Form: 425

Filing under Securities Act Rule 425 of certain prospectuses and communications in connection with business combination transactions

December 24, 2009

Filed By TTM Technologies, Inc.
Pursuant to Rule 425 Under the Securities Act of 1933
And Deemed Filed Pursuant to Rule 14a-12
Under the Securities Exchange Act of 1934
Subject Company: TTM Technologies, Inc.
Commission File No. 333-164012
[MEADVILLE HOLDINGS LIMITED ANNOUNCEMENT — DECEMBER 24, 2009]
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness, and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.
No securities of Meadville Holdings Limited or TTM Technologies, Inc. may be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended. This announcement does not constitute an offer to sell or a solicitation of an offer to buy any securities of Meadville Holdings Limited or TTM Technologies, Inc. nor shall there be any sale of any such securities in any country or jurisdiction in which any such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such country or jurisdiction.
     
    (TTM TECHNOLOGIES LOGO)
TTM Technologies, Inc.
(incorporated in the State of Delaware,
United States of America)
     
Top Mix Investments Limited   TTM Hong Kong Limited
     
(incorporated in the British Virgin Islands   (incorporated in Hong Kong with limited liability)
with limited liability)    
(MEADVILLE HOLDINGS LIMITED LOGO)
JOINT ANNOUNCEMENT

(1) UNDER RULE 13.09 OF THE LISTING RULES

(2) UNDER RULE 8.1 OF THE TAKEOVERS CODE

In connection with the PCB Sale, TTM has filed the Draft Form S-4 with the SEC in the United States, which includes a draft proxy statement/US prospectus in connection with the proposed issuance of new TTM Shares (containing information in relation to the PCB Business, including the Audited Financial Statements of the PCB Business and Management’s Discussion and Analysis of the PCB Business, and TTM), on the date of this announcement. The Draft Form S-4 is available for public viewing on the SEC’s website (http://sec.gov/ edgar/searchedgar/companysearch.html) and TTM’s website (www.ttmtech.com/investors/ investors_sec.jsp) following filing of the Draft Form S-4 with the SEC.
To ensure all Shareholders and potential investors of Meadville have equal and timely access to the information relating to Meadville, the Audited Financial Statements of the PCB Business (as extracted from the Draft Form S-4) and Management’s Discussion and Analysis of the PCB Business (as extracted from the Draft Form S-4) are set out in Appendices 1 and 2 to this announcement.
Certain information set out in the Draft Form S-4 constitutes profit forecasts under Rule 10 of the Takeovers Code. The Profit Forecast Information does not meet the standards required by Rule 10 of the Takeovers Code. Shareholders and potential investors should exercise caution in placing any reliance on the Profit Forecast Information.
Further, the Draft Form S-4 filed by TTM with the SEC is preliminary and not complete and may be subject to change and amendments, including amendments that TTM may make in response to comments it receives from the SEC on the Draft Form S-4. Shareholders and potential investors should not rely on the contents of the Draft Form S-4 when dealing in Meadville Shares, TTM Shares and/or other securities of TTM.

1


 

INTRODUCTION
Reference is made to the announcement jointly issued by Top Mix Investments Limited, TTM Technologies, Inc., TTM Hong Kong Limited and Meadville Holdings Limited on 16 November 2009 in relation to the Proposal (the “Announcement”). Terms defined in the Announcement have the same meaning when used in this announcement unless the context otherwise requires.
This announcement is jointly issued by Top Mix, TTM, TTM HK and Meadville pursuant to Listing Rule 13.09 and under Rule 8.1 of the Takeovers Code.
FORM S-4
Pursuant to the Securities Act, TTM is required to file a Registration Statement on Form S-4 in draft form (the “Draft Form S-4”) with the SEC in the United States. The Draft Form S-4 is available for public viewing on the SEC’s website and TTM’s website following filing of the Draft Form S-4 with the SEC. The Draft Form S-4 filed by TTM with the SEC on the date of this announcement includes a draft proxy statement/US prospectus in connection with the proposed issuance of new TTM Shares (containing information in relation to the PCB Business, including the Audited Financial Statements of the PCB Business (as defined below) and Management’s Discussion and Analysis of the PCB Business (as defined below), and TTM). Shareholders and potential investors of Meadville are able to obtain a copy of the Draft Form S-4 from the SEC’s website (http://sec.gov/edgar/searchedgar/companysearch.html) or TTM’s website (www.ttmtech. com/investors/investors_sec.jsp) following filing of the Draft Form S-4 with the SEC. The information contained in the Draft Form S-4 is preliminary and not complete and may be subject to change and amendments.
The Form S-4 having become and remaining effective under the Securities Act and not having become the subject of any stop order or proceedings seeking a stop order is one of the conditions for completion of the PCB Sale.
TTM may not issue the securities offered by the proxy statement/US prospectus until the Draft Form S-4 (as amended) is declared effective by the SEC. The proxy statement/US prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities of TTM in any jurisdiction where an offer, solicitation or sale is not permitted.
While there can be no assurance on timing, it is currently estimated that the SEC may declare the Form S-4 (as amended) effective within six to ten weeks from the date of filing, although it is possible that the review period by the SEC may be longer. After the SEC has declared the Form S-4 effective, TTM will mail the proxy statement/US prospectus to its shareholders and Meadville will mail the US prospectus together with the Circular to the Shareholders.
When perusing the Draft Form S-4, Shareholders and potential investors of Meadville may refer to the following sections of the Draft Form S-4 for information relating to the PCB Business and TTM:
•   Summary;
 
•   Summary Selected Historical and Pro Forma Financial Data;
 
•   Risk Factors;
 
•   Stock Price and Dividend Information;
 
•   The PCB Combination;

2


 

•   The Stock Purchase Agreement and Related Agreements;
 
•   Comparison of Meadville Shareholder and TTM Stockholder Rights;
 
•   Unaudited Pro Forma Condensed Combined Financial Statements;
 
•   Information Regarding Meadville’s PCB Operations and the PCB Subsidiaries;
 
•   Certain Relationships and Related Party Transactions of Meadville;
 
•   Selected Historical Financial Data of the PCB Business of Meadville;
 
•   Management’s Discussion and Analysis of Financial Condition and Results of Operations of the PCB Business of Meadville;
 
•   Plan of Distribution;
 
•   Where You Can Find More Information;
 
•   Index to Financial Statements of the Printed Circuit Board Business of Meadville Holdings Limited;
 
•   Annex A — Stock Purchase Agreement;
 
•   Annex B — Shareholders Agreement; and
 
•   Annex C — Opinion of UBS.
UBS Securities LLC issued an opinion to TTM on 15 November 2009 (the “Fairness Opinion”) as to the fairness, from a financial point of view, to TTM of the consideration to be paid by TTM for the PCB Business which is reproduced in Annex C to the Draft Form S-4 (referred to above). Further details relating to the Fairness Opinion are also set out in the sub-section headed “Opinion of TTM’s Financial Advisor” under the section headed “The PCB Combination” in the Draft Form S-4 (the “Fairness Opinion Section”) (referred to above).
Certain financial information set out in the Fairness Opinion Section constitutes profit forecasts under Rule 10 of the Takeovers Code (the “Profit Forecast Information”). However, the Profit Forecast Information does not meet the standards for inclusion in the Draft Form S-4 required by Rule 10 of the Takeovers Code relating to profit forecasts. UBS Securities LLC has not reported on whether the Profit Forecast Information has been prepared by TTM with due care and consideration. In addition, as the Profit Forecast Information does not meet the definition of a profit forecast under the Hong Kong Institute of Certified Public Accountants audit guideline for a profit forecast, KPMG LLP (TTM’s independent registered public accounting firm) has not reported on whether the Profit Forecast Information, so far as the accounting policies and calculations are concerned, have been properly compiled under the Takeovers Code on the basis of the assumptions made. The TTM Board confirmed that the only reason for including the Fairness Opinion and the Fairness Opinion Section in the Draft Form S-4 is due to requirements under the Securities Act and the Securities Exchange Act of 1934, as amended. In view of TTM’s obligations to comply with the US regulatory requirements, TTM has requested for, and the Executive has permitted, the inclusion of the Profit Forecast Information in the Draft Form S-4. Shareholders and potential investors should exercise caution in placing any reliance on the Profit Forecast Information.

3


 

Further, the Draft Form S-4 filed by TTM with the SEC is preliminary and not complete and may be subject to change and amendments, including amendments that TTM may make in response to comments it receives from the SEC on the Draft Form S-4. Shareholders and potential investors should not rely on the contents of the Draft Form S-4 when dealing in Meadville Shares, TTM Shares and/or other securities of TTM.
AUDITED FINANCIAL STATEMENTS OF THE PCB BUSINESS AND MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE PCB BUSINESS
To ensure all Shareholders and potential investors of Meadville have equal and timely access to information relating to Meadville: (i) the audited combined income statements, the audited combined statements of comprehensive income, the audited combined statements of financial position, the audited combined statements of cash flows and the audited combined statements of changes in equity of the PCB Business on a carve-out basis for the years ended 31 December 2006, 31 December 2007 and 31 December 2008 and for the nine months ended 30 September 2009 (the “Audited Financial Statements of the PCB Business”) as extracted from the Draft Form S-4 are set out in Appendix 1 to this announcement; and (ii) management’s discussion and analysis of the financial condition and results of operations of the PCB Business (“Management’s Discussion and Analysis of the PCB Business”) as extracted from the Draft Form S-4 are also set out in Appendix 2 to this announcement.
             
By order of the Board of   By order of the Board of   By order of the Board of   By order of the Board of
Top Mix   TTM   TTM   Meadville
Investments Limited   Technologies, Inc.   Hong Kong Limited   Holdings Limited
Tang Ying Ming, Mai   Robert E. Klatell   Kenton K. Alder   Tang Chung Yen, Tom
Director   Chairman   Director   Executive Chairman
Hong Kong, 24 December 2009
As at the date of this announcement, Mr. Tang Hsiang Chien is the ultimate controlling shareholder of Top Mix.
As at the date of this announcement, the directors of Top Mix are Mr. Tang Hsiang Chien, Mr. Tang Chung Yen, Tom and Ms. Tang Ying Ming, Mai.
As at the date of this announcement, the directors of TTM are Mr. Robert E. Klatell, Mr. Kenton K. Alder, Mr. James K. Bass, Mr. Richard P. Beck, Mr. Thomas T. Edman and Mr. John G. Mayer.
As at the date of this announcement, the directors of TTM HK are Mr. Kenton K. Alder and Mr. Steven W. Richards.
As at the date of this announcement, the Meadville Directors are:
Executive Directors: Mr. Tang Hsiang Chien, Mr. Tang Chung Yen, Tom, Ms. Tang Ying Ming, Mai and Mr. Chung Tai Keung, Canice.
Independent non-executive Directors: Mr. Lee, Eugene, Mr. Leung Kwan Yuen, Andrew and Dr. Li Ka Cheung, Eric.
Mr. Tang Hsiang Chien accepts full responsibility for the accuracy of the information contained in this announcement (other than that relating to the Meadville Group and the TTM Group) and confirms, having made all reasonable enquiries, that to the best of his knowledge, opinions expressed in this announcement (other than opinions expressed by the Meadville Group and the TTM Group) have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statement in this announcement misleading.
The directors of Top Mix jointly and severally accept full responsibility for the accuracy of the information contained in this announcement (other than that relating to the Meadville Group and the TTM Group) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this announcement (other than opinions expressed by the Meadville Group and the TTM Group) have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statement in this announcement misleading.

4


 

The directors of TTM jointly and severally accept full responsibility for the accuracy of the information contained in this announcement (other than that relating to the Meadville Group and Top Mix) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this announcement (other than opinions expressed by the Meadville Group and Top Mix) have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statement in this announcement misleading.
The directors of TTM HK jointly and severally accept full responsibility for the accuracy of the information contained in this announcement (other than that relating to the Meadville Group and Top Mix) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this announcement (other than opinions expressed by the Meadville Group and Top Mix) have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statement in this announcement misleading.
The Meadville Directors jointly and severally accept full responsibility for the accuracy of the information contained in this announcement (other than that relating to the TTM Group and Top Mix) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this announcement (other than opinions expressed by the TTM Group and Top Mix) have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statement in this announcement misleading.


 

Appendix 1
Audited Financial Statements of the PCB Business
The following has been extracted from the Draft Form S-4 and all defined terms used in this Appendix 1 shall have the same meaning as given to them in the Draft Form S-4.
(The remaining of this page is intentionally left blank.)

 


 

THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
 
                                                 
                Nine Months Ended
 
          Year Ended 31 December     30 September  
    Note     2006     2007     2008     2008     2009  
          HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
                            (Unaudited)        
 
Revenue
    5       2,838,773       4,108,638       5,212,437       3,930,212       3,505,389  
Cost of sales
    9       (2,261,374 )     (3,150,277 )     (4,205,020 )     (3,156,792 )     (2,844,527 )
                                                 
Gross profit
            577,399       958,361       1,007,417       773,420       660,862  
Other income
    6       87,226       161,330       158,810       125,233       91,733  
Selling and distribution expenses
    9       (118,899 )     (199,790 )     (227,397 )     (179,097 )     (164,209 )
General and administrative expenses
    9       (129,493 )     (200,869 )     (259,762 )     (140,314 )     (276,255 )
Share award expenses
    7, 9       —       (226,097 )     (10,601 )     (8,404 )     (9,897 )
                                                 
Operating profit
            416,233       492,935       668,467       570,838       302,234  
Interest income
    10       5,871       28,507       17,440       13,010       5,192  
Finance costs
    11       (77,974 )     (104,311 )     (129,359 )     (94,503 )     (63,759 )
                                                 
Profit before income tax
            344,130       417,131       556,548       489,345       243,667  
Income tax expense
    12       (41,577 )     (64,193 )     (72,895 )     (76,927 )     (45,002 )
                                                 
Profit for the year/period
            302,553       352,938       483,653       412,418       198,665  
                                                 
Attributable to:
                                               
Equity holders of the PCB Business
            239,762       246,094       376,071       336,258       127,245  
Minority interests
            62,791       106,844       107,582       76,160       71,420  
                                                 
              302,553       352,938       483,653       412,418       198,665  
                                                 
 
The notes on pages F-10 to F-64 are an integral part of these financial statements.


F-3


 

THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
 
                                         
          Nine Months Ended
 
    Year Ended 31 December     30 September  
    2006     2007     2008     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
                      (Unaudited)        
 
Profit for the year/period
    302,553       352,938       483,653       412,418       198,665  
                                         
Other comprehensive income
                                       
Exchange differences
    43,235       100,657       82,304       107,037       2,736  
Fair value (loss)/gain of available-for-sale financial asset
    —       —       (454 )     3,564       (2,921 )
Cash flow hedge
                                       
— change in fair value of hedging instruments
    —       —       —       —       22,796  
— transfer to income statement upon change in fair value of hedged items
    —       —       —       —       (17,226 )
— transfer to property, plant and equipment
    —       —       —       —       (178 )
                                         
Other comprehensive income for the year/period, net of tax
    43,235       100,657       81,850       110,601       5,207  
                                         
Total comprehensive income for the year/period
    345,788       453,595       565,503       523,019       203,872  
                                         
Total comprehensive income attributable to:
                                       
Equity holders of the PCB Business
    276,899       327,997       436,370       422,897       132,083  
Minority interests
    68,889       125,598       129,133       100,122       71,789  
                                         
      345,788       453,595       565,503       523,019       203,872  
                                         
 
The notes on pages F-10 to F-64 are an integral part of these financial statements.


F-4


 

THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
 
                                         
                At
 
          At 31 December     30 September  
    Note     2006     2007     2008     2009  
          HK$’000     HK$’000     HK$’000     HK$’000  
 
ASSETS
Non-current assets
                                       
Property, plant and equipment
    14       1,893,672       3,821,412       4,941,778       4,840,601  
Leasehold land and land use rights
    15       83,045       143,042       147,256       144,567  
Intangible assets
    16       22,561       149,899       22,159       21,292  
Available-for-sale financial asset
    17       —       21,089       20,635       17,714  
Derivative financial instruments
    24       —       —       —       22,358  
Deferred tax assets
    25       155       13,124       32,517       42,437  
Loan to a fellow subsidiary
    30       —       —       41,074       10,076  
                                         
              1,999,433       4,148,566       5,205,419       5,099,045  
                                         
Current assets
                                       
Inventories
    18       266,565       398,420       427,053       457,569  
Debtors and prepayments
    19       1,114,910       1,480,853       1,163,672       1,083,759  
Derivative financial instruments
    24       —       —       —       438  
Amounts due from fellow subsidiaries
    30       —       244,296       390,242       13,889  
Amount due from intermediate holding company
    31       —       40,177       —       —  
Amount due from a minority shareholder
    29       —       39,055       —       —  
Taxation recoverable
            1,129       3,500       19,269       23,752  
Cash and bank balances
    21       164,964       402,822       797,874       849,012  
                                         
              1,547,568       2,609,123       2,798,110       2,428,419  
                                         
Total assets
            3,547,001       6,757,689       8,003,529       7,527,464  
                                         
Equity
                                       
Capital and reserves
    22       433,621       1,524,327       1,371,198       1,779,298  
Minority interests in equity
            197,475       335,728       405,411       534,598  
                                         
Total equity
            631,096       1,860,055       1,776,609       2,313,896  
                                         
 
LIABILITIES
Non-current liabilities
                                       
Borrowings
    23       667,600       1,679,147       2,763,230       2,954,662  
Derivative financial instruments
    24       —       —       17,350       13,944  
Deferred tax liabilities
    25       —       65,183       79,520       74,779  
Financial liabilities
    26       —       264,394       151,270       161,758  
Long-term other payables
    27       —       115,658       74,564       24,974  
                                         
              667,600       2,124,382       3,085,934       3,230,117  
                                         
Current liabilities
                                       
Creditors and accruals
    28       711,257       1,270,757       1,388,419       1,060,395  
Amounts due to fellow subsidiaries
    30       66,454       99,838       88,481       97,952  
Amount due to immediate holding company
    31       —       290,000       643,961       49,492  
Amount due to a related party
    20       417,859       —       —       —  
Amount due to a minority shareholder
    29       119,918       173,677       169,659       122,334  
Amount due to a subsidiary of a minority shareholder
    29       10,716       5,040       12,338       18,251  
Borrowings
    23       905,236       908,288       823,013       609,794  
Derivative financial instruments
    24       —       —       8,015       2,023  
Taxation payable
            16,865       25,652       7,100       23,210  
                                         
              2,248,305       2,773,252       3,140,986       1,983,451  
                                         
Total liabilities
            2,915,905       4,897,634       6,226,920       5,213,568  
                                         
Total equity and liabilities
            3,547,001       6,757,689       8,003,529       7,527,464  
                                         
Net current (liabilities)/assets
            (700,737 )     (164,129 )     (342,876 )     444,968  
                                         
Total assets less current liabilities
            1,298,696       3,984,437       4,862,543       5,544,013  
                                         
 
The notes on pages F-10 to F-64 are an integral part of these financial statements.


F-5


 

THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
 
                                                 
                Nine Months Ended
 
          Year Ended 31 December     30 September  
    Note     2006     2007     2008     2008     2009  
          HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
                            (Unaudited)        
 
Cash flows from operating activities
                                               
Profit before income tax
            344,130       417,131       556,548       489,345       243,667  
Adjustments for:
                                               
— Finance costs
            77,974       104,311       129,359       94,503       63,759  
— Interest income
            (5,871 )     (28,507 )     (17,440 )     (13,010 )     (5,192 )
— Impairment of intangible assets
            55       —       19,860       —       —  
— Impairment of property, plant and equipment
            —       10,612       —       —       5,419  
— Amortisation of intangible assets
            1,170       1,337       2,991       2,513       878  
— Amortisation of leasehold land and land use rights
            1,876       2,167       3,600       2,688       2,730  
— Depreciation of property, plant and equipment
            200,264       278,664       420,885       309,313       363,980  
— Dividend income from available-for-sale financial asset
            —       —       —       —       (1,971 )
— Negative goodwill from acquisition of minority interest in a subsidiary
    33 (a)     (1,108 )     —       —       —       —  
— (Gain)/loss on disposal of property, plant and equipment
            (780 )     2,563       19,493       6,540       735  
— Gain on adjustment for contingent consideration in relation to business combination
            —       —       (13,933 )     —       (13,425 )
— Net exchange differences
            (7,849 )     (48,270 )     (138,453 )     (139,271 )     74  
— Share award expenses
            —       226,097       10,601       8,404       9,897  
                                                 
Operating profit before working capital changes
            609,861       966,105       993,511       761,025       670,551  
Changes in:
                                               
Inventories
            (56,692 )     (104,073 )     (28,633 )     (136,445 )     (30,516 )
Debtors and prepayments
            (235,328 )     (149,822 )     317,181       (135,694 )     79,913  
Restricted bank balances
            12,075       (2,477 )     (1,972 )     2,719       (2,524 )
Creditors and accruals
            202,160       387,728       117,662       167,349       (328,024 )
Long-term other payables
            —       115,658       (41,094 )     (16,266 )     (49,590 )
Amounts due from/(to) fellow subsidiaries
    33 (d)     (53,667 )     (210,912 )     (157,303 )     (153,013 )     112,359  
Amount due from intermediate holding company
            —       (40,177 )     40,177       40,177       —  
Amount due to immediate holding company
    33 (d)     —       290,000       353,961       353,187       (54,884 )
Amount due to a related party
            (26,340 )     (7,859 )     —       —       —  
Amounts due from/(to) minority shareholders
            (3,240 )     14,704       (25,429 )     (17,499 )     13,141  
Amount due to a subsidiary of a minority shareholder
            1,686       (5,676 )     7,298       3,968       5,913  
                                                 
Cash generated from operating activities
            450,515       1,253,199       1,575,359       869,508       416,339  
Interest received
            5,871       28,507       17,440       13,010       5,192  
Interest paid
            (77,974 )     (104,311 )     (88,118 )     (80,365 )     (66,470 )
Hong Kong profits tax paid
            (2,627 )     (4,451 )     (3,226 )     (3,275 )     —  
Overseas tax paid
            (36,396 )     (70,693 )     (110,083 )     (85,341 )     (48,015 )
                                                 
Net cash generated from operating activities
            339,389       1,102,251       1,391,372       713,537       307,046  
                                                 
Cash flows from investing activities
                                               
Purchase of property, plant and equipment
            (643,282 )     (1,218,320 )     (1,347,624 )     (1,058,114 )     (269,023 )
Purchase of leasehold land and land use rights
            (22,473 )     —       —       —       —  
Proceeds from sale of property, plant and equipment
            6,627       3,370       2,650       3,497       2,878  
Acquisition of minority interest in a subsidiary
    33 (a)     (6,354 )     —       —       —       —  
Acquisition of a subsidiary, net of bank balances and cash acquired
    33 (b)     —       (694,715 )     —       —       —  
Purchase of available-for-sale financial asset
            —       (21,089 )     —       —       —  
Dividends received from available-for-sale financial asset
            —       —       —       —       1,971  
                                                 
Net cash used in investing activities
            (665,482 )     (1,930,754 )     (1,344,974 )     (1,054,617 )     (264,174 )
                                                 
Cash flows from financing activities
                                               
New borrowings
            1,743,682       3,030,033       3,355,784       2,965,040       1,086,128  
Repayment of borrowings
            (1,433,973 )     (2,030,992 )     (2,382,602 )     (2,013,526 )     (1,082,289 )
Capital contribution from immediate holding company
            —       826,612       —       —       —  
Loan to a fellow subsidiary
            —       —       (41,074 )     (41,227 )     —  
Repayment of loan to a fellow subsidiary
            —       —       —       —       30,998  
Dividend paid to shareholders
            —       (290,000 )     (600,100 )     (600,100 )     —  
Dividend paid to a minority shareholder
            (29,227 )     (101,630 )     —       —       (91,361 )
Capital contribution by a minority shareholder
            18,068       114,285       —       —       88,349  
Distribution to a shareholder
            —       (410,000 )     —       —       —  
                                                 
Net cash generated from financing activities
            298,550       1,138,308       332,008       310,187       31,825  
                                                 
Net (decrease)/increase in cash and cash equivalents
            (27,543 )     309,805       378,406       (30,893 )     74,697  
Exchange differences on cash and cash equivalents
            (8,229 )     (32,767 )     (10,952 )     (13,123 )     (457 )
Cash and cash equivalents at beginning of the year/period
            157,655       121,883       398,921       398,921       766,375  
                                                 
Cash and cash equivalents at end of the year/period
    33 (c)     121,883       398,921       766,375       354,905       840,615  
                                                 
 
The notes on pages F-10 to F-64 are an integral part of these financial statements.


