umc annual report information can be accessed from …

UMC ANNUAL REPORT INFORMATION CAN BE ACCESSED FROM THE FOLLOWING WEBSITES:www.umc.comnewmops.tse.com.tw

Printed on March 15, 2007

Corporate Information

SpokespersonChitung LiuChief Financial Officer886 (2) 2700 [email protected]

Deputy SpokespersonSandy YenThe Chairman and CEO OfficeSenior Manager886 (2) 2700 [email protected]

Bowen HuangFinance Division Senior Manager886 (2) 2700 [email protected]

HeadquartersNo.3 Li-Hsin 2nd Rd., Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C.886 (3) 578 2258

Taipei Office3F, No.76, Sec. 2, Tunhwa S. Rd., Taipei, Taiwan 10683, R.O.C. 886 (2) 2700 6999

Fab 6ANo.10 Innovation 1st Rd., Hsinchu Science Park, Hsinchu, Taiwan 30076, R.O.C. 886 (3) 578 2258

Fab 8ANo.3 Li-Hsin 2nd Rd., Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C. 886 (3) 578 2258

Fab 8BNo.5 Li-Hsin 2nd Rd., Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C. 886 (3) 578 2258

Fab 8CNo.6 Li-Hsin 3rd Rd., Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C. 886 (3) 578 2258

Fab 8DNo.8 Li-Hsin 3rd Rd., Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C. 886 (3) 578 2258

Fab 8ENo.17 Li-Hsin Rd., Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C. 886 (3) 578 2258

Fab 8FNo.3 Li-Hsin 6th Rd., Hsinchu Science Park, Hsinchu, Taiwan 30078, R.O.C. 886 (3) 578 2258

Fab 8SNo.16 Creation 1st Rd., Hsinchu Science Park, Hsinchu, Taiwan 30077, R.O.C. 886 (3) 578 2258

Fab 12ANo.18 Nan-Ke 2nd Rd., Tainan Science Park, Sinshih, Tainan, Taiwan 74147, R.O.C. 886 (6) 505 4888

Singapore BranchFab 12iNo.3 Pasir Ris Drive 12, Singapore 51952865 6213 0018

Securities Dealing InstituteHorizon Securities Co., Ltd.Stock Registration Department 3F, No.236 Hsin-Yi Rd. Sec. 4, Taipei, Taiwan 10680, R.O.C. 886 (2) 2326 8818www.honsec.com.tw

ADR Depositary and RegistrarCitibank, N.A.Depositary Receipt Services14F, 388 Greenwich Street, New York, NY 10013, U.S.A.1 (877) 248 4237 (Toll-free)Stockholder Service Representatives are available Monday through Friday, 8:30a.m. to 6:00p.m., Eastern Time.http://wwss.citissb.com/adr/www/ [email protected]

ADR Exchange MarketplaceNew York Stock Exchange, Inc.11 Wall StreetNew York, NY 10005, U.S.A.1 (212) 656 3000www.nyse.comTicker/Search Code: UMC

Exchangeable Bond Exchange MarketplaceLuxembourg Stock Exchange11, av de la Porte-NeuveL-2227 Luxembourg352 (47) 79 36 - 1www.bourse.luTicker: UniMicElexCorpEB Search Code: ISIN XS0147090533ECB Search Code: ISIN XS0231460709

AuditorsErnst & YoungJames Wang, MY Lee9th Fl., 333 Keelung Rd., Sec.1Taipei 11012, Taiwan , R.O.C.www.ey.com/tw886 (2) 2720 4000

UMC Websitewww.umc.com

TSE Code : 2303NYSE Symbol : UMC

United Microelectronics Corporation | Annual Report 2006

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Operation Overview

65 Business Scope65 Industry Scope66 Research & Development Achievements and Plans68 Market and Sales Conditions 72 Employee Analysis73 Environmental Protection Information74 Labor Relations75 Major Agreements

Review of Financial Position, Operating Results, Risk Management and Evaluation

79 Analysis of Financial Position80 Analysis of Operating Results81 Liquidity Analysis81 Major Capital Expenditures and Sources of Funding82 Analysis for Investment83 Risk Management and Evaluation

Table of Contents

Letter to Shareholders

Corporate Overview

11 Corporate Profile12 Milestones

Corporate Governance Report

16 Corporate Organization18 Directors’, Supervisors’ and Managers’ Information33 Corporate Governance Practices35 Status of Internal Control37 Auditing Notes38 Change in Shareholding of Directors, Supervisors, Managers and Major Shareholders39 Information Disclosuring the Relationship Between Any of the Company’s Top Ten Shareholders40 Total Percentage of Ownership of Investees

Capital Overview

43 Capital and Shares50 Corporate Bonds 55 Preferred Stock 56 American Depositary Receipts 58 Employee Stock Option Certificates63 Mergers and Acquisitions 63 Financing Plans and Execution Status

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Financial Review Unconsolidated

101 Condensed Balance Sheets102 Condensed Statements of Income103 Financial Analysis 104 Supervisors’ Report 106 Report of Independent Auditors107 Balance Sheets108 Statements of Income 109 Statements of Changes in Stockholders’ Equity110 Statements of Cash Flows112 Notes to Financial Statements 160 Attachments to Notes

Financial Review Consolidated

198 Representation Letter199 Report of Independent Auditors200 Consolidated Balance Sheets201 Consolidated Statements of Income202 Consolidated Statements of Changes in Stockholders’ Equity203 Consolidated Statements of Cash Flows205 Notes to Consolidated Financial Statements260 Attachments to Notes

Special Disclosures87 Summary of Affiliated Enterprises92 Acquisition or Disposal of UMC Shares by Subsidiaries93 Disclosures of Events which May Have a Significant Influence on Stockholders’ Equity or Share Price, in Compliance with Item 2, Paragraph 2 in Article 36 of the Securities and Exchange Law of the R.O.C.

Disclosure According to US Security Authorities Regulation95 Disclosure Committee95 Audit Committee95 Corporate Governance Difference95 Code of Ethics95 Employee Code of Conduct 95 US GAAP Financial Information 96 Consolidated Balance Sheets98 Consolidated Statements of Income


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In 2006, UMC achieved revenues of NTD 104.10 billion, which was 14.7% above the previous year’s performance. Net income was NTD 32.62 billion or 364% above 2005. The positive gains and growth can be attributed to stronger demand across all ap-plications, especially for the communications sec-tor, and an improvement in product mix resulting in a higher percentage of revenue from leading-edge process technologies.

Technology LeadershipUMC’s strong 2006 performance was highlighted by our large percentage of sales from 0.13-micron and below technologies, which accounted for 40% of UMC’s total revenue. Sales from our volume pro-duction 90-nanometer technology reached 17% for the year. Particularly exciting was the rollout of our 65-nanometer process technology, which entered volume production for several customer products. By the end of 2006, UMC had 9 customers engaged at

65-nanometer, with four products in pilot production and more than 10 products taped out for various ap-plications ranging from handset baseband to FPGA, graphics and broadband. Yield improvement for our 65-nanometer volume production technology has been even faster than for the 90-nanometer genera-tion.

Strategic ExpansionUMC has accelerated the expansion of its 300mm fab complex in the Tainan Science Park to accommodate the next generation of advanced process technolo-gies, most recently by adding a new R&D center for nanometer technologies, the first of its kind in the Tainan Science Park. The center will become UMC’s new R&D headquarters after its scheduled comple-tion in April 2007. In 2006, we also began full-scale construction on our second 300mm fab at UMC’s Tainan site, which will give UMC a total of three advanced 300mm fabs to serve our customers’ manu-facturing needs. The new fab will add an additional

Dear Shareholders,


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50,000 wafer capacity (300 mm) to the site and will cost approximately USD 5 billion when fully com-pleted and equipped.

The new fab and R&D center are being constructed adjacent to UMC’s Fab 12A to allow for the easy transfer of engineering resources, technology, and equipment among the facilities, which will facili-tate a more efficient ramp up for leading-edge 65-nanometer, 45-nanometer, and below processes. Once the new fab is completed and ready for produc-tion, the transition to mainstream manufacturing is expected to be seamless since there is no new learn-ing curve to master; the production lines will be directly expanded from the neighboring Fab 12A.

Next Generation Process TechnologyIn 2006, UMC also successfully produced functional 45-nanometer SRAM chips. UMC’s independently developed 45-nanometer logic process uses sophisti-cated immersion lithography for its 12 critical layers and incorporates the latest technology advancements such as ultra shallow junction, mobility enhancement

techniques, and ultra low-k dielectrics (k=2.5).

The 45-nanometer node is a challenging technology generation that simultaneously introduces new mate-rials and process modules. UMC’s wealth of experi-ence in semiconductor R&D and manufacturing put us among the first companies in the world to produce working 45-nanometer silicon, with encouraging yield results realized for the initial 45-nanometer wafer lots. UMC will continue to build on its 45-nanometer momentum to prepare the technology for adoption by our foundry customers.

Enhancing Shareholder ValueIn addition to UMC’s commitment to improving process technology and manufacturing, we are also taking proactive measures to increase shareholders’ value. For example, UMC’s Board of Directors passed a resolution to carry out a capital reduction of NTD 57.394 billion with the cancellation of 5.739 billion of its outstanding shares. The measure, which is expect-ed to be ratified at our Annual General Shareholders meeting, will result in an NTD 3 cash return


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per share to shareholders. Upon completion of the capital reduction, the paid-in capital of the company will be approximately NTD 133.92 billion. This ac-tion will contribute positively to shareholders’ equity through the improvement of the company’s capital structure. Going forward, we will continue to pursue maximum benefits for UMC’s shareholders, employ-ees, and our many partners in the global and domestic semiconductor industry.

Moving ForwardMoving forward, we anticipate even closer coopera-tion with our IDM customers and fabless partners. The trend towards IDMs adopting a “Fab-lite” or fabless strategy is accelerating, underscored by TI and NXP announcing their new fab-lite strategies. Another example of this trend is Cypress Semicon-ductor’s new partnership with UMC for 65-nanometer production and future process development, the first time that Cypress has chosen an external foundry for manufacturing of its flagship SRAM products. This increased outsourcing trend will help contribute to UMC’s long-term growth prospects.

In 2007, our 300mm fabs in Taiwan and Singapore will begin high-volume production for 65-nanometer products. We will continue preparing our 45-nanometer process for pilot production in 2008. Resources will be dedicated to strengthening our position as the SoC Solution Foundry, with emphasis on IP, EDA, and Design-for-Manufacturing (DFM) solutions to ease our customers’ SoC design-in. These efforts will increase the competitiveness of UMC’s coming years, and further solidify our position as a leader in the foundry industry.

I would like to thank you for supporting UMC over the years, and look forward to further building UMC’s strengths to create maximum benefits for our custom-ers and shareholders.

Sincerely,

Jackson Hu, Chairman and CEO


10

Corporate Overview

11 CorporateProfile

12 Milestones

Corporate Overview

11

Corporate ProfileUMC is a world-leading semiconductor foundry that manufactures advanced process ICs for applications spanning every major sector of the semiconductor industry. The Company’s cutting-edge foundry technologies enable the creation of faster and more powerful System-on-Chip ICs for today’s demanding applications. UMC’s technology includes a wide range of advanced processes, 90-nanometer, 65-nanometer, embedded memories, and Mixed-Signal/RF CMOS. As an industry pioneer, UMC was the first foundry to manufacture wafers using copper materials, produce chips using 90-nanometer process technology, produce chips on 300mm wafers, and deliver functional 65-nanometer ICs to its customers.

UMC led the development of the commercial semiconduc-tor industry in Taiwan. It was the first local company to offer foundry services, as well as the first semiconductor company to list on the Taiwan Stock Exchange (1985).

UMC is responsible for many local industry innovations, including the introduction of the employee share bonus system, often credited as a primary factor in the development of a prominent electronics industry in Taiwan. UMC employs approximately 13,000 people worldwide. With sales and customer service offices in Taiwan, Japan, Singapore, Europe, and the United States, UMC has an extensive service network to meet the needs of its global clientele. In the future, UMC will continue to offer world leading production processes and the most comprehensive support structure for our customers to strengthen its competitive advantages in a rapidly changing industry.

Date of Incorporation May ��, 1��0


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Milestones

1980 MAY UMC established.

1985 JUL. Becomes the first IC company to list on the Taiwan Stock Exchange.

1995 JUL. Begins transformation into a pure-play foundry.

JUL. Establishes joint venture foundry USC.

AUG. Establishes joint venture foundry UICC.

SEP. Establishes joint venture foundry USIC.

SEP. 200mm fab begins production.

1996 JAN. 0.35-micron volume production.

1997 OCT. 0.25-micron volume production.

1998 APR. Acquires Holtek Semiconductor.

DEC. Acquires Nippon Steel Semiconductor Corp.; renamed Fab UMCJ in 2001.

1999 MAR. 0.18-micron volume production.

NOV. Begins construction of 300mm fab in Taiwan’s Tainan Science Park, Fab 12A.

Corporate Overview

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2000 JAN. Completes consolidation of five companies: UMC, USC, UTEK, USIC and UICC.

MAR. Ships first foundry chips using copper process.

MAY Produces foundry industry’s first 0.13-micron integrated circuits.

SEP. Makes its debut on the New York Stock Exchange.

DEC. Announces plan to establish advanced 300mm foundry in Singapore (UMCi).

2003 JAN. Announces equipment move-in at UMCi.

MAR. Delivers foundry’s first customer ICs built on 90-nanometer.

2004 MAR. UMCi moves to full-scale 300mm production.

MAY 90-nanometer full qualification and volume production.

JUL. Completes acquisition of SiS Microelectronics Corp.

DEC. Fully acquires its subsidiary UMCi; renamed UMC Fab 12i.

2005 JUN. Delivered the foundry industry’s first 65-nanometer customer products.

AUG. Achieves record milestone of over 100,000 90-nanometer wafer shipments.

2006 JUN. Becomes first IC company to achieve QC 080000 IECQ HSPM qualification

for all fabs.

NOV. Produces working 45-nanometer ICs.

2007 JAN. Expands advanced technology complex in Tainan Science Park.


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16 CorporateOrganization

18 Directors’,Supervisors’and Managers’Information

33 CorporateGovernancePractices

35 StatusofInternalControl

37 AuditingNotes

38 ChangeinShareholdingofDirectors, Supervisors,ManagersandMajor Shareholders

39 InformationDisclosingthe RelationshipBetweenAnyof theCompany’sTopTenShareholders

40 TotalPercentageofOwnershipof Investees


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Corporate Organization

Japan Business Group

AsiaBusiness Group

Europe Business Group

New Business Development Group

American Business Group

Customer

The Chairman and CEO Office

Board of Directors


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March 21, 2005

Corporate Marketing and Central Sales Operation DivisionsResponsible for corporate marketing affairs

Intellectual Property Development & Design Support DivisionResponsible for intellectual property development & design support affairs

Fab 6A, Fab 8AB, Fab 8C, Fab 8D, Fab 8E, Fab 8F, Fab 8S, Fab 12A, Fab 12i, 12B Plant Construction Team, Central Manufacturing Planning, Facility Operation & Construction, Group Risk Management & Environmental Safe-ty & Health, Information Technology, Operations Support and Equipment Resources Integration Divisions, and Manufacturing Technology DivisionResponsible for Fab production, manufacturing, and operational support

Mask Engineering & Service, Product Engineering, Quality Assurance, Reliability Technology & Assurance and Test & Package Engineering Service Divisions, and TQM CommitteeResponsible for mask engineering, testing and packaging service, and product quality

Central R&D and Specialty Technology DivisionsResponsible for research and development of new processes and technologies

Intellectual Property Rights Division Responsible for intellectual property rights protection and legal affairs

Finance and Accounting DivisionsResponsible for finance and accounting

Human Resources DivisionResponsible for HR and general affairs

Auditing DivisionResponsible for auditing


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NameTitle

Date Elected[Date Assumed](Date First Elected)

Term (Yrs.)

Shareholding when Elected

Present Shareholding

Spouse & Minor Shareholding

Common Shares

% Common Shares

% Common Shares

%

Hsun Chieh Investment Co., Ltd. 2006.6.12 (1995.6.21) 3 599,696,356 3.02 605,830,368 3.17 - -

Representatives Jackson HuChairman and CEO

2006.6.12 (2004.2.4) 3 1,875,943 0.01 2,045,131 0.01 - -

Peter ChangManaging Director

2006.6.12 (2001.5.30) 3 8,617,440 0.04 8,855,583 0.05 771,640 0.00

Ching-Chang WenManaging Director

2006.6.12 (2001.5.30) 3 5,614,913 0.03 5,822,345 0.03 10,401 0.00

Fu-Tai Liou Director

2006.6.12 (2001.5.30) 3 5,527,407 0.03 5,483,944 0.03 - -

Silicon Integrated Systems Corp. 2006.6.12 (2005.6.13) 3 428,511,368 2.16 432,894,409 2.26 - -

Representatives Shih-Wei Sun Director

2006.6.12 (2006.6.12) 3 15,192,341 0.08 14,502,644 0.08 1,033,471 0.01

Stan Hung Director

2006.6.12 (2001.5.30) 3 17,404,005 0.09 17,732,022 0.09 2,036,700 0.01

Chun-Yen ChangIndependent Director

2006.6.12 (2006.6.12) 3 - - - - 1,435 0.00

Chung Laung Liu Independent Director

2006.6.12 (2006.6.12) 3 - - - - - -

Paul S.C. Hsu Independent Director

2006.6.12 (2004.6.1) 3 - - - - - -

Hsun Chieh Investment Co., Ltd. 2006.6.12 (1995.6.21) 3 599,696,356 3.02 605,830,368 3.17 - -

Representatives Tzyy-Jang Tseng Supervisor

2006.6.12 (2002.3.14) 3 19,650,715 0.10 19,851,712 0.10 209,158 0.00

Silicon Integrated Systems Corp. 2006.6.12 (2005.6.13) 3 428,511,368 2.16 432,894,409 2.26 - -

Representatives Ta-Hsing Wang Supervisor

2006.6.12 (2006.6.12) 3 - - - - - -

Ting-Yu Lin Supervisor

2006.6.12 (2006.6.12) 3 16,182,403 0.08 16,947,925 0.09 - -

Notes (1) Present shareholding figures are actual number of shares held on February 28, 2007. (2) Directors’ and Supervisors’ election date is the same date they assumed their positions. (3) Directors and Supervisors are not spouses or siblings of other managers, directors, and supervisors. (4) Directors and Supervisors did not hold shares through other parties. (5) Fu-Tai Liou, Shih-Wei Sun, and Stan Hung were elected as Directors at the Annual General Meeting on June 12, 2006. (6) Ta-Hsing Wang and Ting-Yu Lin were elected as Supervisors at the Annual General Meeting on June 12, 2006.

Directors’ and Supervisors’ Information


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Experience Education

Also Serves Concurrently as

- -

Chairman and CEO, UMCPh.D. of Computer Science,University of Illinois at Urbana-Champaign

Independent Director, Compal Communications, Inc.

Director, UMCMaster of Electrical Engineering, University of Texas at Austin

-

Director, UMCPh.D. of Electrical Engineering,University of Pennsylvania

Director and President, UMC Japan

Director, UMC Ph.D. of Material Science & Engineering, State University of New York at Stony Brook

-

- -

Director, UMC Ph.D. of Electronic Materials, Northwestern University

-

Director, UMC Bachelor of Accounting, Tamkang University

Independent Director, A-DATA Technology Co., Ltd.; Director, Fortune Venture Capital Corporation; Director, United Microdisplay Optronics Corporation; Director, TLC Capital Co., Ltd.; Supervisor, Novatek Micro-electronics Corp., Ltd.; Supervisor, SpringSoft, Ltd.

Academician, Academia Sinica Ph.D. of Electronics Engineering, National Chiao Tung University

-

Honorary Chair Professor, National Tsing Hua University Sc. D. of Massachusetts Institute of Technology

Independent Director, Macronix International Co., Ltd.; Independent Director, Anpec Electronics Corporation; Independent Director, Lightronik Technology Inc.; Independent Director, Mototech Inc.

Far East Group Chair Professor of Management, Yuan-Ze University Ph.D. of Business Administration, University of Michigan

Chairman, Taiwan Assessment and Evaluation Association; Independent Director, Faraday Technology Corp.; Independent Director, Taiwan Chi Cheng Enterprise Co., Ltd.; Supervisor, Far Eastern International Bank

- -

Chairman, Unimicron Technology Corp. Master of Physics, National Tsing Hua University

Chairman, Unimicron Technology Corp.; Director, Harvatek Corp.; Chairman, Subtron Technology Co., Ltd.; Supervisor, Fortune Venture Capital Corporation

- -

Director, Pacific Technology Group MBA, Columbia University

-

Chairman, Sunrox International Inc. Master of International Finance, Meiji University

-


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UMC’s Institutional Shareholders Major Shareholders of UMC’s Institutional Shareholders (Holding Percentage)

Hsun Chieh Investment Co., Ltd. Hsieh Yong Capital Co., Ltd.(63.48%), United Microelectronics Corporation(36.49%)

Silicon Integrated Systems Corp. United Microelectronics Corporation(16.09%); Buddhist Compassion Relief Tzu Chi Foundation Taiwan(1.53%); Crédit Agricole (Suisse) SA (1.29%); Morgan Stanley & Co. In-ternational Limited(1.20%); Chuin Li Investment Corporation(1.15%); Shin-Sen Liu(1.12%); Chuin Tsie Investment Corporation(1.10%); HSBC, as the representative of HKIT-Pacific Glory Finance One Ltd.(1.06%); Samuel Liu(0.81%); R.O.C. Public Service Pension Fund(0.50%)

Institutional Shareholders Major Shareholders of the Institutional Shareholders (Holding Percentage)

Hsieh Yong Capital Co., Ltd. Unimicron Technology Corp.(16.67%), Silicon Integrated Systems Corp. (16.67%), Novatek Microelectronics Corp., Ltd. (15.15%), Faraday Technology Corporation(12.12%), King Yuan Electronics Co., Ltd.(7.58%)

Buddhist Compassion Relief Tzu Chi Foundation Taiwan Not Applicable.

Chuin Li Investment Corporation Robert H.C. Tsao(27.69%), John Hsuan(15.89%)

Chuin Tsie Investment Corporation Robert H.C. Tsao(36.00%), John Hsuan(13.33%)

R.O.C. Public Service Pension Fund Not Applicable.

List of Major Shareholders of UMC’s Institutional Shareholders

List of Institutional Shareholders of the Major Shareholders


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Notes For those directors and supervisors who match the condition listed below during and two years before assuming period, “ ” is marked in the appropriate space. (1) Is not an employee of the Company or its affiliates. (2) Is not a director or supervisor of the Company or its affiliates. Does not include the independent directors or supervisors in the parent companies and subsidiaries. (3) Does not directly or indirectly own more than 1% of the Company’s outstanding shares; nor is one of the top ten non-institutional shareholders of the Company. (4) Is not a spouse or of immediate relation (child, parent, grandchild, grandparent, or sib-ling) to any person specified in the preceding two columns. (5) Is not a director, supervisor, or employee of a legal entity which directly owns more than 5% of the Company’s issued shares, nor a director, supervisor or employee of the top five legal entities which are owners of the Company’s issued shares. (6) Is not a director, supervisor, or manager of a company which has a business relationship with the Company, nor a shareholder who owns more than 5% of such a company. (7) Is not an owner, partner, director, supervisor, manager or spouse of any sole proprietor business, partnership, company or institution which has provided the Company and its affiliates with financial, business consulting, or legal services in 2006. (8) Is not a spouse or of immediate relation (child, parent, grandchild, grandparent, or sibling) to any of the directors. (9) Is not under any condition pursuant to Article 30 of the ROC Company Law. (10) Is not a legal entity owner or its representative pursuant to Article 27 of the ROC Company Law.

Name Five or more Years Experience or Professional Qualification

Independence Status (Note) Number of Companies also Serves as Indepen-dent Direc-tor for

Lecturer or Above in Busi-ness, Law, Finance, Accounting or Corporate Business Related Fields

Qualification of Justice, Procurator, Attorney, CPA, Specialist or Technician of National Examina-tion in Corporate Business Related Fields

Experience in Business, Law, Finance, Accounting or Corporate Business Related Fields

1 2 3 4 5 6 7 8 9 10

Jackson Hu Yes - - - 1

Peter Chang Yes - - - -

Ching-Chang Wen Yes - - - -

Fu-Tai Liou Yes - - - -

Shih-Wei Sun Yes - - - -

Stan Hung Yes - - - 1

Chun-Yen Chang Yes Yes -

Chung Laung Liu Yes Yes 4

Paul S.C. Hsu Yes Yes 2

Tzyy-Jang Tseng Yes - - - -

Ta-Hsing Wang Yes - -

Ting-Yu Lin Yes -

Directors’ and Supervisors’ Professional Knowledge and Independence Information


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Title Name Date Elected (Date Assumed)

Present Shareholding Spouse & Minor Shareholding

Common Shares % Common Shares %

Chairman and CEO Jackson Hu 2006.1.9 2,045,131 0.01 - -

Vice Chairman Peter Chang 2000.1.3 8,855,583 0.05 771,640 0.00

Business Group President Ching-Chang Wen 2000.1.3 5,822,345 0.03 10,401 0.00

Business Group President Fu-Tai Liou 2002.12.17 5,483,944 0.03 - -

Executive Vice President Shih-Wei Sun 2003.7.29 14,502,644 0.08 1,033,471 0.01

Senior Vice President Stan Hung 2005.10.21 17,732,022 0.09 2,036,700 0.01

Senior Vice President Henry Liu 2003.9.16 11,572,588 0.06 19,861 0.00

Senior Vice President Tai-Sheng Feng 2004.2.23 1,638,510 0.01 - -

Vice President Nick Nee 2000.9.1 2,910,236 0.02 - -

Vice President Wen-Yang Chen 1998.1.1 3,047,599 0.02 54,265 0.00

Vice President Ying-Chih Wu 1999.2.1 11,982,001 0.06 334,020 0.00

Vice President Chia-Pin Lee 2004.9.14 926,010 0.00 28,136 0.00

Vice President Lee Chung 2004.10.18 411,546 0.00 - -

Vice President Shan-Chieh Chien 2004.11.23 4,135,193 0.02 3 0.00

Vice President Po-Wen Yen 2005.10.21 1,022,551 0.01 - -

Vice President Tsung-Hsi Ko 2006.2.28 3,660,076 0.02 66,915 0.00

CFO Chitung Liu 2005.10.21 928,871 0.00 222,841 0.00

Managers’ Information

Notes (1) Shareholding figures are actual number of shares held on February 28, 2007. (2) Managers did not hold shares through other parties. (3) Managers are not spouses or siblings of other managers. (4) Managers’ election date is the same date they assumed their positions.


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Experience Education

Also Serves Concurrently as

Chairman and CEO, UMC Ph.D. of Computer Science, University of Illinois at Urbana-Champaign

Independent Director, Compal Communications, Inc.

Director, UMC Master of Electrical Engineering, University of Texas at Austin

-

Director, UMC Ph.D. of Electrical Engineering, University of Pennsylvania

Director and President, UMC Japan

Director, UMC Ph.D. of Material Science & Engineering, State University of New York at Stony Brook

-

Director, UMC Ph.D. of Electronic Materials, Northwestern University

-

Director, UMC Bachelor of Accounting, Tamkang University

Independent Director, A-DATA Technology Co., Ltd.; Director, Fortune Venture Capital Corporation; Director, United Microdisplay Optronics Corporation; Director, TLC Capital Co., Ltd.; Supervisor, Novatek Micro-electronics Corp., Ltd.; Supervisor, SpringSoft, Ltd.

Senior Vice President, UMC Bachelor of Electronics Engineering, National Taiwan University of Science and Technology

-

Senior Vice President, UMC Master of Electrical Engineering, University of Utah

-

Vice President, UMC Bachelor of Marine Engineering, National Taiwan Ocean University

-

Vice President, UMC Master of Electronics Engineering, National Chiao Tung University

Director, UMC Japan

Vice President, UMC Bachelor of Physics, National Changhua University

-

Vice President, UMC MBA, University of Oregon State

-

Vice President, UMC Master of Materials Science, University of California, L.A.

-

Vice President, UMC Bachelor of Chemical Engineering, National Taiwan University

-

Vice President, UMC Master of Chemical Engineering, National Taiwan University

-

Vice President, UMC EMBA, National Chiao Tung University

-

CFO, UMC National Taiwan University EMBA candidate

Director, Novatek Microelectronics Corp., Ltd.; Supervisor, UMC Japan; Supervisor, TLC Capital Co., Ltd.


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The Compensation of Directors, Supervisors and ManagersDirectors’ Compensation

Directors’ Compensation The Percentage of Directors’ Compensation

to EAIT (%)Allowance Directors’ Remuneration

Operating Expenses

UMC UMC’s Consolidated

Companies


Companies


Companies


Companies

- - 13,015 13,015 390 390 0.04 0.04

Title Name Representatives

Director Hsun Chieh Investment Co., Ltd. Jackson Hu

Peter Chang

Ching-Chang Wen

Fu-Tai Liou

Director Silicon Integrated Systems Corp. Shih-Wei Sun

Stan Hung

Independent Director Chun-Yen Chang

Independent Director Chung Laung Liu

Independent Director Paul S.C. Hsu

Note Fu-Tai Liou, Shih-Wei Sun, and Stan Hung were elected as Directors at the Annual General Meeting on June 12, 2006.


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Managers’ Compensation The Percentage of Total Compensation to

EAIT (%)

Compensation from Other

UMC Investee Companies

Salaries Employees’ Bonus Employee Stock Options (Shares)


Companies


Companies


Companies


CompaniesCash Stock Cash Stock

22,190 28,341 45,000 - 45,000 - - - 0.25 0.27 None

In thousand NTD

Levels of Amounts of Compensation Number of Directors

Directors’ Compensation Total Compensation

UMC UMC’s Consolidated Companies


Lower than NTD 2,000,000 6 6 - -

NTD 2,000,000~NTD 4,999,999 3 3 3 3

NTD 5,000,000~NTD 9,999,999 - - - -

NTD 10,000,000~NTD 14,999,999 - - 5 5

NTD 15,000,000~NTD 29,999,999 - - 1 1

NTD 30,000,000~NTD 49,999,999 - - - -

NTD 50,000,000~NTD 99,999,999 - - - -

NTD 100,000,000 or More - - - -

Total 9 9 9 9


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The Compensation of Directors, Supervisors and Managers (cont.)

Supervisors’ CompensationSupervisors’ Compensation

Allowance Supervisors’ Remuneration Operating Expenses

UMC UMC’s Consolidated Companies UMC UMC’s Consolidated Companies UMC UMC’s Consolidated Companies

- - 2,479 2,479 120 120

Title Name Representatives

Supervisor Hsun Chieh Investment Co., Ltd. Tzyy-Jang Tseng

Supervisor Silicon Integrated Systems Corp. Ta-Hsing Wang

Supervisor Ting-Yu Lin

Note Ta-Hsing Wang and Ting-Yu Lin were elected as Supervisors at the Annual General Meeting on June 12, 2006.


��

The Percentage of Supervisors’ Compensation to EAIT (%) Compensation from other UMC investee companies


0.01 0.01 None

In thousand NTD

Levels of Amounts of Compensation Number of Supervisors

Total Compensation


Lower than NTD 2,000,000 3 3

NTD 2,000,000~NTD 4,999,999 - -

NTD 5,000,000~NTD 9,999,999 - -

NTD 10,000,000~NTD 14,999,999 - -

NTD 15,000,000~NTD 29,999,999 - -

NTD 30,000,000~NTD 49,999,999 - -

NTD 50,000,000~NTD 99,999,999 - -

NTD 100,000,000 or More - -

Total 3 3


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Managers’ Compensation

Note Hong-Jen Wu retired on June 30, 2006.


Salaries Bonus and Special Allowance Employees’ Bonus




Cash Stock Cash Stock

34,544 40,695 37,116 37,116 98,280 - 98,280 -

Title Name

Chairman and CEO Jackson Hu

Vice Chairman Peter Chang

Former President Hong-Jen Wu

Business Group President Ching-Chang Wen

Business Group President Fu-Tai Liou

Executive Vice President Shih-Wei Sun

Senior Vice President Stan Hung

Senior Vice President Henry Liu

Senior Vice President Tai-Sheng Feng

Vice President Nick Nee

Vice President Wen-Yang Chen

Vice President Ying-Chih Wu

Vice President Chia-Pin Lee

Vice President Lee Chung

Vice President Shan-Chieh Chien

Vice President Po-Wen Yen

Vice President Tsung-Hsi Ko

CFO Chitung Liu


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In thousand NTD

The Percentage of Total Compensation to EAIT (%)

Employee Stock Options(Shares) Compensation from other UMC investee companies



0.52 0.54 - - None

Levels of Amounts of Compensation Number of Managers


Lower than NTD 2,000,000 - -

NTD 2,000,000~NTD 4,999,999 1 1

NTD 5,000,000~NTD 9,999,999 10 10

NTD 10,000,000~NTD 14,999,999 5 5

NTD 15,000,000~NTD 29,999,999 2 2

NTD 30,000,000~NTD 49,999,999 - -

NTD 50,000,000~NTD 99,999,999 - -

NTD 100,000,000 or More - -

Total 18 18


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Managers’ Bonus

Stock Bonus Cash Bonus Total The Percentage of Total Bonus to EAIT (%)

- 98,280 98,280 0.30

Title Name


















CFO Chitung Liu


In thousand NTD


�1

Policy for Directors’ and Supervisors’ CompensationThe Company’s Article has stated that Directors’ and Super-visors’ Compensation is the allocation of 0.1% of the residual amount from net profit after being deducted by payment of taxes, making up loss for preceding years and setting aside 10% for legal reserve.

Policy for Managers’ CompensationThe Company annually evaluates its salary level with similar industries to ensure the Company’s salary is competitive. The Company’s salary structure can be divided into fixed and variable. The compensation is set to fully reflect the achievements for individuals and teams.

2006 2005

UMC Consolidated UMC Consolidated

EAIT (Thousand NTD) 32,619,313 32,619,313 7,026,692 7,026,692

The Percentage of Directors’ and Supervisors’ Compensation to EAIT

0.05 0.05 0.10 0.10

The Percentage of Managers’ Compensation to EAIT

0.52 0.54 1.36 1.51

The Company’s compensation for Directors, Supervisors and Managers is based on the Company’s Article and formulations, and is distributed in proper ratios.

Comparison of Compensation for Directors, Supervisors and Managers in the Past Two Years

Compensation Policy for Directors, Supervisors and Managers

Notes (1) The directors’ and supervisors’ compensation includes allowance, remuneration and operating expenses; the managers’ compensation includes salaries, spe-cial allowance and employees’ bonus. (2) On March 15, 2007, the Company’s Board proposed to distribute NTD 15,494,130 as Directors’ and Supervisors’ remunera-tion and NTD 2,324,119,405 as employee cash bonus from retained earnings of 2006 and previous years.


��

Name Title Attendance Proxy Attendance

Attendance Rate (%) (Note)

Remarks

Hsun Chieh Investment Co., Ltd.

Representatives: Jackson Hu Chairman 11 91.67

Representatives: Peter Chang Managing Director 11 91.67

Representatives: Ching-Chang Wen Managing Director 5 41.67

Representatives: Fu-Tai Liou Director 3 75.00 Elected on 2006.6.12

Silicon Integrated Systems Corp.

Representatives: Shih-Wei Sun Director 3 75.00 Elected on 2006.6.12

Representatives: Stan Hung Director 4 100.00 Elected on 2006.6.12

Chun-Yen Chang Independent Director

3 1 75.00 Elected on 2006.6.12

Chung Laung Liu Independent Director

4 100.00 Elected on 2006.6.12

Paul S.C. Hsu Independent Director

10 83.33

Hsun Chieh Investment Co., Ltd.

Representatives: Tzyy-Jang Tseng Supervisor 8 66.67

Silicon Integrated Systems Corp.

Representatives: Ta-Hsing Wang Supervisor 3 75.00 Elected on 2006.6.12

Ting-Yu Lin Supervisor 3 75.00 Elected on 2006.6.12

Robert H.C. Tsao Former Chairman 2 100.00 Resigned on 2006.1.9

John Hsuan Former Vice Chairman 2 100.00 Resigned on 2006.1.9

Jack K.C. Wang Former Director 8 100.00 Expired on 2006.6.11

Mao-Chung Lin Former Director 8 100.00 Expired on 2006.6.11

Silicon Integrated Systems Corp. Former Director 5 1 62.50 Expired on 2006.6.11

Chuin Tsie Investment Corporation

Representatives: Tsing-Yuan Hwang Former Supervisor 3 37.50 Expired on 2006.6.11

Other disclosures: The board resolved the proportion of directors’ and supervisors’ compensation distribution for 2006 on December 28, 2006; all directors were agreed upon except for Chun-Yen Chang, Chung Laung Liu and Paul S.C. Hsu, who abstained due to their independent status.

Information of Board Meeting OperationBoard meetings were held 12 times in 2006; attendances of directors and supervisors are as follows:

Not Applicable. The audit committee of the Company was instituted under US securities authorities regulation.

Information Regarding Audit Committee Operation

Note Attendance rate = Number of meetings each board member actually attends / total number of board meetings held within his or her service period.


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Item Actions The Reasons for the Differences between the Company’s Governance and Recognized Corporate Governance

Corporate Shareholder Structure and Shareholders’ Rights:

(a) How the Company handles shareholders’ recommendations or disputes:

The Company has designated a specific body and established an email address to handle shareholders’ recommendations or disputes.

-

(b) How the Company regularly monitors the list of key shareholders who have management control of the Company, or those who have ultimate control of key shareholders:

There is no single shareholder who holds more than 10% of the Company’s total outstanding shares.

-

(c) How the Company establishes proper risk control mechanisms and firewalls between the Company and its affiliated enterprises:

The obligations and rights between the Company and its affiliated en-terprises have been clearly defined. Any transaction between the Com-pany and its affiliated enterprises complies with related regulations.

-

The Structure and Responsibilities of the Board:

(a) Independent directors on the Company’s Board:

The Company has instituted three independent directors. -

(b) How the Company periodically evaluates the independence of its auditors:

The Company’s auditor is one of the largest and best regarded in its industry. The auditor assiduously avoids conflicts of interests.

-

The Composition and Responsibilities of Supervisors:

(a) How the Company institutes independent supervisors:

- The Company currently has no independent supervisors.

(b) How the supervisors communicate with the Company’s employees and shareholders:

At any time, a supervisor may individually investigate the business and financial conditions of the Company, and may ask the Board of Direc-tors or executive managers to prepare a report.

-

The Company’s Communication Channels for its Stakeholders:

The Company has designated a specific unit and established an email address to handle stakeholders’ concerns.

-

Information Disclosure:

(a) How the Company establishes a website to disclose financial and corporate governance information:

The Company regularly publishes up-to-date detailed financial and corporate governance information on its website in both Chinese and English.

-

(b) Other channels for the disclosure of the Company’s information:

The Company has designated a specific body to collect and disclose in-formation about the Company. In addition, the Company has established standard procedures for an authorized spokesperson to make statements on behalf of the Company. The Company has one main spokesperson and two deputy spokespersons. To ensure the quality of information disclosure, the Company has set up a Disclosure Committee designed to provide and control information for government officials in a timely and accurate manner, thus achieving the goal and responsibility to thor-oughly disclose corporate information.

-

Corporate Governance Practices


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Corporate Governance Practices (cont.)

Item Actions The Reasons for the Differences between the Company’s Governance and Recognized Corporate Governance

The operation of functional committee work within the Board of Directors of the Company:

The Company has instituted an audit committee. The operation details are disclosed on page 95.

-

The comparison between the Company’s corporate governance mechanism and the recognized corporate governance principles: The Company bases its corporate governance structures and practices on Taiwan’s Company Law, the Securities and Exchange Law, and their related rules and regulations. The Company’s corporate governance mechanism follows recognized corporate governance principles.

The Company’s policy and efforts to be socially responsible: When UMC was founded, its long-term policy stated that the Company should contribute to society in addition to focusing on its core business. There-fore, providing public services to address current society issues has become part of UMC’s goals. UMC’s public service scope includes the Company itself, its employees, employees’ families, the local community, and various other social entities. UMC’s public service aspects include education, envi-ronmental protection, cultural activities and childcare. The Company’s public services are handled by two major organizations: the UMC Candlelight Charity Club, whose purpose is to assist disadvantaged minorities, and the UMC Science and Culture Foundation, whose purpose is to support affairs regarding education, culture, sports and environmental protection. The Company also established a “Policy and Procedures for Refraining from Insider Trading” in May 2005 to provide a guideline for the Company’s related parties to prevent insider trading. The descriptions about labor relation-ships, environmental protection and relationships with suppliers are disclosed in the Operations Overview section.

Other information disclosures:(a) Has the Company established any educational programs for its board members? The Company provides information related to professional educational opportunities to all board members.(b) The attendance of directors and supervisors to the board meeting: In 2006, the attendance rate of directors was 84%; the attendance rate of supervisors was 61%.(c) Has the Company established a risk management policy and standards for evaluating risk and implementing its risk management policy? Not Applicable. (d) Has the Company established policies to protect consumers or its customers and does it regularly evaluate the policies’ implementation? Not Applicable.(e) Is there a policy to ensure board members avoid introducing topics of discussion that would advance their own vested interests? The board is well disciplined and enforces a strict policy of separating personal and company interests amongst its members.(f) Has the Company purchased liability insurance for its directors and supervisors? The Company has purchased liability insurance for its directors since 2000.(g) The Corporate Governance Statement: http://www.umc.com/english/investors/corp_gov.asp

The result, material deficiency (or suggestion) and improvement of corporate governance assessed by internal audit or professional institutions: None.


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Status of Internal Control

Statement of Internal Control The self-assessment of UMC’s internal control was conduct-ed for the year ended December 31, 2006 based on UMC’s internal control system. The results are described as follows:

1. UMC acknowledges that the Board of Directors and the management are responsible for establishing, executing, and maintaining a sufficient internal control system, which is already in place. The purposes of the internal control system are to provide a reasonable assurance of achieving the goals of efficiency and effectiveness of the operations, such as profitability, performance and the safeguard of the assets, the reliability of the financial reports and the compliance with applicable laws and regulations.2. The internal control system has its inherent constraints, and can only provide reasonable assurances of achieving the three goals mentioned above no matter how well it has been designed. The effectiveness of the internal control system is subject to changes in the environment and circumstances. UMC has established an internal control system with the function of self-monitoring, which is designed to take corrective actions whenever a shortcoming is identified.3. UMC’s assessment of the effectiveness of the design and execution of the internal control system is based on the Regulations Governing Establistment of Internal Control Systems by Public Companies (the Regulations) currently in effect in the Republic of China (“R.O.C.”), which specify the judgement items for evaluating the effectiveness of internal control. The internal control is divided into five components, based on the process of management control, according

to the judgement items for internal control employed by the Regulations, such as: (1) Control Environment, (2) Risk Assessments, (3) Control Activities, (4) Information and Communication, and (5) Monitoring. Each component consists of certain items, which could be referred to the Regulations.4. UMC has employed the judgement items mentioned above to evaluate the effectiveness of the design and execution of the internal control system.5. UMC believes that the effectiveness of the design and execution of its internal control system (including subsidiaries) during the above mentioned assessment period provides reasonable assurance of achieving the goals of efficiency and effectiveness of operations, the reliability of financial reports and the compliance with applicable R.O.C. laws and regulations. 6. The Statement of Internal Control will be an integral part of UMC’s annual report and prospectus that are open to the public, and within which any illegal acts, such as misstatement or concealment, would be subject to the legal liabilities of Code 20, Code 32, Code 171 and Code 174 of the Securities Exchange Laws.7. UMC’s Board of Directors approved the Statement of Internal Control (the Statement) on March 15, 2007. Nine directors attended and agreed with the content of the Statement.

Jackson Hu,Chairman and CEOMarch 15, 2007

The Company was not required to engage with a CPA to attest to the internal control system under R.O.C. regulations; there-fore, there is no CPA audit report on internal control to be disclosed for 2006 in this annual report.


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Directors’ or Supervisors’ Objections on the Important Resolution of Board MeetingsNone.

Shareholders’ MeetingThe Company’s 2006 Shareholders’ Meeting was held at UMC Recreation Center in Hsinchu Science Park on June 12, 2006. The shareholders present in person or by proxy ap-proved the following resolutions: 1. Acceptance of the 2005 business report and financial statement. 2. Distribution of 2005 retained earnings.3. Capitalization of retained earnings and additional paid-in capital from 2005 and previous years. 4. Amendment of the Company’s Articles of Incorporation, Endorsements and Guarantees Procedure and Financial Derivatives Transaction Procedure.5. Election of the Company’s 10th term of Directors and Supervisors.

Board of Directors’ MeetingsThe major resolutions from the Board of Directors from January 1, 2006 to the printing day are summarized below: 1. The election of Jackson Hu as Chairman. 2. The disposal of 63.48% of the equity of its subsidiary Hsun Chieh Investment Co., Ltd. to Hsieh Yong Capital Co., Ltd. 3. The 10th share buyback program.4. Acceptance of the 2005 business report and financial statement.

5. Distribution of 2005 retained earnings.6. Capitalization of retained earnings from 2005 and previous years and additional paid-in capital. 7. Modify the term “Audit Committee” in Chinese to avoid misinterpretation under Taiwan Laws. 8. The election of the 10th term of Directors and Supervisors.9. Cancellation of 1,000,000,000 treasury shares.10. The 11th share buyback program.11. The election of Managing Directors.12. The election of Audit Committee members. 13. The execution of ADS conversion sales program for UMC’s common shareholders.14. The authorization of Audit Committee to review and approve the compensation for CEO. 15. The Adoption of the Conduct of Board Meeting.16. Issuance of employee stock options.17. Capital Reduction. 18. Acceptance of the 2006 business report and financial statement. 19. Distribution of 2006 retained earnings.20. Investment related to mainland China.

