annual report 2012 - gem · in 2012 fiscal year, gem revenues were ntd975.6 million, compared with...
TRANSCRIPT
Annual Report 2012
Annual Report Web Address: http://mops.twse.com.tw
http://www.gem.com.tw
Published in May 2013
Ticker Symbol : 2460
1. Spokesperson and Alternate Spokesperson
Spokesperson: Shiou-Feng Lu Alternate Spokesperson: Ming-Cheng Hong
Title: Audit Manager Title: Financial Specialist
Tel: 886-7-6963037 Tel: 886-7-6963037
E-mail: [email protected] E-mail: [email protected]
2. Head Office, Branch Office, and Factory
Head Office: No.138, Lane 513, Datong Road, Luzhu District, Kaohsiung City, Taiwan, R.O.C.
Branch Office: None
Tel: 886-7-6963037
Taipei Office: 2F, No.223, Sec. 3, Chengde Road, Taipei City, Taiwan, R.O.C.
Tel: 886-2-25917611
3. Securities Agent
Name: Register and Transfer Agency Division of SinoPac Securities
Address: 3F, No.17, Boai Road, Taipei City, Taiwan, R.O.C
Website: http://www.sinotrade.com.tw
Tel: 886-2-23816288
4. Certified Public Accountant
Name: Chia-Ling Chiang and Hui-Yin Chiu
Business Office: Deloitte Taiwan
Address: 20 F, No.2, Zhongzheng 3rd Road, Kaohsiung City, Taiwan, R.O.C.
Website: http://www.deloitte.com.tw
Tel: 886-7-2389988
5. Names of Overseas Securities Exchanges and Methods of Enquiring About Such Overseas
Securities: None
6. Company Website: http://www.gem.com.tw
Contents
I. Report to Shareholders .............................................................................................................1
II. Company Profile.......................................................................................................................5
1. Date of Establishment........................................................................................................5
2. History ...............................................................................................................................5
III. Corporate Governance Report ..................................................................................................8
1. Organization Chart ............................................................................................................8
2. Directors, Supervisors, President, Vice President, Deputy Manager, Head of Department and Division................................................................................................10
3. Operation of Corporate Governance ...............................................................................21
4. Fees for CPAs ..................................................................................................................41
5. Replacement of CPAs......................................................................................................41
6. Company’s chairperson, president and managers who are responsible for financial or accounting affairs should disclose their names, job titles, name of CPA firm and the period if they have worked for the CPA’s firm or the firm’s affiliates over the last year ..................................................................................................................................41
7. Changes in transfer and pledge of shareholdings of directors, supervisors, managers and shareholders who holds over 10% of company’s share over the recent one year and as of the publication date of the annual report..........................................................42
8. The information about the ten largest shareholders who are related parties of No.6, SFAS among themselves or are relationships of spouses and within the second degree 43
9. The shares of company, corporate directors, supervisors, managers and businesses which are controlled by the company directly or indirectly to the same reinvestment business and aggregation of the comprehensive percentage of shares............................44
IV. Placement ...............................................................................................................................45
1. Capital and Shares ...........................................................................................................45
2. Issuance of Corporate Bond ............................................................................................49
3. Issuance of Preferred Stock .............................................................................................49
4. Issuance of Global Depositary Receipt ...........................................................................49
5. Issuance of Employee Stock Option Certificates ............................................................49
6. New Shares Issuance in Connection with Acquiring Other Company’s Share or M&A
.........................................................................................................................................49
7. Implementation of Financing Plans.................................................................................49
V. Operational Highlights ...........................................................................................................50
1. Business Activities...........................................................................................................50
2. Market, Production and Sales Overview.........................................................................58
3. Distribution of the Number, Averaged Years of Service, Averaged Age and Educational Background of Employees as of the recent two years and the date Annual Report Published.................................................................................................70
4. Environmental Protection Expenditure ...........................................................................70
5. Labor Relationship ..........................................................................................................71
6. Material Contracts ...........................................................................................................77
VI. Financial Highlights ...............................................................................................................78
1. Condensed Balance Sheet and Income Statement of the Recent Five Years...................78
2. Financial Analysis of the Recent Five Years ...................................................................82
3. Supervisors’ Audit Report on Financial Reports of the Recent One Year.......................86
4. Financial Statements and the CPA Auditing Report, Year 2012......................................87
5. Consolidated Financial Statements and the CPA Auditing Report, Year 2012..............131
6. The Impact of the financial difficulties of The Company and Its Affiliates as of the Recent Year and the Date Annual Report Published on the Company Should be Listed .............................................................................................................................188
VII. Financial Status and Operating Results Review and Risk Management..............................189
1. Financial Status .............................................................................................................189
2. Operating Results ..........................................................................................................189
3. Cash Flow......................................................................................................................191
4. The Impacts of Material Capital Expenditure on Financing of the Recent Year...........191
5. Investment policies, Main Causes of Profit or Loss, Improvement Plans of the Recent Year and Investment Plan for Next Year .......................................................................192
6. Risk Evaluation .............................................................................................................193
7. Other Material Events....................................................................................................197
VIII. Special Notes ........................................................................................................................198
1. Subsidiaries....................................................................................................................198
2. Issuance of Private Placement Securities as of the Recent Year and the Date Annual Report Published ...........................................................................................................202
3. Status of the Company’s Shares Acquired, Disposed of, and Held by Subsidiaries as of the Recent Years and the Date Annual Report Published ........................................202
4. Other Supplementary Remarks......................................................................................202
5. Events Which Have Material Impact on Shareholder's Equity or Share Price as of the Recent Years and the Date Annual Report Published Pursuant to Item 2, Section 2, Article 36, Securities and Exchange Act .......................................................................202
IX. Supplementary Disclosure....................................................................................................203
1. Key Performance Indicators ..........................................................................................203
2. Evaluation of Assets and Liabilities Accounts Provision ..............................................203
3. Authority Designated Licenses or Certificates Acquirement of Staff Relating to Financial Information Transparency..............................................................................205
4. Trainings on Corporate Governance Participated by Managers....................................205
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Ⅰ. Report to Shareholders
Dear shareholders, customers and employees: In Year 2012, the worldwide consumer electronic market was turning conservative due to the US fiscal cliff, slowdown of China economic growth, high unemployment rate and debt crisis in Eurozone. The development of electric terminal industry is highly sensitive to market price. Competition from Mainland China manufacturers and competitors adopted cutting price strategy in the market; in addition, the frequency and rate of raw material price volatility also increased to a large degree than past years which made procurement cost management more difficult. Meanwhile, because of the effect of Mainland China raised its basic wage and its high labor turnover rate, labor cost increased and production capacity being limited, resulted in 2012 fiscal year consolidated margin was lower than that of year 2011. In the past one year, global economy was influenced by US and Eurozone economy and by varies of uncertainties; the demand of exporting market was rather conservative. Moreover, high price volatility of raw materials and commodities led the competition becoming more severe. In addition, GEM Dongguan conducted in a series of organizational transformation in the beginning of year 2012, causing some order lose due to a portion of customers disliked the new shipping model. As the result, in 2012 fiscal year, GEM consolidated revenues were NTD3,918.87 million, compared with NTD4,443.94 million in year 2011, decreased by NTD525.07 million or by 12%. In 2012 fiscal year, GEM revenues were NTD975.6 million, compared with NTD1,787.69 million in year 2011, decreased by NTD812.10 million or by 45%. In 2012 fiscal year, the net income after tax was NTD84.94 million, compared with NTD185.30 million in year 2011, decreased by NTD100.36 million or by 54%. The basic EPS after tax was NTD 0.5 in 2012 fiscal year. Business Report 1. Performance and Results of Business Plans
In Year 2012, the main business of the company was the international and domestic sales of terminal products (brass) and raw materials. The annual net revenue reported NTD975,596 thousand, after deducting operating cost of NTD873,510 thousand and NTD1,211 thousand of unrealized gains of subsidiary companies. The realized operating margin was NTD100,875 thousand, the operating expense was NTD145,106 thousand, the net non-operating income (loss) was NTD125,789 thousand; consequently, the net income before income tax was NTD189.89 million.
2. A Comparison of Business Performance (Unit: thousand / NTD)
Item Year 2012 Year 2011 Increase/Decrease
Net Sales 975,596 1,787,694 (812,098)
Operating Cost 873,510 1,630,364 (756,854)
Operating Margin 102,086 157,330 (55,244)
Unrealized Gains Among Affiliated Companies (1,211) 2,890 (4,101)
Realized Operating Margin 100,875 160,220 (59,345)
Operating Expense 145,106 129,860 15,246
Net Operating Profit (44,231) 30,360 (74,591)
Net Non-Operating Income 125,789 159,527 (33,738)
Net Income Before Tax 81,558 189,887 (108,329) 3. A Comparison of Budget Execution, Year 2012 (Unit: thousand / NTD)
Budget Actual Number Achievement Rate
Net Sales 955,666 975,596 102.09%
Operating Cost 859,012 873,510 101.69%
Operating Margin 96,654 102,086 105.62%
Unrealized Gains Among Subsidiary Companies - (1,211) -
Realized Operating Margin 96,654 100,875 104.37%
Operating Expense 143,613 145,106 101.04%
Net Operating Profit (46,959) (44,231) 94.19%
Net Non-Operating Income 122,055 125,789 103.06%
Net Income Before Income Tax 75,096 81,558 108.60%
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4. Financial Performances: Financial Performance in Recent 3 Years Year
Item 2012 2011 2010 Financial Structure (%)
Debt Ratio (%) 39.39 34.52 37.77
Current Ratio (%) 146.94 185.59 226.65 Solvency
Quick Ratio (%) 141.66 171.59 201.75
Return on Assets (%) 2.33 4.54 7.90
Return on Equity (%) 2.96 6.46 11.38
Profit Margin (%) 8.71 10.37 14.52
Basic EPS (After Tax) (NTD) ( Note 1) 0.50 1.08 1.87
Diluted EPS (After Tax) (NTD) (Note 1) 0.49 1.07 1.87
Profitability
Retroactive Basic EPS (After Tax) (NTD) ( Note 2) 0.50 1.08 1.87 Note 1: Calculated by outstanding weighted average shares. Note 2: Calculated by the shares which retroactive earnings adjustment transferred to capital increase. 5. The Analysis of Research and Development, Year 2012:
For the past few years, the company carried out the R & D of products and process improvement in three ways under the target of increasing a capacity and the ability of market competition and seeking to multiple products:
A. Development of Manufacturing Process Equipment
(1) In order to reduce lead frame material cost, we are using alternative material and adopting different process for production.
(2) Completion of UK auto assembly machine.
(3) Successful development of auto injection molding automation robot arms in European frame, GB, SAA and UL, and will start to apply this development to various plugs.
(4) Start to develop PVC sleeves auto injection machine.
(5) To increase VDE competitiveness, we have competed 16-hole automation and are working on switching from existed 8-hole robot arms to 16-hole ones.
B. Improvement of current product quality and manufacturing processes to meet customers’ requirements and increase market share.
(1) Developing existing AC double plug blades modularization to improve quality and productivity.
(2) Successfully transforming the current VDE semi-auto plug assembly machine into fully-auto ones and keep on extending this transformation thoroughly.
C. Research and development of new niche products to increase revenue and profitability.
(1) Completion of the development of non-feeder AC double plug blades.
(2) Working on the development of non-feeder UL drain wire copper PIN.
(3) In response to the rapid labor cost increment in China and labor shortage, continue to develop manufacturing process automation for GB, SAA, UL, T-MARK and Argentina plug products and affiliate terminal compressors.
(4) Development of more competitive VDE plug inner frame.
Operation Policy
Although the Euro Zone regression is slightly improved, but it growing unemployment rate and the Debt problem are potential threats to economy development. Customers are getting conservative due to they wonder if China and the US these two major economic entities in the world would steadily grow, and the Euro Debt problem and the US fiscal cliff would be effectively solved. Meanwhile, GEM Group conducted a series of transformations in the beginning of 2012, by transferred about 85% of production capacity from Taiwan to Dongguan GEM. However, due to this transformation did not go smoothly and due to some customers could not change their shipments accordingly, the Company’s 2012 consolidated revenue was lower than that of 2011. In the future, the Company will conduct production and sales performance evaluation system to develop China domestic market, to increase customers and to enlarge market share. Moreover, the Company will thoroughly start production automation, introduce new production technology from Europe and USA, improve labor stability to overcome low production yield and reduce procurement costs at GEM Group, to enhance GEM competitiveness.
In the coming year, GEM group will penetrate the market further for mature products by developing more new products following the latest development and trends of electronic, home appliance and telecommunication markets. By
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doing so, in addition to GEM’s group’s presence and coverage in US and European markets, GEM group will also play an important role in the terminals manufacturing industry in the greater China region. Regarding the lead frame products that have been deployed for years; on one hand, it related technologies have become mature; on the other hand, it have successfully acquired customer recognition for quality; therefore, lead frame sales increased significantly from 2011 to 2012. It is firmly believed that lead frame products, through their leading technologies and geographical convenience, will enhance customer relationship and enlarge market share, and bring a new and favorable status to GEM.
To cope with the changes from global marketplace, GEM Group has completed a series of transformation and will follow China’s “Twelve Five-Year Plan” of enlarging domestic market instead of developing exporting businesses. GEM China subsidiaries will not only maintain exporting business growing, but also will advanced increase China domestic market share. GEM aggressively develops high quality and low price GB and UL products to cope with China vast and high potential domestic market. In responding to the rapid labor cost increment, GEM develops automation GB, SAA and Argentina products. To meet market trend, on one hand, Dongguan GEM has been transformed to domestic sales factory, along with Suzhou GEM, in charge of South region and East region for business expansion respectively. On the other hand, GEM will take part in major International Information Technology Show for GEM brand exposures to facilitate international business. Regarding the progress of Vietnam investment project, GEM has acquired the Environmental Impact Assessment Report and Redbook by the end of year 2011; it is forecasted that Vietnam factory will be set up by Q3, 2014 and start running in Q4, 2014 as well. The ASEAN 10 niche markets will be the milestone for GEM internationalization in the future.
Furthermore, the GEM Company also makes every endeavor to advance the integration of International Accounting Standard, corporate governance and information disclosure in response to the policy implementation of the government. In 2012, the Company acquired CG6007 general corporate governance system assessment certificate and obtained A+ prize in the field of information disclosure of the ninth session among list companies. In the future, we expect the company’s information to be much more transparent, the implementation of company’s governance system to be much more practicable. While creating the company’s profits, we expect to give consideration to the rights and interests of employees, investors and interested parties, making the maximum benefit for shareholders, fulfilling the company’s social responsibility, caring for human beings and cherishing the earth resource to create a better tomorrow and realize the ideal of the company’s sustainable management and the target of continual growth.
Important Production and Marketing Policy
According the current market forecast and corporate business policies, the expected sales volumes and raw materials of products of the company for Year 2013 will be 1,455,409 thousand PCS.
In manufacture, the GEM Group has the professional process capability of the one-stop operation such as product development, mold design and manufacturing, stamping, injection, automatic lathe, automatic plating and automatic assembly. Under the pressure from labor shortage and ascending labor costs, the Company will move towards automation thoroughly, high speed, high volume and modular molds, raising production capacity, reducing fixed asset investments and cutting off manpower to reduce production costs, stabilize product quality and elevate competency.
The GEM Group lately has made every endeavor to promote sales and marketing. In addition to existing steady customer source, the Company also actively develops new marketing locations in every province of Mainland China and virgin lands in the domestic market. Meanwhile, the Company makes on-site visits to new customers and idle accounts to realize their needs and aggressively joins international exhibitions to raise international popularity of the GEM brand. In addition, competitive GB products are also promoted to transform the production models in the domestic market of Mainland Chin and expand the vast Chinese market through destructive innovation. Effect of the Environment of External competition, Regulation and Overall Operation
1. Effect of the external competition environment: In year 2012, because of the uncertainty of the economy, brass prices have fluctuated drastically and caused procurement cost is difficult to manage. Therefore, GEM changed its procurement method by local purchase through subsidiaries in China. Through this new method, GEM not only enabled to reduce procurement cost, but also maintained a win-win relationship with suppliers. In term of procurement, GEM worked to control beneficial purchasing terms and to maintain adequate inventory level; in term of sales, GEM worked to follow the market movement to adjust its selling prices, investigated customer credit, controlled the Group’s credit line and increased the market share in China. In term of R & D and production, GEM worked to introduce the automatic, high speed and high capacity systems, to elevate production capacity and utilization rate, to improve production quality to reduce production redundant cost and to develop high value-added products etc. to enhance competition advantages of products and elevate competency and increase profitability.
2. Effect of regulation environment: Currently European countries and the U.S. all strictly regulate environmental protection. The Company has always conformed to the green process. As brass and plastic are used as the material structure of company’s products, the Company purchased ICP-OES Heavy Metal Analyzer, GC/MS Bromide Analyzer, and UV/VIS Hexavalent Chromium Analyzer to conduct the quality testing of material purchase and
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products and carry out the enforcement of the RoHS order of environmental protection; as the result, we have acquired ISO14001 and QC080000 certificates. In respect of corporate governance, the Company aggressively executed the corporate governance system and passed the advanced certification of CH6007 for company’s governance and evaluation. Meanwhile, the company actively put into the line of social participation through donations to fulfill business social responsibility. In financial and taxation regulations, the company has adopted the requirements of IFRS financial statements for reporting purpose. In addition, the company will constantly trace, update and follow the possible establishment and changes of laws in the future.
3. Effect of overall operational environment: Under worldwide economic environment rapid changes, the Company will not only focus on its core business, strive for perfection and provide high-quality products and services but also watch the changes of international politics and economy at any time and adjust industrial development flexibly to seize the advantageous opportunity and create the maximum benefit for shareholders.
Operation Prospect
In prospect, the company will persistently introduce state-of-the-art technologies from developed countries in Europe and Japan, integrates current stamping, turning and injection molding technologies, expands its development of lead-frame and terminal products as well as related process equipments and components and extend its core technical competencies to enhance the precision of molds, cutters and components, produce high-quality products and develop new products so as to completely utilize the efficiency of current high-capacity production equipments. Moreover, GEM will keep on conducting production and sales performance evaluation system, promoting new domestic sales market in China, initiating automation for production thoroughly, introducing advanced production technology and reducing GEM Group procurement cost, to increase GEM competitiveness. In addition, for Reichan Vietnam case, the EIA report and Redbook have been obtained in the end of December, 2011, the construction of the plant in Vietnam expected to be started in 2012, to be done by Q3 2014 and to start running business in Q4 2014. It is expected that the new marketing model of exporting ASEAN 10+1 focus, along with China domestic sales, will make the production scale and revenue of the Group set a record high and bring the Group into a new century. We believe that the “GEM brand” of the GEM Group will become the leading brand in the Greater China economic zone and related Asian terminal industries in the near future.
Finally, I hereby represent all of our company’s staff to manifest our greatest gratitude for all support and encouragement from our shareholders and give my most sincere thankfulness!
Best Wishes Chairman
Zhong-Hong, Su
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II. Corporate Profile Ⅰ. Date of Establishment:
Registration date: July 16, 1993 Ⅱ. History
Gem Terminal Industrial Co., Ltd. (hereunder the Company), formerly named Quan-Ying Terminal Industrial Co., Ltd. started to plan its establishment on June 25, 1993 and formed and acquired the approval of establishment registration in accordance with the Company Act, the Republic of China. The name of the Company was changed into the current name in November 1993.
1993 Instituted in July; the capital was 25.20 million NT dollars; the land was purchased for use as factories. 1994 The yearly turnover was 348.408 million NT dollars; factories and office buildings were planed to establish.
Researched and developed copper plate trimming machinery independently; the quality of trimmed products outranked competitors in the industry.
1995 New factories and office buildings were established; the capital after increase was 176.488 million NT dollars; various automatic equipments were purchased additionally; the yearly turnover was 361.074 million NT dollars.
New factories and office buildings were finished and launched; two sets of Mikron were imported from Swiss; the full-auto and multi-station transfer machine began to operate and the production efficiency was over ten times faster than traditional machineries; stepped into the European series of socket products; the capital was increased up to 211.786 million NT dollars and the turnover reached 441.254 million NT dollars.
1996
Stock issuance was permitted by the Securities & Futures Commission of MOF, the Republic of China. 1997 The yearly turnover grew into 561.927 million NT dollars while the turnover growth rate was 27% and the
capital after increase went up to 250.25 million NT dollars. Indirectly reinvested in Dongguan Gem Electronic & Metal Co., Ltd. and strode forward
internationalization. Obtained the latest electric socket certification of UL in the U.S. and CSA in Canada and improve
competitive advantages in international markets. Re-elected and increased the number of directors and invited professional institutional investors.
1998 Introduced the full-auto and multi-station transfer machine from Swiss, stepped into electric socket products of the British Commonwealth system, boosted the production efficiency of automation and increased the market share to a large degree. The turnover reached 713.357 million NT dollars and turnover growth rate was 27% and the capital after increment went up to 0.3 billion NT dollars.
The Taiwan Plant was passed the ISO 9002 international quality certification of UL in the U.S. and BSI in UK and the product competitiveness was enhanced.
Researched and developed copper plate material surface treating machinery independently and make the quality of terminals meet the international standards.
1999 Conducted the capitalization of retained earnings and capital surplus; the capital after increase was 345million NT dollars.
GreTai Securities Market passed the application of GTSM-listing The plants in Mainland China obtained ISO 9002 international quality certification. Developed various products and became the biggest professional terminal manufacturer in Taiwan with
more than 600 types of product specifications. 2000 Stocks which were approved by the Securities & Futures Commission were listed and traded in Gretai
Securities Market. Conducted the cash capital increase of 40 million NT dollars. Conducted the capitalization of retained earnings and capital surplus; the capital after increase was 438.19
million NT dollars. 2001 Stocks which were approved by the Securities & Futures Commission were listed and traded in Taiwan
Stock Exchange Corporation. Conducted the capitalization of retained earnings and capital surplus; the capital after increase was 528.11
million NT dollars. Introduced the process technologies of the ceramic ferrule of critical parts of optical fiber connector and
started to put into mass production. 2002 Conducted the capitalization of retained earnings and capital surplus; the capital after increase was 600.98
million NT dollars. Indirectly invested in the GEM Opto-electrical Terminal Co., LTD. in Suzhou of Mainland China through
Genius Terminal Co., Ltd. Developed various new security insulating plug products and started to put into mass production.
2003 Conducted the capitalization of retained earnings and the capital after increase was 702 million NT dollars. Re-elected the fifth term of directors and supervisors. The Company’s safety insulating plug products matched the needs of the SAA in Australia and the
T-MARK in Japan, expanded the production capacity and obtained many patents in many countries and advanced the establishment of national safety code of CNS in the R.O.C. and NEMA in the U.S.
Introduced the new process technologies of domes and promoted technology localization.
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GEM Opto-electrical Terminal Co., LTD. in Suzhou started to plan and establish plants. 2004 Conducted capitalization of retained earnings (including employees’ bonus) and made the capital rise 148
million NT dollars. Initially issued domestic unsecured convertible corporate bonds of 2 billion NT dollars and converted to
issue new stocks for a capital increase of 19.352 million NT dollars. The capital was 869.352 million NT dollars as of the end of 2004.
Expended new plants and carried out replacement and the high-speed pressing plan in response to the market demand in the future.
Completed localization of the new dome process technology. Developed sleeve for ferrule (phosphor bronze sleeve) and LC/MU flange for ferrule to lower the
production costs and diversify products in the production field of optical communication passive components.
2005 Conducted the capitalization of retained earnings (including employees’ bonus) and made the capital increase 94.535 million NT dollars. The capital was 963.93 million NT dollars as of the end of 2005.
Completed the expansion of new plants and continued to carry out replacement of equipments and the high-speed pressing plan and the big volume plan to respond to the market demand in the future.
Conducted the investment structure reorganization of sub-subsidiary, the Suzhou GEM Opto-electricalTerminal Co., LTD. and increased the investment amount of 3.78 million US dollars.
Construction of the sub-subsidiary, the Suzhou GEM Opto-electrical Terminal Co., LTD. was completed onSeptember 12 and started to participate in operation.
2006 Conducted the capitalization of retained earnings and the capital after increase was 1,108.828 million NT dollars.
Planed and implemented the technology introduction of the monolithic integrated circuit lead frame. Conducted the introduction of the big volume technology. Transferred process equipments of ceramic ferrules to the sub-subsidiary, Suzhou GEM Opto-electrical
Terminal Co., LTD. for mass production. Introduced thermal treatment equipments into Suzhou GEM Opto-electrical Terminal Co., LTD. and started
to establish the process condition database of thermal treatment. 2007 Conducted the cash capital increase of 78.125 million NT dollars and the capitalization of retained earnings
of 236.197 million NT dollars. The capital after increase was 1,423.15 million NT dollars. The certification of TS 16949 was approved (UL US.) In November, the board of directors decided to conduct the investment structure reorganization of investees
in Mainland China, Dongguan GEM electronics terminal Co., LTD. and Suzhou GEM Opto-electricalTerminal Co., LTD.
Introduced multiple high-precision mold processing and inspection equipments. Advanced the quality of mold processing in response to the needs of high-precision mold such as the monolithic integrated circuit lead frame.
Introduced big volume pressing equipments, elevated the utilization rate of machines and reduced manpower and increased production capacity.
The process technology of the monolithic integrated circuit lead frame was approved by the initial certification of clients and was conducted under a small-lot test.
2008 Conducted the capitalization of retained earnings of 256.85 million NT dollars; the capital after increase was 1,680 million NT dollars.
Planed and executed various process automation projects in order to decrease the needs of man power. GB safety insulating plug products were formally launched in the market. The monolithic integrated circuit lead frame was approved the certification of clients and was formally put
into production and the product line was continuously expanded. Changed the mode of receiving orders to coordinate with the structure adjustment of Group organization.
The processing production mode of originally authorized subsidiaries was change into sales of raw materials and semi-finished products.
2009 Conducted cancellation of treasury stock and reduced the capital of 14 million NT dollars. The capital after decrease was 1,666 million NT dollars.
Conducted the capitalization of retained earnings of 49.98 million NT dollars and the paid-in capital after increase was 1,715.98 million NT dollars.
Re-elected the seventh term of directors and supervisors. The independent directors adopted the system for nominating candidates.
Suzhou Gem Opto-electrical Terminal Co., Ltd. established a subsidiary in Yuyao City, Zhejiang Province and added business locations and expanded the second and third phase of plants to advance the production capacity.
Introduced the advanced pressing technology from Europe to explore the vast electronic wiring market. 2010 Suzhou Gem Opto-electrical Terminal Co., Ltd. established a subsidiary in Zhongshan City, Guangdong
Province to add business locations. Suzhou Gem Opto-electrical Terminal Co., Ltd. completed the expansion program of the second and third
phase of plants to enhance the production capacity and make the production scale of the GEM Group have a great leap.
Purchased the 100% of shares of Ruizhan Ironware Company Limited in Vietnam and conducted the change
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of the investment license. Introduced the automation production equipments of the European lead-frame products. The production line of the monolithic integrated circuit lead-frame products was transferred to Suzhou Gem
Opto-electrical Terminal Co., Ltd. Introduced the quality management system of environment substances.
2011 Shareholders’ meeting approved incremental investment of USD5 millions on Suzhou GEM Terminal Co., Ltd in China.
Equity transfer of Vietnam Reichan Ironware Limited investment completed and EIA report and Redbook obtained.
Introduced and developed manufacturing process equipment of lead. The equipment was on production. Introduced and developed automatic assembly equipment for UK products. The equipment was on
production. In response to the fast growing solar energy industry, to develop PV terminal products. The equipment was
on production and the product was on the market. 2012 Board of Directors meeting approved incremental investment of USD4.5 millions on Dongguan GEM
Electric & Metal Co., Ltd in China. Re-elected the eighth term of directors and supervisors. The independent directors adopted the system for
nominating candidates. Acquired the advanced certification of CG6007 for company’s governance and evaluation. To introduce, develop and start to production of VDE auto plug assembly machine. GB, UL integral plug product development and production automation. Importing the Heat sealing machine of sheet metal and profile
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I. Organization System Ⅲ. Corporate Governance Report A. Corporate Organization
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2. Business of Major Departments Department Major Business
Operation Dept.
1. Check and accept incoming materials and OEM items and return nonconforming products;
2. Control the batch numbers of material distribution and report the excess materials 3. Plan and arrange warehouses and maintain safety; 4. Report inventories of slow moving materials and products and valuable wastes; 5. Check and accept and store finished goods; execute shipment and delivery; handle
custody and accounts. 6. Count inventory and verify property and accounts, report inventory of excess products. 7. Plan production, examine orders, authorize the delivery date and coordinate
production and capacity; 8. Arrange and control production personnel and progress and control material utilization;9. Coordinate quality of delivered products between sales and production divisions. 10. Conduct Product surface treatment and packing.
QA Division
1. Inspect incoming raw materials, record process quality control, check finished products and test functions.
2. Handle and track quality abnormality and process customers’ complaints about quality abnormality .
3. Analyze and report poor quality and examine OEM quality; 4. Apply for the certification of security specification in various countries.
R & D Dept.
1. Design, research and development of current products; 2. Research and development of new products and special products, design of new
product instruction manuals; 3. Research and custody of client’s prototype blueprint and sample progress control 4. collection, analysis and review of new material information; 5. product feature orientation and the application of patent rights
Sales Dept.
1. Development and achievement of operation goals; 2. Quotation and order processing, market research and analysis, client information
creation, new client development; 3. Manufacturing notice, foreign sales L/C verification, sales terms stipulation; 4. The signature services, client complain response and assistance, new product data
submission; 5. Cost estimation and price setting of new products
Administration Dept.
1. Employee attendance and salary computation, personnel employment and dismissal, promotion, demotion, transfer and resignation;
2. Labor insurance processing, factory entry and exit management, employee benefit, document acknowledgement and dispatch, employee education and training, and PR management;
3. Construction and maintenance in the factory area, management and insurance of corporate assets;
4. Scrapes processing and auctioning; 5. Raw material, product and equipment procurement.
Financial Dept.
1. processing of accounting affair costs, cost computation and final accounts of income statement, and information preparation of operation reports;
2. performance bonus computation, annual budget data compilation; 3. examination of income and expense receipts; preparation and arrangement of
accounting books; 4. tax reporting, fund procurement and budget operation, property checking and tax
planning; 5. Revision and analysis of standard costs, operation analysis, budget preparation and
product benefit analysis. 6. Examination, preparation, implementation and tracking of investment projects;
Auditing Office
1. Auditing of documentation systems; 2. Auditing of business events in personnel, procurement, accounting, sales and
production; 3. Other related auditing operations
IT Office
1. Planning, promotion and integration of corporate computerization; 2. Maintenance of computer software and hardware and arrangement and custody of
information documents 3. Software design and revision and new function design.
- 10-
II. Profiles of Directors, Supervisors, General Manager, Vice General Manager, Deputy Manager and Directors of Departments and Divisions 1. Profiles of Directors and Supervisors
(1) Profiles of Directors and Supervisors (Ⅰ) April 16, 2013/ unit: share Shareholdings when elected
Current shareholdingsShares Held by
Spouse & MinorsShares Held in Others’ Name
Managerial Staff as Spouse or Kin within the second degree Title Name Date of
appointmentEnd of term
Date of first election Shares Ratio Shares Ratio Shares Ratio Shares Ratio
Education / Experiences
Concurrent Positions in GEM and Other Companies
Title Name Relation
Chairman
You Feng Investment Co. Ltd. Representative: Su, Chung-Hong
2012.06.20 3 Years 1997.11.22 2009.06.20
13,983,236231,0301
8.150.13
13,983,236231,030
8.150.13
－
162,470－
0.09－
－
－ －
National Gangshan Agricultural and Engineering High School Vice General Manager, Gem Terminal Industrial Co., Ltd.
Director, You Feng Investment Co. Ltd Director, Genius Terminal (HK) Ltd.
General ManagerSupervisor, Corporate Representative
Su,Tun-Jen Su,Tun-Li
Brothers
Director
Tsung-Fu Investment Co., Ltd. Representative: Su, Tun-Jen
2012.06.20 3 Years 1997.11.22 1997.11.22
31,467,9141
18.34－
31,467,9141
18.34－
－
－
－
－
－
－
－ －
Tung-Fang Institute of Technology General Manager, Gem Terminal Industrial Co., Ltd.
General Manager, Gem Terminal Industrial Co., Ltd. Director, Tsung-Fu Investment Co., Ltd. Director, Genius Terminal Co., Ltd. Director, Genius Terminal (HK) Ltd.
Chairman Supervisor, Corporate Representative
Su,Chung-Hong Su,Tun-Li
Brothers
Independent Director
Hsu, Hsin-Chieh
2012.06.20 3 Years 2006.06.20 － － － － － － － －
Graduate School of Business Administration, Tunghai University Investment Manager, Hotung Capital Investment
Senior Executive Specialist, Project Investment Section, Stock investments Department, MassMutual Mercuries Life
－ － －
Independent Director
Yang, Chen-Yang
2012.06.20 3 Years 2003.06.20 － － － － － － － －
Graduate School of Business Administration of National Taiwan University Project Manager and Customer Service Manager, Best Technology Supervisor, Prudential Life Insurance Limited (Tax advisor)
Independent Director, Kin Tec Technology Corp Agent, Chinalife Insurance Company
－ － －
Independent Director
Chang, Tu-Huo 2012.06.20 3 Years 1997.11.22 5,438 － 5,438 - 27.479 0.02 － －
National Kaohsiung University of Applied Science Chairman, Anchor Fasteners Industrial Co., Ltd.
Chairman, Anchor Fasteners Industrial Co., Ltd. Chairman, Ningbo Anker Special Fasteners Ind., Ltd. Chairman, Anchor Fasteners (Vietnam) Co., Ltd. Chairman, An-Mag Technology LTD Chairman, Alliance Global Technology Co., LTD.
－ － －
Supervisor
Cheng-Feng Investment Co., Ltd. Representative: Su, Tun-Li
2012.06.20 3 Years 1997.11.22 2009.06.20
20,278,40927,285
11.820.02
20,278,40927,285
11.820.02
－
347,126－
0.2－
－
－ －
National Taipei University of Technology Chairman, Gem Terminal Industrial Co., Ltd.
Director, Cheng Feng Investment Ltd. Director, Global Electronics Terminal. (Cayman) Co., Ltd. Director, Genius Terminal Co., Ltd. Director, Vibo Gem International Co., Ltd. Director, Global Electronics Terminal (H.K.) Co., Ltd. Chairman, Suzhou Gem Opto-Electrical Terminal Co., Ltd Director, Gem Terminal (Cayman) Ind. Co., Ltd. Director, Vietnam Reichan Ironware Limited Director, You-Mao International Limited
Chairman General Manager
Su,Chung-Hong Su,Tun-Jen
Brothers
Supervisor Hung, Chen-Kai
2012.06.20 3 Years 2009.06.20 162,470 0.09 162,470 0.09 － － － － Master, Graduate School of Business Administration of National Taiwan University
Direct Investment Manager, China Development Industrial Bank
－ － －
Supervisor Wang, Lu-Jun 2012.06.20 3 Years 1997.11.22 3,317 － 3,317 - － － － －
Department of International Business. Soochow University Sales Manager, Capital Market Department, Barits International Securities
Audit Manager, Bothhand Enterprise Inc. － － －
- 11-
Note 1: The Corporate Directors and Supervisors have never been employed in accounting agencies or related affiliated businesses of the certified public accountants. Note 2: The corporate representative of Cheng Feng Investment, Supervisor Su, Tun-Li, was first elected on November 22, 1997 and completed his term on June 19, 2009, when he started to serve as the Company’s Chairman.
Director Hung, Chen-Kai was first elected on November 22, 1997 and completed his term on June 19, 2009, when he started to serve as the corporate representative of You Feng Investment Co. Ltd.
- 12-
2. Directors and Supervisors (Ⅱ) Have more than five years of work experience and the following qualifications or not Compliance of the independence requirement (Note)
Condition Name
Being at least an instructor of commerce, law, finance banking or any other corporate-required area in any public or private college or university
Professionals and technicians possessing certificates for the judge, the prosecutor, the lawyer, the accountant or any other national test required for the corporate business.
Has more than five years of work experience in commerce, law, finance , accounting or any other corporate-required area
1 2 3 4 5 6 7 8 9 10
Numbers of other public companies of which an independent director is concurrently held.
You Feng Investment Co. Ltd. Representative: Su, Chung-Hong
V V V None
Tsung-Fu Investment Co., Ltd. Representative: Su, Tun-Jen
V V V None
Hsu, Hsin-Chieh V V V V V V V V V V V V None Yang, Chen-Yang V V V V V V V V V V V 1 Chang, Tu-Huo V V V V V V V V V V V None Cheng-Feng Investment Co., Ltd. Representative: Su, Tun-Li
V V V None
Hung, Chen-Kai V V V V V V V V V V V None Wang, Lu-Jun V V V V V V V V V V V None
Note: For those Directors or Supervisors meet the following conditions during their tenure and/or two years before the tenure, please mark up “V＂ in the corresponding blank spaces.
(1) Not an employee of the company or its affiliates.
(2) Not a director or supervisor of affiliates and the company (unless the independent directors of the Company, its parent company or the subsidiary where the Company possesses over 50% of shares of voting rights).
(3) Not a natural person shareholder directly or indirectly owning more than 1% of the Company’s outstanding shares, nor one of the Company’s largest ten natural person shareholders.
(4) Not a spouse or the first-or-second-degree relating to any person specified in Criteria 1~3, or any direct relative within the five degree.
(5) Not a director, supervisor or employee of a shareholder of juridical person of the Company directly or indirectly owning more than 5% of the Company's outstanding shares, nor one of the Company's largest five share-holders of juridical person.
(6) Not a director, supervisor, manager or shareholder holding more than 5% of the outstanding shares of certain companies or institutions that have financial or business relationship with the Company.
(7) Not an owner, partner, director, supervisor, manager of any sole proprietor, partnership, company or institution and his/her spouse, or the specialist and his/her spouse, that provides the Company or affiliates with finance, commerce, legal consultation and services within one year.
(8) Not a spouse or the first-or-second-degree relative to any other director.
(9) Not a juridical person or its representative as defined in Article 30 of the Company Act.
(10) Not a juridical person or its representative as defined in Article 27 of the Company Act.
3. Major Stockholdersof Institutional Shareholders Names of Institutional Shareholders Major Stockholder(s) of Institutional Shareholders
Cheng-Feng Investment Co., Ltd. Su, Tun-Li (35.10 %); Su Hung, Yueh-Chi (33.91%）; Su , Li-Wen (10.33%）; Su,Che-Min(10.33%）;Su, Sheng-Mao (10.33%);
Tsung-Fu Investment Co., Ltd. Su, Tun-Jen (52.43%); Tsou, Hsiu-Ming (26.47%）;Su, Chun-I (7.21%）; Su, Hsing-Hsien (5.76%）; Su, Heng-Hui (5.76%）; Su, Hui-E(2.37%）
You Feng Investment Co. Ltd. Su,Chung-Hong (82.07%); Su, Yu-Ting (8.97 %); Su, Yu–Hsiang (8.96 %)
- 13 -
2. Profiles of General Manager, Vice General Manager, Deputy Manager, Directors of Departments and Divisions April 16, 2012/ unit: share
Shareholding Shareholding by Spouse and Juvenile Children
Shareholding in Other’s Names
Spouse or Relatives Within the Second Degree of Relationship Holding Positions as Executive, Director or Supervisor
Title (Note 1) Name Date When Elected
Shares % Shares % Shares Title
Academic Background and Experiences
Current Positions held in the Company and Other Companies
Title Name Relationship General Manager
Su, Tun-Jen 1994.01 1 － － － － －
Tung-Fang Institute of Technology General Manager, Gem Terminal Ind. Co., Ltd.
Director, Tsung-Fu Investment Co., Ltd. Director, Genius Terminal Co., Ltd. Director, Genius Terminal (HK) Ltd
Chairman Supervisor
Su, Chung-HongSu, Tun-Li
Brothers
Operation Manager
Chen, Chin-Hsien
2007.02 15,709 0.01 331 － － －
Industrial Engineering and Management, National United University Plant Manager, Gem Terminal Ind. Co., Ltd.
General Manager, Vietnam Reichan Ironware Limited
－ － －
Administration Manager Lin Chou, Chin-Hsiu
2002.04 103,677 0.06 - － － －
Electronic Engineering, Kun Shan University QA Chief, Gem Terminal Ind. Co., Ltd
Director, Global Electronics Terminal (H.K.) Co., Ltd.
－ － －
Sales Manager Tsai, Ming-Che
2008.01 50,989 0.03 9,086 0.01 － －
Electronic Engineering, Kun Shan University Assistant Sales Manager, Gem Terminal Ind. Co., Ltd
None － － －
Financial Deputy ManagerWang, Chien-Hsiu
2003.04 223,138 0.13 13,236 0.01 － －
Public Finance, Feng Chia University Senior Accountant, Compal Electronics Inc.
Director, Vietnam Rui-Zhan Ironware Limited － － －
Financial Manager Huang, Kuang-Yu
2006.05 41,223 0.02 - － － －
Accounting, Tamkang University Assistant Auditing Manager, Deloitte Touche Tohmatsu.
None － － －
Audit Manager Lu, Hsiu-Feng
2001.08 215,752 0.13 6,473 － － －
Accounting, Providence University Chief Auditor, KPMG Corporate Finance Co., Ltd.
None － － －
IT Manager
Su, Wen-Cheng
2003.04 53,904 0.03 － － － －
Information and Computer Engineering, Chung Yuan Christian University Specialist, Chun Yu Works & Co., Ltd.
None － － －
R & D Manager
Ho, I-Lin 2005.03 191,015 0.11 15,277 0.01 － －
National Taiwan University of Science and Technology R & D Manager, Gem Terminal Ind. Co., Ltd.
Director, Dongguan GEM Electronic & Metal Co., Ltd.
－ － －
Note 1: Profiles of the General Manager, Vice General Manager, deputy managers, department and division heads, and any position equivalent to General Manager, Vice General Manager, and deputy managers, at any position titles, shall be disclosed.
Note 2: The above listed profiles represent validity until the annual report publication date. The shareholding data are listed with validity until April 16, 2013, the book closure date.
Note 3: The above personnel were not, during their employment, employed in accounting agencies or related affiliated businesses of the certified public accountants.
- 14 -
3. Remunerations for Directors, Supervisors, General Manager, and Vice General Managers
(1) Remunerations for Directors (including independent directors) (individual disclosure of names and remuneration approaches) Remuneration for Directors Remuneration Received as Concurrent Employees
Remuneration (A) ( Note 1)
Superannuation and Pension (B)
apportion of surplus (C) ( Note 2)
Business Affairs. Expense (D) ( Note 3)
The proportion of total of A, B, C and D to the profit after taxation (%) (Note 10)
Compensation, Bonus and Special Disbursement (E) ( Note 4)
Superannuation and Pension (F)
Employee bonus from apportion to surplus (G) ( Note 6)
Shares for Employee Stock Option Certificates to subscribe (I) ( Note7)
Shares for Restricted Stock Option Certificates to subscribe (I) ( Note13)
The proportion of total of A, B, C, D, E, F and G to the profit after taxation (%)( Note 11) O
ther
R
emun
erat
ion
(( N
ote
12)
The company
All Companies included in the consolidated report ( Note 8)
Position Name
The
Com
pany
All
C
ompa
nies
in
clud
ed
in
the
cons
olid
ated
rep
ort (
Not
e 8)
The
Com
pany
All
C
ompa
nies
in
clud
ed
in
the
cons
olid
ated
rep
ort (
Not
e 8)
The
Com
pany
All
C
ompa
nies
in
clud
ed
in
the
cons
olid
ated
rep
ort (
Not
e 8)
The
com
pany
All
C
ompa
nies
in
clud
ed
in
the
cons
olid
ated
rep
ort (
Not
e 8)
The
com
pany
All
C
ompa
nies
in
clud
ed
in
the
cons
olid
ated
rep
ort (
Not
e 8)
The
com
pany
All
C
ompa
nies
in
clud
ed
in
the
cons
olid
ated
rep
ort (
Not
e 8)
The
com
pany
All
C
ompa
nies
in
clud
ed
in
the
cons
olid
ated
rep
ort (
Not
e 8)
Cas
h D
ivid
end
Stoc
k B
onus
es
Cas
h D
ivid
end
Stoc
k B
onus
es
The
com
pany
All
C
ompa
nies
in
clud
ed
in
the
cons
olid
ated
rep
ort (
Not
e 8)
The
Com
pani
es
All
C
ompa
nies
in
clud
ed
in
the
cons
olid
ated
rep
ort (
Not
e 8)
The
com
pany
All
C
ompa
nies
in
clud
ed
in
the
cons
olid
ated
rep
ort (
Not
e 8)
Chairman
You Feng Investment Co. Ltd. Representative: Su, Chung-Hong
2,419 2,419 163 163 240 240 48 48 3.38% 3.38% － － － － － － － － － － 3.38%
3.38% None
Director
Tsung-Fu Investment Co., Ltd. Representative: Su, Tun-Jen
－ － － － 240 240 48 48 0.34% 0.34% 1,957 1,957 134 134 － － － － － － 2.80%
2.80%
None
Independent Director
Chang, Tu-Huo － － － － 300 300 54 54 0.42% 0.42% － － － － － － － － － － 0.42%
0.42% None
Independent Director
Yang, Chen-Yang － － － － 300 300 66 66 0.43% 0.43% － － － － － － － － － － 0.43%
0.43% None
Independent Director
Hsu, Hsin-Chieh － － － － 300 300 60 60 0.42% 0.42% － － － － － － － － － － 0.42%
0.42% None
- 15 -
The Remuneration Range Table Range of Remuneration for Directors Director’s Name Total Amount of the above 4 (A+B+C+D) Total Amount of the above 7 (A+B+C+D+E+F+G)
The company (Note 9) All Companies included in the consolidated report (Note 10) I
The Company (Note 9) All Companies included in the consolidated report (Note 10) J
Less than 2 million NT dollars
Four people included: Representatives of Tsung-Fu Investment Co. Ltd. Su, Tun-Jen, Chang, Tu-Huo, Yang; Chen-Yang and Hsu, Hsin-Chieh
Four people included: Representatives of Tsung-Fu Investment Co. Ltd. Su, Tun-Jen, Chang, Tu-Huo, Yang; Chen-Yang and Hsu, Hsin-Chieh
Three people included: Chang, Tu-Huo, Yang; Chen-Yang and Hsu, Hsin-Chieh
Three people included: Chang, Tu-Huo, Yang; Chen-Yang and Hsu, Hsin-Chieh
NTD 2 million (Included) ~ NTD 5 million (Excluded)
One people included: Representative of You-Feng Investment Co. Ltd. Su, Chung-Hong
One people included: Representative of You-Feng Investment Co. Ltd. Su, Chung-Hong
Two people included: Representative of You-Feng Investment Co. Ltd. Su, Chung-Hong; Representative of Tsung-Fu Investment Co. Ltd. Su, Tun-Jen
Two people included: Representative of You-Feng Investment Co. Ltd. Su, Chung-Hong; Representative of Tsung-Fu Investment Co. Ltd. Su, Tun-Jen
NTD 5 million (Included) ~ NTD 10 million (Excluded)
NTD 10 million (Included) ~ NTD 15 million (Excluded)
NTD 15 million (Included) ~ NTD 30 million (Excluded)
NTD 30 million (Included) ~ NTD 50 million (Excluded)
NTD 50 million (Included) ~ NTD 0.1 billion (Excluded)
Over NTD 0.1 billion Total 5 5 5 5 Note 1: The name of each Director shall be stated separately (the names of institutional shareholders and their representatives have also been separately listed) and the amount of remunerations to each
is disclosed in aggregate. Note 2: The total amount of remunerations disbursed in the most recent year (including the salaries, subsidies, severance pay, bonus and awards) Note 3: The amount of remunerations to directors from earnings planned to disburse for the most recent year resolved by the Board. Note 4: This refers to the expenses incurred for business purposes by directors (including, traveling subsidy, special subsidy, all forms of subsidies, housing, company car and other subsidies in kind).
It the Company provides housing, company car and other means of transportation or the spending is exclusive to a particular person, disclose the nature of the property and the cost, the actual rent or rent assessed with reference to fair market price, fuel subsidies and other payments. If a chauffeur is provided, specify the remunerations thereto but not include it as remunerations to directors.
Note 5: Where a specific director may also be an employee (refers to the position of General Manager, Vice General Manager, manger or employee), the salaries, occupational subsidies, pensions, compensation on discharge, bonus, awards, traveling subsidy, special subsidies, different forms of subsidies, housing, company car and other means of transportation or the spending is exclusive to particular person, disclose the nature of the property and the cost, the actual rent or rent assessed with reference to fair market price, fuel subsidies and other payments. If a chauffeur is provided, specify the remunerations thereto but do not include as the remunerations to directors.
Note 6: Where specific director may also be an employee (refers to the position of General Manager, Vice General Manager, manger or employee) and who have obtained employee bonus (including stock dividend and cash dividend), the amount of employee bonus planned to pay out as stated in the minutes of the Board meeting in record in the most recent year shall also be disclosed. If it is inestimable, calculate the amount of bonus planned to pay out in the current year in proportion to the actual paid out amount in the previous year.
Note 7: Shares of stock options that the employees (including concurrent General Manager, Vice General Manager, other executives and employees) concurrently serve as directors acquire (excluding shares exercised) before the annual report publication date
Note 8: Disclose the total remunerations to all directors of the Company from all companies stated in the consolidated financial statement (including the Company). Note 9: The number of directors at each bracket of the remunerations scale. Note 10: All of the Company directors’ remunerations, included in the consolidated financial statements (including the Company), shall be disclosed as a sum, whereas individual’s remuneration shall
be disclosed by each range with his/her name on it. Note 11: The Company’s net income after tax for Year 2012 amounted to NTD84,944 thousand.
- 16 -
Note 12: a. Explicitly state if the directors of the Company “Yes” or “No” receive related remunerations from investees other than the subsidiaries. b. If related remuneration of the company’s directors is from reinvestment businesses except for subsidiaries, he (she) should integrate the remuneration which is from reinvestment
businesses except for subsidiaries into the J column of The Remuneration Range Table and change the name of the column into “All reinvestment businesses.” c. Remuneration shall be referred to the rewards, wages, employee bonus and income for business operation and related payments to the directors in their roles with the subsidiaries as
directors, supervisors or managers. Note 13: As of the ending date of Annual Report issued, all directors also act as employees (including as general manager, vice general manager, other managers and employee) own the newly issued
restricted stocks. * The content of remunerations disclosed in this table may vary with the concept of remunerations as applied to Tax Code. As such, information contained in the table is only for
disclosure and not intended for income tax purposes. (2) Remuneration for Supervisors (disclosed individual name and the way of remuneration)
Remuneration for Supervisors
Remuneration (A) (Note 2)
Supervisor’s apportion of surplus (B) (Note 3)
Business Affairs Expense (C) 4)
Total of the fore to the profit after taxation (%)(Note 8)
Job
titl
e
Name
The
com
pany
All
Com
pani
es
incl
uded
in
the
cons
olid
ated
re
port
(N
ote
5)
The
com
pany
All
Com
pani
es
incl
uded
in
the
cons
olid
ated
re
port
(N
ote
5)
The
com
pany
All
Com
pani
es
incl
uded
in
the
cons
olid
ated
re
port
(N
ote
5)
The
com
pany
All
Com
pani
es
incl
uded
in
the
cons
olid
ated
re
port
(N
ote
5) Other
Remuneration (Note 9)
Supervisor Hung, Chen-Kai - - 240 240 48 48 0.34 % 0.34 % None Supervisor Wang, Lu-Jun - - 240 240 48 48 0.34 % 0.34 % None Supervisor
Cheng-Feng Investment Co., Ltd. Represenative: Su, Tun-Li
- 1,828 240 240 48 48 0.34 % 2.49% None
The Remuneration Range Table Supervisor’s Name Total Amount of the above 3 (A+B+C) Range of Remuneration to Each Supervisor The Company ( Note 6)
All Companies included in the consolidated report (Note 7) D
Less than 2 million NT dollars 3 people included: Representatives of Cheng-Feng Investment Co., Ltd. : Su, Tun-Li, Hung, Chen-Kai, Wang, Lu-Jun
2 people included: Hung, Chen-Kai, Wang, Lu-Jun
NTD 2 million (Included) ~ NTD 5 million (Excluded) Representatives of Cheng-Feng Investment Co.,
Ltd. : Su, Tun-Li NTD 5 million (Included) ~ NTD 10 million (Excluded) NTD 10 million (Included) ~ NTD 15 million (Excluded) NTD 15 million (Included) ~ NTD 30 million (Excluded) NTD 30 million (Included) ~ NTD 50 million (Excluded)
- 17 -
NTD 50 million (Included) ~ NTD 0.1 billion (Excluded) Over NTD 0.1 billion Total 3 3 Note 1: The name of each supervisor shall be stated separately (the names of institutional shareholders and their representatives have also been separately listed) and the amount of remunerations to each
is disclosed in aggregate. Note 2: The total amount of remunerations disbursed in the most recent year (including the salaries, subsidies, severance pay, bonus and awards) Note 3: The amount of remunerations to supervisors from earnings planned to disburse for the most recent year resolved by the Board. Note 4: This refers to the expenses incurred for business purposes by supervisors (including, traveling subsidy, special subsidy, all forms of subsidies, housing, company car and other subsidies in kind).
It the Company provides housing, company car and other means of transportation or the spending is exclusive to a particular person, disclose the nature of the property and the cost, the actual rent or rent assessed with reference to fair market price, fuel subsidies and other payments. If a chauffeur is provided, specify the remunerations thereto but not include it as remunerations to directors.
Note 5: Disclose the total remunerations to all supervisors of the Company from all companies stated in the consolidated financial statement (including the Company). Note 6: The names of supervisors at each bracket of the remunerations scale paid by the Company. Note 7: All of the Company supervisors’ remunerations, included in the consolidated financial statements (including the Company), shall be disclosed as a sum, whereas individual’s remuneration shall
be disclosed by each range with his/her name on it. Note 8: The Company’s net income after tax for Year 2012 amounted to NTD84,944 thousand. Note 9: a. Explicitly state if the directors of the Company “Yes” or “No” receive related remunerations from invested businesses other than the subsidiaries.
b. If “Yes” is stated, fill in the amount of remunerations voluntarily, and shall include the remunerations obtained by the supervisors from the subsidiaries and the roles they play in Field I and Field J on remuneration scale and change the name of the field to “All Invested Business”.
c. Remunerations shall be referred to the rewards, wages, employee bonus and income for business operation and related payments to the supervisors in their roles with the subsidiaries as directors, supervisors or managers.
* The content of remunerations disclosed in this table may vary with the concept of remunerations as applied to Tax Code. As such, information contained in the table is only for disclosure and not intended for income tax purposes.
- 18 -
(3) Remuneration for General Manager and Vice General Manager (disclosed individual name and the way of remuneration)
Remuneration (A) ( Note 2)
Superannuation and Pension (B)
Bonus and Special Disbursement (C) ( Note 3)
Employee bonus from apportion of surplus (D) ( Note 4)
Total to profit after taxation（％)( Note 9)
Stock Option Amount ( Note 5)
The Company All Companies included in the consolidated report (Note 5) Job title Name
The
Com
pany
All
Com
pani
es i
nclu
ded
in
the
cons
olid
ated
re
port
( N
ote
6)
The
Com
pany
All
Com
pani
es i
nclu
ded
in
the
cons
olid
ated
re
port
( N
ote
6)
The
Com
pany
All
Com
pani
es i
nclu
ded
in
the
cons
olid
ated
re
port
( N
ote
6)
Cash Dividend
Stock Dividend
Cash Dividend
Stock Dividend
The
Com
pany
All
Com
pani
es i
nclu
ded
in
the
cons
olid
ated
re
port
( N
ote
6)
The
Com
pany
All
Com
pani
es i
nclu
ded
in
the
cons
olid
ated
re
port
( N
ote
6)
Oth
er r
emun
erat
ion(
Not
e 10
)
General Manager
Su, Tun-Jen
1,678 1,678 134 134 279 279 - - - - 2.46% 2.46% - - None
＊ Any position equivalent to the General Manager or Vice General Manager (such as the General Manager, CEO, Director etc.), regardless of its title, shall be disclosed.
The Remuneration Range Table
Name of General Manager and Vice General Manager Range of Remunerations to General Managers and Vice General Managers the Company ( Note 7) All Companies included in the consolidated report ( Note 8) E Less than 2 million NT dollars NTD 2 million (Included) ~ NTD 5 million (Excluded) Su, Tun-Jen Su, Tun-Jen NTD 5 million (Included) ~ NTD 10 million (Excluded) NTD 10 million (Included) ~ NTD 15 million (Excluded) NTD 15 million (Included) ~ NTD 30 million (Excluded) NTD 30 million (Included) ~ NTD 50 million (Excluded) NTD 50 million (Included) ~ NTD 0.1 billion (Excluded) Over NTD 0.1 billion Total 1 1 Note 1: The name of each General Manager (GM) and the Vice General Manager (Vice GM) shall be stated separately and the amount of remunerations to each is disclosed in aggregate. Note 2: The total amount of traveling subsidies and remunerations disbursed in the most recent year (including the salaries, subsidies, and severance pay) Note 3 This refers to the expenses incurred for business purposes by GMs or Vice GMs (including, traveling subsidy, special subsidy, all forms of subsidies, housing, company car and other subsidies
in kind). It the Company provides housing, company car and other means of transportation or the spending is exclusive to a particular person, disclose the nature of the property and the cost, the actual rent or rent assessed with reference to fair market price, fuel subsidies and other payments. If a chauffeur is provided, specify the remunerations thereto but not include as remunerations for GMs or Vice GMs.
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Note 4: Where specific GM and Vice GM may also be an employee (refers to the position of General Manager, Vice General Manager, manger or employee) and who have obtained employee bonus (including stock dividend and cash dividend), the amount of employee bonus planned to pay out as stated in the minutes of the Board meeting in record in the most recent year shall also be disclosed. If it is inestimable, calculate the amount of bonus planned to pay out in the current year in proportion to the actual paid out amount in the previous year.
Note 5: Where specific GM and Vice GM may also be an employee in the most recent year and who has acquired employee stock options (excluding the portions already exercised), fill in this form. Note 6: Disclose the total remunerations to all GMs or Vice GMs of the Company from all companies stated in the consolidated financial statement (including the Company). Note 7: The name of General Managers and Vice General Managers at each bracket of the remunerations scale paid by the Company. Note 8: The name of General Managers and Vice General Managers at each bracket of the remunerations scale paid by companies included in the consolidated financial statements (including the
Company) Note 9: The Company’s net income after tax for Year 2012 amounted to NTD84,944 thousand. Note 10: a. Explicitly state if GMs and Vice GMs of the Company “Yes” or “No” receive related remunerations from investees other than the subsidiaries.
b. If the related remuneration of the company’s General Manager or Vice General Manager is from reinvestment businesses except for subsidiaries, he (she) should integrate the remuneration which is from reinvestment businesses except for subsidiaries into the E column of The Remuneration Range Table and change the name of the column into “All reinvestment businesses.”
c. Remunerations shall be referred to the rewards, wages, employee bonus and income for business operation and related payments to GMs and Vice GMs in their roles with the subsidiaries as directors, supervisors or managers.
Note 11: As of the ending date of Annual Report issued, all directors also act as employees (including as general manager, vice general manager, other managers and employee) own the newly issued restricted stocks.
* The content of remunerations disclosed in this table may vary with the concept of remunerations as applied to Tax Code. As such, information contained in the table is only for disclosure and not intended for income tax purposes.
- 20 -
(4) Names of Managers Who Paid Employees Bonus and Payments and Dispensation Status Unit: thousand / NTD ; %; 2012/12/31
Title ( Note 1) Name ( Note 1) Stock Bonus Amount
Cash Bonus Amount ( Note 2)
Total Total to profit after taxation（％)
General Manager Su, Tun-Jen Operation Manager Chen, Chin-Hsien Administration Manager Lin Chou, Chin-Hsiu Sales Manager Tsai, Ming-Che Financial Senior Manager Wang, Chien-Hsiu Financial Manager Huang, Kuang-Yu Audit Manager Lu, Hsiu-Feng IT Manager Su, Wen-Cheng
Manager
R&D Manager Ho, I-Lin
0 1,048 1,048 1.23%
Note 1: The Company shall disclose the name of each individual and the corresponding remuneration amount or opt to disclose aggregate remuneration information, with the name(s) indicated for each remuneration range.
Note 2: The proposal of dispensation amount which was approved by the board of directors on March 25, 2013 is calculated by the actual dispensation proportion.
Note 3: The aforementioned managers shall mean the ones set up in accordance with the ruling issued by the Securities and Futures Commission dated March 27, 2003 (Ref. No.:Tai-Tsai-Jen-(3)-0920001301) i. General Manager and the equivalent;
ii. Vice General Manager and the equivalent; iii. Senior Manager and the equivalent; iv. Financial Department Chief; v. Accounting Department Chief;
vi. Any other person with the right on corporate administration and seal. Note 4: The Company Directors and General Manager did not receive employee bonus (including stock bonus and cash bonus). (5) If any of the following applies to the Company, it shall disclose the remuneration paid to each individual director and
supervisor: (a) . If the Company has had consecutive after-tax deficits in the most recent two fiscal years, it shall disclose the
remuneration paid to individual directors and supervisors: N/A (b) . If the Company has had an insufficient director shareholding percentage for three consecutive months or longer during
the most recent fiscal year, it shall disclose the remuneration of individual directors: N/A (c) . The Company one that has had an insufficient supervisor shareholding percentage for three consecutive months or more
during the most recent fiscal year shall disclose the remuneration of individual supervisors: N/A (d) . If the Company that has had an average ratio of share pledging by director supervisors in excess of 50% in any three
months during the most recent fiscal year shall disclose the remuneration paid to each individual director supervisor having a ratio of pledged shares in excess of 50% for each such month: N/A
4. Compare, describe, and analyze respectively the ratio of total-remuneration-to-net-income for remuneration paid by the company and by all companies on the consolidated financial statements for the most recent two fiscal years to company directors, supervisors, general manager, and vice general manager(s), and describe the policies, standards, and packages for payment of remuneration, the procedures for determining remuneration, and its linkage to business performance and future risk exposure.
Title
Year 2012 The ratio of total-remuneration-to-net-income for remuneration paid by the company and by all companies on the consolidated financial statements for the most recent two fiscal years to company directors, supervisors, general manager, and vice general manager(s),
Year 2011 The ratio of total-remuneration-to-net-income for remuneration paid by the company and by all companies on the consolidated financial statements for the most recent two fiscal years to company directors, supervisors, general manager, and vice general manager(s),
Director Supervisor General Manager and Vice General Manager
10.62% 4.73%
Remark: (1) The Company, with its remuneration policy, pays reasonable remuneration according to the salary level of the
position in the corresponding market, the duty of this position and its contribution to the Company. (2) The salaries of the Chairman, General Manager and Vice General Manager are computed according to the
Company’s salary structure, which refers to the base salary, living allowance, efficiency bonus, manager additional pay, full attendance bonus, subsistence allowance and technical additional pay. The salary accords with experiences, performance and shouldered responsibility and is computed with the position ranks stipulated in the salary management procedures resolved in the Board of Directors.
(3) In respect of the surplus remuneration to directors and supervisors, the Company has explicitly regulated that remuneration to directors and supervisors shall full reflect their corresponding personal performance and the corporate long term operating performance and, with comprehensive consideration of operating risks, accord with “ The Distribution Procedures and the Structure of Director and Supervisor Remuneration” for implementation.
