    
    
    150,993,000July (to July 22, 2006)
    
    
    150,993,000
    
    
    
    19.20
    
    
    
    400,000,000
    
    
    
    Total Number of
    
    Maximum Number ofCommon Shares
    
    Shares that MayPurchased as Part
    
    Yet beTotal Number of
    
    Average Price Paid
    
    of
    
    PurchasedCommon Shares
    
    per Common Share
    
    Publicly Announced
    
    Under the Plans orPeriod
    
    Purchased
    
    (NT$)
    
    Plans or Program
    
    Program2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 PART III
 
 ITEM 17.
    
    FINANCIAL STATEMENTS
  
 ITEM 18.
    
    FINANCIAL STATEMENTS
 The following is a list of the audited consolidated financial statements and report of
independent registered public accounting firm included in this annual report beginning on page F-1.
 89




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##### Table of Contents



PageConsolidated Financial Statements of United Microelectronics Corporation and SubsidiariesReport of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets at December 31, 2006 and 2007
    
    F-3Consolidated Statements of Income for each of the three years ended December 31, 2005, 2006 and 2007
    
    F-4Consolidated Statements of Changes in Stockholders Equity for each of the three years ended
December 31, 2005, 2006 and 2007
    
    F-5Consolidated Statements of Cash Flows for each of the three years ended December 31, 2005, 2006 and
2007
    
    F-8Notes to the Consolidated Financial Statements
    
    F-10
 
 ITEM 19.
    
    EXHIBITS
 Exhibit Number
    
    Description of Exhibits*1.1
    
    Articles of Incorporation of the Company as last amended on June 11, 20072.1
    
    Form of Amendment No. 1 to Deposit Agreement among the Company, and Holders
and Beneficial Owners of American Depositary Shares issued thereunder,
including the form of American Depositary Shares(2)2.2
    
    Form of Amendment No. 2 to Deposit Agreement among the Company, and Holders
and Beneficial Owners of American Depositary Shares issued thereunder,
including the form of American Depositary Shares(3)4.1
    
    Lease Agreement with Hsinchu Science Park Administration in relation to
government-owned land located at Hsinchu Science Park, Ko-Kuan Section, No.
20-22, Hsinchu, Taiwan, ROC, the site of Fab 6A (in Chinese with English
summary translation) (4)4.2
    
    Lease Agreement with Hsinchu Science Park Administration in relation to
government-owned land located at Hsinchu Science Park, third section of
first phase, Hsinchu, Taiwan, ROC, the site of Fab 8AB and United Tower (in
Chinese with English summary translation)(5)4.3
    
    Lease Agreement with Hsinchu Science Park Administration in relation to
government-owned land located at Hsinchu Science Park, third section of
first phase, Hsinchu, Taiwan, ROC, the site of Fab 8C (in Chinese with
English summary translation)(6)4.4
    
    Lease Agreement with Hsinchu Science Park Administration in relation to
government-owned land located at Hsinchu Science Park, third section of
first phase, Hsinchu, Taiwan, ROC, the site of Fab 8D (in Chinese with
English summary translation)(7)4.5
    
    Lease Agreement with Hsinchu Science Park Administration in relation to
government-owned land located at Hsinchu Science Park, third section of
second phase, Hsinchu, Taiwan, ROC, the site of Fab 8E (in Chinese with
English summary translation)(8)4.6
    
    Lease Agreement with Hsinchu Science Park Administration in relation to
government-owned land located at Hsinchu Science Park, Gin-Shan section,
Hsinchu, Taiwan, ROC, the site of Fab 8F (in Chinese with English summary
translation)(9)
 90




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##### Table of Contents



Exhibit Number
    
    Description of Exhibits4.7
    
    Lease Agreement with Southern Taiwan Science Park Administration in
relation to government-owned land located at Tainan Science Park, Tainan,
Taiwan, ROC, the site of Fab 12A (in Chinese with English summary
translation)(10)4.8
    
    Merger Agreement, entered into as of February 26, 2004, between United
Microelectronics Corporation and SiS Microelectronics Corporation (English
Translation) (11)4.9
    
    Lease Agreement with Hsinchu Science Park Administration in relation to
government-owned land located at Hsinchu Science Park, Ko-Kuan section,
Hsinchu, Taiwan, ROC, the site of Fab 8S (in Chinese with English summary
translation) (12)4.10
    
    Lease Agreement with JTC Corporation in relation to land located at Pasir
Ris Wafer Fab Park, Singapore, the site of Fab 12i (summary) (13)*8.1
    
    List of Significant Subsidiaries of United Microelectronics Corporation11.1
    
    Code of Ethics for Directors, Supervisors and Officers (14)11.2
    
    Employee Code of Conduct (15)*12.1
    
    Certification of our Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002*12.2
    
    Certification of our Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002*13.1
    
    Certification of our Chief Executive Officer pursuant to 18 U.S.C.§ 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*13.2
    
    Certification of our Chief Financial Officer pursuant to 18 U.S.C.§ 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*15.1
    
    Consent of Independent Registered Public Accounting Firm
 
 *
    
    Filed here with.(1)
    
    Incorporated by reference to Exhibit (a) to the Registrants Registration Statement on Form F-6 (File No.
333-13796) filed with the Commission on March 2, 2006.(2)
    
    Incorporated by reference to Exhibit (a)(iii) to the Registrants Registration Statement on Form F-6
(File No. 333-98591) filed with the Commission on March 19, 2007.(3)
    
    Incorporated by reference to Exhibit 4.1 to Registrants Annual Report on Form 20-F for the fiscal year
ended December 31, 2006 (File No. 001-15128) filed with the Commission on May 9, 2007.(4)
    
    Incorporated by reference to Exhibit 10.7 to the Registrants Registration Statement on Form F-1 (File
No. 333-12444) filed with the Commission on August 28, 2000, as amended.(5)
    
    Incorporated by reference to Exhibit 10.8 to the Registrants Registration Statement on Form F-1 (File
No. 333-12444) filed with the Commission on August 28, 2000, as amended.(6)
    
    Incorporated by reference to Exhibit 10.9 to the Registrants Registration Statement on Form F-1 (File
No. 333-12444) filed with the Commission on August 28, 2000, as amended.(7)
    
    Incorporated by reference to Exhibit 10.10 to the Registrants Registration Statement on Form F-1 (File
No. 333-12444) filed with the Commission on August 28, 2000, as amended..(8)
    
    Incorporated by reference to Exhibit 10.11 to the Registrants Registration Statement on F-1 (File No.
333-12444) filed with the Commission on August 28, 2000, as amended.(9)
    
    Incorporated by reference to Exhibit 10.12 to the Registrants Registration Statement on F-1, 2006 (File
No. 333-12444) filed with the Commission on August 28, 2000, as amended.(10)
    
    Incorporated by reference to Exhibit 4.8 to the Registrants Annual Report on Form 20-F for the fiscal
year ended December 31, 2003 (File No. 1-15128) filed with the Commission on June 17, 2004.(11)
    
    Incorporated by reference to Exhibit 4.9 to Registrants Annual Report on Form 20-F for the fiscal year
ended December 31, 2006 (File No. 001-15128) filed wit the Commission on May 9, 2007.(12)
    
    Incorporated by reference to Exhibit 4.10 to Registrants Annual Report on Form 20-F for the fiscal year
ended December 31, 2006 (File No. 001-15128) filed with the Commission on May 9, 2007.(13)
    
    Incorporated by reference to Exhibit 99.1 to the Form 6-K filed with the Commission on May 25, 2005.(14)
    
    Incorporated by reference to Exhibit 99.2 to the Form 6-K filed with the Commission on March 26, 2006. 91




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SIGNATURES
   By:
    /s/ Chitung LiuName:
    Chitung LiuTitle:
    Chief Financial OfficerDate: May 2, 2008 92




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United Microelectronics Corporation and Subsidiaries
 
 Consolidated Financial Statements for years ended December 31, 2005, 2006 and 2007
 Together with Report of Independent Registered Public Accounting Firm
 F-1




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
        
 
  F-2




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##### Table of Contents



UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Expressed in Thousands)
 As of December 31,R:32.43Notes
    
    2006
    
    2007NT$
    
    NT$
    
    US$AssetsCurrent assetsCash and cash equivalents
    
    
    2, 4
    
    
    
    93,853,208
    
    
    
    47,678,147
    
    
    
    1,470,186Financial assets at fair value through profit or loss, current
    
    
    2, 3, 5
    
    
    
    8,538,007
    
    
    
    4,804,935
    
    
    
    148,163Held-to-maturity financial assets, current
    
    
    2, 3, 6
    
    
    
    1,110,422
    
    
    
    
    
    
    
    Notes receivable
    
    
    
    
    
    
    54,381
    
    
    
    32,712
    
    
    
    1,009Accounts receivable, net
    
    
    2, 7
    
    
    
    14,201,718
    
    
    
    15,010,279
    
    
    
    462,852Accounts receivable  related parties, net
    
    
    2, 27
    
    
    
    150,011
    
    
    
    348,303
    
    
    
    10,740Other receivables
    
    
    2
    
    
    
    849,742
    
    
    
    457,148
    
    
    
    14,096Inventories, net
    
    
    2, 8
    
    
    
    10,878,182
    
    
    
    11,867,832
    
    
    
    365,952Prepaid expenses
    
    
    
    
    
    
    762,799
    
    
    
    692,030
    
    
    
    21,339Deferred income tax assets, current
    
    
    2, 25
    
    
    
    1,945,082
    
    
    
    219,881
    
    
    
    6,780Total current assets
    
    
    
    
    
    
    132,343,552
    
    
    
    81,111,267
    
    
    
    2,501,117Funds and investmentsFinancial assets at fair value through profit or loss, noncurrent
    
    
    2, 3, 9
    
    
    
    474,738
    
    
    
    47,598
    
    
    
    1,468Available-for-sale financial assets, noncurrent
    
    
    2, 3, 10, 15
    
    
    
    52,311,172
    
    
    
    50,911,643
    
    
    
    1,569,893Financial assets measured at cost, noncurrent
    
    
    2, 3, 11, 15
    
    
    
    7,515,945
    
    
    
    8,295,679
    
    
    
    255,803Long-term investments accounted for under the equity method
    
    
    2, 3, 12, 15
    
    
    
    11,662,599
    
    
    
    9,909,595
    
    
    
    305,569Prepayment for long-term investments
    
    
    
    
    
    
    
    
    
    
    648,360
    
    
    
    19,993Total funds and investments
    
    
    
    
    
    
    71,964,454
    
    
    
    69,812,875
    
    
    
    2,152,726Property, plant and equipment
    
    
    2, 3, 13, 29Land
    
    
    
    
    
    
    1,879,442
    
    
    
    1,922,230
    
    
    
    59,273Buildings
    
    
    
    
    
    
    21,076,844
    
    
    
    22,529,856
    
    
    
    694,723Machinery and equipment
    
    
    
    
    
    
    415,225,873
    
    
    
    446,198,339
    
    
    
    13,758,814Transportation equipment
    
    
    
    
    
    
    90,706
    
    
    
    85,877
    
    
    
    2,648Furniture and fixtures
    
    
    
    
    
    
    2,964,369
    
    
    
    3,429,067
    
    
    
    105,737Leasehold improvements
    
    
    
    
    
    
    42,968
    
    
    
    42,809
    
    
    
    1,320Total cost
    
    
    
    
    
    
    441,280,202
    
    
    
    474,208,178
    
    
    
    14,622,515Less : Accumulated depreciation
    
    
    
    
    
    
    (311,696,923
    )
    
    
    (346,920,945
    )
    
    
    (10,697,531
    )Add : Construction in progress and prepayments
    
    
    
    
    
    
    22,244,850
    
    
    
    9,931,551
    
    
    
    306,246Property, plant and equipment, net
    
    
    
    
    
    
    151,828,129
    
    
    
    137,218,784
    
    
    
    4,231,230Goodwill
    
    
    2,3
    
    
    
    3,498,687
    
    
    
    3,498,687
    
    
    
    107,884Deferred charges
    
    
    2
    
    
    
    1,502,394
    
    
    
    1,435,126
    
    
    
    44,253Deferred income tax assets, noncurrent
    
    
    2,25
    
    
    
    4,184,091
    
    
    
    4,268,053
    
    
    
    131,608Other assets  others
    
    
    2, 14, 15, 28
    
    
    
    2,332,154
    
    
    
    2,213,497
    
    
    
    68,255Total assets
    
    
    
    
    
    
    367,653,461
    
    
    
    299,558,289
    
    
    
    9,237,073Liabilities and Stockholders EquityCurrent liabilitiesShort-term loans
    
    
    16
    
    
    
    342,549
    
    
    
    359,071
    
    
    
    11,072Financial liabilities at fair value through profit or loss, current
    
    
    2, 3, 17
    
    
    
    985,267
    
    
    
    340,230
    
    
    
    10,491Accounts payable
    
    
    
    
    
    
    4,864,771
    
    
    
    5,687,627
    
    
    
    175,382Income tax payable
    
    
    2
    
    
    
    2,071,394
    
    
    
    1,092,129
    
    
    
    33,677Accrued expenses
    
    
    
    
    
    
    7,025,328
    
    
    
    8,214,951
    
    
    
    253,313Other payables
    
    
    
    
    
    
    77,319
    
    
    
    23,538
    
    
    
    726Payable on equipment
    
    
    
    
    
    
    10,130,367
    
    
    
    6,036,274
    
    
    
    186,132Current portion of long-term liabilities
    
    
    2, 18
    
    
    
    9,068,283
    
    
    
    22,889,476
    
    
    
    705,812Deferred income tax liabilities, current
    
    
    2, 25
    
    
    
    62
    
    
    
    18
    
    
    
    1Other current liabilities
    
    
    29
    
    
    
    1,538,450
    
    
    
    645,143
    
    
    
    19,893Total current liabilities
    
    
    
    
    
    
    36,103,790
    
    
    
    45,288,457
    
    
    
    1,396,499Long-term liabilitiesBonds payable
    
    
    2, 18
    
    
    
    30,383,076
    
    
    
    7,495,304
    
    
    
    231,123Accrued pension liabilities
    
    
    2, 19
    
    
    
    3,115,420
    
    
    
    3,171,562
    
    
    
    97,797Deposits-in
    
    
    
    
    
    
    12,282
    
    
    
    14,415
    
    
    
    444Deferred income tax liabilities, noncurrent
    
    
    2, 25
    
    
    
    52,585
    
    
    
    47,548
    
    
    
    1,466Deferred credits  intercompany profits
    
    
    2
    
    
    
    13,245
    
    
    
    9,666
    
    
    
    298Other liabilities  others
    
    
    
    
    
    
    570,174
    
    
    
    533,638
    
    
    
    16,455Total long-term liabilities
    
    
    
    
    
    
    34,146,782
    
    
    
    11,272,133
    
    
    
    347,583Total liabilities
    
    
    
    
    
    
    70,250,572
    
    
    
    56,560,590
    
    
    
    1,744,082Commitments and Contingencies
    
    
    29Minority interests
    
    
    
    
    
    
    6,238,018
    
    
    
    6,530,810
    
    
    
    201,382Capital Stock
    
    
    2, 20, 21, 23
    
    
    
    191,323,332
    
    
    
    132,144,949
    
    
    
    4,074,775Additional Paid-in Capital
    
    
    2, 20
    
    
    
    67,707,287
    
    
    
    66,126,806
    
    
    
    2,039,063Retained earnings
    
    
    20, 23
    
    
    
    34,795,993
    
    
    
    31,651,091
    
    
    
    975,982Cumulative translation adjustment
    
    
    
    
    
    
    (824,922
    )
    
    
    (866,562
    )
    
    
    (26,722
    )Unrealized gain or loss on financial instruments
    
    
    
    
    
    
    27,557,845
    
    
    
    22,413,852
    
    
    
    691,146Treasury stock
    
    
    2, 12, 20, 22
    
    
    
    (29,394,664
    )
    
    
    (15,003,247
    )
    
    
    (462,635
    )Total stockholders equity
    
    
    
    
    
    
    291,164,871
    
    
    
    236,466,889
    
    
    
    7,291,609Total liabilities and stockholders equity
    
    
    
    
    
    
    367,653,461
    
    
    
    299,558,289
    
    
    
    9,237,073
 The accompanying notes are an integral part of these consolidated financial statements
 F-3




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##### Table of Contents



UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Expressed in Thousands, Except for Earnings per Share )
 For the year ended December 31,R:32.43Notes
    
    2005
    
    2006
    
    2007NT$
    
    NT$
    
    NT$
    
    US$Net operating revenues
    
    
    2,27
    
    
    
    100,315,982
    
    
    
    112,003,819
    
    
    
    113,311,298
    
    
    
    3,494,027Cost of goods sold
    
    
    2,24
    
    
    
    (90,643,320
    )
    
    
    (90,638,293
    )
    
    
    (89,768,276
    )
    
    
    (2,768,063
    )Gross profit
    
    
    
    
    
    
    9,672,662
    
    
    
    21,365,526
    
    
    
    23,543,022
    
    
    
    725,964Operating expenses
    
    
    24,27Sales and marketing expenses
    
    
    
    
    
    
    (3,738,469
    )
    
    
    (3,365,678
    )
    
    
    (4,068,984
    )
    
    
    (125,470
    )General and administrative expenses
    
    
    
    
    
    
    (4,387,406
    )
    
    
    (3,422,340
    )
    
    
    (3,723,916
    )
    
    
    (114,829
    )Research and development expenses
    
    
    
    
    
    
    (9,633,607
    )
    
    
    (9,418,877
    )
    
    
    (9,631,227
    )
    
    
    (296,985
    )(17,759,482
    )
    
    
    (16,206,895
    )
    
    
    (17,424,127
    )
    
    
    (537,284
    )Operating income (loss)
    
    
    
    
    
    
    (8,086,820
    )
    
    
    5,158,631
    
    
    
    6,118,895
    
    
    
    188,680Non-operating incomeInterest revenue
    
    
    
    
    
    
    1,055,138
    
    
    
    1,562,704
    
    
    
    1,330,418
    
    
    
    41,024Investment gain accounted for under the equity method, net
    
    
    2,12
    
    
    
    1,096,985
    
    
    
    1,178,103
    
    
    
    625,752
    
    
    
    19,296Dividend income
    
    
    
    
    
    
    1,051,813
    
    
    
    950,546
    
    
    
    2,171,720
    
    
    
    66,967Gain on disposal of property, plant and equipment
    
    
    2
    
    
    
    177,397
    
    
    
    331,767
    
    
    
    669,076
    
    
    
    20,631Gain on disposal of investments
    
    
    2
    
    
    
    10,276,618
    
    
    
    28,651,109
    
    
    
    12,040,872
    
    
    
    371,288Exchange gain, net
    
    
    2
    
    
    
    295,179
    
    
    
    316,006
    
    
    
    137,414
    
    
    
    4,237Gain on recovery of market value of inventories
    
    
    2
    
    
    
    837,315
    
    
    
    
    
    
    
    
    
    
    
    Gain on valuation of financial assets
    
    
    2
    
    
    
    58,853
    
    
    
    750,378
    
    
    
    
    
    
    
    Gain on valuation of financial liabilities
    
    
    2
    
    
    
    
    
    
    
    306,140
    
    
    
    20,633
    
    
    
    636Other income
    
    
    
    
    
    
    1,038,821
    
    
    
    862,750
    
    
    
    933,808
    
    
    
    28,79515,888,119
    
    
    
    34,909,503
    
    
    
    17,929,693
    
    
    
    552,874Non-operating expensesInterest expense
    
    
    13
    
    
    
    (1,098,854
    )
    
    
    (648,408
    )
    
    
    (181,262
    )
    
    
    (5,589
    )Loss on disposal of property, plant and equipment
    
    
    2
    
    
    
    (218,525
    )
    
    
    (107,962
    )
    
    
    (124,071
    )
    
    
    (3,826
    )Loss on decline in market value and obsolescence of inventories
    
    
    2
    
    
    
    
    
    
    
    (1,089,490
    )
    
    
    (372,359
    )
    
    
    (11,482
    )Financial expenses
    
    
    
    
    
    
    (268,985
    )
    
    
    (230,757
    )
    
    
    (137,134
    )
    
    
    (4,229
    )Impairment loss
    
    
    2, 3, 15
    
    
    
    (460,542
    )
    
    
    (1,330,293
    )
    
    
    (575,784
    )
    
    
    (17,755
    )Loss on valuation of financial assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,788,343
    )
    
    
    (85,980
    )Other losses
    
    
    2
    
    
    
    (148,606
    )
    
    
    (73,799
    )
    
    
    (199,292
    )
    
    
    (6,145
    )(2,195,512
    )
    
    
    (3,480,709
    )
    
    
    (4,378,245
    )
    
    
    (135,006
    )Income before income tax and minority interests
    
    
    
    
    
    
    5,605,787
    
    
    
    36,587,425
    
    
    
    19,670,343
    
    
    
    606,548Income tax expense
    
    
    2,25
    
    
    
    (67,052
    )
    
    
    (3,261,622
    )
    
    
    (2,809,874
    )
    
    
    (86,644
    )Cumulative effect of changes in accounting principles
    
    
    3
    
    
    
    (112,898
    )
    
    
    (1,188,515
    )
    
    
    
    
    
    
    Minority interests loss
    
    
    
    
    
    
    1,600,855
    
    
    
    482,025
    
    
    
    101,293
    
    
    
    3,123Net income
    
    
    
    
    
    
    7,026,692
    
    
    
    32,619,313
    
    
    
    16,961,762
    
    
    
    523,027Earnings per share-basic (in dollars)
    
    
    2,26
    
    
    
    0.38
    
    
    
    1.81
    
    
    
    1.09Shares used in per share calculation  basic
    
    
    
    
    
    
    18,647,462
    
    
    
    18,050,962
    
    
    
    15,618,486Earnings per share-diluted (in dollars)
    
    
    2,26
    
    
    
    0.37
    
    
    
    1.75
    
    
    
    1.06Shares used in per share calculation  diluted
    
    
    
    
    
    
    18,933,611
    
    
    
    18,675,467
    
    
    
    16,072,868
  F-4




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##### Table of Contents



UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Expressed in Thousands)
 UnrealizedCapital
    
    
    
    
    
    Retained Earnings
    
    Gain/Loss on
    
    CumulativeCollected in
    
    Additional
    
    
    
    
    
    Special
    
    Unappropriated
    
    Financial
    
    Translation
    
    Treasury
    
    MinorityCommon Stock
    
    Shares
    
    Advance
    
    paid-in capital
    
    Legal Reserve
    
    Reserve
    
    Earnings
    
    Instruments
    
    Adjustment
    
    Stock
    
    Interests
    
    TotalNT$
    
    
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$Balance as of
January 1, 2005
    
    
    177,919,819
    
    
    
    17,791,982
    
    
    
    4,040
    
    
    
    84,933,195
    
    
    
    12,812,501
    
    
    
    90,871
    
    
    
    29,498,329
    
    
    
    (424,713
    )
    
    
    (1,319,452
    )
    
    
    (37,140,714
    )
    
    
    8,728,877
    
    
    
    275,102,753Appropriation of
2004 retained
earningsLegal reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,184,338
    
    
    
    
    
    
    
    (3,184,338
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Special reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,653,300
    
    
    
    (1,653,300
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,758,736
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,758,736
    )Stock dividends
    
    
    17,587,364
    
    
    
