024 capital & shares · telecommunications and cloud applications. during year 2012, over 16...
TRANSCRIPT
002 Letter to Shareholders
009 Company Overview
013 Corporate Organization
024 Capital & Shares
028 Dividend Policy
032 Business Overview
033 Industry Outlook
039 Sales & Marketing
045 Financial Review and Operating Results
045 Condensed Balance Sheets & Income Statements
048 Financial Analysis
052 Operating Results
053 Analysis of Cash Flow
054 Affiliated Companies Chart
055 Affiliates Information
056 Consolidated Financial Statements
Sercomm Corporation 2012 Annual Report 002
Letter to Shareholders
2012 was a year of rich harvest for Sercomm.
Benefitt ing from fixed mobile convergence,
Sercomm’ s sales increased in every section of
the telecommunications market. Consolidated
net sales for 2012 were NT$ 19.27 billion, which
represents a 46% increase over NT$13.24 billion
for year 2011. Income before tax for 2012 were
NT$ 935 million, which represents a 33% year-
over-year increase over NT$ 701 million for 2011.
Net income for 2012 were NT$ 755 million, which
also represents a 30% increase compared to NT$ 583 million for year 2011. Based on 193 million
weighted average shares outstanding, EPS for year 2012 were reported as NT$ 3.9. 2012 sales
revenue and net profit set new company record with a fitting celebration for the 20th Anniversary. In
the same year, Sercomm was also honored to be named among CommonWealth Magazine’s "Top
50 BEST Performing Public Company", “Top 50 Growing Technology Company” and Business Next
Magazine’s “Top 100 Taiwan Technology Company”.
Although the networking communications industry have gone through many different revolutions
in the past two decades, Sercomm continued to engage in innovative R&D in networking and
telecommunications and is now a global leader in telecommunications and broadband equipment.
Sercomm’s full range of products covers different market, including household, business,
telecommunications and cloud applications. During year 2012, over 16 million broadband devices
were shipped and over 70% of which were telco-grade products. High value-added products such
as Smart Home Control, SMB products, Small Cell products, Fiber products and Cable DOCSIS 3.0
also have brilliant results. We expect all product lines to maintain a high rate of growth this year and
continue to contribute significantly to our overall business.
Based in Taiwan, broadening our view to Great China, and distributing across the world, Sercomm
is actively working to be globalized. To cope with the company’s growing operations, the company not
only commenced Sernet (Suzhou) Technology II production and expanded Chunan factory in 2011, but
also acquired the new office in Nankang as headquarters and R&D center in 2012. The opening of the
new office coincided with Sercomm’s 20th Anniversary, and the ceremony was held to celebrate both
at the same time. Thanks to former vice-president Hsiao of Taiwan and VIP guests including business,
financial and industry leaders, we all witnessed Sercomm’ s new milestone. In addition, Sercomm’s
global branches now include North America, Europe, Japan, China and the Asia-Pacific Region, and
Sercomm Corporation 2012 Annual Report 003
also continue to add more sales centers in the pan-Europe region and emerging markets in order to
gain market share and strengthen our growth momentum.
For 2013, confronted with a new era of digital convergence, Sercomm is optimistic about the
networking market, and will continue to engage in innovative R&D and enhance core competitiveness
with precise business strategy. With the contribution of new products, new customers, and new
markets, combined with the effort of board members and all employees, Sercomm will continue to
create greater operational success and meet shareholder’s expectations.
James Wang
President of Sercomm Corporation
Sercomm Corporation 2012 Annual Report 004
Review of 2012 Business ResultsUnit: Thousand NTD
Item 2012 2011 Year on Year Change (%)
Wired Product 1,961,706 1,809,001 8.44
Wireless Product 14,361,780 8,595,981 67.08
Others 275,671 406,926 -32.26
Total Revenue 16,599,157 10,811,908 53.53
Financial PositionUnit: Thousand NTD
Item 2012 2011 Difference Change %
Current Assets 4,536,965 4,525,886 11,079 0.24
Fixed Assets 1,235,923 665,982 569,941 85.58
Other Assets 54,864 58,115 -3,251 -5.59
Total Assets 8,647,741 7,805,503 842,238 10.79
Current Liabilities 3,181,335 3,540,050 -358,715 -10.13
LT Liabilities 1,600,469 873,744 726,725 83.17
Other Liabilities 15,275 119,100 -103,825 -87.17
Total Liabilities 4,797,079 4,532,894 264,185 5.83
Capital 1,972,855 1,827,960 144,895 7.93
Capital Reserves 498,409 308,989 189,420 61.30
Retained Earnings 1,259,633 973,481 286,152 29.39
Other Adjustments of Shareholders’Equity 119,765 162,179 -42,414 -26.15
Total Shareholders' Equity 3,850,662 3,272,609 578,053 17.66
Sercomm Corporation 2012 Annual Report 005
Research and Development StatusAt 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 9
projects were completed from our 2012 R&D plan. These were the EPON Intergrated Gateway, GPON
Intergrated Gateway, Home Security Sensors, Home Automation Sensors (binary switch & energy
switch), LTE 4G Small Cell, TD-SCDMA Enterprise Small Cell, Wireless Ethernet-over-Coax (EoC)
Solutions, Outdoor Access Point, High Speed 11ac Wireless Broadband Router.
Summary of 2013 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 trend towards digital convergence helped Sercomm deliver a strong performance in
2012. Total shipments of wireless broadband reached 16 million units with deliveries of high
value-added products such as FTTx products, SMB networking products, Small Cell products,
cable DOCSIS 3.0 products and Smart Home Control/Surveillance continuing to gain strength.
Furthermore, we are continuing to gain market share among global telecommunications industry.
Telco-grade products have now been over 70% of our total revenue. Growth in Telco segment is
expected to continue in 2013, driving up our revenue and profit.
For 2013, Sercomm is continuing to engage in innovative R&D in network & telecommunications.
New product lines are expected to begin bearing fruit. For Small Cell products, we are not only
Sercomm Corporation 2012 Annual Report 006
continuing to consolidate existing customers in Japan and France but also actively developing the
Western Europe and China markets. In addition, Sercomm became the first to launch 4G LTE Small
Cell and is now the global leader in the industry. Our fiber-access equipment has also been successful
in the emerging and European markets. For cable internet, next-generation DOCSIS 3.0 equipment is
now being shipped to major North American system operators. Apart from the above, a convergence
between emerging cloud applications and the Internet of Things (IoT) has spurred the development
of smart home monitoring and shipments will grow several-fold this year. The contributions from new
markets and customers should be reflected in the continued growth of our business.
(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-and-
demand 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 high-
quality service.
8. Continue to carry out production cost reduction plans to make products more price
competitive.
9. Enrich the properties and regions of our clients to avoid the risk of over-concentration.
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.
Effects of External Competition, Regulatory Enviroment, and Overall Business Enviroment
In 2012 many Taiwanese network communications equipment providers started to adjust their
operating plans and turn directly to telecommunications operators rather than retail brand names of
the past. While some are even entering the telecommunications supply chain themselves, the threat
from mainland suppliers still exists in the telecommunications supply chain – but this just means that
Sercomm Corporation 2012 Annual Report 007
there are more challenges to conquer. Mainland factories possess huge-scale production capacity
and immediate access to the Chinese domestic market, and their share in the international broadband
equipment market has been steadily increasing. Mainland suppliers are currently the greatest threat
to Taiwan’s network communications providers in the telecommunications supply chain market.
The following modifications have been ordered by the relevant powers in accordance with the
current legal environment:
1. Board of Directors Regulation: Financial Supervisory Comission issued Financial Management
Certificate 1010034136 on 22nd August 2012, in order to comply with the Certificate Trade Act
and the Company Act modifications have been made that strengthen the company and greatly
contribute to the resolution process while avoiding attendees being able to interrupt board
discussions and voting, all while strengthening board transparency.
2. Publicly listed Company Standards for Capital Loans and Endorsements and Guarantees:
Financial Supervisory Board on 6th July 2012 issued Financial Management Certificate
Investigation 1010029874 in order to comply with the Certificate Trade Act, stay in line with the
company’s publicly announced intention to comply with the International Financial Reporting
Standards (IFRSs) and meet practical operating demands etc.
3. Regulations Governing the Offering and Issuance of Securities by Securities Issuers: Financial
Supervisory Comission issued Financial Management Certificate 1010005435 on 20th February
2012 and Financial Management Certificate 1010042947 on 17th September 2012, in order to
revise issued limitations on staff rights regarding new shares and related compliance items.
4. By laws of the Certificate Trade Act: Financial Supervisory Comission issued Financial
Management Certificate 1010042947 on 23rd November 2012, in order to comply with the
Regulations Governing the Preparation of Financial Reports by Securities Issuers GAAP
were modified to meet IFRSs as approved by the Financial Supervisory Board; at the same
time, financial reporting practices were adjusted to focus on combined financial reporting, and
modifications to Article 36 of Certificate Trade Act made it so mid-term financial reports must
be inspected by an accountant and have a time limite of 45 days.
The view from the management environment is somewhat different. Management units need to
observe all predicitions released by international trade organisations and economic institutions and
keep up with the newest world economic reports. The European debt crisis is impossible to solve
quickly and USA ran into the problem of the Fiscal Cliff in 2013; not even China has a bright economic
outlook, so it’s no surprise that every major prediction institution has predicted a more conservative
outlook for 2012 and 2013 for all of the major countries. The IMF reduced it’s 2012 global economic
growth rate to 3.3% from 3.5%, the EIU forecast a 2012 global economic growth rate of 2.2% in 2012
and 2.5% in 2013, and Global Insight and other institutions have been forecasting similarly grim
outlooks, making 2013 a tough year in which to grow globally.
Sercomm Corporation 2012 Annual Report 008
Taiwan’s macroeconomic index forecasts for 2012: in October the IMF predicted a global trade
growth rate of 4.5%, which is an increase on the 3.2% predicted for 2012. The EIU also upped their
predicted global trade growth to 4.5% from 3.3%, but Taiwan’s economical structures need to balance
reliance on external demand with an internal demand focused more on private fixed capital formation
and export links in order to push Taiwan’s economic expansion and raise the global trade growth rate.
Combined interest rates: the domestic overnight rate was raised in 2012, but domestic and
international economic performance was not quite so good in the 2nd and 3rd quarters of the year,
forcing the rate back down again. In 2013 inflation really limits growth potential and there is no obvious
fix to the problem, and domestic interest rates have a large margin in which they can move. In 2012
the New Taiwanese Dollar was valued highly, putting pressure on the currency as international capital
movements increased its value, but it can be predicted that Taiwan will issue exchange rate policies to
try and maintain stability in an unstable trade market.
Future Unknown Factors: sovereign European nations with higher rates of debt have promised
to cut back on spending, but whether or not Germany and France reach an agreement to provide
assistance will influence the speed of the European economic recovery. The US government will
decide on whether or not to go ahead with spending cuts after the US election and this decision will
influence their economic recovery, and other international locations may have issues with regional
politics or natural disasters, which can cause fluctuations in the prices of resources and staple goods.
Domestically, the latter half of 2012 saw a rise in the unemployment rate which may or may not put
a burden on future consumption. All of these above ‘unknown’ factors will influence 2013 economic
performance and deserve attention.
In the future, Sercomm intends to continue to collect relevant information and immediately
investigate appropriate measures in order to meet operational demands.
Sercomm Corporation 2012 Annual Report 009
Company Overview
Company Profile1992 Sercomm Corporation Founded. First Asian Networking Company Dedicated in Embedded
Software
First in Asia to Launch Embedded Print Server
1995 Sercomm is the Second Print Server Provider in the World Received "Novell NDS"
Certification
1996 Worldwide Leader in Print Server Products
1997 Launched Broadband Router
Sercomm Received ISO 9001 Certification
1999 First in Asia to Launch NAS Server
Become Taiwan OTC-listed 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)
First Company Worldwide to Launch WiFi Router
2002 First Company Worldwide to Launch IP Camera
2003 First in the World to Launch Single-chip 802.11g ADSL Gateway Based on TI Solution
Launched Wireless IP Camera and Media Adapter
Sercomm Was Awarded by CommonWealth Magazine as " TOP 100 BEST Performing
Company"
2004 Sercomm Was Awarded by CommonWealth Magazine as " TOP 100 BEST Performing
Company" for the 2nd Consecutive Year
2005 Established China Manufacturing Base, Sernet Technology, Suzhou. An Environmentalfriendly
"Green Factory" with Capacity Ramping up to 1 Million Units per Month in 18 Months
Sercomm Corporation 2012 Annual Report 010
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-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 #211 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 Sercomm Was Awarded by CommonWealth Magazine as:
"Taiwan 1000 Largest Listed Manufacturers"
"Top 22 Largest Companies in Telecom / Networking Sector in Taiwan
Sercomm Was Awarded by China Credit Information Service as 2008 the “Largest
Corporations Top 5000 in Taiwan”, Ranked #238.
Worldwide Leader in Small Cell Products
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.
Introduced Wireless HD IPTV Networking Solution Together with the Leading Provider of
Semiconductors for Multimedia Wi-Fi Home Networking Applications.
Purchased Plant and Facility from Billionton Technology (Suzhou), Enabling In-house
Production Tripled to Meet Future Capacity Requirement
2010 Sercomm Was Awarded by China Credit Information Service as 2009 the “Largest
Corporations Top 5000 in Taiwan”, Ranked #253.
Sercomm Corporation 2012 Annual Report 011
Sercomm Was Awarded the "IDC 2010 Enterprise Innovation Awards " by IDC (International
Data Corporation)
Demonstrated LTE-enabled Security IP Camera Together with USA’s Largest Wireless Voice
and Data Network Company
Sercomm Japan Corp. Founded
2011 Enrolled in "MSCI Global Small Cap Index"
Sercomm Was Awarded by China Credit Information Service as 2010 the "Largest
Corporations Top 5000 in Taiwan", Ranked #258
Nominated the "Residential Femtocell Access Point Design and Technology Innovation" by
Femto Forum
First to Launch TD-SCDMA Femtocell
First Integrated 3G Femtocell in Taiwan Certified by NCC (National Communications
Commission)
Sernet (Suzhou) Technologies II Grand Opening
Sercomm France Founded
R&D Achievements:
- luh Residential SmallCelll
- Enterprise Small Cell
- Ethernet-over Coax (EoC) Solutions
- GPON/ EPON Gateway
- GPON/ EPON RF Module
- IP Camera Cloud Server
2012 Sercomm Was Awarded by CommonWealth Magazine as:
"Top 50 Fast Growing Company"
"Taiwan 1000 Largest Listed Manufacturers"
"Taiwan Top 15 Largest Companies in Telecom / Networking Sector"
Sercomm Was Awarded by Business Next Magazine as "Top100 Taiwan Technology
Company"
Sercomm Was Awarded by China Credit Information Service as 2011 the "Largest
Corporations Top 5000 in Taiwan", Ranked #211
Announced Integrated LTE Small Cell Product and Live Demonstration at Small Cells Asia
2012
Sercomm Italian Founded
Sercomm Deutschland Founded
R&D Achievements:
- LTE 4G Small Cell
Sercomm Corporation 2012 Annual Report 012
- Outdoor Access Point
- Home Security Sensors
- Home Automation Sensors (binary switch & energy switch)
- EPON/ GPON Intergrated Gateway
Opening of the New Corporate Headquarters
Announced New Corporate Identity System
2013 Sercomm Was Awarded by CommonWealth Magazine as:
"Top 50 BEST Perforning Public Company "
"Top 50 Fast Growing Company "
R&D Achievements:
- Enthernet- Over- Coax (EoC) Solutions
- High Speed 11ac Wireless Broadband Router
- TD-SCDMA Enterprise Small Cell
Sercomm Russia Founded
Sercomm Corporation 2012 Annual Report 013
Organization Chart
Sercomm Corporation 2012 Annual Report 014
Executives Team
Department Name/Position Main Responsibilities
President Office James WangPresident
Drafting, planning, implementation and monitoring of company operation plans.
Research & Development Division
Ben LinExecutive VP
New Product Research and Development and drafting, planning and implementation for technical blueprints.
Manufacturing Division Jemmy Lee VP
All product QA-related work, including production implementation, product testing and machine maintenance. Production control, property management and material procurement etc.
Quality Assurance Division Vincent HanVP
Planning, promotion, implementation and monitoring of quality control procedures.
Sales Division Charles ChuVP
Sales promotion and operation, customer services and support etc.
Product Development DIvision Hawk WuVP
Product development project operation, customer services and support etc.
Business Development Division Michael LeeVP
New business promotion and operation, customer services and support etc.
IP Surveillence BU Benjamin YehVP
IP Surveillence’s sales promotion and operation, customer services and support etc.
Financial Management Division Leo Chen VP
Finances and accounting, legal and stock-related operations
Human Resources Division Roger Yu Director
Creating strategic human resources systems and solutions, including recruitment, salaries and bonuses, professional development, performance management and providing general HR services
Information Service Division Charles ChuVP
Network management, information system importation, planning, operation and monitoring.
Auditing Office Winnie HsiehDirector
Auditing, maintenance and improvement of internal control systems, offering recommendations and assisting in creating solutions for issues faced by other departments, including improving operations and efficiency.
Sercomm Corporation 2012 Annual Report 015
Directors and SupervisorsAs of April 22, 2013
Name / Position Elected Date Term(Yrs)
Date first elected
Shareholdingwhen Elected
CurrentShareholding
Spouse & MinorShareholding Education &
Experience Current Position
Shares % Shares % Shares %
Paul Wang Chairman 2010.6.23 3 1992.7.29 3,444,577 2.01 3,684,577 1.85 1,142,745 0.57
Carnegie-Melon University, PhD inPhysics
Note 1
I.D. LiuDirector 2010.6.23 3 2004.6.11 207,999 0.12 207,999 0.10 0 0.00
National Chiao-Tung University, MSVice Chairman of UMC
Note 2
Paul HsuDirectorRepresentative of Pacific Venture Partners Co. Ltd.
2010.6.23 3 2004.6.11 3,680,926 2.15 3,680,926 1.85 0 0.00
M.A. from Fletcher School of Law and Diplomacy of Tufts University, USANew York University, LL. MExecutive Partner of Lee and Li
Note 3
James WangDirector &President
2010.6.23 3 2001.5.28 1,950,006 1.14 1,509,006 0.76 48,000 0.02
Harvard Business School, MBACarnegie-Melon University, MEPresident of Emerson SZ
Note 4
Ben LinDirector &Executive VP
2010.6.23 3 2004.6.11 1,718,590 1.00 1,487,201 0.75 301,338 0.15
National Ching-Hwa University, MSDirector of IBM Subsidiary
Note 5
Danny T. ChiuIndependentDirector
2010.6.23 3 2008.6.13 0 0.00 0 0.00 0 0.00
Harvard Business School, MBAConsultant of The Boston Consulting Group, Inc.
Note 6
Hilo ChenIndependentDirector
2010.6.23 3 2008.6.13 0 0.00 0 0.00 0 0.00
Bachelor of Transportation & Management, National Chiao-Tung UniversityPresident and CEO of Systex Corporation
Note 7
J.S.KuoSupervisor 2010.6.23 3 2004.6.11 1,428,281 0.83 2,468,281 1.24 10,290 0.01
University of New Hampshire, PhD inPhysicsChairman of Tajen Venture Capital
Note 8
Sercomm Corporation 2012 Annual Report 016
Name / Position Elected Date Term(Yrs)
Date first elected
Shareholdingwhen Elected
CurrentShareholding
Spouse & MinorShareholding Education &
Experience Current Position
Shares % Shares % Shares %
Edward Y. WaySupervisor 2010.6.23 3 2007.6.15 0 0.00 0 0.00 0 0.00
University of Georgia, MBACertified Public Accountant (CPA)
Note 9
Cynthia HsiueSupervisor 2010.6.23 3 2010.6.23 0 0.00 0 0.00 0 0.00
Tamkang University, MBACEO of China Leader Management Inc.
Note 10
Note: Directors and supervisors are not spouse or within second-degree relative of consanguinity to each other.
Note1: Chairman of Pacific Venture Partners, Co., Ltd,; Chairman and CEO of Senslinq Inc.; Director of
Prosperity Dielectrics Co., Ltd., MiTAC Inc., Taiwan Cement Co., Ltd., MiTAC Information Technology
Corp., and Taiwan Prosperity Chemical Corporation; Independent Director of UPC Technology Corp
Supervisor of Les Enphants Co., Ltd. and MediaTek Inc.
Note2: Chairman of Jing Hong Investments Ltd.; Director of Silconwave Precision Industries Co., Ltd.
Note3: Chairman of Phycos International Co., Ltd.; Independent director of Adimmune Corporation and Gloria
Material Technology Corporation; Director of ProMos Technology Inc.and Long Chen Paper Co., Ltd.
Note4: Owner of Sercomm Investments Ltd, Sercomm Trading Co. and Zealous Investments Ltd.; Chairman of
Shukuan Investments Ltd., Sernet Technology Ltd. and DWNet Technology Ltd.; Independent director of
Creative Sensor Inc.; Director of Sercomm Japan Corp.
Note5: Owner of Smart Trade Inc. and Sercomm Holding Limited; Director of Shukuan Investments Ltd., Sernet
Technology Ltd., Senslinq Inc., and Sercomm Japan Corp.
Note6: CEO and President of Morrison Express Co., Ltd.; Direct of WK Technology Fund ; Independent director
of TransAsia Airways
Note7: Chairman of Guoshi Partners Ltd.; Director of Elifemall Corporation ; Independent director of Spirox
Corporation
Note8: Chairman of TECO Technology Foundation; Director of TECO IMAGE SYSTEM, and Taishin Financial
Holding Co., Ltd.
Note9: Independent director of APEX Biotechnology Corp., DelSolar Co., Ltd. and Citibank Taiwan Ltd.; Director
of MiTAC International Corp. and Vanguard International Semiconductor Corporation; Supervisor of
Chilisin Electronic Corp.
Note10:Director of AboCom Systems, Inc.; Independent director of Simplo Tech. Co., Ltd., ASEC International
Corp and FX Hotel Group.
Sercomm Corporation 2012 Annual Report 017
Major Institutional ShareholdersApril 30, 2013
Name of Institutional Shareholder Primary Shareholder of Institutional Shareholder Shareholding %
Pacific Venture Partners Co. Ltd.
Paul Wang 60.50%
DaYuan Management Consultant 35.00%
Hui Su 2.00%
Management TeamAs of April 22, 2013
Name / Position Elected DateCurrent
ShareholdingSpouse & Minor
Shareholding Education & Experience
Current Position
Shares % Shares %
James WangPresident 2000.01.24 1,509,006 0.76 48,000 0.02
Harvard Business School, MBACarnegie-Melon University, MEPresident of Emerson SZ
Note 1
Ben LinExecutive VP 1992.07.29 1,487,201 0.75 301,338 0.15
National Ching-Hwa University, MSDirector of IBM Subsidiary
Note 2
Charles ChuVPSales
2000.06.15 255,787 0.13 0 0.00
Master of Michigan State UniversityVice President of Northern United M&E Company
Note 3
Leo Chen VP
2001.10.15 102,753 0.05 0 0.00
University of Illinois, MSADirector of Lite-On Group
Director ofShukuanInvestmentsLtd.
Jemmy Lee VPManufacturing Division
2002.04.24 4,171 0.00 0 0.00 Vice President of Proview Company China
Presidentof SernetTechnologyLtd.
Hawk WuVP Product Development
2007.03.01 104,000 0.05 0 0.00
Director of Quanta Computer Corp.Director of Xavi Technologies Corp.Manager of Taicom data systems
-
Michael LeeVP Business Development
2008.09.15 465,890 0.23 0 0.00
National Taiwan University, MSDirector of Hitron Technologies Inc.
-
Sercomm Corporation 2012 Annual Report 018
Name / Position Elected DateCurrent
ShareholdingSpouse & Minor
Shareholding Education & Experience
Current Position
Shares % Shares %
Benjamin YehVP IP Surveillance BU
2007.11.12 256,943 0.13 0 0.00
UC, Berkeley, MEHarvard Business School, MBASenior Manager of TSMCDirector of Advantech Co., Ltd.
-
Vincent HanVPQuality Assurance
2011.05.01 51,399 0.03 0 0.00
National Chengchi University, MBAVice President of Quanta Computer Inc.
-
Roger Yu DirectorHR Division
2012.08.16 0 0.00 0 0.00
National Central University, MBADirector of ASUSTEK Computer Inc.
-
Note1: Owner of Sercomm Investments Ltd, Sercomm Trading Co. and Zealous Investments Ltd.
Chairman of Shukuan Investments Ltd., Sernet Technology Ltd. and DWNet Technology Ltd.;
Independent director of Creative Sensor Inc.; Director of Sercomm Japan Corp.
Note2: Owner of Smart Trade Inc. and Sercomm Holding Limited; Director of Shukuan Investments
Ltd., Sernet Technology Ltd., Senslinq Inc. and Sercomm Japan Corp.
Note3: Director of DWNet Technology Ltd.; Supervisor of Sercomm Japan Corp.
Sercomm Corporation 2012 Annual Report 019
Remuneration to DirectorsUnit: Thousand NTD
Name / Position
Compensation(A)
Profit Sharing(C)
Expenses & Special Allowance
(D)
Total Items to Net Income(%)
A+C+D
Bonus & SpecialAllowance
(E)
Retirement Pension(F)
Employee Bonuses from Allocated Earnings
(G)
Number of SharesObtained as Employee
Stock Options (H) (Thousands of shares)
Total Items to Net Income (%)
A+C+D+E+F+G
Sercomm ConsolidatedSubsidiaries Sercomm Consolidated
Subsidiaries Sercomm ConsolidatedSubsidiaries Sercomm Consolidated
Subsidiaries Sercomm ConsolidatedSubsidiaries Sercomm Consolidated
Subsidiaries
Sercomm ConsolidatedSubsidiaries
Sercomm ConsolidatedSubsidiaries Sercomm Consolidated
SubsidiariesCashBonuses
StockBonuses
CashBonuses
StockBonuses
Paul WangChairman
1,260 1,260 9,917 9,917 150 150 1.50 1.50 10,165 22,774 258 258 8,746 0 8,746 0 0 0 4.04 5.71
I.D. LiuDirector
Paul HsuDirector Representative of Pacific Venture Partners Co. Ltd.
