6-K 1 d6k.htm FORM 6-K Form 6-K

 

 

1934 Act Registration No. 1-15128

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

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

THE SECURITIES EXCHANGE ACT OF 1934

Dated June 6, 2008

 

 

United Microelectronics Corporation

(Translation of Registrant’s Name into English)

 

 

No. 3 Li Hsin Road II

Science Park

Hsinchu, Taiwan, R.O.C.

(Address of Principal Executive Office)

 

 

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

Form 20-F      ü            Form 40-F              

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

Yes                      No      ü    

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

 

 

 


LOGO    www.umc.com

SIGNATURE

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

 

  United Microelectronics Corporation
Date: 6/6/2008   By  

/s/ Chitung Liu

    Chitung Liu
    Chief Financial Officer


LOGO    www.umc.com

 

Exhibit

 

Exhibit

 

Description

99.1

  United Microelectronics Corporation Financial Statements With Report of Independent Accountants for the Three-Month Periods Ended March 31, 2008 And 2007


LOGO    www.umc.com

 

Exhibit 99.1

United Microelectronics Corporation Financial Statements With Report of Independent Accountants for the Three-Month Periods Ended March 31, 2008 And 2007


UNITED MICROELECTRONICS CORPORATION

FINANCIAL STATEMENTS

WITH REPORT OF INDEPENDENT ACCOUNTANTS

FOR THE THREE-MONTH PERIODS ENDED

MARCH 31, 2008 AND 2007

 

Address:   No. 3 Li-Hsin Road II, Hsinchu Science Park, Hsinchu City, Taiwan, R.O.C.
Telephone:   886-3-578-2258

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

 

1


REVIEW REPORT OF INDEPENDENT ACCOUNTANTS

English Translation of a Report Originally Issued in Chinese

To United Microelectronics Corporation

We have reviewed the accompanying balance sheets of United Microelectronics Corporation (the “Company”) as of March 31, 2008 and 2007, and the related statements of income and cash flows for the three-month periods ended March 31, 2008 and 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to issue the review report based on our reviews. As described in Note 4(8) to the financial statements, certain long-term investments were accounted for under the equity method based on financial statements as of March 31, 2008 and 2007 of the investees, which were reviewed by other auditors. Our review insofar as it relates to the investment (loss) income amounting to NT$(45) million and NT$227 million for the three-month periods ended March 31, 2008 and 2007, respectively, and the related long-term investment balances of NT$4,255 million and NT$5,435 million as of March 31, 2008 and 2007, respectively, is based solely on the reports of the other auditors.

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

Based on our reviews and the reports of the other auditors, we are not aware of any material modifications or adjustments that should have been made to the financial statements referred to above in order for them to be in conformity with 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.

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

April 21, 2008

Taipei, Taiwan

Republic of China

Notice to Readers

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

 

2


English Translation of Financial Statements Originally Issued in Chinese

UNITED MICROELECTRONICS CORPORATION

UNAUDITED BALANCE SHEETS

March 31, 2008 and 2007

(Expressed in Thousands of New Taiwan Dollars)

 

          As of March 31,  
     Notes    2008     2007  
Assets        

Current assets

       

Cash and cash equivalents

   2, 4(1)    $ 29,634,661     $ 80,988,902  

Financial assets at fair value through profit or loss, current

   2, 4(2)      4,295,527       7,553,964  

Held-to-maturity financial assets, current

   2, 4(3)      —         200,000  

Notes receivable

   2      20,241       36,249  

Accounts receivable, net

   2, 4(4)      4,171,579       6,701,411  

Accounts receivable - related parties, net

   2, 5      8,584,934       6,113,205  

Other receivables

   2      357,993       798,635  

Inventories, net

   2, 4(5)      11,087,667       9,957,197  

Prepaid expenses

        664,452       990,721  

Deferred income tax assets, current

   2, 4(21)      1,241,035       2,088,459  
                   

Total current assets

        60,058,089       115,428,743  
                   

Funds and investments

       

Available-for-sale financial assets, noncurrent

   2, 4(6), 4(11)      33,295,218       43,359,493  

Financial assets measured at cost, noncurrent

   2, 4(7)      2,294,595       2,322,636  

Long-term investments accounted for under the equity method

   2, 4(8)      36,264,213       38,935,939  

Prepayment for long-term investments

        —         163,809  
                   

Total funds and investments

        71,854,026       84,781,877  
                   

Property, plant and equipment

   2, 4(9), 7     

Land

        1,132,576       1,132,576  

Buildings

        17,219,348       16,319,736  

Machinery and equipment

        424,527,935       400,298,576  

Transportation equipment

        72,809       74,387  

Furniture and fixtures

        2,911,264       2,469,833  
                   

Total cost

        445,863,932       420,295,108  

Less : Accumulated depreciation

        (336,151,564 )     (302,676,687 )

Add : Construction in progress and prepayments

        10,209,261       28,330,350  
                   

Property, plant and equipment, net

        119,921,629       145,948,771  
                   

Intangible assets

       

Goodwill

   2      3,745,122       3,745,122  
                   

Total intangible assets

        3,745,122       3,745,122  
                   

Other assets

       

Deferred charges

   2      1,304,861       1,545,583  

Deferred income tax assets, noncurrent

   2, 4(21)      3,404,467       3,772,985  

Other assets - others

   2, 4(10), 6      1,890,408       2,023,140  
                   

Total other assets

        6,599,736       7,341,708  
                   

Total assets

      $ 262,178,602     $ 357,246,221  
                   
Liabilities and Stockholders’ Equity        

Current liabilities

       

Short-term loans

   4(12)    $ 456,600     $ —    

Financial liabilities at fair value through profit or loss, current

   2, 3, 4(13)      170,638       1,003,561  

Accounts payable

        4,498,952       4,653,399  

Income tax payable

   2      1,144,791       2,096,472  

Accrued expenses

        6,995,801       6,336,628  

Payable on equipment

        2,858,960       8,912,224  

Current portion of long-term liabilities

   2, 4(14)      10,499,910       17,833,831  

Other current liabilities

   2, 3, 4(19)      297,140       971,865  
                   

Total current liabilities

        26,922,792       41,807,980  
                   

Long-term liabilities

       

Bonds payable

   2, 4(14)      7,495,575       17,993,317  
                   

Total long-term liabilities

        7,495,575       17,993,317  
                   

Other liabilities

       

Accrued pension liabilities

   2, 4(15)      3,188,878       3,107,671  

Deposits-in

        13,380       14,568  

Other liabilities - others

   2      396,744       490,283  
                   

Total other liabilities

        3,599,002       3,612,522  
                   

Total liabilities

        38,017,369       63,413,819  
                   

Capital

   2, 4(16), 4(17)     

Common stock

        132,144,949       191,442,517  

Additional Paid-in Capital

   2, 4(16)     

Premiums

        59,435,560       61,138,863  

Treasury stock transactions

        274       8,938  

Change in equities of long-term investments

        6,714,826       6,632,428  

Retained earnings

   4(16), 4(19)     

Legal reserve

        18,476,942       16,699,508  

Special reserve

        824,922       322,150  

Unappropriate earnings

        12,555,055       19,233,025  

Adjustment items in stockholders’ equity

   2, 4(6)     

Cumulative translation adjustment

        (4,527,769 )     234,304  

Unrealized gain or loss on financial assets

        13,539,721       27,515,333  

Treasury stock

   2, 4(8), 4(16), 4(18)      (15,003,247 )     (29,394,664 )
                   

Total stockholders’ equity

        224,161,233       293,832,402  
                   

Total liabilities and stockholders’ equity

      $ 262,178,602     $ 357,246,221  
                   

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

 

3


English Translation of Financial Statements Originally Issued in Chinese

UNITED MICROELECTRONICS CORPORATION

UNAUDITED STATEMENTS OF INCOME

For the three-month periods ended March 31, 2008 and 2007

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

 

          For the three-month period ended March 31,
     Notes    2008    2007

Operating revenues

   2, 5          

Sales revenues

      $ 23,810,766        $ 22,439,100    

Less : Sales returns and discounts

        (507,820 )        (64,514 )  
                        

Net sales

        23,302,946          22,374,586    

Other operating revenues

        699,965          650,645    
                        

Net operating revenues

        24,002,911          23,025,231    
                        

Operating costs

   2, 3, 4(20)          

Cost of goods sold

        (20,134,261 )        (18,940,565 )  

Other operating costs

        (311,281 )        (428,372 )  
                        

Operating costs

        (20,445,542 )        (19,368,937 )  
                        

Gross profit

        3,557,369          3,656,294    

Unrealized intercompany profit

   2      (66,858 )        (85,883 )  

Realized intercompany profit

   2      85,543          105,892    
                        

Gross profit-net

        3,576,054          3,676,303    
                        

Operating expenses

   2, 3, 4(20)          

Sales and marketing expenses

        (716,099 )        (650,389 )  

General and administrative expenses

        (635,420 )        (677,850 )  

Research and development expenses

   2      (2,034,234 )        (2,329,555 )  
                        

Subtotal

        (3,385,753 )        (3,657,794 )  
                        

Operating income

        190,301          18,509    
                        

Non-operating income

            

Interest revenue

        149,094          352,170    

Investment gain accounted for under the equity method, net

   2, 4(8)      —            696,546    

Gain on disposal of property, plant and equipment

   2      5,842          12,197    

Gain on disposal of investments

   2      652,192          1,624,124    

Exchange gain, net

   2      —            16,543    

Gain on recovery of market value of inventories

   2      51,104          —      

Gain on valuation of financial assets

   2      51,019          —      

Gain on valuation of financial liabilities

   2, 4(13)      140,943          —      

Other income

        135,236          152,723    
                        

Subtotal

        1,185,430          2,854,303    
                        

Non-operating expenses

            

Interest expense

   2, 4(9)      (32,966 )        (92,258 )  

Investment loss accounted for under the equity method, net

   2, 4(8)      (319,298 )        —      

Loss on disposal of property, plant and equipment

   2      (1,700 )        —      

Loss on exchange

   2      (718,088 )        —      

Loss on decline in market value and obsolescence of inventories

   2      —            (398,673 )  

Financial expenses

        (15,115 )        (17,390 )  

Impairment loss

   2, 4(11)      (10,014 )        —      

Loss on valuation of financial assets

   2      —            (587,623 )  

Loss on valuation of financial liabilities

   2      —            (25,373 )  

Other losses

        (17,828 )        (14,169 )  
                        

Subtotal

        (1,115,009 )        (1,135,486 )  
                        

Income from continuing operations before income tax

        260,722          1,737,326    

Income tax expense

   2, 4(21)      (54,894 )        (278,636 )  
                        

Net income

      $ 205,828        $ 1,458,690    
                        
          Pre-tax     Post-tax    Pre-tax     Post-tax

Earnings per share-basic (NTD)

   2, 4(22)          

Net income

      $ 0.02     $ 0.02    $ 0.10     $ 0.08
                                

Earnings per share-diluted (NTD)

   2, 4(22)          

Net income

      $ 0.01     $ 0.01    $ 0.10     $ 0.08
                                

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

   2, 4(22)          

Net income

      $ 205,828        $ 1,458,690    
                        

Earnings per share-basic (NTD)

      $ 0.02        $ 0.08    
                        

Earnings per share-diluted (NTD)

      $ 0.01        $ 0.08    
                        

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

 

4


English Translation of Financial Statements Originally Issued in Chinese

UNITED MICROELECTRONICS CORPORATION

UNAUDITED STATEMENTS OF CASH FLOWS

For the three-month periods ended March 31, 2008 and 2007

(Expressed in Thousands of New Taiwan Dollars)

 

     For the three-month period ended March 31,  
     2008     2007  

Cash flows from operating activities:

    

Net income

   $ 205,828     $ 1,458,690  

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

    

Depreciation

     9,227,891       8,868,624  

Amortization

     377,462       335,061  

Bad debt expenses (reversal)

     1,367       (1,378 )

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

     (51,104 )     398,673  

Cash dividends received under the equity method

     134,924       353,592  

Investment (gain) loss accounted for under the equity method

     319,298       (696,546 )

Loss on valuation of financial assets and liabilities

     (191,962 )     612,996  

Impairment loss

     10,014       —    

Gain on disposal of investments

     (652,192 )     (1,624,124 )

Gain on disposal of property, plant and equipment

     (4,142 )     (12,197 )

Exchange gain on financial assets and liabilities

     (24,705 )     (132 )

Exchange (gain) loss on long-term liabilities

     (177,917 )     255,248  

Amortization of bond discounts

     6,205       22,842  

Amortization of deferred income

     (37,870 )     (36,764 )

Changes in assets and liabilities:

    

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

     537,878       442,313  

Notes and accounts receivable

     680,892       (446,926 )

Other receivables

     50,235       (88,279 )

Inventories

     105,414       (206,049 )

Prepaid expenses

     (190,440 )     (346,966 )

Deferred income tax assets

     (146,494 )     200,578  

Accounts payable

     (215,059 )     620,054  

Accrued expenses

     (467,827 )     249,150  

Other current liabilities

     (57,175 )     16,938  

Capacity deposits

     (4,447 )     (652,400 )

Accrued pension liabilities

     19,078       20,896  
                

Net cash provided by operating activities

     9,455,152       9,743,894  
                

Cash flows from investing activities:

    

Acquisition of available-for-sale financial assets

     —         (152,347 )

Proceeds from disposal of available-for-sale financial assets

     669,304       473,747  

Acquisition of financial assets measured at cost

     —         (37,310 )

Proceeds from disposal of financial assets measured at cost

     —         400  

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

     (12,973 )     (296,800 )

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

     378       155,846  

Proceeds from disposal of held-to-maturity financial assets

     —         776,000  

Prepayment for long-term investments

     —         (163,809 )

Acquisition of property, plant and equipment

     (5,685,140 )     (12,520,849 )

Proceeds from disposal of property, plant and equipment

     5,315       7,099  

Increase in deferred charges

     (340,164 )     (488,652 )

Decrease in other assets - others

     1,258       374  
                

Net cash used in investing activities

     (5,362,022 )     (12,246,301 )
                

 

5


English Translation of Financial Statements Originally Issued in Chinese

UNITED MICROELECTRONICS CORPORATION

UNAUDITED STATEMENTS OF CASH FLOWS

For the three-month periods ended March 31, 2008 and 2007

(Expressed in Thousands of New Taiwan Dollars)

 

     For the three-month period ended March 31,  
     2008     2007  

(continued)

    

Cash flows from financing activities:

    

Increase in short-term loans, net

   $ 455,640     $ —    

Redemption of bonds

     (12,216,623 )     —    

Exercise of employee stock options

     —         187,493  

Increase in deposits-in, net

     (1,726 )     117  
                

Net cash provided by (used in) financing activities

     (11,762,709 )     187,610  
                

Effect of exchange rate changes on cash and cash equivalents

     (148,389 )     (91,103 )
                

Decrease in cash and cash equivalents

     (7,817,968 )     (2,405,900 )

Cash and cash equivalents at beginning of period

     37,452,629       83,394,802  
                

Cash and cash equivalents at end of period

   $ 29,634,661     $ 80,988,902  
                

Supplemental disclosures of cash flow information:

    

Cash paid for interest

   $ —       $ —    
                

Cash paid (refunded) for income tax

   $ (55,732 )   $ 29,128  
                

Investing activities partially paid by cash:

    

Acquisition of property, plant and equipment

   $ 2,527,706     $ 11,331,306  

Add: Payable at beginning of period

     6,016,394       10,101,767  

Less: Payable at end of period

     (2,858,960 )     (8,912,224 )
                

Cash paid for acquisition of property, plant and equipment

   $ 5,685,140     $ 12,520,849  
                

Investing and financing activities not affecting cash flows:

    

Principal amount of exchangeable bonds exchanged by bondholders

   $ —       $ 190,415  

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

     —         (51,878 )

Elimination of related balance sheet accounts

     —         20,921  
                

Recognition of gain on disposal of investments

   $ —       $ 159,458  
                

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

 

6


UNITED MICROELECTRONICS CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

March 31, 2008 and 2007

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

 

1. HISTORY AND ORGANIZATION

United Microelectronics Corporation (the Company) was incorporated in May 1980 and commenced operations in April 1982. The Company is a full service semiconductor wafer foundry, and provides a variety of services to satisfy customer needs. These services include intellectual property, embedded IC design, design verification, mask tooling, wafer fabrication, and testing. The Company’s common shares were publicly listed on the Taiwan Stock Exchange (TSE) in July 1985 and its American Depositary Shares (ADSs) were listed on the New York Stock Exchange (NYSE) in September 2000.

The numbers of employees as of March 31, 2008 and 2007 were 13,571 and 13,415, respectively.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The 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:

Use of Estimates

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

Foreign Currency Transactions

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

 

7


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

Translation of Foreign Currency Financial Statements

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

Cash Equivalents

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

Financial Assets and Financial Liabilities

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

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

 

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

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

 

8


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

 

  b. Held-to-maturity financial assets

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

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

 

  c. Financial assets measured at cost

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

 

  d. Available-for-sale financial assets

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

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

 

9


Allowance for Doubtful Accounts

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

Inventories

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

Long-term Investments Accounted for Under the Equity Method

Long-term investments are recorded at acquisition cost. Investments acquired by 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 at end of period until realized through transactions with third parties. Intercompany gains and losses arising from transactions between the Company and majority-owned (above 50%) subsidiaries are eliminated entirely until realized through transactions with third parties.

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

 

10


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

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

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

Property, plant and equipment are stated at cost. Interest incurred on loans used to finance the construction of property, plant and equipment is capitalized and depreciated accordingly. Maintenance and repairs are charged to expense as incurred. Significant renewals and improvements are treated as capital expenditures and are depreciated over their estimated useful lives. Upon disposal of property, plant and equipment, the 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.

 

11


Depreciation is recognized on a straight-line basis using the estimated economic life of the assets. The estimated economic life of the property, plant and equipment is as follows: buildings – 20 to 55 years; machinery and equipment – 5 years; transportation equipment – 5 years and furniture and fixtures – 5 years.

Intangible Assets

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

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

Deferred Charges

Deferred charges are stated at cost and amortized on a straight-line basis as follows: intellectual property license fees - 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 Bonds

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

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

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

 

12


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

Pension Plan

All regular employees are entitled to a defined benefit pension plan that is managed by an independently administered pension fund committee. Fund assets are deposited under the committee’s name in the Bank of Taiwan and hence, not associated with the Company. Therefore, fund assets are not to be included in the Company’s financial statements. Pension benefits for employees of the Branch 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 for 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 the Company’s pension liability is computed in accordance with ROC SFAS No. 18. Net pension costs of the defined benefit plan are recorded based on an 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. The Company recognizes expenses from the defined contribution pension plan in the period in which the contribution becomes due.

Employee Stock Option Plan

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

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

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

 

13


Treasury Stock

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

Revenue Recognition

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

Allowance for sales returns and discounts are estimated based on history of customer complaints, historical experiences, management judgment and any other known factors that might significantly affect collectability. Such allowances are recorded in the same period in which sales are made.

Research and Development Expenditures

Research and development expenditures are charged to expenses as incurred.

Capital Expenditure versus Operating Expenditure

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

Income Tax

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

 

14


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

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

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

Earnings per Share

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

Asset Impairment

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

 

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

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

 

3. ACCOUNTING CHANGE

Employee Stock Options

Effective January 1, 2008, the Company adopted ROC SFAS No. 39, “Accounting for Share-Based Payment” to account for share-based payments. This change in accounting principles had no effect net income or earnings per share for the three-month period ended March 31, 2008.

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

Effective January 1, 2008, the Company adopted Accounting Research and Development Foundation interpretation No. 96-052 to account for share-based employee bonuses and remunerations paid to directors and supervisors. The adoption resulted in an unfavorable effect to net income in the amount of NT$54 million, thereby reducing earnings per share by NT$0.004 for the three-month period ended March 31, 2008.

 

4. CONTENTS OF SIGNIFICANT ACCOUNTS

 

  (1) CASH AND CASH EQUIVALENTS

 

     As of March 31,
     2008    2007

Cash:

     

Cash on hand

   $ 1,882    $ 1,953

Checking and savings accounts

     1,523,317      1,740,435

Time deposits

     24,060,978      75,224,676
             

Subtotal

     25,586,177      76,967,064
             

Cash equivalents:

     4,048,484      4,021,838
             

Total

   $ 29,634,661    $ 80,988,902
             

 

16


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

 

     As of March 31,

Held for trading

   2008    2007

Listed stocks

   $ 4,180,169    $ 7,190,853

Convertible bonds

     —        363,111

Forward contract

     115,358      —  
             

Total

   $ 4,295,527    $ 7,553,964
             

During the three-month periods ended March 31, 2008 and 2007, net gain (loss) of financial assets at fair value through profit or loss, current, were a net gain of NT$76 million and a net loss of NT$578 million, respectively.

 

  (3) HELD-TO-MATURITY FINANCIAL ASSETS

 

     As of March 31,
     2008    2007

Credit-linked deposits and repackage bonds

   $ —      $ 200,000
             

 

  (4) ACCOUNTS RECEIVABLE, NET

 

     As of March 31,  
     2008     2007  

Accounts receivable

   $ 4,612,321     $ 7,016,629  

Less: Allowance for sales returns and discounts

     (440,127 )     (315,218 )

Less: Allowance for doubtful accounts

     (615 )     —    
                

Net

   $ 4,171,579     $ 6,701,411  
                

 

  (5) INVENTORIES, NET

 

     As of March 31,  
     2008     2007  

Raw materials

   $ 1,125,722     $ 1,069,920  

Supplies and spare parts

     2,034,110       1,768,392  

Work in process

     7,862,830       7,293,416  

Finished goods

     846,216       1,080,850  
                

Total

     11,868,878       11,212,578  

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

     (781,211 )     (1,255,381 )
                

Net

   $ 11,087,667     $ 9,957,197  
                

Inventories were not pledged.

 

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

 

     As of March 31,
     2008    2007

Common stock

   $ 33,166,576    $ 43,359,493

Fund

     128,642      —  
             

Total

   $ 33,295,218    $ 43,359,493
             

During the three-month periods ended March 31, 2008 and 2007, the total unrecognized gain adjustments to stockholders’ equity due to changes in fair value of available-for-sale assets were NT$5,905 million and NT$2,049 million, respectively.

The Company recognized gains of NT$ 645 million and NT$1,080 million due to the disposal of available-for-sale assets during the three-month periods ending March 31, 2008 and 2007, respectively.

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 the HIGHLINK and 3.08 shares of the EPITECH were exchanged for 1 share of EPISTAR CORP. Among which, 5 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.

 

  (7) FINANCIAL ASSETS MEASURED AT COST, NONCURRENT

 

     As of March 31,
     2008    2007

Common stock

   $ 1,494,192    $ 1,495,556

Preferred stock

     467,645      385,080

Funds

     332,758      442,000
             

Total

   $ 2,294,595    $ 2,322,636
             

 

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

 

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

 

     As of March 31,
     2008    2007

Investee Company

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

Listed companies

           

UMC JAPAN

   $ 6,534,364    50.09    $ 6,010,932    50.09

HOLTEK SEMICONDUCTOR INC. (HOLTEK) (Note A)

     —      —        884,521    23.24

ITE TECH. INC. (Note B)

     —      —        359,780    21.62
                   

Subtotal

     6,534,364         7,255,233   
                   

Unlisted companies

           

UMC GROUP (USA)

     1,194,150    100.00      977,029    100.00

UNITED MICROELECTRONICS (EUROPE) B.V.

