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Le�er to ShareholdersCompany Highlight00� Review of 201� Business Results00� Performance and Pro�tability Analysis00� Research and Development Status00� Summary of 2017 Business Plan00� Future Development Strategy
Company Overview0�� Milestones0�� Organizaon0� Board Members0�� Management Team0�� Corporate Governance0�� Internal Control System Execuon Status 0� Resoluons of Board Meengs 0�� Cer�ed Public Accountant (CPA) Informaon0�� Changes in Share Posions among Directors, Supervisors, Managers0�� Informaon of the Company’s Top Ten Shareholders0�� Long-Term Investments Ownership
Capital & Shares0�� Capital & Shares0�0 Status of Employee Stock Opon Plan
Business Overview0�� Business Acvies0� Long-term and Short-term Business Development Plans0� Market, Producon and Sales Outlook0�� Main Product Applicaons0�� Employer-employee Relaonships0�� Environmental Expenditure
Financial Review and Analysis0� Consolidated Financial Statements0�� Financial Analysis0�� 2017 Audit Commi�ee’s Review Report 0�� Financial Status and Operang Results
Special Disclosure0�� Subsidaries
Financial Informa�on
Contents
2017 Annual Report | 001
I. Letter to Shareholders Sercomm Corporation celebrated its 25th
anniversary in 2017. The overall market was full of opportunities and challenges. Sercomm adapted the advantages of system integration and grasped the business opportunities in broadband upgrades. The annual revenue and shipment volume hit a record high and created outstanding results. Sercomm set a fourth consecutive company record in 2017 with sales of NT$38.6 billion, a 5% increase over the NT$36.7 billion sales in 2016. The operating profit was NT$1.53 billion, the income before tax was NT$1.58 billion, and the net income attributable to owners of parent was NT$ 1.31 billion. Based on 244 million weighted average shares, the EPS for year 2017 was NT$ 5.38.
Looking back at 2017, Sercomm successfully dominated digital convergence opportunities. Its principal products - FTTx products, Cable DOCSIS 3.x, Integrated Access Devices, and SMB products - boosted Sercomm's operating performance. Meanwhile, benefiting from the commission of the new plant in Suzhou and the automation of production lines, Sercomm's accumulated shipment volume of broadband devices reached 33 million units; the overall production capacity reached the next level, making Sercomm the leader in the industry. Sercomm continues to expand its global footprint and has gained ground in Europe, China, and other emerging markets. Sercomm's market share in telecommunications has continued to increase. It has also actively participated in the International Telecommunications Exhibition and has exchanged information on 5G communications technologies and artificial intelligence (AI) with major international telecommunications companies.
Sercomm, an international corporate citizen, focuses on its own business ventures while maintaining its commitment to advancing corporate governance. In the area of corporate governance, Sercomm was awarded by FinanceAsia with the “Best Managed Company” and “Best Mid-Cap Company” for the third consecutive year. Sercomm actively concentrates on product innovation and R&D. The company received the “Red Dot Product Award Design” by
| 2017 Annual Report 002
Design Zentrum Nordrhein Westfalen in Germany, showing that Sercomm's R&D abilities are highly esteemed. Sercomm also published its first Corporate Social Responsibility Report, which was prepared according to international standards, demonstrating that 2017 was the first year of Sercomm’s corporate social responsibility in which it hoped to accomplish corporate social responsibility goals and declare its concept of perpetuating its business.
Facing the Internet of Things and the 5G era, Sercomm is optimistic about the AIoT (AI and IoT convergence) business trend and dominates the key technologies of communication. Sercomm has become the major solution partner behind Telcos, and is able to launch high value-added products such as Cloud IoT, Smart Energy Management, Smart Health, Smart Cities, LPWA solutions, and Small Cells. We are living in an environment of rapid transformation in the world of technological development. Sercomm and its employees will spare no effort to maintain the superior quality of the company s research and development and to build on its operational efficiency, which is one of the company s core competencies. Sercomm has maintained a firm commitment to continually enhance its corporate governance and corporate social responsibility. Sercomm will continue to move towards sustainable development and to seek better corporate value for its shareholders, customers, and employees.
James Wang President & CEO
Sercomm Corporation
2017 Annual Report | 003
II. Company Highlight 2.1 Review of 2017 Business Results
Unit: Thousand NTD
Item 2016 2017 Year on Year Change (%)
Wired Product 6,855,710 4,130,729 -39.75
Wireless Product 29,264,024 33,925,943 15.93
Others 582,000 543,330 -6.64
Total Revenue 36,701,734 38,600,002 5.17
2.2 Performance and Profitability Analysis
Item 2016 2017
Financial Structure
Debt over Equity (%) 69.06 70.82
Long-term Funds to Fixed Assets Ratio (%) 233.87 229.73
Liquidity Analysis
Current Ratio (%) 120.63 118.22
Quick Ratio (%) 84.86 82.25
Profitability
Return on Assets (%) 6.54 5.50
Return on Equity (%) 20.36 17.66
To Paid-in Capital (%) Operating Income 72.90 62.45
Pretax Income 74.21 64.46
Profit Margin (%) 3.97 3.33
Earning per Share(NTD) 6.02 5.38
2.3 Research and Development Status At Sercomm, new product R&D projects are formulated in response to market demand based on
our core network communications technology, market trends and the evolving IT & communications
industry. All research proposals for new products must also undergo a review by R&D, marketing and
sales units before R&D resources are invested.
To accelerate the acquisition of new technologies, Sercomm also actively seeks out partnership
opportunities in addition to in-house R&D. This has led to the development of various application
servers that offer high-performance, ease of administration and integration with the Internet. A total of 8
projects were completed from our 2017 R&D plan.
| 2017 Annual Report 004
2.4 Summary of 2017 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
Looking back at 2017, Sercomm benefited from the booming development of the broadband
telecommunications market. The company sales revenue hit a record high for the fourth
consecutive year and performed excellently. With a strong knowledge base in software/hardware
integration and mechanical design, Sercomm has become a strategic partner in providing
solutions to major telecom operators. The company has successfully mastered key technologies in
the broadband industry, including the home, enterprise, telecommunications, IoT, and cloud
service markets. Sercomm's major products - FTTx products, Cable DOCSIS 3.x, and Integrated
Access Device - continued to gain strength. Total shipments of wireless broadband equipment
reached 33 million units in 2017, making Sercomm a leader in the industry.
The new production plant in Suzhou allowed for the continuing automation of the production
line and optimization of the manufacturing management system, thus optimizing Sercomm's
manufacturing capacity. Sercomm's commitment to increasing unit production efficiency leads to
operating efficiency, reducing company costs, and implementing efficiency improvements.
Looking forward to the overall economy in 2018 and facing the coming 5G Mobile
Communications era, the development of IoT-related applications is flourishing. The company has
been deeply involved in research and development of key technologies in broadband
telecommunications. With a number of new leading-edge communications technologies, it helps
customers develop new market opportunities and continues to enhance the added value of
products, which will further increase its operating momentum in the future.
(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
2017 Annual Report | 005
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 brand partners and
telecom operators 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.
2.5 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.
2.5.1 The Effects of External Competition, Regulation and the Overall Business Environment
As for the external competition situation, as soon as the 3GPP set up the 5G standard,
many countries had already invested in the development of 5G. The "Taiwan 5G Industry
Alliance" was established jointly by Chunghwa Telecom, the 5G Technology Program Office of
the Department of Industrial Technology of the Ministry of Economic Affairs, the Industrial
Technology Research Institute and the Institute for Information Industry. The goal is to test the
experimental 5G network at the end of this year (2018) and early next year, then launch 5G
pre-commercial operation (between the experiments and commercial deployments) in Taiwan
in 2020.
With the invitation of the Ministry of Economic Affairs, the "Taiwan 5G Industry Alliance"
was led by Chunghwa Telecom and established on January 29, 2018. The goal is to launch
Taiwan's 5G pre-commercial operation in 2020 and synchronize with the international 5G
standard and schedule of commercial operation. The Alliance includes the group of end
equipments, small cells, networking, service platforms, application services, and integration
testing. The Alliance focuses on the R&D of 5G technologies and innovative applications such
as chips and end equipments, manufacturing and system connections, research and
| 2017 Annual Report 006
manufacturing of small cell and SDN-related products, and edge computing, etc. In doing so,
the Alliance hopes to connect the industry chain of chips, networking, and small cell to end
equipments and edge computing, service platforms, information security, and content
suppliers including MediaTek, Asus, HTC, Advantech, Quanta, and Sercomm. There are more
than 40 manufacturers working together to accelerate the promotion of 5G development in
Taiwan.
With the arrival of the 5G era, many industries will be transposed and changed. Under the
leadership of the national team, 5G technology will lead to the application development of 4K
and 8K content, which will promote the development of LCD TVs and other industries in
response. In the future, we will sell systems, small cells, and other products to clients around
the world and continue to improve the development of enterprises and re-create a prosperous
Taiwanese society.
In China, China Mobile and seven other agencies will work together to set up 500 stations
in five major cities to form 26 types of 5G business scenarios. Regarding the 5G plan of China
Mobile:
Actively participate in the third phase testing of 5G technological R&D in the first quarter
of 2018 and build a scale experimental testing network to make the 5G industry chain
reach the pre-commercial goal within one year.
When the R15 standard is frozen in the third quarter of 2018, launch a 5G scale
experiment in five major cities, conduct a verification of critical technology applications
and commercial operations, and commence developing a business demonstration
network.
Start business demonstrations in 12 cities in the first quarter of 2019.
Start commercial terminal chips in the second quarter of 2019 and begin operational
verification of commercial construction.
Verizon, the telecommunications leader in the U.S., announced on December 29, 2017
that it will use Samsung Electronics from Korea as the leading network facilities supplier and
provide 5G (fifth generation mobile network) service in Sacramento, California in the second
half of 2018. 5G commercial operation is planned to be launched in 3 to 5 cities before the end
of 2018, starting with Sacramento, California, in the second half of 2018. In fact, AT&T began
to test 5G operation in 11 cities in 2017. They announced that they would finish 5G testing in
20 cities before the end of 2017, but then they revealed that they would pilot a test of 5G
service in Texas. The other two U.S. telecommunication companies, T-Mobile and Sprint, will
work together to construct a 5G network all over the U.S. which is going to be finished by the
end of 2019 or in early 2020.
2017 Annual Report | 007
The Trump administration is contemplating the nationalization of 5G networks. According
to Reuters, a senior U.S. government official said that President Trump's national security
team is scrutinizing strategy options to contend against China. One of the options is to
construct a 5G wireless network using a government agency, that is, in order to maintain
federal control of part of the U.S. mobile network and to prevent penetration from China.
managing part of the U.S. mobile network with the federal government to prevent the
penetration of China. In the following 6 to 8 months, the Trump administration will have an
intense debate internally regarding how to construct a nationalized network and how to raise
financial support. There should be loud protests from the relevant industries on this issue.
There are changes in the legal environment, including the amendment and addition of legal
rules and executive orders from the competent authority:
1. Add and delete amendments to the "Statute for Industrial Innovation.” The amendments were
promulgated by Presidential Decree Hua-tzung-Yi No. 10600141601 on November 22, 2017 and
were effective on the day of promulgation. The key points of the amendments are:
(1) State-owned enterprises invest in R&D. To encourage state-owned enterprises to invest actively
in innovation and R&D and to create breakthroughs and innovation in product technology or
service processes, state-owned enterprises should budget at a specific ratio of their total budget
to invest in R&D. The ratio of the budget should be determined by the competent authorities and
each ministry of each state-owned enterprises based on their characteristics and size.
(2) Tax incentives for Limited Partnership Venture Capital to attract international funds to invest in
Taiwan. This refers to the international taxation system and the Venture Capital established
under the Limited Partnership Act. If the investment meets the criteria below, it may tax using the
concept of Pass-Through Entities. The criteria are: Total investment amount is above TWD 300
million, total funds invested in Taiwan are higher than 50% of the total capital, and the amount
invested in new ventures is above 30% of the total paid-in capital or TWD 300 million (whichever
is lower).
(3) A tax incentive for Angel Investors. To assist new ventures in obtaining working capital, if an
individual invests cash in a new venture that is less than two years from start-up, the amount can
be deducted from their individual gross consolidated income, but the amount deducted is limited
to TWD 3 million every year.
(4) Stocks for employee remuneration are subject to tax-deferment. Income tax returns with a
five-year deferred-payment tax subject to employee remuneration stocks (stocks for employee
remuneration, employees subscribed for cash capital increases, treasury stocks distributed to
the employees, employee stock warrants and restricted employee shares) are amended to be
levied based on the transfer price when the stock is transferred.
(5) The stocks distributed to inventors in institutions for academic research are entitled to
tax-deferral. Inventors (such as professors, research fellows, etc.) who receive stocks distributed
| 2017 Annual Report 008
from institutions for academic research are allowed to pay tax based on the transfer price when
the stock is transferred in order to promote industrialization of the research achievement.
(6) Encourage innovation procurement. Assist procurement personnel from government agencies to
perform preferential purchasing of software, innovative products, and services according to
inter-entity supply contracts.
(7) Set up an evaluation mechanism for intangible assets. In order to enhance the circulation and
utilization ability between government R&D achievements and market, an intangible assets
evaluation database will be established and work with other measures such as financial
investments.
(8) Mandatory auctions for idle industrial land. The government will develop industrial parks, and if
the land meets the definition of idle land, a "progressive, diversified administrative control
measure" will be applied, such as deadline improvement, fines, and negotiation, mandatory
auctions, or others in order to speed up the industrial usage of the idle land.
2. The "Standards of Withholding Rates for Various Incomes" were amended and promulgated by
Decree No. 10604722530 issued by the Ministry of Finance on December 29, 2017, and have been
in effect since January 1, 2018.
Currently, when individual shareholders (hereinafter referred to as domestic investors) residing
within the territory of the Republic of China receive dividends, the dividends should be included in
the gross consolidated income and filed as part of the income tax return, receiving the highest
income tax rate of 45%. 50% of the profit-seeking enterprise income tax is permitted to be offset as
tax payable. When individual shareholders do not reside within the territory of the Republic of China
or profit-seeking enterprise shareholders have their head office outside the territory of the Republic
of China (hereinafter referred to as foreign investors), the income tax should be withheld at a rate of
20% of the amount distributed by the withholder when payment is made. The tax burden for the
dividends is unbalanced and leads to domestic capital shareholders trying to avoid tax burdens by
converting into foreign investors.
To improve the fairness of income tax on dividend income between domestic and foreign
investors, prevent tax avoidance by false foreign investors, establish an income tax system that
complies with international trends, and is competitive, fair and reasonable, starting from 2018, the
structure of the income tax rate for profit-seeking enterprise income tax and individual income tax
will be adjusted. The income tax rate for profit-seeking enterprises will increase from 17% to 20%,
the maximum income tax rate for individual income tax will be reduced from 45% to 40%, the partial
imputation system in the integrated income tax system will be abolished at the same time and an
alternative dividend income tax system will be implemented. The standard which adjusts the income
tax withholding rate for the dividend income of foreign investors will be amended from 20% to 21%,
reducing the tax burden difference from a maximum 16.8% to 4% between domestic and foreign
2017 Annual Report | 009
investors.
Ifo, a German Institution for Economic Research, has conducted World Economic Survey (WES)
for the 1st quarter of 2018. The survey received responses from 1,199 experts in 120 countries. The
indicator rose from 17.1 to 26.0 points for the first quarter of 2018. Furthermore, the indicator
recorded positive value for five consecutive quarters and also highest level since autum 2007. The
world economic situation is 28.3 points, which increased 11.1 points compared with previous quarter.
The index expectations for the next 6 months is 23.9 points which increased 7.0 points compared
with previous quarter.
For the World Economic Climate in major regions, the Ifo economic climate improved in
advanced economies and economic expectations also showed an exceptional improvement. The
expectation of 6 months later were increase on the evaluation compared with the previous quarter.
The economic climate for emerging markets and developing economies recorded positive value for
four consecutive quarters. Both assessments of the current economic situation and expectations
remain positive.
According to Ifo survey, short and long-term interest rates will rise in the next six months. They
expect world trade to pick up significantly. The price level increase in the world economy is expected
to gather impetus in the months ahead.
World Economy
2016 Q1
2016 Q2
2016 Q3
2016 Q4
2017 Q1
2017 Q2
2017 Q3
2017 Q4
2018 Q1
Climate -7.0 -3.5 -6.6 -0.7 3.0 13.5 13.2 17.1 26.0
Situation -14.2 -17.4 -16.8 -14.9 -8.7 5.1 12.5 17.2 28.3
Expectation 0.5 11.6 4.1 14.6 15.5 22.2 14.0 16.9 23.9
Source Ifo World Economic Survey (WES) of the 1st quarter 2018.
| 2017 Annual Report 010
World Economic Climate in Advanced Economies
Source Ifo World Economic Survey (WES) of the 1st quarter 2018.
World Economic Climate in Emerging Market and Developing Economies
Source Ifo World Economic Survey (WES) of the 1st quarter 2018
2017 Annual Report | 011
Through findings in the survey of Taiwan the current overall economy remain “satisfactory”,
which sames as the previous result. Capital expenditures were “worse", due to the “worse”
expectation percentage increase. Private consumption turned to negative, due to the “better”
expectation percentage decrease and increase in “satisfactory” expectation. As shown, the primary
result was lower than previous quarter. The expectations of economy after six months were thought
to be “getting better”, due to the “worse” expectation percentage decrease and increase in
“satisfactory” expectation. Capital expenditures were “better", which lower than the previous quarter.
Private consumption turned to positive to “better”, due to the “better” expectation percentage
increase and decrease in “worse” expectation. Moreover, the expert expected export/import would
turn better, and the US dollar to appreciate against the New Taiwan dollar. Furthermore, increase in
long-term and short-term interest rates and decrease in the stock price level.
WES Survey Results in Taiwan (evaluation of the current situation)
Notes:
1. The survey results in the first quarter of 2018 in Taiwan were preliminary statistics of the questionnaires which the council assisted the Ifo in collecting. For the final result, the full report published by the Ifo shall prevail.
2. WES was a qualitative survey and respondents shall choose an answer from three possible categories: “good”, “satisfactory” and “bad”; The individual replies are combined for each country without weighting as an arithmetic mean of all survey responses in the respective country. Thus, for each qualitative question and for each country the respective percentage shares (+), (=) an�� ���� ��� ����� ��� ��� ������ ��� �� ������� � ��� ���- and ���-shares. As a result, the balance ranges from -100 points and +100 points. The mid-range lies at 0 points and is reached if the share of positive and negative answers is equal.
Data Source: National Development Council. The survey period was in January 2018. Completed questionnaires were returned by 12 of the 12 interviewees.
| 2017 Annual Report 012
WES Survey Results in Taiwan (expectation after 6 months)
Notes:
1. The survey results in the first quarter of 2018 in Taiwan were preliminary statistics of the questionnaires which the council assisted the Ifo in collecting. For the final result, the full report published by the Ifo shall prevail.
3. WES was a qualitative survey and respondents shall choose an answer from “getting better” (ascending or increasing), “remain unchanged” (constant or reasonable), “getting worse” (descending or decreasing) for each question. After netted the positive replies and the -negative replies, and divided through the amount of all received responses and multiplied by 100. The positive answers indicates that the majority expects trends to increase, whereas the negative answers replies the expectation of decreasing trend. While 0 point replies the situation remain unchanged. Data Source: National Development Council. The survey period was in January 2018. Completed questionnaires were returned by 12 of the 12 interviewees.
In summary, the overall economic view is that the major world economies are in an upward trend.
This is also true of the Taiwan economy. Given the forecast of an economic future in which growth will
be moderate, the company intends to be prudent and pragmatic. Sercomm constantly reviews all
outside factors which can influence its operation, and is prepared to make whatever adjustments are
necessary to ensure that the company meets its operational objectives.
The most significant variable is the start of a Sino-US trade war this year. The United States,
defending against solar cells and washing machines, levied punitive tariffs on steel and aluminum.
They also announced the investigation results of section 301 on March 22. U.S. President Trump
2017 Annual Report | 013
considered a big “fine” as part of a probe into China's alleged theft of intellectual property of the U.S.
and announced that the U.S. government would impose high tariff investment restrictions on products
imported from China worth USD 60 billion per year.
To counterbalance the loss because of the trade war launched by the United States, China is
studying an increase on tariffs on partial products imported from the U.S. The total amount affected is
about USD 3 billion that the U.S. exports to China. Among them, a 15% tariff increase will be imposed
on fruits, seamless steel pipes, etc., and a 25% tariff increase will be imposed on pork and recycled
aluminum.
After Trump signed the memorandum, based on U.S. regulations, the product list covered by the
tariffs will be published 15 days after the signing date. And then the public comment period will last for
30 days, so the scope of the products of the trade sanction launched by the U.S. on China will be
clearer after 45 days. There will be a 60-day consultation period after the confirmation of the product list,
which will provide space for both parties to negotiate. The tariffs will be imposed on Chinese products
after the consultation period.
Based on the statistics of the trade war between China and the U.S., China's losses will be higher
than those of the U.S., thus sparking moderate response from China. Although China is expected to
take repercussive actions, the spokesman of the Ministry of Commerce of the People's Republic of
China stated that the U.S. used the principle of “national security” to restrict the import of products. The
restriction severely damages the multi-trade system represented by the WTO, disturbs the international
trade order, and has been opposed by several WTO members. He said that the Chinese are also
negotiating with the U.S. through multi-level and multi-channel pathways and will take legal actions
under the WTO structure. China will continue to work with other WTO members to maintain the stability
and authority of multilateral trade rules.
Taiwan, of course, where exports are economic arteries, is a direct and indirect victim of the
restriction. The impact is higher than in other countries, and it is likely that the scale of indirect damage
is higher than direct damage, making it difficult to estimate damages. The participation rate of Taiwan in
the global value chain is as high as 67.6%. The direct impact is significant because of the U.S. having
started protectionist measures against China. The output reduction will be 0.8% of GDP. The output
reduction will increase to 1.8% of GDP if the effects of retaliation by China are included.
The minister of the Ministry of Economic Affairs, Shen Jong-Chin, said that if the U.S. imposes
sanctions on the section 301 investigation, it may affect two industries in Taiwan—one that invests in
and manufactures end equipments in China and sells to the system integrators in China or sells directly
to the U.S. and the other that produces components or semi-finished goods for clients in China to
further assemble and sell to the U.S. Taiwan exports 40% of its products and services to China. Many
| 2017 Annual Report 014
of its exports are semi-finished goods and equipment. If the economy in China slows down, exports will
decrease. The exports from Taiwan to China will definitely decrease. On the macroscopic view, export
trade is Taiwan's economic artery. If global trade decreases and economic growth decreases, then
Taiwan's economy would certainly be affected.
The indirect victimization may be overwhelming and hard to estimate. Based on historical data,
every 1% change in the economic growth rate of China effects Taiwan’s economic growth rate by
0.29%. Every 1% change in the economic growth rate of the U.S. affects Taiwan’s economic growth
rate by 0.07%. Therefore, irrespective of the level of economic damage in China and the U.S., it is
certain that Taiwan’s economic growth will be reduced, and it may have a double synergistic effect.
According to the IMF study, if the export growth rate of China decreased by 1%, the growth rate of
exports of Asian economies to China will be reduced by 2% to 3%. And because of the close economic
and trade relationship across the strait, the impact on Taiwan will be higher than the numbers
mentioned above.
Because of the high correlation between the industries of Taiwan and China, many Taiwanese
companies invest in China, and many intermediate materials exported to China are ultimately sold to
the United States. According to statistics from the Ministry of Economic Affairs, the number of
intermediate materials that Taiwan exported to China (including Hong Kong) last year was USD 113.32
billion (approximately NTD$ 3.4 trillion), which is 86.97% of the total exports of Taiwan to China
(including Hong Kong). Deducting the agreed items of the WTO ITA, the amount is USD 29.23 billion
(approximately NTD$ 876.9 billion). If the U.S. imposes sanctions on China, Taiwan will certainly be
adversely affected. At this stage, what the government can do is to try to obtain an exemption from the
United States through bilateral consultation.
If the Trump administration is not satisfied with the improvement of the trade deficit with China in
the future, the trade war will intensify. Many countries will file claims against the U.S. through the WTO,
and then the WTO will take one or two years to finish the decision process. No matter what the result is,
the impact to the industries in the sanctioned countries has happened, and the United States will also
be affected by the increase in costs because of the rise in import tariffs.
Because of the Sino-US trade war, short-term uncertainty to Taiwan's economic development is
quite high, and a lot of turbulence will occur. Kan Kamhon, director of the Institute of Economics,
Academia Sinica, predicts that the next step from Trump will be to force China to sit down and talk, as
no one will benefit if the trade war is launched. If the United States imposes import tariffs on products
from China, U.S. consumers will be immediately affected by higher prices for products from China. The
United States will have to pay a relatively high cost. It is estimated that the chances of starting a trade
war are lower than not starting a trade war.
2017 Annual Report | 015
Based on Ma Tieying, an economist at DBS, in order to avoid the tariffs imposed by the U.S. in the
long run, technology companies located in China may try to decentralize their production lines to other
Asian countries. Since the supply chain of the semiconductor industry in Taiwan has been established
completely for high value-added enterprises, it may be a good choice to relocate their production lines
to Taiwan.
Wu Chung-Shu, President of the Chung-Hua Institute for Economic Research, estimated that the
economic growth rate for Taiwan this year will reach 2.2% to 2.3%, but this will be affected by the
Sino-US trade war. The reasons for uncertainty are high this year.
| 2017 Annual Report 016
III. Company Overview 3.1 Milestones Date of Establishment: July 29, 1992
2017
Participated in “2017 International CES” and displayed the full range of IoT solutions
Participated in “Mobile World Congress 2017” and displayed IoT solutions and the full range of LTE Small Cells.
Launched the World’s First LWA Small Cell
Sercomm Full HD WiFi IP Camera and Smart Door Window Sensor won Red Dot Product Design Award 2017
Participated in “2017 Broadband Forum” and showcased full range of Broadband Residential Gateway
Enrolled in “Taiwan High Compensation 100 Index”
Sercomm Russia Grand Opening
Acquired Certification of "Taiwantrade Supplier Verification" by TÜV Rheinland
Published first Corporate Social Responsibility Report according to international standards
R&D Achievements LTE-M Module
10GPON Gateway
Human Factor Smart Lighting Cloud Platform
Outdoor Small Cell
NB-IoT Module
Smart Doorbell Camera
Outdoor Fixed Wireless LTE High Speed Relay CPE Equipment
2018
Participated in “2018 International CES” and displayed the full range of AIoT and LPWA products.
Participated in “Mobile World Congress 2018” and displayed LTE-M solutions
2017 Annual Report | 017
3.2 Organization 3.2.1 Organization Chart
Shareholders’ Meeting
BOD
Chairman
President / CEO
Compensation Committee
Auditing Office
Human Resource Division
Financial Management
Division
Sales Division II
Sales Division I
Sales Division III
Intelligent System
Business Unit
New Business
Development Division
Intelligent System
Engineering Division
Product Development
Division
Research & Development
Division
Global Supply & Logistics Division
Chief Operation
Officer
Information Service Division
Quality Assurance
Division
Manufacturing Division
Audit Committee
| 2017 Annual Report 018
3.2.2 ���������������� �������
Department Main Responsibilities
President Office Drafting, planning, implementation and monitoring of company operation plans
Research & Development Division New Product Research and Development and drafting, planning and implementation for technical blueprints.
Product Development Division Product development project operation, customer services and support etc.
Sales Division I Sales promotion and operation, customer services and support etc.
Sales Division II Sales promotion and operation, customer services and support etc.
Sales Division III Sales promotion and operation, customer services and support etc.
New Business Development Division New business promotion and operation, customer services and support etc.
Intelligent System Business Unit IP Surveillance’s sales promotion and operation, customer services and support etc.
Intelligent System Engineering Division
Research and development on Intelligent related products, product operation and product planning
Global Supply & Logistics Division Production material planning, procurement, management and inventory control.
Manufacturing Division All product QA-related work, including production implementation, product testing and machine maintenance. Production control, property management and material procurement etc.
Quality Assurance Division Planning, promotion, implementation and monitoring of quality control procedures
Finance Management Division Finances and accounting, legal and stock-related operations
Human Resources Division Creating strategic human resources systems and solutions, including recruitment, salaries and bonuses, professional development, performance management and providing general HR services
Information Service Division Network management, information system importation, planning, operation and monitoring
Auditing Office 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.
2017 Annual Report | 019
3.3 Board Members 3.3.1 Information Regarding Board Members
As of April 7, 2018
Name / Position Nationality Elected
Date Term Gender (Yrs)
Date First Elected
Shareholding when Elected
Current Shareholding
Spouse & Minor
Shareholding Education & Experience
Current Position
Shares % Shares % Shares %
Paul Wang Chairman Representative of Pacific Venture Partners Co. Ltd.
Taiwan 2016.6.15 Male 3 2004.6.11 3,671,926 1.51 3,671,926 1.49 0 0.00
Carnegie Melon University, PhD in Physics Chairman of Sercomm Corporation
Note 1
Lu, Shyue-Ching Director Representative of ZhuoJian Investment Co., Ltd.
Taiwan 2016.6.15 Male 3 2013.6.20 3,472,094 1.43 4,197,094 1.71 0 0.00
University of Hawaii, Ph.D in Electric Engineering Former Chairman of Chunghwa Telecom Co.
Independent Director of MiTAC Holdings and Radium Life Tech Co., Ltd., Directors of CTCI ASI Corporation
James Wang Director & President
Taiwan 2016.6.15 Male 3 2001.5.28 959,006 0.48 989,006 0.40 0 0.00
Harvard Business School, MBA Carnegie-Melon University, ME President of Sercomm Corporation
Note 2
Ben Lin Director & Executive VP.
Taiwan 2016.6.15 Male 3 2004.6.11 744,201 0.31 744,201 0.30 736,896 0.30
National Tsing Hua University, MS Director of IBM Subsidiary
Note 3
Shih, Chin-Tay Independent Director
Taiwan 2016.6.15 Male 3 2013.6.20 0 0.00 0 0.00 0 0.00
Princeton University, PhD in Electrical Engineering Stanford University, MS in Management Science and Engineering Dean of the College of Technology Management of National Tsing Hua University
Independent Director of Vanguard International Semiconductor Corporation and FocalTech Systems Co.,Ltd.
Steve K. Chen Independent Director
U.S.A 2016.6.15 Male 2 2014.6.17 0 0.00 0 0.00 0 0.00
Harvard University, PhD in Law Active Lawyer
Note 4
| 2017 Annual Report 020
Name / Position Nationality Elected
Date Term Gender (Yrs)
Date First Elected
Shareholding when Elected
Current Shareholding
Spouse & Minor
Shareholding Education & Experience
Current Position
Shares % Shares % Shares %
Rose Tsou Independent Director
Taiwan 2017.6.22 Female 1 2017.6.22 0 0.00 0 0.00 0 0.00
Northwestern University, Kellogg School of Management, MBA Boston University MS in Mass Communication Head of Oath APAC
Note 5
Note Directors and supervisors are not spouse or within second-degree relative of consanguinity to each other.
Shares under Trust with Discretion Reserved:
Director and President/James Wang – 1,000,000 Shares
Director and Executive VP/Ben Lin – 3,154,439 Shares
Note 1 Chairman and CEO of Sercomm USA Inc.; Director of Prosperity Dielectrics Co., Ltd., and Taiwan Cement Co., Ltd., ;
Independent Director of Taishin Financial Holdings, UPC Technology Corp; Chairman of Monte Jade Science and
Technology Association
Note 2 Owner of Sercomm Trading Co. and Zealous Investments Ltd.; Chairman of Shukuan Investments Ltd., Sernet (Suzhou)
Technology Ltd., DWNet Technology Ltd., ZhuoJian Investment Co., Ltd. and Suzhou FemTel Communications;
Independent Director of Creative Sensor Inc.; Director of Sercomm Japan Corp., Sercomm Russia LLC, Hawxeye Inc.
and Nanjing FemTel Communications
Note 3 Owner of Smart Trade Inc.; Director of Shukuan Investments Ltd., Sernet (Suzhou) Technology Ltd., Sercomm USA
Inc., Sercomm Japan Corp., Sercomm Russia LLC, Hawxeye Inc., Suzhou FemTel Communications, Nanjing FemTel
Communications and Presciense Limited
Note 4 Executive Director of TriMax & Companies LLC and DNF Asset Management LLC; Director of Spatial Digital Systems
Inc., StemBios Technologies, Inc. and Bloominous Inc.; Chairman of eGtran Corporation, Gtran Inc., EZconn
Corporation, Oak Analytics Inc. and PhazrIO Inc.
Note 5: Independent Non-Executive Director of Haier Electronics Group Co., Ltd., Director of Hong Kong Television
Entertainment Company Limited and FundRich Securities Co. Ltd.
2017 Annual Report | 021
3.3.2 Major Institutional Shareholders
April 7, 2018
Name of Institutional Shareholder Primary Shareholder of Institutional Shareholder Shareholding %
Pacific Venture Partners Co. Ltd. Su Yi 62.50%
DaYuan Management Consulting Co. Ltd. 35.00%
ZhuoJian Investment Co., Ltd.
An-Bang Lin 25.48%
James Wang 17.34%
Zhu-Xian Lin 12.33%
3.3.3 Major Shareholders of the Major Shareholders that Are Juridical Persons
April 7, 2018
Name of Juridical Persons Major Shareholders of the Juridical Persons Shareholding%
DaYuan Management Consulting Co. Ltd. Honesty Ventures Limited 75.00%
5388 SUNRISE INC. 25.00%
| 2017 Annual Report 022
3.3.4 Professional Qualifications and Independence Analysis of Directors and Supervisors
Criteria
Name
Meet One of the Following Professional Qualification Requirements, Together with
at Least Five Years Work Experience
Independence Criteria(Note)
Number of Other Public
Companies in Which the
Individual is Concurrently Serving as an Independent
Director
An Instructor or Higher Position in a
Department of Commerce, Law,
Finance, Accounting, or Other Academic
Department Related to the Business
Needs of the Company in a Public
or Private Junior College, College or
University
A Judge, Public Prosecutor, Attorney,
Certified Public Accountant, or Other
Professional or Technical Specialist Who has Passed a
National Examination and been Awarded a
Certificate in a Profession
Necessary for the Business of the
Company
Have Work Experience in the Areas of Commerce,
Law, Finance, or Accounting, or Otherwise Necessary
for the Business of
the Company
1 2 3 4 5 6 7 8 9 10
Paul Wang Chairman Representative of Pacific Venture Partners Co. Ltd.
� � � � � � 2
Lu, Shyue-Ching Director Representative of ZhuoJian Investment Co., Ltd.
� � � � � � � � � � � 2
James Wang � � � � � � � � � 1
Ben Lin � � � � � � � � � 0
Shih, Chin-Tay � � � � � � � � � � � � 2
Steve K. Chen � � � � � � � � � � � � 0
Rose Tsou � � � � � � � � � � � 0
Note Please tick the corresponding boxes if directors or supervisors have been any of the following during the two years prior to being elected or during the term of office.
1. Not an employee of the Company or any of its affiliates.
2. Not a director or supervisor of the Company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the Company, its parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares.
3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings.
2017 Annual Report | 023
4. Not a spouse, relative within the second degree of kinship, or lineal relative within the fifth degree of kinship, of any of the persons in the preceding three subparagraphs.
5. Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that holds shares ranking in the top five in holdings.
6. Not a director, supervisor, officer, or shareholder holding 5% or more of the share, of a specified company or institution that has a financial or business relationship with the Company.
7. Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof.
8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company.
9. Not been a person of any conditions defined in Article 30 of the Company Law.
10. Not a governmental, juridical person or its representative as defined in Article 27 of the Company Law.
| 2017 Annual Report 024
3.3.5 Remuneration to Directors
Unit: Thousand NTD
Name / Position
Base Compensation (A)
Bonus to Directors (C)
Allowances (D)
Ratio of total remuneration to Net
Income (%) A+C+D
Salary, Bonuses & Allowances
(E)
Severance Pay (F)
Profit Sharing-Employee Bonus (G)
Ratio of Compensation to Net Income (%) A+C+D+E+F+G
Sercomm Consolidated Subsidiaries
Sercomm Consolidated Subsidiaries
Sercomm Consolidated Subsidiaries
Sercomm Consolidated Subsidiaries
Sercomm Consolidated Subsidiaries
Sercomm Consolidated Subsidiaries
Sercomm Consolidated Subsidiaries
Sercomm Consolidated Subsidiaries Cash
Bonuses Stock
Bonuses Cash
Bonuses Stock
Bonuses Paul Wang Chairman Representative of Pacific Venture Partners Co. Ltd.
0 0 13,119 13,119 24 24 1.00 1.00 1,400 4,280 0 0 0 0 0 0 1.11 1.33
James Wang Director & President
0 0 5,247 5,247 24 24 0.40 0.40 8,400 11,280 192 192 8,000 0 8,000 0 1.67 1.89
Ben Lin Director & Executive VP
0 0 5,247 5,247 24 24 0.40 0.40 3,850 8,040 66 66 4,000 0 4,000 0 1.01 1.32
Lu, Shyue-Ching Director Representative of ZhuoJian Investment Co., Ltd.
5,310 5,310 5,247 5,247 78 78 0.81 0.81 0 0 0 0 0 0 0 0 0.81 0.81
Shih, Chin-Tay Independent Director
Steve K. Chen Independent Director
Rose Tsou Independent Director
2017 Annual Report | 025
Compensation Range
Name of Director
Total Amount A+C+D
Total Amount A+C+D+E+F+G
Sercomm Consolidated Subsidiaries Sercomm Consolidated
Subsidiaries
Below NTD 2,000,000 Rose Tsou Rose Tsou Rose Tsou Rose Tsou
NTD 2,000,000 NTD 5,000,000 Shih, Chin-Tay; Steve K. Chen
Shih, Chin-Tay; Steve K. Chen
Shih, Chin-Tay; Steve K. Chen
Shih, Chin-Tay; Steve K. Chen
NTD 5,000,000 NTD 10,000,000
Lu, Shyue-Ching - Representative of ZhuoJian Investment Co., Ltd.; James Wang; Ben Lin
Lu, Shyue-Ching - Representative of ZhuoJian Investment Co., Ltd.; James Wang; Ben Lin
Lu, Shyue-Ching - Representative of ZhuoJian Investment Co., Ltd.
Lu, Shyue-Ching - Representative of ZhuoJian Investment Co., Ltd.
NTD 10,000,000 NTD 15,000,000
Paul Wang- Representative of Pacific Venture Partners Co. Ltd.
Paul Wang- Representative of Pacific Venture Partners Co. Ltd.
Paul Wang- Representative of Pacific Venture Partners Co. Ltd.; Ben Lin
NTD 15,000,000 NTD 30,000,000 James Wang
Paul Wang- Representative of Pacific Venture Partners Co. Ltd.; James Wang; Ben Lin
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
| 2017 Annual Report 026
3.3.6 Remuneration to Supervisor
Unit: Thousand NTD
Name / Position
Base Compensation (A)
Bonus to Supervisors (B)
Allowances (C)
T Ratio of total remuneration
(A+B+C) to net income (%)
Sercomm Consolidated Subsidiaries Sercomm Consolidated
Subsidiaries Sercomm Consolidated Subsidiaries Sercomm Consolidated
Subsidiaries
J.S. Kuo Supervisor Representative of An-Long Co. Ltd.
0 0 0 0 36 36 0.00 0.00 Edward Y. Way Supervisor Representative of YCSY Co., Ltd.
Cynthia Hsueh Supervisor
Note: Following the establishment of the Audit Committee, the Supervisory mechanism was abolished starting from June, 2017.
Compensation Range
Name of Supervisor
Total Amount A+B+C
Sercomm Consolidated Subsidiaries
Below NTD 2,000,000
J.S. Kuo- Representative of An-Long Co. Ltd., Edward Y.
Way - Representative of YCSY Co., Ltd., Cynthia Hsueh
J.S. Kuo- Representative of An-Long Co. Ltd., Edward Y. Way - Representative of YCSY Co., Ltd.,
Cynthia Hsueh
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
2017 Annual Report | 027
3.4 Management Team 3.4.1 Information Regarding Management Team
As of April 7, 2018
Name / Position Nationality Gender Elected Date
Current Shareholding
Spouse & Minor Shareholding Education &
Experience Current Position
Shares % Shares %
James Wang CEO / President Taiwan Male 2000.01.24 989,006 0.40 0 0.00
Harvard Business School, MBA Carnegie-Melon University, ME President of Sercomm Corporation
Note 1
Ben Lin Executive VP. Taiwan Male 1992.07.29 744,201 0.30 736,896 0.30
National Tsing Hua University, MS Director of IBM Subsidiary
Note 2
Charles Chu Senior VP Taiwan Male 2000.06.15 40,787 0.02 0 0.00
Michigan State University, MS in Mechanical Engineering Vice President of Northern United M&E Company
Owner of Huayi (Suzhou) Telecommunication Technologies Ltd. Director of DWNet Technology Ltd.; Supervisor of Sercomm Japan Corp.
Leo Chen VP Taiwan Male 2001.10.15 0 0.00 0 0.00
University of Illinois, MSA Director of Lite-On Group
Director of Shukuan Investments Ltd. WeiYun Co., Ltd
Jemmy Lee VP Taiwan Male 2002.04.24 82,171 0.03 0 0.00
Vice President of Proview Company China
-
Hawk Wu VP Taiwan Male 2007.03.01 110,000 0.04 0 0.00 Director of Quanta
Computer Corp. -
Vicky Lin VP Malaysia Female 2013.02.01 195,000 0.08 0 0.00
National Taiwan University BS in Economics Sales VP of Ayecom Technology
-
Colette Chen VP Taiwan Female 2013.02.01 80,000 0.03 0 0.00
Tamkang University, MS in European Studies Sales Manager of Veccom Co., Ltd.