F-6


 

THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
 
                                                                                 
    Attributable to the Equity Holders of the PCB Business              
          Available-
    Employee
                                           
          for-Sale
    Share-
                                           
          Financial
    Based
                                           
    Capital
    Asset
    Compensation
    Hedging
    General
    Exchange
    Retained
          Minority
    Total
 
    Reserve     Reserve     Reserve     Reserve     Reserve     Reserve     Earnings     Total     Interests     Equity  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
 
At 1 January 2006
    134,811       —       —       —       68,286       16,889       346,736       566,722       147,207       713,929  
                                                                                 
Profit for the year
    —       —       —       —       —       —       239,762       239,762       62,791       302,553  
Other comprehensive income:
                                                                               
— Exchange differences
    —       —       —       —       336       36,801       —       37,137       6,098       43,235  
                                                                                 
Total comprehensive income for the year ended 31 December 2006
    —       —       —       —       336       36,801       239,762       276,899       68,889       345,788  
                                                                                 
Transactions with equity holders:
                                                                               
Capital contribution by a minority shareholder
    —       —       —       —       —       —       —       —       18,068       18,068  
Dividend
    —       —       —       —       —       —       —       —       (29,227 )     (29,227 )
Distribution to a shareholder
    —       —       —       —       —       —       (410,000 )     (410,000 )     —       (410,000 )
Acquisition of minority interest in a subsidiary
    —       —       —       —       —       —       —       —       (7,462 )     (7,462 )
Transfer
    —       —       —       —       12,773       —       (12,773 )     —       —       —  
                                                                                 
      —       —       —       —       12,773       —       (422,773 )     (410,000 )     (18,621 )     (428,621 )
                                                                                 
At 31 December 2006
    134,811       —       —       —       81,395       53,690       163,725       433,621       197,475       631,096  
                                                                                 
                                                                                 
At 1 January 2007
    134,811       —       —       —       81,395       53,690       163,725       433,621       197,475       631,096  
                                                                                 
Profit for the year
    —       —       —       —       —       —       246,094       246,094       106,844       352,938  
Other comprehensive income:
                                                                               
— Exchange differences
    —       —       —       —       713       81,190       —       81,903       18,754       100,657  
                                                                                 
Total comprehensive income for the year ended 31 December 2007
    —       —       —       —       713       81,190       246,094       327,997       125,598       453,595  
                                                                                 
Transactions with equity holders:
                                                                               
Capital contribution by a minority shareholder
    —       —       —       —       —       —       —       —       114,285       114,285  
Capital contribution from immediate holding company
    826,612       —       —       —       —       —       —       826,612       —       826,612  
Shares award expenses (Note 7)
    —       —       226,097       —       —       —       —       226,097       —       226,097  
Dividend (Note 13)
    —       —       (226,097 )     —       —       —       (63,903 )     (290,000 )     (101,630 )     (391,630 )
Transfer
    —       —       —       —       48,461       —       (48,461 )     —       —       —  
                                                                                 
      826,612       —       —       —       48,461       —       (112,364 )     762,709       12,655       775,364  
                                                                                 
At 31 December 2007
    961,423       —       —       —       130,569       134,880       297,455       1,524,327       335,728       1,860,055  
                                                                                 


F-7


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
COMBINED STATEMENTS OF CHANGES IN EQUITY — (Continued)
 
                                                                                 
    Attributable to the Equity Holders of the PCB Business              
          Available-
    Employee
                                           
          for-Sale
    Share-
                                           
          Financial
    Based
                                           
    Capital
    Asset
    Compensation
    Hedging
    General
    Exchange
    Retained
          Minority
    Total
 
    Reserve     Reserve     Reserve     Reserve     Reserve     Reserve     Earnings     Total     Interests     Equity  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
 
At 1 January 2008
    961,423       —       —       —       130,569       134,880       297,455       1,524,327       335,728       1,860,055  
                                                                                 
Profit for the year
    —       —       —       —       —       —       376,071       376,071       107,582       483,653  
Other comprehensive income:
                                                                               
— Exchange differences
    —       —       —       —       649       60,104       —       60,753       21,551       82,304  
— Change in fair value of available-for-sale financial asset
    —       (454 )     —       —       —       —       —       (454 )     —       (454 )
                                                                                 
Total comprehensive income for the year ended 31 December 2008
    —       (454 )     —       —       649       60,104       376,071       436,370       129,133       565,503  
                                                                                 
Transactions with equity holders:
                                                                               
Shares award expenses (Note 7)
    —       —       10,601       —       —       —       —       10,601       —       10,601  
Dividend (Note 13)
    —       —       (8,404 )     —       —       —       (591,696 )     (600,100 )     (59,450 )     (659,550 )
Transfer
    —       —       —       —       35,388       —       (35,388 )     —       —       —  
                                                                                 
      —       —       2,197       —       35,388       —       (627,084 )     (589,499 )     (59,450 )     (648,949 )
                                                                                 
At 31 December 2008
    961,423       (454 )     2,197       —       166,606       194,984       46,442       1,371,198       405,411       1,776,609  
                                                                                 
                                                                                 
At 1 January 2009
    961,423       (454 )     2,197       —       166,606       194,984       46,442       1,371,198       405,411       1,776,609  
                                                                                 
Profit for the period
    —       —       —       —       —       —       127,245       127,245       71,420       198,665  
Other comprehensive income:
                                                                               
— Exchange differences
    —       —       —       —       8       2,359       —       2,367       369       2,736  
— Change in fair value of available-for-sale financial asset
    —       (2,921 )     —       —       —       —       —       (2,921 )     —       (2,921 )
— Cash flow hedge
                                                                               
— change in fair value of hedging instruments
    —       —       —       22,796               —       —       22,796       —       22,796  
— transfer to income statement upon change in fair value of hedged items
    —       —       —       (17,226 )     —       —       —       (17,226 )     —       (17,226 )
— transfer to property, plant and equipment
    —       —       —       (178 )     —       —       —       (178 )     —       (178 )
                                                                                 
Total comprehensive income for the nine months ended 30 September 2009
    —       (2,921 )     —       5,392       8       2,359       127,245       132,083       71,789       203,872  
                                                                                 
Transactions with equity holders:
                                                                               
Capital contribution by a minority shareholder
    —       —       —       —       —       —       —       —       88,349       88,349  
Capital contribution from immediate holding company (Note 33(d))
    266,120       —       —       —       —       —       —       266,120       —       266,120  
Shares award expenses (Note 7)
    —       —       9,897       —       —       —       —       9,897       —       9,897  
Dividend
    —       —       —       —       —       —       —       —       (30,951 )     (30,951 )
Transfer
    —       —       —       —       28,183       —       (28,183 )     —       —       —  
                                                                                 
      266,120       —       9,897       —       28,183       —       (28,183 )     276,017       57,398       333,415  
                                                                                 
At 30 September 2009
    1,227,543       (3,375 )     12,094       5,392       194,797       197,343       145,504       1,779,298       534,598       2,313,896  
                                                                                 
 
The notes on pages F-10 to F-64 are an integral part of these financial statements.


F-8


 

THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
UNAUDITED COMBINED STATEMENTS OF CHANGES IN EQUITY
 
                                                                                 
    Attributable to the equity holders of the PCB Business              
          Available-
    Employee
                                           
          for-Sale
    Share-
                                           
          Financial
    Based
                                           
    Capital
    Asset
    Compensation
    Hedging
    General
    Exchange
    Retained
          Minority
    Total
 
    Reserve     Reserve     Reserve     Reserve     Reserve     Reserve     Earnings     Total     Interests     Equity  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
 
At 1 January 2008
    961,423       —       —            —       130,569       134,880       297,455       1,524,327       335,728       1,860,055  
                                                                                 
Profit for the period
    —       —       —       —       —       —       336,258       336,258       76,160       412,418  
Other comprehensive income:
                                                                               
— Exchange differences
    —       —       —       —       717       82,358       —       83,075       23,962       107,037  
— Change in fair value of available-for-sale financial asset
    —       3,564       —       —       —       —       —       3,564       —       3,564  
                                                                                 
Total comprehensive income for the nine months ended 30 September 2008
    —       3,564       —       —       717       82,358       336,258       422,897       100,122       523,019  
                                                                                 
Transactions with equity holders:
                                                                               
Shares award expenses (Note 7)
    —       —       8,404       —       —       —       —       8,404       —       8,404  
Dividend (Note 13)
    —       —       (8,404 )     —       —       —       (591,696 )     (600,100 )     (35,480 )     (635,580 )
Transfer
    —       —       —       —       13,229       —       (13,229 )     —       —       —  
                                                                                 
      —       —       —       —       13,229       —       (604,925 )     (591,696 )     (35,480 )     (627,176 )
                                                                                 
At 30 September 2008
    961,423       3,564       —       —       144,515       217,238       28,788       1,355,528       400,370       1,755,898  
                                                                                 
 
The notes on pages F-10 to F-64 are an integral part of these financial statements.


F-9


 

THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
 
1  General information and basis of preparation
 
(a)   General information
 
Meadville Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) are principally engaged in the manufacturing and distribution of printed circuit boards (the “PCB Business”) and copper clad laminates (the “Laminates Business”).
 
The Company was incorporated in the Cayman Islands on 28 August 2006 as an exempted company with limited liability under the Companies Law (2004 Revision) of the Cayman Islands. The address of its registered office is Clifton House, 75 Fort Street, P.O. Box 1350 GT, George Town, Grand Cayman, Cayman Islands.
 
The Company’s shares were listed on the Main Board of The Stock Exchange of Hong Kong Limited (“Stock Exchange”) on 2 February 2007 (the “Listing”).
 
The accompanying combined financial statements presented the financial positions and results of operations of the PCB Business of the Group.
 
These combined financial statements are presented in units of Hong Kong dollars, unless otherwise stated. These combined financial statements have been approved for issue by a committee of the Board, which has been authorised by the Board of Directors pursuant to the Board resolutions dated 23 October 2009, on 23 December 2009.
 
(b)   Basis of preparation
 
The PCB Business has historically been conducted by various subsidiaries directly or indirectly controlled by the Company. Therefore, the accompanying combined financial statements were prepared by combining the assets, liabilities, revenues, expenses and cash flows that were directly applicable to the PCB Business and operations for the years/periods presented.
 
The combined income statements of the PCB Business includes all the historical actual costs of the PCB Business and includes an allocation of certain general corporate expenses of the Company. These corporate expenses primarily relate to share award expenses in connection with shares that were granted by the controlling shareholder of the Company, Su Sih (BVI) Limited (“SuSih”) to senior executives of the Company who are involved in the PCB and Laminates businesses. For those expenses for which a specific identification method was not practicable, the expenses were allocated based on estimates that management considered as a reasonable reflection of the utilisation of services provided to, or benefits received by the PCB Business.
 
In relation to share award expenses, for shares that are granted to the employees of the PCB Business, the related expenses of approximately HK$86,070,000, HK$10,461,000, HK$8,297,000 (unaudited) and HK$9,632,000 for the years ended 31 December 2007, 2008 and nine months ended 30 September 2008 and 2009, respectively, are recorded based on the actual expenses of those employees. For shares which are granted to corporate level management, share award expenses of HK$140,027,000, HK$140,000, HK$107,000 (unaudited) and HK$265,000 for the years ended 31 December 2007, 2008 and nine months ended 30 September 2008 and 2009, respectively, are allocated based on revenue of the PCB Business to the Group.
 
While the expenses allocated to the PCB Business are not necessarily indicative of the expenses that the PCB Business would have incurred if the PCB Business had been a separate, independent entity during the years/periods presented, management believes that the foregoing presents a reasonable basis of estimating what the PCB Business’ expenses would have been on a historical basis.
 
The Company earned interest income on the deposits from the share subscriptions during the Listing in 2007. Interest income of nil, HK$12,038,000, nil, nil (unaudited) and nil for the years ended 31 December 2006, 2007 and 2008 and nine months ended 30 September 2008 and 2009 respectively are reflected in the PCB Business’ income statement based on specific identification of the use of the Listing proceeds.


F-10


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
The accompanying combined financial statements of the PCB Business of the Company have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”). The combined financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial asset and financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss.
 
The preparation of the combined financial statements in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the combined financial statements are disclosed in Note 4 below.
 
(i) The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 January 2009:
 
         
        Effective for
        Accounting
        Periods
        Beginning on
        or after
 
HKAS 1 (Revised)
  Presentation of financial statements   1 January 2009
HKAS 23 (Revised)
  Borrowing costs   1 January 2009
HKAS 32 and HKAS 1 (Amendments)
  Puttable financial instruments and obligations arising on liquidation   1 January 2009
HKFRS 1 and HKAS 27 (Amendments)
  Cost of an investment in a subsidiary, jointly controlled entity or associate   1 January 2009
HKFRS 2 (Amendment)
  Share-based payment — Vesting conditions and cancellations   1 January 2009
HKFRS 7 (Amendments)
  Financial instruments: Disclosures   1 January 2009
HKFRS 8
  Operating segments   1 January 2009
HK(IFRIC) — Int 13
  Customer loyalty programmes   1 July 2008
HK(IFRIC) — Int 15
  Agreements for construction of real estates   1 January 2009
HK(IFRIC) — Int 16
  Hedges of a net investment in a foreign operation   1 October 2008
 
HK(IFRIC) — Int 18 “Transfer of assets from customers” is effective to transfers of assets from customers received on or after 1 July 2009.
 
The adoption of the above new standards, amendments to standards and interpretations have no significant impact on the results and financial position of the PCB Business.
 
In addition, HKICPA also published a number of amendments for the existing standards under its annual improvement project. These amendments are also not expected to have a significant financial impact on the results and financial position of the PCB Business.


F-11


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
(ii) The following new standards, amendments to standards and interpretations have been issued but are not effective for the period beginning on 1 January 2009 and are relevant to the PCB Business’ operations and have not been early adopted:
 
         
        Effective for
        Accounting
        Periods
        Beginning on
        or after
 
HKAS 24 (Revised)
  Related party disclosures   1 January 2011
HKAS 27 (Revised)
  Consolidated and separate financial statements   1 July 2009
HKAS 39 (Amendment)
  Eligible hedged items   1 July 2009
HKFRS 3 (Revised)
  Business combinations   1 July 2009
HKFRS 9
  Financial instruments   1 January 2013
HK(IFRIC) — Int 9 and HKAS 39 (Amendments)
  Reassessment of embedded derivatives   30 June 2009
HK(IFRIC) — Int 17
  Distributions of non-cash assets to owners   1 July 2009
HK(IFRIC) — Int 19
  Extinguishing financial liabilities with equity instruments   1 July 2010
 
Whether the adoption of HKFRS 3 (Revised) and HKAS 27 (Revised) have no material impact on the results and financial position of the PCB Business will depend on the incidence and timing of business combinations occurring on or after 1 January 2010. The directors are not yet in a position to state whether any substantial changes to the financial statements will be resulted from adopting HKFRS 9. The directors anticipate that the adoption of other new standards, amendments and interpretations to standards will not result in a significant impact on the results and financial position of the PCB Business.
 
(iii) The following new standards, amendments to standards and interpretations have been issued but are not effective for the period beginning on 1 January 2009 and are not relevant to the PCB Business’ operations and have not been early adopted:
 
         
        Effective for
        Accounting
        Periods
        Beginning on
        or after
 
HKAS 32 (Amendment)
  Classification of right issues   1 February 2010
HKFRS 1 (Revised)
  First-time adoption of Hong Kong Financial Reporting Standards   1 July 2009
HKFRS 1 (Amendment)
  Additional exemptions for first-time adopters   1 January 2010
HKFRS 2 (Amendment)
  Group cash-settled share-based payment transactions   1 January 2010
HK(IFRIC) — Int 14 (Amendment)
  Prepayments of a minimum funding requirement   1 January 2011


F-12


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
(iv) HKICPA’s improvements to HKFRS have been published in October 2008 but are not effective for the period beginning on 1 January 2009 and have not been early adopted by the PCB Business. Amendment has been made to the following standard according to the improvements:
 
             
        Effective for
        Accounting
        Periods
        Beginning on
        or after
 
HKFRS 5
  Non-current assets held for sale and discontinued operations (and consequential amendment to HKFRS 1, First-time adoption of Hong Kong Financial Reporting Standards)     1 July 2009  
 
(v) HKICPA’s improvements to HKFRS have been published in May 2009 but are not effective for the period beginning on 1 January 2009 and have not been early adopted by the PCB Business. Amendments have been made to the following standards according to the improvements:
 
         
        Effective for
        Accounting
        Periods
        Beginning on
        or after
 
HKAS 1 (Revised)
  Presentation of financial statements   1 January 2010
HKAS 7
  Statement of cash flows   1 January 2010
HKAS 17
  Leases   1 January 2010
HKAS 18
  Revenue   1 January 2010
HKAS 36
  Impairment of assets   1 January 2010
HKAS 38
  Intangible assets   1 July 2009
HKAS 39
  Financial instruments: Recognition and measurement   1 January 2010
HKFRS 2
  Share-based payment — Scope of HKFRS 2 and HKFRS 3 (Revised)   1 July 2009
HKFRS 5
  Non-current assets held for sale and discontinued operations   1 January 2010
HKFRS 8
  Operating segments   1 January 2010
HK(IFRIC) — Int 9
  Reassessment of embedded derivatives   1 July 2009
HK(IFRIC) — Int 16
  Hedges of a net investment in a foreign operation   1 July 2009
 
The directors anticipate that the adoption of the above amendments to HKFRS mentioned in Note 1(b) (iii), (iv) and (v) will not result in a significant impact on the results and financial position of the PCB Business.


F-13


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
2  Summary of significant accounting policies
 
(a)   Consolidation
 
The combined financial statements include the financial statements of the subsidiaries included in the PCB Business made up to year/period end date.
 
(i)  Subsidiaries
 
Subsidiaries are all entities (including special purpose entities) over which the PCB Business has power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the PCB Business controls another entity.
 
Subsidiaries are fully consolidated from the date on which control is transferred to the PCB Business. They are de-consolidated from the date that control ceases.
 
The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the PCB Business’ share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the combined income statement.
 
Inter-company transactions, balances and unrealised gains on transactions between entities in the PCB Business are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary in the combined financial statements to ensure consistency with the policies adopted by the PCB Business.
 
(ii)  Transactions with minority interests
 
The PCB Business applies a policy of treating transactions with minority interests as transactions with parties external to the PCB Business. Disposals to minority interests result in gains and losses for the PCB Business that are recorded in the combined income statement. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary.
 
(b)   Property, plant and equipment
 
Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditures that are directly attributable to the acquisition of the items.
 
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the PCB Business and the cost of the item can be measured reliably. All other repairs and maintenance are charged in the combined income statement during the financial period in which they are incurred.


F-14


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
Depreciation of property, plant and equipment is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, which are summarised as follows:
 
     
Buildings
  22 - 25 years
Leasehold improvements
  22 - 25 years
Furniture and equipment
  5 - 6 years
Plant, machinery and equipment
  10 - 12 years
Motor vehicles
  5 - 6 years
 
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of reporting period.
 
Construction in progress represents buildings or leasehold improvements on which construction work has not been completed and plant, machinery and equipment pending installation. It is carried at cost which includes construction expenditures and other direct costs less any impairment losses. On completion, construction in progress is transferred to the appropriate categories of property, plant and equipment at cost less accumulated impairment losses. No depreciation is provided for construction in progress until they are completed and available for use.
 
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
 
Gains and losses on disposals are determined by comparing proceeds with carrying amount and are charged to the combined income statement.
 
(c)   Intangible assets
 
(i)  Goodwill
 
Goodwill represents the excess of the cost of an acquisition over the fair value of the PCB Business’ share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is tested for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Impairment losses on goodwill are not reversed.
 
Goodwill is allocated to cash-generating units (“CGUs”) for the purpose of impairment testing. The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arised.
 
(ii)  Technologies fee
 
The technologies fee is shown at historical cost. The technologies fee has a definite useful life and is carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of technologies fee over its estimated useful life of 10 years.
 
(iii)  Customer relationship
 
Customer relationship represents the fair value attributable to customer base or existing contractual bids with customers taken over as a result of business combination. Amortisation is calculated using the straight-line method over the estimated useful life of 10 years.


F-15


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
(d)   Trade and other receivables
 
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the PCB Business will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The carrying amount of the assets is reduced through the use of an allowance account, and the amount of the loss is recognised in the combined income statement within selling and distribution expenses. When a receivable is uncollectible, it is written off against the allowance account for receivables. Subsequent recoveries of amounts previously written off are credited against selling and distribution expenses in the combined income statement.
 
(e)   Impairment of non-financial assets
 
Non-financial assets that have an indefinite useful life or are not yet available for use are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.
 
The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (CGUs). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
 
(f)   Available-for-sale financial assets
 
Available-for-sale financial assets are non-derivative financial assets. They are included in non-current assets unless management intends to dispose of the investment within twelve months of the end of reporting period. Available-for-sale financial assets are stated initially at fair value plus transaction costs and subsequently carried at fair value.
 
Changes in fair value of monetary securities denominated in a foreign currency and classified as available-for-sale are analysed between translation differences resulting from changes in amortised costs of the security and other changes in the carrying amount of the security. The translation differences on monetary securities are recognised in the income statement and the translation differences on non-monetary securities are recognised in equity. Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognised in equity.
 
Interest on available-for-sale securities calculated using the effective interest method is recognised in the combined income statement. Dividends on available-for-sale equity instruments are recognised in the combined income statement when the PCB Business’ right to receive payments is established.
 
If the market for a financial asset is not active (and for unlisted securities), the PCB Business establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis and option pricing models, making maximum use of market inputs and relying as little as possible on entity-specific inputs.
 
The PCB Business assesses at the end of reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial asset, the cumulative loss — measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that


F-16


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
financial asset previously recognised in profit or loss — is removed from equity and recognised in the combined income statement. Impairment losses recognised in the combined income statement on equity instruments are not reversed through the combined income statement.
 
(g)   Inventories
 
Inventories are stated at the lower of cost and net realisable value. Cost, calculated on the weighted average basis, comprises materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
 
(h)   Operating leases
 
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are expensed in the combined income statement on a straight line basis over the period of the lease.
 
(i)   Borrowings
 
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the combined income statement over the period of the borrowings using the effective interest method.
 
Borrowing costs directly attributable to the acquisition and construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Borrowing costs capitalised are either the actual costs incurred on a specific borrowing or an amount calculated using the weighted average method, considering all borrowing costs incurred on general borrowings outstanding. Other borrowing costs are expensed.
 
Borrowings are classified as current liabilities unless the PCB Business has an unconditional right to defer settlement of the liability for at least twelve months after the end of reporting period.
 
(j)   Derivative financial instruments and hedging activities
 
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The PCB Business designates certain derivatives as either: (i) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge) or (ii) hedges of highly probable forecast transactions (cash flow hedges).
 
The PCB Business documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The PCB Business also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
 
(i)  Fair value hedge
 
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the combined income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.


F-17


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised through the income statement over the period to maturity.
 
(ii)  Cash flow hedge
 
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the combined income statement.
 
Amounts accumulated in hedging reserve are recognised in the combined income statement in the periods when the hedged item affects profit or loss. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, property, plant and equipment), the gains and losses previously deferred in hedging reserve are transferred from hedging reserve and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised as depreciation in case of property, plant and equipment.
 
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in hedging reserve at that time remains in hedging reserve and is recognised when the forecast transaction is ultimately recognised in the combined income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in hedging reserve is immediately transferred to the combined income statement.
 
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of these derivative instruments are recognised immediately in the combined income statement.
 
(k)   Current and deferred income tax
 
The tax expense for the year comprises current and deferred tax. Tax is recognised in the combined income statement.
 
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of reporting period in the countries where the PCB Business operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
 
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the combined financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination and at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
 
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
 
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the PCB Business and it is probable that the temporary difference will not reverse in the foreseeable future.


F-18


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
(l)   Cash and cash equivalents
 
Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position.
 
(m)   Trade payables
 
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
 
(n)   Provisions
 
Provisions are recognised when the PCB Business has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.
 
Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses.
 
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.
 
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.
 
(o)   Employee benefits
 
(i)  Employee leave entitlements
 
Employee entitlements to annual and long service leaves are recognised when they accrue to employees. Provisions are made for the estimated liability for annual leave and long service leave as a result of services rendered by employees up to the end of reporting period.
 
(ii)  Retirement benefits
 
The PCB Business pays contributions to separate trustee-administered funds on a mandatory basis. The PCB Business has no further payment obligation once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due and are not reduced by contributions forfeited by those employees who leave the scheme prior to vesting fully in the contribution.
 
The PCB Business’ employees in mainland China are covered by various government sponsored pension plans. These government agencies are responsible for the pension liabilities to these employees. The relevant PCB Business companies pay monthly contributions to these pension plans based on certain percentages of the salaries, subject to a certain ceiling. Under these plans, the PCB Business has no legal or constructive obligation to make further payments once the required contributions have been paid. Contributions to these plans are expensed as incurred.
 
The PCB Business’ overseas employees are entitled to participate in a number of defined contribution pension schemes, the assets of which are generally held in separate trustee-administered funds. The pension schemes are generally funded by payments from employees and by the relevant group companies.


F-19


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
(iii)  Bonus plans
 
Provisions for bonus plan due wholly within twelve months after end of reporting period are recognised where contractually obliged or where there is a past practice that has created a constructive obligation.
 
(iv)  Share-based compensation
 
For shares granted to the employees, the fair value of the employee services received in exchange for the grant of the shares is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the shares granted. At the end of reporting period, the PCB Business revises its estimates of the number of shares that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the combined income statement, with a corresponding adjustment to equity.
 
(v)  Other benefits
 
The PCB Business’ employees in mainland China are also entitled to participate in various government sponsored medical insurance plan and housing funds. The relevant group companies pay monthly contributions to these funds based on certain percentages of the salaries. The PCB Business’ liability in respect of these funds is limited to the contributions paid. Contributions to these plans are expensed as incurred.
 
(p)   Government grants
 
Grants from government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the PCB Business will comply with all attached conditions.
 
Government grants relating to costs are deferred and recognised in the combined income statement over the period necessary to match them with the costs that they are intended to compensate.
 
(q)   Financial liabilities — put option
 
Financial liabilities are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. The accretion of the discount on the financial liability should be recognised as finance costs in the combined income statement. Adjustments to the liability for the contingent consideration other than accretion of discount are recognised against goodwill, including revision of cash flow estimates.
 
(r)   Revenue recognition
 
Revenue comprises the fair value of the consideration received or receivable for the sale of goods in the ordinary course of the PCB Business’ activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the PCB Business.
 
Sales of goods are recognised when a group entity has delivered products to the customer, the customer has accepted the products and collectibility of related receivables is reasonably assured.
 
Rental income is recognised in the combined income statement on a straight-line basis over the term of the lease.
 
Dividend income is recognised when the right to receive payment is established.
 
(s)   Interest income
 
Interest income is recognised on a time proportion basis, using the effective interest method.


F-20


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
(t)   Foreign currency translation
 
(i)  Functional and presentation currency
 
Items included in the financial statements of each of the PCB Business’ entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The combined financial statements are presented in Hong Kong dollars.
 
(ii)  Transactions and balances
 
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the combined income statement, except when deferred in equity as qualifying cash flow hedges.
 
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the combined income statement within interest income or finance cost. All other foreign exchange gains and losses are presented in the combined income statement within other income.
 
Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the security, and other changes in the carrying amount of the security. Translation differences related to changes in the amortised cost are recognised in profit or loss, and other changes in the carrying amount are recognised in equity.
 
Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale are included in the available-for-sale reserve in equity.
 
(iii)  Group companies
 
The results and financial position of all the entities within the PCB Business (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
 
(i)  assets and liabilities for each statement of financial position presented are translated at the closing rate at the end of reporting period;
 
(ii)  income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
 
(iii)  all resulting exchange differences are recognised as a separate component of equity.
 
On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to owners’ equity. When a foreign operation is partially disposed of or sold, such exchange differences that were recorded in equity are recognised in the combined income statement as part of the gain or loss on sale.
 
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.


F-21


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
(u)   Dividend distribution
 
Dividend distribution to the PCB Business’ shareholders is recognised as a liability in the PCB Business’ combined financial statements in the period in which the dividends are approved by the PCB Business’ shareholders.
 
3  Financial risk management
 
(a)   Financial risk factors
 
The PCB Business’ activities expose it to a variety of financial risks: foreign exchange risk, credit risk, liquidity risk and cash flow and fair value interest-rate risk. The PCB Business’ overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the PCB Business’ financial performance. The PCB Business uses derivative financial instruments to hedge certain risk exposures.
 
(i)  Foreign exchange risk
 
The PCB Business operates principally in Hong Kong and mainland China and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US Dollar (“US$”) and Renminbi (“RMB”). Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. The PCB Business attempts to minimise its foreign exchange risk exposure through payment of operating costs and maintenance of borrowings at a balanced mix of major currencies.
 
In addition, the conversion of RMB into foreign currencies is subject to the rules and regulations of the foreign exchange controls promulgated by the Chinese government.
 
The PCB Business has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the PCB Business’ foreign operations is managed primarily through borrowings denominated in the relevant foreign currencies.
 
If RMB had weakened/strengthened by 3.5%, 5.0%, 4.0% and 0.1% against the Hong Kong Dollar (“HK$”) with all other variables held constant, post-tax profit for the year/period would have been HK$9,852,000, HK$26,400,000, HK$19,875,000 and HK$142,000 higher/lower respectively for the years ended 31 December 2006, 2007, 2008 and nine months ended 30 September 2009, mainly as a result of foreign exchange losses/gains on translation of RMB-denominated trade receivables and foreign exchange gains/losses on translation of RMB-denominated trade payables and borrowings.
 
If US$ had weakened/strengthened by 0.2%, 0.4%, 0.7% and 0.1% against the HK$ with all other variables held constant, post-tax profit for the year/period would have been HK$634,000 HK$3,092,000, HK$13,817,000 and HK$2,026,000 higher/lower respectively for the years ended 31 December 2006, 2007, 2008 and nine months ended 30 September 2009, mainly as a result of foreign exchange losses/gains on translation of US$-denominated trade receivables and foreign exchange gains/losses on translation of US$-denominated borrowings. Equity would have been nil, nil, nil and approximately HK$22,000 lower/higher respectively at 31 December 2006, 2007, 2008 and 30 September 2009.
 
(ii)  Credit risk
 
The credit risk of the PCB Business mainly arises from bank balances, amounts due from fellow subsidiaries, a related party and debtors. The carrying amounts of these balances represent the PCB Business’ maximum exposure to credit risk in relation to financial assets. As at 31 December 2006, 2007, 2008 and 30 September 2009, all the bank deposits are deposited in high quality financial institutions without significant credit risk.


F-22


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
The table below shows the bank deposit balances of the five major banks as at 31 December 2006, 2007, 2008 and 30 September 2009. Management does not expect any losses from non-performance by these banks. The PCB Business has no policy to limit the amount of credit exposure to any financial institution.
 