James WangDirector & President
Ben LinDirector & Executive VP
Danny T. ChiuIndependent Director
Hilo ChenIndependent Director
Sercomm Corporation 2012 Annual Report 020
Compensation Range
Name of Director
Total AmountA+C+D
Total AmountA+C+D+E+F+G
Sercomm Consolidated Subsidiaries Sercomm Consolidated
Subsidiaries
Below NTD 2,000,000
I.D. Liu, Pacific Venture Partners Co. Ltd., James Wang, Ben Lin, Danny T. Chiu, Hilo Chen
I.D. Liu, Pacific Venture Partners Co. Ltd., James Wang, Ben Lin, Danny T. Chiu, Hilo Chen
I.D. Liu, Pacific Venture Partners Co. Ltd., Danny T. Chiu, Hilo Chen
I.D. Liu, Pacific Venture Partners Co. Ltd., Danny T. Chiu, Hilo Chen
NTD 2,000,000~NTD 5,000,000 Paul Wang Paul Wang Paul Wang Paul Wang
NTD 5,000,000~NTD 10,000,000 Ben Lin
NTD 10,000,000~NTD 15,000,000 James Wang Ben Lin
NTD 15,000,000~NTD 30,000,000 James Wang
NTD 30,000,000~NTD 50,000,000
NTD 50,000,000~NTD 100,000,000
Over NTD 100,000,000
Total 7 7 7 7
Remuneration to SupervisorUnit: Thousand NTD
Name / Position
Compensation (A) Profit Sharing(B) Expenses & Special Allowance (C)
Total Items to NetIncome (%)
A+B+C
Sercomm ConsolidatedSubsidiaries Sercomm Consolidated
Subsidiaries Sercomm ConsolidatedSubsidiaries Sercomm Consolidated
Subsidiaries
J.S. KuoSupervisor
0 0 3,670 3,670 66 66 0.49 0.49Edward Y. WaySupervisor
Cynthia HsiueSupervisor
Sercomm Corporation 2012 Annual Report 021
Compensation Range
Name of Supervisor
Total Amount A+B+C
Sercomm Consolidated Subsidiaries
Below NTD 2,000,000 J.S. Kuo, Edward Y. Way, Cynthia Hsiue
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 3 3
Sercomm Corporation 2012 Annual Report 022
Changes in Share Positions Among Directors, Supervisors, ManagersUnit: Shares
Title Name
2012 Current Year to April 22
ShareholdingIncrease / Decrease
Stock MortgageShareholding
Increase / Decrease
Stock Mortgage
Chairman Paul Wang 0 0 0 0
Director I.D. Liu 0 0 0 0
Director
Paul HsuRepresentative of Pacific Venture Partners Co. Ltd.
0 0 0 (1,880,927)
Director & President James Wang (388,000) 0 (60,000) 0
Director & Executive VP Ben Lin (1,100,000) 0 0 0
Independent Director Danny T. Chiu 0 0 0 0
Independent Director Hilo Chen 0 0 0 0
Supervisor J.S. Kuo 0 0 0 0
Supervisor Edward Y. Way 0 0 0 0
Supervisor Cynthia Hsiue 0 0 0 0
Vice President Charles Chu (371,000) 0 (9,000) 0
Vice President Leo Chen (55,000) 0 0 0
Vice President Jemmy Lee (152,000) 0 0 0
Vice President Hawk Wu (86,000) 0 80,000 0
Vice President Michael Lee (53,000) 0 0 0
Vice President Benjamin Yeh (112,000) 0 (10,000) 0
Vice President Vincent Han (9,000) 0 20,000 0
Director Roger Yu 0 0 0 0
Sercomm Corporation 2012 Annual Report 023
Long-Term Investments OwnershipUnit: Shares
InvesteeSercomm Investment Total Investment
Shares % Shares %
Senslinq Inc. 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. 46,800,000 100.00% 46,800,000 100.00%
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. 16,000,000 100.00% 16,000,000 100.00%
DWNet Technology Ltd. 16,000,000 100.00% 16,000,000 100.00%
Sercomm Japan Corp. 3,600 100.00% 3,600 100.00%
Sercomm France SARL 100,000 100.00% 100,000 100.00%
Sercomm Italian SRL 10,000 100.00% 10,000 100.00%
Sercomm Deutschland GmbH 100,000 100.00% 100,000 100.00%
CapitalUnit: Shares, as of April 30, 2013
Type of ShareAuthorized Shares
Issued Shares Un-issued Shares Total Shares
Common Stock 197,873,449 52,126,551 250,000,000
Sercomm Corporation 2012 Annual Report 024
History of CapitalizationUnit: Shares/ NTD, as of April 30, 2013
Year/Month
IssuePrice
Authorized Paid-In CapitalSource of Capital
Shares Amount Shares Amount
1992/7 10 5,880,000 58,800,000 5,880,000 58,800,000 Initial founding
1993/12 10 10,000,000 100,000,000 7,000,000 70,000,000 Cash offering
1995/7 10 18,000,000 180,000,000 12,000,000 120,000,000 Cash offering
1996/11 10 28,000,000 280,000,000 24,000,000 240,000,000 Cash offering
1997/8 10 28,065,000 280,650,000 28,065,000 280,650,000
Capitalization of retained earnings, capital surplus and employee profit sharing
1998/8 10 60,000,000 600,000,000 40,100,000 401,000,000
Capitalization of retained earnings, capital surplus and employee profit sharing
1999/8 10 60,000,000 600,000,000 51,000,000 510,000,000
Capitalization of retained earnings, capital surplus and employee profit sharing
2000/8 10 80,000,000 800,000,000 55,828,000 558,280,000
Capitalization of retained earnings and employee profit sharing
2001/8 10 91,450,000 914,500,000 61,450,000 614,500,000
Capitalization of retained earnings and employee profit sharing
2002/8 10 91,450,000 914,500,000 67,976,900 679,769,000
Capitalization of retained earnings and employee profit sharing
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 75,173,931 751,739,310 Conversion of bonds
2003/8 10 91,450,000 914,500,000 75,858,659 758,586,590 Conversion of bonds
2003/9 10 137,600,000 1,376,000,000 85,511,191 855,111,910
Capitalization of retained earnings and employee profit sharing
2004/3 10 137,600,000 1,376,000,000 86,675,365 866,753,650 Conversion of bonds
2004/4 10 137,600,000 1,376,000,000 87,854,466 878,544,660 Conversion of bonds
Sercomm Corporation 2012 Annual Report 025
Year/Month
IssuePrice
Authorized Paid-In CapitalSource of Capital
Shares Amount Shares Amount
2004/7 10 137,600,000 1,376,000,000 91,679,091 916,790,910 Conversion of bonds
2004/9 10 137,600,000 1,376,000,000 103,855,775 1,038,557,750 Capitalization of retained earnings
2004/10 10 137,600,000 1,376,000,000 96,855,775 968,557,750 Cancellation of treasury shares
2004/11 10 137,600,000 1,376,000,000 98,912,189 989,121,890 Conversion of bonds and stock options
2005/1 10 137,600,000 1,376,000,000 99,888,725 998,887,250 Conversion of bonds and stock options
2005/5 10 137,600,000 1,376,000,000 101,186,847 1,011,868,470 Conversion of bonds and stock options
2005/9 10 177,600,000 1,776,000,000 121,092,261 1,210,922,610
Capitalization of retained earnings, capital surplus and employee profit sharing; Conversion of bonds and stock options
2006/1 10 177,600,000 1,776,000,000 121,308,861 1,213,088,610 Conversion of stock options
2006/4 10 177,600,000 1,776,000,000 121,636,861 1,216,368,610 Conversion of stock options
2006/10 10 177,600,000 1,776,000,000 138,315,621 1,383,156,210
Capitalization of retained earnings and employee profit sharing; Conversion of stock options
2007/2 10 177,600,000 1,776,000,000 138,356,221 1,383,562,210 Conversion of stock options
2007/10 10 210,000,000 2,100,000,000 155,438,721 1,554,387,210
Capitalization of retained earnings and employee profit sharing; Conversion of stock options
2007/12 10 210,000,000 2,100,000,000 156,281,721 1,562,817,210 Conversion of stock options
2008/4 10 210,000,000 2,100,000,000 157,378,721 1,573,787,210 Conversion of stock options
2008/9 10 210,000,000 2,100,000,000 170,613,769 1,706,137,690
Capitalization of retained earnings and employee profit sharing
2008/12 10 210,000,000 2,100,000,000 170,723,269 1,707,232,690 Conversion of stock options
Sercomm Corporation 2012 Annual Report 026
Year/Month
IssuePrice
Authorized Paid-In CapitalSource of Capital
Shares Amount Shares Amount
2009/4 10 210,000,000 2,100,000,000 170,826,969 1,708,269,690 Conversion of stock options
2009/7 10 210,000,000 2,100,000,000 170,944,969 1,709,449,690 Conversion of stock options
2010/4 10 210,000,000 2,100,000,000 171,384,969 1,713,849,690 Conversion of stock options
2010/9 10 210,000,000 2,100,000,000 171,514,969 1,715,149,690 Conversion of stock options
2010/12 10 250,000,000 2,500,000,000 174,740,475 1,747,404,750 Conversion of bonds and stock options
2011/4 10 250,000,000 2,500,000,000 177,621,426 1,776,214,260 Conversion of bonds and stock options
2011/7 10 250,000,000 2,500,000,000 178,438,989 1,784,389,890 Conversion of bonds
2011/9 10 250,000,000 2,500,000,000 182,461,520 1,824,615,200 Conversion of bonds and stock options
2011/12 10 250,000,000 2,500,000,000 182,633,678 1,826,336,780 Conversion of bonds
2012/3 10 250,000,000 2,500,000,000 187,473,778 1,874,737,780 Conversion of bonds
2012/7 10 250,000,000 2,500,000,000 194,935,604 1,949,356,040 Conversion of bonds
2012/8 10 250,000,000 2,500,000,000 195,370,604 1,953,706,040 Conversion of stock options
2012/11 10 250,000,000 2,500,000,000 195,609,546 1,956,095,460 Conversion of bonds and stock options
2013/4 10 250,000,000 2,500,000,000 197,873,449 1,978,734,490 Conversion of bonds and stock options
Status of ShareholdersAs of April 22, 2013
Type ofShareholders
GovernmentAgencies
FinancialInstitutions
Other LegalEntities Individual
ForeignInstitutions /
IndividualTotal
Number ofShareholders 4 65 63 17,326 85 17,543
Shareholding 23,895,000 29,153,773 15,505,658 106,780,982 23,937,353 199,272,766
Ownership% 11.99% 14.63% 7.78% 53.59% 12.01% 100.00%
Sercomm Corporation 2012 Annual Report 027
Distribution Profile of OwnershipUnit: Shares, as of April 22, 2013
Class of Shareholding Number of Shareholders Shareholding (share) %
1~999 4,189 870,647 0.44%
1,000~5,000 9,794 21,301,118 10.69%
5,001~10,000 1,782 14,446,963 7.25%
10,001~15,000 516 6,582,398 3.30%
15,001~20,000 385 7,203,867 3.62%
20,001~30,000 291 7,555,936 3.79%
30,001~40,000 133 4,796,327 2.41%
40,001~50,000 77 3,600,265 1.81%
50,001~100,000 182 12,654,181 6.35%
100,001~200,000 79 11,483,695 5.76%
200,001~400,000 45 13,023,435 6.54%
400,001~600,000 22 10,957,944 5.50%
600,001~800,000 15 10,571,927 5.31%
800,001~1,000,000 9 8,506,000 4.27%
Over 1,000,001 24 65,718,063 32.98%
Total 17,543 199,272,766 100.00%
Major ShareholdersUnit: Shares, as of April 22, 2013
Name of Shareholders Shareholding %
Public Service Pension Fund Management Board 10,348,000 5.19%
New Labor Pension Fund 9,421,000 4.73%
Paul Wang 3,684,577 1.85%
Pacific Venture Partners Co., Ltd. 3,680,926 1.85%
Old Labor Pension Fund 3,576,000 1.79%
Capital Marathon Fund 3,081,000 1.55%
ZhuoJian Investment Co., Ltd. 3,000,508 1.51%
MQ Asia Long Short Master Fund 2,660,000 1.33%
LiJin Financial Consultant 2,535,434 1.27%
J.S. Kuo 2,468,281 1.24%
Sercomm Corporation 2012 Annual Report 028
Market Price, Net Worth, Earnings and Dividends per ShareUnit: NTD/ Thousand Shares
Item 2011 2012 March 31, 2013
MarketPrice
Highest 47.90 48.50 46.00
Lowest 27.10 30.85 39.90
Average 35.50 41.78 43.00
Net Valueper Share
Before Distribution 17.90 19.52 20.57
After Distribution 15.34 - -
Earningsper Share
Weighted Average Shares 177,410 193,325 197,610
Earning per Shares
Original 3.29 3.90 0.6
Adjusted 3.29 - -
Dividends per Share(Note 1)
Cash Dividend 2.5 2.75 -
Stock Dividend
From RetainedEarnings 0 0 -
From CapitalSurplus 0 0 -
Accumulative Undistributed Dividends - - -
Return onInvestment(Note 2)
Price / Earning Ratio 10.79 10.75 72.45
Price / Dividend Ratio 14.20 15.25 -
Cash Dividend Yield Rate 7.04% 6.56 -
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 PolicyThe 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.
Sercomm Corporation 2012 Annual Report 029
Dividends Paid
Year EPS NT$
Cash Dividend NT$ per share
Share Dividend NT$ per share
2012 3.90 2.75 -
2011 3.29 2.39 -
2010 1.88 1.47 -
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 ProfitSercomm's Board of Directors adopted a proposal for 2012 profit distribution. This proposal is
subject to approval by shareholders at the annual general meeting, scheduled for June 20, 2013.
Proposal of profit distribution for 2012Unit: NTD
Cash dividend $2.75 per share
Cash bouns to employees $101,902,981
Remuneraton to Directors and Supervisors $13,587,064
Sercomm Corporation 2012 Annual Report 030
Convertible Bonds
Type of Corporate Bond 3rd Domestic Unsecured Convertible Bonds
Item 2011 2012 Current Year to March 31
Marekt Price of Convertible Bond
Highest 218.00 239.00 0
Lowest 131.50 155.00 0
Average 171.37 182.70 0
Conversion Price 20.33 19.25 19.25
Issuing Date and Conversion Price (NTD) 2010/8/622.24
2010/8/622.24
2010/8/622.24
Obligation of Conversion Issue of new shares Issue of new shares Issue of new shares
Type of Corporate Bond 4th Domestic Unsecured Convertible Bonds
Item 2011 2012 Current Year to March 31
Marekt Price of Convertible Bond
Highest 107.00 126.00 118.95
Lowest 97.90 100.50 109.50
Average 101.79 112.74 114.54
Conversion Price 40.76 38.59 38.59
Issuing Date and Conversion Price (NTD) 2011/8/3040.76
2011/8/3040.76
2011/8/3040.76
Obligation of Conversion Issue of new shares Issue of new shares Issue of new shares
Type of Corporate Bond 5th Domestic Unsecured Convertible Bonds
Item 2011 2012 Current Year to March 31
Marekt Price of Convertible Bond
Highest - 105.50 102.80
Lowest - 97.70 100.10
Average - 102.90 101.66
Conversion Price - 49.67 49.67
Issuing Date and Conversion Price (NTD) -101/8/31
49.67101/8/31
49.67
Obligation of Conversion - Issue of new shares Issue of new shares
Sercomm Corporation 2012 Annual Report 031
Employee Stock OptionsAs of April 30, 2013
Category 3rd 4th
Date of Approval by Regulatory Authority 2005/11/11 2007/12/3
Issue Date 2005/11/14 2007/12/14
Number of Shares Issued (Share) 5,000,000 2,000,000
Number of Shares Issued / Total Issued Shares (%) 2.53% 1.01%
Exercise Period 10 years 5 years
Method of Provision Issue of new shares Issue of new shares
Number of Shares in Exercised Options (Share) 3,775,500 1,954,000
Total Amount in Exercised Options (NTD) 42,846,500 36,402,500
Number of Shares In Unexercised Options (Share) 937,000 0
Price per Share In Unexercised Options (NTD) 10.0 18.2
Number of Shares In Unexercised Options as Share of Total Issued Shares (%) 0.47% 0%
Impact on Shareholders’ Equity (%) 0.23% 0%
Sercomm Corporation 2012 Annual Report 032
Business OverviewBusiness Scope
Item 2012 2011
Wired Product 11.82% 16.73%
Wireless Product 86.52% 79.50%
Others 1.66% 3.77%
Total 100.00% 100.00%
Main Products(1) Router(2) ADSL Gateway(3) Integrated Access Device(4) 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) Small Cell Products(14) FTTx Products(15) Ethernet-over-Coax (EoC) Solutions
New Products Under Developing(1) WCDMA/ TD-SCDMA Enterprise Small Cell(2) LTE Small Cell (3) VDSL GPON/ EPON Fiber Broadband Gateway(4) Smart Home Cloud Control Platform (5) Smart Home Control Gateway(6) IOT Wireless Sensor
Sercomm Corporation 2012 Annual Report 033
Industry Overview1. Industry Status and Development
For many people, network communications is now a part of everyday life. The evolution of
networking technology has changed our lives in significant ways as well. The network communications
industry encompasses everything from infrastructure such as base stations and switches for signal
transmission to consumer electronics such as the smart phones we hold in our hands.
In the past, fixed networks, mobile networks and network communications were three distinct
industries. Increasing penetration of smart phones and tablets however has led to the rise of the
"Next Generation Network" (NGN) that integrates mobile and fixed network services to provide
mobile Internet access. The industry is now undergoing a process of convergence and fusion. The
increased demand for broadband due to cloud operations represents a new opportunity for network
communications vendors as well. For the network communications industry, cloud computing, mobile
broadband and digital home are the three stars of 2012.
On the product-level, vendors are now targeting the digital home market in addition to
conventional wireless networking products, switches and broadband networking products. Digital
home products offer high profit margins and offers further opportunities for the integration of cloud
and network services. Vendors with a software niche will be able to leverage their ability to integrate
software and hardware.
At the same time, smart phones will continue to sell in large numbers. Prices should become more
affordable however and the penetration of smart phones will continue to climb rapidly this year. As
smart phone users consume far more data than users of conventional functional phones, telcos now
consider data network services to be a key source of revenue in addition to voice telephony. Telcos
are therefore rushing to roll-out WiFi hotspots and small cells in order to spread out mobile networking
traffic and provide better mobile connectivity.
A 2011 research report from Cisco forecasted that global mobile broadband data traffic will see
the most growth and reach 6.3EB (1EB = 1 Billion GB) (1EB = GB). The Asia-Pacific will grow at the
fastest rate and will account for 29.3% of all mobile bandwidth by 2015, surpassing North America
(15.7%) and Western Europe (26.3%). The explosion in demand for mobile bandwidth means that
telcos must solve the problem of base station roll-out and bandwidth allocation. The high cost of
installing medium and large base stations however means that small cells offer telcos a more cost-
effective option.
Sercomm Corporation 2012 Annual Report 034
Rapid Increase in Global Demand for Mobile Bandwidth
Source: Cisco VNI report, 2011
Industry analysts estimate that mobile data traffic generated by all kinds of network devices will
far exceed the existing traffic from smart phones and tablets by 2020. As home appliances, cars,
watches and even door locks will all be connected to mobile Internet, wireless telcos will be faced with
a major challenge. For network operators, the return on investment from improving the efficiency of
their communications networks is gradually declining. Attempts to expand their network capacity have
also run into an increasing number of physical restrictions. Tod Sizer, the head of wireless research at
Alcatel-Lucent's Bell Labs, said that 5G won't be necessarily about more speed but it may help meet
people's expectations of service quality. According to Sizer, each generation of network technology
has enabled a new set of features. 2G was about voice, 3G was about data and 4G is about video. 5G
may be about intelligent networks that can handle billions of connected devices while remaining stable
and operational. The IEEE 802.11ac standard which can reach speeds of over 1Gbps, entered the
drafting stage in 2012, and WiFi chip manufacturers are already promoting it by the name of 5G WiFi.
The drafting stage of 11ac has been labeled Wave 1 and there are plans to promote Wave 2 when
official version is decided upon in 2013.
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.
Sercomm Corporation 2012 Annual Report 035
Upstream Midstream Downstream
CPU Vendor LAN NIC Average User
IC Supplier Hub System Integrator
ASIC (in-house design) Bridge Enterprise network system developer
PCB Maker ISDN Interface (Terminal Adapter, Router, Card Modem etc.)
Computer peripherals/ Printer/Fax/Modem /ISDM/Multimedia Vendor
Chip Network Application Server Network Hardware Vendor
Passive Component Network Operating System
Resistor and Capacitor Supplier
Adapter Supplier
DRAM and SRAM Supplier
Flash Memory Supplier
3. Summary of 802.11 Wireless Networking Specification Standards4G kicked off high-speed communication transmission with a theoretical download speed of
100Mb/s and upload speed of 50Mb/s - which are many times faster than current 3G limitations of
7.2Mb/s and 3.5G limitations of 21Mb/s. The increase in transmission efficiency drew attention from
everywhere, and as market research agency HIS iSuppli reported, LTE technology had 612,000 users
worldwide in its early days in 2010 - in 2011 the technology was adopted by mobile communications
operators, a move which helped the user base to explode to 13.2 million users (22 times its original
size). Predictions for 2012 are for 92.3 million users; 2013 has 115% predicted growth with worldwide
usage reaching a scale of 198 million users. By 2016, LTE user numbers will have broken the 1 billion
mark. Thereby, the 5-year CAGR prediction (year 2011 to 2016) is 139%.
Number of Global LTE Subscriber Forecast
Unit: Millions of Users
Source: HIS iSuppli, January 2013
Millions of Users
Sercomm Corporation 2012 Annual Report 036
For 3G or future LTE 4G networks, data traffic is expected to grow several times over. Telcos are
therefore aggressively rolling out WiFi hotspots to maintain the quality of mobile broadband service for
their users and help lower the load on base stations. MIC estimated that China Telecom will set up 1
million WiFi hot spots in 2012.
While LTE has a higher theoretical bandwidth, its transmission speed is greatly reduced indoors.
Total coverage is also not the main aim of LTE (excessive cost) so this creates a market for small
cells. As small cells can improve indoor communications quality, increase multimedia download rates
and reduce setup costs, telcos are increasingly leasing them for free in order to increase end-user
utilization. In-Stat concluded that small cell sales will reach USD$14 billion in 2015.
Taiwanese vendors began laying the ground work for small cells quite early. Representative
vendors such as Sercomm, Gemtek and Alpha Networks now count major telcos in Europe, America
and Japan among their downstream customers. Sercomm in particular is the only vendor with NCC-
certified small cells in Taiwan. Nominated the "Residential Femtocell Access Point Design and
Technology Innovation" by Femto Forum also highlighted Sercomm's technological leadership.
In fiber construction, the global market for fiber equipment is growing steadily. The Asia-Pacific
accounts for 76% of the market and provides the main source of growth. Within the Asia-Pacific,
Japan had the most subscribers in 2010 (19.6 million subscribers) followed by China (15.4 million
subscribers). China is therefore aggressively expanding its fiber infrastructure and this will benefit
Taiwanese suppliers of fiber networking products.
Networking equipment products consist of modems, network cards and communication modules.
Sercomm has many domestic competitors including Gemtek, D-Link, Cameo, ZyXEL, CyberTAN,
Accton, ASEKY, CNet and Foxconn. Other competitors include Amigo, Pro-Nets, RDC, Wontex,
Hauman, Kinpo, Netronix, PLANET, Alpha Networks, OPNET, UFOC, TAINET, YFC, Loop and Top
Century. Sercomm's is the world's 3rd largest supplier of wireless broadband routers/gateways and
the 6th largest supplier of integrated access devices (IAD) in Taiwan. In the future, Sercomm will
continue to diversify our product R&D efforts and also implement more rigorous quality controls in our
production process to ensure product quality and competitiveness. We are also actively working to
secure OEM/ODM orders from major international customers so our market share should continue to
grow each year.
Sercomm Corporation 2012 Annual Report 037
Trends in Gross Margins for Taiwanese Networking Vendors
Scource: M.O.P.S
Research & Development ExpensesUnit: Thousand NTD
Item 2012 1Q 2013
R&D Expenses 435,715 116,678
Net Sales 16,599,157 3,631,044
R&D/Net Sales (%) 2.62% 3.21%
R&D Achievements:(1) FTTx Products
-EPON Integrated Gateway-GPON Integrated Gateway
(2) Smart Home Control/ Surveillance- Home Security Sensors- Home Automation Sensors (binary switch & energy switch)
(3)Small Cell Products-LTE 4G Small Cell-TD-SCDMA Enterprise Small Cell
(4) Wireless Ethernet-over-Coax (EoC) Solutions(5) Outdoor Access Point(6) High Speed 11ac Wireless Broadband Router
Sercomm Corporation 2012 Annual Report 038
Long-term and Short-term Business Development Plans1. 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.
Sercomm Corporation 2012 Annual Report 039
Market, Production and Sales OutlookRevenue Breakdown by Geography
Unit: Thousand NTD
Region2011 2012
Amount % Amount %
Taiwan 61,497 0.57 21,586 0.13
Europe 3,358,229 31.06 3,322,991 20.02
North America 5,962,730 55.15 12,211,207 73.57
Asia ex-Taiwan 1,413,576 13.07 1,025,638 6.17
Other 15,876 0.15 17,735 0.11
Total 10,811,908 100.00 16,599,157 100.00
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
and stability of wireless networking.
Sercomm Corporation 2012 Annual Report 040
(E) 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 Golden Decade 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 NicheSercomm 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
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. Layout of telecommunication service provider
This market demands multiple application equipments which are high value-added, instead of low
Sercomm Corporation 2012 Annual Report 041
gross profit market. In terms of QuadPlay (four in one) and Small cell, 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.
(2)Unfavorable Factors and CountermeasuresThough the current market looks favorable for LTE development, LTE isn’t going to be profitable
overnight and the first wave of LTE business opportunities are likely to provide limited benefit to
Taiwan. LTE is currently mounted on large base stations and the early base stations created many
tens of billions of opportunities – but the related equipment has already been claimed by large network
communications providers and are far out of reach of Taiwanese subcontractors. Predictions for next
year and the next are that they will be ‘investment’ years primarily focusing on small cell, though a
small number (500-1000 units) will likely be sold.
Large base station business may be out of reach for Taiwanese businesses, but small are still
possible. Unfortunately, the earliest market improvements won’t be seen until next summer, while the
LTE market should improve drastically in roughly 2-3 years.
Main Product ApplicationsWith 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
diversified professional broadband network communication products include broadband network
communication access points, Integrated Access Device, SMB network communication equipment,
FTTx Products and Smart Home Control/ Surveillance. No matter whether at home or in the office,
they may satisfy customers’ demands for diversified and all-in-one digital integration network
communication.
