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Contents
Report to Shareholders 2
Introduction to MTI Products and Market Outlook 5
Financial Review 10
Selected Financial Data 10
Consolidated Results of Operations 11
Report of Independent Accountant 13
Consolidated Financial Statements 14
Notes to Consolidated Financial Statements 20
Corporate Directory 76
2
I. Letter to Shareholders
Dear Shareholders:
We would like to thank our shareholders for long-term support of Microelectronics
Technology Inc. Looking back on 2011, the global economy saw several tumultuous
events—first the earthquake and tsunami in Japan and then the floods in Thailand.
These natural disasters seriously affected the manufacturing supply chain. High
unemployment rates and the effects of the debt crisis caused slow economic growth
and decreased demand in the European and North American markets. For
Microelectronics Technology Inc., 2011 was an extremely challenging year. Our
consolidated operating revenues for the 2011 totaled NT$6.68 billion, down 18% from
2010. The consolidated operating profit was NT$293 million. The gross profit ratio
decreased to 4% due to the fact that new products were slow to produce significant
benefits for the company and our decision to make provisions for potential losses from
potential quality risks. Our consolidated net loss for 2011 was NT$1.78 billion, which
amounted to an after-tax net loss of NT$4.30 per share. With this stated the
management team deeply takes the hardest efforts for the responsibility of each and
let us all continue to work together as a team to reach our goals.
Overcoming Challenges and Pursuing New Opportunities
Several factors contributed to the company's underperformance in revenues for
2011. First of all, in the Q2 last year, due to a potential reliability concern for one
specific model of BTS power amplifiers (the product), in order to satisfy our customer
in a responsive manner, MTI recalled the product proactively and provide effective
goods to our customer to complete the retrofit. We then made provisions for possible
losses in that quarter. Second, due to delays in the new product development and
volume production schedule, our remote radio head (RRH) product did not contribute
fully to revenues. Fortunately the company was able to pass the product certification
in Europe and speed up the volume production of these products in Q4 and eventually
achieved a record high in sales for the month of December. In satellite communication
products, our low-noise block downconverters (LNB) were certified by the second
satellite TV operator in North America in Q3 last year, and in Q4 we began to ship the
products, which contributed to the company's revenues. Growth for two-way
broadband satellite transceivers (VSAT) products was stagnant due to insufficient
satellite bandwidth over the past two years. Not until our customer's new satellite was
launched in October 2011 did shipments of MTI VSAT products begin to pick up, and
we expect there will be significant growth in 2012.
3
Integrating R&D Teams to Create Competitive Advantages
With the rapid development of mobile broadband technologies, major carriers around
the world begin to focus on LTE development. Their 4G/LTE infrastructures are also
currently being constructed. MTI acquired R&D teams from the American firm
TelASIC and a Danish company, Raidocomp ApS over the past two years, in that
order. This has dramatically increased our research and development capabilities for
4G/LTE remote radio head (RRH) products. In 2011, we enhanced the organization
and operations of our R&D group as well as improving the effectiveness of
collaboration between international teams. Therefore, the primary objectives are to
improve R&D performance in order to reduce overall development costs, to accelerate
products for R&D and the pace of volume production schedules, and to reduce time to
market, which would enable the company to gain competitive advantages in the
rapidly growing 4G/LTE market.
Looking to the Future
Although factors of uncertainty in the global economy will remain in early 2012, MTI
has gradually expressed the growth opportunities. For satellite communications
systems and equipment, due to increases of demands and production line for two-way
broadband satellite transceivers (VSAT), this year we do anticipate the need to
increase production and manufacturing capability in order to grow, in particular the
low-noise block downconverter (LNB), and also for our new larger North American
clients’ capability to help stimulate growth of this year’s new products. As far as the
wireless communication design is concerned, the 4G/LTE long-term outlook is bright;
our company’s new production design is taking steps to be competitive in
implementing a complete product line. At the same time, faced with the ever-changing
business landscape, such as labor shortages, rising prices of raw materials, improving
our gross profit ratio remains a monumental challenge for the new year. As a global
leader in specialized wireless communications technology, MTI will continue to
develop high value-added products that conform to market trends and meet the needs
of customers at an accelerated pace. We strive to strengthen our partnerships with
existing customers and expand our presence on a global scale. In 2012 MTI will be on
the verge of entering our third decade of operation. We will continue to uphold our
corporate principles of pragmatism, the pursuit of perfection, and attaining long-term
viability, working even harder and rising to the challenges presented to us. We look
forward to achieving the NT$10 billion revenue milestone.
4
Once again we express our sincere gratitude to our shareholders and all our
colleagues for their long-standing support and contributions. We would also like to
thank our board members, supervisors, shareholders, clients, and our partners for
their continuous support, encouragement, contributions, and efforts. Looking to the
future, MTI will continue to do our best and to live up to the trust and expectations of
our shareholders.
Sincerely,
Patrick Wang,
Chairman of the Board
Chi-Chia Hsieh,
Vice Chairman of the Board
Allen Yen,
President and CEO
~5~
II. Overview of Operations
1. Business Scope
(a) Main Business and Percentage of Revenues by Product
(Financial data taken from our audited financial statements)
MTI’s main business in 2011 included satellite communication products and
telecommunication products. Satellite communication products include
satellite TV receiving equipment and Very Small Aperture Terminal (VSAT)
systems. Telecommunication products include point-to-point and
point-to-multipoint microwave radios, mobile base station power amplifiers,
and wireless LAN equipment. In 2011 our Satellite Communication Products
and Telecommunication Products accounted for 48% and 52% of our
consolidated revenues, respectively.
(b) Industry Overview
Below we provide analyses of satellite communications products as well as an
overview of their respective markets:
Satellite Communications Systems and Equipment
With the demand for high-definition
television (HDTV) sets and HDTV
programming constantly increasing and
the rap id growth o f reg iona l and
multilingual channels, direct broadcast
satellite TV operators currently offer over a
thousand TV channels which have
undoubtedly created a significant demand
for satellite transponders and satellite TV
receivers. Satel lite Direct to Home
services (DTH) have flourished in the US, Europe, and Japan, with North
America being currently the largest market in the world (about 46%).
~6~
The largest satellite DTH operators in this
market are Dish Network and DirecTV.
The European market is second,
accounting for about 20% of the overall
market. At the end of 2011, DirecTV had
32 million subscribers (including Latin
America) and Dish Network had 13.97
million subscribers. The growth of
subscribers has been stable.
In contrast, there are marked differences
in TV programming among European
countries, and subscriber bases are
smaller by comparison. As a result
satellite TV operators and TV content
providers are independent from one
another, although in recent years they
have begun to emulate their counterparts
in North America. It is expected that in
2012, driven by the London Olympics,
higher priority will be given to broadcasts on HD channels, starting with the
British Broadcasting Corporation (BBC). The demand for HD set-top boxes
(STB) and the Ka-band low-noise block downconverters (LNB) will also
increase gradually, thus driving the demand for new equipment to replace
older models.
For Very Small Aperture Terminal (VSAT)
equipment, their main area of
applications is to provide high-speed
two-way voice data communications and
internet broadband satellite services to
users in remote locations where there is
no access to cable modem and DSL
services. Currently the major market for
VSAT is North America, which accounts for 70% of market share globally.
VSAT accounts for close to 90% of all broadband satellite applications
~7~
if Europe and Asia are also included. ViaSat and HughesNet are the two
largest satellite broadband operators in North America. With the ViaSat-1
satellite successfully launched in October, it is expected that the total number
of subscribers will exceed the one million mark. In addition, it is hoped that the
ViaSat-2 satellite will join the broadband satellite market in mid-2013. In
June, EchoStar Corp. acquired HughesNet and the combined entity had a
total of 620,000 subscribers in the US alone at the end of Q3 last year.
HughesNet's Spaceway3 and Jupiter satellites are expected to generate 2.6
million subscribers. With additional Ka-band satellites being launched, the
market has been moving from the Ku-band toward the higher-frequency
Ka-band. It is estimated that between 2012 and 2016 the compound annual
growth rate will be more than 17%.
In Asia, Thaicom's IPSTAR still dominates the broadband satellite services
market. The majority of its customers are in Australia and New Zealand,
although revenues have been growing steadily in India and China as well.
Beginning in 2012, several new
broadband satellite projects will be under
way in Europe, including Eutelsat's Kasat
satellite, SES's Astra2 connect satellite,
and Avanti's Hylas satellite. With these
projects providing the impetus, it is
expected that Europe will become the
world's fasting growing area in satellite
broadband applications in 2012.
Source: NSR, Broadband Satellite Markets
9th Edition Market Forecast from 2009 to 2019
Terrestrial Microwave Communication Systems and Equipment
With the demand for broadband data
networks by end users increasing
substantially in recent years, system
operators are accelerating the
deployment of 4G mobile networks. What
can be expected is that telecom carriers
around the world will require backhaul
equipment with even higher bandwidth in
~8~
order to be able to accommodate the rapid growth of data volume in their
mobile wireless broadband networks. According to market forecasts, global
point-to-point microwave communications equipment will be growing at a
steady pace over the next few years (see diagram below).
In addition, business opportunities for
packet radios, which are capable of
supporting Ethernet interfaces and
carrying voice, data, and multimedia
information, have also been on the rise
over the years (refer to the trend
for Ethernet growth in the diagram). It is
expected that in 2012, global microwave
communications equipment will reach
1.6 million unit production capacity and
the annual growth will exceed 25%.
In 2011, five of the major equipment
manufacturers had the largest revenues in
the LTE base station market. Ericsson
retained its position as the industry leader
in 2011; Alcatel-Lucent was in the second
place, followed closely by Huawei. Nokia
Siemens and ZTE occupied the 4th and
5th positions, respectively (see diagram
below).
However, as an increasing number of
operators are engaged in the deployment of LTE networks, there were a large
number of invitations to tender for new projects and changes in the ranking
among equipment vendors is not unlikely. Another trend is that new base
stations will likely be constructed around the specifications based on
Multi-Standard Radio (MSR) and Software-Defined Radio (SDR) in order to
accommodate a large variety of technologies and standards as well as to
reduce construction costs.
Currently, an increasing number of telecom operators around the world have
been actively involved in the implementation of 4G/LTE networks. According to
statistics from Global Mobile Suppliers Association (GSA), as of August 2011,
~9~
237 telecom operators in 85 countries have invested in LTE technology, and
commercial operations have begun in Europe, North America, and parts of
Asia (see diagram below).
Source: GSA, August 2011
(c) Technology and Research and Development Overview
1) MTI’s R&D technology and investment mainly focus on RF (radio
frequency) and digital signal processing as the core technologies. We
have developed the following two product lines in anticipation of the
requirements of our growing business:
Satellite communications systems and equipment:
� Direct broadcast satellite TV receivers
� Small commercial satellite ground stations
Terrestrial microwave communications systems and equipment:
� Point-to-point digital microwave systems
� Mobile base station-related wireless communications microwave
equipment and devices
- High efficiency power amplifiers
- 3G/LTE wireless broadband remote radio head (RRH) equipment
Wireless
� UHF Band RFID readers and systems integration
~10~
Financial Review
The following sections review the consolidated financial results of Microelectronics Technology, Inc. and its subsidiaries for the year 2011 and 2010.
Selected Financial Data (consolidated)
2011 2010
(Expressed in thousands of New Taiwan dollars, except per share data)
Income Statement Data:
Sales revenues 6,678,293 8,112,071
Cost of Goods Sold (6,385,368) (6,793,358)
Gross profit 292,925 1,318,713
Operating expenses (1,862,249) (1,504,662)
Operating income (1,569,324) (185,949)
Non-operating income (expenses) (376,986) 69,341
Income before income tax (1,946,310) (116,608)
Income tax income (expense) 168,903 (39,656)
Minority interest 1,522 (1,666)
Net income (1,775,885) (157,930)
Earnings Per Share Data:
Net earnings per share (NT$) (1) (4.30) (0.38)
Balance Sheet Data
Current Assests 6,220,303 6,021,055
Investment 355,664 351,486
Fixed Assets 1,300,193 1,146,297
Intangibles 635,064 680,953
Other Assets 365,259 224,214
Total assets 8,876,483 8,424,005
Current liabilities 4,919,328 3,193,819
Long-term liabilities 950,380 485,843
Other liabilities 226,371 239,066
Stockholders' equity 2,780,404 4,505,277
Total Liabilities and Equities 8,876,483 8,424,005
(1) Based on weighted average outstanding common shares.
~11~
Consolidated Results of Operations
The following discussion should be read in conjunction with the Company's
consolidated financial statements, together with the notes thereto, included elsewhere
in this report.
Sales Revenue
The consolidated net revenue reached NT$6,678 million. Our satellite
communications sector which includes LNB and VSAT, contributed 48 percent of total
revenue. Telecommunication contains Mobile (includes RRH and PA), Radio and
other sector, contributed 52 percent of total revenue.
Gross Profit
The consolidated gross profit in 2011 was NT$293 million, which was 4% of the total
consolidated operating revenue. Compared to 2010, the consolidated gross profit ratio
of net sales decreased by 12 percent.
The reasons for diminishing GP amounts are: Decline in operational revenue,
increase in rework cost due to the recall of PA products, as well as the higher than
expected new product introduction costs for RRH, LNB and VSAT.
Operating Expenses and Income
Consolidated operating expenses in 2011 were NT$1,862 million. Among operating
expenses, sales and marketing expenses accounted for 6%, general and
administrative and R&D expenses accounted for 5%, and 17% of operating revenue.
The operating expenses increased to 28% of the operating revenue, mainly due to the
development of forth generation mobile communications technology and LTE related
products, this is a reflection of our endeavor to safeguard our technological
advantages and enhance our market position. Consolidated operating income in 2011
was loss NT$1,569 million.
Non-Operating Income and Loss
With regard to consolidated non-operating income, there was a loss of NT$377 million
in 2011. The net loss in 2011 was due to the recall of specific model of PA and its
increased costs of replacement and maintenance.
~12~
Taxation
MTI carried forward deferred income tax assets of NT$345 million as of December 31,
2011. There was NT$169 million income tax profit in 2011 and expected NT$0.5 million
income tax payable in 2011.
Net Income After Tax
MTI’s consolidated net income after tax in 2011 was NT$1,776 million loss, equivalent to
basic earnings per common share of loss NT$ 4.3, compared to loss NT$ 0.38 per share
in 2010.
Liquidity and Capital Structure
As of December 31 2011, our total assets were NT$8,876 million and total liabilities
were NT$6,096 million. Total liabilities to total assets ratio was 69 percent in 2011.
Current ratio was 126% in 2011, reflecting a healthy balance sheet with substantial
liquidity. MTI ended year 2011 with a solid consolidated balance sheet
including NT$1,867 million of cash and cash equivalents.
~13~
REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE
PWCR11000353
To the Board of Directors and Stockholders of Microelectronics Technology, Inc. We have audited the accompanying consolidated balance sheets of Microelectronics Technology, Inc. and its subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, of changes in stockholders’ equity and of cash flows for the years then ended, expressed in thousands of New Taiwan dollars. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the “Rules Governing the Examination of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Microelectronics Technology, Inc. and its subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended in conformity with the “Rules Governing the Preparation of Financial Statements by Securities Issuers” and generally accepted accounting principles in the Republic of China.
PricewaterhouseCoopers, Taiwan
March 22, 2011 ------------------------------------------------------------------------------------------------------------------------------------------------- The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice. As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.
MICROELECTRONICS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31 (Expressed in thousands of New Taiwan dollars, except as otherwise indicated)
2011 2010
ASSETS Notes AMOUNT % AMOUNT %
~14~
Current Assets Cash and cash equivalents 4(1) $ 1,852,273 21 $ 2,320,653 28 Financial assets at fair value through profit or loss -
current 4(2)
203,743 2 78,731 1 Accounts receivable, net 4(3) 1,650,924 19 1,626,979 19 Other receivables 124,992 1 86,443 1 Inventories, net 4(4) 2,020,398 23 1,696,578 20 Prepaid expenses 44,476 - 29,251 - Prepayments 168,952 2 66,126 1 Deferred income tax assets - current 4(17) 139,949 2 101,890 1 Restricted current assets 6 14,596 - 14,404 -
Total current assets 6,220,303 70 6,021,055 71
Funds and Investments Financial assets carried at cost - non-current 4(5) 355,664 4 351,486 4
Fixed Assets 4(6) and 6 Costs Buildings 793,634 9 787,971 9 Machinery and equipment 2,264,836 26 2,062,305 25 Transportation equipment 3,662 - 2,740 - Office equipment 124,899 1 77,893 1 Leasehold improvements 138,381 2 130,065 2
Cost and revaluation increments 3,325,412 38 3,060,974 37 Less: Accumulated depreciation ( 2,183,350 )( 25 )( 1,998,585 )( 24 ) Construction in progress and prepayments for
equipment
158,131 2 83,908 1
Total property, plant and equipment, net 1,300,193 15 1,146,297 14
Intangible Assets Goodwill 4(7) 373,741 4 339,180 4 Deferred pension costs 4(16) 4,182 - 3,653 - Other intangible assets 4(7) 257,141 3 338,120 4
Total intangible assets 635,064 7 680,953 8
Other Assets Assets leased to others 6 35,357 1 36,631 1 Refundable deposits 8,623 - 5,777 - Deferred expenses 115,767 1 102,596 1 Deferred income tax assets - non-current 4(17) 205,512 2 79,210 1
Total other assets 365,259 4 224,214 3
TOTAL ASSETS $ 8,876,483 100 $ 8,424,005 100
(Continued)
MICROELECTRONICS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31 (Expressed in thousands of New Taiwan dollars, except as otherwise indicated)
2011 2010
LIABILITIES AND STOCKHOLDERS' EQUITY Notes AMOUNT % AMOUNT %
The accompanying notes are an integral part of these consolidated financial statements.
