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SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Telephone: (8621) 3861-0000
Facsimile: (8621) 3895-3568
Title of each class | Name of each exchange on which registered | |
Ordinary Shares, par value US$0.0004 | The Stock Exchange of Hong Kong Limited* | |
American Depositary Shares | The New York Stock Exchange, Inc. |
(Title of Class)
(Title of Class)
Large accelerated filerþ | Accelerated filero | Non-accelerated filero |
U.S. GAAPþ | International Financial Reporting Standards as issued by the International Accounting Standards Board | Other |
* | Not for trading, but only in connection with the listing of American Depositary Shares on the New York Stock Exchange, Inc. |
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Exhibit 4.4 | ||||||||
Exhibit 4.5 | ||||||||
Exhibit 8.1 | ||||||||
Exhibit 12.1 | ||||||||
Exhibit 12.2 | ||||||||
Exhibit 13.1 | ||||||||
Exhibit 99.1 |
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• | “Average selling price of wafers” are to simplified average selling price which is calculated as total revenue divided by total shipments. | |
• | “China” or the “PRC” are to the People’s Republic of China, excluding for the purpose of this annual report, Hong Kong, Macau and Taiwan; | |
• | “Company” or “SMIC” are to Semiconductor Manufacturing International Corporation; | |
• | “EUR” are to Euros; | |
• | “global offering” are to the initial public offering of our ADSs and our ordinary shares, which offering was completed on March 18, 2004; | |
• | “HK$” are to Hong Kong dollars; | |
• | “Jpy” are to Japanese Yen; | |
• | “NYSE” or “New York Stock Exchange” are to the New York Stock Exchange, Inc.; | |
• | “Rmb” or “RMB” are to Renminbi; | |
• | “SEC” are to the U.S. Securities and Exchange Commission; | |
• | “SEHK”, “HKSE” or “Hong Kong Stock Exchange” are to The Stock Exchange of Hong Kong Limited; and | |
• | “US$” or “USD” are to U.S. dollars. |
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For the year ended December 31, | ||||||||||||||||||||
2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||
(in US$ thousands, except for per share, per ADS data, percentages, and operating data) | ||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||
Sales | $ | 974,664 | $ | 1,171,319 | $ | 1,465,323 | $ | 1,549,765 | $ | 1,353,711 | ||||||||||
Cost of sales(1) | 716,225 | 1,105,134 | 1,338,155 | 1,397,038 | 1,412,851 | |||||||||||||||
Gross profit | 258,439 | 66,185 | 127,168 | 152,727 | (59,140 | ) |
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For the year ended December 31, | ||||||||||||||||||||
2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||
(in US$ thousands, except for per share, per ADS data, percentages, and operating data) | ||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||
Research and development | 74,113 | 78,865 | 94,171 | 97,034 | 102,240 | |||||||||||||||
General and administrative | 54,038 | 35,701 | 47,365 | 74,490 | 58,841 | |||||||||||||||
Selling and marketing | 10,384 | 17,713 | 18,231 | 18,716 | 20,661 | |||||||||||||||
Litigation settlement | 16,695 | — | — | — | — | |||||||||||||||
Amortization of acquired intangible assets | 14,368 | 20,946 | 24,393 | 27,071 | 32,191 | |||||||||||||||
Impairment loss of long-lived assets | — | — | — | — | 106,741 | |||||||||||||||
Income from sale of plant and equipment and other fixed assets | — | — | (43,122 | ) | (28,651 | ) | (2,877 | ) | ||||||||||||
Total operating expenses | 169,598 | 153,225 | 141,038 | 188,659 | 317,797 | |||||||||||||||
Income (loss) from operations | 88,841 | (87,040 | ) | (13,870 | ) | (35,932 | ) | (376,937 | ) | |||||||||||
Other income (expenses): | ||||||||||||||||||||
Interest income | 10,587 | 11,356 | 14,916 | 12,349 | 11,542 | |||||||||||||||
Interest expense | (13,698 | ) | (38,784 | ) | (50,926 | ) | (37,936 | ) | (50,767 | ) | ||||||||||
Foreign currency exchange gain (loss) | 8,218 | (3,355 | ) | (21,912 | ) | 11,250 | 3,230 | |||||||||||||
Other, net | 2,441 | 4,462 | 1,821 | 2,238 | 7,429 | |||||||||||||||
Total other income (expense), net | 7,548 | (26,322 | ) | (56,101 | ) | (12,100 | ) | (28,566 | ) | |||||||||||
Income (loss) before income tax | 96,389 | (113,362 | ) | (69,971 | ) | (48,032 | ) | (405,503 | ) |
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For the year ended December 31, | ||||||||||||||||||||
2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||
(in US$ thousands, except for per share, per ADS data, percentages, and operating data) | ||||||||||||||||||||
Income tax benefit (expense) | (186 | ) | (285 | ) | 24,928 | 29,720 | (26,433 | ) | ||||||||||||
Minority interest | — | 251 | (19 | ) | 2,856 | (7,851 | ) | |||||||||||||
Loss from equity investment | — | (1,379 | ) | (4,201 | ) | (4,013 | ) | (444 | ) | |||||||||||
Net (loss) income before cumulative effect of a change in accounting principle | 96,203 | (114,775 | ) | (49,263 | ) | (19,468 | ) | (440,231 | ) | |||||||||||
Cumulative effect of a change in accounting principle | — | — | 5,154 | — | — | |||||||||||||||
Net (loss) income | 96,203 | (114,775 | ) | (44,109 | ) | (19,468 | ) | (440,231 | ) | |||||||||||
Deemed dividend on preference shares(2) | 18,840 | — | — | — | — | |||||||||||||||
Income (loss) attributable to holders of ordinary shares | 77,363 | (114,775 | ) | (44,109 | ) | (19,468 | ) | (440,231 | ) | |||||||||||
Income (loss) per ordinary share, basic | $ | 0.01 | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.02 | ) | ||||||
Income (loss) per ordinary share, diluted | $ | 0.00 | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.02 | ) | ||||||
Ordinary shares used in calculating basic income (loss) per ordinary share(4) | 14,199,163,517 | 18,184,429,255 | 18,334,498,923 | 18,501,940,489 | 18,682,544,866 | |||||||||||||||
Ordinary shares used in calculating diluted income (loss) per ordinary share(3)(4) | 17,934,393,066 | 18,184,429,255 | 18,334,498,923 | 18,501,940,489 | 18,682,544,866 |
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For the year ended December 31, | ||||||||||||||||||||
2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||
(in US$ thousands, except for per share, per ADS data, percentages, and operating data) | ||||||||||||||||||||
Income (loss) per ADS,basic(5) | $ | 0.27 | $ | (0.32 | ) | $ | (0.12 | ) | $ | (0.05 | ) | $ | (1.18 | ) | ||||||
Income (loss) per ADS,diluted(5) | $ | 0.22 | $ | (0.32 | ) | $ | (0.12 | ) | $ | (0.05 | ) | $ | (1.18 | ) | ||||||
ADS used in calculating basic income (loss) per ADS(5) | 283,983,270 | 363,688,585 | 366,689,978 | 370,038,810 | 373,650,897 | |||||||||||||||
ADS used in calculating diluted income (loss) per ADS(5) | 358,687,861 | 363,688,585 | 366,689,978 | 370,038,810 | 373,650,897 | |||||||||||||||
Other Financial Data: | ||||||||||||||||||||
Gross margin | 26.50 | % | 5.70 | % | 8.70 | % | 9.90 | % | -4.40 | % | ||||||||||
Operating margin | 9.10 | % | -7.40 | % | -0.90 | % | -2.30 | % | -27.80 | % | ||||||||||
Net margin | 9.90 | % | -9.80 | % | -3.00 | % | -1.30 | % | -32.50 | % | ||||||||||
Operating Data: | ||||||||||||||||||||
Wafers shipped (in 8” equivalents) | ||||||||||||||||||||
Total | 943,463 | 1,347,302 | 1,614,888 | 1,849,957 | 1,611,208 | |||||||||||||||
ASP(6) | 1,033 | 869 | 907 | 838 | 840 |
(1) | Including amortization of deferred stock compensation for employees directly involved in manufacturing activities. | |
(2) | Deemed dividend represents the difference between the sale and conversion prices of warrants to purchase convertible preference shares we issued and their respective fair market values. | |
(3) | Anti-dilutive preference shares, options and warrants were excluded from the weighted average ordinary shares outstanding for the diluted per share calculation. | |
(4) | All share information has been adjusted retroactively to reflect the 10-for-1 share split effected upon completion of the global offering of our ordinary shares in March 2004. | |
(5) | Fifty ordinary shares equals one ADS. | |
(6) | Total sales/total wafers shipped. |
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As of December 31, | ||||||||||||||||||||
2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||
(in US$ thousands) | ||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Cash and cash equivalents | $ | 607,173 | $ | 585,797 | $ | 363,620 | $ | 469,284 | $ | 450,230 | ||||||||||
Restricted cash | — | — | — | — | 6,255 | |||||||||||||||
Short-term investments | 20,364 | 13,796 | 57,951 | 7,638 | 19,928 | |||||||||||||||
Accounts receivable, net of allowances | 169,188 | 241,334 | 252,185 | 298,388 | 199,372 | |||||||||||||||
Inventories | 144,018 | 191,238 | 275,179 | 248,310 | 171,637 | |||||||||||||||
Total current assets | 955,418 | 1,047,465 | 1,049,666 | 1,075,302 | 926,858 | |||||||||||||||
Land use rights, net | 39,198 | 34,768 | 38,323 | 57,552 | 74,293 | |||||||||||||||
Plant and equipment, net | 3,311,925 | 3,285,631 | 3,244,401 | 3,202,958 | 2,963,386 | |||||||||||||||
Total assets | 4,384,276 | 4,586,633 | 4,541,292 | 4,708,444 | 4,270,622 | |||||||||||||||
Total current liabilities | 723,871 | 896,038 | 677,362 | 930,190 | 899,773 | |||||||||||||||
Total long-term liabilities | 544,462 | 622,497 | 817,710 | 730,790 | 578,689 | |||||||||||||||
Total liabilities | 1,268,333 | 1,518,535 | 1,495,072 | 1,660,980 | 1,478,462 | |||||||||||||||
Minority interest | — | 38,782 | 38,800 | 34,944 | 42,795 | |||||||||||||||
Stockholders’ equity | $ | 3,115,942 | $ | 3,029,316 | $ | 3,007,420 | $ | 3,012,519 | $ | 2,749,365 |
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For the year ended December 31, | ||||||||||||||||||||
2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||
(in US$ thousands, except percentages) | ||||||||||||||||||||
Cash Flow Data: | ||||||||||||||||||||
Net income (loss) | $ | 96,203 | $ | (114,775 | ) | $ | (49,263 | ) | $ | (19,468 | ) | $ | (440,231 | ) | ||||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||||||||||||
Depreciation and amortization | 456,961 | 769,472 | 919,616 | 706,277 | 761,809 | |||||||||||||||
Net cash provided by operating activities | 518,662 | 648,105 | 769,649 | 672,465 | 569,782 | |||||||||||||||
Purchases of plant and equipment | (1,838,773 | ) | (872,519 | ) | (882,580 | ) | (717,171 | ) | (669,055 | ) | ||||||||||
Net cash used in investing activities | (1,826,787 | ) | (859,652 | ) | (917,369 | ) | (643,344 | ) | (761,713 | ) | ||||||||||
Net cash provided by (used in) financing activities | 1,469,764 | 190,364 | (74,440 | ) | 76,637 | 173,314 | ||||||||||||||
Net increase (decrease) in cash and cash equivalents | $ | 161,896 | $ | (21,376 | ) | $ | (222,177 | ) | $ | 105,664 | $ | (19,054 | ) | |||||||
Other Financial Data: | ||||||||||||||||||||
Gross margin | 26.50 | % | 5.70 | % | 8.70 | % | 9.90 | % | -4.40 | % | ||||||||||
Operating margin | 9.10 | % | -7.40 | % | -0.90 | % | -2.30 | % | -27.80 | % | ||||||||||
Net margin | 9.90 | % | -9.80 | % | -3.00 | % | -1.30 | % | -32.50 | % |
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• | our customers’ sales outlook, purchasing patterns and inventory adjustments based on general economic conditions or other factors; |
• | the loss of one or more key customers or the significant reduction or postponement of orders from such customers; |
• | timing of new technology development and the qualification of this technology by our customers; |
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• | timing of our expansion and development of our facilities; |
• | our ability to obtain equipment and raw materials; and |
• | our ability to obtain financing in a timely manner. |
• | maintain high capacity utilization, which is the actual number of wafers we produce in relation to our capacity; |
• | optimize our technology and product mix, which is the relative number of wafers fabricated utilizing higher margin technologies as compared to commodity and lower margin technologies; and |
• | continuously maintain and improve our yield, which is the percentage of usable fabricated devices on a wafer. |
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• | our future financial condition, results of operations and cash flows; | ||
• | general market conditions for financing activities of semiconductor companies; | ||
• | our future stock price; and | ||
• | our future credit rating. |
• | shortages and late delivery of building materials and facility equipment; | ||
• | delays in the delivery, installation, commissioning and qualification of our manufacturing equipment; | ||
• | seasonal factors, such as a long and intensive wet season that limits construction; | ||
• | labor disputes; | ||
• | design or construction changes with respect to building spaces or equipment layout; | ||
• | delays in securing the necessary governmental approvals and land use rights; and | ||
• | technological, capacity and other changes to our plans for new fabs necessitated by changes in market conditions. |
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• | logic technologies, including standard logic, mixed-signal, RF and high voltage circuits; | ||
• | memory technologies, including DRAM, SRAM, Flash, and EEPROM; and | ||
• | specialty technologies, including LCoS, and CIS. |
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Shanghai Mega-Fab | Beijing Mega-Fab | Tianjin | ||||
Number and Type of fab | (3) 8-inch fabs (1) 12-inch fab in R&D phase | (2) 12-inch fabs | (1) 8-inch fab | |||
Pilot production commencement | September 2001 | July 2004 | February 2004 | |||
Commercial production commencement | January 2002 | March 2005 | May 2004 | |||
Wafer size | 8-inch 12-inch (being equipped) | 12-inch | 8-inch | |||
Production clean room size | 34,610 m2 | 23,876 m2 | 8,463 m2 |
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• | logic technologies, including standard logic, mixed-signal, RF and high voltage circuits; |
• | memory technologies, including DRAM, SRAM, Flash, EEPROM and Mask ROM; and |
• | specialty technologies, including LCoS, and CIS. |
• | Logic Semiconductors. Logic semiconductors process digital data to control the operation of electronic systems. The largest segment of the logic market, standard logic devices, includes microprocessors, microcontrollers, DSPs and graphic chips. Logic semiconductors are used in communications devices, computers and consumer products, with the most advanced logic semiconductors dedicated primarily to computing applications. |
• | Mixed-Signal and RF. Analog/digital semiconductors combine analog and digital devices on a single semiconductor to process both analog signals and digital data. We make 0.35 micron to 0.13 micron mixed-signal and RF semiconductors using the CMOS process. The primary uses of mixed-signal semiconductors are in hard disk drives, wireless communications equipment and network communications equipment, while RF semiconductors are primarily used in communications devices, such as cell phones. |
• | High Voltage. High voltage semiconductors are semiconductor devices that can drive high voltage electricity to systems that require voltage of between five volts to several hundred volts. Our high voltage technologies provide solutions for display driver integrated circuits, power supplies, power management, telecommunications, automotive electronics and industrial controls. |
