FINANCIAL REPORT 2005 - TDK-Micronas · This resulted in a decrease of our profit for 2004 from CHF 119.7 million to CHF 117.5 million and in an increase of equity from CHF 815.0

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www.micronas.com

FINANCIAL REPORT 2005

Micronas Semiconductor Holding AG I Technopark I Technoparkstrasse 1 I CH-8005 Zurich I Phone +41 44 445 39 60 I Fax +41 44 445 39 61 [email protected] Holding GmbH I Hans-Bunte-Strasse 19 I D-79108 Freiburg I Phone +49 761 557 5688 I Fax +49 761 557 5690

www.micronas.com

ANNUAL REPORT 2005

> FINANCIAL REPORT 2005

COMPANY PROFILE

Micronas (SWX Swiss Exchange: MASN), a semiconductor designer and manufacturer with worldwide

operations, is a leading supplier of cutting-edge IC and sensor system solutions for consumer and

automotive electronics. As a market leader in innovative global TV system solutions, Micronas

leverages its expertise into new markets emerging through the digitization of audio and video content.

Micronas serves all major consumer brands worldwide, many of them in continuous partnerships

seeking joint success. While the holding company is headquartered in Zurich (Switzerland), operational

headquarters are based in Freiburg (Germany). Currently, the Micronas Group employs about

2000 people. In 2005 it generated CHF 845 million in sales.

[email protected]

www.micronas.com

Editors:

Concept, design and project management: Kiesewetter I Die Markenagentur. www.agentur-kiesewetter.de

This document was first published on February 9, 2006

This Financial Report is also available in German. The German version is legally binding.

Printed on FSC-certified (Forest Stewardship Council) paper, www.fsc.org

Contents

Financial Report

Micronas Group

Consolidated profit and loss statement 5

Consolidated balance sheet 6 – 7

Consolidated cash flow statement 8 – 9

Changes in equity 10

Notes on the consolidated financial

statements 11 – 48

Report of the Group auditors

to the ordinary Shareholders’ Meeting of

Micronas Semiconductor Holding AG, Zurich 49

Additional information 50 – 51

Financial Report

Micronas Semiconductor Holding AG

Profit and loss statement 53

Balance sheet 54 – 55

Notes on the financial statements 56 – 57

Proposal of the Board of Directors 58

Report of the statutory auditors

to the ordinary Shareholders’ Meeting 59

3

4 Financ ia l Report 2005 Micronas Group

845 074

– 531 902

313 172

37.1

– 148 675– 67 481– 27 127

5 86275 751

9.0

075 751

9.0

5 832– 8 294

0786

74 075

– 24 883

49 192

5.8

48 849343

32 159 8631.52

32 225 5361.52

1.52

1.52

Consolidated profit and loss statement5

2004CHF 1000

2005CHF 1000Note

Net sales

Cost of sales

Margin

in % of net sales

Research and development expensesMarketing expensesAdministrative and general expensesOther operating income (+) and expenses (–), net 7

Operating profit before amortization of goodwill

in % of net sales

Amortization of goodwill 16

Operating profit

in % of net sales

Financial income 9

Financial expenses 10

Loss from associatesOther income 11

Profit before tax

Income taxes 12

Profit for the period

in % of net sales

Attributable to:

Shareholders’ of the parentMinority interest

Weighted average number of issued and outstanding shares Earnings per share in CHF – undiluted 34

Weighted average number of issued and outstanding sharesfor calculation of earnings per share – diluted Earnings per share in CHF – diluted 34

Earnings per share, adjusted for amortization of goodwill after tax in CHF

– undiluted 34

– diluted 34

963 360

– 553 732

409 628

42.5

– 128 400– 57 466– 26 852

742197 652

20.5

– 25 241172 411

17.9

3 979– 8 302

– 1511 000

168 937

– 51 449

117 488

12.2

117 226262

32 145 6813.65

32 268 9603.63

4.16

4.15


Non-current assets

Property, plant and equipment 13

Intangible assets 14

Investments 15

Goodwill 16

Long-term loans receivableDeferred tax asset 17

Total non-current assets

Current assets

Inventories 18

Accounts receivable – tradeOther current assets 19

Short-term financial investments 20

Cash and cash equivalentsTotal current assets

Total assets

Assets

Consolidated balance sheet

Note

245 13867 425

2 016394 501

6823 399

713 161

173 727101 25116 719

78312 216603 991

1 317 152

265 24168 9422 003

283 202593

7 433627 414

175 89595 22220 227

63345 312636 719

1 264 133

31.12.2004CHF 1000

31.12.2005CHF 1000

NoteShareholders’ equity and liabilities

7

Shareholders’ equity

Issued capital 21

Additional paid-in capitalReacquired shares 22

Other comprehensive incomeRetained earningsEquity attributable to shareholders of the parent

Minority interestTotal equity

Long-term liabilities

Long-term loans 23

Long-term provisions and liabilities 24, 25, 26

Deferred tax liability 27

Total long-term liabilities

Current liabilities

Current portion of long-term liabilitiesAccounts payable – tradeShort-term provisions 26

Accrued income taxesOther current liabilities 28

Total current liabilities

Total liabilities

Total shareholders’ equity and liabilities

32 634578 048– 3 430

7 630400 470

1 015 352

1 4001 016 752

1 738154 808

10 805167 351

33439 3976 958

21 91364 447

133 049

300 400

1 317 152

32 431569 076

0– 1 416

351 621951 712

1 006952 718

1 867152 310

6 741160 918

28554 731

6 13126 11363 237

150 497

311 415

1 264 133

31.12.2004CHF 1000

31.12.2005CHF 1000


Consolidated cash flow statement

Profit before taxDepreciation and amortization (excl. goodwill)Interest expense, net (excl. interest portion of pension expense)Loss/gain on disposal of fixed assetsAmortization of goodwillShare compensation expenseForeign exchange gains and lossesShare in profit/loss in associatesChange in long-term provisionsCash flow before working capital changes

Change in inventoriesChange in accounts receivable – trade and other current assets Change in accounts payable – trade, short-term provisionsand other current liabilitiesCash flow from operations

Income taxes paidCash flow from operating activities

Operating activities

74 075109 140– 5 539

2470

5 257– 1 158

06 432

188 454

4 3501 027

– 19 552174 279

– 22 544151 735

Capital expenditureLong-term loansInvestment in otherAcquisition of investments, net of cash acquiredShort-term financial investmentsInterest receivedProceeds from disposal of fixed assetsCash flow from investing activities

Investing activities

– 78 429– 45

0– 107 999

– 145 807

518– 180 162

– 99 319– 167– 332

– 7 001– 2

3 8791 503

– 101 439

168 937105 500– 3 445

1925 2412 455

700151

8 797308 355

– 82 86221 263

– 5 695241 061

– 55 711185 350

2004CHF 1000

2005CHF 1000

Financing activities

Increase in issued capital and additional paid-in capitalAcquisition/disposal of own sharesProceeds from long-term borrowingsInterest paidRepayment of long-term liabilitiesCash flow from financing activities

Exchange effect on cashChange in cash and cash equivalents

Cash and cash equivalents at end of periodCash and cash equivalents as at January 1Change in cash and cash equivalents

Non cash transaction

Capitalization of a license contract as intangible asset

3 918– 3 430

163– 240

– 6 897– 6 486

1 817– 33 096

312 216345 312

– 33 096

0

6 993– 2 768

442– 213

– 7 323– 2 869

– 1 40779 635

345 312265 67779 635

11 216

9

2004CHF 1000

2005CHF 1000


Issuedcapital

CHF 1000

Additionalpaid-incapital

Changes in equity

Reacquiredshares

Retainedearnings

Minorityinterest

Total equity

459 694

224 7615 173

45

5 132377

94 23626 320

815 738

18 1106 993

– 2 768

3 1822 455

117 488

– 8 480

952 718

3 918– 3 430

5 25749 192

9 097

1 016 752

599

145

744

262

1 006

343

51

1 400

140 304

94 091

234 395

117 226

351 621

48 849

400 470

– 1 016

1 016

0

– 2 768

2 768

0

– 3 430

– 3 430

Othercomprehen-

siveincome

– 19 256

26 320

7 064

– 8 480

– 1 416

9 046

7 630

312 036

220 2614 917

45

4 116377

541 752

17 8106 645

4142 455

569 076

3 715

5 257

578 048

31.12.2002

Share capital increaseExercise of share optionsIssue of share options Disposal of reacquired shares,net of tax CHF 215 (000)Share compensation expenseProfit for the periodTranslation adjustment

31.12.2003

Share capital increaseExercise of share optionsAcquisition of reacquired sharesDisposal of reacquired shares,net of tax CHF 35 (000)Share compensation expenseProfit for the periodTranslation adjustment,net of tax CHF 235 (000)

31.12.2004

Exercise of share optionsAcquisition of reacquired sharesShare compensation expenseProfit for the periodTranslation adjustment,net of tax CHF 434 (000)

31.12.2005

27 027

4 500256

31 783

300348

32 431

203

32 634

Notes on the consolidated financial statements

1. General

Micronas Semiconductor Holding AG is domiciled

in Technopark, Technoparkstrasse 1, CH-8005 Zurich

(Switzerland). The operative headquarters of the

Micronas Group are located in Freiburg im Breisgau

(Germany). As an international semiconductor

group, Micronas develops, manufactures and

markets integrated circuits (ICs) and sensors for

applications particular in consumer and automotive

electronics.