-
| 2017 Annual Report 028
Name / Position Nationality Gender Elected Date
Current Shareholding
Spouse & Minor Shareholding Education &
Experience Current Position
Shares % Shares %
Earl Liao VP Taiwan Male 2013.07.01 470,486 0.19 1,163 0.00
National Chiao Tung University MS in Electrical Control Engineering President of Sercomm Suzhou Research & Development Center
-
Genevieve Lu VP Taiwan Female 2015.05.14 44,000 0.02 0 0.00
University of California, MBA Human Resources VP of Yahoo!
-
Winnie Hsieh Director Auditing Office
Taiwan Female 2007.06.15 406 0.00 0 0.00
Tamkang University, BS in Finance and Banking Special Assistant of WeiTai Corp.
-
Note Shares under Trust with Discretion Reserved:
CEO and President/James Wang – 1,000,000 Shares
Executive VP/Ben Lin – 3,154,439 Shares
Note 1 Owner of Sercomm Trading Co. and Zealous Investments Ltd.; Chairman of Shukuan Investments Ltd., Sernet (Suzhou)
Technology Ltd., DWNet Technology Ltd., ZhuoJian Investment Co., Ltd. and Suzhou FemTel Communications;
Independent Director of Creative Sensor Inc.; Director of Sercomm Japan Corp., Sercomm Russia LLC, Hawxeye Inc.
and Nanjing FemTel Communications
Note 2 Owner of Smart Trade Inc.; Director of Shukuan Investments Ltd., Sernet (Suzhou) Technology Ltd., Sercomm USA
Inc., Sercomm Japan Corp., Sercomm Russia LLC, Hawxeye Inc., Suzhou FemTel Communications, Nanjing FemTel
Communications and Presciense Limited
2017 Annual Report | 029
3.4.2 Compensation of President and Vice President
Unit: Thousand NTD
Name / Title
Salary(A) Severance Pay (B)
Bonuses and Allowances (C)
Profit Sharing- Employee Bonus (D)
Ratio of total compensation
(A+B+C+D) to net income (%)
Sercomm Consolidated Subsidiaries Sercomm Consolidated
Subsidiaries Sercomm Consolidated Subsidiaries
Sercomm Consolidated Subsidiaries
Sercomm Consolidated Subsidiaries Cash
Bonuses Stock
Bonuses Cash
Bonuses Stock
Bonuses James Wang CEO/ President
24,689 29,765 1,378 1,378 12,907 16,657 * 0 * 0 2.97 3.64
Ben Lin Executive Vice President Charles Chu Senior Vice President Leo Chen Vice President Jemmy Lee Vice President Hawk Wu Vice President Vicky Lin Vice President Colette Chen Vice President Earl Liao Vice President Genevieve Lu Vice President *Note: The compensation for employees and directors has not yet been decided and cannot be estimated on May 5. 2018. The compensation for last year was NT$ 40,700,500.
Compensation Range Name of President and Vice President
Sercomm Consolidated Subsidiaries
Under NT$ 2,000,000
NT$2,000,000 ~ NT$5,000,000
Ben Lin, Charles Chu, Leo Chen, Jemmy Lee, Hawk Wu, Vicky Lin,
Colette Chen, Earl Liao, Genevieve Lu
Charles Chu, Leo Chen, Jemmy Lee, Hawk Wu, Vicky Lin, Colette
Chen, Earl Liao, Genevieve Lu
NT$5,000,000 ~ NT$10,000,000 James Wang Ben Lin
NT$10,000,000 ~ NT$15,000,000 James Wang
NT$15,000,000 ~ NT$30,000,000
NT$30,000,000 ~ NT$50,000,000
NT$50,000,000 ~ NT$100,000,000
Over NT$100,000,000
Total 10 10
| 2017 Annual Report 030
3.4.3 Employee Profit Sharing Granted to Management Team Unit: Thousand NTD
Title Name Stock Bonus Cash Bonus Total Employee Profit Sharing
Total Employee Profit Sharing Paid
to Management Team as a % of
2017 Net Income
CEO/ President James Wang
0 40,701 40,701 3.10%
Executive Vice President Ben Lin
Senior Vice President Charles Chu
Vice President Leo Chen
Vice President Jemmy Lee
Vice President Hawk Wu
Vice President Vicky Lin
Vice President Colette Chen
Vice President Earl Liao
Vice President Genevieve Lu
*Note: The compensation for employees and directors has not yet been decided on May 5. 2018. The above compensation estimates are based on previous year.
2017 Annual Report | 031
3.4.4 Comparison of Remuneration for Directors, Supervisors, Presidents and Vice Presidents in the Most Recent Two Fiscal Years and Remuneration Policy for Directors, Supervisors, Presidents and Vice Presidents
The ratio of total remuneration paid by the company and by all companies included in the
consolidated financial statements for the most recent two fiscal years to directors, supervisors,
presidents and vice presidents of the Company, to the net income
Title 2016 2017
Sercomm Consolidated Subsidiaries Sercomm Consolidated
Subsidiaries
Directors
7.5% 9.3% 7.6% 9.2% Supervisors
Presidents and Vice Presidents
Directors / Supervisors President / Vice President
1. Remuneration policy Applied in accordance with Article 18 and 29 of the Articles of Incorporation
Applied in accordance with Regulations Governing the Salary and Remuneration, and the Implementation Rules for employees’ performance evaluation.
2. Standards and combinations Compensation for directors and supervisors, traveling expenses
Base salary, duty allowance, food allowance, employees bonus
3. The procedures for determining remuneration
Applied in accordance with the effective Articles of Incorporation after the resolution by the Annual Shareholders Meeting
Salaries are contracted by education, experience, and years of service, and approved by the Company's delegation of authorization.
4. Association of operational performance
Based on the Company's profits
Compensation was given by the rate of target completion, operational performance, and contributions.
5. Association of future risks
Fulfill duties of operation and supervision, and develop business policies turning a crisis into an opportunity
Enhance employees’ coherence to achieve the goal of sharing profit and loss between employers and employees.
| 2017 Annual Report 032
3.5 Corporate Governance 3.5.1 Board of Directors The Board of Directors held 4 meetings in 2017. The attendance of Directors were as follows:
Title Name Attendance in Person By Proxy Attendance Rate (%) Remarks
Chairman
Paul Wang Chairman
Representative of Pacific Venture
Partners Co. Ltd.
4 0 100
Director
Lu, Shyue-Ching Representative of
ZhuoJian Investment Co., Ltd.
4 0 100
Director James Wang 4 0 100
Director Ben Lin 4 0 100 Independent
Director Shih, Chin-Tay 3 0 75
Independent Director Steve K. Chen 4 0 100
Independent Director Rose Tsou 2 0 100 Elected on
2017.6.22
Supervisor J.S. Kuo
Representative of An-Long Co. Ltd.
2 0 100 Discharged on 2017.6.22
Supervisor Edward Y. Way
Representative of YCSY Co., Ltd.
2 0 100 Discharged on 2017.6.22
Supervisor Cynthia Hsueh 2 0 100 Discharged on 2017.6.22
Annotations:
1. (1) Securities and Exchange Act §14-3 resolutions
Date of Board Meeting Resolution Individual Directors’ Opinions
Company’s Response
2017.3.27 The endorsement and guarantee for DWnet Technology (Suzhou) Co., Ltd
None None
2017.8.11 To make fund lending for Sernet (Suzhou) Technologies Corporation
None None
2017.11.3 The endorsement and guarantee for Sercomm Russia LLC. None None
2017.11.3 The endorsement and guarantee for Sercomm Japan Corp. None None
4. If there are Directors’ avoidance of motions in conflict of interest, the Directors’ names, contents of motion, causes for avoidance and voting should be specified: None
5. Measures taken to strengthen the functionality of the Board: Following the establishment of the Audit Committee, Sercomm board by-election of one Independent Director. To implement the spirit of corporate governance, the Company complies all the requirements and fully discloses Sercomm’s business and financial information on the company website, in the annual report, and through the Market Observation Post System to effectively enhance the transparency of information.
2017 Annual Report | 033
3.5.2 Audit Committee The Audit Committee held 2 meetings in 2017. The attendance of Independent Directors were as
follows:
Title Name Attendance in Person
AttendanceRate (%) Remarks
Independent Director Shih, Chin-Tay 2 100 The Company established the Audit
Committee on June, 2017 in order to
substitute for the supervisor’s
functions.
Independent Director Steve K. Chen 2 100
Independent Director Rose Tsou 2 100
Annotations:
1. (1) Securities and Exchange Act §14-5 resolutions
Date of Board Meeting Resolution Individual Directors’ Opinions
Company’s Response
2017.8.11 To make fund lending for Sernet (Suzhou) Technologies Corporation
None None
2017.11.3 The endorsement and guarantee for Sercomm Russia LLC. None None
2017.11.3 The endorsement and guarantee for Sercomm Japan Corp. None None
(2) There were no other written or otherwise recorded resolutions on which an Independent Director had a dissenting opinion or qualified opinion in 2017.
6. If there are Individual Directors’ avoidance of motions in conflict of interest, the Individual Directors’ names, contents of motion, causes for avoidance and voting should be specified: None
7. Descriptions of the communications between the Independent Directors, the Internal Auditors, and the Independent Auditors in 2017 (which should include the material items, channels, and results of the audits on the corporate finance and/or operations, etc.): The Internal Auditors and the Independent Directors communicate with each other quarterly on Audit Committee. And Internal Auditors present the audit report during the meeting. All of above matters were reviewed and approved by the Audit Committee whereupon independent directors raised no objection.
The Board of Directors held 4 meetings in 2017. The attendance of supervisor was as follows:
Title Name Attendance in Person
Attendance Rate (%) Remarks
Supervisor J.S. Kuo
Representative of An-Long Co. Ltd.
2 100 Discharged on 2017.6.22
Supervisor Edward Y. Way
Representative of YCSY Co., Ltd.
2 100 Discharged on 2017.6.22
Supervisor Cynthia Hsueh 2 100 Discharged on 2017.6.22
| 2017 Annual Report 034
3.5.3 Taiwan Corporate Governance Implementation as Required by the Taiwan Financial Supervisory Commission
Assessment Item Implementation Status Non-
implementationand its
reason(s) Yes No Explanation
1. Does Company follow “Taiwan Corporate Governance Implementation” to establish and disclose its corporate governance practices?
V Sercomm ������ �� ���������������� ����������������#�� �<� Not regulated
2. Shareholding Structure & >���������@�[�\� � (1) Does Company have Internal
Operation Procedures for �������\�����������@�suggestions, concerns, disputes and litigation matters. If yes, have these procedures been implemented accordingly?
V
Sercomm has set up an investor relations department to deal with shareholder issues. Furthermore, there are investor relations section and stakehold���@�\�\]� �section on the Company website that provide links to each relevant business department for ���� ���@���������������@�������
None
(2) Does Company possesses a list of major shareholders and beneficial owners of these major shareholders?
V
Sercomm keeps track of the shareholding conditions of the directors, supervisors, managers and shareholders who possess more than 10% of the C�]����@��������� �any time
None
(3) Has the Company built and executed a risk management ��� ]�������������<�� ���the Company and its affiliates?
V Sercomm and its subsidiaries formulate relevant management measures according to relevant provisions.
None
(4) Has the Company established internal rules prohibiting insider trading on undisclosed information?
V Sercomm has established Procedures for Handling Inside Information Material. None
3. Composition and Responsibilities of the Board of Directors (1) Has the Company established a
diversification policy for the composition of its Board of Directors and has it been implemented accordingly?
V
Selection guidelines for the Company's directors: The candidates for directors should be nominated, and the review criteria and procedures for the candidates will be fully disclosed at MOPS. The selected directors should have diversified professional backgrounds, experience, and excellent vision. Also, guidelines are being formulated for diversified membership of the board of directors, considering the organization culture, business model and long-term development. With total seven directors of the company, each directors@ hold professional backgrounds compose the board of directors of the Company, which includes professors, CPAs, lawyers and industry leaders. Currently, there are three independent directors (including one female director), and one of the directors is located in the United States. The number of directors who have no managing responsibility
None
2017 Annual Report | 035
Assessment Item Implementation Status Non-
implementationand its
reason(s) Yes No Explanation
in this Company is up to half of the board of directors.
(2) Other than the Compensation Committee and the Audit Committee which are required by law, does the Company plan to set up other Board committees?
V
Sercomm’s Compensation Committee consists of four members, including Hongshou Chen and three independent directors, Chin-Tay Shih, Steve K. Chen and Rose Tsou, wherein Chin-Tay Shih serves as the convener. The meeting shall held at least one regular meeting each quarter.
None
(3) Has the Company established methodology for evaluating the performance of its Board of Directors, on an annual basis?
V Sercomm has not yet established a methodology for evaluating the performance of its Board of Directors.
Not regulated
(4) Does the Company regularly evaluate its external auditors’ independence?
V
The Board of Directors evaluates the independence of external auditors annually. The evaluation was approved by the Board meeting on 03/27/2017. The accountants of Ernst & Young through our evolution have met the standard of independence and no ��^� ��\��� �� ���� �� ����]����� Please refer note 1 for the Assessment of Accountant's Audit independence and Eligibility. Furthermore, the company decide to discountinue the engagement with Ernest & Yang. The new accounting firm is PricewaterhouseCoopers (PwC) Taiwan. Liang, Yi-Chang and Wu, Yu-Lung are the new CPA of the company.
None
4. Does the Company established a full- (or part-) time corporate governance unit or personnel to be in charge of corporate governance affairs (including but not limited to furnish information required for business execution by directors, handle matters relating to board mee ��\����������������@ meetings according to laws, handle corporate registration and amendment registration, produce (or record?) minutes of board meetings and shareholders meetings, etc.
V
The Investor Relations Department of the Company is responsible for corporate governance. Their responsibilities include: ��� �� ��\��������������@��� �� �_�integrating the rules and systems regarding corporate governance from various departments to ensure full information disclosure, conducting corporate briefings and symposia on business performance, participating in investment forums occasionally, and maintaining a proper communication channel with investors. Besides, the Financial Accounting Department is the unit of the board of directors meetings and provides the information needed by the directors and supervisors used in conducting their business, and also prepares the most updated regulatory developments related to company operation in order to assist the directors and supervisors in regulatory compliance.
None
| 2017 Annual Report 036
Assessment Item Implementation Status Non-
implementationand its
reason(s) Yes No Explanation
5. Has the Company established a means of communicating with its Stakeholders or created a Stakeholders Section on its Company website? Does the Company respond to stakeholders’ questions on corporate responsibilities?
V
Sercomm has a stakeholders’ engagement section on the Company website to address our corporate social responsibilities and any other issues. Moreover, the Company provides investor relations, customer and corporate social responsibility related department communication channels for stakeholders.
None
6. Has the Company appointed a professional registrar for its Shareholders’ Meetings?
V The Company has appointed Taishin International Bank Stock Affairs Division to deal with shareholder affairs.
None
7. Information Disclosure (1) Has the Company established a
corporate website to disclose information regarding its financials, business and corporate governance status?
V
Sercomm has set up a Chinese/English website (http://www.Sercomm.com) to disclose the information regarding the Company’s financials, business and corporate governance status.
None
(2) Does the Company use other information disclosure channels (e.g. maintaining an English-language website, designating staff to handle information collection and disclosure, appointing spokespersons, webcasting
investor’s conference etc.)?
V
In addition to the spokespersons and investor relations department, the Company’s website contains company information in both Chinese and English. The website is maintained and updated by dedicated personnel. The Company also provides related information in the Market Observation Post System according to the regulations, and holds regular investor conferences to report the Company’s operational status.
None
8. Has the Company disclosed other information to facilitate a better understanding of its corporate governance practices (e.g. including but not limited to employee rights, employee wellness, investor relations, supplier relations, rights of stakeholders, directors’ training records, the implementation of risk management policies and risk evaluation measures, the implementation of customer relations policies, and purchasing insurance for directors)?
V Please refer to the Sercomm website and annual report for more information. (http://www.Sercomm.com)
None
9. The improvement status for the result of Corporate Governance Evaluation announced by Taiwan Stock Exchange: N/A
2017 Annual Report | 037
Notes 1: Assessment of Accountant's Audit independence and Eligibility
Items Assessment Results
Accountant Independence
Does the accountant have any direct or indirect material financial interest in the Company? No Yes
Does the accountant engage in any financing or guaranteeing with the Company’s directors? No Yes
Does the accountant have any close business relationships and potential employment relationships with the Company? No Yes
Whether the accountant or any of audit team members currently or for the last two years has acted as a director, management, or been in a position which had a significant impact on the audit work in the Company?
No Yes
Does the accountant provide the Company with non-audit services that may directly affect the audit work No Yes
Whether the accountant is a broker for the stocks or other securities issued by the Company? No Yes
Whether the accountant serves as the defender of the Company or, on behalf of the Company, deal the conflict between other third parties? No Yes
Does the accountant have a kinship relationship with any person who acts as a director, management, or is in the position which has a significant impact on the audit work in the Company?
No Yes
| 2017 Annual Report 038
3.5.4 Compensation Committee
Compensation Committee Members’ Professional Qualifications and Independent Analysis
Criteria Name
Meet the Following Professional Qualification Requirements, Together with at Least Five Years Work
Experience Criteria (Note)
Number of Other
Taiwanese Public
Companies Concurrently Serving as a Compensati
on Committee Member in
Taiwan
An Instructor or Higher Position in a Department of Commerce, Law,
Finance, Accounting, or
Other Academic Department
Related to the Business Needs of the Company
in a Public or Private Junior
College, College or University
A Judge, Public Prosecutor,
Attorney, Certified Public Accountant,
or Other Professional or
Technical Specialists Who Has Passed a
National Examination and Been Awarded a Certificate in a
Profession Necessary for the Business of the
Company
Have Work Experience in
the Area of Commerce,
Law, Finance, or Accounting, or Otherwise Necessary for
the Business of the Company
1 2 3 4 5 6 7 8
Shih, Chin-Tay Independent Director
� � � � � � � � � � 2
Steve K. Chen Independent Director
� � � � � � � � � � 0
Rose TsouIndependent Director
� � � � � � � � � 0
Hilo Chen � � � � � � � � � 1
Note Compensation Committee Members, during the two years before being elected or during the term of office, meet any of the following situations; please tick the appropriate corresponding boxes:
1. Not an employee of the company or any of its affiliates.
2. Not a director or supervisor of the company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the company, its parent company, or any subsidiary in which the company holds, directly or indirectly, more than 50 percent of the voting shares.
3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of one percent or more of the total number of issued shares of the company or ranks as one of its top ten shareholders.
4. Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the above persons in the preceding three subparagraphs.
2017 Annual Report | 039
5. Not a director, supervisor, or employee of a corporate/institutional shareholder that directly holds five percent or more of the total number of issued shares of the company or ranks as of its top five shareholders.
6. Not a director, supervisor, officer, or shareholder holding five percent or more of the shares of a specified company or institution that has a financial or business relationship with the company.
7. Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to the company or to any affiliate of the company, or a spouse thereof.
8. Not been a person of any conditions defined in Article 30 of the Company Law.
3.5.5 Compensation Committee Meeting Status
1. Compensation Committee consists of three members. The tenure is from June 15, 2016 to June 14, 2019.
2. Compensation Committee convened three regular meetings in 2017. The Committee members’ attendance status is as follows:
Title Name Attendance in Person By Proxy Attendance Rate
in Person (%) Notes
Chair Shih, Chin-Tay 3 0 100%
Member Hilo Chen 3 0 100%
Member Steve K. Chen 2 1 67%
Member Rose Tsou 1 0 100% Appointed on Aug. 2017
Notes
1. There was no recommendation of the Compensation Committee which was not adopted or was modified by the Board of Directors in 2017.
2. There were no written or otherwise recorded resolutions on which a member of the Compensation Committee had a dissenting opinion or qualified opinion.
| 2017 Annual Report 040
3.5.6 Social Responsibility Implementation Status as Required by the Taiwan Financial Supervisory Commission
Assessment Item Implementation Status Non-
implementation and its
reason(s) Yes No Explanation
1. Implementation of Corporate Governance (1) Does the Company have a
corporate social responsibility policy and evaluate its implementation?
V CSR policy is under discussion according to related regulations. Not regulated
(2) Does the Company hold regular CSR training? V
Sercomm regularly devotes resources to employee CSR training and cultivation, and also provides senior managers with information advocating an understanding of the importance of CSR.
None
(3) Does the Company have a dedicated (or ad-hoc) CSR organization with Board of Directors authorization for senior management, which reports to the Board of Directors?
V Sercomm has created a department which is responsible for CSR matters, in order to comply with the regulations.
Report to Chairman and
President
(4) Does the Company set a reasonable compensation policy, integrate employee appraisal with CSR policy, and set clear and effective incentive and disciplinary policies?
V
Sercomm offers its employees the most competitive total compensation to attract and retain talented individuals who will become the best momentum of sustainable corporate growth. The Company's overall compensation package includes: basic salaries, rewards and employee bonuses. Employee’s total compensation is based on the overall assessment of professional knowledge and skills, work responsibilities, performance.
None
2. Environmentally Sustainable Development (1) Is the Company committed
to improving resource efficiency and to the use of renewable materials with low environmental impact?
V
To pursue the balance between environmental protection and business sustainability, Sercomm actively participates in global environmental protection programs, such as the Carbon Disclosure Project (CDP), the Hazardous Substances Free (HSF) and Lead-free Process, etc.
None
(2) Has the Company set an Environmental management system designed to industry characteristics?
V
Sercomm’s factories located in Chunan and Suzhou have already obtained certifications of Environmental Management System (ISO 14001) and Occupational Health and Safety Management System (OHSAS 18001). The Company is also dedicated to pollution prevention, energy and resource saving, waste reduction and accident prevention with the aim of providing a comfortable and safe working environment.
None
2017 Annual Report | 041
Assessment Item Implementation Status Non-
implementation and its
reason(s) Yes No Explanation
(3) Does the Company track the impact of climate change on operations, carry out greenhouse gas inventories, and set energy conservation and greenhouse gas reduction strategy?
V
Sercomm values the environmental sustainability topic, and continues to implement and maintain various management systems (e.g. ISO 9001 and ISO 14001, et al.), and various regulations applicable internationally (e.g. RoHS and conflict minerals, et al.). Sercomm is committed to comply with various EHS laws and regulations and continues to fulfill the environmental protection policy.
Emissions Management - Delivering production quantities of lead-free
devices - The waste solution of various organic solvents
(flux and detergent) applied in the production lines is handled by the legal cleaning service provider contracted by the factories.
Waste Management Sercomm reduces the consumption of energy and resource and mitigates the environmental impact caused during the product campaign and service. Sercomm strictly implements garbage sorting and reduction of waste at its factory premises, installs the storage area for the waste in accordance with the relevant requirements, and contracts the qualified waste disposition service provider to dispose of the waste. Meanwhile, it will conduct an audit on the site from time to time.
Carbon Emissions Management Since 2014, Sercomm has set the boundary of organization per the customer’s need and performed the greenhouse gas inspection by phase. Meanwhile, it set 2014 as the record year and the annual carbon emission is expected to increase <10%.
Please refer to Sercomm CSR report Chapter 4 “Enviromental Sustainability” for more detail.
None
| 2017 Annual Report 042
Assessment Item Implementation Status Non-
implementation and its
reason(s) Yes No Explanation
3. Promotion of Social Welfare (1) Does the Company set
policies and procedures in compliance with regulations and internationally recognized human rights principles?
V
Sercomm believes in that human resource is the key to maintaining its core competitiveness and, therefore, spares no effort to train its employees and strictly comply with various requirements under the labor laws and Electronic Industry Citizenship Coalition (EICC). In light of the philosophy of "human resources are the foundation for innovation”, the Company is dedicated to recruiting professionals for all positions available. Sercomm assigns employees adequately and properly based on their specialties and professions, regardless of race, gender, age, religion, political affiliation, social class, language, thoughts, birthplace, marriage, physical or mental disability. All employees are entitled to the same rights of work, salary and benefits. Meanwhile, the Company forbids any form of discrimination, including age, race, skin color, gender or religious bias. We believe that new ideas can be generated through the interaction among employees of different cultures, backgrounds and experiences. In addition, the Company follows the existing relevant national laws, including the Labor Standards Act, the Employment Services Act and the Act of Gender Equality in Employment, etc., to ensure that applicants and employees are treated equally with respect to recruitment, assignment, development, evaluation and reward, and to prohibit child labor, forced labor, and violations of human rights.
None
(2) Has the Company established appropriately managed employee appeal procedures?
V
An Employee Opinion Box provides a channel for employees to express their suggestions or opinions. (Sexual harassment , fraud or ethics violations mailbox: HR_Help@sercomm.com)
None
(3) Does the Company provide employees with a safe and healthy working environment, with regular safety and health training?
V
Sercomm’s ESH (Environment and Employee Safety and Health Protection) policy is focused on establishing a safe working environment and keeping employees healthy. The Company periodically provides a full medical examination to all employees and irregular training for emergency personnel.
None
(4) Has the Company established a mechanism for regular communication with employees and use reasonable measures to notify employees of operational changes which may cause significant impact to employees?
V
Sercomm ensures every employee has a smooth internal communication path with management. Furthermore, the Company has established the Employee Welfare Committee to protect employees' rights to their benefits. Annual staff meetings ensure that every employee understands the Company’s operations and performance expectations.
None
2017 Annual Report | 043
Assessment Item Implementation Status Non-
implementation and its
reason(s) Yes No Explanation
(5) Has the Company established effective career development training plans?
V
Sercomm believes that human resources are the foundation for innovation. The Company combines corporate needs and each individual’s career development as a main corporate orientation. The Company actively promotes relevant educational training and divides the training framework into 5 major systems to enhance the cultivation of talent in a targeted and systematic way.
None
(6) Has the Company set polices and consumer appeal procedures in its R&D, purchasing, production, operations, and service processes?
V
Sercomm endeavors to understand stakeholders’ opinions and recommendations, and to build a good communication channel to ensure mutual understanding and respect. Stakeholders can submit their concerns via sc5388@sercomm.com.
None
(7) Does the Company follow regulations and international standards in the marketing and labeling of its products and services?
V
Sercomm complies with the environmental laws and requirements of the International Covenant in order to maintain its status as a green corporation implementing sustainable development and abides by the International Covenant’s voluntary commitments in the areas of environmental health and safety and energy conservation.
None
(8) Does the Company evaluate environmental and social track records before engaging with potential suppliers?
V
Sercomm screens new suppliers based not only on general items, such as quality, cost, delivery and service, but also on Sercomm’s specifications and requirements for green products. Each candidate needs to sign a “Product Quality Guarantee Agreement” and to pass a green product audit prior to becoming a qualified supplier. The Company regularly reviews suppliers through assessments to evaluate supplier performance.
None
(9) Does the Company’s contracts with major suppliers include termination clauses if they violate CSR policy and cause significant environmental and social impact?
V
Sercomm works closely with all suppliers. Through effective communication, tracking and management, Sercomm ensures the exclusion of components containing banned or restricted chemical materials and maintains links to a component approval process. Sercomm also demands all suppliers sign a “Product Quality Guarantee Agreement” wherein the content clearly states Sercomm’s requirements and regulations for green products. No material containing environmentally hazardous materials is allowed, including raw materials defined under the commitment of the European Union Restriction of Hazardous Substances (RoHS) protocol and the Registration, Evaluation, Authorization and Restriction of Chemical Substances protocol (REACH).
None
| 2017 Annual Report 044
Assessment Item Implementation Status Non-
implementation and its
reason(s) Yes No Explanation
4. Enhanced Information Disclosure
Does the Company disclose relevant and reliable CSR information on its website and the Taiwan Stock Exchange website?
V
Sercomm has published a “Corporate Social Responsibility Report“ which is also published on the Company website. Please refer to Sercomm website for more details.
None
5. If the Company has established its corporate social responsibility code of practice according to “Listed Companies Corporate Social Responsibility Code of Practice,” please describe the operational status and differences: Sercomm ������ �� ��������������� �>�����[���������� ���������#�� ��
6. Other important information to facilitate better understanding of the Company’s implementation of corporate social responsibility:
Since Sercomm was founded, its social participation has been rooted in its core value. Sercomm has been dedicated to “Care for Rural Area Education” and “Training of Young Talents” as the major elements of its social participation. Sercomm exerts the strength gathered by employees from inside out, expands its social participation, provides feedback to the community, and services to people in the hopes of building a society which is innovative and diversified and that shows care for the society and environmental sustainability.
Care for Rural Area Education and Promote Social Mobility>��]]��������}���� �� ��������������\����_����������������_<���������������� �� ��-year full-time teacher project, TFT recruited young educators with the sense of mission to work for the rural area elementary schools which need the educational resources. Sercomm provided them with the training and support system on an on-going basis. As a result, TFT has became the promoter of fine-quality education and has exerted its influence permanently in Taiwan. In addition to sponsoring the salary and training of rural area teachers, Sercomm also organizes the volunteer workers’ groups, and has each volunteer worker's group propose its teacher supporting plan to provide the ad hoc assistance per the need of each teacher or school. Sercomm volunteer workers’ groups help rural area teachers solve any difficulty met by them in the process of teaching by organizing activities with the aid of software and hardware and routine communication and by utilizing the enterprise’s resources as their strong backup. Sercomm expects to enable the rural area children to receive the education they deserve and �������� � �������@�� ����\��� ������ ����� ����\�� �������� ����������� ��\������
Cultivation of Talents and Student Programs
Sercomm has played the role responsible for bridging the internal and external society charity groups to gather the charity and care, expand resources, and provide help. In order to care for the vulnerable groups in the community, Sercomm donates a fixed fund to orphanages and rural area schools each year ���� ������� �� �>��]]� >����������<� ��� ��������\� �� ����� � ��� ����}� �� �� �]]��� �� ����society, Sercomm has its R&D supervisors nominate excellent junior high school students from the supervisors’ hometown to receive the incentives granted by Sercomm in order to encourage the students to study hard and enable the young people and poor students to mitigate their economic burden and help ���� ��]���@�����]���>rcomm supports rural children in the hopes that the students may complete studies to help themselves and others and later contribute to society.
7. Other information regarding the “Corporate Responsibility Report ” which are verified by certification bodies: Sercomm@��������� �>�����[���������� ��[��� ������� �� ��������������� ���� ����������
2017 Annual Report | 045
3.5.7 Taiwan Corporate Conduct and Ethics Implementation as Required by the Taiwan Financial Supervisory Commission
Assessment Item Implementation Status Non-
implementation and its
reason(s) Yes No Explanation
1. Establishment of Corporate Conduct and Ethics Policy and Implementation Measures (1) Does the Company have
bylaws and publicly available documents addressing its corporate conduct and ethics policy and measures, and the commitment regarding implementation of such policy from the Board of Directors and the management team?
V
All important policies relating to the operation, investment, acquisition or disposition of assets, the lending of funds, articles of guarantee or endorsement, and financing from banks are subject to the study and assessment of the competent authorities of the Company and to the resolution of the Board.
None
(2) Does the Company establish relevant policies which are duly enforced to prevent unethical conduct and provide implementation procedures, guidelines, consequence of violation and complaint procedures in such policies?
V
Sercomm established an “Operating Procedures for Handling Internal Material Information” for employee to comply with these relevant regulations.
None
(3) Does the Company establish appropriate compliance measures for the business activities prescribed in Paragraph 2, Article 7 of the Ethical Corporate Management Best Practice Principles for TWSE/GTSM Listed Companies and any other such activities associated with high risk of unethical conduct?
V All Sercomm employees and suppliers are required to sign a “Declaration of Integrity”. None
2. Ethic Management Practice (1) Does the Company assess
the ethics records of those it has business relationships with and include business conduct and ethics related clauses in the business contracts?
V Sercomm requires that every supplier must complete and sign business and ethics clauses as part of the Supplier's Undertakings.
None
(2) Does the Company set up a unit which is dedicated to or tasked with promoting the Company’s ethical
V
The Company advocates ethical corporate management and has appointed a designated department to ensure the implementation of decisions of the Board in such matters. Related
None
| 2017 Annual Report 046
Assessment Item Implementation Status Non-
implementation and its
reason(s) Yes No Explanation
standards and reports directly to the Board of Directors with periodical updates on relevant matters?
documents are subject to approval across the corporate hierarchy and require proper authorization. The HR representatives of ethical corporate management report to the Board quarterly.
(3) Does the Company establish policies to prevent conflict of interests provide appropriate communication and complaint channels and implement such policies properly?
V
The Company has established a policy requiring the avoidance of any conflict of interest. This policy on ethical business practices is inserted into agreements with the employees and suppliers. In addition, the Company also provides channels to report unethical practices and keeps the identity of the informants in strict confidence. The e-mail for filing complaints is: audit@sercomm.com
None
(4) To implement relevant policies on ethical conducts, does the Company establish effective accounting and internal control systems that are audited by internal auditors or CPAs periodically?
V
The accounting of all transactions is reviewed under established accounting principles. In cases of materiality, or in questionable cases, the Company will consult with CPAs for verification and confirmation.
None
(5) Does the Company provide internal and external ethical conduct training programs on a regular basis?
V
The Company holds an orientation for new employees, provides general managerial and developmental training regularly, and advocates the ethical corporate management policy of the Company.
Not regulated
3. Implementation of Complaint Procedures (1) Does the Company
establish specific complaint and reward procedures, set up conveniently accessible complaint channels, and designate responsible individuals to handle the complaint received?
(2) Does the Company establish standard operation procedures for investigating the complaints received and ensuring such complaints are handled in a confidential manner?
(3) Does the Company adopt proper measures to prevent a complainant from retaliation for his/her filing a complaint?
V
The Company has established a stakeholders’ engagement section on Company websites and has designated a department for responding to the queries and communications of stakeholders (or related parties) .The stakeholders (or related parties) may report on or file complaints relating to questionable matters. All reports and complaints are handled in accordance with standard operation procedures which maintain principles of confidentiality and non-disclosure. The e-mail for report and complaints is: sc5388@sercomm.com
None
2017 Annual Report | 047
Assessment Item Implementation Status Non-
implementation and its
reason(s) Yes No Explanation
4. Information Disclosure Does the Company disclose its guidelines on business ethics as well as information about implementation of such guidelines on its website and Market Observation Post System (“MOPS”)?
V Sercomm has not yet disclosed its guidelines on business ethics on the Market Observation Post System ("MOPS").
None
5. If the Company has established corporate governance policies based on TWSE Corporate Conduct and Ethics Best Practice Principles, please describe any discrepancy between the policies and their implementation. Sercomm has not yet established the “Corporate Conduct and Ethics Best Practice Principles”.
6. Other important information to facilitate better understanding of the Company’s corporate conduct and ethics compliance practices (e.g., review the company’s corporate conduct and ethics policy): None
| 2017 Annual Report 048
3.6 Internal Control System Execution Status
Sercomm Corporation
Statement of Declaration of Internal Control Date: March 12, 2018
Sercomm Corporation has conducted internal audits in accordance with its Internal Control Regulations for the period ended December 31st, 2017, and hereby declares the following:
1. The Company acknowledges and understands that the establishment, nforcement, and preservation of internal control systems are the responsibility of the Board and that the managers and the Company have already established such systems. The purpose is to reasonably ensure the effectiveness (including profitability, performance, and security of assets), the reliability, timeliness, transparency of financial reporting, and legal and regulation compliance.
2. Internal control systems have limitations, no matter how perfectly they are designed. As such, effective internal control systems may only reasonably ensure the achievement of the aforementioned goals. Further, the operation environment and situation may vary, and hence the effectiveness of the internal controls systems. The internal control systems of the Company feature certain self-monitoring mechanisms. The company will take immediate corrective actions once any shortcomings are identified.
3. The Company judges the effectiveness of the internal control systems in design and enforcement according to the “Criteria for the Establishment of Internal Control Systems of Public Offering Companies” (hereinafter referred to as “the Criteria”). The Criteria is instituted for judging the effectiveness of the design and enforcement of internal control systems. There are five components for effective internal control as specified by the Criteria with which the procedures for effective internal controls are composed: (1) Control environment, (2) Risk evaluation, (3) Control operation, (4) Information and communication, and (5) Monitoring. Each of the elements in turn contains certain audit items, and the Criteria shall be referred to for details.
4. The Company has adopted the aforementioned internal control systems for an internal assessment of the effectiveness of internal control design and enforcement.
5. Based on the aforementioned audit findings, the Company holds that within the aforementioned period, its internal control procedures (including the procedures to monitor subsidiaries), effectiveness and efficiency of operations, reliability, timeliness, transparency of reporting, and compliance with relevant legal regulations, and design and enforcement of internal controls, are effective. The aforementioned goals can be achieved with reasonable assurance.
6. This statement of declaration shall form an integral part of the annual report and prospectus of the Company and shall be made public. If there is any fraud, concealment, or unlawful practices discovered in the content of the aforementioned information, the Company shall be liable to legal consequences under Article 20, 32, 171, and 174 of the Securities and Exchanges Act.
7. This statement of declaration has been approved by the Board on March 12, 2018 with all Directors in session under unanimous consent.
Sercomm Corporation
Paul Wang
Chairman
James Wang
President and CEO
2017 Annual Report | 049
3.7 Major Resloutions of Board Meetings and Shareholders’ Meeting
3.7.1 Major Resolutions of Board Meetings
Date Major Resolutions
2017.3.27
1. Ratification of 2016 Internal Control System Statement
2. Ratification of Bank Line of Credit
3. Approval of 2016 Business Report and 2017 Business Plan 4. Approval of 2016 remuneration to Directors and Supervisors, Employee Profit sharing, and
Management Bonus
5. Approval of 2016 Profit Distribution
6. Approval of 2016 Financial Statement
7. Approval of Artical of Incorporation
8. Approval of by-election of the Independent Director
9. Approval of convening 2017 Annual shareholders Meeting 10. Approval to provide the endorsement and guarantee for DWnet (Suzhou) Technologies
Corporation
2017.5.4
1. Ratification of Bank Line of Credit
2. Approval of the Audit Committee Charter
3. Approval of Qualification of the nominated Independent Directors 4. Approval of removing non-competition restrictions on Managerial officers, Directors and
Representatives
2017.8.11
1. Ratification of Bank Line of Credit 2. Approval of amendment of Remuneration Committee Charter and Remuneration of
Management Board and Supervisory Board members 3. Approval of changes Compensation Committee members 4. Approval on loaning of funds for Sernet (Suzhou) Technology Ltd.
2017.11.11
1. Ratification of Bank Line of Credit
2. Ratification of provide the endorsement and guarantee for Sercomm Russia LLC.
3. Approval of Employee Stock Option issuing new shares for stock conversion
4. Approval of Compensation Committee for Management Bonus and Employee Profit sharing
5. Approval of remuneration to Directors and Supervisors and Management Bonus.
6. Approval of 2018 Internal Audit Plan
7. Approval on loaning of funds for Sercomm Japan Corp.
2018.3.12
1. Ratification of Bank Line of Credit
2. Ratification of 2017 Internal Control System Statement
3. Ratification of amendment of the Operational Procedures for Loaning of Company Funds
4. Approval of 2017 Business Report and 2018 Business Plan 5. Approval of 2017 remuneration to Directors and Supervisors, Employee Profit sharing, and
Management Bonus
| 2017 Annual Report 050
Date Major Resolutions
6. Approval of 2017 Profit Distribution
7. Approval of 2017 Financial Statement
8. Approval of amendment of the Operational Procedures for Loaning of Company Funds
9. Approval of convening 2018 Annual shareholders Meeting
10. Approval to provide the endorsement and guarantee for Hawxeye Inc.
11. Approval of amendment of the Rules of Procedure for Board of Directors Meetings
12. Approval of amendment of the Audit Committee Charter
13. Approval of change Accounting Firm and Charted Public Accountant
2017.4.23
1. Approval of amendment of 2017 Profit Distribution 2. Approval of the issuance of new common shares for cash or domestic convertible bonds in
private placement 3. Approval of convening 2018 Annual shareholders Meeting supplementary notice
3.7.2 Major Resolutions of Shareholders’ Meeting and Implementation Status
Date Major Resolutions Implementation Status
2017.6.22
Acknowledgement Items:
1. Adoption of the 2016 Business Report and Financial Statements
Approved
2. Adoption of the proposal for Distribution of 2016 Profits
Approved a cash dividend per share of NT$4.2 and cash dividend payment date was August, 15, 2017.
Discussion Items:
1. Amendment to the Articles of Incorporation Approved
2. Amendment to the Rules and Procedure of Shareholder Meetings, Rules for Director and Supervision Elections, the Operational Procedures for Acquisition and Disposal of Assets, the Operational Procedures for Endorsements and Guarantees, the Operational Procedures for Loaning of Company Funds
Approved
3. By-election of the Company's Independent Director
Accredited by Ministry of Economic Affairs on July 18, 2017.
4. Release of restrictions on competitive activities of Director Approved
2017 Annual Report | 051
3.8 Certified Public Accountant (CPA) Information (1) If non-audit fees paid to CPAs, their accounting firm and its affiliates are more than one-fourth of
audit fees, specify the amount of audit and non-audit fees, as well as the scope of non-audit
services: CPA Service Fees
Accounting Firm Name of CPA Period covered by CPA’s audit Note
Ernst & Young Hsu, Hsin-Min
2017/01/01 ~ 2017/12/31 None Lin, Hung Kang
Unit: Thousand NTD
Range of CPA service fee Audit fee Non-audit fee Total
1 Under NT$ 2,000 247 247
2 NT$2,000 ~ NT$4,000
3 NT$4,000 ~ NT$6,000 3,773 3,773
4 NT$6,000 ~ NT$8,000
5 NT$8,000 ~ NT$10,000
6 NT$10,000 and above
(2) For CPA changes, if the audit fee in the first year is lower than that of the prior year, specify the
audit fee before and after the change and the reasons: Not applicable
(3) If audit fees dropped by more than 15%, specify the amount and percentage of decline and
reasons: Not applicable
| 2017 Annual Report 052
(4) Information on CPA changes: A. Former CPAs
Date of Change Approved by BOD on March 12, 2018
Reasons and Explanation of Changes Internal management needs
State Whether the Appointment is Terminated or Rejected by the Consignor or CPAs
Clients Status CPA Consignor
Appointment terminated automatically V
Appointment rejected (discontinued)
The Opinions other than Unmodified Opinion Issued in the Last Two Years and the Reasons for the Said Opinions (Note)
None
Is there any Disagreement in Opinion with the Issuer None
Supplementary Disclosure (Disclosures Specified in Article 10.6.1.4~7 of the Standards)
None
��B. Succerssor CPAs
Accounting Firm PricewaterhouseCoopers (PwC) Taiwan
CPA Liang, Yi-Chang
Wu, Yu-Lung
Date of Engagement Approved by BOD on March 12, 2018
Prior to the Formal Engagement, Any Inquiry or Consultation on the Accounting Treatment or Accounting Principles for Specific Transactions, and the Type of Audit Opinion that Might be Rendered on the Financial Report
None
Written Opinions from the Successor CPAs that are Different from the Former CPA’s Opinions None
��C. The Reply of Former CPAs on Article 10.6.1 and Article 10.6.2.3 of the Standards: None.