Sercomm Corporation 2012 Annual Report 042
Product Manufacturing ProcessThe 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:
Sercomm Corporation 2012 Annual Report 043
Production – AUnit: Thousand NTD; Unit
Main Products2011 2012
Capacity Quantity Amount Capacity Quantity Amount
Wired Product 4,000,000 1,144,586 1,131,976 3,000,000 1,494,371 1,404,464
Wireless Product 12,000,000 11,520,069 8,956,851 15,000,000 13,051,480 13,841,880
Total 16,000,000 12,664,655 10,088,827 18,000,000 14,545,851 15,246,344
Production – B Unit: Thousand NTD; Unit
Main Products
2011 2012
Export Domestic Export Domestic
Quantity Amount Quantity Amount Quantity Amount Quantity Amount
Wired Product 1,043,852 1,778,540 35,558 30,461 1,428,747 1,850,374 14,839 12,446
Wireless Product 11,235,757 8,971,871 55,484 31,036 12,644,684 14,727,198 14,477 9,139
Total 12,279,609 10,750,411 91,042 61,497 14,073,431 16,577,572 29,316 21,585
Employees
Year 2011 2012 2013/04/30
Headcount 468 559 590
Average Age 37.6 37.9 37.6
Employment Period (years) 5.12 6.16 5.83
As TotalEmployees %
Ph. D. 1% 1% 1%
Master 26% 28% 26%
College 61% 56% 53%
Senior High School 9% 13% 17%
Junior High School or Lower 3% 2% 3%
Sercomm Corporation 2012 Annual Report 044
Environmental ExpenditureTotal value of losses or penalties due to environmental pollution in the most recent year and up to
the date of publication: None
Future response strategies and potential expenditure:
Sercomm belongs to the high-tech electronics industry and our production process is used in
the assembly, testing and packaging of final products and semi-assemblies. No wastewater or gases
are emitted during production. Production noise is also very low so it is not a source of pollution and
not subject to environmental protection laws. Waste disposal is carried out in accordance with the
business waste disposal plan. Waste is disposed of legally and recycled.
Increasing global environmental awareness means that the European Union, North America
and Japan have all implemented environmental requirements. Sercomm has introduced a lead-free
production process and green design is used during R&D to reduce environmental impact. Green
purchasing extends environmental requirements to components and raw materials. This is also
extended to the rest of the product lifecycle including usage and ultimate disposal.
Sercomm Corporation 2012 Annual Report 045
Financial Review and Operating ResultsCondensed Balance Sheet-ROC GAAP
Unit: Thousand NTD
Item 2008 2009 2010 2011 2012
Current Assets 2,953,601 2,651,058 3,752,691 4,525,886 4,536,965
Long-Term Investmentsand Funds 1,190,451 1,230,522 1,494,735 2,427,770 2,680,749
Fixed Assets 521,469 504,639 511,298 665,982 1,235,923
Intangible Assets 108,421 99,651 122,074 127,750 139,240
Other Assets 176,689 138,673 139,885 58,115 54,864
Total Assets 4,950,631 4,624,543 6,020,683 7,805,503 8,647,741
Current Liabilities
BeforeDistribution 2,063,382 1,821,367 2,535,261 3,540,050 3,181,335
After Distribution 2,312,122 1,987,752 2,803,077 4,008,734 -
Long-Term Liabilities 376,673 361,801 873,691 873,744 1,600,469
Other Liabilities 5,208 5,546 14,551 119,100 15,275
Total Liabilities
BeforeDistribution 2,445,263 2,188,714 3,423,503 4,532,894 4,797,079
After Distribution 2,694,003 2,355,099 3,691,319 5,001,578 -
Capital 1,707,233 1,709,450 1,760,873 1,827,960 1,972,855
Capital Reserve 146,569 149,171 196,598 308,989 498,409
Retained Earnings
BeforeDistribution 553,450 510,193 658,256 973,481 1,259,633
After Distribution 304,710 343,808 390,440 504,797 -
Unrealized Loss/Gain onFinancial Assets 0 0 0 0 -8,772
Cumulative Translation Adjustment 164,370 133,269 34,841 162,179 128,537
Unrealized Loss on Retirement 0 0 0 0 0
Shareholders'Equity
BeforeDistribution 2,505,368 2,435,829 2,597,180 3,272,609 3,850,662
After Distribution 2,256,628 2,269,444 2,329,364 2,803,925 -
Sercomm Corporation 2012 Annual Report 046
Condensed Balance Sheet-IFRSsUnit: Thousand NTD
Item 2008 2009 2010 2011 2012 2013/3/31
Current Assets - - - - - 8,725,515
Property, Plant and Equipment - - - - - 3,218,550
Intangible Assets - - - - - 160,406
Other Non-Current Assets - - - - - 464,040
Total Assets - - - - - 12,568,511
Current Liabilities
BeforeDistribution - - - - - 7,008,635
After Distribution - - - - - -
Non-Current Liabilities - - - - - 1,457,919
Total Liabilities
BeforeDistribution - - - - - 8,466,554
After Distribution - - - - - -
Equity attributable to owners of parent
Capital Stock - - - - - 1,990,525
Capital Surplus - - - - - 551,868
Retained Earnings
BeforeDistribution - - - - - 1,508,656
After Distribution - - - - - -
Other Equity Interest - - - - - 50,908
Treasury Shares - - - - - 0
Non-controlling interests - - - - - 0
Total Equity
BeforeDistribution - - - - - 4,101,957
After Distribution - - - - - -
Sercomm Corporation 2012 Annual Report 047
Condensed Statement of Income-ROC GAAPUnit: Thousand NTD
Item 2008 2009 2010 2011 2012
Net Sales 8,488,652 6,794,111 8,153,833 10,811,908 16,599,157
Gross Profit 1,060,652 817,015 1,025,843 1,181,384 1,814,497
Operating Income 392,203 193,034 249,871 323,233 691,203
Non-Operating Income 39,644 88,105 152,719 362,389 246,788
Non-Operating Expenses 28,502 30,680 31,790 34,858 57,151
Pre-Tax Income fromContinuing Operations 403,345 250,459 370,800 650,764 880,840
Net Income/Loss formContinuing Operations 329,115 205,483 314,448 583,041 754,836
Cumulative Effect of Change in Accounting Principle 0 0 0 0 0
Net Income 329,115 205,483 314,448 583,041 754,836
EPS (NTD) 1.86 1.22 1.87 3.29 3.90
Condensed Statements of Comprehensive Income-IFRSsUnit: Thousand NTD
Item 2008 2009 2010 2011 2012 2013/3/31
Operating Revenue - - - - - 4,107,920
Gross Profit - - - - - 576,119
Net Operating Income - - - - - 79,977
Non-operating Income and Expenses - - - - - 61,176Profit From Continuing Operations Before Tax - - - - - 141,153
Profit From Continuing Operations - - - - - 118,222
Profit - - - - - 118,222
Other Comprehensive Income - - - - - 96,889
Total Comprehensive Income for the Period - - - - - 215,111
Profit, Attributable to Owners of Parent - - - - - 118,222
Profit, Attributable to Non-controlling of Interests - - - - - 0
Comprehensive Income Attributable to Owners of Parent - - - - - 215,111
Comprehensive Income Attributable to Non-controlling of Interests - - - - - 0
Total Basic Earnings per share - - - - - 0.60
Sercomm Corporation 2012 Annual Report 048
Financial Analysis-ROC GAAP
Item 2008 2009 2010 2011 2012
FinancialRatio (%)
Total Liabilities to Total Assets 49.39 47.33 56.86 58.07 55.47
Long-term Funds to Fixed Assets 552.68 554.38 678.84 622.59 441.06
Liquidity (%)
Current Ratio 143.14 145.55 148.02 127.85 142.61
Quick Ratio 114.40 113.36 117.88 106.47 113.16
Time Interest Earned 4,700 2,444 2,535 2,055 2,241
OperatingPerformance
AR Turnover (Times) 6.38 5.99 6.52 7.71 14.11
AR Turnover (Days) 57.29 60.95 55.95 47.32 25.87
Inventory Turnover (Times) 12.10 10.74 11.18 13.59 18.80
AP Turnover (Times) 4.43 4.29 4.92 5.87 8.29
Inventory Turnover (Days) 30.18 33.99 32.65 26.86 19.42
Fixed Assets Turnover (Times) 15.95 13.24 16.05 18.37 17.46
Total Assets Turnover (Times) 1.71 1.42 1.53 1.56 2.02
Profitability
Return on Assets (%) 6.76 4.46 6.12 8.83 9.59
Return on Equity (%) 13.48 8.32 12.50 19.87 21.19
To Pay-in Capital %
Operating Income 22.97 11.29 14.19 17.68 35.04
Pre-Tax Income 23.63 14.65 21.06 35.60 44.65
Net Income / Sales (%) 3.88 3.02 3.86 5.39 4.55
EPS (NTD) 1.88 1.24 1.88 3.29 3.90
Cash Flow
Cash Flow Ratio (%) 14.82 21.59 3.03 19.93 32.31
Cash Flow Adequacy Ratio (%) 167.90 170.65 132.74 129.37 94.74
Cash Reinvestment Ratio (%) (0.31) 5.11 (2.60) 10.49 10.47
LeverageOperating Leverage 3.18 4.53 4.16 4.24 3.30
Financial Leverage 1.02 1.06 1.06 1.11 1.06
Sercomm Corporation 2012 Annual Report 049
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=〔PAT+Interest Expense×(1-Interest Rate)〕/the Average of Total
Assets
(2) Return on Equity=PAT/the Average of Net Equity
(3) Net Income Ratio=PAT/Net Sales
(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 Assets+Working Capital)
6. Leverage
(1) Operating Leverage=(Net Revenue-Variable Cost of Goods Sold and Operating Expense)/
Operating Income
(2) Financial Leverage=Operating Income/(Operating Income-Interest Expenses)
Sercomm Corporation 2012 Annual Report 050
Financial Analysis-IFRSs
Item 2008 2009 2010 2011 2012 2013//3/31
FinancialRatio (%)
Total Liabilities to Total Assets - - - - 67.36
Long-term Funds to Property, Plant, Equipment
- - - - 172.74
Liquidity (%)
Current Ratio - - - - 124.50
Quick Ratio - - - - 86.00
Time Interest Earned - - - - 258
OperatingPerformance
AR Turnover (Times) - - - - 1.59
AR Turnover (Days) - - - - 229.98
Inventory Turnover (Times) - - - - 1.47
AP Turnover (Times) - - - - 3.37
Inventory Turnover (Days) - - - - 248.48
Property, Plant, Equipment Turnover (Times)
- - - - 2.30
Total Assets Turnover (Times) - - - - 0.56
Profitability
Return on Assets (%) - - - - 4.09
Return on Equity (%) - - - - 11.95
To Pay-in Capital %
Operating Income - - - - - 16.07
Pre-Tax Income - - - - - 7.09
Net Income / Sales (%) - - - - 2.88
EPS (NTD) - - - - 0.60
Cash Flow
Cash Flow Ratio (%) - - - - 5.70
Cash Flow Adequacy Ratio (%) - - - - -
Cash Reinvestment Ratio (%) - - - - 6.08
LeverageOperating Leverage - - - - 6.04
Financial Leverage - - - - 1.22
1. Financial Ratio
(1) Total Liabilities to Total Assets=Total Liabilities /Total Assets
(2) Long-term Funds to Property, Plant, and Equipment=(Total Equity+Non-current Liabilities)
/Property, Plant, and Equipment
Sercomm Corporation 2012 Annual Report 051
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) Property, Plant, and Equipment Turnover=Net Sales/the Average of Property, Plant, and
Equipment
(7) Total Assets Turnover=Net Sales/the Average of Total Assets
4. Earning Ability
(1) Return on Assets=〔PAT+Interest Expense×(1-Interest Rate)〕/the Average of Total
Assets
(2) Return on Equity=PAT/the Average of Total Equity
(3) Net Income Ratio=PAT/Net Sales
(4) EPS =(Profit Attributable to Owners of Parent- Dividend from Prefer Stock)/Weighted
Average Outstanding Shares
5. Cash Flow
(1) Cash Flow Ratio=Cash Flow from Operating Activities/Current Liability
(2) Net 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)/(Property,
Plant, and Equipment+Long-term Investment+Other Non-current Assets+Working Capital)
6. Leverage
(1) Operating Leverage=(Net Revenue-Variable Cost of Goods Sold and Operating Expense)/
Operating Income
(2) Financial Leverage=Operating Income/(Operating Income-Interest Expenses)
Sercomm Corporation 2012 Annual Report 052
Financial PositionUnit: Thousand NTD
Item 2011 2012 Difference Change %
Current Assets 4,525,886 4,536,965 11,079 0.24
Fixed Assets 665,982 1,235,923 569,941 85.58
Other Assets 58,115 54,864 -3,251 -5.59
Total Assets 7,805,503 8,647,741 842,238 10.79
Current Liabilities 3,540,050 3,181,335 -358,715 -10.13
Long-term Liabilities 873,744 1,600,469 726,725 83.17
Other Liabilities 119,100 15,275 -103,825 -87.17
Total Liabilities 4,532,894 4,797,079 264,185 5.83
Capital 1,827,960 1,972,855 144,895 7.93
Capital Reserves 308,989 498,409 189,420 61.30
Retained Earnings 973,481 1,259,633 286,152 29.39Other Adjustments of Shareholders' Equity 162,179 119,765 -42,414 -26.15
Total Shareholders' Equity 3,272,609 3,850,662 578,053 17.66
Operating ResultsUnit: Thousand NTD
Item 2011 2012 Difference Change %
Sales Revenue 10,968,323 16,708,706 5,740,383 52.34
Sales Return /Allowances 156,415 109,549 -46,866 -29.96
Net Sales 10,811,908 16,599,157 5,787,249 53.53
Cost of Goods Sold 9,632,011 14,784,939 5,152,928 53.50
Gross Profit 1,179,897 1,814,218 634,321 53.76Unrealized Profit from Intercompany Transactions 1,487 279 -1,208 -81.24
Realized Gross Profit 1,181,384 1,814,497 633,113 53.59
Operating Expenses 858,151 1,123,294 265,143 30.90
Operating Income 323,233 691,203 367,970 113.84
Non-operating Income 362,389 246,788 -115,601 -31.90
Non-operating Expenses 34,858 57,151 22,293 63.95
Pre-tax Income from Continuing Operation 650,764 880,840 230,076 35.35
Income Tax Benefit (Expenses) 67,723 126,004 58,281 86.06
Net Income from Continuing Operation 583,041 754,836 171,795 29.47
Cumulative Effect of Change in Accounting Principle 0 0 0 0
Net Income 583,041 754,836 171,795 29.47
Sercomm Corporation 2012 Annual Report 053
Analysis of Cash Flow
Item 2011 2012 Change%
Cash Flow Ratio (%) 19.93% 32.31% 62.12
Cash Flow Adequacy Ratio (%) 129.37% 94.74% -26.77
Cash Reinvestment Ratio (%) 10.48% 10.47% 0.10
Projected Cash FlowUnit: Thousand NTD
BeginningCash Balance
Cash Flowsfrom Operating
Activities
Cash Flowsfrom Investing
& FinancingActivities
Projected EndingCash Balance
Source of Funding for Cash Shortfall
InvestingPlan
FinancingPlan
2,183,629 579,335 1,127,636 1,635,328 - -
Analysis for Investment Over 5% of Paid-in CapitalYear 2012
Company Investment Amount(NT$ /US$ thousand) Policy Improvement Plan
Senslinq Inc. US$250 US Marketing NA
Sercomm Investment US$1,200 Foreign Investment NA
Shukuan Investments Ltd. NT$28,000 Local Investment NA
Sercomm Trading Co., Limited US$46,800 Foreign Investment NA
Zealous Investments Ltd. US$30,956 Foreign Investment NA
Sernet Technology Ltd. US$29,900 Global Manufacture NA
Smart Trade Inc. US$16,000 Foreign Investment NA
DWNet Technology Ltd. US$16,000 China Sales NA
Sercomm Japan Corp. JP$180,000 Japan Marketing NA
Sercomm France SARL EU$100 Europe Marketing NA
Sercomm Deutschland GmbH EU$100 Europe Marketing NA
Sercomm Italian SRL EU$10 Europe Marketing NA
Sercomm Corporation 2012 Annual Report 054
Special DisclosuresAffiliated Companies Chart
Sercomm Corporation 2012 Annual Report 055
Affiliated Companies
Company Date of Incorporation Paid-in Capital Major Business
Senslinq Inc 1996/09/25 USD$250,000 Sales of IT Products
Sercomm Investments Ltd. 2001/10/09 USD$1,200,000 Investment Overseas, International Trading
Shukuan Investments Ltd. 2002/12/31 NT$28,000,000 Investment Activity
Sercomm Trading Co., Limited 2002/06/24 USD$46,800,000 Investment Overseas,
International Trading
Zealous Investments Ltd. 1999/08/12 USD$30,956,000 Investment Overseas, International Trading
Sernet Technology Ltd. 2000/02/18 USD$29,900,000
Manufacture of Routers, Communication Products, WLAN Products; Sales and After-sales Service
Smart Trade Inc. 2003/03/21 USD$16,000,000 Investment Overseas, International Trading
DWNet Technology Ltd. 2004/01/14 USD$16,000,000 R&D Center of Software; Sales and After-sales Service
Sercomm Japan Corp. 2010/03/15 JPY$180,000,000 Sales of IT Products and International Trading
Sercomm France SARL 2011/01/27 EUD$100,000 Sales of IT Products and International Trading
Sercomm Italian SRL 2012/02/21 EUD$10,000 Sales of IT Products and International Trading
Sercomm Deutschland GmbH 2012/06/29 EUD$100,000 Sales of IT Products and
International Trading
Sercomm Corporation 2012 Annual Report 056
3
REPORT OF INDEPENDENT AUDITORS
English Translation of a Report Originally Issued in Chinese
To Sercomm Corporation We have audited the accompanying consolidated balance sheets of Sercomm Corporation and subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the years ended December 31, 2012 and 2011. 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, 2012 and 2011, 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. As described in Note 3 to the consolidated financial statements, effective from January 1, 2011, the Company has adopted the third revision of the Statement of Financial Accounting Standards No. 34, “Financial Instruments: Recognition and Measurement” of the Republic of China. March 19, 2013 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.
3
REPORT OF INDEPENDENT AUDITORS
English Translation of a Report Originally Issued in Chinese
To Sercomm Corporation We have audited the accompanying consolidated balance sheets of Sercomm Corporation and subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the years ended December 31, 2012 and 2011. 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, 2012 and 2011, 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. As described in Note 3 to the consolidated financial statements, effective from January 1, 2011, the Company has adopted the third revision of the Statement of Financial Accounting Standards No. 34, “Financial Instruments: Recognition and Measurement” of the Republic of China. March 19, 2013 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.
Sercomm Corporation 2012 Annual Report 057
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
December 31, 2012 and 2011(Expressed in Thousands of New Taiwan Dollars)
2012 2011Assets Notes Amount % Amount % Liabilities and Stockholders' Equity Notes Amount % Amount %
Current assets Current liabilitiesCash and cash equivalent 4 $4,660,206 36.12 $3,868,609 32.17 Short-term loans 3 and 28 $1,904,094 14.76 $2,819,707 23.45Financial assets at fair value through profit or loss-current 2 and 5 1,106 0.01 30,383 0.25 Notes payable 107,336 0.83 77,082 0.64Derivative financial assets for hedging 2 and 6 21,980 0.17 - - Accounts payable 3,959,260 30.68 3,277,137 27.25Notes receivable-net 2 and 7 301,612 2.34 732,669 6.09 Income tax payable 2 and 24 201,511 1.56 82,170 0.68Accounts receivable-net 2 and 7 1,513,829 11.73 1,890,915 15.73 Accrued expenses 27 826,884 6.41 654,121 5.44Other receivables 7 339,189 2.63 290,635 2.42 Financial liabilities at fair value through profit of loss-current 2 and 5 269 - 284 - Inventories-net 2 and 8 2,275,810 17.63 1,907,917 15.87 Derivative financial liability for hedging 2 and 6 30,752 0.24 - - Other current assets 157,378 1.22 216,461 1.80 Bond payable- current 2 and 14 - - 425,426 3.54Deferred income tax assets-current 2 and 24 32,450 0.25 27,473 0.23 Lease payables-current 2 and 15 19,272 0.15 18,864 0.16Restricted assets 28 26,599 0.21 11,557 0.10 Other current liabilities 29 387,342 3.00 417,159 3.47
Total current assets 9,330,159 72.31 8,976,619 74.66 Total current liabilities 7,436,720 57.63 7,771,950 64.63
Funds and investmentsFinancial assets as fair value through profit or loss-noncurrent 2 and 14 459 - - - Long-term liabilitiesOther financial assets-noncurrent 29 135,643 1.05 80,045 0.67 Bonds Payable 2 and 14 1,287,098 9.98 542,840 4.52Financial assets measured at cost-noncurrent 2 and 9 47,454 0.37 108,034 0.90 Lease payables-noncurrent 2 and 15 313,371 2.43 330,904 2.75
Total funds and investments 183,556 1.42 188,079 1.57 Total long-term liabilities 1,600,469 12.41 873,744 7.27
Property, plant and equipment 2, 12 and 28Land 213,405 1.66 43,230 0.36 Other liabilitiesBuildings 1,095,812 8.49 784,732 6.52 Accrued pension liabilities 2 and 16 7,095 0.06 5,687 0.05Machinery and equipment 1,476,414 11.44 1,268,127 10.54 Deferred income tax liabilities-noncurrent 2 and 24 8,180 0.06 100,127 0.83Research and development equipment 373,528 2.90 303,920 2.53 Total other liabilities 15,275 0.12 105,814 0.88Office and other equipment 147,343 1.14 141,151 1.17 Total liabilities 9,052,464 70.16 8,751,508 72.78Leased assets 457,030 3.54 457,030 3.80
Total cost 3,763,532 29.17 2,998,190 24.92Less: Accumulated depreciation (900,456) (6.98) (714,930) (5.94) Stockholders' equityConstruction in progress 16,617 0.13 101,911 0.85 Capital 17Prepayments for equipment 146,962 1.14 111,502 0.93 Common stock 1,956,095 15.16 1,826,337 15.19 Property, plant and equipment-net 3,026,655 23.46 2,496,673 20.76 Advance receipts for common stock 16,760 0.13 1,623 0.02
Capital reserve 19Intangible assets 2 and 11 Bonds conversion premiums 2 and 14 348,003 2.69 223,591 1.86
Computer software cost-net 64,996 0.50 61,734 0.51 Employee stock option 2 42,303 0.33 27,666 0.23Other intangible assets 77,570 0.60 70,073 0.58 Stock option 2 and 18 108,103 0.84 57,732 0.48Land use right 28 109,029 0.85 115,189 0.96 Retained earnings 20 and 21
Total intangible assets 251,595 1.95 246,996 2.05 Legal reserve 362,873 2.81 304,569 2.53Unappropriated earnings 896,760 6.95 668,912 5.56
Other assets Adjusting items in stockholders' equityProperty not used in operations 2 and 12 14,212 0.11 14,370 0.12 Cumulative translation adjustments 2 128,537 1.00 162,179 1.35Refundable deposits 28 29,431 0.23 45,047 0.37 Unrealized gain / loss on financial instrument 2 and 5 (8,772) (0.07) - - Deferred charges 2 51,972 0.40 56,333 0.47 Total stockholders' equity 3,850,662 29.84 3,272,609 27.22Deferred income tax asset-noncurrent 2 and 24 15,546 0.12 - -
Total other assets 111,161 0.86 115,750 0.96Total assets
$12,903,126 100.00 $12,024,117 100.00 Total liabilities and stockholders' equity $12,903,126 100.00 $12,024,117 100.00
The accompanying notes are an integral part of the consolidated financial statements.
2012 2011As of December 31, As of December 31,
4
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
December 31, 2012 and 2011(Expressed in Thousands of New Taiwan Dollars)
2012 2011Assets Notes Amount % Amount % Liabilities and Stockholders' Equity Notes Amount % Amount %
Current assets Current liabilitiesCash and cash equivalent 4 $4,660,206 36.12 $3,868,609 32.17 Short-term loans 3 and 28 $1,904,094 14.76 $2,819,707 23.45Financial assets at fair value through profit or loss-current 2 and 5 1,106 0.01 30,383 0.25 Notes payable 107,336 0.83 77,082 0.64Derivative financial assets for hedging 2 and 6 21,980 0.17 - - Accounts payable 3,959,260 30.68 3,277,137 27.25Notes receivable-net 2 and 7 301,612 2.34 732,669 6.09 Income tax payable 2 and 24 201,511 1.56 82,170 0.68Accounts receivable-net 2 and 7 1,513,829 11.73 1,890,915 15.73 Accrued expenses 27 826,884 6.41 654,121 5.44Other receivables 7 339,189 2.63 290,635 2.42 Financial liabilities at fair value through profit of loss-current 2 and 5 269 - 284 - Inventories-net 2 and 8 2,275,810 17.63 1,907,917 15.87 Derivative financial liability for hedging 2 and 6 30,752 0.24 - - Other current assets 157,378 1.22 216,461 1.80 Bond payable- current 2 and 14 - - 425,426 3.54Deferred income tax assets-current 2 and 24 32,450 0.25 27,473 0.23 Lease payables-current 2 and 15 19,272 0.15 18,864 0.16Restricted assets 28 26,599 0.21 11,557 0.10 Other current liabilities 29 387,342 3.00 417,159 3.47
Total current assets 9,330,159 72.31 8,976,619 74.66 Total current liabilities 7,436,720 57.63 7,771,950 64.63
Funds and investmentsFinancial assets as fair value through profit or loss-noncurrent 2 and 14 459 - - - Long-term liabilitiesOther financial assets-noncurrent 29 135,643 1.05 80,045 0.67 Bonds Payable 2 and 14 1,287,098 9.98 542,840 4.52Financial assets measured at cost-noncurrent 2 and 9 47,454 0.37 108,034 0.90 Lease payables-noncurrent 2 and 15 313,371 2.43 330,904 2.75
Total funds and investments 183,556 1.42 188,079 1.57 Total long-term liabilities 1,600,469 12.41 873,744 7.27
Property, plant and equipment 2, 12 and 28Land 213,405 1.66 43,230 0.36 Other liabilitiesBuildings 1,095,812 8.49 784,732 6.52 Accrued pension liabilities 2 and 16 7,095 0.06 5,687 0.05Machinery and equipment 1,476,414 11.44 1,268,127 10.54 Deferred income tax liabilities-noncurrent 2 and 24 8,180 0.06 100,127 0.83Research and development equipment 373,528 2.90 303,920 2.53 Total other liabilities 15,275 0.12 105,814 0.88Office and other equipment 147,343 1.14 141,151 1.17 Total liabilities 9,052,464 70.16 8,751,508 72.78Leased assets 457,030 3.54 457,030 3.80
Total cost 3,763,532 29.17 2,998,190 24.92Less: Accumulated depreciation (900,456) (6.98) (714,930) (5.94) Stockholders' equityConstruction in progress 16,617 0.13 101,911 0.85 Capital 17Prepayments for equipment 146,962 1.14 111,502 0.93 Common stock 1,956,095 15.16 1,826,337 15.19 Property, plant and equipment-net 3,026,655 23.46 2,496,673 20.76 Advance receipts for common stock 16,760 0.13 1,623 0.02
Capital reserve 19Intangible assets 2 and 11 Bonds conversion premiums 2 and 14 348,003 2.69 223,591 1.86
Computer software cost-net 64,996 0.50 61,734 0.51 Employee stock option 2 42,303 0.33 27,666 0.23Other intangible assets 77,570 0.60 70,073 0.58 Stock option 2 and 18 108,103 0.84 57,732 0.48Land use right 28 109,029 0.85 115,189 0.96 Retained earnings 20 and 21
Total intangible assets 251,595 1.95 246,996 2.05 Legal reserve 362,873 2.81 304,569 2.53Unappropriated earnings 896,760 6.95 668,912 5.56
Other assets Adjusting items in stockholders' equityProperty not used in operations 2 and 12 14,212 0.11 14,370 0.12 Cumulative translation adjustments 2 128,537 1.00 162,179 1.35Refundable deposits 28 29,431 0.23 45,047 0.37 Unrealized gain / loss on financial instrument 2 and 5 (8,772) (0.07) - - Deferred charges 2 51,972 0.40 56,333 0.47 Total stockholders' equity 3,850,662 29.84 3,272,609 27.22Deferred income tax asset-noncurrent 2 and 24 15,546 0.12 - -
Total other assets 111,161 0.86 115,750 0.96Total assets
$12,903,126 100.00 $12,024,117 100.00 Total liabilities and stockholders' equity $12,903,126 100.00 $12,024,117 100.00
The accompanying notes are an integral part of the consolidated financial statements.