2. Accounting principles

General information

The consolidated financial statements of the

Micronas Group are expressed in Swiss francs

(CHF). They have been prepared in accordance with

International Financial Reporting Standards (IFRS).

The Board of Directors authorized the financial

statements for issue on February 2, 2006.

Changes in accounting policies

Improvement project: The accounting policies and

methods of computation used in the Annual Report

as at December 31, 2004, have been reviewed

in regard of the changes arising from the

Improvement Project which has been approved by

the International Accounting Standards Board

(IASB) and put into force for Annual Reports

starting January 1, 2005. The presentation of the

balance sheet and the profit and loss statement

has been, including prior year numbers, adjusted

according to the revised IAS 1.

Share-based payment transactions (IFRS 2):

Micronas applied IFRS 2 retrospectively and re-

corded the share options granted after November 7,

2002, at fair value and charges the share

compensation expense to personnel expenses.

This resulted in a decrease of our profit for 2004

from CHF 119.7 million to CHF 117.5 million and in

an increase of equity from CHF 815.0 million to

CHF 815.7 million as at January 1, 2004, and from

CHF 951.7 million to CHF 952.7 million as at

11



December 31, 2004. The revised accounting policy

for share-based payment transactions is described

in a separate section.

Business combinations (IFRS 3) and impairment

of assets (IAS 36): In accordance with the

transitional provisions of IFRS 3, which superseded

IAS 22, the net book value of goodwill is no longer

amortized on a straight-line basis beginning

January 1, 2005. The provisions of IFRS 3 and

IAS 36 require that all goodwill must be reviewed

for impairment annually, or whenever circumstances

and situations arise as to indicate that the carrying

value of goodwill may not be recoverable.

Hedge accounting: Micronas adopted in 2005

hedge accounting for the first time. Hedge

derivatives are identified according to the nature of

the underlying either as a cash flow hedge or as

a fair value hedge, and are valued at cost on

trade date. During subsequent reassessments, the

change in value compared with the fair value is

either recognized in the income statement (fair

value hedge) or against equity (cash flow hedge).

Significant accounting estimates

In the process of applying the Group’s accounting

policies the Management has made estimates for

the determination of key assumptions concerning

the future and key sources of uncertainty at the

balance sheet date. Areas where such estimates

have a significant impact on the carrying amounts

are the measurement of fair values and the

mandatory annual impairment tests on goodwill.

Principles of consolidation

The consolidated financial statements include the

parent company and all companies in which the

parent company has the power to govern the com-

pany’s financial and operating policies.

The results of companies acquired are included

in the Group accounts from the date of acquisition.

Acquisitions of operations are accounted for using

the purchase method.

The fair values of identifiable assets and lia-

bilities acquired are determined by reference to

their intended use by the Micronas Group.

Goodwill, the difference between the fair values of

the net assets acquired and the higher purchase

price, is recorded as an asset and must be

reviewed for impairment annually, or whenever

circumstances and situations arise as to indicate

that the carrying value of goodwill may not be

recoverable. Goodwill is tested for impairment in

the fourth quarter of the fiscal year and also upon

the occurrence of significant events or indicators

that an impairment of goodwill may exist.

According to IAS 36, Micronas determines the

recoverable amount of the cash-generating units to

which goodwill could be definitely allocated and

compares that recoverable amount to the cash-

generating unit’s carrying value. Micronas has

determined the recoverable amount using the

value-in-use method.

Companies in which Micronas owns between

20 percent and 50 percent of the voting rights

or has significant influence by other means

(associates) are accounted for under the equity

method.

Companies in which Micronas has no significant

influence are recorded at fair value. If the fair value

cannot be determined reliably, they are recorded at

cost.

All intercompany transactions are eliminated.

Net sales

Net sales represent the invoiced value of goods

sold and services provided, less sales taxes

and certain sales-related expenses. Revenue is

recognized when the Company has transferred

to the customer the significant risks and rewards

of ownership of the goods

Foreign currency translation

The functional currency of Group companies in

Euroland is the Euro. For most other Group

companies the functional currency is the local

currency. Transactions in foreign currencies are

recorded in the functional currency at the exchange

rate prevailing on the dates of the transaction.

Financial assets and liabilities in foreign currencies

are valued in the functional currency at the exchange

rates of the balance sheet date. Transaction

differences, except for transaction differences of

equity loans, are recognized in the profit and loss

statement. Transaction differences of equity loans

are recorded directly in shareholders’ equity.

The reporting currency of the Micronas Group

is the Swiss franc. Assets and liabilities of

subsidiaries, which are denominated in foreign

currencies, are translated to Swiss francs using

the exchange rates of the balance sheet date.

For translation of the profit and loss statement

the average exchange rates for the year are

used. Translation differences resulting from the

consolidation of foreign currency-denominated

financial statements are recorded directly in share-

holders’ equity.

Any goodwill and fair value adjustments to the

carrying amounts of assets and liabilities arising on

an acquisition are translated at the exchange rates

of the balance sheet date.

Short-term financial investments

Available-for-sale financial assets are measured at

fair value subsequent to initial recognition. Gains

and losses on remeasurement to fair value are

included in profit or loss for the period in which

they arise.

Treasury stock

Treasury stock is carried at cost in shareholders’

equity. Gains and losses resulting from

transactions with treasury stock are recorded

directly in additional paid-in capital.

13


Inventories

Raw materials are carried at the lower of cost or

net realizable value. Cost is determined by the

first-in first-out method. Work in progress and

finished goods of own production are carried at the

lower of production cost or net realizable value.

Production costs include direct labor costs,

material costs and the allocable portion of

production overhead. Resale finished goods are

carried at the lower of purchase cost or net

realizable value. Obsolete or slow-moving items

are adequately provided for.

Accounts receivable

Accounts receivable are carried at initial cost

adjusted for expected losses.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand,

current accounts with banks and short-term

deposits with an initial maturity of less than three

months.

Fixed assets

Fixed assets (property, plant and equipment)

are valued at their historical acquisition cost,

less accumulated depreciation. Depreciation is

calculated on a straight-line basis over the

expected useful lives.

Borrowing costs

Borrowing costs that arise in connection with

acquisition, construction or production of a

qualifying asset, are recognized as an expense in

the period in which they are incurred.

Intangible assets

Micronas capitalizes development costs if all of

the following can be demonstrated:

the technical feasibility of completing the

intangible asset so that it will be available for

use or sale;

the intention to complete the intangible

asset and use or sell it;

the ability to use or sell the intangible asset;

the ability to generate probable future

economic benefits;

the availability of adequate technical,

financial and other resources to complete

the development and to use or sell the

intangible asset;

the ability to measure the expenditure

attributable to the intangible asset during its

development reliably.


The capitalized development costs are carried at

their cost, less accumulated amortization and any

accumulated impairment losses. Amortization is

calculated on a straight-line basis over the

expected useful lives and commences when the

asset is available for use.

Other intangible assets are valued at their

historical acquisition cost, less accumulated

amortization and any accumulated impairment

losses. Amortization is calculated on a straight-

line basis over the expected useful lives. The

amortization rates are 20 percent for computer

software and 15 to 20 percent for other licenses.

Long-term loans

Financial liabilities are measured at their amortized

cost.

Leases

Finance leases are capitalized at the inception of

the lease at the fair value of the leased property or,

if lower, at the present value of the minimum lease

payments. Lease payments are apportioned

between the finance charges and reduction of the

lease liability so as to achieve a constant rate of

interest on the remaining balance of the liability.

Finance charges are charged directly against

income.

Capitalized leased assets are depreciated over

the shorter of the estimated useful life of the asset

or the lease term.

Leases where the lessor retains substantially all

the risks and benefits of ownership of the asset

are classified as operating leases. Operating lease

payments are recognized as an expense in the

income statement.

Pension benefit plans

Pension benefit plans exist in the form of state-run

pension plans and various additional pension

schemes of the Group companies. Unfunded

defined benefit plans exist for the German Group

companies for employees that have joined the

company prior to January 1, 2003. Accordingly,

they are not affected by the volatility of the stock

markets. The annual pension costs of the defined

benefit plans are charged to personnel expenses

with exception of the interest portion. The interest

portion is charged to financial expenses. Actuarial

gains and losses exceeding ten percent of the

present value of the obligation are amortized in the

income statement over the remaining working

lives of the participating employees. Changes in

liabilities for unfunded defined benefit plans are

based on actuarial valuations using the projected

unit credit method.

The annual pension costs of the Group’s defined

contribution plans are charged to personnel

expenses.