~15~
Current Liabilities Short-term loans 4(8) $ 2,117,740 24 $ 1,287,938 15 Financial liabilities at fair value through profit or
loss - current 4(9)
- - 2,478 - Accounts payable 1,464,419 16 1,243,780 15 Income tax payable 4(17) 509 - 16,087 - Accrued expenses 4(10) 472,978 5 490,119 6 Other payables 4(4) 232,356 3 98,858 1 Receipts in advance 46,625 1 21,325 - Long-term liabilities - current portion 4(11) and 6 479,053 5 - - Accrued warranty liabilities 4(4) 96,220 1 27,670 1 Other current liabilities - other 9,428 - 5,564 - Total current liabilities 4,919,328 55 3,193,819 38 Long-term Liabilities Long-term loans 4(11) and 6 810,156 9 480,645 6 Long-term accounts payable 4(4) 136,938 2 - - Long-term lease payable 3,286 - 5,198 - Total long-term liabilities 950,380 11 485,843 6 Other Liabilities Accrued pension liabilities 4(16) 225,146 3 237,590 3 Guarantee deposits received 1,225 - 1,476 - Total other liabilities 226,371 3 239,066 3 Total liabilities 6,096,079 69 3,918,728 47 Stockholders' Equity Parent Company Stockholders' Equity Capital 4(12) Common stock 4,130,372 46 4,129,682 49 Capital Surplus 4(13) Paid-in capital in excess of par value of common
stock
59,920 1 59,451 1 Capital reserve from conversion of convertible
bonds
28,676 - 28,676 - Capital reserve from long-term investments 2,538 - 8,326 - Retained Earnings 4(14) Legal reserve 160,405 2 160,405 2 (Accumulated deficit) undistributed earnings ( 1,688,077 )( 19 ) 87,808 1 Stockholders' Equity Adjustments Cumulative translation adjustments 87,592 1 4,795 - Unrecognized pension cost 4(16) ( 5,645 ) - ( 15,797 ) - Total Parent Company Stockholders' Equity 2,775,781 31 4,463,346 53 Minority interest 4,623 - 41,931 - Total stockholders' equity 2,780,404 31 4,505,277 53 Commitments And Contingent Liabilities 7 TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY
$ 8,876,483 100 $ 8,424,005 100
MICROELECTRONICS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31
(Expressed in thousands of New Taiwan dollars, except as otherwise indicated) 2011 2010
Notes AMOUNT % AMOUNT %
The accompanying notes are an integral part of these consolidated financial statements.
~16~
Operating Revenue Sales $ 6,732,672 101 $ 8,156,652 100 Sales returns ( 45,873 )( 1 ) ( 36,105 ) - Sales discounts ( 8,506 ) - ( 8,476 ) - Net Sales 6,678,293 100 8,112,071 100 Operating Costs 4(4)(19) Cost of goods sold ( 6,385,368 )( 96 ) ( 6,793,358 )( 84 )Gross profit 292,925 4 1,318,713 16 Operating Expenses 4(19) Sales and marketing expenses ( 372,580 )( 6 ) ( 429,724 )( 5 ) General and administrative expenses ( 321,382 )( 5 ) ( 269,004 )( 3 ) Research and development expenses ( 1,168,287 )( 17 ) ( 805,934 )( 10 ) Total Operating Expenses ( 1,862,249 )( 28 ) ( 1,504,662 )( 18 )Operating loss ( 1,569,324 )( 24 ) ( 185,949 )( 2 )Non-operating Income and Gains Interest income 20,655 - 14,969 - Gain on disposal of investments 4(5) 6,057 - 155 - Foreign exchange gain, net - - 20,659 - Gain on valuation of financial assets 4(2) - - 3,194 - Gain on valuation of financial
liabilities 4(9)
2,478 - 738 - Other non-operating income 37,900 1 73,912 1 Non-operating Income and Gains 67,090 1 113,627 1 Non-operating Expenses and Losses Interest expense ( 40,615 )( 1 ) ( 20,479 ) - Loss on disposal of property, plant
and equipment
( 4,250 ) - ( 43 ) - Foreign exchange loss, net ( 3,332 ) - - - Impairment loss 4(5) ( 5,933 ) - ( 3,369 ) - Loss on valuation of financial assets 4(2) ( 11,468 ) - - - Other non-operating losses 4(4) ( 378,478 )( 6 ) ( 20,395 ) - Non-operating Expenses and
Losses
( 444,076 )( 7 ) ( 44,286 ) - Loss from continuing operations
before income tax
( 1,946,310 )( 30 ) ( 116,608 )( 1 )Income tax benefit (expense) 4(17) 168,903 3 ( 39,656 )( 1 )Consolidated net loss ($ 1,777,407 )( 27 ) ($ 156,264 )( 2 )
Attributable to: Equity holders of parent company ($ 1,775,885 )( 27 ) ($ 157,930 )( 2 ) Minority interest ( 1,522 ) - 1,666 - ($ 1,777,407 )( 27 ) ($ 156,264 )( 2 )
Before Tax After Tax Before Tax After Tax Loss per share Basic loss per share Net loss 4(18) ($ 4.50 )($ 4.30 ) ($ 0.37 )($ 0.38 )
Diluted loss per share Net loss 4(18) ($ 4.50 )($ 4.30 ) ($ 0.37 )($ 0.38 )
MICROELECTRONICS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (Expressed in thousands of New Taiwan dollars, except as otherwise indicated)
Capital reserves Retained earnings
Common stock
Paid-in capital in excess of par value of common stock
Capital reserve
from conversion of convertible bonds
Capital reserve from long-term investments
Legal reserve
(Accumulated deficit)
undistributed earnings
Cumulative translation adjustments
Unrecognized pension cost
Minority interest
Total
The accompanying notes are an integral part of these consolidated financial statements.
~17~
Year 2010 Balance at January 1, 2010 $ 4,129,682 $ 59,451 $ 28,676 $ - $ 160,405 $ 245,738 $ 172,064 ($ 624 ) $ 37,502 $ 4,832,894 Net loss for 2010 - - - - - ( 157,930 ) - - 1,666 ( 156,264 ) Proportionate share in adjustment due to
change in investee's equity - - - 2,538 - - - - - 2,538 Unrecognized pension cost - - - - - - - ( 13,541 ) - ( 13,541 ) Proportionate share in adjustment of
subsidiaries' unrecognized pension cost - - - - - - - ( 1,632 ) ( 173 ) ( 1,805 )
Proportionate share in adjustment of subsidiaries' share-based payment-employee stock option - - - 5,788 - - - - 293 6,081
Translation adjustments of long-term investments - - - - - - ( 167,269 ) - - ( 167,269 )
Purchase of minority interest - - - - - - - - ( 9,695 ) ( 9,695 ) Subsidiaries' transfer of treasury stock - - - - - - - - 12,338 12,338
Balance at December 31, 2010 $ 4,129,682 $ 59,451 $ 28,676 $ 8,326 $ 160,405 $ 87,808 $ 4,795 ($ 15,797 ) $ 41,931 $ 4,505,277
Year 2011 Balance at January 1, 2011 $ 4,129,682 $ 59,451 $ 28,676 $ 8,326 $ 160,405 $ 87,808 $ 4,795 ($ 15,797 ) $ 41,931 $ 4,505,277 Net loss for 2011 - - - - - ( 1,775,885 ) - - ( 1,522 ) ( 1,777,407 ) Issuance of stock from employee stock
options exercised 690 469 - - - - - - - 1,159 Adjustment arising from subsidiaries'
share-based payment-cash-settled - - - ( 5,788 ) - - - - - ( 5,788 ) Unrecognized pension cost - - - - - - - 10,378 - 10,378 Proportionate share in adjustment of
subsidiaries' unrecognized pension cost - - - - - - - ( 226 ) - ( 226 )
Translation adjustments of long-term investments - - - - - - 82,797 - 373 83,170
Purchase of minority interest - - - - - - - - ( 36,159 ) ( 36,159 )
Balance at December 31, 2011 $ 4,130,372 $ 59,920 $ 28,676 $ 2,538 $ 160,405 ($ 1,688,077 ) $ 87,592 ($ 5,645 ) $ 4,623 $ 2,780,404
MICROELECTRONICS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31 (Expressed in thousands of New Taiwan dollars, except as otherwise indicated)
2011 2010
~18~
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net loss ($ 1,777,407 ) ($ 156,264 )
Adjustments to reconcile consolidated net loss to net cash used in
operating activities
Compensation cost for the employee stock options -
subsidiaries - 6,081
Provision for bad debts 2,682 7,067
Depreciation 219,880 204,442
Amortization 141,179 88,218
Loss (gain) on valuation of financial assets, net 11,468 ( 3,194 )
Gain on valuation of financial liabilities, net ( 2,478 ) ( 738 )
Loss on disposal of property, plant and equipment, net 4,250 43
Gain on disposal of investments ( 6,057 ) ( 155 )
Impaiment loss 5,933 3,369
Provision for loss on inventory obsolescence and market price
decline 102,032 51,339
Foreign exchange (gain) loss on restricted current assets ( 192 ) 2,629
Loss on compensation for damage 355,822 -
Foreign exchange loss (gain) on long-term loans 3,033 ( 33,105 )
Changes in assets and liabilities
Financial assets at fair value through profit or loss ( 125,199 ) ( 30,475 )
Accounts receivable 21,321 ( 24,091 )
Other receivables ( 66,093 ) ( 2,843 )
Inventories ( 388,105 ) ( 660,485 )
Prepaid expenses ( 12,865 ) ( 5,810 )
Prepayments ( 96,121 ) ( 42,119 )
Deferred income tax assets ( 175,282 ) 14,400
Accounts payable 161,122 ( 64,604 )
Income tax payable ( 15,578 ) 10,656
Accrued expenses ( 21,887 ) 105,635
Other payables ( 21,446 ) ( 39,684 )
Receipts in advance 37,799 3,910
Accrued warranty liabilities 67,704 ( 4,247 )
Accrued pension liabilities ( 2,557 ) 11,741
Other current liabilities - other 3,556 ( 2,465 )
Net cash used in operating activities ( 1,573,486 ) ( 560,749 )
(Continued)
MICROELECTRONICS TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31 (Expressed in thousands of New Taiwan dollars, except as otherwise indicated)
2011 2010
The accompanying notes are an integral part of these consolidated financial statements.
~19~
CASH FLOWS FROM INVESTING ACTIVITIES Decrease in financial assets carried at cost $ 3,047 $ 84,429 Acquisition of property, plant and equipment ( 378,666 ) ( 244,886 ) Proceeds from disposal of property, plant and equipment 63 3,532 Acquisition of intangible assets - ( 218,496 ) Increase in deferred charges ( 76,052 ) ( 47,722 ) Increase in refundable deposits ( 3,623 ) ( 319 ) Net assets received from acquisition of TelASIC - ( 68,781 ) Net assets received from acquisition of RadioComp ApS - ( 142,647 ) Net cash used in investing activities ( 455,231 ) ( 634,890 )
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from short-term loans 790,778 296,004 Proceeds from long-term loans 785,898 527,200 Repayment of long-term loans - ( 75,000 ) Decrease in capital lease payables - non-current ( 2,094 ) ( 349 ) (Decrease) increase in guarantee deposits received ( 250 ) 451 Purchase of minority interest ( 61,698 ) ( 10,499 ) Proceeds from exercise of employee stock options 1,159 - Payment of cash dividends - subsidiaries - ( 2,003 ) Net cash provided by financing activities 1,513,793 735,804 Effect of change in exchange rates 46,544 ( 121,791 )Effect of initial consolidation of a subsidiary - 11,232 Decrease in cash and cash equivalents ( 468,380 ) ( 570,394 )Cash and cash equivalents at beginning of year 2,320,653 2,891,047 Cash and cash equivalents at end of year $ 1,852,273 $ 2,320,653
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION: Interest paid $ 36,308 $ 20,133 Income tax paid $ 20,986 $ 13,345
Cash paid for the acquisition of assets of TelASIC: Property, plant and equipment-TelASIC $ - $ 17,615 Goodwill-TelASIC - 86,723 Other intangible assets-TelASIC - 186,399 Less: Cash paid at the last year-TelASIC - ( 221,956 ) Net cash paid-TelASIC $ - $ 68,781
Cash paid for the acquisition of assets of RadioComp ApS: Accounts receivable-RadioComp ApS $ - $ 19,799 Inventories-RadioComp ApS - 13,680 Other current assets-RadioComp ApS - 1,791 Property, plant and equipment-RadioComp ApS - 10,214 Other assets-RadioComp ApS - 633 Goodwill-RadioComp ApS - 153,879 Accounts payable-RadioComp ApS - ( 13,773 ) Accrued expenses-RadioComp ApS - ( 37,826 ) Other liabilities-RadioComp ApS - ( 5,750 ) Net cash paid-RadioComp ApS $ - $ 142,647
INVESTING ACTIVITIES PARTIALLY PAID BY CASH: Increase in property, plant and equipment $ 323,837 $ 296,168 Less: Payable for equipment at the end of the year ( 24,832 ) ( 79,661 ) Add: Payable for equipment at the beginning of the year 79,661 28,379 Net cash paid $ 378,666 $ 244,886
~20~
MICROELECTRONICS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
(expressed in thousands of New Taiwan dollars, except as otherwise indicated)
HISTORY AND ORGANIZATION
(1) The Company was approved under the "Statute for the Establishment and Administration of
Science-Based Industrial Park" in September 1982 and was incorporated on March 31, 1983 under
the Company Law of the Republic of China (R.O.C.). The Company commenced its operations on
April 29, 1983.
The Company is mainly engaged in the design and manufacture of wireless communication
products and standard products, including microwave products, digital microwave radio
transceivers and systems, VSAT, TVRO/DBS products and microwave components. The Company
also manufactures custom designed products suited to the specific requirements of its customers'
various microwave systems.
On January 1, 2011, the Company merged with subsidiary – Global PCS Inc.. The Company
became the surviving company and Global PCS Inc. became the dissolved company.
As of December 31, 2011, the Company and its subsidiaries had 2,436 employees.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of the Company and its subsidiaries (together referred herein
as the Group) are prepared in accordance with the “Rules Governing the Preparation of Financial
Statements by Securities Issuers” and accounting principles generally accepted in the Republic of
China. The Group’s accounting policies are summarized below:
(1) Principles of consolidation
A. All majority-owned subsidiaries and controlled entities are included in the consolidated
financial statements. The Group prepares quarterly consolidated financial statements which
include the subsidiaries in which the Company owns more than 50% of voting rights or has
effective control. All significant intercompany accounts and transactions are eliminated in the
consolidated financial statements.
~21~
B. Subsidiaries included in the consolidated financial statements and their changes in 2011 and
2010:
Primary
Investor Company name business 2011 2010 Note
Microelectronics Sasson International Note 1 100% 100%
Technology, Inc. Holdings Inc.
" Global PCS Inc. Note 2 - 90.43% Note 5(1)
" Millennium Telecom, Inc. Note 1 - 99.99% Note 5(2)
Sasson International Welltop Technology Notes 1 and 3 100% 100%
Holdings Inc. Co., Ltd.
" Jupiter Network Corp. Note 1 100% 100%
Corp. (Jupiter)
Welltop Technology
Co. , Ltd
MTI Laboratory, Inc. Note 3 100% 100%
" MTI Network, Inc. Note 2 100% 100% Note 6
" RadioComp ApS Note 2 100% 100% Note 7
Jupiter Network Jupiter Technology Note 3 100% 100%
Corp. (Jupiter) (Wuxi) Inc.
Sasson International Greast Communication Note 4 81.94% 81.94%
Technology Co., Ltd.
Percentage of
direct
ownership
Note 1: Investment planning and consulting.