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III. Corporate Governance and Operation (1) The Operation of Board of Directors
Information about the Operation of Board of Directors
In recent years, the Board of Directors was been held for 8 (A) times. The attendance of directors and supervisors are as follows:
Title Name ( Note 1)
Frequency of Actual Attendance ( Presence) B
Frequency of Appointed Attendance
Actual Attendance (Presence) Rate (%) 【B/A】 ( Note 2) Remarks
Chairman You Feng Investment Co. Ltd.
Representative: Su, Chung-Hong 8 0 100.00
Re-Election Date: 2012/06/15
Reappointment
Director Tsung-Fu Investment Co., Ltd.
Representative: Su, Tun-Jen 8 0 100.00
Re-Election Date: 2012/06/15
Reappointment
Independent
Director Hsu, Hsin-Chieh 7 0 87.50
Re-Election Date: 2012/06/15
Reappointment
Independent
Director Yang, Chen-Yang 8 0 100.00
Re-Election Date: 2012/06/15
Reappointment
Independent
Director Chang, Tu-Huo 7 0 87.50
Re-Election Date: 2012/06/15
Reappointment
Supervisor Cheng-Feng Investment Co., Ltd.
Representative: Su, Tun-Li 8 0 100.00
Re-Election Date: 2012/06/15
Reappointment
Supervisor Hung, Chen-Kai 8 0 100.00 Re-Election Date: 2012/06/15
Reappointment
Supervisor Wang, Lu-Jun 8 0 100.00 Re-Election Date: 2012/06/15
Reappointment
Other Noticeable Particulars：
1. Dates of Board of Directors meetings, the term, content of the resolution, opinions of all independent directors and the responses of the company to
opinions should be specified for particulars regulated in Article 14-3 of Securities and Exchange Act and resolutions, in Board of Directors meetings,
with opposition or qualified opinions from independent directors: None
2. For the implementation of the directors’ avoidance from any involving resolution, directors’ names, the content of the resolution, reasons for interest
avoidance and the voting participation should be included:
1. Resolution of the 16th of 7th session Directors meeting on the 17th January, 2012. The meeting discussed the 2011 year-end bonus of the
Company’s Chairman that has been approved by the 2nd of 1st session Compensation Committee meeting. Chairman Su, Chung-Hong excused
himself from the meeting due to conflict of interest and deputy president Su, Tun-Jen presided the meeting and all presented directors approved
the resolution unanimously.
2. Resolution of the 16th of 7th session Directors meeting on the 17th January, 2012. The meeting discussed the 2011 year-end bonus of the
Company’s General Manager, Vice General Manager and supervisors above manager level that has been approved by the 2nd of 1st session
Compensation Committee meeting. General Manager, Su, Tun-Jen as one of the directors excused himself from the meeting due to conflict of
interest. All other presented directors approved the resolution unanimously.
3. Resolution of the 18th of 7th session Directors meeting on the 30th April, 2012. The meeting discussed the list of independent auditors, Chang,
Tu-Huo, Yang, Chen-Yang and Hsu, Hsin-Chieh excused themselves from the meeting due to conflict of interest. All other presented directors
approved Chang, Tu-Huo, Yang, Chen-Yang and Hsu, Hsin-Chieh are eligible of independent auditors unanimously.
4. Resolution of the 3th of 8th session Directors meeting on the 28th August, 2012. The meeting discussed the employee bonus of the Company’s
General Manager, Vice General Manager and supervisors above manager level. General Manager, Su, Tun-Jen as one of the directors excused
himself from the meeting due to conflict of interest. After Chairman inquired presented directors, and independent director of Chang, Tu-Huo
presented consent letter, the resolution was approved unanimously.
5. Resolution of the 6th of 8th session Directors meeting on the 29th January, 2013. The meeting discussed the bonus of the Company’s Chairman
2012 year-end remuneration, which had been approved in the 2nd of 2nd session remuneration committee, Su, Chung-Hong as one of the
directors excused himself from the meeting due to conflict of interest. After Su, Tun-Jen acted as Deputy Chairman and inquired presented
directors, the resolution was approved unanimously.
6. Resolution of the 6th of 8th session Directors meeting on the 29th January, 2013. The meeting discussed the bonus of the Company’s General
Manager, Vice General Manager and supervisors above manager level 2012 year-end remuneration, which had been approved in the 2nd of 2nd
- 22 -
session remuneration committee, Su, Tun-Jen as one of the directors excused himself from the meeting due to conflict of interest. After
Chairman inquired presented directors, the resolution was approved unanimously.
3. Goals (such as establishing the auditing commissions or raising the information transparency) and execution to strengthen the Board of Directors
during the year and the latest year:
1、 Base on the resolution of Board of Directors meeting on 27th, December 2011, the Compensation Committee has been established and the
“Articles of Compensation Committee”, “Guidelines of Corporate Governance Practice”, “Principles of Further Study of Directors and
Supervisors”, “The Code of Conduct of Directors, Supervisors and Executives”, “Regulations of Responsibility of Independent Directors” and
“Regulations of Responsibility of Supervisors” have been developed and executed in order to fortify functions of the Board and elevate
transparency of the corporate information.
2、 The Company not only reports directors and supervisors the critical corporate information (including operation finance and business reports,
internal auditing implementation, and execution of resolutions of the Board) through the Board of Directors, but also seeks their approval of “The
Group Risk Management Regulations” and “Critical Information Reporting Procedures” to strengthen the functions of directors and supervisors.
3、 In order to fortify the elevation of information transparency, the Company provides an English description of the Corporate Governance on
corporate website. In addition, the Company is endeavoring to provide the English version of financial reports and annual reports to expedite the
convenience of foreign investors on the acquisition of information.
4、 The Company has established Compensation Committee and developed Articles of Compensation Committee to execute performance appraisal of
the Board of Directors to facilitate the performance evaluation of important managers in the Company.
4. Communication between Independent Directors and the Internal Audit Supervisor and Accountants:
1、 Independent Directors will call managers for inquiries at any time if they does not understand any matters for the Company. The communication
channel is unblocked.
2、 The Audit Supervisor should report auditing reports to Supervisors in the next month of completed audit objects and regularly hold the joint
meeting of auditing with Independent Directors and Supervisors, who do not disagree. Note 1: Should directors and supervisors be institutions, names of institutional shareholders and the names of their corresponding
representatives should be disclosed. Note 2: (1) The according date of resignation when any director or supervisor resigns before the end of the date should be noted
on Remarks. The Actual Attendance (Presence) Rate (%) is computed according to the number of Board of Directors meetings and the actual attendance (presence) rate during its appointment.
(2) Upon any re-election of directors or supervisors before the end of the year, the new and the former directors or supervisors shall be listed. In the Remarks section, it should be noted whether the director or supervisor is newly, formerly or successively elected. The Actual Attendance (Presence) Rate (%) is computed according to the number of Board of Directors meetings and the actual attendance (presence) rate during its appointment.
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(2) Operation of the Audit Committee or the Participation of Supervisors in the Operation of Board of Directors: A. Not applicable for the Audit Committee is not established in the Company B. The Participation of Supervisors in the Operation of Board of Directors: In recent years, the Board of Directors was been held for 8 (A) times. The attendance of directors and supervisors are as follows:
Title Name Frequency of
Actual Presence (B)
Actual Presence Rate【Ｂ/Ａ】 (Note) Remarks
Supervisor Cheng-Feng Investment Co., Ltd.
Representative: Su, Tun-Li 8 100.00
Re-Election Date: 2012/06/15
Reappointment
Supervisor Hung, Chen-Kai 8 100.00 Re-Election Date: 2012/06/15
Reappointment
Supervisor Wang, Lu-Jun 8 100.00 Re-Election Date: 2012/06/15
Reappointment
Other Noticeable Particulars：
1. The establishment and the duties of supervisors:
(1) The communication between supervisors and the Company’s employees and shareholders:
The Company maintains smooth internal communicative channels. Supervisors may talk to employees or shareholders
directly anytime when they regard necessary. There is an exclusive office which is for them to understand the
Company’s position and communicate with employees at any time and know their opinions set up for supervisors. In
addition, the contact e-mails of independent supervisors are set up on the Company’s website and make the
communication channel of shareholders and supervisors to be smooth.
(2) The communication between supervisors and internal auditing directors as well as accountants:
1. Audit executives submit audit reports to supervisors in the next month to the completion of auditing and,
meanwhile, convene a joint auditing meeting periodically with independent directors and supervisors. No
objection is presented by independent directors and supervisors.
2. As of financial statements auditing job, Supervisors have called a meeting with the accountant before auditing
plan and auditing opinion have been presented. The meeting was smoothly interacted.
3. As of financial statements auditing job, Supervisors have called a meeting with the accountant and the Company’s
financial, accounting and auditing supervisors, before auditing opinion have been presented.
2. If a supervisor observing the board meeting made any statement, he or she should clearly state the date, the term, content of the
proposal, decision of the board and how the Company dealt with the statement of the supervisor.: None
Note:
(1) The according date of resignation when any supervisor resigns before the end of the date should be noted on Remarks. The Actual Presence Rate (%) is computed according to the number of the actual presence during its appointment.
(2) Upon any re-election of supervisors before the end of the year, the new and the former supervisors shall be listed. In the Remarks section, it should be noted whether the supervisor is newly, formerly or successively elected. The Actual Presence Rate (%) is computed according to the number of the actual presence during its appointment.
- 24 -
(3) Differences between the company’s governance and operation and practice codes of governance of listed and over-the-counter companies and reasons of differences
Item Operation
The cause and the difference from Corporate Governance Best-Practice Principles
1. Company equity structure and shareholder right
(1) The response of the Company to shareholder recommendation or dispute
(2) The access of the Company
to a list of major shareholders and their ultimate controller.
(3) The way that the Company
established the risk control mechanism and the firewall with its affiliated businesses.
To safeguard shareholders’ rights, the Company authorizes the spokesman, the
deputy spokesman or the shareholder register and transfer agency to process submitted questions or recommendation in hope for faultless response to shareholders’ recommendation, confusion and disputes. Any legal questions will be transferred toward the Company’s legal consultants.
While executing periodically the book closure according to the shareholder register and transfer agency, the Company controls the list of major shareholders and their ultimate controller through provided shareholders’ list. Meanwhile, the Company also legally reports any changes in shareholding and Increase/ decrease in stock pledge of directors, supervisors, executives and major shareholders in order to safeguard the stability of the operating rights.
For rick control of the Company and affiliated business, the Company has developed The Affiliated Business Monitoring Procedures, The Operating Process of Finance Among Affiliated Businesses, The Group Risk Management Standards, Stakeholder Transaction Management, The Credit Limit Table of the Group Clients and other “Internal Control System”, which enable the Company to timely construct risk management mechanism and firewalls.
None None None
2. The formation and the responsibility of the Board
(1) The establishment of independent directors
(2) Periodic assessment on the
independence of certified public accountants
Currently the Company has established five directors and three independent directors.
The Company appointed CPAs from one of the big four accounting agencies and avoided any director or indirect stake. Further, the Company has acquired approval, from the Board of Directors, on the independence of CPAs, and submitted the evaluation on the qualifications of CPAs to the Board. CPAs also presented the Statement of Independence.
Currently the establishment of three independent directors has surpassed the legal requirement. None
3. Establish a communication channel with stakeholders.
The Company has established the spokesman system for according matters and established the message board, an email box for investors and another for independent supervisors on the company website in order to furnish a constantly smooth communication channel with stakeholders and shareholders.
None
4. Information disclosure (1) Company set up a website to
disclose financial operation and company operation
(2) Other information disclosure
methods adopted by the Company (i.e. establishing the English website, collect and disclose Company information by appointed staff, implement the Spokesman system and posing the corporation seminar process on the Company website)
On the Company website, the Company established space for investor’s relations to completely disclose corporate finance and governance. The Company’s web address is www.gem.com.tw. “Corporate Governance Best-Practice Principles”, “Code of Conduct for Directors, Supervisors and Executives”, and “The Right Exercising and Resolution Procedures for Institutional Shareholders with control power” and other stipulations, are established for fully execution of corporate governance. The corporate governance stipulations are also posed on the Corporate Governance area for the review by general shareholders and stakeholders. The Company constructed a spokesperson and a deputy spokesperson system for corporate information collection and disclosure and as a bridge for external communication. The Company has established English language web pages but not the content and annual reports in English in the Corporate Governance area, a task that represents the Company’s future goal.
None None
5. The operational status of the Company’s nomination and other functional committees
Based on the resolution of Board of Directors meeting on 27th, December 2011, the Compensation Committee has been established and the “Articles of Compensation Committee” has been promulgated. The Committee is consists of three independent supervisors, i.e. Chang, Tu-Huo, Yang, Chen-Yang and Hsu, Hsin-Chieh. As of the date the report has been published, three meetings have been called in the 1st session, and four meetings have been called in the 2nd session. The remuneration of the Company’s Directors, Supervisors and Managers had been reviewed and approved by Compensation Committee and Board of Directors.
The Company has established Compensation Committee on December, 2011 pursuant to related regulation
- 25 -
Item Operation
The cause and the difference from Corporate Governance Best-Practice Principles
6. Please state the cause and the difference of the corporate governance from Corporate Governance Best-Practice Principles: The Company has already set up related rules of corporate governance practice and has implemented in internal control system and related governance procedures accordingly. The Company participated in CG6007 corporate governance system evaluation in September 2012 and was awarded the advanced certification. The Company acquired the positive comments from Taiwan Corporate Governance Association as followings:
1. Although the Company is a small/mid cap company; however, it is aggressively involved in corporate governance evaluation, which is highly appreciated.
2. The Company has clearly defined its core business, focuses on the core, and develops core competitiveness accordingly. 3. The Company aggressively implements corporate governance system and realizes the importance of the system. When our Association
made suggestions on the on-site visit, the Company could always response positively. 4. The Company undertakes social responsibility and feedbacks to the society aggressively.
7. Other information beneficial to the understanding of the corporate governance (such as employee rights, staff care, investor relations, stakeholder’s rights, director and supervisor further study, risk management policies, execution of risk evaluation standards, execution of client policies and the Company’s purchase of liability insurance for directors and supervisors.) (1) Employee rights protection and staff care:
1、 To bulwark staff welfare, clearly define rights and duty of both employees and the employer, perfect the managerial system and organizational functions and deliver a secure, health and fair workplace, the Company developed “Gem Terminal Industrial Co., Ltd. Work Code”.
2、 In addition to responding to the regulation and developing management procedures to shield employee rights, the Company also developed The Annual Bonus Procedures and The Procedures Governing Employee Stocks and Employee Stock Bonus to enhance employee welfare. The revision on “Procedures Governing Employee Stocks and Employee Stock Bonus” or employee bonus of the surplus distribution will both listed into the agenda and well discussed in the Compensation Committee and submit to Board of Directors Meeting for resolution.
3、 Smooth communication channels are attentively constructed for employees. Other than the proposition system, which regulates incentives for effective propositions, every employee has his own email box, the Company also installed a suggestion box at the guardroom and periodically convenes work management negotiations and meetings for Employees' Welfare Committee. Employees can either directly communicate their opinions with the management or utilize the suggestion box for idea presentation or disputes.
4、 Staff Care: The Company instituted Employees' Welfare Committee, which plans and manages employee welfare, periodically organizes health checkup and domestic trips, and non-periodically offers overseas travelling reimbursement. In addition, it also provides employees’ children the scholarship and assistantship, wedding subsidy and funeral subsidy in addition to its significant care for employees’ health and recreational activities.
(2) The Rights of Investor Relations and Stakeholder: 1、 The Company set up an online message board and investor’s service email box. The Spokesman will take charge of investor
relations and report related matters to the Chairman. Investors, other than visit the Company and talk to the Spokesman, mostly inquire on the phone. The contact e-mails of supervisors are also available on the Company’s website at the same time to facilitate contacts between investors and supervisors.
2、 The Company developed the “Internal Important Information Processing Procedures” as the ground rule for important message issuance and disclosed complete and correct in-time information, for which the Company was honorably appraised as the Level A+ Information Disclosure System and with Relatively Transparent Information in 2012. Meanwhile, the Company was honorably appraised as the advanced certification of the CG6007 corporate governance system evaluation in September 2012.
(3) Further Study of Directors and Supervisors: 1. Year 2012 and the period before the annual report publication date, the 8th term of Directors and Supervisors conducted further
study as follows:
Title Name Inauguration Date
Course Date
Host Course Title Hour Regulation Compliance
Chairman Su, Chong-Hong
2009/06/20 2012/08/03 Taiwan Corporate Governance Association
Enterprise social responsibility & corporate governance
3 Yes
Independent Director
Hsu, Hsin-Chieh 2006/06/20 2012/05/18 Securities and Futures Institute
How could independent directors conduct their capability for listed companies
3 Yes
Independent Director
Hsu, Hsin-Chieh 2006/06/20 2012/08/03
Taiwan Corporate Governance Association
Enterprise social responsibility & corporate governance
3 Yes
Independent Director
Yang, Chen-Yang 2003/06/20 2012/05/18
The Institute of Internal Auditors, ROC (Taiwan)
How could independent directors conduct their capability for listed companies
3 Yes
Independent Director
Yang, Chen-Yang 2003/06/20 2012/08/03
Taiwan Corporate Governance Association
Enterprise social responsibility & corporate governance 3 Yes
Independent Director
Chang, Tu-Huo 1997/11/22 2012/08/03
Taiwan Corporate Governance Association
Enterprise social responsibility & corporate governance 3 Yes
Supervisors Su, Tun-Li
2009/06/20 2012/08/03 The Institute of Internal Auditors, ROC (Taiwan)
Enterprise social responsibility & corporate governance 3 Yes
Supervisors Wang, Lu-Jun 1997/11/22 2012/08/03
Taiwan Corporate Governance Association
Enterprise social responsibility & corporate governance 3 Yes
Supervisors Wang, Lu-Jun
1997/11/22 2012/11/22 Securities and Futures Institute Enterprise internal control job-site
training for updated IFRS auditing 6 Yes
Supervisors Wang, Lu-Jun 1997/11/22 2012/11/27
Taiwan Development & Research Academia of Economic & Technology
How to efficiently apply to the customs & internal control for the customs auditing
6 Yes
- 26 -
Item Operation
The cause and the difference from Corporate Governance Best-Practice Principles
Supervisors Hung, Chen-Kai 2009/06/20 2012/08/03
Taiwan Corporate Governance Association
Enterprise social responsibility & corporate governance 3 Yes
Director Su, Tun-Jen 1997/11/22 2012/08/03
Taiwan Corporate Governance Association
Enterprise social responsibility & corporate governance 3 Yes
(4) Risk Management Policy and Risk Evaluation Standards: The Company has developed GEM Group Risk Management Standards and, upon approval from Board of Directors, executed such standards to regulate according risk management policies and risk evaluation standards. The Company, to monitor, plan and execute according risk management affairs, also established a risk management organizational structure and divisional functions and duties.
(5) Client Policy Execution: The Company and its affiliated companies defined the group crediting limit for the Group’s clients to circumscribe client’s credit limits. Simultaneously, clients are served with high quality products, punctual delivery and client trust and satisfaction as top priorities. The Company aims to, with dedicated endeavor to minimize production costs, create a win-win and mutual growth with its precious clients.
(6) The Company’s Purchase of Liability Insurance for Directors and Supervisors: the Company has purchased liability insurance for directors, supervisors and important managers.
8. In case of the company self-assessment report or report from any other professional institution appointed to assess company operation,
self-assessment/appointed evaluation results, deficiencies/recommendations should be stated: The Company participated in CG6007 Corporate Governance Evaluation of Taiwan Corporate Governance Association in September 2012 and awarded an advanced certification. The committee of Taiwan Corporate Governance Association comprehensively evaluated each sector and furnished the following all-inclusive advice on the Company’s corporate governance system: 1. It is suggested that the Company shall adjust its members of Board of Directors and Supervisors in the next member re-election, due to
some Directors are insiders and some Supervisors are relatives. 2. It is recommended to review the director and supervisor remuneration policies and link director and supervisor remuneration to the
performance of Board of Directors and the Company in hope to encourage directors and supervisors and have them self-drive themselves, so they can have more contribution to the Company. The Company promises to work this out in the future.
3. It is recommended the Company to set up major information reporting procedures as soon as possible to ensure that Directors can acquire these information timely. These information shall either be reported in quarterly BOD meetings or be circulated through internal memorandum, or be reported to independent directors and supervisors by meeting. The Company also sets up “Standard of procedure for reporting major information to BOD, independent directors and supervisors”. When there is a major event happens, the Company shall inform all directors and supervisors by telephone or email within 24 hours, and holds a temporary BOD meeting if necessary.
4. It is suggested to draft the related evaluation procedure of M&A, fund raising, etc. for the Company’s future businesses. It is unavoidable for the Company to face those business decisions as the results of growing. Therefore, the Company shall set up the related evaluation procedure of M&A, fund raising, etc. for the Company’s future development.
Note 1：For further study of directors and supervisors, please refer to “ The On-the-job Training Guidelines for Directors and Supervisors of TSE and
OTC Listed Companies＂ published by the Taiwan Stock Exchange (TSE). Note 2： For securities dealers, securities investment trust enterprises, securities investment consulting enterprises and futures commission
merchants, the implementation of risk management policies, risk measures and customer or client protection policies should be stated. Note 3： The so-called“ Self-Evaluation Report for Corporate Governance＂ refers to the report that a company self-evaluates and explains the progress of all self-evaluation items.
- 27 -
(4) The Company should disclose the duties and operation of the emolument commission if it is established: Regulations of organization management of the emolument commission is developing now.
1. Member information of the emolument commission
With more than 5 year experiences &
the following expertise
In accordance with independent status (Note 2) ID (Note 1) Term
Name
Professor
of college
or
university
in
business,
legal
counsel,
finance,
accounting
or other
related
sections
Judge,
attorney,
prosecutor,
accountant
or
professional
staff with
national
certificate
in other
related
sections
The one
who owns
experience
in
business,
legal
counsel,
finance,
accounting
or other
related
sections
1 2 3 4 5 6 7 8
To act as a
member of
the
emolument
commission
in other
public
companies
Note
3
Independent
Director
Yang,
Chen-Yang
V V V V V V V V V 1 -
Independent
Director
Chang,
Tu-Huo
V V V V V V V V V NO -
Independent
Director
Hsu,
Hsin-Chieh
V V V V V V V V V V NO -
Note 1: ID column please fill in director, independent director or others. Note 2: Please mark “V” for members who meet the following requirements in the first two years and terms of the emolument
commission. (1) Not an employee of the Company and its affiliates. (2) Not a director or supervisor of the Company and its affiliates. If he or she is a independent director of the Company, the
Company’s parent company or the Company’s subsidiary (owns more than 50% shares directly or indirectly), the member can be precluded.
(3) Not a member, member’ spouse, minor child of a member, or one who owns more than 1% shares of the Company or the Company’s top 10 shareholders.
(4) Not a spouse, second-degree relatives or lineal third-degree relatives for the above mentioned (1) to (3). (5) Not a director, supervisor or employee of a company that indirectly owns more than 5% shares (or top 5 shareholders) of
the Company. (6) Not a director, supervisor, manager or shareholder who owns more than 5% of a specific company that has business or
financial relationship with the Company. (7) Not a owner, director, supervisor, manager, spouse of a company and its affiliates that provides business, legal, financial,
accounting and related counsels or services to the Company. (8) No violation to the Company Act Article 30.
Note 3: If the member happens to be a director, please explain this meets the paragraph 5, article 6 of regulation of “Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock is Listed on the Stock Exchange or Traded Over the Counter” or not.
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2. Operational information of the emolument commission I. There are three members in the Company’s emolument commission. II. Terms of the first session: from August 3rd 2012 to June 19th 2015. In recent years, the emolument commission was been
held for 3 (A) times. The attendance of members are as follows:
Title Name Frequency of
Actual Presence (B)Frequency of proxy
attendance Actual Presence Rate 【Ｂ/Ａ】 (Note) Remarks
Convener Yang, Chen-Yang 3 0 100.00 Re-Election Date: 2012/08/03
Reappointment
Committee
member Chang, Tu-Huo 2 0 66.67
Re-Election Date: 2012/08/03
Reappointment
Committee
member Hsu, Hsin-Chieh 3 0 100.00
Re-Election Date: 2012/08/03
Reappointment
Other Noticeable Particulars： 1. Under the circumstance that Board of Directors doesn’t adopt or modify the suggestions from the emolument commission, the
corresponding BOD date, BOD session, content of proposal, BOD resolution and how the Company dealt with the suggestions shall be stated. In addition, whenever the final BOD decision of remuneration is more favorable than the emolument commission suggestions, the differences and reasons shall be stated as well.
2. At the time the resolution of the emolument commission indicates that any member expresses objections or reservations at the meeting that were included in records or stated in writing, the corresponding emolument commission date, emolument commission session, content of proposal, members’ opinions and how the Company dealt with these opinions shall be stated.
Notes: (1) The according date of resignation when any member resigns before the end of the date should be noted on Remarks.
The Actual Presence Rate (%) is computed according to the number of the actual presence during its appointment. (2) Upon any re-election of members before the end of the year, the new and the former members shall be listed. In the
Remarks section, it should be noted whether the member is newly, formerly or successively elected. The Actual Presence Rate (%) is computed according to the number of the actual presence during its appointment.
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(5) About the implementation of the Company’s social responsibility:
Item Operation
The cause and the difference from Corporate Governance Best-Practice Principles
1. Implement and advance corporate governance:
(1) The Company sets up policies or systems of corporate social responsibility to review results of performance.
(2) The Company sets up the full-time (part-time) promotion organization of the corporate social responsibility operations.
(3) The Company holds the
training work and promotion events of business ethic for directors, supervisors and employees regularly and combines them with the management system of employee performance to establish specific and effective rewards and the system of rewards and penalties.
2. Develop sustainable
environment (1) The Company is devoted to
enhance the utilization efficiency of every resource and uses the renewable materials which have a little impact on environment load.
(2) The Company establishes the
proper management system of environment according to industry characteristics.
(3) Establish professional
organizations or staff of environment management to maintain environment.
(4) The Company noticed the effect of climate change on operation activities and set up the strategies of energy conservation and greenhouse gases decrease.
Company has developed and executed the “Code of Corporate Social Responsibility Practice”. The results have also been reviewed periodically. The company also makes every effort to fulfill information disclosure requirement. The concept of energy conservation and carbon emission reduction have been built in and materialized in the company’s daily operation. In addition, the company also made donations to various social groups to fulfill its social responsibility to create a win-win situation for the Company, shareholders, employees and the society. Company has developed and executed the “Code of Corporate Social Responsibility Practice” and an implementation taskforce that is consisted of division heads was appointed to promote corporate governance, to decide energy conservation and carbon emission reduction measures, to reduce environmental pollution, to comply labor law and to protect labors’ rights and other responsibilities to take care of employees. The results should be reviewed periodically. The Company controls course information about corporate governance at any time and notices directors and supervisors timely. In addition, the Company holds employee training work regularly and employee technical examinations every year. Meanwhile, the Company reports awards and penalties through performance reviews in every month and according to results of examination to enhance employees' quality and make them grow with the Company. Presently the achievement rate of manufacturing orders in every unit of the plant department is 98.7% and the rate can be raised to over 99% by the application of big volume equipments. The copper plate raw material is from qualified suppliers and meets the limitation criteria of RoHS hazardous and toxic materials. Every lot of material is tested for the contents of toxic and chemical substances with ICP and GC/MS bromide detector after delivery. The material cannot be used to produce until it meets the standard. Based on the management system of TS-16949, ISO 14001 and QC08000 launch the risk control of major environment aspects / OHS and use proposals to improve the management of objectives and project improvement for prior improvement; lower risks are controlled by the application of process approach management. 1. QA Division: Conduct specific-responsibility management and supervision; testing; analysis; the contents of hazardous and toxic materials of suppliers, ensure the implementation of the management system of environment. 2. Administration department: Conduct specific-responsibility management, audit the evaluation management of suppliers, ensure the qualification of “the examination and audit of environmental quality insurance system” of suppliers and that the raw materials delivered meet the limitation criteria of RoHS hazardous and toxic materials and record the qualified suppliers. 1. Reduce the use of plating boilers and use the heating method of electric tubes to reduce emissions of carbon and greenhouse gases. 2. Apply related big volume equipments and make the achievement rate of raw material manufacturing orders rise to 99% and reduce waste of coppers. 3. To cope with globally environmental pollution and ecological environments are destroyed more seriously, Ozone Depleting Substances (ODSs) and some species to become extinct these serious problems which threaten the survival and development of human beings, the Company promotes ISO 14001 and QC08000 for better environment protection.
None None None None None None None None None
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Item Operation
The cause and the difference from Corporate Governance Best-Practice Principles
3. Maintain social commonweal
(1) The Company obeyed labor regulations and international standard of human rights, protected employees’ legal interests and established proper management methods and procedures.
(2) The Company provided
employees with healthy and safe working environment and conducted safety and health education towards employees.
(3) The Company set up
periodic communication mechanism for employees and announced significantly potential impacts on operation to employees through reasonable channels.
(4) The Company set up and
disclosed consumer interests policies and provided with the transparent and effective consumer complaint procedure towards products and services.
(5) The Company should
cooperate with suppliers and devoted their efforts to enhance corporate social responsibilities.
1. The Company has set up work rules and every management method and system and holds labor coordination conferences regularly to keep fine labor communication platform. Moreover, the Company sets up Employee Farewell Committee to run employee farewell activities. 2. The Company’s employment policies contain no sexual, racial, age, marriage and family discrimination and provide rewards, employment terms, trainings and promotions fairly. The production operation environment of the Company mostly set up air-conditioning equipments to maintain employees in a good working environment and regularly holds health examinations of staff and plans and implements the soundproof room construction of punching machines. Designate employees to participate in the training of “kind A labor safety and executives” course, “on-the-job training of fixed cranes” and “recurrent training of first-aid personnel” to maintain employees’ safety and set up the coffee counter and gymnasiums of employees for them to relax and use. 1. Every employee owns individual email box for communication. The Company set up suggestion box in the guarding room for suggestion collection. And we held labor meeting and employee farewell meeting periodically. 2. At year-end party, Chairman reported operational performance and future plan to all employees. 3. Whenever there was a significantly operational change or organizational reengineering happening, management conference meeting in every Monday morning will announce and each department head will inform subordinates accordingly. To ensure customers’ interests, the Company sets up the operation process of internal customer services and customer satisfaction and realizes customers’ needs by the customer satisfaction survey and customers’ opinions and sets down reference markers for the Company’s persistent improvement to ensure that products meet customers’ needs and that the increase of customer satisfaction. The Company signs the laying-off and processing contract with suppliers to process and use laying-off repeatedly and save waste of resource. Meanwhile, the paper-wheel and paper-barrel will be collected for recycle uses.
None None None None None None None
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Item Operation
The cause and the difference from Corporate Governance Best-Practice Principles
(6) The Company participated in related activities such as community development and public charity groups by commercial activities, gift in kind, corporate volunteer services and free other professional services.
1. The Company makes every endeavor to show social concern and emergency relief, for example, the Company donated money to Bodhisattva Samantabhadra Caring Association, PingTung County as charity fund, and to Private Little Angel House, Kaohsiung City to take care of poor children. 2. The Company actively participates in and supports local community activities: (1) Popularize sports activities by supporting sports association of Lu-Zhu District, Kaohsiung City. (2) Contribute money to development association of Zu-Xi community, Luzhu District. (3) Contribute money to development association of Tsai-Wen community, Luzhu District 3. Actively popularize local education business: Contribute money to Dashe elementary school, Luzhu elementary school, Yi-Jia junior high school and Luzhu senior high school and contribute money to poor school children. Expect to bring up local school children education and give feedback to home towns.
None
4. Enhance the disclosure of Information
(1) The Company disclosed related information about corporate social responsibility which is of relevance and reliability.
(2) The Company prepared the
report of corporate social responsibility and disclosed the promotion of corporate social responsibility.
The Company disclosed related information about corporate social responsibility on the website and there are persons who are specifically appointed for the maintenance and update of information. (http://www.gem.com.tw) None
None The preparation of the corporate social responsibility report will depend on the Company’s operations and sizes in the future.
5. If the Company set up its own corporate social responsibility rule according to “the code of practice of corporate social responsibility of listed and over-the-counter companies”, please narrate the differences between operations and the rule: Company has developed and executed the “Code of Corporate Social Responsibility Practice” and an implementation taskforce that is consisted of division heads was appointed to promote corporate governance, to decide energy conservation and carbon emission reduction measures, to reduce environmental pollution, to comply labor law and to protect labors’ rights and other responsibilities to take care of employees and the results are viewed periodically to be complied with “the code of practice of corporate social responsibility of listed and over-the-counter companies”.
6. Other important information which helps to understand operations of corporate social responsibility (for example: The systems and measures of
environmental protection, community participation, social contribution, social services, social commonweal, consumer interests, human rights,
safety and health and other social responsibility activities which are adopted by the Company and their implementation):
1. Community participation, social contribution, social services, social commonweal and other social responsibility activities are as follows:
(1) Participate in society caring and emergency help, such as donates money to Bodhisattva Samantabhadra Caring Association, PingTung
County and Private Little Angel House, Kaohsiung City.
(2) Popularize sports activities and support expenditures of sports association of Luzhu District, Kaohsiung City.
(3) Dedicate to popularize educational business and give feedback to home towns. The contributions are as follows:
A. Contribute money to the relief fund for protective temples and assistant learning of Luzhu District and help children in the poor family
have the opportunity to finish their studies smoothly.
B. Contribute money to Dashe elementary school, Luzhu elementary school, Yi-Jia junior high school and Luzhu senior high school
respectively and expect to popularize local education business.
C. Contribute money to development association of Tsai-Wen community, Luzhu District and development association of Zu-Xi community,
Luzhu District.
2. In environmental protection and energy saving:
(1) Not only well conduct the recovery and recycling operation of waste water of electroplating but also ask employees to carry out waste
separation, set up regulations of energy saving, have a good habit of turning off the light within everyday lunch hour and select Friday as the
resource recycling date in response to the recovery and recycling policy of resource. Furthermore, we have posted temperature label and set
up air conditioner temperature by no lower than 28℃.
(2) Reduce the use of boilers and use the heating method of electric tubes to achieve the target of energy conservation.
(3) The Company acquired ISO 14001 certificate in March, 2013.
(4) We have had posters at electricity switches and faucets to remind all stuff for energy and water savings.
3. In human rights protection and related safety events:
(1) Punching operators wear earplugs to meet operational rules fully.
(2) Plan and conduct the soundproof room construction of punching machines.
(3) In the process of transit and use of copper material, consider the operation safety of staff in the punching subsection and force them to wear
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Item Operation
The cause and the difference from Corporate Governance Best-Practice Principles
safety shoes.
4. In protection of consumer interests:
(1) Presently all the western countries strictly require green environmental protection and the Company always advances green production. To
ensure all the product quality can meet RoHS order of environmental protection, the Company also purchases ICP-OES Heavy Metal
Analyzer, GC/MS Bromide Analyzer, and UV/VIS Hexavalent Chromium Analyzer to conduct the quality testing of material purchase and
products and carry out the enforcement of the RoHS order of environmental protection due to the material structure of the Company’s
products is copper and plastic.
7. It should be narrated if the Company’s products or the report of corporate social responsibility passed the verification standards of related
certification bodies:
Presently all the western countries strictly require green environmental protection and the Company always advances green production. To ensure
all the product quality can meet RoHS order of environmental protection, the Company also purchases ICP-OES Heavy Metal Analyzer, GC/MS
Bromide Analyzer, and UV/VIS Hexavalent Chromium Analyzer to conduct the quality testing of material purchase and products and carry out
the enforcement of the RoHS order of environmental protection due to the material structure of the Company’s products is copper and plastic.
(6) The implementation and measures of the Company’s ethical management: Items Operation The cause and difference
from “The Ethical Corporate Management Best Practice Principles”
1. Set up ethical management policy and program
(1) The Company declares the policy of ethical management internally and externally, and board of directors and the management promise sincerely to carry out the policy and program.
(2) The Company sets up program to
prevent from unethical conducts, including status reports of operational procedure, guideline and training.
(3) The Company also sets up program
for business activities which may cause a higher risk of being involved in an unethical conduct, and strengthen the preventive measures, such as offering and acceptance of bribes, or illegally political donations.
In 2012, the Company did not set up the “Ethical Management Principles”, but had “the ethical behavior principles of directors, supervisors and managers” instead, to stipulate that directors, supervisors and managers shall aim at seeking to the overall interests of the Company and shall not cause damage to the Company’s interests for the interests of the identified person or the specific group and shall treat all shareholders equally when they execute duties. Directors, supervisors and managers shall have the obligation of care to be a good administrator, pay attention to principles of good faith and equity, adhere to strict self-regulation and obey laws, the Company’s constitutions and resolutions of shareholders meeting when they perform powers. In addition, the Company also sets up “the ethical behavior standards of employees which are below managers” and guides employees’ behavior in the Company to meet ethical standards and prevents them from offending against the law and getting out of hand and makes the Company’s stakeholders much realize the ethical behavior standards of the Company. The Company issues regulations on daily activities of workers to all employees, and provides related training during orientation. The regulations stipulate all kinds of ethical management principles for employees to follow, and penalties for unethical conducts. The Company has set up “the ethical behavior standards of employees which are below managers” to be the guidelines for employees’ behaviors. The Company also sets up internal auditing mechanism to prevent from unethically operational activities, offering and acceptance of bribes, illegally political donations, and so on.
The Company has set up “Ethical Management Principles” at the 8th of 8th session Directors meeting on the 10th May, 2013. None None
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2. Carry out ethical management (1) All business transactions shall avoid
conducting with unethical partners, and shall highlight the necessity of ethical management.
(2) Status report of setting up a special
group in charge of promoting ethical management, under the supervision of board of directors.
(3) The Company sets up policy for
conflict of interests and offers appropriate channel of communication.
(4) The Company has modified its
accounting and internal auditing systems in accordance with the implementation of ethical management.
3. The Company set up a formal
channel for receiving reports on unethical conducts, and related punishments and appeals.
4. Enhance information disclosure (1) The Company has set up the website
to disclose ethical management related information.
(2) The Company also adopts other information disclosure channels, such as install English website, assign certain staff for corporate information collection and disclosure.
The Company has set up evaluation mechanism for all customers and vendors, and clearly describes rights and obligations for each party by contracts. For those major contracts, the Company will not sign up without the review of legal counsels. The Company has not set up such a special group for ethical management yet, but every department, upon its own duty, will carry it out under the supervision of the Auditor Office, and report to board of directors accordingly. 1. The Company issues regulations on daily activities
of workers to all employees, and provides related training during orientation. The regulations stipulate all kinds of ethical management principles for employees to follow, and punishments for unethical conducts.
2. Every employee owns individual email box for communication. The Company set up suggestion box in the guarding room for suggestion collection as well. Employees can communicate with management anytime, or can report to Supervisors if necessary.
The Company has set up accounting system, internal auditing system and internal auditing rules respectively. Auditors will take into account risk evaluation and set up annual auditing plan and carry out accordingly. When auditing suggestions occur, related department shall propose countermeasure of improvement. And auditors will prepare and update “Track record of internal auditing results” for continuous improvement. Every employee owns individual email box for communication. The Company set up suggestion box in the guarding room for suggestion collection as well. Employees can communicate with management anytime, or can report to Supervisors if necessary. In case of violations occur, the one will be punished in accordance with related guidelines and rules. The Company has set up the website to disclose product information, basic information and financial information about the Company and disclose the Company’s information in the Market Observation Post System in a manner of real time, openness and transparency.
None The Company is planning to set up such a special group in the future. None None None None None
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Items Operation The cause and difference from “The
Ethical Corporate Management Best Practice Principles”
5. Under the requirement of “The Ethical Corporate Management Best Practice Principles”, please state the difference between corporate operations and the Principles: None.
6. Other important information help to understand the Company’s status regarding ethical management (for instances: how the company declares its determination and policies to fulfill ethical management with vendors, invites them to participate in related training programs, reviews and modifies rules during and after implementation, etc. (1) The Company follows “Company Act”, “Securities and Exchange Act” and related principles and rules for TWSE/GTSM
listed companies or other business regulations, and treats them as the basic rules to carry out ethical management. (2) The Company’s “Regulations Governing Procedure for Board of Directors Meetings” defines conflict of interest system for
directors. Whenever discussion items involve conflict of interest with any director or his/her representative corporate, the director shall explain the degree of impact and excuse from the discussion and/or resolution. The director shall not take proxy role for other directors to act their voting rights in the fields of conflict of interest as well.
(3) The Company has set up “Procedures for Handling Material Inside Information” and defines Directors, Supervisors, Managers and Employees shall maintain good faith in ethical management. No director, supervisor, managerial officer, or employee of this Company may inquire about or collect any non-public material inside information of this Company not related to their individual duties from a person with knowledge of such information, nor may they disclose to others any non-public material inside information of this Company of which they become aware for reasons other than the performance of their duties.
(7) The Company shall disclose searching methods of corporate governance rules and related regulations if they are set up: Please
refer to the Company’s website www.gem.com.tw and Market Observation Post System newmops.tse.com.tw (8) Other important information that is sufficient to further a better understanding about the Company’s governance and operation:
Please refer to the Company’s website www.gem.com.tw and Market Observation Post System newmops.tse.com.tw
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(9) The subsequent items shall be disclosed in manifestation of the internal control system execution: 1. Statement of Internal Control
Internal Control Statement of Public Listed Company The Statement expresses the belief that the design and implementation of internal controls are effective.
This Statement refers to all laws and regulations in effect at the time the Statement was issued Gem Terminal Industrial Co., Ltd.
Internal Control Statement
Date: March 25, 2013 Based on the findings of a self-assessment, Gem Terminal Industrial Co., Ltd states the following hereby with regard to its internal control system during the period from January 1, 2012 to December 31, 2012:
1. Gem is fully aware that establishing, operating, and maintaining an internal control system are the responsibility of its Board of Directors and executives. Gem has established such system with an aim at furnishing sound assurance on the achievement of the corporate objectives, including operation effectiveness and efficiency (including profitability, performance, and asset safeguard), reliability of financial reports, and compliance with regulatory compliance.
2. An internal control system suffers from inherent limitations. No matter how perfectly designed, an effective internal control system can provide only reasonable assurance over accomplishing the three aforementioned objectives. Moreover, effectiveness of an internal control system may be subject to any environmental or circumstantial changes. Nevertheless, the Company’s internal control system is inbuilt with self-monitoring mechanisms. Should any deficiency be identified, the Company promptly takes according corrective measures.
3. The Company evaluates the design and operating effectiveness of its internal control system in accordance with the criteria provided in the Regulations Governing the Establishment of Internal Control Systems by Public Companies (herein below, the "Regulations"). The criteria adopted by the Regulations divide the internal control system into five elements based on the management control process: (1) control environment, (2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring. Each element further contains several subordinate items. Please refer to the Standards for details.
4. The Company evaluates the design and operating effectiveness of its internal control system according to the afore-cited criteria.
5. Based on the findings of the evaluation mentioned in the preceding paragraph, the Company believes that, on December 31, 2011, its internal control system (including its supervision and management over subsidiaries), as well as its internal controls to monitor the achievement of its objectives concerning operational effectiveness and efficiency, reliability of financial reports, and regulatory compliance, were effective in design and operation, and reasonably assured the achievement of the above-stated objectives.
6. This Statement will be an integral part of the Company's Annual Report for this year and Prospectus, and will be publicized. Any falsehood, concealment, or other illegality in the content made public will entail legal liability under Articles 20, 32, 171, and 174 of the Securities and Exchange Law.
7. This Statement has been passed by the Board of Directors in their meeting held on March 25, 2013 with zero of the five attending directors expressing dissent, and the remainder all affirming the content of this Statement.
Gem Terminal Industrial Co., Ltd
Chairman Su, Chung-Hong
General Manager Su, Tun-Jen
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2. Items to be disclosed in the CPA's audit report in relation to the system of internal controls that has been entrusted to the CPA: None
(10) Legal Violations Punished by Law and Improvements to Major Deficiencies in the Last Two Years and the period up to the publication date. None
(11) Important Resolutions of the Shareholder’s Meeting and the Board of Directors during the last year and the period up to the publication date:
(11.1) Important resolutions in 2012 the Shareholder’s Meeting
Date Approval and Agenda Resolution
1. 2011 Operating Report and Financial Statements, submitted for approval
Upon the meeting chairman’s inquiry, all attendant shareholders raised no dissent and passed the proposal.
2. The Company’s 2011 Surplus Distribution, submitted for approval
Upon the meeting chairman’s inquiry, all attendant shareholders raised no dissent and passed the proposal.
Discussion & Election 1: Vote for increasing investment in China subsidiary company.
Upon the meeting chairman’s inquiry, all attendant shareholders raised no dissent and passed the proposal.
Discussion & Election 2: Amendment of articles of incorporation.
Upon the meeting chairman’s inquiry, all attendant shareholders raised no dissent and passed the proposal.
Discussion & Election 3: Revised and submitted the Company’s “Processing Program of Assets acquisition or disposition” for resolution.
Upon the meeting chairman’s inquiry, all attendant shareholders raised no dissent and passed the proposal.
Discussion & Election 4: Election of the 8th
session of Directors and Supervisors.
Election outcomes: Directors’ list: You Feng Investment Co. Ltd. representative: Su, Chung-Hong Tsung-Fu Investment Co., Ltd. Chang, Tu-Huo Yang, Chen-Yang Hsu, Hsin-Chieh Supervisors’ list: Cheng-Feng Investment Co., Ltd. representative: Su, Tun-Li Hung, Chen-Kai Wang, Lu-Jun
2012.06.15
Discussion & Election 5: To release non-competition clauses from the 8th session of Directors.
Upon the meeting chairman’s inquiry, all attendant shareholders raised no dissent and passed the proposal.
(11.2) Review on Implementation of Resolutions in 2012 Shareholders Meetings
1. The Company’s 2011 Surplus Distribution: Shareholders’ cash dividends of NTD137,278,400 was completely distributed on 25th September, 2012 and employees’ cash bonus amounted to NTD8,000,000 was distributed completely on 25th September, 2012. Directors and supervisors remuneration amounted to NTD2,100,000 was completely paid on 6th October, 2012.
2. In respond to the company’s business need, the company plans to invest USD4.5 million to Global Electronics Terminal (Cayman) Co., Ltd., to invest USD4.5 million to VIBO GEM International Co., Ltd, and finally, to invest USD4.5 million to Dongguan GEM electronics terminal Co., LTD. The investment has been approved and filed by Investment Commission, MoEA on 13th July, 2012 with the registered no. 10100296460. The capital infusion of USD4.5 million is done.
3. The revised Articles of Incorporation of the Company have been filed with the registered no. 10101123180 dated on 2nd July, 2012.
4. Revised the Company’s “Processing Program of Assets acquisition or disposition” and conducted in accordance with revised regulations after the resolution of shareholders meeting was approved.
- 37 -
5. The re-election of the 8th session of Directors and Supervisors has been done on 15th June, 2012. There are five directors (including three independent ones) and three supervisors, given that the 8th session board of directors is running smoothly now.
6. The Release of non-competition clauses for the 8th session of Directors and Supervisors has been approved in the Shareholders’ meeting dated on 15th June, 2012.
(11.3) Important resolutions of Board of Directors in recent years and the publication date of the annual report: Date
Resolving Authority
Motion Result
1. The 2011 year-end bonus of the Company’s Chairman that has been approved by the 2nd of 1st session Compensation Committee meeting.
Chairman Su, Chung-Hong excused himself from the meeting due to conflict of interest and deputy president Su, Tun-Jen presided the meeting and all presented directors approved the resolution unanimously.
2012.01.17 Board of Directors 2. The 2011 year-end bonus of the Company’s General Manager, Vice
General Manager and supervisors above manager level that has been approved by the 2nd of 1st session Compensation Committee meeting.
General Manager, Su, Tun-Jen as one of the directors excused himself from the meeting due to conflict of interest. All other presented directors approved the resolution unanimously.
1. The Company’s 2011 Operation Report and Financial Statements were submitted for resolution and approval from Shareholder Meeting.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
2. Developed 2011 Surplus Distribution Proposal and the Surplus Distribution Table, submitted for resolution
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
3. In response to the company’s business need, it is planned to increase China subsidiary by USD4.5 million, submitted for resolution and approval from Shareholder Meeting.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
4. Modification on articles of incorporation, submitted for resolution and approval from Shareholder Meeting.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
5. In response to regulation changes and the company’s operation need, it is planned to revise the “Procedure of Acquiring or Disposal of Assets”, submitted for resolution and approval from Shareholder Meeting.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
6. In response to the modification of the Company Act, it is planned to revise the Company’s “Rules of Meetings of the Board of Directors”, submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
7. Re-election of Directors and Supervisors, submitted for resolution. Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
8. In response to Article 192-1 of the Company Act, the Company’s plan to, in 2012 Shareholder Meeting, acknowledge the independent director candidate list that shareholders who possess over 1% of total issued shares nominate in print, the nomination period and the location were submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
9. The Release of non-competition clauses for the 8th session of Directors and Supervisors, submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
10. Proposed for resolution the time and the location of 2012 Shareholder Meeting.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
11. In response to Article 172-1 of the Company Act, the Company plansto, in 2012 Shareholder Meeting, offer the right for raising proposals to the shareholders’ meeting, for shareholders who possess over 1% of total issued shares nominate in print, the nomination period and the location were submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
12. The Company’s financial forecast of year 2012 has been prepared, submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
13. In response to the company’s business need, it is planned to borrow Global Electronics Terminal (Cayman) Co., Ltd. for USD5 million, or equivalent currency, submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
14. In response to Corporate Governance Rule #29, the company’ planned to trust Accountant Jiang, Jialing and Accountant Chiu, Huiyin from Deloitte Touche Tohmatsu to audit. Having reviewed their independence and qualification, the management submitted for resolution, provided that this independence and qualification review shall be conducted periodically and once per annum.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
15. The Company has modified portion of “Internal Control System” and “Internal Auditing Rules”, reported to be implemented in the future, for approval.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
16. The Company finished year 2011 self examination of the Internal Auditing System, submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
17. Planned to revise the Company’s “Corporate Governance and PracticeRules” in response to revised “the Governance and Practice Rules of Listed and Over-the-counter Companies.”, submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
18. The sub-subsidiaries planned to apply to banks for credit line projects.The Company planned to provide with the Letter of Support to support shares and operation of sub-subsidiaries. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
2012.03.27 Board of Directors
19. The Company is planning to apply banking credit line from Taiwan Bank, submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
2012.04.30 Board of Directors
1. Candidate list of independent director. Submitted for resolution. Upon the meeting chairman’s inquiry, apart from Chang, Tu-Huo, Yang, Chen-Yang and Hsu, Hsin-Chieh recused themselves from the meeting due to conflict of interest. All attendant directors
- 38 -
Date
Resolving Authority
Motion Result
presented no dissent that Chang, Tu-Huo, Yang, Chen-Yang and Hsu, Hsin-Chieh are eligible of independent auditor. The motion was passed.
2. Accounting adjustments of consolidated balance sheet in response to align international financial reporting base date on the 1st of January, 2012 has been prepared. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. Independent director, Hsu, Hsin-Chieh presented no dissent. The motion was passed.
3. Sub-subsidiaries planned to apply to banks for credit line projects. The Company planned to provide with the Letter of Support to support hares and operation of sub-subsidiaries. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. Independent director, Hsu, Hsin-Chieh presented no dissent. The motion was passed.
4. The Company planned to apply to JIH SUN Bank for credit line projects. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. Independent director, Hsu, Hsin-Chieh presented no dissent. The motion was passed.
5. To discuss the revision of the company’s Articles of Association. Submitted to Board of Directors and Shareholders’ Meeting for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. Independent director, Hsu, Hsin-Chieh presented no dissent. The motion was passed.
2012.06.15 Board of Directors
1. Election of the Chairman of the Company’s 8th session board of directors.
Upon the meeting directors’ approval, all attendant directors agreed Su, Chung-Hong to act as the Chairman of the Company.
1. The Company planned to set September 5, 2012 as the ex-dividend base date of cash dividends for the cash dividend distribution in Year 2012. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
2. To invite members to join the 2nd emolument commission. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
3. The incremental service fee of NTD160 thousand, introduction of IFRS, from Deloitte Touche Tohmatsu. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
4. The Company’s 1st revised financial forecast is prepared. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
5. The sub-subsidiaries planned to apply to banks for credit line projects.The Company planned to provide with the Letter of Support to support shares and operation of sub-subsidiaries. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
2012.08.03 Board of Directors
6. The Company is planning to apply banking credit lines from the following financial institutions.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent.
1. Submitted the Company’s “the financial report for the first half of the Year 2012” and “the consolidated financial statements for the first half of the Year 2012” for acknowledgement.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. Independent director, Chang, Tu-Huo presented no dissent. The motion was passed.
2. The Company has amended its “Employee Stock Option and Bonus Rules”. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. Independent director, Chang, Tu-Huo presented no dissent. The motion was passed.
3. The Company’s compensation for directors and supervisors is proposed and submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. Independent director, Chang, Tu-Huo presented no dissent. The motion was passed.
4. Bonus of President, Vice-President and Mangers is proposed and submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. Independent director, Chang, Tu-Huo presented no dissent. The motion was passed.
5. As the resolution of the 2nd of 1st session Compensation Committee meeting, some managers’ monthly salary structure and amount have been adjusted and will trace back to be effective from 1st July, 2012. Submitted for discussion.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. Independent director, Chang, Tu-Huo presented no dissent. The motion was passed.
2012.08.28 Board of Directors
6. In response to the company’s business need, it is planned to borrow from Global Electronics Terminal (Cayman) Co., Ltd. for USD2.5 million, or equivalent currency, submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. Independent director, Chang, Tu-Huo presented no dissent. The motion was passed.
1. The Company’s 2nd revised financial forecast for Year 2012 had been prepared. Submitted for discussion.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
2. In response to the modification of regulations, it is planned to revise the Company’s “Rules of Meetings of the Board of Directors”, submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
3. The sub-subsidiaries planned to apply to banks for credit line projects.The Company planned to provide with the Letter of Support to support shares and operation of sub-subsidiaries. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
2012.11.20 Board of Directors
4. The Company is planning to apply credit lines for operation and for derivatives from banks. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
1. The Company had set up and completed “Operation Plan for Year 2013.” Submitted for discussion.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
2012.12.25 Board of Directors
2 The Company had set up and completed “Accounting System” Submitted for discussion.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
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Date
Resolving Authority
Motion Result
3 The annual service fee of NTD260 thousand, for preparation of transfer pricing report of year 2012 and 2013, from Deloitte ToucheTohmatsu. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
4 The Company is planning to purchase a piece of farming land (located in No. 335, Fu-Hsing Section, Lu-Zhu District, Kaohsiung City) from Dingyao Investment Co., Ltd. Representative: Su, Tun-I. Submitted for resolution.
Technical Advisor, Su, Tun-I, excused himself from the meeting due to conflict of interest. All presented directors approved the resolution.
5 The Company had planned and completed the “Internal Audit Plan for Year 2013.” Submitted for verification and implementation.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
6 The Company had revised and completed partial provisions of “Internal Control System” and “Detailed Rules of Internal Audit Implementation.” Submitted for verification and implementation.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
7. The Company has modified a portion of “Internal Control & Self-Exam Procedures & Management Rules”. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
8. The sub-subsidiaries planned to apply to An-Tai banks for credit line projects. The Company planned to provide with the Letter of Support to support shares and operation of sub-subsidiaries. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
9. The Company planned to apply to the following banks for credit line projects. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
1. The Company’s “Year-end bonus management procedures” and “Salary management rules” have been approved by the 2nd of 2nd
session Compensation Committee meeting. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
2. The 2012 year-end bonus of the Company’s Chairman that has been approved by the 2nd of 2nd session Compensation Committee meeting. Submitted for resolution.
Chairman Su, Chung-Hong excused himself from the meeting due to conflict of interest and deputy president Su, Tun-Jen presided the meeting and all presented directors approved the resolution
2013.01.29 Board of Directors
3. The 2012 year-end bonus of the Company’s General Manager, Vice General Manager and supervisors above manager level that has been approved by the 2nd of 2nd session Compensation Committee meeting.
General Manager, Su, Tun-Jen as one of the directors excused himself from the meeting due to conflict of interest. All presented directors approved the resolution.
1. The company has prepared business report and financial statements of 2012. Submitted for approval.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
2. Drafted surplus distribution motion and surplus distribution list for Year 2012. (please refer to page 42, appendix 11) Submitted for common decision.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
3. To discuss the revision of the company’s Articles of Association. Submitted to Shareholders’ Meeting for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
4. The company’s 2013 consolidated financial forecast has been prepared. Submitted for discussion.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
5. In response to the revision of regulations and practical need, the company planned to revise “Operation Procedures of Fund Lending” Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
6. In response to the revision of Company Law, the company planned to revise “Operation Procedures of Underwriting and Guarantee” Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
7. In response to Corporate Governance Rule #29, the company’ planned to trust Accountant Jiang, Jialing and Accountant Qiu, Huiyin from Deloitte Touche Tohmatsu to audit Q1/2013 consolidated financial reports. However, due to internal adjustment of Deloitte Touche Tohmatsu, Accountant Qiu, Huiyin will be replaced by Accountant Wu, Chiouyan. In addition, the service fee for auditing 2013 annual and quarterly reports will be NTD4.75 million dollars. Having reviewed their independence and qualification, the management submitted for resolution, provided that this independence and qualification review shall be conducted periodically and once per annum.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
8. The Company first time adopts IFRS and its influences to retained earnings and special surplus reserves. Submitted for discussion.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
9. Planned to set up the Company’s the date and location of shareholders meeting for Year 2013. Submitted for common decision.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
10. In response to Article 172-1 of the Company Act, the Company plansto, in 2013 Shareholder Meeting, offer the right for raising proposals to the shareholders’ meeting, for shareholders who possess over 1% of total issued shares nominate in print, the nomination period and the location were submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
11. The Company had completed the self-inspection operation of the internal control system. Submitted for common decision.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
12. In response to the company’s business need, the company planned to provide financing loan of USD5 million (equivalent foreign currencies) to VIBO GEM International Co., Ltd Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
13. Planned to revise the Company’s “Corporate Governance and Practice Rules” in response to revised “the Governance and Practice Rules of Listed and Over-the-counter Companies.” Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
2013.03.25 Board of Directors
14. The sub-subsidiaries planned to apply to banks for credit line projects. The Company planned to provide with the Letter of Support to support shares and operation of sub-subsidiaries. Submitted for
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
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Date
Resolving Authority
Motion Result
resolution.
15. The Company planned to apply to the following banks for credit line projects. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
1. As the resolution of the 4th of 2nd session Compensation Committee meeting, some managers’ monthly salary structure and amount have been adjusted and will trace back to be effective from 1st March, 2013. Submitted for discussion.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
2. The Company plans to set up “Ethical Management Rules” for cultural establishment, sound development and outstanding business operation model. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
2013.05.10 Board of Directors
3. Sub-subsidiaries planned to apply for credit line from Taiwan Bank. The Company planned to provide Letter of Support to support shares and operation of sub-subsidiaries. Submitted for resolution.
Upon the meeting chairman’s inquiry, all attendant directors presented no dissent. The motion was passed.
(12) In recent years and the period until the annual report publication date, the major content of the recorded and written dissent from directors and supervisors regarding important resolutions passed in the Board of Directors: None
(13) Resignation or dismissal of personnel involved in preparation of financial reports ( including chairman, general manager, accounting chief and internal audit supervisors) in recent years and the period until the annual report publication date: None
- 41 -
IV. Accountant fees (1) If the non-audit fee given to the certified accountant, the office that the certified accountant belongs to and
other related enterprises is more than 1/4 of the audit fee, the amount of audit fee, non-audit fee and details of non-audit service shall be disclosed.
Accountant Fees Rank Table
Name of Accountant Office Name of Accountants Audited period Remarks Deloitte Touche Tohmatsu Accountant Office
Chiang, Jia-Ling Chiu, Hui-Yin Year 2012
Note: If the Company has changed the accountant or the accountant office in the current year, please list respectively the audited period and the reason of change in the Column of Remarks.
Unit: thousand / NTD
Fee items Rank
Audit fee Non-audit fee Total
1 Lower than NTD2000 1,192 2 NTD2000 (inclusive)~NTD4000 3 NTD4000 (inclusive)~NTD6000 4,860 4 NTD6000 (inclusive)~NTD8000 6,052 5 NTD8000 (inclusive)~NTD10000 6 Above NTD10000
Accountant Fees Information
Unit: thousand / NTD
Non-audit fee
Whether the accountant’s audit period covers the entire accounting
year?
Name of Accountant Office
Name of Accountant
Audit fee
System Design
RegistryHuman Resource
Miscellaneous Sub-total Yes No Audited period
Remarks
Deloitte Touche Tohmatsu
Chaing, Jia-Ling Chiu, Hui-Yin
4,860 - 8 - 1,184 1,192 Year 2012
Miscellaneous includes mainly IFRS tutoring, transfer pricing report of business income tax
Note 1: If the Company has changed the accountant or the accountant office in the current year, please list respectively the audited period and the reason of change in the Column of Remarks. The amount of audit fee and non-audit fee shall be disclosed in sequence.
Note 2: Non-audit fee shall be listed as per the service items. If the “Miscellaneous” in the non-audit fee is above 25% of the total non-audit fee, the service content shall be listed in the Column of Remarks.
(2) If the Company changes the accountant office and the audit fee paid for that year is less than the audit fee paid for
the previous year, the Company shall disclose the amount of audit fee at the previous and current years and explain the reason of change: The Company didn’t change the accountant office.
(3) If the audit fee is over 15% lower than the previous year, the Company shall disclose the reduced amount of audit fee, percent and reason: not applicable
V. Change of accountant: none VI. If the Company’s Chairman, General Manager, Accounting Head served the office where the certified account
belongs to or its related enterprises in the past year, the Company shall disclose his or her name, title and period of his or her service in the office where the certified accountant belongs to or its related enterprises: None
- 42 -
VII. State of Changes to Shareholdings Held By Directors, Supervisors, Managers and the company's Top Ten Shareholders in Recent Years and The Period Up To The Publication Date
(1) State of Changes in Shareholdings Held By Directors, Supervisors, Managers and the Company's Top Ten Shareholders
Unit :share 2012 As of April 16, 2013
Title (Note 1)
Name Increase (decrease) of shares held
Increase(decrease) of shares pledged
Increase(decrease) of shares held
Increase (decrease) of shares pledged
Chairman Su, Chung-Hong (the representative of Youfeng Investment Co., Ltd)
- - - -
Director Tsung-Fu Investment Co., Ltd - - - - Independent Director
Hsu, Hsin-Chieh - - - -
Independent Director
Yang, Chen-Yang - - - -
Independent Director
Zhang Tuhuo - - - -
Supervisor Su,Tun-Li(Legal representative of Cheng-Feng Investment Co., Ltd)
- - - -
Supervisor Hung, Chen-Kai - - - - Independent supervisor
Wang, Lu-Jun - - - -
General Manager
Su,Tun-Jen - - - -
Senior manager
Wang, Chien-Hsiu - - - -
Manager Lu, Hsiu-Feng - - - - Manager Ho, I-Lin - - - - Manager Huang, Kuang-Yu - - - - Manager Lin Chou, Chin-Hsiu - - - - Manager Su, Wen-Cheng - - - - Manager Tsai, Ming-Che - - - - Manager Chen, Chin-Hsien - - - - Major shareholder
Dingyao Investment Co., Ltd 1,206,000 - - -
Note 1: The party receiving the share transfer or share pledge shall be non-related persons.