Major Resolutions of the Shareholders’ Meeting and the Board of Directors’ Meetings

On December 1, 2006, the Company dismissed an employee for violating IT safety regulations of the Company Employee Discipline Rules and breaching of the confidentiality clause

of the Company’s Employment Agreement. The Company implemented related preventive actions including promoting IT safety regulations.

Description of Violations/Infringement of Regulations and the Company’s Response

Information of Resignation or Dismission of the Persons Related to Financial ReportsNone.


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Disclosure of Auditing Fee(a) The amount of non-auditing relevant fees charged by the appointed independent auditors and the related parties reaches 25% of the Company’s annual auditing expenses: Not Applicable.(b) If there is any change in the appointed independent auditors and the Company’s annual auditing expenses decreased simultaneously, information regarding the amount, percentage and reasons for the decrease in auditing expenses shall be disclosed: Not Applicable.(c) Auditing expenses decreased by 15% in comparison to the previous year, information regarding the amount, percentage and reasons for the decrease in auditing expenses shall be disclosed: Not Applicable.

Changes in Independent Auditors Kim Chang and MY Lee from Ernst & Young were the Company’s appointed independent auditors. As requested by Ernst & Young for its internal job rotation purpose, James Wang and MY Lee became the Company’s independent auditors since fourth quarter of 2005.

The Company’s chairman, presidents, CFO or Accounting division director have not worked in the ac-counting firm of the appointed independent auditors or the related parties within the past year.

Auditing Notes


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Title Name 2007 2006

HoldingIncrease

(Decrease)

Pledged Holding Increase

(Decrease)

HoldingIncrease

(Decrease)

Pledged Holding Increase

(Decrease)

Chairman, Supervisor Hsun Chieh Investment Co., Ltd. - - 6,134,012 5,000,000

Director, Supervisor Silicon Integrated Systems Corp. - - 4,383,041 -

Independent Director Chun-Yen Chang - - - -

Independent Director Chung Laung Liu - - - -

Independent Director Paul S.C. Hsu - - - -

Supervisor Ting-Yu Lin - - 765,522 -

Chairman and CEO Jackson Hu - - 169,188 -

Vice Chairman Peter Chang - - 238,143 -

Business Group President Ching-Chang Wen - - 207,432 -

Business Group President Fu-Tai Liou (30,000) - (13,463) -

Executive Vice President Shih-Wei Sun - - (756,686) -

Senior Vice President Stan Hung - - 328,017 -

Senior Vice President Henry Liu (70,000) - (10,803) -

Senior Vice President Tai-Sheng Feng - - 165,071 -

Vice President Nick Nee - - (1,460,332) (1,100,000)

Vice President Wen-Yang Chen - - (5,829,656) -

Vice President Ying-Chih Wu - - (745,038) -

Vice President Chia-Pin Lee - - 93,515 -

Vice President Lee Chung - - (94,922) -

Vice President Shan-Chieh Chien 2,300,000 1,300,000 117,568 1,800,000

Vice President Po-Wen Yen - - (317,686) 220,000

Vice President Tsung-Hsi Ko - - 236,045 100,000

CFO Chitung Liu - - 88,594 -

Change in Shareholding of Directors, Supervisors, Managers and Major ShareholdersUnit: share

Notes (1) No shareholder owns 10% or more of UMC shares. (2) The data represented for 2007 was gathered until February 28, 2007. (3) Counterparts of the sharehold-ing transferred or pledged are not related parties. (4) The share changes for Chun-Yen Chang, Chung Laung Liu, Ting-Yu Lin, Po-Wen Yen, Tsung-Hsi Ko, and Chitung Liu are calculated starting from the assumed date.


��

Information Disclosing the Relationship Between Any of the Company’s Top Ten ShareholdersNone.


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Investees UMC Investments Investments from Directors, Supervisors, Managers, and

Directly or Indirectly Con-trolled Businesses

Total Investments

Shares % Shares % Shares %

United Fu Shen Chen Technology Corp. 18,460,153 16.60 - - 18,460,153 16.60

Unimicron Technology Corp. 202,366,540 19.89 24,115,891 2.37 226,482,431 22.26

Faraday Technology Corp. 55,611,441 17.27 - - 55,611,441 17.27

Fortune Venture Capital Corporation 499,994,000 99.99 - - 499,994,000 99.99

Hsun Chieh Investment Co., Ltd. 33,624,110 36.49 - - 33,624,110 36.49

Pacific Venture Capital Co., Ltd. 30,000,000 49.99 - - 30,000,000 49.99

Novatek Microelectronics Corp. 60,072,615 11.54 4,123,999 0.79 64,196,614 12.33

ITE Tech. Inc. 24,229,364 21.80 - - 24,229,364 21.80

Holtek Semiconductor Inc. 51,939,380 24.45 - - 51,939,380 24.45

AMIC Technology Corporation 16,200,000 11.86 23,464,808 17.18 39,664,808 29.04

United Microdisplay Optronics Corp. 64,313,176 81.76 - - 64,313,176 81.76

Silicon Integrated Systems Corp. 228,955,885 16.09 - - 228,955,885 16.09

UMC Group (USA) 16,437,500 100.00 - - 16,437,500 100.00

UMC Japan 495,650 50.09 57,880 5.85 553,530 55.94

UMCi Ltd. 880,006,287 100.00 - - 880,006,287 100.00

UMC Capital Corp. 124, 000,000 100.00 - - 124, 000,000 100.00

United Microelectronics Corp. (Samoa) 280,000 100.00 - - 280,000 100.00

United Microelectronics (Europe) B.V. 9,000 100.00 - - 9,000 100.00

Unitech Capital Inc. 21,000,000 42.00 - - 21,000,000 42.00

XGI Technology Inc. 8,757,580 16.48 8,318,744 15.65 17,076,324 32.13

TLC Capital Co.,Ltd. 600,000,000 100.00 - - 600,000,000 100.00

MediaTek Inc. 14,979,499 1.55 1,928 0.00 14,981,427 1.55

AU Optronics Corp. 78,265,799 1.03 126,155 0.00 78,391,954 1.03

Total Percentage of Ownership of Investees

Notes (1) The companies listed above are UMC’s funds and investments. (2) Shareholding figures are actual number of shares held on December 31, 2006.


�1

Investees UMC Investments Investments from Directors, Supervisors, Managers, and

Directly or Indirectly Con-trolled Businesses

Total Investments

Shares % Shares % Shares %

C-Com Corporation 3,082,877 4.40 674,702 0.96 3,757,579 5.36

Sino-Aerospace Investment Corp. 28,500,000 11.11 - - 28,500,000 11.11

TECO Nanotech Co., Ltd. 11,000,757 4.56 - - 11,000,757 4.56

United Industrial Gases Co., Ltd. 13,185,529 7.80 - - 13,185,529 7.80

Mega Financial Holding Company 95,576,810 0.86 508 0.00 95,577,318 0.86

Hon Hai Precision Industry Co., Ltd. 1,056,795 0.02 - - 1,056,795 0.02

Industrial Bank of Taiwan Corp. 118,302,849 4.95 - - 118,302,849 4.95

Subtron Technology Co., Ltd. 11,520,000 4.79 10,156,900 4.22 21,676,900 9.01

Taiwan High Speed Rail Corporation Preferred Stock

30,000,000 - - - 30,000,000 -

Billionton Systems Inc. 2,047, 819 2.63 - - 2,047, 819 2.63

PixTech, Inc. 9,883,470 17.63 - - 9,883,470 17.63

Pacific Technology Partners, L.P. - - - - - -

Pacific United Technology, L.P. - - - - - -

Chipbond Technology Corporation 12,329,742 4.15 7,817,152 2.63 20,146,894 6.78

Epitech Technology Corporation 37,221,421 10.06 28,627,486 7.74 65,848,907 17.80

Highlink Technology Corp. 28,500,000 18.97 17,514,550 11.66 46,014,550 30.63

Mega Mission Limited Partnership - 45.00 - - - 45.00

MTIC Holdings Pte Ltd. 4,000,000 49.94 - - 4,000,000 49.94

MTIC Holdings Pte Ltd. Preferred Stock 4,000,000 - - - 4,000,000 -

Springsoft, Inc. 9,466,515 4.78 - - 9,466,515 4.78

King Yuan Electronics Co., Ltd. 35,007,928 3.21 - - 35,007,928 3.21

Rechi Precision Co., Ltd. 1,753,020 0.51 20,163,440 5.84 21,916,460 6.35


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Capital Overview

43 CapitalandShares

50 CorporateBonds

55 PreferredStock

56 AmericanDepositaryReceipts

58 EmployeeStockOptionCertificates

63 MergersandAcquisitions

63 FinancingPlansandExecutionStatus

Capital Overview

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Date Issue Price(Per share)

Authorized Shares Issued Shares Remarks

Shares(In thousands)

Total(In thousand NTD)

Shares(In thousands)

Total(In thousand NTD)

Source of Capital

Assets other than Cash

Used for Capital

Other

January, 2006 NTD 10 26,000,000 260,000,000 19,794,703 197,947,033 Note 1 - -

April, 2006 NTD 10 26,000,000 260,000,000 19,845,234 198,452,341 Note 2 - -

June, 2006 NTD 10 26,000,000 260,000,000 18,845,234 188,452,341 Note 3 - -

July, 2006 NTD 10 26,000,000 260,000,000 19,070,111 190,701,112 Note 4 - -

October, 2006 NTD 10 26,000,000 260,000,000 19,085,310 190,853,097 Note 5 - -

January, 2007 NTD 10 26,000,000 260,000,000 19,131,193 191,311,927 Note 6 - -

Capital and Shares

Notes (1) On January 16, 2006, the Science Park Administration approved the issuance of NTD 288,445 thousand from the execution of employee stock options during the 4th quarter of 2005. The Company’s paid-in capital was increased to NTD 197,947,033 thousand. (2) On April 6, 2006, the Science Park Administration approved the issuance of NTD 505,308 thousand from the execution of employee stock options during the 1st quarter of 2006. The Company’s paid-in capital was increased to NTD 198,452,341 thousand. (3) On June 2, 2006, the Science Park Administration approved the capital reduction of NTD 10,000,000 thousand due to cancellation of treasury shares. The Company’s paid-in capital was decreased to NTD 188,452,341 thousand. (4) On July 11, 2006, the R.O.C. FSC approved the issuance of NTD 2,248,771 thousand from the capitalization of retained earnings and additional paid-in capital. The Company’s paid-in capital was increased to NTD 190,701,112 thousand. (5) On October 14, 2006, the Science Park Administration approved the issuance of NTD 151,985 thousand from the execution of employee stock options during the 3rd quarter of 2006. The Company’s paid-in capital was increased to NTD 190,853,097 thousand. (6) On January 16, 2007, the Science Park Administra-tion approved the issuance of NTD 458,830 thousand from the execution of employee stock options during the 4th quarter of 2006. The Company’s paid-in capital was increased to NTD 191,311,927 thousand.

Source of Capital

Share Type Authorized Shares Allotment for Convertible

Bonds

Allotment for Stock Option Certificates

(Units)Issued Shares Un-issued Shares Total

Common stock 19,131,192,690 6,868,807,310 26,000,000,000 1,500,000,000 2,000,000,000

Unit: share

Securities under General Application SystemNot applicable.


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Note The data shown above was recorded on August 8, 2006, which was the record date for the distribution of 2005 stock dividends.

Status of ShareholdersItem Government

AgenciesFinancial

InstitutionsOther Legal

EntitiesDomestic

IndividualsForeign

Institutions & Individuals

Total

Number of shareholders 21 39 1,016 849,042 1,109 851,227

Shareholding (Shares) 27,731,900 262,007,234 3,777,439,768 7,972,544,290 7,030,387,998 19,070,111,190

Percentage (%) 0.14 1.37 19.81 41.81 36.87 100.00

Class of Shareholding (Unit: Share) Number of Shareholders Shareholding (Shares) %

1 ~ 999 246,819 91,068,242 0.48

1,000 ~ 5,000 338,221 825,523,709 4.33

5,001 ~ 10,000 117,291 812,198,939 4.26

10,001 ~ 15,000 56,790 676,797,401 3.55

15,001 ~ 20,000 23,791 410,420,036 2.15

20,001 ~ 30,000 27,432 656,512,957 3.44

30,001 ~ 40,000 12,546 428,552,736 2.25

40,001 ~ 50,000 6,611 292,776,398 1.53

50,001 ~ 100,000 12,431 833,846,481 4.37

100,001 ~ 200,000 5,331 710,697,195 3.73

200,001 ~ 400,000 2,126 568,453,555 2.98

400,001 ~ 600,000 561 270,684,876 1.42

600,001 ~ 800,000 279 192,002,576 1.01

800,001 ~ 1,000,000 139 123,552,092 0.65

Over 1,000,001 859 12,177,023,997 63.85

Total 851,227 19,070,111,190 100.00


Distribution of Common Shares

Stock: common share

Capital and Shares (cont.)

Preferred Stock None.

Capital Overview

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List of Major Shareholders

Shareholder’s Name Shareholding

Common Shares %

Citicorp Financial Service Ltd., as representative of holders of the ADRs and as nominee for Citibank, N.A., as Depositary, pursuant to a Deposit Agreement, dated as of September 21, 2000 among United Microelectronics Corporation, the Depositary and holders and beneficial owners from time to time of the ADRs issued thereunder

1,398,258,888 7.33

Hsun Chieh Investment Co., Ltd. 605,830,368 3.18

Xilinx Holding Three Ltd. 441,396,924 2.31

Silicon Integrated Systems Corp. 432,894,409 2.27

TECO Electric & Machinery Co., Ltd. 200,110,944 1.05

JP Morgan Chase Bank N.A., Taipei Branch, in custody of the Oppenheimer Developing Markets Fund managed by Oppenheimer Fund

181,412,798 0.95

Administrative Committee, Yao Hua Glass Co., Ltd. 149,494,020 0.78

iSHARES Inc. 133,395,262 0.70

Deutsche Bank AG 132,562,233 0.70

Citicorp Financial Service Ltd., as representative of the Singapore Government Fund

125,767,460 0.66


��

Item 2007 (Note 7) 2006 2005

Market price per share Highest market price 22.40 22.90 25.25

Adjusted highest market price (Note 1) – 22.61 22.37

Lowest market price 18.50 17.35 16.35

Adjusted lowest market price (Note 1) – 17.18 15.59

Average market price 20.32 19.36 20.23

Adjusted average market price (Note 1) – 19.11 17.92

Net worth per share Before distribution – 16.39 14.17

After distribution – * 13.59

Earnings per share Weighted average shares – 18,050,962,111 shares

18,410,921,978shares

Earnings per share (Note 2) – 1.81 0.38

Earnings per share (Note 3) – * 0.38

Dividends per share Cash dividends – * 0.40

Stock dividends Dividends from retained earnings – * 0.05

Dividends from additional paid–in capital – * 0.05

Accumulated unappropriated dividends – – –

Return on investment Price / Earnings ratio (Note 4) – 10.59 53.42

Price / Dividends ratio (Note 5) – * 50.75

Cash dividends yield rate (Note 6) – * 0.02

Market Price, Net Worth, Earnings, and Dividends per ShareUnit: NTD

* Subject to change following the 2007 shareholders’ meeting resolution.

Notes (1) The calculation of adjusted market price was based on retroactive adjustment for capitalization of unappropriated earnings, additional paid-in capital and bonus to employees. (2) The calculation of EPS was based on weighted average shares outstanding for the year. (3) The calculation of EPS was based on retroactive adjustment for capitalization of unappropriated earnings, additional paid-in capital and bonus to employees. (4) Price / Earnings ratio = Average closing price / Earnings per share. (5) Price / Dividends ratio = Average closing price / Cash dividends per share. (6) Cash dividends yield rate = Cash dividends per share / Average closing price. (7) The data represented for 2007 was gathered until March 15, 2007. (8) The average closing prices for years 2005, 2006 and 2007 were NTD 20.30, NTD 19.17, and NTD 19.98, respectively.

Capital Overview

��

Dividend Policy in the Company’s Articles of IncorporationAccording 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’ operating 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’ remu-neration; 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 Company shares or cash. Employees of the Company’s subsidiaries, meet-ing certain requirements determined by the board of directors, are also eligible for the employees’ bonus.

(f) The distribution of the remaining portion, if any, will be recommended by the board of directors and approved through the shareholders’ meeting.

The Company is in its growth stage; the policy for divi-dend distribution should reflect factors such as the current and future investment environment, fund requirements, do-mestic 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.

Proposed Distribution of DividendThe Company’s proposal for 2006 earnings distribution was passed on the 6th board meeting of the 10th term. This proposal, a cash dividend of NTD 0.70 per share, will be discussed at the annual shareholders’ meeting.

Dividend Policy and Status

Not Applicable.

Impact of Stock Dividends on Operating Results, EPS and ROE


��

Details of the 2005 employee bonus settlement and directors’ & supervisors’ remuneration are as follows:

Details As Approved at the Shareholders’ Meeting

As Recommended by the Board of Directors

Differences Reasons for Differences

Settlement of employ-ees’ bonus by issuance of new shares

Number of shares (In thousands) 45,846 45,846 – –

Amount (In thousand NTD) 458,455 458,455 – –

Percentage on total number of outstanding shares at year end

0.24 0.24 – –

Settlement of employees’ bonus by cash

(In thousand NTD)

305,636 305,636 – –

Remuneration paid to directors and supervisors

(In thousand NTD)

6,324 6,324 – –

Effect on earnings per share before retroactive adjustments

Earnings per share (NTD) Basic 0.38 0.38 – –

Diluted 0.38 0.38 – –

Pro forma earnings per share tak-ing into consideration employees’ bonus and directors’ & supervi-sors’ remuneration (NTD)

Basic 0.34 0.34 – –

Diluted 0.34 0.34 – –

For the year ended December 31, 2005

Employee Bonus and Directors’ & Supervisors’ Remuneration

According to the Company’s Articles of Incorporation, current year’s earnings, if any, shall be distributed in the manner described on page 47.

Information on the earnings per share and amount of em-ployee bonus and remuneration to directors and supervi-sors passed by the board of directors:

The Company’s resolution on earnings distribution was passed on the 6th board meeting of the 10th term. Details regarding earnings distribution are as follows:(a) A cash bonus for employees of NTD 2,324,119,405. The remuneration paid to directors and supervisors is NTD 15,494,130.(b) In consideration of employee bonus and remuneration to directors and supervisors, pro forma diluted EPS is NTD 1.68.

Capital Overview

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Instance 11th Round 10th Round

Purpose To transfer to employees To maintain the Company’s credit and shareholders’ equity

Buy-back period 2006.5.23~2006.7.22 2006.2.16~2006.4.15

Price range (NTD) 13.90~32.15 12.35~27.50

Classification and volume (Shares) 400,000,000 Common Shares

1,000,000,000 Common Shares

Amount (NTD) 7,648,334,032 19,640,228,401

Cancellation and transfer volume (Shares) - 1,000,000,000

Cumulative cancellation and transfer volume (Shares) 1,335,462,000 1,335,462,000

Cumulative holding (Shares) 1,342,067,000 942,067,000

Cumulated holding as a percentage of total issued shares 7.02 4.92

Share Buy-back History

Note The data shown above includes transactions from January 1, 2006 to March 15, 2007.


�0

Corporate Bonds

Type Unsecured Corporate Bonds

Issue date 2001.4.16~2001.4.27

Face amount NTD 1,000,000

Listing exchange R.O.C. OTC Securities Exchange

Issue amount NTD 1,000,000

Issue size NTD 15 billion

Coupon rate 1A01~1A10: 5.1850%1A11~1A19: 5.1195%1B01~1B10: 5.2850%1B11~1B19: 5.2170%

Maturity 1A–5 years; 2006.4.16~2006.4.271B–7 years; 2008.4.16~2008.4.27

Guarantor -

Trustee Trust Dept., Mega International Commercial Bank Co., Ltd.

Address of trustee 2F, 550, Sec. 4, Chung Hsiao E. Road, Taipei, Taiwan R.O.C.

Underwriter -

Registrar, principal paying, conversion and transfer agent

-

Address of agent -

Legal counsel Chen & Lin Attorneys-at-Law

Auditor Diwan, Ernst & Young

Redemption 1A is a five-year term, and total size is NTD 7.5 billion. Principal will be paid after three, four, and five years at 30%, 30%, and 40% respectively. 1B is a seven-year term, and total size is NTD 7.5 billion. Principal will be paid after five, six, and seven years at 30%, 30%, and 40% respec-tively. Interest will be paid annually.

Principal payable NTD 5.25 billion

Redemption -

Covenant -

Name of rating company, date and result of rating

Taiwan Ratings Corporation, 2001.3.8, twAA

Other obligation -

Effect due to dilution -

Name of custodian -

Capital Overview

�1

Corporate Bonds (cont.)

Type Zero Coupon Exchangeable Bonds Due 2007

Issue date 2002.5.10

Face amount USD 10,000

Listing exchange Luxembourg Stock Exchange

Issue amount USD 10,000

Issue size USD 235,000,000

Coupon rate 0%

Maturity 5 years; 2007.5.10

Guarantor -

Trustee Citibank, N.A.

Address of trustee Cottons Centre, Hays Lane, London SE1 2QT, United Kingdom

Underwriter Lehman Brothers Inc.

Registrar, principal paying, exchange and transfer agent

Citibank, N.A.

Address of agent 5 Carmelite Street, London EC4Y 0PA, United Kingdom

Legal counsel Simpson Thacher & Bartlett


Redemption On the maturity date, the issuer will redeem the bonds at their principal amount, unless, prior to such date:(a) The issuer shall have redeemed the bonds at the option of the issuer, or the bonds shall have been redeemed at the option of the bondholders.(b) The bondholders shall have exercised the conversion right before maturity; or (c) The bonds shall have been purchased by the issuer and cancelled.

Principal payable USD 93,830,000

Redemption or early redemption clause (a) The issuer has the option to call all or any portion of the bonds on or at any time after three months after the issue date and prior to the maturity date based on the price to be agreed upon, if the closing price of the common shares on the Taiwan Stock Exchange in US dollars, calculated at the prevailing exchange rate, for each of the 20 consecutive trading days, the last of which occurring not more than 10 days prior to the date of the notice of such redemption, is at least 120% of the exchange price in effect on each such trading day translated into US dollars at the rate of exchange established on the pricing date.(b) The Company may redeem the out-standing bonds in whole, but not in part, at their principal amount in the event that 90% of the bonds have been previously exchanged, redeemed or purchased and cancelled.(c) The issuer may redeem all, but not part of, the bonds at their principal amount in the event of changes in R.O.C. taxation resulting in additional costs to the issuer.

Covenant -

Name of rating company, date and result of rating -

Other obligation Balance of amount converted to (exchangeable or warrant) shares, ADSs, or other types of securities as of printing date

The balance of amount exchanged to common shares of AU Optronics Corp. (“AUO”) is USD 6,060,000. The balance of amount exchanged to ADSs of AUO is USD 135,110,000.

Policy of issuing or converting (exchangeable or warrant)

(a) Bondholders have the right hereunder to exchange the bonds into common shares or ADSs of AUO.(b) The bondholders may, from 40 days after the last issue date to the 30 days prior to the maturity date, exchange the bonds into the common shares or ADSs of AUO as a substitute for the issuer’s cash redemption. The detailed exchanging procedures and the rights and obligations of bondholders who exchange within five business days prior to and during the closed period will be subject to the indenture and the paying, exchange and registrar agency agreement.

Effect on the current shareholders due to dilution The bonds are eligible to be exchanged into common shares or ADSs of AUO. This will not result in any dilution effect to UMC shareholders.

Name of custodian Citibank, N.A.


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Type Unsecured Corporate Bonds

Issue date 2003.5.21~2003.6.24

Face amount NTD 5,000,000

Listing exchange R.O.C. OTC Securities Exchange

Issue amount NTD 5,000,000

Issue size NTD 15 billion

Coupon rate 3A: The annual coupon rate is 4.0% minus the floating rate, but no less than 0%. The rate is adjusted annually based on the “floating rate” of the second London business date prior to the issued date of each “interest accrued period”. The interest is calculated per annum. 3B: The annual coupon rate is 4.3% minus the floating rate, but no less than 0%. The rate is adjusted annually based on the “floating rate” of the second London business date prior to the issued date of each “interest accrued period”. The interest is calculated per annum. “Interest accrued period” is the period starting from a year prior to the interest payout date to one day prior to the interest payout date. “Interest accrued method” is defined as the coupon rate times the number of days in the interest period divided by actual days of the year. The rate is calculated to five figures after the decimal point. “Business date” is referred to the London financial busi-ness date, or is otherwise referred to the Taiwan, Taipei and Kaohsiung financial business date. “Floating rate” is referred to the USD 12-Month LIBOR rate shown on London time 11am, Moneyline Telerate pg. 3750. The initial interest pricing date is set as the second London busi-ness date prior to the bond issuance date.

Maturity 3A – 5 years; 2008.5.21~2008.6.24 3B – 7 years; 2010.5.21~2010.6.24

Guarantor -

Trustee Trust Dept., Mega International Commercial Bank Co., Ltd.

Address of trustee 2F, 550, Sec. 4, Chung Hsiao E. Road, Taipei, Taiwan R.O.C.

Underwriter -

Registrar, principal paying, conversion and transfer agent

-

Address of agent -

Legal counsel Chen & Lin Attorneys-at-Law


Redemption 3A is a five-year term, and total size is NTD 7.5 billion. Principal will be paid in full at matu-rity. 3B is a seven-year term, and total size is NTD 7.5 billion. Principal will be paid in full at maturity. Interest will be paid annually.

Principal payable NTD 15 billion

Redemption -

Covenant -


Taiwan Ratings Corporation, 2003.4.24, twAA-

Other obligation -

Effect on the current shareholders due to dilution -

Name of custodian -

Capital Overview

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Type Euro Convertible Bonds Due 2008

Issue date 2005.10.05

Face amount USD 10,000

Listing exchange EuroMTF Market of the Luxembourg Stock Exchange

Issue amount USD 10,000

Issue size USD 381,400,000

Coupon rate 0%

Maturity 2008.2.15

Guarantor -

Trustee Citibank, N.A.

Address of trustee Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, United Kingdom

Underwriter Morgan Stanley Services Limited and Lehman Brothers International (Europe)

Registrar, principal paying,conversion and transfer agent

Citibank, N.A.

Address of agent 5 Carmelite Street, London EC4Y 0PA, United Kingdom

Legal counsel Simpson Thacher & Bartlett


Redemption The bonds will be redeemed at 100% of their principal amount by the Company on the maturity date unless:(a) The issuer shall have redeemed the bonds at the option of the issuer, or the bonds shall have been redeemed at the option of the bondholders.(b) The bondholders shall have exercised the conversion right before maturity; or (c) The bonds shall have been purchased by the issuer and cancelled.

Principal payable USD 381,400,000

Redemption or early redemption clause (a)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. (b)If at least 90% in principal amount of the bonds has already been redeemed, repur-chased, cancelled or converted, the Company may redeem all, but not some only, of the bonds. (c)In the event that the Company’s ADSs or shares officially cease to be listed or admitted for trading on the New York Stock Exchange or the Taiwan Stock Exchange, as the case may be, each bondholder shall have the right, at such bondholder’s option, to require the Company to repurchase all, but not in part of, such bondholder’s bonds at their principal amount. (d)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. (e)If a change of control occurs with respect to the Company, each bond-holder 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.


��

Type Euro Convertible Bonds Due 2008

Covenant -


Taiwan Ratings Corporation, 2005.8.15, twAA

Other obligation Balance of amount converted to (exchangeable or warrant) shares, ADSs, or other types of securities as of printing date

-

Policy of issuing or converting (exchangeable or warrant)

(a) Bondholders have the right hereunder to convert the bonds into the Company’s ADSs.(b) The bondholders may from November 4, 2005 to February 5, 2008 convert the bonds into the Company’s ADSs as a substitute for the issuer’s cash redemption. In addition, the bondholders will not be able to effect conversions into ADSs during any closed period.

Effect on the current shareholders due to dilution The underlying conversion for ECB is treasury shares. If the ECB is fully converted, the dilu-tion ratio to original shareholders is 2.6%. The impact to the dilution is minimal.

Name of custodian Citibank, N.A.


Capital Overview

��


Zero Coupon Exchangeable Bonds Due 2007 2007 2006 2005 2004 2003 2002 2002. 5.10 (Issue Date)

The quantity of holding exchanged securities (Common shares)

73,380,144 74,836,861 73,566,140 66,109,143 148,271,262 139,769,528 137,202,140

Exchangeable price NTD 44.30 NTD 44.30 NTD 46.10 NTD 51.30 NTD 54.91 NTD 58.25 NTD 59.34

Market price High 117.50 123.50 121.50 156.00 109.56 100.00 -

Low 107.50 109.00 101.50 104.00 94.50 92.65 -

Average 113.90 117.75 112.81 115.88 99.59 95.18 -

Reference shares Common Shares or ADSs of AU Optronics Corp.

Exchangeable Bonds Information

Note The data represented for 2007 was gathered until March 15, 2007.

Zero Coupon Convertible Bonds Due 2008 2007 2006 2005 2005. 10.05 (Issue Date)

The quantity of holding converted securities (Common shares)

500,000,000 500,000,000 500,000,000 500,000,000

Convertible price USD 3.693 USD 3.693 USD 3.814 USD 3.814

Market price High 110.84 112.50 105.25 -

Low 103.22 98.38 97.50 -

Average 106.15 103.65 102.12 -

Reference shares UMC ADS

Euro Convertible Bonds Information


None.Warrant Bonds Information

None.Preferred Stock


��

Issue Date 2006.11.6 2006.9.1 2005.9.1 2005.1.20 2004.11.16 2004.8.19

Listing exchange New York Stock Exchange

New York Stock Exchange





Issue amount USD 108.2 million Stock dividend Stock dividend USD 84.2 million USD 76.3 million Stock dividend

Listing price / unit USD 3.05 - - USD 3.33 USD 3.47 -

Issue units 35,456,000 2,831,464 25,833,137 25,290,000 22,000,000 15,088,684

Underlying representing shares UMC common shares

UMC common shares

UMC common shares

UMC common shares

UMC common shares

UMC common shares

Number of equivalent local shares per ADS

5 shares 5 shares 5 shares 5 shares 5 shares 5 shares

Rights and obligations of ADS holder

Same as the common shareholder

Same as the com-mon shareholder





Trustee N/A N/A N/A N/A N/A N/A

Depositary bank Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A.

Custodian bank Citibank, N.A. Taipei Branch

Citibank, N.A. Taipei Branch





Outstanding balance (Units) The total outstanding balance is 315,107,776 units.

Issuing expenses and maintenance fees

Except for IPO and dividends, the issuing expenses will be borne by the selling shareholders. The maintenance fees will be borne by the Company.

Important terms and conditions of depositary agreement and custodian agreement

- - - - - -

American Depositary Receipts

Note The data shown above was gathered until March 15, 2007.

Closing Price per Share (USD) 2007 2006

High Low Average High Low Average

3.83 3.12 3.44 3.94 2.79 3.22

American Depositary Receipt Trading Data


Capital Overview

��

2004.1.2 2003.12.23 2003.8.15 2002.9.9 2002.3.19 2001.8.17 2000.9.19








USD 13.8 million USD 24.4 million Stock dividend Stock dividend USD 439.7 million Stock dividend USD 1,291.5 million

USD 4.92 USD 4.75 - - USD 9.25 - USD 14.35

2,804,000 5,146,000 6,965,107 22,655,667 47,537,780 13,500,000 90,000,000

UMC common shares

UMC common shares

UMC common shares

UMC common shares

UMC common shares

UMC common shares

UMC common shares

5 shares 5 shares 5 shares 5 shares 5 shares 5 shares 5 shares








N/A N/A N/A N/A N/A N/A N/A

Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A. Citibank, N.A.








The total outstanding balance is 315,107,776 units.

Except for IPO and dividends, the issuing expenses will be borne by the selling shareholders. The maintenance fees will be borne by the Company.

- - - - - - -


��

Employee Stock Option Certificates

Notes (1) The data shown above was gathered until March 15, 2007. (2) The date of approval refers to the date when the R.O.C. FSC approved the Stock Option Plan. (3) Each unit of the stock option entitles the recipient to subscribe to one share of the Company’s common shares.

Status of Stock Option Plan and Impact on Stockholders’ Equity

Type Employee Stock Option Certificates

3rd Issued, 1st Round 2005

2nd Issued, 1st Round 2005

1st Issued, 1st Round 2005

Date of approval 2005.12.22 2005.12.22 2005.12.22

Issue date 2006.8.24 2006.5.22 2006.1.4

Units issued 28,140,000 42,058,000 39,290,000

Ratio of issue shares to outstanding shares (%) 0.15 0.22 0.21

Option duration 2006.8.24~2012.8.23 2006.5.22~2012.5.21 2006.1.4~2012.1.3

Method for performance of contract The issue of new shares The issue of new shares The issue of new shares

Vesting schedule The grant period for employee options is six years. Employees may exercise up to 50% of the options after two years, up to 75% after three years and up to 100% after four years.

Exercised shares - - -

Exercised amount - - -

Un-exercised shares 28,140,000 42,058,000 39,290,000

Exercise price NTD 18.35 NTD 19.80 (Original) NTD 19.16 (After Dividend)

NTD 18.30 (Original) NTD 17.68 (After Dividend)

Ratio of un-exercised shares to outstanding shares (%) 0.15 0.22 0.21

Effect on current shareholders due to dilution The strike price for the shares is the market price at the time of issuance and the vesting period for employee options is from two years to four years. The dilution effect to current shareholders is insignificant.

Capital Overview

��


4th Issued, 1st Round 2004



Date of approval 2004.9.30 2004.9.30 2004.9.30

Issue date 2005.9.29 2005.8.16 2005.4.29

Units issued 51,990,000 54,350,000 23,460,000


Option duration 2005.9.29~2011.9.28 2005.8.16~2011.8.15 2005.4.29~2011.4.28



Exercised shares - - -

Exercised amount - - -


Exercise price NTD 19.95 (Original) NTD 19.71 (After Dividend)





Employee Stock Option Certificates (cont.)


�0





Date of approval 2004.9.30 2003.10.8 2003.10.8

Issue date 2004.10.13 2004.7.1 2004.3.23

Units issued 20,200,000 56,590,000 33,330,000


Option duration 2004.10.13~2010.10.12 2004.7.1~2010.6.30 2004.3.23~2010.3.22



Exercised shares 907,000 - -

Exercised amount 16,144,600 - -








Capital Overview

�1





Date of approval 2003.10.8 2002.9.11 2002.9.11

Issue date 2003.11.26 2003.1.3 2002.10.7

Units issued 57,330,000 61,000,000 939,000,000


Option duration 2003.11.26~2009.11.25 2003.1.3~2009.1.2 2002.10.7~2008.10.6



Exercised shares - 1,849,000 261,866,750

Exercised amount - 33,129,900 4,294,284,525









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Notes (1) The data shown above was gathered until March 15, 2007. (2) Employees listed in this table are the top 10 holders of stock options and each subscription amount exceeds NTD 30 million. (3) Hong-Jen Wu retired on June 30, 2006 and the data represented his acquisition until June 30, 2006.

List of Managers and Top 10 Employees Participating in Employee Stock Option PlanUnits Granted Units

Granted / Total Outstanding Shares (%)

Exercised Units Exercise Price (NTD)

Exercised Amount (In thousand NTD)

95,300,000 0.50 850,000 15.9 13,515

- - 2,300,000 15.7 36,110

5,000,000 0.03 - - -

2,000,000 0.01 - - -

15,000,000 0.08 - - -

Title Name


















CFO Chitung Liu


Capital Overview

��

Units Exercised / Total Outstanding Shares (%)

Un-exercised Units Exercise Price (NTD)

Un-exercised Amount (In thousand NTD)

Units Un-exercised/Total Outstanding Shares (%)

0.01 92,150,000 15.7 1,446,755 0.48

0.01 - - - -

- 5,000,000 17.7 88,500 0.03

- 2,000,000 22.9 45,800 0.01

- 15,000,000 24.7 370,500 0.08

Mergers and Acquisitions or the Issue of New Shares to Acquire Another Company’s Shares

None.

Financing Plans and Execution Status

Plan Title Issue Date Estimated Plan Completion Date

Capital Purpose Changes of Plan

Date for Announcement on MOPS

Euro Convertible Bonds Due 2008 October 5, 2005 September 30, 2006 Purchasing raw materials overseas

None September 29, 2005

Plan Description

Quarterly Capital Execution Report

2nd Quarter, 2006

Planned Capital Execution in 2nd Quarter, 2006 NTD 4,280,100 thousand, 34.01% Completed

Actual Capital Execution in 2nd Quarter, 2006 NTD 5,248,093 thousand, 41.70% Completed

Planned Accumulated Capital Execution NTD 11,705,100 thousand, 92.99% Completed

Actual Accumulated Capital Execution NTD 13,948,090 thousand, 110.82% Completed

Reasons for Capital Execution Discrepancies No significant differences from the plan

Capital Execution Summary


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Operation Overview

65 BusinessScope

65 IndustryScope

66 Research&DevelopmentAchievements andPlans

68 MarketandSalesConditions

72 EmployeeAnalysis

73 EnvironmentalProtectionInformation

74 LaborRelations

75 MajorAgreements

Operation Overview

��

Major BusinessFull Service Semiconductor Wafer Foundry.

Current Products and ServicesUMC provides a variety of services to fit individual customer’s needs, including silicon intellectual property (IP), IC design support, design verification, mask tooling, wafer fabrication, and testing. Wafer fabrication accounts for 97% of 2006 revenues.

Future Products and ServicesAdvanced 65-nanometer and 45-nanometer ProcessesUMC has reached world-class manufacturing levels and leads most of the major semiconductor companies in the

introduction of advanced deep sub-micron processes. UMC has been in volume production for advanced 65-nanometer technology since 1Q 2006. Furthermore, with 45-nanometer test wafers produced in 4Q 2006, UMC is actively deve-loping 45-nanometer process technologies for customer product validation to significantly increase the competitive advantages of its customers.

SoC Process TechnologiesIn response to the growing trend towards System-on-Chip (SoC) products, UMC continues to develop resources for SoC designers including embedded memory macros, Mixed-Signal/RF CMOS processes, and other system inte-gration technologies used for SoC designs.

Business Scope

Current Industry Products & DevelopmentThe functions of electronic products increase and evolve on a daily basis, leading to an enormous increase in design and process complexity for today’s semiconductors. As far as manufacturing efficiency is concerned, wafer sizes have also migrated to the next generation of larger 300mm wafers. The combination of both advancing technologies and larger wafers has somewhat slowed overall development, while investment has increased to bring these new technologies to maturity. This trend has increased the challenges involved in semi-conductor design, production, packaging, and testing. For the most part, semiconductor companies find it difficult to manage every aspect of the IC supply chain, adding to the at-traction of the vertically disintegrated business model.

The Relationship Between Up-, Mid-, and Down-stream Supply Chain ServicesThe semiconductor industry has continuously evolved in order to support down-stream (end-user) electronic prod-ucts. Therefore, IC manufacturers must develop new pro-cess technologies early to enable up-stream chip developers’ sophisticated designs for more powerful ICs. This in turn allows down-stream companies to innovate new applica-tions and products that can take advantage of the better performing semiconductors.

Development TrendsAdvanced technologies have enabled electronic prod-ucts, especially those in the Computer, Communication,

and Consumer sectors, to merge their functions in ways previously unseen. Networking capabilities have allowed electronic products such as computers, cell phones, televi-sions, PDAs, CD-ROMs, and digital cameras to com-municate with each other to exchange information. More powerful chips are required to drive multimedia func-tions (processing visual data, etc.) and to resolve network bandwidth issues. At the same time, the trend towards more personalized electronic devices means that products are becoming smaller and consuming less power. Process technology must also shrink aggressively to accommodate this trend to integrate more functions, reduce the number of parts needed to operate, and lower IC power consump-tion. Dedicated semiconductor foundries will need to achieve this process improvement, and at the same time develop multiple process technologies to satisfy the varying needs of Computer, Communication, and Consumer applications. A Competitive MarketThe double-digit growth rate that is seen every year for the foundry industry has attracted more and more competitors, including IDM companies such as Samsung, and pure-play foundries like China’s SMIC and HHNEC and Korea’s Dongbu. With the increasing number of competitors, the Company has enhanced its competitiveness by expanding 300mm wafer capacity strategically and effectively. Mean-while, the Company continuously strengthens its advantage through on-going development in advanced and specialty process technologies.

Industry Scope


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UMC’s research and development group is committed to pushing the forefront of technology and providing the lat-est market-driven, customer-focused and cost effective System-On-Chip (SoC) foundry technology solutions. UMC’s commitment to R&D can be illustrated by the Company’s 2006 R&D expenditures, which reached 8.88% of corporate revenues. The Company is also construct-ing a new R&D center for nanometer technologies in the Tainan Science Park, the first of its kind at the southern Taiwan site, along with a new 300mm wafer plant that will host 32-nanometer technology development. The R&D center will be completed in April 2007, while the new fab will be ready in early 2008. These are all strong testimonies for UMC’s commitment to develop the most advanced SoC solutions for our customers. Going for-ward, the Company will continue to dedicate its most significant resources to further process technology devel-opment.

UMC delivered the foundry industry’s first 65-nanometer customer products in June of 2005. During the course of 2006, competitive progress was made in perfecting 65-nanometer technology for production. The technology has gained widespread acceptance from a variety of custom-ers including leading-edge manufacturers of cell phones, FPGA, graphics and broadband, many of which are cur-rently in volume production. This was highlighted with UMC’s delivery of the world’s largest 65-nanometer FPGAs to one of its customers. The enhanced product features a 65 percent logic capacity increase over previous generation FPGAs to enable the industry’s highest gate count, with approximately 1.1 billion transistors. The chips, which feature triple gate oxide technology and 11 copper metal layers, have demonstrated excellent yields and are expected to be ready for full production in early 2007. In addition, UMC is in the final process optimization of a shrink ver-sion of its 65-nanometer process technology, called the UMC 55SP process (shrinking L65 feature sizes to 90% of its original size). This offering is expected to help custom-ers migrate their 65-nanometer products for more density and performance while delivering more competitive cost incentives to further extend their product life.

On the 45-nanometer development front, UMC has suc-cessfully produced functional SRAM chips that feature an impressive bit cell size of less than 0.25um2. The process used sophisticated immersion lithography for its 12 critical layers and incorporated the latest technology advancements such as ultra shallow junction, mobility enhancement techniques, and ultra low-k dielectrics (k=2.5). The 45-nanometer node is a challenging technology generation that simultaneously introduces new materials and process modules. UMC is

among the first companies in the world to produce working 45-nanometer silicon, with successful results realized for the initial 45-nanometer wafer lots. UMC will continue to build on its 45-nanometer momentum to enhance yields and pre-pare the technology for adoption by our foundry customers during 2008.

In terms of memory development, UMC’s embed-ded 6T-SRAM exhibits an industry leading footprint with excellent performance and functionality at the lowest pos-sible sustaining voltage, which has always been the key yield driver for leading 65-nanometer and 45-nanometer processes. Furthermore, a high density, low cost fully logic-compatible embedded memory solution has been developed to replace traditional embedded DRAM that was used up until 90-nanometer. UMC completed its process and design IP offerings for the 90-nanometer technology node in 2006, with the 65-nanometer node scheduled for 2007. Embed-ded 0.18-micron flash (e-Flash) memory cells featuring 1.7 megabit macro functionality and 25 nanosecond access time performance are also in production for multiple cus-tomer products for the automotive, MCU and PC security applications. In addition, a 0.13-micron e-Flash macro is in the final stage of reliability verification for product applications. The 0.13 e-Flash process has been success-fully integrated into customer products to produce the industry’s lowest power field-programmable gate arrays (FPGAs) that feature power consumption as low as 5mW, a new standard for the industry.

On the specialty technology front, UMC’s 0.18-micron high voltage (HV) technology targeted for the growing portable liquid crystal display (LCD) driver market is now in mass production. To improve overall HV process perfor-mance, UMC is piloting 0.162-micron HV chips and further developing its advanced 0.135-micron node. Supplement-ing UMC’s LCD driver process is its “super high voltage (≥600V)” process, which is in development for customers designing for special applications such as transformers and frequency conversion motors. UMC has also completed the development of its CMOS Image Sensor (CIS) technology at the 0.13-micron process node. This technology enables high-resolution camera phones to operate more cost effectively by allowing higher density sensors within the same area.

SoC designers today require proven design support solu-tions to help overcome the challenges encountered during the design cycle in the deep sub-micron era. UMC continu-ously introduces new design support resources, such as the most updated Reference Design Flow with silicon-proven design methodologies in 90-nanometer and 65-nanometer technologies, and in particular adding more focus on Design for Manufacturing (DFM) support. UMC provides opti-

Research & Development Achievements and Plans

Operation Overview

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mized DFM resources that customers can easily incorporate into their existing design environments to address issues such as timing closure, signal integrity and leakage power. UMC’s enhanced DFM solutions include Lithography Pro-cess Check (LPC), Critical Area Analysis (CAA), Litho and Chemical Metal Polishing (CMP) variation aware extraction, thermal impact analysis and Static Statistical Timing Analy-sis (SSTA). To develop its comprehensive 65-nanometer offering, UMC partnered with every major EDA vendor as well as newer DFM companies that provide specialized DFM solutions. In addition, UMC successfully developed a series of reliable, high-quality design intellectual properties (IP), including DFM-compliant, process-tuned 90-nanometer and 65-nanometer libraries, ultra high-speed PLL, and vari-ous state-of-the-art analog mixed-signal IP for advanced

audio/video applications. They can be utilized in customers’ SoC designs to help them shorten the product design cycle with the shortest time-to-market capability. UMC has always actively pursued new inventions throughout its technology advancement. For 2006, UMC filed 524 patent applications, and has been granted 298 pat-ents in the same period of time; the total of granted patents has reached 8,417. This reflects UMC’s commitment to inno-vation and intellectual properties during its technology de-velopment stage. Additionally, over the past few years, UMC has won numerous awards from the R.O.C. government for its outstanding achievements in semiconductor technology research. UMC is strongly positioned in the foundry indus-try through its continuous innovation.