15



Provisions

Provisions are recognized as either long-term or

short-term if Micronas has a present obligation

(legal or constructive) as a result of a past event,

it is probable that an outflow of resources

embodying economic benefits will be required to

settle the obligation and a reliable estimate can be

made of the amount of the obligation. Long-term

provisions are discounted to reflect the present

value, using a pre-tax discount rate that reflects

current market assessment of time value of

money.

From time to time, we may be involved in

demands, claims and threatened litigation that

arise in the normal course of our business.

Micronas Group recognizes a provision for

asserted intellectual property rights infringements

based on the probable outcome of each case as

of each balance sheet date.

Liabilities

Liabilities are recognized as long-term and short-

term liabilities. Long-term liabilities are discounted

to reflect the present value using a pre-tax

discount rate that reflects the current market

assessment of time value of money.

Government grants

Government grants related to assets are recorded

as deferred income and recognized as non-

operating income over the life of the respective

assets. Grants related to income or expense items

are presented as a credit in the profit and loss

statement under non-operating income.

Income taxes

The consolidated financial statements include

income taxes, which are based on the taxable

result of the Group companies, calculated

according to local tax rules, and deferred taxes.

Deferred taxes are provided on all temporary

differences between the tax base and accounting

base of assets and liabilities included in the Group

accounts.

Deferred taxes are calculated under the liability

method at the rates of tax expected to prevail

when the temporary differences reverse. Any

changes of the tax rates are recognized in the

income statement. Deferred tax liabilities are

recognized on all taxable temporary differences.

Deferred tax assets are recognized on all

deductible temporary differences provided that it is

probable that sufficient future taxable income will

be available.

Segments

Micronas Group’s primary segments are the

business divisions Consumer and Automotive. The

Consumer division develops, manufactures and

markets ICs for audio, video, text and graphics

used in consumer electronics and multimedia

products. The Automotive division develops,

manufactures and markets ICs and sensors used in

the automotive industry.

The secondary segments are defined by

geographical regions of net sales. The basis for

attributing revenues to individual geographical

regions is defined by the shipping destination of

the revenues.

Share-based payments

The Group issues equity-settled share-based

payments to the Board of Directors, certain

members of Management and certain key

employees. In accordance with the provisions of

IFRS 2, effective January 1, 2005, Micronas

recorded for the first time the fair value of options

granted after November 7, 2002. Equity-settled

share-based payments are measured at fair value

(excluding the effect of non-market-based vesting

conditions) at the date of grant. The fair value is

expensed on a straight-line basis over the vesting

period, based on the Group’s estimate of the

shares that will eventually vest and adjusted for

the effect of non market-based vesting conditions.

The fair value of the options is determined by the

”Enhanced American Model”, a binomial model,

which includes the ”Modified Grant Date Method”

as requested by IFRS 2. The expected volatility

has been calculated based on a historic and

long-term volatility. The expected life used

in the model has been adjusted, based on the

Management’s best estimate, for the effects

of non-transferability, exercise restrictions and

behavioral considerations.

Financial risk management policy

The Micronas Group’s principal financial

instruments mainly comprise cash and cash

equivalents. The main purpose of these financial

instruments is to supply sufficient financial means

for the Group’s operations. Significant financial

risks are hedged on a case-by-case basis. The

Group has various other financial instruments such

as trade debtors and trade creditors, which arise

directly from its operations. The main risks arising

from the Group’s financial instruments are liquidity

risk, risk of losses from bad debts and foreign

currency risk.

Interest rate risk

As there are no major bank loans and short-term

deposits, there is no interest rate risk.

17



Liquidity risk

Presently a liquidity risk does not exist for Micronas

Group owing to the high amount of cash and cash

equivalents. Furthermore, an unused short-term

revolving credit facility is available to cover peaks of

working capital requirements.

Risk of losses from bad debts

The risk of losses from bad debts is covered by a

defined securing strategy. Most of the receivables

with our customers are secured through letter of

credit or credit insurance. In addition, credit limits

and constant monitoring minimize risk of losses

from bad debts.

Foreign currency risk / hedge accounting

The foreign currency risk mainly results from a

transactional currency exposure arising from sales

or purchases in currencies other than the units

functional currency. These are mainly in USD.

Micronas uses financial instruments including

swaps, currency forwards and currency options to

hedge up to two-third of the expected net currency

exposure for up to one year.

Hedge derivatives are identified according to the

nature of the underlying either as a cash flow

hedge or as a fair value hedge, and are valued

at cost on the trade date. During subsequent

reassessments, the change in fair value is either

recognized in the income statement (fair value

hedge) or against equity (cash flow hedge). When

option contracts are identified as cash flow hedges,

a distinction is made between the contract’s time

value and its intrinsic value. At the valuation date,

the change in the time value is recognized in the

income statement and the change in the intrinsic

value against equity.

As soon as the underlying becomes operative

and the hedge can be considered as effective, the

fair values of the underlying and the hedge are

determined and the change in value is recognized in

the income statement. In the case of cash flow

hedges the change in value recognized in equity for

the prior period is transferred to the income

statement.

19

3. Group structure

In 2003 Micronas Group entered a joint venture

and took a 50 percent stake in iKonvergenz PTE

Ltd. in Singapore and accounted for the investment

using the equity method. In April 2004 Micronas

Group acquired the other 50 percent of

iKonvergenz PTE Ltd., Singapore, and the

investment is fully consolidated from that date.

iKonvergenz is focused on developing designs

for analog LCD televisions and LCD/CRT-based

integrated digital televisions and employed about

20 engineers at the acquisition date.

Micronas Group acquired LINX Electronics, Inc.,

a fabless semiconductor company that develops

innovative digital-television solutions for improved

reception of high-definition television signals in

June 2004. Chicago-based LINX Electronics

employed a highly acclaimed HDTV technology

team of about 20 engineers at the acquisition

date and has been merged with Micronas

Semiconductors Inc., San Jose, USA.

For further details please refer to note 33.

As the Micronas Group did not participate in a

share capital increase of Nanotron Technologies in

January 2005, the Micronas share reduced to

3.8 percent.

Micronas Semiconductor R&D (Shanghai) Co.

Ltd. was established on March 8, 2005, in

Shanghai, PRC. Micronas Semiconductor R&D

(Shanghai) Co. Ltd. is focused on development of

IC´s and systems for the terrestrial digital TV market

in China and employed about 20 highly qualified

engineers at the date of foundation.

In December 2005, Micronas Group acquired

fabless semiconductor company WISchip

International Ltd. (subsequently renamed to

Micronas USA Inc.) and subsidiaries. With

operational headquarters in Santa Clara, CA., USA,

WISchip is focused on the development of

advanced audio and video system-on-chip IC and

software solutions, implementing the latest

generation MPEG1/2/4, H.264 and VC-1 HDTV

standards. WISchip will complement Micronas’s

team by adding the in-depth expertise of 104

additional staff members, including 78 experienced

video and computer engineers, 32 of which are

based in the company’s Shanghai R&D facility.

For further details of the transaction please refer

to note 33.



Information about the Group companies is listed below:

Guernsey, Great BritainOrdinary capital: EUR 1 400 000Activity: financing of Group companies% of shares: 100

Micronas Finance Ltd.

Micronas Semiconductor Holding AG

Nijmegen, The NetherlandsOrdinary capital: EUR 18 718Activity: development% of shares: 100

Micronas Holland B.V.

Freiburg, GermanyOrdinary capital: EUR 500 000Activity: management of participationsand consolidated sub-Groupmanagement% of shares: 100

Micronas Holding GmbH

Freiburg, GermanyOrdinary capital: EUR 25 000% of shares: 100

Micronas Mantel1 GmbH

San Jose, USAOrdinary capital: USD 2Activity: development, sales% of shares: 100

Micronas Semiconductors Inc.

Freiburg, GermanyOrdinary capital: EUR 24 250 000Activity: development, production,sales% of shares: 100

Micronas GmbH

Villach, AustriaOrdinary capital: EUR 35 000Activity: development% of shares: 100

Micronas Villach

Halbleiterentwicklungs GmbH

Tokyo, JapanOrdinary capital: JPY 10 000Activity: sales% of shares: 100

Micronas Japan K.K.

Glenrothes, ScotlandOrdinary capital: GBP 2Activity: production, sales% of shares: 100

Micronas Ltd.

Seoul, KoreaOrdinary capital: KRW 240 000 000Activity: sales% of shares: 100

Micronas Korea Ltd.

Nijmegen, The NetherlandsOrdinary capital: EUR 33 503Activity: management of participation% of shares: 100

Micronas Holland Holding B.V.

Hong Kong, ChinaOrdinary capital: HKD 10 000Activity: sales% of shares: 100

Micronas Hong Kong & China Ltd.

Zurich, SwitzerlandActivity: management of participations

SingaporeOrdinary capital: SGD 1 500 000Activity: development% of shares: 100

iKonvergenz PTE Ltd.

Rostock, GermanyOrdinary capital: EUR 250 000Activity: development, production andmarketing of bioelectronical andchemical systems % of shares: 24.9

Bionas GmbH

SingaporeOrdinary capital: SGD 2Activity: sales% of shares: 100

Micronas Singapore PTE Ltd.