• | Memory Semiconductors. Memory semiconductors, which are used in electronic systems to store data and program instructions, are generally classified as either volatile memory, which lose their data content when power supplies are switched off, or non-volatile memory, which retain their data content without the need for a constant power supply. Examples of volatile memory include SRAM and DRAM, and examples of non-volatile memory include electrically erasable programmable read-only memory, or EEPROM, NAND Flash and OTP. Memory semiconductors are used in communications devices, computers and many consumer products. |
• | Specialty Semiconductors. |
• | LCoS. LCoS microdisplays are tiny, high resolution, low power displays designed for high definition televisions, projectors and other products that use or rely on displays. Compared with other display technologies, such as liquid crystal and plasma, LCoS displays have higher resolution and higher fill factor, resulting in superior images, colors and performance. LCoS process technology represents an enhancement of mixed-signal CMOS process technology with the addition of a highly reflective mirror layer. |
• | CIS. CIS devices are sensors that are used in a wide range of camera-related systems, such as digital cameras, digital video cameras, handset cameras, personal computer cameras and surveillance cameras, which integrate image-capturing capabilities onto a chip. CIS is rapidly becoming a cost-effective and low power replacement for competing charged-coupled devices, or CCDs. Since CIS devices are fabricated with CMOS technology, they are easier to produce and more cost-effective than CCDs. By combining camera functions on a chip, from the capture of photos to the output of digital bits, CMOS image sensors reduce the parts required for a digital camera system, which in turn enhances reliability, facilitates miniaturization, and enables on-chip programming. Our CIS process is based on our CIS array technology. |
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Month and | ||||||||||||||||||||
year of | ||||||||||||||||||||
commencement | Process technology | |||||||||||||||||||
of commercial | (in microns) | |||||||||||||||||||
Fab | production of initial fab | 2006 | 2007 | 2008 | 2009 | |||||||||||||||
Wafer fabrication: | ||||||||||||||||||||
Shanghai Mega-fab (8”) | January 2002 | 0.35/0.25/ | 0.35/0.25/ | 0.35/0.25/ | 0.35/0.25/ | |||||||||||||||
0.18/0.15/ | 0.18/0.15/ | 0.18/0.15/ | 0.18/0.15/ | |||||||||||||||||
0.13/0.11/0.09 | 0.13/0.11/0.09 | 0.13/0.11/0.09 | 0.13/0.11/0.09 | |||||||||||||||||
Shanghai fab (12”) | — | — | — | 0.09 | 0.11/0.09/0.065 | |||||||||||||||
Beijing Mega-fab (12”) | March 2005 | 0.15/0.13/0.11/ | 0.13/0.11/ | 0.18/0.13/ | 0.18/0.13/0.09/0.065 | |||||||||||||||
0.10/0.09 | 0.10/0.09 | 0.09 | ||||||||||||||||||
Tianjin fab (8”) | May 2004 | 0.35/0.25/ | 0.35/0.25/ | 0.35/0.25/ | 0.35/0.25 | |||||||||||||||
0.18/0.15 | 0.18/0.15 | 0.18/0.15 | 0.18/0.15 |
For the | ||||||||||||||||||||||||||||
For the | For the three months ended | year ended | ||||||||||||||||||||||||||
Process | year ended December 31, | March 31, | June 30, | September 30, | December 31, | December 31, | ||||||||||||||||||||||
Technologies | 2006 | 2007 | 2008 | 2008 | 2008 | 2008 | 2008 | |||||||||||||||||||||
(based on sales in US$) | ||||||||||||||||||||||||||||
0.13 micron and below | 49.60 | % | 53.10 | % | 44.70 | % | 41.30 | % | 44.50 | % | 45.50 | % | 43.90 | % | ||||||||||||||
0.15 micron | 5.70 | % | 2.90 | % | 4.30 | % | 2.10 | % | 2.00 | % | 2.20 | % | 2.70 | % | ||||||||||||||
0.18 micron | 35.70 | % | 30.50 | % | 32.10 | % | 37.70 | % | 33.90 | % | 32.50 | % | 34.10 | % | ||||||||||||||
0.25 micron | 2.00 | % | 0.70 | % | 0.50 | % | 0.60 | % | 0.50 | % | 0.60 | % | 0.60 | % | ||||||||||||||
0.35 micron | 7.00 | % | 12.80 | % | 18.40 | % | 18.30 | % | 19.10 | % | 19.20 | % | 18.70 | % | ||||||||||||||
Total | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % |
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Fab | 2006 | 2007 | 2008 | |||||||||
Wafer Fabrication: | ||||||||||||
Wafer fabrication capacity as of year-end(1): | ||||||||||||
Shanghai mega-fab | 106,000 | 98,000 | 88,000 | |||||||||
Beijing mega-fab | 56,250 | 65,250 | 40,500 | |||||||||
Tianjin fab | 20,000 | 22,000 | 32,000 | |||||||||
Total monthly wafer fabrication capacity as of year-end(1) | 182,250 | (3) | 185,250 | (3) | 160,500 | (3) | ||||||
Wafer fabrication capacity utilization | 90 | % | 91 | % | 86 | % |
All | output and capacity data is provided as 8-inch wafers or 8-inch wafer equivalents per month. | |
(1) | Conversion of 12-inch wafers to 8-inch wafer equivalents is achieved by multiplying the number of 12-inch wafers by 2.25. | |
(2) | Reflects wafers fabricated using the copper interconnects line and does not include wafers fabricated using the aluminum interconnects line. As a small number of wafers produced by our aluminum interconnects lines also utilize the copper interconnects capabilities, our reported capacity and output data for our copper interconnects line overlaps to a limited extent with such data for our aluminum interconnects line. | |
(3) | Mega fab structure includes copper interconnects in the total monthly capacity. |
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(1) | A portion of this work is outsourced to our service partners. | |
(2) | A portion of these services are outsourced to our service partners. |
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For the year ended December 31, | ||||||||||||||||||||||||
2006 | 2007 | 2008 | ||||||||||||||||||||||
Customer Type | Sales | Percentage | Sales | Percentage | Sales | Percentage | ||||||||||||||||||
(in US$ thousands, except percentages) | ||||||||||||||||||||||||
Fabless semiconductor companies | 601,200 | 41.00 | % | 720,416 | 46.50 | % | 768,707 | 56.80 | % | |||||||||||||||
Integrated device manufacturers | 737,275 | 50.30 | % | 634,607 | 40.90 | % | 341,933 | 25.30 | % | |||||||||||||||
Systems companies and others | 126,848 | 8.70 | % | 194,742 | 12.60 | % | 243,072 | 17.90 | % | |||||||||||||||
Total | 1,465,323 | 100.00 | % | 1,549,765 | 100.00 | % | 1,353,711 | 100.00 | % | |||||||||||||||
For the year ended December 31, | ||||||||||||||||||||||||
2006 | 2007 | 2008 | ||||||||||||||||||||||
Region | Sales | Percentage | Sales | Percentage | Sales | Percentage | ||||||||||||||||||
(in US$ thousands, except percentages) | ||||||||||||||||||||||||
United States | 602,506 | 41.10 | % | 657,603 | 42.40 | % | 766,708 | 56.70 | % | |||||||||||||||
Europe | 440,328 | 30.00 | % | 328,710 | 21.20 | % | 92,573 | 6.80 | % | |||||||||||||||
Asia Pacific (excluding Japan and Taiwan)(1) | 168,608 | 11.50 | % | 227,973 | 14.70 | % | 269,611 | 19.90 | % | |||||||||||||||
Taiwan | 153,058 | 10.50 | % | 183,114 | 11.80 | % | 185,849 | 13.70 | % | |||||||||||||||
Japan | 100,823 | 6.90 | % | 152,365 | 9.90 | % | 38,970 | 2.90 | % | |||||||||||||||
Total | $ | 1,465,323 | 100.00 | % | $ | 1,549,765 | 100.00 | % | 1,353,711 | 100.00 | % | |||||||||||||
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For the year ended December 31, | ||||||||||||||||||||||||
2006 | 2007 | 2008 | ||||||||||||||||||||||
Application Type(1) | Sales | Percentage | Sales | Percentage | Sales | Percentage | ||||||||||||||||||
(in US$ thousands, except percentages) | ||||||||||||||||||||||||
Computing | 498,135 | 34.00 | % | 402,262 | 26.00 | % | 106,184 | 7.80 | % | |||||||||||||||
Communications | 618,911 | 42.20 | % | 695,645 | 44.90 | % | 696,399 | 51.50 | % | |||||||||||||||
Consumer | 280,873 | 19.20 | % | 323,230 | 20.90 | % | 430,282 | 31.80 | % | |||||||||||||||
Others | 67,404 | 4.60 | % | 128,628 | 8.20 | % | 120,846 | 8.90 | % | |||||||||||||||
Total | $ | 1,465,323 | 100.00 | % | $ | 1,549,765 | 100.00 | % | 1,353,711 | 100.00 | % | |||||||||||||
(1) | “Computing” consists of integrated circuits such as hard disk drive controllers, DVD-ROM/CD-ROM driver integrated circuits, graphic processors and other components that are commonly used in personal digital assistants and desktop and notebook computers and peripherals. “Communications” consists of integrated circuits used in digital subscriber lines, digital signal processors, wireless LAN, LAN controllers, LCD drivers, handset components and caller ID devices. “Consumer” consists of integrated circuits used for DVD players, game consoles, digital cameras, smart cards and toys. |
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For the year ended December 31, | ||||||||||||||||||||||||
2006 | 2007 | 2008 | ||||||||||||||||||||||
Service Type | Sales | Percentage | Sales | Percentage | Sales | Percentage | ||||||||||||||||||
(in US$ thousands, except percentages) | ||||||||||||||||||||||||
Fabrication of memory wafers | 476,970 | 32.60 | % | 428,355 | 27.60 | % | 71,935 | 5.30 | % | |||||||||||||||
Fabrication of logic wafers(1) | 923,411 | 63.00 | % | 985,776 | 63.60 | % | 1,139,535 | 84.20 | % | |||||||||||||||
Other(2) | 64,942 | 4.40 | % | 135,634 | 8.80 | % | 142,241 | 10.50 | % | |||||||||||||||
Total | $ | 1,465,323 | 100.00 | % | $ | 1,549,765 | 100.00 | % | 1,353,711 | 100.00 | % | |||||||||||||
(1) | Includes copper interconnects and memory devices whose manufacturing process is similar to that for a logic device. | |
(2) | Includes mask-making and probing, etc. |
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• | theNotice of the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs on Relevant Taxation Policy Encouraging the Further Development of the Software Industry and the Integrated Circuit Industry,or the Integrated Circuit Notice, jointly issued by the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs on September 22, 2000, as amended by theNotice of the Ministry of Finance and the State Administration of Taxation on Approval Procedure Concerning Foreign Invested Enterprises’ Implementing Enterprise Income Tax Policies of the Software and Integrated Circuit Industry, or the Approval Notice, jointly issued by the Ministry of Finance and the State Administration of Taxation on July 1, 2005; | ||
• | theNotice of the Ministry of Finance, the State Administration of Taxation on Taxation Policies Concerning the Tax Policies for Further Encouraging the Development of the Software and the Integrated Circuit Industry, or the Further Development Taxation Notice, jointly issued by the Ministry of Finance and the State Administration of Taxation on October 10, 2002, as amended byNotice of the Ministry of Finance, the State Administration of Taxation on Termination of Value-added Tax Refund Policies for Integrated Circuits, or the Termination Notice, jointly issued by the Ministry of Finance and the State Administration of Taxation on October 25, 2004; | ||
• | theNotice of the Ministry of Finance on Taxation Policies Concerning the Import of Self-used Raw Materials and Consumables by Part of Integrated Circuit Production Enterprises, or the Raw Materials Taxation Notice, issued by the Ministry of Finance on August 24, 2002; | ||
• | theNotice on Taxation Policies Concerning the Import of Construction Materials Specially used for Clean Rooms by Part of the Integrated Circuit Production Enterprises, or the Construction Materials Taxation Notice, issued by the Ministry of Finance on September 26, 2002; | ||
• | theNotice by the Ministry of Finance and the State Administration of Taxation on Increasing Tax Refund Rate for Export of Certain Information Technology(IT) Products, or the Export Notice, issued by the Ministry of Finance and the State Administration of Taxation on December 10, 2004; | ||
• | theMeasures for the Accreditation of the Integrated Circuit Enterprise Encouraged by the State (For Trial Implementation), or the Accreditation Measures, jointly issued by the National Development and Reform Commission, the Ministry of Information Industry, the State Administration of Taxation and the General Administration of Customs on October 21, 2005; and | ||
• | theInterim Measures for the Management of the Special Fund for the Research and Development of the Integrated Circuit Industry,or the Fund Measures, jointly issued by the Ministry of Finance, the Ministry of Information Industry and the National Development and Reform Commission on March 23, 2005. |
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• | design of integrated circuits; | ||
• | fabrication of large scale integrated circuits with a line width of less than 0.18 micron (including 0.18 micron); | ||
• | fabrication of analog and analog digital integrated circuits with a line width of less than 0.8 micron (including 0.8 micron); | ||
• | advanced packaging and testing of BGA, PGA, CSP, MCM; | ||
• | fabrication of mixed integrated circuits. |
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• | thePatent Law of the People’s Republic of China, adopted at the fourth meeting of the Standing Committee of the Sixth National People’s Congress on March 12, 1984, effective April 1, 1985 and amended by the Ninth National People’s Congress on August 25, 2000; | ||
• | theParis Convention for the Protection of Industrial Propertyof the World Intellectual Property Organization, in which China became a member state as of March 19, 1985; | ||
• | theGeneral Principles of the Civil Law of the People’s Republic of Chinaadopted at the fourth session of the Sixth National People’s Congress on April 12, 1986, effective January 1, 1987. In this legislation, intellectual property rights were defined in China’s basic civil law for the first time as the civil rights of citizens and legal persons; | ||
• | theCopyright Law of the People’s Republic of China, adopted by the 15th meeting of the Seventh National People’s Congress Standing Committee on September 7, 1990, effective June 1, 1991 and amended by the Ninth National People’s Congress on October 27, 2000; | ||
• | theRegulations for the Protection of the Layout Design of Integrated Circuits, or the Layout Design Regulations, adopted April 2, 2001 at the thirty-sixth session of the executive meeting of the State Council, effective October 1, 2001; and | ||
• | the World Intellectual Property Organization’sWashington Treaty on Intellectual Property in Respect of Integrated Circuits, for which China was among the first signatory states in 1990. |
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• | to duplicate the whole protected layout design or any part of the design that is original; and | ||
• | to make commercial use of the protected layout design, the integrated circuit containing the layout design, or commodities containing the integrated circuit. |
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• | political and economic stability; | ||
• | an effective judicial system; | ||
• | a favorable tax system; | ||
• | the absence of exchange control or currency restrictions; and | ||
• | the availability of professional and support services. |
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• | recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or | ||
• | be competent to hear original actions brought in each respective jurisdiction, against us or our directors or officers predicated upon the securities laws of the United States or any state thereof. |
Attributable | ||||||||
Place and date of | equity interest | Principal | ||||||
Name of company | incorporation/establishment | held | Activity | |||||
Garrison Consultants Limited (“Garrison”) | Samoa April 3, 2000 | 100 | % | Consultancy services | ||||
Betterway Enterprises Limited (“Better Way”) | Samoa April 5, 2000 | 100 | % | Trading of semiconductor products | ||||