Note 2: Shares holding more than 10% of total shares of the Company are major shareholders and shall be listed respectively.
(2) Share transfer
Share transfer of directors, supervisors and managers who hold more than 10% of shares:
None
(3) Share pledge
Share pledge changes of directors, supervisors and managers who hold more than 10% of
Shares: None
- 43 -
VIII. (1). Top ten shareholders as related persons specified in Statement of Financial Accounting Standards Sixth Ordinance, spouses or relatives within second degree of consanguinity.
April 16, 2013
Shares held by the shareholder
Shares held by the spouse, minor children
Shares held by the name of others
Top ten shareholders as related persons specified in Statement of Financial Accounting Standards Sixth Ordinance, spouses or relatives within second degree of consanguinity.
Name (Note 1)
Shares Percent Shares Percent Shares Percent Name Relationship
Rem
arks
You Feng Investment Co., Ltd.
13,983,236 8.15 - - -
Tsung-Fu Investment Co., Ltd. Dingyao Investment Co., Ltd. Cheng Feng Investment Co.,Ltd. (Note 3)
The Company’s responsible person is within second degree of consanguinity
-
Representative of You Feng Investment Co., Ltd.: Su, Chung-Hong
231,030 0.13 162,470 0.09 -
Su Hong Yueji Su, Tun-Jen Su, Tun-I Su, Tun-Li
Sister-in-law Brotherhood
-
Tsung-Fu Investment Co., Ltd.
31,467,914 18.34 - - -
Cheng-Feng Investment Co., Ltd. (Note 3) Dingyao Investment Co., Ltd. Youfeng Investment Co., Ltd.
The Company’s responsible person is within second degree of consanguinity
-
Representative of Tsung-Fu Investment Co., Ltd: Su, Tun-Jen
1 - -- - - -
Su Hong Yueji Su, Tun-Li Su, Tun-I Su, Chung-Hong
Sister-in-law Brotherhood
-
Dingyao Investment Co., Ltd.
23,578,792 13.74 - - -
Cheng Feng Investment Co., Ltd. (Note 3) Tsung-Fu Investment Co., Ltd. Youfeng Investment Co., Ltd.
The Company’s responsible person is within second degree of consanguinity
-
Representative of Dingyao Investment Co., Ltd: Su, Tun-I
1 - - - - -
Su Hong Yueji Su, Tun-Li Su, Tun-Jen Su, Chung-Hong
Sister-in-law Brotherhood
-
Cheng Feng Investment Co., Ltd. (Note 3)
20,278,409 11.82 - - - -
Youfeng Investment Co., Ltd Tsung-Fu Investment Co., Ltd Dingyao Investment Co., Ltd
The Company’s responsible person is within second degree of consanguinity
-
Representative of Cheng Feng Investment Co., Ltd: Su, Tun-Li
27,285 0.02 347,126 0.20 - -
Su, Tun-Jen Su, Tun-I, Su, Chung-Hong
Brotherhood
-
Liu, Kunteng 2,352,139 1.37 - - - - None - Wang, Ruihong
2,157,796 1.26 - - - - None
-
Hong, Zhenmao
2,118,462 1.23 - - - -Supervisor Hung, Chen-Kai
Brotherhood -
Chen, Shengli 1,569,197 0.91 - - - - - None - Wu, Jiahuaio 1,478,082 0.86 - - - - - None - Pan, Quancheng
1,084,850 0.63 -- - - -- None
-
Note 1: Names of shareholders are listed respectively (if they are institutional shareholders, the name of institutional shareholders and representatives shall be listed respectively).
Note 2: The percent of shares is calculated respectively for the percent of shares held by the shareholder, by the spouse, by minor children or by the name of others
Note 3: Su Hung, Yueji, the responsible individual of Cheng Feng Investment Co., Ltd is the spouse of Su, Tun-Li.
- 44 -
(2). Major shareholders of institutional shareholders
Name of institutional shareholders Major shareholders of the institutional shareholder
Cheng Feng Investment Co., Ltd. Su, Tun-Li (35.10%), Su Hung Yueji (33.91%), Su Liwen (10.33%), Su Zemin (10.33%), Su Shengmao (10.33%)
Tsung-Fu Investment Co., Ltd. Su, Tun-Jen (52.43%), Zou Xiuming (26.47%), Su Jun-I (7.21%), Su Xingxian (5.76%), Su Henghui (5.76%), Su Huie (2.37%)
You Feng Investment Co., Ltd. Su, Chung-Hong (82.07%), Su Yuting (8.97%), Su Yuxiang (8.96%)
Dingyao Investment Co., Ltd. Su, Tun-I (37.97%), Wang Zirong (35.36%), Su Bochen (26.67%) 9. Shares of the business directly or indirectly controlled by the Company, the Company’s shareholders, supervisor and
manager on the same reinvestment business, and the combined percentage Unit: Shares/%
The Company’s investment
Investment of the business directly or indirectly controlled by directors, supervisors and managers
Combined investment Reinvestment business (Remark)
Shares Percent Shares Percent Shares Percent Genius Terminal Co., Ltd.
750,000 100% - - 750,000 100%
Global Electronics Terminal (Cayman) Co., Ltd.
35,037,184 100% - - 35,037,184 100%
GEM Terminal (Cayman) Co., Ltd.
1,000,000 100% 1,000,000 100%
Note: The Company’s long-term investment
- 45 -
IV. Capital Overview Ⅰ. Capital and shares (1). Source of capital stock 1. Formation of capital stock April 16, 2013
Authorized capital stock Paid-in capital Remarks
Year.Month Issuance price Shares Amount Shares Amount Source
Non-cash
asset for
subscription
Others
1993.07 10 2,520,000 25,200,000 2,520,000 25,200,000 Cash None None Cash: 137,340,000 Surplus: 13,948,200 1995.10 10 17,648,820 176,488,200 17,648,820 176,488,200 Total: 151,288,200
None None
1996.07 10 21,178,584 211,785,840 21,178,584 211,785,840 Surplus: 35,297,640(Note 1) None None Cash: 29,992,700 Surplus: 4,659,290 Reserve: 3,812,170
1997.07 10 30,000,000 300,000,000 25,025,000 250,250,000
Total: 38,464,160 (Note 2)
None None
Cash: 10,210,500 Surplus: 12,512,500 Reserve: 27,027,000
1998.09 10 30,000,000 300,000,000 30,000,000 300,000,000
Total: 49,750,000(note3)
None None
Surplus: 15,000,000 Reserve: 30,000,000 1999.11 10 34,500,000 345,000,000 34,500,000 345,000,000 Total: 45,000,000(Note 4)
None None
employee bonus: 1,440,000 Surplus: 34,500,000 Reserve: 17,250,000
2000.08 10 65,000,000 650,000,000 39,819,000 398,190,000
Total: 53,190,000 (note 5)
None None
Cash: 40,000,000 2000.11 10 65,000,000 650,000,000 43,819,000 438,190,000
Total: 40,000,000(note 6) None None
employee bonus: 2,282,240 Surplus: 50,391,850 Reserve: 37,246,150
2001.09 10 65,000,000 650,000,000 52,811,024 528,110,240
Total: 89,920,240(Note: 7)
None None
employee bonus: 1,574,870 Surplus: 35,911,500 Reserve: 35,383,390
2002.09 10 95,000,000 950,000,000 60,098,000 600,980,000
Total: 72,869,760(Note 8)
None None
employee bonus: 4,863,200 Surplus: 96,156,800 2003.07 10 95,000,000 950,000,000 70,200,000 702,000,000 Total: 101,020,000(Note 9)
None None
employee bonus: 7,600,000 Surplus: 140,400,000 2004.07 10 145,600,000 1,456,000,000 85,000,000 850,000,000 Total: 148,000,000 (Note 10)
None None
20004.10 10 145,600,000 1,456,000,000 86,788,293 867,882,930 Additional capital from corporate bond: 17,882,930 (note 11)
None None
2005.01 10 145,600,000 1,456,000,000 86,935,157 869,351,570 Additional capital from corporate bond: 1,468,640(Note 12)
None None
2005.04 10 145,600,000 1,456,000,000 86,939,476 869,394,760 Additional capital from corporate bond: 43,190(note 13)
None None
2005.06 10 145,600,000 1,456,000,000 96,392,992 963,929,920 employee bonus: 7,600,000 Surplus: 86,935,160 Total: 94,535,160 (Note 4)
None None
employee bonus: 5,254,200 Surplus: 111,815,880 2006.06 10 145,600,000 1,456,000,000 108,1000,000 1,081,000,000 Total: 117,070,080 (Note 15)
None None
Additional capital from corporate bond: 27,827,790 2006.11 10 145,600,000 1,456,000,000 110,882,779 1,108,827,790 Total: 27,827,790 (Note 16)
None None
Cash: 78,125,000 2007.07 10 221,000,000 2,210,000,000 118,695,279 1,186,952,790
Total: 78,125,000(note 17) None None
employee bonus: 14,431,650 Surplus: 221,765,560 2007.08 10 221,000,000 2,210,000,000 142,315,000 1,423,150,000 Total: 236,197,210 (note 18)
None None
- 46 -
employee bonus: 14,914,500 Surplus: 241,935,500 2008.09 10 221,000,000 2,210,000,000 168,000,000 1,680,000,000 Total: 256,850,000 (Note 19)
None None
2009.04 10 221,000,000 2,210,000,000 166,600,000 1,666,000,000 Decrease of capital from inventory write-off: 14,000,000(Note 20)
None None
2009.09 10 221,000,000 2,210,000,000 171,598,000 1,715,980,000 Surplus: 49,980,000 (Note 21) None None Note 1 Approved by 85.07.06(85) TCZ (1) No. 41710 Note 2Approved by 86.07.08(86) TCZ (1) No. 51753 Note 3 Approved by 87.07.07(87) TCZ (1) No. 58543 Note 4Approved by 88.10.12(88) TCZ (1) No. 89461 Note 5 Approved by 89.06.30(89 TCZ (1) No. 56345 Note 6Approved by 89.09.26(89) TCZ (1) No. 78284 Note 7 Approved by 90.07.18(90) TCZ (1) No. 144283 Note 8Approved by 91.07.18(91) TCZ (1) No. 0910140161 Note 9 Approved by 92.07.10(92) TCZ (1) No. 0920130851 Note 10Approved by 93.07.05 ZQYZ No. 0930129290 Note 11 Approved by 93.10.29 JSSZ No. 09301200530 Note 12Approved by 94.01.28 JSSZ No. 09401012110 Note 13 Approved by 94.04.29 JSSZ No. 09401072190 Note 14Approved by 94.06.29 JGZYZ No. 0940126044 Note 15 Approved by 95.06.30 JGZYZ No. 0950127547 Note 16Approved by 95.11.01 JSSZ No. 09501245260 Note 17 Approved by 96.05.17 JGZYZ No. 0960023044 Note 18Approved by 96.06.28 JGZYZ No. 0960032654 Note 19 Approved by 97.06.27 JGZYZ No. 0970032061 Note 20Approved by 98.04.22JSSZ No. 09801078180 Note 21 Approved by 98.07.20 JGZFZ No. 0980036143
2. Types of issued shares April 16, 2013
Authorized capital stock Types of issues
Circulated shares Unissued shares Total Remarks
Registered common share
Listed shares 171,598,000
49,402,000 221,000,000 3,000,000 shares are for issuance of employee warrants
(2) Share structure April 16, 2013 Unit: Person; Shares
Share structure Quantity
Government institutions
Financial institutions
Other legal persons
Individuals Foreign institutions and individuals
Total
Number of shareholders
0 1 27 10,344 30 10,402
Number of shares held
0 1,000 90,846,062 78,978,893 1,763,045 171,598,000
Share percentage - - 52.94% 46.03% 1.03% 100.00％
(3) Distribution of shares 1. Common shares Face value: NTD10 April 16, 2013
Level of shares Number of shareholders Number of shares Percent of shares (%) 1~ 999 4,515 653,041 0.38 1,000~ 5,000 3,678 8,741,261 5.09 5,001~ 10,000 959 7,422,221 4.33 10,001~ 15,000 363 4,532,030 2.64 15,001~ 20,000 228 4,114,431 2.40 20,001~ 30,000 240 6,006,974 3.50 30,001~ 50,000 174 6,935,464 4.04 50,001~ 100,000 123 8,672,167 5.05 100,001~ 200,000 71 10,188,252 5.94 200,001~ 400,000 30 8,076,186 4.71 400,001~ 600,000 6 2,750,988 1.60 600,001~ 800,000 5 3,436,108 2.00 800,001~ 1,000,000 - - - More than 1,000,001 10 100,068,877 58.32 Total 10,402 171,598,000 100.00
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2. Special shares：None (4) List of major shareholders
1. Name of shareholders holding more than 5% of shares, total shares and percent April 16, 2013
SharesMajor shareholders
Shares Percent (%)
Tsung-Fu Investment Co., Ltd. 31,467,914 18.34 Dingyao Investment Co., Ltd. 23,578,792 13.74 Cheng Feng Investment Co., Ltd. 20,278,409 11.82 You Feng Investment Co., Ltd. 13,983,236 8.15 Total 89,308,351 52.05
2. Major shareholders of institutional shareholders holding more than 5% of shares
Name of institutional shareholders Major shareholders of institutional shareholders Cheng Feng Investment Co., Ltd. Su,Tun-Li (35.10%), Su Hung-Yue-Ji (33.91%), Su Li-Wen (10.33%), Su
Ze-Min (10.33%), Su Sheng-Mao (10.33%) Tsung-Fu Investment Co., Ltd. Su,Tun-Jen (52.43%), Zou Xiu-Ming (26.47%), Su Jun-I (7.21%), Su
Xing-Xian (5.76%), Su Heng-Hui (5.76%), Su Hui-E (2.37%) You Feng Investment Co., Ltd. Su, Chung-Hong (82.07%), Su Yu-Ting (8.97%), Su Yu-Xiang (8.96%) Dingyao Investment Co., Ltd. Su, Tun-I (37.97%), Wang Zi-Rong (35.36%), Su Bo-Chen (26.67%) (5) Market value, net value, surplus, dividend and relevant information in recent two years
2011 2012 Year Item Before
after adjustment
Before after adjustment
As of March 31, 2013
Highest (NTD) 22.75 20.75 15.80 15.00 12.40 Lowest (NTD) 12.95 10.95 11.20 10.40 11.60
Market value per share Average(NTD) 18.27 13.28 12.04 Net value per share
Before distribution (NTD) 17.15
16.28 16.81
After distribution (NTD) 16.35 16.05 - Weighted average share (1,000 shares) 171,598 171,598 171,598
Before adjustment (NTD) 1.08
0.5 (0.03)
Surplus per share Basic
surplus per share after tax:
After adjustment (NTD) 1.08
0.5 (0.03)
Cash dividend (NTD) 0.8 0.23 - Cash dividend after retroactive adjustment - -
- - - Stock grants: - - -
Dividend per shares
Accumulated undistributed dividends - - P/E ratio 16.92 26.56 - Ratio of dividend/price 22.84 57.74 -
Investment return analysis Cash dividend Yield to maturity 4.38 1.73 - Note: The Profit Distribution Plan was approved by the Board of Directors on March 25, 2013, but hasn’t been
approved by the shareholders meeting in 2013 yet. (6) The Company’s dividend policy and execution 1. The Company’s dividend policy Annual profit of the Company shall be distributed as below:
(1). Make up for the loss in previous years (2). Draw 10% for legal surplus reserve until the legal surplus reserve has reached the amount of the Company’s
total capital (3). Draw or transfer as the special surplus reserve based on the Company’s operating needs or legal regulations (4). The remaining amount, summed up with the accumulated undistributed profits, will be determined by board
of directors, provided that they have reserved for operational needs. Distribute dividends or bonuses to shareholders, allocate a suitable amount for the remuneration of directors and supervisors, bonuses to employee, the distribution ratio plan or the reserve of surplus is decided by the board except that the employee bonus shall not be lower than 3%, which shall be approved by the board. Distribution of employee bonus: In case of share allotment, it shall be distributed to employee of affiliated companies. The distribution of employee bonus shall be determined by the board. The Company is still at the growing period and shall adapt to the economic environment for sustainable operation and long-term development. The board pays attention to the stability and growth of dividends when deciding the profit distribution plan: the distributable profit under Item 4 shall not be lower than 50%
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in principle (not included the undistributed profits in previous years). The cash portion of shareholder dividends and bonuses shall not be lower than 10% of the distributable profit to shareholders. If the cash dividend per share is less than NTD 0.2, stock dividend shall be provided.
2. The profit distribution proposed for this shareholder meeting has been approved by the Board of Directors on March 25, 2013, but hasn’t been approved by the shareholders meeting in 2013 yet. The Company plans to distribute 4 million NT dollars in cash to employees, 39,467,540 NT dollars (dividends) to shareholders. Dividends are all paid in cash (NTD 0.23 for each share).
3. Explain if there is major changes to the predicted dividend policy The Company is standing at a growing business environment; therefore, to cope with future expansion projects, the Company’s shareholder bonus, considering economic environment, business continuity and long-term development, will adopt “Residual Dividend Policy”. Related articles of incorporation have been modified and approved in the BOD meeting dated on 25th March, 2013, but not 2013 Shareholders’ Meeting approval yet.
(7) Influence of stock grants proposed to the shareholder meeting on the Company’s operating performance and profit per share. Not applicable (The Company didn’t disclose the financial forecast 2013). The profit distribution plan 2012 proposed to the shareholder meeting 2013 will be all cash dividend. As the Company expands gradually its business scale, the Company predicts continuous growth of business income and profits. Therefore, the Company has no stock-grants that influences the Company’s operating performance and profit per shares.
(8) Employee bonuses and remuneration of directors and supervisors 1. Percent and scope of employee bonus and remuneration of directors and supervisors as indicated on the articles of
association. The profit distribution plan is drafted by the board and endorsed by the shareholder meeting. Shareholder dividend and bonuses are distributed, a suitable amount is allocated for remuneration of directors and supervisors and employee. The employee dividend shall not be lower than 3%.
2. Basis for estimation of employee dividends and remuneration of directors and supervisors, basis for calculation of shares subject to profit distribution, accounting practice in case of difference between the actual and estimated distribution.
(1) The Company mainly refers to its articles of association. Employee bonuses should be no less than 3% and also refer to the profit in 2011.
(2) The remuneration of directors and supervisors are estimated based on the articles of association, their involvement with and contribution to the Company’s operation, as well as the profit per share in 2012. The Company has also stipulated “The Procedures Governing Director and Supervisor Remuneration Structure and Distribution” for corporate government the remuneration of directors and supervisors shall demonstrate fully their individual performance and the Company’s long-term performance as well the operating risks.
(3) The Company plans to distribute the employee bonus all by cash and there is no problem in calculating the share number.
(4) If there isn’t any difference between the actual distribution endorsed by the shareholder meeting 2013 and that approved by the board, it will be adjusted as the employee bonus and remuneration of directors and shareholders in 2013.
3. Distribution of employee bonus drafted and approved by the board (1) The distribution of employee dividend, stock dividend and remuneration of directors and supervisors in
cash have been approved by the Board of Directors on March 25, 2013, but hasn’t been approved by the shareholders meeting in 2013 yet. According to this year's resolution, the employee bonus (by cash) which was approved by the 2nd 3rd time Board of Directors on March 25, 2013 is 4 million NT dollars and the remuneration of directors and supervisors is 2.1 million NT dollars. There is no difference between above amount and the estimates.
(2) Number of shares proposed for distribution to employees as share dividends and its percentage of additional capital from profit. Number of shares for distribution to employees as share dividends is 0, the amount of additional capital from profit is 0; the percentage of additional capital from profit distributed to employees as share dividends is 0%.
(3) The profit per share is NTD 0.5 after the Company distributes the employee bonus and remuneration directors and supervisors, listed as the current year’s expenditure.
4. The difference between actual and estimated distribution of employee bonus and remuneration of directors and supervisors in the previous year
Item Actual distribution
Estimated distribution
Difference Remarks
Remuneration of directors and supervisors (NTD) 2,100,000 2,100,000 - -employee bonus in cash (NTD) 8,000,000 8,000,000 - -employee stock bonus - - - -Number of shares - - - -Amount 10,100,000 10,100,000 - -
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Surplus per share after the distribution of employee bonus and remuneration of directors and supervisors
1.08 1.08 - -
(9) The Company’s buyback of its own shares
Buyback of its Own Shares April 30, 2013
Buyback terms(Note) First (term)
Aim Maintain the Company’s credit
and shareholder benefits
Period 17th Nov. 2008 to 25th Dec. 2008
Price range NTD 11~NTD21.5
Types and quantity 1,400,000 common shares
Amount NTD 17,764,886
Deregistered and transferred shares 1,400,000 shares
Accumulated shares of the company 0 shares
Percent of accumulated shares of the
company in total issues shares (%) 0%
2. Corporate Bond Issuance: None
3. Preferred Stock Issuance: None
4. Issues of Overseas Depository Receipts: None
5. Exercise of Employee Stock Options: None
6. Mergers and Acquisitions Involving Other Financial Institutions: None
7. Financing Plans and Implementation: The Company has no uncompleted issuance or the issuance for which no planned effects are demonstrated in recent three years.
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Ⅴ. Operations I. Business Contents (I) Business Scope 1. Main Business Contents:
(1) Electronic parts and components manufacturing industry (2) Surface treatment industry (3) Die manufacturing industry (4) Mechanical equipment manufacturing industry (5) Manufacturing output industry (6) Aluminum and copper product manufacturing industry (7) Steel wire and steel cable manufacturing industry (8) Other mechanical manufacturing industries (9) Other optics and precision instrument manufacturing industries (10) Other motor and electronic and mechanical equipment manufacturing industries (connectors and
assemblies, optical fiber connector bushings, sleeves, bushing tail beds and assemblies, and irregularly shaped materials for high-precision lead frames).
(11) Electronic material wholesale industry (12) Electronic material retail industry (13) Machine wholesale industry (14) Other wholesale industries (copper raw materials and copper waste junks) (15) Other retail industries (copper raw materials and copper waste junks) (16) International trade industry (17) Besides licensed businesses, the Company shall operate businesses that are not prohibited or restricted by
laws and decrees. 2. Business Proportion The business proportions of main products of the Company in 2012 are as follows:
Product Item Proportion Terminal 83.53% Others 16.47% Total 100.00%
3. Current Commodity (Service) of the Company Product Main Applications Terminal They are widely applied to electronic communication,
electrical appliance plugs, vehicle wheel industry, etc. Others Raw materials, Ferrule (Note), sleeves and dies
Note: Main parts of optical fiber connectors are mainly applied to such industries as information, video and telecommunication.
4. New Commodities (Services) to be developed (1) Continuous development of automatic manufacturing process GB, SAA and Argentina plug products
and expanding to UL, T-Mark plug products. (2) Development of various lead frames (3) Development of new products of various terminals (4) Peripheral equipment such as terminal crimping machines --- automatic stripping twister and European
frame automatic stripping riveting machines (5) Development of low-cost GB, UL single plug plate.
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(II) Market and Production Status
1. Current Situation and Development of the Industry
The company specializes in production and sales of terminals, terminal peripherals and new products related to extensive development of technologies. It is the only domestic manufacturer with the outstanding processing and manufacturing capability of irregularly shaped materials, which infuses a competitive edge to the Company. Therefore, the Company duly proceeds to development and production of key parts and assemblies such as lead frames. The development trend of products is described as follows:
(1) Terminals
Terminals are metal fittings for connection of both electrical consumption sides and have a wide application range. Any electrical appliances, product wirings, or telecommunication transmission wirings of electronic and information products need use terminals. The product application range covers various industries such as information, motors, automobiles, power connectors, communication, buildings, machinery, instruments and lightings. Therefore, terminals are divided into the following categories according to applied industries: A. terminals of electrical appliance plug type; B. terminals of electronic communication type; C. terminals of vehicle wheels. Currently, the Company mainly manufactures terminals of electrical appliance plug type that are supplemented by terminals of electrical communication and vehicle wheel types. Terminals of electrical appliance plug type are mainly AC power supply plug and socket terminals for various electrical appliances supplied to every country in the world, such as computers and household appliances. Terminals of electronic communication type are mainly applied to various electronic communication products such as telephone communication terminals and connecting terminals. Terminals of vehicle wheel type are mainly DC power supply connecting terminals supplied to every country in the world, such as automobile connectors, medical instrument terminals and lighting and instrument terminals. Currently, companies with terminals as a main operation item show a bipolarized trend in size, that is, strong companies are always strong. There are very few listed companies that include Hu Lane Associate Inc., K.S. Terminals Inc. and Mustang Industrial Corp.
In Year 2012, resulting from debt crisis and Sovereign downgrade in US, the slowdown of the economic growth in China and the debt crisis in Eurozone, the global economy turns pessimistic and slow down the worldwide consumer electronic market. The development of connector industry is highly sensitive to market price. Competitors had adopt cutting price strategy in the market, in addition, the frequency and rate of raw material price volatility also increased to a large degree than past years which made procurement cost management difficult. Meanwhile, because of the effect of Mainland China raised its basic wage the labor cost increase and accordingly and causes unit costs to rise dramatically. Consequently, in 2012 fiscal year, consolidated margin decreased in comparison with that of 2011. Due to the fluctuation of raw material price is significant; how to manage procurement cost emerges as the main cause of profit generation. Even GME Group’s consolidated revenue increases slightly in year 2011, however, the profit declines significantly owing to the soaring cost. Therefore, in the era when the speed of economy changes is getting faster, only being able to master the movements of brass price, manage the cost and inventory and apply flexible marketing strategies can create competitive advantage in the market.
As the result, the company that is able to control inventory level of the terminal products efficiently, to reduce production cost swiftly and to expand market share effectively will be the winner.
(2) Optical Communication Products
The “Digital Convergence Development Project” in Taiwan, it is targeted to reach 80% of households to access 100Mbps of cable broadband network, 6 million subscribers of optical fiber and 50% of digital cable TV users. In addition, it planned to achieve 40% of internet service providers to use domestic (Passive Optical Network) PON equipments in 2015. Consequently, optical communication products will be booming in upcoming years.
In Taiwan, the production value in optical communication industry was NTD 23.92 billion dollars in year 2011, representing 10% of worldwide market share. It is expected that the industry will be growing at CAGR of 10% from year 2010 to 2014, given that optical communication components stand for the highest ratio (70% of production value in Taiwan), optical communication equipments stand for the second of 22%, and even the lowest one of optical fiber and optical cable still stand for 9%. Obviously, optical communication components (including active and passive components) are the key in optical communication industry in Taiwan.
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Under USA “National Broadband Project”, it is planned to provide 100 million subscribers with broadband access of 50Mbps or above by year 2015. As of the UK “White Paper on Digital England”, it is targeted to offer 90% of households and business subscribers with next generation high speed broadband network by year 2017. For Japan’s “The Shining Road”, it is targeted to reach 100% subscribers with broadband access of 100Mbps or above by year 2015. According to China “Opinions Regarding Promoting Optical Fiber Broadband Network Construction”, it hopes that optical fiber broadband will exceed 80 million users in year 2011, the broadband access of 8Mbps or above for city users, and the increase of 50 million broadband subscribers with 3 years, or year 2014.
In recent years, supported by continuous promotion of broadband infrastructure, subscribers’ demand of bandwidth and the construction of the network infrastructure the fixed-line broadband subscribers in China grows more than 20% every year since 2007. By the end of 2010, the subscribers in China amounted to 126 million and accounts for 24% globally. DSL is the most popular broadband access technique in China because of its relatively mature technical development, competitive price and easy to install. By the year 2010, xDSL subscribers have amounted to more than 100 million which are 79% of total fix-lined broadband users. ADSL and ADSL2+ are major technologies of xDSL and followed by FTTx which accounts for 15%. The least share goes to cable. China now is the biggest single market for broadband subscription and also the biggest single market for xDSL shipment destination. As the 12th 5-year plan has been rolled out and signaling the construction of broadband infrastructure as the national major task of IT industry in China, telecommunication companies kick off their broadband strategies one after the other and stepping toward replacing copper with fiber. Take China Telecom for example, the company project the “Broadband China, Fiber City” project in February, 2011 with an aim to achieve 100 million subscribers by 2015. In addition, the Ministry of Industry and Information Technology and The State Administration of Radio Film and Television both project their goals of fiber construction respectively. At the pace of current planning of public and private broadband service providers, in terms of number of subscribers, China is likely to be listed among developed countries by 2012. In 2010, there are about 180 million broadband subscribers in China. The CAGR from 2010 to 2016 is 33%. It is expected that the current player will be benefited from China’s continuous growth.
According to “China Broadband Tactics Year 2012”, announced by Ministry of Industry and Information Technology, the use of broadband will be growing by doubles in cities, countries and the East areas. In China, the largest top three telecommunication companies start to have open bids for broadband aggressively; FTTB is getting popular in every city; optical fiber manufacturers indicate market demand is much higher than supply; all in all, China optical communication industry is entering into booming status.
Worldwide telecommunication vendors are devoting themselves to high speed network infrastructure construction and enhance investments on optical fiber network implementation. Through China’s “Twelve Five Project” promotion, most likely, China will become the leader in global optical fiber industry. According to the statistics from China’s Ministry of Industry and Information Technology, optical fiber internet equipments market size will exceed RMB 11 billion dollars in year 2011 with annual growth rate of 51.1%, and will reach RMB 26 billion dollars in year 2016 with CAGR of 17.2%. Meanwhile, the Ministry also points out Taiwan’s optical communication production value stands for 11% of global market share and will reach 22% in the future. If both China and Taiwan firms can cooperate with each others, they can not only meet China’s market demand, but also for worldwide market development as well.
(3) Leader Frame
Over the last fifty years, the development of transistors has been mainly used to replace the application areas of vacuum tubes such as rectification and power amplification. Many small-signal discrete devices have started to be developed and used from the transistor development to integrated circuit development over the last ten years.
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The main application of power semiconductor devices is to turn off the power, Motor driver and adjust-speed UPS, etc. Because these equipments are required to input certain power to electrical devices, therefore, power semiconductor is essential to the circuit. The other important application of power semiconductor is to generate, alternate and transport electricity, academically speaking, the Power Electronics. Ranging from small devices like electrical fan and home appliances to large equipments like heavy machinery, motor vehicles and rolling mill, all electrical equipments requires power. And all electrical devices or equipments needs motor driver, despite some of the power source are embedded within the cover.
Power semiconductor is the fundamental product of 4C products including information technology, computers, consumer electronics and automotive products. This is another force to drive the rapid growth of power semiconductor industry. For examples, For example, the power of CPU of computer and network memory is consist of power semiconductor that is ranging from tens of amps to even tens of thousands of amps. Improvement of power semiconductors (such as increasing the frequency) can reduce the power consumption and reduce the size of the equipment significantly. Every car is equipped with a dozen or even dozens of motors controlled by power semiconductor, even the electronic ignition is powered by powered semiconductor. Moreover, home appliances including refrigerator, air-conditioner, washing machine are all rely on the frequency control of power semiconductor to make energy-saving possible and at the same time more comfortable to use. Power semiconductor is applied to power management of mobile phones and used to improve traditional industry by leveraging information technology. The instruction issued by information circuit must be transferred into power signal in power semiconductor to empower the motor. Currently, power semiconductors used in 4C industry accounts for more than 70% of the total power semiconductor.
The market research institute IMS RESEARCH analyzed that the global power semiconductor industry grew 3.7% in year 2011, and to 5.0% in year 2012, reached the scale of USD32 billion. IMS stated the economic uncertainty would be lasting to year 2012 and led H1/2012 market performance to be similar to that of H1/2011. Although the overall power semiconductor market performance may not be so good, some of its application market remains outstanding, such as the demand from smart phone keeps on growing. This explains why lots of power semiconductor manufacturers focus on market segmentation. In fact, market demands for thin & light size, lower power consumption for longer battery usage are increasing, because of multi-function smart phones are getting popular and consumer are expecting on handheld seamless experiences. To meet the above demands, power semiconductor manufacturers are aggressively developing power MOSFET with lower "on resistance" rating, for large current charge/discharge control, RF power amplifier on/off control and over current relay switch.
Metal-Oxide -Semiconductor Field Effect Transistors (MOSFETs) and Insulated Gate Bipolar Translators (IGBTs) dominate China’s discrete power semiconductors of which the market is mainly cell phones, computers, displays and games. Dominant manufacturers are European, American, Japanese and Taiwanese companies.
Under China’s “the 12th five-year plan"”, infrastructure investments will be huge. As the result, Power Electronics will be highly promoted through the development of power, railroad, subway and traffic fundamental constructions. As mobile industry encourages conserving energy and reducing CO2 emissions and the revision on fuel use tax will push local car manufacturers to research and develop the production of lower emission or hybrid vehicles. These positive factors will offset some unfavorable impacts resulting from poor economy, and stimulate the demand on MOSFET related power components. New governmental compensation programs for consumer electronic products will increase the sales of related appliances, and increase the demand of MOSFET related power components accordingly. There are more than 300 companies in the fields of power semiconductor (including Wafer Fabrication, Packaging and Wafer Probe) in China with more than 100,000 employee number. China power semiconductor industry already accounts for more than 50% of global market share.
Along with the rapid economic development of China as well as international IT manufacturers are moving into China, the domestic electronic information manufacturing is also thriving in China. Accordingly, power semiconductor industry has been achieving a substantial growth these recent years. At present, China has became the biggest power semiconductor market in the world with the market size of RMB106.79 billion in 2011, which is increased by 5.2% compared to 2010. During 2006-2010, the compounded growth rate of China is 10.80% which is apparently high than global compounded growth rate at 2.36%. It is anticipated that China's economy will continue to maintain the momentum to rapid growth and allow emerging industries such as Internet, new energies, energy saving and environmental protection, smart grid and high-speed rail to grow substantially. As the foundation for modern industrial development, power semiconductor devices will be more widely applied in various fields. It is expected that power semiconductor will continue to grow and the market size will expand further in China. According to the research report of CCID, the revenue of power semiconductor is expected to reach RMB130 billion in 2013, with the compound annual growth rate of 8.6%.
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2. Relevance between the Upper, Middle and Lower Streams of the Industry
Upper stream (raw materials) 1. Copper 2. Raw Plastic 3. Steels
Middle stream (design, processing and manufacturing)
1. Terminals 2. Lead frames
Lower stream (wiring processing and manufacturing and IC encapsulation)
1. Electrical appliance plugs 2. Various connectors 3. Power transistors and rectifying diodes
Terminal application industry (application market)
1. Consumptive household appliances 2. Communication and information products 3. Automobile and locomotive related products 4. Other electronic related products
3. Product Development Trend
(1) Terminal products: (1.1) The market for terminals of electrical appliance type has embraced a great demand and grows
steadily in recent years. Therefore, the Company enters this market and makes every effort to develop this type of terminals as a priority. Countries using terminals of electrical appliance are divided into four categories, i.e. the American, Japanese and Canadian system, the EC system, the British Commonwealth system and the Chinese Great Wall standard system. Terminals of the American, Japanese and Canadian system are mainly applied in US, Japan, Canada, Taiwan, and the Philippines etc. Terminals of the EC system are mainly applied in Germany, France and other countries in the Western and Northern Europe as well as Turkey, Korea etc. Terminals of the British Commonwealth system are mainly applied in UK, India, Hong Kong, Singapore, Indonesia etc. Terminal of the Chinese Great Wall standard system are mainly applied in the mainland China. As many types of terminals as there are, they cannot be comprehensively developed. To earn a position in the international terminal industry and coordinate with the integral development of the domestic industry, the Company focuses on the development of AC power supply plug terminals and European plug terminals according to the needs of the domestic power supply and wire factories. Based on many years of research and development, the Company is the largest manufacturer for terminals of electrical appliance plug type in Asia. The product quality matches that of the same internal industry. For capacity, the Company is able to fully compete with American HEYCO and ETCO, Japanese YUKO and KITANI, and German TALLER in the Japanese, American and European electrical appliance plug terminal markets. Since Suzhou Gem Opto-Electronics Terminal Co., Ltd started its operation in 2005, the Company has made a formal and comprehensive layout in the mainland China, the world’s biggest single market. Moreover, Dongguan GEM Electric & Metal Co., Ltd has conducted a series of transitions since year 2012 by switching raw material procurement from local vendors and fully developing China domestic market.
(1.2) For terminals of electronic communication and vehicle wheel types, the car electronics industry
is regarded as the fourth C (Car Electronics) that emerges after 3C industries, which indicates that the car industry advances from mechanical engineering development to electronic system integration. Meanwhile, with the customers’ increasing demand for vehicle safety, comfort, environmental protection and energy saving, the extensive market demand provides business opportunities for the auto parts and vehicle electronic industries. It is estimated that the output value of the global Telematics industry will reach USD 197.453 billion and USD 238.738 billion in year 2013 and 2015 respectively (mainly in Automotive Telematics Device, Automotive Audio/Video Entertainment Device, Energy Conserving, Automotive Safety, Semiconductor and LED). The great business opportunity attracts many companies to successively launch a new wave of investment upsurge. With the development of the intelligent transportation system, car electronics will be one of main profitable industries. Telemastics involves system products that integrate various technologies such as auto manufacturing, electronics, photoelectric technology, communication etc. Its application fields cover the engine/transmission system, suspension/chassis system, safety system, body electronic system, drive information system and security system. The continuous growth of the traditional electronics and communication industries as well as the great business opportunity of Telematics will boom the industry of terminals of the electronic communication and vehicle wheel
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types.
(2) Optical Communication Products As of cloud computing architecture environment is getting mature, various network platform, on-line application service, handheld mobile device and data center, all these products stimulate enterprises and consumers for the need of internet broadband, which leads optical communication related equipments, products and technology development attract more attention. According to PIDA December/2011 announcement, the worldwide market production value of optical communication reached USD 27.171 billion, higher than that of 2010 by 8%. And it is anticipated that the CAGR will reach 9% from year 2010 to 2014.
At the time that all countries are developing high speed broadband network construction, Taiwan is aggressively devoting for the implementation of optical fiber network and digital convergence services. According to FTTH Council 2012 statistics, Taiwan FTTx penetration ratio was ranked No.5 in the world. As of the investigation from ITIS, Taiwan household internet coverage has reached 83.2% and broadband subscription ratio has reached 80% in H1/2012. Meanwhile, the number of optical fiber users reached 2650 thousand households, representing 49.7% of cable broadband subscribers, or 3% of increase from 2011 year end, and exceeded xDSL users by significant numbers. Optical broadband fundamental network is stepping toward steady growth through industrial promotion efforts.
(3) Lead frame products The Company’s lead frame products have successively been licensed by numerous clients and phased
into mass production and delivery. Not only does development of these products represent technical derivation of Gem Terminal from terminal profiles and profile surface treating, but the self-developed equipment enables the profile processing to achieve a uniform thinness as fine as 0.08 mm. Its overall quality rivals the world class. In order to tackle the China market, the subsidiary, Suzhou Gem Opto-Electronics Terminal Co., Ltd, have been completed the second and third phase of plant expansion. The production has been kicked off in Q3, 2010 for mass production. With such overwhelming advantage, Gem Terminal will clearly outshine its rivals in lead frame and grasp a significant market share so as to create a considerable market niche in coming years.
4. Competition
Terminals There are a variety of terminals. After flagship product items of each manufacturer are compared, main competitors of various products of the Company are listed in the following table:
Terminal Type US Japanese Korea Europe Taiwan China Terminals of
electronic communication
type
AMP (TYCO),
Molex
JST Japanese Compression
Terminal Electrical Appliance Factory
KET Xinsheng,JWT, JMT,
Weilisheng
Terminals of electrical
appliance plug type
HEYCO, ETCO
YUCO, KITANI TALLER (Germany) Kuochie THB, Yuelong, CHANGDECHENG
Terminals of vehicle wheel
type
AMP (TYCO),
ETCO
OPT, JAM KET FCI (France) Xinsheng, Hu Lane,
Weilisheng, Xinsheng, KS
Terminals
Zhucheng, Red Star
Lead frames AVGEDECOUPAGE (France)
Shunde, Jielong,Fico
Kangqiang, Hualong
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(III) Overview of Technology and Research and Development 1. Research and Development Expenses in the Recent Years and till the Publishing Date of the Annual Report Unit: NTD 1,000
Item Year 2012 The First Quarter of 2013 Research and development expenses 42,935 11,696
2. Technologies or Products Successively Developed in the Recent Years and as of the date annual report
published (1) Completed the development of automatic GB, SAA and UL integrated internal frame. (2) Completed the development of low cost GB single plug plate. (3) Actively conducted the terminal and Housing development in the categories of electronic communication
and Telematics industry. (4) Completed the development of VDE riveting machine. (5) Completed the development of Euro-frame robot arm for injection molding. (6) Completed the development of GB integrated three-plug for injection molding.
(IV) Long-term and Short-term Business Development Plans 1. Short-term Plan (1) Marketing Strategy
A. Conducts business performance evaluation system, continues to develop new customers for customer diversification and lower customer credit risk.
B. Enhances sales staff professional training for upgrading their expertise and skill. C. Actively develops China’s domestic markets and increases the market share. D. Steps up promotion of plugs and to increase the market share in UK. E. Steps up promotion of CNS insulation plugs and GB anti-leak AC insulation plugs, and increases the
market share of insulation plugs in Asia. F. Continue to develop single plug plate products and enlarges GB products’ market share. G. Enhances cooperation relationship with customers, such as help customers to pass through safety
standards, to meet customer demand for designing and developing related products, come up with win-win status.
H. Actively expands oversea market, enhances the brand name of GEM market share and sells high quality products in the world.
I. Continues developing Dongguan GEM China domestic sales, sets up channel by GEM brand name for reducing procurement costs and for enlarging market share.
(2) Manufacturing Policy
A. Introduces continuously for automation equipments and develops high-quality material welding machines, and cooperates with on-line inspection system for product quality stability.
B. Continues developing Lie, Stand injector automation robot arm. C. Continues developing various automatic assembly machines. D. Develops lead frame continuous production procedures to reduce labor demand and to increase
productivity. E. Introduces soft tube automatic molding machine and automatic cutting machine to increase
productivity and to reduce labor demand. F. Controls inventory, prevents form idle materials and reduces procurement other production costs to
increase products’ competitiveness. G. Enhances the management and maintenance for machinery equipment and upgrades its efficiency. H. Upgrades material processing abilities for mold and spare parts to increase machinery equipment
efficiency. I. Acquires Taiwan, China and HK ISO14001 and QC080000 certificates. J. Strengthens training for new and existed employees to enhance productivity.
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(3) Research and Development and Product Development Strategy A. Strengthens recruitment and training of high-quality talents, and establishes the independent
development capability of precision dies. B. Continues to increase 3D computer design software to upgrade design quality of mold and to shorten
development timing, in favor of market promotion and competitiveness. C. Enlarges R&D team for better product development. D. Actively develops and produces high value-added products, such as different lead frames, electrical
engineer terminals, photovoltaic terminals and ceramic bearing ring, sleeve pipe, tailstock and isolation plug for optical fiber connectors, for better profitability.
E. Actively develops or modifies automatic plugs and terminal crimping machine to reduce labor demand. F. Continues applying for safety certificate and patents worldwide to facilitate sales and marketing. G. Continues developing big current terminal products for sound AC product types. H. Introduces hollow bar brass technology.
(4) Operation and Financial Strategy
A. Enhances business management; increases account receivable turnover and reduces the possibility of bad debt.
B. Strengthens to manage the risk of inventory loss for market price decline, obsolete and slow-moving inventories loss; increases inventory turnover; prepares reserved capital for favorable procurement timing for GEM group operation.
C. Strengthen the financial management function of the company, increases working capital, reduces cost of capital and improves the abilities of foreign exchange rate and interest rate risk management.
D. Continues to evaluate China investment and Vietnam expansion; conducts aggressive and stable investment strategy for globalization; pursues growth under stability.
E. Continuously promotes corporate governance in accordance with government policy. F. Cooperates with accountant and integrates with all subsidiaries, to complete IFRS transformation.
2. Long-term Plan (1) Marketing Strategy
A. Integrates correlated terminal products or industries vertically or horizontally and establishes a sound marketing network. Obtains key technologies and grasps market information by utilizing strategic alliance and cooperation.
B. The Rui-Zhan Vietnam plant is expected to be done by Q3 2014 and to start running business in Q4 2014. It is expected that the new marketing model of exporting ASEAN 10+1 focus, along with China domestic sales.
(2) Manufacturing Policy
A. Continuously cooperates with academic units and large overseas technical manufacturers. Actively imports new technologies and concepts for improvement of manufacturing process to seek increasing perfection and achieve stability and enhancement of production quality.
B. Adopts the international labor division strategy to move technically mature, labor-intensive products to overseas developing countries to achieve cost competition advantages and enhance competitiveness.
(3) Research and Development and Product Development Direction
A. Continues to conduct research and development for new products and expands product lines to meet customers’ various needs.
B. In respond to the development of communications, optical electricity and automotive industries, strengthens cooperates with European and American advanced companies to develop related products, such as lead frames, vehicle wheel terminals, electrical engineer terminals, photovoltaic terminals and ceramic bearing ring, sleeve pipe, tailstock, etc.
C. Implements the development and management flow of the TS16949 quality system, along with collaboration design, concurrent engineering, FMEA and caucus functions to eliminate waiting, reduce failure and shorten the design and development procedures.
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(4) Operation and Financial Strategy A. Strengthens control and planning on international funds, and establishes the capability of overseas
subsidiaries raising funds by themselves. B. Expands the operation scale by means of new product development, machinery update and automation
and manufacturing technology upgrading so as to increase the market share and become a world-class leading manufacturer.
II. Overview of Market and Sales (I) Market Analysis 1. Main Commodity (Service) Selling (Provision) Regions
Unit: NTD 1,000 Year 2011 Year 2012 Year
Region Amount % Amount % Domestic sales 292,325 16.35 233,056 23.89
Asia 1,468,769 82.16 715,173 73.31Others 26,600 1.49 27,367 2.80
Export sales
Subtotal 1,495,369 83.65 742,540 76.11Total 1,787,694 100.00 975,596 100.00
Note: Others include Europe, Australia etc.
2. Market Share The Company possesses the process capability of one-stop operation and supplies a variety of quality products certified and patented by many countries. It provides effective and satisfactory services to customers. The operation scale, machines and equipment, research and development capability and product precision of the company are outstanding in the industry. In November 2011, GEM started to integrate manufacturing plant in Taiwan and China factories. In Taiwan, GEM adjusted manufacturing labor structure, increased R&D staff and transferred 85% of production capacity to Dongguan GEM Electronic & Metal Co., Ltd. GEM also altered operation model from that raw materials and semi-finished products were supplied by GEM to China local procurement.
(1) In Year 2012, if the market share in the total domestic and export sales of domestic household plug products is calculated only based on the net operating amount of finished and semi-finished products of terminals of electrical appliance plug type sold in Taiwan (that accounts for only 73.35% of this company’s operating revenue), it is estimated in the following table:
Unit: NTD 1,000,000
GEM Terminals of Electrical Appliance
Plug Type
Taiwan Household Plug
Products
Approximate Market
Year
Net Sales(A) Total Domestic and
Export Sales (B) Market Share
(A)/(B) 2012 716 3,032 23.61% Data sources: 1. GEM 2. ITIS
(2) If the operating revenue of the domestic and export sales of terminals of electrical appliance plug type is calculated according to the original order receiving mode of entrusting Dongguan GEM Electronic & Metal Co., Ltd. to process into finished products for selling to customers, the market share in the total domestic and export sales of domestic household plug products is estimated in the following table:
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Unit: NTD 1,000,000
GEM Terminals of Electrical Appliance Plug Type (According to the original order receiving mode of entrusting Dongguan GEM Electronic & Metal Co.,
Ltd. Household Plug Products to process into finished products for selling to customers)
Taiwan Household Plug
Products
Approximate Market
Year
Net Operating Amount (A)
Total Amount of Domestic and Export Sales (B)
Occupying Rate (A)/(B)
2012 1,697 3,032 55.97% Data sources: 1. GEM 2. ITIS The above-mentioned (1) and (2) sales statistics of GEM terminals of electrical appliance plug type do not include sales of the Suzhou GEM Opto-electrical Terminal Co., LTD. in the Chinese domestic and export markets .
3. Future Market Supply and Demand and Growth Terminals are various in kind and have a wide application range. They are mainly applied to such fields as household appliances, information, electronics, automobiles, consumptive electronic products. Products of the Company are mainly applied to household appliances, consumptive electronic and electrical products, and information and communication products. Therefore, the supply and demand of these types of products will directly affect the supply of upper stream terminals.
(1) Terminals of Electrical Appliance Plug Type
Terminals of electrical appliance plug type are mainly AC power supply plug and socket terminals of various household appliances, information products and consumptive electronic products supplied to every country in the world. Therefore, the following sections analyze the future performance of terminals of electrical appliance plug type according to cell phones, notebook PCs (NBs), large TFT LCD panels and LCD TV panels.
A. Cell Phones For year 2012 global mobile phone shipment performance, from worldwide economy status, due to the adverse impact from Euro Debt crisis, most of European countries are still facing economic downturn; the prospect of employment environment became pessimistic; as the result, mobile phone sales were becoming soft in Europe, influencing worldwide mobile phone sales accordingly. In term of mobile phone sales categories, due to smart phone selling prices are declining, the sales volumes on smart phone are increasing. However, functional phone sales were influenced by the above trend and dropped significantly. From the overall viewpoint, although big mobile phone manufacturers have introduced lots of new models, consumers did not purchase new ones and extended their existed ones instead because of poor worldwide economy. The global mobile phone sales volumes were 1.746 billion sets, lowered than that of 2011 by 1.66%.
Source from: Gartner (2013. 02)
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After Q1/2013, due to global economy is turning better, it is anticipated that consumers are likely to purchase new mobile phones as economy recovery. Moreover, in February 2013 Spain Mobile World Congress (Spain MWC) big mobile phone manufacturers have introduced new models, along with price competition, it is foreseeable that Q1/2012 worldwide mobile phone sales will be growing.
B. Notebooks
It is forecasted that NB shipment will be 46.672 million sets in Q1/2013, lowered than that of Q1/2012 by 8.90% due to tablet PC low price competition, touch panel NB price too high to attract consumers’ interests and netbook market scale shrinking.
In developed countries, Cyprus was trying to acquire €10 billion fund so imposed so called “Stabilizing Finance Tax” to banking deposit accounts and caused banking deposit to run, and most of European countries are facing fiscal restraint, which led Q1/2013 Eurozone economy in deep regression. In the USA, to past the sequester would be effective from March, 2013 causing economy growth to slow down. According to Global Insight forecasts, US economy growth rate will be decreased from 1.8% in Q4/2012 to 1.6% in Q1/2013. Under the soft economic performances in developed countries, customer real purchasing power is declining, even the new Window 8 introduction and brings various transformation, touch panel related models, which still cannot stimulate consumers’ willing to buy.
In emerging countries, despite of China manufacturing expansion and economic growth, Global Insight still forecasts that China’s economy growth rate will be increased slightly from 7.9% in Q4/2012 to 8.2% in Q1/2013. But others will not be so lucky, such as Brazil economy is still weak. Because consumers in emerging countries are very price sensitive, high price touch panel NB (USD 499 up due to low yield rate of touch panel and caused supply shortage) can not cause consumers to be attracted. Also, low price competitions came from tablet PC such as Acer 7” Iconia B1 and Asus 7” MeMO Pad of USD 149 dollars, both have negative impact on NB sales.
In addition, Acer has announced to cease netbook production from January, 2013, which resulted in the netbook market to shrink. Consequently, it is forecasted that worldwide NB shipment will be 46.672 million sets with annual growth rate of -8.90%; NB industry outlook will remain poor.
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Global Notebook Shipment Volume
51,737
46,672
49,299
51,231 51,942
-6.60%-6.36%
-0.14%
3.86%
-8.90%
44,000
45,000
46,000
47,000
48,000
49,000
50,000
51,000
52,000
53,000
Q1/ 2012 Q2/2012 Q3/ 2012 Q4/ 2012 Q1/ 2013 (e)
-10.00%
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
Shipment (in thousand sets) Annual increase rate
1. The above source includes netbook. 2. Source from: Gartner, arranged by Taiwan Institute of Economy Research.
C. Large size TFT LCD Panels
Large size TFT LCD means TFT-LCD panel with 10” or above in size, and its major application is for TFT-LCD TV, monitor and Notebook. Due to the penetration ratios are very high for the above mentioned applications, the demand of large size TFT-LCD comes from replacement. In 2012, under global economy was full of uncertainty, consumers were quiet conservative for consumption. Some emerging countries, such as China and Brazil, even maintained stable economy growth and favorable income, their people were not willing to spend money in consideration of economy growth is becoming slow, inflation pressure is increasing and economy is full of uncertainty. Therefore, large size TFT-LCD sales in the first three quarters in year 2012 were bad and declined.
However, worldwide economy was getting better in Q4/2012, along with OMT introduction, PIIGS in
Euro debt paying peak was gone, resulted in optimistic atmosphere is arriving. The low possibility of Euro Debt, American government announced that the new QE3 introduced on September 13, 2012 and potential QE4 in year 2013, the US fiscal cliff would be settled down after fiscal budget agreement had been done in January 2013, and China new leader succession was smoothly and China domestic industry structure have transformed to domestic oriented after two years’ efforts, which let China all economic indexes becoming positive in Q4/2012. Therefore, it is forecasted that global economy will become better in Q1/2013.
Due to the rapid popularity of internet communications, consumers can easily access internet services
through smart phones or tablet PCs, causing tablet PCs and other portable consuming devices take the replace of NB and PC, or delay the timing for replacement. Thus, it is forecasted that worldwide monitor and NB sales will remain poor in Q1/2013. On the other hand, TFT-LCD TV will become popular due to high-end or large-size TV introduction, such as 60” TFT-LCD TV, or HDTV and 3D TV. In comparison with the low Q1/2012 basis, LCD TV shipment will be more favorable than other products. As of DisplaySearch forecast, LCD TV sales will reach 51.82 million sets with annual growth rate jumping from -17.0% in Q4/2012 to 20.2% in Q1/2013.
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Changes and Forecasts of Global Large Size TFT Penal Productivity Ratio 2008 -2013
2009~2013 Global (the 7 Generation or above) Large Size LCD Capacity
93,714
118,073109,398
52,362
74,204
7.9%
44.8%
41.7%
26.3%
16.7%
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
2009 2010 2011 2012 2013 (f)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
7.9%16.7%26.3%41.7%44.8%YoY
118,073109,39893,71474,20452,362Capacity
Unit: thousand square meters
2009~2010 annual growth rates were more than 40%; 2013 growth rate becomes lower
than 10% for the first time.
D. LCD TV Panels
According to NPD DisplaySearch latest “Quarterly LCD TV Value Chain Report” statement, global LCD TV sales were approximately 204.5 million sets in year 2012, slightly reduced from that of 2011, which mainly arose from different viewpoints of supply and demand. It is forecasted that LCD TV sales will reach 216 million sets, with annual growth rate of 6%. Among LCD TV manufacturers, the top fifteen ones sales will be able to reach 200 million sets with annual growth rate of 11%. And global LCD TV panel sales volume is estimated to be 240 million pieces with annual growth rate of 4%.
(2) Terminals of Vehicle Wheel Type
The car parts and assemblies market includes parts and assemblies related to car electronics and traditional vehicles. The car electronics market sees the fastest growth while other parts and assemblies markets grow steadily. In the aspect of development of car electronics market, the total output value of Taiwan’s car electronic industry rose to NTD 100 billion in 2010 from NTD 56 billion in 2006 and will grow 300% to NTD 300 billion in 2015 according to the statistics of the Ministry of Economic Affairs. The reasons Telematics can grow rapidly in the next 5 years is partly because of the global demand that is derived from the e-Car concept, on the other hand, Taiwan has been renowned for its most comprehensive supply chain of car parts, car electronics industry in Asia which is ranging from mechanical, molding, sheet metal, tire, lighting, and car media, car IC, car PC and tire pressure monitoring etc.,.
Car electronics is the forth C (car) industry with best expected growth after the computer, communication and consumptive electronics (3C) industries. Currently, growth of global car electronics, rise of China’s car market demand, and change of domain of North America's car industry provide optimum business opportunities for development of Taiwan's car electronics manufacturers. In the future, the global car electronics industry will still continue to grow moderately. Therefore, based on rise of China’s car market demand, continuous growth of the traditional electronic communication industry and great business opportunities of car electronics, the demand for terminals of vehicle wheel and electronic communication types will rise by a big margin.
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(3) Optical Communication Products
The last mile of optical fiber, from an apparatus room to users’, it’s an intangible channel with powerful strategic advantage and has been occupied by wealthy and large telecommunication companies, such as Chunghwa Telecom, AT&T in US, Verizon and China Mobile in China. The one who owns the last mile can not only charge network connecting fees, but also cooperate with content providers to offer “Smart Home Information Entertainment Center” such as Chunghwa Telecom MOD, Verizon IPTV, and so on. Honhai 60” TV “Big Eye Ball Plan” focuses not only on hardware, but also to work with content providers, the last mile owners, to offer the platform containing software and hardware, for grab the largest profits. The last mile has been occupied by Chung Hwa Telcom (CHT) for a long time, which confined others to get into this business. However, CHT “Light Generation” network construction is not good enough in terms of speed, coverage and stability. Therefore, Taipei City Government is now promoting, through TAIFO, the Taipei optical fiber network construction, which hopefully will enable the one million subscribers in Taipei to reach 80% of FTTX coverage and will provide the City Government and the citizens with high quality/ low price services.
Optical construction operation items contain internet telephone, cloud applications, house security, health care, road safety surveillance, etc. and will become the pattern of Taipei, given that other four cities will follow in the future. TAIFO is the one that owns the last mile strategic position and will be prosperous by cooperates with content providers and hardware manufacturers.
According to Broadband Forum statement, the number of worldwide broadband subscribers has broken through 600 million users. It also indicates that new increase of 16 million users in Q1/2012 was the key for this breakthrough. Asia is the largest subscriber of broadband with the users number of 262 million, provided that new increase of 8.6 million users in Q1/2012, or 3.4% of growth rate. China is the largest broadband user with 164 million subscribers, and its subscriber number increased rate was 4.4% in Q1/2012. USA is the second largest user in the world with 93 million subscribers, 1.8% of increase in Q1. Following big users are Japan, Germany, France, Russia, UK, South Korea, Brazil and Italy. Among the largest twenty countries, five Asia countries stand for 239 million subscribers, more than 1/3 of global users. In addition, China, India and Brazil broadband subscribers’ annual growth rate reached two digitals. Robin Mersh, CEO of Broadband Forum, stated it took only 18 months for subscribers to increase from 500 million to 600 million, which means the development of broadband is speeding up.
Moreover, Broadband Forum also pointed out that global IPTV users have reached 66 million. In Q1/2013, there are 3.8 million of new users. Asia has exceeded Europe to become the largest IPTV users in the world; China stands for the number one in the world in term of users’ number and growth rate.
So far, DSL is still the most important broadband access technology. Oliver Johnson, top executive officer at Point Topic, mentioned: “DSL is still the most important broadband access technology, despite its market share has dropped by 0.5% in Q1, and it will maintain the leadership for a long time. Speaking of optical fiber, from operators’ viewpoint, it owns higher cost efficiency than that of DSL and its market share is growing as well.”
According to the website information from Ministry of Industry and Information Technology in China, eight departments of the Ministry in the “Opinions Regarding Implementing Broadband in China 2013”announced the subscribers of newly increased fixed broadband will exceed 25 million in year 2013 and newly increased subscribers for 3G reached 100 million. Meanwhile, the subscribers of 4M or above will be higher than 70%. The Opinions firmly indicated 2013 targets, including network coverage ability will be strengthening, new FTTH households will exceed 35 million, new 3G stations will be increased by 180 thousand, and new WLAN access points will be increased by 1.3 million. The scale of favoring people is increasing, such as the subscribers of newly increased fixed broadband will exceed 25 million in year 2013 and newly increased subscribers for 3G reached 100 million, new broadband administration village of 18,000, implementation of broadband access or modification on 5000 poor countries’ elementary schools and junior high schools, and the job of “Broadband Network for Every School”. Also, broadband access standard will be improved efficiently and the users of 4M or above will exceed 70%. The effect for developing broadband cities is significant and hopefully will generate excellent broadband development policy environment, and realizes higher standard of information technology infrastructure and broadband applications. The Opinions also pointed out the targets of speeding up optical fiber network development in cities, cultivating wireless broadband coverage, improving old sections in big cities optical fiber networking, further upgrading city broadband access ability and the transmission and exchange ability among cities, further enhancing 3G and WLAN coverage in cities, actively developing TD-LTE scale testing and promoting IPv6 commercial experimental spots.
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(4) Lead Frame
Semiconductors are divided into ICs, discretes and optoelectronics. Among them, discretes are divided into diodes, small-signal transistors, rectifiers, transistors and thyristors.
Due to the various applications of discretes, such as PC, communication, consumer electronic device,
automotive market, etc.; therefore, the shipments of application market in PC, communication, consumer electronic device, automotive market and semiconductor will highly relate to discretes industry. From the viewpoint of global discretes industry, the industry will be benefited due to global semiconductor market in year 2012 will be better than 2011. It is forecasted that the annual growth will be increased from 0.40% in 2011 to 5.01% in 2012 due to global IT expenditures (including computing hardware, enterprise software, IT service, telecommunication equipment and service) keep steadily growing, with 3.7% of growth rate, or USD380 billion. For computing hardware expenditure, its annual growth rate is 5.1% due to new product and new technology have increased the demand of related semiconductor chip, and due to the production capacities of mobile computing have been increasing from 2011 to 2012. The growth rate ranking, from the highest to the lowest, in the semiconductor downstream applications is information technology, industrial grade, communication, automotive, consumer electronic device and so on. In term of growth rate by each category, it is forecasted that sensor component will be the top one with 6.25%, and optical electricity component, disvretes, conductor with 6.06%, 5.16% and 4.85% respectively.
Regarding sales value prospect of Taiwan discrete manufacturing, because of there is certain demand
from information technology, communication and consumer electronic device, along with inventory adjustment finished in Q1/2012 and new product introduction from Q2 to Q4 (for examples: Apple iPad Mini in H2, Microsoft Window 8 for PC and tablet PC in October, Window 8 for Ultrabook in Q4), the lowest sales of discrete would happen in Q1, and will be increasing by quarters. All in all, the discrete growth rate will become better from (2.62%) in year 2011 to positive growth. However, we still need to pay attention to the systematic risk of Euro Sovereign Defaulters in 2012, or even the threat of inflation. In consideration of international economy growth rates are slow and minor, it is foreseeable that the growth rate of discrete will be very low accordingly.
Lead frames are mainly applied to produce power transistors and rectifying diodes. The main function
of power transistors is to amplify electronic signals. Power transistors are mainly applied to remote controls, transformers, computer terminals, switching power supplies, stereo equipment etc. The main function of rectifying diodes is to convert AC into DC to enable power supplies to remain stable. The downstream application fields of rectifying diodes cover a wide range and include various global industries with vast market, such as information, communication, consumptive electronics, aerospace, medicine, automobile, office equipment etc. Currently, Taiwan’s electronic information industry plays a key role in the world. Various industries such as TFT-LCDs, cell phones, digital cameras and notebooks are impacted by the global financial tsunami at the present stage, but they still grow vigorously and are main impetuses for development of the high-power rectifying diode industry.