Berlin, GermanyOrdinary capital: EUR 136 830Activity: development% of shares: 3.8

Nanotron GmbH

21

Shanghai, PRCOrdinary capital: USD 1 400 000Activity: development% of shares: 100

Micronas Semiconductor

(Shanghai) Co. Ltd.

Santa Clara, USAOrdinary capital: USD 10 000Activity: development, production,sales% of shares: 100

Micronas USA Inc.

Taipei, TaiwanOrdinary capital: NTD 20 000Activity: sales% of shares: 100

Micronas Taiwan Ltd.

Santa Clara, USAOrdinary capital: USD 100Activity: management of participation% of shares: 100

WIS Technologies Holdings LLC

Shanghai, PRCOrdinary capital: USD 200 000Activity: development% of shares: 100

WIS Technologies

(Shanghai) Ltd.

Cayman IslandsOrdinary capital: USD 50 000Activity: management of participation% of shares: 100

WIS Technologies

China Holdings Ltd.

MicronasNIT Micronas Mantel2 GmbH

Novi Sad, Serbia and MontenegroOrdinary capital: USD 638 663Activity: development% of shares: 52

Freiburg, GermanyOrdinary capital: EUR 25 000% of shares: 100



1 EUR1 GBP1 USD

100 JPY100 KRW

1 HKD1 SGD1 CNY

100 TWD

Average rates

Consolidated profit and loss statement, consolidated cash flow statement

4. Currency exchange rates

1.54972.26481.25071.13600.12300.16090.75190.15473.9960

1.54342.26921.23931.14900.10900.15910.7333

––

1 EUR1 GBP1 USD

100 JPY100 KRW

1 HKD1 SGD1 CNY

100 TWD

Year-end rates

Consolidated balance sheet

1.55532.27141.13271.11900.13100.16930.78780.16283.9960

1.54562.17461.13421.09200.11000.14580.6926

––

Wages and salariesSocial expensesShare compensation expensePension expenses for defined benefit plans excluding interest expensePension expenses for defined contribution plansOtherTotal personnel expenses

5. Personnel expenses

180 53630 3485 2572 233

8402 835

222 049

167 12026 8732 4552 182

4852 064

201 179

Profit and loss statement

20042005

2004CHF 1000

2005CHF 1000

The compensation of the Management is disclosed in the corporate governance reporting on page 30 of the Annual Report.

6. Number of employees

1 18740813220637

1 970

1 917

ProductionResearch and developmentAdministration and generalMarketing and salesQuality managementNumber of employees at year-end

Average number of employees

Average number of employees at year-end 2005 includesa ten-month average for Micronas Semiconductor R&D(Shanghai) Co. Ltd. and one month for WISchip.

Average number of employees at year-end 2004 includesan eight-month average for iKonvergenz and a seven-monthaverage for former LINX Electronics, Inc.

1 19261615826838

2 272

2 214

7. Other operating income (+) and expenses (–), net

0525926

0285463

1 2223 421

0– 679– 613– 889– 498

– 2 679

742

23

Foreign exchange gainIncome from development services and license agreementIncome from services to Vishay General Semiconductor GmbH, FreiburgSale of patentRelease of reserve for bad debtRelease of prepaymentAll otherTotal other operating income

Expenses for hedging instrumentsCompensation of Board of DirectorsForeign exchange lossCapital taxAll otherTotal other operating expenses

Total other operating income (+) and expenses (-), net

5 0411 949

878775570

1 0469 746

– 1 857– 765

0– 459– 803

– 3 884

5 862

20042005

2004CHF 1000

2005CHF 1000

Land and buildingsMachinery and equipmentOther fixtures, fittings, tools and office equipmentOther intangible assets (mainly included in cost of sales)Total depreciation and amortization

8. Depreciation and amortization (excl. goodwill)

1 62973 13916 42617 946

109 140

1 45274 91816 07413 056

105 500

11. Other income

204796

1 000

68718786

Grants related to assetsGrants related to incomeTotal other income

9. Financial income

3 9763

3 979

5 8302

5 832

Interest incomeOther financial incomeTotal financial income

10. Financial expenses

– 439– 7 660

– 203– 8 302

– 257– 7 837

– 200– 8 294



Interest expenses (excl. interest portion of pension expense,partial retirement and jubilee expense)Interest portion of pension, partial retirement and jubilee expenseOther financial expensesTotal financial expenses

2004CHF 1000

2005CHF 1000

12. Income taxes

Accrued tax current year (current income tax) Accrued tax prior-year adjustments – other1

Deferred income taxes2

Total income taxes

2 Detail of deferred income taxes:

Loss carry forwards capitalizedLoss carry forwards usedTemporary differences Prior-year adjustmentsTax rate changes Total deferred income taxes

Profit before income taxes

Applicable tax rate in %3

Applicable income tax charge

Tax on non-deductible interest expensesTax on other non-deductible or non-taxable itemsTax rate changes on deferred taxesPrior-year adjustments

Total income taxes

Effective tax rate in %

1 Includes a provision for an expected settlement with tax authorities.3 The applicable income tax rate is the weighted average of the tax rates of the respective individual tax jurisdictions. Due to the different weights of the respective

local tax rates, the applicable income tax rate has varied from 2004 to 2005.

25

9 7037 9827 198

24 883

– 1 3001 8517 532– 985

1007 198

74 075

20.615 292

1 77874769

6 997

24 883

33.6

50 537– 1 194

2 10651 449

– 35682

3 043– 664

12 106

168 937

29.449 701

3 59691

– 1 858

51 449

30.5

2004CHF 1000

2005CHF 1000

Balance, beginning of year

AdditionsTransfersDisposals and retirementsBusiness combinationsTranslation adjustmentsBalance, end of year

Gross amount

Landand

buildings

Other fixtures,fittings, tools

and officeequipment

2005CHF 1000

Total

2004CHF 1000

Total

616 726

91 653– 39

– 12 486800

– 6 222690 432

690 432

67 9564

– 7 3801 5625 930

758 504

145 349

13 6971 075

– 2 902894

1 387159 500

512 653

51 442– 442

– 4 287348

4 254563 968

32 430

2 817– 629– 191

320289

35 036



Machineryand

equipment

13. Property, plant and equipment


AdditionsTransfersDisposals and retirementsTranslation adjustmentsBalance, end of year

Balance net, end of year

Fire insurance value

Above balances include buildings, machinery andequipment in the course of construction in the amount of

Expected useful lifetime in years:

BuildingsFixturesMachineryOther fixed assets

Accumulated depreciation

347 283

92 4440

– 11 080– 3 456

425 191

265 241

987 549

6 332

2510 to 13

53 to 7

78 839

16 4260

– 2 669784

93 380

66 120

338 230

73 1390

– 3 9702 833

410 232

153 736

8 122

1 6290

– 8790

9 754

25 282

Balance sheet

425 191

91 1940

– 6 7263 707

513 366

245 138

1 128 643

10 395

2510 to 13

53 to 7

27


AdditionsTransfersDisposals and retirementsBusiness combinationsTranslation adjustmentsBalance, end of year

Gross amount

Acquiredlicenses

andsoftware

2005CHF 1000

Total

2004CHF 1000

Total

67 133

18 88239

– 11731 758– 3 255114 440

114 440

10 473– 4

– 2061 7305 172

131 605

104 094

6 457– 4

– 2061 7305 082

117 153

10 346

4 016000

9014 452

Capitalizeddevelopment

cost

14. Intangible assets

Accumulated amortization

32 918

13 0560

– 47645 498

68 942


AdditionsDisposals and retirementsTranslation adjustmentsBalance, end of year


2 575

2 6940

275 296

9 156

42 923

15 252– 95804

58 884

58 269

45 498

17 946– 95831

64 180

67 425

15. Investments

Micronas does not have significant influence over the

investments.

The investments are recorded at cost less any

impairments, as no active market exists and the

fair value cannot be measured reliably.



16. Goodwill

391 178

107 374– 107 976

3 925394 501

The useful lifetime of the goodwill of the Image and Videoacquisition has been estimated at the date of acquisition,October 1, 2000, to be 15 years. According to the transitionalprovisions of IFRS 3 the amortization of goodwill is chargedultimately to profit and loss statement in 2004. As at January1, 2005, the gross amount of goodwill was charged with theaccumulated amortization and no longer amortized in subse-quent years.

The allocation of the purchase price of the LINX acquisitionwas finally determined in the second quarter of 2005 resultingin a reduction of goodwill in the amount of CHF 1.6 million. The comparative figures have been adjusted respectivelyaccording to IFRS 3.

As the allocation of the purchase price to the fair valueof identified assets and liabilities of the WISchip acquisitionin 2005 is still in process caused by the proximity of thetransaction closing to the Group’s fiscal year end, thedifference between the purchase price and the carryingvalue of net assets acquired is reflected in goodwill.