Semiconductor Manufacturing International (Shanghai) Corporation (“SMIC Shanghai” or “SMIS”)*# | PRC December 21, 2000 | 100 | % | Manufacturing and trading of semiconductor products | ||||
SMIC, Americas | United States of America June 22, 2001 | 100 | % | Marketing related activities | ||||
Semiconductor Manufacturing International (Beijing) Corporation (“SMIC Beijing” or “SMIB”)*# | PRC July 25, 2002 | 100 | % | Manufacturing and trading of semiconductor products | ||||
SMIC Japan Corporation* | Japan October 8, 2002 | 100 | % | Marketing related activities | ||||
SMIC Europe S.R.L. | Italy July 3, 2003 | 100 | % | Marketing related activities |
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Attributable | ||||||||
Place and date of | equity interest | Principal | ||||||
Name of company | incorporation/establishment | held | Activity | |||||
Semiconductor Manufacturing International (Tianjin) Corporation (“SMIC Tianjin” or “SMIT”)*# | PRC November 3, 2003 | 100 | % | Manufacturing and trading of semiconductor products | ||||
SMIC Commercial (Shanghai) Limited Company (formerly SMIC Consulting Corporation) *# | The PRC September 30, 2003 | 100 | % | Operation of a convenience store | ||||
Semiconductor Manufacturing International (AT) Corporation (“AT”)* | Cayman Islands July 26, 2004 | 57.3 | % | Investment holding | ||||
Semiconductor Manufacturing International (Chengdu) Corporation (“SMIC Chengdu” or “SMICD”) *# | The PRC December 28, 2004 | 57.3 | % | Manufacturing and trading of semiconductor products | ||||
Semiconductor Manufacturing International (Solar Cell) Corporation | Cayman Islands June 30, 2005 | 100 | % | Investment holding | ||||
SMIC Energy Technology (Shanghai) Corporation (“Energy Science)*# | PRC September 9, 2005 | 100 | % | Manufacturing and trading of solar cells and modules | ||||
SMIC Development (Chengdu) Corporation*# | The PRC December 29, 2005 | 100 | % | Construction, operation, management of SMICD’s living quarter, schools and supermarket | ||||
Magnificent Tower Limited | British Virgin Islands January 5, 2006 | 100 | % | Investment Holding | ||||
Semiconductor Manufacturing International (BVI) Corporation (“SMIC (BVI)”)* | British Virgin Islands April 26, 2007 | 100 | % | Trading of semiconductor products | ||||
SMIC AT (HK) Company Limited (“SMIC AT (HK)”)* | Hong Kong October 22, 2007 | 57.3 | % | Investment Holding | ||||
SMIC Solar Cell (HK) Company Limited (“SMIC Solar Cell (HK)”)* | Hong Kong October 23, 2007 | 100 | % | Investment Holding | ||||
SMIC Shanghai (HK) Company Limited (“SMIC SH (HK)”)* | Hong Kong November 1, 2007 | 100 | % | Investment Holding | ||||
SMIC Beijing (HK) Company Limited (“SMIC BJ (HK)”)* | Hong Kong November 2, 2007 | 100 | % | Investment Holding | ||||
SMIC Tianjin (HK) Company Limited (“SMIC TJ (HK)”)* | Hong Kong November 2, 2007 | 100 | % | Investment Holding | ||||
SMIC Shanghai (Cayman) Corporation (“SMIC SH (Cayman)”)* | Cayman Islands November 8, 2007 | 100 | % | Investment Holding | ||||
SMIC Beijing (Cayman) Corporation (“SMIC BJ (Cayman)”)* | Cayman Islands November 8, 2007 | 100 | % | Investment Holding |
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Attributable | ||||||||
Place and date of | equity interest | Principal | ||||||
Name of company | incorporation/establishment | held | Activity | |||||
SMIC Tianjin (Cayman) Corporation (“SMIC TJ (Cayman)”)* | Cayman Islands November 8, 2007 | 100 | % | Investment Holding | ||||
SMIC (Wuhan) Development Corporation*# | PRC March 27, 2007 | 100 | % | Construction, operation, management of living quarter, schools | ||||
Admiral Investment Holdings Limited | British Virgin Islands October 10, 2007 | 100 | % | Investment Holding | ||||
SMIC Shenzhen (Cayman) Corporation | Cayman Islands January 21, 2008 | 100 | % | Investment Holding | ||||
SMIC Shenzhen (HK) Company Limited | Hong Kong January 29, 2008 | 100 | % | Investment Holding | ||||
SilTech Semiconductor Corporation | Cayman Islands February 13, 2008 | 100 | % | Investment Holding | ||||
SilTech Semiconductor (Hong Kong) Corporation Limited* | Hong Kong March 20, 2008 | 100 | % | Investment Holding | ||||
Semiconductor Manufacturing International (Shenzhen) Corporation*# | PRC March 20, 2008 | 100 | % | Manufacturing and trading of semiconductor products |
# | Companies registered as wholly-owned foreign enterprises in thePeople’s Republic of China. (“PRC”), excluding for the purpose of this report, Hong Kong, Macau, and Taiwan. | |
* | For identification purposes only. |
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Owned(1) or | ||||||||||||
Size | Leased | |||||||||||
Location | (Land/Building) | Primary Use | (Land/Building) | |||||||||
(in square meters) | ||||||||||||
Zhangjiang High-Tech Park, Pudong New Area, Shanghai | 367,895/164,795 | Wafer fabrication | owned/owned | |||||||||
Beijing Economic and Technological Development Area | 240,140/143,017 | Wafer fabrication | owned/owned | |||||||||
Xiqing Economic Development Area, Tianjin | 215,733/61,990 | Wafer fabrication | owned/owned | |||||||||
Export Processing Zone (West Area), Chengdu | 252,831/35,850 | Assembly and Test | owned/owned | |||||||||
Japan | na/55 | Marketing activities | na/leased | |||||||||
USA | na/743 | Marketing activities | na/leased | |||||||||
Italy | na/280 | Marketing activities | na/leased | |||||||||
Hong Kong(2) | na/300 | Representative Office | na/owned |
(1) | With respect to land located in China, “ownership” refers to holding a valid land use rights certificate. All land within municipal zones in China is owned by the Chinese government. Limited liability companies, joint stock companies, foreign-invested enterprises, privately held companies and individual natural persons must pay fees to be granted rights to use land within municipal zones. Legal use of land is evidenced and sanctioned by land use certificates issued by the local municipal administration of land resources. Land use rights granted for industrial purposes are limited to a term of no more than 50 years. | |
(2) | In February 2006, we purchased approximately 300 square meter of property in Hong Kong through our indirect wholly-owned subsidiary, Magnificent Tower Limited, a company incorporated in the British Virgin Islands. |
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• | mandatory staff and vendor safety training; | ||
• | compliance of equipment and facilities to safety criteria, including the Semiconductor Equipment and Materials International and Chinese National Fire Protection Association standards; and | ||
• | standard management procedures established by our environmental, health and safety committee. |
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Cyclicality of the Semiconductor Industry
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For the | ||||||||||||||||||||||||||||
For the | For the three months ended | year ended | ||||||||||||||||||||||||||
Process | year ended December 31, | March 31, | June 30, | September 30, | December 31, | December 31, | ||||||||||||||||||||||
Technologies | 2006 | 2007 | 2008 | 2008 | 2008 | 2008 | 2008 | |||||||||||||||||||||
(based on sales in US$) | ||||||||||||||||||||||||||||
0.13 micron and below | 49.60 | % | 53.10 | % | 44.70 | % | 41.30 | % | 44.50 | % | 45.50 | % | 43.90 | % | ||||||||||||||
0.15 micron | 5.70 | % | 2.90 | % | 4.30 | % | 2.10 | % | 2.00 | % | 2.20 | % | 2.70 | % | ||||||||||||||
0.18 micron | 35.70 | % | 30.50 | % | 32.10 | % | 37.70 | % | 33.90 | % | 32.50 | % | 34.10 | % | ||||||||||||||
0.25 micron | 2.00 | % | 0.70 | % | 0.50 | % | 0.60 | % | 0.50 | % | 0.60 | % | 0.60 | % | ||||||||||||||
0.35 micron | 7.00 | % | 12.80 | % | 18.40 | % | 18.30 | % | 19.10 | % | 19.20 | % | 18.70 | % | ||||||||||||||
Total | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % |
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For the year ended December 31, | ||||||||||||||||||||||||
2006 | 2007 | 2008 | ||||||||||||||||||||||
Service Type | Sales | Percentage | Sales | Percentage | Sales | Percentage | ||||||||||||||||||
(in US$ thousands, except percentages) | ||||||||||||||||||||||||
Fabrication of memory wafers | 476,970 | 32.60 | % | 428,355 | 27.60 | % | 71,935 | 5.30 | % | |||||||||||||||
Fabrication of logic wafers(1) | 923,411 | 63.00 | % | 985,776 | 63.60 | % | 1,139,535 | 84.20 | % | |||||||||||||||
Other(2) | 64,942 | 4.40 | % | 135,634 | 8.80 | % | 142,241 | 10.50 | % | |||||||||||||||
Total | $ | 1,465,323 | 100.00 | % | $ | 1,549,765 | 100.00 | % | 1,353,711 | 100.00 | % | |||||||||||||
(1) | Includes copper interconnects and memory devices whose manufacturing process is similar to that for a logic device. | |
(2) | Includes mask-making and probing, etc. |
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Excess of carrying value | ||||||||||||
over estimated fair value | Impact of one point change in the discount rate | |||||||||||
Reporting Unit | (in millions) | (in millions) | ||||||||||
+1 point | -1 point | |||||||||||
SMIB | -105.8 | -129.2 | -81.4 |
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Incentive | SMIC Shanghai, SMIC Beijing, and SMIC Tianjin | |
Preferential Value-added Tax Policies | 17% VAT rate. | |
17% tax refund rate for exports reduced to 13% as of January 1, 2004. | ||
13% tax refund rate for exports increased to 17% as of November 1, 2004. | ||
Preferential Enterprise Income Tax Policies | Five-year full exemption and five-year 50% reduction upon approval from the local tax bureau. | |
Preferential Customs Duties and Import-related VAT Policies | Exemption from customs duties with respect to its equipment, spare parts and raw materials. | |
Exemption from import-related VAT with respect to its equipment, spare parts and raw materials. | ||
Exemption from VAT for imported equipment will no longer apply as of July 1, 2009 and a 17% VAT rate will apply. |
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• | depreciation and amortization; |
• | overhead, including maintenance of production equipment, indirect materials, including chemicals, gases and various types of precious and other metals, utilities and royalties; |
• | direct materials, which consist of raw wafer costs; |
• | labor, including amortization of deferred stock compensation for employees directly involved in manufacturing activities; and |
• | production support, including facilities, utilities, quality control, automated systems and management functions. |
• | Research and development expenses. Research and development expenses consist primarily of salaries and benefits of research and development personnel, materials costs, depreciation and maintenance on the equipment used in our research and development efforts, contracted technology development costs, and the costs associated with the ramp-up of new fabs but are partially offset by related government subsidies. |
• | General and administrative expenses. General and administrative expenses consist primarily of salaries and benefits for our administrative, finance and human resource personnel, commercial insurance, fees for professional services, foreign exchange gains and losses from operating activities. Foreign exchange gains and losses relate primarily to period-end translation adjustments due to exchange rate fluctuations that affect payables and receivables directly related to our operations. |
• | Selling and marketing expenses. Selling and marketing expenses consist primarily of salaries and benefits of personnel engaged in sales and marketing activities, costs of customer wafer samples, other marketing incentives and related marketing expenses. |
• | Amortization of acquired intangible assets.Amortization of acquired intangible assets consist primarily of the cost associated with the purchase of technology, licenses, and patent licenses. |
• | Income from sale of plant and equipment and other fixed assets.In 2008, the Company sold plant, equipment and other fixed assets with a carrying value of US$7,542,561 for US$10,419,736, which resulted in a gain on disposal of US$2,877,175. |
• | interest income, which has been primarily derived from cash equivalents and short-term investments and interest on share purchase receivables; |
• | interest expenses, net of capitalized portions and government interest subsidies, which have been primarily attributable to our bank loans and the imputed interest rate on an outstanding interest-free promissory note; and |
• | other income and expense items, such as those relating to the employee living quarters and school; and |
• | foreign exchange gains and losses relating to financing and investing activities, including forward contracts. |
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For the year ended December 31, | ||||||||||||||||||||
2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||
(in US$ thousands, except for per share, per ADS data, percentages, and operating data) | ||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||
Sales | $ | 974,664 | $ | 1,171,319 | $ | 1,465,323 | $ | 1,549,765 | $ | 1,353,711 | ||||||||||
Cost of sales(1) | 716,225 | 1,105,134 | 1,338,155 | 1,397,038 | 1,412,851 | |||||||||||||||
Gross profit (loss) | 258,439 | 66,185 | 127,168 | 152,727 | (59,140 | ) | ||||||||||||||
Operating expenses: | ||||||||||||||||||||
Research and development | 74,113 | 78,865 | 94,171 | 97,034 | 102,240 | |||||||||||||||
General and administrative | 54,038 | 35,701 | 47,365 | 74,490 | 58,841 | |||||||||||||||
Selling and marketing | 10,384 | 17,713 | 18,231 | 18,716 | 20,661 | |||||||||||||||
Litigation settlement | 16,695 | — | — | — | — | |||||||||||||||
Amortization of acquired intangible assets | 14,368 | 20,946 | 24,393 | 27,071 | 32,191 | |||||||||||||||
Impairment loss of long-lived assets | — | — | — | — | 106,741 | |||||||||||||||
Income from sale of plant and equipment and other fixed assets | — | — | (43,122 | ) | (28,651 | ) | (2,877 | ) | ||||||||||||
Total operating expenses | 169,598 | 153,225 | 141,038 | 188,659 | 317,797 |
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For the year ended December 31, | ||||||||||||||||||||
2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||
(in US$ thousands, except for per share, per ADS data, percentages, and operating data) | ||||||||||||||||||||
Income (loss) from operations | 88,841 | (87,040 | ) | (13,870 | ) | (35,932 | ) | (376,937 | ) | |||||||||||
Other income (expenses): | ||||||||||||||||||||
Interest income | 10,587 | 11,356 | 14,916 | 12,349 | 11,542 | |||||||||||||||
Interest expense | (13,698 | ) | (38,784 | ) | (50,926 | ) | (37,936 | ) | (50,767 | ) | ||||||||||
Foreign currency exchange gain (loss) | 8,218 | (3,355 | ) | (21,912 | ) | 11,250 | 3,230 | |||||||||||||
Other, net | 2,441 | 4,462 | 1,821 | 2,238 | 7,429 | |||||||||||||||
Total other income (expense), net | 7,548 | (26,322 | ) | (56,101 | ) | (12,100 | ) | (28,566 | ) | |||||||||||
Income (loss) before income tax | 96,389 | (113,362 | ) | (69,971 | ) | (48,032 | ) | (405,503 | ) | |||||||||||
Income tax — current | (186 | ) | (285 | ) | 24,928 | 29,720 | (26,433 | ) | ||||||||||||
Minority interest | — | 251 | (19 | ) | 2,856 | (7,851 | ) | |||||||||||||
Loss from equity investment | — | (1,379 | ) | (4,201 | ) | (4,013 | ) | (444 | ) | |||||||||||
Net (loss) income before cumulative effect of a change in accounting principle | 96,203 | (114,775 | ) | (49,263 | ) | (19,468 | ) | (440,231 | ) | |||||||||||
Cumulative effect of a change in accounting principle | — | — | 5,154 | — | — | |||||||||||||||