(5) Company Chairman, President or finance/accounting manager held positions in the Company’s
audit firm or its affiliates within the past year: Not applicable
2017 Annual Report | 053
3.9 Changes in Share Positions among Directors, Supervisors, Managers
Unit: Shares
Title Name
2017 Current Year to April 7
Shareholding Increase / Decrease
Stock Mortgage
Shareholding Increase / Decrease
Stock Mortgage
Chairman Paul Wang Representative of LiJin Financial Consultant Co. Ltd.
0 0 0 0
Director & President James Wang 10,000 0 0 0
Director & Executive VP Ben Lin 0 350,000 0 0
Director Lu, Shyue-Ching Representative of Pacific Venture Partners Co. Ltd
225,000 0 0 0
Independent Director Shih, Chin-Tay 0 0 0 0
Independent Director Steve K. Chen 0 0 0 0
Senior Vice President Charles Chu (10,000) 0 (5,000) 0
Vice President Leo Chen 0 0 0 0
Vice President Jemmy Lee 80,000 0 0 0
Vice President Hawk Wu 100,000 0 0 0
Vice President Colette Chen 79,303 0 0 0
Vice President Vicky Lin 50,000 0 0 0
Vice President Earl Liao 65,000 0 0 0
Vice President Genevieve Lu 44,000 0 0 0
Auditing Supervisor Winnie Hsieh (6,000) 0 0 0
| 2017 Annual Report 054
3.10 Information of the Company’s Top Ten Shareholders
Name Shareholding Spouse & Minor
Shareholding by Nominee Arrangement
The relationship between
any of the Company’s
Top Ten Share holders
Shares % Shares % Shares % Name Relation
Owner of Cathay Life Insurance Co., Ltd. - Diao-kuei, Huang
21,416,000 8.72% 0 0.00% 0 0.00%
Owner of Fubon Life Insurance Co., Ltd. - Richard M.Tsai
13,565,000 5.52% 0 0.00% 0 0.00%
Owner of Yun Chuan Investment Ltd. - Bo-Lu Lin
10,750,360 4.38% 0 0.00% 0 0.00%
New Labor Pension Fund 7,851,000 3.20% 0 0.00% 0 0.00%
Old Labor Pension Fund 7,303,000 2.97% 0 0.00% 0 0.00%
Owner of Chunghwa Post Co., Ltd. - Kwo-Tsai Wang
5,775,000 2.35% 0 0.00% 0 0.00%
Owner of Taiwan Life Insurance Co., Ltd. - Su-Guo Huang
5,150,000 2.10% 0 0.00% 0 0.00%
Su Yi 4,809,322 1.96% 0 0.00% 0 0.00%
Vanguard Emerging Markets Stock Index Fund, A Series of Vanguard International Equity Index Funds
4,199,000 1.71% 0 0.00% 0 0.00%
Owner of ZhuoJian Investment Co., Ltd. - James Wang
4,197,094 1.71% 0 0.00% 0 0.00%
2017 Annual Report | 055
3.11 Long-Term Investments Ownership
Investee Sercomm Investment Total Investment
Investment Amount % Investment Amount %
Sercomm USA Inc. 650,000 shares 100.00% 650,000 shares 100.00%
Shukuan Investments Ltd. 2,800,000 shares 100.00% 2,800,000 shares 100.00%
Sercomm Trading Co., Ltd. USD$ 46,800,000 100.00% USD$ 46,800,000 100.00%
Zealous Investments Ltd. USD$ 30,956,000 100.00% USD$ 30,956,000 100.00%
Sernet (Suzhou) Technology Ltd. USD$ 29,900,000 100.00% USD$ 29,900,000 100.00%
Smart Trade Inc. USD$ 16,000,000 100.00% USD$ 16,000,000 100.00%
DWNet Technology Ltd. USD$ 16,000,000 100.00% USD$ 16,000,000 100.00%
Sercomm Japan Corp. 9,800 shares 100.00% 9,800 shares 100.00%
Sercomm France SARL 1,000 shares 100.00% 1,000 shares 100.00%
Sercomm Italian SRL 10,000 shares 100.00% 10,000 shares 100.00%
Sercomm Deutschland GmbH EUR$ 100,000 100.00% EUR$ 100,000 100.00%
Sercomm Russia LLC RUB$ 10,000 100.00% RUB$ 10,000 100.00%
Huayi (Suzhou) Telecommunication Technologies Ltd.
RMB$ 500,000 100.00% RMB$ 500,000 100.00%
HawXeye Inc. 800,000,000 shares 55.00% 800,000,000 shares 55.00%
Suzhou FemTel Communications RMB$ 6,500,000 100.00% RMB$ 6,500,000 100.00%
Nanjing FemTel Communications RMB$ 2,500,000 100.00% RMB$ 2,500,000 100.00%
| 2017 Annual Report 056
IV. Capital & Shares 4.1 Capital & Shares 4.1.1 Capitalization
Unit: Shares, as of December 31, 2017
Type of Share Authorized Shares
Issued Shares Un-issued Shares Total Shares
Common Stock 245,653,767 74,346,233 *320,000,000
4.1.2 History of Capitalization Unit: Shares/ NTD, as of December 31, 2017
Year/ Month
Issue Price
Authorized Paid-In Capital Source of Capital
Shares Amount Shares Amount
2017/12 10 *320,000,000 *3,200,000,000 245,653,767 2,456,537,670 StockOptions
* The amendments to Articles of Incorporation of authorized share capital was approved by General
Shareholders Meeting on June 26th, 2012. However, there are no changes in registered capital
temporality.
4.1.3 Status of Shareholders As of April 7, 2018
Type of Shareholders
Government Agencies
Financial Institutions
Other Legal Entities
Foreign Institutions Individual Total
Number of Shareholders 4 59 81 173 14,012 14,329
Shareholding 20,489,000 56,639,512 43,839,535 55,183,084 69,502,636 245,653,767
Ownership% 8.34% 23.06% 17.85% 22.46% 28.29% 100.00%
2017 Annual Report | 057
4.1.4 Distribution Profile of Ownership Unit: Shares, as of April 7, 2018
Class of Shareholding Number of Shareholders Shareholding (share) %
1 999 3,256 613,903 0.25%
1,000 5,000 8,836 17,633,256 7.18 %
5,001 10,000 1,084 8,687,982 3.54 %
10,001 15,000 315 4,029,544 1.64 %
15,001 20,000 205 3,829,267 1.56 %
20,001 30,000 201 5,196,019 2.12 %
30,001 40,000 76 2,725,238 1.11 %
40,001 50,000 64 2,980,913 1.21 %
50,001 100,000 104 7,610,646 3.10 %
100,001 200,000 76 10,998,641 4.48 %
200,001 400,000 33 9,275,018 3.78 %
400,001 600,000 23 11,159,705 4.54 %
600,001 800,000 8 5,646,394 2.30 %
800,001 1,000,000 8 7,323,572 2.98 %
Over 1,000,001 40 147,943,669 60.22 %
Total 14,329 245,653,767 100.00 %
4.1.5 Major Shareholders Unit: Shares, as of April 7, 2018
Name of Shareholders Shareholding %
Cathay Life Insurance Co., Ltd. 21,416,000 8.72%
Fubon Life Insurance Co., Ltd. 13,565,000 5.52%
Yun Chuan Investment Ltd. 10,750,360 4.38%
New Labor Pension Fund 7,851,000 3.20%
Old Labor Pension Fund 7,303,000 2.97%
Chunghwa Post Co., Ltd. 5,775,000 2.35%
Taiwan Life Insurance Co., Ltd. 5,150,000 2.10%
Su Yi 4,809,322 1.96%
Vanguard Emerging Markets Stock Index Fund 4,199,000 1.71%
Owner of ZhuoJian Investment Co., Ltd. 4,197,094 1.71%
| 2017 Annual Report 058
4.1.6 Market Price, Net Worth, Earnings and Dividends per Share
Unit: NTD/ Thousand Shares
Item 2016 2017 March 31, 2018
Market Price
Highest 88.70 89.30 89.60
Lowest 65.90 73.50 78.90
Average 76.40 79.74 83.86
Net Value per Share
Before Distribution 30.29 29.66 30.40
After Distribution 29.09
Earnings per Share
Weighted Average Shares 242,647 243,616 245,654
Earning per Shares 6.02 5.38 0.76
Dividends per Share (Note 1)
Cash Dividend 4.20 3.75
Stock Dividend
From Retained Earnings 0 0
From Capital Surplus 0 0
Accumulative Undistributed Dividends -
Return on Investment (Note 2)
Price / Earning Ratio 12.69 14.82 11.03
Price / Dividend Ratio 18.19 21.26
Cash Dividend Yield Rate 5.50 4.70
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
4.1.7 Dividend Policy
The appropriations of the Company's earnings are base on the annual net income. The dividend
amount is determined by the profit earning condition, financial condition and future operating needs for
cash. In principle, dividends could be distributed in cash and/or in the form of stock; nevertheless, cash
dividends shall be no less than 10% of the aggregate amount distributed.
2017 Annual Report | 059
4.1.8 Dividends Paid
Year EPS NT$
Cash Dividend NT$ per share
Share Dividend NT$ per share
2017 5.38 3.75 -
2016 6.02 4.20 -
2015 5.57 4.00 -
2014 4.21 3.00 -
2013 4.19 3.00 -
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
4.1.9 Distribution of Profit
Sercomm's Board of Directors adopted a proposal for 2017 profit distribution. This proposal is
subject to approval by shareholders at the annual general meeting, scheduled for June 3, 2018.
4.1.10 Proposal of Profit Distribution for 2017
Unit: NTD
Cash dividend $3.75 per share Cash bonus to employees $266,138,910 Remuneration to Directors and Supervisors $28,861,090
| 2017 Annual Report 060
4.2 Status of Employee Stock Option Plan 4.2.1 Issuance of Employee Stock Options
As of March 31, 2018
Category 1st Employee Stock Options
Date of Approval by Regulatory Authority 2015/5/25
Issue Date 2015/5/27
Number of Shares Issued (Share) 10,000,000
Number of Shares Issued / Total Issued Shares (%) 4.12%
Exercise Period 10 years
Method of Provision Issue of new shares
Vesting Schedule
After 2 full years have elapsed from the time the stock option holder is allocated the employee stock options, the option holder may exercise the share purchase rights according to the schedule set out below. The duration of the stock options is 10 years. The stock options and rights and interests therein may not be transferred, pledged, given to others, or disposed in any other manner, except by succession. After the expiration of the duration of the employee stock options, any unexercised options shall be deemed forfeited, and the stock option holder may not make any further claim to share purchase rights. Percentage of share purchase rights that may be exercised according to the time elapsed since the allocation of the stock options (cumulative) Two full years have elapsed: 50 Three full years have elapsed: 75 Four full years have elapsed: 100%
Number of Shares in Exercised Options (Share) 2,734,000
Total Amount in Exercised Options (NTD) 149,003,000
Number of Shares In Unexercised Options (Share) 7,266,000
Price per Share In Unexercised Options (NTD) 54.5
Number of Shares In Unexercised Options as Share of Total Issued Shares (%) 2.96%
Impact on Shareholders’ Equity (%) 5.48%
2017 Annual Report | 061
4.2.2 List of Executives Receiving Employee Stock Options and the Top Ten Employees with Stock Options
As of March 31, 2018
Title Name No. of Stock
Options
Stock Options as a Percentage of Shares
Issued
Exercised Unexercised
No. of Shares Converted
Strike Price (NT$)
Amount (NT$
thousands)
Converted Shares as a Percentage of Shares
Issued
No. of Shares Converted
Strike Price (NT$)
Amount (NT$
thousands)
Converted Shares as a Percentage of Shares
Issued
President James Wang
2,092,000 0.85 419,000 54.5 22,836 0.17 1,673,000 54.5 91,178 0.68
Executive VP Ben Lin
Subsidiary CEO Paul Wang
Senior VP Charles Chu
VP Leo Chen
VP Jemmy Lee
VP Hawk Wu
VP Colette Chen
VP Vicky Lin
VP Earl Liao
VP Genevieve Lu
Director Winnie Hsieh
| 2017 Annual Report 062
V. Business Overview
5.1 Business Activities 5.1.1 Business Scope
Item 2016 2017
Wired Product 18.68% 10.70%
Wireless Product 79.73% 87.89%
Others 1.59% 1.41%
Total 100.00% 100.00%
5.1.2 Main Products
(1) Fixed Mobile Products
(2) Broadband Access
(3) Smart Home Control
(4) Enterprise & SMB
(5) Home Connectivity
(6) Telematics
5.1.3 New Products under Developing
(1) BOB 10G PON Gateway
(2) Outdoor Small Cell
(3) LTE Battery IP Camera
(4) LTE-M/NB-IoT Tracker
(5) 11ax Router
5.2 Industry Overview 5.2.1 Industry Status and Development
With the speedy growth in demand for internet access and the trends of the Internet of Things,
cloud, big data, and mobile internet access in 2017, along with the sudden increase of data
transmission and data volume, the data center and terminal should be upgraded, and both the speed
and bandwidth for internet access need to be improved. It is estimated that the capital expenditure for
network equipment of global telecom operators will be USD 96.3 billion in 2018, which is a slight
increase of 1.4% compared with 2017. The reason for this small growth is mainly because the
construction of global communication networks in the last two years has gradually matured. New
investment expenditures will stimulate the communications market in 2018 and 2019. It is expected that
2017 Annual Report | 063
5G investment will start earlier than scheduled. The total investment will be higher than the total 4G
investment.
Regarding the user section, through upgrades in hardware, users will experience the best
high-speed internet access. The requirements for new equipment and replacing existing equipment
with new hardware has become one of the factors in the growth of networking industry in the last two
years. After all, the existing hardware was too old to handle content with the new bandwidth. Besides,
the demand from emerging countries who would like to invest in network infrastructure was another
reason for the growth of the networking industry. As countries invest in national broadband network
strategies, the construction of optical fiber to homes will grow.
The industry treated 5G as a disruptive technology during its launch, but it is now the strategic core
for the development of various sectors. The most updated “5G and the Internet of Things” report
published by Ericsson, a well-known networking company, on MWC fully discloses the huge potential
revenue which comes with the digitalization of various industries by 5G. The world is about to embrace
the 5G era. Based on the latest reports of action trends published by Ericsson, video and audio data
makes up about 50% of mobile transmission, and it will be 75% in 2022. We will need a faster network
and more significant network capacity to communicate. At the MWC, which was held in Barcelona this
year, 5G is still a hot topic. In 2023, it is expected that the volume of mobile transmission will be eight
times that of the current transmission volume and will increase at least 40% annually. In addition to
applying 4G networks, 5G will become a vital transmission network. It is estimated that 20% of the
transmission volume will use the 5G network in 2023. The total global subscribers to 5G will reach one
billion at the end of 2023, and North America will grow faster than other areas of the world.
According to statistics from Ericsson, the number of global mobile subscribers increased by 95
million in the third quarter of 2017 and led to total subscribers numbering 7.8 million. Ericsson reported
that the number of new subscribers is mainly from China, with an increase of 30 million, followed by
Indonesia, the United States, Angola, and Pakistan.
Observe the distribution of mobile users. As 4G LTE becomes the mainstream of mobile
communication technologies, many global operators have gradually turned 2G users into 3G and 4G,
resulting in a significant decline in 2G use. According to statistics, in the third quarter of 2017, 2G GSM
and EDGE subscribers reduced by 130 million, 3G WCDMA and HSPA subscribers increased by 60
million, while 4G LTE subscribers increased by 170 million, making 4G subscribers reach 2.5 billion
subscribers. By the end of 2017, 4G LTE was the mainstream technology selected by global mobile
users. By the end of 2023, the total number of 4G subscribers will reach 5.5 billion. By then, the
percentage of LTE subscribers to the total number of mobile subscribers will exceed 60%.
5G is expected to start commercial deployments in 2020, and the 5G standardization project is
| 2017 Annual Report 064
being accelerated now. Early deployment of 5G is going to happen in markets such as the United
States, South Korea, Japan, and China. The first 5G NR commercial networks are expected to be used
in 2019. Most network deployments will begin in 2020.
Regarding global mobile communication users from a technology utilization point of view, North
America is the region with the most substantial number of LTE users worldwide, and LTE users are
about 80% of the total mobile users. This trend is expected to extend to 5G. It is estimated that 5G
users in North America will be about 37% of the total mobile users by the end of 2023. As for the
development of 5G in other regions, Northeast Asia, South Korea, Japan, and China will be the first
countries to deploy 5G. The proportion of 5G users will reach 34% in Northeast Asia by 2023. The 5G
development in Western Europe is supposed to be slow; 5G users will only account for 16% of the total
number of users by the end of 2023.
The whole 5G network architecture will apply wavelength-division multiplexing (WDM) technology,
which will continue to progress further from the backbone network to metropolitan area networks and
access networks, realizing bandwidth expansion with low costs amid rising demands for optical
communication-related products. In the early period, the market will favor optical fiber and optical fiber
cable. Also, there are cell site antennas and RF components. It is expected that network optimization
and maintenance will have a new wave of market opportunities for network communication equipment.
Networking companies in Taiwan will enter the 5G market through various paths. Microelectronics
Technology Inc. focuses on 5G RRH products, and Suntec focuses on 5G millimeter-wave antennas.
Sercomm, Alpha Networks Inc., Gemtek and Arcadyan have aimed at manufacturing 5G end-user
equipment and small cells. The industry expects to begin shipping in small quantities in 2019.
2017 Annual Report | 065
5.2.2 The Relationship between the Upstream, Midstream and Downstream Parts of the Industry
Sercomm’s main business is the manufacture of wired and wireless networking products including
network application servers. In the computer networking industry we belong in the midstream segment.
Our upstream includes IC manufacturers and electronic components suppliers while our downstream
includes the average user, network equipment suppliers and enterprise network system developers.
Upstream Midstream Downstream
CPU Vendor LANN IC General 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 Telecom Operator
Resistor and Capacitor Supplier
Adapter Supplier
DRAM and SRAM Supplier
Flash Memory Supplier
5.2.3 Products Development and Competition
With the trends of the Internet of Things, cloud computing, big data, and mobile internet access in
2017, both internet speed and network bandwidth were improved by the global networking industry.
The growth impulse of the industry mainly comes from the increase in investment in broadband network
equipment by telecom operators. In fixed-line broadband access equipment technology, FTTx
technology is the mainstream, while xDSL continues to degenerate. In 2017, 52% of fixed-line
broadband users were located in Asia; 27% in Europe, the Middle East, and Africa; and 12% in the
United States. Technology specifications of Cable and VDSL in particular, which have a relatively high
market share of fixed-lines in European and American countries, continued to evolve. For example,
Cable was upgraded from DOCSIS 3.1 to Full Duplex DOCSIS 3.1, xDSL was enhanced from VDSL 2
to G.Fast, and optical fiber has also evolved from GPON to 10G GPON.
Currently, copper cable technology has improved from VDSL2, VD2L2+, and Vectoring to G.fast.
The speed of broadband has reached 100M, and even 1G and is heading towards higher-bandwidth in
| 2017 Annual Report 066
the future. VDSL2 supports 20M~50M, Vectoring supports 50M~100M, and G.fast supports 1G
connections, which realizes the ultra-bandwidth goal. VDSL2 is a supplement to the speeds of
G.SDHSL, and G.fast will complement the distances of VDSL2 and provide a more diversified selection
of copper cable access technologies. The evolution of the specifications above, whether in fixed-line or
mobile networks, is to increase the speed of the Internet and bandwidth and to meet consumer
requirements for a faster and more stable network.
VDSL is the solution for deploying the fixed-line networks for Europe (the United Kingdom and
Germany), Brazil, North America (the United States and Canada), and some other countries.
Openreach, a subsidiary of British Telecom, launched UK Telecom's Ultra-Wideband Investment
Program to improve speed and expand the coverage of the fixed network. Except for FTTP and
long-distance VDSL, it also deployed G.fast copper cable access technology to achieve faster speeds,
a target of 100 Mbit/s or more.
Deutsche Telekom invested 2 billion euros to deploy GPON+VDSL2 in more than 50 major cities
across Germany. Swiss Telecom, Belgium Telecom, Dutch KPN, Swedish Telecom, and Turkish
Telecom all deployed VDSL2 in FTTN. BT in the UK invests in G.fast to increase the connection speed
to 300 Mbit/s, expects to improve the coverage to 10 million households, and invests in higher-speed
optical fiber to over 2 million homes.
As the production of VDSL in Japan comes to a close, VDSL operators provided another method to
solve the broadband service of multi-dwelling units (MDUs). EneCom, for example, accelerates the
commercial deployment of G.fast in Japan. With the deployment of G.fast, the provider will launch 8K
TV service and high-broadband service applications, establishing the foundation for future deployments
of XG-FAST providing up to 10Gbps speeds. They emphasized that the Customer Premises (CPE) of
VDSL are compatible. The old VSAL CPE will be replaced with the new G.fast CPE.
The cable TV service provider in North America (Multimedia System Operator, MSO) utilizes
DOCSIS technology to lead other countries. DOCSIS 3.0 is the primary solution. It will deploy DOCSIS
3.1 technology in the future and renew the existing network. Comcast introduced Software
Defined-Wide Area Network (SD-WAN) products for the first time and provided 1Gbps DOCSIS 3.1
broadband service for businesses.
To accelerate the construction of an all-country optical fiber network, China has actively increased
the coverage of optical fiber for broadband access networks in various cities and towns, making the
internet connection speed rate per capita match that of European and American countries. Accordingly,
China has been actively developing the communications industry in the last two years. The largest
fixed-line broadband market on the planet is in China, which has more than 300 million connected
users or more than one-third of total global users; the United States is the second largest market with
2017 Annual Report | 067
approximately 110 million users; and Japan has around 40 million, followed by Germany, France,
Russia, the United Kingdom, Brazil, South Korea (South Korea provides the fastest average fixed-line
broadband speed in the world) and India. The former ten countries account for 75% of global
broadband access. With the constant increase of global broadband users, the compound growth rate of
global fixed-line broadband users is expected to increase 5% in the following three years, and FTTx
broadband technology will become the leading solution.
Currently, WiFi is widely implemented, including NB and smart phones. It is expected that the
global sales of WiFi chips in 2021 will reach more than 4 billion. The main solution of WiFi will be
802.11ac in 2018. 802.11ac is based on 802.11n but with a broader RF bandwidth (up to 160MHz),
MIMO support, and high-density 256-QAM modulation. 802.11ax is treated as an enhanced version of
802.11ac, and both work in the 5GHz band. The 802.11ax applies multi-user, multiple-input, and
multiple-output (MU-MIMO) technology to divide the signal into four different signal channels in the time
domain, frequency domain, and spatial domain, etc. Each signal channel can communicate with a
single device, and this will double efficiency. 802.11ax applies Orthogonal Frequency Division Multiple
Access (OFDMA) to load more data in the same space area and is compatible with 802.11a/b/g/n and
ac equipment. So the 802.11ax STAs (Station) can communicate with conventional STAs, the core
technology of the next-generation high-speed wireless communication network. Observe the
development of the next-generation WiFi network. Whether it is the network, terminal equipment, or
chip R&D, all are deployed around network capacity expansion and network efficiency.
There are tremendous opportunities in the IoT market, which include technologies such as LTE-M,
LoRa, NB-IoT, Sigfox, Weightless, HaLow, and RPMA (the technology owner is Ingenu, USA), all in the
network deployment phase in 2017. Currently, expansion is beginning in various application areas.
Observing the technical characteristics of each technology, LoRa is suitable for applications dedicated
to smart cities, industry, and vendors, and is rapid and flexibly deployed. NB-IoT and LTE-M are
generally applied in telecommunication operators' networks to provide extensive connections, broad
coverage and low-cost network solutions. Basically, the two technologies will coexist and complement
each other.
| 2017 Annual Report 068
Trends in Gross Margin Rate for Taiwanese Networking Vendors
Source: M.O.P.S
Given the increasing diversification of applications to the IoT in 5G, Sercomm will focus on its
capacity to integrate firmware and will surpass its industry competitors and maintain a competitive edge
in smart home, telematics, cloud applications, and other IoT applications. This will help to bring in
revenue and maintain a certain level of profit.
5.2.4 Research & Development Expenses Unit: Thousand NTD
Item 2017 2018 Q1
R&D Expenses 1,645,589 414,146
Net Sales 38,600,003 7,963,266
R&D/Net Sales (%) 4.26% 5.20%
2017 Annual Report | 069
5.2.5 R&D Achievements:
(1) Fixed Mobile Products
Outdoor Small Cell
LWA Small Cell
Outdoor Fixed Wireless LTE High Speed Relay CPE Equipment
(2) Broadband Access
10G PON Broadband Gateway
(3) Smart Home Control
Smart Doorbell
Human Factor Smart Lighting Cloud Platform
(4) IoT Products
NB-IoT Module
LTE-M Module
5.3 Long-term and Short-term Business Development Plans 5.3.1 Long-term Development Plans
(A) Enrich knowledge of the industry, cultivate employees with expertise in industry IT networks and
develop core technology products.
(B) Strengthen collaboration with well-known international technology companies, improve
technology R&D capability and develop high value-added products.
(C) Actively develop new products with the goal of diversifying operations and entering the
international market.
5.3.2 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.
| 2017 Annual Report 070
5.4 Market, Production and Sales Outlook 5.4.1 Revenue Breakdown by Geography
Unit: Thousand NTD
Region 2016 2017
Amount % Amount %
Taiwan 12,532 0.03 102,792 0.27
Europe 7,224,659 19.69 9,284,213 24.05
North America 19,175,265 52.25 15,556,022 40.30
Asia ex-Taiwan 10,255,005 27.94 13,524,538 35.04
Other 34,273 0.09 132,438 0.34
Total 36,701,734 100.00 38,600,003 100.00
5.4.2 Market Analysis of Major Product Categories Market Share in Networking Industry
Sercomm production (NT$billion)
Taiwan Wireless Networking Marekt Size (NT$billion) Sercomm market share
WLAN 31.9 125.2 25.48% Source: Market Intelligence & Consulting Institute (MIC), Jun, 2017
Strong demand driven by broadband infrastructure upgrades worldwide contributed to the
magnificent growth of all Sercomm products.
Digital convergence is accelerating broadband equipment to the ultra-wideband G era (Gigabit).
Sercomm demonstrates its advantages in system integration and has gained business in Europe,
China, and emerging markets. The telecommunications market share is increasing. With strong
demand for FTTx products, Cable DOCSIS 3.x, Integrated Access Devices, and SMB products,
Sercomm has experienced an increase in operating performance. The total shipment volumes of
broadband devices reached nearly 33 million units in 2017, and the telecom market share continues
to rise.
2017 Annual Report | 071
5.4.3 Future Supply and Demand in the Market and Potential for Growth
(1) From 2016 to 2026, the expected digitalized income of ICT industry participants will increase by 13.6% annually. Currently, the expected growth rate of the operator's service revenue is 1.5%. The importance of 5G to all businesses is increasing day by day. According to the “Impact of 5G on Industry Report” published by Ericsson, 5G application cases will be launched in 2018. With that, activities related to 5G will commence quickly, and more than 70% of the enterprises will launch 5G application products in 2021. It is most likely that manufacturing, energy, public utilities, public transportation, and financial services industries will be the first to propose 5G application services in 2020.
(2) With the increasing attention and investment in smart cities throughout the global market, the research institute IDC predicts that technology-related investments in smart cities all over the world will be about USD 80 billion in 2018, increasing steadily in the following years. It is estimated that the investments will reach USD 135 billion by 2021.
(3) From a geographical point of view, the United States will be the biggest market for smart city technology on the planet. It is supposed that expenditures in 2018 will be USD 22 billion, followed by China, contributing USD 20.9 billion in 2018, an increase of 20.2% from USD 17.3 billion in 2017. China and the United States will show similar growth trajectories. The expected compounding rate for the five-year average from 2016 to 2021 is 19.0% and 19.3%, respectively. As for Latin America, the compound annual growth rate will be 28.7%, and Canada will be 22.5%, making it the fastest increasing expenditure region.
(4) According to the research of Strategy Analytics, the Internet of Things will develop quickly. By 2020, smart homes will become one of the major development factors. According to the statistics, by the end of 2017, nearly 20 billion Internet of Things and interconnection devices were deployed globally and will rise by 10 billion in the next four years. The development of corporate IoT has always been a significant driver. By 2020 and beyond, smart homes will stimulate the growth of connectivity and IoT devices, with an estimated total of 50 billion units.
(5) The Topology Research Institute indicates that as the 5G standard starts the actual formulation stage, 5G application scenarios will gradually reach a consensus, and the demand for 5G applications is continually emerging as well. The deployment of small cells to satisfy the increasing requirement for data transmission is very important for the development of 5G. It is concluded that by the year 2018, the installed capacity of small cell equipment in the world will be 2.838 million sets, and in 2019 it will increase to 4.329 million sets. The annual increase rate will be 52.5%.
5.4.4 Competitive Niche
Sercomm has foreseen the increasing maturity of the broadband networking market in the future,
therefore our products can now all use wireless technology. Our customers have also recognized the
| 2017 Annual Report 072
quality and stability of our products. We continue to enhance our product features to meet market
demand. Sercomm expects an increase in revenue due to the widespread use of the Internet and the
growth of the broadband market.
5.4.5 Positive and Negative Factors in Long-Term Development
(A)Positive Factors
a. High level of flexibility in product combinations
As Sercomm considers its own long-term development strategy and market positioning, the path
forward points towards an operational mode of placing equal emphasis on both commodity and
niche products, consolidating the existing market and customers, and pursuing a stable growth of
operations. The company’s business strategy will be to make timely adjustments in relation to the
growth of the profits and revenue, and thereby expand its economic scale and enhance its market
position. 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 its market standing.
b. Leadership in technology R&D
Sercomm was the first Taiwanese manufacturer to develop wireless routers, wireless printer
servers and MFPs. It was also the first company to announce an 11n ADSL Gateway and the first
company in Taiwan to announce a mesh WiFi router. Sercomm’s customers have all
acknowledged these products’ quality and attractiveness to the market, allowing Sercomm to join
the ranks of suppliers to front-line brands. The collaboration with international networking
companies contributes to the product’s international competitiveness and continued business
expansion.
c. Layout of telecommunication service provider
This market demands multiple application equipments that are high value-added, instead of low
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.
d. 5G development
The market in Europe is recovering, and the market shares in France, Southern Europe, and
2017 Annual Report | 073
Russia are increasing. European business is expected to extend to the Middle East and Africa.
Sercomm will continue to invest in India, Latin America, Southeast Asia, and Northeast Asia. With
the injection of the new markets, Sercomm is confident in its overall operating growth this year.
(B) Unfavorable Factors and Countermeasures The cost of raw materials started to rise nearly one year ago. Not only did DRAM rise from the first
half of last year all the way to the fourth quarter, Sercomm faces a lack of materials for active and
passive components. In order to meet the requirements, the raw materials have raised since the fourth
quarter of last year. The cost of raw materials has risen 2-3 times so far, and some costs have
increased 6-7 times more. With the attraction of high gross profit, it is possible that existing
manufacturers will expand production capacity to compete with other new plants. It is expected that
prices will stabilize in the first and second quarters this year.
Except for the fast-rising raw material costs, the appreciation of the TWD has also affected the
revenue and gross profit of the company. The critical policy will be the adjustment of the product
portfolio this year, increasing the proportion of the products with high gross profits. Such products
include Small Cell, NB-IoT of LPWA and LTE-M, and other applications of the Internet of Things.
Sercomm is expected to improve profitability beyond this proportion.
The sales in the China market last year were large enough to support the aggregate optical fiber
demand. But considering that the market demand in China will reach a ceiling in 2018, the demand will
decrease because of the transit of traditional 2.5G to 10G. In order to get through the transitional period
smoothly, the manufacturing capacity in China will be exported to Southeast Asia. In India, the
population will soon surpass that of China, increasing Sercomm's interest in expanding its reach in
India in the near future.
| 2017 Annual Report 074
5.5 Main Product Applications With its strength in integration of network communication products accumulated after many years,
Sercomm has not only become the leading supplier of world-class WLAN equipment but also controls
the critical technology for Next-Generation Networks after the continuous R&D in network
communication technology. To deal with the emerging network applications integrated into homes,
Sercomm created value-added network communication products with its high-level software and
hardware product integration technology. The whole series of high-performance, high-quality and
diversified professional broadband network communication products include broadband network
communication access points, Integrated Access Device, Enterprise & SMB products, 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.
5.5.1 Product Manufacturing Process
The manufacturing processes for our company’s products are divided into PCB assembly and final
product assembly.
PCB assembly includes the SMT process and the DIP insertion process. The process is as follows:
The final product assembly process is as follows:
Prepare Material Front SMT
Infrared Welding Rear SMT
Insertion SolderAutomatic
Testing High
Temperature Baking
Automatic Testing
Housing Assembly Load Software
Function Testing Packaging
Shipping
2017 Annual Report | 075
5.5.2 Customers that Accounted for at Least 10% of Annual Consolidated Net Revenue
Unit: Thousand NTD 2016 2017 2018 First Quarter
Customers Sales Revenue
As % of 2016 Total Net
Revenue
Relations to
Sercomm Customers Sales Revenue
As % of 2017 Total Net
Revenue
Relations to
Sercomm Customers Sales
Revenue
As % of 2018 Q1
Total Net
Revenue
Relations to
Sercomm
Customer A
13,099,750 35.69 None Customer A
11,328,142 29.35 None Customer A
1,505,192 18.90 None
Customer B
6,493,466 17.69 None Customer B
5,346,168 13.85 None Customer B
1,209,993 15.19 None
Others 16,108,517 46.62 Others 21,925,693 56.80 Others 5,248,081 65.91
Total Sales Revenue
36,701,734 100.00 Total Sales
Revenue 38,600,003 100.00
Total Sales
Revenue 7,963,266 100.00
Production – A
Unit: Unit / Thousand NTD
Main Products 2016 2017
Capacity Quantity Amount Capacity Quantity Amount
Wired Product 13,000,000 11,632,180 6,957,185 10,000,000 8,026,887 3,792,341
Wireless Product 20,000,000 18,222,525 26,389,399 28,000,000 26,726,243 31,937,946
Total 33,000,000 29,854,705 33,346,584 38,000,000 34,753,130 35,730,287
Production – B
Unit: Unit / Thousand NTD
Main Products
2016 2017
Export Domestic Export Domestic
Quantity Amount Quantity Amount Quantity Amount Quantity Amount
Wired Product 11,098,250 6,854,967 959 743 7,877,581 4,130,230 1,481 499
Wireless Product 18,009,472 29,258,584 3,043 5,476 24,784,365 33,859,572 11,047 66,371
Others 0 575,773 0 6,227 0 507,408 0 35,922
Total 29,107,722 36,689,288 4,002 12,446 32,661,946 38,497,210 12,528 102,792
| 2017 Annual Report 076
5.6 Environmental Expenditure Total 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:
As a high-tech electronic company, Sercomm's production process including assembly, testing and
packaging of final products and semi-assemblies. No wastewater, gases or noises are emitted during
production. Waste disposal is carried out in accordance with the Business Waste Disposal Plan while
the waste is disposed and recycled legally.
As global environmental awareness has expanded, the European Union, North America, Japan
and other countries have, one after another, established relevant environmental requirements in
response to environmental issues. In concert with this development, Sercomm has, through green
design, introduced a lead-free process in the product development stage, and thereby achieved the
purpose of reducing the company’s impact on the environment. At the same time, through green
procurement, it has extended these environmental requirements to the acquisition of components and
raw materials, and expanded the same requirements to the use of the products and the disposal of
waste.
5.7 Employer-employee Relationships 5.7.1 Employees
Year 2016 2017 2018/05/05
Headcount 4,654 4,861 4,901
Average Age 33.11 32.62 33.06
Average Seniority (years) 3.73 4.61 4.46
As Total Employees %
Ph. D. 0% 0% 0%
Master 8% 8% 8%
College 39% 39% 38%
Senior High School 53% 52% 53%
Junior High School or Lower 1% 1% 1%
The implementation of an employee welfare policy, continuing education and training, retirement
system, and labor-management coordination and the protection of the rights of the employees:
2017 Annual Report | 077
5.7.2 Employee welfare policy
The Company provides the National Health Insurance, labor insurance and group insurance in
accordance with Labor Standards Act and relevant laws /regulations to increase the protection of the
rights of the employees. The premiums are undertaken by the Company. Additionally, budget is
planned every year for employees’ education and training. The company established the Employee
Welfare Committee, which was approved by the Department of Labor, Taipei City Government in
October 1996.
For compensation & benefits, not only marriage, funeral and maternity subsidies are provided to
employees, but also company outings and various recreational activities are regularly organized for
employees with physical and mental relaxation.
5.7.3 Learning and Development
Sercomm believes that it is the responsibility of the Company to provide appropriate educational
and training opportunities for employees, and to encourage the self-training of employees so that they
can continue to realize their potential. Therefore, the Company’s consistent policy is to improve its
staff’s skills through various training and development programs so that the performance of its
employees will not only meet the Company’s business needs, but also help them achieve their personal
goals. The Company has an education and training system, and prepares an annual budget for
colleagues’ education and training. In 2017, the number of employees who engaged in advanced study
was 26,482, and the number of man hours was 57,531 hours.
5.7.4 Pension plan and implementation situation
The Company has formulated a pension plan for the employees who are formally employed, and
since February 4, 1997 has maintained a Business Entity Supervisory Committee of Labor Retirement
Reserve in accordance with the Labor Standards Act. It appropriates labor pension reserve funds at a
certain percentage of the total monthly wages of the company’s employees and deposits this amount in
a designated pension fund account at the Central Trust of China.
The Labor Pension Act came into force in July 1, 2005, and adopted a defined contribution plan.
As a result of the implementation of the Act, employees may choose to apply the provisions in respect
to pensions prescribed in the Labor Standards Act. The amount of labor pension borne by the employer
shall not be less than six percent of the worker's monthly wage.
5.7.5 Labor-management consultation
The rights and obligations of both parties of the workers and employers shall be governed by the
Labor Standards Act and its relevant laws and regulations, as well as the provisions of the Company’s
| 2017 Annual Report 078
administrative regulations. Since its establishment the Company has maintained good
worker-employer relationships. In order to maintain good worker-employer relationships, the Company
implements a humanistic management approach and works hard to strengthen two-way
communication between employees and the employer to create a better future.
5.7.6 Employee interests maintenance measures
The Company established a labor retirement reserve fund committee and holds worker-employer
coordination meetings with the labor representatives elected by the employees to discuss relevant
affairs and operations. Meanwhile, the Company provides employees with health examinations every
two years and, for staff engaged in special operations, adds special health examination items. The
Company also established and promulgated the Sexual Harassment Prevention Act, and grants
employees paternity leave and unpaid parental leave in accordance with the Gender Equality in
Employment Act. For employees whose work is not considered satisfactory, the Company will give
them appropriate work improvement plans, and if they fail to meet the job requirements again, will
transfer them to other positions depending on the actual situation, or will proceed with the termination
of their employment according to the law.