Note 2: Manufacture of advanced personal communication products and wireless access products.
Note 3: Satellite and microwave communication and consulting services.
Note 4: Research, development, design, production, manufacturing and sales of WCDMA technique
and radio frequency sub-system.
Note 5: Excluded as consolidated entities:
(1) Global PCS Inc. was merged with the Company on January 1, 2011 (effective date of
merger). Global PCS Inc. was the dissolved company.
(2) Millennium Telecom, Inc. had registered for dissolution in January, 2011 and obtained
the liquidation completion certificate from the district court in July, 2011.
Note 6: MTI Network, Inc. was incorporated in the third quarter of 2010.
Note 7: 100% holding interest was acquired in the fourth quarter of 2010.
C. Subsidiaries not included in the consolidated financial statements: None.
D. Adjustments for subsidiaries with different balance sheet dates: None.
E. Special operating risks in foreign subsidiaries: None.
F. Nature and extent of the restrictions on fund remittance from subsidiaries to the parent
company: None.
G. Contents of subsidiaries' securities issued by the parent company: None.
~22~
H. Information on convertible bonds and common stock issued by subsidiaries:
Sasson International Holdings Inc. increased its cash capital by issuing new common stock
amounting to US$4,702 thousand in 2010. MTI Network, Inc. was incorporated by issuing new
common stock amounting to US$100 thousand in the third quarter of 2010.
(2) Translation of financial statements of foreign subsidiaries into New Taiwan dollars
Assets and liabilities of foreign subsidiaries are translated into New Taiwan dollars at the exchange
rates prevailing at the balance sheet date; equity accounts are translated at historical rates, except for
beginning retained earnings which is transferred from prior years’s ending retained earnings; and
income and expense accounts are translated into New Taiwan dollars at the average rates of
exchange prevailing during the year. Translation adjustments are taken directly to a separate
component of stockholders’ equity, “cumulative translation adjustment.”
(3) Translation of foreign currency transactions
A.Transactions denominated in foreign currencies are translated into functional currency at the spot
exchange rates prevailing at the transaction dates.
B.Monetary assets and liabilities denominated in foreign currencies are translated at the exchange
rates prevailing at the balance sheet date. Exchange gains or losses are recognized in profit or
loss.
(4) Classification of current and non-current items
A.Assets that meet one of the following criteria are classified as current assets; otherwise they are
classified as non-current assets:
(a)Assets arising from operating activities that are expected to be realized or consumed, or are
intended to be sold within the normal operating cycle;
(b)Assets held mainly for trading purposes;
(c)Assets that are expected to be realized within twelve months from the balance sheet date;
(d)Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to
be exchanged or used to pay off liabilities more than twelve months after the balance sheet
date.
B.Liabilities that meet one of the following criteria are classified as current liabilities; otherwise
they are classified as non-current liabilities:
(a)Liabilities arising from operating activities that are expected to be paid off within the normal
operating cycle;
(b)Liabilities arising mainly from trading activities;
(c)Liabilities that are to be paid off within twelve months from the balance sheet date;
(d)Liabilities for which the repayment date cannot be extended unconditionally to more than
twelve months after the balance sheet date.
~23~
(5) Financial assets and financial liabilities at fair value through profit or loss
A.Financial assets and financial liabilities at fair value through profit or loss are initially recognized
at fair value. Those in the form of equity securities are accounted for using the trade date
accounting, while those in the form of debt securities, beneficiary certificates, and derivative
instruments are accounted for using settlement date accounting.
B.These financial instruments are subsequently remeasured and stated at fair value, and the gain or
loss is recognized in profit or loss. The fair value of listed equity securities, closed-end funds and
beneficiary certificates are determined by the closing prices at the balance sheet date. The fair
value of open-end funds is determined by the net asset value at the balance sheet date.
C.When a derivative is an ineffective hedging instrument, it is initially recognized at fair value on
the date a derivative contract is entered into and is subsequently remeasured at its fair value. If a
derivative is a non-option derivative, the fair value initially recognized is zero.
(6) Financial assets carried at cost
A.Financial assets carried at cost are initially recognized at fair value plus transaction costs and are
accounted for using trade date accounting.
B.Impairment loss is recognized when there is objective evidence that the assets are impaired.
Reversal of the foregoing impairment loss is not allowed.
(7) Notes, accounts and other receivables
A.Notes and accounts receivable are claims resulting from the sale of goods or services.
Receivables arising from transactions other than the sale of goods or services are classified as
other receivables. Notes, accounts and other receivables are recognized initially at fair value and
subsequently measured at amortized cost using the effective interest method, less provision for
impairment.
B.The Company assesses at each balance sheet date whether there is any objective evidence that a
financial asset or a group of financial assets is impaired. If such evidence exists, a provision for
impairment of financial asset is recognized. The amount of impairment loss is determined based
on the difference between the asset’s carrying amount and the present value of estimated future
cash flows, discounted at the original effective interest rate. When the fair value of the asset
subsequently increases and the increase can be objectively related to an event occurring after the
impairment loss was recognized in profit or loss, the impairment loss shall be reversed to the
extent of the loss previously recognized in profit or loss. Such recovery of impairment loss shall
not result to the asset’s carrying amount greater than its amortized cost where no impairment loss
was recognized. Subsequent recoveries of amounts previously written off are recognized in
profit or loss.
~24~
(8) Inventories
The perpetual inventory system is adopted for inventory recognition. Inventories are stated at cost.
The cost is determined using the weighted-average method. Fixed manufacturing overhead is
allocated on the basis of the normal capacity of the production equipment. At the end of period,
inventories are evaluated at the lower of cost or net realizable value, and the individual item
approach is used in the comparison of cost and net realizable value. The calculation of net realizable
value is based on the estimated selling price in the normal course of business, net of estimated costs
of completion and estimated selling expenses.
(9) Property, plant and equipment
A.Property, plant and equipment are stated at cost. Depreciation is provided under the straight-line
method based on the assets’ estimated economic service lives. Salvage value of the fully
depreciated assets that are still in use is depreciated based on the re-estimated economic service
lives.
B.The estimated useful lives are 40 years for buildings and improvements and 3 to 8 years for other
fixed assets.
C.Major improvements and renewals are capitalized and depreciated accordingly. Maintenance and
repairs are expensed as incurred.
(10) Intangible assets
A.The excess of acquisition costs over the fair value of identifiable net tangible assets is
recognized as goodwill and is reviewed for impairment testing annually.
B.Intangible assets, mainly technology know-how, are amortized on a straight-line basis over 5
years.
(11) Deferred charges
Deferred charges, mainly land-use right and computer software expenditures, are stated at cost
and amortized over the estimated life of 50 and 3 years, respectively, using the straight-line
method.
(12) Impairment of non-financial assets
The Group recognizes impairment loss when there is indication that the recoverable amount of
an asset is less than its carrying amount. The recoverable amount is the higher of the fair value
less costs to sell and value in use. The fair value less costs to sell is the amount obtainable from
the sale of the asset in an arm’s length transaction after deducting any direct incremental
disposal costs. The value in use is the present value of estimated future cash flows to be derived
from continuing use of the asset and from its disposal at the end of its useful life. When the
impairment no longer exists, the impairment loss recognized in prior years shall be recovered.
~25~
(13) Reserve for product warranty
Under the warranty provisions of its sales contracts, the Group is obligated to correct any
deficiencies in its products that occur under normal operation within a certain period after the
date of sale. The Group provides a reserve for product warranty based on a certain percentage
of the sales value of each product line, taking into account historical experience.
(14) Retirement plan and net periodic pension cost
Under the defined benefit pension plan, net periodic pension costs are recognized in accordance
with the actuarial calculations. Net periodic pension costs include service cost, interest cost,
expected return on plan assets, and amortization of unrecognized net transition obligation and
gains or losses on plan assets. Unrecognized net transition obligation is amortized on a
straight-line basis over 12 years.
Under the defined contribution pension plan, net periodic pension costs are recognized as
incurred.
(15) Income tax
A.Provision for income tax includes deferred income tax resulting from temporary differences,
investment tax credits and loss carryforward. Valuation allowance on deferred tax assets is
provided to the extent that it is more likely than not that the tax benefit will not be realized.
Over or under provision of prior years’ income tax liabilities is included in current year’s
income tax. When a change in the tax laws is enacted, the deferred tax liability or asset is
recomputed accordingly in the period of change. The difference between the new amount and
the original amount, that is, the effect of changes in the deferred tax liability or asset, is
recognized as an adjustment to current income tax expense (benefit).
B.Investment tax credits arising from expenditures incurred on acquisitions of equipment or
technology, research and development, employees’ training, and equity investments are
recognized in the year the related expenditures are incurred.
C.An additional 10% tax is levied on the unappropriated retained earnings and is recorded as
income tax expense in the year the stockholders resolve to retain the earnings.
(16) Share-based payment - employee compensation plan
A.The employee stock options granted from January 1, 2004 through December 31, 2007 are
accounted for in accordance with EITF 92-070, EITF 92-071 and EITF 92-072 “Accounting
for Employee Stock Options”, as prescribed by the Accounting Research and
Development Foundation, R.O.C., dated March 17, 2003. Under the share-based employee
compensation plan, compensation cost is recognized using the intrinsic value method and pro
forma disclosures of net income and earnings per share are prepared in accordance with the
R.O.C. SFAS No. 39, “Accounting for Share-based Payment”.
~26~
B.For the grant date of the share-based payment agreements set on or after January 1, 2008, the
Company shall measure the services received during the vesting period by reference to the fair
value of the equity instruments granted and account for those amounts as payroll expense during
that period.
(17) Employees’ bonuses and directors’ and supervisors’ remuneration
Effective January 1, 2008, pursuant to EITF 96-052 of the Accounting Research and
Development Foundation, R.O.C., dated March 16, 2007, “Accounting for Employees’
Bonuses and Directors’ and Supervisors’ Remuneration”, the costs of employees’ bonuses and
directors’ and supervisors’ remuneration are accounted for as expenses and liabilities, provided
that such recognition is required under legal or constructive obligation and those amounts can
be estimated reasonably. However, if the accrued amounts for employees’ bonuses and
directors’ and supervisors’ remuneration are significantly different from the actual distributed
amounts resolved by the stockholders at their annual stockholders’ meeting subsequently, the
differences shall be recognized as gain or loss in the following year. In addition, according
to EITF 97-127 of the Accounting Research and Development Foundation, R.O.C., dated
March 31, 2008, “Criteria for Listed Companies in Calculating the Number of Shares
of Employees’ Stock Bonus”, the Company calculates the number of shares of employees’
stock bonus based on the closing price of the Company’s common stock at the previous day of
the stockholders’ meeting held in the year following the financial reporting year, and after
taking into account the effects of ex-rights and ex-dividends.
(18) Revenues, costs and expenses
A. Revenues are recognized when the earning process is substantially completed and are
realized or realizable. Costs and expenses are recognized as incurred.
B. The Company sells raw materials to certain factories for processing. Most of the finished
goods are then repurchased by the Company directly from the subsidiary and sold to customers.
Although the ownership of raw materials is transferred during the sale, the risk is not
transferred in substance. Pursuant to the ruling letter Tai Tsai Sheng 6 No. 00747 issued by the
Securities and Futures Bureau of the Financial Supervisory Commission, Executive Yuan on
March 18, 1998, such transactions shall not be recorded as sales and purchases. Accordingly,
raw materials sold to processing factories that are not yet processed at year-end are reclassified
back to inventories from accounts receivable.
(19) Capital expenditures
Costs and expenditures that have future economic benefits are capitalized as assets. Otherwise
they are expensed when incurred.
(20) Use of estimates
The preparation of financial statements in conformity with generally accepted accounting
~27~
principles requires management to make estimates and assumptions that affect the amounts of
assets and liabilities and the disclosures of contingent assets and liabilities at the date of the
financial statements and the amounts of revenues and expenses during the reporting period.
Actual results could differ from those assumptions and estimates.
(21) Settlement date accounting
If an entity recognizes financial assets using settlement date accounting, any change in the fair
value of the asset to be received during the period between the trade date and the settlement
date/balance sheet date is not recognized for assets carried at cost or amortized cost. For
financial assets or financial liabilities classified as at fair value through profit or loss, the
change in fair value is recognized in profit or loss. For available-for-sale financial assets, the
change in fair value is recognized directly in equity.
(22) Operating segments
Operating segments are reported in a manner consistent with the internal reporting provided to
the chief operating decision-maker. The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating segments, has been identified
as the general manager who makes strategic decisions.
In accordance with R.O.C. SFAS No. 41, “Operating Segments”, segment information is
disclosed in the consolidated financial statements rather than in the separate financial
statements of the Company.
3. CHANGE IN ACCOUNTING PRINCIPLE
(1) Notes, accounts and other receivables
Effective January 1, 2011, the Group adopted the amendments to R.O.C. SFAS No. 34,
“Financial Instruments: Recognition and Measurement”. A provision for impairment (bad
debts) of notes, accounts and other receivables is recognized when there is objective evidence
that the receivables are impaired. This change in accounting principle had no significant
effect on the Group’s financial statements as of and for the year ended December 31, 2011.
(2) Operating segments
Effective January 1, 2011, the Group adopted the newly issued R.O.C. SFAS No. 41, “Operating
Segments” in place of the original R.O.C. SFAS No. 20, “Segment Reporting”. In accordance
with such standard, the Company restated the segment information for 2010 upon the first adoption
of R.O.C. SFAS No. 41. This change in accounting principle had no significant effect on net loss
and loss per share for the years ended December 31, 2011 and 2010.
~28~
4. DETAILS OF SIGNIFICANT ACCOUNTS
(1) Cash and cash equivalents
2011 2010
Cash on hand 590$ 739$
Checking accounts 727 41,000
Savings accounts 453,161 840,030
Time deposits 1,397,795 1,438,884
1,852,273$ 2,320,653$
December 31,
(2) Financial assets at fair value through profit or loss - current
2011 2010
Financial assets held for trading-beneficiary certificates 213,175$ 64,417$
Fair value adjustment 15,130)( 3,151
198,045 67,568
Fair value adjustment-financial derivatives 5,698 11,163
203,743$ 78,731$
December 31,
A. In 2011 and 2010, loss recognized for the changes in fair values of the financial assets at fair
value through profit or loss were $11,468 (which consists of loss on valuation of beneficiary
certificates of $7,551 and loss on valuation of financial derivatives of $3,917) and $3,194
(which consists of loss on valuation of beneficiary certificates of $2,717 and gain on valuation
of financial derivatives of $5,911), respectively.
B. The nature and contractual terms of derivatives are as follows:
Contract Amount Fair Value Contract Period
Forward exchange contracts USD 10,000 thousand 2,320$ 2011.10.27~2012.05.10
(Buy USD sell NTD)
Forward exchange contracts EUR 2,050 thousand 3,378 2011.10.05~2012.04.12
(Sell EUR buy USD) -
5,698$
December 31, 2011
~29~
Contract Amount Fair value Contract Period
Forward exchange contracts USD 4,000 thousand 1,820$ 2010.11.26~2011.01.27
(Sell USD buy NTD)
Forward exchange contracts EUR 3,920 thousand 4,379 2010.10.08~2011.02.24
(Sell EUR buy USD)
Option contracts USD 5,000 thousand 4,964 2010.12.07~2011.02.08
(Sell USD buy NTD) -
11,163$
December 31, 2010
The purpose of the forward exchange contracts and option contracts is to hedge the change of
exchange rate due to accounts receivable, without adopting hedge accounting.
(3) Notes and accounts receivable, net
2011 2010
Notes receivable 1,441$ 880$
Accounts receivable 1,652,765 1,633,119
1,654,206 1,633,999
Allowance for doubtful accounts 3,282)( 7,020)(
1,650,924$ 1,626,979$
December 31,
On September 28 and October 1, 2011, the Company entered into an agreement with HSBC Bank
(Taiwan) and Taishin International Bank, respectively, to sell its accounts receivable. Under the
agreements, the Company is not required to bear uncollectible risk of the underlying accounts
receivable, but is liable for the losses incurred on any business dispute; the two banks should pay
the Company consideration in the specified periods; the Company should issue a promissory note
with par value of US$4,000 thousand to Taishin International Bank, and Taishin International Bank
may request damages by cashing the promissory note when, and only when, the business dispute is
attributed to the Company. These accounts receivable meet the derecognition criteria for financial
assets. The Company has derecognized the accounts receivable sold to HSBC Bank (Taiwan) and
Taishin International Bank, net of the losses estimated for possible business disputes.