Currently, the lead frames of the Company have successively passed the customers’ certification. The technology and capability of irregularly shaped material processing helps the company to have the upper hand in low manufacturing costs. Therefore, based on many years of experience in development of irregularly shaped materials, the company is capable of producing irregularly shaped copper plates required for lead frames with a thickness of 0.08mm. Currently, only a few companies such as this company, Japanese Kawai Piano and German manufacturers have the manufacturing technology and capability. Therefore, Taiwanese manufacturers have a low global market share in irregularly shaped materials. At present, the Phase II and III buildings of Suzhou GEM Opto-Electronics Terminal Co., Ltd will finish construction and are estimated to put in operation in the third quarter of 2010. Therefore, the overall production scale of lead frames will increase substantially. The Company is expected to win a position in the global lead frame market.
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4. Competitiveness
Terminal quality, qualification rate, production efficiency, price and product specification completeness are the key points for each international electrical appliance and electronic product manufacturers to select terminal suppliers. Currently, the Company has the following competitive advantages in marketing, product research and development and manufacturing process:
(1) Marketing
In recent years, the Company has made every endeavor to promote business marketing. Except for stabilization of customer source, the Company actively developed virgin lands in the market in every Chinese province and established marketing locations. The Company not only made on-site visits to new customers to realize their needs and develop new customer source but also actively promoted the Company’s products in related domestic and foreign exhibitions to increase popularity of the private brand, “GEM” internationally. Currently, this company’s terminals have successively obtained product certification by UL and CSA in the American, Japanese and Canadian system and BSI in the British Commonwealth, which facilitates performance development. The Company has more than 1,000 types of products and meets the customers’ needs by means of complete product specification. The Company boasts a strong research and development team and continuously develops new products. Therefore, customer sources grow steadily all the time.
(2) Product Research and Development
A. Continuously develops various lead frames and new market to create new niches.
B. According to special requirements (TS 16949) for terminals of vehicle wheel type and housings, introduces advanced European technologies and combines the existing punching and injection molding die technologies to actively develop relevant series products so as to meet the mainland China’s vast market demand and strive for a larger niche.
C. Meets T-MARK’s requirement to comprehensively use insulating flat plug terminals in some electrical appliances, and expands development of Japanese T-MARK new products. Besides capacity expansion of the existing products, starts to implement production and sales plans in the aspects of Taiwan CNS and mainland China GB, which facilitates development and promotion of new insulating flat plug terminals as well as creation of a larger niche.
D. To cope with increasing labor cost and labor shortage in China, on one hand, we will develop new products with automation design; on the other hand, we will upgrade labor individual production value to reduce labor demand.
E. Develops and improves from terminal products to peripheral equipment such as terminal crimping machines due to the mainland China’s manpower cost increase and manpower shortage to facilitate manufacturing process automation and reduce demand for labor.
(3) Manufacturing Process
The Company has professional process capability of one-stop operation including product development, die design and manufacturing, stamping molding, injection molding, automatic lathe operation, multi-stop integrated operation, galvanization operation and automatic assembling. Manufacturing process is a key factor for control of production costs and product quality. Faced with increasing labor costs and competition pressure, the company will improve manufacturing process towards automatic, high speed and high capacity to increase capacity, reduce manpower and production costs, stabilize product quality and enhance competitiveness in 2013.
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5. Favorable and Unfavorable Factors of Development Prospects and Countermeasures (1) Favorable Factors
A. In the aspects of product brand and relevance, since the establishment of this company, it established the brand GEM to market across the world with wide recognition by markets and customers. Terminals are basic parts for power cords and various electronic products and have a wide application range and a long market life cycle. Under the continuous growth of the global electronic communication demand and the steady demand of electrical appliance plugs, this company's products have their demand with good prospects.
B. In the aspect of sales expansion, the company has a sound business marketing network. Product quality is excellent and reaches the international level. Safety specifications have been successfully certified by American UL, Canadian CSA and British BSI.
C. Production flexibility is high. The company not only maintains long-term and steady cooperation relations with customers, but also devotes itself to research and development of new products and technologies to meet the requirements for growing customer performance and maintain long-term cooperation relations.
D. In recent years, technical research and development is enhanced greatly. Both new product research and development and manufacturing technologies make a major breakthrough. Product quality is recognized in advanced countries. Products possess multiple patents in many countries. Therefore, the company is a leader in the market.
E. The Company is the largest professional manufacturer of electrical appliance plug terminals in the country. It has mature manufacturing technologies and introduces advanced technologies and automatic production equipment to enhance production efficiency and reduce production costs. In addition, in order to the operating performance, the company imports ERP to effectively apply and integrate the company’s resources, reduce manual operation costs and strengthen management and decision-making efficacy.
F. Due to migration of the downstream customers, the Company has set up production sites in Dongguan and Suzhou of the mainland China to fully integrate human resources of the mainland, Taiwan and Hongkong.
G. Currently, the mainland China sees a serious vacancy of employees and rising wage, which impacts most labor-intensive manufacturers in China. However, this company’s products emphasize the mode of suitability, high speed and automatic mass production, which is more helpful for product promotion in the domestic market.
(2) Unfavorable Factors A. In recent years, the international raw material (copper and plastics) prices fluctuate violently, and the
market competition pressure is heavy. If the company does not fully respond in real time to cost control and sales price shift, this will cause reduction of gross profit margin as well as inventory and price falling loss.
Countermeasures: (A) To work with transformation in subsidiary, altering procurement material to China local
vendors to reduce product cost. (B) Strengthens material cost management, does a good job in integration of purchase and sales
information, adjusts sales strategies and expands the scale of the economic capacity to effectively reduces production costs, enhance competitiveness, increase turnover and make the largest profit for the company.
(C) Strengthens effective control of inventory as well as sensitivity to the effect of international economic situations on copper raw material prices so as to reduce purchase costs of copper raw materials and enhance competition advantages.
B. The effect of global financial tsunami causes spread of the financial crisis in European countries and slow recovery of the U.S. economy. The U.S. government conducted relaxed monetary policy and printed large amount of greenback to save the economic crisis. That made the raw material prices drastically change and procurement cost hard to manage.
Countermeasures: Exert the function of risk control, enhance to speed up the resource integration of Mainland,
Taiwan and Hong Kong and increase performance of management by realizing and analyzing the economic situation and competitive environment around the world. Innovate and adjust methods rapidly and flexibly under adverse circumstances to enable the manufacturing cost to be reduced and reach the target of sustainable management of businesses and continuous growth and profits.
C. In recent years, the mainland’s coastal provinces see a serious vacancy of employees, high personnel turnover rate and rising basic wage, which causes continuous increase of labor costs and affects the company’s profit. Countermeasures:
Continuously uses automatic equipment for production to reduce dependence on manpower; enhances the capacity and utilization of automatic equipment to reduce unit labor costs and make
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profits. (II) Key Applications and Manufacturing Processes of Main Products
1. Terminals: are divided into terminals of electronic communication type, terminals of electrical appliance plug type and terminals of vehicle wheel type in terms of application. A. Terminals of electronic communication type: are applied to various electronic communication
products such as telephone communication terminals and connecting terminals. B. Terminals of electrical appliance plug type: are mainly AC power supply plug and socket terminals
for various electrical appliances supplied to every country in the world, such as computers and household appliances.
C. Terminals of vehicle wheel type: are connecting terminals for DC power supplies supplied to every country in the world, such as car and locomotive connectors, spark plugs (with platinum contact) and various instrument connecting terminals.
2. Unit circuit lead frame manufacturing power transistors and rectifying diodes are mainly applied to remote controls, transformers, computer terminals, switching power supplies, stereo equipment etc. as well as computer peripherals (monitors and power supplies), consumptive electronics, communication and car industry etc.
3. Manufacturing Process
Terminal:
Lead frame:
(III) Supply Situations of Main Raw Materials Main raw materials of the Company are brass plates, copper bars and engineering plastics that belong to international bulk raw materials with steady supply. The Company purchases copper raw materials from different manufacturers to ensure no concern about mass production and disperse purchase risks.
Supplier: 1. Brass plate: Mingjiali, First Copper Technology etc. 2. Brass bar: Guosheng Industrial Company 3. Engineering plastics: Yuan Jen Enterprises Co., Ltd., Nan Ya Plastics (IV) Customer names with a ratio of more than 10% of the total purchase (sales) in either of the last two years and
their total purchasing (sales) amount of money and proportion:
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1. Names of customers whose purchase accounting for over 10% of the total purchase amount in either of the last two years, according total purchase amounts and proportions:
Main suppliers in the last two years Unit: NTD 1,000
2011 2012 Till the first quarter of 2013 Item Name Amount Ratio accounting
for the all-year net purchase (%)
Relation with the issuer
Name Amount Ratio accounting for the all-year net purchase (%)
Relation with the issuer
Name Amount Ratio accounting for the net purchase till the first quarter of the current year (%)
Relation with the issuer
1 Genius 556,075 36.01 subsidiary Genius 589,911 75.01 subsidiary C Manufacturer 244,005 30.56 nil 2 A manufacturer 404,899 26.22 nil Others 196,544 24.99 nil D Manufacturer 147,328 18.45 nil 3 B manufacturer 172,538 11.17 nil E Manufacturer 125,581 15.73 nil 4 others 410,777 26.60 nil F Manufacturer 105,771 13.25 nil 5 6 Others 175,818 22.01 Net Sales 1,544,289 100.00 Net Sales 100.00 Net Sales 798,503 100.00
Note 1: Names of suppliers whose purchase stood more than 10% of the total purchase amount in either of the last two years, according total purchase amounts and proportions:, but the contract specifies that supplier names shall not be disclosed, or the transaction objects are individuals and irrelevant persons. Therefore, they are identified by a code.
Causes for increase and reduction of purchase proportion:
Main materials of the Company are copper plates, copper bars and plastics. Because the domestic copper raw material quality is very steady, main copper raw material suppliers are domestic well-known large copper factories. The Company establishes good cooperation relations with copper raw material suppliers. Supply sources are steady. Considering various factors such as supplier process technologies, qualification rate and delivery cooperation, there were no significant change to main raw material suppliers of the Company in the last two years. The reason the company purchase ratio of manufacturer A and manufacturer B reduced to less than 10% in 2012 is because, starting from Q1 2012, the company is transferring production facilities to subsidiary company Tongguan GEM Electronics and Metal Co., Ltd. in China, at the same time, Tongguan Gem Electronics and Metal Co., Ltd changed operation model from purchasing raw materials and semi-products from the company for bonded material processing to purchasing raw materials from local for manufacturing and trading. Due to the change of operation model, the company will reduce the business volume or stop business relationship with previously main suppliers.
The Company mainly purchases inventories such as materials and finished products from Genius, which is different from the nature of commodities sold to those affiliated parties. Relevant sales clearing operations have been finished. The ratio of purchased from Genius is because of the concern of reducing production cost of the group by transferring 85% of production capacity to Tongguan Gem Electronics and Metal Co., Ltd and increase finished products from Genius. Q1/2013 data is disclosed in accordance with IFRS consolidated financial statement.
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2. Names of customers accounting for over 10% of the total sales in either of the last two years Main sales customers in the last two years
Unit: NTD 1,000 2011 2012 Till the first quarter of 2013 Item Name Amount Ratio accounting
for the all-year net purchase (%)
Relation with the issuer
Name Amount Ratio accounting for the all-year net purchase (%)
Relation with the issuer
Name Amount Ratio accounting for the net purchase till the first quarter of the current year (%)
Relation with the issuer
1 Genius 1,120,170 62.66 subsidiary A Customer 246,748 25.29 - A Customer 129,151 14.34 - 2 others 667,524 37.34 - others 728,848 74.71 - others 771,389 85.66 - Net purchase 1,787,694 100.00 Net purchase 975,596 100.00 Net purchase 900,540 100.00
Note 1: Names of customers accounting for over 10% of the total sales in either of the last two years and their total sales amount and proportion shall be listed, but the contract specifies that supplier names shall not be disclosed, or the transaction objects are individuals and irrelevant persons. Therefore, they are identified by a code.
The GEM Group’s headquarter in Taiwan decide to consolidate production sites in Taiwan and China to integrate overall production plan, starting from Q1 2012, the company is transferring production facilities to subsidiary company Tongguan GEM Electronics and Metal Co., Ltd. in China. Accordingly, the revenue of selling to Tongguan GEM Electronics and Metal Co., Ltd through Genius was reduced; therefore, the ratio of sales to Genius was reduced. Besides, the company introduced triangular trade model in Q4, 2011, some orders received originally by Genius will be received by GEM in Taiwan, therefore, there is a new Customer A in Q1 2012. Q1/2013 data is disclosed in accordance with IFRS consolidated financial statement.
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(V) Production table in the last two years Unit: 1,000 PCS/ NTD 1,000
2011 2012 Production Year Main commodities Capacity Capacity Capacity Capacity Output Output value
Terminal 1,490,821 1,066,957 528,657 427,004 266,805 120,536
Others (Note) 210 1,689
Total 1,490,821 1,066,957 528,867 427,004 266,805 122,225
Note: Others include flexible sleeves, ceramic rings and dies. Because these products are highly different, their outputs are not included.
(VI) Sales table in the last two years
Unit: 1,000 PCS/ NTD 1,000 2011 2012
Domestic sales Domestic sales Domestic sales Domestic sales
Sales Year Volume Value Main commodities
Volume Volume Volume Volume Volume Value Volume Value
Terminal 419,238 246,884 994,154 659,754 415,467 216,388 861,815 598,502
Others 45,441 835,615 16,668 144,038
Total 419,238 292,325 994,154 1,495,369 415,467 233,056 861,815 742,540
Note: Others include flexible sleeves, ceramic rings and dies. Because these products are highly different, their sales are not included.
III. Number of in-service employees, average service length, average age and educational background distribution
ratio in the last two years and till the publishing date of the annual report Educational background distribution ratio Unit: people
Year 2011 2012 March 31, 2013
Staff 119 109 110
Operator 57 56 64 Number of employees
Total 176 165 174
Average age (years old) 38 38 39
Average service length (year) 10.5 10.5 11.1
Ph.D. 0% 0% 0%
Master 2.27% 3.64% 5.17%
College 42.61% 44.85% 42.53%
Senior high school 35.23% 34.55% 33.33%
Educational background distribution ratio (%)
Below 19.89% 16.96% 18.97%
IV. Expenditure on Environmental Protection
(I) The following is a statement of the total of the Company’s losses (including compensation) arising out of pollution and penalties in the recent years and until the date of publication in the newspaper. Countermeasures (including improvement measures) and possible expenses are also indicated below (Note: The “expenses” as indicated herein include the estimated sum of possible losses, penalties and compensation incurred arising out of the countermeasures. Where such reasonable estimates are impossible, the fact that such reasonable estimates are impossible shall be stated)::
1. (1) Galvanization is used during the production process of the Company. However, the Company underscored the importance of being environmental-friendly. Therefore, wastewater treatment and air pollution preventing equipment was furnished when the plant was founded. The Company also employed qualified wastewater treatment personnel and purchased the inspection equipment as required by the regulations and codes. The wastewater is treatment to such a stage where it is recoverable, to minimize discharge.
(2) The Company performs laboratory test and inspection in the plant as required through internal education, training and auditing so that the wastewater meets the discharge standards.
(3) For cleanup of waste, the Company commissions a qualified waste disposal company to carry out cleanup work pursuant to the Waste Disposal Law.
(4) In correspondence with world green environment trend, social responsibility and commitment and business continuity, the Company sticks to the environment protection management philosophy of “To follow regulations and to prevent from environment pollution” and works hard for ISO 14001
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requirements. The Company started to promote ISO 14001 in year 2012 and acquired its certificate in March, 2013. The ISO 14001 series standards were made by international standardization organization in the field of environment management standards, mainly for global environment pollution and ecological damage, Ozone Depleting Substances (ODS), global climate warming, decrease of biological diversity these kinds of topics that threaten the survival and development of human beings, to meet international environment protection development and the needs of international economy trading development.
(5) To be a citizen of world green environment protection, the Company management promotes IECQ QC080000 quality activities, uses non-poison materials, produces green products, sets up product environment quality assurance system, meets international regulations and customer demands, and protects the earth environment to produce excellent product quality. The Company started to promote in year 2012 and acquired certificate in May, 2013.
(6) There is no loss or fines resulted from environment pollution in the Company in the latest fiscal year and by the issued date.
2. Countermeasures (1) Strengthens laboratory tests and inspections in the plant so that the wastewater discharge meets the
standards and unexpected events are minimized. (2) Strengthens the recovery of common wastes and classification of wastes to recycle useful resources and
reduce amount of wastes. (3) Strengthens waste oil, waste oil cloth, waste fluorescent light tube and waste carbon case centralization
and recycled by national qualified firms. 3. Possible future expenses
In the upcoming two years, the Company’s main expenses for environmental protection will be used for: (1) Related expenses for ISO 14001 and QC080000 certificates. (2) Commissioning a legitimate professional waste disposal company to dispose of the wastes such as mud generated in production; improving wastewater treatment equipment and wastewater recovery equipment. (3) Recovery and central handling of domestic sewage. Collect it to equipments of waste water management again after dissolution of waste water reaction chambers. (4) Expenses for waste oil, waste oil cloth, waste fluorescent light tube and waste carbon case centralization and recycled by national qualified firms. Each year’s budget for environmental protection amounts to 1 million to 1.5 million NT dollars.
V. Labor and Management Relationship (I) Welfare measurement, further study, training, the retirement system and implementation, and the performance of
labor agreements and measures for protecting employees’ rights and benefits 1. Welfare measures: (1) The Employee Welfare Committee has been founded. Employees receive their monthly welfares as
required in the employee welfare regulations. The Employee Welfare Committee is responsible to plan each employee’s welfare and manage the payment and reception of the welfare. Welfare items include: A. Birthday allowance and the nonscheduled grant of gifts or gift coupons. B. Education scholarships and assistantship for employees’ children; C. Regular health checkup D. Domestic tourisms (once to twice a year) and irregular allowances for overseas travelling; E. Wedding subsidy F. Funeral subsidy G. Maternity subsidy H. hospitalization subsidy
(2) In addition to the welfare provided by the Employee Welfare Committee, the Company also sets forth measures on year-end bonus payment and management measures on employees’ stock ownership (dividends). These measures are aimed at improving employees’ welfare. The Company also pays for all employees the group life insurance, casualty insurance, foreign errand and travel accident insurance and provide allowance for marriage and funeral.
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(3) Provide employees with activity space and fitness facilities for rest and leisure to adjust body and mind and relieve fatigue.
2. Further education and training
The Company puts talents in the first place and talents are the most important asset of the Company. As for the cultivation of talents, the Company always adheres to diversified training work in the professional field which belongs to the Company and expects to train much more multi-skill employees. The Company has adhered to the training work idea which lifelong learning and employees’ career development are complementary to each other since establishment. The company will attend job fair hosted by academics or governmental bodies to recruit talent with high potential to grow with the company. It is devoted to enhancement of the talent quality and stores up good talents of operations management and technologies in the future and expects to create the best operation team for the Company.
(1) The Company has set forth the “Management Measures on HR Education & Training of Gem.” (2) The Company has set up “Regulations of Employees’ Study Abroad” and arranges for employees to study
abroad non-periodically. (3) The Company has established diversified pre-job training and in-service training courses and complete
training systems; these courses and systems expand the employees’ skills and improve their efficiency; (4) The Company employed professional trainers, who will provide consultation and in-service training for
each employee. This helps employees to improve their proficiency to the fullest potential, and master the necessary knowledge, technology and management & analysis competence.
(5) The Conduct Performance Statistics of the Company’s Training Work for Year 2012 is as follows:
Self training External training Self training
class Man hour People who
complete trainingMan hour
People who complete training
Total expenses of
training work
322 13,507 hours 605 people 380 hours 60 people NTD
33,749 (6) The following table lists the internal/ external training course with considerable hours. Internal Training Courses:
No. Class name Total number
of trainees Hour/ person
1 Trainings before on-board, such as trainings on grinder, milling, drilling, discharge electricity, tool grinder, mold assembling and translating.
18 5,160
2 Practical operation and technical instruction of plating 1 528
3 Grinding process 3 480
4 Mold trial & modification 2 320
5 Mold assembling 2 320
6 Air compressor & air conditioner maintenance 1 240
7 Maintenance SOP introduction 1 210
8 Environment management system – ISO 14001 32 192
9 Punching machine post-maintenance assembling test 1 180
10 Default handing instruction 1 176
11 Die design software (3D) 3 168
12 Line cutting, fine hole discharge machine operation 2 320
13 Die test & practical mold repair 1 160
14 Mold assembling/ trial-mold modification (plastic) 1 160
15 UG software CAM learning; 2D/3D programming 1 138
16 Inquiring company categories 5 120
17 Electroplate machine operation, maintenance and others 4 240
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External Training Courses:
No. Class name Total number
of trainees Hour/ person
1 Labor safety & Sanitation Training 1 110
2 Organic solvent process (supervisor) 1 18
3 ISO measuring training – machine inspection, adjustment in practice & theory
2 12
4 Self-inspection 2 12
5 Enterprise social responsibility (CSR) report 3 9.5
6 IRFS implementation propaganda 3 9
7 2012 group contract & labor meeting process propaganda 1 8
8 Soil & ground water pollution rules vs. prevention & rebuild propaganda
1 8
9 2012 listed company related business propaganda 3 9
10 Labor safety and hygiene in charge of business 1 6
11 Enterprise internal control – IFRS auditing 1 6
12 Enterprise internal control – individual information & privacy protection
1 6
13 Enterprise adopts XBRL to apply for financial statement reporting
2 6
14 Taiwan & China transfer pricing case study 2 6
15 Post individual information & privacy protection rules 2 6
16 From corporate governance viewpoint to discuss BOD members’ responsibilities & impacts from security income tax
2 6
17 IRFS implementation 3 9
18 Labor inspection & self-management propaganda 3 6
19 2012 Enterprise adopts XBRL to apply for IFRSs financial statement reporting
2 5
20 Risk identification & classification training propaganda 1 4
21 2012 foreign labor business regulation propaganda 1 3.5
22 From corporate governance viewpoint to discuss BOD members’ responsibilities & impacts from security income tax
1 3.5
23 Q1/2012 tax, security & auditing regulation updates 4 12
3. To improve employees’ expertise in environmental protection, sanitation and labor safety, the relevant
employees received relevant training arranged by the Company in Year 2012. Meanwhile, relevant expertise skills are managed and implemented during routine operations. The courses are detailed as follows:
(1) Work environment and safety measures are very important factors. Given their importance, the
Company controls significant environmental risks, occupational safety risks and sanitation risks based on the TS-16949/ ISO 14001/ QC080000 Management System. The management is assessed by the Suppliers. When the environmental QA system of the Supplier has passed the inspection & approval, the raw materials delivered will be determined for compliance with the limits for RoHS toxicants. No supplier will be registered as qualified before the confirmation of such compliance. Whenever a batch of raw materials is delivered, toxicant concentration will be measured by the ICP and GC/MS bromide tester. No raw materials may be placed on the production lines before the confirmation of their compliance. Meanwhile, the Company prioritizes the improvement of high risks based on the proposal improvement goals and project improvement management. Low risks are controlled based on processed management of the operations. Risks are effectively controlled after the improvements. Relevant information is provided as follows:
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Code Goal Plan Description of existing
condition Implementation
1 Punch press operators should wear ear plugs: 100% compliant with operation regulations.
Plan on punch press safety improvement
Machine noises negatively affect the operators in the punch press section.
Buy ear plugs and use them in the punch press section every month. Enhance relevant education, training and advocacy.
2 Effectively prevent common and harmful mud (electroplating contamination) from spilling over the road surface.
Plan on storage and operation improvement of common and harmful mud
No guardrail is provided at the existing resources recovery zone. As a result, mud may spill over the road surface after a heavy rain.
Furnish gate fences, fabricate and hang relevant signs.
3 Use big volume retractable feeder and reduce waste of raw material
Rise the achievement rate of AC manufacturing order to 99%
The raw material weight of general existing retractable feeder is only about 230kg. Raw material wastage is higher because of frequent raw material replacement.
Presently there are five sets of big volume retractable feeders which are put into production. Average achievement rate of manufacturing order is above 99%.
4 Use big volume material heat sealing machine and reduce waste of raw material.
Rise the achievement rate of AC manufacturing order to 99%
The raw material weight of general existing retractable feeder is only about 230kg. Raw material is needed to be replaced frequently because of impossible heat sealing. Raw material wastage is higher.
Presently there are three sets of big volume material heat sealing machines which are put into production. Average achievement rate of manufacturing order is above 99%.
5 Sheet material heat sealing machine
Rise the achievement rate of DC manufacturing order to 99%
Raw material is needed to be replaced frequently because the tail lamina is needed to be removed after production of every roll of sheet raw material. Raw material wastage is higher.
Presently there are three sets of sheet material heat sealing machines which are put into production. Average achievement rate of manufacturing order is above 99%.
6 Recover and reuse paper bags
Reduce waste of paper taps
In the process of electroplating, waste is produced because paper bags are not recovered in the emptying process.
There is additional function of paper bag recovery in existing electroplating process and punch press big volume process for reducing purchase quantity.
7 Recovery and central handling of domestic sewage
Reduce pollution of domestic sewage release
Existing domestic sewage is not collected for handling
There are additional equipments which recover and collect domestic sewage to reaction chamber and then collect it to waste water management zone after handling.
8 Electroplating operators wear rubber gloves when pouring into chemicals; protective goggles are in accordance with safe operational requirements.
Safety program of electroplating operation
Electroplating chemicals are of relatively slight corrosiveness.
Existing electroplating operators have to wear rubber gloves when pouring into chemicals; protective goggles which ensure operational safety are in accordance with safe operational requirements.
9 Reduce spaial environment temperature of trimming operation.
Cooling programs of spaial environment of trimming operation
The indoor temperature of trimming operation sapce is up to 34℃ in summer.
Purchase three large-size ari pumps and turn them on regularly for reducing temperature in summer to relieve dry and hot staff.
10 Limited space: additionally install extractor fans in water tanks.
Air exhaust and change improvement program of limited space
Blow with only large-size electric fans.
Purchase exlopsion-proof type of air exhsust and change equipments. Equipments have to be installed completely when cleaning water tanks. Continuously turn them on for half an hour to complete air change.Over two operators are not permitted to operate until the measurement of oxygen index is normal.
11 To prevent noise that Improve and prevent When punch machines have To plan and implement anti-noise
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caused by all punch equipments are in operation at the same time
punch machine making noise when in operation
been turn on the noise in the area is 90db and sounding noise is 80db
equipment.
12 To mark “Smoke and Fire Prohibited when in operation” and is 100% complied to fire regulation.
Oil tank safety improvement measurement.
Take caution not to dirp on floor when siphoning lubricating oil. Oil leaking will sometimes cause fire.
To mark “Smoke and Fire Prohibited when in operation”
13 Punch machines operator wears safety shoes. 100% complied to operation rules.
Punch machines safety improvement measurement.
For the safety concerns of punch machine operators when transferring the brass materials.
To purchase safety shoes and enforce every operator in punch machine department will wear the safety shoes and to enhance training on the safety measures.
14 To reduce temperture in punch workshop
Punch workshop improvement
Indoor temperture in punch workshop can be 34℃ in summer.
To purchase 8 large water-cooled coolers to turn it on when the indoor temperture is over 30℃ in summer to ease operators.
15 To reduce temperture in punch workshop
Punch workshop improvement.
Indoor temperture in punch workshop can be 34℃ in summer.
To replace the current coolers with water-cooled coolers and lead the heat to outdoors to reduce temperture indoors to ease operators.
16 To reduce the quantity of rollers used
Reduing the use of rollers measure.
98, 99 terminal products to use new rollers for packing.
Recycle rollers from customers to reduce packing expense and save-energy and reduce carbon emission.
17 Stop using boiler Stop using boiler measure
Plating process requires hot water to heat up the temperture of the chemical liquid tanks
Recycle rollers from customers to reduce packing expense and save-energy and reduce carbon emission.
18 Ensure water level of each galvanization chemical tank.
Water height control plan
In the galvanization, water level of each chemical tank must be controlled to prevent low water level.
Heat each chemical tank through an electric heating tube. Control water level through a level switch. When water level is less than a setting value, the power supply is interrupted by the level switch to ensure machine and personnel safety.
19 Use of lighting energy saving equipment
Changed office existed 20W fluorescent tubes into energy saving ones.
The original 20W fluorescent tubes are heavily energy comsuming and short in life, which do not meet environment protection trend.
Throughly changed all the fluorescent tubes of office building 1 to 4 floors and factory office to energy saving tubes.
20 Set up air conditioner temperature for no lower than 28 .℃
Sticked posters to all air conditioners for reminding.
Before this air conditioner temperature control, some air conditioners were set up at 25℃, which had caused unnecessary energy consumption.
Sticked posters (temperature setting for no lower than 28 ) ℃to all air conditioners for reminding.
21 Reduce air conditioner waste in molding department.
Moved 7 sets of oil chillers to outdoors.
Originally, these 7 sets of oil chillers were placed indoors and generated lots of heats, which increased the consumption of air conditioners.
By moving 7 sets of oil chillers to outdoors to redcue consumption of air conditioners, and to increase the efficiency.
22 Reduced office fountain backwash-cleaning time to decrease the wasting of water and electricity.
To shorten office fountain backwash-cleaning recycing frequency.
In the past, office fountain backwash-cleaning times were 10 minutes on every Monday, Wednesday and Friday.
Changed the original 10 minutes into 8 minutes to save water and electricity consumption on Monday, Wednesday,and Friday.
(2) The company enters into management service contracts with professional manufacturers, handles factory safety and health service matters, plans and establishes labor safety and health organizations and systems, provides education and training on employee safety and health as well as liberal education on hazardous materials and noxious substances, and performs measurement of environmental safety regularly.
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4. Retirement System and Implementation
According to the Labor Standards Law, the Company formulates the employee retirement method that covers all formal employees. The regulations on labor pension are described as follows:
(1) The Company formulates the employee retirement method according to the Labor Standards Law.
The expenditure of employee retirement pension is calculated according to the service length (base) and the average pay of six months before the approved retirement date. According to regulations, the Company allocates the employee retirement reserve based on 4% of an employee’s total pay. The reserve is handed over to the Labor Retirement Reserve Supervisory Committee to save in a special account of Bank for Taiwan in the name of this committee. A total of NTD 2.070 million was allocated in 2012.
(2) This method is applicable to the retirement pension system as specified in Labor Pension Act. Six percentage of an employee’s monthly pay is allocated to save in the Bureau of Labor Insurance’s special account for individual retirement pension since July 1, 2005. The retirement pension cost recognized by the Company was NTD 3.339 million in 2012.
(3) In addition, in November 2005, the Company established the Retirement Fund Management Committee that is responsible for discussing, supervising and checking the allocation, keeping, application and distribution of retirement pension for personnel at the manager level and above. The amount allocated to the special retirement account of the Retirement Fund Management Committee was NTD 457 thousand in 2012.
5. Collective Agreement
Smooth communication channels are attentively constructed for employees. Other than the proposition system, which regulates incentives for effective propositions, every employee has his own email box. The Company also installed a suggestion box at the guardroom and periodically convenes work management negotiations and meetings for Employees' Welfare Committee. Employees can either directly communicate their opinions with the management or utilize the suggestion box for idea presentation or disputes. Therefore, no labor disputes occur at present.
6. Employee Rights and Interests Maintenance Measures
The Company sets out various management systems on personnel appointment, pay management, transfer, promotion, retirement, pension, employee performance, etc. Each employee is provided with an Employee Manual to help employees to be familiar with all regulations and rights and benefits. A specially appointed person assists to provide relevant information.
7. Stipulation of Employee Behavior or Ethics Rules The Company has set up not only “the ethical behavior principles of directors, supervisors and managers”
which is approved and implemented by Board of Directors and reported to shareholder meeting towards directors, supervisors and managers but also “the ethical behavior standards and regulations of employees which are below managers” and both of the above are disclosed in the investor field on the Company’s website. (http://www.gem.com.tw) They guide behavior of the Company’s employees to conform to ethical standards and prevent infraction and disorder and make the Company’s privies much more realize the Company’s ethical behavior standards.
8. Stipulation of the Internal Important Information Processing Procedure To establish a sound internal important information processing and disclosure mechanism, avoid improper
information leakage and ensure consistency and correctness of information released by the company, the Company sets out an internal important information processing procedure that is implemented after approval of the Board of Directors. The regulation is disclosed on the Company’s website. (http://www.gem.com.tw)
(II) The company’s loss resulting from labor disputes in recent years and till the publishing date of the annual report,
the current and potential estimated amount and countermeasures:
Based on the basic conceptions of labor capital harmony and labor capital integration, the staff of the Company has cultivated the recognition of and consensus on enterprise survival and long-term development. The company provides good working environment and smooth communication channel, which ensures a harmonious labor capital relation. Therefore, no labor disputes occur.
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VI. Important Contracts
Contract Nature Party Contract Start and Termination
Dates Main Contents Restriction Clause
Purchase contract
Mingjiali Mar. 13, 2013 to delivery date Raw material purchase Nil
Ta Chong Bank Jan. 20, 2010 to Jan. 21, 2013 Contract on guaranteeing of issued commercial paper
maintain a specific financial
Bank of Kaohsiung
May 6, 2010 to May 6, 2013 Fiduciary loan Nil
Taishin Bank Dec. 3, 2010 to Dec. 3, 2013 Fiduciary loan maintain a specific
financial ratio
Dec. 3, 2010 to Dec. 3, 2013 Fiduciary loan Taipei Fubon Bank
Mar. 13, 2012 to Mar. 13, 2015 Fiduciary loan
maintain a specific financial ratio
China Development Industrial Bank
Aug. 7, 2012 to Aug. 2, 2015 Fiduciary loan maintain a specific
financial ratio
Chang Hwa Bank Feb. 10, 2011 to Feb. 10, 2014 Fiduciary loan Nil Mar. 11, 2011 to Mar. 11, 2014 Fiduciary loan Nov. 04, 2011 to Nov. 04, 2014 Fiduciary loan
Industrial Bank of Taiwan
July 11, 2012 to July 11, 2015 Fiduciary loan Nil
Mega Bank Mar. 8, 2010 to Mar. 8, 2013 Fiduciary loan Nil Yuanta Bank May 11, 2012 to May 11, 2015 Fiduciary loan Nil Bank of Taiwan July 16, 2012 to July 16, 2015 Fiduciary loan Nil Mega Bank Mar. 8, 2010 to Mar. 8, 2013 Fiduciary loan Nil
July 26, 2010 to July 26, 2013 Fiduciary loan E. Sun Bank
May 11, 2012 to May 11, 2015 Fiduciary loan Nil
Long-term lending contract
Bangkok Bank
Nov. 16, 2010 to Nov. 15, 2013 Fiduciary loan maintain a specific
financial ratio
BAIRD Dec. 5, 2012 to delivery date Machine and equipment purchase
Nil
Okamoto Feb. 26, 2013 to delivery date Machine and equipment purchase
Nil
Metal Center Apr. 1, 2013 to delivery date Machine and equipment purchase
Nil
Metal Center Apr. 1, 2013 to delivery date Machine and equipment purchase
Nil
Fixed assets purchase contract
Xulan Mar. 14, 2013 to delivery date Machine and equipment purchase
Nil
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VI. Financial Information I. The Condensed Balance Sheet and Earnings Statement of the latest five years, noted with accountants’ name and their audit comment (I) Condensed Balance Sheet
Unit: NTD 1,000 Financial data of the latest five years
Year Item Year Year Year Year Year
Financial data of this year up
to Mar. 31, 2013 (Note1)
Current assets 4,635,898
Property, plant, equipment 1,595,426
Intangible assets -
Other assets 262,102
Total assets 6,493,426
Before distribution 2,695,189Current liabilities After distribution Undistributed
Non-current liabilities 914,163
Before distribution 3,609,352Total liabilities After distribution Undistributed
Equity attributable to parent company
2,884,074
Capital stock 1,715,980
Capital reserves 270,187
Before distribution 692,721Reserved surplus After distribution Undistributed
Other equities 205,186
Treasury stock -
Non-controlling interest -
Before distribution 2,884,074Total amount of stockholder's equity
After distribution
N/A
Undistributed
* Companies with individual financial statement shall prepare brief statement of financial position (balance sheet) & income statement individually for the latest five years. * For those who have adopted IFRS for less than five fiscal years shall prepare the following table (I-I) by using Taiwan financial & accounting standards. Note 1: The first quarter financial statement of Year 2013 has been verified by accountant. Note 2: The distribution of gains of Year 2012 has not been decided by the stockholders’ meeting yet.
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(I-I) Condensed Statement of Income Unit: NTD 1,000
Financial data of the latest five years (Note 1)
Year Item Year Year Year Year Year
Financial data of this year up
to Mar. 31, 2013 (Note1)
Operating income 900,540
Operating margin 99,968
Operating profit 9,420
Non-Operating income and loss (13,859)
Profit before income tax (4,439)
Income/loss from continuing operation (5,363)
Income/loss from discontinued operation -
Net income/loss (5,363)
Other comprehensive income (after tax) 108,886
Net comprehensive income/loss 103,523
Net income belongs to parent company (5,363)
Net income belongs to NCI -
Net comprehensive income belongs to parent company
103,523
Net comprehensive income belongs to NCI
-
Basic earnings per share
N/A
(0.03)
* Companies with individual financial statement shall prepare brief statement of financial position (balance sheet) & income statement individually for the latest five years. * For those who have adopted IFRS for less than five fiscal years shall prepare the following table (II-I) by using Taiwan financial & accounting standards. Note 1: The first quarter financial statement of Year 2013 has been verified by accountant.
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II Brief balance sheet (Taiwan financial & accounting standards)
Unit: NTD 1,000 Financial data of the latest five years Year
Item Year 2008 Year 2009 Year 2010 Year 2011 Year 2012 Current assets 1,594,433 1,321,853 1,750,669 1,305,848 1,367,744
Fund and investment 1,896,207 2,195,354 2,241,763 2,736,709 2,797,480Fixed assets 532,443 485,034 470,416 424,109 412,518
Intangible assets 1,019 509 - - -Other assets 40,837 24,456 25,874 29,109 32,461Total assets 4,064,939 4,027,206 4,488,752 4,495,775 4,610,203
Before distribution 794,647 669,133 772,438 703,633 930,846Current liabilities After distribution 994,567 926,530 978,356 840,911 Undistributed
Long-term liabilities 381,797 339,625 809,894 702,465 720,833Other liabilities 181,294 161,183 113,195 145,971 164,103
Before distribution 1,357,738 1,169,941 1,695,527 1,552,069 1,815,782Total liabilities After distribution 1,557,658 1,427,338 1,901,445 1,689,347 Undistributed
Capital stock 1,680,000 1,715,980 1,715,980 1,715,980 1,715,980Capital reserves 272,458 270,187 270,187 270,187 270,187
Before distribution 563,835 705,460 769,625 749,007 696,673Reserved surplus After distribution 363,915 448,063 563,707 611,729 Undistributed
Unrealized gains or losses of financial products
(21) 6,154 14,296 (1,996) 2,321
Cumulative conversion adjustment 190,215 145,578 12,200 202,948 93,997Net loss not recognized as pension
cost (7,306) (11,879) (14,848) (18,205) (10,522)
Unrealized revaluation increment 25,785 25,785 25,785 25,785 25,785Before distribution 2,707,201 2,857,265 2,793,225 2,943,706 2,794,421Total
amount of stockholder's equity
After distribution 2,507,281 2,599,868 2,587,307 2,806,428 Undistributed
Note 1: It is filled according to the decisions made on the stockholders’ meeting of the next year. Note 2: All the financial data of the latest five years have been verified and certified by accountant. Note 3: The distribution of gains of Year 2012 has not been decided by the stockholders’ meeting yet.
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(II-I) Condensed Statement of Income Unit: NTD 1,000
Financial data of the latest five years (Note 1) Year Item Year 2008 Year 2009 Year 2010 Year 2011 Year 2012
Operating income 2,197,324 1,636,420 2,214,679 1,787,694 975,596Operating margin 146,367 173,113 256,630 157,330 102,086
Realized gross profit 170,150 165,372 251,912 160,220 100,875Business profit 14,401 30,790 120,519 30,360 (44,231)
Non-Operating income and profit 381,279 377,122 190,786 225,015 163,159Non-business expense and loss (Note 3) 27,438 24,639 45,297 65,488 37,370Pre-tax gain and loss of going business
sector 368,242 383,273 266,008 189,887 81,558
Gain and loss of going business sector 360,731 393,019 321,562 185,300 84,944Gain and loss of current period 360,731 393,019 321,562 185,300 84,944
Basic earnings per share (after taxes, Note 4)
2.15 2.29 1.87 1.08 0.5
Retroacted basic earnings per share (after taxes, Note 5)
2.09 2.29 1.87 1.08 0.5
Note 1: All the financial data of the latest five years has been verified and certified by accountant. Note 2: The amount of interest capitalized of the latest five years is as follows:
Financial data of the latest five years Year Item Year 2008 Year 2009 Year 2010 Year 2011 Year 2012Amount of interest capitalized 153 250 475 258 519
Note 4: Calculated by weighted average number of shares issued. Note 5: Calculated by number of shares of capital increase transformed from the retroactive adjustment surplus.
(III) The latest five years’ name of accountants who are responsible for the verification and their audit comment Year Name of the CPA firm Name of CPA Comment 2008 Deloitte Touche Tohmatsu Chiang, Jia-Ling, Chiu,
Hui-Yin Modified, no qualified opinion
2009 Deloitte Touche Tohmatsu Chiang, Jia-Ling, Chiu, Hui-Yin
Modified, no qualified opinion
2010 Deloitte Touche Tohmatsu Chiang, Jia-Ling, Chiu, Hui-Yin
No qualified opinion
2011 Deloitte Touche Tohmatsu Chiang, Jia-Ling, Chiu, Hui-Yin
Modified, no qualified opinion
2012 Deloitte Touche Tohmatsu Chiang, Jia-Ling, Chiu, Hui-Yin
No qualified opinion
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II. Five-Year Financial Analysis Year
Analyzed item Financial data of the latest five years (Note 1) Year Year Year Year Year
Financial data of this year up
to Mar. 31, 2013 (Note 2)
Debt ratio in assets 55.58Financial
structure (%) Long-term funds ratio in fixed assets
228.14
Current ratio 172.01Quick ratio 148.22Solvency (%) Interest cover ratio 0.76Receivable turnover (times) 3.02Average A/R collection days 121Inventory turnover ratio (times)
5.95
Payable turnover (times) 6.08Average merchandise sales days
61
Turnover of fixed assets (times)
2.26
Operation capacity
Turnover of total assets (times)
0.55
Return on assets (%) 0.16
Return on stockholders’ assets (%)
(0.19)
Business profit 0.55Ratio in paid-up capital (%)
Pre-tax net profit
(0.26)
Net profit margin (%) (0.60)
Profitability
Basic earnings per share (after taxes) (Dollar)
(0.03)
Cash flow ratio (%) 0.44Cash flow adequacy ratio (%) 61.92Cash flow Cash reinvestment ratio (%) 0.23Operating leverage degree 13.68Leverage
degree Financial leverage degree
N/A
(1.01)Please explain reasons of changing for the latest two years, provided that variance ratio is less than 20% can be precluded: N/A * Companies with individual financial statement shall prepare individual financial ratio analysis.. * For those who have adopted IFRS for less than five fiscal years shall prepare the following table (II) by using Taiwan financial & accounting standards. Note 1: The first quarter financial statement of Year 2013 has been verified by accountant. Note 2: Following formulas shall be indicated by the end of this annual report.
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1. Financial structure
(1) Liability / asset ratio = total liabilities/total assets. (2) Long-term asset / fixed assets ratio = (net stockholder’s equity + non-current liabilities)/Net fixed
assets. 2. Solvency
(1) Current ratio = current assets/current liabilities. (2) Quick ratio = (current assets- inventory – prepaid expense)/current liabilities. (3) Time interest earned = net profit before income tax and interest charge / interest exchange in current
period. 3. Operation capacity (1) Turnover rate of receivables (including accounts receivable and notes receivable from business)
= net sales / balance of average receivables at different periods (including accounts receivable and notes receivable from business).
(2) Average merchandise sales days = 365/ turnover rate of receivables. (3) Inventory turnover ratio = cost of sales / average amount of inventory. (4) Turnover rate of payables (including accounts payable and notes payable from business) = cost of
sales / balance of average payables at different periods (including accounts payable and notes payable from business)
(5) Average merchandise sales days = 365/inventory turnover ratio. (6) Turnover ratio of fixed assets= net sales / average net fixed assets. (7) Turnover ratio of gross assets = net sales /average total assets. 4. Profitability (1) Rate of return on assets = {profit and loss after tax + interest charge x (1-tax rate)}/ average total
assets. (2) Return on stockholder’s equity = profit and loss after tax / net average stockholder’s equity (3) Net profit ratio = profit and loss after tax / net sales. (4) Dividend per share = (net profit after tax – dividend of preferred stock)/ average weighted mean of
issued stocks. (Note 4) 5. Cash flow
(1) Cash flow ratio = net cash flow in business activity /current liabilities. (2) Proper ratio of cash flow = net cash flow in business activities of recent five years / (capital
expenditure + increase in stock + cash dividends) in recent five years. (3) Cash reinvestment ratio = (net cash flow in business activity – cash dividends)/(gross amount of fixed
assets + long-term investment + other assets + operating fund). (Note 5) 6. Leverage
(1) Operating leverage = (net Operating income – changed business cost and expense) / business profit. (Note 6)
(2) Financial leverage = business profit/(business profit – interest charge). Note 4: The above EPS calculation formula shall pay attention to the followings:
1. Shall use weighted average common stock share instead of the stock share outstanding by year end. 2. Whenever there were capital infusion or treasury stock exchange happened, it shall take issuing period into
account to calculate weighted average common stock shares. 3. Whenever there were capitalization from retained earnings or capitalization from capital surplus happened,
at the time to calculate annual or semi-annual EPS in the past years, it shall use retroactive adjustment according to the ratio of capital infusion, but not the issuing period of that capital infusion.
4. If some preferred stocks are non-transferrable accumulated, their dividend (no matter distribution or not) shall be deducted from net profit after income tax, or from the increase of loss after income tax. If the preferred stock are non-accumulated, under the circumstance of net income after income tax occurred, their preferred stock dividend shall be deducted from net profit after income tax, given that this kind of deduction can be disregarded under the circumstance of loss.
Note 5: To analyze cash flow shall pay attention to the followings:
1. Net cash flow from operation activity means the inflow from operation activity in cash flow statement. 2. Capital expenditure means cash outflow for annual capital investment. 3. Increase of inventory means the ending balance is greater than the beginning one. In case of inventory
decreases, the number of increase of inventory shall be treated as zero. 4. Cash dividend shall include common stock and preferred stock. 5. Property, plant, equipment gross amounts mean the amounts of property, plant, equipment before deducting
accumulated depreciation. Note 6: Issuers shall separate all kinds of operation costs and expenses by fixed and variable ones according to their
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natures. At the time of separation, if estimation or arbitrary judgment occurred, it shall be cautious to make them reasonable and to maintain the consistence.
Note 7: The paid-in capital of foreign companies’ ratio shall use the net value ratio for calculation. II-I The latest five year financial analysis (Taiwan financial & accounting standards)
YearAnalyzed item Financial data of the latest five years (Note 1) Year
2008 Year 2009
Year 2010
Year 2011
Year 2012
Debt ratio in assets 33.40 29.05 37.77 34.52 39.39Financial
structure (%) Long-term funds ratio in fixed assets
580.16 659.11 765.94 859.72 852.15
Current ratio 200.65 197.55 226.65 185.59 146.94Quick ratio 192.58 173.05 201.75 171.59 141.66Solvency (%) Interest cover ratio 23.34 25.69 15.85 9.54 4.20Receivable turnover (times) 2.72 4.56 7.10 6.12 3.61Average A/R collection days 134 80 51 60 101Inventory turnover ratio (times)
15.77 13.04 11.10 11.40 12.04
Payable turnover (times) 8.35 5.67 5.48 5.05 4.14 Average merchandise sales days
23 28 33 32 30
Turnover of fixed assets (times)
4.13 3.37 4.71 4.22 2.36
Operation capacity
Turnover of total assets (times)
0.54 0.41 0.49 0.40 0.21
Return on assets (%) 9.51 10.00 7.90 4.54 2.33
Return on stockholders’ assets (%)
14.10 14.13 11.38 6.46 2.96
Business profit 0.86 1.79 7.02 1.77 (2.58)Ratio in paid-up capital (%)
Pre-tax net profit
21.92 22.34 15.50 11.07 4.75
Net profit margin (%) 16.42 24.02 14.52 10.37 8.71
Profitability
Basic earnings per share (after taxes) (Dollar)
2.15 2.29 1.87 1.08 0.50
Cash flow ratio (%) 122.98 30.90 23.20 8.51 (5.04)Cash flow adequacy ratio (%) 140.86 128.60 118.58 120.56 120.19Cash flow Cash reinvestment ratio (%) 22.89 0.19 (1.96) (3.60) (4.68)Operating leverage degree 13.59 7.00 2.38 5.98 (2.22)Leverage
degree Financial leverage degree (6.91) 2.02 1.17 3.73 0.63Causes on change of various financial ratio of the latest two years: (which is increased or decreased by up to 20%) Solvency: 1、 Current ratio: It was mainly coming from the increase of long term debt due within one year, resulting in
the increase of current liability and current ratio reduced accordingly. 2、 Interest cover ratio: It was mainly because of the great fluctuation of the price of brass raw material in
2012 and strong competition from the market. In addition, Dongguan GEM started a series of transformation in the beginning of year 2012, due to production capacity could not be effective at that time, so caused profit before income tax reduced. Meanwhile, the increase of interest expenses also caused interest cover ratio became lower.
Profitability: 1、 Account receivable turnover: It was reduced because of the BOD meeting, dated on 11/18/2011, decided to
adjust GEM group production & sales structure, resulted in the decrease of sales and the account receivable turnover.
2、 Average A/R collection days: They decreased due to account receivable turnover was reduced. 3、 Turnover of fixed assets: It was reduced because of the BOD meeting, dated on 11/18/2011, decided to
adjust GEM group production & sales structure, resulted in the decrease of sales and the turnover of fixed assets.
4、 Turnover of total assets: It was reduced because of the BOD meeting, dated on 11/18/2011, decided to adjust GEM group production & sales structure, resulted in the decrease of sales and the turnover of total assets.
5、 Return on Assets (%): It was mainly because of the great fluctuation of the price of brass raw material in 2012 and strong competition from the market. In addition, Dongguan GEM started a series of
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transformation in the beginning of year 2012, due to production capacity could not be effective at that time, so caused profit before income tax reduced, which result in a lower return on assets.
6、 Return on stockholder’s equity (%): It was mainly because of the great fluctuation of the price of brass raw material in 2012 and strong competition from the market. In addition, Dongguan GEM started a series of transformation in the beginning of year 2012, due to production capacity could not be effective at that time, so caused profit before income tax reduced, which result in a lower return on equity.
7、 Operating Profit to Paid-in Capital Ratio (%): It was mainly because of the consolidation of Taiwan and China production sites for the integrated production plan since Q4, 2011, therefore the shipment to subsidiary decreased and reduced the company’s revenue. In addition, the great fluctuation of the price of brass raw material in year 2012, procurement cost increases dramatically which result in a lower operating profit to paid-in capital ratio.
8、 Net Income before Tax to Paid-in Capital Ratio (%): It was mainly because of the great fluctuation of the price of brass raw material in 2012 and strong competition from the market. In addition, Dongguan GEM started a series of transformation in the beginning of year 2012, due to production capacity could not be effective at that time, so caused profit before income tax reduced, which result in a lower net income before tax to paid-in capital ratio.
9、 Net profit ratio (%): It was mainly because of the great fluctuation of the price of brass raw material in 2012 and strong competition from the market. In addition, Dongguan GEM started a series of transformation in the beginning of year 2012, due to production capacity could not be effective at that time, so caused profit before income tax reduced, which result in a lower net profit ratio.
Cash flow: 1、 Cash Flow Ratio: Cash flow ratio of Year 2012 was decreased , compared with that of year 2011, mainly
due to 2012 net profit was greatly lower than 2011, resulted in cash outflow in 2012. 2、 Cash Reinvestment Ratio: Cash flow ratio of Year 2012 was decreased , compared with that of year 2011,
mainly due to 2012 net profit was greatly lower than 2011, resulted in cash outflow in 2012. Leverage: 1、 Operating Leverage: It was reduced in 2012, compared with that of 2011, mainly due to the loss in 2012. 2、 Financial Leverage: It was reduced in 2012, compared with that of 2011, mainly due to the loss in 2012.
Note 1: All the financial data of the latest five years has been verified and certified by accountant. Note 2: The above table adopted formulas as follows: 1. Financial structure
(1) Liability / asset ratio = total liabilities/total assets. (2) Long-term asset / fixed assets ratio = (net stockholder’s equity + long-term liabilities)/Net fixed assets.
2. Solvency (1) Current ratio = current assets/current liabilities. (2) Quick ratio = (current assets- inventory – prepaid expense)/current liabilities. (3) Time interest earned = net profit before income tax and interest charge / interest exchange in current
period. 3. Operation capacity (1) Turnover rate of receivables (including accounts receivable and notes receivable from business)
= net sales / balance of average receivables at different periods (including accounts receivable and notes receivable from business).
(2) Average merchandise sales days = 365/ turnover rate of receivables. (3) Inventory turnover ratio = cost of sales / average amount of inventory. (4) Turnover rate of payables (including accounts payable and notes payable from business) = cost of
sales / balance of average payables at different periods (including accounts payable and notes payable from business)
(5) Average merchandise sales days = 365/inventory turnover ratio. (6) Turnover ratio of fixed assets= net sales / net fixed assets. (7) Turnover ratio of gross assets = net sales /total assets. 4. Profitability (1) Rate of return on assets = {profit and loss after tax + interest charge x (1-tax rate)}/ average total
assets. (2) Return on stockholder’s equity = profit and loss after tax / net average stockholder’s equity (3) Net profit ratio = profit and loss after tax / net sales. (4) Dividend per share = (net profit after tax – dividend of preferred stock)/ weighted mean of issued
stocks. Note: As for the calculation for the weighted mean of issued stocks, the retroactive adjustment method
is adopted for capital increase from undistributed earnings. 5. Cash flow
(1) Cash flow ratio = net cash flow in business activity /current liabilities. (2) Proper ratio of cash flow = net cash flow in business activities of recent five years / (capital
expenditure + increase in stock + cash dividends) in recent five years. (3) Cash reinvestment ratio = (net cash flow in business activity – cash dividends)/ (gross amount of fixed
assets + long-term investment + other assets + operating fund). 6. Leverage
(1) Operating leverage = (net Operating income – changed business cost and expense) / business profit. (2) Financial leverage = business profit/ (business profit – interest charge).
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III. Audit report for financial statements in recent years
Supervisors’’ Audited report
The financial statements, the combined financial statements, the business report, the earnings distribution resolution and other forms, which were prepared and submitted by the board of directors for the company in 2012 and have been checked and signed by the accountants Chiang, Jia-Ling and Chiu, Hui-Yin, have been submitted to and audited by me (auditor) and no discrepancy has been found. So, this report is hereby prepared for examination according to the provisions of Clause 219 of the Company Law and Clause 36 of the Security Exchange Law.
With best regards! Regular stockholders’ conference 2013 of the Company
GEM TERMINAL IND. CO., LTD Supervisor: Chengfeng Investment Co., Ltd.
Representitive: Su, Tun-Li
Supervisor: Hung, Zhen-Kai
Supervisor: Wang, Lu-Jun
March 26, 2013
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IV .Financial Statements and the CPA Auditing Report, Year 2012
INDEPENDENT AUDITORS’ REPORT The Board of Directors and Stockholders GEM Terminal Ind. Co., Ltd. We have audited the accompanying balance sheets of GEM Terminal Ind. Co., Ltd. (the “Company”) as of December 31, 2012 and 2011 and the related statements of income, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China (ROC). Those rules and 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the ROC. As discussed in Note 3 to the financial statements, effective January 1, 2011, the Company adopted the newly revised Statement of Financial Accounting Standards (SFAS) No. 41 - “Operating Segments”. We have also audited, in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the ROC, the consolidated financial statements of the Company and its subsidiaries as of and for the years ended December 31, 2012 and 2011, and issued a standard unqualified opinion and an unqualified opinion with an explanatory paragraph relating to the adoption of the newly revised SFAS No. 41 - Operating Segments, respectively . March 25, 2013 Notice to Readers The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the ROC and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the ROC. For the convenience of readers, the auditors’ report and the accompanying financial statements have been
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translated into English from the original Chinese version prepared and used in the ROC. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.