2017 Annual Report | 079
VI. Financial Review and Analysis
6.1 Condensed Balance Sheet IFRSs (Consolidated) Unit: Thousand NTD
Item 2013 2014 2015 2016 2017 As of March
31, 2018
Current Assets 9,471,368 13,912,947 18,029,817 19,472,018 20,457,851 18,138,323
Property, Plant and Equipment 3,245,122 3,321,363 3,380,603 3,265,690 3,248,680 3,286,682
Intangible Assets 138,650 131,845 307,021 285,607 297,551 284,800
Other Assets 537,759 622,242 810,542 755,738 763,364 875,738
Total Assets 13,392,899 17,988,397 22,527,983 23,779,053 24,767,446 22,585,543
Current Liabilities
Before Distribution 7,887,024 11,652,110 15,328,506 16,141,585 17,304,180 14,870,781
After Distribution 8,493,356 12,339,764 16,256,848 17,161,848
Noncurrent Liabilities 778,180 277,340 261,842 280,400 236,970 274,027
Total Liabilities
Before Distribution 8,665,204 11,929,450 15,590,348 16,421,985 17,541,150 15,144,808
After Distribution 9,271,536 12,617,104 16,517,690 17,442,248
Equity Attributable to Shareholders of the Parent
Capital Stock 2,110,586 2,299,623 2,413,636 2,429,198 2,456,538 2,456,538
Capital Surplus 852,945 1,390,698 1,529,471 1,617,572 1,764,717 1,767,213
Retained Earning
Before Distribution 1,691,990 2,029,514 2,637,393 3,158,215 3,443,101 3,632,269
After Distribution 1,085,658 1,341,860 1,709,051 2,137,952
Others 72,174 333,022 358,567 153,979 -412,962 -388,566
Treasury Shares 0 0 0 0 0 0
Noncontrolling Interests 0 6,090 -1,432 -1,896 -25,098 -26,719
Total Equity Before Distribution 4,727,695 6,058,947 6,937,635 7,357,068 7,226,296 7,440,735
After Distribution 4,121,363 5,371,293 6,009,293 6,336,805
| 2017 Annual Report 080
6.2 Condensed Balance Sheet IFRSs (Unconsolidated) Unit: Thousand NTD
Item 2013 2014 2015 2016 2017
Current Assets 5,007,513 5,546,441 7,509,151 8,740,147 8,297,609
Property, Plant and Equipment 1,445,140 1,533,665 1,514,622 1,628,637 1,666,095
Intangible Assets 127,457 116,262 197,796 196,862 268,732
Other Assets 3,460,540 4,044,730 4,986,770 5,187,526 5,791,181
Total Assets 10,040,650 11,241,098 14,208,339 15,753,172 16,023,617
Current Liabilities
Before Distribution 4,479,333 4,898,414 7,011,002 8,122,086 8,526,012
After Distribution 5,085,665 5,586,068 7,939,344 9,142,349
Noncurrent Liabilities 833,622 289,827 258,270 272,122 246,211
Total Liabilities
Before Distribution 5,312,955 5,188,241 7,269,272 8,394,208 8,772,223
After Distribution 5,919,287 5,875,895 8,197,614 9,414,471
Equity Attributable to Shareholders of the Parent
Capital Stock 2,110,586 2,299,623 2,413,636 2,429,198 2,456,538
Capital Reserve 852,945 1,390,698 1,529,471 1,617,572 1,764,717
Retained Earning
Before Distribution 1,691,990 2,029,514 2,637,393 3,158,215 3,443,101
After Distribution 1,085,658 1,341,860 1,709,051 2,137,952
Others 72,174 333,022 358,567 153,979 -412,962
Treasury Shares 0 0 0 0 0
Noncontrolling Interests 0 0 0 0 0
Total Equity Before Distribution 4,727,695 6,052,857 6,939,067 7,358,964 7,251,394
After Distribution 4,121,363 5,365,303 6,009,293 6,338,701
2017 Annual Report | 081
6.3 Condensed Statement of Income IFRSs (Consolidated) Unit: Thousand NTD
Item 2013 2014 2015 2016 2017 As of March 31, 2018
Operating Revenue 19,076,628 23,192,689 35,011,966 36,701,734 38,600,003 7,963,266
Gross Profit From Operations 3,070,040 3,654,987 4,983,969 5,368,728 5,027,843 1,032,641
Net Operating Income 872,191 1,180,417 1,664,706 1,770,910 1,534,204 210,458
Non-operating Income and Expenses 151,530 8,521 -81,391 31,873 49,354 26,088
Income Before Tax 1,023,721 1,188,938 1,583,315 1,802,783 1,583,558 236,546
Net Income 844,927 949,059 1,297,000 1,455,295 1,288,158 183,319
Other Comprehensive Income 138,939 239,821 12,380 -208,929 -573,152 28,624
Total Comprehensive Income 983,866 1,188,880 1,309,380 1,246,366 715,006 211,943
Net Income, Attributable to Owners of Parent 844,927 949,302 1,304,508 1,461,654 1,311,868 185,568
Net Income, Attributable to Non-controlling of Interests 0 -243 -7,508 -6,359 -23,710 -2,249
Comprehensive Income Attributable to Owners of Parent 983,866 1,188,877 1,316,902 1,252,556 738,208 213,564
Comprehensive Income Attributable to Non-controlling of Interests 0 3 -7,522 -6,190 -23,202 -1,621
Basic Earnings per share 4.19 4.21 5.57 6.02 5.38 0.76
6.4 Condensed Statement of Income IFRSs (Unconsolidated) Unit: Thousand NTD
Item 2013 2014 2015 2016 2017
Operating Revenue 17,011,137 19,230,890 25,807,240 27,842,239 29,285,814
Gross Profit From Operations 1,904,097 2,045,112 2,621,986 3,001,062 2,773,723
Net Operating Income 592,027 682,126 735,810 927,979 831,798
Non-operating Income and Expenses 366,039 319,440 676,802 717,016 605,319
Income Before Tax 958,066 1,001,566 1,412,612 1,644,995 1,437,117
Net Income 844,927 949,302 1,304,508 1,461,654 1,311,868
Other Comprehensive Income 138,939 239,575 12,394 -209,098 -573,660
Total Comprehensive Income 983,866 1,188,877 1,316,902 1,252,556 738,208
Basic Earnings per share 4.19 4.21 5.57 6.02 5.38
| 2017 Annual Report 082
6.5 Financial Analysis IFRSs
Item
2013 2014 2015 2016 2017 As of March 31, 2018
Non- consolidated Consolidated Non-
consolidated Consolidated Non- consolidatedConsolidated Non-
consolidated Consolidated Non- consolidated Consolidated Consolidated
Financial Ratio (%)
Total Liabilities to Total Assets 52.91 64.70 46.15 66.32 51.16 69.20 53.29 69.06 54.75 70.82 67.06
Long-term Funds to Property, Plant, Equipment
384.83 169.67 413.56 190.77 475.19 212.96 468.56 233.87 450.01 229.73 234.73
Liquidity (%)
Current Ratio 111.79 120.09 113.23 119.4 107.11 117.62 107.61 120.63 97.32 118.22 121.97
Quick Ratio 84.48 84.61 78.42 86.39 63.30 81.44 70.25 84.86 63.55 82.25 81.31
Time Interest Earned 27.38 19.48 32.06 15.43 41.42 22.17 37.16 25.96 27.13 27.66 15.68
Operating Performance
AR Turnover (Times) 14.12 8.55 14.76 6.59 14.64 6.40 9.17 5.38 8.00 5.38 4.93
AR Turnover (Days) 25.85 42.67 24.72 55.38 24.94 57.02 39.78 67.89 45.63 67.84 74.05
Inventory Turnover (Times) 15.67 6.52 12.86 6.24 10.29 6.67 8.60 5.76 9.61 5.80 4.64
AP Turnover (Times) 6.63 3.68 6.89 3.49 8.46 3.80 7.46 3.25 7.08 3.13 2.66
Inventory Turnover (Days) 23.30 55.98 28.39 58.51 35.47 54.69 42.43 63.35 37.98 62.93 78.68
Property, Plant, Equipment Turnover (Times)
13.24 6.18 12.91 7.06 16.93 10.45 17.72 11.04 17.78 11.88 9.69
Total Assets Turnover (Times) 1.82 1.45 1.81 1.48 2.03 1.73 1.86 1.59 1.84 1.55 1.41
Profitability
Return on Assets (%) 9.35 6.77 9.17 6.48 10.48 6.71 10.01 6.54 8.54 5.50 3.31
Return on Equity (%) 19.78 19.78 17.61 17.60 20.08 19.96 20.45 20.36 17.96 17.66 10.00
Pre-Tax Income to Pay-in Capital(%) 45.39 48.50 43.55 51.7 58.53 65.60 67.72 72.90 58.5 64.46 38.52
Net Income / Sales (%) 4.97 4.43 4.94 4.09 5.05 3.70 5.25 3.97 4.48 3.33 2.30
EPS (NTD) 4.19 4.19 4.21 4.21 5.57 5.57 6.02 6.02 5.38 5.38 0.76
Cash Flow
Cash Flow Ratio (%) 22.27 11.81 2.77 6.70 -1.34 10.38 4.26 15.45 4.06 14.69 3.05
Cash Flow Adequacy Ratio (%) 90.59 79.24 68.53 62.37 45.55 69.58 42.5 88.06 46.7 79.80 36.79
Cash Reinvestment Ratio (%) 7.77 5.76 -7.21 2.26 -10.42 10.13 -7.31 16.14 9.31 17.05 4.91
Leverage Operating Leverage 3.79 3.09 3.72 2.86 4.41 3.00 3.90 2.97 4.42 3.42 4.68
Financial Leverage 1.07 1.07 1.05 1.08 1.05 1.05 1.05 1.04 1.07 1.04 1.08
2017 Annual Report | 083
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 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×( Interest Rate) the Average of Total Assets
(2) Return on Equity PAT the Average of Net Equity (3) Net Income Ratio PAT Net Sates (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 AssetsWorking 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)
| 2017 Annual Report 084
6.6 2017 Audit Committee’s Review Report
Audit Committee’s Review Report
The Board of Director has prepared the Company’s 2017 Business Report, Financial Statements, and proposal for allocation of profits. The CPA firm of Ernst & Young was retained to audit Sercomm’s Financial Statements and has issued an audit report relating to the Financial Statements. The Business Report, Financial Statements and profit allocation proposal have been reviewed and determined to be correct and accurate by the Audit Comaumittee members of Sercomm Corporation. According to Article 219 of the Company Law, we hereby submit this report. To Sercomm Corporation 2017 Annual Shareholders’ Meeting
Chairman of the Audit Committee Steve K. Chen
March 12, 2018
2017 Annual Report | 085
6.7 Financial Status and Operating Results 6.7.1 Financial Position
Unit: Thousand NTD
Item 2016 2017 Difference Change %
Current Assets 19,472,018 20,457,851 985,833 5.06
Non-Current Assets 4,307,035 4,309,595 2,560 0.06
Total Assets 23,779,053 24,767,446 988,393 4.16
Current Liabilities 16,141,585 17,304,180 1,162,595 7.20
Non-Current Liabilities 280,400 236,970 -43,430 -15.49
Total Liabilities 16,421,985 17,541,150 1,119,165 6.82
Capital Stock 2,429,198 2,456,538 27,340 1.13
Capital Surplus 1,617,572 1,764,717 147,145 9.10
Retained Earnings 3,158,215 3,443,101 284,886 9.02
Other Equity Interest 153,979 -412,962 -566,941 -368.19
Total Shareholders' Equity 7,357,068 7,226,296 -130,772 -1.78
6.7.2 Operating Results Unit: Thousand NTD
Item 2016 2017 Difference Change %
Operating Revenues 36,701,734 38,600,003 1,898,269 5.17
Operating Costs 31,333,006 33,572,160 2,239,154 7.15
Gross Profit from Operations 5,368,728 5,027,843 -340,885 -6.35
Operating Expenses 3,597,818 3,493,639 -104,179 -2.90
Operating Profit 1,770,910 1,534,204 -236,706 -13.37 Non-Operating Income and Expenses
31,873 49,354 17,481 54.85
Income before Tax 1,802,783 1,583,558 -219,225 -12.16
Analysis of Deviation over 20%
Decrease in non-operating income and expenses Mainly due to increase in interest income and decrease in
interest expense in 2017.
6.7.3 Cash Flow Analysis
Item 2016 2015 Change%
Cash Flow Ratio (%) 15.45 14.69 -4.92
Cash Flow Adequacy Ratio (%) 88.06 79.80 -9.38
Cash Reinvestment Ratio (%) 16.14 17.05 5.64
| 2017 Annual Report 086
6.7.4 Projected Cash Flow
Unit: Thousand NTD
Beginning Cash Balance
Cash Flows from Operating
Activities
Cash Flows from Investing & Financing
Activities
Projected Ending Cash Balance
Source of Funding for Cash Shortfall
Investing Plan
Financing Plan
6,484,163 -453,945 847,473 5,182,745 Private Placement
Analysis of Cash Flow
NT$453,945 thousand net cash generated by operating activities: mainly from decrease in gross margin,
increase in account receivable, depreciation and amortization expense and account payable.
NT$1,346,689 thousand net cash used in investing activities: primarily for purchase fixed asset and
intangible asset
NT$499,216 thousand net cash used in financing activities: primarily for cash dividend payment, private
placement investing and repay bank loan
Remedial Actions for Liquidity Shortfall None
2017 Annual Report | 087
VII. Special Disclosures
7.1 Subsidaries 7.1.1 Affiliated Companies Chart
Sercomm Corporation
Sercomm USA Inc.
HawXeye Inc.
Sercomm Russia LLC.
Sercomm Japan Corp.
Shukuan Investments
Ltd.
Sercomm France SARL
Sercomm Italian SRL
Sercomm Deutschland
GmbH
Smart Trade Inc.
DWNet Technology
Ltd.
Suzhou FemTel
Communications
Nanjing FemTel
Communications
Sercomm Trading Co.,
Ltd.
Zealous Investment
Ltd.
Sernet (Suzhou) Technology
Ltd.
Huayi (Suzhou) Telecommunication
Technologies Ltd.
| 2017 Annual Report 088
7.1.2 Affiliated Companies
Company Date of Incorporation Paid-in Capital Major Business
Sercomm USA Inc 1996/09/25 USD$650,000 Sales of IT Products
Shukuan Investments Ltd. 2002/12/31 NTD$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 (Suzhou) 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$490,000,000 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 Russia LLC. 2013/04/18 RUB$10,000 Sales of IT Products and International Trading
Huayi (Suzhou) Telecommunication Technologies Ltd.
2013/07/15 RMB$500,000
Manufacture of Routers, Communication Products, WLAN Products; Sales and After-sales Service
HawXeye Inc. 2015/04/23 USD$1,452,000 Development of advanced image analysis technology
Suzhou FemTel Communications 2009/11/20 RMB$6,500,000
Telecom equipment, software development and provide related technology service
Nanjing FemTel Communications 2013/01/16 RMB$2,500,000
Telecom equipment, software development and provide related technology service
2017 Annual Report | 089
7.1.3 Directors, Supervisors and Presidents of Affiliated Companies
Company Title Name / Representative Shareholdings
Investment Amount %
Sercomm USA Inc. Owner Paul Wang 650,000 shares 100%
Shukuan Investments Ltd. Owner James Wang 2,800,000 shares 100%
Sercomm Trading Co., Limited Owner James Wang USD$46,800,000 100%
Zealous Investments Ltd. Owner James Wang USD$30,956,000 100%
Sernet (Suzhou) Technology Ltd. Owner James Wang USD$29,900,000 100%
Smart Trade Inc. Owner Ben Lin USD$16,000,000 100%
DWNet Technology Ltd. Owner James Wang USD$16,000,000 100%
Sercomm Japan Corp. Owner Nobuhisa Itoh 9,800 shares 100%
Sercomm France SARL Owner D’Humieres Thierry Michael Lee 1,000 shares 100%
Sercomm Italian SRL Owner D’Humieres Thierry 10,000 shares 100%
Sercomm Deutschland GmbH Owner D’Humieres Thierry
Michael Lee EUR$100,000 100%
Sercomm Russia LLC. Owner Gleb Fedorov RUB$10,000 100%
Huayi (Suzhou) Telecommunication Technologies Ltd.
Owner Charles Chu RMB$500,000 100%
HawXeye Inc. Owner Andy Lin 800,000,000 shares 55%
Suzhou FemTel Communications Owner James Wang RMB$6,500,000 100%
Nanjing FemTel Communications Owner James Wang RMB$2,500,000 100%
| 2017 Annual Report 090
7.1.4 Operational Highlights of Sercomm Subsidiaries
Unit: Thousand NTD / Year 2017
Company Capital Stock Assets Liabilities Net Worth Net
Revenue Operation
Income(Loss) Net
Income Basic EPS
Sercomm USA Inc. 20,739 27,251 5,530 21,721 88,171 4,194 1,693 0.00
Shukuan Investments Ltd. 28,000 33,125 4 33,121 0 -35 238 0.00
Sercomm Trading Co., Limited 1,471,186 5,195,256 16 5,195,240 0 0 647,065 0.00
Zealous Investments Ltd. 989,358 4,159,952 53,676 4,106,276 0 -68,810 443,269 0.00
Sernet (Suzhou) Technology Ltd. 933,252 11,945,023 7,942,029 4,002,994 25,202,842 600,851 541,362 0.00
Smart Trade Inc. 481,829 1,088,802 0 1,088,802 0 0 203,796 0.00
DWNet Technology Ltd. 481,829 6,309,536 5,220,735 1,088,801 9,231,596 244,627 203,796 0.00
Sercomm Japan Corp. 157,721 53,455 68,900 -15,445 97,977 -14,312 -16,141 0.00
Sercomm France SARL 4,004 21,810 11,436 10,374 48,953 2,186 1,424 0.00
Sercomm Italian SRL 388 4,054 2,421 1,633 17,254 577 577 0.00
Sercomm Deutschland GmbH
3,727 19,889 16,528 3,361 29,897 1,401 1,433 0.00
Sercomm Russia LLC. 10 264,616 245,364 19,252 668,789 9,313 6,889 0.00
Huayi (Suzhou) Telecommunication Technologies Ltd.
2,454 1,943 0 1,943 0 -52 -21 0.00
HawXeye Inc. 44,690 2,087 57,976 -55,889 33,761 -53,349 -53,374 0.00
Suzhou FemTel Communications 32,599 -3,491 29,507 -32,998 33,765 -9,669 -22,051 0.00
Nanjing FemTel Communications 12,538 11,141 30,110 -18,969 8,499 -11,560 -12,426 0.00
2017 Annual Report | 091
Independent Auditors’ Report
To Sercomm Corporation
Opinion
We have audited the accompanying consolidated balance sheets of Sercomm Corporation (the
“Company”) and its subsidiaries as of 31 December 2017 and 2016, and the related consolidated
statements of comprehensive income, changes in equity and cash flows for the years ended 31
December 2017 and 2016, and notes to the consolidated financial statements, including the summary
of significant accounting policies (together “the consolidated financial statements”).
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company and its subsidiaries as of 31 December
2017 and 2016, and their consolidated financial performance and cash flows for the years ended 31
December 2017 and 2016, in conformity with the requirements of the Regulations Governing the
Preparation of Financial Reports by Securities Issuers and International Financial Reporting
Standards, International Accounting Standards, Interpretations developed by the International
Financial Reporting Interpretations Committee or the former Standing Interpretations Committee as
endorsed by Financial Supervisory Commission of the Republic of China.
Basis for Opinion
We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of
Financial Statements by Certified Public Accountants and auditing standards generally accepted in
the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are
independent of the Company and its subsidiaries in accordance with the Norm of Professional Ethics
for Certified Public Accountant of the Republic of China (the “Norm”), and we have fulfilled our
other ethical responsibilities in accordance with the Norm. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of 2017 consolidated financial statements. These matters were addressed in the context of
our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
| 2017 Annual Report 092
1. Revenue Recognition
Net sales recognized by the Company amounted to NT$38,600,003 thousand for the year ended
31 December 2017. As the business operations spanned multinational markets across the globe,
the trading terms in the sales contracts signed with international customers varied. The time that
significant risks and rewards of ownership of the goods were transferred to the buyers would be
different depending on the sales contracts or orders. We believe there is significant risk for revenue
recognition as a result of the increased complexity of transactions due to these factors. Therefore,
we considered this a key audit matter.
Our audit procedures included (but not limited to) the following:
1. We evaluated the appropriateness of the accounting policy related to the revenue recognized
from sale of goods and the transactions from new sales by testing the effectiveness of the
internal control determined by the management. We confirmed that revenue was recognized
when the rights and significant risks were transferred by verifying the terms recorded on the
original sales contracts or purchase orders.
2. We confirmed the correctness of recognizing revenue from sale of goods and the existence of
sales revenue by performing tests of transaction detail which included reviewing vouchers of
selected samples and cash receipts record.
3. We performed cutoff testing through periods before and after the balance sheet date by
reviewing related documentation of selected samples.
4. We confirmed the correctness of timing of recognizing revenue from sale of goods by reviewing
journal entries through the periods after the balance sheet date to determine if there’s any
material sales discount and allowance.
We also considered the appropriateness of the disclosure of operating revenue in Notes 4 and 6.
2. Valuation of Inventories
As of 31 December 2017, the Company's net inventories amounted to NT$6,061,829 thousand,
which represented 25% of total consolidated assets and was significant to the financial statements.
As the Company’s inventory value was affected by market demand and rapid changes in
technology, management had to accrue allowance for obsolete and slow-moving inventories. In
addition, management had to measure the loss due to write-downs of inventories at the lower of
cost and their net realizable values according to IAS2 to calculate the loss of the writing-down.
Therefore, we considered this a key audit matter.
2017 Annual Report | 093
Our audit procedures included (but not limited to) the following:
1. to understand the process of how management decided the process to determine the net
realizable value of inventories and identify the slow-moving inventories and defective goods,
assess the reasonability of inventories valuation policy, and test the effectiveness of related
internal control.
2. to test the inventories’ net realizable value as of balance sheet date. We sampled the inventory
items and reviewed the relevant evidences to test the adequacy of net realizable value which
management used. We re-compared the net realizable value to book value of the ending balance
of inventories to verify the accuracy of the loss due to write-downs of inventories.
3. to test the accuracy of inventories’ aging as of balance sheet date by sampling inventories, and
reviewing the related evidences.
4. to evaluate the allowance for valuation loss of slow-moving and defective inventories by
observing inventories count on balance sheet date, and by understanding the status and the
storage of inventories.
We also considered the appropriateness of the disclosure of inventories in Notes 4, 5 and 6.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with the requirements of the Regulations Governing the Preparation of
Financial Reports by Securities Issuers and International Financial Reporting Standards, International
Accounting Standards, Interpretations developed by the International Financial Reporting
Interpretations Committee or the former Standing Interpretations Committee as endorsed by Financial
Supervisory Commission of the Republic of China and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the ability
to continue as a going concern of the Company and its subsidiaries, disclosing, as applicable, matters
related to going concern and using the going concern basis of accounting unless management either
intends to liquidate the Company and its subsidiaries or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance, including audit committee or supervisors, are responsible for
overseeing the financial reporting process of the Company and its subsidiaries.
| 2017 Annual Report 094
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with auditing standards generally accepted in the
Republic of China will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
As part of an audit in accordance with auditing standards generally accepted in the Republic of China,
we exercise professional judgment and maintain professional skepticism throughout the audit. We
also:
1. Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the internal control of the Company and its subsidiaries.
3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
4. Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the ability to continue as a going concern of the
Company and its subsidiaries. If we conclude that a material uncertainty exists, we are required to
draw attention in our auditor’s report to the related disclosures in the consolidated financial
statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based
on the audit evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the Company and its subsidiaries to cease to continue as a going concern.
5. Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the accompanying notes, and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
2017 Annual Report | 095
6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company and its subsidiaries to express an opinion on the
consolidated financial statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with those charged with governance, we determine those matters
that were of most significance in the audit of 2017 consolidated financial statements and are therefore
the key audit matters. We describe these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare circumstances, we determine
that a matter should not be communicated in our report because the adverse consequences of doing
so would reasonably be expected to outweigh the public interest benefits of such communication.
We have audited and expressed an unqualified opinion on the parent company only financial
statements of the Company as of and for the years ended 31 December 2017 and 2016.
Ernst & Young, Taiwan
12 March 2017
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 review such consolidated financial statements are those
generally accepted and applied in the Republic of China.
| 2017 Annual Report 096
Ass
ets
Note
sA
mount
%A
mount
%L
iabi
litie
s and
Equ
ityN
ote
sA
mount
%A
mount
%
Cur
rent
ass
ets
Cur
rent
liab
ilitie
sC
ash a
nd c
ash e
quiv
alen
ts4 a
nd 6
$6,4
84,1
63
26
$5,7
21,3
41
24
Short
-ter
m b
orr
ow
ings
6$1,8
76,3
61
8$2,1
35,3
17
9
Curr
ent
der
ivat
ive
finan
cial
ass
ets
for
hed
gin
g4,
5 a
nd 6
-
-
341,6
19
2C
urr
ent
finan
cial
lia
bil
itie
s at
fai
r val
ue
thro
ugh p
rofi
t or
loss
4,
5 a
nd 6
12,6
06
-
457
-
Note
s re
ceiv
able
, net
4 a
nd 6
912,6
70
41,2
65,2
11
5C
urr
ent
der
ivat
ive
finan
cial
lia
bil
itie
s fo
r hed
gin
g4,
5 a
nd 6
217,1
62
1-
-
Acc
ounts
rec
eivab
le,
net
4,
5 a
nd 6
6,2
87,6
48
25
5,8
58,6
30
25
Acc
ounts
pay
able
11,4
67,3
82
46
10,0
04,7
04
42
Oth
er r
ecei
vab
les,
net
6339,5
23
1481,6
67
2O
ther
pa y
able
s3,0
32,0
39
12
3,1
59,5
98
13
Inven
tori
es,
man
ufa
cturi
ng b
usi
nes
s4,5
and 6
6,0
61,8
29
25
5,5
06,9
69
23
Curr
ent
tax l
iabil
itie
s4,
5 a
nd 6
257,7
51
1305,4
42
1
Pre
pay
men
ts250,4
51
1206,6
64
1C
urr
ent
pro
vis
ions
4,
5 a
nd 6
112,9
56
-
168,7
39
1
Oth
er c
urr
ent
asse
ts121,5
67
189,9
17
-
Curr
ent
leas
e obli
gat
ions
pay
able
4 a
nd 6
13,6
47
-
13,3
78
-
Tot
al c
urre
nt a
sset
s20,4
57,8
51
83
19,4
72,0
18
82
Oth
er c
urr
ent
liab
ilit
ies
9314,2
76
1353,9
50
2
Tot
al c
urre
nt li
abili
ties
17,3
04,1
80
69
16,1
41,5
85
68
Non
-cur
rent
ass
ets
Non-c
urr
ent
finan
cial
ass
ets
atfa
ir v
alue
thro
ugh p
rofi
t or
loss
4,
5 a
nd 6
24,1
21
-
-
-
Non
-cur
rent
liab
ilitie
sN
on-c
urr
ent
avai
lable
-for-
sale
fin
anci
al a
sset
s4,
5 a
nd 6
23,6
32
-
60,5
23
-
Def
erre
d t
ax l
iabil
itie
s4,
5 a
nd 6
60,6
75
-
92,7
09
-
Non-c
urr
ent
finan
cial
ass
ets
mea
sure
d a
t co
st4 a
nd 6
60,1
20
-
63,3
75
-
Non-c
urr
ent
leas
e obli
gat
ions
pay
able
4 a
nd 6
114,2
31
1128,4
69
1
Pro
per
ty,
pla
nt
and e
quip
men
t4 a
nd 6
3,2
48,6
80
13
3,2
65,6
90
14
Net
def
ined
ben
efit
lia
bil
itie
s noncu
rren
t4,
5 a
nd 6
57,8
10
-
52,9
43
-
Inta
ngib
le a
sset
s4 a
nd 6
297,5
51
1285,6
07
1G
uar
ante
e dep
osi
ts r
ecei
ved
4,2
54
-
6,2
79
-
Def
erre
d t
ax a
sset
s4,
5 a
nd 6
301,2
57
1309,2
44
1T
otal
non
-cur
rent
liab
ilitie
s236,9
70
1280,4
00
1
Pre
pay
men
ts f
or
busi
nes
s fa
cili
ties
47,5
26
-
33,2
87
-
Tot
al li
abili
ties
17,5
41,1
50
70
16,4
21,9
85
69
Guar
ante
e de p
osi
ts p
aid
848,5
34
-
25,7
18
-
Oth
er n
on-c
urr
ent
finan
cial
ass
ets
9166,7
94
1165,2
19
1E
quity
att
ribu
tabl
e to
ow
ners
of p
aren
tL
ong-t
erm
pre
pai
d r
ents
89,9
36
194,0
22
1Sh
are
capi
tal
4 a
nd 6
Oth
er n
on-c
urr
ent
asse
ts1,4
44
-
4,3
50
-
Ord
inar
y s
har
e2,4
56,5
38
10
2,4
29,1
98
10
Tot
al n
on-c
urre
nt a
sset
s4,3
09,5
95
17
4,3
07,0
35
18
Ca p
ital s
urpl
usA
ddit
ional
pai
d-i
n c
apit
al a
risi
ng f
rom
ord
inar
y s
har
e290,8
86
1123,5
21
1
Addit
ional
pai
d-i
n c
apit
al a
risi
ng f
rom
bond c
onver
sion
1,3
82,4
85
61,3
82,4
85
6
Chan
ges
in s
ubsi
dia
ries
' ow
ner
ship
8,6
28
-
8,1
37
-
Em
plo
yee
shar
e opti
ons
56,7
84
-
77,4
95
-
Res
tric
ted s
tock
s to
em
plo
yee
s25,9
34
-
25,9
34
-
Tot
al c
a pita
l sur
plus
1,7
64,7
17
71,6
17,5
72
7
Ret
aine
d ea
rnin
gsL
egal
res
erve
894,3
96
4748,2
31
3
Spec
ial
rese
rve
131,6
78
1131,6
78
-
Un
a ppro
pri
ated
ret
ained
ear
nin
gs
2,4
17,0
27
10
2,2
78,3
06
10
Tot
al r
etai
ned
earn
ings
3,4
43,1
01
15
3,1
58,2
15
13
Oth
er e
quity
inte
rest
(412,9
62)
(2)
153,9
79
1
Non
-con
trol
ling
inte
rest
6(2
5,0
98)
-
(1,8
96)
-
Tot
al e
quity
7,2
26,2
96
30
7,3
57,0
68
31
Tot
al a
sset
s$24,7
67,4
46
100
$23,7
79,0
53
100
Tot
al li
abili
ties a
nd e
quity
$24,7
67,4
46
100
$23,7
79,0
53
100
The
acco
mpan
yin
g n
ote
s ar
e an
inte
gra
l par
t of
the
conso
lidat
ed f
inan
cial
sta
tem
ents
.
Eng
lish
Tra
nsla
tion
of C
onso
lidat
ed F
inan
cial
Sta
tem
ents
Ori
gina
lly Is
sued
in C
hine
se
SER
CO
MM
CO
RPO
RA
TIO
N A
ND
SU
BSI
DIA
RIE
SC
ON
SOL
IDA
TE
D B
AL
AN
CE
SH
EE
TS
31 D
ecem
ber
2017
and
31
Dec
embe
r 20
16(E
xpre
ssed
in T
hous
ands
of N
ew T
aiw
an D
olla
rs)
31 D
ecem
ber
2017
31 D
ecem
ber
2016
31 D
ecem
ber
2017
31 D
ecem
ber
2016
2017 Annual Report | 097
Note Amount % Amount %
Operating revenues 4, 5 and 6 $38,600,003 100 $36,701,734 100
Operating costs 6 (33,572,160) (87) (31,333,006) (85)
Gross profit form operations 5,027,843 13 5,368,728 15
Operating expenses 5, 6,7 and 9
Selling expenses (1,020,627) (3) (1,045,432) (3)
Administrative expenses (827,423) (2) (847,290) (2)
Research and development expenses (1,645,589) (4) (1,705,096) (5)
Total operating expenses (3,493,639) (9) (3,597,818) (10)
Net operating income 1,534,204 4 1,770,910 5
Non-operating income and expenses 6
Other income 9 107,708 - 94,467 -
Other gains and losses 1,040 - 9,620 -
Finance costs (59,394) - (72,214) -
Total non-operating income and expenses 49,354 - 31,873 -
Income before tax 1,583,558 4 1,802,783 5
Income tax expenses 4, 5 and 6 (295,400) (1) (347,488) (1)
Net Income 1,288,158 3 1,455,295 4
Other comprehensive income (loss) 4 and 6
Items that will not be reclassified subsequently to profit or lossRemeasurement of defined benefit pension plans (8,095) - (5,434) -
Income tax related to items that will not be reclassified 1,376 - 924 -
Items that may be reclassified subsequently to profit or lossExchange differences on translation of foreign operations (45,154) - (409,025) (1)
Unrealized gain on available-for-sale financial assets 3,109 - 726 -
Gain (loss) on effective portion of cash flow hedges (574,225) (1) 238,089 1
Income tax relating to components of other comprehensive income 49,837 - (34,209) (1)
Other comprehensive income (loss), net of tax (573,152) (1) (208,929) (1)
Total comprehensive income $715,006 2 $1,246,366 3
Net income attributable to :
Owners of parent $1,311,868 $1,461,654
Non-controlling interests (23,710) (6,359)
$1,288,158 $1,455,295
Comprehensive income attributable to:
Owners of parent $738,208 $1,252,556
Non-controlling interests (23,202) (6,190)
$715,006 $1,246,366
Earnings per share (NT$) 4 and 6
Basic earnings per share $5.38 $6.02
Diluted earnings per share $5.24 $5.85
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended 31 December 2017 and 2016(Expressed in Thousands of New Taiwan Dollars Excepts Earnings Per Share Information)
For the years ended 31 December
2017
The accompanying notes are an integral part of the consolidated financial statements.
2016
| 2017 Annual Report 098
Ord
inar
y s
har
e
Ad
van
ce
rece
ipts
fo
r
shar
e ca
pit
alC
apit
al s
urp
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Leg
al r
eser
ve
Spec
ial
rese
rve
Unap
pro
pri
ated
reta
ined
earn
ings
Exch
ange
dif
fere
nce
s o
n
tran
slat
ion o
f
fore
ign
finan
cial
stat
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ts
Unre
aliz
ed
gai
ns
(lo
sses
)
on a
vai
lable
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ass
ets
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on e
ffec
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tal
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y
Bal
ance
as o
f 1 J
anua
ry 2
016
$2
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1,2
78
$2
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8$
1,5
29
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1$
61
7,7
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$1
31
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8$
1,8
87
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5$
22
9,1
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$1
2,3
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$1
17
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9$
6,9
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6,9
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5
Appro
pri
atio
ns
and
dis
trib
uti
ons
of
20
15
ear
nin
gs
Leg
al r
eser
ve
appro
pri
ated
-
-
-
13
0,4
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-
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-
-
-
-
-
Cas
h d
ivid
end
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f o
rdin
ary s
har
e-
-
-
-
-
(9
36
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2)
-
-
-
(93
6,3
22
)-
(9
36
,32
2)
Net
inco
me
(lo
ss)
for
the
yea
r en
ded
31
Dec
ember
20
16
-
-
-
-
-
1,4
61
,65
4-
-
-
1
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1,6
54
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5,2
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Oth
er c
om
pre
hen
sive
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n (
loss
), n
et o
f ta
x f
or
the
yea
r en
ded
31
-
-
-
-
-
(4,5
10
)(3
88
,32
6)
72
61
83
,01
2(2
09
,09
8)
16
9(2
08
,92
9)
D
ecem
ber
20
16
To
tal
com
pre
hen
sive
inco
me
-
-
-
-
-
1,4
57
,14
4(3
88
,32
6)
72
61
83
,01
21
,25
2,5
56
(6,1
90
)1
,24
6,3
66
Co
nver
sio
n o
f co
nver
tible
bo
nd
s1
7,9
20
(2,3
58
)4
3,5
34
-
-
-
-
-
-
59
,09
6-
5
9,0
96
Chan
ges
in s
ubsi
dia
ries
' ow
ner
ship
-
-
8,1
37
-
-
-
-
-
-
8,1
37
5,7
26
13
,86
3
Co
mpen
sati
on c
ost
ari
sing f
rom
em
plo
yee
sto
ck o
pti
ons
-
-
36
,43
0-
-
-
-
-
-
3
6,4
30
-
36
,43
0
Bal
ance
as o
f 31
Dec
embe
r 20
16$
2,4
29
,19
8$
-
$1
,61
7,5
72
$7
48
,23
1$
13
1,6
78
$2
,27
8,3
06
$(1
59
,16
1)
$1
3,0
79
$3
00
,06
1$
7,3
58
,96
4$
(1,8
96
)$
7,3
57
,06
8
Bal
ance
as o
f 1 J
anua
ry 2
017
$2
,42
9,1
98
$-
$
1,6
17
,57
2$
74
8,2
31
$1
31
,67
8$
2,2
78
,30
6$
(15
9,1
61
)$
13
,07
9$
30
0,0
61
$7
,35
8,9
64
$(1
,89
6)
$7
,35
7,0
68
Appro
pri
atio
ns
and
dis
trib
uti
ons
of
20
16
ear
nin
gs
Leg
al r
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ve
appro
pri
ated
-
-
-
14
6,1
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-
(14
6,1
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-
-
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-
-
Cas
h d
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end
s o
f o
rdin
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har
e-
-
-
-
-
(1
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0,2
63
)-
-
-
(1
,02
0,2
63
)-
(1
,02
0,2
63
)
Net
inco
me
(lo
ss)
for
the
yea
r en
ded
31
Dec
ember
20
17
-
-
-
-
-
1,3
11
,86
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-
-
1
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1,8
68
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1,2
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pre
hen
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), n
et o
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31
-
-
-
-
-
(6,7
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)(5
0,9
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,10
9(5
19
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08
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ecem
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20
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To
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-
-
-
-
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1,3
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19
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73
8,2
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71
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Chan
ges
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dia
ries
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ner
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-
-
49
1-
-
-
-
-
-
4
91
-
49
1
Issu
rance
of
sto
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27
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1
21
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-
-
-
-
-
1
49
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1
49
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3
Co
mpen
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on c
ost
ari
sing f
rom
em
plo
yee
sto
ck o
pti
ons
-
-
24
,99
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-
-
-
-
-
2
4,9
91
-
24
,99
1
Bal
ance
as o
f 31
Dec
embe
r 20
17$
2,4
56
,53
8$
-
$1
,76
4,7
17
$8
94
,39
6$
13
1,6
78
$2
,41
7,0
27
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10
,06
3)
$1
6,1
88
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19
,08
7)
$7
,25
1,3
94
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5,0
98
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7,2
26
,29
6
SER
CO
MM
CO
RPO
RA
TIO
N A
ND
SU
BSI
DIA
RIE
S
CO
NSO
LID
AT
ED
ST
AT
EM
EN
TS
OF
CH
AN
GE
S IN
EQ
UIT
Y
For
the
year
s end
ed 3
1 D
ecem
ber
2017
and
201
6
(Exp
ress
ed in
Tho
usan
ds o
f New
Tai
wan
Dol
lars
)
The
acco
mpan
yin
g n
ote
s ar
e an
inte
gra
l par
t o
f th
e co
nso
lid
ated
fin
anci
al s
tate
men
ts.
Eng
lish
Tra
nsla
tion
of C
onso
lidat
ed F
inan
cial
Sta
tem
ents
Ori
gina
lly Is
sued
in C
hine
se
EQ
UIT
Y A
TT
RIB
UT
AB
LE
TO
OW
NE
RS
OF
PAR
EN
T
Ret
aine
d ea
rnin
gsO
ther
equ
ity in
tere
stSh
are
capi
tal
2017 Annual Report | 099
2017
2016
2017
2016
Cas
h flo
ws f
rom
ope
ratin
g ac
tiviti
es:
Cas
h flo
ws f
rom
inve
stin
g ac
tiviti
es:
Net
inco
me
bef
ore
tax
$1,5
83,5
58
$1,8
02,7
83
Acq
uis
itio
n o
f fi
nan
cial
ass
ets
at f
air
val
ue
thro
ugh p
rofi
t or
loss
$(2
3,8
67)
$-
Adju
stm
ent
to r
eco
nci
le n
et i
nco
me
bef
ore
tax
to
net
cas
h p
rovid
ed b
y o
per
atin
g a
ctiv
itie
s:P
roce
eds
from
dis
posa
l of
avai
lable
-for-
sale
fin
anci
al a
sset
s38,7
80
-
Dep
reci
atio
n e
xpen
se466,6
71
435,4
60
Acq
uis
itio
n o
f pro
per
ty, pla
nt
and e
quip
men
t(4
29,5
24)
(361,8
78)
Am
ort
izat
ion e
xpen
se84,3
10
85,9
20
Pro
ceed
s fr
om
dis
posa
l of
pro
per
ty,
pla
nt
and e
quip
men
t3,9
82
3,6
65
Bad
deb
t ex
pen
se1,2
12
-
Incr
ease
in r
efundab
le d
eposi
ts(1
9,9
10)
-
Net
loss
(gai
n)
on f
inan
cial
ass
ets
at f
air
val
ue
thro
ugh p
rofi
t or
loss
10,2
05
(6,3
55)
Dec
reas
e in
ref
undab
le d
eposi
ts-
5,4
73
Inte
rest
expen
se59,3
94
71,9
44
Acq
uis
itio
n o
f in
tangib
le a
sset
s(9
7,7
22)
(73,4
92)
Am
ort
izat
ion o
f dis
count
on b
onds
pay
able
-
270
Pro
ceed
s fr
om
dis
posa
l of
inta
ngib
le a
sset
s-
167
Inte
rest
in
com
e(7
8,4
05)
(66,8
68)
Incr
ease
in p
repay
men
ts f
or
busi
nes
s fa
cili
ties
(63,5
07)
(19,5
60)
Div
iden
d i
nco
me
(342)
(2,2
64)
Div
iden
ds
rece
ived
342
2,2
64
Com
pen
sati
on c
ost
ari
sing f
rom
shar
e-bas
ed p
aym
ent
pla
ns
24,9
91
36,4
30
Net
cas
h flo
ws u
sed
in in
vest
ing
activ
ities
(591,4
26)
(443,3
61)
(Gai
n)
loss
on d
isposa
l of
pro
per
ty, pla
nt
and e
quip
men
t(1
,806)
3,3
78
Loss
on d
isposa
l of
inves
tmen
t1,2
20
-
Loss
on i
mpai
rmen
t of
finan
cial
ass
ets
3,2
55
-
Ch
ang
es i
n o
per
atin
g a
sset
s an
d l
iabil
itie
s:C
ash
flow
s fro
m fi
nanc
ing
activ
ities
:C
urr
ent
finan
cial
ass
ets
at f
air
val
ue
thro
ugh p
rofi
t or
loss
-
22,8
64
Dec
reas
e in
short
-ter
m l
oan
s(2
58,9
56)
(497,1
81)
Note
s re
ceiv
able
, net
352,5
41
1,2
32,1
46
Dec
reas
e in
guar
ante
e dep
osi
ts r
ecei
ved
(2,0
25)
(4,4
74)
Acc
ounts
rec
eivab
le, net
(430,2
14)
(1,8
27,5
32)
Dec
reas
e in
lea
se p
ayab
le(1
3,9
69)
(14,1
58)
Oth
er r
ecei
vab
le, net
132,1
44
(135,3
69)
Cas
h d
ivid
ends
pai
d(1
,020,2
63)
(936,3
22)
Inven
tori
es(5
54,8
60)
(138,0
18)
Acq
uis
itio
n o
f new
shar
es i
n a
subsi
dia
ry n
ot
in p
roport
ionat
e to
ow
ner
ship
inte
rest
491
13,8
63
Pre
pay
men
ts(3
9,7
01)
(47,0
83)
Exer
cise
of
emply
ee s
tock
opti
ons
149,0
03
-
Oth
er c
urr
ent
asse
ts(3
5,4
20)
(59,9
43)
Net
cas
h flo
ws u
sed
in fi
nanc
ing
activ
ities
(1,1
45,7
19)
(1,4
38,2
72)
Curr
ent
finan
cial
lia
bil
itie
s at
fai
r val
ue
thro
ugh p
rofi
t or
loss
1,6
03
(14,8
13)
Eff
ect
of
exch
ange
rate
chan
ges
on c
ash a
nd c
ash e
quiv
alen
ts(4
3,1
72)
(255,1
27)
Note
s pay
able
-
(18,9
40)
Net
incr
ease
in c
ash a
nd c
ash e
quiv
alen
ts762,8
22
356,6
83
Acc
ounts
pay
able
1,4
62,6
78
774,1
60
Cas
h a
nd c
ash e
quiv
alen
ts a
t beg
innin
g o
f per
iod
5,7
21,3
41
5,3
64,6
58
Oth
er p
ayab
le(1
26,9
31)
451,3
55
Cas
h a
nd c
ash e
quiv
alen
ts a
t en
d o
f per
iod
$6,4
84,1
63
$5,7
21,3
41
Curr
ent
pro
vis
ions
(48,5
19)
107,8
35
Oth
er c
urr
ent
liab
ilit
ies
(39,6
39)
82,4
29
Net
def
ined
ben
efit
lia
bil
itie
s(3
,227)
(1,7
78)
Cas
h in
flow
gen
erat
ed fr
om o
pera
tions
2,8
24,7
18
2,7
88,0
11
Inte
rest
rec
eived
86,8
30
57,9
48
Inte
rest
pai
d(6
0,5
11)
(70,8
89)
Inco
me
taxes
pai
d(3
07,8
98)
(281,6
27)
Net
cas
h pr
ovid
ed b
y op
erat
ing
activ
ities
2,5
43,1
39
2,4
93,4
43
The
acco
mpan
yin
g n
ote
s ar
e an
inte
gra
l par
t of
the
conso
lidat
ed f
inan
cial
sta
tem
ents
.