     294,625    100.00      289,562    100.00

UMC CAPITAL CORP.

     3,672,974    100.00      3,682,961    100.00

UNITED MICROELECTRONICS CORP. (SAMOA)

     11,481    100.00      7,034    100.00

UMCI LTD.

     137    100.00      94    100.00

TLC CAPITAL CO., LTD.

     7,282,994    100.00      7,727,434    100.00

FORTUNE VENTURE CAPITAL CORP. (Note C)

     9,131,035    99.99      10,330,744    99.99

UNITED MICRODISPLAY OPTRONICS CORP. (UMO)

     108,001    85.24      126,674    81.76

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

     127,379    49.99      127,379    49.99

MTIC HOLDINGS PTE LTD

     79,954    49.94      82,153    49.94

MEGA MISSION LIMITED PARTENRSHIP

     1,950,952    45.00      2,355,815    45.00

UNITECH CAPITAL INC.

     799,226    42.00      1,026,305    42.00

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

     3,659,311    36.49      4,550,816    36.49

NEXPOWER TECHNOLOGY CORP.

     770,726    34.55      296,941    37.10

UNIMICRON HOLDING LIMITED

     595,793    33.78      —      —  

XGI TECHNOLOGY INC. (Note E)

     19,461    16.40      47,000    16.48

AMIC TECHNOLOGY CORP. (Note E)

     31,650    11.18      52,765    11.84
                   

Subtotal

     29,729,849         31,680,706   
                   

Total

   $ 36,264,213       $ 38,935,939   
                   

 

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Note A :   As the Company did not have significant influence after decreasing its percentage of ownership in HOLTEK in September 2007, the investee was classified as available-for-sale financial asset.
Note B :   As the Company did not have significant influence after decreasing its percentage of ownership in ITE TECH in August 2007, the investee was classified as available-for-sale financial asset.
Note C :   As of March 31, 2008 and 2007, the cost of the investment was NT$9,251 million and NT$10,503 million, respectively. After deducting the Company’s stock held by the subsidiary (treated as treasury stock by the Company) of NT$120 million and NT$172 million, the residual book values totalled NT$9,131 million and NT$10,331 million as of March 31, 2008 and 2007, respectively.
Note D :   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 March 31, 2008.
Note E :   The equity method was applied for investees, in which the total ownership held by the Company and its subsidiaries is over 20%.

 

  b. Total gain (loss) of investments accounted for under the equity method were a loss of NT$319 million and a gain of NT$697 million for the three-month periods ended March 31, 2008 and 2007, respectively. Investment income amounting to NT$45 million and NT$227 million for the three-month periods ended March 31, 2008 and 2007, respectively, and the related long-term investment balances of NT$4,255 million and NT$5,435 million as of March 31, 2008 and 2007, respectively, were determined based on the investees’ financial statements audited by other auditors.

 

  c. The long-term investments were not pledged.

 

  (9) PROPERTY, PLANT AND EQUIPMENT

 

     As of March 31, 2008
     Cost    Accumulated
Depreciation
    Book Value

Land

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

Buildings

     17,219,348      (6,327,836 )     10,891,512

Machinery and equipment

     424,527,935      (327,601,304 )     96,926,631

Transportation equipment

     72,809      (62,037 )     10,772

Furniture and fixtures

     2,911,264      (2,160,387 )     750,877

Construction in progress and prepayments

     10,209,261      —         10,209,261
                     

Total

   $ 456,073,193    $ (336,151,564 )   $ 119,921,629
                     

 

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     As of March 31, 2007
     Cost    Accumulated
Depreciation
    Book Value

Land

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

Buildings

     16,319,736      (5,584,923 )     10,734,813

Machinery and equipment

     400,298,576      (295,139,002 )     105,159,574

Transportation equipment

     74,387      (55,909 )     18,478

Furniture and fixtures

     2,469,833      (1,896,853 )     572,980

Construction in progress and prepayments

     28,330,350      —         28,330,350
                     

Total

   $ 448,625,458    $ (302,676,687 )   $ 145,948,771
                     

 

  a. Total interest expense before capitalization amounted to NT$46 million and NT$92 million for the three-month periods ended March 31, 2008 and 2007.

Details of capitalized interest are as follows:

 

     As of March 31,
     2008     2007

Machinery and equipment

   $ 10,279     $ —  

Other property, plant and equipment

     3,018       —  
              

Total interest capitalized

   $ 13,297     $ —  
              

Interest rates applied

     0.68%~0.91 %     —  
              

 

  b. Property, plant and equipment were not pledged.

 

  (10) OTHER ASSETS – OTHERS

 

     As of March 31,
     2008    2007

Leased assets

   $ 1,191,301    $ 1,321,594

Deposits-out

     639,804      642,428

Others

     59,303      59,118
             

Total

   $ 1,890,408    $ 2,023,140
             

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

 

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  (11) IMPAIRMENT LOSS

 

     As of March 31,
     2008    2007

Available for sale financial assets, noncurrent

   $ 10,014    $ —  
             

 

  (12) SHORT-TERM LOANS

 

     As of March 31,
     2008     2007

Unsecured bank loans

   $ 456,600     $ —  
              

Interest rates

     2.98%~2.99 %     —  
              

The Company’s unused short-term lines of credits amounted to NT$10,386 million and NT$8,697 million as of March 31, 2008 and 2007, respectively.

 

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

 

     As of March 31,
     2008    2007

Interest rate swaps

   $ 170,638    $ 627,002

Derivatives embedded in exchangeable bonds

     —        376,559
             

Total

   $ 170,638    $ 1,003,561
             

During the three-month periods ended March 31, 2008 and 2007, net gain (loss) from financial liabilities at fair value through profit or loss, current were a net gain of NT$141 million and a net loss of NT$36 million, respectively.

 

  (14) BONDS PAYABLE

 

     As of March 31,  
     2008     2007  

Unsecured domestic bonds payable

   $ 18,000,000     $ 20,250,000  

Convertible bonds payable

     —         12,639,596  

Exchangeable bonds payable

     —         2,988,565  

Less: discounts on bonds payable

     (4,515 )     (51,013 )
                

Total

     17,995,485       35,827,148  

Less: Current portion

     (10,499,910 )     (17,833,831 )
                

Net

   $ 7,495,575     $ 17,993,317  
                

 

22


  a. During the period from April 16 to April 27, 2001, the Company issued five-year and seven-year unsecured bonds totaling NT$15,000 million, each with a face value of NT$7,500 million. The interest is paid annually with stated interest rates of 5.1195% through 5.1850% and 5.2170% through 5.2850%, respectively. The five-year bonds and seven-year bonds are 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. On May 10, 2002, the Company issued zero coupon exchangeable bonds listed on the Euro MTF Market of the Luxembourg stock Exchange (LSE). The terms and conditions of the bonds are as follows:

 

  (a) Issue Amount: US$235 million

 

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

 

  (c) Redemption

 

  i. The Company may redeem the bonds, in whole or in part, after three months of the issuance and prior to the maturity date, at their principal amount if the closing price of the AU Optronics Corp. (AUO) common shares on the TSE, translated into US dollars at the prevailing exchange rate, for a period of 20 consecutive trading days, the last of which occurs not more than 10 days prior to the date upon which notice of such redemption is published, is at least 120% of the exchange price then in effect translated into US dollars at the rate of NTD34.645=USD 1.00.

 

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

 

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

 

  iv. The Company will, at the option of the bondholders, redeem such bonds on February 10, 2005 at its principal amount.

 

  (d) Terms of Exchange

 

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

 

23


  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 NTD44.3 per share, determined on the basis of a fixed exchange rate of NTD34.645=USD1.00. The exchange price will be subject to adjustments upon the occurrence of certain events set out in the indenture.

 

  (e) Exchange of the Bonds

As of March 31, 2007, certain bondholders exercised their rights to exchange their bonds with the total principal amount of US$145 million into AUO shares. Gains arising from the exercise of exchange rights during the three-month period ended March 31, 2007 amounted NT$159 million and were recognized as gains on disposal of investment.

 

  (f) Redemption at maturity date

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

 

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

 

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

 

  (a) Issue Amount: US$381.4 million

 

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

 

24


  (c) Redemption:

 

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

 

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

 

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

 

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

 

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

 

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

 

  (d) Conversion:

 

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

 

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

 

  (e) Redemption at maturity date

At the maturity date of February 15, 2008, the Company had redeemed the bonds at 100%.

 

25


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

 

Bonds repayable in

   Amount

2008 (2nd quarter and thereafter)

   $ 10,500,000

2009

     —  

2010

     7,500,000
      

Total

   $ 18,000,000
      

 

  (15) PENSION PLAN

 

  a. The Labor Pension Act of the R.O.C. (the Act), which adopts a defined contribution plan, became effective on July 1, 2005. Employees subject to the Labor Standards Law, a defined benefit plan, were offered the options to choose to either elect the pension calculation under the Act or continue to be subject to the pension calculation under the Labor Standards Law. Those employees that elected to be subject to the Act will have their seniority achieved under the Labor Standards Law retained upon election of the Act, and the Company will make monthly contributions of no less than 6% of these employees’ monthly wages to the employees’ individual pension accounts. The Company has made monthly contributions based on each individual employee’s salary or wage to employees’ pension accounts beginning July 1, 2005, and totaled NT$102 million and NT$96 million as of March 31, 2008 and 2007, respectively. Pension benefits for employees of the Branch are provided in accordance with the local regulations, and the Company made contributions of NT$28 million and NT$31 million as of March 31, 2008 and 2007, respectively.

 

  b. The defined benefit plan under the Labor Standards Law is disbursed based on the units of service years and the average salary in the last month of the service year. Two units per year are awarded for the first 15 years of services while one unit per year is awarded after the completion of the fifteenth year. The total units shall not exceed 45 units. In accordance to the plan, the Company contributes an amount equivalent to 2% of the employees’ total salaries and wages on a monthly basis to the pension fund deposited at the Bank of Taiwan in the name of an administered pension fund committee. Pension costs amounting to NT$44 million and NT$47 million were recognized for the three-month periods ended March 31, 2008 and 2007, respectively. The corresponding liability balances of the pension fund were NT$1,332 million and NT$1,232 million as of March 31, 2008 and 2007, respectively.

 

26


  (16) CAPITAL STOCK

 

  a. The Company had 26,000 million common shares authorized to be issued, and 19,144 million shares were issued as of March 31, 2007, each at a par value of NT$10.

 

  b. The Company had issued a total of 315 million ADSs, which were traded on the NYSE as of March 31, 2007. The total number of common shares of the Company represented by all issued ADSs was 1,576 million shares as of March 31, 2007. One ADS represents five common shares.

 

  c. Among the employee stock options issued by the Company on October 7, 2002, January 3, 2003 and October 13, 2004, 12 million shares were exercised during the three-month periods ended March 31, 2007. The issuance process through the authority was completed.

 

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

 

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

 

  f. The Company sold 32 million and 65 million shares of treasury stock acquired from the periods of September 30 to November 29, 2005 and May 23 to July13, 2006, respectively, to employees in December 2007. An additional 97 million shares were added to the total amount of shares outstanding.

 

  g. The Company had 26,000 million common shares authorized to be issued, and 13,214 million shares were issued as of March 31, 2008, each at a par value of NT$10.