As of December 31, 2011, the outstanding accounts receivable sold to HSBC Bank (Taiwan) and
Taishin International Bank were as follows:
Purchaser of Accounts Amount Amount
accounts receivable receivable sold derecognized Limit advanced Interest rate
HSBC Bank (Taiwan) 54,933$ 54,933$ 127,155$ 16,344$ 1.05%
Taishin International Bank 152,566 152,566 151,375 110,196 1.62%
207,499$ 207,499$ 278,530$ 126,540$
December 31, 2011
~30~
(4) Inventories, net
Cost Allowance Book value
Raw materials 1,149,911$ 126,559)($ 1,023,352$
Work in process 437,635 7,434)( 430,201
Finished goods 667,077 100,728)( 566,349
Inventory in transit 496 - 496
Total 2,255,119$ 234,721)($ 2,020,398$
Cost Allowance Book value
Raw materials 820,053$ 141,270)($ 678,783$
Work in process 345,043 8,141)( 336,902
Finished goods 726,062 49,223)( 676,839
Inventory in transit 4,054 - 4,054
Total 1,895,212$ 198,634)($ 1,696,578$
December 31, 2011
December 31, 2010
Expense and loss incurred on inventories for the years ended December 31, 2011 and 2010 were as
follows:
2011 2010
Cost of inventories sold 6,165,693$ 6,734,051$
Provision for loss on inventory obsolescence
and market price decline 102,032 51,339
Others 21,399)( 7,968
Related inventory loss 135,477 23,369
6,381,803$ 6,816,727$
For the years ended December 31,
The Company detected some potential risk in a certain model of base station power amplifiers. For
the future application of this product and a responsible attitude toward customers, the Company
recalled those amplifiers and made the necessary repairs. As a result of the product defects and
repair costs, the Company accrued the financial effects of this event as follows:
For the years ended December 31, 2011
Provision for loss on inventory obsolescence 32,509$
and market price decline
Repair and maintenance costs 65,823
Other losses (Note) 355,822
454,154$
Note: For other losses mentioned above, $210,634 is payable within one year and recognized under
“other payables”, and $136,938 is payable after one year and recognized under “long-term
payables”.
~31~
(5) Financial assets carried at cost
Ownership
percentage Amount
Ownership
percentage Amount
East Asia Network Taiwan Inc. (EANT) Note -$ Note -$
Taicom Capital Inc. 11.43% 234,940 11.43% 231,881
Optical Scientific Inc. 7.94% 60,280 7.94% 60,172
Firetide Inc. 1.67% 30,275 1.67% 29,130
Intelligent Epitaxy Technology, Inc. 1.92% 18,165 2.41% 17,478
Taiwan Aerospace Corp. 0.48% 11,138 0.48% 11,203
NAVII-LP - - 5.16% 756
Transcom Inc. 0.80% 866 0.80% 866
355,664$ 351,486$
December 31,
2011 2010
A. Impairment loss of $3,369 was recognized on the shares of the investee – Optical Scientific Inc.,
which were carried at cost, for the year ended December 31, 2010.
B. Impairment loss of $5,933 was recognized on the shares of the investee – Taicom Capital Ltd.,
which were carried at cost, for the year ended December 31, 2011.
C. The funds of NAVF II-GP and NAVF II-LP held by the Company had matured on June 26, 2011,
and underwent fund liquidation and dissolution procedures. The Company received liquidation
cash distribution amounting to US$220 thousand, and recognized gain on disposal of such
investments amounting to $6,057.
D. All shares of Intelligent Epitaxy Technology Inc., Bayspec Inc. and some shares of Taicom
Capital Ltd. are preferred stocks.
E. The above financial assets are not traded in active markets and their fair values cannot be reliably
measured.
Note : The investment in EANT represents all of the Class 1 preferred shares issued by EANT.
According to EANT’s Articles of Incorporation, other than the fixed annual dividends
(29% of the par value of the preferred shares), the preferred shareholders are not entitled to
the distribution of earnings for common stockholders. No dividends are paid in the years
when the company has no earnings. The dividends in arrears are paid in subsequent years
when the company has earnings. Preferred shareholders have no claim in respect to the
issuance of new shares by capitalization of additional paid-in capital or retained earnings.
Preferred and common shareholders have equal voting and election rights. The company
may at any time use earnings or proceeds from issuance of new shares to redeem preferred
shares at its par value following the resolution adopted during a common shareholders’
meeting. Starting 2006, the annual dividend rate of preferred shares was changed to 0%.
When the company is dissolved or liquidated, preferred and common shareholders have
~32~
equal right to the remaining assets, and the Board of Directors has the authority to decide
whether the dividends in arrears on preferred shares will be paid before distributing the
remaining assets. In addition, effective October 19, 2006 (deferred from January 19, 2006),
the Group has the right to ask East Asia Crossing Inc. (EACI), a shareholder of EANT, to
buy back all the preferred shares held by the Group at the original cost plus the dividends
outstanding. EACI decided to dispose the shares of EANT and started to search for
possible buyers. EACI subsequently entered into an agreement with Connect Holdings
Limited (CHL) to sell the shares of EANT to CHL or a specified third party and to transfer
the associated rights and obligations to CHL. On October 16, 2006, upon the request of the
Group in order to protect its interests, Asia Netcom Corporation Limited (ANC), the
holding company of EACI, issued a written commitment that in the event the regulatory
restriction on the equity investments held by foreign investors is not removed and the
Group cannot exercise its right to sell the preferred shares to CHL, ANC agrees to grant a
zero-interest loan in five installments totaling US$9,700 thousand to the Group during the
period from 2006 to 2010 based on the joint venture agreement. The Group shall pledge
the preferred shares in EANT as the collateral for the loan. (See Note 6 for details.) The
first installment of the loan in the amount of US$9,700 thousand was granted to the Group.
Such preferred stocks have been properly classified in the consolidated financial
statements in accordance with the R.O.C. SFAS No. 34, “Financial Instruments:
Recognition and Measurement” since January 1, 2008. Certain accounts in the 2008
consolidated financial statements have also been reclassified following the ARDF 98-072
of the R.O.C. Accounting Research and Development Foundation, dated February 27, 2009.
The Group sold the preferred shares in the fourth quarter of 2010.
(6) Property, plant and equipment, net
2011 2010
Buildings 793,634$ 787,971$
Machinery and equipment 2,264,836 2,062,305
Transportation equipment 3,662 2,740
Furniture and fixutures 124,899 77,893
Leasehold improvements 138,381 130,065
3,325,412 3,060,974
Accumulated depreciation 2,183,350)( 1,998,585)(
Prepayments for equipment and
construction in progress 158,131 83,908
1,300,193$ 1,146,297$
December 31,
Property, plant and equipment were pledged as security for long-term loans. Please refer Note 6 for
details.
~33~
(7) Intangible assets
2011 2010
Cost:
Goodwill - from consolidated $ 128,170 $ 98,578
Goodwill - TelASIC and RadioCorp 245,571 240,602
Other intangible assets 404,895 404,895
778,636 744,075
Accumulated amortization ( 147,754) ( 66,775)
630,882$ 677,300$
December 31,
A.To enhance international competitiveness and global market share of broadband wireless products,
the Company acquired jointly with its overseas subsidiary - MTI Laboratory Inc. (MTI-Lab.) the
tangible, intangible assets and R&D team of TelASIC Communications Inc. (U.S.) (TelASIC) on
May 22, 2009. Under the agreement, the Company shall pay a contingent price to TelASIC
during the period from the contract date through March 31, 2011, whenever its new business
volume reaches a certain amount. When it can be reasonably assured that such contingent event
will probably happen and the amount of contingent price can be reasonably estimated, the
contingent price should be included in the acquisition cost. As of December 31, 2011, total
acquisition cost (inclusive of MTI-Lab.) was US$8,633 thousand, comprising of intangible assets
(expertise of US$5,480 thousand) and tangible assets (fixed assets of US$518 thousand MTI’s
portion) and goodwill of US$2,635 thousand that was the excess of the acquisition cost over the
acquired net asset value.
B.To improve the Company’s operating performance and pursue its maximum long-term benefits,
the Company acquired the intellectual property rights from RadioComp ApS in October, 2010 in
the amount of US$6,828 thousand, and acquired indirectly 100% share ownership of RadioComp
Aps amounting to $4,702 thousand through its overseas subsidiary-Welltop Technology Co., Ltd.
with the acquisition cost of US$5,645 thousand (including the part of its subsidiary). The excess
of the acquisition cost over the acquired net asset value of RadioComp ApS amounting to
US$5,282 thousand (including the part of its subsidiary) was recognized as goodwill.
C. To effectively integrate the Group’s resources, reduce administrative costs and increase
profitability, the Board of Directors of the Company adopted a resolution on November 26, 2010
to merge with the subsidiary – Global PCS Inc. in accordance with Article 19 of Business
Mergers And Acquisitions Act, “Simple merger”. The acquisition cost of the minority shares of
Global PCS Inc. was $61,698. The excess of the acquisition cost over the acquired net asset
value of Global PCS Inc., amounting to $29,450, was recognized as goodwill. After the merger,
the Company became the surviving company and Global PCS Inc. became the dissolved
company. The merger effective date was January 1, 2011.
~34~
D. Goodwill impairment test was conducted in accordance with the R.O.C. SFAS No. 35,
“Impairment of Assets”. On December 31, 2011 and 2010, the Company evaluated the
recoverable amount of assets used for operations and goodwill based on their value in use. The
value in use is the present value of estimated future cash flows to be derived from continuing use
of the asset and goodwill and from their disposal at the end of their useful life, which is based on
the five-year financial forecast with the discount rate of 5.30% and 19.80%, respectively. The
following sets forth the methods and assumptions used to estimate the recoverable amount of
assets and goodwill:
(a)Estimated operating revenue: it is calculated based on industrial and market information and
the Company’s future operations and sales planning.
(b)Estimated operating cost: it is calculated based on the estimated gross profit margin, which is
derived from prior years’ operating costs and the Company’s future operations and sales
planning.
(c)Estimated operating expense: it is calculated based on prior years’ operating expenses and the
Company’s future operations and sales planning.
The recoverable amount calculated based on the foregoing assumptions is higher than the sum of
carrying value of identifiable assets and goodwill on December 31, 2011. Therefore, no
impairment loss was recognized.
(8) Short-term loans
2011 2010
Materials, L/C loans 886,030$ 960,139$
Credit loans 390,000 -
Pre-export loans 342,895 110,694
Operating loans 498,815 217,105
2,117,740$ 1,287,938$
Interest rate per annum 1.47%~3.75% 0.81%~2.44%
December 31,
(9) Financial liabilities at fair value through profit or loss – current
2011 2010
Fair value adjustment-financial derivatives -$ 2,478$
December 31,
A. In 2011 and 2010, gain recognized for the changes in the fair values of the financial liabilities at
fair value through profit were $2,478 and $738, respectively.
~35~
B. The nature and contractual terms of derivatives are as follows:
Contract amount Fair value Contract period
Forward exchange contracts EUR 1,800 thousand 766$ 2010.11.17~2011.02.17
(Sell EUR buy USD)
Forward exchange contracts USD 4,000 thousand
(Sell USD buy NTD) 1,712 2010.12.28~2011.03.17
2,478$
December 31, 2010
The purpose of the forward exchange contracts is to hedge the change of exchange rate due to
export, without adopting hedge accounting.
(10) Accrued expenses
2011 2010
Accrued payroll and bonus 130,538$ 130,548$
Accrued human resource outsourcing expense 56,724 39,683
Other miscellaneous purchases payable 82,071 82,263
Accrued shipment fees 30,927 25,110
Processing overheads payable - 17,641
Others 172,718 194,874
472,978$ 490,119$
December 31,
(11) Long-term loans
Interest rate
Bank name and type of loan and repayment term 2011 2010
Mega International
Commerical Bank
Syndicated loan Floating rate-equal annual 500,000$ -$
installments up to August
2017
" Floating rate-equal annual 486,459 334,995
installments ending April 2013
HSBC Bank (Taiwan)
Limited
Project loan Floating rate-equal semiannual
installments ending June 2015 302,750 145,650
1,289,209 480,645
Current portion 479,053)( -
810,156$ 480,645$
Interest rate per annum 1.35%~2.50% 1.17%~1.37%
December 31,
~36~
A.The syndicated loan led by Mega International Commercial Bank was obtained to finance
working capital. Under the terms of the loan agreement, the Company is required to maintain
certain annual consolidated financial ratios, including current ratio, liability ratio, and interest
coverage ratio.
B. Please refer to Note 6 for guarantees provided for long-term loans.
(12) Common stock
A. Pursuant to the resolution adopted at the special shareholders' meeting held on December 11,
1993, and after obtaining approval from the SFC, the Company issued 2,600,000 units of
global depositary receipts (GDRs) in Europe, Asia and USA, representing 13,000,000 shares of
common stock (Deposited Shares). Total amount received by the Company in relation to these
GDRs on May 24, 1994 was $837,333. The main terms and conditions of the GDRs are as
follows:
(a) Voting
Holders of GDRs have no right to directly exercise voting rights or attend the Company's
shareholders' meeting. A holder or holders together holding at least 51% of the GDRs
outstanding at the relevant record date of the shareholders' meeting may instruct the
Depositary to vote in the same direction in respect of one or more resolutions to be proposed
at the meeting.
(b) Sale and withdrawal of GDRs
Under the current R.O.C. law, the shares represented by the GDRs may not be withdrawn by
holders of GDRs commencing three months after the initial issue of GDRs. A holder of
GDR may, provided that the Company has delivered to the custodian physical share
certificates in respect of the Deposited Shares, request the Depositary to sell or cause to be
sold on behalf of such holder the shares represented by such GDRs.
(c)Dividends
GDR holders are entitled to receive dividends to the same extent as the holders of common
stock subject to the terms of the Deposit Agreement and applicable laws of the R.O.C.
(d) As of December 31, 2010, the Company had 18,335 units of GDRs outstanding.
B. In 2011, the Company issued 69,000 shares of new common stock at $16.8 (in dollars) per
share, due to the exercise of employee stock options of 69,000 units. The effective date of the
capital increase was March 16, 2011. The capital increase had been registered.
C. As of December 31, 2011, the Company's authorized share capital was 700 million common
shares (of which 50 million shares are reserved for corporate bonds with subscription right,
stock warrants and special shares with subscription right issued) with a par value of NT$10 (in
dollars) per share. As of December 31, 2011, the total issued and outstanding common shares
were 412,968 thousand shares.
~37~
(13) Capital reserves
Pursuant to the R.O.C Securities and Exchange Law, capital reserve shall be exclusively used to
cover accumulated deficit or to increase capital and shall not be used for any other purpose.
However, capital reserve arising from paid-in capital in excess of par value on issuance of
common stock and donations can be capitalized once a year, provided that the Company has no
accumulated deficit and the amount to be capitalized does not exceed 10% of the paid-in capital.
(14) Retained earnings
A.The R.O.C. Company Law requires that at least 10% of the net income each year, less losses
of prior years, shall be set aside as legal reserve until the accumulated reserve equals the total
registered capital of the Company and can be used to offset against accumulated deficit.
B.In accordance with the R.O.C. Securities and Exchange Act, the Company allocates a certain
portion of earnings as special reserve and shown as deduction in stockholders’ equity.
C.Except for covering accumulated deficit or issuing new stocks or cash to shareholders in
proportion to their share ownership, the legal reserve shall not be used for any other purpose.
The use of legal reserve for the issuance of stocks or cash to shareholders in proportion to their
share ownership is permitted, provided that the balance of the reserve exceeds 25% of the
Company’s paid-in capital.
D.In accordance with the Company's Articles of Incorporation, 1% and no less than 7% of net
income, after deducting legal reserve and special reserve, shall be distributed as directors' and
supervisors' remuneration and employees' bonus, respectively, at the time dividends are
declared.
E.As the Company operates in the stable growth stage, the residual dividend policy is adopted
taking into consideration the Company’s funding requirements, future capital expenditures and
long-term financial plans. According to the dividend policy adopted by the Board of Directors,
30% ~ 100% of the Company’s total dividends distributed shall be first appropriated as cash
dividends; the remaining will then be appropriated as stock dividends. The dividends
appropriation, including appropriation terms, timing, amount and types, is adjusted based on
economic and industrial developments and the Company’s profitability and shall be proposed by
the Board of Directors and resolved by the stockholders.
F.The proposal of making up for accumulated deficit of 2010 and 2009 was passed by the
stockholders at their stockholders’ meeting on June 9, 2011 and June 17, 2010, respectively.
There was no earnings distribution for 2010 and 2009.
The appropriation of 2010 and 2009 earnings stated above were in agreement with that proposed
by the Board of Directors on March 17, 2011 and March 18, 2010, respectively.
G.The Company did not accrue employees’ bonus and directors’ and supervisors’ remuneration
for 2011 and 2010 as it incurred losses in that year.
H.Information on the appropriation of the Company’s employees’ bonus and directors’ and
supervisors’ remuneration as resolved by the Board of Directors and approved by the
~38~
stockholders will be posted in the “Market Observation Post System” at the website of the
Taiwan Stock Exchange.