(Exp
ress
ed in
Tho
usan
ds o
f New
Tai
wan
Dol
lars
)
Eng
lish
Tra
nsla
tion
of C
onso
lidat
ed F
inan
cial
Sta
tem
ents
Ori
gina
lly Is
sued
in C
hine
se
SER
CO
MM
CO
RPO
RA
TIO
N A
ND
SU
BSI
DIA
RIE
SC
ON
SOL
IDA
TE
D S
TA
TE
ME
NT
S O
F C
ASH
FL
OW
SFo
r th
e ye
ars e
nded
31
Dec
embe
r 20
17 a
nd 2
016
| 2017 Annual Report 100
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended 31 December 2017 and 2016
(Expressed in Thousands of New Taiwan Dollars unless Otherwise Stated)
1. History and organization
Sercomm Corporation (“the Company”) was incorporated on 29 July 1992 under the laws of the
Republic of China (R.O.C.). The Company is a worldwide manufacturer of broadband and
wireless networking equipment which engages mainly in the software and firmware development
of broadband networking.
The Company’s common shares were traded on the Taipei Exchange 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 Company’s registered office and the main business location are at 8F, No.3-1, Park
St., Nangang Dist., Taipei City, Taiwan (R.O.C.)
2. Date and procedures of authorization of financial statements for issue
The consolidated financial statements of the Company and its subsidiaries (“the Group”) were
authorized for issue in accordance with a resolution of the Board of Directors’ meeting on 12
March 2018.
3. Newly issued or revised standards and interpretations
(1) Changes in accounting policies resulting from applying for the first time certain standards and
amendments
The Group applied for the first time International Financial Reporting Standards,
International Accounting Standards, and Interpretations issued, revised or amended which are
endorsed by Financial Supervisory Commission (“FSC”) and become effective for annual
periods beginning on or after 1 January 2017. The nature and the impact of each new standard
and amendment on the Group is immaterial.
(2) Standards or interpretations issued, revised or amended, which are endorsed by FSC, but not
yet adopted by the Group at the date of issuance of the Group’s financial statements are listed
below.
2017 Annual Report | 101
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(a) IFRS 15 “Revenue from Contracts with Customers”
The core principle of the new Standard is for companies to recognize revenue to depict
the transfer of promised goods or services to customers in amounts that reflect the
consideration to which the company expects to be entitled in exchange for those goods or
services. An entity recognizes revenue in accordance with that core principle by applying
the following steps:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
The new Standard includes a cohesive set of disclosure requirements that would result in
an entity providing users of financial statements with comprehensive information about
the nature, amount, timing and uncertainty of revenue and cash flows arising from the
entity's contracts with customers. The Standard is effective for annual periods beginning
on or after 1 January 2018.
(b) IFRS 9“Financial Instruments”
The IASB has issued the final version of IFRS 9, which combines classification and
measurement, the expected credit loss impairment model and hedge accounting. The
standard will replace IAS 39 Financial Instruments: Recognition and Measurement and
all previous versions of IFRS 9 Financial Instruments (which include standards issued on
classification and measurement of financial assets and liabilities and hedge accounting).
Classification and measurement: Financial assets are measured at amortized cost, fair
value through profit or loss, or fair value through other comprehensive income, based on
both the entity’s business model for managing the financial assets and the financial asset’s
contractual cash flow characteristics. Financial liabilities are measured at amortized cost
or fair value through profit or loss. Furthermore there is requirement that ‘own credit risk’
adjustments are not recognized in profit or loss.
Impairment: Expected credit loss model is used to evaluate impairment. Entities are
required to recognize either 12-month or lifetime expected credit losses, depending on
whether there has been a significant increase in credit risk since initial recognition.
| 2017 Annual Report 102
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Hedge accounting: Hedge accounting is more closely aligned with risk management
activities and hedge effectiveness is measured based on the hedge ratio.
The new standard is effective for annual periods beginning on or after 1 January 2018.
Consequential amendments on the related disclosures also become effective for annual
periods beginning on or after 1 January 2018.
(c) IFRS 10“Consolidated Financial Statements” and IAS 28“Investments in Associates and Joint Ventures” — Sale or Contribution of Assets between an Investor and its Associate or Joint Ventures
The amendments address the inconsistency between the requirements in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures, in dealing with the loss of control of a subsidiary that is contributed to an
associate or a joint venture. IAS 28 restricts gains and losses arising from contributions
of non-monetary assets to an associate or a joint venture to the extent of the interest
attributable to the other equity holders in the associate or joint ventures. IFRS 10 requires
full profit or loss recognition on the loss of control of the subsidiary. IAS 28 was amended
so that the gain or loss resulting from the sale or contribution of assets that constitute a
business as defined in IFRS 3 between an investor and its associate or joint venture is
recognized in full. IFRS 10 was also amended so that the gains or loss resulting from the
sale or contribution of a subsidiary that does not constitute a business as defined in IFRS
3 between an investor and its associate or joint venture is recognized only to the extent of
the unrelated investors’ interests in the associate or joint venture.
In addition, the effective date of the amendments has been postponed indefinitely, but
early adoption is allowed.
(d) IAS 12“Income Taxes” — Recognition of Deferred Tax Assets for Unrealized Losses
The amendments clarify how to account for deferred tax assets for unrealized losses. The
amendments are effective for annual periods beginning on or after 1 January 2017.
(e) Disclosure Initiative — Amendment to IAS 7 “Statement of Cash Flows”:
The amendments relate to changes in liabilities arising from financing activities and to
require a reconciliation of the carrying amount of liabilities at the beginning and end of
the period. The amendments are effective for annual periods beginning on or after 1
January 2017.
2017 Annual Report | 103
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(f) IFRS 15 “Revenue from Contracts with Customers” — Clarifications to IFRS 15
The amendments clarify how to identify a performance obligation in a contract, determine
whether an entity is a principal or an agent, and determine whether the revenue from
granting a license should be recognized at a point in time or over time. The amendments
are effective for annual periods beginning on or after 1 January 2018.
(g) IFRS 2 “Shared-Based Payment” — Amendments to IFRS 2
The amendments contain (1) clarifying that vesting conditions (service and non-market
performance conditions), upon which satisfaction of a cash-settled share-based payment
transaction is conditional, are not taken into account when estimating the fair value of the
cash-settled share-based payment at the measurement date. Instead, these are taken into
account by adjusting the number of awards included in the measurement of the liability
arising from the transaction, (2) clarifying if tax laws or regulations require the employer
to withhold a certain amount in order to meet the employee’s tax obligation associated
with the share-based payment, such transactions will be classified in their entirety as
equity-settled share-based payment transactions if they would have been so classified in
the absence of the net share settlement feature, and (3) clarifying that if the terms and
conditions of a cash-settled share-based payment transaction are modified, with the result
that it becomes an equity-settled share-based payment transaction, the transaction is
accounted for as an equity-settled transaction from the date of the modification. The
equity-settled share-based payment transaction is measured by reference to the fair value
of the equity instruments granted at the modification date and is recognized in equity, on
the modification date, to the extent to which goods or services have been received. The
liability for the cash-settled share-based payment transaction as at the modification date
is derecognized on that date. Any difference between the carrying amount of the liability
derecognized and the amount recognized in equity on the modification date is recognized
immediately in profit or loss. The amendments are effective for annual periods beginning
on or after 1 January 2018.
(h) Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts — Amendments to IFRS 4
The amendments help to resolve issues arising from the different effective dates for IFRS
9 “Financial Instruments” (1 January 2018) and the new insurance contracts standard
about to be issued by the IASB (still to be decided, but not before 1 January 2020). The
amendments allow entities issuing insurance contracts within the scope of IFRS 4 to
mitigate certain effects of applying IFRS 9 “Financial Instruments” before the IASB’s
new insurance contracts standard becomes effective. The amendments introduce two
approaches: an overlay approach and a temporary exemption. The overlay approach
allows an entity applying IFRS 9 to remove from profit or loss the effects of some of the
accounting mismatches that may occur from applying IFRS 9 before the new insurance
contracts standard is applied. The temporary exemption enables eligible entities to defer
the implementation date of IFRS 9 until 2021 (these entities that defer the application of
IFRS 9 will continue to apply IAS 39).
| 2017 Annual Report 104
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(i) Transfers of Investment Property — Amendments to IAS 40
The amendments relate to the transfers of investment property. The amendments clarify
that a change in use occurs when the property meets, or ceases to meet, the definition of
investment property and there is evidence of the change in use, the entity should transfer
property into and out of investment property accordingly. A mere change in
management’s intentions for the use of a property does not provide evidence of a change
in use. The amendments are effective for annual periods beginning on or after 1 January
2018.
(j) Improvements to International Financial Reporting Standards (2014-2016 cycle):
IFRS 1 “First-time Adoption of International Financial Reporting Standards”
The amendments revise and amend transition requirements relating to certain standards
and delete short-term exemptions under Appendix E for first-time adopter. The
amendments are effective for annual periods beginning on or after 1 January 2018.
IFRS 12 “Disclosure of Interests in Other Entities” The amendments clarify that the disclosure requirements in IFRS 12, other than those in
paragraphs B10–B16, apply to an entity’s interests that are classified as held for sale or
discontinued operations. The amendments are effective for annual periods beginning on
or after 1 January 2017.
IAS 28“Investments in Associates and Joint Ventures”
The amendments clarify that when an investment in an associate or a joint venture is held
by, or is held indirectly through, an entity that is a venture capital organization, or a
mutual fund, unit trust and other qualifying entities including investment-linked insurance
funds, the entity may elect to measure that investment at fair value through profit or loss
in accordance with IFRS 9 “Financial Instruments” on an investment-by-investment
basis. Besides, if an entity that is not itself an investment entity has an interest in an
associate or joint venture that is an investment entity, the entity may, when applying the
equity method, elect to retain the fair value measurement applied by that investment entity
associate or joint venture to the investment entity associate's or joint venture's interests in
subsidiaries on an investment-by-investment basis. The amendments are effective for
annual periods beginning on or after 1 January 2018.
2017 Annual Report | 105
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(k) IFRIC 22 “Foreign Currency Transactions and Advance Consideration”
The interpretation clarifies that when applying paragraphs 21 and 22 of IAS 21 “The
Effects of Changes in Foreign Exchange Rates”, in determining the spot exchange rate to
use on initial recognition of the related asset, expense or income (or part of it) on the
derecognition of a non-monetary asset or non-monetary liability relating to advance
consideration, the date of the transaction is the date on which an entity initially recognizes
the non-monetary asset or non-monetary liability arising from the advance consideration.
If there are multiple payments or receipts in advance, then the entity must determine a
date of the transactions for each payment or receipt of advance consideration. The
interpretation is effective for annual periods beginning on or after 1 January 2018.
The abovementioned standards and interpretations issued by IASB and endorsed by FSC so
that they are applicable for annual periods beginning on or after 1 January 2018. Apart from
the potential impact of the standards and interpretations listed under (a), (b), (e), and (f) which
is described below, all other standards and interpretations have no material impact on the
Group:
(a) IFRS 15“Revenue from Contracts with Customers” (including Amendments to IFRS 15
“Clarifications to IFRS 15 Revenue from Contracts with Customers”)
The Group elected to recognize the cumulative effect of initially applying IFRS 15 at the
date of initial application (1 January 2018). The Group also elected to apply this standard
retrospectively only to contracts that are not completed contracts at the date of initial
application.
The Group’s principal activities consist of the sale of goods and rendering of services.
The impacts arising from the adoption of IFRS 15 on the Group are summarized as
follows:
A. The Group currently recognizes revenue from sale of goods based on the timing when
significant risk and rewards of ownership are transferred to a customer, depending on
the terms and conditions of the sales contracts or purchase orders. Generally there are
two situations as follows:
a. When the goods are loaded on board at the port of shipment
b. When the goods are delivered and received by the buyer’s warehouse
| 2017 Annual Report 106
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The timing of recognition, as defined in IAS 18, is when the seller has transferred to
the buyer the significant risks and rewards of ownership, when the amount of revenue
and cost can be measured reliably, when it is probable to receive the promised
consideration, and when the seller retains no continuing managerial involvement to the
goods. The timing stated above was similar to the requirements of IFRS 15, which
requires that the Group shall recognize revenue when (or as) the Group satisfies a
performance obligation by transferring a promised good to a customer. We therefore
evaluated that there was immaterial impact on revenue recognition from sale of goods.
B. In accordance with IFRS 15, more extensive disclosure would have to be made.
(b) IFRS 9 “Financial Instruments”
The Group elects not to restate prior periods in accordance with IFRS 9 at the date of
initial application (1 January 2018). The adoption of IFRS 9 has the following impacts
on the Group:
A. Classification and measurement of financial assets
a. Available-for-sale financial assets – equity instrument investments measured at cost
The assessment will be based on the facts and circumstances that existed as at the
date of initial application, according to IFRS 9:
(a) Available-for-sale financial assets mandatorily measured at fair value: the cash
flow characteristics of the preferred stocks invested in unlisted foreign
companies are not entirely for principle payments and for interests of
outstanding principle. On the date of initial application, the Group will
reclassify NT$60,110 thousand from available-for-sale financial assets.
(b) Assigned as available-for-sale financial assets measured at other
comprehensive income: the common stocks invested in unlisted domestic
companies were not held-for-trading investments. On the date of initial
application, the Group will reclassify NT$10 thousand from available-for-sale
financial assets.
b. Available-for-sale financial assets – funds investments measured at fair value
Stocks measured at fair value NT$23,632 thousand were invested in unlisted
companies, which was not different from the book value. The Group will reclassify
available-for-sale financial assets to financial assets measured at fair value through
other comprehensive income.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
c. Available-for-sale financial assets – de-recognition of equity investments measured
at fair value
Upon de-recognition of equity investments currently classified as available-for-sale
measured at fair value, the accumulated gains or losses previously recognized in
other comprehensive income was recycled to profit or loss from equity. However,
under IFRS 9, subsequent fair value changes of the aforementioned equity
investments are recognized in other comprehensive income and cannot be recycled
to profit or loss. Upon de-recognition, the accumulated amounts in other
component of equity is reclassified to retained earnings (reclassification to profit or
loss is not allowed).
d. Impairment of financial assets
This is applicable to financial assets not measured at fair value through profit or
loss. In accordance with IFRS 9, a loss allowance for debt instruments is
measured using the expected credit loss model, whereas trade receivables or
contract assets that result from transactions that are within the scope of IFRS 15 is
measured using the simplified approach (provision matrix). The aforementioned
requirements on impairment is different from the current incurred loss model and
have no material impact on the Group.
e. Hedge accounting
Amendments on general hedge accounting make entity’s risk management and
hedge accounting more consistent. The amendments allow parts of or groups of
items composed of non-financial items to be hedge items and there is no 80% to
125% threshold of highly effective hedged items. Also, the amendments introduce
a new concept that the Group can rebalance hedge ratio between the hedged items
and the hedging instruments when the goal of risk management is unchanged.
B. Others
Consequential amendments on the related disclosures in IFRS 7 were also made as a
result of the application of IFRS 9, which included the disclosure requirements related
to the initial application of IFRS 9. Therefore more extensive disclosure would have
to be made.
(e) Disclosure Initiative — Amendment to IAS 7 “Statement of Cash Flows”
Additional disclosure of a reconciliation of the carrying amount of liabilities arising from
financing activities at the beginning and end of the period would be required.
| 2017 Annual Report 108
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(3) Standards or interpretations issued, revised or amended, by IASB but not yet endorsed by FSC
at the date of issuance of the Group’s financial statements are listed below.
(a) IFRS 16“Leases”
The new standard requires lessees to account for all leases under a single on-balance sheet
model (subject to certain exemptions). Lessor accounting still uses the dual classification
approach: operating lease and finance lease. The Standard is effective for annual periods
beginning on or after 1 January 2019.
(b) IFRIC 23 “Uncertainty Over Income Tax Treatments”
The Interpretation clarifies application of recognition and measurement requirements in
IAS 12 “Income Taxes” when there is uncertainty over income tax treatments. The
Interpretation is effective for annual periods beginning on or after 1 January 2019.
(c) IFRS 17 “Insurance Contracts”
IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant
accounting aspects (including recognition, measurement, presentation and disclosure
requirements). The core of IFRS 17 is the General (building block) Model, under this
model, on initial recognition, an entity shall measure a group of insurance contracts at the
total of the fulfilment cash flows and the contractual service margin. The fulfilment
cash flows comprise of the following:
A. estimates of future cash flows;
B. Discount rate: an adjustment to reflect the time value of money and the financial risks
related to the future cash flows, to the extent that the financial risks are not included
in the estimates of the future cash flows; and
C. a risk adjustment for non-financial risk.
The carrying amount of a group of insurance contracts at the end of each reporting period
shall be the sum of the liability for remaining coverage and the liability for incurred
claims.
Other than the General Model, the standard also provides:
A. a specific adaptation for contracts with direct participation features (the Variable Fee
Approach)
B. a simplified approach (Premium Allocation Approach) mainly for short-duration
contracts.
IFRS 17 is effective for annual periods beginning on or after 1 January 2021.
2017 Annual Report | 109
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(d) IAS 28“Investment in Associates and Joint Ventures” — Amendments to IAS 28
The amendments clarify that an entity applies IFRS 9 to long-term interests in an associate
or joint venture that form part of the net investment in the associate or joint venture before
it applies IAS 28, and in applying IFRS 9, does not take account of any adjustments that
arise from applying IAS 28. The amendment is effective for annual reporting periods
beginning on or after 1 January 2019.
(e) Prepayment Features with Negative Compensation (Amendments to IFRS 9)
The amendment allows financial assets with prepayment features that permit or require a
party to a contract either to pay or receive reasonable compensation for the early
termination of the contract, to be measured at amortized cost or at fair value through other
comprehensive income. The amendment is effective for annual reporting periods
beginning on or after 1 January 2019.
(f) Improvements to International Financial Reporting Standards (2015-2017 cycle):
IFRS 3 “Business Combinations” The amendments clarify that an entity that has joint control of a joint operation shall
remeasure its previously held interest in a joint operation when it obtains control of the
business. The amendments are effective for annual periods beginning on or after 1
January 2019.
IFRS 11 “Joint Arrangements” The amendments clarify that an entity that participates in, but does not have joint control
of, a joint operation does not remeasure its previously held interest in a joint operation
when it obtains joint control of the business. The amendments are effective for annual
periods beginning on or after 1 January 2019.
IAS 12 “Income Taxes”
The amendments clarify that an entity shall recognize the income tax consequences of
dividends in profit or loss, other comprehensive income or equity according to where the
entity originally recognized those past transactions or events. The amendments are
effective for annual periods beginning on or after 1 January 2019.
IAS 23 “Borrowing Costs” The amendments clarify that an entity should treats as part of general borrowings any
borrowing made specifically to obtain an asset when the asset is ready for its intended use
or sale. The amendments are effective for annual periods beginning on or after 1 January
2019.
| 2017 Annual Report 110
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(g) Plan Amendment, Curtailment or Settlement (Amendments to IAS 19)
The amendments clarify that when a change in a defined benefit plan is made (such as
amendment, curtailment or settlement, etc.), the entity should use the updated
assumptions to remeasure its net defined benefit liability or asset. The amendments are
effective for annual periods beginning on or after 1 January 2019.
The abovementioned standards and interpretations issued by IASB have not yet endorsed by
FSC at the date when the Group’s financial statements were authorized for issue, the local
effective dates are to be determined by FSC. As the Group is still currently determining the
potential impact of the standards and interpretations listed under (a)~(b) and (d)~(f), it is not
practicable to estimate their impact on the Group at this point in time. All other standards and
interpretations have no material impact on the Group.
4. Summary of significant accounting policies
(1) Statement of compliance
The consolidated financial statements of the Group for the years ended 31 December 2017
and 2016 have been prepared in accordance with the Regulations Governing the Preparation
of Financial Reports by Securities Issuers (“the Regulations”) and International Financial
Reporting Standards, International Accounting Standards, and Interpretations developed by
the International Financial Reporting Interpretations Committee or the former Standing
Interpretations Committee as endorsed by the FSC.
(2) Basis of preparation
The consolidated financial statements have been prepared on a historical cost basis, except for
financial instruments that have been measured at fair value. The consolidated financial
statements are expressed in thousands of New Taiwan Dollars (“NTD”) unless otherwise
stated.
(3) Basis of consolidation
Preparation principle of consolidated financial statement
Control is achieved when the Group is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns through its power over
the investee. Specifically, the Group controls an investee if and only if the Group has:
(a) power over the investee (i.e. existing rights that give it the current ability to direct the
relevant activities of the investee)
(b) exposure, or rights, to variable returns from its involvement with the investee, and
(c) the ability to use its power over the investee to affect its returns
2017 Annual Report | 111
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
When the Group has less than a majority of the voting or similar rights of an investee, the
Group considers all relevant facts and circumstances in assessing whether it has power over
an investee, including:
(a) the contractual arrangement with the other vote holders of the investee
(b) rights arising from other contractual arrangements
(c) the Group’s voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and circumstances
indicate that there are changes to one or more of the three elements of control.
Subsidiaries are fully consolidated from the acquisition date, being the date on which the
Company obtains control, and continue to be consolidated until the date that such control
ceases. The financial statements of the subsidiaries are prepared for the same reporting period
as the parent company, using uniform accounting policies. All intra-group balances, income
and expenses, unrealized gains and losses and dividends resulting from intra-group
transactions are eliminated in full.
A change in the ownership interest of a subsidiary, without a change of control, is accounted
for as an equity transaction.
Total comprehensive income of the subsidiaries is attributed to the owners of the parent and
to the non-controlling interests even if this results in the non-controlling interests having a
deficit balance.
If the Company loses control of a subsidiary, it:
(a) derecognizes the assets (including goodwill) and liabilities of the subsidiary;
(b) derecognizes the carrying amount of any non-controlling interest;
(c) recognizes the fair value of the consideration received;
(d) recognizes the fair value of any investment retained;
(e) recognizes any surplus or deficit in profit or loss; and
(f) reclassifies the parent’s share of components previously recognized in other
comprehensive income to profit or loss.
| 2017 Annual Report 112
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The consolidated entities are listed as follows:
Percentage of ownership (%)
Investor Subsidiary Main businesses
31 December
2017
31 December
2016 Note
The Company Sercomm USA Inc. (Note b) Consulting and customer
service of IT products in
local market
100% 100% a
The Company Sercomm Trading Co. Ltd. Investment holding 100% 100%
The Company Shukuan Investment Ltd. Investment activity 100% 100% a
The Company Sercomm France SARL Consulting and customer
service of IT products in
local market
100% 100% a
The Company Sercomm Deutschland GmbH Consulting and customer
service of IT products in
local market
100% 100% a
The Company Sercomm Japan Corp. Sales of IT products 100% 100% a
The Company Sercomm Russia Limited
Liability Company
Sales of IT products 100% 100% a
Sercomm Trading Co. Ltd. Zealous Investments Ltd. Investment holding 100% 100%
Sercomm Trading Co. Ltd. Smart Trade Inc. Investment holding 100% 100%
Zealous Investments Ltd. Sernet Technology (Suzhou)
Limited
Manufacture, research and
development of routers,
communication products,
Wlan products
100% 100%
Zealous Investments Ltd. Hawxeye Inc. (Note b and c) Provide computer learning
technology on video
object analysis
embedded on IP camera
55% 28% a
Smart Trade Inc. Dwnet Technology (Suzhou)
Limited
Manufacture of routers,
communication products,
Wlan products; sales and
after-sales service
100% 100%
Sercomm France SARL Sercomm Italia SRL Consulting and customer
service of IT products in
local market
100% 100% a
Sernet Technology
(Suzhou)Limited
Suzhou Hua-Yi
Communications Co., Ltd.
Sale of routers,
communication products,
Wlan products
100% 100% a
Sernet Technology
(Suzhou) Limited
Suzhou Femtel
Communications Co., Ltd.
Sale of communication
products
100% 100% a
Sercomm USA Inc.
(Note b)
Hawxeye Inc. (Note b and c) Provide computer learning
technology on video
object analysis
embedded on IP camera
- 28% a
Suzhou Femtel
Communications
Co., Ltd.
Nanjing Femtel
Communications Co., Ltd.
Sale of communication
products; R&D center of
software; after-sales
service
100% 100% a
2017 Annual Report | 113
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Note a: This is an immaterial subsidiary for which the consolidated financial statements are
not reviewed by the company’s independent auditors.
Note b: For the purpose of reorganization, the 28% ownership of Hawxeye Inc. which was
previously owned by Sercomm USA Inc., was transferred to Zealous Investment Ltd.
in March 2017.
Note c: Hawxeye Inc. issued new shares on 2017, however the Group did not purchase any
of the new shares, consequently the ownership interest in Hawxeye Inc. was reduced
from 56% to 55%.
(4) Foreign currency transactions
The Group’s consolidated financial statements are presented in NTD, which is also the
Company’s functional currency. Each entity in the Group determines its own functional
currency and items included in the financial statements of each entity are measured using that
functional currency.
Transactions in foreign currencies are initially recorded by the Group entities at their
respective functional currency rates prevailing at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are retranslated at the functional currency
closing rate of exchange ruling at the reporting date. Non-monetary items measured at fair
value in a foreign currency are translated using the exchange rates at the date when the fair
value is determined. Non-monetary items that are measured at historical cost in a foreign
currency are translated using the exchange rates as at the dates of the initial transactions.
All exchange differences arising on the settlement of monetary items or on translating
monetary items are taken to profit or loss in the period in which they arise except for the
following:
(a) Exchange differences arising from foreign currency borrowings for an acquisition of a
qualifying asset to the extent that they are regarded as an adjustment to interest costs are
included in the borrowing costs that are eligible for capitalization.
(b) Foreign currency items within the scope of IAS 39 Financial Instruments: Recognition and Measurement are accounted for based on the accounting policy for financial
instruments.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(c) Exchange differences arising on a monetary item that forms part of a reporting entity’s
net investment in a foreign operation is recognized initially in other comprehensive
income and reclassified from equity to profit or loss on disposal of the net investment.
When a gain or loss on a non-monetary item is recognized in other comprehensive income,
any exchange component of that gain or loss is recognized in other comprehensive income.
When a gain or loss on a non-monetary item is recognized in profit or loss, any exchange
component of that gain or loss is recognized in profit or loss.
(5) Translation of financial statements in foreign currency
Each foreign operation of the Company determines its own functional currency and items
included in the financial statements of each foreign operation are measured at that functional
currency. While preparing the Company’s financial statements, the assets and liabilities of
foreign operations are translated into NT$ at the closing rate of exchange prevailing at the
reporting date and their income and expenses are translated at an average rate for the period.
The exchange differences arising on the translation are recognized in other comprehensive
income. On the disposal of a foreign operation, the cumulative amount of the exchange
differences relating to that foreign operation, recognized in other comprehensive income and
accumulated in the separate component of equity, is reclassified from equity to profit or loss
when the gain or loss on disposal is recognized. The partial disposals are accounted for as
disposals when the partial disposal involves the loss of control of a subsidiary that includes a
foreign operation and when the retained interest after the partial disposal of an interest in a
joint arrangement or a partial disposal of an interest in an associate that includes a foreign
operation is a financial asset that includes a foreign operation.
On the partial disposal of a subsidiary that includes a foreign operation that does not result in
a loss of control, the proportionate share of the cumulative amount of the exchange differences
recognized in other comprehensive income is re-attributed to the non-controlling interests in
that foreign operation. In partial disposal of an associate or joint arrangement that includes a
foreign operation that does not result in a loss of significant influence or joint control, only
the proportionate share of the cumulative amount of the exchange differences recognized in
other comprehensive income is reclassified to profit or loss.
Any goodwill and any fair value adjustments to the carrying amounts of assets and liabilities
arising from the acquisition of a foreign operation are treated as assets and liabilities of the
foreign operation and expressed in its functional currency.
2017 Annual Report | 115
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(6) Current and non-current distinction
An asset is classified as current when:
(a) The Group expects to realize the asset, or intends to sell or consume it, in its normal
operating cycle
(b) The Group holds the asset primarily for the purpose of trading
(c) The Group expects to realize the asset within twelve months after the reporting period
(d) The asset is cash or cash equivalent unless the asset is restricted from being exchanged or
used to settle a liability for at least twelve months after the reporting period.
All other assets are classified as non-current.
A liability is classified as current when:
(a) The Group expects to settle the liability in its normal operating cycle
(b) The Group holds the liability primarily for the purpose of trading
(c) The liability is due to be settled within twelve months after the reporting period
(d) The Group does not have an unconditional right to defer settlement of the liability for at
least twelve months after the reporting period. Terms of a liability that could, at the
option of the counterparty, result in its settlement by the issue of equity instruments do
not affect its classification.
All other liabilities are classified as non-current.
(7) Cash and cash equivalents
Cash and cash equivalents comprises cash on hand, demand deposits and short-term, highly
liquid time deposits (including ones that have maturity within 12 months) or investments that
are readily convertible to known amounts of cash and which are subject to an insignificant
risk of changes in value.
(8) Financial instruments
Financial assets and financial liabilities are recognized when the Group becomes a party to
the contractual provisions of the instrument.
Financial assets and financial liabilities within the scope of IAS 39 Financial Instruments: Recognition and Measurement are recognized initially at fair value plus or minus, in the case
of investments not at fair value through profit or loss, directly attributable transaction costs.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(a) Financial assets
The Group accounts for regular way purchase or sales of financial assets on the trade date.
Financial assets of the Group are classified as financial assets at fair value through profit
or loss, held-to-maturity investments, available-for-sale financial assets and loans and
receivables. The Group determines the classification of its financial assets at initial
recognition.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading
and financial assets designated upon initial recognition at fair value through profit or loss.
A financial asset is classified as held for trading if:
i. it is acquired or incurred principally for the purpose of selling or repurchasing it in
the near term;
ii. on initial recognition it is part of a portfolio of identified financial instruments that
are managed together and for which there is evidence of a recent actual pattern of
short-term profit-taking; or
iii. it is a derivative (except for a derivative that is a financial guarantee contract or a
designated and effective hedging instrument).
If a contract contains one or more embedded derivatives, the entire hybrid (combined)
contract may be designated as a financial asset at fair value through profit or loss; or a
financial asset may be designated as at fair value through profit or loss when doing so
results in more relevant information, because either:
i. it eliminates or significantly reduces a measurement or recognition inconsistency; or
ii. a group of financial assets, financial liabilities or both is managed and its performance
is evaluated on a fair value basis, in accordance with a documented risk management
or investment strategy, and information about the group is provided internally on that
basis to the key management personnel.
Financial assets at fair value through profit or loss are measured at fair value with changes
in fair value recognized in profit or loss. Dividends or interests on financial assets at
fair value through profit or loss are recognized in profit or loss (including those received
during the period of initial investment). If financial assets do not have quoted prices in
an active market and their fair value cannot be reliably measured, then they are classified
as financial assets measured at cost on balance sheet and carried at cost net of accumulated
impairment losses, if any, as at the reporting date.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Available-for-sale financial assets
Available-for-sale investments are non-derivative financial assets that are designated as
available-for-sale or those not classified as financial assets at fair value through profit or
loss, held-to-maturity financial assets, or loans and receivables.
Foreign exchange gains and losses and interest calculated using the effective interest
method relating to monetary available-for-sale financial assets, or dividends on an
available-for-sale equity instrument, are recognized in profit or loss. Subsequent
measurement of available-for-sale financial assets at fair value is recognized in equity
until the investment is derecognized, at which time the cumulative gain or loss is
recognized in profit or loss.
If equity instrument investments do not have quoted prices in an active market and their
fair value cannot be reliably measured, then they are classified as financial assets
measured at cost on balance sheet and carried at cost net of accumulated impairment
losses, if any, as at the reporting date.
Held-to-maturity financial assets
Non-derivative financial assets with fixed or determinable payments and fixed maturities
are classified as held-to-maturity when the Group has the positive intention and ability to
hold it to maturity, other than those that are designated as available-for-sale, classified as
financial assets at fair value through profit or loss, or meet the definition of loans and
receivables.
After initial measurement held-to-maturity financial assets are measured at amortized cost
using the effective interest method, less impairment. Amortized cost is calculated by
taking into account any discount or premium on acquisition and fee or transaction costs.
The effective interest method amortization is recognized in profit or loss.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market other than those that the Group upon
initial recognition designates as available for sale, classified as at fair value through profit
or loss, or those for which the holder may not recover substantially all of its initial
investment.
Loans and receivables are separately presented on the balance sheet as receivables or debt
instrument investments for which no active market exists. After initial measurement,
such financial assets are subsequently measured at amortized cost using the effective
interest rate method, less impairment. Amortized cost is calculated by taking into
account any discount or premium on acquisition and fee or transaction costs. The
effective interest method amortization is recognized in profit or loss.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Impairment of financial assets
The Group assesses at each reporting date whether there is any objective evidence that a
financial asset other than the financial assets at fair value through profit or loss is
impaired. A financial asset is deemed to be impaired if, and only if, there is objective
evidence of impairment as a result of one or more loss events that has occurred after the
initial recognition of the asset and that loss event has an impact on the estimated future
cash flows of the financial asset. The carrying amount of the financial asset impaired,
other than receivables impaired which are reduced through the use of an allowance
account, is reduced directly and the amount of the loss is recognized in profit or loss.
A significant or prolonged decline in the fair value of an available-for-sale equity
instrument below its cost is considered a loss event.
Other loss events include:
i. significant financial difficulty of the issuer or obligor; or
ii. a breach of contract, such as a default or delinquency in interest or principal payments;
or
iii. it becoming probable that the borrower will enter bankruptcy or other financial
reorganisation; or
iv. the disappearance of an active market for that financial asset because of financial
difficulties.
For held-to-maturity financial assets and loans and receivables measured at amortized
cost, the Group first assesses individually whether objective evidence of impairment
exists individually for financial asset that are individually significant, or collectively for
financial assets that are not individually significant. If the Group determines that no
objective evidence of impairment exits for an individually assessed financial asset,
whether significant or not, it includes the asset in a group of financial assets with similar
credit risk characteristics and collectively assesses them for impairment. If there is
objective evidence that an impairment loss has been incurred, the amount of the loss is
measured as the difference between the assets carrying amount and the present value of
estimated future cash flows. The present value of the estimated future cash flows is
discounted at the financial assets original effective interest rate. If a loan has a variable
interest rate, the discount rate for measuring any impairment loss is the current effective
interest rate. Interest income is accrued based on the reduced carrying amount of the
asset, using the rate of interest used to discount the future cash flows for the purpose of
measuring the impairment loss. Receivables together with the associated allowance are
written off when there is no realistic prospect of future recovery. If, in a subsequent
year, the amount of the estimated impairment loss increases or decreases because of an
event occurring after the impairment was recognized, the previously recognized
impairment loss is increased or reduced by adjusting the allowance account. If a future
write-off is later recovered, the recovery is credited to profit or loss.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Receivables together with the associated allowance are written off when there is no
realistic prospect of future recovery. If, in a subsequent year, the amount of the
estimated impairment loss increases or decreases because of an event occurring after the
impairment was recognized, the previously recognized impairment loss is increased or
reduced by adjusting the allowance account. If a future write-off is later recovered, the
recovery is credited to profit or loss.
In the case of equity investments classified as available-for-sale, where there is evidence
of impairment, the cumulative loss - measured as the difference between the acquisition
cost and the current fair value, less any impairment loss on that investment previously
recognized in profit or loss - is removed from other comprehensive income and
recognized in profit or loss. Impairment losses on equity investments are not reversed
through profit or loss; increases in their fair value after impairment are recognized directly
in other comprehensive income.
In the case of debt instruments classified as available-for-sale, the amount recorded for
impairment is the cumulative loss measured as the difference between the amortized cost
and the current fair value, less any impairment loss on that investment previously
recognized in profit or loss. Future interest income continues to be accrued based on the
reduced carrying amount of the asset, using the rate of interest used to discount the future
cash flows for the purpose of measuring the impairment loss. The interest income is
recognized in profit or loss. If, in a subsequent year, the fair value of a debt instrument
increases and the increase can be objectively related to an event occurring after the
impairment loss was recognized in profit or loss, the impairment loss is reversed through
profit or loss.
Derecognition of financial assets
A financial asset is derecognized when:
i. The rights to receive cash flows from the asset have expired
ii. The Group has transferred the asset and substantially all the risks and rewards of the
asset have been transferred
iii. The Group has neither transferred nor retained substantially all the risks and rewards
of the asset, but has transferred control of the asset.
On derecognition of a financial asset in its entirety, the difference between the carrying
amount and the consideration received or receivable including any cumulative gain or
loss that had been recognized in other comprehensive income, is recognized in profit or
loss.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(b) Financial liabilities and equity
Classification between liabilities or equity
The Group classifies the instrument issued as a financial liability or an equity instrument
in accordance with the substance of the contractual arrangement and the definitions of a
financial liability, and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an
entity after deducting all of its liabilities. The transaction costs of an equity transaction
are accounted for as a deduction from equity (net of any related income tax benefit) to the
extent they are incremental costs directly attributable to the equity transaction that
otherwise would have been avoided.
Compound instruments
The Group evaluates the terms of the convertible bonds issued to determine whether it
contains both a liability and an equity component. Furthermore, the Group assesses if
the economic characteristics and risks of the put and call options contained in the
convertible bonds are closely related to the economic characteristics and risk of the host
contract before separating the equity element.
For the liability component excluding the derivatives, its fair value is determined based
on the rate of interest applied at that time by the market to instruments of comparable
credit status. The liability component is classified as a financial liability measured at
amortized cost before the instrument is converted or settled.
For the embedded derivative that is not closely related to the host contract (for example,
if the exercise price of the embedded call or put option is not approximately equal on each
exercise date to the amortized cost of the host debt instrument), it is classified as a liability
component and subsequently measured at fair value through profit or loss unless it
qualifies for an equity component. The equity component is assigned the residual
amount after deducting from the fair value of the instrument as a whole the amount
separately determined for the liability component. Its carrying amount is not
remeasured in the subsequent accounting periods. If the convertible bond issued does
not have an equity component, it is accounted for as a hybrid instrument in accordance
with the requirements under IAS 39 Financial Instruments: Recognition and Measurement.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Transaction costs are apportioned between the liability and equity components of the
convertible bond based on the allocation of proceeds to the liability and equity
components when the instruments are initially recognized.
On conversion of a convertible bond before maturity, the carrying amount of the liability
component being the amortized cost at the date of conversion is transferred to equity.
Financial liabilities
Financial liabilities within the scope of IAS 39 Financial Instruments: Recognition and Measurement are classified as financial liabilities at fair value through profit or loss or
financial liabilities measured at amortized cost upon initial recognition.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for
trading and financial liabilities designated upon initial recognition as at fair value through
profit or loss. A financial liability is classified as held for trading if:
i. it is acquired or incurred principally for the purpose of selling or repurchasing it in
the near term;
ii. on initial recognition it is part of a portfolio of identified financial instruments that
are managed together and for which there is evidence of a recent actual pattern of
short-term profit-taking; or
iii. it is a derivative (except for a derivative that is a financial guarantee contract or a
designated and effective hedging instrument).
If a contract contains one or more embedded derivatives, the entire hybrid (combined)
contract may be designated as a financial liability at fair value through profit or loss; or a
financial liability may be designated as at fair value through profit or loss when doing so
results in more relevant information, because either:
i. it eliminates or significantly reduces a measurement or recognition inconsistency; or
ii. a group of financial assets, financial liabilities or both is managed and its performance
is evaluated on a fair value basis, in accordance with a documented risk management
or investment strategy, and information about the group is provided internally on that
basis to the key management personnel.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Gains or losses on the subsequent measurement of liabilities at fair value through profit
or loss including interest paid are recognized in profit or loss.
If the financial liabilities at fair value through profit or loss do not have quoted prices in
an active market and their fair value cannot be reliably measured, then they are classified
as financial liabilities measured at cost on balance sheet and carried at cost as at the
reporting date.
Financial liabilities at amortized cost
Financial liabilities measured at amortized cost include interest bearing loans and
borrowings that are subsequently measured using the effective interest rate method after
initial recognition. Gains and losses are recognized in profit or loss when the liabilities
are derecognized as well as through the effective interest rate method amortization
process.
Amortized cost is calculated by taking into account any discount or premium on
acquisition and fees or transaction costs.