 

  h. The Company had issued a total of 1,098 million ADSs, which were traded on the NYSE as of March 31, 2008. The total number of common shares of the Company represented by all issued ADSs was 220 million shares as of March 31, 2008. One ADS represents five common shares.

 

27


  (17) EMPLOYEE STOCK OPTIONS

On 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 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 to 1 share of the Company’s common stock. Settlement upon the exercise of the options will be made through the issuance of new shares by the Company. The exercise price of the options was set at the closing price of the Company’s common stock on the date of grant. The contractual life is 6 years and an optionee may exercise the options in accordance with certain schedules as prescribed by the plan starting 2 years from the date of grant. Detailed information relevant to the employee stock options is disclosed as follows:

 

Date of grant

   Total number of
options granted

(in thousands)
   Total number of
options outstanding
(in thousands)
   Exercisable
number of options

(Note)
   Exercise price
(NTD) (Note)

October 7, 2002

   939,000    397,997    277,470    $ 22.52

January 3, 2003

   61,000    41,191    28,717    $ 25.39

November 26, 2003

   57,330    42,257    29,460    $ 35.43

March 23, 2004

   33,330    19,120    13,330    $ 32.85

July 1, 2004

   56,590    40,343    28,126    $ 29.69

October 13, 2004

   20,200    9,901    6,902    $ 25.53

April 29, 2005

   23,460    12,738    8,881    $ 23.52

August 16, 2005

   54,350    35,314    24,619    $ 30.98

September 29, 2005

   51,990    42,043    29,311    $ 28.27

January 4, 2006

   39,290    22,157    15,447    $ 24.36

May 22, 2006

   42,058    31,642    22,060    $ 26.48

August 24, 2006

   28,140    20,540    14,320    $ 25.32

December 13,2007

   500,000    491,578    491,578    $ 18.95

Total

   1,906,738    1,206,821    990,221   

 

  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.

 

28


A summary of the equity-settled share-based payment transactions, and related information for the three-month periods ended March 31, 2008 and 2007 is as follows:

 

  (1)         

 

     For the three-month period ended March 31,
     2008    2007
     Options
(in thousands)
    Shares
available to
option holders

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

(NTD)

Outstanding at beginning of period

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

Granted

     —       —       $ —        —       —       $ —  

Exercised

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

Forfeited

     (80,586 )   (58,611 )   $ 22.40      (8,094 )   (5,642 )   $ 28.24
                                 

Outstanding at end of period

     1,206,821     990,221     $ 22.13      893,946     623,229     $ 24.95
                                 

Exercisable at end of period

     590,097     411,396     $ 24.46      654,015     455,958     $ 23.91
                                 

Weighted-average fair value of options granted during the period

   $ —            $ —        

 

  (2) The information of the equity-settled share-based payment transactions as of March 31, 2008, is as follows:

 

Authorization Date

   Range of
Exercise Price
   Outstanding Stock Options    Exercisable Stock Options
      Options
(in thousands)
   Shares
available to
option holders
(in thousands)
   Weighted-
average
Expected

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

(NTD)

2002.09.11

   $22.52~$25.39    439,188    306,187    0.54    $ 22.79    438,944    306,017    $ 22.79

2003.10.08

   $29.69~$35.43    101,720    70,916    1.95    $ 32.67    91,492    63,785    $ 32.98

2004.09.30

   $23.52~$30.98    99,996    69,713    3.30    $ 28.35    49,694    34,645    $ 28.41

2005.12.22

   $24.36~$26.48    74,339    51,827    4.10    $ 25.53    9,967    6,949    $ 24.36

2007.10.09

   $18.95    491,578    491,578    5.70    $ 18.95    —      —      $ —  
                               
      1,206,821    990,221    3.58    $ 22.13    590,097    411,396    $ 24.46
                               

The Company used the intrinsic value method to recognize compensation costs for its employee stock options issued between January 1, 2004 and December 31, 2007. Compensation costs for the three-month periods ended March 31, 2008 and 2007 were NT$0.

 

29


The Company granted options prior to adopting ROC SFAS No. 39 “Accounting for Share-Based Payment.” The pro forma information using the fair value method on net income and earnings per share is as follows:

 

     For the three-month period ended March 31, 2008  
     Basic earnings per share     Diluted earnings per share  

Net Income

   $ 205,828     $ 75,918  

Earnings per share (NTD)

   $ 0.02     $ 0.01  

Pro forma net loss

   $ (21,451 )   $ (151,361 )

Pro forma loss per share (NTD)

   $ (0.002 )   $ (0.01 )
     For the three-month period ended March 31, 2007  
     Basic earnings per share     Diluted earnings per share  

Net Income

   $ 1,458,690     $ 1,458,690  

Earnings per share (NTD)

   $ 0.08     $ 0.08  

Pro forma net income

   $ 1,343,408     $ 1,343,408  

Pro forma earnings per share (NTD)

   $ 0.08     $ 0.08  

The fair value of the options granted was estimated at the date of grant using the Black-Scholes options pricing model with the following weighted-average assumptions for the three-month period ended March 31, 2008 and 2007 is as follows:

 

     For the three-month period ended March 31,
     2008    2007

Expected dividend yields

   1.37%~1.71%    1.37%~1.64%

Volatility factors of the expected market price

   36.29%~49.10%    39.68%~49.10%

Risk-free interest rate

   1.85%~2.85%    1.85%~2.85%

Weighted-average expected life of the options (year)

   4~5    4~5

 

  (18) TREASURY STOCK

 

  a. The Company bought back its own shares from the open market during the three-month periods ended March 31, 2008 and 2007. Details of the treasury stock transactions are as follows:

For the three-month period ended March 31, 2008

(In thousands of shares)

 

Purpose

   As of
January 1, 2008
   Increase    Decrease    As of
March 31, 2008

For transfer to employees

   355,716    —      —      355,716

For conversion of the convertible bonds into shares

   348,583    —      —      348,583
                   

Total shares

   704,299    —      —      704,299
                   

 

30


For the three-month period ended March 31, 2007

(In thousands of shares)

Purpose

   As of
January 1, 2007
   Increase    Decrease    As of
March 31, 2007

For transfer to employees

   842,067    —      —      842,067

For conversion of the convertible bonds into shares

   500,000    —      —      500,000
                   

Total shares

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

 

  b. According to the Securities and Exchange Law of the R.O.C., the total shares of treasury stock shall not exceed 10% of the Company’s issued stock, and the total purchase amount shall not exceed the sum of the retained earnings, additional paid-in capital – premiums, and realized additional paid-in capital. As such, the maximum number of shares of treasury stock that the Company could hold as of March 31, 2008 and 2007, was 1,321 million and 1,914 million, while the ceiling amount was NT$79,465 million and NT$81,776 million, respectively.

 

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

 

  d. As of March 31, 2008, the Company’s subsidiary, FORTUNE VENTURE CAPITAL CORP., held 15 million shares of the Company’s stock, with a book value of NT$18.70 per share. The closing price on March 31, 2008 was NT$18.70.

As of March 31, 2007, the Company’s subsidiary, FORTUNE VENTURE CAPITAL CORP., held 22 million shares of the Company’s stock, with a book value of NT$19.10 per share. The closing price on March 31, 2007 was NT$19.10.

 

31


  (19) RETAINED EARNINGS AND DIVIDEND POLICIES

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

 

  a. Payment of all taxes and dues;

 

  b. Offset prior years’ operation losses;

 

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

 

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

 

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

 

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

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

During the three-month periods ended March 31, 2008, the amounts of the employee bonuses and remunerations to directors and supervisors were estimated at NT$84 million and NT$1 million, respectively. The board of directors estimated the amount by taking consideration of the Company’s Articles of Incorporation, government regulations and industrial average. Estimated amount of employee bonuses and remunerations to directors and supervisors were charged to current income. If the board modified the estimates significantly in the subsequent periods during the year, the company will recognize the change as an adjustment to current income. Moreover, if the amounts were modified by the shareholders’ meeting of the following year, the adjustment will be regarded as a change of accounting estimate and will be reflected in the statement of income in the following year.

The appropriation of 2007 retained earnings has not yet been approved by the shareholders’ meeting as of the reporting date. Information on the board of directors’ recommendations and shareholders’ approval can be obtained from the “Market Observation Post System” on the Taiwan Stock Exchange website.

 

32


The distribution of retained earnings for the year 2007 was recommended by the board of directors on March 17, 2008, and the distribution of retained earnings for the year 2006 was approved at the shareholders’ meeting held on June 11, 2007. The details of distribution are as follows:

 

     2007
(as recommended by the
board of directors)
   2006
(as approved by the
shareholders’ meeting)

Cash Dividend

   NT$ 0.75 per share    NT$ 0.70 per share

Stock Dividend

     0.08 per share      —  

Employee bonuses – Cash Dividend (NTD thousands)

     286,541      2,324,120

Employee bonuses – Stock Dividend (NTD thousands)

     1,146,166      —  

Directors’ and Supervisors’ remunerations (NTD thousands)

     11,939      15,494

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

 

  (20) OPERATING COSTS AND EXPENSES

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

 

     For the three-month period ended March 31,
     2008    2007
     Operating
costs
   Operating
expenses
   Total    Operating
costs
   Operating
expenses
   Total

Personnel expenses

                 

Salary

   $ 2,139,051    $ 683,673    $ 2,822,724    $ 2,316,212    $ 710,336    $ 3,026,548

Labor and health insurance

     114,709      34,923      149,632      110,472      32,251      142,723

Pension

     131,793      42,386      174,179      133,323      40,611      173,934

Other personnel expenses

     40,637      18,623      59,260      23,641      9,967      33,608

Depreciation

     8,694,670      519,547      9,214,217      8,365,398      489,566      8,854,964

Amortization

     9,387      368,075      377,462      21,932      313,129      335,061

 

33


  (21) INCOME TAX

 

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

 

     For the three-month period ended March 31,  
     2008     2007  

Income tax on pre-tax income at statutory tax rate

   $ 65,180     $ 434,331  

Permanent and temporary differences

     (190,350 )     (498,630 )

Change in investment tax credit

     271,066       3,172,498  

Change in valuation allowance

     (91,485 )     (2,907,621 )

Income basic tax

     483       77,800  

Income tax on interest revenue separately taxed

     —         258  
                

Income tax expense

   $ 54,894     $ 278,636  
                

 

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

 

     As of March 31,  
     2008     2007  
     Amount     Tax effect     Amount     Tax effect  

Deferred income tax assets

        

Investment tax credit

     $ 12,998,801       $ 11,692,460  

Loss carry-forward

   41,208       10,302     $ 3,815,034       953,758  

Pension

   3,182,339       795,585       3,103,952       775,988  

Allowance on sales returns and discounts

   899,513       224,878       491,085       122,771  

Allowance for loss on obsolescence of inventories

   607,412       151,853       637,754       159,439  

Unrealized exchange loss

   642,900       160,725       76,803       19,201  

Others

   976,122       244,031       759,188       189,797  
                    

Total deferred income tax assets

       14,586,175         13,913,414  

Valuation allowance

       (8,486,141 )       (6,203,492 )
                    

Net deferred income tax assets

       6,100,034         7,709,922  
                    

Deferred income tax liabilities

        

Depreciation

   (4,997,061 )     (1,249,266 )     (5,336,716 )     (1,334,179 )

Others

   (821,065 )     (205,266 )     (2,057,198 )     (514,299 )
                    

Total deferred income tax liabilities

       (1,454,532 )       (1,848,478 )
                    

Total net deferred income tax assets

     $ 4,645,502       $ 5,861,444  
                    

Deferred income tax assets – current

       7,412,715       $ 3,478,307  

Deferred income tax liabilities – current

       (205,266 )       (205,498 )

Valuation allowance

       (5,966,414 )       (1,184,350 )
                    

Net

       1,241,035         2,088,459  
                    

 

34


     As of March 31,  
     2008     2007  
     Amount    Tax effect     Amount    Tax effect  

Deferred income tax assets – noncurrent

        7,173,460          10,435,107  

Deferred income tax liabilities – noncurrent

        (1,249,266 )        (1,642,980 )

Valuation allowance

        (2,519,727 )        (5,019,142 )
                      

Net

        3,404,467          3,772,985  
                      

Total net deferred income tax assets

      $ 4,645,502        $ 5,861,444  
                      

 

  c. The Company’s income tax returns for all fiscal years up to 2005 have been assessed and approved by the R.O.C. Tax Authority.

