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002 Letter to Shareholders
009 Company Overview
012 Corporate Organization
022 Capital & Shares
026 Dividend Policy
029 Business Overview
029 Business Scope
030 Industry Outlook
037 Sales & Marketing
043 Financial Review and Operating Results
043 Condensed Balance Sheets & Income Statements
045 Financial Analysis
047 Operating Results
048 Analysis of Cash Flow
049 Affiliated Companies Chart
050 Affiliates Information
051 Consolidated Financial Statements
SerComm Corporation Annual Report 2011 002
Letter to Shareholders
2011 was a very successful year for SerComm.
Thanks to strong growth in mobile broadband, SerComm
was able to leverage our many years of investment
in the telecommunications market, take advantage of
the opportunities in digital convergence and deliver
outstanding results over the past year. Morgan Stanley
Capital Investment (MSCI) even recognized SerComm's
business achievements by including us in its Global
Small Cap Indices in May. Consolidated net sales
for 2011 were NT$ 13.24 billion, which represents a
53.3% increase over NT$ 8.64 billion for year 2010.
Income before tax for 2011 were NT$ 701 million, which
represents a 81.1% year-over-year increase over NT$
387 million for 2010. Net income for 2011 were NT$ 583
million, which also represents a 85.7% increase compared
to NT$ 314 million for year 2010. Based on 177 million weighted average shares outstanding, EPS for
year 2011 were reported as NT$ 3.29.
2011 was year where mobile broadband went mainstream and ushered in a new era of digital
convergence. SerComm continued to engage in innovative R&D in networking and telecommunications
during this year and shipped up to 13 million wireless broadband devices. Both new business units and
new products produced exciting developments. Many of our key products including SMB networking
products, FTTx products, Smart HomeControl/Surveillance and Small Cell products all started bearing
fruit. In the Small Cell market, we not only released the fi rst NCC-certifi ed 3G+WiFi integrated Small
Cell but also became the first in the industry to offer the TD-SCDMA Small Cell. Commercial trials
are now being carried out by Suzhou Mobile, a subsidiary of China Mobile. At the same time, next-
generation DOCSIS 3.0 equipment is now being shipped for cable Internet. Integrated IAD products
are now being shipped to tier-1 telecommunications providers throughout Europe as well. We expect
all product lines to maintain a high rate of growth this year and continue to contribute signifi cantly to
our overall business.
This year marks the 20th anniversary of SerComm's founding. The support of our customers,
business partners and employees over the years has helped us mature in terms of R&D,
manufacturing and marketing. The opening ceremony of the commissioning of our SerNet II held on
November 23 last year was attended by more than 200 guests including cross-strait political leaders,
SerComm Corporation Annual Report 2011003
business, financial and industry leaders in Taiwan, important customers and technical cooperation
partners. SerComm thanks everyone for their guidance and encouragement. We will continue to focus
on R&D, develop our core businesses and enhance our added value.
For 2012, SerComm is optimistic about the new opportunities in the networking market from digital
convergence. We believe that the contributions from new products, new markets and new production
capacities as well as the combined efforts of the SerComm board and employees will see our business
live up to shareholders' expectations and reach new heights.
James Wang
President of SerComm Corporation
SerComm Corporation Annual Report 2011 004
Review of 2011 Business ResultsUnit: Thousand NTD
Item 2011 2010 Year on Year Change (%)
Wired Product 1,809,001 1,844,810 -1.94
Wireless Product 8,595,981 6,019,683 42.80
Others 406,926 289,340 40.64
Total Revenue 10,811,908 8,153,833 32.60
Financial PositionUnit: Thousand NTD
Item 2011 2010 Difference Change %
Current Assets 4,529,486 3,752,691 776,795 20.70
Fixed Assets 665,982 511,298 154,684 30.25
Other Assets 58,115 139,885 -81,770 -58.46
Total Assets 7,809,103 6,020,683 1,788,420 29.70
Current Liabilities 3,540,050 2,535,261 1,004,789 39.63
LT Liabilities 873,744 873,691 53 0.01
Total Liabilities 4,536,494 3,423,503 1,112,991 32.51
Capital 1,827,960 1,760,873 67,087 3.81
Capital Reserves 308,989 196,598 112,391 57.71
Retained Earnings 973,481 658,256 315,225 47.89
Total Shareholders' Equity 3,272,609 2,597,180 675,429 26.01
SerComm Corporation Annual Report 2011005
Research and Development StatusAt SerComm, new product R&D projects are formulated in response to market demand based on
our core network communications technology, market trends and the evolving IT & communications
industry. All research proposals for new products must also undergo a review by R&D, marketing and
sales units before R&D resources are invested.
To accelerate the acquisition of new technologies, SerComm also actively seeks out partnership
opportunities in addition to in-house R&D. This has led to the development of various application
servers that offer high-performance, ease of administration and integration with the Internet. A total of
7 projects were completed from our 2011 R&D plan. These were the EPON Gateway, GPON Gateway,
GPON/EPON RF Module, IP Camera Cloud Server, luh Residential Small Cell, Enterprise Small Cell
and Ethernet-over-Coax (EoC) Solutions.
Summary of 2012 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:
As we are now nearly running at full capacity, SerComm plans to continue expanding and
increase our output to 2 million units a month in the second half of 2012.
The trend towards digital convergence helped SerComm deliver a strong performance in
2011. Total shipments of wireless broadband reached 13 million units with deliveries of high
value-added products such as FTTx products, SMB networking products, Small Cell products,
cable DOCSIS 3.0 products and Smart HomeControl/Surveillance continuing to gain strength.
SerComm is also continuing to increase our share of the global telecommunications market and
telecommunications-grade products now account for more than 70% of our revenues. Growth is
expected to continue in 2012, driving up our revenues and profits.
SerComm Corporation Annual Report 2011 006
For 2012, SerComm is continuing to engage in innovative R&D in network & telecommunications.
New product lines are expected to begin bearing fruit. For Small Cell products, we are not only
continuing to consolidate existing customers in Japan and France but also actively developing the
Western Europe and China markets. We became the first to release 4G LTE Small Cell and we are
now the clear market leader. Our fiber-access equipment has also been successful in the emerging
and European markets. For cable Internet, next-generation DOCSIS 3.0 equipment is now being
shipped to major North American system operators. Apart from the above, a convergence between
emerging cloud applications and the Internet of Things (IoT) has spurred the development of smart
home monitoring and shipments will grow several-fold this year. The contributions from new markets
and customers should be reflected in the continued growth of our business.
(3) Major Production and Marketing Policies
1. Carry out sound production and target management while improving production processes.
2. Closely monitor the quality and delivery times of key components as well as supply-and-
demand and changes in pricing.
3. Dedicate resources to the development of new products and expand existing product ranges
to quickly meet market demand.
4. Actively expand our marketing network and form strategic alliances with major OEM partners
in European, North America and Asia.
5. Strengthen sales management, consolidate market niches and expand developing markets.
6. Stay fully up-to-date on market distribution channels and demand. Strengthen collection of
market intelligence.
7. Boost SerComm's industry profile, establish a sound market reputation and provide high-
quality service.
8. Continue to carry out production cost reduction plans to make products more price
competitive.
9. Enrich the properties and regions of our clients to avoid the risk of over-concentration.
Future Development Strategy
1. Expand the company’s market value to benefit shareholders and employees.
2. Pay attention to intellectual property and cultivate outstanding personnel.
3. Strengthen technology research and development.
4. Improve market position and become the market leader.
5. Increase operational income and maximize profitability.
Effects of External Competition, Regulatory Environment, and Overall Business Environment
Pressure from the slowdown in the global economy has led developed countries such as the US,
Europe and Japan adopting a looser monetary policy to stimulate economic recovery. Some emerging
SerComm Corporation Annual Report 2011007
countries have begun loosening their own monetary policy by lowering interest or reserve rates as
well. The loose monetary policy by key nations means more funds are now available to the global
financial market and increasing the interest in risk-weighted assets. International hot money has begun
flowing to emerging markets as well. While international capital has returned to Asia in force, the
amount flowing into Taiwan is still relatively low compared to South Korea and India. Increased inflation
in Taiwan is also expected to make it more difficult for the central bank to reduce rates.
The more conservative economic outlook this year has led to the Directorate-General of Budgeting
and Statistics reducing Taiwan's economic growth to 3.85%. Standard Chartered Bank's own forecast
suggests that economic growth may even fall below 3 this year to just 2.7%. According to Tony Pho,
the chief economist at Standard Chartered, oil prices and the Euro-debt situation are the two main
risk factors affecting the Taiwanese economy. If the international crude price rises from US$120/barrel
to US$150/barrel, Taiwan's economic growth will drop by 1% and inflation will become more marked.
If the proposed increases to domestic oil and electricity prices are used as a guide, the Consumer
Price Index (CPI) will increase by 0.8%. Inflation will remain at very high levels this year and next year
with no signs of dropping within the next 12 months. Inflation may even increase and this will have an
impact on lower-income families.
As for the regulatory environment, amendments to the Securities and Exchange Act were
announced on January 4, 2012. The amendments to 26 articles included the following key changes:
1. Parts of the Business Accounting Act has been specifically excluded to allow publicly listed
companies to adopt International Financial Reporting Standards (IFRS) instead.
2. Starting in the 2013 financial year, the Q1, Q2 and Q3 financial statements must all be certified
by the accountant and submitted to the Board of Directors. The publication and reporting
deadline have been set as 45 days after the end of each quarter.
3. New regulations allow shareholders to request an investigation by the competent authority
of the issuer. If a shareholder that holds at least 3% of all issued shares believes over one
year that shareholders' interests are being seriously harmed , they may submit their reason,
evidence and explanation to the competent authority for investigation. The competent authority
may take any action it deems necessary.
4. Addition of special section on foreign companies.
New regulations issued by the Financial Supervisory Commission of the Executive Yuan also
requires public listed companies to compile financial reports based on approved international financial
reporting standards, international accounting principles, interpretations and bulletins (IFRSs) and the
financial reports of the issuer starting from 2013.
According to Jin-Guan-Zheng Order No. 0990004933 issued on February 2, 2010, the financial
SerComm Corporation Annual Report 2011 008
report must disclose the following: 1. Description of IFRSs adoption plan and its current execution. 2.
Explanation of any major discrepancies between the current accounting policy and future accounting
policy after the adoption of IFRSs in the financial reports. 3. The accounting policy selected by the
company based on the requirements of IFRS 1: First-time Adoption of International Financial Reporting
Standards.
Jin-Guan-Zheng Order No. 1000032208 issued on July 7, 2011, revises the Guidelines Governing
the Preparation of Financial Reports by Securities Issuers. Key changes included: 1. Adjustments
to facilitate the adoption of IFRSs in Taiwan. 2. Regulations to ensure the consistency of compiled
financial reports. 3. Maintaining proper supervision over corporate financial reports. 4. Increase the
transparency of financial affairs.
Jin-Guan-Zheng Order No. 1000058425 issued on November 25, 2011, makes further
amendments to the Guidelines Governing the Preparation of Financial Reports by Securities Issuers.
Key changes included: 1. IAS 39 “Financial Instruments: Recognition and Measurement” will continue
to be used until IFRS 9: Financial Instruments is implemented. 2. With the exception of cost-based
financial assets or financial debts that may require re-classification on their conversion date, the
classification and measurement of all other existing financial assets and debts conform to IAS 39
requirements. Due to the necessity for consistency and continuity in accounting policy, re-classification
on conversion date is not recommended.
For the overall economic environment, Greece has now passed a new austerity budget that will
give it more time to implement financial reforms. The threat of a default on the debts that matured in
March has been defused so concerns about the funding and deadlines of sovereign debt in the Euro-
zone are now reduced. With the easing in the debt crisis in Greece, the pressure on sovereign debts
in the Euro-zone will ease as well. The French and Greek election results in May however introduces
uncertainties to the consolidation and recovery of the Euro.
The focus of export growth in Taiwan is now switching from China to the U.S. and ASEAN.
While trade reforms in Taiwan have concentrated mainly on lifting the restrictions against China, the
structural industrial reforms in China as part of the 12th 5-year plan and other factors means that
imports from Taiwan have slowed significantly. On the other hand, Taiwanese exports to the U.S. and
ASEAN nations have been solid performers. The structure of imports has remained much the same
compared to the second half of 2011. The importation of capital equipment remained the category to
experience the most reductions so Taiwanese vendors continue to remain cautious about the future.
In the future, SerComm will continue to monitor the situation and take any measures necessary as
part of our operations.
SerComm Corporation Annual Report 2011009
Company overview
Company Profile1992 SerComm Corporation Founded. First Asian Networking Company Dedicated in Embedded
Products Development
First in Asia to Launch Embedded Print Server
1995 SerComm is the Second Print Server Provider in the World Received "Novell NDS"
Certification
1997 Launched Broadband Router
SerComm Received ISO 9001 Certification
1999 First in Asia to Launch NAS Server
SerComm is Listed in Taiwan OTC Market (OTC: 5388)
Established R&D Center in Suzhou, China
2000 First in Asia to Launch 802.11b Broadband Router
2001 First in the World to Launch Wireless Print Server (USB and Parallel)
2002 First in the World to Launch Single-boarded Wireless Router Based on Marvell Solution
2003 First in the World to Launch Single-chip 802.11g ADSL Gateway Based on TI Solution
Launched Wireless IP Camera and Media Adapter
2004 SerComm Was Awarded by CommonWealth Magazine as " Taiwan Best Performing 100
Listed Company" for the 2nd Consecutive Year
2005 Es tab l i shed Ch ina Manu fac tu r i ng Base , Se rNe t Techno logy, Suzhou . An
Environmentalfriendly "Green Factory" with Capacity Ramping up to 1 Million Units per Month
in 18 Months
2006 First in the World to Launch 802.11n ADSL2+ Gateway Based on Broadcom Solution
Launched VoIP Business Gateway and IP PBX
SerComm's Sales Exceeds US$250 MN with Annual Shipment of Fully-integrated ADSL Wi-
Fi Gateway to European Market Exceeding 3 Million Units
SerComm Corporation Annual Report 2011 010
2007 SerComm Was Awarded by Business Weekly Magazine as:
"100 Fast Growing Companies in Greater China Area"
"1000 Largest Listed Companies in Greater China Area"
"30 Largest Companies in Telecom / Networking Sector in Greater China Area"
Transfer to List on Taiwan Stock Exchange (TSE: 5388)
Launched IAD Products and SATA NAS (Network Attached Storage)
2008 SerComm Was Awarded by CommonWealth Magazine as:
"Taiwan 1000 Largest Listed Manufacturers”
"Top 14 Largest Companies in Telecom / Networking Sector in Taiwan"
SerComm Was Ranked #211 as "2007 Taiwan Top 5000 Corporations" by China Credit
Information Service Ltd.
Taicang SerComm Technologies Corp. Founded
Successfully Launched Many Wireless Network New Products, Including: 1) Giga bit MFP
Print Server, 2) Integrated Access Device, 3) 11g Wireless IP Surveillance Camera, 4) 11n
Business Access Point, 5) VoIP Phone and 6) 11n WiFi VPN Router
2009 Announced Integrated 3G Femtocell Home Gateway Together with the Leading Provider of
3G Femtocells. Live Demonstration at Mobile World Congress 2009 Includes Home Monitor
Application Connected to SerComm IP Video Camera.
SerComm Was Awarded by China Credit Information Service as 2008 the “Largest
Corporations Top 5000 in Taiwan”, Ranked #238.
Introduced Wireless HD IPTV Networking Solution Together with the Leading Provider of
Semiconductors for Multimedia Wi-Fi Home Networking Applications.
SerComm Was Awarded by CommonWealth Magazine as:
"Taiwan 1000 Largest Listed Manufacturers"
"Top 22 Largest Companies in Telecom / Networking Sector in Taiwan
Purchased Plant and Facility from Billionton Technology (Suzhou), Enabling In-house
Production Tripled to Meet Future Capacity Requirement
2010 Demonstrated LTE-enabled Security IP Camera Together with USA’s Largest Wireless Voice
and Data Network Company
SerComm Was Awarded by China Credit Information Service as 2009 the “Largest
Corporations Top 5000 in Taiwan”, Ranked #253.
Awarded the "IDC Enterprise Innovation Awards 2010" by IDC (International Data
Corporation)
SerComm Japan Corp. Founded
SerComm Corporation Annual Report 2011011
2011 Enrolled in "MSCI Global Small Cap Index"
First to Launch TD-SCDMA Femtocell
First Integrated 3G Femtocell in Taiwan Certified by NCC (National Communications
Commission)
Nominated the "Residential Femtocell Access Point Design and Technology Innovation" by
Femto Forum
SerNet (Suzhou) Technologies II Grand Opening
SerComm France SARL Founded
SerComm Was Awarded by China Credit Information Service as 2010 the "Largest
Corporations Top 5000 in Taiwan", Ranked #258
2012 SerComm Was Awarded by CommonWealth Magazine as:
"Taiwan Top 50 Fast Growing Manufacturers"
"Taiwan 1000 Largest Listed Manufacturers"
"Taiwan Top 15 Largest Companies in Telecom / Networking Sector"
Announced Integrated LTE Small Cell Product and Live Demonstration at Small Cells Asia
2012
SerComm Was Awarded by China Credit Information Service as 2011 the "Largest
Corporations Top 5000 in Taiwan", Ranked #211
SerComm Corporation Annual Report 2011 012
Organization Chart
SerComm Corporation Annual Report 2011013
Directors and SupervisorsAs of April 29, 2012
Name / Position Elected Date Term(Yrs)
Date first elected
Shareholdingwhen Elected
CurrentShareholding
Spouse & MinorShareholding Education &
Experience Current Position
Shares % Shares % Shares %
Paul Wang Chairman 2010.6.23 3 1992.7.29 3,444,577 2.01 3,684,577 1.89 1,142,745 0.59
Carnegie-Melon University, PhD inPhysics
Note 1
D.C. Cheng Director Representative of TLC Capital Co., Ltd. (Dismissed on 2011.11.25)
2010.6.23 3 2001.12.13 6,679,405 3.90 0 0.00 0 0.00
Columbia University, MBAExecutive Director & General Manager, Taiwan of Morgan Stanley Asia
Note 2
I.D. LiuDirector 2010.6.23 3 2004.6.11 207,999 0.12 207,999 0.11 0 0.00
National Chiao-Tung University, MSVice Chairman of UMC
Note 3
Paul HsuDirectorRepresentative of Pacific Venture Partners Co. Ltd.
2010.6.23 3 2004.6.11 3,680,926 2.15 3,680,926 1.89 0 0.00
M.A. from Fletcher School of Law and Diplomacy of Tufts University, USANew York University, LL. MExecutive Partner of Lee and Li
Note 4
James WangDirector &President
2010.6.23 3 2001.5.28 1,950,006 1.14 1,957,006 1.00 100,000 0.05
Harvard Business School, MBACarnegie-Melon University, MEPresident of Emerson SZ
Note 5
Ben LinDirector &E. VicePresident
2010.6.23 3 2004.6.11 1,718,590 1.00 2,587,201 1.33 301,338 0.15
National Ching-Hwa University, MSDirector of IBM Subsidiary
Note 6
Danny T. ChiuIndependentDirector
2010.6.23 3 2008.6.13 0 0.00 0 0.00 0 0.00
Harvard Business School, MBAConsultant of The Boston Consulting Group, Inc.
Note 7
Hilo ChenIndependentDirector
2010.6.23 3 2008.6.13 0 0.00 0 0.00 0 0.00
Bachelor of Transportation & Management, National Chiao-Tung UniversityPresident and CEO of Systex Corporation
Note 8
J.S.KuoSupervisor 2010.6.23 3 2004.6.11 1,428,281 0.83 2,468,281 1.27 10,290 0.01
University of New Hampshire, PhD inPhysicsChairman of Tajen Venture Capital
Note 9
SerComm Corporation Annual Report 2011 014
Name / Position Elected Date Term(Yrs)
Date first elected
Shareholdingwhen Elected
CurrentShareholding
Spouse & MinorShareholding Education &
Experience Current Position
Shares % Shares % Shares %
Edward Y. WaySupervisor 2010.6.23 3 2007.6.15 0 0.00 0 0.00 0 0.00
University of Georgia, MBACertified Public Accountant (CPA)
Note 10
Cynthia HsiueSupervisor 2010.6.23 3 2010.6.23 0 0.00 0 0.00 0 0.00
Tamkang University, MBACEO of China Leader Management Inc.
Note 11
Note: Directors and supervisors are not spouse or within second-degree relative of consanguinity to each
other.
Note1: Chairman of Pacific Venture Partners, Co., Ltd,; Chairman and CEO of Senslinq Inc.; Director
of Prosperity Dielectrics Co., Ltd., MiTAC Inc., Taiwan Cement Co., Ltd., and MiTAC Information
Technology Corp.; Independent Director of Taiwan Prosperity Chemical Corporation; Supervisor of
TECO Electric & Machinery Co., Ltd., Les Enphants Co., Ltd. and MediaTek Inc.
Note2: Director of Topint Technology Co., Ltd.; Independent director of Edom Technology Co., Ltd.; President
of TLC Capital Co., Ltd. and UMC Capital
Note3: Chairman of Jing Hong Investments Ltd.; Director of Silconwave Precision Industries Co., Ltd.
Note4: Chairman of Phycos International Co., Ltd.; Independent director of Adimmune Corporation and
Gloria Material Technology Corporation; Director of ProMos Technology Inc.and Long Chen Paper
Co., Ltd.
Note5: Owner of SerComm Investments Ltd, SerComm Trading Co. and Zealous Investments Ltd.; Chairman
of ShuKuan Investments Ltd., SerNet Technology Ltd. and DWNet Technology Ltd.; Independent
director of Creative Sensor Inc.; Director of SerComm Japan Corp.
Note6: Owner of Smart Trade Inc. and SerComm Holding Limited; Director of ShuKuan Investments Ltd.,
SerNet Technology Ltd., Senslinq Inc., and SerComm Japan Corp.
Note7: CEO and President of Morrison Express Co., Ltd.; Independent director of TransAsia Airways
Note8: Chairman of Guoshi Partners Ltd. and Yong-kai Management Consultant; Director of Elifemall
Corporation ; Independent director of Spirox Corporation
Note9: Chairman of TECO Technology Foundation; Director of TECO IMAGE SYSTEM, and Taishin Financial
Holding Co., Ltd.
Note10:Independent director of APEX Biotechnology Corp., DelSolar Co., Ltd. and Citibank Taiwan Ltd.;
Director of MiTAC International Corp. and Vanguard International Semiconductor Corporation;
Supervisor of Chilisin Electronic Corp.
Note11:Director of AboCom Systems, Inc., Billionton Systems Inc.; Independent director of Simplo Tech. Co.,
Ltd., ASEC International Corp and FX Hotel Group.
SerComm Corporation Annual Report 2011015
Major Institutional Shareholders April 30, 2012
Name of Institutional Shareholder Primary Shareholder of Institutional Shareholder Shareholding %
Pacific Venture Partners Co. Ltd.
Paul Wang 60.50%
DaYuan Management Consultant 35.00%
Hui Su 2.00%
Management TeamAs of April 29, 2012
Name / Position Elected DateCurrent
ShareholdingSpouse & Minor
Shareholding Education & Experience
Current Position
Shares % Shares %
James WangPresident 2000.01.24 1,957,006 1.00 100,000 0.05
Harvard Business School, MBACarnegie-Melon University, MEPresident of Emerson SZ
Note 1
Ben LinE. Vice President 1992.07.29 2,587,201 1.33 301,338 0.15
National Ching-Hwa University, MSDirector of IBM Subsidiary
Note 2
Charles ChuVPSales
2000.06.15 485,787 0.25 0 0.00
Master of Michigan State UniversityVice President of Northern United M&E Company
Note 3
Leo Chen CFO
2001.10.15 157,753 0.08 0 0.00
University of Illinois, MSADirector of Lite-On Group
Director ofShuKuanInvestmentsLtd.
Jemmy Lee VP Manufacturing Division
2002.04.24 26,171 0.01 0 0.00 Vice President of Proview Company China
Presidentof SerNetTechnologyLtd.
Hawk WuVP Product Development
2007.03.01 70,000 0.04 0 0.00
Director of Quanta Computer Corp.Director of Xavi Technologies Corp.Manager of Taicom data systems
-
Michael LeeVP Business Development
2008.9.15 502,890 0.26 0 0.00
National Taiwan University, MSDirector of Hitron Technologies Inc.
-
SerComm Corporation Annual Report 2011 016
Name / Position Elected DateCurrent
ShareholdingSpouse & Minor
Shareholding Education & Experience
Current Position
Shares % Shares %
Benjamin YehVP IP Surveillance BU
2007.11.12 378,943 0.19 0 0.00
UC, Berkeley, MEHarvard Business School, MBASenior Manager of TSMCDirector of Advantech Co., Ltd.
-
Vincent HanVP Quality Assurance
2011.5.1 40,399 0.02 0 0.00
National Chengchi University, MBAVice President of Quanta Computer Inc.
-
SP Chen Director HR Division
2007.03.01 100,000 0.05 0 0.00
Master of Law, Graduate School of Labor Relations, Chinese Culture UniversityDirector of HR & G/A Dept., Destiny Technology Corp.
-
Note1: Owner of SerComm Investments Ltd, SerComm Trading Co. and Zealous Investments Ltd.
Chairman of ShuKuan Investments Ltd., SerNet Technology Ltd. and DWNet Technology
Ltd.; Independent director of Creative Sensor Inc.; Director of SerComm Japan Corp.
Note2: Owner of Smart Trade Inc. and SerComm Holding Limited; Director of ShuKuan Investments
Ltd., SerNet Technology Ltd., Senslinq Inc. and SerComm Japan Corp.
Note3: Supervisor of DWNet Technology Ltd. and SerComm Japan Corp.
SerComm Corporation Annual Report 2011017
Remuneration to DirectorsUnit: Thousand NTD
Name / Position
Compensation(A)
Profit Sharing(C)
Expenses & Special Allowance
(D)
Total Items to Net Income(%)
A+C+D
Bonus & SpecialAllowance
(E)
Retirement Pension(F)
Employee Bonuses from Allocated Earnings
(G)
Number of SharesObtained as Employee
Stock Options (H) (Thousands of shares)
Total Items to Net Income (%)A+C+D+E+F+G
SerCommConsolidatedSubsidiaries
SerCommConsolidatedSubsidiaries
SerCommConsolidatedSubsidiaries
SerCommConsolidatedSubsidiaries
SerCommConsolidatedSubsidiaries
SerCommConsolidatedSubsidiaries
SerCommConsolidatedSubsidiaries
SerCommConsolidatedSubsidiaries
SerCommConsolidatedSubsidiaries
CashBonuses
StockBonuses
CashBonuses
StockBonuses
Paul WangChairman
480 480 5,246 5,246 188 188 0.93 0.93 8,910 15,270 258 258 9,679 0 9,679 0 400 400 4.25 5.34
D.C. ChengDirector Representative of TLC Capital Co., Ltd.
I.D. LiuDirector
Paul HsuDirector Representative of Pacific Venture Partners Co. Ltd.