(15) Share-based payment-employee compensation plan
A.As of December 31, 2011, the Company's share-based payment transactions are set forth
below:
Type of
arrangement Grant date
Quantity
granted
(In thousands of
shares)
Contract
period
Vesting
conditions
Third Employee stock option 2007.12.26 17,800 8 years Note 1
Cash Settled-
Incentive Compensation 2010.10.01 5,000 5.25 years Note 2
Cash Settled-
Incentive Compensation 2010.12.31 700 5 years Note 3
Note 1: Professional: 25% can be exercised after 3 years of grant; 50% can be exercised after 4
years of grant; 75% can be exercised after 5 years of grant; 100% can be exercised after
6 years of grant.
Management: 25% can be exercised after 4 years of grant; 50% can be exercised after 5
years of grant; 75% can be exercised after 6 years of grant; 100% can be exercised after
7 years of grant.
Note 2: 25% can be exercised after 1 year of grant; 50% can be exercised after 2 years of grant;
75% can be exercised after 3 years of grant; 100% can be exercised after 4 years of
grant.
Note 3: 50% can be exercised after 1 year of grant; 100% can be exercised after 2 years of grant.
~39~
B.Details of the employee stock options are set forth below:
12.
No. of
shares
Weighted-
average
exercise price
No. of
shares
Weighted-
average
exercise price
(in thousands) (in dollars) (in thousands) (in dollars)
Options outstanding at
beginning of year
17,800 $ 16.80 17,800 $ 16.80
Options granted - - - -
Options waived - - - -
Options exercised ( 69) 16.80 - -
Options revoked - - - -
Options outstanding at
end of year 17,731 16.80 17,800 16.80
Options exercisable at
end of year 2,921 2,990
December 31, 2011 December 31, 2010
(a)As of December 31, 2011 and 2010, the exercise price of stock options outstanding was
$16.80 (in dollars), respectively, and the remaining contract period was 4 years and 5 years,
respectively.
(b)The following sets forth the pro forma net income and earnings per share based on the
assumption that the compensation cost is accounted for using the fair value method for the
stock options granted before the affectivity of R.O.C. SFAS No. 39 “Accounting for
Share-based Payment”:
2011 2010
Net loss Net loss stated
in the statement of income
1,775,885)($ 157,930)($
Pro forma net loss 1,803,896)( 195,280)(
Basic loss per
share (LPS) (in dollars)
LPS stated in the
statement of income
4.30)( 0.38)(
Pro forma LPS 4.37)( 0.47)(
Diluted loss per
share (LPS) (in dollars)
LPS stated in the
statement of income
4.30)( 0.38)(
Pro forma LPS 4.37)( 0.47)(
December 31,
(c)For the stock options granted before January 1, 2008 with the compensation cost
accounted for using the fair value method, their fair value on the grant date is estimated using
the Black-Scholes option-pricing model. The weighted-average parameters used in the
~40~
estimation of the fair value are as follows:
Exercise Expected Fair value
price Expected Expected dividend Risk-free per unit
Type of Grant (in price vesting yield interest (in
arrangement date dollars) volatility period rate rate dollars)
Employee
stock options
2007.12.26 18.45$ 49.51% 6.3 years 0% 2.44% 9.35$
Employee
stock options
2007.12.26 18.45$ 50.93% 6.8 years 0% 2.44% 9.87$
C.Details of the Incentive Compensation Agreement are set forth below:
No. of
shares
Weighted-average
exercise price
No. of
shares
Weighted-average
exercise price
(in thousands) (in dollars) (in dollars) (in dollars)
Options outstanding at
beginning of year
5,700 $ 16.76 - $ -
Options granted - - 5,700 16.76
Options waived - - - -
Options exercised - - - -
Options revoked - - - -
Options outstanding at
end of year 5,700 16.76 5,700 16.76
Options exercisable at
end of year - -
December 31, 2011 December 31, 2010
(a) As of December 31, 2011, the exercise price of stock options outstanding was $16.50~$16.8
(in dollars) and the weighted-average remaining vesting period was 4 years.
(b) Under the Company’s “Incentives Compensation Agreement”, the incentive rewards for the
employees are calculated based on the spread between the average closing price of the
Company’s common stock for the 30 successive Taiwan stock trading days before the
exercise date and the exercise price are paid by cash. Any active employee can receive the
incentive rewards on the vesting date. Their fair value on the grant date is estimated using
the Black-Scholes option-pricing model. The weighted-average parameters used in the
estimation of the fair value are as follows:
~41~
December 31, 2011
Exercise Expected Fair value
price Expected Expected Expected dividend Risk-free per unitType of Grant (in price (in price vesting yield interest (in
arrangement date dollars) dollars) volatility period rate rate dollars)
Incentive
Compensation
Agreement 2010.10.01 5.56$ 16.80$ 7.78% 2.59 0% 0.97% -$
Incentive
Compensation
Agreement 2010.12.31 5.56$ 16.50$ 7.05% 2.25 0% 0.93% -$
December 31, 2010
Exercise Expected Fair value
price Expected Expected Expected dividend Risk-free per unitType of Grant (in price (in price vesting yield interest (in
arrangement date dollars) dollars) volatility period rate rate dollars)
Incentive
Compensation
Agreement 2010.10.01 19.00$ 16.80$ 8.84% 3.63 years 0% 0.86% 3.00$
Incentive
Compensation
Agreement 2010.12.31 19.00$ 16.50$ 8.69% 3.25 years 0% 0.79% 3.12$
(c)Expenses incurred on share-based payment transactions are shown below:
2011 2010
Cash-settled-Incentive Compensation Agreement 1,884)($ 1,884$
December 31,
(d)Liabilities arising from share-based payment transactions are shown below:
2011 2010
Liabilities on cash-settled share-based payment -$ 1,884$
Total intrinsic value where vesting conditions
have been met -$ -$
December 31,
D.As of December 31, 2011 and 2010, Global PCS Inc.’s, a subsidiary of the Company,
share-based payment transactions are set forth below:
Type of
Quantity
granted Contract Vesting
arrangement Grant date (in thousands) period conditions
Second employee stock 2009.09.01 1,614 6 years Note
options
~42~
Note: 50% can be exercised after 2 years of grant; 75% can be exercised after 3 years of grant;
and 100% can be exercised after 4 years of grant.
Details of the employee stock options are set forth below:
No. of
Weighted-
average
exercise price No. of
Weighted-
average
exercise price
shares (in dollars) shares (in dollars)
Options outstanding at beginning of 1,614 $ 10.00 1,614 $ 10.00
Options granted - - - -
Distribution of stock dividends /
adjustments for number of shares
granted for one unit of option
- - - -
Options waived - - - -
Options exercised ( 1,614) 23.70 - -
Options revoked - - - -
Options outstanding at end of year - - 1,614 10.00
Options exercisable at end of year - -
Options approved but not yet issued
at the end of the year - -
December 31, 2011 December 31, 2010
E.Under the original second share-based employee compensation plan, the weighted-average
remaining vesting period of stock options outstanding was 4.42 years. However, since Global
PCS Inc. merged with Microelectronic Technology, Inc., as resolved by the Board of Directors
on November 26, 2010, Global PCS Inc. has stipulated additional regulations on the employee
stock options in case of business merger as follows:
When another company merges with Global PCS Inc., Global PCS Inc. may decide to retrieve
and retire all the stock options that have been issued but have not had the right to be exercised,
and the other company will pay the compensation to the holders of the stock options that were
retired. The compensation amount is calculated based on the cash distributed to the stockholders
upon merger. The holders of the stock options must pay the taxes on the compensations on their
own.
The Company merged with Global PCS Inc. on January 1, 2011. The employee stock options as
stated above had been fully taken back and retired. The Company paid compensation amounting
to $15,711.
F.Employee stock options granted by Global PCS Inc. after January 1, 2008 under the second
share-based employee compensation plan are measured using the intrinsic value method as their
fair value cannot be reliably measured. In accordance with the Jin-Guan-Zheng Letter No.
0960065898 of the Financial Supervisory Commission, Executive Yuan, dated December 12,
~43~
2007, intrinsic value is the difference between fair value and exercise price of the Company’s
common shares. Expenses incurred arising from share-based payment transactions amounted to
$6,081 for the year ended December 31, 2010. As of December 31, 2010, the accumulated
capital reserve amounted to $6,041.
On November 25, 2010, Global PCS Inc. reissued 1,358,390 shares of treasury stocks bought
back in 2009 to the employees with the price of $15 (in dollars) per share. No expense was
incurred in 2010 on the share-based payment transactions - treasury stocks reissued to
employees.
(16) Pension expense
A.All of the regular employees of the Company and its subsidiary, Global PCS Inc., are covered
by a non-contributory and funded defined benefit pension plan. Employees are entitled to 2 base
units for each year of service for the first 15 years and 1 base unit for each additional year
thereafter, up to a maximum of 45 units. The benefits provided are based on the length of
service and the average salaries of the last six months prior to retirement. Under the plan, the
Company and its subsidiary, Global PCS Inc., contribute 2% of monthly salaries to an
independent pension fund deposited with the Bank of Taiwan. The net pension cost recognized
under the defined benefit plan for the years ended December 31, 2011 and 2010 was $21,011
and $23,350, respectively. The balance of the retirement fund deposited with Bank of Taiwan
was $113,639 and $118,864 as of December 31, 2011 and 2010, respectively. The pension fund
balance is not reflected in the financial statements. The funded status of the pension plan of the
Company and its subsidiary, Global PCS Inc., are as follows:
(a) Actuarial assumptions - Microelectronics Technology, Inc.
2011 2010
Discount rate 1.90% 1.75%
Future salary increase rate 2.50% 2.50%
Expected rate of return on plan assets 1.90% 1.75%
(b) Actuarial assumptions - Global PCS Inc.
2011 2010
Discount rate Note 1.75%
Future salary increase rate Note 2.50%
Expected rate of return on plan assets Note 1.75%
Note: Global PCS Inc. had been merged with the Company on January 1, 2011 (the merger
effective date) and Global PCS Inc. became the dissolved company.
(c)The funded status of the pension plan is as follows:
~44~
2011 2010
Benefit obligation
Vested benefit obligation 31,876)($ 38,859)($
Non-vested benefit obligation 315,587)( 316,841)(
Accumulated benefit obligation 347,463)( 355,700)(
Additional benefits based on future salaries 127,711)( 140,593)(
Projected benefit obligation 475,174)( 496,293)(
Plan assets at fair value 113,693 118,864
Funded status 361,481)( 377,429)(
Unrecognized transition obligation 9,234 10,388
Unrecognized prior service cost 5,052)( 6,735)(
Unrecognized net actuarial loss 141,928 156,615
Additional accrued pension liabilities 18,399)( 19,675)(
Next adjustment 8,624 754)(
Accrued pension liabilities 225,146)( 237,590)(
Vested benefit 34,923$ 41,484$
Deferred pension costs 4,182$ 3,653$
Unrecognized pension cost 5,645$ 15,797$
December 31,
(d)The Company and its subsidiary, Global PCS Inc., recognized net pension cost based on
the actuarial report. Net pension cost components are as follows:
2011 2010
Service cost 8,062$ 8,101$
Interest cost 8,685 9,832
Expected return on plan assets 2,080)( 2,852)(
Amortization of unrecognized
net transition obligation 1,154 6,971
Unrecognized prior service cost 1,684)( 1,684)(
Unrecognized pension loss 7,642 3,885
Next adjustment 768)( 903)(
Net periodic pension cost 21,011$ 23,350$
December 31,
B.Effective July 1, 2005, under the new “Labor Pension Act” (the “Act”), the Company and its
subsidiary, Global PCS Inc., set up a defined contribution pension plan. Under the Act, current
employees have the option to participate in the defined contribution pension plan. The Company
and its subsidiary contribute monthly an amount of at least 6% of the employees’ monthly
salaries and wages to the employees’ individual pension accounts at the Bureau of Labor
~45~
Insurance. Benefits accrued are portable upon termination of employment. Pensions are paid by
monthly installments or in lump sum based on the accumulated balance of the employees’
individual pension accounts. The net pension costs recognized under the defined contribution
pension plan for the years ended December 31, 2011 and 2010 were $22,345 and $21,702,
respectively.
C.The Company’s subsidiaries, Jupiter Technology (Wuxi) Inc. and Great Communication
Technology Co., Ltd., are required to participate in a government pension scheme whereby it
shall pay monthly an amount of 20% of the employees’ monthly salaries and wages to the
employees’ individual pension accounts to a government-managed fund. Under the scheme,
retirement benefits of existing and retired employees are to be provided by the
government-managed fund and the said subsidiaries have no further obligations beyond the
monthly contributions. The net pension costs recognized under the defined contribution plan for
the years ended December 31, 2011 and 2010 were $51,296 and $43,118, respectively.
D.The Company’s subsidiaries, MTI Laboratory Inc., Optical Microwave Network Inc., and
RadioCompApS maintain a 401(k) retirement/savings plan (the Plan) for all employees who are
over the age of 21 and have completed three months of service. Participants may make
voluntary contributions up to the maximum amount allowable by law. Those subsidiaries may
make a discretionary matching contribution equal to the percentage of each participant’s
contributions up to a maximum of 2.25% of participant’s compensation. No contributions were
made to the Plan for the years ended December 31, 2011 and 2010.
(17) Income tax
A.Details of deferred income tax assets and liabilities are as follows:
2011 2010
Deferred income tax assets – current 203,623$ 116,811$
Less: Valuation allowance 63,674)( 14,921)(
139,949$ 101,890$
Deferred income tax assets – non-current 340,685$ 131,950$
Less: Valuation allowance 135,173)( 52,740)(
205,512$ 79,210$
December 31,
~46~
B.Details of temporary differences, loss carryforwards and investment tax credits resulting in
deferred income tax assets and liabilities are as follows:
Amount Tax effect Amount Tax effect
Current items:
Temporary differences
Warranty provision 96,089$ 17,298$ 27,670$ 5,178$
Allowance for doubtful accounts 5,868)( 848)( 83,829 14,325
Provision for inventory loss 305,410 53,766 229,119 41,477
Unrealized losses 344,918 58,636 - -
Others 43,224 9,819 16,039 4,258
138,671 65,238
Investment tax credits 64,952 51,573
Loss: Valuation allowance 63,674)( 14,921)(
139,949 101,890
Non-current items:
Temporary differences
Loss on idle assets 47,446$ 8,066 47,446$ 8,066
Accrued pension liabilities 215,319 36,604 217,915 37,045
Foreign investment income
accounted for under the
equity method 574,872)( 97,728)( 719,732)( 122,355)(
Cumulative translation
adjustments 105,532)( 17,940)( - -
Others 104,330 24,702 70,407 16,221
46,296)( 61,023)(
Investment tax credits 71,646 155,703
Loss carryforwards 1,686,199 315,335 219,233 37,270
Less: Valuation allowance 135,173)( 52,740)(
205,512 79,210
345,461$ 181,100$
December 31, 2011 December 31, 2010
~47~
C.Income tax (benefit) expense and income tax payable are reconciled as follows:
2011 2010
Income tax at the statutory tax rate 7,518$ 27,733$
Tax effect of permanent differences 49,691)( 21,892)(
Tax effect of investment tax credits - 2,398
Tax effect of loss carryforwards 278,065)( -
(Over) under provision of prior year's income tax 1,139)( 1,941
Tax effect of amendments to the tax laws - 4,673)(
Tax effect of valuation allowance 152,474 33,249
10% tax on unappropriated earnings - 900
Income tax (benefit) expense 168,903)( 39,656
Add: Net change of deferred income tax assets 157,342 14,297)(
Tax effect of cumulative translation adjustments 17,940 -
Unpaid amount on income tax payable of
consolidated entities 1,686 -
Over (under) provision of prior year's imcome tax 1,139 1,941)(
Less: Payment on behalf of Global PCS Inc. for its tax
on unappropriated earnings for 2009 1,177)( -
Prepaid and withholding taxes 7,518)( 7,331)(
Income tax payable 509$ 16,087$
December 31,
D. The Company is eligible for income tax exemption for a period of the five consecutive years
due to an expansion of production equipment through increase in capital. The details are as
follows:
Capital increase method Tax-exempt period
Unappropriated earnings and employees'
bonus capitalized in 2002
January 1, 2010~December 31, 2014
E.The Company’s subsidiaries, Jupiter Technology (Wuxi) Inc. and Greast Communication
Technology Co., Ltd., are foreign-invested manufacturing enterprises established in the PRC.
Under the PRC tax regulations, they are exempt from corporate income tax for the first and
second profit-making years and are subject to a 50% reduction of corporate income tax from the
third through fifth profit-making years. Jupiter Technology (Wuxi) Inc. and Greast
Communication Technology Co., Ltd. are eligible for the tax exemption starting from 2006 and
2008, respectively.