    1,758,736
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,587,364
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Remuneration
to directors
and
supervisors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,006
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,006
    )Employee bonus
- stock
    
    
    1,972,855
    
    
    
    197,286
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,972,855
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of
treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,378,692
    )
    
    
    
    
    
    
    (16,378,692
    )Cancellation of
treasury stock
    
    
    (491,140
    )
    
    
    (49,114
    )
    
    
    
    
    
    
    (177,419
    )
    
    
    
    
    
    
    
    
    
    
    (1,509,640
    )
    
    
    
    
    
    
    
    
    
    
    2,178,199
    
    
    
    
    
    
    
    Net income in 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,026,692
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,600,855
    )
    
    
    5,425,837Adjustment of
additional paid-in
capital accounted
for under the
equity method
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,491
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,491
    )Changes in
unrealized gain on
financial
instruments of
investees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    343,724
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    343,724Exercise of
employee stock
options
    
    
    954,095
    
    
    
    95,409
    
    
    
    36,600
    
    
    
    654,314
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,645,009Common stock
transferred from
capital collected
in advance
    
    
    4,040
    
    
    
    404
    
    
    
    (4,040
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Changes in
cumulative
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,078,299
    
    
    
    
    
    
    
    
    
    
    
    1,078,299Changes in minority
interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,878
    
    
    
    (791,337
    )
    
    
    (782,459
    )Balance as of
December 31, 2005
    
    
    197,947,033
    
    
    
    19,794,703
    
    
    
    36,600
    
    
    
    85,381,599
    
    
    
    15,996,839
    
    
    
    1,744,171
    
    
    
    8,831,782
    
    
    
    (80,989
    )
    
    
    (241,153
    )
    
    
    (51,332,329
    )
    
    
    6,336,685
    
    
    
    264,620,238(in NT$)
 The accompanying notes are an integral part of the consolidated financial statements.
 F-5




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##### Table of Contents



UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Expressed in Thousands)
 UnrealizedCapital
    
    Additional
    
    Retained Earnings
    
    Gain/Loss on
    
    CumulativeCommon
    
    
    
    
    
    Collected
    
    Paid-in
    
    Legal
    
    Special
    
    Unappropriated
    
    Financial
    
    Translation
    
    Treasury
    
    MinorityStock
    
    Shares
    
    in Advance
    
    Capital
    
    Reserve
    
    Reserve
    
    Earnings
    
    Instruments
    
    Adjustment
    
    Stock
    
    Interests
    
    TotalNT$
    
    
    
    
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$Balance as of January 1, 2006
    
    
    197,947,033
    
    
    
    19,794,703
    
    
    
    36,600
    
    
    
    85,381,599
    
    
    
    15,996,839
    
    
    
    1,744,171
    
    
    
    8,831,782
    
    
    
    (80,989
    )
    
    
    (241,153
    )
    
    
    (51,332,329
    )
    
    
    6,336,685
    
    
    
    264,620,238The effect of adopting SFAS NO. 34
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,097,170
    
    
    
    11,547
    
    
    
    
    
    
    
    
    
    
    
    24,108,717Appropriation of 2005 retained earningsLegal reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    702,669
    
    
    
    
    
    
    
    (702,669
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Special reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,422,021
    )
    
    
    1,422,021
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,161,267
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,161,267
    )Stock dividends
    
    
    895,158
    
    
    
    89,516
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (895,158
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Remuneration to directors and supervisors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,324
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,324
    )Employee bonus  cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (305,636
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (305,636
    )Employee bonus  stock
    
    
    458,455
    
    
    
    45,846
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (458,455
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital reserve transferred to common stock
    
    
    895,158
    
    
    
    89,516
    
    
    
    
    
    
    
    (895,158
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,286,339
    )
    
    
    
    
    
    
    (27,286,339
    )Cancellation of treasury stock
    
    
    (10,000,000
    )
    
    
    (1,000,000
    )
    
    
    
    
    
    
    (3,269,100
    )
    
    
    
    
    
    
    
    
    
    
    (6,371,128
    )
    
    
    
    
    
    
    
    
    
    
    19,640,228
    
    
    
    
    
    
    
    Adjustment of treasury stock due to loss of
control over subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57,972
    )
    
    
    
    
    
    
    
    
    
    
    (9,198,144
    )
    
    
    (6,826,238
    )
    
    
    
    
    
    
    29,583,776
    
    
    
    
    
    
    
    13,501,422Net income in 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,619,313
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (482,025
    )
    
    
    32,137,288Adjustment of additional paid-in capital
accounted for under the equity method
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62,686
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62,686
    )Adjustment of funds and investments disposal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,091,043
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,170
    
    
    
    
    
    
    
    
    
    
    
    (14,082,873
    )Cash dividends allocated to subsidaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66,910
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66,910Changes in unrealized gain on
available-for-sale financial assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,066,672
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,066,672Changes in unrealized gain on financial
instruments of investees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,301,230
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,301,230Exercise of employee stock options
    
    
    1,079,523
    
    
    
    107,952
    
    
    
    11,405
    
    
    
    634,737
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,725,665Common stock transferred from capital
collected in advance
    
    
    36,600
    
    
    
    3,660
    
    
    
    (36,600
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Changes in cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (603,486
    )
    
    
    
    
    
    
    
    
    
    
    (603,486
    )Changes in minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    383,358
    
    
    
    383,358Balance as of December 31, 2006 (in NT$)
    
    
    191,311,927
    
    
    
    19,131,193
    
    
    
    11,405
    
    
    
    67,707,287
    
    
    
    16,699,508
    
    
    
    322,150
    
    
    
    17,774,335
    
    
    
    27,557,845
    
    
    
    (824,922
    )
    
    
    (29,394,664
    )
    
    
    6,238,018
    
    
    
    297,402,889
 The accompanying notes are an integral part of the consolidated financial statements.
 F-6




---



##### Table of Contents



UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Expressed in Thousands)
 UnrealizedCapital
    
    Additional
    
    Retained Earnings
    
    Gain/Loss on
    
    CumulativeCommon
    
    
    
    
    
    Collected
    
    Paid-in
    
    Legal
    
    Special
    
    Unappropriated
    
    Financial
    
    Translation
    
    Treasury
    
    MinorityStock
    
    Shares    
    in Advance
    
    Capital
    
    Reserve
    
    Reserve
    
    Earnings
    
    Instruments
    
    Adjustment
    
    Stock
    
    Interests
    
    TotalNT$
    
    
    

    
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$Balance as of January 1, 2007
    
    
    191,311,927
    
    
    
    19,131,193
    
    
    
    11,405
    
    
    
    67,707,287
    
    
    
    16,699,508
    
    
    
    322,150
    
    
    
    17,774,335
    
    
    
    27,557,845
    
    
    
    (824,922
    )
    
    
    (29,394,664
    )
    
    
    6,238,018
    
    
    
    297,402,889Appropriation of 2006 retained
earningsLegal 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
    )Capital reduction
    
    
    (57,393,578
    )
    
    
    (5,739,358
    )
    
    
    
    
    
    
    (1,142,437
    )
    
    
    
    
    
    
    
    
    
    
    (2,650,494
    )
    
    
    
    
    
    
    
    
    
    
    7,275,517
    
    
    
    
    
    
    
    (53,910,992
    )Adjustment of treasury stock held
by subsidiary due to capital
reduction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,789
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,039
    
    
    
    
    
    
    
    66,828Cancellation of treasury stock
    
    
    (1,920,670
    )
    
    
    (192,067
    )
    
    
    
    
    
    
    (622,323
    )
    
    
    
    
    
    
    
    
    
    
    (2,655,027
    )
    
    
    
    
    
    
    
    
    
    
    5,198,020
    
    
    
    
    
    
    
    Treasury stock sold to employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,865,841
    
    
    
    
    
    
    
    1,866,023Net income in 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,961,762
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101,293
    )
    
    
    16,860,469Adjustment of additional paid-in
capital accounted for under the
equity method
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,867
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,867Adjustment of funds and
investments disposal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,310
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150
    )
    
    
    
    
    
    
    
    
    
    
    11,160Cash dividends allocated to
subsidaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,541
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,541Changes in unrealized gain on
available-for-sale financial
assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,539,032
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,539,032
    )Changes in unrealized gain on
financial instruments of
investees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,604,961
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,604,961
    )Exercise of employee stock options
    
    
    135,865
    
    
    
    13,586
    
    
    
    
    
    
    
    90,590
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    226,455Common stock transferred from
capital collected in advance
    
    
    11,405
    
    
    
    1,141
    
    
    
    (11,405
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Changes in cumulative translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41,490
    )
    
    
    
    
    
    
    
    
    
    
    (41,490
    )Changes in minority interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    394,085
    
    
    
    394,085Balance as of December 31, 2007
(in NT$)
    
    
    132,144,949
    
    
    
    13,214,495
    
    
    
    
    
    
    
    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
 The accompanying notes are an integral part of the consolidated financial statements.
 F-7




---



##### Table of Contents



UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Thousands)
 For the year ended December 31,2005
    
    2006
    
    2007NT$
    
    NT$
    
    NT$
    
    US$Cash flows from operating activities:Net income attributable to shareholders of the parent
    
    
    7,026,692
    
    
    
    32,619,313
    
    
    
    16,961,762
    
    
    
    523,027Net loss attributable to minority interests
    
    
    (1,600,855
    )
    
    
    (482,025
    )
    
    
    (101,293
    )
    
    
    (3,123
    )Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    51,366,170
    
    
    
    44,255,730
    
    
    
    37,784,558
    
    
    
    1,165,111Amortization
    
    
    3,278,290
    
    
    
    1,826,622
    
    
    
    1,383,794
    
    
    
    42,670Bad debt expense (reversal)
    
    
    (149,407
    )
    
    
    (164,908
    )
    
    
    256
    
    
    
    8Loss (gain) on decline (recovery) in market value and obsolescence of inventories
    
    
    (837,315
    )
    
    
    1,089,490
    
    
    
    372,359
    
    
    
    11,482Loss (gain) on valuation of financial assets and liabilities
    
    
    (58,853
    )
    
    
    131,997
    
    
    
    2,767,710
    
    
    
    85,344Investment gain accounted for under the equity method
    
    
    (984,087
    )
    
    
    (1,178,103
    )
    
    
    (625,752
    )
    
    
    (19,296
    )Cash dividends received under the equity method
    
    
    870,694
    
    
    
    1,086,996
    
    
    
    660,050
    
    
    
    20,353Gain on disposal of investments
    
    
    (10,276,618
    )
    
    
    (28,651,109
    )
    
    
    (12,040,872
    )
    
    
    (371,288
    )Loss (gain) on disposal of property, plant and equipment
    
    
    41,128
    
    
    
    (223,805
    )
    
    
    (545,005
    )
    
    
    (16,806
    )Gain on reacquisition of bonds
    
    
    (133,042
    )
    
    
    (18,465
    )
    
    
    (6,205
    )
    
    
    (191
    )Amortization of bond discounts (premiums)
    
    
    (9,569
    )
    
    
    87,369
    
    
    
    58,461
    
    
    
    1,803Exchange gain on financial assets and liabilities
    
    
    (2,352
    )
    
    
    (13,009
    )
    
    
    (45,182
    )
    
    
    (1,393
    )Exchange loss (gain) on long-term liabilities
    
    
    77,021
    
    
    
    (127,179
    )
    
    
    127,417
    
    
    
    3,929Amortization of deferred income
    
    
    (89,762
    )
    
    
    (99,210
    )
    
    
    (149,106
    )
    
    
    (4,598
    )Impairment loss
    
    
    460,542
    
    
    
    1,330,293
    
    
    
    575,784
    
    
    
    17,755Effect from subsidiaries over which significant control is no longer held
    
    
    (264,467
    )
    
    
    
    
    
    
    
    
    
    
    Changes in assets and liabilities:Financial assets and liabilities at fair value through profit or loss
    
    
    46,605
    
    
    
    (5,803,828
    )
    
    
    738,675
    
    
    
    22,777Notes and accounts receivable
    
    
    (1,668,590
    )
    
    
    783,372
    
    
    
    (874,901
    )
    
    
    (26,978
    )Other receivables
    
    
    (243,280
    )
    
    
    97,674
    
    
    
    513,065
    
    
    
    15,821Inventories
    
    
    17,184
    
    
    
    (1,262,091
    )
    
    
    (1,354,730
    )
    
    
    (41,774
    )Prepaid expenses
    
    
    (342,885
    )
    
    
    (78,560
    )
    
    
    72,758
    
    
    
    2,243Deferred income tax assets
    
    
    54,604
    
    
    
    1,231,531
    
    
    
    1,646,169
    
    
    
    50,761Other current assets
    
    
    (14,612
    )
    
    
    13,924
    
    
    
    (9,807
    )
    
    
    (302
    )Notes payable
    
    
    (167,875
    )
    
    
    
    
    
    
    
    
    
    
    Accounts payable
    
    
    (333,824
    )
    
    
    (135,076
    )
    
    
    378,415
    
    
    
    11,669Income tax payable
    
    
    34,104
    
    
    
    (106,504
    )
    
    
    94,721
    
    
    
    2,921Accrued expenses
    
    
    (691,806
    )
    
    
    512,799
    
    
    
    581,206
    
    
    
    17,922Other payables
    
    
    14,366
    
    
    
    51,232
    
    
    
    (38,313
    )
    
    
    (1,181
    )Other current liabilities
    
    
    (732,210
    )
    
    
    183,773
    
    
    
    (117,122
    )
    
    
    (3,612
    )Accrued pension liabilities
    
    
    301,796
    
    
    
    110,883
    
    
    
    56,020
    
    
    
    1,727Capacity deposits
    
    
    (193,249
    )
    
    
    (4,953
    )
    
    
    (873,554
    )
    
    
    (26,937
    )Other liabilities  others
    
    
    242,200
    
    
    
    14,178
    
    
    
    87,769
    
    
    
    2,706Net cash provided by operating activities
    
    
    45,046,108
    
    
    
    47,078,351
    
    
    
    48,079,107
    
    
    
    1,482,550Cash flows from investing activities:Acquisition of financial assets at fair value through profit or loss
    
    
    
    
    
    
    (427,202
    )
    
    
    
    
    
    
    Acquisition of available-for-sale financial assets
    
    
    (3,126,417
    )
    
    
    (5,145,237
    )
    
    
    (3,912,891
    )
    
    
    (120,656
    )Acquisition of financial assets measured at cost
    
    
    (2,834,658
    )
    
    
    (2,281,596
    )
    
    
    (1,359,890
    )
    
    
    (41,933
    )Acquisition of long-term investments accounted for under the equity method
    
    
    (2,211,922
    )
    
    
    (3,524,941
    )
    
    
    (1,343,316
    )
    
    
    (41,422
    )Proceeds from disposal of financial assets at fair value through profit or loss
    
    
    
    
    
    
    74,092
    
    
    
    
    
    
    
    Proceeds from disposal of available-for-sale financial assets
    
    
    9,755,644
    
    
    
    18,697,235
    
    
    
    9,226,736
    
    
    
    284,512Proceeds from disposal of financial assets measured at cost
    
    
    2,323,314
    
    
    
    903,019
    
    
    
    1,004,253
    
    
    
    30,967Proceeds from disposal of long-term investments accounted for under the equity method
    
    
    7,178,638
    
    
    
    8,202,027
    
    
    
    1,531,544
    
    
    
    47,226Proceeds from maturity of held-to-maturity financial assets
    
    
    1,708,260
    
    
    
    
    
    
    
    1,119,950
    
    
    
    34,534Prepayment for long-term investments
    
    
    
    
    
    
    
    
    
    
    (648,360
    )
    
    
    (19,993
    )Proceeds from capital reduction and liquidation of investments
    
    
    50,725
    
    
    
    204,352
    
    
    
    342,206
    
    
    
    10,552Acquisition of property, plant and equipment
    
    
    (22,162,708
    )
    
    
    (33,239,978
    )
    
    
    (28,299,165
    )
    
    
    (872,623
    )Proceeds from disposal of property, plant and equipment
    
    
    3,084,714
    
    
    
    587,904
    
    
    
    1,751,144
    
    
    
    53,998Acquisition of deferred charges
    
    
    (1,377,043
    )
    
    
    (1,095,114
    )
    
    
    (1,255,453
    )
    
    
    (38,713
    )Decrease (increase) in restricted deposits
    
    
    (555,800
    )
    
    
    555,800
    
    
    
    
    
    
    
    Decrease (increase) in other assets
    
    
    679,908
    
    
    
    (20,958
    )
    
    
    44,122
    
    
    
    1,361Net cash used in investing activities
    
    
    (7,487,345
    )
    
    
    (16,510,597
    )
    
    
    (21,799,120
    )
    
    
    (672,190
    )
 The accompanying notes are an integral part of these consolidated financial statements
 F-8




---



##### Table of Contents



UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Thousands)
 For the year ended December 31,2005
    
    2006
    
    2007NT$
    
    NT$
    
    NT$
    
    US$Cash flows from financing activities:Proceeds from short-term loans
    
    
    499,929
    
    
    
    204,265
    
    
    
    14,000
    
    
    
    432Repayment of long-term loans
    
    
    (20,382,214
    )
    
    
    
    
    
    
    
    
    
    
    Issuance of bonds
    
    
    12,478,603
    
    
    
    
    
    
    
    
    
    
    
    Redemption of bonds
    
    
    (2,820,004
    )
    
    
    (10,250,000
    )
    
    
    (5,355,192
    )
    
    
    (165,131
    )Reacquisition of bonds
    
    
    (2,662,226
    )
    
    
    (1,844,683
    )
    
    
    (819,323
    )
    
    
    (25,264
    )Remuneration paid to directors and supervisors
    
    
    (27,006
    )
    
    
    (6,324
    )
    
    
    (15,494
    )
    
    
    (478
    )Increase (decrease) in deposits-in
    
    
    (204,474
    )
    
    
    (6,379
    )
    
    
    2,136
    
    
    
    66Cash dividends
    
    
    (1,758,736
    )
    
    
    (7,155,865
    )
    
    
    (12,446,080
    )
    
    
    (383,783
    )Payment of employee bonus
    
    
    
    
    
    
    (305,636
    )
    
    
    (2,324,120
    )
    
    
    (71,666
    )Treasury stock sold to employees
    
    
    
    
    
    
    
    
    
    
    1,866,023
    
    
    
    57,540Capital reduction
    
    
    
    
    
    
    
    
    
    
    (53,844,157
    )
    
    
    (1,660,319
    )Purchase of treasury stock
    
    
    (16,378,692
    )
    
    
    (27,286,339
    )
    
    
    
    
    
    
    Exercise of employee stock options
    
    
    1,642,008
    
    
    
    1,725,665
    
    
    
    226,455
    
    
    
    6,983Increase (decrease) in minority shareholders
    
    
    20,826
    
    
    
    (130,269
    )
    
    
    2,202
    
    
    
    68Net cash used in financing activities
    
    
    (29,591,986
    )
    
    
    (45,055,565
    )
    
    
    (72,693,550
    )
    
    
    (2,241,552
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (1,536,358
    )
    
    
    (247,242
    )
    
    
    238,502
    
    
    
    7,354Effect of subsidiaries change
    
    
    814,408
    
    
    
    (38,539
    )
    
    
    
    
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    7,244,827
    
    
    
    (14,773,592
    )
    
    
    (46,175,061
    )
    
    
    (1,423,838
    )Cash and cash equivalents at beginning of year
    
    
    101,381,973
    
    
    
    108,626,800
    
    
    
    93,853,208
    
    
    
    2,894,024Cash and cash equivalents at end of year
    
    
    108,626,800
    
    
    
    93,853,208
    
    
    
    47,678,147
    
    
    
    1,470,186Supplemental disclosures of cash flow information:Cash paid for interest
    
    
    1,379,098
    
    
    
    971,038
    
    
    
    522,300
    
    
    
    16,105Cash paid (refunded) for income tax
    
    
    (129,057
    )
    
    
    167,433
    
    
    
    2,094,070
    
    
    
    64,572Investing activities partially paid by cash:Acquisition of property, plant and equipment
    
    
    19,407,024
    
    
    
    38,054,650
    
    
    
    24,205,072
    
    
    
    746,379Add: Payable at beginning of year
    
    
    8,071,379
    
    
    
    5,315,695
    
    
    
    10,130,367
    
    
    
    312,376Less: Payable at end of year
    
    
    (5,315,695
    )
    
    
    (10,130,367
    )
    
    
    (6,036,274
    )
    
    
    (186,132
    )Cash paid for acquiring property, plant and equipment
    
    
    22,162,708
    
    
    
    33,239,978
    
    
    
    28,299,165
    
    
    
    872,623Investing and financing activities not affecting cash flows:Principal amount of exchangeable bonds exchanged by bondholders
    
    
    
    
    
    
    69,621
    
    
    
    3,285,254
    
    
    
    101,303Book value of available-for-sale financial assets delivered for exchange
    
    
    
    
    
    
    (20,242
    )
    
    
    (895,055
    )
    
    
    (27,600
    )Elimination of related balance sheet accounts
    
    
    
    
    
    
    15,302
    
    
    
    392,118
    
    
    
    12,091Recognition of gain on disposal of available-for-sale financial assets
    
    
    
    
    
    
    64,681
    
    
    
    2,782,317
    
    
    
    85,794
 The accompanying notes are an integral part of the consolidated financial statements.
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##### Table of Contents



1.
    
    HISTORY AND ORGANIZATIONUnited 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 December 31, 2005, 2006 and 2007 were 13,278, 14,251 and 14,680
respectively.2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe consolidated financial statements were prepared in conformity with requirements of the
Business Entity Accounting Act and Regulation on Business Entity Accounting Handling with respect
to financial accounting standard, 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 EntitiesPrinciples of ConsolidationInvestees 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.The consolidated entities are as follows:As of December 31, 2006
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##### Table of Contents



Percentage ofInvestor
    
    Subsidiary
    
    Business nature
    
    ownership (%)UMC
    
    UMC GROUP (USA)(UMC-USA)
    
    IC Sales
    
    
    100.00UMC
    
    UNITED MICROELECTRONICS (EUROPE)
B.V (UME BV)
    
    IC Sales
    
    
    100.00UMC
    
    UMC CAPITAL CORP.
    
    Investment holding
    
    
    100.00UMC
    
    UNITED MICROELECTRONICS CORP.
(SAMOA)
    
    Investment holding
    
    
    100.00UMC
    
    TLC CAPITAL CO., LTD. (TLC)
    
    Consulting and
planning for
investment in new
business
    
    
    100.00UMC
    
    UMCI LTD. (UMCI)
    
    Sales and
manufacturing of
integrated circuits
    
    
    100.00UMC
    
    FORTUNE VENTURE CAPITAL CORP.
(FORTUNE)
    
    Consulting and
planning for
investment in new
business
    
    
    99.99UMC
    
    UNITED MICRODISPLAY OPTRONICS
CORP. (UMO) (Note 1)
    
    Sales and
manufacturing of
LCOS
    
    
    81.76UMC
    
    UMC JAPAN (UMCJ)
    
    Sales and
manufacturing of
integrated circuits
    
    
    50.09UMC and UMO
    
    THINTEK OPTRONICS CORP.
(THINTEK)
(Note 1)
    
    LCOS design,
production and
sales
    
    FORTUNE
    
    UNITRUTH INVESTMENT CORP.
(UNITRUTH)
    
    Investment holding
    
    
    100.00UMC CAPITAL CORP.
    