                                     
                          At
 
        At 31 December     30 September
 
Counterparty
  Rating(i)   2006     2007     2008     2009  
        HK$’000     HK$’000     HK$’000     HK$’000  
 
Bank 1
  Aa1     45,354       142,397       243,428       194,832  
Bank 2
  Aa3     2,659       5,675       145,230       113,020  
Bank 3
  A1     66,902       106,732       144,979       184,715  
Bank 4
  A1     19,941       53,555       137,950       137,158  
Bank 5
  Baa1     —       —       —       82,654  
Bank 6
  A1     10,771       76,187       104,461       —  
                                     
          145,627       384,546       776,048       712,379  
                                     
 
 
Note (i):  The source of current credit rating is from Moody’s.
 
In relation to the credit risk to debtors, the PCB Business has delegated a credit control team to be responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts in order to minimise the credit risk. In addition, the PCB Business reviews the recoverable amount of each individual trade debt at the end of each reporting period to ensure that adequate impairment losses are made for irrecoverable amounts.
 
As at 31 December 2006, 2007, 2008 and 30 September 2009, the credit quality of financial assets which include bank balances, amounts due from fellow subsidiaries, a related party and debtors are neither past due nor impaired by making reference to the counterparty’s default history. The trade debtors have no history of default in recent years.
 
(iii)  Liquidity risk
 
Cash flow forecasting is performed in the operating entities of the combined group and aggregated by Group finance. Group finance monitors rolling forecast of the PCB Business’ liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or covenants on any of its borrowing facilities. Such forecasting takes into consideration the PCB Business’ debt financing plans, covenant compliance and external regulatory or legal requirements, for example, currency restrictions.


F-23


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
Surplus cash held by the operating entities over and above balance required for working capital management are transferred to the PCB Business’ treasury. The PCB Business’ treasury invests surplus cash in interest bearing current accounts and time deposits to provide sufficient headroom as determined by the above-mentioned forecasts. The table below analyses the PCB Business’ financial assets held at 30 September 2009 for managing liquidity risk.
 
                                         
          Between
    Between
             
    Within 1
    1 and 2
    2 and
    Over
       
    Year     Years     5 Years     5 Years     Total  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
 
At 30 September 2009
                                       
Loan to a fellow subsidiary
    —       10,076       —       —       10,076  
Amounts due from fellow subsidiaries
    13,889       —       —       —       13,889  
Debtors
    958,917       —       —       —       958,917  
Cash and bank balances
    840,615       —       —       —       840,615  
                                         
      1,813,421       10,076       —       —       1,823,497  
                                         
 
The table below analyses the PCB Business’ financial liabilities into relevant maturity groupings based on the remaining period at the end of reporting period to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows, except for the non-interest bearing current liabilities, which are disclosed at their fair values. The difference between the amounts disclosed on the combined statement of financial positions and the table below represents interest elements that have been included in borrowings and long-term other payables which are calculated based on the amounts of the borrowings and long-term other payables held at 31 December 2006, 2007, 2008 and 30 September 2009 without taking into account of future issues and a floating-rate interest which is estimated using applicable interest rate at respective end of reporting period.
 
                                         
          Between
    Between
             
    Within 1
    1 and 2
    2 and
    Over
       
    Year     Years     5 Years     5 Years     Total  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
 
At 31 December 2006
                                       
Creditors and accruals
    711,257       —       —       —       711,257  
Amounts due to fellow subsidiaries
    66,454       —       —       —       66,454  
Amount due to a related party
    417,859       —       —       —       417,859  
Amount due to a minority shareholder
    119,918       —       —       —       119,918  
Amount due to a subsidiary of a minority shareholder
    10,716       —       —       —       10,716  
Borrowings
    966,642       275,241       456,377       —       1,698,260  
                                         
      2,292,846       275,241       456,377       —       3,024,464  
                                         
At 31 December 2007
                                       
Creditors and accruals
    1,270,757       —       —       —       1,270,757  
Amounts due to fellow subsidiaries
    99,838       —       —       —       99,838  
Amount due to immediate holding company
    290,000       —       —       —       290,000  
Amount due to a minority shareholder
    173,677       —       —       —       173,677  
Amount due to a subsidiary of a minority shareholder
    5,040       —       —       —       5,040  
Borrowings
    1,000,902       510,385       1,292,972       —       2,804,259  
Financial liabilities
    —       —       —       393,823       393,823  
Long-term other payables
    2,482       6,081       124,020       —       132,583  
                                         
      2,842,696       516,466       1,416,992       393,823       5,169,977  
                                         


F-24


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
                                         
          Between
    Between
             
    Within 1
    1 and 2
    2 and
    Over
       
    Year     Years     5 Years     5 Years     Total  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
 
                                         
At 31 December 2008
                                       
Creditors and accruals
    1,388,419       —       —       —       1,388,419  
Amounts due to fellow subsidiaries
    88,481       —       —       —       88,481  
Amount due to immediate holding company
    643,961       —       —       —       643,961  
Amount due to a minority shareholder
    169,659       —       —       —       169,659  
Amount due to a subsidiary of a minority shareholder
    12,338       —       —       —       12,338  
Borrowings
    876,300       560,727       2,268,407       —       3,705,434  
Derivative financial instruments
    12,185       6,491       6,675       —       25,351  
Financial liabilities
    —       —       190,587       —       190,587  
Long-term other payables
    810       15,817       61,064       —       77,691  
                                         
      3,192,153       583,035       2,526,733       —       6,301,921  
                                         
At 30 September 2009
                                       
Creditors and accruals
    1,060,395       —       —       —       1,060,395  
Amounts due to fellow subsidiaries
    97,952       —       —       —       97,952  
Amount due to immediate holding company
    49,492       —       —       —       49,492  
Amount due to a minority shareholder
    122,334       —       —       —       122,334  
Amount due to a subsidiary of a minority shareholder
    18,251       —       —       —       18,251  
Borrowings
    690,166       1,242,236       1,797,541       —       3,729,943  
Derivative financial instruments
    8,084       6,126       2,938       —       17,148  
Financial liabilities
    —       —       196,806       —       196,806  
Long-term other payables
    21       23,267       1,780       —       25,068  
                                         
      2,046,695       1,271,629       1,999,065       —       5,317,389  
                                         
 
The table below analyses the PCB Business’ derivative financial instruments held at 30 September 2009 that will be settled on a gross basis into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.
 
                                         
          Between
    Between
             
          1 and 2
    2 and
    Over
       
    Within 1 Year     Years     5 Years     5 Years     Total  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
 
At 30 September 2009
                                       
Forward foreign exchange contracts —
cash flow hedges:
                                       
Outflow
    (5,114 )     —       (174,541 )     —       (179,655 )
Inflow
    5,517       —       196,794       —       202,311  
                                         

F-25


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
(iv)  Cash flow and fair value interest-rate risk
 
The PCB Business’ interest-rate risk mainly arises from borrowings. Borrowings issued at variable rates expose the PCB Business to cash flow interest-rate risk. Other than borrowings, the PCB Business has no significant interest-bearing assets and liabilities. Accordingly, the PCB Business’ income and operating cash flows, other than finance costs, are substantially independent of changes in market interest rates.
 
The PCB Business aims to maintain a suitable mixture of fixed rate and floating rate borrowings in order to stabilise interest costs despite rate movements. Interest rate hedging ratio is determined after taking into consideration of general market trends, the PCB Business’ cash flow patterns and interest coverage ratio. The PCB Business uses interest rate swaps to hedge exposures or to modify the interest rate characteristics of its borrowings. As at 31 December 2008 and 30 September 2009, the PCB Business has interest rate swap contracts of which it pays fixed interest rate and receives variable-interest rate to hedge certain of the PCB Business’ borrowings amounting to US$100 million.
 
The PCB Business analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions and alternative financing. Based on these scenarios, the PCB Business calculates the impact on profit and loss of a defined interest rate shift. For each simulation, the same interest rate shift is used for all currencies. The scenarios are run only for liabilities that represent the major interest-bearing positions.
 
Based on the simulations performed, the impact on profit or loss of a 10 basis-point shift would be a maximum increase of HK$1,573,000, HK$2,358,000, HK$2,455,000 and HK$2,100,000 or decrease of HK$1,573,000, HK$2,358,000, HK$2,455,000 and HK$2,100,000 for the years ended 31 December 2006, 2007, 2008 and nine months ended 30 September 2009 respectively.
 
(b)   Capital risk management
 
The PCB Business’ objectives when managing capital are to safeguard the PCB Business’ ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
 
In order to maintain or adjust the capital structure, the PCB Business will monitor the operating cash flow generated from operations and available banking facilities to match its capital expenditures and dividend outflow payments.
 
The PCB Business monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as “equity”, as shown in the combined statement of financial position.
 
The PCB Business’ strategy was to maintain a solid capital base to support the operations and development of its business in the long term. The table below analyses the PCB Business’ capital structure at 31 December 2006, 2007, 2008 and 30 September 2009:
 
                                 
                      At 30
 
    At 31 December     September
 
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Total borrowings
    1,572,836       2,587,435       3,586,243       3,564,456  
Less: cash and bank balances (Note 21)
    (164,964 )     (402,822 )     (797,874 )     (849,012 )
                                 
Net debt
    1,407,872       2,184,613       2,788,369       2,715,444  
                                 
Total capital
    631,096       1,860,055       1,776,609       2,313,896  
                                 
Gearing ratio
    223 %     117 %     157 %     117 %


F-26


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
During 2007, the decrease in the gearing ratio above resulted primarily from the increase in capital through capital contribution from immediate holding company.
 
During 2008, the increase in the gearing ratio above resulted primarily from the increase in borrowings to finance the purchases of property, plant and equipment.
 
During 2009, the decrease in the gearing ratio above resulted primarily from the increase in capital through capital contribution from immediate holding company.
 
(c)   Fair value estimation
 
Effective 1 January 2009, the PCB Business adopted the amendment to HKFRS 7 for financial instruments that are measured in the statement of financial position at fair value, this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:
 
  •  Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
 
  •  Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
 
  •  Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
 
The following table presents the PCB Business’ assets and liabilities that are measured at fair value at the end of the reporting period.
 
         
    At
 
    30 September
 
    2009  
    HK$’000  
 
Assets
       
Level 2
       
— Derivatives financial instruments
    22,796  
Level 3
       
— Available-for-sale financial asset
    17,714  
         
Total assets
    40,510  
         
Liabilities
       
Level 2
       
— Derivatives financial instruments
    15,967  
         
 
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
 
If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
 
Specific valuation techniques used to value financial instruments include:
 
(i) The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curve.


F-27


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
(ii) The fair value of forward foreign exchange contracts is determined using forward exchange rates at the end of reporting period, with the resulting value discounted back to present value.
 
(iii) Enterprise value calculation method is used to determine the fair value for the available-for-sale financial asset which uses an average of the latest two years’ earnings before interest, tax and depreciation and amortisation (“EBITDA”) extracted from the latest unaudited financial results of the security and an enterprise value multiplier of 5.5 times. The enterprise value multiplier used is within the range of the multiplier of similar companies within the same industry.
 
4  Critical accounting estimates and judgements
 
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
 
The PCB Business makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
 
(a)   Useful lives of property, plant and equipment
 
The PCB Business’ management determines the estimated useful lives and related depreciation charges for its property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions. It could change significantly as a result of technical innovations and competitors’ actions in response to severe industry cycles. Management will increase the depreciation charge where useful lives are less than previously estimated lives, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned or sold.
 
(b)   Impairment of non-financial assets
 
Property, plant and equipment, leasehold land and land use rights, and intangible assets (other than goodwill) are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, and goodwill is tested annually for impairment in accordance with accounting policy stated in Note 2(e). The recoverable amounts are determined based on value-in-use calculations or market valuations. These calculations require the use of judgements and estimates.
 
Management judgement is required in the area of asset impairment particularly in assessing: (i) whether an event has occurred that may indicate that the related asset value may not be recoverable; (ii) whether the carrying value of an asset can be supported by the recoverable amount, being the higher of fair value less costs to sell or net present value of future cash flows which are estimated based upon the continued use of the asset in the business; and (iii) the appropriate key assumptions to be applied in preparing cash flow projections including whether these cash flow projections are discounted using an appropriate rate. Changing the assumptions selected by management in assessing impairment, including the discount rates or the growth rate assumptions in the cash flow projections, could materially affect the net present value used in the impairment test and as a result affect the PCB Business’ financial position and results of operations. If there is a significant adverse change in the projected performance and resulting future cash flow projections, it may be necessary to take an impairment charge to the combined income statement.
 
(c)   Provision for impairment of trade and other receivables
 
The PCB Business makes provision for impairment of trade and other receivables based on an assessment of the recoverability of these receivables. Provisions are applied to trade and other receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of impairment of trade and


F-28


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
other receivables requires the use of judgement and estimates. Where the expectation is different from the original estimate, such difference will impact carrying value of receivables and provision for impairment losses in the period in which such estimate has been changed.
 
(d)   Net realisable values of inventories
 
Inventories are carried at the lower of cost and net realisable value. The cost of inventories is written down to net realisable value when there is an objective evidence that the cost of inventories may not be recoverable. The cost of inventories may not be recoverable if those inventories are damaged, if they have become wholly or partially obsolete, or if their selling prices have declined. The cost of inventories may also not be recoverable if the estimated costs to be incurred to make the sale have increased. The amount written off to the combined income statement is the difference between the carrying value and net realisable value of the inventories. In determining whether the cost of inventories can be recoverable, significant judgement is required. In making this judgement, the PCB Business evaluates, among other factors, the duration and extent by all means to which the amount will be recovered.
 
(e)   Present value of financial liabilities
 
The PCB Business’ management determines the estimated redemption value of the financial liabilities by using a predetermined formula based on the put option agreement described in Note 26. This formula requires the use of estimates and assumptions which are described in Note 26. Any changes in these assumptions will impact the present value determined and the amount recorded in the combined statement of financial position.
 
(f)   Allocation of corporate expenses and income
 
The PCB Business’ management specifically determines the allocation of certain general corporate expense and interest income of the Company. For those expense and income for which a specific identification method is not practicable, the expense and income are allocated based on the estimates that management considered as a reasonable reflection of the utilisation of service provided to, or benefits received by the PCB Business.
 
Corporate expenses allocated to the PCB Business mainly represented share award expenses (Note 7). For shares that are granted to the employees of the PCB Business, the related expenses are recorded based on the actual expenses of those employees. For shares which are granted to corporate level management, share award expenses are allocated based on revenue of the PCB Business to the Group. The allocation basis requires the use of judgement and estimates. Management has performed sensitivity analysis by applying different allocation basis (i.e. based on operating profit of the PCB Business to the Group) and there is no significant impact on combined income statement.
 
5  Turnover/Revenue
 
Turnover/revenue represents the sales of printed circuit boards during the year/period.


F-29


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
6  Other income
 
                                         
          Nine Months Ended
 
    Year Ended 31 December     30 September  
    2006     2007     2008     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
                      (Unaudited)        
 
Sales of scrap
    61,837       119,967       153,508       121,689       84,076  
Investment tax credits
    8,054       29,518       —       —       —  
Dividend income from available-for-sale financial asset
    —       —       —       —       1,971  
Tooling charges
    10,146       5,757       —       —       —  
Rental income from fellow subsidiaries
    2,605       959       1,282       719       508  
Negative goodwill from acquisition of minority interest in a subsidiary (Note 33(a))
    1,108       —       —       —       —  
Sundries
    3,476       5,129       4,020       2,825       5,178  
                                         
      87,226       161,330       158,810       125,233       91,733  
                                         
 
Investment tax credits represent incentives receivable as a result of the re-investment of the dividend incomes from subsidiaries in mainland China.
 
7  Share award expenses
 
In 2007, SuSih, the controlling shareholder of the Company, through its then wholly owned subsidiary Total Glory Holdings Limited (“Total Glory”), granted 120,556,000 shares from Total Glory’s shareholding in the Company to the employees and senior executives of the Company who are involved in the PCB Business so as to allow them to share in the PCB Business’ success and to incentivise and reward them.
 
Out of the total 120,556,000 shares, 93,396,000 shares are not subject to any vesting condition whereas 27,160,000 shares are subject to certain vesting condition. For the years ended 31 December 2007, 2008 and nine months ended 30 September 2008 and 2009, out of the 27,160,000 shares which are subject to vesting condition, nil, 4,557,000, 4,044,000 (unaudited) and 5,014,000 shares were forfeited and returned to Total Glory respectively. Based on the offer price of HK$2.25 per share, share award expenses of approximately nil, HK$5.3 million, HK$4.8 million (unaudited) and HK$0.1 million were credited to the combined income statement for the years ended 31 December 2007, 2008 and for the nine months ended 30 September 2008 and 2009 respectively as a result of forfeiture. In addition, those granted shares which are subject to vesting conditions and based on the offer price of HK$2.25 per share, net share award expenses of HK$16.0 million, HK$10.6 million, HK$8.4 million (unaudited) and HK$9.9 million were charged to the combined income statement for the years ended 31 December 2007, 2008 and nine months ended 30 September 2008 and 2009 respectively.
 
In respect of 93,396,000 shares granted in 2007 which are not subject to any vesting condition, all of them were vested in 2007 and HK$210.1 million was charged to the combined income statement for the year ended 31 December 2007. No share award expense was charged to the combined income statement for the year ended 31 December 2008 and nine months ended 30 September 2008 and 2009 in relation to those granted shares which are not subject to any vesting condition.
 
For the share award expenses charged for the years ended 31 December 2007 and 2008 and nine months ended 30 September 2008 and 2009, corresponding amounts were credited as an employee share-based compensation reserve under equity in the financial statements of the PCB Business.


F-30


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
8  Employee benefit expenses
 
                                         
          Nine Months Ended
 
    Year Ended 31 December     30 September  
    2006     2007     2008     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
                      (Unaudited)        
 
Wages and salaries
    362,590       532,879       691,296       516,392       515,640  
Share award expenses (Note 7)
    —       226,097       10,601       8,404       9,897  
Retirement benefit costs
    16,556       19,420       27,860       20,036       18,295  
                                         
      379,146       778,396       729,757       544,832       543,832  
                                         
 
The PCB Business participates in employee social security plans, including pension, medical and other welfare benefits organised by the municipal government in mainland China in accordance with relevant regulations. Contributions are calculated based on certain percentages of the total salary costs of employees, subject to certain ceilings. The assets of the plans are held separately by the municipal government, which is responsible for the entire pension obligations payable to the retired employees. The PCB Business has no other obligations except for making these specific contributions to the plans.
 
The PCB Business also operates a defined contribution scheme in accordance with the requirements of the Mandatory Provident Fund Ordinance for all eligible employees in Hong Kong. Contributions to the scheme are calculated based on certain percentage of the applicable salary costs or pre-determined fixed sums. The assets of the scheme are held under separate independent trust funds.


F-31


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
9  Expenses by nature
 
                                         
          Nine Months Ended
 
    Year Ended 31 December     30 September  
    2006     2007     2008     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
                      (Unaudited)        
 
Raw materials and consumables used
    1,398,859       2,049,998       2,600,715       2,001,482       1,747,408  
Employee benefit expenses (Note 8)
    379,146       778,396       729,757       544,832       543,832  
Amortisation of intangible assets
    1,170       1,337       2,991       2,513       878  
Amortisation of leasehold land and land use rights
    1,876       2,167       3,600       2,688       2,730  
Depreciation of property, plant and equipment
    200,264       278,664       420,885       309,313       363,980  
Impairment of property, plant and equipment
    —       10,612       —       —       5,419  
Impairment of intangible assets
    55       —       19,860       —       —  
(Gain)/loss on disposal of property, plant and equipment
    (780 )     2,563       19,493       6,540       735  
Provision for/(written-back of) bad and doubtful debts
    15,818       6,590       (1,659 )     2,754       2,253  
Provision for/(written-back of) inventories
    12,264       12,572       6,646       5,550       (2,315 )
Management fee expense to a related party (Note 34(g))
    5,000       —       —       —       —  
Sales commission
    12,113       12,890       17,038       15,324       6,189  
Subcontracting expenses
    79,688       82,568       98,987       77,515       27,413  
Auditor’s remuneration
    2,439       4,024       4,843       3,255       3,299  
Operating lease rental expense — Land and buildings
    3,005       4,645       6,036       4,438       3,708  
Net exchange (gain)/loss
    (18,964 )     (68,349 )     (152,479 )     (154,049 )     11,014  
Others
    417,813       598,356       926,067       662,452       578,345  
                                         
Total cost of sales, selling and distribution expenses, general and administrative expenses and share award expenses
    2,509,766       3,777,033       4,702,780       3,484,607       3,294,888  
                                         
 
10  Interest income
 
                                         
          Nine Months Ended
 
    Year Ended 31 December     30 September  
    2006     2007     2008     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
                      (Unaudited)        
 
Interest income from banks
    2,128       9,786       4,780       3,509       1,269  
Interest income from fellow subsidiaries
    —       6,683       12,660       9,501       3,923  
Interest income from related parties
    3,743       —       —       —       —  
Interest income from deposits relating to share subscription during the Listing
    —       12,038       —       —       —  
                                         
      5,871       28,507       17,440       13,010       5,192  
                                         


F-32


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
11  Finance costs
 
                                         
          Nine Months Ended
 
    Year Ended 31 December     30 September  
    2006     2007     2008     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
                      (Unaudited)        
 
Interest expenses on bank loans, overdrafts and other short-term loans wholly repayable within five years
    77,776       104,311       138,260       97,732       69,346  
Less: amounts capitalised in property, plant and equipment (Note)
    —       —       (24,777 )     (17,367 )     (12,274 )
                                         
      77,776       104,311       113,483       80,365       57,072  
Interest expense to a fellow subsidiary
    198       —       —       —       —  
Interests on accretion of discount of financial liabilities
    —       —       15,876       14,138       6,687  
                                         
      77,974       104,311       129,359       94,503       63,759  
                                         
 
Note:
 
Interest expenses of approximately HK$24,777,000, HK$17,367,000 (unaudited) and HK$12,274,000 arising on borrowings for the construction and acquisition of qualifying assets were capitalised during the year ended 31 December 2008 and nine months period ended 30 September 2008 and 2009 and are included in ‘Additions’ under property, plant and equipment. There was no such item in 2006 and 2007. A capitalisation rate of approximately 3.9%, 3.8% (unaudited) and 2.0% per annum was used for the year ended 31 December 2008 and nine months ended 30 September 2008 and 2009, representing the interest rate of the loans used to finance the projects.
 
12  Income tax expense
 
The amounts of taxation charged to the combined income statement represent:
 
                                         
          Nine Months Ended
 
    Year Ended 31 December     30 September  
    2006     2007     2008     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
                      (Unaudited)        
 
Current income tax
                                       
— Hong Kong profits tax
    3,456       (139 )     138       1,160       —  
— Overseas taxation
    44,875       73,472       78,676       89,706       59,658  
Deferred income tax (Note 25)
    (6,754 )     (9,140 )     (5,919 )     (13,939 )     (14,656 )
                                         
      41,577       64,193       72,895       76,927       45,002  
                                         
 
Taxation has been provided at the appropriate tax rates prevailing in the countries in which the PCB Business operates. Hong Kong profits tax has been provided at the rate of 17.5%, 17.5%, 16.5%, 16.5% and 16.5% on the estimated assessable profit for the years ended 31 December 2006, 2007 and 2008 and nine months ended 30 September 2008 and 2009 respectively. The rates applicable for income tax in mainland China are 33%, 33%, 25%, 25% and 25% for the years ended 31 December 2006, 2007, 2008 and nine months ended 30 September 2008 and 2009 respectively. Certain subsidiaries established in mainland China are entitled to exemption and concessions from income tax under tax holidays. Income tax was calculated at rates given under the concessions.


F-33


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
The new Corporate Income Tax Law increases the corporate income tax rate for foreign investment enterprises from previous preferential rates to 25% with effect from 1 January 2008. Companies established in mainland China before 16 March 2007 and previously taxed at the rate lower than 25% may be offered a gradual increase of tax rate to 25% within 5 years.
 
Certain subsidiaries of the PCB Business established in mainland China will enjoy preferential income tax rate from 2008 to 2011 and be taxed at the rate of 25% from 2012 or when the preferential treatment expires.
 
The taxation of the PCB Business’ profit before income tax differs from the theoretical amount that would arise using the applicable tax rate, being the weighted average of tax rates prevailing in the territories in which the PCB Business operates, as follows:
 
                                         
          Nine Months Ended
 
    Year Ended 31 December     30 September  
    2006     2007     2008     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
                      (Unaudited)        
 
Profit before income tax
    344,130       417,131       556,548       489,345       243,667  
                                         
Tax calculated at domestic applicable tax rate
    117,565       166,417       134,385       118,105       63,866  
Effect of change in tax rate
    —       (10,940 )     (14,200 )     (157 )     —  
Effect of relief on income tax
    (87,636 )     (136,263 )     (40,090 )     (45,866 )     (59,090 )
Expenses not deductible for taxation purposes
    42,209       51,338       40,228       39,496       30,806  
Income not subject to taxation
    (33,511 )     (27,645 )     (51,196 )     (43,442 )     (10,518 )
Unrecognised tax loss utilised during the year/period
    —       (2,128 )     (1,086 )     (4,678 )     (3,379 )
Tax losses for which no deferred tax recognised
    2,950       23,414       4,854       13,469       23,317  
                                         
Income tax expense
    41,577       64,193       72,895       76,927       45,002  
                                         
Weighted average domestic applicable tax rate
    34.2 %     39.9 %     24.1 %     24.1 %     26.2 %
                                         
 
The change in weighted average domestic applicable tax rates above is mainly caused by a change in mix of profit earned in different tax jurisdictions and changes in respective tax rates as mentioned above.
 