 

  d. The Company was granted several four or five-year income tax exemption periods with respect to income derived from the expansion of operations. The starting date of the exemption period attributable to the expansion in 2002 and 2003 had not yet been decided. The income tax exemption for other periods will expire on December 31, 2012.

 

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

As of March 31, 2008, the Company’s unused investment tax credits were as follows:

 

Expiration Year

   Investment tax credits earned    Balance of unused investment tax
credits

2008

   $ 6,362,394    $ 6,227,287

2009

     2,474,541      2,474,541

2010

     2,189,731      2,189,731

2011

     1,776,865      1,776,865

2012

     330,377      330,377
             

Total

   $ 13,133,908    $ 12,998,801
             

 

  f. Under the rules of the Income Tax Law of the R.O.C., a company with its tax return certified by a certified public accountant can carry forward its net losses as tax credits for the next 5 years. As of March 31, 2008, the Company’s unutilized tax credits arising from the accumulated losses of an entity previously merged were as follows:

 

Expiration Year

   Accumulated losses    Unutilized accumulated losses

2008 (tax credits transferred in from merger with SiSMC)

     2,283      2,283

2009 (tax credits transferred in from merger with SiSMC)

     38,925      38,925
             

Total

   $ 41,208    $ 41,208
             

 

35


  g. The balance of the Company’s imputation credit accounts as of March 31, 2008 and 2007 were NT$413 million and NT$95 million, respectively. The expected creditable ratio for 2007 and the actual creditable ratio for 2006 was 2.18% and 8.64%, respectively.

 

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

 

  (22) EARNINGS PER SHARE

 

  a. There were zero coupon convertible bonds and employee stock options outstanding during the three-month period ended March 31, 2007. Therefore, in consideration of such complex structure, the calculated basic and diluted earnings per share for the three-month periods ended March 31, 2008 and 2007, are disclosed as follows:

 

     For the three-month period ended March 31, 2008
     Amount     Shares
expressed

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

Earning per share-basic (NTD)

            

Income available to common stock shareholders

   $ 260,722     $ 205,828     12,494,810    $ 0.02    $ 0.02
                                

Effect of dilutive equivalent shares

            

Employee stock options

   $ (173,214 )   $ (129,910 )   226,658      
                                

Earning per share-diluted:

            

Income available to common stock shareholders

   $ 87,508     $ 75,918     12,721,468    $ 0.01    $ 0.01
                                

The employee stock options were not dilutive when calculating the diluted earning per share for the three-month period ended March 31, 2008; therefore, they were not included in the diluted earning per share calculation.

 

36


     For the three-month period ended March 31, 2007
     Amount    Shares
expressed in
thousands
   Earnings per share (NTD)
     Income
before
income tax
   Net income       Income
before
income tax
   Net
income

Earning per share-basic (NTD)

              

Income available to common stock shareholders

   $ 1,737,326    $ 1,458,690    17,775,611    $ 0.10    $ 0.08
                              

Effect of dilutive equivalent shares

              

Employee stock options

   $ —      $ —      128,465      
                              

Earning per share-diluted:

              

Income available to common stock shareholders

   $ 1,737,326    $ 1,458,690    17,904,076    $ 0.10    $ 0.08
                              

The convertible bonds payable issued in October 5, 2005 were antidilutive when calculating the diluted earning per share for the three-month period ended March 31, 2007; therefore, they were not included in the diluted earning per share calculation.

 

  b. The following pro forma information presents the Company’s earnings if subsidiaries’ investment in the Company was not treated as treasury stock:

 

(shares expressed in thousands)    For the three-month period ended
March 31, 2008
     Basic    Diluted

Net income

   $ 205,858    $ 75,918
             

Weighted-average of shares outstanding:

     

Beginning balance

     

Weighted-average shares of exercising employee stock options

     12,510,196      12,510,196

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

     —        226,658
             

Ending balance

     12,510,196      12,736,854
             

Earnings per share (NTD)

   $ 0.02    $ 0.01
             

 

37


(shares expressed in thousands)    For the three-month period ended
March 31, 2007
     Basic    Diluted

Net income

   $ 1,458,690    $ 1,458,690
             

Weighted-average of shares outstanding:

     

Beginning balance

     17,789,126      17,789,126

Weighted-average shares of exercising employee stock options

     8,555      8,555

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

     —        128,465
             

Ending balance

     17,797,681      17,926,146
             

Earnings per share (NTD)

   $ 0.08    $ 0.08
             

 

5. RELATED PARTY TRANSACTIONS

 

  (1) Name and Relationship of Related Parties

 

Name of related parties

  

Relationship with the Company

UMC GROUP (USA) (UMC-USA)    Equity Investee
UNITED MICROELECTRONICS (EUROPE) B.V. (UME BV)    Equity Investee
UMC CAPITAL CORP.    Equity Investee
UNITED MICROELECTRONICS CORP. (SAMOA)    Equity Investee
UMCI LTD.    Equity Investee
UMC JAPAN (UMCJ)    Equity Investee
UNITECH CAPITAL INC.    Equity Investee
MEGA MISSION LIMITED PARTNERSHIP    Equity Investee
MTIC HOLDINGS PTE. LTD.    Equity Investee
UNIMICRON HOLDING LIMITED    Equity Investee
FORTUNE VENTURE CAPITAL CORP.    Equity Investee
HSUN CHIEH INVESTMENT CO., LTD.    Equity Investee
UNITED MICRODISPLAY OPTRONICS CORP.    Equity Investee
AMIC TECHNOLOGY CORP. (AMIC)    Equity Investee
PACIFIC VENTURE CAPITAL CO., LTD.    Equity Investee
XGI TECHNOLOGY INC.    Equity Investee
TLC CAPITAL CO., LTD.    Equity Investee
NEXPOWER TECHNOLOGY CORP.    Equity Investee
SILICON INTEGRATED SYSTEMS CORP.    The Company’s director
UNITRUTH INVESTMENT CORP.    Subsidiary’s equity investee
UWAVE TECHNOLOGY CORP.    Subsidiary’s equity investee
UCA TECHNOLOGY INC.    Subsidiary’s equity investee

 

38


Name of related parties

  

Relationship with the Company

SMEDIA TECHNOLOGY CORP.    Subsidiary’s equity investee
CRYSTAL MEDIA INC.    Subsidiary’s equity investee
MOBILE DEVICES INC.    Subsidiary’s equity investee

 

  (2) Significant Related Party Transactions

 

  a. Operating revenues

 

     For the three-month period ended March 31,
     2008    2007
     Amount    Percentage    Amount    Percentage

UMC-USA

   $ 14,099,240    59    $ 10,574,481    46

UME BV

     2,739,063    11      1,469,226    6

Others

     979,542    4      980,090    4
                       

Total

   $ 17,817,845    74    $ 13,023,797    56
                       

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. Notes receivable

 

     As of March 31,
     2008    2007
     Amount    Percentage    Amount    Percentage

AMIC

   $ —      —      $ 1,830    5
                       

 

  c. Accounts receivable, net

 

     As of March 31,
     2008    2007
     Amount     Percentage    Amount     Percentage

UMC-USA

   $ 6,772,020     49    $ 4,537,604     34

UME BV

     1,788,979     13      1,107,322     8

Others

     658,177     5      697,427     5
                         

Total

     9,219,176     67      6,342,353     47
             

Less : Allowance for sales returns and discounts

     (631,238 )        (228,530 )  

Less : Allowance for doubtful accounts

     (3,004 )        (618 )  
                     

Net

   $ 8,584,934        $ 6,113,205    
                     

 

39


6. ASSETS PLEDGED AS COLLATERAL

As of March 31, 2008

 

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

Deposit-out

   $ 619,619    Customs    Customs duty
            

(Time deposit)

         guarantee

As of March 31, 2007

 

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

Deposit-out

   $ 620,996    Customs    Customs duty
            

(Time deposit)

         guarantee

 

7. COMMITMENTS AND CONTINGENT LIABILITIES

 

  (1) The Company has entered into several patent license agreements and development contracts of intellectual property for a total contract amount of approximately NT$8.5 billion. Royalties and development fees payable in future years are NT$3.5 billion as of March 31, 2008.

 

  (2) The Company signed several construction contracts for the expansion of its factory space. As of March 31, 2008, these construction contracts have amounted to approximately NT$3 billion and the unpaid portion of the contracts, which was not accrued, was approximately NT$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,

   Amount

2008 (2nd quarter and thereafter)

   $ 160,464

2009

     214,025

2010

     214,417

2011

     214,824

2012

     215,248

2013 and thereafter

     1,819,870
      

Total

   $ 2,838,848
      

 

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

 

40


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

Immediately after the Company had received such offer, it filed an application with the Investment Commission of the Ministry of Economic Affairs on March 18, 2005 (Ref. No. 94-Lian-Tung-Tzu-0222), for their executive guidance for the successful transfer of said shares to the Company. The shareholders meeting dated June 13, 2005 resolved that to the extent permitted by law the Company shall try to get the 15% of the outstanding shares offered by the holding company of Hejian as an asset of the Company. The holding company of Hejian offered 106 million shares of its outstanding common shares in return for the Company’s assistance. The holding company of Hejian has put all such shares in escrow. The Company was informed of such escrow on August 4, 2006. The subscription price per share of the holding company of Hejian in the last offering was US$1.1. Therefore, the total market value of the said shares is worth more than US$110 million. However, the Company may not acquire the ownership of nor exercise the rights of the said shares with any potential stock dividend or cash dividend distributed in the future until the ROC laws and regulations allow the Company to acquire and exercise. In the event that any stock dividend or cash dividend is distributed, the Company’s stake in the holding company of Hejian will accumulate accordingly.

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

 

41


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

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

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

 

8. SIGNIFICANT DISASTER LOSS

None.

 

9. SIGNIFICANT SUBSEQUENT EVENT

None.

 

10. OTHERS

 

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

 

42


  (2) Financial risk management objectives and policies

The Company’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 Company’s operations. The Company also holds various other financial assets and liabilities such as accounts receivable and accounts payable, which arise directly from its operations.

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

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

Cash flow interest rate risk

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

Foreign currency risk

The Company has foreign currency risk arising from purchases or sales. The Company 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, the Company does not carry out any forward contracts for uncertain commitments.

Commodity price risk

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

Credit risk

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

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

 

43


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

Liquidity risk

The Company’s objective is to maintain a balance of funding continuity and flexibility through the use of financial instruments such as cash and cash equivalents, bank loans and bonds.