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GEM TERMINAL IND. CO., LTD. BALANCE SHEETS DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Par Value)
2012 2011 2012 2011 ASSETS Amount % Amount % LIABILITIES AND STOCKHOLDERS’ EQUITY Amount % Amount % CURRENT ASSETS CURRENT LIABILITIES
Cash (Note 4) $ 862,899 19 $ 793,499 18 Short-term loans (Note 11) $ - - $ 37,031 1Financial assets at fair value through profit or loss - current Financial liabilities at fair value through profit or loss - (Notes 2, 5 and 18) 110,404 2 36,400 1 current (Notes 2, 5 and 18) - - 1,499 -Available-for-sale financial assets - current (Notes 2, 6 and 18) 28,012 1 27,620 1 Notes payable 21,412 1 31,039 1Notes receivable 54,679 1 54,000 1 Accounts payable 16,695 - 142,266 3Accounts receivable, net (Notes 2 and 7) 213,781 5 184,614 4 Accounts payable - related parties (Note 19) 135,393 3 75,183 2Accounts receivable - related parties (Note 19) 8,463 - 25,300 1 Income tax payable (Note 2) 1,887 - 6,029 -Tax refundable 4,470 - 5,032 - Accrued expenses (Note 14) 29,273 1 35,938 1Other receivables 126 - 11,622 - Long-term debts - current (Notes 12 and 18) 706,490 15 357,500 8Other receivables - related parties (Note 19) 10,461 - 45,685 1 Other current liabilities (Notes 2 and 19) 19,696 - 17,148 -Refundable deposits - current (Note 18) 51 - 5,850 - Inventories (Notes 2 and 8) 48,494 1 96,624 2 Total current liabilities 930,846 20 703,633 16Deferred income tax assets - current (Notes 2 and 15) 7,748 - 2,665 - Other current assets 18,156 - 16,937 - LONG-TERM DEBTS (Notes 12 and 18) 720,833 16 702,465 16
Total current assets 1,367,744 29 1,305,848 29 RESERVE FOR LAND VALUE INCREMENT TAX (Note 10) 7,398 - 7,398 -
INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
(Notes 2 and 9)
2,797,480 61 2,736,709 61 OTHER LIABILITIES
Accrued pension cost (Notes 2 and 13) 69,265 1 74,738 2PROPERTY, PLANT AND EQUIPMENT (Notes 2, 10, 19 and 20) Deferred credits - gain on intercompany transactions (Notes 2 and
Land 100,932 2 100,932 2 19) 87,440 2 63,835 1Buildings 169,664 4 170,072 4 Machinery and equipment 294,920 7 332,166 7 Total other liabilities 156,705 3 138,573 3Transportation equipment 11,317 - 11,317 - Office equipment 4,643 - 4,846 - Total liabilities 1,815,782 39 1,552,069 35Leasehold improvements 84 - 84 - Miscellaneous equipment 8,098 - 23,404 1 COMMON STOCK - NT$10 PAR VALUE
Total cost 589,658 13 642,821 14 Authorized: 221,000 thousand shares (including 3,000 thousand Revaluation increment - land 36,456 1 36,456 1 shares for employee options and 30,000 thousand shares for
Cost and revaluation increment 626,114 14 679,277 15 convertible bonds); issued and outstanding: 171,598 thousand Less: Accumulated depreciation 255,131 6 269,372 6 shares 1,715,980 37 1,715,980 38
370,983 8 409,905 9 Prepayments for equipment 41,535 1 14,204 - CAPITAL SURPLUS (Notes 2, and 14)
Additional paid-in capital - share issuance in excess of par 270,187 6 270,187 6Total property, plant and equipment - net 412,518 9 424,109 9
RETAINED EARNINGS (Note 14) 696,673 15 749,007 17OTHER ASSETS
Refundable deposits - noncurrent (Note 18) 170 - 1,270 - OTHER EQUITY ITEMS (Note 14) Deferred income tax assets - noncurrent (Notes 2 and 15) 29,789 1 23,304 1 Unrealized revaluation increment (Note 10) 25,785 1 25,785 -Other assets (Notes 2 and 7) 2,502 - 4,535 - Unrealized gain (loss) on financial instruments (Note 6) 2,321 - (1,996) -
Cumulative translation adjustments (Notes 2 and 9) 93,997 2 202,948 4Total other assets 32,461 1 29,109 1 Net loss not yet recognized as pension costs (Notes 2 and 13) (10,522) - (18,205) -
Total other equity items 111,581 3 208,532 4 Total stockholders' equity 2,794,421 61 2,943,706 65 TOTAL $ 4,610,203 100 $ 4,495,775 100 TOTAL $ 4,610,203 100 $ 4,495,775 100 The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated March 25, 2013)
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GEM TERMINAL IND. CO., LTD. STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2012 2011 Amount % Amount % GROSS OPERATING REVENUE $ 979,399 100 $ 1,794,065 100 LESS: SALES RETURNS 3,656 - 6,227 - SALES ALLOWANCES 147 - 144 - OPERATING REVENUE, NET (Notes 2 and 19) 975,596 100 1,787,694 100 OPERATING COSTS (Notes 8, 16 and 19) 873,510 89 1,630,364 91 GROSS PROFIT 102,086 11 157,330 9 UNREALIZED INTERCOMPANY GAIN (Notes 2
and 19) (3,993) - (2,782) - REALIZED INTERCOMPANY GAIN (Notes 2 and
19) 2,782 - 5,672 - REALIZED GROSS PROFIT 100,875 11 160,220 9 OPERATING EXPENSES (Notes 16 and 19)
Research and development 42,935 5 15,386 1Selling 21,761 2 31,972 2General and administrative 80,410 8 82,502 4
Total operating expenses 145,106 15 129,860 7
OPERATING INCOME (LOSS) (44,231) (4) 30,360 2 NONOPERATING INCOME AND GAINS
Interest income (Note 18) 5,457 1 5,282 -Valuation gain on financial assets, net (Note 5) - - 1,424 -Valuation gain on financial liabilities, net (Note 5) 832 - - -Investment income recognized under the equity
method, net (Notes 2 and 9) 143,282 15 180,046 10Dividend income 198 - 2,515 -Exchange gain, net (Note 2) - - 24,157 1Gain on disposal of property, plant and equipment
(Note 19) 2,852 - 1,693 -Miscellaneous income (Note 19) 10,538 1 9,898 1
Total nonoperating income and gains 163,159 17 225,015 12
(Continued)
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GEM TERMINAL IND. CO., LTD. STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2012 2011 Amount % Amount % NONOPERATING EXPENSES AND LOSSES
Interest expense (Notes 10 and 18) $ 24,953 3 $ 21,971 1Valuation loss on financial assets, net (Note 5) 600 - - -Valuation loss on financial liabilities, net (Note 5) - - 8,167 1Exchange loss, net (Note 2) 9,324 1 - -Loss on disposal of property, plant and equipment 1,504 - 10,564 1Loss on sale of investments, net (Note 14) 988 - 24,153 1Miscellaneous expenses 1 - 633 -
Total nonoperating expenses and losses 37,370 4 65,488 4
INCOME BEFORE INCOME TAX 81,558 9 189,887 10 INCOME TAX EXPENSE (BENEFIT) (Notes 2 and
15) (3,386) - 4,587 - NET INCOME $ 84,944 9 $ 185,300 10 2012 2011 Pretax Post-Tax Pretax Post-Tax EARNINGS PER SHARE (New Taiwan Dollars, Note
17) Basic $ 0.48 $ 0.50 $ 1.11 $ 1.08 Diluted 0.47 0.49 1.10 1.07
The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated March 25, 2013)
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GEM TERMINAL IND. CO., LTD. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars)
Other Equity Items Unrealized Capital Surplus - Retained Earnings Unrealized Gain (Loss) Cumulative Net Loss Not Total Share Issuance Unappropriated Revaluation on Financial Translation Yet Recognized Stockholders' Common Stock in Excess of Par Legal Reserve Earnings Increment Instruments Adjustments as Pension Cost Equity
BALANCE, JANUARY 1, 2011 $ 1,715,980 $ 270,187 $ 269,226 $ 500,399 $ 25,785 $ 14,296 $ 12,200 $ (14,848) $ 2,793,225 Appropriation of the 2010 earnings (Note 14)
Legal reserve - - 32,156 (32,156) - - - - - Cash dividends - 12% - - - (205,918) - - - - (205,918)
Net income for the year ended December 31, 2011 - - - 185,300 - - - - 185,300 Change in unrealized gain (loss) on available-for-sale financial assets
(Notes 6 and 14) - - - - - (16,292) - - (16,292) Change in translation adjustments - - - - - - 190,748 - 190,748 Change in net loss not yet recognized as pension costs (Note 13) - - - - - - - (3,357) (3,357) BALANCE, DECEMBER 31, 2011 1,715,980 270,187 301,382 447,625 25,785 (1,996) 202,948 (18,205) 2,943,706 Appropriation of the 2011 earnings (Note 14)
Legal reserve - - 18,530 (18,530) - - - - - Cash dividends - 8% - - - (137,278) - - - - (137,278)
Net income for the year ended December 31, 2012 - - - 84,944 - - - - 84,944 Change in unrealized gain (loss) on available-for-sale financial assets
(Notes 6 and 14) - - - - - 4,317 - - 4,317 Change in translation adjustments - - - - - - (108,951) - (108,951) Change in net loss not yet recognized as pension costs (Note 13) - - - - - - - 7,683 7,683 BALANCE, DECEMBER 31, 2012 $ 1,715,980 $ 270,187 $ 319,912 $ 376,761 $ 25,785 $ 2,321 $ 93,997 $ (10,522) $ 2,794,421 The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated March 25, 2013)
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GEM TERMINAL IND. CO., LTD. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars)
2012 2011 CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 84,944 $ 185,300 Adjustments to reconcile net income to net cash provided by (used in)
operating activities Depreciation 38,548 47,487 Amortization 2,257 2,477 Allowance for doubtful accounts 879 550 Loss on sale of investments, net 988 24,153 Loss (Gain) on disposal of property, plant and equipment, net (1,348) 8,871 Valuation loss (gain) on financial instruments, net (232) 6,743 Investment income recognized under the equity method (143,282) (180,046)Deferred income tax (12,217) (8,092)Pension cost 2,210 1,693 Unrealized intercompany gain (loss), net 1,211 (2,890)Others 17,648 24,846 Changes in operating assets and liabilities
Financial assets held for trading 1,230 (16,032)Notes receivable (679) 148,740 Accounts receivable, net (30,046) (135,166)Accounts receivable - related parties 16,837 42,327 Other receivable and tax refundable 12,058 (652)Inventories 48,130 92,735 Other current assets (1,219) 1,218 Financial liabilities held for trading (667) (6,668)Notes payable (9,627) (17,753)Accounts payable (125,571) (166,097)Accounts payable - related parties 60,210 35,576 Income tax payable (4,142) (13,055)Accrued expenses (6,665) (13,386)Other current liabilities 1,634 (3,002)
Net cash provided by (used in) operating activities (46,911) 59,877
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of financial assets designated as at fair value through profit or loss (113,159) (13,168)
Proceeds from disposal of financial assets designated as at fair value through profit or loss 37,312 3,236
Acquisition of available-for-sale financial assets (44,910) (977,068)Proceeds from disposal of available-for-sale financial assets 48,172 1,055,509 Acquisition of property, plant and equipment (64,697) (63,070)Acquisition of investments accounted for by the equity method (26,440) (124,152)Proceeds from disposal of property, plant and equipment 38,047 26,158 Decrease in restricted assets - 7,500 Decrease (Increase) in other receivable - related parties 42,107 (23,150)
(Continued)
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GEM TERMINAL IND. CO., LTD. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) 2012 2011
Decrease (Increase) in refundable deposits $ 6,912 $ (3,144)Increase in other assets (224) (4,371)
Net cash used in investing activities (76,880) (115,720)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease (Increase) in short-term loans (37,031) 37,031 Proceeds from long-term debts 725,000 250,000 Repayment of long-term debts (357,500) (255,000)Cash dividends (137,278) (205,918)
Net cash provided by (used in) financing activities 193,191 (173,887)
NET INCREASE (DECREASE) IN CASH 69,400 (229,730) CASH, BEGINNING OF YEAR 793,499 1,023,229 CASH, END OF YEAR $ 862,899 $ 793,499 SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 24,802 $ 21,672 Less: Capitalized interest 519 258
Interest paid (excluding capitalized interest) $ 24,283 $ 21,414 Income tax paid $ 15,158 $ 25,734
INVESTING ACTIVITIES AFFECTING BOTH CASH AND
NONCASH ITEMS Acquisition of property, plant and equipment $ 64,400 $ 33,512 Decrease in payable for equipment purchased (classified under other
current liabilities) 297 29,558 Cash paid $ 64,697 $ 63,070 Proceeds from disposal of property, plant and equipment $ 44,930 $ 26,365 Increase in other receivables - related parties (6,883) (207)Cash received $ 38,047 $ 26,158
FINANCING ACTIVITIES AFFECTING NONCASH ITEMS
Current portion of long-term debt $ 706,490 $ 357,500 The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated March 25, 2013) (Concluded)
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GEM TERMINAL IND. CO., LTD. NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) 1. ORGANIZATION AND OPERATIONS
GEM Terminal Ind. Co., Ltd. (the “Company”) was incorporated in July 1993 under the laws of the Republic of China (ROC). The Company mainly manufactures and sells the following products: Series terminals, plug inserts, housing and electronic connectors for AC and DC power cords. Electric and motor parts terminal. Electric and communication terminal. Optical communication passive devices. Lead frames. The Company’s shares have been traded on the Taiwan Stock Exchange since September 2001. As of December 31, 2012 and 2011, the Company had approximately 170 and 180 employees, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES For readers’ convenience, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the ROC. If inconsistencies arise between the English version and the Chinese version or if differences arise in the interpretations between the two versions, the Chinese version of the financial statements shall prevail. The financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Business Accounting Law, Guidelines Governing Business Accounting and accounting principles generally accepted in the Republic of China (ROC). Significant accounting policies are summarized as follows: Foreign Currencies Nonderivative foreign-currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange differences arising from settlement of foreign-currency assets and liabilities are recognized in profit or loss. At the balance sheet date, foreign-currency monetary assets and liabilities are revalued using prevailing exchange rates and the exchange differences are recognized in profit or loss. At the balance sheet date, foreign-currency nonmonetary assets (such as equity instruments) and liabilities that are measured at fair value are revalued using prevailing exchange rates, with the exchange differences treated as follows: a. Recognized in stockholders’ equity if the changes in fair value are recognized in stockholders’ equity; b. Recognized in profit and loss if the changes in fair value are recognized in profit or loss. Foreign-currency nonmonetary assets and liabilities that are carried at cost continue to be stated at exchange rates at trade dates.
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If the functional currency of an equity-method investee is a foreign currency, translation adjustments will result from the translation of the investee’s financial statements into the reporting currency of the Company. Such adjustments are accumulated and reported as a separate component of stockholders’ equity. Accounting Estimates Under the above guidelines, law and principles, certain estimates and assumptions have been used for the allowance for doubtful accounts, allowance for loss on inventories, depreciation of property, plant and equipment, income tax, impairment of assets, pension cost, bonuses to employees, directors and supervisors, etc. Actual results may differ from these estimates. Current and Noncurrent Assets and Liabilities Current assets include cash and those assets held primarily for trading purposes or to be realized, sold or consumed within one year from the balance sheet date. All other assets such as property, plant and equipment and intangible assets are classified as noncurrent. Current liabilities are obligations incurred for trading purposes or to be settled within one year from the balance sheet date. All other liabilities are classified as noncurrent. Financial Assets and Liabilities at Fair Value through Profit or Loss Financial instruments classified as financial assets or financial liabilities at fair value through profit or loss (FVTPL) include financial assets or financial liabilities held for trading and those designated as at FVTPL on initial recognition. The Company recognizes a financial asset or a financial liability on its balance sheet when the Company becomes a party to the contractual provisions of the financial instrument. A financial asset is derecognized when the Company has lost control of its contractual rights over the financial asset. A financial liability is derecognized when the obligation specified in the relevant contract is discharged, cancelled or expired. Financial instruments at FVTPL are initially measured at fair value, and transaction costs directly attributable to the acquisition of financial assets or financial liabilities. At each balance sheet date subsequent to initial recognition, financial assets or financial liabilities at FVTPL are remeasured at fair value, with changes in fair value recognized directly in profit or loss in the year in which they arise. Cash dividends received subsequently (including those received in the year of investment) are recognized as income for the year. On derecognition of a financial asset or a financial liability, the difference between its carrying amount and the sum of the consideration received and receivable or consideration paid and payable is recognized in profit or loss. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. A derivative that does not meet the criteria for hedge accounting is classified as a financial asset or a financial liability held for trading. If the fair value of the derivative is positive, the derivative is recognized as a financial asset; otherwise, the derivative is recognized as a financial liability. The initial margins (classified under refundable deposits) paid for futures contracts used to avoid adverse fluctuations of the trade prices of copper raw materials are recorded using memorandum entries only. At each balance sheet date subsequent to initial recognition, futures contracts at FVTPL are remeasured at fair value, with changes in fair value recognized directly in profit or loss in the year in which they arise. Any gain or loss on the futures contracts is recognized in profit or loss in the year in which it arises. Financial instruments designated as at FVTPL include hybrid contracts, which contain a host contract and embedded derivatives. If the embedded derivative cannot be measured separately either at acquisition or at the end of a subsequent financial reporting period, the entire hybrid contract is designated as at fair value through profit or loss.
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Fair values of financial assets and financial liabilities at the balance sheet date are determined as follows: publicly traded stocks - at closing prices; open-end mutual funds - at net asset values; callable preferred securities - at closing prices or quoted prices from overseas securities firms; financial assets and financial liabilities without quoted prices in an active market - at values estimated using valuation techniques; open interest futures contracts - at prices quoted by overseas futures exchanges; and gold passbook - at prices quoted by domestic banks. Available-for-sale Financial Assets Available-for-sale financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition. At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are remeasured at fair value, with changes in fair value recognized in equity until the financial assets are disposed of, at which time, the cumulative gain or loss previously recognized in equity is included in profit or loss for the year. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. The recognition, derecognition and fair value bases of available-for-sale financial assets are the same as those of financial assets at FVTPL. An impairment loss is recognized when there is objective evidence that the financial asset is impaired. Any subsequent decrease in impairment loss on an equity instrument classified as available-for-sale is recognized directly in equity. If the fair value of a debt instrument classified as available-for-sale subsequently increases as a result of an event which occurred after the impairment loss was recognized, the decrease in impairment loss is reversed to profit. Impairment of Accounts Receivable Accounts receivable are assessed for impairment at the end of each reporting period and considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the accounts receivable, the estimated future cash flows of the asset have been affected. Objective evidence of impairment includes: Significant financial difficulty of the debtor; The accounts receivable becoming overdue; It is becoming probable that the debtor will enter into bankruptcy or undergo financial reorganization. Accounts receivable that are assessed as not impaired individually are further assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of accounts receivable could include the Company’s past experience in the collection of payments and an increase in the number of delayed payments, as well as observable changes in national or local economic conditions that correlate with defaults on receivables. The amount of the impairment loss recognized is the difference between the asset carrying amount and the present value of estimated future cash flows, after taking into account the related collaterals and guarantees, discounted at the receivable’s original effective interest rate. The carrying amount of the accounts receivable is reduced through the use of an allowance account. When accounts receivable are considered uncollectible, they are written off against the allowance account. Recoveries of amounts previously written off are credited to the allowance account. Changes in the carrying amount of the allowance account are recognized as bad debt in profit or loss. Impairment of Assets If the recoverable amount of an asset (mainly property, plant and equipment, and investments accounted for by the equity method) is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is charged to earnings unless the asset is carried at
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a revalued amount, in which case the impairment loss is first treated as a deduction to the unrealized revaluation increment and any remaining loss is charged to earnings. If an impairment loss subsequently reverses, the carrying amount of the asset is increased accordingly, but the increased carrying amount may not exceed the carrying amount that would have been determined had no impairment loss been recognized on the asset in prior years. A reversal of an impairment loss is recognized in earnings, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is first recognized as gain to the extent that an impairment loss on the same revalued asset was previously charged to earnings. Any excess amount is treated as an increase in the unrealized revaluation increment. For the purpose of impairment testing, goodwill is allocated to the relevant cash-generating units (CGUs) that are expected to benefit from the synergies of the acquisition. A CGU to which goodwill has been allocated is tested for impairment annually or whenever there is an indication that the CGU may be impaired. If the recoverable amount of the CGU becomes less than its carrying amount, the impairment is allocated to first reduce the carrying amount of the goodwill allocated to the CGU and then to the other assets of the CGU pro rata on the basis of the carrying amount of each asset in the CGU. A reversal of an impairment loss on goodwill is disallowed. Inventories Inventories consist of merchandise, raw materials, supplies, finished goods and work-in-process and are stated at the lower of cost or net realizable value. Inventory write-downs are made by item, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. Inventories are recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date. Investments Accounted for by the Equity Method Investments in which the Company has control over the investees’ operating and financial policy decisions are accounted for by the equity method. The acquisition cost is allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, and the acquisition cost in excess of the fair value of the identifiable net assets acquired is recognized as goodwill. Goodwill is not amortized. The fair value of the net identifiable assets acquired in excess of the acquisition cost is used to reduce the fair value of each of the noncurrent assets acquired (except for financial assets other than investments accounted for by the equity method and deferred income tax assets) in proportion to the respective fair values of the noncurrent assets, with any excess recognized as an extraordinary gain. Effective January 1, 2006, the accounting treatment for the unamortized investment premium arising on acquisitions before January 1, 2006 is the same as that for goodwill and the premium is no longer being amortized. Profits from downstream transactions with an equity-method investee are eliminated in proportion to the Company’s percentage of ownership in the investee, if the Company has control over the investee, all the profits are eliminated. Profits from upstream transactions with equity-method investees are eliminated in proportion to the Company’s percentage of ownership in the investee. Gains or losses on sales between equity-method investees are deferred until they are realized through transactions with third parties. Property, Plant and Equipment Land is stated at cost plus revaluation increment. Property, plant and equipment, except land, are stated at cost less accumulated depreciation. Major additions and improvements to property, plant and equipment are capitalized, while costs of repairs and maintenance are expensed currently.
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Depreciation is provided on a straight-line basis over estimated useful lives as follows: buildings - 5 to 55 years; machinery and equipment - 3 to 15 years; transportation equipment - 3 to 10 years; office equipment - 3 to 10 years; leasehold improvements - 6 years; and miscellaneous equipment - 2 to 15 years. Property, plant and equipment still in use beyond their original estimated useful lives are further depreciated over their new estimated useful lives. The related cost (including revaluation increment), accumulated depreciation, reserve for land value increment tax and unrealized revaluation increment of an item of property, plant and equipment are derecognized from the balance sheet upon its disposal. Any gain or loss on disposal of the asset is included in nonoperating gains or losses in the year of disposal. Deferred Credits Unrealized gains from intercompany transactions are recorded as deferred credits. The unrealized gains on disposal of assets from intercompany transactions are amortized by the straight-line method over 10 years. Pension Cost Pension cost under a defined benefit plan is determined by actuarial valuations. Contributions made under a defined contribution plan are recognized as pension cost during the year in which employees render services. If additional accrued pension liability is recognized on the basis of an actuarial pension report and the amount of additional liability does not exceed the sum of unrecognized prior service cost and unrecognized transitional net benefit obligation, the deferred pension cost account should be charged. If the amount of additional liability exceeds the sum, the excess should be charged to the net loss not yet recognized as pension cost account. Deferred pension cost is classified as an intangible asset; net loss not yet recognized as pension cost is classified as a reduction of stockholders’ equity. Income Tax The Company applies the intra-year and inter-year allocation methods to its income tax, whereby (1) a portion of income tax expense is allocated to the effect charged or credited directly to shareholders’ equity; and (2) deferred income tax assets and liabilities are recognized for the tax effects of temporary differences, unused loss carryforward and unused tax credits. Valuation allowance is provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred income tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as current or noncurrent based on the expected length of time before it is realized or settled. If the Company’s management resolves to use the unappropriated retained earnings of overseas subsidiaries as permanent investment to supplement subsidiaries’ operating funds, deferred income tax liabilities on the investment income will not be provided for. Tax credits for purchases of machinery, equipment and technology, and research and development expenditures are recognized using the flow-through method. Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision. According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided for as income tax in the year the stockholders approve the retention of the earnings.
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Revenue Recognition Revenues are recognized when titles to products and risks of ownership are transferred to customers as follows: Domestic sales - when products are brought out of the Company’s premises for delivery to customers; export sales - when products are loaded onto vessels. Sales are measured at fair value, the price (net of trade discounts and sales discounts) agreed to by the Company and customers. If the related receivable is due within one year, the difference between its present value and receivable amount is immaterial, and sales transactions are frequent, the fair value of receivables is equivalent to the nominal amount of cash to be received.
3. EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES Financial Instruments Effective January 1, 2011, the Company adopted the newly revised Statement of Financial Accounting Standards (SFAS) No. 34- “Financial Instruments: Recognition and Measurement.” The main revisions include (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Company are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost when a debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This accounting change had no significant impact on the Company’s net income and basic earnings per share for the year ended December 31, 2011. Operating Segments Effective January 1, 2011, the Company adopted the newly issued SFAS No. 41 - “Operating Segments.” The statement requires that segment information be disclosed on the basis of information about the components of the Company that management uses to make decisions about operating decisions. SFAS No. 41 requires identification of operating segments on the basis of internal reports that are regularly reviewed by the Company’s chief operating decision maker in order to allocate resources to the segments and assess their performance. This statement supersedes SFAS No. 20 - “Segment Reporting.” For this accounting change, the Company restated the segment information as of and for the year ended December 31, 2010 to conform to the disclosures as of and for the year ended December 31, 2011.
4. CASH
December 31 2012 2011 Cash on hand $ 507 $ 391 Demand deposits 496,721 530,004 Time deposits 365,470 262,903 Checking accounts 201 201 $ 862,899 $ 793,499
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5. FINANCIAL INSTRUMENTS AT FVTPL – CURRENT
December 31 2012 2011
Financial assets held for trading $ 106,467 $ 23,545 Financial assets designated as at FVTPL 3,937 12,855 $ 110,404 $ 36,400 Financial liabilities held for trading $ - $ 1,499 a. Financial instruments designated as at FVTPL were as follows:
December 31 2012 2011
Financial assets designated as at FVTPL Callable preferred stock with interest $ 3,937 $ 12,855
Net gain on financial assets designated as at FVTPL was $2,957 thousand in 2012 (classified under nonoperating expenses and losses - valuation loss on financial assets, net); net loss on financial assets designated as at FVTPL was $1,760 thousand in 2011 (classified under nonoperating income and gains - valuation gain on financial assets, net).
b. Financial instruments classified as held for trading were as follows:
December 31 2012 2011
Financial assets held for trading Gold passbook $ 106,467 $ 23,545 Financial liabilities held for trading Forward exchange contracts $ - $ 1,499 The Company used forward exchange contracts and copper futures contracts to manage exposures to adverse exchange rate and copper price fluctuations. The financial risk management objective of the Company is to minimize risks due to changes in fair value or cash flows of the hedge items. These contracts did not meet the criteria for hedge accounting. As of December 31, 2012 and 2011, there were no outstanding copper futures contracts. As of December 31, 2012, there was no outstanding forward exchange contract. Outstanding forward exchange contracts as of December 31, 2011 were as follows: Contract Amount Currency Maturity Date (In Thousands) Sell USD/NTD 2012.01.17 USD500/NTD14,707 Sell USD/NTD 2012.01.17 USD500/NTD14,768 Sell HKD/NTD 2012.01.17 HKD3,000/NTD11,340
(Continued)
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Contract Amount Currency Maturity Date (In Thousands) Sell USD/NTD 2012.02.17 USD500/NTD15,077 Sell HKD/NTD 2012.02.17 HKD3,000/NTD11,641Sell USD/NTD 2012.03.19 USD500/NTD14,997 Sell HKD/NTD 2012.03.19 HKD3,000/NTD11,581
Net loss on financial assets held for trading was $3,557 thousand in 2012 (classified under nonoperating expenses and losses – valuation loss on financial assets, net); net gain on financial assets held for trading was $3,184 thousand in 2011 (classified under nonoperating income and gains - valuation gain on financial assets, net). Net gain on financial liabilities held for trading was $832 thousand in 2012 (classified under nonoperating income and gains - valuation gain on financial liabilities, net); net loss on financial liabilities held for trading was $8,167 thousand in 2011(classified under nonoperating expenses and losses - valuation loss on financial liabilities, net).
6. AVAILABLE-FOR-SALE FINANCIAL ASSETS - CURRENT
December 31 2012 2011 Overseas quoted stocks $ 17,800 $ 8,588 Overseas mutual funds 5,967 1,336 Domestic quoted stocks 1,455 19,872 25,222 29,796 Valuation adjustment (Note 14) 2,790 (2,176) $ 28,012 $ 27,620
7. ACCOUNTS RECEIVABLE, NET
December 31 2012 2011 Accounts receivable $ 215,563 $ 185,517 Less: Allowance for doubtful accounts (Note 2) 1,782 903 $ 213,781 $ 184,614 Movements of the allowance for doubtful accounts were as follows:
Years Ended December 31 2012 2011
Accounts
ReceivableOverdue
ReceivablesAccounts
Receivable Overdue
Receivables Balance, beginning of year $ 903 $ - $ 360 $ 2,838 Allowance for doubtful accounts 879 - 550 - Reclassified - - (7) 7 Written-off - - - (2,845) Balance, end of year $ 1,782 $ - $ 903 $ -
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Overdue receivables that were classified under other assets and fully covered by an allowance for doubtful accounts were written off in 2011.
8. INVENTORIES
December 31 2012 2011 Merchandise $ 23,928 $ - Raw materials 8,548 46,150 Finished goods 8,428 40,833 Supplies 3,831 2,528 Work in process 3,759 7,113 $ 48,494 $ 96,624 As of December 31, 2012 and 2011, the allowances for inventory devaluation were $4,893 thousand and $4,970 thousand, respectively, which were recorded as reduction of inventories. The costs of inventories recognized as costs of goods sold were $873,510 thousand in 2012 and $1,630,364 thousand in 2011, which included the following items: Years Ended December 31 2012 2011 Unallocated fixed manufacturing costs $ 13,380 $ 39,977 Write-downs of inventories - 2,747 Others 19 (5) $ 13,399 $ 42,719
9. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
December 31 2012 2011
Amount
% of Owner-
ship
Amount
% of Owner-
ship Global Electronics Terminal (Cayman) Co.,
Ltd. (Global (Cayman)) $ 2,679,559 100 $ 2,614,083 100 Genius Terminal Co., Ltd. (Genius) 91,295 100 94,199 100 GEM Terminal (Cayman) Co., (GEM
(Cayman)) 26,626 100 28,427 100 $ 2,797,480 $ 2,736,709 In December 2004, the Company invested in Global (Cayman), which was incorporated in the Cayman Islands and mainly engages in global investments. The Company increased its investment in Global (Cayman) for a total of $26,440 thousand (US$900 thousand) in 2012 and $106,330 thousand (US$3,500 thousand) in 2011, respectively. As of December 31, 2012, the Company’s total investment in Global (Cayman) amounted to $1,142,950 thousand (US$35,037 thousand).
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In August 2010, the Company invested in GEM (Cayman), which was incorporated in the Cayman Islands and mainly engages in global investments. The Company increased the investment in GEM (Cayman) for a total of $17,822 thousand (US$600 thousand) in 2011. As of December 31, 2012, the Company’s total investment in GEM (Cayman) amounted to $30,254 thousand (US$1,000 thousand). The investees’ other information is shown in Tables 6 and 7. Movements of investments accounted for by the equity method were as follows: Years Ended December 31 2012 2011 Balance, beginning of year $ 2,736,709 $ 2,241,763 Addition 26,440 124,152 Investment income under the equity method 143,282 180,046 Translation adjustments (108,951) 190,748 Balance, end of year $ 2,797,480 $ 2,736,709 Investment income (loss) under the equity method was as follows:
Years Ended December 31 2012 2011
Investee’s Net Income
(Loss)
Recognized Investment
Income (Loss)
Investee’s Net Income
(Loss)
Recognized Investment
Income (Loss)
Global (Cayman) $ 143,337 $ 143,337 $ 171,963 $ 171,963 Genius 675 675 9,161 9,161 GEM (Cayman) (730) (730) (1,078) (1,078) $ 143,282 $ 180,046 The Company had prepared consolidated financial statements including all its subsidiaries in accordance with the related regulations.
10. PROPERTY, PLANT AND EQUIPMENT
December 31 2012 2011 Accumulated depreciation
Buildings $ 108,371 $ 100,691 Machinery and equipment 134,684 147,224 Transportation equipment 9,456 8,658 Office equipment 879 558 Leasehold improvements 33 18 Miscellaneous equipment 1,708 12,223
$ 255,131 $ 269,372 In the second quarter of 2011, the Company purchased land for $6,271 thousand. On this land, a resort will be constructed for the employees. However, a part of the land is agricultural land that cannot be transferred to the Company because of statutory limitations; thus, the Company registered the property
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rights in the name of an individual temporarily. The land has already set-up as mortgage to the Company and state the clause of unconditional conveyance under the agreement that register the land by other’s name. Interest was capitalized as follows: Years Ended December 31 2012 2011 Amounts of capitalized interest (classified under machinery and
equipment and prepayments for equipment ) $ 519 $ 258 Interest rates for capitalized interest p.a. 1.85%-2.10% 1.83%-2.18% The Company revalued its land in 1997 and 1996. In 2005, the ROC government revised the Land Law and reduced the rate of the land value increment tax; thus, the reserve for land value increment tax decreased. The decrease in the land value increment tax of $7,291 thousand was included in unrealized revaluation increment under stockholders’ equity. Information about unrealized revaluation increment was as follows:
Amount Revaluation amount $ 93,021 Less: Book value before revaluation value increments 56,565 Revaluation increment 36,456 Less: Reserve for land value increment tax 7,398 Revaluation increment, net amount 29,058 Less: Capitalization 3,273 Unrealized revaluation increment as of December 31, 2012 and 2011 (Note 14) $ 25,785
11. SHORT-TERM LOANS - ONLY DECEMBER 31, 2011
Amount Purchase loans
1.74% p.a. as of December 31, 2011 $ 37,031
(HK$ 9,500 thousand)
12. LONG-TERM DEBTS
December 31 2012 2011 Unsecured loans $ 1,277,500 $ 910,000 Commercial paper payable 150,000 150,000 Less: Unamortized discount total 177 35 149,823 149,965 1,427,323 1,059,965 Less: Current portion 706,490 357,500 $ 720,833 $ 702,465
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a. Unsecured loan December 31 2012 2011 China Development Industrial Bank: Repayable in
three semiannual installments from August 2014 to August 2015; interest rate at 1.72% p.a. as of December 31, 2012 $ 150,000
$ - China Development Industrial Bank: Repaid in October 2012;
interest rate at 1.63% p.a. -
100,000 E. Sun Bank: Repayable in four semiannual installments from
November 2013 to May 2015; interest rate at 1.78% p.a. as of December 31, 2012 100,000
- E. Sun Bank: Repayable in four semiannual installments from
January 2012 to July 2013; interest rate at 1.87% p.a. as of December 31, 2012 and 2011 50,000
100,000 Bangkok Bank: Repayable on maturity in November 2013;
interest rate at 1.94% p.a. as of December 31, 2012 and 2011 100,000
100,000 Taishin International Bank: Repayable in two semiannual
installments from June 2013 to December 2013; interest rate at 1.91% p.a. as of December 31, 2012 and 2011 100,000
100,000 Taipei Fubon Bank: Repayable in four semiannual installments
from September 2013 to March 2015; interest rate at 1.79% p.a. as of December 31, 2012 200,000
- Taipei Fubon Bank: Repayable in four semiannual installments
from June 2012 to December 2013; interest rate at 1.97% p.a. as of December 31, 2012 and 2011 50,000
100,000 Changhua Bank: Repayable in three semiannual installments
from February 2013 to February 2014; interest rate at 2.00% p.a. as of December 31, 2012 and 2011 100,000
100,000 Industrial Bank of Taiwan: Repayable in four semiannual
installments from September 2012 to March 2014; interest rate at 2.09% p.a. as of December 31, 2012 and 2011 75,000
100,000 Industrial Bank of Taiwan: Repayable in four semiannual
installments from January 2014 to July 2015; interest rate at 1.73% p.a. as of December 31, 2012 75,000
- Industrial Bank of Taiwan: Repayable in four semiannual
installments from September 2012 to March 2014; interest rate at 1.78% p.a. as of December 31, 2012 and 2011 37,500
50,000 Taiwan bank: Repayable in four semiannual installments from
January 2014 to July 2015; interest rate at 1.66% as of December 31, 2012 100,000
- Yuanta Bank: Repayable in two semiannual installments from
November 2014 to May 2015; interest rate at 1.82% p.a. as of December 31, 2012 100,000
- Kaohsiung Bank: Repayable in two annual installments from
May 2011 to October 2012, and two semiannual installments from November 2012 to May 2013; interest rate at 2.20% p.a. as of December 31, 2012 and 2011 20,000
100,000 Mega International Commercial Bank: Repayable in five
semiannual installments from March 2011 to March 2013; interest rate at 1.87% p.a. as of December 31, 2012 and 2011 20,000
60,000 1,277,500 910,000 Less: Current portion 556,667 357,500 $ 720,833 $ 552,500
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Under the loan agreements with China Development Industrial Bank, Taishin International Bank and Bangkok Bank, the Company should maintain certain financial ratios. These financial ratios are calculated on the basis of audited semiannual and annual stand-alone financial statements (FS), reviewed semiannual consolidated FS and audited annual consolidated FS. As of December 31, 2012, the Company was in compliance with the financial ratio requirements of China Development Industrial Bank and Bangkok Bank In March 2013 Taishin International Bank agreed to exempt the Company from maintaining debt ratio and interest coverage ratio calculated on the basis of audited annual consolidated financial statements and the loans from Taishin International Bank had been included in the Company’s long-term debts - current portion at the end of December 2012.
b. Commercial paper payable
Interest
Rate
P.A. December 31 Acceptance Bank (%) Credit Line Maturity 2012 2011
International Bills Finance
Corporation/ Ta Chong Bank Ltd. (TC Bank)
1.55 $ 150,000 January 2013
$ 150,000 $ 150,000
Less: Unamortized discounts 177 35 149,823 149,965Less: Current portion 149,823 - $ - $ 149,965
Under the loan agreements with TC Bank, the Company should maintain certain financial ratios based on reviewed semiannual and audited annual consolidated financial statements. As of December 31, 2012, the Company was not in compliance with TC Bank’s debts ratio requirement; however, the loan was repaid on January 21, 2013. The Company committed to International Bills Finance Corporation to use from January 2010 to January 2013 the full amount of the credit lines granted by the bank; otherwise, the Company will be charged commitment fees at 1.55%, of the credit amounts. The financial ratio of the Company as of December 31, 2012 was in compliance with the requirements stated in the loan agreements with the bank.
13. PENSION PLANS
The pension plan under the Labor Pension Act (LPA) is a defined contribution plan. Based on the LPA, the rate of the Company’s monthly contributions to employees’ individual pension accounts is at 6% of monthly salaries and wages. Such pension costs were $3,339 thousand and $3,450 thousand for the years ended December 31, 2012 and 2011, respectively. Based on the defined benefit plan under the Labor Standards Law (LSL), pension benefits are calculated on the basis of the length of service and average monthly salaries and wages of the six months before retirement. The Company contributes amounts equal to 4% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. The pension fund is deposited in the Bank of Taiwan in the committee’s name. In November 2005, the Company set up an officers’ pension fund committee, which is in charge of reviewing, monitoring, and auditing the withdrawal, maintenance, and distribution of the pension fund set
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up for management level officers. As of December 31, 2012 and 2011, the balances of this fund were $1,581 thousand (consisting of demand deposits of $81 thousand and time deposits of $1,500 thousand) and $1,107 thousand (consisting of demand deposits of $7 thousand and time deposits of $1,100 thousand), respectively. Other information about the defined benefit plan is as follows: a. Components of net periodic pension cost
Years Ended December 31 2012 2011 Service cost $ 1,270 $ 1,363 Interest cost 2,161 2,372 Projected return on plan assets (522) (640) Amortization of pension loss 1,827 1,289 $ 4,736 $ 4,384
b. Reconciliation of funded status of the plan and accrued pension cost
December 31 2012 2011
Benefit obligation
Vested benefit obligation $ 41,849 $ 37,150 Non-vested benefit obligation 56,307 63,683 Accumulated benefit obligation 98,156 100,833 Additional benefits based on future salaries 6,242 7,215 Projected benefit obligation 104,398 108,048
Fair value of plan assets (28,891) (26,095) Funded status 75,507 81,953 Unrecognized net loss (16,764) (25,420) Additional pension liabilities
Unrecognized pension loss 10,522 18,205 Accrued pension cost $ 69,265 $ 74,738 Vested benefit $ 42,574 $ 38,082
c. Actuarial assumptions
December 31 2012 2011 Discount rate used in determining present values 2.00% 2.25% Future salary increase rate 1.20% 1.20% Expected rate of return on plan assets 2.00% 2.25%
Years Ended December 31 2012 2011 d. Contributions to the fund $ 2,527 $ 2,691 e. Payments from the fund $ - $ 5,378
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14. STOCKHOLDERS’ EQUITY
Capital Surplus The capital surplus from shares issued in excess of par (additional paid-in capital from issuance of common shares, conversion of bonds and treasury stock transactions) and donations may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or transferred to capital (limited to a certain percentage of the Company’s paid-in capital and once a year). Appropriation of Earnings and Dividend Policy Under the Company’s Articles of Incorporation, the Company should make appropriations from its net income (less any deficit) in the following order: a. 10% as legal reserve, until its balance equals the Company’s paid-in capital; b. Special reserve in accordance with relevant laws or regulations or as requested by the authorities in
charge; c. Dividends, bonus to employees, and remuneration to directors and supervisors (bonus to employees
should be at least 3%, and any remaining balance should be allocated or retained by Board of Directors in accordance with the Company’s operation; all of these appropriations should be submitted to the stockholders’ meeting for approval);
d. If bonus to employees is in form of stock, affiliates’ employees who meet certain requirements may also
receive the stock bonus. The stock bonus distribution plan should be approved in a board of directors’ meeting.
The Company’s dividend policy is in line with the Company’s operating scale and research and development needs as well as the status of the economy and industry in order to maintain sound management and promote stockholders’ long-term interests. Company’s profits may be distributed in the form of cash and/or stock. However, distribution of profits should preferably be in the form of cash dividend. The dividends should be at least 50% of total unappropriated earnings. Cash dividends should be at least 10% of total dividends. But if a cash dividend is less than NT$0.2, the Company may choose to appropriate stock dividends instead. For 2012 and 2011, the bonuses to employees were estimated at $4,000 thousand and $8,000 thousand, respectively, and the remunerations to directors and supervisors were both $2,100 thousand. The bonus to employees and remuneration to directors and supervisors were (a) for 2012, 5.23% and 2.75%, respectively, of net income (net of the bonus and remuneration) after legal reserve and (b) for 2011, 4.80% and 1.26%, respectively, of net income (net of the bonus and remuneration) after legal reserve. Material differences between such estimated amounts and the amounts proposed by the Board of Directors in the following year are adjusted for in the current year. If the actual amounts subsequently resolved by the stockholders differ from the proposed amounts, the differences are recorded in the year of stockholders’ resolution as a change in accounting estimate. If a share bonus is resolved to be distributed to employees, the number of shares is determined by dividing the amount of the share bonus by the closing price (after considering the effect of cash and stock dividends) of the shares of the day immediately preceding the stockholders’ meeting. Based on a directive issued by the Securities and Futures Bureau, an amount equal to the net debit balance of certain stockholders’ equity accounts (including unrealized revaluation, unrealized gain or loss on financial instruments, unrecognized pension costs and cumulative translation adjustments) should be transferred from unappropriated earnings to a special reserve. Any special reserve appropriated may be reversed to the extent of the decrease in the net debit balance. Legal reserve may be used to offset deficit. If the Company has not incurred loss and when the legal
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reserve has exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash. The appropriation of earnings should be approved in a stockholders’ meeting and presented in the financial statements of the year following the year of the stockholders’ meeting. Except for non-ROC resident stockholders, all stockholders receiving dividends are allowed a tax credit equal to their proportionate share of the income tax paid by the Company. The appropriations from the earnings of 2011 and 2010 had been proposed by the board of directors and approved in the stockholders’ meetings in June 2012 and 2011, respectively. The appropriations and dividends per share were as follows:
Appropriation of Earnings Dividends per Share
(NT$) For Fiscal
Year 2011 For Fiscal Year 2010
For Fiscal Year 2011
For Fiscal Year 2010
Legal reserve $ 18,530 $ 32,156 Cash dividends to stockholders 137,278 205,918 $0.80 $1.20 $ 155,808 $ 238,074 The bonus to employees and the remuneration to directors and supervisors for 2011 and 2010 approved in the stockholders’ meetings in June 2012 and 2011, respectively, were as follows: Cash Year Ended
December 31, 2011
Year Ended December 31,
2010 Bonus to employees $ 8,000 $ 10,000 Remuneration to directors and supervisors 2,100 2,400 The bonus to employees and the remuneration to directors and supervisors which were estimated in 2011 and 2010 were resolved to be distributed in cash. The bonus to employees and the remuneration to directors and supervisors for 2011 and 2010 approved in the stockholders’ meetings in 2012 and 2011, respectively, were not different from amounts recognized in the financial statements. The appropriations of the 2012 earnings were proposed in the board of directors’ meeting on March 25, 2013. The appropriation and dividends per share were as follows:
Year Ended December 31,
2012 Legal reserve $ 8,494 Dividends to stockholders
Cash - NT$0.23 per share 39,468 $ 47,962 The bonus to employees and the remuneration to directors and supervisors for 2012 approved in the board of directors’ meeting were not different from amounts of which recognized in the financial statement.
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The appropriation of the 2012 earnings including the bonus to employees and remuneration to directors, and supervisors, is scheduled for approval in the stockholder’s meeting on June 14, 2013. Information about the bonus to employees, directors and supervisors is available on the Market Observation Post System website of the Taiwan Stock Exchange. Other Equity Items a. Unrealized Revaluation Increment
The year-end balance was $25,785 thousand as of December 31, 2012 and 2011. Unrealized revaluation increment cannot be used for any purpose.
b. Unrealized Gain (Loss) on Financial Instruments Movements of unrealized gain (loss) on available-for-sale financial instruments were as follows: Years Ended December 31 2012 2011 Balance, beginning of year $ (1,996) $ 14,296 Recognized in stockholders’ equity 3,329 (40,445) Transferred to loss 988 24,153 Balance, end of year $ 2,321 $ (1,996)
15. INCOME TAX
a. A reconciliation of income tax expense based on income before income tax at the statutory rate of 17% and income tax expense (benefit) was as follows:
Years Ended December 31 2012 2011 Income tax expense at the statutory rate $ 13,865 $ 32,281 Tax effect of adjusting items:
Permanent differences Tax-exempt income - (3,292) Others 147 3,088
Temporary differences Investment income recognized on overseas equity-method
investments (24,358) (30,608) Unrealized gross profit 4,204 3,710 Others 1,036 1,092
Loss carryforwards used 5,106 - Investment tax credits used - (352) Additional 10% income tax on unappropriated earnings 2,949 8,349
Current income tax expense 2,949 14,268 Deferred income tax expense
Temporary differences (7,111) (8,092) Loss carryforwards (5,106) -
Withholding tax on overseas investment income - 25 Adjustment for prior years’ tax 5,882 (1,614) Income tax expense (benefit) $ (3,386) $ 4,587
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b. Deferred income tax assets (liabilities) were as follows:
December 31 2012 2011
Current
Loss carryforwards $ 5,106 $ - Unrealized gross profit 931 962 Unrealized allowance for loss on inventories 832 845 Others 879 858
7,748 2,665 Noncurrent
Unrealized intercompany gain 14,865 10,852 Accrued pension cost 9,992 9,613 Investment loss recognized on overseas equity-method
investments 4,413 2,320 Financial and taxation differences on property, plant and
equipment 519 519 29,789 23,304
Deferred income tax assets, net $ 37,537 $ 25,969 Certain incomes from manufacturing electric terminals are exempt from income tax for five years from February 12, 2008, January 1, 2008, and January 1, 2011.
c. The tax returns through 2008 have been assessed by the tax authorities. d. Information about retained earnings subject to integrated income tax is as follows:
December 31 2012 2011 Unappropriated earnings generated before January 1, 1998 $ 6,684 $ 6,684 Unappropriated earnings generated on and after January 1, 1998 370,077 440,941 $ 376,761 $ 447,625 As of December 31, 2012 and 2011, the balances of the imputation credits allocable to the stockholders amounted to $25,262 thousand and $20,911 thousand, respectively. The creditable ratio for the distribution of the earnings of 2012 and 2011 were 7.54% (estimate) and 7.25% (actual), respectively. For the distribution of earnings generated from January 1, 1998, the ratio for the imputation credits allocable to stockholders of the Company is based on the balance of the imputation credit account (ICA) as of the date of dividend distribution. The expected creditable ratio for the 2012 earnings may be adjusted, depending on the ICA balance on the date of dividend distribution.
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16. PERSONNEL, DEPRECIATION AND AMORTIZATION EXPENSES
Years Ended December 31 2012 2011 Classified as Classified as Classified as Classified as
Operating
Costs Operating Expenses Total
Operating Costs
Operating Expenses Total
Personnel
Salary $ 30,072 $ 67,550 $ 97,622 $ 49,518 $ 58,202 $ 107,720Health and labor
insurance 2,855 6,068 8,923 4,501 4,491 8,992Pension 2,520 5,555 8,075 3,659 4,175 7,834Others 2,055 3,332 5,387 3,426 2,536 5,962
$ 37,502 $ 82,505 $ 120,007 $ 61,104 $ 69,404 $ 130,508 Depreciation $ 20,615 $ 17,933 $ 38,548 $ 44,769 $ 2,718 $ 47,487Amortization 8 2,249 2,257 485 1,992 2,477
17. EARNINGS PER SHARE (EPS)
The numerators and denominators used in calculating basic and diluted EPS were as follows:
Shares Amount (Numerator) (Denominator) EPS (NTD)
Pretax Post-tax (Thousands) Pretax Post-tax Year ended December 31, 2012 Basic EPS
Net income $ 81,558 $ 84,944 171,598 $ 0.48 $ 0.50 Effect of dilutive potential common
stock
Employee stock bonus - - 647
Diluted EPS
Income for the year attributable to common stockholders plus effect of dilutive common stock $ 81,558 $ 84,944 172,245 0.47 0.49
Year ended December 31, 2011 Basic EPS
Net income $ 189,887 $ 185,300 171,598 1.11 1.08 Effect of dilutive potential common
stock
Employee stock bonus - - 828
Diluted EPS
Income for the year attributable to common stockholders plus effect of dilutive common stock $ 189,887 $ 185,300 172,426 1.10 1.07
The ARDF issued Interpretation 2007-052 that requires corporations to recognize bonuses paid to employees, directors and supervisors as compensation expenses beginning January 1, 2008. These bonuses were previously recorded as appropriations from earnings. If the Company may settle the bonus to employees by cash or shares, the Company should presume that the entire amount of the bonus will be settled in shares and the resulting potential shares should be included in the weighted average number of shares outstanding used in the calculation of diluted EPS, if the shares have a dilutive effect. The number of shares is estimated by dividing the entire amount of the bonus by the closing price of the shares at the balance sheet date. Such dilutive effect of the potential shares should be included in the calculation of diluted EPS until the stockholders resolve the number of shares to be distributed to employees at their meeting in the following year.
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18. FINANCIAL INSTRUMENTS
a. Fair values of financial instruments
December 31 2012 2011 Carrying Carrying Amount Fair Value Amount Fair Value Nonderivative financial instruments Assets
Financial assets at fair value through profit or loss - current $ 110,404 $ 110,404 $ 36,400 $ 36,400
Available-for-sale financial assets - current 28,012 28,012 27,620 27,620Refundable deposits (current/noncurrent) 221 221 7,120 7,120
Liabilities Long-term debts (including current portion) 1,427,323 1,398,135 1,059,965 1,047,741
Domestic derivative financial instruments Financial liabilities at fair value through profit or loss -
current Forward exchange contracts - - 1,499 1,499
b. Methods and assumptions used to estimate the fair values of financial instruments were as follows:
1) The carrying amounts of cash, notes and accounts receivable (including those from related parties), other receivables (including those from related parties), short-term loans, notes and accounts payable (including those to related parties) and accrued expenses, approximate fair value because of the short maturities of these instruments.
2) The fair values of available-for-sale financial assets are determined at their market value. 3) The fair values of refundable deposits are determined at their carrying values. 4) The fair values of long-term debts are determined at the present values of future cash flows, with
the values discounted at the interest rates for similar long-term debts. 5) The fair values of financial assets at fair value through profit or loss are determined at their market
value. c. As of December 31, 2012 and 2011, on financial instruments exposed to fair value interest rate risk,
financial assets amounted to $365,470 thousand and $262,903 thousand, respectively, and financial liabilities amounted to $1,427,323 thousand and $959,965 thousand, respectively. As of December 31, 2012 and 2011, on financial instruments exposed to cash flow interest rate risk, financial assets amounted to $496,721 thousand and $530,004 thousand, respectively, and financial liabilities amounted to $0 thousand and $137,031 thousand, respectively.
d. For 2012 and 2011, interest incomes of $5,457 thousand and $5,282 thousand, respectively, and interest
expenses (including capitalized interest) of $25,472 thousand and $22,229 thousand, respectively, were associated with financial assets or liabilities other than those at fair value through profit or loss.
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e. Financial risks 1) Market risk
Callable preferred stocks with interest, a gold passbook, mutual funds and quoted stocks held by the Company are subject to market price risk. The fair value of these investments will increase (decrease) by $1,384 thousand if their market price increases (decreases) by 1%. The Company has established a risk control mechanism and taken stop-loss measures to monitor the interests and the price risk on the copper futures contracts held. For the effective management of market price risk, early closing out at stated prices and margin calls are made when there is drastic volatility in prices. The Company had evaluated its financial instruments and it believed the exposure to market risk as of December 31, 2012 was not significant.
2) Credit risk Credit risk represents the potential loss that would be incurred by the Company if the counter-parties breach financial instruments contracts. The Company’s financial instruments are affected by credit risk concentration, components, contract amounts and other receivables. The amounts of maximum credit exposures and carrying amounts of the Company’s financial instruments (excluding fair value of the collateral) are the same: December 31 2012 2011
Carrying Amount
The Maximum
Credit Exposure
Carrying Amount
The Maximum
Credit Exposure
Guarantees (Note 19, b. 5) $ - $ - $ - $ 7,568 Financial instruments with positive fair values and off-balance sheet guarantees are evaluated for credit risk at the balance sheet date. As of December 31, 2012 and 2011, the balances of the customers’ notes and accounts receivable with carrying amounts that were 10% or more of their respective totals are shown below:
December 31 2012 2011
Carrying % to
Receivable Carrying % to
Receivable Customer A $ 111,666 40 $ 61,251 23 The Company’s receivables are significantly concentrated in certain individuals, most of which have similar business operations and economic features. Credit risk concentration occurs when the counter - parties to financial instrument transactions are individuals or groups engaged in similar activities or activities in the same region, which would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.
3) Liquidity risk The Company has sufficient operating capital to meet future cash needs. Therefore, the cash flow risk is expected to be insignificant.
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The Company’s investments in callable preferred stocks with interest, a gold passbook, mutual funds and quoted stocks are traded in active markets and can be disposed of quickly at close to their fair values; therefore, liquidity risk is expected to be insignificant.
4) Cash flow interest rate risk Effective interest rates for floating - rate financial instruments will vary as market rates change. If the market interest rate had decreased by 1%, the Company’s annual cash inflows will have had decreased by $4,967 thousand in 2012 and $3,930 thousand in 2011.
19. RELATED-PARTY TRANSACTIONS
a. Related parties and their relationships with the Company
Related Parties Relationship with the Company Genius Terminal Co., Ltd. (Genius) Subsidiary Global Electronics Terminal (Cayman) Co., Ltd.
(Global (Cayman)) Subsidiary
GEM Terminal ((Cayman) Co., Ltd. (GEM (Cayman))
Subsidiary
Genius Terminal (HK) Ltd (Genius (HK)) Subsidiary Dongguan Gem Electronic & Metal Co., Ltd.
(GEM (Dongguan)) Subsidiary
Suzhou Gem Opto-Electronics Terminal Co., Ltd (GEM (Suzhou))
Subsidiary
Global Electronics Terminal (HK) Co., Ltd. (Global (HK))
Subsidiary
Vibo Gem International Co., Ltd (Vibo) Subsidiary Zong Fu Investment Co. Director Cheng Feng Investment Co. Supervisor Yo Feng Investment Co. Director Su, Chung-Hong Chairman Su, Tun-Li Supervisor Su, Tun-Jen General manager Su, Tun-I Immediate relative of the Company’s chairman
b. Significant transactions with related parties
1) Purchase Years Ended December 31 2012 2011
Amount % to
Purchase
Amount % to
Purchase Genius (HK) $ 589,911 75 $ 556,075 36 Global (HK) 37,087 5 17,824 1 GEM (Suzhou) 13,070 2 2,806 - $ 640,068 82 $ 576,705 37 The goods purchased were mainly scraps, finished goods and merchandise which were different from those sold to the related parties by the Company. The terms of the purchases from related parties were not comparable with those for third parties. The payment period was about four
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months or earlier depending on the related parties’ working capital.
2) Sales
Years Ended December 31 2012 2011
Amount % to Sales
Amount
% to Sales
Genius (HK) $ 64,697 7 $ 1,120,170 63 Global (HK) 52,024 5 132,207 7 GEM (Suzhou) 12,387 1 593 - $ 129,108 13 $ 1,252,970 70 Unrealized gross profits were $3,993 thousand in 2012 and $2,782 thousand in 2011, and included in other current liabilities. The goods sold to related parties listed above were mainly raw materials, supplies, and semi-finished goods. The terms for the sales to related parties were not comparable with those for third parties. The payment collection term period was about four months.
3) Property transactions The machinery sold to related parties was as follows: Years Ended December 31 2012 2011
Related Parties Selling PriceGain on
Transaction Selling Price Gain on
Transaction GEM (Suzhou) $ 54,368 $ 11,552 $ 62,968 $ 11,254GEM (Dongguan) 52,343 12,830 26,785 9,279Genius (HK) 30,475 8,839 24,309 12,441Global (HK) 12,324 2,095 9,482 1,837 $ 149,510 $ 35,316 $ 123,544 $ 34,811 As of December 31, 2012 and 2011, the accumulated unrealized gains on the intercompany property transactions involving the selling to and purchasing on behalf of GEM (Suzhou), GEM(Dongguan), Genius (HK) and Global (HK) amounted to $86,512 thousand and $61,895 thousand, respectively, which were included in deferred credits. The unrealized gains on disposal of assets are amortized by the straight-line method over 10 years and recognized under gain on disposal of property, plant and equipment and miscellaneous income. As of December 31, 2012 and 2011, the Company had sold patents and franchise to GEM (Suzhou), and the related accumulated unrealized gains amounted to $928 thousand and $1,940 thousand, respectively, which were included in deferred credits. The unrealized gains are amortizable by the straight-line method over one to three years and recognized under miscellaneous income. There was no similar machinery sold to third parties. The collection term was about 4 months.
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The machinery purchased from related parties was as follows:
Years Ended December 31 Related Parties 2012 2011 GEM (Suzhou) $ 4,639 $ 3,596 Global (HK) - 894 $ 4,639 $ 4,490 There was no similar machinery purchased from related parties. The payment term was about four months.
4) Property lease
The Company leased its Taipei office, factories and storehouse from Su, Tun-Jen and Su, Tun-Li under one-year operating lease contracts. The annual rentals for 2012 and 2011 were each $1,826 thousand and were recorded as operating expenses and manufacturing cost on the basis of the size of the areas actually used. The rental terms were determined by negotiation. The rental rates were similar to the local market rates and the payment terms were at arm’s length.
5) Guarantees
December 31 2012 2011 Credit Line Used Credit Line Used
GEM (Suzhou) $ - $ - $ 90,810 $ 7,568
( US$
3,000 thousand ) ( US$ 250 thousand )
Su, Chung-Hong and Su, Tun-Li jointly provided the guarantee for the Company’s loans.
c. Compensation of directors, supervisors and management personnel
Years Ended December 31 2012 2011
Salary $ 6,234 $ 6,308 Incentives 663 709 $ 6,897 $ 7,017
d. Balance at year-end
December 31 2012 2011 Amount % Amount % Accounts receivable - related parties
Global (HK) $ 5,102 3 $ 24,806 12Genius (HK) 2,424 1 260 -GEM (Suzhou) 937 - 234 - $ 8,463 4 $ 25,300 12
(Continued)
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December 31 2012 2011 Amount % Amount % Other receivables - related parties
GEM (Suzhou) $ 8,851 84 $ 8,541 15Genius (HK) 1,610 15 23,588 41GEM (Dongguan) - - 13,556 24 $ 10,461 99 $ 45,685 80
Accounts payable - related parties Genius (HK) $ 129,428 85 $ 73,943 34Global (HK) 3,921 3 1,240 1GEM (Suzhou) 2,044 1 - - $ 135,393 89 $ 75,183 35
The other receivable from GEM (Dongguan), GEM (Suzhou), and Genius (HK) were due to property and patent transactions.
20. SIGNIFICANT COMMITMENTS AND CONTINGENCIES
In addition to those disclosed in Note 12, significant commitments and contingencies of the Company as of December 31, 2012 were as follows: a. Under unused letters of credit for purchasing materials and equipment amounted to $47 thousand. b. The amounts of contracts for purchases of properties and materials were $55,044 thousand, of which
$36,109 thousand had not been paid.
21. EXCHANGE RATE INFORMATION OF FOREIGN CURRENCY FINANCIAL ASSETS AND LIABILITIES Information on the Company’s significant financial assets, investments accounted for by the equity method, financial liabilities and derivative contracts is as follows (in thousands of foreign currency, except exchange rate): December 31 2012 2011 Original
Currencies Exchange
Rate New Taiwan
Dollars Original
Currencies Exchange
Rate New Taiwan
Dollars Financial assets Monetary items
USD $ 5,280 29.032 $ 153,295 $ 4,291 30.270 $ 129,878GBP 2,847 46.802 133,227 1,234 46.711 57,626CAD 2,576 29.194 75,197 1,006 29.661 29,839HKD 15,116 3.7470 56,639 15,653 3.8980 61,017JPY 26,334 0.3363 8,856 78,135 0.3905 30,512
Non-monetary items USD 701 29.032 20,359 551 30.270 16,676HKD 2,697 3.7470 10,106 1,295 3.8980 5,048
(Continued)
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December 31 2012 2011 Original
Currencies Exchange
Rate New Taiwan
Dollars Original
Currencies Exchange
Rate New Taiwan
Dollars Investments accounted for by the equity method
USD $ 96,359 29.032 $ 2,797,480 $ 90,410 30.270 $ 2,736,709
Financial liabilities Monetary items
HKD 34,567 3.7470 129,523 9,500 3.8980 37,031USD 205 29.032 5,965 6 30.270 177
Derivative contracts Forward exchange contract
USD - - - 2,000 29.41-30.15 59,549HKD - - - 9,000 3.780-3.880 34,562
22. ADDITIONAL DISCLOSURES
a. The following are additional disclosures for the Company and its investees as required by the ROC
Securities and Futures Bureau as of and for the year ended December 31, 2012:
1) Financings provided: Table 1 (attached). 2) Endorsement/guarantee provided: Table 2 (attached). 3) Marketable securities held: Table 3 (attached). 4) Individual securities acquired or disposed of at costs or prices of at least NT$100 million or 20% of
the paid-in capital: None. 5)Acquisition of individual real estate at costs of at least NT$100 million or 20% of the paid-in capital:
None. 6) Disposal of individual real estate at costs of at least NT$100 million or 20% of the paid-in capital:
None.
7) Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in capital: Table 4 (attached).
8)Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital:
Table 5 (attached). 9) Names, locations and related information of investees over which the Company exercises
significant influence: Table 6 (attached). 10) Derivative transactions of investees over which the Company has controlling interests: None.
b. Investments in Mainland China
1) Investees’ names, main businesses and products, paid-in capital, method of investment, accumulated
inflow and outflow of investments from Taiwan, percentage of ownership, investment income (loss), ending balance of investments, dividends remitted by the investee, and limits on investment in
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Mainland China: Table 7 (attached). 2) Significant direct and indirect transactions with the investees, prices and terms of payment,
unrealized gain or loss, and other events with significant effects on the operating results and financial condition:
a) Amounts and percentages of purchases for the year ended December 31, 2012 and related
accounts payable as of December 31, 2012: Note 19. b) Amounts and percentages of sales for the year ended December 31, 2012 and related accounts
receivable as of December 31, 2012: Note 19. c) Selling prices and gains (losses) on property transactions: Note 19. d) Endorsement, guarantee or collaterals directly or indirectly provided to the investees: Table 2
(attached). e) Financings directly or indirectly provided to the investees: Table 1 (attached). f) Other transactions that significantly impacted the current year’s profit or loss or financial status:
Note 19.
23. OPERATING SEGMENT FINANCIAL INFORMATION Disclosure of segment information is not required for stand-alone financial statements, but the Company has disclosed the segment information in the consolidated financial statements in accordance with Statement of Financial Information No. 41 - “Operation Segments”.
24. PLAN FOR REQUIRED ADOPTION OF THE INTERNATIONAL FINANCIAL REPORTING STANDARDS Under Rule No. 0990004943 issued by the Financial Supervisory Commission (FSC) on February 2, 2010, the Company has disclosed in its consolidated financial statements as of and for the years ended December 31, 2012 and 2011 the plan on the adoption of the International Financial Reporting Standards.
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TABLE 1
GEM TERMINAL IND. CO., LTD. AND INVESTEES FINANCING PROVIDED YEAR ENDED DECEMBER 31, 2012 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
Collateral
No. Financing Company Borrowing Company
Financial Statement Account
Maximum Balance for the
period
Ending Balance(Note2)
Interest RateType of
Financing Transaction
Amount
Reason for Short-term Financing
Allowance for Bad Debt Item Value
Financing Limit for Each
Borrowing Company
Financing Company’s
Financing Amount Limit
0 GEM Terminal Inc. Co., Ltd. (the “Company”)
Global (Cayman) Other receivables - related parties
$ 149,875 ( US$ 5,000 thousand )
$ 145,160 ( US$ 5,000 thousand ) (Note 3)
2.80 Short-term financing
$ - Operating capital
$ - - $ - $ 558,884 (Note 1)
$ 1,117,768 (Note 1)
Genius (HK) Other receivables - related parties
116,040 ( HK$ 30,000 thousand )
112,410 ( HK$ 30,000 thousand ) (Note 3)
2.00 Short-term financing
- Operating capital
- - - 558,884 (Note 1)
1,117,768 (Note 1)
1 Vibo GEM (Suzhou) Other
receivables - related parties
29,975 ( US$ 1,000 thousand )
29,032 ( US$ 1,000 thousand ) (Note 3)
2.80 Short-term financing
- Operating capital
- - - 531,507 (Note 1)
1,063,015 (Note 1)
2 Global (Cayman) Global (HK) Other
receivables - related parties
11,990 ( US$ 400 thousand )
11,613 ( US$ 400 thousand ) (Note 4)
2.00 Short-term financing
- Operating capital
- - - 535,912 (Note 1)
1,071,823 (Note 1)
GEM (Suzhou) Other receivables - related parties
104,913 ( US$ 3,500 thousand )
-
2.00 Short-term financing
- Operating capital
- - - 535,912 (Note 1)
1,071,823 (Note 1)
GEM (Dongguan) Other receivables - related parties
94,748 ( RMB 20,000 thousand )
92,422 ( RMB 20,000 thousand ) (Note 3)
4.50 Short-term financing
- Operating capital
- - - 535,912 (Note 1)
1,071,823 (Note 1)
GEM Terminal Other receivables - related parties
74,813 ( US$ 2,500 thousand )
72,580 ( US$ 2,500 thousand ) (Note 3)
2.80 Short-term financing
- Operating capital
- - - 535,912 (Note 1)
1,071,823 (Note 1)
Note 1: Under the Company’s and the subsidiaries’ “Operational Procedures for Loaning Funds to Others,” if short-term financing is needed, total amounts of these financings should not exceed 40 percent of the Company’s and the subsidiaries’ stockholders’ equity, and
individual financing should not exceed 20 percent of the Company’s and the subsidiaries’ stockholders’ equity. Note 2: The conversion rates on December 31, 2012 were HK$1:NT$3.747 and US$1:NT$29.032. Note 3: The amount had been unused as of December 31, 2012. Note 4: The amount that had been used as of December 31, 2012 was $11,613 thousand (US$400 thousand).
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TABLE 2 GEM TERMINAL IND. CO., LTD. AND INVESTEES ENDORSEMENTS/GUARANTEES PROVIDED YEAR ENDED DECEMBER 31, 2012 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
Guaranteed Party
No. Endorsement/Guarantee
Provider Name Nature of
Relationship
Limits on Endorsement/Guarantee Amount Provided to Each Guaranteed Party
(Note 1)
Maximum Balance for the Year
Ending Balance Amount of Endorsement/ Guarantee Collateralized
by Properties
Ratio of Accumulated Endorsement/ Guarantee to Net Equity Per Latest
Financial Statements
Maximum Endorsement/ Guarantee Amount
Allowable (Note 2)
0 GEM Terminal Inc. Co., Ltd. (the
“Company”) GEM (Suzhou) Subsidiary $ 838,326 $ 89,520
(US$ 3,000 thousand)
$ - $ - - $ 1,397,211
Note 1: Under the Company’s “Operational Procedures for Endorsement/Guarantee”, the amount of the endorsement/guarantee provided by the Company to individual subsidiary should not exceed 30% of the Company’s
stockholders’ equity. Note 2: Under the Company’s “Operational Procedures for Endorsement/Guarantee”, the total amount of the endorsement/guarantee provided by the Company should not exceed 50% of the Company’s stockholders’ equity.