Gross amount, beginning of year

Business combinationsReclassification of amortization accumulated prior to the adoption of IFRS 3Translation adjustmentsGross amount, balance end of year

107 976

0– 107 976

00

394 501

83 461

25 2410

– 726107 976

283 202

Accumulated amortization


AdditionsReclassification of amortization accumulated prior to the adoption of IFRS 3Translation adjustmentsAccumulated amortization, balance end of year


383 114

12 6380

– 4 574391 178

2004CHF 1000

2005CHF 1000

29

Impairment on goodwill

All goodwill acquired through business combinationshave been allocated for impairment testing purposesto the Consumer segment as the relevant cash-generatingunit. All goodwill capitalized relates to acquisitions whichcontribute to the technological development of theentire segment. The impairment test is based on October 1,2005.

The recoverable amount of the Consumer segment has beendetermined based on a value-in-use calculation using cashflow projections based on Management’s financial budgetsand business plans approved by the Board of Directorscovering a five-year period ending in 2010. The discountrate applied to cash flow projections is a pre-tax rate of16.2 percent. Cash flows beyond the five-year period areextrapolated using a two percent growth rate. This growth ratedoes not exceed the long-term average growth rate for themarkets in which the Consumer segment operates.

Goodwill acquired in 2005 and not yet finally determined is not subject to an impairment test in accordance with IFRS 3 and IAS 36.

Image and Video businessLINX ElectronicsiKonvergenzGoodwill subject to impairment test

Goodwill from acquisition 2005Total goodwill

Carrying amount of goodwill

273 33412 791

592286 717

107 784394 501

273 33412 791

592286 717

107 784394 501

Consumer segment

2005CHF 1000

Total

2005 CHF 1000

271 63011 052

520283 202

0283 202

2004 CHF 1000

2004 CHF 1000

271 63011 052

520283 202

0283 202



Key assumptions

The calculation of the value-in-use for the Consumer segmentis most sensitive to the following assumptions during theplanning period:

Net sales: Net sales are forecasted on a product basisconsidering expected market shares and related impactson sales volumes and prices. Net sales are expected togrow at an average compound annual growth rate of15 percent.

Gross margins: Gross margins are expected to settle at along-term expected level of 38 to 40 percent.

R&D expense: In recent years, R&D expenses have beenaround 12 to 14 percent of net sales. The expected long-term level of R&D expenses will be in the range of 15 to16 percent of net sales.

EBIT: The EBIT is expected to reach a long-termsustainable level of 15 percent.

Capital spending: Capital spending is expected to remainrelatively steady.

Exchange rate: EUR to CHF exchange rate – based onthe exchange rate in effect during the business planpreparation.

Discount rate (WACC): Cost of equity was calculatedusing the ten-year German government bond yield as ofOctober 2005 as the risk-free rate and a five percentmarket risk premium on shares. The Beta-factor appliedrepresents the average peer group raw beta based ontwo-year regression. As Micronas is in a net cash positionthe WACC equals cost of equity.

The value-in-use significantly exceeds the carrying amountof net assets and goodwill of the Consumer segment.Management therefore concluded that goodwill is notimpaired as at December 31, 2005.

Management and the Board of Directors believe thatassumptions and forecasts are realistic. Nevertheless,significant unexpected adverse future developments maycause changes to the planning assumptions and may lead toa future impairment of goodwill.

31

Amount, beginning of year

Reductions/additionsBusiness combinationsBalance sheet reclassificationTranslation adjustmentsBalance, end of year

Thereof:Temporary differences on – Tangible fixed assets– Long-term provisions and liabilities– Other current liabilitiesLoss carry forwardBalance, end of year

As at December 31, 2004, and December 31, 2005, theCompany had approximately CHF 4.4 million in net operating

loss carry forwards in Germany for which deferred tax assetshave not been recorded.

17. Deferred tax asset

7 433

– 7 5020

3 312156

3 399

209239316

2 6353 399

10 399

– 2 873325

– 273– 1457 433

1 5039 426

– 4 9551 4597 433

2004CHF 1000

2005CHF 1000



Materials and supplies

at costat net realizable valueWork in progress

at costat net realizable valueFinished goods of own production

at costat net realizable valueResale finished goods

at costat net realizable valueTotal inventories

18. Inventories

37 9750

95 3810

27 23411 693

1 222222

173 727

37 2750

109 5260

26 3231 604

1 1670

175 895

The amount of inventories recognized as an expense duringthe period is CHF 487 433 (000). The amount of anywrite-down of inventories recognized as an expense duringthe period is CHF 21 668 (000). The amount of any reversal

of any write-down that is recognized as a reduction in theamount of inventories recognized as expense in the period isCHF 570 (000).

19. Other current assets

14 5014 026

152423

1 12520 227

8 8675 273

647495

1 43716 719

Tax receivables (mainly VAT)Prepaid expenses and accrued incomeDepositsResearch premiumOtherTotal other current assets

20. Short-term financial investments

6363

7878

Short-term deposits with an initial maturity of three months and moreTotal short-term financial investments1

1 available for sale

2004CHF 1000

2005CHF 1000

33

Opening balance

Exercise of share optionsShare capital increaseBalance, end of year

Authorized capital

The Company has no authorized capital. The existingauthorized capital lapsed without being used on November 20,2005.

Conditional capital

The articles of incorporation provide for a conditional capital(according to Art. 653 of the Swiss Code of Obligations) of a

maximum of CHF 890 272 (as per March 2, 2005) through theissuance of a maximum of 890 272 registered shares with anominal value of CHF 1 each by the exercise of option rightsto be granted to the members of the Board of Directors, tocertain members of the Management and certain keypersonnel of the Company or Group companies. In 2005,202 900 options have been exercised. The conditional capitalas per December 31, 2005, amounts to CHF 799 870.

The above figures (numbers and percentages) conform to the figures contained in the respective notifications to the Company andthe Disclosure Office of the SWX Swiss Exchange; they may not be accurate as at December 31, 2005.

As at December 31, 2005, the Company is aware of the following shareholders holdingmore than 5 percent or more of the capital and/or voting rights of the Company:

The issued and fully paid share capital ofMicronas Semiconductor Holding AG comprises:

31 783 155

347 675300 000

32 430 830

32 431

2030

32 634

32 430 830

202 9000

32 633 730

31.12.2005

21. Share capital

Number CHF 100031.12.2004

Number CHF 1000

AXA SA, Paris, FranceNordea Investment Funds SA, LuxembourgArnhold and S. Bleichroeder Advisers, LLC, New York, USAFidelity International Limited, Hamilton, BermudaThe Capital Group Companies, Los Angeles, USA

2005 2004

8.3%n.a.n.a.

7.1%5.0%

31 783

348300

32 431

10.3%5.04%5.03%

n.a.n.a.

Opening balance

PurchasesDisposalsAddition to additional paid-in capital (pre taxes)Balance, end of year

31

0

2 768– 3 217

4490

0

53 172– 53 172

0

31

0

3 43000

3 430

31

0

80 0000

80 000

200522. Reacquired shares Number CHF 1000

2004Number CHF 1000



The 2004 reacquired shares were purchased and disposed in connection with the acquisition of LINX Electronics, Inc., to partlysettle the share portion of the purchase price.

35

23. Long-term loansDecember 31, 2005 December 31, 2004

2007 7052008 6022009 4202010 62011 5Thereafter 0Total 1 738

2006 7402007 6382008 4812009 82010 0

Thereafter 0Total 1 867

Long-term loans mature as follows (in CHF 1000):

Effective

interest rates

EUR 1 320 6.15%EUR 193 6.05%EUR 150 11.40%EUR 47 11.00%EUR 22 12.20%EUR 6 10.50%Total 1 738

Effective

interest rates

EUR 1 205 6.15%EUR 380 6.05%EUR 282 11.00%

Total 1 867

Long-term loans grouped by effective interest rates:

Pension obligationsProvisionsLiabilitiesTotal long-term provisions and liabilities

24. Long-term provisions and liabilities

131 26913 771

9 768154 808

127 71811 74712 845

152 310

2004CHF 1000

2005CHF 1000



Present value of obligations, beginning of year

Interest cost Current service cost Benefits paidActuarial losses/gains on obligationTranslation adjustmentsPresent value of obligations, end of year

Unrecognized actuarial gains (+)/ losses (–)

Net liability recognized in the balance sheet

Pension costs are included in personnel and interest expenses and consist of:Interest expenseChange of unfunded defined benefit obligationsexcluding interest expenses (service cost)Total pension cost

Movements in the net amount recognized in the balance sheet


Payments to pensionersAddition to reserveTranslation adjustmentsAmount, end of year

25. Unfunded defined benefit obligations

131 245

7 2932 182

– 6 9922 391

– 1 196134 923

– 7 205

127 718

7 293

2 1829 475

126 389

– 6 9929 475

– 1 154127 718

134 923

6 9332 432

– 6 62529 029

962167 654

– 36 385

131 269

6 933

2 4329 365

127 718

– 6 6259 365

811131 269

Discount rate per annumSalary increase per annumPost-retirement pension increasesInvestment yield per annum

Principal actuarial assumptions used

4.25%2.0%

1.35%n.a.

5.25%2.0%

1.35%n.a.