    UMC CAPITAL (USA)
    
    Investment holding
    
    
    100.00UMC CAPITAL CORP.
    
    ECP VITA LTD.
    
    Insurance
    
    
    100.00
 As of December 31, 2007
 Percentage ofInvestor
    
    Subsidiary
    
    Business nature
    
    ownership (%)UMC
    
    UMC-USA
    
    IC Sales
    
    
    100.00UMC
    
    UME BV
    
    IC Sales
    
    
    100.00UMC
    
    UMC CAPITAL CORP.
    
    Investment holding
    
    
    100.00UMC
    
    UNITED
MICROELECTRONICS
CORP. (SAMOA)
    
    Investment holding
    
    
    100.00UMC
    
    TLC
    
    Consulting and
planning for
investment in new
business
    
    
    100.00UMC
    
    UMCI
    
    Sales and manufacturing
of integrated circuits
    
    
    100.00
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Percentage ofInvestor
    
    Subsidiary
    
    Business nature
    
    ownership (%)UMC
    
    FORTUNE
    
    Consulting and
planning for
investment in new
business
    
    
    99.99
 Percentage ofInvestor
    
    Subsidiary
    
    Business nature
    
    ownership (%)UMC
    
    UMO (Note 1)
    
    Sales and
manufacturing of
LCOS
    
    
    85.24UMC
    
    UMCJ
    
    Sales and
manufacturing of
integrated circuits
    
    
    50.09FORTUNE
    
    UNITRUTH
    
    Investment holding
    
    
    100.00UMC CAPITAL CORP.
    
    UMC CAPITAL (USA)
    
    Investment holding
    
    
    100.00UMC CAPITAL CORP.
    
    ECP VITA LTD.
    
    Insurance
    
    
    100.00UMO
    
    UMO(HK) LIMITED
    
    Investment holding
    
    
    100.00
 
 Note 1:
    
    THINTEK was merged into UMO on October 1, 2006. The exchange ratio was 2.31 to 1. Foreign Currency TransactionsTransactions denominated in foreign currencies are remeasured into the local functional
currencies and recorded based on the exchange rates prevailing at the transaction dates.
Monetary assets and liabilities denominated in foreign currencies are remeasured into the local
functional currencies at the exchange rates prevailing at the balance sheet date, with the
related exchange gains or losses included in the consolidated statements of income. Translation
gains or losses from investments in foreign entities are recognized as cumulative translation
adjustment in stockholders equity.Non-monetary assets and liabilities denominated in foreign currencies that are reported at fair
value with changes in fair value charged to the consolidated statements of income, are remeasured
at the exchange rate at the balance sheet date, with related exchange gains or losses recorded in
the consolidated statements of income. Non-monetary assets and liabilities denominated in
foreign currencies that are reported at fair value with changes in fair value charged to
stockholders equity, are remeasured at the exchange rate at the balance sheet date,
with related exchange gains or losses recorded as adjustment items to stockholders equity.
Non-monetary assets and liabilities denominated in foreign currencies and reported at cost are
remeasured at historical exchange rates.
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Use of EstimatesThe preparation of the Companys consolidated financial statements in conformity with R.O.C.
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. Actual results may differ from those
estimates.Translation of Foreign Currency Financial StatementsThe 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 during the year 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.Convenience Translation into US DollarsTranslations of amount from New Taiwan dollars (NT$) into United States dollars for the readers
convenience were calculated at the noon buying rate of US$1.00 to NT$32.43 on December 31, 2007
in The City of New York for cable transfers of NT$ as certified for customs purposes by the
Federal Reserve Bank of New York. No representation is made that the NT$ amounts could have been,
or could be, converted into United States dollars at such rate.Cash EquivalentsCash 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 InstrumentsIn 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.
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##### Table of Contents



a.
    
    Financial instruments at fair value through profit or lossFinancial 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 assetsNon-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 costUnlisted 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 assetsAvailable-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.
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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 AccountsAn allowance for doubtful accounts is provided based on managements judgment of the
collectibility and aging analysis of accounts and other receivables.InventoriesInventories 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 MethodLong-term investments are initially recorded at acquisition cost. Investments acquired by
the contribution of technological know-how are credited to deferred credits among affiliates,
which will be amortized 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.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 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.
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Unrealized intercompany gains and losses due to sales from equity method investees to the Company
are eliminated in proportion to the Companys weighted-average ownership percentage of the
investee until realized through transactions with third parties.Unrealized intercompany gains and losses arising from transactions between two equity method
investees are eliminated in proportion to the Companys multiplied weighted-average ownership
percentage with the investees until realized through transactions with third parties. Those
intercompany gains and losses arising from transactions between two majority-owned subsidiaries
are eliminated in proportion to the Companys weighted-average ownership percentage in the
subsidiary that incurred the gain or loss.If the recoverable amount of investees accounted for under the equity method is less than its
carrying amount, the difference is to be recognized as impairment loss in the current period.The total value of an investment and related receivables cannot be negative. If, after the
investment loss is recognized, the net book value of the investment is less than zero, the
investment is reclassified to other liabilities  others on the 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
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.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 EquipmentProperty, 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, their original cost and
accumulated depreciation are written off and the related gain or loss is classified as non-operating
income or expense. Idle assets are classified as other assets at the lower of net book or net
realizable value, with the difference charged to non-operating expenses. Depreciation is
recognized on a straight-line basis using the estimated economic life of the assets less salvage
value.
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##### Table of Contents



Buildings
    
    8 ~ 55 yearsMachinery and equipment
    
    5 ~ 6 yearsTransportation equipment
    
    4 ~ 5 yearsFurniture and fixtures
    
    2 ~ 14 yearsLeased assets and leasehold
improvements
    
    The lease period or estimated
economic life, whichever is
shorter
 Intangible AssetsEffective January 1, 2006, goodwill generated from business combinations is no longer subject to
amortization.Technological know-how is stated at cost and amortized over its estimated economic life using the
straight-line method.An impairment loss will be recognized when the decreases in fair value of intangible assets are
other than temporary. The book value after recognizing the impairment loss is recorded as the
new cost.Deferred ChargesDeferred 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.Prior to December 31, 2005, the issuance costs of convertible and exchangeable bonds were
classified as deferred charges and amortized over the life of the bonds. Effective January 1,
2006, the unamortized amounts as of December 31, 2005 were reclassified as a bond discount and
recorded as a deduction to bonds payable. The amounts are amortized using the effective interest
method over the remaining life of the bonds. If the difference between the straight-line method
and the effective interest method is immaterial, the amortization of the bond discount may be
amortized using the straight-line method and recorded as interest expenses.Convertible and Exchangeable BondsThe 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.
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##### Table of Contents



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 PlanAll 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.The Labor Pension Act of the R.O.C. (the Act), which adopts a defined contribution plan, became
effective on July 1, 2005. Employees subject to the Labor Standards Law, a defined benefit plan,
were allowed to choose to either elect the pension calculation under the Act or continue to be
subject to the pension calculation under the Labor Standards Law. Those employees that elected
to be subject to the Act will have their seniority achieved under the Labor Standards Law
retained upon election of the Act, and the Company will make monthly contributions of no less
than 6% of these employees monthly wages to the employees individual pension accounts.The 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 PlanThe Company uses intrinsic value method to recognize compensation cost for its employee
stock options issued since January 1, 2004. Under the intrinsic value method, the Company
recognizes the difference between the market price of the stock on date of grant and the exercise
price of its employee stock option as compensation cost. The Company also discloses pro forma net income
and earnings per share under the fair value method for options granted since January 1, 2004.
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Treasury StockIn 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. Treasury stock transferred to
employees is accounted for 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.Revenue RecognitionThe 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.
Shipping and handling costs are included in sales expenses.Research and Development ExpendituresResearch and development expenditures are charged to expenses as incurred.Capital Expenditures Versus Operating ExpendituresExpenditures are capitalized when it is probable that the Company will receive future economic
benefits associated with the expenditures.Income TaxThe 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.
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##### Table of Contents



According to ROC SFAS No. 12, Accounting for Income Tax Credits, the Company recognizes the tax
benefit from the purchase of equipment and technology, research and development expenditure,
employee training, and certain equity investment by the flow-through method.Income tax (10%) on unappropriated earnings is recorded as expense in the year in which the
shareholders have resolved that the earnings shall be retained.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 periods.Earnings per ShareEarnings 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 ImpairmentPursuant to ROC SFAS No. 35, the Company assesses indicators of impairment for all its assets
(except for goodwill) within the scope of the standard at each balance sheet date. If impairment
is indicated, the Company compares the assets carrying amount with the recoverable amount of the
assets or the cash-generating unit (CGU) associated with the asset and writes down the carrying
amount to the recoverable amount where applicable. The recoverable amount is defined as the
higher of fair value less the costs to sell, and the values in use. For previously recognized
losses, the Company assesses at the balance sheet date any indication that the impairment loss no
longer exists or may have diminished. If there is any such indication, the Company recalculates
the recoverable amount of the asset, and if the recoverable amount has increased as a result of
the increase in the estimated service potential of the assets, the Company reverses the
impairment loss so that the resulting carrying amount of the asset does not exceed the amount
(net of amortization or depreciation) that would otherwise result had no impairment loss been
recognized for the assets in prior years.In addition, a goodwill-allocated CGU or group of CGUs is tested for impairment each year,
regardless of whether impairment is indicated. If an impairment test reveals that the carrying
amount, including goodwill, of CGU or group of CGUs is greater than
its recoverable amount, 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.
 F-20




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##### Table of Contents



Impairment losses and reversals are classified as non-operating expenses and income,
respectively.New Accounting PronouncementsIn November 2007, the Accounting Research and Development Foundation in Taiwan (ARDF) issued ROC
SFAS No. 10, Accounting for Inventory (ROC SFAS 10), which provides
guidance on initial recognition, measurement, presentation and disclosure of inventory.
Last-In-First-Out is not permitted. Idle facility expense and wasted material (spoilage) shall
be recognized as current-period charges. The allocation of fixed production overheads to the
costs of conversion shall be based on the normal capacity of the production facilities.
Inventories are carried at the lower of cost and net realizable value. The rule of cost or net
realizable value, whichever is lower, should be applied directly to each item, not to the total
of the inventory. The standard is effective from January 1, 2009. We do not expect this
statement to have a material impact on our consolidated financial statements.In August 2007, ARDF issued ROC SFAS No. 39, Accounting for Share-Based Payment (ROC SFAS 39),
which provides guidance on accounting treatment for share-based payment. A Share-Based Payment
is a transaction in which the entity receives or acquires goods (inventories, property, plant,
and equipment, intangible assets, and other non-financial assets) or services either as
consideration for its equity instruments (stocks or stock options) or by incurring liabilities
for amounts based on the price of the entitys share or other equity instruments of the entity.
The accounting requirement for an entitys share-based payment depends on how the transaction
will be settled. Equity-settled share-based payment transactions, in which the entity receives
goods or services as consideration for equity instruments of the entity (including stocks or
stock options), and cash-settled share-based payment transactions, in which the entity acquires
goods or services by incurring liabilities to the supplier of those goods or services are based
on the price (or value) of the entitys shares or other equity instruments of the entity. In
addition, the fair value of the equity instruments granted is used and measured on the grant date
for transactions with employees; for transactions with parties other than employees, the fair
value should be measured at the date the entity receives the relevant goods or services. ROC
SFAS No.39 is effective for the entity beginning January 1, 2008. Upon adopting ROC SFAS 39, we
will change our accounting treatment of share-based payment for options granted on or after
January 1, 2008.
 F-21




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##### Table of Contents



3.
    
    ACCOUNTING CHANGESGoodwillThe Company adopted the amendments to ROC SFAS No. 1, Conceptual Framework of Financial
Accounting and Preparation of Financial Statements, SFAS No. 5, Long-Term Investments in Equity
Securities, and SFAS No. 25, Business Combinations
 Accounting Treatment under Purchase
Method, all of which have discontinued the amortization of goodwill effective on January 1,
2006. As a result of adopting the revised SFAS No.1, revised SFAS No.5 and revised SFAS No.25 on
January 1, 2006, the Companys total assets as of
December 31, 2006 are NT$856 million higher than if it had continued to account for goodwill
under the prior years requirements. The net income and earnings per share for the year ended
December 31, 2006, are NT$856 million and NT$0.05 higher, respectively, than if the Company had
continued to account for goodwill under the prior years requirements.Financial Instruments
 (1)
    
    The Company adopted ROC SFAS No. 34, Financial Instruments: Recognition and Measurement
and SFAS No. 36, Financial Instruments: Disclosure and Presentation to account for the
financial instruments effective January 1, 2006.(2)
    
    The above changes in accounting principles increased the Companys total assets, total
liabilities, and stockholders equity as of January 1, 2006 by NT$24,246 million, NT$1,326
million, and NT$22,920 million, respectively; and resulted in an unfavorable cumulative
effect of changes in accounting principles of NT$1,189 million deducted from consolidated
net income, thereby reducing basic earnings per share by NT$0.06 for the year ended December
31, 2006.
 4.
    
    CASH AND CASH EQUIVALENTS
 As of December 31,2006
    
    2007NT$000
    
    NT$000Cash:Cash on hand
    
    
    2,665
    
    
    
    2,665Checking and savings accounts
    
    
    4,527,578
    
    
    
    6,031,675Time deposits
    
    
    80,909,065
    
    
    
    35,697,615Subtotal
    
    
    85,439,308
    
    
    
    41,731,955Cash equivalents:
    
    
    8,413,900
    
    
    
    5,946,192Total
    
    
    93,853,208
    
    
    
    47,678,147
 F-22




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##### Table of Contents



As of December 31,2006
    
    2007NT$000
    
    NT$000Held for
tradingListed stocks
    
    
    8,094,274
    
    
    
    4,800,385Convertible bonds
    
    
    443,733
    
    
    
    Open-end fund
    
    
    
    
    
    
    4,550Total
    
    
    8,538,007
    
    
    
    4,804,935
   As of December 31,2006
    
    2007NT$000
    
    NT$000Credit-linked deposits and repackage bonds
    
    
    1,110,422
    
    
    
    
  As of December 31,2006
    
    2007NT$000
    
    NT$000Accounts receivable
    
    
    15,002,206
    
    
    
    15,612,138Less: Allowance for sales returns and discounts
    
    
    (798,492
    )
    
    
    (599,607
    )Less: Allowance for doubtful accounts
    
    
    (1,996
    )
    
    
    (2,252
    )Net
    
    
    14,201,718
    
    
    
    15,010,279
  As of December 31,2006
    
    2007NT$000
    
    NT$000Raw materials
    
    
    1,157,909
    
    
    
    1,158,782Supplies and spare parts
    
    
    1,974,417
    
    
    
    2,223,092
 F-23




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##### Table of Contents



As of December 31,2006
    
    2007NT$000
    
    NT$000Work in process
    
    
    7,220,955
    
    
    
    8,201,214Finished goods
    
    
    1,636,365
    
    
    
    1,236,551Total
    
    
    11,989,646
    
    
    
    12,819,639Less: Allowance for loss on decline
in market value and obsolescence
    
    
    (1,111,464
    )
    
    
    (951,807
    )Net
    
    
    10,878,182
    
    
    
    11,867,832
   As of December 31,2006
    
    2007NT$000
    
    NT$000Convertible bonds
    
    
    474,738
    
    
    
    47,598
   As of December 31,2006
    
    
    2007NT$000
    
    NT$000Common stock
    
    
    52,311,172
    
    
    
    50,757,743Funds
    
    
    
    
    
    
    153,900Total
    
    
    52,311,172
    
    
    
    50,911,643
  F-24




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##### Table of Contents



As of December 31,2006
    
    
    2007NT$000
    
    NT$000Common stock
    
    
    4,614,880
    
    
    
    5,282,110Preferred stock
    
    
    2,387,508
    
    
    
    2,303,264Convertible bond
    
    
    
    
    
    
    16,394Funds
    
    
    513,557
    
    
    
    693,911Total
    
    
    7,515,945
    
    
    
    8,295,679
   a.
    
    Details of long-term investments accounted for under the equity method are as
follows:
 As of December 31,2006
    
    2007Percentage ofPercentage of Ownership
    
    
    
    
    
    Ownership or VotingInvestee Company
    
    Amount
    
    or Voting Rights
    
    Amount
    
    RightsNT$000
    
    
    
    
    
    NT$000Listed
companiesHOLTEK SEMICONDUCTOR INC. (HOLTEK)
(Note A)
    
    
    878,747
    
    
    
    24.45
    
    
    
    
    
    
    
    ITE TECH. INC. (ITE) (Note B)
    
    
    341,268
    
    
    
    21.80
    
    
    
    
    
    
    
    Subtotal
    
    
    1,220,015
    
    
    
    
    
    
    
    Unlisted
companiesPACIFIC VENTURE CAPITAL CO., LTD.
(PACIFIC) (Note C)
    
    
    127,379
    
    
    
    49.99
    
    
    
    127,379
    
    
    
    49.99MTIC HOLDING PTE LTD.
    
    
    81,402
    
    
    
    49.94
    
    
    
    82,230
    
    
    
    49.94UWAVE TECHNOLOGY CORP.(UWAVE)
(Note D)
    
    
    36,823
    
    
    
    48.64
    
    
    
    
    
    
    
    48.64UCA TECHNOLOGY INC. (UCA) (Note E)
    
    
    50,128
    
    
    
    48.33
    
    
    
    
    
    
    
    48.33SMEDIA TECHNOLOGY CORP.
    
    
    153,830
    
    
    
    48.73
    
    
    
    172,191
    
    
    
    45.74YUNG LI INVESTMENTS, INC.
    
    
    202,390
    
    
    
    44.44
    
    
    
    276,345
    
    
    
    45.16MEGA MISSION LIMITED PARTNERSHIP
    
    
    2,699,491
    
    
    
    45.00
    
    
    
    2,441,703
    
    
    
    45.00
 F-25




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##### Table of Contents



As of December 31,2006
    
    2007Percentage ofPercentage of Ownership
    
    
    
    
    
    Ownership or VotingInvestee Company
    
    Amount
    
    or Voting Rights
    
    Amount
    
    RightsNT$000
    
    
    
    
    
    NT$000ACHIEVE MADE INTERNATIONAL LTD.
    
    
    30,845
    
    
    
    44.44
    
    
    
    24,920
    
    
    
    43.29UNITECH CAPITAL INC.
    
    
    959,542
    
    
    
    42.00
    
    
    
    954,691
    
    
    
    42.00WALTOP INTERNATIONAL CORP.
    
    
    117,457
    
    
    
    40.00
    
    
    
    141,041
    
    
    
    40.00ANOTO TAIWAN CORP.
    
    
    32,622
    
    
    
    49.00
    
    
    
    24,635
    
    
    
    39.20AEVOE INTERNATIONAL LTD.
    
    
    12,610
    
    
    
    35.80
    
    
    
    13,552
    
    
    
    38.62HSUN CHIEH INVESTMENT CO., LTD.
(Note F)
    
    
    4,674,311
    
    
    
    36.49
    
    
    
    4,122,988
    
    
    
    36.49UC FUND II
    
    
    122,648
    
    
    
    35.45
    
    
    
    202,075
    
    
    
    35.45NEXPOWER TECHNOLOGY CORP.
    
    
    11,976
    
    
    
    40.00
    
    
    
    784,668
    
    
    
    34.55CRYSTAL MEDIA INC.
    
    
    50,649
    
    
    
    34.03
    
    
    
    46,439
    
    
    
    32.87CTC CAPITAL PARTNERS I, L.P.
    
    
    
    
    
    
    
    
    
    
    145,021
    
    
    
    32.11XGI TECHNOLOGY INC.
    
    
    96,685
    
    
    
    31.62
    
    
    
    32,410
    
    
    
    31.53ALLIANCE OPTOTEK CORP.
    
    
    47,107
    
    
    
    29.09
    
    
    
    76,505
    
    
    
    27.76AMIC TECHNOLOGY CORP.
    
    
    176,287
    
    
    
    28.94
    
    
    
    101,452
    
    
    
    25.95HIGH POWER LIGHTING CORP.
    
    
    60,434
    
    
    
    23.00
    
    
    
    46,070
    
    
    
    23.00MOBILE DEVICES INC.
    
    
    25,076
    
    
    
    23.86
    
    
    
    46,522
    
    
    
    21.79TRANSLINK CAPITAL PARTNERS I L.P.
(TRANSLINK) (Note G)
    
    
    
    
    
    
    
    
    
    
    46,758
    
    
    
    16.73STAR SEMICONDUCTOR CORP.
    
    
    19,417
    
    
    
    41.19
    
    
    
    
    
    
    
    TERA XTAL TECHNOLOGY CORP.
    
    
    108,950
    
    
    
    35.00
    
    
    
    
    
    
    
    HIGHLINK TECHNOLOGY CORP. (Note H)
    
    
    361,378
    
    
    
    30.63
    
    
    
    
    
    
    
    U-MEDIA COMMUNICATIONS, INC.
    
    
    24,110
    
    
    
    26.05
    
    
    
    
    
    
    
    AFA TECHNOLOGY, INC. (AFA) (Note I)
    
    
    40,766
    
    
    
    24.97
    
    
    
    
    
    
    
    PARADE TECHNOLOGIES, LTD.
    
    
    65,560
    
    
    
    23.30
    
    
    
    
    
    
    
    USBEST TECHNOLOGY INC. (USBEST)
(Note I)
    
    
    52,711
    
    
    
    21.45
    
    
    
    
    
    
    
    Subtotal
    
    
    10,442,584
    
    
    
    
    
    
    
    9,909,595Total
    
    
    11,662,599
    
    
    
    
    
    
    
    9,909,595
 
 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.
 F-26




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##### Table of Contents



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 December 31, 2007Note 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 December
31, 2007Note E:
    
    On September 14, 2007, UCA reached the decision to liquidate the
company at its shareholders meeting. The liquidation has not been completed as of
December 31, 2007Note F:
    
    As of January 27, 2006, the Company sold 58.5 million shares of HSUN
CHIEH. UMCs ownership percentage decreased from 99.97% to 36.49%. As a result,
Hsun Chieh is no longer our consolidated subsidiary.Note G:
    
    According to the partnership contract, the Company has significant
influence over TRANSLINK, and it is accounted for under the equity method.Note H:
    
    As of March 1, 2007, HIGHLINK (an equity method investee) and EPITECH
TECHNOLOGY CORP. (EPITECH) (accounted for as an available-for-sale financial asset,
noncurrent) merged into EPISTAR CORP. and were continued as EPISTAR CORP.
(classified as a noncurrent available-for-sale financial asset after the merger).
During the transaction, 5.5 shares of HIGHLINK and 3.08 shares of EPITECH were
exchanged for 1 share of EPISTAR CORP. Five million shares of HIGHLINK were
acquired through private placement in February 2006 and the exchange of these shares
are restricted by Article 43 paragraph 8 of the Securities and Exchange Law.Note I:
    
    AFA was merged into USBEST on December 31, 2007. During the
transaction, one share of AFA is exchanged for 0.66 share of USBEST.
 b.
    