James WangDirector & President
Ben LinDirector & E. Vice President
Danny T. ChiuIndependent Director
Hilo ChenIndependent Director
SerComm Corporation Annual Report 2011 018
Compensation Range
Name of Director
Total AmountA+C+D
Total AmountA+C+D+E+F+G
SerComm Consolidated Subsidiaries SerComm Consolidated
Subsidiaries
Below NTD 2,000,000
TLC Capital Co., Ltd., I.D. Liu, Pacific Venture Partners Co. Ltd., James Wang, Ben Lin, Danny T. Chiu, Hilo Chen
TLC Capital Co., Ltd., I.D. Liu, Pacific Venture Partners Co. Ltd., James Wang, Ben Lin, Danny T. Chiu, Hilo Chen
TLC Capital Co., Ltd., I.D. Liu, Pacific Venture Partners Co. Ltd., Danny T. Chiu, Hilo Chen
TLC Capital Co., Ltd., I.D. Liu, Pacific Venture Partners Co. Ltd., Danny T. Chiu, Hilo Chen
NTD 2,000,000~NTD 5,000,000 Paul Wang Paul Wang Paul Wang Paul Wang
NTD 5,000,000~NTD 10,000,000 James Wang,Ben Lin Ben Lin
NTD 10,000,000~NTD 15,000,000 James Wang
NTD 15,000,000~NTD 30,000,000
NTD 30,000,000~NTD 50,000,000
NTD 50,000,000~NTD 100,000,000
Over NTD 100,000,000
Total 8 8 8 8
Remuneration to SupervisorUnit: Thousand NTD
Name / Position
Compensation (A) Profit Sharing(B) Expenses & Special Allowance (C)
Total Items to NetIncome (%)
A+B+C
SerComm ConsolidatedSubsidiaries SerComm Consolidated
Subsidiaries SerComm ConsolidatedSubsidiaries SerComm Consolidated
Subsidiaries
J.S. KuoSupervisor
0 0 2,863 2,863 60 60 0.50 0.50Edward Y. WaySupervisor
Cynthia HsiueSupervisor
SerComm Corporation Annual Report 2011019
Compensation Range
Name of Supervisor
Total Amount A+B+C
SerComm Consolidated Subsidiaries
Below NTD 2,000,000 J.S. Kuo, Edward Y. Way, Cynthia Hsiue
J.S. Kuo, Edward Y. Way, Cynthia Hsiue
NTD 2,000,000~NTD 5,000,000
NTD 5,000,000~NTD 10,000,000
NTD 10,000,000~NTD 15,000,000
NTD 15,000,000~NTD 30,000,000
NTD 30,000,000~NTD 50,000,000
NTD 50,000,000~NTD 100,000,000
Over NTD 100,000,000
Total 3 3
SerComm Corporation Annual Report 2011 020
Changes in Share Positions Among Directors, Supervisors, ManagersUnit: Shares
Title Name
2011 Current Year to April 29
ShareholdingIncrease / Decrease
Stock Mortgage
ShareholdingIncrease / Decrease
Stock Mortgage
Chairman Paul Wang 40,000 0 0 0
Director D.C. ChengRepresentative of TLC Capital Co., Ltd.
(3,508,000) 0 NA NA
Director I.D. Liu 0 0 0 0
Director
Paul HsuRepresentative of Pacific Venture Partners Co. Ltd.
0 0 0 0
Director & President James Wang (739,000) 0 0 0
Director & E. Vice President Ben Lin 1,288,050 0 0 0
Independent Director Danny T. Chiu 0 0 0 0
Independent Director Hilo Chen 0 0 0 0
Supervisor J.S. Kuo 140,000 0 0 0
Supervisor Edward Y. Way 0 0 0 0
Supervisor Cynthia Hsiue 0 0 0 0
Vice President Charles Chu 57,000 0 (150,000) 0
Vice President Leo Chen (276,000) 0 0 0
Vice President Jemmy Lee (31,000) 0 (130,000) 0
Vice President Hawk Wu (182,562) 0 (40,000) 0
Vice President Michael Lee 92,000 0 (16,000) 0
Vice President Benjamin Yeh 88,000 (212,000) 0 0
Vice President Vincent Han 20,000 0 0 0
Director SP Chen 40,000 0 0 0
SerComm Corporation Annual Report 2011021
Long-Term Investments OwnershipUnit: Shares
InvesteeSerComm Investment Total Investment
Shares % Shares %
Senslinq Inc. 250,000 100.00% 250,000 100.00%
SerComm Investments Ltd. 1,200,000 100.00% 1,200,000 100.00%
ShuKuan Investments Ltd. 2,800,000 100.00% 2,800,000 100.00%
SerComm Trading Co., Ltd. 46,800,000 100.00% 46,800,000 100.00%
Zealous Investments Ltd. 30,956,000 100.00% 30,956,000 100.00%
SerNet Technology Ltd. 29,900,000 100.00% 29,900,000 100.00%
Smart Trade Inc. 16,000,000 100.00% 16,000,000 100.00%
DWNet Technology Ltd. 16,000,000 100.00% 16,000,000 100.00%
Industrial Bank of Taiwan 4,153,907 0.17% 4,153,907 0.17%
TECO Nanotech Co., Ltd. 287 0.00% 287 0.00%
Ubiquisys Limited 874,508 3.78% 874,508 3.78%
SerComm Japan Corp. 540 100.00% 540 100.00%
SerComm France SARL 100,000 100.00% 100,000 100.00%
CapitalUnit: Shares, as of April 30, 2012
Type of ShareAuthorized Shares
Issued Shares Un-Issued Shares Total Shares
Common Stock 187,473,778 62,526,222 250,000,000
SerComm Corporation Annual Report 2011 022
History of CapitalizationUnit: Shares/ NTD, as of April 30, 2012
Year/Month
IssuePrice
Authorized Paid-In CapitalSource of Capital
Shares Amount Shares Amount
1992/07 10 5,880,000 58,800,000 5,880,000 58,800,000 Initial founding
1993/12 10 10,000,000 100,000,000 7,000,000 70,000,000 Cash offering
1995/07 10 18,000,000 180,000,000 12,000,000 120,000,000 Cash offering
1996/11 10 28,000,000 280,000,000 24,000,000 240,000,000 Cash offering
1997/08 10 28,065,000 280,650,000 28,065,000 280,650,000Capitalization of retained earnings, capital surplus and employee profit sharing
1998/8 10 60,000,000 600,000,000 40,100,000 401,000,000Capitalization of retained earnings, capital surplus and employee profit sharing
1999/8 10 60,000,000 600,000,000 51,000,000 510,000,000Capitalization of retained earnings, capital surplus and employee profit sharing
2000/8 10 80,000,000 800,000,000 55,828,000 558,280,000Capitalization of retained earnings and employee profit sharing
2001/8 10 91,450,000 914,500,000 61,450,000 614,500,000Capitalization of retained earnings and employee profit sharing
2002/8 10 91,450,000 914,500,000 67,976,900 679,769,000Capitalization of retained earnings and employee profit sharing
2002/12 10 91,450,000 914,500,000 75,040,929 750,409,290 Conversion of bonds
2003/4 10 91,450,000 751,739,310 75,173,931 751,739,310 Conversion of bonds
2003/8 10 91,450,000 914,500,000 75,858,659 758,586,590 Conversion of bonds
2003/9 10 137,600,000 1,376,000,000 85,511,191 855,111,910Capitalization of retained earnings and employee profit sharing
2004/3 10 137,600,000 1,376,000,000 86,675,365 866,753,650 Conversion of bonds
2004/4 10 137,600,000 1,376,000,000 87,854,466 878,544,660 Conversion of bonds
SerComm Corporation Annual Report 2011023
Year/Month
IssuePrice
Authorized Paid-In CapitalSource of Capital
Shares Amount Shares Amount
2004/7 10 137,600,000 1,376,000,000 91,679,091 916,790,910 Conversion of bonds
2004/9 10 137,600,000 1,376,000,000 103,855,775 1,038,557,750 Capitalization of retained earnings
2004/10 10 137,600,000 1,376,000,000 96,855,775 968,557,750 Cancellation of treasury shares
2004/11 10 137,600,000 1,376,000,000 98,912,189 989,121,890 Conversion of bonds and stock options
2005/1 10 137,600,000 1,376,000,000 99,888,725 998,887,250 Conversion of bonds and stock options
2005/5 10 137,600,000 1,376,000,000 101,186,847 1,011,868,470 Conversion of bonds and stock options
2005/9 10 177,600,000 1,776,000,000 121,092,261 1,210,922,610
Capitalization of retained earnings, capital surplus and employee profit sharing; Conversion of bonds and stock options
2006/1 10 177,600,000 1,776,000,000 121,308,861 1,213,088,610 Conversion of stock options
2006/4 10 177,600,000 1,776,000,000 121,636,861 1,216,368,610 Conversion of stock options
2006/10 10 177,600,000 1,776,000,000 138,315,621 1,383,156,210
Capitalization of retained earnings and employee profit sharing; Conversion of stock options
2007/2 10 177,600,000 1,776,000,000 138,356,221 1,383,562,210 Conversion of stock options
2007/10 10 210,000,000 2,100,000,000 155,438,721 1,554,387,210
Capitalization of retained earnings and employee profit sharing; Conversion of stock options
2007/12 10 210,000,000 2,100,000,000 156,281,721 1,562,817,210 Conversion of stock options
2008/4 10 210,000,000 2,100,000,000 157,378,721 1,573,787,210 Conversion of stock options
2008/9 10 210,000,000 2,100,000,000 170,613,769 1,706,137,690Capitalization of retained earnings and employee profit sharing
2008/12 10 210,000,000 2,100,000,000 170,723,269 1,707,232,690 Conversion of stock options
SerComm Corporation Annual Report 2011 024
Year/Month
IssuePrice
Authorized Paid-In CapitalSource of Capital
Shares Amount Shares Amount
2009/4 10 210,000,000 2,100,000,000 170,826,969 1,708,269,690 Conversion of stock options
2009/7 10 210,000,000 2,100,000,000 170,944,969 1,709,449,690 Conversion of stock options
2010/4 10 210,000,000 2,100,000,000 171,384,969 1,713,849,690 Conversion of stock options
2010/9 10 210,000,000 2,100,000,000 171,514,969 1,715,149,690 Conversion of stock options
2010/12 10 250,000,000 2,500,000,000 174,740,475 1,747,404,750 Conversion of bonds and stock options
2011/4 10 250,000,000 2,500,000,000 177,621,426 1,776,214,260 Conversion of bonds and stock options
2011/7 10 250,000,000 2,500,000,000 178,438,989 1,784,389,890 Conversion of bonds
2011/9 10 250,000,000 2,500,000,000 182,461,520 1,824,615,200 Conversion of bonds and stock options
2011/12 10 250,000,000 2,500,000,000 182,633,678 1,826,336,780 Conversion of bonds
2012/3 10 250,000,000 2,500,000,000 187,473,778 1,874,737,780 Conversion of bonds
Status of ShareholdersAs of April 29, 2012
Type ofShareholders
GovernmentAgencies
FinancialInstitutions
Other LegalEntities Individual
ForeignInstitutions /
IndividualTotal
Number ofShareholders 1 90 47 16,650 63 16,851
Shareholding 2,555,000 46,690,439 17,359,107 103,537,397 24,793,661 194,935,604
Ownership% 1.31% 23.95% 8.91% 53.11% 12.72% 100.00%
SerComm Corporation Annual Report 2011025
Distribution Profile of OwnershipUnit: Shares, as of April 29, 2012
Class of Shareholding Number of Shareholders Shareholding (share) %
1~999 4,466 950,426 0.49%
1,000~5,000 9,188 19,278,443 9.89%
5,001~10,000 1,556 12,698,799 6.51%
10,001~15,000 462 5,872,029 3.01%
15,001~20,000 351 6,592,462 3.38%
20,001~30,000 271 7,127,795 3.66%
30,001~40,000 120 4,348,068 2.23%
40,001~50,000 82 3,816,776 1.96%
50,001~100,000 131 9,262,988 4.75%
100,001~200,000 98 14,165,039 7.27%
200,001~400,000 51 15,486,449 7.94%
400,001~600,000 18 9,233,243 4.74%
600,001~800,000 19 13,187,335 6.76%
800,001~1,000,000 8 7,187,000 3.69%
Over 1,000,001 30 65,728,752 33.72%
Total 16,851 194,935,604 100.00%
Major ShareholdersUnit: Shares, as of April 29, 2012
Name of Shareholders Shareholding %
Oriental Securities Corporation 4,589,000 2.35%
Paul Wang 3,684,577 1.89%
Pacific Venture Partners Co., Ltd. 3,680,926 1.89%
ZhuoJian Investment Co., Ltd. 3,475,508 1.78%
LiJin Financial Consultant 3,035,434 1.56%
GOLDMAN SACHS INTERNATIONAL 3,003,320 1.54%
Yuanta Excellence Equity Fund 2,937,000 1.51%
HSBC Institutional Trust Services (Asia) Limited as trustee of Manulife Provident Funds Unit Trust Series 2,799,000 1.44%
First Commercial Bank in custody for JF (Taiwan) China Concept Fund 2,785,000 1.43%
Ben Lin 2,587,201 1.33%
SerComm Corporation Annual Report 2011 026
Market Price, Net Worth, Earnings and Dividends per Share Unit: NTD/ Thousand Shares
Item 2010 2011 March 31, 2012
MarketPrice
Highest 31.95 47.90 47.50
Lowest 18.15 27.10 30.85
Average 26.71 35.50 40.16
Net Valueper Share
Before Distribution 15.09 17.90 19.50
After Distribution 13.54 - -
Earningsper Share
Weighted Average Shares 167,513 177,410 186,135
Earning per Shares
Original 1.88 3.29 0.86
Adjusted 1.87 - -
Dividends per Share(Note 1)
Cash Dividend 1.55 2.50 -
Stock Dividend
From RetainedEarnings 0 0 -
From CapitalSurplus 0 0 -
Accumulative Unditributed Dividends - - -
Return onInvestment(Note 2)
Price / Earning Ratio 14.21 10.79 46.70
Price / Dividend Ratio 17.23 14.20 -
Cash Dividend Yield Rate 5.80% 7.04% -
Note1: Pending for Shareholder's approval
Note2: Price / Earning Ratio = Average market price / Earnings per share;
Price / Dividend Ratio= Average market price / Cash dividend per share;
Cash Dividend Ratio = Cash dividend per share / Average market price
Dividend PolicyThe appropriations of the Company’s earnings are base on the annual net income. The dividend
amount is determined by the profit earning condition, financial condition and future operating needs for
cash. In principle, dividends could be distributed in cash and/or in the form of stock; nevertheless, cash
dividends shall be no less than 10% of the aggregate amount distributed.
SerComm Corporation Annual Report 2011027
Dividends Paid
Year EPS NT$
Cash Dividend NT$ per share
Share Dividend NT$ per share
2011 3.29 2.39 -
2010 1.88 1.47 -
2009 1.24 1.00 -
2008 1.88 1.50 -
2007 3.65 2.00 0.40
2006 2.69 0.99 0.99
2005 2.76 1.07 1.07
Distribution of ProfitSerComm's Board of Directors adopted a proposal for 2011 profit distribution. This proposal is
subject to approval by shareholders at the annual general meeting, scheduled for June 27, 2012.
Proposal of profit distribution for 2011Unit: NTD
Cash dividend $2.50 per share
Cash bouns to employees $78,710,595
Remuneraton to Directors and Supervisors $10,494,746
Convertible Bonds
Type of Corporate Bond 3rd Domestic Unsecured Convertible Bonds
Item 2010 2011 Current Year to March 31
Marekt Price of Convertible Bond
Highest 148.50 218.00 239.00
Lowest 107.00 131.50 155.00
Average 121.86 171.37 182.57
Conversion Price 21.16 20.33 20.33
Issuing Date and Conversion Price (NTD) 2010/8/6$22.24
2010/8/6$22.24
2010/8/6$22.24
Obligation of Conversion Issue of new shares Issue of new shares Issue of new shares
SerComm Corporation Annual Report 2011 028
Type of Corporate Bond 4th Domestic Unsecured Convertible Bonds
Item 2010 2011 Current Year to March 31
Marekt Price of Convertible Bond
Highest - 107.00 117.90
Lowest - 97.90 100.50
Average - 101.79 109.38
Conversion Price - 40.76 40.76
Issuing Date and Conversion Price (NTD) -2011/8/30
$40.762011/8/30
$40.76
Obligation of Conversion - Issue of new shares Issue of new shares
Employee Stock OptionsAs of April 30, 2012
Category 2nd 3rd 4th
Date of Approval by Regulatory Authority 2003/10/16 2005/11/11 2007/12/3
Issue Date 2003/10/23 2005/11/14 2007/12/14
Number of Shares Issued (Share) 2,400,000 5,000,000 2,000,000
Number of Shares Issued / Total Issued Shares (%) 1.28% 2.67% 1.07%
Exercise Period 10 years 10 years 5 years
Method of Provision Issue of new shares Issue of new shares Issue of new shares
Number of Shares in Exercised Options (Share) 2,262,200 3,249,500 169,000
Total Amount in Exercised Options (NTD) 30,162,200 37,586,500 3,380,000
Number of Shares In Unexercised Options (Share) 0 1,463,000 1,791,000
Price per Share In Unexercised Options (NTD) 10.0 10.0 19.2
Number of Shares In Unexercised Options as Share of Total Issued Shares (%) 0.00% 0.78% 0.96%
Impact on Shareholders’ Equity (%) 0.00% 0.41% 0.95%
SerComm Corporation Annual Report 2011029
Business OverviewBusiness Scope
Item 2011 2010Wired Product 16.73% 22.63%Wireless Product 79.50% 73.83%
Others 3.77% 3.55%Total 100.00% 100.00%
Main Products(1) Router(2) ADSL Gateway(3) Integrated Access Device(4) Access Point(5) Wireless LAN Card(6) Print Server(7) IP Video Applications(8) Home Plug AV(9) VoIP Products(10) NAS (Network Attached Storage)(11) Cable Products (12) Smart Home Control/ Surveillance
(13) Small Cell Products(14) FTTx Products(15) Ethernet-over-Coax (EoC) Solutions
New Products Under Developing(1) FTTx Products
-EPON Integrated Gateway-GPON Integrated Gateway
(2) Smart Home Control/ Surveillance
- Home Security Sensors- Home Automation Sensors (binary switch & energy switch)
(3)Small Cell Products-LTE 4F Small Cell-TD-SCDMA Enterprise Small Cell
(4) Wireless Ethernet-over-Coax (EoC) Solutions(5) Outdoor Access Point
(6) High Speed 11ac Wireless Broadband Router
SerComm Corporation Annual Report 2011 030
Industry Overview1. Industry Status and Development
For many people, network communications is now a part of everyday life. The evolution of
networking technology has changed our lives in significant ways as well. The network communications
industry encompasses everything from infrastructure such as base stations and switches for signal
transmission to consumer electronics such as the smart phones we hold in our hands.
In the past, fixed networks, mobile networks and network communications were three distinct
industries. Increasing penetration of smart phones and tablets however has led to the rise of the
"Next Generation Network" (NGN) that integrates mobile and fixed network services to provide
mobile Internet access. The industry is now undergoing a process of convergence and fusion. The
increased demand for broadband due to cloud operations represents a new opportunity for network
communications vendors as well. For the network communications industry, cloud computing, mobile
broadband and digital home are the three stars of 2012.
On the product-level, vendors are now targeting the digital home market in addition to
conventional wireless networking products, switches and broadband networking products. Digital
home products offer high profit margins and offers further opportunities for the integration of cloud
and network services. Vendors with a software niche will be able to leverage their ability to integrate
software and hardware.
At the same time, smart phones will continue to sell in large numbers. Prices should become more
affordable however and the penetration of smart phones will continue to climb rapidly this year. As
smart phone users consume far more data than users of conventional functional phones, telcos now
consider data network services to be a key source of revenue in addition to voice telephony. Telcos
are therefore rushing to roll-out WiFi hotspots and small cells in order to spread out mobile networking
traffic and provide better mobile connectivity.
A 2011 research report from CISCO forecasted that global mobile broadband data traffic will see
the most growth and reach 6.3EB (1EB = 1 Billion GB) (1EB = GB). The Asia-Pacific will grow at the
fastest rate and will account for 29.3% of all mobile bandwidth by 2015, surpassing North America
(15.7%) and Western Europe (26.3%). The explosion in demand for mobile bandwidth means that
telcos must solve the problem of base station roll-out and bandwidth allocation. The high cost of
installing medium and large base stations however means that small cells offer telcos a more cost-
effective option.
SerComm Corporation Annual Report 2011031
Rapid Increase in Global Demand for Mobile Bandwidth
Source: Cisco VNI report, 2011
Industry analysts estimate that mobile data traffic generated by all kinds of network devices will
far exceed the existing traffic from smart phones and tablets by 2020. As home appliances, cars,
watches and even door locks will all be connected to mobile Internet, wireless telcos will be faced with
a major challenge. For network operators, the return on investment from improving the efficiency of
their communications networks is gradually declining. Attempts to expand their network capacity have
also run into an increasing number of physical restrictions. Tod Sizer, the head of wireless research at
Alcatel-Lucent's Bell Labs, said that 5G won't be necessarily about more speed but it may help meet
people's expectations of service quality. According to Sizer, each generation of network technology
has enabled a new set of features. 2G was about voice, 3G was about data and 4G is about video. 5G
may be about intelligent networks that can handle billions of connected devices while remaining stable
and operational. Officially, 5G technology does not even exist. The standards-setting International
Telecommunication Union (ITU) has not yet created a definition for 5G so exactly when 5G networks
will be realized remains an unknown.
2. The Relationship Between the Upstream, Midstream and Downstream Parts of the Industry
SerComm’s main business is the manufacture of wired and wireless networking products including
network application servers. In the computer networking industry we belong in the midstream segment.
Our upstream includes IC manufacturers and electronic components suppliers while our downstream
includes the average user, network equipment suppliers and enterprise network system developers.
SerComm Corporation Annual Report 2011 032
Upstream Midstream Downstream
CPU Vendor LAN NIC Average User
IC Supplier Hub System Integrator
ASIC (in-house design) Bridge Enterprise network system developer
PCB Maker ISDN Interface (Terminal Adapter, Router, Card Modem etc.)
Computer peripherals/ Printer/Fax/Modem /ISDM/Multimedia Vendor
Chip Network Application Server Network Hardware Vendor
Passive Component Network Operating System
Resistor and Capacitor Supplier
Adapter Supplier
DRAM and SRAM Supplier
Flash Memory Supplier
3. Summary of 802.11 Wireless Networking Specification Standards
4G is ushering in the era of high-speed data transfers through WiMAX and LTE. 4G theoretically
offers download and upload speeds of 100Mb/s and 50Mb/s respectively, making it several times
faster than the 7.2Mb/s of 3G and 21MB/s of 3.5G. Advantages such as improved transmission
efficiency have made it all the more attractive. MIC estimated that by 2011 there will be 7 million LTE
users around the world. By 2015, the introduction of FDD-LTE in the West and TDD-LTE in countries
like China and India should push the overall pool of LTE users to 240 million. For 3G or future LTE 4G
networks, data traffic is expected to grow several times over. Telcos are therefore aggressively rolling
out WiFi hotspots to maintain the quality of mobile broadband service for their users and help lower the
load on base stations. MIC estimated that China Telecom will set up 1 million WiFi hot spots in 2012.
While LTE has a higher theoretical bandwidth, its transmission speed is greatly reduced indoors.
Total coverage is also not the main aim of LTE (excessive cost) so this creates a market for small
cells. As small cells can improve indoor communications quality, increase multimedia download rates
and reduce setup costs, telcos are increasingly leasing them for free in order to increase end-user
utilization. iSuppli estimated that small cell shipments only entered the start of their rapid growth phase
in 2011. Shipments will surpass 24 million units in 2012 then 39.5 million units in 2013. Annual growth
will remain above 200% between 2010 and 2012. In-Stat also suggested that small cell sales may
reach US$14 Billion in 2015.
Future demand for small cells will rise rapidly due to bandwidth roll-out and allocation
requirements. As the following chart from IEK shows, global shipments reached 2 million units in 2010.
2011 shipments were estimated at 3.69 million units and will reach 10 million units in 2012.
SerComm Corporation Annual Report 2011033
Taiwanese vendors began laying the ground work for small cells quite early. Representative
vendors such as SerComm, Gemtek and Alpha Networks now count major telcos in Europe, America
and Japan among their downstream customers. SerComm in particular is the only vendor with NCC-
certified small cells in Taiwan. Nominated the "Residential Femtocell Access Point Design and
Technology Innovation" by Femto Forum also highlighted SerComm's technological leadership.
Continued Growth in Global Small Cell Shipments
Unit: Millions of units
Source: ABI, EIK
In fiber construction, the global market for fiber equipment is growing steadily. The Asia-Pacific
accounts for 76% of the market and provides the main source of growth. Within the Asia-Pacific,
Japan had the most subscribers in 2010 (19.6 million subscribers) followed by China (15.4 million
subscribers). The ITRI forecasted that China will surpass Japan in the number of fiber subscribers in
2011. China is therefore aggressively expanding its fiber infrastructure and this will benefit Taiwanese
suppliers of fiber networking products.
SerComm Corporation Annual Report 2011 034
Asia-Pacific Accounts for the Largest Proportion of Global Fiber Subscribers
Unit: 10,000 households
Source: ITRI
Networking equipment products consist of modems, network cards and communication modules.
SerComm has many domestic competitors including Gemtek, D-Link, Cameo, ZyXEL, CyberTAN,
Accton, ASEKY, CNet and Foxconn. Other competitors include Amigo, Pro-Nets, RDC, Wontex,
Hauman, Kinpo, Netronix, PLANET, Alpha Networks, OPNET, UFOC, TAINET, YFC, Loop and Top
Century. SerComm's is the world's 3rd largest supplier of wireless broadband routers/gateways and
the 6th largest supplier of integrated access devices (IAD) in Taiwan. In the future, SerComm will
continue to diversify our product R&D efforts and also implement more rigorous quality controls in our
production process to ensure product quality and competitiveness. We are also actively working to
secure OEM/ODM orders from major international customers so our market share should continue to
grow each year.
SerComm Corporation Annual Report 2011035
Trends in Gross Margins for Taiwanese Networking Vendors
Source: DIGITIMES, 2012/3
Research & Development ExpensesUnit: Thousand NTD
Item 2011 1Q 2012
R&D Expenses 379,517 97,609
Net Sales 10,811,908 3,528,681
R&D/Net Sales (%) 3.51% 2.77%
R&D Achievements:(1) EPON Gateway
(2) GPON Gateway
(3) GPON/EPON RF Module
(4) IP Camera Cloud Server
(5) Iuh Residential Small Cell
(6) Enterprise Small Cell
(7) Ethernet-over-Coax (EoC) Solutions
SerComm Corporation Annual Report 2011 036
Long-term and Short-term Business Development Plans1. Long-term Development Plans
(A) Enrich knowledge of the industry, cultivate employees with expertise in industry IT networks and
develop core technology products.
(B) Strengthen collaboration with well-known international technology companies, improve
technology R&D capability and develop high value-added products.
(C) Actively develop new products with the goal of diversifying operations and entering the
international market.
2. Short-term Development Plans
(A) Marketing strategy
Consolidate existing customers and actively expand the market; build a complete marketing
network; fully implement quality assurance and inspection measures. Set up a comprehensive
after-sales service to provide customers with professional advice and repair services for
products.
(B) Production strategy
Strengthen product planning and production process management. Provide employees with
re-training as well as implement budget and cost control measures to increase productivity and
reduce production costs. Fully implement quality assurance and inspection measures.
SerComm Corporation Annual Report 2011037
Market, Production and Sales Outlook Revenue Breakdown by Geography
Unit: Thousand NTD
Region2011 2010
Amount % Amount %
Taiwan 61,497 0.57 120,053 1.47
Europe 3,358,229 31.06 3,614,980 44.34
North America 5,962,730 55.15 3,186,802 39.08
Asia ex-Taiwan 1,413,576 13.07 1,229,839 15.08
Other 15,876 0.15 2,159 0.03
Total 10,811,908 100.00 8,153,833 100.00
Future Supply and Demand in the Market and Potential for Growth (A) The emergence of low-price PCs has led to strong growth in the market for personal computers
and peripheral devices around the world. With the rapid spread of the Internet, there has not
only been strong growth in demand for the associated hardware but also in home networking
and broadband Internet access.
(B) Users are greatly dependent on the Internet greatly in the Internet Age. The broadband of fixed
networks and mobile Internet will be insufficient to meet the demand. Therefore, the telecos will
be forced to upgrade and construct base stations,stations; the relevant equipment procurement
project may bring about profitable gains.
(C) As the market is now dictated by consumer demand, major international vendors are adopting
an aggressive pricing strategy. To achieve this, they are reducing costs and outsourcing to
overseas manufacturers. This in turn has driven the revenue growth of Taiwanese networking
equipment manufacturers. With upstream chip suppliers now moving towards higher port
numbers and key chips gradually entering mass production, this will reduce the manufacturing
costs for downstream manufacturers. The increase in competitiveness and market suitability
will see order volumes increase in the future.
