Transparency 2 www.micronas.com FINANCIAL REPORT 2005
Transparency2
www.micronas.com
FINANCIAL REPORT 2005
Micronas Semiconductor Holding AG I Technopark I Technoparkstrasse 1 I CH-8005 Zurich I Phone +41 44 445 39 60 I Fax +41 44 445 39 61 [email protected] Holding GmbH I Hans-Bunte-Strasse 19 I D-79108 Freiburg I Phone +49 761 557 5688 I Fax +49 761 557 5690
www.micronas.com
ANNUAL REPORT 2005
> FINANCIAL REPORT 2005
COMPANY PROFILE
Micronas (SWX Swiss Exchange: MASN), a semiconductor designer and manufacturer with worldwide
operations, is a leading supplier of cutting-edge IC and sensor system solutions for consumer and
automotive electronics. As a market leader in innovative global TV system solutions, Micronas
leverages its expertise into new markets emerging through the digitization of audio and video content.
Micronas serves all major consumer brands worldwide, many of them in continuous partnerships
seeking joint success. While the holding company is headquartered in Zurich (Switzerland), operational
headquarters are based in Freiburg (Germany). Currently, the Micronas Group employs about
2000 people. In 2005 it generated CHF 845 million in sales.
www.micronas.com
Editors:
Concept, design and project management: Kiesewetter I Die Markenagentur. www.agentur-kiesewetter.de
This document was first published on February 9, 2006
This Financial Report is also available in German. The German version is legally binding.
Printed on FSC-certified (Forest Stewardship Council) paper, www.fsc.org
Contents
Financial Report
Micronas Group
Consolidated profit and loss statement 5
Consolidated balance sheet 6 – 7
Consolidated cash flow statement 8 – 9
Changes in equity 10
Notes on the consolidated financial
statements 11 – 48
Report of the Group auditors
to the ordinary Shareholders’ Meeting of
Micronas Semiconductor Holding AG, Zurich 49
Additional information 50 – 51
Financial Report
Micronas Semiconductor Holding AG
Profit and loss statement 53
Balance sheet 54 – 55
Notes on the financial statements 56 – 57
Proposal of the Board of Directors 58
Report of the statutory auditors
to the ordinary Shareholders’ Meeting 59
3
4 Financ ia l Report 2005 Micronas Group
845 074
– 531 902
313 172
37.1
– 148 675– 67 481– 27 127
5 86275 751
9.0
075 751
9.0
5 832– 8 294
0786
74 075
– 24 883
49 192
5.8
48 849343
32 159 8631.52
32 225 5361.52
1.52
1.52
Consolidated profit and loss statement5
2004CHF 1000
2005CHF 1000Note
Net sales
Cost of sales
Margin
in % of net sales
Research and development expensesMarketing expensesAdministrative and general expensesOther operating income (+) and expenses (–), net 7
Operating profit before amortization of goodwill
in % of net sales
Amortization of goodwill 16
Operating profit
in % of net sales
Financial income 9
Financial expenses 10
Loss from associatesOther income 11
Profit before tax
Income taxes 12
Profit for the period
in % of net sales
Attributable to:
Shareholders’ of the parentMinority interest
Weighted average number of issued and outstanding shares Earnings per share in CHF – undiluted 34
Weighted average number of issued and outstanding sharesfor calculation of earnings per share – diluted Earnings per share in CHF – diluted 34
Earnings per share, adjusted for amortization of goodwill after tax in CHF
– undiluted 34
– diluted 34
963 360
– 553 732
409 628
42.5
– 128 400– 57 466– 26 852
742197 652
20.5
– 25 241172 411
17.9
3 979– 8 302
– 1511 000
168 937
– 51 449
117 488
12.2
117 226262
32 145 6813.65
32 268 9603.63
4.16
4.15
6 Financ ia l Report 2005 Micronas Group
Non-current assets
Property, plant and equipment 13
Intangible assets 14
Investments 15
Goodwill 16
Long-term loans receivableDeferred tax asset 17
Total non-current assets
Current assets
Inventories 18
Accounts receivable – tradeOther current assets 19
Short-term financial investments 20
Cash and cash equivalentsTotal current assets
Total assets
Assets
Consolidated balance sheet
Note
245 13867 425
2 016394 501
6823 399
713 161
173 727101 25116 719
78312 216603 991
1 317 152
265 24168 9422 003
283 202593
7 433627 414
175 89595 22220 227
63345 312636 719
1 264 133
31.12.2004CHF 1000
31.12.2005CHF 1000
NoteShareholders’ equity and liabilities
7
Shareholders’ equity
Issued capital 21
Additional paid-in capitalReacquired shares 22
Other comprehensive incomeRetained earningsEquity attributable to shareholders of the parent
Minority interestTotal equity
Long-term liabilities
Long-term loans 23
Long-term provisions and liabilities 24, 25, 26
Deferred tax liability 27
Total long-term liabilities
Current liabilities
Current portion of long-term liabilitiesAccounts payable – tradeShort-term provisions 26
Accrued income taxesOther current liabilities 28
Total current liabilities
Total liabilities
Total shareholders’ equity and liabilities
32 634578 048– 3 430
7 630400 470
1 015 352
1 4001 016 752
1 738154 808
10 805167 351
33439 3976 958
21 91364 447
133 049
300 400
1 317 152
32 431569 076
0– 1 416
351 621951 712
1 006952 718
1 867152 310
6 741160 918
28554 731
6 13126 11363 237
150 497
311 415
1 264 133
31.12.2004CHF 1000
31.12.2005CHF 1000
8 Financ ia l Report 2005 Micronas Group
Consolidated cash flow statement
Profit before taxDepreciation and amortization (excl. goodwill)Interest expense, net (excl. interest portion of pension expense)Loss/gain on disposal of fixed assetsAmortization of goodwillShare compensation expenseForeign exchange gains and lossesShare in profit/loss in associatesChange in long-term provisionsCash flow before working capital changes
Change in inventoriesChange in accounts receivable – trade and other current assets Change in accounts payable – trade, short-term provisionsand other current liabilitiesCash flow from operations
Income taxes paidCash flow from operating activities
Operating activities
74 075109 140– 5 539
2470
5 257– 1 158
06 432
188 454
4 3501 027
– 19 552174 279
– 22 544151 735
Capital expenditureLong-term loansInvestment in otherAcquisition of investments, net of cash acquiredShort-term financial investmentsInterest receivedProceeds from disposal of fixed assetsCash flow from investing activities
Investing activities
– 78 429– 45
0– 107 999
– 145 807
518– 180 162
– 99 319– 167– 332
– 7 001– 2
3 8791 503
– 101 439
168 937105 500– 3 445
1925 2412 455
700151
8 797308 355
– 82 86221 263
– 5 695241 061
– 55 711185 350
2004CHF 1000
2005CHF 1000
Financing activities
Increase in issued capital and additional paid-in capitalAcquisition/disposal of own sharesProceeds from long-term borrowingsInterest paidRepayment of long-term liabilitiesCash flow from financing activities
Exchange effect on cashChange in cash and cash equivalents
Cash and cash equivalents at end of periodCash and cash equivalents as at January 1Change in cash and cash equivalents
Non cash transaction
Capitalization of a license contract as intangible asset
3 918– 3 430
163– 240
– 6 897– 6 486
1 817– 33 096
312 216345 312
– 33 096
0
6 993– 2 768
442– 213
– 7 323– 2 869
– 1 40779 635
345 312265 67779 635
11 216
9
2004CHF 1000
2005CHF 1000
10 Financ ia l Report 2005 Micronas Group
Issuedcapital
CHF 1000
Additionalpaid-incapital
Changes in equity
Reacquiredshares
Retainedearnings
Minorityinterest
Total equity
459 694
224 7615 173
45
5 132377
94 23626 320
815 738
18 1106 993
– 2 768
3 1822 455
117 488
– 8 480
952 718
3 918– 3 430
5 25749 192
9 097
1 016 752
599
145
744
262
1 006
343
51
1 400
140 304
94 091
234 395
117 226
351 621
48 849
400 470
– 1 016
1 016
0
– 2 768
2 768
0
– 3 430
– 3 430
Othercomprehen-
siveincome
– 19 256
26 320
7 064
– 8 480
– 1 416
9 046
7 630
312 036
220 2614 917
45
4 116377
541 752
17 8106 645
4142 455
569 076
3 715
5 257
578 048
31.12.2002
Share capital increaseExercise of share optionsIssue of share options Disposal of reacquired shares,net of tax CHF 215 (000)Share compensation expenseProfit for the periodTranslation adjustment
31.12.2003
Share capital increaseExercise of share optionsAcquisition of reacquired sharesDisposal of reacquired shares,net of tax CHF 35 (000)Share compensation expenseProfit for the periodTranslation adjustment,net of tax CHF 235 (000)
31.12.2004
Exercise of share optionsAcquisition of reacquired sharesShare compensation expenseProfit for the periodTranslation adjustment,net of tax CHF 434 (000)
31.12.2005
27 027
4 500256
31 783
300348
32 431
203
32 634
Notes on the consolidated financial statements
1. General
Micronas Semiconductor Holding AG is domiciled
in Technopark, Technoparkstrasse 1, CH-8005 Zurich
(Switzerland). The operative headquarters of the
Micronas Group are located in Freiburg im Breisgau
(Germany). As an international semiconductor
group, Micronas develops, manufactures and
markets integrated circuits (ICs) and sensors for
applications particular in consumer and automotive
electronics.