F.As of December 31, 2011, the Company’s income tax returns through year 2009 have been
assessed and approved by the Tax Authority. Income tax returns of the Company’s subsidiaries,
Global PCS Inc. and Millennium Telecom, Inc., through year 2010 have been assessed and
approved by the Tax Authority.
~48~
G.As of December 31, 2011, the details of unused investment tax credits and loss carryforwards
are as follows:
Year of expiration Investment tax credits
2012 64,952$
2013 71,646
136,598$
Year of expiration Loss carryforwards
2016 89,629$
2019 37,270
2021 188,436
315,335$
H.As of December 31, 2011 and 2010, the Company’s deductible credit account balance for
stockholders’ income tax was $48,898 and $45,115, respectively, and the creditable ratio were
both 0% (Note) for 2010 and 2009.
Note: The Company incurred operating losses both in 2010 and 2009. There was no earnings
distribution for 2010 and 2009, as resolved by the stockholders at their stockholders’
meeting on June 9, 2011 and June 17, 2010, respectively.
I.There was no undistributed retained earnings as of December 31, 2011 and the undistributed
retained earnings as of December 31, 2010 have been earned after 1998.
~49~
(18) Loss per share
Weighted-
average
Loss outstanding Loss
before common before
income Net shares income Net
tax loss (in thousands) tax loss
Consolidated net loss 1,946,310)($ 1,777,407)($
Basic loss per share:
Net loss 1,858,417)($ 1,775,885)($ 413,037 4.50)($ 4.30)($
Weighted-
average
Loss outstanding Loss
before common before
income Net shares income Net
tax loss (in thousands) tax loss
Consolidated net loss 116,608)($ 156,264)($
Basic loss per share:
Net loss 154,839)($ 157,930)($ 412,968 0.37)($ 0.38)($
Amount share (in dollars)
For the year ended December 31, 2011
Loss per
Amount share (in dollars)
For the year ended December 31, 2010
Loss per
For the years ended December 31, 2011 and 2010, as employee stock options issued by the
Company had anti-dilutive effect, they were not included in the calculation of diluted loss per
share.
Effective January 1, 2008, as employees’ bonus could be distributed in the form of stock, the
diluted EPS computation shall include those estimated shares that would be increased from
employees’ stock bonus issuance in the calculation of the weighted-average number of common
shares outstanding during the reporting year, taking into account the dilutive effects of stock bonus
on potential common shares; whereas, basic EPS shall be calculated based on the weighted-average
number of common shares outstanding during the reporting year that include the shares of
employees’ stock bonus for the appropriation of prior year earnings, which have already been
resolved at the stockholders’ meeting held in the reporting year. Since capitalization of employees’
bonus no longer belongs to distribution of stock dividends, the calculation of basic EPS and
diluted EPS for all periods presented shall not be adjusted retroactively.
~50~
(19) Personnel expenses, depreciation and amortization
Operating
costs
Operating
expenses
Non-
operating
expenses Total
Operating
costs
Operating
expenses
Non-
operating
expenses Total
Personnel expenses
Salary 535,109$ 394,815$ -$ 929,924$ 473,357$ 394,747$ -$ 868,104$
Labor and health insurance 20,348 26,256 - 46,604 19,866 24,425 - 44,291
Pension 18,939 75,713 - 94,652 20,603 67,567 - 88,170
Others 159,694 44,672 - 204,366 143,482 57,140 - 200,622
Depreciation 165,919 52,129 1,832 219,880 153,325 48,231 2,886 204,442
Amortization 8,948 132,231 - 141,179 12,483 75,735 - 88,218
For the years ended December 31,
2011 2010
~51~
5.RELATED PARTY TRANSACTIONS
(1) Name and relationship of related party: None
(2) The rewards information of key management is as follows:
2011 2010
Salaries 59,872$ 57,187$
Bonuses 17,204 10,676
Service execution fees 8,791 8,793
Total 85,867$ 76,656$
December 31,
A. Salaries include regular wages, special responsibility allowances, pensions, severance pay, etc.
B. Bonuses include various bonus and rewards.
C. Service execution fees include trade allowances, housing and vehicle benefits, etc.
D. The relevant information above will be posted in the Group's annual report.
6.PLEDGED ASSETS
Assets 2011 2010 Purpose of pledge
Buildings (Note 1) 369,681$ 383,669$ Long-term loans
Time deposits (Note 2) 14,596 14,404 Litigation
384,277$ 398,073$
December 31,
Note 1: Including leased assets.
Note 2: Recognized as restricted assets.
7.COMMITMENTS AND CONTINGENT LIABILITIES
(1) The Company leases land under a non-cancelable operating lease agreement. As of December 31, 2011, the future minimum lease payments under this lease are as follows:
Period Rental payable Present value
January 2011~December 2016 77,036$ 67,801$
January 2017~December 2026 154,072 83,774
231,108$ 151,575$
~52~
(2) On October 21, 2004, the Company was informed that European agent, FTA, sued the Company
with the Luxembourg Court for the business dispute occurring in the agency. The Company had
appointed attorneys tending to this case. On June 29, 2011, Luxembourg Court dismissed the
indemnity request of FTA in the lawsuit through the first trial judgment. The lawsuit is currently
under the judicial proceedings; the possible effects of the lawsuit on the Company’s business and
finance depend on its further results. However, the Company believes the lawsuit will not have
any significant effect on its finance and operations.
(3) On December 5, 2011, Powerwave Technologies, Inc. sued the Company with the Californian Court,
alleging infringement of its patent by the Company and its subsidiary - MTI-Lab. The Company has
appointed attorneys to take legal actions against Powerwave Technologies, Inc. The Company
believes that this case will not have any significant effect on its finance and operations.
8.SIGNIFICANT CATASTROPHE
None.
9.SUBSEQUENT EVENTS
None.
~53~
10.OTHERS (1) Financial statement presentation
Certain accounts in the 2010 financial statements have been reclassified to conform to the 2011 financial statement presentation. (2) Fair value of financial instruments
Book value Market Estimate Book value Market Estimate
Non-derivative financial instruments
Financial assets
Financial assets with fair values equal to book values 3,651,408$ -$ 3,651,408$ 4,054,256$ -$ 4,054,256$
Financial assets at fair value through profit or loss 198,045 198,045 - 67,568 67,568 -
Financial assets carried at cost-noncurrent 355,664 - - 351,486 - -
4,205,117$ 4,473,310$
Financial liabilities
Financial liabilities with fair values equal to book values 4,425,656)($ -$ 4,425,656)($ 3,122,171)($ -$ 3,122,171)($
Long-term loans 1,289,209)( - 1,289,209)( 480,645)( - 480,645)(
5,714,865)($ 3,602,816)($
Derivative financial instruments
Financial assets
Forward exchange contracts 5,698$ -$ 5,698$ 6,199$ -$ 6,199$
Option contracts - - - 4,964 - 4,964
5,698$ 11,163$
Financial liabilities
Forward exchange contracts -$ -$ -$ 2,478)($ -$ 2,478)($
December 31, 2011 December 31, 2010
Fair value Fair value
~54~
The methods and assumptions used to estimate the fair values of the above financial instruments are
summarized below:
A.Financial assets / liabilities with fair value equal to book value: The carrying amounts of these assets
/ liabilities approximate fair values due to their short maturities. This applies to cash and cash
equivalents, accounts receivable, other receivables, restricted current assets, refundable deposits,
short-term loans, accounts payable, accrued expenses, other payables and guarantee deposits
received.
B.Financial assets at fair value through profit or loss (non-derivative financial instruments):
Instruments classified in this category are mainly investments in open-ended mutual funds. The fair
value is determined by the net asset value at the balance sheet date.
C.For long-term loans with floating interest rates, the fair values are based on their book value. For
long-term loans with fixed interest rates, fair value is estimated based on the discounted future cash
flows. Discount rate is determined based on the Company’s credit adjusted borrowing rate, which
approximate the floating interest rates.
D.Derivative financial instruments: Fair value is estimated based on the amount receivable from or
payable to the counterparty assuming the contracts are terminated at the balance sheet date, which
includes the contracts’ unrealized gain or loss. (3) Information of significant income (loss) on financial instruments and equity items
In 2011 and 2010, the loss or gain recognized from the changes in fair values determined using the
foregoing evaluation techniques amounted to $1,439 and $6,649, respectively. (4) Information on interest rate fluctuation
As of December 31, 2011 and 2010, financial assets that are exposed to fair value interest rate risk are
$1,352,251 and $1,313,085, respectively; financial assets that are exposed to cash flow interest rate
risk are $513,301 and $980,233, respectively; and financial liabilities that are exposed to cash flow
interest rate risk are $3,406,949 and $1,768,583, respectively. (5) Financial risk management
The Group, in accordance with its policy on the acquisition and disposal of financial derivatives, has
established a risk management program to evaluate and manage the related risk assessment of
individual transactions.
~55~
(6) Information on significant financial risk A.Market risk
The Group’s activities involve some non-functional currency operations (the Group’s functional currency is New Taiwan dollars). The information on assets and liabilities denominated in foreign currency whose values would be materially affected by the fluctuations of the foreign exchange rates is as follows:
Foreign Exchange Foreign Exchange
Financial assets currency rate currency rate
Monetary items
USD:NTD 71,048 30.28 61,859 29.13
EUR:NTD 2,357 39.18 4,394 38.92
USD:CNY 29,696 6.3009 15,009 6.6227
Financial liabilities
Monetary items
USD:NTD 71,017 30.28 63,773 29.13
EUR:NTD 1,890 39.18 195 38.92
USD:CNY 31,077 6.3009 29,603 6.6227
December 31,
2011 2010
(a)Foreign exchange risk The majority of the sales and purchases of the Group is denominated in U.S. dollars, therefore the fair value of the related assets and liabilities are exposed to foreign exchange rate risk. The Group monitors the fluctuations in foreign exchange rates and adjusts the net positions in each foreign currency, enters into forward contracts, if necessary, to reduce the market rate risk.
(b)Price risk The bond fund investments (shown in “financial assets at fair value through profit or loss”) are determined based on the net asset value of open-end funds. The Group evaluates related investment performances on a periodic basis and does not expect to have significant market risk in these financial assets.
B.Credit risk The counterparties of the financial derivatives and beneficiary certificates are reputable financial institutions and the Group also deals with multiple counterparties to diversify the credit risk. The Group believes its exposure to potential default risk is low. The maximum loss to the Group is the book value. The Group has lower significant concentrations of credit risk. It has policies in place to ensure that wholesale sales of products are made to customers with an appropriate credit history. The maximum loss to the Group is the book value of accounts receivable. Loan guarantees provided by the Group are in compliance with the Group’s “Procedures for Provision of Endorsements and Guarantees” and are only provided to affiliated companies which the Group owns directly. As the Group is fully aware of the credit conditions of these related parties, it has not asked for collateral for the loan guarantees provided. In the event that these related parties fail to comply with loan agreements with banks, the maximum loss to the Group is the total amount of loan guarantees as listed above.
~56~
C.Liquidity risk The Group has lower significant concentrations of liquidity risk for forward exchange contracts since the exchange rate was known. For financial assets carried at cost, the Group is exposed to a higher liquidity risk since there is no active market. However, the Group has no intention to hold these financial assets for trading and does not expect to sell these financial assets frequently. Therefore, the exposure to liquidity risk would be effectively reduced. The Group also expects no significant liquidity risk since it has sufficient working capital.
D.Cash flow interest rate risk The Group’s interest rate risk arises from short-term and long-term borrowings issued at variable rates which expose the Group to cash flow interest rate risk.
~57~
11. ADDITIONAL DISCLOSURES REQUIRED BY THE SECURITIES AND FUTURES BUREAU (1)Related information of significant transactions
a. Loans granted during the year ended December 31, 2011: None.
b. Endorsements and guarantees provided by the Company to others as of December 31, 2011:
Ratio of
Limit of Maximum outstanding Outstanding Amount of accumulated guarantee Ceiling of the
Relationship with guarantee guarantee amount guarantee amount guarantee with amount to net asset outstanding guarantees
Guarantor Name the Company for such party during 2011 at Dec. 31, 2011 collateral placed value of the Company for the respective party
Microelectronics
Technology, Inc.
Jupiter Technology
(Wuxi) Inc.
100% owned subsidiary 2,775,781$ 1,044,360$ 817,425$ None 29.45% 2,775,781$
" Greast Communication
Technology Co., Ltd.
81.94% owned subsidiary 2,775,781 45,720 45,413 None 1.64% 2,775,781
" MTI Laboratory, Inc. 100% owned subsidiary 2,775,781 975 969 None 0.03% 2,775,781
Company being guaranteed
c. Details of marketable securities held as at December 31, 2011:
Relationship of
Type of marketable Marketable the securities issuers General ledger
Investor securities securities with the Company accounts Number of shares Book value Percentage Market value (Note)
Microelectronics
Technology, Inc.
Stock Sasson International Holdings Inc. Wholly-owned subsidiary Long-term equity
investments accounted for
under the equity method
3,920 1,824,795$ 100.00% 1,824,795$
" " Taiwan Aerospace Corp. None Financial assets carried at
cost-noncurrent
648,576 11,138 0.48% -
" " Transcom Inc. " " 200,000 866 0.08% -
(Note):The market value of investments accounted for under the equity method was based on the net asset value of the investee company.
December 31, 2011
d. Acquisition or sale of the same security with the accumulated cost exceeding $100 million or 20% of the Company’s paid-in capital during the year ended December 31, 2011:
Marketable General ledger Number Number Number Selling Book Gain on Number Gain on
Investor securities account of shares Amount of shares Amount of shares price value disposal of shares Amount valuation
Microelectronics
Technology, Inc.
IBT Ta-Chong
Bond Fund
Financial assets at
fair value through
profit or loss-current
- -$ 12,336,467 168,000$ 12,336,467 168,068$ 168,000$ 68$ - -$ 68$
Beginning balance Addition Disposal Ending balance
~58~
e. Endorsements and guarantees provided during the year ended December 31, 2011: None.
f. Disposal of real estate properties exceeding $100 million or 20% of the Company's paid-in capital during the year ended December 31, 2011: None. g. Purchases from and sales to related parties exceeding $100 million or 20% of the Company’s paid-in capital during the year ended December 31, 2011:
Percentage of Percentage of
Relationship Purchases purchases accounts receivable
Company Counterparty with the Company (sales) Amount (sales) Term Unit price Credit term Balance (payable) Note
Microelectronics
Technology, Inc.
Jupiter Technology
(Wuxi) Inc.
Wholly-owned subsidiary Purchases 1,811,398$ 28% 30 days N/A N/A 434,643)($ 31% -
" MTI Network, Inc. Wholly-owned subsidiary Sales 192,893 3% 30 days N/A N/A 69,693 4% -
Differences in transaction terms
Transactions compared to third party transactions Accounts receivable (payable)
h. Receivables from related parties exceeding $100 million or 20% of the Company’s paid-in capital as at December 31, 2011: None
i. Derivative financial instruments undertaken during the year ended December 31, 2011: Refer to Notes 4(2), 4(10) and 10.
~59~
(2)Disclosure information of investee company
a.
Net income Net income
Main Number (loss) of the (loss) recognized
Investor Investee Location activities 2011 2010 of shares Percentage Book value investee by the Company Note
Microelectronics
Technology, Inc.
Sasson
International
Holdings Inc.
BVI Investment
planning
and consulting
1,159,643$ 1,159,643$ 3,920 100.00% 1,824,795$ 160,112)($ 160,112)($ Note 1
" Global PCS Inc. Hsinchu,
Taiwan
Communications - 229,044 - - - - - Note 1
Note 3
" Millennium
Telecom Inc.
Taipei,
Taiwan
Investment
planning
and consulting
- 190,000 - - - 37)( 37)( Note 1
Note 4
Sasson
International
Holdings Inc.
Welltop
Technology
Co., Ltd.
BVI " US$7,834,000
(in dollars)
US$7,834,000
(in dollars)
7,834,000 100.00% 217,065 13,073 13,073 Note 2
" Jupiter
Network Corp.
BVI " US$21,071,800
(in dollars)
US$21,071,800
(in dollars)
21,071,800 100.00% 574,074 140,976)( 140,976)( Note 2
" Greast
Communication
Technology
Co., Ltd.
Nanjing,
China
Communications US$3,970,000
(in dollars)
US$3,970,000
(in dollars)
115,531,850 48.42% 49,901 8,429)( 4,081)( Note 2
Welltop
Technology
Co., Ltd.
MTI Laboratory,
Inc.