(D) Wireless products will become mainstream in the future. Widespread adoption of the Internet
and increasing maturity of the broadband market will allow wireless networking to free itself
from the constraints of wired networks, though further development is needed with the quality
and stability of wireless networking.
SerComm Corporation Annual Report 2011 038
(E) As benefited from the Internet, cloud computing and the convergence of three networks, the network communication equipment will be more integrated, mobile and intelligent. The network communication industry is expected to move toward its Golden Decade from this year and thereby stimulate the rapid growth of demand for optical fiber network, 4G, wireless application, e-home and set-top box.
Competitive NicheSerComm has foreseen the increasing maturity of the broadband networking market in the
future and our products can now all use wireless technology. Our customers have also recognized
the quality and stability of our products. We are continuing to enhance our product features to meet
market demand so all these will have a positive effect on revenue in the future with the Internet
becoming even more widespread and the growth of the broadband market.
Positive and Negative Factors in Long-Term Development(A)Positive Factors
a. High level of flexibility in product combinations
SerComm’s business portfolio is divided into large-scale volume production of lower-margin
products and custom higher-margin niche products. It is SerComm’s intention to maintain a business
model that balances volume commodity/niche products after taking the company’s long-term strategy
and market positioning into account. Primary focus is given to consolidating existing markets and
customers with the goal of pursuing steady growth while maintaining profit margins. This approach is
aimed at strengthening and reinforcing the company’s operations. The company’s business strategy
will also adjust profits and revenues as necessary in order to build up SerComm’s economies of scale
and boost our market standing.
b. Leadership in technology R&D
SerComm was the first Taiwanese manufacturer to develop wireless routers, wireless printer
servers and MFPs. We were also the first company to announce an 11n ADSL Gateway and the first
company in Taiwan to announce a mesh WiFi router. Our customers have all acknowledged these
products’ quality and attractiveness to the market, allowing us to join the ranks of suppliers to front-line
brands. The collaboration with international networking companies contributes towards our product’s
international competitiveness and continued business expansion.
SerComm Corporation Annual Report 2011039
c. Suzhou capacity is now ready
Expansion of production capacity at Suzhou commenced in 2010 due to increased demand.
Monthly output is now up to 1.75 million sets and will increase to 2 million sets in the second half of
2012.
d. Layout of telecommunication service provider
This market demands multiple application equipments which are high value-added, instead of low
gross profit market. In terms of QuadPlay (four in one) and 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.
(B) Unfavorable Factors and Countermeasures
The Company’s trading counterparts are categorized into retail, SMB and Telecom. The price
competition in the retail market is intensive because of the low differentiation in products in the same
trade. Therefore, the growth of certain mass-production products, such as Home Router, Home
Gateway and Adapter, is limited. To deal with the declining retail customers, the Company intervenes
and increases the weight of sale to SMB and Telcom in a timely manner to prevent itself from engaging
in the intensive price war with the same trade. The Company successively generated new production
capacity since 2010/3Q, and received orders from Chinese network communication brands and,
therefore, launched into the layout of WLANs in such emerging market as Mainland China. Further,
due to the increasing demand for home safety controls, safety control products and IP Cameras are
also driving the Company’s growth.
Main Product ApplicationsWith its strength in integration of network communication products accumulated after many
years, SerComm has not only become the leading supplier of world-class WLAN equipment but also
controls the critical technology for Next-Generation Networks after the continuous R&D in network
communication technology. To deal with the emerging network applications integrated into homes,
SerComm created value-added network communication products with its high-level software and
hardware product integration technology. The whole series of high-performance, high-quality and
diversified professional broadband network communication products include broadband network
communication access points, Integrated Access Device, SMB network communication equipment,
FTTx Products and Smart Home Control/ Surveillance. No matter whether at home or in the office,
they may satisfy customers’ demands for diversified and all-in-one digital integration network
communication.
SerComm Corporation Annual Report 2011 040
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:
SerComm Corporation Annual Report 2011041
Production – A Unit: Thousand NTD; Unit
Main Products2011 2010
Capacity Quantity Amount Capacity Quantity Amount
Wired Product 4,000,000 1,144,586 1,131,976 4,000,000 1,194,726 1,726,557
Wireless Product 12,000,000 11,520,069 8,956,851 9,000,000 7,150,142 5,806,171
Total 16,000,000 12,664,655 10,088,827 13,000,000 8,344,868 7,532,728
Production – B Unit: Thousand NTD; Unit
Main Products
2011 2010
Export Domestic Export Domestic
Quantity Amount Quantity Amount Quantity Amount Quantity Amount
Wired Product 1,043,852 1,778,540 35,558 30,461 1,134,507 1,800,373 27,841 44,437
Wireless Product 11,235,757 8,971,871 55,484 31,036 6,741,815 6,233,408 181,522 75,615
Total 12,279,609 10,750,411 91,042 61,497 7,876,322 8,033,781 209,363 120,052
Employees
Year 2010 2011 2012/04/30
Headcount 439 468 486
Average Age 37.6 37.6 37.63
Employment Period (years) 4.7 5.12 5.36
As TotalEmployees %
Ph. D. 1% 1% 1%
Master 26% 26% 28%
College 61% 61% 58%
Senior High School 9% 9% 10%
Junior High School or Lower 3% 3% 3%
SerComm Corporation Annual Report 2011 042
Environmental ExpenditureTotal value of losses or penalties due to environmental pollution in the most recent year and up to
the date of publication: None
Future response strategies and potential expenditure:
SerComm belongs to the high-tech electronics industry and our production process is used in
the assembly, testing and packaging of final products and semi-assemblies. No wastewater or gases
are emitted during production. Production noise is also very low so it is not a source of pollution and
not subject to environmental protection laws. Waste disposal is carried out in accordance with the
business waste disposal plan. Waste is disposed of legally and recycled.
Increasing global environmental awareness means that the European Union, North America
and Japan have all implemented environmental requirements. SerComm has introduced a lead-free
production process and green design is used during R&D to reduce environmental impact. Green
purchasing extends environmental requirements to components and raw materials. This is also
extended to the rest of the product lifecycle including usage and ultimate disposal.
SerComm Corporation Annual Report 2011043
Financial Review and Operating ResultsCondensed Balance Sheet
Unit: Thousand NTD
Item 2007 2008 2009 2010 2011 2012/03/31
Current Assets 3,150,339 2,953,601 2,651,058 3,752,691 4,529,486 4,897,533
Long-Term Investmentsand Funds 1,058,495 1,190,451 1,230,522 1,494,735 2,427,770 2,430,713
Fixed Assets 542,789 521,469 504,639 511,298 665,982 859,972
Intangible Assets 112,229 108,421 99,651 122,074 127,750 127,456
Other Assets 115,230 176,689 138,673 139,885 58,115 57,053
Total Assets 4,979,082 4,950,631 4,624,543 6,020,683 7,809,103 8,462,727
Current Liabilities
BeforeDistribution 2,193,131 2,063,382 1,821,367 2,535,261 3,540,050 3,858,645
After Distribution 2,517,141 2,312,122 1,987,752 2,803,077 - -
Long-Term Liabilities 400,142 376,673 361,801 873,691 873,744 872,361
Other Liabilities 7,149 5,208 5,546 14,551 122,700 126,790
Total Liabilities
BeforeDistribution 2,600,422 2,445,263 2,188,714 3,423,503 4,536,494 4,857,796
After Distribution 2,924,432 2,694,003 2,355,099 3,691,319 - -
Capital 1,562,817 1,707,233 1,709,450 1,760,873 1,827,960 1,942,716
Capital Reserve 142,419 146,569 149,171 196,598 308,989 423,484
Retained Earnings
BeforeDistribution 694,940 553,450 510,193 658,256 973,481 1,133,674
After Distribution 238,579 304,710 343,808 390,440 - -
Unrealized Loss/Gain onFinancial Assets 0 0 0 0 0 (10,102)
Cumulative Translation Adjustment 83,700 164,370 133,269 34,841 162,179 115,159
Unrealized Loss on Retirement 0 0 0 0 0 0
Shareholders'Equity
BeforeDistribution 2,378,660 2,505,368 2,435,829 2,597,180 3,272,609 3,604,931
After Distribution 2,054,650 2,256,628 2,269,444 2,329,364 - -
SerComm Corporation Annual Report 2011 044
Condensed Statement of IncomeUnit: Thousand NTD
Item 2007 2008 2009 2010 2011 2012/03/31
Net Sales 10,170,774 8,488,652 6,794,111 8,153,833 10,811,908 3,528,681
Gross Profit 1,305,663 1,060,652 817,015 1,025,843 1,181,384 425,181
Operating Income 619,280 392,203 193,034 249,871 323,233 178,506
Non-Operating Income 106,833 39,644 88,105 152,719 362,389 32,078
Non-Operating Expenses 88,072 28,502 30,680 31,790 34,858 23,698
Pre-Tax Income fromContinuing Operations 638,041 403,345 250,459 370,800 650,764 186,886
Net Income/Loss formContinuing Operations 539,408 329,115 205,483 314,448 583,041 160,193
Cumulative Effect of Change in Accounting Principle
0 0 0 0 0 0
Net Income 539,408 329,115 205,483 314,448 583,041 160,193
EPS (NTD) 3.20 1.86 1.22 1.87 3.29 0.86
SerComm Corporation Annual Report 2011045
Financial Analysis
Item 2007 2008 2009 2010 2011 2012/03/31
FinancialRatio (%)
Total Liabilities to Total Assets 52.23 49.39 47.33 56.86 58.09 57.40
Long-term Funds to Fixed Assets 511.95 552.68 554.38 678.84 622.59 520.63
Liquidity (%)
Current Ratio 143.65 143.14 145.55 148.02 127.95 129.26
Quick Ratio 111.74 114.40 113.36 117.88 106.47 102.19
Time Interest Earned 10,905 4,700 2,444 2,535 2,055 1,605
OperatingPerformance
AR Turnover (Times) 7.41 6.38 5.99 6.52 7.71 11.67
AR Turnover (Days) 49.23 57.29 60.95 55.95 47.32 31.28
Inventory Turnover (Times) 10.38 12.10 10.74 11.18 13.59 15.03
AP Turnover (Times) 4.24 4.43 4.29 4.92 5.87 6.21
Inventory Turnover (Days) 35.18 30.18 33.99 32.65 26.86 24.28
Fixed Assets Turnover (Times) 19.7 15.95 13.24 16.05 18.37 18.50
Total Assets Turnover (Times) 2.09 1.71 1.42 1.53 1.56 1.73
Profitability
Return on Assets (%) 11.19 6.76 4.46 6.12 8.83 8.38
Return on Equity (%) 25.52 13.48 8.32 12.50 19.87 18.63
To Pay-in Capital %
Operating Income 39.63 22.97 11.29 14.19 17.68 36.75
Pre-Tax Income 40.83 23.63 14.65 21.06 35.60 38.48
Net Income / Sales (%) 5.30 3.88 3.02 3.86 5.39 4.54
EPS (NTD) 3.65 1.88 1.24 1.88 3.29 0.86
Cash Flow
Cash Flow Ratio (%) 23.95 14.82 21.59 3.03 6.74 10.50
Cash Flow Adequacy Ratio (%) 194.44 167.90 170.65 132.74 99.27 76.89
Cash Reinvestment Ratio (%) 14.22 (0.31) 5.11 (2.60) (0.70) 9.03
LeverageOperating Leverage 2.55 3.18 4.53 4.16 4.24 2.88
Financial Leverage 1.01 1.02 1.06 1.06 1.11 1.07
SerComm Corporation Annual Report 2011 046
1. Financial Ratio
(1) Total Liabilities to Total Assets=Total Liabilities /Total Assets
(2) Long-term Funds to Fixed Assets=(Net Equity+Long-term Funds)/Net Fixed Assets
2. Ability to Pay Off Debt
(1) Current Ratio=Current Assets/Current Liability
(2) Quick Ratio=(Current Assets-Inventory-Prepaid Expenses)/Current Liability
(3) Interest Protection=Net Income Before Income Tax and Interest Expense/Interest Expense
3. Ability to Operate
(1) Account Receivable (including Account Receivable and Notes Receivable from Operation)
Turnover=Net Sales/the Average of Account Receivable (including Account Receivable and
Notes Receivable from Operation) Balance
(2) A/R Turnover Day=365/Account Receivable Turnover
(3) Inventory Turnover=Cost of Goods Sold/the Average of Inventory
(4) Account Payable (including Account Payable and Notes Payable from Operation) Turnover=
Cost of Goods Sold/the Average of Account Payable(including Account Payable and Notes
Payable from Operation)Balance
(5) Inventory Turnover Day=365/Inventory Turnover
(6) Fixed Assets Turnover=Net Sales/Net Fixed Assets
(7) Total Assets Turnover=Net Sales/Total Assets
4. Earning Ability
(1) Return on Assets=〔PAT+Interest Expense×(1-Interest Rate)〕/the Average of Total
Assets
(2) Return on Equity=PAT/the Average of Net Equity
(3) Net Income Ratio=PAT/Net Sates
(4) EPS =(PAT-Dividend from Prefer Stock)/Weighted Average Outstanding Shares
5. Cash Flow
(1) Cash Flow Ratio=Cash Flow from Operating Activities/Current Liability
(2) Cash Flow Adequacy Ratio=Most Recent 5-year Cash Flow from Operating Activities/Most
Recent 5-year (Capital Expenditure+the Increase of Inventory+Cash Dividend)
(3) Cash Investment Ratio=(Cash Flow from Operating Activities-Cash Dividend)/(Gross
Fixed Assets+Long-term Investment+Other Assets+Working Capital)
6. Leverage
(1) Operating Leverage=(Nest Revenue-Variable Cost of Goods Sold and Operating Expense)
/Operating Income
(2) Financial Leverage=Operating Income/(Operating Income-Interest Expenses)
SerComm Corporation Annual Report 2011047
Financial PositionUnit: Thousand NTD
Item 2011 2010 Difference Change %
Current Assets 4,529,486 3,752,691 776,795 20.70
Fixed Assets 665,982 511,298 154,684 30.25
Other Assets 58,115 139,885 -81,770 -58.46
Total Assets 7,809,103 6,020,683 1,788,420 29.70
Current Liabilities 3,540,050 2,535,261 1,004,789 39.63
Long-term Liabilities 873,744 873,691 53 0.01
Total Liabilities 4,536,494 3,423,503 1,112,991 32.51
Capital 1,827,960 1,760,873 67,087 3.81
Capital Reserves 308,989 196,598 112,391 57.17
Retained Earnings 973,481 658,256 315,225 47.89
Total Shareholders' Equity 3,272,609 2,597,180 675,429 26.01
Operating ResultsUnit: Thousand NTD
Item 2011 2010 Difference Change %
Sales Revenue 10,968,323 8,212,358 2,755,965 33.56
Sales Return /Allowances 156,415 58,525 97,890 167.26
Net Sales 10,811,908 8,153,833 2,658,075 32.60
Cost of Goods Sold 9,632,011 7,127,929 2,504,082 35.13
Gross Profit 1,179,897 1,025,904 153,993 15.01Unrealized Profit from Intercompany Transactions 1,487 -61 1,548 2,537.70
Realized Gross Profit 1,181,384 1,025,843 155,541 15.16
Operating Expenses 858,151 775,972 82,179 10.59
Operating Income 323,233 249,871 73,362 29.36
Non-operating Income 362,389 152,719 209,670 137.29
Non-operating Expenses 34,858 31,790 3,068 9.65
Pre-tax Income from Continuing Operation 650,764 370,800 279,964 75.50
Income Tax Benefit (Expenses) 67,723 56,352 11,371 20.18
Net Income from Continuing Operation 583,041 314,448 268,593 85.42
Cumulative Effect of Change in Accounting Principle 0 0 - -
Net Income 583,041 314,448 268,593 85.42
SerComm Corporation Annual Report 2011 048
Analysis of Cash Flow
Item 2011 2010 Change%
Cash Flow Ratio (%) 6.74% 3.03% 122.44%
Cash Flow Adequacy Ratio (%) 99.27% 132.74% -25.21%
Cash Reinvestment Ratio (%) -0.70% -2.60% 73.08%
Projected Cash FlowUnit: Thousand NTD
BeginningCash Balance
Cash Flowsfrom Operating
Activities
Cash Flowsfrom Investing
& FinancingActivities
Projected EndingCash Balance
Source of Funding for Cash Shortfall
InvestingPlan
FinancingPlan
1,770,002 314,120 1,004,467 1,079,655 - -
Analysis for Investment Over 5% of Paid-in CapitalYear 2011
Company Investment Amount(NT$ /US$ thousand) Policy Improvement Plan
Senslinq Inc. US$250 US Marketing NA
SerComm Investment US$1,200 Foreign Investment NA
ShuKuan Investments Ltd. NT$28,000 Local Investment NA
SerComm Trading Co., Limited. US$46,800 Foreign Investment NA
Zealous Investments Ltd. US$30,956 Foreign Investment NA
SerNet Technology Ltd. US$29,900 Global Manufacture NA
Smart Trade Inc. US$16,000 Foreign Investment NA
DWNet Technology Ltd. US$16,000 China Sales NA
Taicang SerComm Technologies Corp. US$0 Global Manufacture NA
SerComm Japan Corp. JP$27,000 Japan Marketing NA
SerComm France SARL. EU$100 Europe Marketing NA
SerComm Corporation Annual Report 2011049
Special DisclosuresAffiliated Companies Chart
SerComm Corporation Annual Report 2011 050
Affiliated Companies
Company Date of Incorporation Paid-in Capital Major Business
Senslinq Inc 1996/09/25 USD$250,000 Sales of IT Products
SerComm Investments Ltd. 2001/10/09 USD$1,200,000 Investment Overseas, International Trading
ShuKuan Investments Ltd. 2002/12/31 NT$28,000,000 Investment Activity
SerComm Trading Co., Limited 2002/06/24 USD$46,800,000 Investment Overseas,
International Trading
Zealous Investments Ltd. 1999/08/12 USD$30,956,000 Investment Overseas, International Trading
SerNet Technology Ltd. 2000/02/18 USD$29,900,000
Manufacture of Routers, Communication Products, WLAN Products; Sales and After-sales Service
Smart Trade Inc. 2003/03/21 USD$16,000,000 Investment Overseas, International Trading
DWNet Technology Ltd. 2004/01/14 USD16,000,000 R&D Center of Software; Sales and After-sales Service
Taicang SerComm Technologies Corp. 2008/01/08 Liquidated in 2011
Manufacture of Routers, Communication Products, WLAN Products; Sales and After-sales Service
SerComm Japan Corp. 2010/03/15 JPY$27,000,000 Sales of IT Products and International Trading
SerComm France SARL 2011/01/27 EUD$100,000 Sales of IT Products and International Trading
SerComm Corporation Annual Report 2011051
3
REPORT OF INDEPENDENT AUDITORS
English Translation of a Report Originally Issued in Chinese
To Sercomm Corporation We have audited the accompanying consolidated balance sheets of Sercomm Corporation and subsidiaries (the "Company$) as of December 31, 2011 and 2010, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the years ended December 31, 2011 and 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with “Guidelines for Certified Public s Examination and Reporting on Financial Statements” and generally accepted auditing standards in the Republic of China. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sercomm Corporation and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended, in conformity with “Business Entity Accounting Act”, “Regulation on Business Entity Accounting Handling” with respect to financial accounting standards, “Guidelines Governing the Preparation of Financial Reports by Securities Issuers”, and generally accecpted accounting principles in the Republic of China. As described in Note 3 to the consolidated financial statements, effective from January 1, 2011, the Company has adopted the third revision of the Statement of Financial Accounting Standards No. 34, “Financial Instruments: Recognition and Measurement”, and the newly issued Statement of Financial Accounting Standards No. 41, “Operating Segments” of the Republic of China. March 9, 2012 Taipei, Taiwan Republic of China Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China.
3
REPORT OF INDEPENDENT AUDITORS
English Translation of a Report Originally Issued in Chinese
To Sercomm Corporation We have audited the accompanying consolidated balance sheets of Sercomm Corporation and subsidiaries (the "Company$) as of December 31, 2011 and 2010, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the years ended December 31, 2011 and 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with “Guidelines for Certified Public s Examination and Reporting on Financial Statements” and generally accepted auditing standards in the Republic of China. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sercomm Corporation and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended, in conformity with “Business Entity Accounting Act”, “Regulation on Business Entity Accounting Handling” with respect to financial accounting standards, “Guidelines Governing the Preparation of Financial Reports by Securities Issuers”, and generally accecpted accounting principles in the Republic of China. As described in Note 3 to the consolidated financial statements, effective from January 1, 2011, the Company has adopted the third revision of the Statement of Financial Accounting Standards No. 34, “Financial Instruments: Recognition and Measurement”, and the newly issued Statement of Financial Accounting Standards No. 41, “Operating Segments” of the Republic of China. March 9, 2012 Taipei, Taiwan Republic of China Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China.
SerComm Corporation Annual Report 2011 052
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
December 31, 2011 and 2010(Expressed in Thousands of New Taiwan Dollars)
2011 2010Assets Notes Amount % Amount % Liabilities and Stockholders' Equity Notes Amount % Amount %
Current assets Current liabilitiesCash 4 $3,868,609 32.16 $2,044,583 25.62 Short-term loans 12 $2,819,707 23.44 $1,482,803 18.58Financial assets at fair value through profit or loss-current 2 and 5 30,383 0.25 10,337 0.13 Notes payable 77,082 0.64 42,486 0.53Notes and Accounts receivable-net 2 and 6 2,623,584 21.81 1,790,293 22.44 Accounts payable 3,277,137 27.25 2,101,803 26.34Other receivables 6 290,635 2.42 133,606 1.67 Income tax payable 2, 3 and 23 82,170 0.68 121,662 1.53Inventories-net 2 and 7 1,907,917 15.86 1,316,917 16.50 Accrued expenses 25 654,121 5.44 520,644 6.52Other current assets 216,461 1.80 178,032 2.23 Financial liabilities at fair value through profit of loss-curre 2 and 5 284 - - - Deferred income tax assets-current 2, 3 and 23 31,073 0.26 20,426 0.26 Bond payable- current 2 and 13 425,426 3.54 - - Restricted assets 26 11,557 0.10 8,654 0.11 Lease payables-current 2 and 14 18,864 0.16 18,465 0.23
Total current assets 8,980,219 74.66 5,502,848 68.96 Other current liabilities 27 417,159 3.47 206,268 2.59Total current liabilities 7,771,950 64.62 4,494,131 56.32
Funds and investmentsFinancial assets as fair value through profit or loss-noncurrent 2 and 13 - - 1,487 0.02Other financial assets-noncurrent 27 80,045 0.67 - - Long-term liabilitiesFinancial assets measured at cost-noncurrent 2 and 8 108,034 0.90 105,714 1.32 Bonds Payable 2 and 13 542,840 4.51 526,760 6.60
Total funds and investments 188,079 1.57 107,201 1.34 Lease payables-noncurrent 2 and 14 330,904 2.75 346,931 4.35Total long-term liabilities 873,744 7.26 873,691 10.95
Property, plant and equipment 2, 9 and 26Land 43,230 0.36 - - Other liabilitiesBuildings 784,732 6.52 655,421 8.21 Accrued pension liabilities 2 and 15 5,687 0.05 5,673 0.07Machinery and equipment 1,268,127 10.54 919,503 11.52 Deferred income tax liabilities-noncurrent 2, 3 and 23 103,727 0.86 8,878 0.11Research and development equipment 303,920 2.53 255,462 3.20 Total other liabilities 109,414 0.91 14,551 0.18Office and other equipment 141,151 1.17 116,577 1.46 Total liabilities 8,755,108 72.79 5,382,373 67.45Leased assets 457,030 3.80 457,030 5.73
Total cost 2,998,190 24.92 2,403,993 30.12 Stockholders' equityLess: Accumulated depreciation (714,930) (5.94) (500,129) (6.27) Capital 16Construction in progress 101,911 0.85 39,725 0.50 Common stock 1,826,337 15.18 1,747,405 21.90Prepayments for equipment 111,502 0.93 33,117 0.42 Advance receipts for common stock 1,623 0.02 13,468 0.17 Property, plant and equipment-net 2,496,673 20.76 1,976,706 24.77 Capital reserve 18
Bonds conversion premiums 2 and 13 223,591 1.86 164,399 2.06Intangible assets 2 and 10 Employee stock option 2 27,666 0.23 26,253 0.32
Computer software cost-net 61,734 0.51 57,818 0.72 Stock option 2 57,732 0.48 5,946 0.08Other intangible assets 70,073 0.58 70,651 0.89 Retained earnings 19 and 20Land use right 26 115,189 0.96 102,039 1.28 Legal reserve 304,569 2.53 273,125 3.42
Total intangible assets 246,996 2.05 230,508 2.89 Unappropriated earnings 668,912 5.56 385,131 4.83Adjusting items in stockholders' equity
Other assets Cumulative translation adjustments 2 162,179 1.35 34,841 0.44Property not used in operations 2 and 11 14,370 0.12 83,385 1.05 Treasury stock 2 and 21 - - (53,388) (0.67)Refundable deposits 26 45,047 0.37 25,600 0.32 Total stockholders' equity 3,272,609 27.21 2,597,180 32.55Deferred charges 2 56,333 0.47 53,305 0.67
Total other assets 115,750 0.96 162,290 2.04
Total assets $12,027,717 100.00 $7,979,553 100.00 Total liabilities and stockholders' equity $12,027,717 100.00 $7,979,553 100.00
The accompanying notes are an integral part of the consolidated financial statements.
2011 2010As of December 31, As of December 31,
4
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
December 31, 2011 and 2010(Expressed in Thousands of New Taiwan Dollars)
2011 2010Assets Notes Amount % Amount % Liabilities and Stockholders' Equity Notes Amount % Amount %
Current assets Current liabilitiesCash 4 $3,868,609 32.16 $2,044,583 25.62 Short-term loans 12 $2,819,707 23.44 $1,482,803 18.58Financial assets at fair value through profit or loss-current 2 and 5 30,383 0.25 10,337 0.13 Notes payable 77,082 0.64 42,486 0.53Notes and Accounts receivable-net 2 and 6 2,623,584 21.81 1,790,293 22.44 Accounts payable 3,277,137 27.25 2,101,803 26.34Other receivables 6 290,635 2.42 133,606 1.67 Income tax payable 2, 3 and 23 82,170 0.68 121,662 1.53Inventories-net 2 and 7 1,907,917 15.86 1,316,917 16.50 Accrued expenses 25 654,121 5.44 520,644 6.52Other current assets 216,461 1.80 178,032 2.23 Financial liabilities at fair value through profit of loss-curre 2 and 5 284 - - - Deferred income tax assets-current 2, 3 and 23 31,073 0.26 20,426 0.26 Bond payable- current 2 and 13 425,426 3.54 - - Restricted assets 26 11,557 0.10 8,654 0.11 Lease payables-current 2 and 14 18,864 0.16 18,465 0.23
Total current assets 8,980,219 74.66 5,502,848 68.96 Other current liabilities 27 417,159 3.47 206,268 2.59Total current liabilities 7,771,950 64.62 4,494,131 56.32
Funds and investmentsFinancial assets as fair value through profit or loss-noncurrent 2 and 13 - - 1,487 0.02Other financial assets-noncurrent 27 80,045 0.67 - - Long-term liabilitiesFinancial assets measured at cost-noncurrent 2 and 8 108,034 0.90 105,714 1.32 Bonds Payable 2 and 13 542,840 4.51 526,760 6.60
Total funds and investments 188,079 1.57 107,201 1.34 Lease payables-noncurrent 2 and 14 330,904 2.75 346,931 4.35Total long-term liabilities 873,744 7.26 873,691 10.95
Property, plant and equipment 2, 9 and 26Land 43,230 0.36 - - Other liabilitiesBuildings 784,732 6.52 655,421 8.21 Accrued pension liabilities 2 and 15 5,687 0.05 5,673 0.07Machinery and equipment 1,268,127 10.54 919,503 11.52 Deferred income tax liabilities-noncurrent 2, 3 and 23 103,727 0.86 8,878 0.11Research and development equipment 303,920 2.53 255,462 3.20 Total other liabilities 109,414 0.91 14,551 0.18Office and other equipment 141,151 1.17 116,577 1.46 Total liabilities 8,755,108 72.79 5,382,373 67.45Leased assets 457,030 3.80 457,030 5.73
Total cost 2,998,190 24.92 2,403,993 30.12 Stockholders' equityLess: Accumulated depreciation (714,930) (5.94) (500,129) (6.27) Capital 16Construction in progress 101,911 0.85 39,725 0.50 Common stock 1,826,337 15.18 1,747,405 21.90Prepayments for equipment 111,502 0.93 33,117 0.42 Advance receipts for common stock 1,623 0.02 13,468 0.17 Property, plant and equipment-net 2,496,673 20.76 1,976,706 24.77 Capital reserve 18
Bonds conversion premiums 2 and 13 223,591 1.86 164,399 2.06Intangible assets 2 and 10 Employee stock option 2 27,666 0.23 26,253 0.32
Computer software cost-net 61,734 0.51 57,818 0.72 Stock option 2 57,732 0.48 5,946 0.08Other intangible assets 70,073 0.58 70,651 0.89 Retained earnings 19 and 20Land use right 26 115,189 0.96 102,039 1.28 Legal reserve 304,569 2.53 273,125 3.42
Total intangible assets 246,996 2.05 230,508 2.89 Unappropriated earnings 668,912 5.56 385,131 4.83Adjusting items in stockholders' equity
Other assets Cumulative translation adjustments 2 162,179 1.35 34,841 0.44Property not used in operations 2 and 11 14,370 0.12 83,385 1.05 Treasury stock 2 and 21 - - (53,388) (0.67)Refundable deposits 26 45,047 0.37 25,600 0.32 Total stockholders' equity 3,272,609 27.21 2,597,180 32.55Deferred charges 2 56,333 0.47 53,305 0.67
Total other assets 115,750 0.96 162,290 2.04
Total assets $12,027,717 100.00 $7,979,553 100.00 Total liabilities and stockholders' equity $12,027,717 100.00 $7,979,553 100.00
The accompanying notes are an integral part of the consolidated financial statements.