2. Accounting principles
General information
The consolidated financial statements of the
Micronas Group are expressed in Swiss francs
(CHF). They have been prepared in accordance with
International Financial Reporting Standards (IFRS).
The Board of Directors authorized the financial
statements for issue on February 2, 2006.
Changes in accounting policies
Improvement project: The accounting policies and
methods of computation used in the Annual Report
as at December 31, 2004, have been reviewed
in regard of the changes arising from the
Improvement Project which has been approved by
the International Accounting Standards Board
(IASB) and put into force for Annual Reports
starting January 1, 2005. The presentation of the
balance sheet and the profit and loss statement
has been, including prior year numbers, adjusted
according to the revised IAS 1.
Share-based payment transactions (IFRS 2):
Micronas applied IFRS 2 retrospectively and re-
corded the share options granted after November 7,
2002, at fair value and charges the share
compensation expense to personnel expenses.
This resulted in a decrease of our profit for 2004
from CHF 119.7 million to CHF 117.5 million and in
an increase of equity from CHF 815.0 million to
CHF 815.7 million as at January 1, 2004, and from
CHF 951.7 million to CHF 952.7 million as at
11
12 Financ ia l Report 2005 Micronas Group
Notes on the consolidated financial statements
December 31, 2004. The revised accounting policy
for share-based payment transactions is described
in a separate section.
Business combinations (IFRS 3) and impairment
of assets (IAS 36): In accordance with the
transitional provisions of IFRS 3, which superseded
IAS 22, the net book value of goodwill is no longer
amortized on a straight-line basis beginning
January 1, 2005. The provisions of IFRS 3 and
IAS 36 require that all goodwill must be reviewed
for impairment annually, or whenever circumstances
and situations arise as to indicate that the carrying
value of goodwill may not be recoverable.
Hedge accounting: Micronas adopted in 2005
hedge accounting for the first time. Hedge
derivatives are identified according to the nature of
the underlying either as a cash flow hedge or as
a fair value hedge, and are valued at cost on
trade date. During subsequent reassessments, the
change in value compared with the fair value is
either recognized in the income statement (fair
value hedge) or against equity (cash flow hedge).
Significant accounting estimates
In the process of applying the Group’s accounting
policies the Management has made estimates for
the determination of key assumptions concerning
the future and key sources of uncertainty at the
balance sheet date. Areas where such estimates
have a significant impact on the carrying amounts
are the measurement of fair values and the
mandatory annual impairment tests on goodwill.
Principles of consolidation
The consolidated financial statements include the
parent company and all companies in which the
parent company has the power to govern the com-
pany’s financial and operating policies.
The results of companies acquired are included
in the Group accounts from the date of acquisition.
Acquisitions of operations are accounted for using
the purchase method.
The fair values of identifiable assets and lia-
bilities acquired are determined by reference to
their intended use by the Micronas Group.
Goodwill, the difference between the fair values of
the net assets acquired and the higher purchase
price, is recorded as an asset and must be
reviewed for impairment annually, or whenever
circumstances and situations arise as to indicate
that the carrying value of goodwill may not be
recoverable. Goodwill is tested for impairment in
the fourth quarter of the fiscal year and also upon
the occurrence of significant events or indicators
that an impairment of goodwill may exist.
According to IAS 36, Micronas determines the
recoverable amount of the cash-generating units to
which goodwill could be definitely allocated and
compares that recoverable amount to the cash-
generating unit’s carrying value. Micronas has
determined the recoverable amount using the
value-in-use method.
Companies in which Micronas owns between
20 percent and 50 percent of the voting rights
or has significant influence by other means
(associates) are accounted for under the equity
method.
Companies in which Micronas has no significant
influence are recorded at fair value. If the fair value
cannot be determined reliably, they are recorded at
cost.
All intercompany transactions are eliminated.
Net sales
Net sales represent the invoiced value of goods
sold and services provided, less sales taxes
and certain sales-related expenses. Revenue is
recognized when the Company has transferred
to the customer the significant risks and rewards
of ownership of the goods
Foreign currency translation
The functional currency of Group companies in
Euroland is the Euro. For most other Group
companies the functional currency is the local
currency. Transactions in foreign currencies are
recorded in the functional currency at the exchange
rate prevailing on the dates of the transaction.
Financial assets and liabilities in foreign currencies
are valued in the functional currency at the exchange
rates of the balance sheet date. Transaction
differences, except for transaction differences of
equity loans, are recognized in the profit and loss
statement. Transaction differences of equity loans
are recorded directly in shareholders’ equity.
The reporting currency of the Micronas Group
is the Swiss franc. Assets and liabilities of
subsidiaries, which are denominated in foreign
currencies, are translated to Swiss francs using
the exchange rates of the balance sheet date.
For translation of the profit and loss statement
the average exchange rates for the year are
used. Translation differences resulting from the
consolidation of foreign currency-denominated
financial statements are recorded directly in share-
holders’ equity.
Any goodwill and fair value adjustments to the
carrying amounts of assets and liabilities arising on
an acquisition are translated at the exchange rates
of the balance sheet date.
Short-term financial investments
Available-for-sale financial assets are measured at
fair value subsequent to initial recognition. Gains
and losses on remeasurement to fair value are
included in profit or loss for the period in which
they arise.
Treasury stock
Treasury stock is carried at cost in shareholders’
equity. Gains and losses resulting from
transactions with treasury stock are recorded
directly in additional paid-in capital.
13
14 Financ ia l Report 2005 Micronas Group
Inventories
Raw materials are carried at the lower of cost or
net realizable value. Cost is determined by the
first-in first-out method. Work in progress and
finished goods of own production are carried at the
lower of production cost or net realizable value.
Production costs include direct labor costs,
material costs and the allocable portion of
production overhead. Resale finished goods are
carried at the lower of purchase cost or net
realizable value. Obsolete or slow-moving items
are adequately provided for.
Accounts receivable
Accounts receivable are carried at initial cost
adjusted for expected losses.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand,
current accounts with banks and short-term
deposits with an initial maturity of less than three
months.
Fixed assets
Fixed assets (property, plant and equipment)
are valued at their historical acquisition cost,
less accumulated depreciation. Depreciation is
calculated on a straight-line basis over the
expected useful lives.
Borrowing costs
Borrowing costs that arise in connection with
acquisition, construction or production of a
qualifying asset, are recognized as an expense in
the period in which they are incurred.
Intangible assets
Micronas capitalizes development costs if all of
the following can be demonstrated:
the technical feasibility of completing the
intangible asset so that it will be available for
use or sale;
the intention to complete the intangible
asset and use or sell it;
the ability to use or sell the intangible asset;
the ability to generate probable future
economic benefits;
the availability of adequate technical,
financial and other resources to complete
the development and to use or sell the
intangible asset;
the ability to measure the expenditure
attributable to the intangible asset during its
development reliably.
Notes on the consolidated financial statements
The capitalized development costs are carried at
their cost, less accumulated amortization and any
accumulated impairment losses. Amortization is
calculated on a straight-line basis over the
expected useful lives and commences when the
asset is available for use.
Other intangible assets are valued at their
historical acquisition cost, less accumulated
amortization and any accumulated impairment
losses. Amortization is calculated on a straight-
line basis over the expected useful lives. The
amortization rates are 20 percent for computer
software and 15 to 20 percent for other licenses.
Long-term loans
Financial liabilities are measured at their amortized
cost.
Leases
Finance leases are capitalized at the inception of
the lease at the fair value of the leased property or,
if lower, at the present value of the minimum lease
payments. Lease payments are apportioned
between the finance charges and reduction of the
lease liability so as to achieve a constant rate of
interest on the remaining balance of the liability.
Finance charges are charged directly against
income.
Capitalized leased assets are depreciated over
the shorter of the estimated useful life of the asset
or the lease term.
Leases where the lessor retains substantially all
the risks and benefits of ownership of the asset
are classified as operating leases. Operating lease
payments are recognized as an expense in the
income statement.
Pension benefit plans
Pension benefit plans exist in the form of state-run
pension plans and various additional pension
schemes of the Group companies. Unfunded
defined benefit plans exist for the German Group
companies for employees that have joined the
company prior to January 1, 2003. Accordingly,
they are not affected by the volatility of the stock
markets. The annual pension costs of the defined
benefit plans are charged to personnel expenses
with exception of the interest portion. The interest
portion is charged to financial expenses. Actuarial
gains and losses exceeding ten percent of the
present value of the obligation are amortized in the
income statement over the remaining working
lives of the participating employees. Changes in
liabilities for unfunded defined benefit plans are
based on actuarial valuations using the projected
unit credit method.
The annual pension costs of the Group’s defined
contribution plans are charged to personnel
expenses.
15
16 Financ ia l Report 2005 Micronas Group
Notes on the consolidated financial statements
Provisions
Provisions are recognized as either long-term or
short-term if Micronas has a present obligation
(legal or constructive) as a result of a past event,
it is probable that an outflow of resources
embodying economic benefits will be required to
settle the obligation and a reliable estimate can be
made of the amount of the obligation. Long-term
provisions are discounted to reflect the present
value, using a pre-tax discount rate that reflects
current market assessment of time value of
money.