California,
USA
" US$1,500,000
(in dollars)
US$1,500,000
(in dollars)
1,500,000 100.00% 69,064 9,937 9,937 Note 2
" MTI Network, Inc. Delaware,
USA
" US$100,000
(in dollars)
US$100,000
(in dollars)
100,000 100.00% 4,248 3,374 3,374 Note 2
" RadioComp ApS Denmark " US$4,702,000
(in dollars)
US$4,702,000
(in dollars)
1,527,944 100.00% 142,824 167)( 167)( Note 2
Jupiter
Network Corp.
Jupiter Technology
(Wuxi) Inc.
Wuxi,
China
" US$21,000,000
(in dollars)
US$21,000,000
(in dollars)
- 100.00% 573,458 140,865)( 140,865)( Note 2
Related information on companies for the year ended December 31, 2011:
Initial investment amount Shares held as at December 31, 2011
December 31,
~60~
Net income Net income
Main Number (loss) of the (loss) recognized
Investor Investee Location activities 2011 2010 of shares Percentage Book value investee by the Company Note
Jupiter Technology
(Wuxi) Inc.
Great
Communication
Technology
Co., Ltd.
Nanjing,
China
" CNY
$15,954,000
(in dollars)
CNY
$15,954,000
(in dollars)
- 33.52% 69,879 8,429)( 2,825)( Note 2
Note 1: Subsidiary of the Company.
Note 2: Indirect subsidiary of the Company.
Note 3: Global PCS Inc. had been merged with the Company on January 1, 2011 (the merger effective date).
Note 4: Millennium Telecom Inc. had registered for dissolution in January, 2011 and acquired the liquidation completion certificate from the district court in July, 2011.
December 31,
Initial investment amount Shares held as at December 31, 2011
b. Loans granted during the year ended December 31, 2011:
Item Value
Sasson International
Holdings Inc.
Jupiter Techology
(Wuxi) Inc.
Other
receivables 297,400$ -$ - b Note Operations -$ Note -$ 729,918$ 1,110,312$
MTI Laboratory, Inc. MTI Network, Inc.
Other
receivables 3,048 - - b Note Operations - Note - 27,625 1,110,312
Note: a. Business transaction.
b. Short-term financing.
Creditor Borrower
General ledger
account
Maximum
outstanding balance
during 2011
Balance at
December
31, 2011 Interest rate
Nature of
loan (Note)
Amount of
transactions
with the
borrower
Reason of
short-term
financing
Maximum
outstanding
guarantee
amount
during 2011 Note
Allowance for
bad debts
CollateralLimit on
loans granted
to a single party
c. Endorsements and guarantees provided during the year ended December 31, 2011: None.
~61~
d. Marketable securities as at December 31, 2011:
Type of marketable Relationship of the securities Number of Book Ownership Market
Securities held by securities Marketable securities issuers with the Company General ledger accounts shares value (%) value (Note)
Sasson International
Holdings Inc.
Stock Welltop Technology Co., Ltd. Wholly-owned
subsidiary
Long-term equity
investments accounted for
under the equity method
7,834,000 217,065$ 100.00% 217,065$
" " Jupiter Network Corp. " " 21,071,800 574,074 100.00% 574,074
" " Greast Communication Technology Co., Ltd. Investee accounted for
under the equity method
" 115,531,850 49,901 48.42% 49,901
" " Optical Scientific, Networks Inc. None Financial assets carried at
cost-noncurrent
16,023 60,280 7.94% -
" " Taicom Capital Ltd. " " 20,000 234,940 11.43% -
" " Intelligent Epitaxy Technology, Inc. " " 500,001 18,165 1.92% -
" " Applied Wireless Identification Group, Inc. " " 187,784 - 0.39% -
" " Firetide Inc. " " 1,333,360 30,275 1.67% -
" " Ishares A50 (2823, HK) " Financial assets at fair
value through profit
or loss-current
470,000 24,791 - 24,791
" Bond Fund Templeton Global Bond Fund " " 192,300 90,895 - 90,895
" Stock Direct TV " " 5,000 6,473 - 6,473
" Bond Fund PIMCO Total Return Bond Fund " " 246,306 91,016 - 91,016
Welltop
Technology
Co., Ltd.
Stock MTI Laboratory, Inc. Wholly-owned
subsidiary
Long-term equity
investments accounted for
under the equity method
1,500,000 69,064 100.00% 69,064
" " MTI Network, Inc. " " 100,000 4,248 100.00% 4,248
" " RadioComp Aps " " 1,527,944 142,824 100.00% 142,824
Jupiter Network Corp. " Jupiter Technology (Wuxi) Inc. " " - 573,458 100.00% 573,458
Jupiter Technology
(Wuxi) Inc.
" Greast Communication Technology Co., Ltd. Investee accounted for
under the equity method
" - 69,879 33.52% 69,879
Note : The market value of financial assets at fair value trough profit or loss is based on latest quoted fair prices of the accounting period.
The market value of investments accounted for under the equity method is based on the net asset value of the investee company.
~62~
e. The cumulative buying, selling over $100 million or 20% of the Company's capital stock for the year ended December 31, 2011: None
f. Real estate acquired amounting to over $100 million or 20% of the Company's capital stock for the year ended December 31, 2011:
Reason for
Basis or acquisition of
Relationship Original owner who Relationship of Date of the reference properties and
Property Property Date of Transaction Status of with the sold the property to the original owner original used in setting status of Other
acquired by acquired transaction amount payment Counterparty Company the counterparty with the company transaction Amount the price the properties commitments
Jupiter
Technology
(Wuxi) Inc.
The head office
of operating
and R&D-
equipment and
material's
2010.5.28 CNY
$17,305,000
(in dollars)
CNY
$1,505,000
(in dollars)
Shanghai Xuan
Li Trading
Corp., Ltd.
None N/A N/A N/A N/A N/A The head
office of
operating
and R&D
Note
" The head office
of operating
and R&D-
construction
" CNY
$48,501,000
(in dollars)
CNY
$28,401,000
(in dollars)
Shang Ding
Engineering &
Construction
Co., Ltd.
None N/A N/A N/A N/A N/A " Note
g. Real estate disposed amounting to over $100 million or 20% of the Company's capital stock for the year ended December 31, 2011: None.
h. Purchases and sales transactions with related parties over $100 million or 20% of the Company's capital stock for the year ended December 31, 2011: Refer to Note 11(1) g.
If the counterparty is a related party, information as to the last
transaction of the property is disclosed below:
i. Receivables from related parties over $100 million or 20% of the Company's capital stock as of December 31, 2011:
Company Counterparty
Relationship
with the
Company
Accounts
receivable
Other
receivables Total
Turnover
rate Amount
Action adopted
for overdue
accounts
Subsequent
collection
Allowance for doubtful
accounts provided
Jupiter Technology
(Wuxi) Inc.
Microelectronic
Technology Inc. Parent company 434,643$ -$ 434,643$ 4.23 -$ N/A -$ -$
Balance of receivable from related parties Overdue receivables
j. Information on derivative transactions: None.
~63~
(3)Disclosure of information on indirect investments in Mainland China
a. Basic information, change in investment balance and profits/losses recognized from the indirect investment:
Investee in Investment
Accumulated
amount of
remittance
to Mainland
China as of
Amount
remitted to
Mainland China
Amount
remitted back
to Taiwan
Accumulated
amount of
remittance to
Mainland
China as of
December
Ownership
held by the
Company
(direct
Investment
income (loss)
recognized by
the Company
for the
year ended
December 31,
2011
Book value
of investments
in Mainland
China as of
December
Accumulated
amount of
investment
income
remitted back
to Taiwan as
of December
Mainland China Main activities Paid-in capital method January 1, 2011 during the year during the year 31, 2011 and indirect) (Note) 31, 2011 31, 2011
Jupiter
Technology
(Wuxi) Inc.
Satellite
communication,
microwave
communication
and consulting
services
$ 635,775 Invest in
Mainland
China
through set
up of a new
company
in third area
$ 635,775 -$ -$ $ 635,775 100.00% 140,865)($ 573,458$ -$
Greast
Communication
Technology
Co., Ltd.
Design and
manufacture of
W-CDMA and
Base band RF
Sub-system
114,644 Invest in
Mainland
China
through
activating
a company
in third area
120,192 - - 120,192 81.94% 6,906)( 119,780 -
Note: Profit (loss) was recognized based on the financial statements audited by the Company's independent auditors.
Ceiling of investment in Mainland China
$ 755,967 $ 878,217
Ending balance of investment from Taiwan as of Approved investment amount by Ministry of
December 31, 2011 (in dollars) Economic Affairs R.O.C. (in dollars)
$ 1,665,469
~64~
B.Significant transactions with the direct and indirect investments in Mainland China (the amount represents the figures prior to eliminating the purchases and sales transactions between the Company and the investee companies in China through its subsidiaries.)
(a) Purchases
Amount % Amount %
Jupiter Technology (Wuxi) Inc. 2,253,616$ 35 2,336,699$ 36
(b) Sales
Amount % Amount %
Jupiter Technology (Wuxi) Inc. 442,218$ 7 543,056$ 7
(c) Accounts receivable
Amount % Amount %
Jupiter Technology (Wuxi) Inc. 11,127$ 1 -$ -
(d) Other receivables
Amount % Amount %
Jupiter Technology (Wuxi) Inc. 212,454$ 356 157,659$ 342
(e) Accounts payable
Amount % Amount %
Jupiter Technology (Wuxi) Inc. 434,643$ 31 479,412$ 43
December 31,
2011 2010
December 31,2011 2010
December 31,
2011 2010
For the years ended December 31,2011 2010
For the years ended December 31,2011 2010
(f)Property transaction
Item Amount Gain Amount Gain
Jupiter Technology (Wuxi) Inc. Machinery 5,302$ 818$ 234$ 224$
The disposals are approximately at book value.
For the years ended December 31,
2011 2010
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(g)Loans to subsidiaries in other countries: Please refer to Note 11.
(h)Edorsements and quarantees provided by the Company to Mainland China subsidiaries:
Subsidiary name Line of credit
Outstanding
balance
of credit line
December 31, 2011
Jupiter Technology (Wuxi) Inc. 817,425$ 787,150$
Greast Communication Technology Co., Ltd. 45,413 14,415
862,838$ 801,565$
December 31, 2010
Jupiter Technology (Wuxi) Inc. 1,002,210$ 364,440$
Greast Communication Technology Co., Ltd. 45,555 13,770
1,047,765$ 378,210$
(i)Other significant transactions which affect current income or financial conditions: None.
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(4)Significant intercompany transactions for the year ended December 31, 2011
Number
(Note a) Company Name Counterparty
Relationship
(Note b)
General ledger
account Amount Transaction terms
Percentage of consolidated total
operating revenues or total assets
0 Microelectronics
Technology, Inc.
Jupiter Technology (Wuxi), Inc. 1 Purchases and manufacturing 1,811,398$ Similar with general transactions 27.12%
0 " " 1 Accounts receivable 2 Net 90 days 0.00%
0 " " 1 Other receivables 8,327 " 0.09%
0 " " 1 Loss of disposal of property,
plant and equipment
818 Similar with general transactions 0.01%
0 " " 1 Accounts payable 434,643 Net 30 days 4.90%
0 " " 1 Accrued expenses 3 " 0.00%
0 " MTI Laboratory, Inc. 1 Research and development
expenses
385,667 Similar with general transactions 5.77%
0 " " 1 Sales and marketing expenses 6,405 " 0.10%
0 " " 1 Accrued expenses 3,633 Net 30 days 0.04%
0 " Welltop Technology Co., Ltd. 1 Sales revenue 9,440 Similar with general transactions 0.14%
0 " " 1 Accounts receivable 1,835 Net 30 days 0.02%
0 " " 1 Other receivables 1,008 " 0.01%
0 " Greast Communication Technology
Co., Ltd.
1 Research and development
expenses 4,610 Similar with general transactions 0.07%
0 " RadioComp ApS 1 Research and development
expenses
191,042 " 2.86%
0 " MTI Network, Inc. 1 Sales revenue 192,893 " 2.89%
0 " " 1 Accounts receivable 69,693 Net 30 days 0.79%
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Number
(Note a) Company Name Counterparty
Relationship
(Note b)
General ledger
account Amount Transaction terms
Percentage of consolidated total
operating revenues or total assets
1 Jupiter Technology (Wuxi),
Inc.
Microelectronics Technology, Inc. 2 Sales revenue 1,811,398$ Similar with general transactions 27.12%
1 " " 2 Accounts payable 2 Net 90 days 0.00%
1 " " 2 Accrued expenses 8,327 " 0.09%
1 " " 2 General and administrative
expense
818 Similar with general transactions 0.01%
1 " " 2 Accounts receivable 434,643 Net 30 days 4.90%
1 " " 2 Other receivables 3 Similar with general transactions 0.00%
2 MTI Laboratory, Inc. Microelectronics Technology, Inc. 2 Sales revenue 392,072 " 5.87%
2 " " 2 Accounts receivable 3,633 Net 30 days 0.04%
3 Welltop Technology Co., Ltd. Microelectronics Technology, Inc. 2 Purchases and manufacturing 9,440 Similar with general transactions 0.14%
3 " " 2 Accounts payable 1,835 Net 30 days 0.02%
3 " " 2 Accrued expenses 1,008 " 0.01%
4 Greast Communication
Technology Co., Ltd.
Microelectronics Technology, Inc. 2 Sales revenue 4,610 Similar with general transactions 0.07%
5 RadioComp Aps Microelectronics Technology, Inc. 2 Sales revenue 191,042 " 2.86%
6 MTI Network, Inc. Microelectronics Technology, Inc. 2 Purchases and manufacturing 192,893 " 2.89%
6 " " 2 Accounts payable 69,693 Net 30 days 0.79%
Transaction
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(5)Significant intercompany transactions for the year ended December 31, 2010
Number
(Note a) Company Name Counterparty
Relationship
(Note b)
General ledger
account Amount Transaction terms
Percentage of consolidated total
operating revenues or total assets
0 Microelectronics
Technology, Inc.
Global PCS Inc. 1 Sales revenue 3,143,408$ Similar with general transactions 38.75%
0 " " 1 Accounts receivable 444,733 Net 45 days 5.28%
0 " " 1 Other receivables 10,119 Net 45 days 0.12%
0 " " 1 Accounts payable 2,378 Net 30 days 0.03%
0 " " 1 Accrued expenses 201 Net 30 days 0.00%
0 " " 1 Refundable deposits 1,048 Deposits for rental 0.01%
0 " " 1 Rental revenue 4,208 Similar with general transactions 0.05%
0 " " 1 Other non-operating revenue 600 " 0.01%
0 " " 1 Gain of disposal of property,
plant and equipment
62 " 0.00%
0 " Jupiter Technology (Wuxi), Inc. 1 Purchases and manufacturing 1,790,644 " 22.07%
0 " " 1 Accounts payable 421,475 Net 30 days 5.00%
0 " " 1 Accrued expenses 61 Net 30 days 0.00%
0 " " 1 Gain of disposal of property,
plant and equipment 224 Similar with general transactions 0.00%
0 " MTI Laboratory, Inc. 1 Purchases and manufacturing 172 " 0.00%
0 " " 1 Research and development
expenses
332,817 " 4.10%
0 " " 1 Marketing expenses 10,323 " 0.13%
0 " " 1 Accrued expenses 17,236 Net 30 days 0.20%
0 " Welltop Technology Co., Ltd. 1 Sales revenue 11,135 Similar with general transactions 0.14%
0 " " 1 Accounts receivable 1,133 Net 30 days 0.01%
0 " " 1 Other receivables 32 " 0.00%
0 " Greast Communication Technology
Co., Ltd.
1 Research and development
expenses 2,255 Similar with general transactions 0.03%
0 " RadioComp ApS 1 " 36,515 " 0.43%
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Number
(Note a) Company Name Counterparty
Relationship
(Note b)
General ledger
account Amount Transaction terms
Percentage of consolidated total
operating revenues or total assets
1 Global PCS Inc. Microelectronics Technology, Inc. 2 Purchases and manufacturing 3,143,408$ Similar with general transactions 38.75%
1 " " 2 Accounts payable 444,733 Net 45 days 5.28%
1 " " 2 Accrued expenses 10,119 " 0.12%
1 " " 2 Accounts receivable 2,579 Net 30 days 0.03%
1 " " 2 Refundable deposits 1,048 Deposits for rental 0.01%
1 " " 2 Rental expenses 4,208 Similar with general transactions 0.05%
1 " " 2 General and administrative
expense
662 " 0.01%
2 Jupiter Technology (Wuxi),
Inc.
Microelectronics Technology, Inc. 2 Sales revenue 1,790,644 " 22.07%
2 " " 2 Accounts receivable 421,536 Net 30 days 5.00%
2 " " 2 General and administrative
expense
224 Similar with general transactions 0.00%
3 MTI Laboratory, Inc. Microelectronics Technology, Inc. 2 Sales revenue 343,312 " 4.23%
3 " " 2 Accounts receivable 17,236 Net 30 days 0.20%
4 Welltop Technology Co., Ltd. Microelectronics Technology, Inc. 2 Purchases and manufacturing 11,135 Similar with general transactions 0.14%
4 " " 2 Accounts payable 1,165 Net 30 days 0.01%
5 Greast Communication
Technology Co., Ltd.