2012 2011As of December 31, As of December 31,
4
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
December 31, 2012 and 2011(Expressed in Thousands of New Taiwan Dollars)
2012 2011Assets Notes Amount % Amount % Liabilities and Stockholders' Equity Notes Amount % Amount %
Current assets Current liabilitiesCash and cash equivalent 4 $4,660,206 36.12 $3,868,609 32.17 Short-term loans 3 and 28 $1,904,094 14.76 $2,819,707 23.45Financial assets at fair value through profit or loss-current 2 and 5 1,106 0.01 30,383 0.25 Notes payable 107,336 0.83 77,082 0.64Derivative financial assets for hedging 2 and 6 21,980 0.17 - - Accounts payable 3,959,260 30.68 3,277,137 27.25Notes receivable-net 2 and 7 301,612 2.34 732,669 6.09 Income tax payable 2 and 24 201,511 1.56 82,170 0.68Accounts receivable-net 2 and 7 1,513,829 11.73 1,890,915 15.73 Accrued expenses 27 826,884 6.41 654,121 5.44Other receivables 7 339,189 2.63 290,635 2.42 Financial liabilities at fair value through profit of loss-current 2 and 5 269 - 284 - Inventories-net 2 and 8 2,275,810 17.63 1,907,917 15.87 Derivative financial liability for hedging 2 and 6 30,752 0.24 - - Other current assets 157,378 1.22 216,461 1.80 Bond payable- current 2 and 14 - - 425,426 3.54Deferred income tax assets-current 2 and 24 32,450 0.25 27,473 0.23 Lease payables-current 2 and 15 19,272 0.15 18,864 0.16Restricted assets 28 26,599 0.21 11,557 0.10 Other current liabilities 29 387,342 3.00 417,159 3.47
Total current assets 9,330,159 72.31 8,976,619 74.66 Total current liabilities 7,436,720 57.63 7,771,950 64.63
Funds and investmentsFinancial assets as fair value through profit or loss-noncurrent 2 and 14 459 - - - Long-term liabilitiesOther financial assets-noncurrent 29 135,643 1.05 80,045 0.67 Bonds Payable 2 and 14 1,287,098 9.98 542,840 4.52Financial assets measured at cost-noncurrent 2 and 9 47,454 0.37 108,034 0.90 Lease payables-noncurrent 2 and 15 313,371 2.43 330,904 2.75
Total funds and investments 183,556 1.42 188,079 1.57 Total long-term liabilities 1,600,469 12.41 873,744 7.27
Property, plant and equipment 2, 12 and 28Land 213,405 1.66 43,230 0.36 Other liabilitiesBuildings 1,095,812 8.49 784,732 6.52 Accrued pension liabilities 2 and 16 7,095 0.06 5,687 0.05Machinery and equipment 1,476,414 11.44 1,268,127 10.54 Deferred income tax liabilities-noncurrent 2 and 24 8,180 0.06 100,127 0.83Research and development equipment 373,528 2.90 303,920 2.53 Total other liabilities 15,275 0.12 105,814 0.88Office and other equipment 147,343 1.14 141,151 1.17 Total liabilities 9,052,464 70.16 8,751,508 72.78Leased assets 457,030 3.54 457,030 3.80
Total cost 3,763,532 29.17 2,998,190 24.92Less: Accumulated depreciation (900,456) (6.98) (714,930) (5.94) Stockholders' equityConstruction in progress 16,617 0.13 101,911 0.85 Capital 17Prepayments for equipment 146,962 1.14 111,502 0.93 Common stock 1,956,095 15.16 1,826,337 15.19 Property, plant and equipment-net 3,026,655 23.46 2,496,673 20.76 Advance receipts for common stock 16,760 0.13 1,623 0.02
Capital reserve 19Intangible assets 2 and 11 Bonds conversion premiums 2 and 14 348,003 2.69 223,591 1.86
Computer software cost-net 64,996 0.50 61,734 0.51 Employee stock option 2 42,303 0.33 27,666 0.23Other intangible assets 77,570 0.60 70,073 0.58 Stock option 2 and 18 108,103 0.84 57,732 0.48Land use right 28 109,029 0.85 115,189 0.96 Retained earnings 20 and 21
Total intangible assets 251,595 1.95 246,996 2.05 Legal reserve 362,873 2.81 304,569 2.53Unappropriated earnings 896,760 6.95 668,912 5.56
Other assets Adjusting items in stockholders' equityProperty not used in operations 2 and 12 14,212 0.11 14,370 0.12 Cumulative translation adjustments 2 128,537 1.00 162,179 1.35Refundable deposits 28 29,431 0.23 45,047 0.37 Unrealized gain / loss on financial instrument 2 and 5 (8,772) (0.07) - - Deferred charges 2 51,972 0.40 56,333 0.47 Total stockholders' equity 3,850,662 29.84 3,272,609 27.22Deferred income tax asset-noncurrent 2 and 24 15,546 0.12 - -
Total other assets 111,161 0.86 115,750 0.96Total assets
$12,903,126 100.00 $12,024,117 100.00 Total liabilities and stockholders' equity $12,903,126 100.00 $12,024,117 100.00
The accompanying notes are an integral part of the consolidated financial statements.
2012 2011As of December 31, As of December 31,
4
Sercomm Corporation 2012 Annual Report 058
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
December 31, 2012 and 2011(Expressed in Thousands of New Taiwan Dollars)
2012 2011Assets Notes Amount % Amount % Liabilities and Stockholders' Equity Notes Amount % Amount %
Current assets Current liabilitiesCash and cash equivalent 4 $4,660,206 36.12 $3,868,609 32.17 Short-term loans 3 and 28 $1,904,094 14.76 $2,819,707 23.45Financial assets at fair value through profit or loss-current 2 and 5 1,106 0.01 30,383 0.25 Notes payable 107,336 0.83 77,082 0.64Derivative financial assets for hedging 2 and 6 21,980 0.17 - - Accounts payable 3,959,260 30.68 3,277,137 27.25Notes receivable-net 2 and 7 301,612 2.34 732,669 6.09 Income tax payable 2 and 24 201,511 1.56 82,170 0.68Accounts receivable-net 2 and 7 1,513,829 11.73 1,890,915 15.73 Accrued expenses 27 826,884 6.41 654,121 5.44Other receivables 7 339,189 2.63 290,635 2.42 Financial liabilities at fair value through profit of loss-current 2 and 5 269 - 284 - Inventories-net 2 and 8 2,275,810 17.63 1,907,917 15.87 Derivative financial liability for hedging 2 and 6 30,752 0.24 - - Other current assets 157,378 1.22 216,461 1.80 Bond payable- current 2 and 14 - - 425,426 3.54Deferred income tax assets-current 2 and 24 32,450 0.25 27,473 0.23 Lease payables-current 2 and 15 19,272 0.15 18,864 0.16Restricted assets 28 26,599 0.21 11,557 0.10 Other current liabilities 29 387,342 3.00 417,159 3.47
Total current assets 9,330,159 72.31 8,976,619 74.66 Total current liabilities 7,436,720 57.63 7,771,950 64.63
Funds and investmentsFinancial assets as fair value through profit or loss-noncurrent 2 and 14 459 - - - Long-term liabilitiesOther financial assets-noncurrent 29 135,643 1.05 80,045 0.67 Bonds Payable 2 and 14 1,287,098 9.98 542,840 4.52Financial assets measured at cost-noncurrent 2 and 9 47,454 0.37 108,034 0.90 Lease payables-noncurrent 2 and 15 313,371 2.43 330,904 2.75
Total funds and investments 183,556 1.42 188,079 1.57 Total long-term liabilities 1,600,469 12.41 873,744 7.27
Property, plant and equipment 2, 12 and 28Land 213,405 1.66 43,230 0.36 Other liabilitiesBuildings 1,095,812 8.49 784,732 6.52 Accrued pension liabilities 2 and 16 7,095 0.06 5,687 0.05Machinery and equipment 1,476,414 11.44 1,268,127 10.54 Deferred income tax liabilities-noncurrent 2 and 24 8,180 0.06 100,127 0.83Research and development equipment 373,528 2.90 303,920 2.53 Total other liabilities 15,275 0.12 105,814 0.88Office and other equipment 147,343 1.14 141,151 1.17 Total liabilities 9,052,464 70.16 8,751,508 72.78Leased assets 457,030 3.54 457,030 3.80
Total cost 3,763,532 29.17 2,998,190 24.92Less: Accumulated depreciation (900,456) (6.98) (714,930) (5.94) Stockholders' equityConstruction in progress 16,617 0.13 101,911 0.85 Capital 17Prepayments for equipment 146,962 1.14 111,502 0.93 Common stock 1,956,095 15.16 1,826,337 15.19 Property, plant and equipment-net 3,026,655 23.46 2,496,673 20.76 Advance receipts for common stock 16,760 0.13 1,623 0.02
Capital reserve 19Intangible assets 2 and 11 Bonds conversion premiums 2 and 14 348,003 2.69 223,591 1.86
Computer software cost-net 64,996 0.50 61,734 0.51 Employee stock option 2 42,303 0.33 27,666 0.23Other intangible assets 77,570 0.60 70,073 0.58 Stock option 2 and 18 108,103 0.84 57,732 0.48Land use right 28 109,029 0.85 115,189 0.96 Retained earnings 20 and 21
Total intangible assets 251,595 1.95 246,996 2.05 Legal reserve 362,873 2.81 304,569 2.53Unappropriated earnings 896,760 6.95 668,912 5.56
Other assets Adjusting items in stockholders' equityProperty not used in operations 2 and 12 14,212 0.11 14,370 0.12 Cumulative translation adjustments 2 128,537 1.00 162,179 1.35Refundable deposits 28 29,431 0.23 45,047 0.37 Unrealized gain / loss on financial instrument 2 and 5 (8,772) (0.07) - - Deferred charges 2 51,972 0.40 56,333 0.47 Total stockholders' equity 3,850,662 29.84 3,272,609 27.22Deferred income tax asset-noncurrent 2 and 24 15,546 0.12 - -
Total other assets 111,161 0.86 115,750 0.96Total assets
$12,903,126 100.00 $12,024,117 100.00 Total liabilities and stockholders' equity $12,903,126 100.00 $12,024,117 100.00
The accompanying notes are an integral part of the consolidated financial statements.
2012 2011As of December 31, As of December 31,
4
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
December 31, 2012 and 2011(Expressed in Thousands of New Taiwan Dollars)
2012 2011Assets Notes Amount % Amount % Liabilities and Stockholders' Equity Notes Amount % Amount %
Current assets Current liabilitiesCash and cash equivalent 4 $4,660,206 36.12 $3,868,609 32.17 Short-term loans 3 and 28 $1,904,094 14.76 $2,819,707 23.45Financial assets at fair value through profit or loss-current 2 and 5 1,106 0.01 30,383 0.25 Notes payable 107,336 0.83 77,082 0.64Derivative financial assets for hedging 2 and 6 21,980 0.17 - - Accounts payable 3,959,260 30.68 3,277,137 27.25Notes receivable-net 2 and 7 301,612 2.34 732,669 6.09 Income tax payable 2 and 24 201,511 1.56 82,170 0.68Accounts receivable-net 2 and 7 1,513,829 11.73 1,890,915 15.73 Accrued expenses 27 826,884 6.41 654,121 5.44Other receivables 7 339,189 2.63 290,635 2.42 Financial liabilities at fair value through profit of loss-current 2 and 5 269 - 284 - Inventories-net 2 and 8 2,275,810 17.63 1,907,917 15.87 Derivative financial liability for hedging 2 and 6 30,752 0.24 - - Other current assets 157,378 1.22 216,461 1.80 Bond payable- current 2 and 14 - - 425,426 3.54Deferred income tax assets-current 2 and 24 32,450 0.25 27,473 0.23 Lease payables-current 2 and 15 19,272 0.15 18,864 0.16Restricted assets 28 26,599 0.21 11,557 0.10 Other current liabilities 29 387,342 3.00 417,159 3.47
Total current assets 9,330,159 72.31 8,976,619 74.66 Total current liabilities 7,436,720 57.63 7,771,950 64.63
Funds and investmentsFinancial assets as fair value through profit or loss-noncurrent 2 and 14 459 - - - Long-term liabilitiesOther financial assets-noncurrent 29 135,643 1.05 80,045 0.67 Bonds Payable 2 and 14 1,287,098 9.98 542,840 4.52Financial assets measured at cost-noncurrent 2 and 9 47,454 0.37 108,034 0.90 Lease payables-noncurrent 2 and 15 313,371 2.43 330,904 2.75
Total funds and investments 183,556 1.42 188,079 1.57 Total long-term liabilities 1,600,469 12.41 873,744 7.27
Property, plant and equipment 2, 12 and 28Land 213,405 1.66 43,230 0.36 Other liabilitiesBuildings 1,095,812 8.49 784,732 6.52 Accrued pension liabilities 2 and 16 7,095 0.06 5,687 0.05Machinery and equipment 1,476,414 11.44 1,268,127 10.54 Deferred income tax liabilities-noncurrent 2 and 24 8,180 0.06 100,127 0.83Research and development equipment 373,528 2.90 303,920 2.53 Total other liabilities 15,275 0.12 105,814 0.88Office and other equipment 147,343 1.14 141,151 1.17 Total liabilities 9,052,464 70.16 8,751,508 72.78Leased assets 457,030 3.54 457,030 3.80
Total cost 3,763,532 29.17 2,998,190 24.92Less: Accumulated depreciation (900,456) (6.98) (714,930) (5.94) Stockholders' equityConstruction in progress 16,617 0.13 101,911 0.85 Capital 17Prepayments for equipment 146,962 1.14 111,502 0.93 Common stock 1,956,095 15.16 1,826,337 15.19 Property, plant and equipment-net 3,026,655 23.46 2,496,673 20.76 Advance receipts for common stock 16,760 0.13 1,623 0.02
Capital reserve 19Intangible assets 2 and 11 Bonds conversion premiums 2 and 14 348,003 2.69 223,591 1.86
Computer software cost-net 64,996 0.50 61,734 0.51 Employee stock option 2 42,303 0.33 27,666 0.23Other intangible assets 77,570 0.60 70,073 0.58 Stock option 2 and 18 108,103 0.84 57,732 0.48Land use right 28 109,029 0.85 115,189 0.96 Retained earnings 20 and 21
Total intangible assets 251,595 1.95 246,996 2.05 Legal reserve 362,873 2.81 304,569 2.53Unappropriated earnings 896,760 6.95 668,912 5.56
Other assets Adjusting items in stockholders' equityProperty not used in operations 2 and 12 14,212 0.11 14,370 0.12 Cumulative translation adjustments 2 128,537 1.00 162,179 1.35Refundable deposits 28 29,431 0.23 45,047 0.37 Unrealized gain / loss on financial instrument 2 and 5 (8,772) (0.07) - - Deferred charges 2 51,972 0.40 56,333 0.47 Total stockholders' equity 3,850,662 29.84 3,272,609 27.22Deferred income tax asset-noncurrent 2 and 24 15,546 0.12 - -
Total other assets 111,161 0.86 115,750 0.96Total assets
$12,903,126 100.00 $12,024,117 100.00 Total liabilities and stockholders' equity $12,903,126 100.00 $12,024,117 100.00
The accompanying notes are an integral part of the consolidated financial statements.
2012 2011As of December 31, As of December 31,
4
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
December 31, 2012 and 2011(Expressed in Thousands of New Taiwan Dollars)
2012 2011Assets Notes Amount % Amount % Liabilities and Stockholders' Equity Notes Amount % Amount %
Current assets Current liabilitiesCash and cash equivalent 4 $4,660,206 36.12 $3,868,609 32.17 Short-term loans 3 and 28 $1,904,094 14.76 $2,819,707 23.45Financial assets at fair value through profit or loss-current 2 and 5 1,106 0.01 30,383 0.25 Notes payable 107,336 0.83 77,082 0.64Derivative financial assets for hedging 2 and 6 21,980 0.17 - - Accounts payable 3,959,260 30.68 3,277,137 27.25Notes receivable-net 2 and 7 301,612 2.34 732,669 6.09 Income tax payable 2 and 24 201,511 1.56 82,170 0.68Accounts receivable-net 2 and 7 1,513,829 11.73 1,890,915 15.73 Accrued expenses 27 826,884 6.41 654,121 5.44Other receivables 7 339,189 2.63 290,635 2.42 Financial liabilities at fair value through profit of loss-current 2 and 5 269 - 284 - Inventories-net 2 and 8 2,275,810 17.63 1,907,917 15.87 Derivative financial liability for hedging 2 and 6 30,752 0.24 - - Other current assets 157,378 1.22 216,461 1.80 Bond payable- current 2 and 14 - - 425,426 3.54Deferred income tax assets-current 2 and 24 32,450 0.25 27,473 0.23 Lease payables-current 2 and 15 19,272 0.15 18,864 0.16Restricted assets 28 26,599 0.21 11,557 0.10 Other current liabilities 29 387,342 3.00 417,159 3.47
Total current assets 9,330,159 72.31 8,976,619 74.66 Total current liabilities 7,436,720 57.63 7,771,950 64.63
Funds and investmentsFinancial assets as fair value through profit or loss-noncurrent 2 and 14 459 - - - Long-term liabilitiesOther financial assets-noncurrent 29 135,643 1.05 80,045 0.67 Bonds Payable 2 and 14 1,287,098 9.98 542,840 4.52Financial assets measured at cost-noncurrent 2 and 9 47,454 0.37 108,034 0.90 Lease payables-noncurrent 2 and 15 313,371 2.43 330,904 2.75
Total funds and investments 183,556 1.42 188,079 1.57 Total long-term liabilities 1,600,469 12.41 873,744 7.27
Property, plant and equipment 2, 12 and 28Land 213,405 1.66 43,230 0.36 Other liabilitiesBuildings 1,095,812 8.49 784,732 6.52 Accrued pension liabilities 2 and 16 7,095 0.06 5,687 0.05Machinery and equipment 1,476,414 11.44 1,268,127 10.54 Deferred income tax liabilities-noncurrent 2 and 24 8,180 0.06 100,127 0.83Research and development equipment 373,528 2.90 303,920 2.53 Total other liabilities 15,275 0.12 105,814 0.88Office and other equipment 147,343 1.14 141,151 1.17 Total liabilities 9,052,464 70.16 8,751,508 72.78Leased assets 457,030 3.54 457,030 3.80
Total cost 3,763,532 29.17 2,998,190 24.92Less: Accumulated depreciation (900,456) (6.98) (714,930) (5.94) Stockholders' equityConstruction in progress 16,617 0.13 101,911 0.85 Capital 17Prepayments for equipment 146,962 1.14 111,502 0.93 Common stock 1,956,095 15.16 1,826,337 15.19 Property, plant and equipment-net 3,026,655 23.46 2,496,673 20.76 Advance receipts for common stock 16,760 0.13 1,623 0.02
Capital reserve 19Intangible assets 2 and 11 Bonds conversion premiums 2 and 14 348,003 2.69 223,591 1.86
Computer software cost-net 64,996 0.50 61,734 0.51 Employee stock option 2 42,303 0.33 27,666 0.23Other intangible assets 77,570 0.60 70,073 0.58 Stock option 2 and 18 108,103 0.84 57,732 0.48Land use right 28 109,029 0.85 115,189 0.96 Retained earnings 20 and 21
Total intangible assets 251,595 1.95 246,996 2.05 Legal reserve 362,873 2.81 304,569 2.53Unappropriated earnings 896,760 6.95 668,912 5.56
Other assets Adjusting items in stockholders' equityProperty not used in operations 2 and 12 14,212 0.11 14,370 0.12 Cumulative translation adjustments 2 128,537 1.00 162,179 1.35Refundable deposits 28 29,431 0.23 45,047 0.37 Unrealized gain / loss on financial instrument 2 and 5 (8,772) (0.07) - - Deferred charges 2 51,972 0.40 56,333 0.47 Total stockholders' equity 3,850,662 29.84 3,272,609 27.22Deferred income tax asset-noncurrent 2 and 24 15,546 0.12 - -
Total other assets 111,161 0.86 115,750 0.96Total assets
$12,903,126 100.00 $12,024,117 100.00 Total liabilities and stockholders' equity $12,903,126 100.00 $12,024,117 100.00
The accompanying notes are an integral part of the consolidated financial statements.
2012 2011As of December 31, As of December 31,
4
Sercomm Corporation 2012 Annual Report 059
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOMEFor the years ended December 31, 2012 and 2011
(Expressed in Thousands of New Taiwan Dollars, Except for Per Share Data)
Notes Amount % Amount %Sales $19,441,596 100.90 $13,515,344 102.07Less : Sales returns and allowances 173,625 0.90 273,837 2.07
Net sales 2 19,267,971 100.00 13,241,507 100.00Cost of goods sold 8 and 23 16,282,234 84.50 11,261,997 85.05
Gross profit 2,985,737 15.50 1,979,510 14.95
Operating expenses 23 and 27Selling expenses 573,063 2.97 381,905 2.88General and administrative expenses 571,249 2.97 470,692 3.55Research and development expenses 808,768 4.20 564,959 4.27Subtotal 1,953,080 10.14 1,417,556 10.70
1,032,657 5.36 561,954 4.25
Non-operating incomeInterest income 32 34,031 0.18 23,881 0.18Dividend income 2 831 - 831 0.01Gain on disposal of investments 2 - - 12,094 0.09Foreign exchange gain-net 2 - - 124,485 0.94Gain on valuation of financial assets-net 2, 5, 14 and 32 8,767 0.05 19,079 0.14Other income 30,405 0.15 33,439 0.25 Total non-operating income 74,034 0.38 213,809 1.61
Non-operating expensesInterest expense 12, 14 and 32 84,179 0.44 65,797 0.50Loss on disposal of property, plant and equipment 2 3,405 0.02 4,728 0.04Foreign exchange loss-net 2 21,735 0.11 - - Impairment loss of financial asset 2 and 9 58,272 0.30 - - Other losses 4,384 0.02 3,782 0.03 Total non-operating expenses 171,975 0.89 74,307 0.57
Income from continuing operations before income tax 934,716 4.85 701,456 5.29Income tax expense 2 and 24 (179,880) (0.93) (118,415) (0.89)Net income $754,836 3.92 $583,041 4.40
Before tax After tax Before tax After taxBasic earnings per share (New Taiwan Dollars) 2 and 26
Net income $4.83 $3.90 $3.95 $3.29Minority interests - - - - Stockholders of the parent $4.83 $3.90 $3.95 $3.29
Diluted earnings per share (New Taiwan Dollars) 2 and 26Net income $4.25 $3.45 $3.38 $2.81Minority interests - - - - Stockholders of the parent $4.25 $3.45 $3.38 $2.81
The accompanying notes are an integral part of the consolidated financial statements.
2012 2011
Operating income
5
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOMEFor the years ended December 31, 2012 and 2011
(Expressed in Thousands of New Taiwan Dollars, Except for Per Share Data)
Notes Amount % Amount %Sales $19,441,596 100.90 $13,515,344 102.07Less : Sales returns and allowances 173,625 0.90 273,837 2.07
Net sales 2 19,267,971 100.00 13,241,507 100.00Cost of goods sold 8 and 23 16,282,234 84.50 11,261,997 85.05
Gross profit 2,985,737 15.50 1,979,510 14.95
Operating expenses 23 and 27Selling expenses 573,063 2.97 381,905 2.88General and administrative expenses 571,249 2.97 470,692 3.55Research and development expenses 808,768 4.20 564,959 4.27Subtotal 1,953,080 10.14 1,417,556 10.70
1,032,657 5.36 561,954 4.25
Non-operating incomeInterest income 32 34,031 0.18 23,881 0.18Dividend income 2 831 - 831 0.01Gain on disposal of investments 2 - - 12,094 0.09Foreign exchange gain-net 2 - - 124,485 0.94Gain on valuation of financial assets-net 2, 5, 14 and 32 8,767 0.05 19,079 0.14Other income 30,405 0.15 33,439 0.25 Total non-operating income 74,034 0.38 213,809 1.61
Non-operating expensesInterest expense 12, 14 and 32 84,179 0.44 65,797 0.50Loss on disposal of property, plant and equipment 2 3,405 0.02 4,728 0.04Foreign exchange loss-net 2 21,735 0.11 - - Impairment loss of financial asset 2 and 9 58,272 0.30 - - Other losses 4,384 0.02 3,782 0.03 Total non-operating expenses 171,975 0.89 74,307 0.57
Income from continuing operations before income tax 934,716 4.85 701,456 5.29Income tax expense 2 and 24 (179,880) (0.93) (118,415) (0.89)Net income $754,836 3.92 $583,041 4.40
Before tax After tax Before tax After taxBasic earnings per share (New Taiwan Dollars) 2 and 26
Net income $4.83 $3.90 $3.95 $3.29Minority interests - - - - Stockholders of the parent $4.83 $3.90 $3.95 $3.29
Diluted earnings per share (New Taiwan Dollars) 2 and 26Net income $4.25 $3.45 $3.38 $2.81Minority interests - - - - Stockholders of the parent $4.25 $3.45 $3.38 $2.81
The accompanying notes are an integral part of the consolidated financial statements.
2012 2011
Operating income
5
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOMEFor the years ended December 31, 2012 and 2011
(Expressed in Thousands of New Taiwan Dollars, Except for Per Share Data)
Notes Amount % Amount %Sales $19,441,596 100.90 $13,515,344 102.07Less : Sales returns and allowances 173,625 0.90 273,837 2.07
Net sales 2 19,267,971 100.00 13,241,507 100.00Cost of goods sold 8 and 23 16,282,234 84.50 11,261,997 85.05
Gross profit 2,985,737 15.50 1,979,510 14.95
Operating expenses 23 and 27Selling expenses 573,063 2.97 381,905 2.88General and administrative expenses 571,249 2.97 470,692 3.55Research and development expenses 808,768 4.20 564,959 4.27Subtotal 1,953,080 10.14 1,417,556 10.70
1,032,657 5.36 561,954 4.25
Non-operating incomeInterest income 32 34,031 0.18 23,881 0.18Dividend income 2 831 - 831 0.01Gain on disposal of investments 2 - - 12,094 0.09Foreign exchange gain-net 2 - - 124,485 0.94Gain on valuation of financial assets-net 2, 5, 14 and 32 8,767 0.05 19,079 0.14Other income 30,405 0.15 33,439 0.25 Total non-operating income 74,034 0.38 213,809 1.61
Non-operating expensesInterest expense 12, 14 and 32 84,179 0.44 65,797 0.50Loss on disposal of property, plant and equipment 2 3,405 0.02 4,728 0.04Foreign exchange loss-net 2 21,735 0.11 - - Impairment loss of financial asset 2 and 9 58,272 0.30 - - Other losses 4,384 0.02 3,782 0.03 Total non-operating expenses 171,975 0.89 74,307 0.57
Income from continuing operations before income tax 934,716 4.85 701,456 5.29Income tax expense 2 and 24 (179,880) (0.93) (118,415) (0.89)Net income $754,836 3.92 $583,041 4.40
Before tax After tax Before tax After taxBasic earnings per share (New Taiwan Dollars) 2 and 26
Net income $4.83 $3.90 $3.95 $3.29Minority interests - - - - Stockholders of the parent $4.83 $3.90 $3.95 $3.29
Diluted earnings per share (New Taiwan Dollars) 2 and 26Net income $4.25 $3.45 $3.38 $2.81Minority interests - - - - Stockholders of the parent $4.25 $3.45 $3.38 $2.81
The accompanying notes are an integral part of the consolidated financial statements.