13  Dividend
 
                                         
        Nine Months Ended
    Year Ended 31 December   30 September
    2006   2007   2008   2008   2009
    HK$’000   HK$’000   HK$’000   HK$’000   HK$’000
                (Unaudited)    
 
Dividend paid
    —       290,000       600,100       600,100       —  
                                         


F-34


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
14  Property, plant and equipment
 
                                                         
                Furniture
    Plant,
                   
          Leasehold
    and
    Machinery and
    Motor
    Construction in
       
    Buildings     Improvements     Equipment     Equipment     Vehicles     Progress     Total  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
 
At 1 January 2006
                                                       
Cost
    481,039       15,413       80,810       1,518,764       17,197       83,461       2,196,684  
Accumulated depreciation and accumulated impairment
    (91,345 )     (7,096 )     (39,813 )     (646,840 )     (11,489 )     —       (796,583 )
                                                         
Net book amount
    389,694       8,317       40,997       871,924       5,708       83,461       1,400,101  
                                                         
Year ended 31 December 2006
                                                       
Opening net book amount
    389,694       8,317       40,997       871,924       5,708       83,461       1,400,101  
Exchange differences
    13,055       —       1,063       38,848       179       3,255       56,400  
Additions
    9,166       411       15,811       220,148       2,933       394,813       643,282  
Disposals
    (823 )     (1,913 )     (222 )     (2,862 )     (25 )     (2 )     (5,847 )
Depreciation
    (24,683 )     (1,151 )     (11,881 )     (160,328 )     (2,221 )     —       (200,264 )
Reclassification
    12,873       —       6,733       349,587       —       (369,193 )     —  
                                                         
Closing net book amount
    399,282       5,664       52,501       1,317,317       6,574       112,334       1,893,672  
                                                         
At 31 December 2006
                                                       
Cost
    517,253       10,298       100,302       2,081,859       18,801       112,334       2,840,847  
Accumulated depreciation and accumulated impairment
    (117,971 )     (4,634 )     (47,801 )     (764,542 )     (12,227 )     —       (947,175 )
                                                         
Net book amount
    399,282       5,664       52,501       1,317,317       6,574       112,334       1,893,672  
                                                         
Year ended 31 December 2007
                                                       
Opening net book amount
    399,282       5,664       52,501       1,317,317       6,574       112,334       1,893,672  
Exchange differences
    30,448       —       4,422       106,264       393       36,852       178,379  
Additions
    8,276       91       20,762       292,816       4,024       892,351       1,218,320  
Addition through business combinations
    160,233       —       4,998       298,651       127       362,241       826,250  
Disposals
    (164 )     —       (129 )     (5,027 )     —       (613 )     (5,933 )
Depreciation
    (29,551 )     (92 )     (28,273 )     (217,959 )     (2,789 )     —       (278,664 )
Reclassification
    28,338       562       49,845       156,052       —       (234,797 )     —  
Impairment
    —       —       (579 )     (10,033 )     —       —       (10,612 )
                                                         
Closing net book value
    596,862       6,225       103,547       1,938,081       8,329       1,168,368       3,821,412  
                                                         
 


F-35


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
                                                         
                Furniture
    Plant,
                   
          Leasehold
    and
    Machinery and
    Motor
    Construction in
       
    Buildings     Improvements     Equipment     Equipment     Vehicles     Progress     Total  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
 
At 31 December 2007
                                                       
Cost
    752,116       10,937       221,491       2,901,088       21,590       1,168,368       5,075,590  
Accumulated depreciation and accumulated impairment
    (155,254 )     (4,712 )     (117,944 )     (963,007 )     (13,261 )     —       (1,254,178 )
                                                         
Net book amount
    596,862       6,225       103,547       1,938,081       8,329       1,168,368       3,821,412  
                                                         
Year ended 31 December 2008
                                                       
Opening net book amount
    596,862       6,225       103,547       1,938,081       8,329       1,168,368       3,821,412  
Exchange differences
    41,027       —       5,245       122,414       353       46,731       215,770  
Additions
    6,323       85       17,640       59,314       3,406       1,260,856       1,347,624  
Disposals
    (19,054 )     —       (116 )     (1,385 )     (118 )     (1,470 )     (22,143 )
Depreciation
    (41,354 )     (140 )     (35,787 )     (340,399 )     (3,205 )     —       (420,885 )
Reclassification
    436,130       —       17,721       750,000       —       (1,203,851 )     —  
                                                         
Closing net book amount
    1,019,934       6,170       108,250       2,528,025       8,765       1,270,634       4,941,778  
                                                         
At 31 December 2008
                                                       
Cost
    1,217,579       11,022       263,912       3,850,084       25,424       1,270,634       6,638,655  
Accumulated depreciation and accumulated impairment
    (197,645 )     (4,852 )     (155,662 )     (1,322,059 )     (16,659 )     —       (1,696,877 )
                                                         
Net book amount
    1,019,934       6,170       108,250       2,528,025       8,765       1,270,634       4,941,778  
                                                         
Nine months ended 30 September 2009
                                                       
Opening net book amount
    1,019,934       6,170       108,250       2,528,025       8,765       1,270,634       4,941,778  
Exchange differences
    590       —       20       1,701       2       499       2,812  
Additions
    3,866       5       20,650       8,410       446       235,646       269,023  
Disposals
    —       —       (239 )     (186 )     (2,680 )     (508 )     (3,613 )
Depreciation
    (44,664 )     (116 )     (31,081 )     (285,680 )     (2,439 )     —       (363,980 )
Reclassification
    95,272       —       8,869       208,930       —       (313,071 )     —  
Impairment
    —       —       —       —       —       (5,419 )     (5,419 )
                                                         
Closing net book value
    1,074,998       6,059       106,469       2,461,200       4,094       1,187,781       4,840,601  
                                                         
At 30 September 2009
                                                       
Cost
    1,317,440       11,027       292,383       4,068,360       21,491       1,193,200       6,903,901  
Accumulated depreciation and accumulated impairment
    (242,442 )     (4,968 )     (185,914 )     (1,607,160 )     (17,397 )     (5,419 )     (2,063,300 )
                                                         
Net book amount
    1,074,998       6,059       106,469       2,461,200       4,094       1,187,781       4,840,601  
                                                         

F-36


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
Depreciation expenses for years ended 31 December 2006, 2007 and 2008 and nine months ended 30 September 2008 and 2009 have been charged to the combined income statement as below:
 
                                         
          Nine Months Ended
 
    Year Ended 31 December     30 September  
    2006     2007     2008     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
                      (Unaudited)        
 
Cost of sales
    186,799       261,906       397,621       294,655       329,683  
Selling and distribution expenses
    3,472       3,550       3,678       2,750       2,981  
General and administrative expenses
    9,993       13,208       19,586       11,908       31,316  
                                         
      200,264       278,664       420,885       309,313       363,980  
                                         
 
Impairment loss of approximately nil, HK$10,612,000, nil, nil (unaudited) and HK$5,419,000 has been charged to general and administrative expenses for the years ended 31 December 2006, 2007, 2008 and nine months ended 30 September 2008 and 2009 respectively.
 
15  Leasehold land and land use rights
 
The PCB Business’ interest in leasehold land and land use rights represents prepaid operating lease payments and their net book values are analysed as follows:
 
                                 
                      At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Beginning of the year/period
                               
Cost
    66,825       91,856       154,548       162,933  
Accumulated amortisation
    (6,750 )     (8,811 )     (11,506 )     (15,677 )
                                 
Net book amount
    60,075       83,045       143,042       147,256  
                                 
Opening net book amount
    60,075       83,045       143,042       147,256  
Exchange differences
    2,373       6,271       7,814       41  
Additions
    22,473       —       —       —  
Acquisition through business combination (Note 33(b))
    —       55,893       —       —  
Amortisation
    (1,876 )     (2,167 )     (3,600 )     (2,730 )
                                 
Closing net book amount
    83,045       143,042       147,256       144,567  
                                 
End of the year/period
                               
Cost
    91,856       154,548       162,933       162,981  
Accumulated amortisation
    (8,811 )     (11,506 )     (15,677 )     (18,414 )
                                 
Net book amount
    83,045       143,042       147,256       144,567  
                                 


F-37


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
Amortisation expenses for years ended 31 December 2006, 2007 and 2008 and nine months ended 30 September 2008 and 2009 have been charged to the combined income statement as below:
 
                                         
          Nine Months Ended
 
    Year Ended 31 December     30 September  
    2006     2007     2008     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
                      (Unaudited)        
 
Cost of sales
    157       157       157       118       118  
General and administrative expenses
    1,719       2,010       3,443       2,570       2,612  
                                         
      1,876       2,167       3,600       2,688       2,730  
                                         
 
                                 
                      At
 
    At 31 December     30 September
 
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
In Hong Kong held on:
                               
Leases of leasehold land between 10 to 50 years
    6,371       6,213       6,056       5,938  
In mainland China held on:
                               
Leases of land use rights between 10 to 50 years
    76,674       130,673       135,325       132,851  
In India held on:
                               
Leases of land use rights between 10 to 50 years
    —       6,156       5,875       5,778  
                                 
      83,045       143,042       147,256       144,567  
                                 
 
In regards with the leasehold land and land use rights owned and occupied by the PCB Business, the PCB Business holds all of the relevant certificates of state-owned land use rights except for a piece of land in mainland China for which the net book value as at 31 December 2006, 2007 and 2008 and 30 September 2009 amounted to approximately HK$9,177,000, HK$9,637,000 and HK$10,010,000 and HK$9,850,000 respectively.


F-38


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
16  Intangible assets
 
                                         
          Technologies
    Customer
             
    Goodwill     Fee     Relationship     Others     Total  
    HK$’000
    HK$’000     HK$’000     HK$’000     HK$’000  
    (Note (i))                          
 
At 1 January 2006
                                       
Cost
    33,779       11,700       —       800       46,279  
Accumulated amortisation and accumulated impairment
    (19,724 )     (2,925 )     —       (321 )     (22,970 )
                                         
Net book amount
    14,055       8,775       —       479       23,309  
                                         
Year ended 31 December 2006
                                       
Opening net book amount
    14,055       8,775       —       479       23,309  
Exchange differences
    477       —       —       —       477  
Impairment
    (55 )     —       —       —       (55 )
Amortisation
    —       (1,170 )     —       —       (1,170 )
                                         
Closing net book amount
    14,477       7,605       —       479       22,561  
                                         
At 31 December 2006
                                       
Cost
    34,201       11,700       —       800       46,701  
Accumulated amortisation and accumulated impairment
    (19,724 )     (4,095 )     —       (321 )     (24,140 )
                                         
Net book amount
    14,477       7,605       —       479       22,561  
                                         
Year ended 31 December 2007
                                       
Opening net book amount
    14,477       7,605       —       479       22,561  
Exchange differences
    1,014       —       294       —       1,308  
Acquisition through business combination (Note 33(b))
    106,738       —       20,629       —       127,367  
Amortisation
    —       (1,170 )     (167 )     —       (1,337 )
                                         
Closing net book amount
    122,229       6,435       20,756       479       149,899  
                                         
At 31 December 2007
                                       
Cost
    141,953       11,700       20,931       800       175,384  
Accumulated amortisation and accumulated impairment
    (19,724 )     (5,265 )     (175 )     (321 )     (25,485 )
                                         
Net book amount
    122,229       6,435       20,756       479       149,899  
                                         
 


F-39


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
                                         
          Technologies
    Customer
             
    Goodwill     Fee     Relationship     Others     Total  
    HK$’000
    HK$’000     HK$’000     HK$’000     HK$’000  
    (Note (i))                          
 
Year ended 31 December 2008
                                       
Opening net book amount
    122,229       6,435       20,756       479       149,899  
Exchange differences
    9,253       —       925       —       10,178  
Impairment
    —       —       (19,860 )     —       (19,860 )
Adjustment for change in estimate of contingent consideration (Note (ii))
    (115,067 )     —       —       —       (115,067 )
Amortisation
    —       (1,170 )     (1,821 )     —       (2,991 )
                                         
Closing net book amount
    16,415       5,265       —       479       22,159  
                                         
At 31 December 2008
                                       
Cost
    36,139       11,700       22,260       800       70,899  
Accumulated amortisation and accumulated impairment
    (19,724 )     (6,435 )     (22,260 )     (321 )     (48,740 )
                                         
Net book amount
    16,415       5,265       —       479       22,159  
                                         
Nine months ended 30 September 2009
                                       
Opening net book amount
    16,415       5,265       —       479       22,159  
Exchange differences
    11       —       —       —       11  
Amortisation
    —       (878 )     —       —       (878 )
                                         
Closing net book amount
    16,426       4,387       —       479       21,292  
                                         
At 30 September 2009
                                       
Cost
    36,150       11,700       22,260       800       70,910  
Accumulated amortisation and accumulated impairment
    (19,724 )     (7,313 )     (22,260 )     (321 )     (49,618 )
                                         
Net book amount
    16,426       4,387       —       479       21,292  
                                         
 
Amortisation of approximately HK$1,170,000, HK$1,337,000, HK$2,991,000, HK$2,513,000 (unaudited) and HK$878,000 has been included in general and administrative expenses in the combined income statement for the years ended 31 December 2006, 2007, 2008 and for the nine months ended 30 September 2008 and 2009, respectively.
 
Impairment charge of approximately HK$55,000, nil, HK$19,860,000, nil (unaudited) and nil has been included in general and administrative expenses in the combined income statement for the years ended 31 December 2006, 2007, 2008 and for the nine months ended 30 September 2008 and 2009, respectively.

F-40


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
Notes:
 
(i) Impairment test for goodwill
 
Goodwill is allocated to the PCB Business’ CGUs identified according to the country of operation. The allocation by country of operation is presented below:
 
                                 
                At
    At 31 December   30 September
    2006   2007   2008   2009
    HK$’000   HK$’000   HK$’000   HK$’000
 
Mainland China
    14,477       122,229       16,415       16,426  
                                 
 
For the purposes of impairment reviews, the recoverable amount of goodwill is determined based on value-in-use calculations. The value-in-use calculations use cash flow projections based on the extrapolation of the latest unaudited financial results of each CGU to a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. There are a number of assumptions and estimates involved for the preparation of cash flow projections for the year/period.
 
Key assumptions used for value-in-use calculations for goodwill for the following five years of each of the years ended 31 December 2006, 2007, 2008 and nine months ended 30 September 2009 are presented below:
 
                                 
                At
    At 31 December   30 September
    2006   2007   2008   2009
 
Gross margin
    21.0 %     23.0 %     19.2 %     19.7 %
Growth rate
    16.8 %     20.0 %     10.0 %     10.0 %
Discount rate
    10.0 %     8.3 %     6.1 %     6.1 %
                                 
 
These assumptions have been used for the analysis of each CGU within the business segment. The directors prepared the financial budgets reflecting actual and prior year performance and market development expectations. The growth rates used are consistent with the industry growth estimates. The directors estimate discount rate using pre-tax rates that reflect market assessments of the time value of money of the PCB Business for the years ended 31 December 2006, 2007 and 2008 and nine months ended 30 September 2009. Judgement is required to determine key assumptions adopted in the cash flow projections and changes to key assumptions can significantly affect these cash flow projections.
 
(ii)  Adjustment for change in estimate of contingent consideration
 
As at 31 December 2008 and 30 September 2009, the present value of the put option which represents a contingent consideration due in 2013 in relation to the acquisition of Meadville Aspocomp (BVI) Holdings Limited (“MAH”), (previously known as Aspocomp Asia Limited (“ASPA”)) (Note 33(b)), has been decreased by approximately HK$129,000,000 and has been increased by approximately HK$3,802,000 respectively. In connection with the adjustments made for the year ended 31 December 2008, relevant goodwill has been reduced by approximately HK$115,067,000 and the excess credit of approximately HK$13,933,000 has been recognised in the combined income statement. In connection with the adjustments made for the period ended 30 September 2009, no adjustment was made to relevant goodwill and the excess credit of approximately HK$13,425,000 has been recognised in the combined income statement while an amount of approximately HK$17,226,000 has been debited to the hedging reserve in the combined statements of changes in equity.


F-41


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
17  Available-for-sale financial asset
 
                                 
                      At
 
    At 31 December     30 September
 
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Unlisted equity security
                               
Beginning of the year/period
    —       —       21,089       20,635  
Addition
    —       21,089       —       —  
Less: fair value loss recognised directly in available-for-sale financial asset reserve
    —       —       (454 )     (2,921 )
                                 
End of the year/period
    —       21,089       20,635       17,714  
                                 
 
The fair value of unlisted equity security is based on enterprise value calculation which uses an average of the latest two years’ EBITDA extracted from the latest unaudited financial results of this security and an enterprise value multiplier of 5.5 times as at 31 December 2007 and 2008 and 30 September 2009.
 
18  Inventories
 
                                 
                      At
 
    At 31 December     30 September
 
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Raw materials
    81,982       121,233       150,286       159,529  
Work in progress
    77,617       114,755       101,448       132,171  
Finished goods
    103,841       161,860       173,315       161,230  
Consumable stocks
    3,125       572       2,004       4,639  
                                 
      266,565       398,420       427,053       457,569  
                                 
 
The cost of inventories recognised as expenses and included in cost of sales is as follows:
 
                                         
        Nine Months Ended
    Year Ended 31 December   30 September
    2006   2007   2008   2008   2009
    HK$’000   HK$’000   HK$’000   HK$’000   HK$’000
                (Unaudited)    
 
Cost of inventories
    2,249,110       3,137,705       4,198,374       3,151,242       2,846,842  
                                         
 
Provision for/(written-back of) inventories amounted to approximately HK$12,264,000, HK$12,572,000, HK$6,646,000, HK$5,550,000 (unaudited) and HK$(2,315,000) which have been included in cost of sales in the combined income statement for the years ended 31 December 2006, 2007 and 2008 and the nine months ended 30 September 2008 and 2009, respectively.
 
19  Debtors and prepayments
 
                                 
                      At
 
    At 31 December     30 September
 
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Debtors
    1,019,129       1,368,801       986,983       958,917  
Prepayments and other receivables
    95,781       112,052       176,689       124,842  
                                 
      1,114,910       1,480,853       1,163,672       1,083,759  
                                 


F-42


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
The carrying amounts of debtors and prepayments approximate their fair values.
 
During the year/period, the PCB Business normally granted credit terms of 60-90 days. The ageing analysis of the debtors, based on the invoice date and net of provision, is as follows:
 
                                 
                      At
 
    At 31 December     30 September
 
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Within credit period
    753,440       906,067       718,206       786,698  
 0 - 30 days
    150,923       206,755       171,635       91,201  
31 - 60 days
    58,959       135,678       36,756       40,489  
61 - 90 days
    25,101       73,682       40,565       23,233  
Over 90 days
    30,706       46,619       19,821       17,296  
                                 
      1,019,129       1,368,801       986,983       958,917  
                                 
 
As at 31 December 2006, 2007, 2008 and 30 September 2009, debtors of approximately HK$59,315,000, HK$31,945,000, HK$40,495,000 and HK$15,237,000 were considered for impairment, of which HK$34,855,000, HK$24,596,000, HK$14,792,000 and HK$12,302,000 have been provided for as at 31 December 2006, 2007 and 2008 and 30 September 2009. The individually impaired receivables mainly relate to customers, which are in unexpected difficult economic situations. It was assessed that the remaining portion of the receivables is expected to be recovered.
 
As at 31 December 2006, 2007, 2008 and 30 September 2009, debtors of approximately HK$241,229,000, HK$455,385,000, HK$243,074,000 and HK$169,284,000 were past due but not considered impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these debtors is as follows:
 
                                 
                      At
 
    At 31 December     30 September
 
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
 0 - 30 days
    150,923       206,755       171,635       91,201  
31 - 60 days
    58,959       135,678       36,756       40,489  
61 - 90 days
    13,387       68,528       21,096       22,554  
Over 90 days
    17,960       44,424       13,587       15,040  
                                 
      241,229       455,385       243,074       169,284  
                                 
 
The carrying amounts of the PCB Business’ debtors and prepayments are denominated in the following currencies:
 
                                 
                      At
 
    At 31 December     30 September
 
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
HK$
    15,837       20,481       16,521       15,067  
US$
    466,518       680,210       559,317       633,400  
RMB
    629,256       775,858       566,283       395,482  
EUR
    2,866       2,257       21,540       32,565  
Other currencies
    433       2,047       11       7,245  
                                 
      1,114,910       1,480,853       1,163,672       1,083,759  
                                 


F-43


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
Movements on the provision for impairment of debtors are as follows:
 
                                 
                      At
 
    At 31 December     30 September
 
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Beginning of the year/period
    35,535       34,855       24,596       14,792  
Exchange differences
    773       999       484       10  
Provision for impairment of receivables
    16,935       12,060       7,318       5,125  
Receivables written off during the year/period as uncollectible
    (17,271 )     (17,848 )     (8,629 )     (4,753 )
Unused amounts reversed
    (1,117 )     (5,470 )     (8,977 )     (2,872 )
                                 
End of the year/period
    34,855       24,596       14,792       12,302  
                                 
 
The creation and release of provision for impaired receivables have been included in selling and distribution expenses in the combined income statement. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash.
 
The other classes within debtors and prepayments do not contain impaired assets.
 
The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The PCB Business does not hold any collateral as security.
 
20  Amount due to a related party
 
The amount due to a related party was unsecured, interest-free and repayable on demand. The carrying amount of the balance approximated its fair value. The amount due to a related party as at 31 December 2006 was denominated in HK$.
 
21  Cash and bank balances
 
                                 
                      At
 
    At 31 December     30 September
 
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Cash in hand
    1,955       376       406       320  
Bank balances
    163,009       402,446       797,468       848,692  
                                 
      164,964       402,822       797,874       849,012  
                                 
 
Cash and bank balances are denominated in the following currencies:
 
                                 
                      At
 
    At 31 December     30 September
 
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
HK$
    5,138       19,215       20,765       25,612  
RMB
    73,309       196,140       351,062       526,167  
US$
    73,759       133,129       382,772       270,747  
Other currencies
    12,758       54,338       43,275       26,486  
                                 
      164,964       402,822       797,874       849,012  
                                 


F-44


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
Cash and bank balances include the following:
 
                                 
                At
    At 31 December   30 September
    2006   2007   2008   2009
    HK$’000   HK$’000   HK$’000   HK$’000
 
Restricted bank balances
    1,424       3,901       5,873       8,397  
                                 
 
Some of the PCB Business’ bank balances denominated in RMB are deposited with banks in mainland China. The remittance of funds out of these bank accounts is subject to the rules and regulations of foreign exchange control by the Chinese Government.
 
22  Capital and reserves
 
                                                                 
          Available-
    Employee
                               
          for-Sale
    Share-
                               
          Financial
    Based
                               
    Capital
    Asset
    Compensation
    Hedging
    General
    Exchange
    Retained
       
    Reserve     Reserve     Reserve     Reserve     Reserve     Reserve     Earnings     Total  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
                Note (i)           Note (ii)                    
 
At 1 January 2006
    134,811       —       —       —       68,286       16,889       346,736       566,722  
Exchange differences
    —       —       —       —       336       36,801       —       37,137  
Profit for the year
    —       —       —       —       —       —       239,762       239,762  
Distribution to a shareholder
    —       —       —       —       —       —       (410,000 )     (410,000 )
Transfer
    —       —       —       —       12,773       —       (12,773 )     —  
                                                                 
At 31 December 2006
    134,811       —       —       —       81,395       53,690       163,725       433,621  
Exchange differences
    —       —       —       —       713       81,190       —       81,903  
Profit for the year
    —       —       —       —       —       —       246,094       246,094  
Capital contribution from immediate holding company
    826,612       —       —       —       —       —       —       826,612  
Shares award expenses (Note 7)
    —       —       226,097       —       —       —       —       226,097  
Dividend (Note 13)
    —       —       (226,097 )     —       —       —       (63,903 )     (290,000 )
Transfer
    —       —       —       —       48,461       —       (48,461 )     —  
                                                                 
At 31 December 2007
    961,423       —       —       —       130,569       134,880       297,455       1,524,327  
Exchange differences
    —       —       —       —       649       60,104       —       60,753  
Change in fair value of available-for-sale financial asset
    —       (454 )     —       —       —       —       —       (454 )
Profit for the year
    —       —       —       —       —       —       376,071       376,071  
Shares award expenses (Note 7)
    —       —       10,601       —       —       —       —       10,601  
Dividend (Note 13)
    —       —       (8,404 )     —       —       —       (591,696 )     (600,100 )
Transfer
    —       —       —       —       35,388       —       (35,388 )     —  
                                                                 
At 31 December 2008
    961,423       (454 )     2,197       —       166,606       194,984       46,442       1,371,198  
Exchange differences
    —       —       —       —       8       2,359       —       2,367  
Change in fair value of available-for-sale financial asset
    —       (2,921 )     —       —       —       —       —       (2,921 )
Cash flow hedge
                                                               
— Change in fair value of hedging instruments
    —       —       —       22,796       —       —       —       22,796  
— Transfer to income statement upon change in fair value of hedged items
    —       —       —       (17,226 )     —       —       —       (17,226 )
— Transfer to property, plant and equipment
    —       —       —       (178 )     —       —       —       (178 )
Profit for the period
    —       —       —       —       —       —       127,245       127,245  
Capital contribution from immediate holding company (Note 33(d))
    266,120       —       —       —       —       —       —       266,120  
Shares award expenses (Note 7)
    —       —       9,897       —       —       —       —       9,897  
Transfer
    —       —       —       —       28,183       —       (28,183 )     —  
                                                                 
At 30 September 2009
    1,227,543       (3,375 )     12,094       5,392       194,797       197,343       145,504       1,779,298  
                                                                 
 


F-45


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
                                                                 
          Available-
    Employee
                               
          for-Sale
    Share-
                               
          Financial
    Based
                               
    Capital
    Asset
    Compensation
    Hedging
    General
    Exchange
    Retained
       
    Reserve     Reserve     Reserve     Reserve     Reserve     Reserve     Earnings     Total  
    HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000     HK$’000  
                Note (i)           Note (ii)                    
 
Unaudited
                                                               
At 1 January 2008
    961,423       —       —       —       130,569       134,880       297,455       1,524,327  
Exchange differences
    —       —       —       —       717       82,358       —       83,075  
Change in fair value of available-for-sale financial asset
    —       3,564       —       —       —       —       —       3,564  
Profit for the period
    —       —       —       —       —       —       336,258       336,258  
Shares award expenses (Note 7)
    —       —       8,404       —       —       —       —       8,404  
Dividend (Note 13)
    —       —       (8,404 )     —       —       —       (591,696 )     (600,100 )
Transfer
    —       —       —       —       13,229       —       (13,229 )     —  
                                                                 
At 30 September 2008
    961,423       3,564       —       —       144,515       217,238       28,788       1,355,528  
                                                                 
 
 
 
Notes:
 
(i) The employee share-based compensation reserve relates to the share award expenses, details of which are described in Note 7.
 
(ii) As stipulated by regulations in mainland China, subsidiaries established and operated in mainland China are required to appropriate a portion of their after-tax profit (after offsetting prior year losses) to the general reserve, at rates determined by their respective boards of directors. The general reserve can be utilised to offset prior year losses or be utilised for the issuance of bonus shares. During the years ended 31 December 2006, 2007 and 2008 and nine months ended 30 September 2008 and 2009, the boards of directors of certain of the PCB Business’ entities established in mainland China appropriated an aggregate amount of approximately HK$12,773,000, HK$48,461,000, HK$35,388,000, HK$13,229,000 (unaudited) and HK$28,183,000 to the general reserve respectively.
 
23  Borrowings
 
                                 
                      At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Non-current
                               
Long-term bank loans (Note(a))
    667,600       1,679,147       2,763,230       2,954,662  
                                 
Current
                               
Current portion of long-term bank loans (Note(a))
    136,160       379,294       358,982       467,956  
Short-term bank loans (Note(b))
    727,419       528,994       438,405       141,838  
Bank overdrafts (Note(b))
    41,657       —       25,626       —  
                                 
      905,236       908,288       823,013       609,794  
                                 
 

F-46


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
                                 
                      At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Long-term bank loans
    803,760       2,058,441       3,122,212       3,422,618  
Less: current portion included under current liabilities
    (136,160 )     (379,294 )     (358,982 )     (467,956 )
                                 
Long-term portion under non-current liabilities
    667,600       1,679,147       2,763,230       2,954,662  
                                 
 
All long-term bank loans are unsecured and are repayable in equal quarterly or semi-annual instalments up to 2013. The long-term bank loans carry interests that were above Hong Kong Interbank Offered Rate, London Interbank Offered Rate or Singapore Interbank Offered Rate in the range of 0.88% — 1.20%, 0.67% — 1.20%, 0.65% — 1.50% and 0.67% — 2.00% for the years ended 31 December 2006, 2007, 2008 and for the nine months ended 30 September 2009, respectively.
 
 
(a) The carrying amounts and fair values of the long-term bank loans are as follows:
 
                                 
                      At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Long-term bank loans
                               
Carrying amounts
    803,760       2,058,441       3,122,212       3,422,618  
Fair values
    813,018       2,116,387       3,419,564       3,429,346  
                                 
 
 
The fair values of non-current borrowings are estimated based on discounted cash flow approach using the prevailing market rates of interest available to the PCB Business of 5.26%, 4.11%, 0.5% and 2.06% for financial instruments with substantially the same terms and characteristics for the years ended 31 December 2006, 2007, 2008 and for the nine months ended 30 September 2009 respectively, depending on the types and currencies of borrowings.
 
(b) The carrying amounts of the short-term bank loans and bank overdrafts approximate their fair values. All short-term bank loans are unsecured.
 
