Company overview

Transcription

Company overview

Contents
002 Letter to Shareholders
009 Company Overview
012 Corporate Organization
022 Capital & Shares
026 Dividend Policy
029 Business Overview
030 Industry Outlook
037 Sales & Marketing
042 Condensed Balance Sheets &
Income Statements
044 Financial Analysis
046 Operating Results
047 Analysis of Cash Flow
048 Affiliated Companies Chart
049 Affiliates Information
050 Consolidated Financial Statements
Letter to Shareholders
Dear Shareholders:
It has been 19 years since SerComm was incorporated. Moving
toward its 20th anniversary, SerComm has been adhering to the
principles of innovation and quality after it was incorporated,
and is getting more and more mature in its R&D abilities,
marketing and production. 2010 was a year full of honors for
SerComm. By applying the proper business strategies and
being dedicated to upgrading the enterprise efficiency, the
Company’s entire business has grown drastically and brought
about outstanding performance. The yearly operating revenue
of 2010 grew by 20% more than that of 2009, and the profit
thereof grew by more than 50%. The 4Q operating revenue even
made an unprecedented quarterly record. Meanwhile, SerComm’s
efforts in innovation and R&D have been recognized as well, and it was
the only communication network vendor who won the “IDC Enterprise Innovation Award 2010”.
For annual operation, SerComm’s total operating revenue amounted to NT$8.154 billion in 2010,
an increase by at least 20% more than that of 2009, NT$6.794 billion. The yearly operating profit was
NT$250 million. The net earnings before taxes were NT$371 million and net earnings after taxes were
NT$314 billion, growing by 48% and 53% more than those of the previous year respectively. When
calculated against the 167.5 million shares of common stock outstanding (weighted average), Earnings
Per Share (EPS) before tax amounted to NT$2.21, and Earnings Per Share after tax NT$1.88.
Recalling 2010, broadband mobile was considered the mainstream standard creating the new
age of digital convergence. SerComm has successfully taken the chance of diversified broadband
applications, and achieved remarkable performance after arranging its layout in the telecommunication
market for years. Multiple products, such as Femtocell base station, IP Surveillance and Business
Routers, have yielded positive results. Above all, the mass production of Femtocell and shipment
thereof to Japan and Europe has been officially launched. Meanwhile, at the beginning of this year,
it worked with the international leading manufacture to take part in the 2011 Mobile World Congress.
Nowadays, SerComm is a leading supplier in the global industry chain of Femtocell. Further, the new
production capacity of Suzhou 2nd Factory strengthens the entire production capacity.
Looking into the entire economy in 2011, due to the opportunities brought by fixed mobile
SerComm Corporation Annual Report 2010
002
convergence, SerComm acted optimistically toward future operation. The Company will continue
innovation and R&D and further develop the core business to provide customers with high value-added
products and increase the market share by means of outstanding software and firmware integration
technology. Given the contribution of new products, new markets and new production capacity, as well
as the continued efforts by the SerComm Board of Directors and employees, the Company’s entire
operation is believed to live up to shareholders’ expectations and once again deliver strong results.
James Wang
President of SerComm Corporation
003
Review of 2010 Business Results
Unit: Thousand NTD
2009
2010
Year on Year
Change (%)
Wired Product
1,351,855
1,844,810
36.47
Wireless Product
5,189,783
6,019,683
15.99
252,473
289,340
14.60
6,794,111
8,153,833
20.01
Item
Others
Total Revenue
Financial Position
Unit: Thousand NTD
Year
2009
2010
Difference
Change %
2,651,058
3,752,691
1,101,633
41.55
Fixed Assets
504,639
511,298
6,659
1.32
Other Assets
138,673
139,885
1,212
0.87
Total Assets
4,624,543
6,020,683
1,396,140
30.19
Current Liabilities
1,821,367
2,535,261
713,894
39.20
361,801
873,691
511,890
141.48
Total Liabilities
2,188,714
3,423,503
1,234,789
56.42
Capital
1,709,450
1,760,873
51,423
3.01
Capital Reserves
149,171
196,598
47,427
31.79
Retained Earnings
510,193
658,256
148,063
29.02
2,435,829
2,597,180
161,351
6.62
Current Assets
LT Liabilities
Total Shareholders' Equity
004
Research and Development Status
At SerComm, new product R&D projects are formulated in response to market demand based on
our core network communications technology, market trends and the evolving IT & communications
industry. All research proposals for new products must also undergo a review by R&D, marketing and
sales units before R&D resources are invested.
To accelerate the acquisition of new technologies, SerComm also actively seeks out partnership
opportunities in addition to in-house R&D. This has led to the development of various application
servers that offer high-performance, ease of administration and integration with the Internet. A total of
8 projects were completed from our 2010 R&D plan. These were the VDSL Gateway, GPON Gateway,
802.11n Wireless H.264 HD IP Camera, H.264 high-definition wireless (802.11n) video server, Video
Server, 802.11n Wireless Monitoring Gateway, Video Bridge and Femtocell access point.
Summary of 2011 Business Plan
(1)
Business Direction
1. Deliver high performance in management to maintain the company’s high rate of growth and
solid profitability.
2. Actively develop all kinds of specialized servers, maintain technical leadership and emphasize
long-term cultivation of personnel.
3. Strengthen quality of service, continue the optimization of work processes and improve overall
operational efficiency.
4. Consolidate existing gains in the European, American and Japanese markets while actively
developing our distribution channels in other regions to establish a global distribution network.
5. Focus on cost and quality control while expanding our production capability to meet market
demand.
(2)
Projected Sales and Basis:
The Company’s growth in 2011 will be generated primarily from the two product lines
including Fixed Mobile Convergence (FMC) and Smart Home Control Systems. For the time
being, the visibility of purchase orders already accepted by the Company may extend to the end
of Q2.
In terms of the industrial development trends in 2011, FMC will be an important growth force.
In addition to the product line for Femtocell, the shipment of telecommunication wireless hot point
equipment was increasing as of the second half of 2010, and the Company also started shipping
the equipment to certain Chinese telcos. According to the forecast, the product line for FMC will
grow drastically. Above all, Femtocell will grow by multiple times more than that of 2010, and the
005
shipment of telecommunication wireless hot point equipment is expected to grow as well.
The Company is also confident about the product line for Smart Home Control Systems in
2011. The relevant products, such as IP Cameras, Door Sensors and Network Attached Storage,
will enable the product line for Smart Home Control Systems to seek a new growth force, to meet
the need for end-user applications aroused by such devices as iPhones and iPads, and to deal
with the prevailing APP. Smart Home Control Systems are expected to grow drastically in 2011
more than it did in 2010.
(3)
Major Production and Marketing Policies
1. Carry out sound production and target management while improving production processes.
2. Closely monitor the quality and delivery times of key components as well as supply-anddemand and changes in pricing.
3. Dedicate resources to the development of new products and expand existing product ranges
to quickly meet market demand.
4. Actively expand our marketing network and form strategic alliances with major OEM partners
in European, North America and Asia.
5. Strengthen sales management, consolidate market niches and expand developing markets.
6. Stay fully up-to-date on market distribution channels and demand. Strengthen collection of
market intelligence.
7. Boost SerComm's industry profile, establish a sound market reputation and provide highquality service.
8. Continue to carry out production cost reduction plans to make products more price
competitive.
Future Development Strategy
1. Expand the company’s market value to benefit shareholders and employees.
2. Pay attention to intellectual property and cultivate outstanding personnel.
3. Strengthen technology research and development.
4. Improve market position and become the market leader.
5. Increase operational income and maximize profitability.
Effect of External Competition, Regulations and the General Business Environment
Given that ECFA became effective as of January 1, 2011, Taiwan’s economy is expected to
grow drastically. In terms of the export trade statistics in 2010, the value of export from Taiwan to
China (including Hong Kong) accounted for more than 40% of the whole export value. Due to the
advantages originating from custom’s duty exemption and credit and increases in Mainland tourists
006
visiting Taiwan in 2011, the earnings gained by Taiwanese exporters increased, and the real estate
investment, retail consumption and number of the employed increased relatively because of admission
to Mainland investment and tourists. As a result, Taiwan’s entire economy improved significantly.
Following the globalization of capital markets, investors’ demand for financial information is getting
more and more intensive day by day. However, since the accounting principles vary by country and
enterprises are used to disclosing their financial information on line in diversified forms or manners
and thereby it is difficult to re-use, analyze and compare the information, international investors look
forward to unification of the globalfinancial report format badly. To unify the global financial report
format, it is necessary to meet two requirements. The first is the accounting principles generally
accepted in the world. So far, various countries in the world are tending to apply IFRS, and Taiwan is
also dealing with it actively. The second is establishment of generally accepted financial information
criteria. That is, enterprises’ information shall be communicated in a uniform electronic language. That
is the reason why XBRI was created. Accounting Research and Development Foundations in Taiwan
have been dedicated to researching and amending the relevant statements of financial accounting
standard according to IFRS in the recent years and to establishing a disclosure system compatible with
the international system and promoting the compatibility of accounting principles with the international
system. Listed/OTC companies, emerging stock companies and the financial industry regulated by
Financial Supervisory Commission (FSC) are expected to prepare their financial reports in accordance
with IFRS as of 2013.
The Taiwan Stock Exchange Corporation (TWSE) is also working hard to
urge listed companies to adopt XBRL, in hopes of building a global enterprise information supply
chain by enactment of international standards to help participants at the various stages acquire,
exchange, analyze and compare various enterprises’ information in a more effective manner, resolve
the increasingly complicated information disclosure issue, enhance the transparency of information
disclosure in Taiwan's stock exchange, and also become compatible with the international system.
The amendments to Article 36 of the Securities and Exchange Act made per the Decree under
Hua-Tsung-1-Yi-Tze No. 09900133481 dated June 2, 2010, providing that companies shall publicly
announce and declare annual financial reports duly audited and attested to by a certified public
accountant, approved by the Board of Directors and recognized by the supervisors within three months
after close of each fiscal year, will be enforced as of January 1, 2012.
According to Article 14-6 of Securities and Exchange Act added per the Decree under Hua-Tsung1-Yi-Tze No. 09900317071 dated November 24, 2010, a company whose stock is listed on the stock
exchange or traded over-the-counter shall establish a remuneration committee; remuneration referred
to in the preceding paragraph shall include salary, stock options, and any other substantive incentive
measures for directors, supervisors and executives.
007
In 2011, the global economy reflected adjustment-style growth. The IMF forecast that global
economic growth will become sluggish in 2011. In terms of the forecast GDP for various countries in
2011, the average GDP growth rate of developed countries was about 2.2% in 2011. Accordingly, the
global economic growth still needs to depend on the support and development of economy in emerging
markets. Since outbreak of the financial crisis, the global economy has been recovering. The leading
economic indicators in the main territories globally attained the peak in 2010, and are still expanding.
Therefore, the economy is expected to recover continuously after 2011.
In the past business cycle of the U.S.A., the interest rate was low, so that the economy bottomed
out. At the same time when the U.S.A. continued to adopt the easy money policy to boost the economy,
the economy has been getting away from the bottom and consumer confidence has been recovering
gradually. The Manufacturing Index showed that the economic expansion remained unchanged, and
the inventory level restored to the same before the financial crisis, reflecting that the market confidence
was recovering. Though the European Debit Turmoil is still a concern, the IMF would not allow the
financial markets to suffer liquidity risks again, due to the lessons learned from the last financial crisis.
The historically low credit card default rate reflects that the credit risk is decreasing.
The Company will access the relevant information from time to time and research the response
actions immediately in order to meet the Company’s business needs.
008
Company overview
Company Profile
1992
SerComm Corporation Founded. First Asian Networking Company Dedicated in Embedded
Products Development
First in Asia to Launch Embedded Print Server
1995
SerComm is the Second Print Server Provider in the World Received "Novell NDS"
Certification
1997
Launched Broadband Router
SerComm Received ISO 9001 Certification
1999
First in Asia to Launch NAS Server
SerComm is Listed in Taiwan OTC Market (OTC: 5388)
Established R&D Center in Suzhou, China
2000
First in Asia to Launch 802.11b Broadband Router
2001
First in the World to Launch Wireless Print Server (USB and Parallel)
2002
First in the World to Launch Single-boarded Wireless Router Based on Marvell Solution
2003
First in the World to Launch Single-chip 802.11g ADSL Gateway Based on TI Solution
Launched Wireless IP Camera and Media Adapter
2004
SerComm Was Awarded by CommonWealth Magazine as " Taiwan Best Performing 100
Listed Company" for the 2nd Consecutive Year
2005
E s t a b l i s h e d C h i n a M a n u f a c t u r i n g B a s e , S e r N e t Te c h n o l o g y, S u z h o u . A n
Environmentalfriendly "Green Factory" with Capacity Ramping up to 1 Million Units per Month
in 18 Months
2006
First in the World to Launch 802.11n ADSL2+ Gateway Based on Broadcom Solution
Launched VoIP Business Gateway and IP PBX
SerComm's Sales Exceeds US$250 MN with Annual Shipment of Fully-integrated ADSL Wi-
009
Fi Gateway to European Market Exceeding 3 Million Units
2007
SerComm Was Awarded by Business Weekly Magazine as:
"100 Fast Growing Companies in Greater China Area"
"1000 Largest Listed Companies in Greater China Area"
"30 Largest Companies in Telecom / Networking Sector in Greater China Area"
Transfer to List on Taiwan Stock Exchange (TSE: 5388)
Launched IAD Products and SATA NAS (Network Attached Storage)
2008
SerComm Was Awarded by CommonWealth Magazine as:
"Taiwan 1000 Largest Listed Manufacturers”
"Top 14 Largest Companies in Telecom / Networking Sector in Taiwan"
SerComm Was Ranked #214 as "2007 Taiwan Top 5000 Corporations" by China Credit
Information Service Ltd.
Taicang SerComm Technologies Corp. Founded
Successfully Launched Many Wireless Network New Products, Including: 1) Giga bit MFP
Print Server, 2) Integrated Access Device, 3) 11g Wireless IP Surveillance Camera, 4) 11n
Business Access Point, 5) VoIP Phone and 6) 11n WiFi VPN Router
2009
Announced Integrated 3G Femtocell Home Gateway Together with the Leading Provider of
3G Femtocells. Live Demonstration at Mobile World Congress 2009 Includes Home Monitor
Application Connected to SerComm IP Video Camera.
SerComm Was Awarded by China Credit Information Service as 2008 the “Largest
Corporations Top 5000 in Taiwan”, Ranked #211.
Introduced Wireless HD IPTV Networking Solution Together with the Leading Provider of
Semiconductors for Multimedia Wi-Fi Home Networking Applications.
SerComm Was Awarded by CommonWealth Magazine as:
"Taiwan 1000 Largest Listed Manufacturers"
"Top 22 Largest Companies in Telecom / Networking Sector in Taiwan
Purchased Plant and Facility from Billionton Technology (Suzhou), Enabling In-house
Production Tripled to Meet Future Capacity Requirement
2010
Demonstrated LTE-enabled Security IP Camera Together with USA’s Largest Wireless Voice
and Data Network Company
SerComm Was Awarded by China Credit Information Service as 2009 the “Largest
Corporations Top 5000 in Taiwan”, Ranked #238.
Awarded the "IDC Enterprise Innovation Awards 2010" by IDC (International Data
Corporation)
010
SerComm Japan Corp. Founded
2011
First to Launch TD-SCDMA Femtocell
First Integrated 3G Femtocell in Taiwan Certified by NCC (National Communications
Commission) in 2011
Nominated the "Residential Femtocell Access Point Design and Technology Innovation" by
Femto Forum
SerNet (Suzhou) Technologies II Grand Opening
SerComm France SARL Founded
011
Organization Chart
012
Directors and Supervisors
As of April 19, 2011
Name/ Position
Paul Wang
Chairman
D.C. Cheng
Director
Representative
of TLC Capital
Co., Ltd.
I.D. Liu
Director
Paul Hsu
Director
Representative
of Pacific
Venture Partners
Co. Ltd.
James Wang
Director &
President
Ben Lin
Director &
E. Vice
President
Danny T. Chiu
Independent
Director
Hilo Chen
Independent
Director
J.S.Kuo
Supervisor
013
Term
Elected Date
(Yrs)
2010.6.23
2010.6.23
2010.6.23
2010.6.23
2010.6.23
2010.6.23
2010.6.23
2010.6.23
2010.6.23
3
2
2
2
3
3
2
2
3
Date first
elected
Shareholding
when Elected
Current
Shareholding
Shares
Shares
%
%
Spouse & Minor
Shareholding
Shares
Education &
Experience
%
Carnegie-Melon
1992.7.29 3,444,577 2.01 3,684,577 2.06 1,142,745 0.64 University, PhD in
Physics
2001.12.13 6,679,405 3.90 6,619,405 3.71
2004.6.11
207,999
0.12
207,999
0.12
2004.6.11 3,680,926 2.14 3,680,926 2.06
2001.5.28 1,950,006 1.14 1,796,006 1.01
2004.6.11 1,718,590 1.00 1,224,201 0.69
2008.6.13
2008.6.13
0
0
0.00
0.00
0
0
0.00
0.00
2004.6.11 1,428,281 0.83 2,678,281 1.50
0
0
0
0
301,338
0
0
10,290
Current
Position
Note 1
0
Columbia University,
MBA
Executive Director
& General Manager,
Taiwan of Morgan
Stanley Asia
Note 2
0
National Chiao-Tung
University, MS
Vice Chairman of
UMC
Note 3
0
M.A. from Fletcher
School of Law and
Diplomacy of Tufts
University, USA
New York University,
LL. M
Executive Partner of
Lee and Li
Note 4
0
Harvard Business
School, MBA
Carnegie-Melon
University, ME
President of Emerson
SZ
Note 5
National Ching-Hwa
University, MS
0.16
Director of IBM
Subsidiary
Note 6
0
Harvard Business
School, MBA
Consultant of The
Boston Consulting
Group, Inc.
Note 7
0
Bachelor of
Transportation
& Management,
National Chiao-Tung
University
President and
CEO of Systex
Corporation
Note 8
University of New
Hampshire, PhD in
0.01 Physics
Chairman of Tajen
Venture Capital
Note 9
Name/ Position
Edward Y. Way
Supervisor
Cynthia Hsiue
Supervisor
Term
Elected Date
(Yrs)
2010.6.23
2010.6.23
3
3
Date first
elected
2007.6.15
2010.6.23
Shareholding
when Elected
Current
Shareholding
Shares
Shares
0
0
%
0.00
0.00
0
0
%
0.00
0.00
Spouse & Minor
Shareholding
Shares
0
0
Education &
Experience
Current
Position
%
0
University of Georgia,
MBA
Note 10
Certified Public
Accountant (CPA)
0
Tamkang University,
MBA
Note 11
CEO of China Leader
Management Inc.
Note ： Directors and supervisors are not spouse or within second-degree relative of consanguinity to each
other.
Note1： Chairman of Pacific Capital Partners Co., Ltd.; Director and CEO of Servecomm Inc.; Independent
Director of Prosperity Dielectrics Co., Ltd. and MiTAC Inc.; Supervisor of TECO Electric & Machinery
Co., Ltd., Les Enphants Co., Ltd. and MediaTek Inc.
Note2： Director of Topint Technology Co., Ltd.; Independent director of Edom Technology Co., Ltd.; President
of TLC Capital Co., Ltd. and UMC Capital
Note3： Chairman of Jing Hong Investments Ltd.; Director of Silconwave Precision Industries Co., Ltd.,
Independent Director of Chimei Innolux Corporation.
Note4： CEO of Phycos International Co., Ltd. and Epoch Foundation; Independent director of Industrial Bank
of Taiwan and ProMos Technology Inc. and Gloria Material Technology Corporation; Director of Long
Chen Paper Co., Ltd.
Note5： Chairman of SerComm Investments Ltd., SerComm Trading Co., Ltd., ShuKuan Investments Ltd.,
Zealous Investments Ltd., SerNet Technology Ltd. and DWNet Technology Ltd.; Independent director
of Creative Sensor Inc.; Director of SerComm Japan Corp.
Note6： Owner of Smart Trade Inc. and SerComm Holding Limited; Director of ShuKuan Investments Ltd.,
SerNet Technology Ltd., Servecomm Inc., SerComm Japan Corp.and Cerpass Technology Group
Note7： CEO and President of Morrison Express Co., Ltd.; Independent director of TransAsia Airways
Note8： Chairman of Guoshi Partners Ltd. and Yong-kai Management Consultant; Director of ALi Corporation;
Independent director of Spirox Corporation
Note9： Chairman of TECO Technology Foundation; Independent director of TECO IMAGE SYSTEM; Senior
adviser of Taishin Financial Holding Co., Ltd.; Director of Pacific Capital Partners Co., Ltd.
Note10：Independent director of APEX Biotechnology Corp., DelSolar Co., Ltd.; Director of Citibank Taiwan
Ltd., Capital Securities Corporation, MiTAC International Corp. and Primax Electronics Ltd., DaChan
Food (Asia) Limited
Note11：Director of AboCom Systems, Inc., Billionton Systems Inc.; Independent director of FX Hotel Group, Simplo
Tech. Co., Ltd., ASEC International Corp.,; Supervisor of eChem Solutions Corp.
014
Major Institutional Shareholders
April 30, 2011
Primary Shareholder of Institutional
Shareholder (see Note)
Name of Institutional Shareholder
TLC Capital Co., Ltd.
Pacific Venture Partners Co. Ltd.