2011 2010As of December 31, As of December 31,
4
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
December 31, 2011 and 2010(Expressed in Thousands of New Taiwan Dollars)
2011 2010Assets Notes Amount % Amount % Liabilities and Stockholders' Equity Notes Amount % Amount %
Current assets Current liabilitiesCash 4 $3,868,609 32.16 $2,044,583 25.62 Short-term loans 12 $2,819,707 23.44 $1,482,803 18.58Financial assets at fair value through profit or loss-current 2 and 5 30,383 0.25 10,337 0.13 Notes payable 77,082 0.64 42,486 0.53Notes and Accounts receivable-net 2 and 6 2,623,584 21.81 1,790,293 22.44 Accounts payable 3,277,137 27.25 2,101,803 26.34Other receivables 6 290,635 2.42 133,606 1.67 Income tax payable 2, 3 and 23 82,170 0.68 121,662 1.53Inventories-net 2 and 7 1,907,917 15.86 1,316,917 16.50 Accrued expenses 25 654,121 5.44 520,644 6.52Other current assets 216,461 1.80 178,032 2.23 Financial liabilities at fair value through profit of loss-curre 2 and 5 284 - - - Deferred income tax assets-current 2, 3 and 23 31,073 0.26 20,426 0.26 Bond payable- current 2 and 13 425,426 3.54 - - Restricted assets 26 11,557 0.10 8,654 0.11 Lease payables-current 2 and 14 18,864 0.16 18,465 0.23
Total current assets 8,980,219 74.66 5,502,848 68.96 Other current liabilities 27 417,159 3.47 206,268 2.59Total current liabilities 7,771,950 64.62 4,494,131 56.32
Funds and investmentsFinancial assets as fair value through profit or loss-noncurrent 2 and 13 - - 1,487 0.02Other financial assets-noncurrent 27 80,045 0.67 - - Long-term liabilitiesFinancial assets measured at cost-noncurrent 2 and 8 108,034 0.90 105,714 1.32 Bonds Payable 2 and 13 542,840 4.51 526,760 6.60
Total funds and investments 188,079 1.57 107,201 1.34 Lease payables-noncurrent 2 and 14 330,904 2.75 346,931 4.35Total long-term liabilities 873,744 7.26 873,691 10.95
Property, plant and equipment 2, 9 and 26Land 43,230 0.36 - - Other liabilitiesBuildings 784,732 6.52 655,421 8.21 Accrued pension liabilities 2 and 15 5,687 0.05 5,673 0.07Machinery and equipment 1,268,127 10.54 919,503 11.52 Deferred income tax liabilities-noncurrent 2, 3 and 23 103,727 0.86 8,878 0.11Research and development equipment 303,920 2.53 255,462 3.20 Total other liabilities 109,414 0.91 14,551 0.18Office and other equipment 141,151 1.17 116,577 1.46 Total liabilities 8,755,108 72.79 5,382,373 67.45Leased assets 457,030 3.80 457,030 5.73
Total cost 2,998,190 24.92 2,403,993 30.12 Stockholders' equityLess: Accumulated depreciation (714,930) (5.94) (500,129) (6.27) Capital 16Construction in progress 101,911 0.85 39,725 0.50 Common stock 1,826,337 15.18 1,747,405 21.90Prepayments for equipment 111,502 0.93 33,117 0.42 Advance receipts for common stock 1,623 0.02 13,468 0.17 Property, plant and equipment-net 2,496,673 20.76 1,976,706 24.77 Capital reserve 18
Bonds conversion premiums 2 and 13 223,591 1.86 164,399 2.06Intangible assets 2 and 10 Employee stock option 2 27,666 0.23 26,253 0.32
Computer software cost-net 61,734 0.51 57,818 0.72 Stock option 2 57,732 0.48 5,946 0.08Other intangible assets 70,073 0.58 70,651 0.89 Retained earnings 19 and 20Land use right 26 115,189 0.96 102,039 1.28 Legal reserve 304,569 2.53 273,125 3.42
Total intangible assets 246,996 2.05 230,508 2.89 Unappropriated earnings 668,912 5.56 385,131 4.83Adjusting items in stockholders' equity
Other assets Cumulative translation adjustments 2 162,179 1.35 34,841 0.44Property not used in operations 2 and 11 14,370 0.12 83,385 1.05 Treasury stock 2 and 21 - - (53,388) (0.67)Refundable deposits 26 45,047 0.37 25,600 0.32 Total stockholders' equity 3,272,609 27.21 2,597,180 32.55Deferred charges 2 56,333 0.47 53,305 0.67
Total other assets 115,750 0.96 162,290 2.04
Total assets $12,027,717 100.00 $7,979,553 100.00 Total liabilities and stockholders' equity $12,027,717 100.00 $7,979,553 100.00
The accompanying notes are an integral part of the consolidated financial statements.
2011 2010As of December 31, As of December 31,
4
SerComm Corporation Annual Report 2011053
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
December 31, 2011 and 2010(Expressed in Thousands of New Taiwan Dollars)
2011 2010Assets Notes Amount % Amount % Liabilities and Stockholders' Equity Notes Amount % Amount %
Current assets Current liabilitiesCash 4 $3,868,609 32.16 $2,044,583 25.62 Short-term loans 12 $2,819,707 23.44 $1,482,803 18.58Financial assets at fair value through profit or loss-current 2 and 5 30,383 0.25 10,337 0.13 Notes payable 77,082 0.64 42,486 0.53Notes and Accounts receivable-net 2 and 6 2,623,584 21.81 1,790,293 22.44 Accounts payable 3,277,137 27.25 2,101,803 26.34Other receivables 6 290,635 2.42 133,606 1.67 Income tax payable 2, 3 and 23 82,170 0.68 121,662 1.53Inventories-net 2 and 7 1,907,917 15.86 1,316,917 16.50 Accrued expenses 25 654,121 5.44 520,644 6.52Other current assets 216,461 1.80 178,032 2.23 Financial liabilities at fair value through profit of loss-curre 2 and 5 284 - - - Deferred income tax assets-current 2, 3 and 23 31,073 0.26 20,426 0.26 Bond payable- current 2 and 13 425,426 3.54 - - Restricted assets 26 11,557 0.10 8,654 0.11 Lease payables-current 2 and 14 18,864 0.16 18,465 0.23
Total current assets 8,980,219 74.66 5,502,848 68.96 Other current liabilities 27 417,159 3.47 206,268 2.59Total current liabilities 7,771,950 64.62 4,494,131 56.32
Funds and investmentsFinancial assets as fair value through profit or loss-noncurrent 2 and 13 - - 1,487 0.02Other financial assets-noncurrent 27 80,045 0.67 - - Long-term liabilitiesFinancial assets measured at cost-noncurrent 2 and 8 108,034 0.90 105,714 1.32 Bonds Payable 2 and 13 542,840 4.51 526,760 6.60
Total funds and investments 188,079 1.57 107,201 1.34 Lease payables-noncurrent 2 and 14 330,904 2.75 346,931 4.35Total long-term liabilities 873,744 7.26 873,691 10.95
Property, plant and equipment 2, 9 and 26Land 43,230 0.36 - - Other liabilitiesBuildings 784,732 6.52 655,421 8.21 Accrued pension liabilities 2 and 15 5,687 0.05 5,673 0.07Machinery and equipment 1,268,127 10.54 919,503 11.52 Deferred income tax liabilities-noncurrent 2, 3 and 23 103,727 0.86 8,878 0.11Research and development equipment 303,920 2.53 255,462 3.20 Total other liabilities 109,414 0.91 14,551 0.18Office and other equipment 141,151 1.17 116,577 1.46 Total liabilities 8,755,108 72.79 5,382,373 67.45Leased assets 457,030 3.80 457,030 5.73
Total cost 2,998,190 24.92 2,403,993 30.12 Stockholders' equityLess: Accumulated depreciation (714,930) (5.94) (500,129) (6.27) Capital 16Construction in progress 101,911 0.85 39,725 0.50 Common stock 1,826,337 15.18 1,747,405 21.90Prepayments for equipment 111,502 0.93 33,117 0.42 Advance receipts for common stock 1,623 0.02 13,468 0.17 Property, plant and equipment-net 2,496,673 20.76 1,976,706 24.77 Capital reserve 18
Bonds conversion premiums 2 and 13 223,591 1.86 164,399 2.06Intangible assets 2 and 10 Employee stock option 2 27,666 0.23 26,253 0.32
Computer software cost-net 61,734 0.51 57,818 0.72 Stock option 2 57,732 0.48 5,946 0.08Other intangible assets 70,073 0.58 70,651 0.89 Retained earnings 19 and 20Land use right 26 115,189 0.96 102,039 1.28 Legal reserve 304,569 2.53 273,125 3.42
Total intangible assets 246,996 2.05 230,508 2.89 Unappropriated earnings 668,912 5.56 385,131 4.83Adjusting items in stockholders' equity
Other assets Cumulative translation adjustments 2 162,179 1.35 34,841 0.44Property not used in operations 2 and 11 14,370 0.12 83,385 1.05 Treasury stock 2 and 21 - - (53,388) (0.67)Refundable deposits 26 45,047 0.37 25,600 0.32 Total stockholders' equity 3,272,609 27.21 2,597,180 32.55Deferred charges 2 56,333 0.47 53,305 0.67
Total other assets 115,750 0.96 162,290 2.04
Total assets $12,027,717 100.00 $7,979,553 100.00 Total liabilities and stockholders' equity $12,027,717 100.00 $7,979,553 100.00
The accompanying notes are an integral part of the consolidated financial statements.
2011 2010As of December 31, As of December 31,
4
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
December 31, 2011 and 2010(Expressed in Thousands of New Taiwan Dollars)
2011 2010Assets Notes Amount % Amount % Liabilities and Stockholders' Equity Notes Amount % Amount %
Current assets Current liabilitiesCash 4 $3,868,609 32.16 $2,044,583 25.62 Short-term loans 12 $2,819,707 23.44 $1,482,803 18.58Financial assets at fair value through profit or loss-current 2 and 5 30,383 0.25 10,337 0.13 Notes payable 77,082 0.64 42,486 0.53Notes and Accounts receivable-net 2 and 6 2,623,584 21.81 1,790,293 22.44 Accounts payable 3,277,137 27.25 2,101,803 26.34Other receivables 6 290,635 2.42 133,606 1.67 Income tax payable 2, 3 and 23 82,170 0.68 121,662 1.53Inventories-net 2 and 7 1,907,917 15.86 1,316,917 16.50 Accrued expenses 25 654,121 5.44 520,644 6.52Other current assets 216,461 1.80 178,032 2.23 Financial liabilities at fair value through profit of loss-curre 2 and 5 284 - - - Deferred income tax assets-current 2, 3 and 23 31,073 0.26 20,426 0.26 Bond payable- current 2 and 13 425,426 3.54 - - Restricted assets 26 11,557 0.10 8,654 0.11 Lease payables-current 2 and 14 18,864 0.16 18,465 0.23
Total current assets 8,980,219 74.66 5,502,848 68.96 Other current liabilities 27 417,159 3.47 206,268 2.59Total current liabilities 7,771,950 64.62 4,494,131 56.32
Funds and investmentsFinancial assets as fair value through profit or loss-noncurrent 2 and 13 - - 1,487 0.02Other financial assets-noncurrent 27 80,045 0.67 - - Long-term liabilitiesFinancial assets measured at cost-noncurrent 2 and 8 108,034 0.90 105,714 1.32 Bonds Payable 2 and 13 542,840 4.51 526,760 6.60
Total funds and investments 188,079 1.57 107,201 1.34 Lease payables-noncurrent 2 and 14 330,904 2.75 346,931 4.35Total long-term liabilities 873,744 7.26 873,691 10.95
Property, plant and equipment 2, 9 and 26Land 43,230 0.36 - - Other liabilitiesBuildings 784,732 6.52 655,421 8.21 Accrued pension liabilities 2 and 15 5,687 0.05 5,673 0.07Machinery and equipment 1,268,127 10.54 919,503 11.52 Deferred income tax liabilities-noncurrent 2, 3 and 23 103,727 0.86 8,878 0.11Research and development equipment 303,920 2.53 255,462 3.20 Total other liabilities 109,414 0.91 14,551 0.18Office and other equipment 141,151 1.17 116,577 1.46 Total liabilities 8,755,108 72.79 5,382,373 67.45Leased assets 457,030 3.80 457,030 5.73
Total cost 2,998,190 24.92 2,403,993 30.12 Stockholders' equityLess: Accumulated depreciation (714,930) (5.94) (500,129) (6.27) Capital 16Construction in progress 101,911 0.85 39,725 0.50 Common stock 1,826,337 15.18 1,747,405 21.90Prepayments for equipment 111,502 0.93 33,117 0.42 Advance receipts for common stock 1,623 0.02 13,468 0.17 Property, plant and equipment-net 2,496,673 20.76 1,976,706 24.77 Capital reserve 18
Bonds conversion premiums 2 and 13 223,591 1.86 164,399 2.06Intangible assets 2 and 10 Employee stock option 2 27,666 0.23 26,253 0.32
Computer software cost-net 61,734 0.51 57,818 0.72 Stock option 2 57,732 0.48 5,946 0.08Other intangible assets 70,073 0.58 70,651 0.89 Retained earnings 19 and 20Land use right 26 115,189 0.96 102,039 1.28 Legal reserve 304,569 2.53 273,125 3.42
Total intangible assets 246,996 2.05 230,508 2.89 Unappropriated earnings 668,912 5.56 385,131 4.83Adjusting items in stockholders' equity
Other assets Cumulative translation adjustments 2 162,179 1.35 34,841 0.44Property not used in operations 2 and 11 14,370 0.12 83,385 1.05 Treasury stock 2 and 21 - - (53,388) (0.67)Refundable deposits 26 45,047 0.37 25,600 0.32 Total stockholders' equity 3,272,609 27.21 2,597,180 32.55Deferred charges 2 56,333 0.47 53,305 0.67
Total other assets 115,750 0.96 162,290 2.04
Total assets $12,027,717 100.00 $7,979,553 100.00 Total liabilities and stockholders' equity $12,027,717 100.00 $7,979,553 100.00
The accompanying notes are an integral part of the consolidated financial statements.
2011 2010As of December 31, As of December 31,
4
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
December 31, 2011 and 2010(Expressed in Thousands of New Taiwan Dollars)
2011 2010Assets Notes Amount % Amount % Liabilities and Stockholders' Equity Notes Amount % Amount %
Current assets Current liabilitiesCash 4 $3,868,609 32.16 $2,044,583 25.62 Short-term loans 12 $2,819,707 23.44 $1,482,803 18.58Financial assets at fair value through profit or loss-current 2 and 5 30,383 0.25 10,337 0.13 Notes payable 77,082 0.64 42,486 0.53Notes and Accounts receivable-net 2 and 6 2,623,584 21.81 1,790,293 22.44 Accounts payable 3,277,137 27.25 2,101,803 26.34Other receivables 6 290,635 2.42 133,606 1.67 Income tax payable 2, 3 and 23 82,170 0.68 121,662 1.53Inventories-net 2 and 7 1,907,917 15.86 1,316,917 16.50 Accrued expenses 25 654,121 5.44 520,644 6.52Other current assets 216,461 1.80 178,032 2.23 Financial liabilities at fair value through profit of loss-curre 2 and 5 284 - - - Deferred income tax assets-current 2, 3 and 23 31,073 0.26 20,426 0.26 Bond payable- current 2 and 13 425,426 3.54 - - Restricted assets 26 11,557 0.10 8,654 0.11 Lease payables-current 2 and 14 18,864 0.16 18,465 0.23
Total current assets 8,980,219 74.66 5,502,848 68.96 Other current liabilities 27 417,159 3.47 206,268 2.59Total current liabilities 7,771,950 64.62 4,494,131 56.32
Funds and investmentsFinancial assets as fair value through profit or loss-noncurrent 2 and 13 - - 1,487 0.02Other financial assets-noncurrent 27 80,045 0.67 - - Long-term liabilitiesFinancial assets measured at cost-noncurrent 2 and 8 108,034 0.90 105,714 1.32 Bonds Payable 2 and 13 542,840 4.51 526,760 6.60
Total funds and investments 188,079 1.57 107,201 1.34 Lease payables-noncurrent 2 and 14 330,904 2.75 346,931 4.35Total long-term liabilities 873,744 7.26 873,691 10.95
Property, plant and equipment 2, 9 and 26Land 43,230 0.36 - - Other liabilitiesBuildings 784,732 6.52 655,421 8.21 Accrued pension liabilities 2 and 15 5,687 0.05 5,673 0.07Machinery and equipment 1,268,127 10.54 919,503 11.52 Deferred income tax liabilities-noncurrent 2, 3 and 23 103,727 0.86 8,878 0.11Research and development equipment 303,920 2.53 255,462 3.20 Total other liabilities 109,414 0.91 14,551 0.18Office and other equipment 141,151 1.17 116,577 1.46 Total liabilities 8,755,108 72.79 5,382,373 67.45Leased assets 457,030 3.80 457,030 5.73
Total cost 2,998,190 24.92 2,403,993 30.12 Stockholders' equityLess: Accumulated depreciation (714,930) (5.94) (500,129) (6.27) Capital 16Construction in progress 101,911 0.85 39,725 0.50 Common stock 1,826,337 15.18 1,747,405 21.90Prepayments for equipment 111,502 0.93 33,117 0.42 Advance receipts for common stock 1,623 0.02 13,468 0.17 Property, plant and equipment-net 2,496,673 20.76 1,976,706 24.77 Capital reserve 18
Bonds conversion premiums 2 and 13 223,591 1.86 164,399 2.06Intangible assets 2 and 10 Employee stock option 2 27,666 0.23 26,253 0.32
Computer software cost-net 61,734 0.51 57,818 0.72 Stock option 2 57,732 0.48 5,946 0.08Other intangible assets 70,073 0.58 70,651 0.89 Retained earnings 19 and 20Land use right 26 115,189 0.96 102,039 1.28 Legal reserve 304,569 2.53 273,125 3.42
Total intangible assets 246,996 2.05 230,508 2.89 Unappropriated earnings 668,912 5.56 385,131 4.83Adjusting items in stockholders' equity
Other assets Cumulative translation adjustments 2 162,179 1.35 34,841 0.44Property not used in operations 2 and 11 14,370 0.12 83,385 1.05 Treasury stock 2 and 21 - - (53,388) (0.67)Refundable deposits 26 45,047 0.37 25,600 0.32 Total stockholders' equity 3,272,609 27.21 2,597,180 32.55Deferred charges 2 56,333 0.47 53,305 0.67
Total other assets 115,750 0.96 162,290 2.04
Total assets $12,027,717 100.00 $7,979,553 100.00 Total liabilities and stockholders' equity $12,027,717 100.00 $7,979,553 100.00
The accompanying notes are an integral part of the consolidated financial statements.
2011 2010As of December 31, As of December 31,
4
SerComm Corporation Annual Report 2011 054
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOMEFor the years ended December 31, 2011 and 2010
(Expressed in Thousands of New Taiwan Dollars, Except for Per Share Data)
Notes Amount % Amount %Sales $13,515,344 102.07 $8,698,312 100.68Less : Sales returns and allowances (273,837) (2.07) (58,525) (0.68)
Net sales 2 13,241,507 100.00 8,639,787 100.00Cost of goods sold 7 and 22 (11,261,997) (85.05) (7,192,936) (83.25)
Gross profit 1,979,510 14.95 1,446,851 16.75
Operating expenses 22 and 25Selling expenses 381,905 2.88 295,447 3.42General and administrative expenses 470,692 3.55 344,439 3.99Research and development expenses 564,959 4.27 454,472 5.26Subtotal 1,417,556 10.70 1,094,358 12.67
561,954 4.25 352,493 4.08
Non-operating incomeInterest income 30 23,881 0.18 12,111 0.14Dividend income 2 831 0.01 831 0.01Gain on disposal of investments 2 12,094 0.09 - - Foreign exchange gain-net 2 124,485 0.94 36,796 0.43Gain on valuation of financial assets-net 2, 5, 13 and 30 19,079 0.14 13,199 0.15Other income 33,439 0.25 12,284 0.14 Total non-operating income 213,809 1.61 75,221 0.87
Non-operating expensesInterest expense 9, 13 and 30 65,797 0.50 32,328 0.37Loss on disposal of property, plant and equipment 2 4,728 0.04 1,464 0.02Other losses 3,782 0.03 7,284 0.08 Total non-operating expenses 74,307 0.57 41,076 0.47
Income from continuing operations before income tax 701,456 5.29 386,638 4.48Income tax expense 2, 3 and 23 (118,415) (0.89) (72,190) (0.84)Net income $583,041 4.40 $314,448 3.64
Before tax After tax Before tax After taxBasic earnings per share (New Taiwan Dollars) 2 and 24
Net income $3.95 $3.29 $2.30 $1.87Minority interests - - - - Stockholders of the parent $3.95 $3.29 $2.30 $1.87
Diluted earnings per share (New Taiwan Dollars) 2 and 24Net income $3.38 $2.81 $2.16 $1.76Minority interests - - - - Stockholders of the parent $3.38 $2.81 $2.16 $1.76
The accompanying notes are an integral part of the consolidated financial statements.
2011 2010
Operating income
5
SerComm Corporation Annual Report 2011055
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 2011 and 2010(Expressed in Thousands of New Taiwan Dollars)
Capital Capital Cumulativecollected Capital Unappropriated Translation Treasury
Description Notes Common Stock in advance Reserve Legal Rasorve Earnings Adjustments Stock TotalBalance as of January 1, 2010 $1,709,450 $- $149,171 $252,576 $257,617 $133,269 $(66,254) $2,435,829Appropriation of 2009 retained earning 20
Legal reserve - - - 20,549 (20,549) - - - Cash dividends - - - - (166,385) - - (166,385)
Change in cumulative translation adjustments of investees 2 - - - - - (98,428) - (98,428)Exercise of employee stock options 17 18,910 - 3,288 - - - - 22,198Compensation costs for Treasury stock transfer to employees 2 - - 2,324 - - - - 2,324Treasury stock transfer to employees 2 and 21 - - - - - - 12,866 12,866Convertible bonds converted into common stock 2 and 13 19,045 13,468 35,869 - - - - 68,382Equity instrument from Convertible bonds 2 and 13 - - 5,946 - - - - 5,946Net income in 2010 - - - - 314,448 - - 314,448Balance as of December 31, 2010 1,747,405 13,468 196,598 273,125 385,131 34,841 (53,388) 2,597,180Appropriation of 2010 retained earning 20
Legal reserve - - - 31,444 (31,444) - - - Cash dividends - - - - (267,816) - - (267,816)
Change in cumulative translation adjustments of investees 2 - - - - - 127,338 - 127,338Exercise of employee stock options 17 13,060 - 1,306 - - - - 14,366Compensation costs for Treasury stock transfer to employees 2 - - 107 - - - - 107Treasury stock transfer to employees 2 and 21 - - - - - - 53,388 53,388Convertible bonds converted into common stock 2 and 13 65,872 (11,845) 59,192 - - - - 113,219Equity instrument from Convertible bonds 2 and 13 - - 51,786 - - - - 51,786Net income in 2011 - - - - 583,041 - - 583,041Balance as of December 31, 2011 $1,826,337 $1,623 $308,989 $304,569 $668,912 $162,179 $- $3,272,609
Retained Earnings
The accompanying notes are an integral part of the consolidated financial statements.
6
SerComm Corporation Annual Report 2011 056
English Translation of Consolidated Financial Statements Originally Issued in Chinese
SERCOMM CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2011 and 2010(Expressed in Thousands of New Taiwan Dollars)
2011 2010Cash flows from operating activities: Net income $583,041 $314,448 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 264,121 200,383 Amortization of discount on bonds payable 14,866 5,321 Gain on valuation of financial assets (19,079) (719) Loss on disposal of property, plant and equipment 4,728 1,464 Compensation costs for treasury stock transfer to employees 107 2,324 Changes in assets and liabilities: Financial assets at fair value through profit or loss-current (7,609) (7,806) Notes and accounts receivable-net (833,291) (748,757) Inventories-net (591,000) (522,521) Other receivables (157,029) (56,972) Other current assets (40,892) (88,556) Deferred income tax assets (32,251) 5,130 Notes payable 34,596 8,474 Accounts payable 1,175,334 515,583 Income tax payable (39,563) 59,438 Accrued expenses 133,548 191,113 Financial liabilities at fair value through profit or loss-current 5,058 - Other current liabilities 130,846 84,169 Accrued pension liabilities 14 127 Deferred income tax liabilities 94,849 8,878 Net cash (used in) provided by operating activities 720,394 (28,479)Cash flows from investing activities: Decrease (increase) in restricted assets-current (2,903) 7,090 Acquisition of financial assets at cost-noncurrent - (58,260) Acquisition of property, plant and equipment (516,043) (719,240) Proceeds from disposal of property, plant and equipment 6,075 1,117 Increase in computer software cost (25,327) (39,397) Increase in other intangible assets (26,042) (24,786) Increase in land use right (7,004) (91,335) Decrease (increase) in refundable deposits (19,447) 13,550 Increase in deferred charges (37,812) (19,682) Net cash used in investing activities (628,503) (930,943)Cash flows from financing activities: Increase in short-term loans 1,336,904 618,709 Issurance of bonds payable 595,000 595,000 Decrease in lease payables (15,628) (14,440) Cash dividends (267,816) (166,385) Exercise of employee stock options 14,366 22,198 Treasury stock transfer to employees 53,388 12,866 Net cash provided by financing activities 1,716,214 1,067,948 Effects from exchange rate changes 15,921 (48,156)Net increase in cash 1,824,026 60,370Cash at beginning of the year 2,044,583 1,984,213Cash at end of the year $3,868,609 $2,044,583Supplemental disclosures of cash flows information: Cash paid for income tax $99,722 $24,383 Cash paid for interest $63,432 $28,399Financing activities not affecting cash flows: Idle asset transfer in fixed assets $78,566 $- Lease payables-current $18,864 $18,465 Bond payable-noncurrent $425,426 $-
The accompanying notes are an integral part of the consolidated financial statements.