2012 2011
Operating income
5
Sercomm Corporation 2012 Annual Report 060
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 2012 and 2011
(Expressed in Thousands of New Taiwan Dollars)
Capital Cumulative Unrealized gain
Capital collected Capital Unappropriated Translation /loss on financial Treasury
Description Notes Common Stock in advance Reserve Legal Reserve Earnings Adjustments instrument Stock Total
Balance as of January 1, 2011 $1,747,405 $13,468 $196,598 $273,125 $385,131 $34,841 $- $(53,388) $2,597,180
Appropriation of 2010 retained earning 20 and 21
Legal reserve - - - 31,444 (31,444) - - - -
Cash dividends - - - - (267,816) - - - (267,816)
Change in cumulative translation adjustments of investees 2 - - - - - 127,338 - - 127,338
Exercise of employee stock options 2 and 18 13,060 - 1,306 - - - - - 14,366
Compensation costs for Treasury stock transfer to employees 2 - - 107 - - - - - 107
Treasury stock transfer to employees 2 and 22 - - - - - - - 53,388 53,388
Convertible bonds converted into common stock 2 and 14 65,872 (11,845) 59,192 - - - - - 113,219
Equity instrument from Convertible bonds 2 and 14 - - 51,786 - - - - - 51,786
Net income in 2011 - - - - 583,041 - - - 583,041
Balance as of December 31, 2011 1,826,337 1,623 308,989 304,569 668,912 162,179 - - 3,272,609
Appropriation of 2011 retained earning 20 and 21
Legal reserve - - - 58,304 (58,304) - - - -
Cash dividends - - - - (468,684) - - - (468,684)
Change in cumulative translation adjustments of investees 2 - - - - - (33,642) - - (33,642)
Exercise of employee stock options 2 and 18 6,350 16,760 14,637 - - - - - 37,747
Convertible bonds converted into common stock 2 and 14 123,408 (1,623) 124,412 - - - - - 246,197
Equity instrument from Convertible bonds 2 and 14 - - 50,371 - - - - - 50,371
Net change in unrealized gain/loss on hedging derivative financial instruments 2 and 5 - - - - - - (8,772) - (8,772)
Net income in 2012 - - - - 754,836 - - - 754,836
Balance as of December 31, 2012 $1,956,095 $16,760 $498,409 $362,873 $896,760 $128,537 $(8,772) $- $3,850,662
Retained Earnings
The accompanying notes are an integral part of the consolidated financial statements.
6
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 2012 and 2011
(Expressed in Thousands of New Taiwan Dollars)
Capital Cumulative Unrealized gain
Capital collected Capital Unappropriated Translation /loss on financial Treasury
Description Notes Common Stock in advance Reserve Legal Reserve Earnings Adjustments instrument Stock Total
Balance as of January 1, 2011 $1,747,405 $13,468 $196,598 $273,125 $385,131 $34,841 $- $(53,388) $2,597,180
Appropriation of 2010 retained earning 20 and 21
Legal reserve - - - 31,444 (31,444) - - - -
Cash dividends - - - - (267,816) - - - (267,816)
Change in cumulative translation adjustments of investees 2 - - - - - 127,338 - - 127,338
Exercise of employee stock options 2 and 18 13,060 - 1,306 - - - - - 14,366
Compensation costs for Treasury stock transfer to employees 2 - - 107 - - - - - 107
Treasury stock transfer to employees 2 and 22 - - - - - - - 53,388 53,388
Convertible bonds converted into common stock 2 and 14 65,872 (11,845) 59,192 - - - - - 113,219
Equity instrument from Convertible bonds 2 and 14 - - 51,786 - - - - - 51,786
Net income in 2011 - - - - 583,041 - - - 583,041
Balance as of December 31, 2011 1,826,337 1,623 308,989 304,569 668,912 162,179 - - 3,272,609
Appropriation of 2011 retained earning 20 and 21
Legal reserve - - - 58,304 (58,304) - - - -
Cash dividends - - - - (468,684) - - - (468,684)
Change in cumulative translation adjustments of investees 2 - - - - - (33,642) - - (33,642)
Exercise of employee stock options 2 and 18 6,350 16,760 14,637 - - - - - 37,747
Convertible bonds converted into common stock 2 and 14 123,408 (1,623) 124,412 - - - - - 246,197
Equity instrument from Convertible bonds 2 and 14 - - 50,371 - - - - - 50,371
Net change in unrealized gain/loss on hedging derivative financial instruments 2 and 5 - - - - - - (8,772) - (8,772)
Net income in 2012 - - - - 754,836 - - - 754,836
Balance as of December 31, 2012 $1,956,095 $16,760 $498,409 $362,873 $896,760 $128,537 $(8,772) $- $3,850,662
Retained Earnings
The accompanying notes are an integral part of the consolidated financial statements.
6
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 2012 and 2011
(Expressed in Thousands of New Taiwan Dollars)
Capital Cumulative Unrealized gain
Capital collected Capital Unappropriated Translation /loss on financial Treasury
Description Notes Common Stock in advance Reserve Legal Reserve Earnings Adjustments instrument Stock Total
Balance as of January 1, 2011 $1,747,405 $13,468 $196,598 $273,125 $385,131 $34,841 $- $(53,388) $2,597,180
Appropriation of 2010 retained earning 20 and 21
Legal reserve - - - 31,444 (31,444) - - - -
Cash dividends - - - - (267,816) - - - (267,816)
Change in cumulative translation adjustments of investees 2 - - - - - 127,338 - - 127,338
Exercise of employee stock options 2 and 18 13,060 - 1,306 - - - - - 14,366
Compensation costs for Treasury stock transfer to employees 2 - - 107 - - - - - 107
Treasury stock transfer to employees 2 and 22 - - - - - - - 53,388 53,388
Convertible bonds converted into common stock 2 and 14 65,872 (11,845) 59,192 - - - - - 113,219
Equity instrument from Convertible bonds 2 and 14 - - 51,786 - - - - - 51,786
Net income in 2011 - - - - 583,041 - - - 583,041
Balance as of December 31, 2011 1,826,337 1,623 308,989 304,569 668,912 162,179 - - 3,272,609
Appropriation of 2011 retained earning 20 and 21
Legal reserve - - - 58,304 (58,304) - - - -
Cash dividends - - - - (468,684) - - - (468,684)
Change in cumulative translation adjustments of investees 2 - - - - - (33,642) - - (33,642)
Exercise of employee stock options 2 and 18 6,350 16,760 14,637 - - - - - 37,747
Convertible bonds converted into common stock 2 and 14 123,408 (1,623) 124,412 - - - - - 246,197
Equity instrument from Convertible bonds 2 and 14 - - 50,371 - - - - - 50,371
Net change in unrealized gain/loss on hedging derivative financial instruments 2 and 5 - - - - - - (8,772) - (8,772)
Net income in 2012 - - - - 754,836 - - - 754,836
Balance as of December 31, 2012 $1,956,095 $16,760 $498,409 $362,873 $896,760 $128,537 $(8,772) $- $3,850,662
Retained Earnings
The accompanying notes are an integral part of the consolidated financial statements.
6
Sercomm Corporation 2012 Annual Report 061
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2012 and 2011(Expressed in Thousands of New Taiwan Dollars)
2012 2011Cash flows from operating activities: Net income $754,836 $583,041 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 315,411 264,121 Amortization of discount on bonds payable 21,117 14,866 Gain on valuation of financial assets (8,767) (19,079) Loss on disposal of property, plant and equipment 3,405 4,728 Compensation costs for treasury stock transfer to employees - 107 Impairment loss of financial asset 58,272 - Changes in assets and liabilities: Financial assets at fair value through profit or loss-current 36,853 (7,609) Notes receivable-net 431,057 (732,669) Accounts receivable-net 377,086 (100,622) Inventories-net (367,893) (591,000) Other receivables (48,554) (157,029) Other current assets 69,735 (40,892) Deferred income tax assets (16,923) (28,651) Notes payable 30,254 34,596 Accounts payable 682,123 1,175,334 Income tax payable 119,412 (39,563) Accrued expenses 172,692 133,548 Financial liabilities at fair value through profit or loss-current - 5,058 Other current liabilities (84,751) 130,846 Accrued pension liabilities 1,408 14 Deferred income tax liabilities (95,547) 91,249 Net cash provided by operating activities 2,451,226 720,394Cash flows from investing activities: Increase in restricted assets-current (15,042) (2,903) Increase in other financial assets-noncurrent (664) - Acquisition of property, plant and equipment (825,451) (516,043) Proceeds from disposal of property, plant and equipment 6,487 6,075 Increase in computer software cost (25,911) (25,327) Increase in other intangible assets (28,369) (26,042) Increase in land use right - (7,004) Decrease (increase) in refundable deposits 15,616 (19,447) Increase in deferred charges (31,851) (37,812) Net cash used in investing activities (905,185) (628,503)Cash flows from financing activities: Increase (Decrease) in short-term loans (915,613) 1,336,904 Issuance of bonds payable 595,000 595,000 Decrease in lease payables (17,125) (15,628) Cash dividends (468,684) (267,816) Exercise of employee stock options 37,747 14,366 Treasury stock transfer to employees - 53,388 Net cash (Used in) provided by financing activities (768,675) 1,716,214 Effects from exchange rate changes 14,231 15,921Net increase in cash 791,597 1,824,026Cash at beginning of the year 3,868,609 2,044,583Cash at end of the year $4,660,206 $3,868,609Supplemental disclosures of cash flows information: Cash paid for income tax $124,401 $99,722 Cash paid for interest $80,435 $63,432Financing activities not affecting cash flows: Idle asset transfer in fixed assets $- $78,566 Lease payables-current $19,272 $18,864 Bond payable-current $- $425,426
The accompanying notes are an integral part of the consolidated financial statements.7
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2012 and 2011(Expressed in Thousands of New Taiwan Dollars)
2012 2011Cash flows from operating activities: Net income $754,836 $583,041 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 315,411 264,121 Amortization of discount on bonds payable 21,117 14,866 Gain on valuation of financial assets (8,767) (19,079) Loss on disposal of property, plant and equipment 3,405 4,728 Compensation costs for treasury stock transfer to employees - 107 Impairment loss of financial asset 58,272 - Changes in assets and liabilities: Financial assets at fair value through profit or loss-current 36,853 (7,609) Notes receivable-net 431,057 (732,669) Accounts receivable-net 377,086 (100,622) Inventories-net (367,893) (591,000) Other receivables (48,554) (157,029) Other current assets 69,735 (40,892) Deferred income tax assets (16,923) (28,651) Notes payable 30,254 34,596 Accounts payable 682,123 1,175,334 Income tax payable 119,412 (39,563) Accrued expenses 172,692 133,548 Financial liabilities at fair value through profit or loss-current - 5,058 Other current liabilities (84,751) 130,846 Accrued pension liabilities 1,408 14 Deferred income tax liabilities (95,547) 91,249 Net cash provided by operating activities 2,451,226 720,394Cash flows from investing activities: Increase in restricted assets-current (15,042) (2,903) Increase in other financial assets-noncurrent (664) - Acquisition of property, plant and equipment (825,451) (516,043) Proceeds from disposal of property, plant and equipment 6,487 6,075 Increase in computer software cost (25,911) (25,327) Increase in other intangible assets (28,369) (26,042) Increase in land use right - (7,004) Decrease (increase) in refundable deposits 15,616 (19,447) Increase in deferred charges (31,851) (37,812) Net cash used in investing activities (905,185) (628,503)Cash flows from financing activities: Increase (Decrease) in short-term loans (915,613) 1,336,904 Issuance of bonds payable 595,000 595,000 Decrease in lease payables (17,125) (15,628) Cash dividends (468,684) (267,816) Exercise of employee stock options 37,747 14,366 Treasury stock transfer to employees - 53,388 Net cash (Used in) provided by financing activities (768,675) 1,716,214 Effects from exchange rate changes 14,231 15,921Net increase in cash 791,597 1,824,026Cash at beginning of the year 3,868,609 2,044,583Cash at end of the year $4,660,206 $3,868,609Supplemental disclosures of cash flows information: Cash paid for income tax $124,401 $99,722 Cash paid for interest $80,435 $63,432Financing activities not affecting cash flows: Idle asset transfer in fixed assets $- $78,566 Lease payables-current $19,272 $18,864 Bond payable-current $- $425,426
The accompanying notes are an integral part of the consolidated financial statements.7
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2012 and 2011(Expressed in Thousands of New Taiwan Dollars)
2012 2011Cash flows from operating activities: Net income $754,836 $583,041 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 315,411 264,121 Amortization of discount on bonds payable 21,117 14,866 Gain on valuation of financial assets (8,767) (19,079) Loss on disposal of property, plant and equipment 3,405 4,728 Compensation costs for treasury stock transfer to employees - 107 Impairment loss of financial asset 58,272 - Changes in assets and liabilities: Financial assets at fair value through profit or loss-current 36,853 (7,609) Notes receivable-net 431,057 (732,669) Accounts receivable-net 377,086 (100,622) Inventories-net (367,893) (591,000) Other receivables (48,554) (157,029) Other current assets 69,735 (40,892) Deferred income tax assets (16,923) (28,651) Notes payable 30,254 34,596 Accounts payable 682,123 1,175,334 Income tax payable 119,412 (39,563) Accrued expenses 172,692 133,548 Financial liabilities at fair value through profit or loss-current - 5,058 Other current liabilities (84,751) 130,846 Accrued pension liabilities 1,408 14 Deferred income tax liabilities (95,547) 91,249 Net cash provided by operating activities 2,451,226 720,394Cash flows from investing activities: Increase in restricted assets-current (15,042) (2,903) Increase in other financial assets-noncurrent (664) - Acquisition of property, plant and equipment (825,451) (516,043) Proceeds from disposal of property, plant and equipment 6,487 6,075 Increase in computer software cost (25,911) (25,327) Increase in other intangible assets (28,369) (26,042) Increase in land use right - (7,004) Decrease (increase) in refundable deposits 15,616 (19,447) Increase in deferred charges (31,851) (37,812) Net cash used in investing activities (905,185) (628,503)Cash flows from financing activities: Increase (Decrease) in short-term loans (915,613) 1,336,904 Issuance of bonds payable 595,000 595,000 Decrease in lease payables (17,125) (15,628) Cash dividends (468,684) (267,816) Exercise of employee stock options 37,747 14,366 Treasury stock transfer to employees - 53,388 Net cash (Used in) provided by financing activities (768,675) 1,716,214 Effects from exchange rate changes 14,231 15,921Net increase in cash 791,597 1,824,026Cash at beginning of the year 3,868,609 2,044,583Cash at end of the year $4,660,206 $3,868,609Supplemental disclosures of cash flows information: Cash paid for income tax $124,401 $99,722 Cash paid for interest $80,435 $63,432Financing activities not affecting cash flows: Idle asset transfer in fixed assets $- $78,566 Lease payables-current $19,272 $18,864 Bond payable-current $- $425,426
The accompanying notes are an integral part of the consolidated financial statements.7
Sercomm Corporation 2012 Annual Report 062
8
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2012 and 2011
(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, 2012 and 2011 were 4,172 and 3,977, 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 As of December 31, investors subsidiaries Nature of Business 2012 2011
The Company Senslinq Inc. Sales of IT products 100.00% 100.00% The Company Sercomm
Investments Ltd. Investment holding, international trading
100.00% 100.00%
The Company Sercomm Trading Co. Ltd.
Investment holding, international trading
100.00% 100.00%
Sercomm Corporation 2012 Annual Report 063
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
9
Percentage of ownership
Name of the Name of As of December 31, investors subsidiaries Nature of Business 2012 2011
The Company Shukuan Investment Ltd.
Investment activity 100.00% 100.00%
The Company Sercomm France SARL
Sales of IT products 100.00% 100.00%
The Company Sercomm Deutschland GmbH (Note A)
Sales of IT products 100.00% -
The Company Sercomm Japan Corp. (Note B)
Sales of IT products 100.00% 100.00%
Sercomm Trading Co. Ltd.
Zealous Investments Ltd.
Investment holding, international trading
100.00% 100.00%
Sercomm Trading Co. Ltd.
Smart Trade Inc. Investment holding, international trading
100.00% 100.00%
Zealous Investments Ltd.
Sernet Technology (Suzhou)
Manufacture of routers, communication products, Wlan products; sales and after-sales service
100.00% 100.00%
Smart Trade Inc. Dwnet Technology (Suzhou) Limited
Manufacture of routers, communication products, Wlan products; sales and after-sales service
100.00% 100.00%
Sercomm France SARL
Sercomm Italinan SRL (Note C)
Sales of IT products 100.00% -
Note A: Sercomm. Deutschland GmbH incorporated on June, 2012. Note B: On July, 2012, the Company acquired 100% shareholding in Sercomm Japan Corp.
from Shukuan Investment Ltd. The Company recorded net assets acquired from Shukuan Investment Ltd. on the basis of their carrying value. The acquisition was accounted for as an organization restructuring in accordance with ARDF Interpretation No. 92-047.
Note C: Sercomm Italian SRL was incorporated on February, 2012.
Sercomm Corporation 2012 Annual Report 064
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
10
(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: 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.
Sercomm Corporation 2012 Annual Report 065
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
11
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. 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.
Sercomm Corporation 2012 Annual Report 066
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
12
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.
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) Assessment of impairment for account receivables
The Company first assesses as of balance sheet date whether objective evidence of impairment exists for notes, accounts and other receivables that are individually significant. If there is objective evidence that an impairment loss has occurred, the amount of impairment loss is assessed individually. For notes, accounts and other receivables other than those mentioned above, the Company groups those assets with similar credit risk characteristics and collectively assess them for impairment.
Sercomm Corporation 2012 Annual Report 067
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
13
(7) Inventories
Inventories are valued at the lower of cost and net realizable value. 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 goods
- cost of direct materials and labor and a proportion of manufacturing overheads based on normal operating 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.
Sercomm Corporation 2012 Annual Report 068
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
14
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 40-55 Years Machinery and equipments 3-10 Years Molding equipments 3-5 Years Research and development equipments 3-5 Years Office and other equipments 2-5 Years Leased assets 35-50 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.
Sercomm Corporation 2012 Annual Report 069
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
15
(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.
Sercomm Corporation 2012 Annual Report 070
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
16
The Company’s policies for intangible assets are summarized at the table below:
Description Estimated economic life Amortization method
Computer software cost 2-5 years Straight-line method Development expenditures 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.
(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.
Sercomm Corporation 2012 Annual Report 071
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
17
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.
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.
Sercomm Corporation 2012 Annual Report 072
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
18
(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. 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.
Sercomm Corporation 2012 Annual Report 073
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
19
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. 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.
Sercomm Corporation 2012 Annual Report 074
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
20
(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.
(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.
Sercomm Corporation 2012 Annual Report 075
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
21
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. Income tax (10%) on unappropriated earnings is recorded as expense in the year in which the shareholders have resolved earnings to be retained. The R.O.C. government has made the Alternative Minimum Tax Act (“AMT Act”) effective since January 1, 2006. Pursuant to AMT Act, the higher of the amount of income tax payable determined pursuant to the Income Tax Law or the minimum amount prescribed under the AMT Act is provided by the Company as income tax payable. In addition, the Company has considered the impact of AMT in future years when evaluating realized deferred tax asset.
(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.
Sercomm Corporation 2012 Annual Report 076
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
22
(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. 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.
Sercomm Corporation 2012 Annual Report 077
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
23
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. Cash flow hedges Under cash flow hedge accounting, the profit or loss on the hedging instrument is recognized as profit or loss in the same period when the profit or loss on the hedged item is affected. The profit or loss on the hedging instrument is recognized as an adjustment to stockholders’ equity and reclassified into current profit or loss when forecast transactions that are being hedged affect profit or loss. If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liabilities, the associated gains or losses that were recognized directly in equity shall be reclassified into profit or loss in the same period or periods during which the asset acquired or liability assumed affects profit or loss. If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or a non-financial liabilities, it removes the associated gains and losses that were recognized directly in equity and includes them in the initial cost or other carrying amount of the asset or liability. However, if the Company expects that all or a portion of a loss recognized directly in equity will not be recovered in one or more future periods, it shall reclassify the amount that is not expected to be recovered into profit or loss. 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.
(27) Operating segment information
An operating segment is a component of an entity that has the following characteristics: a. engaging in business activities from which it may earn revenues and incur expenses; b. whose operating results are regularly reviewed by the entity’s chief operating decision
maker to make decisions about resources to be allocated to the segment and assess its performance; and
c. for which discrete financial information is available.
Sercomm Corporation 2012 Annual Report 078
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
24
The Company discloses its operating segment information in the consolidated financial statements of Sercomm Corporation and subsidiaries.
3. Accounting changes
Effective January 1, 2011, the Company adopted the third revised SFAS No. 34, “Financial instruments: Recognition and Measurement.” Such changes in accounting principle did not have significant effect on the Company’s financial statements for the year ended December 31, 2011.
4. Cash and cash equivalent
As of December 31, 2012 2011
Cash on hand $2,700 $2,694 Checking and savings accounts 1,103,885 878,442 Time deposits 2,415,244 2,014,887 Cash equivalents 1,138,377 972,586 Total $4,660,206 $3,868,609
As of December 31, 2012 and 2011, the savings accounts outside Taiwan were NT$21,169 thousand (RMB$2,717 thousand and USD$283 thousand) and NT$2,007 thousand (USD$66 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 As of December 31, 2012 2011 Foreign currency forward contracts $412 $- Foreign currency option contracts 694 24,122 Convertible bond embedded derivatives - 6,261 $1,106 $30,383 Financial liabilities held for trading - current As of December 31, 2012 2011 Foreign currency forward contracts $(269) $(284)
Sercomm Corporation 2012 Annual Report 079
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
25
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”.
(b) The details of the Company’s foreign exchange forward contracts are as follows:
December 31, 2012 Currency Nominal amount Maturity date
Sell foreign exchange forward USD/NTD USD$4,000 thousand 2013.1.10-2013.2.19 Buy foreign exchange forward USD/NTD USD$2,000 thousand 2013.1.14-2013.1.17
December 31, 2011 Currency Nominal amount Maturity date
Sell foreign exchange forward USD/NTD USD$1,000 thousand 2012.1.11
(c) The details of the Company’s foreign exchange option contracts are as follows:
December 31, 2012 Nominal Amount Strike Price Maturity date
Put Options EUR$1,000 thousand 1.338 (EUR/USD) 2013.1.21
December 31, 2011 Nominal Amount Strike Price Maturity date
Put Options EUR$5,000 thousand 1.45 (EUR/USD) 2012.1.25-2012.5.25
(d) Please refer to Note 14 for the Company’s third domestic unsecured convertible bonds
payable related to embed derivatives financial asset. (e) Net gain on financial assets and financial liabilities held for trading during 2012 and 2011
were NT$13,852 thousand and NT$10,950 thousand, respectively. (f) Please refer to Note 32 for financial risk information.
Sercomm Corporation 2012 Annual Report 080
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
26
6. Derivative financial instruments for hedging
The Company entered into the foreign currency option contracts for the purpose of hedging future cash flow fluctuations and risks due to changes in foreign currencies. As of December 31, 2012, hedged items designated as cash flow hedges and their respective hedging derivative financial instruments and values were as follows:
December 31, 2012 Currency Expected Cash Flow Period Nominal Amount
Call options EUR/USD 2013.1.21-2014.2.25 EUR 25,000 thousand Put options EUR/USD 2013.1.21-2014.2.25 EUR 25,000 thousand
Movement of the hedging derivative financial Instruments are as follows:
For the years ended December 31, 2012 2011
Balance, beginning of year $- $- Net change in unrealized loss on hedging derivative financial instruments
(8,772) -
Balance, end of year $(8,772) $-
The balance for the period are as follows:
As of December 31, 2012 2011
Derivative financial assets for hedging $21,980 $- Derivative financial liability for hedging (30,752) - Adjustment to shareholder’s equity $(8,772) $-
7. Notes and accounts receivable�net
As of December 31, 2012 2011
Notes receivable $301,612 $732,669 Less: Allowance for doubtful accounts - - Net $301,612 $732,669
Sercomm Corporation 2012 Annual Report 081
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
27
As of December 31, 2012 2011
Accounts receivable $1,521,073 $1,897,495 Less: Allowance for doubtful accounts (7,224) (6,580) Net $1,513,829 $1,890,915
The Company entered into account receivable factoring agreements (without recourse) with several financial institutes in Taiwan. Under the agreements, 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.
The details of accounts receivable derecognized for the year ended December 31, 2012 and 2011 are summarized as follows:
As of December 31, The Factor (Transferee) 2012 2011 Credit line
HSBC Bank (Taiwan) $- $1,137 USD 250 thousand Taishin Bank 75,043 201,019 USD 65,000 thousand Fubon Financial Bank 9,204 9,436 USD 5,000 thousand DBS Bank (Taiwan) 170,004 14,327 USD 34,200 thousand $254,251 $225,919
8. Inventories
As of December 31, 2012 2011
Raw materials $989,112 $979,474 Work in process 372,059 338,083 Finished goods 1,017,398 677,180 Subtotal 2,378,569 1,994,737 Less: Allowance for loss on decline in market value and
obsolescence (102,759) (86,820)
Net $2,275,810 $1,907,917
For the ended December 31, 2012 and 2011, cost of goods sold were NT$16,282,234 thousand and NT$11,261,997 thousand, including NT$84,901 thousand and NT$60,334 thousand of write-down of inventories to net realizable value, respectively.
Sercomm Corporation 2012 Annual Report 082
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
28
9. Financial assets measured at cost-noncurrent
As of December 31, 2012 2011
Unlisted stocks Industrial Bank of Taiwan $40,000 $40,000 TECO Nanotech Co., Ltd. 10 10 Cerpass Consultancy Corp. 7,444 7,444 Ubiquisys Ltd. 58,272 60,580 Subtotal 105,726 108,034 Less : Accumulated impairment of financial asset (58,272) - Total $47,454 $108,034
(1) After considering objective evidence and the result of the impairment loss testing, the value
of investment in Ubiquisys Ltd. has write-down, the Company recognized impairment loss amounted to NT$58,272 thousand for the year ended December 31, 2012. As of December 31, 2012, accumulated impairment loss was NT$58,272 thousand.