Shareholding %
United Microelectronics Corporation
100.00%
Paul Wang
60.50%
DaYuan Management Consultant
35.00%
Hui Su
2.00%
Management Team
Name / Position Elected Date
Shareholding
when Elected
Shares
James Wang
President
Ben Lin
E. Vice President
Charles Chu
VP
Sales
Division
Leo Chen
CFO
Jemmy Lee
VP
Manufacturing
Division
Hawk Wu
VP
Product
Development
Division
Michael Lee
VP
Business
Development
Division
015
2000.01.24
1992.07.29
2000.06.15
2001.10.15
2002.04.24
2007.03.01
2008.9.15
1,796,006
1,224,201
578,787
433,753
187,171
265,562
426,890
%
1.01
0.69
0.32
0.24
0.10
0.15
0.24
Spouse & Minor
Shareholding
Shares
0
301,338
%
Education &
Experience
Harvard Business
School, MBA
Carnegie-Melon
0.00
University, ME
President of Emerson
SZ
National Ching-Hwa
University, MS
0.16
Director of IBM
Subsidiary
Current
Position
Note 1
Note 2
0
Master of Michigan State
University
0.00 Vice President of
Northern United M&E
Company
0
University of Illinois,
MSA
0.00
Director of Lite-On
Group
0
President
Vice President of
of SerNet
0.00
Proview Company China Technology
Ltd.
0
Director of Quanta
Computer Corp.
Director of Xavi
0.00
Technologies Corp.
Manager of Taicom data
systems
−
0
National Taiwan
University, MS
0.00
Director of Hitron
Technologies Inc.
−
Note 3
Director of
ShuKuan
Investments
Ltd.
Name / Position Elected Date
Shareholding
when Elected
Shares
Benjamin Yeh
VP
IP Surveillance
BU
SP Chen
Director
HR Division
Rick Tsai
Director
MIS Division
2007.11.12
2007.03.01
2007.03.06
290,943
60,000
48,000
%
0.16
0.03
0.03
Spouse & Minor
Shareholding
Shares
%
Education &
Experience
Current
Position
0
UC, Berkeley, ME
Harvard Business
School, MBA
0.00 Senior Manager of
TSMC
Director of Advantech
Co., Ltd.
−
0
Master of Law, Graduate
School of Labor
Relations, Chinese
0.00 Culture University
Director of HR &
G/A Dept., Destiny
Technology Corp.
−
0
M.S. in Computer
Sciences, Montana
State
0.00
Deputy General Director,
Institute for Information
Industry (III)
−
Note 1： Chairman of SerComm Investments Ltd., SerComm Trading Co., Ltd., ShuKuan Investments
Ltd., Zealous Investments Ltd., SerNet Technology Ltd. and DWNet Technology Ltd.;
Independent Director of Creative Sensor Inc.; Director of SerComm Japan Corp.
Note 2： Owner of Smart Trade Inc. and SerComm Holding Limited; Director of ShuKuan Investments
Ltd., SerNet Technology Ltd., Cerpass Technology Corporation, Servecomm Inc. and
SerComm Japan Corp.
Note 3： Director of DWNet Technology Ltd.; Supervisor of SerComm Japan Corp.
016
Remuneration to Directors
Unit: Thousand NTD
Compensation
(A)
Profit Sharing
(C)
Expenses & Special
Allowance
(D)
Total Items to Net
Income(%)
A+C+D
Bonus & Special
Allowance
(E)
Name / Position
Consolidated
Subsidiaries
SerComm
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
Consolidated
SerComm
SerComm
SerComm
SerComm
SerComm
SerComm
Subsidiaries
Subsidiaries
Subsidiaries
Subsidiaries
Subsidiaries
Subsidiaries
Number of Shares
Obtained as Employee Total Items to Net Income (%)
Stock Options (H) (Thousands
A+C+D+E+F+G
of shares)
Employee Bonuses from
Allocated Earnings
(G)
Retirement Pension
(F)
SerComm
Consolidated
Subsidiaries
SerComm
Consolidated
Subsidiaries
540
540
4.31
5.80
Cash
Stock
Cash
Stock
Bonuses Bonuses Bonuses Bonuses
Paul Wang
Chairman
D.C. Cheng
Director
Representativ of
TLC Capital Co.,
Ltd.
I.D. Liu
Director
Paul Hsu
Director
Representative
of Pacific Venture
Partners Co. Ltd.
0
0
4,186
4,186
James Wang
Director &
President
Ben Lin
Director & E. Vice
President
Danny T. Chiu
Independent
Director
Hilo Chen
Independent
Director
017
204
204
1.40
1.40
8,900
13,587
258
258
0
0
0
0
Name of Director
Total Amount
A+C+D
Compensation Range
Below NTD 2,000,000
Total Amount
A+C+D+E+F+G
SerComm
Consolidated
Subsidiaries
Paul Wang, TLC
Capital Co., Ltd.,
I.D. Liu, Pacific
Venture Partners
Co. Ltd., James
Wang, Ben Lin,
Danny T. Chiu, Hilo
Chen
Paul Wang, TLC
Capital Co., Ltd.,
I.D. Liu, Pacific
Venture Partners
Co. Ltd., James
Wang, Ben Lin,
Danny T. Chiu,
Hilo Chen
SerComm
Consolidated
Subsidiaries
Paul Wang, TLC
Capital Co., Ltd.,
I.D. Liu, Pacific
Venture Partners
Co. Ltd., Danny
T. Chiu, Hilo
Chen
Paul Wang, TLC
Capital Co., Ltd.,
I.D. Liu, Pacific
Venture Partners
Co. Ltd., Danny
T. Chiu, Hilo
Chen
James Wang,
Ben Lin
NTD 2,000,000∼NTD 5,000,000
James Wang,
Ben Lin
NTD 5,000,000∼NTD 10,000,000
NTD 10,000,000∼NTD 15,000,000
NTD 15,000,000∼NTD 30,000,000
NTD 30,000,000∼NTD 50,000,000
NTD 50,000,000∼NTD 100,000,000
Over NTD 100,000,000
Total
8
8
8
8
Remuneration to Supervisor
Unit: Thousand NTD
Compensation (A)
Name /
Position
SerComm
Retirement Pension
(B)
Profit Sharing
(C)
Total Items to
Net Income (%)A+B+C
Consolidated
Consolidated
Consolidated
Consolidated
SerComm
SerComm
SerComm
Subsidiaries
Subsidiaries
Subsidiaries
Subsidiaries
J.S. Kuo
Supervisor
Edward Y. Way
Supervisor
0
0
1,474
1,474
66
66
0.49
0.49
Cynthia Hsiue
Supervisor
018
Name of Supervisor
Total Amount A+B+C
Compensation Range
SerComm
Below NTD 2,000,000
J.S. Kuo, Edward Y. Way,
Cynthia Hsiue
Consolidated Subsidiaries
J.S. Kuo, Edward Y. Way,
Cynthia Hsiue
NTD 2,000,000∼NTD 5,000,000
NTD 5,000,000∼NTD 10,000,000
NTD 10,000,000∼NTD 15,000,000
NTD 15,000,000∼NTD 30,000,000
NTD 30,000,000∼NTD 50,000,000
NTD 50,000,000∼NTD 100,000,000
Over NTD 100,000,000
Total
019
3
3
Changes in Share Positions Among Directors, Supervisors, Managers
Unit: Shares
2010
Title
Name
Current Year to April 19
Shareholding
Increase /
Decrease
Stock
Mortgage
Shareholding
Increase /
Decrease
Stock
Mortgage
240,000
0
40,000
0
Chairman
Paul Wang
Director
D.C. Cheng
Representative of TLC
Capital Co., Ltd.
0
0
(60,000)
0
Director
I.D. Liu
0
0
0
0
Director
Paul Hsu
Representative
of Pacific Venture
Partners Co., Ltd.
0
0
0
0
Director &
President
James Wang
1,626,000
0
(900,000)
0
Director &
E. Vice President
Ben Lin
(199,439)
0
(74,950)
0
Independent
Director
Danny T. Chiu
0
0
0
0
Independent
Director
Hilo Chen
0
0
0
0
Supervisor
J.S. Kuo
900,000
0
350,000
0
Supervisor
Edward Y. Way
0
0
0
0
Supervisor
Cynthia Hsiue
0
0
0
0
Vice President
Charles Chu
171,000
0
0
0
Vice President
Leo Chen
10,500
0
0
0
Vice President
Jemmy Lee
110,000
0
0
0
Vice President
Hawk Wu
(55,000)
0
(27,000)
0
Vice President
Michael Lee
98,000
0
0
0
Vice President
Benjamin Yeh
78,000
212,000
0
0
Director
SP Chen
40,000
0
0
0
Director
Rick Tsai
20,000
0
0
0
020
Long-Term Investments Ownership
Unit: Shares / %
SerComm Investment
Total Investment
Investee
Shares
Servecomm Inc.
%
Shares
%
250,000
100.00%
250,000
100.00%
Sercomm Investments Ltd.
1,200,000
100.00%
1,200,000
100.00%
ShuKuan Investments Ltd.
2,800,000
100.00%
2,800,000
100.00%
SerComm Trading Co., Ltd.
42,300,000
100.00%
42,300,000
100.00%
Zealous Investments Ltd.
30,956,000
100.00%
30,956,000
100.00%
SerNet Technology Ltd.
29,900,000
100.00%
29,900,000
100.00%
Smart Trade Inc.
11,500,000
100.00%
11,500,000
100.00%
DWNet Technology Ltd.
11,500,000
100.00%
11,500,000
100.00%
Industrial Bank of Taiwan
4,153,907
0.17%
4,153,907
0.17%
TECO Nanotech Co., Ltd.
287
0.00%
287
0.00%
Liquidating
100.00%
Liquidating
100.00%
540
100.00%
540
100.00%
1,000
100.00%
1,000
100.00%
Taicang SerComm
Technologies Corp.
Sercomm Japan Corp.
Sercomm France SARL
Capital
Unit: Shares, as of April 30, 2011
Authorized Shares
Type of Share
Common Stock
021
Issued Shares
Un-Issued Shares
Total Shares
177,621,426
72,378,574
250,000,000
History of Capitalization
Unit: Shares/ NTD, as of April 30, 2011
Authorized
Paid-In Capital
Year/
Month
Issue
Price
1992/07
10
5,880,000
58,800,000
5,880,000
58,800,000 Initial founding
10
10,000,000
100,000,000
7,000,000
70,000,000 Cash offering
1995/07
10
18,000,000
180,000,000
12,000,000
1996/11
10
28,000,000
280,000,000
24,000,000
28,065,000
Capitalization of
retained earnings,
280,650,000 capital surplus and
employee profit sharing
40,100,000
Capitalization of
retained earnings,
1993/12
1997/08
1998/8
10
10
Source of Capital
Shares
28,065,000
60,000,000
Amount
280,650,000
600,000,000
Shares
Amount
1999/8
10
60,000,000
600,000,000
51,000,000
Capitalization of
retained earnings,
2000/8
10
80,000,000
800,000,000
55,828,000
558,280,000 retained earnings and
Capitalization of
Capitalization of
2001/8
10
91,450,000
914,500,000
61,450,000
Capitalization of
2002/8
10
91,450,000
914,500,000
67,976,900
2002/12
10
91,450,000
914,500,000
75,040,929
750,409,290 Conversion of bonds
2003/4
10
91,450,000
751,739,310
75,173,931
2003/8
10
91,450,000
914,500,000
75,858,659
2003/9
10
137,600,000 1,376,000,000
85,511,191
Capitalization of
2004/3
10
137,600,000 1,376,000,000
86,675,365
022
Authorized
Paid-In Capital
Year/
Month
Issue
Price
2004/4
10
137,600,000 1,376,000,000
87,854,466
2004/7
10
137,600,000 1,376,000,000
91,679,091
2004/9
10
137,600,000 1,376,000,000
2004/10
10
137,600,000 1,376,000,000
96,855,775
968,557,750 shares
2004/11
10
137,600,000 1,376,000,000
98,912,189
989,121,890 and stock options
2005/1
10
137,600,000 1,376,000,000
99,888,725
998,887,250 and stock options
2005/5
10
137,600,000 1,376,000,000
Source of Capital
Shares
Amount
Shares
Amount
Capitalization of
103,855,775 1,038,557,750 retained earnings
Cancellation of treasury
Conversion of bonds
Conversion of bonds
Conversion of bonds
101,186,847 1,011,868,470 and stock options
Capitalization of
retained earnings,
capital surplus and
1,210,922,610 employee profit sharing;
Conversion of bonds
and stock options
2005/9
10
177,600,000 1,776,000,000
121,092,261
2006/1
10
177,600,000 1,776,000,000
121,308,861 1,213,088,610 options
2006/4
10
177,600,000 1,776,000,000
121,636,861 1,216,368,610 options
Conversion of stock
Conversion of stock
Capitalization of
retained earnings
1,383,156,210 and employee profit
sharing; Conversion of
stock options
2006/10
10
177,600,000 1,776,000,000
138,315,621
2007/2
10
177,600,000 1,776,000,000
138,356,221 1,383,562,210 options
Conversion of stock
Capitalization of
retained earnings
1,554,387,210 and employee profit
sharing; Conversion of
stock options
2007/10
10
210,000,000 2,100,000,000
155,438,721
2007/12
10
210,000,000 2,100,000,000
156,281,721 1,562,817,210 options
2008/4
10
210,000,000 2,100,000,000
157,378,721 1,573,787,210 options
2008/9
10
210,000,000 2,100,000,000
170,613,769 1,706,137,690 retained earnings and
Conversion of stock
Conversion of stock
Capitalization of
023
Authorized
Paid-In Capital
Year/
Month
Issue
Price
2008/12
10
210,000,000 2,100,000,000
170,723,269 1,707,232,690 options
2009/4
10
210,000,000 2,100,000,000
170,826,969 1,708,269,690 options
2009/7
10
210,000,000 2,100,000,000
170,944,969 1,709,449,690 options
2010/4
10
210,000,000 2,100,000,000
171,384,969 1,713,849,690 options
2010/9
10
210,000,000 2,100,000,000
171,514,969 1,715,149,690 options
2010/12
10
250,000,000 2,500,000,000
2011/4
10
250,000,000 2,500,000,000
Source of Capital
Shares
Amount
Shares
Amount
Conversion of stock
Conversion of stock
Conversion of stock
Conversion of stock
Conversion of stock
Conversion of bonds
Conversion of bonds
Status of Shareholders
Foreign
Type of
Government Financial Other Legal
Institutions /
Shareholders Agencies Institutions
Entities
Individual
Individual
Treasury
Stock
Total
Number of
Shareholders
2
73
45
25
12,456
1
12,602
Shareholding
953,000
52,090,495
31,664,178
5,956,792
83,745,524
4,029,000
178,438,989
Ownership％
0.53%
29.19%
17.75%
3.34%
46.93%
2.26%
100.00%
024
Distribution Profile of Ownership
Class of Shareholding
Shareholding (share)
%
1-999
4,562
984,916
0.55
1,000-5,000
5,593
12,166,866
6.82
5,001-10,000
1,140
8,866,443
4.97
10,001-15,000
394
4,833,676
2.71
15,001-20,000
243
4,460,055
2.50
20,001-30,000
202
5,151,227
2.89
30,001-40,000
77
2,742,423
1.54
40,001-50,000
65
3,010,280
1.69
50,001-100,000
125
9,096,079
5.10
100,001-200,000
88
12,477,352
6.99
200,001-400,000
34
10,170,221
5.70
400,001-600,000
28
14,189,659
7.95
600,001-800,000
13
9,479,314
5.31
800,001-1000,000
8
7,802,000
4.37
30
73,008,478
40.91
12,602
178,438,989
100.00
Over 1,000,001
Total
025
Number of Shareholders
Market Price, Net Worth, Earnings and Dividends per Share
Unit: NTD/ Thousand Shares
Year
2009
2010
March 31, 2011
Highest
27.00
31.95
32.95
Lowest
10.60
18.15
27.60
Average
19.38
26.71
30.86
Highest
27.00
31.95
−
Lowest
10.60
18.15
−
Before Distribution
14.68
15.09
16.05
After Distribution
13.68
−
−
Original
165,933
167,513
173,047
Adjusted
166,960
−
−
Original
1.24
1.88
0.83
Adjusted
1.23
−
−
1.00
1.55
−
From Retained
Earnings
0
0
−
From Capital
Surplus
0
0
−
Price / Earning Ratio
15.63
14.21
9.30
Price / Dividend Ratio
19.38
17.23
−
Cash Dividend Yield Rate
5.16%
5.80%
−
Original
Market
Price
Adjusted
Net Value
per Share
Weighted Average
Shares
Earnings
per Share
Earning per
Shares
Cash Dividend
Dividends per
Share
(Note1)
Stock Dividend
Return on
Investment
(Note2)
Note1： Pending for Shareholder's approval
Note2： Price / Earning Ratio = Average market price / Earnings per share;
Price / Dividend Ratio= Average market price / Cash dividend per share;
Cash Dividend Ratio = Cash dividend per share / Average market price
Dividend Policy
The appropriations of the Company’s earnings are base on the annual net income. The dividend
amount is determined by the profit earning condition, financial condition and future operating needs for
cash. In principle, dividends could be distributed in cash and/or in the form of stock; nevertheless, cash
dividends shall be no less than 10% of the aggregate amount distributed.
026
Dividends Paid:
Year
EPS
NT$
Cash Dividend
NT$ per share
Share Dividend
NT$ per share
2010
1.88
1.55
−
2009
1.24
1.00
−
2008
1.88
1.50
−
2007
3.65
2.00
0.40
2006
2.69
0.99
0.99
2005
2.76
1.07
1.07
Distribution of Profit
SerComm's Board of Directors adopted a proposal for 2010 profit distribution. This proposal is
subject to approval by shareholders at the annual general meeting, scheduled for June 17, 2011.
Proposal of profit distribution for 2010
Unit: NTD
Cash dividend
$1.55 per share
Cash bouns to employees
$42,450,420
Remuneraton to Directors and Supervisors
$5,660,056
Treasury Stock (Share Buy-back)
Instance
8th
Purpose
Transfer to Employees
Buy-back Period
2008/9/22 ~ 2008/11/21
Price Range (NTD)
10.5 ~ 25.0
Buy-back Volume (Share)
5,000,000
Buy-back Amount (NTD Thousand)
66,254
Cumulative Cancellation and Transfer Volume (Share)
971,000
Cumulative Holding (Share)
Cumulated Holding as a Percentage of Total Issued Shares (%)
027
4,029,000
2.27%
Employee Stock Options
Category
2nd
3rd
4th
Date of Approval by Regulatory
Authority
2003/10/16
2005/11/11
2007/12/3
Issue Date
2003/10/23
2005/11/14
2007/12/14
Number of Shares Issued (Share)
2,400,000
5,000,000
2,000,000
1.34%
2.80%
1.12%
10 years
10 years
5 years
Issue of new shares
Issue of new shares
Issue of new shares
Number of Shares in Exercised
Options (Share)
2,262,200
2,083,500
169,000
Total Amount in Exercised Options
(NTD)
30,162,200
25,926,500
3,380,000
Number of Shares In Unexercised
Options (Share)
0
2,629,000
1,831,000
10.0
11.0
20.0
Number of Shares In Unexercised
Options as Share of Total Issued
Shares (%)
0.00%
1.47%
1.03%
Impact on Shareholders’ Equity (%)
0.00%
1.11%
1.41%
Number of Shares Issued / Total
Issued Shares (%)
Exercise Period
Method of Provision
Price per Share In Unexercised
Options (NTD)
028
Business Overview
Business Scope
Item
2009
2010
Wired Product
19.90%
22.63%
Wireless Product
76.39%
73.83%
Others
3.71%
3.55%
100.00%
100.00%
Total
Main Products
(1) Router
(2) ADSL Gateway
(3) Integrated Access Device
(4) Business Access Point
(5) Wireless LAN Card
(6) Print Server
(7) IP Video Applications
(8) Home Plug AV
(9) VoIP Products
(10) NAS, Network Attached Storage
(11) Cable Products
(12) Smart Home Control/ Surveillance
(13) Femtocell Products
New Products Under Developing
(1) FTTH Products
- EPON Gateway
- GPON/EPON RF Module
(2) Smart Home Control/ Surveillance
- IP Camera Cloud Server
(3) Femtocell Products
- Iuh Femtocell
- LTE Femtocell
- Enterprise Femtocell
(4) Ethernet-over-Cable (EoC) Solutions
029
Industry Overview
1. Industry Status and Development
According to the forecast, the global network communication output value will amount to US$300.5
billion in 2010. The corporate users, investments in telecommunications and consumer markets
appear to be recovering. The demand for mobile internet growing rapidly as of 2009 is expected to
grow at a bursting speed in the future. According to the forecast, the global network communication
output value will amount to US$324.6 billion in 2011, a growth rate 8.02%. Notwithstanding, the
network communication trend consists of the convergence of three networks, digital convergence, the
Internet and cloud computing, all of which will refresh the network communication industry, and cause
a revolution in the network communication industry by focusing on the shipment of high-rank products.
Output Values of Global Network Communication Industry
Unit: USD Billion
Source: MIC
The new network communication trends consist of the convergence of three networks, digital
convergence, the Internet and cloud computing. Accordingly, the demand for network broadband is
increasing and also accelerating the optical fiber layout of telecommunication service providers. In
2010, the global users of broadband will be more than 5 hundred million, including the optical fiber
users accounting for 10% thereof, primarily in Japan and China. The broadband users are expected to
attain 5.76 hundred million, growing by 11.4%, in 2011. Above all, the growth of optical fiber users is
the fastest and, therefore, the market for broadband equipment will continue to grow in 2011.