    Total gains arising from investments accounted for under the equity method, based
on the audited financial statements of the investees, were NT$1,178 million and NT$626
million for the years ended December 31, 2006 and 2007, respectively. Investment income
amounting to NT$848 million and NT$810 million for the years ended December 31, 2006 and
2007, respectively, and the related long-term investment balances of NT$1,719 million
and NT$5,418 million as of December 31, 2006 and 2007, respectively, were determined
based on the investees financial statements audited by other auditors.c.
    
    The long-term equity investments were not pledged.
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##### Table of Contents



As of December 31, 2006AccumulatedCost
    
    Depreciation
    
    Book ValueNT$000
    
    NT$000
    
    NT$000Land
    
    
    1,879,442
    
    
    
    
    
    
    
    1,879,442Buildings
    
    
    21,076,844
    
    
    
    (6,807,389
    )
    
    
    14,269,455Machinery and equipment
    
    
    415,225,873
    
    
    
    (302,547,942
    )
    
    
    112,677,931Transportation equipment
    
    
    90,706
    
    
    
    (61,056
    )
    
    
    29,650Furniture and fixtures
    
    
    2,964,369
    
    
    
    (2,240,443
    )
    
    
    723,926Leasehold improvement
    
    
    42,968
    
    
    
    (40,093
    )
    
    
    2,875Construction in
progress and
prepayments
    
    
    22,244,850
    
    
    
    
    
    
    
    22,244,850Total
    
    
    463,525,052
    
    
    
    (311,696,923
    )
    
    
    151,828,129
 As of December 31, 2007AccumulatedCost
    
    Depreciation
    
    Book ValueNT$000
    
    NT$000
    
    NT$000Land
    
    
    1,922,230
    
    
    
    
    
    
    
    1,922,230Buildings
    
    
    22,529,856
    
    
    
    (7,944,046
    )
    
    
    14,585,810Machinery and equipment
    
    
    446,198,339
    
    
    
    (336,320,744
    )
    
    
    109,877,595Transportation equipment
    
    
    85,877
    
    
    
    (65,574
    )
    
    
    20,303Furniture and fixtures
    
    
    3,429,067
    
    
    
    (2,549,736
    )
    
    
    879,331Leasehold improvement
    
    
    42,809
    
    
    
    (40,845
    )
    
    
    1,964Construction in
progress and
prepayments
    
    
    9,931,551
    
    
    
    
    
    
    
    9,931,551Total
    
    
    484,139,729
    
    
    
    (346,920,945
    )
    
    
    137,218,784
 a.
    
    Total interest expense before capitalization amounted to NT$1,364 million, NT$648
million and NT$266 million for the years ended December 31, 2005, 2006 and 2007,
respectively.
  For the year ended December 31,2005
    
    2006
    
    2007NT$000
    
    NT$000
    
    NT$000Machinery and equipment
    
    
    260,294
    
    
    
    
    
    
    
    80,382Other property, plant and equipment
    
    
    4,397
    
    
    
    
    
    
    
    4,246Total interest capitalized
    
    
    264,691
    
    
    
    
    
    
    
    84,628Interest rates applied
    
    
    2.86%~4.20
    %
    
    
    
    
    
    
    0.67%~0.92
    %
 b.
    
    Property, plant, and equipment were not pledged.
 F-28




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##### Table of Contents



As of December 31,2006
    
    2007NT$000
    
    NT$000Leased assets
    
    
    1,333,029
    
    
    
    1,202,453Deposits-out
    
    
    738,696
    
    
    
    745,457Others
    
    
    260,429
    
    
    
    265,587Total
    
    
    2,332,154
    
    
    
    2,213,497
   For the year ended December31,2005
    
    2006
    
    2007NT$000
    
    NT$000
    
    NT$000Available for sale financial
assets, noncurrent
    
    
    3,848
    
    
    
    825,863
    
    
    
    371,194Long-term investments accounted
for under the equity method
    
    
    250,435
    
    
    
    33,217
    
    
    
    Financial assets measured at
cost, noncurrent
    
    
    86,259
    
    
    
    215,071
    
    
    
    196,898Technology know how
    
    
    
    
    
    
    256,142
    
    
    
    Fixed assets
    
    
    120,000
    
    
    
    
    
    
    
    7,692Total
    
    
    460,542
    
    
    
    1,330,293
    
    
    
    575,784
  As of December 31,2006
    
    2007NT$000
    
    NT$000Unsecured bank loans
    
    
    342,549
    
    
    
    359,071Interest rates
    
    
    3.25%~5.85
    %
    
    
    3.43%~5.43
    %
  F-29




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##### Table of Contents



As of December 31,2006
    
    2007NT$000
    
    NT$000Interest rate swaps
    
    
    626,230
    
    
    
    318,707Derivatives embedded in exchangeable bonds
    
    
    359,037
    
    
    
    Forward contract
    
    
    
    
    
    
    21,523Total
    
    
    985,267
    
    
    
    340,230
   As of December 31,2006
    
    2007NT$000
    
    NT$000Domestic unsecured bonds:Issued in April 2001 and due on April 2008,
5.2170% ~ 5.2850% interest payable annually
    
    
    5,250,000
    
    
    
    3,000,000Issued in May ~ June 2003 and due on May ~
June 2008, 4.0% minus USD 12-Month LIBOR
interest payable annually
    
    
    7,500,000
    
    
    
    7,500,000Issued in May ~ June 2003 and due on May ~
June 2010, 4.3% minus USD 12-Month LIBOR
interest payable annually
    
    
    7,500,000
    
    
    
    7,500,000Zero coupon convertible bonds:Issued in March 2002 and due on March 2007
    
    
    1,484,268
    
    
    
    Issued in November 2003 and due on
November 2013
    
    
    2,225,020
    
    
    
    Issued in October 2005 and due on February
2008
    
    
    12,441,268
    
    
    
    12,395,500Zero coupon exchangeable bonds:Issued in May 2002 and due on May 2007
    
    
    3,122,060
    
    
    
    (Discounts) premiums on convertible bonds
    
    
    (71,257
    )
    
    
    (10,720
    )Subtotal
    
    
    39,451,359
    
    
    
    30,384,780Less: Current portion
    
    
    (9,068,283
    )
    
    
    (22,889,476
    )Net
    
    
    30,383,076
    
    
    
    7,495,304
 F-30




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##### Table of Contents



a.
    
    During the period from April 16 to April 27, 2001, UMC issued five-year and
seven-year unsecured bonds totaling NT$15,000 million, each with a face value of NT$7,500
million. The interest is paid annually with stated interest rates of 5.1195% through
5.1850% and 5.2170% through 5.2850%, respectively. The five-year bonds and seven-year
bonds are repaid starting from April 2004 to April 2006 and April 2006 to April 2008,
respectively, both in three yearly installments at the rates of 30%, 30% and 40%. On
April 27, 2006, the five-year bonds were fully repaid.b.
    
    During the period from October 2 to October 15, 2001, UMC issued three-year and
five-year unsecured bonds totaling NT$10,000 million, each with a face value of NT$5,000
million. The interest was paid annually with stated interest rates of 3.3912% through
3.420% and 3.4896% through 3.520%, respectively. On October 15, 2006 and 2004, the
five-year bonds and the three-year bonds were fully repaid, respectively.c.
    
    On May 10, 2002, UMC issued zero coupon exchangeable bonds listed on the EuroMTF
Market of the Luxembourg Stock Exchange (LSE). The terms and conditions of the bonds are
as follows:
 (a)
    
    Issue Amount: US$235 million(b)
    
    Period: May 10, 2002 ~ May 10, 2007(c)
    
    Redemption
 i.
    
    UMC may redeem the bonds, in whole or in part, after three months
of the issuance and prior to the maturity date, at their principal amount if the
closing price of the AU Optronics Corp. (AUO) common shares on the TSE,
translated into US dollars at the prevailing exchange rate, for a period of 20
consecutive trading days, the last of which occurs not more than 10 days prior
to the date upon which notice of such redemption is published, is at least 120%
of the exchange price then in effect translated into US dollars at the rate of
NT$34.645=US$1.00.ii.
    
    UMC may redeem the bonds, in whole, but not in part, if at least
90% in principal amount of the bonds has already been exchanged, redeemed or
purchased and cancelled.iii.
    
    UMC may redeem all, but not part, of the bonds, at any time, in
the event of
certain changes in the R.O.C.s tax rules which would require UMC to gross up for
payments of principal, or to gross up for payments of interest or premium.iv.
    
    UMC will, at the option of the bondholders, redeem such bonds on
February 10, 2005 at its principal amount.
 (d)
    
    Terms of Exchange
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i.
    
    Underlying securities: ADSs or common shares of AUO.ii.
    
    Exchange Period: The bonds are exchangeable at any time on or
after June 19, 2002 and prior to April 10, 2007, into AUO common shares or AUO
ADSs; provided, however, that if the exercise date falls within 5 business days
from the beginning of, and during, any closed period, the right of the
exchanging holder of the bonds to vote with respect to the shares it receives
will be subject to certain restrictions.iii.
    
    Exchange Price and Adjustment: The exchange price is NT$44.3 per
share, determined on the basis of a fixed exchange rate of NT$34.645=US$1.00.
The exchange price will be subject to adjustments upon the occurrence of certain
events set out in the indenture.
 (e)
    
    Exchange of the BondsAs of December 31, 2005, 2006, and 2007 certain bondholders have exercised their
rights to exchange their bonds with the total principal amount of US$137 million,
US$139, and 235 million into AUO shares, respectively. Gain arising from the
exercise of exchange rights during the years ended December 31, 2005, 2006, and 2007
amounted to nil, NT$65 million, and NT$2,782 million respectively, and were
recognized as gain on disposal of investments.(f)
    
    Redemption at maturity dateAt the maturity date of May 10, 2007, UMC redeemed all of the remaining bonds
outstanding in the principal amount of US$0.3 million.
 d.
    
    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.e.
    
    On October 5, 2005, UMC issued zero coupon convertible bonds on the LSE. The terms
and conditions of the bonds are as follows:
 (a)
    
    Issue Amount: US$381.4 million(b)
    
    Period: October 5, 2005 ~ February 15, 2008 (Maturity date)(c)
    
    Redemption
 i.
    
    On or at any time after April 5, 2007, if the closing price of the
ADSs listed on the NYSE has been at least 130% of either the conversion price or the last
adjusted conversion price, for 20 out of 30 consecutive ADS trading days, UMC may
redeem all, but not some only, of the bonds.
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ii.
    
    If at least 90% in principal amount of the bonds have already been
redeemed, repurchased, cancelled or converted, UMC may redeem all, but not some
only, of the bonds.iii.
    
    In the event that UMCs ADSs or shares have officially ceased to be
listed or admitted for trading on the New York Stock Exchange or the Taiwan Stock
Exchange, as the case may be, each bondholder shall have the right, at such
bondholders option, to require UMC to repurchase all, but not in part, of such
bondholders bonds at their principal amount.iv.
    
    In the event of certain changes in taxation in the R.O.C. resulting
in UMC becoming required to pay additional amounts, UMC may redeem all, but not 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 shall not
be entitled to receive payments of such additional amounts.v.
    
    If a change of control occurs with respect to UMC, each bondholder
shall have the right at such bondholders option, to require UMC to repurchase
all, but not in part, of such bondholders bonds at their principal amount.vi.
    
    UMC will pay the principal amount of the bonds at its maturity date,
February 15, 2008.
 (d)
    
    Conversion
 i.
    
    Conversion Period: Except for the closed period, the bonds may be
converted into
UMCs ADSs on or after November 4, 2005 and on or prior to February 5, 2008.ii.
    
    Conversion Price and Adjustment: The conversion price is US$4.253 per
ADS. The applicable conversion price will be subject to adjustments upon the
occurrence of certain events set out in the indenture.
 f.
    
    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 RedemptionUnless previously converted, purchased and cancelled or redeemed, the bonds must be
redeemed on March 26, 2007 at their principal amount.
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(b)
    
    Redemption at the Option of UMCJ
 i.
    
    On or at any time after March 25, 2005, UMCJ may redeem all, but
not part, of the bonds if the closing price of the shares on the Japan OTC Market
is at least 120% of the conversion price then in effect for at least 20 out of 30
consecutive trading days ending on the trading day immediately prior to the date
of the notice of redemption; or if the principal amount that has not been
redeemed, repurchased and cancelled or converted is equal to or less than 10% of
original aggregate principal amount.ii.
    
    In case of a corporate split or share exchange share transfer, UMCJ
may redeem all, but not part, of the bonds on or prior to the effective date of
the transaction, provided that UMCJ is not able to ensure that the bondholders
have the right to receive shares which they would have received had the
conversion rights been exercised prior to the transaction.iii.
    
    If a change in who controls UMCJ occurs, bondholders will be able
to require UMCJ to redeem their bonds on the date that is 85 days after the
change of control occurs.
 (c)
    
    Conversion PeriodAt any time on or after May 3, 2002 to and including March 19, 2007. The bonds may be
converted into the common shares of UMCJ.(d)
    
    Conversion PriceThe 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 BondsAs of December 31, 2005, UMCJ has reacquired and cancelled JPY7,850 million and
JPY7,650 million, respectively, of the bonds from the open market. The gain on the
reacquisition amounting to JPY6 million was recognized as other income during the year
ended December 31, 2005.As of December 31, 2006, UMCJ has reacquired and cancelled a total amount of JPY
11,630 million, of the bonds from the open market. The gain on the reacquisition
amounting to JPY28 million was recognized as other income for the year ended December
31, 2006.As of December 31, 2007, UMCJ has reacquired and cancelled a total amount of JPY11,630
million of the bonds from the open market. There was no reacquisition during the year ended December 31, 2007.
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(f)
    
    Redemption at maturity dateAt the maturity date of March 26, 2007, UMCJ redeemed all the remaining bonds in the
principal amount of JPY5,370 million.
 g.
    
    On November 25, 2003, UMCJ issued its second LSE-listed zero coupon convertible
bonds with an aggregate principal amount of JPY21,500 million and the issue price was set
at 101.25% of the principal amount. The terms and conditions of the bonds are as
follows:
 (a)
    
    Final RedemptionUnless previously converted, purchased and cancelled or redeemed, the bonds must be
redeemed on November 25, 2013 at their principal amount.(b)
    
    Redemption at the Option of UMCJ
 i.
    
    On or at any time after November 27, 2006, UMCJ may redeem all, but
not part, of the bonds if the closing price of the shares on the Japan OTC Market
is at least 120% of the conversion price then in effect for at least 20 out of 30
consecutive trading days ending on the trading day immediately prior to the date
of the notice of redemption; or if the principal amount that has been redeemed,
repurchased and
cancelled or converted is equal to or less than 10% of original aggregate principal
amount.ii.
    
    In case of a corporate split or share exchange share transfer, UMCJ
may redeem all, but not part, of the bonds on 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 who controls UMCJ occurs, bondholders will be able
to require UMCJ to redeem their bonds on the date that is 70 days after the
change of control occurs.iv.
    
    UMCJ will, at the option of the bondholders, redeem such bonds on
November 26, 2007 at its principal amount.
 (c)
    
    Conversion PeriodThe conversion period may be any time on or after January 5, 2004 and on or prior to
November 11, 2013. The bonds may be converted into the common shares of UMCJ.
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##### Table of Contents



(d)
    
    Conversion PriceThe 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 BondsAs of December 31, 2005, UMCJ had reacquired JPY10,490 million of bonds from the open
market. The gain on the reacquisition amounting to JPY449 million was recognized as
other income for the year ended December 31, 2005.As of December 31, 2006,UMCJ had reacquired and cancelled JPY13,450 million and
JPY4,160 million, respectively, of the bonds from the open market. The gain on the
reacquisition amounting to JPY38 million was recognized as other income for the year
ended December 31, 2006.As of December 31, 2007, UMCJ has reacquired and cancelled JPY16,270 million and
JPY8,430 million, respectively, of the bonds from the open market. UMCJ also redeemed
bonds in the principal amount of JPY5,230 million upon request from
bondholders. The gain on the reacquisition amounting to JPY178 million was recognized
as other income for the year ended December 31, 2007.h.
    
    Repayments of the above-mentioned bonds in the future years are as follows:(Assuming the convertible bonds are paid off upon maturity.)
 Bonds repayable in
    
    AmountNT$0002008
    
    
    22,895,5002009
    
    
    2010
    
    
    7,500,000Total
    
    
    30,395,500
  a.
    
    The Labor Pension Act of the R.O.C., which adopts a defined contribution plan,
became effective on July 1, 2005. Employees subject to 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$372 million and NT$395 million were contributed by the Company
for the years ended December 31, 2006 and 2007, respectively. Pension benefits for
employees of the Branch and subsidiaries overseas are provided in accordance with the
local regulations, and during the years ended December 31, 2006 and 2007, the Company
made contributions of NT$97 million and NT$126 million, respectively.
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##### Table of Contents



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. Government authority will collect the fund as a Labor Retirement Fund and
determine the allocation and investment policy of the assets. The defined benefit plan
assets and obligations are measured as of December 31. The unrecognized net asset or
obligation at transition based on actuarial valuation is amortized on a straight-line
basis over 15 years.c.
    
    Change in benefit obligation during the year:
 For the year ended December 31,2006
    
    2007NT$000
    
    NT$000Projected benefit obligation at beginning of year
    
    
    (4,778,045
    )
    
    
    (5,090,744
    )Service cost
    
    
    (128,775
    )
    
    
    (124,193
    )Interest cost
    
    
    (136,780
    )
    
    
    (136,017
    )Benefits paid
    
    
    22,738
    
    
    
    54,122Gain (loss) on projected benefit obligation
    
    
    (85,973
    )
    
    
    683,868Exchange gain (loss)
    
    
    16,091
    
    
    
    (35,293
    )Projected benefit obligation at end of year
    
    
    (5,090,744
    )
    
    
    (4,648,257
    )
 d.
    
    Change in pension assets during the year:
 For the year ended December 31,2006
    
    2007NT$000
    
    NT$000Fair value of plan assets at beginning of year
    
    
    1,620,201
    
    
    
    1,822,322Actual return (loss) on plan assets
    
    
    62,850
    
    
    
    (7,497
    )Contributions from employer
    
    
    172,475
    
    
    
    167,331Benefits paid
    
    
    (22,738
    )
    
    
    (54,122
    )
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##### Table of Contents



For the year ended December 31,2006
    
    2007NT$000
    
    NT$000Exchange gain (loss)
    
    
    (10,466
    )
    
    
    34,535Fair value of plan assets at end of year
    
    
    1,822,322
    
    
    
    1,962,569
 e.
    
    The funding status of the pension plan is as follows:
 As of December 31,2006
    
    2007NT$000
    
    NT$000Benefit obligationVested benefit obligation
    
    
    (55,213
    )
    
    
    (717,040
    )Non-vested benefit obligation
    
    
    (2,376,276
    )
    
    
    (1,728,007
    )Accumulated benefit obligation
    
    
    (2,431,489
    )
    
    
    (2,445,047
    )Effect from projected salary increase
    
    
    (2,659,255
    )
    
    
    (2,203,210
    )Projected benefit obligation
    
    
    (5,090,744
    )
    
    
    (4,648,257
    )Fair value of plan assets
    
    
    1,822,322
    
    
    
    1,962,569Funded status
    
    
    (3,268,422
    )
    
    
    (2,685,688
    )Unrecognized net transitional benefit obligation
    
    
    118,332
    
    
    
    89,727Unrecognized loss (gain)
    
    
    36,656
    
    
    
    (575,124
    )Adjustment required to recognize minimum
liabilities
    
    
    (1,986
    )
    
    
    (305
    )Others
    
    
    
    
    
    
    (172
    )Accrued pension liabilities recognized on the
consolidated balance sheets
    
    
    (3,115,420
    )
    
    
    (3,171,562
    )
 f.
    
    The components of the net periodic pension cost are as follows:
 For the year ended December 31,2005
    
    2006
    
    2007NT$'000
    
    NT$'000
    
    NT$'000Service cost
    
    
    360,107
    
    
    
    128,775
    
    
    
    124,193Interest cost
    
    
    143,059
    
    
    
    136,780
    
    
    
    136,017Expected return on plan assets
    
    
    (39,577
    )
    
    
    (44,778
    )
    
    
    (63,880
    )Amortization
of unrecognized net transitional benefit obligation
    
    
    39,232
    
    
    
    60,441
    
    
    
    28,606Amortization of unrecognized pension loss
    
    
    (88
    )
    
    
    (891
    )
    
    
    (915
    )Pension costs from subsidiaries over
which control is no longer held
    
    
    6,978
    
    
    
    
    
    
    
    Net periodic pension cost
    
    
    509,711
    
    
    
    280,327
    
    
    
    224,021
 The actuarial assumptions underlying are as follows:
 For the year ended December 31, 2005UMC
    
    UMO
    
    UMC JAPAN
    
    ThintekDiscount rate
    
    
    3.00
    %
    
    
    3.75
    %
    
    
    2.00
    %
    
    
    3.75
    %
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##### Table of Contents



For the year ended December 31, 2005UMC
    
    UMO
    
    UMC JAPAN
    
    ThintekRate of salary increase
    
    
    4.50
    %
    
    
    4.00
    %
    
    
    2.68
    %
    
    
    4.00
    %Expected return on plan assets
    
    
    3.00
    %
    
    
    2.75
    %
    
    
    1.00
    %
    
    
    2.75
    %
 For the year ended December 31, 2006UMC
    
    FORTUNE
    
    UMO
    
    UMC JAPANDiscount rate
    
    
    2.75
    %
    
    
    2.75
    %
    
    
    3.75
    %
    
    
    2.00
    %Rate of salary increase
    
    
    4.50
    %
    
    
    2.00
    %
    
    
    4.00
    %
    
    
    2.68
    %Expected return on plan assets
    
    
    2.50
    %
    
    
    2.75
    %
    
    
    2.75
    %
    
    
    2.00
    %
 For the year ended December 31, 2007UMCUMC
    
    FORTUNE
    
    UMO
    
    JAPANDiscount rate
    
    
    3.50
    %
    
    
    3.00
    %
    
    
    3.50
    %
    
    
    2.00
    %Rate of salary increase
    
    
    4.50
    %
    
    
    3.00
    %
    
    
    4.00
    %
    
    
    2.58
    %Expected return on plan assets
    
    
    2.75
    %
    
    
    3.00
    %
    
    
    2.75
    %
    
    
    5.00
    %
  AmountNT$0002008
    
    
    103,8732009
    
    
    97,3032010
    
    
    98,2192011
    
    
    92,8872012
    
    
    104,5942013-2017
    
    
    877,965
 The Company expects to make pension fund contributions of NT$163 million in 2008.
  a.
    
    UMC had 26,000 million common shares authorized to be issued, and 19,131 million
shares were issued as of December 31, 2006, 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
December 31, 2006. The total number of common shares of UMC represented by all issued
ADSs was 1,576 million shares as of December 31, 2006. One ADS represents five common
shares.c.
    
    Among the employee stock options issued by UMC on October 7, 2002, January 3,
2003 and October 13, 2004, 109 million shares were exercised during the year ended
December 31, 2006. The issuance process through the authority had been completed.
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##### Table of Contents



d.
    
    On May 22, 2006, UMC cancelled 1,000 million shares of treasury stock, which were
repurchased during the period from February 16, 2006 to April 11, 2006 for retention of
UMCs creditability and stockholders interests.e.
    