(c) The carrying amounts of bank borrowings are denominated in the following currencies:
 
                                 
                      At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
RMB
    593,846       570,494       493,893       249,634  
HK$
    437,553       1,019,000       709,644       702,693  
US$
    541,437       952,223       2,382,706       2,612,129  
EUR
    —       45,718       —       —  
                                 
      1,572,836       2,587,435       3,586,243       3,564,456  
                                 

F-47


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
 
(d) The effective interest rates (per annum) at the end of reporting periods are as follows:
 
                                 
    At 31 December 2006  
    RMB     HK$     US$     EUR  
 
Long-term loans
    5.58 %     5.03 %     6.51 %     —  
Short-term loans
    5.09 %     4.94 %     6.32 %     —  
Bank overdrafts
    5.58 %     7.75 %     —       —  
                                 
 
                                 
    At 31 December 2007  
    RMB     HK$     US$     EUR  
 
Long-term loans
    5.73 %     4.19 %     6.23 %     —  
Short-term loans
    6.34 %     4.35 %     6.02 %     5.43 %
                                 
 
                                 
    At 31 December 2008  
    RMB     HK$     US$     EUR  
 
Long-term loans
    6.36 %     4.16 %     4.33 %     —  
Short-term loans
    5.79 %     —       3.79 %     —  
Bank overdrafts
    5.10 %     —       —       —  
                                 
 
                                 
    At 30 September 2009  
    RMB     HK$     US$     EUR  
 
Long-term loans
    5.06 %     0.97 %     1.48 %     —  
Short-term loans
    4.90 %     —       —       —  
                                 
 
(e) All short-term bank loans and bank overdrafts will mature within one year. The maturity of long-term bank loans is as follows:
 
                                 
                      At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Within one year
    136,160       379,294       358,982       467,956  
Between one and two years
    241,195       451,185       525,225       1,185,760  
Between two and five years
    426,405       1,227,962       2,238,005       1,768,902  
                                 
      803,760       2,058,441       3,122,212       3,422,618  
                                 
 
 
(f) The exposure of the PCB Business’ borrowings to interest rate changes and the contractual repricing dates at the end of reporting periods are as follows:
 
                                 
                      At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Changes in interest rates
                               
— 6 months or less
    703,576       562,322       1,329,429       384,889  
— over 6 months and up to 12 months
    869,260       2,025,113       2,256,814       3,179,567  
                                 
      1,572,836       2,587,435       3,586,243       3,564,456  
                                 


F-48


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
24  Derivative financial instruments
 
                                 
                      At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Assets
                               
Forward foreign exchange contracts (Note(i))
    —       —       —       22,796  
Less: current portion included under current assets
    —       —       —       (438 )
                                 
Long-term portion under non-current assets
    —       —       —       22,358  
                                 
Liabilities
                               
Interest rate swap contracts (Note(ii))
    —       —       25,365       15,967  
Less: current portion included under current liabilities
    —       —       (8,015 )     (2,023 )
                                 
Long-term portion under non-current liabilities
    —       —       17,350       13,944  
                                 
 
 
Note:
 
(i) At 30 September 2009, the PCB Business entered into certain foreign exchange contracts to buy EUR17,523,720 and JPY48,000,000 (equivalent to approximately HK$202,311,000) in total and to sell US$23,179,838 (equivalent to approximately HK$179,655,000). These outstanding forward foreign exchange contracts were mainly entered into to hedge against the foreign exchange risk in relation to the financial liabilities denominated in EUR which will mature in 2013 and payables denominated in EUR and JPY for property, plant and equipment which will mature within twelve months from date of end of reporting period.
 
(ii) As at 31 December 2008 and 30 September 2009, the aggregate notional principal amounts of the outstanding swap contracts were HK$774,990,000 and HK$775,050,000 respectively, of which the PCB Business pays fixed interest at 2.72% or 3.43% per annum and receives variable rates to hedge against interest rate risk of the bank borrowings and will mature between 19 November 2009 and 30 July 2012.
 
25  Deferred income tax
 
Deferred income tax assets and liabilities are offset when there is legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The offset amounts are as follows:
 
                                 
                      At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Deferred tax assets:
                               
— Deferred tax assets to be recovered after more than 12 months
    (155 )     (13,124 )     (32,517 )     (42,437 )
Deferred tax liabilities:
                               
— Deferred tax liabilities to be settled after more than 12 months
    —       65,183       79,520       74,779  
                                 
Deferred tax (assets)/liabilities — net
    (155 )     52,059       47,003       32,342  
                                 


F-49


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
The gross movement of deferred income tax account is as follows:
 
                                 
                      At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Beginning of the year/period
    6,599       (155 )     52,059       47,003  
Exchange differences
    —       (58 )     863       (5 )
Recognised in the combined income statement (Note 12)
    (6,754 )     (9,140 )     (5,919 )     (14,656 )
Acquisition through business combination (Note 33(b))
    —       61,412       —       —  
                                 
End of the year/period
    (155 )     52,059       47,003       32,342  
                                 
Representing:
                               
Accelerated tax depreciation
    9,955       12,474       17,948       17,104  
Tax losses
    (10,110 )     (9,726 )     (11,034 )     (18,376 )
Valuation adjustment resulting from acquisition of a subsidiary
    —       78,203       67,633       62,104  
Decelerated tax depreciation
    —       (27,210 )     (38,043 )     (43,031 )
Others
    —       (1,682 )     10,499       14,541  
                                 
      (155 )     52,059       47,003       32,342  
                                 
 
The movement in deferred tax assets and liabilities during the year/period without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:
 
Deferred tax assets:
 
                                 
    Decelerated
                   
    Tax
                   
    Depreciation     Tax Losses     Others     Total  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
At 1 January 2006
    —       4,902       —       4,902  
Recognised in the combined income statement
    —       5,208       —       5,208  
                                 
At 31 December 2006
    —       10,110       —       10,110  
Exchange differences
    754       —       4       758  
Recognised in the combined income statement
    12,360       (384 )     (700 )     11,276  
Acquisition through business combination (Note 33(b))
    14,096       —       2,378       16,474  
                                 
At 31 December 2007
    27,210       9,726       1,682       38,618  
Exchange differences
    1,806       —       134       1,940  
Recognised in the combined income statement
    9,027       1,308       4,049       14,384  
                                 
At 31 December 2008
    38,043       11,034       5,865       54,942  
Exchange differences
    27       1       5       33  
Recognised in the combined income statement
    4,961       7,341       168       12,470  
                                 
At 30 September 2009
    43,031       18,376       6,038       67,445  
                                 


F-50


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
Deferred tax liabilities:
 
                                 
    Valuation
                   
    Adjustment
                   
    Resulting
                   
    from
                   
    Acquisition
    Accelerated
             
    of a
    Tax
             
    Subsidiary     Depreciation     Others     Total  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
At 1 January 2006
    —       11,501       —       11,501  
Recognised in the combined income statement
    —       (1,546 )     —       (1,546 )
                                 
At 31 December 2006
    —       9,955       —       9,955  
Exchange differences
    700       —       —       700  
Recognised in the combined income statement
    (383 )     2,519       —       2,136  
Acquisition through business combination (Note 33(b))
    77,886       —       —       77,886  
                                 
At 31 December 2007
    78,203       12,474       —       90,677  
Exchange differences
    2,801       —       2       2,803  
Recognised in the combined income statement
    (13,371 )     5,474       16,362       8,465  
                                 
At 31 December 2008
    67,633       17,948       16,364       101,945  
Exchange differences
    20       1       7       28  
Recognised in the combined income statement
    (5,549 )     (845 )     4,208       (2,186 )
                                 
At 30 September 2009
    62,104       17,104       20,579       99,787  
                                 
 
Pursuant to the new Corporate Income Tax Law with effect from 1 January 2008, a 5% withholding tax is levied on dividends distributed to foreign investors by the foreign investment enterprises established in mainland China. The requirement applies to earnings accumulated after 31 December 2007. As at 31 December 2008 and 30 September 2009, approximately HK$9,914,000 and HK$12,321,000 deferred tax liabilities have been recognised by the PCB Business.
 
Deferred income tax assets are recognised for tax losses carry forwards to the extent that the realisation of the related benefit through the future taxable profits is probable. The PCB Business did not recognise deferred income tax assets of HK$43,007,000, HK$55,444,000, HK$70,959,000 and HK$89,474,000 in respect of accumulated losses amounting to HK$145,331,000, HK$235,894,000, HK$303,043,000 and HK$369,992,000 as at 31 December 2006, 2007, 2008 and 30 September 2009, respectively that can be carried forward against future taxable income. As at 31 December 2006, 2007, 2008 and 30 September 2009, these accumulated tax losses amounting to HK$114,952,000, HK$185,977,000 and HK$245,225,000 and HK$333,083,000 will be expired in five years. There is no expiry period for other tax losses.
 
26  Financial liabilities
 
                                 
                      At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Put option
    —       264,394       151,270       161,758  
                                 
 
 
Note:
 
In November 2007, MTG (PCB) No. 2 (BVI) Limited (“MTG(PCB2)”) entered into a contract with Aspocomp Group OYJ (“Aspocomp”), an independent third party incorporated in Finland and listed on the Helsinki Stock


F-51


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
Exchange, to acquire 80% of the equity interest in MAH. The PCB Business and Aspocomp also entered into a put and call option agreement (“Option Deed”) as part and parcel of the MAH acquisition. Under the Option Deed, MTG(PCB2) was granted a call, to buy the remaining 20% equity interests in MAH and Aspocomp was granted a put option to sell its remaining 20% equity interests in MAH in the period from 2013 to 2023.
 
The put option granted under the Option Deed was recognised as financial liabilities in the combined financial statements of the PCB Business at the present value of the redemption amount.
 
For the purposes of determining the present value of the put option, the put option is determined based on the greater of (i) enterprise value calculation which uses EBITDA projections based on the extrapolation of the latest unaudited combined financial results of MAH to a four-year period and an enterprise value multiplier of 5.5 times or (ii) net asset value based on the extrapolation of the latest unaudited combined financial results of MAH as at end of the financial year 2012; or (iii) the minimum price of approximately EUR15.38 million plus interest which will accrue at the rate of 2.5% per annum, compounding annually for a five-year period up to financial year ending 31 December 2012.
 
There are a number of assumptions and estimates involved in the preparation of EBITDA projections for the year. Key assumptions used for enterprise value calculation for put option of each of the years ended 31 December 2007 and 2008 and for the nine months ended 30 September 2009 are presented as below:
 
                                 
          At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
 
Gross margin
    —       17.8 %     19.2 %     19.7 %
Growth rate
    —       25.0 %     10.0 %     10.0 %
Discount rate
    —       8.3 %     6.1 %     6.1 %
                                 
 
The directors prepared the financial budgets reflecting actual and prior year performance and market development expectations. The growth rates used are consistent with the industry growth estimates. The directors estimate discount rate using pre-tax rates that reflect market assessments of the time value of money of the PCB Business for the years ended 31 December 2007 and 2008 and for the nine months ended 30 September 2009. Judgement is required to determine key assumptions adopted in the EBITDA projections and changes to key assumptions can significantly affect these EBITDA projections.
 
The value of put option as at 31 December 2007, 2008 and 30 September 2009 represent the present value of the minimum price which was the highest possible value under the put option (Note 16(ii)).
 
27  Long-term other payables
 
The balances represent payable for purchase of property, plant and equipment and will be settled after twelve months.
 
The balances are denominated in the following currencies:
 
                                 
          At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
US$
    —       87,862       44,349       23,717  
JPY
    —       26,272       13,039       —  
EUR
    —       1,524       17,176       —  
HK$
    —       —       —       1,257  
                                 
      —       115,658       74,564       24,974  
                                 


F-52


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
28  Creditors and accruals
 
                                 
          At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Creditors
    329,574       598,331       667,797       571,752  
Accruals
    381,683       672,426       720,622       488,643  
                                 
      711,257       1,270,757       1,388,419       1,060,395  
                                 
 
The carrying amounts of creditors and accruals approximate their fair values.
 
During the year/period, the PCB Business normally received credit terms of 60-90 days. The ageing analysis of the creditors, based on the invoice date, is as follows:
 
                                 
          At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Within credit period
    243,467       368,096       408,312       418,407  
0 — 30 days
    52,727       127,096       181,909       102,321  
31 — 60 days
    17,338       58,889       55,412       34,673  
61 — 90 days
    9,594       25,078       10,287       5,408  
Over 90 days
    6,448       19,172       11,877       10,943  
                                 
      329,574       598,331       667,797       571,752  
                                 
 
The carrying amounts of the PCB Business’ creditors and accruals are denominated in the following currencies:
 
                                 
          At
 
    At 31 December     30 September
 
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
HK$
    188,475       170,923       160,345       132,789  
RMB
    356,422       652,364       775,854       710,993  
US$
    152,599       289,491       405,821       168,983  
EUR
    3,338       90,991       39,963       33,233  
JPY
    9,082       46,470       6,197       13,238  
Other currencies
    1,341       20,518       239       1,159  
                                 
      711,257       1,270,757       1,388,419       1,060,395  
                                 
 
29  Amounts due from/(to) a minority shareholders/a subsidiary of a minority shareholder
 
The amounts due from/(to) a minority shareholder and a subsidiary of a minority shareholder are unsecured, interest-free and payable on demand except for trading balances which are due within normal trade credit terms. The carrying amounts of these balances approximate their fair values.


F-53


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
The carrying amount of the amount due from a minority shareholder is denominated in the following currencies:
 
                                 
          At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
US$
    —       2,529       —       —  
EUR
    —       36,526       —       —  
                                 
      —       39,055       —       —  
                                 
 
The carrying amount of the amount due to a minority shareholder is denominated in the following currencies:
 
                                 
          At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
US$
    96,841       165,969       77,898       62,978  
RMB
    23,077       7,708       91,761       59,356  
                                 
      119,918       173,677       169,659       122,334  
                                 
 
The carrying amount of the amount due to a subsidiary of a minority shareholder is denominated in the following currencies:
 
                                 
          At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
US$
    —       —       —       5,188  
RMB
    10,716       5,040       12,338       13,063  
                                 
      10,716       5,040       12,338       18,251  
                                 
 
30  Amounts due from/(to) fellow subsidiaries/loan to a fellow subsidiary
 
The amounts due from/(to) fellow subsidiaries are unsecured and repayable on demand, except for trading balances which are due within normal credit terms. The amounts due from/(to) fellow subsidiaries are interest-bearing at 6.00% per annum or prime rate, 5.50%, 4.00% and 1.54% per annum on outstanding amounts as at 31 December 2006, 2007, 2008 and 30 September 2009 respectively. The carrying amounts of these balances approximate their fair values. The amounts due from fellow subsidiaries are denominated in the following currencies:
 
                                 
          At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
HK$
    —       244,296       388,330       13,889  
RMB
    —       —       1,348       —  
US$
    —       —       564       —  
                                 
      —       244,296       390,242       13,889  
                                 


F-54


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
The amounts due to fellow subsidiaries are denominated in following currencies:
 
                                 
          At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
HK$
    —       (6,562 )     —       —  
RMB
    —       —       (41,719 )     (67,207 )
US$
    (66,454 )     (93,276 )     (46,762 )     (30,745 )
                                 
      (66,454 )     (99,838 )     (88,481 )     (97,952 )
                                 
 
The loan to a fellow subsidiary is unsecured, interest-bearing at 4.20% per annum as at 31 December 2008 and 30 September 2009 and repayable in 2011. The balance is denominated in US$. The carrying amount of the balance approximates its fair value.
 
31  Amounts due from/(to) intermediate holding company and immediate holding company
 
The amounts due from/(to) intermediate holding company and immediate holding company are unsecured, interest-free and repayable on demand. The carrying amounts of these balances approximate their fair values. These amounts are denominated in HK$.
 
32  Commitments
 
(a)   Capital commitments
 
Capital commitments in respect of property, plant and equipment at the end of reporting periods are as follows:
 
                                 
          At
 
    As 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Contracted but not provided for
    184,217       615,276       332,771       274,105  
Authorised but not contracted for
    6,446       101,379       3,342       2,173  
                                 
      190,663       716,655       336,113       276,278  
                                 
 
At 31 December 2006, 2007, 2008 and 30 September 2009, the PCB Business had commitment in respect of the injection of additional capital into certain subsidiaries established in mainland China totalling approximately HK$235,504,000, HK$664,265,000 HK$654,574,000 and HK$186,012,000 respectively.
 
(b)   Operating lease commitments
 
The future aggregate minimum lease expense under non-cancellable operating leases in respect of land and buildings is payable as follows:
 
                                 
          At
 
    At 31 December     30 September  
    2006     2007     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000  
 
Within one year
    3,387       3,055       2,391       3,682  
One to five years
    2,035       3,908       2,992       3,902  
More than five years
    5,027       18,956       18,695       18,507  
                                 
      10,449       25,919       24,078       26,091  
                                 


F-55


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
33  Notes to the combined statements of cash flows
 
(a)   Acquisition of minority interest in a subsidiary
 
On 27 July 2006, the PCB Business acquired 10% interest in Shanghai Kaiser Electronics Co., Ltd. from Goalink Industrial Ltd. at a consideration of US$815,000 (approximately HK$6,354,000), increasing its interest in Shanghai Kaiser Electronics Co., Ltd. from 90% to 100%.
 
Details of the net assets acquired and goodwill are as follows:
 
         
    Acquiree’s
 
    Carrying
 
    Amount
 
    2006  
    HK$’000  
 
Net assets acquired comprised of:
       
Property, plant and equipment
    69,646  
Land use right
    2,242  
Inventories
    857  
Debtors and prepayments
    9,283  
Cash and bank balances
    5,237  
Creditors and accruals
    (10,187 )
Balances with group companies
    (2,461 )
         
Net assets value
    74,617  
         
Additional share of net assets value (10%)
    7,462  
Less: Consideration paid
    (6,354 )
         
Negative goodwill credited to combined income statement (Note)
    1,108  
         
 
 
Note:
 
Negative goodwill represents excess of acquirers interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost.
 
(b)   Acquisition of a subsidiary through business combination
 
On 30 November 2007, the PCB Business acquired 80% of the share capital of MAH from a third party, Aspocomp, for a consideration of approximately HK$724,166,000.
 
Details of the net assets acquired and goodwill are as follows:
 
         
    HK$’000  
 
Purchase consideration:
       
— Cash paid
    707,666  
— Financial liabilities — put option (Note 26)
    264,394  
— Direct costs relating to the acquisition
    16,500  
         
Total purchase consideration
    988,560  
Fair value of net assets acquired — shown as below
    (881,822 )
         
Goodwill (Note 16)
    106,738  
         


F-56


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
The goodwill is attributable to the workforce of the acquired business and the significant synergies expected to arise after the PCB Business’ acquisition of MAH.
 
The assets and liabilities as at 30 November 2007 arising from the acquisition are as follows:
 
                         
    Acquiree’s
             
    Carrying
             
    Amount
          Acquiree’s
 
    Before
    Fair Value
    Fair Value
 
    Acquisition     Adjustment     Amount  
    HK$’000     HK$’000     HK$’000  
 
Net assets acquired comprised of:
                       
Property, plant and equipment
    568,776       257,474       826,250  
Leasehold land and land use rights
    21,099       34,794       55,893  
Intangible assets
    —       20,629       20,629  
Inventories
    27,782       —       27,782  
Debtors and prepayments
    216,121       —       216,121  
Deferred tax assets
    16,474       —       16,474  
Cash and bank balances
    29,451       —       29,451  
Creditors and accruals
    (171,772 )     —       (171,772 )
Taxation payable
    (3,905 )     —       (3,905 )
Borrowings
    (57,215 )     —       (57,215 )
Deferred tax liabilities
    —       (77,886 )     (77,886 )
                         
      646,811       235,011       881,822  
Goodwill (Note 16)
                    106,738  
                         
                      988,560  
                         
Satisfied by:
                       
Cash consideration
                    724,166  
Financial liabilities (Note 26)
                    264,394  
                         
                      988,560  
                         
Net cash outflow arising on acquisition
                       
Cash consideration
                    724,166  
Bank balances and cash acquired
                    (29,451 )
                         
Net outflow of cash and cash equivalents in respect of the acquisition of a subsidiary
                    694,715  
                         


F-57


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
(c)   Analysis of cash and cash equivalents
 
                                         
    At 31 December     At 30 September  
    2006     2007     2008     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000
    HK$’000  
                      (Unaudited)        
 
Cash and bank balances (Note 21)
    164,964       402,822       797,874       381,870       849,012  
Bank overdrafts (Note 23)
    (41,657 )     —       (25,626 )     (25,782 )     —  
                                         
      123,307       402,822       772,248       356,088       849,012  
Less: restricted bank balances (Note 21)
    (1,424 )     (3,901 )     (5,873 )     (1,183 )     (8,397 )
                                         
Cash and cash equivalents
    121,883       398,921       766,375       354,905       840,615  
                                         
 
(d)   Major non-cash transactions
 
During the period ended 30 September 2009, the immediate holding company of the PCB Business contributed capital of approximately HK$266,120,000 to the PCB Business which was settled through current account.
 
During the period ended 30 September 2009, the PCB Business assigned an amount of approximately HK$273,465,000 due from fellow subsidiaries to the immediate holding company of the PCB Business.
 
34  Related party transactions
 
Parties are considered to be related if one party has the ability, directly or indirectly to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control.
 
The directors regard MTG Investment (BVI) Limited and SuSih, both incorporated in the British Virgin Islands, as being the immediate holding company and ultimate holding company respectively.
 
The PCB Business regularly conducts transactions in the normal course of business with a minority shareholder, a subsidiary of a minority shareholder and other related parties, details of which during the years/periods are:
 
(a)   Purchases of raw materials (Note i)
 
                                         
          Nine Months Ended
 
    Year Ended 31 December     30 September  
    2006     2007     2008     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000
    HK$’000  
                      (Unaudited)        
 
A minority shareholder
    301,348       418,501       401,531       335,316       225,280  
                                         
A subsidiary of a minority shareholder
    34,280       37,272       30,047       17,690       42,498  
                                         
Fellow subsidiaries
    210,841       281,974       345,288       264,909       279,524  
                                         
 
(b)   Rental expense (Note ii)
 
                                         
          Nine Months Ended
 
    Year Ended 31 December     30 September  
    2006     2007     2008     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000
    HK$’000  
                      (Unaudited)        
 
A fellow subsidiary
    448       503       503       377       377  
                                         


F-58


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
(c)   Interest expense (Note iii)
 
                                         
          Nine Months Ended
 
    Year Ended 31 December     30 September  
    2006     2007     2008     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000
    HK$’000  
                      (Unaudited)        
 
A fellow subsidiary
    198       —       —       —       —  
                                         
 
(d)   Commission on purchase of machineries (Note iv)
 
                                         
          Nine Months Ended
 
    Year Ended 31 December     30 September  
    2006     2007     2008     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000
    HK$’000  
                      (Unaudited)        
 
A fellow subsidiary
    189       —       —       —       —  
                                         
 
(e)   Rental income (Note ii)
 
                                         
          Nine Months Ended
 
    Year Ended 31 December     30 September  
    2006     2007     2008     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000
    HK$’000  
                      (Unaudited)        
 
Fellow subsidiaries
    2,605       959       1,282       719       508  
                                         
 
(f)   Interest income (Note iii)
 
                                         
          Nine Months Ended
 
    Year Ended 31 December     30 September  
    2006     2007     2008     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000
    HK$’000  
                      (Unaudited)        
 
Related parties
                                       
— Companies being controlled by directors of the Company
    1,989       —       —       —       —  
— A director
    1,754       —       —       —       —  
                                         
      3,743       —       —       —       —  
                                         
Fellow subsidiaries
    —       6,683       12,660       9,501       3,923  
                                         
 
(g)   Management fee (Note v)
 
                                         
          Nine Months Ended
 
    Year Ended 31 December     30 September  
    2006     2007     2008     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000
    HK$’000  
                      (Unaudited)        
 
A related party
                                       
— A company being controlled by directors of the Company
    5,000       —       —       —       —  
                                         


F-59


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
(h)   Amounts due from/(to) related parties
 
                                         
                At
 
          At 31 December     30 September  
    Note     2006     2007     2008     2009  
          HK$’000     HK$’000     HK$’000     HK$’000  
 
Non-trade balance
                                       
Intermediate holding company
    31       —       40,177       —       —  
Non-trade balance
                                       
Immediate holding company
    31       —       (290,000 )     (643,961 )     (49,492 )
                                         
Non-trade balance
                                       
Fellow subsidiaries
    30       —       244,296       390,242       13,889  
                                         
Non-trade balance
                                       
Fellow subsidiaries
            (2,926 )     (14,363 )     —       (1,580 )
Trade balance
                                       
Fellow subsidiaries
            (63,528 )     (85,475 )     (88,481 )     (96,372 )
                                         
      30       (66,454 )     (99,838 )     (88,481 )     (97,952 )
                                         
Loan to a fellow subsidiary
    30       —       —       41,074       10,076  
                                         
Non-trade balance
                                       
A minority shareholder
    29       —       39,055       —       —  
                                         
Non-trade balance
                                       
A related party
                                       
— A company being controlled by directors of the Company
    20       (417,859 )     —       —       —  
                                         
Dividend payable
                                       
A minority shareholder
            —       (343 )     (60,466 )     —  
Trade balance
                                       
A minority shareholder
            (119,918 )     (173,334 )     (109,193 )     (122,334 )
                                         
      29       (119,918 )     (173,677 )     (169,659 )     (122,334 )
                                         
Trade balance
                                       
A subsidiary of a minority shareholder
    29       (10,716 )     (5,040 )     (12,338 )     (18,251 )
                                         
 
 
Notes:
 
(i) Purchases of raw materials from a minority shareholder, a subsidiary of a minority shareholder and fellow subsidiaries are made at prices and terms comparable to those charged by and contracted with other third party suppliers of the PCB Business.
 
(ii) Rental income/expenses were based on underlying rental agreements which are renewed annually.
 
(iii) Interest expenses/income were calculated at 6.00% per annum or prime rate, 5.50%, 4.00% and 1.54% per annum on the outstanding amounts for the years ended 31 December 2006, 2007 and 2008 and nine months ended 30 September 2008 and 2009 respectively.
 
(iv) Commission on purchases of machineries were based on mutual agreement entered into by the parties.


F-60


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
 
(v) Management fee is subject to contract terms as signed by the parties involved, which is at a fixed monthly fee for the provision of management services and consultancy services to the entities of the PCB Business.
 
(i)   Key management compensation
 
                                         
          Nine Months Ended
 
    Year Ended 31 December     30 September  
    2006     2007     2008     2008     2009  
    HK$’000     HK$’000     HK$’000     HK$’000
    HK$’000  
                      (Unaudited)        
 
Basic salaries, allowances and benefits in kind
    27,530       34,777       45,720       30,090       30,916  
Share award expenses (Note 7)
    —       150,326       4,018       3,018       3,024  
Bonuses
    5,510       11,022       12,929       12,003       6,584  
                                         
      33,040       196,125       62,667       45,111       40,524  
                                         
 
35  Reconciliation to US GAAP
 
The PCB Business’ combined financial statements have been prepared in accordance with HKFRS which differs in some respect from accounting principles generally accepted in the United States of America (“US GAAP”). The effect on profit attributable to equity holders and capital and reserves attributable to equity holders of the PCB Business arising from significant differences between HKFRS and US GAAP is as follows.
 