030
Forecast of Global Broadband Growth
Unit: Million Users
Source: MIC
Given the over-saturation penetration of Wi-Fi in notebooks and the increasing penetration of WiFi modules in smart phones, such new applications as game players, BD players, pads and e-books
have the demand for W-iFi. Besides, following the decline in the price of wireless LANs and modules,
the most critical factor that is driving future growth will be the demand for e-homes. For example, the
electronic appliances in a living room may connect phones, computers and TV sets via the Internet, so
as to fulfill the so-called “Multiple Screens and a Cloud” cloud compting. The global wireless network
output values are expected to attain US$3.98 billion, a growth rate 10.7%, including the output value of
Taiwan accounting for 60% of the global market output values.
Forecast of WLAN Output Value and Growth Rate
Unit: USD Million/ %
Source: MIC
031
Before moving toward its 12th Five-Year Plan, Mainland China has already had rough network
communication construction. Notwithstanding, the disproportionate penetration and coverage resulting
from the tremendous population and geographical territories remains a concern to be resolved
during the Plan. To deal with the “12th Five-Year” Plan, Mainland China expressly defined the “Three
Networks Convergence” included into the 7 strategic industries. As benefited from the Internet, cloud
computing and the convergence of three networks, the network communication equipment will be more
integrated, mobile and intelligent. The network communication industry is expected to move toward its
Two Golden Decades from this year and thereby stimulate the rapid growth of demand for fiber optic
networks, 4G, wireless applications, e-homes and set-top boxes. Above all, the e-home application
is the first priority. Further, Femtocell is also a product valued by various network communication
providers during this year. Driven by the increasing demand, Taiwan’s network communication
providers are expected to have the chance to gain considerable profits. In addition to the convergence
of three networks, the Plan also valued smart and energy-saving development, and the smart grid is
one of the priorities for development. Taiwan’s network communication providers have already owned
the network transmission technology required by the smart grid. It is believed that the increasing
demand for smart grid is expectable in the future, as the energy-saving sense is prevailing increasingly.
2. The Relationship Between the Upstream, Midstream and Downstream Parts of the
Industry
SerComm’s main business is the manufacture of wired and wireless networking products including
network application servers. In the computer networking industry we belong in the midstream segment.
Our upstream includes IC manufacturers and electronic components suppliers while our downstream
includes the average user, network equipment suppliers and enterprise network system developers.
Upstream
Midstream
Downstream
CPU Vendor
LAN NIC
Average User
IC Supplier
Hub
System Integrator
ASIC (in-house design)
Bridge
Enterprise network system developer
ISDN Interface (Terminal Adapter,
Router, Card Modem etc.)
Computer peripherals/ Printer/Fax/
Modem /ISDM/Multimedia Vendor
Resistor and Capacitor Supplier
Network Application Server
Network Hardware Vendor
Adapter Supplier
Network Operating System
PCB Maker
Chip
Passive Component
DRAM and SRAM Supplier
Flash Memory Supplier
032
3. Summary of 802.11 Wireless Networking Specification Standards
802.11a
802.11b
802.11g
802.11n
Frequency Band
5 GHz
2.4 GHz
2.4 GHz
2.4 or 5 GHz
Max Speed
54Mps
11Mps
54Mps
540Mps
50 meter
100 meter
100 meter
100 meter
Spread Spectrum
Technology
OFDM
DSSS
OFDM
OFDM
Channel Bandwidth
20MHz
20MHz
20MHz
20 or 40MHz
Transmission Distance
802.11n is the latest WiFi technology. The transmission rate thereof, 540Mps, is 10 times that of
the previous generation, 802.11g, 54Mps. When such technology hit the market in 2006, it was difficult
to replace 802.11g, because of the new technology and high production cost resulting in the insufficient
market penetration rate. Notwithstanding, due to the increasingly mature 802.11n technology and
reduction of cost, the acceptability of 802.11n is increasing. According to the forecast of Topology
Research Institute, the market penetration rate of 802.11n in 2012 will be increased from 38.6% in
2009 to 71.1%. Apparently, 802.11n will become the mainstream product.
The development of 802.11n technology is maturing, and will be oriented towards simplified design
and cost reduction to have it launched into consumption electronics and wireless digital electronic
appliances. If the 802.11n standard is enacted, it will help reduce the cost, and for enterprise WLAN
users who care about the interoperatability of standards, it will help increase their willingness to purchase
802.11n enterprise WLAN equipment. Due to the increasing expansion of the product applications, the
market demand for 802.11n will be increased, thereby stimulating the shipping of 802.11n.
Further, Femtocell is also a product valued by various network communication providers in 2011.
Driven by the increasing demand, Taiwan’s network communication providers are expected to have
the chance to gain considerable profits.
Femtocell refers to the equipment similar to AP. As long as it connects the backbone network, it
may integrate such communication technologies as 2G, 3G, Wi-Fi and even WiMAX and LTE. Its most
important characteristic resides in high-usage transmission. Despite the small coverage, only 10M around,
it fits home connections and also satisfies enterprises’ needs for business, due to low electromagnetic
waves. Moreover, the currently high price and gross margin of Femtocell are expected to boost the
operating revenues and earnings of the factories. Though the price of Femtocell will decline to less than
US$100, the price war and declination for Femtocell will not be so rigid as the distribution market, as
Femtocell is a telecommunication product instead of a retail product. Therefore, it still will help the relevant
providers’ profitability for next two or three years positively. Femtocell Network Framework Illustration:
033
From consumers' point of view, under the current wireless network framework, connection of
the mobile communication equipment with outdoor base stations varies depending on landforms,
buildings, climate and excessive users and the communication quality is uneven. However, Femtocell
may improve the quality and stability of signals effectively. As far as high-rate users are concerned,
the program may help them reduce the communication cost effectively.
From the telcos’ point of view, Femtocell may improve such problems as insufficient coverage and
weak signals and may help boost users’ experience and reduce the loads of base stations and relevant
infrastructures. According to Qualcomm statistics, about 70%-80% of the broadband requests come
from high-usage users. Assuming that the traffic per person per month is 1GB, the telecos’ layout
cost may be cut by 40%, if 60% of such users adopt Femtocell service. Please see the following
illustration:
Source: Qualcomm
034
Following the promotion of Femtocell service boosted by the telecos in various countries, iSuppli
forecast that the globally installed bases will grow rapidly year by year. Please see the following
illustration:
Femtocell Global Shipment and Price
Source: iSuppli, Nov. 2010
SerComm has developed business in this area for more than two years, and was the first vendor
making shipment to Japanese telecos in 2010. It controlled the key technology and developed the
market in Europe and the U.S.A. successfully.
The network equipment products primarily include modem, PC card and communication module.
There are multiple domestic competitors, including Gemtek, D-Link, CAMEO, ZyXEL, CyberTAN,
ACCTON, Askey, CNet and Foxconn, in addition to Usher Audito, Amigo Technology, Pro-Nets
Technology, RDC, Wontex, Hauman, Kinpo, Netronix Inc., PLANET Technology, Alpha Networks,
Opnet, UFO Communication, TAINET Communication, YFC-BonEagle ELECTRIC CO., LTD., Loop
Telecommunication and SHIN FENG COMMUNICATION CO., LTD., et al. The Company is the 3rd
largest supplier of WLAN broadband routers/gateways in the world, and the 6th largest supplier of
integrated access equipment in Taiwan. The Company will be oriented toward diversified development
on R&D of products and will conduct stricter control over the production process to ensure the quality
to make the product more competitive. Meanwhile, the Company will work hard to solicit international
leading manufacturers for OEM/ODM orders. The Company’s market share is expected to grow year
by year in the future.
035
Research & Development Expenses
Unit: Thousand NTD
Item
R&D Expenses
Net Sales
R&D/Net Sales (%)
2010
1Q 2011
291,149
64,647
6,794,111
1,685,084
4.29%
3.83%
R&D Achievements:
(1) VDSL Gateway
(2) GPON Gateway
(3) H.264 HD 11n IP Surveillance Camera
(4) H.264 HD wireless (802.11n) Video Server
(5) Network Video Recorder
(6) 11n Security Gateway
(7) Video Bridge
(8) Residential Femtocell Products
Long-term and Short-term Business Development Plans
1. Long-term Development Plans
(A) Enrich knowledge of the industry, cultivate employees with expertise in industry IT networks and
develop core technology products.
(B) Strengthen collaboration with well-known international technology companies, improve
technology R&D capability and develop high value-added products.
(C) Actively develop new products with the goal of diversifying operations and entering the
international market.
2. Short-term Development Plans
(A) Marketing strategy
Consolidate existing customers and actively expand the market; build a complete marketing network;
fully implement quality assurance and inspection measures. Set up a comprehensive after-sales
service to provide customers with professional advice and repair services for products.
(B) Production strategy
Strengthen product planning and production process management. Provide employees with
re-training as well as implement budget and cost control measures to increase productivity and
reduce production costs. Fully implement quality assurance and inspection measures.
036
Market, Production and Sales Outlook
Revenue Breakdown by Geography
Unit: Thousand NTD
2009
2010
Region
Amount
%
Amount
%
Taiwan
211,321
3.11
120,053
1.47
Europe
3,582,648
52.73
3,614,980
44.34
North America
2,424,329
35.68
3,186,802
39.08
533,273
7.85
1,229,839
15.08
42,540
0.63
2,159
0.03
6,794,111
100.00
8,153,833
100.00
Asia ex-Taiwan
Other
Total
Future Supply and Demand in the Market and Potential for Growth
(A) The emergence of low-price PCs has led to strong growth in the market for personal computers
and peripheral devices around the world. With the rapid spread of the Internet, there has not
only been strong growth in demand for the associated hardware but also in home networking
and broadband Internet access.
(B) Users are greatly dependent on the Internet greatly in the Internet Age. The broadband of fixed
networks and mobile Internet will be insufficient to meet the demand. Therefore, the telecos will
be forced to upgrade and construct base stations,stations; the relevant equipment procurement
project may bring about profitable gains.
(C) As the market is now dictated by consumer demand, major international vendors are adopting
an aggressive pricing strategy. To achieve this, they are reducing costs and outsourcing to
overseas manufacturers. This in turn has driven the revenue growth of Taiwanese networking
equipment manufacturers. With upstream chip suppliers now moving towards higher port
numbers and key chips gradually entering mass production, this will reduce the manufacturing
costs for downstream manufacturers. The increase in competitiveness and market suitability
will see order volumes increase in the future.
(D) Wireless products will become mainstream in the future. Widespread adoption of the Internet
and increasing maturity of the broadband market will allow wireless networking to free itself
from the constraints of wired networks, though further development is needed with the quality
037
and stability of wireless networking.
(E) MIC forecast that the output value of WLAN will grow by 10.7%, namely US$3.98 billion,
globally in 2011. Taiwan’s market value accounts for 60% of the global WLAN market value.
Therefore, Taiwan’s service providers may also benefit from the continuous growth of WLAN
output value.
(F) As benefited from the Internet, cloud computing and the convergence of three networks, the
network communication equipment will be more integrated, mobile and intelligent. The network
communication industry is expected to move toward its Two Golden Decades from this year and
thereby stimulate the rapid growth of demand for optical fiber network, 4G, wireless application,
e-home and set-top box.
Competitive Niche
SerComm has foreseen the increasing maturity of the broadband networking market in the
future and our products can now all use wireless technology. Our customers have also recognized
the quality and stability of our products. We are continuing to enhance our product features to meet
market demand so all these will have a positive effect on revenue in the future with the Internet
becoming even more widespread and the growth of the broadband market.
Positive and Negative Factors in Long-Term Development
(A)Positive Factors
a. High level of flexibility in product combinations
SerComm’s business portfolio is divided into large-scale volume production of lower-margin
products and custom higher-margin niche products. It is SerComm’s intention to maintain a business
model that balances volume commodity/niche products after taking the company’s long-term strategy
and market positioning into account. Primary focus is given to consolidating existing markets and
customers with the goal of pursuing steady growth while maintaining profit margins. This approach is
aimed at strengthening and reinforcing the company’s operations. The company’s business strategy
will also adjust profits and revenues as necessary in order to build up SerComm’s economies of scale
and boost our market standing.
b. Leadership in technology R&D
SerComm was the first Taiwanese manufacturer to develop wireless routers, wireless printer
038
servers and MFPs. We were also the first company to announce an 11n ADSL Gateway and the first
company in Taiwan to announce a mesh WiFi router. Our customers have all acknowledged these
products’ quality and attractiveness to the market, allowing us to join the ranks of suppliers to front-line
brands. The collaboration with international networking companies contributes towards our product’s
international competitiveness and continued business expansion.
c. Lead Production capacity of SerNet (Suzhou) II has been well-found
Due to the increasing demand in 2010, the production capacity of Suzhou Factory was expanded.
For the time being, the monthly production capacity attains 1.5 million units enough to meet the
Company’s growth. There is no further expansion plan now. However, new factory premises are still
expandable, and new production capacity will be decided subject to the future orders.
d. Layout of telecommunication service provider
This market demands multiple application equipments which are high value-added, instead of low
gross profit market. In terms of QuadPlay (four in one) and Femtocell, it is expected that the shipments
will be increased due to the increasing demand in the market, thereby helping the average price and
gross profit rate positively.
(B) Unfavorable Factors and Countermeasures
The Company’s trading counterparts are categorized into retail, SMB and Telecom. The price
competition in the retail market is intensive because of the low differentiation in products in the same
trade. Therefore, the growth of certain mass-production products, such as Home Router, Home
Gateway and Adapter, is limited. To deal with the declining retail customers, the Company intervenes
and increases the weight of sale to SMB and Telcom in a timely manner to prevent itself from engaging
in the intensive price war with the same trade. The Company successively generated new production
capacity since 2010/3Q, and received orders from Chinese network communication brands and,
therefore, launched into the layout of WLANs in such emerging market as Mainland China. Further,
due to the increasing demand for home safety controls, safety control products and IP Cameras are
also driving the Company’s growth.
Main Product Applications
With its strength in integration of network communication products accumulated after many
years, SerComm has not only become the leading supplier of world-class WLAN equipment but also
controls the critical technology for Next-Generation Networks after the continuous R&D in network
communication technology. To deal with the emerging network applications integrated into homes,
SerComm created value-added network communication products with its high-level software and
hardware product integration technology. The whole series of high-performance, high-quality and
039
diversified professional broadband network communication products include broadband network
communication access points, home network communication products, network application equipment,
e-Cameras & safety control equipment, and network voice products. No matter whether at home or in
the office, they may satisfy customers’ demands for diversified and all-in-one digital integration network
communication.
Product Manufacturing Process
The manufacturing processes for our company’s products are divided into PCB assembly and final
product assembly.
PCB assembly includes the SMT process and the DIP insertion process. The process is as
follows:
The final product assembly process is as follows:
040
Production - A
Unit: Thousand NTD; Unit
2008
2010
Item
Capacity
Quantity
Amount
Capacity
Quantity
Amount
Wired Product
3,000,000
1,050,980
1,304,356
4,000,000
1,194,726
1,726,557
Wireless Product
8,000,000
6,144,239
5,335,318
9,000,000
7,150,142
5,806,171
11,000,000
7,195,219
6,639,674
13,000,000
8,344,868
7,532,728
Total
Production - B
Unit: Thousand NTD; Unit
2009
2010
Export
Item
Quantity
Export
Quantity
Amount
933,860 1,319,181
21,298
32,674
Wireless Product 5,558,268 5,263,608
345,727
Total
367,025
Wired Product
Amount
Domestic
6,492,128 6,582,789
Quantity
Domestic
Amount
Quantity
Amount
1,134,507 1,800,373
27,841
44,437
178,648
6,741,815 6,233,408
181,522
75,615
211,322
7,876,322 8,033,781
209,363
120,052
Employees
Year
2009
2010
2011/04/30
Headcount
394
439
431
Average Age
37.3
37.6
37.5
Employment Period (years)
5.4
4.7
4.7
Ph. D.