Note The data represented for 2007 was gathered until March 15, 2007; the figure represented was unaudited.

R&D Expenditures

2007 2006

Expenditures 1,655,036 9,237,616

Long-term and Short-term Business Development Plan

UMC operates as the SoC Solution Foundry, dedicated to providing comprehensive SoC solutions for its customers. This approach involves collaborating closely with custom-ers as well as partners throughout the entire supply chain, including equipment, EDA tool, IP and test and packaging vendors to work synergistically towards each customer’s SoC silicon success. This strategy has resulted in a broad range

of resources available to SoC designers, including silicon validated reference flows, a broad IP portfolio, free-of-charge libraries and extensive test and packaging capabilities. Com-bine these with UMC’s advanced process technology and state-of-the-art 300mm manufacturing, and the result is shortened time-to-market for customers’ SoC products.

Research & Development Achievements and Plans (cont.)

In thousand NTD


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Major Sales RegionsUMC’s technologies and services have proven themselves by contributing to the success of its customers, many of whom are major players in the global IC industry. Currently, the majority of the Company’s customers are located in North America and Asia, with Europe following closely behind. Japanese customers’ orders primarily go to UMC’s subsid-iary in Japan, UMCJ, although a few customers deal directly with UMC. UMC will enhance its partnerships with world-class customers around the globe by continuing to develop customers’ high-end products to ensure the steady growth of UMC for the mid- and long-terms.

Market ShareUMC is a leading company in the foundry industry, with a 2006 sales revenue figure of USD 3.196 billion. UMC pos-sessed a global pure-play foundry market share of 19%. TSMC, SMIC and Chartered are considered major competi-tors. Together in 2006, UMC, TSMC, SMIC and Chartered are estimated to account for approximately 84% of the pure-play foundry market share. In 2006, sales revenues for TSMC, SMIC and Chartered were USD 9.662 billion, USD 1.465 billion and USD 1.414 billion, respectively. TSMC, SMIC and Chartered had a market share of 50%, 8% and 7% respectively (market share information and revenues of the competitors are based on their financial releases and data from IC Insights).

Future Market Supply, Demand, and Growth PotentialAccording to reports by the World Semiconductor Trade Statistics (WSTS), the Semiconductor Industry Associa-tion (SIA), Dataquest, and In-Stat and IC Insights, the global semiconductor market in 2007 is estimated to exhibit growth in the range of 12% to 14%, following growth of 8% in 2006.

To provide an indicator of future market supply, de-mand and growth potential by industry breakdown, Fabless design companies have historically outperformed the overall semiconductor market. Furthermore, increasing numbers of Integrated Device Manufacturers (IDMs) are adopting the strategy of using external foundry services. Therefore, the foundry service market is expected to grow at a faster rate

than the overall semiconductor industry.Competitive AdvantagesIC design companies in Taiwan are performing well, and are second only to North American IC design firms. UMC has a high market share in the Taiwan market and can directly enjoy the advantages accompanying the rapid growth of Taiwan’s IC design companies. The IC industry in Taiwan is well structured and is very competitive in terms of efficiency and cost. UMC’s technology leadership leveraged with the advantages of Taiwan’s IC industry will result in greater competitive-ness for the Company.

Positive Factors Relating to Future DevelopmentConsidering the long-term steady growth of the IC indus-try, the relative advantages of foundry manufacturing, and UMC’s technical excellence, we believe that the following factors will contribute positively to the future development of the Company: UMC has distinguished itself as a top-tier company in the foundry industry. The trend towards increased disintegra- tion within the industry will create new opportunities for the Company as the market for foundry services continues to grow. Major IDMs are shifting their strategy to increase their use of external foundry services, which will help the growth of the foundry service market. UMC maintains stable long-term orders through its strategic alliances with global industry leaders. UMC has an exceptional management team that strongly emphasizes the research and development of advanced process technologies. UMC is the industry leader in the implementation of 300mm wafer production. The Company has two 300mm facilities, Fab 12A in the Tainan Science Park, and Fab 12i in Singapore. Furthermore, a third 300mm facility is under construction in the Tainan Science Park. UMC’s aggressive expansion into 300mm manufacturing will help attract more outsourcing orders from IDMs and fabless companies.

Market and Sales Conditions

Operation Overview

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UMC is in volume production for 65-nanometer process technology. UMC is one of the few foundries in the world that is capable of providing this technology capability. As the Company produces more advanced technology products, the Company reaps higher profits while offering customers value-added benefits. In response to the trend of producing greater numbers of SoC products, UMC continues to develop embedded memory macros, Mixed-Signal/RF CMOS processes, and other system integration technologies used in SoC designs to meet customers’ needs and firmly establish the company’s leading position for the development of SoC technologies. As the need continues to rise for consumer products such as digital televisions, LCD televisions, DVD players, MP3 players and smart phones, the semiconductor industry is expected to enter another growth stage.

Negative Factors Relating to Future Development Today’s trend has seen softening demand for personal

computers (PC), which may cause a negative impact to the industry’s growth. The recent prosperity of the foundry market has at-

tracted many new competitors into the market; this may negatively impact the market balance.

Adaptations to Market Situation In response to other foundry market entrants, UMC will

build on its competitive advantages, such as leading-edge technologies, high manufacturing yields, and comprehensive customer services. This will widen the gap with these new competitors, and differentiate UMC from the rest of the industry. This strategy will ensure UMC remains a primary choice for foundry customers. The Company will strive to provide the most advanced

technologies for various IC applications and simultaneously meet high performance and low power consump-

tion needs while helping customers to reduce overall costs. UMC will strengthen its marketing effectiveness,

strive for service excellence, and continue with efforts to increase customer satisfaction. UMC will strengthen its partnerships with existing

customers to facilitate enhanced growth for both the Company and its customers.

Applications of Major Processes CMOS logic processes: Chips for logic-calculation

functions, e.g. graphics chips, audio chips, and micro- processors. Mixed-Signal processes: Chips for processing analog/

digital mixed signals, e.g. broadband communications and optical storage chips. RF CMOS processes: Chips for wireless communications,

e.g. cellular phones, WLAN, and Bluetooth chips. Embedded memory processes: Chips combining logic and

memory functions for high performance, low power consumption chips, e.g. graphics and router chips. High Voltage processes: for manufacturing LCD Driver

ICs and Power Management ICs. CMOS Image Sensor processes: for manufacturing CMOS

Image Sensors used in digital cameras, cell phones and PC cameras. Product Manufacturing ProcessThe IC manufacturing process can be broken down into five major steps including circuit design, mask tooling, wafer fabrication, assembly and test. UMC excels in the research and development of pioneering IC process technologies, and provides leading manufacturing technologies, materials and equipment for its customers to rapidly realize their designs in silicon.

Market and Sales Conditions (cont.)


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Major Raw Materials Status

Material Categories Major Vendors Vendors’ Market Position UMC’s Procurement Strategies

Raw Silicon Wafers S.E.H. (manufactured in the U.S., Japan, Taiwan and Malaysia)MEMC (manufactured in the U.S. and Taiwan) SUMCO Group (manufactured in Japan and Taiwan)

UMC’s vendors are major raw sili-con wafer suppliers to the world. Their factories, located in the U.S., Japan, Taiwan and throughout Southeast Asia, can consistently supply high-quality silicon wafers in sizes ranging from 150mm to 300mm.

(a) UMC maintains good relationships with the world’s major silicon wafer suppliers to assure a stable supply.(b) UMC’s decision to procure wafers made locally has not only reduced logistical risks, but has also reduced costs.(c) UMC allocates procurement among its vendors according to their overall performance, which is evaluated quarterly by UMC’s internal Suppliers Management Com- mittee.

Major Vendors and Customers

2006 2005

Name Amount Percentage of Net Purchases

Name Amount Percentage of Net Purchases

Shin-Etsu Handotai Taiwan Co., Ltd.

3,353,721 13 Shin-Etsu Handotai Taiwan Co., Ltd.

2,611,052 11

Major Vendors

Reasons for changes in procurement amount: UMC’s purchasing amount with Shin-Etsu increased in 2006 due to an increase in quantity purchased to reflect a rise in 300mm wafer demand.

In thousand NTD

2006 2005

Name Amount Percentage of Net Operating

Revenues

Name Amount Percentage of Net Operating

RevenuesUMC Group (USA) 54,476,329 52 UMC Group (USA) 43,226,036 48

Major Customers

Reasons for changes in sales amount: Sales to UMC Group (USA) accounted for more than 10% of net operating revenues in 2006. This resulted primarily from the recovery of the semiconductor industry in 2006 and the increased in demand of communication, consumer and computer products.

In thousand NTD

Operation Overview

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Production and Sales Figures

2006 2005

Quantity Amount (In thousand NTD) Quantity Amount (In thousand NTD)

Wafers (Pcs) Domestic 1,372,006 32,839,086 1,388,520 34,285,040

Export 1,618,731 62,001,889 1,257,667 49,530,126

Chips(In thousands)

Domestic 56 58,508 685 141,548

Export 84,807 5,677,686 64,150 4,156,586

Packaged ICs(In thousands)

Domestic 374 26,803 2 74

Export 203 16,579 1,189 109,147

Others Domestic 122,026 81,655

Export 570,829 635,819

Total Domestic 33,046,423 34,508,317

Export 68,266,983 54,431,678

Sales Figures

Note Wafer quantity is expressed in 200mm wafer equivalents.

2006 2005

Quantity Amount (In thousand NTD) Quantity Amount (In thousand NTD)

Wafers (Pcs) 3,030,999 76,232,056 2,669,672 74,201,369

Chips (In thousands) 84,918 6,635,478 64,807 4,971,589

Packaged ICs (In thousands) 599 43,148 1,192 125,226

Total amount 82,910,682 79,298,184

Capacity (Pcs) 4,017,000 3,855,000

Production Figures

Note Wafer quantity and capacity are expressed in 200mm wafer equivalents.


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2007 2006 2005

Engineers 6,837 6,774 5,745

Administrators 559 550 582

Clerks 61 60 70

Technicians 5,855 5,881 5,671

Total 13,312 13,265 12,068

Employee Analysis

2007 2006 2005

Average number of years 5.6 5.4 5.2

2007 2006 2005

Ph.D. 1.2 1.2 1.3

Masters degree 21.9 21.8 20.9

Bachelors / Associate degree 48.2 48.7 48.3

Secondary school and others 28.7 28.3 29.5

Number of Employees

Average Age

Average Years of Employment

Level of Education (%)

2007 2006 2005

Average age 30.7 30.6 30.3

Operation Overview

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Environmental Protection InformationUMC considers CSR as an integral part of its corporate value and operation strategies. UMC’s multi-dimensional CSR program is integrated into every aspect of our operations and is also the foundation of the Company’s sustainable development. This commitment is illustrated through the Company’s award of the runner up position for Environ-mental Excellence from the Asian Institute of Management at their 2004 Asian CSR Awards held in Kuala Lumpur, Malaysia, the 5th Industrial Sustainable Excellence Award from the Industry Development Bureau in 2004, and the 2nd Taiwan Sustainable Development Award from the National Council for Sustainable Development, Executive Yuan in 2005. In addition, UMC gained the highest “5 heart” rat-ing by CommonWealth Magazine in their 2006 Enterprise Citizen Investigation for environmental protection, public welfare and contributions to education. These honors affirm UMC’s performance in environmental protection and social responsibility. UMC’s environmental protection policy is guided by the Company’s belief in the importance of corpo-rate integrity and commitment to long-term partnerships with its customers and the community. The Company takes proactive actions and has comprehensive environmental protection programs in place to ensure that sustainable growth and development is environmentally friendly at the same time.

UMC’s environmental protection and pollution control plan addresses all aspects of the environment. In 2006, capi-tal expenditures for pollution control equipment were NTD 317 million and the average monthly operating cost was NTD 28 million. Monthly waste disposal fees were NTD 4.2 million and the annual cost for the environmental monitor-ing program was NTD 3.2 million. Major environmental protection expenses in the future will include: (a) the costs required to maintain or upgrade existing systems; (b) oper-ating costs for pollution control equipment (NTD 28 mil-lion per month); (c) waste disposal fees (NTD 4 million per month); and (d) the cost for the environmental monitoring program (NTD 4 million annually).

In the past year, UMC met all environmental regulation standards and distinguished itself with its environmental protection performance. Over the years, UMC has received many honors such as the Enterprises Environmental Pro-tection Award of the R.O.C., the Water Conservation Award, Excellent Performance in Waste Management and Resource Reduction, Recycle and Reuse, the Tainan Science Park’s Ex-cellent Performance in Environmental Protection for both company and professionals and Top Honors in Hsinchu Sci-ence Park’s “Protection of the Environment” Competition.


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Labor Relations

UMC places great importance on employee salaries and benefits, employee development, the enforcement of all labor laws, and the protection of employee rights, in an effort to provide the best possible working environment.

UMC makes every effort to develop a positive working relationship between employees and management. Employ-ees can communicate with their superiors through many channels, including departmental meetings, colleague symposiums, and opinion boxes. The mental and physical well-being of UMC employees are equally as important, and the Company offers employee-counseling services and has a health clinic on-site.

UMC has its own employee recreation center to provide its employees with a facility to improve their quality of life and encourage social interaction among company person-nel. The employee recreation center is equipped to support a variety of activities, such as sports, entertainment, arts, and community meetings. UMC follows a training policy that is implemented to not only benefit the Company, but also cultivate individual

growth and development. To protect the rights and interests of employees, UMC

follows the Labor Standards Law. UMC’s employee retire-ment policy also corresponds with existing related labor laws.

The Council of Labor Affairs and other organizations have recognized UMC’s efforts in developing good labor relations. These organizations awarded UMC the honors of Model Institution for the Promotion of Labor Welfare, Mod-el Enterprise for the Promotion of Labor Education, and the Model Enterprise for Industrial Relations distinctions.

In recent years, up to the publish date of the annual re-port, there have been no disputes between employees and employers, nor has the Company realized any financial impact resulting from disputes between employees and em-ployers. Disputes within the organization or financial loss could be averted by following the complete administrative practices listed above and through constant efforts to avoid such circumstances.

Operation Overview

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Major Agreements

Company Name Contract Period Major Contents Limitations

UMC Group (USA) 2006.1.1~2007.12.31 Semiconductor products sales and relevant services None material

United Microelectronics (Europe) B.V. 2005.1.1~2006.12.31 Semiconductor products sales and relevant services None material

UMC Japan 2006.1.1~2007.12.31 Semiconductor products sales and relevant services None material

Shin-Etsu Handotai Taiwan Co., Ltd. Indefinite period 150mm, 200mm and 300mm raw wafer supply None material

Major Long-term Supply and Marketing AgreementsIn order to maintain a worldwide marketing presence, UMC has entered into long-term distribution, sales, service and support agreements with the companies listed below. In

addition, UMC has maintained long-term supply business relationships with major wafer material suppliers. The major contents of these agreements are described below:

Cross License (Company Name) License Period Fields of Protection Limitations

Agere Systems Inc. 2004.1.1~2008.12.31 Process and topography None material

International Business Machines Corporation 2006.1.1~2010.12.31 Process, topography and design None material

Texas Instruments Incorporated 1998.8.28~2007.12.31 Process, topography and memory content None material

Freescale Semiconductor, Inc. 2005.12.7~2010.12.31 Process and topography None material

Renesas Technology Corp. 2006.1.1~2010.12.31 Process and topography None material

Major License AgreementsUMC is committed to the protection and enhancement of intellectual property. Based on more than 20 years of invest-ment, UMC holds a leading position among independent foundries worldwide for our number of US patents issued

in the semiconductor field. UMC also has cross-licensing agreements with major semiconductor patent holders to ensure that customers do not face infringement claims as a result of UMC services. Some of the major licenses include:


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Various construction or engineering compa-nies, such as: Yih-Shin Construction Co., Ltd., Yuan Lih Electrical Engineering Co., Ltd., GO-IN Engineering Co., Ltd.

2006.1.1~2007.12.31 UMC has contracts with major construction and engineering companies to expand semiconductor facilities in the Tainan Science Park. Total contract amounts exceed NTD 0.8 billion.

None material

Major Construction Agreements


Mega International Commercial Bank Co., Ltd. and 17 other participant banks. (Note This case had been paid off in 2004)

1996.9.20~2005.5.26 Mega International Commercial Bank Co., Ltd. arranged the syndicated loan and the facility amount was approximately NTD 12.3 billion. The loan was for Fab 8C’s capital expenditure.

None material


1998.2.18~2005.9.18 Mega International Commercial Bank Co., Ltd. arranged the syndicated loan and the facility amount was approximately NTD 4.3 billion. The loan was for Fab 8E’s capital expenditure.

None material


1999.11.22~2007.9.25 Mega International Commercial Bank Co., Ltd. arranged the syndicated loan and the facility amount was approximately NTD 3.9 billion. The loan was for Fab 8E’s capital expenditure.

None material

Mega International Commercial Bank Co., Ltd. and 20 other participant banks. (Note This case had been paid off in April of 2005)

2000.1.28~2007.1.28 Mega International Commercial Bank Co., Ltd. arranged the syndicated loan and the facility amount was approximately NTD 8 billion. The loan was for Fab 8F’s capital expenditure.

None material

Major Long-term Loan AgreementsUMC is committed to building and maintaining state-of-the-art wafer fabrication facilities that will allow UMC to maintain its position as a premier independent wafer

foundry and maintain the capacity needed to support its continued growth. In order to provide the necessary capital required to support such projects, UMC has, from time to time, obtained loans from commercial banks. Some of these loans include:

Major Agreements (cont.)

Financial Report

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Financial Report �00�

78 ReviewofFinancialPosition,OperatingResults,RiskManagement andEvaluation

86 SpecialDisclosures94 DisclosureAccordingtoUSSecurityAuthoritiesRegulation

100FinancialReviewUnconsolidated

196 FinancialReviewConsolidated


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79 AnalysisofFinancialPosition

80 AnalysisofOperatingResults

81 LiquidityAnalysis

81 MajorCapitalExpendituresand SourcesofFunding

82 AnalysisforInvestment

83 RiskManagementandEvaluation


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Analysis of Financial PositionIn thousand NTD

Explanation for significant changes (over 20%) in financial position include:1. The increase in funds and investments is mainly due to an effect of the subsequent valuation in “Available-for-sale financial assets, noncurrent” originated from the imple-mentation of ROC SFAS No. 34, “Financial Instruments:

Recognition and Measurement”. 2. The decrease in additional paid-in capital mainly resulted from the adjustment of funds and investments disposal for 2006.3. The increase in retained earnings mainly resulted from the increase in net income over the previous year.

2006 2005 Difference % Change

Current assets 118,430,216 128,267,746 (9,837,530) (8)

Funds and investments 82,746,430 39,238,167 43,508,263 111

Property, plant and equipment 142,647,435 149,809,616 (7,162,181) (5)

Other assets 7,659,590 7,970,867 (311,277) (4)

Total assets 355,228,793 329,391,074 25,837,719 8

Current liabilities 30,060,546 28,303,962 1,756,584 6

Long-term interest-bearing liabilities 30,383,076 36,009,055 (5,625,979) (16)

Total liabilities 64,063,922 71,107,521 (7,043,599) (10)

Capital 191,323,332 197,983,633 (6,660,301) (3)

Additional paid-in capital 67,707,287 85,381,599 (17,674,312) (21)

Retained earnings 34,795,993 26,572,792 8,223,201 31

Total equity 291,164,871 258,283,553 32,881,318 13


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Analysis of Operating ResultsIn thousand NTD

Explanation for significant changes (over 20%) in operat-ing results include :(a) Net operating revenues:The increase in net operating revenues primarily resulted from the recovery of the semiconductor industry, and subse-quently the increased number of orders received.(b) Gross profit analysis:The increase in gross profit for 2006 was due primarily to increases in sales quantity and the capacity utilization rate, and a decrease in the product unit cost. Reasons for differ-ence in gross profit are as follows:

(c) Non-operating income and expenses:Mainly resulted from an increase in gain on disposal of investments, and Investment gain accounted for under the equity method.(d) Cumulative effect of changes in accounting principles:Resulted from the implementation of ROC SFAS No. 34, “Financial Instruments: Recognition and Measurement” to account for the financial instruments effective January 1, 2006. (e) Income tax expense:The increase of income tax expense resulted from the in-crease in sales revenues and the net income for 2006, and the impact of The Income Basic Tax Act of the R.O.C.

Estimated Sales Quantities With the industry shifting towards the vertical disintegra-tion business model, UMC, with its position as an industry leader and pioneer in 300mm manufacturing and SoC (System-on-Chip) technologies, should be able to reach a revenue growth rate higher than that of the overall semi-conductor industry. Based on our capacity and customers’ demand forecast, the estimated sales quantity for 2007 is approximately 3.70 million 200mm wafer equivalents.

In thousand NTD

Reasons for Difference Gross Profit

Average selling price 299,724

Unit cost 7,937,397

Product mix -

Quantity 1,366,350

Others (85,546)

Difference 9,517,925

2006 2005 Difference % Change

Sales revenues 102,023,597 90,780,340 11,243,257 12

Sales returns and discounts (710,191) (1,840,345) 1,130,154 (61)

Net sales 101,313,406 88,939,995 12,373,411 14

Other operating revenues 2,785,205 1,835,444 949,761 52

Net operating revenues 104,098,611 90,775,439 13,323,172 15

Operating costs (83,419,400) (79,614,153) (3,805,247) 5

Gross profit 20,679,211 11,161,286 9,517,925 85

Realized (unrealized) intercompany profit 14,261 34,264 (20,003) (58)

Gross profit-net 20,693,472 11,195,550 9,497,922 85

Operating expenses (14,569,334) (13,864,269) (705,065) 5

Operating (loss) income 6,124,138 (2,668,719) 8,792,857 (329)

Non-operating income 33,871,592 13,871,542 20,000,050 144

Non-operating expenses (2,979,691) (4,175,293) 1,195,602 (29)

Income from continuing operations before income tax 37,016,039 7,027,530 29,988,509 427

Income tax expense (3,208,211) (838) (3,207,373) 382,741

Cumulative effect of changes in accounting principles (1,188,515) - (1,188,515) -

Net income 32,619,313 7,026,692 25,592,621 364


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Project Actual or Expected Sources of Funding Completion Status

(up to 2006)

Total Amount

(up to 2006)

Capital Expenditures Plan

2006 2005

Production Equipment Cash flows generated from operations, bank loans and issuance of bonds

Completed 44,632,783 28,132,964 16,499,819

R&D Equipment Cash flows generated from operations, bank loans and issuance of bonds

Completed 5,158,223 3,071,455 2,086,768

Impact on the Company’s Financial Operations and Contingency Action Regarding Major Capital Expenditures

In thousand NTDExecution Status of Major Capital Expenditures and Sources of Funding

Cash Balance at Beginning of Year

Net Cash Provided by Operating Activities

Net Cash Used in Investing and

Financing Activities

Cash Balance at End of Year

Source of Funding in case of Cash Shortfall

Investing Plan Financing Plan

96,596,623 46,049,174 (59,250,995) 83,394,802 - -

Liquidity AnalysisIn thousand NTDAnalysis of Cash Flows for 2006

Cash Balance at Beginning of Year

Projected Cash Inflows from Operating

Activities

Projected Cash Outflows from

investing and financing activities

Projected Cash Balance at End of

Year

Source of Funding in case of Cash Shortfall

Investing Plan Financing Plan

83,394,802 44,222,821 (98,068,887) 29,548,736 - -

In thousand NTDProjected Cash Flows for 2007

(a) Cash inflows from operating activities are the result of net income reconciled to net cash with depreciation as the largest adjustment.(b) Cash outflows from investing activities are attributed to the increase of capital expenditures, while cash inflows from investing activities are attributed to proceeds from available-

for-sale financial assets and long-term investment under the equity method.(c) Cash outflows from financing activities resulted from the repayment of bonds payable, purchase of treasury stocks and payment of cash dividends.

Expected Benefit from Capital ExpendituresStarting from 2007, production capability for the Company’s 0.25-micron and below technologies will increase to 68% or

more as a percentage of total production capacity due to the above mentioned capital expenditures.

Note Net cash used in investing and financing activities includes factoring for currency exchange, which amounts to (85,133) thousand.


��

Investment Policy, Causes of Profit /Loss and Future Investment Plans

The Company held a meeting of its Board of Directors on January 27, 2006, and passed a resolution to sell 63.48% of the equity of its subsidiary, Hsun Chieh Investment Co., Ltd. (Hsun Chieh), to Hsieh Yong Capital Co., Ltd. (Hsieh Yong). Before this transaction, the Company held a 99.97% stake in Hsun Chieh. After completing the sale of a 63.48% stake to Hsieh Yong, the Company holds a 36.49% stake in Hsun Chieh and retains one of the three seats on the Company’s Board of Directors. After the transaction, Hsun Chieh Investments Co., Ltd. was no longer a subsidiary of the Company and thus any share of the Company held by Hsun Chieh Investments Co., Ltd. shall be reclassified from treasury stocks to long-term investments in the Company’s books, of which NTD 10,881 million was recorded in effect

under long-term investments and stockholders’ equity, respectively. Both the Company and Hsieh Yong set the terms of the sale, in consideration of the future prospects of the industry, and the technical and management capabilities of Hsun Chieh’s invested companies. The companies that make up Hsun Chieh’s investment portfolio come from a wide range of sectors within the electronics supply chain. Over 97% of the value of Hsun Chieh’s investment portfolio is in publicly listed companies. The value of Hsun Chieh was determined based on the closing stock price of its portfolio companies at the end of trading on January 25, 2006 and was reviewed by securities and accounting specialists, confirming the reason-ableness of this transaction.


��

Impact on Corporate Profitability from Fluctuating Inter-est Rates, Exchange Rates, and InflationThe impact on the Company from fluctuating interest rates, exchange rates, and inflation has been minimal due to ef-fective monitoring and control. The Company will continue to watch market movement with regard to interest and exchange rates to avoid losses.

Profit or Loss from Activities in High Risk and Highly Leveraged Investments, Loans Provided to Others, En-dorsements and Guarantees, and DerivativesStarting from November 2005, the Company provided guarantees of NTD 7.5 billion to its subsidiary, UMCJ. The guarantees had expired on October 31, 2006. The Company has not engaged in any transaction of high risk and highly leveraged investments. Any deriva-tives transaction is to elevate the Company’s operating performance and reduce operating and financial risks.

Upcoming R&D Plans and Their StatusUMC is determined to maintain its position as a semicon-ductor industry leader by addressing the challenges of semi-conductor scaling and continuing the advancement of tran-sistor technology. The accomplishments being unveiled at 65-nanometer and 45-nanometer development demonstrate UMC’s capabilities and confidence in the development and delivery of advanced process technologies for 45-nanometer and beyond. With the upcoming completion of UMC’s new R&D center and new wafer plant for nanometer technologies in Tainan, Taiwan, the development momentum moving to 45-nanometer, 40-nanometer (shrunk version of 45-nanometer) and 32-nanometer is accelerating, with extraor-dinary achievements expected in the coming year. 65-nanometer product ramp is on track for several customers for 2007 and 55-nanometer technology qualifi-cation is expected to be completed during the second half of 2007. The development pace for 45-nanometer technol-ogy is accelerating as well. Continued enhancements to process margin and volume production windows will be the Company’s current focus for UMC’s 45-nanometer Low Leakage process. Further mobility enhancement for the high performance chip segment is an on-going challenge that has been determined to be resolved in 2007. The 45-nanometer release schedule has been aligned with UMC’s strategic customers’ product roadmap for 2008. The definition of 32-nanometer technology and device specification discus-sion have been initiated with UMC’s leading customers. The Company is also co-working with a leading technology company at Advanced Technology Development Facility (ATDF) to develop leading-edge transistor structures incor-porating new materials (high-k dielectrics and metal gate electrode, Silicon-on-insulator (SOI) and non-classical CMOS schemes (multiple-gate field emission transistor) for future generation devices on new technology. UMC will continue to strengthen its silicon validated intellectual property portfolio, with a particular emphasis

on increasing 65-nanometer and 90-nanometer IP. For 65-nanometer design support, the foundation will be built upon DFM compliance libraries, memory compilers and reference design flows. State-of-the-art analog mixed-signal IP will further complement customers’ SoC design needs, espe-cially those supporting industry standards (such as PCI-E, SATA, HDMI, etc.), advanced video, audio and consumer applications. UMC will leverage its success in delivering 90-nanometer libraries and analog mixed-signal devices to de-velop 65-nanometer solutions while expanding its partner-ship base with the world’s IP community to offer the most comprehensive design support resources for SoC designs. As the SoC Solution Foundry, UMC continues to develop innovative yet practical technology solutions to help SoC designers maximize the competitiveness of their products. UMC’s continuous advancements in leading-edge and emerging technology areas are criti-cal for customers’ product success. UMC will complete its specialized R&D center and continue to build its methodology designed to accelerate leading-edge nano-electronic technology to the marketplace.

Impact on the Company’s Financial Operations and Con-tingency Action Regarding Recent Changes in Domestic and International Policies and RegulationsThe Company strictly follows governing policies and regula-tions. All of the related departments constantly monitor any changes in related policies and regulations, and adjust inter-nal operating procedures and business activities accordingly so that business operations continue smoothly. As to the revisions of ROC “Business Entity Accounting Law” announced on May 24, 2006, Financial Supervisory Commission, Executive Yuan (FSC) proposed a policy of “identification of employee dividend and bonus payouts as expenses” (the “Policy”) to be enforced from January 1, 2008. The Company’s financial/business impact from this new Policy and action measures for resolution will be:(1) Impact: the Company will follow the Policy and related

accounting principles and regulations in financial re-porting.

(2) Action Measures: related regulations and principles of the Policy have not been proposed by FSC; as such the Company will monitor them and consult with its ac-counting service firm for an implementation plan for the Policy.

Impact on the Company’s Financial Operations and Con-tingency Action Regarding Recent Changes in TechnologyThe Company has been sharply focused on the development of advanced technology. In 2006, the Company’s R&D ex-penses were approximately NTD 9.2 billion. The Company has taken the lead position in the foundry industry in both volume production of 90-nanometer and the development of 65-nanometer technologies. The Company has migrated 90-nanometer chips to mainstream volume production; 90-nanometer and below chips represented 21% of total revenue

Risk Management and Evaluation


��

in the 4th quarter, 2006; 65-nanometer chips represented 1% of total revenue in 2006. The Company’s current financial situation is sound and cash on hand is sufficient for future technology development.

Impact on the Company’s Risk Management and Con-tingency Action Regarding Recent Changes in Corporate ImageTo ensure the long-term success of the Company and to fur-ther the corporate goal of building long-term partnerships with our customers and our community, the Company holds Shareholder Meetings and Investor Conferences regularly to maintain a high-level of financial transparency. The Company consistently meets its obligations as an exemplary corporate citizen by participating in a wide range of public activities that benefit the community and society as a whole. In addition, the Company has established a comprehensive and robust set of response procedures aimed at addressing the needs of a highly diverse range of emergency conditions, reducing management uncertainty to the lowest achievable level.

Risk from the Company Encountering an Economic Down-turn during Expansion by Acquisition or MergerThrough future acquisitions, UMC is expected to integrate resources, lower operating costs, widen its business scope, raise profitability and add to its overall international com-petitiveness, which will help the Company to contend in a capital and technology intensive industry that is constantly changing. The cyclical fluctuation in the semiconductor indus-try is volatile and uncertain. Once a company encounters an economic downturn during expansion by acquisition or merger, there would exist the possibility of an excess capacity situation. The risk might temporarily damage the Company’s profitability but such a situation would also help to eliminate companies with poor operations and restruc-ture the industry composition. The other possible risk would be that the acquired company would encounter difficulties when integrating with the acquiring company. Factors such as unsuccessful production integration or issues brought by differences in corporate culture would partly offset the contribution from the acquired company. To avoid the negative effects from improper acquisition, for future operations, the Company will conduct thorough evaluations to prevent unfavorable acquisition conditions caused by improper information disclosure. Following any acquisition, the Company’s corporate culture will be introduced to its new employees to create a unified team that will work hard towards the common goal of increasing the Company’s competitiveness.

Risk of Excess Capacity from Fluctuating Economic Condi-tionsThe Company increases its production capabilities through fab expansion in order to accommodate more customer orders, thus providing the means to increase revenue, profits and market share. When production capacity reaches economies of scale, manufacturing costs can be dramatically reduced. However, the significant potential for fluctuations in the semiconductor industry economic cycle creates finan-cial risk, as any excess capacity still must be accounted for under depreciation of plants and equipment during demand softening caused by economic conditions. This risk would be considered a burden to the Company. The Company’s capacity expansion is under deliberate capital expenditure plans, which focus on satisfying cus-tomers’ needs while optimizing capital utilization. Disci-plined capital expenditure can help to develop a healthy industry environment.

Risk and Countermeasures of the Company Encounter-ing Material Shortage from Suppliers Failing to Provide Materials due to Circumstances Created by Natural or Unnatural Factors The Risk of Material Shortage: Material shortage may result from suppliers encountering situations such as insufficient capacity, industrial accidents in factories or natural disasters.Solution for Material Shortage:UMC currently uses consignment contracts to offset its risk.

Risk of Profit Loss if Sales are Concentrated on a Single or a Few Customers, and a Major Customer Reduces its OrdersUMC has established long-term and steady partnerships with numerous world-class customers. The combined strengths of both UMC and these customers will ensure the long-term steady growth of the Company. The ten larg-est customers of UMC accounted for 63% of sales in 2006. UMC mitigates its risk through dispersed sales to lower the potentially significant impact that a single or a few custom-ers may cause.

Risk of Change of Control and Stock Price Fluctuation from Large Scale Transfer of SharesIf Company’s directors, supervisors or major shareholders holding more than 10% of issued and outstanding shares transfer a significant portion of their shareholdings in the Company, then a change of control may occur. Furthermore, such transfer may give rise to investor concerns on the op-eration of the Company and may cause the market price of Company shares to f luctuate. The share withholding status of the Company’s direc-tors, supervisors and managers have been reported based on official regulations and laws. Meanwhile, there has been no significant share transfer activity.

Risk Management and Evaluation (cont.)


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Risk of the Company Losing One or More Key Personnel without Adequate Replacement Due to Any Change of Company ControlUMC’s future success depends to a large extent on the con-tinued service of the Company’s Chairman and key execu-tive officers. If the Chairman or key executive officers leave their positions as a result of a change in Company control, and qualified replacement personnel cannot be found and integrated in a short period of time, operations may be adversely affected. The Company’s management focuses its operations with the intent to maximize value for its shareholders, thus gain-ing their trust and recognition. If there were a replacement of management, the succeeding personnel would have to recognize corporate culture, be qualified to assume profes-sional duties, and be able to execute the Company’s policy.

Litigation and Non-litigated IncidentsOn February 15, 2005, Taiwan’s Hsinchu District Court Prosecutor’s Office conducted a search at UMC offices, assertively investigating whether there was any evidence of violation of Taiwan Securities and Exchange Act. UMC’s former Chairman, Mr. Robert H.C. Tsao, and former Vice Chairman, Mr. John Hsuan, had received summons as the defendants. On the afternoon of January 9, 2006, Taiwan’s Hsinchu District Court Prosecutor’s Office announced that UMC’s former Chairman, Mr. Robert H.C. Tsao, and for-mer Vice Chairman, Mr. John Hsuan, had been prosecuted due to their violations of Article 71 of Business Entity Ac-counting Act and Article 342 paragraph 1 of Criminal Law. In actuality, Mr. Robert H.C. Tsao and Mr. John Hsuan had both resigned from their director positions from the Board of Directors on the morning of the same day. This case is waiting for Taiwan Hsinchu District Court’s trial. On July 12, 2005, one of UMC’s Taiwan shareholders, Mr. T.Y. Huang brought a civil litigation action against UMC and the other Taiwan listed companies and claimed that all of the resolutions in this aforesaid companies’ 2005 annual shareholders meetings were null and void. This case had been overruled by Taiwan Hsinchu District Court on March 7, 2006. Mr. T.Y. Huang appealed. On September 12, 2006, Taiwan High Court ruled in favor of UMC. Mr. T.Y. Huang did not appeal to Taiwan Supreme Court within the statu-tory time limit; this case is closed. On February 13, 2006, Taiwan Hsinchu District Court delivered a notice to UMC and informed UMC that Taiwan Power Company (“TPC”) had filed a civil litigation case against UMC and other Taiwan companies. TPC claimed: (1) UMC and the other Taiwan companies should collectively pay NTD 13,348,056 with interest to TPC for electrical fees, and (2) UMC should pay NTD 21,210,000 to TPC for the electrical line’s fees. Up until this Annual Report’s editing deadline, UMC had provided the defense documents. This case is under Taiwan Hsinchu District Court’s trial.

On February 15, 2006, Taiwan Ministry of Economic Affairs, Executive Yuan (MOEA) fined UMC NTD 5 million for UMC’s alleged violation of Governing Relations between Peoples of the Taiwan Area and the Mainland Area Act (Article 35, failure to gain government’s approval for con-ducting investment in China Mainland). UMC had filed an administrative appeal against MOEA on March 16, 2006. On October 19, 2006, Executive Yuan denied the administrative appeal filed by UMC. Up until this Annual Report’s editing deadline, UMC had filed an administrative litigation case against MOEA on December 8, 2006. UMC’s Singapore Branch (as UMCi Ltd., prior to the conversion of that business to UMC Singapore Branch) as plaintiffs issued a Writ of Summons against Tokio Marine & Fire Insurance Company (Singapore) Pte. Ltd. as defendants on June 6, 2005 under a marine cargo insurance policy for the replacement cost of a 300mm Endura System damaged in transit. UMC’s Singapore Branch believes a chamber of that equipment was damaged in shipment, incurring a cost of approximately USD 1.2 million to replace the damaged chamber. UMC’s Singapore Branch filed suit to recover under the insurance policy on the grounds that the equip-ment was damaged in shipment as a result of rough han-dling or conditions. Tokio Marine has denied the incident was a covered event under the policy. Discovery has been completed and the parties are preparing their affidavits of evidence-in-chief for exchange. Based on results to date, UMC feels its Singapore Branch has a meritorious case. Trial is expected for the first half of 2007. Although it is too early to determine the possible outcome, the maximum exposure to UMC’s Singapore Branch would be the loss of its claim for reimbursement plus no more than a few hundred thousand dollars more in assessments, fees and costs. Mr. C.F. Shih, a workman of a subcontractor hired by Yih-Shin Construction Co., Ltd. (“Yih-Shin”), one of compa-nies engaged by UMC for Fab 12A dormitory construction, was severely injured during construction. Mr. C.F. Shih’s wife filed a request to Taiwan Tainan Prosecutors’ Office to file charges against UMC and other related parties for personal injury. Taiwan Tainan Prosecutor’s Office denied this request. On March 30, 2006, Mr. C.F. Shih also filed a civil litigation case against Yih-Shin, UMC and other related parties. Mr. C.F. Shih claimed that Yih-Shin, UMC and other related parties should collectively pay NTD 20,967,400. Mr. C.F. Shih’s mother and wife each requested for com-pensatory damages in the amount of NTD 300,000 and Mr. C.F. Shih’s three children each requested for compensatory damages in the amount of NTD 100,000. Mr. Shih and his families also claimed that an annual interest rate of 5% to be accrued for the claimed damages. This case is waiting for Taiwan Tainan District Court’s trial.

Other Important RisksNone.

Risk Management and Evaluation (cont.)

None.

Other Necessary Supplements


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Special Disclosures

87 SummaryofAffiliatedEnterprises

92 AcquisitionorDisposalofUMCShares bySubsidiaries

93 DisclosuresofEventswhichMayHavea SignificantInfluenceonStockholders’ EquityorSharePrice,inCompliance withItem2,Paragraph2inArticle36 oftheSecuritiesandExchangeLawof theR.O.C.

Special Disclosures

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Summary of Affiliated Enterprises

United Microelectronics Corporation

TLC Capital Co., Ltd. 100.00%

Fortune Venture Capital Corporation 99.99% Unitruth Investment Corporation 100.00%

UMC Group (USA) 100.00%

UMC Japan 50.09%

UMC Capital Corp. 100.00% UMC Capital (USA) 100.00%

UMCi Ltd. 100.00% ECP VITA Ltd. 100.00%

United Microelectronics Corp. (Samoa) 100.00%

United Microelectronics (Europe) B.V. 100.00%

United Microdisplay Optronics Corp. 81.76%

Organization Chart

Name of Corporation Date of Establishment

Address Capital Major Business / Production Items

Fortune Venture Capital Corporation

1993.9.21 2F, 76, Sec. 2, Tunhwa S. Rd., Taipei, Taiwan 10683, R.O.C.

5,000,000 Consulting and planning for investment in new business

Unitruth Investment Co. 2004.7.22 2F, 76, Sec. 2, Tunhwa S. Rd., Taipei, Taiwan 10683, R.O.C.

800,000 Investment holding

TLC Capital Co., Ltd. 2005.10.14 2F, 76, Sec. 2, Tunhwa S. Rd., Taipei, Taiwan 10683, R.O.C.

6,000,000 Consulting and planning for investment in new business

UMC Group (USA) 1997.8.11 488 De Guigne Drive, Sunnyvale, CA 94085, USA

535(USD16,437.5)

IC sales

UMC Japan 1984.5.15 1580, Yamamoto, Tateyama-City, Chiba 294-8502, Japan

7,588,397(JPY27,140,188,000)

Sales and manufacturing of integrated circuits

UMC Capital Corp. 2001.1.16 P.O. Box 1034GT, Grand Cayman, Cayman Islands

4,033,472(USD124,000,000)

Investment holding

UMC Capital (USA) 2001.2.13 488 De Guigne Drive, Sunnyvale, CA 94085, USA

6,506(USD200,000)

Investment holding

UMCi Ltd. 2001.1.18 3 Pasir Ris Drive 12,Singapore 519528

28,625(USD880,006)

Sales and manufacturing of integrated circuits

United Microelectronics Corp. (Samoa)

2000.10.12 Offshore Chambers, P.O. Box 217, Apia, Samoa

9,108(USD280,000)

Investment holding

United Microelectronics (Europe) B.V.

1989.5.23 World Trade Center, H-Tower, Schipholboulevard 243 1118 BH Schiphol, The Netherlands

126,056(USD3,875,309)

IC sales

United Microdisplay Optronics Corporation

2002.9.11 2F, 3, Li-Hsin 2nd Rd., Hsinchu Science Park, Taiwan 30078, R.O.C.

786,584 Sales and manufacturing of LCOS

ECP VITA Ltd. 2005.7.27 Romasco Place, Wickhams Cay 1, P.O. Box 3140, Road Town, Tortola, British Virgin Islands

32,528(USD1,000,000)

Insurance

Basic Data of Affiliated Enterprises

Notes (1) USD:NTD =1:32.528; JPY:NTD = 1:0.2796. (2) The data is dated December 31,2006.

In thousand NTD


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None.Data for Common Shareholders of Treated-as Controlled Companies and Affiliates

The business of UMC and its affiliated enterprises includes semiconductor wafer manufacturing, electronics, optronics, invest-ment activities, insurance and trade.

Business of United Microelectronics Corporation (UMC) and its Affiliated Enterprises

Summary of Affiliated Enterprises (cont.)

Special Disclosures

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Name of Corporation Title Name or Representative Shareholding

Shares %

Fortune Venture Capital Corporation Chairman United Microelectronics Corporation 499,994,000 99.99

Representative: Robert H.C. Tsao - -

Director United Microelectronics Corporation 499,994,000 99.99

Representative: John Hsuan - -


Representative: Stan Hung - -


Representative: Duen-Chian Cheng - -


Representative: Isabel Liu - -

Supervisor United Microelectronics Corporation 499,994,000 99.99

Representative: Tzyy-Jang Tseng - -

President Duen-Chian Cheng - -

Unitruth Investment Co. Chairman Fortune Venture Capital Corporation 80,000,000 100.00


Director Fortune Venture Capital Corporation 80,000,000 100.00

Representative: Jean Tien - -

Director Fortune Venture Capital Corporation 80,000,000 100.00


Supervisor Fortune Venture Capital Corporation 80,000,000 100.00

Representative: Isabel Liu - -

TLC Capital Co., Ltd. Chairman United Microelectronics Corporation 600,000,000 100.00



Representative: Jean Tien - -




Representative: Chitung Liu - -

Directors, Supervisors and Presidents of Affiliated Enterprises



�0


Shares %

UMC Group (USA) Director Peter J. Courture - -

Director Tony Yu - -

UMC Japan Chairman Jackson Hu - -

Director and President Ching-Chang Wen - -

Director Robert H.C. Tsao - -

Director John Hsuan - -

Director Wen-Yang Chen - -

Director Oliver Chang - -

Director Toshiji Sugawara 920 0.09

Director Masahide Tanihira 40 0.00

Director T.Y. Hwang - -

Supervisor Chitung Liu - -

Supervisor Yoshihiro Matsumoto 210 0.02

Supervisor Eiichi Arakawa 172 0.02

Supervisor Grace Li - -

UMC Capital Corp. Director United Microelectronics Corporation 124,000,000 100.00


UMC Capital (USA) Director and President Peter J. Courture - -

Director Stan Hung - -

UMCi Ltd. Director Robert H.C. Tsao - -

Director Jackson Hu - -

Director and President Peter Chang - -

Director Po-Wen Yen - -

Director Peter J. Courture - -

United Microelectronics Corp. (Samoa) Director United Microelectronics Corporation 280,000 100.00


United Microelectronics (Europe) B.V. Director Robert H.C. Tsao - -

Director John Hsuan - -

United Microdisplay Optronics Corporation Chairman United Microelectronics Corporation 64,313,176 81.76

Representative: John Hsuan - -








Special Disclosures

�1

Directors, Supervisors and Presidents of Affiliated Enterprises

Note The data is dated December 31, 2006.