Net (loss) income | 96,203 | (114,775 | ) | (44,109 | ) | (19,468 | ) | (440,231 | ) | |||||||||||
Deemed dividend on preference shares(2) | 18,840 | — | — | — | — | |||||||||||||||
Income (loss) attributable to holders of ordinary shares | $ | 77,363 | $ | (114,775 | ) | $ | (44,109 | ) | $ | (19,468 | ) | (440,231 | ) | |||||||
Income (loss) per ordinary share, basic | $ | 0.01 | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.02 | ) | ||||||
Income (loss) per ordinary share, diluted | $ | 0.00 | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.02 | ) | ||||||
Ordinary shares used in calculating basic income (loss) per ordinary share(4) | 14,199,163,517 | 18,184,429,255 | 18,334,498,923 | 18,501,940,489 | 18,682,544,866 | |||||||||||||||
Ordinary shares used in calculating diluted income (loss) per ordinary share(3)(4) | 17,934,393,066 | 18,184,429,255 | 18,334,498,923 | 18,501,940,489 | 18,682,544,866 | |||||||||||||||
Income (loss) per ADS, basic(5) | $ | 0.27 | $ | (0.32 | ) | $ | (0.12 | ) | $ | (0.05 | ) | $ | (1.18 | ) | ||||||
Income (loss) per ADS, diluted(5) | $ | 0.22 | $ | (0.32 | ) | $ | (0.12 | ) | $ | (0.05 | ) | $ | (1.18 | ) |
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For the year ended December 31, | ||||||||||||||||||||
2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||
(in US$ thousands, except for per share, per ADS data, percentages, and operating data) | ||||||||||||||||||||
ADS used in calculating basic income (loss) per ADS(5) | 283,983,270 | 363,688,585 | 366,689,978 | 370,038,810 | 373,650,897 | |||||||||||||||
ADS used in calculating diluted income (loss) per ADS(5) | 358,687,861 | 363,688,585 | 366,689,978 | 370,038,810 | 373,650,897 | |||||||||||||||
Other Financial Data: | ||||||||||||||||||||
Gross margin | 26.50 | % | 5.70 | % | 8.70 | % | 9.90 | % | -4.40 | % | ||||||||||
Operating margin | 9.10 | % | -7.40 | % | -0.90 | % | -2.30 | % | -27.80 | % | ||||||||||
Net margin | 9.90 | % | -9.80 | % | -3.00 | % | -1.30 | % | -32.50 | % | ||||||||||
Operating Data: | ||||||||||||||||||||
Wafers shipped (in 8” equivalents) | ||||||||||||||||||||
Total | 943,463 | 1,347,302 | 1,614,888 | 1,849,957 | 1,611,208 | |||||||||||||||
ASP(6) | 1,033 | 869 | 907 | 838 | 840 |
(1) | Including amortization of deferred stock compensation for employees directly involved in manufacturing activities. | |
(2) | Deemed dividend represents the difference between the sale and conversion prices of warrants to purchase convertible preference shares we issued and their respective fair market values. | |
(3) | Anti-dilutive preference shares, options and warrants were excluded from the weighted average ordinary shares outstanding for the diluted per share calculation. For 2005, 2006, 2007, and 2008 basic income (loss) per share did not differ from diluted loss per share. | |
(4) | All share information has been adjusted retroactively to reflect the 10-for-1 share split effected upon completion of the global offering of our ordinary shares in March 2004 (the “Global Offering”). | |
(5) | Fifty ordinary shares equals one ADS. | |
(6) | Total sales/total wafers shipped. |
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For the year ended | ||||||||||||
December 31, | ||||||||||||
2006 | 2007 | 2008 | ||||||||||
(in US$ thousands) | ||||||||||||
Net cash provided by operating activities: | ||||||||||||
Net loss before cumulative effect of change in accounting principle | $ | (49,263 | ) | $ | (19,468 | ) | $ | (440,231 | ) | |||
Depreciation and amortization | 919,616 | 706,277 | 761,809 | |||||||||
Total | 769,649 | 672,465 | 569,782 | |||||||||
Net cash used in investing activities: | ||||||||||||
Purchase of property, plant and equipment | (882,581 | ) | (717,171 | ) | (669,055 | ) | ||||||
Total | (917,369 | ) | (643,344 | ) | (761,713 | ) | ||||||
Net cash provided by (used in) financing activities: | ||||||||||||
Proceeds from short-term borrowings | 255,004 | 201,658 | 422,575 | |||||||||
Proceeds from long-term debt | 785,345 | 262,248 | 285,930 | |||||||||
Total | (74,440 | ) | 76,637 | 173,314 | ||||||||
Net increase (decrease) in cash and cash equivalents | $ | (222,177 | ) | $ | 105,664 | $ | (19,054 | ) |
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Payments due by period | ||||||||||||||||||||
Contractual obligations | Total | Less than 1 year | 1 — 3 years | 3 — 5 years | After 5 years | |||||||||||||||
(consolidated) | ||||||||||||||||||||
(in US$ thousands) | ||||||||||||||||||||
Secured Long-Term Debt(1) | 897,147 | 360,629 | 536,518 | — | — | |||||||||||||||
Operating Lease Obligations(2) | 9,721 | 6,056 | 270 | 441 | 2,954 | |||||||||||||||
Purchase Obligations(3) | 59,594 | 59,594 | — | — | — | |||||||||||||||
Other Long-Term Obligations(4) | 120,204 | 78,446 | 37,204 | 4,554 | — | |||||||||||||||
Total Contractual Obligations | $ | 1,086,666 | $ | 504,725 | $ | 573,992 | $ | 4,995 | $ | 2,954 |
(1) | Interest was computed using rates in effect on December 31, 2008 within the range of 2.47% to 6.38%. | |
(2) | Represents our obligations to make lease payments to use the land on which our fabs are located in Shanghai and other office equipment we have leased. | |
(3) | Represents commitments for construction or purchase of semiconductor equipment, and other property or services. | |
(4) | Includes the settlement with TSMC and the other long-term liabilities relating to certain license agreements. |
Name | Age | Position | ||||
Directors | ||||||
Yang Yuan Wang | 74 | Chairman, Independent Non-executive Director | ||||
Richard Ru Gin Chang | 61 | Founder, President, Chief Executive Officer and Executive Director | ||||
Zhou Jie | 41 | Non-executive Director | ||||
Wang Zheng Gang | 58 | Non-executive Director (Alternate director to Zhou Jie) | ||||
Tsuyoshi Kawanishi | 80 | Independent Non-executive Director | ||||
Lip-Bu Tan | 49 | Independent Non-executive Director | ||||
Jiang Shang Zhou | 62 | Independent Non-executive Director | ||||
Edward S Yang | 71 | Independent Non-executive Director | ||||
Senior Managers | ||||||
Morning Wu | 52 | Acting Chief Financial Officer and Chief Accounting Officer | ||||
Marco Mora | 51 | Chief Operating Officer | ||||
Chiou-Feng Chen | 52 | Vice President of Corporate Marketing & Sales Office | ||||
Anne Wai Yui Chen | 47 | Company Secretary, Hong Kong Representative and Chief Compliance Officer |
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Class I | Class II | Class III | ||
Richard Ru Gin Chang | Lip-Bu Tan | Tsuyoshi Kawanishi | ||
Edward S Yang | Jiang Shang Zhou | Yang Yuan Wang | ||
Zhou Jie | ||||
Wang Zheng Gang (alternate director to Zhou Jie) |
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• | making recommendations to the board of directors concerning the appointment, reappointment, retention, evaluation, oversight and termination of compensating and overseeing the work of our independent auditor, including reviewing the experience, qualifications and performance of the senior members of the independent auditor team, and pre-approving all non-audit services to be provided by our independent auditor; |
• | approving the remuneration and terms of engagement of our independent auditor; |
• | reviewing reports from our independent auditor regarding its internal quality-control procedures and any material issues raised in the most recent review or investigation of such procedures and regarding all relationships between us and the independent auditor; |
• | pre-approving the hiring of any employee or former employee of our independent auditor who was a member of the audit team during the preceding two years; |
• | reviewing our annual and interim financial statements, earnings releases, critical accounting policies and practices used to prepare financial statements, alternative treatments of financial information, the effectiveness of our disclosure controls and procedures and important trends and developments in financial reporting practices and requirements; |
• | reviewing the planning and staffing of internal audits, the organization, responsibilities, plans, results, budget and staffing of our internal audit department and the quality and effectiveness of our internal controls; |
• | reviewing our risk assessment and management policies; |
• | reviewing any legal matters that may have a material impact and the adequacy and effectiveness of our legal and regulatory compliance procedures; |
• | establishing procedures for the treatment of complaints received by us regarding accounting, internal accounting controls, auditing matters, potential violations of law and questionable accounting or auditing matters; and |
• | obtaining and reviewing reports from management, our internal auditor and our independent auditor regarding compliance with applicable legal and regulatory requirements. |
• | the financial reports for the year ended December 31, 2007 and the six month period ended June 30, 2008; |
• | the quarterly earnings releases and any updates thereto; |
• | the report and management letter submitted by our outside auditors summarizing the findings of and recommendations from their audit of our financial reports; |
• | our budget for 2008; |
• | the findings and recommendations of our outside consultants regarding our compliance with the requirements of the Sarbanes-Oxley Act; |
• | the effectiveness of our internal control structure in operations and financial reporting integrity and compliance with applicable laws and regulations in collaboration with the Internal Audit Department and reported to the Board; |
• | the findings of our risk management committee which assesses risks relating to the company and those of the compliance office, which monitors our compliance with the corporate governance code and insider trading policy; |
• | the audit fees for our outside auditors; and |
• | our outside auditors’ engagement letters |
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• | approving and overseeing the total compensation package for our executive officers and any other officer, evaluating the performance of and determining and approving the compensation to be paid to our chief executive officer and reviewing the results of our chief executive officer’s evaluation of the performance of our other executive officers; |
• | reviewing and making recommendations to our board of directors with respect to director compensation, including equity-based compensation; |
• | administering and periodically reviewing and making recommendations to the board of directors regarding the long-term incentive compensation or equity plans made available to the directors, employees and consultants; |
• | reviewing and making recommendations to the board of directors regarding executive compensation philosophy, strategy and principles and reviewing new and existing employment, consulting, retirement and severance agreements proposed for the company’s executive officers; and |
• | ensuring appropriate oversight of our human resources policies and reviewing strategies established to fulfill our ethical, legal and human resources responsibilities. |
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As of December 31, | ||||||||||||
Function | 2006 | 2007 | 2008 | |||||||||
Managers | 871 | 916 | 1,015 | |||||||||
Professionals(1) | 3,790 | 4,096 | 4,465 | |||||||||
Technicians | 4,804 | 4,806 | 4,837 | |||||||||
Clerical staff | 583 | 287 | 281 | |||||||||
Total(2) | 10,048 | 10,105 | 10,598 | |||||||||
(1) | Professionals include engineers, lawyers, accountants and other personnel with specialized qualifications, excluding managers. | |
(2) | Includes 275, 276 and 50 temporary and part-time employees in 2006, 2007 and 2008, respectively. |
As of December 31, | ||||||||||||
Location of Facility | 2006 | 2007 | 2008 | |||||||||
Shanghai | 6,400 | 6,292 | 6,632 | |||||||||
Beijing | 1,827 | 1,877 | 1,674 | |||||||||
Tianjin | 1,073 | 874 | 958 | |||||||||
Chengdu | 715 | 1,023 | 1,259 | |||||||||
Shenzhen | — | — | 33 | |||||||||
United States | 16 | 18 | 16 | |||||||||
Europe | 7 | 8 | 11 | |||||||||
Japan | 7 | 9 | 8 | |||||||||
Hong Kong | 3 | 4 | 7 | |||||||||
Total | 10,048 | 10,105 | 10,598 | |||||||||
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Current | Options to Purchase Ordinary Shares | Awards of Restricted | ||||||||||||||
Name of Director | Shareholding | Number of Options | Exercise Price | Share Units | ||||||||||||
Richard Ru Gin Chang | 81,219,500 | (1)(2) | 16,600,000 | (3) | US$ | 0.0348-US$0.31 | 500,000 | |||||||||
Tsuyoshi Kawanishi | — | 3,500,000 | (3) | US$ | 0.0348 -US$0.22 | — | ||||||||||
Lip-Bu Tan | — | 2,000,000 | (3) | US$ | 0.0348-US$0.22 | — | ||||||||||
Yang Yuan Wang | — | 2,000,000 | (3) | US$ | 0.0348-US$0.22 | — | ||||||||||
Jiang Shang Zhou | — | 1,000,000 | (3) | US$ | 0.0348 | — | ||||||||||
Edward S Yang | 750,000 | 1,000,000 | (3) | US$ | 0.0348 | — | ||||||||||
Zhou Jie | — | — | — | — | ||||||||||||
Wang Zheng Gang | — | — | — | — | ||||||||||||
Henry Shaw (former independent non-executive director who resigned as of January 13, 2009) | — | — | — | — |
1. | Pursuant to a Charitable Pledge Agreement dated December 1, 2003, Richard Ru Gin Chang and his spouse, Scarlett K. Chang (collectively, the “Donors”) have pledged to transfer 10,000,000 of such ordinary shares as a charitable gift to The Richard and Scarlett Chang Family Foundation, a Delaware nonprofit nonstock corporation organized exclusively for religious, charitable, scientific, literary and education purposes within the meaning of Section 501(c)(3) of the US Internal Revenue Code of 1986, as amended, such transfer to be made in full at or prior to the death of the surviving Donor. In addition, 2,639,550 of such ordinary shares are jointly held by Richard Ru Gin Chang and his spouse, Scarlett K. Chang. | |
2. | 20,000,000 of the ordinary shares held as a corporate interest. These ordinary shares are held by Jade Capital Company, LLC, a Delaware limited liability company (the “LLC”), of which Richard Ru Gin Chang and his spouse, Scarlett K. Chang (collectively, the “Members”), are the sole members. It is the current intent of the Members that all or a portion of the net income of the LLC be used for philanthropic purposes, including but not limited to contributions to charitable organizations that are tax-exempt under Section 501(c)(3) of the US Internal Revenue Code of 1986, as amended. | |
3. | Each of Richard R. Chang, Tsuyoshi Kawanishi, Lip-Bu Tan, Yang Yuan Wang, Jiang Shang Zhou and Edward S Yang were granted an option to purchase 1,000,000 Ordinary Shares at a price per Ordinary Shares of US$0.0348. These options will be fully vested on February 17, 2011 and will expire on the earlier of February 17, 2019 or 120 days after termination of the director’s service to the Board. As at May 31, 2009, these options have not been exercised. |
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Number of | Percentage | |||||||
Name of Shareholder | Shares Held | Held | ||||||
Shanghai Industrial Investment (Holdings) | ||||||||
Company Limited (“SIIC”) | 420,008,000 | (1) | 1.88 | % | ||||
1,833,269,340 | (2) | 8.21 | % | |||||
Total: | 2,253,277,340 | 10.09 | % | |||||
Datang Telecom Technology & Industry Holdings Co., Ltd. | 3,699,094,300 | (3) | 16.57 | % | ||||
Donald Smith & Co., Inc. | 1,326,812,150 | (4) | 5.94 | % |
Notes: | ||
(1) | All such ordinary shares are held by SIIC Treasury (B.V.I.) Limited which is a wholly-owned subsidiary of SIIC. The voting rights of such shares are vested in Shanghai Industrial Holdings Limited (“SIHL”), | |