From time to time, we may be involved in
demands, claims and threatened litigation that
arise in the normal course of our business.
Micronas Group recognizes a provision for
asserted intellectual property rights infringements
based on the probable outcome of each case as
of each balance sheet date.
Liabilities
Liabilities are recognized as long-term and short-
term liabilities. Long-term liabilities are discounted
to reflect the present value using a pre-tax
discount rate that reflects the current market
assessment of time value of money.
Government grants
Government grants related to assets are recorded
as deferred income and recognized as non-
operating income over the life of the respective
assets. Grants related to income or expense items
are presented as a credit in the profit and loss
statement under non-operating income.
Income taxes
The consolidated financial statements include
income taxes, which are based on the taxable
result of the Group companies, calculated
according to local tax rules, and deferred taxes.
Deferred taxes are provided on all temporary
differences between the tax base and accounting
base of assets and liabilities included in the Group
accounts.
Deferred taxes are calculated under the liability
method at the rates of tax expected to prevail
when the temporary differences reverse. Any
changes of the tax rates are recognized in the
income statement. Deferred tax liabilities are
recognized on all taxable temporary differences.
Deferred tax assets are recognized on all
deductible temporary differences provided that it is
probable that sufficient future taxable income will
be available.
Segments
Micronas Group’s primary segments are the
business divisions Consumer and Automotive. The
Consumer division develops, manufactures and
markets ICs for audio, video, text and graphics
used in consumer electronics and multimedia
products. The Automotive division develops,
manufactures and markets ICs and sensors used in
the automotive industry.
The secondary segments are defined by
geographical regions of net sales. The basis for
attributing revenues to individual geographical
regions is defined by the shipping destination of
the revenues.
Share-based payments
The Group issues equity-settled share-based
payments to the Board of Directors, certain
members of Management and certain key
employees. In accordance with the provisions of
IFRS 2, effective January 1, 2005, Micronas
recorded for the first time the fair value of options
granted after November 7, 2002. Equity-settled
share-based payments are measured at fair value
(excluding the effect of non-market-based vesting
conditions) at the date of grant. The fair value is
expensed on a straight-line basis over the vesting
period, based on the Group’s estimate of the
shares that will eventually vest and adjusted for
the effect of non market-based vesting conditions.
The fair value of the options is determined by the
”Enhanced American Model”, a binomial model,
which includes the ”Modified Grant Date Method”
as requested by IFRS 2. The expected volatility
has been calculated based on a historic and
long-term volatility. The expected life used
in the model has been adjusted, based on the
Management’s best estimate, for the effects
of non-transferability, exercise restrictions and
behavioral considerations.
Financial risk management policy
The Micronas Group’s principal financial
instruments mainly comprise cash and cash
equivalents. The main purpose of these financial
instruments is to supply sufficient financial means
for the Group’s operations. Significant financial
risks are hedged on a case-by-case basis. The
Group has various other financial instruments such
as trade debtors and trade creditors, which arise
directly from its operations. The main risks arising
from the Group’s financial instruments are liquidity
risk, risk of losses from bad debts and foreign
currency risk.
Interest rate risk
As there are no major bank loans and short-term
deposits, there is no interest rate risk.
17
18 Financ ia l Report 2005 Micronas Group
Notes on the consolidated financial statements
Liquidity risk
Presently a liquidity risk does not exist for Micronas
Group owing to the high amount of cash and cash
equivalents. Furthermore, an unused short-term
revolving credit facility is available to cover peaks of
working capital requirements.
Risk of losses from bad debts
The risk of losses from bad debts is covered by a
defined securing strategy. Most of the receivables
with our customers are secured through letter of
credit or credit insurance. In addition, credit limits
and constant monitoring minimize risk of losses
from bad debts.
Foreign currency risk / hedge accounting
The foreign currency risk mainly results from a
transactional currency exposure arising from sales
or purchases in currencies other than the units
functional currency. These are mainly in USD.
Micronas uses financial instruments including
swaps, currency forwards and currency options to
hedge up to two-third of the expected net currency
exposure for up to one year.
Hedge derivatives are identified according to the
nature of the underlying either as a cash flow
hedge or as a fair value hedge, and are valued
at cost on the trade date. During subsequent
reassessments, the change in fair value is either
recognized in the income statement (fair value
hedge) or against equity (cash flow hedge). When
option contracts are identified as cash flow hedges,
a distinction is made between the contract’s time
value and its intrinsic value. At the valuation date,
the change in the time value is recognized in the
income statement and the change in the intrinsic
value against equity.
As soon as the underlying becomes operative
and the hedge can be considered as effective, the
fair values of the underlying and the hedge are
determined and the change in value is recognized in
the income statement. In the case of cash flow
hedges the change in value recognized in equity for
the prior period is transferred to the income
statement.
19
3. Group structure
In 2003 Micronas Group entered a joint venture
and took a 50 percent stake in iKonvergenz PTE
Ltd. in Singapore and accounted for the investment
using the equity method. In April 2004 Micronas
Group acquired the other 50 percent of
iKonvergenz PTE Ltd., Singapore, and the
investment is fully consolidated from that date.
iKonvergenz is focused on developing designs
for analog LCD televisions and LCD/CRT-based
integrated digital televisions and employed about
20 engineers at the acquisition date.
Micronas Group acquired LINX Electronics, Inc.,
a fabless semiconductor company that develops
innovative digital-television solutions for improved
reception of high-definition television signals in
June 2004. Chicago-based LINX Electronics
employed a highly acclaimed HDTV technology
team of about 20 engineers at the acquisition
date and has been merged with Micronas
Semiconductors Inc., San Jose, USA.
For further details please refer to note 33.
As the Micronas Group did not participate in a
share capital increase of Nanotron Technologies in
January 2005, the Micronas share reduced to
3.8 percent.
Micronas Semiconductor R&D (Shanghai) Co.
Ltd. was established on March 8, 2005, in
Shanghai, PRC. Micronas Semiconductor R&D
(Shanghai) Co. Ltd. is focused on development of
IC´s and systems for the terrestrial digital TV market
in China and employed about 20 highly qualified
engineers at the date of foundation.
In December 2005, Micronas Group acquired
fabless semiconductor company WISchip
International Ltd. (subsequently renamed to
Micronas USA Inc.) and subsidiaries. With
operational headquarters in Santa Clara, CA., USA,
WISchip is focused on the development of
advanced audio and video system-on-chip IC and
software solutions, implementing the latest
generation MPEG1/2/4, H.264 and VC-1 HDTV
standards. WISchip will complement Micronas’s
team by adding the in-depth expertise of 104
additional staff members, including 78 experienced
video and computer engineers, 32 of which are
based in the company’s Shanghai R&D facility.
For further details of the transaction please refer
to note 33.
20 Financ ia l Report 2005 Micronas Group
Notes on the consolidated financial statements
Information about the Group companies is listed below:
Guernsey, Great BritainOrdinary capital: EUR 1 400 000Activity: financing of Group companies% of shares: 100
Micronas Finance Ltd.
Micronas Semiconductor Holding AG
Nijmegen, The NetherlandsOrdinary capital: EUR 18 718Activity: development% of shares: 100
Micronas Holland B.V.
Freiburg, GermanyOrdinary capital: EUR 500 000Activity: management of participationsand consolidated sub-Groupmanagement% of shares: 100
Micronas Holding GmbH
Freiburg, GermanyOrdinary capital: EUR 25 000% of shares: 100
Micronas Mantel1 GmbH
San Jose, USAOrdinary capital: USD 2Activity: development, sales% of shares: 100
Micronas Semiconductors Inc.
Freiburg, GermanyOrdinary capital: EUR 24 250 000Activity: development, production,sales% of shares: 100
Micronas GmbH
Villach, AustriaOrdinary capital: EUR 35 000Activity: development% of shares: 100
Micronas Villach
Halbleiterentwicklungs GmbH
Tokyo, JapanOrdinary capital: JPY 10 000Activity: sales% of shares: 100
Micronas Japan K.K.
Glenrothes, ScotlandOrdinary capital: GBP 2Activity: production, sales% of shares: 100
Micronas Ltd.
Seoul, KoreaOrdinary capital: KRW 240 000 000Activity: sales% of shares: 100
Micronas Korea Ltd.
Nijmegen, The NetherlandsOrdinary capital: EUR 33 503Activity: management of participation% of shares: 100
Micronas Holland Holding B.V.
Hong Kong, ChinaOrdinary capital: HKD 10 000Activity: sales% of shares: 100
Micronas Hong Kong & China Ltd.
Zurich, SwitzerlandActivity: management of participations
SingaporeOrdinary capital: SGD 1 500 000Activity: development% of shares: 100
iKonvergenz PTE Ltd.
Rostock, GermanyOrdinary capital: EUR 250 000Activity: development, production andmarketing of bioelectronical andchemical systems % of shares: 24.9
Bionas GmbH
SingaporeOrdinary capital: SGD 2Activity: sales% of shares: 100
Micronas Singapore PTE Ltd.
Berlin, GermanyOrdinary capital: EUR 136 830Activity: development% of shares: 3.8
Nanotron GmbH
21
Shanghai, PRCOrdinary capital: USD 1 400 000Activity: development% of shares: 100
Micronas Semiconductor
(Shanghai) Co. Ltd.
Santa Clara, USAOrdinary capital: USD 10 000Activity: development, production,sales% of shares: 100
Micronas USA Inc.