Shares %

ECP VITA Ltd. Director Angel Sun - -

Director Stan Hung - -

Director Chitung Liu - -

Summarized Operation Results of Affiliated Enterprises

Note USD:NTD = 1:32.528; JPY:NTD = 1:0.2796

Name of Corporation Capital Total Assets

Total Liabilities

Net Worth

Net Operating

Revenues

Operating Income

(Loss)

Net Income

(Loss)

Earnings (Loss) Per

Share (NTD)

TLC Capital Co., Ltd. 6,000,000 7,061,109 61,372 6,999,737 2,253,785 359,631 329,178 0.68

Fortune Venture Capital Corp. 5,000,000 11,724,554 13,108 11,711,446 1,729,901 397,527 374,046 0.75

UMC Group (USA) 535 6,647,947 5,623,910 1,024,037 55,616,919 216,468 260,573 15.85

UMC Japan 7,588,397 18,933,989 6,120,617 12,813,372 9,624,737 (861,313) (833,067) (841.87)

UMC Capital Corp. 4,033,472 3,615,733 1,349 3,614,384 144,017 (49,736) (49,736) (0.60)

UMCi Ltd. 28,625 19,239,995 - 19,239,995 - (1,664) 12,463 0.01

United Microelectronics Corp. (Samoa) 9,108 8,556 74 8,482 - (5,626) (5,588) (5.77)

United Microelectronics (Europe) B.V. 126,056 1,032,890 754,034 278,856 8,564,771 8,126 7,058 784.17

United Microdisplay Optronics Corp. 786,584 270,913 66,398 204,515 10,830 (165,395) (186,142) (2.58)

Unitruth Investment Corp. 800,000 743,543 333 743,210 84,737 (44,005) (44,024) (0.70)

UMC Capital (USA) 6,506 11,291 685 10,606 22,842 1,088 974 4.87

ECP VITA Ltd. 32,528 62,512 12,108 50,404 8,731 7,039 9,295 9.30

In thousand NTD



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Subsidiary Paid-in Capital

Source of Capital

Holding % by the

Company

Acquisition or Disposal Date

Shares Acquired and Amount

Disposal Shares and

Amount

Profit/ Loss

As of Annual Report Printing Date

Shares Amount

Fortune Venture Capital Corporation

5,000,000 New shares for cash

99.99 2006 223,456 (Note 1) None None 22,069,842 446,914

2007 None None None 22,069,842 446,914

Notes (1) 223,456 shares were distributed as dividends in 2006. (2) Data represented for 2007 was gathered up until March 15, 2007. (3) None of the above companies pledged UMC shares as collateral. (4) The Company did not provide endorsements or guarantees to these subsidiaries. (5) The Company did not provide loans to these subsidiaries.

Issuance of Private Placement Securities

Acquisition or Disposal of UMC Shares by Subsidiaries

None.

In thousand NTD, Shares

Other Necessary SupplementsNone.

Special Disclosures

��

On February 15, 2005, the Hsinchu District Prosecutor’s Office conducted a search of the Company’s facilities. On February 18, 2005, the Company’s former Chairman, Mr. Robert H.C. Tsao, released a public statement explaining that its assistance to Hejian Technology Corp. (Hejian) did not involve any investment or technology transfer . Furthermore, from the very beginning, there was a verbal indication that, at the proper time, the Company would be compensated appropriately for its assistance, and circum-stances 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 agree-ment 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 hold-ing 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 hold-ing 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 es-crow on August 4, 2006. The subscription price per share of the holding company of Hejian in the last offering was USD 1.1. Therefore, the total market value of the said shares is worth more than USD 110 million. However, the Company may not acquire the ownership of nor exercise the rights of the said shares with any potential stock dividend or cash

dividend distributed in the future until the R.O.C. laws and regulations allow the Company to acquire and exercise. In the event that any stock dividend or cash dividend is dis-tributed, the Company’s stake in the holding company of Hejian will accumulate accordingly.

On February 15, 2006, the Company was fined in the amount of NTD 5 million on the grounds of unauthorized investment activities in Mainland China, implicating the violation of Article 35 of the Act “Governing Relations Be-tween Peoples of the Taiwan Area and the Mainland Area” by the R.O.C. Ministry of Economic Affairs (MOEA). How-ever, as the Company believes it was illegally and improper-ly fined, the Company had filed an administrative appeal against MOEA to the Executive Yuan on March 16, 2006. The Company’s administrative appeal was dismissed by the Executive Yuan, R.O.C. on October 19, 2006. The Company filed an administrative action against the R.O.C. Ministry of Economic Affairs to Taipei High Administrative Court on December 8, 2006. As of December 31, 2006, the result of such administrative action has not been finalized.

The company has entered a stage of sustained growth. The Company determined that cash flows generated from UMC’s future operations will be sufficient for the research and development of advanced process technologies and the continued expansion of advanced manufacturing capacity, including the second 300mm fab in Taiwan’s Tainan Science Park. In order to avoid future cash levels becoming exces-sive and to better respond to the expectations of today’s capital markets, the Company has resolved to carry out a capital reduction of NTD 57,394 million with the cancella-tion of 5,739 million of its outstanding shares, following a resolution passed at a meeting of the Board of Directors. The board of directors will decide the date of the capital reduc-tion after the approval at the stockholders’ meeting and the authorization of the government. The exact exchange ratio for shares and the amount of the capital reduction is to be set on the record date for capital reduction.

Disclosures of Events which may Have a Significant Influence on Stockholders’ Equity or Share Price, in Compliance with Item 2, Paragraph 2 in Article 36 of the Securities and Exchange Law of the R.O.C.


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Disclosure According to US Security Authorities Regulation

95 DisclosureCommittee

95 AuditCommittee

95 CorporateGovernanceDifference

95 CodeofEthics

95 EmployeeCodeofConduct

95 USGAAPFinancialInformation

96 ConsolidatedBalanceSheets

98 ConsolidatedStatementsofIncome


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The primary purpose of the Disclosure Committee is to assist the Company in establishing and maintaining “disclosure con-trols and procedures” designed to ensure the quality of filing reports on a timely basis.

Disclosure Committee

To meet the requirement of Section 404 of the Sarbanes-Oxley Act, UMC’s Audit Committee was established in March 2005, with the purpose of assisting the Board of Directors in fulfilling its responsibility relating to the Company‘s accounting and reporting practices and quality and integrity of financial reporting. The Committee shall have the responsibilities regarding the oversight of independent auditors and reviewing internal audits, the annual external audit, and the financial statements. According to the Audit Committee Charter, the Committee is authorized to conduct or authorize investigations or special audits into any matters within the scope of the Committee’s responsibilities. The Committee shall communicate directly with the management, independent auditors and internal auditors respectively, and receive anonymous submissions by employees of the Company regarding concerns related to questionable accounting or auditing matters. As of March 2007, there were three members in the Committee; all of which were independent directors of UMC. The Committee shall meet and determine the future meeting frequency and intervals needed to carry out its duties and responsibilities.

Audit Committee

http://www.umc.com/english/investors/Corp_gov_difference.asp

Disclosure of the Differences between UMC’s Corporate Governance Practices and Those Required of Domestic Companies under NYSE Listing Standards

http://www.umc.com/english/pdf/Code_of_Ethics.pdf

Disclosure of the UMC Code of Ethics for Directors, Supervisors and Managers

http://www.umc.com/english/pdf/Code_of_Conduct.pdf

Disclosure of the UMC Employee Code of Conduct

The Company’s complete 2006 US GAAP reconciled financial statements and footnotes will be available in the Form 20-F, which will be filed to the US Securities and Exchange Commission (“SEC”) on or before June 30, 2007, and be accessible on both the SEC and UMC websites.

US GAAP Financial Information


��

Consolidated Balance Sheets

Notes (1) The USD amounts are presented solely for the convenience of the readers and were translated at the noon buying rate of NTD 32.59 to USD 1.0 in effect on December 29, 2006 at the Federal Reserve, the central bank of the United States. (2) Certain comparative amounts have been reclassified to conform to the current year’s presentation.

As of December 31,

Assets 2006 2005

NTD USD NTD Current assets

Cash and cash equivalents 93,853,208 2,879,816 108,626,800 Financial assets at fair value through profit or loss, current 8,538,007 261,982 2,468,968 Available-for-sale financial assets, current - - 2,414,153 Held-to-maturity financial assets, current 1,110,422 34,073 - Notes receivable 3,733 115 193 Notes receivable - related parties 50,648 1,554 62,136 Accounts receivable, net 14,028,084 430,441 13,628,434 Accounts receivable - related parties, net 323,645 9,931 1,420,977 Other receivables 849,742 26,074 891,058 Inventories, net 10,878,182 333,789 10,712,535 Prepaid expenses 762,799 23,406 694,669 Deferred income tax assets, current 1,945,082 59,683 3,386,790 Restricted deposits - - 555,800

Total current assets 132,343,552 4,060,864 144,862,513 Funds and investments

Financial assets at fair value through profit or loss, noncurrent 474,738 14,567 - Available-for-sale financial assets, noncurrent 52,311,172 1,605,130 6,812,103 Held-to-maturity financial assets, noncurrent - - 1,116,806 Financial assets measured at cost, noncurrent 7,515,945 230,621 6,574,800 Long-term investments accounted for under the equity method 11,662,599 357,858 16,262,856 Prepaid long-term investments - - 30,000

Total funds and investments 71,964,454 2,208,176 30,796,565 Property, plant and equipment

Land 1,879,442 57,669 1,893,522 Buildings 21,076,844 646,727 21,260,902 Machinery and equipment 415,225,873 12,740,898 386,920,282 Transportation equipment 90,706 2,783 89,580 Furniture and fixtures 2,964,369 90,960 2,804,967 Leasehold improvements 42,968 1,319 43,037

Total cost 441,280,202 13,540,356 413,012,290 Less : Accumulated depreciation (311,696,923) (9,564,189) (269,508,148)Add : Construction in progress and prepayments 22,244,850 682,567 15,609,497

Property, plant and equipment, net 151,828,129 4,658,734 159,113,639 Intangible assets

Goodwill 3,498,687 107,354 3,491,072 Technological know-how - - 359,556 Other intangible assets 1,330 41 182,793

Total intangible assets 3,500,017 107,395 4,033,421 Other assets

Deferred charges 1,501,064 46,059 2,034,569 Deferred income tax assets, noncurrent 4,184,091 128,386 4,012,314 Other assets-others 2,332,154 71,560 2,196,238

Total other assets 8,017,309 246,005 8,243,121 Total assets (as reported under ROC GAAP) 367,653,461 11,281,174 347,049,259 US GAAP Adjustments:

Goodwill 38,301,535 1,175,255 38,283,481 Treasury stock (4,476,369) (137,354) - Compensation 105,426 3,234 62,336 Equity Investments 44,350 1,361 2,079,220 Change in fair value of investments in securities - - 38,869,884 Income tax effect - - 361,441

Total assets (as reported under US GAAP) 401,628,403 12,323,670 426,705,621


��

In thousands

Liabilities and Stockholder's Equity 2006 2005

NTD USD NTDLiabilitiesCurrent liabilities

Short-term loans 342,549 10,511 6,136,336 Financial liabilities at fair value through profit or loss, current 985,267 30,232 95,634 Accounts payable 4,864,771 149,272 5,501,159 Income tax payable 2,071,394 63,559 277,953 Accrued expenses 7,025,328 215,567 7,932,949 Other payables 77,319 2,372 140,735 Payable on equipment 10,130,367 310,843 5,315,695 Current portion of long-term liabilities 9,068,283 278,254 10,250,000 Deferred income tax liabilities, current 62 2 - Other current liabilities 1,538,450 47,206 1,309,579

Total current liabilities 36,103,790 1,107,818 36,960,040 Long-term liabilities

Bonds payable 30,383,076 932,282 41,692,159 Total long-term liabilities 30,383,076 932,282 41,692,159

Other liabilitiesAccrued pension liabilities 3,115,420 95,594 3,014,998 Deposits-in 12,282 377 18,664 Deferred income tax liabilities, noncurrent 52,585 1,614 51,870 Deferred credits - intercompany profits 13,245 407 - Other liabilities - others 570,174 17,495 691,290

Total other liabilities 3,763,706 115,487 3,776,822 Total liabilities (as reported under ROC GAAP) 70,250,572 2,155,587 82,429,021 US GAAP Adjustments:

Compensation 790,200 24,247 6,324 Pension 153,081 4,697 - Income tax effect 32,328 992 182,045 Convertible / Exchangeable bond liabilities - - 702,299 Derivative instruments - - 623,410

Total liabilities (as reported under US GAAP) 71,226,181 2,185,523 83,943,099 Minority interests (as reported under ROC GAAP) 6,238,018 191,409 6,336,685 US GAAP Adjustments:

Consolidation of not wholly-owned subsidiaries 2,189 67 842 Minority interests (as reported under US GAAP) 6,240,207 191,476 6,337,527 Stockholders’ equityCapital

Common stock 191,311,927 5,870,265 197,947,033 Capital collected in advance 11,405 350 36,600

Additional Paid-in CapitalPremiums 61,070,555 1,873,905 64,600,076 Treasury stock transactions 8,938 274 - Change in equities of long-term investments 6,627,794 203,369 20,781,523

Retained earningsLegal reserve 16,699,508 512,412 15,996,839 Special reserve 322,150 9,885 1,744,171 Unappropriated earnings 17,774,335 545,392 8,831,782

Adjustment items to stockholders’ equityCumulative translation adjustment (824,922) (25,312) (241,153)Unrealized gain or loss on financial instruments 27,557,845 845,592 (80,989)

Treasury stock (29,394,664) (901,954) (51,332,329)Total stockholders’ equity (as reported under ROC GAAP) 291,164,871 8,934,178 258,283,553 US GAAP Adjustments:

Goodwill 38,113,709 1,169,491 38,113,709 Treasury stock (4,476,369) (137,354) - Compensation (684,774) (21,012) 56,012 Equity investments 209,354 6,424 2,247,379 Pension (164,776) (5,056) - Change in fair value of investments in securities - - 38,869,884 Convertible / exchangeable bond liabilities - - (702,299)Derivative instruments - - (623,410)Income tax effect - - 180,167

Total stockholders’ equity (as reported under US GAAP) 324,162,015 9,946,671 336,424,995 Total liabilities and stockholders’ equity (as reported under US GAAP) 401,628,403 12,323,670 426,705,621


��

Consolidated Statements of IncomeFor the years ended December 31, In thousands

Notes (1) The USD amounts are presented solely for the convenience of the readers and were translated at the noon buying rate of NTD 32.59 to USD 1.0 in effect on December 29, 2006 at the Federal Reserve, the central bank of the United States. (2) Certain comparative amounts have been reclassified to conform to the current year’s presentation.

Contents 2006 2005

NTD USD NTDOperating revenues

Sales revenues 109,857,465 3,370,895 97,172,846 Less : Sales returns and discounts (867,150) (26,608) (1,959,994)

Net Sales 108,990,315 3,344,287 95,212,852 Other operating revenues 3,013,504 92,467 5,103,130

Net operating revenues 112,003,819 3,436,754 100,315,982 Operating costs

Cost of goods sold (88,452,676) (2,714,105) (86,409,480)Other operating costs (2,198,540) (67,461) (4,266,217)

Operating costs (90,651,216) (2,781,566) (90,675,697)Gross profit 21,352,603 655,188 9,640,285 Unrealized intercompany profit (105,892) (3,249) (118,815)Realized intercompany profit 118,815 3,646 151,192

Gross profit - net 21,365,526 655,585 9,672,662 Operating expenses

Sales and marketing expenses (3,365,678) (103,273) (3,738,469)General and administrative expenses (3,422,340) (105,012) (4,387,406)Research and development expenses (9,418,877) (289,011) (9,633,607)

Subtotal (16,206,895) (497,296) (17,759,482)Operating income (loss) 5,158,631 158,289 (8,086,820)Non-operating income

Interest revenue 1,562,704 47,950 1,055,138 Investment gain accounted for under the equity method, net 1,178,103 36,149 1,096,985 Dividend income 950,546 29,167 1,051,813 Gain on disposal of property, plant and equipment 331,767 10,180 177,397 Gain on disposal of investments 28,651,109 879,138 10,276,618 Exchange gain, net 316,006 9,696 295,179 Gain on recovery of market value of inventories - - 837,315 Gain on valuation of financial assets 750,378 23,025 58,853 Gain on valuation of financial liabilities 306,140 9,394 - Other income 862,750 26,473 1,038,821

Subtotal 34,909,503 1,071,172 15,888,119 Non-operating expenses

Interest expense (648,408) (19,896) (1,098,854)Loss on disposal of property, plant and equipment (107,962) (3,313) (218,525)Loss on decline in market value and obsolescence of inventories (1,089,490) (33,430) - Financial expenses (230,757) (7,081) (268,985)Impairment loss (1,330,293) (40,819) (460,542)Other losses (73,799) (2,264) (148,606)

Subtotal (3,480,709) (106,803) (2,195,512)Income from continuing operations before income tax 36,587,425 1,122,658 5,605,787 Income tax expense (3,261,622) (100,080) (67,052)Income from continuing operations 33,325,803 1,022,578 5,538,735 Cumulative effect of changes in accounting principles (the net amount after deducted tax expense $0)

(1,188,515) (36,469) (112,898)

Minority interests loss 482,025 14,790 1,600,855 Net income (as reported under ROC GAAP) 32,619,313 1,000,899 7,026,692 US GAAP Adjustments:

Treasury stock (10,842,272) (332,686) 101,955 Compensation (2,106,043) (64,622) (2,441,003)Derivative instruments 1,126,322 34,560 (1,611,969)Equity investments 1,117,384 34,286 571,228 Convertible / Exchangeable bond liabilities 199,389 6,118 (39,287)Income tax effect (180,167) (5,528) (232,428)Change in fair value of investments in securities (137,196) (4,210) 288,388 Goodwill - - (19,332,968)

Net lncome (as reported under US GAAP) 21,796,730 668,817 (15,669,392)


��


100


101 CondensedBalanceSheets

102 CondensedStatementsofIncome

103 FinancialAnalysis

104 Supervisors’Report

106 ReportofIndependentAuditors

107 BalanceSheets

108 StatementsofIncome

109 StatementsofChangesin Stockholders’Equity

110 StatementsofCashFlows

112 NotestoFinancialStatements

160 AttachmentstoNotes


101

Condensed Balance Sheets

*Subject to change following resolutions decided during the 2007 shareholders’ meeting.

In thousand NTD

2006 2005 2004 2003 2002

Current assets 118,430,216 128,267,746 110,373,653 122,306,834 86,658,337

Funds and investments 82,746,430 39,238,167 71,568,002 72,218,479 56,246,744

Property, plant and equipment 142,647,435 149,809,616 137,355,251 117,184,749 146,075,886

Intangible assets 3,745,122 4,104,678 1,214,956 6,956 18,880

Other assets 7,659,590 7,970,867 7,747,985 7,527,580 8,332,799

Total assets 355,228,793 329,391,074 329,563,491 320,113,838 297,332,646

Current liabilities Before distribution 30,060,546 28,303,962 23,277,031 32,751,363 20,949,418

After distribution * 35,777,189 25,062,773 32,763,981 20,955,068

Long-term interest-bearing liabilities 30,383,076 36,009,055 33,607,029 48,552,355 55,066,424

Other liabilities 3,620,300 6,794,504 6,296,677 6,568,196 3,883,441

Total liabilities Before distribution 64,063,922 71,107,521 63,180,737 87,871,914 79,899,283


Capital 191,323,332 197,983,633 177,923,859 161,407,435 154,748,456

Additional paid-in capital 67,707,287 85,381,599 84,933,195 80,074,184 81,875,491

Retained earnings Before distribution 34,795,993 26,572,792 42,401,701 26,794,291 20,004,054


Unrealized gain or loss on financial instruments 27,557,845 (9,527,362) (9,871,086) (9,537,237) (10,795,621)

Cumulative translation adjustment (824,922) (241,153) (1,319,452) 913,877 728,851

Unrecognized pension cost, contra equity account, charge to stockholders’ equity (excess of additional pension liability over unrecognized prior service cost)

- - - - -

Total equity Before distribution 291,164,871 258,283,553 266,382,754 232,241,924 217,433,363



10�

Note The EPS calculations for 2002-2005 were based on the retroactive adjustment for capitalization of unappropriated earnings, additional paid-in capital and bonuses to employees, and the EPS calculation for 2006 was based on weighted average shares outstanding for the period.

In thousand NTD

Year CPA Auditors’ Opinion

2002 James Wang, Thomas Yue A modified unqualified opinion

2003 James Wang, Thomas Yue A modified unqualified opinion

2004 Kim Chang, MY Lee A modified unqualified opinion

2005 James Wang, MY Lee A modified unqualified opinion

2006 James Wang, MY Lee A modified unqualified opinion

Condensed Statements of Income

Auditors’ Opinion

2006 2005 2004 2003 2002

Net operating revenues 104,098,611 90,775,439 117,311,840 84,862,070 67,425,745

Gross profit 20,693,472 11,195,550 35,820,944 19,442,269 11,195,150

Operating income (loss) 6,124,138 (2,668,719) 24,454,992 9,936,334 140,971

Non-operating income 33,871,592 13,871,542 14,895,451 9,033,180 10,483,535

Non-operating expenses 2,979,691 4,175,293 7,473,153 4,154,145 3,540,412

Income from continuing operations before income tax

37,016,039 7,027,530 31,877,290 14,815,369 7,084,094

Income from continuing operations 33,807,828 7,026,692 31,843,381 14,020,257 7,072,032

Discontinued operations - - - - -

Extraordinary items - - - - -

Cumulative effect of change in accounting principle (1,188,515) - - - -

Net income 32,619,313 7,026,692 31,843,381 14,020,257 7,072,032

Earnings per share (NTD) 1.81 0.38 1.68 0.75 0.38


10�

Financial Analysis

Notes (1) The EPS calculations for 2002-2005 were based on the retroactive adjustment for capitalization of unappropriated earnings and bonus to employees; the EPS calculation for 2006 was based on weighted average shares outstanding for the period. (2) The calculation formulas of financial analysis are listed as followsCapital structure analysis (1) Debts ratio = Total liabilities / Total assets (2) Long-term funds to fixed assets = (Stockholders’ equity + Long-term interest-bearing liabilities) / Net fixed assetsLiquidity analysis(1) Current ratio = Current assets / Current liabilities (2) Quick ratio= (Current assets - Inventories - Prepaid expenses - Current deferred income tax assets ) / Current liabilities (3) Times interest earned = Earnings before interest and taxes / Interest expenseOperating performance analysis(1) Average collection turnover (times)=Net sales / Average trade receivables (2) Average collection days=365 / Average collection turnover (times) (3) Average inventory turnover (times)=Cost of goods sold / Average inventory (4) Average payable turnover (times)=Cost of goods sold / Average trade payables (5) Average inventory turnover days=365 / Average inventory turnover (times) (6) Fixed assets turnover (times)=Net sales / Average fixed assets (7) Total assets turnover (times)=Net sales / Average total assetsProfitability analysis(1) Return on total assets={Net income+Interest expense × (1-Tax rate)} / Average total assets (2) Return on equity=Net income / Average stockholders’ equity (3) Operating income to capital=Operating income / Capital (4) Income before income tax to capital=Income before income tax / Capital (5) Net income to sales=Net income / Net sales (6) Earnings per share=(Net income-Preferred stock dividend) / Weighted average number of shares outstandingCash flow(1) Cash flow ratio=Net cash provided by operating activities / Current liabilities (2) Cash flow adequacy ratio=Five-year sum of cash from operation / Five-year sum of capital expenditures, Inventory additions, and Cash dividends (3) Cash flow reinvestment ratio=(Cash provided by operating activities-Cash dividends) / (Gross fixed assets+Long-term investments+Other assets+Working capital)Leverage(1) Operating leverage=(Net sales-Variable cost) / Operating income (2) Financial leverage=Operating income(loss) / (Operating income(loss)-Interest expense)

Explanation for significant changes (over 20%) in financial analysis include:1. Times interest earned: Mainly resulted from an increase in earnings before interest and taxes over the previous year. 2. Return on total assets: Mainly resulted from an increase in net income over the previous year.3. Return on equity: Mainly resulted from an increase in net income over the previous year.4. Operating income to capital: Mainly resulted from an in-crease in operating income over the previous year.5. Income before income tax to capital: Mainly resulted from

an increase in income before income tax over the previous year.6. Net income to sales: Mainly resulted from an increase of operating income over the previous year. 7. Earnings per share (NTD): Mainly resulted from the in-crease of net income over the previous year. 8. Operating leverage: Mainly resulted from the operating loss for 2005. 9. Financial leverage: Mainly resulted from the operating loss for 2005.

2006 2005 2004 2003 2002

Capital structure analysis (%) Debts ratio 18.03 21.59 19.17 27.45 26.87

Long-term funds to fixed assets 225.41 196.44 218.40 239.62 186.55

Liquidity analysis (%) Current ratio 393.97 453.18 474.17 373.44 413.66

Quick ratio 351.82 404.71 421.28 340.19 359.62

Times interest earned 57.80 7.01 23.58 9.58 4.32

Operating performance analysis Average collection turnover (times) 8.42 7.87 9.45 7.23 8.12

Average collection days 43 46 39 50 45

Average inventory turnover (times) 8.17 8.51 10.01 8.45 8.40

Average payable turnover (times) 20.21 18.43 18.61 18.77 21.58

Average inventory turnover days 45 43 36 43 43

Fixed assets turnover (times) 0.71 0.63 0.92 0.64 0.45

Total assets turnover (times) 0.30 0.28 0.36 0.27 0.22

Profitability analysis (%) Return on total assets 9.67 2.34 10.08 4.84 2.65

Return on equity 11.87 2.68 12.77 6.24 3.14

Operating income(loss) to capital 3.20 (1.35) 13.74 6.16 0.09

Income before income tax to capital 18.73 3.55 17.92 9.18 4.58

Net income to sales 31.34 7.74 27.14 16.52 10.49

Earnings per share (NTD) 1.81 0.38 1.68 0.75 0.38

Cash Flow (%) Cash flow ratio 153.19 156.32 296.49 139.22 133.89

Cash flow adequacy ratio 151.32 148.68 115.97 105.92 87.59

Cash flow reinvestment ratio 6.32 7.73 13.64 10.37 7.06

Leverage Operating leverage 12.58 (24.95) 3.66 6.65 421.35

Financial leverage 1.11 0.74 1.05 1.14 (0.11)


10�

The board of directors has prepared and submitted to us the Company’s 2006 financial statements. These statements have been audited by Ernst & Young. The financial statements present fairly the financial position of the Company and the results of its operations and cash flows. We, as the Supervi-sors of the Company, have reviewed these statements, the report of operations and the proposals relating to distribu-tion of net profit. According to article 219 of the Company Law, we hereby submit this report.

United Microelectronics CorporationSupervisors:

Tzyy-Jang Tseng

Ta-Hsing Wang

Ting-Yu Lin

March 15, 2007

Supervisors’ Report


10�

UNITED MICROELECTRONICS CORPORATIONFINANCIAL STATEMENTS

WITH REPORT OF INDEPENDENT AUDITORSFOR THE YEARS ENDED

DECEMBER 31, 2006 AND 2005

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

The reader is advised that these financial statements have been prepared originally in Chinese. In the event of

a conflict between these financial statements and the original Chinese version or difference in interpretation

between the two versions, the Chinese language financial statements shall prevail.


10�

REPORT OF INDEPENDENT AUDITORS

English Translation of a Report Originally Issued in Chinese

To United Microelectronics Corporation

We have audited the accompanying balance sheets of United Microelectronics Corporation as of December 31, 2006 and

2005, and the related statements of income, statements of changes in stockholders’ equity, and cash flows for the years ended

December 31, 2006 and 2005. These financial statements are the responsibility of the Company’s management. Our respon-

sibility is to express an opinion on these financial statements based on our audits. As described in Note 4(10) to the financial

statements, certain long-term investments were accounted for under the equity method based on financial statements as of

December 31, 2006 and 2005 of the investees, which were audited by other auditors. Our opinion insofar as it relates to the

investment income amounting to NT$911 million and NT$821 million for the years ended December 31, 2006 and 2005,

respectively, and the related long-term investment balances of NT$1,186 million and NT$5,898 million as of December 31,

2006 and 2005, respectively, is based solely on the reports of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted in the Republic of China and

“Guidelines for Certified Public Accountants’ Examination and Reports on Financial Statements”, which require that we

plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the

financial statements, assessing the accounting principles used and significant estimates made by management, and

evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors

provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present

fairly, in all material respects, the financial position of United Microelectronics Corporation as of December 31, 2006 and

2005, and the results of its operations and its cash flows for the years ended December 31, 2006 and 2005, in conformity with

the “Business Entity Accounting Law”, “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 from January 1, 2006, United Microelectronics Corporation

has adopted the ROC Statement of Financial Accounting Standards No. 34, “Financial Instruments:Recognition and

Measurement” and No. 36, “Financial Instruments:Disclosure and Presentation” to account for the financial instruments.

As described in Note 3 to the financial statements, effective from January 1, 2005, United Microelectronics Corporation

has adopted the ROC Statement of Financial Accounting Standards No. 35, “Accounting for Asset Impairment” to account

for the impairment of its assets. Effective from January 1, 2006, goodwill is no longer subject to amortization.

We have also audited the consolidated financial statements of United Microelectronics Corporation as of and for the years

ended December 31, 2006 and 2005, and have expressed an unqualified opinion with explanatory paragraph on such financial

statements.

February 9, 2007

Taipei, Taiwan

Republic of China

Notice to Readers

The accompanying audited 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 prac-

tices to audit such financial statements are those generally accepted and applied in the Republic of China.


10�

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240

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Tot

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.


10�

English Translation of Financial Statements Originally Issued in ChineseUNITED MICROELECTRONICS CORPORATION

STATEMENTS OF INCOME For the years ended December 31, 2006 and 2005

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

NotesOperating revenues 2, 5 Sales revenues Less : Sales returns and discounts Net sales Other operating revenues Net operating revenuesOperating costs 4 (21), 5 Cost of goods sold Other operating costs Operating costsGross profitUnrealized intercompany profit 2Realized intercompany profit 2 Gross profit-netOperating expenses 4 (21), 5 Sales and marketing expenses General and administrative expenses Research and development expenses SubtotalOperating income (loss)Non-operating income Interest revenue 2, 5 Investment gain accounted for under the equity method, net 2, 4 (10) Dividend income Gain on disposal of property, plant and equipment 2 Gain on disposal of investments 2 Exchange gain, net 2, 10 Gain on recovery of market value of inventories 2 Gain on valuation of financial assets 2 Gain on valuation of financial liabilities 2 Other income SubtotalNon-operating expenses Interest expense 4 (11) Investment loss accounted for under the equity method, net 2, 4 (10) Loss on disposal of property, plant and equipment 2 Loss on decline in market value and obsolescence of inventories 2 Financial expenses Impairment loss 2, 4(13) Other losses SubtotalIncome from continuing operations before income taxIncome tax expense 2, 4 (22)Net income from continuing operationsCumulative effect of changes in accounting principles 3 (the net amount after deducted tax expense $0)Net income

Pre-tax Post-tax Pre-tax Post-taxEarnings per share-basic (NTD) 2, 4 (23) Income from continuing operations 2.05$ 1.87$ 0.38$ 0.38$ Cumulative effect of changes in accounting principles (0.06) (0.06) - - Net income 1.99$ 1.81$ 0.38$ 0.38$

Earnings per share-diluted (NTD) 2, 4 (23) Income from continuing operations 1.98$ 1.81$ 0.37$ 0.37$ Cumulative effect of changes in accounting principles (0.06) (0.06) - - Net income 1.92$ 1.75$ 0.37$ 0.37$

Pro forma information on earnings as if subsidiaries' investment in 2, 4 (23) the Company is not treated as treasury stock Net income Earnings per share-basic (NTD) Earnings per share-diluted (NTD)

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

(710,191)101,313,406

(81,618,123)

2,785,205104,098,611

2006For the year ended December 31,

2005

90,780,340$102,023,597$(1,840,345)88,939,995

1,835,44490,775,439

(1,801,277)(83,419,400)20,679,211

(78,836,403)(777,750)

(79,614,153)11,161,286

(105,892)120,153

20,693,472

(120,153)154,417

11,195,550

(2,601,671)(2,730,047)(9,237,616)

(2,280,674)(3,225,165)(8,358,430)

(14,569,334) (13,864,269)6,124,138 (2,668,719)

1,453,0401,873,777

860,977133,212

27,501,643296,044

-

306,140660,106

10,096,375252,303919,884

--

945,610-

922,56262,884

671,92413,871,542

(630,738)-

(918,173)(2,677,263)

786,65333,871,592

32,619,313$

(64,806)(2,979,691)37,016,039(3,208,211)33,807,828(1,188,515)

(32,480)

(229,602)(1,103,812)

(80,012)

-(918,253)

7,026,692$

(81,544)

(258,110)(160,191)

(4,175,293)7,027,530

(838)7,026,692

-

1.75$

7,026,692$0.36$0.36$

32,686,223$1.80$


10�

Engl

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Tran

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Sta

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UN

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Tho

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Bal

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as o

f Jan

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4 (1

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9,81

9$

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84

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- -

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- -

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343,

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343,

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1,72

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f Dec

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64

(17)

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16

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322,

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17,7

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291,

164,

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Adj

ustm

ent

Cap

ital


110

English Translation of Financial Statements Originally Issued in ChineseUNITED MICROELECTRONICS CORPORATION

STATEMENTS OF CASH FLOWSFor the years ended December 31, 2006 and 2005(Expressed in Thousands of New Taiwan Dollars)

2006 2005Cash flows from operating activities: Net income 32,619,313$ 7,026,692$ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 42,512,610 46,129,225 Amortization 1,780,590 2,387,679

Bad debt reversal (164,908) (151,042) Loss (gain) on decline (recovery) in market value and obsolescence of inventories 918,253 (919,884) Cash dividends received under the equity method 1,076,020 724,510 Investment (gain) loss accounted for under the equity method (1,873,777) 2,677,263 Loss on valuation of financial assets and liabilities 222,269 - Transfer of property, plant and equipment to losses and expenses - 9,370 Impairment loss 1,103,812 160,191 Gain on disposal of investments (27,501,643) (10,096,375)

Loss (gain) on disposal of property, plant and equipment (100,732) 18,660 Exchange gain on financial assets and liabilities (13,009) (2,352) Exchange (gain) loss on long-term liabilities (126,106) 65,827 Amortization of bond discounts 94,896 - Amortization of deferred income (99,210) (89,762) Changes in assets and liabilities: Financial assets and liabilities at fair value through profit or loss, current (5,803,828) 46,605 Notes and accounts receivable 159,629 (658,907) Other receivables 270,444 (128,727) Inventories (1,071,401) 104,968 Prepaid expenses (220,048) (108,025) Accounts payable (1,624,382) (1,087,713) Accrued expenses 2,135,234 (547,542) Other current liabilities 407,389 (57,471) Capacity deposits (5,200) (193,249) Accrued pension liabilities 82,996 313,267 Other liabilities - others 1,269,963 263,017 Net cash provided by operating activities 46,049,174 45,886,225

Cash flows from investing activities: Cash proceeds from merger - 943,862 Acquisition of available-for-sale financial assets (296,823) (2,013,681) Proceeds from disposal of available-for-sale financial assets 15,788,568 7,705,917 Proceeds from disposal of held-to-maturity financial assets - 707,820 Acquisition of financial assets measured at cost (85,080) (385,477) Proceeds from disposal of financial assets measured at cost 254,261 92,457 Acquisition of long-term investments accounted for under the equity method (7,437,443) (6,298,288) Proceeds from disposal of long-term investments accounted for under the equity method 7,801,029 3,354,361 Proceeds from liquidation of long-term investments 150,000 13,346,789 Acquisition of property, plant and equipment (31,204,419) (18,586,587) Proceeds from disposal of property, plant and equipment 248,962 129,468 Increase in deferred charges (1,082,648) (1,356,305) Increase in other assets - others (17,391) (161,341) Increase in other receivables - (5,137,760) Net cash used in investing activities (15,880,984) (7,658,765)

For the year ended December 31,


111

English Translation of Financial Statements Originally Issued in Chinese

UNITED MICROELECTRONICS CORPORATION

STATEMENTS OF CASH FLOWS

For the years ended December 31, 2006 and 2005

(Expressed in Thousands of New Taiwan Dollars)

2006 2005

(continued)

Cash flows from financing activities:

Decrease in short-term loans, net -$ (1,904,400)$

Repayment of long-term loans - (16,153,714)

Redemption of bonds (10,250,000) (2,820,004)

Issuance of bonds - 12,478,603

Cash dividends (7,155,865) (1,758,736)

Payment of employee bonus (305,636) -

Remuneration paid to directors and supervisors (6,324) (27,006)

Exercise of employee stock options 1,725,665 1,642,009

Purchase of treasury stock (27,286,339) (16,378,692)

Decrease in deposits-in (6,379) (1,255) Net cash used in financing activities (43,284,878) (24,923,195)

Effect of exchange rate changes on cash and cash equivalents (85,133) (54,971)

Increase (decrease) in cash and cash equivalents (13,201,821) 13,249,294

Cash and cash equivalents at beginning of year 96,596,623 83,347,329

Cash and cash equivalents at end of year 83,394,802$ 96,596,623$

Supplemental disclosures of cash flow information:

Cash paid for interest 953,685$ 1,334,219$ Cash paid (refunded) for income tax 27,260$ (163,469)$

Investing activities partially paid by cash:

Acquisition of property, plant and equipment 36,028,323$ 17,586,514$

Add: Payable at beginning of year 5,277,863 4,704,299

Payable transferred in from the Branch at beginning of year - 1,573,637

Less: Payable at end of year (10,101,767) (5,277,863)

Cash paid for acquiring property, plant and equipment 31,204,419$ 18,586,587$

Investing and financing activities not affecting cash flows:

Principal amount of exchangeable bonds exchanged by bondholders 69,621$ -$

Book value of available-for-sale financial assets delivered for exchange (20,242) -

Elimination of related balance sheet accounts 15,302 -

Recognition of gain on disposal of investments 64,681$ -$

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



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UNITED MICROELECTRONICS CORPORATIONNOTES TO FINANCIAL STATEMENTS

December 31, 2006 and 2005(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.

Based on the resolution of the board of directors’ meeting on February 26, 2004, the effective date of the Company’s merger

with SiS MICROELECTRONICS CORP. (SiSMC) was July 1, 2004. The Company was the surviving company, and SiSMC

was the dissolved company. The merger was approved by the relevant government authorities. All the assets, liabilities,

rights, and obligations of SiSMC have been fully incorporated into the Company since July 1, 2004.

Based on the resolution of the board of directors’ meeting on August 26, 2004, UMCI LTD had transferred its businesses,

operations, and assets to the Company’s Singapore branch (the Branch) since April 1, 2005.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements were prepared in conformity with the “Business Entity Accounting Law”, “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 estimates and assumptions that will affect the amount of assets and liabilities, the disclosure

of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses

during the reported period. Actual results may differ from those estimates.


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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.

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 adjustment items to

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 Branch are translated into New Taiwan Dollars using the spot rates as of each financial

statement date for asset and liability accounts, average exchange rates for profit and loss accounts. The cumulative

translation effects from the Branch using functional currencies other than the 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 Instruments

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.


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The Company accounts for purchase or sale of financial instruments as of the trade date, which is the date the Company

commits to purchasing or selling the asset or liability. Financial assets and financial liabilities are initially recognized at fair

value plus acquisition or issuance costs. Accounting policies prior to December 31, 2005 are described in Note 3.

a. Financial instruments at fair value through profit or loss

Financial instruments held for short-term sale or repurchase purposes, and derivative financial instruments not qualified

for hedge accounting, are classified as financial assets or liabilities at fair value through profit or loss.

This category of financial instruments is measured at fair value, and changes in fair value are recognized in the statements

of income. Stock of listed companies, convertible bonds, and close-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.

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.


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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 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 year’s statement of income if the security recovers

and the Company concludes the recovery is clearly related to improvements in the factors or events that originally caused

the impairment.

Allowance for Doubtful Accounts

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

accounts and other receivables.

Inventories

Inventories are accounted for on a perpetual basis. Raw materials are recorded at actual purchase costs, while the work in

process and finished goods are recorded at standard costs and 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 initially recorded at acquisition cost. Investments acquired by the contribution of technological

know-how are credited to deferred credits among affiliates, which will be amortized to income 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, arising differences from new acquisitions are analyzed and accounted for under the ROC SFAS No. 25, “Business

Combination – Accounting Treatment under Purchase Method”, where goodwill is no longer to be amortized.


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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 year end ownership percentage until realized through transactions with third parties.

Intercompany gains and losses arising from transactions between the Company and majority-owned (above 50%)

subsidiaries are eliminated entirely until realized through transactions with third parties.

Unrealized intercompany gains and losses due to sales from equity method investees to the Company are eliminated

in proportion to the Company’s weighted-average ownership percentage of the investee until realized through transactions

with third parties.

Unrealized intercompany gains and losses arising from transactions between two equity method investees are eliminated

in proportion to the Company’s multiplied weighted-average ownership percentage with the investees until realized through

transactions with third parties. Those intercompany gains and losses arising from transactions between two

majority-owned subsidiaries are eliminated in proportion to the Company’s weighted-average ownership percentage in the

subsidiary that incurred the gain or loss.

If the recoverable amount of investees accounted for under the equity method is less than its carrying amount, the difference

is to be recognized as impairment loss in the current period.

The total value of an investment and related receivables cannot be negative. If, after the investment loss is recognized,

the net book value of the investment is less than zero, the investment is reclassified to other liabilities-others on the balance

sheet.

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. When property, plant and equipment are disposed, their original cost and accumulated depreciation are written off

and the related gain or loss is classified as non-operating income or expense. Idle assets are classified as other assets at the

lower of net book or net realizable value, with the difference charged to non-operating expenses.


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Depreciation is recognized on a straight-line basis using the estimated economic life of the assets less salvage value, if any.

If the main property, plant and equipment are fully depreciated and sub property, plant and equipment are still in use , the

depreciation is based on the newly estimated remaining useful life. The estimated economic life of the property, plant and

equipment is as follows: buildings – 20 to 55 years; machinery and equipment – 5 years; transportation equipment – 5 years;

furniture and fixtures – 5 years.

Intangible Assets

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

Technological know-how is stated at cost and amortized over its estimated economic life using the straight-line method.

An impairment loss will be recognized when the decreases in fair value of intangible assets are other than temporary. The

book value after recognizing the impairment loss is recorded as the new cost.

Deferred Charges

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

the shorter term of contract 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 the adjustment of 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 on bond conversion.


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When exchangeable bondholders exercise their right to exchange their bonds for reference shares, the book value of the

bonds is offset against the book value of the investments in reference shares and the related stockholders’ equity accounts,

with the difference recognized as a gain or loss on disposal of investments.

In accordance with ROC SFAS No. 34, “Financial Instruments: Recognition and Measurement,” effective as of January 1,

2006, since the economic and risk characteristics of the embedded derivative instrument and the host contract are not

clearly and closely related, derivative financial instruments embedded in exchangeable bonds shall be bifurcated and

accounted as financial liabilities at fair value through profit or loss.

Pension Plan

All regular employees are entitled to a defined benefit pension plan that is managed by an independently administered

pension fund committee. Fund assets are deposited in the committee’s name in the Central Trust of China 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 ROC (the Act), which adopts a defined contribution plan, became effective on July 1, 2005.

Employees subject to the Labor Standards Law, a defined benefit plan, were allowed to choose to either elect the pension

calculation under the Act or continue to be subject to the pension calculation under the Labor Standards Law. Those

employees that elected to be subject to the Act will have their seniority achieved under the Labor Standards Law retained

upon election of the Act, and the Company will make monthly contributions of no less than 6% of these employees’ monthly

wages to the employees’ individual pension accounts.

The accounting for 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 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 by the actuary. 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 uses intrinsic value method to recognize compensation cost for its employee stock options issued since

January 1, 2004. Under the intrinsic value method, the Company recognizes the difference between the market price of the

stock on date of grant and the exercise price of its employee stock option as compensation cost. The Company also discloses

pro forma net income and earnings per share under the fair value method for options granted since January 1, 2004.


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Treasury Stock

The Company adopted ROC SFAS No. 30, “Accounting for Treasury Stocks” which requires that treasury stock held by

the Company to be 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. The

Company’s stock held by its subsidiaries is also treated as treasury stock.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, the product or service has been

delivered, the seller’s price to the buyer is fixed or determinable and collectibility is reasonably assured. Most of the

Company’s sales transactions have shipping terms of Free on Board (FOB) or Free Carrier (FCA) shipment in which title and

the risk of loss or damage is transferred to the customer upon delivery of the product to a carrier approved by the

customer.

Allowance for sales returns and discounts are estimated taking into consideration customer complaints, historical

experiences, management judgment and any other known factors that might significantly affect collectibility. Such

allowances are recorded in the same period in which sales are made.

Capital Expenditures Versus Operating Expenditures

An expenditure is capitalized when it is probable that the Company will receive future economic benefits associated with

the expenditure and the expenditure amount exceeds a predetermined amount. Otherwise, the expenditure is expensed as

incurred.

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, then it is classified as either

current or noncurrent based on the expected reversal date of the temporary difference.

According to ROC SFAS No. 12, “Accounting for Income Tax Credits”, the Company recognizes the tax benefit from the

purchase of equipment and technology, research and development expenditure, employee training, and certain equity

investment by the flow-through method.

Income tax (10%) on unappropriated earnings is recorded as expense in the year in which the shareholders have resolved

that the earnings shall be retained.