                                         
          Year Ended
    Nine Months Ended
 
          31 December     30 September  
    Note     2007     2008     2008     2009  
          HK$’000     HK$’000     HK$’000
    HK$’000  
                      (Unaudited)        
 
Profit for the year/period under HKFRS
            352,938       483,653       412,418       198,665  
US GAAP adjustments:
                                       
Acquisition of non-controlling interest (“NCI”)
    (a )     108       108       81       81  
Reversal of amortisation of goodwill
    (b )     —       —       —       —  
Put and call options on NCI:
                                       
— Fair value step-up
    (c1 )     217       7,777       3,010       3,455  
— Accretion of NCI to redemption value
    (c2 )     —       1,942       14,138       (6,738 )
Derivatives
    (d )     —       —       —       22,358  
Available-for-sale financial asset
    (e )     —       —       —       —  
Deferred income taxes
    (f )     (54 )     (1,944 )     (744 )     (863 )
                                         
Profit for the year/period under US GAAP
    (g )     353,209       491,536       428,903       216,958  
                                         
 


F-61


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
                                 
                At
 
          At 31 December     30 September  
    Note     2007     2008     2009  
          HK$’000     HK$’000     HK$’000  
 
Total equity under HKFRS
            1,860,055       1,776,609       2,313,896  
US GAAP adjustments:
                               
Acquisition of NCI
    (a )     (946 )     (838 )     (757 )
Reversal of amortisation of goodwill
    (b )     535       535       535  
Put and call options on NCI:
                               
— Fair value step-up
    (c1 )     (2,082 )     (5,280 )     (1,955 )
— Accretion of NCI to redemption value
    (c2 )     131,255       134,153       144,753  
Available-for-sale financial asset
    (e )     —       454       3,375  
Deferred income taxes
    (f )     (56 )     (2,021 )     (2,885 )
                                 
Total equity under US GAAP
    (g )     1,988,761       1,903,612       2,456,962  
                                 
 
(a)   Acquisition of non-controlling interests
 
On 27 July 2006, the PCB Business acquired the remaining 10% non-controlling interest (“NCI”) of a 90% held subsidiary from the non-controlling shareholder.
 
Under HKFRS, the PCB Business adopted the parent company method whether by acquisition of NCI is considered to give rise to additional economic interest held by the parent company. Accordingly, the PCB Business recorded the excess of the carrying value of the NCI acquired over the consideration as negative goodwill.
 
Under US GAAP, acquisition of NCI prior to 1 January 2009 is accounted for using the purchase method, where the 10% of assets and liabilities acquired would be recorded at fair value. The negative goodwill resulted from this assessment was used to reduce the property, plant and equipment and land use rights on a pro-rata basis.
 
(b)   Amortisation of goodwill
 
Prior to 1 January 2003, under HKFRS, the PCB Business amortised goodwill over its useful life of 10 years and performed impairment review if there was an indication that impairment might exist. With effect from 1 January 2003, the PCB Business adopted HKFRS 3 “Business Combinations” and HKAS 36 “Impairment of Assets”, whereby goodwill is no longer amortised but is tested for impairment annually and when there are indications of impairment.
 
Under US GAAP, the PCB Business ceased amortisation of goodwill since 1 January 2002 and performed impairment review annually and when there are indications of impairment. Accordingly, an adjustment has been included in the US GAAP reconciliation to reverse the amortisation of goodwill for the year ended 31 December 2002.
 
(c)   Put and call options on non-controlling interests
 
In relation to the acquisition of 80% of MAH and its subsidiaries discussed in Note 26, under HKFRS, the PCB Business was deemed to have acquired 100% of MAH with a financial liability representing contingent consideration.
 
Under US GAAP, management determined that the put and call are considered not freestanding from the 20% NCI. The NCI, with embedded put and call options were assessed under ASC 815 “Derivative and Hedging”. As the put and call options cannot be bifurcated under FAS 133, the NCI with embedded put and call are classified as mezzanine equity and measured according to ASC 480 “Distinguishing Liabilities from Equity”. Under US GAAP,

F-62


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
the transaction was accounted for as an acquisition of 80% of MAH, with a 20% NCI that is callable and puttable. As a result, management recorded reconciling adjustments in the US GAAP reconciliation for the following differences:
 
(1) Under HKFRS, 100% of the assets and Iiabilities of MAH are stepped up to their fair values upon initial consolidation. Under US GAAP, only 80% of the assets and liabilities of MAH are stepped up to their fair values, with the remaining 20% stated at cost.
 
(2) Under HKFRS, a financial liability is recorded and measured at the present value of the redemption price. Interest accrual on the financial liability is recorded as finance charge and changes in the redemption price is charged to goodwill or negative goodwill. Under US GAAP, no financial liability is recorded. The NCI with embedded put and call are classified as mezzanine equity. As the NCI is redeemable in the period from 2013 to 2023, management accreted changes in the redemption value from the date of acquisition to the earliest redemption date using the effective interest method.
 
Under HKFRS, as the transaction is deemed a 100% acquisition of MAH, no sharing of profit and loss with the NCI is recorded. Under US GAAP, 20% of the profit and loss is attributable to the NCI. However, there is no impact on the profit nor total equity of the PCB Business.
 
(d)   Derivatives
 
In February 2009, the Company entered into a foreign exchange forward contract to hedge against the financial liability representing the contingent consideration in connection with its acquisition of 20% NCI of MAH which is denominated in EUR. Under HKFRS, the foreign exchange forward contract qualified as a hedge items and therefore the fair value change of the foreign exchange forward contract has been recognised directly to hedging reserve.
 
Under US GAAP, the forecasted transaction is not eligible for designation as a hedged transaction because the transaction involves a business combination involving a non-controlling interest in a consolidated subsidiary. As a result, the change in fair value of the foreign exchange forward contract has been recognised through condensed combined income statement.
 
(e)   Available-for-sale financial asset
 
In 2007, the PCB Business acquired a 10% interest in Aspocomp Oulu Oy (“Oulu”). Under HKFRS, the PCB Business classified the investment as available-for-sale (“AFS”) financial asset and measured the investment at fair value at the end of reporting period.
 
Oulu is not publicly traded and the PCB Business calculates the fair value of the investment based on estimated enterprise value which uses an average of EBITDA from the latest two years extracted from Oulu’s unaudited financial results and an enterprise value multiplier of 5.5 times.
 
Under US GAAP, investments in non-marketable equity securities for which readily determinable fair values are not available are accounted for using the cost method. In general, fair values of unlisted equity securities are considered not readily determinable. As a result, the change in fair value of the investment in Oulu previously debited to the AFS reserve has been reversed.
 
(f)   Deferred income tax
 
HKFRS and US GAAP are substantially the same with respect to deferred income tax expense or benefit that affects the PCB Business. The amounts included in the reconciliation show the deferred income tax effects of the differences between HKFRS and US GAAP as described above.


F-63


 

 
THE PRINTED CIRCUIT BOARD BUSINESS OF MEADVILLE HOLDINGS LIMITED
 
NOTES TO THE FINANCIAL STATEMENTS — (Continued)
 
(g)   Presentation of minority interests
 
Effective 1 January 2009, the PCB Business adopted ASC 810-10-65 “Noncontrolling Interests in Consolidated Financial Statements”. Accordingly, earnings attributable to NCI is included in the profit for the year/period and NCI is recorded in total equity. The presentation requirements have been applied retrospectively for all periods presented.
 
(h)   Cumulative translation adjustment
 
The impact on cumulative translation adjustment of each reconciling item is included in each respective reconciling item in the reconciliation of capital and reserves attributable to equity holders. The cumulative translation adjustment included in for the years ended 31 December 2007 and 2008 and for the nine months ended 30 September 2009 presented are debit balance of approximately HK$2,291,000, debit balance of approximately HK$18,030,000 and debit balance of approximately HK$108,000 respectively.
 
36   Events after the end of the reporting period
 
On 16 November 2009, the Company and MTG Investment (BVI) Limited, immediate holding company of the PCB Business, entered into a stock purchase agreement with TTM Technologies, Inc. (“TTM”), TTM Technologies International, Inc. (“TTM International”) and TTM Hong Kong Limited (“TTM HK”) to conditionally sell and TTM HK has conditionally agreed to purchase, the PCB Business of the Company for a consideration of approximately US$114.0 million in cash and 36,334,000 new TTM’s shares (“the Transaction”). TTM, TTM International and TTM HK are independent third parties to the Group. However, the completion of the Transaction is subject to various conditions as stated in sale and purchase agreement.
 
Subject to the fulfillment of certain conditions (including the completion of the Transactions), the Company will make a distribution of the entire amount of the consideration by way of dividend to the shareholders of the Company.


F-64


 

Appendix 2
Management’s Discussion and Analysis of the PCB Business
The following has been extracted from the Draft Form S-4 and all defined terms used in this Appendix 2 shall have the same meaning as given to them in the Draft Form S-4.
(The remaining of this page is intentionally left blank.)

 


 

 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE PCB BUSINESS OF MEADVILLE
 
The following discussion and analysis should be read in conjunction with the audited combined financial statements of the PCB Business for the three years ended December 31, 2006, 2007 and 2008 and for the nine months ended September 30, 2009 and the unaudited combined financial statements of the PCB Business for the nine months ended September 30, 2008 and the notes thereto. The combined financial statements of the PCB Business have been prepared on a carve-out basis in accordance with HKFRS. HKFRS differ in certain significant respects from U.S. GAAP. For a discussion of certain material differences between HKFRS and U.S. GAAP, see the section entitled “Summary of Material Differences Between HKFRS and U.S. GAAP” below and the related notes in the combined financial statements of the PCB Business.
 
Overview
 
Meadville is one of the leading PCB manufacturers in the PRC by revenue, with a focus on producing high-end products. For the year ended December 31, 2008, Meadville was the third largest PCB manufacturer in the PRC by revenue derived from production in the PRC. Meadville’s products include double-sided and multi-layer PCBs, HDI PCBs, rigid-flex PCBs, IC substrates, circuit design, and quick turnaround, or QTA, value-added services. In addition to having the ability to mass produce a wide range of PCB products, Meadville is able to provide a “one-stop shop” service to its customers, from PCB layout design to small volume quick-turn production of PCBs, including prototypes, to large volume mass production of PCBs. Each of Meadville’s PCB production plants has been certified under international quality assurance standards, which assists in ensuring that its products and production processes are of a high quality.
 
Meadville’s main PCB customers are multinational and PRC OEMs, EMS providers, and PCB traders, many of which are based in the PRC, Japan, South Korea, Southeast Asia, North America, and Europe. These PCB customers use Meadville’s products for a variety of industry applications, including in communications equipment, cellular phones, high-end computers and computer peripheral and consumer electronics, automotive components, and medical and industrial equipment. Meadville sells its products directly to some OEMs and indirectly to other OEMs through EMS providers. When selling PCB products indirectly to OEMs through EMS providers, Meadville primarily negotiates prices and receives specifications for products from OEMs, which develop and sell various end-products. However, in these situations, Meadville receives orders for its PCB products and payments from the EMS providers, which are mandated by the OEMs to manufacture such end-products and which are directed by the OEMs to purchase PCB products for assembly into the OEM’s components or end-products from Meadville.
 
Factors Affecting the Results of Operations of the PCB Business
 
The results of operations and financial condition of the PCB Business have been and will continue to be affected by a number of factors. Set out below are some of the more significant factors that have affected the results of operations of the PCB Business in the past, as well as factors that are currently expected to affect results of operations in the foreseeable future. Other factors, beyond those identified below, may materially affect the future results of operations of the PCB Business. See the subsection entitled “Quantitative and Qualitative Disclosures About Market Risk” in this section and the section entitled “Risk Factors” in this proxy statement/prospectus.
 
Cyclical nature of the industries in which the customers of the PCB Business operate
 
The results of operations of the PCB Business have been and will continue to be highly dependent on its direct and indirect OEM customers, who operate in the highly volatile communications equipment, computer and computer peripherals, cellular phone, and high-end consumer electronics industries. These industries are characterized by rapidly changing customer demand patterns and strong industry-wide competition for market share resulting in aggressive pricing practices and declining margins for older technology products. The results of operations of the PCB Business depend on continued demand for its PCB products and therefore such results are highly dependent on the performance of industries that the PCB Business services. In the past, the migration of PCB manufacturing to the PRC has helped to reduce the impact of downturns in its customers’ industries. However, there is no assurance that this trend will continue and future downturns in the industries that the PCB Business services


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could have a significant impact on the selling prices of the products of the PCB Business and on the combined company’s results of operations.
 
Rapid technological change in the markets for the products of the PCB Business
 
The market for the products of the PCB Business is characterized by rapidly changing technology and continuing process development. The success of the business of the PCB Business depends in large part upon their ability to maintain and enhance their technological capabilities in order to be able to respond quickly and efficiently to its customers’ changing product requirements. The PCB Business must also be able to develop and market products and services that meet changing customer needs, and successfully anticipate or respond to product and technological trends on a cost-effective and timely basis. The ability of the PCB Business to effectively respond to the technological changes or trends from changing market requirements will affect the PCB Business’ results of operations from period to period.
 
Maximizing capacity utilization rates at all of the manufacturing plants of the PCB Business
 
The success of the PCB Business depends in part on their ability to maximize the capacity utilization rates of each of their manufacturing plants. Given the high fixed costs of their operations, decreases in capacity utilization rates can have a significant effect on the business. Accordingly, the ability to maintain or enhance gross margins will continue to depend, in part, on maintaining satisfactory capacity utilization rates. The PCB Business attempt to maintain high capacity utilization rates by maintaining good relationships with their customer base, closely monitoring their customers’ upcoming product demand levels and cycles, keeping a diversified customer base, and properly managing their raw material supply. However, acceptable capacity utilization rates also depend on the volume of orders that the PCB Business receives, its ability to offer products that meet customers’ requirements at competitive prices, and the reliability of their machinery.
 
Cost of capital expenditure requirements and ability to obtain financing
 
Because the PCB Business is capital intensive, its ability to increase revenue, operating profit, and cash flow depends upon continued capital spending. The actual capital expenditures of the PCB Business may vary significantly from these planned amounts due to various factors, including, among others, delays in obtaining regulatory approvals, construction delays, or delays in obtaining purchased equipment due to long lead times from suppliers. The PCB Business’ ability to obtain external financing in the future is subject to a variety of uncertainties, including the following:
 
  •  their future results of operations, financial condition and cash flows;
 
  •  the condition of the global economy generally and the markets for their products, specifically; and
 
  •  the cost of financing and the condition of financial markets.
 
Currently the majority of the borrowings of the PCB Business are subject to floating interest rates and therefore its interest expense can vary from period to period, which affects the PCB Business’ results of operations. The results of operations of the PCB Business will be affected if interest rates increase or if the PCB Business are forced to pay higher than expected rates for new capital. For a discussion of risks related to interest rates, see the section entitled “Quantitative and Qualitative Disclosure about Market Risk.”
 
Raw material cost
 
The operating profit of the PCB Business is significantly affected by the cost of the raw materials of the products it produces, certain of which cannot be passed on to customers. The significant raw materials used by the PCB Business include laminate, prepreg, copper foil, glass fabrics, epoxy resins, and precious metals such as silver and gold, all of which have been historically, and will be in the future, subject to price volatility and fluctuations in supply and demand.


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Critical Accounting Policies
 
Meadville continually evaluates its estimates and judgments, which are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. With respect to the PCB Business, Meadville makes estimates and assumptions concerning the future. The resulting accounting estimates will seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.
 
Property, plant, and equipment
 
Meadville determines the estimated useful lives and related depreciation charges for the property, plant, and equipment of the PCB Business based on the historical experience of the actual useful lives of property, plant, and equipment of similar nature and functions. These estimates could change significantly as a result of technical innovations and competitor actions in response to severe industry cycles. Meadville’s policy is to increase the depreciation charge when useful lives are less than previously estimated lives, or to write-off or write-down technically obsolete or non-strategic assets that have been abandoned or sold.
 
Property, plant, and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditures that are directly attributable to the acquisition of the items.
 
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the PCB Business and the cost of the item can be measured reliably. All other repairs and maintenance are expensed in the combined income statement during the financial period in which they are incurred.
 
Depreciation of property, plant, and equipment is calculated, using the straight line method, to allocate their cost to their residual values over their estimated useful lives. The estimated useful lives are summarized as follows:
 
     
Buildings
  22 to 25 years
Leasehold improvements
  22 to 25 years
Furniture and equipment
  5 to 6 years
Plant, machinery and equipment
  10 to 12 years
Motor vehicles
  5 to 6 years
 
The residual values and useful lives of the assets of the PCB Business are reviewed, and adjusted if appropriate, at the end of each reporting period.
 
Construction in progress represents buildings or leasehold improvements on which construction work has not been completed and plants, machinery, and equipment pending installation. It is carried at cost, which includes construction expenditures and other direct costs less any impairment losses. On completion, construction in progress is transferred to the appropriate categories of property, plant, and equipment at cost less accumulated impairment losses. No depreciation is provided for construction in progress until it is completed and available for use.
 
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
 
Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are charged to the combined income statement.
 
Foreign currency translation
 
Functional and presentation currency
 
The combined financial information of the PCB Business is presented in Hong Kong Dollars. The functional currency of the PCB Business is Hong Kong Dollars.


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Transactions and balances
 
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at exchange rates at the end of each reporting period of monetary assets and liabilities denominated in foreign currencies are recognized in the combined income statement, except when deferred in equity as qualifying cash flow hedges.
 
Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the combined income statement within interest income or finance cost. All other foreign exchange gains and losses are presented in the combined income statement within other income.
 
Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analyzed between translation differences resulting from changes in the amortized cost of the security, and other changes in the carrying amount of the security. Translation differences related to changes in the amortized cost are recognized in profit or loss, and other changes in the carrying amount are recognized in equity.
 
Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale are included in the available-for-sale reserve in equity.
 
Group companies
 
The operating results and financial position of all of the PCB Subsidiaries (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
 
  •  assets and liabilities for each statement of financial position presented are translated at the closing rate at the end of each reporting period;
 
  •  income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
 
  •  all resulting exchange differences are recognized as a separate component of equity.
 
On combination, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to owners’ equity. When a foreign operation is partially disposed of or sold, such exchange differences are recognized in the combined income statement as part of the gain or loss on sale.
 
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
 
Trade and other receivables
 
The identification of impairment of trade and other receivables requires the use of judgment and estimates. Meadville makes provisions for impairment of trade and other receivables based on its assessment of the recoverability of these receivables. Provisions are applied to trade and other receivables where events or changes in circumstances indicate that the balances may not be collectible. Where the expectation is different from the original estimate, such difference will impact the carrying value of receivables, and provision for impairment losses is made in the period in which such estimate has changed.
 
The trade and other receivables of the PCB Business are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the PCB Business will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying value and the present value of estimated future cash flows, discounted at


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the effective interest rate. The carrying amount of the assets is reduced through the use of an allowance account, and the amount of the loss is recognized in the combined income statement within selling and distribution expenses. When a receivable is uncollectible, it is written off against the allowance account for receivables. Subsequent recoveries of amounts previously written off are credited against selling and distribution expenses in the combined income statement.
 
Revenue recognition
 
The revenue of the PCB Business mainly comprises revenue generated from: (a) sales of PCBs, and (b) the provision of value added services. Meadville recognizes revenue from PCBs when it delivers products to the customer, the customer has accepted the products, and collectability of related receivables is reasonably assured. Meadville recognizes income from its value added services upon provision of the service or delivery of the related product.
 
Deferred income tax
 
Deferred income tax is recognized in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the combined financial statements. However, if the deferred taxation arises from initial recognition of an asset or liability in a transaction other than a business combination and at the time of the transaction affects neither accounting nor taxable profit nor loss, a deferred income tax item is not recognized. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.
 
At the end of each reporting period, Meadville recognizes deferred income tax assets to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is provided for on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by Meadville and it is probable that the temporary difference will not reverse in the foreseeable future.
 
Inventories
 
Inventories are stated at the lower of cost and net realizable value. Cost, calculated on the weighted average basis, comprises materials, direct labor, other direct costs and related production overheads (based on normal operating capacity). Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. In determining whether the cost of inventories is recoverable, significant judgment is required. The cost of inventories is written down to net realizable value when, based on its judgment, there is objective evidence that the cost of inventories may not be recoverable. The cost of inventories may not be recoverable if such inventories are damaged, if they have become wholly or partially obsolete, or if their selling prices have declined. The cost of inventories may also not be recoverable if the estimated costs to be incurred to make the sale have increased. The amount written off to the combined income statement is the difference between the carrying value and net realizable value of the inventories.
 
Present value of financial liabilities
 
Financial liabilities are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. The accretion of the discount on the financial liability should be recognized as finance costs in the combined income statement. Adjustments to the liability for the contingent consideration other than accretion of discount are recognized against goodwill, including revision of cash flow estimates.
 
Meadville’s management determines the estimated redemption value of the financial liabilities by using a predetermined formula based on the put option agreement described in Note 26 to the audited combined financial statements of the PCB Business. This formula requires the use of estimates and assumptions which are described in that note. Any changes in these assumptions will impact the present value determined and the amount recorded in the combined statement of financial position.


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Allocation of corporate expenses and income
 
Meadville’s management specifically determines the allocation of certain general corporate expenses and interest income. For those expenses and income for which a specific identification method is not practicable, the expenses and income are allocated based on the estimates that management considered as a reasonable reflection of the utilization of service provided to, or benefits received by, the PCB Business.
 
Corporate expenses allocated to the PCB Business mainly represented share award expenses. For shares that are granted to the employees of the PCB Business, the related expenses are recorded based on the actual expenses of those employees. For shares which are granted to corporate level management, share award expenses are allocated based on the revenue of the PCB Business compared to the revenue of Meadville’s consolidated group. The allocation basis requires the use of judgment and estimates. Meadville’s management has performed sensitivity analysis by applying different allocation basis (i.e., based on operating profit of the PCB Business to the operating profit of Meadville’s consolidated group) and there is no significant impact on the combined income statement of the PCB Business from such different allocation basis.
 
Description of Selected Profit and Loss Account Items
 
Revenue
 
The PCB Business generates revenue from sales of PCBs including circuit design, QTA services, and provision of high-precision drilling and routing services to other PCB manufacturers.
 
The following chart sets forth the unaudited breakdown of Meadville’s PCB sales by end application for the periods indicated:
 
                                         
    Year Ended
    Nine Months Ended
 
    December 31,     September 30,  
    2006     2007     2008     2008     2009  
    (In millions of HK$)  
    (Unaudited)  
 
(HKFRS)
                                       
PCB Revenue by application
                                       
Sales and Other Operating Revenues
                                       
Automotive
  $ 34     $ 35     $ 53     $ 47     $ 41  
Cellular phone
    528       1,012       1,256       968       780  
Communication
    842       1,268       1,725       1,286       1,345  
Computer
    549       643       1,015       803       745  
Consumer
    458       568       496       319       236  
Industrial and medical
    168       188       224       169       123  
Other
    260       395       443       338       235  


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The following chart sets forth the unaudited breakdown of Meadville’s PCB sales by geographic locations for the periods indicated:
 
                                         
    Year Ended
    Nine Months Ended  
    December 31,     September 30,  
    2006     2007     2008     2008     2009  
    (In millions of HK$)  
    (Unaudited)  
 
(HKFRS)
                                       
PCB Revenue by geographical locations (the final destination to where the final products are delivered)
                                       
Sales and Other Operating Revenues
                                       
Mainland China
  $ 1,752     $ 2,748     $ 3,342     $ 2,476     $ 2,509  
Europe
    224       308       468       376       285  
Hong Kong
    92       320       325       263       157  
North Asia
    448       278       270       213       118  
Southeast Asia
    140       231       405       282       282  
North America
    183       224       402       320       154  
 
Cost of sales
 
The cost of sales of the PCB Business consists primarily of cost of materials, direct labor costs, and production overhead.
 
Cost of materials used in the production of PCBs consists mainly of the costs of prepreg and laminate purchased from suppliers.
 
Direct labor costs consist primarily of salaries, bonuses, and benefits paid to the employees of the PCB Business directly attributable to the manufacturing of products.
 
Production overhead consists primarily of depreciation and amortization expenses, salaries, bonus, and benefits paid to foremen, technicians, engineers, and supervisors, utilities costs, operating supplies, consumables, subcontracting charges, and repair and maintenance expenses.
 
Depreciation and amortization expenses relating to buildings, leasehold land and land use rights, leasehold improvements, plant and machinery, furniture, and equipment and motor vehicles constituted one of the major components of production overhead.
 
Other income
 
Other income includes income recorded from:
 
  •  sales of scrap such as copper foil, plated scrap boards, gold solution, and other unusable raw materials;
 
  •  investment tax credits; and
 
  •  tooling charges related to PCB engineering and testing services and the production of PCB moulds.
 
Selling and distribution expenses
 
Selling and distribution expenses consist primarily of indirect labor costs, including salaries, bonuses, and benefits paid to sales and marketing personnel; freight charges; sales commissions; provisions for bad debts and bad debts written off; and others, including travel expenses and surcharges on sales returns.
 
General and administrative expenses
 
General and administrative expenses consist primarily of salaries, allowances, bonuses, and welfare benefits paid to administrative staff, as well as operating expenses, depreciation and amortization expenses, personnel


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expenses, utilities costs, and others, including loss on disposal of plant and equipment and foreign exchange difference.
 
Share award expenses
 
Share award expenses consist primarily of non-cash share award compensation awarded to directors and employees.
 
Interest income
 
Interest income includes income from interest received on loans to related companies and from bank deposits.
 
Finance costs
 
Finance costs consist primarily of interest on bank borrowings and accretion charges on the financial liabilities.
 
Income tax expense
 
Taxation has been provided for at the appropriate tax rates prevailing in the countries in which the PCB Business operates. Hong Kong profits tax has been provided at the rate of 17.5%, 17.5%, 16.5%, 16.5%, and 16.5% on the estimated assessable profit for the years ended December 31, 2006, 2007, and 2008 and for the nine months ended September 30, 2008 and September 30, 2009, respectively. The rate applicable for the income tax of the PCB Business in the PRC for the years ended December 31, 2006 and 2007 is 33%, and for the year ended December 31, 2008 and nine months ended September 30, 2008 and September 30, 2009 is 25%.
 
Several of Meadville’s PCB plants, established as wholly-owned foreign enterprises, enjoy certain exemptions or reductions from PRC tax. Meadville’s GME and SMST plants are exempted from PRC national enterprise income tax for the years 2008 and 2009, and will be entitled to 50% reductions in PRC income tax for the years 2010, 2011, and 2012, and are assessed PRC income tax at the reduced rate of 12.5%. Meadville’s SKE plant is also entitled to 50% reductions in PRC income tax for the years 2008 and 2009. Meadville’s DMC plant, established as a jointly-owned foreign enterprise, is entitled to 50% reductions in PRC income tax for the years 2008, 2009, and 2010.
 
Meadville’s MAS plant is also subject to 50% reductions in PRC income tax for the years 2008 and 2009, and as a High and New Technology Enterprise, or HNTE (approved in December 2008), it is entitled to an income tax rate of 15% in the year 2010.
 
Meadville’s SME plant enjoyed a reduced PRC income tax rate of 12.5% for the year 2008, and as an HNTE (approved in December 2008), it is entitled to an income tax rate of 15% in years 2009 and 2010.
 
Meadville’s SYE plant was approved as a HNTE in December 2008, and accordingly, it is entitled to a relief of income tax in the PRC, at an effective rate of 15% for years 2008 to 2010.
 
Review of Operating Results of the PCB Business
 
Nine months ended September 30, 2009 compared to nine months ended September 30, 2008
 
Revenue
 
The revenue of the PCB Business declined by 10.8% to HK$3,505.4 million (US$452.2 million) in the nine months ended September 30, 2009 from HK$3,930.2 million (US$504.1 million) in the nine months ended September 30, 2008. The decrease in revenue was primarily due to a decrease in global demand for PCB products as a result of global economic conditions, leading to lower export sales outside of the PRC. The decrease was partially offset by higher local sales in the PRC, which were driven by increased domestic spending as a result of the PRC government’s stimulus package.
 
Cost of sales
 
Cost of sales decreased by 9.9% to HK$2,844.5 million (US$366.9 million) in the nine months ended September 30, 2009 from HK$3,156.8 million (US$404.9 million) in the nine months ended September 30, 2008.