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TABLE 3 GEM TERMINAL IND. CO., LTD. AND INVESTEES MARKETABLE SECURITIES HELD DECEMBER 31, 2012 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
December 31, 2012
Holding Company Marketable Securities Type and
Issuer/Name
Security Issuer’s Relationship with
the Holding Company
Financial Statement Account Shares/Units Carrying Amount
Percentage of Ownership
Market Value or Net Asset Value
Note
GEM Terminal Ind. Callable preferred stock with interest Co., Ltd. (the
“Company”) USD Standard Chart Reg S 9.5% Perpetual Financial assets designated as at fair value
through profit or loss - current 1,000 $ 3,201 - $ 3,201
HSBC Holdings Plc Sub Cap Secs 8.125% Pfd Financial assets designated as at fair value through profit or loss - current
1,000 736 736
Stock $ 3,937
$ 3,937
Nokia Corp. Spon ADR Available-for-sale financial assets - current 55,000 $ 6,307 - $ 6,307 Hewlett Packard Co. Del. Available-for-sale financial assets - current 12,000 4,965 - 4,965 Facebook Inc. Available-for-sale financial assets - current 4,000 3,091 - 3,091 Foxconn Intl Hldgs Available-for-sale financial assets - current 208,000 2,931 - 2,931 Li - Fung Available-for-sale financial assets - current 32,000 1,640 - 1,640 Acer Inc. Available-for-sale financial assets - current 35,000 882 - 882 Micron Technology Inc. Available-for-sale financial assets - current 3,600 663 - 663 Uni-President China Available-for-sale financial assets - current 20,000 615 - 615 Wistron Corp. Available-for-sale financial assets - current 20,000 602 - 602 21,696 21,696 Beneficial certificate IShares FTSE/Xinhua A50 Available-for-sale financial assets - current 60,000 2,505 - 2,505 Boci Prudential AM WISE – CSI 300 China Available-for-sale financial assets - current 22,000 2,415 - 2,415 Morgan Stanley China A Sh Fd Inc. Available-for-sale financial assets - current 2,000 1,396 - 1,396 6,316 6,316 $ 28,012 $ 28,012 Rights certificate Global Electronics Terminal (Cayman) Co.,
Ltd. Subsidiary Investments accounted for using the equity
method 35,037,184 $ 2,679,559 100 $ 2,679,559
Genius Terminal Co., Ltd. Subsidiary Investments accounted for using the equity method
750,000 91,295 100 91,295
GEM Terminal (Cayman) Co., Ltd. Subsidiary Investments accounted for using the equity method
1,000,000 26,626
100 26,626
$ 2,797,480 $ 2,797,480 Genius Terminal Co., Certificate of incorporation Ltd. Genius (HK) Subsidiary Investments accounted for using the equity
method 21,999,998 $ 79,143 100 $ 79,143
(Continued)
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December 31, 2012
Holding Company Marketable Securities Type and
Issuer/Name
Security Issuer’s Relationship with
the Holding Company
Financial Statement Account Shares/Units Carrying Amount
Percentage of Ownership
Market Value or Net Asset Value
Note
Global Electronics Certificate of incorporation Terminal
(Cayman) Co., Vibo Subsidiary Investments accounted for using the equity
method 320,426,766 $ 2,657,525 100 $ 2,657,525
Ltd. Global (HK) Subsidiary Investments accounted for using the equity method
1,000,000 7,792
100 7,792
$ 2,665,317 $ 2,665,317 GEM Terminal Rights certificate (Cayman) Co.,
Ltd. Rui Zhan hardware Vn Subsidiary Investments accounted for using the equity
method - $ 26,300 100 $ 26,300
Vibo Rights certificate GEM (Suzhou) Subsidiary Investments accounted for using the equity
method $ 1,839,069 100 $ 1,839,069
GEM (Dongguan) Subsidiary Investments accounted for using the equity method
844,924 100 844,924
You Mao Subsidiary Investments accounted for using the equity method
-
100 -
Note
$ 2,683,993 $ 2,683,993
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(Concluded) Note: The Company hasn’t remitted the investment to You Mao.
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TABLE 4
GEM TERMINAL IND. CO., LTD. AND INVESTEES TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL YEAR ENDED DECEMBER 31, 2012 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
Transaction Detail Non-arm’s Length Transaction Notes/Accounts Payable or
Receivable Company Name Related Party Nature of
Relationship Purchases/Sales Amount % to Total Payment Term Unit Price Payment Term Ending Balance % to Total
Note
Genius (HK) GEM Terminal Ind. Co., Ltd.
(the “company”) Parent Sales $ 585,014
(HK$ 153,424 thousand) (Note 1)
36 120 days after monthly closing No comparable transactions with those in the market
No comparable transactions with those in the market
$ 129,428 (HK$ 34,542 thousand) (Note 2)
31
GEM Terminal Ind. Co., Ltd.
(the “company”) Genius (HK) Subsidiary Purchases ( 585,014)
(HK$ 153,424 thousand) (Note 1)
(75) 120 days after monthly closing Note 19 Note 19 (129,428) (HK$ 34,542 thousand) (Note 2)
(75)
GEM (Dongguan) Genius (HK) Affiliate Sales 1,530,432
(HK$ 401,259 thousand) (Note 1)
94 120 days after monthly closing No comparable transactions with those in the market
No comparable transactions with those in the market
85,969 (HK$ 22,943 thousand) (Note 2)
63
Genius (HK) GEM (Dongguan) Affiliate Purchases (1,530,432)
(HK$ 401,259 thousand) (Note 1)
(96) 120 days after monthly closing No comparable transactions with those in the market
No comparable transactions with those in the market
(85,969) (HK$ 22,943 thousand) (Note 2)
(96)
GEM (Suzhou) Global (HK) Affiliate Sales 416,310
(US$ 12,079 thousand and HK$ 15,419 thousand) (Note 1)
19 120 days after monthly closing No comparable transactions with those in the market
No comparable transactions with those in the market
99,125 (US$ 2,997 thousand and HK$ 3,220 thousand) (Note 2)
17
Global (HK) GEM (Suzhou) Affiliate Purchases (416,310)
(US$ 12,079 thousand and HK$ 15,419 thousand) (Note 1)
(88) 120 days after monthly closing No comparable transactions with those in the market
No comparable transactions with those in the market
(99,125) (US$ 2,997 thousand and HK$ 3,220 thousand) (Note 2)
(94)
Genius (HK) GEM (Dongguan) Affiliate Sales 111,565
(HK$ 29,203 thousand) (Note 1)
7 120 days after monthly closing No comparable transactions with those in the market
No comparable transactions with those in the market
3,817 (HK$ 1,019 thousand) (Note 2)
1
GEM (Dongguan) Genius (HK) Affiliate Purchases (111,565)
(HK$ 29,203 thousand) (Note 1)
(10) 120 days after monthly closing No comparable transactions with those in the market
No comparable transactions with those in the market
(3,817) (HK$ 1,019 thousand) (Note 2)
(1)
Note 1: The average conversion rates for 2012 were HK$1.0000:NT$3.8127 and US$1.0000:NT$29.5689. Note 2: The conversion rates on December 31, 2012 were HK$1.0000:NT$3.747; and US$1.0000:NT$29.032.
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TABLE 5 GEM TERMINAL IND. CO., LTD. AND INVESTEES RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2012 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
Overdue Company Name Related Party Nature of Relationship Ending Balance Turnover Rate
Amount Action Taken Amount Received in
Subsequent Year Allowance for
Bad Debt Genius (HK) GEM Terminal Subsidiary $ 129,428
(under accounts receivable - related parties)
5.80 $ - - $ 72,419 $ -
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TABLE 6
GEM TERMINAL IND. CO., LTD. AND INVESTEES NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE YEAR ENDED DECEMBER 31, 2012 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
Investment Amount Balance as of December 31, 2012 Earning Appropriation
Investor Company Investee Company Location Main Businesses and Products December 31,2012 (ForeignCurrencies in
Thousands
December 31,2011 (ForeignCurrencies in Thousands)
Shares/Units Percentage of Ownership
Carrying Amount
Ownership % × Net Worth of
Investees
Net Income (Loss) of the
Investee
Investment Income (Loss)
Recognized Stock Cash
Note
GEM Terminal Ind. Co., Ltd. (the Global (Cayman) Grand Cayman, Cayman Islands International investment US$ 35,037 US$ 34,137 35,037,184 100 $ 2,679,559 $ 2,679,559 $ 143,337 $ 143,337 $ - $ - “company”) Genius Terminal British Virgin Islands International investment and trading, etc. US$ 750 US$ 750 750,000 100 91,295 91,295 675 675 - - GEM Terminal (Cayman) Grand Cayman, Cayman Islands International investment US$ 1,000 US$ 1,000 1,000,000 100 26,626 26,626 (730 ) (730 ) - - $ 2,797,480 $ 2,797,480 $ 143,282 $ 143,282 Genius Terminal Genius (HK) Hong Kong International trading HK$ 22,000 HK$ 22,000 21,999,998 100 $ 79,143 $ 79,143 $ 694 $ 694 - - Global (Cayman) Vibo Hong Kong Investment and trading HK$ 320,427 HK$ 294,079 320,426,766 100 $ 2,657,525 $ 2,657,525 $ 142,983 $ 142,983 - - Global (HK) Hong Kong International trading HK$ 1,000 HK$ 1,000 1,000,000 100 7,792 7,792 (387 ) (387 ) - - $ 2,665,317 $ 2,665,317 $ 142,596 $ 142,596 GEM Terminal (Cayman) Rui Zhan hardware VN Vietnam Production of hardware; machine
processing; electroplating for metal processing; production and processing of molds and related accessories; plastic products and related plastic accessory production
US$ 910 US$ 910 - 100 $ 26,300 $ 26,300 $ (588 ) $ (588 ) - -
Vibo GEM (Suzhou) Mainland China Manufacture of new electronic
components and devices (e.g., Opto-Electronic devices and new mechanical/electric components); design and manufacture of stamping molds with the precision that is equal to or greater than 0.02 mm, plastic molds with the precision that is equal to or greater than 0.05 mm, and standard molds; development and production of construction hardware, water heater parts, and general hardware; manufacture of heat-resistant thermal insulation (insulation class: F or H) and insulation molding parts; production of inorganic nonmetal materials and products (special ceramics); development and production of materials for the specific use in semiconductor components and devices; components, devices, and materials for new instrumentation plug-ins (inserts and functional parts of instrument); terminal crimping machines; and equipment for the specific use in electronics and electric appliances and electroplating of hardware accessories; and sale of the Company’s own products (under business permits for certain operations.)
US$ 21,500 US$ 19,000 - 100 $ 1,839,069 $ 1,839,069 $ 102,317 $ 102,317 - -
GEM (Dongguan) Mainland China Production and sale of terminals, electric appliance plugs and plastic hardware, terminal crimping machines, molds, computer inserts, electroplating for hardware accessories, ceramic ferrules for optical fiber connection, and machine for hardware, electronics, plastics products manufacturing.
US$ 10,559 US$ 9,659 - 100 844,924
844,924
52,590
52,590
- -
You Mao Hong Kong International trading Note Note - 100 - - - - - - $ 2,683,993 $ 2,683,993 $ 154,907 $ 154,907
Note: The Company hasn’t remitted the investment to You Mao.
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TABLE 7
GEM TERMINAL IND. CO., LTD. AND INVESTEES INFORMATION ON INVESTMENT IN MAINLAND CHINA YEAR ENDED DECEMBER 31, 2012 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
Investment Flows
Investee Company Main Businesses and Products
Total Amount of Paid-in Capital
(RMB in Thousands)(Note 1)
Method of Investment
Accumulated Outflow of
Investment from Taiwan as of
January 1, 2012
Outflow Inflow
Accumulated Outflow of
Investment from Taiwan as of
December 31, 2012
Percentage of Ownership
Investment Income (Loss) Recognized
(Note 2)
Carrying Amount as of December 31,
2012 (Notes 1 and 2)
Accumulated Inward Remittance of Earnings as of
December 31, 2012
GEM (Dongguan) Production and sale of terminals, electric appliance plugs and plastic
hardware, terminal crimping machines, molds, computer inserts, electroplating for hardware accessories, ceramic ferrules for optical fiber connection, and machine for hardware, electronics, plastics products manufacturing.
$ 678,761 (RMB 146,883
thousand)
Note 3 $ 317,892 (US$ 9,659 thousand)
$ 26,440 (US$ 900 thousand)
$ - $ 344,332 (US$ 10,559 thousand)
100 $ 52,590 (US$ 1,771 thousand)
$ 844,924 (US$ 29,103 thousand)
$ -
GEM (Suzhou) Manufacture of new electronic components and devices (e.g.,
Opto-Electronic devices and new mechanical/electric components); design and manufacture of stamping molds with the precision that is equal to or greater than 0.02 mm, plastic molds with the precision that is equal to or greater than 0.05 mm, and standard molds; development and production of construction hardware, water heater parts, and general hardware; manufacture of heat-resistant thermal insulation (insulation class: F or H) and insulation molding parts; production of inorganic nonmetal materials and products (special ceramics); development and production of materials for the specific use in semiconductor components and devices; components, devices, and materials for new instrumentation plug-ins (inserts and functional parts of instrument); terminal crimping machines; and equipment for the specific use in electronics and electric appliances and electroplating of hardware accessories; and sale of the Company’s own products (under business permits for certain operations.)
1,115,423 (RMB 241,376
thousand)
Note 3 620,650 (US$ 19,000 thousand)
76,210 (US$ 2,500 thousand)
- 696,860 (US$ 21,500 thousand)
100 102,317 (US$ 3,461 thousand)
1,839,069 (US$ 63,346 thousand)
-
$ 1,041,192 (US$ 32,059
thousand)
Accumulated Investment in Mainland China as of
December 31, 2012
Investment Amount Authorized by the Investment Commission, MOEA
(Note 1)
Upper Limit on Investment (Note 4)
$1,041,192 $1,733,210 $1,676,653
(US$32,059 thousand) (US$59,700 thousand)
Note 1: The conversion rates on December 31, 2012 were RMB1.0000:NT$4.6211 and US$1.0000:NT$29.032. Note 2: Amount was from financial reports issued by Taiwan independent certified public accountants. Note 3: The investment was made through a corporation established in a third country to invest in companies located in Mainland China. Note 4: Under the “Principles Governing the Review of Investments or Technical Cooperation in Mainland China” issued by the Investment Commission on August 29, 2008, that maximum amount the can be invested in companies located in Mainland China is 60% of the Company’s net value.
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V. Consolidated Financial Statements and the CPA Auditing Report, Year 2012
INDEPENDENT AUDITORS’ REPORT The Board of Directors and Stockholders GEM Terminal Ind. Co., Ltd. We have audited the accompanying consolidated balance sheets of GEM Terminal Ind. Co., Ltd. and its subsidiaries (collectively, the “Group”) as of December 31, 2012 and 2011 and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Group’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 the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China (ROC). Those rules and 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 consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as 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 consolidated financial position of the Group as of December 31, 2012 and 2011, and the results of their operations and their cash flows for the years then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the ROC. As discussed in Note 3 to the consolidated financial statements, effective January 1, 2011, the Group adopted the newly revised SFAS No. 41 - “Operating Segments”. March 25, 2013
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 ROC 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 ROC. For the convenience of readers, the auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the ROC. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors’ report and consolidated financial statements shall prevail.
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GEM TERMINAL IND. CO., LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Par Value)
2012 2011 2012 2011 ASSETS Amount % Amount % LIABILITIES AND STOCKHOLDERS’ EQUITY Amount % Amount % CURRENT ASSETS CURRENT LIABILITIES
Cash (Note 4) $ 2,621,054 41 $ 1,545,369 28 Short-term loans (Notes 10 and 19) $ 1,386,144 22 $ 709,269 13Financial assets at fair value through profit or loss - current Financial liabilities at fair value through profit or loss - (Notes 2, 5 and 17) 110,404 2 37,395 1 current (Notes 2, 5 and 17) - - 1,499 -Available-for-sale financial assets - current (Notes 2, 6 and 17) 28,012 - 27,620 1 Notes payable 21,412 - 31,039 1Notes receivable 171,259 3 146,019 3 Accounts payable 431,829 7 335,212 6Accounts receivable, net (Notes 2 and 7) 1,040,107 16 1,252,464 23 Income tax payable (Note 2) 9,841 - 25,315 -Tax refundable 4,470 - 15,551 - Accrued expenses (Note 13) 128,412 2 164,009 3Other receivables 22,196 - 19,625 - Long-term debts - current portion (Notes 11, 17 and 19) 706,490 11 365,074 7Refundable deposits - current (Note 17) 1,807 - 33,436 1 Other current liabilities 47,707 1 54,712 1Inventories (Notes 2 and 8) 438,841 7 512,766 9 Deferred income tax assets - current (Notes 2 and 14) 12,901 - 10,469 - Total current liabilities 2,731,835 43 1,686,129 31Restricted assets - current (Notes 17 and 19) 102,035 2 - - Other current assets 73,999 1 80,967 1 LONG-TERM DEBTS (Notes 11, 17 and 19) 720,833 11 702,465 13
Total current assets 4,627,085 72 3,681,681 67 RESERVE FOR LAND VALUE INCREMENT TAX (Note 9) 7,398 - 7,398 -
PROPERTY, PLANT AND EQUIPMENT (Notes 2, 9, 19 and 20) OTHER LIABILITIES
Land 100,932 2 100,932 2 Accrued pension cost (Notes 2 and 12) 69,265 1 74,738 1Buildings 743,328 12 763,598 14 Deferred income tax liabilities - noncurrent (Notes 2 and 14) 61,735 1 52,602 1Machinery and equipment 1,406,754 22 1,345,831 25 Transportation equipment 65,543 1 64,152 1 Total other liabilities 131,000 2 127,340 2Office equipment 34,593 - 36,148 1 Leasehold improvements 84 - 84 - Total liabilities 3,591,066 56 2,523,332 46Miscellaneous equipment 337,567 5 306,176 5
Total cost 2,688,801 42 2,616,921 48 COMMON STOCK - NT$10 par value Revaluation increment - land 36,456 1 36,456 1 Authorized: 221,000 thousand shares (including 3,000 thousand
Cost and revaluation increment 2,725,257 43 2,653,377 49 shares for employee options and 30,000 thousand shares for Less: Accumulated depreciation 1,184,922 19 1,077,969 20 convertible bonds); issued and outstanding: 171,598 thousand
1,540,335 24 1,575,408 29 shares 1,715,980 27 1,715,980 31Construction in progress and prepayments for equipment 104,853 2 88,270 1
CAPITAL SURPLUS - ADDITIONAL PAID-IN CAPITAL (Note 13) 270,187 4 270,187 5Total property, plant and equipment, net 1,645,188 26 1,663,678 30
RETAINED EARNINGS (Note 13) 696,673 11 749,007 14INTANGIBLE ASSETS
Land use rights (Notes 2, 9 and 19) 68,606 1 80,202 2 OTHER EQUITY ITEMS (Note 13) Unrealized revaluation increment (Note 9) 25,785 - 25,785 -OTHER ASSETS Unrealized gain (loss) on financial instruments (Note 6) 2,321 - (1,996) -
Refundable deposits - noncurrent (Note 17) 1,732 - 2,895 - Cumulative translation adjustments (Note 2) 93,997 2 202,948 4Deferred income tax assets - noncurrent (Notes 2 and 14) 34,119 1 27,963 1 Net loss not yet recognized as pension costs (Notes 2 and 12) (10,522) - (18,205) -Other assets (Notes 2 and 7) 8,757 - 10,619 -
Total other equity items 111,581 2 208,532 4Total other assets 44,608 1 41,477 1
Total stockholders' equity 2,794,421 44 2,943,706 54 TOTAL $ 6,385,487 100 $ 5,467,038 100 TOTAL $ 6,385,487 100 $ 5,467,038 100 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 25, 2013)
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GEM TERMINAL IND. CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2012 2011 Amount % Amount % GROSS OPERATING REVENUE $ 3,919,279 100 $ 4,445,535 100 Less: SALES RETURNS 259 - 1,252 - SALES ALLOWANCES 147 - 341 - OPERATING REVENUE, NET (Note 2) 3,918,873 100 4,443,942 100 OPERATING COSTS (Notes 8, 15 and 18) 3,331,655 85 3,778,957 85 GROSS PROFIT 587,218 15 664,985 15 OPERATING EXPENSES (Notes 15 and 18)
Research and development 42,935 1 15,386 -Selling 140,610 4 147,402 3General and administrative 214,736 5 205,008 5
Total operating expenses 398,281 10 367,796 8
OPERATING INCOME 188,937 5 297,189 7 NONOPERATING INCOME AND GAINS
Interest income (Note 17) 27,132 1 15,487 -Valuation gain on financial assets, net (Note 5) - - 5,613 -Valuation gain on financial liabilities, net (Note 5) 832 - - -Dividend income 1,969 - 2,515 -Exchange gain, net (Note 2) - - 31,934 1Gain on disposal of property, plant and equipment 265 - 1,854 -Miscellaneous income 4,706 - 6,505 -
Total nonoperating income and gains 34,904 1 63,908 1
NONOPERATING EXPENSES AND LOSSES
Interest expense (Notes 9 and 17) 55,149 1 36,302 1Valuation loss on financial assets, net (Note 5) 521 - - -Valuation loss on financial liabilities, net (Note 5) - - 8,167 -Exchange loss, net (Note 2) 17,863 1 - -Loss on disposal of property, plant and equipment 2,512 - 18,041 -Loss on sale of investments, net (Note 13) 988 - 24,153 1Miscellaneous expenses 1,140 - 4,841 -
Total nonoperating expenses and losses 78,173 2 91,504 2
(Continued)
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GEM TERMINAL IND. CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) 2012 2011 Amount % Amount % CONSOLIDATED INCOME BEFORE INCOME TAX $ 145,668 4 $ 269,593 6 INCOME TAX (Notes 2 and 14) 60,724 2 84,293 2 CONSOLIDATED NET INCOME $ 84,944 2 $ 185,300 4 ATTRIBUTABLE TO STOCKHOLDERS OF THE
PARENT $ 84,944 $ 185,300 2012 2011 Pretax Post-Tax Pretax Post-Tax EARNINGS PER SHARE ATTRIBUTABLE TO
STOCKHOLDERS OF THE PARENT (New Taiwan dollars, Note 16) Basic $ 0.48 $ 0.50 $ 1.11 $ 1.08 Diluted 0.47 0.49 1.10 1.07
The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 25, 2013)
- 135 -
GEM TERMINAL IND. CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) Other Equity Items Unrealized Capital Surplus Retained Earnings Unrealized Gain (Loss) on Cumulative Net Loss Not Total - Additional Unappropriated Revaluation Financial Translation Yet Recognized Stockholders' Common Stock Paid-in Capital Legal Reserve Earnings Increment Instruments Adjustments as Pension Cost Equity BALANCE, JANUARY 1, 2011 $ 1,715,980 $ 270,187 $ 269,226 $ 500,399 $ 25,785 $ 14,296 $ 12,200 $ (14,848) $ 2,793,225 Appropriation of the 2010 earnings (Note 13)
Legal reserve - - 32,156 (32,156) - - - - - Cash dividends - 12% - - - (205,918) - - - - (205,918)
Consolidated net income for the year ended December 31, 2011 - - - 185,300 - - - - 185,300 Change in unrealized gain (loss) on available-for-sale financial assets
(Notes 6 and 13) - - - - - (16,292) - - (16,292) Change in translation adjustments - - - - - - 190,748 - 190,748 Change in net loss not yet recognized as pension costs (Note 12) - - - - - - - (3,357) (3,357) BALANCE, DECEMBER 31, 2011 1,715,980 270,187 301,382 447,625 25,785 (1,996) 202,948 (18,205) 2,943,706 Appropriation of the 2011 earnings (Note 13)
Legal reserve - - 18,530 (18,530) - - - - - Cash dividends - 8% - - - (137,278) - - - - (137,278)
Consolidated net income for the year ended December 31, 2012 - - - 84,944 - - - - 84,944 Change in unrealized gain (loss) on available-for-sale financial assets
(Notes 6 and 13) - - - - - 4,317 - - 4,317 Change in translation adjustments - - - - - - (108,951) - (108,951) Change in net loss not yet recognized as pension costs (Note 12) - - - - - - - 7,683 7,683 BALANCE, DECEMBER 31, 2012 $ 1,715,980 $ 270,187 $ 319,912 $ 376,761 $ 25,785 $ 2,321 $ 93,997 $ (10,522) $ 2,794,421 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 25, 2013)
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GEM TERMINAL IND. CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) 2012 2011 CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net income $ 84,944 $ 185,300 Adjustments to reconcile net income to net cash provided by operating
activities Depreciation 199,264 188,106 Amortization 4,699 4,183 Allowance (reversal of allowance) for doubtful accounts (1,882) 4,400 Loss on sale of investments, net 988 24,153 Loss on disposal of property, plant and equipment, net 2,247 16,187 Valuation loss (gain) on financial instruments, net (311) 2,554 Deferred income tax (104) (5,354)Pension cost 2,210 1,693 Others 182 25 Changes in operating assets and liabilities
Financial assets held for trading 2,282 (12,784)Notes receivable (25,240) 175,162 Accounts receivable, net 214,597 (206,811)Other receivable and tax refundable 8,510 (13,103)Inventories 74,596 116,283 Other current assets 7,098 (45,550)Financial liabilities held for trading (667) (6,668)Notes payable (9,627) (17,753)Accounts payable 96,617 (57,493)Income tax payable (15,474) (15,421)Accrued expenses (35,597) (1,020)Other current liabilities (591) 14,782
Net cash provided by operating activities 608,741 350,871
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of financial assets designated as at fair value through profit or loss (113,159) (13,168)
Proceeds from disposal of financial assets designated as at fair value through profit and loss 37,312 3,236
Acquisition of available-for-sale financial assets (44,910) (977,068)Proceeds from disposal of available-for-sale financial assets 48,172 1,055,509 Acquisition of property, plant and equipment (267,110) (264,016)Proceeds from disposal of property, plant and equipment 741 654 Decrease (Increase) in restricted assets (102,035) 7,500 Decrease (Increase) refundable deposits 32,805 (29,637)Decrease (Increase) other assets 5,445 (30,253)
Net cash used in investing activities (402,739) (247,243)
CASH FLOWS FROM FINANCING ACTIVITIES
(Continued)
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GEM TERMINAL IND. CO., LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) 2012 2011
Increase in short-term loans $ 676,875 $ 105,580 Proceeds from long-term debts 725,000 250,000 Repayment of long-term debts (364,779) (278,281)Cash dividends (137,278) (205,918)
Net cash provided by (used in) financing activities 899,818 (128,619)
EFFECT OF EXCHANGE RATE CHANGES (30,135) 122,029 NET INCREASE IN CASH 1,075,685 97,038 CASH, BEGINNING OF YEAR 1,545,369 1,448,331 CASH, END OF YEAR $ 2,621,054 $ 1,545,369 SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 54,890 $ 35,884 Less: Capitalized interest 880 589
Interest paid (excluding capitalized interest) $ 54,010 $ 35,295 Income tax paid $ 77,310 $ 115,587
INVESTING ACTIVITIES AFFECTING BOTH CASH AND
NONCASH ITEMS Acquisition of property, plant and equipment $ 260,696 $ 219,531 Decrease in payable for equipment purchased (classified under other
current liabilities) 6,414 44,485 Cash paid $ 267,110 $ 264,016
FINANCING ACTIVITIES AFFECTING NONCASH ITEMS
Current portion of long-term debts $ 706,490 $ 365,074 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 25, 2013)
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GEM TERMINAL IND. CO., LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) 1. ORGANIZATION AND OPERATIONS
GEM Terminal Ind. Co., Ltd. (the “Company”) was incorporated in July 1993 under the laws of the Republic of China (ROC). The Company mainly manufactures and sells the following products: Series terminals, plug inserts, housing and electronic connectors for AC and DC power cords Electric and motor parts terminals Electric and communication terminals Optical communication passive devices Lead frames. The Company’s shares have been traded on the Taiwan Stock Exchange since September 2001. As of December 31, 2012 and 2011, the Company and its subsidiaries (collectively, the “Group”) had 1,881 and 1,929 employees, respectively. The information on the 100% subsidiaries as of December 31, 2012 is as follows: a. Genius Terminal Co., Ltd. (“Genius”) was incorporated in the British Virgin Island in January 1996 and
mainly engages in international investment and global trading. Genius invested in Genius Terminal (HK) Ltd. (“Genius (HK)”) and has acquired 100% equity in this investee, which was incorporated in Hong Kong in December 1996 and mainly engages in international trading.
b. Global Electronics Terminal (Cayman) Co., Ltd. (“Global (Cayman)”) was incorporated in the Cayman
Islands in December 2004 and mainly engages in international investment. Global (Cayman) has invested in the following subsidiaries: 1) Global Electronics Terminal (HK) Co., Ltd. (“Global (HK)”, 100% equity) was incorporated in
December 2004 and mainly engages in international trading. 2) Vibo Gem International Co., Ltd. (“Vibo”, 100% equity) was incorporated in November 2007 and
mainly engages in trading and investment. Vibo has invested in the following subsidiaries: a) Dongguan Gem Electronics & Metal Co., Ltd. (“GEM (Dongguan)”) was established in
December 1995 by Genius, which holds 100% of GEM (Dongguan)’s shares, in accordance with the Foreign-owned Enterprise Law of the People’s Republic of China (PRC) and the Rules for Encouragement of Taiwanese Investments by the State Council of the PRC. GEM (Dongguan)’s primary business is the production and sale of terminals, electric appliance plugs and plastic hardware, terminal crimping machines, molds, computer inserts, electroplating for hardware accessories, ceramic ferrules for optical fiber connection, and machine for hardware, electronics, plastics products manufacturing. In November 2007, the Company reorganized the group structure and transferred Genius’s holdings of GEM (Dongguan)’s shares to Vibo.
b) Suzhou Gem Opto-Electronics Terminal Co., Ltd. (“GEM (Suzhou)”) was established in
October 2002 in accordance with the Foreign-owned Enterprise Law of the PRC and the Rules for Encouragement of Taiwanese Investments by the State Council of the PRC. GEM(Suzhou) was reinvested about 100% by Genius before July 2005, though the Company launched organizational changes, Genius transferred its holdings of GEM(Suzhou) to Global (HK). In
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November 2007, the Company launched organizational changes again, Global (HK) transferred its holdings of GEM(Suzhou) to Vibo. The investment plan amendments on the above were approved by the Investment Commission of the Ministry of Economic Affairs. GEM (Suzhou)’s primary businesses are the manufacture of new electronic components and devices (e.g., Opto-Electronic devices and new mechanical/electric components); design and manufacture of stamping molds with the precision that is equal to or greater than 0.02 mm, plastic molds with the precision that is equal to or greater than 0.05 mm, and standard molds; development and production of construction hardware, water heater parts, and general hardware; manufacture of heat-resistant thermal insulation (insulation class: F or H) and insulation molding parts; production of inorganic nonmetal materials and products (special ceramics); development and production of materials for the specific use in semiconductor components and devices; components, devices, and materials for new instrumentation plug-ins, (inserts and functional parts of instrument); terminal crimping machines; and equipment for the specific use in electronics and electric appliances and electroplating of hardware accessories; and sale of the Company’s own products (under business permits for certain operations.)
c) You Mao Terminal International Co., Ltd (“You Mao”, 100% equity) was incorporated in April
2011 and mainly engages in international trading. As of December 31, 2012, the Company had not remitted the investment to You Mao.
c. GEM Terminal (Cayman) Co., Ltd. (“GEM (Cayman)”, 100% equity) was incorporated in the Cayman
Islands in August 2010 and mainly engages in international investment. In August 2010, GEM (Cayman) acquired all the shares of RUI ZHAN Hardware VN Co., Ltd. (“RUI ZHAN (VN)”) from third parties. The total price of the acquisition was $23,595 thousand (US$810 thousand, mainly for land acquisition at the local market price). In April 2011, GEM (Cayman) had completed the share acquisition registration. As of December 31, 2012, RUI ZHAN (VN) was mainly engaged in factory construction.
As stated above, the consolidated financial statements include the financial statements of the Company and all of the above subsidiaries. All significant intercompany transactions and balances are eliminated on consolidation.
2. SIGNIFICANT ACCOUNTING POLICIES
For readers’ convenience, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the ROC. If inconsistencies arise between the English version and the Chinese version or if differences arise in the interpretations between the two versions, the Chinese version of the financial statements shall prevail.
The consolidated financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, and accounting principles generally accepted in the Republic of China (ROC). Significant accounting policies are summarized as follows: Foreign Currencies The Group included in the consolidation financial statements use their local currency as recording and functional currency. The financial statements of foreign subsidiaries are translated into New Taiwan dollars at the following exchange rates: a. Assets and liabilities - at exchange rates prevailing on the balance sheet date; b. Stockholders’ equity - at historical exchange rates; c. Dividends - at the exchange rate prevailing on the dividend declaration date; and
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d. Income and expenses - at average exchange rates for the year. Exchange differences arising from the translation of the financial statements of foreign operations are recognized as a separate component of stockholders’ equity. Such exchange differences are recognized in profit or loss in the year in which the foreign operations are disposed of. Nonderivative foreign-currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange differences arising from settlement of foreign-currency assets and liabilities are recognized in profit or loss. At the balance sheet date, foreign-currency monetary assets and liabilities are revalued using prevailing exchange rates and the exchange differences are recognized in profit or loss. At the balance sheet date, foreign-currency nonmonetary assets (such as equity instruments) and liabilities that are measured at fair value are revalued using prevailing exchange rates, with the exchange differences treated as follows: a. Recognized in stockholders’ equity if the changes in fair value are recognized in stockholders’ equity; b. Recognized in profit and loss if the changes in fair value are recognized in profit or loss. Foreign-currency nonmonetary assets and liabilities that are carried at cost continue to be stated at exchange rates at trade dates. Consolidation As stated in Note 1, the consolidated financial statements include the financial statements of the Company and all the foregoing subsidiaries. All significant intercompany transactions and balances are eliminated on consolidation. Accounting Estimates Under the above guidelines, law and principles, certain estimates and assumptions have been used for the allowance for doubtful accounts, allowance for loss on inventories, depreciation of property, plant and equipment, income tax, impairment loss on assets, pension cost, bonuses to employees, directors and supervisors, etc. Actual results may differ from these estimates. Current and Noncurrent Assets and Liabilities Current assets include cash and those assets held primarily for trading purposes or to be realized, sold or consumed within one year from the balance sheet date. All other assets such as property, plant and equipment and intangible assets are classified as noncurrent. Current liabilities are obligations incurred for trading purposes or to be settled within one year from the balance sheet date. All other liabilities are classified as noncurrent. Financial Assets and Liabilities at Fair Value through Profit or Loss Financial instruments classified as financial assets or financial liabilities at fair value through profit or loss (FVTPL) include financial assets or financial liabilities held for trading and those designated as at FVTPL on initial recognition. The Group recognizes a financial asset or a financial liability on its balance sheet when the Group becomes a party to the contractual provisions of the financial instrument. A financial asset is derecognized when the Group has lost control of its contractual rights over the financial asset. A financial liability is derecognized when the obligation specified in the relevant contract is discharged, cancelled or expired.
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Financial instruments at FVTPL are initially measured at fair value, and transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized immediately in profit or loss. At each balance sheet date subsequent to initial recognition, financial assets or financial liabilities at FVTPL are remeasured at fair value, with changes in fair value recognized directly in profit or loss in the year in which they arise. Cash dividends received subsequently (including those received in the year of investment) are recognized as income for the year. On derecognition of a financial asset or a financial liability, the difference between its carrying amount and the sum of the consideration received and receivable or consideration paid and payable is recognized in profit or loss. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. A derivative that does not meet the criteria for hedge accounting is classified as a financial asset or a financial liability held for trading. If the fair value of the derivative is positive, the derivative is recognized as a financial asset; otherwise, the derivative is recognized as a financial liability. The initial margins (classified under refundable deposits) paid for futures contracts used to avoid adverse fluctuations of the trade prices of copper raw materials are recorded using memorandum entries only. At each balance sheet date subsequent to initial recognition, futures contracts at FVTPL are remeasured at fair value, with changes in fair value recognized directly in profit or loss in the year in which they arise. Any gain or loss on the futures contracts is recognized in profit or loss in the year in which it arises. Financial instruments designated as at FVTPL include hybrid contracts, which contain a host contract and embedded derivatives. If the embedded derivative cannot be measured separately either at acquisition or at the end of a subsequent financial reporting period, the entire hybrid contract is designated as at fair value through profit or loss. Fair values of financial assets and financial liabilities at the balance sheet date are determined as follows: publicly traded stocks - at closing prices; open-end mutual funds - at net asset values; callable preferred securities - at closing prices or quoted prices from overseas securities firms; financial assets and financial liabilities without quoted prices in an active market - at values estimated using valuation techniques; open interest futures contracts - at prices quoted by overseas futures exchanges; and gold passbook - at prices quoted by domestic banks. Available-for-sale Financial Assets Available-for-sale financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition. At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are remeasured at fair value, with changes in fair value recognized in equity until the financial assets are disposed of, at which time, the cumulative gain or loss previously recognized in equity is included in profit or loss for the year. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. The recognition, derecognition and the fair value bases of available-for-sale financial assets are the same as those of financial assets at FVTPL. An impairment loss is recognized when there is objective evidence that the financial asset is impaired. Any subsequent decrease in impairment loss on an equity instrument classified as available-for-sale is recognized directly in equity. If the fair value of a debt instrument classified as available-for-sale subsequently increases as a result of an event which occurred after the impairment loss was recognized, the decrease in impairment loss is reversed to profit. Impairment of Accounts Receivable Accounts receivable are assessed for impairment at the end of each reporting period and considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the accounts receivable, the estimated future cash flows of the asset have been affected. Objective evidence of impairment includes:
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Significant financial difficulty of the debtor; The accounts receivable becoming overdue; It is becoming probable that the debtor will enter into bankruptcy or undergo financial reorganization. Accounts receivable that are assessed as not impaired individually are further assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of accounts receivable could include the Group’s past experience in the collection of payments and an increase in the number of delayed payments, as well as observable changes in national or local economic conditions that correlate with defaults on receivables. The amount of the impairment loss recognized is the difference between the asset carrying amount and the present value of estimated future cash flows, after taking into account the related collaterals and guarantees, discounted at the receivable’s original effective interest rate. The carrying amount of the accounts receivable is reduced through the use of an allowance account. When accounts receivable are considered uncollectible, they are written off against the allowance account. Recoveries of amounts previously written off are credited to the allowance account. Changes in the carrying amount of the allowance account are recognized as bad debt in profit or loss. Impairment of Assets If the recoverable amount of an asset (mainly property, plant and equipment and intangible assets) is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is charged to earnings unless the asset is carried at a revalued amount, in which case the impairment loss is first treated as a deduction to the unrealized revaluation increment and any remaining loss is charged to earnings. If an impairment loss subsequently reverses, the carrying amount of the asset is increased accordingly, but the increased carrying amount may not exceed the carrying amount that would have been determined had no impairment loss been recognized on the asset in prior years. A reversal of an impairment loss is recognized in earnings, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is first recognized as gain to the extent that an impairment loss on the same revalued asset was previously charged to earnings. Any excess amount is treated as an increase in the unrealized revaluation increment. For the purpose of impairment testing, goodwill is allocated to the relevant cash-generating units (CGUs) that are expected to benefit from the synergies of the acquisition. A CGU to which goodwill has been allocated is tested for impairment annually or whenever there is an indication that the CGU may be impaired. If the recoverable amount of the CGU becomes less than its carrying amount, the impairment is allocated to first reduce the carrying amount of the goodwill allocated to the CGU and then to the other assets of the CGU pro rata on the basis of the carrying amount of each asset in the CGU. A reversal of an impairment loss on goodwill is disallowed. Inventories Inventories consist of finished goods, raw materials, work-in-process, and supplies. Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made by item, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. Inventories are recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date.
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Property, Plant and Equipment Land is stated at cost plus revaluation increment. Property, plant and equipment, except land, are stated at cost less accumulated depreciation. Major additions and improvements to property, plant and equipment are capitalized, while costs of repairs and maintenance are expensed currently. Depreciation is provided on a straight-line basis over estimated useful lives as follows: buildings - 5 to 55 years; machinery and equipment - 3 to 15 years; transportation equipment - 3 to 12 years; office equipment - 3 to 10 years; leasehold improvements - 6 years; and miscellaneous equipment - 2 to 20 years. Property, plant and equipment still in use beyond their original estimated useful lives are further depreciated over their newly estimated useful lives. The related cost (including revaluation increment), accumulated depreciation and its reserve for land value increment tax and unrealized revaluation increment of an item of property, plant and equipment are derecognized from the balance sheet upon its disposal. Any gain or loss on disposal of the asset is included in nonoperating gains or losses in the year of disposal. Land Use Rights Land use rights acquired are initially recorded at cost and amortized on a straight-line basis over estimated useful lives - 48 to 50 years. Deferred Charges Deferred charges (classified as other assets) consist of subsidies of computer software lines installation costs, greening and project payments. Amortization is provided on a straight-line basis over 2 to 20 years. Pension Cost Pension cost under a defined benefit plan is determined by actuarial valuations. Contributions made under a defined contribution plan are recognized as pension cost during the year in which employees render services. If additional accrued pension liability is recognized on the basis of an actuarial pension report and the amount of additional liability does not exceed the sum of unrecognized prior service cost and unrecognized transitional net benefit obligation, the deferred pension cost account should be charged. If the amount of additional liability exceeds the sum, the excess should be charged to the net loss not yet recognized as pension cost account. Deferred pension cost is classified as an intangible asset; net loss not yet recognized as pension cost is classified as a reduction of stockholders’ equity. Income Tax The Group applies the intra-year and inter-year allocation methods to its income tax, whereby (1) a portion of income tax expense is allocated to the effect charged or credited directly to shareholders’ equity; and (2) deferred income tax assets and liabilities are recognized for the tax effects of temporary differences, unused loss carryforward and unused tax credits. Valuation allowance is provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred income tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as current or noncurrent based on the basis of the expected length of time before it is realized or settled. If the Company can control the timing of the reversal of a temporary difference arising from the difference between the book value and the tax basis of a long-term equity investment in a foreign subsidiary and if the temporary difference is not expected to reverse in the foreseeable future and will, in effect, exist indefinitely, then a deferred tax liability or asset is not recognized.
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Tax credits for purchases of machinery, equipment and technology, and research and development expenditures are recognized using the flow-through method. Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision. According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided for as income tax in the year the stockholders approve the retention of the earnings. Revenue Recognition Revenues are recognized when titles to products and risks of ownership are transferred to customers as follows: domestic sales - when products are delivered out of the Group’s premises for delivery to customers; export sales - when products are loaded onto vessels. Sales are measured at fair value, the price (net of trade discounts and sales discounts) agreed to by the Group and customers. If the related receivable is due within one year, the difference between its present value and receivable amount is immaterial, and sales transactions are frequent, the fair value of receivables is equivalent to the nominal amount of cash to be received.
3. EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES Financial Instruments Effective January 1, 2011, the Group adopted the newly revised Statement of Financial Accounting Standards (SFAS) No. 34 - “Financial Instruments: Recognition and Measurement.” The main revisions include (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Company are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost when a debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This accounting change had no significant impact on the Group’s consolidated net income and basic earnings per share for the year ended December 31, 2011. Operating Segments Effective January 1, 2011, the Group adopted the newly issued SFAS No. 41 - “Operating Segments.” The statement requires that segment information be disclosed on the basis of the information about the components of the Group that management uses to make decisions about operating matters. SFAS No. 41 requires identification of operating segments on the basis of internal reports that are regularly reviewed by the Group’s chief operating decision maker in order to allocate resources to the segments and assess their performance. This statement supersedes SFAS No. 20 - “Segment Reporting.” For this accounting change, the Group restated the segment information as of and for the year ended December 31, 2010 to conform to the disclosures as of and for the year ended December 31, 2011.
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4. CASH
December 31 2012 2011 Cash on hand $ 2,526 $ 2,384 Demand deposits 960,742 1,068,413 Time deposits 1,657,585 474,371 Checking accounts 201 201 $ 2,621,054 $ 1,545,369
5. FINANCIAL INSTRUMENTS AT FVTPL - CURRENT
December 31 2012 2011 Financial assets held for trading $ 106,467 $ 24,540 Financial assets designated as at FVTPL 3,937 12,855 $ 110,404 $ 37,395 Financial liabilities held for trading $ - $ 1,499 a. Financial instruments designated as at FVTPL were as follows:
December 31 2012 2011
Financial assets designated as at FVTPL Callable preferred stock with interest $ 3,937 $ 12,855 Net gain on financial assets designated as at FVTPL was $2,957 thousand in 2012 (classified under nonoperating expenses and losses - valuation loss on financial assets, net); net loss on financial assets designated as at FVTPL was $1,760 thousand in 2011 (classified under nonoperating income and gains - valuation gain on financial assets, net).
b. Financial instruments classified as held for trading were as follows:
December 31 2012 2011 Financial assets held for trading Gold passbook $ 106,467 $ 23,545 Forward exchange contracts - 995 $ 106,467 $ 24,540 Financial liabilities held for trading Forward exchange contracts $ - $ 1,499
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The Group used forward exchange contracts and copper futures contracts to manage exposures to adverse exchange rate and copper price fluctuations. The financial risk management objective of the Group is to minimize risks due to changes in fair value or cash flows of the hedge items. These contracts did not meet the criteria for hedge accounting. As of December 31, 2012 and 2011, there were no outstanding copper futures contracts. As of December 31, 2012, there was no outstanding forward exchange contract. Outstanding forward exchange contracts as of December 31, 2011 were as follows: Contract Amount Currency Maturity Date (In Thousands) Sell HKD/RMB 2012.01.03 HKD5,000/RMB4,081 Sell USD/NTD 2012.01.17 USD500/NTD14,707 Sell USD/NTD 2012.01.17 USD500/NTD14,768 Sell HKD/NTD 2012.01.17 HKD3,000/NTD11,340Sell USD/RMB 2012.01.30 USD500/RMB3,255 Sell HKD/RMB 2012.02.01 HKD5,000/RMB4,080 Sell USD/NTD 2012.02.17 USD500/NTD15,077 Sell HKD/NTD 2012.02.17 HKD3,000/NTD11,641Sell USD/RMB 2012.03.01 USD500/RMB3,167 Sell USD/NTD 2012.03.19 USD500/NTD14,997 Sell HKD/NTD 2012.03.19 HKD3,000/NTD11,581Sell USD/RMB 2012.04.02 USD500/RMB3,165 Sell USD/RMB 2012.05.04 USD500/RMB3,163 Net loss on financial assets held for trading was $3,478 thousand in 2012 (classified under nonoperating expenses and losses-valuation loss on financial assets, net); net gain on financial assets held for trading was $7,373 thousand in 2011 (classified under nonoperating income and gains - valuation gain on financial assets, net). Net gain on financial liabilities held for trading was $832 thousand in 2012 (classified under nonoperating income and gains - valuation gain on financial liabilities, net); net loss on financial liabilities held for trading was $8,167 thousand in 2011 (classified under nonoperating expenses and losses-valuation loss on financial liabilities, net).
6. AVAILABLE-FOR-SALE FINANCIAL ASSETS - CURRENT
December 31 2012 2011 Overseas quoted stocks $ 17,800 $ 8,588 Overseas mutual funds 5,967 1,336 Domestic quoted stocks 1,455 19,872 25,222 29,796 Valuation adjustment (Note 13) 2,790 (2,176) $ 28,012 $ 27,620
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7. ACCOUNTS RECEIVABLE, NET
December 31 2012 2011 Accounts receivable $ 1,051,426 $ 1,266,127 Less: Allowance for doubtful accounts (Note 2) 11,319 13,663 $ 1,040,107 $ 1,252,464 Movements of the allowance for doubtful accounts were as follows: Years Ended December 31 2012 2011
Accounts
ReceivableOverdue
ReceivablesAccounts
Receivable Overdue
Receivables Balance, beginning of year $ 13,663 $ 1,408 $ 9,024 $ 4,191 Reclassified - - (7) 7 Allowance (reversal of allowance) for
doubtful accounts (1,818) (64) 4,400 - Written-off (104) - (445) (2,845) Effect of exchange rate (422) (54) 691 55 Balance, end of year $ 11,319 $ 1,290 $ 13,663 $ 1,408 Overdue receivables were classified under other assets and were fully covered by an allowance for doubtful accounts.
8. INVENTORIES
December 31 2012 2011 Finished goods $ 168,450 $ 180,330 Raw materials 159,321 205,800 Work in process 87,978 110,816 Supplies 23,092 15,820 $ 438,841 $ 512,766 As of December 31, 2012 and 2011, the allowances for inventory devaluation were $20,028 thousand and $25,623 thousand, respectively, which were recorded as reduction of inventories. The costs of inventories recognized as costs of goods sold were $3,331,655 thousand in 2012 and $3,778,957 thousand in 2011, which included the following items: Years Ended December 31 2012 2011 Unallocated fixed manufacturing costs $ 89,539 $ 90,846 Write-downs of inventories - 12,953 Others 2,794 880 $ 92,333 $ 104,679
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9. PROPERTY, PLANT AND EQUIPMENT AND LAND USE RIGHTS
December 31 2012 2011 Accumulated depreciation
Buildings $ 272,058 $ 242,925 Machinery and equipment 665,009 606,947 Transportation equipment 46,712 42,512 Office equipment 23,264 21,908 Leasehold improvements 33 18 Miscellaneous equipment 177,846 163,659
$ 1,184,922 $ 1,077,969 In the second quarter of 2011, the Company purchased land for $6,271 thousand. On this land, a resort will be constructed for the employees. However, a part of the land is agricultural land that cannot be transferred to the Company because of statutory limitations; thus, the Company registered the property rights in the name of an individual temporarily. The land has already set-up as mortgage to the Company and state the clause of unconditional conveyance under the agreement that register the land by other’s name. Interest was capitalized as follows: Years Ended December 31 2012 2011 Amounts of capitalized interest (classified under machinery and
equipment, construction in progress and prepayments for equipment) $ 880 $ 589
Interest rates for capitalized interest p.a. 1.85%-6.02% 1.69%-3.12%
The Company revalued its land in 1997 and 1996. In 2005, the ROC government revised the Land Law and reduced the rate of the land value increment tax; thus, the reserve for land value increment tax decreased. The decrease in the land value increment tax of $7,291 thousand was included in unrealized revaluation increment under stockholders’ equity. Information about unrealized revaluation increment was as follows:
Amount Revaluation amount $ 93,021 Less: Book value before revaluation value increments 56,565 Revaluation increment 36,456 Less: Reserve for land value increment tax 7,398 Revaluation increment, net amount 29,058 Less: Capitalization 3,273 Unrealized revaluation increment as of December 31, 2012 and 2011
(Note 13) $ 25,785
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Movements of subsidiaries’ land use rights were as follows: Years Ended December 31 2012 2011 Balance, beginning of year $ 80,202 $ 43,158 Acquisition - 33,694 Decrease (6,930) - Amortization (1,588) (1,386) Effect of exchange rate (3,078) 4,736 Balance, end of year $ 68,606 $ 80,202 GEM (Suzhou) had overpaid the price of its land use rights to the local government and the overpayment of $6,930 thousand (RMB 1,500 thousand) was refunded and accounted for as a deduction of land use rights in 2012.
10. SHORT-TERM LOANS
December 31 2012 2011 Unsecured loans
1.35%-6.31% and 1.30%-6.56% p.a. as of December 31, 2012 and 2011, respectively
$ 887,060 $ 670,289
(including RMB28,000 thousand, HK$70,500 thousand and US$17,000 thousand)
(including RMB6,000 thousand, HK$48,000 thousand, and US$15,000 thousand)
Secured loans 6.00%-6.56% and 2.33% p.a. as of December 31, 2012 and 2011, respectively
499,084 (HK$108,000 thousand)
1,949 (HK$500 thousand)
Purchase loans 1.74% p.a. as of December 31, 2011 - 37,031
(HK$9,500 thousand)
$ 1,386,144 $ 709,269
11. LONG-TERM DEBTS
December 31 2012 2011 Unsecured loans $ 1,277,500 $ 917,574 Commercial paper payable 150,000 150,000 Less: Unamortized discount 177 35 149,823 149,965 1,427,323 1,067,539 Less: Current portion 706,490 365,074 $ 720,833 $ 702,465
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a. Unsecured loan
December 31 2012 2011 China Development Industrial Bank: Repayable in
three semiannual installments from August 2014 to August 2015; interest rate at 1.72% p.a. as of December 31, 2012 $ 150,000
$ - China Development Industrial Bank: Repaid in October 2012;
interest rate at 1.63% p.a. -
100,000 E. Sun Bank: Repayable in four semiannual installments from
November 2013 to May 2015; interest rate at 1.78% p.a. as of December 31, 2012 100,000
- E. Sun Bank: Repayable in four semiannual installments from
January 2012 to July 2013; interest rate at 1.87% as of December 31, 2012 and 2011 50,000
100,000 Bangkok Bank: Repayable on maturity in November 2013;
interest rate at 1.94% p.a. as of December 31, 2012 and 2011 100,000
100,000 Taishin International Bank: Repayable in two semiannual
installments from June 2013 to December 2013; interest rate at 1.91% p.a. as of December 31, 2012 and 2011 100,000
100,000 Taipei Fubon Bank: Repayable in four semiannual installments
from September 2013 to March 2015; interest rate at 1.79% p.a. as of December 31, 2012 200,000
- Taipei Fubon Bank: Repayable in four semiannual installments
from June 2012 to December 2013; interest rate at 1.97% p.a. as of December 31, 2012 and 2011 50,000
100,000 Changhua Bank: Repayable in three semiannual installments
from February 2013 to February 2014; interest rate at 2.00% p.a. as of December 31, 2012 and 2011 100,000
100,000 Industrial Bank of Taiwan: Repayable in four semiannual
installments from September 2012 to March 2014; interest rate at 2.09% p.a. as of December 31, 2012 and 2011 75,000
100,000 Industrial Bank of Taiwan: Repayable in four semiannual
installments from January 2014 to July 2015; interest rate at 1.73% p.a. as of December 31, 2012 75,000
- Industrial Bank of Taiwan: Repayable in four semiannual
installments from September 2012 to March 2014; interest rate at 1.78% p.a. as of December 31, 2012 and 2011 37,500
50,000 Taiwan Bank: Repayable in four semiannual installments from
January 2014 to July 2015; interest rate at 1.66% p.a. as of December 31, 2012 100,000
- Yuanta Bank: Repayable in two semiannual installments from
November 2014 to May 2015; interest rate at 1.82% p.a. as of December 31, 2012 100,000
- Kaohsiung Bank: Repayable in two annual installments from
May 2011 to October 2012, and two semiannual installments from November 2012 to May 2013; interest rate at 2.20% p.a. as of December 31, 2012 and 2011 20,000
100,000 Mega International Commercial Bank: Repayable in five
semiannual installments from March 2011 to March 2013; interest rate at 1.87% p.a. as of December 31, 2012 and 2011 20,000
60,000 (Continued)
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December 31 2012 2011 Shanghai Commercial & Savings Bank: Repaid in June 2012,
interest rate at 1.94%. p.a. as of December 31, 2011 $ -
$ 7,574 (US$ 250 thousand)
1,277,500 917,574 Less: Current portion 556,667 365,074 $ 720,833 $ 552,500
Under the loan agreements with China Development Industrial Bank, Taishin International Bank and Bangkok Bank, the Company should maintain certain financial ratios. These financial ratios are calculated on the basis of audited semiannual and annual stand-alone financial statements (FS), reviewed semiannual consolidated FS and audited annual consolidated FS. As of December 31, 2012, the Company was in compliance with the financial ratio requirements of China Development Industrial Bank and Bangkok Bank. In March 2013 Taishin International Bank agreed to exempt the Company from maintaining debt ratio and interest coverage ratio calculated on the basis of audited annual consolidated financial statements and the loans from Taishin International Bank had been included in the Company’s long-term debts - current portion at the end of December 2012.
b. Commercial paper payable
Interest
Rate
P.A. December 31 Acceptance Bank (%) Credit Line Maturity 2012 2011
International Bills Finance
Corporation/ Ta Chong Bank Ltd. (TC Bank)
1.55 $ 150,000 January 2013 $ 150,000 $ 150,000
Less: Unamortized discounts 177 35 149,823 149,965Less: Current portion 149,823 - $ - $ 149,965
Under the loan agreements with TC Bank, the Company should maintain certain financial ratios based on reviewed semiannual and audited annual consolidated financial statements. As of December 31, 2012, the Company was not in compliance with TC Bank’s debts ratio requirement; however, the loan was repaid on January 21, 2013. The Company committed to International Bills Finance Corporation to use from January 2010 to January 2013, the full amount of the credit lines granted by the bank; otherwise, the Company will be charged commitment fees at 1.55%, of the credit amounts. The financial ratio of the Company as of December 31, 2012 was in compliance with the requirements stated in the loan agreements with the bank.
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12. PENSION PLANS
a. Pension plan and net pension cost for the Company The pension plan under the Labor Pension Act (LPA) is a defined contribution plan. Based on the LPA, the rate of the Company’s monthly contributions to employees’ individual pension accounts is at 6% of monthly salaries and wages. Such pension costs were $3,339 thousand and $3,450 thousand for the years ended December 31, 2012 and 2011, respectively. Based on the defined benefit plan under the Labor Standards Law (LSL), pension benefits are calculated on the basis of the length of service and average monthly salaries and wages of the six months before retirement. The Company contributes amounts equal to 4% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. The pension fund is deposited in the Bank of Taiwan in the committee’s name. In November 2005, the Company set up an officers’ pension fund committee, which is in charge of reviewing, monitoring, and auditing the withdrawal, maintenance, and distribution of the pension fund set up for management level officers. As of December 31, 2012 and 2011, the balances of this fund were $1,581 thousand (consisting of demand deposits of $81 thousand and time deposits of $1,500 thousand) and $1,107 thousand (consisting of demand deposits of $7 thousand and time deposits of $1,100 thousand), respectively. Other information about the defined benefit plan is as follows: 1) Components of net periodic pension cost
Years Ended December 31 2012 2011 Service cost $ 1,270 $ 1,363 Interest cost 2,161 2,372 Projected return on plan assets (522) (640) Amortization of pension loss 1,827 1,289 $ 4,736 $ 4,384
2) Reconciliation of funded status of the plan and accrued pension cost
Years Ended December 31 2012 2011 Benefit obligation
Vested benefit obligation $ 41,849 $ 37,150 Non-vested benefit obligation 56,307 63,683 Accumulated benefit obligation 98,156 100,833 Additional benefits based on future salaries 6,242 7,215 Projected benefit obligation 104,398 108,048
Fair value of plan assets (28,891) (26,095) Funded status 75,507 81,953 Unrecognized net loss (16,764) (25,420) Additional pension liabilities
Unrecognized pension loss 10,522 18,205 Accrued pension cost $ 69,265 $ 74,738 Vested benefit $ 42,574 $ 38,082
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3) Actuarial assumptions
December 31 2012 2011 Discount rate used in determining present values 2.00% 2.25% Future salary increase rate 1.20% 1.20% Expected rate of return on plan assets 2.00% 2.25%
Years Ended December 31 2012 2011 4) Contributions to the fund $ 2,527 $ 2,691 5) Payments from the fund $ - $ 5,378
b. Pension plans and cost of subsidiaries
Under their local governments’ regulations, the subsidiaries in the People’s Republic of China (GEM (Dongguan) and GEM (Suzhou)) made contributions to local governments at a certain percentage of each employee’s average wage; the other subsidiaries had no pension plans. GEM (Dongguan) recognized pension costs of $6,995 thousand (RMB1,493 thousand) in 2012 and $6,311 thousand (RMB1,389 thousand) in 2011. GEM (Suzhou) recognized pension costs of $14,365 thousand (RMB3,065 thousand) in 2012 and $9,345 thousand (RMB2,056 thousand) in 2011.
c. Consolidated pension expenses were $29,435 thousand and $23,490 thousand for the years ended December 31, 2012 and 2011, respectively.
13. STOCKHOLDERS’ EQUITY Capital Surplus The capital surplus from shares issued in excess of par (additional paid-in capital from issuance of common shares, conversion of bonds and treasury stock transactions) and donations may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or transferred to capital (limited to a certain percentage of the Company’s paid-in capital and once a year). Appropriation of Earnings and Dividend Policy Under the Company’s Articles of Incorporation, the Company should make appropriations from its net income (less any deficit) in the following order: a. 10% as legal reserve, until its balance equals the Company’s paid-in capital; b. Special reserve in accordance with relevant laws or regulations or as requested by the authorities in
charge; c. Dividends, bonus to employees, and remuneration to directors and supervisors (bonus to employees
should be at least 3%, and any remaining balance should be allocated or retained by Board of Directors in accordance with the Company’s operation; all of these appropriations should be submitted to the stockholders’ meeting for approval);
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d. If bonus to employees is in form of stock, affiliates’ employees who meet certain requirements may also
receive the stock bonus. The stock bonus distribution plan should be approved in a board of directors’ meeting.