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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 any indication that the impairment loss no longer exists or may have diminished. If there is any such

indication, the Company recalculates the recoverable amount of the asset, and if the recoverable amount has increased as

a result of the increase in the estimated service potential of the assets, the Company reverses the impairment loss so that the

resulting carrying amount of the asset does not exceed the amount (net of amortization or depreciation) that would

otherwise result had no impairment loss been recognized for the assets in prior years.

In addition, a goodwill-allocated CGU or group of CGUs is tested for impairment each year, regardless of whether

impairment is indicated. If an impairment test reveals that the carrying amount, including goodwill, of CGU or group of

CGUs is greater than its recoverable amount, there is 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 loss and income, respectively.


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3. ACCOUNTING CHANGES

Asset Impairment

The Company adopted ROC SFAS No. 35, “Accounting for Asset Impairment” to account for the impairment of its assets

for its financial statements effective January 1, 2005. No retroactive adjustment is required under the standard. This change

in accounting principles did not have any impact on the Company’s net income, or basic earnings per share after tax for the

year ended December 31, 2005. Adoption of this standard did not have any impact on total assets as of December 31, 2005.

Goodwill

The Company adopted the amendments to ROC SFAS No. 1, “Conceptual Framework of Financial Accounting and

Preparation of Financial Statements,” SFAS No. 5, “Long-Term Investments in Equity Securities,” and SFAS No. 25,

“Business Combinations—Accounting Treatment under Purchase Method,” all of which have discontinued the amortization

of goodwill effective January 1, 2006. As a result of adopting the revised SFAS No.1, revised SFAS No.5 and revised SFAS

No.25 on January 1, 2006, the Company’s total assets as of December 31, 2006 are NT$ 859 million higher than if it had

continued to account for goodwill under the prior year’s requirements. The net income and earnings per share

for the year ended December 31, 2006, are NT$ 859 million and NT$ 0.05 higher, respectively, than if the Company had

continued to account for goodwill under the prior year’s requirements.


(1) The Company adopted ROC SFAS No. 34, “Financial Instruments: Recognition and Measurement” and SFAS No. 36,

“Financial Instruments: Disclosure and Presentation” to account for the financial instruments effective January 1, 2006.

Some prior year items have been reclassified as required by ROC “Guidelines Governing the Preparation of Financial

Reports by Securities Issuers,” SFAS No. 34 and No. 36 to conform with current year’s presentation.

(2) The accounting policies prior to December 31, 2005 are as follows:

a. Marketable Securities

Marketable securities were recorded at cost at acquisition and were stated at the lower of aggregate cost or market

value as of the balance sheet date. Cash dividends were recognized as dividend income at the point of receipt. Costs

of money market funds and short-term notes were identified specifically while other marketable securities were

determined by the weighted-average method. The market values of listed debts, equity securities and closed-end

funds were determined by the average closing price during the last month of the fiscal year. The market value for

open-end funds was determined by the net asset value as of the balance sheet date. The amount by which the

aggregate cost exceeded the market value was reported as a loss in the current year. In subsequent periods, recovery

of the market value was recognized as a gain to the extent that the market value did not exceed the original aggregate

cost of the investment.


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

Investments of less than 20% of the outstanding voting rights in listed investees, where significant influence on

operating decisions of the investees does not reside with the Company, were accounted for by the lower of aggregate

cost or market value method. The unrealized loss resulting from the decline in market value of investments that

were held for the purpose of long-term investment was deducted from the stockholders’ equity. The market value as

of the balance sheet date was determined by the average closing price during the last month of the reporting period.

Investments of less than 20% of the outstanding voting rights in unlisted investees were accounted for under the cost

method. The Company recognized an impairment loss on investments if objective evidence existed demonstrating

an other than temporary decline in fair value. The book value of the investment was written down to its fair

market value.

c. Derivative Financial Instruments

The net receivables or payables resulting from interest rate swap and forward contracts were recorded under current

assets or current liabilities before December 31, 2005.

(3) The above changes in accounting principles increased the Company’s total assets, total liabilities, and stockholders’

equity as of January 1, 2006 by NT$23,648 million, NT$1,326 million, and NT$22,322 million, respectively, and

resulted in an unfavorable cumulative effect of changes in accounting principles of NT$1,189 million deducted from

net income, thereby reducing earnings per share by NT$0.06 for the year ended December 31, 2006.

4. CONTENTS OF SIGNIFICANT ACCOUNTS

(1) CASH AND CASH EQUIVALENTS

As of December 31,

2006 2005

Cash:

Cash on hand $1,865 $1,697

Checking and savings accounts 874,866 2,201,585

Time deposits 75,294,424 83,180,150

Subtotal 76,171,155 85,383,432

Cash equivalents 7,223,647 11,213,191

Total $83,394,802 $96,596,623


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

As of December 31,

Held for trading 2006 2005

Listed stocks $8,094,274 $1,250,280

Convertible bonds 443,733 1,218,688

Total $8,538,007 $2,468,968

During the year ended December 31, 2006, net gain arising from the changes in fair value of financial assets at fair value

through profit or loss, current, was NT$712 million.

(3) AVAILABLE-FOR-SALE FINANCIAL ASSETS, CURRENT

As of December 31,

2006 2005

Common stock $- $1,004,878

Preferred stock - 1,409,275

Total $- $2,414,153

(4) HELD-TO-MATURITY FINANCIAL ASSETS

As of December 31,

2006 2005

Credit-linked deposits and repackage bonds $974,272 $977,856

Less: Non-current portion - (977,856)

Total $974,272 $-

(5) NOTES RECEIVABLE

As of December 31,

2006 2005

Notes receivable $3,733 $193

(6) ACCOUNTS RECEIVABLE, NET

As of December 31,

2006 2005

Accounts receivable $6,550,304 $6,417,633

Less: Allowance for sales returns and discounts (287,319) (148,825)

Less: Allowance for doubtful accounts - (68,580)

Net $6,262,985 $6,200,228


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(7) INVENTORIES, NET

As of December 31,

2006 2005

Raw materials $1,089,684 $266,949

Supplies and spare parts 1,733,527 1,708,187

Work in process 6,740,834 7,561,310

Finished goods 1,524,270 995,654

Total 11,088,315 10,532,100

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

(968,794) (568,847)

Net $10,119,521 $9,963,253

Inventories were not pledged.

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

As of December 31,

2006 2005

Common stock $41,218,780 $5,513,284

During the year ended December 31, 2006, the Company recognized a net gain of NT$1,665 million due to the changes

in fair value as an adjustment to stockholders’ equity.

(9) FINANCIAL ASSETS MEASURED AT COST, NONCURRENT

As of December 31,

2006 2005

Common stock $1,458,246 $1,458,246

Preferred stock 385,080 300,000

Funds 442,000 507,221

Total $2,285,326 $2,265,467


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

a. Details of long-term investments accounted for under the equity method are as follows:As of December 31,

2006 2005

Investee CompaniesAmount

Percentage of Ownership or Voting Rights

Amount


Listed companiesUMC JAPAN $5,949,999 50.09 $6,341,144 48.95HOLTEK SEMICONDUCTOR INC. 878,747 24.45 818,681 24.81ITE TECH. INC. 341,268 21.80 329,704 22.66FARADAY TECHNOLOGY CORP. (Note A) - - 864,928 18.50SILICON INTEGRATED SYSTEMS CORP.

(Note A) - - 3,921,878 16.59

NOVATEK MICROELECTRONICS CORP. (Note A) - - 1,409,421 11.74

UNIMICRON TECHNOLOGY CORP. (UNIMICRON)(Note B) - -

4,015,626 20.43

Subtotal 7,170,014 17,701,382

Unlisted companiesUMC GROUP (USA) 1,006,496 100.00 753,519 100.00UNITED MICROELECTRONICS (EUROPE) B.V. 284,084 100.00 279,834 100.00UMC CAPITAL CORP. 3,613,491 100.00 2,051,350 100.00UNITED MICROELECTRONICS CORP. (SAMOA) 8,480 100.00 14,179 100.00UMCI LTD. (Note C) 86 100.00 9,484 100.00TLC CAPITAL CO., LTD. 6,999,737 100.00 2,991,258 100.00FORTUNE VENTURE CAPITAL CORP. (Note D) 11,114,198 99.99 4,200,105 99.99UNITED MICRODISPLAY OPTRONICS CORP.

(UMO) (Note E)167,217 81.76 318,151 86.72

PACIFIC VENTURE CAPITAL CO., LTD. 127,379 49.99 296,218 49.99MTIC HOLDINGS PTE LTD 81,402 49.94 - -MEGA MISSION LIMITED PARTNERSHIP 2,699,491 45.00 - -UNITECH CAPITAL INC. 959,542 42.00 638,946 42.00HSUN CHIEH INVESTMENT CO., LTD.

(HSUN CHIEH)(Note F) 4,674,311 36.49 - 99.97

HIGHLINK TECHNOLOGY CORP. (Notes G) 225,624 18.97 - -XGI TECHNOLOGY INC. (Note G) 53,710 16.48 82,807 16.53AMIC TECHNOLOGY CORP. (Note G) 57,062 11.86 60,520 11.86TOPPAN PHOTOMASKS TAIWAN LTD.

(formerly DUPONT PHOTOMASKS TAIWAN LTD.)

- - 1,063,671 45.35

THINTEK OPTRONICS CORP. (THINTEK) (Notes E)

- - 20,136 14.26

Subtotal 32,072,310 12,780,178Total $39,242,324 $30,481,560


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Note A: In the beginning of 2006 as the Company determined it did not have significant influence over the investee, and in

accordance with ROC SFAS No. 34, 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 UNIMICRON in

2006, the investee was classified as available-for-sale financial asset.

Note C: Based on the resolution of the board of directors’ meeting on August 26, 2004, UMCI has transferred its business,

operations, and assets to the Branch effective April 1, 2005.

Note D: As of December 31, 2006 and 2005, the cost of the investment was NT$11,286 million and NT$4,372 million,

respectively. After deducting the Company’s stock held by the subsidiary (treated as treasury stock by the

Company) of NT$172 million in both years, the residual book values totalled NT$11,114 million and NT$ 4,200

million as of December 31, 2006 and 2005, respectively.

Note E: THINTEK was merged into UMO on October 1, 2006. The exchange ratio was 2.31 to 1.

Note F: As of January 27, 2006, the Company sold 58.5 million shares of HSUN CHIEH. The Company’s ownership

percentage decreased from 99.97% to 36.49%. As HSUN CHIEH ceased to be a subsidiary, the Company’s stock

held by HSUN CHIEH was reclassified from treasury stock to long-term investments accounted for under the

equity method. The reclassification increased long-term investments accounted for under the equity method and

stockholders’ equity by NT$10,881 million.

The ending balance as of December 31, 2005 of NT$(3,170) million recorded under other liabilities was computed

by deducting the Company’s stock held by the investee (treated as treasury stock by the Company), amounting to

NT$20,137 million from the cost of investment balance at period-end of NT$16,967 million.

Note G: 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 and loss arising from investments accounted for under the equity method were NT$1,874 million and NT$2,677

million for the years ended December 31, 2006 and 2005, respectively. Among which, investment income amounted to

NT$911 million and NT$821 million for the years ended December 31, 2006 and 2005, respectively, and the related

long-term investment balances of NT$1,186 million and NT$5,898 million as of December 31, 2006 and 2005,

respectively, were determined based on the investees’ financial statements audited by other auditors.

c. Long-term equity investments were not pledged.


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(11) PROPERTY, PLANT AND EQUIPMENTAs of December 31, 2006

Cost Accumulated Depreciation

Book Value

Land $1,132,576 $- $1,132,576Buildings 16,274,780 (5,396,847) 10,877,933Machinery and equipment 394,330,240 (286,527,429) 107,802,811Transportation equipment 79,117 (58,812) 20,305Furniture and fixtures 2,369,060 (1,783,505) 585,555Construction in progress and

prepayments 22,228,255 - 22,228,255

Total $436,414,028 $(293,766,593) $142,647,435

As of December 31, 2005

Cost Accumulated Depreciation

Book Value

Land $1,132,576 $- $1,132,576Buildings 16,287,803 (4,668,161) 11,619,642Machinery and equipment 366,982,250 (246,233,155) 120,749,095Transportation equipment 88,413 (62,501) 25,912Furniture and fixtures 2,199,773 (1,510,187) 689,586Construction in progress and

prepayments15,592,805 - 15,592,805

Total $402,283,620 $(252,474,004) $149,809,616

a. Total interest expense before capitalization amounted to NT$631 million and NT$1,133 million for the years ended

December 31, 2006 and 2005, respectively.

Details of capitalized interest are as follows:For the year ended December 31,

2006 2005Machinery and equipment $- $210,689Other property, plant and equipment - 4,397Total interest capitalized $- $215,086

Interest rates applied - 2.86%~4.20%

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


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(12) OTHER ASSETS-OTHERS As of December 31,

2006 2005Leased assets $1,333,029 $1,366,695Deposits-out 642,584 579,710Others 59,118 59,118 Total $2,034,731 $2,005,523

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

(13) IMPAIRMENTAs of December 31,

2006 2005Available for sale financial assets, noncurrent $825,863 $-Long-term investment accounted for under the

equity method 21,807 100,191

Technology know how 256,142 -Other assets - 60,000

Total $1,103,812 $160,191

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

As of December 31,2006 2005

Interest rate swaps $626,230 $95,634Derivatives embedded in exchangeable bonds 359,037 -Total $985,267 $95,634

During the year ended December 31, 2006, net gain arising from the changes in fair value of financial liabilities at fair

value through profit or loss, current, was NT$312 million.

(15) BONDS PAYABLEAs of December 31,

2006 2005Unsecured domestic bonds payable $20,250,000 $30,500,000Convertible bonds payable 12,441,268 12,540,432Exchangeable bonds payable 3,122,060 3,218,623Less: discounts on bonds payable (74,369) - Total 35,738,959 46,259,055Less: Current portion (5,355,883) (10,250,000) Net $30,383,076 $36,009,055


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a. On April 27, 2000, the Company issued five-year secured bonds amounting to NT$3,990 million. The interest was

paid semi-annually with a stated interest rate of 5.6%. The bonds were repaid in installments every six months from

April 27, 2002 to April 27, 2005. On April 27, 2005, the bonds were fully repaid.

b. During the period from April 16 to April 27, 2001, the Company issued five-year and seven-year unsecured bonds

totaling NT$15,000 million, each with a face value of NT$7,500 million. The interest is paid annually with stated

interest rates of 5.1195% through 5.1850% and 5.2170% through 5.2850%, respectively. The five-year bonds and

seven-year bonds are 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.

c. During the period from October 2 to October 15, 2001, the Company issued three-year and five-year unsecured

bonds totaling NT$10,000 million, each with a face value of NT$5,000 million. The interest was paid annually with

stated interest rates of 3.3912% through 3.420% and 3.4896% through 3.520%, respectively. On October 15, 2006 and

2004, the five-year bonds and the three-year bonds were fully repaid, respectively.

d. On May 10, 2002, the Company issued zero coupon exchangeable bonds listed on the EuroMTF Market of the

Luxembourg Stock Exchange (LSE). The terms and conditions of the bonds are as follows:

(a) Issue Amount: US$235 million

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

(c) Redemption

i. 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

NT$34.645=US$ 1.00.

ii. The Company may redeem the bonds, in whole, but not in part, if at least 90% in principal amount of the bonds

has already been exchanged, redeemed or purchased and cancelled.


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iii. The Company may redeem all, but not part, of the bonds, at any time, in the event of certain changes in the

ROC 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.

ii. Exchange Period: The bonds are exchangeable at any time on or after June 19, 2002 and prior to April 10, 2007,

into AUO common shares or AUO ADSs; provided, however, that if the exercise date falls within 5 business

days from the beginning of, and during, any closed period, the right of the exchanging holder of the bonds to

vote with respect to the shares it receives will be subject to certain restrictions.

iii. Exchange Price and Adjustment: The exchange price is NT$44.3 per share, determined on the basis of a fixed

exchange rate of NT$34.645=US$1.00. The exchange price will be subject to adjustments upon the occurrence

of certain events set out in the indenture.

(e) Exchange of the Bonds

As of December 31, 2006 and 2005, certain bondholders have exercised their rights to exchange their bonds with

the total principal amount of US$139 million and US$137 million into AUO shares, respectively. Gains arising

from the exercise of exchange rights during the year ended December 31, 2006 amounted NT$65 million and was

recognized as gain on disposal of investment. No bonds were exchanged during the year ended December 31,

2005.

e. During the period from May 21 to June 24, 2003, the Company issued five-year and seven-year unsecured bonds

totaling NT$15,000 million, each with a face value of NT$7,500 million. The interest is paid annually with stated

interest rates of 4.0% minus USD 12-Month LIBOR and 4.3% minus USD 12-Month LIBOR, respectively. Stated

interest rates are reset annually based on the prevailing USD 12-Month LIBOR. The five-year bonds and seven-year

bonds are repayable in 2008 and 2010, respectively, upon the maturity of the bonds.

f. On October 5, 2005, the Company issued zero coupon convertible bonds on the LSE. The terms and conditions of

the bonds are as follows:

(a) Issue Amount: US$381.4 million


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

(c) Redemption:

i. On or at any time after April 5, 2007, if the closing price of the ADSs listed on the NYSE has been at least 130% of

either the conversion price or the last adjusted conversion price, for 20 out of 30 consecutive ADS trading days,

the Company may redeem all, but not some only, of the bonds.

ii. If at least 90% in principal amount of the bonds have already been redeemed, repurchased, cancelled or

converted, the Company may redeem all, but not some only, of the bonds.

iii. In the event that the Company’s ADSs or shares have officially ceased to be listed or admitted for trading on the

New York Stock Exchange or the Taiwan Stock Exchange, as the case may be, each bondholder shall have the

right, at such bondholder’s option, to require the Company to repurchase all, but not in part, of such

bondholder’s bonds at their principal amount.

iv. In the event of certain changes in taxation in the R.O.C. resulting in the Company becoming required to pay

additional amounts, the Company may redeem all, but not part, of the bonds at their principal amount;

bondholders may elect not to have their bonds redeemed by the Company in such event, in which case the

bondholders shall not be entitled to receive payments of such additional amounts.

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

bondholder’ soption, to require the Company to repurchase all, but not in part, of such bondholder’s bonds at

their principal amount.

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

(d) Conversion:

i. Conversion Period: Except for the closed period, the bonds may be converted into the Company’s ADSs on or

after November 4, 2005 and on or prior to February 5, 2008.

ii. Conversion Price and Adjustment: The conversion price is US$3.693 per ADS. The applicable conversion price

will be subject to adjustments upon the occurrence of certain events set out in the indenture.


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

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

Bonds repayable in Amount2007 $5,372,0602008 22,941,2682009 -2010 7,500,0002011 -Total $35,813,328

(16) PENSION FUND

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 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 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$367 million and NT$170 million as of December 31, 2006 and 2005, respectively. Pension

benefits for employees of the Branch are provided in accordance with the local regulations, and the Company has

contributed the amount of NT$86 million and NT$50 million as of December 31, 2006 and 2005, 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 Central Trust of China in the name of an administered

pension fund committee. The unrecognized net asset or obligation at transition based on actuarial valuation is

amortized on a straight-line basis over 15 years.

c. Change in benefit obligation during the year:For the year ended December 31,

2006 2005Projected benefit obligation at beginning of year $(4,142,309) $(3,790,299)Service cost (72,312) (302,509)Interest cost (124,234) (132,660)Benefits paid 10,024 10,883Gain (loss) on projected benefit obligation (126,122) 72,276Projected benefit obligation at end of year $(4,454,953) $(4,142,309)


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d. Change in pension assets during the year:For the year ended December 31,

2006 2005Fair value of plan assets at beginning of year $1,077,661 $959,325Actual return on plan assets 28,140 14,632Contributions from employer 107,626 114,587Benefits paid (10,024) (10,883)Fair value of plan assets at end of year $1,203,403 $1,077,661

e. The funding status of the pension plan is as follows:As of December 31,

2006 2005Benefit obligation

Vested benefit obligation $(55,213) $(39,069)Non-vested benefit obligation (1,853,757) (1,671,097)Accumulated benefit obligation (1,908,970) (1,710,166)Effect from projected salary increase (2,545,983) (2,432,143)Projected benefit obligation (4,454,953) (4,142,309)

Fair value of plan assets 1,203,403 1,077,661Funded status (3,251,550) (3,064,648)Unrecognized net transitional benefit obligation 112,670 140,837Unrecognized loss (gain) 52,106 (79,967)Accrued pension liabilities recognized on the balance sheet $(3,086,774) $(3,003,778)

f. The components of the net periodic pension cost are as follows:

For the year ended December 31,2006 2005

Service cost $72,312 $302,509Interest cost 124,234 132,660Expected return on plan assets (34,091) (35,482)Amortization of unrecognized transitional net benefit

obligation28,167 28,167

Net periodic pension cost $190,622 $427,854

The actuarial assumptions underlying are as follows:


Discount rate 2.75% 3.00%Rate of salary increase 4.50% 4.50%Expected return on plan assets 2.50% 3.00%


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(17) CAPITAL STOCK

a. The Company had 26,000 million common shares authorized to be issued, and 19,795 million common shares were

issued as of December 31, 2005, each at a par value of NT$10.

b. The Company had issued a total of 277 million ADSs which were traded on the NYSE as of December 31, 2005. The

total number of common shares of the Company represented by all issued ADSs was 1,384 million shares as of

December 31, 2005. One ADS represents five common shares.

c. On April 26, 2005, the Company cancelled 49 million shares of treasury stock, which were bought back during the

period from February 20 to April 19, 2002 for transfer to employees.

d. As recommended by the board of directors, and approved by the shareholders on the meeting held on June 13, 2005,

the Company issued 1,956 million new shares from capitalization of retained earnings that amounted to NT$19,560

million, of which NT$17,587 million was stock dividend and NT$1,973 million was employee bonus. The issuance

process through the authority had been completed.

e. Among the employee stock options issued by the Company on October 7, 2002 and January 3, 2003, 96 million shares

were exercised during the year ended December 31, 2005. The issuance process through the authority had been

completed.

f. The Company had 26,000 million common shares authorized to be issued, and 19,131 million was issued as of

December 31, 2006, each at a par value of NT$10.

g. Among the employee stock options issued by the Company on October 7, 2002, January 3, 2003 and October 13, 2004,

109 million shares were exercised during the year ended December 31, 2006. The exercise of employee stock options of

47 million shares, 16 million shares and 46 million shares were issued on March 15, 2006, September 25, 2006, and

December 27, 2006, respectively. The issuance process through the authority had been completed.

h. On May 22, 2006 the Company cancelled 1,000 million shares of treasury stock, which were bought back during the

period from February 16, 2006 to April 11, 2006 for retention of the Company’s creditability and stockholders’

interests.


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i. As recommended by the board of directors, and approved by the shareholders on the meeting held on June 12, 2006,

the Company issued 225 million new shares from capitalization of retained earnings and additional paid-in capital

that amounted to NT$2,249 million, of which NT$895 million was stock dividend, NT$459 million was employee

bonus, and NT$895 million was additional paid-in capital. The issuance process through the authority had been

completed.

j. The Company had issued a total of 315 million ADSs which were traded on the NYSE as of December 31, 2006. The total

number of common shares of the Company represented by all issued ADSs was 1,576 million shares as of December 31,

2006. One ADS represents five common shares.

(18) EMPLOYEE STOCK OPTIONS

On September 11, 2002, October 8, 2003, September 30, 2004, and December 22, 2005, the Company was authorized by

the Securities and Futures Bureau of the Financial Supervisory Commission, Executive Yuan, to issue employee stock

options with a total number of 1 billion, 150 million, 150 million, and 350 million units, respectively. Each unit entitles

an optionee to subscribe to 1 share of the Company’s common stock. Settlement upon the exercise of the options will be

made through the issuance of new shares by the Company. The exercise price of the options was set at the closing price

of the Company’s common stock on the date of grant. The contractual life is 6 years and an optionee may exercise

the option in accordance with certain schedules as prescribed by the plan starting 2 years from the date of grant.

Detailed information relevant to the employee stock options is disclosed as follows:

Date of grant Total number of options granted(in thousands)

Total number of options outstanding (in thousands)

Exercise price(NTD)

October 7, 2002 939,000 543,834 $15.7January 3, 2003 61,000 44,571 $17.7November 26, 2003 57,330 45,443 $24.7March 23, 2004 33,330 22,110 $22.9July 1, 2004 56,590 44,460 $20.7October 13, 2004 20,200 12,905 $17.8April 29, 2005 23,460 17,790 $16.4August 16, 2005 54,350 42,610 $21.6September 29, 2005 51,990 46,675 $19.7January 4, 2006 39,290 30,690 $17.7May 22, 2006 42,058 37,040 $19.2August 24, 2006 28,140 25,830 $18.4

a. A summary of the Company’s stock option plans, and related information for the years ended December 31, 2006 and

2005, are as follows:


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Option (in thousands)

Weighted-average Exercise Price

(NTD)



(NTD)

Outstanding at beginning of period

975,320 $17.3 973,858 $16.8

Granted 109,488 $18.4 129,800 $19.9Exercised (109,093) $15.7 (95,814) $15.7Forfeited (61,757) $18.8 (32,524) $18.5Outstanding at end of period 913,958 $17.5 975,320 $17.3

Exercisable at end of period 650,268 $16.6 528,373 $16.2

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

$5.7 $6.5

b. The information of the Company’s outstanding stock options as of December 31, 2006, is as follows:

Outstanding Stock Options Exercisable Stock Options

Authorization Date

Range of Exercise

Price


Weighted-average

Remaining Contractual Life

(Years)

Weighted-average

Exercise Price(NTD)

Option(in thousands)

Weighted-average

Exercise Price(NTD)

2002.09.11 $15.7~$17.7 588,405 1.78 $15.9 577,608 $15.82003.10.08 $20.7~$24.7 112,013 3.20 $22.8 67,095 $23.12004.09.30 $16.4~$21.6 119,980 4.53 $19.7 5,565 $17.82005.12.22 $17.7~$19.2 93,560 5.33 $18.5 - -

913,958 2.68 $17.5 650,268 $16.6

c. The Company uses intrinsic value method to recognize compensation costs for its employee stock options issued since

January 1, 2004. The compensation cost for the years ended December 31, 2006 and 2005 are nil because

the Company grants options with the exercise price equal to the current market price. Pro forma information

using the fair value method on net income and earnings per share is as follows:


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For the year ended December 31, 2006Basic earnings per share Diluted earnings per share

Net Income $32,619,313 $32,653,291Earnings per share (NTD) $1.81 $1.75Pro forma net income $32,193,259 $32,227,237Pro forma earnings per share (NTD) $1.78 $1.73

For the year ended December 31, 2005 (retroactively adjusted)Basic earnings per share Diluted earnings per share

Net Income $7,026,692 $7,035,187Earnings per share (NTD) $0.38 $0.37Pro forma net income $6,782,033 $6,790,528Pro forma earnings per share (NTD) $0.36 $0.36

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 years ended December 31, 2006 and 2005:

2006 2005

Expected dividend yields 1.37%~1.38% 1.63%~1.64%

Volatility factors of the expected market price

35.57%~41.14% 40.35%~43.39%

Risk-free interest rate 1.88%~2.28% 1.85%~2.24%

Weighted-average expected life of the options

4~5 years 4~5 years

(19) TREASURY STOCK

a. The Company bought back its own shares from the open market during the years ended December 31, 2006 and

2005. Details of the treasury stock transactions are as follows:


(In thousands of shares)

Purpose As of January 1, 2006

Increase Decrease As of December 31, 2006

For transfer to employees 442,067 400,000 - 842,067

For conversion of the convertible bonds into shares

500,000 - - 500,000

For retention of the Company’s creditability and stockholder’s interests

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

Total shares 942,067 1,400,000 1,000,000 1,342,067


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For transfer to employees 241,181 250,000 49,114 442,067


- 500,000 - 500,000

Total shares 241,181 750,000 49,114 942,067

b. According to the Securities and Exchange Law of the R.O.C., total shares of treasury stock should not exceed 10% of the

Company’s stock issued. Total purchase amount should not exceed the sum of the retained earnings, 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 December 31, 2006 and 2005, were 1,913 million shares and 1,979 million shares

with the ceiling of the amounts were NT$ 94,970 million and NT$90,851 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 voting rights or receive dividends. Stock held by subsidiaries is treated as treasury stock. These subsidiaries

have the same rights as other stockholders except for subscription to new stock issuance. Starting June 22, 2005, stock

held by subsidiaries no longer have voting rights according to the revised Companies Act.

d. As of December 31, 2006, the Company’s subsidiary, FORTUNE VENTURE CAPITAL CORP., held 22 million shares

of the Company’s stock, with a book value of NT$ 20.25 per share. The closing price on December 31, 2006 was

NT$20.25.

As of December 31, 2005, the Company’s subsidiaries, HSUN CHIEH INVESTMENT CO., LTD. and FORTUNE

VENTURE CAPITAL CORP., held 600 million shares and 22 million shares, respectively, of the Company’s stock,

with a book value of NT$18.98 and NT$7.87 per share, respectively. The average closing price of the Company’s stock

during December 2005 was NT$18.98.

(20) RETAINED EARNINGS AND DIVIDEND POLICIES

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

order:

a. Payment of all taxes and dues;

b. Offset prior years’ operation losses;

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

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

remuneration; and

e. After deducting items (a), (b), and (c) above from the current year’s earnings, no less than 5% of the remaining amount

together with the prior years’ unappropriated earnings is to be allocated as employees’ bonus, which will be settled


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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 subject to

shareholders’ approval.

The Company has entered a stage of sustained growth; 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, may be paid in the form of stock dividends. Accordingly, at least 20% of the dividends must be paid

in the form of cash.

The appropriation of 2006 retained earnings has not yet been recommended by the board of directors as of the date of the

Report of Independent Auditors. Information on the board of directors’ recommendations and shareholders’ approval

can be obtained from the “Market Observation Post System” on the website of the TSE.

Details of the 2005 employee bonus settlement and directors’ and supervisors’ remuneration are as follows:


As approved by the shareholders’

meeting

As recommended by the board of directors

Differences

1. Settlement of employees’ bonus by issuance of new sharesa. Number of shares (in thousands)b. Amount c. Percentage on total number of outstanding

shares at year-end (%) 2. Settlement of employees’ bonus by cash 3. Remuneration paid to directors and supervisors

45,846$458,455

0.24

$305,636$6,324

45,846$458,455

0.24

$305,636$6,324

---

-

4. Effect on earnings per share before retroactive adjustmentsa. Basic and diluted earnings per share (NTD)b. Pro forma basic and diluted earnings per

share taking into consideration employees’ bonus and directors’ and supervisors’ remuneration (NTD)

$0.38/0.38$0.34/0.34

$0.38/0.38$0.34/0.34

--

Pursuant to Article 41 of the Securities and Exchange Law of the R.O.C., a special reserve is set aside from the current

net income and prior unappropriated earnings for items that are accounted for as deductions to stockholders’ equity

such as unrealized loss on long-term investments and cumulative translation adjustments. However, there are the

following exceptions for the Company’s investees’ unrealized loss on long-term investments arising from a merger that

was recognized by the Company in proportion to the Company’s ownership percentage:


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a. According to the explanatory letter No. 101801 of the Securities and Futures Commission (SFC), if the Company

recognizes the investees’ additional paid-in capital—excess from the merger in proportion to the ownership

percentage, then the special reserve is exempted for the amount originated from the acquisition of the long-term

investments.

b. If the Company and its investees transfer a portion of the additional paid-in capital to increase capital, a special

reserve equal to the amount of the transfer shall be provided according to the explanatory letter No.101801-1 of the

SFC.

c. In accordance with the explanatory letter No.170010 of the SFC applicable to listed companies, in the case where the

market value of the Company’s stock held by its subsidiaries at year-end is lower than the book value, a special reserve

shall be provided in the Company’s accounts in proportion to its ownership percentage.

For the 2005 appropriations approved by the shareholders’ meeting on June 12, 2006, unrealized loss on long-term

investments exempted from the provision of special reserve pursuant to the above regulations amounted to NT$18,208

million.

(21) OPERATING COSTS AND EXPENSES

The Company’s personnel, depreciation, and amortization expenses are summarized as follows: For the year ended December 31,

2006 2005Operating

costs Operating

expensesTotal Operating

costs Operating

expensesTotal

Personnel expenses Salaries $8,159,508 $2,749,890 $10,909,398 $6,252,412 $2,180,082 $8,432,494 Labor and health

insurance437,527 123,780 561,307 410,228 113,429 523,657

Pension 496,293 154,729 651,022 488,932 159,427 648,359

Other personnel expenses

85,210 46,176 131,386 67,096 27,928 95,024

Depreciation 40,377,798 2,122,344 42,500,142 44,221,133 1,888,140 46,109,273Amortization 187,146 1,593,444 1,780,590 176,459 2,119,210 2,295,669

The numbers of employees as of December 31, 2006 and 2005 were 13,265 and 12,068, respectively.


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(22) INCOME TAX

a. Reconciliation between the income tax expense and the income tax calculated on pre-tax financial statement income

based on the statutory tax rate is as follows:


Income tax on pre-tax income at statutory tax rate $9,366,541 $2,466,936Permanent differences (7,280,874) (2,523,713)Change in investment tax credit (1,255,913) 6,942,626Change in valuation allowance 435,752 (6,885,849)Income Basic Tax 1,940,992 -Income tax on interest revenue separately taxed 1,713 838Income tax expense $3,208,211 $838

b. Significant components of deferred income tax assets and liabilities are as follows:As of December 31,

2006 2005Amount Tax effect Amount Tax effect

Deferred income tax assetsInvestment tax credit $14,864,958 $13,609,045Loss carry-forward $3,815,034 953,758 $14,671,930 3,667,982Pension 3,083,578 770,895 3,001,282 750,321Allowance on sales returns and discounts 732,523 183,131 779,688 194,922

Allowance for loss on obsolescence of inventories

685,023 171,256 252,855 63,214

Others 794,686 198,671 571,066 142,766

Total deferred income tax assets 17,142,669 18,428,250Valuation allowance (9,111,113) (8,675,361)

Net deferred income tax assets 8,031,556 9,752,889

Deferred income tax liabilitiesUnrealized exchange gain (291,144) (72,786) - -Depreciation (5,005,315) (1,251,329) (9,667,939) (2,416,985)

Others (2,538,858) (634,714) - -Total deferred income tax liabilities (1,958,829) (2,416,985)Total net deferred income tax assets $6,072,727 $7,335,904

Deferred income tax assets - current $5,803,448 $6,354,040Deferred income tax liabilities - current (278,284) -Valuation allowance (3,611,651) (3,019,530)

Net 1,913,513 3,334,510

Deferred income tax assets - noncurrent 11,339,221 12,074,210Deferred income tax liabilities - noncurrent (1,680,545) (2,416,985)Valuation allowance (5,499,462) (5,655,831)

Net 4,159,214 4,001,394Total net deferred income tax assets $6,072,727 $7,335,904


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c. The Company’s income tax returns for all the fiscal years up to 2003 have been assessed and approved by the ROC 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 expansions in 2002 had not

yet been decided. The income tax exemption for other periods will expire on December 31, 2012.

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

development, and employee training.

As of December 31, 2006, the Company’s unused investment tax credit was as follows:

Expiration Year Investment tax credits earned Balance of unused investment tax credits

2006 $2,850,484 $2,850,4842007 1,613,158 1,613,1582008 6,275,971 6,275,9712009 1,737,860 1,737,8602010 2,387,485 2,387,485Total $14,864,958 $14,864,958

f. Under the rules of the Income Tax Law of the ROC, net losses can be carried forward for 5 years. As of December 31,

2006, the unutilized accumulated losses were as follows:Expiration Year Accumulated loss Unutilized accumulated loss2006 $10,856,896 $-2007 3,773,826 3,773,826

2008 (Transferred in from merger with SiSMC)

2,283 2,283

2009 (Transferred in from merger with SiSMC)

38,925 38,925

Total $14,671,930 $3,815,034

g. The balance of the Company’s imputation credit accounts as of December 31, 2006 and 2005 were NT$95 million and

NT$29 million, respectively. The expected creditable ratio for 2006 and the actual creditable ratio for 2005 was 0.54%

and 0%, respectively.

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

appropriated.


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(23) EARNINGS PER SHARE

a. The Company’s capital structure is composed mainly of zero coupon convertible bonds and employee stock options.

Therefore, in consideration of such complex structure, the calculated basic and diluted earnings per share for the years

ended December 31, 2006 and 2005, are disclosed as follows:

For the year ended December 31, 2006Amount Earnings per share (NTD)

Income before

income tax

Net income

Shares expressed

in thousands

Income before

income tax

Net income

Earning per share-basic (NTD)

Income from continuing operations

$37,016,039 $33,807,828 18,050,962 $2.05 $1.87

Cumulative effect of changes in accounting principles

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

Net income $35,827,524 $32,619,313 $1.99 $1.81

Effect of dilutionEmployee stock options $- $- 108,122Convertible bonds payable $33,978 $33,978 516,383

Earning per share-diluted:

Income from continuingoperations

$37,050,017 $33,841,806 18,675,467 $1.98 $1.81


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

Net income $35,861,502 $32,653,291 $1.92 $1.75

For the year ended December 31, 2005 (retroactively adjusted)Amount Earnings per share (NTD)

Income before

income tax

Net income

Shares expressed

in thousands

Income before

income tax

Net income

Earning per share-basic (NTD)Income from continuing operations $7,027,530 $7,026,692 18,647,462 $0.38 $0.38


- - - -

Net income $7,027,530 $7,026,692 $0.38 $0.38


Earning per share-diluted:Income from continuing operations $7,036,025 $7,035,187 18,933,611 $0.37 $0.37


- - - -

Net income $7,036,025 $7,035,187 $0.37 $0.37


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

out as follows:

(shares expressed in thousands) For the year ended December 31, 2006

Basic DilutedNet income $32,686,223 $32,720,201Weighted-average of shares outstanding:

Beginning balance 18,852,636 18,852,636Increase in capital through 2006 retained earnings and

additional paid-in capital at proportion of 1.3%242,215 242,215

Purchase of 1,400,000 thousand shares of treasury stock in 2006 (1,024,860) (1,024,860)Weighted-average shares of exercising employee stock options 48,029 48,029

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

- 108,122

Dilutive shares issued assuming conversion of bonds - 516,383Ending balance 18,118,020 18,742,525Earnings per share Net income (NTD) $1.80 $1.75

(shares expressed in thousands) For the year ended December 31, 2005

(retroactively adjusted)Basic Diluted

Net income $7,026,692 $7,035,187Weighted-average of shares outstanding:Beginning balance 17,550,801 17,550,801

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

247,368 247,368

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

2,009,072 2,009,072

Purchase of 750,000 thousand shares of treasury stock in 2005 (349,945) (349,945)Weighted-average shares of exercising employee stock options 43,762 43,762

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

- 161,651

Dilutive shares issued assuming conversion of bonds - 124,498Ending balance 19,501,058 19,787,207

Earnings per share Net income (NTD) $0.36 $0.36


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5. RELATED PARTY TRANSACTIONS

(1) Name and Relationship of Related Parties

Name of related parties Relationship with the CompanyUMC GROUP (USA) (UMC-USA) Equity InvesteeUNITED MICROELECTRONICS (EUROPE) B.V. (UME BV) Equity InvesteeUMC CAPITAL CORP. Equity InvesteeUNITED MICROELECTRONICS CORP. (SAMOA) Equity InvesteeFORTUNE VENTURE CAPITAL CORP. (FORTUNE) Equity InvesteeHSUN CHIEH INVESTMENT CO., LTD. (HSUN CHIEH) Equity InvesteeUMCI LTD. (UMCI) Equity InvesteeUNITED MICRODISPLAY OPTRONICS CORP. Equity InvesteeUMC JAPAN Equity InvesteeHOLTEK SEMICONDUCTOR INC. (HOLTEK) Equity InvesteeUNITECH CAPITAL INC. Equity InvesteeITE TECH. INC. Equity InvesteeAMIC TECHNOLOGY CORP. Equity InvesteePACIFIC VENTURE CAPITAL CO., LTD. Equity InvesteeXGI TECHNOLOGY INC. Equity InvesteeTLC CAPITAL CO., LTD. Equity InvesteeHIGHLINK TECHNOLOGY CORP. Equity InvesteeMEGA MISSION LIMITED PARTNERSHIP Equity InvesteeMTIC HOLDINGS PTE. LTD. Equity Investee

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

Equity Investee

THINTEK OPTRONICS CORP. (merged into UMO since October 1, 2006)

Equity Investee

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

Equity Investee

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

Equity Investee

UNIMICRON TECHNOLOGY CORP. (No longer an equity investee since November, 2006)

Equity Investee

SILICON INTEGRATED SYSTEMS CORP. The Company’s directorUNITRUTH INVESTMENT CORP. (UNITRUTH) Subsidiary’s equity investeeUWAVE TECHNOLOGY CORP. (formerly UNITED RADIOTEK INC.) Subsidiary’s equity investeeUCA TECHNOLOGY INC. Subsidiary’s equity investeeAFA TECHNOLOGY, INC. Subsidiary’s equity investeeSTAR SEMICONDUCTOR CORP. Subsidiary’s equity investeeUSBEST TECHNOLOGY INC. Subsidiary’s equity investeeSMEDIA TECHNOLOGY CORP. Subsidiary’s equity investeeU-MEDIA COMMUNICATIONS, INC. Subsidiary’s equity investeeCRYSTAL MEDIA INC. Subsidiary’s equity investeeNEXPOWER TECHNOLOGY CORP. Subsidiary’s equity investeeMOBILE DEVICES INC. Subsidiary’s equity investeeULI ELECTRONICS INC. (Disposed in February 2006) Subsidiary’s equity investeeAEVOE INC. (Disposed in October 2006) Subsidiary’s equity investeeCHIP ADVANCED TECHNOLOGY INC. (No longer an equity investee

since October, 2006)Subsidiary’s equity investee

DAVICOM SEMICONDUCTOR, INC. (No longer an equity investee since December, 2006)

Subsidiary’s equity investee


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(2) Significant Related Party Transactions

a. Operating revenuesFor the year ended December 31,

2006 2005Amount Percentage Amount Percentage

UMC-USA $54,476,329 52 $43,226,036 48Others 15,074,471 15 21,676,804 23

Total $69,550,800 67 $64,902,840 71

The sales price to the above related parties was determined through mutual agreement based on the market

conditions. The collection period for overseas sales to related parties was net 60 days, while the terms for domestic

sales were month-end 45~60 days. The collection period for third party overseas sales was net 30~60 days, while the

terms for third party domestic sales were month-end 30~60 days.

b. PurchasesFor the year ended December 31,


UMCI $- - $1,244,347 5

The purchases from the above related parties were dealt with in the ordinary course of business similar to those from

third-party suppliers. The payment terms for purchases were net 60 days for related parties and net 30~90 days for

third-party suppliers.

c. Notes receivableAs of December 31,


HOLTEK $49,924 92 $62,136 100Others 724 1 - -

Total $50,648 93 $62,136 100

d. Accounts receivableAs of December 31,


UMC-USA $5,118,532 39 $4,559,933 35Others 1,438,412 11 2,297,194 17

Total 6,556,944 50 6,857,127 52

Less: Allowance for sales returns and discounts

(506,572) (663,397)

Less: Allowance for doubtful accounts

(1,996) (96,387)

Net $6,048,376 $6,097,343


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e. Financing activities

The Company did not conduct any financing activities with related parties during the year ended December 31,

2006.

Other receivables-related partiesFor the year ended December 31, 2005

Maximum balance Endingbalance

Interestrate

InterestrevenueAmount Month

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

f. Significant asset transactions

The Company did not undertake any significant asset transactions with related parties during the year ended

December 31, 2006.


Item AmountFORTUNE Purchase of APTOS CORP. (TAIWAN) stock $140,231FORTUNE Purchase of EPITECH TECHNOLOGY CORP. stock 185,840HSUN CHIEH Purchase of EPITECH TECHNOLOGY CORP. stock 97,658UNITRUTH Purchase of EPITECH TECHNOLOGY CORP. stock 16,495

Total $440,224

g. Other transactions

The Company was involved in several other transactions with related parties, including service charges, development

expenses of intellectual property, and commission, totaling NT$16 million and NT$721 million for the years ended


The Company purchased approximately NT$104 million and NT$476 million of masks from TOPPAN during the

years ended December 31, 2006 and 2005, respectively.


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6. ASSETS PLEDGED AS COLLATERAL


Amount Party to which asset(s) was pledged Purpose of pledgeDeposit-out $620,846 Customs Customs duty

(Time deposit) guarantee


Amount Party to which asset(s) was pledged Purpose of pledgeDeposit-out $520,730 Customs Customs duty

(Time deposit) guarantee

7. COMMITMENTS AND CONTINGENT LIABILITIES

(1) The Company has entered into several patent license agreements and development contracts of intellectual property for

a total contract amount of approximately NT$19.67 billion. Royalties and development fees for future years are NT$5.77

billion as of December 31,2006.

(2) The Company signed several construction contracts for the expansion of its factory space. As of December 31, 2006,

these construction contracts have amounted to approximately NT$3.82 billion and the unpaid portion of the contracts,

which was not accrued, was approximately NT$1.9 billion.

(3) OAK Technology, Inc. (OAK) and the Company entered into a settlement agreement on July 31, 1997 concerning a

complaint filed with the United States International Trade Commission (ITC) by OAK against the Company and

others, alleging unfair trade practices based on alleged patent infringement regarding certain CD-ROM controllers (the

first OAK ITC case). On October 27, 1997, OAK filed a civil action in a California federal district court, alleging claims

for breach of the settlement agreement and fraudulent misrepresentation. In connection with its breach of contract and

other claims, OAK sought damages in excess of US$750 million. The Company denied the material allegations of the

complaint, and asserted counterclaims against OAK for breach of contract, intentional interference with economic

advantage and rescission and restitution based on fraudulent concealment and/or mistake. The Company also asserted

declaratory judgment claims for invalidity and unenforceability of the relevant OAK patent. On February 9, 2006, the

parties entered a settlement agreement in which the Company, OAK and Zoran (the successor to OAK) fully and finally

released one another from any and all claims and liabilities arising out of the facts alleged in the district court case. The

terms of settlement are confidential and, except for the obligation to keep the terms confidential, impose no obligation

on the Company.