(2) The stock investments were measured at cost because they were not traded in an open
market and did not have fair value. (3) The financial assets measured at cost were not pledged.
10. Property, plant and equipment
(1) The Company rented the Nankang Software Industrial Park office by capital lease, please refer to Note 15.
(2) The information of interest capitalized is as follows:
Year Total interest expense Interest capitalized Interest rates applied
2011 $65,797 $399 1.48%-1.66%
(3) Please refer to Note 28 for property, plant and equipment pledged as collateral.
Sercomm Corporation 2012 Annual Report 083
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
29
11. Intangible assets
As of December 31, 2012 Computer
software cost Development expenditures Land use right Total
Cost: Beginning of the year $186,435 $299,362 $119,541 $605,338 Purchase 23,460 33,472 - 56,932 Translation adjustment (485) - (3,438) (3,923) End of the year 209,410 332,834 116,103 658,347
Accumulated amortization:
Beginning of the year 124,701 229,289 4,352 358,342 Amortization 20,091 25,975 2,860 48,926 Translation adjustment (378) - (138) (516) End of the year 144,414 255,264 7,074 406,752
Book value:
Beginning of the year $61,734 $70,073 $115,189 $246,996 End of the year $64,996 $77,570 $109,029 $251,595
As of December 31, 2011 Computer
software cost Development expenditures Land use right Total
Cost: Beginning of the year $165,663 $268,678 $103,472 $537,813 Purchase 23,271 30,684 7,004 60,959 Translation adjustment (2,499) - 9,065 6,566 End of the year 186,435 299,362 119,541 605,338
Accumulated amortization:
Beginning of the year 107,845 198,027 1,433 307,305 Amortization 19,700 31,262 2,750 53,712 Translation adjustment (2,844) - 169 (2,675) End of the year 124,701 229,289 4,352 358,342
Book value:
Beginning of the year $57,818 $70,651 $102,039 $230,508 End of the year $61,734 $70,073 $115,189 $246,996
Please refer to Note 28 for Land use right pledged as collateral.
Sercomm Corporation 2012 Annual Report 084
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
30
12. Property not used in operations
Details of the property not used in operations are as follows:
As of December 31, 2012 2011
Leased assets-land $10,020 $10,020 Leased assets-buildings 5,752 5,752 Less: Accumulated depreciation (1,560) (1,402) Net $14,212 $14,370
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”. The reconstruction was completed and ready to use in June 2011. Related land and building are transfer from idle assets to fixed assets. The Company rented the building’s parking lot to others and thus had recorded them as “assets leased to others”.
13. Short-term loans
As of December 31, 2012
Items Amounts Interest rate Collateral Secured loans $117,516 1.06% Land use right and Building Credit loans 1,786,578 0.90%~3.73% None Total $1,904,094
Sercomm Corporation 2012 Annual Report 085
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
31
As of December 31, 2011
Items Amounts Interest rate Collateral Secured loans $236,521 2.32%-3.27% Land use right and Building Credit loans 2,388,977 0.94%-1.75% None L/C loans 194,209 Total $2,819,707
Please refer to Note 28 for Bank loans as collateral. 14. Bonds payable
A. The Company’s bonds payable are as follows:
As of December 31 Item 2012 2011
The third domestic unsecured convertible bonds payable $187,697 $460,851 The fourth domestic unsecured convertible bonds payable 599,700 600,000 The fifth domestic unsecured convertible bonds payable 600,000 - Less: discount on bonds payable (100,299) (92,585) Total 1,287,098 968,266 Less: Current portion - (425,426) Net $1,287,098 $542,840 Embedded derivatives (Note 1) Financial asset- non current $459 $6,261 Less: Current portion (Note 2) - (6,261) Net $459 $- Equity instrument (Note 3) $108,103 $57,732
Note 1: Including bonds holder’s put option value and the Company’s call option value,
which are recorded as financial assets at fair value through profit or loss. Note2: According to the Company’s third unsecured convertible bonds payable issuing
clause (refer to term (f)), bonds holders could exercise put option in August 2012. As of December 31, 2011 the Company reclassified bonds payable due in one year and related derivatives financial assets to current liabilities and assets.
Note 3: Conversion option value, which is recorded as additional paid-in capital-option.
Sercomm Corporation 2012 Annual Report 086
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
32
B. The Company’s Board of Directors resolved on June 24, 2011, June 17, 2011 and June 27,
2012 to issue the third, fourth and fifth domestic unsecured convertible bonds, which were issued on August 6, 2010, August 30, 2011 and August 31, 2012, respectively. The terms and conditions of the bonds are as follows:
Third domestic unsecured convertible bond:
(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, 2011 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.
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.
Sercomm Corporation 2012 Annual Report 087
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
33
As of December 31, 2012, the conversion price was adjusted to $19.25 per share.
(e) The Company’s call option:
Under the following circumstances, effective from 1 month 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.
(f) Bondholder’s put option:
During the 40-day period prior to reaching two years and 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.
Fourth domestic unsecured convertible bond:
(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 31, 2011 to August 31, 2016. (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.
Sercomm Corporation 2012 Annual Report 088
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
34
ii. Conversion price and adjustments: With the convertible bonds’ conversion price set at
NT$40.76 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, 2012, the conversion price was adjusted to $38.59 per share.
(e) The Company’s call option:
Under the following circumstances, effective from 1 year after the issuance until 40 days prior to maturity, the Company may recall the convertible bonds at par value 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.
(f) Bondholder’s put option:
During the 40-day period prior to reaching three years after issuance, bondholders may notify the Company’s stockholders’ service entity in writing to request that the Company buy back the convertible bonds at the par value.
Sercomm Corporation 2012 Annual Report 089
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
35
Fifth domestic unsecured convertible bond:
(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 31, 2012 to August 31, 2016. (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.
ii. Conversion price and adjustments: With the convertible bonds’ conversion price set at
NT$49.67 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, 2012, the conversion price remains the same.
Sercomm Corporation 2012 Annual Report 090
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
36
(e) The Company’s call option:
Under the following circumstances, effective from 1 year after the issuance until 40 days prior to maturity, the Company may recall the convertible bonds at par value 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.
(f) Bondholder’s put option:
During the 40-day period prior to reaching three 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.
C. The conversion of the third domestic unsecured convertible bonds payable is as follows:
For the years ended December 31, 2012
Converted
Par value Shares (thousand)
Balance, beginning of period $182,600 8,654 Converted during this period 247,400 12,171
Balance, ending of period $430,000 20,825
For the years ended December 31, 2011
Converted
Par value Shares (thousand)
Balance, beginning of period $68,800 3,251 Converted during this period 113,800 5,403
Balance, ending of period $182,600 8,654
Sercomm Corporation 2012 Annual Report 091
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
37
D. The conversion of the forth domestic unsecured convertible bonds payable is as follows:
For the years ended December 31, 2011 Converted Par value Shares (thousand)
Balance, beginning of period $- $- Converted during this period 300 8 Balance, ending of period $300 $8
E. 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$108,103 thousand. As for third domestic unsecure convertible bond because 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, however; the forth and fifth domestic unsecure convertible bond’s call option and bondholder’s put option were closely related to the economic characteristics and risks of the host contract, thus they are not bifurcated.
F. For the year ended December 31, 2011 and 2012, the related discount amortization was
NT$21,117 thousand and NT$14,866 thousand, which was recorded as interest expenses under the non-operating expenses. As for the gain (loss) on valuation on financial liabilities, it was NT$(5,085) thousand and NT$8,129 thousand for the year ended December 31, 2011 and 2012, which was recorded as valuation gain (loss) on financial liabilities at fair value through profit or loss under the non-operating income (expense).
15. Lease payables
As of December 31, 2012 2011
Lease payables $332,643 $349,768 Less: current portion (19,272) (18,864) Total $313,371 $330,904
Sercomm Corporation 2012 Annual Report 092
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
38
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 Amounts Discounted present value 2013 $26,287 $22,063 2014 26,287 21,594 2015 26,287 21,134 2016 26,288 20,685 2017 21,293 7,080 2018-2022 81,491 58,221 2023 8,149 5,509 Total $216,082 $156,286
16. 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, 2012 and 2011, the Company has contributed the amount of NT$63,964 thousand and NT$61,884 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$21,343 thousand and NT$18,622 thousand to employee’s individual accounts for the years ended December 31, 2012 and 2011, respectively.
Sercomm Corporation 2012 Annual Report 093
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
39
(1) The components of net pension cost are as follows:
For the year ended December 31, 2012 2011
Service cost $593 $620 Interest cost 1,857 1,627 Expected return on plan assets (1,176) (1,024) Amortization and deferral 1,677 1,597 Net pension cost $2,951 $2,820
(2) The funding status of the pension plan is as follows:
As of December 31, 2012 2011
Benefit obligation Vested benefit obligation $11,779 $2,090 Non-vested benefit obligation 58,179 65,163 Accumulated benefit obligation 69,958 67,253 Effect from projected salary increase 29,416 30,485 Projected benefit obligation 99,374 97,738
Fair value of plan assets (63,964) (61,884) Fund status 35,410 35,854 Unrecognized net transitional benefit obligation (281) (422) Unrecognized loss (28,034) (29,745) Accrued pension liabilities $7,095 $5,687
(3) Vested benefit of retirement based on Labor Standard
Law
$12,977 $2,196
(4) The actuarial assumptions are as follows:
As of December 31, 2012 2011
Discount rate 1.75% 1.90% Growth rate in future compensation level 3.00% 3.00% Expected long-term rate of return on plan assets 1.75% 1.90%
Sercomm Corporation 2012 Annual Report 094
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
40
17. Capital stock
(1) As of January 1, 2011, 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.
(2) For the year ended December 31, 2011, the Company issued NT$13,060 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) The third issue of domestic unsecured convertible bonds of the Company had been
converted by bond holders into 6,587 thousand common stocks in 2011. As a result, the capital increased by NT$65,872 thousand. The issuance had been approved by the relevant authority.
(4) The third and forth issue of domestic unsecured convertible bonds of the company had been
converted by bond holders into 12,341 thousand common stock in 2012. As a result, the capital increased by NT$123,408 thousand. The issuance had been approved by the relevant authority.
(5) For the year ended December 31, 2012, the Company issued NT$23,110 thousand for
conversion of employee stock option exercise, each with par value of NT$10. As of December 31, 2012, there are still 1,676 thousand common stocks amount NT$16,760 thousand has not been approved by the relevant authority which was accounted for as advanced receipts for common stock.
(6) As of December 31, 2012, the authorized and issued capital of the Company was
NT$2,500,000 thousand and NT$1,956,095 thousand, respectively. The par value of the Company’s common stock is NT$10 per share.
18. 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 2012, and 2011, were both NT$0. Detailed information relevant to the employee stock options is disclosed as follows:
Sercomm Corporation 2012 Annual Report 095
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
41
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 - $26.0 $10.0 November 14, 2005 50,000 9,370 $23.0 $10.0 December 14, 2007 20,000 - $27.8 $18.2
(1) As of December 31, 2012, 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:
For the year ended December 31, 2012 2011
Option (units)
Weighted- average
exercise price (NTD)
Option (units)
Weighted- average
exercise price (NTD)
Outstanding at beginning of year (Note) 32,940 $14.56 46,448 $13.63 Granted - - - - Exercised (23,110) 16.33 (13,060) 10.00 Forfeited - - - - Expired (460) 18.20 (448) 10.00 Outstanding at end of year (Note) 9,370 10.05 32,940 15.11 Exercisable at end of year (Note) 9,370 32,940 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.
The weighted-average stock price was NT$39.65 and NT$41.22 when the exercise date of the options exercised for the years ended December 31, 2012 and 2011, respectively.
Sercomm Corporation 2012 Annual Report 096
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
42
(2) The information of the Company’s outstanding stock options as of December 31, 2012 is as
follows: Outstanding Stock Options Exercisable Stock Options
Authorization date
Range of exercise
price (NTD)
Option (units)
Weighted-average remaining
contractual life (years)
Weighted-average exercise
price (NTD)
Option (units)
Weighted-average exercise
price (NTD)
2005.11.14 10 9,370 - 10.00 9,370 10.00
(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, 2012 and 2011:
2012 2011 Expected dividend yields 5.35%-14.19% 5.35%-14.19% Volatility factors of the expected market price 39.48%-56.41% 39.48%-56.41% Risk-free interest rate 1.85%-2.69% 1.85%-2.69% Weighted-average expected life of the options 3.5-6.55 year 3.5-6.55 year
Note: The assumptions adopting for the years ended December 31, 2012 and 2011 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.
(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, 2012 and 2011 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, 2012 Basic earnings per share Diluted earnings per share
Net income $754,836 $781,039 Earnings per share (NTD) 3.90 3.45 Pro forma net income 754,836 781,039 Pro forma earnings per share (NTD) 3.90 3.45
For the year ended December 31, 2011 Basic earnings per share Diluted earnings per share
Net income $583,041 $589,777 Earnings per share (NTD) 3.29 2.81 Pro forma net income $583,041 589,777 Pro forma earnings per share (NTD) 3.29 2.81
Sercomm Corporation 2012 Annual Report 097
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
43
19. 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.
20. 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. The legal reserve may be used to offset a deficit, or be distributed as dividends in cash or stocks for the portion in excess of 25% of the paid-in capital if the Company incurs no loss.
21. 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.
Sercomm Corporation 2012 Annual Report 098
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
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44
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 2011 had been approved in the stockholders’ meetings, and the date of payment was August 22, 2012. During the year ended December 31, 2012, the Company estimated the amounts of the employee bonuses and remuneration to directors and supervisors for 2012 to be $101,903 thousand and $13,587 thousand, respectively, and recognized as operating costs or operating expense for the period. The estimates were based on post-tax net income for 2012 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 2013 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 2013. The Company has paid employees’ bonuses and directors and supervisors’ remunerations of NT$78,710 thousand and NT$10,495 thousand in 2011, 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 2011 and 2010 earnings were approved by the stockholders’ meetings on June, 2012 and June, 2011, respectively, and the detailed information is as follows: 2011 Distribution of Earnings 2010 Distribution of Earnings Cash dividend NT$2.5 per share NT$1.55 per share
22. Treasury stock
Details of the treasury stock transactions are as follows: For the year ended December 31,
(In thousand shares) Purpose Beginning Increase Decrease Ending
2011 For transfer to employees 4,029 - 4,029 -
Sercomm Corporation 2012 Annual Report 099
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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.
23. Operating cost and expense
The Company’s personnel, depreciation, and amortization expense are summarized as follows: For the year ended December 31,
Item
2012 2011
Operating
cost
Operating
expenses
Total
Operating
cost
Operating
expenses
Total
Personnel expenses
Salaries $666,397 $564,072 $1,230,469 $538,537 $560,041 $1,098,578
Labor and health insurance 8,033 44,175 52,208 5,420 37,963 43,383
Pension 2,532 21,762 24,294 1,863 19,579 21,442
Other personnel expenses 7,958 48,132 56,090 9,608 31,657 41,265
Depreciations 108,608 122,320 230,928 110,518 72,718 183,236
Amortization 38,258 46,225 84,483 41,895 38,990 80,885
24. Income tax
(1) The components of deferred tax assets (liabilities) as of December 31, 2012 and 2011 are summarized as follows:
As of December 31, 2012 2011
(A) Total deferred income tax assets $107,253 $101,743
(B) Total deferred income tax liabilities $(16,701) $(116,794)
(C) Total valuation allowance $(50,736) $(57,603)
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As of December 31, 2012 2011
(D) Deferred income tax assets-current $33,757 $32,356 Deferred income tax liabilities-current (1,307) (4,883) Valuation allowance for deferred income tax
assets-current - - Net deferred income tax assets-current $32,450 $27,473 Deferred income tax assets-noncurrent $73,496 $69,387 Deferred income tax liabilities-noncurrent (15,394) (111,911) Valuation allowance for deferred income tax
assets-noncurrent (50,736) (57,603) Net deferred income tax assets (liabilities) -noncurrent $7,366 $(100,127)
(E) The temporary differences of deferred tax assets (liabilities), loss carryforward, and
income tax credits were summarized as follows:
As of December 31, 2012 2011
Amount Income tax
effect Amount Income tax
effect Unrealized sales discounts $24,621 $4,186 $17,734 $3,015 Unrealized gross profit 885 150 671 114 Loss on inventory value decline
and obsolescence
92,308 14,837 66,979 11,386 Unrealized foreign exchange loss
(gain)
(6,852) (1,165) (4,693) (798) Development expenditures
capitalization
(77,570) (13,187) (70,073) (11,912) Investment income accounted for
under the equity method
- - (588,229) (99,999) Pension liabilities 2,475 421 2,300 391 Unrealized loss (gain) on valuation
of financial assets
(837) (142) (9,447) (1,606) Accrued service expenses 609 103 567 96 Accrued expenses 205,596 32,234 104,382 17,745 Amortization of discount on bonds
payable
20,997 4,586 18,875 3,209 Difference of depreciated expenses
between financial and tax
(14,713) (2,207) - - Foreign currencies of cumulative
translation adjustments on long-term equity
- - (14,584) (2,479) Unused investment tax credit - 50,736 - 65,787
Sercomm Corporation 2012 Annual Report 101
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47
(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:
For the year ended December 31, 2012 2011
Income tax on pre-tax income at statutory rate $201,084 $161,322 Tax effect of following:
Permanent differences (24,057) 6,972 Temporary differences 114,637 (61,740)
Income tax payable for continuing operation $291,664 $106,554
(3) The components of tax expenses are as follows:
For the year ended December 31, 2012 2011
Income tax payable $291,664 $106,554 Used investment tax credits (8,970) (24,625) Estimated tax at 10% on unappropriated earnings 5,605 1,519 Deferred income tax expense (benefit) resulting from:
Unrealized sales discounts (1,171) (806) Unrealized gross profit (36) 5,177 Loss on inventory value decline and obsolescence (3,451) (2,502) Unrealized foreign exchange loss (gain) 367 3,975 Development expenditures capitalization 1,275 (99) Investment income accounted for under the equity
method (99,999) 61,724
Pension liabilities (30) (3) Unrealized loss (gain) on valuation of financial
assets (1,464) (151)
Accrued service expenses (8) 211 Accrued expenses (14,489) (17,119) Accrued repair liabilities for idle asset - 437 Amortization of discount on bonds payable (1,377) (2,345) Difference of depreciated expenses between
financial and tax 2,207 -
Investment tax credits 15,051 18,031 Deferred tax assets-valuation allowance (6,867) - Adjustment of prior year’s tax expense 16,864 (31,563) Effect on exchange rate (15,291) - Income tax expense $179,880 $118,415
Sercomm Corporation 2012 Annual Report 102
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48
(4) The integrated income tax information of the Company is as follows:
As of December 31, 2012 2011
Imputation credit account (ICA) $62,748 $30,316
For the year ended December 31, 2012 2011
Actual (estimated) creditable ratio for the appropriation of retained earnings
9.22% 16.90%
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, 2012, investment tax credit of the Company consisted of the follows:
Total tax credit Unused tax credit Year of expiration $62,503 $50,736 2013
(6) The R.O.C. income tax authorities had assessed the income tax returns of the Company
through 2009. The 2003 to 2007 income tax return have been assessed by the authorities for additional tax payable NT$89,366 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.
(7) The income tax of foreign subsidiaries is estimated at local tax rate.
25. Segment financial information
For management purposes, the Company is organized into business units based on its area and services and has two reportable segments as follows:
a. Taiwan: segment engages in Management of Group, Technology R&D and Sales of products.
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b. Mainland China: segment engages in Manufacturing, Repairing, and Sales of products in
Mainland China.
Management monitors the operating results of its business units separately for the purpose of
making decisions about resource allocation and performance assessment. Segment performance
is evaluated based on operating profit or loss and is measured consistently with operating profit
or loss in the consolidated financial statements.
a. Information about reportable segment profit or loss, assets and liabilities
For the year ended December 31, 2012
Taiwan
Segment
Mainland
China
Segment
Total
segments All other
Adjustments
and
eliminations Consolidated
Revenue
External customers $16,498,942 $2,804,056 $19,302,998 $4,976 $- $19,307,974
Inter-segment 143,767 176,145 319,912 107,211 (427,123) -
Interest revenue 18,814 41,768 60,582 36 (26,587) 34,031
Total revenue $16,661,523 $3,021,969 $19,683,492 $112,223 $(453,710) $19,342,005
Interest expense $41,140 $68,803 $109,943 $823 $(26,587) $84,179
Depreciation and
amortization
109,741 204,363 314,104 1,307 - 315,411
Investment gain 831 - 831 - - 831
Reportable segment
profit
$1,357,790 $354,816 $1,712,606 $(23,206) $(754,684) $934,716
Reportable segment
assets
$5,938,389 $8,614,931 $14,553,320 $40,675 $(1,945,507) $12,648,488
Reportable segment
liabilities
$4,787,407 $6,148,790 $10,936,197 $22,563 $(1,945,497) $9,013,263
Sercomm Corporation 2012 Annual Report 104
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50
For the year ended December 31, 2011
Taiwan
Segment
Mainland China
Segment Total
segments All other
Adjustments and
eliminations Consolidated
Revenue
External customers $10,602,184 $2,821,821 $13,424,005 $7,430 $- $13,431,435
Inter-segment 275,699 277,773 553,472 48,226 (601,698) -
Interest revenue 13,120 26,685 39,805 2 (15,926) 23,881
Total revenue $10,891,003 $3,126,279 $14,017,282 $55,658 $(617,624) $13,455,316
Interest expense $33,295 $48,336 $81,631 $92 $(15,926) $65,797
Depreciation and amortization
98,160
164,728
262,888
1,233
-
264,121
Investment gain 831 - 831 - - 831
Reportable segment profit
$1,341,241 $426,141 $1,767,382 $(37,590) $(1,028,336) $701,456
Reportable segment assets
$5,546,282 $8,857,129 $14,403,411 $49,577 $(2,674,806) $11,778,182
Reportable segment liabilities
$4,470,947 $6,610,682 $11,081,629 $69,480 $(2,500,012) $8,651,097
1. Inter-segment revenues are eliminated upon consolidation and reflected in the “adjustments
and eliminations” column. All other adjustments and eliminations are part of detailed reconciliations presented further below.
2. Segment profit including operating activities with inter-segment. Inter-segment profit are eliminated upon consolidation and reflected in the ‘adjustments and eliminations’ column.
3. Segment asset not include deferred tax asset, investment, and derivatives financial instruments. The assets described above are controlled by the group basis.
b. Reconciliations of reportable segment revenues, profit or loss, assets and liabilities
(i) Revenues
For the year ended December 31, 2012 2011 Total revenues for reportable segments $19,683,492 $14,017,282 Other revenues 112,223 55,658 Elimination of intersegment revenues (453,710) (617,624) Group revenues $19,342,005 $13,455,316
Sercomm Corporation 2012 Annual Report 105
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51
(ii) Profit or loss
For the year ended December 31, 2012 2011 Total profit or loss for reportable segments $1,712,606 $1,767,382 Other profit or loss (23,206) (37,590) Elimination of intersegment profits (754,684) (1,028,336) Income before income tax expense $934,716 $701,456
(iii) Assets
As of December 31, 2012 2011
Total assets for reportable segments $14,553,320 $14,403,411 Other assets 40,675 49,577 Elimination of receivable from corporate
headquarters (1,945,507) (2,674,806)
Other unallocated amounts 254,638 245,935 Group assets $12,903,126 $12,024,117
(iv) Liabilities
As of December 31, 2012 2011
Total assets for reportable segments $10,936,197 $11,081,629 Other liabilities 22,563 69,480 Elimination of payable from corporate headquarters (1,945,497) (2,500,012) Unallocated defined benefit pension liabilities 39,201 100,411 Group assets $9,052,464 $8,751,508
(v) Other material items
For the year ended December 31, 2012
Reportable
segment totals Adjustments Group totals Interest revenue $60,582 $(26,551) $34,031 Interest expense 109,943 (25,764) 84,179 Depreciation and amortization 314,104 1,307 315,411 Impairment of assets 58,272 - 58,272
Sercomm Corporation 2012 Annual Report 106
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
52
For the year ended December 31, 2011
Reportable
segment totals Adjustments Group totals Interest revenue $39,805 $(15,924) $23,881 Interest expense 81,631 (15,834) 65,797 Depreciation and amortization 262,888 1,233 264,121
(vi) Geographical information
(a) Revenue from external client
For the year ended December 31, Area 2012 2011
Europe $3,323,123 $3,362,624 America 12,211,207 5,962,730 Asia 3,721,908 4,001,738 Other 51,750 104,343 Total $19,307,988 $13,431,435
Revenues are attributed to countries on the basis of the customer's location.
(b) Non-current assets:
As of December 31, Area 2012 2011
Taiwan $1,613,306 $1,040,116 China 1,948,790 1,996,856 others 10,412 10,526 Total $3,572,508 $3,047,498
(vii) Major customers
Individual customer accounts for at least 10% of net sales were as follows:
For the year ended December 31, 2012 2011
Customers Amount Percentage Amount Percentage Customer C $4,975,138 25.82 $141,061 1.07 Customer B 2,666,682 13.84 2,310,254 17.45 Customer A 2,640,091 13.70 2,530,794 19.11 Customer E 748,194 3.88 1,412,042 10.66
Sercomm Corporation 2012 Annual Report 107
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53
26. Earnings per share
The calculation of earnings per share is provided as follows:
For the year ended December 31, 2012
Amounts (Numerator) Share expressed (Denominator) (In thousands)
Earnings per share
(NTD)
Income before
income tax Net
income
Income before
income tax Net
income Basic Net income $934,716 $754,836 193,325 $4.83 $3.90 Less: Minority interests gain - - - - Shareholders of the parent income $934,716 $754,836 $4.83 $3.90 Effect of dilution
Convertible bonds payable $26,203 $26,203 29,480 Employee stock option in 2005 $- $- 713 Employee stock option in 2007 $- $- 3 Employees’ bonuses $- $- 2,730
Diluted Net income $960,919 $781,039 226,251 $4.25 $3.45 Less: Minority interest gain - - - - Shareholders of the parent income $960,919 $781,039 $4.25 $3.45
For the year ended December 31, 2011
Amounts (Numerator) Earnings per share
(NTD)
Income before
income tax Net
income
Share expressed (Denominator) (In thousands)
Income before
income tax Net
income Basic Net income $701,456 $583,041 177,410 $3.95 $3.29 Less: Minority interests gain - - - - Shareholders of the parent income $701,456 $583,041 $3.95 $3.29 Effect of dilution
Convertible bonds payable $6,736 $6,736 27,712 Employee stock option in 2005 $- $- 1,046 Employee stock option in 2007 $- $- 828 Employees’ bonuses $- $- 2,527
Diluted Net income $708,192 $589,777 209,523 $3.38 $2.81 Less: Minority interest gain - - - - Shareholders of the parent income $708,192 $589,777 $3.38 $2.81
Sercomm Corporation 2012 Annual Report 108
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54
27. Related party transactions
(1) Name and relationship of related parties
Name of related parties Relationship with the Company Seven people including Por-Yuan, Wang Directors of the Company Three people including Ruei-song, Guo Supervisors of the Company Eight people including Por-Yuan, Wang Vice president and other key management
personnel of the Company
(2) Significant related party transactions
Compensation of key management personnel
Categories 2012 2011 Salaries, bonuses, and other remuneration $65,048 $52,441
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.