The Company’s dividend policy is in line with the Company’s operating scale and research and development needs as well as the status of the economy and industry in order to maintain sound management and promote stockholders’ long-term interests. Company’s profits may be distributed in the form of cash and/or stock. However, distribution of profits should preferably be in the form of cash dividend. The dividends should be at least 50% of total unappropriated earnings. Cash dividends should be at least 10% of total dividends. But if a cash dividend is less than NT$0.2, the Company may choose to appropriate stock dividends instead. For 2012 and 2011, the bonuses to employees were estimated at $4,000 thousand and $8,000 thousand, respectively, and the remunerations to directors and supervisors were both $2,100 thousand. The bonus to employees and remuneration to directors and supervisors were (a) for 2012, 5.23% and 2.75%, respectively, of net income (net of the bonus and remuneration) after legal reserve and (b) for 2011, 4.80% and 1.26%, respectively, of net income (net of the bonus and remuneration) after legal reserve. Material differences between such estimated amounts and the amounts proposed by the Board of Directors in the following year are adjusted for in the current year. If the actual amounts subsequently resolved by the stockholders differ from the proposed amounts, the differences are recorded in the year of stockholders’ resolution as a change in accounting estimate. If a share bonus is resolved to be distributed to employees, the number of shares is determined by dividing the amount of the share bonus by the closing price (after considering the effect of cash and stock dividends) of the shares of the day immediately preceding the stockholders’ meeting. Based on a directive issued by the Securities and Futures Bureau, an amount equal to the net debit balance of certain stockholders’ equity accounts (including unrealized revaluation, unrealized gain or loss on financial instruments, unrecognized pension costs and cumulative translation adjustments) should be transferred from unappropriated earnings to a special reserve. Any special reserve appropriated may be reversed to the extent of the decrease in the net debit balance. Legal reserve may be used to offset deficit. If the Company has not incurred loss and when the legal reserve has exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash. The appropriation of earnings should be approved in a stockholders’ meeting and presented in the financial statements of the year following the year of the stockholders’ meeting. Except for non-ROC resident stockholders, all stockholders receiving dividends are allowed a tax credit equal to their proportionate share of the income tax paid by the Company. The appropriations from the earnings of 2011 and 2010 had been proposed by the board of directors and approved in the stockholders’ meetings in June 2012 and 2011, respectively. The appropriations and dividends per share were as follows:
Appropriation of Earnings Dividends Per
Share (NT$) For Fiscal
Year 2011 For Fiscal Year 2010
For Fiscal Year 2011
For Fiscal Year 2010
Legal reserve $ 18,530 $ 32,156 Cash dividends to stockholders 137,278 205,918 $0.80 $1.20 $ 155,808 $ 238,074
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The bonus to employees and the remuneration to directors and supervisors for 2011 and 2010 approved in the stockholders’ meetings in June 2012 and 2011, respectively, were as follows: Cash Year Ended
December 31, 2011
Year Ended December 31,
2010 Bonus to employees $ 8,000 $ 10,000 Remuneration to directors and supervisors 2,100 2,400 The bonus to employees and the remuneration to directors and supervisors which were estimated in 2011 and 2010 were resolved to be distributed in cash. The bonus to employees and the remuneration to directors and supervisors for 2011 and 2010 approved in the stockholders’ meetings in 2012 and 2011, respectively, were not different from amounts recognized in the financial statements. The appropriations of the 2012 earnings were proposed in the board of directors’ meeting on March 25, 2013. The appropriation and dividends per share were as follows:
Year Ended December 31,
2012 Legal reserve $ 8,494 Dividends to stockholders
Cash - NT$0.23 per share 39,468 $ 47,962 The bonus to employees and the remuneration to directors and supervisors for 2012 approved in the board of directors’ meeting were not different from amounts of which recognized in the financial statement. The appropriation of the 2012 earnings including the bonus to employees and remuneration to directors, and supervisors, is scheduled for approval in the stockholder’s meeting on June 14, 2013. Information about the bonus to employees, directors and supervisors is available on the Market Observation Post System website of the Taiwan Stock Exchange. Other Equity Items a. Unrealized revaluation increment
The year-end balance was $25,785 thousand as of December 31, 2012 and 2011. Unrealized revaluation increment cannot be used for any purpose.
b. Unrealized Gain (Loss) on Financial Instruments
Movements of unrealized gain (loss) on available-for-sale financial instruments were as follows:
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Years Ended December 31 2012 2011 Balance, beginning of year $ (1,996) $ 14,296 Recognized in stockholders’ equity 3,329 (40,445) Transferred to loss 988 24,153 Balance, end of year $ 2,321 $ (1,996)
14. INCOME TAX
a. A reconciliation of income tax expense based on income before income tax at the statutory rate and income tax expense was as follows:
Years Ended December 31 2012 2011 Income tax expense at the statutory rate $ 41,390 $ 65,071 Tax effect of adjusting items:
Permanent differences Tax-exempt income - (3,292) Others (233) 2,119
Temporary differences Allowance on (reversals of) loss on inventories (1,224) 3,018 Unrealized gross profit 4,204 3,710 Time difference for revenue recognition - 1,232 Others (292) 3,303 Loss carryforwards used 5,106 - Investment tax credits used - (352)
Additional 10% income tax on unappropriated earnings 2,949 8,349 Current income tax expense 51,900 83,158 Deferred income tax expense
Temporary differences 5,002 (5,354) Loss carryforwards (5,106) -
Withholding tax on overseas investment income 115 42 Adjustment for prior years’ tax 7,001 7,968 Exchange rate influence 1,812 (1,521) Income tax expense $ 60,724 $ 84,293
b. Deferred income tax assets (liabilities) were as follows:
December 31 2012 2011 Current
Loss carryforwards $ 5,106 $ - Unrealized allowance for loss on inventories 4,617 6,009 Unrealized bad debts 1,359 1,462 Unrealized gross profit 931 962 Others 888 2,036
12,901 10,469 (Continued)
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December 31 2012 2011 Noncurrent
Unrealized intercompany gain $ 14,865 $ 10,852 Accrued pension cost 9,992 9,613 Financial and taxation differences on property, plant and
equipment 5,273 5,601 Investment income recognized on overseas equity-method
investments (56,309) (49,224) Others (1,437) (1,481) (27,616) (24,639)
Deferred income tax liabilities, net $ (14,715) $ (14,170)
The foregoing noncurrent deferred income tax was presented under the following balance sheet accounts:
December 31 2012 2011
Deferred income tax assets - noncurrent $ 34,119 $ 27,963 Deferred income tax liabilities - noncurrent (61,735) (52,602) Deferred income tax liabilities - noncurrent, net $ (27,616) $ (24,639) Certain incomes from manufacturing electric terminals are exempt from income tax for five years from February 12, 2008, January 1, 2008, and January 1, 2011.
c. The tax returns through 2008 have been assessed by the tax authorities. d. Information about retained earnings subject to integrated income tax is as follows:
December 31 2012 2011 Unappropriated earnings generated before January 1, 1998 $ 6,684 $ 6,684 Unappropriated earnings generated on and after January 1, 1998 370,077 440,941 $ 376,761 $ 447,625 As of December 31, 2012 and 2011, the balances of the imputation credits allocable to the stockholders amounted to $25,262 thousand and $20,911 thousand, respectively. The creditable ratios for the distribution of the earnings of 2012 and 2011 were 7.54% (estimate) and 7.25% (actual), respectively. For the distribution of earnings generated from January 1, 1998, the ratio for the imputation credits allocable to stockholders of the Company is based on the balance of the Imputation Credit Account (ICA) as of the date of dividend distribution. The expected creditable ratio for the 2012 earnings may be adjusted, depending on the ICA balance on the date of dividend distribution.
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e. Under the laws of the British Virgin Islands, the income of Genius, Global (Cayman) and GEM (Cayman) is exempt from income tax. Under the laws of Hong Kong, because the subsidiaries in Hong Kong - Genius (HK), Vibo, and Global (HK) - have no operations, these subsidiaries are also exempt from income tax. If these subsidiaries have any separate tax on interest income or withholding tax on dividends, the amount of this tax is recorded as the current year’s tax provision.
f. Under the income tax law of the PRC, the highest tax rate of GEM (Dongguan) and GEM (Suzhou) was
25%. g. Under the revised PRC income tax laws, the distribution overseas of retained earnings generated after
January 1, 2008 is subject to a 10% withholding tax. Foreign companies which have tax treaties with the PRC may apply for lower withholding tax rates.
h. GEM (Dongguan) and GEM (Suzhou) had completed the filing of their income tax returns through
2011 with the tax authorities.
15. PERSONNEL, DEPRECIATION AND AMORTIZATION EXPENSES
Years Ended December 31 2012 2011 Classified as Classified as Classified as Classified as
Operating
Costs Operating Expenses Total
Operating Costs
Operating Expenses Total
Personnel
Salary $ 326,944 $ 146,070 $ 473,014 $ 294,207 $ 130,772 $ 424,979Health and labor
insurance 2,855 6,068 8,923 4,501 4,491 8,992Pension 19,851 9,584 29,435 16,025 7,465 23,490Others 4,264 8,596 12,860 4,995 8,385 13,380
$ 353,914 $ 170,318 $ 524,232 $ 319,728 $ 151,113 $ 470,841 Depreciation $ 155,539 $ 43,725 $ 199,264 $ 161,037 $ 27,069 $ 188,106Amortization 131 4,568 4,699 514 3,669 4,183
16. EARNINGS PER SHARE (EPS) ATTRIBUTABLE TO STOCKHOLDERS OF THE PARENT
COMPANY The numerators and denominators used in calculating basic and diluted EPS were as follows: Shares Amount (Numerator) (Denominator) EPS ($) Pretax Post-tax (Thousands) Pretax Post-tax Year ended December 31, 2012 Basic EPS
Earnings attributable to parent company $ 81,558 $ 84,944 171,598 $ 0.48 $ 0.50
Effect of dilutive potential common
stock Employee stock bonus - - 647
Diluted EPS
Income for the year attributable to common stockholders plus effect of dilutive common stock $ 81,558 $ 84,944 172,245 0.47 0.49
(Continued)
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Shares Amount (Numerator) (Denominator) EPS ($) Pretax Post-tax (Thousands) Pretax Post-tax Year ended December 31, 2011 Basic EPS
Earnings attributable to parent company $ 189,887 $ 185,300 171,598 $ 1.11 $ 1.08
Effect of dilutive potential common stock Employee stock bonus - - 828
Diluted EPS
Income for the year attributable to common stockholders plus effect of dilutive common stock $ 189,887 $ 185,300 172,426 1.10 1.07
The Accounting Research and Development Foundation issued Interpretation 2007-052, which requires corporations to recognize bonuses paid to employees, directors and supervisors as compensation expenses beginning January 1, 2008. These bonuses were previously recorded as appropriations from earnings. If the Company may settle the bonus to employees by cash or shares, the Company should presume that the entire amount of the bonus will be settled in shares and the resulting potential shares should be included in the weighted average number of shares outstanding used in the calculation of diluted EPS, if the shares have a dilutive effect. The number of shares is estimated by dividing the entire amount of the bonus by the closing price of the shares at the balance sheet date. Such dilutive effect of the potential shares should be included in the calculation of diluted EPS until the stockholders resolve the number of shares to be distributed to employees at their meeting in the following year.
17. FINANCIAL INSTRUMENTS
a. Fair values of financial instruments
December 31 2012 2011 Carrying Carrying Amount Fair Value Amount Fair Value Nonderivative financial instruments Assets
Financial assets at fair value through profit or loss - current $ 110,404 $ 110,404 $ 36,400 $ 36,400
Available-for-sale financial assets - current 28,012 28,012 27,620 27,620Refundable deposits (current/noncurrent) 3,539 3,539 36,331 36,331Restricted assets - current 102,035 102,035 - -
Liabilities Long-term debts (including current portion) 1,427,323 1,398,135 1,067,539 1,055,298
Domestic derivative financial instruments Financial liabilities at fair value through profit or loss -
current Forward exchange contracts - - 1,499 1,499
Overseas derivative financial instruments Financial assets at fair value through profit or loss -
current Forward exchange contracts - - 995 995
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b. Methods and assumptions used to estimate the fair values of financial instruments were as follows:
1) The carrying amount of cash, notes and accounts receivable, other receivables, short-term loans, notes and accounts payable and accrued expenses, approximate fair value because of the short maturities of these instruments.
2) The fair values of available-for-sale financial assets are determined at their market value. 3) The fair values of refundable deposits and restricted assets are determined at their carrying values. 4) The fair values of long-term debts are determined at the present values of future cash flows, with
the values discounted at the interest rates for similar long-term debts. 5) The fair values of financial assets at fair value through profit or loss are determined at their market
value.
c. As of December 31, 2012 and 2011, on financial instruments exposed to fair value interest rate risk, financial assets amounted to $1,759,620 thousand and $474,371 thousand, respectively, and financial liabilities amounted to $2,730,287 thousand and $988,814 thousand, respectively. As of December 31, 2012 and 2011, on financial instruments exposed to cash flow interest rate risk, financial assets amounted to $960,742 thousand and $1,068,413 thousand, respectively, and financial liabilities amounted to $83,180 thousand and $787,994 thousand, respectively.
d. For 2012 and 2011, interest income of $27,132 thousand and $15,487 thousand, respectively, and
interest expenses (including capitalized interest) of $56,029 thousand and $36,891 thousand, respectively, were associated with financial assets or liabilities other than those at fair value through profit or loss.
e. Financial risks
1) Market risk The Group’s foreign-currency financial instruments are exposed to fair value risk on exchange rate fluctuations. A 1% increase (decrease) in exchange rate will increase (decrease) the fair value of the Group’s foreign-currency financial instruments at December 31, 2012 by $12,593 thousand.
Callable preferred stocks with interest, a gold passbook, mutual funds and quoted stocks held by the Company are subject to market price risk. The fair values of these investments will increase (decrease) by $1,384 thousand if their market price increases (decreases) by 1%. The Company has established risk control mechanism and taken stop-loss measures to monitor the interests and the price risk on the copper futures contracts held. For effective management of market price risk, early closing out at stated prices and margin calls are made when there is drastic volatility in prices. The Group had evaluated its financial instruments and it believed the exposure to market risk as of December 31, 2012 was not significant.
2) Credit risk Credit risk represents the potential loss that would be incurred by the Group if the counter-parties breach financial instruments contracts. The Group’s financial instruments are affected by credit risk concentration, components, contract amounts and other receivables. The maximum credit exposures and the carrying amounts of the Group’s financial instruments (excluding fair value of the collateral) are the same.
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The Group’s receivables are significantly concentrated in certain individuals, most of which have similar business operations and economic features. Credit risk concentration occurs when the counter-parties to financial instrument transactions are individuals or groups engaged in similar activities or activities in the same region, which would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. As of December 31, 2012 and 2011, the balances of the customers’ notes and accounts receivable with carrying amounts that were 10% or more of their respective totals are shown below: December 31 2012 2011
Carrying % to
Receivable Carrying % to
Receivable Group A $ 229,192 19 $ 365,605 26
3) Liquidity risk The Group has sufficient operating capital to meet future cash needs. Therefore, the cash flow risk is expected to be insignificant. The Group’s investments in callable preferred stocks with interest, a gold passbook, mutual funds and quoted stocks are traded in active markets and can be disposed of quickly at close to their fair values; therefore, liquidity risk is expected to be insignificant.
4) Cash flow interest rate risk Effective interest rates for the Group’s floating-rate financial instruments will vary as market rates change. If the market interest rate had decreased by 1%, the Group’s annual cash inflows will have had decreased by $8,776 thousand in 2012 and $2,804 thousand in 2011, respectively.
18. RELATED-PARTY TRANSACTIONS
a. Related parties and their relationships with the Group
Related Parties Relationship with the Group Su, Chung-Hong Chairman Su, Tun-Jen General manager Su, Tun-I Immediate relative of the Company’s chairman Su, Tun-Li Supervisor Zong Fu Investment Co. Director Cheng Feng Investment Co. Supervisor Yo Feng Investment Co. Director
b. Significant transactions with related parties
1) Property lease The Company leased its Taipei office, factories and storehouse from Su, Tun-Jen and Su, Tun-Li under one-year operating lease contracts. The annual rentals for 2012 and 2011 were each $1,826 thousand and were recorded as operating expenses and manufacturing cost on the basis of the size of the areas actually used. The rental terms were determined by negotiation. The rental rates were similar to the local market
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rates and the payment terms were at arm’s length. 2) Guarantees
Su, Chung-Hong and Su, Tun-Li jointly provided the guarantee for the Company’s loans.
c. Compensation of directors, supervisors and management personnel
Years Ended December 31 2012 2011
Salary $ 14,585 $ 13,679 Incentives 2,045 1,898 $ 16,630 $ 15,577
19. MORTGAGED AND PLEDGED ASSETS
The carrying amounts of the subsidiaries’ assets mortgaged or pledged as collaterals for short and long-term debts were as follows: December 31 2012 2011 Property, plant and equipment - building $ 397,602 $ 237,217 Land use rights 40,275 20,726 Time deposits (under restricted assets - current) 102,035 - $ 539,912 $ 257,943
20. SIGNIFICANT COMMITMENTS AND CONTINGENCIES
In addition to those disclosed in Note 11, significant commitments and contingencies of the Group as of December 31, 2012 were as follows: a. Unused letters of credit for purchasing materials and equipment amounted to $47 thousand. b. The amounts of contracts for purchases of properties and materials were $109,086 thousand, of which
$58,306 thousand had not been paid.
21. EXCHANGE RATE INFORMATION OF FOREIGN-CURRENCY FINANCIAL ASSETS AND LIABILITIES Information on the Group’s significant financial assets, financial liabilities and derivative contracts is as follows (in thousands of foreign currency, except exchange rate): December 31 2012 2011
Original
Currencies Exchange
Rate New Taiwan
Dollars Original
Currencies Exchange
Rate New Taiwan
Dollars Financial assets Monetary items
USD $ 29,776 29.032 $ 864,450 $ 23,450 30.270 $ 709,826
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December 31 2012 2011
Original
Currencies Exchange
Rate New Taiwan
Dollars Original
Currencies Exchange
Rate New Taiwan
Dollars
HKD $ 73,408 3.7470 $ 275,060 $ 94,577 3.8980 $ 368,663RMB 396,894 4.6211 1,834,089 223,285 4.8082 1,073,600BGP 2,847 46.802 133,227 1,234 46.711 57,626JPY 26,334 0.3363 8,856 78,135 0.3905 30,512CAD 2,576 29.194 75,197 1,006 29.661 29,839
Non-monetary items USD 701 29.032 20,359 551 30.270 16,676HKD 2,697 3.7470 10,106 1,295 3.8980 5,048
Financial liabilities Monetary items
USD 17,092 29.032 496,204 16,393 30.270 496,206HKD 70,579 3.7470 264,459 57,613 3.8980 224,577RMB 253,250 4.6211 1,170,294 81,445 4.8082 391,602
Derivative contracts Forward exchange contract
USD - - - 4,000 29.413-31.305 120,853HKD - - - 19,000 3.780-3.924 73,802
22. ADDITIONAL DISCLOSURES a. The following are additional disclosures for the Company and its investees as required by the ROC
Securities and Futures Bureau as of and for the year ended December 31, 2012:
1) Financings provided: Table 1 (attached). 2) Endorsement/Guarantee provided: Table 2 (attached). 3) Marketable securities held: Table 3 (attached). 4) Individual securities acquired or disposed of at costs or prices of at least NT$100 million or 20% of
the paid-in capital: None. 5) Acquisition of individual real estate at costs of at least NT$100 million or 20% of the paid-in
capital: None. 6) Disposal of individual real estate at costs of at least NT$100 million or 20% of the paid-in capital:
None. 7) Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in
capital: Table 4 (attached). 8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in
capital: Table 5 (attached). 9) Names, locations and related information of investees over which the Company exercises
significant influence: Table 6 (attached). 10) Derivative transactions of investees over which the Company has controlling interests: None.
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b. Investments in Mainland China 1) Investees’ names, main businesses and products, paid-in capital, method of investment,
accumulated inflow and outflow of investments from Taiwan, percentage of ownership, investment income (loss), ending balance of investments, dividends remitted by the investee, and limits on investment in Mainland China: Table 7 (attached).
2) Significant direct and indirect transactions with the investees, prices and terms of payment,
unrealized gain or loss, and other events with significant effects on the operating results and financial condition:
a) Amounts and percentages of purchases for the year ended December 31, 2012 and related
accounts payable as of December 31, 2012: Table 4 (attached). b) Amounts and percentages of sales for the year ended December 31, 2012 and related accounts
receivable as of December 31, 2012: Table 4 (attached). c) Selling prices and gains (losses) on property transactions: Table 8 (attached). d) Endorsement, guarantee or collaterals directly or indirectly provided to the investees: Table 2
(attached). e) Financings directly or indirectly provided to the investees: Table 1 (attached). f) Other transactions that significant impacted the current year’s profit or loss or financial status:
Table 8 (attached).
c. Intercompany business relationships and significant transactions for the years ended December 31, 2012 and 2011: Table 8 (attached).
23. OPERATING SEGMENT FINANCIAL INFORMATION
Information reported to the Group’s chief operating decision maker for the purposes of resource allocation and assessment of segment performance is focused on the category of customer for each type of goods supplied and services provided. The Group’s reportable segments under Statement of Financial Accounting Standards No. 41 - “Operating Segments” are therefore as follows: a. GEM Terminal, GEM (Dongguan) and Genius (HK) consolidated information b. GEM (Suzhou) c. Others Segment revenues and results, segment assets and liabilities The following is an analysis of the Group’s revenue and results from operations by reportable segments:
GEM Terminal,
GEM (Dongguan)& Genius (HK)
GEM (Suzhou) Others
Adjustment & Elimination
ConsolidatedAmount
Year ended December 31, 2012 Revenue generated from third parties $ 1,878,760 $ 1,660,429 $ 378,912 $ 772 $ 3,918,873
(Continued)
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GEM Terminal,
GEM (Dongguan)& Genius (HK)
GEM (Suzhou) Others
Adjustment & Elimination
ConsolidatedAmount
Revenue generated from the Company
and subsidiaries $ 68,243 $ 496,143 $ 103,161 $ (667,547) $ - Total segment revenues $ 1,947,003 $ 2,156,572 $ 482,073 $ (666,775) $ 3,918,873 Segment income $ 9,046 $ 145,365 $ 1,013 $ 33,513 $ 188,937Interest revenue 27,132Other nonoperating income and gains 7,772Interest expense (55,149)Other nonoperating expense and losses (23,024)Net income of operating units (pretax) 145,668Income tax (60,724) Consolidated net income $ 84,944 Total segment assets $ 4,565,523 $ 2,554,073 $ 3,174,825 $ (3,908,934) $ 6,385,487Investments accounted for by the equity
method 1,873,413 - - (1,873,413) - Total segment assets $ 6,438,936 $ 2,554,073 $ 3,174,825 $ (5,782,347) $ 6,385,487 Total segment liabilities $ 2,721,429 $ 715,004 $ 407,781 $ (253,148) $ 3,591,066 Year ended December 31, 2011 Revenue generated from third parties $ 2,300,302 $ 1,613,490 $ 524,075 $ 6,075 $ 4,443,942Revenue generated from the Company
and subsidiaries 133,071 948,225 509,420 (1,590,716) - Total segment revenues $ 2,433,373 $ 2,561,715 $ 1,033,495 $ (1,584,641) $ 4,443,942 Total segment income $ 95,014 $ 187,578 $ (2,065) $ 16,662 $ 297,189Interest revenue 15,487Other nonoperating income and gains 48,421Interest expense (36,302)Other nonoperating expense and losses (55,202)Net income of operating units (pretax) 269,593Income tax (84,293) Consolidated net income $ 185,300 Total segment assets $ 4,000,946 $ 2,461,784 $ 3,008,250 $ (4,003,942) $ 5,467,038Investments accounted for by the equity
method 1,857,018 - - (1,857,018) - Total segment assets $ 5,857,964 $ 2,461,784 $ 3,008,250 $ (5,860,960) $ 5,467,038 Total segment liabilities $ 1,972,794 $ 728,825 $ 288,156 $ (466,443) $ 2,523,332
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Other segment information Depreciation and Amortization 2012 2011 GEM Terminal, GEM (Dongguan) and Genius (HK) $ 91,514 $ 90,138 GEM (Suzhou) 111,894 102,151 Others 555 - $ 203,963 $ 192,289 Geographical information Years Ended December 31 2012 2011 Asia $ 3,888,024 $ 4,412,813 Others 30,849 31,129 $ 3,918,873 $ 4,443,942 According to the information of export revenues above, it means the balance which has eliminated the transactions between the consolidated parties. The percentage of export revenues is calculated by the export revenues divides by the net operating revenues above. Major customers For 2012 and 2011, the customer from which sales revenue accounted for over 10% of the Group’s consolidated operating revenue is shown below: Years Ended December 31 2012 2011
Amount
% to Operating Revenue,
Net
Amount
% to Operating Revenue,
Net Group A $ 572,175 15 $ 814,180 18
24. PLAN FOR REQUIRED ADOPTION OF THE INTERNATIONAL FINANCIAL REPORTING
STANDARDS Under Rule No. 0990004943 issued by the Financial Supervisory Commission (FSC) on February 2, 2010, the Group discloses its plan on the adoption of International Financial Reporting Standards (IFRSs), as follows: a. On May 14, 2009, the FSC announced the “Framework for Adoption of International Financial
Reporting Standards by Companies in the ROC.” In this framework, starting 2013, companies with shares listed on the Taiwan Stock Exchange or traded on the Taiwan GreTai Securities Market or Emerging Stock Market should prepare their financial statements in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards, International Accounting Standards, and the Interpretations as well as related guidance translated by the Accounting Research and Development Foundation and issued by the FSC. To comply with this requirement, the Group has set up a project team and made a plan to adopt IFRSs. Leading the implementation of this plan is Mrs. Wang Chien Hsiu. The main contents of the plan, schedule and status of execution as of December 31, 2011 are as follows:
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Contents of Plan Responsible Department
Status of Execution
Set up the project team Finance department Completed Prepare the plan for IFRSs adoption Finance department Completed Have accounting firm conduct training Finance department Completed Complete the identification of the differences between the
existing accounting policies and accounting policies to be adopted under IFRSs
Finance department Completed
Complete the identification of the consolidated entities
under IFRSs Finance department Completed
Complete the assessment of the impact of the application of
IFRS 1 - “First-time Adoption of International Financial Reporting Standards”
Finance department Completed
Complete the assessment of adjustments required for the
information system to be compatible with IFRSs Finance department,
IT department, and internal audit department
Completed
Complete the assessment of adjustments required for the
internal control to be compatible with IFRSs Finance department,
IT department, and internal audit department
Completed
Determine the accounting policies to be applied under
IFRSs Finance department Completed
Complete the analysis of the impact of IFRSs on the
Group’s tax Finance department Completed
Determine which of the exemptions and optional
exemptions under IFRS 1 - “First-time Adoption of International Financial Reporting Standards” applied to the Group
Finance department Completed
Complete the preparation of the statement of financial
position by the transition date under IFRSs Finance department Completed
Complete the preparation of comparative financial
information for the six months ended June 30, 2012 in accordance with IFRSs
Finance department Completed
Complete the IFRSs adjustments required for internal
control (including the financial reporting process and the related information system)
Finance department, IT department, and internal audit department
Completed
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b. As of December 31, 2012, the Group had assessed the material differences between the Group’s current accounting policies under the ROC GAAP and the ones to be adopted under IFRSs are stated as follows:
1) Reconciliation of consolidated balance sheet as of January 1, 2012: Table 9 (attached). 2) Reconciliation of consolidated balance sheet as of December 31, 2012: Table 10 (attached). 3) Reconciliation of consolidated statement of income for the year ended December 31, 2012: Table
11 (attached). 4) Reconciliation of stockholders’ equity:
Note December 31,
2012 January 1,
2012 Stockholders’ equity under ROC GAAP $ 2,794,421 $ 2,943,706 Reconciliation items
Defined benefit pension plan (10) and (11) (11,652) (5,746) Others (7) and (9) (2,218) (2,375)
Stockholders’ equity under IFRSs $ 2,780,551 $ 2,935,585 5) Special reserve at the date of transition to IFRSs
In accordance with the order VI-1010012865 issued by FSC on April 6, 2012, at the first-time adoption of IFRSs, an entity shall appropriate a corresponding amount to special reserve same as the IFRS adjustment, in which case an entity elects to use exemption application specified in IFRS 1 and resets unrealized revaluation increment under stockholders’ equity to zero, and its retained earnings is being increased accordingly. However, if the retained earnings arising from IFRS adjustment at the first-time adoption are insufficient, special reserve shall be appropriated by the amount that retained earnings increase from the IFRS adjustment. While subsequent usage, disposal or reclassification of the related assets, special reserve shall be reversed in proportion. The Group elected to reset the unrealized revaluation increment differences of $25,785 thousand to zero and credited a corresponding amount to retained earnings. However, the Group’s total IFRS adjustments, at the first-time adoption of IFRSs, resulted in a decrease of retain earnings. Therefore, no special reserve was appropriated.
6) Exemptions and optional exemptions under IFRS 1 In accordance with IFRS 1 - First-time Adoption of International Financial Reporting Standards, an entity should comply with each IFRS effective at the first-time adoption to prepare and present financial statements and adjust retrospectively, except that the IFRS grants optional exemptions and mandatory exemptions. a) Deemed cost
For a part of the land, the Group elected to used revalued carrying amount of which (under ROC GAAP) as its deemed cost at the date of transition to IFRSs. The Group has measured to evaluate property, plant and equipment by cost method under IFRSs retrospectively.
b) Employee benefits
The Group elected to recognize all cumulative actuarial gains and losses relating to employee benefits in accumulated earnings at the date of transition to IFRSs.
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The foregoing optional exemptions that the Group plans to elect are subject to changes arising from the management’s consideration and assessment; therefore, the actual results may vary. The effects arising from the above exemptions are stated in 7) The effect of the transition from ROC GAAP to IFRSs.
7) The effect of the transition from ROC GAAP to IFRSs
The material differences between the Group’s consolidated financial statements prepared on the basis of the ROC GAAP and IFRSs are stated as follows: a) Time deposits with maturity of more than 3 months from the date of acquisition
Under ROC GAAP, the term “cash and cash equivalents” used in the financial statements includes time deposits that are cancellable but without any loss of principal. However, under IFRSs, time deposits with maturity of more than 3 months from the date of acquisition, fixed or determinable payments and with no quoted prices in an active market, are not included in the term ”cash and cash equivalents” and should be reclassified as bond investments with no active market - current. As of December 31, 2012 and January 1, 2012, the Group’s time deposits with maturity of more than 3 months from the date of acquisition were reclassified under IFRSs; the reclassification adjustment resulted in a decrease of cash and cash equivalents by $117,054 thousand and $23,356 thousand, respectively.
b) Offset against the deferred tax liabilities and assets
Under the requirements of ROC GAAP, the current and noncurrent deferred tax liabilities and assets of the same taxable entity should be offset against each other and presented as a net amount. However under the requirements of IAS 12, an entity shall offset current tax assets and current tax liabilities if, and only if, the entity has a legally enforceable right to set off the recognized amounts; and an entity shall offset deferred tax assets and current tax liabilities if the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on the same taxable entity.
c) Reclassification for deferred income tax assets and liabilities Under ROC GAAP, a deferred income tax asset or liability is classified as current or noncurrent in accordance with the classification of the related asset or liability for financial reporting. However, if a deferred income tax asset or liability does not relate to an asset or liability, then it is classified as either current or noncurrent on the basis of the expected length of time before it is realized or settled. Under IFRSs, a deferred income tax asset or liability should be classified as noncurrent. Accordingly, as of December 31, 2012 and January 1, 2012, the reclassification adjustment resulted in an increase of noncurrent deferred income tax assets by $12,901 thousand and $10,469 thousand, respectively. Under IFRSs, the Group’s deferred tax assets and liabilities cannot be offset against each other, thus, deferred tax assets and liabilities both increased by $1,299 thousand at December 31, 2012 and by $1,008 thousand at January 1, 2012.
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d) Reclassification for reserve for land value increment tax Under the Guidelines Governing the Preparation of Financial Reports b Securities Issuers, reserve for land value increment tax incurred due to land revaluation is recognized as noncurrent liabilities. Under IFRSs, if the company chose to use revalued carrying amounts of the land as its deemed costs, the related reserve for land value increment tax should be reclassified as deferred income tax liabilities. Accordingly, as of December 31, 2012 and January 1, 2012, the reclassification adjustment resulted in an increase of deferred income tax liabilities both by $7,398 thousand, respectively.
e) Reclassification for prepayments for equipment Under ROC GAAP, prepayments for equipment are classified as construction in progress and prepayments for equipment under property, plant and equipment. Under IFRSs, prepayments for equipment should be classified as other noncurrent assets - prepayments for equipment. Accordingly, as of December 31, 2012 and January 1, 2012, the reclassification adjustment resulted in an increase of noncurrent other assets - prepayments for equipment by $83,427 thousand and $30,526 thousand, respectively.
f) Reclassification for land use rights Under ROC GAAP, land use rights are classified as intangible assets. Under IFRSs (IAS 17 - “Leases”), land use rights should be separately accounted for as prepaid rent, and classified as either current or noncurrent based on the expected length of time of amortization. Accordingly, as of December 31, 2012 and January 1, 2012, the reclassification adjustment resulted in an increase of prepaid rent (under other current assets) by $1,572 thousand and $1,575 thousand, respectively, an increase of long-term prepaid rent by $67,034 thousand and $78,627 thousand, respectively.
g) Measurement of property, plant and equipment Under ROC GAAP, property, plant and equipment held by the Company can be revalued in accordance with laws and regulations. Land can be revalued and adjusted to government announced current land value. The increase in the value of land is the amount incurred due to foregoing adjustment less the estimated reserve for land value increment tax. Under IFRSs, the Group elected cost model as its accounting policy for subsequent recognition of its property, plant and equipment, and no land value increment is allowed to be recognized accordingly. Also, unrealized revaluation increment should be reclassified under other comprehensive income. The related unrealized revaluation increment of an item of property, plant and equipment, which under other comprehensive income, is derecognized upon its disposal and is included in retained earnings rather than current profit or loss. Accordingly, as of December 31, 2012 and January 1, 2012, the reclassification adjustment resulted in an increase of retained earnings both by $25,785 thousand, respectively.
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h) Reclassification for deferred charges Under ROC GAAP, deferred charges are classified as other assets. Under IFRSs, deferred charges should be classified as property, plant and equipment, prepaid expensed and long-term prepaid expenses by their nature. Accordingly, as of December 31, 2012 and January 1, 2012, the reclassification adjustment resulted in an increase of long-term prepaid expenses (under noncurrent other assets) by $6,354 thousand and $8,119 thousand, respectively.
i) Employee benefit - short-term employee benefit Accumulated compensated absences are not addressed in existing ROC GAAP, and the cost of compensated absences is usually recognized in the year of disbursement. Under IFRSs, the expected cost of short-term vacation leave credit should be recognized as the employees render service that increases their entitlement or, in the case of noncumulative vacation leave credits, when the vacation leaves are taken. Accordingly, as of December 31, 2012 and January 1, 2012, the adjustment resulted in an increase of payroll payable (under accrued expenses) by $2,755 thousand and $2,963 thousand, respectively; an increase of deferred income tax assets by $536 thousand and $587 thousand, respectively; a decrease of cumulative translation adjustments by $18 thousand and $43 thousand, respectively. For the year ended December 31, 2012, the adjustment resulted in an increase of consolidated income by $132 thousand (net of $42 thousand tax effect), and a decrease of retained earnings by $2,332 thousand (net of $587 thousand tax effect).
j) Actuarial pension gain or loss under the defined benefit plan Under ROC GAAP, actuarial pension gain or loss shall be amortized using the corridor method and the amortization shall be included in net pension costs. The minimum amount of amortization shall be that excess divided by the average remaining service period of those employees who are still in service and expected to receive pension benefits. Accordingly, as of December 31, 2012 and January 1, 2012, the Group elected to recognize all cumulative actuarial losses relating to employee benefits of $25,420 thousand in retained earnings at the date of transition to IFRSs, and recognized pension costs of $3,435 thousand in accordance with the actuarial report. A of December 31, 2012 and January 1, 2012, foregoing adjustment also resulted in an increase of accrued pension costs by $26,715 thousand and $28,855 thousand, respectively; an increase of deferred income tax assets by $4,542 thousand and $4,905 thousand; a decrease of retained earnings by $2,852 thousand (net of $583 thousand tax effect). For the year ended December 31, 2012, the adjustment resulted in an increase of consolidated income by $1,777 thousand (net of $363 thousand tax effect).
k) Minimum pension liability Minimum pension liability is the minimum amount of pension liability that is required to be recognized on the balance sheet. If the accrued pension liability recorded on the books is less than the minimum amount, the difference shall be recognized by crediting accrued pension costs. However, minimum pension liability is not addressed in IFRSs.
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Accordingly, as of December 31, 2012 and January 1, 2012, the adjustment resulted in a decrease of accrued pension costs and net loss not yet recognized as pension costs both by $10,522 thousand and $18,205 thousand, respectively.
c. The Group has prepared the above assessments in compliance with (a) the 2010 version of the IFRSs translated by the ARDF and issued by the FSC and (b) the Guidelines Governing the Preparation of Financial Reports by Securities Issuers amended and issued by the FSC on December 22, 2011. These assessments may be changed as the International Accounting Statements Board (IASB) continues to issue or amend standards, and as the FSC may issue new rules governing the adoption of IFRSs by companies with shares listed on the TWSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market. Actual accounting policies adopted under IFRSs in the future may differ from those contemplated during the assessments.
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TABLE 1
GEM TERMINAL IND. CO., LTD. AND INVESTEES FINANCING PROVIDED YEAR ENDED DECEMBER 31, 2012 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
Collateral
No. Financing Company Borrowing Company
Financial Statement Account
Maximum Balance for the
period
Ending Balance(Notes 2 and 5)
Interest RateType of
Financing Transaction
Amount
Reason for Short-term Financing
Allowance for Bad Debt Item Value
Financing Limit for Each
Borrowing Company
Financing Company’s
Financing Amount Limit
0 GEM Terminal Ind. Co., Ltd. (the “Company”)
Global (Cayman) Other receivables - related parties
$ 149,875 ( US$ 5,000 thousand )
$ 145,160 ( US$ 5,000 thousand ) (Note 3)
2.80 Short-term financing
$ - Operating capital
$ - - $ - $ 558,884 (Note 1)
$ 1,117,768 (Note 1)
Genius (HK) Other receivables - related parties
116,040 ( HK$ 30,000 thousand )
112,410 ( HK$ 30,000 thousand ) (Note 3)
2.00 Short-term financing
- Operating capital
- - - 558,884 (Note 1)
1,117,768 (Note 1)
1 Vibo GEM (Suzhou) Other
receivables - related parties
29,975 ( US$ 1,000 thousand )
29,032 ( US$ 1,000 thousand ) (Note 3)
2.80 Short-term financing
- Operating capital
- - - 531,507 (Note 1)
1,063,015 (Note 1)
2 Global (Cayman) Global (HK) Other
receivables - related parties
11,990 ( US$ 400 thousand )
11,613 ( US$ 400 thousand ) (Note 4)
2.00 Short-term financing
- Operating capital
- - - 535,912 (Note 1)
1,071,823 (Note 1)
GEM (Suzhou) Other receivables - related parties
104,913 ( US$ 3,500 thousand )
-
2.00 Short-term financing
- Operating capital
- - - 535,912 (Note 1)
1,071,823 (Note 1)
GEM (Dongguan) Other receivables - related parties
94,748 ( RMB 20,000 thousand )
92,422 ( RMB 20,000 thousand ) (Note 3)
4.50 Short-term financing
- Operating capital
- - - 535,912 (Note 1)
1,071,823 (Note 1)
GEM Terminal Other receivables - related parties
74,813 ( US$ 2,500 thousand )
72,580 ( US$ 2,500 thousand ) (Note 3)
2.80 Short-term financing
- Operating capital
- - - 535,912 (Note 1)
1,071,823 (Note 1)
Note 1: Under the Company’s and the subsidiaries’ “Operational Procedures for Loaning Funds to Others,” if short-term financing is needed, total amounts of these financings should not exceed 40 percent of the Company’s and the subsidiaries’ stockholders’ equity, and
individual financing should not exceed 20 percent of the Company’s and the subsidiaries’ stockholders’ equity. Note 2: The conversion rates on December 31, 2012 were HK$1: NT$3.747 and US$1: NT$29.032. Note 3: The amount had been unused as of December 31, 2012. Note 4: The amount that had been used as of December 31, 2012 was $11,613 thousand (US$400 thousand). Note 5: It was eliminated in the consolidated financial statements.
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TABLE 2 GEM TERMINAL IND. CO., LTD. AND INVESTEES ENDORSEMENTS/GUARANTEES PROVIDED YEAR ENDED DECEMBER 31, 2012 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
Guaranteed Party
No. Endorsement/Guarantee
Provider Name Nature of
Relationship
Limits on Endorsement/
Guarantee Amount Provided to Each Guaranteed Party
(Note 1)
Maximum Balance for the Year
Ending Balance (Note 3)
Amount of Endorsement/
Guarantee Collateralized by
Properties
Ratio of Accumulated Endorsement/
Guarantee to Net Equity Per Latest
Financial Statements
Maximum Endorsement/
Guarantee Amount Allowable (Note 2)
0 GEM Terminal Ind. Co., Ltd.
(the “Company”) GEM (Suzhou) Subsidiary $ 838,326 $ 89,520
(US$ 3,000 thousand)
$ - $ - $ - $ 1,397,211
Note 1: According to the “Operational Procedures for Endorsement/Guarantee”, the amount of the endorsement/guarantee of the Company to individual subsidiary does not exceed 30% of the Company’s stockholders’ equity. Note 2: According to the “Operational Procedures for Endorsement/Guarantee”, the total amount of the endorsement/guarantee of the Company does not exceed 50% of the Company’s stockholders’ equity.
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TABLE 3 GEM TERMINAL IND. CO., LTD. AND INVESTEES MARKETABLE SECURITIES HELD DECEMBER 31, 2012 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
December 31, 2012
Holding Company Marketable Securities Type and
Issuer/Name
Security Issuer’s Relationship with
the Holding Company
Financial Statement Account Shares/Units Carrying Amount
Percentage of Ownership
Market Value or Net Asset Value
Note
GEM Terminal Ind. Callable preferred stock with interest Co., Ltd. (the
“Company”) USD Standard Chart Reg S 9.5% Perpetual Financial assets designated as at fair value
through profit or loss - current 1,000 $ 3,201 $ 3,201
HSBC Holdings Plc Sub Cap Secs 8.125% Pfd Stk
Financial assets designated as at fair value through profit or loss - current
1,000 736
736
$ 3,937 $ 3,937 Stock Nokia Corp. Spon ADR Available-for-sale financial assets - current 55,000 $ 6,307 $ 6,307 Hewlett Packard Co. Del. Available-for-sale financial assets - current 12,000 4,965 4,965 Facebook Inc. Available-for-sale financial assets - current 4,000 3,091 3,091 Foxconn Intl Hldgs Available-for-sale financial assets - current 208,000 2,931 2,931 Li-Fung Co. Available-for-sale financial assets - current 32,000 1,640 1,640 Acer Inc. Available-for-sale financial assets - current 35,000 882 882 Micron Technology Inc. Available-for-sale financial assets - current 3,600 663 663 Uni-President China Available-for-sale financial assets - current 20,000 615 615 Wistron Corp. Available-for-sale financial assets - current 20,000 602 602 21,696 21,696 Beneficial certificate IShares FTSE/Xinhua A50 Available-for-sale financial assets - current 60,000 2,505 2,505 Boci Prudential AM WISE – CSI 300 China Available-for-sale financial assets - current 22,000 2,415 2,415 Morgan Stanley China A Sh Fd Inc. Available-for-sale financial assets - current 2,000 1,396 1,396 6,316 6,316 $ 28,012 $ 28,012 Rights certificate Global Electronics Terminal (Cayman) Co.,
Ltd. Subsidiary Investments accounted for using the equity
method 35,037,184 $ 2,679,559 100 $ 2,679,559 Note 2
Genius Terminal Co., Ltd. Subsidiary Investments accounted for using the equity method
750,000 91,295 100 91,295 Note 2
GEM Terminal (Cayman) Co., Ltd. Subsidiary Investments accounted for using the equity method
1,000,000 26,626
100 26,626
Note 2
$ 2,797,480 $ 2,797,480 Genius Terminal Co., Certificate of incorporation Ltd. Genius (HK) Subsidiary Investments accounted for using the equity
method 21,999,998 $ 79,143 100 $ 79,143 Note 2
(Continued)
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December 31, 2012
Holding Company Marketable Securities Type and
Issuer/Name
Security Issuer’s Relationship with
the Holding Company
Financial Statement Account Shares/Units Carrying Amount
Percentage of Ownership
Market Value or Net Asset Value
Note
Global Electronics Certificate of incorporation (Cayman) Co.,
Ltd. Vibo Subsidiary Investments accounted for using the equity
method 320,426,766 $ 2,657,525 100 $ 2,657,525 Note 2
Global (HK) Subsidiary Investments accounted for using the equity method
1,000,000 7,792
100 7,792
Note 2
$ 2,665,317 $ 2,665,317 GEM Terminal Rights certificate (Cayman) Co.,
Ltd. Rui Zhan hardware Vn Subsidiary Investments accounted for using the equity
method - $ 26,300 100 $ 26,300 Note 2
Vibo Rights certificate GEM (Suzhou) Subsidiary Investments accounted for using the equity
method - $ 1,839,069 100 $ 1,839,069 Note 2
GEM (Dongguan) Subsidiary Investments accounted for using the equity method
- 844,924 100 844,924 Note 2
You Mao Subsidiary Investments accounted for using the equity method
- -
100 -
Notes 1 and 2
$ 2,683,993 $ 2,683,993 Note 1: The Company hasn’t been remitted the investment to You Mao. Note 2: It was eliminated in the consolidated financial statements.
(Concluded)
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TABLE 4
GEM TERMINAL IND. CO., LTD. AND INVESTEES TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL YEAR ENDED DECEMBER 31, 2012 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
Transaction Detail Non-arm’s Length Transaction Notes/Accounts Payable or
Receivable Company Name Related Party Nature of
Relationship Purchases/Sales Amount % to Total Payment Term Unit Price Payment Term Ending Balance % to Total
Note
Genius (HK) GEM Terminal Ind. Co., Ltd.
(the “Company”) Parent Sales $ 585,014
(HK$ 153,424 thousand) (Note 1)
36 120 days after monthly closing No comparable transactions with those in the market
No comparable transactions with those in the market
$ 129,428 (HK$ 34,542 thousand) (Note 2)
31 Note 3
GEM Terminal Ind. Co., Ltd.
(the “Company”) Genius (HK) Subsidiary Purchases (585,014)
(HK$ 153,424 thousand) (Note 1)
(75) 120 days after monthly closing No comparable transactions with those in the market
No comparable transactions with those in the market
(129,428) (HK$ 34,542 thousand) (Note 2)
(75) Note 3
GEM (Dongguan) Genius (HK) Affiliate Sales 1,530,432
(HK$ 401,259 thousand) (Note 1)
94 120 days after monthly closing No comparable transactions with those in the market
No comparable transactions with those in the market
85,969 (HK$ 22,943 thousand) (Note 2)
63 Note 3
Genius (HK) GEM (Dongguan) Affiliate Purchases (1,530,432)
(HK$ 401,259 thousand) (Note 1)
(96) 120 days after monthly closing No comparable transactions with those in the market
No comparable transactions with those in the market
(85,969) (HK$ 22,943 thousand) (Note 2)
(96) Note 3
GEM (Suzhou) Global (HK) Affiliate Sales 416,310
(US$ 12,079 thousand and HK$ 15,419 thousand) (Note 1)
19 120 days after monthly closing No comparable transactions with those in the market
No comparable transactions with those in the market
99,125 (US$ 2,997 thousand and HK$ 3,220 thousand) (Note 2)
17 Note 3
Global (HK) GEM (Suzhou) Affiliate Purchases (416,310)
(US$ 12,079 thousand and HK$ 15,419 thousand) (Note 1)
(88) 120 days after monthly closing No comparable transactions with those in the market
No comparable transactions with those in the market
(99,125) (US$ 2,997 thousand and HK$ 3,220 thousand) (Note 2)
(94) Note 3
Genius (HK) GEM (Dongguan) Affiliate Sales 111,565
(HK$ 29,203 thousand) (Note 1)
7 120 days after monthly closing No comparable transactions with those in the market
No comparable transactions with those in the market
3,817 (HK$ 1,019 thousand) (Note 2)
1 Note 3
GEM (Dongguan) Genius (HK) Affiliate Purchases (111,565)
(HK$ 29,203 thousand) (Note 1)
(10) 120 days after monthly closing No comparable transactions with those in the market
No comparable transactions with those in the market
(3,817) (HK$ 1,019 thousand) (Note 2)
(1) Note 3
Note 1: The average conversion rates for 2012 were HK$1.0000:NT$3.8127 and US$1.0000:NT$29.5689. Note 2: The conversion rates on December 31, 2012 were HK$1.0000:NT$3.747; and US$1.0000:NT$29.032. Note 3: The transaction were not included in the consolidated financial statements.
- 178 -
TABLE 5 GEM TERMINAL IND. CO., LTD. AND INVESTEES RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2012 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
Overdue Company Name Related Party Nature of Relationship Ending Balance Turnover Rate
Amount Action Taken Amount Received in
Subsequent Year Allowance for
Bad Debt Genius (HK) GEM Terminal Ind. Co.,
Ltd.(the “Company”) Subsidiary $ 129,428
(under accounts receivable - related parties)(Note)
5.80 $ - - $ 72,419 $ -
Note: It was eliminated in the consolidated financial statements.
- 179 -
TABLE 6
GEM TERMINAL IND. CO., LTD. AND INVESTEES NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE YEAR ENDED DECEMBER 31, 2012 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
Investment Amount Balance as of December 31, 2012 Earning Appropriation
Investor Company Investee Company Location Main Businesses and Products December 31,2012 (ForeignCurrencies in
Thousands
December 31,2011 (ForeignCurrencies in Thousands)
Shares/UnitsPercentage of
Ownership Carrying Amount
Ownership % × Net Worth of
Investees
Net Income (Loss) of the
Investee
Investment Income (Loss)
Recognized Stock Cash
Note
GEM Terminal Ind. Co., Ltd. (the
“company”) Global (Cayman) Grand Cayman, Cayman Islands International investment US$ 35,037 US$ 34,137 35,037,184 100 $ 2,679,559 $ 2,679,559 $ 143,337 $ 143,337 $ - $ - Note 2
Genius Terminal British Virgin Islands International investment and trading, etc. US$ 750 US$ 750 750,000 100 91,295 91,295 675 675 - - Note 2 GEM Terminal (Cayman) Grand Cayman, Cayman Islands International investment US$ 1,000 US$ 1,000 1,000,000 100 26,626 26,626 (730 ) (730 ) - - Note 2 $ 2,797,480 $ 2,797,480 $ 143,282 $ 143,282 Genius Terminal Genius (HK) Hong Kong International trading HK$ 22,000 HK$ 22,000 21,999,998 100 $ 79,143 $ 79,143 $ 694 $ 694 - - Note 2 Global (Cayman) Vibo Hong Kong Investment and trading HK$ 320,427 HK$ 294,079 320,426,766 100 $ 2,657,525 $ 2,657,525 $ 142,983 $ 142,983 - - Note 2 Global (HK) Hong Kong International trading HK$ 1,000 HK$ 1,000 1,000,000 100 7,792 7,792 (387 ) (387 ) - - Note 2 $ 2,665,317 $ 2,665,317 $ 142,596 $ 142,596 GEM Terminal (Cayman) Rui Zhan hardware VN Vietnam Production of hardware; machine
processing; electroplating for metal processing; production and processing of molds and related accessories; plastic products and related plastic accessory production
US$ 910 US$ 910 - 100 $ 26,300 $ 26,300 $ (588 ) $ (588 ) - - Note 2
Vibo GEM (Suzhou) Mainland China Manufacture of new electronic
components and devices (e.g., Opto-Electronic devices and new mechanical/electric components); design and manufacture of stamping molds with the precision that is equal to or greater than 0.02 mm, plastic molds with the precision that is equal to or greater than 0.05 mm, and standard molds; development and production of construction hardware, water heater parts, and general hardware; manufacture of heat-resistant thermal insulation (insulation class: F or H) and insulation molding parts; production of inorganic nonmetal materials and products (special ceramics); development and production of materials for the specific use in semiconductor components and devices; components, devices, and materials for new instrumentation plug-ins (inserts and functional parts of instrument); terminal crimping machines; and equipment for the specific use in electronics and electric appliances and electroplating of hardware accessories; and sale of the Company’s own products (under business permits for certain operations.)
US$ 21,500 US$ 19,000 - 100 $ 1,839,069 $ 1,839,069 $ 102,317 $ 102,317 - - Note 2
(Continued)
- 180 -
Investment Amount
Balance as of December 31, 2012 Earning Appropriation
Investor Company Investee Company Location Main Businesses and Products December 31,2012 (ForeignCurrencies in
Thousands
December 31,2011 (ForeignCurrencies in Thousands)
Shares/UnitsPercentage of
Ownership Carrying Amount
Ownership % × Net Worth of
Investees
Net Income (Loss) of the
Investee
Investment Income (Loss)
Recognized Stock Cash
Note
GEM (Dongguan) Mainland China Production and sale of terminals, electric
appliance plugs and plastic hardware, terminal crimping machines, molds, computer inserts, electroplating for hardware accessories, ceramic ferrules for optical fiber connection, and machine for hardware, electronics, plastics products manufacturing.
US$ 10,559 US$ 9,659 - 100 $ 844,924
$ 844,924
$ 52,590
$ 52,590
$ - $ - Note 2
You Mao Hong kong Internatinoal trading Note 1 Note 1 - 100 - - - - - - Note 2 $ 2,683,993 $ 2,683,993 $ 154,907 $ 154,907 Note 1: The Company hasn’t remitted the investment to You Mao. Note 2: It was eliminated in the consolidated financial statements.
- 181 -
TABLE 7
GEM TERMINAL IND. CO., LTD. AND INVESTEES INFORMATION ON INVESTMENT IN MAINLAND CHINA YEAR ENDED DECEMBER 31, 2012 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
Investment Flows
Investee Company Main Businesses and Products
Total Amount of Paid-in Capital
(RMB in Thousands)(Note 1)
Method of Investment
Accumulated Outflow of
Investment from Taiwan as of
January 1, 2012
Outflow Inflow
Accumulated Outflow of
Investment from Taiwan as of
December 31, 2012
Percentage of Ownership
Investment Income (Loss) Recognized
(Note 2)
Carrying Amount as of December 31,
2012 (Notes 1 and 2)
Accumulated InwardRemittance of Earnings as of
December 31, 2012
GEM (Dongguan) Production and sale of terminals, electric appliance plugs and plastic
hardware, terminal crimping machines, molds, computer inserts, electroplating for hardware accessories, ceramic ferrules for optical fiber connection, and machine for hardware, electronics, plastics products manufacturing.
$ 678,761 (RMB 146,883)
Note 3 $ 317,892 (US$ 9,659 thousand)
$ 26,440 (US$ 900 thousand)
$ - $ 344,332 (US$ 10,559 thousand)
100 $ 52,590 (US$ 1,771 thousand)
$ 844,924 (US$ 29,103 thousand)
$ -
GEM (Suzhou) Manufacture of new electronic components and devices (e.g.,
Opto-Electronic devices and new mechanical/electric components); design and manufacture of stamping molds with the precision that is equal to or greater than 0.02 mm, plastic molds with the precision that is equal to or greater than 0.05 mm, and standard molds; development and production of construction hardware, water heater parts, and general hardware; manufacture of heat-resistant thermal insulation (insulation class: F or H) and insulation molding parts; production of inorganic nonmetal materials and products (special ceramics); development and production of materials for the specific use in semiconductor components and devices; components, devices, and materials for new instrumentation plug-ins (inserts and functional parts of instrument); terminal crimping machines; and equipment for the specific use in electronics and electric appliances and electroplating of hardware accessories; and sale of the Company’s own products (under business permits for certain operations.)
1,115,423 (RMB 241,376)
Note 3 620,650 (US$ 19,000 thousand)
76,210 (US$ 2,500 thousand)
- 696,860 (US$ 21,500 thousand)
100 102,317 (US$ 3,461 thousand)
1,839,069 (US$ 63,346 thousand)
-
$ 1,041,192 (US$ 32,059
thousand)
Accumulated Investment in Mainland China as of
December 31, 2012
Investment Amount Authorized by the Investment Commission, MOEA
(Note 1)
Upper Limit on Investment (Note 4)
$1,041,192 $1,733,210 $1,676,653
(US$32,059 thousand) (US$59,700 thousand)
Note 1: The conversion rates on December 31, 2012 were RMB1.0000:NT$4.6211 and US$1.0000:NT$29.032. Note 2: Amount was from financial reports issued by Taiwan independent certified public accountants. Note 3: The investment was made through a corporation established in a third country to invest in companies located in Mainland China. Note 4: Under the “Principles Governing the Review of Investments or Technical Cooperation in Mainland China” issued by the Investment Commission on August 29, 2008, that maximum amount the can be invested in companies located in Mainland China is 60% of the Company’s net value.
- 182 -
TABLE 8
GEM TERMINAL INDUSTRIAL CORPORATION AND INVESTEES INTERCOMPANY BUSINESS RELATIONSHIPS AND SIGNIFICANT TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
For the Year ended December 31, 2012
Intercompany Transactions
No. Company Name Counterparty Nature of
Relationship (Note 2) Financial Statement Item Amount Terms
Percentage of Consolidated Total Gross
Sales or Total Assets
Note
0 GEM Terminal Global (HK) 1 Sales $ 52,024 Payment terms are four months, no comparable transactions
1 Note1
Global (HK) 1 Accounts Receivable 5,102 Payment terms are four months, no comparable transactions
- Note1
Genius (HK) 1 Sales 64,697 Payment terms are four months, no comparable transactions
2 Note1
Genius (HK) 1 Accounts Receivable 2,424 Payment terms are four months, no comparable transactions
- Note1
Global (HK) 1 Fixed Assets and Equipment-for-sale (classified under other current assets)
12,324 Payment terms are four months, no comparable transactions
- Note1
Genius (HK) 1 Fixed Assets and Equipment-for-sale (classified under other current assets)
30,475 Payment terms are four months, no comparable transactions
- Note1
Genius (HK) 1 Other Receivable 1,610 Payment terms are four months, no comparable transactions
- Note1
GEM (Suzhou) 1 Sales 12,387 Payment terms are four months, no comparable transactions
- Note1
GEM (Suzhou) 1 Account Receivable 937 Payment terms are four months, no comparable transactions
- Note1
GEM (Suzhou) 1 Fixed Assets and Equipment-for-sale (classified under other current assets)
53,642 Payment terms are four months, no comparable transactions
1 Note1
GEM (Suzhou) 1 Other Receivable 8,851 Payment terms are four months, no comparable transactions
- Note1
GEM (Suzhou) 1 Expense of patent right 726 Payment terms are four months, no comparable transactions
- Note1
GEM (Dongguan) 1 Fixed Assets and Equipment-for-sale (classified under other current assets)
52,343 Payment terms are four months, no comparable transactions
1 Note1
1 GEM (Dongguan) Genius (HK) 3 Sales 1,530,432 Payment terms are four months, no comparable
transactions 39 Note1
Genius (HK) 3 Accounts Receivable 85,969 Payment terms are four months, no comparable transactions
1 Note1
GEM (Suzhou) 3 Sales 3,832 Payment terms are four months, no comparable transactions
- Note1
GEM (Suzhou) 3 Account Receivable 3,216 Payment terms are four months, no comparable transactions
- Note1
GEM (Suzhou) 3 Fixed Assets 2,647 Payment terms are four months, no comparable transactions
- Note1
(Continued)
- 183 -
Intercompany Transactions
No. Company Name Counterparty Nature of
Relationship (Note 2) Financial Statement Item Amount Terms
Percentage of Consolidated Total Gross
Sales or Total Assets
Note
GEM (Suzhou) 3 Other Receivable $ 654 Payment terms are four months, no comparable transactions
- Note1
2 Genius (HK) GEM Terminal 2 Sales 585,014 Payment terms are four months, no comparable
transactions 15 Note1
GEM Terminal 2 Accounts Receivable 129,428 Payment terms are four months, no comparable transactions
2 Note1
GEM (Dongguan) 3 Sales 111,565 Payment terms are four months, no comparable transactions
3 Note1
GEM (Dongguan) 3 Accounts Receivable 3,817 Payment terms are four months, no comparable transactions
- Note1
GEM (Dongguan) 3 Other Receivable 728 Payment terms are four months, no comparable transactions
- Note1
3 Global (HK) GEM Terminal 2 Sales 37,068 Payment terms are four months, no comparable
transactions 1 Note1
GEM Terminal 2 Accounts Receivable 3,921 Payment terms are four months, no comparable transactions
- Note1
GEM (Suzhou) 3 Sales 66,093 Payment terms are four months, no comparable transactions
2 Note1
GEM (Suzhou) 3 Accounts Receivable 5,102 Payment terms are four months, no comparable transactions
- Note1
4 GEM (Suzhou) GEM Terminal 2 Sales 17,636 Payment terms are four months, no comparable
transactions - Note1
GEM Terminal 2 Accounts Receivable 2,045 Payment terms are four months, no comparable transactions
- Note1
Global (HK) 3 Sales 416,310 Payment terms are four months, no comparable transactions
11 Note1
Global (HK) 3 Accounts Receivable 99,125 Payment terms are four months, no comparable transactions
2 Note1
GEM (Dongguan) 3 Sales 62,197 Payment terms are four months, no comparable transactions
2 Note1
GEM (Dongguan) 3 Accounts Receivable 13,243 Payment terms are four months, no comparable transactions
- Note1
GEM (Dongguan) 3 Fixed Assets 853 Payment terms are four months, no comparable transactions
- Note1
(Continued)
- 184 -
Year ended December 31, 2011
Intercompany Transactions
No. Company Name Counterparty Nature of
Relationship (Note 2) Financial Statement Item Amount Terms
Percentage of Consolidated Total Gross
Sales or Total Assets
Note
0 GEM Terminal Global (HK) 1 Sales $ 132,207 Payment terms are four months, no comparable
transactions 3 Note 1
Global (HK) 1 Accounts receivable 24,806 Payment terms are four months, no comparable transactions
- Note 1
Genius (HK) 1 Sales 1,120,170 Payment terms are four months, no comparable transactions
25 Note 1
Genius (HK) 1 Accounts receivable 260 Payment terms are four months, no comparable transactions
- Note 1
Global (HK) 1 Fixed Assets and equipment for sale – current (classified under other current assets)
9,482 Payment terms are four months, no comparable transactions
- Note 1
Global (HK) 1 Sales from repairing equipment 180 Payment terms are four months, no comparable transactions
- Note 1
Genius (HK) 1 Fixed Assets and equipment for sale - current 24,309 Payment terms are four months, no comparable transactions
1 Note 1
Genius (HK) 1 Other receivable 23,588 Payment terms are four months, no comparable transactions
- Note 1
Genius (HK) 1 Sales from repairing equipment 1,010 Payment terms are four months, no comparable transactions
- Note 1
GEM (Suzhou) 1 Sale 593 Payment terms are four months, no comparable transactions
- Note 1
GEM (Suzhou) 1 Accounts receivable 234 Payment terms are four months, no comparable transactions
- Note 1
GEM (Suzhou) 1 Fixed Assets and equipment for sale - current 62,270 Payment terms are four months, no comparable transactions
1 Note 1
GEM (Suzhou) 1 Other receivable 8,541 Payment terms are four months, no comparable transactions
- Note 1
GEM (Suzhou) 1 Expense of patent right 698 Payment terms are four months, no comparable transactions
- Note 1
GEM (Dongguan) 1 Fixed Assets and equipment for sale - current 26,785 Payment terms are four months, no comparable transactions
1 Note 1
GEM (Dongguan) 1 Other receivable 13,556 Payment terms are four months, no comparable transactions
- Note 1
1 GEM (Dongguan) Genius (HK) 3 Sales 2,078,527 Payment terms are four months, no comparable
transactions 47 Note 1
Genius (HK) 3 Accounts receivable 325,303 Payment terms are four months, no comparable transactions
6 Note 1
GEM (Suzhou) 3 Sales 271 Payment terms are four months, no comparable transactions
- Note 1
GEM (Suzhou) 3 Fixed assets 5,039 Payment terms are four months, no comparable transactions
- Note 1
GEM (Suzhou) 3 Other receivable 178 Payment terms are four months, no comparable transactions
- Note 1
(Continued)
- 185 -
Intercompany Transactions
No. Company Name Counterparty Nature of
Relationship (Note 2) Financial Statement Item Amount Terms
Percentage of Consolidated Total Gross
Sales or Total Assets
Note
2 Genius (HK) GEM Terminal 2 Sales $ 547,537 Payment terms are four months, no comparable transactions
12 Note 1
GEM Terminal 2 Accounts receivable 73,943 Payment terms are four months, no comparable transactions
1 Note 1
GEM (Dongguan) 3 Sales 1,646,701 Payment terms are four months, no comparable transactions
37 Note 1
GEM (Dongguan) 3 Accounts receivable 31,391 Payment terms are four months, no comparable transactions
1 Note 1
GEM (Dongguan) 3 Other receivable 233 Payment terms are four months, no comparable transactions
- Note 1
3 Global (HK) GEM Terminal 2 Sales 18,669 Payment terms are four months, no comparable
transactions - Note 1
GEM Terminal 2 Accounts receivable 1,240 Payment terms are four months, no comparable transactions
- Note 1
Genius (HK) 3 Sales 284,553 Payment terms are four months, no comparable transactions
6 Note 1
Genius (HK) 3 Accounts receivable 8,604 Payment terms are four months, no comparable transactions
- Note 1
GEM (Suzhou) 3 Sales 151,549 Payment terms are four months, no comparable transactions
3 Note 1
GEM (Suzhou) 3 Accounts receivable 12,793 Payment terms are four months, no comparable transactions
- Note 1
4 GEM (Suzhou) GEM Terminal 2 Sales 6,378 Payment terms are four months, no comparable
transactions - Note 1
Global (HK) 3 Sales 828,133 Payment terms are four months, no comparable transactions
19 Note 1
Global (HK) 3 Accounts receivable 75,865 Payment terms are four months, no comparable transactions
1 Note 1
GEM (Dongguan) 3 Sales 113,714 Payment terms are four months, no comparable transactions
3 Note 1
GEM (Dongguan) 3 Accounts receivable 139,485 Payment terms are four months, no comparable transactions
3 Note 1
5 Vibo Genius (HK) 3 Sales 54,649 Payment terms are four months, no comparable
transactions 1 Note 1
Genius (HK) 3 Accounts receivable 2,571 Payment terms are four months, no comparable transactions
- Note 1
Note 1: It was eliminated in the consolidated financial statements. Note 2: 1) Parent to subsidiary 2) Subsidiary to parent 3) Subsidiary to subsidiary
- 186 -
TABLE 9 GEM TERMINAL IND. CO., LTD. AND SUBSIDIARIES ADJUSTMENTS OF CONSOLIDATED STATEMENT OF FINANCIAL POSITION January 1, 2012 (In Thousands of New Taiwan Dollars)
ASSETS LIABILITIES AND STOCKHOLDERS’ EQUITY
EFFECTS OF TRANSITION EFFECTS OF TRANSITION
RECOGNITION OR RECOGNITION OR
ROC GAAP PRESENTATION MEASUREMENT IFRSs ROC GAAP PRESENTATION MEASUREMENT IFRSs
ITEMS AMOUNT DIFFERENCE DIFFERENCE AMOUNT ITEMS NOTE (Note 1) ITEMS AMOUNT DIFFERENCE DIFFERENCE AMOUNT ITEMS NOTE (Note 1)
CURRENT ASSETS CURRENT LIABILITIES
Cash $ 1,545,369 $ (23,356 ) $ - $ 1,522,013 Cash (1) Short-term loans $ 709,269 $ - $ - $ 709,269 Short-term loans
Financial assets at fair value through 37,395 - - 37,395 Financial assets at fair value Financial liabilities at fair value 1,499 - - 1,499 Financial liabilities at fair value
profit or loss - current through profit or loss - current through profit or loss - current through profit or loss - current
Available-for-sale financial 27,620 - - 27,620 Available-for-sale financial assets - Notes payable 31,039 - - 31,039 Notes payable
assets - current current Accounts payable 335,212 - - 335,212 Accounts payable
- - 23,356 - 23,356 Bond investments with no active market (1) Income tax payable 25,315 - - 25,315 Income tax liabilities
Notes receivable 146,019 - - 146,019 Notes receivable Accrued expenses 164,009 24,367 2,963 191,339 Other payables (9), Notes 2
Accounts receivable, net 1,252,464 - - 1,252,464 Accounts receivable, net and 3
Tax refundable 15,551 - - 15,551 Tax refundable Long-term debts - current portion 365,074 - - 365,074 Long-term debts - current portion
Other receivable 19,625 - - 19,625 Other receivable Other current liabilities 54,712 (24,367 ) - 30,345 Other current liabilities Note 3
Refundable deposits - current 33,436 - - 33,436 Refundable deposits Total current liabilities 1,686,129 - 2,963 1,689,092
Inventories 512,766 - - 512,766 Inventories
Deferred income tax assets - current 10,469 (10,469 ) - - - (2) and (3) LONG-TERM DEBTS 702,465 - - 702,465 LONG-TERM DEBTS
Other current assets 80,967 1,575 - 82,542 Other current assets (6)
Total current assets 3,681,681 (8,894 ) - 3,672,787 RESERVE FOR LAND VALUE 7,398 (7,398 ) - - - (4)
INCREMENT TAX
PROPERTY, PLANT AND EQUIPMENT
Cost 2,616,921 - 36,456 2,653,377 Cost IFRS1 OTHER LIABILITIES
Revaluation increment - land 36,456 - (36,456 ) - - IFRS1 Accrued pension cost 74,738 - 10,650 85,388 Pension benefit obligations (10) and (11)
Accumulated depreciation (1,077,969 ) - - (1,077,969 ) Accumulated depreciation Deferred income tax liabilities 52,602 8,406 - 61,008 Deferred income tax liabilities (2)、(3)、(4) and
1,575,408 - - 1,575,408 (7)
Construction in progress 57,744 - - 57,744 Construction in progress Total other liabilities 127,340 8,406 10,650 146,396
Prepayments for equipment 30,526 (30,526 ) - - - (5)
Total property, plant and 1,663,678 (30,526 ) - 1,633,152 Property, plant and equipment Total liabilities 2,523,332 1,008 13,613 2,537,953 Total liabilities
equipment, net
STOCKHOLDERS’ EQUITY
INTANGIBLE ASSETS Common stock 1,715,980 - - 1,715,980 Common stock
Land use rights 80,202 (80,202 ) - - - (6) Capital surplus 270,187 - - 270,187 Capital surplus
Retained earnings 749,007 - (498 ) 748,509 Retained earnings (7)、(9) and (10)
OTHER ASSETS
- - 30,526 - 30,526 Prepayments for equipment (5) OTHER EQUITY ITEMS
Refundable deposits - noncurrent 2,895 - - 2,895 Refundable deposits Unrealized revaluation increment 25,785 - (25,785 ) - - (7)
Deferred income tax assets - noncurrent 27,963 11,477 5,492 44,932 Deferred income tax assets (2)、(3)、(9) Unrealized loss on financial (1,996 ) - - (1,996 ) Unrealized loss on
and (10) instruments available-for-sale financial assets
- - 78,627 - 78,627 Prepayments for long-term rents (6) Cumulative translation adjustments 202,948 - (43 ) 202,905 Exchange difference (9)
Other assets 10,619 - - 10,619 Other noncurrent assets (8) Net loss not yet recognized as pension (18,205 ) - 18,205 - - (11)
Total other assets 41,477 120,630 5,492 167,599 costs
Total other equity items 208,532 - (7,623 ) 200,909
Total stockholders' equity 2,943,706 - (8,121 ) 2,935,585 Total stockholders’ equity
TOTAL $ 5,467,038 $ 1,008 $ 5,492 $ 5,473,538 TOTAL TOTAL $ 5,467,038 $ 1,008 $ 5,492 $ 5,473,538 TOTAL
Note 1： Refer to Note 24 - b.6) Exemptions and optional exemptions under IFRS 1, and 7) and explanation of the effects of the adjustments due to transition from ROC GAAP to IFRSs. Note 2： In accordance with the newly revised “Rules Governing the Preparation of Financial Statements by Securities Issuers”, the account Accrued Expenses is combined with Other Payables and are collectively called Other Payables. Note 3： In accordance with the newly revised “Rules Governing the Preparation of Financial Statements by Securities Issuers”, the account Current liabilities - Payable for Equipment $24,367 thousand is reclassified to Other payables.