Staff turnover and retirement rates: Based on the experience of similar retirement schemesMortality and ill health: The Heubeck 2005 G mortality tables have been used

(Prior year: Heubeck 1998 mortality tables)

2004CHF 1000

2005CHF 1000

2004Germany

2005Germany

37

RestructuringJubileeWarrantyLoss on pending businessPartial retirementOtherTotal provisions

Thereof short-term provisionsThereof long-term provisions

Net chargeto costs and

expenses

Other Translationadjustments

Balance,end of

year

2271 7846 073

11210 4742 059

20 729

6 95813 771

411313

6230

141

41100

0000000

68– 68

– 1 2540

– 1 480– 1 475– 1 599

– 342– 6 150

– 4 291– 1 859

448218

3 803403

3 069919

8 860

5 0093 851

Balance,beginning

of year

1 0291 5553 7191 1818 9421 452

17 878

6 13111 747

Usage,payment

26. Provisions

CHF 1000

The restructuring provision as at December 2005 relates torestructuring within the normal course of business.

Jubilee provision is set up for anniversary payments to employees.The recorded liability is determined based on the valuationperformed by an external party. The valuation has been calculatedusing a discount rate of 4.25 percent in 2005 and 5.25 percent in2004 and the Heubeck 2005 G mortality tables. The employeesreceive a fixed anniversary payment from the Company on their 25thand 40th anniversary. The charge to costs and expenses includesCHF 74 (000) interest expense.

The warranty provision relates to estimated costs to be incurred torepair or replace faulty products. The estimate is determined basedon the actual sales volume and past experience. It is expected thatthe warranty reserve is used in the next year.

The provision for loss on pending business is recorded due tocustomer orders below cost as per year-end and risks out ofacceptance of contractual obligations. The provision is expected tobe used in the next year.

The partial retirement provision is based on legal regulations,agreements with workers council and past experience. The long-termportion is discounted over five years at a discount rate of threepercent. The provision is expected to be used pro rata up to theyear 2009. The charge to costs and expenses includes CHF 330 (000)interest expense.

The column ”Charge to costs and expenses“ includes the followingreversals of provisions: Partial retirement CHF 143 (000), WarrantyCHF 567 (000), and Other CHF 31 (000).

As at December 31, 2005, Micronas Group companies are not aparty to any legal proceedings. In the opinion and to the actualknowledge of the Management, the outcome of any settlement andresulting liabilities in excess of what has been provided for are notlikely to be material.


Reductions/additionsBusiness combinationsBalance sheet reclassificationTranslation adjustmentsBalance, end of year

Thereof:Temporary differences on – Tangible fixed assets– Intangible assets– Long-term provisions and liabilities– Other current liabilitiesLoss carry forwardBalance, end of year

27. Deferred tax liability

6 741

– 3050

3 3121 057

10 805

– 1 31710 6241 2924 165

– 3 95910 805



2

– 7678 385– 273– 6066 741

– 159 485

26874

– 3 6296 741

2004CHF 1000

2005CHF 1000

39

Accrued expensesAccrued social expensesDeferred compensationCurrent portion of capital lease obligationsAdvances from customersVAT payableOtherTotal other current liabilities

28. Other current liabilities

40 0017 3885 1252 6942 2321 1315 876

64 447

43 9767 594

02 1191 3703 9684 210

63 237

2004CHF 1000

2005CHF 1000



Net sales

in % of total net salesEBITDA

in % of salesDepreciation and amortizationOperating profit

in % of salesCapital expenditures1

Segment assets2

EBITDA in % of segment assetsSegment liabilities3

Headcount

Consumer Corporate4 Reconciliation Group

2005

CHF 1000

845 074

100.0184 891

21.9109 14075 751

9.078 429

982 042

18.839 3972 272

0

0

00

00

00

0

– 15 413

60– 15 473

139147

59111

168 707

20.065 253

38.717 30947 944

28.411 95872 465

90.08 473

460

676 367

80.0135 051

20.091 77143 280

6.466 332

909 430

14.930 333

1 801

Europe

Automotive

Asia Other Reconciliation GroupAmericas

Business areas

29. Segment reporting

Net sales

in % of total net sales387 182

45.8407 948

48.345 691

5.44 253

0.50 845 074

100.0

Other disclosures

Regions

41

Net sales

in % of total net salesEBITDA

in % of salesDepreciation and amortizationOperating profit

in % of salesCapital expenditures1

Segment assets2

EBITDA in % of segment assetsSegment liabilities3

Headcount

Group

2004

CHF 1000

963 360

100.0303 152

31.5130 741172 411

17.999 319

888 502

34.154 7311 970

0

0

00

00

00

0

– 20 372

63– 20 435

9103

68011

132 455

13.750 261

37.913 37436 887

27.812 06771 609

70.28 628

462

830 905

86.3273 263

32.9117 304155 959

18.887 243

816 790

33.545 4231 497

Europe Asia Other Reconciliation GroupAmericas

Business areas

Net sales

in % of total net sales489 556

50.8425 120

44.146 161

4.82 523

0.30 963 360

100.0

Regions

Certain overhead costs are allocated mainly based on sales, and cer-tain assets and liabilities are allocated mainly based on cost of goodssold.Segment assets 2005 refer to 83 percent to Europe, 17 percent to allother regions.Segment assets 2004 refer to 95 percent to Europe, 5 percent to allother regions.

Segment capital expenditures refer to 96 percent to Europe,4 percent to all other regions.EBITDA: operating profit before depreciation and amortization ofgoodwill.

1 Capital expenditures = investments in tangible and intangible assets and capitalized development costs.2 Segment assets = tangible assets, intangible assets, goodwill, inventories and receivables.3 Segment liabilities = accounts payable – trade.4 Mainly Holding company costs.

Consumer Corporate4 ReconciliationAutomotive



Leasing payments during period

Future lease commitments

Total future lease commitments

3125 728

23 22323 56423 690

5 6164 5316 764

87 388

2005

20062007200820092010

Thereafter

2005 2004

30. Operating leases

The actual leasing payments and futurecommitments for non-cancelable operating leasecontracts are as follows (CHF 1000):

At the Freiburg facility a lease contract for parts of themanufacturing, warehouse and office buildings exists. Thelease expires at the end of 2009. A renewal option exists.The extension of the lease term for another five years up tothe end of 2014 may be requested at the end of 2007 at thelatest.

At the Munich facility a lease contract for the office buildingexists. The lease expires in May 2012. Two consecutiverenewal options of five years each exist. The extension of thelease term for another five years may be requested up tonine months prior to the expiration date of term.

At the Freiburg facility a lease contract for an on-site nitrogengenerator exists. The lease expires in September 2011.A renewal option exists. The extension of the lease renews foranother two years each, if the contract will not be terminatedsix months prior to the expiration date of the lease term.

At the Freiburg facility several lease contracts for softwaretools exist. The leases expire between 2006 and 2008. Norenewal or purchase options exist.

25 492

19 27717 23411 6294 6454 498

6 728

64 011

2004

20052006200720082009

Thereafter

43

Orders for machinery and equipmentOrders for R&D projectsObligations to suppliers1

1 Mainly obligations for finished wafers and finished goods.

Forward exchange contracts:As at December 31, 2005, and December 31, 2004, no commitments from forward exchange contracts existed.

31. Other financial commitments

18 7294 942

66 362

11 0593 566

34 668

32. Borrowing facilities

90 30890 308

82 32082 320

UnusedTotal borrowing facilities

2004CHF 1000

2005CHF 1000


Fixed assetsIntangible assetsDeferred tax assetsCash and cash equivalentsOther assetsTotal assets

Long-term liabilitiesDeferred tax liabilitiesOther current liabilitiesTotal liabilities

Fair value of net assetsShare of iKonvergenz previously ownedFair value of net assets acquired

311 5621 731

01 5003 7218 514

5 2340

5 07710 311

2005CHF 1000

Carryingvalue

2005CHF 1000

Recognizedat acquisition

33. Acquisition of subsidiaries

Assets and liabilities acquired:

2004CHF 1000

Recognizedat acquisition

80031 758

325309304

33 496

5 3618 385

28314 029

19 467208

19 259


1 5621 731

01 5003 7218 514

5 2340

5 07710 311

45

On December 8, 2005, Micronas Group acquired 100 percentof the voting shares of WISchip International Ltd. (WISchip),a fabless semiconductor company with operational head-quarters in Santa Clara, CA (USA). The purchase priceof CHF 101 700 (000) was paid in cash at closing. Costsincurred as a direct result of the transaction amounted toCHF 3 877 (000). An additional CHF 16 006 (000) may becomepayable to certain employees of WISchip based uponcontinuing service to the Micronas Group and will berecognized as compensation expense over the requiredservice period of two years. As the allocation of the purchaseprice to the fair value of identified assets and liabilities is stillin process caused by the proximity of the transaction closingto the Group’s fiscal year-end, the difference between thepurchase price and the carrying value of net assets acquiredis reflected in goodwill.