Taipei, TaiwanOrdinary capital: NTD 20 000Activity: sales% of shares: 100
Micronas Taiwan Ltd.
Santa Clara, USAOrdinary capital: USD 100Activity: management of participation% of shares: 100
WIS Technologies Holdings LLC
Shanghai, PRCOrdinary capital: USD 200 000Activity: development% of shares: 100
WIS Technologies
(Shanghai) Ltd.
Cayman IslandsOrdinary capital: USD 50 000Activity: management of participation% of shares: 100
WIS Technologies
China Holdings Ltd.
MicronasNIT Micronas Mantel2 GmbH
Novi Sad, Serbia and MontenegroOrdinary capital: USD 638 663Activity: development% of shares: 52
Freiburg, GermanyOrdinary capital: EUR 25 000% of shares: 100
22 Financ ia l Report 2005 Micronas Group
Notes on the consolidated financial statements
1 EUR1 GBP1 USD
100 JPY100 KRW
1 HKD1 SGD1 CNY
100 TWD
Average rates
Consolidated profit and loss statement, consolidated cash flow statement
4. Currency exchange rates
1.54972.26481.25071.13600.12300.16090.75190.15473.9960
1.54342.26921.23931.14900.10900.15910.7333
––
1 EUR1 GBP1 USD
100 JPY100 KRW
1 HKD1 SGD1 CNY
100 TWD
Year-end rates
Consolidated balance sheet
1.55532.27141.13271.11900.13100.16930.78780.16283.9960
1.54562.17461.13421.09200.11000.14580.6926
––
Wages and salariesSocial expensesShare compensation expensePension expenses for defined benefit plans excluding interest expensePension expenses for defined contribution plansOtherTotal personnel expenses
5. Personnel expenses
180 53630 3485 2572 233
8402 835
222 049
167 12026 8732 4552 182
4852 064
201 179
Profit and loss statement
20042005
2004CHF 1000
2005CHF 1000
The compensation of the Management is disclosed in the corporate governance reporting on page 30 of the Annual Report.
6. Number of employees
1 18740813220637
1 970
1 917
ProductionResearch and developmentAdministration and generalMarketing and salesQuality managementNumber of employees at year-end
Average number of employees
Average number of employees at year-end 2005 includesa ten-month average for Micronas Semiconductor R&D(Shanghai) Co. Ltd. and one month for WISchip.
Average number of employees at year-end 2004 includesan eight-month average for iKonvergenz and a seven-monthaverage for former LINX Electronics, Inc.
1 19261615826838
2 272
2 214
7. Other operating income (+) and expenses (–), net
0525926
0285463
1 2223 421
0– 679– 613– 889– 498
– 2 679
742
23
Foreign exchange gainIncome from development services and license agreementIncome from services to Vishay General Semiconductor GmbH, FreiburgSale of patentRelease of reserve for bad debtRelease of prepaymentAll otherTotal other operating income
Expenses for hedging instrumentsCompensation of Board of DirectorsForeign exchange lossCapital taxAll otherTotal other operating expenses
Total other operating income (+) and expenses (-), net
5 0411 949
878775570
1 0469 746
– 1 857– 765
0– 459– 803
– 3 884
5 862
20042005
2004CHF 1000
2005CHF 1000
Land and buildingsMachinery and equipmentOther fixtures, fittings, tools and office equipmentOther intangible assets (mainly included in cost of sales)Total depreciation and amortization
8. Depreciation and amortization (excl. goodwill)
1 62973 13916 42617 946
109 140
1 45274 91816 07413 056
105 500
11. Other income
204796
1 000
68718786
Grants related to assetsGrants related to incomeTotal other income
9. Financial income
3 9763
3 979
5 8302
5 832
Interest incomeOther financial incomeTotal financial income
10. Financial expenses
– 439– 7 660
– 203– 8 302
– 257– 7 837
– 200– 8 294
24 Financ ia l Report 2005 Micronas Group
Notes on the consolidated financial statements
Interest expenses (excl. interest portion of pension expense,partial retirement and jubilee expense)Interest portion of pension, partial retirement and jubilee expenseOther financial expensesTotal financial expenses
2004CHF 1000
2005CHF 1000
12. Income taxes
Accrued tax current year (current income tax) Accrued tax prior-year adjustments – other1
Deferred income taxes2
Total income taxes
2 Detail of deferred income taxes:
Loss carry forwards capitalizedLoss carry forwards usedTemporary differences Prior-year adjustmentsTax rate changes Total deferred income taxes
Profit before income taxes
Applicable tax rate in %3
Applicable income tax charge
Tax on non-deductible interest expensesTax on other non-deductible or non-taxable itemsTax rate changes on deferred taxesPrior-year adjustments
Total income taxes
Effective tax rate in %
1 Includes a provision for an expected settlement with tax authorities.3 The applicable income tax rate is the weighted average of the tax rates of the respective individual tax jurisdictions. Due to the different weights of the respective
local tax rates, the applicable income tax rate has varied from 2004 to 2005.
25
9 7037 9827 198
24 883
– 1 3001 8517 532– 985
1007 198
74 075
20.615 292
1 77874769
6 997
24 883
33.6
50 537– 1 194
2 10651 449
– 35682
3 043– 664
12 106
168 937
29.449 701
3 59691
– 1 858
51 449
30.5
2004CHF 1000
2005CHF 1000
Balance, beginning of year
AdditionsTransfersDisposals and retirementsBusiness combinationsTranslation adjustmentsBalance, end of year
Gross amount
Landand
buildings
Other fixtures,fittings, tools
and officeequipment
2005CHF 1000
Total
2004CHF 1000
Total
616 726
91 653– 39
– 12 486800
– 6 222690 432
690 432
67 9564
– 7 3801 5625 930
758 504
145 349
13 6971 075
– 2 902894
1 387159 500
512 653
51 442– 442
– 4 287348
4 254563 968
32 430
2 817– 629– 191
320289
35 036
26 Financ ia l Report 2005 Micronas Group
Notes on the consolidated financial statements
Machineryand
equipment
13. Property, plant and equipment
Balance, beginning of year
AdditionsTransfersDisposals and retirementsTranslation adjustmentsBalance, end of year
Balance net, end of year
Fire insurance value
Above balances include buildings, machinery andequipment in the course of construction in the amount of
Expected useful lifetime in years:
BuildingsFixturesMachineryOther fixed assets
Accumulated depreciation
347 283
92 4440
– 11 080– 3 456
425 191
265 241
987 549
6 332
2510 to 13
53 to 7
78 839
16 4260
– 2 669784
93 380
66 120
338 230
73 1390
– 3 9702 833
410 232
153 736
8 122
1 6290
– 8790
9 754
25 282
Balance sheet
425 191
91 1940
– 6 7263 707
513 366
245 138
1 128 643
10 395
2510 to 13
53 to 7
27
Balance, beginning of year
AdditionsTransfersDisposals and retirementsBusiness combinationsTranslation adjustmentsBalance, end of year
Gross amount
Acquiredlicenses
andsoftware
2005CHF 1000
Total
2004CHF 1000
Total
67 133
18 88239
– 11731 758– 3 255114 440
114 440
10 473– 4
– 2061 7305 172
131 605
104 094
6 457– 4
– 2061 7305 082
117 153
10 346
4 016000
9014 452
Capitalizeddevelopment
cost
14. Intangible assets
Accumulated amortization
32 918
13 0560
– 47645 498
68 942
Balance, beginning of year
AdditionsDisposals and retirementsTranslation adjustmentsBalance, end of year
Balance net, end of year
2 575
2 6940
275 296
9 156
42 923
15 252– 95804
58 884
58 269
45 498
17 946– 95831
64 180
67 425
15. Investments
Micronas does not have significant influence over the
investments.
The investments are recorded at cost less any
impairments, as no active market exists and the
fair value cannot be measured reliably.
28 Financ ia l Report 2005 Micronas Group
Notes on the consolidated financial statements
16. Goodwill
391 178
107 374– 107 976
3 925394 501
The useful lifetime of the goodwill of the Image and Videoacquisition has been estimated at the date of acquisition,October 1, 2000, to be 15 years. According to the transitionalprovisions of IFRS 3 the amortization of goodwill is chargedultimately to profit and loss statement in 2004. As at January1, 2005, the gross amount of goodwill was charged with theaccumulated amortization and no longer amortized in subse-quent years.
The allocation of the purchase price of the LINX acquisitionwas finally determined in the second quarter of 2005 resultingin a reduction of goodwill in the amount of CHF 1.6 million. The comparative figures have been adjusted respectivelyaccording to IFRS 3.
As the allocation of the purchase price to the fair valueof identified assets and liabilities of the WISchip acquisitionin 2005 is still in process caused by the proximity of thetransaction closing to the Group’s fiscal year end, thedifference between the purchase price and the carryingvalue of net assets acquired is reflected in goodwill.
Gross amount, beginning of year
Business combinationsReclassification of amortization accumulated prior to the adoption of IFRS 3Translation adjustmentsGross amount, balance end of year
107 976
0– 107 976
00
394 501
83 461
25 2410
– 726107 976
283 202
Accumulated amortization
Balance, beginning of year
AdditionsReclassification of amortization accumulated prior to the adoption of IFRS 3Translation adjustmentsAccumulated amortization, balance end of year
Balance net, end of year
383 114
12 6380
– 4 574391 178
2004CHF 1000
2005CHF 1000
29
Impairment on goodwill
All goodwill acquired through business combinationshave been allocated for impairment testing purposesto the Consumer segment as the relevant cash-generatingunit. All goodwill capitalized relates to acquisitions whichcontribute to the technological development of theentire segment. The impairment test is based on October 1,2005.