Derecognition of financial liabilities
A financial liability is derecognized when the obligation under the liability is discharged
or cancelled or expires.
When an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially modified
(whether or not attributable to the financial difficulty of the debtor), such an exchange or
modification is treated as a derecognition of the original liability and the recognition of a
new liability, and the difference in the respective carrying amounts and the consideration
paid, including any non-cash assets transferred or liabilities assumed, is recognized in
profit or loss.
(c) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the
balance sheet if, and only if, there is a currently enforceable legal right to offset the
recognized amounts and there is an intention to settle on a net basis, or to realize the assets
and settle the liabilities simultaneously.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(9) Derivative financial instrument
The Group uses derivative financial instruments to hedge its foreign currency risks and interest
rate risks. A derivative is classified in the balance sheet as financial assets or liabilities at
fair value through profit or loss (held for trading) except for derivatives that are designated
effective hedging instruments which are classified as derivative financial assets or liabilities
for hedging.
Derivative financial instruments are initially recognized at fair value on the date on which a
derivative contract is entered into and are subsequently remeasured at fair value. Derivatives
are carried as financial assets when the fair value is positive and as financial liabilities when
the fair value is negative. Any gains or losses arising from changes in the fair value of
derivatives are taken directly to profit or loss, except for the effective portion of cash flow
hedges, which is recognized in equity.
Derivatives embedded in host contracts are accounted for as separate derivatives and recorded
at fair value if their economic characteristics and risks are not closely related to those of the
host contracts and the host contracts are not held for trading or designated at fair value though
profit or loss. These embedded derivatives are measured at fair value with changes in fair
value recognized in profit or loss.
(10) Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to sell the asset or transfer the
liability takes place either:
(a) In the principal market for the asset or liability, or
(b) In the absence of a principal market, in the most advantageous market for the asset or
liability
The principal or the most advantageous market must be accessible to by the Group.
The fair value of an asset or a liability is measured using the assumptions that market
participants would use when pricing the asset or liability, assuming that market participants
in their economic best interest.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
A fair value measurement of a non-financial asset takes into account a market participant’s
ability to generate economic benefits by using the asset in its highest and best use or by selling
it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximizing the use of relevant observable
inputs and minimizing the use of unobservable inputs.
(11) Hedge accounting
The Group uses derivative financial instruments to hedge for:
(a) Classified in the balance sheet as financial assets or liabilities at fair value through profit
or loss (Fair value hedge)
(b) Assets or liabilities recognized, and highly expected transaction related to cash flow (Cash
flow hedge)
Hedges which meet the strict criteria for hedge accounting are accounted for as follows:
(a) Fair value hedge
Changes in fair value of derivative financial instruments are recognized in profit or loss.
The change in the fair value of the hedged item attributable to the hedged risk is recorded
as a part of the carrying amount of the hedged item and is also recognized in the profit or
loss.
For fair value hedges relating to items carried at amortized cost, the adjustment to carrying
amount is amortized through the profit or loss over the remaining term to maturity.
Effective interest rate amortization may begin as soon as an adjustment exists and shall
begin no later than when the hedged item ceases to be adjusted for changes in its fair
value attributable to the risk being hedged. If the hedged item is derecognized, the
unamortized fair value is recognized immediately in profit or loss.
When an unrecognized firm commitment is designated as a hedged item, the cumulative
changes in the fair value of firm commitment attributable to the hedged risk is recognized
as assets or liabilities and the corresponding gains or losses are recognized in profit or
loss.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(b) Cash flow hedge
The gain or loss from effective hedge portion of the hedging instruments is recognized in
equity and the ineffective portion is recognized in profit and loss.
When the hedged transaction affects profit or loss, the amount recognized in equity will
be transferred to profit or loss. When the hedged item is a non-financial asset or liability,
the amount recognized in equity will be transferred to the original carrying amount of the
non-financial asset or liability.
If the forecast transaction or firm commitment is no longer expected to occur, the
cumulative gain or loss previously recognized in equity is reclassified to profit or loss.
If the hedging instrument expires, or is sold, terminated or exercised without replacement
or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss
previously recognized in equity remains in equity until the forecast transaction or firm
commitment affects profit or loss.
(12) Inventories
Inventories are valued at lower of cost and net realizable value item by item.
Costs incurred in bringing each inventory to its present location and condition are accounted
for as follows:
Raw materials - Purchase cost on a first in, first out basis.
Finished goods and work in progress - Cost of direct materials and labor and a proportion of
manufacturing overheads based on normal operating
capacity but excluding borrowing costs.
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.
(13) Investments accounted for using the equity method
The Group’s investment in its associate is accounted for using the equity method other than
those that meet the criteria to be classified as held for sale. An associate is an entity over
which the Group has significant influence.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Under the equity method, the investment in the associate or an investment in a joint venture
is carried in the balance sheet at cost and adjusted thereafter for the post-acquisition change
in the Group’s share of net assets of the associate or joint venture. After the interest in the
associate or joint venture is reduced to zero, additional losses are provided for, and a liability
is recognized, only to the extent that the Group has incurred legal or constructive obligations
or made payments on behalf of the associate or joint venture. Unrealized gains and losses
resulting from transactions between the Group and the associate or joint venture are eliminated
to the extent of the Group’s related interest in the associate or joint venture.
When changes in the net assets of an associate or a joint venture occur and not those that are
recognized in profit or loss or other comprehensive income and do not affects the Group’s
percentage of ownership interests in the associate or joint venture, the Group recognizes such
changes in equity based on its percentage of ownership interests. The resulting capital
surplus recognized will be reclassified to profit or loss at the time of disposing the associate
or joint venture on a prorate basis.
When the associate or joint venture issues new stock, and the Group’s interest in an associate
or a joint venture is reduced or increased as the Group fails to acquire shares newly issued in
the associate or joint venture proportionately to its original ownership interest, the increase or
decrease in the interest in the associate or joint venture is recognized in Additional Paid in
Capital and Investment accounted for using the equity method. When the interest in the
associate or joint venture is reduced, the cumulative amounts previously recognized in other
comprehensive income are reclassified to profit or loss or other appropriate items. The
aforementioned capital surplus recognized is reclassified to profit or loss on a pro rata basis
when the Group disposes the associate or joint venture.
The financial statements of the associate are prepared for the same reporting period as the
Group. Where necessary, adjustments are made to bring the accounting policies in line with
those of the Group.
The Group determines at each reporting date whether there is any objective evidence that the
investment in the associate or an investment in a joint venture is impaired in accordance with
IAS 39 Financial Instruments: Recognition and Measurement. If this is the case the Group
calculates the amount of impairment as the difference between the recoverable amount of the
associate or joint venture and its carrying value and recognizes the amount in the ‘share of
profit or loss of an associate’ in the statement of comprehensive income in accordance with
IAS 36 Impairment of Assets. In determining the value in use of the investment, the Group
estimates:
(a) Its share of the present value of the estimated future cash flows expected to be generated
by the associate or joint venture, including the cash flows from the operations of the
associate and the proceeds on the ultimate disposal of the investment; or
(b) The present value of the estimated future cash flows expected to arise from dividends to
be received from the investment and from its ultimate disposal.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Because goodwill that forms part of the carrying amount of an investment in an associate or
an investment in a joint venture is not separately recognized, it is not tested for impairment
separately by applying the requirements for impairment testing goodwill in IAS 36 Impairment of Assets.
Upon loss of significant influence over the associate or joint venture, the Group measures and
recognizes any retaining investment at its fair value. Any difference between the carrying
amount of the associate or joint venture upon loss of significant influence and the fair value
of the retaining investment and proceeds from disposal is recognized in profit or loss.
Furthermore, if an investment in an associate becomes an investment in a joint venture or an
investment in a joint venture becomes an investment in an associate, the entity continues to
apply the equity method and does not remeasure the retained interest.
(14) Property, plant and equipment
Property, plant and equipment is stated at cost, net of accumulated depreciation and
accumulated impairment losses, if any. Such cost includes the cost of dismantling and
removing the item and restoring the site on which it is located and borrowing costs for
construction in progress if the recognition criteria are met. 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 is
depreciated separately. When significant parts of property, plant and equipment are required
to be replaced in intervals, the Group recognized such parts as individual assets with specific
useful lives and depreciation, respectively. The carrying amount of those parts that are
replaced is derecognized in accordance with the derecognition provisions of IAS 16 Property, plant and equipment. When a major inspection is performed, its cost is recognized in the
carrying amount of the plant and equipment as a replacement if the recognition criteria are
satisfied. All other repair and maintenance costs are recognized in profit or loss as incurred.
Depreciation is calculated on a straight-line basis over the estimated economic lives of the
following assets:
Buildings and structures 36 56 years
Machinery and equipments 4 10 years
Molding equipments 3 5 years
Research and development equipments 4 6 years
Office equipment and other facilities 1 6 years
Leased assets 36 51 years
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
An item of property, plant and equipment and any significant part initially recognized is
derecognized upon disposal or when no future economic benefits are expected from its use or
disposal. Any gain or loss arising on derecognition of the asset is recognized in profit or
loss.
The assets’ residual values, useful lives and methods of depreciation are reviewed at each
financial year end and adjusted prospectively, if appropriate.
(15) Leases
Group as a lessee
Finance leases which transfer to the Group substantially all the risks and benefits incidental
to ownership of the leased item, are capitalized at the commencement of the lease at the fair
value of the leased property or, if lower, at the present value of the minimum lease payments.
Lease payments are apportioned between finance charges and reduction of the lease liability
so as to achieve a constant rate of interest on the remaining balance of the liability. Finance
charges are recognized in profit or loss.
A leased asset is depreciated over the useful life of the asset. However, if there is no
reasonable certainty that the Group will obtain ownership by the end of the lease term, the
asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.
Operating lease payments are recognized as an expense on a straight-line basis over the lease
term.
Group as a lessor
Leases in which the Group does not transfer substantially all the risks and benefits of
ownership of the asset are classified as operating leases. Initial direct costs incurred in
negotiating an operating lease are added to the carrying amount of the leased asset and
recognized over the lease term on the same basis as rental income. Rental revenue generated
from operating lease is recognized over the lease term using the straight line method.
Contingent rents are recognized as revenue in the period in which they are earned.
(16) Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of
intangible assets acquired in a business combination is its fair value as at the date of
acquisition. Following initial recognition, intangible assets are carried at cost less any
accumulated amortization and accumulated impairment losses, if any. Internally generated
intangible assets, excluding capitalized development costs, are not capitalized and expenditure
is reflected in profit or loss for the year in which the expenditure is incurred.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortized over the useful economic life and assessed for
impairment whenever there is an indication that the intangible asset may be impaired. The
amortization period and the amortization method for an intangible asset with a finite useful
life is reviewed at least at the end of each financial year. Changes in the expected useful life
or the expected pattern of consumption of future economic benefits embodied in the asset is
accounted for by changing the amortization period or method, as appropriate, and are treated
as changes in accounting estimates.
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment
annually, either individually or at the cash-generating unit level. The assessment of
indefinite life is reviewed annually to determine whether the indefinite life continues to be
supportable. If not, the change in useful life from indefinite to finite is made on a prospective
basis.
Gains or losses arising from derecognition of an intangible asset are measured as the
difference between the net disposal proceeds and the carrying amount of the asset and are
recognized in profit or loss when the asset is derecognized.
Research and development costs
Research costs are expensed as incurred. Development expenditures, on an individual
project, are recognized as an intangible asset when the Group can demonstrate:
(a) The technical feasibility of completing the intangible asset so that it will be available for
use or sale
(b) Its intention to complete and its ability to use or sell the asset
(c) How the asset will generate future economic benefits
(d) The availability of resources to complete the asset
(e) The ability to measure reliably the expenditure during development
Following initial recognition of the development expenditure as an asset, the cost model is
applied requiring the asset to be carried at cost less any accumulated amortization and
accumulated impairment losses. During the period of development, the asset is tested for
impairment annually. Amortization of the asset begins when development is complete and
the asset is available for use. It is amortized over the period of expected future benefit.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Patents
Patents are amortized on a straight-line basis for useful life (5 years).
Computer software and product testing costs
The cost of computer software and product testing costs are amortized on a straight-line basis
over the estimated useful life (2 to 5 years).
A summary of the policies applied to the Group’s intangible assets is as follows:
Development costs Patents Computer software
Product testing
costs
Useful lives Finite Finite Finite Finite
Amortization
method used
Amortized over the
period of expected
future sales from the
related project on a
straight-line basis
Amortized on a
straight- line basis
over the economic
useful life
Amortized on a
straight-line basis
over the estimated
useful life
Amortized on a
straight- line basis
over the estimated
useful life
Internally generated
or acquired
Internally generated Internally
generated
Acquired Acquired
(17) Impairment of non-financial assets
The Group assesses at the end of each reporting period whether there is any indication that an
asset in the scope of IAS 36 Impairment of Assets may be impaired. If any such indication
exists, or when annual impairment testing for an asset is required, the Group estimates the
asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-
generating unit’s (“CGU”) fair value less costs to sell and its value in use and is determined
for an individual asset, unless the asset does not generate cash inflows that are largely
independent of those from other assets or groups of assets. Where the carrying amount of an
asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written
down to its recoverable amount.
For assets excluding goodwill, an assessment is made at each reporting date as to whether
there is any indication that previously recognized impairment losses may no longer exist or
may have decreased. If such indication exists, the Group estimates the asset’s or cash-
generating unit’s recoverable amount. A previously recognized impairment loss is reversed
only if there has been an increase in the estimated service potential of an asset which in turn
increases the recoverable amount. However, the reversal is limited so that the carrying
amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount
that would have been determined, net of depreciation, had no impairment loss been recognized
for the asset in prior years.
2017 Annual Report | 131
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
A cash generating unit, or groups of cash-generating units, to which goodwill has been
allocated is tested for impairment annually at the same time, irrespective of whether there is
any indication of impairment. If an impairment loss is to be recognized, it is first allocated
to reduce the carrying amount of any goodwill allocated to the cash generating unit (group of
units), then to the other assets of the unit (group of units) pro rata on the basis of the carrying
amount of each asset in the unit (group of units). Impairment losses relating to goodwill
cannot be reversed in future periods for any reason.
An impairment loss of continuing operations or a reversal of such impairment loss is
recognized in profit or loss.
(18) Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as
a result of a past event, it is probably that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable estimate can be made of the
amount of the obligation. Where the Group expects some or all of a provision to be
reimbursed, the reimbursement is recognized as a separate asset but only when the
reimbursement is virtually certain. If the effect of the time value of money is material,
provisions are discounted using a current pre-tax rate that reflects the risks specific to the
liability. Where discounting is used, the increase in the provision due to the passage of time
is recognized as a finance cost.
Maintenance warranties
A provision is recognized for expected warranty claims on products sold, based on past
experience, management’s judgments and other known factors.
Sales returns and allowances
A provision has been recognized for sales returns and allowances based on past experience
and other known factors.
The liability to pay a levy is recognized progressively if the obligating event occurs over a
period of time.
(19) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset
that necessarily takes a substantial period of time to get ready for its intended use or sale are
capitalized as part of the cost of the respective assets. All other borrowing costs are expensed
in the period they occur. Borrowing costs consist of interest and other costs that an entity
incurs in connection with the borrowing of funds.
| 2017 Annual Report 132
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(20) Post-employee benefits
All regular employees of the Company and its domestic subsidiaries are entitled to a pension
plan that is managed by an independently administered pension fund committee. Fund assets
are deposited under the committee’s name in the specific bank account and hence, not
associated with the Company and its domestic subsidiaries. Therefore fund assets are not
included in the Group’s consolidated financial statements. Pension benefits for employees
of the overseas subsidiaries and the branches are provided in accordance with the respective
local regulations.
For the defined contribution plan, the Company and its domestic subsidiaries will make a
monthly contribution of no less than 6% of the monthly wages of the employees subject to the
plan. The Company recognizes expenses for the defined contribution plan in the period in
which the contribution becomes due. Overseas subsidiaries and branches make contribution
to the plan based on the requirements of local regulations.
Post-employment benefit plan that is classified as a defined benefit plan uses the Projected
Unit Credit Method to measure its obligations and costs based on actuarial assumptions. Re-
measurements, comprising of the effect of the actuarial gains and losses, the effect of the asset
ceiling (excluding net interest) and the return on plan assets, excluding net interest, are
recognized as other comprehensive income with a corresponding debit or credit to retained
earnings in the period in which they occur. Past service costs are recognized in profit or loss
on the earlier of:
(a) the date of the plan amendment or curtailment, and
(b) the date that the Group recognizes restructuring-related costs
Net interest is calculated by applying the discount rate to the net defined benefit liability or
asset, both as determined at the start of the annual reporting period, taking account of any
changes in the net defined benefit liability (asset) during the period as a result of contribution
and benefit payment.
Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially
determined pension cost rate at the end of the prior financial year, adjusted and disclosed for
significant market fluctuations since that time and for significant curtailments, settlements, or
other significant one-off events.
2017 Annual Report | 133
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(21) Share-based payment transactions
The cost of equity-settled transactions between the Group and employees is recognized based
on the fair value of the equity instruments granted. The fair value of the equity instruments
is determined by using an appropriate pricing model.
The cost of equity-settled transactions is recognized, together with a corresponding increase
in other capital reserves in equity, over the period in which the performance and/or service
conditions are fulfilled. The cumulative expense recognized for equity-settled transactions
at each reporting date until the vesting date reflects the extent to which the vesting period has
expired and the Group’s best estimate of the number of equity instruments that will ultimately
vest. The income statement expense or credit for a period represents the movement in
cumulative expense recognized as at the beginning and end of that period.
No expense is recognized for awards that do not ultimately vest, except for equity-settled
transactions where vesting is conditional upon a market or non-vesting condition, which are
treated as vesting irrespective of whether or not the market or non-vesting condition is
satisfied, provided that all other performance and/or service conditions are satisfied.
Where the terms of an equity-settled transaction award are modified, the minimum expense
recognized is the expense as if the terms had not been modified, if the original terms of the
award are met. An additional expense is recognized for any modification that increases the
total fair value of the share-based payment transaction, or is otherwise beneficial to the
employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it vested on the date of
cancellation, and any expense not yet recognized for the award is recognized immediately.
This includes any award where non-vesting conditions within the control of either the entity
or the employee are not met. However, if a new award is substituted for the cancelled award,
and designated as a replacement award on the date that it is granted, the cancelled and new
awards are treated as if they were a modification of the original award, as described in the
previous paragraph.
The dilutive effect of outstanding options is reflected as additional share dilution in the
computation of diluted earnings per share.
The cost of restricted stocks issued is recognized as salary expense based on the fair value of
the equity instruments on the grant date, together with a corresponding increase in other capital
reserves in equity, over the vesting period. The Group recognized unearned employee salary
which is a transitional contra equity account; the balance in the account will be recognized as
salary expense over the passage of vesting period.
| 2017 Annual Report 134
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(22) Revenue recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to
the Group and the revenue can be reliably measured. Revenue is measured at the fair value
of the consideration received or receivable. The following specific recognition criteria must
also be met before revenue is recognized:
Sale of goods
Revenue from the sale of goods is recognized when all the following conditions have been
satisfied:
(a) the significant risks and rewards of ownership of the goods have passed to the buyer;
(b) neither continuing managerial involvement nor effective control over the goods sold have
been retained;
(c) the amount of revenue can be measured reliably;
(d) it is probable that the economic benefits associated with the transaction will flow to the
entity; and
(e) the costs incurred in respect of the transaction can be measured reliably.
Interest income
For all financial assets measured at amortized cost (including loans and receivables and held-
to-maturity financial assets) and available-for-sale financial assets, interest income is recorded
using the effective interest rate method and recognized in profit or loss.
Dividends
Revenue is recognized when the Group’s right to receive the payment is established.
(23) Income taxes
Income tax expense (income) is the aggregate amount included in the determination of profit
or loss for the period in respect of current tax and deferred tax.
Current income tax
Current income tax assets and liabilities for the current and prior periods are measured at the
amount expected to be recovered from or paid to the taxation authorities, using the tax rates
and tax laws that have been enacted or substantively enacted by the end of the reporting period.
Current income tax relating to items recognized in other comprehensive income or directly in
equity is recognized in other comprehensive income or equity and not in profit or loss.
2017 Annual Report | 135
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The 10% surtax on undistributed retained earnings is recognized as income tax expense in the
subsequent year when the distribution proposal is approved by the Shareholders’ meeting.
Deferred tax
Deferred tax is provided on temporary differences at the reporting date between the tax bases
of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
(a) Where the deferred tax liability arises from the initial recognition of goodwill or of an
asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss.
(b) In respect of taxable temporary differences associated with investments in subsidiaries,
associates and interests in joint arrangements, where the timing of the reversal of the
temporary differences can be controlled and it is probable that the temporary differences
will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, carry forward of
unused tax credits and unused tax losses, to the extent that it is probable that taxable profit
will be available against which the deductible temporary differences, and the carry forward of
unused tax credits and unused tax losses can be utilized, except:
(a) Where the deferred tax asset relating to the deductible temporary difference arises from
the initial recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss.
(b) In respect of deductible temporary differences associated with investments in
subsidiaries, associates and interests in joint arrangements, deferred tax assets are
recognized only to the extent that it is probable that the temporary differences will reverse
in the foreseeable future and taxable profit will be available against which the temporary
differences can be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in
the year when the asset is realized or the liability is settled, based on tax rates and tax laws
that have been enacted or substantively enacted at the reporting date. The measurement of
deferred tax assets and deferred tax liabilities reflects the tax consequences that would follow
from the manner in which the Group expects, at the end of the reporting period, to recover or
settle the carrying amount of its assets and liabilities. Deferred tax relating to items
recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are
recognized in correlation to the underlying transaction either in other comprehensive income
or directly in equity. Deferred tax assets are reassessed at each reporting date and are
recognized accordingly.
| 2017 Annual Report 136
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists
to set off current income tax assets against current income tax liabilities and the deferred taxes
relate to the same taxable entity and the same taxation authority.
Interim period income tax expense is calculated and disclosed by applying the applicable tax
rate to expected total annual earnings; in other words, applying estimated annual effective tax
rate to interim period’s pre-tax income.
(24) Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The consideration
transferred, the identifiable assets acquired and liabilities assumed are measured at acquisition
date fair value. For each business combination, the acquirer measures any non-controlling
interest in the acquiree either at fair value or at the non-controlling interest’s proportionate
share of the acquiree’s identifiable net assets. Acquisition-related costs are accounted for as
expenses in the periods in which the costs are incurred and are classified under administrative
expenses.
When the Group acquires a business, it assesses the assets and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date. This includes the
separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the
acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the
acquisition date through profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognized at the
acquisition-date fair value. Subsequent changes to the fair value of the contingent
consideration which is deemed to be an asset or liability, will be recognized in accordance
with IAS 39 Financial Instruments: Recognition and Measurement either in profit or loss or
as a change to other comprehensive income. However, if the contingent consideration is
classified as equity, it should not be remeasured until it is finally settled within equity.
Goodwill is initially measured as the amount of the excess of the aggregate of the
consideration transferred and the non-controlling interest over the net fair value of the
identifiable assets acquired and the liabilities assumed. If this aggregate is lower than the
fair value of the net assets acquired, the difference is recognized in profit or loss.
2017 Annual Report | 137
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
Goodwill acquired in a business combination is, from the acquisition date, allocated to each
of the Group’s cash-generating units that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Each unit or group of units to which the goodwill is so allocated represents the lowest level
within the Group at which the goodwill is monitored for internal management purpose and is
not larger than an operating segment before aggregation.
Where goodwill forms part of a cash-generating unit and part of the operation within that unit
is disposed of, the goodwill associated with the operation disposed of is included in the
carrying amount of the operation. Goodwill disposed of in this circumstance is measured
based on the relative recoverable amounts of the operation disposed of and the portion of the
cash-generating unit retained.
5. Significant accounting judgments, estimates and assumptions
The preparation of the Group’s consolidated financial statements require management to make
judgments, estimates and assumptions that affect the reported amounts of revenues, expenses,
assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period.
However, uncertainty about these assumption and estimate could result in outcomes that require a
material adjustment to the carrying amount of the asset or liability affected in future periods.
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the
reporting date, that have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year are discussed below.
(1) Fair value of financial instruments
Where the fair value of financial assets and financial liabilities recorded in the balance sheet
cannot be derived from active markets, they are determined using valuation techniques
including the income approach (for example the discounted cash flow model) or market
approach. Changes in assumptions about these factors could affect the reported fair value of
the financial instruments. Please refer to Note 12 for more details.
(2) Pension benefits
The cost of post-employment benefit and the present value of the pension obligation under
defined benefit pension plans are determined using actuarial valuations. An actuarial
valuation involves making various assumptions. These include the determination of the
discount rate and future salary increases. Please refer to Note 6.(15) for more details.
| 2017 Annual Report 138
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(3) Share-based payment transactions
The Group measures the cost of equity-settled transactions with employees by reference to
the fair value of the equity instruments at the date at which they are granted. Estimating fair
value for share-based payment transactions requires determining the most appropriate
valuation model, which is dependent on the terms and conditions of the grant. This estimate
also requires determining the most appropriate inputs to the valuation model including the
expected life of the share option, volatility and dividend yield and making assumptions about
them. The assumptions and models used for estimating fair value for share-based payment
transactions are disclosed in Note 6.(17).
(4) Revenue recognition - Sales returns and allowance
The Group estimates sales returns and allowance based on historical experience and other
known factors at the time of sale, which reduces the operating revenue. Please refer to Note
6.(13) for more details.
(5) Income tax
Uncertainties exist with respect to the interpretation of complex tax regulations and the
amount and timing of future taxable income. Given the wide range of international business
relationships and the long-term nature and complexity of existing contractual agreements,
differences arising between the actual results and the assumptions made, or future changes to
such assumptions, could necessitate future adjustments to tax income and expense already
recorded. The Group establishes provisions, based on reasonable estimates, for possible
consequences of audits by the tax authorities of the respective counties in which it operates.
The amount of such provisions is based on various factors, such as experience of previous tax
audits and differing interpretations of tax regulations by the taxable entity and the responsible
tax authority. Such differences of interpretation may arise on a wide variety of issues
depending on the conditions prevailing in the respective Group company's domicile.
Deferred tax assets are recognized for all carry forward of deductible temporary differences
to the extent that it is probable that taxable profit will be available or there are sufficient
taxable temporary differences against which the deductible temporary differences can be
utilized. The amount of deferred tax assets determined to be recognized is based upon the
likely timing and the level of future taxable profits and taxable temporary differences together
with future tax planning strategies. Please refer to Note 6.(23) for more details.
2017 Annual Report | 139
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(6) Inventories
Estimates of net realisable value of inventories take into consideration that inventories may
be damaged, become wholly or partially obsolete, or their selling prices have declined. The
estimates are based on the most reliable evidence available at the time the estimates are made.
Please refer to Note 6.(7) for more details.
(7) Accounts receivables–estimation of impairment loss
The Group considers the estimation of future cash flows when there is objective evidence
showed indications of impairment. 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
(excluding future credit losses that have not been incurred) discounted at the financial asset's
original effective interest rate. However, as the impact from the discounting of short-term
receivables is not material, the impairment of short-term receivables is measured as the
difference between the asset's carrying amount and the estimated undiscounted future cash
flows. Where the actual future cash flows are lower than expected, a material impairment loss
may arise. Please refer to Note 6.(6) for more details.
6. Contents of significant accounts
(1) Cash and cash equivalents
As at
31 December
2017
31 December
2016
Cash on hand $2,644 $2,775
Checking accounts and demand deposits 1,989,841 1,761,408
Time deposits 4,318,904 3,898,143
Cash equivalents-Bank’s acceptance bill 172,774 59,015
Total $6,484,163 $5,721,341
The Cash equivalents is Bank’s acceptance bill that have maturity within 3 months.
| 2017 Annual Report 140
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(2) Financial assets and liabilities at fair value through profit or loss
Non- current financial assets at fair value through profit or loss:
As at
31 December
2017
31 December
2016
Designated financial assets at fair value through profit or loss:
Convertible bonds $24,121 $-
Financial liabilities at fair value through profit or loss:
As at
31 December
2017
31 December
2016
Held for trading:
Derivatives not designated as hedging instruments
Forward foreign exchange contracts $8,032 $457
Cross currency swap contracts 4,574 -
Total $12,606 $457
(a) The Group entered into forward exchange contracts and cross currency swap contracts to
sell and buy various forward foreign currencies to hedge exchange rate risk and interest
rate risk of export proceeds and loans. However, these forward exchange contracts and
cross currency swap contracts are not accounted for under hedge accounting.
(b) The unexpired contracts are as follows:
As at 31 December 2017
Currency Contract Period Contract Amount
Forward foreign
exchange contracts
Buy USD / Sell NTD 2017.10.17-2018. 01.23 USD 10,000 thousand
Forward foreign
exchange contracts
Buy USD/Sell RUB 2017. 12.04-2018. 01.26 USD 1,440 thousand
Forward foreign
exchange contracts
Buy USD/ Sell CNY 2017. 12.12-2018. 03.05 USD 21,450 thousand
Cross currency swap
contracts
Buy USD/Sell NTD 2017. 10.17-2018. 03.19 USD 15,000 thousand
As at 31 December 2016
Currency Contract Period Contract Amount
Forward foreign
exchange contracts
Buy USD/Sell RUB 2016.12.12-2017.02.10 USD 920 thousand
2017 Annual Report | 141
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(c) For the years ended 31 December 2017 and 2016, the Group recognized a gain (loss) of
designated financial assets or liabilities at fair value through profit or (loss) of NT$
(10,459) thousand and NT$6,355 thousand, respectively.
(d) For the year ended 31 December 2017, the Group recognized gain on valuation of
designated financial assets at fair value through profit or loss on convertible bonds of
NT$254 thousand.
(e) Financial assets held for trading were not pledged.
(3) Non-current available-for-sale financial assets
As at
31 December
2017
31 December
2016
Stocks $7,444 $47,444
Adjustments for change in value 16,188 13,079
Net amount $23,632 $60,523
For the years ended 31 December 2017, the Group recognized disposal loss in amount of
NT$1,220 thousand on disposal of available-for-sale financial assets.
Available-for-sale financial assets were not pledged.
(4) Non-current financial assets measured at cost
As at
31 December
2017
31 December
2016
Available-for-sale financial assets
Stocks $63,375 $63,375
Less: Accumulated impairment (3,255) -
Total $60,120 $63,375
The fair value of the above investments in unlisted entities are not reliably measurable as the
variability in the range of reasonable fair value measurements is significant for the instrument
and the probabilities of the various estimates within the range cannot be reasonably assessed
and used when measuring fair value. Therefore these investments are measured at cost.
The financial assets measured at cost were not pledged.
| 2017 Annual Report 142
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(5) Notes receivables
As at
31 December
2017
31 December
2016
Notes receivable arising from operating activities $912,670 $1,265,211
Less: allowance for doubtful debts - -
Total $912,670 $1,265,211
Notes receivables were not pledged.
(6) Accounts receivable
As at
31 December
2017
31 December
2016
Accounts receivable $6,296,867 $5,866,655
Less: allowance for doubtful debts (9,219) (8,025)
Total $6,287,648 $5,858,630
Accounts receivable were not pledged.
Accounts receivable are generally on 30-210 day terms. The movements in the provision for
impairment of accounts receivable are as follows (please refer to Note 12 for credit risk
disclosure):
Individually
impaired
Collectively
impaired Total
As at 1 January 2017 $- $8,025 $8,025
Charge/reversal for the current period - 1,212 1,212
Write off - - -
Exchange differences - (18) (18)
As at 31 December 2017 $- $9,219 $9,219
As at 1 January 2016 $- $8,855 $8,855
Charge/reversal for the current period - - -
Write off - (710) (710)
Exchange differences - (120) (120)
As at 31 December 2016 $- $8,025 $8,025
2017 Annual Report | 143
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Aging analysis of accounts receivable that are past due as at the end of the reporting period
but not impaired is as follows:
Neither past
due nor
Past due but not impaired
As at impaired <=30 days 31~90 days 91~180 days 181~360 days Total
31 December 2017 $6,132,471 $117,945 $9,923 $- $27,309 $6,287,648
31 December 2016 5,514,824 302,638 18,029 17,017 6,122 5,858,630
The Group entered into accounts receivable factoring agreements (without recourse) with
several financial institutes in Taiwan. Under the agreements, the Group has surrendered
control over the receivable to the factors. The factors had fully paid out the sales proceeds and
assumed substantially all risks of collection as receivable were transferred.
As of 31 December 2017 and 31 December 2016, trade receivables derecognized were as
follows:
As at 31 December 2017
The Factor (Transferee)
Interest
rate
Trade receivables
derecognized
(USD$’000)
Cash
withdrawn
(USD$’000)
Unutilized
(USD$’000)
Credit line
($’000)
DBS Bank (Taiwan) 1.40~2.64 $40,880 $(36,287) $4,593 USD 72,000
As at 31 December 2016
The Factor (Transferee)
Interest
rate
Trade receivables
derecognized
(USD$’000)
Cash
withdrawn
(USD$’000)
Unutilized
(USD$’000)
Credit line
($’000)
DBS Bank (Taiwan) 1.06~1.90 $30,790 $(26,000) $4,790 USD 72,000
TaiShin Bank - 2 - 2 USD 500
Total $30,792 $(26,000) $4,792
| 2017 Annual Report 144
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The details of accounts receivable derecognized as follows:
As at
The Factor (Transferee)
31 December
2017
31 December
2016
DBS Bank (Taiwan) $137,103 $154,602
Taishin Bank - 75
Total $137,103 $154,677
(7) Inventories
As at
31 December
2017
31 December
2016
Raw materials and supplies $2,534,129 $2,149,248
Work in progress 507,696 576,645
Finished goods 3,020,004 2,781,076
Total $6,061,829 $5,506,969
The cost of inventories recognized in expenses amounts to NT$33,572,160 thousand and
NT$31,333,006 thousand for the years ended 31 December 2017 and 2016, including the
write-down of inventories of NT$200,721 thousand and NT$77,001 thousand, respectively.
No inventories were pledged.
(8) Other financial assets
As at
31 December
2017
31 December
2016
Trust asset $166,794 $165,219
Description of the trust assets, please refer to Note 9.
No other financial assets were pledged.
2017 Annual Report | 145
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(9) Property, plant and equipment
Land Buildings
Machinery
and
equipment
Research and
development
equipment
Office and
other
equipment Leased assets
Construction
in progress Total
Cost:
As at 1 January 2017 $433,008 $1,388,124 $2,122,715 $607,103 $429,420 $290,341 $6,982 $5,277,693
Additions - - 218,583 104,723 82,350 - 23,868 429,524
Disposals - - (13,361) (18,945) (17,707) - - (50,013)
Transfers - - 378 34,361 21,419 - (6,890) 49,268
Exchange differences - (10,547) (24,538) (4,273) (1,590) - (92) (41,040)
As at 31 December 2017 $433,008 $1,377,577 $2,303,777 $722,969 $513,892 $290,341 $23,868 $5,665,432
As at 1 January 2016 $382,089 $1,399,574 $2,141,447 $548,559 $336,961 $290,341 $2,606 $5,101,577
Additions - - 168,321 91,903 97,049 - 4,605 361,878
Disposals - - (21,110) (9,049) (12,014) - - (42,173)
Transfers 50,919 65,561 (1,244) (310) 13,413 - - 128,339
Exchange differences - (77,011) (164,699) (24,000) (5,989) - (229) (271,928)
As at 31 December 2016 $433,008 $1,388,124 $2,122,715 $607,103 $429,420 $290,341 $6,982 $5,277,693
Depreciation and
impairment:
As at 1 January 2017 $- $199,735 $1,141,772 $387,402 $227,528 $55,566 $- $2,012,003
Depreciation - 32,544 277,424 84,604 67,945 4,154 - 466,671
Disposals - - (18,868) (18,378) (10,591) - - (47,837)
Exchange differences - (1,599) (9,424) (2,140) (922) - - (14,085)
As at 31 December 2017 $- $230,680 $1,390,904 $451,488 $283,960 $59,720 $- $2,416,752
As at 1 January 2016 $- $178,120 $968,517 $342,510 $180,416 $51,411 $- $1,720,974
Depreciation - 33,972 275,755 72,414 49,164 4,155 - 435,460
Disposals - - (15,576) (9,049) (10,505) - - (35,130)
Transfers - 853 (1,183) (69) 13,089 - - 12,690
Exchange differences - (13,210) (85,741) (18,404) (4,636) - - (121,991)
As at 31 December 2016 $- $199,735 $1,141,772 $387,402 $227,528 $55,566 $- $2,012,003
Net carrying amount as at:
31 December 2017 $433,008 $1,146,897 $912,873 $271,481 $229,932 $230,621 $23,868 $3,248,680
31 December 2016 $433,008 $1,188,389 $980,943 $219,701 $201,892 $234,775 $6,982 $3,265,690
The Company rented the Nankang Software Industrial Park office by capital lease, please refer
to Note 6.(14).
No property, plant and equipment were pledged.
| 2017 Annual Report 146
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(10) Intangible assets
Computer
software
Development
costs Patents Goodwill
Total
Cost:
As at 1 January 2017 $327,513 $198,071 $- $49,715 $575,299
Addition-internal development - 23,470 - - 23,470
Addition-acquired separately 63,707 - 10,545 - 74,252
Exchange differences (930) - - (656) (1,586)
As at 31 December 2017 $390,290 $221,541 $10,545 $49,059 $671,435
As at 1 January 2016 $293,239 $165,585 $- $54,502 $513,326
Addition-internal development - 32,486 - - 32,486
Addition-acquired separately 41,006 - - - 41,006
Disposals (445) - - - (445)
Exchange differences (6,287) - - (4,787) (11,074)
As at 31 December 2016 $327,513 $198,071 $- $49,715 $575,299
Amortization and impairment:
As at 1 January 2017 $162,242 $127,450 $- $- $289,692
Amortization 62,886 20,440 984 - 84,310
Exchange differences (118) - - - (118)
As at 31 December 2017 $225,010 $147,890 $984 $- $373,884
As at 1 January 2016 $114,704 $91,601 $- $- $206,305
Amortization 50,070 35,849 - - 85,919
Disposals (278) - - - (278)
Exchange differences (2,254) - - - (2,254)
As at 31 December 2016 $162,242 $127,450 $- $- $289,692
Net carrying amount as at:
31 December 2017 $165,280 $73,651 $9,561 $49,059 $297,551
31 December 2016 $165,271 $70,621 $- $49,715 $285,607
Amortization expense of intangible assets under the statement of comprehensive income:
For the years ended
31 December
2017 2016
Operating costs $23,507 $22,907
Operating expenses $60,803 $63,012
2017 Annual Report | 147
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(11) Short-term borrowings
As at
31 December
2017
31 December
2016
Unsecured bank loans $1,876,361 $2,135,317
Interest Rates (%) 0.47%~4.35% 0.47%~3.97%
The Group’s unused short-term lines of credits amounted to NT$7,702,197 thousand and
NT$8,898,813 thousand, as at 31 December 2017 and 2016, respectively.
(12) Current derivative financial assets (liabilities) for hedging
The balance for the periods as follows:
As at
31 December
2017
31 December
2016
Derivative financial assets for hedging $- $341,619
Derivative financial liabilities for hedging 217,162 -
Total $217,162 $341,619
(a) The Group entered into the foreign currency option contracts and foreign currency
forward contracts primarily for the purpose of hedging highly probable forecast
transactions denominated in foreign currency, which are expected to occur during the next
12 months. Amounts accumulated in “other comprehensive income” as of 31 December
2017 are reclassified into profit or loss in the periods when the hedged asset acquired or
the hedged liability assumed affects profit or loss. The Group has assessed that the effect
of profit or loss arising from ineffective cash flow hedge was insignificant as the Group
was mostly effective in executing the hedge transactions for the years ended 31 December
2017 and 2016. The Group entered into derivative financial instruments contracts with
financial institutions with good credit quality. The maximum exposure to credit risk at
the balance sheet date is the carrying amount of the derivative financial instruments for
hedging.
| 2017 Annual Report 148
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(b) Cash flow hedges
Hedged item
Derivative
instruments
designated as
hedges
Fair value of
derivative
instruments
designated as
hedges
Period of
anticipated cash
flow
Period of gain (loss)
expected to be
recognized in statements
of comprehensive
income
2017/12/31 Expected
transactions
Forward foreign
exchange contracts
$(217,612) 2018/01~2018/12 2018/01~2018/12
2016/12/31 Expected
transactions
Forward foreign
exchange contracts
$341,619 2017/01~2017/12 2017/01~2017/12
Amounts accumulated in “other comprehensive income” as of 31 December 2017 and
2016 are reclassified into profit or loss in the periods when the hedged asset acquired or
the hedged liability assumed affects profit or loss. The amounts transferred from other
comprehensive income to profit or loss for the years ended 31 December 2017 and 2016
were NT$33,707 thousand and NT$230,700 thousand, respectively.
(c) The unexpired contracts are as follow:
As at 31 December 2017
Currency Expected Cash Flow Period Nominal Amount
Forward foreign exchange
contracts Sell EUR/Buy USD 2018.01.19-2018.12.24 EUR 113,000 thousand
As at 31 December 2016
Currency Expected Cash Flow Period Nominal Amount
Forward foreign exchange
contracts Sell EUR/Buy USD 2017.01.13-2017.12.22 EUR 119,000 thousand
(13) Current provisions
Maintenance
warranties
Sales returns and
allowances Total
As at 1 January 2017 $9,554 $159,185 $168,739
Arising during the period 1,009 112,133 113,142
Utilized (978) (165,136) (166,114)
Exchange difference (19) (2,792) (2,811)
As at 31 December 2017 $9,566 $103,390 $112,956
2017 Annual Report | 149
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Maintenance
warranties
Sales returns and
allowances Total
As at 1 January 2016 $9,823 $58,345 $68,168
Arising during the period 415 179,551 179,966
Utilized (549) (71,582) (72,131)
Exchange difference (135) (7,129) (7,264)
As at 31 December 2016 $9,554 $159,185 $168,739
Maintenance warranties
A provision is recognized for expected warranty claims on products sold, based on past
experience, management’s judgment and other known factors.