0%
1%
1%
Master
23%
26%
24%
College
64%
61%
63%
Senior High School
10%
9%
9%
Junior High School or Lower
3%
3%
3%
As Total
Employees %
041
Financial Review and Operating Results
Condensed Balance Sheet
Unit: Thousand NTD
Year
2006
2007
2008
2009
2010
2011/03/31
3,292,125
3,150,339
2,953,601
2,651,058
3,752,691
3,827,215
Long-Term Investments
and Funds
787,439
1,058,495
1,190,451
1,230,522
1,494,735
1,768,948
Fixed Assets
489,545
542,789
521,469
504,639
511,298
509,842
Intangible Assets
110,426
112,229
108,421
99,651
122,074
120,301
58,002
115,230
176,689
138,673
139,885
137,101
4,737,537
4,979,082
4,950,631
4,624,543
6,020,683
6,363,407
Before
Distribution
2,624,053
2,193,131
2,063,382
1,821,367
2,535,261
2,694,866
After
Distribution
2,771,525
2,517,141
2,312,122
1,987,752
−
−
258,628
400,142
376,673
361,801
873,691
828,855
5,989
7,149
5,208
5,546
14,551
42,902
Before
Distribution
2,888,670
2,600,422
2,445,263
2,188,714
3,423,503
3,566,623
After
Distribution
3,036,142
2,924,432
2,694,003
2,355,099
−
−
1,383,562
1,562,817
1,707,233
1,709,450
1,760,873
1,783,303
140,426
142,419
146,569
149,171
196,598
219,653
Before
Distribution
493,240
694,940
553,450
510,193
658,256
801,810
After
Distribution
181,898
238,579
304,710
343,808
−
0
0
0
0
0
0
38,525
83,700
164,370
133,269
34,841
45,406
0
0
0
0
0
0
Before
Distribution
1,848,867
2,378,660
2,505,368
2,435,829
2,597,180
2,796,784
After
Distribution
1,701,395
2,054,650
2,256,628
2,269,444
−
−
Current Assets
Other Assets
Total Assets
Current
Liabilities
Long-Term Liabilities
Other Liabilities
Total Liabilities
Capital
Capital Reserve
Retained
Earnings
Unrealized Loss/Gain on
Financial Assets
Cumulative Translation
Adjustment
Unrealized Loss on Retirement
Shareholders'
Equity
−
042
Condensed Statement of Income
Unit: Thousand NTD
Year
2006
2007
2008
2009
2010
2011/03/31
9,120,147
10,170,774
8,488,652
6,794,111
8,153,833
2,452,124
Gross Profit
938,315
1,305,663
1,060,652
817,015
1,025,843
368,106
Operating Income
374,526
619,280
392,203
193,034
249,871
148,868
Non-Operating Income
77,245
106,833
39,644
88,105
152,719
34,355
Non-Operating Expenses
40,876
88,072
28,502
30,680
31,790
11,321
Pre-Tax Income from
Continuing Operations
410,895
638,041
403,345
250,459
370,800
171,902
Net Income / Loss form
Continuing Operations
355,091
539,408
329,115
205,483
314,448
143,554
75
0
0
0
0
0
Net Income
355,166
539,408
329,115
205,483
314,448
143,554
EPS (NTD)
2.37
3.24
1.88
1.24
1.88
0.83
Net Sales
Cumulative Effect of
Change in Accounting
Principle
043
Financial Analysis
Year
2006
2007
2008
2009
2010
2011/03/31
60.97
52.23
49.39
47.33
56.86
56.05
Long-term Funds to Fixed
Assets
430.50
511.95
552.68
554.38
678.84
711.13
Current Ratio
125.46
143.65
143.14
145.55
148.02
142.02
Quick Ratio
84.99
111.74
114.40
113.36
117.88
100.68
Time Interest Earned
6,986
10,905
4,700
2,444
2,535
2,790
AR Turnover (Times)
7.86
7.41
6.38
5.99
6.52
7.57
46.42
49.23
57.29
60.95
55.95
48.20
Inventory Turnover (Times)
9.41
10.38
12.10
10.74
11.18
9.53
AP Turnover (Times)
4.67
4.24
4.43
4.29
4.92
4.83
Inventory Turnover (Days)
38.81
35.18
30.18
33.99
32.65
38.30
Fixed Assets Turnover (Times)
17.70
19.70
15.95
13.24
16.05
19.21
Total Assets Turnover (Times)
2.26
2.09
1.71
1.42
1.53
1.58
Return on Assets (%)
8.90
11.19
6.76
4.46
6.12
2.40
Return on Equity (%)
19.86
25.52
13.48
8.32
12.50
5.32
Operating Income
27.07
39.63
22.97
11.29
14.19
8.35
Pre-Tax Income
29.70
40.83
23.63
14.65
21.06
9.64
Net Income / Sales (%)
3.89
5.30
3.88
3.02
3.86
5.85
EPS (NTD)
2.69
3.65
1.88
1.24
1.88
0.83
33.76
23.95
14.82
21.59
3.03
22.50
155.23
194.44
167.90
170.65
132.74
130.14
35.65
14.22
(0.31)
5.11
(2.60)
16.65
Operating Leverage
2.28
2.55
3.18
4.53
4.16
2.54
Financial Leverage
1.02
1.01
1.02
1.06
1.06
1.04
Total Liabilities to Total Assets
Financial
Ratio (%)
Liquidity (%)
AR Turnover (Days)
Operating
Performance
Profitability
To Pay-in
Capital %
Cash Flow Ratio (%)
Cash Flow
Cash Flow Adequacy Ratio (%)
Cash Reinvestment Ratio (%)
Leverage
044
1. Financial Ratio
(1) Total Liabilities to Total Assets＝Total Liabilities ／Total Assets
(2) Long-term Funds to Fixed Assets＝（Net Equity＋Long-term Funds）／Net Fixed Assets
2. Ability to Pay Off Debt
(1) Current Ratio＝Current Assets／Current Liability
(2) Quick Ratio＝（Current Assets−Inventory−Prepaid Expenses）／Current Liability
(3) Interest Protection＝Net Income Before Income Tax and Interest Expense／Interest Expense
3. Ability to Operate
(1) Account Receivable (including Account Receivable and Notes Receivable from Operation)
Turnover＝Net Sales／the Average of Account Receivable (including Account Receivable and
Notes Receivable from Operation) Balance
(2) A/R Turnover Day＝365／Account Receivable Turnover
(3) Inventory Turnover＝Cost of Goods Sold／the Average of Inventory
(4) Account Payable (including Account Payable and Notes Payable from Operation) Turnover＝
Cost of Goods Sold／the Average of Account Payable（including Account Payable and Notes
Payable from Operation）Balance
(5) Inventory Turnover Day＝365／Inventory Turnover
(6) Fixed Assets Turnover＝Net Sales／Net Fixed Assets
(7) Total Assets Turnover＝Net Sales／Total Assets
4. Earning Ability
(1) Return on Assets＝㖮PAT＋Interest Expense×(１−Interest Rate)㖯／the Average of Total Assets
(2) Return on Equity＝PAT／the Average of Net Equity
(3) Net Income Ratio＝PAT／Net Sates
(4) EPS ＝（PAT− Dividend from Prefer Stock）／Weighted Average Outstanding Shares
5. Cash Flow
(1) Cash Flow Ratio＝Cash Flow from Operating Activities／Current Liability
(2) Cash Flow Adequacy Ratio＝Most Recent 5-year Cash Flow from Operating Activities／Most
Recent 5-year (Capital Expenditure＋the Increase of Inventory＋Cash Dividend)
(3) Cash Investment Ratio＝（Cash Flow from Operating Activities−Cash Dividend）／(Gross
Fixed Assets＋Long-term Investment＋Other Asset＋Working Capital)
6. Leverage
(1) Operating Leverage＝(Nest Revenue−Variable Cost of Goods Sold and Operating Expense)
／Operating Income
(2) Financial Leverage＝Operating Income／(Operating Income−nterest Expenses)
045
Financial Position
Unit: Thousand NTD
Item
Current Assets
2009
2010
Difference
Change %
$2,651,058
$3,752,691
$1,101,633
41.55
Fixed Assets
504,639
511,298
6,659
1.32
Other Assets
138,673
139,885
1,212
0.87
Total Assets
4,624,543
6,020,683
1,396,140
30.19
Current Liabilities
1,821,367
2,535,261
713,894
39.20
361,801
873,691
511,890
141.48
Total Liabilities
2,188,714
3,423,503
1,234,789
56.42
Capital
1,709,450
1,760,873
51,423
3.01
Capital Reserves
149,171
196,598
47,427
31.79
Retained Earnings
510,193
658,256
148,063
29.02
2,435,829
2,597,180
161,351
6.62
Long-term Liabilities
Total Shareholders' Equity
Operating Results
Unit: Thousand NTD
Year
Sales Revenue
2009
2010
Difference
Change%
6,955,728
$8,212,358
1,256,630
18.07
161,617
58,525
-103,092
-63.79
Net Sales
6,794,111
8,153,833
1,359,722
20.01
Cost of Goods Sold
5,977,096
7,127,929
1,150,833
19.25
817,015
1,025,904
208,889
25.57
-403
-61
342
84.86
Realized Gross Profit
816,612
1,025,843
209,231
25.62
Operating Expenses
623,578
775,972
152,394
24.44
Operating Income
193,034
249,871
56,837
29.44
Non-operating Income
88,105
152,719
64,614
73.34
Non-operating Expenses
30,680
31,790
1,110
3.62
Pre-tax Income from Continuing
Operation
250,459
370,800
120,341
48.05
Income Tax Benefit (Expenses)
44,976
56,352
11,376
25.29
205,483
314,448
108,965
53.03
0
0
0
205,483
314,448
108,965
Sales Return /Allowances
Gross Profit
Unrealized Profit from
Intercompany Transactions
Net Income from Continuing
Operation
Cumulative Effect of Change in
Accounting Principle
Net Income
53.03
046
Analysis of Cash Flow
Year
2009
Cash Flow Ratio (%)
Cash Flow Adequacy Ratio (%)
Cash Reinvestment Ratio (%)
2010
Change %
21.59%
3.03%
85.97%
170.65%
132.74%
-22.21%
5.11%
-2.60%
-151.88%
Projected Cash Flow
Unit: Thousand NTD
Beginning
Cash Balance
Cash Flows
from Operating
Activities
Cash Flows
from Investing
& Financing
Activities
Projected Ending
Cash Balance
1,338,150
216,572
368,375
1,186,347
Source of Funding for
Cash Shortfall
Investing
Plan
Financing
Plan
−
−
Analysis for Investment Over 5% of Paid-in Capital
Year 2010
Investment Amount
(NT$ /US$ thousand)
Policy
Improvement Plan
US$250
US Marketing
NA
Sercomm Investment
US$1,200
Foreign Investment
NA
NT$28,000
Local Investment
NA
SerComm Trading Co., Limited.
US$34,300
Foreign Investment
NA
US$30,956
Foreign Investment
NA
US$24,900
Global Manufacture
NA
Smart Trade Inc.
US$3,500
Foreign Investment
NA
US$3,500
China Sales
NA
Taicang SerComm Technologies Corp.
US$4,800
Global Manufacture
NA
Company
Servecomm Inc
047
Special Disclosures
Affiliated Companies Chart
048
Affiliated Companies
Company
049
Date of Incorporation
Paid-in Capital
Major Business
ServeComm Inc.
1996/9/25
USD$250,000
SerComm Investments Ltd.
2001/10/09
USD$1,200,000
Investment Overseas,
Technology R&D, International
Trading
2002/12/31
NT$28,000,000
Investment Activity
SerComm Trading Co., Limited
2002/6/24
USD$42,300,000 Technology R&D, International
Trading
1999/8/12
Trading
2000/02/18
Manufacture of Routers,
Communication Products, WLAN
USD$29,900,000
Products; Sales and After-sales
Service
Smart Trade Inc.
2003/03/21
Trading
2004/01/14
USD$11,500,000
Sales of IT Products
R&D Center of Software; Sales
and After-sales Service
Manufacture of Routers,
Communication Products, WLAN
Products; Sales and After-sales
Service
Taicang SerComm Technologies
Corp.
2008/1/8
Liquidating
SerComm Japan Corp.
2010/3/15
JPY$27,000,000
Sales of IT Products and
International Trading
SerComm France SARL
2011/1/27
EUD$100,000
Sales of IT Products and
International Trading
REPORT OF INDEPENDENT AUDITORS
To Sercomm Corporation
We have audited the accompanying consolidated balance sheets of Sercomm Corporation and
subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated
statements of income, changes in stockholders’ equity and cash flows for the years ended December
31, 2010 and 2009. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with “Guidelines for Certified Public Accountants
Examination and Reporting on Financial Statements” and generally accepted auditing standards in
the Republic of China. Those 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, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall consolidated 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 Sercomm Corporation and subsidiaries as of December 31, 2010
and 2009, and the results of their operations and their cash flows for the years then ended, in
conformity with “Business Entity Accounting Act”, “Regulation on Business Entity Accounting
Handling” with respect to financial accounting standards, “Guidelines Governing the Preparation of
Financial Reports by Securities Issuers”, and generally accecpted accounting principles in the
Republic of China.
Feb 25, 2011
Taipei, Taiwan
Republic of China
Notice to Readers
The accompanying consolidated financial statements are intended only to present the consolidated financial position,
results of operations and cash flows in accordance with accounting principles and practices generally accepted in the
Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such
consolidated financial statements are those generally accepted and applied in the Republic of China.
050
SERCOMM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2010 and 2009
(Expressed in Thousands of New Taiwan Dollars)
Assets
Current assets
Cash
Financial assets at fair value through profit or loss-current
Notes and Accounts receivable-net
Other receivables
Inventories-net
Other current assets
Deferred income tax assets-current
Restricted assets
Total current assets
Funds and investments
Financial Assets as fair value through profit or loss-noncurrent
Financial assets measured at cost-noncurrent
Total funds and investments
Property, plant and equipment
Buildings
Machinery and equipment
Research and development equipment
Office and other equipment
Leased assets
Total cost
Less: Accumulated depreciation
Construction in progress
Prepayments for equipment
Property, plant and equipment-net
Intangible assets
Computer software cost-net
Other intangible assets
Land use right
Total intangible assets
Other assets
Property not used in operations
Refundable deposits
Deferred charges
Total other assets
Total assets
Notes
4
2 and 5
2 and 6
2, 5 and 7
2, 3 and 23
26
2 and 13
2 and 8
As of December 31,
2010
2009
Amount
%
Amount
$2,044,583
10,337
1,790,293
133,606
1,316,917
178,032
20,426
8,654
5,502,848
25.62
0.13
22.44
1.67
16.50
2.23
0.26
0.11
68.96
$1,984,213
2,531
1,041,536
76,634
794,396
89,475
25,557
15,744
4,030,086
34.09
0.04
17.90
1.32
13.65
1.54
0.44
0.27
69.25
1,487
105,714
107,201
0.02
1.32
1.34
47,454
47,454
0.82
0.82
655,421
919,503
187,641
184,398
457,030
2,403,993
(500,129)
39,725
33,117
1,976,706
8.21
11.52
2.35
2.31
5.73
30.12
(6.27)
0.50
0.42
24.77
318,412
624,652
278,037
114,458
457,030
1,792,589
(464,590)
272
113,233
1,441,504
5.47
10.73
4.78
1.97
7.85
30.80
(7.98)
1.95
24.77
57,818
70,651
102,039
230,508
0.72
0.89
1.28
2.89
38,861
69,666
11,625
120,152
0.66
1.20
0.20
2.06
83,385
25,600
53,305
162,290
1.05
0.32
0.67
2.04
83,542
39,150
57,502
180,194
1.44
0.67
0.99
3.10
$7,979,553
100.00
2, 9 and 26
2 and 10
26
2 and 11
26
2
The accompanying notes are an integral part of the consolidated financial statements.
051
%
$5,819,390 100.00
CONSOLIDATED BALANCE SHEETS
Liabilities and Stockholders' Equity
Current liabilities
Short-term loans
Notes payable
Accounts payable
Income tax payable
Accrued expenses
Lease payables-current
Other current liabilities
Total current liabilities
Long-term liabilities
Bonds Payable
Lease payables-noncurrent
Total long-term liabilities
Other liabilities
Accrued pension liabilities
Deferred income tax liabilities-noncurrent
Total other liabilities
Total liabilities
Stockholders' equity
Capital
Common stock
Advance receipts for common stock
Capital reserve
Bonds conversion premiums
Employee stock option
Stock option
Retained earnings
Legal reserve
Unappropriated earnings
Adjusting items in stockholders' equity
Cumulative translation adjustments
Treasury stock
Total stockholders' equity
Total liabilities and stockholders' equity
Notes
2
2, 3 and 23
25
2 and 14
2 and 13
2 and 14
2 and 15
2, 3 and 23
As of December 31,
2010
2009
Amount
%
Amount
%
$1,482,803
42,486
2,101,803
121,662
520,644
18,465
206,268
4,494,131
18.58
0.53
26.34
1.53
6.52
0.23
2.59
56.32
$864,094
34,013
1,586,220
62,224
329,531
18,035
122,097
3,016,214
14.85
0.58
27.26
1.07
5.66
0.31
2.10
51.83
526,760
346,931
873,691
6.60
4.35
10.95
361,801
361,801
6.22
6.22
5,673
8,878
14,551
5,382,373
0.07
0.11
0.18
67.45
5,546
5,546
3,383,561
0.09
0.09
58.14
1,747,405
13,468
21.90
0.17
1,709,450
-
29.38
-
164,399
26,253
5,946
2.06
0.32
0.08
128,530
20,641
-
2.21
0.35
-
273,125
385,131
3.42
4.83
252,576
257,617
4.34
4.43
34,841
(53,388)
2,597,180
0.44
(0.67)
32.55
133,269
(66,254)
2,435,829
2.29
(1.14)
41.86
16
18
2 and 13
2 and 13
19 and 20
2
2 and 21
$7,979,553 100.00
$5,819,390
100.00
052
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 2010 and 2009
(Expressed in Thousands of New Taiwan Dollars, Except for Per Share Data)
Notes
Sales
Less : Sales returns and allowances
Net sales
Cost of goods sold
Gross profit
Operating expenses
Selling expenses
General and administrative expenses
Research and development expenses
Subtotal
Operating income
Non-operating income
Interest income
Dividend income
Foreign exchange gain-net
Gain on valuation of financial assets-net
Other income
Total non-operating income
Non-operating expenses
Interest expense
Loss on disposal of property, plant and equipment
Foreign exchange loss-net
Other losses
Total non-operating expenses
Income from continuing operations before income tax
Income tax expense
Net income
2
7 and 22
2010
Amount
%
$8,698,312
100.68
(58,525)
(0.68)
8,639,787
100.00
(7,192,936)
(83.25)
1,446,851
16.75
22 and 25
295,447
344,439
454,472
1,094,358
352,493
30
2
2
2, 5, 13 and 30
12,111
831
36,796
13,199
12,284
75,221
9, 13 and 30
2
2
11
2, 3 and 23
Attributable to:
Stockholders of the parent
Minority interests
Net income
32,328
1,464
7,284
Basic earnings per share (New Taiwan Dollars)
Net income
Minority interests
2 and 24
Diluted earnings per share (New Taiwan Dollars)
Net income
Minority interests
2 and 24
3.42
3.99
5.26
12.67
4.08
0.14
0.01
0.43
0.15
0.14
0.87
928,874
262,597
9,600
11,466
16,580
37,646
19,437
2,386
6,689
13,932
2.80
4.18
6.12
13.10
3.71
0.14
0.16
0.23
0.53
41,076
386,638
(72,190)
$314,448
42,444
257,799
(52,316)
$205,483
0.28
0.03
0.09
0.20
0.60
3.64
(0.74)
2.90
$314,448
$314,448
3.64
3.64
$205,483
$205,483
2.90
2.90
$2.31
$2.31
$2.17
$2.17
After tax
Before tax
$1.88
$1.88
$1.54
$1.77
$1.77
$1.52
198,343
296,516
434,015
0.37
0.02
0.08
0.47
4.48
(0.84)
3.64
Before tax
053
2009
Amount
%
$7,250,420
102.28
(161,617)
(2.28)
7,088,803
100.00
(5,897,332)
(83.19)
1,191,471
16.81
$1.54
$1.52
After tax
$1.23
$1.23
$1.21
$1.21
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Description
Balance as of January 1, 2009
Appropriation of 2008 retained earning
Legal reserve
Cash dividends
Change in cumulative translation adjustments of investees
Exercise of employee stock options
Compensation costs for Treasury stock transfer to employees
Net income in 2009
Balance as of December 31, 2009
Appropriation of 2009 retained earning
Legal reserve
Cash dividends
Change in cumulative translation adjustments of investees
Compensation costs for Treasury stock transfer to employees
Treasury stock transfer to employees
Convertible bonds converted into common stock
Equity instrument from Convertible bonds
Net income in 2010
Notes
Retained Earnings
Capital
Capital
Common
Common
Stock
$1,707,233
collected
in advance
$-
2,217
1,709,450
-
70
2,532
149,171
32,911
252,576
(32,911)
(248,740)
205,483
257,617
(31,101)
133,269
18,910
19,045
$1,747,405
13,468
$13,468
3,288
2,324
35,869
5,946
$196,598
20,549
$273,125
(20,549)
(166,385)
314,448
$385,131
- (166,385)
(98,428)
(98,428)
22,198
2,324
12,866
12,866
68,382
5,946
314,448
$34,841 $(53,388) $2,597,180
Cumulative
Capital
Unappropriated Translation Treasury
Reserve Legal Rasorve Earnings Adjustments Stock
Total
$146,569
$219,665
$333,785 $164,370 $(66,254) $2,505,368
20
2
17
2
- (248,740)
(31,101)
2,287
2,532
205,483
(66,254) 2,435,829
20
2
17
2
21
16
13
054
CONSOLIDATED STATEMENTS OF CASH FLOWS
2010
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Amortization of discount on bonds payable
Gain on valuation of financial assets
Loss on disposal of property, plant and equipment
Compensation costs for treasury stock transfer to employees
Changes in assets and liabilities:
Financial assets at fair value through profit or loss-current
Notes and accounts receivable-net
Inventories-net
Other receivables
Deferred income tax assets
Notes payable
Accounts payable
Income tax payable
Accrued expenses
Financial liabilities at fair value through profit or loss-current
Deferred income tax liabilities
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Decrease in restricted assets-current
Acquisition of financial assets at cost-noncurrent
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Increase in computer software cost
Increase in other intangible assets
Decrease (increase) in land use right
Decrease (increase) in refundable deposits
Increase in deferred charges
Net cash used in investing activities
Cash flows from financing activities:
Increase in short-term loans
Issurance of bonds payable
Decrease in lease payables
Cash dividends
Treasury stock transfer to employees
Net cash provided by financing activities
Effects from exchange rate changes
Net increase in cash
Cash at beginning of the year
Cash at end of the year
Supplemental disclosures of cash flows information:
Cash paid for income tax
Cash paid for interest
Financing activities not affecting cash flows:
Lease payables-current
$314,448
$205,483
200,383
5,321
(719)
1,464
2,324
197,753
2,386
2,532
(7,806)
(748,757)
(522,521)
(56,972)
(88,556)
5,130
8,474
515,583
59,438
191,113
84,169
127
8,878
(28,479)
(1,869)
274,836
1,130
13,031
2,932
53,791
(314)
35,019
(29,415)
45,682
(763)
26,256
338
828,808
7,090
(58,260)
(719,240)
1,117
(39,397)
(24,786)
(91,335)
13,550
(19,682)
(930,943)
7,447
(195,214)
33
(8,846)
(22,771)
78,409
(15,353)
(21,094)
(177,389)
618,709
595,000
(14,440)
(166,385)
22,198
12,866
1,067,948
(48,156)
60,370
1,984,213
$2,044,583
285,054
(14,530)
(248,740)
2,287
24,071
(10,495)
664,995
1,319,218
$1,984,213
$24,383
$28,399
$52,460
$19,486
$18,465
$18,035
055
2009
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Thousands of New Taiwan Dollars unless Otherwise Stated)
1. Organization and Operations
Sercomm Corporation ("the Company ) was incorporated on July 29, 1992 under the laws of
the Republic of China (R.O.C.). The Company primarily engages in the research, development,
manufacturing and sale of access server (router), print server and network server.
The Company’s common shares were traded on the GreTai (Over-the-counter) Securities Market
of the R.O.C. in May 1999, and its shares were publicly listed and traded on the Taiwan Stock
Exchange (TSE) in December 2007.
The numbers of employees of the Company and its subsidiaries as of December 31, 2010 and
2009 were 3,721 and 2,628, respectively.
2. Summary of Significant Accounting Policies
The consolidated financial statements were prepared in conformity with requirements of the
Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting
principles generally accepted in the Republic of China (R.O.C.). Summary of significant
accounting policies is as follows:
(1) Summary of consolidation
The Company’s consolidated financial statements include the following subsidiaries:
Percentage of ownership
Name of the
Name of
investors
subsidiaries
As of December 31,
Business nature
2010
2009
The Company
Servecomm Inc.
Sales of IT products
100.00%
100.00%
The Company
Sercomm
Investment overseas,
100.00%
100.00%
Investments Ltd.
technology R&D,
100.00%
100.00%
international trading
The Company
Sercomm Trading
Co. Ltd.
technology R&D,
056
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Percentage of ownership
Name of the
Name of
investors
subsidiaries
The Company
Shukuan
As of December 31,
Business nature
2010
2009
Investment activity
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Investment Ltd.
Sercomm Trading
Zealous
Co. Ltd.
Investments Ltd.
technology R&D,
Sercomm Trading
Smart Trade Inc.
Co. Ltd.
technology R&D,
Zealous Investments
Sernet Technology
Manufacture of routers,
Ltd.
(Suzhou) Limited
communication products,
Wlan products; sales and
after-sales service
Zealous Investments
Taicang Sercomm
Ltd.
Technology
Limited
after-sales service
Smart Trade Inc.
Dwnet Technology
(Suzhou) Limited
after-sales service
Shukuan Investment
Sercomm Japan
Ltd.
Inc.
100.00%
-
(2) Principles for consolidation
Consolidated financial statements were prepared in accordance with the R.O.C. SFAS No.7.