- 187 -
TABLE 10 GEM TERMINAL IND. CO., LTD. AND SUBSIDIARIES ADJUSTMENTS OF CONSOLIDATED STATEMENT OF FINANCIAL POSITION December 31, 2012 (In Thousands of New Taiwan Dollars)
ASSETS LIABILITIES AND STOCKHOLDERS’ EQUITY
EFFECTS OF TRANSITION EFFECTS OF TRANSITION
RECOGNITION OR RECOGNITION OR
ROC GAAP PRESENTATION MEASUREMENT IFRSs ROC GAAP PRESENTATION MEASUREMENT IFRSs
ITEMS AMOUNT DIFFERENCE DIFFERENCE AMOUNT ITEMS NOTE (Note 1) ITEMS AMOUNT DIFFERENCE DIFFERENCE AMOUNT ITEMS NOTE (Note 1)
CURRENT ASSETS CURRENT LIABILITIES
Cash $ 2,621,054 $ (117,054 ) $ - $ 2,504,000 Cash (1) and Note 2 Short-term loans $ 1,386,144 $ - $ - $ 1,386,144 Short-term loans
Financial assets at fair value through 110,404 - 110,404 Financial assets at fair value through Notes payable 21,412 - - 21,412 Notes payable
profit or loss - current profit or loss - current Accounts payable 431,829 - - 431,829 Accounts payable
Available-for-sale financial assets-current 28,012 - - 28,012 Available-for-sale financial assets-current Income tax payable 9,841 - - 9,841 Income tax liabilities
- - 219,089 - 219,089 Bond investment with no active market (1) and Note 2 Accrued expenses 128,412 21,772 2,755 152,939 Other payables (9) m Notes 3
Notes receivable 171,259 - - 171,259 Notes receivable and 4
Accounts receivable, net 1,040,107 - - 1,040,107 Accounts receivable, net Long-term debts - current portion 706,490 - - 706,490 Long-term debts - current portion
Tax refundable 4,470 (2,185 ) - 2,285 Tax refundable Note 5 Other current liabilities 47,707 (21,772 ) - 25,935 Other current liabilities Note 4
Other receivable 22,196 - - 22,196 Other receivable Total current liabilities 2,731,835 - 2,755 2,734,590
- - 2,185 - 2,185 Income tax assets Note 5
Refundable deposits - current 1,807 - 1,807 Refundable deposits LONG-TERM DEBTS 720,833 - - 720,833 LONG-TERM DEBTS
Inventories 438,841 - 438,841 Inventories
Deferred income tax assets - 12,901 (12,901 ) - - - (2) and (3) RESERVE FOR LAND VALUE - (4)
current INCREMENT TAX 7,398 (7,398 ) - -
Restricted assets-current 102,035 (102,035 ) - - - Note 2
Other current assets 73,999 1,572 - 75,571 Other current assets (6) OTHER LIABILITIES
Total current assets 4,627,085 (11,329 ) - 4,615,756 Accrued pension cost 69,265 - 16,193 85,458 Pension benefit obligations (10) and (11)
Deferred income tax liabilities 61,735 8,697 - 70,432 Deferred income tax liabilities (2)、(3)、(4)
PROPERTY, PLANT AND and (7)
EQUIPMENT Total other liabilities 131,000 8,697 16,193 155,890
Cost 2,688,801 - 36,456 2,725,257 Cost IFRS1
Revaluation increment - land 36,456 - (36,456 ) - - IFRS1 Total liabilities 3,591,066 1,299 18,948 3,611,313 Total liabilities
Accumulated depreciation (1,184,922 ) - - (1,184,922 ) Accumulated depreciation
1,540,335 - - 1,540,335 STOCKHOLDERS’ EQUITY
Construction in progress 21,426 - - 21,426 Construction in progress Common stock 1,715,980 - - 1,715,980 Common stock
Prepayments for equipment 83,427 (83,427 ) - - - (5) Capital surplus 270,187 - - 270,187 Capital surplus
Total property, plant and Total property, plant and Retained earnings 696,673 - 1,411 698,084 Retained earnings (7)、(9) and (10)
equipment, net 1,645,188 (83,427 ) - 1,561,761 equipment
OTHER EQUITY ITEMS
INTANGIBLE ASSETS Unrealized revaluation increment 25,785 - (25,785 ) - - (7)
Land use rights 68,606 (68,606 ) - - - (6) Unrealized loss on financial instrument 2,321 - - 2,321 Unrealized loss on available - for sale
financial assets
OTHER ASSETS Cumulative translation adjustments 93,997 - (18 ) 93,979 Exchange difference (9)
- - 83,427 - 83,427 Prepayments for equipment (5) Net loss not yet recognized as pension - (11)
Refundable deposits - noncurrent 1,732 - - 1,732 Refundable deposits costs (10,522 ) - 10,522 -
Deferred income tax assets - noncurrent 34,119 14,200 5,078 53,397 Deferred income tax assets (2)、(3)、(9) Total other equity items 111,581 - (15,281 ) 96,300
and (10)
- - 67,034 - 67,034 Prepayments for long-term rents (6) Total stockholders' equity 2,794,421 - (13,870 ) 2,780,551 Total stockholders’ equity
Other assets 8,757 - - 8,757 Other noncurrent assets (8)
Total other assets 44,608 164,661 5,078 214,347
TOTAL $ 6,385,487 $ 1,299 $ 5,078 $ 6,391,864 TOTAL TOTAL $ 6,385,487 $ 1,299 $ 5,078 $ 6,391,864 TOTAL
Note 1: Refer to Note 24 - b.6) Exemptions and optional exemptions under IFRS 1, and 7) and explanation of the effect of the adjustments due to transition from ROC GAAP to IFRSs.
Note 2: In accordance with the newly revised “Rules Governing the Preparation of Financial Statements by Securities Issuers”, the account Restricted Assets $102,035 thousand is reclassified to Bond investment with no active market
Note 3: In accordance with the newly revised “Rules Governing the Preparation of Financial Statements by Securities Issuers”, the account Accrued Expenses is combined with Other Payables and are collectively called Other Payables.
Note 4: In accordance with the newly revised “Rules Governing the Preparation of Financial Statements by Securities Issuers”, the account Current liabilities - Payable for Equipment $21,772 thousand is reclassified to Other payables.
Note 5: In accordance with the newly revised “Rules Governing the Preparation of Financial Statements by Securities Issuers”, the account Tax refundable $2,185 thousand is reclassified Income tax assets.
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TABLE 11 GEM TERMINAL IND. CO., LTD. AND SUBSIDIARIES ADJUSTMENTS OF CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED December 31, 2012 (In Thousands of New Taiwan Dollars)
EFFECTS OF TRANSITION
ROC GAAP PRESENTATIONRECOGNITION OR
MEASUREMENT IFRSs ITEMS AMOUNT DIFFERENCE DIFFERENCE AMOUNT ITEMS NOTE
OPERATING REVENUE, NET $ 3,918,873 $ - $ - $ 3,918,873 OPERATING REVENUE, NET OPERATING COSTS 3,331,655 - (456 ) 3,331,199 OPERATING COSTS (9) and (10) GROSS PROFIT 587,218 - (456 ) 587,674 GROSS PROFIT OPERATING EXPENSES OPERATING EXPENSES
Research and development 42,935 - (733 ) 42,202 Research and development (9) and (10) Selling 140,610 - (249 ) 140,361 Selling (9) and (10) General and administrative 214,736 - (876 ) 213,860 General and administrative (9) and (10)
Total operating expenses 398,281 - (1,858 ) 396,423 Total operating expenses OPERATING INCOME 188,937 - 2,314 191,251 OPERATING INCOME NONOPERATING INCOME AND GAINS NONOPERATING INCOME AND GAINS
Interest income 27,132 - - 27,132 Interest income Miscellaneous income 7,772 - - 7,772 Other income and gains
Total nonoperating income and gains 34,904 - - 34,904 Total nonoperating income and gains NONOPERATING EXPENSES AND LOSSES NONOPERATING EXPENSES AND LOSSES
Interest expense 55,149 - - 55,149 Interest expense Exchange loss, net 17,863 - - 17,863 Exchange loss, net Miscellaneous expenses 5,161 - - 5,161 Other expenses and losses
Total nonoperating expenses and losses 78,173 - - 78,173 Total nonoperating expenses and losses CONSOLIDATED INCOME BEFORE INCOME TAX 145,668 - 2,314 147,982 CONSOLIDATED INCOME BEFORE INCOME TAX (9) and (10) INCOME TAX 60,724 - 405 61,129 INCOME TAX (9) and (10)
CONSOLIDATED NET INCOME $ 84,944 $ - $ 1,909 86,853 CONSOLIDATED NET INCOME 4,966 UNREALIZED PROFIT OR LOSS BY AVAILIABLE-FOR-SALE FINANCIAL ASSETS (108,926 ) EXCHANGE DIFFERENCE (649 ) INCOME TAX RELATED TO OTHER COMPREHENSIVE INCOME $ (17,756 ) TOTAL COMPREHENSIVE INCOME
Note: Refer to Note 24 - b.6) Exemptions and optional exemptions under IFRS 1, and 7) and explanation for the effect of the transition from ROC GAAP to IFRSs for explanation for the adjustments.
VI. The Company and its affiliates should list the effect of difficulties of financial turnover on the financial position of the company if it happens: None
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VII. Review of Financial Conditions, Operating Results, and Risk Management
I. Financial status Unit: NTD 1,000
Difference Year Item
End of 2012 End of 2011 Amount %
Current assets 1,367,744 1,305,848 61,896 4.74Fixed assets 412,518 424,109 (11,591) (2.73)Other assets 32,461 29,109 3,352 11.52Total assets 4,610,203 4,495,775 114,428 2.55Current liabilities 930,846 703,633 227,213 32.29Long-term liabilities 720,833 702,465 18,368 2.61Total liabilities 1,815,782 1,552,069 263,713 16.99Capital stock 1,715,980 1,715,980 0 0.00Capital reserves 270,187 270,187 0 0.00Reserved surplus 696,673 749,007 (52,334) (6.99)Total shareholders’ equity 2,794,421 2,793,706 (149,285) (5.07)Analysis and description for increase and or decrease: 1. The current liabilities increase mainly due to the increase of long-term debt due within one year.
II. Operating results
(I) Comparison analysis of operating results Unit: NTD 1,000
Year Item Year 2012 Year 2011
Amount Increased
(decreased)
Variable proportion (%)
Total operating income 979,399 1,794,065 (814,666) (45.41)Sales returns (3,656) (6,227) (2,571) (41.29)Sale allowance (147) (144) 3 2.08Net operating income 975,596 1,787,694 (812,098) (45.43)Operating cost (873,510) (1,630,364) (756,854) (46.42)Operating margin 102,086 157,330 (55,244) (35.11)Profits realized (not realized) among affiliates
(1,211) 2,890 (4,101) (141.90)
Net operating margin realized 100,875 160,220 (59,345) (37.04)Business expense (145,106) (129,860) 15,246 11.74Operating profit (44,231) 30,360 (74,591) (245.69)Non-operating income and profit 163,159 225,015 (61,856) (27.49)Non-business expense and loss (37,370) (65,488) (28,118) (42.94)Net profit before tax from continuing operations
81,558 189,887 (108,329) (57.05)
Income tax 3,386 (4,587) (7,973) (173.82)Net profit after tax from continuing operations
84,944 185,300 (100,356) (54.16)
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(I) Description for increase and decrease analysis:
1. Total operating income: It was reduced mainly due to the Company had integrated production plan and the integration between Taiwan and China factories from Q4/ 2011, resulted in sales to subsidiary and the revenues of raw materials and terminals were lower than that of 2011.
2. Sales returns: Mainly caused by the sales of brass material to subsidiary Dongguan GEM in China return due to quality issues. Therefore, the sales returns amount is higher in 2012 than in 2011.
3. Operating cost: It was reduced mainly due to the Company had integrated production plan and the integration between Taiwan and China factories from Q4/ 2011, resulted in sales to subsidiary and the revenues of raw materials and terminals were lower than that of 2011.
4. Operating margin: It was mainly because of the great fluctuation of the price of brass raw material in 2012 and the increase of procurement cost. Meanwhile, the Company had integrated production plan and the integration between Taiwan and China factories from Q4/ 2011, resulted in sales to subsidiary causing revenues decreased.
5. Realized (unrealized) gain on inter-affiliate accounts: It was because of the inventory to subsidiary Dongguan GEM generated unrealized sales gain, compared with that had been realized in 2011, therefore, the unrealized gain on inter-affiliate accounts increased.
6. Net realized gross income: It was mainly because of the great fluctuation of the price of brass raw material in 2012 and the increase of procurement cost. Meanwhile, the Company had integrated production plan and the integration between Taiwan and China factories from Q4/ 2011, resulted in sales to subsidiary causing revenues decreased, and realized gross income decreased accordingly.
7. Operating profit: It was mainly because of the great fluctuation of the price of brass raw material in 2012 and the increase of procurement cost. Meanwhile, the Company had integrated production plan and the integration between Taiwan and China factories from Q4/ 2011, resulted in sales to subsidiary causing revenues decreased, and operating profit decreased accordingly.
8. Non-operating income and gains: It was mainly due to lower profit of subsidiary and the impact of NTD appreciation causing foreign exchange gain reduced.
9. Non-operating expense and loss: It was mainly due to lower investment loss on disposal of stock investment and lower loss on disposal of fixed assets.
10. Income tax: It came from tax benefit due to the loss in 2012.
(II) Estimated quantity of sales for the next year: With reference to actual variation of sale mix in 2012 and according to current economic situation, market demand and supply conditions and sales principles, the Company has predicted that the quantity of product sales in 2013 will be 1,455,409 thousand PCS.
(II) Analysis for change of operating margin Unit: NTD 1,000
Causes for variance Item
Variation of previous increase or decrease Sales price variance Cost-price variance Sales mix variance Quantity variance
Operating margin
(59,345) (8,933) (7,887) (28,902) (13,623)
Notes 1. Unfavorable variance of sales price: It was mainly because of the price decrease of raw material in 2012 and severe price competition from competitors, resulted in an unfavorable condition for sales price in 2011.
2. Unfavorable variance of cost price: It was mainly because of the great fluctuation of the price of raw material in 2012 and the soaring labor cost in China, therefore, the unit terminal cost was higher than 2011 and resulted in an unfavorable condition for cost price.
3. Unfavorable variance of sales mix: It was mainly due to the change of the mix of raw materials and terminal products in 2012.
4. Unfavorable variance of quantity: It was mainly due to consolidation plan of transferring 85% of total production capacity to subsidiary Dongguan GEM in China in Nov. 2011, causing the raw material and terminal products sales were decreased comparing to the sales in 2011.
(III) Possible effect and reaction plan for future business:
GEM group has undertaken a series of transformation in response to the market challenges since the beginning of 2012. GEM group’s subsidiary company in Suzhou have been working on fulfilling China market needs to increase GEM group’s market share in China. As to the action plan of market retention and profitability enhancement of exporting business in China will be led by GEM group’s headquarter in Taiwan to consolidate production plan both in Taiwan and in China to receive the synergies. It is planned to transfer 85% of the total capacity equipment to Dongguan, China in order to streamline the labor structure on Taiwan side, so that it is possible for headquarter to increase the R&D staff ratio. In addition, concerning the ASEAN market, GEM has completed the stock transfer for Vietnam Rui Zhan Ironware Limited investment and acquired the Environmental Impact Assessment Report and Redbook and anticipated to start the plan gradually to establish manufacturing site to handle ASEAN 10 market. This will mark a significant milestone in GEM’s internationalization roadmap.
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III. Cash flow (I) Analysis of cash liquidity in recent years
Unit: NTD 1,000 Remedial measures for cashout Cash balance at
beginning
Net cash flow from annual business in
2012
Annual cash outflow in
2012
Annual cash balance (cashout)
in 2012 Investment plan Financing plan
793,499 (46,911) 781,239 (34,651) 172,550 725,000
(II) Analysis of cash liquidity in recent two years
Year Item
2012 2011 Proportion of increase (decrease) (%)
Cash flow ratio (%) (5.04) 8.51 (159.22) Cash flow adequacy ratio (%) 120.19 120.56 (15.24) Cash reinvestment ratio (%) (4.68) (3.60) (30.30) Analysis and description for variable rates of increase and decrease: 1. The cash flow rate in 2012 decreased while compared with that in 2011, mainly because the net cash outflow from
operation activity in 2012. 2. The cash reinvestment ratio in 2012 decreased while compared with that in 2011, mainly because the net cash outflow
from operation activity in 2012.
(III) Analysis of cash liquidity in the next year
Unit: NTD 1,000 Remedial measures for cashout Cash balance at
beginning
Estimated net cash flow from business
all year round
Estimated cash outflow all year round
Estimated cash balance (cashout) Investment plan Financing plan
862,899 206,344 1,228,410 (159,167) 143,087 850,000 (I) Analysis for variance of cash flow in 2012
1. Net cash inflow from business is mainly because of continuous operating profit in 2013 and the variance of other operating assets and liabilities.
2. Net cash outflow for investment is mainly because of the predicted increase for selling financial assets, purchasing fixed assets and long-term equity investment in 2013.
3. Net cash outflow for financing is mainly because the repayment of long-term borrowings and the extension of cash dividends and employees’ bonus in 2013.
(II) Remedial measure and liquidity analysis for predicted cash out: From the above cash flow analysis, the Company will borrow from banks to make up the cash shortage.
IV. The Influence of Major Capital Expenditure on Financial Status During the Latest Yea
(I) Utilization of major asset expenditure in recent years & asset resource Unit: NTD 1,000
Actual or estimated application of funds Project
Actual or estimated
capital resources
Actual or estimated
date of completion
Total capital
required
2007 2008 2009 2010 2011 2012 2013
Reinvestment Own funds 2008.12.31 543,851 402,071 141,780
Reinvestment Own funds 2012.12.31 163,024 12,432 124,152 26,440
Reinvestment Own funds 2014.12.31 197,786 197,786
Machinery equipment
Loan and own funds
2008.12.31 176,994 144,455 32,539
Machinery equipment
Loan and own funds
2010.12.31 76,096 34,474 41,622
Machinery equipment
Loan and own funds
2011.12.31 17,180 17,180
Machinery equipment
Loan and own funds
2012.12.31 35,016 35,016
Machinery equipment
Loan and own funds
2013.12.31 45,359 45,359
Total 1,255,306 546,526 174,319 34,474 54,054 141,332 61,456 243,145
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(II) Estimated possible benefit (1) The Company has completed the production integration of the company’s different production sites in
Taiwan and China in 2012; adjusting labor structure of production on Taiwan side and to increase R&D staff ratio; transferring 85% of the capacity to subsidiary in Dongguan, China, so that the GEM group competitiveness will be enhanced and procurement cost will be reduced. It is planned that the Company will purchase R&D and mold equipments to upgrade the R&D capability of GEM in 2013and to enhance developing technology of own-made molding equipment and parts.
(2) Reinvestment of foreign subsidiaries
It can extend domestic market share in China Mainland, promote operating scale of the Company, fulfill international division of labor, reduce production cost, improve market competency of the product and supply goods nearby to meet the demand of the customer.
V. Reinvestment Policies, Major Profit or Loss Reasons, Corrective Plans and the Investment of the Next Year
Reinvestment Analysis Table Description
Item
Amount of investment
increase (decrease) in
2012
Policy Main causes for profit or
loss Improvement plan
Other investment plan in future
Global Electronics Terminal (Cayman) Co., Ltd.
NTD 26,440,000
Over the last years, the main investment areas of the Company’s reinvestment were Mainland China and Vietnam and the Chinese domestic market was developed continuously. On the other hand, establish GEM Terminal (Cayman) Co., Ltd. to reinvest in Vietnam and acquire 100% shares of Vietnam Ruizhan ironware Company Limited. Make necessary preparation for market expansion in ten countries of ASEAN.
In 2012, worldwide economy was influenced by European and the US economy crises and other uncertain factors, resulted in the demand for consumer electronic devices became conservative. The sales of Suzhou GEM reduced by 18.39% from 2011 to 2012; net profit reduced accordingly. GEM investment profit from Suzhou GEM was NTD 102,317 thousand. Dongguan GEM, despite its sales dropped by 25.17% from 2011 to 2012, due to gross profit increased, its net income increased, compared with that of 2011. And GEM investment profit from Dongguan GEM was NTD 52,590 thousand.
GEM group undertakes a series of transformation in response to the market challenges. GEM group’s subsidiary company in Suzhou have been working on fulfilling China market needs to increase GEM group’s market share in China. As to the action plan of market retention and profitability enhancement of exporting business in China will be led by GEM group’s headquarter in Taiwan to consolidate production plan both in Taiwan and in China to receive the synergies. The transformation job has been planned and completed in Dongguan, China in order to streamline the labor structure on Taiwan side in Q4/2011, so that it is possible to headquarter to increase the R&D staff ratio. In addition, by modifying sources of supplies, GEM group is also aimed to reduce procurement cost, to lift production efficiency, to save time and cost of transportation, in return, to enhance profitability of exporting business as well as to contribute to GEM group’s profits.
Study the feasibility of reinvesting and establishing a sub-subsidiary in Chongqing, Sichuan, China to further expand market share in China.
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GEM Terminal (Cayman) Co., Ltd.
0 In 2012, the Company started to plan Vietnam Reichan project, so far it is not starting running; therefore, no operating income or loss occurs.
NA
The company has completed the stock transfer for Vietnam Ruizhan Ironware Company Limited investment and acquired the Environmental Impact Assessment Report and Redbook in Dec. 2011 and anticipate to establish manufacturing site in Q3/2014 and start to run business in Q4/2014 to deal with ASEAN 10 market.
VI. Risk evaluation
(I) Risk management policy
Combining business management and risk management, the Company has established the group organization culture, which lays stress on risk management and has stipulated the risk management code of the Group, as the topmost risk management principles of Gem Group. The range of the Code covers market risk, credit risk, liquidity risk, operating risk and legal risk.
1. The effect of the changes in interest rate and exchange rate and the expansion of currency on the profit and loss of the Company in recent years, as well as counter measures in the future:
(1) The effect of the change in interest rate on the profit and loss of the Company as well as counter measures in the future: The Company’s ratio of interest expenses to revenue was about 2.56% in Year 2012, higher than 1.23% of Year 2011; the ratio of interest expenses to revenue was about 2.61% in the first quarter of 2013, more than 1.88% in the Q1/2012. There are no material matters that effect the Company’s gains or losses due to the changes in interest rates. The future counter measures are that timely adoption of short-term financing matches the loans of mid-term and long-term financing. Control interest costs for one thing and so as to continue to maintain good financial structure for another.
(2) The effect of the change in exchange rate on the profit and loss of the Company as well as counter measures in the future: The Company watches the market trend at any time to reduce and avoid exchange losses and reduce the effect of exchange rate movements on the Company’s profits. The net exchange loss which was caused by substantial appreciation of New Taiwan dollar was 9,324 thousand NT dollars in Year 2012 and accounted for 0.96% of revenue, compared with there was gain of 24,157 thousand NT dollars in Year 2012 and accounted for 1.35% of revenue, exchange loss increased. Meanwhile, we acquired exchange gain of 1,361 thousand NT dollars in Q1/2013, due to NTD depreciation, and accounted for 0.59% of revenue, which was better than Q1/2012 of loss of 10,368 thousand NT dollars. The control of exchange rates did not have material effects on the Company’s gains or losses. As future counter measures, the Company will adopt conservation principles to conduct foreign exchange hedge or natural hedge and control the development situations of global economy. Conduct hedge operations or buy and sell foreign exchange with cash at the right time to reduce the gain or loss effect on operation profit.
(3) The effect of the change in inflation on the profit and loss of the Company as well as counter measures in the future: In Year 2012, the raw material prices went back to the high-price level due to economic crisis and uncertainties, and the LME price of copper which is the Company’s main material ran high. The copper price set a record high in Feb. 2012 and rose to 8,658 US dollars per ton. The intense price fluctuation of raw materials and the uncontrollability of purchase costs caused the Company's profits to be lower in Year 2012 than in Year 2011. Due to rapid and expansive price fluctuation of raw materials, as future counter measures, the Company will watch price changes in the raw material market, control the best time of raw material purchase at any time. Conduct cost pass-through of orders which are received from customers to reduce the upward pressure of the Company’s costs and enhance to perfect the inventory control and management of customers’ receivable accounts and avoid the impact of price changes of raw material on domestic concerns.
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2. Policies for high-risk and high leveraged investment, lending fund to others, endorsement and derivative article trading in recent years and by the date of annual report, main causes for profit or loss, as well as counter measures: In order to manage financial risk, the Company has constituted such methods as “Operating Procedure for Lending Fund to Others”, “Operating Procedure for Endorsement” and “Operating Procedure for Obtaining or Disposing Assets” and so on according to relevant laws and regulations issued by the Securities and Futures Bureau, which should be the basis for relevant transaction. The said policies and relevant transactions follow the principle of conservation and the Company has not engaged in high-risk and high leveraged investments. (1) Transaction derivative financial goods:
In 2012, the Company was engaged in the transaction of derivative financial goods in order to avoid the risk from the fluctuation in exchange. The measures for financial risk hedging were to avoid most of risks in disturbance of justice values. The hedge accounting is not applicable for the hedging condition specified in financial accounting standard is not satisfied. There is no any outstanding forward contract in the Company by the date of this report being issued. As of December 31, 2012, the Company net loss on trading financial assets was 3,557 thousand NT dollars. The net profit from financial assets sold in 2012 was 832 thousand NT dollars.
(2) Details related to lending fund to others and the endorsement was listed as follows:
A. Lending fund to others: 2013.04.30 Unit: NTD 1,000
Lending to Account
Item
Maximum amount of current year
Balance in the end of the year
Interest rate
range
Category of the loan
Reason for short-term
loan Sub-amount
Total amount
Global Electronics Terminal (Cayman) Co., Ltd
Other account receivable – related parties
$148,300 (USD5,000 thousands)
-
2.8% Short-term financing
Business expansion
$558,884 (Note 1)
$1,117,768(Note 1)
VIBO GEM International Co., Ltd
Other account receivable – related parties
$149,100 (USD5,000 thousands)
$147,650 (USD50,000 thousands) 2.8% Short-term
financing Business expansion
$558,884 (Note 1)
$1,117,768(Note 1)
Note 1: in the case of short-term financing is necessary, the maximum total lending amount is 40% of net shareholders’ equity; and the total lending amount to specific party should not exceed 20% of shareholders’ equity. As of the date annual report published, the loan is not utilized.
B. Endorsement: Total endorsed amount of the Company is zero by the date of this report being issued. 3. Progress of future R&D plan, estimated R&D expense, estimated time of accomplishment, and main primary
effect for success of future R&D: (1) Future R&D plan:
In order to improve production capacity and market competition and pursue multiple production in Year 2012, the R&D plans of the Company were as follows: (A) To develop and improve of lead frame related process equipments and technologies, to deduce
labor demand, and to continue developing various types of lead frame products. (B) Continuously manufacture and develop big volume equipments and modular stamping mould by
oneself to match high-speed stamping and maximize the production capacity of equipments and the use of raw materials.
(C) Continuously localize automatic small-roll material receiving to raise production capacity and the utilization rate of machines and reduce labor costs.
(D) According to special requirements of terminals and Housing in vehicle wheel (TS 16949), continue to import the advanced technique from Europe and actively develop relevant serial products on the basis of existing punching, emission and forming mold techniques, so as to speed up market expansion and strive for greater profit base.
(E) Under existed automation basis, to combine Germany auto-inspection equipment technology and testing technical, to complete various technology breakthroughs in automation.
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(F) Continuously keep on developing and improving peripheral devices such as terminal crimping machines and apply for patents.
(G) Develop new high-quality products of plug internal frame and plug terminal and win over high-level product orders.
(2) Current progress of R&D plan uncompleted at the end of Year 2012: The scheduled R&D plans in Year 2012 have been completed mostly. For example, high-speed stamping of automatic small-roll material receiving to raise production has been successful localization; stand automatic robot arm is successful in production and under expansion; in term of new products in terminals: power single lead frame and automatic plug inner plate have been introduced to market and new product development and market expansion have been continuing. However, the uncompleted plans were as follows: (A) Development of high volume equipments and modularization of stamping die; (B) Develop automatic soft tube forming machine.
(3) Research and development expenses to be reinvested The estimated research and development expense to the reinvested in this year should be about 109,300 thousand NT dollars.
(4) Except for the investment of research and development expenses in 2013, the investment cost and the time for mass production associated with the introduction and development of relevant process devices are as follows:
Name of research and development plan Current progress
Estimated expense (NTD 1 million) Estimated time for sales
(1) Develop automatic soft tube forming machine. 20% 3 Will be started for mass production from May
2013. (2) Development of new various types of terminal and plug internal frame products 25% 2,5 New products will be introduced to market from
January to December 2013. (3) Development of high volume equipments and modularization of stamping die
10% 30 Under development.
(4) Development of 4 sets of small-roll material receiving machines 0% 20 Will be started to produce in July 2014 for in-house
use. (5) Development of VDE16 caves manipulator and mould 80% 0.8 Will be started for mass production from June
2013. (6) Development of big capacity source material welding machine 10% 13 Will be started for mass production from July 2013.
(7) Development of big capacity collection/discharge machine 15% 30 Will be started for mass production from June
2013. (8) Development of 6*2 auto collection machine 15% 10 Will be started for mass production from August
2013. Subtotal 21.8% 109.3 (5) Main influential factors for research and development success in the future
A. The Company is provided with powerful research and development team, is quite familiar with product performance and client requirement in the professional field and has established a critical core technique to strive for development steadily.
B. Have an insight into internal trend, make the assessment prudently, take part in international division of labor and strategic alliance, and improve research and development quality and speed to effectively achieve advantageous opportunity in the market.
C. Train the research and development talents to the best of power, follow professional division of labor and technique, and simultaneously dispatch staff to the advanced countries periodically, to absorb new knowledge and technical communication. Import advanced technology if necessary, to speed up the establishment of own technique and acquire advantageous opportunity in the market.
D. Largely expand research and development team, reserve research and development capacity, introduce the design and development of 3D product, develop CAD/CAM integral system and shorten research and development time course.
E. Introduce PLM to realize the systematization of research and development management, fulfill effective management to enhance research and development quality, shorten research and development period and reduce research and development cost, to obtain competitive advantage in the market.
4. Influence of variance in domestic and foreign critical policies and laws as well as counter measures The Company always pays close attention to the variance of domestic and foreign critical policies and laws from time to time, actively proposes counter measures timely, or inquires the professional comments of the accountant, lawyer and so on. In recent years and by the date of this report, the Company has not been subject to any financial influence due to the variance in domestic and foreign important policies and laws.
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5. Influence of scientific and industrial variance on financial business of the Company as well as counter measures: Since being established, the Company has been always devoted to research and innovation and deeply develop the technologies, invests a great deal of expenditures in research, development and technical investment every year, continuously improves the quality and professional technical services for accomplished products and tries best to maintain existing clients and expand new markets. Moreover, the Company is based on former products and techniques, cooperates industrial movement, develops new products and production equipment, and extends both product line and technique, so as to diversify the products, reduce investment cost and realize permanent operation and growth of the enterprise. Main products of the Company include terminals of electrical appliance plug type, which are mainly applied in household appliances, expendable electronic and electric products, information, communication and other products. Such terminals are major components of relevant products. At the present, except that the market demand and supply of the said products directly influences the supply of upstream terminals, other scientific and industrial variances have no great influence on the financial business of the Company.
6. Influence of change in corporate image on business crisis management as well as counter Measures The Company always holds the responsibilities of abiding by the law, keeping the faith and fulfilling environmental protection, observes national laws and regulations and works hard to establish the corporate image of steadiness, practice, research and development, innovation, permanent operation as well as fulfillment of social responsibilities. At the present, the Company cooperates the policies of the government, fulfills the management system of the Company and has passed the certification of CG6007 Advanced Company Management System in September 2012. Meanwhile, the Company improved gradually upon commissioners’ recommendations which were submitted in the process of corporate governance and evaluation and made information much more transparent and complete.
7. Estimated benefit, possible risk and counter measures for merger: The Company established GEM terminal (Cayman) IND. Co., Ltd. in August, 2010 and reinvested in Vietnam and acquired 100% stock equities of Ruizhan Ironware Company Limited. The company has acquired the Environmental Impact Assessment Report and Redbook on Dec, 2011 and anticipate to start to establish manufacturing site in Q3/2014 and to start running business in Q4/2014 to handle ASEAN 10 market. The Company’s investment risk was in an acceptable range because of smaller investment scale in the beginning and non-urgency.
8. Estimated benefit, possible risk and counter measures for workshop extension: Except for assessing productive benefit of the equipment according to market demand and discarding old equipment and replacing them with new devices, the Company also assesses investment results on the basis of its own production, research and development capacities so as to meet the operating plan. Moreover, the Company timely pays close attention to the turn of the market and the industrial variation, practically analyzes and adjusts corresponding modes to reduce possible risks and create maximum benefit. Presently the second and third phase plants of subsidiary, Suzhou GEM has completed expansion and started to put into production and that makes the production capacity of lead frame and terminal products rise to a large degree and the development of lead frame products and certification of customers’ products have been continuously completed. The GEM Group will make more efforts to satisfy customers’ needs for products to expand the market share. In addition, China is a fast-growing country, so the Company will make progressive equipment investments and enhance control and management of inventories to control risks.
9. Risk and counter measures for concentration of procurement or sales: Main raw materials of the Company are international bulk raw materials, which are supplied steadily. In order to ensure mass production and distract purchasing risks, the Company respectively purchases raw materials from domestic and foreign manufacturers. As for sales, after the organization of the Group was restructured and the order-taking operation was changed in November 2007, raw materials and semi-finished products, which are main source of revenue, have been sold to Dongguan Gem via Genius, and Genius and Dongguan Gem take orders and carry out the production and sales. Final products concentrative flow toward some large clients. Genius and Dongguan Gem are subsidiaries 100% held by the Company, so that there is no risk for concentrative sales and no counter measure is required. The company has transferred its production capacity to subsidiary Dongguan GEM Electrics & Metal Co., Ltd in China in Q1/2012, and purchases material from local for production and sales. The operation model change will reduce the risk of over concentrating on certain sales customers and suppliers.
10. Influence and risk of transfer or replacement of directors, supervisors or big shareholders with more than 10% stocks upon the Company, as well as counter measures: None.
11. Influence and risk of variance in management right upon the Company, as well as counter measures: The stock rights of big shareholders, directors and supervisors of the Company are steady, there is no
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fact or plan on variance of management right, so that there is no such a risk and the risk due to change of management right is less.
12. Contentious or non-contentious cases (1) For critical contentious, non-contentious or administrative procedures cases, which have been
judged or suspended, the fact in contestation, object amount, date of lawsuit commencement, main parties, and treatment by the date of this report should be disclosed if the results possibly have great impact on stockholders’ right or securities price: none.
(2) For critical contentious, non-contentious or administrative procedures cases of the directors, supervisors, general manager, actual principal, stockholders and affiliate with more than 10% proportion, the results possibly have great impact on stockholders’ right or securities price: none.
13. Other key risks and counter measures:
Organizational structure of risk management and executive departments
Risk management Responsible department
Risky business
Risk of operation decision Chairman’s Office and General Manager’s Office
Risks in the operation decision and objective of long-term development, the foreign investment and the integral agreement
Risk of product trend R&D Dept. Future product development trend and clients’ demand
Risks of operation and quality control
Operation Dept. Plan production capacity, improve product quality and manufacture high-quality products.
Operating risk in product certification time and quality control
QA Division Control product quality control system and certification time, to meet the requirements of safety regulations, ISO, TS16949 and relevant environmental protection orders.
Market risk, credit risk and financial management as well as management of operating risk
Financial Depart. Fund procurement and management, financing plan, operation and cost analysis, fund application plan and hedging of exchange change
Auditing of internal control risk and operating risk
Auditor’s Office Assess the security and effectiveness of internal control system.
Market liquidity risk of raw material procurement, lawful risk in equipment procurement and so on, credit risk control as well as personnel management risk
Administration Dept. Management of raw material and equipment procurement, personnel management and other effective management
Control of market liquidity risk and credit risk, and management of sales orders and credit extension amount
Sales Dept. Control of development trend of sales market, client’s credit as well as orders
Risk of relevant transaction data management, and relevant operating risk
IT Office Security and correctness of computer transaction data, and timely development of relevant programs, to realize actual computerization
VII. Other important items: None
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VIII. Special Disclosure I. Information on Affiliates
(I) Combined business report of related companies 1. Organization chart of related enterprises
You-Mao
International Limited
100%
2. Basic data of related enterprises Unit: foreign currency / dollar
Name of enterprise Date of establishment Address Paid-up capital Main business or production
Youfeng Investment Co., Ltd. Genius Terminal Co., Ltd Global Electronics Terminal (Cayman) Co., Ltd. Vibo Gem International Co., Ltd Dongguan Gem Electronic & Metal Co., Ltd. Genius Terminal (Hk) Ltd Suzhou Gem Opto- Electronics Terminal Co., Ltd Global Electronics Terminal (Hk) Co., Ltd GEM terminal (Cayman)
1995.09.06 1996.01.22 2004.11.01 2007.11.12 1995.12.18 1996.12.05 2002.10.15 2004.12.07 2010.08.12.
No. 90, Zhongzheng Road, Luzhu Town, Gaoxiong County P.O.BOX 3443 Road Town Tortoal British Virgin Islands 4thFloor, P.O.Box, George Town,GrandCayman,Cayman Island Unit 12, 7/F., Blk B, Hi-Tech Ind’l Ctr ,5-21 Pak Tin Par St.,Tsuen Wan, N.t. Hong Kong Ludong Administration Area, Humen Town, Dongguan City, Guangdong, China Unit 12 7/F Blk B Hi-Tech Ind’l Ctr 5-12 Pak Tin Par St Tsuen Wan Nt Hong Kong Dongqiao Town, Xiangcheng District, Suzhou City, China Unit 12 7/F Blk B Hi-Tech Ind’l Ctr 5-12 Pak Tin Par St Tsuen Wan Nt Hong Kong The Grand Pavilion Commercial
NTD1,594,300 USD750,000 USD35,037,184 HK320,426,766 RMB146,882,960 HK22,000,000 RMB241,376,222 HK1,000,000 USD1,000,000
1. Investment for various productive enterprises; 2. Investment for securities investment trust companies, banks, insurance companies, trade companies and cultural enterprises; 3. Investment for construction of commercial buildings and state apartment. International reinvestment and trade International reinvestment International reinvestment and trade Production and distribution of terminals, plugs and plastic hardware, terminal clamping machine, mold, supporting hardware, galvanization, and computer plug-in card etc. International reinvestment and trade Design and manufacture of new electronic components (optoelectronic device and new electromechanical components); finish blanking molds with precision higher than 0.02mm (inclusive), precision cavity dies with precision higher than 0.05mm (inclusive), and standard mold parts; development and production of architectural hardware, hot-water heating fittings and hardware; manufacture of high temperature resistant materials (insulation class F and H) and molded insulating parts; production of inorganic non-metals and products (special ceramics); development and production of special materials for semiconductors and components; new meters and instruments (connectors and functional materials for meters); terminal clamping machine and other electronic and electric devices as well as relevant hardware plating; products manufactured by sales company (those involving operational permit should be operated with the license). International trade International reinvestment
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IND. Co., Ltd. Vietnam Rui Zhan ironware Company Limited You-Mao International Limited
2007.4.11 2011.4.20
Centre, Oleander Way, 802 West Bay Road, P.O. Box 32052, Grand Cayman KY1-1208, Cayman Islands D6, D1-N2 Road, South Heron Industrial Zone, Heron County, Binh Duong Province, Vietnam Unit 12 7/F Blk. B Hi-Tech lnd’ 1 Ctr. 5-12 Pak Tin Par Si Tsuen Wan Nt Hong Kong
VND8,754,382,235 Note 2
Ironware production: Mechanical processing, metal plating, mold and mold parts production, processing and manufacturing of plastic products and plastic product parts
Note 1: Exchange rates of USD and Hong Kong Dollar are respectively US$1=NT$29.032, HK$1=NT$3.747 and RMB$1=NT$4.6211.
Note 2: You-Mao International Limited has completed registration only, without substantial capital infusion.
3. Control and subordinate relationship inferred according to Clause 369 (3) of the Company Law: N/A. 4. Businesses covered under the operation of all related enterprises (if the businesses of all related enterprises
are associated mutually, their division of work should be clarified) (1) Businesses covered under the operation of all related enterprises mainly include: production and
distribution of terminals, reinvestment, international trade, etc. (2) Division of work of the related enterprises:
A. A portion of raw materials are sold through Genius Terminal (HK) Ltd, then to Dongguan GEM, along with Dongguan GEM China local procurement stuff, then re-finish to final products. The final products are partially sold through Genius or GEM Taiwan to customers, or by Dongguan GEM itself to China local customers.
B. Partial raw materials or semi-finished products are provided by Gem Company to Global (Hong Kong) and then resold to Suzhou Gem. Suzhou Gem carries out production and processing together with raw materials purchased by itself, and the final products are directly sold in Mainland or exported.
5. Names of directors and general managers of all related enterprises & their stocks or financial contribution (Note 1)
Unit: stock; % Stocks held
Name of enterprise Title Name or representative Stocks Proportion
Youfeng Investment Co., Ltd. Director Su, Chung-Hong NTD1,308,400 83.18% Genius Terminal Co., Ltd. Director Gem Terminal Ind. Co., Ltd: Su, Tun-I; Su,Tun-Jen 750,000 shares 100% Dongguan Gem Electronic & Metal Co., Ltd.
Director Vibo Gem International Co., Ltd: Su, Tun-I; Su, Da-Chun; Ho, Yi-Lin
RMB146,882,920 100%
Genius Terminal Ltd Director Representative of Genius Terminal Co., Ltd.: Su, Tun-Jen; Su, Chung-Hong
21,999,998 units 100%
Suzhou Gem Opto-Electronics Terminal Co., Ltd
Director Representative of Vibo Gem International Co., Ltd: Su, Tun-Li; Su, Chun(Note 1); Lin,Heng-An
RMB241,376,222
100%
Global Electronics Terminal (Cayman) Co., Ltd.
Director Gem Terminal Ind. Co., Ltd: Su, Tun-Li 35,037,184 shares 100%
Global Electronics Terminal (Hk) Co., Ltd
Director Global Electronics Terminal (Cayman) Co., Ltd.: Su,Tun-Li; Chou, Chin-Hsiu
1,000,000 units 100%
Vibo Gem International Co., Ltd GEM terminal (Cayman) IND. Co., Ltd.
Director Director
Global Electronics Terminal (Cayman) Co., Ltd.: Su, Tun-Li; Su, Chun-I(Note 2); Lin Shushan GEM terminal IND. Co., Ltd.: Su, Tun-Li
320,426,766 shares 1,000,000 shares
100% 100%
Vietnam Ruizhan ironware Company Limited
Director GEM Terminal (Cayman) Ind. Co., Ltd: Su, Tun-Li; Su, Chun(Note 1); Wang, Chien-Hsiu
VND8,754,382,235 100%
You-Mao International Limited Director Vibo Gem International Co., Ltd representative: Su, Tun-Li and Su, Tun-I.
Note 3 100%
Note 1: Su, Chun has changed his name into Su, Chun-I and is waiting for filing registration. Note 2: Vibo Gem International Co., Ltd has completed the filing registration of Su, Chun-I on March 19, 2014. Note 3: You-Mao International Limited has completed registration only, without substantial capital infusion.
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6. The operations of related enterprise: Unit: dollar
Name of enterprise Capital amount Total assets Total
liabilities Net value
Operating income
Operating profit (loss)
Profit (loss) this term (after tax)
Earningsper stock(Note 1)
Youfeng Investment Co., Ltd. NTD 1,594,300 205,940,578 5,736,862 200,203,716 15,671,021 10,922,861 11,015,783Genius Terminal Co., Ltd. USD 750,000 3,144,654 - 3,144,654 - (1,791) 26,903 0.04
Global Electronics Terminal (Cayman) Co., Ltd.
USD 35,037,184 92,296,727 - 92,296,727 - (4,555) 4,840,314 0.14
Vibo Gem International Co., Ltd
HKD 320,426,766 725,449,816 16,205,884 709,243,932 - (199,434) 37,456,258 0.13
Dongguan Gem Electronic & Metal Co., Ltd.
RMB 146,882,960 293,178,712 110,340,433 182,838,279 345,748,858 15,517,871 11,170,023
Genius Terminal Ltd HKD 22,000,000 185,518,919 164,379,186 21,121,733 431,006,413 81,673 211,509Suzhou Gem Opto-Electronics Terminal Co., Ltd
RMB 241,376,222 552,691,548 154,724,172 397,967,376 460,091,254 31,014,208 21,829,748
Global Electronics Terminal (Hk) Co., Ltd
HKD 1,000,000 97,532,900 95,452,390 2,079,610 126,395,022 603,115 (106,428)
GEM terminal (Cayman) IND. Co., Ltd.
USD 1,000,000 954,394 37,260 917,134 - (4,810) (24,656) (0.02)
Vietnam Ruizhan ironware Company Limited VND754,382,235 7,982,760,226 - 7,982,760,226 - (141,378,116) (152,068,324)
You-Mao International Limited (Note 2)
- - - - - - -
Note 1: The earnings per stock of Genius Terminal Co., Ltd. are calculated according to 750,000 shares, the weighted mean of commons stock issued. The earnings per stock of Global Electronics Terminal (Cayman) Co., Ltd. are calculated according to 34,326,875 stocks, the weighted mean of commons stock issued. The earnings per stock of Vibo Gem International Co., Ltd are calculated according to 296,320,537 shares, the weighted mean of commons stock issued. The earnings per stock of GEM terminal (Cayman) IND. Co., Ltd. are calculated according to 1,000,000 shares, the weighted mean of commons stock issued.
Note 2: You-Mao International Limited has completed registration only, without substantial capital infusion.
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(II) Consolidated financial statements of the related enterprises
Consolidated financial statement of the related enterprises
It is hereby declared that the subsidiaries of the Company, which should be included in the consolidated financial
statement of the related enterprises (from January 1 to December 31, 2012) in accordance with “the Guidelines for
Preparation of Consolidated Business Report, Consolidated Financial Statement and Relation Report of Related
Enterprises”, were the ones that should be brought into the consolidated financial statements of parent company
according to the “Financial Accounting Standard No. 7”; moreover, the relevant information to be disclosed in the
consolidated financial statement of the related enterprises have been disclosed in the consolidated financial statements
of the parent and daughter companies; So, the consolidated financial statements of related enterprises will not be
prepared additionally.
Company: GEM TERMINAL IND. CO., LTD
Board Chairman: SU, CHUNG-HONG
March 25, 2013
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(III) Relationship report
1. Relationship between dependent companies and controlling company Unit: stock; %
Stock holding and pledging of controlling company
Directors, supervisors or general manager assigned by the controlling company
Name of controlling company
Reason of control
Stocks held Proportion Stocks pledged Title Name Youfeng
Investment Co., Ltd.
Stock control
13,983,236 8.15 - Chairman Su, Chung-Hong
2. Procurement and sales transaction: none. 3. Asset transaction: none. 4. Financing: none. 5. Asset leasing: none. 6. Endorsement: none. 7. Other critical financial and business issues: none.
Ⅱ. Private placement securities status during the latest two years and the period up to the
publication date: none. Ⅲ. The holding or disposition of bank's shares by the subsidiary companies during the latest two
years and the period up to the publication date: none Ⅳ. Additional remarks: none Ⅴ. Items that have significantly affected shareholders' equity or prices of securities pursuant to
Subparagraph 2, Paragraph 2, Article 36 of securities exchange law: none
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IX. Complement Disclosure I. Key performance indices
Item 2012 2011 Quality compliance rate of punch (%) Above 98.7% Above 98.7% Reduce the quality defective fraction (%) Below 0.075% Below 0.075% Reduce the rejection ratio of the client (%) Below 0.02% Below 0.02% Reduce the complaining rate or pieces of the client
Below 1% Below 1% Quality objective
Reduce annual internal and external loss of cost (NTD)
Below NTD 1,100,000 Below NTD 1,100,000
Financial structure
Liability to asset ratio (%) 39.39% 34.52%
Solvency Liquidity ratio (%) 146.94% 185.59% Operation capacity;
Inventory turnover ratio (times) 12.04% 11.40%
Gross profit in consolidated statement (%) 14.98% 14.96% Net operating profit in consolidated statement (%)
4.82% 6.69%
Return on stockholders' equity (%) 2.96% 6.46% Net profit ratio (%) 8.71% 10.37%
Profitability
Basic earnings per stock after tax (NTD) 0.5 1.08
II. Valuation Basis and Foundation for Provision of Asset and Liability Evaluation. (I) Allowance for uncollectible accounts
The Company assesses the possibility of collecting accounts of receivables on every balance sheet date. When there is objective evidence shows that due to occurrence of single or multiple events after the receivables are made provision resulting accounts receivable will affect estimated cash flows in the future, the accounts receivable is deemed in derogation. Objective evidences of derogation including: (1) Debtor is facing significant financial difficulties (2) Accounts receivable is overdue (3) Debtor is likely to bankrupt or to have other financial reorganization For certain receivables which after assessment individually are not in derogation should be re-assessed on
a portfolio basis. Objective derogation evidence of the accounts receivable portfolio consist the company's past experience of collecting receivables. The increase of delayed payments and breach of accounts receivables related contract of the portfolio can be referred to the observation of the changes of national or regional economic situation
(II) Inventory Inventories include raw materials, supplies, finished products, products in process and goods. Inventories are assessed according to the lower of cost or net realized value and individual items are based to compare costs or net realized values. The net realized value means the balance which the executor cost till the finished date and selling expenses are deducted from the estimated selling price under a normal situation. The costs of inventory are generally calculated by standard costs and are adjusted again and enabled to be close to the cost which is calculated by weighted average method on the closing date.
(III) Financial asset 1. Financial products listed in profit and loss due to the variance of fair value
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(1) The financial products listed in profit and loss due to the variance of fair value should be financial assets or financial liabilities for the purpose of transaction, as well as financial assets which was appointed to assess according to fair value and listed in profit and loss due to the variance of fair value. When the Company was a party of the financial product agreement, the financial asset or financial liability was listed; if the right of agreement was not controlled, the financial asset was removed. When the financial liability was eliminated due to termination, cancellation or expiration of obligations specified in the agreement, the financial liability was removed. When being listed originally, it was measured as per the fair value plus transaction cost. During post assessment, it was measured according to the fair value and the fluctuation of fair value was listed as the annual profit and loss of the current year. The cash dividends received after investment (including those received on the year of investment) was listed as the annual profit and loss of the present year. When the financial product was removed, the balance between the purchase price or amount paid and the book value was accounted into the profit and loss of the present year. When the financial asset was purchased or sold according to transaction practice, the accounting treatment of business day was adopted.
(2) The derivative financial goods of the Company did not meet the hedge accounting purpose; they were classified as financial assets or financial liabilities on the business day. When the fair value of positive, they were listed as fair value; when the fair value was negative, they were listed as financial liability.
(3) The recognized assets of margin (guarantee deposits and margins paid) are paid for futures contracts which are bought for the hedge against expected price fluctuation of copper exchange and the positions of established futures contracts are only kept memorandum records. The positions are measured at fair value when they are evaluated thereafter and changes of fair value are recognized as gains or losses of the year. Gains or losses which are caused by exercise are recognized as gains or losses of the year.
(4) For those financial assets are the combinations of embedded derivatives and major contract, due to the difficulty to evaluate their individual fair market values on the date of balance sheet, they shall be treated by the fair market value of the entire combinations.
(5) The financial products, listed in the profit and loss due to the variance of fair value, were the mixed goods of embedded derivative goods and main agreement. Because they could not be separately evaluated at the time of procurement or on the date of balance sheet afterwards, the fair value of embedded derivative goods should be assessed according to the fair value given for the whole mixed goods. Outstanding interests of future shall use their quotation from oversea future exchange houses on the balance sheet date. For the “Gold Deposit Account” evaluation, it shall use the post value from domestic banks on the balance sheet date.
2. Financial assets for sale (1) When the financial asset for sale was recognized and listed originally, it was assessed according to
the fair value and the transaction cost of procurement was also added. Later, it was assessed according to the fair value and the disturbance of values was listed in the reconciliation item of shareholder’s equity, and the accumulative profit or loss was listed in the profit and loss of the present period when the financial asset was removed. The financial asset was purchased or sold as per transaction practice, the accounting treatment on the transaction day should be adopted.
(2) The time points for listing or removing the financial assets for sale and the basis of fair value were the same as those of the financial goods listed in the profit and loss due to the variance in fair value.
(3) If there was objective evidence of depletion, the loss should be recognized and listed. The amount of the loss for equity goods for sales was recognized and listed in the reconciliation item of shareholder’s equity. If the amount of loss for the financial products for sale was outstanding and was not related to any issue occurred after listing, it should be returned and listed in the profit and loss of the current term.
3. Long-term equity investment of the equity method (1) The Company presently holds 100% stocks, with the right to vote, of the invested companies and the
equity method is adopted for assessment. (2) If the investment company holds more than 50% proportion of the stocks with the right to vote or has
actual control force, the equity method is adopted for assessment, and the consolidated financial statements are prepared quarterly, semiannually and annually.
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(3) When foreign investment is assessed according to the equity method, the “accumulative exchange adjustment” due to the change of exchange rate in the financial statement of the invested company should be taken as the reconciliation item of the shareholder’s equity.
(4) For the orderly and reverse transactions of the invested company according to the equity method and the side transactions of the invested company according to the equity method, the unrealized gains or losses should be canceled.
(Ⅳ) Fixed asset Depreciation is amortized according to the following useful life on a straight-line basis: building, 5-55 years; plant and machinery, 3-15 years; transportation facilities, 3-10 years; office equipment, 3-10 years; leased improvements, 6years; other equipment, 2-15 years. The depreciation of fixed assets which are used continuously after expiration of useful life is amortized continuously according to reusable life which is re-estimated by residual value.
III. Authority-Specified Certificates and Licenses Acquired By Financial Transparency Staff. (I) Professional certificates:
1. Internal auditor of the Republic of China: 1 person in Audit Department. (II) Professional training:
1. Finance Officer: Certification class (42 hours) for professional certification of chief accountant in listed (over-the-counter) company;
2. Chief Accountant: Primary class (30 hours) for professional certification of chief accountant in listed (over-the-counter) company; Certification class (continuous advancing) (12 hours) for professional advancement of chief accountant in listed (over-the-counter) company; Certification class (15hours) for IFRS professional certification of chief accountant in listed (over-the-counter) company
3. Chief Auditor: Enterprise internal control system (6 hours) in individual data and privacy protection; Enterprise internal control system (6 hours) in self-inspection in practice.
4. Auditor: Enterprise internal control system (6 hours) in revised IFRS internal control rules; Enterprise internal control system (6 hours) in self-inspection in practice.
IV. Advanced Learning And Training Taken by Corporate Managers Involved In Corporate Governance.
1. Financial Director Wang, Chien-Hsiu: 2010/03/29: “How to Conduct a Great Shareholder’s Meeting, Prevent the Fight and Solve Counterattack” class (3 hours) of Corporate Governance Association. 2012/08/03: “Enterprise Social Responsibility & Corporate Governance” class (3 hours) of Corporate Governance Association.
2. Accounting Director Huang, Guang Yu: 2012/08/03: “Enterprise Social Responsibility & Corporate Governance” class (3 hours) of Corporate Governance Association.
3. Chief Auditor Lu, Hsiu-Feng: 2010/03/29: “How to Conduct a Great Shareholder’s Meeting, Prevent the Fight and Solve Counterattack” class (3 hours) of Corporate Governance Association.
Gem Terminal Industrial Co., Ltd
Chairman Su, Chung-Hong
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Head Office: NO.138, Lane 513,Ta-Tung Road Lu-Zhu Dist., Kaohsiung City, 821,Taiwan, R.O.C.
Tel:886-7-6963037 Fax: 886-7-6962666 Taipei Office: 2F, NO.223, Cheng-Te Road Sec.3, Taipei, 103,Taiwan, R.O.C. Tel:886-2-25917611 Fax: 886-2-25958265