Sales returns and allowances
A provision has been recognized for sales returns and allowances based on past experience
and other known factors. The provision is recognized and the corresponding entry is made
against operating revenue at the time of sales.
(14) Lease payable
The Group signed a contract with Industrial Development Bureau, Ministry of Economic
Affairs to lease an office space in Nankang Software Industrial Park on 15 August 2003.
These capital lase expire on various dates from August 2003 to August 2023. The annual
lease payment is adjusted according to Industrial Development Bureau’s prescribed rental rate
yearly. The prescribed rental rate is adjusted annually based on the interest rate of long-term
loan and annual base on Consumer Price Index. In addition, the Group has bargain purchase
option within the lease term. Future minimum lease payments under financial lease together
with the present value of the net minimum lease payments are as follows:
As at
31 December 2017 31 December 2016
Minimum
payments
Present
value of
payments
Minimum
payments
Present
value of
payments
Not later than one year $16,298 $13,647 $16,298 $13,378
Later than one year and not later than five years 65,193 57,395 65,193 56,261
Later than five years 67,547 56,836 83,846 72,208
Total minimum lease payments 149,038 127,878 165,337 141,847
Less: finance charges on finance lease (21,160) - (23,490) -
Present value of minimum lease payments $127,878 $127,878 $141,847 $141,847
Current $13,647 $13,378
Non-current 114,231 128,469
| 2017 Annual Report 150
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(15) Post-employment benefits
Defined contribution plan
The Company and its domestic subsidiaries adopt a defined contribution plan in accordance
with the Labor Pension Act of the R.O.C. Under the Labor Pension Act, the Company and
its domestic subsidiaries will make monthly contributions of no less than 6% of the
employees’ monthly wages to the employees’ individual pension accounts. The Company
and its domestic subsidiaries have made monthly contributions of 6% of each individual
employee’s salaries or wages to employees’ pension accounts.
Subsidiaries located in the People’s Republic of China will contribute social welfare benefits
based on a certain percentage of employees’ salaries or wages to the employees’ individual
pension accounts.
Pension benefits for employees of overseas subsidiaries and branches are provided in
accordance with the local regulations.
Expenses under the defined contribution plan for the years ended 31 December 2017 and 2016
were NT$233,681 thousand and NT$223,413 thousand, respectively.
Defined benefits plan
The Company and its domestic subsidiaries adopt a defined benefit plan in accordance with
the Labor Standards Act of the R.O.C. The pension benefits are disbursed based on the units
of service years and the average salaries in the last month of the service year. Two units per
year are awarded for the first 15 years of services while one unit per year is awarded after the
completion of the 15th year. The total units shall not exceed 45 units. Under the Labor
Standards Act, the Company and its domestic subsidiaries contribute an amount equivalent to
2% of the employees’ total salaries and wages on a monthly basis to the pension fund
deposited at the Bank of Taiwan in the name of the administered pension fund committee.
Before the end of each year, the Company and its domestic subsidiaries assess the balance in
the designated labor pension fund. If the amount is inadequate to pay pensions calculated for
workers retiring in the same year, the Company and its domestic subsidiaries will make up the
difference in one appropriation before the end of March the following year.
The Ministry of Labor is in charge of establishing and implementing the fund utilization plan
2017 Annual Report | 151
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
in accordance with the Regulations for Revenues, Expenditures, Safeguard and Utilization of
the Labor Retirement Fund. The pension fund is invested in-house or under mandating, based
on a passive-aggressive investment strategy for long-term profitability. The Ministry of
Labor establishes checks and risk management mechanism based on the assessment of risk
factors including market risk, credit risk and liquidity risk, in order to maintain adequate
manager flexibility to achieve targeted return without over-exposure of risk. With regard to
utilization of the pension fund, the minimum earnings in the annual distributions on the final
financial statement shall not be less than the earnings attainable from the amounts accrued
from two-year time deposits with the interest rates offered by local banks. Treasury Funds
can be used to cover the deficits after the approval of the competent authority. As the Company
does not participate in the operation and management of the pension fund, no disclosure on
the fair value of the plan assets categorized in different classes could be made in accordance
with paragraph 142 of IAS 19. The Group expects to contribute NT$4,333 thousand to its
defined benefit plan during the 12 months beginning after 31 December 2017.
The average duration of the defined benefits plan obligation as at 31 December 2017 and 2016
will expire on 2028.
Pension costs recognized in profit or loss for the years ended 31 December 2017 and 2016:
For the years ended
31 December
2017 2016
Current period service costs $443 $435
Interest income of net defined benefit liabilities 741 838
Total $1,184 $1,273
Changes in the defined benefit obligation and fair value of plan assets are as follows:
As at
31 December
2017
31 December
2016
1 January
2016
Defined benefit obligation at 1 January $134,218 $124,202 $118,105
Plan assets at fair value (76,408) (71,259) (68,818)
Other non-current liabilities - Accrued $57,810 $52,943 $49,287
pension liabilities recognized on the
consolidated balance sheets
| 2017 Annual Report 152
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Reconciliation of liability of the defined benefit plan is as follows:
As at
Defined benefit
obligation
Fair value of
plan assets
Benefit
liability
As at 1 January 2016 $118,105 $(68,818) $49,287
Current period service costs 435 - 435
Net interest expense (income) 2,008 (1,170) 838
Subtotal 2,443 (1,170) 1,273
Remeasurements of the net defined benefit
liability (asset):
Actuarial gains and losses arising from
changes in financial assumptions 3,867 - 3,867
Experience adjustments 1,035 532 1,567
Subtotal 4,902 532 5,434
Payments from the plan (1,248) 1,248 -
Contributions by employer - (3,051) (3,051)
As at 31 December 2016 124,202 (71,259) 52,943
Current period service costs 443 - 443
Net interest expense (income) 1,738 (997) 741
Subtotal 2,181 (997) 1,184
Remeasurements of the net defined benefit
liability (asset):
Actuarial gains and losses arising from
changes in financial assumptions 3,941 - 3,941
Experience adjustments 3,894 260 4,154
Subtotal 7,835 260 8,095
Payments from the plan - - -
Contributions by employer - (4,412) (4,412)
As at 31 December 2017 $134,218 $(76,408) $57,810
The following significant actuarial assumptions are used to determine the present value of the
defined benefit obligation:
As at
31 December
2017
31 December
2016
Discount rate 1.10% 1.40%
Expected rate of salary increases 3.00% 3.00%
2017 Annual Report | 153
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
A sensitivity analysis for significant assumption as at 31 December 2017 and 2016 is, as
shown below:
Effect on the defined benefit obligation
2017 2016
Increase
defined benefit
obligation
Decrease
defined benefit
obligation
Increase
defined benefit
obligation
Decrease
defined benefit
obligation
Discount rate increase by 0.25% $- $3,295 $- $3,234
Discount rate decrease by 0.25% 3,411 - 3,353 -
Future salary increase by 0.25% 3,006 - 2,983 -
Future salary decrease by 0.25% - 2,924 - 2,898
The sensitivity analyses above are based on a change in a significant assumption (for example:
change in discount rate or future salary), keeping all other assumptions constant. The
sensitivity analyses may not be representative of an actual change in the defined benefit
obligation as it is unlikely that changes in assumptions would occur in isolation of one another.
There was no change in the methods and assumptions used in preparing the sensitivity
analyses compared to the previous period.
(17) Equities
(a) Ordinary share
The Company’s authorized capital was NT$2,500,000 thousand as at 31 December 2017
and 31 December 2016. The Company’s issued capital was NT$2,456,538 thousand and
NT$2,429,198 thousand as at 31 December 2017 and 31 December 2016, respectively,
each at a par value of NT$10. The Company has issued 245,654 thousand and 242,920
thousand common shares as at 31 December 2017 and 31 December 2016, respectively.
Each share has one voting right and a right to receive dividends.
The employee share options issued in 2015 had been converted by optionees into 2,734
thousand ordinary shares during the year ended 31 December 2017. As a result, the
capital increased by $27,340 thousand. As of 31 December 2017, all 2,734 thousand
ordinary shares have been approved by the relevant authority.
The fourth and fifth issue of domestic unsecured convertible bonds of the Company had
been converted by bond holders into 1,792 thousand ordinary shares during the year
ended 31 December 2016. As a result, the capital increased by NT$17,920 thousand. As
of 31 December 2016, the issuance had been approved by the relevant authority.
| 2017 Annual Report 154
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(b) Capital surplus
According to the Company Act, the capital reserve shall not be used except for making
good the deficit of the company. When a company incurs no loss, it may distribute the
capital reserves related to the income derived from the issuance of new shares at a
premium or income from endowments received by the company. The distribution could
be made in cash or in the form of dividend shares to its shareholders in proportion to the
number of shares being held by each of them.
(c) Retained earnings and dividend policies
According to the Company’s Articles of Incorporations, current year’s earnings, if any,
shall be distributed in the following order:
a. Payment of all taxes and dues;
b. Offset prior years’ operation losses;
c. Set aside 10% of the remaining amount after deducting items (a) and (b) as legal
reserve;
d. Set aside or reverse special reserve in accordance with law and regulations; and
e. The distribution of the remaining portion, if any, will be recommended by the Board
of Directors and resolved in the shareholders’ meeting.
The policy for dividend distribution should reflect factors such as 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 etc. It could be paid in cash or the form of share dividends.
Accordingly, at least 10% of the dividends must be paid in the form of cash.
According to the Company Act, the Company needs to set aside amount to legal reserve
unless where such legal reserve amounts to the total authorized capital. The legal
reserve can be used to make good the deficit of the Company. When the Company
incurs no loss, it may distribute the portion of legal serve which exceeds 25% of the paid-
in capital by issuing new shares or by cash in proportion to the number of shares being
held by each of the shareholders.
Following the adoption of TIFRS, the FSC on 6 April 2012 issued Order No. Financial-
Supervisory-Securities-Corporate-1010012865, which sets out the following provisions
for compliance:
2017 Annual Report | 155
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
On a public company's first-time adoption of the TIFRS, for any unrealized revaluation
gains and cumulative translation adjustments (gains) recorded to shareholders’ equity that
the company elects to transfer to retained earnings by application of the exemption under
IFRS 1, the company shall set aside an equal amount of special reserve. Following a
company’s adoption of the TIFRS for the preparation of its financial reports, when
distributing distributable earnings, it shall set aside to special reserve, from the profit/loss
of the current period and the undistributed earnings from the previous period, an amount
equal to “other net deductions from shareholders’ equity for the current fiscal year,
provided that if the company has already set aside special reserve according to the
requirements in the preceding point, it shall set aside supplemental special reserve based
on the difference between the amount already set aside and other net deductions from
shareholders’ equity. For any subsequent reversal of other net deductions from
shareholders’ equity, the amount reversed may be distributed.
As of 1 January 2017 and 2016, special reserve set aside for the first-time adoption of
TIFRS both amount to NT$131,678 thousand. Furthermore, the Company did not
reverse special reserve to retained earnings during the years ended 31 December 2017
and 2016 as results of the use, disposal or reclassification of related assets.
The distributions of earnings for 2016 was approved through the stockholders’ meeting
on 22 June 2017, while the distribution of earnings for 2017 was approved through the
Board of Directors’ meeting on 12 March 2018. The details of distribution are as
follows:
Appropriation of earnings Dividend per share (NT$)
2017 2016 2017 2016
Legal reserve $131,187 $146,165
Common stock cash dividend 921,202 1,020,263 $3.75 $4.20
Please refer to Note 6.(20) for details on employees’ compensation and remuneration to
directors and supervisors.
(d) Non-controlling interests
For the years ended
31 December
2017 2016
Beginning Balance $(1,896) $(1,432)
Net loss attributable to non-controlling interests (23,710) (6,359)
Other comprehensive income attributable to non-controlling
interests:
Exchange differences on translation of foreign operations 508 169
Changes in subsidiaries’ ownership - 5,726
Ending Balance $(25,098) $(1,896)
| 2017 Annual Report 156
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(17) Share-based payment plans
Certain employees of the Group are entitled to share-based payment as part of their
remunerations; services are provided by the employees in return for the equity instruments
granted. These plans are accounted for as equity-settled share-based payment transactions.
Share-based payment plan for employees of the parent entity
On 25 May 2015 the Company was authorized by the Securities and Futures Bureau of the
Financial Supervisory Commission, Executive Yuan, to issue employee stock options with a
total number of 100,000 units. Each unit entitles an optionee to subscribe to 100 share of the
Company’s common stock. Settlement upon the exercise of the options will be made
through the issuance of new shares by the Company. An optionee may exercise the options
in accordance with certain schedules as prescribed by the plan starting 2 years from the date
of grant.
The fair value of the share options is estimated at the grant date using a binomial option
pricing-model, taking into account the terms and conditions upon which the share options
were granted.
The exercise price of the option was set at the closing price of the subsidiary’s common share
on the grant date. The contractual term of each option granted is ten years. There are no
cash settlement alternatives. The Group does not have a past practice of cash settlement for
these employee share options.
The relevant details of the aforementioned share-based payment plan are as follows:
Date of grant
Total number of share options
granted (thousand units)
Exercise price of share options (NT$)
(Note)
27 May 2015 10,000 54.5
Note: The exercise prices have been adjusted to reflect the change of outstanding shares (i.e.
the share issued for cash, the appropriation of earnings, issuance of new shares in
connection with merger, or issuance of new shares of other companies) in accordance
with the plan.
2017 Annual Report | 157
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The compensation cost was recognized under the fair value method and the Black-Scholes
Option pricing model was used to estimate the fair value of options granted. Assumptions
used in calculating the fair value are disclosed as follows:
Factors
Expected dividends yields 4.79%
Expected volatility 27.79%
Risk-free interest rate 1.17%~1.31%
Weighted-average expected life 6.375 years
The expected life of the share options is based on historical date and current expectations and
is not necessarily indicative of exercise patterns that may occur. The expected volatility
reflects the assumption that the historical volatility over a period similar to the life of the
options is indicative of future trends, which may also not necessarily be the actual outcome.
The following table contains further details on the aforementioned share-based payment plan:
For the years ended 31 December
2017 2016
Number of share
options
outstanding
(in thousands)
Weighted average
exercise price of
share options
(NT$)
Number of share
options
outstanding
(in thousands)
Weighted average
exercise price of
share options
(NT$)
Outstanding at beginning of period 10,000 57.6 100,000 60.60
Granted - - - -
Forfeited - - - -
Exercised (2,734) 54.5 - -
Expired - - - -
Outstanding at end of period 7,266 54.5 100,000 57.60
Exercisable at end of period 7,266 -
Weighted-average fair value of options
granted during the period (NTD)
$-
$-
The weighted-average stock price was NT$80.09 when the exercise date of the options
exercised for the year ended 31 December 2017.
The number of options outstanding was as follows:
| 2017 Annual Report 158
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
31 December 2017
Outstanding Stock Options
31 December 2016
Outstanding Stock Options
Authorization date
Range of
exercise
price
(NTD)
Option
(thousand
units)
Weighted-average
remaining
contractual life
(years)
Option
(thousand
units)
Weighted-average
remaining
contractual life
(years)
2015.05.27 54.5 7,266 3.875 10,000 4.875
(b) The expenses recognized for share-based payment plans for the years ended 31 December
2017 and 2016 were NT$24,991 thousand and NT$36,430 thousand, respectively.
(18) Operating revenue
For the years ended
31 December
2017 2016
Sale of goods $38,985,950 $37,103,788
Less: Sales returns, discounts and allowances (385,947) (409,097)
Other operating revenues - 7,043
Total $38,600,003 $36,701,734
(19)Operating leases
Operating lease commitments - Group as lessee
The Group has entered into commercial leases on certain building and items of machinery.
These leases have an average life of one to five years with no renewal option included in the
contracts. There are no restrictions placed upon the Group by entering into these leases.
Future minimum rentals payable under non-cancellable operating leases as at 31 December
2017 and 31 December 2016 are as follows:
As at
31 December
2017
31 December
2016
Not later than one year $128,146 $27,808
Later than one year and not later than five years 323,300 103,352
Later than five years 138,589 9,578
Total $590,035 $140,738
2017 Annual Report | 159
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The expenses recognized for operating leases are as follows:
For the years ended
31 December
2017 2016
Future minimum rentals payable $79,973 $68,422
(20) Summary statement of employee benefits, depreciation and amortization expenses by function
during the years ended 31 December 2017 and 2016:
For the years ended 31 December
2017 2016
Operating
costs
Operating
expenses
Total
amount
Operating
costs
Operating
expenses
Total
amount
Employee benefits expense
Salaries $813,559 $1,757,381 $2,570,940 $812,668 $1,881,361 $2,694,029
Labor and health insurance 26,491 88,250 114,741 27,212 80,581 107,793
Pension 100,076 134,789 234,865 94,607 130,079 224,686
Other employee benefits expense 77,802 83,785 161,587 79,212 82,493 161,705
Depreciation 304,515 162,156 466,671 223,685 211,775 435,460
Amortization 23,507 60,803 84,310 22,907 63,013 85,920
According to the Articles of Incorporation, 12%-18% of profit of the current year is
distributable as employees’ compensation and no higher than 2.5% of profit of the current
year is distributable as remuneration to directors and supervisors. However, the company's
accumulated losses shall have been covered. The Company may, by a resolution adopted by
a majority vote at a meeting of Board of Directors attended by two-thirds of the total number
of directors, have the profit distributable as employees’ compensation in the form of shares or
in cash; and in addition thereto a report of such distribution is submitted to the shareholders’
meeting. Information on the Board of Directors’ resolution regarding the employees’
compensation and remuneration to directors and supervisors can be obtained from the “Market
Observation Post System” on the website of the TWSE.
| 2017 Annual Report 160
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Based on profit of the year ended 31 December 2017, the Company estimated the amounts of
the employees’ compensation and remuneration to directors and supervisors for the year ended
31 December 2017 to be 15.36% of profit of the current year and 1.67% of profit of the current
year, respectively, recognized as employee benefits expense. As such, employees’
compensation and remuneration to directors and supervisors for the year ended 31 December
2017 amount to NT$260,294 thousand and NT$34,706 thousand, respectively. A resolution
was passed at a Board of Directors meeting held on 12 March 2018 to distribute NT$266,139
thousand and NT$28,861 thousand in cash as employees’ compensation and remuneration to
directors and supervisors of 2017, respectively.
A resolution was passed at a Board of Directors meeting held on 27 March 2017 to distribute
NT$299,638 thousand and NT$40,362 thousand in cash as employees’ compensation and
remuneration to directors and supervisors of 2016, respectively. No material differences
exist between the estimated amount and the actual distribution of the employee bonuses and
remuneration to directors and supervisors for the year ended 31 December 2016.
(21) Non-operating income and expenses
(a) Other income
For the years ended
31 December
2017 2016
Interest income $78,405 $66,868
Dividends income 342 2,264
Rental income 1,025 1,131
Others 27,936 24,204
Total $107,708 $94,467
(b) Other gains and losses
For the years ended
31 December
2017 2016
Gain (loss) on financial assets at fair value through
profit or loss
$(10,205) $6,355
Gain (loss) on disposal of property, plant and equipment 1,806 (3,378)
Gain on disposal of investment (1,220) -
Loss on impairment of financial assets measured at cost (3,255) -
Foreign exchange gain (loss), net 15,926 8,738
Other (2,012) (2,095)
Total $1,040 $9,620
2017 Annual Report | 161
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(c) Finance costs
For the years ended
31 December
2017 2016
Interest on borrowings from bank $56,696 $61,104
Interest on finance lease 2,698 2,975
Interest on notes discounted - 7,865
Interest on bonds payable - 270
Total $59,394 $72,214
(22) Components of other comprehensive income
For the year ended 31 December 2017
Arising
during the
period
Reclassified
adjustments
during the
period
Transferred to
the carrying
amount of
hedged items
Other
comprehensive
income,
before tax
Income tax
relating to
components of
other
comprehensive
income
Other
comprehensive
income, net
of tax
Not to be reclassified to profit or
loss in subsequent periods:
Remeasurements of defined
benefit plans
$(8,095) $- $- $(8,095) $1,376 $(6,719)
To be reclassified to profit or loss
in subsequent periods:
Exchange differences resulting from
translating the financial statements
of a foreign operation
(45,154) - - (45,155) (5,239) (50,394)
Unrealized gains (losses) from
available-for-sale financial assets
1,889 1,220 - 3,109 - 3,109
Gains (losses) on effect portion of
cash flow hedges
(540,518) - (33,707) (574,225) 55,077 (519,148)
Total of other comprehensive income $(591,878) $1,220 $(33,707) $(624,366) $51,214 $(573,152)
| 2017 Annual Report 162
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
For the year ended 31 December 2016
Arising
during the
period
Reclassified
adjustments
during the
period
Transferred to
the carrying
amount of
hedged items
Other
comprehensive
income,
before tax
Income tax
relating to
components of
other
comprehensive
income
Other
comprehensive
income, net
of tax
Not to be reclassified to profit or
loss in subsequent periods:
Remeasurements of defined
benefit plans
$(5,434) $- $- $(5,434) $924 $(4,510)
To be reclassified to profit or loss
in subsequent periods:
Exchange differences resulting from
translating the financial statements
of a foreign operation
(409,025) - - (409,025) 20,868 (388,157)
Unrealized gains (losses) from
available-for-sale financial assets
726 - - 726 - 726
Gains (losses) on effect portion of
cash flow hedges
468,789 - (230,700) 238,089 (55,077) 183,012
Total of other comprehensive income $55,056 $- $(230,700) $(175,644) $(33,285) $(208,929)
(23) Income tax
A. The major components of income tax expense (income) are as follows:
Income tax expense (income) recognized in profit or loss
For the years ended
31 December
2017 2016
Current income tax expenses (income):
Current income tax charge $319,762 $379,974
Adjustments in respect of current income tax of prior periods (50,074) (4,242)
Deferred tax expenses (income):
Deferred tax expenses (income) relating to origination
and reversal of temporary differences
29,214 (18,227)
The expenses (income) recognized in the period for
previously unrecognized tax loss, tax credit or
temporary difference of prior periods
(9,609) (10,017)
Write-down of deferred tax assets 6,107 -
Total income tax expenses $295,400 $347,488
2017 Annual Report | 163
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Income tax relating to components of other comprehensive income
For the years ended
31 December
2017 2016
Deferred tax expense (income):
Actuarial gains (losses) on defined benefits plan $(1,376) $(924)
Exchange differences resulting from translating the
financial statements of a foreign operation
5,239 (20,868)
Gains (losses) on effect portion of cash flow hedges (55,077) 55,077
Income tax relating to components of other comprehensive income $(51,214) $33,285
B. Reconciliation between tax expense and the product of accounting profit multiplied by
applicable tax rates is as follows:
For the years ended
31 December
2017 2016
Accounting profit before tax from continuing operations $1,583,558 $1,802,783
Tax at the domestic rates applicable to profits in the country
concerned
$269,205 $306,473
Effect of different tax rates applicable to the Company and
its subsidiaries
137,040 130,881
Tax effect of revenues exempt from taxation (30,402) (34,085)
Tax effect of expenses not deductible for tax purposes 17,919 9,527
Tax effect of deferred tax assets/liabilities (30,157) (29,895)
10 % surtax on undistributed retained earnings 29,072 22,876
Adjustments in respect of current income tax of prior periods (50,073) (4,242)
Others (47,204) (54,047)
Total income tax expense recognized in profit or loss $295,400 $347,488
| 2017 Annual Report 164
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
C. Deferred tax assets (liabilities) relate to the following:
For the year ended 31 December 2017
Beginning
balance as at
1 January
2017
Deferred tax
income
(expense)
recognized in
profit or loss
Deferred tax
income
(expense)
recognized in
other
comprehensive
income
Exchange
differences
Ending
balance as at
31 December
2017
Temporary differences
Loss on valuation of financial assets $78 $2,450 $- $22 $2,550
Gain on valuation of financial assets - (44) - - (44)
Loss on impairment of financial assets - 553 - - 553
Depreciation difference for tax purpose (1,973) 56 - 27 (1,890)
Allowance for inventory valuation losses 25,903 13,702 - (212) 39,393
Intangible assets – research and development costs (12,293) (228) - - (12,521)
Accrued expenses and bonus 231,723 (8,973) - (592) 222,158
Provisions – sales return and allowance 34,697 (15,984) - (698) 18,015
Provisions – maintenance warranties 1,736 5 - (3) 1,738
Amortization of discount on bonds payable 6,107 (6,107) - - -
Non-current liability – Defined benefit Liability 9,000 (549) 1,376 - 9,827
Unrealized foreign exchange (gains) losses (4,542) 11,565 - - 7,023
Unrealized (gains) losses on cash flow hedges (58,076) 2,999 55,077 - -
Investments accounted for under the equity method (15,799) (25,122) (5,239) - (46,160)
Others (26) (35) - 1 (60)
Deferred tax income/ (expense) $(25,712) $51,214 $(1,455)
Net deferred tax assets/(liabilities) $216,535 $240,582
Reflected in balance sheet as follows:
Deferred tax assets $309,244 $301,257
Deferred tax liabilities $(92,709) $(60,675)
2017 Annual Report | 165
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
For the year ended 31 December 2016
Beginning
balance as at
1 January
2016
Deferred tax
income
(expense)
recognized in
profit or loss
Deferred tax
income
(expense)
recognized in
other
comprehensive
income
Exchange
differences
Ending
balance as at
31 December
2016
Temporary differences
Depreciation difference for tax purpose $(2,227) $61 $- $193 $(1,973)
Valuations of financial assets (1,061) 1,092 - 47 78
Allowance for inventory valuation losses 24,111 3,530 - (1,738) 25,903
Intangible assets – research and development costs (12,577) 284 - - (12,293)
Accrued expenses and bonus 197,421 40,179 - (5,877) 231,723
Provisions – sales return and allowance 11,894 24,209 - (1,406) 34,697
Provisions – maintenance warranties 1,793 (23) - (34) 1,736
Amortization of discount on bonds payable 6,107 - - - 6,107
Non-current liability – Defined benefit Liability 8,379 (303) 924 - 9,000
Unrealized foreign exchange (gains) losses (1,216) (3,326) - - (4,542)
Unrealized (gains) losses on cash flow hedges (2,999) - (55,077) - (58,076)
Investments accounted for under the equity method - (36,667) 20,868 - (15,799)
Others 766 (792) - - (26)
Deferred tax income/ (expense) $28,244 $(33,285) $(8,815)
Net deferred tax assets/(liabilities) $230,391 $216,535
Reflected in balance sheet as follows:
Deferred tax assets $250,471 $309,244
Deferred tax liabilities $(20,080) $(92,709)
Unrecognized deferred tax liabilities relating to the investment in subsidiaries
The Group did not recognize total deferred tax liability for taxes that would be payable on
the unremitted earnings of the Group’s overseas subsidiaries, as the Group has determined
that undistributed profits of its subsidiaries will not be distributed in the foreseeable future
except that 30% of undistributed profits of Sercomm Trading Co., Ltd. will be distributed
from 2016. As at 31 December 2017 and 2016, the taxable temporary differences associated
with investment in subsidiaries, for which deferred tax liabilities have not been recognized,
aggregated to NT$539,387 thousand and NT$468,993 thousand, respectively.
| 2017 Annual Report 166
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
D. Imputation credit information
As at
31 December
2017 31 December
2016 Balances of imputation credit amounts $210,001 $182,340
The actual creditable ratio for 2016 were 10.89%. For 2016 imputation credit ratio for
individual stockholders residing in R.O.C is half of the original ratio according to the
Article 66-6 of Income Tax Act. On 18 January 2018, the Logislative Yuan passed
amendments to the Income Tax Act and announced by the President on 7 February 2018,
that the imputation credit ratio will no longer be used.
The Company’s earnings generated in the year ended 31 December 1997 and prior years
have been fully appropriated.
E. The assessment of income tax returns
As of 31 December 2017, the assessment of the income tax returns of the Company and its
subsidiaries is as follows:
The assessment of income tax returns
The Company Assessed and approved up to 2015 expect 2014
Subsidiary-Shukuan Investment Ltd. Assessed and approved up to 2015
(24) Earnings per share
Basic earnings per share amounts are calculated by dividing net profit for the year attributable
to ordinary equity holders of the parent entity by the weighted average number of ordinary
shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to
ordinary equity holders of the parent entity (after adjusting for interest on the convertible
preference shares) by the weighted average number of ordinary shares outstanding during the
year plus the weighted average number of ordinary shares that would be issued on conversion
of all the dilutive potential ordinary shares into ordinary shares.
2017 Annual Report | 167
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
For the years ended
31 December
2017 2016
A. Basic earnings per share
Profit attributable to ordinary equity holders of the Company
(in thousand NT$)
$1,311,868 $1,461,654
Weighted average number of ordinary shares outstanding for
basic earnings per share (in thousands)
243,616 242,647
Basic earnings per share (NT$) $5.38 $6.02
B. Diluted earnings per share
Profit attributable to ordinary equity holders of the Company
(in thousand NT$)
$1,311,868 $1,461,654
Add: Interest expense from convertible bonds (in thousand NT$) - 270
Profit attributable to ordinary equity holders of the Company
after dilution (in thousand NT$)
$1,311,868 $1,461,924
Weighted average number of ordinary shares outstanding
for basic earnings per share (in thousands)
243,616 242,647
Effect of dilution:
Employee bonus-stock (in thousands) 4,355 4,410
Employee stock options (in thousands) 2,322 2,467
Convertible bonds (in thousands) - 273
Weighted average number of ordinary shares outstanding
after dilution (in thousands)
250,293 249,797
Diluted earnings per share (NT$) $5.24 $5.85
There have been no other transactions involving ordinary shares or potential ordinary shares
between the reporting date and the date the financial statements were authorized for issue.
| 2017 Annual Report 168
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(25) Changes in parent’s interest in subsidiaries
Acquisition of new shares in a subsidiary not in proportionate to ownership interest
Hawxeye Inc. issued new shares on 2017, however the Group did not purchase any of the new
shares, consequently the ownership interest in Hawxeye Inc. was reduced to 55%. The Group
received additional cash from issuing new shares in the amount of NT$393 thousand. The
carrying amount of Hawxeye Inc.’s net assets (excluding goodwill on the original acquisition)
was NT$(54,223) thousand. The following is a schedule of interest reduced in Hawxeye Inc.
including increase in the Company’s non-controlling interest:
Additional cash received from the issuance of new shares $393
Decrease in non-control interest 98
Difference recognized in capital surplus within equity $491
Hawxeye Inc. issued new shares on 1 November 2016, however the Group did not purchase
any of the new shares, consequently the ownership interest in Hawxeye Inc. was reduced to
56%. The Group received additional cash from issuing new shares in the amount of
NT$13,863 thousand. The carrying amount of Hawxeye Inc.’s net assets (excluding
goodwill on the original acquisition) was NT$12,100 thousand. The following is a schedule
of interest reduced in Hawxeye Inc. including increase in the Company’s non-controlling
interest:
Additional cash received from the issuance of new shares $(13,863)
Increase in non-control interest 5,726
Difference recognized in capital surplus within equity $(8,137)
7. Related party transactions
Key management personnel compensation
For the years ended
31 December
2017 2016
Short-term employee benefits $179,475 $170,463
Post-employment benefits 1,907 2,017
Share-based Payment 36,430 36,430
Total $217,812 $208,910
2017 Annual Report | 169
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
8. Assets pledged as security
The following table lists assets of the Group pledged as security:
Carrying amount
Assets pledged for security
31 December
2017
31 December
2016 Secured liabilities
Guarantee deposits paid fixed-
term deposit and cash
$8,728 $6,498 Custom duty guarantee and
performance guarantee
9. Commitments and contingencies
(1) The Company signed an agreement with an overseas customer. The agreement provided that
the overseas customer was required to pay a fee according to the License Royalty Rate
prescribed in the agreement and the Company shall be liable for any third party infringement
claims. The amount received as calculated by the License Royalty Rate has been deposited in
trust fund set up by the Company. As at 31 December 2017, the Company recognized the trust
fund as other financial assets-noncurrent and other current liabilities amounting to
NT$166,794 thousand (including interest revenue of NT$9,085 thousand) and NT$157,709
thousand, respectively.
(2) As at 31 December 2017, the amounts of Performance Letter of Guarantee issued by bank for
the purpose of the research project of Industrial Development Bureau, Ministry of Economic
Affairs and shipment guarantee were NT$40,192 thousand and EUR 2,627 thousand.
10. Losses due to major disasters
None.
11. Significant subsequent events
On 18 January 2018, the Legislative Yuan passed amendments and announced by the President on
7 February 2018 to the Income Tax Act. The amendments raised the corporate income tax rate for
companies from 17% to 20%. After the change of the tax rate, the deferred tax assets and deferred
tax liability will be increased by NT$34,043 thousand and NT$10,363 thousand, respectively.
| 2017 Annual Report 170
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
12. Financial instruments
(1) Categories of financial instruments
As at
31 December
2017
31 December
2016
Financial assets
Financial assets at fair value through profit or loss:
Designated financial assets at fair value though profit or loss $24,121 $-
Available-for-sale financial assets
Measured at fair value 23,632 60,523
Measured at cost 60,120 63,375
Subtotal 83,752 123,898
Loans and receivables:
Cash and cash equivalents (exclude cash on hand) 6,481,519 5,718,566
Notes receivable, net 912,670 1,265,211
Accounts receivable, net 6,287,648 5,858,630
Other receivables 339,523 481,667
Other financial assets 166,794 165,219
Guarantee deposits paid 48,534 25,718
Subtotal 14,236,688 13,523,011
Derivative financial assets for hedging - 341,619
Total $14,344,561 $13,980,528
As at
31 December
2017
31 December
2016
Financial liabilities
Financial liabilities at fair value through profit or loss:
Held for trading $12,606 $457
Financial liabilities at amortized cost:
Short-term borrowings 1,876,361 2,135,317
Accounts payable 11,467,382 10,004,704
Other payables 3,032,039 3,159,598
Lease obligations payable 127,878 141,847
Guarantee deposits received 4,254 6,279
Subtotal 16,507,914 15,447,745
Derivative financial liabilities for hedging 217,162 -
Total $16,737,682 $15,448,202
2017 Annual Report | 171
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(2) Financial risk management objectives and policies
The Group’s principal financial risk management objective is to manage the market risk, credit
risk and liquidity risk related to its operating activates. The Group identifies measures and
manages the aforementioned risks based on the Group’s policy and risk appetite.
The Group has established appropriate policies, procedures and internal controls for financial
risk management. Before entering into significant transactions, due approval process by the
Board of Directors and Audit Committee must be carried out based on related protocols and
internal control procedures. The Group complies with its financial risk management policies
at all times.
(3) Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will
fluctuate because of the changes in market prices. Market prices comprise currency risk,
interest rate risk and other price risk.
In practice, it is rarely the case that a single risk variable will change independently from other
risk variable, there are usually interdependencies between risk variables. However the
sensitivity analysis disclosed below does not take into account the interdependencies between
risk variables.
Foreign currency risk
The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the
Group’s operating activities (when revenue or expense are denominated in a different currency
from the Group’s functional currency) and the Group’s net investments in foreign subsidiaries.
The Group has certain foreign currency receivables to be denominated in the same foreign
currency with certain foreign currency payables, therefore natural hedge is received. The
Group also uses forward contracts to hedge the foreign currency risk on certain items
denominated in foreign currencies. Hedge accounting is not applied as they did not qualify
for hedge accounting criteria. Furthermore, as net investments in foreign subsidiaries are for
strategic purposes, they are not hedged by the Group.
The foreign currency sensitivity analysis of the possible change in foreign exchange rates on
the Group’s profit is performed on significant monetary items, derivatives financial instrument
and hedge activities denominated in foreign currencies as at the end of the reporting period.
The Group’s foreign currency risk is mainly related to the volatility in the exchange rates for
USD. The information of the sensitivity analyses is as follows:
When NTD strengthens/weakens against USD by 1%, the profit for the years ended 31
December 2017 and 2016 is increased/decreased by NT$406 thousand and increased/
decreased NT$1,550 thousand, respectively.
| 2017 Annual Report 172
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument
will fluctuate because of changes in market interest rates. The Group’s exposure to the risk
of changes in market interest rates relates primarily to the Group’s loans and receivables at
variable interest rates, bank borrowings with fixed interest rates and variable interest rates.
Most of the Group’s bank borrowings at variable rate were denominated in USD, and some
of which are hedged by cross currency swap contracts.
The interest rate sensitivity analysis is performed on items exposed to interest rate risk as at
the end of the reporting period, including investments and borrowings with variable interest
rates. At the reporting date, a change of 10 basis points of interest rate in a reporting period
could cause the profit for the years ended 31 December 2017 and 2016 to increase/decrease
by NT$347 thousand and increase/decrease by NT$162 thousand, respectively.
Commodity price risk
The Group’s commodity price risk is caused by the fluctuation of foreign currency rate arising
from taking overseas orders. Due to the volatile fluctuation of the currency rate, the Board of
Directors has developed strategies for lowering commodity price risk. The Group uses forward
foreign exchange contracts, forward foreign option contracts and range forward foreign
exchange contracts to hedge aforementioned risk of currency rate based on the forecast of the
future requirement of orders, which the Group expects highly possible to take. Hedge
accounting applies to these financial assets.
After the Group considers the effect of hedge accounting, a change of 1% in currency rate in
a reporting period could cause the equity for the years ended 31 December 2017 and 2016 to
increase/decrease by NT$2,172 thousand and increase/decrease by NT$3,416 thousand,
respectively.
Equity price risk
The Group’s listed and unlisted equity securities are susceptible to market price risk arising
from uncertainties about future values of the investment securities. The Group’s listed and
unlisted equity securities are classified as available-for-sale both. The Group manages the
equity price risk through diversification and placing limits on individual and total equity
instruments. Reports on the equity portfolio are submitted to the Group’s senior
management on a regular basis. The Group’s Board of Directors reviews and approves all
equity investment decisions.
2017 Annual Report | 173
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
An increase/decrease of 1% in the value of the equity securities classified as available-for-
sale would only impact equity but would not have an effect on profit or loss. For the years
ended 31 December 2017 and 2016, an increase/decrease of 1% in the price of the equity
securities classified as available-for-sale could cause the equity to increase/decrease by NT$0
thousand and NT$332 thousand, respectively.
(4) Credit risk management
Credit risk is the risk that a counterparty will not meet its obligations under a contract, leading
to a financial loss. The Group is exposed to credit risk from operating activities (primarily
for accounts receivables and notes receivables) and from its financing activities, including
bank deposits and other financial instruments.
Customer credit risk is managed by each business unit subject to the Group’s established
policy, procedures and control relating to customer credit risk management. Credit limits
are established for all customers based on their financial position, rating from credit rating
agencies, historical experience, prevailing economic condition and the Group’s internal rating
criteria etc. Certain customer’s credit risk will also be managed by taking credit enhancing
procedures, such as requesting for prepayment or insurance.
As of 31 December 2017 and 2016, amounts receivables from top ten customers represent
67% and 68% of the total accounts receivables of the Group, respectively. The credit
concentration risk of other accounts receivables is insignificant.
Credit risk from balances with banks and other financial instruments is managed by the
Group’s treasury in accordance with the Group’s policy. The Group only transacts with
counterparties approved by the internal control procedures, which are banks and financial
institutions, companies and government entities with good credit rating and with no significant
default risk. Consequently, there is no significant credit risk for these counter parties.
(5) Liquidity risk management
The Group’s objective is to maintain a balance between continuity of funding and flexibility
through the use of cash and cash equivalents, highly liquid equity investments, bank
borrowings, convertible bonds and finance leases. The table below summarizes the maturity
profile of the Group’s financial liabilities based on the contractual undiscounted payments and
contractual maturity. The payment amount includes the contractual interest. The undiscounted
payment relating to borrowings with variable interest rates is extrapolated based on the
estimated interest rate yield curve as of the end of the reporting period.
| 2017 Annual Report 174
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Non-derivative financial instruments
Less than
1 year 2 to 3 years 4 to 5 years > 5 years Total
As at 31 December 2017
Short-term borrowings $1,880,552 $- $- $- $1,880,552
Accounts payable 11,467,382 - - - 11,467,382
Other payables 3,032,039 - - - 3,032,039
Lease obligations payable 16,298 32,597 32,596 67,547 149,038
Less than
1 year 2 to 3 years 4 to 5 years > 5 years Total
As at 31 December 2016
Short-term borrowings $2,140,591 $- $- $- $2,140,591
Accounts payable 10,004,704 - - - 10,004,704
Other payables 3,159,598 - - - 3,159,598
Lease obligations payable 16,298 32,597 32,596 83,846 165,337
Derivative financial instruments
Less than 1 year
As at 31 December 2017
Inflows $-
Outflows (229,768)
Net $(229,768)
Less than 1 year
As at 31 December 2016
Inflows $-
Outflows (457)
Net $(457)
The table above contains the undiscounted net cash flows of derivative financial instruments.