28. Assets pledged as collateral
The assets pledged of the Company and its subsidiaries were as follows:
As of December 31, Assets pledged Purpose of pledge 2012 2011
Property, plant and equipment-building Bank loan $367,121 $281,396 Intangible assets-land use right Bank loan 91,746 11,198 Refundable deposits-time deposit and cash Custom duty guarantee 2,592 2,592 Restricted assets-time deposit and cash National Tax Administration
guarantee. L/C guarantee and reserve account
26,599 11,557
Total $488,058 $306,743
Sercomm Corporation 2012 Annual Report 109
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55
29. Commitments and contingent liabilities
(1) The Company signed an agreement with an overseas customer; the agreement stated that the
overseas customer needs to pay to the Company License Royalty Rate and the Company shall be liable for any third party infringement claims. The received amount as calculated by the License Royalty Rate has been set up as a trust fund by the Company. As of December 31, 2012, the Company recognized the trust fund as other financial assets-noncurrent and other current liabilities amounting to NT$135,643 thousand (including interest revenue $664 thousand) and NT$134,979 thousand, respectively.
(2) The company provided endorsement and guarantee for the subsidiary only, please refer to
Note 33.
30. Significant disaster loss
None. 31. Significant subsequent events
The Company leased an office space from Nankang Software Industrial Park for ten years, from July 2007 to July 2017. The Company bought the office space in 2013. Purchase price was NT$273,560 thousand.
32. 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, loans and bonds payable. 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 receivables and accounts payables, which arise directly from its operations. The Company and its subsidiaries also enter into derivative transactions, including foreign forward exchange contracts, foreign exchange option and embedded derivative of convertible bonds payable. 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.
Sercomm Corporation 2012 Annual Report 110
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56
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, lease payable, and bonds 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.
Sercomm Corporation 2012 Annual Report 111
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57
(2) Information of financial instruments
(A) Fair value of financial instruments
As of December 31, 2012 2011
Financial assets Book value Fair value Book value Fair value Non-derivative financial instruments Assets
Cash and cash equivalent $4,660,206 $4,660,206 $3,868,609 $3,868,609 Notes receivable-net 301,612 301,612 732,669 732,669 Account receivable-net 1,513,829 1,513,829 1,890,915 1,890,915 Other receivables 339,189 339,189 290,635 290,635 Restricted assets-current 26,599 26,599 11,557 11,557 Other financial assets-noncurrent 135,643 135,643 80,045 80,045 Financial assets measured at cost-noncurrent 47,454 - 108,034 -
Refundable deposits 29,431 - 45,047 -
Liabilities Short-term loans 1,904,094 1,904,094 2,819,707 2,819,707 Notes payable 107,336 107,336 77,082 77,082 Accounts payable 3,959,260 3,959,260 3,277,137 3,277,137 Accrued expenses 826,884 826,884 654,121 654,121 Lease payables 332,643 332,643 349,768 349,768 Bonds payable 1,287,098 1,287,098 968,266 968,266
Derivative financial instruments Assets
Financial assets at fair value through income statement-current
$1,106 $1,106 $30,383 $30,383
Derivative financial assets for hedging-current
21,980 21,980 - -
Financial assets at fair value through income statement-noncurrent
459 459 - -
Sercomm Corporation 2012 Annual Report 112
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
58
As of December 31, 2012 2011
Financial assets Book value Fair value Book value Fair value Liabilities
Financial liabilities at fair value through income statement-current
$269 $269 $284 $284
Derivative financial liabilities for hedging-current
30,752 30,752 - -
(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 and cash equivalents notes receivable, account receivable, other receivables, restricted assets, short-term loans, notes payable, accounts payable and accrued expenses.
(b) The fair value of other financial assets-noncurrent is based on book values which
approximate present value of future cash inflows. (c) Refundable deposits are based on book value because the maturity date is uncertain. (d) 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. (e) 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.
(f) 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.
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59
(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 Valuation technique
Financial assets 2012 2011 2012 2011 Non-derivative financial instruments Assets
Cash and cash equivalent $4,660,206 $3,868,609 $- $- Notes receivable-net - - 301,612 732,669 Accounts receivable-net - - 1,513,829 1,890,915 Other receivables - - 339,189 290,635 Restricted assets-current - - 26,599 11,557 Other financial assets-noncurrent - - 135,643 80,045 Refundable deposits - - 29,431 45,047
Non-derivative financial instruments Liabilities
Short-term loans - - 1,904,094 2,819,707 Notes payable - - 107,336 77,082 Accounts payable - - 3,959,260 3,277,137 Accrued expenses - - 826,884 654,121 Lease payables - - 332,643 349,768 Bonds payable - 1,287,098 968,266
Derivative financial instruments Assets
Financial assets at fair value through income statement-current
- - 1,106 30,383 Derivative financial assets for hedging-current
- - 21,980 -
Financial assets at fair value through income statement-noncurrent - - 459 -
Liabilities
Financial liabilities at fair value through income statement-current
- - 269 284 Derivative financial liabilities for hedging-current
- - 30,752 -
Sercomm Corporation 2012 Annual Report 114
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
60
(D) As of December 31, 2012 and 2011, the Company and its subsidiaries’ financial asset
with fair value interest rate risk exposure amounted to NT$2,432,836 thousand and NT$2,017,478 thousand, respectively. The Company and its subsidiaries’ financial liabilities with cash flow interest rate risk exposure as of December 31, 2012 and 2011 were amounted to NT$3,523,835 thousand and NT$4,137,741 thousand respectively.
(E) For the year ended December 31, 2012 and 2011, total interest revenue and interest
expense for financial assets or liabilities that are not at fair value through profit or loss were NT$34,031 thousand and NT$23,881 thousand, NT$84,179 thousand and NT$65,797 thousand, respectively. During the years ended December 31, 2012 and 2011, the Company recognized gains amounted to NT$8,767 thousand and NT$19,079 thousand due to the changes of the fair value through valuation techniques.
(F) Guarantee for letter of credit of subsidiaries in pledge refers to Note 28. (G) Financial risk information
(a) Market risk
Forward contracts held as of December 31, 2012 and 2011 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. The Company’s fixed interest rate domestic unsecured convertible bond will fluctuate in line with the market interest rate monument. The Company also operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to New Taiwan Dollars. Gains or losses due to changes in foreign exchange rates will be offset by monetary assets and liabilities both denominated in foreign currency and the foreign currency forward exchange contract entered into.
(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.
Sercomm Corporation 2012 Annual Report 115
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
61
(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) Cash flow interest rate risk
The Company and its subsidiaries’ bank loan and lease payable were floating rate liabilities; therefore, changes in the market interest rates may cause future cash flows to be volatile. Bonds payable expose the Company to market interest rate and stock price volatility risk.
(3) Significant intercompany transactions among consolidated entities for the years ended
December 31, 2012 and 2011 are disclosed in Attachment 1. (4) The information of foreign currency financial assets / liabilities is as follows:
(Unit : Foreign currency : thousand, NTD: thousand) As of December 31, 2012 Foreign currency Exchange rate NT
Financial assets-monetary items Cash and cash equivalents RMB 315,582 4.6741 $1,475,062 Cash and cash equivalents USD 54,242 29.136 1,580,686 Notes and Accounts receivable RMB 171,411 4.6741 801,192 Notes and Accounts receivable USD 33,273 29.136 969,442 Other receivables RMB 8,460 4.6741 39,543 Other receivables USD 8,762 29.136 255,290 Restricted assets RMB 2,480 4.6741 11,592 Refundable deposits RMB 3,652 4.6741 17,070 Refundable deposits JPY 7,665 0.3375 2,587
Financial liabilities-monetary items Short term loan USD 63,264 29.136 1,843,260 Accounts payable USD 99,490 29.136 2,898,741 Accounts payable RMB 197,329 4.6741 922,335 Accrued expenses RMB 31,928 4.6741 149,235
Sercomm Corporation 2012 Annual Report 116
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
62
As of December 31, 2011
Foreign currency Exchange rate NT Financial assets-monetary items
Cash and cash equivalents RMB 333,678 4.8125 $1,605,823 Cash and cash equivalents USD 27,088 30.2900 820,496 Cash and cash equivalents JPY 68,676 0.3905 26,818 Accounts receivable RMB 320,918 4.8125 1,544,418 Accounts receivable USD 27,753 30.2900 840,638 Other receivables RMB 18,628 4.8125 89,647 Other receivables USD 6,067 30.2900 183,769 Restricted assets RMB 2,401 4.8125 11,555 Refundable deposits RMB 6,229 4.8125 29,977 Refundable deposits JPY 7,665 0.3905 2,993
Financial assets-non monetary items Financial assets measured at cost-noncurrent
USD 2,000 30.2900 60,580
Financial liabilities-monetary items
Short term loan USD 93,090 30.2900 2,819,707 Accounts payable USD 64,558 30.2900 1,955,462 Accounts payable RMB 149,363 4.8125 718,809 Accrued expenses USD 746 30.2900 22,596 Accrued expenses RMB 28,187 4.8125 135,650
(5) The Financial Supervisory Commission (“FSC”) requires companies with shares listed on
the TSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market to prepare their financial statements in accordance with the International Financial Reporting Standards, International Accounting Standards, and Interpretations developed by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee as recognized by the FSC (collectively referred to as “IFRSs”), and the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, starting 2013. Under Rule No. 0990004943 issued by the FSC on February 2, 2010, the Company makes the following pre-disclosures on the adoption of IFRSs as follows:
Sercomm Corporation 2012 Annual Report 117
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63
(A) The main contents of the plan to adopt IFRSs and the current status:
The Company has set up a project team and made a plan to adopt IFRSs. Leading the implementation of this plan is Mr. Leo Chen. The main contents of the plan, estimated completion schedule and status of execution as of December 31, 2012, were as follows:
Contents of Plan Responsible Department
or Personnel Status of
Execution 1. Establish a project team Accounting department Completed 2. Make a plan to adopt IFRSs Accounting department Completed 3. Identify differences between the existing
accounting policies and IFRSs Accounting department Completed
4. Identify consolidated entities under IFRSs Accounting department Completed 5. Select voluntary exemptions under IFRS 1
“First-time Adoption of International Financial Reporting Standards” and assess the impact of these exemptions
Accounting department Completed
6. Assess the adjustments required for IT system
Accounting and IT department
Completed
7. Assess the adjustments required for internal controls
Accounting and Internal Control department
Completed
8. Finalize the accounting policies under IFRSs Accounting department Completed 9. Finalize the selection of voluntary
exemptions under IFRS 1 “First-time Adoption of International Financial Reporting Standards
Accounting department Completed
10. Prepare opening IFRS statement of financial position
Accounting department Completed
11. Prepare IFRSs comparative information for 2012
Accounting department Completed
12. Finalize adjustments to the internal control (including financial statements process and the associated IT system)
Accounting department, Internal Control department, and IT department
Completed
Sercomm Corporation 2012 Annual Report 118
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
64
B. Material differences between the existing accounting policies and the accounting
policies to be adopted under IFRSs and the Guidelines Governing the Preparation of Financial Reports by Securities Issuers are described in the table below.
The Company assesses the material differences in accounting polices based on the IFRSs as recognized by the FSC and the Guidelines Governing the Preparation of Financial Reports by Securities Issuers expected to become effective in 2013. However these assessments may be changed as the FSC may recognize different versions of IFRSs or amend the Guidelines Governing the Preparation of Financial Reports by Securities Issuers in the future. Furthermore, the Company has decided the accounting policies to be adopted under IFRSs based on the current circumstances, should circumstances change in the future, the accounting policies to be adopted may change accordingly. The material differences in accounting policies described in the table below may not result in any adjustment on the date of transition to IFRSs, due to the voluntary exemptions selected under IFRS 1 “First-time Adoption of International Financial Reporting Standards”.
Accounting Issues Description of differences
Translation of foreign currencies
Under the requirements of ROC GAAP, as the Company is not a foreign operation, the Company does not need to determine its functional currency. However under the requirements of IAS 21 “The Effects of Changes in Foreign Exchange Rates”, all entities (including the parent) included in the reporting entity is required to determine their respective functional currencies.
Financial assets measured at cost
Under the requirements of the existing Guidelines Governing the Preparation of Financial Reports by Securities Issuer, equity investments in unlisted entities or entities traded on Emerging Stock market should be measured at cost. However under the requirements of IAS 39, only investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured could be measured at cost. The fair value of investments in equity instruments that do not have a quoted market price in an active market is reliably measurable if (a) the variability in the range of reasonable fair value estimates is not significant for that instrument or (b) the probabilities of the various estimates within the range can be reasonably assessed and used in estimating fair value.
Sercomm Corporation 2012 Annual Report 119
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
65
Accounting Issues Description of differences
Fixed assets
For fixed assets acquired prior to the issuance of Accounting Research and Development Foundation Interpretation No 97-340, even if the cost of a component of the asset is significant relative to the total cost of such asset, that component is not depreciated separately. Furthermore, for fixed assets acquired prior to the issuance of Accounting Research and Development Foundation Interpretation No 97-340, the cost of such assets does not include the costs of dismantling and removing the asset and restoring the site on which it is located, and related provision is not recognized. However under the requirements of IAS 16 “Property, Plant and Equipment”, each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately. The cost of an item of property, plant and equipment comprises the costs of dismantling and removing the asset and restoring the site on which it is located. The cost of regular major inspections is expensed as incurred under ROC GAAP. However under the requirements of IAS 16, when each major inspection is performed, its cost is recognized in the carrying amount of the item of property, plant and equipment as a replacement if the recognition criteria are satisfied. Any remaining carrying amount of the cost of the previous inspection is derecognized.
Employee benefits
There is no guidance under ROC GAAP for short-term compensated absences. The Company recognizes the cost as expense as employees take these absences. However under the requirements of IAS 19 “Employee Benefits”, the Company shall recognize and accrue for the accumulating compensated absences.
Employee benefits
The Company has selected a rate of return on relatively high-safety fixed-income investment as the discount rate under ROC GAAP. However under the requirements of IAS 19, the rate used to discount post-employment benefits obligations shall be determined by reference to market yields on high quality corporate bonds. In countries where there is no deep market in such bonds, the market yields on government bonds shall be used. Under the requirements of ROC GAAP, minimum pension liability is to be recognized for the excess of the accumulated benefit obligation over the pension plan assets. There is no such requirement under IAS 19. Under the requirements of ROC GAAP, the unrecognized transitional net assets (or net benefit obligation) should be amortized on a straight-line basis over the average remaining service period of employees still in service and expected to receive benefits. There is no such requirement under IAS 19.
Sercomm Corporation 2012 Annual Report 120
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
66
Accounting Issues Description of differences
Share-based payment
The Company’s share-based payment arrangements have applied intrinsic value method in accordance with Accounting Research and Development Foundation Interpretation No 92-070-072; however under IFRS 2 “Share-based Payment”, such arrangements should be measured using fair value method.
Income taxes
Under the requirements of ROC GAAP, deferred tax assets are recognized in full, however, if there is over 50% possibility that the economic benefits of a deferred tax asset become unrealizable, a valuation allowance account should be established to reduce the carrying amount of the deferred tax asset. However under the requirements of IAS 12 “Income Taxes”, a deferred tax asset shall be recognized to the extent that it is probable that it would be utilized.
Income taxes
Under the requirements of ROC GAAP, a deferred tax asset or liability should, according to the classification of its related asset or liability, be classified as current or noncurrent. If a deferred tax asset or liability is not related to an asset or liability for financial reporting, it should be classified as current or noncurrent according to the expected reversal date of the temporary difference. However under the requirements of IAS 1 “Presentation of Financial Statements”, deferred tax assets or liabilities are classified as noncurrent. There is no guidance under ROC GAAP that deals with the applicable tax rates for related deferred tax assets or liabilities arising from unrealized intergroup profits and losses. Under the Company’s existing accounting policy, the Company’s tax rate is used to calculate deferred tax assets or liabilities arising from unrealized profits and losses of upstream intergroup transactions. For downstream or side stream intergroup transactions, the Company’s tax rate is also used to recognize deferred tax assets or liabilities by adjusting investment gains or losses. However under the requirements of IAS 12, temporary differences are determined by comparing the carrying amounts of assets and liabilities in the consolidated financial statements with the appropriate tax base. Therefore buyer’s tax rate should be used to calculate the deferred tax assets or liabilities arising from unrealized intergroup profits and losses.
Sercomm Corporation 2012 Annual Report 121
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
67
(C) The preliminary assessment on the quantitative impacts of the material differences between the existing accounting policies and the accounting policies to be adopted under IFRSs and the Guidelines Governing the Preparation of Financial Reports by Securities Issuers is as follows: I. Reconciliation of the balance sheet as at January 1, 2012
ROC GAAP Adjustments IFRSs
Current assets (a)�(e) $8,976,619 $(24,542) $8,952,077
Funds and Investments (b) 188,079 (9,726) 178,353
Property, plant and equipment (c)�(d)�(f) 2,496,673 (50,594) 2,446,079
Intangible Assets (c)�(e) 246,996 (105,394) 141,602
Other assets (a)�(c)�(d)�(e)�(f)�(g)�(h) 115,750 186,777 302,527
Total Assets 12,024,117 (3,479) 12,020,638
Current liabilities(g) 7,771,950 4,508 7,776,458
Long term liabilities 837,744 - 873,744
Other liabilities(h) 105,814 32,240 138,054
Total liabilities 8,751,508 36,748 8,778,256
Capital 1,827,960 - 1,827,960
Capital reserve 308,989 - 308,989
Special reserve(j) - 131,678 131,678
Retained earnings(g)�(h)�(i) 973,481 - 973,481
Cumulative translation adjustment (i) 162,179 (162,179) -
Unrealized Gain (Loss) on financial instruments (b)
- (9,726) (9,726)
Stockholders’ equity 3,272,609 (40,227) 3,232,382
(a) Under the requirements of IAS 1 “Presentation of Financial Statements”, the
Company’s deferred tax assets and liabilities are classified as non-current. Furthermore, deferred tax assets and liabilities are not offset in accordance with the requirements under IAS 12. This reclassification has decreased deferred tax asset-current by NT$27,473 thousand and increased deferred tax asset-non-current by NT$27,473 thousand as at January 1, 2012.
Sercomm Corporation 2012 Annual Report 122
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
68
(b) The Company’s financial assets measured at cost are reclassified to available-for-sale financial assets-non-current and carried at fair value at each reporting date in accordance with the requirements of IFRSs. Consequently, as at January 1, 2012, the financial assets measured at cost-non-current is decreased by NT$47,444 thousand, available-for-sale financial assets-non-current is increased by NT$37,718 thousand and the unrealized gain of available-for-sale financial assets is increased by NT$9,726 thousand.
(c) The Company has reclassified deferred charges NT$56,333 thousand to related
assets in accordance with the revised Guidelines Governing the Preparation of Financial Reports by Securities Issuers and the requirements under IFRSs. Consequently, this reclassification has resulted in the amount of net fixed assets increased by NT$46,538 thousand and intangible assets increased by NT$9,795 thousand.
(d) The Company has reclassified prepayment for equipments to prepayments in
accordance with the revised Guidelines Governing the Preparation of Financial Reports by Securities Issuers and the requirements under IFRSs. Consequently, this reclassification has resulted in the amount of net fixed assets reduced by NT$111,502 thousand and prepayment for equipments increased by NT$111,502 thousand.
(e) Land use rights which have been determined as operating leases are
reclassified to prepaid rent under current assets and long-term prepaid rent under non-current assets. This reclassification has resulted in an increase of long-term prepaid rent in the amount of NT$112,258 thousand and an increase of prepaid rent in the amount of NT$2,931 thousand.
(f) The Company has reclassified property not used in operations to property, plant
and equipment in accordance with the revised Guidelines Governing the Preparation of Financial Reports by Securities Issuers and the requirements under IFRSs. Consequently, this reclassification has resulted in the amount of other assets reduced by NT$14,370 thousand and prepayment for equipments increased by NT$14,370 thousand.
Sercomm Corporation 2012 Annual Report 123
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
69
(g) The Company recognizes accumulated compensated absences as expenses in accordance with IAS 19 “Employee Benefits”. Consequently, accrued expenses-current is increased by NT$4,508 thousand, deferred tax assets-non-current is increased by NT$766 thousand and retained earnings are decreased by NT$3,742 thousand.
(h) The Company has recognized all cumulative actuarial gains and losses directly
in retained earnings at the date of transition. Furthermore the minimum pension liability is reversed and all remaining balance of unrecognized transitional net assets is recognized in retained earnings by the Company in accordance with IAS 19 “Employee Benefits”. Consequently, as at January 1, 2012, accrued pension liability is increased by NT$32,240 thousand, deferred tax asset-non-current is increased by NT$5,481 thousand. In total, the retained earnings is decreased by NT$26,759 thousand.
(i) Accumulated balance of exchange differences resulting from translating the
financial statements of a foreign operation is deemed to be zero as at the date of transition. Consequently, the accumulated exchange differences is decreased by NT$162,179 thousand and retained earnings is increased by NT$162,179 thousand.
(j) Following the adoption of IFRSs, in accordance with the Order No.
Financial-Supervisory-Securities-Corporate-1010012854 issued by FSC, for any unrealized revaluation gains and cumulative translation adjustments (gains) recorded to shareholders’ equity that the Company elects to transfer to retained earnings by the application of the exemption under IFRS 1 “First-time Adoption of International Financial Reporting Standards”, the Company is required to set aside an equal amount of special reserve. An equal amount of the Company’s cumulative translation adjustments gains in the amount of NT$162,179 thousand that the Company elects to transfer to retained earnings by application of the exemption under IFRS 1 has been set aside to special reserve. However, the Company’s retained earnings increased NT$131,678 thousand as a result of adoption of IFRS that is not enough to set aside to special reserve from translation adjustments gains of NT$162,179 thousand , thus the Company can only set aside NT$131,678 thousand to special reserve.
Other explanations are as follows: The functional currency of the Company is still New Taiwan Dollars under IFRSs; therefore there is no material impact on the financial statements.
Sercomm Corporation 2012 Annual Report 124
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
70
II. Reconciliation of the balance sheet as at December 31, 2012
ROC GAAP Adjustments IFRSs Current assets (a)�(e) $9,330,159 $(29,603) $9,300,556 Funds and Investments (b) 183,556 (2,459) 181,097 Property, plant and equipment (c)�(d)�(f) 3,026,655 (95,243) 2,931,412 Intangible Assets (c)�(e) 251,595 (94,564) 157,031 Other assets (c)�(d)�(e)�(f)�(g)�(h) 111,161 226,183 337,344
Total Assets 12,903,126 4,314 12,907,440 Current liabilities (g) 7,436,720 7,600 7,444,320 Long term liabilities 1,600,469 - 1,600,469 Other liabilities(h) 15,275 30,551 45,826
Total liabilities 9,052,464 38,151 9,090,615 Capital 1,972,855 - 1,972,855 Capital reserve 498,409 - 498,409 Special reserve (j) - 131,678 131,678 Retained earnings(g)�(h)�(i)�(j) 1,259,633 (877) 1,258,756 Cumulative translation adjustment (i) 128,537 (162,179) (33,642) Unrealized Gain (Loss) on financial instruments (b)
- (2,459) (2,459)
Gain/Loss on hedging derivative financial instruments
(8,772) - (8,772)
Stockholders’ equity 3,850,662 (33,837) 3,816,825 (a) Under the requirements of IAS 1 “Presentation of Financial Statements”, the
Company’s deferred tax assets and liabilities are classified as non-current. Furthermore, deferred tax assets and liabilities are not offset in accordance with the requirements under IAS 12. This reclassification has decreased deferred tax asset-current by NT$32,450 thousand and increased deferred tax asset-non-current by NT$32,450 thousand as at January 31, 2012.
(b) The Company’s financial assets measured at cost are reclassified to
available-for-sale financial assets-non-current and carried at fair value at each reporting date in accordance with the requirements of IFRSs. Consequently, as at January 1, 2012, the financial assets measured at cost-non-current is decreased by NT$47,444 thousand, available-for-sale financial assets-non-current is increased by NT$44,985 thousand and the unrealized loss of available-for-sale financial assets is increased by NT$2,459 thousand.
Sercomm Corporation 2012 Annual Report 125
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
71
(c) The Company has reclassified deferred charges NT$51,972 thousand to related assets in accordance with the revised Guidelines Governing the Preparation of Financial Reports by Securities Issuers and the requirements under IFRSs. Consequently, this reclassification has resulted in the amount of net fixed assets increased by NT$37,507 thousand and intangible assets increased by NT$14,465 thousand.
(d) The Company has reclassified prepayment for equipments to prepayments in
accordance with the revised Guidelines Governing the Preparation of Financial Reports by Securities Issuers and the requirements under IFRSs. Consequently, this reclassification has resulted in the amount of net fixed assets reduced by NT$146,962 thousand and prepayment for equipments increased by NT$146,962 thousand.
(e) Land use rights which have been determined as operating leases are
reclassified to prepaid rent under current assets and long-term prepaid rent under non-current assets. This reclassification has resulted in an increase of long-term prepaid rent in the amount of NT$106,182 thousand and an increase of prepaid rent in the amount of NT$2,847 thousand.
(f) The Company has reclassified property not used in operations to property, plant
and equipment in accordance with the revised Guidelines Governing the Preparation of Financial Reports by Securities Issuers and the requirements under IFRSs. Consequently, this reclassification has resulted in the amount of other assets reduced by NT$14,212 thousand and prepayment for equipments increased by NT$14,212 thousand.
(g) The Company recognizes accumulated compensated absences as expenses in
accordance with IAS 19 “Employee Benefits”. Consequently, accrued expenses-current is increased by NT$7,600 thousand, deferred tax assets-non-current is increased by NT$1,292 thousand and retained earnings are decreased by NT$6,308 thousand.
(h) The Company has recognized all cumulative actuarial gains and losses directly
in retained earnings at the date of transition. Furthermore the minimum pension liability is reversed and all remaining balance of unrecognized transitional net assets is recognized in retained earnings by the Company in accordance with IAS 19 “Employee Benefits”. Consequently, as at January 1, 2012, accrued pension liability is increased by NT$30,551 thousand, deferred tax asset-non-current is increased by NT$5,481 thousand. In total, the retained earnings is decreased by NT$25,070 thousand.
Sercomm Corporation 2012 Annual Report 126
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
72
(i) Accumulated balance of exchange differences resulting from translating the financial statements of a foreign operation is deemed to be zero as at the date of transition. Consequently, the accumulated exchange differences is decreased by NT$162,179 thousand and retained earnings is increased by NT$162,179 thousand.
(j) Following the adoption of IFRSs, in accordance with the Order No.