The recoverable amount of the Consumer segment has beendetermined based on a value-in-use calculation using cashflow projections based on Management’s financial budgetsand business plans approved by the Board of Directorscovering a five-year period ending in 2010. The discountrate applied to cash flow projections is a pre-tax rate of16.2 percent. Cash flows beyond the five-year period areextrapolated using a two percent growth rate. This growth ratedoes not exceed the long-term average growth rate for themarkets in which the Consumer segment operates.
Goodwill acquired in 2005 and not yet finally determined is not subject to an impairment test in accordance with IFRS 3 and IAS 36.
Image and Video businessLINX ElectronicsiKonvergenzGoodwill subject to impairment test
Goodwill from acquisition 2005Total goodwill
Carrying amount of goodwill
273 33412 791
592286 717
107 784394 501
273 33412 791
592286 717
107 784394 501
Consumer segment
2005CHF 1000
Total
2005 CHF 1000
271 63011 052
520283 202
0283 202
2004 CHF 1000
2004 CHF 1000
271 63011 052
520283 202
0283 202
30 Financ ia l Report 2005 Micronas Group
Notes on the consolidated financial statements
Key assumptions
The calculation of the value-in-use for the Consumer segmentis most sensitive to the following assumptions during theplanning period:
Net sales: Net sales are forecasted on a product basisconsidering expected market shares and related impactson sales volumes and prices. Net sales are expected togrow at an average compound annual growth rate of15 percent.
Gross margins: Gross margins are expected to settle at along-term expected level of 38 to 40 percent.
R&D expense: In recent years, R&D expenses have beenaround 12 to 14 percent of net sales. The expected long-term level of R&D expenses will be in the range of 15 to16 percent of net sales.
EBIT: The EBIT is expected to reach a long-termsustainable level of 15 percent.
Capital spending: Capital spending is expected to remainrelatively steady.
Exchange rate: EUR to CHF exchange rate – based onthe exchange rate in effect during the business planpreparation.
Discount rate (WACC): Cost of equity was calculatedusing the ten-year German government bond yield as ofOctober 2005 as the risk-free rate and a five percentmarket risk premium on shares. The Beta-factor appliedrepresents the average peer group raw beta based ontwo-year regression. As Micronas is in a net cash positionthe WACC equals cost of equity.
The value-in-use significantly exceeds the carrying amountof net assets and goodwill of the Consumer segment.Management therefore concluded that goodwill is notimpaired as at December 31, 2005.
Management and the Board of Directors believe thatassumptions and forecasts are realistic. Nevertheless,significant unexpected adverse future developments maycause changes to the planning assumptions and may lead toa future impairment of goodwill.
31
Amount, beginning of year
Reductions/additionsBusiness combinationsBalance sheet reclassificationTranslation adjustmentsBalance, end of year
Thereof:Temporary differences on – Tangible fixed assets– Long-term provisions and liabilities– Other current liabilitiesLoss carry forwardBalance, end of year
As at December 31, 2004, and December 31, 2005, theCompany had approximately CHF 4.4 million in net operating
loss carry forwards in Germany for which deferred tax assetshave not been recorded.
17. Deferred tax asset
7 433
– 7 5020
3 312156
3 399
209239316
2 6353 399
10 399
– 2 873325
– 273– 1457 433
1 5039 426
– 4 9551 4597 433
2004CHF 1000
2005CHF 1000
32 Financ ia l Report 2005 Micronas Group
Notes on the consolidated financial statements
Materials and supplies
at costat net realizable valueWork in progress
at costat net realizable valueFinished goods of own production
at costat net realizable valueResale finished goods
at costat net realizable valueTotal inventories
18. Inventories
37 9750
95 3810
27 23411 693
1 222222
173 727
37 2750
109 5260
26 3231 604
1 1670
175 895
The amount of inventories recognized as an expense duringthe period is CHF 487 433 (000). The amount of anywrite-down of inventories recognized as an expense duringthe period is CHF 21 668 (000). The amount of any reversal
of any write-down that is recognized as a reduction in theamount of inventories recognized as expense in the period isCHF 570 (000).
19. Other current assets
14 5014 026
152423
1 12520 227
8 8675 273
647495
1 43716 719
Tax receivables (mainly VAT)Prepaid expenses and accrued incomeDepositsResearch premiumOtherTotal other current assets
20. Short-term financial investments
6363
7878
Short-term deposits with an initial maturity of three months and moreTotal short-term financial investments1
1 available for sale
2004CHF 1000
2005CHF 1000
33
Opening balance
Exercise of share optionsShare capital increaseBalance, end of year
Authorized capital
The Company has no authorized capital. The existingauthorized capital lapsed without being used on November 20,2005.
Conditional capital
The articles of incorporation provide for a conditional capital(according to Art. 653 of the Swiss Code of Obligations) of a
maximum of CHF 890 272 (as per March 2, 2005) through theissuance of a maximum of 890 272 registered shares with anominal value of CHF 1 each by the exercise of option rightsto be granted to the members of the Board of Directors, tocertain members of the Management and certain keypersonnel of the Company or Group companies. In 2005,202 900 options have been exercised. The conditional capitalas per December 31, 2005, amounts to CHF 799 870.
The above figures (numbers and percentages) conform to the figures contained in the respective notifications to the Company andthe Disclosure Office of the SWX Swiss Exchange; they may not be accurate as at December 31, 2005.
As at December 31, 2005, the Company is aware of the following shareholders holdingmore than 5 percent or more of the capital and/or voting rights of the Company:
The issued and fully paid share capital ofMicronas Semiconductor Holding AG comprises:
31 783 155
347 675300 000
32 430 830
32 431
2030
32 634
32 430 830
202 9000
32 633 730
31.12.2005
21. Share capital
Number CHF 100031.12.2004
Number CHF 1000
AXA SA, Paris, FranceNordea Investment Funds SA, LuxembourgArnhold and S. Bleichroeder Advisers, LLC, New York, USAFidelity International Limited, Hamilton, BermudaThe Capital Group Companies, Los Angeles, USA
2005 2004
8.3%n.a.n.a.
7.1%5.0%
31 783
348300
32 431
10.3%5.04%5.03%
n.a.n.a.
Opening balance
PurchasesDisposalsAddition to additional paid-in capital (pre taxes)Balance, end of year
31
0
2 768– 3 217
4490
0
53 172– 53 172
0
31
0
3 43000
3 430
31
0
80 0000
80 000
200522. Reacquired shares Number CHF 1000
2004Number CHF 1000
34 Financ ia l Report 2005 Micronas Group
Notes on the consolidated financial statements
The 2004 reacquired shares were purchased and disposed in connection with the acquisition of LINX Electronics, Inc., to partlysettle the share portion of the purchase price.
35
23. Long-term loansDecember 31, 2005 December 31, 2004
2007 7052008 6022009 4202010 62011 5Thereafter 0Total 1 738
2006 7402007 6382008 4812009 82010 0
Thereafter 0Total 1 867
Long-term loans mature as follows (in CHF 1000):
Effective
interest rates
EUR 1 320 6.15%EUR 193 6.05%EUR 150 11.40%EUR 47 11.00%EUR 22 12.20%EUR 6 10.50%Total 1 738
Effective
interest rates
EUR 1 205 6.15%EUR 380 6.05%EUR 282 11.00%
Total 1 867
Long-term loans grouped by effective interest rates:
Pension obligationsProvisionsLiabilitiesTotal long-term provisions and liabilities
24. Long-term provisions and liabilities
131 26913 771
9 768154 808
127 71811 74712 845
152 310
2004CHF 1000
2005CHF 1000
36 Financ ia l Report 2005 Micronas Group
Notes on the consolidated financial statements
Present value of obligations, beginning of year
Interest cost Current service cost Benefits paidActuarial losses/gains on obligationTranslation adjustmentsPresent value of obligations, end of year
Unrecognized actuarial gains (+)/ losses (–)
Net liability recognized in the balance sheet
Pension costs are included in personnel and interest expenses and consist of:Interest expenseChange of unfunded defined benefit obligationsexcluding interest expenses (service cost)Total pension cost
Movements in the net amount recognized in the balance sheet
Amount, beginning of year
Payments to pensionersAddition to reserveTranslation adjustmentsAmount, end of year
25. Unfunded defined benefit obligations
131 245
7 2932 182
– 6 9922 391
– 1 196134 923
– 7 205
127 718
7 293
2 1829 475
126 389
– 6 9929 475
– 1 154127 718
134 923
6 9332 432
– 6 62529 029
962167 654
– 36 385
131 269
6 933
2 4329 365
127 718
– 6 6259 365
811131 269
Discount rate per annumSalary increase per annumPost-retirement pension increasesInvestment yield per annum
Principal actuarial assumptions used
4.25%2.0%
1.35%n.a.
5.25%2.0%
1.35%n.a.