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SerComm Corporation Annual Report 2011057
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English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 and 2010
(Expressed in Thousands of New Taiwan Dollars unless Otherwise Stated) 1. Organization and Operations
Sercomm Corporation ("the Company ) was incorporated on July 29, 1992 under the laws of the Republic of China (R.O.C.). The Company primarily engages in the research, development, manufacturing and sale of access server (router), print server and network server. The Company’s common shares were traded on the GreTai (Over-the-counter) Securities Market of the R.O.C. in May 1999, and its shares were publicly listed and traded on the Taiwan Stock Exchange (TSE) in December 2007. The numbers of employees of the Company and its subsidiaries as of December 31, 2011 and 2010 were 3,977 and 3,721, respectively.
2. Summary of Significant Accounting Policies
The consolidated financial statements were prepared in conformity with requirements of the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China (R.O.C.). Summary of significant accounting policies is as follows: (1) Summary of consolidation
The Company’s consolidated financial statements include the following subsidiaries:
Percentage of ownership
Name of the Name of As of December 31,
investors subsidiaries Nature of Business 2011 2010
The Company Senslinq Inc. (Origin: Servecomm Inc.)
Sales of IT products 100.00% 100.00%
The Company Sercomm Investments Ltd.
Investment holding, international trading
100.00% 100.00%
SerComm Corporation Annual Report 2011 058
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
9
Percentage of ownership
Name of the Name of As of December 31, investors subsidiaries Business nature 2011 2010
The Company Sercomm Trading Co. Ltd.
Investment holding, international trading
100.00% 100.00%
The Company Shukuan Investment Ltd.
Investment activity 100.00% 100.00%
The Company Sercomm France SARL (Note A)
Sales of IT products 100.00% -
Sercomm Trading Co. Ltd.
Zealous Investments Ltd.
Investment holding, international trading
100.00% 100.00%
Sercomm Trading Co. Ltd.
Smart Trade Inc. Investment holding, international trading
100.00% 100.00%
Zealous Investments Ltd.
Sernet Technology (Suzhou) Limited
Manufacture of routers, communication products, Wlan products; sales and after-sales service
100.00% 100.00%
Zealous Investments Ltd.
Taicang Sercomm Technology Limited (Note B)
Manufacture of routers, communication products, Wlan products; sales and after-sales service
- 100.00%
Smart Trade Inc. Dwnet Technology (Suzhou) Limited
Manufacture of routers, communication products, Wlan products; sales and after-sales service
100.00% 100.00%
Shukuan Investment Ltd.
Sercomm Japan Corp.
Sales of IT products 100.00% 100.00%
Note A: Sercomm France SARL was incorporated on Jan 27, 2011.
Note B: Taicang Sercomm Technology was liquidated in first quarter 2011. (2) Principles for consolidation
Consolidated financial statements were prepared in accordance with the R.O.C. SFAS No.7. Transactions between consolidated entities are eliminated in the consolidated financial statements. Investees in which the Company and subsidiaries hold more than 50% of voting rights, including those that are exercisable or convertible, are consolidated, since the Company and subsidiaries are considered to possess control. Consolidation shall also be implemented if any of the following circumstances exists:
SerComm Corporation Annual Report 2011059
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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i. the total amount of voting rights held in the investee exceeds 50% due to agreement with
other investors ii. as permitted by law, or by contract agreements, the Company controls an entity’s
finances, operations and personnel affairs iii. the Company has authority to appoint or discharge more than half members of board of
directors (or equivalents), by whom the investee is controlled iv. the Company leads and controls more than half of the members of the board of directors
(or equivalents), by whom the investee is controlled v. other indications of control possession
(3) Classification of current and noncurrent assets and liabilities
Current assets are assets held for trading purposes and assets expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations incurred for trading purposes and obligations expected to be settled within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively.
(4) Foreign currency transactions and translation of foreign currency financial statements
The Company’s and subsidiaries’ accounts are maintained in NTD, USD and RMB. Transactions denominated in foreign currencies are converted into NTD, USD and RMB at exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into NTD using the exchange rates prevailing at the balance sheet date, with the related exchange gains or losses included in the consolidated statement of income. The long-term foreign investments of the Company and the subsidiaries are converted into NTD and USD at exchange rates prevailing at the dates of the transactions. While recording under equity method, the long-term foreign investments of the Company and the subsidiaries are converted into NTD and USD at the weighted-average exchange rate during the reporting period. The long-term foreign investments will be adjusted at the exchange rate prevailing at the balance sheet date. Adjusting differences are recorded as cumulative translation adjustments under stockholders’ equity.
SerComm Corporation Annual Report 2011 060
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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The Company prepares consolidated financial statement. Financial statements of foreign
subsidiaries are translated into New Taiwan Dollars ("NTD ) at the exchange rates
prevailing at the balance sheet date for assets and liabilities accounts, historical exchange
rates for equity accounts, and weighted-average exchange rates during the reporting period
for profit and loss accounts. Translation differences resulting from the translation of such
financial statement into NTD are recorded as cumulative translation adjustments, a separate
component of stockholders’ equity.
(5) Financial assets and financial liabilities
In accordance with the R.O.C. SFAS No. 34, “Accounting for Financial Instruments” and
“Guidelines Governing the Preparation of Financial Reports by Securities Issuers”, financial
assets are classified as either financial assets at fair value through profit or loss, derivative
financial assets for hedging, financial assets measured at cost or available-for-sale financial
assets. When financial assets are recognized initially, they are measured at fair value, plus
transaction costs for all financial assets not measured at fair value through profit or loss.
Financial liabilities are to be classified as either financial liabilities at fair value through
profit or loss, derivative financial liabilities for hedging or financial liabilities measured at
cost.
The Company and its subsidiaries account for regular purchase or regular sale of financial
assets as of the trade date, which is the date the Company and its subsidiaries commit to
purchasing or selling the asset. Regular purchase or regular sale is that the delivery period
of a transaction for a financial asset is in a regular period or required period by law.
a. Financial assets and financial liabilities at fair value through profit or loss
Financial assets or financial liabilities at fair value through profit or loss are subsequently
measured at fair value and changes in fair value are recognized in profit and loss. This
category has two sub-categories: financial assets or liabilities held for trading and those
designated at fair value through profit or loss at inception.
SerComm Corporation Annual Report 2011061
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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b. Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial instruments not classified as financial assets at fair value through profit or loss, held-to-maturity financial assets, bond investments for which no active market exists. Investments designated as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, recorded in other items in stockholders’ equity until the investment is derecognized or until the investment is determined to be impaired at with time the cumulative gain or loss previously reported in equity is included in the statement of operations.
c. Derivative financial assets and liabilities for hedging
Derivative financial assets and liabilities for hedging that have been designated in hedge accounting relationships and are effective hedging instruments and reported at fair value.
d. Financial assets measured at cost
Equity investments without reliable market prices, or derivatives linked to and settled in are measured at cost.
The fair value of stock of listed companies or beneficiary certification is measured by closing price at balance sheet date. The fair value of open-end funds is measured at the unit price of the net assets at the balance sheet date.
(6) Assessment of impairment for account receivables
Prior December 31, 2010, recognition of an allowance for doubtful accounts was based on historical experience in analyzing the aging and determining the collectability of notes, accounts and other receivables as of the balance sheet date. Effective January 1, 2011, the Company first assesses as of balance sheet date whether objective evidence of impairment exists for notes, accounts and other receivables that are individually significant. If there is objective evidence that an impairment loss has occurred, the amount of impairment loss is assessed individually. For notes, accounts and other receivables other than those mentioned above, the Company groups those assets with similar credit risk characteristics and collectively assess them for impairment.
SerComm Corporation Annual Report 2011 062
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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(7) Inventories
Inventories are valued at the lower of cost and net realizable value. Costs incurred in bringing each product to its present location and condition is accounted for as follows: Raw materials - purchase cost on a weighted average cost formula basis. Work in progress and finished goods
- cost of direct materials and labor and a proportion of manufacturing overheads based on normal operating capacity on a weighted average cost formula basis.
Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
(8) Long-term investments accounted for under the equity method
Investees wherein the Company exercises significant influence are accounted for by the equity method. According to the R.O.C. SFAS No. 23, "Interim Financial Reporting and Disclosures , investment income or loss from investments in companies quarterly is accounted for under the equity method provided that the Company and subsidiaries owns at least 20% in its equity investee. The Company consolidates investee in which the Company owned, directly or indirectly, more than 50% of the voting shares of a company or less than 50% of voting shares but has a controlling financial interest in accordance with the R.O.C. SFAS No. 7, "Consolidation of Financial Statements . Stock dividends are recognized only as an increase in the number of shares, and the cost per share has to be recalculated. Cost on disposal of stocks is determined by the weighted-average method.
(9) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment loss. Significant renewals and improvements are capitalized and depreciated over their estimated useful lives while ordinary repairs and maintenance are expensed as incurred.
SerComm Corporation Annual Report 2011063
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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Property being leased to others is classified as other assets and stated at the book value. Property not in use is classified to other assets and stated at the lower of book value or net realizable value. Upon disposal or sale of an item of property, plant and equipment, the related cost, accumulated depreciation and accumulated impairment loss are written off. Gains or losses on disposal of property, plant and equipment are recorded as non-operating income or expense. Depreciation is recognized on a straight-line basis using the estimated economic life of the assets less salvage value, if any. If the main property, plant and equipment are fully depreciated and sub property, plant and equipment are still in use, the depreciation is based on the newly estimated remaining useful life. The estimated economic life of the property, plant and equipment is as follows: Buildings 40-55 Years Machinery and equipments 3-10 Years Molding equipments 3-5 Years Research and development equipments 3-5 Years Office and other equipments 2-5 Years Leased assets 35-50 Years Equipments leased under capital lease are carried at the lower of the market value or the present value of the minimum lease payments at the inception date of the lease. Depreciation of leased assets is calculated based on the economic useful lives of 35-50 years, and recognized as the lease payable. The Company recognizes the implicit interest of rental payments as interest expense in the period. Property leased to others under operating leases is classified as other assets and stated at book value. The value of the assets is depreciated using the straight-line method over the estimated useful lives.
(10) Land use right
Land use right is stated at cost and amortized over 50 years by using the straight-line method.
SerComm Corporation Annual Report 2011 064
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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(11) Intangible assets
All purchased and in-house developed computer software for manufacturing the Company’s products (servers) shall be capitalized. Effective from January 1, 2007, the Company adopted R.O.C. SFAS No. 37 “Accounting for Intangible Assets”. In accordance with SFAS No. 37, an intangible asset should be measured initially at cost upon acquisition. After initial recognition, an intangible asset should be measured at its cost plus revaluation increment revalued in accordance with laws, less any accumulated amortization and any accumulated impairment losses. Intangible assets with finite useful lives should be amortized over its useful lives with impairment testing. The Company should assess, at each balance sheet date, whether there is any changes of the residual value, amortization period and amortization method of each intangible assets with finite useful lives. Such changes shall be accounted for as changes in accounting estimates. The Company’s research and development project needs to consider the research phase and the development phase. If is unable to distinguish, all regards as research phase. Expenditure on research shall be recognized as an expense when it is incurred. The cost of development activities should be capitalized as intangible assets if, and only if, the Company can demonstrate all of the following. Otherwise, the cost of development activities should be expensed as incurred. a) the technical feasibility of completing the intangible asset so that it will be available for
use or sale. b) its intention to complete the intangible asset and use or sell it. c) its ability to use or sell the intangible asset. d) how the intangible asset will generate probable future economic benefits. e) the availability of adequate technical, financial and other resources to complete the
development and to use or sell the intangible asset. f) its ability to measure reliably the expenditure attributable to the intangible asset during
its development. The Company’s policies for intangible assets are summarized at the table below:
Description Estimated economic life Amortization method Computer software cost 2-5 years Straight-line method Development expenditures 5 years Straight-line method
SerComm Corporation Annual Report 2011065
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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(12) Deferred charges
Molding and product testing expenditures are amortized on a straight-line basis over their estimated economic lives, 2-5 years.
(13) Convertible bonds
The liability component of the convertible bonds is measured first, and the difference between the proceeds of the bond issued and the fair value of the liability is accounted for as the equity component. The embedded derivative is accounted for in accordance with the requirements under the R.O.C. SFAS No.34. The liability component is subsequently measured at amortized cost using effective interest rate method, and changes in fair value of the equity component are not recognized while changes in fair value of the embedded derivatives are reported to the income statement as valuation gains or losses on Financial Instruments. When the conversion option expires unexercised and at that time the market value of the common stock under conversion exceeds the put price, put premium should be credited to capital reserve, if the market value is otherwise lower than the put price, then it is recognized in profit or loss. When the bond holder exercises the conversion option before bond maturity, the adjusted carrying value of the liability components (including bonds and embedded derivatives) is credited to a capital stock account along with the carrying amount of the stocks converted. Bond issuance costs were allocated proportionately to the convertible bonds and embedded derivates based on their respective balances upon initial recognition.
(14) Derecognition of financial assets and liabilities
a. Financial assets
The Company and its subsidiaries derecognize their financial assets or part of the financial assets when losing control of the contractual rights from the financial assets or part of the financial assets. When the Company and its subsidiaries transfer all or part of their financial assets and relinquish control of the financial assets, this transaction is considered as a sale within the range of exchange with reward.
When a transfer of a financial asset does not satisfy conditions required to be considered as lose of contro1, the Company and its subsidiaries treat the transfer as a guaranteed borrowing. The financial asset is not considered financial derivatives.
SerComm Corporation Annual Report 2011 066
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
17
b. Financial liabilities
The Company and its subsidiaries derecognize their financial liabilities or part of the liabilities when extinguished by discharge, cancellation, or expiration of contractual obligation. When there has been an exchange of an existing financial liabilities between the Company and its subsidiaries and the creditor with substantially different terms, or there has been a substantial modification of the terms of the existing financial liabilities, and a simultaneous assumption of obligation from new financial liabilities, this transaction is accounted for as an extinguishment of the original financial liabilities and the recognition of new financial liabilities. A gain or loss from extinguishment of the original financial liability is recognized in the income statement.
(15) Impairment of financial assets
The Company assesses whether financial assets are impaired at each balance sheet date. Impairment of financial assets is measured by different methods as described below: a. Financial assets measured at cost
If there is objective evidence that an impairment loss exists on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. The impairment loss is not allowed to reverse.
b. Available-for-sale financial assets
If available-for-sale assets are impaired, an amount comprising the difference between its cost (net of any principal payment and amortization) and its current fair value, less any impairment loss previously recognized in profit or loss, is transferred from equity to the income statement. Reversals in respect of equity instruments classified as available-for-sale are not recognized in profit. Reversals of impairment losses on debt instruments are reversed through profit or loss; if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in profit or loss.
SerComm Corporation Annual Report 2011067
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
18
(16) Assets impairment
Pursuant to the R.O.C. SFAS No. 35, "Accounting for Asset Impairment the Company assesses indicators of impairment for all its assets within the scope of the standard at each balance sheet date. If impairment is indicated, the Company compares the carrying amount with the recoverable amount of the assets or the cash-generating unit ("CGU ) associated with the asset and writes down the carrying amount to the recoverable amount where applicable. Recoverable amount is defined as the higher of fair values less costs to sell and the values in use. For previously recognized losses, the Company shall assess, at each balance sheet date, whether there is any indication that the impairment loss may no longer exist or may have decreased. If there is any such indication, the Company has to recalculate the recoverable amount of the asset. If the recoverable amount increases as a result of the increase in the estimated service potential of the assets, the Company shall reverse the impairment loss to the extent that the carrying amount after the reversal would not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the assets in prior years. Impairment loss (reversal) is classified as non-operating losses (income).
(17) Pension plan
All regular employees are entitled to a defined benefit pension plan that is managed by an independently administered pension fund committee within the Company according to the Labor Standards Law of the R.O.C. Fund assets are deposited in the committee’s name in the Bank of Taiwan and hence, not associated with the Company. Therefore the fund assets are not be included in the Company’s financial statements. The Labor Pension Act of the R.O.C. (the Act), which adopts a defined contribution plan, became effective on July 1, 2005. In accordance with the Act, employees may choose to elect either the Act, by retaining their seniority before the enforcement of the Act, or the pension mechanism of the Labor Standards Law. For employees who elect the Act, the Company will make monthly contributions of no less than 6% of the employees’ monthly wages to the employees’ individual pension accounts.
SerComm Corporation Annual Report 2011 068
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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The accounting for pension is computed in accordance with the R.O.C. SFAS No.18,
"Accounting for Pensions . Net pension costs of the defined benefit plan are recorded
based on an actuarial valuation. Pension cost components such as service cost, interest
cost, expected return on plan assets, the amortization of net obligation at transition, pension
gain or loss, and prior service cost, are all taken into consideration by the actuary. The
Company recognizes expenses from the defined contribution pension plan in the period in
which the contribution become due.
The pension plan of foreign subsidiaries is estimated at local related regulation.
(18) Employee stock option plan
The Company uses intrinsic value method to recognize compensation cost for its employee
stock options issued between January 1, 2004 and December 31, 2007, in accordance with
Accounting Research and Development Foundation interpretation Nos.92-070~072. For
stock options granted on or after January 1, 2008, the Company recognizes compensation
cost using the fair value method in accordance with R.O.C. SFAS No. 39 "Accounting for
Share-Based Payment.
In accordance with R.O.C. SFAS No. 39, share-based payment transaction is measured by
reference to the fair value of the equity instruments at the date on which they are granted;
the fair value is determined by an external expert using an appropriate pricing model.
The Company only enters into equity-settled share-based payment transaction with its and
its subsidiaries’ employees. Pursuant to R.O.C. SFAS No. 39, the goods or services
received under such transaction, and the corresponding increase in equity, shall be
measured by reference to the fair value of the equity instruments granted. If there is no
vesting condition attached, then the equity instrument is vested immediately, with the
employee compensation costs recognized as at the grant date, with a corresponding
increase in equity. If the equity instrument is vested over a certain period, then the
employee compensation costs are recognized over the period, with a corresponding
increase in equity.
SerComm Corporation Annual Report 2011069
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
20
In valuing the fair value of the equity instrument granted, no account is taken of any vesting conditions other than market conditions. Instead, non-market vesting conditions shall be taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount, so that, ultimately, the amount recognized for goods or services received as consideration for the equity instruments granted shall be based on actual number of equity instruments that eventually vest. For grants of equity instruments with market conditions, the Company shall recognize the goods or services received from a counterparty that satisfies all other vesting conditions, irrespective of whether the market condition is satisfied.
(19) Employee bonuses and remunerations paid to directors and supervisors
In accordance with Accounting Research and Development Foundation interpretation No. 96-052 effective January 1, 2008, employee bonuses and remunerations paid to directors and supervisors are charged to expense at fair value and are no longer accounted for as an appropriation of earnings.
(20) Treasury stock
The Company adopts the R.O.C. SFAS No. 30, "Accounting for Treasury Stocks , which requires the treasury stock held by the Company to be accounted for under the cost method. The cost of treasury stock is shown as a deduction to stockholders’ equity, while any gain or loss from selling treasury stock is treated as an adjustment to capital reserve. If there is any deficiency, it is debited against retained earnings.
(21) Revenue recognition
The Company and its subsidiaries recognize revenue when the product or service has been delivered and significant risk has been transferred. The Company and its subsidiaries and their customers have agreed to use fair value in determining the sales prices, taking into account the related sales discounts. Since the receivables are collected within one year and such transactions are frequent, fair value of the receivables is equivalent to the nominal amount of the cash to be received.
(22) Capital expenditure versus operating expenditure
Expenditure exceeds a predetermined amount is capitalized when it is probable that the Company will receive future economic benefits associated with the expenditure. Otherwise, the expenditure is expensed as incurred.
SerComm Corporation Annual Report 2011 070
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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(23) Unrealized gain (loss) on inter-affiliate accounts
Unrealized intercompany gains and losses arising from sales from the Company and its subsidiaries to equity method investees are eliminated in proportion to the Company’s year-end ownership percentage until realized through transactions with third parties. Intercompany gains and losses arising from transactions between the Company and majority-owned (above 50%) subsidiaries are eliminated entirely until realized through transactions with third parties. Unrealized intercompany gains and losses due to sales from equity method investees to the Company are eliminated in proportion to the Company’s weighted-average ownership percentage of the investee until realized through transactions with third parties.
(24) Income tax
The Company and its subsidiaries have adopted inter-period and intra-period income tax allocation according to the R.O.C. SFAS No. 22, “Accounting for Income Tax”. Tax effects on taxable temporary differences are recognized as deferred tax liabilities. Tax effects on deductible temporary differences, operating loss carryforward, and investment tax credits are recognized as deferred tax assets. Valuation allowance is provided on deferred tax assets when they are not certain to be realized. A deferred tax asset or liability should, according to the classification of its related asset or liability, be classified as current or noncurrent. However, if a deferred asset or liability is not directly related to an asset or liability, then the classification is based on the expected length of time before it is settled or recovered. According to the R.O.C. SFAS No. 12, “Accounting for Income Tax Credits”, the Company recognized the tax benefit from research and development expenditure, employee training by the flow through method. Income tax (10%) on unappropriated earnings is recorded as expense in the year in which the shareholders have resolved earnings to be retained. The R.O.C. government has made the Alternative Minimum Tax Act (“AMT Act”) effective since January 1, 2006. Pursuant to AMT Act, the higher of the amount of income tax payable determined pursuant to the Income Tax Law or the minimum amount prescribed under the AMT Act is provided by the Company as income tax payable. In addition, the Company has considered the impact of AMT in future years when evaluating realized deferred tax asset.
SerComm Corporation Annual Report 2011071
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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(25) Earnings per share
Earnings per share are computed according to the R.O.C. SFAS No. 24, "Earnings per share . Basic earnings per share are computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the current reporting period. Diluted earnings per share is computed by taking basic earnings per share into consideration plus additional common shares that would have been outstanding if the dilutive share equivalents had been issued. Net income (loss) is also adjusted for interest and other income or expenses derived from any underlying dilutive share equivalents. The weighted-average of outstanding shares is adjusted retroactively for stock dividends and bonus share issues.
(26) Derivatives financial instrument and hedge activities
In order to hedge the resulting from the volatility in exchange rate, the Company and its subsidiaries entered into foreign exchange forward contracts. The derivative are initially recognized and re-measured at fair value. When the fair value is positive, the derivative is recognized as a financial asset; when the fair value is negative, the derivative is recognized as a financial liability. If the derivative financial products does not meet the criteria for hedge accounting, the changes in fair value is transferred to the income statement. In additional, the derivative financial products shall be reclassified as financial assets or liabilities for trade purpose. Hedges are classified as the following three categories: a. Fair value hedges
Fair value hedges are hedges of the Company’s exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment.
b. Cash flow hedges
Cash flow hedges are hedges of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction and could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognized directly in equity, while the ineffective portion is recognized in profit or loss immediately.
SerComm Corporation Annual Report 2011 072
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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c. A net investment in a foreign operation hedges
At inception of the hedge, there is formal documentation of the hedging relationship and the Company’s risk management objective and strategy for undertaking the hedge, including identification of the hedging instrument, the hedged item, the nature of the risk being hedged, and how the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value attributable to the hedged risk will be assessed. There must be a reasonable basis for how the Company plans to assess the hedging instrument’s effectiveness.
Hedges which meet the strict criteria for hedge accounting are accounted for as follows: Fair value hedges Fair value hedges are hedges of the Company’s exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect profit or loss. For fair value hedges, the carrying amount of the hedged item is adjusted for gains and losses attributable to the risk being hedged, the derivative is re-measured at fair value and gains and losses from both are taken to profit or loss. The Company and its subsidiaries shall discontinue prospectively the hedge accounting for an existing hedge if any one of the following occurs: a. The derivative is expired or sold, or terminated, or exercised. b. Any criterion for hedge accounting is no longer met. c. The Company removes the designation of the fair value hedge.
(27) Operating segment information
An operating segment is a component of an entity that has the following characteristics: a. engaging in business activities from which it may earn revenues and incur expenses; b. whose operating results are regularly reviewed by the entity’s chief operating decision
maker to make decisions about resources to be allocated to the segment and assess its performance; and
c. for which discrete financial information is available. The Company discloses its operating segment information in the consolidated financial statements of Sercomm Corporation and subsidiaries.
SerComm Corporation Annual Report 2011073
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
24
3. Accounting changes
(1) Effective January 1, 2011, the Company adopted the third revised SFAS No. 34, "Financial instruments: Recognition and Measurement. Such changes in accounting principle did not have significant effect on the Company’s financial statements for the year ended December 31, 2011.
(2) Effective January 1, 2011, the Company adopted R.O.C SFAS No. 41, “Operating
Segments” (R.O.C. SFAS41), to present operating segment information. The newly issued R.O.C SFAS 41 replaced SFAS No.20, “Segment Reporting”, the comparative operating segment information has been presented accordingly. This change in accounting principles had no effect on consolidated net income or consolidated earnings per share for the years ended December 31, 2011 and 2010.
(3) In accordance with the amended tax laws effective on May 27, 2009, the corporate tax rate
has been reduced from 25% to 20%. And in accordance with the amended tax laws effective on June 15, 2011, corporate tax rate further reduced from 20% to 17%. The adoption resulted in increasing effect on net gain NT$5,268 thousand, thereby increasing gain per share by $ 0.03 for the year ended December 31, 2010.
4. Cash
As of December 31, 2011 2010
Cash on hand $2,694 $2,054 Checking and savings accounts 1,851,028 719,872 Time deposits 2,014,887 1,322,657 Total $3,868,609 $2,044,583
As of December 31, 2011 and 2010, the savings accounts outside Taiwan were NT$2,007 thousand (USD$66 thousand) and NT$1,102 thousand (USD$38 thousand), respectively.
5. Financial assets (liabilities) at fair value through profit or loss-current
(a) Details of the financial assets or financial liabilities at fair value through profit or loss are as follows:
SerComm Corporation Annual Report 2011 074
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
25
Financial assets held for trading - current As of December 31, 2011 2010 Foreign currency forward contracts $- $10,337 Foreign currency option contracts 24,122 - Convertible bond embedded derivatives 6,261 - $30,383 $10,337
Financial liabilities held for trading - current As of December 31, 2011 2010 Foreign currency forward contracts $(284) $- The Company entered into the above-mentioned derivative financial instruments primarily for the purpose of hedging exchange risk associated with the assets, liabilities, or commitments denominated in foreign currencies. However these financial instruments do not satisfy the criteria of hedge accounting and thus are classified under "financial assets at fair value through profit or loss-current and "financial liabilities at fair value through profit or loss-current .
(b) The details of the Company’s foreign exchange forward contracts are as follows:
December 31, 2011 Currency Nominal amount Maturity date
Sell foreign exchange forward USD/NTD USD$1,000 thousand 2012.1.11
December 31, 2010 Currency Nominal amount Maturity date
Sell foreign exchange forward USD/NTD USD$9,000 thousand 2011.1.12-2011.3.7
(c) The details of the Company’s foreign exchange option contracts are as follows:
December 31, 2011 Nominal Amount Strike Price Maturity date
Call Options EUR$5,000 thousand 1.45 (EUR/USD) 2012.1.5-2012.5.25
SerComm Corporation Annual Report 2011075
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
26
(d) Please refer to Note 13 for the Company’s third domestic unsecured convertible bonds
payable related to embed derivatives financial asset. (e) Net gain on financial assets and financial liabilities held for trading during 2011 and 2010
were NT$10,950 thousand and NT$12,480 thousand, respectively. (f) Please refer to Note 30 for financial risk information.