" 2 Sales revenue 2,255 Similar with general transactions 0.03%
6 RadioComp Aps " 2 " 36,515 " 0.45%
7 Sasson International Holdings
Inc.
Jupiter Technology (Wuxi)
Inc.
3 Other receivables 291,300 For operations; to transact
with contract
3.46%
8 Jupiter Technology (Wuxi),
Inc.
Sasson Internatioal Holdings Inc. 3 Short-term loans 291,300 " 3.46%
Transaction
Note a: The transaction information of the Company and consolidated subsidiaries is noted in column "Number ". The number means: 1.Number 0 represents the Company. 2.The consolidated subsidiaries are in order from number 1.
Note b: The relationship with the transaction parties are as follows: 1.The Company to the consolidated subsidiary. 2.The consolidated subsidiary to the Company. 3.The consolidated subsidiary to the consolidated subsidiary.
Note c: Ratio of asset/liability is divided by consolidated total assets, and ratio of profit/loss accounts is divided by consolidated sales revenues.
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12.SEGMENT INFORMATION
(1) General information
Management has determined the reportable operating segments based on the reports reviewed by
the general manager that are used to make strategic decisions. The general manager evaluates
the business from a product perspective and classified operating segments into satellite
communication segment and earth microwave communication segment.
(2) Measurement of segment information
The Company assesses the performance of the operating segments based on the adjusted EBITDA.
This measurement basis excludes the effects of non-operating revenues and expenses from the
operating segments. This also excludes the effects of unrealized gains/losses on financial
instruments. Interest income and expense are not allocated to segments, as this type of activity is
driven by the financial department.
(3) Information on segment profit (loss), assets and liabilities
The segment information provided to the chief operating decision-maker for the reportable
segments for the years ended December 31, 2011 and 2010 is as follows:
For the year ended
December 31, 2011
Telecommunication
segment
Satellite
communication
segment Total
Revenue from external customers 3,477,092$ 3,201,201$ 6,678,293$
Inter-segment revenue -$ -$ -$
Segment loss 896,777)($ 285,056)($ 1,181,833)($
Segment assets - inventory 1,038,811$ 981,587$ 2,020,398$
For the year ended
December 31, 2010
Telecommunication
segment
Satellite
communication
segment Total
Revenue from external customers 4,775,658$ 3,336,413$ 8,112,071$
Inter-segment revenue -$ -$ -$
Segment profit 139,664$ 6,541$ 146,205$
Segment assets - inventory 894,131$ 802,447$ 1,696,578$
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(4) Reconciliation for segment profit (loss) and assets
Sales between segments are carried out at arm’s length. The revenue from external parties
reported to the chief operating decision-maker is measured in a manner consistent with that in the
income statement. A reconciliation of total segments profit (loss) to profit (loss) before tax and
discontinued operations is provided as follows:
2011 2010
Total segments (loss) profit 1,181,833)($ 146,205$
Unamortized items 762,955)( 264,479)(
(Loss) profit on minority shares 1,522)( 1,666
Loss before tax and discontinued operations 1,946,310)($ 116,608)($
The amounts provided to the chief operating decision-maker with respect to total assets are
measured in a manner consistent with that in the balance sheet. ‘Reportable segments’ assets are
reconciled to total assets as follows:
December 31, 2011 December 31, 2010
Segment assets for reportable segments 2,020,398$ 1,696,578$
Unamortized items 6,856,085 6,727,427
Total assets per balance sheet 8,876,483$ 8,424,005$
(5) Revenue information by category
Revenues from external customers are all derived from the sales of goods. Breakdown of the
revenue from all sources is as follows:
2011 2010
Sales of goods 6,678,293$ 8,112,071$
(6) Revenue information by geographic area
Revenue information by geographic area for 2011 and 2010 is as follows:
Revenue Non-current assets Revenue Non-current
USA 4,090,410$ 50,120$ 5,191,639$ 37,993$
Taiwan 190,545 928,306 201,071 961,082
Mainland China 394,378 715,894 827,815 615,047
Finland 535,386 - 9,542 -
Thailand 341,653 - 591,717 -
France 192,168 - 301,916 -
Italy 163,173 - 241,350 -
Singapore 158,809 - 225,065 -
Denmark - 22,701 - 15,270
Others 611,771 60 521,956 29
6,678,293$ 1,717,081$ 8,112,071$ 1,629,421$
2011 2010
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(7) Sales to major customers
Customer name Amount Department Amount Department
D customer 1,739,096$ Telecommunication 3,450,452$ Telecommunication
A customer 1,455,687 Satellite communication 1,804,337 Satellite communication
G customer 699,613 Satellite communication 354,729 Satellite communication
For the years ended December 31,
2011 2010
13. Disclosures relating to the adoption of IFRSs
Pursuant to the regulations of the Financial Supervisory Commission, Executive Yuan, R.O.C.,
effective January 1, 2013, a public company whose stock is listed on the Taiwan Stock Exchange
Corporation or traded in the GreTai Securities Market should prepare financial statements in
accordance with the International Financial Reporting Standards (“IFRSs”), International Accounting
Standards (“IASs”), and relevant interpretations and interpretative bulletins that are ratified by
the Financial Supervisory Commission.
The Company discloses the following information in advance prior to the adoption of IFRSs under
the requirements of Jin-Guan-Zheng-Shen-Zi Order No. 0990004943 of the Financial Supervisory
Commission, dated February 2, 2010: A. Major contents and status of execution of the Company’s plan for IFRSs adoption:
The Company has formed an IFRSs group headed by the Company’s Chief Financial Officer,
which is responsible for setting up a plan relative to the Company’s transition to IFRSs. The
major contents and status of execution of this plan are outlined below:
Working Items for IFRSs Adoption Status of Execution
1. Formation of an IFRSs group Done
2. Setting up a plan relative to the Company’s transition to IFRSs Done
3. Identification of the differences between current accounting policies
and IFRSs
4. Identification of consolidated entities under the IFRSs framework Done
5. Evaluation of the impact of each exemption and option on the
Company under IFRS 1 – First-time Adoption of International
Financial Reporting Standards
6. Evaluation of needed information system adjustments Done
7. Evaluation of needed internal control adjustments Done
8. Establish IFRSs accounting policies Done
9. Selection of exemptions and options available under IFRS 1 – First-
time Adoption of International Financial Reporting Standards
10.Preparation of statement of financial position on the date of transition
to IFRSs
11.Preparation of IFRSs comparative financial information for 2012 On schedule
12.Completion of relevant internal control (including financial reporting
process and relevant information system) adjustments
Done
Done
Done
On schedule
On schedule
B. Material differences that may arise between current accounting policies used in the preparation of financial statements and IFRSs and “Rules Governing the Preparation of Financial Statements by Securities Issuers” that will be used in the preparation of financial statements in the future:
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The Company uses the IFRSs already ratified currently by the Financial Supervisory Commission and the “Rules Governing the Preparation of Financial Statements by Securities Issuers” that will be applied in 2013 as the basis for evaluation of material differences in accounting policies as mentioned above. However, the Company’s current evaluation results may be different from the actual differences that may arise when new issuances of or amendments to IFRSs are subsequently ratified by the Financial Supervisory Commission or relevant interpretations or amendments to the “Rules Governing the Preparation of Financial Statements by Securities Issuers” come in the future. Material differences identified by the Company that may arise between current accounting policies used in the preparation of financial statements and IFRSs and “Rules Governing the Preparation of Financial Statements by Securities Issuers” that will be used in the preparation of financial statements in the future are set forth below: 1. Functional currency
Pursuant to current accounting standards in R.O.C., as the Company is not a foreign company, it does not need to determine its functional currency. However, in accordance with IAS 21, “The Effects of Changes in Foreign Exchange Rates”, each of the Group’s entities (including parent company) included in the consolidated financial statements should determine its functional currency.
2. Financial assets: equity instruments In accordance with the amended “Rules Governing the Preparation of Financial Statements by Securities Issuers”, dated July 7, 2011, unlisted stocks and emerging stocks held by the Company should be measured at cost and recognized in “Financial assets carried at cost”. However, in accordance with IAS 39, “Financial Instruments: Recognition and Measurement”, investments in equity instruments without an active market but with reliable fair value measurement (i.e. the variability of the estimation interval of reasonable fair values of such equity instruments is insignificant, or the probability for these estimates can be made reliably) should be measured at fair value.
3. Financial instruments: convertible bonds According to the accounting practices in R.O.C., the price resetting options, call options and put options embedded in domestic convertible bonds issued by the Company before 2009, with conversion price adjusted based on market price, are recognized as financial liabilities for trading; the bonds are recognized as bonds payable (including relevant discount and premium); conversion options without price resetting provisions are recognized as equities; the reduction in fair value caused by the resetting of conversion price shall be reclassified as shareholders’ equity. However, in accordance with IAS 32, “Financial Instruments: Presentation”, conversion options embedded in convertible bonds with conversion price adjusted based on market price, which do not meet the definition of equity instruments, shall be recognized as liabilities.
4. Business combinations (i) Although no rules concerning the recognition of costs related to the acquisition in a business
combination are specified in current accounting standards in R.O.C., in practice, certain acquisition-related costs are usually viewed as part of the acquisition cost of the acquiring corporation. However, in accordance with IFRS 3, “Business Combinations”, all acquisition-related costs must be expensed by the acquiring corporation when such costs are incurred and services are received.
(ii) In accordance with current accounting standards in R.O.C., the minority interest on the consolidated financial statements should be measured based on the book value of the acquired corporation. In accordance with IFRS 3, “Business Combinations”, the non-controlling interest in the acquired corporation should be measured at fair value (or at the non-controlling interest’s proportionate share of the acquired corporation’s identifiable net assets).
(iii) In accordance with current accounting standards in R.O.C., where the distribution of
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additional consideration may be contingent on maintaining or achieving specified future earnings level for the acquired corporation and it is reasonably certain that the event is likely to occur and the amount can be reasonably estimated, such contingent consideration should be included in the acquisition cost; where additional consideration may be contingent on the market price of a particular security issued as a result of a business combination, then the acquiring corporation should record the current fair value of the additional securities issued and simultaneously reduce the book value of the securities issued at acquisition date. In accordance with IFRS 3, “Business Combinations”, the acquiring corporation should recognize the contingent consideration at fair value at acquisition date as part of the consideration transferred to acquire a business. The acquiring corporation should classify the obligation to pay contingent consideration as a liability or as equity, and shall classify as an asset the right to the return of previously transferred consideration when certain criteria are met.
5. Consolidated financial statements
(i) In accordance with current accounting standards in R.O.C., in case the parent company changes its share ownership of the subsidiary but does not lose control over the subsidiary after control was obtained, the purchase method of accounting is used to account for the increase in ownership interest, while the decrease in ownership interest is regarded as disposal of shares and the related disposal gain or loss is recognized in profit or loss. In accordance with IAS 27, “Consolidated and Separate Financial Statements”, changes in a parent company’s ownership interest that do not result in the parent company losing control of the subsidiary are equity transactions, which would not affect profit or loss. Goodwill is not remeasured.
(ii) In accordance with current accounting standards in R.O.C., in case the parent company changes its share ownership of the subsidiary and loses control over the subsidiary, any investment retained in the former subsidiary is measured at the book value multiplied by the residual share ownership ratio at the date when control is lost. In accordance with IAS 27, “Consolidated and Separate Financial Statements”, any investment retained in the former subsidiary should be recognized at its fair value at the date when control is lost.
6. Pensions
(i) The discount rate used to calculate pensions shall be determined with reference to the factors specified in R.O.C. SFAS 18, paragraph 23. However, IAS 19, “Employee Benefits”, requires an entity to determine the rate used to discount employee benefits with reference to market yields on high quality corporate bonds that match the currency at the end day of the reporting period and duration of its pension plan.
(ii) In accordance with current accounting standards in R.O.C., the unrecognized transitional net benefit obligation should be amortized on a straight-line basis over the average remaining service period of employees still in service and expected to receive benefits. However, in accordance with IAS 19, “Employee Benefits”, the unrecognized transitional net benefit obligation should be recognized as an expense immediately at the date of adoption.
(iii) In accordance with current accounting standards in R.O.C., the excess of the accumulated benefit obligation over the fair value of the pension plan (fund) assets at the balance sheet date is the minimum amount of pension liability that is required to be recognized on the balance sheet (“minimum pension liability”). However, IAS 19, “Employee Benefits”, has no regulation regarding the minimum pension liability.
(iv) In accordance with current accounting standards in R.O.C., actuarial pension gain or loss of the Company is recognized in net pension cost of current period using the ‘corridor’ method. However, IAS 19, “Employee Benefits”, requires that actuarial pension gain or loss should be recognized immediately in other comprehensive income.
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7. Share-based payment The share-based payment arrangements of the Company include employee stock options, treasury stock transferred to employees, cash capital increase reserved for employee preemption and employees’ bonus. (i) The employee stock options granted from January 1, 2004 through December 31, 2007 are
accounted for in accordance with EITF 92-070, EITF 92-071 and EITF 92-072, “Accounting for Employee Stock Options”, of the R.O.C. Accounting Research and Development Foundation, dated March 17, 2003. Compensation cost of such employee stock options is recognized as an expense using the intrinsic value method. Compensation cost of treasury stock transferred to employees and cash capital increase reserved for employee preemption incurred before December 31, 2007 was not recognized as an expense by the Company. Employees’ bonus distributed before January 1, 2007 was accounted for as earnings distribution, and was not recognized as an expense by the Company.
(ii) However, according to IFRS 2, “Share-based Payment”, the cost of the share-based
payment arrangements stated above should be expensed at the fair value of the equity instruments over the vesting period.
8. Income taxes
(i) In accordance with current accounting standards in R.O.C., a deferred tax asset or liability should, according to the classification of its related asset or liability, be classified as current or noncurrent. However, a deferred tax asset or liability that is not related to an asset or liability for financial reporting, should be classified as current or noncurrent according to the expected time period to realize or settle a deferred tax asset or liability. However, under IAS 1, “Presentation of Financial Statements”, an entity should not classify a deferred tax asset or liability as current.
(ii) In accordance with current accounting standards in R.O.C., when evidence shows that part or whole of the deferred tax asset with 50% probability or above will not be realized, an entity should reduce the amount of deferred tax asset by adjusting the valuation allowance account. In accordance with IAS 12, “Income Taxes”, a deferred tax asset should be recognized if, and only if, it is considered highly probable that it will be realized.
(iii) Regarding tax rates that shall apply to the deferred tax assets or liabilities associated with unrealized gains or losses arising from transactions between parent company and subsidiaries by buyer tax rate or seller tax rate, the current accounting standards in R.O.C. do not specify the rules for this issue; while, the Company adopts seller tax rate for computation. However, under IAS 12, “Income Taxes”, temporary differences in the consolidated financial statements are determined by comparing the carrying amounts of assets and liabilities in those statements and applicable taxation basis. The Company’s taxation basis is determined by reference to the Group entities’ income tax returns. Accordingly, buyer tax rate shall apply to the deferred tax assets or liabilities in the consolidated financial statements.
Some of the above differences may not have a material effect on the Company in transition to IFRSs due to the exemption rules in IFRS 1, “First-time Adoption of International Financial Reporting Standards”, adopted by the Company.
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Corporate Directory
Directors and Executive Officers
Patrick Wang Chairman of the Board
Chi-Chia Hsieh Vice-Chairman of the Board
Lee Ting Director of the Board
Wayne Chan Director of the Board
Andrew Chu Supervisor
Sue-Fung Wang Supervisor
Allen Yen Director of the Board , President and
Chief Executive Officer
Allen Chen Vice President, GM of Radio Division
Shu-Huei Fuong Vice President
Hualin Chi Chief Financial Officer
Location
Headquarter
Microelectronics Technology Inc.
No.1, Innovation Road II
Hsinchu Science Park, Taiwan
Tel: 886-3-577-3335 Fax: 886-3-577-0688
MTI laboratory Inc.
201 Continental Boulevard #300, El Segundo, CA 90245
Tel: 1-310-955-3700 Fax: 1-310-955-3770
Radiocomp MTI
Krakasvej 17, DK-3400 Hillerød, Denmark
Tel: +45-70-23-10-24
Overseas Manufacturing Sites
Jupiter Technology (Wuxi) Co., Ltd.
No.13 Minjiang Rd.
Wuxi State High & New Technology Industry Development Zone,
Jiangsu Province, China
Tel: 86-510-8522-8800 Fax: 86-510-8522-9892