Staff turnover and retirement rates: Based on the experience of similar retirement schemesMortality and ill health: The Heubeck 2005 G mortality tables have been used
(Prior year: Heubeck 1998 mortality tables)
2004CHF 1000
2005CHF 1000
2004Germany
2005Germany
37
RestructuringJubileeWarrantyLoss on pending businessPartial retirementOtherTotal provisions
Thereof short-term provisionsThereof long-term provisions
Net chargeto costs and
expenses
Other Translationadjustments
Balance,end of
year
2271 7846 073
11210 4742 059
20 729
6 95813 771
411313
6230
141
41100
0000000
68– 68
– 1 2540
– 1 480– 1 475– 1 599
– 342– 6 150
– 4 291– 1 859
448218
3 803403
3 069919
8 860
5 0093 851
Balance,beginning
of year
1 0291 5553 7191 1818 9421 452
17 878
6 13111 747
Usage,payment
26. Provisions
CHF 1000
The restructuring provision as at December 2005 relates torestructuring within the normal course of business.
Jubilee provision is set up for anniversary payments to employees.The recorded liability is determined based on the valuationperformed by an external party. The valuation has been calculatedusing a discount rate of 4.25 percent in 2005 and 5.25 percent in2004 and the Heubeck 2005 G mortality tables. The employeesreceive a fixed anniversary payment from the Company on their 25thand 40th anniversary. The charge to costs and expenses includesCHF 74 (000) interest expense.
The warranty provision relates to estimated costs to be incurred torepair or replace faulty products. The estimate is determined basedon the actual sales volume and past experience. It is expected thatthe warranty reserve is used in the next year.
The provision for loss on pending business is recorded due tocustomer orders below cost as per year-end and risks out ofacceptance of contractual obligations. The provision is expected tobe used in the next year.
The partial retirement provision is based on legal regulations,agreements with workers council and past experience. The long-termportion is discounted over five years at a discount rate of threepercent. The provision is expected to be used pro rata up to theyear 2009. The charge to costs and expenses includes CHF 330 (000)interest expense.
The column ”Charge to costs and expenses“ includes the followingreversals of provisions: Partial retirement CHF 143 (000), WarrantyCHF 567 (000), and Other CHF 31 (000).
As at December 31, 2005, Micronas Group companies are not aparty to any legal proceedings. In the opinion and to the actualknowledge of the Management, the outcome of any settlement andresulting liabilities in excess of what has been provided for are notlikely to be material.
Amount, beginning of year
Reductions/additionsBusiness combinationsBalance sheet reclassificationTranslation adjustmentsBalance, end of year
Thereof:Temporary differences on – Tangible fixed assets– Intangible assets– Long-term provisions and liabilities– Other current liabilitiesLoss carry forwardBalance, end of year
27. Deferred tax liability
6 741
– 3050
3 3121 057
10 805
– 1 31710 6241 2924 165
– 3 95910 805
38 Financ ia l Report 2005 Micronas Group
Notes on the consolidated financial statements
2
– 7678 385– 273– 6066 741
– 159 485
26874
– 3 6296 741
2004CHF 1000
2005CHF 1000
39
Accrued expensesAccrued social expensesDeferred compensationCurrent portion of capital lease obligationsAdvances from customersVAT payableOtherTotal other current liabilities
28. Other current liabilities
40 0017 3885 1252 6942 2321 1315 876
64 447
43 9767 594
02 1191 3703 9684 210
63 237
2004CHF 1000
2005CHF 1000
40 Financ ia l Report 2005 Micronas Group
Notes on the consolidated financial statements
Net sales
in % of total net salesEBITDA
in % of salesDepreciation and amortizationOperating profit
in % of salesCapital expenditures1
Segment assets2
EBITDA in % of segment assetsSegment liabilities3
Headcount
Consumer Corporate4 Reconciliation Group
2005
CHF 1000
845 074
100.0184 891
21.9109 14075 751
9.078 429
982 042
18.839 3972 272
0
0
00
00
00
0
– 15 413
60– 15 473
139147
59111
168 707
20.065 253
38.717 30947 944
28.411 95872 465
90.08 473
460
676 367
80.0135 051
20.091 77143 280
6.466 332
909 430
14.930 333
1 801
Europe
Automotive
Asia Other Reconciliation GroupAmericas
Business areas
29. Segment reporting
Net sales
in % of total net sales387 182
45.8407 948
48.345 691
5.44 253
0.50 845 074
100.0
Other disclosures
Regions
41
Net sales
in % of total net salesEBITDA
in % of salesDepreciation and amortizationOperating profit
in % of salesCapital expenditures1
Segment assets2
EBITDA in % of segment assetsSegment liabilities3
Headcount
Group
2004
CHF 1000
963 360
100.0303 152
31.5130 741172 411
17.999 319
888 502
34.154 7311 970
0
0
00
00
00
0
– 20 372
63– 20 435
9103
68011
132 455
13.750 261
37.913 37436 887
27.812 06771 609
70.28 628
462
830 905
86.3273 263
32.9117 304155 959
18.887 243
816 790
33.545 4231 497
Europe Asia Other Reconciliation GroupAmericas
Business areas
Net sales
in % of total net sales489 556
50.8425 120
44.146 161
4.82 523
0.30 963 360
100.0
Regions
Certain overhead costs are allocated mainly based on sales, and cer-tain assets and liabilities are allocated mainly based on cost of goodssold.Segment assets 2005 refer to 83 percent to Europe, 17 percent to allother regions.Segment assets 2004 refer to 95 percent to Europe, 5 percent to allother regions.
Segment capital expenditures refer to 96 percent to Europe,4 percent to all other regions.EBITDA: operating profit before depreciation and amortization ofgoodwill.
1 Capital expenditures = investments in tangible and intangible assets and capitalized development costs.2 Segment assets = tangible assets, intangible assets, goodwill, inventories and receivables.3 Segment liabilities = accounts payable – trade.4 Mainly Holding company costs.
Consumer Corporate4 ReconciliationAutomotive
42 Financ ia l Report 2005 Micronas Group
Notes on the consolidated financial statements
Leasing payments during period
Future lease commitments
Total future lease commitments
3125 728
23 22323 56423 690
5 6164 5316 764
87 388
2005
20062007200820092010
Thereafter
2005 2004
30. Operating leases
The actual leasing payments and futurecommitments for non-cancelable operating leasecontracts are as follows (CHF 1000):
At the Freiburg facility a lease contract for parts of themanufacturing, warehouse and office buildings exists. Thelease expires at the end of 2009. A renewal option exists.The extension of the lease term for another five years up tothe end of 2014 may be requested at the end of 2007 at thelatest.
At the Munich facility a lease contract for the office buildingexists. The lease expires in May 2012. Two consecutiverenewal options of five years each exist. The extension of thelease term for another five years may be requested up tonine months prior to the expiration date of term.
At the Freiburg facility a lease contract for an on-site nitrogengenerator exists. The lease expires in September 2011.A renewal option exists. The extension of the lease renews foranother two years each, if the contract will not be terminatedsix months prior to the expiration date of the lease term.
At the Freiburg facility several lease contracts for softwaretools exist. The leases expire between 2006 and 2008. Norenewal or purchase options exist.
25 492
19 27717 23411 6294 6454 498
6 728
64 011
2004
20052006200720082009
Thereafter
43
Orders for machinery and equipmentOrders for R&D projectsObligations to suppliers1
1 Mainly obligations for finished wafers and finished goods.
Forward exchange contracts:As at December 31, 2005, and December 31, 2004, no commitments from forward exchange contracts existed.
31. Other financial commitments
18 7294 942
66 362
11 0593 566
34 668
32. Borrowing facilities
90 30890 308
82 32082 320
UnusedTotal borrowing facilities
2004CHF 1000
2005CHF 1000
44 Financ ia l Report 2005 Micronas Group
Fixed assetsIntangible assetsDeferred tax assetsCash and cash equivalentsOther assetsTotal assets
Long-term liabilitiesDeferred tax liabilitiesOther current liabilitiesTotal liabilities
Fair value of net assetsShare of iKonvergenz previously ownedFair value of net assets acquired
311 5621 731
01 5003 7218 514
5 2340
5 07710 311
2005CHF 1000
Carryingvalue
2005CHF 1000
Recognizedat acquisition
33. Acquisition of subsidiaries
Assets and liabilities acquired:
2004CHF 1000
Recognizedat acquisition
80031 758
325309304
33 496
5 3618 385
28314 029
19 467208
19 259
Notes on the consolidated financial statements
1 5621 731
01 5003 7218 514
5 2340
5 07710 311
45
On December 8, 2005, Micronas Group acquired 100 percentof the voting shares of WISchip International Ltd. (WISchip),a fabless semiconductor company with operational head-quarters in Santa Clara, CA (USA). The purchase priceof CHF 101 700 (000) was paid in cash at closing. Costsincurred as a direct result of the transaction amounted toCHF 3 877 (000). An additional CHF 16 006 (000) may becomepayable to certain employees of WISchip based uponcontinuing service to the Micronas Group and will berecognized as compensation expense over the requiredservice period of two years. As the allocation of the purchaseprice to the fair value of identified assets and liabilities is stillin process caused by the proximity of the transaction closingto the Group’s fiscal year-end, the difference between thepurchase price and the carrying value of net assets acquiredis reflected in goodwill.