(2) | All such shares are held by S.I. Technology Production Holdings Limited (“SITPHL”) which is a wholly-owned subsidiary of SIHL. SIHL is an indirect non-wholly owned subsidiary of SIIC which is holding SIHL’s shares through its subsidiaries, which together are entitled to exercise or control the exercise of more than one-third of the voting power at the general meetings of SIHL. By virtue of Part XV of the Securities and Futures Ordinance (Cap. 571 of the laws of Hong Kong), SIIC and its subsidiaries namely, Shanghai Investment Holdings Limited and Shanghai Industrial Investment Treasury Company Limited are deemed to be interested in the 1,833,269,340 Shares held by SITPHL. The Company’s Director as at December 31, 2008, Wang Zheng Gang, is the Chief Representative of the Shanghai Representative Office of SIHL and the chairman of SIIC Management (Shanghai) Limited. It is the Company’s understanding that voting and investment control over the Ordinary Shares beneficially owned by SIHL are maintained by the board of directors of SIHL. | |
(3) | All such shares are held by Datang Holdings (Hongkong) Investment Company Limited which is a wholly-owned subsidiary of Datang Telecom Technology & Industry Holdings Co., Ltd. All such shares were purchased on December 24, 2008 pursuant to the Share Purchase Agreement dated November 6, 2008 between us and Datang Telecom Technology & Industry Holdings Co., Ltd. | |
(4) | According to the the Schedule 13G filed with the SEC on February 11, 2009 by Donald Smith & Co., Inc., all such shares are owned by advisory clients of Donald Smith & Co., Inc., no one of which, to the knowledge of Donald Smith & Co., Inc. owns more than 5% of the class. 1,326,812,150 ordinary shares were held in the form of 26,536,243 ADSs. Each ADS represents 50 ordinary shares. |
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Consolidated Statements and Other Financial Information
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• | the Company’s results of operations and cash flow; | |
• | the Company’s future prospects; | |
• | the Company’s capital requirements and surplus; | |
• | the Company’s financial condition; | |
• | general business conditions; | |
• | contractual restrictions on the payment of dividends by the Company to its shareholders or by the Company’s subsidiaries to the Company; and | |
• | other factors deemed relevant by the Board. |
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Stock Exchange of Hong Kong | New York Stock Exchange(1) | |||||||||||||||
Closing price per ordinary share | Closing price per ADS | |||||||||||||||
High Price | Low Price | High Price | Low Price | |||||||||||||
2005 | ||||||||||||||||
First Quarter | HK$ | 1.75 | * | HK$ | 1.48 | US$ | 11.14 | US$ | 9.35 | |||||||
Second Quarter | HK$ | 1.71 | HK$ | 1.48 | US$ | 10.93 | US$ | 9.52 | ||||||||
Third Quarter | HK$ | 1.75 | * | HK$ | 1.21 | US$ | 11.33 | * | US$ | 7.83 | ||||||
Fourth Quarter | HK$ | 1.33 | HK$ | 1.00 | * | US$ | 8.46 | US$ | 6.68 | * | ||||||
2006 | ||||||||||||||||
First Quarter | HK$ | 1.29 | * | HK$ | 1.02 | US$ | 8.38 | * | US$ | 6.73 | ||||||
Second Quarter | HK$ | 1.21 | HK$ | 1.00 | US$ | 7.82 | US$ | 6.36 | ||||||||
Third Quarter | HK$ | 1.07 | HK$ | 0.97 | US$ | 6.88 | US$ | 6.30 | ||||||||
Fourth Quarter | HK$ | 1.03 | HK$ | 0.87 | * | US$ | 6.46 | US$ | 5.48 | * | ||||||
2007 | ||||||||||||||||
First Quarter | HK$ | 1.24 | * | HK$ | 0.87 | US$ | 8.30 | * | US$ | 5.87 | ||||||
Second Quarter | HK$ | 1.24 | HK$ | 1.04 | US$ | 7.68 | US$ | 6.69 | ||||||||
Third Quarter | HK$ | 1.18 | HK$ | 0.81 | US$ | 7.50 | US$ | 5.30 | ||||||||
Fourth Quarter | HK$ | 1.11 | HK$ | 0.71 | * | US$ | 6.72 | US$ | 4.57 | * | ||||||
2008 | ||||||||||||||||
First Quarter | HK$ | 0.82 | * | HK$ | 0.41 | US$ | 4.98 | * | US$ | 2.76 | ||||||
Second Quarter | HK$ | 0.78 | HK$ | 0.44 | US$ | 4.32 | US$ | 2.88 | ||||||||
Third Quarter | HK$ | 0.48 | HK$ | 0.20 | US$ | 2.99 | US$ | 1.32 | ||||||||
Fourth Quarter | HK$ | 0.35 | HK$ | 0.11 | * | US$ | 2.41 | US$ | 0.89 | * | ||||||
December | HK$ | 0.35 | HK$ | 0.15 | US$ | 2.22 | US$ | 0.96 | ||||||||
2009 | ||||||||||||||||
January | HK$ | 0.39 | HK$ | 0.24 | US$ | 2.29 | US$ | 1.54 | ||||||||
February | HK$ | 0.32 | HK$ | 0.23 | US$ | 1.86 | US$ | 1.53 | ||||||||
March | HK$ | 0.32 | HK$ | 0.25 | US$ | 2.02 | US$ | 1.57 | ||||||||
April | HK$ | 0.35 | HK$ | 0.27 | US$ | 2.18 | US$ | 1.82 | ||||||||
May | HK$ | 0.42 | HK$ | 0.29 | US$ | 2.70 | US$ | 2.01 | ||||||||
June (through June 15) | HK$ | 0.47 | HK$ | 0.41 | US$ | 2.96 | US$ | 2.61 |
(1) | Each ADS represents 50 ordinary shares. | |
* | Indicates high and low prices for the fiscal year. |
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• | Right to Nominate Investor Nominees. Datang has the right to nominate two nominees to our board, provided that the decision of our board to appoint, or propose to our shareholders for appointment, any individual nominated by Datang as a director will be made in the best interests our company and our shareholders as a whole, and we are not obliged to simply appoint any individual nominated by Datang as a director without taking into account such considerations, provided further that.(a) subject to clause (b) below, the number of Datang nominees shall decrease to one if Datang, the HKCo and the permitted transferee, collectively, hold less than 1,849,547,150 shares (as appropriately adjusted for stock splits, stock consolidation, stock dividends, recapitalizations and the like) of the our total issued nominal share capital, or Datang, together with the HKCo, holds less than 924,773,575 shares (as appropriately adjusted for stock splits, stock consolidation, stock dividends, recapitalizations and the like) of our total issued nominal share capital; and (b) the right to nominate any Datang nominee shall cease if Datang, the HKCO and the permitted transferee, collectively, hold less than 924,773,575 shares (as appropriately adjusted for stock splits, stock consolidation, stock dividends, recapitalizations and the like) of our total issued nominal share capital, or if Datang, together with HKCo, holds less than 462,386,788 shares (as appropriately adjusted for stock splits, stock consolidation, stock dividends, recapitalizations and the like) of our total nominal share capital.; | ||
• | Right to Nominate Vice-President in Charge of TD-SCDMA. Datang has the right to nominate a Vice-President in charge of TD-SCDMA, provided that Datang, HKCo and the permitted transferee, collectively, hold at least 924,773,575 shares (as appropriately adjusted for stock splits, stock consolidation, stock dividends, recapitalizations and the like) of our total nominal share capital from time to time, provide that Datang, together with the HKCO, holds at least 462,386,788 shares (as appropriately adjusted for stock splits, stock consolidation, stock dividends, recapitalizations and the like) of our total issued share capital from time to time, subject to the approval of our board (excluding the Datang nominees). | ||
• | Pre-emptive Right.Datang has the following right to purchase any new ordinary shares, any securities convertible into or exchangeable into ordinary shares or any warrants or other rights to subscribe for ordinary shares, referred to as the “Relevant Securities” (subject to the approval of our independent shareholders in order to comply with the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange prior to each such purchase), in the event that we propose to issue the Relevant Securities, to enable Datang to hold after such issue (i) in the case of an offer to investors that would result in a prospective largest shareholder (other than an underwriter that is placing on our behalf the Relevant Securities in abona fide capital markets transaction), one ordinary share more than the number of ordinary shares proposed to be beneficially owned by the prospective largest shareholder, unless (a) Datang and the HKCo hold less than 2,774,320,725 shares (as appropriately adjusted for stock splits, stock consolidation, stock dividends, recapitalizations and the like) of our total nominal share capital, or (b) at least two-thirds of our board (excluding Datang nominees) in good faith resolves in writing that such exercise is not in the best interests of our company and our shareholders as a whole, and (ii) in the case of the issue of Relevant Securities other than (i) above, a pro rata portion of the Relevant Securities equal to the percentage of our issued share capital then beneficially owned by Datang (together with HKCo) prior to the issuance of the Relevant Securities, provided that Datang (together with HKCo) maintains an ownership interest equal to at least 1,849,547,150 shares (as appropriately adjusted for stock splits, stock consolidation, stock consolidation, stock dividends, recapitalizations and the like) of our total nominal share capital. |
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• | Lock-Up. Datang shall not transfer any of the shares purchased under the Share Purchase Agreement without our prior written consent for a period of two years from the closing date, provided that such lock-up shall not apply to transfer of less than 1,849,547,150 of such shares (as appropriately adjusted for stock splits, stock consolidation, stock dividends, recapitalizations and the like) to a permitted transferee as defined in the Share Purchase Agreement, provided that any such permitted transferee shall be a non-PRC incorporated entity, unless Datang shall have provided to us in writing justifying the need to transfer to a PRC incorporated entity, and our board (excluding the Datang nominees) shall have determined that such transfer to a PRC incorporated entity is not expected to be prejudicial to the interests of, or have an adverse effect, on our group. | ||
• | Standstill. Datang shall not, except with our prior written consent, directly or indirectly, acquire any of our ordinary shares, any other security carrying voting rights and any outstanding convertible securities, options, warrants or other rights which are convertible into or exchangeable or exercisable or carrying rights of subscription for securities carrying voting rights in us (together our “voting securities” exceeding the lesser of thirty percent of our issued voting securities, or such other threshold that may trigger a mandatory offer obligation as set out in the Hong Kong Code on Takeovers and Mergers, at any time following the date of the Share Purchase Agreement and until the second anniversary of the closing date. |
• | Effective Period: Two years effective from the closing date, being December 24, 2008, subject to all the cooperation pursuant to the Strategic Cooperation Agreement, complying with, among other things, the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange. | ||
• | Material Terms:Cooperation in the areas of technology, industry, global markets and cooperative undertaking. |
• | Cooperation of technological research and development, or Technological Cooperation. As part of our core business of providing IP design services, we intend to provide our existing research and development facilities and manpower in developing advanced logic processing technology and intellectual property bank for Datang, while Datang will provide pilot authentication products in relation to such development. The funding required for such research and development will be in accordance with the market practice and to be agreed by us and Datang. We expect this to be provided by reference to the extent of each party’s responsibilities and rights in the cooperation. We also intend to recommend the technology of Datang to third party customers. | ||
• | Provision of fabrication services, or Production Cooperation.As part of our core business of semiconductors fabrication, we intend to give priority to the production requiements of Datang while Datang intends to give priority to engage or employ our fabrication services provided that our price, technology and service standards are comparable to competitors and at the prevailing market value. The price for the provision of fabrication services under the Production Cooperation will be determined by reference to market price. | ||
• | Global markets, or Market Development Cooperation. We also intend to cooperate with Datang in the development of international markets and globalization of its business. | ||
• | Cooperative Undertaking in relation to PRC National Scientific Research Projects, or Cooperative Undertaking. We and Datang intend to make joint efforts to apply for PRC national and local projects in connection with scientific research and industrialization relating to the integrated circuit sector. |
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• | banks; | ||
• | dealers in securities or currencies; | ||
• | financial institutions; | ||
• | real estate investment trusts; | ||
• | insurance companies; | ||
• | tax-exempt organizations; | ||
• | persons holding ADSs or ordinary shares as part of a hedging, integrated or conversion transaction, constructive sale or straddle; | ||
• | traders in securities that have elected the mark-to-market method of accounting; | ||
• | persons liable for the alternative minimum tax; | ||
• | persons who have ceased to be U.S. citizens or to be taxed as resident aliens; | ||
• | persons who own or are deemed to own more than 10% of our voting shares; or | ||
• | U.S. persons whose “functional currency” is not the U.S. dollar. |
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• | a citizen or resident of the United States; | ||
• | a corporation or other entity taxable as a corporation created or organized in or under the laws of the United States, any state thereof, or the District of Columbia; | ||
• | an estate the income of which is subject to U.S. federal income taxation, regardless of its source; or | ||
• | a trust if it is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
• | a foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States that includes an exchange of information program; and | ||
• | a foreign corporation if its stock with respect to which a dividend is paid or its ADSs backed by such stock are readily tradable on an established securities market within the United States, |
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As of December 31, 2008 | ||||||||
Expected maturity date | ||||||||
(in US$ thousands) | ||||||||
Unrealized | ||||||||
2008 | Fair Value | |||||||
Forward Exchange Agreement | ||||||||
(Receive RMB/Pay US$) | ||||||||
Contract Amount | 189,543 | (3,069 | ) | |||||
(Receive EUR/Pay US$) | ||||||||
Contract Amount | 31,144 | (441 | ) | |||||
Total Contract Amount | 220,687 | (3,510 | ) | |||||
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As of December 31, | ||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | ||||||||||||||||
(Forecast) | ||||||||||||||||||||
(in US$ thousands, except percentages) | ||||||||||||||||||||
US$ denominated | ||||||||||||||||||||
Average balance | 754,059 | 361,029 | 133,435 | 37,225 | — | |||||||||||||||
Average interest rate | 1.83 | % | 1.81 | % | 2.03 | % | 2.22 | % | — | |||||||||||
EUR denominated | ||||||||||||||||||||
Average balance | 46,551 | 29,789 | 16,201 | 3,245 | — | |||||||||||||||
Average interest rate | 1.99 | % | 2.01 | % | 2.10 | % | 2.48 | % | — | |||||||||||
Weighted average forward interest rate | 1.89 | % | 1.89 | % | 2.13 | % | 2.32 | % | — |