    As recommended by the board of directors, and approved by the shareholders on the
meeting held on June 12, 2006, UMC issued 225 million new shares from capitalization of
retained earnings and additional paid-in capital that amounted to NT$2,249 million, of
which NT$895 million was stock dividend, NT$459 million was employee bonus, and NT$895
million was additional paid-in capital. The issuance process through the authority had
been completed.f.
    
    UMC had 26,000 million common shares authorized to be issued, and 13,214 million
shares were issued as of December 31, 2007, each at a par value of NT$10.g.
    
    As of December 31, 2007, UMC had a total of 220 million ADSs traded on the NYSE.
The total number of common shares of UMC represented by all issued ADSs was 1,098
million shares as of December 31, 2007. One ADS represents five common shares.h.
    
    Among the employee stock options issued by UMC on October 7, 2002, January 3,
2003, July 1, 2004 and October 13, 2004, 14 million shares were exercised during the
year ended December 31, 2007. The issuance process through the authority had been
completed.i.
    
    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 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.j.
    
    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.k.
    
    As to the treasury stocks acquired during the periods of September 30 to November
29, 2005 and May 23 to July13, 2006, UMC sold 32 million and 65 million shares,
respectively, to employees in December 2007 and 97 million shares were added to the
total amount of shares outstanding.
 21.
    
    EMPLOYEE STOCK OPTIONSOn September 11, 2002, October 8, 2003, September 30, 2004, December 22, 2005, and October 9,
2007, the Company was authorized by the Securities and Futures Bureau of the
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##### Table of Contents



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 the Companys common
stock. Settlement upon the exercise of the options will be made through the issuance of new
shares by the Company. The exercise price of the options was set at the closing price of the
Companys common stock on the date of grant. The contractual life 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:
 Total number of
    
    Total number of
    
    Shares available tooptions granted
    
    options outstanding
    
    option holders
    
    Exercise priceDate of grant
    
    (in thousands)
    
    (in thousands)
    
    (Note)
    
    (NTD) (Note)October 7, 2002
    
    
    939,000
    
    
    
    462,286
    
    
    
    322,290
    
    
    $
    22.52January 3, 2003
    
    
    61,000
    
    
    
    41,394
    
    
    
    28,859
    
    
    $
    25.39November 26, 2003
    
    
    57,330
    
    
    
    42,417
    
    
    
    29,571
    
    
    $
    35.43March 23, 2004
    
    
    33,330
    
    
    
    19,312
    
    
    
    13,464
    
    
    $
    32.85July 1, 2004
    
    
    56,590
    
    
    
    40,833
    
    
    
    28,468
    
    
    $
    29.69October 13, 2004
    
    
    20,200
    
    
    
    10,190
    
    
    
    7,104
    
    
    $
    25.53April 29, 2005
    
    
    23,460
    
    
    
    14,007
    
    
    
    9,765
    
    
    $
    23.52August 16, 2005
    
    
    54,350
    
    
    
    36,314
    
    
    
    25,317
    
    
    $
    30.98September 29, 2005
    
    
    51,990
    
    
    
    42,496
    
    
    
    29,627
    
    
    $
    28.27January 4, 2006
    
    
    39,290
    
    
    
    24,900
    
    
    
    17,359
    
    
    $
    24.36May 22, 2006
    
    
    42,058
    
    
    
    32,130
    
    
    
    22,400
    
    
    $
    26.48August 24, 2006
    
    
    28,140
    
    
    
    21,530
    
    
    
    15,010
    
    
    $
    25.32December 13, 2007
    
    
    500,000
    
    
    
    499,598
    
    
    
    499,598
    
    
    $
    18.95Total
    
    
    1,906,738
    
    
    
    1,287,407
    
    
    
    1,048,832
 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 the Company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 the Companys common stock.
 a.
    
    A summary of the Companys stock option plans, and related information for the
years ended December 31, 2005, 2006, and 2007, are as follows:
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##### Table of Contents



For the year ended December 31,2006
    
    2007Weighted-
    
    
    
    
    
    
    
    
    
    Weighted-Shares available to
    
    average Exercise
    
    
    
    
    
    Shares available to
    
    average ExerciseOption
    
    option holders (in
    
    Price per shares
    
    Option
    
    option holders (in
    
    Price per shares(in thousands)
    
    thousands)
    
    (NTD)
    
    (in thousands)
    
    thousands)
    
    (NTD)Outstanding at beginning of period
    
    
    975,320
    
    
    
    679,960
    
    
    $
    24.74
    
    
    
    913,958
    
    
    
    637,180
    
    
    $
    24.95Granted
    
    
    109,488
    
    
    
    76,331
    
    
    $
    25.42
    
    
    
    500,000
    
    
    
    500,000
    
    
    $
    18.95Exercised
    
    
    (109,093
    )
    
    
    (76,056
    )
    
    $
    22.57
    
    
    
    (14,311
    )
    
    
    (9,977
    )
    
    $
    22.70Forfeited
    
    
    (61,757
    )
    
    
    (43,055
    )
    
    $
    26.71
    
    
    
    (112,240
    )
    
    
    (78,371
    )
    
    $
    24.56Outstanding at end of period
    
    
    913,958
    
    
    
    637,180
    
    
    $
    24.95
    
    
    
    1,287,407
    
    
    
    1,048,832
    
    
    $
    22.14Exercisable at end of period
    
    
    650,268
    
    
    
    453,345
    
    
    $
    23.79
    
    
    
    641,427
    
    
    
    447,181
    
    
    $
    24.59Weighted-average fair value of
options granted during the period
    
    NT$5.7
    
    
    
    
    
    
    
    
    
    NT$5.4
 b.
    
    The information on the Companys outstanding stock options as of December 31, 2007,
is as follows:
 Outstanding Stock Options
    
    Exercisable Stock OptionsWeighted-
    
    
    
    
    
    
    
    
    
    Weighted-Shares
    
    Weighted-
    
    average
    
    
    
    
    
    Shares
    
    averageRange
    
    
    
    
    
    available to
    
    average
    
    Exercise
    
    
    
    
    
    available to
    
    Exerciseof
    
    
    
    option
    
    Expected
    
    Price per
    
    Option
    
    option
    
    Price perAuthorization
    
    Exercise
    
    Option
    
    holders
    
    Remaining
    
    share
    
    (in
    
    holders (in
    
    shareDate
    
    Price
    
    (in thousands)
    
    (in thousands)
    
    Years
    
    (NTD)
    
    thousands)
    
    thousands)
    
    (NTD)2002.09.11
    
    $
    22.52~$25.39
    
    
    
    503,680
    
    
    
    351,149
    
    
    
    0.78
    
    
    $
    22.76
    
    
    
    503,416
    
    
    
    350,965
    
    
    $
    22.762003.10.08
    
    $
    29.69~$35.43
    
    
    
    102,562
    
    
    
    71,503
    
    
    
    2.20
    
    
    $
    32.66
    
    
    
    86,805
    
    
    
    60,517
    
    
    $
    32.992004.09.30
    
    $
    23.52~$30.98
    
    
    
    103,007
    
    
    
    71,813
    
    
    
    3.55
    
    
    $
    28.31
    
    
    
    51,206
    
    
    
    35,699
    
    
    $
    28.332005.12.22
    
    $
    24.36~$26.48
    
    
    
    78,560
    
    
    
    54,769
    
    
    
    4.34
    
    
    $
    25.49
    
    
    
    
    
    
    
    
    
    
    2007.10.09
    
    $
    18.95
    
    
    
    499,598
    
    
    
    499,598
    
    
    
    5.95
    
    
    $
    18.95
    
    
    
    
    
    
    
    
    
    
    1,287,407
    
    
    
    1,048,832
    
    
    
    3.72
    
    
    $
    22.14
    
    
    
    641,427
    
    
    
    447,181
    
    
    $
    24.59
 c.
    
    The Company used the intrinsic value method to recognize compensation costs for its
employee stock options issued since January 1, 2004. The compensation costs for the
years ended December 31, 2005, 2006 and 2007 are NT$0. Pro forma information using
the fair value method on net income and earnings per share is as follows:
 F-42




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##### Table of Contents



For the year ended December 31, 2005Diluted earningsBasic earnings per share
    
    per shareNT$000
    
    NT$000Net Income
    
    
    7,026,692
    
    
    
    7,035,187Earnings per share (NTD)
    
    
    0.38
    
    
    
    0.37Pro forma net income
    
    
    6,776,219
    
    
    
    6,784,714Pro forma earnings per share (NTD)
    
    
    0.36
    
    
    
    0.36
 For the year ended December 31, 2006Diluted earningsBasic earnings per share
    
    per shareNT$000
    
    NT$000Net Income
    
    $
    32,619,313
    
    
    $
    32,653,291Earnings per share (NTD)
    
    $
    1.81
    
    
    $
    1.75Pro forma net income
    
    $
    32,149,409
    
    
    $
    32,183,387Pro forma earnings per share (NTD)
    
    $
    1.78
    
    
    $
    1.72
 For the year ended December 31, 2007Diluted earningsBasic earnings per share
    
    per shareNT$000
    
    NT$000Net Income
    
    
    16,961,762
    
    
    
    16,961,414Earnings per share (NTD)
    
    
    1.09
    
    
    
    1.06Pro forma net income
    
    
    16,544,506
    
    
    
    16,544,158Pro forma earnings per share (NTD)
    
    
    1.06
    
    
    
    1.03
  2006
    
    2007Expected dividend yields
    
    
    1.37%~1.38%
    
    
    
    1.71%Volatility factors of the expected market
price
    
    
    35.57%~41.14%
    
    
    
    35.45%~37.70%
 F-43




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##### Table of Contents



2006
    
    2007Risk-free interest rate
    
    
    1.88%~2.28%
    
    
    
    2.48%Weighted-average expected life of the
options
    
    4~5 years
    
    4~5 years
  a.
    
    The Company bought back its own shares from the open market during the years ended
December 31, 2005, 2006 and 2007. Details of the treasury stock transactions are as
follows:
 For the year ended December 31, 2005
 (In thousands of shares)
 As of
    
    
    
    
    
    
    
    
    
    As ofPurpose
    
    January 1, 2005
    
    Increase
    
    Decrease
    
    December 31, 2005For transfer to employees
    
    
    241,181
    
    
    
    250,000
    
    
    
    49,114
    
    
    
    442,067For conversion of the
convertible bonds into
shares
    
    
    
    
    
    
    500,000
    
    
    
    
    
    
    
    500,000Total shares
    
    
    241,181
    
    
    
    750,000
    
    
    
    49,114
    
    
    
    942,067
 For the year ended December 31, 2006
 (In thousands of shares)
 As of
    
    
    
    
    
    
    
    
    
    As ofPurpose
    
    January 1, 2006
    
    Increase
    
    Decrease
    
    December 31, 2006For transfer to employees
    
    
    442,067
    
    
    
    400,000
    
    
    
    
    
    
    
    842,067For conversion of the
convertible bonds into
shares
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    500,000To retain the Companys
creditability and
stockholders interests
    
    
    
    
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    Total shares
    
    
    942,067
    
    
    
    1,400,000
    
    
    
    1,000,000
    
    
    
    1,342,067
 For the year ended December 31, 2007
 (In thousands of shares)
 As of
    
    
    
    
    
    
    
    
    
    As ofPurpose
    
    January 1, 2007
    
    Increase
    
    Decrease
    
    December 31, 2007For transfer to employees
    
    
    842,067
    
    
    
    
    
    
    
    486,351
    
    
    
    355,716For conversion of the
convertible bonds into
shares
    
    
    500,000
    
    
    
    
    
    
    
    151,417
    
    
    
    348,583Total shares
    
    
    1,342,067
    
    
    
    
    
    
    
    637,768
    
    
    
    704,299
 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 December 31, 2006 and 2007, was 1,913 million shares and 1,321 million shares, while the ceiling amount was NT$94,970million and
NT$90,262 million, respectively.
 F-44




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##### Table of Contents



c.
    
    In compliance with Securities and Exchange Law of the R.O.C., treasury stock should
not be pledged, nor should it be entitled to voting rights or receiving dividends. Stock
held by subsidiaries is treated as treasury stock. These subsidiaries have the same
rights as other stockholders except for subscription to new stock issuance. Starting
June 22, 2005, stocks held by subsidiaries no longer have voting rights according to the
revised Companies Act.d.
    
    As of December 31, 2006, UMCs subsidiary, FORTUNE VENTURE CAPITAL CORP., held 22
million shares of UMCs stock, with a book value of NT$20.25 per share. The closing
price on December 31, 2006 was NT$20.25.As of December 31, 2007, UMCs subsidiary, FORTUNE VENTURE CAPITAL CORP., held 15 million
shares of UMCs stock, with a book value of NT$20.15 per share. The closing price on
December 31, 2007 was NT$20.15.
   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; ande.
    
    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.
  F-45




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##### Table of Contents



For the year ended December 31, 2006As approved by the
    
    As recommended byshareholders'
    
    the board ofmeeting
    
    directors
    
    Differences(in thousand NT dollars, except per share amounts)1.
    
    Settlement of employees bonus by cash
    
    
    2,324,120
    
    
    
    2,324,120
    
    
    
    2.
    
    Remuneration paid to directors and
supervisors
    
    
    15,494
    
    
    
    15,494
    
    
    
    3.
    
    Effect on earnings per share before retroactive
adjustmentsa.
    
    Basic and diluted earnings per share
    
    
    1.81/1.75
    
    
    
    1.81/1.75
    
    
    
    b.
    
    Pro forma basic and diluted earnings pershare taking into consideration employees'bonus and directors' and supervisors'remuneration
    
    
    1.68/1.62
    
    
    
    1.68/1.62
    
    
    
    
  a.
    
    According to the explanatory letter No. 101801 of the Securities and Futures
Commission (SFC), if UMC recognizes the investees additional paid-in capital¡Ðexcess
from the merger in proportion to the ownership percentage, then the special reserve is exempted for
the amount originated from the acquisition of the long-term investments.b.
    
    If UMC and its investees transfer a portion of the additional paid-in capital to
increase capital, a special reserve equal to the amount of the transfer shall be provided
according to the explanatory letter No. 101801-1 of the SFC.
 F-46




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##### Table of Contents



c.
    
    In accordance with the explanatory letter No. 170010 of the SFC applicable to
listed companies, in the case where the market value of UMCs stock held by its
subsidiaries at period-end is lower than the book value, a special reserve shall be
provided in UMCs accounts in proportion to its ownership percentage.
 For the 2005 appropriations approved by the shareholders meeting on June 12, 2006, unrealized
loss on long-term investments exempted from the provision of special reserve pursuant to the
above regulations amounted to NT$18,208 million.
 24.
    
    OPERATING COSTS AND EXPENSESThe Companys personnel, depreciation, and amortization expenses are summarized as follows:
 For the year ended December 31,2005
    
    
    2006
    
    
    2007Operating
    
    
    Operating
    
    
    
    
    
    
    Operating
    
    
    Operating
    
    
    
    
    
    
    Operating
    
    
    Operatingcosts
    
    
    expenses
    
    
    Total
    
    
    costs
    
    
    expenses
    
    
    Total
    
    
    costs
    
    
    expenses
    
    
    TotalNT$000
    
    
    NT$000
    
    
    NT$000
    
    
    NT$000
    
    
    NT$000
    
    
    NT$000
    
    
    NT$000
    
    
    NT$000
    
    
    NT$000Personnel expensesSalaries
    
    
    7,532,447
    
    
    
    3,421,537
    
    
    
    10,953,984
    
    
    
    9,003,173
    
    
    
    3,616,996
    
    
    
    12,620,169
    
    
    
    11,168,190
    
    
    
    4,418,228
    
    
    
    15,586,418Labor and health
insurance
    
    
    538,484
    
    
    
    206,941
    
    
    
    745,425
    
    
    
    546,631
    
    
    
    192,257
    
    
    
    738,888
    
    
    
    552,236
    
    
    
    205,800
    
    
    
    758,036Pension
    
    
    566,739
    
    
    
    191,476
    
    
    
    758,215
    
    
    
    571,888
    
    
    
    184,781
    
    
    
    756,669
    
    
    
    556,421
    
    
    
    193,574
    
    
    
    749,995Other personnel
expenses
    
    
    247,754
    
    
    
    155,343
    
    
    
    403,097
    
    
    
    99,293
    
    
    
    72,899
    
    
    
    172,192
    
    
    
    122,884
    
    
    
    86,776
    
    
    
    209,660Depreciation
    
    
    49,260,694
    
    
    
    2,085,525
    
    
    
    51,346,219
    
    
    
    42,059,492
    
    
    
    2,183,770
    
    
    
    44,243,262
    
    
    
    35,665,112
    
    
    
    2,083,539
    
    
    
    37,748,651Amortization
    
    
    935,126
    
    
    
    2,250,407
    
    
    
    3,185,533
    
    
    
    197,673
    
    
    
    1,621,260
    
    
    
    1,818,933
    
    
    
    68,854
    
    
    
    1,314,890
    
    
    
    1,383,744
  (1)
    
    Reconciliation between the income tax expense and the income tax calculated on
pre-tax financial statement income based on the statutory tax rate is as follows:
 For the year ended December 31,2005
    
    
    2006
    
    
    2007NT$000
    
    
    NT$000
    
    
    NT$000Income tax on pre-tax income at
statutory tax rate
    
    
    58,520
    
    
    
    8,844,990
    
    
    
    5,323,188Permanent and temporary differences
Investment loss
    
    
    749,448
    
    
    
    140,238
    
    
    
    210,215Gain on disposal of investments
    
    
    (2,360,171
    )
    
    
    (7,029,300
    )
    
    
    (2,985,360
    )Others
    
    
    (180,098
    )
    
    
    (71,620
    )
    
    
    (2,397,516
    )Subtotal
    
    
    (1,790,821
    )
    
    
    (6,960,682
    )
    
    
    (5,172,661
    )Change in investment tax credit
    
    
    6,930,316
    
    
    
    (1,335,540
    )
    
    
    1,457,098
 F-47




---



##### Table of Contents



For the year ended December 31,2005
    
    2006
    
    2007NT$000
    
    NT$000
    
    NT$000Change in loss carry-forward
    
    
    
    
    
    
    (105,508
    )
    
    
    909,702Change in valuation allowance against
deferred income tax assetsInvestment tax credit
    
    
    (6,402,564
    )
    
    
    505,077
    
    
    
    (530,601
    )Loss carry-forward
    
    
    1,083,599
    
    
    
    440,665
    
    
    
    33,754Others
    
    
    23,840
    
    
    
    (59,905
    )
    
    
    (13,452
    )Subtotal
    
    
    (5,295,125
    )
    
    
    885,837
    
    
    
    (510,299
    )Change in tax rate
    
    
    
    
    
    
    1,269
    
    
    
    237Estimated 10% income tax on
unappropriated earnings
    
    
    35,501
    
    
    
    
    
    
    
    9Adjustment of prior years tax expense
    
    
    20,371
    
    
    
    (164,111
    )
    
    
    (19,620
    )Income tax on interest revenue
separately taxed
    
    
    1,415
    
    
    
    1,713
    
    
    
    3,239Income basic tax
    
    
    
    
    
    
    2,021,375
    
    
    
    818,262Others
    
    
    106,875
    
    
    
    72,279
    
    
    
    719Income tax expense
    
    
    67,052
    
    
    
    3,261,622
    
    
    
    2,809,874
 (2)
    
    Significant components of deferred income tax assets and liabilities are as
follows:
 As of December 31,2006
    
    2007NT$000
    
    NT$000Deferred income tax assetsInvestment tax credit
    
    
    14,992,731
    
    
    
    13,535,633Loss carry-forward
    
    
    3,138,465
    
    
    
    2,339,326Pension
    
    
    785,660
    
    
    
    814,228Allowance on sales returns and discounts
    
    
    191,304
    
    
    
    170,584Allowance for loss on obsolescence of
inventories
    
    
    220,309
    
    
    
    160,946Others
    
    
    535,280
    
    
    
    582,097Total deferred income tax assets
    
    
    19,863,749
    
    
    
    17,602,814Valuation allowance
    
    
    (11,775,747
    )
    
    
    (11,374,792
    )Net deferred income tax assets
    
    
    8,088,002
    
    
    
    6,228,022Deferred income tax liabilitiesUnrealized exchange gain
    
    
    (72,848
    )
    
    
    (26,535
    )Depreciation
    
    
    (1,251,329
    )
    
    
    (1,352,946
    )Others
    
    
    (687,299
    )
    
    
    (408,173
    )Total deferred income tax liabilities
    
    
    (2,011,476
    )
    
    
    (1,787,654
    )Total net deferred income tax assets
    
    
    6,076,526
    
    
    
    4,440,368Deferred income tax assets  current
    
    
    5,933,725
    
    
    
    7,470,657Deferred income tax liabilities  current
    
    
    (278,346
    )
    
    
    (229,784
    )Valuation allowance
    
    
    (3,710,359
    )
    
    
    (7,021,010
    )Net
    
    
    1,945,020
    
    
    
    219,863Deferred income tax assets  noncurrent
    
    
    13,930,024
    
    
    
    10,132,157
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##### Table of Contents



As of December 31,2006
    
    
    2007NT$000
    
    
    NT$000Deferred income tax liabilities  noncurrent
    
    
    (1,733,130
    )
    
    
    (1,557,870
    )Valuation allowance
    
    
    (8,065,388
    )
    
    
    (4,353,782
    )Net
    
    
    4,131,506
    
    
    
    4,220,505Total net deferred income tax assets
    
    
    6,076,526
    
    
    
    4,440,368
 (3)
    
    UMCs income tax returns for all the fiscal years up to 2005 have been assessed and
approved by the Tax Authority.(4)
    
    UMC was granted several four- or five-year income tax exemption periods with
respect to income derived from the expansion of operations. The starting date of the
exemption period attributable to the expansions in 2002 and 2003 had not yet been
decided. The income tax exemption for other periods will expire on December 31, 2012.(5)
    
    The Company earns investment tax credits for the amount invested in production
equipment, research and development, employee training, and investment in high technology
industry and venture capital.
  Investment tax credits
    
    Balance of unusedExpiration year
    
    earned
    
    investment tax creditsNT$000
    
    NT$0002007
    
    
    1,611,785
    
    
    
    540,1802008
    
    
    6,385,099
    
    
    
    6,385,0992009
    
    
    2,592,432
    
    
    
    2,592,4322010
    
    
    1,663,862
    
    
    
    1,663,8622011
    
    
    2,354,060
    
    
    
    2,354,060Total
    
    
    14,607,238
    
    
    
    13,535,633
 (6)
    
    As of December 31, 2007, the unutilized accumulated losses for the Company were as
follows:
 UnutilizedExpiration Year
    
    Accumulated loss
    
    
    accumulated loss2007
    
    $
    3,773,826
    
    
    $
    2008
    
    
    188,312
    
    
    
    188,3122009
    
    
    520,520
    
    
    
    520,5202010
    
    
    392,049
    
    
    
    392,0492011
    
    
    184,246
    
    
    
    184,2462012
    
    
    3,831,854
    
    
    
    3,831,8542013
    
    
    1,020,765
    
    
    
    1,020,7652014
    
    
    143,057
    
    
    
    143,057Total
    
    $
    10,054,629
    
    
    $
    6,280,803
 F-49




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##### Table of Contents



(7)
    
    The balance of UMCs imputation credit accounts as of December 31, 2006 and 2007
were NT$95 million and NT$413 million, respectively. The actual creditable ratio for 2006
and the expected creditable ratio for 2007 was 8.64% and 2.18%, respectively.(8)
    
    UMCs earnings generated in the year ended December 31, 1997 and prior years have
been fully appropriated.
  a.
    