6. Notes and accounts receivable-net
As of December 31, 2011 2010
Notes receivable $732,669 $- Accounts receivable 1,897,495 1,795,969 Subtotal 2,630,164 1,795,969 Less: Allowance for doubtful accounts (6,580) (5,676) Net $2,623,584 $1,790,293 The Company entered into account receivable factoring agreements (without recourse) with several financial institutes in Taiwan. Under the agreements, the Company has surrendered control over the receivable to the factors. The factors had fully paid out the sales proceeds and assumed substantially all risks of collection as receivable were transferred. The details of accounts receivable derecognized for the year ended December 31, 2011 and 2010 are summarized as follows:
As of December 31, The Factor (Transferee) 2011 2010 Credit line
HSBC Bank (Taiwan) $1,137 $6,855 USD ,800 thousand Taishin Bank 805,589 25,349 USD 50,000 thousand Fubon Financial Bank 44,205 - USD 5,000 thousand DBS Bank (Taiwan) 35,225 - USD 5,000 thousand One of the Company's foreign customers has filed for restructuring in September 2010. As of December 31, 2010, the Company's Accounts Receivable from this customer amounted to NT$36,580 thousand of which NT$34,597 thousand is recoverable from an insurance claim made and has been reclassified to other receivables. Provisions for bad debts have been made for the remaining unrecoverable amount and have been written off in 2011.
SerComm Corporation Annual Report 2011 076
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
27
7. Inventories
As of December 31, 2011 2010
Raw materials $979,474 $808,898 Work in process 306,112 362,924 Finished goods 709,151 224,372 Subtotal 1,994,737 1,396,194 Less: Allowance for loss on decline in market value and
obsolescence (86,820) (79,277)
Net $1,907,917 $1,316,917
For the ended December 31, 2011 and 2010, cost of goods sold were NT$11,223,196 thousand and NT$7,192,936 thousand, including NT$60,334 thousand and NT$39,717 thousand of write-down of inventories to net realizable value, respectively.
8. Financial assets measured at cost-noncurrent
As of December 31, 2011 2010
Unlisted stocks Industrial Bank of Taiwan $40,000 $40,000 TECO Nanotech Co., Ltd. 10 10 Cerpass Consultancy Corp. 7,444 7,444 Ubiquisys Ltd. 60,580 58,260
Total $108,034 $105,714
The stock investments were measured at cost because they were not traded in an open market and did not have fair value.
9. Property, plant and equipment
(1) The Company rented the Nankang Software Industrial Park office by capital lease, please refer to Note 14.
SerComm Corporation Annual Report 2011077
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
28
(2) The information of interest capitalized is as follows:
Year Total interest expense Interest capitalized Interest rates applied
2011 $65,797 $399 1.48%-1.66% 2010 32,328 5,442 0.77%-3.06%
(3) Please refer to Note 26 for property, plant and equipment pledged as collateral.
10. Intangible assets
As of December 31, 2011 Computer
software cost Development expenditures Land use right Total
Cost: Beginning of the year $165,663 $268,678 $103,472 $537,813 Purchase 23,271 30,684 7,004 60,959 Translation adjustment (2,499) - 9,065 6,566 End of the year 186,435 299,362 119,541 605,338
Accumulated amortization:
Beginning of the year 107,845 198,027 1,433 307,305 Amortization 19,700 31,262 2,750 53,712 Translation adjustment (2,844) - 169 (2,675) End of the year 124,701 229,289 4,352 358,342
Book value:
Beginning of the year $57,818 $70,651 $102,039 $230,508 End of the year $61,734 $70,073 $115,189 $246,996
As of December 31, 2010 Computer
software cost Development expenditures Land use right Total
Cost: Beginning of the year $127,333 $238,910 $12,882 $379,125 Purchase 39,397 29,768 91,335 160,500 Translation adjustment (1,067) - (745) (1,812) End of the year 165,663 268,678 103,472 537,813
SerComm Corporation Annual Report 2011 078
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
29
As of December 31, 2010 Computer
software cost Development expenditures Land use right Total
Accumulated amortization: Beginning of the year 88,472 169,244 1,257 258,973 Amortization 20,122 28,783 263 49,168 Translation adjustment (749) - (87) (836) End of the year 107,845 198,027 1,433 307,305
Book value:
Beginning of the year $38,861 $69,666 $11,625 $120,152
End of the year $57,818 $70,651 $102,039 $230,508
Please refer to Note 26 for Land use right pledged as collateral.
11. Property not used in operations
Details of the property not used in operations are as follows:
As of December 31, 2011 2010
Leased assets-land $10,020 $10,020 Leased assets-buildings 5,752 5,752 Idle assets - 68,858 Less: Accumulated depreciation (1,402) (1,245) Net $14,370 $83,385
Oriental Technopolis, the building where the Company’s office premises were located, suffered fire damage on May 12, 2001. Although the Company’s office was not deranged during the fire incident, some research and development equipments and office equipments were partially damaged. Since the building was required to be renovated before it can be re-used, the Company had relocated its office after the incident. The book value of the land and building of the original office in the Oriental Technopolis had been reclassified as Idle Assets in 2001. In December 2002, the Company reclassified the Idle Assets as Land and Construction-In-Progress due to that the Reconstruction Committee of Oriental Technopolis had approved to proceed with competitive price bidding process for the renovation project.
SerComm Corporation Annual Report 2011079
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
30
The renovation project had been delayed because the financing difficulties of the original contractor. In 2007, the Reconstruction Committee of Oriental Technopolis had sought a new contractor to execute the contract. The Company reclassified the land and damaged building at their carrying amount of NT$43,230 thousand and NT$25,628 thousand, respectively, to "Idle Asset . The reconstruction was completed and ready to use in June 2011. Related land and building are transfer from idle assets to fixed assets. The Company rented the building’s parking lot to others and thus had recorded them as “assets leased to others”.
12. Short-term loans
As of December 31, 2011
Items Amounts Interest rate Collateral Secured loans $236,521 2.32%-3.27% Land use right and Building Credit loans 2,388,977 0.94%-1.75% None L/C loans 194,209 Total $2,819,707
As of December 31, 2010
Items Amounts Interest rate Collateral Secured loans $282,219 1.79%-1.80% Land use right and Building Credit loans 1,200,584 0.92%-1.96% None Total $1,482,803
13. Bonds payable
A. The Company’s bonds payable are as follows:
As of December 31 Item 2011 2010
The third domestic unsecured convertible bonds payable $460,851 $586,498 The fourth domestic unsecured convertible bonds payable 600,000 - Less: discount on bonds payable (92,585) (59,738) Total 968,266 526,760 Less: Current portion (425,426) - Net $542,840 $526,760
SerComm Corporation Annual Report 2011 080
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
31
As of December 31
Item 2011 2010 Embedded derivatives (Note 1) Financial asset- non current $6,261 $1,487 Less: Current portion (Note 2) (6,261) - Net $- $1,487 Equity instrument (Note 3) $57,732 $5,946
Note 1: Including bonds holder’s put option value and the Company’s call option value,
which are recorded as financial assets at fair value through profit or loss. Note2: According to the Company’s third unsecured convertible bonds payable issuing
clause (refer to term (f)), bonds holders could exercise put option in August 2012; therefore, the Company reclassify bonds payable due in one year and related derivatives financial assets to current liabilities and assets.
Note 3: Conversion option value, which is recorded as additional paid-in capital-option. B. The Company’s Board of Directors resolved on June 24, 2010 and June 17, 2011 to issue the
third and fourth domestic unsecured convertible bonds, which were issued on August 6, 2010 and August 30, 2011, respectively. The terms and conditions of the bonds are as follows:
Third domestic unsecured convertible bond:
(a) Issue Amount: NT$600,000 thousand, each with a face value of NT$100 thousand,
issued based on 100% of par value. (b) Par Value’s annual interest rate:0%. (c) Issuing period: from August 6, 2010 to August 6, 2015. (d) Conversion method:
i. Conversion period: The bondholder may, on the following day when reaching one
full month from the bond issuing date and ten days prior to maturity, except for the closed period, at any time request the Company to convert the bonds into the Company’s common stocks in accordance with this measure.
SerComm Corporation Annual Report 2011081
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
32
ii. Conversion price and adjustments: With the convertible bonds’ conversion price set
at NT$22.24 per share at the time of issue, and following the issue of the convertible bonds, the conversion price is to be adjusted in accordance with stipulations set by the convertible bonds’ issuing provisions, when the Company increased the common stocks (except when the Company reissues or stages a private solicitation of common stocks with convertible rights or staging for an exchange of the common stocks through share pledging of a variety of marketable securities, or when the Company increases the common stocks already issued or solicited, including but not limited to capital reinvestment, earnings converting to capital reinvestment, capital reserve converting to capital reinvestment, employee bonuses converting to capital reinvestment, merger or new share issue by an invested entity, stock division and cash capital reinvestment for participating in offshore depository certificates and the like through solicitation issue or private solicitation), or when the common stock cash dividends of a given year against the ratio of the current price per share exceed 1.5%, or when the Company converts at a conversion price lower than the going price per share for a variety of marketable securities through share pledging reissue or private solicitation of common stocks with convertible rights or share pledging right, or when the Company reduces the common stocks in a capital reduction due to cancellation of the common stocks held in vault.
As of December 31, 2011, the conversion price was adjusted to $20.33 per share.
(e) The Company’s call option:
Under the following circumstances, effective from 1 year after the issuance until 40 days prior to maturity, the Company may recall the convertible bonds at par value plus 2% real yield per year: i. The closing price of the Company’s common stocks exceeds 30% of the last adjusted
conversion price at the time for 30 consecutive business days. ii. The balance of the Company’s total outstanding bonds currently in circulation falls
lower than 10% of the par value.
(f) Bondholder’s put option: The period of 40 days prior to reaching two years and four years after issuance, bondholders may notify the Company’s stockholders’ service entity in writing to request the Company to buy back the convertible bonds at the par value plus 2% yearly yield of the bonds.
SerComm Corporation Annual Report 2011 082
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
33
Fourth domestic unsecured convertible bond:
(a) Issue Amount: NT$600,000 thousand, each with a face value of NT$100 thousand,
issued based on 100% of par value. (b) Par Value’s annual interest rate:0%. (c) Issuing period: from August 30, 2011 to August 30, 2016. (d) Conversion method:
i. Conversion period: The bondholder may, on the following day when reaching one
full month from the bond issuing date and ten days prior to maturity, except for the closed period, at any time request the Company to convert the bonds into the Company’s common stocks in accordance with this measure.
ii. Conversion price and adjustments: With the convertible bonds’ conversion price set
at NT$40.76 per share at the time of issue, and following the issue of the convertible bonds, the conversion price is to be adjusted in accordance with stipulations set by the convertible bonds’ issuing provisions, when the Company increased the common stocks (except when the Company reissues or stages a private solicitation of common stocks with convertible rights or staging for an exchange of the common stocks through share pledging of a variety of marketable securities, or when the Company increases the common stocks already issued or solicited, including but not limited to capital reinvestment, earnings converting to capital reinvestment, capital reserve converting to capital reinvestment, employee bonuses converting to capital reinvestment, merger or new share issue by an invested entity, stock division and cash capital reinvestment for participating in offshore depository certificates and the like through solicitation issue or private solicitation), or when the common stock cash dividends of a given year against the ratio of the current price per share exceed 1.5%, or when the Company converts at a conversion price lower than the going price per share for a variety of marketable securities through share pledging reissue or private solicitation of common stocks with convertible rights or share pledging right, or when the Company reduces the common stocks in a capital reduction due to cancellation of the common stocks held in vault.
As of December 31, 2011, the conversion price remains the same.
SerComm Corporation Annual Report 2011083
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
34
(e) The Company’s call option:
Under the following circumstances, effective from 1 year after the issuance until 40 days prior to maturity, the Company may recall the convertible bonds at par value per year: i. The closing price of the Company’s common stocks exceeds 30% of the last adjusted
conversion price at the time for 30 consecutive business days. ii. The balance of the Company’s total outstanding bonds currently in circulation falls
lower than 10% of the par value.
(f) Bondholder’s put option: The period of 40 days prior to reaching three years after issuance, bondholders may notify the Company’s stockholders’ service entity in writing to request the Company to buy back the convertible bonds at the par value.
C. The conversion of the third domestic unsecured convertible bonds payable is as follows:
For the years ended December 31, 2011 Converted Par value Shares (thousand) Balance, beginning of period $68,800 3,251 Converted during this period 113,800 5,403 Balance, ending of period $182,600 8,654
For the years ended December 31, 2010 Converted Par value Shares (thousand) Balance, beginning of period $- - Converted during this period 68,800 3,251 Balance, ending of period $68,800 3,251
SerComm Corporation Annual Report 2011 084
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
35
D. The Company has, in complying with stipulations set by the R.O.C. SFAS No. 36, separated
the value of the bonds’ conversion option as an equity instrument from the net value of the
bonds, which was accounted as capital reserve in the amount of NT$57,732 thousand. As the
Company’s call option and Bondholder’s put option were not closely related to the
economic characteristics and risks of the host contract, they are bifurcated as embedded
derivates and accounted for as the financial liabilities at fair value through profit or loss.
E. For the year ended December 31, 2010 and 2011, the related discount amortization was
NT$14,866 thousand and NT$5,321thousand, which was recorded as interest expenses
under the non-operating expenses. As for the gain on valuation on financial liabilities, it was
NT$8,129 and NT$349 thousand for the year ended December 31, 2010 and 2011, which
was recorded as valuation gain on financial liabilities at fair value through profit or loss
under the non-operating income.
14. Lease payables
As of December 31,
2011 2010
Lease payables $349,768 $365,396
Less: current portion (18,864) (18,465)
Total $330,904 $346,931
The Company signed a contract with Industrial Development Bureau, Ministry of Economic
Affairs to lease an office space in Nankang Software Industrial Park on August 15, 2003 and
July 31, 2007, respectively. These capital leases expire on various dates from August 2003 to
August 2013 and from July 2007 to July 2017, respectively. The annual lease payment is
adjusted according to Industrial Development Bureau’s prescribed rental rate yearly. The
prescribed rental rate is adjusted every January 1 and July 1 semi-annually based on the interest
rate of long-term loan and annual base on Consumer Price Index. In addition, the Company
has bargain purchase option within the lease term. According to the contract, the minimum
lease payments (include interest expenses) for the future are as follows:
SerComm Corporation Annual Report 2011085
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
36
Year Amounts Discounted present value
2012 $26,287 $22,543
2013 26,287 22,063
2014 26,287 21,594
2015 26,288 21,134
2016 26,288 20,685
2017-2021 86,486 63,362
2022-2023 24,447 16,693
Total $242,370 $188,074
15. Pension plan
The defined benefit plan under the Labor Standard Law is disbursed based on the units of
service years and the average salary in the last month of the service year.
The Company contributes an amount equivalent to 4% of the employees’ total salaries and
wages basis to the pension fund deposited at the Bank of Taiwan in the name of an administered
pension fund committee. Since March 2005, the Company decreases the contributive ratio
from 4% to 2%. As of December 31, 2011 and 2010, the Company has contributed the amount
of NT$61,884 thousand and NT$58,895 thousand, respectively.
The Labor Pension Act of R.O.C. (the Act), which adopts a defined contribution plan, became
effective on July 1, 2005. In accordance with the Act, employees may choose to elect either
the Act, by retaining their seniority before the enforcement of the Act, or the pension
mechanism of the Labor Standards Law. For employees who elect the Act, the Company will
make monthly contribution of no less than 6% of the employees’ monthly salaries to the
employee’s individual pension accounts. In accordance with the Act, the Company has
established a pension plan and contribution 6% of the employee’s salaries to employee’s
individual pension account since July 1, 2005. According to the Act, the Company recognized
pension cost and contributed NT$18,622 thousand and NT$17,002 thousand to employee’s
individual accounts for the years ended December 31, 2011 and 2010, respectively.
SerComm Corporation Annual Report 2011 086
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
37
(1) The components of net pension cost are as follows:
For the year ended December 31, 2011 2010
Service cost $620 $812 Interest cost 1,627 1,983 Expected return on plan assets (1,024) (1,232) Amortization and deferral 1,597 1,450 Net pension cost $2,820 $3,013
(2) The funding status of the pension plan is as follows:
As of December 31, 2011 2010
Benefit obligation Vested benefit obligation $2,090 $2,800 Non-vested benefit obligation 65,163 60,283 Accumulated benefit obligation 67,253 63,083 Effect from projected salary increase 30,485 29,892 Projected benefit obligation 97,738 92,975
Fair value of plan assets (61,884) (58,513) Fund status 35,854 34,462 Unrecognized net transitional benefit obligation (422) (562) Unrecognized loss (29,745) (28,227) Accrued pension liabilities $5,687 $5,673
(3) Vested benefit of retirement based on Labor Standard
Law
$2,196 $2,800 (4) The actuarial assumptions are as follows:
As of December 31, 2011 2010
Discount rate 1.90% 1.75% Growth rate in future compensation level 3.00% 3.00% Expected long-term rate of return on plan assets 1.90% 1.75%
SerComm Corporation Annual Report 2011087
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
38
16. Capital stock
(1) As of January 1, 2010, the authorized and issued capital of the Company was NT$2,100,000 thousand and NT$1,709,450 thousand, respectively. The par value of the Company’s common stock is NT$10 per share.
(2) For the year ended December 31, 2010, the Company issued NT$18,910 thousand for
conversion of employee stock option exercise, each with par value of NT$10. The issuance had been approved by the relevant authority.
(3) The third issue of domestic unsecured convertible bonds of the Company had been
converted by bond holders into 3,251 thousand common stocks in 2010. As a result, the capital increased by NT$32,513 thousand. The issuance had been approved by the relevant authority.
(4) For the year ended December 31, 2011, the Company issued NT$13,060 thousand for
conversion of employee stock options exercise, each with par value of NT$10. The issuance had been approved by the relevant authority.
(5) The third issue of domestic unsecured convertible bonds of the Company had been
converted by bond holders into 5,403 thousand common stocks in 2011. As a result, the capital increased by NT$54,027 thousand. As of December 31, 2011, there are still 162 thousand common stocks amount NT$1,623 thousand has not been approved by the relevant authority which was accounted for as advanced receipts for common stock.
(6) As of December 31, 2011, the authorized and issued capital of the Company was
NT$2,500,000 thousand and NT$1,826,337 thousand, respectively. The par value of the Company’s common stock is NT$10 per share.
17. Employee stock options
On October 16, 2003, November 11, 2005 and December 3, 2007, the Company was authorized by the Securities and Futures Bureau of the Financial Supervisory Commission, Executive Yuan, to issue employee stock options with a total number of 24,000, 50,000 and 20,000 units, respectively. Each unit entitles an optionee to subscribe to 100 share of the Company’s common stock. Settlement upon the exercise of the options will be made through the issuance of new shares by the Company. An optionee may exercise the options in accordance with certain schedules as prescribed by the plan starting 2 years from the date of grant. The compensation costs for employee stock options for the years ended 31, December 2011, and 2010, were both NT$0. Detailed information relevant to the employee stock options is disclosed as follows:
SerComm Corporation Annual Report 2011 088
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
39
Date of grant
Total number of options granted
(units)
Total number of options outstanding
(units)
Original exercise price
(NTD)
Adjusted exercise
price (NTD) October 23, 2003 24,000 - $26.0 $10.0 November 14, 2005 50,000 14,630 $23.0 $10.0 December 14, 2007 20,000 18,310 $27.8 $19.2 (1) As of December 31, 2011, there had been no cancellations or amendments to the stock
options plan. The contractual life of options is 10 years and 5 years. There is no cash settling option and the Company does not have past practice of settling in cash.
Detailed information relevant to the employee stock options is disclosed as follows:
For the year ended December 31, 2011 2010
Option (units)
Weighted- average exercise
price (NTD) Option (units)
Weighted- average exercise
price (NTD) Outstanding at beginning of year (Note) 46,448 $13.63 65,358 $13.70 Granted - - - - Exercised (13,060) 10.00 (18,910) 11.65 Forfeited - - - - Expired (448) 10.00 - - Outstanding at end of year (Note) 32,940 15.11 46,448 14.54
Exercisable at end of year (Note) 32,940 46,448
Weighted-average fair value of options granted during the period (NTD)
$-
$-
Note: These stock options were granted for employees prior to adopting R.O.C SFAS
No.39; therefore the Company did not recognize these stock options in accordance with R.O.C SFAS No.39. These stock options have not supervised sustained, so they do not adopt R.O.C. SFAS No.39.
The weighted-average stock price was NT$41.22 and NT$26.93 when the exercise date of the options exercised for the years ended December 31, 2011 and 2010, respectively.
SerComm Corporation Annual Report 2011089
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
40
(2) The information of the Company’s outstanding stock options as of December 31, 2011 is as
follows:
Outstanding Stock Options Exercisable Stock Options
Authorization
date
Range of
exercise
price (NTD) Option (units)
Weighted-average
remaining contractual
life (years)
Weighted-average
exercise price
(NTD) Option(units)
Weighted-average
exercise price
(NTD)
2005.11.14 11.00 $14,630 0.425 10.00 $14,630 10.00
2007.12.14 20.00 18,310 - 19.20 18,310 19.20
$32,940 $32,940
(3) The fair value of these options was calculated at the grant date using the Black-Scholes
option pricing model with the following assumptions for the years ended December 31, 2011 and 2010:
2011 2010
Expected dividend yields 5.35%-14.19% 5.35%-14.19% Volatility factors of the expected market price 39.48%-56.41% 39.48%-56.41% Risk-free interest rate 1.85%-2.69% 1.85%-2.69% Weighted-average expected life of the options 3.5-6.55 year 3.5-6.55 year
Note: The assumptions adopting for the years ended December 31, 2011 and 2010 before
the effective date of were used for disclosure of the pro-forma information.
The expected duration of the stock option is according to historical information, might not be the condition that the employee carry out actually. The expected volatility index forecast that, the tendency in the future by means of historical volatility index, and it might be incompatible with the real condition.
(4) The Company used the intrinsic value method to recognize compensation costs for its
employee stock options issued from 2004 to 2007. The compensation costs for the years ended December 31, 2011 and 2010 was both $0. Pro forma information using the fair value method on net income and earnings per share is as follows:
SerComm Corporation Annual Report 2011 090
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
41
For the year ended December 31, 2011
Basic earnings per share Diluted earnings per share
Net income $583,041 $589,777
Earnings per share (NTD) 3.29 2.81
Pro forma net income $583,041 589,777
Pro forma earnings per share (NTD) 3.29 2.81
For the year ended December 31, 2010
Basic earnings per share Diluted earnings per share
Net income $314,448 $317,274
Earnings per share (NTD) 1.87 1.76
Pro forma net income 311,955 314,781
Pro forma earnings per share (NTD) 1.85 1.74
18. Capital reserve
Pursuant to the Company Law, capital reserve can only be used to offset an accumulated deficit
or be increase common stock. However, only the capital reserve of the following nature can be
transferred to capital (i) the income derived from the issuance of new share premium; (ii) the
income from endowments received by the company. In addition, the Company can only use
the capital reserve to make up its deficit when the legal reserve or other special reserve is
insufficient to make up such losses and the total amount used each year cannot exceed 10% of
the issued capital.
19. Legal reserve
The Company Law stipulates that companies must retain at least 10% of their annual earnings,
as defined in the Law, until such retention equals to the amount of paid-in capital. This retention
is accounted for as a legal reserve account upon approval at the shareholders’ meeting.
According to the revised Company Act issued on January 4, 2012, the legal reserve may be used
to offset a deficit, or be distributed as dividends in cash or stocks for the portion in excess of
25% of the paid-in capital if the Company incurs no loss.
SerComm Corporation Annual Report 2011091
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
42
20. Distribution of earnings and dividend policies
According to the Company’s Articles of Incorporation, the Company’s annual earnings shall be used to offset an accumulated deficit, if any, and be retained at a rate of 10% as legal reserve, as defined in the Company Law, except when such retention equals the amount of issued common stock. After the aforementioned deduction, 15% of remaining earnings should be distributed as employees’ bonus. 2% of remaining earnings should be distributed as directors’ and supervisors’ remuneration. The distribution of any remaining earnings, after deducting employees’ bonuses and directors’ and supervisors’ remuneration, is subject to shareholders’ approval. A special reserve is equal to the reduction in stockholders’ equity (for example, cumulative translation adjustments and unrealized loss on long-term investment in stock, etc). If the aforementioned reduction in stockholders’ equity is reserved, the same amount could be removed from special reserve and transferred to unapporpriated earnings. Any appropriations of the profits are recorded in the year of stockholder approval and given effect to in the financial statements of that year. Distribution of profits may also be made by way of cash dividend, and the amount of that should in principle exceed or equal 10% of total dividends. This cash dividend percentage may be adjusted depending on actual profit of the year and operational conditions. The policy for dividend distribution should reflect factors such as current and future investment environment, fund requirements, domestic and international competition and capital budgets, as well as the benefit of stockholders, share bonus equilibrium, and long-term financial planning. The appropriations of earnings for 2010 had been approved in the stockholders’ meetings, and the date of payment was August 25, 2011. During the year ended December 31, 2011, the Company estimated the amounts of the employee bonuses and remuneration to directors and supervisors for 2011 to be $78,710 thousand and $10,495 thousand, respectively, and recognized as operating costs or operating expense for the period. The estimates were based on post-tax net income for 2011 and the Company’s Articles of Incorporation, and considered factors such as appropriation to legal reserve etc. The number of shares distributed as stock dividends was calculated based on the closing price one day earlier than the date of shareholders’ meeting of 2011 and considered the impacts of ex-right/ex-dividend. The difference between the estimation and the resolution of shareholders’ meeting will be recognized in profit or loss of 2012.
SerComm Corporation Annual Report 2011 092
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
43
The Company has paid employees’ bonuses and directors and supervisors’ remunerations of NT$42,450 thousand and NT$5,660 thousand in 2010, respectively, and there is no difference between the amount estimated and paid. Information on the board of directors’ recommendations and stockholders’ approvals is available at “Market Observation Post System” on the Website of Taiwan Stock Exchange Corporation. The Company’s distributions of 2010 and 2009 earnings were approved by the stockholders’ meetings on June, 2011 and June, 2010, respectively, and the detailed information is as follows: 2010 Distribution of Earnings 2009 Distribution of Earnings
Cash dividend NT$1.55 per share NT$1 per share 21. Treasury stock
Details of the treasury stock transactions are as follows: For the year ended December 31,
(In thousand shares) Purpose Beginning Increase Decrease Ending
2011 For transfer to employees 4,029 - 4,029 -
2010 For transfer to employees 5,000 - 971 4,029
According to Securities and Exchange Law of the R.O.C., total shares of treasury stock shall not exceed 10% of the Company’s stock issued. Total purchase amount shall not exceed sum of retained earnings, capital reserve-premiums, and realized capital reserve. Treasury stock shall not be pledged, nor should it be entitled voting rights or receive dividends, in compliance with Securities and Exchange Law of the R.O.C.