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This decrease in cost of sales was primarily due to the decrease in revenue. Cost of sales as a percentage of revenue was relatively stable at 81.1% in the nine-months ended September 30, 2009 compared with 80.3% for the nine months ended September 30, 2008.
 
Direct material costs decreased by 14.0% to HK$1,623.0 million (US$209.4 million) in the nine months ended September 30, 2009 from HK$1,887.0 million (US$242.0 million) in the nine months ended September 30, 2008 primarily due to a decrease in production volume and reductions in raw material and commodity prices.
 
Direct labor costs decreased by 2.5% to HK$209.0 million (US$27.0 million) in the nine months ended September 30, 2009 from HK$214.3 million (US$27.5 million) in the nine months ended September 30, 2008, primarily due to the temporary shut down of the GME plant in Guangzhou and the MAS plant in Suzhou during the first quarter of 2009.
 
Production overhead decreased by 4.1% to HK$1,012.5 million (US$130.5 million) in the nine months ended September 30, 2009 from HK$1,055.5 million (US$135.4 million) in the nine months ended September 30, 2008, primarily due to a decrease in production volume. However, the production overhead costs as a percentage of revenue increased to 28.9% in the nine months ended September 30, 2009 from 26.9% in the nine months ended September 30, 2008, due to certain overhead expenses that were fixed and did not decrease in connection with the decrease in production volume, such as indirect labor costs and depreciation.
 
Gross profit
 
Gross profit decreased by 14.5% to HK$660.9 million (US$85.3 million) in the nine months ended September 30, 2009 from HK$773.4 million (US$99.2 million) in the nine months ended September 30, 2008. Gross margin on revenue decreased to 18.9% for the nine months ended September 30, 2009 from 19.7% for the nine months ended September 30, 2008. The decrease was driven by lower PCB prices due to a decrease in demand for PCB products, and the relatively higher depreciation of the assets of the PCB Business, the effect of which was partially offset by reductions in raw material, energy, and commodity prices during the period. Meadville has also taken various actions with respect to the PCB Business since the fourth quarter of 2008, such as salary reduction and wage freezes for high-cost regions, temporary closure of GME and MAS, and freezing capacity-related capital expenditures.
 
Other income
 
Other income decreased by 26.8% to HK$91.7 million (US$11.8 million) in the nine months ended September 30, 2009 from HK$125.2 million (US$16.1 million) in the nine months ended September 30, 2008. This decrease was primarily due to lower sales of scrap, which were attributable to lower PCB production volume and a decrease in copper and gold scrap resale unit prices in 2009.
 
Selling and distribution expenses
 
Selling and distribution expenses decreased by 8.3% to HK$164.2 million (US$21.2 million) in the nine months ended September 30, 2009 from HK$179.1 million (US$23.0 million) in the nine months ended September 30, 2008. This decrease was primarily due to a decrease in freight charges as a result of the decrease in sales volume. Selling and distribution expenses as a percentage of revenue were relatively stable at 4.7% for the nine months ended September 30, 2009, from 4.6% for the nine months ended September 30, 2008.
 
General and administrative expenses
 
General and administrative expenses increased by 96.9% to HK$276.3 million (US$35.6 million) in the nine months ended September 30, 2009 from HK$140.3 million (US$18.0 million) in the nine months ended September 30, 2008. This increase was primarily due to a significant decline in functional foreign exchange gain. For the nine months ended September 30, 2008, the PCB Business recorded a functional foreign exchange gain of approximately HK$154.1 million (US$19.8 million) as a result of RMB appreciation, but there was no such gain recorded in the corresponding period of 2009 as a result of a comparatively stable RMB currency during 2009.


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Share award expenses
 
Share award expenses increased by 17.9% to HK$9.9 million (US$1.3 million) in the nine months ended September 30, 2009 from HK$8.4 million (US$1.1 million) in the nine months ended September 30, 2008. This increase was primarily due to higher numbers of employee resignations during the nine months ended September 30, 2008, resulting in more return of share awards and reducing the share award expenses subsequent to that period.
 
Operating profit
 
As a result of the foregoing, operating profit decreased by 47.1% to HK$302.2 million (US$39.0 million) in the nine months ended September 30, 2009 from HK$570.8 million (US$73.2 million) in the nine months ended September 30, 2008.
 
Interest income
 
Interest income decreased by 60.0% to HK$5.2 million (US$0.7 million) in the nine months ended September 30, 2009 from HK$13.0 million (US$1.7 million) in the nine months ended September 30, 2008. This decrease was primarily due to lower bank interest rates in the nine months ended September 30, 2009.
 
Finance costs
 
Finance costs decreased by 32.5% to HK$63.8 million (US$8.2 million) in the nine months ended September 30, 2009 from HK$94.5 million (US$12.1 million) in the nine months ended September 30, 2008. This decrease was primarily due to lower bank interest rates, lower accretion charges on the financial liabilities as a result of reduction in fair value of financial liabilities, and lower weighted average cost of capital, which reduced finance costs in the nine months ended September 30, 2009.
 
Income tax expense
 
Income tax expense decreased by 41.5% to HK$45.0 million (US$5.8 million) in the nine months ended September 30, 2009 from HK$76.9 million (US$9.9 million) in the nine months ended September 30, 2008, primarily due to the decrease in profit before tax. Income tax expense as a percentage of profit before income tax expenses increased to 18.5% in the nine months ended September 30, 2009 from 15.7% in the nine months ended September 30, 2008, primarily due to operations being more concentrated in production plants which were subject to higher tax rates.
 
Profit for the period
 
As a result of the foregoing, profit for the period decreased by 51.8% to HK$198.6 million (US$25.6 million) in the nine months ended September 30, 2009 from HK$412.4 million (US$52.9 million) in the nine months ended September 30, 2008.
 
Year ended December 31, 2008 compared to year ended December 31, 2007
 
Revenue
 
The revenue of the PCB Business increased by 26.9% to HK$5,212.4 million (US$669.4 million) in the year ended December 31, 2008 from HK$4,108.6 million (US$526.6 million) for the year ended December 31, 2007. The increase in revenue was primarily due to (i) the growing demand for high technology PCBs due to continued infrastructure spending in the PRC, (ii) the PRC government’s policies, which provided incentives to encourage local and overseas investments focusing on the research, development, and production of high technology electronic products, which increased demand for high technology PCBs, and (iii) the continued outsourcing of high technology PCB production into China from the U.S., Europe and Japan, which contributed to the PCB Business increasing its blended average selling price to US$27 per square foot of PCB in the year ended December 31, 2008, compared with a blended average selling price of US$25 per square foot in the year ended December 31, 2007.


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Cost of sales
 
Cost of sales increased by 33.5% to HK$4,205.0 million (US$540.1 million) in the year ended December 31, 2008 from HK$3,150.2 million (US$403.8 million) in the year ended December 31, 2007. This increase in cost of sales was due primarily to an increase in production volume of PCBs, an increase in raw material costs and initial start-up costs of GME, the new PCB production plant in Guangzhou. Other factors contributing to the increase in cost of sales include RMB appreciation (which increased RMB costs in U.S. Dollar terms), as well as higher energy and labor costs resulting from a high level of inflation in the PRC during the first nine months of 2008.
 
Direct material costs increased by 28.7% to HK$2,482.5 million (US$318.8 million) in the year ended December 31, 2008 from HK$1,928.9 million (US$247.2 million) in the year ended December 31, 2007, primarily due to an increase in production volume, and an increase in raw material and commodity prices.
 
Direct labor costs increased by 36.0% to HK$286.4 million (US$36.8 million) in the year ended December 31, 2008 from HK$210.6 million (US$27.0 million) in the year ended December 31, 2007, primarily due to an increase in headcount as a result of the expansion of production capacity and an increase in the minimum wage rate in the PRC resulting from high inflation in the PRC.
 
Production overhead increased by 42.1% to HK$1,436.2 million (US$184.5 million) in the year ended December 31, 2008 from HK$1,010.7 million (US$129.6 million) in the year ended December 31, 2007, primarily due to the initial start-up costs (excluding redundancy costs) of GME, the new PCB plant in Guangzhou, as a result of its relatively low output, of which HK$24.3 million (US$3.1 million) was attributable to GME’s cost of sales.
 
Gross profit
 
Gross profit increased by 5.1% to HK$1,007.4 million (US$129.3 million) in the year ended December 31, 2008 from HK$958.4 million (US$122.8 million) in the year ended December 31, 2007, primarily due to the increase in revenue and production volume. Gross margin on revenue decreased to 19.3% for the year ended December 31, 2008 from 23.3% for the year ended December 31, 2007, primarily due to the increase in cost of sales described above.
 
Other income
 
Other income decreased by 1.5% to HK$158.8 million (US$20.4 million) in the year ended December 31, 2008 from HK$161.3 million (US$20.7 million) in the year ended December 31, 2007. This decrease was primarily due to the change in tax incentive policies in the PRC. The PCB Business recorded approximately HK$29.5 million (US$3.8 million) in investment tax credits received as a result of re-investment of dividend income from subsidiaries in the PRC in the year ended December 31, 2007. The investment tax credit was not available in the year ended December 31, 2008.
 
Selling and distribution expenses
 
Selling and distribution expenses increased by 13.8% to HK$227.4 million (US$29.2 million) in the year ended December 31, 2008 from HK$199.8 million (US$25.6 million) in the year ended December 31, 2007. This increase was primarily due to the increase in freight charges from HK$71.5 million (US$9.2 million) in the year ended December 31, 2007 to HK$95.4 million (US$12.3 million) in the year ended December 31, 2008, as a result of the increase in production volume and revenue.
 
General and administrative expenses
 
General and administrative expenses increased by 29.3% to HK$259.7 million (US$33.4 million) in the year ended December 31, 2008 from HK$200.9 million (US$25.8 million) in the year ended December 31, 2007. This increase was primarily due to the start-up costs (excluding redundancy costs) incurred for the new plant in Guangzhou (GME), totaling approximately HK$38.2 million (US$4.9 million), compared with HK$19.7 million (US$2.5 million) for the year ended December 31, 2007, as well as various retrenchment costs of approximately HK$11.2 million (US$ 1.4 million) due to the change in global economic conditions. The higher cost was partially offset by the functional currency exchange gain of approximately HK$152.0 million (US$19.5 million) in the year ended December 31, 2008 as a result of the appreciation


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of RMB, compared with a gain of HK$68.3 million (US$8.8 million) for the year ended December 31, 2007. The functional exchange gain is a result of certain PCB Subsidiaries, whose functional currency are in RMB, having a significant amount of assets denominated in RMB, such as inventories, receivables, cash, and cash equivalents, with a significant amount of liabilities denominated in Hong Kong dollars, such as accounts payable. As the RMB appreciated significantly during 2008, an exchange gain was recorded after translation of these RMB denominated assets and Hong Kong dollar denominated liabilities.
 
Share award expenses
 
Share award expenses decreased by 95.3% to HK$10.6 million (US$1.4 million) in the year ended December 31, 2008 from HK$226.1 million (US$29.0 million) in the year ended December 31, 2007. This decrease was primarily due to the fact that a majority of the share awards were granted and vested in the year ended December 31, 2007. The non-cash share award expenses had no impact on the cash flow and net asset value of the PCB Business as the corresponding amounts were credited to the employee share-based compensation reserve account.
 
Operating profit
 
Operating profit increased by 35.6% to HK$668.5 million (US$85.9 million) in the year ended December 31, 2008 from HK$492.9 million (US$63.2 million) in the year ended December 31, 2007. This increase was primarily due to the decrease in share award expenses. Excluding share award expenses, the operating performance in the year ended December 31, 2008 was negatively impacted by the lower gross profit margin, the higher selling and distribution expenses, and the higher general and administrative expenses.
 
Interest income
 
Interest income decreased by 38.9% to HK$17.4 million (US$2.2 million) in the year ended December 31, 2008 from HK$28.5 million (US$3.7 million) in the year ended December 31, 2007. This decrease was primarily due to Meadville earning more bank interest income from the net proceeds from the initial public offering of Meadville’s shares in February 2007, which was not applicable to 2008.
 
Finance costs
 
Finance costs increased by 24.1% to HK$129.4 million (US$16.6 million) in the year ended December 31, 2008 from HK$104.3 million (US$13.4 million) in the year ended December 31, 2007. This increase was primarily due to higher levels of bank borrowings and an increase in accretion charges on the financial liabilities to HK$15.9 million (US$2.0 million) in the year ended December 31, 2008, from none in the year ended December 31, 2007.
 
Income tax expense
 
Income tax expense increased by 13.6% to HK$72.9 million (US$9.4 million) in the year ended December 31, 2008 from HK$64.2 million (US$8.2 million) in the year ended December 31, 2007. Income tax expense as a percentage of profit before income tax and non-cash share award expenses increased to 12.9% in the year ended December 31, 2008 from 10.0% in the year ended December 31, 2007. This increase was primarily due to an overall increase in corporate income tax rates pursuant to the new Corporate Income Tax Law in the PRC, which became effective on January 1, 2008, and the expiration of certain tax incentives enjoyed by the DMC plant, the exemption which it had from PRC national enterprise income tax expired during the year ended December 31, 2008.
 
Profit for the year
 
As a result of the foregoing, profit for the year increased by 37.0% to HK$483.6 million (US$62.1 million) in the year ended December 31, 2008 from HK$352.9 million (US$45.2 million) in the year ended December 31, 2007.


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Year ended December 31, 2007 compared to year ended December 31, 2006
 
Revenue
 
The revenue of the PCB Business increased by 44.7% to HK$4,108.6 million (US$526.6 million) in the year ended December 31, 2007 from HK$2,838.8 million (US$365.4 million) for the year ended December 31, 2006. The increase in revenue in 2007 was primarily due to (i) an increase in global demand for high-end PCBs with applications in telecommunication infrastructure, mobile handsets, and other related end products, and the growth in revenue from high value-added business from multinational original equipment manufacturers, and (ii) China’s continuous infrastructure spending in preparation for the 2008 Olympic Games in Beijing, together with the growing Chinese economy, giving rise to increased demand in both infrastructure and high technology end products in the telecommunications sector. Percentage of total revenue generated from sales to the telecommunication sector increased to 50.8% in the year ended December 31, 2007 from 43.6% in the year ended December 31, 2006. The average layer count and blended average sale price also increased to 7.5 layers and US$25 per square foot in the year ended December 31, 2007, from 7.3 layers and US$23 per square foot in the year ended December 31, 2006.
 
Cost of sales
 
Cost of sales increased by 39.3% to HK$3,150.2 million (US$403.8 million) in the year ended December 31, 2007 from HK$2,261.4 million (US$291.1 million) in the year ended December 31, 2006. This increase in cost of sales was due primarily to the increase in sales volume and revenue. Cost of sales as a percentage of revenue decreased to 76.7% in the year ended December 31, 2007 from 79.7% in the year ended December 31, 2006, primarily due to an increased proportion of sales of higher layer count PCBs, which generated higher margins.
 
Direct material costs increased by 47.1% to HK$1,928.9 million (US$247.2 million) in the year ended December 31, 2007 from HK$1,311.4 million (US$168.8 million) in the year ended December 31, 2006, primarily due to an increase in production volume.
 
Direct labor costs increased by 38.6% to HK$210.6 million (US$27.0 million) in the year ended December 31, 2007 from HK$152.0 million (US$19.6 million) in the year ended December 31, 2006, primarily due to an increase in headcount as a result of production capacity expansion.
 
Production overhead increased by 26.7% to HK$1,010.7 million (US$129.6 million) in the year ended December 31, 2007 from HK$798.0 million (US$102.7 million) in the year ended December 31, 2006, primarily due to an overall increase in indirect labor, depreciation and amortization expenses, utilities, operating expenses, and repair and maintenance expenses, in each case as a result of increases in production volume and production capacity expansion. Production overhead as a percentage of revenue decreased to 24.6% in the year ended December 31, 2007 from 28.1% in the year ended December 31, 2006, primarily due to higher capacity utilization and better economies of scale as a result of higher concentration in high-end PCB products.
 
Gross profit
 
Gross profit increased by 66.0% to HK$958.4 million (US$122.8 million) in the year ended December 31, 2007 from HK$577.4 million (US$74.3 million) in the year ended December 31, 2006. Gross margin on revenue increased to 23.3% for the year ended December 31, 2007 from 20.3% for the year ended December 31, 2006. The increase was driven by an increased proportion of sales of higher layer, higher margin products and the effect of improving cost efficiency resulting from increased production capacity. In addition, revenue generated from RMB sales was sufficient for the PCB Business to pay a majority of the cost of sales, which helped hedge the PCB Business from increased cost of sales due to RMB appreciation.
 
Other income
 
Other income increased by 85.0% to HK$161.3 million (US$20.7 million) in the year ended December 31, 2007 from HK$87.2 million (US$11.2 million) in the year ended December 31, 2006. This increase was primarily due to higher scrap sales of HK$120.0 million (US$15.4 million) in the year ended December 31, 2007, compared with HK$61.8 million (US$8.0 million) for the year ended December 31, 2006, as a result of higher PCB production volume and increased copper and gold scrap resale unit prices.


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Selling and distribution expenses
 
Selling and distribution expenses increased by 68.0% to HK$199.8 million (US$25.6 million) in the year ended December 31, 2007 from HK$118.9 million (US$15.3 million) in the year ended December 31, 2006. This increase was primarily due to higher market development expenses and freight and shipping costs, plus higher assembly costs associated with the sales of high-end PCBs.
 
General and administrative expenses
 
General and administrative expenses increased by 55.1% to HK$200.9 million (US$25.8 million) in the year ended December 31, 2007 from HK$129.5 million (US$16.7 million) in the year ended December 31, 2006. This increase was primarily due to pre-operating expenses of the two new plants in Guangzhou amounting to HK$19.7 million (US$2.5 million) in 2007.
 
Share award expenses
 
Meadville had share award expenses of HK$226.1 million (US$29.0 million) in the year ended December 31, 2007, arising from share awards granted to employees upon the successful listing of Meadville in February 2007. The share award expenses were based on the offer price of HK$2.25 per share. These share award expenses had no impact on the cash flow of the PCB Business and net assets value, as corresponding amounts were credited to the reserve account of the PCB Business. No such share award expenses were incurred in the year ended December 31, 2006.
 
Operating profit
 
Operating profit increased by 18.4% to HK$492.9 million (US$63.2 million) in the year ended December 31, 2007 from HK$416.2 million (US$53.6 million) in the year ended December 31, 2007. The increase in operating profit was primarily due to an increased proportion of sales of higher layer, higher margin products and the effect of improving cost efficiency resulting from increased production capacity.
 
Interest income
 
Interest income increased by 383.1% to HK$28.5 million (US$3.7 million) in the year ended December 31, 2007 from HK$5.9 million (US$0.8 million) in the year ended December 31, 2006. This increase was primarily due to interest earned from the net proceeds of Meadville’s initial public offering that Meadville received in February 2007.
 
Finance costs
 
Finance costs increased by 33.7% to HK$104.3 million (US$13.4 million) in the year ended December 31, 2007 from HK$78.0 million (US$10.0 million) in the year ended December 31, 2006. This increase was primarily due to higher bank borrowings incurred to finance the purchase of property, plant and equipment for ongoing expansion and upgrading of the production plants, and the acquisition of an 80% interest in Meadville Aspocomp (BVI) Holdings Limited and certain equipment from Aspocomp Group OYJ on November 30, 2007, for a cost of approximately HK$707.6 million (US$90.7 million).
 
Income tax expense
 
Income tax expense increased by 54.3% to HK$64.2 million (US$8.2 million) in the year ended December 31, 2007 from HK$41.6 million (US$5.3 million) in the year ended December 31, 2006, primarily due to higher profits generated. Income tax expense as a percentage of profit before income tax and non-cash share award expenses decreased to 10.0% in the year ended December 31, 2007 from 12.1% in the year ended December 31, 2006, due to a higher percentage of profits contributed by our DMC and SYE plants, which were entitled to exemptions from or reductions in PRC national enterprise income tax.


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Profit for the year
 
As a result of the foregoing, profit for the year increased by 16.7% to HK$352.9 million (US$45.2 million) in the year ended December 31, 2007 from HK$302.5 million (US$38.9 million) in the year ended December 31, 2006.
 
Reconciliation of HKFRS to U.S. GAAP
 
The combined financial statements of the PCB Business are prepared on a carve-out basis in accordance with HKFRS, which differ in certain significant respects from U.S. GAAP. The principal differences between HKFRS and U.S. GAAP as they relate to the PCB Business are discussed in Note 35 to the combined financial statements of the PCB Business included in this proxy statement/prospectus. These notes include a reconciliation of net income and total equity under HKFRS to net income and total equity under U.S. GAAP.
 
The most significant items in reconciling the net income and total equity under HKFRS of the PCB Business to U.S. GAAP related to the acquisition of noncontrolling interests, put and call options on noncontrolling interests, and available-for-sale financial assets. Further information on such differences and adjustments is set forth in the notes to the combined financial statements of the PCB Business mentioned above.
 
Net income under U.S. GAAP amounted to HK$491.5 million (US$63.1 million) for the year ended December 31, 2008, up from HK$353.2 million (US$45.3 million) for the year ended December 31, 2007 under U.S. GAAP. This corresponds to a 39.2% increase in net income in Hong Kong dollars under U.S. GAAP, as compared to a 37.0% increase in net income under HKFRS. This difference is primarily related to the put and call options on noncontrolling interests between 2007 and 2008.
 
Net income under U.S. GAAP amounted to HK$217.0 million (US$28.0 million) for the nine months ended September 30, 2009, compared to HK$428.9 million (US$55.0 million) for the nine months ended September 30, 2008.
 
Liquidity and Capital Resources
 
Overview
 
The primary uses of cash for the PCB Business are to pay for property, plant, and equipment, leasehold land and land use rights, technology costs, and to fund its working capital and normal recurring expenses, including raw materials. To date Meadville has financed the liquidity requirements of the PCB Business through a combination of internal resources and short and long-term bank borrowings. In 2007, Meadville also financed the liquidity requirements of the PCB Business from the proceeds of Meadville’s initial public offering. Going forward, Meadville expects the liquidity requirements of the PCB Business will be satisfied using a combination of the proceeds from the credit agreement and cash provided by operating activities.
 
The following table sets out the summary cash flow data of the PCB Business for the periods indicated:
 
                                         
    Year Ended December 31,     Nine Months Ended September 30,  
    2006     2007     2008     2008     2009  
    (In thousands of HK$)  
                      (Unaudited)        
 
Net cash inflow from operating activities
  $ 339,389     $ 1,102,251     $ 1,391,372     $ 713,537     $ 307,046  
Net cash outflow from investing activities
    (665,482 )     (1,930,754 )     (1,344,974 )     (1,054,617 )     (264,174 )
Net cash inflow from financing activities
    298,550       1,138,308       332,008       310,187       31,825  
                                         
Net (decrease)/increase in cash and cash equivalents
  $ (27,543 )   $ 309,805     $ 378,406     $ (30,893 )   $ 74,697  
                                         


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Net cash generated from operating activities
 
Net cash flow generated from operating activities consists of operating profit before working capital changes and changes in working capital. In the nine months ended September 30, 2009, net cash generated from operating activities was HK$307.0 million (US$39.6 million). Net cash inflow from operating activities in the nine months ended September 30, 2009 was primarily due to a profit before income tax of HK$243.7 million (US$31.4 million) and adjustments for non-cash and non-operating items, including primarily depreciation costs of HK$364.0 million (US$47.0 million) and finance costs of HK$63.8 million (US$8.2 million). As a consequence, a cash inflow from operating activities before working capital changes of HK$670.6 million (US$86.5 million) was recorded.
 
In the nine months ended September 30, 2009, a net cash outflow from changes in working capital of HK$254.2 million (US$32.8 million) was recorded. This resulted primarily from a decrease in creditors and accruals of HK$328.0 million (US$42.3 million), a decrease in long-term other payables of HK$49.6 million (US$6.4 million), and amounts due to an immediate holding company of HK$54.9 million (US$7.1 million). The foregoing were partially offset by a decrease in debtors and prepayments of HK$79.9 million (US$10.3 million) and amounts due from fellow subsidiaries of HK$112.4 million (US$14.5 million). The net cash generated from operating activities was also reduced by a net interest payment of HK$61.3 million (US$7.9 million) and HK$48.0 million (US$6.2 million) of taxes paid.
 
In 2008, net cash generated from operating activities was HK$1,391.4 million (US$178.7 million). Net cash generated from operating activities in the year 2008 was primarily due to profit before income tax of HK$556.5 million (US$71.5 million) and adjustments for non-cash and non-operating items, including primarily depreciation costs of HK$420.9 million (US$54.1 million) and finance costs of HK$129.4 million (US$16.6 million), partially offset by net exchange differences of HK$138.5 million (US$17.8 million). As a consequence, cash inflow from operating activities before working capital changes of HK$993.5 million (US$127.6 million) was recorded.
 
In 2008, a net cash inflow from changes in working capital of HK$581.8 million (US$74.7 million) was recorded. This resulted primarily due to a decrease in debtors and prepayments of HK$317.2 million (US$40.7 million), an increase in creditors and accruals of HK$117.7 million (US$15.1 million) and amounts due to an immediate holding company of HK$354.0 million (US$45.5 million). The foregoing were partially offset by amounts due to fellow subsidiaries of HK$157.3 million (US$20.2 million) and amounts due to minority shareholders of HK$25.4 million (US$3.3 million). The net cash generated from operating activities was also reduced by a net interest payment of HK$70.7 million (US$9.1 million) and HK$113.3 million (US$14.6 million) of taxes paid.
 
In 2007, net cash generated from operating activities was HK$1,102.3 million (US$141.3 million). Net cash generated from operating activities in the year 2007 was primarily due to profit before income tax of HK$417.1 million (US$53.5 million) and adjustments for non-cash and non-operating items, including primarily depreciation costs of HK$278.7 million (US$35.7 million), finance costs of HK$104.3 million (US$13.4 million), and share award expenses of HK$226.1 million (US$29.0 million), partially offset by net exchange differences of HK$48.3 million (US$6.2 million). As a consequence, a cash inflow from operating activities before working capital changes of HK$966.1 million (US$123.8 million) was recorded.
 
In 2007, a net cash inflow from changes in working capital of HK$287.1 million (US$36.8 million) was recorded. This resulted primarily from an increase in creditors and accruals of HK$387.7 million (US$49.7 million), an increase in long-term other payables of HK$115.7 million (US$14.8 million), and an amount due to an immediate holding company of HK$290.0 million (US$37.2 million). The foregoing were partially offset by an increase in inventories of HK$104.1 million (US$13.3 million) and an increase in debtors and prepayments of HK$149.8 million (US$19.2 million). The net cash generated from operating activities was also reduced by net interest payments of HK$75.8 million (US$9.7 million) and HK$75.1 million (US$9.6 million) of taxes paid.
 
In 2006, net cash generated from operating activities was HK$339.4 million (US$43.7 million). Net cash generated from operating activities in the year 2006 was primarily due to profit before income tax of HK$344.1 million (US$44.3 million) and adjustment for non-cash and non-operating items, including primarily depreciation costs of HK$200.3 million (US$25.8 million) and finance costs of HK$78.0 million (US$10.0 million). As a consequence, a cash inflow from operating activities before working capital changes of HK$609.9 million (US$78.5 million) was recorded.


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In 2006, a net cash outflow from changes in working capital of HK$159.3 million (US$20.5 million) was recorded. This resulted primarily from an increase in inventories of HK$56.7 million (US$7.3 million) and an increase in debtors and prepayments of HK$235.3 million (US$30.3 million). The foregoing were partially offset by an increase in creditors and accruals of HK$202.2 million (US$26.0 million). The net cash generated from operating activities was also reduced by net interest payments of HK$72.1 million (US$9.3 million) and HK$39.0 million (US$5.0 million) of taxes paid.
 