    There were zero coupon convertible bonds and employee stock options outstanding as
of December 31,2005, 2006 and 2007. Therefore, in consideration of such complex
structure, the calculated basic and diluted earnings per share for the years ended
December 31, 2005, 2006 and 2007, are disclosed as follows:
 For the year ended December 31,(shares expressed in thousands)
    
    2005
    
    
    2006
    
    
    2007NT$000
    
    
    NT$000
    
    
    NT$000Net income
    
    
    7,026,692
    
    
    
    32,619,313
    
    
    
    16,961,762Effect of dilution:Convertible bonds
    
    
    8,495
    
    
    
    33,978
    
    
    
    (348
    )Adjusted net income assuming dilution
    
    
    7,035,187
    
    
    
    32,653,291
    
    
    
    16,961,414Weighted average of shares outstanding
    
    
    18,410,922
    
    
    
    18,050,962
    
    
    
    15,618,486Effect of dilution:Employee stock options
    
    
    159,601
    
    
    
    108,122
    
    
    
    5,993Convertible bonds
    
    
    120,548
    
    
    
    516,383
    
    
    
    448,389Adjusted weighted average of shares
outstanding assuming dilution
    
    
    18,691,071
    
    
    
    18,675,467
    
    
    
    16,072,868Retroactively adjusted weighted average of
shares outstanding
    
    
    18,647,462
    
    
    
    18,050,962
    
    
    
    15,618,486Retroactively adjusted weighted average of
shares outstanding assuming dilution
    
    
    18,933,611
    
    
    
    18,675,467
    
    
    
    16,072,868Earnings per share (in dollars)  basic
    
    
    0.38
    
    
    
    1.81
    
    
    
    1.09Earnings per share (in dollars)  diluted
    
    
    0.37
    
    
    
    1.75
    
    
    
    1.06
  (1)
    
    Name and Relationship of Related Parties
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Name of related parties
    
    Relationship with the CompanyUNITECH CAPITAL INC.
    
    Equity InvesteeMEGA MISSION LIMITED PARTNERSHIP
    
    Equity InvesteeMTIC HOLDINGS PTE. LTD.
    
    Equity InvesteeHSUN CHIEH INVESTMENT CO., LTD.
    
    Equity InvesteeHOLTEK SEMICONDUCTOR INC. (HOLTEK) (Ceased
to be UMCs equity investee since
September 2007)
    
    Equity InvesteeITE TECH. INC. (Ceased to be UMCs equity
investee since August 2007)
    
    Equity InvesteeAMIC TECHNOLOGY CORP.
    
    Equity InvesteePACIFIC VENTURE CAPITAL CO., LTD.
    
    Equity InvesteeXGI TECHNOLOGY INC.
    
    Equity InvesteeHIGHLINK TECHNOLOGY CORP. (merged into
EPISTAR CORP. since March 2007)
    
    Equity InvesteeNEXPOWER TECHNOLOGY CORP.
    
    Equity InvesteeSILICON INTEGRATED SYSTEMS CORP. (SILICON)
    
    The Companys directorUWAVE TECHNOLOGY CORP.
    
    Subsidiarys equity investeeUCA TECHNOLOGY INC.
    
    Subsidiarys equity investeeAFA TECHNOLOGY, INC.
    
    Subsidiarys equity investeeUSBEST TECHNOLOGY INC. (Ceased to be an
subsidiarys equity investee since
February 2007)
    
    Subsidiarys equity investeeSMEDIA TECHNOLOGY CORP.
    
    Subsidiarys equity investeeU-MEDIA COMMUNICATIONS, INC. (Ceased to be
an subsidiarys equity investee since May
2007)
    
    Subsidiarys equity investeeCRYSTAL MEDIA INC.
    
    Subsidiarys equity investeeMOBILE DEVICES INC.
    
    Subsidiarys equity investeeParade Technologies, Ltd. (Ceased to be an
subsidiarys equity investee since August
2007)
    
    Subsidiarys equity investeeCHIP ADVANCED TECHNOLOGY INC.
    
    Same chairman with theCompanys subsidiary
  a.
    
    Operating revenues
 For the year ended December 31,2005
    
    2006
    
    2007Amount
    
    Percentage
    
    Amount
    
    Percentage
    
    Amount
    
    PercentageNT$000
    
    
    
    
    
    NT$000
    
    
    
    
    
    NT$000SIS
    
    
    2,352,259
    
    
    
    4
    
    
    
    2,046,127
    
    
    
    2
    
    
    
    1,596,040
    
    
    
    2Others
    
    
    1,639,450
    
    
    
    3
    
    
    
    1,879,669
    
    
    
    2
    
    
    
    1,473,980
    
    
    
    1Total
    
    
    3,991,709
    
    
    
    7
    
    
    
    3,925,796
    
    
    
    4
    
    
    
    3,070,020
    
    
    
    3
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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 December 31,2006
    
    2007Amount
    
    Percentage
    
    Amount
    
    PercentageNT$000
    
    
    
    
    
    NT$000SILICON
    
    
    99,333
    
    
    
    1
    
    
    
    392,383
    
    
    
    2Others
    
    
    54,267
    
    
    
    0
    
    
    
    116,343
    
    
    
    1Total
    
    
    153,600
    
    
    
    1
    
    
    
    508,726
    
    
    
    3Less: Allowance for sales
returns and discounts
    
    
    (3,589
    )
    
    
    
    
    
    
    (160,423
    )Net
    
    
    150,011
    
    
    
    
    
    
    
    348,303
 28.
    
    ASSETS PLEDGED AS COLLATERALAs of December 31, 2006
 Party to which asset(s)Amount
    
    was pledged
    
    Purpose of pledgeNT$000Deposit-out
    
    625,846
    
    Customs
    
    Customs duty(Time deposit)
    
    
    
    
    
    guarantee
 As of December 31, 2007
 Party to which asset(s)Amount
    
    was pledged
    
    Purpose of pledgeNT$000Deposit-out
    
    621,596
    
    Customs
    
    Customs duty(Time deposit)
    
    
    
    
    
    guarantee
 29.
    
    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$20.2 billion.
Royalties and development fees payable in future years are NT$3.8 billion as of December 31,
2007.
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(2)
    
    The Company signed several construction contracts for the expansion of its factory space.
As of December 31, 2007, these construction contracts have amounted to approximately NT$3.2
billion and the unpaid portion of the contracts, which was not accrued, was approximately
NT$1.1 billion.(3)
    
    The Company entered into several operating lease contracts for land and office. 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,
    
    Amount2008
    
    $
    296,5802009
    
    
    272,0722010
    
    
    258,6272011
    
    
    250,8172012
    
    
    241,0862013 and thereafter
    
    
    1,889,903Total
    
    $
    3,209,085
 Rental expense for the years ended December 31,2005, 2006 and 2007 was NT$537.2 million,
NT$1,125.0 million and NT$336 million, respectively.(4)
    
    The Company entered into several wafer-processing contracts with its principal customers.
According to the contracts, the Company shall guarantee processing capacity, while these
customers make deposits to the Company.(5)
    
    On February 15, 2005, the Hsinchu District Court Prosecutors Office conducted a search of
UMCs facilities. On February 18, 2005, UMCs former Chairman Mr. Robert H.C. Tsao, released
a public statement, explaining that its assistance to Hejian Technology Corp. (Hejian) did
not involve any investment or technology transfer. Furthermore, from the very beginning
there was a verbal indication that, at the proper time, UMC would be compensated
appropriately for its assistance, and circumstances permitting, at some time in the future,
it will push through the merger between two companies. However, no promise was made by UMC
and no written agreement was made and executed. Upon UMCs request to materialize the said
verbal indication by compensating in the form of either cash or equity, the Chairman of the
holding company of Hejian offered 15% of the approximately 700 million outstanding shares of
the holding company of Hejian in return for UMCs past assistance and for continued
assistance in the future.
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Immediately after UMC had received such offer, it filed an application with the Investment
Commission of the Ministry of Economic Affairs on March 18, 2005 (Ref. No.
94-Lian-Tung-Tzu-0222), for their executive guidance for the successful transfer of said
shares to UMC. The shareholders meeting dated June 13, 2005 resolved that to the extent
permitted by law UMC shall try to get the 15% of the outstanding shares offered by the holding
company of Hejian as 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 Executive 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 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 Courts
Prosecutors Office on January 9, 2006. Mr. Robert H.C. Tsao and Mr. John Hsuan had
officially resigned from their positions of UMCs Chairman, Vice Chairman and directors prior
to the announcement of the prosecution; for this reason, at the time of the prosecution, Mr.
Robert H.C. Tsao and Mr. John Hsuan no longer served as UMCs directors and had not executed
their duties as UMCs Chairman and Vice Chairman. In the future, if a guilty judgment is
pronounced by the court, such consequences would be
Mr. Robert H.C. Tsao, Mr. John Hsuan and Mr. Duen-Chian Chengs personal concerns only;
UMC would not be subject to indictment regarding this case. 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 Court Prosecutors Office
filed an appeal, and the trial will be held in Taiwan High Court on January 28, 2008.
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On February 15, 2006, UMC was fined in the amount of NT$5 million for unauthorized investment
activities in Mainland China, implicating violation of Article 35 of the Act Governing
Relations Between Peoples of the Taiwan Area and the Mainland Area by the R.O.C. Ministry of
Economic Affairs (MOEA). However, as UMC believes it was illegally and improperly fined, UMC
had filed an administrative appeal against MOEA to the Executive Yuan on March 16, 2006. 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.
 30.
    
    SIGNIFICANT DISASTER LOSSNone.31.
    
    SIGNIFICANT SUBSEQUENT EVENTNone.32.
    
    ReclassificationCertain comparative amounts have been reclassified to conform to the current years
presentation.33.
    
    Financial Instruments
 (1)
    
    Financial risk management objectives and policiesUMCs principal financial instruments, other than derivatives, is comprised of cash and cash
equivalents, common stock, preferred stock, convertible bonds, open-end funds, bank loans,
and bonds payable. The main purpose of these financial instruments is to manage financing
for the 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.
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The main risks arising from UMCs financial instruments include cash flow interest rate risk,
foreign currency risk, commodity price risk, credit risk, and liquidity risk.Cash flow interest rate riskUMC 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 riskUMC 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 amount of the hedged items. In principal, UMC does not carry
out any forward contracts for uncertain commitments.Commodity price riskUMCs exposure to commodity price risk is minimal.Credit riskUMC 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 riskUMCs objective is to maintain a balance of funding continuity and flexibility through the
use of financial instruments such as cash and cash equivalents, bank loans and bonds.
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(2)
    
    Information of financial instruments
 a.
    
    Fair value of financial instruments
 As of December 31,2006
    
    
    2007Book Value
    
    Fair Value
    
    
    Book Value
    
    
    Fair ValueNT$000
    
    NT$000
    
    
    NT$000
    
    
    NT$000Financial AssetsNon-derivativeCash and cash equivalents
    
    93,853,208
    
    
    93,853,208
    
    
    
    47,678,147
    
    
    
    47,678,147Financial assets at
fair value through
profit or loss, current
    
    8,538,007
    
    
    8,538,007
    
    
    
    4,804,935
    
    
    
    4,804,935Held-to-maturity
financial assets,
current
    
    1,110,422
    
    
    1,110,422
    
    
    
    
    
    
    
    Notes and accounts
receivable
    
    15,255,852
    
    
    15,255,852
    
    
    
    15,848,442
    
    
    
    15,848,442Financial assets at
fair value through
profit or loss,
noncurrent
    
    474,738
    
    
    474,738
    
    
    
    47,598
    
    
    
    47,598Available-for-sale
financial assets,
noncurrent
    
    52,311,172
    
    
    52,311,172
    
    
    
    50,911,643
    
    
    
    50,911,643Financial assets
measured at cost,
noncurrent
    
    7,515,945
    
    
    
    
    
    
    8,295,679
    
    
    
    Long-term investments
accounted for under the
equity method
    
    11,662,599
    
    
    14,234,042
    
    
    
    9,909,595
    
    
    
    9,615,972Prepayment for
long-term investments
    
    
    
    
    
    
    
    
    648,360
    
    
    
    Deposits-out
    
    738,696
    
    
    738,696
    
    
    
    745,457
    
    
    
    745,457Financial LiabilitiesNon-derivativeShort-term loans
    
    342,549
    
    
    342,549
    
    
    
    359,071
    
    
    
    359,071Payables
    
    24,169,179
    
    
    24,169,179
    
    
    
    21,054,519
    
    
    
    21,054,519Capacity deposits
(current portion)
    
    898,265
    
    
    898,265
    
    
    
    4,688
    
    
    
    4,688Bonds payable (current
portion included)
    
    39,451,359
    
    
    40,362,245
    
    
    
    30,384,780
    
    
    
    29,900,297
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As of December 31,2006
    
    
    2007Financial
Liabilities
    
    Book Value
    
    Fair Value
    
    
    Book Value
    
    
    Fair ValueDerivativeInterest rate swaps
    
    626,230
    
    
    626,230
    
    
    
    318,707
    
    
    
    318,707Derivatives embedded in
exchangeable bonds
    
    359,037
    
    
    359,037
    
    
    
    
    
    
    
    Forward contract
    
    
    
    
    
    
    
    
    21,523
    
    
    
    21,523
 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 receivable, accounts receivable, current portion of
capacity deposits, and payables.ii.
    
    The fair value of financial assets at fair value through profit or loss and
available-for-sale financial assets 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.
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c.
    
    The fair value of the Companys financial instruments is determined by the quoted
prices in active markets, or if the market for a financial instrument is not active, the
Company establishes fair value by using a valuation technique:
 Active Market Quotation
    
    
    Valuation TechniqueNon-derivativeFinancial Instruments
    
    2006.12.31
    
    
    2007.12.31
    
    
    2006.12.31
    
    
    2007.12.31NT$'000
    
    
    NT$'000
    
    
    NT$'000
    
    
    NT$'000Financial assetsFinancial assets at
fair value through
profit or loss,
current
    
    
    8,538,007
    
    
    
    4,804,935
    
    
    
    
    
    
    
    Financial assets at
fair value through
profit or loss,
noncurrent
    
    
    474,738
    
    
    
    47,598
    
    
    
    
    
    
    
    Available-for-sale
financial assets,
noncurrent
    
    
    52,311,172
    
    
    
    49,359,916
    
    
    
    
    
    
    
    1,551,727Long-term
investments
accounted for under
the equity method
    
    
    
    
    
    
    
    
    
    
    14,234,042
    
    
    
    9,615,972Financial liabilities
Bonds payable
(current portion
included)
    
    
    40,362,245
    
    
    
    29,900,297
    
    
    
    
    
    
    
    Derivative Financial
InstrumentsFinancial liabilitiesInterest rate swaps
    
    
    
    
    
    
    
    
    
    
    626,230
    
    
    
    318,707Derivatives
embedded in
exchangeable bonds
    
    
    
    
    
    
    
    
    
    
    359,037
    
    
    
    Forward contract
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,523
 d.
    
    The Company recognized gains of NT$312 million and NT$406 million from financial
liabilities at fair value through profit or loss for the years ended December 31, 2006 and
2007, respectively.e.
    
    The Companys financial liabilities with cash flow interest rate risk exposure as of
December 31, 2006 and 2007 were NT$626 million and NT$319 million, respectively.f.
    
    During the years ended December 31, 2006 and 2007, total interest revenue for financial
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assets or liabilities that are not at fair value through profit or loss were NT$1,563
million and NT$1,330 million, respectively, while interest expense for the years ended
December 31, 2006 and 2007 were NT$648 million and NT$266 million, respectively.
 (3)
    
    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 December 31, 2006  The Company
 Credit-linked deposits and repackage bonds referenced to
    
    Amount
    
    Due DateSILICONWARE PRECISION INDUSTRIES
CO., LTD. European Convertible
Bonds and Loans
    
    NTD
    
    400 million
    
    
    2007.02.05SILICONWARE PRECISION INDUSTRIES
CO., LTD. European Convertible
Bonds and Loans
    
    NTD
    
    200 million
    
    
    2007.02.05UMC JAPAN European Convertible Bonds
    
    JPY
    
    640 million
    
    
    2007.03.28ADVANCED SEMICONDUCTOR ENGINEERING
INC. European Convertible Bonds and
Loans
    
    NTD
    
    200 million
    
    
    2007.09.25
 UMC JAPAN
 Credit-linked deposits and repackagebonds referenced to
    
    Amount
    
    Due DateUMC JAPAN European Convertible Bonds
    
    JPY
    
    500 million
    
    
    2007.03.29
 As of December 31, 2007
 The Company did not hold any credit-linked deposits or repackage bonds as of December 31,
2007.b.
    
    Credit riskThe counterparties of the above investments are major international financial institutions.
The repayment in full of these investments is subject to the non-occurrence of one or more
credit events, which are referenced to the entities fulfillment of their own obligations as
well as repayment of their corporate bonds. Upon the occurrence of one or more of such
credit events, the Company and its subsidiary, UMCJ, may receive less than the full amount of
these investments or nothing. The Company and its subsidiary, UMCJ, have selected reference
entities with high credit ratings to minimize the credit risk.c.
    
    Liquidity riskEarly 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.
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d.
    
    Market riskThere is no market risk for the above investments except for the fluctuations in the exchange
rates of US Dollars and Japanese Yen to NT Dollars at the balance sheet date and the
settlement date.
 (4)
    
    The Company entered into interest rate swaps 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 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:
 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:
  Interest RateNotional Amount
    
    Contract Period
    
    Received
    
    Interest Rate PaidNT$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 December 31, 2006
 As of December 31, 2007  UMC
 Type
    
    Notional Amount
    
    Contract PeriodForward contracts
    
    Sell USD 239 million
    
    December 4, 2007 to January 31, 2008
 c.
    
    Transaction risk
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(a)
    
    Credit riskThere 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 riskThe cash flow requirements on the interest rate swap agreements are limited to the
net interest payables or receivables arising from the differences in the swap rates.The cash flow requirements on forward contracts are limited to the net difference
between the forward and spot rates at the settlement date. Therefore, no
significant cash flow risk is anticipated since the working capital is sufficient to
meet the cash flow requirements.(c)
    
    Market riskInterest rate swap agreements and forward contracts are intended for hedging
purposes. Gains or losses arising from the fluctuations in interest rates and
exchange rates are likely to be offset against the gains or losses from the hedged
items. As a result, no significant exposure to market risk is anticipated.
 d.
    
    The presentation of derivative financial instruments on financial statements
 UMC
   (5)
    
    Details of subsidiaries that hold UMCs stock are as follows:As of December 31, 2006
 No. of Shares
    
    AmountSubsidiary
    
    (in thousands)
    
    (NT$'000)
    
    PurposeFORTUNE VENTURE
CAPITAL CORP.
    
    22,070
    
    446,914
    
    Long-term investment
 As of December 31, 2007
 No. of Shares
    
    AmountSubsidiary
    
    (in thousands)
    
    (NT$'000)
    
    PurposeFORTUNE VENTURE
CAPITAL CORP.
    
    15,386
    
    310,035
    
    Long-term investment
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SEGMENT INFORMATION
 (1)
    
    Operations in different industriesThe Company operates as one operating and reportable segment in semiconductor
industry because the chief operating decision makers review the operating results of
the entire consolidated company to make decisions about allocating resources and
assessing performance for the entire company.(2)
    
    Operations in different geographic areasThe geographic region to which revenue is assigned is based on the location of the
Company or its subsidiaries to which revenue earned from external customers is
attributable.
 For the year ended December 31,2005
    
    2006
    
    2007Net
    
    
    
    
    
    Net
    
    
    
    
    
    Netoperating
    
    Long-lived
    
    operating
    
    Long-lived
    
    operating
    
    Long-livedrevenues
    
    assets
    
    revenues
    
    assets
    
    revenues
    
    assetsNT$'000
    
    NT$'000
    
    NT$'000
    
    NT$'000
    
    NT$'000
    
    NT$'000Taiwan
    
    
    43,245,624
    
    
    
    112,764,083
    
    
    
    38,310,762
    
    
    
    95,599,934
    
    
    
    43,029,375
    
    
    
    82,780,850Asia, excluding
Taiwan
    
    
    6,627,031
    
    
    
    51,198,331
    
    
    
    9,511,367
    
    
    
    61,023,016
    
    
    
    7,792,941
    
    
    
    59,112,031North America
    
    
    43,506,307
    
    
    
    36,892
    
    
    
    55,616,919
    
    
    
    33,004
    
    
    
    53,177,099
    
    
    
    23,042Europe
    
    
    6,937,020
    
    
    
    5,068
    
    
    
    8,564,771
    
    
    
    3,891
    
    
    
    9,311,883
    
    
    
    4,002100,315,982
    
    
    
    164,004,374
    
    
    
    112,003,819
    
    
    
    156,659,845
    
    
    
    113,311,298
    
    
    
    141,919,925
   (1)
    
    CompensationRemuneration to directors and supervisorsThe Companys Articles of Incorporation (AOI) requires cash remuneration to its directors and
supervisors from appropriating a portion of net profit, if any. Under
ROC GAAP, such payments are charged directly to retained earnings in the period when shareholders approve
such payment. Under US GAAP, such
cash payments are recorded as compensation expenses in the period when services are rendered.
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Employee bonuses
  Treasury stock purchased by employees
  Employee stock options
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For the year ended December 31, 2007Available shares(adjusted for
    
    Weighted-average ExerciseNumber of options
    
    capital reduction)
    
    Price per share as adjusted(In thousands)
    
    (In thousands)
    
    NT$
    
    US$Outstanding at
beginning of period
    
    
    913,958
    
    
    
    637,180
    
    
    
    24.95
    
    
    
    0.77Granted
    
    
    500,000
    
    
    
    500,000
    
    
    
    18.95
    
    
    
    0.58Exercised
    
    
    (14,311
    )
    
    
    (9,977
    )
    
    
    22.70
    
    
    
    0.70
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For the year ended December 31, 2007Available shares(adjusted for
    
    Weighted-average ExerciseNumber of options
    
    capital reduction)
    
    Price per share as adjusted(In thousands)
    
    (In thousands)
    
    NT$
    
    US$Forfeited
    
    
    (112,240
    )
    
    
    (78,371
    )
    
    
    24.56
    
    
    
    0.76Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at end
of period
    
    
    1,287,407
    
    
    
    1,048,832
    
    
    
    22.14
    
    
    
    0.68Fully vested and
expected to vest at
end of period
    
    
    1,145,267
    
    
    
    909,751
    
    
    
    22.56
    
    
    
    0.70Exercisable at end
of period
    
    
    641,427
    
    
    
    447,181
    
    
    
    24.59
    
    
    
    0.76
   For the year endedDecember 31, 2005NT$'000Net loss, as reported under US GAAP
    
    
    (15,669,392
    )Add: Share-based employee compensation expense included
in reported net income, net of related tax effects
    
    
    26,072Deduct: Total share-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects
    
    
    (325,014
    )Pro forma net loss
    
    
    (15,968,334
    )Basic loss per share (in dollars):- as reported
    
    
    (1.01
    )- pro forma
    
    
    (1.03
    )Diluted loss per share (in dollars)- as reported
    
    
    (1.01
    )- pro forma
    
    
    (1.03
    )
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For the year ended December 31,2006
    