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2007 | 2008 | |||||||
Audit Fees | US$ | 1,533,000 | US$ | 1,584,925 | ||||
Audit-Related Fees | US$ | 152,358 | US$ | — | ||||
Tax Fees | US$ | 12,935 | US$ | — | ||||
Total | US$ | 1,698,293 | US$ | 1,584,925 |
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• | The NYSE Standards require U.S. domestic issuers to have a nominating/corporate governance committee composed entirely of independent directors. We are not subject to this requirement, and we have not established a nominating/corporate governance committee. | ||
• | The NYSE Standards provide detailed tests that U.S. domestic issuers must use for determining independence of directors. While we may not specifically apply the NYSE tests, our board assesses independence in accordance with Hong Kong Stock Exchange Listing Rules, and in the case of audit committee members in accordance with Rule 10A-3 under the U.S. Securities and Exchange Act of 1934, as amended, and considers whether there are any relationships or circumstances which are likely to affect such director’s independence from management. | ||
• | We believe that the composition of our board and its committees and their respective duties and responsibilities are otherwise generally responsive to the relevant NYSE Standards applicable to U.S. domestic issuers. However, the charters for our audit and compensation committees may not address all aspects of the NYSE Standards. For example, NYSE Standards require compensation committees of U.S. domestic issuers to produce a compensation committee report annually and include such report in their annual proxy statements or annual reports on Form 10-K. We are not subject to this requirement, and we have not addressed this in our compensation committee charter. We disclose the amounts of compensation of our directors on a named basis and the five highest individuals on an aggregate basis in our annual report in accordance with the requirements of the Hong Kong Stock Exchange Listing Rules. | ||
• | The NYSE Standards require that shareholders must be given the opportunity to vote on all equity compensation plans and material revisions to those plans. We comply with the requirements of Cayman Islands law and the Hong Kong Stock Exchange Listing Rules in determining whether shareholder approval is required, and we do not take into consideration the NYSE’s detailed definition of what are considered “material revisions.” |
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Exhibit 1.1 | Eleventh Amended and Restated Articles of Association, as adopted at the Registrant’s annual general meeting of shareholders on June 2, 2008(1) | |
Exhibit 4.1 | Settlement Agreement dated January 31, 2005 by and between Semiconductor Manufacturing International Corporation and Taiwan Semiconductor Manufacturing Corporation, Ltd., including Patent License Agreement(2) | |
Exhibit 4.2 | English language summary of Chinese language Syndicate Loan Agreement dated May 26, 2005, between Semiconductor Manufacturing International (Beijing) Corporation, Semiconductor Manufacturing International Corporation, as guarantor, and China Development Bank, China Construction Bank, Bank of China, Agricultural Bank of China, China Merchants Bank, HuaXia Bank, China Mingsheng Bank, Bank of Communications, Bank of Beijing, Industrial and Commercial Bank of China (Asia) and CITIC Ka Wah Bank(2) | |
Exhibit 4.3 | Form of Indemnification Agreement, as adopted at the Registrant’s annual general meeting of shareholders on May 6, 2005(2) | |
Exhibit 4.4 | Form of Service Contract between the Company and each of its executive officers | |
Exhibit 4.5 | Form of Service Contract between the Company and each of its directors | |
Exhibit 4.6 | English language summary of Chinese language Syndicate Loan Agreement dated May 31, 2006, between Semiconductor Manufacturing International (Tianjin) Corporation, Semiconductor Manufacturing International Corporation, as guarantor, and China Construction Bank, China Minsheng Bank, China Development Bank, Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Merchants Bank, China Bo Hai Bank, Bank of Communications and Bangkok Bank(3) | |
Exhibit 4.7 | English language summary of Chinese language Syndicate Loan Agreement dated June 8, 2006, between Semiconductor Manufacturing International (Shanghai) Corporation, Semiconductor Manufacturing International Corporation, as guarantor, and ABN AMRO Bank N.V., Bank of China (Hong Kong) Limited, Bank of Communications, The Bank of Tokyo-Mitsubishi UFJ, Ltd., China Construction Bank, DBS Bank Ltd., Fubon Bank (Hong Kong) Limited, Industrial and Commercial Bank of China and Shanghai Pudong Development Bank(3) | |
Exhibit 4.8 | Share Purchase Agreement, dated November 6, 2008, by and between the Company and Datang Telecom Technology & Industry Holdings Limited Co., Ltd.(4) | |
Exhibit 4.9 | English language translation of Strategic Cooperation Agreement, dated December 24, 2008 by and between the Company and Datang Telecom Technology & Industry Holdings Co., Ltd.(5) | |
Exhibit 8.1 | List of Subsidiaries | |
Exhibit 12.1 | Certification of CEO under Section 302 of the U.S. Sarbanes-Oxley Act of 2002 | |
Exhibit 12.2 | Certification of Acting CFO under Section 302 of the U.S. Sarbanes-Oxley Act of 2002 | |
Exhibit 13.1 | Certification of CEO and Acting CFO under Section 906 of the U.S. Sarbanes-Oxley Act of 2002 | |
Exhibit 99.1 | Consent of Deloitte Touche Tohmatsu |
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(1) | Previously filed as an exhibit to the Registrant’s Annual Report on Form 20F for the fiscal year ended December 31, 2007, filed June 27, 2008 and amended November 28, 2008. | |
(2) | Previously filed as an exhibit to the Registrant’s Annual Report on Form 20F for the fiscal year ended December 31, 2004, filed June 28, 2005. With respect to Exhibit 4.1, please refer to Item 8 “Litigation” in the Registrant’s Annual Report on Form 20F for the fiscal year ended December 31, 2008. | |
(3) | Previously filed as an exhibit to the Registrant’s Annual Report on Form 20F for the fiscal year ended December 31, 2005, filed June 28, 2006. | |
(4) | Previously filed as an exhibit to the Registrant’s Form 6-K dated November 17, 2008. Portions of this exhibit were omitted and filed separately with the Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, concerning confidential treatment. | |
(5) | Previously filed as an exhibit to the Registrant’s Form 6-K dated January 5, 2009. Portions of this exhibit were omitted and filed separately with the Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, concerning confidential treatment. |
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SEMICONDUCTOR MANUFACTURING INTERNATIONAL CORPORATION | ||||
Date: June 22, 2009 | By: | /s/ Richard Ru Gin Chang | ||
Name: | Richard Ru Gin Chang | |||
Title: | President and Chief Executive Officer | |||
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Contents | Page(s) | |||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-8 | ||||
F-75 |
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Certified Public Accountants
Hong Kong
April 17, 2009, except for Note 28 and Schedule I, as to which the date is June 22, 2009
F-2
Table of Contents
(In US dollars, except share data)
December 31, | ||||||||||||||||
NOTES | 2008 | 2007 | 2006 | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 450,229,569 | $ | 469,284,013 | $ | 363,619,731 | ||||||||||
Restricted Cash | 6,254,813 | — | — | |||||||||||||
Short-term investments | 5 | 19,928,289 | 7,637,870 | 57,950,603 | ||||||||||||
Accounts receivable, net of allowances of $5,680,658, $4,492,090 and $4,048,845 at December 31, 2008, 2007 and 2006, respectively | 7 | 199,371,694 | 298,387,652 | 252,184,975 | ||||||||||||
Inventories | 8 | 171,636,868 | 248,309,765 | 275,178,952 | ||||||||||||
Prepaid expense and other current assets | 56,299,086 | 31,237,755 | 20,766,945 | |||||||||||||
Receivable for sale of manufacturing equipment | 23,137,764 | 17,321,000 | 70,544,560 | |||||||||||||
Assets held for sale | 9 | — | 3,123,567 | 9,420,729 | ||||||||||||
Total current assets | 926,858,083 | 1,075,301,622 | 1,049,666,495 | |||||||||||||
Land use rights, net | 10 | 74,293,284 | 57,551,991 | 38,323,333 | ||||||||||||
Plant and equipment, net | 11 | 2,963,385,840 | 3,202,957,665 | 3,244,400,822 | ||||||||||||
Acquired intangible assets, net | 13 | 200,059,106 | 232,195,132 | 71,692,498 | ||||||||||||
Deferred cost, net | 28 | 47,091,516 | 70,637,275 | 94,183,034 | ||||||||||||
Equity investment | 14 | 11,352,186 | 9,896,398 | 13,619,643 | ||||||||||||
Other long-term prepayments | 1,895,337 | 2,988,404 | 4,119,433 | |||||||||||||
Deferred tax assets | 19 | 45,686,470 | 56,915,172 | 25,286,900 | ||||||||||||
TOTAL ASSETS | $ | 4,270,621,822 | $ | 4,708,443,659 | $ | 4,541,292,158 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | 15 | $ | 185,918,539 | $ | 301,992,739 | $ | 309,129,199 | |||||||||
Accrued expenses and other current liabilities | 122,173,803 | 150,109,963 | 97,121,231 | |||||||||||||
Short-term borrowings | 17 | 201,257,773 | 107,000,000 | 71,000,000 | ||||||||||||
Current portion of promissory note | 16 | 29,242,001 | 29,242,000 | 29,242,001 | ||||||||||||
Current portion of long-term debt | 17 | 360,628,789 | 340,692,788 | 170,796,968 | ||||||||||||
Income tax payable | 552,006 | 1,152,630 | 72,417 | |||||||||||||
Total current liabilities | 899,772,911 | 930,190,120 | 677,361,816 | |||||||||||||
Long-term liabilities: | ||||||||||||||||
Promissory notes | 16 | 23,589,958 | 51,057,163 | 77,601,657 | ||||||||||||
Long-term debt | 17 | 536,518,281 | 616,294,743 | 719,570,905 | ||||||||||||
Long-term payables relating to license agreements | 18 | 18,169,006 | 62,833,433 | 16,992,950 | ||||||||||||
Other long term liabilities | — | — | 3,333,333 | |||||||||||||
Deferred tax liabilities | 19 | 411,877 | 604,770 | 210,913 | ||||||||||||
Total long-term liabilities | 578,689,122 | 730,790,109 | 817,709,758 | |||||||||||||
Total liabilities | 1,478,462,033 | 1,660,980,229 | 1,495,071,574 | |||||||||||||
Commitments | 25 | |||||||||||||||
Minority interest | 20 | 42,795,288 | 34,944,408 | 38,800,666 | ||||||||||||
Stockholders’ equity: | ||||||||||||||||
Ordinary shares, $0.0004 par value, 50,000,000,000 shares authorized, 22,327,784,827, 18,558,919,712 and 18,432,756,463 shares issued and outstanding at December 31, 2008, 2007 and 2006, respectively | 21 | 8,931,114 | 7,423,568 | 7,373,103 | ||||||||||||
Additional paid-in capital | 3,489,382,267 | 3,313,375,972 | 3,288,765,465 | |||||||||||||
Accumulated other comprehensive (loss) income | (439,123 | ) | (1,881 | ) | 91,840 | |||||||||||
Accumulated deficit | (748,509,757 | ) | (308,278,637 | ) | (288,810,490 | ) | ||||||||||
Total stockholders’ equity | 2,749,364,501 | 3,012,519,022 | 3,007,419,918 | |||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 4,270,621,822 | $ | 4,708,443,659 | $ | 4,541,292,158 | ||||||||||
F-3
Table of Contents
(In US dollars, except share data)
Year ended December 31, | ||||||||||||||||
NOTES | 2008 | 2007 | 2006 | |||||||||||||
Sales | 26 | $ | 1,353,711,299 | $ | 1,549,765,288 | $ | 1,465,322,867 | |||||||||
Cost of sales | 1,412,851,079 | 1,397,037,881 | 1,338,155,004 | |||||||||||||
Gross (loss) profit | (59,139,780 | ) | 152,727,407 | 127,167,863 | ||||||||||||
Operating expenses (income): | ||||||||||||||||
Research and development | 102,239,779 | 97,034,208 | 94,170,750 | |||||||||||||
General and administrative | 58,841,103 | 74,489,877 | 47,364,533 | |||||||||||||
Selling and marketing | 20,661,254 | 18,715,961 | 18,231,048 | |||||||||||||
Amortization of acquired intangible assets | 32,191,440 | 27,070,617 | 24,393,561 | |||||||||||||
Impairment loss of long-lived assets | 12,13 | 106,740,667 | — | — | ||||||||||||
Income from sale of equipment and other fixed assets | 9,11 | (2,877,175 | ) | (28,651,446 | ) | (43,121,929 | ) | |||||||||
Total operating expenses, net | 317,797,068 | 188,659,217 | 141,037,963 | |||||||||||||
Loss from operations | 31 | (376,936,848 | ) | (35,931,810 | ) | (13,870,100 | ) | |||||||||
Other income (expense): | ||||||||||||||||
Interest income | 11,542,339 | 12,348,630 | 14,916,323 | |||||||||||||
Interest expense | (50,766,958 | ) | (37,936,126 | ) | (50,926,084 | ) | ||||||||||
Foreign currency exchange gain (loss) | 3,229,710 | 11,249,889 | (21,912,234 | ) | ||||||||||||
Others, net | 7,428,721 | 2,237,902 | 1,821,337 | |||||||||||||
Total other expense, net | (28,566,188 | ) | (12,099,705 | ) | (56,100,658 | ) | ||||||||||
Loss before income tax | (405,503,036 | ) | (48,031,515 | ) | (69,970,758 | ) | ||||||||||
Income tax benefit (expense) | 19 | (26,432,993 | ) | 29,719,775 | 24,927,744 | |||||||||||
Minority interest | (7,850,880 | ) | 2,856,258 | (18,803 | ) | |||||||||||
Loss from equity investment | 14 | (444,211 | ) | (4,012,665 | ) | (4,201,247 | ) | |||||||||
Net loss before cumulative effect of a change in accounting principle | (440,231,120 | ) | (19,468,147 | ) | (49,263,064 | ) | ||||||||||
Cumulative effect of a change in accounting principle | — | — | 5,153,986 | |||||||||||||
Net loss | $ | (440,231,120 | ) | $ | (19,468,147 | ) | $ | (44,109,078 | ) | |||||||
On the basis of net loss before accounting change per share, basic and diluted | 23 | $ | (0.02 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||||
Cumulative effect of an accounting change per share, basic and diluted | 23 | $ | — | $ | — | $ | 0.00 | |||||||||
Loss per share, basic and diluted | 23 | $ | (0.02 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||||
Shares used in calculating basic and diluted loss per share | 23 | 18,682,544,866 | 18,501,940,489 | 18,334,498,923 | ||||||||||||
F-4
Table of Contents
(In US dollars, except share data)
Accumulated | ||||||||||||||||||||||||||||||||
Additional | other | Deferred | Total | |||||||||||||||||||||||||||||
Ordinary | paid-in | comprehensive | stock | Accumulated | stockholders | Comprehensive | ||||||||||||||||||||||||||
Share | Amount | capital | income (loss) | compensation, net | deficit | equity | loss | |||||||||||||||||||||||||
Balance at January 1, 2006 | 18,301,680,867 | $ | 7,320,673 | $ | 3,291,439,835 | $ | 138,978 | $ | (24,881,919 | ) | $ | (244,701,412 | ) | $ | 3,029,316,155 | |||||||||||||||||
Exercise of stock options | 132,744,596 | 53,098 | 3,912,210 | — | — | — | 3,965,308 | |||||||||||||||||||||||||
Repurchase of restricted ordinary shares | (1,669,000 | ) | (668 | ) | (57,522 | ) | — | — | — | (58,190 | ) | |||||||||||||||||||||
Deferred stock compensation adjustment | — | — | (24,881,919 | ) | — | 24,881,919 | — | — | ||||||||||||||||||||||||
Share-based compensation | — | — | 23,506,847 | — | — | — | 23,506,847 | |||||||||||||||||||||||||
Cumulative effect of a change in accounting principle | — | — | (5,153,986 | ) | — | — | — | (5,153,986 | ) | |||||||||||||||||||||||
Net loss | — | — | — | — | — | (44,109,078 | ) | (44,109,078 | ) | $ | (44,109,078 | ) | ||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | (16,885 | ) | — | — | (16,885 | ) | (16,885 | ) | |||||||||||||||||||||
Realized gain on investments | — | — | — | (30,253 | ) | — | — | (30,253 | ) | (30,253 | ) | |||||||||||||||||||||
Balance at December 31, 2006 | 18,432,756,463 | $ | 7,373,103 | $ | 3,288,765,465 | $ | 91,840 | $ | — | $ | (288,810,490 | ) | $ | 3,007,419,918 | $ | (44,156,216 | ) | |||||||||||||||
Exercise of stock options | 126,455,749 | 50,582 | 3,988,549 | — | — | — | 4,039,131 | |||||||||||||||||||||||||