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(4) The Company entered into several operating lease contracts for land. These renewable operating leases are set to expire

in various years through to 2032. Future minimum lease payments under those leases are as follows:

For the year ended December 31, Amount 2007 $179,0492008 176,1652009 176,3212010 176,6962011 177,0852012 and thereafter 1,606,543Total $2,491,859

(5) The Company entered into several wafer-processing contracts with its principal customers. According to the contracts,

the Company shall guarantee processing capacity after receipts of customers’ deposits.

(6) The Company has entered into contracts for the purchase of materials and masks with certain vendors. These contracts

oblige the Company to purchase specified amounts or quantities of materials and masks. Should the Company fail to

fulfill the conditions set out in the contracts, the differences between the actual purchase and the required minimum

will be reconciled between the Company and its vendors.

(7) On February 15, 2005, the Hsinchu District Prosecutor’s Office conducted a search of the Company’s facilities. On

February 18, 2005, the Company’s former Chairman Mr. Robert H.C. Tsao, released a public statement, explaining that

its assistance to Hejian Technology Corp. (Hejian) did not involve any investment or technology transfer. Furthermore,

from the very beginning there was a verbal indication that, at the proper time, the Company would be compensated

appropriately for its assistance, and circumstances permitting, at some time in the future, it will push through the

merger between two companies. However, no promise was made by the Company and no written agreement was made

and executed. Upon the Company’s request to materialize the said verbal indication by compensating in the form of

either cash or equity, the Chairman of the holding company of Hejian offered 15% of the approximately 700 million

outstanding shares of the holding company of Hejian in return for the Company’s past assistance and for continued

assistance in the future.

Immediately after the Company had received such offer, it filed an application with the Investment Commission of the

Ministry of Economic Affairs on March 18, 2005 (Ref. No. 94-Lian-Tung-Tzu-0222), for their executive guidance for the

successful transfer of said shares to the Company. The shareholders meeting dated June 13, 2005 resolved that to the

extent permitted by law the Company shall try to get the 15% of the outstanding shares offered by the holding company


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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. As of December 31, 2006, the result of such

reconsideration and administrative action has not been finalized.

For the Company’s assistance to Hejian Technology Corp., the Company’s former Chairman Mr. Robert H.C. Tsao,

former Vice Chairman Mr. John Hsuan, and Mr. Duen-Chian Cheng, the General Manager of Fortune Venture Capital

Corp., which is 99.99% owned by the Company, were indicted for violating the Business Accounting Law 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.

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


1�1

Yuan on March 16, 2006. The Company’s administrative appeal was dismissed by the Executive Yuan, R.O.C. on

October 19, 2006. The Company filed an administrative action against the R.O.C. Ministry of Economic Affairs to Taipei

High Administrative Court on December 8, 2006. As of December 31, 2006, the result of such administrative action has

not been finalized.

8. SIGNIFICANT DISASTER LOSS

None.

9. SIGNIFICANT SUBSEQUENT EVENT

The company has entered a stage of sustained growth. The Company determined that cash flows generated from UMC’s

future operations will be sufficient for the research and development of advanced process technologies and the continued

expansion of advanced manufacturing capacity, including the second 300mm fab in Taiwan’s Tainan Science Park. In

order to avoid future cash levels becoming excessive and to better respond to the expectations of today’s capital markets,

the Company has resolved to carry out a capital reduction of NT$ 57,394 million with the cancellation of 5,739 million of

its outstanding shares, following a resolution passed at a meeting of the Board of Directors on January 23, 2007. The board

of directors will decide the date of the capital reduction after the approval at the stockholders’ meeting and the authorization

of the government. The exact exchange ratio for shares and the amount of the capital reduction is to be set on the record date

for capital reduction.

10. OTHERS

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

(2) Financial risk management objectives and policies

The Company’s principal financial instruments, other than derivatives, 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 payables, which arise directly from its

operations.

The Company also enters into derivative transactions, including credit-link deposits, interest rate swaps and forward

currency contracts. The purpose of these derivative transactions is to mitigate interest rate risk and foreign currency

exchange risk arising from the Company’s operations and financing activities. As of December 31, 2006 and 2005,

none of the Company’s derivative transactions qualified for hedge accounting.

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.


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Cash flow interest rate risk

The Company utilizes interest rate swap agreements to mitigate its cash flow interest rate risk on its counter-floating rate

of unsecured domestic bonds issued during the period from May 21 to June 24, 2003. The periods of the interest rate

swap agreements are the same as those of the domestic bonds, which are five and seven years. The floating rate is reset

annually.

Foreign currency risk

The Company has foreign currency risk arising from purchases or sales. The Company utilizes spot or forward

contracts to mitigate foreign currency risk. The Company buys or sells the same amount of foreign currency with hedged

items through forward contracts. In principal, the Company does not carry out any forward contracts for uncertain

commitments.

Commodity price risk

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

Credit risk

The Company trades only with established and creditworthy third parties. It is the Company’s policy that all customers

who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are

monitored on an ongoing basis, which consequently minimizes the Company’s exposure to bad debts.

With respect to credit risk arising from the other financial assets of the Company, which are 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.

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.


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(3) Information of financial instruments

a. Fair value of financial instrumentsAs of December 31,

2006 2005Financial Assets Book Value Fair Value Book Value Fair ValueNon-derivative

Cash and cash equivalents $83,394,802 $83,394,802 $96,596,623 $96,596,623Financial assets at fair value

through profit or loss, current

8,538,007 8,538,007 2,468,968 2,438,668

Available-for-sale financial assets, current

- - 2,414,153 2,900,084

Held-to-maturity financial assets, current

974,272 974,272 - -

Notes and accounts receivable 12,851,984 12,851,984 13,068,452 13,068,452

Available-for-sale financial assets, noncurrent

41,218,780 41,218,780 5,513,284 26,748,545

Held-to-maturity financial assets, noncurrent

- - 977,856 977,856

Financial assets measured at cost, noncurrent

2,285,326 - 2,265,467 -

Long-term investments accounted for under the equity method

39,242,324 40,209,680 30,481,560 53,544,605

Deposits-out 642,584 642,584 579,710 579,710

Financial LiabilitiesNon-derivative

Payables $22,384,219 $22,384,219 $17,035,687 $17,035,687Capacity deposits (current

portion)898,265 898,265 657,600 657,600

Bonds payable (current portion included)

35,738,959 36,739,231 46,259,055 47,028,153

DerivativeInterest rate swaps $626,230 $626,230 $95,634 $730,191Derivatives embedded in

exchangeable bonds359,037 359,037 - -


1��

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

i. The book value of short-term financial instruments approximates their fair value due to their short maturities.

Short-term financial instruments include cash and cash equivalents, notes receivable, accounts receivable,

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

ii. The fair value of financial assets at fair value through profit or loss and available-for-sale financial assets is based

on the quoted market price.

iii. The fair value of held-to-maturity financial assets is based on the quoted market prices. If market prices are

unavailable, the Company estimates the fair value based on the book value as the held-to-maturity financial assets

consist principally of credit-linked deposits agreements with maturity dates less than one year, as well as bonds

that can be easily liquidated in the secondary market.

iv. The fair value of financial assets measured at cost is unable to estimate since those unlisted investments are not

traded in the open market.

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

and renewed upon maturity.

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

vii.The fair value of derivative financial instruments is based on the amount the Company expects to receive

(positive) or to pay (negative) assuming that the contracts are settled in advance at the balance sheet date.

c. The fair value of the Company’s financial instruments is determined by the quoted prices in active markets, or if the

market for a financial instrument is not active, the Company establishes fair value by using a valuation technique:

Active Market Quotation Valuation Technique

Non-derivative Financial Instruments

2006.12.31 2005.12.31 2006.12.31 2005.12.31

Financial assets Financial assets at fair value

through profit or loss, current

$8,538,007 $2,438,668 $- $-

Available-for-sale financial asset, current

- 2,900,084 - -


41,218,780 26,748,545 - -


1��



2006.12.31 2005.12.31 2006.12.31 2005.12.31


$40,209,680 $53,544,605 $- $-

Financial liabilitiesBonds payable (current portion

included)36,739,231 47,028,153 - -

Derivative Financial Instruments

Financial liabilitiesInterest rate swaps $- $- $626,230 $730,191

Derivatives embedded in exchangeable bonds

- - 359,037 -

d. The Company recognized a gain in NT$312 million arising from the changes in fair value of financial liabilities at fair

value through profit or loss for the year ended December 31, 2006.

e. The Company’s financial liability with cash flow interest rate risk exposure as of December 31, 2006 amounted to

NT$626 million.

f. During the year ended December 31, 2006, total interest revenue and interest expense for financial assets or liabilities

that are not at fair value through profit or loss were NT$1,453 million and NT$631 million, respectively, while

interest revenue and expense for the year period ended December 31, 2005 amounted to NT$946 million and NT$918

million, respectively.

(4) The Company and its subsidiary, UMC JAPAN, held credit-linked deposits and repackage bonds recognized as held to

maturity financial assets for the earning of interest income. The details are disclosed as follows:

a. Principal amount in original currency


The CompanyCredit-linked deposits and repackage bonds referenced to Amount Due Date

SILICONWARE PRECISION INDUSTRIES CO., LTD. European Convertible Bonds and Loans

NTD 400 million 2007.02.05


NTD 200 million 2007.02.05

UMC JAPAN European Convertible Bonds JPY 640 million 2007.03.28ADVANCED SEMICONDUCTOR ENGINEERING INC.

European Convertible Bonds and LoansNTD 200 million 2007.09.25


1��

UMC JAPANCredit-linked deposits and repackage bonds referenced to Amount Due DateUMC JAPAN European Convertible Bonds JPY 500 million 2007.03.29


The CompanyCredit-linked deposits and repackage bonds referenced to Amount Due Date


NTD 400 million 2007.02.05


NTD 200 million 2007.02.05

UMC JAPAN European Convertible Bonds JPY 640 million 2007.03.28

ADVANCED SEMICONDUCTOR ENGINEERING INC. European Convertible Bonds and Loans

NTD 200 million 2007.09.25


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 one year, or are relatively liquid in

the secondary market.

d. Market risk

There is no market risk for the above investments except for the fluctuations in the exchange rates of US Dollars and

Japanese Yen to NT Dollars at the balance sheet date and the settlement date.


1��

(5) The Company and its subsidiary, UMC JAPAN, entered into interest rate swap and forward contracts for hedging the

interest rate risk arising from the counter-floating rate of domestic bonds and for hedging the exchange rate risk arising

from the net assets or liabilities denominated in foreign currency. The hedging strategy was developed with the

objective to reduce the market risk for non-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 risk on its counter-floating rate of

unsecured domestic bonds issued during the period from May 21 to June 24, 2003. The periods of the interest rate


annually. The details of interest rate swap agreements are summarized as follows:

As of December 31, 2006 and 2005, the Company had the following interest rate swap agreements in effect:

Notional Amount Contract Period Interest Rate Received Interest Rate Paid

NT$7,500 million May 21, 2003 to June 24, 2008

4.0% minus USD 12-Month LIBOR

1.52%

NT$7,500 million May 21, 2003 to June 24, 2010

4.3% minus USD 12-Month LIBOR

1.48%

b. Transaction risk

(a) Credit risk

There is no significant credit risk exposure with respect to the above transactions as the counter-parties are

reputable financial institutions with good global standing.

(b) Liquidity and cash flow risk

The cash flow requirements on the interest rate swap agreements are limited to the net interest payables or

receivables arising from the differences in the swap rates. The cash flow requirements on forward contracts are

limited to the net difference between the forward and spot rates at the settlement date. Therefore, no significant

cash flow risk is anticipated since the working capital is sufficient to meet the cash flow requirements.

(c) Market risk

Interest rate swap agreements and forward contracts are intended for hedging purposes. Gains or losses arising

from the fluctuations in interest rates and exchange rates are likely to be offset against the gains or losses from the

hedged items. As a result, no significant exposure to market risk is anticipated.


1��

c. The presentation of derivative financial instruments on financial statements

The Company

As of December 31, 2006 and 2005, the interest rate swap agreements were classified as current liabilities amounting

to NT$626 million and NT$96 million, respectively.

The exchange loss arising from forward contracts was NT$415 million for the year ended December 31, 2005 and

recorded in non-operating expenses in the accompanying statement of income.

UMC JAPAN

The exchange (loss) gain arising from forward contracts was JPY$(7.5) million and JPY$25.4 million and recorded in

non-operating (expense) revenue in the accompanying statements of income for the years ended December 31, 2006

and 2005, respectively.

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 year ended December 31, 2006: Please refer to Attachment 1.

b. Endorsement/Guarantee provided to others for the year ended December 31, 2006: Please refer to Attachment 2.

c. Securities held as of December 31, 2006: Please refer to Attachment 3.

d. Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT$100 million or

20 percent of the capital stock for the year ended December 31, 2006: Please refer to Attachment 4.

e. Acquisition of individual real estate with amount exceeding the lower of NT$100 million or 20 percent of the capital

stock for the year ended December 31, 2006: Please refer to Attachment 5.

f. Disposal of individual real estate with amount exceeding the lower of NT$100 million or 20 percent of the capital

stock for the year ended December 31, 2006: Please refer to Attachment 6.

g. Related party transactions for purchases and sales amounts exceeding the lower of NT$100 million or 20 percent of

the capital stock for the year ended December 31, 2006: Please refer to Attachment 7.

h. Receivables from related parties with amounts exceeding the lower of NT$100 million or 20 percent of the capital

stock as of December 31, 2006: Please refer to Attachment 8.


1��

i. Names, locations and related information of investees as of December 31, 2006: Please refer to Attachment 9.

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

(2) Investment in Mainland China

None.

12. SEGMENT INFORMATION

(1) Operations in different industries

The Company operates principally in one industry, and the major business is operating as a full service semiconductor

foundry.

(2) Operations in different geographic areas

The Company has no foreign operations.

(3) Export salesFor the year ended December 31,

Area 2006 2005North America $54,538,785 $43,765,379Europe 8,550,154 6,740,391Asia, excluding Taiwan 7,748,732 5,695,477

Total export sales $70,837,671 $56,201,247

(4) Major customers

Individual customers accounting for at least 10% of net sales for the years ended December 31, 2006 and 2005 are as

follows:

For the year ended December 31, 2006 2005

Customers Sales amount Percentage Sales amount PercentageCustomer A $54,476,329 52 $43,226,036 48


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Fund

MEG

A M

ISSI

ON

LI

MIT

EDPA

RTN

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IP

Long

-term

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ents

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unte

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r un

der t

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eeds

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is

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-

-

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e22)

2,22

2,10

0 -

- -

- -

(Not

e22)

2,69

9,49

1(N

ote2

2)

Not

e 1:

The

am

ount

s of b

egin

ning

and

end

ing

bala

nces

of f

inan

cial

ass

ets a

t fai

r val

ue th

roug

h pr

ofit

or lo

ss a

nd a

vaila

ble

for s

ale

are

reco

rded

at t

he p

reva

iling

mar

ket p

rices

.N

ote

2: T

he d

ispo

sal c

ost r

epre

sent

s his

toric

al c

ost .

Not

e 3:

Gai

n/Lo

ss fr

om d

ispo

sal i

nclu

des r

ealiz

ed e

xcha

nge

gain

/loss

to w

hich

the

RO

C S

FAS

No.

34,

"Fi

nanc

ial I

nstru

men

ts: R

ecog

nitio

n an

d M

easu

rem

ent'',

is a

pplie

d.

As f

or th

e ga

in/lo

ss fr

om d

ispo

sal o

f fin

anci

al a

sset

s at f

air v

alue

thro

ugh

prof

it/lo

ss tr

ansf

ers t

o ga

in/lo

ss o

n th

e va

luat

ion

of fi

nanc

ial a

sset

s.N

ote

4: E

xerc

ise

of c

onve

rsio

n rig

hts o

f the

Com

pany

's co

nver

tible

bon

d cl

assi

fied

as "

Fina

ncia

l ass

et a

t fai

r val

ue th

roug

h pr

ofit

or lo

ss"

on th

e ba

lanc

e sh

eet.

Not

e 5:

Exe

rcis

e of

cal

l bac

k rig

hts o

f the

Com

pany

's co

nver

tible

bon

d cl

assi

fied

as "

Fina

ncia

l ass

et a

t fai

r val

ue th

roug

h pr

ofit

or lo

ss"

on th

e ba

lanc

e sh

eet.

Not

e 6:

The

end

ing

bala

nce

incl

udes

stoc

k di

vide

nd o

f 1,0

13 th

ousa

nd sh

ares

.N

ote

7: T

he e

ndin

g ba

lanc

e in

clud

es st

ock

divi

dend

of 1

,479

thou

sand

shar

es.

Not

e 8:

The

end

ing

bala

nce

incl

udes

stoc

k di

vide

nd o

f 338

thou

sand

shar

es.

Not

e 9:

The

gai

n/lo

ss o

n di

spos

al o

f inv

estm

ent i

nclu

des a

djus

tmen

ts to

long

-term

inve

stm

ent a

dditi

onal

pai

d-in

cap

ital o

f NT$

(29,

624)

thou

sand

.N

ote

10: T

he e

ndin

g ba

lanc

e in

clud

es st

ock

divi

dend

of 3

,470

thou

sand

shar

es.


1�1

ATT

AC

HM

ENT

4 (I

ndiv

idua

l sec

uriti

es a

cqui

red

or d

ispo

sed

of w

ith a

ccum

ulat

ed a

mou

nt e

xcee

ding

the

low

er o

f NT$

100

mill

ion

or 2

0 pe

rcen

t of c

apita

l sto

ck fo

r the

yea

r end

ed D

ecem

ber 3

1, 2

006)

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ount

in th

ousa

nd; C

urre

ncy

deno

min

atio

n in

NTD

unl

ess o

ther

wis

e sp

ecifi

ed)

UN

ITE

D M

ICR

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RO

NIC

S C

OR

POR

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inni

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ent

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unt

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elat

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hip

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hous

and)

/ bo

nds/

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es (t

hous

and)

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ount

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e1)

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ts (t

hous

and)

/ bo

nds/

shar

es (t

hous

and)

Am

ount

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ts (t

hous

and)

/ bo

nds/

shar

es (t

hous

and)

Am

ount

Cos

t(N

ote

2)

Gai

n (L

oss)

fr

om d

ispo

sal

(Not

e 3)

Uni

ts (t

hous

and)

/ bo

nds/

shar

es (t

hous

and)

Am

ount

(Not

e1)

Not

e 11

: The

end

ing

bala

nce

incl

udes

stoc

k di

vide

nd o

f 2,3

15 th

ousa

nd sh

ares

.N

ote

12: T

he e

ndin

g ba

lanc

e in

clud

es st

ock

divi

dend

of 2

,018

thou

sand

shar

es.

Not

e 13

: The

dis

posa

l sha

res i

nclu

de st

ock

divi

dend

of 1

05 th

ousa

nd sh

ares

.N

ote

14: O

n D

ecem

ber 1

, 200

6, P

rem

ier I

mag

e Te

chno

logy

Cor

pora

tion

mer

ged

into

Hon

Hai

Pre

cisi

on In

dust

ry C

o., L

td.

Not

e 15

: The

end

ing

bala

nce

of N

T$(3

,169

,837

) tho

usan

d is

com

pute

d by

ded

uctin

g th

e C

ompa

ny's

stoc

ks h

eld

by H

sun

Chi

eh (t

here

fore

acc

ount

ed fo

r as t

reas

ury

stoc

k) o

f NT$

20,1

37,4

03 th

ousa

nd fr

om th

e C

ompa

ny's

long

-term

inve

stm

ent b

egin

ning

bal

ance

in H

sun

Chi

eh o

f

NT$

16,9

67,5

66 th

ousa

nd.

Not

e 16

: The

gai

n/lo

ss o

n di

spos

al in

clud

es lo

ng-te

rm in

vest

men

t add

ition

al p

aid-

in c

apita

l adj

ustm

ents

of N

T$14

,149

,221

thou

sand

, cum

ulat

ive

trans

latio

n ad

just

men

ts o

f NT$

(8,1

57) t

hous

and,

unr

ealiz

ed lo

ss o

f ava

ilabl

e fo

r sal

e N

T$(1

,644

,252

) tho

usan

d.

Not

e 17

: The

gai

n/lo

ss o

n di

spos

al in

clud

es lo

ng-te

rm in

vest

men

t add

ition

al p

aid-

in c

apita

l adj

ustm

ents

of N

T$(2

8,61

2) th

ousa

nd.

Not

e 18

: The

end

ing

bala

nce

incl

udes

impa

irmen

t los

s of N

T$(7

,774

) tho

usan

d, lo

ng-te

rm in

vest

men

t los

s of N

T$(5

1,71

9) th

ousa

nd a

nd lo

ng-te

rm in

vest

men

t add

ition

al p

aid-

in c

apita

l adj

ustm

ent o

f NT$

117

thou

sand

.N

ote

19: T

he e

ndin

g ba

lanc

e in

clud

es lo

ng-te

rm in

vest

men

t los

s of N

T$(4

08,9

23) t

hous

and,

long

-term

inve

stm

ent a

dditi

onal

pai

d-in

cap

ital a

djus

tmen

t of N

T$1

thou

sand

and

cum

ulat

ive

trans

latio

n ad

just

men

ts o

f NT$

(114

,685

) tho

usan

d.N

ote

20: T

he e

ndin

g ba

lanc

e in

clud

es lo

ng-te

rm in

vest

men

t gai

n of

NT$

329,

178

thou

sand

, lon

g-te

rm in

vest

men

t add

ition

al p

aid-

in c

apita

l adj

ustm

ent o

f NT$

2,54

3 th

ousa

nd, c

umul

ativ

e tra

nsla

tion

adju

stm

ents

of N

T$10

thou

sand

and

unr

ealiz

ed g

ain

on fi

nanc

ial a

sset

s

of N

T$67

6,74

8 th

ousa

nd.

Not

e 21

: The

end

ing

bala

nce

incl

udes

long

-term

inve

stm

ent l

oss o

f NT$

(49,

736)

thou

sand

, lon

g-te

rm in

vest

men

t add

ition

al p

aid-

in c

apita

l adj

ustm

ent o

f NT$

930

thou

sand

, cum

ulat

ive

trans

latio

n ad

just

men

ts o

f NT$

(55,

147)

thou

sand

and

unr

ealiz

ed g

ain

on fi

nanc

ial a

sset

s

of N

T$1,

094

thou

sand

.N

ote

22: N

o sh

ares

sinc

e it

belo

ngs t

o pa

rtner

ship

fund

org

aniz

atio

n. T

he e

ndin

g ba

lanc

e in

clud

es lo

ng-te

rm in

vest

men

t los

s of N

T$50

4,93

6 th

ousa

nd a

nd c

umul

ativ

e tra

nsla

tion

adju

stm

ents

of N

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7,54

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ousa

nd.

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TU

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VE

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ance

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ition

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Am

ount

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e1)

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ts (t

hous

and)

/ bo

nds/

shar

es (t

hous

and)

Am

ount

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ts (t

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and)

Am

ount

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NV

IDIA

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ne

w is

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5,00

022

5,00

0

-

-

-

- 5,

000

225,

000

Not

e 1:

The

am

ount

s of b

egin

ning

and

end

ing

bala

nces

of

avai

labl

e-fo

r-sa

le fi

nanc

ial a

sset

s are

reco

rded

at t

he p

reva

iling

mar

ket p

rices

.N

ote

2: T

he lo

ss o

n di

spos

al o

f inv

estm

ent i

nclu

des c

umul

ativ

e tra

nsla

tion

adju

stm

ents

of N

T$24

9 th

ousa

nd.

Not

e 3:

The

end

ing

bala

nce

incl

udes

long

-term

inve

stm

ent l

oss o

f NT$

(44,

024)

thou

sand

, add

ition

al p

aid-

in c

apita

l adj

ustm

ents

of N

T$17

,428

thou

sand

due

to d

ispr

opor

tiona

te c

hang

es in

shar

ehol

ding

, cum

ulat

ive

trans

latio

n ad

just

men

ts o

f NT$

(99)

thou

sand

, ret

aine

d ea

rnin

g

a

djus

tmen

ts o

f NT$

246

thou

sand

and

unr

ealiz

ed lo

ss o

f ava

ilabl

e-fo

r-sa

le fi

nanc

ial a

sset

s of N

T$2,

976

thou

sand

.N

ote

4: T

he d

ispo

sal s

hare

s inc

lude

s sto

ck d

ivid

end

of 4

61 th

ousa

nd sh

ares

.N

ote

5: 2

for 1

Sto

ck sp

lits.


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ulat

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mou

nt e

xcee

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low

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f NT$

100

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or 2

0 pe

rcen

t of c

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l sto

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r Dec

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r 31,

200

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nt in

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sand

; Cur

renc

y de

nom

inat

ion

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TD u

nles

s oth

erw

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spec

ified

)

TL

C C

API

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LT

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198 RepresentationLetter

199 ReportofIndependentAuditors

200 ConsolidatedBalanceSheets

201 ConsolidatedStatementsofIncome

202 ConsolidatedStatementsofChangesin Stockholders’Equity

203 ConsolidatedStatementsofCashFlows

205 NotestoConsolidatedFinancial Statements

260 AttachmentstoNotes


1��

UNITED MICROELECTRONICS CORPORATIONAND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTSWITH REPORT OF INDEPENDENT AUDITORS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

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

The reader is advised that these financial statements have been prepared originally in Chinese. In the event of

a conflict between these financial statements and the original Chinese version or difference in interpretation

between the two versions, the Chinese language financial statements shall prevail.


1��

Letter of Representation

We confirm, to the best of our knowledge and belief, the fol-lowing representations:

1. The companies represented in the consolidated finan-cial statements of “United Microelectronics Corporation and its Affiliated Enterprises” for the year ended December 31, 2006 made in accordance with “The Rules Governing Prepa-ration of Affiliated Enterprises Consolidated Operating Report, Affiliated Enterprises Consolidated Financial State-ments and Relationship Report” are the identical companies represented in the consolidated financial statements of “United Microelectronics Corporation and Subsidiaries” for the year ended December 31, 2006 made in accordance with ROC Statement of Financial Accounting Standards No. 7.

2. The disclosures to the consolidated financial state-ments of “United Microelectronics Corporation and Its Affiliated Enterprises” for the year ended December 31, 2006 made in accordance with “The Rules Governing Preparation of Affiliated Enterprises Consolidated Operating Report, Affiliated Enterprises Consolidated Financial Statements and Relationship Report” are fully presented in the consoli-

dated financial statements of “United Microelectronics Cor-poration and Subsidiaries” for the year ended December 31, 2006 made in accordance with ROC Statement of Financial Accounting Standards No. 7.

3. Accordingly, we will not present separately a set of consolidated financial statements of “United Microelectron-ics Corporation and Its Affiliated Enterprises” for the year ended December 31, 2006 made in accordance with “The Rules Governing Preparation of Affiliated Enterprises Con-solidated Operating Report, Affiliated Enterprises Consoli-dated Financial Statements and Relationship Report”.

Jackson HuChairmanUnited Microelectronics CorporationFebruary 9th, 2007


1��

REPORT OF INDEPENDENT AUDITORS

English Translation of a Report Originally Issued in Chinese

To the Board of Directors and Stockholders of

United Microelectronics Corporation

We have audited the accompanying consolidated balance sheets of United Microelectronics Corporation and Subsidiaries as

of December 31, 2006 and 2005, and the related consolidated statements of income, change in stockholders’ equity and cash

flows for the years ended December 31, 2006 and 2005. The consolidated financial statements are the responsibility of United

Microelectronics Corporation’s management. Our responsibility is to express an opinion on these financial statements

based on our audits. As described in Note 4(11) to the consolidated financial statements, certain long-term investments were

accounted for under the equity method based on the December 31, 2006 and 2005 financial statements of the investees, which

were audited by other auditors. Our opinion insofar as it relates to the investment income amounting to NT$848 million and

NT$1,031 million for the years ended December 31, 2006 and 2005, respectively, and the related long-term investment balances

of NT$1,719 million and NT$6,253 million as of December 31, 2006 and 2005, respectively, is based solely on the reports of the

other auditors.

We conducted our audits in accordance with auditing standards generally accepted in the Republic of China and

“Guidelines for Certified Public Accountants’ Examination and Reports on Financial Statements”, which require that we plan

and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,

assessing the accounting principles used and significant estimates made by management, and evaluating the overall

consolidated financial statement presentation. We believe that our audits and the reports of the other auditors provide a

reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to

above present fairly, in all material respects, the consolidated financial position of United Microelectronics Corporation and

Subsidiaries as of December 31, 2006 and 2005, and the results of their consolidated operations and their consolidated cash

flows for the years ended December 31, 2006 and 2005, in conformity with the “Business Entity Accounting Law”, “Guidelines

Governing the Preparation of Financial Reports by Securities Issuers” and accounting principles generally accepted in the

Republic of China.

As described in Note 3 to the consolidated financial statements, effective from January 1, 2006, United Microelectronics

Corporation and Subsidiaries have adopted the ROC Statement of Financial Accounting Standards No. 34, “Financial

Instruments: Recognition and Measurement” and No. 36, “Financial Instruments: Disclosure and Presentation” to account for

the financial instruments.


Corporation and Subsidiaries have adopted the ROC Statement of Financial Accounting Standards No. 35, “Accounting for Asset

Impairment” to account for the impairment of its assets. Effective from January 1, 2006, goodwill is no longer subject to amor-

tization.


Corporation and Subsidiaries have adopted the amendments to the ROC Statement of Financial Accounting Standards No. 5,

“Accounting for Long-term Equity Investment”.

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

February 9, 2007 Taipei, Taiwan Republic of China


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.


�01

English Translation of Consolidated Financial Statements Originally Issued in ChineseUNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31, 2006 and 2005

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

NotesOperating revenues 2, 5 Sales revenues Less : Sales returns and discounts

Net Sales Other operating revenues

Net operating revenuesOperating costs 4 (23) Cost of goods sold Other operating costs Operating costsGross profitUnrealized intercompany profit 2Realized intercompany profit 2

Gross profit-netOperating expenses 4 (23), 5

Sales and marketing expenses General and administrative expenses Research and development expenses

SubtotalOperating income (loss) Non-operating income Interest revenue Investment gain accounted for under the equity method, net 2, 4 (11) Dividend income Gain on disposal of property, plant and equipment 2 Gain on disposal of investments 2 Exchange gain, net 2 Gain on recovery of market value of inventories 2 Gain on valuation of financial assets 2 Gain on valuation of financial liabilities 2 - Other income

SubtotalNon-operating expenses Interest expense 4 (12) Loss on disposal of property, plant and equipment 2 Loss on decline in market value and obsolescence of inventories 2 - Financial expenses Impairment loss 2, 3, 4 (14) Other losses 2 SubtotalIncome from continuing operations before income taxIncome tax expense 2, 4 (24)Income from continuing operationsCumulative effect of changes in accounting principles 3 (the net amount after deducted tax expense $0)Net income Attributable to: Shareholders of the parent Minority interests Net income

Pre-tax Post-tax Pre-tax Post-taxEarnings per share-basic (NTD) 2, 4 (25) Net income attributable to shareholders of the parent 1.99$ 1.81$ 0.38$ 0.38$

Earnings per share-diluted (NTD) 2, 4 (25) Net income attributable to shareholders of the parent 1.92$ 1.75$ 0.37$ 0.37$

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

(460,542)

2005

$97,172,846

306,140

(1,959,994)95,212,8525,103,130

100,315,982

(86,409,480)(4,266,217)

(90,675,697)9,640,285(118,815)151,192

9,672,662

(3,738,469)(4,387,406)(9,633,607)

(17,759,482)(8,086,820)

1,055,1381,096,9851,051,813

177,397

(1,098,854)(218,525)

10,276,618295,179

58,853837,315

$5,425,837

(112,898)

$5,425,837

$7,026,692(1,600,855)

2006

$109,857,465

(67,052)5,538,735

(268,985)

(148,606)(2,195,512)5,605,787

1,038,82115,888,119

(867,150)108,990,315

3,013,504112,003,819

(88,452,676)(2,198,540)

(90,651,216)21,352,603

(105,892)118,815

21,365,526

(3,365,678)(3,422,340)(9,418,877)

(16,206,895)5,158,631

1,562,7041,178,103

950,546331,767

28,651,109316,006

750,378-

(3,480,709)36,587,425

862,75034,909,503

(648,408)(107,962)

(1,089,490)

(1,330,293)

$32,619,313(482,025)

$32,137,288


(3,261,622)33,325,803(1,188,515)

$32,137,288

(230,757)

(73,799)


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�0�


CONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended December 31, 2006 and 2005(Expressed in Thousands of New Taiwan Dollars)

2006 2005Cash flows from operating activities: Net income attributable to shareholders of the parent 32,619,313$ 7,026,692$ Net loss attributable to minority interests (482,025) (1,600,855) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 44,255,730 51,366,170 Amortization 1,826,622 3,278,290

Bad debt reversal (164,908) (149,407) Loss (gain) on decline (recovery) in market value and obsolescence of inventories 1,089,490 (837,315) Loss (gain) on valuation of financial assets and liabilities 131,997 (58,853) Investment gain accounted for under the equity method (1,178,103) (984,087) Cash dividends received under the equity method 1,086,996 870,694 Gain on disposal of investments (28,651,109) (10,276,618) Loss (gain) on disposal of property, plant and equipment (223,805) 41,128 Transfer of property, plant and equipment to losses and expenses - 9,370 Gain on reacquisition of bonds (18,465) (133,042) Amortization of bond discounts (premiums) 87,369 (9,569) Exchange gain on financial assets and liabilities (13,009) (2,352) Exchange (gain) loss on long-term liabilities (127,179) 77,021 Amortization of deferred income (99,210) (89,762) Impairment loss 1,330,293 460,542 Effect from subsidiaries over which significant control is no longer held - (264,467) Changes in assets and liabilities: Financial assets and liabilities at fair value through profit or loss, current (5,803,828) 46,605 Notes and accounts receivable 783,372 (1,668,590) Other receivables 97,674 (243,280) Inventories (1,262,091) 17,184 Prepaid expenses (78,560) (342,885) Deferred income tax assets (2,793) 54,604 Other current assets 13,924 (14,612) Notes payable - (167,875) Accounts payable (1,676,068) (333,824) Income tax payable (106,504) 34,104 Accrued expenses 2,053,791 (691,806) Other payables 51,232 14,366 Other current liabilities 183,773 (732,210) Accrued pension liabilities 110,883 301,796 Capacity deposits (4,953) (193,249) Other liabilities - others 1,248,502 242,200 Net cash provided by operating activities 47,078,351 45,046,108

Cash flows from investing activities: Acquisition of financial assets and liabilities at fair value through profit or loss (427,202) - Acquisition of available-for-sale financial assets (5,145,237) (3,126,417) Acquisition of financial assets measured at cost (2,281,596) (2,834,658) Acquisition of long-term investments accounted for under the equity method (3,524,941) (2,211,922) Proceeds from disposal of financial assets at fair value through profit or loss 74,092 - Proceeds from disposal of available-for-sale financial assets 18,697,235 9,755,644 Proceeds from disposal of financial assets measured at cost 903,019 2,323,314 Proceeds from disposal of long-term investments accounted for under the equity method 8,202,027 7,178,638 Proceeds from disposal of held-to-maturity financial assets - 1,708,260 Proceeds from capital reduction and liquidation of long-term investments 204,352 50,725 Acquisition of property, plant and equipment (33,239,978) (22,162,708) Proceeds from disposal of property, plant and equipment 587,904 3,084,714 Increase in deferred charges (1,095,114) (1,377,043) Decrease (increase) in restricted deposits 555,800 (555,800) Decrease (increase) in other assets (20,958) 679,908 Net cash used in investing activities (16,510,597) (7,487,345)



�0�


CONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended December 31, 2006 and 2005(Expressed in Thousands of New Taiwan Dollars)

2006 2005(continued)

Cash flows from financing activities:

Increase in short-term loans 204,265$ 499,929$

Repayment of long-term loans - (20,382,214)

Issuance of bonds - 12,478,603

Redemption of bonds (10,250,000) (2,820,004) Reacquisition of bonds (1,844,683) (2,662,226)

Remuneration paid to directors and supervisors (6,324) (27,006)

Decrease in deposits-in (6,379) (204,474)

Cash dividends (7,155,865) (1,758,736)

Employee bonus (305,636) -

Purchase of treasury stock (27,286,339) (16,378,692)

Exercise of employee stock options 1,725,665 1,642,008 Increase (decrease) in minority shareholders (130,269) 20,826 Net cash used in financing activities (45,055,565) (29,591,986)Effect of exchange rate changes on cash and cash equivalents (247,242) (1,536,358)Effect of subsidiaries change (38,539) 814,408Net increase (decrease) in cash and cash equivalents (14,773,592) 7,244,827

Cash and cash equivalents at beginning of year 108,626,800 101,381,973Cash and cash equivalents at end of year 93,853,208$ 108,626,800$

Supplemental disclosures of cash flow information: Cash paid for interest 971,038$ 1,379,098$ Cash paid (refunded) for income tax 167,433$ (129,057)$

Investing activities partially paid by cash: Acquisition of property, plant and equipment 38,054,650$ 19,407,024$

Add: Payable at beginning of year 5,315,695 8,071,379

Less: Payable at end of year (10,130,367) (5,315,695) Cash paid for acquiring property, plant and equipment 33,239,978$ 22,162,708$

Investing and financing activities not affecting cash flows: Principal amount of exchangeable bonds exchanged by bondholders 69,621$ -$

Book value of available-for-sale financial assets delivered for exchange (20,242) -

Elimination of related balance sheet accounts 15,302 - Recognition of gain on disposal of available-for-sale financial assets 64,681$ - $


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


�0�

UNITED MICROELECTRONICS CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2006 and 2005(Expressed in Thousands of New Taiwan Dollars unless Otherwise Specified)

1. HISTORY AND ORGANIZATION

United Microelectronics Corporation (“UMC”) was incorporated in May 1980 and commenced operations in

April 1982. UMC is a full service semiconductor wafer foundry, and provides a variety of services to satisfy customer

needs. These services include intellectual property, embedded IC design, design verification, mask tooling, wafer

fabrication, and testing. UMC’s common shares were publicly listed on the Taiwan Stock Exchange (TSE) in July

1985 and its American Depositary Shares (ADSs) were listed on the New York Stock Exchange (NYSE) in September 2000.

Based on the resolution of the board of directors’ meeting on February 26, 2004, the effective date of UMC’s merger with

SiS MICROELECTRONICS CORP. (SiSMC) was July 1, 2004. UMC was the surviving company, and SiSMC was the dissolved

company. The merger was approved by the relevant government authorities. All the assets, liabilities, rights, and obligations

of SiSMC have been fully incorporated into UMC since July 1, 2004.

Based on the resolution of the board of directors’ meeting on August 26, 2004, UMCI LTD. had transferred its businesses,

operations, and assets to UMC’s Singapore branch (the Branch) since April 1, 2005.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements were prepared in conformity with the “Business Entity Accounting Law”, “Guidelines

Governing the Preparation of Financial Reports by Securities Issuers” and accounting principles generally accepted in the

Republic of China (R.O.C.).

Summary of significant accounting policies is as follows:

General Descriptions of Reporting Entities

(1) Principles of Consolidation

Effective January 1, 2005, investees in which UMC, directly or indirectly, holds more than 50% of voting rights or

de facto control with less than 50% of voting rights, are consolidated into UMC’s financial statements in accordance

with the amended ROC Statements of Financial Accounting Standards (SFAS) No. 7, “Consolidation of Financial

Statements” (UMC and the consolidated entities are hereinafter referred to as “the Company”.)

Transactions between consolidated entities are eliminated in the consolidated financial statements. Prior to

January 1, 2006, the difference between the acquisition cost and the net equity of a subsidiary as of the acquisition date

was amortized over 5 years; however effective January 1, 2006, goodwill arising from new acquisitions is analyzed

and accounted for under the ROC SFAS No. 25, “Business Combination – Accounting Treatment under Purchase

Method”, and goodwill is no longer to be amortized.


�0�

(2) The consolidated entities are as follows:

As of December 31, 2006Investor Subsidiary Business nature Percentage of

ownership (%)

UMC UMC GROUP (USA) (UMC-USA) IC Sales 100.00

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

IC Sales 100.00

UMC UMC CAPITAL CORP. Investment holding 100.00

UMC UNITED MICROELECTRONICS CORP. (SAMOA)

Investment holding 100.00

UMC TLC CAPITAL CO., LTD. (TLC) Investment holding 100.00

UMC UMCI LTD. (UMCI) (Note 1) Sales and manufacturing of integrated circuits

100.00

UMC FORTUNE VENTURE CAPITAL CORP. (FORTUNE)

Consulting and planning for investment in new business

99.99

UMC UNITED MICRODISPLAY OPTRONICS CORP. (UMO)(Note 2)

Sales and manufacturing of LCOS

81.76

UMC UMC JAPAN (UMCJ) Sales and manufacturing of integrated circuits

50.09

UMC and UMO THINTEK OPTRONICS CORP. (THINTEK) (Note 2)

LCOS design, production and sales

-

FORTUNE UNITRUTH INVESTMENT CORP. (UNITRUTH)


UMC CAPITAL CORP.

UMC CAPITAL (USA) Investment holding 100.00

UMC CAPITAL CORP.

ECP VITA LTD. Insurance 100.00


�0�


Investor Subsidiary Business nature Percentage of ownership (%)

UMC UMC-USA IC Sales 100.00UMC UME BV IC Sales 100.00UMC UMC CAPITAL CORP. Investment holding 100.00

UMC UNITED MICROELECTRONICS CORP. (SAMOA)


UMC TLC Investment holding 100.00

UMC UNITED FOUNDARY SERVICE, INC. (Note 3)

Supervising and monitoring group projects

-

UMC UMCI (Note 1) Sales and manufacturing of integrated circuits

100.00

UMC FORTUNE Consulting and planning for investment in new business

99.99

UMC HSUN CHIEH INVESTMENT CO., LTD. (HSUN CHIEH) (Note 4)


UMC UMO Sales and manufacturing of LCOS

86.72

UMC SILICON INTEGRATED SYSTEMS CORP.(SIS) (NOTE5)

Sale and manufacturing of integrated circuit

16.59

UMC and UMO THINTEK LCOS design, production and sales

54.26

UMC, HSUN CHIEH

UMCJ Sales and manufacturing of integrated circuits

53.49

UMC, UNITRUTH and FORTUNE

XGI TECHNOLOGY INC. (XGI) (Note 5) Cartography chip design, production and sales

31.70

FORTUNE UNITRUTH Investment holding 100.00

UMC CAPITAL CORP.

UMC CAPITAL (USA) Investment holding 100.00

UMC CAPITAL CORP.

ECP VITA LTD. Insurance 100.00

SIS SILICON INTEGRATED SYSTEMS CORP. (SIS-HK) (Note 5)

IC sales 100.00

SIS SILICON INTEGRATED SYSTEMS CORP. (SIS-USA) (Note 5)

IC sales 100.00

SIS INVESTAR CPU VENTURE CAPITAL FUND, INC. LDC (IVCF) (Note 6)

Investment holding -

XGI XGI TECHNOLOGY INC. (CAYMAN) (Note 5)


XGI XGI TECHNOLOGY INC. (USA) (Note 5) Cartography chip design and production

100.00


�0�

Note 1: Based on the resolution of the board of directors’ meeting on August 26, 2004, UMCI has transferred its

businesses, operations, and assets to the Branch since April 1, 2005.

Note 2: THINTEK was merged into UMO on October 1, 2006. The exchange ratio was 2.31 to 1.

Note 3: UNITED FOUNDRY SERVICE, INC. completed the liquidation process in April 2005.

Note 4: UMC has ceased to consolidate the gains and losses of the subsidiary and its investees in preparing the

consolidated financial statements since January 2006 as UMC no longer possessed control over the subsidiary.

Note 5: In conformity with the ROC SFAS No. 7, “Consolidated Financial Statements”, UMC has ceased to

consolidate the gains and losses of the subsidiary and its investees in preparing the consolidated financial

statements since June 27, 2005 as UMC no longer possessed control over the subsidiary.

Note 6: Based on the resolution of the board of directors meeting in November 2002, IVCF was to be liquidated. The

liquidation process was completed during the first quarter of 2005.

Foreign Currency Transactions

Transactions denominated in foreign currencies are remeasured into the local functional currencies and recorded based on

the exchange rates prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are

remeasured into the local functional currencies at the exchange rates prevailing at the balance sheet date, with the related

exchange gains or losses included in the consolidated statements of income. Translation gains or losses from investments in

foreign entities are recognized as cumulative translation adjustment in consolidated stockholders’ equity.

Non-monetary assets and liabilities denominated in foreign currencies that are reported at fair value with changes in fair value

charged to the consolidated statements of income, are remeasured at the exchange rate at the balance sheet date, with related

exchange gains or losses recorded in the consolidated statements of income. Non-monetary assets and liabilities denominated

in foreign currencies that are reported at fair value with changes in fair value charged to consolidated stockholders’equity, are

remeasured at the exchange rate at the balance sheet date, with related exchange gains or losses recorded as adjustment items

to consolidated stockholders’ equity. Non-monetary assets and liabilities denominated in foreign currencies and reported at

cost are remeasured at historical exchange rates.

Use of Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires

management to make estimates and assumptions that will affect the amount of assets and liabilities, the disclosure of contin-

gent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the

reported period. Actual results may differ from those estimates.