Transactions between consolidated entities are eliminated in the consolidated financial
statements. Investees in which the Company and subsidiaries hold more than 50% of
voting rights, including those that are exercisable or convertible, are consolidated, since the
Company and subsidiaries are considered to possess control. Consolidation shall also be
implemented if any of the following circumstances exists:
057
i.
the total amount of voting rights held in the investee exceeds 50% due to agreement with
other investors
ii. as permitted by law, or by contract agreements, the Company controls an entity’s
finances, operations and personnel affairs
iii. the Company has authority to appoint or discharge more than half members of board of
directors (or equivalents), by whom the investee is controlled
iv. the Company leads and controls more than half of the members of the board of directors
(or equivalents), by whom the investee is controlled
v. other indications of control possession
(3) Classification of current and noncurrent assets and liabilities
Current assets are assets held for trading purposes and assets expected to be converted to
cash, sold or consumed within one year from the balance sheet date. Current liabilities are
obligations incurred for trading purposes and obligations expected to be settled within one
year from the balance sheet date. Assets and liabilities that are not classified as current are
noncurrent assets and liabilities, respectively.
(4) Foreign currency transactions and translation of foreign currency financial statements
The Company’s and subsidiaries’ accounts are maintained in NTD, USD and RMB.
Transactions denominated in foreign currencies are converted into NTD, USD and RMB at
exchange rates prevailing at the dates of the transactions.
Monetary assets and liabilities
denominated in foreign currencies are translated into NTD using the exchange rates
prevailing at the balance sheet date, with the related exchange gains or losses included in the
consolidated statement of income.
The long-term foreign investments of the Company and the subsidiaries are converted into
NTD and USD at exchange rates prevailing at the dates of the transactions. While
recording under equity method, the long-term foreign investments of the Company and the
subsidiaries are converted into NTD and USD at the weighted-average exchange rate during
the reporting period.
The long-term foreign investments will be adjusted at the exchange rate prevailing at the
balance sheet date.
Adjusting differences are recorded as cumulative translation
adjustments under stockholders’ equity.
058
The Company prepares consolidated financial statement.
Financial statements of foreign
subsidiaries are translated into New Taiwan Dollars ("NTD ) at the exchange rates
prevailing at the balance sheet date for assets and liabilities accounts, historical exchange
rates for equity accounts, and weighted-average exchange rates during the reporting period
for profit and loss accounts. Translation differences resulting from the translation of such
financial statement into NTD are recorded as cumulative translation adjustments, a separate
component of stockholders’ equity.
(5) Financial assets and financial liabilities
In accordance with the R.O.C. SFAS No. 34, “Accounting for Financial Instruments” and
“Guidelines Governing the Preparation of Financial Reports by Securities Issuers”, financial
assets are classified as either financial assets at fair value through profit or loss, derivative
financial assets for hedging, financial assets measured at cost or available-for-sale financial
assets. When financial assets are recognized initially, they are measured at fair value, plus
transaction costs for all financial assets not measured at fair value through profit or loss.
Financial liabilities are to be classified as either financial liabilities at fair value through
profit or loss, derivative financial liabilities for hedging or financial liabilities measured at
cost.
The Company and its subsidiaries account for regular purchase or regular sale of financial
assets as of the trade date, which is the date the Company and its subsidiaries commit to
purchasing or selling the asset. Regular purchase or regular sale is that the delivery period
of a transaction for a financial asset is in a regular period or required period by law.
a. Financial assets and financial liabilities at fair value through profit or loss
Financial assets or financial liabilities at fair value through profit or loss are subsequently
measured at fair value and changes in fair value are recognized in profit and loss. This
category has two sub-categories: financial assets or liabilities held for trading and those
designated at fair value through profit or loss at inception.
059
b. Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial instruments not classified
as financial assets at fair value through profit or loss, held-to-maturity financial assets,
bond investments for which no active market exists. Investments designated as
available-for-sale are reported at fair value, with unrealized gains and losses, net of tax,
recorded in other items in stockholders’ equity until the investment is derecognized or
until the investment is determined to be impaired at with time the cumulative gain or loss
previously reported in equity is included in the statement of operations.
c. Derivative financial assets and liabilities for hedging
Derivative financial assets and liabilities for hedging that have been designated in hedge
accounting relationships and are effective hedging instruments and reported at fair value.
d. Financial assets measured at cost
Equity investments without reliable market prices, or derivatives linked to and settled in
are measured at cost.
The fair value of stock of listed companies or beneficiary certification is measured by
closing price at balance sheet date.
The fair value of open-end funds is measured at the unit price of the net assets at the balance
sheet date.
(6) Allowance for doubtful accounts
Allowance for doubtful accounts is provided based on collectability and aging analysis of
notes receivable, accounts receivable, and receivable from affiliates.
(7) Inventories
Inventories are valued at the lower of cost and net realizable value.
060
Costs incurred in bringing each product to its present location and condition is accounted for
as follows:
Raw materials
-
purchase cost on a weighted average cost formula basis.
Work in progress
and finished
-
cost of direct materials and labor and a proportion of
manufacturing overheads based on normal operating
goods
capacity on a weighted average cost formula basis.
Net realizable value is the estimated selling price in the ordinary course of business, less
estimated costs of completion and the estimated costs necessary to make the sale.
(8) Long-term investments accounted for under the equity method
Investees wherein the Company exercises significant influence are accounted for by the
equity method. According to the R.O.C. SFAS No. 23, "Interim Financial Reporting and
Disclosures , investment income or loss from investments in companies quarterly is
accounted for under the equity method provided that the Company and subsidiaries owns at
least 20% in its equity investee.
The Company consolidates investee in which the Company owned, directly or indirectly,
more than 50% of the voting shares of a company or less than 50% of voting shares but has
a controlling financial interest in accordance with the R.O.C. SFAS No. 7, "Consolidation of
Financial Statements .
Stock dividends are recognized only as an increase in the number of shares, and the cost per
share has to be recalculated. Cost on disposal of stocks is determined by the
weighted-average method.
(9) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and
impairment loss. Significant renewals and improvements are capitalized and depreciated
over their estimated useful lives while ordinary repairs and maintenance are expensed as
incurred.
061
Property being leased to others is classified as other assets and stated at the book value.
Property not in use is classified to other assets and stated at the lower of book value or net
realizable value.
Upon disposal or sale of an item of property, plant and equipment, the related cost,
accumulated depreciation and accumulated impairment loss are written off. Gains or
losses on disposal of property, plant and equipment are recorded as non-operating income or
expense.
Depreciation is recognized on a straight-line basis using the estimated economic life of the
assets less salvage value, if any. If the main property, plant and equipment are fully
depreciated and sub property, plant and equipment are still in use, the depreciation is based
on the newly estimated remaining useful life. The estimated economic life of the property,
plant and equipment is as follows:
Buildings
Machinery and equipments
Molding equipments
Research and development equipments
Office and other equipments
Leased assets
40
3-10
3-5
3-5
2-5
35-50
Years
Years
Years
Years
Years
Years
Equipments leased under capital lease are carried at the lower of the market value or the
present value of the minimum lease payments at the inception date of the lease.
Depreciation of leased assets is calculated based on the economic useful lives of 35-50 years,
and recognized as the lease payable. The Company recognizes the implicit interest of
rental payments as interest expense in the period.
Property leased to others under operating leases is classified as other assets and stated at
book value. The value of the assets is depreciated using the straight-line method over the
estimated useful lives.
(10) Land use right
Land use right is stated at cost and amortized over 50 years by using the straight-line
method.
062
(11) Intangible assets
All purchased and in-house developed computer software for manufacturing the
Company’s products (servers) shall be capitalized.
Effective from January 1, 2007, the Company adopted R.O.C. SFAS No. 37 “Accounting
for Intangible Assets”. In accordance with SFAS No. 37, an intangible asset should be
measured initially at cost upon acquisition. After initial recognition, an intangible asset
should be measured at its cost plus revaluation increment revalued in accordance with laws,
less any accumulated amortization and any accumulated impairment losses.
Intangible assets with finite useful lives should be amortized over its useful lives with
impairment testing. The Company should assess, at each balance sheet date, whether
there is any changes of the residual value, amortization period and amortization method of
each intangible assets with finite useful lives. Such changes shall be accounted for as
changes in accounting estimates.
The Company’s research and development project needs to consider the research phase and
the development phase. If is unable to distinguish, all regards as research phase.
Expenditure on research shall be recognized as an expense when it is incurred.
The cost of development activities should be capitalized as intangible assets if, and only if,
the Company can demonstrate all of the following. Otherwise, the cost of development
activities should be expensed as incurred.
a) the technical feasibility of completing the intangible asset so that it will be available for
use or sale.
b) its intention to complete the intangible asset and use or sell it.
c) its ability to use or sell the intangible asset.
d) how the intangible asset will generate probable future economic benefits.
e) the availability of adequate technical, financial and other resources to complete the
development and to use or sell the intangible asset.
f) its ability to measure reliably the expenditure attributable to the intangible asset during
its development.
063
The Company’s policies for intangible assets are summarized at the table below:
Description
Estimated economic life
Computer software cost
Development expenditures
Amortization method
2~5 years
Straight-line method
5 years
Straight-line method
(12) Deferred charges
Molding and product testing expenditures are amortized on a straight-line basis over their
estimated economic lives, 2-5 years.
(13) Convertible Bonds
The liability component of the convertible bonds is measured first, and the difference
between the proceeds of the bond issued and the fair value of the liability is accounted for
as the equity component.
The embedded derivative is accounted for in accordance with
the requirements under the R.O.C. SFAS No.34. The liability component is subsequently
measured at amortized cost using effective interest rate method, and changes in fair value
of the equity component are not recognized while changes in fair value of the embedded
derivatives are reported to the income statement as valuation gains or losses on Financial
Instruments.
When the conversion option expires unexercised and at that time the market
value of the common stock under conversion exceeds the put price, put premium should be
credited to capital reserve, if the market value is otherwise lower than the put price, then it
is recognized in profit or loss.
When the bond holder exercises the conversion option before bond maturity, the adjusted
carrying value of the liability components (including bonds and embedded derivatives) is
credited to a capital stock account along with the carrying amount of the stocks converted.
Bond issuance costs were allocated proportionately to the convertible bonds and embedded
derivates based on their respective balances upon initial recognition.
064
(14) Derecognition of financial assets and liabilities
a. Financial assets
The Company and its subsidiaries derecognize their financial assets or part of the
financial assets when losing control of the contractual rights from the financial assets or
part of the financial assets. When the Company and its subsidiaries transfer all or part
of their financial assets and relinquish control of the financial assets, this transaction is
considered as a sale within the range of exchange with reward.
When a transfer of a financial asset does not satisfy conditions required to be considered
as lose of contro1, the Company and its subsidiaries treat the transfer as a guaranteed
borrowing. The financial asset is not considered financial derivatives.
b. Financial liabilities
The Company and its subsidiaries derecognize their financial liabilities or part of the
liabilities when extinguished by discharge, cancellation, or expiration of contractual
obligation. When there has been an exchange of an existing financial liabilities
between the Company and its subsidiaries and the creditor with substantially different
terms, or there has been a substantial modification of the terms of the existing financial
liabilities, and a simultaneous assumption of obligation from new financial liabilities,
this transaction is accounted for as an extinguishment of the original financial liabilities
and the recognition of new financial liabilities. A gain or loss from extinguishment of
the original financial liability is recognized in the income statement.
(15) Impairment of financial assets
The Company assesses whether financial assets are impaired at each balance sheet date.
Impairment of financial assets is measured by different methods as described below:
a. Financial assets measured at cost
If there is objective evidence that an impairment loss exists on an unquoted equity
instrument that is not carried at fair value because its fair value cannot be reliably
measured, or on a derivative asset that is linked to and must be settled by delivery of
such an unquoted equity instrument has been incurred, the amount of the loss is
measured as the difference between the asset’s carrying amount and the present value of
estimated future cash flows discounted at the current market rate of return for a similar
financial asset. The impairment loss is not allowed to reverse.
065
b. Available-for-sale financial assets
If available-for-sale assets are impaired, an amount comprising the difference between
its cost (net of any principal payment and amortization) and its current fair value, less
any impairment loss previously recognized in profit or loss, is transferred from equity to
the income statement. Reversals in respect of equity instruments classified as
available-for-sale are not recognized in profit. Reversals of impairment losses on debt
instruments are reversed through profit or loss; if the increase in fair value of the
instrument can be objectively related to an event occurring after the impairment loss was
recognized in profit or loss.
(16) Assets impairment
Pursuant to the R.O.C. SFAS No. 35, "Accounting for Asset Impairment the Company
assesses indicators of impairment for all its assets within the scope of the standard at each
balance sheet date. If impairment is indicated, the Company compares the carrying
amount with the recoverable amount of the assets or the cash-generating unit ("CGU )
associated with the asset and writes down the carrying amount to the recoverable amount
where applicable. Recoverable amount is defined as the higher of fair values less costs to
sell and the values in use.
For previously recognized losses, the Company shall assess, at each balance sheet date,
whether there is any indication that the impairment loss may no longer exist or may have
decreased. If there is any such indication, the Company has to recalculate the recoverable
amount of the asset. If the recoverable amount increases as a result of the increase in the
estimated service potential of the assets, the Company shall reverse the impairment loss to
the extent that the carrying amount after the reversal would not exceed the carrying amount
that would have been determined (net of amortization or depreciation) had no impairment
loss been recognized for the assets in prior years.
Impairment loss (reversal) is classified as non-operating losses (income).
(17) Pension plan
All regular employees are entitled to a defined benefit pension plan that is managed by an
independently administered pension fund committee within the Company according to the
Labor Standards Law of the R.O.C. Fund assets are deposited in the committee’s name in
the Bank of Taiwan and hence, not associated with the Company. Therefore the fund
assets are not be included in the Company’s financial statements.
066
The Labor Pension Act of the R.O.C. (the Act), which adopts a defined contribution plan,
became effective on July 1, 2005. In accordance with the Act, employees may choose to
elect either the Act, by retaining their seniority before the enforcement of the Act, or the
pension mechanism of the Labor Standards Law. For employees who elect the Act, the
Company will make monthly contributions of no less than 6% of the employees’ monthly
wages to the employees’ individual pension accounts.
The accounting for pension is computed in accordance with the R.O.C. SFAS No.18,
“Accounting for Pensions”. Net pension costs of the defined benefit plan are recorded
based on an actuarial valuation. Pension cost components such as service cost, interest
cost, expected return on plan assets, the amortization of net obligation at transition, pension
gain or loss, and prior service cost, are all taken into consideration by the actuary. The
Company recognizes expenses from the defined contribution pension plan in the period in
which the contribution become due.
The pension plan of foreign subsidiaries is estimated at local related regulation.
(18) Employee stock option plan
The Company uses intrinsic value method to recognize compensation cost for its employee
stock options issued between January 1, 2004 and December 31, 2007, in accordance with
Accounting Research and Development Foundation interpretation Nos.92-070~072. For
stock options granted on or after January 1, 2008, the Company recognizes compensation
cost using the fair value method in accordance with R.O.C. SFAS No. 39 “Accounting for
Share-Based Payment.”
In accordance with R.O.C. SFAS No. 39, share-based payment transaction is measured by
reference to the fair value of the equity instruments at the date on which they are granted;
the fair value is determined by an external expert using an appropriate pricing model.
The Company only enters into equity-settled share-based payment transaction with its and
its subsidiaries’ employees. Pursuant to R.O.C. SFAS No. 39, the goods or services
received under such transaction, and the corresponding increase in equity, shall be
measured by reference to the fair value of the equity instruments granted. If there is no
vesting condition attached, then the equity instrument is vested immediately, with the
employee compensation costs recognized as at the grant date, with a corresponding
increase in equity. If the equity instrument is vested over a certain period, then the
employee compensation costs are recognized over the period, with a corresponding
increase in equity.
067
In valuing the fair value of the equity instrument granted, no account is taken of any
vesting conditions other than market conditions. Instead, non-market vesting conditions
shall be taken into account by adjusting the number of equity instruments included in the
measurement of the transaction amount, so that, ultimately, the amount recognized for
goods or services received as consideration for the equity instruments granted shall be
based on actual number of equity instruments that eventually vest. For grants of equity
instruments with market conditions, the Company shall recognize the goods or services
received from a counterparty that satisfies all other vesting conditions, irrespective of
whether the market condition is satisfied.
(19) Employee Bonuses and Remunerations Paid to Directors and Supervisors
In accordance with Accounting Research and Development Foundation interpretation No.
96-052 effective January 1, 2008, employee bonuses and remunerations paid to directors
and supervisors are charged to expense at fair value and are no longer accounted for as an
appropriation of earnings.
(20) Treasury stock
The Company adopts the R.O.C. SFAS No. 30, "Accounting for Treasury Stocks , which
requires the treasury stock held by the Company to be accounted for under the cost method.
The cost of treasury stock is shown as a deduction to stockholders’ equity, while any gain
or loss from selling treasury stock is treated as an adjustment to capital reserve.
If there is
any deficiency, it is debited against retained earnings.
(21) Revenue recognition
The Company and its subsidiaries recognize revenue when the product or service has been
delivered and significant risk has been transferred. The Company and its subsidiaries and
their customers have agreed to use fair value in determining the sales prices, taking into
account the related sales discounts. Since the receivables are collected within one year
and such transactions are frequent, fair value of the receivables is equivalent to the nominal
amount of the cash to be received.
068
(22) Capital expenditure versus operating expenditure
Expenditure exceeds a predetermined amount is capitalized when it is probable that the
Company will receive future economic benefits associated with the expenditure.
Otherwise, the expenditure is expensed as incurred.
(23) Unrealized gain (loss) on inter-affiliate accounts
Unrealized intercompany gains and losses arising from sales from the Company and its
subsidiaries to equity method investees are eliminated in proportion to the Company’s
year-end ownership percentage until realized through transactions with third parties.
Intercompany gains and losses arising from transactions between the Company and
majority-owned (above 50%) subsidiaries are eliminated entirely until realized through
transactions with third parties.
Unrealized intercompany gains and losses due to sales from equity method investees to the
Company are eliminated in proportion to the Company’s weighted-average ownership
percentage of the investee until realized through transactions with third parties.
(24) Income tax
The Company and its subsidiaries have adopted inter-period and intra-period income tax
allocation according to the R.O.C. SFAS No. 22, “Accounting for Income Tax”.
Tax
effects on taxable temporary differences are recognized as deferred tax liabilities. Tax
effects on deductible temporary differences, operating loss carryforward, and investment
tax credits are recognized as deferred tax assets. Valuation allowance is provided on
deferred tax assets when they are not certain to be realized. A deferred tax asset or
liability should, according to the classification of its related asset or liability, be classified
as current or noncurrent. However, if a deferred asset or liability is not directly related to
an asset or liability, then the classification is based on the expected length of time before it
is settled or recovered.
According to the R.O.C. SFAS No. 12, “Accounting for Income Tax Credits”, the
Company recognized the tax benefit from research and development expenditure,
employee training by the flow through method.
069
Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s
tax provision.
Income tax (10%) on unappropriated earnings is recorded as expense in the year in which
the shareholders have resolved earnings to be retained.
The Income Basic Tax Act of the R.O.C. (the IBTA) became effective on January 1, 2006.
Set up by the Executive Yuan, the IBTA is a supplemental 10% tax that is payable if the
income tax payable determined by the R.O.C. Income Tax Act is below the minimum
amount as prescribed by the IBTA. The IBTA is calculated based on taxable income as
defined by the IBTA, which includes most income that is exempted from income tax under
various legislations. The impact of the IBTA has been considered in the Company’s income
tax for the current reporting period.
(25) Earnings per share
Earnings per share are computed according to the R.O.C. SFAS No. 24, “Earnings Per
Share”. Basic earnings per share are computed by dividing net income (loss) by the
weighted-average number of common shares outstanding during the current reporting
period. Diluted earnings per share is computed by taking basic earnings per share into
consideration plus additional common shares that would have been outstanding if the
dilutive share equivalents had been issued. Net income (loss) is also adjusted for interest
and other income or expenses derived from any underlying dilutive share equivalents.
The weighted-average of outstanding shares is adjusted retroactively for stock dividends
and bonus share issues.
(26) Derivatives financial instrument and hedge activities
In order to hedge the resulting from the volatility in exchange rate, the Company and its
subsidiaries entered into foreign exchange forward contracts. The derivative are initially
recognized and re-measured at fair value. When the fair value is positive, the derivative
is recognized as a financial asset; when the fair value is negative, the derivative is
recognized as a financial liability.
If the derivative financial products does not meet the criteria for hedge accounting, the
changes in fair value is transferred to the income statement. In additional, the derivative
financial products shall be reclassified as financial assets or liabilities for trade purpose.
070
Hedges are classified as the following three categories:
a. Fair value hedges
Fair value hedges are hedges of the Company’s exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment.
b. Cash flow hedges
Cash flow hedges are hedges of the exposure to variability in cash flows that is
attributable to a particular risk associated with a recognized asset or liability or a highly
probable forecast transaction and could affect profit or loss. The effective portion of the
gain or loss on the hedging instrument is recognized directly in equity, while the
ineffective portion is recognized in profit or loss immediately.
c. A net investment in a foreign operation hedges
At inception of the hedge, there is formal documentation of the hedging relationship and
the Company’s risk management objective and strategy for undertaking the hedge,
including identification of the hedging instrument, the hedged item, the nature of the risk
being hedged, and how the hedging instrument’s effectiveness in offsetting the exposure
to changes in the hedged item’s fair value attributable to the hedged risk will be assessed.
There must be a reasonable basis for how the Company plans to assess the hedging
instrument’s effectiveness.