Repurchase of restricted ordinary shares | (292,500 | ) | (117 | ) | (21,383 | ) | — | — | — | (21,500 | ) | |||||||||||||||||||||
Share-based compensation | — | — | 20,643,341 | — | — | — | 20,643,341 | |||||||||||||||||||||||||
Net loss | — | — | — | — | — | (19,468,147 | ) | (19,468,147 | ) | $ | (19,468,147 | ) | ||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | (93,721 | ) | — | — | (93,721 | ) | (93,721 | ) | |||||||||||||||||||||
Balance at December 31, 2007 | 18,558,919,712 | $ | 7,423,568 | $ | 3,313,375,972 | $ | (1,881 | ) | $ | — | $ | (308,278,637 | ) | $ | 3,012,519,022 | $ | (19,561,868 | ) | ||||||||||||||
Exercise of stock options | 69,770,815 | 27,908 | 768,361 | — | — | — | 796,269 | |||||||||||||||||||||||||
Issuance of ordinary shares to a stockholder | 3,699,094,300 | 1,479,638 | 163,620,362 | — | — | — | 165,100,000 | |||||||||||||||||||||||||
Share-based compensation | — | — | 11,617,572 | — | — | — | 11,617,572 | |||||||||||||||||||||||||
Net loss | — | — | — | — | — | (440,231,120 | ) | (440,231,120 | ) | $ | (440,231,120 | ) | ||||||||||||||||||||
Foreign currency translation adjustments | — | — | — | (437,242 | ) | — | — | (437,242 | ) | (437,242 | ) | |||||||||||||||||||||
Balance at December 31, 2008 | 22,327,784,827 | $ | 8,931,114 | $ | 3,489,382,267 | $ | (439,123 | ) | $ | — | $ | (748,509,757 | ) | $ | 2,749,364,501 | $ | (440,668,362 | ) | ||||||||||||||
F-5
Table of Contents
(In US dollars)
Year ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Operating activities: | ||||||||||||
Net Loss | $ | (440,231,120 | ) | $ | (19,468,147 | ) | $ | (44,109,078 | ) | |||
Less: Cumulative effect of a change in accounting principle | — | — | (5,153,986 | ) | ||||||||
Net loss before cumulative effect of a change in accounting principle | (440,231,120 | ) | (19,468,147 | ) | (49,263,064 | ) | ||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||
Minority interest | 7,850,880 | (2,856,258 | ) | 18,803 | ||||||||
Deferred taxes | 11,035,809 | (31,234,415 | ) | (25,075,987 | ) | |||||||
Income from sale of equipment and other fixed assets | (2,877,175 | ) | (28,651,446 | ) | (43,121,929 | ) | ||||||
Depreciation and amortization | 761,808,822 | 706,277,464 | 919,616,493 | |||||||||
Non-cash interest expense on promissory note and long-term payable relating to license agreements | 6,915,567 | 4,762,343 | 5,702,607 | |||||||||
Amortization of acquired intangible assets | 32,191,440 | 27,070,616 | 24,393,561 | |||||||||
Share-based compensation | 11,617,572 | 20,643,341 | 23,506,847 | |||||||||
Loss from equity investment | 444,211 | 4,012,665 | 4,201,247 | |||||||||
Impairment loss of long-lived assets | 106,740,667 | — | — | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable, net | 99,015,958 | (46,202,677 | ) | (10,851,061 | ) | |||||||
Inventories | 76,672,897 | 26,869,187 | (83,941,316 | ) | ||||||||
Prepaid expense and other current assets | (23,968,264 | ) | (9,339,779 | ) | (8,926,442 | ) | ||||||
Accounts payable | (76,827,049 | ) | 19,852,824 | 24,705,615 | ||||||||
Accrued expenses and other current liabilities | (7,487 | ) | 2,982,369 | (14,722,249 | ) | |||||||
Income tax payable | (600,624 | ) | 1,080,213 | 72,417 | ||||||||
Other long term liabilities | — | (3,333,333 | ) | 3,333,333 | ||||||||
Net cash provided by operating activities | 569,782,104 | 672,464,967 | 769,648,875 | |||||||||
Investing activities: | ||||||||||||
Purchase of plant and equipment | (669,054,599 | ) | (717,170,957 | ) | (882,580,833 | ) | ||||||
Proceeds from government grant to purchase plant and equipment | 4,181,922 | — | 2,208,758 | |||||||||
Proceeds from sale of equipment | 2,319,597 | 98,128,041 | 4,044,702 | |||||||||
Proceeds received from sale of assets held for sale | 563,008 | 16,476,045 | 12,716,742 | |||||||||
Purchase of acquired intangible assets | (79,277,586 | ) | (90,090,114 | ) | (9,573,524 | ) | ||||||
Acquisition of minority interest | — | (1,000,000 | ) | — | ||||||||
Purchase of short-term investments | (291,007,766 | ) | (135,241,799 | ) | (135,058,817 | ) | ||||||
Sale of short-term investments | 278,717,347 | 185,554,532 | 90,873,820 | |||||||||
Change in restricted cash | (6,254,813 | ) | — | — | ||||||||
Purchase of equity investment | (1,900,000 | ) | — | — | ||||||||
Net cash used in investing activities | (761,712,890 | ) | (643,344,252 | ) | (917,369,152 | ) | ||||||
F-6
Table of Contents
(In US dollars)
Year ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Financing activities: | ||||||||||||
Proceeds from short-term borrowings | 422,575,386 | 201,658,000 | 255,003,999 | |||||||||
Repayment of short-term borrowings | (328,317,613 | ) | (165,658,000 | ) | (449,485,081 | ) | ||||||
Proceeds from long-term debt | 285,929,954 | 262,247,672 | 785,344,546 | |||||||||
Repayment of long-term debt | (345,770,415 | ) | (195,628,015 | ) | (635,613,638 | ) | ||||||
Repayment of promissory note | (30,000,000 | ) | (30,000,000 | ) | (30,000,000 | ) | ||||||
Payment of loan initiation fee | — | — | (3,596,938 | ) | ||||||||
Proceeds from exercise of employee stock options | 796,269 | 4,039,131 | 3,965,308 | |||||||||
Proceeds from issuance of ordinary shares | 168,100,000 | — | — | |||||||||
Repurchase of restricted ordinary shares | — | (21,500 | ) | (58,190 | ) | |||||||
Net cash provided by (used in) financing activities | 173,313,581 | 76,637,288 | (74,439,994 | ) | ||||||||
Effect of exchange rate changes | (437,239 | ) | (93,721 | ) | (16,885 | ) | ||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (19,054,444 | ) | 105,664,282 | (222,177,156 | ) | |||||||
CASH AND CASH EQUIVALENTS, beginning of year | 469,284,013 | 363,619,731 | 585,796,887 | |||||||||
CASH AND CASH EQUIVALENTS, end of year | $ | 450,229,569 | $ | 469,284,013 | $ | 363,619,731 | ||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||
Income taxes paid | $ | 15,997,808 | $ | 435,109 | $ | 164,409 | ||||||
Interest paid | $ | 54,423,059 | $ | 45,322,891 | $ | 46,808,533 | ||||||
SUPPLEMENTAL DISCLOSURES OF INVESTING AND FINANCING ACTIVITIES | ||||||||||||
Accounts payable for plant and equipment | $ | (99,592,362 | ) | $ | (138,839,513 | ) | $ | (165,828,795 | ) | |||
Long-term payable for acquired intangible assets | $ | (18,169,006 | ) | $ | (62,833,433 | ) | $ | (16,992,950 | ) | |||
Receivables for sales of manufacturing equipment | $ | 23,137,764 | $ | 17,321,000 | $ | 70,544,560 | ||||||
F-7
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
Place and date | Attributable | |||||||
of incorporation/ | equity | |||||||
Name of company | establishment | interest held | Principal activity | |||||
Better Way Enterprises Limited | Samoa | 100 | % | Trading of semiconductor products | ||||
(“Better Way”) | April 5, 2000 | |||||||
Semiconductor Manufacturing | PRC | 100 | % | Manufacturing and trading of semiconductor products | ||||
International (Shanghai) | December 21, 2000 | |||||||
Corporation (“SMIS”)*# | ||||||||
SMIC, Americas | United States of America | 100 | % | Marketing related activities | ||||
June 22, 2001 | ||||||||
Semiconductor Manufacturing | PRC | 100 | % | Manufacturing and trading of semiconductor products | ||||
International (Beijing)Corporation (“SMIB”)*# | July 25, 2002 | |||||||
SMIC Japan Corporation* | Japan | 100 | % | Marketing related activities | ||||
October 8, 2002 | ||||||||
SMIC Europe S.R.L | Italy | 100 | % | Marketing related activities | ||||
July 3, 2003 | ||||||||
SMIC Commercial (Shanghai) | PRC | 100 | % | Operation of a convenience store | ||||
Limited Company (formerly SMIC | September 30, 2003 | |||||||
Consulting Corporation)*# | ||||||||
Semiconductor Manufacturing | PRC | 100 | % | Manufacturing and trading of semiconductor products | ||||
International (Tianjin) Corporation | November 3, 2003 | |||||||
(“SMIT”)*# | ||||||||
Semiconductor Manufacturing | Cayman Islands | 57.3 | % | Investment holding | ||||
International (AT) Corporation (“AT”)* | July 26, 2004 | |||||||
Semiconductor Manufacturing | PRC | 57.3 | % | Manufacturing and trading of semiconductor products | ||||
International (Chengdu) | December 28, 2004 | |||||||
Corporation (“SMICD”)*# | ||||||||
SMIC Energy Technology | PRC | 100 | % | Manufacturing and trading of solar cells and modules | ||||
(Shanghai) Corporation | September 9, 2005 | |||||||
(“Energy Science”)*# |
F-8
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
Place and date | Attributable | |||||||
of incorporation/ | equity | |||||||
Name of company | establishment | interest held | Principal activity | |||||
SMIC Development (Chengdu) | PRC | 100 | % | Construction, operation, and management of SMICD’s living quarter, schools, and supermarket | ||||
Corporation*# | December 29, 2005 | |||||||
Magnificent Tower Limited | British Virgin Islands | 100 | % | Investment holding | ||||
January 5, 2006 | ||||||||
Semiconductor Manufacturing International | British Virgin Islands | 100 | % | Trading of semiconductor products | ||||
(BVI) Corporation | April 26, 2007 | |||||||
Admiral Investment Holdings Limited | British Virgin Islands | 100 | % | Investment holding | ||||
October 10, 2007 | ||||||||
SMIC Shenzhen (HK) Company Limited | Hong Kong | 100 | % | Investment holding | ||||
January 29, 2008 | ||||||||
Semiconductor Manufacturing | PRC | 100 | % | Manufacturing and trading of semiconductor products | ||||
International (Shenzhen) Corporation*# | March 20, 2008 | |||||||
# | Companies registered as wholly foreign-owned enterprises in the People’s Republic of China (“PRC”), excluding for the purpose of this annual report, Hong Kong, Macau and Taiwan. | |
* | For identification purposes only |
F-9
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
(a) | Basis of presentation | |
The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). | ||
(b) | Principles of consolidation | |
The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All inter-company transactions and balances have been eliminated upon consolidation. | ||
(c) | Use of estimates | |
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenue and expenses in the financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s financial statements include valuation allowance for deferred tax assets, allowance for doubtful accounts, inventory valuation, non- marketable equity investment valuation, useful lives and commencement of productive use for plant and equipment and acquired intangible assets, impairment of long-lived assets, accruals for sales adjustments, accrued expenses, contingencies and assumptions related to the valuation of share-based compensation and related forfeiture rates. | ||
(d) | Cash and cash equivalents | |
Cash and cash equivalents consist of cash on hand and highly liquid investments which are unrestricted as to withdrawal or use, and which have maturities of three months or less when purchased. | ||
(e) | Restricted Cash | |
Restricted cash consists of bank deposits pledged against short-term credit facilities and unused government grants for fab construction. | ||
(f) | Investments | |
Short-term investments consist primarily of debt instruments and mutual funds are classified either as held-tomaturity, available-for-sale or trading securities. | ||
Held-to-maturity securities are recorded at amortized cost. | ||
Available-for-sale securities are recorded at fair market value. Unrealized gains and losses are recorded as part of accumulated other comprehensive income (loss). The unrealized gains and losses are reclassified to earnings once the available-for-sale investments are settled. Unrealized losses, which are deemed other than temporary, are recorded in the statement of operations as other expenses. |
F-10
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
Trading securities are recorded at fair value with unrealized gains and losses classified in earnings. | ||
Equity investments are recorded in long-term assets and accounted for under the equity method when the Company has the ability to exercise significant influence, but not control, over the investee or under the cost method when the investment does not qualify for the equity method. Equity method investments only include non-marketable investments. | ||
Available-for-sale and non-marketable equity investments are evaluated for impairment when the Company identifies indicator of impairment. Investments are considered to be impaired when a decline in fair value is judged to be other than temporary, when events or circumstances are identified that would significantly harm the fair value of the investment and the fair value is significantly below cost basis and /or the significant decline has lasted for an extended period of time. If the investment is other than temporarily impaired, the investment would be written down to its fair value. | ||
(g) | Concentration of credit risk | |
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, accounts receivable, other current assets and receivable for sale of manufacturing equipment. The Company places its cash and cash equivalents with reputable financial institutions. | ||
The Company conducts credit evaluations of customers and generally does not require collateral or other security from its customers. The Company establishes an allowance for doubtful accounts based upon estimates, factors surrounding the credit risk of specific customers and other information. | ||
(h) | Inventories | |
Inventories are stated at the lower of cost (weighted average) or market. Cost comprises direct materials, direct labor costs and those overheads costs that were incurred in bringing the inventories to their present location and condition. | ||
Adjustments are recorded to write down the cost of obsolete and excess inventory to the estimated market value based on historical and forecasted demand. In 2008, 2007 and 2006, inventory was written down by $40,818,979, $22,676,608 and $16,106,471, respectively, and recorded in cost of sales to reflect the lower of cost or market adjustments. | ||
(i) | Land use rights, net | |
Land use rights are recorded at cost less accumulated amortization. Amortization is provided over the term of the land use right agreement on a straight-line basis over the terms of the agreements, which range from 50 to 70 years. |
F-11
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
(j) | Plant and equipment, net | |
Plant and equipment are carried at cost less accumulated depreciation and are depreciated on a straight-line basis over the following estimated useful lives: |
Buildings | 25 years | |||
Facility, machinery and equipment | 10 years | |||
Manufacturing machinery and equipment | 5-7 years | |||
Furniture and office equipment | 3-5 years | |||
Transportation equipment | 5 years |
The Company constructs certain of its plant and equipment. In addition to costs under the construction contracts, external costs directly related to the construction of such facilities, including duties and tariffs, equipment installation and shipping costs, are capitalized. Interest incurred on funds used to construct plant and equipment during the active construction period is capitalized, net of government subsidies received. See Note 2(n). Depreciation is recorded at the time assets are ready for their intended use. | ||
(k) | Acquired intangible assets | |
Acquired intangible assets, which consist primarily of technology, licenses and patents, are carried at cost less accumulated amortization. Amortization is computed using the straight-line method over the expected useful lives of the assets of 3 to 10 years. | ||