2017 Annual Report | 175
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(6) Fair values of financial instruments
A. the methods and assumptions applied in determining the fair value of financial instruments:
Fair value is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. The
following methods and assumptions were used by the Group to measure or disclose the fair
values of financial assets and financial liabilities:
a. The carrying amount of cash and cash equivalents, accounts receivables, accounts
payable and other current liabilities approximate their fair value due to their short
maturities.
b. For financial assets and liabilities traded in an active market with standard terms and
conditions, their fair value is determined based on market quotation price (including
listed equity securities, beneficiary certificates, bonds and futures etc.) at the reporting
date.
c. Fair value of equity instruments without market quotations (including private placement
of listed equity securities, unquoted public company and private company equity
securities) are estimated using the market method valuation techniques based on
parameters such as prices based on market transactions of equity instruments of identical
or comparable entities and other relevant information (for example, inputs such as
discount for lack of marketability, P/E ratio of similar entities and Price-Book ratio of
similar entities).
d. Fair value of debt instruments without market quotations, bank loans, bonds payable
and other non-current liabilities are determined based on the counterparty prices or
valuation method. The valuation method uses DCF method as a basis, and the
assumptions such as the interest rate and discount rate are primarily based on relevant
information of similar instrument (such as yield curves published by the Taipei
Exchange, average prices for Fixed Rate Commercial Paper published by Reuters and
credit risk, etc.)
e. The fair value of derivatives which are not options and without market quotations, is
determined based on the counterparty prices or discounted cash flow analysis using
interest rate yield curve for the contract period. Fair value of option-based derivative
financial instruments is obtained using the counterparty prices or appropriate option
pricing model (for example, Black-Scholes model) or other valuation method (for
example, Monte Carlo Simulation).
| 2017 Annual Report 176
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
B. Fair value of financial instruments measured at amortized cost
Other than cash and cash equivalents, accounts receivables, accounts payable and other
current liabilities whose carrying amount approximate their fair value, the fair value of the
Group’s financial assets and financial liabilities measured at amortized cost is listed in the
table below:
Carrying amount as at
31 December
2017
31 December
2016
Financial liabilities:
Lease obligations payable $127,878 $141,847
Fair value as at
31 December
2017
31 December
2016
Financial liabilities:
Lease obligations payable $149,038 $165,337
C. Fair value measurement hierarchy for financial instruments
Please refer to Note 12.(8) for fair value measurement hierarchy for financial instruments
of the Group.
(7) Derivative financial instruments
The Group has entered into forward foreign exchange contracts and cross currency swap
contracts, which are not applicable to hedge accounting, for the purpose of managing
transaction risk due to changes in foreign currencies. Please refer to Note 6.(2).
The Group has entered into forward foreign exchange contracts, which are applicable to hedge
accounting, for the purpose of hedging future cash flow fluctuations and risk due to changes
in foreign currencies. Please refer to Note 6.(12).
2017 Annual Report | 177
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(8) Fair value measurement hierarchy
A. Fair value measurement hierarchy
All asset and liabilities for which fair value is measured or disclosed in the financial
statements are categorized within the fair value hierarchy, based on the lowest level input
that is significant to the fair value measurement as a whole. Level 1, 2 and 3 inputs are
described as follows:
Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or
liabilities that the entity can access at the measurement date.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly or indirectly.
Level 3 – Unobservable inputs for the asset or liability.
For assets and liabilities that are recognized in the financial statements on a recurring basis,
the Group determines whether transfers have occurred between levels in the hierarchy by
re-assessing categorization at the end of each reporting period.
B. Fair value measurement hierarchy of the Group’s assets and liabilities
The Group does not have assets that are measured at fair value on a non-recurring basis.
Fair value measurement hierarchy of the Group’s assets and liabilities measured at fair
value on a recurring basis is as follows:
As at 31 December 2017
Level 1 Level 2 Level 3 Total
Assets at fair value
Financial assets at fair value through profit or loss:
Convertible bonds $- $- $24,121 $24,121
Available-for-sale financial assets
Stock - - 23,632 23,632
Liabilities at fair value
Financial liabilities at fair value through profit or loss:
Forward foreign exchange contracts - 8,032 - 8,032
Cross currency swap contracts - 4,574 - 4,574
Derivative financial liabilities for hedging
Forward foreign exchange contracts - 217,162 - 217,162
| 2017 Annual Report 178
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As at 31 December 2016
Level 1 Level 2 Level 3 Total
Assets at fair value
Derivative financial assets for hedging:
Forward foreign exchange contracts $- $341,619 $- $341,619
Available-for-sale financial assets:
Stock 34,851 - 25,672 60,523
Liabilities at fair value
Financial liabilities at fair value through profit or loss:
Forward foreign exchange contracts - 457 - 457
Transfers between Level 1 and Level 2 during the period
During the years ended 31 December 2017 and 2016, there were no transfers between Level
1 and Level 2 fair value measurements.
Reconciliation for fair value measurements in Level 3 of the fair value hierarchy for
movements during the period is as follows:
Reconciliation of financial assets measured at fair value of Level 3:
At fair value
through profit or
loss Available-for-sale
Convertible bonds Stock
Beginning balances as at 1 January 2017 $- $25,672
Acquisition for the year ended 31 December 2017 23,867 -
Total profits and losses recognized for the year ended 31
December 2017:
Amount recognized in profit or loss (presented in
“other profit or loss”)
254
-
Amount recognized in OCI (presented in “unrealized
gains (losses) from available-for-sale financial
assets”)
-
(2,040)
Ending balances as at 31 December 2017 $24,121 $23,632
Available-for-sale
Stock
Beginning balances as at 1 January 2016 $27,687
Total profits and losses recognized for the year ended 31 December 2016:
Recognized in OCI (presented in “unrealized gains (losses) from available-
for-sale financial assets”)
(2,015)
Ending balances as at 31 December 2016 $25,672
2017 Annual Report | 179
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Information on significant unobservable inputs to valuation
Description of significant unobservable inputs to valuation of recurring fair value
measurements categorized within Level 3 of the fair value hierarchy is as follows:
As at 31 December 2017
Valuation
techniques
Significant
unobservable
inputs
Quantitative
information
Relationship
between inputs
and fair value
Sensitivity of the input to fair
value
Financial assets
Available-for-sale:
Stocks Market approach Discount for
lack of
marketability
15%~30% The higher the
discount for lack
of marketability,
the lower the fair
value of the stocks
5% increase (decrease) in the
discount for lack of marketability
would result in (decrease)
increase in the Group’s equity by
NT$1,390 thousand
Convertible bonds Market approach volatility 40.85% The higher
(lower) the
volatility, the
lower (higher)
the fair value
5% increase (decrease) in the
volatility would result in decrease
by NT$1,279 thousand / increase
NT$1,918 thousand in the
Group’s profit or loss
As at 31 December 2016
Valuation
techniques
Significant
unobservable
inputs
Quantitative
information
Relationship
between inputs
and fair value
Sensitivity of the input to fair
value
Financial assets
Available-for-sale:
Stocks Market approach discount for lack
of marketability
15%~30% The higher the
discount for lack
of marketability,
the lower the fair
value of the stocks
5% increase (decrease) in the
discount for lack of marketability
would result in (decrease)
increase in the Group’s equity by
NT$1,510 thousand
Valuation process used for fair value measurements categorized within Level 3 of the fair
value hierarchy
The Group’s Financial and Accounting Department is responsible for validating the fair
value measurements and ensuring that the results of the valuation are in line with market
conditions, based on independent and reliable inputs which are consistent with other
information, and represent exercisable prices. The Department analyses the movements in
the values of assets and liabilities which are required to be re-measured or re-assessed as
per the Group’s accounting policies at each reporting date.
| 2017 Annual Report 180
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
C. Fair value measurement hierarchy of the Group’s assets and liabilities not measured at fair
value but for which the fair value is disclosed
As at 31 December 2017
Level 1 Level 2 Level 3 Total
Financial liabilities not measured at fair value
but for which the fair value is disclosed:
Lease obligations payables $- $- $149,038 $149,038
As at 31 December 2016
Financial liabilities not measured at fair value
but for which the fair value is disclosed:
Lease obligations payables $- $- $165,337 $165,337
(9) Significant assets and liabilities denominated in foreign currencies
Information regarding the significant assets and liabilities denominated in foreign currencies
is listed below:
(Unit: Foreign currency: thousands, NTD: thousands)
As at 31 December 2017
Foreign currencies Exchange rate NTD
Financial assets-monetary items
Cash and cash equivalents RMB $343,446 4.5835 $1,574,198
Cash and cash equivalents USD 123,105 29.8480 3,674,432
Notes receivable RMB 198,694 4.5835 910,723
Accounts receivable USD 95,507 29.8480 2,850,685
Accounts receivable EUR 20,751 35.6743 740,270
Accounts receivable RMB 542,644 4.5835 2,487,209
Other receivables USD 5,394 29.8480 160,995
Other receivables RMB 15,091 4.5835 69,172
Financial liabilities-monetary items
Short term borrowings USD 30,000 29.8480 895,440
Short term borrowings EUR 25,000 35.6743 891,428
Accounts payable RMB 228,943 29.8480 6,833,479
Accounts payable USD 930,275 4.5835 4,263,951
Other payables RMB 192,021 4.5835 880,135
2017 Annual Report | 181
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As at 31 December 2016
Foreign currencies Exchange rate NTD
Financial assets-monetary items
Cash and cash equivalents RMB $225,652 4.6448 $1,048,108
Cash and cash equivalents USD 117,494 32.2790 3,792,576
Notes receivable RMB 272,156 4.6448 1,264,108
Accounts receivable USD 93,639 32.2790 3,022,582
Accounts receivable EUR 20,965 33.9172 711,085
Accounts receivable RMB 446,026 4.6448 2,071,698
Other receivables USD 5,592 32.2790 180,516
Other receivables RMB 35,140 4.6448 163,219
Financial liabilities-monetary items
Short term borrowings USD 37,500 32.2790 1,210,463
Short term borrowings EUR 25,000 33.9172 847,500
Accounts payable RMB 1,778,826 4.6448 8,308,731
Accounts payable USD 42,466 32.2790 1,370,762
Other payables RMB 178,656 4.6448 829,821
It is not applicable to disclose the exchange gains or losses for each functional currency due
to the fact that the functional currencies used by the Group’s entities are diverse. The
Group’s gain and loss of foreign currency exchange on monetary financial assets and liabilities
for the years ended 31 December 2017 and 2016 were gain of NT$15,926 thousand and
NT$8,738 thousand, respectively.
The above information is disclosed based on the carrying amount of foreign currency (after
conversion to functional currency).
(10) Capital management
The primary objective of the Group’s capital management is to ensure that it maintains a
strong credit rating and healthy capital ratios in order to support its business and maximize
shareholder value. The Group manages its capital structure and makes adjustments to it, in
light of changes in economic conditions. To maintain or adjust the capital structure, the
Group may adjust dividend payment to shareholders, return capital to shareholders or issue
new shares.
| 2017 Annual Report 182
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
13. Additional disclosure
(1) Information at significant transactions
A. Lending funds to others: Refer to Attachment 1.
B. Providing endorsements or guarantees for others: Refer to Attachment 2.
C. Holding of securities at the end of the period: Refer to Attachment 3.
D. Aggregate purchases or sales of the same securities reaching NT$300 million or 20 percent
of paid-in capital or more: None.
E. Acquisition of real estate reaching NT$300 million or 20 percent of paid-in capital or more:
None.
F. Disposal of real estate reaching NT$300 million or 20 percent of paid-in capital or more:
None.
G. Purchases or sales of goods from or to related parties reaching NT$100 million or 20
percent of paid-in capital or more: Refer to Attachment 4.
H. Accounts receivable from related parties reaching NT$100 million or 20 percent of paid-
in capital or more: Refer to Attachment 5.
I. Trading in derivative instruments: Refer to Notes 6.(2), 6.(12), and 12.
J. Business relationship between the parent and the subsidiaries and between each subsidiary,
and the circumstances and amounts of any significant transactions between them: Refer to
Attachment 6.
(2) Information on investees:
Names, locations, and related information of investees over which Sercomm Corporation
exercises significant influence (excluding information on investment in Mainland China):
Please refer to Attachment 7.
2017 Annual Report | 183
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(3) Information on investments in mainland China
A. Investee company name, main businesses and products, total amount of capital, method of
investment, accumulated inflow and outflow of investments from Taiwan, net income
(loss) of investee company, percentage of ownership, investment income (loss), book value
of investments, cumulated inward remittance of earnings and limits on investment in
Mainland China: Please refer to Attachment 8.
B. Directly or indirectly significant transactions through third regions with the investees in
Mainland China, including price, payment terms, unrealized gain or loss, and other events
with significant effects on the operating results and financial condition: Please refer to
Attachment 1, 4, 5, and 6.
14. Segment information
For management purposes, the Group is organized into business units based on its area, products
and services and has two reportable operating segments as follows:
(1) Taiwan: segment engages in R&D Designing, Product Testing and Manufacturing, Repairing,
and Sales of products except for Mainland China. (Including segment revenue, profits and
losses from Taiwan orders, manufactured by subsidiary in Mainland China)
(2) Mainland China: segment engages in R&D Designing, Product Testing and 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 based on accounting policies consistent
with those in the consolidated financial statements.
Transfer prices between operating segment are on an arm’s length basis in a manner similar to
transactions with third parties.
| 2017 Annual Report 184
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(1) Information on profit or loss, assets and liabilities of the reportable segments:
For the year ended 31 December 2017
Revenue
Taiwan
Segment
Mainland
China
Segment Total segments All other
Adjustments
and
eliminations Consolidated
External customers $28,547,786 $9,267,185 $37,814,971 $785,032 $- $38,600,003
Inter-segment 826,939 25,209,517 26,036,456 182,517 26,218,973 -
Total revenue $29,374,725 $34,476,702 $63,851,427 $967,549 $26,218,973 $38,600,003
Interest revenue $9,477 $83,118 $92,595 $42 $(14,232) $78,405
Interest expense 55,007 18,619 73,626 - (14,232) 59,394
Depreciation and
amortization
235,170 313,883 549,053 1,928 - 550,981
Investment gain 342 - 342 - - 342
Segment profit $1,368,925 $919,888 $2,288,813 $(51,760) $(653,495) $1,583,558
Segment assets $25,100,931 $18,217,251 $43,318,182 $388,846 $(19,515,506) $24,191,522
Segment liabilities $6,757,804 $13,123,736 $19,881,540 $405,675 $(4,912,868) $15,374,347
For the year ended 31 December 2016
Revenue
Taiwan
Segment
Mainland
China
Segment Total segments All other
Adjustments
and
eliminations Consolidated
External customers $27,496,617 $8,788,557 $36,285,174 $416,560 $- $36,701,734
Inter-segment 401,096 21,334,976 21,736,072 175,745 (21,911,817) -
Total revenue $27,897,713 $30,123,533 $58,021,246 $592,305 $(21,911,817) $36,701,734
Interest revenue $6,402 $91,664 $98,066 $7 $(31,205) $66,868
Interest expense 45,486 57,933 103,419 - (31,205) 72,214
Depreciation and
amortization
207,036 312,127 519,163 2,216 - 521,379
Investment gain 2,264 - 2,264 - - 2,264
Segment profit $1,591,648 $945,012 $2,536,660 $13,171 $(747,048) $1,802,783
Segment assets $24,233,463 $15,179,017 $39,412,480 $362,604 $(16,936,011) $22,839,073
Segment liabilities $6,525,308 $10,384,785 $16,910,093 $336,126 $(3,052,717) $14,193,502
Revenue from Europe, America and Japan that are operating segments that do not meet the
quantitative thresholds for reportable segments.
Inter-segment revenue are eliminated on consolidation and recorded under the “adjustments
and eliminations” column, all other adjustments and eliminations are disclosed below.
2017 Annual Report | 185
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(2) Information on reconciliations of revenue, profit or loss, assets, liabilities and other material
items of reportable segments:
(a) Revenue:
For the years ended
31 December
2017 2016
Total revenue from reportable segments $63,851,427 $58,021,246
Other revenue 967,549 592,305
Elimination of inter-segment revenue (26,218,973) (21,911,817)
Total revenue $38,600,003 $36,701,734
(b) Profit or loss:
For the years ended
31 December
2017 2016
Total profit or loss for reportable segments $2,288,813 $2,536,660
Other profit (loss) (51,760) 13,171
Elimination of inter-segment profit (653,495) (747,048)
Profit before tax from continuing operations $1,583,558 $1,802,783
(c) Assets:
As at
31 December
2017
31 December
2016
Total assets of reportable segments $43,318,182 $39,412,480
Other assets 388,846 362,604
Less: receivables from corporate headquarters (19,515,506) (16,936,011)
Unallocated amounts: 575,924 939,980
Segment assets $24,767,446 $23,779,053
| 2017 Annual Report 186
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(d) Liabilities:
As at
31 December
2017
31 December
2016
Total liabilities of reportable segments $19,881,540 $16,910,093
Other liabilities 405,675 336,126
Less: payables to corporate headquarters (4,912,868) (3,052,717)
Unallocated amounts 2,166,803 2,228,483
Segment liabilities $17,541,150 $16,421,985
(e) Other material items:
For the year ended 31 December 2017
Reportable
segments Adjustments Consolidated
Interest revenue $92,595 $(14,190) $78,405
Interest expenses 73,626 (14,232) 59,394
Depreciation and amortization 549,053 1,928 550,981
For the year ended 31 December 2016
Reportable
segments Adjustments Consolidated
Interest revenue $98,066 $(31,198) $66,868
Interest expenses 103,419 (31,205) 72,214
Depreciation and amortization 519,163 2,216 521,379
The reconciling item to adjust capital expenditures for non-current assets is the amount
incurred for the corporate headquarters building, which is not included in segment
information. None of the other adjustments are material.
(3) Geographical information
Revenue from external customers
For the years ended
31 December
2017 2016
America $15,556,022 $19,175,265
Asia 13,627,330 10,267,537
Europe 9,284,213 7,224,659
Other 132,438 34,273
Total $38,600,003 $36,701,734
2017 Annual Report | 187
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The revenue information above is based on the location of the customer.
Non-current assets
As at
31 December
2017
31 December
2016
Taiwan $2,417,373 $2,362,569
China 1,880,816 1,930,247
Other 11,406 14,219
Total $4,309,595 $4,307,035
(4) Information about major customers
For the years ended
31 December
2017 2016
A customers from Taiwan segment $11,328,142 $13,099,750
B customers from China segment 5,346,168 6,493,466
| 2017 Annual Report 188
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oan
s to
indiv
idual
inves
tee
shal
l not
exce
ed 5
0%
net
ass
ets.
Note
2:
The
aggre
gat
e am
ount
of
loan
s fr
om
subsi
dia
ries
to o
ther
s sh
all
not
exce
ed 4
0%
of
stock
hold
ers'
eq
uit
y a
s st
ated
in t
he
subsi
dia
ry's
or
the
Com
pan
y's
most
rec
ent
audit
ed o
r re
vie
wed
fin
anci
al s
tate
men
t, w
hic
hev
er i
s lo
wer
.
The
loan
lim
it f
or
each
enti
ty d
epen
din
g o
n t
he
purp
ose
of
the
loan
is
as f
oll
ow
s:
(1)
To a
tra
din
g p
artn
er:
The
amount
shal
l not
exce
ed t
he
hig
her
of
the
sale
s or
purc
has
es a
mount
to/
fro
m t
he
trad
ing p
artn
er f
or
the
yea
r as
of
the
tim
e of
the
lendin
g e
ven
t or
for
the
most
rec
ent
yea
r.
(2)
As
short
-ter
m f
inan
cing:
The
amount
shal
l not
exce
ed 2
0%
of
the
subsi
dia
ry o
r th
e C
om
pan
y's
sto
ckhold
ers'
eq
uit
y a
s st
ated
in
its
lat
est
fin
anci
al s
tate
men
t.
(3)
Fin
anci
ng b
etw
een t
he
gro
up's
inves
tee
whic
h i
s 100%
dir
ectl
y-
or
indir
ectl
y-
hel
d b
y t
he
par
ent
com
pan
y i
s not
lim
ited
to
the
rati
o a
s st
ated
in t
he
pre
cedin
g p
arag
raph.
H
ow
ever
the
aggre
gat
e am
ount
shal
l not
exce
ed 1
00%
net
ass
ets
as s
tate
d i
n t
he
par
ent
com
pan
y's
most
rec
ent
audit
ed o
r re
vie
wed
fin
anci
al s
tate
men
t. L
oan
s to
indiv
idual
inves
tee
shal
l not
exce
ed 5
0%
net
ass
ets.
Note
3:
(1)T
radin
g p
artn
er :
The
trad
ing a
mounts
ref
er t
o t
he
busi
nes
s tr
ansa
ctio
n a
mounts
wit
hin
the
rece
nt
yea
r bet
wee
n t
he
loan
er c
om
pan
y a
nd
th
e lo
anee
enti
ty.
(2)S
hort
-ter
m f
inan
cing
Ass
ets
ple
dg
ed
2017 Annual Report | 189
SER
CO
MM
CO
RPO
RA
TIO
N A
ND
SU
BSID
IAR
IES
(Exp
ress
ed in
Tho
usan
ds o
f New
Tai
wan
Dol
lars
Unl
ess O
ther
wise
Sta
ted)
Att
ach
men
t 2
: P
rovid
ing e
nd
ors
emen
ts o
r gu
aran
tees
fo
r o
ther
s fo
r th
e ye
ar e
nd
ed 3
1 D
ecem
ber
20
17
Nam
e o
f
end
ors
ees
Rel
atio
nsh
ip E
nd
ing b
alan
ce
0S
erco
mm
Ser
com
m R
uss
iaS
ub
sid
iary
$3
,62
5,6
97
$4
,52
6$
4,4
77
$-
$-
0.0
6%
$7
,25
1,3
94
YN
N
Co
rpo
rati
on
Lim
ited
Lia
bil
ity
(No
te)
(US
D 1
50 t
housa
nd)
(US
D 1
50 t
housa
nd)
(US
D -
th
ousa
nd)
(No
te)
Co
mp
any
0S
erco
mm
Ser
com
m J
apan
Su
bsi
dia
ry3
,62
5,6
97
53
,46
05
2,9
80
-
-0
.73
%7
,25
1,3
94
YN
N
Co
rpo
rati
on
Co
rp.
(No
te)
(JP
Y 2
00
,00
0 t
ho
usa
nd
)(J
PY
20
0,0
00
th
ou
san
d)
(JP
Y -
th
ou
san
d)
(No
te)
0S
erco
mm
Ser
net
Tec
hn
olo
gy
Su
bsi
dia
ry3
,62
5,6
97
94
0,8
00
89
5,4
40
-
-1
2.3
5%
7,2
51
,39
4Y
NY
Co
rpo
rati
on
(Su
zho
u)
Lim
ited
(No
te)
(US
D 3
0,0
00 t
housa
nd)
(US
D 3
0,0
00 t
housa
nd)
(US
D -
th
ousa
nd)
(No
te)
0S
erco
mm
Dw
net
Tec
hn
olo
gy
Su
bsi
dia
ry3
,62
5,6
97
1,4
39
,47
51
,41
8,8
43
16
7,3
53
-1
9.5
7%
7,2
51
,39
4Y
NY
Co
rpo
rati
on
(Su
zho
u)
Lim
ited
(No
te)
(US
D 4
6,0
00 t
housa
nd)
(US
D 4
6,0
00 t
housa
nd)
(US
D 1
,000 t
housa
nd)
(No
te)
(RM
B 1
0,0
00
th
ou
san
d)
(RM
B 1
0,0
00
th
ou
san
d)
(RM
B 3
0,0
00
th
ou
san
d)
No
te: A
cco
rdin
g t
he
Co
mp
any's
Op
erat
ion
al P
roce
du
res
for
En
do
rsem
ent
/ gu
aran
tee
pro
vid
ed t
o o
ther
s, t
he
max
imu
m a
mo
un
t p
erm
itte
d t
o a
sin
gle
bo
rro
wer
is
as f
oll
ow
s:
(1
)Th
e am
ou
nts
per
mit
ted
to
mak
e in
en
do
rsem
ents
/gu
aran
tees
to
an
y si
ngle
en
tity
sh
all
no
t ex
ceed
25
% o
f th
e C
om
pan
y's
sto
ckh
old
ers'
eq
uit
y as
sta
ted
in
its
lat
est
fin
anci
al s
tate
men
t;
t
he
tota
l am
ou
nt
shal
l n
ot
exce
ed 5
0%
of
sto
ckh
old
ers'
eq
uit
y a
s st
ated
in
its
lat
est
fin
anci
al s
tate
men
t.
(2
)Th
e re
stri
ctio
n i
n N
ote
(1
) sh
all
no
t ap
ply
to
in
ter-
com
pan
y lo
ans
of
fun
ds
bet
wee
n f
ore
ign
co
mp
anie
s in
wh
ich
th
e C
om
pan
y h
old
s, d
irec
tly
or
ind
irec
tly,
10
0%
of
the
vo
tin
g s
har
es.
H
ow
ever
th
e en
do
rsem
ent
/ gu
aran
tee
amo
un
t sh
ou
ld n
ot
exce
ed 1
00
% n
et a
sset
s.
En
do
rsem
ents
/ g
uar
ante
es p
rovid
ed
to
in
div
idu
al i
nves
tees
sh
ou
ld n
ot
exce
ed 5
0%
net
ass
ets.
(3
)Th
e am
ou
nts
per
mit
ted
to
mak
e in
en
do
rsem
ents
/gu
aran
tees
to
sin
gle
su
bsi
dia
ry s
hal
l n
ot
exce
ed 5
0%
of
the
Co
mp
any'
s st
ock
ho
lder
s' e
qu
ity
as
stat
ed i
n i
ts l
ates
t fi
nan
cial
sta
tem
ent;
the
tota
l am
ou
nt
shal
l n
ot
exce
ed 1
00
% o
f st
ock
ho
lder
s' e
qu
ity
as s
tate
d i
n i
ts l
ates
t fi
nan
cial
sta
tem
ent.
Gu
aran
tee
Pro
vid
ed t
o
Su
bsi
dia
ries
in
Mai
nla
nd
Ch
ina
Per
cen
tage
of
accu
mu
late
d
gu
aran
tee
amo
un
t
to n
et a
sset
s val
ue
fro
m t
he
late
st
fin
anci
al s
tate
men
t
Num
ber
Nam
e o
f
end
ors
ers
En
do
rsee
En
do
rsem
ent
lim
it f
or
a si
ngle
en
tity
Max
imu
m b
alan
ce
for
the
per
iod
Am
ou
nt
of
coll
ater
al
gu
aran
tee/
end
ors
emen
tA
ctu
al a
mo
un
t P
rovid
ed
Lim
it o
f to
tal
gu
aran
tee/
end
ors
emen
t am
ou
nt
Gu
aran
tee
Pro
vid
ed b
y
Par
ent
Co
mp
any
Gu
aran
tee
Pro
vid
ed b
y A
Su
bsi
dia
ry
| 2017 Annual Report 190
SER
CO
MM
CO
RPO
RA
TIO
N A
ND
SU
BSID
IAR
IES
(Exp
ress
ed in
Tho
usan
ds o
f New
Tai
wan
Dol
lars
Unl
ess O
ther
wis
e St
ated
)
Att
ach
men
t 3
: H
old
ings
of
secu
riti
es a
s of
31
Dec
ember
20
17
Nam
es o
f co
mp
anie
s h
eld
Sec
uri
ties
typ
e an
d n
ame
Fin
anci
al s
tate
men
t ac
cou
nt
Per
cen
tage
of
Note
ow
ner
ship
(%
)
Ser
com
m C
orp
ora
tion
Con
ver
tib
le b
on
ds
Pre
scie
nse
Lim
ited
Ass
oci
ates
Non
-cu
rren
t fi
nan
cial
ass
ets
at f
air
val
ue
500
$19,9
51
-$19,9
51
thro
ugh
pro
fit
or
loss
(GB
P 5
00
th
ou
san
d)
Sik
lu I
nc.
-N
on-c
urr
ent
fin
anci
al a
sset
s at
fai
r val
ue
137
4,1
70
-4,1
70
thro
ugh
pro
fit
or
loss
(US
D 1
37
th
ou
san
d)
Cm
mon s
tock
of
non-l
iste
d c
om
pan
y
TE
CO
Nan
ote
ch C
o.,
Ltd
.-
Non-c
urr
ent
fin
anci
al a
sset
s m
easu
red
at
cost
-
10
-
-
Pre
ferr
ed s
tock
of
non
-lis
ted
com
pan
y
Sik
lu I
nc.
-N
on-c
urr
ent
fin
anci
al a
sset
s m
easu
red
at
cost
2,0
18
60
,11
0-
-
(US
D 2
,00
0 t
hou
san
d)
Shukuan
Inves
tmen
t L
td.
Sto
ck o
f n
on
-lis
ted
com
pan
y-
Non-c
urr
ent
avai
lab
le-f
or-
sale
fin
anci
al a
sset
s747
23,6
32
-23,6
32
Cer
pas
s T
echnolo
gy C
orp
.
Note
: T
he
term
" se
curi
ties
" st
ated
ab
ove
incl
ud
es s
tock
, b
on
ds,
ben
efic
iary
cer
tifi
cate
s, a
nd
rel
ated
sec
uri
ties
der
ived
fro
m t
he
above
whic
h w
ere
des
crib
ed i
n I
AS
39
"fi
nan
cial
In
stru
men
ts:
Rec
ognit
ion
a
nd M
easu
rem
ent"
Per
iod
en
ded
Sh
ares
/un
its
(in
th
ou
san
ds)
Mar
ket
val
ue
or
Net
ass
et v
alu
eB
ook v
alue
Rel
atio
nsh
ip
wit
h t
he
Com
pan
y
2017 Annual Report | 191
Att
ach
men
t 4
: P
urc
has
es o
r sa
les
of
good
s fr
om
or
to r
elat
ed p
arti
es r
each
ing N
T$
10
0 m
illi
on
or
20
% o
f p
aid
-in
cap
ital
or
more
for
the
yea
r en
ded
31
Dec
ember
20
17
Ser
com
m C
orp
ora
tion
Ser
net
Tec
hn
olo
gy
Th
e C
om
pan
y's
su
bsi
dia
ryP
urc
has
es$22,8
61,4
83
68
45
Note
1N
ote
1$(2
,687,3
72)
68
(Su
zhou
) L
imit
ed
Ser
net
Tec
hn
olo
gy
Ser
com
m C
orp
ora
tion
Par
ent
Com
pan
yS
ales
(22,8
61,4
83)
98
45
Note
1N
ote
12,6
87,3
72
65
(Su
zhou
) L
imit
ed
Ser
com
m C
orp
ora
tion
Ser
com
m R
uss
iaT
he
Com
pan
y's
Su
bsi
dia
ryS
ales
(61
5,1
55
)2
10
5N
ote
1N
ote
1155,9
17
4
Lim
ited
Lia
bil
ity
Com
pan
y
Ser
com
m R
uss
iaS
erco
mm
Corp
ora
tion
Par
ent
Com
pan
yP
urc
has
es6
15
,15
59
81
05
Note
1N
ote
1(1
55,9
17)
75
Lim
ited
Lia
bil
ity
Com
pan
y
Ser
net
Tec
hn
olo
gy
Dw
net
Tec
hn
olo
gy
Aff
ilia
te w
ith
th
e sa
me
par
ent
com
pan
yN
ote
2(3
86
,14
0)
21
20
Note
1N
ote
1269,7
49
7
(Su
zhou
) L
imit
ed(S
uzh
ou
) L
imit
ed
Dw
net
Tec
hn
olo
gy
Ser
net
Tec
hn
olo
gy
Aff
ilia
te w
ith
th
e sa
me
par
ent
com
pan
yN
ote
23
86
,14
08
12
0N
ote
1N
ote
1(2
69,7
49)
6
(Su
zhou
) L
imit
ed(S
uzh
ou
) L
imit
ed
Note
1:
Th
e sa
les
pri
ce t
o t
he
above
rela
ted
par
ties
was
det
erm
ined
th
rou
gh
mutu
al a
gre
emen
t b
ased
on t
he
mar
ket
con
dit
ion
s.
T
he
coll
ecti
on p
erio
d f
or
rela
ted p
arti
es w
as m
onth
-end 9
0-2
10 d
ays,
whil
e t
he
term
s fo
r dom
esti
c th
ird p
arty
sal
es w
as n
et 3
0-7
5 d
ays.
The
coll
ecti
on
per
iod
for
over
seas
sal
es w
as n
et 3
0-2
10
day
s.
Note
2:
Ser
net
Tec
hn
olo
gy (
Su
zhou
) L
imit
ed p
rovid
ed p
roce
ssin
g s
ervic
e to
Dw
net
Tec
hn
olo
gy (
Su
zhou
) L
imit
ed.
Ter
mU
nit
pri
ce
SER
CO
MM
CO
RPO
RA
TIO
N A
ND
SU
BSID
IAR
IES
(Exp
ress
ed in
Tho
usan
ds o
f New
Tai
wan
Dol
lars
Unl
ess O
ther
wis
e St
ated
)
Note
Bal
ance
Per
centa
ge
of
tota
l
rece
ivab
les
(pay
able
) (%
)
Purc
has
es
(Sal
es)
Com
pan
yR
elat
ed p
arty
Rel
atio
nsh
ip
Tra
nsa
ctio
ns
Am
ount
Per
centa
ge
of
tota
l
pu
rch
ases
(sal
es)
(%)
Note
s an
d a
ccou
nts
rec
eivab
le
(pay
able
)
Ter
m
Det
ails
of
non
-arm
's
len
gth
tra
nsa
ctio
n
Purc
has
es
(Sal
es)
| 2017 Annual Report 192
SER
CO
MM
CO
RPO
RA
TIO
N A
ND
SU
BSI
DIA
RIE
S
(Exp
ress
ed in
Tho
usan
ds o
f New
Tai
wan
Dol
lars
Unl
ess O
ther
wis
e St
ated
)
Att
achm
ent
5:
Acc
ount
rece
ivab
le f
rom
rel
ated
par
ties
rea
chin
g N
T$100 m
illi
on o
r 20%
of
pai
d-i
n c
apit
al o
r m
ore
as
of
31 D
ecem
ber
2017
Am
ou
nt
Act
ion
adopte
d
for
ov
erd
ue
acco
unts
Ser
net
Tec
hnolo
gy (
Suzh
ou)
Ser
com
mT
he
ult
imat
e par
ent
com
pan
y$2,6
87,3
72
-$
--
$-
$-
Lim
ited
Co
rpo
rati
on
Ser
net
Tec
hnolo
gy (
Suzh
ou)
Dw
net
Tec
hnolo
gy
Aff
ilia
te w
ith t
he
sam
e par
ent
269,7
49
-
-
--
-
Lim
ited
(Suzh
ou)
Lim
ited
com
pan
y
Ser
com
mS
erco
mm
Ru
ssia
Th
e C
om
pan
y's
su
bsi
dia
ry1
55
,91
7
-
-
-
--
Co
rpo
rati
on
Lim
ited
Lia
bil
ity
Co
mp
any
The
nam
e of
the
com
pan
y
Nam
e of
counte
rpar
ty
Over
due
rece
ivab
les
All
ow
ance
for
do
ub
tfu
l
acco
unts
Su
bse
qu
ent
coll
ecti
ons
Turn
over
rate
En
din
g
bal
ance
Rel
atio
nsh
ip
2017 Annual Report | 193
SER
CO
MM
CO
RPO
RA
TIO
N A
ND
SU
BSI
DIA
RIE
S(E
xpre
ssed
in T
hous
ands
of N
ew T
aiw
an D
olla
rs U
nles
s Oth
erw
ise
Stat
ed)
Att
ach
men
t 6
:T
he
bu
sin
ess
rela
tion
ship
bet
wee
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Note
1:
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pan
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d i
ts s
ubsi
dia
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are
cod
ed a
s fo
llow
s:1
.Th
e C
om
pan
y is
cod
ed 0
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e su
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dia
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sh
ou
ld b
e co
ded
con
secu
tivel
y beg
inn
ing f
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" in
th
e ord
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rese
nte
d i
n t
he
table
above.
Note
2:
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nsa
ctio
ns
are
cate
gori
zed
as
foll
ow
s:1
. T
he
par
ent
com
pan
y to
su
bsi
dia
ry.
2. S
ubsi
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o p
aren
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mpan
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. S
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Note
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e per
cen
tage
wit
h r
espec
t to
th
e co
nso
lid
ated
ass
et/r
even
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for
tran
sact
ion
s of
bal
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sh
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s ar
e bas
ed o
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ach
ite
ms
bal
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at
per
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-en
d. F
or
pro
fit
or
loss
ite
ms,
cu
mu
lati
ve
bal
ance
s ar
e use
d a
s bas
is.
Note
4:
Th
e sa
les
pri
ce t
o t
he
above
rela
ted
par
ties
was
det
erm
ined
th
rou
gh
mu
tual
agre
emen
t bas
ed o
n t
he
mar
ket
con
dit
ion
s. T
he
coll
ecti
on
per
iod
for
thir
d p
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was
mon
th-e
nd
90
-21
0 d
ays,
wh
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t
erm
s fo
r d
om
esti
c sa
les
was
net
30
-75
day
s. T
he
coll
ecti
on
per
iod
for
over
seas
sal
es w
as n
et 3
0-2
10
day
s.
Ter
ms
Per
cen
tage
of
con
soli
dat
ed o
per
atin
g
reven
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or
con
soli
dat
ed
tota
l as
sets
No.
(Note
1)
Nam
e of
rela
ted
par
ties
Cou
nte
rpar
ty
Nat
ure
of
rela
tion
ship
(Note
2)
Acc
ou
nt
Am
ou
nt
| 2017 Annual Report 194
SER
CO
MM
CO
RPO
RA
TIO
N A
ND
SU
BSI
DIA
RIE
S
(Exp
ress
ed in
Tho
usan
ds o
f New
Tai
wan
Dol
lars
Unl
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ther
wis
e St
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)
Att
achm
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7:
For
those
who d
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tly o
r in
dir
ectl
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maj
or
infl
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nves
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the
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tee
2017 Annual Report | 195
SER
CO
MM
CO
RPO
RA
TIO
N A
ND
SU
BSI
DIA
RIE
S
(Exp
ress
ed in
Tho
usan
ds o
f New
Tai
wan
Dol
lars
Unl
ess O
ther
wise
Sta
ted)
Att
achm
ent
8:
Info
rmat
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n M
ainla
nd C
hin
a in
ves
tmen
ts
Outf
low
Infl
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net
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hnolo
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munic
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lan
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(No
te 5
)(N
ote
5)
Suzh
ou H
ua-
Yi
Com
munic
atio
ns
Co
., L
td
Sal
e of
route
rs,
com
munic
atio
n
pro
duct
s, W
lan p
roduct
s2
,45
4In
ves
tmen
t in
cash
-
-
-
-
(21
)1
00
%(2
1)
1,9
43
-
(RM
B 5
00
th
ou
san
d)
(No
te 3
)
Suzh
ou F
emte
l
Com
munic
atio
ns
Co
., L
td.
Sal
e of
com
munic
atio
n p
roduct
s32,5
99
Inves
tmen
t in
cash
-
-
-
-
(22
,05
1)
10
0%
(22
,05
1)
(32
,99
8)
-
(RM
B 6
,50
0 t
ho
usa
nd
)(N
ote
3)
Nan
jing F
emte
l
Com
munic
atio
ns
Co
., L
td.
Sal
e of
com
munic
atio
n p
roduct
s;
R&
D c
ente
r o
f so
ftw
are;
aft
er-
sale
s se
rvic
e
12
,53
8In
ves
tmen
t in
cash
-
-
-
-
(12
,42
6)
10
0%
(12
,42
6)
(18
,96
9)
-
(RM
B 2
,50
0 t
ho
usa
nd
)(N
ote
4)
Unli
mit
ed(N
ote
6)
Note
1:
The
Com
pan
y es
tabli
shed
Ser
com
m T
radin
g C
o.
Ltd
. in
a t
hir
d r
egio
n.
Th
e C
om
pan
y re
inves
ted i
n Z
ealo
us
Inves
tmen
ts L
td.
(th
rou
gh
Ser
com
m T
rad
ing
Co
. L
td.)
an
d t
hen
in
ves
ted
in
Mai
nla
nd
Ch
ina.
Note
2:
The
Com
pan
y es
tabli
shed
Ser
com
m T
radin
g C
o.
Ltd
. in
th
e th
ird
reg
ion
. T
he
Co
mp
any
rein
ves
ted
Sm
art
Tra
de
Inc.
(th
rou
gh S
erco
mm
Tra
din
g C
o.
Ltd
.) a
nd
th
en i
nves
ted
in
Mai
nla
nd
Ch
ina.
Note
3:
Indir
ect
inves
tmen
t th
rough S
ernet
Tec
hnolo
gy
(Suzh
ou)
Lim
ited
.
Note
4:
Indir
ect
inves
tmen
t th
rough S
uzh
ou F
emte
l C
om
munic
atio
ns
Co.,
Lim
ited
.
Note
5:
Am
ount
was
rec
ogniz
ed b
ased
on t
he
audit
ed f
inan
cial
sta
tem
ents
.
Note
6:
The
Com
pan
y's
inves
tmen
t in
Mai
nla
nd C
hin
a is
not
subje
ct t
o a
n u
pper
lim
it a
s it
is
dee
med
corp
ora
te o
per
atio
ns
hea
dquar
ters
as
it c
om
pli
ed w
ith t
he
Exam
inat
ion S
tandar
ds
of
Inves
tmen
ts a
nd T
echnic
al C
ooper
atio
n i
n t
he
Mai
nla
nd C
hin
a ar
ea p
ubli
s he
In
ves
tmen
t C
om
mis
sion,
MO
EA
.
Acc
um
ula
ted
inw
ard
rem
itta
nce
of
earn
ing
s as
of
31
Dec
emb
er
20
17
Inves
tmen
t fl
ow
s
Acc
um
ula
ted o
utf
low
of
inves
tmen
t fr
om
Tai
wan
as o
f
31 D
ecem
ber
2017
Inves
tmen
t
inco
me
(lo
ss)
reco
gn
ized
Car
ryin
g
val
ue
as o
f
31
Dec
emb
er
20
17
Per
cen
tag
e o
f
ow
ner
ship
Net
inco
me
(lo
ss)
of
inves
tee
com
pan
y
Met
ho
d o
f
inves
tmen
t
Acc
um
ula
ted i
nves
tmen
t in
Mai
nla
nd
Upper
lim
it o
n i
nves
tmen
t
$1
,39
4,5
27
(U
SD
44
,90
0 t
ho
usa
nd
)
Inves
tmen
t am
ounts
auth
ori
zed b
y In
ves
tmen
t
Com
mis
sion,
MO
EA
$1
,40
7,5
75
(U
SD
45
,14
4
tho
usa
nd
)
Chin
a as
of
31 D
ecem
ber
2017
Acc
um
ula
ted o
utf
low
of
inves
tmen
t fr
om
Tai
wan
as o
f
1 J
anu
ary
20
17
Inves
tee
com
pan
yM
ain b
usi
nes
ses
and p
roduct
sT
ota
l am
ount
of
pai
d-i
n c
apit
al
Recommended