In accordance with IFRS 3 Business Combinations, the resultsof WISchip have been included in Micronas Group’s resultssince the acquisition date. WISchip contributed a loss ofCHF 1 081 (000) to the 2005 Group results. Had the businesscombination been effected at the beginning of 2005, net salesand profit for the combined Group would have beenCHF 851 451 (000) and CHF 38 230 (000), respectively.

Micronas Group acquired 100 percent of the voting shares ofLINX Electronics, Inc. (LINX), on June 7, 2004. The purchaseprice of CHF 30 603 (000) consists of CHF 5 731 (000) cash

paid at closing, CHF 3 505 (000) deferred cash payable over athree-year period and 353 172 Micronas Group shares valuedat the acquisition date closing price of CHF 60.50 per share.Transaction-related costs amounted to CHF 503 (000). Anadditional CHF 4 163 (000) in unearned compensation payableto employee shareholders of LINX, based on continuingservice to the Micronas Group, is being recognized ascompensation expense over the required service period. Fromthe date of acquisition, LINX’s loss of CHF 1 743 (000) isincluded in the profit 2004 of the Group. The 2004 amountspresented in the table of note 33 reflect adjustments madein the second quarter of 2005 to other assets and deferredtaxes.

On April 22, 2004, Micronas Group acquired the remaining50 percent share in its Singapore joint venture iKonvergenzPTE Ltd. (iKonvergenz) for a cash purchase price includingtransaction-related costs of CHF 792 (000). At the date ofacquisition, iKonvergenz became fully consolidated and hascontributed a loss of CHF 1 426 (000) to profit 2004 of theGroup.

Had LINX and iKonvergenz been fully consolidated fromJanuary 1, 2004, net sales for the Group would haveremained unchanged in 2004 while profit would have beenCHF 2 990 (000) lower.


Earnings per share in CHF – undiluted

Profit for the period attributable to the shareholders’ of the parentWeighted average number of issued and outstanding sharesEarnings per share in CHF – undiluted

Earnings per share in CHF – diluted

Profit for the period attributable to the shareholders’ of the parentWeighted average number of issued and outstanding shares

for calculation of earnings per share – undiluted

Dilution: share optionsWeighted average number of issued and outstanding shares for calculationof earnings per share – dilutedEarnings per share in CHF – diluted


– undiluted

Profit for the period attributable to the shareholders’ of the parentAmortization of goodwill after taxProfit for the period attributable to the shareholders’ of the parentadjusted for amortization of goodwill after taxWeighted average number of issued and outstanding sharesEarnings per share, adjusted for amortization of goodwill after tax in CHF

– undiluted


– diluted

Profit for the period attributable to the shareholders´ of the parentAmortization of goodwill after taxProfit for the period attributable to the shareholders´ of the parentadjusted for amortization of goodwill after taxWeighted average number of issued and outstanding shares – dilutedEarnings per share, adjusted for amortization of goodwill after tax in CHF

– diluted

34. Earnings per share

48 84932 159 863

1.52

48 849

32 159 863

65 673

32 225 5361.52

48 8490

48 84932 159 863

1.52

48 8490

48 84932 225 536

1.52

117 22632 145 681

3.65

117 226

32 145 681

123 279

32 268 9603.63

117 22616 612

133 83832 145 681

4.16

117 22616 612

133 83832 268 960

4.15

The key figures of the earnings per share are determined as follows:

The computation of diluted earnings per share excluded 587 000 shares related to share options at December 31, 2005, as theirinclusion would have been undilutive.


2004CHF 1000

2005CHF 1000

47

The Company has a share option scheme for

the members of the Board of Directors, certain

members of the Management and certain key

personnel. Options are exercisable at a price equal

to the quoted market price of the Company’s

shares on the date of grant. Under the plans,

options vest based on continued service over one,

two or three years and have a contractual life of

approximately four years. Options are forfeited if

the employee leaves the Group before the options

vest.

The weighted average share price at the date of exercise forshare options exercised during the year was CHF 51.44.

The options outstanding at the end of the year have aweighted average remaining contractual life of 3.5 years

(2004: 3.3 years). In 2005, options were granted on January 3and April 7. The estimated fair values of the options grantedon those dates are CHF 20.57 and CHF 19.20 respectively. In2004, options were granted on January 5. The estimated fairvalue of the options granted on that date is CHF 20.33.

Details of the share options outstandingare as follows:

747 675

275 850– 347 675

– 2 500673 350

29 600

37.05

55.0019.3047.3848.97

34.30

673 350

327 050– 202 900

– 21 250776 250

85 000

2005

35. Share-based payments

Numberof shareoptions

Weightedaverage

exercise price

2004Numberof shareoptions

Weightedaverage

exercise price

22.94

54.0020.0749.0237.05

16.82

Outstanding at the beginning of the year

IssuedExercisedLapsedOutstanding at the end of the year

Exercisable at the end of the year


Sales to related partiesLoans to related partiesReceivables from related parties

36. Transactions with related parties

37. Subsequent events

279726186

324258

0

In January 2006, 270 850 options were issued

to the members of the Board of Directors, to

certain members of Management and certain key

personnel at an exercise price of CHF 45.15 each.

The options are exercisable between January 1,

2008, and December 31, 2011.


Micronas Group has a 24.9 percent share in Bionas GmbH. Sales to related parties are made at market prices. The interest rate ofthe loans to related parties is at market.

The expected life used in the model has been adjusted, based on the Management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioral considerations. The Group recognized total expenses of CHF 5 257 (000) (2004: CHF 2 455 (000)) related to equity-settled share-based paymenttransactions during the year.

Used actuarial assumptions:

Expected option life in yearsExpected forfeitures per year after vestingExpected volatilityShare price at the grant date in CHFRisk-free interest rateExpected dividend

2005 2004

2.93 – 4.455.3%

60.0%54.00

1.62 – 2.000.0%

2.20 – 4.474.4%

60.0%55.00

1.34 – 1.870.0%

2004CHF 1000

2005CHF 1000

49

As group auditors, we have audited the

consolidated financial statements (profit and loss

statement, balance sheet, cash flow statement,

changes in equity and notes) of Micronas

Semiconductor Holding AG for the year ended

December 31, 2005.

These consolidated financial statements are

the responsibility of the board of directors. Our

responsibility is to express an opinion on these

consolidated financial statements based on our

audit. We confirm that we meet the legal

requirements concerning professional qualification

and independence.

Our audit was conducted in accordance with

Swiss Auditing Standards and with International

Standards on Auditing, which require that an audit

be planned and performed to obtain reasonable

assurance about whether the consolidated

financial statements are free from material

misstatement. We have examined on a test basis

evidence supporting the amounts and disclosures

in the consolidated financial statements. We have

also assessed the accounting principles used,

significant estimates made and the overall

consolidated financial statement presentation.

We believe that our audit provides a reasonable

basis for our opinion.

In our opinion, the consolidated financial

statements give a true and fair view of the

financial position, the results of operations and

the cash flows in accordance with International

Financial Reporting Standards and comply with

Swiss law.

We recommend that the consolidated financial

statements submitted to you be approved.

Report of the group auditors to the ordinary Shareholders’Meeting of Micronas Semiconductor Holding AG, Zurich

Zurich, February 2, 2006

Ernst & Young Ltd

Willi Holdener Reto FierzSwiss Certified Accountant Swiss Certified Accountant(in charge of the audit)


Additional information

Orders on hand, beginning of year

Net salesOrder intakeTranslation adjustments

Orders on hand, end of year

Book-to-bill

Orders on hand

256 271

845 074815 764

1 502

228 463

0.97

373 520

963 360849 697– 3 586

256 271

0.88

2004CHF 1000

2005CHF 1000

Numberof options3

Numberof options2

Numberof options1

Numberof shares

51

Dr. Franz Betschon Chairman of theBoard of Directors

Dr. Thomas Lustenberger Vice Chairman, Secretaryof the Board of Directors

Dr. Rudolf W. Hug Member of theBoard of Directors

Alfred M. Niederer Member of theBoard of Directors

Harald Stanzer Member of theBoard of Directors

Dr. Wolfgang Kalsbach Chief ExecutiveOfficer

Manfred Häner Chief FinancialOfficer

Hans-Jürgen Désor Vice President Marketingand R&D Consumer

Klaus Heberle Vice PresidentAutomotive

Nikolaus-Viktor Kaeppeler Vice PresidentOperations

Wolfgang Kühn Vice President SalesConsumer

Wilfried Lowinski Vice President OperationsBackend

Dr. Ulrich Sieben Vice PresidentTechnology

Nicholas Ververis Vice PresidentQuality

Dirk Wieberneit Vice President ProductDevelopment Consumer

Numberof options4

13 200

6 600

6 600

6 600

6 600

25 000

10 000

5 000

5 000

5 000

5 000

5 000

5 000

5 000

5 000

13 600

6 800

6 800

6 800

20 000

25 000

10 000

5 000

5 000

5 000

5 000

5 000

5 000

5 000

5 000

13 200

6 600

6 600

6 600

0

25 000

10 000

5 000

5 000

5 000

5 000

5 000

5 000

5 000

5 000

13 200

6 600

6 600

6 600

0

25 000

10 000

5 000

5 000

5 000

5 000

5 000

5 000

5 000

5 000

1 001

20 000

1 000

35 900

0

0

0

0

0

0

0

0

0

5 000

0

Number of shares and options held by the Board of Directors and Group Management

Name Position

1 One option entitles to draw of a registered share of Micronas Semiconductor Holding AG, Zurich, with an exercise price of CHF 31.67 each until December 31, 2008.The options were granted on January 1, 2003.