 

  (3) Information of financial instruments

 

  a. Fair value of financial instruments

 

     As of March 31,
     2008    2007

Financial Assets

   Book Value    Fair Value    Book Value    Fair Value

Non-derivative

           

Cash and cash equivalents

   $ 29,634,661    $ 29,634,661    $ 80,988,902    $ 80,988,902

Financial assets at fair value through profit or loss, current

     4,180,169      4,180,169      7,553,964      7,553,964

Held-to-maturity financial assets, current

     —        —        200,000      200,000

Notes and accounts receivable

     13,134,747      13,134,747      13,649,500      13,649,500

Available-for-sale financial assets, noncurrent

     33,295,218      33,295,218      43,359,493      43,359,493

Financial assets measured at cost, noncurrent

     2,294,595      —        2,322,636      —  

Long-term investments accounted for under the equity method

     36,264,213      31,109,765      38,935,939      39,857,068

Prepayment for long-term investments

     —        —        163,809      —  

Deposits-out

     639,804      639,804      642,428      642,428

Derivative

           

Forward contract

   $ 115,358    $ 115,358    $ —      $ —  

 

44


     As of March 31,
     2008    2007

Financial Liability

   Book Value    Fair Value    Book Value    Fair Value

Non-derivative

           

Short-term loans

   $ 456,600    $ 456,600    $ —      $ —  

Payables

     15,498,504      15,498,504    $ 21,998,723    $ 21,998,723

Capacity deposits (current portion)

     —        —        249,785      249,785

Bonds payable (current portion included)

     17,995,485      17,503,005      35,827,148      36,084,559

Derivative

           

Interest rate swaps

   $ 170,638    $ 170,638    $ 627,002    $ 627,002

Derivatives embedded in exchangeable bonds

     —        —        376,559      376,559

 

  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 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.

 

45


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

 

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

 

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

 

     Active Market Quotation    Valuation Technique

Non-derivative Financial Instruments

   2008.03.31    2007.03.31    2008.03.31    2007.03.31

Financial assets

           

Financial assets at fair value through profit or loss, current

   $ 4,180,169    $ 7,553,964    $ —      $ —  

Available-for-sale financial assets, noncurrent

     32,863,763      43,359,493      431,455      —  

Long-term investments accounted for under the equity method

     1,057,757      7,718,032      30,052,008      32,139,036

Financial liabilities

           

Short-term loans

     —        —        456,600      —  

Bonds payable (current portion included)

     17,503,005      36,084,559      —        —  

Derivative Financial Instruments

           

Financial assets

           

Forward contract

   $ —      $ —      $ 115,358    $ —  

Financial liabilities

           

Interest rate swaps

     —        —        170,638      627,002

Derivatives embedded in exchangeable bonds

     —        —        —        376,559

 

  d. The Company recognized gains and losses in NT$813 million and NT$36 million from financial liabilities at fair value through profit or loss for the three-month periods ended March 31, 2008 and 2007, respectively.

 

46


  e. The Company’s financial liabilities with cash flow interest rate risk exposure were NT$171 million and NT$627 million as of March 31, 2008 and 2007, respectively.

 

  f. During the three-month periods ended March 31, 2008 and 2007, total interest revenues for financial assets or liabilities that are not at fair value through profit or loss were NT$149 million and NT$352 million, respective, while interest expenses for the three-month periods ended March 31, 2008 and 2007 were NT$46 million and NT$92 million, respectively.

 

  (4) During the three-month period ended March 31, 2008, 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 March 31, 2008

The Company did not hold any credit-linked deposits or repackage bonds as of March 31, 2008.

As of March 31, 2007

 

Credit-linked deposits and repackage bonds referenced to

   Amount    Due Date

ADVANCED SEMICONDUCTOR ENGINEERING INC. European Convertible Bonds and Loans

   NTD    200 million    2007.09.25

 

  b. Credit risk

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

 

  c. Liquidity risk

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

 

  d. Market risk

There is no market risk for the above investments except for the fluctuations in the exchange rates of US Dollars and Japanese Yen to NT Dollars at the balance sheet date and the settlement date.

 

47


  (5) The Company entered into interest rate swap and forward contracts for hedging the interest rate risk arising from the counter-floating rate of its domestic bonds and for hedging the exchange rate risk arising from the net assets or liabilities denominated in foreign currency. The company entered into these derivative financial instruments in connection with its hedging strategy to reduce the market risk of the hedged items and these financial instruments were not held for trading purpose. 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 risks on the counter-floating rate of its unsecured domestic bonds issued during the period from May 21 to June 24, 2003. The terms of the interest rate swap agreements are the same as those of the domestic bonds, which are five and seven years. The floating rate is reset annually. The details of interest rate swap agreements are summarized as follows:

As of March 31, 2008 and 2007, the Company had the following interest rate swap agreements in effect:

 

Notional Amount

   Contract Period    Interest Rate Received    Interest Rate Paid

NT$7,500 million

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

12-Month LIBOR

   1.52%

NT$7,500 million

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

12-Month LIBOR

   1.48%

 

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

Mar 31, 2008

 

Type

   Notional Amount    Contract Period

Forward contracts

   Sell US$  348 million    Feb 21, 2008 to May 6, 2008

The Company did not hold any forward contracts as of Mar 31, 2007.

 

  c. Transaction risk

 

  (a) Credit risk

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

 

48


  (b) Liquidity and cash flow risk

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

 

  (c) Market risk

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

 

  d. The presentation of derivative financial instruments on the financial statements

As of March 31, 2008 and 2007, the Company’s interest rate swap agreements were classified as current liabilities amounting to NT$171 million and NT$627 million, respectively. The related valuation gain of NT$148 million and loss of NT$772 million was recorded under non-operating revenue and loss for the three-month period ended March 31, 2008 and 2007, respectively.

As of March 31, 2008, the forward contracts that were classified as current liabilities amounted to the NT$115 million and the related valuation gain of NT$665 million was recorded under non-operating revenue for the three-month period ended March 31, 2008.

 

11. ADDITIONAL DISCLOSURES

 

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

 

  a. Financing provided to others for the three-month period ended March 31, 2008: please refer to Attachment 1.

 

  b. Endorsement/Guarantee provided to others for the three-month period ended March 31, 2008: please refer to Attachment 2.

 

  c. Securities held as of March 31, 2008: please refer to Attachment 3.

 

  d. Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT$100 million or 20 percent of the capital stock for the three-month period ended March 31, 2008: please refer to Attachment 4.

 

49


  e. Acquisition of individual real estate with amount exceeding the lower of NT$100 million or 20 percent of the capital stock for the three-month period ended March 31, 2008: please refer to Attachment 5.

 

  f. Disposal of individual real estate with amount exceeding the lower of NT$100 million or 20 percent of the capital stock for the three-month period ended March 31, 2008: please refer to Attachment 6.

 

  g. Related party transactions for purchases and sales amounts exceeding the lower of NT$100 million or 20 percent of the capital stock for the three-month period ended March 31, 2008: please refer to Attachment 7.

 

  h. Receivables from related parties with amounts exceeding the lower of NT$100 million or 20 percent of the capital stock as of March 31, 2008: please refer to Attachment 8.

 

  i. Names, locations and related information of investees as of March 31, 2008: please refer to Attachment 9.

 

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

 

  (2) Investment in Mainland China

 

  a. Investee company name, main businesses and products, total amount of capital, method of investment, accumulated inflow and outflow of investments from Taiwan, percentage of ownership, investment income (loss), book value of investments, cumulated inward remittance of earnings and limits on investment in Mainland China: please refer to Attachment 10.

 

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

 

50


ATTACHMENT 1 (Financing provided to others for the three-month period ended March 31, 2008)

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

 

                                            Collateral         

No.

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

None

                            

 

51


ATTACHMENT 2 (Endorsement/Guarantee provided to others for the three-month period ended March 31, 2008)

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

 

No.

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

None

                 

 

52


ATTACHMENT 3 (Securities held as of March 31, 2008)

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

UNITED MICROELECTRONICS CORPORATION

 

Type of
securities

  

Name of securities

  

Relationship

  

Financial statement
account

   March 31, 2008    Shares as
collateral
(thousand)
            Units
(thousand)/
bonds/
shares
(thousand)
   Book value    Percentage
of
ownership
(%)
   Market
value/ Net
assets value
  
Stock    PROMOS TECHNOLOGIES INC.    -    Financial assets at fair value through profit or loss, current    471,400    $ 3,502,502    7.03    $ 3,502,502    None
Stock    ACTION ELECTRONICS CO., LTD.    -    Financial assets at fair value through profit or loss, current    16,270      204,187    4.59      204,187    None
Stock    MICRONAS SEMICONDUCTOR HOLDING AG    -    Financial assets at fair value through profit or loss, current    280      82,101    0.94      82,101    None
Stock    CHINA DEVELOPMENT FINANCIAL HOLDING CORP.    -    Financial assets at fair value through profit or loss, current    22,344      312,820    0.20      312,820    None
Stock    YANG MING MARINE TRANSPORT CORP.    -    Financial assets at fair value through profit or loss, current    3,280      78,559    0.14      78,559    None
Stock    UMC GROUP (USA)    Investee company    Long-term investments accounted for under the equity method    16,438      1,194,150    100.00      1,194,150    None
Stock    UNITED MICROELECTRONICS (EUROPE) B.V.    Investee company    Long-term investments accounted for under the equity method    9      294,625    100.00      287,010    None
Stock    UMC CAPITAL CORP.    Investee company    Long-term investments accounted for under the equity method    124,000      3,672,974    100.00      3,672,974    None
Stock    UNITED MICROELECTRONICS CORP. (SAMOA)    Investee company    Long-term investments accounted for under the equity method    680      11,481    100.00      11,481    None
Stock    UMCI LTD.    Investee company    Long-term investments accounted for under the equity method    880,006      137    100.00      137    None
Stock    TLC CAPITAL CO., LTD.    Investee company    Long-term investments accounted for under the equity method    628,800      7,282,994    100.00      7,282,994    None
Stock    FORTUNE VENTURE CAPITAL CORP.    Investee company    Long-term investments accounted for under the equity method    499,994      9,131,035    99.99      9,566,618    None
Stock    UNITED MICRODISPLAY OPTRONICS CORP.    Investee company    Long-term investments accounted for under the equity method    84,093      108,001    85.24      108,001    None
Stock    UMC JAPAN    Investee company    Long-term investments accounted for under the equity method    496      6,534,364    50.09      1,057,757    None
Stock    PACIFIC VENTURE CAPITAL CO., LTD.    Investee company    Long-term investments accounted for under the equity method    30,000      127,379    49.99      132,913    None
Stock    MTIC HOLDINGS PTE LTD.    Investee company    Long-term investments accounted for under the equity method    4,000      79,954    49.94      79,954    None
Fund    MEGA MISSION LIMITED PARTNERSHIP    Investee company    Long-term investments accounted for under the equity method    —        1,950,952    45.00      1,950,952    None
Stock    UNITECH CAPITAL INC.    Investee company    Long-term investments accounted for under the equity method    21,000      799,226    42.00      799,226    None
Stock    HSUN CHIEH INVESTMENT CO., LTD.    Investee company    Long-term investments accounted for under the equity method    33,624      3,659,311    36.49      3,517,004    None

 

53


ATTACHMENT 3 (Securities held as of March 31, 2008)

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

UNITED MICROELECTRONICS CORPORATION

 

Type of
securities

  

Name of securities

  

Relationship

  

Financial statement
account

   March 31, 2008    Shares as
collateral
(thousand)
            Units
(thousand)/
bonds/
shares
(thousand)
   Book value    Percentage
of
ownership
(%)
   Market
value/ Net
assets value
  