Hedges which meet the strict criteria for hedge accounting are accounted for as follows:
Fair value hedges
Fair value hedges are hedges of the Company’s exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, or an identified portion
of such an asset, liability or firm commitment, that is attributable to a particular risk and
could affect profit or loss. For fair value hedges, the carrying amount of the hedged item is
adjusted for gains and losses attributable to the risk being hedged, the derivative is
re-measured at fair value and gains and losses from both are taken to profit or loss.
071
The Company and its subsidiaries shall discontinue prospectively the hedge accounting for
an existing hedge if any one of the following occurs:
a. The derivative is expired or sold, or terminated, or exercised.
b. Any criterion for hedge accounting is no longer met.
c. The Company removes the designation of the fair value hedge.
3. Accounting changes
In accordance with the amended tax laws effective on May 27, 2009, the Profit-Seeking
Enterprise Income Tax rate has been reduced from 25% to 20%. And in accordance with the
amended tax laws effective on June 15, 2010, the Profit-Seeking Enterprise Income Tax rate has
been reduced from 20% to 17. The adoption resulted in increasing effect on net gain by
NT$5,268 thousand and NT$1,592 thousand, thereby increasing gain per share by $0.03 and
0.01 for the year ended December 31, 2010 and 2009, respectively.
4. Cash
Cash on hand
Checking and savings accounts
Time deposits
Total
As of December 31,
2010
2009
$2,054
$1,536
719,872
459,424
1,322,657
1,523,253
$2,044,583
$1,984,213
As of December 31, 2010 and 2009, the savings accounts outside Taiwan were NT$1,102
thousand (USD$38 thousand) and NT$1,213 thousand (USD$38 thousand), respectively.
5. Financial assets (liabilities) at fair value through profit or loss-current
(a) Details of the financial assets or financial liabilities at fair value through profit or loss are as
follows:
Financial assets held for trading - current
Foreign currency forward contracts
As of December 31,
2010
2009
$10,337
$2,531
072
The Company entered into the above-mentioned derivative financial instruments primarily
for the purpose of hedging exchange risk associated with the assets, liabilities, or
commitments denominated in foreign currencies. However these financial instruments do
not satisfy the criteria of hedge accounting and thus are classified under "financial assets at
fair value through profit or loss-current and "financial liabilities at fair value through profit
or loss-current .
Please refer to Note 30 for financial risk information.
(b) The details of the Company’s derivative financial instruments described above as follows:
Sell foreign exchange forward
Sell foreign exchange forward
Currency
USD/NTD
December 31, 2010
Nominal amount
Maturity date
USD$9,000 thousand 2011.1.12-2011.3.7
Currency
USD/NTD
December 31, 2009
Nominal amount
Maturity date
USD$9,000 thousand 2010.1.14-2010.3.12
Net gain on financial assets and financial liabilities held for trading during 2010 and 2009
were NT$12,480 thousand and NT$11,466 thousand, respectively.
6. Notes and accounts receivable-net
Notes receivable
Accounts receivable
Subtotal
Less: Allowance for doubtful accounts
Net
As of December 31,
2010
2009
$$552
1,795,969
1,046,732
1,795,969
1,047,284
(5,676)
(5,748)
$1,790,293
$1,041,536
The Company entered into several factoring agreements without recourse with several banks in
Taiwan. Accounts receivables were sold for 100% of their notional amount and were
derecognized since the Company has surrendered control over the receivable to the factors.
The factors had fully paid out the sales proceeds and assumed substantially all risks of
collection as receivable were transferred. Commissions at the rate of 0.1%-0.6% on 10% of
the accounts receivables factored or 0.72% on 100% of the accounts receivables factored were
charged by the factor.
073
The details of accounts receivable derecognized are summarized as follows:
The Factor (Transferee)
HSBC Bank (Taiwan)
Taishin Bond
Fubon Financial Bank
As of December 31,
2010
2009
$6,855
$10,202
25,349
-
Credit line
USD
800 thousand
USD 30,700 thousand
USD 5,000 thousand
One of the Company's foreign customers has filed for restructuring in September 2010. As of
December 31, 2010, the Company's Accounts Receivable from this customer amounted to
NT$36,580 thousand of which NT$34,597 thousand is recoverable from an insurance claim
made and has been reclassified to other receivables. Provisions for bad debts have been made
for the remaining unrecoverable amount.
7. Inventories
Raw materials
Work in process
Finished goods
Subtotal
Less: Allowance for loss on decline in market value and
obsolescence
Net
As of December 31,
2010
2009
$808,898
$513,214
362,924
258,049
224,372
112,945
1,396,194
884,208
(79,277)
(89,812)
$1,316,917
$794,396
For the ended December 31, 2010 and 2009, cost of goods sold were NT$7,192,936 thousand
and NT$5,897,332 thousand, including NT$39,717 thousand, and NT$36,827 thousand of
write-down of inventories to net realizable value, respectively.
8. Financial assets measured at cost-noncurrent
As of December 31,
2010
2009
Unlisted stocks
Industrial Bank of Taiwan
TECO Nanotech Co., Ltd.
Cerpass Consultancy Corp.
Ubiquisys Ltd.
Total
$40,000
10
7,444
58,260
$105,714
$40,000
10
7,444
$47,454
074
The stock investments were measured at cost because they were not traded in an open market
and did not have fair value.
9. Property, plant and equipment
(1) The Company rented the Nankang Software Industrial Park office by capital lease, please
refer to Note 14.
(2) The information of interest capitalized is as follows:
Year
Total interest expense
2010
2009
$32,328
19,437
Interest capitalized
Interest rates applied
5,442
-
1.63%
-
(3) Please refer to Note 26 for property, plant and equipment pledged as collateral.
10. Intangible assets
As of December 31, 2010
Computer
software cost
Cost:
Beginning of the year
Purchase
Translation adjustment
End of the year
Accumulated amortization:
Amortization
End of the year
Book value:
End of the year
075
Development
expenditures
Land use right
Total
$127,333
39,397
(1,067)
$238,910
29,768
-
$12,882
91,335
(745)
$379,125
160,500
(1,812)
165,663
268,678
103,472
537,813
88,472
20,122
(749)
169,244
28,783
-
1,257
263
(87)
258,973
49,168
(836)
107,845
198,027
1,433
307,305
$38,861
$69,666
$11,625
$120,152
$57,818
$70,651
$102,039
$230,508
Computer
software cost
Development
expenditures
Land use right
Total
$211,766
27,144
-
$91,632
(78,409)
$420,051
38,208
(78,409)
-
(341)
(725)
Cost:
Purchase
Reduction
End of the year
Accumulated amortization:
Amortization
End of the year
Book value:
End of the year
$116,653
11,064
(384)
127,333
238,910
12,882
379,125
70,192
18,528
140,590
28,654
1,020
272
211,802
47,454
(248)
-
(35)
(283)
88,472
169,244
1,257
258,973
$46,461
$71,176
$90,612
$208,249
$38,861
$69,666
$11,625
$120,152
Please refer to Note 26 for Land use right pledged as collateral.
11. Property not used in operations
Details of the property not used in operations are as follows:
As of December 31,
2010
2009
$10,020
$10,020
Leased assets-buildings
Idle assets
5,752
68,858
5,752
68,858
Less: Accumulated depreciation
(1,245)
(1,088)
Leased assets-land
Net
$83,385
$83,542
076
Oriental Technopolis, the building where the Company’s office premises were located, suffered
fire damage on May 12, 2001. Although the Company’s office was not deranged during the
fire incident, some research and development equipments and office equipments were partially
damaged. Since the building was required to be renovated before it can be re-used, the
Company had relocated its office after the incident. The book value of the land and building of
the original office in the Oriental Technopolis had been reclassified as Idle Assets in 2001. In
December 2002, the Company reclassified the Idle Assets as Land and Construction-In-Progress
due to that the Reconstruction Committee of Oriental Technopolis had approved to proceed with
competitive price bidding process for the renovation project.
The renovation project had been delayed because the financing difficulties of the original
contractor. In 2007, the Reconstruction Committee of Oriental Technopolis had sought a new
contractor to execute the contract. The Company reclassified the land and damaged building at
their carrying amount of NT$43,230 thousand and NT$25,628 thousand, respectively, to “Idle
Asset”. In 2008 and 2007, the Company estimated the probable repair cost to be NT$10,147
thousand in total, which was recognized as “non-operating expenses – other losses” and “other
current liabilities” in the accompanying consolidated balance sheet and statement of income.
The reconstruction was completed in June 2010. The Company actually paid in the amount of
NT$5,823 thousand for the reconstruction. The Company rented the damaged building’s
parking lot to others and thus had recorded them as “assets leased to others”.
12. Short-term loans
Items
Amounts
Secured loans
Credit loans
Total
$282,219
1,200,584
Interest rate
Collateral
1.79%-1.80%
0.92%-1.96%
Land use right and Building
None
Interest rate
Collateral
0.76%-0.95%
0.79%-0.90%
Land use right and Building
None
$1,482,803
Items
Secured loans
Credit loans
Total
077
Amounts
$320,366
543,728
$864,094
13. Bonds payable
A. The Company’s bonds payable are as follows:
As of December 31
Item
2010
The third domestic unsecured convertible bonds
payable
$586,498
$-
(59,738)
-
$526,760
$-
Embedded derivatives (Note 1)
$1,487
$-
Equity instrument (Note 2)
$5,946
$-
Less: discount on bonds payable
Total
2009
Note 1: Including bonds holder’s put option value and the Company’s call option value.
Note 2: Conversion option value.
B. The Company’s Board of Directors resolved on June 24, 2010 to issue the third domestic
unsecured convertible bonds, which were issued on August 6, 2010 with principal issuing
terms as follows:
(a) Issue Amount: NT$600,000 thousand, each with a face value of NT$100 thousand,
issued based on 100% of par value.
(b) Par Value’s annual interest rate:0%.
(c) Issuing period: from August 6, 2010 to August 6, 2015.
(d) Conversion method:
i. Conversion period: The bondholder may, on the following day when reaching one
full month from the bond issuing date and ten days prior to maturity, except for the
closed period, at any time request the Company to convert the bonds into the
Company’s common stocks in accordance with this measure.
078
ii. Conversion price and adjustments:
With the convertible bonds’ conversion price set
at NT$22.24 per share at the time of issue, and following the issue of the convertible
bonds, the conversion price is to be adjusted in accordance with stipulations set by
the convertible bonds’ issuing provisions, when the Company increased the common
stocks (except when the Company reissues or stages a private solicitation of common
stocks with convertible rights or staging for an exchange of the common stocks
through share pledging of a variety of marketable securities, or when the Company
increases the common stocks already issued or solicited, including but not limited to
capital reinvestment, earnings converting to capital reinvestment, capital reserve
converting to capital reinvestment, employee bonuses converting to capital
reinvestment, merger or new share issue by an invested entity, stock division and
cash capital reinvestment for participating in offshore depository certificates and the
like through solicitation issue or private solicitation), or when the common stock
cash dividends of a given year against the ratio of the current price per share exceed
1.5%, or when the Company converts at a conversion price lower than the going
price per share for a variety of marketable securities through share pledging reissue
or private solicitation of common stocks with convertible rights or share pledging
right, or when the Company reduces the common stocks in a capital reduction due to
cancellation of the common stocks held in vault.
As of December 31, 2010, the conversion price was adjusted to $21.16 per share.
(e) The Company’s call option:
Under the following circumstances, effective from 30 days after the issuance until 40
days prior to maturity, the Company may recall the convertible bonds at par value plus
2% real yield per year:
i. The closing price of the Company’s common stocks exceeds 30% of the last
adjusted conversion price at the time for 30 consecutive business days.
ii. The balance of the Company’s total outstanding bonds currently in circulation falls
lower than 10% of the par value.
079
(f) Bondholder’s put option:
During the period of two years after issuance to 40 days prior to reaching four years
after issuance, bondholders may notify the Company’s stockholders’ service entity in
writing to request the Company to buy back the convertible bonds at the par value plus
2% yearly yield of the bonds.
C. The conversion of the third domestic unsecured convertible bonds payable is as
follows:
Balance, beginning of period
Converted during this period
Balance, ending of period
For the years ended December 31, 2010
Converted
Par value
Shares (thousand)
$$68,800
3,251
$68,800
$3,251
D. The Company has, in complying with stipulations set by the R.O.C. SFAS No. 36,
separated the value of the bonds’ conversion option as an equity instrument from the
net value of the bonds, which was accounted as capital reserve in the amount of
NT$5,946 thousand. As the Company’s call option and Bondholder’s put option
were not closely related to the economic characteristics and risks of the host contract,
they are bifurcated as embedded derivates and accounted for as the financial
liabilities at fair value through profit or loss.
E. For the year ended December 31, 2010, the related discount amortization was
NT$5,321 thousand, which was recorded as interest expenses under the
non-operating expenses. As for the gain on valuation on financial liabilities, it was
NT$719 thousand for the year ended December 31, 2010, which was recorded as
valuation gain on financial liabilities at fair value through profit or loss under the
non-operating income.
14. Lease payables
Lease payables
Less: current portion
Total
As of December 31,
2010
2009
$365,396
$379,836
(18,465)
(18,035)
$346,931
$361,801
080
The Company signed a contract with Industrial Development Bureau, Ministry of Economic
Affairs to lease an office space in Nankang Software Industrial Park on August 15, 2003 and
July 31, 2007, respectively. These capital leases expire on various dates from August 2003 to
August 2013 and from July 2007 to July 2017, respectively. The annual lease payment is
adjusted according to Industrial Development Bureau’s prescribed rental rate yearly. The
prescribed rental rate is adjusted every January 1 and July 1 semi-annually based on the interest
rate of long-term loan and annual base on Consumer Price Index. In addition, the Company
has bargain purchase option within the lease term. According to the contract, the minimum
lease payments (include interest expenses) for the future are as follows:
Year
2011
2012
2013
2014
2015
2016-2020
2021-2023
Total
Amounts
26,288
26,287
26,287
26,287
26,287
96,475
40,746
$268,657
Discounted present value
23,034
22,543
22,063
21,594
21,134
72,636
28,103
$211,107
15. Pension plan
The defined benefit plan under the Labor Standard Law is disbursed based on the units of
service years and the average salary in the last month of the service year.
The Company contributes an amount equivalent to 4% of the employees’ total salaries and
wages basis to the pension fund deposited at the Bank of Taiwan in the name of an administered
pension fund committee. Since March 2005, the Company decreases the contributive ratio
from 4% to 2%. As of December 31, 2010 and 2009, the Company has contributed the amount
of NT$58,895 thousand and NT$55,106 thousand, respectively.
The Labor Pension Act of R.O.C. (the Act), which adopts a defined contribution plan, became
effective on July 1, 2005. In accordance with the Act, employees may choose to elect either
the Act, by retaining their seniority before the enforcement of the Act, or the pension
mechanism of the Labor Standards Law. For employees who elect the Act, the Company will
make monthly contribution of no less than 6% of the employees’ monthly salaries to the
employee’s individual pension accounts. In accordance with the Act, the Company has
established a pension plan and contribution 6% of the employee’s salaries to employee’s
individual pension account since July 1, 2005. According to the Act, the Company recognized
pension cost and contributed NT$17,002 thousand and NT$16,554 thousand to employee’s
individual accounts for the years ended December 31, 2010 and 2009, respectively.
081
(1) The components of net pension cost are as follows:
For the year ended December 31,
2010
2009
Service cost
Interest cost
Expected return on plan assets
Amortization and deferral
$812
1,983
(1,232)
1,450
Net pension cost
$3,013
$974
2,100
(760)
999
$3,313
(2) The funding status of the pension plan is as follows:
As of December 31,
2010
Benefit obligation
Vested benefit obligation
Non-vested benefit obligation
2009
$2,800
60,283
$2,800
55,639
63,083
29,892
58,439
29,700
Projected benefit obligation
Fair value of plan assets
92,975
(58,513)
88,139
(54,754)
Fund status
Unrecognized net transitional benefit obligation
Unrecognized loss
34,462
(562)
(28,227)
33,385
(703)
(27,136)
$5,673
$5,546
$2,800
$2,800
Accumulated benefit obligation
Effect from projected salary increase
(3) Vested benefit of retirement based on Labor Standard
Law
(4) The actuarial assumptions are as follows:
As of December 31,
Discount rate
Growth rate in future compensation level
Expected long-term rate of return on plan assets
2010
2009
1.75%
3.00%
1.75%
2.25%
3.00%
2.25%
082
16. Capital stock
(1) As of January 1, 2009, the authorized and issued capital of the Company was NT$2,100,000
thousand and NT$1,707,233 thousand, respectively. The par value of the Company’s
common stock is NT$10 per share.
(2) For the year ended December 31, 2009, the Company issued NT$2,217 thousand for
conversion of employee stock option exercise, each with par value of NT$10. The
issuance had been approved by the relevant authority.
(3) For the year ended December 31, 2010, the Company issued NT$18,910 thousand for
conversion of employee stock options exercise, each with par value of NT$10. The
issuance had been approved by the relevant authority.
(4) The third issue of domestic unsecured convertible bonds of the Company had been
converted by bond holders into 3,251 thousand common stocks in 2010. As a result, the
capital increased by NT$13,468 thousand which was accounted for as advanced receipts for
common stock.
(5) As of December 31, 2010, the authorized and issued capital of the Company was
NT$2,500,000 thousand and NT$1,747,405 thousand, respectively. The par value of the
Company’s common stock is NT$10 per share.
17. Employee stock options
On October 16, 2003, November 11, 2005 and December 3, 2007, the Company was authorized
by the Securities and Futures Bureau of the Financial Supervisory Commission, Executive Yuan,
to issue employee stock options with a total number of 24,000, 50,000 and 20,000 units,
respectively. Each unit entitles an optionee to subscribe to 100 share of the Company’s common
stock. Settlement upon the exercise of the options will be made through the issuance of new
shares by the Company. An optionee may exercise the options in accordance with certain
schedules as prescribed by the plan starting 2 years from the date of grant. The compensation
costs for employee stock options for the years ended 31, December 2010, and 2009, were both
NT$0. Detailed information relevant to the employee stock options is disclosed as follows:
083
Date of grant
Total number of
options granted
(units)
Total number of
options outstanding
(units)
Original
exercise price
(NTD)
Adjusted
exercise
price (NTD)
October 23, 2003
24,000
448
$26.0
$10.0
November 14, 2005
50,000
27,690
$23.0
$11.0
December 14, 2007
20,000
18,310
$27.8
$20.0
(1) As of December 31, 2010, there had been no cancellations or amendments to the stock
options plan. The contractual life of options is 10 years and 5 years. There is no cash
settling option and the Company does not have past practice of settling in cash.
Detailed information relevant to the employee stock options is disclosed as follows:
2010
2009
Weighted-
Weighted-
Outstanding at beginning of year (Note)
Option
average exercise
Option
average exercise
(units)
price (NTD)
(units)
price (NTD)
65,358
Granted
-
$13.70
67,575
-
(18,910)
Forfeited
-
-
-
-
Expired
-
-
-
-
46,448
Exercisable at end of year (Note)
46,448
14.54
(2,217)
-
Exercised
Outstanding at end of year (Note)
11.65
-
$14.53
65,358
10.18
14.68
45,358
Weighted-average fair value of options
granted during the period (NTD)
$-
$-
Note: These stock options were granted for employees prior to adopting R.O.C SFAS
No.39; therefore the Company did not recognize these stock options in accordance
with R.O.C SFAS No.39. These stock options have not supervised sustained, so
they do not adopt R.O.C. SFAS No.39.
084
The weighted-average stock price was NT$26.93 and NT$14.17 when the exercise date of
the options exercised for the years ended December 31, 2010 and 2009, respectively.
The share-based payment transaction was employees in 2010.
(2) The information of the Company’s outstanding stock options as of December 31, 2010 is as
follows:
Outstanding Stock Options
Authorization
date
Exercisable Stock Options
Range of
Weighted-average
Weighted-average
Weighted-average
exercise
remaining contractual
exercise price
exercise price
life (years)
(NTD)
price (NTD) Option (units)
2003.10.23
10.00
448
2005.11.14
11.00
2007.12.14
20.00
Option(units)
(NTD)
-
10.00
448
10.00
27,690
1.43
11.00
27,690
11.00
18,310
0.71
20.00
18,310
20.00
46,448
46,448
(3) The fair value of these options was calculated at the grant date using the Black-Scholes
option pricing model with the following assumptions for the years ended December 31,
2010 and 2009:
2010
Expected dividend yields
Volatility factors of the expected market price
Risk-free interest rate
Weighted-average expected life of the options
2009
5.35%-14.19% 5.35%-14.19%
39.48%-56.41% 39.48%-56.41%
1.85%-2.69%
1.85%-2.69%
3.5-6.55 year
3.5-6.55 year
Note: The assumptions adopting for the years ended December 31, 2010 and 2009 before
the effective date of were used for disclosure of the pro-forma information.
The expected duration of the stock option is according to historical information, might not
be the condition that the employee carry out actually. The expected volatility index
forecast that, the tendency in the future by means of historical volatility index, and it might
be incompatible with the real condition.