3 One option entitles to draw of a registered share of Micronas Semiconductor Holding AG, Zurich, with an exercise price of CHF 55.00 each until December 31, 2010.The options were granted on January 3, 2005 (exception: options H. Stanzer granted on April 7 until December 31, 2008).


52 Financ ia l Report 2005 Micronas Semiconductor Hold ing AG

53

Profit and loss statement

Interest income from Group companiesDividend income from Group companiesLicense fees from Group companiesDisposal of reacquired sharesDisposal of assetsGain on valuation of reacquired sharesFinancial incomeGain on release of unused reserveTotal income

Income

12 46920 88125 326

01250

10 9020

69 640

12 34321 29028 862

44900

4 9246 000

73 868

Operating expensesAmortization and valuation adjustmentsInterest expense Group companiesFinancial expensesIncome taxesTotal expenses

Profit for the period

Expenses

– 10 947– 214

– 9 230– 7 433– 2 023

– 29 847

44 021

– 9 100– 60

– 7 778– 924

– 2 926– 20 788

48 852

2004CHF 1000

2005CHF 1000


Balance sheet

Non-current assets

Machinery and equipmentInvestments in Group companiesLong-term loans receivable from Group companiesTotal non-current assets

Current assets

Accounts receivable from Group companiesOther accounts receivableAccrued income and prepaid expensesReacquired sharesCash and cash equivalentsTotal current assets

Total assets

Assets31.12.2005CHF 1000

31.12.2004CHF 1000

147893 408303 455

1 197 010

19 85782734

3 480109 588133 786

1 330 796

1041 005 176

273 3481 278 628

13 032353119

0185 131198 635

1 477 263

55

Shareholders’ equity

Share capitalGeneral legal reserveReserve for reacquired sharesUnappropriated retained earnings, beginning of yearProfit for the periodUnappropriated retained earnings, end of yearTotal shareholders’ equity

Long-term liabilities

Long-term loans payable to Group companiesReserve for unrealized gainsTotal long-term liabilities

Current liabilities

Accounts payable to Group companiesOther accounts payableShort-term liabilities and accrued expensesTotal current liabilities

Total liabilities

Total shareholders’ equity and liabilities

Shareholders’ equity and liabilities

32 431505 056

0166 44744 021

210 468747 955

200 928518 834719 762

2 475583

6 4889 546

729 308

1 477 263

32 634505 340

3 430210 46848 852

259 320800 724

0518 834518 834

1 613263

9 36211 238

530 072

1 330 796

31.12.2005CHF 1000

31.12.2004CHF 1000


Information on Group companies

Information on Group companies: please refer to note 3 of the consolidated financial statements.

Major shareholders

Information on major shareholders: please refer to note 21 of the consolidated financial statements.

Fire insurance value of fixed assets

300300Machinery and equipment

Authorized capital

The Company has no authorized capital. The existingauthorized capital lapsed without being used on November 20,2005.

Conditional capital

The articles of incorporation provide for a conditional capital(according to Art. 653 of the Swiss Code of Obligations) of amaximum of CHF 890 272 (as at March 2, 2005) through theissuance of a maximum of 890 272 registered shares with anominal value of CHF 1 each by the exercise of option rightsto be granted to the members of the Board of Directors,to certain members of the Management and certain keypersonnel of the Company or Group companies. In 2005,202 900 options have been exercised. The conditional capitalas at December 31, 2005, amounts to CHF 799 870.

Notes on the financial statements

32 430 830 registered shares of CHF 1 nominal each32 633 730 registered shares of CHF 1 nominal eachTotal share capital

The issued and fully paid share capital ofMicronas Semiconductor Holding AG comprises:

Share capital

32 63432 634

32 431

32 431

31.12.2005CHF 1000

31.12.2004CHF 1000

31.12.2005CHF 1000

31.12.2004CHF 1000

57

Opening balance

AdditionBalance, end of year

Reserve for reacquired shares

0

3 4303 430

0

00

Opening balance

PurchasesDisposalsGain on reacquired sharesBalance, end of year

31

0

3 4300

503 480

0

80 0000

80 000

Reacquired shares

31

0

2 768– 3 217

4490

0

53 172– 53 172

0

2005

Number CHF 10002004

Number CHF 1000

Reacquired shares are carried at the market value at thebalance sheet date.

The 2004 reacquired shares were purchased and disposed inconnection with the acquisition of LINX Electronics, Inc., topartly settle the share portion of the purchase price.

The reserve for reacquired shares is carried at averagepurchase price.

31.12.2005CHF 1000

31.12.2004CHF 1000


Proposal of the Board of Directors

Unappropriated retained earnings, beginning of yearProfit for the periodUnappropriated retained earnings, end of year

Appropriation of the unappropriated retained earnings

210 467 27748 851 470

259 318 747

166 446 48444 020 793

210 467 277

The Board of Directors is proposing not to pay a dividend forthe financial year 2005 and to carry forward the profit toretained earnings.

The Board of Directors is proposing a nominal value reductionof CHF 0.95 per share, i.e. from CHF 1.00 to CHF 0.05.Based on the 32 633 730 issued shares as at the endof the financial year 2005 the share capital reductionamounts to CHF 31 002 043.50. The amount of therepayment of the nominal value of CHF 0.95 per share

(total CHF 31 002 043.50) will be distributed to the share-holders in cash and without deduction of a withholding tax,after the legally required call for filing of claims has beenexecuted and the share capital reduction has been filed inthe Commercial Register. This is expected to occur at thebeginning of June 2006.

In addition, the Board of Directors has resolved a sharerepurchase program up to CHF 100 million through a secondtrading line.

31.12.2005CHF

31.12.2004CHF

59

As statutory auditors, we have audited the

accounting records and the financial statements

(balance sheet, income statement and notes) of

Micronas Semiconductor Holding AG for the year

ended December 31, 2005.

These financial statements are the

responsibility of the board of directors. Our

responsibility is to express an opinion on these

financial statements based on our audit. We

confirm that we meet the legal requirements

concerning professional qualification and

independence.

Our audit was conducted in accordance with

Swiss Auditing Standards, which require that

an audit be planned and performed to obtain

reasonable assurance about whether the financial

statements are free from material misstatement.

We have examined on a test basis evidence

supporting the amounts and disclosures in the

financial statements. We have also assessed the

accounting principles used, significant estimates

made and the overall financial statement

presentation. We believe that our audit provides a

reasonable basis for our opinion.

In our opinion, the accounting records

and financial statements and the proposed

appropriation of available earnings comply

with Swiss law and the company’s articles of

incorporation.

We recommend that the financial statements

submitted to you be approved.

Report of the statutory auditors to the ordinary Shareholders’Meeting of Micronas Semiconductor Holding AG, Zurich

Zurich, February 2, 2006

Ernst & Young Ltd

Willy Holdener Reto FierzSwiss Certified Accountant Swiss Certified Accountant(in charge of the audit)

ANNUAL REPORT 2005

> FINANCIAL REPORT 2005

COMPANY PROFILE

Micronas (SWX Swiss Exchange: MASN), a semiconductor designer and manufacturer with worldwide

operations, is a leading supplier of cutting-edge IC and sensor system solutions for consumer and

automotive electronics. As a market leader in innovative global TV system solutions, Micronas

leverages its expertise into new markets emerging through the digitization of audio and video content.

Micronas serves all major consumer brands worldwide, many of them in continuous partnerships

seeking joint success. While the holding company is headquartered in Zurich (Switzerland), operational

headquarters are based in Freiburg (Germany). Currently, the Micronas Group employs about

2000 people. In 2005 it generated CHF 845 million in sales.

[email protected]

www.micronas.com

Editors:

Concept, design and project management: Kiesewetter I Die Markenagentur. www.agentur-kiesewetter.de

This document was first published on February 9, 2006

This Financial Report is also available in German. The German version is legally binding.

Printed on FSC-certified (Forest Stewardship Council) paper, www.fsc.org

Transparency2

www.micronas.com

FINANCIAL REPORT 2005

Micronas Semiconductor Holding AG I Technopark I Technoparkstrasse 1 I CH-8005 Zurich I Phone +41 44 445 39 60 I Fax +41 44 445 39 61 [email protected] Holding GmbH I Hans-Bunte-Strasse 19 I D-79108 Freiburg I Phone +49 761 557 5688 I Fax +49 761 557 5690

www.micronas.com

Documents

FINANCIAL REPORT 2005 - TDK-Micronas · This resulted in a decrease of our profit for 2004 from CHF 119.7 million to CHF 117.5 million and in an increase of equity from CHF 815.0