In accordance with IFRS 3 Business Combinations, the resultsof WISchip have been included in Micronas Group’s resultssince the acquisition date. WISchip contributed a loss ofCHF 1 081 (000) to the 2005 Group results. Had the businesscombination been effected at the beginning of 2005, net salesand profit for the combined Group would have beenCHF 851 451 (000) and CHF 38 230 (000), respectively.
Micronas Group acquired 100 percent of the voting shares ofLINX Electronics, Inc. (LINX), on June 7, 2004. The purchaseprice of CHF 30 603 (000) consists of CHF 5 731 (000) cash
paid at closing, CHF 3 505 (000) deferred cash payable over athree-year period and 353 172 Micronas Group shares valuedat the acquisition date closing price of CHF 60.50 per share.Transaction-related costs amounted to CHF 503 (000). Anadditional CHF 4 163 (000) in unearned compensation payableto employee shareholders of LINX, based on continuingservice to the Micronas Group, is being recognized ascompensation expense over the required service period. Fromthe date of acquisition, LINX’s loss of CHF 1 743 (000) isincluded in the profit 2004 of the Group. The 2004 amountspresented in the table of note 33 reflect adjustments madein the second quarter of 2005 to other assets and deferredtaxes.
On April 22, 2004, Micronas Group acquired the remaining50 percent share in its Singapore joint venture iKonvergenzPTE Ltd. (iKonvergenz) for a cash purchase price includingtransaction-related costs of CHF 792 (000). At the date ofacquisition, iKonvergenz became fully consolidated and hascontributed a loss of CHF 1 426 (000) to profit 2004 of theGroup.
Had LINX and iKonvergenz been fully consolidated fromJanuary 1, 2004, net sales for the Group would haveremained unchanged in 2004 while profit would have beenCHF 2 990 (000) lower.
46 Financ ia l Report 2005 Micronas Group
Earnings per share in CHF – undiluted
Profit for the period attributable to the shareholders’ of the parentWeighted average number of issued and outstanding sharesEarnings per share in CHF – undiluted
Earnings per share in CHF – diluted
Profit for the period attributable to the shareholders’ of the parentWeighted average number of issued and outstanding shares
for calculation of earnings per share – undiluted
Dilution: share optionsWeighted average number of issued and outstanding shares for calculationof earnings per share – dilutedEarnings per share in CHF – diluted
Earnings per share, adjusted for amortization of goodwill after tax in CHF
– undiluted
Profit for the period attributable to the shareholders’ of the parentAmortization of goodwill after taxProfit for the period attributable to the shareholders’ of the parentadjusted for amortization of goodwill after taxWeighted average number of issued and outstanding sharesEarnings per share, adjusted for amortization of goodwill after tax in CHF
– undiluted
Earnings per share, adjusted for amortization of goodwill after tax in CHF
– diluted
Profit for the period attributable to the shareholders´ of the parentAmortization of goodwill after taxProfit for the period attributable to the shareholders´ of the parentadjusted for amortization of goodwill after taxWeighted average number of issued and outstanding shares – dilutedEarnings per share, adjusted for amortization of goodwill after tax in CHF
– diluted
34. Earnings per share
48 84932 159 863
1.52
48 849
32 159 863
65 673
32 225 5361.52
48 8490
48 84932 159 863
1.52
48 8490
48 84932 225 536
1.52
117 22632 145 681
3.65
117 226
32 145 681
123 279
32 268 9603.63
117 22616 612
133 83832 145 681
4.16
117 22616 612
133 83832 268 960
4.15
The key figures of the earnings per share are determined as follows:
The computation of diluted earnings per share excluded 587 000 shares related to share options at December 31, 2005, as theirinclusion would have been undilutive.
Notes on the consolidated financial statements
2004CHF 1000
2005CHF 1000
47
The Company has a share option scheme for
the members of the Board of Directors, certain
members of the Management and certain key
personnel. Options are exercisable at a price equal
to the quoted market price of the Company’s
shares on the date of grant. Under the plans,
options vest based on continued service over one,
two or three years and have a contractual life of
approximately four years. Options are forfeited if
the employee leaves the Group before the options
vest.
The weighted average share price at the date of exercise forshare options exercised during the year was CHF 51.44.
The options outstanding at the end of the year have aweighted average remaining contractual life of 3.5 years
(2004: 3.3 years). In 2005, options were granted on January 3and April 7. The estimated fair values of the options grantedon those dates are CHF 20.57 and CHF 19.20 respectively. In2004, options were granted on January 5. The estimated fairvalue of the options granted on that date is CHF 20.33.
Details of the share options outstandingare as follows:
747 675
275 850– 347 675
– 2 500673 350
29 600
37.05
55.0019.3047.3848.97
34.30
673 350
327 050– 202 900
– 21 250776 250
85 000
2005
35. Share-based payments
Numberof shareoptions
Weightedaverage
exercise price
2004Numberof shareoptions
Weightedaverage
exercise price
22.94
54.0020.0749.0237.05
16.82
Outstanding at the beginning of the year
IssuedExercisedLapsedOutstanding at the end of the year
Exercisable at the end of the year
48 Financ ia l Report 2005 Micronas Group
Sales to related partiesLoans to related partiesReceivables from related parties
36. Transactions with related parties
37. Subsequent events
279726186
324258
0
In January 2006, 270 850 options were issued
to the members of the Board of Directors, to
certain members of Management and certain key
personnel at an exercise price of CHF 45.15 each.
The options are exercisable between January 1,
2008, and December 31, 2011.
Notes on the consolidated financial statements
Micronas Group has a 24.9 percent share in Bionas GmbH. Sales to related parties are made at market prices. The interest rate ofthe loans to related parties is at market.
The expected life used in the model has been adjusted, based on the Management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioral considerations. The Group recognized total expenses of CHF 5 257 (000) (2004: CHF 2 455 (000)) related to equity-settled share-based paymenttransactions during the year.
Used actuarial assumptions:
Expected option life in yearsExpected forfeitures per year after vestingExpected volatilityShare price at the grant date in CHFRisk-free interest rateExpected dividend
2005 2004
2.93 – 4.455.3%
60.0%54.00
1.62 – 2.000.0%
2.20 – 4.474.4%
60.0%55.00
1.34 – 1.870.0%
2004CHF 1000
2005CHF 1000
49
As group auditors, we have audited the
consolidated financial statements (profit and loss
statement, balance sheet, cash flow statement,
changes in equity and notes) of Micronas
Semiconductor Holding AG for the year ended
December 31, 2005.
These consolidated financial statements are
the responsibility of the board of directors. Our
responsibility is to express an opinion on these
consolidated financial statements based on our
audit. We confirm that we meet the legal
requirements concerning professional qualification
and independence.
Our audit was conducted in accordance with
Swiss Auditing Standards and with International
Standards on Auditing, which require that an audit
be planned and performed to obtain reasonable
assurance about whether the consolidated
financial statements are free from material
misstatement. We have examined on a test basis
evidence supporting the amounts and disclosures
in the consolidated financial statements. We have
also assessed the accounting principles used,
significant estimates made and the overall
consolidated financial statement presentation.
We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated financial
statements give a true and fair view of the
financial position, the results of operations and
the cash flows in accordance with International
Financial Reporting Standards and comply with
Swiss law.
We recommend that the consolidated financial
statements submitted to you be approved.
Report of the group auditors to the ordinary Shareholders’Meeting of Micronas Semiconductor Holding AG, Zurich
Zurich, February 2, 2006
Ernst & Young Ltd
Willi Holdener Reto FierzSwiss Certified Accountant Swiss Certified Accountant(in charge of the audit)
50 Financ ia l Report 2005 Micronas Group
Additional information
Orders on hand, beginning of year
Net salesOrder intakeTranslation adjustments
Orders on hand, end of year
Book-to-bill
Orders on hand
256 271
845 074815 764
1 502
228 463
0.97
373 520
963 360849 697– 3 586
256 271
0.88
2004CHF 1000
2005CHF 1000
Numberof options3
Numberof options2
Numberof options1
Numberof shares
51
Dr. Franz Betschon Chairman of theBoard of Directors
Dr. Thomas Lustenberger Vice Chairman, Secretaryof the Board of Directors
Dr. Rudolf W. Hug Member of theBoard of Directors
Alfred M. Niederer Member of theBoard of Directors
Harald Stanzer Member of theBoard of Directors
Dr. Wolfgang Kalsbach Chief ExecutiveOfficer
Manfred Häner Chief FinancialOfficer
Hans-Jürgen Désor Vice President Marketingand R&D Consumer
Klaus Heberle Vice PresidentAutomotive
Nikolaus-Viktor Kaeppeler Vice PresidentOperations
Wolfgang Kühn Vice President SalesConsumer
Wilfried Lowinski Vice President OperationsBackend
Dr. Ulrich Sieben Vice PresidentTechnology
Nicholas Ververis Vice PresidentQuality
Dirk Wieberneit Vice President ProductDevelopment Consumer
Numberof options4
13 200
6 600
6 600
6 600
6 600
25 000
10 000
5 000
5 000
5 000
5 000
5 000
5 000
5 000
5 000
13 600
6 800
6 800
6 800
20 000
25 000
10 000
5 000
5 000
5 000
5 000
5 000
5 000
5 000
5 000
13 200
6 600
6 600
6 600
0
25 000
10 000
5 000
5 000
5 000
5 000
5 000
5 000
5 000
5 000
13 200
6 600
6 600
6 600
0
25 000
10 000
5 000
5 000
5 000
5 000
5 000
5 000
5 000
5 000
1 001
20 000
1 000
35 900
0
0
0
0
0
0
0
0
0
5 000
0
Number of shares and options held by the Board of Directors and Group Management
Name Position
1 One option entitles to draw of a registered share of Micronas Semiconductor Holding AG, Zurich, with an exercise price of CHF 31.67 each until December 31, 2008.The options were granted on January 1, 2003.