�0�

Translation of Foreign Currency Financial Statements

The financial statements of foreign subsidiaries and the Branch are translated into New Taiwan Dollars using the spot rates as

of each financial statement date for asset and liability accounts, average exchange rates for profit and loss accounts, historical

exchange rates for equity accounts, and exchange rates on dividend declaration date for dividends. The cumulative translation

effects from the subsidiaries and the Branch using functional currencies other than New Taiwan Dollars are included in the

cumulative translation adjustment in consolidated stockholders’ equity.

Cash Equivalents

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and with

maturity dates that do not present significant risks on changes in value resulting from changes in interest rates, including

commercial paper with original maturities of three months or less.


In accordance with ROC SFAS No. 34, “Financial Instruments: Recognition and Measurement” and the “Guidelines Govern-

ing 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 that the Company

commits to purchasing or selling the asset or liability. Financial assets and financial liabilities are initially recognized at fair

value plus acquisition or issuance costs. Accounting policies prior to December 31, 2005 are described in Note 3.

a. Financial instruments at fair value through profit or loss

Financial instruments held for short-term sale or repurchase purposes, and derivative financial instruments not qualified

for hedge accounting, are classified as financial assets or liabilities at fair value through profit or loss.

This category of financial instruments is measured at fair value, and changes in fair value are recognized in the

consolidated statements of income. Stock of listed companies, convertible bonds, and close-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.

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.


�10

c. Financial assets measured at cost

Unlisted stock, funds, and other securities without reliable market prices are measured at cost. When objective evidence

of impairment exists, the Company recognizes an impairment loss, which cannot be reversed in subsequent periods.

d. Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial instruments not classified as financial assets at fair value

through profit or loss, held-to-maturity financial assets, loans and receivables. Subsequent measurement is calculated at

fair value. Investments in listed companies are measured at closing prices as of the balance sheet date. Any gain or loss

arising from the change in fair value, excluding impairment loss and exchange gain or loss arising from monetary financial

assets denominated in foreign currencies, is recognized as an adjustment to consolidated stockholders’ equity until such

investment is reclassified or disposed of, upon which the cumulative gain or loss previously charged to consolidated

stockholders’ equity will be recorded in the consolidated statement of income.

The Company recognizes an impairment loss when objective evidence of impairment exists. Any reduction in the loss

of equity investments in subsequent periods will be recognized as an adjustment to consolidated stockholders’ equity. The

impairment loss of a debt security may be reversed and recognized in the current year’s consolidated statement of income

if the security recovers and the Company concludes the recovery is clearly related to improvements in the factors or events

that originally caused the impairment.

Allowance for Doubtful Accounts

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

accounts and other receivables.

Inventories

Inventories are accounted for on a perpetual basis. Raw materials are recorded at actual purchase costs, while the work in

process and finished goods are recorded at standard costs and 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 initially recorded at acquisition cost. Investments acquired by the contribution of technological

know-how are credited to deferred credits among affiliates, which will be amortized to income 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, arising

differences from new acquisitions are analyzed and accounted for under the ROC SFAS No. 25, “Business Combination – Ac-

counting Treatment under Purchase Method”, where goodwill is no longer to be amortized.


�11

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 year end ownership percentage until realized through transactions with third parties. Inter-

company 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 pro-

portion to the Company’s weighted-average ownership percentage of the investee until realized through transactions with

third parties.

Unrealized intercompany gains and losses arising from transactions between two equity method investees are eliminated in

proportion to the Company’s multiplied weighted-average ownership percentage with the investees until realized through

transactions with third parties. Those intercompany gains and losses arising from transactions between two majority-owned

subsidiaries are eliminated in proportion to the Company’s weighted-average ownership percentage in the subsidiary that

incurred the gain or loss.

If the recoverable amount of investees accounted for under the equity method is less than its carrying amount, the difference

is to be recognized as impairment loss in the current period.

The total value of an investment and related receivables cannot be negative. If, after the investment loss is recognized, the net

book value of the investment is less than zero, the investment is reclassified to other liabilities on the consolidated balance

sheet.

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. Sig-

nificant renewals and improvements are treated as capital expenditures and are depreciated over their estimated useful lives.

When property, plant and equipment are disposed, their original cost and accumulated depreciation are written off and the

related gain or loss is classified as non-operating income or expense. Idle assets are classified as other assets at the lower of net

book or net realizable value, with the difference charged to non-operating expenses.

Depreciation is recognized on a straight-line basis using the estimated economic life of the assets less salvage value, if any.

If the main property, plant and equipment are fully depreciated and sub property, plant and equipment are still in use, the

depreciation is based on the newly estimated remaining useful life. The estimated economic life of the property, plant and

equipment is as follows: buildings – 3 to 55 years; machinery and equipment – 5 to 6 years; transportation equipment – 4 to

5 years; furniture and fixtures – 2 to 20 years; leased assets and leasehold improvements – the lease period or estimated eco-

nomic life, whichever is shorter.


�1�

Intangible Assets

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

Technological know-how is stated at cost and amortized over its estimated economic life using the straight-line method.

An impairment loss will be recognized when the decreases in fair value of intangible assets are other than temporary. The

book value after recognizing the impairment loss is recorded as the new cost.

Deferred Charges

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

the shorter term of contract 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 reclas-

sified as a bond discount and recorded as a deduction to bonds payable. The amounts are amortized using the effective inter-

est 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 the adjustment of 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 pe-

riod 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 on 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 consolidated stockholders’ equity ac-

counts, with the difference recognized as a gain or loss on disposal of investments.

In accordance with ROC SFAS No. 34, “Financial Instruments: Recognition and Measurement” effective as of January 1, 2006,

since the economic and risk characteristics of the embedded derivative instrument and the host contract are not clearly and

closely related, derivative financial instruments embedded in exchangeable bonds shall be bifurcated and accounted as finan-

cial liabilities at fair value through profit or loss.


�1�

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 in the committee’s name in the Central Trust of China and hence, not associated

with UMC. Therefore, fund assets are not to be included in UMC’s consolidated financial statements. Pension benefits for

employees of the Branch and overseas subsidiaries are provided in accordance with the local regulations.

The Labor Pension Act of the ROC (the Act), which adopts a defined contribution plan, became effective on July 1, 2005. Em-

ployees subject to the Labor Standards Law, a defined benefit plan, were allowed to choose to either elect the pension calcula-

tion 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 UMC will make monthly contributions of no less than 6% of these employees’ monthly wages to the employees’

individual pension accounts.

The accounting for UMC’s pension liability is computed in accordance with ROC SFAS No.18. Net pension costs of the de-

fined benefit plan are recorded based on an 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 by the actuary. UMC recognizes expenses from the defined contribution pension plan in the

period in which the contribution becomes due.

Employee Stock Option Plan

The Company uses intrinsic value method to recognize compensation cost for its employee stock options issued since January

1, 2004. Under the intrinsic value method, the Company recognizes the difference between the market price of the stock on

date of grant and the exercise price of its employee stock option as compensation cost. The Company also discloses pro forma

net income and earnings per share under the fair value method for options granted since January 1, 2004.

Treasury Stock

The Company adopted ROC SFAS No. 30, “Accounting for Treasury Stocks” which requires that treasury stock held by the

Company to be accounted for under the cost method. The cost of treasury stock is shown as a deduction to consolidated stock-

holders’ equity, while any gain or loss from selling treasury stock is treated as an adjustment to additional paid-in capital. The

Company’s stock held by its subsidiaries is also treated as treasury stock.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, the product or service has been deliv-

ered, the seller’s price to the buyer is fixed or determinable and collectibility is reasonably assured. Most of the Company’s

sales transactions have shipping terms of Free on Board (FOB) or Free Carrier (FCA) shipment in which title and the risk of

loss or damage is transferred to the customer upon delivery of the product to a carrier approved by the customer.


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Allowance for sales returns and discounts are estimated taking into consideration customer complaints, historical experi-

ences, management judgment and any other known factors that might significantly affect collectibility. Such allowances are

recorded in the same period in which sales are made.

Capital Expenditure versus Operating Expenditure

An expenditure is capitalized when it is probable that the Company will receive future economic benefits associated with

the expenditure and the expenditure amount exceeds a predetermined amount. Otherwise, the expenditure is expensed as

incurred.

Income Tax

The Company adopted ROC SFAS No. 22, “Accounting for Income Taxes” for inter-period and intra-period income tax al-

location. The provision for income taxes includes deferred income tax assets and liabilities that are a result of temporary dif-

ferences 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, then it is classified as either current or noncurrent

based on the expected reversal date of the temporary difference.

According to ROC SFAS No. 12, “Accounting for Income Tax Credits”, the Company recognizes the tax benefit from the pur-

chase of equipment and technology, research and development expenditure, employee training, and certain equity investment

by the flow-through method.

Income tax (10%) on unappropriated earnings is recorded as expense in the year in which the shareholders have resolved that

the earnings shall be retained.

The Income Basic Tax Act of the R.O.C. (the IBTA) became effective on January 1, 2006. Set up by the Executive Yuan, the

IBTA is a supplemental 10% tax that is payable if the income tax payable determined by the ROC Income Tax Act is below the

minimum amount as prescribed by the IBTA. The IBTA is calculated based on taxable income as defined by the IBTA, which

includes most income that is exempted from income tax under various legislations. The impact of the IBTA has been consid-

ered 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.


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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 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 carry-

ing amount of the asset does not exceed the amount (net of amortization or depreciation) that would otherwise result had no

impairment loss been recognized for the assets in prior years.

In addition, a goodwill-allocated CGU or group of CGUs is tested for impairment each year, regardless of whether

impairment is indicated. If an impairment test reveals that the carrying amount, including goodwill, of CGU or group of

CGUs is greater than its recoverable amount, there is 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 loss and income, respectively.

3. ACCOUNTING CHANGES

Asset Impairment

The Company adopted the ROC SFAS No. 35, “Accounting for Asset Impairment” to account for the impairment of its assets

for its financial statements effective January 1, 2005. No retroactive adjustment is required under the standard. With such a

change, the Company’s consolidated net income was reduced by NT$370 million and the consolidated earnings per share was

decreased by NT$0.02.

Goodwill

The Company adopted the amendments to ROC SFAS No. 1, “Conceptual Framework of Financial Accounting and

Preparation of Financial Statements,” SFAS No. 5, “Long-Term Investments in Equity Securities,” and SFAS No. 25, “Business

Combinations—Accounting Treatment under Purchase Method,” all of which have discontinued the amortization of goodwill

effective on January 1, 2006. As a result of adopting the revised SFAS No.1, revised SFAS No.5 and revised SFAS No.25 on

January 1, 2006, the Company’s total assets as of December 31, 2006 are NT$ 856 million higher than if it had continued to

account for goodwill under the prior year’s requirements. The consolidated net income and earnings per share for the year

ended December 31, 2006, are NT$856 million and NT$0.05 higher, respectively, than if the Company had continued to

account for goodwill under the prior year’s requirements.


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(1) The Company adopted ROC SFAS No. 34, “Financial Instruments: Recognition and Measurement” and SFAS No. 36,

“Financial Instruments: Disclosure and Presentation” to account for the financial instruments effective January 1, 2006.

Some prior year items have been reclassified as required by ROC “Guidelines Governing the Preparation of Financial

Reports by Securities Issuers,” SFAS No. 34 and No. 36 to conform with current year’s presentation.

(2) The accounting policies prior to December 31, 2005 are as follows:

a. Marketable Securities

Marketable securities were recorded at cost at acquisition and were stated at the lower of aggregate cost or market

value as of the balance sheet date. Cash dividends were recognized as dividend income at the point of receipt. Costs

of money market funds and short-term notes were identified specifically while other marketable securities were

determined by the weighted-average method. The market values of listed debts, equity securities and closed-end

funds were determined by the average closing price during the last month of the fiscal year. The market value for

open-end funds was determined by the net asset value as of the balance sheet date. The amount by which the

aggregate cost exceeded the market value was reported as a loss in the current year. In subsequent periods, recovery of

the market value was recognized as a gain to the extent that the market value did not exceed the original aggregate

cost of the investment.

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

Investments of less than 20% of the outstanding voting rights in listed investees, where significant influence on

operating decisions of the investees does not reside with the Company, were accounted for by the lower of aggregate

cost or market value method. The unrealized loss resulting from the decline in market value of investments that

were held for the purpose of long-term investment was deducted from the consolidated stockholders’ equity. The

market value as of the balance sheet date was determined by the average closing price during the last month of the

reporting period. Investments of less than 20% of the outstanding voting rights in unlisted investees were accounted

for under the cost method. The Company recognized an impairment loss on investments if objective evidence

existed demonstrating an other than temporary decline in fair value. The book value of the investment was written

down to its fair market value.

c. Derivative Financial Instruments

The net receivables or payables resulting from interest rate swap and forward contracts were recorded under current

assets or current liabilities before December 31, 2005.


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(3) The above changes in accounting principles increased the Company’s total assets, total liabilities, and stockholders’

equity as of January 1, 2006 by NT$24,246 million, NT$1,326 million, and NT$22,920 million, respectively; and

resulted in an unfavorable cumulative effect of changes in accounting principles of NT$1,189 million to be deducted

from consolidated net income, thereby reducing basic earnings per share by NT$0.06 for the year ended December 31,

2006.

Gains and Losses of Equity Method Investees

Pursuant to revised ROC SFAS No.5, “Accounting for Long-term Investment” effective on January 1, 2005, certain gains or

losses of equity investees were recognized based on the gains or losses incurred in the current period and could not be

deferred to the next year. As a result of the amendment, the consolidated net income and the basic earnings per share for

the year ended December 31, 2005 were reduced by NT$113 million and NT$0.01, respectively.

4. CONTENTS OF SIGNIFICANT ACCOUNTS

(1) CASH AND CASH EQUIVALENTSAs of December 31,

2006 2005Cash:

Cash on hand $2,665 $2,814Checking and savings accounts 4,527,578 4,150,657Time deposits 80,909,065 91,976,196Subtotal 85,439,308 96,129,667

Cash equivalents 8,413,900 12,497,133Total $93,853,208 $108,626,800

(2) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS, CURRENTAs of December 31,

Held for trading 2006 2005Listed stocks $8,094,274 $1,250,280Convertible bonds 443,733 1,218,688

Total $8,538,007 $2,468,968


through profit or loss, current, was NT$712 million.


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(3) AVAILABLE-FOR-SALE FINANCIAL ASSETS, CURRENTAs of December 31,

2006 2005Common stock $- $1,004,878Preferred stock - 1,409,275 Total $- $2,414,153

(4) HELD-TO-MATURITY FINANCIAL ASSETSAs of December 31,

2006 2005Credit-linked deposits and repackage bonds $1,110,422 $1,116,806Less: Non-current portion - (1,116,806) Total $1,110,422 $-

(5) NOTES RECEIVABLEAs of December 31,

2006 2005Notes receivable $3,733 $193

(6) ACCOUNTS RECEIVABLE, NETAs of December 31,

2006 2005Accounts receivable $14,824,524 $14,459,202Less: Allowance for sales returns and discounts (794,444) (681,449)Less: Allowance for doubtful accounts (1,996) (149,319)

Net $14,028,084 $13,628,434


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(7) INVENTORIES, NETAs of December 31,

2006 2005Raw materials $1,157,909 $310,393Supplies and spare parts 1,974,417 1,917,444Work in process 7,220,955 8,141,427Finished goods 1,636,365 1,140,774

Total 11,989,646 11,510,038

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

(1,111,464) (797,503)

Net $10,878,182 $10,712,535

Inventories were not pledged.

(8) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS, NONCURRENTAs of December 31,

2006 2005Convertible bonds $474,738 $-


through profit or loss, noncurrent, was NT$90 million.

(9) AVAILABLE-FOR-SALE FINANCIAL ASSETS, NONCURRENTAs of December 31,

2006 2005Common stock $52,311,172 $6,812,103

During the year ended December 31, 2006, the Company recognized a net gain of NT$8,282 million due to the changes

in fair value as an adjustment to consolidated stockholders’ equity.

(10) FINANCIAL ASSETS MEASURED AT COST, NONCURRENTAs of December 31,

2006 2005Common stock $4,614,880 $3,982,342Preferred stock 2,387,508 1,957,968Funds 513,557 634,490Total $7,515,945 $6,574,800


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

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


Investee Companies

Amount

Percentage of Ownership

or Voting Rights

Amount


Listed companies

HOLTEK SEMICONDUCTOR INC. $878,747 24.45 $818,681 24.81

ITE TECH. INC. 341,268 21.80 329,704 22.66UNIMICRON TECHNOLOGY CORP.

(UNIMICRON)(Note A)- - 4,370,256 22.26

FARADAY TECHNOLOGY CORP. (Note B) - - 864,928 18.50

SILICON INTEGRATED SYSTEMS CORP. (Note B)

- - 3,921,878 16.59

HARVATEK CORP. (Note C) - - 346,020 16.50

NOVATEK MICROELECTRONICS CORP. (Note B)

- - 1,538,740 12.54

SERCOMM CORP. (Note C) - - 267,807 12.15

Subtotal 1,220,015 12,458,014

Unlisted companies

PACIFIC VENTURE CAPITAL CO., LTD. 127,379 49.99 296,218 49.99

MTIC HOLDINGS PTE LTD. 81,402 49.94 - -

ANOTO TAIWAN CORP. 32,622 49.00 - -

SMEDIA TECHNOLOGY CORP. 153,830 48.73 71,848 38.32

UWAVE TECHNOLOGY CORP. 36,823 48.64 74,937 48.64

UCA TECHNOLOGY INC. 50,128 48.33 34,881 45.53

MEGA MISSION LIMITED PARTNERSHIP 2,699,491 45.00 - -

YUNG LI INVESTMENTS, INC. 202,390 44.44 - -

ACHIEVE MADE INTERNATIONAL LTD. 30,845 44.44 - -

UNITECH CAPITAL INC. 959,542 42.00 638,946 42.00

STAR SEMICONDUCTOR CORP. 19,417 41.19 30,962 33.47

WALTOP INTERNATIONAL CORP. 117,457 40.00 - -

NEXPOWER TECHNOLOGY CORP. 11,976 40.00 7,982 40.00

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

4,674,311 36.49 - -

AEVOE INTERNATIONAL LTD. 12,610 35.80 - -


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Investee Companies

Amount

Percentage of Ownership

or Voting Rights

Amount


UC FUND II $122,648 35.45 $133,217 35.45

TERA XTAL TECHNOLOGY CORP. 108,950 35.00 - -

CRYSTAL MEDIA INC. 50,649 34.03 12,803 34.36

XGI TECHNOLOGY INC. 96,685 31.62 150,477 31.70

HIGHLINK TECHNOLOGY CORP. 361,378 30.63 208,833 22.18

ALLIANCE OPTOTEK CORP. 47,107 29.09 - -

AMIC TECHNOLOGY CORP. 176,287 28.94 186,010 28.95

U-MEDIA COMMUNICATIONS, INC. 24,110 26.05 36,524 26.26

AFA TECHNOLOGY, INC. 40,766 24.97 38,157 30.46

MOBILE DEVICES INC. 25,076 23.86 48,555 26.28

PARADE TECHNOLOGIES, LTD. 65,560 23.30 81,949 24.63

HIGH POWER LIGHTING CORP. 60,434 23.00 - -

USBEST TECHNOLOGY INC. 52,711 21.45 69,973 33.80

AEVOE INC. - - 6,674 39.47

DAVICOM SEMICONDUCTOR, INC. (Note E)

- - 145,649 21.56

CHIP ADVANCED TECHNOLOGY INC. (Note E)

- - 30,740 21.91

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

- - 1,063,671 45.35

ULI ELECTRONICS INC. - - 452,203 26.77

PATENTOP, LTD (Note C, F) - - 1,245 18.00

Subtotal 10,442,584 3,822,454

Elimination of upstream and intercompany

transaction (Note G)

- (17,612)

Total $11,662,599 $16,262,856

Note A: As UMC did not have significant influence after decreasing its percentage of ownership in UNIMICRON

in 2006, the investee was classified as available-for-sale financial asset.

Note B: In the beginning of 2006 as UMC determined it did not have significant influence over the investee, and in

accordance with ROC SFAS No. 34, the investee was classified as available-for-sale financial asset.


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Note C: The equity method was applied for investees in which the Company held the highest percentage of the

outstanding voting rights and had significant influence on operating decisions.

Note D: As of January 27, 2006, UMC sold 58.5 million shares of HSUN CHIEH. UMC’s ownership percentage

decreased from 99.97% to 36.49%. As HSUN CHIEH ceased to be a subsidiary, UMC’s stock held by HSUN

CHIEH was reclassified from treasury stock to long-term investments accounted for under the equity method.

The reclassification increased long-term investments accounted for under the equity method and stockholders’

equity by NT$10,881 million.

Note E: As the Company did not have significant influence after decreasing its percentage of ownership, these

investments were classified as financial assets measured at cost in 2006.

Note F: In the beginning of 2006, as the Company determined it did not have significant influence over the investee,

and in compliance with the ROC SFAS No. 34, the investment in the investee was classified as financial assets

measured at cost.

Note G: This balance represents the unrealized balance of deferred gains or losses arising from the transfer of equity

investment ownership among the affiliated companies including downstream, upstream, and intercompany

transactions. The amount will be realized upon disposal of the affiliate, transactions with a third party, or the

change of percentage of ownership.

b. The total gains arising from investments accounted for under the equity method were NT$1,178 million and NT$1,097

million for the years ended December 31, 2006 and 2005, respectively. Among which, investment income amounted to

NT$848 million and NT$1,031 million for the years ended December 31, 2006 and 2005, respectively, and the related

long-term investment balances of NT$1,719 million and NT$6,253 million as of December 31, 2006 and 2005,

respectively, were determined based on the investees’ financial statements audited by other auditors.

c. Pursuant to the revised ROC SFAS No. 5, “Accounting for Long-term Investments” effective on January 1, 2005,

investment income (loss) of UWAVE TECHNOLOGY CORP., SERCOMM CORP., HARVATEK CORP., PATENTOP,

LTD., UC FUND II, RIRA ELECTRONICS, INC., VISTAPOINT, INC., AFA TECHNOLOGY, INC., STAR

SEMICONDUCTOR CORP., USBEST TECHNOLOGY INC., UCA TECHNOLOGY INC., CRYSTAL MEDIA INC.,

U-MEDIA COMMUNICATIONS, INC., AMOD TECHNOLOGY CO., LTD., SMEDIA TECHNOLOGY CORP., and

AEVOE INC. was recognized based on the gain or loss incurred in the current period, instead of the prior period. As a

result of the adoption of the amendment, the consolidated net income, and the basic earnings per share for the year of

2005 were reduced by NT$113 million and NT$0.01, respectively.

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


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(12) PROPERTY, PLANT AND EQUIPMENTAs of December 31, 2006

Cost AccumulatedDepreciation

Book Value

Land $1,879,442 $- $1,879,442Buildings 21,076,844 (6,807,389) 14,269,455Machinery and equipment 415,225,873 (302,547,942) 112,677,931Transportation equipment 90,706 (61,056) 29,650Furniture and fixtures 2,964,369 (2,240,443) 723,926Leasehold improvements 42,968 (40,093) 2,875Construction in progress and prepayments 22,244,850 - 22,244,850

Total $463,525,052 $(311,696,923) $151,828,129


Cost AccumulatedDepreciation

Book Value

Land $1,893,522 $- $1,893,522Buildings 21,260,902 (5,969,469) 15,291,433Machinery and equipment 386,920,282 (261,499,341) 125,420,941Transportation equipment 89,580 (63,214) 26,366Furniture and fixtures 2,804,967 (1,936,607) 868,360Leasehold improvements 43,037 (39,517) 3,520Construction in progress and prepayments 15,609,497 - 15,609,497

Total $428,621,787 $(269,508,148) $159,113,639

a. Total interest expense before capitalization amounted to NT$648 million and NT$1,364 million for the years

ended December 31, 2006 and 2005, respectively.

Details of capitalized interest are as follows:For the year ended December 31,

2006 2005Machinery and equipment $- $260,294Other property, plant and equipment - 4,397

Total interest capitalized $- $264,691

Interest rates applied - 2.86%~4.20%

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


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(13) OTHER ASSETS - OTHERSAs of December 31,

2006 2005Leased assets $1,333,029 $1,366,695Deposits-out 738,696 678,929Others 260,429 150,614

Total $2,332,154 $2,196,238

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

(14) IMPAIRMENTAs of December 31,

2006 2005Available-for-sale financial assets, noncurrent $825,863 $3,848

Long-term investment accounted for under the equity method

33,217 250,435

Financial assets measured at cost, noncurrent 215,071 86,259Technology know-how 256,142 -Other assets - 120,000

Total $1,330,293 $460,542

(15) SHORT-TERM LOANSAs of December 31,

2006 2005Secured bank loans $- $6,066,478Unsecured bank loans 342,549 69,858Total $342,549 $6,136,336Interest rates 3.25%~5.85% 1.5%~4.88%

a. The Company’s unused short-term lines of credits amounted to NT$13,057 million and NT$14,658 million in 2006

and 2005, respectively.

b. Assets pledged as collateral to secure these loans are detailed in Note 6.


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(16) FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS, CURRENTAs of December 31,

2006 2005Interest rate swaps $626,230 $95,634Derivatives embedded in exchangeable bonds 359,037 -Total $985,267 $95,634

During the year ended December 31, 2006, net gain arising from the changes in fair value of financial liabilities at

fair value through profit or loss, current, was NT$312 million.

(17) BONDS PAYABLE


Domestic unsecured bonds:Issued in April 2001 and due on April 2006,5.1195% ~ 5.1850% interest payable annually

$- $3,000,000

Issued in April 2001 and due on April 2008,5.2170% ~ 5.2850% interest payable annually

5,250,000 7,500,000

Issued in October 2001 and due on October 2006, 3.4896% ~ 3.520% interest payable annually

- 5,000,000

Issued in May ~ June 2003 and due on May ~ June 2008, 4.0% minus USD 12-Month LIBOR interest payable annually

7,500,000 7,500,000

Issued in May ~ June 2003 and due on May ~ June 2010, 4.3% minus USD 12-Month LIBOR interest payable annually

7,500,000 7,500,000

Zero coupon convertible bonds:Issued in March 2002 and due on March 2007 1,484,268 2,579,385

Issued in November 2003 and due on November 2013

2,225,020 3,103,719

Issued in October 2005 and due on February 2008 12,441,268 12,540,432

Zero coupon exchangeable bonds:Issued in May 2002 and due on May 2007 3,122,060 3,218,623

(Discounts) premiums on convertible bonds (71,257) -Subtotal 39,451,359 51,942,159

Less: Current portion (9,068,283) (10,250,000)Net $30,383,076 $41,692,159


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a. On April 27, 2000, UMC issued five-year secured bonds amounting to NT$3,990 million. The interest was paid

semi-annually with a stated interest rate of 5.6%. The bonds were repaid in installments every six months from April

27, 2002 to April 27, 2005. On April 27, 2005, the bonds were fully repaid.

b. During the period from April 16 to April 27, 2001, UMC issued five-year and seven-year unsecured bonds totaling

NT$15,000 million, each with a face value of NT$7,500 million. The interest is paid annually with stated interest rates

of 5.1195% through 5.1850% and 5.2170% through 5.2850%, respectively. The five-year bonds and seven-year bonds are

repaid starting from April 2004 to April 2006 and April 2006 to April 2008, respectively, both in three yearly

installments at the rates of 30%, 30% and 40%. On April 27, 2006, the five-year bonds were fully repaid.

c. During the period from October 2 to October 15, 2001, UMC issued three-year and five-year unsecured bonds totaling

NT$10,000 million, each with a face value of NT$5,000 million. The interest was paid annually with stated interest rates

of 3.3912% through 3.420% and 3.4896% through 3.520%, respectively. On October 15, 2006 and 2004, the five-year

bonds and the three-year bonds were fully repaid, respectively.

d. On May 10, 2002, UMC issued zero coupon exchangeable bonds listed on the EuroMTF Market of the Luxembourg

Stock Exchange (LSE). The terms and conditions of the bonds are as follows:

(a) Issue Amount: US$235 million

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

(c) Redemption

i. UMC may redeem the bonds, in whole or in part, after three months of the issuance and prior to the maturity date,

at their principal amount if the closing price of the AU Optronics Corp (AUO) common shares on the TSE,

translated into US dollars at the prevailing exchange rate, for a period of 20 consecutive trading days, the last of

which occurs not more than 10 days prior to the date upon which notice of such redemption is published, is at least

120% of the exchange price then in effect translated into US dollars at the rate of NT$34.645=US$ 1.00.

ii. UMC may redeem the bonds, in whole, but not in part, if at least 90% in principal amount of the bonds has already

been exchanged, redeemed or purchased and cancelled.

iii. UMC may redeem all, but not part, of the bonds, at any time, in the event of certain changes in the ROC tax

rules which would require UMC to gross up for payments of principal, or to gross up for payments of interest or

premium.

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


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(d) Terms of Exchange

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

ii. Exchange Period: The bonds are exchangeable at any time on or after June 19, 2002 and prior to April 10, 2007,

into AUO common shares or AUO ADSs; provided, however, that if the exercise date falls within 5 business days

from the beginning of, and during, any closed period, the right of the exchanging holder of the bonds to vote with

respect to the shares it receives will be subject to certain restrictions.

iii. Exchange Price and Adjustment: The exchange price is NT$44.3 per share, determined on the basis of a fixed

exchange rate of NT$34.645=US$1.00. The exchange price will be subject to adjustments upon the occurrence of

certain events set out in the indenture.

(e) Exchange of the Bonds

As of December 31, 2006 and 2005, certain bondholders have exercised their rights to exchange their bonds with the

total principal amount of US$139 million and US$137 million into AUO shares, respectively. Gains arising from the

exercise of exchange rights during the year ended December 31, 2006 amounted NT$65 million and was

recognized as gain on disposal of investment. No bonds were exchanged during the year ended December 31,

2005.

e. During the period from May 21 to June 24, 2003, UMC issued five-year and seven-year unsecured bonds totaling

NT$15,000 million, each with a face value of NT$7,500 million. The interest is paid annually with stated interest rates

of 4.0% minus USD 12-Month LIBOR and 4.3% minus USD 12-Month LIBOR, respectively. Stated interest rates are

reset annually based on the prevailing USD 12-Month LIBOR. The five-year bonds and seven-year bonds are repayable

in 2008 and 2010, respectively, upon the maturity of the bonds.

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

as follows:

(a) Issue Amount: US$381.4 million

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

(c) Redemption:

i. On or at any time after April 5, 2007, if the closing price of the ADSs listed on the NYSE has been at least 130% of

either the conversion price or the last adjusted conversion price, for 20 out of 30 consecutive ADS trading days,

UMC may redeem all, but not some only, of the bonds.

ii. If at least 90% in principal amount of the bonds have already been redeemed, repurchased, cancelled or converted,

UMC may redeem all, but not some only, of the bonds.


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iii. In the event that UMC’s ADSs or shares have officially ceased to be listed or admitted for trading on the New York

Stock Exchange or the Taiwan Stock Exchange, as the case may be, each bondholder shall have the right, at

such bondholder’s option, to require UMC to repurchase all, but not in part, of such bondholder’s bonds at their

principal amount.

iv. In the event of certain changes in taxation in the R.O.C. resulting in UMC becoming required to pay additional

amounts, UMC may redeem all, but not part, of the bonds at their principal amount; bondholders may elect not

to have their bonds redeemed by UMC in such event, in which case the bondholders shall not be entitled to

receive payments of such additional amounts.

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

option, to require UMC to repurchase all, but not in part, of such bondholder’s bonds at their principal

amount.

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

(d) Conversion:

i. Conversion Period: Except for the closed period, the bonds may be converted into UMC’s ADSs on or after

November 4, 2005 and on or prior to February 5, 2008.

ii. Conversion Price and Adjustment: The conversion price is US$3.693 per ADS. The applicable conversion price will

be subject to adjustments upon the occurrence of certain events set out in the indenture.

g. On March 25, 2002, UMC’s subsidiary, UMC JAPAN (UMCJ), issued LSE-listed zero coupon convertible bonds with

an aggregate principal amount of JPY17,000 million and the issue price was set at 101.75% of the principal amount. The

terms and conditions of the bonds are as follows:

(a) Final Redemption

Unless previously converted, purchased and cancelled or redeemed, the bonds must be redeemed on March 26, 2007

at their principal amount.

(b) Redemption at the Option of UMCJ

i. On or at any time after March 25, 2005, UMCJ may redeem all, but not part, of the bonds if the closing price of

the shares on the Japan OTC Market is at least 120% of the conversion price then in effect for at least 20 out of

30 consecutive trading days ending on the trading day immediately prior to the date of the notice of redemption;

or if the principal amount that has not been redeemed, repurchased and cancelled or converted is equal to or less

than 10% of original aggregate principal amount.

ii. In case of a corporate split or share exchange share transfer, UMCJ may redeem all, but not part, of the bonds on

or prior to the effective date of the transaction, provided that UMCJ is not able to ensure that the bondholders

have the right to receive shares which they would have received had the conversion rights been exercised prior to

the transaction.


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iii. If a change in who controls UMCJ occurs, bondholders will be able to require UMCJ to redeem their bonds on the

date that is 85 days after the change of control occurs.

(c) Conversion Period

At any time on or after May 3, 2002 to and including March 19, 2007.

(d) Conversion Price

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

set out in the indenture.

(e) Reacquisition of the Bonds

As of December 31, 2006, UMCJ has reacquired and cancelled JPY11,630 million of the bonds from the open market.

The corresponding gain on the reacquisition amounting to JPY28 million as other income during the year ended

December 31, 2006.

As of December 31, 2005, UMCJ has reacquired and cancelled JPY7,850 million and JPY7,650 million, respectively,

of the bonds from the open market. The corresponding gain on the reacquisition amounting to JPY6 million was

recognized as other income during the year ended December 31, 2005.

h. On November 25, 2003, UMCJ issued its second LSE-listed zero coupon convertible bonds with an aggregate principal

amount of JPY21,500 million and the issue price was set at 101.25% of the principal amount. The terms and conditions

of the bonds are as follows:

(a) Final Redemption

Unless previously converted, purchased and cancelled or redeemed, the bonds must be redeemed on November 25,

2013 at their principal amount.

(b) Redemption at the Option of UMCJ

i. On or at any time after November 27, 2006, UMCJ may redeem all, but not part, of the bonds if the closing price of

the shares on the Japan OTC Market is at least 120% of the conversion price then in effect for at least 20 out of 30

consecutive trading days ending on the trading day immediately prior to the date of the notice of redemption; or if

the principal amount that has been redeemed, repurchased and cancelled or converted is equal to or less than 10%

of original aggregate principal amount.

ii. In case of a corporate split or share exchange share transfer, UMCJ may redeem all, but not part, of the bonds on

prior or to the effective date of the transaction, provided that UMCJ is not able to ensure that the bondholders

have the right to receive shares which they would have received had the conversion rights been exercised prior

to the transaction.

iii. If a change in who controls UMCJ occurs, bondholders will be able to require UMCJ to redeem their bonds on the

date that is 70 days after the change of control occurs.


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iv. UMCJ will, at the option of the bondholders, redeem such bonds on November 26, 2007 at its principal amount.

(c) Conversion Period

The conversion period may be any time on or after January 5, 2004 and on or prior to November 11, 2013.

(d) Conversion Price

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

out in the indenture.

(e) Reacquisition of the Bonds

As of December 31, 2006, UMCJ has reacquired and cancelled JPY13,450 million and JPY4,160 million of the bonds

from the open market. The corresponding gain on the reacquisition amounting to JPY38 million and it was

recognized as other income.

As of December 31, 2005, UMCJ had reacquired JPY10,490 million of bonds from the open market. The corresponding

gain on the reacquisition amounting to JPY449 million and it was recognized as other income.

i. Repayments of the above bonds in the future years are as follows:

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

Bonds repayable in Amount2007 $9,081,3482008 22,941,2682009 -2010 7,500,0002011 and thereafter -Total $39,522,616

(18) PENSION FUND

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 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 UMC will make monthly contributions of no less than 6% of these employees’ monthly

wages to the employees’ individual pension accounts. UMC and its domestic subsidiaries have made monthly

contributions based on each individual employee’s salary or wage to employees’ pension accounts beginning July 1, 2005,

and totaled NT$372 million and NT$173 million as of December 31, 2006 and 2005, respectively. Pension benefits for

employees of the Branch and subsidiaries overseas are provided in accordance with the local regulations, and the

Company has contributed the amount of NT$97 million and NT$74 million as of December 31, 2006 and 2005,

respectively.


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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, UMC contributes an amount equivalent to 2% of the employees’ total salaries and wages on a monthly basis to

the pension fund deposited at the Central Trust of China in the name of an administered pension fund committee. The

unrecognized net asset or obligation at transition based on actuarial valuation is amortized on a straight-line basis over

15 years.

c. Change in benefit obligation during the year: For the year ended December 31,

2006 2005Projected benefit obligation at beginning of year $(4,778,045) $(4,354,361)Service cost (128,775) (360,107)Interest cost (136,780) (143,058)Benefits paid 38,829 24,128Gain (loss) on projected benefit obligation (85,973) 55,353Projected benefit obligation at end of year $(5,090,744) $(4,778,045)

d. Change in pension assets during the year: For the year ended December 31,

2006 2005

Fair value of plan assets at beginning of year $1,620,201 $1,404,130

Actual return on plan assets 62,850 81,453

Contributions from employer 172,475 200,167

Benefits paid (38,829) (24,128)

Others 5,625 (41,421)

Fair value of plan assets at end of year $1,822,322 $1,620,201

e. The funding status of the pension plan is as follows: As of December 31,

2006 2005Benefit obligation

Vested benefit obligation $(55,213) $(39,069)Non-vested benefit obligation (2,376,276) (2,188,642)Accumulated benefit obligation (2,431,489) (2,227,711)Effect from projected salary increase (2,659,255) (2,550,334)Projected benefit obligation (5,090,744) (4,778,045)

Fair value of plan assets 1,822,322 1,620,201Funded status (3,268,422) (3,157,844)Unrecognized net transitional benefit obligation 118,332 181,481Unrecognized loss (gain) 36,656 (29,043)Adjustment required to recognize minimum liabilities (1,986) (9,592)

Accrued pension liabilities recognized on the consolidated balance sheet

$(3,115,420)

$(3,014,998)


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f. The components of the net periodic pension cost are as follows:For the year ended December 31,

2006 2005Service cost $128,775 $360,107Interest cost 136,780 143,059Expected return on plan assets (44,778) (39,577)

Amortization of unrecognized transitional net benefit obligation

60,441 39,232

Amortization of unrecognized pension gain (891) (88)

Pension costs from subsidiaries over which significant control is no longer held

- 6,978

Net periodic pension cost $280,327 $509,711

The actuarial assumptions underlying are as follows:For the year ended December 31, 2006

UMC FORTUNE UMO UMC JAPAN

Discount rate 2.75% 2.75% 3.75% 2.00%Rate of salary increase 4.50% 2.00% 4.00% 2.68%Expected return on plan assets 2.50% 2.75% 2.75% 2.00%


UMC UMO UMC JAPAN

Thintek

Discount rate 3.00% 3.75% 2.00% 3.75%Rate of salary increase 4.50% 4.00% 2.68% 4.00%Expected return on plan assets 3.00% 2.75% 1.00% 2.75%

(19) CAPITAL STOCK

a. UMC had 26,000 million common shares authorized to be issued, and 19,795 million common shares were issued as of

December 31, 2005, each at a par value of NT$10.

b. UMC had issued a total of 277 million ADSs that were traded on the NYSE as of December 31, 2005. The total number

of common shares of UMC represented by all issued ADSs was 1,384 million shares as of December 31, 2005. One ADS

represents five common shares.


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c. On April 26, 2005, UMC cancelled 49 million shares of treasury stocks, which were bought back during the period from

February 20 to April 19, 2002 for transfer to employees.

d. As recommended by the board of directors, and approved by the shareholders on the meeting held on June 13, 2005,

UMC issued 1,956 million new shares from capitalization of retained earnings that amounted to NT$19,560 million, of

which NT$17,587 million was stock dividend and NT$1,973 million was employee bonus. The issuance process through

the authority had been completed.

e. Among the employee stock options issued by UMC on October 7, 2002 and January 3, 2003, 96 million shares were

exercised during the year ended December 31, 2005. The issuance process through the authority had been completed.

f. UMC had 26,000 million common shares authorized to be issued, and 19,131 million was issued as of December 31,

2006, each at a par value of NT$10.

g. Among the employee stock options issued by UMC on October 7, 2002, January 3, 2003 and October 13, 2004, 109

million shares were exercised during the year ended December 31, 2006. The exercise of employee stock options of 47

million shares, 16 million shares and 46 million shares were issued on March 15, 2006, September 25, 2006, and

December 27, 2006, respectively. The issuance process through the authority had been completed.

h. On May 22, 2006 UMC cancelled 1,000 million shares of treasury stock, which were bought back during the period

from February 16, 2006 to April 11, 2006 for retention of UMC’s creditability and stockholders’ interests.

i. As recommended by the board of directors, and approved by the shareholders on the meeting held on June 12, 2006,

UMC issued 225 million new shares from capitalization of retained earnings and additional paid-in capital that

amounted to NT$2,249 million, of which NT$895 million was stock dividend, NT$459 million was employee bonus,

and NT$895 million was additional paid-in capital. The issuance process through the authority had been completed.

j. UMC had issued a total of 315 million ADSs, which were traded on the NYSE as of December 31, 2006. The total

number of common shares of UMC represented by all issued ADSs was 1,576 million shares as of December 31, 2006.

One ADS represents five common shares.


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(20) EMPLOYEE STOCK OPTIONS

On September 11, 2002, October 8, 2003, September 30, 2004, and December 22, 2005, the Company was authorized by the

Securities and Futures Bureau of the Financial Supervisory Commission, Executive Yuan, to issue employee stock options

with a total number of 1 billion, 150 million, 150 million, and 350 million units, respectively. Each unit entitles an

optionee to subscribe to 1 share of the Company’s common stock. Settlement upon the exercise of the options will be made

through the issuance of new shares by the Company. The exercise price of the options was set at the closing price of the

Company’s common stock on the date of grant. The 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)

Exercise price(NTD)

October 7, 2002 939,000 543,834 $15.7January 3, 2003 61,000 44,571 $17.7November 26, 2003 57,330 45,443 $24.7March 23, 2004 33,330 22,110 $22.9July 1, 2004 56,590 44,460 $20.7October 13, 2004 20,200 12,905 $17.8April 29, 2005 23,460 17,790 $16.4August 16, 2005 54,350 42,610 $21.6September 29, 2005 51,990 46,675 $19.7January 4, 2006 39,290 30,690 $17.7May 22, 2006 42,058 37,040 $19.2August 24, 2006 28,140 25,830 $18.4

a. A summary of the Company’s stock option plans, and related information for the years ended December 31, 2006 and 2005,

are as follows:For the year ended December 31,

2006 2005



(NTD)



(NTD)

Outstanding at beginning of period 975,320 $17.3 973,858 $16.8Granted 109,488 $18.4 129,800 $19.9Exercised (109,093) $15.7 (95,814) $15.7Forfeited (61,757) $18.8 (32,524) $18.5Outstanding at end of period 913,958 $17.5 975,320 $17.3


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(NTD)



(NTD)

Exercisable at end of period 650,268 $16.6 528,373 $16.2

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

$5.7 $6.5

b. The information of the Company’s outstanding stock options as of December 31, 2006, is as follows:Outstanding Stock Options Exercisable Stock Options

Authorization Date

Range of Exercise

Price


Weighted-average

Remaining Contractual Life (Years)

Weighted-average

Exercise Price(NTD)


Weighted-average

Exercise Price(NTD)

2002.09.11 $15.7~$17.7 588,405 1.78 $15.9 577,608 $15.82003.10.08 $20.7~$24.7 112,013 3.20 $22.8 67,095 $23.12004.09.30 $16.4~$21.6 119,980 4.53 $19.7 5,565 $17.82005.12.22 $17.7~$19.2 93,560 5.33 $18.5 - -

913,958 2.68 $17.5 650,268 $16.6

c. The Company uses intrinsic value method to recognize compensation costs for its employee stock options issued since

January 1, 2004. The compensation cost for the years ended December 31, 2006 and 2005 are nil because

the Company grants options with the exercise price equal to the current market price. Pro forma information

using the fair value method on net income and earnings per share is as follows:For the year ended December 31, 2006

Basic earnings per share Diluted earnings per shareNet Income $32,619,313 $32,653,291Earnings per share (NTD) $1.81 $1.75Pro forma net income $32,149,409 $32,183,387Pro forma earnings per share (NTD) $1.78 $1.72

For the year ended December 31, 2005 (retroactively adjusted)

Basic earnings per share Diluted earnings per shareNet Income $7,026,692 $7,035,187Earnings per share (NTD) $0.38 $0.37Pro forma net income $6,776,219 $6,784,714Pro forma earnings per share (NTD) $0.36 $0.36


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The fair value of the options granted was estimated at the date of grant using the Black-Scholes options pricing model with

the following assumptions for the years ended December 31, 2006 and 2005: 2006 2005

Expected dividend yields 1.37%~1.38% 1.63%~1.64%

Volatility factors of the expected market price

35.57%~41.14% 40.35%~43.39%

Risk-free interest rate 1.88%~2.28% 1.85%~2.24%

Weighted-average expected life of the options

4~5 years 4~5 years

(21) TREASURY STOCK

a. UMC bought back its own shares from the open market during the years ended December 31, 2006 and 2005.

Details of the treasury stock transactions are as follows:





For transfer to employees 442,067 400,000 - 842,067


500,000 - - 500,000

For retention of UMC’s creditability and stockholder’s interests

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

Total shares 942,067 1,400,000 1,000,000 1,342,067





For transfer to employees 241,181 250,000 49,114 442,067


- 500,000 - 500,000

Total shares 241,181 750,000 49,114 942,067

b. According to the Securities and Exchange Law of the R.O.C., total shares of treasury stock should not exceed 10% of

UMC’s stock issued. Total purchase amount should not exceed the sum of the retained earnings, additional paid-in

capital-premiums, and realized additional paid-in capital. As such, the maximum number of shares of treasury stock

that UMC could hold as of December 31, 2006 and 2005, were 1,913 million shares and 1,979 million shares with the

ceiling of the amounts were NT$ 94,970 million and NT$90,851 million, respectively.