    2007NT$'000
    
    NT$'000Net effects in income
    
    
    (539,422
    )
    
    
    (454,524
    )Net effects on inventory capitalization
    
    
    42,735
    
    
    
    42,310
  For the year ended December 31,2005
    
    2006
    
    2007NT$000
    
    NT$000
    
    NT$000Net income impact of compensation
adjustments:Employees bonusesAccrual
    
    
    (756,007
    )
    
    
    (774,706
    )
    
    
    (596,961
    )Adjustment for final award
    
    
    (1,560,280
    )
    
    
    (823,618
    )
    
    
    (1,549,414
    )Total employees bonuses
    
    
    (2,316,287
    )
    
    
    (1,598,324
    )
    
    
    (2,146,375
    )Remuneration to directors and supervisors
    
    
    (4,671
    )
    
    
    (15,494
    )
    
    
    (11,939
    )Treasury stock purchased by employees
    
    
    
    
    
    
    
    
    
    
    (77,954
    )Employee stock options
    
    
    
    
    
    
    (571,940
    )
    
    
    (402,134
    )Allocation to inventories, net of prior
period allocations to inventories which
are sold in current period
    
    
    (120,045
    )
    
    
    79,715
    
    
    
    (9,516
    )Total US GAAP adjustment to net income
relating to compensation
    
    
    (2,441,003
    )
    
    
    (2,106,043
    )
    
    
    (2,647,918
    )
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As of December 31,2006
    
    2007NT$'000
    
    NT$'000Stockholders equity impact of compensation adjustments:Employees bonuses
    
    
    (712,015
    )
    
    
    (543,361
    )Remuneration to directors and supervisors
    
    
    (15,494
    )
    
    
    (11,939
    )Treasury stock purchased by employees
    
    
    
    
    
    
    6,999Employee stock options
    
    
    42,735
    
    
    
    35,311Total US GAAP adjustment to stockholders equity
relating to compensation
    
    
    (684,774
    )
    
    
    (512,990
    )
 (2)
    
    Equity Investees  Variance between US GAAP and ROC GAAPThe Companys proportionate share of the income (loss) and stockholders equity from an
equity investee under ROC GAAP may differ from US GAAP if the equity investees net income
(loss) and stockholders equity are different under the two GAAPs. Those differences for the
equity investees include accounting for compensation, income tax and
investments in debt and
equity securities.(3)
    
    Investments in Debt and Equity Securities
 (a)
    
    Change in fair value of investmentsPrior to 2006, the Companys investments in marketable securities for trading purposes
were classified as short-term investments under ROC GAAP while classified as trading
securities under US GAAP. Upon the Companys adoption of ROC SFAS 34 in 2006,
these investments were classified as trading securities under both GAAPs and no
reconciliation was made. Unrealized gains (losses) on trading securities held at
December 31, 2005, 2006 and 2007 were NT$246 million, NT$326 million and NT$(2,937)
million, respectively.Prior to 2006, the Company classified equity securities, over which the Company did not
have the ability to exercise significant influence or control, as long-term investments
under ROC GAAP, whereas under US GAAP, such equity securities were classified as
available-for-sale securities. Upon the Companys adoption of ROC SFAS 34 in 2006, these
investments were classified as available-for-sale securities under both GAAPs. Investment
in restricted stock, for which sale is restricted by governmental or contractual
requirement is accounted for as available-for-sale or cost-method securities under ROC
GAAP, and its fair value should be adjusted for the effect of restriction. Under US
GAAP, however, our restricted investments do not meet the definition of an equity
security with readily determinable fair values and therefore is accounted for as cost
method investment. We recorded an adjustment to decrease other comprehensive income
under US GAAP by NT$140 million in 2007 related to our restricted investments. When the
Company loses its significant influence on an investment accounted for under equity
method and reclassifies it as available-for-sale securities, the
proportionate share of an investees equity adjustments for other comprehensive income should remain as a part
of the carrying amount of the investment under ROC GAAP and the dividends received from
available-for-sale securities which were declared from pre-acquisition profits are
deducted from the cost of the securities. However, under US GAAP, the proportionate
share of an investees equity adjustments for other comprehensive income should be offset
against the carrying amount of the investment at the time significant influence is lost,
and the dividends received from available-for-sale securities are accounted for as
dividend income. Accordingly, dividend income for the year ended December 31, 2007 was
increased by NT$165 million, and the unrealized gains on available-for-sale securities
for the year end December 31, 2006 and 2007 were decreased by NT$1,052 million and
NT$1,036 million, respectively, for the adjustment of the proportionate share of an
investees other comprehensive income under US GAAP.
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Information on sales of available-for-sale equity securities for the years ended December
31, 2005, 2006 and 2007 are as follows:
 Proceeds from
    
    Gross realized
    
    Gross realizedsales
    
    gains
    
    lossesNT$'000
    
    NT$'000
    
    NT$'000For the year ended December 31, 2005
    
    
    9,583,984
    
    
    
    7,753,883
    
    
    
    26,876For the year ended December 31, 2006
    
    
    19,027,266
    
    
    
    14,883,772
    
    
    
    141,136For the year ended December 31, 2007
    
    
    14,725,724
    
    
    
    9,690,626
    
    
    
    13,732
  Total unrealized
    
    Total unrealized
    
    Net unrealizedFair Value
    
    gains
    
    losses
    
    gainsNT$'000
    
    NT$'000
    
    NT$'000
    
    NT$'000As of December 31, 2005
    
    
    54,966,374
    
    
    
    41,830,598
    
    
    
    93,638
    
    
    
    41,736,960As of December 31, 2006
    
    
    52,311,172
    
    
    
    32,620,220
    
    
    
    
    
    
    
    32,620,220As of December 31, 2007
    
    
    49,376,537
    
    
    
    27,979,084
    
    
    
    332,974
    
    
    
    27,646,110
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(b)
    
    Impairment of investments in securitiesUnder ROC GAAP, for long-term investments over which the Company does not have the
ability to exercise significant influence or control, unrealized losses would be reported
on the consolidated statement of income if evidence indicates that the value of an
investment has been impaired and is unlikely to recover in the future. Nevertheless, ROC
GAAP does not provide additional definition or guidance on how to assess the likelihood
of future recovery. Under US GAAP, for individual securities classified as either
available-for-sale or held-to-maturity, the Company determines whether a decline in fair
value below cost is other than temporary pursuant to guidance provided by SFAS 115, FSP
FAS 115-1/124-1. In general, a decline in market value below cost for a continuous
period of six months is considered to be other-than-temporary unless there is persuasive
evidence to the contrary. When determining the impairment or other-than-temporary
decline, the Company considers, among other factors, all available information concerning
the future prospects of investments including the investees financial statements,
analyst reports and industry specific publications, and observes whether there are
significant adverse changes in the general market condition where the investees operate,
significant deteriorations in their earnings performance, and any significant going
concerns issues. The Company also considers its ability and intention to hold these
investments for a reasonable period of time that will be sufficient to allow for any
anticipated recovery in the securitys market value. If the decline in fair value is
judged to be other than temporary, the cost basis of the individual security is written
down to fair value with a charge against earnings. Accordingly, the impairment losses of
certain investments recorded under ROC GAAP were reconciled to increase net income by
nil, NT$779 million, and NT$162 million for the years ended December 31, 2005, 2006 and
2007, respectively, because such impairment losses have been recognized in prior years
under US GAAP.
 (c)
    
    Difference in application of equity accountingUnder ROC GAAP, an investor company that has an ownership interest of at least 20 percent
of an investee is generally required to account for the investee under the equity method.
However, there is a presumption that the investor company can exercise significant
influence if the ownership percentage of the investee is the highest among shareholders,
and therefore equity accounting shall be applied, despite an ownership interest of less
than 20 percent. Under US GAAP, the investor company is required to account for an
investment under the equity method when the investment gives it the ability to exercise
significant influence over operating and financial policies of an investee. The fact that an investor companys ownership percentage of an investee is the
highest among shareholders does not, by itself, lead to the
conclusion that the investor can exercise significant influence. Rather, it should be considered together with other
facts and circumstances to determine if the investor is able to exercise significant
influence. Thus, the difference between US GAAP and ROC GAAP in the application of
equity method would result in an increase in investment income (loss) accounted for under
the equity method of NT$(91) million, NT$629 million and nil, and an increase in
unrealized gains (losses) on available-for-sale securities of NT$13,860 million,
NT$(2,090) million and NT$(2,090) million, for the years ended December 31, 2005, 2006
and 2007 respectively.
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(d)
    
    Adjustments due to change in ownership of investeesWhen an investee issues additional shares and the Company subscribes for these shares at
a percentage higher or lower than its current ownership percentage in the investee, when
the employees of the Companys subsidiaries or equity investees exercise their stock
options, or when the convertible bondholders of the Companys subsidiaries or equity
investees exercise their conversion rights, the Companys ownership interest in such
subsidiary or equity investee may change. Under ROC GAAP, the change in the Companys
proportionate share in the net assets of its investee resulting from the issuance of
additional shares of the investees stock, at the rate not proportionate to its existing
equity ownership in such investee, is recorded to the additional paid-in capital and
long-term investments account. Under US GAAP, a dilution of ownership interest is
recognized as a gain or loss in the consolidated statement of income. On the other hand,
the increase in ownership interest is treated as a purchase of additional shares and the
difference between the total cost of the investment and the proportionate share of the
fair value of net assets is allocated to goodwill.
 (4)
    
    Exchangeable Bond LiabilitiesExchangeable bonds permit the holders to exchange the bonds into shares of a third party
entity. Under ROC GAAP, prior to January 1, 2006, when an exchangeable bond is issued, the
entire instrument is recorded as a liability at an amount equal to the proceeds received and
any discount or premium to the par value is amortized to the consolidated statement of income
by using the effective interest rate method. If an exchangeable bond is exchanged into the
underlying securities, a gain or loss is recognized in the consolidated statement of income
for the difference, if any, between the carrying value of the bond and the carrying value of
the securities exchanged. Effective January 1, 2006, the new accounting standards ROC SFAS
34 and ROC SFAS 36 require derivatives embedded in exchangeable bonds, if not clearly and
closely related to the host contract, to be bifurcated and accounted for as financial
liabilities at fair value through profit or loss.Under US GAAP, pursuant to SFAS 133, the exchange feature
which is indexed to the security of a third party entity qualifies as a derivative instrument and is required to
be bifurcated from the host contract and accounted for at fair value with changes in
fair value reported on the consolidated statement of income.
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(5)
    
    GoodwillUnder ROC GAAP, the fair value of the net assets received is deemed to be the value of the
consideration for the acquisition of the remaining interests in United Semiconductor, United
Silicon, UTEK Semiconductor and United Integrated Circuits in January 2000. The acquisition
cost of the merger with SiSMC was determined using the market price of the shares exchanged
by the Company. Under US GAAP, EITF No. 99-12 requires that the securities exchanged be
valued based on the market prices a few days before and after the date when the terms of the
acquisition are agreed to and announced. The acquisition was
accounted for using the purchase method of accounting and the purchase price was determined
using the market value of the shares exchanged. The difference between the fair value of the shares exchanged and the fair value of the net assets acquired created goodwill.
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(6)
    
    Earnings per Share (EPS)Under ROC GAAP, basic earnings per share are calculated by dividing net income attributable
to common stockholders by the weighted average number of shares outstanding during the year.
The shares issued for employees bonus are treated as outstanding at the beginning of each
period. The reciprocal shareholdings held by equity investees are also deducted from the
computation of weighted-average number of shares outstanding. Diluted earnings per share are
calculated 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 was also adjusted for the interest and other income or expenses derived from any
underlying dilutive share equivalents. The weighted average shares outstanding are adjusted
retroactively for stock dividends issued, capitalization of additional paid-in capital and
employees bonus, as described under (1) Compensation above. Anti-dilutive effects are not
included in the dilutive EPS calculation.Under US GAAP, basic earnings per share are calculated by dividing net income attributable to
common stockholders by the weighted average number of shares outstanding during the year.
The shares issued for employees bonus are included in the computation of basic earnings per
share from the grant date. Diluted earnings per share are calculated by taking basic
earnings per share into consideration plus additional common shares that would have been
outstanding if the dilutive share equivalents had been issued. The net income attributable
to common stockholders would also be adjusted for the interest and other income or expenses
derived from any underlying dilutive share equivalents. Additionally, the dilutive effect of
outstanding employee options generally should be reflected in diluted EPS by application of
treasury stock method. The assumed proceeds include the exercise price of the options, any
tax benefits that will be credited on exercise to additional paid-in capital, and the average
measured but unrecognized compensation expense during the period. Accordingly, the Company
reversed the dilutive adjustment under ROC GAAP and calculated the dilutive effect of
outstanding employee options by applying treasury stock method under US GAAP.Under ROC GAAP, the Companys capital reduction in 2007 is required to be treated
prospectively for EPS purposes. Under US GAAP, the capital reduction was treated as a
reverse stock split with a return of capital, and the return of
capital generated a bonus element for EPS purposes. Accordingly, the weighted average number of shares outstanding for
both basic and diluted EPS were adjusted retroactively for all periods presented as follows:
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For the Years Ended December 31,2005
    
    
    2006
    
    
    2007In thousands
    
    
    In thousands
    
    
    In thousandsWeighted Average Shares Outstanding  BasicWeighted average
shares prior to
capital reduction
    
    
    18,783,544
    
    
    
    17,814,908
    
    
    
    15,424,380Impact of reverse
stock split and return
of capital
    
    
    (3,295,457
    )
    
    
    (3,125,515
    )
    
    
    (1,453,626
    )Calculated weighted
average shares after
capital reduction
    
    
    15,488,087
    
    
    
    14,689,393
    
    
    
    13,970,754Weighted Average Shares Outstanding  DilutedEffect of dilutive
securities prior to
capital reduction
    
    
    
    
    
    
    627,407
    
    
    
    Impact of reverse
stock split and return
of capital
    
    
    
    
    
    
    (110,075
    )
    
    
    Calculated effect of
dilutive securities
after capital
reduction
    
    
    
    
    
    
    517,332
    
    
    
    
  For the Year Ended 2007Income
    
    Shares
    
    Per-Share(Numerator)
    
    (Denominator)
    
    AmountIn thousands
    
    In thousands
    
    In dollar NT$Net Loss
    
    
    (9,264,302
    )
    
    
    
    
    
    
    Basic EPS and diluted EPSLoss available to common stockholders
    
    
    (9,264,302
    )
    
    
    13,970,754
    
    
    
    (0.66
    )
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For the Year Ended 2006Income
    
    Shares
    
    Per-Share(Numerator)
    
    (Denominator)
    
    AmountIn thousands
    
    In thousands
    
    In dollar NT$Net Income
    
    
    21,796,730
    
    
    
    
    
    
    
    Basic EPSIncome available to common stockholders
    
    
    21,796,730
    
    
    
    14,689,393
    
    
    
    1.48Effect of Dilutive SecuritiesEmployee stock options
    
    
    
    
    
    
    83,261Employee bonus
    
    
    
    
    
    
    8,285Convertible bond
    
    
    30,580
    
    
    
    425,786Diluted EPSIncome attributable to common stockholders including assumed
conversions
    
    
    21,827,310
    
    
    
    15,206,725
    
    
    
    1.44
  For the Year Ended 2005Income
    
    Shares
    
    Per-Share(Numerator)
    
    (Denominator)
    
    AmountIn thousands
    
    In thousands
    
    In dollar NT$Net Loss
    
    
    (15,669,392
    )
    
    
    
    
    
    
    Basic EPS and diluted EPSLoss available to common stockholders
    
    
    (15,669,392
    )
    
    
    15,488,087
    
    
    
    (1.01
    )
 As of December 31, 2005, there were 975,320 thousand issued and outstanding stock options,
and zero coupon convertible bonds with a principal amount of US$381.4 million, which were not
included in the computation of diluted earnings per share due to their antidilutive effect.(7)
    
    Treasury Stock and related DisposalSome of the Companys subsidiaries and investees also hold the Companys stocks as
investments. Under ROC GAAP, reciprocal shareholdings held by subsidiaries, but not equity
investees, are recorded as treasury stocks on the Companys books. Under US GAAP, however,
reciprocal shareholdings, whether being held by subsidiaries or equity investees,are recorded as treasury stocks on the Companys books. Therefore, as of December 31, 2006
and 2007, the Company recognized treasury stocks of NT$3,001 million and NT$2,092 million for
reciprocal shareholdings held by an equity-method investee and reversed the unrealized loss
of NT$6,321 million and NT$7,024 million for the years ended December 31, 2006 and 2007,
respectively.
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During 2006, the Company disposed part of its investment in Hsun Chieh Investment Co., Ltd.
(Hsun Chieh), one of the Companys consolidated entities in 2005. After the disposal, the
Companys ownership percentage decreased to 36.49 percent. Therefore, the Company lost its
control over Hsun Chieh and has accounted for the investment in Hsun Chieh under the equity
method. Under ROC GAAP, since the Company no longer possesses controlling power over Hsun
Chieh, the Company recognized gain from disposal of investments in Hsun Chieh of NT$13,152
million. Under US GAAP, however, since Hsun Chieh holds the Companys stocks as investments,
the disposal gain related to the reciprocal shareholdings was recognized as additional
paid-in capital. Accordingly, the Company recognized disposal gain of NT$2,201 million and
additional paid-in capital of NT$1,688 million under US GAAP.(8)
    
    Principles of ConsolidationAccording to ARB 51, the Company needs to consolidate an entity if the Companys holding
percentage, direct or indirect, of the entitys outstanding voting interests is over fifty
percent. The Company has been following the consolidation requirements prescribed in ARB 51
under US GAAP. Under ROC GAAP, however, the Company adopted the revised ROC SFAS 7,
effective January 1, 2005. ROC SFAS 7 eliminates the specific exclusion rules for certain
subsidiaries and essentially requires subsidiaries to be consolidated when the Company,
directly or indirectly, has controlling interests. See Note 2. Summary of Significant
Accounting Policies.ROC SFAS 7 requires a company to consolidate all investees that a company has a controlling
interest in. Such control can be established by the companys majority representation in the
board of directors even if a company does not have a controlling interest
through direct or indirect ownership of a majority voting interest. SiS was UMCs
consolidated entity due to the reason that UMC has control over more than half members of the
board of directors of SiS until June 27, 2005, the day UMC no longer possessed control over
the subsidiary because the Company no longer possessed majority of the board seats and ceased
to consolidate the gains and losses of the subsidiary and its investees in preparing the
consolidated financial statements. Under US GAAP, a company is required to consolidate all
investees in which a company has a controlling interest through direct or indirect ownership
of a majority voting interest. Therefore, SiS has never been a consolidated entity of the Company because the Company has less than 50 percent of the voting
interest. Moreover, XGI, one of SiSs equity-method investees, was also a consolidated
entity of the Company under ROC GAAP after considering the Companys and SiSs shareholdings.
Under US GAAP, however, since SiS has never been the Companys consolidated subsidiary, XGI
should have never been the Companys consolidated subsidiary, either, because the Companys
total shareholdings, direct or indirect, was less than 50 percent. Therefore, US GAAP
reconciliation is needed to reverse the gains and losses of SiS and XGI and their investees,
which were recorded in the consolidated financial statements under ROC GAAP.
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(9)
    
    Stock DividendsUnder ROC GAAP, the stock dividends are recorded at par value and charged to retained
earnings. Under US GAAP, if the ratio of distribution is less than 25 percent of the same
kind of outstanding shares, the fair value of the shares issued should be charged to retained
earnings. The cumulative effect of reconciling stock dividends decreased retained earnings
and increased additional paid-in capital for the year ended December 31, 2006 by
approximately NT$290,743 million. This adjustment, NT$290,743 million remains the same as of
December 31, 2007 since no stock dividends were issued during 2007.(10)
    
    DerivativesInterest rate swapTo eliminate the variability of cash flows in the interest payments of its NT$15 billion
variable-rate domestic bonds issued in May to June 2003, UMC entered into interest rate swap
agreements with notional amounts of NT$15 billion that effectively convert the floating-rate
domestic bonds to a fixed-rate basis over the term of the bonds. For 2005 and prior years,
pursuant to ROC GAAP, the periodic cash settlement under the interest rate swap was accrued
in the consolidated statement of income as an adjustment to interest expense. The net receivable or payable under the interest rate swap was included as other financial
assets or liabilities. Changes in fair value of the interest rate swap were not required to
be accounted for as of the balance sheet date. Upon the adoption of ROC SFAS 34 on January
1, 2006, the derivative instruments are required to be accounted for at fair value and
recorded as financial assets or liabilities at fair value through profit or loss. The change
in fair value of the derivative instrument is charged to earnings or a component of
shareholders equity depending on whether it is designated and qualified for hedge
accounting.Under US GAAP, SFAS 133 requires the recognition of all derivative instruments as either
assets or liabilities at fair value. Changes in the fair value of a derivative instrument
are recorded in the consolidated statement of income unless hedge accounting applies. As of
December 31, 2006 and December 31, 2007, the Company did
not adopt hedge accounting for its interest rate swap agreements for either ROC GAAP or US GAAP. Therefore, no
reconciliation is required after the adoption of ROC SFAS 34.
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Credit-linked deposits and repackage bondsAt December 31, 2005 and December 31, 2006, the Company held assets in the form of
credit-linked deposits. The Company placed deposits in major financial institutions and
these deposits are credit-linked to debt securities (reference securities) issued by other
entities (reference entities). The ultimate repayment of the deposit is dependent on the
occurrence of credit event, such as bankruptcy or default by the reference entities. The
Company can receive deposit interests periodically under a rate of the sum of benchmark rate
and credit spread. If a credit event occurs, the Company may suffer a loss on its
credit-linked deposits because the financial institutions can terminate the interest payment
and settle the Companys credit-linked deposits with cash received from the sale of the
reference securities, if any, or by transferring the reference securities to the Company.
All credit-linked deposits were matured during 2007.For 2005 and prior years, under ROC GAAP, these investments were accounted for as monetary
deposits and classified as current or non-current other financial assets on the consolidated
balance sheet based on their terms to maturity. The deposits were valued at cost and
interest receivable was accrued based on the stated rate of the deposits. Pursuant to the
new adoption of ROC SFAS 34, effective from January 1, 2006, the credit-linked deposits shall
be accounted for as a hybrid instrument with an embedded derivative that is not clearly and
closely related to the host deposits, which came to be consistent with US GAAP. Thus
the embedded derivative shall be bifurcated from the underlying assets and measured at fair
value as financial asset or liability at fair value through profit or loss at each reporting
date with any change in fair value recorded to the consolidated statement of income. The
host contract of deposit shall be accounted for as held-to-maturity investment at amortized
cost pursuant to ROC SFAS 34.Under US GAAP, these credit-linked deposits, which are linked to the credit worthiness of the
reference securities, contain an embedded derivative that is not clearly and closely related
to the interest-bearing deposit. Therefore, the embedded derivative is bifurcated pursuant
to SFAS 133 from the underlying deposit and measured at fair value at each reporting date
with changes in fair value recorded in the consolidated statement of income.(11)
    
    Reclassification of Time DepositsUnder ROC GAAP, cash and cash equivalents include time deposits. Under US GAAP, cash
equivalents are short-term, highly liquid investments that are readily convertible to cash
with original maturities of three months or less. Thus, time deposits with original
maturities of more than three months are classified as cash equivalents under ROC GAAP but should be
included in marketable securities under US GAAP.
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(12)
    