SerComm Corporation Annual Report 2011093
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
44
22. Operating cost and expense
The Company’s personnel, depreciation, and amortization expense are summarized as follows: For the year ended December 31,
Item
2011 2010 Operating
cost Operating expenses
Total
Operating cost
Operating expenses
Total
Personnel expenses Salaries $538,537 $560,041 $1,098,578 $410,900 $573,097 $983,997 Labor and health insurance
5,420 37,963 43,383 3,009 30,604 33,613
Pension 1,863 19,579 21,442 1,848 18,167 20,015 Other personnel expenses
9,608 31,657 41,265 9,837 26,082 35,919
Depreciations 110,518 72,718 183,236 72,850 57,392 130,242 Amortization 41,895 38,990 80,885 42,463 27,678 70,141
23. Income tax
(1) The components of deferred tax assets (liabilities) as of December 31, 2011 and 2010 are summarized as follows:
As of December 31, 2011 2010
(A) Total deferred income tax assets $101,743 $109,102
(B) Total deferred income tax liabilities $(116,794) $(59,941)
(C) Total valuation allowance $(57,603) $(37,613)
(D) Deferred income tax assets-current $35,956 $22,183
Deferred income tax liabilities-current (4,883) (1,757) Valuation allowance for deferred income tax
assets-current
-
- Net deferred income tax assets-current $31,073 $20,426
SerComm Corporation Annual Report 2011 094
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
45
As of December 31, Deferred income tax assets-noncurrent $65,787 $86,919 Deferred income tax liabilities-noncurrent (111,911) (58,184) Valuation allowance for deferred income tax
assets-noncurrent
(57,603)
(37,613) Net deferred income tax liabilities -noncurrent $(103,727) $(8,878)
(E) The temporary differences of deferred tax assets (liabilities), loss carryforward, and
income tax credits were summarized as follows:
As of December 31, 2011 2010
Amount Income tax
effect Amount Income tax
effect Unrealized sales discounts $17,734 $3,015 $12,993 $2,209 Unrealized gross profit 671 114 31,122 5,291 Loss on inventory value decline
and obsolescence
66,979 11,386 52,263 8,884 Unrealized foreign exchange loss
(gain)
(4,693) (798) 18,689 3,177 Development expenditures
capitalization
(70,073) (11,912) (70,651) (12,011) Investment income accounted for
under the equity method
(588,229) (99,999) (225,150) (38,275) Pension liabilities 2,300 391 2,286 388 Unrealized loss (gain) on valuation
of financial assets
(9,447) (1,606) (10,337) (1,757) Accrued service expenses 567 96 1,805 307 Accrued expenses 104,382 17,745 3,683 626 Accrued repair liabilities for idle
asset
- - 2,568 437 Amortization of discount on bonds
payable
18,875 3,209 5,083 864 Foreign currencies of cumulative
translation adjustments on long-term equity
(14,584) (2,479) (46,459) (7,898) Unused investment tax credit - 65,787 - 83,818 Loss carryforward - - 27,072 3,101
SerComm Corporation Annual Report 2011095
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
46
(2) Reconciliation between the income tax expense and the income tax calculated on pre-tax
financial statement income based on the statutory rate is as follows:
For the year ended December 31, 2011 2010
Income tax on pre-tax income at statutory rate $161,322 $78,874 Tax effect of following:
Permanent differences 6,972 (475) Temporary differences (61,740) (23,100)
Income tax payable for continuing operation $106,554 $55,299 (3) The components of tax expenses are as follows:
For the year ended December 31, 2011 2010
Income tax payable $106,554 $55,299 Used investment tax credits (24,625) (19,988) Estimated tax at 10% on unappropriated earnings 1,519 1,855 Deferred income tax expense (benefit) resulting from:
Unrealized sales discounts (806) 3,589 Unrealized gross profit 5,177 (1,928) Loss on inventory value decline and obsolescence (2,502) (421) Unrealized foreign exchange loss (gain) 3,975 (1,809) Development expenditures capitalization (99) 197 Investment income accounted for under the equity
method 61,724 25,639
Pension liabilities (3) (17) Unrealized loss (gain) on valuation of financial
assets (151) 1,561
Accrued service expenses 211 216 Accrued expenses (17,119) - Accrued repair liabilities for idle asset 437 1,351 Amortization of discount on bonds payable (2,345) (1,017) Investment tax credits 18,031 (8,894) Loss carryforward - 3,102
Deferred tax assets-valuation allowance - 7,447 Effect on deferred income tax assets/ liabilities
resulting form changes in tax rates
-
(5,268) Adjustment of prior year’s tax expense (31,563) 11,276 Income tax expense $118,415 $72,190
SerComm Corporation Annual Report 2011 096
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
47
(4) The integrated income tax information of the Company is as follows:
As of December 31,
2011 2010
Imputation credit account (ICA) $30,316 $23,129
For the year ended December 31,
2011 2010
Actual (estimated) creditable ratio for the
appropriation of retained earnings
16.90% 11.55%
The imputation credit allocated to shareholders is based on its balance as of the date of
dividend distribution. The estimated creditable ratio may change when the actual
distribution of imputation credit is made.
(5) As of December 31, 2011, investment tax credit of the Company consisted of the follows:
Total tax credit Unused tax credit Year of expiration
$25,731 $15,052 2011
62,503 50,735 2013
$88,234 $65,787
(6) The R.O.C. income tax authorities had assessed the income tax returns of the Company
through 2009. The 2003 to 2007 income tax return have been assessed by the authorities for
additional tax payable NT$91,193 thousand due to research and development and the ratio
of tax exemption. The Company disagreed with the assessment about the ratio of tax
exemption and subsequently filed a tax appeal. The appeal is still under review.
(7) The income tax of foreign subsidiaries is estimated at local tax rate.
SerComm Corporation Annual Report 2011097
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
48
24. Earnings per share
The calculation of earnings per share is provided as follows:
For the year ended December 31, 2011
Amounts (Numerator) Earnings per share (NTD)
Income before
income tax Net income
Share expressed
(Denominator) (In thousands)
Income before
income tax Net income
Basic
Net income $701,456 $583,041 177,410 $3.95 $3.29
Less: Minority interests gain - - - -
Shareholders of the parent income $701,456 $583,041 $3.95 $3.29
Effect of dilution
Convertible bonds payable $6,736 $6,736 27,712
Employee stock option in 2005 $- $- 1,046
Employee stock option in 2007 $- $- 828
Employees� bonuses $- $- 2,527
Diluted
Net income $708,192 $589,777 209,523 $3.38 $2.81
Less: Minority interest gain - - - -
Shareholders of the parent income $708,192 $589,777 $3.38 $2.81
For the year ended December 31, 2010
Amounts (Numerator) Earnings per share (NTD)
Income before
income tax Net income
Share expressed
(Denominator) (In thousands)
Income before
income tax Net income
Basic
Net income $386,638 $314,448 168,433 $2.30 $1.87
Less: Minority interests gain - - - -
Shareholders of the parent income $386,638 $314,448 $2.30 $1.87
Effect of dilution
Convertible bonds payable $3,405 $2,826 8,820
Employee stock option in 2003 $- $- 27
Employee stock option in 2005 $- $- 1,425
Employee stock option in 2007 $- $- 260
Employees� bonuses $- $- 1,562
Diluted
Net income $390,043 $317,274 180,527 $2.16 $1.76
Less: Minority interest gain - - - -
Shareholders of the parent income $390,043 $317,274 $2.16 $1.76
SerComm Corporation Annual Report 2011 098
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
49
25. Related party transactions
(1) Name and relationship of related parties
Name of related parties Relationship with the Company Eight people including Por-Yuan, Wang Directors of the Company Three people including Ruei-song, Guo Supervisors of the Company Nine people including Por-Yuan, Wang Vice president and other key management
personnel of the Company (2) Significant related party transactions
Compensation of key management personnel
Categories 2011 2010 Salaries, bonuses, and other remuneration $52,441 $35,767
The Company’s key management personnel includes directors, supervisors and management that is vice president or above. For details of total compensation paid to the Company’s key management personnel including Directors, Supervisors, President and Vice-President, please refer to the annual report for the Company.
26. Assets pledged as collateral
The assets pledged of the Company and its subsidiaries were as follows:
As of December 31, Assets pledged Purpose of pledge 2011 2010
Restricted assets-cash L/C guarantee $11,557 $8,654 Property, plant and equipment-building Bank loan 281,396 300,003 Intangible assets-land use right Bank loan 11,198 10,704 Refundable deposits-time deposit and cash Custom duty guarantee 2,592 2,592 Total $306,743 $321,953
SerComm Corporation Annual Report 2011099
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
50
27. Commitments and contingent liabilities
(1) As of December 31, 2011, significant commitments and contingent liabilities not included in
the financial statements are as follows:
The future minimum payments under existing lease agreements are as follows:
Period Amount
2012 $2,946
2013 - 2016 120
$3,066
(2) As of December 31, 2011, the Company signed a contract for buying plant total amount
NT$298,454 thousand. The Company paid NT$90,000 thousand when signing the contract
and the unpaid portion of the contracts, which was not accrued, was approximately
NT$208,454 thousand.
(3) The company signed an agreement with an oversea customer; the agreement stated that the
oversea customer need to pay to the Company License Royalty Rate to the price of the Good
and the company shall be liable for any third party infringement claims. The received
amount of License Royalty Rate has been set up a trust fund by the Company. As of
December 31, 2011, the Company recognized the trust fund as "other financial
assets-noncurrent and "other current liabilities were NT$80,045 thousand.
28. Significant disaster loss
None.
29. Significant subsequent events
None.
SerComm Corporation Annual Report 2011 100
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
51
30. Others
(1) Financial risk management objectives and policies
The Company’s and its subsidiaries’ principal financial instruments, other than derivatives, are comprised of cash and cash equivalents, common stock and loans. The main purpose of these financial instruments is to manage financing for the Company’s and its subsidiaries’ operations. The Company and its subsidiaries also hold various other financial assets and liabilities such as accounts receivable and accounts payables, which arise directly from its operations. The Company and its subsidiaries also enter into derivative transactions, including foreign forward exchange contracts. The purpose is to avoid the foreign currency exchange risk arising from the Company’s and its subsidiaries’ operation activities. The Company’s and its subsidiaries’ policies are not enter into trading purpose derivative transactions. The main risks arising from the Company’s and its subsidiaries’ financial instruments include cash flow interest rate risk, foreign currency risk, credit risk, and liquidity risk. Cash flow interest rate risk The floating interest rate and fixed rates are used to hedge floating interest rate fluctuations of long-term bank loan, lease payable, and bonds payable. Foreign currency risk The Company and its subsidiaries have foreign currency risk arising from purchases or sales. The Company and its subsidiaries utilize forward contracts to avoid foreign currency risk. The Company and its subsidiaries buy or sell the same amount of foreign currency with hedged items through forward contracts. Credit risk The Company and its subsidiaries trade only with established and creditworthy third parties. It is the Company’s and its subsidiaries’ policies that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis, which consequently minimizes the Company’s and its subsidiaries’ exposure to bad debts.
SerComm Corporation Annual Report 2011101
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
52
With respect to credit risk arising from the other financial assets of the Company and its subsidiaries, which are comprised of cash and cash equivalents available-for-sale financial assets and certain derivative instrument, the Company’s and its subsidiaries’ exposure to credit risk arising from the default of counter-parties are limited to the carrying amount of these instruments. As the Company and its subsidiaries trade only with established third parties, it does not for any collateral from third parties. Liquidity risk The Company’s and its subsidiaries’ objective are to maintain a balance of funding continuity and flexibility through the use of financial instruments such as bank loans and cash and cash equivalents.
(2) Information of financial instruments
(A) Fair value of financial instruments
As of December 31, 2011 2010
Financial assets Book value Fair value Book value Fair value Non-derivative financial instruments Assets
Cash $3,868,609 $3,868,609 $2,044,583 $2,044,583 Notes and accounts receivable-net 2,623,584 2,623,584 1,790,293 1,790,293 Other receivables 290,635 290,635 133,606 133,606 Restricted assets 11,557 11,557 8,654 8,654 Financial assets measured at cost-noncurrent 108,034 - 105,714 -
Refundable deposits 45,047 - 25,600 -
Liabilities Short-term loans 2,819,707 2,819,707 1,482,803 1,482,803 Notes payable 77,082 77,082 42,486 42,486 Accounts payable 3,277,137 3,277,137 2,101,803 2,101,803 Accrued expenses 654,121 654,121 520,644 520,644 Lease payables 349,768 349,768 365,396 365,396 Bonds payable 968,266 968,266 526,760 526,760
SerComm Corporation Annual Report 2011 102
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
53
As of December 31, 2011 2010
Financial assets Book value Fair value Book value Fair value Derivative financial instruments Assets
Foreign exchange forward contracts
$- $- $10,337 $10,337
Foreign exchange Option 24,122 24,122 - - Asset components of convertible bonds-embedded derivative contract
6,261 6,261 1,487 1,487
Liabilities
Foreign exchange forward contracts
284 284 - -
(B) The methods and assumptions used to estimate the fair value of financial instruments are
as follows:
(a) The book value of short-term financial instruments approximates to the fair value due to their short maturities. Short-term financial instruments include cash, notes and accounts receivable, other receivables, restricted assets, refundable deposits, short-term loans, notes payable, accounts payable and accrued expenses.
(b) Refundable deposits are based on book value because the maturity date is uncertain. (c) The fair value of financial assets measured at cost is unable to be estimated since
there is no active market in trading those unlisted investments. (d) Lease payables are estimated based on the present values of future cash flow. For
bank loans associated with floating interest rate, the carrying value represents its fair value. The fair values of convertible bonds are determined based on their market price which was provided by financial institution.
(e) The fair value of derivative financial instruments is based on the amount the
Company expects to receive and to pay assuming that the contracts are settled at the balance sheet date. The fair value includes the unrealized gain on unsettled contracts in current period generally. The Company refers to quoted prices provided by financial institutions for its derivative financial instruments.
SerComm Corporation Annual Report 2011103
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
54
(C) The fair value of the Company’s and its subsidiaries’ financial assets and liabilities
determined by the quoted prices in active markets or valuation technique as follows:
As of December 31, Active market quotation Valuation technique
Financial assets 2011 2010 2011 2010 Non-derivative financial instruments Assets
Cash $3,868,609 $2,044,583 $- $- Notes and accounts receivable-net - - 2,623,584 1,790,293 Other receivables - - 290,635 133,606 Restricted assets - - 11,557 8,654 Refundable deposits - - 45,047 25,600
As of December 31, Active market quotation Valuation technique
Financial assets 2011 2010 2011 2010 Non-derivative financial instruments Liabilities
Short-term loans - - 2,819,707 1,482,803 Notes payable - - 77,082 42,486 Accounts payable - - 3,277,137 2,101,803 Accrued expenses - - 654,121 520,644 Lease payables - - 349,768 365,396 Bonds payable - 968,266 526,760
Derivative financial instruments Assets
Foreign exchange forward contracts
- - - 10,337
Foreign exchange option - - 24,122 - Asset components of convertible bonds-embedded derivative contract
- - 6,261 1,487 Liabilities Foreign exchange forward
contracts
- - 284 -
SerComm Corporation Annual Report 2011 104
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
55
(D) As of December 31, 2011 and 2010, the Company and its subsidiaries’ financial
liabilities with fair value interest rate risk exposure amounted to NT$4,137,741 thousand and NT$2,374,959 thousand, respectively.
(E) For the year ended December 31, 2011, total interest revenue and interest expense for
financial assets or liabilities that are not at fair value through profit or loss were NT$23,881 thousand and NT$65,797 thousand, respectively, while interest revenue and interest expense for the year ended December 31, 2010 amounted to NT$12,111 thousand and NT$32,328 thousand, respectively.
(F) Guarantee for letter of credit of subsidiaries in pledge refers to Note 26. (G) Financial risk information
(a) Market risk
Forward contracts held as of December 31, 2011 and 2010 were intended for hedging purposes. Gains or losses arising from the fluctuations in exchange rates are likely to be offset against the gains or losses from the hedged items. As a result, no significant exposure to market risk is anticipated.�
(b) Credit risk
Financial assets are influenced by potential effects of transaction counterparties’ non-fulfillment of contract. Effects include the concentration of credit risk of the Company’s and its subsidiaries’ financial instruments, components, amount of contracts, and other receivables. There is no significant credit risk exposure.
(c) Liquidity risk
No significant cash flow risk is anticipated since the working capital is sufficient to meet the cash flow requirements. The Company and its subsidiaries entered into foreign exchange forward contracts, since the forward rate has been fixed, no significant cash flow risk is anticipated. In addition, the Company and its subsidiaries invest unlisted stocks. The significant liquidity risk is expected.
SerComm Corporation Annual Report 2011105
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
56
(d) Cash flow interest rate risk
The Company and its subsidiaries’ bank loan and lease payable were floating rate liabilities; therefore, changes in the market interest rates may cause future cash flows to be volatile. Bonds payable expose the Company to market interest rate and stock price volatility risk.
(3) Significant intercompany transactions among consolidated entities for the years ended
December 31, 2011 and 2010 are disclosed in Attachment 1. (4) The information of foreign currency financial assets / liabilities is as follows:
(Unit : Foreign currency : thousand, NTD: thousand) As of December 31, 2011 Foreign currency Exchange rate NTD
Financial assets-monetary items Cash RMB 333,678 4.8125 $1,605,823 Cash USD 27,088 30.2900 820,496 Cash JPY 68,676 0.3905 26,818 Accounts receivable RMB 320,918 4.8125 1,544,418 Accounts receivable USD 27,753 30.2900 840,638 Other receivables RMB 18,628 4.8125 89,647 Other receivables USD 6,067 30.2900 183,769 Restricted assets RMB 2,401 4.8125 11,555 Refundable deposits RMB 6,229 4.8125 29,977 Refundable deposits JPY 7,665 0.3905 2,993
Financial assets-non monetary items Financial assets measured at cost-noncurrent
USD 2,000 30.2900 60,580
Financial liabilities-monetary items
Short term loan USD 93,090 30.2900 2,819,707 Accounts payable USD 64,558 30.2900 1,955,462 Accounts payable RMB 149,363 4.8125 718,809 Accrued expenses USD 746 30.2900 22,596 Accrued expenses RMB 28,187 4.8125 135,650
SerComm Corporation Annual Report 2011 106
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
57
As of December 31, 2010 Foreign currency Exchange rate NTD
Financial assets-monetary items Cash RMB 152,076 4.42 $672,257 Cash USD 2,645 29.13 77,052 Cash JPY 17,773 0.37 6,637 Accounts receivable RMB 75,825 4.42 335,187 Accounts receivable USD 42,976 29.13 1,251,904 Other receivables RMB 3,613 4.42 15,971 Other receivables USD 884 29.13 25,752 Restricted assets RMB 1,958 4.42 8,654 Refundable deposits RMB 2,520 4.42 11,141 Refundable deposits JPY 7,336 0.37 2,739
Financial assets-non monetary items Financial assets measured at cost-noncurrent
USD 2,000 29.13 58,260
Financial liabilities-monetary items
Short term loan RMB 282,392 4.42 1,248,323 Accounts payable RMB 367,948 4.42 1,626,526 Accrued expenses USD 170 29.13 4,970 Accrued expenses RMB 23,087 4.42 102,056
(5) The Financial Supervisory Commission ("FSC ) requires companies with shares listed on
the TSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market to prepare their financial statements in accordance with the International Financial Reporting Standards, International Accounting Standards, and Interpretations developed by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee as recognized by the FSC (collectively referred to as "IFRSs ), and the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, starting 2013. Under Rule No. 0990004943 issued by the FSC on February 2, 2010, the Company makes the following pre-disclosures on the adoption of IFRSs as follows:
SerComm Corporation Annual Report 2011107
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
58
(a) The main contents of the plan to adopt IFRSs and the current status:
The Company has set up a project team and made a plan to adopt IFRSs. Leading the implementation of this plan is Leo Chen. The main contents of the plan, estimated completion schedule and status of execution as of December 31, 2011, were as follows:
Contents of Plan Responsible Department
or Personnel Status of
Execution 1. Establish a project team Accounting department Completed 2. Make a plan to adopt IFRSs Accounting department Completed 3. Identify differences between the existing
accounting policies and IFRSs Accounting department
Completed
4. Identify consolidated entities under IFRSs Accounting department Completed 5. Select voluntary exemptions under IFRS 1
"First-time Adoption of International Financial Reporting Standards and assess the impact of these exemptions
Accounting department Completed
6. Assess the adjustments required for IT system
Accounting and IT department
Completed
7. Assess the adjustments required for internal controls
Accounting and Internal Control department
Completed
8. Finalize the accounting policies under IFRSs Accounting department Completed 9. Finalize the selection of voluntary
exemptions under IFRS 1 "First-time Adoption of International Financial Reporting Standards
Accounting department Completed
10. Prepare opening IFRS statement of financial position
Accounting department In progress
11. Prepare IFRSs comparative information for 2012
Accounting department In progress
12. Finalize adjustments to the internal control (including financial statements process and the associated IT system)
Accounting department, Internal Control department, and IT department
In progress
SerComm Corporation Annual Report 2011 108
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
59
(b) Material differences between the existing accounting policies and the accounting policies
to be adopted under IFRSs and the Guidelines Governing the Preparation of Financial Reports by Securities Issuers are described in the table below. The Company assesses the material differences in accounting polices based on the IFRSs as recognized by the FSC and the Guidelines Governing the Preparation of Financial Reports by Securities Issuers expected to become effective in 2013. However these assessments may be changed as the FSC may recognize different versions of IFRSs or amend the Guidelines Governing the Preparation of Financial Reports by Securities Issuers in the future. Furthermore, the Company has decided the accounting policies to be adopted under IFRSs based on the current circumstances, should circumstances change in the future, the accounting policies to be adopted may change accordingly. The material differences in accounting policies described in the table below may not result in any adjustment on the date of transition to IFRSs, due to the voluntary exemptions selected under IFRS 1 "First-time Adoption of International Financial Reporting Standards .
Accounting Issues Description of differences
Translation of foreign currencies
Under the requirements of ROC GAAP, as the Company is not a foreign operation, the Company does not need to determine its functional currency. However under the requirements of IAS 21 "The Effects of Changes in Foreign Exchange Rates , all entities (including the parent) included in the reporting entity is required to determine their respective functional currencies.
Financial assets measured at cost
Under the requirements of the existing Guidelines Governing the Preparation of Financial Reports by Securities Issuer, equity investments in unlisted entities or entities traded on Emerging Stock market should be measured at cost. However under the requirements of IAS 39, only investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured could be measured at cost. The fair value of investments in equity instruments that do not have a quoted market price in an active market is reliably measurable if (a) the variability in the range of reasonable fair value estimates is not significant for that instrument or (b) the probabilities of the various estimates within the range can be reasonably assessed and used in estimating fair value.
SerComm Corporation Annual Report 2011109
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
60
Accounting Issues Description of differences
Fixed assets
For fixed assets acquired prior to the issuance of Accounting Research and Development Foundation Interpretation No 97-340, even if the cost of a component of the asset is significant relative to the total cost of such asset, that component is not depreciated separately. Furthermore, for fixed assets acquired prior to the issuance of Accounting Research and Development Foundation Interpretation No 97-340, the cost of such assets does not include the costs of dismantling and removing the asset and restoring the site on which it is located, and related provision is not recognized. However under the requirements of IAS 16 "Property, Plant and Equipment , each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately. The cost of an item of property, plant and equipment comprises the costs of dismantling and removing the asset and restoring the site on which it is located.
The cost of regular major inspections is expensed as incurred under ROC GAAP. However under the requirements of IAS 16, when each major inspection is performed, its cost is recognized in the carrying amount of the item of property, plant and equipment as a replacement if the recognition criteria are satisfied. Any remaining carrying amount of the cost of the previous inspection is derecognized. Properties held to be leased out or for long-term capital appreciation are currently classified under fixed assets, as there is no clear guidance under ROC GAAP. However under the requirements of IAS 40 "Investment Property , properties which meet the definition of investment property should be classified as such.
Employee benefits
There is no guidance under ROC GAAP for short-term compensated absences. The Company recognizes the cost as expense as employees take these absences. However under the requirements of IAS 19 "Employee Benefits , the Company shall recognize and accrue for the accumulating compensated absences.
SerComm Corporation Annual Report 2011 110
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
61
Accounting Issues Description of differences
Employee benefits
The Company has selected a rate of return on relatively high-safety
fixed-income investment as the discount rate under ROC GAAP.
However under the requirements of IAS 19, the rate used to
discount post-employment benefits obligations shall be determined
by reference to market yields on high quality corporate bonds. In
countries where there is no deep market in such bonds, the market
yields on government bonds shall be used.
Under the requirements of ROC GAAP, minimum pension liability
is to be recognized for the excess of the accumulated benefit
obligation over the pension plan assets. There is no such
requirement under IAS 19.
Under the requirements of ROC GAAP, the unrecognized
transitional net assets (or net benefit obligation) should be
amortized on a straight-line basis over the average remaining
service period of employees still in service and expected to receive
benefits. There is no such requirement under IAS 19.
Share-based
payment
The Company’s share-based payment arrangements have applied
intrinsic value method in accordance with Accounting Research and
Development Foundation Interpretation No 92-070-072; however
under IFRS 2 “Share-based Payment”, such arrangements should be
measured using fair value method.
Income taxes
Under the requirements of ROC GAAP, deferred tax assets are
recognized in full, however, if there is over 50% possibility that the
economic benefits of a deferred tax asset become unrealizable, a
valuation allowance account should be established to reduce the
carrying amount of the deferred tax asset. However under the
requirements of IAS 12 “Income Taxes”, a deferred tax asset shall
be recognized to the extent that it is probable that it would be
utilized.
SerComm Corporation Annual Report 2011111
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
62
Accounting Issues Description of differences
Income taxes
Under the requirements of ROC GAAP, a deferred tax asset or liability should, according to the classification of its related asset or liability, be classified as current or noncurrent. If a deferred tax asset or liability is not related to an asset or liability for financial reporting, it should be classified as current or noncurrent according to the expected reversal date of the temporary difference. However under the requirements of IAS 1 "Presentation of Financial Statements , deferred tax assets or liabilities are classified as noncurrent.
There is no guidance under ROC GAAP that deals with the applicable tax rates for related deferred tax assets or liabilities arising from unrealized intergroup profits and losses. Under the Company’s existing accounting policy, the Company’s tax rate is used to calculate deferred tax assets or liabilities arising from unrealized profits and losses of upstream intergroup transactions. For downstream or side stream intergroup transactions, the Company’s tax rate is also used to recognize deferred tax assets or liabilities by adjusting investment gains or losses. However under the requirements of IAS 12, temporary differences are determined by comparing the carrying amounts of assets and liabilities in the consolidated financial statements with the appropriate tax base. Therefore buyer’s tax rate should be used to calculate the deferred tax assets or liabilities arising from unrealized intergroup profits and losses.
(6) In order to compare and analysis, some of the accounts in financial statements were
reclassify in 2010. 31. Additional disclosures
The following are additional disclosures for the Company and its affiliates as required by the R.O.C. Securities and Futures Bureau:
SerComm Corporation Annual Report 2011 112
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
63
(1) Major transactions information:
(A) Financing provided: Refer to Attachment 2. (B) Endorsement/guarantee provided: Refer to Attachments 3. (C) Securities held as of December 31, 2011: Refer to Attachment 4. (D) Marketable securities acquired or disposed of with accumulated amount exceeding the
lower of NT$100 million or 20 percent of the capital stock: Refer to Attachment 5. (E) Acquisition of individual real estate with amount exceeding the lower of NT$100
million or 20 percent of the capital Stock: Refer to Attachment 6. (F) Disposal of individual real estate with amount exceeding the lower of NT$100 million or
20 percent of the capital stock: None. (G) Related party transactions for purchases and sales amounts exceeding the lower of
NT$100 million or 20 percent of the capital stock: Refer to Attachment 7. (H) Receivables from related parties with amount exceeding the lower of NT$100 million or
20 percent of the capital stock: Refer to Attachment 8. (I) Financial instruments and derivative transactions: Refer to Note 5.
(2) Information on re-invested enterprises:
(A) For those who directly or indirectly have major influence or control over the investee
company: Please refer to Attachment 9. (B) For those who directly or indirectly have control over the investee company, the investee
company’s transaction information listed under items A to I shall be disclosed: Please refer to Attachment 2, 4~9.
(3) Information on Mainland China investments: Please refer to Attachment 10.