085
(4) The Company used the intrinsic value method to recognize compensation costs for its
employee stock options issued from 2004 to 2007. The compensation costs for the years
ended December 31, 2010 and 2009 was both $0. Pro forma information using the fair
value method on net income and earnings per share is as follows:
For the year ended December 31, 2010
Net income
Earnings per share (NTD)
Pro forma net income
Pro forma earnings per share (NTD)
Basic earnings per share
Diluted earnings per share
$314,448
1.88
311,955
1.86
$317,274
1.77
311,955
1.74
Net income
Pro forma net income
Pro forma earnings per share (NTD)
Basic earnings per share
Diluted earnings per share
$205,483
1.24
199,727
1.20
$205,483
1.22
199,727
1.19
18. Capital reserve
Pursuant to the Company Law, capital reserve can only be used to offset an accumulated deficit
or be increase common stock. However, only the capital reserve of the following nature can be
transferred to capital (i) the income derived from the issuance of new share premium; (ii) the
income from endowments received by the company. In addition, the Company can only use
the capital reserve to make up its deficit when the legal reserve or other special reserve is
insufficient to make up such losses and the total amount used each year cannot exceed 10% of
the issued capital.
19. Legal reserve
The Company Law stipulates that companies must retain at least 10% of their annual earnings,
as defined in the Law, until such retention equals to the amount of paid-in capital. This
retention is accounted for as a legal reserve account upon approval at the shareholders’ meeting.
Once the legal reserve equals one-half of the paid-in capital, 50% of the reserve may be
transferred to common stock.
086
20. Distribution of earnings and dividend policies
According to the Company’s Articles of Incorporation, the Company’s annual earnings shall be
used to offset an accumulated deficit, if any, and be retained at a rate of 10% as legal reserve, as
defined in the Company Law, except when such retention equals the amount of issued common
stock. After the aforementioned deduction, 15% of remaining earnings should be distributed
as employees’ bonus. 2% of remaining earnings should be distributed as directors’ and
supervisors’ remuneration. The distribution of any remaining earnings, after deducting
employees’ bonuses and directors’ and supervisors’ remuneration, is subject to shareholders’
approval. A special reserve is equal to the reduction in stockholders’ equity (for example,
cumulative translation adjustments and unrealized loss on long-term investment in stock, etc).
If the aforementioned reduction in stockholders’ equity is reserved, the same amount could be
removed from special reserve and transferred to unapporpriated earnings.
Any appropriations of the profits are recorded in the year of stockholder approval and given
effect to in the financial statements of that year.
Distribution of profits may also be made by way of cash dividend, and the amount of that should
in principle exceed or equal 10% of total dividends. This cash dividend percentage may be
adjusted depending on actual profit of the year and operational conditions.
The policy for dividend distribution should reflect factors such as current and future investment
environment, fund requirements, domestic and international competition and capital budgets, as
well as the benefit of stockholders, share bonus equilibrium, and long-term financial planning.
The appropriations of earnings for 2009 had been approved in the stockholders’ meetings, and
the date of payment was September 3, 2010.
During the year ended December 31, 2010, the Company estimated the amounts of the
employee bonuses and remuneration to directors and supervisors for 2010 to be $42,450
thousand and $5,660 thousand, respectively, and recognized as operating costs or operating
expense for the period. The estimates were based on post-tax net income for 2010 and the
Company’s Articles of Incorporation, and considered factors such as appropriation to legal
reserve etc. The number of shares distributed as stock dividends was calculated based on the
closing price one day earlier than the date of shareholders’ meeting of 2011 and considered the
impacts of ex-right/ex-dividend. The difference between the estimation and the resolution of
shareholders’ meeting will be recognized in profit or loss of 2011.
087
The Company has paid employees’ bonuses and directors and supervisors’ remunerations of
NT$27,740 thousand and NT$3,699 thousand in 2009, respectively, and there is no difference
between the amount estimated and paid.
Information on the board of directors’ recommendations and stockholders’ approvals is available
at “Market Observation Post System” on the Website of Taiwan Stock Exchange Corporation.
The Company’s distributions of 2009 and 2008 earnings were approved by the stockholders’
meetings on June, 2010 and June, 2009, respectively, and the detailed information is as follows:
2009 Distribution of Earnings
Cash dividend
2008 Distribution of Earnings
NT$1 per share
NT$1.5 per share
21. Treasury stock
Details of the treasury stock transactions are as follows:
(In thousand shares)
Purpose
Beginning
Increase
Decrease
Ending
5,000
-
971
4,029
5,000
-
-
5,000
2010
For transfer to employees
2009
For transfer to employees
According to Securities and Exchange Law of the R.O.C., total shares of treasury stock shall not
exceed 10% of the Company’s stock issued.
Total purchase amount shall not exceed sum of
retained earnings, capital reserve-premiums, and realized capital reserve.
Treasury stock shall not be pledged, nor should it be entitled voting rights or receive dividends,
in compliance with Securities and Exchange Law of the R.O.C.
088
22. Operating cost and expense
The Company’s personnel, depreciation, and amortization expense are summarized as follows:
2010
Operating
cost
Operating
expenses
$410,900
Labor and health
insurance
2009
Total
Operating
cost
Operating
expenses
Total
$573,097
$983,977
$261,955
$476,797
$738,752
3,009
30,604
33,613
2,941
28,419
31,360
Pension
1,848
18,167
20,015
1,792
18,075
19,867
Other personnel
expenses
9,837
26,082
35,919
6,792
23,569
30,361
Depreciations
72,850
57,392
130,242
67,456
62,696
130,152
Amortization
42,463
27,678
70,141
40,434
26,212
66,646
Item
Personnel expenses
Salaries
23. Income tax
(1) The components of deferred tax assets (liabilities) as of December 31, 2010 and 2009 are
summarized as follows:
As of December 31,
2010
2009
(A) Total deferred income tax assets
$109,102
$106,920
(B) Total deferred income tax liabilities
$(59,941)
$(33,830)
(C) Total valuation allowance
$(37,613)
$(47,533)
$22,183
$26,063
(D) Deferred income tax assets-current
Deferred income tax liabilities-current
Valuation allowance for deferred income tax
assets-current
Net deferred income tax assets-current
089
(1,757)
$20,426
(506)
$25,557
Deferred income tax assets-noncurrent
Deferred income tax liabilities-noncurrent
Valuation allowance for deferred income tax
assets-noncurrent
Net deferred income tax assets (liabilities)
$86,919
(58,184)
(37,613)
$80,857
(33,324)
(47,533)
$(8,878)
$-
-noncurrent
(E) The temporary differences of deferred tax assets (liabilities), loss carryforward, and
income tax credits were summarized as follows:
As of December 31,
Unrealized sales discounts
Unrealized gross profit
Loss on inventory value decline
and obsolescence
Unrealized foreign exchange loss
(gain)
Development expenditures
capitalization
Investment income accounted for
under the equity method
Pension liabilities
Unrealized loss (gain) on valuation
of financial assets
Accrued service expenses
Accrued expenses
Accrued repair liabilities for idle
asset
Amortization of discount on bonds
payable
Foreign currencies of cumulative
translation adjustments on
long-term equity
Unused investment tax credit
Loss carryforward
2010
Income tax
Amount
effect
$12,993
$2,209
31,122
5,291
2009
Income tax
Amount
effect
$30,940
$6,188
21,480
4,296
52,263
8,884
50,161
10,032
18,689
3,177
9,646
1,929
(70,651)
(12,011)
(69,666)
(13,933)
(225,150)
2,286
(38,275)
388
(96,953)
2,199
(19,391)
440
(10,337)
1,805
3,683
(1,757)
307
626
(2,532)
2,885
3,683
(506)
577
736
2,568
437
9,325
1,865
5,083
864
-
-
41,225
74,924
5,933
(46,459)
27,072
(7,898)
83,818
3,101
090
(2) Reconciliation between the income tax expense and the income tax calculated on pre-tax
financial statement income based on the statutory rate is as follows:
Income tax on pre-tax income at statutory rate
Tax effect of following:
Permanent differences
Temporary differences
Income tax payable for continuing operation
2010
2009
$78,874
$69,945
(475)
(23,100)
$55,299
176
(21,746)
$48,375
(3) The components of tax expenses are as follows:
Income tax payable
Used investment tax credits
Estimated tax at 10% on unappropriated earnings
Deferred income tax expense (benefit) resulting from:
Unrealized sales discounts
Unrealized gross profit
Loss on inventory value decline and obsolescence
Unrealized foreign exchange loss (gain)
Development expenditures capitalization
Investment income accounted for under the equity
method
Pension liabilities
Unrealized loss (gain) on valuation of financial
assets
Accrued service expenses
Accrued expenses
Accrued repair liabilities for idle asset
Amortization of discount on bonds payable
Investment tax credits
Loss carryforward
Deferred tax assets-valuation allowance
Effect on deferred income tax assets/ liabilities
resulting form changes in tax rates
Adjustment of prior year’s tax expense
Income tax expense
091
2010
2009
$55,299
$48,375
(19,988)
(22,890)
1,855
4,746
3,589
(1,928)
(421)
(1,809)
197
25,639
(3,299)
(1,373)
2,210
(1,390)
(377)
17,851
(17)
1,561
(173)
658
216
1,351
(1,017)
(8,894)
3,102
7,447
(5,268)
6,793
329
428
(7,525)
8,330
33,270
(1,942)
11,276
$72,190
(31,705)
$52,316
(4) The integrated income tax information of the Company is as follows:
As of December 31,
Imputation credit account (ICA)
2010
2009
$23,129
$54,710
2010
2009
11.55%
17.81%
Actual (estimated) creditable ratio for the
appropriation of retained earnings
The imputation credit allocated to shareholders is based on its balance as of the date of
dividend distribution. The estimated creditable ratio may change when the actual
distribution of imputation credit is made.
(5) As of December 31, 2010, the Company’s unused investment tax credit was as follows:
Total tax credit
Unused tax credit
Year of expiration
$13,795
$-
2010
45,962
62,503
44,526
39,292
2012
2013
$122,260
$83,818
(7) The R.O.C. income tax authorities had assessed the income tax returns of the Company
through 2008. The 2003 to 2007 income tax return have been assessed by the authorities for
additional tax payable NT$91,193 thousand due to research and development and the ratio
of tax exemption. The Company disagreed with the assessment about the ratio of tax
exemption and subsequently filed a tax appeal. The appeal is still under review.
(8) The income tax of foreign subsidiaries is estimated at local tax rate.
092
24. Earnings per share
The calculation of earnings per share is provided as follows:
Amounts (Numerator)
Income before
Share expressed
Income before
(Denominator) (In thousands)
income tax
income tax
Net income
$386,638
$314,448
-
-
$386,638
$314,448
$3,405
$2,826
8,772
Employee stock option in 2003
$-
$-
27
$-
$-
1,417
$-
$-
259
Employees bonuses
$-
$-
1,553
$390,043
$317,274
179,541
-
-
$390,043
$317,274
Net income
Basic
Net income
Less: Minority interests gain
Shareholders of the parent income
167,513
$2.31
$1.88
-
-
$2.31
$1.88
$2.17
$1.77
-
-
$2.17
$1.77
Effect of dilution
Convertible bonds payable
Diluted
Net income
Less: Minority interest gain
Amounts (Numerator)
Income before
Share expressed
Income before
(Denominator) (In thousands)
income tax
income tax
Net income
$257,799
$205,483
-
-
$257,799
$205,483
$-
$-
143
$-
$-
1,269
Employees bonuses
$-
$-
989
$257,799
$205,483
169,361
-
-
$257,799
$205,483
Net income
Basic
Net income
Less: Minority interests gain
166,960
$1.54
$1.23
-
-
$1.54
$1.23
$1.52
$1.21
-
-
$1.52
$1.21
Effect of dilution
Diluted
Net income
Less: Minority interest gain
093
25. Related party transactions
(1) Name and relationship of related parties
Name of related parties
Relationship with the Company
Eight people including Por-Yuan, Wang
Three people including Ruei-song, Guo
Eight people including Por-Yuan, Wang
Directors of the Company
Supervisors of the Company
Vice president and other key management
personnel of the Company
(2) Significant related party transactions
Compensation of key management personnel
Categories
Salaries, bonuses, and other
remuneration
2010
2009
$35,767
$54,862
The Company’s key management personnel includes directors, supervisors and management
that is vice president or above.
For details of total compensation paid to the Company’s key management personnel
including Directors, Supervisors, President and Vice-President, please refer to the annual
report for the Company.
26. Assets pledged as collateral
The assets pledged of the Company and its subsidiaries were as follows:
As of December 31,
Assets pledged
Property-building
Intangible assets-land use right
Refundable deposits-time deposit and cash
Restricted assets-cash
Total
Purpose of pledge
Bank loan
Bank loan
Custom duty guarantee
L/C guarantee
2010
2009
$300,003
10,704
2,592
8,654
$321,953
$288,666
11,625
6,419
15,744
$322,454
094
27. Commitments and contingent liabilities
As of December 31, 2010, significant commitments and contingent liabilities not included in the
financial statements are as follows:
The future minimum payments under existing lease agreements are as follows:
Period
2011
2012
Amount
$12,426
2,661
$15,087
28. Significant disaster loss
None.
29. Significant subsequent events
None.
30. Others
(1) Financial risk management objectives and policies
The Company’s and its subsidiaries’ principal financial instruments, other than derivatives,
are comprised of cash and cash equivalents, common stock and loans. The main purpose
of these financial instruments is to manage financing for the Company’s and its subsidiaries’
operations. The Company and its subsidiaries also hold various other financial assets and
liabilities such as accounts receivable and accounts payables, which arise directly from its
operations.
The Company and its subsidiaries also enter into derivative transactions, including foreign
forward exchange contracts. The purpose is to avoid the foreign currency exchange risk
arising from the Company’s and its subsidiaries’ operation activities. The Company’s and
its subsidiaries’ policies are not enter into trading purpose derivative transactions.
095
The main risks arising from the Company’s and its subsidiaries’ financial instruments
include cash flow interest rate risk, foreign currency risk, credit risk, and liquidity risk.
Cash flow interest rate risk
The floating interest rate and fixed rates are used to hedge floating interest rate fluctuations
of long-term bank loan and lease payable.
Foreign currency risk
The Company and its subsidiaries have foreign currency risk arising from purchases or sales.
The Company and its subsidiaries utilize forward contracts to avoid foreign currency risk.
The Company and its subsidiaries buy or sell the same amount of foreign currency with
hedged items through forward contracts.
Credit risk
The Company and its subsidiaries trade only with established and creditworthy third parties.
It is the Company’s and its subsidiaries’ policies that all customers who wish to trade on
credit terms are subject to credit verification procedures. In addition, receivable balances
are monitored on an ongoing basis, which consequently minimizes the Company’s and its
subsidiaries’ exposure to bad debts.
With respect to credit risk arising from the other financial assets of the Company and its
subsidiaries, which are comprised of cash and cash equivalents available-for-sale financial
assets and certain derivative instrument, the Company’s and its subsidiaries’ exposure to
credit risk arising from the default of counter-parties are limited to the carrying amount of
these instruments.
As the Company and its subsidiaries trade only with established third parties, it does not for
any collateral from third parties.
Liquidity risk
The Company’s and its subsidiaries’ objective are to maintain a balance of funding
continuity and flexibility through the use of financial instruments such as bank loans and
cash and cash equivalents.
096
(2) Information of financial instruments
(A) Fair value of financial instruments
As of December 31,
2010
Financial assets
Book value
2009
Fair value
Book value
Fair value
Non-derivative financial instruments
Assets
Cash
$2,044,583 $2,044,583 $1,984,213 $1,984,213
Notes and accounts receivable-net 1,790,293 1,790,293 1,041,536 1,041,536
Other receivables
133,606
133,606
76,634
76,634
Restricted assets
Financial assets measured at
cost-noncurrent
Refundable deposits
8,654
8,654
15,744
15,744
105,714
25,600
-
47,454
39,150
-
Liabilities
Short-term loans
Notes payable
Accounts payable
1,482,803
42,486
2,101,803
1,482,803
42,486
2,101,803
864,094
34,013
1,586,220
864,094
34,013
1,586,220
Accrued expenses
Lease payables
Bonds payable
520,644
365,396
526,760
520,644
365,396
526,760
329,531
379,836
-
329,531
379,836
-
10,337
10,337
2,531
2,531
1,487
1,487
-
-
Derivative financial instruments
Assets
Foreign exchange forward
contracts
Asset components of convertible
bonds-embedded derivative
contract
097
(B) The methods and assumptions used to estimate the fair value of financial instruments are
as follows:
(a) The book value of short-term financial instruments approximates to the fair value
due to their short maturities. Short-term financial instruments include cash, notes and
accounts receivable, other receivables, restricted assets, refundable deposits,
short-term loans, notes payable, accounts payable and accrued expenses.
(b) Refundable deposits are based on book value because the maturity date is uncertain.
(c) The fair value of financial assets measured at cost is unable to be estimated since
there is no active market in trading those unlisted investments.
(d) Lease payables are estimated based on the present values of future cash flow. For
bank loans associated with floating interest rate, the carrying value represents its fair
value. The fair values of convertible bonds are determined based on their market
price which was provided by financial institution.
(e) The fair value of derivative financial instruments is based on the amount the
Company expects to receive and to pay assuming that the contracts are settled at the
balance sheet date. The fair value includes the unrealized gain on unsettled
contracts in current period generally. The Company refers to quoted prices provided
by financial institutions for its derivative financial instruments.
(C) The fair value of the Company’s and its subsidiaries’ financial assets and liabilities
determined by the quoted prices in active markets or valuation technique as follows:
As of December 31,
Active market quotation
Financial assets
2010
2009
Assets
Cash
$2,044,583 $1,984,213
Notes and accounts receivable-net
Other receivables
Restricted assets
Refundable deposits
-
Valuation technique
2010
2009
$1,790,293
133,606
8,654
25,600
$1,041,536
76,634
15,744
39,150
098
As of December 31,
Active market quotation
Financial assets
Liabilities
Short-term loans
2010
2009
Valuation technique
2010
2009
-
-
1,482,803
864,094
Notes payable
Accounts payable
Accrued expenses
-
-
42,486
2,101,803
520,644
34,013
1,586,220
329,521
Lease payables
Bonds payable
-
-
365,396
526,760
379,836
-
-
-
10,337
2,531
-
-
1,487
-
Derivative financial instruments
Assets
Foreign exchange forward
contracts
Asset components of convertible
bonds-embedded derivative
contract
(D) As of December 31, 2010 and 2009, the Company and its subsidiaries’ financial
liabilities with fair value interest rate risk exposure amounted to NT$2,374,959 thousand
and NT$1,243,930 thousand, respectively.
(E) For the year ended December 31, 2010, total interest revenue and interest expense for
financial assets or liabilities that are not at fair value through profit or loss were
NT$12,111 thousand and NT$32,328 thousand, respectively, while interest revenue and
interest expense for the year ended December 31, 2009 amounted to NT$9,600 thousand
and NT$19,437 thousand, respectively.
(F) Guarantee for letter of credit of subsidiaries in pledge refer to Note 26.
099
(G) Financial risk information
(a) Market risk
Forward contracts held as of December 31, 2010 and 2009 were intended for
hedging purposes. Gains or losses arising from the fluctuations in exchange rates
are likely to be offset against the gains or losses from the hedged items. As a result,
no significant exposure to market risk is anticipated.
(b) Credit risk
Financial assets are influenced by potential effects of transaction counterparties’
non-fulfillment of contract. Effects include the concentration of credit risk of the
Company’s and its subsidiaries’ financial instruments, components, amount of
contracts, and other receivables. There is no significant credit risk exposure.
(c) Liquidity risk
No significant cash flow risk is anticipated since the working capital is sufficient to
meet the cash flow requirements.
The Company and its subsidiaries entered into foreign exchange forward contracts,
since the forward rate has been fixed, no significant cash flow risk is anticipated.
In addition, the Company and its subsidiaries invest unlisted stocks. The significant
liquidity risk is expected.
(d) The cash flow risk of interest variation
The bank loan was floating rate liabilities. Therefore, the market interest rate would
change cash flow in the future.
(3) Others
Significant intercompany transactions among consolidated entities for the years ended
December 31, 2010 and 2009 are disclosed in Attachment 1.
100
(4) The information of foreign currency financial assets / liabilities are as follows:
(Unit : Foreign currency : thousand, NTD: thousand)
Foreign currency Exchange rate
NTD
Financial assets-monetary items
Cash
Cash
Cash
Accounts receivable
Accounts receivable
Other receivables
Other receivables
Restricted assets
Refundable deposits
Refundable deposits
RMB
USD
JPY
RMB
USD
RMB
USD
RMB
RMB
JPY
152,076
2,645
17,773
75,825
42,976
3,613
884
1,958
2,520
7,336
4.42
29.13
0.37
4.42
29.13
4.42
29.13
4.42
4.42
0.37
$672,257
77,052
6,637
335,187
1,251,904
15,971
25,752
8,654
11,141
2,739
Financial assets-non monetary items
cost-noncurrent
USD
2,000
29.13
58,260
Financial liabilities-monetary items
Short term loan
Accounts payable
Accrued expenses
Accrued expenses
RMB
RMB
USD
RMB
282,392
367,948
170
23,087
4.42
4.42
29.13
4.42
1,248,323
1,626,526
4,970
102,056
Financial assets-monetary items
Cash
Cash
Accounts receivable
Accounts receivable
Other receivables
Other receivables
Restricted assets
Refundable deposits
101
RMB
USD
RMB
USD
RMB
USD
RMB
RMB
189,419
2,677
22,623
26,584
3,665
468
3,336
5,830
4.69
32.03
4.69
32.03
4.69
32.03
4.69
4.69
NTD
$888,715
85,735
106,145
851,501
17,194
14,997
15,744
27,354
Financial liabilities-monetary items
Short term loan
Accounts payable
Accrued expenses
Accrued expenses
RMB
RMB
RMB
USD
156,864
249,289
16,104
166
4.69
4.69
4.69
32.03
NTD
735,974
1,169,616
75,559
5,317
31. Additional disclosures
Following are the additional disclosures required for the Company and its investees by the SFB:
(1) Major transactions information:
(A) Loans of capital to others for the year ended December 31, 2010:None.