    PensionIn and prior to 2006, both ROC SFAS 18 and US SFAS No. 87, Employers Accounting for
Pensions (SFAS 87) require a minimum pension liability to be measured as the excess of
accumulated benefit obligation over the fair value of the plan assets, and allow the
unrecognized items, including prior service costs and credits, gains or losses, and
transition obligations or assets, to be reported in disclosure shown as a plans funded
status.In September 2006, FASB issued SFAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans (SFAS 158), which amended SFAS 87, SFAS 88, SFAS 106
and SFAS 132R, and replaced SFAS 87s requirement to report a minimum pension liability.
SFAS 158 did not change the components of net periodic benefit cost but required an employer
to recognize an asset for a plans overfunded status or a liability for a plans underfunded
status with an offsetting adjustment to accumulated other comprehensive income (AOCI).The amounts related to pensions recognized in AOCI, net of tax, excluding amounts related to
equity-method investees, are shown as below:
 As of December 31, 2007TransitionNet gain (loss)
    
    Prior service cost
    
    obligationNT$000
    
    NT$000
    
    NT$000The amounts arose during the period
    
    
    649,970
    
    
    
    
    
    
    
    (99
    )The amounts reclassified as
components of net periodic benefit
cost
    
    
    (585
    )
    
    
    
    
    
    
    28,368The amounts recognized in AOCI as
of December 31, 2007
    
    
    605,627
    
    
    
    
    
    
    
    (86,730
    )The amounts expected to be
recognized as components of net
periodic benefit cost during 2008
    
    
    (16,296
    )
    
    
    
    
    
    
    28,368
 (13)
    
    Tax Effect of US GAAP AdjustmentsUnder US GAAP, the income tax expense was NT$297 million, NT$3,470 million and NT$2,912
million for the years ended December 31, 2005, 2006 and 2007, respectively. Undistributed
earnings generated after 1997 are subject to a 10% tax in compliance
with the Income Tax Law of the R.O.C. Under ROC GAAP, the 10% tax on undistributed earnings is
recorded as an expense at the time shareholders resolve that its earnings shall be retained.
Under US GAAP, 10% income tax impact is provided in the period the income is earned, and any
reduction in the liability will be recognized when the income is distributed upon the
shareholders approval in the subsequent year. Tax on undistributed earnings may be offset by
the Companys available tax credits carried forward, where applicable. As such, the
incremental tax accrued on undistributed earnings may be offset by a corresponding reduction
in valuation allowance, where applicable. In 2006 and 2007, the Company accrued NT$2,390
million and NT$1,051 million, respectively, for 10% tax on undistributed earnings in Taiwan
under US GAAP. The additional tax expense was offset by a corresponding reduction in the
valuation allowance under US GAAP. Further, in 2007, certain subsidiaries incurred NT$102
million of tax on undistributed earnings in Taiwan for which no tax credits were available
for offset, and the income tax expense was recognized accordingly.
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F-82




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##### Table of Contents



For the year endedDecember 31, 2007NT$(In millions)Balance at January 1, 2007
    
    
    260Additions based on tax positions taken during the current year
    
    
    55Reductions related to settlements with taxing authorities
    
    
    (113
    )Balance at December 31, 2007
    
    
    202
 None of the aforementioned unrecognized tax benefits, if recognized, would affect the
Companys effective tax rate. In addition, settlement of any of the uncertain tax positions
would not require the use of cash as any adjustment would be offset in total by available tax
loss carry-forward and/or tax credits in open tax years. Further, the Company is unaware of
any positions for which it is reasonably possible that the total amounts of unrecognized tax
benefits will significantly increase or decrease within the next twelve months.The Company reports interest and penalties relating to unrecognized tax benefits as interest
expenses and other expenses, respectively. As of January 1 and December 31, 2007, we had no
accrued interest or penalties.The Company is subject to taxation in Taiwan and other foreign jurisdictions. As of December
31, 2007, tax years of 2006-2007 are open to Tax Authoritys examination in Taiwan, while in
other foreign jurisdictions, years 2001-2007 are open to relevant Tax Authoritys
examination.(14)
    
    Gross Profit and Operating IncomeUnder ROC GAAP, inventory loss provision, gains and losses from disposal of property, plant
and equipment, gains and losses from foreign currency exchange, and impairment losses of
property, plant and equipment are presented as non-operating income or expenses in the
consolidated statement of income. Under US GAAP, the inventory loss provision is included in
the determination of gross profit. Moreover, gains and losses from disposal of property,
plant and equipment, gains and losses from foreign currency exchange, and impairment losses
of property, plant and equipment are included in the determination of operating income.
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For the year ended December 31,2005
    
    
    2006
    
    
    2007NT$000
    
    
    NT$000
    
    
    NT$000
    
    
    US$000Net income, ROC GAAP
    
    
    7,026,692
    
    
    
    32,619,313
    
    
    
    16,961,762
    
    
    
    523,027Compensation
    
    
    (2,441,003
    )
    
    
    (2,106,043
    )
    
    
    (2,647,918
    )
    
    
    (81,650
    )Equity investees
    
    
    690,357
    
    
    
    (56,785
    )
    
    
    (4,069
    )
    
    
    (126
    )Investments in debt and equity securitiesChange in fair value of investments in
securities
    
    
    288,388
    
    
    
    (352,311
    )
    
    
    207,286
    
    
    
    6,391Impairment of investments in securities
    
    
    
    
    
    
    779,368
    
    
    
    162,481
    
    
    
    5,010Difference in application of equity
accounting
    
    
    (91,139
    )
    
    
    628,724
    
    
    
    
    
    
    
    Adjustments due to change in ownership
of investees
    
    
    (27,990
    )
    
    
    (18,808
    )
    
    
    (51,089
    )
    
    
    (1,575
    )Exchangeable bond liabilities
    
    
    (39,287
    )
    
    
    199,389
    
    
    
    
    
    
    
    Derivative instruments
    
    
    (1,611,969
    )
    
    
    1,126,322
    
    
    
    
    
    
    
    Goodwill amortization and impairment loss
    
    
    (19,332,968
    )
    
    
    
    
    
    
    (23,760,601
    )
    
    
    (732,673
    )Treasury stock and related disposal
    
    
    101,955
    
    
    
    (10,842,272
    )
    
    
    (132,154
    )
    
    
    (4,075
    )Income tax effect
    
    
    (232,428
    )
    
    
    (180,167
    )
    
    
    
    
    
    
    Net income (loss), US GAAP
    
    
    (15,669,392
    )
    
    
    21,796,730
    
    
    
    (9,264,302
    )
    
    
    (285,671
    )Basic earnings (losses) per share under US GAAP
(in dollars)
    
    
    (1.01
    )
    
    
    1.48
    
    
    
    (0.66
    )
    
    
    (0.02
    )Diluted earnings (losses) per share under US
GAAP (in dollars)
    
    
    (1.01
    )
    
    
    1.44
    
    
    
    (0.66
    )
    
    
    (0.02
    )Weighted-average number of shares
outstanding-basic (in thousands)
    
    
    15,488,087
    
    
    
    14,689,393
    
    
    
    13,970,754
    
    
    
    13,970,754Weighted-average number of shares
outstanding-diluted (in thousands)
    
    
    15,488,087
    
    
    
    15,206,725
    
    
    
    13,970,754
    
    
    
    13,970,754
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For the year ended December 31,2005
    
    2006
    
    2007NT$000
    
    NT$000
    
    NT$000
    
    US$000Net income
    
    
    (15,669,392
    )
    
    
    21,796,730
    
    
    
    (9,264,302
    )
    
    
    (285,671
    )Other comprehensive income, net of
taxCumulative translation adjustment
    
    
    1,068,522
    
    
    
    (592,598
    )
    
    
    (43,470
    )
    
    
    (1,340
    )Unrealized gains (losses) on
securities
    
    
    22,639,757
    
    
    
    (7,601,764
    )
    
    
    (5,511,035
    )
    
    
    (169,937
    )Unrecognized pension cost
    
    
    
    
    
    
    
    
    
    
    691,695
    
    
    
    21,329Other comprehensive income
    
    
    23,708,279
    
    
    
    (8,194,362
    )
    
    
    (4,862,810
    )
    
    
    (149,948
    )Comprehensive income
    
    
    8,038,887
    
    
    
    13,602,368
    
    
    
    (14,127,112
    )
    
    
    (435,619
    )
  AccumulatedCumulative
    
    Unrealized
    
    
    
    
    
    othertranslation
    
    gains (losses)
    
    Unrecognized
    
    comprehensiveadjustment
    
    on securities
    
    pension cost
    
    income (Loss)NT$000
    
    NT$000
    
    NT$000
    
    NT$000Balance at December 31,2004
    
    
    (1,311,327
    )
    
    
    19,021,779
    
    
    
    
    
    
    
    17,710,452Other comprehensive income (loss)
    
    
    1,068,522
    
    
    
    22,639,757
    
    
    
    
    
    
    
    23,708,279Balance at December 31,2005
    
    
    (242,805
    )
    
    
    41,661,536
    
    
    
    
    
    
    
    41,418,731Other comprehensive income (loss)
    
    
    (592,598
    )
    
    
    (7,601,764
    )
    
    
    
    
    
    
    (8,194,362
    )Adjustment to initially apply
FASB 158, net of tax
    
    
    
    
    
    
    
    
    
    
    (170,432
    )
    
    
    (170,432
    )Balance at December 31,2006
    
    
    (835,403
    )
    
    
    34,059,772
    
    
    
    (170,432
    )
    
    
    33,053,937Other comprehensive income (loss)
    
    
    (43,470
    )
    
    
    (5,511,035
    )
    
    
    691,695
    
    
    
    (4,862,810
    )Balance at December 31,2007
    
    
    (878,873
    )
    
    
    28,548,737
    
    
    
    521,263
    
    
    
    28,191,127
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##### Table of Contents



As of December 312006
    
    
    2007NT$000
    
    
    NT$000
    
    
    US$000Total stockholders equity, ROC GAAP
    
    
    291,164,871
    
    
    
    236,466,889
    
    
    
    7,291,609Compensation
    
    
    (684,774
    )
    
    
    (512,990
    )
    
    
    (15,818
    )Equity investees
    
    
    21,528
    
    
    
    (498,358
    )
    
    
    (15,367
    )Investments in debt and equity securitiesChange in fair value of investments in
securities
    
    
    
    
    
    
    (139,909
    )
    
    
    (4,314
    )Adjustments due to
change in ownership
of investees
    
    
    353,330
    
    
    
    375,885
    
    
    
    11,591Goodwill amortization and impairment loss
    
    
    37,948,205
    
    
    
    14,187,604
    
    
    
    437,484Treasury stock and related disposal
    
    
    (4,476,369
    )
    
    
    (3,104,443
    )
    
    
    (95,728
    )Pension
    
    
    (164,776
    )
    
    
    527,312
    
    
    
    16,260Total stockholders equity, US GAAP
    
    
    324,162,015
    
    
    
    247,301,990
    
    
    
    7,625,717
  For the year ended December 31,2005
    
    
    2006
    
    
    2007NT$000
    
    
    NT$000
    
    
    NT$000
    
    
    US$000Balance at January 1,
    
    
    342,420,473
    
    
    
    336,424,995
    
    
    
    324,162,015
    
    
    
    9,995,745Compensation
    
    
    2,316,287
    
    
    
    1,096,989
    
    
    
    2,346,111
    
    
    
    72,343Cash dividends
    
    
    (1,758,736
    )
    
    
    (7,161,267
    )
    
    
    (12,461,529
    )
    
    
    (384,259
    )Capital reduction
    
    
    
    
    
    
    
    
    
    
    (53,910,992
    )
    
    
    (1,662,380
    )Adjustment of additional paid-in
capital and retained earnings
accounted for under the equity
method
    
    
    130,720
    
    
    
    (1,171,139
    )
    
    
    198,631
    
    
    
    6,125Cumulative translation adjustment
on foreign long-term investment
    
    
    1,068,522
    
    
    
    (592,598
    )
    
    
    (43,470
    )
    
    
    (1,340
    )Change in fair value of marketable securities
    
    
    22,223,608
    
    
    
    (7,096,919
    )
    
    
    (6,213,532
    )
    
    
    (191,598
    )Treasury stock and related disposal
    
    
    (16,367,645
    )
    
    
    (20,690,009
    )
    
    
    1,570,908
    
    
    
    48,440Exercise of employees stock options
    
    
    1,645,009
    
    
    
    1,725,665
    
    
    
    226,455
    
    
    
    6,983Derivative instruments
    
    
    416,149
    
    
    
    
    
    
    
    
    
    
    
    Pension
    
    
    
    
    
    
    (170,432
    )
    
    
    691,695
    
    
    
    21,329Net Income (loss)
    
    
    (15,669,392
    )
    
    
    21,796,730
    
    
    
    (9,264,302
    )
    
    
    (285,671
    )Balance at the end of the year
    
    
    336,424,995
    
    
    
    324,162,015
    
    
    
    247,301,990
    
    
    
    7,625,717
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##### Table of Contents



As of December 31,2006
    
    2007NT$000
    
    NT$000
    
    US$000Current assets
    
    
    132,448,978
    
    
    
    81,207,177
    
    
    
    2,504,076Non-current assets
    
    
    269,179,425
    
    
    
    229,406,951
    
    
    
    7,073,911Current liabilities
    
    
    36,521,682
    
    
    
    45,934,151
    
    
    
    1,416,409Non-current liabilities
    
    
    34,704,499
    
    
    
    10,860,541
    
    
    
    334,891Minority interests
    
    
    6,240,207
    
    
    
    6,517,446
    
    
    
    200,970
 For the year ended December 31,2005
    
    
    2006
    
    
    2007NT$000
    
    
    NT$000
    
    
    NT$000
    
    
    US$000Net operating revenues
    
    
    96,782,113
    
    
    
    112,003,819
    
    
    
    113,311,298
    
    
    
    3,494,027Cost of goods sold
    
    
    (89,742,865
    )
    
    
    (93,325,956
    )
    
    
    (92,081,440
    )
    
    
    (2,839,391
    )Operating income (loss)
    
    
    (29,071,545
    )
    
    
    2,161,698
    
    
    
    (20,060,578
    )
    
    
    (618,581
    )Net income
    
    
    (15,669,392
    )
    
    
    21,796,730
    
    
    
    (9,264,302
    )
    
    
    (285,671
    )
  As of December 31,2006
    
    
    2007NT$000
    
    NT$000
    
    US$000Cash and Cash Equivalents:As reported under ROC GAAP
    
    
    93,853,208
    
    
    
    47,678,147
    
    
    
    1,470,186Reclassification to marketable securities
    
    
    (32,204,107
    )
    
    
    
    
    
    
    As adjusted under US GAAP
    
    
    61,649,101
    
    
    
    47,678,147
    
    
    
    1,470,186Available-for-sale financial assets, noncurrent:Reported as marketable securities under ROC GAAP
    
    
    52,311,172
    
    
    
    50,911,643
    
    
    
    1,569,893Reclassification to financial assets measured
at cost, noncurrent
    
    
    
    
    
    
    (834,747
    )
    
    
    (25,740
    )Change in fair value of marketable securities
    
    
    
    
    
    
    (700,359
    )
    
    
    (21,596
    )As adjusted under US GAAP
    
    
    52,311,172
    
    
    
    49,376,537
    
    
    
    1,522,557
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##### Table of Contents



As of December 31,2006
    
    
    2007NT$000
    
    
    NT$000
    
    
    NT$000Long-term Investment under cost method, equity method & others:As reported under ROC GAAP
    
    
    19,178,544
    
    
    
    18,853,634
    
    
    
    581,365Reclassification from available for sale
    
    
    
    
    
    
    834,747
    
    
    
    25,740Equity investees
    
    
    (59,094
    )
    
    
    139,175
    
    
    
    4,292Treasury stock and related disposal
    
    
    (4,476,369
    )
    
    
    (3,104,443
    )
    
    
    (95,728
    )As adjusted under US GAAP
    
    
    14,643,081
    
    
    
    16,723,113
    
    
    
    515,669Held-to-maturity financial assets:As reported under ROC GAAP
    
    
    1,110,422
    
    
    
    
    
    
    
    Reclassification from cash and cash equivalents
    
    
    32,204,107
    
    
    
    
    
    
    
    As adjusted under US GAAP
    
    
    33,314,529
    
    
    
    
    
    
    
    Inventory:As reported under ROC GAAP
    
    
    10,878,182
    
    
    
    11,867,832
    
    
    
    365,952Compensation
    
    
    105,426
    
    
    
    95,910
    
    
    
    2,958As adjusted under US GAAP
    
    
    10,983,608
    
    
    
    11,963,742
    
    
    
    368,910Goodwill:As reported under ROC GAAP
    
    
    3,498,687
    
    
    
    3,498,687
    
    
    
    107,884Goodwill upon ownership increase
    
    
    857,674
    
    
    
    880,229
    
    
    
    27,142Goodwill due to merger and acquisition
    
    
    97,898,482
    
    
    
    97,898,482
    
    
    
    3,018,763Accumulated impairment loss on goodwill
    
    
    (60,454,621
    )
    
    
    (84,215,222
    )
    
    
    (2,596,830
    )As adjusted under US GAAP
    
    
    41,800,222
    
    
    
    18,062,176
    
    
    
    556,959Accrued Expenses:As reported under ROC GAAP
    
    
    7,025,328
    
    
    
    8,214,951
    
    
    
    253,313Compensation
    
    
    790,200
    
    
    
    608,900
    
    
    
    18,776As adjusted under US GAAP
    
    
    7,815,528
    
    
    
    8,823,851
    
    
    
    272,089Minority InterestsAs reported under ROC GAAP
    
    
    6,238,018
    
    
    
    6,530,810
    
    
    
    201,382Consolidation of not wholly-owned subsidiaries
    
    
    2,189
    
    
    
    (13,364
    )
    
    
    (412
    )As adjusted under US GAAP
    
    
    6,240,207
    
    
    
    6,517,446
    
    
    
    200,970
 F-88




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##### Table of Contents



For the year ended December 31,2005
    
    
    2006
    
    
    2007NT$000
    
    
    NT$000
    
    
    NT$000
    
    
    US$000Cash flows from operating activities, ROC
GAAP
    
    
    45,046,108
    
    
    
    47,078,351
    
    
    
    48,079,107
    
    
    
    1,482,550Remuneration paid to directors and
supervisors
    
    
    (27,006
    )
    
    
    (6,324
    )
    
    
    (15,494
    )
    
    
    (478
    )Employee bonus
    
    
    
    
    
    
    (305,636
    )
    
    
    (2,324,120
    )
    
    
    (71,666
    )Reclassification of trading securities
    
    
    
    
    
    
    (427,202
    )
    
    
    
    
    
    
    Cash flows from operating activities, US
GAAP
    
    
    45,019,102
    
    
    
    46,339,189
    
    
    
    45,739,493
    
    
    
    1,410,406Cash flows from investing activities, ROC
GAAP
    
    
    (7,487,345
    )
    
    
    (16,510,597
    )
    
    
    (21,799,120
    )
    
    
    (672,190
    )Net effect of time deposits
reclassified to marketable securities
    
    
    1,451,826
    
    
    
    12,914,438
    
    
    
    32,204,107
    
    
    
    993,034Proceeds from disposal of long-term
investments accounted for under the
equity method
    
    
    
    
    
    
    (6,521,580
    )
    
    
    
    
    
    
    Reclassification of trading securities
    
    
    
    
    
    
    427,202
    
    
    
    
    
    
    
    Cash flows from investing activities, US
GAAP
    
    
    (6,035,519
    )
    
    
    (9,690,537
    )
    
    
    10,404,987
    
    
    
    320,844Cash flows from financing activities, ROC
GAAP
    
    
    (29,591,986
    )
    
    
    (45,055,565
    )
    
    
    (72,693,550
    )
    
    
    (2,241,552
    )Remuneration paid to directors and
supervisors
    
    
    27,006
    
    
    
    6,324
    
    
    
    15,494
    
    
    
    478Employee bonus
    
    
    
    
    
    
    305,636
    
    
    
    2,324,120
    
    
    
    71,666Proceeds from disposal of treasury stock
    
    
    
    
    
    
    6,521,580
    
    
    
    
    
    
    
    Cash flows from financing activities, US
GAAP
    
    
    (29,564,980
    )
    
    
    (38,222,025
    )
    
    
    (70,353,936
    )
    
    
    (2,169,408
    )Effect of subsidiaries merged in, ROC GAAP
    
    
    814,408
    
    
    
    (38,539
    )
    
    
    
    
    
    
    Difference of consolidated entities
    
    
    (746,017
    )
    
    
    
    
    
    
    
    
    
    
    Effect of subsidiaries merged in, US GAAP
    
    
    68,391
    
    
    
    (38,539
    )
    
    
    
    
    
    
    Net (decrease) increase in cash and cash
equivalents, ROC GAAP
    
    
    7,244,827
    
    
    
    (14,773,592
    )
    
    
    (46,175,061
    )
    
    
    (1,423,838
    )
 F-89




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##### Table of Contents



For the year ended December 31,2005
    
    
    2006
    
    
    2007NT$000
    
    
    NT$000
    
    
    NT$000
    
    
    US$000Net effect of time deposits
reclassified to marketable securities
    
    
    1,451,826
    
    
    
    12,914,438
    
    
    
    32,204,107
    
    
    
    993,034Difference of consolidated entities
    
    
    (746,017
    )
    
    
    
    
    
    
    
    
    
    
    Net (decrease) increase in cash and cash
equivalents, US GAAP
    
    
    7,950,636
    
    
    
    (1,859,154
    )
    
    
    (13,970,954
    )
    
    
    (430,804
    )Cash and cash equivalents at beginning of
year, US GAAP
    
    
    55,557,619
    
    
    
    63,508,255
    
    
    
    61,649,101
    
    
    
    1,900,990Cash and cash equivalents at end of year,
US GAAP
    
    
    63,508,255
    
    
    
    61,649,101
    
    
    
    47,678,147
    
    
    
    1,470,186
 Concentration of credit risk
  F-90




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##### Table of Contents



Summarized Financial Information required by Rule 4-08(g) of Regulation S-X
  As of December 31,2006
    
    2007NT$
    
    NT$(In millions)Current assets
    
    
    18,231
    
    
    
    13,131Non-current assets
    
    
    24,294
    
    
    
    17,484Current liabilities
    
    
    9,214
    
    
    
    5,416Long-term liabilities
    
    
    1,756
    
    
    
    72Redeemable Preferred Stock
    
    
    170
    
    
    
    175Minority Interests
    
    
    7
    
    
    
    
 For the year ended December 31,2005
    
    
    2006
    
    
    2007NT$
    
    
    NT$
    
    
    NT$(In millions)Net sales
    
    
    16,014
    
    
    
    12,648
    
    
    
    11,936Gross Profit
    
    
    2,343
    
    
    
    5,125
    
    
    
    5,096Income (loss) from
continuing operations
before extraordinary items
and cumulative effect of a
change in accounting
principle
    
    
    (1,067
    )
    
    
    1,468
    
    
    
    1,847Net income (loss)
    
    
    (1,233
    )
    
    
    1,339
    
    
    
    1,655
 F-91




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New Accounting Pronouncements
    F-92




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##### Table of Contents



F-93