SerComm Corporation Annual Report 2011113
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
64
32. Segment financial information
For management purposes, the Company is organized into business units based on its area and services and has two reportable segments as follows: a. Taiwan: segment engages in Management of Group, Technology R&D and Sales of products. b. Mainland China: segment engages in Manufacturing, Repairing, and Sales of products in
Mainland China. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. However, group finance costs, finance income and income taxes are managed on a group basis and are not allocated to operating segments. The transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties. a. Information about reportable segment profit or loss, assets and liabilities
For the year ended December 31, 2011
Taiwan
Segment
Mainland China
Segment Total segments All other Adjustments and
eliminations Consolidated Revenue External customers $10,602,184 $2,821,821 $13,424,005 $7,430 $- $13,431,435 Inter-segment 275,699 277,773 553,472 48,226 (601,698) -
Interest revenue 13,120 26,685 39,805 2 (15,926) 23,881
Total revenue $10,891,003 $3,126,279 $14,017,282 $55,658 $(617,624) $13,455,316
Interest expense 33,295 48,336 81,631 92 (15,926) 65,797 Depreciation and amortization
98,160
164,728
262,888
1,233
-
264,121
Investment gain 831 - 831 - - 831 Reportable segment profit
$1,341,241 $426,141 $1,767,382 $(37,590) $(1,028,336) $701,456
Reportable segment assets
$5,542,682 $8,857,129 $14,399,811 $49,577 $(2,671,206) $11,778,182
Reportable segment liabilities
$4,571,358 $6,610,682 $11,182,040 $69,480 $(2,496,412) $8,755,108
SerComm Corporation Annual Report 2011 114
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
65
For the year ended December 31, 2010
Taiwan
Segment
Mainland China
Segment Total segments All other Adjustments and
eliminations Consolidated
Revenue
External customers $8,055,002 $647,816 $8,702,818 $79 $- $8,702,897
Inter-segment 127,924 17,111 145,035 56,065 (201,100) -
Interest revenue 6,067 8,991 15,058 1 (2,948) 12,111
Total revenue $8,188,993 $673,918 $8,862,911 $56,145 $(204,048) $8,715,008
Interest expense 15,230 20,046 35,276 - (2,948) 32,328
Depreciation and amortization
91,786
108,521
200,307
76
-
200,383
Investment gain 831 - 831 - - 831
Reportable segment profit
$628,509 $155,240 $783,749 $4,227 $(401,338) $386,638
Reportable segment assets
$4,526,264 $5,342,954 $9,869,218 $23,472 $(2,051,101) $7,841,589
Reportable segment liabilities
$3,431,352 $3,996,366 $7,427,718 $5,747 $(2,051,092) $5,382,373
1. Inter-segment revenues are eliminated upon consolidation and reflected in the
"adjustments and eliminations column. All other adjustments and eliminations are part of detailed reconciliations presented further below.
2. Segment profit including operating activities with inter-segment. Inter-segment profit are eliminated upon consolidation and reflected in the &adjustments and eliminations’ column.
3. Segment asset not include deferred tax asset, investment, and derivatives financial instruments. The assets described above are controlled by the group basis.
b. Reconciliations of reportable segment revenues, profit or loss, assets and liabilities
(i) Revenues
2011 2010 Total revenues for reportable segments $14,017,282 $8,862,911 Other revenues 55,658 56,145 Elimination of intersegment revenues (617,624) (204,048) Group revenues $13,455,316 $8,715,008
SerComm Corporation Annual Report 2011115
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
66
(ii) Profit or loss
2011 2010 Total profit or loss for reportable segments $1,767,382 $783,749 Other profit or loss (37,590) 4,227 Elimination of intersegment profits (1,028,336) (401,338) Income before income tax expense $701,456 $386,638
(iii) Assets
As of December 31, 2011 2010 Total assets for reportable segments $11,778,182 $7,841,589 Group assets $11,778,182 $7,841,589
(iv) Liabilities
As of December 31, 2011 2010 Total liabilities for reportable segments $8,755,108 $5,382,373 Group liabilities $8,755,108 $5,382,373
(v) Other material items For the year ended December 31, 2011
Reportable segment
totals Adjustments Group totals Interest revenue $39,807 $(15,926) $23,881 Interest expense (81,723) 15,926 (65,797) Depreciation and amortization (264,121) - (264,121) For the year ended December 31, 2010
Reportable segment
totals Adjustments Group totals Interest revenue $15,059 $(2,948) $12,111 Interest expense (35,276) 2,948 (32,328) Depreciation and amortization (200,383) - (200,383)
SerComm Corporation Annual Report 2011 116
English Translation of Financial Statements Originally Issued in Chinese SERCOMM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
67
(3) Geographical information
For the year ended December 31,
Area 2011 2010 Europe $3,358,229 $3,614,980 America 5,962,730 3,186,802 Asia 1,164,788 1,116,168 Other 15,875 2,159 Total $10,501,622 $7,920,109
Revenues are attributed to countries on the basis of the customer's location.
(4) Major customers Individual customer accounts for at least 10% of net sales were as follows:
For the year ended December 31, 2011 2010
Customers Amount Percentage Amount Percentage Customer A $2,530,794 19.11% $552,798 6.40% Customer B 2,310,254 17.45% 1,964,165 22.73% Customer E 1,412,042 10.66% 107,676 1.25% Customer F 1,227,503 9.27% 683,357 7.91%
SerComm Corporation Annual Report 2011117
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 1 Significant intercompany transactions between consolidated entities Transactions
No. (Note1) Name of related parties Counterparty
Nature of relationship
(Note 2) Account Amount Terms
Percentage of consolidated
operatingrevenues or consolidated total assets (Note 3)
For the year ended December 31, 2011
0 Sercomm Corporation SenslinqInc.(origin:Servecomm Inc.) 1 Commission expenses $21,295 - 0.16%
0 Sercomm Corporation SenslinqInc.(origin:Servecomm Inc.) 1 Other current assets 889 - 0.01%
0 Sercomm Corporation SenslinqInc.(origin:Servecomm Inc.) 1 Other payable 2,659 - 0.02%
0 Sercomm Corporation Dwnet Technology (Suzhou) Limited 1 Sales revenue 248,788 Note 4 1.84%
0 Sercomm Corporation Dwnet Technology (Suzhou) Limited 1 Accounts receivable 190,317 Note 4 1.58%
0 Sercomm Corporation Dwnet Technology (Suzhou) Limited 1 Other receivable 364,707 - 3.03%
0 Sercomm Corporation Sernet Technology (Suzhou) Limited 1 Sales revenue received
in advance 42,872 - 0.36%
0 Sercomm Corporation Sercomm Japan Corp. 1 Commission expenses 9,333 - 0.07%
0 Sercomm Corporation Sercomm Japan Corp. 1 Other receivables 60,921 - 0.51%
0 Sercomm Corporation Sercomm France SARL 1 Commission expenses 12,227 - 0.09%
0 Sercomm Corporation Sercomm Trading Co. Ltd. 1 Other receivable 2,995 - 0.02%
1 Zealous Investments Ltd. Sercomm Trading Co. Ltd. 2 Temporary payments 3,938 - 0.03%
2 Sercomm Investments Ltd. Sercomm Trading Co. Ltd. 3 Temporary payments 6,967 - 0.06%
3 Sernet Technology (Suzhou) Limited
Dwnet Technology (Suzhou) Limited 3 Accounts receivable 225,294 - 1.87%
3 Sernet Technology (Suzhou) Limited
Dwnet Technology (Suzhou) Limited 3 Rent revenue 3,802 - 0.03%
3 Sernet Technology (Suzhou) Limited
Dwnet Technology (Suzhou) Limited 3 Sales revenue 280,135 - 2.07%
3 Sernet Technology (Suzhou) Limited
Dwnet Technology (Suzhou) Limited 3 Interest revenue 14,423 - 0.11%
3 Sernet Technology (Suzhou) Limited Sercomm Trading Co. Ltd. 2 Commission expenses 27,587 - 0.20%
3 Sernet Technology (Suzhou) Limited Sercomm Trading Co. Ltd. 2 Other current liabilities 7,582 - 0.06%
4 Sercomm Japan Corp. Sernet Technology (Suzhou) Limited 3 Sales revenue 5,220 - 0.04%
Note 1 The Company and its subsidiaries are coded as follows: 1.The Company is coded 0. 2.The subsidiaries should be coded consecutively beginning from "1" in the order presented in the table above. Note 2 Transactions are categorized as follows: 1.The parent company to subsidiary. 2. Subsidiary to parent company. 3. Subsidiary to subsidiary. Note 3 The percentage with respect to the consolidated asset/revenues for transactions of balance sheet items are based on each items balance at
period-end. For profit or loss items, cumulative balances are used as basis. Note 4 The sales price to the above related parties was determined through mutual agreement based on the market conditions. The collection
period for related parties was month-end 90-210 days, while the terms for domestic third party sales was net 30-75 days. The collectionperiod for overseas sales was net 30-240 days.
Note 5 The list of significant intercompany transactions doesn't include transactions as the Company purchased materials on its subsidiary, Sernet Technology (Suzhou) Limited's behalf, sold the materials to Sernet Technology (Suzhou) Limited, and then bought the final products from Sernet Technology (Suzhou) Limited. In 2011, the Company purchased materials for such transactions amounted to $1,886,755 thousand. The Company bought the final products from Sernet Technology (Suzhou) Limited amounted to $8,542,148 thousand. In order to avoid double counting for such transactions above, the Company did not recognize related sales and cost of goods sold of materials andwork-in-process until selling the final products. In addition, the Company reversed the amount which have not been bought back from Sernet Technology (Suzhou) Limited to inventory account and reversed the related accounts receivable/payable balance.
SerComm Corporation Annual Report 2011 118
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 1-1 Significant intercompany transactions between consolidated entities Transactions
No. (Note1) Name of related parties Counterparty
Nature of relationship
(Note 2) Account Amount Terms
Percentage of consolidated
operatingrevenues or consolidated total assets (Note 3)
For the year ended December 31, 2010
0 Sercomm Corporation SenslinqInc.(origin:Servecomm Inc.) 1 Commission expenses $17,779 - 0.20%
0 Sercomm Corporation SenslinqInc.(origin:Servecomm Inc.) 1 Other current assets 1,171 - 0.01%
0 Sercomm Corporation SenslinqInc.(origin:Servecomm Inc.) 1 Accrued expenses 92 - -
0 Sercomm Corporation Dwnet Technology (Suzhou) Limited 1 Sales revenue 113,671 Note 4 1.31%
0 Sercomm Corporation Dwnet Technology (Suzhou) Limited 1 Accounts receivable 77,778 Note 4 0.98%
0 Sercomm Corporation Sercomm Japan Corp. 1 Commission expenses 8,268 - 0.10%
0 Sercomm Corporation Sercomm Japan Corp. 1 Other payable 6,641 - 0.08%
1 Zealous Investments Ltd. Sercomm Trading Co. Ltd. 2 Other current assets 3,361 - 0.04%
2 Sernet Technology (Suzhou) Limited
Dwnet Technology (Suzhou) Limited 3 Other receivables 119,722 - 1.50%
2 Sernet Technology (Suzhou) Limited
Dwnet Technology (Suzhou) Limited 3 Accounts receivable 14,889 - 0.19%
2 Sernet Technology (Suzhou) Limited
Dwnet Technology (Suzhou) Limited 3 Rent revenue 729 - 0.01%
2 Sernet Technology (Suzhou) Limited Sercomm Trading Co. Ltd. 2 Commission expenses 14,135 - 0.16%
2 Sernet Technology (Suzhou) Limited Sercomm Trading Co. Ltd. 2 Other current liabilities 4,391 - 0.06%
3 Sercomm Japan Corp. Sernet Technology (Suzhou) Limited 3 Sales revenue 29,481 - 0.34%
Note 1 The Company and its subsidiaries are coded as follows: 1.The Company is coded 0. 2.The subsidiaries should be coded consecutively beginning from "1" in the order presented in the table above. Note 2 Transactions are categorized as follows: 1.The parent company to subsidiary. 2. Subsidiary to parent company. 3. Subsidiary to subsidiary. Note 3 The percentage with respect to the consolidated asset/revenues for transactions of balance sheet items are based on each items balance at
period-end. For profit or loss items, cumulative balances are used as basis. Note 4 The sales price to the above related parties was determined through mutual agreement based on the market conditions. The collection
period for third party was month-end 90 days, while the terms for domestic sales was net 30-75 days. The collection period for overseas sales was net 30-240 days.
Note 5 The list of significant intercompany transactions doesn't include transactions as the Company purchased materials on its subsidiary, Sernet Technology (Suzhou) Limited's behalf, sold the materials to Sernet Technology (Suzhou) Limited, and then bought the final products from Sernet Technology (Suzhou) Limited. In 2010, the Company purchased materials for such transactions amounted to $2,209,886 thousand. The Company bought the final products from Sernet Technology (Suzhou) Limited amounted to $6,168,886 thousand. In order to avoiddouble counting for such transactions above, the Company did not recognize related sales and cost of goods sold of materials andwork-in-process until selling the final products. In addition, the Company reversed the amount which have not been bought back fromSernet Technology (Suzhou) Limited to inventory account and reversed the related accounts receivable/payable balance.
SerComm Corporation Annual Report 2011119
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 2 Financing provided for the year ended December 31, 2011
Assets pledged
NumberName of financeprovider
Name of counterparty Account
Maximumbalanceduring 2011
Ending balance
Actualamountprovided
Interestrate
Nature offinancing activity
Totaltransaction
amount
Reason forfinancing
Allowance for
doubtful accounts Item Value
Loan limit per
entity (Note l(2))
Maximumamount
availablefor law (Note 2)
0
0
0
1
SercommCorporation
SercommCorporation
SercommCorporation
SernetTechnology (Suzhou)Limited
DwnetTechnology (Suzhou)Limited
SercommJapan Corp.
SernetTechnology (Suzhou)Limited
DwnetTechnology (Suzhou)Limited
Otherreceivables-relatedparty
Otherreceivables-relatedparty
Otherreceivables-relatedparty
Otherreceivables-relatedparty
$500,693
151,725
455,175
335,606
$499,785
151,450
454,350
334,670
$403,436
60,580
-
262,955
0-2.50%
2.50%
2.50%
5.00%
Note 3(2)
Note 3(2)
Note 3(2)
Note 3(2)
$-
-
-
-
Operating
Operating
Operating
Operating
$-
-
-
-
-
-
-
-
$-
-
-
-
$621,456
621,456
621,456
1,553,640
$1,242,912
1,242,912
1,242,912
3,107,281
Note 1 According the Company's Operational Procedures for Loaning Funds to Others, the maximum amount permitted to a single borrower as follows:(1) Trading partner: The amount shall not exceed the higher of the sales or purchases amount from the counterparty at the time of the
leading event or one year, whichever is lesser. (2) Short-term financing: The amount shall not exceed 20 percent of stockholders' equity as stated in its latest financial statement. (3) The company loan to 100% overseas equity investee is not limited to 40% of stockholder's equity as stated in its latest financial
statememt. However the agreegate amount should not exceed 100% net assets. Loan to individual investee should not exceed 50% netassets.
Note 2 The aggregate amount of loans for subsidary to others shall not exceed 40% of stockholders' equity as stated in its latest financial statement. Note 3 The nature of financing activities as follows:
(1) Trading partner. (2) Short-term financing
SerComm Corporation Annual Report 2011 120
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 3: Endorsement / guarantee provided for others for the year ended December 31, 2011
Endorsee
Number Name of endorsers
Name of endorsees Relationship
Endorsement limit for a
single entity
Maximum balance for the period
Ending balance
Amount of collateral
guarantee/endorsement
Percentage of accumulated
guarantee amount to net assets value
from the latest financial statement
Limit of total guarantee/endorsement
amount
0
1
The Company
The Company
Sernet Technology (Suzhou) Limited
Dwnet Technology (Suzhou) Limited
The Company's equity investee
The Company's equity investee
$776,820
776,820
$610,120 (USD 20,000 thousand)
610,120 (USD 20,000 thousand)
$605,800 (USD 20,000 thousand) (Note2)
605,800 (USD 20,000 thousand) (Note3)
$-
-
19.50%
19.50%
$1,553,640(Note1)
1,553,640(Note1)
Note 1 The limit of endorsement for any single entity shall not exceed 25% of stockholders' equity as stated in its latest financial statement; the total amount of transaction of endorsement shall not exceed 50% of stockholders' equity as stated in its latest financial statement.
Note 2 Sernet Technology (Suzhou) Limited's actual amount provided was $545,220 thousand for the year ended December 31, 2011. Note 3 Dwnet Technology (Suzhou) Limited's actual amount provided was $605,800 thousand for the year ended December 31, 2011.
SerComm Corporation Annual Report 2011121
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 4 Securities held as of December 31, 2011 Period ended
Held company name Securities type and name
Relationshipwith the
Company Financial statement account Shares/units
(in thousands) Book value
Percentageof
ownership (%)
Market value or Net asset
value
Note
Sercomm Corporation Stocks
Senslinq Inc. (origin:Servecomm Inc.)
The Company's equity investee
Long-term investments accounted for under the equity method 250 $4,695 100.00 $4,695 Note 1
Sercomm Investments Ltd.
The Company's equity investee
Long-term investments accounted for under the equity method 1,200 7,355 100.00 7,355 Note 1
Sercomm Trading Co. Ltd.
The Company's equity investee
Long-term investments accounted for under the equity method 46,800 2,290,787 100.00 2,290,787 Note 3
Shukuan Investment Ltd.
The Company's equity investee
Long-term investments accounted for under the equity method 2,800 (13,286) 100.00 (13,286) Note 3
Sercomm France SARL
The Company's equity investee
Long-term investments accounted for under the equity method 100 4,878 100.00 4,878 Note 1
Industrial Bank of Taiwan - Financial assets measured at
cost-noncurrent 4,154 40,000 0.17 - Note 2
TECO Nanotech Co., Ltd. - Financial assets measured at
cost-noncurrent - 10 - - Note 2
Shukuan Investment Ltd. Stocks
Cerpass Technology Corp. - Financial assets measured at
cost-noncurrent 747 7,444 3.69 - Note 2
Sercomm Japan Inc. The Company's equity investee
Long-term investments accounted for under the equity method 1 (29,476) 100.00 (29,476) Note 1
Sercomm Trading Co. Ltd. Stocks
Zealous Investments Ltd.
The Company's equity investee
Long-term investments accounted for under the equity method 30,956 1,278,861 100.00 1,728,861 Note 3
Smart Trade Inc. The Company's equity investee
Long-term investments accounted for under the equity method 16,000 570,902 100.00 570,902 Note 3
Zealous Investments Ltd. Stocks
Sernet Technology (Suzhou) Limited
The Company's equity investee
Long-term investments accounted for under the equity method 29,900 1,675,545 100.00 1,675,545 Note 3
Ubiquisys Limited - Financial assets measured at cost-noncurrent 875 60,580 3.78 - Note 2
(USD2,000 thousand)
Smart Trade Inc. Stocks
Dwnet Technology (Suzhou) Limited
The Company's equity investee
Long-term investments accounted for under the equity method 16,000 570,901 100.00 570,901 Note 3
Note 1: Amount was recognized based on the unreviewed or unaudited financial statements in 2011. Note 2: Can't obtain the financial statements of the company in time. Note 3: Amount was recognized based on the audited financial statements.
SerComm Corporation Annual Report 2011 122
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 5 Marketable securities acquired or disposed of with accumulated amount exceeding the lower of NT$100 million or 20 percent of the capital stock for the year ended December 31, 2011
Beginning balance Addition Disposal Ending balance
Company name
Securities type and name
Financial statement account
Counter party Relationship
Shares/ Units(in thousands)
Amount (Note)
Shares/ Units(in thousands) Amount Shares/ Units
(in thousands) Amount Book value
Gain(loss) from
disposal
Shares/ Units(in thousands)
Amount (Note)
The Company
Sercomm Trading Co. Ltd.
Long-term investments accounted for under the equity method
Purchase of newly issued shares
The Company's equity investee
$34,300 $1,409,594 12,500 $368,545 - $- $- $- 46,800 $2,290,787
Sercomm Trading Co. Ltd.
Smart Trade Inc.
Long-term investments accounted for under the equity method
Purchase of newly issued shares
The Company's equity investee
3,500 59,951 12,500 368,545 - - - - 16,000 570,902
Zealous Investments Ltd.
Sernet Technology (Suzhou) Limited
Long-term investments accounted for under the equity method
Purchase of newly issued shares
The Company's equity investee
24,900 1,131,848 5,000 147,090 - - - - 29,900 1,675,545
Smart Trade Inc.
Dwnet Technology (Suzhou) Limited
Long-term investments accounted for under the equity method
Purchase of newly issued shares
The Company's equity investee
3,500 59,948 12,500 368,545 - - - - 16,000 570,901
Note : The amount of ending balances of long-term investments accounted for under the equity method include adjustment under the equity method.
SerComm Corporation Annual Report 2011123
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 6 Acquisition of individual real estate with amount exceeding the lower of NT$100 million or 20 percent of the capital stock for the year ended December 31, 2011
Prior transaction of related counter-party Name of
propertiesTypes of property
Transactiondate
Transactionamount
Payment status
Counter-party
Nature ofrelationship
Owner Relationships Transfer date Amount
Pricereference
Purpose ofAcquisition
Othercommitments
TheCompany Buildings 100.10.12 $298,454
(thousand)$90,000
(thousand)AboCom
Systems,Inc None N/A N/A N/A N/A Landappraisal
Plant expansion None
SerComm Corporation Annual Report 2011 124
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment7 Related party transactions for purchases and sales amounts exceeding the lower of NT$100 million or 20 percent of the capital stock for the year ended December 31, 2011
Related party Relationship Transactions Details of non-arm's length transaction
Notes and accounts receivable (payable) Note
Purchases (Sales)
Company Purchases (Sales) Amount
Percentage oftotal
purchases(sales) (%)
Term Unit price Term Balance
Percentage of total
receivables(payable)
(%)
Sercomm Corporation
DwnetTechnology
(Suzhou)Limited
TheCompany's
equity investee
Sales $248,788 2.30 210 (Note1) (Note1) $190,317 15.03 (Note2)
DwnetTechnology
(Suzhou)Limited
Sercomm Corporation
TheCompany Purchases 250,292 10.99 210 - - 230,273 20.66
Sercomm Corporation
Sernet Technology
(Suzhou)Limited
TheCompany's
equity investee
Purchases 6,279,673 67.65 30 - - 1,191,881 76.74 (Note3)
Sernet Technology
(Suzhou)Limited
DwnetTechnology
(Suzhou)Limited
TheCompany's
equity investee
Sales 280,135 3.24 120 - - 219,281 15.52
DwnetTechnology
(Suzhou)Limited
Sernet Technology
(Suzhou)Limited
TheCompany's
equity investee
Purchases 280,135 12.34 120 - - 219,281 19.65
Note 1 The sales price to the above related parties was determined through mutual agreement based on the market conditions. The collectionperiod for related parties was month-end 90-210 days, while the terms for domestic third party sales was net 30-75 days. The collection period for overseas sales was net 30-240 days.
Note 2 The company's accounts receivable from Dwnet Technology (Suzhou) Limited amounted to $230,273 thousand. Overdue amount $39,956 thousand reclassified to other receivable.
Note 3 The company designate Sernet Technology (Suzhou) Limited for outward processing, please refer to Note25.
SerComm Corporation Annual Report 2011125
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 8 Receivables from related parties with amount exceeding the lower of NT$100 million or 20 perceat of the capital stock as of December 31, 2011
Overdue receivables The name of the
company Name of
counterparty Relationship Endingbalance
Turnoverrate Amount
Action adopted for overdue
accounts
Subsequent collections
Allowance for
doubtfulaccounts
TheCompany
DwnetTechnology
(Suzhou)Limited
The Company's equity investee $230,273 - $39,956 Recorded in
other receivable $- $-
Sernet
Technology (Suzhou)Limited
TheCompany
The ultimate parent company 1,191,881 - - - 85,417
(USD2,800 thousand) -
Sernet
Technology (Suzhou)Limited
DwnetTechnology
(Suzhou)Limited
Affiliate with the same parnet
company 219,281 - - - - -
SerComm Corporation Annual Report 2011 126
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 9 For those who directly or indirectly have major influence or control over the investee company
Original investment amount Balance as of December 31, 2011
Investorcompany Investee company Main businesses and
products December 31,
2011
December 31,
2010
Shares (in thousands)
Percentage of
ownership
Bookvalue
Net income (loss)of the
investee
Investmentincome (loss)
recognized
Note
Sercomm Corporation
Senslinq Inc. (origin:Servecomm Inc.)
Sales of IT products $7,939 $7,939 250 100.00 $4,695 $(190) $(190) Note 1
Sercomm Investments Ltd.
Investment overseas, technology R&D and international trading
40,037 40,037 1,200 100.00 7,355 (33) (33) Note 1
Sercomm Trading Co. Ltd.
Investment overseas, technology R&D and international trading
1,471,187 1,102,642 46,800 100.00 2,290,787 362,299 362,299 Note 2
Shukuan Investment Ltd. Investment activity 28,000 28,000 2,800 100.00 (13,286) (40,640) (40,640) Note 2
Sercomm France SARL Sales of IT products 4,004 - 100 100.00 4,878 1,002 1,002 Note 1
Sercomm Trading Co. Ltd.
Zealous Investments Ltd.
Investment overseas, technology R&D and international trading
989,358 989,358 30,956 100.00 1,728,861 261,124 261,124 Note 2
Smart Trade Inc. Investment overseas, technology R&D and international trading
481,829 113,284 16,000 100.00 570,902 107,724 107,724 Note 2
ZealousInvestmentsLtd.
Sernet Technology (Suzhou) Limited
Manufacture of routers, communicationproducts, Wlan products; sales and after-sales service
912,672 765,582 29,900 100.00 1,675,545 270,078 270,078 Note 2
Taicang Sercomm Technology Corp.
Manufacture of routers, communicationproducts, Wlan products; sales and after-sales service
- 156,125 - - - - - Note 2
Smart Trade Inc.
Dwnet Technology (Suzhou) Limited
R&D center of software; sales and after-sales service
481,829 113,284 16,000 100.00 570,901 107,725 107,725 Note 2
ShukuanInvestmentLtd.
Sercomm Japan Inc. Sales of IT products 9,617 9,617 1 100.00 (29,476) (40,754) (40,754) Note 2
Note 1: Amount was recognized based on the unreviewed or unaudited financial statements. Note 2: Amount was recognized based on the audited financial statements.
SerComm Corporation Annual Report 2011127
SERCOMM CORPORATION AND SUBSIDIARIES (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)
Attachment 10 Information on Mainland China investments
Investment flows Investeecompany
Main businesses and products
Totalamount of
paid-in capital
Method of investment
Accumulated outflow of investment
from Taiwan as of January
1, 2011 Outflow Inflow
Accumulated outflow of investment
from Taiwan as of December
31, 2011
Percentageof
ownership
Investment income
(loss)recognized
Carryingvalue as of December31, 2011
Accumulated inward
remittance of earnings as
of December 31, 2011
SernetTechnology
(Suzhou)Limited
Manufacture of routers,
communication products, Wlan
products; sales and after-sales service
$916,872Investment
in cash (Note 1)
$765,582 (USD23,900
thousand)
$147,090 (USD5,000
thousand)
$-$912,672
(USD28,900 thousand)
100.00 % $270,078 (Note4) $1,675,545 $-
DwnetTechnology
(Suzhou)Limited
R&D center of software; sales and after-sales service
$481,709Investment
in cash (Note 2)
$113,284 (USD3,500 thousand)
$368,545 (USD
125,000 thousand)
$-$481,829
(USD16,000 thousand)
100.00 % $107,725 (Note4) $570,901 $-
TaicangSercomm
Technology Corporation
Manufacture of routers,
communication products, Wlan
products; sales and after-sales service
$-Investment
in cash (Note 1)
$156,125 (USD4,800 thousand)
$-
$156,125 (USD4,800
thousand)
$-(Note3) 100.00 % $- $- $-
Accumulated investment in Mainland China as of December 31, 2011
Investment amounts authorized by Investment Commission, MOEA Upper limit on investment
$1,394,501(USD 44,900 thousand) USD 45,154 thousand Unlimited
(Note 5)
Note 1 The Company established Sercomm Trading Co. Ltd. in the third country. The Company reinvest Zealous Investments Ltd. (throughSercomm Trading Co. Ltd.) and then invest in Mainland China.
Note 2 The Company established Sercomm Trading Co. Ltd. in the third country. The Company reinvest Smart Trade Inc. (through SercommTrading Co. Ltd.) and then invest in Mainland China.
Note 3 Taicang Sercomm Technology Corporation was liquidated in first quarter 2011. Note 4 Amount was recognized based on the audited financial statements. Note 5 The Mainland China investment limit is without limit of stockholders' equity on December 31, 2011 according to "Examine Standards of
Investments and Technical Cooperation in Mainland of China Area", published by Investment Commission, MOEA.
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