(B) Provision of endorsements or guarantees for others for the year ended December 31,
2010: Please refer to Attachments 3.
(C) Securities held as of December 31, 2010: Please refer to Attachment 4.
(D) Accumulated buying/selling of the same securities for which the dollar amount reaches
$100 million NTD or 20% or more of paid-in capital for the year ended December 31,
2010: Please refer to Attachment 5.
(E) Acquisition of fixed assets for which the dollar amount reaches $100 million NTD or
20% or more of paid-in capital for the year ended December 31, 2010: None.
(F) Disposition of real estate for which the dollar amount reaches $100 million NTD or 20%
or more of the net paid-in capital for the year ended December 31, 2010: None.
(G) Buying/selling products with related parties for which the dollar amount reaches $100
million NTD or 20% or more of paid-in capital for the year ended December 31, 2010:
None.
(H) Accounts receivable from related parties for which the dollar amount reaches $100
million NTD or 20% or more of paid-in capital as of December 31, 2010: None.
(I) Derivative transactions: Please refer to Note 5.
102
(2) Information on re-invested enterprises:
(A) For those who directly or indirectly have major influence or control over the investee
company: Please refer to Attachment 7.
(B) For those who directly or indirectly have control over the investee company, the investee
company’s transaction information listed under items A to I shall be disclosed: Please
refer to Attachment 2, 4~6.
(3) Information on Mainland China investments: Please refer to Attachment 8.
32. Segment financial information
(1) Operations in different industries
The Company and its subsidiaries operate principally in one industry. The major business
of the Company and its subsidiaries is manufacturing and selling the computerized
networking equipments and related computerized information products.
(2) Operations in different geographic areas
Taiwan
Sales to third-party customers
Intercompany sales
Net sales
Gross profit
Asia
America
Elimination
$-
Consolidated
$8,061,069
$653,886
$-
$8,714,955
127,924
58,294
17,830
(204,048)
-
$8,188,993
$712,180
$17,830
$(204,048)
$8,714,955
$248,799
$175,177
$1,388
$(7,229)
$418,135
Investment profit (include
dividend revenue)
831
Interest expenses
(32,328)
Continuing operations income
before income tax
Identifiable assets
Total assets
103
$386,638
$4,664,229
$5,360,168
$6,258
$(2,158,303)
$7,872,352
107,201
$7,979,553
Taiwan
Asia
America
Elimination
Consolidated
Sales to third-party customers
Intercompany sales
$6,722,871
101,291
$406,380
5,227,860
$1
17,370
$(5,346,521)
$7,129,252
-
Net sales
$6,824,162
$5,634,240
$17,371
$(5,346,521)
$7,129,252
$189,797
$87,285
$3,025
$(2,871)
$277,236
Gross profit
Investment profit (include
dividend revenue)
Interest expenses
(19,437)
Continuing operations income
before income tax
Identifiable assets
$257,799
$3,481,411
$3,733,492
$6,304
$(1,449,271)
$5,771,936
47,454
Total assets
$5,819,390
(3) Export information
A breakdown of export sales were summarized as follows:
Area
Europe
America
Asia
Other
Total
2010
2009
$3,614,980
$3,582,648
3,186,802
2,424,329
1,116,168
445,216
2,159
42,540
$7,920,109
$6,494,733
(4) Major customers
Individual customer accounting for at least 10% of net sales were as follows:
Customers
Customer A
Customer B
Customer C
Customer D
2010
2009
Amount
Percentage
Amount
Percentage
$552,798
6.40%
$744,045
10.50%
1,964,165
22.73%
1,786,545
25.20%
199,538
2.31%
893,241
12.60%
1,041,813
12.06%
1,162,471
16.40%
104
(Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 1ΚSignificant intercompany transactions between consolidated entities
Transactions
No.
(Note1)
Counterparty
Nature of
relationship
(Note 2)
Account
Amount
Terms
Percentage of
consolidated
operating
revenues or
consolidated
total assets
(Note 3)
$17,779
-
0.20%
0
For the year ended
December 31, 2010
Sercomm Corporation
Servecomm Inc.
1
Commission expenses
0
Sercomm Corporation
Servecomm Inc.
1
1,171
-
0.01%
0
Sercomm Corporation
1
Accounts receivable
92
-
-
0
Sercomm Corporation
1
Sales revenue
113,671
Note 4
1.31%
0
Sercomm Corporation
1
Accounts receivable
77,778
Note 4
0.98%
0
Sercomm Corporation
Servecomm Inc.
Dwnet Technology
(Suzhou) Limited
Dwnet Technology
(Suzhou) Limited
Sercomm Japan Inc.
1
Commission expenses
8,268
-
0.10%
0
Sercomm Corporation
Sercomm Japan Inc.
1
6,641
-
0.08%
1
Sernet Technology
(Suzhou) Limited
Sernet Technology
(Suzhou) Limited
Sernet Technology
(Suzhou) Limited
Sernet Technology
(Suzhou) Limited
Sernet Technology
(Suzhou) Limited
Sercomm Trading Co. Ltd.
Dwnet Technology
(Suzhou) Limited
Dwnet Technology
(Suzhou) Limited
Dwnet Technology
(Suzhou) Limited
2
3,361
-
0.04%
3
Other receivables
119,722
-
1.50%
3
Accounts receivable
14,889
-
0.19%
3
Rent revenue
729
-
0.01%
2
Commission expenses
14,135
-
0.16%
2
4,391
-
0.06%
Dwnet Technology
(Suzhou) Limited
3
Sales revenue
29,481
-
0.34%
2
2
2
2
2
3
Sercomm Japan Inc.
Note 1Κ The Company and its subsidiaries are coded as follows:
1.The Company is coded 0.
2.The subsidiaries should be coded consecutively beginning from "1" in the order presented in the table above.
Note 2Κ Transactions are categorized as follows:
1.The parent company to subsidiary.
2. Subsidiary to parent company.
3. Subsidiary to subsidiary.
Note 3Κ The percentage with respect to the consolidated asset/revenues for transactions of balance sheet items are based on each items balance at
period-end. For profit or loss items, cumulative balances are used as basis.
Note 4Κ The sales price to the above related parties was determined through mutual agreement based on the market conditions. The collection
period for overseas sales was net 30-240 days, while the terms for domestic sales was net 30-75 days. The collection period for third party
sales was month-end 90 days.
Note 5Κ The list of significant intercompany transactions doesn't include transactions as the Company purchased materials on its subsidiary, Sernet
Technology (Suzhou) Limited's behalf, sold the materials to Sernet Technology (Suzhou) Limited, and then bought the final products from
Sernet Technology (Suzhou) Limited. In 2010, the Company purchased materials for such transactions amounted to $2,209,886 thousand.
The Company bought the final products from Sernet Technology (Suzhou) Limited amounted to $6,168,886 thousand. In order to avoid
double counting for such transactions above, the Company did not recognize related sales and cost of goods sold of materials and
work-in-process until selling the final products. In addition, the Company reversed the amount which have not been bought back from
Sernet Technology (Suzhou) Limited to inventory account and reversed the related accounts receivable/payable balance.
105
Attachment 1-1ΚSignificant intercompany transactions between consolidated entities
Transactions
No.
(Note1)
0
For the year ended
December 31, 2009
Sercomm Corporation
0
Sercomm Corporation
0
Sercomm Corporation
0
Sercomm Corporation
1
Sernet Technology
(Suzhou) Limited
Sernet Technology
(Suzhou) Limited
Sernet Technology
(Suzhou) Limited
Sernet Technology
(Suzhou) Limited
Sernet Technology
(Suzhou) Limited
Sernet Technology
(Suzhou) Limited
Dwnet Technology
(Suzhou) Limited
2
2
2
2
2
2
3
Counterparty
Nature of
relationship
(Note 2)
Account
Terms
Percentage of
consolidated
operating
revenues or
consolidated
total assets
(Note 3)
$17,307
-
0.24%
1,747
-
0.03%
Amount
Servecomm Inc.
1
Commission expenses
Servecomm Inc.
Dwnet Technology
(Suzhou) Limited
Dwnet Technology
(Suzhou) Limited
Dwnet Technology
(Suzhou) Limited
Dwnet Technology
(Suzhou) Limited
Dwnet Technology
(Suzhou) Limited
Dwnet Technology
(Suzhou) Limited
Dwnet Technology
(Suzhou) Limited
1
1
Sales revenue
88,057
Note 4
1.21%
1
Accounts receivable
22,598
Note 4
0.39%
2
3,203
-
0.06%
3
Other receivables
66,227
-
1.14%
3
Accounts receivable
6,576
-
0.11%
3
Rent revenue
732
-
0.01%
3
Accounts payable
1,925
-
0.03%
3
Sales revenue
6,576
-
0.09%
2
Commission expenses
12,811
-
0.18%
Sernet Technology (Suzhou)
Limited
3
Sales revenue
1,788
-
0.02%
Note 1Κ The Company and its subsidiaries are coded as follows:
1.The Company is coded 0.
2.The subsidiaries should be coded consecutively beginning from "1" in the order presented in the table above.
Note 2Κ Transactions are categorized as follows:
1.The parent company to subsidiary.
2. Subsidiary to parent company.
3. Subsidiary to subsidiary.
Note 3Κ The percentage with respect to the consolidated asset/revenues for transactions of balance sheet items are based on each items balance at
period-end. For profit or loss items, cumulative balances are used as basis.
Note 4Κ The sales price to the above related parties was determined through mutual agreement based on the market conditions. The collection
period for overseas sales was net 45-90 days and month-end 60 days, while the terms for domestic sales was net 30-60 days. The
collection period for third party sales was month-end 90 days.
Note 5Κ The list of significant intercompany transactions doesn't include transactions as the Company purchased materials on its subsidiary, Sernet
Technology (Suzhou) Limited's behalf, sold the materials to Sernet Technology (Suzhou) Limited, and then bought the final products from
Sernet Technology (Suzhou) Limited. In 2009, the Company purchased materials for such transactions amounted to $1,760,786 thousand.
The Company bought the final products from Sernet Technology (Suzhou) Limited amounted to $5,225,723 thousand. In order to avoid
double counting for such transactions above, the Company did not recognize related sales and cost of goods sold of materials and
work-in-process until selling the final products. In addition, the Company reversed the amount which have not been bought back from
Sernet Technology (Suzhou) Limited to inventory account and reversed the related accounts receivable/payable balance.
106
Attachment 2ΚLoans of capital to others for the year ended December 31, 2010
Name of
Name of
Number finance
Account
counterparty
provider
1
Maximum
balance
Ending
during
balance
2010
Sernet
Dwnet
Other
Technology
Technology receivables
$123,807 $123,807
(Suzhou)
(Suzhou)
-related
Limited
Limited
party
Limited
Nature of
Total
Interest
Reason for
financing transaction
rate
financing
activity
amount
5%
Note 3(2)
$-
Operating
Maximum
Allowance Assets pledged
Loan limit per amount
for
entity (Note available
doubtful
l(2))
for law
Item
Value
accounts
(Note 2)
$-
-
$-
$197,535
$395,071
Note 1Κ According the Company's Operational Procedures for Loaning Funds to Others, the maximum amount permitted to a single borrower as
follows:
(1) Trading partner: The amount shall not exceed the higher of the sales or purchases amount from the counterparty at the time of the
leading event or one year, whichever is lesser.
(2) Short-term financing: The amount shall not exceed 20 percent of stockholders' equity as stated in its latest financial statement.
Note 2Κ The aggregate amount of loans shall not exceed 40% of stockholders' equity as stated in its latest financial statement.
Note 3Κ The nature of financing activities as follows:
(1) Trading partner.
(2) Short-term financing
107
Attachment 3: Provision of endorsements of guarantees for others for the year ended December 31, 2010
Endorsee
Number
Name of
endorsers
Name of endorsees
0
The Company
Relationship
Sernet Technology The Company’s
(Suzhou) Limited equity investee
Endorsement
limit for a
single entity
$628,417
(Note)
Maximum
balance for
the period
Ending
balance
$291,300
$291,300
(USD 10,000 (USD 10,000
thousand)
thousand)
Percentage of
accumulated
Amount of
guarantee Limit of total
collateral
amount to net guarantee/en
guarantee/end assets value
dorsement
orsement
amount
from the latest
financial
statement
$-
11.59%
$1,256,835
(Note)
Note : The limit of endorsement for any single entity shall not exceed 25% of stockholders' equity as stated in its latest financial statement; the total
amount of transaction of endorsement shall not exceed 50% of stockholders' equity as stated in its latest financial statement.
108
Attachment 4ΚSecurities held as of December 31, 2010
Period ended
Held company name
Sercomm Corporation
Securities type and Relationship with the
name
Company
Shares/units
(in thousands)
Book
value
Percentage Market
of
value or
ownership Net asset
value
(%)
Note
Stocks
Servecomm Inc.
The Company’s equity Long-term investments accounted
investee
for under the equity method
250
$4,703
100.00
$4,703 Note 1
Sercomm
Investments Ltd.
investee
1,200
7,105
100.00
7,105 Note 1
Sercomm Trading The Company’s equity Long-term investments accounted
Co. Ltd.
investee
34,300
1,409,594
100.00
1,409,594 Note 3
2,800
31,836
100.00
31,836 Note 3
40,000
0.17
-
Note 2
-
-
Note 2
-
Note 2
Shukuan
Investment Ltd.
Shukuan Investment Ltd.
Financial statement account
investee
Industrial Bank of
Taiwan
-
cost-noncurrent
4,154
TECO Nanotech
Co., Ltd.
-
cost-noncurrent
-
-
cost-noncurrent
747
7,444
3.69
investee
1
13,021
100.00
13,021 Note 1
Zealous
Investments Ltd.
investee
30,956
1,351,802
100.00
1,351,802 Note 3
Smart Trade Inc.
investee
3,500
59,951
100.00
59,951 Note 3
Sernet Technology The Company’s equity Long-term investments accounted
(Suzhou) Limited investee
24,900
1,131,848
100.00
1,131,848 Note 3
Taicang Sercomm The Company’s equity Long-term investments accounted
Technology Corp. investee
4,800
154,782
100.00
154,782 Note 3
875
58,260
3.78
10
Stocks
Cerpass
Technology Corp.
Sercomm Japan
Inc.
Sercomm Trading Co. Ltd. Stocks
Stocks
Ubiquisys Limited -
-
Note 2
(USD2,000 Տց)
Smart Trade Inc.
Stocks
Dwnet Technology The Company’s equity Long-term investments accounted
(Suzhou) Limited investee
Note 1: Amount was recognized based on the unreviewed or unaudited financial statements in 2010.
Note 2: Can't obtain the financial statements of the company in time.
Note 3: Amount was recognized based on the audited financial statements.
109
3,500
59,948
100.00
59,948 Note 3
Attachment 5ΚAccumulated buying/selling of the same securities for which the dollar amount reaches $100 million NTD or 20% or
more than of paid-in capital for the year ended December 31, 2010
Beginning balance
Financial
statement
account
Counter
party
The
Company
Long-term
investments
Sercomm
accounted
Trading Co.
for under
Ltd.
the equity
method
Purchase
of newly
issued
shares
Sercomm
Trading
Co. Ltd.
Long-term
investments
Zealous
accounted
Investments
for under
Ltd.
the equity
method
Long-term
investments
accounted
for under
the equity
method
Company
name
Securities
type and
name
Sernet
Zealous
Technology
Investment
(Suzhou)
s Ltd.
Limited
Relationship
Addition
Disposal
Ending balance
Shares/ Units
Shares/ Units
Book
Amount
Amount
(in thousands)
(in thousands)
value
Gain
(loss) Shares/ Units
from (in thousands)
disposal
Shares/ Units
(in thousands)
Amount
(Note)
The
Company's
equity
investee
27,300
$1,150,508
7,000
$218,464
-
$-
$-
$-
34,300
$1,409,594
Purchase
of newly
issued
shares
The
Company's
equity
investee
23,956
1,111,874
7,000
218,464
-
-
-
-
30,956
1,351,802
Purchase
of newly
issued
shares
The
Company's
equity
investee
19,900
935,540
5,000
154,260
-
-
-
-
24,900
1,131,848
Amount
(Note)
Note : The amount of ending balances of long-term investments accounted for under the equity method include adjustment under the equity method.
110
Attachment 6ΚAccounts receivable from related parties for which the dollar amount reaches $100 million NTD or 20% or more of
paid-in capital as of December 31, 2010
Overdue receivables
The name of the company
Sernet Technology
(Suzhou) Limited
111
Name of
counterparty
Relationship
The Company
The Company's
equity investee
Turnov
Ending balance
er rate
$1,105,160
-
Amount
Action
adopted for
overdue
accounts
Subsequent
collections
Allowance
for
doubtful
accounts
$-
-
$296,134
$-
Attachment 7ΚNames, locations and related information of investees on which the Company exercises significant influence
Original investment
amount
Investor
company
Investee company
Sercomm
Servecomm Inc.
Corporation
Sercomm
Investments Ltd.
Main businesses and
products
December December
Shares
31,2010 31,2009 (in thousands)
Percentage
of
ownership
Note
$7,939
$7,939
250
100.00
$4,703
$1,388
$1,388
Note 1
technology R&D and
40,037
40,037
1,200
100.00
7,105
(34)
(34)
Note 1
1,102,642 884,178
34,300
100.00
Sercomm Trading
technology R&D and
Co. Ltd.
Shukuan
Investment Ltd.
Book
value
Net
Investment
income
income
(loss)
(loss)
of the
recognized
investee
Investment activity
28,000
28,000
2,800
100.00
1,409,594 126,843
126,843
Note 2
3,042
3,042
Note 2
1,351,802 104,295
104,295
Note 2
23,563
23,563
Note 2
1,131,848 108,695
108,695
Note 2
31,836
Sercomm
Zealous
Trading Co.
Investments Ltd.
Ltd.
technology R&D and
989,358
770,894
30,956
100.00
Smart Trade Inc.
technology R&D and
113,284
113,284
3,500
100.00
Zealous
Sernet Technology communication products,
Investments
(Suzhou) Limited Wlan products; sales and
Ltd.
after-sales service
765,582
611,322
24,900
100.00
Taicang Sercomm communication products,
Technology Corp. Wlan products; sales and
after-sales service
156,125
156,125
4,800
100.00
154,782
Dwnet
Smart Trade
R&D center of software;
Technology
113,284
Inc.
sales and after-sales service
(Suzhou) Limited
113,284
3,500
100.00
59,948
23,563
23,563
Note 2
-
1
100.00
13,021
2,839
2,839
Note 1
Shukuan
Investment
Ltd.
Sercomm Japan
Inc.
9,617
59,951
(85)
(85)
Note 2
Note 1: Amount was recognized based on the unreviewed or unaudited financial statements.
Note 2: Amount was recognized based on the audited financial statements.
112
Attachment 8ΚInformation on Mainland China investments
Investee
company
Accumulated
Accumulated
Total
outflow of Investment flows
outflow of
Investment
Percentage
income
Main businesses and amount Method of investment
investment
of
products
of paid-in investment from Taiwan
from Taiwan as
(loss)
ownership
capital
recognized
as of January
of December
1, 2010
31, 2010
Outflow Inflow
Sernet
Technology
(Suzhou)
Limited
Manufacture of
routers,
communication
products, Wlan
products; sales and
after-sales service
Investment $611,322
$769,782 in cash (USD 18,900
(Note 1)
thousand)
Dwnet
Technology
(Suzhou)
Limited
R&D center of
software; sales and
after-sales service
$113,164
Taicang
Sercomm
Technology
Corporation
Manufacture of
routers,
communication
products, Wlan
products; sales and
after-sales service
$156,125
Accumulated
Carrying
inward
value as of remittance of
December earnings as
31, 2010 of December
31, 2010
$154,260
(USD
5,000
thousand)
$-
$765,582
(USD 23,900
thousand)
100.00 %
$108,695
$1,131,848
(Note 3)
$-
Investment $113,284
in cash
(USD 3,500
(Note 2)
thousand)
$-
$-
$113,284
(USD 3,500
thousand)
100.00 %
$23,563
(Note 3)
$59,948
$-
Investment $156,125
in cash
(USD 4,800
(Note 1)
thousand)
$-
$-
$156,125
(USD 4,800
thousand)
100.00 %
$(85)
(Note 3)
$154,782
$-
Accumulated investment in Mainland
China as of December 31, 2010
Investment amounts authorized by
Investment Commission, MOEA
Upper limit on investment
$1,034,991
(USD 32,200 thousand)
USD 32,454 thousand
$1,565,275
(Note 4)
Note 1Κ The Company established Sercomm Trading Co. Ltd. in the third country. The Company reinvest Zealous Investments Ltd. (through
Sercomm Trading Co. Ltd.) and then invest in Mainland China.
Note 2Κ The Company established Sercomm Trading Co. Ltd. in the third country. The Company reinvest Smart Trade Inc. (through Sercomm
Trading Co. Ltd.) and then invest in Mainland China.
Note 3Κ Amount was recognized based on the audited financial statements.
Note 4Κ The Mainland China investment limit is 60 percent of stockholders' equity on December 31, 2010 according to "Examine Standards of
Investments and Technical Cooperation in Mainland of China Area", published by Investment Commission, MOEA.
113

Company overview

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