3 One option entitles to draw of a registered share of Micronas Semiconductor Holding AG, Zurich, with an exercise price of CHF 54.00 each until December 31, 2009.The options were granted on January 5, 2004.
3 One option entitles to draw of a registered share of Micronas Semiconductor Holding AG, Zurich, with an exercise price of CHF 55.00 each until December 31, 2010.The options were granted on January 3, 2005 (exception: options H. Stanzer granted on April 7 until December 31, 2008).
4 One option entitles to draw of a registered share of Micronas Semiconductor Holding AG, Zurich, with an exercise price of CHF 45.15 each until December 31, 2011.The options were granted on January 3, 2006.
52 Financ ia l Report 2005 Micronas Semiconductor Hold ing AG
53
Profit and loss statement
Interest income from Group companiesDividend income from Group companiesLicense fees from Group companiesDisposal of reacquired sharesDisposal of assetsGain on valuation of reacquired sharesFinancial incomeGain on release of unused reserveTotal income
Income
12 46920 88125 326
01250
10 9020
69 640
12 34321 29028 862
44900
4 9246 000
73 868
Operating expensesAmortization and valuation adjustmentsInterest expense Group companiesFinancial expensesIncome taxesTotal expenses
Profit for the period
Expenses
– 10 947– 214
– 9 230– 7 433– 2 023
– 29 847
44 021
– 9 100– 60
– 7 778– 924
– 2 926– 20 788
48 852
2004CHF 1000
2005CHF 1000
54 Financ ia l Report 2005 Micronas Semiconductor Hold ing AG
Balance sheet
Non-current assets
Machinery and equipmentInvestments in Group companiesLong-term loans receivable from Group companiesTotal non-current assets
Current assets
Accounts receivable from Group companiesOther accounts receivableAccrued income and prepaid expensesReacquired sharesCash and cash equivalentsTotal current assets
Total assets
Assets31.12.2005CHF 1000
31.12.2004CHF 1000
147893 408303 455
1 197 010
19 85782734
3 480109 588133 786
1 330 796
1041 005 176
273 3481 278 628
13 032353119
0185 131198 635
1 477 263
55
Shareholders’ equity
Share capitalGeneral legal reserveReserve for reacquired sharesUnappropriated retained earnings, beginning of yearProfit for the periodUnappropriated retained earnings, end of yearTotal shareholders’ equity
Long-term liabilities
Long-term loans payable to Group companiesReserve for unrealized gainsTotal long-term liabilities
Current liabilities
Accounts payable to Group companiesOther accounts payableShort-term liabilities and accrued expensesTotal current liabilities
Total liabilities
Total shareholders’ equity and liabilities
Shareholders’ equity and liabilities
32 431505 056
0166 44744 021
210 468747 955
200 928518 834719 762
2 475583
6 4889 546
729 308
1 477 263
32 634505 340
3 430210 46848 852
259 320800 724
0518 834518 834
1 613263
9 36211 238
530 072
1 330 796
31.12.2005CHF 1000
31.12.2004CHF 1000
56 Financ ia l Report 2005 Micronas Semiconductor Hold ing AG
Information on Group companies
Information on Group companies: please refer to note 3 of the consolidated financial statements.
Major shareholders
Information on major shareholders: please refer to note 21 of the consolidated financial statements.
Fire insurance value of fixed assets
300300Machinery and equipment
Authorized capital
The Company has no authorized capital. The existingauthorized capital lapsed without being used on November 20,2005.
Conditional capital
The articles of incorporation provide for a conditional capital(according to Art. 653 of the Swiss Code of Obligations) of amaximum of CHF 890 272 (as at March 2, 2005) through theissuance of a maximum of 890 272 registered shares with anominal value of CHF 1 each by the exercise of option rightsto be granted to the members of the Board of Directors,to certain members of the Management and certain keypersonnel of the Company or Group companies. In 2005,202 900 options have been exercised. The conditional capitalas at December 31, 2005, amounts to CHF 799 870.
Notes on the financial statements
32 430 830 registered shares of CHF 1 nominal each32 633 730 registered shares of CHF 1 nominal eachTotal share capital
The issued and fully paid share capital ofMicronas Semiconductor Holding AG comprises:
Share capital
32 63432 634
32 431
32 431
31.12.2005CHF 1000
31.12.2004CHF 1000
31.12.2005CHF 1000
31.12.2004CHF 1000
57
Opening balance
AdditionBalance, end of year
Reserve for reacquired shares
0
3 4303 430
0
00
Opening balance
PurchasesDisposalsGain on reacquired sharesBalance, end of year
31
0
3 4300
503 480
0
80 0000
80 000
Reacquired shares
31
0
2 768– 3 217
4490
0
53 172– 53 172
0
2005
Number CHF 10002004
Number CHF 1000
Reacquired shares are carried at the market value at thebalance sheet date.
The 2004 reacquired shares were purchased and disposed inconnection with the acquisition of LINX Electronics, Inc., topartly settle the share portion of the purchase price.
The reserve for reacquired shares is carried at averagepurchase price.
31.12.2005CHF 1000
31.12.2004CHF 1000
58 Financ ia l Report 2005 Micronas Semiconductor Hold ing AG
Proposal of the Board of Directors
Unappropriated retained earnings, beginning of yearProfit for the periodUnappropriated retained earnings, end of year
Appropriation of the unappropriated retained earnings
210 467 27748 851 470
259 318 747
166 446 48444 020 793
210 467 277
The Board of Directors is proposing not to pay a dividend forthe financial year 2005 and to carry forward the profit toretained earnings.
The Board of Directors is proposing a nominal value reductionof CHF 0.95 per share, i.e. from CHF 1.00 to CHF 0.05.Based on the 32 633 730 issued shares as at the endof the financial year 2005 the share capital reductionamounts to CHF 31 002 043.50. The amount of therepayment of the nominal value of CHF 0.95 per share
(total CHF 31 002 043.50) will be distributed to the share-holders in cash and without deduction of a withholding tax,after the legally required call for filing of claims has beenexecuted and the share capital reduction has been filed inthe Commercial Register. This is expected to occur at thebeginning of June 2006.
In addition, the Board of Directors has resolved a sharerepurchase program up to CHF 100 million through a secondtrading line.
31.12.2005CHF
31.12.2004CHF
59
As statutory auditors, we have audited the
accounting records and the financial statements
(balance sheet, income statement and notes) of
Micronas Semiconductor Holding AG for the year
ended December 31, 2005.
These financial statements are the
responsibility of the board of directors. Our
responsibility is to express an opinion on these
financial statements based on our audit. We
confirm that we meet the legal requirements
concerning professional qualification and
independence.
Our audit was conducted in accordance with
Swiss Auditing Standards, which require that
an audit be planned and performed to obtain
reasonable assurance about whether the financial
statements are free from material misstatement.
We have examined on a test basis evidence
supporting the amounts and disclosures in the
financial statements. We have also assessed the
accounting principles used, significant estimates
made and the overall financial statement
presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the accounting records
and financial statements and the proposed
appropriation of available earnings comply
with Swiss law and the company’s articles of
incorporation.
We recommend that the financial statements
submitted to you be approved.
Report of the statutory auditors to the ordinary Shareholders’Meeting of Micronas Semiconductor Holding AG, Zurich
Zurich, February 2, 2006
Ernst & Young Ltd
Willy Holdener Reto FierzSwiss Certified Accountant Swiss Certified Accountant(in charge of the audit)
ANNUAL REPORT 2005
> FINANCIAL REPORT 2005
COMPANY PROFILE
Micronas (SWX Swiss Exchange: MASN), a semiconductor designer and manufacturer with worldwide
operations, is a leading supplier of cutting-edge IC and sensor system solutions for consumer and
automotive electronics. As a market leader in innovative global TV system solutions, Micronas
leverages its expertise into new markets emerging through the digitization of audio and video content.
Micronas serves all major consumer brands worldwide, many of them in continuous partnerships
seeking joint success. While the holding company is headquartered in Zurich (Switzerland), operational
headquarters are based in Freiburg (Germany). Currently, the Micronas Group employs about
2000 people. In 2005 it generated CHF 845 million in sales.
www.micronas.com
Editors:
Concept, design and project management: Kiesewetter I Die Markenagentur. www.agentur-kiesewetter.de
This document was first published on February 9, 2006
This Financial Report is also available in German. The German version is legally binding.
Printed on FSC-certified (Forest Stewardship Council) paper, www.fsc.org
Transparency2
www.micronas.com
FINANCIAL REPORT 2005
Micronas Semiconductor Holding AG I Technopark I Technoparkstrasse 1 I CH-8005 Zurich I Phone +41 44 445 39 60 I Fax +41 44 445 39 61 [email protected] Holding GmbH I Hans-Bunte-Strasse 19 I D-79108 Freiburg I Phone +49 761 557 5688 I Fax +49 761 557 5690
www.micronas.com