Financial-Supervisory-Securities-Corporate-1010012854 issued by FSC, for any unrealized revaluation gains and cumulative translation adjustments (gains) recorded to shareholders’ equity that the Company elects to transfer to retained earnings by the application of the exemption under IFRS 1 “First-time Adoption of International Financial Reporting Standards”, the Company is required to set aside an equal amount of special reserve. An equal amount of the Company’s cumulative translation adjustments gains in the amount of NT$162,179 thousand that the Company elects to transfer to retained earnings by application of the exemption under IFRS 1 has been set aside to special reserve. However, the Company’s retained earnings increased NT$131,678 thousand as a result of adoption of IFRS that is not enough to set aside to special reserve from translation adjustments gains of NT$162,179 thousand , thus the Company can only set aside NT$131,678 thousand to special reserve.
Other explanations are as follows: The functional currency of the Company is still New Taiwan Dollars under IFRSs; therefore there is no material impact on the financial statements.
III. Reconciliation of the income statement for the year ended December 31, 2012
ROC GAAP Adjustments IFRSs Net sales $19,267,971 $- $19,267,971 Cost of goods sold (16,282,234) - (16,282,234) Gross profit (2,985,737) - 2,985,737 Operating expenses (a)�(b) (1,953,080) (1,403) (1,954,483) Operating income 1,032,657 (1,403) 1,031,254 Non-operating income and expenses (97,941) - (97,941) Income from continuing operations before income tax
934,716 (1,403) 933,313
Income tax expenses (a) (179,880) 526 (179,354) Net income 754,836 (877) 753,959
Sercomm Corporation 2012 Annual Report 127
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
73
(a) The Company in accordance with IAS 19 “Employee Benefits”. Consequently,
the pension costs for the year ended December 31, 2012, recognized operating expense, is decreased by NT$1,689 thousand.
(b) The Company recognizes accumulated compensated absences as liabilities under
the requirements of IAS 19 “Employee Benefits”. Consequently, the operating expense for the year ended December 31, 2012, is increased by NT$3,092 thousand. The income tax expenses is decreased by NT$526 thousand.
The functional currency of the Company is still New Taiwan Dollars under IFRSs, therefore there is no material impact on the financial statements.
(D) According to the requirements under IFRS 1, “First-time Adoption of International
Financial Reporting Standards”, the Company prepares its first IFRS financial statements based on the effective IFRS standards and makes adjustments retrospectively, except for the optional exemptions and mandatory exemptions under IFRS 1. The optional exemptions selected by the Company are as follows:
(a) The Company has recognized all cumulative actuarial gains and losses directly to
retained earnings as at January 1, 2012. (b) The Company has elected to disclose amounts requited by paragraph 120A (p) of
IAs 19 prospectively from January 1, 2012. (c) Cumulative currency translation differences for all foreign operations are deemed to
be zero as at January 1, 2012. (d) IFRSs 2, has not been applied to equity instruments in share-based payment
transactions that were granted on or before November 7, 2002, nor has it been applied to equity instruments granted after November 7, 2002, that vested before January 1, 2012.
33. Additional disclosures
The following are additional disclosures for the Company and its affiliates as required by the R.O.C. Securities and Futures Bureau:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
74
(1) Major transactions information:
(A) Financing provided: Refer to Attachment 2. (B) Endorsement/guarantee provided: Refer to Attachments 3. (C) Securities held as of December 31, 2012: Refer to Attachment 4. (D) Marketable securities acquired or disposed of with accumulated amount exceeding the
lower of NT$100 million or 20 percent of the capital stock: Refer to Attachment 5. (E) Acquisition of individual real estate with amount exceeding the lower of NT$100
million or 20 percent of the capital Stock: Refer to Attachment 6. (F) Disposal of individual real estate with amount exceeding the lower of NT$100 million or
20 percent of the capital stock: None. (G) Related party transactions for purchases and sales amounts exceeding the lower of
NT$100 million or 20 percent of the capital stock: Refer to Attachment 6. (H) Receivables from related parties with amount exceeding the lower of NT$100 million or
20 percent of the capital stock: None. (I) Financial instruments and derivative transactions: Refer to Note 5 and Note 6.
(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 8. (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 and 7.
(3) Information on Mainland China investments: Please refer to Attachment 9.
Sercomm Corporation 2012 Annual Report 129
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 1 Significant intercompany transactions between consolidated entities
Transactions
No. (Note1) Name of related parties Counterparty
Nature of relationship
(Note 2) Account Amount Terms
Percentage of consolidated
operatingrevenues or consolidated total assets (Note 3)
For the year ended December 31, 2012
0 Sercomm Corporation Senslinq Inc. 1 Commission expenses $33,748 - 0.17%
0 Sercomm Corporation Senslinq Inc. 1 Other current assets 743 - 0.01%
0 Sercomm Corporation Senslinq Inc. 1 Other payable 8,386 - 0.06%
0 Sercomm Corporation Dwnet Technology (Suzhou) Limited 1 Sales revenue 112,644 Note 4 0.58%
0 Sercomm Corporation Dwnet Technology (Suzhou) Limited 1 Interest revenue 3,829 - 0.02%
0 Sercomm Corporation Dwnet Technology (Suzhou) Limited 1 Accounts receivable 66,470 Note 4 0.51%
0 Sercomm Corporation Sernet Technology (Suzhou) Limited 1 Accounts payable 1,314,695 Note 5 10.19%
0 Sercomm Corporation Sernet Technology (Suzhou) Limited 1 Interest revenue 2,547 - 0.01%
0 Sercomm Corporation Sercomm Japan Corp. 1 Commission expenses 33,584 - 0.17%
0 Sercomm Corporation Sercomm Japan Corp. 1 Other current assets 4,363 - 0.03%
0 Sercomm Corporation Sercomm Japan Corp. 1 Other payable 1,563 - 0.01%
0 Sercomm Corporation Sercomm Japan Corp. 1 Interest revenue 827 - -
0 Sercomm Corporation Sercomm France SARL 1 Commission expenses 33,563 - 0.17%
0 Sercomm Corporation Sercomm France SARL 1 Other payable 4,423 - 0.03%
0 Sercomm Corporation Sercomm France SARL 1 Other current assets 8,079 - 0.06%
1 Zealous Investments Ltd. Sercomm Trading Co. Ltd. 2 Other current assets 3,788 - 0.03%
2 Sercomm Deutschland GmbH Sercomm France SARL 3 Commission expenses 1,371 - 0.01%
2 Sercomm Deutschland GmbH Sercomm France SARL 3 Accrued expense 1,390 - 0.01%
3 Sernet Technology (Suzhou) Limited
Dwnet Technology (Suzhou) Limited 3 Accounts receivable 290,512 - 2.25%
3 Sernet Technology (Suzhou) Limited
Dwnet Technology (Suzhou) Limited 3 Other current assets 216,295 - 1.68%
3 Sernet Technology (Suzhou) Limited
Dwnet Technology (Suzhou) Limited 3 Rent revenue 4,834 - 0.02%
3 Sernet Technology (Suzhou) Limited
Dwnet Technology (Suzhou) Limited 3 Sales revenue 147,108 - 0.76%
Sercomm Corporation 2012 Annual Report 130
Transactions
No. (Note1) Name of related parties Counterparty
Nature of relationship
(Note 2) Account Amount Terms
Percentage of consolidated
operatingrevenues or consolidated total assets (Note 3)
3 Sernet Technology (Suzhou) Limited
Dwnet Technology (Suzhou) Limited 3 Interest revenue 19,385 - 0.10%
3 Sernet Technology (Suzhou) Limited Sercomm Trading Co. Ltd. 2 Commission expenses 31,131 - 0.16%
4 Sercomm Japan Corp. Sernet Technology (Suzhou) Limited 3 Sales revenue 5,052 - 0.03%
Note 1 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 2 Transactions are categorized as follows: 1.The parent company to subsidiary. 2. Subsidiary to parent company. 3. Subsidiary to subsidiary. Note 3 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 4 The sales price to the above related parties was determined through mutual agreement based on the market conditions. The collection
period for third party was month-end 90 days, while the terms for domestic sales was net 30-75 days. The collection period for overseas sales was net 30-240 days.
Note 5 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 2012, the Company purchased materials for such transactions amounted to $287,430 thousand.The Company bought the final products from Sernet Technology (Suzhou) Limited amounted to $12,731,837 thousand. In order to avoiddouble counting for such transactions above, the Company did not recognize related sales and cost of goods sold of materials andwork-in-process until selling the final products. In addition, the Company reversed the amount which have not been bought back fromSernet Technology (Suzhou) Limited to inventory account and reversed the related accounts receivable/payable balance.
Sercomm Corporation 2012 Annual Report 131
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 1-1 Significant intercompany transactions between consolidated entities Transactions
No. (Note1) Name of related parties Counterparty
Nature of relationship
(Note 2) Account Amount Terms
Percentage of consolidated
operatingrevenues or consolidated total assets (Note 3)
For the year ended December 31, 2011
0 Sercomm Corporation Senslinq Inc. 1 Commission expenses $21,295 - 0.16% 0 Sercomm Corporation Senslinq Inc. 1 Other current assets 889 - 0.01% 0 Sercomm Corporation Senslinq Inc. 1 Other payable 2,659 - 0.02%
0 Sercomm Corporation Dwnet Technology (Suzhou) Limited 1 Sales revenue 248,788 Note 4 1.84%
0 Sercomm Corporation Dwnet Technology (Suzhou) Limited 1 Accounts receivable 190,317 Note 4 1.58%
0 Sercomm Corporation Dwnet Technology (Suzhou) Limited 1 Other receivable 364,707 - 3.03%
0 Sercomm Corporation Sernet Technology (Suzhou) Limited 1 Sales revenue received
in advance 42,872 - 0.36%
0 Sercomm Corporation Sernet Technology (Suzhou) Limited 1 Accounts payable 1,191,881 Note 5 9.91%
0 Sercomm Corporation Sercomm Japan Corp. 1 Commission expenses 9,333 - 0.07% 0 Sercomm Corporation Sercomm Japan Corp. 1 Other receivables 60,921 - 0.51% 0 Sercomm Corporation Sercomm France SARL 1 Commission expenses 12,227 - 0.09% 0 Sercomm Corporation Sercomm Trading Co. Ltd. 1 Other receivable 2,995 - 0.02% 1 Zealous Investments Ltd. Sercomm Trading Co. Ltd. 2 Temporary payments 3,938 - 0.03% 2 Sercomm Investments Ltd. Sercomm Trading Co. Ltd. 3 Temporary payments 6,967 - 0.06%
3 Sernet Technology (Suzhou) Limited
Dwnet Technology (Suzhou) Limited 3 Accounts receivable 225,294 - 1.87%
3 Sernet Technology (Suzhou) Limited
Dwnet Technology (Suzhou) Limited 3 Rent revenue 3,802 - 0.03%
3 Sernet Technology (Suzhou) Limited
Dwnet Technology (Suzhou) Limited 3 Sales revenue 280,135 - 2.07%
3 Sernet Technology (Suzhou) Limited
Dwnet Technology (Suzhou) Limited 3 Interest revenue 14,423 - 0.11%
3 Sernet Technology (Suzhou) Limited Sercomm Trading Co. Ltd. 2 Commission expenses 27,587 - 0.20%
3 Sernet Technology (Suzhou) Limited Sercomm Trading Co. Ltd. 2 Other current liabilities 7,582 - 0.06%
4 Sercomm Japan Corp. Sernet Technology (Suzhou) Limited 3 Sales revenue 5,220 - 0.04%
Note 1 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 2 Transactions are categorized as follows: 1.The parent company to subsidiary. 2. Subsidiary to parent company. 3. Subsidiary to subsidiary.
Sercomm Corporation 2012 Annual Report 132
Note 3 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 4 The sales price to the above related parties was determined through mutual agreement based on the market conditions. The collectionperiod for related parties was month-end 90-210 days, while the terms for domestic third party sales was net 30-75 days. The collection period for overseas sales was net 30-240 days.
Note 5 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 2011, the Company purchased materials for such transactions amounted to $1,886,755 thousand. The Company bought the final products from Sernet Technology (Suzhou) Limited amounted to $8,542,148 thousand. In order to avoiddouble counting for such transactions above, the Company did not recognize related sales and cost of goods sold of materials andwork-in-process until selling the final products. In addition, the Company reversed the amount which have not been bought back fromSernet Technology (Suzhou) Limited to inventory account and reversed the related accounts receivable/payable balance.
Sercomm Corporation 2012 Annual Report 133
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 2 Financing provided for the year ended December 31, 2012
Assets pledged
NumberName of financeprovider
Name of counterparty Account
Maximumbalanceduring 2012
Ending balance
Actualamountprovided
Interestrate
Nature offinancing activity
Totaltransaction
amount
Reason forfinancing
Allowance for
doubtful accounts Item Value
Loan limit per Entity(Note l)
Maximumamount
available for law (Note 2)
0 Sercomm Corporation
DwnetTechnology (Suzhou)Limited
Otherreceivables-relatedparty
$600,200 $582,720 $- 2.50% Note 3(2) $- Operating $- - $- $740,848 $1,481,696
0 Sercomm Corporation
SercommJapan Corp.
Otherreceivables-relatedparty
150,050 - - 2.50% Note 3(2) - Operating - - - 740,848 1,481,696
0 Sercomm Corporation
SernetTechnology (Suzhou)Limited
Otherreceivables-relatedparty
450,150 - - 2.50% Note 3(2) - Operating - - - 740,848 1,481,696
1 Sernet Technology (Suzhou)Limited
DwnetTechnology (Suzhou)Limited
Otherreceivables-relatedparty
428,040 324,310 208,485 5.00% Note 3(2) - Operating - - - 1,852,121 3,704,242
Note 1 According the Company's Operational Procedures for Loaning Funds to Others, the maximum amount permitted to a single borrower asfollows:(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. (3) The company loan to 100% overseas equity investee is not limited to 40% of stockholder's equity as stated in its latest financial statememt.
However the agreegate amount should not exceed 100% net assets. Loan to individual investee should not exceed 50% net assets. Note 2 The agreement amount of loans for subsidiary to others shall not exceed 40% of stockholders' equity as stated in its latest financial statement. Note 3 The nature of financing activities as follows:
(1) Trading partner. (2) Short-term financing
Sercomm Corporation 2012 Annual Report 134
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 3: Endorsement / guarantee provided for others for the year ended December 31, 2012
Endorsee
Number Name of endorsers
Name of endorsees Relationship
Endorsementlimit for a
single entity
Maximum balance for the period
Endingbalance
Amount of collateral guarantee/
endorsement
Percentage of accumulated
guaranteeamount to net assets value
from the latest financialstatement
Limit of total
guarantee/endorsement
amount
0 Sercomm Corporation
Sernet Technology (Suzhou) Limited
The Company'sequity investee $1,852,121
$600,200(USD 20,000
thousand)
$582,720(USD 20,000
thousand)(Note2)
$- 15.73% $3,407,242(Note1)
1 Sercomm Corporation
Dwnet Technology (Suzhou) Limited
The Company'sequity investee 1,852,121
600,200(USD 20,000
thousand)
582,720(USD 20,000
thousand)(Note3)
- 15.73% 3,407,242(Note1)
Note 1 According the Company's Operational Procedures for Endorsement / guarantee provided for others, the maximum amount permitted to a single borrower as follows: (1) The ceilings on the amounts is permitted to make in endorsements/guarantees on the Company’s aggregate endorsement/guarantee
amount for any single entity shall not exceed 25% of stockholders' equity as stated in its latest financial statement; the total amount shall not exceed 50% of stockholders' equity as stated in its latest financial statement.
(2) The restriction in Note1(1) shall not apply to inter-company loans of funds between foreign companies in which the Company holds, directly or indirectly, 100% of the voting shares. However the Endorsement / guarantee amount should not exceed 100% net assets.Provide endorsement / guarantee to individual investee should not exceed 50% net assets.
(3) The ceilings on the amounts is whole permitted to make in endorsements/guarantees on the Company and its subsidiaries' aggregateendorsement/guarantee amount for any single entity shall not exceed 50% of stockholders' equity as stated in its latest financial statement; the total amount shall not exceed 100% of stockholders' equity as stated in its latest financial statement.
Note 2 Sernet Technology (Suzhou) Limited's actual amount provided was $262,224 thousand for the year ended December 31, 2012. Note 3 Dwnet Technology (Suzhou) Limited's actual amount provided was $434,126 thousand for the year ended December 31, 2012.
Sercomm Corporation 2012 Annual Report 135
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 4 Securities held as of December 31, 2012 Period ended
Held company name Securities type and name
Relationshipwith the
Company Financial statement account Shares/units
(in thousands) Book value
Percentageof
ownership (%)
Market value or Net asset
value
Note
Sercomm Corporation Stocks
Senslinq Inc. The Company’s equity investee
Long-term investments accounted for under the equity method 250 $8,366 100.00 $8,366 Note 1
Sercomm Investments Ltd.
The Company’s equity investee
Long-term investments accounted for under the equity method 1,200 341 100.00 341 Note 1
Sercomm Trading Co. Ltd.
The Company’s equity investee
Long-term investments accounted for under the equity method 46,800 2,469,911 100.00 2,469,911 Note 3
Shukuan Investment Ltd.
The Company’s equity investee
Long-term investments accounted for under the equity method 2,800 16,723 100.00 16,273 Note 3
Sercomm Japan Corp. The Company’s equity investee
Long-term investments accounted for under the equity method 4 2,828 100.00 2,828 Note 1
Sercomm France SARL
The Company’s equity investee
Long-term investments accounted for under the equity method 100 6,547 100.00 6,547 Note 1
Sercomm Deutchland GmbH
The Company’s equity investee
Long-term investments accounted for under the equity method 100 371 11.00 371 Note 1
Industrial Bank of Taiwan - Financial assets measured at
cost-noncurrent 4,154 40,000 0.17 - Note 2
TECO Nanotech Co., Ltd. - Financial assets measured at
cost-noncurrent - 10 - - Note 2
Shukuan Investment Ltd. Stocks
Cerpass Technology Corp. - Financial assets measured at
cost-noncurrent 747 7,444 3.69 - Note 2
Sercomm Trading Co. Ltd. Stocks
Zealous Investments Ltd.
The Company’s equity investee
Long-term investments accounted for under the equity method 30,956 1,855,430 100.00 1,855,430 Note 3
Smart Trade Inc. The Company’s equity investee
Long-term investments accounted for under the equity method 16,000 618,507 100.00 618,507 Note 3
Zealous Investments Ltd. Stocks
Sernet Technology (Suzhou) Limited
The Company’s equity investee
Long-term investments accounted for under the equity method 29,900 1,863,713 100.00 1,863,173 Note 3
Ubiquisys Limited - Financial assets measured at cost-noncurrent 875 - 3.78 - Note 2
(Note5) (Note 5) Smart Trade Inc. Stocks
Dwnet Technology (Suzhou) Limited
The Company’s equity investee
Long-term investments accounted for under the equity method 16,000 618,505 100.00 618,505 Note 3
Sercomm France SARL Stocks
Sercomm Italian SRL The Company’s equity investee
Long-term investments accounted for under the equity method 10 386 100.00 386 Note 1
Note 1 Amount was recognized based on the unreviewed or unaudited financial statements in 2012. Note 2 Can't obtain the financial statements of the company in time. Note 3 Amount was recognized based on the audited financial statements. Note 4 On July, 2012, the Company acquired 100% share holding in Sercomm Japan Corp. from shukuan Investment Ltd. Note 5 The value of investment in Ubiquisys Ltd. has write-down, the Company recognized impairment loss amounted to NT$58,272 thousand for the year ended
December 31, 2012.
Sercomm Corporation 2012 Annual Report 136
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 5 Acquisition of individual real estate with amount exceeding the lower of NT$100 million or 20 percent of the capital stock for the year ended December 31, 2012
Prior transaction of related counter-party Name of properties
Types of property
Transactiondate
Transactionamount
Payment status Counter-party Nature of
relationshipOwner Relationships Transfer date Amount
Price reference
Purpose of Acquisition
Othercommitments
Sercomm Corporation
Buildingsand Land 2011.10.12 $298,454 100%
fulfilled AboCom
Systems, Inc. None N/A N/A N/A N/A Note Plant expansion None
Sercomm Corporation
Buildingsand Land 2012.09.18 291,893 100%
fulfilled
Industrial Development
Bureau,Ministry of Economic
Affairs
None N/A N/A N/A N/A Bidding Office expansion None
Note : Acquired an appraisal report.
Sercomm Corporation 2012 Annual Report 137
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment6 elated party transactions for purchases and sales amounts exceeding the lower of NT$100 million or 20 percent of the capital stock for the year ended December 31, 2012
Transactions Details of non-arm's length transaction
Notes and accounts receivable (payable) Note
Purchases (Sales)
Company Related party Relationship
Purchases (Sales) Amount
Percentage of
total purchases(sales) (%)
Term Unit price Term Balance
Percentage of total
receivables(payable)
(%)
Sercomm Corporation
DwnetTechnology
(Suzhou)Limited
TheCompany's
equity investee
Sales $112,644 0.68 210 (Note1) (Note1) $66,470 6.11
DwnetTechnology
(Suzhou)Limited
Sercomm Corporation
The ultimate parent
company Purchases 111,992 4.96 210 - - 67,024 7.85
Sercomm Corporation
Sernet Technology
(Suzhou)Limited
TheCompany's
equity investee
Purchases 12,731,837 88.02 30 (Note1) (Note1) 1,314,695 68.93 (Note2)
Sernet Technology
(Suzhou)Limited
DwnetTechnology
(Suzhou)Limited
Affiliate with the same
parentcompany
Sales RMB
22,647(thousand)
1.19 120 - - RMB
62,154(thousand)
21.00
DwnetTechnology
(Suzhou)Limited
Sernet Technology
(Suzhou)Limited
Affiliate with the same
parentcompany
Purchases RMB
22,646(thousand)
4.62 120 - - RMB
62,154(thousand)
34.00
Note 1 he sales price to the above related parties was determined through mutual agreement based on the market conditions. The collection period for related parties was month-end 90-210 days, while the terms for domestic third party sales was net 30-75 days. The collection period for overseas sales was net 30-240 days.
Note 2 he company designate Sernet Technology (Suzhou) Limited for outward processing, please refer to Attachment 1 Note 5.
Sercomm Corporation 2012 Annual Report 138
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 7 eceivables from related parties with amount exceeding the lower of NT$100 million or 20 percent of the capital stock as of December 31, 2012
Overdue receivables The name of the
company Name of
counterparty Relationship Endingbalance
Turnoverrate Amount
Action adopted for overdue
accounts
Subsequent collections
Allowance for
doubtfulaccounts
Sernet Technology
(Suzhou)Limited
Sercomm Corporation
The ultimate parent company $1,314,695 - $- - $- $-
Sernet Technology
(Suzhou)Limited
DwnetTechnology
(Suzhou)Limited
Affiliate with the same parent
company 290,512 - - - - -
Sercomm Corporation 2012 Annual Report 139
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 8 For those who directly or indirectly have major influence or control over the investee company Original investment
amount Balance as of December 31, 2012 Investor company Investee company Main businesses and
products Ending balance
Beginningbalance
Shares(inthousands)
Percentageof
ownership
Bookvalue
Net income (loss)of the
investee
Investment income(loss)
recognized
Note
SercommCorporation
Senslinq Inc. Sales of IT products $7,939 $7,939 250 100.00 $8,366 $3,913 $3,913 Note 1
Sercomm
Investments Ltd. Investment overseas, technology R&D and international trading
40,037 40,037 1,200 100.00 341 (6,845) (69,845) Note 1
Sercomm Trading
Co. Ltd. Investment overseas, technology R&D and international trading
1,471,186 1,471,186 46,800 100.00 2,469,911 245,881 245,881 Note 2
Shukuan Investment
Ltd.Investment activity 56,298 56,298 2,800 100.00 16,273 83 83 Note 2
Sercomm Japan Inc. Sales of IT products 67,305 9,617 4 100.00 2,828 (25,657) (25,657) Note 1 (Note 3) Sercomm France
SARLSales of IT products 4,004 4,004 100 100.00 6,547 1,718 1,718 Note 1
Sercomm
Deutschland GmbH Sales of IT products 3,727 - 100 100.00 371 (3,441) (3,441) Note 1
SercommTrading Co. Ltd.
Zealous Investments Ltd.
Investment overseas, technology R&D and international trading
989,358 989,358 30,956 100.00 1,855,430 176,884 176,884 Note 2
Smart Trade Inc. Investment overseas,
technology R&D and international trading
481,829 481,829 16,000 100.00 618,507 64,313 64,313 Note 2
ZealousInvestments Ltd.
Sernet Technology (Suzhou) Limited
Manufacture of routers, communication products, Wlan products; sales and after-sales service
912,672 912,672 29,900 100.00 1,863,173 236,883 236,883 Note 2
Smart Trade Inc.
Dwnet Technology (Suzhou) Limited
R&D center of software; sales and after-sales service
481,829 481,829 16,000 100.00 618,505 64,313 64,313 Note 2
SercommFrance SARL
Sercomm Italian SRL
Sales of IT products 388 - 10 100.00 386 - - Note 1
Note 1: Amount was recognized based on the unreviewed or unaudited financial statements. Note 2: Amount was recognized based on the audited financial statements. Note 3: On July, 2012, the Company acquired 100% share holding in Sercomm Japan Corp. from shukuan Investment Ltd.
Sercomm Corporation 2012 Annual Report 140
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 9 Information on Mainland China investments
Investment flows
Investeecompany
Main businesses and products
Total amount of paid-in
capital
Method of investment
Accumulated outflow of investment
from Taiwan as of January 1,
2011 Outflow Inflow
Accumulated outflow of investment
from Taiwan as of December
31, 2011
Percentageof
ownership
Investment income
(loss)recognized
Carryingvalue as of December31, 2011
Accumulated inward
remittanceof earnings
as of December31, 2011
SernetTechnology
(Suzhou)Limited
Manufacture of routers,
communication products, Wlan products; sales and after-sales
service
$916,872 (USD28,900
thousand)
Investment in cash
(Note 1)
$912,672 (USD28,900
thousand) $- $-
$912,672 (USD28,900
thousand) 100.00 % $236,883
(Note 3) $1,863,173 $-
DwnetTechnology
(Suzhou)Limited
R&D center of software; sales and after-sales
service
$481,709 (USD16,000
thousand)
Investment in cash
(Note 2)
$481,829 (USD16,000
thousand) $- $-
$481,829 (USD16,000
thousand) 100.00 % $64,313
(Note 3) $618,505 $-
Accumulated investment in Mainland China as of December 31, 2011
Investment amounts authorized by Investment Commission, MOEA Upper limit on investment
$1,394,501(USD 44,990 thousand) USD 45,154 thousand Unlimited
(Note 4)
Note 1 he 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 2 he 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 3 mount was recognized based on the audited financial statements. Note 4 he Mainland China investment limit is without limit of stockholders' equity on December 31, 2012 according to "Examine Standards of
Investments and Technical Cooperation in Mainland of China Area", published by Investment Commission, MOEA.