Stock    NEXPOWER TECHNOLOGY CORP.    Investee company    Long-term investments accounted for under the equity method    44,912    $ 770,726    34.55    $ 774,649    None
Stock    UNIMICRON HOLDING LIMITED    Investee company    Long-term investments accounted for under the equity method    20,000      595,793    33.78      598,177    None
Stock    XGI TECHNOLOGY INC.    Investee company    Long-term investments accounted for under the equity method    5,868      19,461    16.40      19,461    None
Stock    AMIC TECHNOLOGY CORP.    Investee company    Long-term investments accounted for under the equity method    15,550      31,650    11.18      56,307    None
Stock    ITE TECH. INC.    -    Available-for-sale financial assets, noncurrent    22,279      2,076,437    19.73      2,076,437    None
Stock    UNIMICRON TECHNOLOGY CORP.    -    Available-for-sale financial assets, noncurrent    206,414      8,669,383    19.53      8,669,383    None
Stock    HOLTEK SEMICONDUCTOR INC.    -    Available-for-sale financial assets, noncurrent    41,086      1,881,750    18.85      1,881,750    None
Stock    UNITED FU SHEN CHEN TECHNOLOGY CORP.    -    Available-for-sale financial assets, noncurrent    18,460      134,759    16.60      134,759    None
Stock    FARADAY TECHNOLOGY CORP.    -    Available-for-sale financial assets, noncurrent    56,714      3,675,092    16.46      3,675,092    None
Stock    SILICON INTEGRATED SYSTEMS CORP.    The Company’s director    Available-for-sale financial assets, noncurrent    228,956      2,197,976    16.24      2,197,976    None
Stock    NOVATEK MICROELECTRONICS CORP.    -    Available-for-sale financial assets, noncurrent    61,274      6,801,400    11.32      6,801,400    None
Stock    C-COM CORP.    -    Available-for-sale financial assets, noncurrent    1,838      31,247    4.37      31,247    None
Stock    SPRINGSOFT, INC.    -    Available-for-sale financial assets, noncurrent    8,572      339,030    4.16      339,030    None
Stock    CHIPBOND TECHNOLOGY CORP.    -    Available-for-sale financial assets, noncurrent    12,584      403,935    4.05      403,935    None
Stock    EPISTAR CORP.    -    Available-for-sale financial assets, noncurrent    21,005      1,778,008    3.39      1,778,008    None
Stock    KING YUAN ELECTRONICS CO., LTD.    -    Available-for-sale financial assets, noncurrent    38,505      604,532    3.17      604,532    None
Stock    BILLIONTON SYSTEMS INC.    -    Available-for-sale financial assets, noncurrent    2,048      14,662    2.63      14,662    None
Stock    TOPOINT TECHNOLOGY CO., LTD.    -    Available-for-sale financial assets, noncurrent    929      56,590    0.97      56,590    None
Stock    MEGA FINANCIAL HOLDING COMPANY    -    Available-for-sale financial assets, noncurrent    95,577      2,279,507    0.86      2,279,507    None
Stock    MEDIATEK INC.    -    Available-for-sale financial assets, noncurrent    5,004      2,001,609    0.48      2,001,609    None

 

54


ATTACHMENT 3 (Securities held as of March 31, 2008)

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

UNITED MICROELECTRONICS CORPORATION

 

Type of
securities

  

Name of securities

  

Relationship

  

Financial statement
account

   March 31, 2008    Shares as
collateral
(thousand)
            Units
(thousand)/
bonds/
shares
(thousand)
   Book value    Percentage
of
ownership
(%)
   Market
value/ Net
assets value
  
Stock    HON HAI PRECISION INDUSTRY CO., LTD.    -    Available-for-sale financial assets, noncurrent    1,268    $ 220,659    0.02    $ 220,659    None
Fund    VIETNAM INFRASTRUCTURE LTD.    -    Available-for-sale financial assets, noncurrent    5,000      128,642    —        128,642    None
Stock    PIXTECH, INC.    -    Financial assets measured at cost, noncurrent    9,883      —      17.63      Note    None
Stock    UNITED INDUSTRIAL GASES CO., LTD.    -    Financial assets measured at cost, noncurrent    13,185      146,250    7.66      Note    None
Stock    INDUSTRIAL BANK OF TAIWAN CORP.    -    Financial assets measured at cost, noncurrent    118,303      1,139,196    4.95      Note    None
Stock    SUBTRON TECHNOLOGY CO., LTD.    -    Financial assets measured at cost, noncurrent    13,774      208,746    4.29      Note    None
Stock    TECO NANOTECH CO. LTD.    -    Financial assets measured at cost, noncurrent    9,001      —      3.73      Note    None
Stock    SINO SWEARINGEN AIRCRAFT CORP.    -    Financial assets measured at cost, noncurrent    1,124      —      1.50      Note    None
Stock    TAIWAN AEROSPACE CORP.    -    Financial assets measured at cost, noncurrent    234      —      0.17      Note    None
Fund    PACIFIC TECHNOLOGY PARTNERS, L.P.    -    Financial assets measured at cost, noncurrent    —        188,179    —        N/A    None
Fund    PACIFIC UNITED TECHNOLOGY, L.P.    -    Financial assets measured at cost, noncurrent    —        144,579    —        N/A    None
Stock-Preferred stock    TAIWAN HIGH SPEED RAIL CORP.    -    Financial assets measured at cost, noncurrent    30,000      300,000    —        N/A    None
Stock-Preferred stock    MTIC HOLDINGS PTE LTD.    -    Financial assets measured at cost, noncurrent    4,000      85,080    —        N/A    None
Stock-Preferred stock    TONBU, INC.    -    Financial assets measured at cost, noncurrent    938      —      —        N/A    None
Stock-Preferred stock    AETAS TECHNOLOGY INC.    -    Financial assets measured at cost, noncurrent    781      82,565    —        N/A    None

 

55


ATTACHMENT 3 (Securities held as of March 31, 2008)

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

FORTUNE VENTURE CAPITAL CORP.

 

Type of
securities

  

Name of securities

  

Relationship

  

Financial statement
account

   March 31, 2008    Shares as
collateral
(thousand)
            Units
(thousand)/
bonds/
shares
(thousand)
   Book value    Percentage
of
ownership
(%)
   Market
value/ Net
assets value
  
Stock    UNITRUTH INVESTMENT CORP.    Investee company    Long-term investments accounted for under the equity method    80,000    $ 1,002,384    100.00    $ 1,002,384    None
Stock    UWAVE TECHNOLOGY CORP.    Investee company    Long-term investments accounted for under the equity method    10,186      —      44.29      —      None
Stock    ANOTO TAIWAN CORP.    Investee company    Long-term investments accounted for under the equity method    3,920      21,958    39.20      21,958    None
Stock-Preferred stock    AEVOE INTERNATIONAL LTD.    Investee company    Long-term investments accounted for under the equity method    3,155      12,870    38.62      12,870    None
Stock    WALTOP INTERNATIONAL CORP.    Investee company    Long-term investments accounted for under the equity method    6,000      118,927    26.09      67,915    None
Stock    CRYSTAL MEDIA INC.    Investee company    Long-term investments accounted for under the equity method    4,493      32,110    24.29      32,110    None
Stock    ALLIANCE OPTOTEK CORP.    Investee company    Long-term investments accounted for under the equity method    5,789      52,601    20.24      45,164    None
Stock    SMEDIA TECHNOLOGY CORP.    Investee company    Long-term investments accounted for under the equity method    9,045      37,977    18.99      36,412    None
Stock    HIGH POWER LIGHTING CORP.    Investee company    Long-term investments accounted for under the equity method    4,525      34,572    18.10      25,340    None
Stock    MOBILE DEVICES INC.    Investee company    Long-term investments accounted for under the equity method    6,853      39,396    17.23      35,763    None
Stock    AMIC TECHNOLOGY CORP.    Investee of UMC and Fortune    Long-term investments accounted for under the equity method    20,528      74,131    14.72      74,131    None
Stock    XGI TECHNOLOGY INC.    Investee of UMC and Fortune    Long-term investments accounted for under the equity method    4,208      10,137    11.79      13,892    None
Stock    DAVICOM SEMICONDUCTOR, INC.    -    Available-for-sale financial assets, noncurrent    12,217      763,564    15.37      763,564    None
Stock    PIXART IMAGING INC.    -    Available-for-sale financial assets, noncurrent    14,188      3,164,011    12.12      3,164,011    None
Stock    TOPOINT TECHNOLOGY CO., LTD.    -    Available-for-sale financial assets, noncurrent    1,691      102,985    1.77      102,985    None
Stock    EPISTAR CORP.    -    Available-for-sale financial assets, noncurrent    4,731      402,608    0.77      402,608    None
Stock    POWERTECH INDUSTRIAL CO., LTD.    -    Available-for-sale financial assets, noncurrent    595      27,801    0.56      27,801    None
Stock    C SUN MFG LTD.    -    Available-for-sale financial assets, noncurrent    238      4,338    0.18      4,338    None
Stock    UNITED MICROELECTRONICS CORP.    Investor company    Available-for-sale financial assets, noncurrent    15,386      287,725    0.12      287,725    None

 

56


ATTACHMENT 3 (Securities held as of March 31, 2008)

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

FORTUNE VENTURE CAPITAL CORP.

 

Type of
securities

  

Name of securities

  

Relationship

  

Financial statement account

   March 31, 2008    Shares as
collateral
(thousand)
            Units
(thousand)/
bonds/
shares
(thousand)
   Book
value
   Percentage
of
ownership
(%)
   Market
value/ Net
assets value
  
Stock    ASROCK INC.    -    Available-for-sale financial assets, noncurrent    49    $ 6,639    0.05    $ 6,639    None
Convertible bonds    HARVATEK CORP.    -    Financial assets at fair value through profit or loss, noncurrent    142      14,839    —        14,839    None
Stock    CLIENTRON CORP. (formerly BCOM ELECTRONICS INC.)    -    Financial assets measured at cost, noncurrent    17,675      176,797    19.64      Note    None
Stock    STAR SEMICONDUCTOR CORP.    -    Financial assets measured at cost, noncurrent    3,837      35,174    18.47      Note    None
Stock    KUN YUAN TECHNOLOGY CO., LTD.    -    Financial assets measured at cost, noncurrent    9,409      94,095    16.22      Note    None
Stock    USBEST TECHNOLOGY INC.    -    Financial assets measured at cost, noncurrent    7,347      95,303    15.63      Note    None
Stock    AWISE FIBER TECH.CO.,LTD.    -    Financial assets measured at cost, noncurrent    1,200      15,192    11.42      Note    None
Stock    CION TECHNOLOGY CORP.    -    Financial assets measured at cost, noncurrent    2,268      10,583    11.08      Note    None
Stock    VASTVIEW TECHNOLOGY INC.    -    Financial assets measured at cost, noncurrent    3,864      11,458    11.04      Note    None
Stock    UWIZ TECHNOLOGY CO., LTD.    -    Financial assets measured at cost, noncurrent    4,530      50,553    10.79      Note    None
Stock    GOLDEN TECHNOLOGY VENTURE CAPITAL INVESTMENT CORP.    -    Financial assets measured at cost, noncurrent    4,234      41,216    10.67      Note    None
Stock    AMOD TECHNOLOGY CO., LTD.    -    Financial assets measured at cost, noncurrent    1,060      10,421    10.60      Note    None
Stock    EXOJET TECHNOLOGY CORP.    -    Financial assets measured at cost, noncurrent    2,300      23,000    10.57      Note    None
Stock    EVERGLORY RESOURCE TECHNOLOGY CO., LTD.    -    Financial assets measured at cost, noncurrent    2,500      21,875    10.23      Note    None
Stock    CHIP ADVANCED TECHNOLOGY INC.    -    Financial assets measured at cost, noncurrent    3,140      22,886    10.18      Note    None
Stock    NCTU SPRING I TECHNOLOGY VENTURE CAPITAL INVESTMENT CORP.    -    Financial assets measured at cost, noncurrent    4,284      27,160    10.06      Note    None
Stock    ADVANCE MATERIALS CORP.    -    Financial assets measured at cost, noncurrent    11,452      109,898    9.94      Note    None
Stock    LIGHTUNING TECH. INC.    -    Financial assets measured at cost, noncurrent    2,660      16,663    9.93      Note    None
Stock    YAYATECH CO., LTD.    -    Financial assets measured at cost, noncurrent    1,396      42,180    9.77      Note    None

 

57


ATTACHMENT 3 (Securities held as of March 31, 2008)

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

FORTUNE VENTURE CAPITAL CORP.