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c. In compliance with Securities and Exchange Law of the R.O.C., treasury stock should not be pledged, nor should it be

entitled voting rights or receive dividends. Stock held by subsidiaries is treated as treasury stock. These subsidiaries

have the same rights as other stockholders except for subscription to new stock issuance. Starting June 22, 2005, stock

held by subsidiaries no longer have voting rights according to the revised Companies Act.

d. As of December 31, 2006, UMC’s subsidiary, FORTUNE VENTURE CAPITAL CORP., held 22 million shares of UMC’s

stock, with a book value of NT$ 20.25 per share. The closing price on December 31, 2006 was NT$20.25.

As of December 31, 2005, UMC’s subsidiaries, HSUN CHIEH INVESTMENT CO., LTD. and FORTUNE VENTURE

CAPITAL CORP., held 600 million shares and 22 million shares, respectively, of UMC’s stock, with a book value

of NT$18.98 and NT$7.87 per share, respectively. The average closing price of UMC’s stock during December 2005 was

NT$18.98.

(22) RETAINED EARNINGS AND DIVIDEND POLICIES

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

a. Payment of all taxes and dues;

b. Offset prior years’ operation losses;

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

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

remuneration; and

e. After deducting items (a), (b), and (c) above from the current year’s earnings, no less than 5% of the remaining amount

together with the prior years’ unappropriated earnings is to be allocated as employees’ bonus, which will be settled

through issuance of new shares of UMC, or cash. Employees of UMC’s subsidiaries, meeting certain requirements

determined by the board of directors, are also eligible for the employees’ bonus.

f. The distribution of the remaining portion, if any, will be recommended by the board of directors and subject to

shareholders’ approval.

UMC has entered a stage of sustained growth; the policy for dividend distribution should reflect factors such

as the current and future investment environment, fund requirements, domestic and international competition and

capital budgets; as well as the benefit of shareholders, share bonus equilibrium, and long-term financial planning. The

board of directors shall make the distribution proposal annually and present it at the shareholders’ meeting. UMC’s

Articles of Incorporation further provide that no more than 80% of the dividends to shareholders, if any, may be paid

in the form of stock dividends. Accordingly, at least 20% of the dividends must be paid in the form of cash.

The appropriation of 2006 retained earnings has not yet been recommended by the board of directors as of the date of

the Report of Independent Auditors. Information on the board of directors’ recommendations and shareholders’

approval can be obtained from the “Market Observation Post System” on the website of the TSE.


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Details of the 2005 employee bonus settlement and directors’ and supervisors’ remuneration are as follows:For the year ended December 31, 2005

As approved by the shareholders’

meeting

As recommended by the board of

directors

Differences

1. Settlement of employees’ bonus by issuance of new shares

a. Number of shares (in thousands)b. Amountc. Percentage on total number of outstanding

shares at year-end (%) 2. Settlement of employees’ bonus by cash3. Remuneration paid to directors and supervisors

45,846$458,455

0.24

$305,636$6,324

45,846$458,455

0.24

$305,636$6,324

---

--

4. Effect on earnings per share before retroactive adjustmentsa. Basic and diluted earnings per share (NTD)b. Pro forma basic and diluted earnings per

share taking into consideration employees’ bonus and directors’ and supervisors’ remuneration (NTD)

$0.38/0.38$0.34/0.34

$0.38/0.38$0.34/0.34

--

Pursuant to Article 41 of the Securities and Exchange Law of the R.O.C., a special reserve is set aside from the current

net income and prior unappropriated earnings for items that are accounted for as deductions to consolidated

stockholders’ equity such as unrealized loss on long-term investments and cumulative translation adjustments.

However, there are the following exceptions for UMC’s investees’ unrealized loss on long-term investments arising from

a merger that was recognized by UMC in proportion to UMC’s ownership percentage:

a. According to the explanatory letter No. 101801 of the Securities and Futures Commission (SFC), if UMC recognizes

the investees’ additional paid-in capital—excess from the merger in proportion to the ownership percentage, then the

special reserve is exempted for the amount originated from the acquisition of the long-term investments.

b. If UMC and its investees transfer a portion of the additional paid-in capital to increase capital, a special reserve equal

to the amount of the transfer shall be provided according to the explanatory letter No.101801-1 of the SFC.

c. In accordance with the explanatory letter No.170010 of the SFC applicable to listed companies, in the case where the

market value of UMC’s stock held by its subsidiaries at year-end is lower than the book value, a special reserve shall be

provided in UMC’s accounts in proportion to its ownership percentage.

For the 2005 appropriations approved by the shareholders’ meeting on June 12, 2006, unrealized loss on long-term

investments exempted from the provision of special reserve pursuant to the above regulations amounted to NT$18,208

million.


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(23) OPERATING COSTS AND EXPENSES

The Company’s personnel, depreciation, and amortization expenses are summarized as follows: For the year ended December 31,

2006 2005Operating

costs Operating

expensesTotal Operating

costs Operating

expensesTotal

Personnel expenses Salaries $9,003,173 $3,616,996 $12,620,169 $7,532,447 $3,421,537 $10,953,984

Labor and health insurance

546,631 192,257 738,888 538,484 206,941 745,425

Pension 571,888 184,781 756,669 566,739 191,476 758,215

Other personnel expenses

99,293 72,899 172,192 247,754 155,343 403,097

Depreciation 42,059,492 2,183,770 44,243,262 49,260,694 2,085,525 51,346,219Amortization 197,673 1,621,260 1,818,933 935,126 2,250,407 3,185,533

The numbers of employees as of December 31, 2006 and 2005 were 14,251 and 13,278, respectively.

(24) 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:


Income tax on pre-tax income at statutory tax rate $9,254,650 $768,584Permanent and temporary differences (7,303,879) (2,469,797)Change in investment tax credit (1,335,540) 6,930,316Change in loss carry-forward (105,508) -Change in valuation allowance 885,837 (5,295,125)Income Basic Tax 2,021,375 -Change in tax rate 1,269 -Estimated 10% income tax on unappropriated earnings - 35,501Adjustment of prior year’s tax expense (164,111) 20,371Income tax on interest revenue separately taxed 1,713 1,415Others 5,816 75,787Income tax expense $3,261,622 $67,052


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b. Significant components of deferred income tax assets and liabilities are as follows:As of December 31,

2006 2005Amount Tax effect Amount Tax effect

Deferred income tax assetsInvestment tax credit $14,992,731 $13,755,893Loss carry-forward $9,559,235 3,138,465 $19,854,167 5,585,640Pension 3,124,419 785,660 3,009,911 751,611Allowance on sales returns and discounts 753,074 191,304 790,132 199,060

Allowance for loss on obsolescence of inventories

827,079 220,309 317,488 79,372

Others 1,960,409 535,280 3,209,106 1,021,304Total deferred income tax assets 19,863,749 21,392,880

Valuation allowance (11,775,747) (11,576,791)Net deferred income tax assets $8,088,002 $9,816,089

Deferred income tax liabilitiesUnrealized exchange gain $ (291,391) $ (72,848) $- $-Depreciation (5,005,315) (1,251,329) (9,667,939) (2,416,985)

Others (2,673,529) (687,299) (51,870) (51,870)Total deferred income tax liabilities (2,011,476) (2,468,855)Total net deferred income tax assets $6,076,526 $7,347,234

Deferred income tax assets - current $5,933,725 $6,555,306Deferred income tax liabilities - current (278,346) -Valuation allowance (3,710,359) (3,168,516)

Net 1,945,020 3,386,790

Deferred income tax assets - noncurrent 13,930,024 14,837,574Deferred income tax liabilities - noncurrent (1,733,130) (2,468,855)Valuation allowance (8,065,388) (8,408,275)

Net 4,131,506 3,960,444Total net deferred income tax assets $6,076,526 $7,347,234


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c. UMC’s income tax returns for all the fiscal years up to 2003 have been assessed and approved by the Tax Authority.

d. UMC was granted several four or five-year income tax exemption periods with respect to income derived from the

expansion of operations. The starting date of the exemption period attributable to the expansions in 2002 had not yet

been decided. The income tax exemption for other periods will expire on December 31, 2012.

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

development, employee training, and investment in high technology industry and venture capital.

As of December 31, 2006, the Company’s unused investment tax credit was as follows:

Expiration Year Investment tax credits earnedBalance of unused

investment tax credits

2006 $2,879,909 $2,879,9092007 1,638,333 1,638,3332008 6,298,009 6,298,0092009 1,780,805 1,780,8052010 2,395,675 2,395,675Total $14,992,731 $14,992,731

f. As of December 31, 2006, the unutilized accumulated losses for the Company were as follows:Expiration Year Accumulated loss Unutilized accumulated loss2006 $11,892,614 $316,5092007 3,832,326 3,832,3262008 208,335 208,3352009 447,237 447,2372010 254,854 254,8542011 173,728 173,7282012 3,404,642 3,404,6422013 921,604 921,604Total $21,135,340 $9,559,235

g. The balance of UMC’s imputation credit accounts as of December 31, 2006 and 2005 were NT$95 million and NT$29

million, respectively. The expected creditable ratio for 2006 and the actual creditable ratio for 2005 was 0.54% and 0%,

respectively.

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


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(25) EARNINGS PER SHARE

The Company’s capital structure is composed mainly of zero coupon convertible bonds and employee stock options.

Therefore, in consideration of such complex structure, the calculated basic and diluted earnings per share for the years

ended December 31, 2006 and 2005, are disclosed as follows:For the year ended December 31, 2006

Amount Earnings per share (NTD)

Income before income tax

Net income Shares expressedin thousands


Net income

Earning per share-basic (NTD)

Income from operations of continued segments attributable to shareholders of the parent

$37,067,932 $33,807,828 18,050,962 $2.05 $1.87

Cumulative effect of changes in accounting principles attributable to shareholders of the parent

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

Net income attributable to shareholders of the parent

$35,879,417 $32,619,313 $1.99 $1.81




$37,101,910 $33,841,806 18,675,467 $1.98 $1.81


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


$35,913,395 $32,653,291 $1.92 $1.75


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For the year ended December 31, 2005 (retroactively adjusted)Amount Earnings per share (NTD)


Net income Shares expressedin thousands


Net income

Earning per share-basic (NTD)Income from operations of

continued segments attributable to shareholders of the parent

$7,174,027 $7,138,239 18,647,462 $0.39 $0.39


(111,547) (111,547) (0.01) (0.01)


$7,062,480 $7,026,692 $0.38 $0.38




$7,182,522 $7,146,734 18,933,611 $0.38 $0.38


(111,547) (111,547) (0.01) (0.01)


$7,070,975 $7,035,187 $0.37 $0.37


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5. RELATED PARTY TRANSACTIONS

(1) Name and Relationship of Related Parties

Name of related parties Relationship with UMCHSUN CHIEH INVESTMENT CO., LTD. Equity InvesteeHOLTEK SEMICONDUCTOR INC. (HOLTEK) Equity InvesteeUNITECH CAPITAL INC. Equity InvesteeITE TECH. INC. Equity InvesteeAMIC TECHNOLOGY CORP. Equity InvesteePACIFIC VENTURE CAPITAL CO., LTD. Equity InvesteeXGI TECHNOLOGY INC. Eq.uity InvesteeHIGHLINK TECHNOLOGY CORP. Equity InvesteeMEGA MISSION LIMITED PARTNERSHIP Equity InvesteeMTIC HOLDINGS PTE. LTD. Equity Investee

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

Equity Investee

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

Equity Investee

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

Equity Investee

UNIMICRON TECHNOLOGY CORP. (No longer an equity investee since November, 2006)

Equity Investee

SILICON INTEGRATED SYSTEMS CORP. (SIS) UMC’s director

UWAVE TECHNOLOGY CORP. (formerly UNITED RADIOTEK INC.)


UCA TECHNOLOGY INC. Subsidiary’s equity investeeAFA TECHNOLOGY, INC. Subsidiary’s equity investeeSTAR SEMICONDUCTOR CORP. Subsidiary’s equity investeeUSBEST TECHNOLOGY INC. Subsidiary’s equity investeeSMEDIA TECHNOLOGY CORP. Subsidiary’s equity investeeU-MEDIA COMMUNICATIONS, INC. Subsidiary’s equity investeeCRYSTAL MEDIA INC. Subsidiary’s equity investeeNEXPOWER TECHNOLOGY CORP. Subsidiary’s equity investeeMOBILE DEVICES INC. Subsidiary’s equity investeeULI ELECTRONICS INC. (Disposed in February 2006) Subsidiary’s equity investeeAEVOE INC. (Disposed in October 2006) Subsidiary’s equity investee

CHIP ADVANCED TECHNOLOGY INC. (No longer an equity investee since October, 2006)


DAVICOM SEMICONDUCTOR, INC. (No longer an equity investee since December, 2006)



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(2) Significant Related Party Transactions

a. Operating revenuesFor the year ended December 31,


SIS $2,046,127 2 $2,352,259 2NOVATEK - - 6,159,104 6Others 2,029,429 2 3,970,927 4

Total $4,075,556 4 $12,482,290 12

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 30~60 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 receivableAs of December 31,


HOLTEK $49,924 92 $62,136 100Others 724 1 - -

Total $50,648 93 $62,136 100

c. Accounts receivable, netAs of December 31,


SIS $99,333 1 $1,235,010 8Others 231,978 1 226,282 1

Total 331,311 2 1,461,292 9

Less: Allowance for sales returns and discounts

(7,666) (24,649)

Less: Allowance for doubtful accounts

- (15,666)

Net $323,645 $1,420,977


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d. Other transactions

The Company was involved in several other transactions with related parties, including service charges and

development expenses of intellectual property, totaling NT$8 million and NT$518 million for the years ended


The Company purchased approximately NT$105 million and NT$486 million of masks from TOPPAN during the

years ended December 31, 2006 and 2005, respectively.

6. ASSETS PLEDGED AS COLLATERAL

The assets pledged of the Company were as follows:


Amount Party to which asset(s) was pledged

Purpose of pledge

Deposit-out (Time deposit) $625,846 Customs Customs duty guarantee

As of December 31,2005

Amount Party to which asset(s) was pledged

Purpose of pledge

Deposit-out (Time deposit) $525,730 Customs Customs duty guarantee

Restricted deposits (Time deposit)

555,800 The International Commercial Bank of China (Tokyo branch)

Short-term loans

Deposits-out (Time deposit) 2,500 The Farmer Bank of China Payment guaranteeThe stocks of UMC held by

the subsidiaries 21,712,280 Chinatrust Commercial Bank Short-term loans

Total $22,796,310

7. COMMITMENTS AND CONTINGENT LIABILITIES

(1) UMC has entered into several patent license agreements and development contracts of intellectual property for a total

contract amount of approximately NT$19.67 billion. Royalties and development fees for future years are NT$5.98

billion as of December 31, 2006.

(2) UMC signed several construction contracts for the expansion of its factory space. As of December 31, 2006, these

construction contracts have amounted to approximately NT$3.82 billion and the unpaid portion of the contracts, which

was not accrued, was approximately NT$1.9 billion.

(3) OAK Technology, Inc. (OAK) and UMC entered into a settlement agreement on July 31, 1997 concerning a complaint

filed with the United States International Trade Commission (ITC) by OAK against UMC and others, alleging unfair

trade practices based on alleged patent infringement regarding certain CD-ROM controllers (the first OAK ITC case).

On October 27, 1997, OAK filed a civil action in a California federal district court, alleging claims for breach of the

settlement agreement and fraudulent misrepresentation. In connection with its breach of contract and other claims,


��

OAK sought damages in excess of US$750 million. UMC denied the material allegations of the complaint, and asserted

counterclaims against OAK for breach of contract, intentional interference with economic advantage and rescission and

restitution based on fraudulent concealment and/or mistake. UMC also asserted declaratory judgment claims for

invalidity and unenforceability of the relevant OAK patent. On February 9, 2006, the parties entered a settlement

agreement in which UMC, OAK and Zoran (the successor to OAK) fully and finally released one another from any and

all claims and liabilities arising out of the facts alleged in the district court case. The terms of settlement are confidential

and, except for the obligation to keep the terms confidential, impose no obligation on UMC.

(4) The Company entered into several operating lease contracts for land. These renewable operating leases are set to expire

in various years through to 2032. Future minimum lease payments under those leases are as follows:For the year ended December 31, Amount 2007 $234,4472008 220,0662009 201,8722010 194,2962011 188,9442012 and thereafter 1,701,017Total $2,740,642

(5) UMC entered into several wafer-processing contracts with its principal customers. According to the contracts, UMC

shall guarantee processing capacity after receipts of customers’ deposits.

(6) UMC has entered into contracts for the purchase of materials and masks with certain vendors. These contracts oblige

UMC to purchase specified amounts or quantities of materials and masks. Should UMC fail to fulfill the conditions set

out in the contracts, the differences between the actual purchase and the required minimum will be reconciled between

UMC and its vendors.

(7) On February 15, 2005, the Hsinchu District Prosecutor’s Office conducted a search of UMC’s facilities. On February

18, 2005, UMC’s former Chairman Mr. Robert H.C. Tsao, released a public statement, explaining that its assistance to

Hejian Technology Corp. (Hejian) did not involve any investment or technology transfer. Furthermore, from the very

beginning there was a verbal indication that, at the proper time, UMC would be compensated appropriately for its

assistance, and circumstances permitting, at some time in the future, it will push through the merger between two

companies. However, no promise was made by UMC and no written agreement was made and executed. Upon UMC’s

request to materialize the said verbal indication by compensating in the form of either cash or equity, the Chairman of

the holding company of Hejian offered 15% of the approximately 700 million outstanding shares of the holding

company of Hejian in return for UMC’s past assistance and for continued assistance in the future.

Immediately after UMC had received such offer, it filed an application with the Investment Commission of the

Ministry of Economic Affairs on March 18, 2005 (Ref. No. 94-Lian-Tung-Tzu-0222), for their executive guidance for the

successful transfer of said shares to UMC. The shareholders meeting dated June 13, 2005 resolved that to the extent

permitted by law UMC shall try to get the 15% of the outstanding shares offered by the holding company of Hejian as


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an asset of UMC. The holding company of Hejian offered 106 million shares of its outstanding common shares in return

for UMC’s assistance. The holding company of Hejian has put all such shares in escrow. UMC was informed of such

escrow on August 4, 2006. The subscription price per share of the holding company of Hejian in the last offering was

US$1.1. Therefore, the total market value of the said shares is worth more than US$110 million. However, UMC may

not acquire the ownership of nor exercise the rights of the said shares with any potential stock dividend or cash dividend

distributed in the future until the ROC laws and regulations allow UMC to acquire and exercise. In the event that any

stock dividend or cash dividend is distributed, UMC’s stake in the holding company of Hejian will accumulate

accordingly.

In April 2005, UMC’s former Chairman Mr. Robert H.C. Tsao was personally fined with in the aggregate amount of

NT$3 million by the Financial Supervisory Commission, Executive Yuan, R.O.C. (ROC FSC) for failure to disclose

material information relating to Hejian in accordance with applicable rules. As a result of the imposition of the fines by

the ROC FSC, UMC was also fined in the amount of NT$30,000 by Taiwan Stock Exchange (TSE) for the alleged

non-compliance with the disclosure rules in relation to the material information. UMC and its former Chairman Mr.

Robert H.C. Tsao have filed for administrative appeal and reconsideration with the Executive Yuan, R.O.C. and TSE,

respectively. Mr. Robert H.C. Tsao’s administrative appeal was dismissed by the Execution Yuan, R.O.C. on February

21, 2006 and the ROC FSC transferred the case against Mr. Robert H.C. Tsao to the Administrative Enforcement

Agency for enforcement of the fine. Mr. Robert H.C. Tsao has filed an administrative action against the ROC FSC

with Taipei High Administrative Court on April 14, 2006. As of December 31, 2006, the result of such reconsideration

and administrative action has not been finalized.

For UMC’s assistance to Hejian Technology Corp., UMC’s former Chairman Mr. Robert H.C. Tsao, former Vice

Chairman Mr. John Hsuan, and Mr. Duen-Chian Cheng, the General Manager of Fortune Venture Capital Corp.,

which is 99.99% owned by UMC, were indicted for violating the Business Accounting Law and breach of trust under the

Criminal Law by Hsinchu District Court’s Prosecutor’s Office on January 9, 2006. Mr. Robert H.C. Tsao and Mr. John

Hsuan had officially resigned from their positions of UMC’s Chairman, Vice Chairman and directors prior to the

announcement of the prosecution; for this reason, at the time of the prosecution, Mr. Robert H.C. Tsao and Mr. John

Hsuan no longer served as UMC’s directors and had not executed their duties as UMC’s Chairman and Vice Chairman.

In the future, if a guilty judgment is pronounced by the court, such consequences would be Mr. Robert H.C. Tsao, Mr.

John Hsuan and Mr. Duen-Chian Cheng’s personal concerns only; UMC would not be subject to indictment regarding

this case.


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On February 15, 2006, UMC was fined in the amount of NT$5 million for unauthorized investment activities in

Mainland China, implicating violation of Article 35 of the Act “Governing Relations Between Peoples of the Taiwan

Area and the Mainland Area” by the R.O.C. Ministry of Economic Affairs (MOEA). However, as UMC believes it was

illegally and improperly fined, UMC had filed an administrative appeal against MOEA to the Executive Yuan on March

16, 2006. UMC’s administrative appeal was dismissed by the Executive Yuan, R.O.C. on October 19, 2006. UMC filed

an administrative action against the R.O.C. Ministry of Economic Affairs to Taipei High Administrative Court on

December 8, 2006. As of December 31, 2006, the result of such administrative action has not been finalized.

8. SIGNIFICANT DISASTER LOSS

None.

9. SIGNIFICANT SUBSEQUENT EVENTS

UMC has entered a stage of sustained growth. UMC determined that cash flows generated from UMC’s future operations

will be sufficient for the research and development of advanced process technologies and the continued expansion of

advanced manufacturing capacity, including the second 300mm fab in Taiwan’s Tainan Science Park. In order to avoid

future cash levels becoming excessive and to better respond to the expectations of today’s capital markets, UMC has

resolved to carry out a capital reduction of NT$ 57,394 million with the cancellation of 5,739 million of its outstanding

shares, following a resolution passed at a meeting of the Board of Directors on January 23, 2007. The board of directors will

decide the date of the capital reduction after the approval at the stockholders’ meeting and the authorization of the

government. The exact exchange ratio for shares and the amount of the capital reduction is to be set on the record date for

capital reduction.

10. OTHERS

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

(2) Financial risk management objectives and policies

UMC’s principal financial instruments, other than derivatives, is comprised of cash and cash equivalents, stock,

convertible bonds, open-end funds, bank loans, and bonds payable. The main purpose of these financial instruments

is to manage financing for UMC’s operations. UMC also holds various other financial assets and liabilities such as

accounts receivable and accounts payables, which arise directly from its operations.


��0

UMC also enters into derivative transactions, including credit-link deposits, interest rate swaps and forward currency

contracts. The purpose of these derivative transactions is to mitigate interest rate risk and foreign currency exchange

risk arising from UMC’s operations and financing activities.

The main risks arising from UMC’s financial instruments include cash flow interest rate risk, foreign currency risk,

commodity price risk, credit risk, and liquidity risk.

Cash flow interest rate risk

UMC utilizes interest rate swap agreements to mitigate its cash flow interest rate risk on its counter-floating rate of

unsecured domestic bonds issued during the period from May 21 to June 24, 2003. The periods of the interest rate


annually.

Foreign currency risk

UMC has foreign currency risk arising from purchases or sales. UMC utilizes spot or forward contracts to mitigate

foreign currency risk. UMC buys or sells the same amount of foreign currency with hedged items through forward

contracts. In principal, UMC does not carry out any forward contracts for uncertain commitments.

Commodity price risk

UMC’s exposure to commodity price risk is minimal.

Credit risk

UMC trades only with established and creditworthy third parties. It is UMC’s policy that all customers who wish to

trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on

an ongoing basis, which consequently minimizes UMC’s exposure to bad debts.

With respect to credit risk arising from the other financial assets of UMC, which are comprised of cash and cash

equivalents, available-for-sale financial assets and certain derivative instruments, UMC’s exposure to credit risk

arising from the default of counter-parties is limited to the carrying amount of these instruments.

Although UMC trades only with established third parties, it will request collateral to be provided by third parties with

less favorable financial positions.


��1

Liquidity risk

UMC’s objective is to maintain a balance of funding continuity and flexibility through the use of financial

instruments such as cash and cash equivalents, bank loans and bonds.

(3) Information of financial instruments

a. Fair value of financial instruments

As of December 31,

2006 2005

Financial Assets Book Value Fair Value Book Value Fair ValueNon-derivative

Cash and cash equivalents $93,853,208 $93,853,208 $108,626,800 $108,626,800

Financial assets at fair value through profit or loss, current

8,538,007 8,538,007 2,468,968 2,438,668

Available-for-sale financial assets, current

- - 2,414,153 2,900,084

Held-to-maturity financial assets, current

1,110,422 1,110,422 - -

Notes receivable , accounts receivable and other receivables

15,255,852 15,255,852 16,002,798 16,002,798

Restricted deposits - - 555,800 555,800

Financial assets at fair value through profit or loss, noncurrent

474,738 474,738 - -


52,311,172 52,311,172 6,812,103 30,124,523

Held-to-maturity financial assets, noncurrent

- - 1,116,806 1,126,018

Financial assets measured at cost, noncurrent

7,515,945 - 6,574,800 -


11,662,599 14,234,042 16,262,856 33,755,273

Prepaid long-term investments - - 30,000 30,000Deposits-out 738,696 738,696 678,929 678,929


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Financial Liabilities Book Value Fair Value Book Value Fair ValueNon-derivative

Short-term loans $342,549 $342,549 $6,136,336 $6,136,336Payables 24,169,179 24,169,179 19,168,491 19,168,491Capacity deposits (current portion) 898,265 898,265 657,600 657,600

Bonds payable (current portion included)

39,451,359 40,362,245 51,942,159 52,517,633

DerivativeInterest rate swaps $626,230 $626,230 $95,634 $730,191


359,037 359,037 - -

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

i. The book value of short-term financial instruments approximates their fair value due to their short maturities.

Short-term financial instruments include cash and cash equivalents, notes receivable, accounts receivable, other

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

ii. The fair value of financial assets at fair value through profit or loss and available-for-sale financial assets is based

on the quoted market prices.

iii. The fair value of held-to-maturity financial assets is based on the quoted market prices. If market prices are

unavailable, UMC estimates the fair value based on the book value as the held-to-maturity financial assets consist

principally of credit-linked deposit agreements with maturity dates less than one year, as well as bonds that can

be easily liquidated in the secondary market.

iv. The fair value of financial assets measured at cost is unable to estimate since those unlisted investments are not

traded in the open market.

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

and renewed upon maturity.

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

vii. The fair value of derivative financial instruments is based on the amount UMC expects to receive (positive) or to

pay (negative) assuming that the contracts are settled in advance at the balance sheet date.


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c. The fair value of UMC’s financial instruments is determined by the quoted prices in active markets, or if the market

for a financial instrument is not active, UMC establishes fair value by using a valuation technique:



2006.12.31 2005.12.31 2006.12.31 2005.12.31

Financial assets Financial assets at fair value

through profit or loss, current$8,538,007 $2,438,668 $- $-

Available-for-sale financial asset, current

- 2,900,084 - -

Financial assets at fair value through profit or loss, noncurrent

474,738 - - -


52,311,172 30,124,523 - -


14,234,042 33,755,273 - -

Financial liabilities Bonds payable (current portion

included)40,362,245 52,517,633 - -

Derivative Financial InstrumentsFinancial liabilities

Interest rate swaps $- $- $626,230 $730,191


- - 359,037 -

d. UMC recognized a gain of NT$312 million arising from the changes in fair value of financial liabilities at fair value

through profit or loss for the year ended December 31, 2006.

e. UMC’s financial liability with cash flow interest rate risk exposure as of December 31, 2006 amounted to NT$626

million.

f. During the year ended December 31, 2006, total interest revenue and interest expense for financial assets or liabilities

that are not at fair value through profit or loss were NT$1,563 million and NT$648 million, respectively, while interest

revenue and expense for the year ended December 31, 2005 amounted to NT$1,055 million and NT$1,099 million,

respectively.


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(4) UMC and its subsidiary, UMC JAPAN, held credit-linked deposits and repackage bonds recognized as held-to-

maturity financial assets for the earning of interest income. The details are disclosed as follows:

a. Principal amount in original currency


UMC

Credit-linked deposits and repackage bonds referenced to Amount Due Date


NTD 400 million 2007.02.05


NTD 200 million 2007.02.05



NTD 200 million 2007.09.25

UMC JAPAN




UMC



NTD 400 million 2007.02.05


NTD 200 million 2007.02.05



NTD 200 million 2007.09.25



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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, UMC and its subsidiary, UMC JAPAN, may receive less than the full amount of these

investments or nothing. UMC and its subsidiary, UMC JAPAN, have selected reference entities with high credit

ratings to minimize the credit risk.

c. Liquidity risk

Early withdrawal is not allowed for the above investments unless called by the issuer. However, the anticipated

liquidity risk is low since most of the investments will either have matured within one year, or are relatively liquid

in the secondary market.

d. Market risk

There is no market risk for the above investments except for the fluctuations in the exchange rates of US Dollars and

Japanese Yen to NT Dollars at the balance sheet date and the settlement date.

(5) UMC and its subsidiary, UMC JAPAN, entered into interest rate swap and forward contracts for hedging the interest

rate risk arising from the counter-floating rate of domestic bonds and for hedging the exchange rate risk arising from

the net assets or liabilities denominated in foreign currency. The hedging strategy was developed with the objective to

reduce the market risk for non-trading purpose. The relevant information on the derivative financial instruments

entered into by UMC is as follows:

a. UMC utilized interest rate swap agreements to hedge its interest rate risk on its counter-floating rate of unsecured

domestic bonds issued during the period from May 21 to June 24, 2003. The periods of the interest rate swap

agreements are the same as those of the domestic bonds, which are five and seven years. The floating rate is reset

annually. The details of interest rate swap agreements are summarized as follows:

As of December 31, 2006 and 2005, UMC 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%


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b. Transaction risk

(a) Credit risk

There is no significant credit risk exposure with respect to the above transactions as the counter-parties are

reputable financial institutions with good global standing.

(b) Liquidity and cash flow risk

The cash flow requirements on the interest rate swap agreements are limited to the net interest payables or

receivables arising from the differences in the swap rates. The cash flow requirements on forward contracts are

limited to the net difference between the forward and spot rates at the settlement date. Therefore, no significant

cash flow risk is anticipated since the working capital is sufficient to meet the cash flow requirements.

(c) Market risk

Interest rate swap agreements and forward contracts are intended for hedging purposes. Gains or losses arising

from the fluctuations in interest rates and exchange rates are likely to be offset against the gains or losses from the

hedged items. As a result, no significant exposure to market risk is anticipated.

c. The presentation of derivative financial instruments on financial statements

UMC

As of December 31, 2006 and 2005, the interest rate swap agreements were classified as current liabilities amounting

to NT$626 million and NT$96 million, respectively.

The exchange loss arising from forward contracts was NT$415 million for the year ended December 31, 2005 and

recorded in non-operating expenses in the accompanying consolidated statement of income.

UMC JAPAN

The exchange (loss) gain arising from forward contracts was JPY$(7.5) million and JPY$25.4 million and recorded in

non-operating (expense) revenue in the accompanying consolidated statements of income for the years ended


(6) Significant intercompany transactions among consolidated entities for the years ended December 31, 2006 and 2005 are

disclosed in Attachment 1.


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


Subsidiary No. of Shares(in thousands)

Amount Purpose

FORTUNE VENTURE CAPITAL CORP.

22,070 $446,914 Long-term investment


Subsidiary No. of Shares(in thousands)

Amount Purpose

HSUN CHIEH INVESTMENT CO., LTD.

599,696 $11,379,238 Long-term investment

FORTUNE VENTURE CAPITAL CORP.

21,847 171,857 Long-term investment

11. ADDITIONAL DISCLOSURES

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

Bureau:

a. Financing provided to others for the year ended December 31, 2006: please refer to Attachment 2.

b. Endorsement/Guarantee provided to others for the year ended December 31, 2006: please refer to Attachment 3.

c. Securities held as of December 31, 2006: please refer to Attachment 4.

d. Individual securities acquired or disposed of with accumulated amount exceeding the lower of NT$100 million or

20 percent of capital stock for the year ended December 31, 2006: please refer to Attachment 5.

e. Acquisition of individual real estate with amount exceeding the lower of NT$100 million or 20 percent of capital

stock for the year ended December 31, 2006: please refer to Attachment 6.

f. Disposal of individual real estate with amount exceeding the lower of NT$100 million or 20 percent of capital stock

for the year ended December 31, 2006: please refer to Attachment 7.

g. Related party transactions for purchases and sales amounts exceeding the lower of NT$100 million or 20 percent

of capital stock for the year ended December 31, 2006: please refer to Attachment 8.

h. Receivables from related parties with amounts exceeding the lower of NT$100 million or 20 percent of capital stock

as of December 31, 2006: please refer to Attachment 9.


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i. Names, locations and related information of investees as of December 31, 2006: please refer to Attachment 10.

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

(2) Investment in Mainland China

None.

12. SEGMENT INFORMATION

(1) Operations in different industries

The Company’s major business is operating as a full service semiconductor foundry.

(2) Operations in different geographic areasFor the year ended December 31, 2006

Taiwan

Asia,

excluding Taiwan

North America

Europe and others

Eliminations

Consolidated

Sales to unaffiliated customers

$38,310,762 $9,511,367 $55,616,919 $8,564,771 $- $112,003,819

Sales between geographic areas

50,953,904 14,961,088 - - (65,914,992) -

Net operating revenues $89,264,666 $24,472,455 $55,616,919 $8,564,771 $(65,914,992) $112,003,819Gross profit $20,276,206 $46,601 $992,481 $88,680 $(38,442) $21,365,526


Taiwan

Asia,

excluding Taiwan

North America

Europe and others

Eliminations

Consolidated

Operating expenses (16,206,895)Non-operating income 34,909,503

Non-operating expenses

(3,480,709)

Income before income tax and minority interests

$36,587,425

Minority interests loss $482,025Identifiable assets $217,650,324 $94,139,276 $6,646,311 $2,544,093 $(25,290,997) $295,689,007Funds and long-term

investments71,964,454

Total assets $367,653,461


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Taiwan

Asia,

excluding Taiwan

North America

Europe and others

Eliminations

Consolidated

Sales to unaffiliated customers

$43,245,624 $6,627,031 $43,506,307 $6,937,020 $- $100,315,982

Sales between geographic areas

47,349,058 6,734,820 44,458 - (54,128,336) -

Net operating revenues $90,594,682 $13,361,851 $43,550,765 $6,937,020 $(54,128,336) $100,315,982

Gross profit $14,357,973 $(5,427,549) $701,590 $64,214 $(23,566) $9,672,662Operating expenses (17,759,482)

Non-operating income 15,888,119

Non-operating expenses

(2,195,512)

Income before income tax and minority interests

$5,605,787

Minority interests loss $1,600,855Identifiable assets $247,228,232 $86,155,818 $5,968,463 $1,149,973 $(24,249,792) $316,252,694

Funds and long-term investments

30,796,565

Total assets $347,049,259

(3) Export sales

Export sales to unaffiliated customers is less than 10% of the total sales amount on the consolidated statements of

income; therefore disclosure is not required.

(4) Major customers

Individual customers accounting for at least 10% of net sales for the years ended December 31, 2006 and 2005 are as

follows:For the year ended December 31,

2006 2005Sales amount Percentage Sales amount Percentage

Customer A $24,475,058 22 $17,844,440 18Customer B 10,243,818 9 10,528,973 10

Total $34,718,876 31 $28,373,413 28


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AC

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6

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AC

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1 (S

igni

fican

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) (A

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ified

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No.

(Not

e1)

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0U

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MC

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$43,

226,

036

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43%

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B.V

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545,

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l ass

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nonc

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6,07

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he y

ear e

nded

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embe

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5

Cou

nter

party

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nshi

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ty

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sact

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Acc

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ote

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��

ATT

AC

HM

ENT

1 (S

igni

fican

t int

erco

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ny tr

ansa

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etw

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olid

ated

ent

ities

) (A

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nt in

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sand

; Cur

renc

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nom

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TD u

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ise

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ified

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No.

(Not

e1)

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HSU

N C

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rent

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,794

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SUN

CH

IEH

INV

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ENT

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FOR

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CH

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etho

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1,10

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CH

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ENT

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UN

ITR

UTH

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ESTM

ENT

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RP.

3Fi

nanc

ial a

sset

s mea

sure

d at

cos

t, no

ncur

rent

208,

551

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SUN

CH

IEH

INV

ESTM

ENT

CO

., LT

D.

UM

C C

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3Fi

nanc

ial a

sset

s mea

sure

d at

cos

t, no

ncur

rent

176,

495

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SUN

CH

IEH

INV

ESTM

ENT

CO

., LT

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C C

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rm in

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men

ts a

ccou

nted

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r und

er th

e eq

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hod

130,

336

--

Not

e 1:

UM

C a

nd it

s sub

sidi

arie

s are

cod

ed a

s fol

low

s:1.

UM

C is

cod

ed "

0".

2. T

he su

bsid

iarie

s are

cod

ed c

onse

cutiv

ely

begi

nnin

g fr

om "

1" in

the

orde

r pre

sent

ed in

the

tabl

e ab

ove.

Not

e 2:

Tra

nsac

tions

are

cat

egor

ized

as f

ollo

ws

1. T

he h

oldi

ng c

ompa

ny to

subs

idia

ry.

2. S

ubsi

diar

y to

hol

ding

com

pany

.3.

Sub

sidi

ary

to su

bsid

iary

.N

ote

3: T

he sa

les p

rice

to th

e ab

ove

rela

ted

parti

es w

as d

eter

min

ed th

roug

h m

utua

l agr

eem

ent b

ased

on

the

mar

ket c

ondi

tions

. N

ote

4: T

he p

erce

ntag

e w

ith re

spec

t to

the

cons

olid

ated

ass

et/li

abili

ty fo

r tra

nsac

tions

of b

alan

ce sh

eet i

tem

s are

bas

ed o

n ea

ch it

em's

bala

nce

at p

erio

d-en

d.Fo

r pro

fit o

r los

s ite

ms,

cum

ulat

ive

bala

nces

are

use

d as

bas

is.

Tran

sact

ions

Acc

ount

Am

ount

Term

s(N

ote

3)

Perc

enta

ge o

f con

solid

ated

ope

ratin

g re

venu

es o

r con

solid

ated

tota

l ass

ets

(Not

e 4)

For t

he y

ear e

nded

Dec

embe

r 31,

200

5

Rel

ated

Par

tyC

ount

erpa

rtyR

elat

ions

hip

with

th

e C

ompa

ny


��

ATT

AC

HM

ENT

2 (F

inan

cing

pro

vide

d to

oth

ers f

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e ye

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nded

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r 31,

200

6)

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ount

in th

ousa

nd; C

urre

ncy

deno

min

atio

n in

NTD

unl

ess o

ther

wis

e sp

ecifi

ed)

No.

(Not

e 1)

Lend

erC

ount

er-p

arty

Fina

ncia

l sta

tem

ent

acco

unt

Max

imum

bal

ance

for

the

perio

d E

ndin

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lanc

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tere

st ra

teN

atur

e of

fin

anci

ng

Am

ount

of s

ales

to

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es fr

om)

coun

ter-

party

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son

for

finan

cing

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wan

cefo

r dou

btfu

l ac

coun

tsIte

mV

alue

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it of

fina

ncin

g am

ount

for i

ndiv

idua

l co

unte

r-pa

rty L

imit

of to

tal

finan

cing

am

ount

1U

MC

GR

OU

P (U

SA)

Form

er E

mpl

oyee

sR

ecei

vabl

e fr

om

empl

oyee

sU

SD 6

91$-

7%N

ote

2$-

Empl

oyee

loan

$--

-N

/AN

/A

Not

e 1:

UM

C a

nd it

s sub

sidi

arie

s are

cod

ed a

s fol

low

s:

1. U

MC

is c

oded

"0"

.

2. T

he su

bsid

iarie

s are

cod

ed c

onse

cutiv

ely

begi

nnin

g fr

om "

1" in

the

orde

r pre

sent

ed in

the

tabl

e ab

ove.

Not

e 2

: Nee

d fo

r sho

rt-te

rm fi

nanc

ing.

Col

late

ral


��

ATT

AC

HM

ENT

3 (E

ndor

sem

ent/G

uara

ntee

pro

vide

d to

oth

ers f

or th

e ye

ar e

nded

Dec

embe

r 31,

200

6)

(A

mou

nt in

thou

sand

; Cur

renc

y de

nom

inat

ion

in N

TD u

nles

s oth

erw

ise

spec

ified

)

No.

(Not

e 1)

Endo

rsor

/Gua

rant

orR

ecei

ving

par

tyR

elat

ions

hip

(Not

e 2)

Lim

it of

gu

aran

tee/

endo

rsem

ent

amou

nt fo

r rec

eivi

ng

party

(Not

e 3)

Max

imum

bal

ance

for t

he

perio

d E

ndin

g ba

lanc

eA

mou

nt o

f col

late

ral

guar

ante

e/en

dors

emen

t

Perc

enta

ge o

f acc

umul

ated

gu

aran

tee

amou

nt to

net

as

sets

val

ue fr

om th

e la

test

fin

anci

al st

atem

ent

Lim

it of

tota

l gu

aran

tee/

endo

rsem

ent

amou

nt (N

ote

4)

0U

MC

UM

C JA

PAN

2$7

,501

,548

JPY

10,

400,

000

$-$-

-$7

6,52

4,77

1

Not

e 1:

UM

C a

nd it

s sub

sidi

arie

s are

cod

ed a

s fol

low

s:1.

UM

C is

cod

ed "

0".

2. T

he su

bsid

iarie

s are

cod

ed c

onse

cutiv

ely

begi

nnin

g fr

om "

1" in

the

orde

r pre

sent

ed in

the

tabl

e ab

ove.

Not

e 2:

Acc

ordi

n g to

the

"Gui

delin

es G

over

ning

the

Prep

arat

ion

of F

inan

cial

Rep

orts

by

Secu

ritie

s Iss

uers

" is

sued

by

the

R.O

.C. S

ecur

ities

and

Fut

ures

Bur

eau,

re

ceiv

ing

parti

es sh

ould

be

disc

lose

d as

one

of t

he fo

llow

ing:

1. A

n in

vest

ee c

ompa

ny th

at h

as a

bus

ines

s rel

atio

nshi

p w

ith U

MC

.

2

. A su

bsid

ary

in w

hich

UM

C h

olds

dire

ctly

ove

r 50%

of e

quity

inte

rest

.

3

. An

inve

stee

in w

hich

UM

C a

nd it

s sub

sida

ries h

old

over

50%

of e

quity

inte

rest

.

4

. An

inve

stee

in w

hich

UM

C h

olds

dire

ctl y

and

indi

rect

ly o

ver 5

0% o

f equ

ity in

tere

st.

5. A

n in

vest

ee th

at h

as p

rovi

ded

guar

ante

es to

UM

C, a

nd v

ice

vers

a, d

ue to

con

tract

ual r

equi

rem

ents

.

6

. An

inve

stee

in w

hich

UM

C c

onju

nctly

inve

sts w

ith o

ther

shar

ehol

ders

, and

for w

hich

UM

C h

as p

rovi

ded

endo

rsem

ent/g

uara

ntee

in p

ropo

rtion

to

i

ts sh

areh

oldi

n gpe

rcen

tage

.N

ote

3: L

imit

of g

uara

ntee

/end

orse

men

t am

ount

for r

ecei

ving

party

shal

l not

exc

eed

the

low

er o

f rec

eivi

ngpa

rty's

capi

tal s

tock

or 1

0% o

f UM

C's

capi

tal s

tock

.N

ote

4: L

imit

of to

tal g

uara

ntee

/end

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am

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s of b

egin

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and

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inan

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t fai

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vaila

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for s

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at t

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mar

ket p

rices

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ote

2: T

he d

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epre

sent

s his

toric

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om d

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des r

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gain

/loss

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RO

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FAS

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34,

"Fi

nanc

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men

ts: R

ecog

nitio

n an

d M

easu

rem

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is a

pplie

d.

As f

or th

e ga

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ss fr

om d

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f fin

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sset

s at f

air v

alue

thro

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prof

it/lo

ss tr

ansf

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o ga

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ss o

n th

e va

luat

ion

of fi

nanc

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sset

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4: E

xerc

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of c

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n rig

hts o

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MC

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bon

d cl

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Fina

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ss"

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cal

l bac

k rig

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UM

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conv

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ond

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"Fi

nanc

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sset

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air v

alue

thro

ugh

prof

it or

loss

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bala

nce

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t.N

ote

6: T

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ndin

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lanc

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es st

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divi

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of 1

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e 7:

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end

ing

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nce

incl

udes

stoc

k di

vide

nd o

f 1,4

79 th

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nd sh

ares

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ote

8: T

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ndin

g ba

lanc

e in

clud

es st

ock

divi

dend

of 3

38 th

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nd sh

ares

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ote

9: T

he g

ain/

loss

on

disp

osal

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nves

tmen

t inc

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s adj

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e 10

: The

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incl

udes

stoc

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nd o

f 3,4

70 th

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ulat

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ts o

f NT$

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s oth

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UMC and Its Affiliated Enterprises Have Not Faced Financial Difficulties; Therefore, There Has Been No Impact on UMC’s Financial Status.

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