Net cash used in investing activities
 
Meadville’s principal investment activities are purchases of property, plant, and equipment, and purchases of leasehold land and land use rights. In 2006, 2007, and 2008 and for the nine months ended September 30, 2009, Meadville experienced net cash outflows as a result of its investing activities.
 
In the nine months ended September 30, 2009, net cash used in investing activities was HK$264.2 million (US$34.1 million). Net cash used in investing activities in the nine months ended September 30, 2009 was primarily due to the purchase of HK$269.0 million (US$34.7 million) of property, plant, and equipment for Meadville’s PCB plants.
 
In 2008, net cash used in investing activities was HK$1,345.0 million (US$172.7 million). Net cash used in investing activities in the year 2008 was primarily due to the purchase of HK$1,347.6 million (US$173.1 million) of property, plant, and equipment for Meadville’s PCB plants.
 
In 2007, net cash used in investing activities was HK$1,930.8 million (US$247.5 million). Net cash used in investing activities in the year 2007 was primarily due to the purchase of HK$1,218.3 million (US$156.2 million) of property, plant, and equipment for Meadville’s PCB plants and the use of HK$694.7 million (US$89.0 million) to acquire a subsidiary, net of bank balances and cash acquired, in connection with the acquisition of 80% of the share capital of Meadville Aspocomp (BVI) Holdings Limited from Aspocomp Group OYJ.
 
In 2006, net cash used in investing activities was HK$665.5 million (US$85.7 million). Net cash used in investing activities in the year 2006 was primarily due to the purchase of HK$643.3 million (US$82.8 million) of property, plant, and equipment for Meadville’s PCB plants.
 
Net cash generated from financing activities
 
Historically, cash generated from financing activities is derived from long- and short-term bank loans and bank overdrafts.
 
In the nine months ended September 30, 2009, net cash generated from financing activities was HK$31.8 million (US$4.1 million). Net cash generated from financing activities in the nine months ended September 30, 2009 was primarily due to new borrowings of HK$1,086.1 million (US$140.1 million), capital contribution by a minority shareholder of HK$88.3 million (US$11.4 million), and repayment of loan to a fellow subsidiary of HK$31.0 million (US$4.0 million). The foregoing were partially offset by repayment of borrowings of HK$1,082.3 million (US$139.6 million) and dividends of HK$91.4 million (US$11.8 million) paid to a minority shareholder.
 
In 2008, net cash generated from financing activities was HK$332.0 million (US$42.6 million). Net cash generated from financing activities in the year 2008 was primarily due to new borrowings of HK$3,355.8 million (US$431.0 million), partially offset by repayment of borrowings of HK$2,382.6 million (US$306.0 million) and dividends of HK$600.1 million (US$77.1 million) paid to shareholders.
 
In 2007, net cash generated from financing activities was HK$1,138.3 million (US$145.9 million). Net cash generated from financing activities in the year 2007 was primarily due to new borrowings of HK$3,030.0 million (US$388.4 million), a capital contribution from an immediate holding company of HK$826.6 million (US$105.9 million), and a capital contribution by a minority shareholder of HK$114.3 million (US$14.7 million). The foregoing were partially offset by repayment of borrowings of HK$2,031.0 million (US$260.3 million), dividends of HK$290.0 million (US$37.2 million) paid to shareholders, and a distribution of HK$410.0 million (US$52.6 million) to a shareholder.


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In 2006, net cash generated from financing activities was HK$298.6 million (US$38.4 million). Net cash generated from financing activities in the year 2006 was primarily due to new borrowings of HK$1,743.7 million (US$224.5 million), partially offset by repayment of borrowings of HK$1,434.0 million (US$184.6 million) and dividends of HK$29.2 million (US$3.8 million) paid to a minority shareholder.
 
Indebtedness
 
The total borrowings of the PCB Business amounted to HK$1,572.8 million (US$202.2 million), HK$2,587.4 million (US$331.8 million), HK$3,586.2 million (US$462.7 million), and HK$3,564.5 million (US$459.9 million) as of December 31, 2006, 2007, 2008, and September 30, 2009 respectively. The increased level of borrowings during the three years ended December 31, 2008 was primarily due to the expansion of the production capacity of the PCB Business. During these periods, the borrowings were mainly used to acquire property, plant and equipment at Meadville’s PCB plants and the acquisition of 80% of the share capital of Meadville Aspocomp (BVI) Holdings Limited from Aspocomp Group OYJ. The decreased level of borrowings during the nine months period ended September 30, 2009, was due to a reduction in capital expenditures and working capital in response to lower demand for PCB products resulting from global economic conditions in 2009. The gearing ratio (total borrowings as a percentage of total assets) of the PCB Business decreased from 44.3% as of December 31, 2006 to 38.3% as of December 31, 2007 due to a capital injection by an immediate holding company of the PCB Business in 2007, and subsequently increased to 44.8% as of December 31, 2008, and to 47.4% as of September 30, 2009, mainly due to an increase in bank borrowings and a reduction in amounts due from fellow subsidiaries, respectively.
 
The table below sets out the indebtedness of the PCB Business at the end of each of the reporting periods indicated.
 
                                 
                      As of
 
    As of December 31,     September 30,
 
    2006     2007     2008     2009  
    (In thousands of HK$)  
 
Non-Current
  $ 667,600     $ 1,679,147     $ 2,763,230     $ 2,954,662  
Current
    905,236       908,288       823,013       609,794  
                                 
Total
  $ 1,572,836     $ 2,587,435     $ 3,586,243     $ 3,564,456  
                                 
 
                                 
                      As of
 
    As of December 31,     September 30,
 
    2006     2007     2008     2009  
    (In thousands of HK$)  
 
Secured
  $ —     $ —     $ —     $ —  
Unsecured
    1,572,836       2,587,435       3,586,243       3,564,456  
                                 
Total
  $ 1,572,836     $ 2,587,435     $ 3,586,243     $ 3,564,456  
                                 
 
Following the closing of the PCB Combination, certain existing facilities of the PCB Business will be refinanced from the proceeds of the credit agreement, pursuant to which seven banks (including HSBC), subject to the satisfaction of certain conditions to drawdown, will provide credit facilities in the total amount of approximately US$582.5 million (equivalent to approximately HK$4,514.5 million) to be used for such refinancing and for the working capital of the PCB Business.


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Inventories
 
The following table sets out a summary of the inventory of the PCB Business as of the dates indicated:
 
                                 
                      As of
 
    As of December 31,     September 30,
 
    2006     2007     2008     2009  
    (In thousands of HK$)  
 
Raw materials
  $ 81,982     $ 121,233     $ 150,286     $ 159,529  
Work in progress
    77,617       114,755       101,448       132,171  
Finished goods
    103,841       161,860       173,315       161,230  
Consumable stock
    3,125       572       2,004       4,639  
                                 
Total
  $ 266,565     $ 398,420     $ 427,053     $ 457,569  
                                 
Inventory turnover days
    38       39       36       42  
                                 
 
 
Note:  The number of days of inventory turnover is equal to the average inventory (being the inventory balance at the beginning of the year or period plus the inventory balance at the end of the year or period, divided by 2) divided by the cost of sales for the corresponding year or period and then multiplied by 365 for each of the three years ended December 31, 2006, 2007, and 2008 or 273 for the nine months ended September 30, 2009.
 
The number of days of inventory turnover of the PCB Business for each of the three years ended December 31, 2008 and the nine months ended September 30, 2009 were 38 days, 39 days, 36 days, and 42 days respectively. The inventory balances as at December 31, 2006, 2007, and 2008 and September 30, 2009 were HK$266.6 million (US$34.3 million), HK$398.4 million (US$51.1 million), HK$427.1 million (US$55.1 million) and HK$457.6 million (US$59.0 million), respectively. The increase in inventory balances from 2006 to 2009 primarily resulted from the continuous expansion of the operations of the PCB Subsidiaries and the increase in revenue.
 
The cost of inventories recognized as expenses and included in cost of sales for the period indicated was as follows:
 
                                         
        Nine Months Ended
    Year Ended December 31,   September 30,
    2006   2007   2008   2008   2009
    (In thousands of HK$)
 
Cost of inventories
  $ 2,249,110     $ 3,137,705     $ 4,198,374     $ 3,151,242     $ 2,846,842  
                                         
 
Debtors and prepayments
 
The following table sets out a summary of the debtors and prepayments of the PCB Business as of the dates indicated:
 
                                 
                      As of
 
    As of December 31,     September 30,
 
    2006     2007     2008     2009  
    (In thousands of HK$)  
 
Debtors
  $ 1,019,129     $ 1,368,801     $ 986,983     $ 958,917  
Prepayments and other receivables
    95,781       112,052       176,689       124,842  
                                 
Total
  $ 1,114,910     $ 1,480,853     $ 1,163,672     $ 1,083,759  
                                 
Debtors turnover days
    118       106       82       76  
                                 
 
 
Note:  The number of days of debtors turnover is equal to the average debtor balance (being the debtor balance at the beginning of the year or period plus the debtor balance at the end of the year or period, divided by 2) divided by the revenue for the corresponding year or period and then multiplied by 365 for each of the three years ended December 31, 2006, 2007, and 2008 or 273 for the nine months ended September 30, 2009.


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The increase in debtor balance during 2007 was primarily due to growth of revenue in 2007. The decrease in debtor balance during 2008 and the nine months ended September 30, 2009 was primarily due to the decrease in revenue as a result of global economic conditions. The debtor turnover days for each of the three years ended December 31, 2008 and the nine months ended September 30, 2009 were 118 days, 106 days, 82 days, and 76 days respectively. The decrease in debtor turnover days was primarily due to continuous effort to improve and shorten the collections period.
 
Creditors and accruals
 
The following table sets out creditors and accruals of the PCB Business as of the dates indicated:
 
                                 
    As of December 31,     As of September 30,
 
    2006     2007     2008     2009  
    (In thousands of HK$)  
 
Creditors
  $ 329,574     $ 598,331     $ 667,797     $ 571,752  
Accruals
    381,683       672,426       720,622       488,643  
                                 
Total
  $ 711,257     $ 1,270,757     $ 1,388,419     $ 1,060,395  
                                 
Creditors turnover days
    53       54       55       59  
                                 
 
 
Note:  The number of days of creditors turnover is equal to the average creditor balance (being the creditor balance at the beginning of the year or period plus the creditor balance at the end of the year or period, divided by 2) divided by the cost of sales for the corresponding year or period and then multiplied by 365 for each of the three years ended December 31, 2006, 2007, and 2008 or 273 for the nine months ended September 30, 2009.
 
The increase in creditor balance during the three years ended December 31, 2008 was primarily due to the increasing scale of operations. The decrease in creditor balance during the nine months ended September 30, 2009 was primarily due to a decrease in capital expenditures and in purchase of supplies as a result of global economic conditions. The creditor turnover days of the PCB Business for each of the three years ended December 31, 2008 and the nine months ended September 30, 2009 were 53 days, 54 days, 55 days, and 59 days, respectively. The creditor turnover days of the PCB Business remained almost constant at 53 days in 2006, 54 days in 2007, and 55 days in 2008, and increased to 59 days for the nine months ended September 30, 2009, primarily as a result of better management of working capital.
 
Off-balance sheet arrangements
 
As of September 30, 2009, none of the PCB Subsidiaries was a financial guarantor of obligations of any unconsolidated entity and not a party to any material off-balance sheet obligations or arrangements.
 
Working capital
 
Taking into account the estimated net proceeds from the credit agreement, available banking facilities, and cash flows from the operations of the PCB Business, Meadville believes that the PCB Business has sufficient working capital for its present requirements, which is for at least the next 12 months from the date of this proxy statement/prospectus.
 
Net current assets
 
As of September 30, 2009, the PCB Business had net current assets of HK$445.0 million (US$57.4 million). Current assets comprised mainly inventories of HK$457.6 million (US$59.0 million), debtors and prepayments of HK$1,083.8 million (US$139.8 million), cash and bank balances of HK$849.0 million (US$109.5 million), amounts due from fellow subsidiaries of HK$13.9 million (US$1.8 million), and other current assets of HK$24.1 million (US$3.1 million). Current liabilities comprised mainly creditors and accruals of HK$1,060.4 million (US$136.8 million), bank borrowings of HK$609.8 million (US$78.7 million), amount due to an immediate holding company of HK$49.5 million (US$6.4 million), amount due to a minority shareholder of HK$122.3 million (US$15.8 million), amounts due to fellow subsidiaries of HK$98.0 million (US$12.6 million),


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amount due to a subsidiary of a minority shareholder of HK$18.3 million (US$2.4 million), taxation payable of HK$23.2 million (US$3.0 million), and other current liabilities of HK$2.0 million (US$0.3 million).
 
                                 
                      As of
 
    As of December 31,     September 30,
 
    2006     2007     2008     2009  
    (In thousands of HK$)  
 
Current assets
  $ 1,547,568     $ 2,609,123     $ 2,798,110     $ 2,428,419  
Current liabilities
    (2,248,305 )     (2,773,252 )     (3,140,986 )     (1,983,451 )
Net current (liabilities)/assets
  $ (700,737 )   $ (164,129 )   $ (342,876 )   $ 444,968  
                                 
Quick ratio
    0.57       0.80       0.75       0.99  
                                 
 
 
Note:  Quick ratio is equal to current assets (net of inventories) divided by current liabilities.
 
The increase in the net current assets position of the PCB Business is primarily due to the capital injection from an immediate holding company of the PCB Business.
 
Capital expenditures
 
As of December 31, 2006, 2007, and 2008 and as of September 30, 2009, the PCB Business incurred HK$665.8 million (US$85.7 million), HK$2,121.1 million (US$271.9 million), HK$1,347.6 million (US$173.1 million), and HK$269.0 million (US$34.7 million), respectively, of capital expenditures. The current business strategy of the PCB Business contemplates capital expenditures of approximately HK$116.0 million (US$15.0 million), HK$316.0 million (US$40.8 million), HK$412.0 million (US$53.2 million), and HK$416.0 million (US$53.7 million) in the fourth quarter of 2009 and full years of 2010, 2011, and 2012, respectively.
 
The figures in the capital expenditure plans of the PCB Business are based on Meadville’s estimates and have not been appraised by an independent organization. The actual capital expenditures of the PCB Business (including the types and amount of capital expenditures that the PCB Subsidiaries and/or the combined company elect to make) may differ from the amounts set forth above. The capital expenditure plans of the PCB Business are subject to a number of variables, including possible cost overruns, construction delays, availability of financing on acceptable terms, and demand for its products and services. In addition, due to changes in economic or demand conditions, government and tax policies, the competitive landscape, or other factors, capital expenditures could change. There can be no assurance that the PCB Subsidiaries and/or the combined company can execute the contemplated capital expenditure plans at or below its estimated costs or at all.


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Contractual obligations and commitments
 
The following table provides information on contractual obligations and commitments as of December 31, 2008:
 
                                         
          Less than
                More than
 
    Total     1 Year     1 - 3 Years     3 - 5 Years     5 Years  
    (In thousands of HK$)  
 
Long-term debt obligations
  $ 3,122,212     $ 358,982     $ 1,448,099     $ 1,315,131     $ —  
Interest on long-term debt obligations(1)
    108,474       42,570       58,670       7,234       —  
Operating leases
    24,078       2,391       1,468       1,524       18,695  
Capital commitment in respect of property, plant and equipment
    332,771       332,611       160       —       —  
Other long-term liabilities reflected on the balance sheet under HKFRS
    243,184       —       55,354       187,830       —  
Interest on other long-term liabilities reflected on the balance sheet under HKFRS(1)
    42,444       9,289       21,844       11,311       —  
                                         
Total contractual obligations
  $ 3,873,163     $ 745,843     $ 1,585,595     $ 1,523,030     $ 18,695  
                                         
 
 
(1) The respective interest payments are estimated based on the liabilities outstanding and the applicable interest rates as of December 31, 2008.
 
Related Party Transactions
 
In 2007, SME entered into two supply agreements, on behalf of itself and other PCB Subsidiaries, with SSST and GSST, pursuant to which the PCB Subsidiaries purchased laminate and prepregs from SSST and GSST. GSST is currently owned as to approximately 22.18% by a wholly owned subsidiary of Meadville engaged in the laminate business. The subsidiary will be sold indirectly to Top Mix Investments Limited, a company controlled by Mr. Tang (the controlling shareholder of Meadville) concurrently with the effectiveness of the PCB Combination. SSST is 75% owned by GSST and will be 25% owned indirectly by Top Mix Investments Limited following the PCB Combination. In the years ended December 31, 2007 and 2008, and for the nine months ended September 30, 2009, total purchases under the two supply agreements amount to HK$455.8 million (US$58.4 million), HK$431.6 million (US$55.4 million), and HK$267.8 million (US$34.5 million), respectively. These two supply agreements expire on December 31, 2009. Accordingly, SME, on behalf of itself and other PCB Subsidiaries, entered into a new supply agreement with GSST and SSST on December 11, 2009 with similar terms as the existing supply agreements. The new supply agreement will become effective on January 1, 2010 for a term of three years.
 
Certain PCB Subsidiaries also purchase from time to time laminate and prepreg from Mica-Ava (Far East) Industrial Limited, or MAF, and Mica-AVA (Guangzhou) Material Company Ltd., or MAG, two subsidiaries of Meadville which are engaged in the laminate business, both of which will be owned by Top Mix Investments Limited following the PCB Combination. These purchases are made on a spot basis from time to time. Total sales from MAF and MAG to the PCB Subsidiaries amounted to HK$210.8 million (US$27.1 million), HK$282.0 million (US$36.1 million), HK$345.3 million (US$44.3 million), and HK$279.5 million (US$36.1 million) for the years ended December 31, 2006, 2007, and 2008, and the nine months ended September 30, 2009, respectively.
 
OPC, a PCB Subsidiary, is currently leasing from MAF a portion of real property located at Nos. 6-8 Dai Wang Street, Tai Po Industrial Estate, New Territories, Hong Kong, for warehouse purposes. The lease will expire on December 31, 2009. Meadville expects that the lease of the premises will continue on a monthly basis after December 31, 2009 for the foreseeable future.
 
GME, a PCB Subsidiary, leases a portion of its employee dormitory spaces to MAG from time to time for the use of the employees of MAG. The dormitory spaces are rented to MAG pursuant to prior written request by MAG for its employees on an individual basis, with the monthly rent to be determined in accordance with the space area


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used by the individual employees and the rate as notified by GME from time to time. Such rental arrangement between GME and MAG is effective until either party terminates the arrangement upon three months prior written notice to the other party.
 
Quantitative and Qualitative Disclosures About Market Risk
 
The PCB Business is exposed to various kinds of market risks through its international operations. These risks are material in relation to both foreign currency risk and interest rate risk.
 
Currency risks
 
The PCB Business maintains its accounts in Hong Kong dollars and a portion of its revenue and expenses are denominated in RMB, while Meadville reports the financial results of the PCB Business in Hong Kong dollars. Fluctuations in exchange rates, primarily those involving the Hong Kong dollar against the RMB, may affect its reported operating results in Hong Kong dollar terms. A majority of the PCB Subsidiaries’ equipment is purchased from companies located offshore, in such locations as Europe, Japan, or Taiwan, with payment being made in U.S. Dollars or other foreign currencies. Accordingly, a portion of the results of operations of the PCB Business is also exposed to fluctuations between the U.S. Dollar and the RMB.
 
The pegging of the Hong Kong dollar to the U.S. Dollar by the Hong Kong Monetary Authority reduces transaction risks to the extent conversion is necessary between the two currencies. However, if the pegged exchange rate between the Hong Kong dollar and the U.S. Dollar were to change, or if the Hong Kong Monetary Authority adopted a floating exchange rate policy, the results of operations and balance sheet of the PCB Business could be positively or negatively affected, depending upon whether and by how much the value of the Hong Kong dollar appreciated or depreciated against the U.S. Dollar or other relevant currencies and the extent of the mismatch, if any, between the revenue and expenses of the PCB Business in foreign currencies and its net foreign currency asset or liability position at the time.
 
The impact of future exchange rate fluctuations between the U.S. Dollar and the RMB and the Hong Kong dollar and RMB cannot be predicted. Although the impact of exchange rate fluctuations has in the past been partially mitigated by the natural hedging between the foreign currency receivables and payables of the PCB Business, there can be no assurance that the PCB Subsidiaries will be able to offset the overall impact of any exchange rate fluctuations in the future. The PCB Subsidiaries do not generally engage in hedging to manage currency risk. However, in relation to purchases of equipment in foreign currencies other than U.S. Dollars, the PCB Subsidiaries may at times purchase forward exchange contracts to manage its currency risk in relation to any particular purchase. For example, during 2009, the PCB Subsidiaries entered into certain foreign exchange forward contracts to hedge against (i) their contingent financial liabilities arising from the amount payable to Aspocomp Holding Pte. Ltd. upon the exercise of its put option in early 2013, in connection with the acquisition of an 80% interest in Meadville Aspocomp (BVI) Holdings Limited, and (ii) certain purchases of machinery denominated in foreign currencies. As at September 30, 2009, the notional amount of these contracts was approximately HK$179.7 million (US$23.2 million) and their net fair value was approximately HK$22.8 million (US$2.9 million), which was recorded as derivative financial instruments in the combined statements of financial position.


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The table below presents information about certain of the foreign currency forward contracts of the PCB Business at September 30, 2009.
 
                 
    As of September 30, 2009  
          Average
 
    Notional
    Contract Rate or
 
    Amount     Strike Amount  
    (In thousands of US$)        
 
Receive foreign currency/pay US$
               
Euro
    22,695       1.30  
Japanese Yen
    485       0.01  
                 
Total
    23,180          
                 
Estimated Fair Value
    2,941          
                 
 
Interest rate risk
 
The PCB Business is exposed to interest rate risk resulting from fluctuations in interest rates. Increases in interest rates would increase interest expenses relating to the outstanding variable rate borrowings of the PCB Business and increase the cost of new debt. Fluctuations in interest rates can also lead to significant fluctuations in the fair value of the debt obligations of the PCB Business. As of December 31, 2008 and September 30, 2009, the PCB Business had interest rate swap contracts under which it pays fixed interest rate based payments and receives variable-interest rate based payments to hedge certain of the borrowings of the PCB Business amounting to US$100 million. However, there can be no assurances that such hedging activities and any future hedging activities will protect the PCB Business from fluctuations in interest rates.
 
The tables below present information about certain of the debt instruments (bank borrowings) of the PCB Business as of the periods presented. Information as of December 31, 2008 has been translated using a HK$ / US$ exchange rate of HK$7.7499 to US$1.00. Information as of September 30, 2009 has been translated using a HK$ / US$ exchange rate of HK$7.7505 to US$1.00.
 
Debt Instruments
 
                                                                         
    As of December 31, 2008
                                                    Weighted
                                                    Average
    Maturing in     Fair Market
    Interest
    2009     2010     2011     2012     2013     Thereafter     Total     Value     Rate
    (In thousands of US$)            
 
Variable Rate:
                                                                       
US$
  $ 32,435     $ 33,876     $ 84,864     $ 149,925     $ 6,350       —     $ 307,450     $ 341,397       4.31%  
HK$
    12,721       31,208       34,218       13,421       —       —       91,568       95,889       4.16%  
RMB
    56,359       2,688       —       —       —       —       59,047       59,147       5.85%  
                                                                     
Total Variable Rate
    101,515       67,772       119,082       163,346       6,350       —       458,065       496,433          
                                                                     
Fixed Rate:
                                                                       
RMB
    4,682       —       —       —       —       —       4,682       4,682       6.57%  
                                                                     
Total Fixed Rate
    4,682       —       —       —       —       —       4,682       4,682          
                                                                     
Total
  $ 106,197     $ 67,772     $ 119,082     $ 163,346     $ 6,350       —     $ 462,747     $ 501,115          
                                                                     
 


161


 

                                                                         
    As of September 30, 2009
                                                    Weighted
                                                    Average
    Maturing in     Fair Market
    Interest
    2009     2010     2011     2012     2013     Thereafter     Total     Value     Rate
    (In thousands of US$)            
 
Variable Rate:
                                                                       
US$
  $ 7,892     $ 34,872     $ 109,482     $ 177,195     $ 7,587       —     $ 337,028     $ 337,288       1.48%  
HK$
    4,359       31,526       37,051       16,406       1,323       —       90,665       90,725       0.97%  
RMB
    15,372       —       10,248       3,660       —       —       29,280       29,827       4.94%  
                                                                     
Total Variable Rate
    27,623       66,398       156,781       197,261       8,910       —       456,973       457,840          
                                                                     
Fixed Rate:
                                                                       
RMB
    2,928       —       —       —       —       —       2,928       2,928       5.30%  
                                                                     
Total Fixed Rate
    2,928       —       —       —       —       —       2,928       2,928          
                                                                     
Total
  $ 30,551     $ 66,398     $ 156,781     $ 197,261     $ 8,910       —     $ 459,901     $ 460,768          
                                                                     
 
Interest Rate Swap Contracts (variable to fixed)
 
The tables below present information about certain of the interest rate swaps of the PCB Business as of the periods presented.
 
                                         
    As of December 31, 2008     Fair
 
    2009     2010     2011     2012     Value  
    (In thousands of US$)  
 
Average interest payout rate
    3.07 %     3.43 %     3.43 %     3.43 %        
Interest payout amount
    (2,816 )     (1,372 )     (1,066 )     (345 )        
Average interest receive rate
    1.34 %     1.34 %     1.34 %     1.34 %        
Interest receive amount
    1,244       534       415       134          
Fair value loss at December 31, 2008
                                    (3,273 )
 
                                         
    As of September 30, 2009     Fair
 
    2009     2010     2011     2012     Value  
    (In thousands of US$)  
 
Average interest payout rate
    3.15 %     3.43 %     3.43 %     3.43 %        
Interest payout amount
    (569 )     (1,372 )     (1,066 )     (345 )        
Average interest receive rate
    1.15 %     1.15 %     1.15 %     1.15 %        
Interest receive amount
    210       458       356       115          
Fair value loss at September 30, 2009
                                    (2,060 )

162


 

Important Information Relating to the Proposed Transaction
This document does not constitute an offer to sell or the solicitation of an offer to buy any securities of Meadville Holdings Limited (“Meadville”) or TTM Technologies, Inc. (“TTM”) or a solicitation of any vote or approval. In connection with the proposed transactions described in this document, TTM will file relevant materials with the U.S. Securities and Exchange Commission (the “SEC”) at www.sec.gov, and Meadville will publish certain relevant materials on the websites of the Securities and Futures Commission at www.sfc.hk and The Stock Exchange of Hong Kong at www.hkex.com.hk. On December 24, 2009 TTM filed a preliminary Registration Statement on Form S-4 with the SEC that includes a Preliminary proxy statement for the shareholders of TTM and a U.S. prospectus for Meadville and the shareholders of Meadville. Before making any voting or investment decision, TTM’s and Meadville’s shareholders and investors are urged to read Meadville’s circular and TTM’s proxy statement/U.S. prospectus regarding such transactions when they become available because they will contain important information. The proxy statement/U.S. prospectus and other documents that have been and will in the future be filed by TTM with the SEC are available free of charge at the SEC’s website, www.sec.gov, or by directing a request when such a filing is made to TTM, 2630 S. Harbor Blvd., Santa Ana, CA 92704, Attention: Investor Relations.
Participants in Solicitation
TTM, its directors and certain of its executive officers may be considered participants in the solicitation of proxies in connection with the transactions described in this document. Information about the directors and executive officers of TTM is set out in TTM’s definitive proxy statement, which was filed with the SEC on March 26, 2009. Investors may obtain additional information regarding the interests of such participants by reading the proxy statement/U.S. prospectus which TTM will file with the SEC when it becomes available.