 

Type of
securities

  

Name of securities

  

Relationship

  

Financial statement account

   March 31, 2008    Shares as
collateral
(thousand)
            Units
(thousand)/
bonds/
shares
(thousand)
   Book
value
   Percentage
of
ownership
(%)
   Market
value/ Net
assets value
  
Stock    CHANG-YU TECHNOLOGY CO., LTD.    -    Financial assets measured at cost, noncurrent    2,153    $ 54,325    9.43    Note    None
Stock    COTECH, INC.    -    Financial assets measured at cost, noncurrent    750      30,289    9.38    Note    None
Stock    ALLEN PRECISION INDUSTRIES CO., LTD.    -    Financial assets measured at cost, noncurrent    3,000      38,400    9.32    Note    None
Stock    EXCELLENCE OPTOELECTRONICS INC.    -    Financial assets measured at cost, noncurrent    8,529      85,291    9.09    Note    None
Stock    BCOM ELECTRONICS INC.    -    Financial assets measured at cost, noncurrent    3,600      43,200    9.00    Note    None
Stock    HITOP COMMUNICATIONS CORP.    -    Financial assets measured at cost, noncurrent    752      15,673    8.08    Note    None
Stock    ANDES TECHNOLOGY CORP.    -    Financial assets measured at cost, noncurrent    5,000      62,500    7.94    Note    None
Stock    CHINGIS TECHNOLOGY CORP.    -    Financial assets measured at cost, noncurrent    4,198      37,156    7.82    Note    None
Stock    SHIN-ETSU HANDOTAI TAIWAN CO., LTD.    -    Financial assets measured at cost, noncurrent    10,500      105,000    7.00    Note    None
Stock    ACTI CORP.    -    Financial assets measured at cost, noncurrent    1,700      17,306    6.85    Note    None
Stock    RISELINK VENTURE CAPITAL CORP.    -    Financial assets measured at cost, noncurrent    8,000      76,640    6.67    Note    None
Stock    NCTU SPRING VENTURE CAPITAL CO., LTD.    -    Financial assets measured at cost, noncurrent    2,000      7,000    6.28    Note    None
Stock    COSMOS TECHNOLOGY VENTURE CAPITAL INVESTMENT CORP.    -    Financial assets measured at cost, noncurrent    1,490      6,605    5.03    Note    None
Stock    PARAWIN VENTURE CAPITAL CORP.    -    Financial assets measured at cost, noncurrent    5,000      41,900    5.00    Note    None
Stock    EUTECH MICROELECTRONICS INC.    -    Financial assets measured at cost, noncurrent    1,700      59,500    4.95    Note    None
Stock    LUMITEK CORP.    -    Financial assets measured at cost, noncurrent    1,750      32,000    4.86    Note    None
Stock    EE SOLUTIONS, INC.    -    Financial assets measured at cost, noncurrent    1,391      22,178    4.80    Note    None
Stock    JMICRON TECHNOLOGY CORP.    -    Financial assets measured at cost, noncurrent    1,837      30,060    4.67    Note    None
Stock    GIGA SOLUTION TECH. CO., LTD.    -    Financial assets measured at cost, noncurrent    4,245      26,742    4.56    Note    None

 

58


ATTACHMENT 3 (Securities held as of March 31, 2008)

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

FORTUNE VENTURE CAPITAL CORP.

 

Type of
securities

  

Name of securities

  

Relationship

  

Financial statement account

   March 31, 2008    Shares as
collateral
(thousand)
            Units
(thousand)/
bonds/
shares
(thousand)
   Book
value
   Percentage
of
ownership
(%)
   Market
value/ Net
assets value
  
Stock    TRENDCHIP TECHNOLOGIES CORP.    -    Financial assets measured at cost, noncurrent    1,220    $ 14,736    4.09    Note    None
Stock    IBT VENTURE CORP.    -    Financial assets measured at cost, noncurrent    4,569      45,685    3.81    Note    None
Stock    SIMPAL ELECTRONICS CO., LTD.    -    Financial assets measured at cost, noncurrent    6,009      70,179    3.62    Note    None
Stock    BEYOND INNOVATION TECHNOLOGY CO., LTD.    -    Financial assets measured at cost, noncurrent    1,183      14,165    3.50    Note    None
Stock    SUBTRON TECHNOLOGY CO., LTD.    -    Financial assets measured at cost, noncurrent    11,143      131,806    3.47    Note    None
Stock    UNIDISPLAY INC.    -    Financial assets measured at cost, noncurrent    3,000      30,000    3.33    Note    None
Stock    ANIMATION TECHNOLOGIES INC.    -    Financial assets measured at cost, noncurrent    1,480      9,472    3.16    Note    None
Stock    SUPERALLOY INDUSTRIAL CO., LTD.    -    Financial assets measured at cost, noncurrent    5,400      225,000    3.06    Note    None
Stock    MEMOCOM CORP.    -    Financial assets measured at cost, noncurrent    1,225      8,195    3.02    Note    None
Stock    SHENG-HUA VENTURE CAPITAL CORP.    -    Financial assets measured at cost, noncurrent    750      4,950    2.50    Note    None
Stock    HIGH POWER OPTOELECTRONICS, INC.    -    Financial assets measured at cost, noncurrent    1,500      15,000    1.81    Note    None
Stock    TAIMIDE TECHNOLOGY INC.    -    Financial assets measured at cost, noncurrent    1,500      16,095    1.70    Note    None
Stock    INPAQ TECHNOLOGY CO., LTD.    -    Financial assets measured at cost, noncurrent    1,500      72,975    1.58    Note    None
Stock    RALINK TECHNOLOGY CORP.    -    Financial assets measured at cost, noncurrent    1,378      14,710    1.39    Note    None
Fund    CRYSTAL INTERNET VENTURE FUND II(BVI), L.P.    -    Financial assets measured at cost, noncurrent    —        9,124    1.09    N/A    None
Stock    FIRST INTERNATIONAL TELECOM CORP.    -    Financial assets measured at cost, noncurrent    4,610      41,490    1.02    Note    None
Stock    ADVANCED CHIP ENGINEERING TECHNOLOGY INC.    -    Financial assets measured at cost, noncurrent    2,290      24,419    1.02    Note    None
Stock    PRINTECH INTERNATIONAL INC.    -    Financial assets measured at cost, noncurrent    162      737    0.91    Note    None
Stock    ASIA PACIFIC MICROSYSTEMS, INC.    -    Financial assets measured at cost, noncurrent    1,162      9,739    0.66    Note    None
Stock    WAVEPLUS TECHNOLOGY CO., LTD.    -    Financial assets measured at cost, noncurrent    4      —      0.40    Note    None
Fund    IGLOBE PARTNERS FUND, L.P.    -    Financial assets measured at cost, noncurrent    —        37,351    —      N/A    None
Stock-Preferred stock    AURORA SYSTEMS, INC.    -    Financial assets measured at cost, noncurrent    5,133      59,317    —      N/A    None
Stock-Preferred stock    ALPHA & OMEGA SEMICONDUCTOR LTD.    -    Financial assets measured at cost, noncurrent    1,500      46,313    —      N/A    None

 

59


ATTACHMENT 3 (Securities held as of March 31, 2008)

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

TLC CAPITAL CO., LTD.

 

Type of
securities

  

Name of securities

  

Relationship

  

Financial statement
account

   March 31, 2008    Shares as
collateral
(thousand)
            Units
(thousand)/
bonds/
shares
(thousand)
   Book value    Percentage
of
ownership
(%)
   Market
value/ Net
assets value
  
Fund    FGIT GLOBAL REALTY & INFRASTRUCTURE FUND    -    Financial assets at fair value through profit or loss, current    500    $ 3,960    —      $ 3,960    None
Convertible bonds    CAREER TECHNOLOGY (MFG.) CO., LTD.    -    Financial assets at fair value through profit or loss, noncurrent    70      6,720    —        6,720    None
Convertible bonds    HARVATEK CORP.    -    Financial assets at fair value through profit or loss, noncurrent    261      27,275    —        27,275    None
Stock    YUNG LI INVESTMENTS, INC.    Investee company    Long-term investments accounted for under the equity method    0.28      269,293    45.16      269,293    None
Fund    CTC CAPITAL PARTNERS I, L.P.    Investee company    Long-term investments accounted for under the equity method    —        136,930    32.11      136,930    None
Stock    SMEDIA TECHNOLOGY CORP.    Investee company    Long-term investments accounted for under the equity method    7,084      99,574    14.87      28,520    None
Stock    RECHI PRECISION CO., LTD.    -    Available-for-sale financial assets, noncurrent    20,768      300,103    5.70      300,103    None
Stock    TOPOINT TECHNOLOGY CO., LTD.    -    Available-for-sale financial assets, noncurrent    4,632      282,100    4.85      282,100    None
Stock    SERCOMM CORP.    -    Available-for-sale financial assets, noncurrent    6,423      202,309    4.11      202,309    None
Stock    SIMPLO TECHNOLOGY CO., LTD.    -    Available-for-sale financial assets, noncurrent    5,500      814,000    2.96      814,000    None
Stock    POWERTECH INDUSTRIAL CO., LTD.    -    Available-for-sale financial assets, noncurrent    1,843      86,072    1.75      86,072    None
Stock    EPISTAR CORP.    -    Available-for-sale financial assets, noncurrent    10,256      872,709    1.67      872,709    None
Stock    MITAC TECHNOLOGY CORP.    -    Available-for-sale financial assets, noncurrent    6,000      146,400    1.13      146,400    None
Stock    DARFON ELECTRONICS CORP.    -    Available-for-sale financial assets, noncurrent    2,900      218,660    1.05      218,660    None
Stock    CORETRONIC CORP.    -    Available-for-sale financial assets, noncurrent    6,127      219,969    0.88      219,969    None
Stock    AVERMEDIA TECHNOLOGIES, INC.    -    Available-for-sale financial assets, noncurrent    1,600      84,800    0.80      84,800    None

 

60


ATTACHMENT 3 (Securities held as of March 31, 2008)

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

TLC CAPITAL CO., LTD.

 

Type of
securities

  

Name of securities

  

Relationship

  

Financial statement
account

   March 31, 2008    Shares as
collateral
(thousand)
            Units
(thousand)/
bonds/
shares
(thousand)
   Book value    Percentage of
ownership
(%)
   Market
value/ Net
assets value
  
Stock    KING YUAN ELECTRONICS CO., LTD.    -    Available-for-sale financial assets, noncurrent    9,000    $ 141,300    0.74    $ 141,300    None
Stock    HORIZON SECURITIES CO., LTD.    -    Available-for-sale financial assets, noncurrent    2,841      51,138    0.66      51,138    None
Stock    INPAQ TECHNOLOGY CO., LTD.    -    Available-for-sale financial assets, noncurrent    529      24,798    0.56      24,798    None
Stock    TRIDENT MICROSYSTEMS, INC.    -    Available-for-sale financial assets, noncurrent    250      39,063    0.42      39,063    None
Stock    CYNTEC CO., LTD.    -    Available-for-sale financial assets, noncurrent    763      27,697    0.42      27,697    None
Stock    HUNG SHENG CONSTRUCTION LTD.    -    Available-for-sale financial assets, noncurrent    2,071      67,929    0.37      67,929    None
Stock    TATUNG CO.    -    Available-for-sale financial assets, noncurrent    11,622      227,791    0.26      227,791    None