(l) | Impairment of long-lived assets | |
The Company assesses the impairment of long-lived assets when events or changes in circumstances indicate that the carrying value of the assets or the asset group may not be recoverable. Factors that we consider in deciding when to perform an impairment review include, but are not limited to significant under-performance of a business or product line in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in our use of the assets. An impairment analysis is performed at the lowest level of identifiable independent cash flows for an asset or asset group. We make subjective judgments in determining the independent cash flows that can be related to specific asset group based on our asset usage model and manufacturing capabilities. We measure the recoverability of assets that will continue to be used in our operations by comparing the carrying value of the asset group to our estimate of the related total future undiscounted cash flows. If an asset group’s carrying value is not recoverable through the related undiscounted cash flows, the impairment loss is measured by comparing the difference between the asset group’s carrying value and its fair value, based on the best information available, including market prices or discounted cash flow analysis. |
F-12
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
(m) | Revenue recognition | |
The Company manufactures semiconductor wafers for its customers based on the customers’ designs and specifications pursuant to manufacturing agreements and/or purchase orders. The Company also sells certain semiconductor standard products to customers. Revenue is recognized when persuasive evidence of an arrangement exists, service has been performed, the fee is fixed or determinable and collectability is reasonably assured. Sales to customers are recognized upon shipment and title transfer, if all other criteria have been met. The Company also provides certain services, such as mask making, testing and probing. Revenue is recognized when the services are completed or upon shipment of semiconductor products, if all other criteria have been met. | ||
Customers have the right of return within one year pursuant to warranty and sales return provisions. The Company typically performs tests of its products prior to shipment to identify yield rate per wafer. Occasionally, product tests performed after shipment identify yields below the level agreed with the customer. In those circumstances, the customer arrangement may provide for a reduction to the price paid by the customer or for the costs to return products and to ship replacement products to the customer. The Company estimates the amount of sales returns and the cost of replacement products based on the historical trend of returns and warranty replacements relative to sales as well as a consideration of any current information regarding specific known product defects that may exceed historical trends. | ||
The Company provides management services to certain government-owned foundries. Service revenue is recognized when persuasive evidence of an arrangement exists, service has been performed, the fee is fixed or determinable, and collectability is reasonably assured. | ||
(n) | Capitalization of interest | |
Interest incurred on funds used to construct plant and equipment during the active construction period is capitalized, net of government subsidies received. The interest capitalized is determined by applying the borrowing interest rate to the average amount of accumulated capital expenditures for the assets under construction during the period. Capitalized interest is added to the cost of the underlying assets and is amortized over the useful life of the assets. Government subsidies, capitalized interest and net interest expense are as follows: |
For the year ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Total actual interest expense | $ | 70,735,520 | $ | 72,686,950 | $ | 78,120,699 | ||||||
Less: Government subsidy | 9,308,764 | 27,083,604 | 22,396,613 | |||||||||
Less: Capitalized interest | 10,659,798 | 7,667,220 | 4,798,002 | |||||||||
Net interest expense | $ | 50,766,958 | $ | 37,936,126 | $ | 50,926,084 | ||||||
(o) | Government subsidies |
The Company received the following types of government subsidies: |
(1) | Reimbursement of certain interest costs incurred on borrowings | ||
The Company received government subsidies in cash of $9,308,764, $27,083,604 and $22,396,613 in 2008, 2007 and 2006, respectively, which were based on the interest expense on the Company’s budgeted borrowings. The Company records government subsidies as a reduction of interest expense on an accrual basis. |
F-13
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
(2) | Government awards | ||
The Company received government awards of $56,967,187, $5,058,722 and $11,886,551 in the form of reimbursement of certain expenses in 2008, 2007 and 2006, respectively. These awards were recorded as reductions of related expenses, primarily research and development. | |||
(3) | Government subsidy for fab construction | ||
Certain local governments provided subsidies to encourage the Company to participate and manage new plants relating to the integrated circuit industry. | |||
As of December 31, 2008, the Company received $7,324,792, of which $4,181,922 has been used to offset the cost of construction in progress. The unused balance of $3,142,870 is recorded in restricted cash. | |||
In 2006, the Company received a government subsidy of $2,208,758 as a reimbursement of land use right payment, which has been used to offset the cost of the land use rights. |
(p) | Research and development costs | |
Research and development costs are expensed as incurred and reported net of related government subsidies. | ||
(q) | Start-up costs | |
In accordance with Statement of Position No. 98-5, “Reporting on the costs of start-up activities,” the Company expenses all costs incurred in connection with start-up activities, including preproduction costs associated with new manufacturing facilities and costs incurred with the formation of these facilities such as organization costs. Preproduction costs including the design, formulation and testing of new products or process alternatives are included in research and development expenses. Preproduction costs including facility and employee costs incurred in connection with constructing new manufacturing plants are included in general and administrative expenses. | ||
(r) | Foreign currency translation | |
The United States dollar (“US dollar”), the currency in which a substantial portion of the Company’s transactions are denominated, is used as the functional and reporting currency of the Company. Monetary assets and liabilities denominated in currencies other than the US dollar are translated into US dollar at the rates of exchange ruling at the balance sheet date. Transactions in currencies other than the US dollar during the year are converted into the US dollar at the applicable rates of exchange prevailing on the transaction dates. Transaction gains and losses are recognized in the statements of operations. |
F-14
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
The financial records of certain of the Company’s subsidiaries are maintained in local currencies other than the US dollar, such as Japanese Yen, which are their functional currencies. Assets and liabilities are translated at the exchange rates at the balance sheet date. Equity accounts are translated at historical exchange rates, and revenues, expenses, gains and losses are translated using the monthly weighted average exchange rates. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income (loss) in the statements of stockholders’ equity and comprehensive income (loss). | ||
(s) | Income taxes | |
Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. As part of the process of preparing financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. The Company accounts for income taxes using the liability method. Under this method, deferred income taxes are recognized for tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end, based on enacted laws and statutory tax rates applicable for the difference that are expected to affect taxable income. Valuation allowances are provided if, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. | ||
On January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN 48”), which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. | ||
(t) | Comprehensive income (loss) | |
Comprehensive income (loss) includes such items as net loss, foreign currency translation adjustments and unrealized income (loss) on available-for-sales securities. Comprehensive income (loss) is reported in the statements of stockholders’ equity and comprehensive income (loss). | ||
(u) | Fair value of financial instruments | |
On January 1, 2008, the Company adopted the provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 157 “Fair Value Measurements” (SFAS 157) for all financial assets and financial liabilities recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company has deferred its implementation of the provisions of SFAS No. 157 for all non-financial assets and liabilities in accordance with FASB Staff Position (FSP) FAS 157-2, “Effective Date of FASB Statement No. 157” (FSP 157-2), SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and enhances fair value measurement disclosure. The adoption of SFAS No. 157 did not have a significant impact on our consolidated financial statements, and the resulting fair values calculated under SFAS No. 157 after adoption were not significantly different than the fair values that would have been calculated under previous guidance. |
F-15
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
In October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”(FSP 157-3). FSP 157-3 clarifies the application of SFAS No. 157 in a market that is not active, and addresses application issues such as the use of internal assumptions when relevant observable data does not exist, the use of observable market information when the market is not active, and the use of market quotes when assessing the relevance of observable and unobservable data. FSP 157-3 is effective for all periods presented in accordance with SFAS No. 157. The adoption of FSP 157-3 did not have a significant impact on our consolidated financial statements or the fair values of our financial assets and liabilities. | ||
When available, the Company measures the fair value of financial instruments based on quoted market prices in active markets, valuation techniques that use observable market-based inputs or unobservable inputs that are corroborated by market data. Pricing information the Company obtains from third parties is internally validated for reasonableness prior to use in the consolidated financial statements. When observable market prices are not readily available, the Company generally estimates the fair value using valuation techniques that rely on alternate market data or inputs that are generally less readily observable from objective sources and are estimated based on pertinent information available at the time of the applicable reporting periods. In certain cases, fair values are not subject to precise quantification or verification and may fluctuate as economic and market factors vary and the Company’s evaluation of those factors changes. Although the Company uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique. In these cases, a minor change in an assumption could result in a significant change in its estimate of fair value, thereby increasing or decreasing the amounts of the Company’s consolidated assets, liabilities, stockholders’ equity (deficit) and net income or loss. See Note 4, “Fair Value”, for further details. | ||
On January 1, 2008, the Company adopted SFAS No. 159, “Fair Value of Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No.115” (“SFAS 159”). SFAS 159 permits companies to choose to measure certain financial instruments and other items at fair value using an instrument-by-instrument election. The Company does not elect to use the fair value option and therefore, the adoption of SFAS 159 did not have a material impact on the Company’s consolidated financial position or result of operations. | ||
(v) | Share-based compensation | |
The Company grants stock options to its employees and certain non-employees. Under the provisions of SFAS 123(R), share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant). |
F-16
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
The Company’s total actual share-based compensation expense for the years ended December 31, 2008, 2007 and 2006 was $11,617,572, $20,643,341 and $23,506,847, respectively. | ||
(w) | Derivative financial instruments | |
The Company’s primary objective for holding derivative financial instruments is to manage currency and interest rate risks. The Company records derivative instruments as assets or liabilities, measured at fair value. The Company does not offset the carrying amounts of derivatives with the same counterparty in accordance with FASB Interpretation (“FIN”) No. 39, “Offsetting of Amounts Related to Certain Contracts — an interpretation of APB Opinion No. 10 and FASB Statement No. 105” (“FIN 39”) as amended. The recognition of gains or losses resulting from changes in the values of those derivative instruments is based on the use of each derivative instrument. The Company does not have any derivative instruments that qualify for hedge accounting. | ||
(x) | Recently issued accounting standards | |
In December 2007, the FASB issued SFAS No. 141, “Business Combinations: (Revised 2007)” (“SFAS 141R”). SFAS 141R is relevant to all transactions or events in which one entity obtains control over one or more other businesses. SFAS 141R requires an acquirer to recognize any assets and noncontrolling interest acquired and liabilities assumed to be measured at fair value as of the acquisition date. Liabilities related to contingent consideration are recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of the consideration may be resolved beyond a reasonable doubt. This revised approach replaces SFAS 141’s cost allocation process in which the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their respective fair value. SFAS 141R requires any acquisition-related costs and restructuring costs to be expensed as incurred as opposed to allocating such costs to the assets acquired and liabilities assumed as previously required by SFAS 141. Under SFAS 141R, an acquirer recognizes liabilities for a restructuring plan in purchase accounting only if the requirements of SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities”, are met. SFAS 141R allows for the recognition of pre-acquisition contingencies at fair value only if these contingencies are likely to materialize. If this criterion is not met at the acquisition date, then the acquirer accounts for the non-contractual contingency in accordance with recognition criteria set forth under SFAS 5, “Accounting for Contingencies”, in which case no amount should be recognized in purchase accounting. SFAS 141R is effective as of the beginning of an entity’s first fiscal year that begins after December 15, 2008. The adoption of SFAS 141R will change the Company’s accounting treatment for business combination on a prospective basis beginning on January 1, 2009. |
F-17
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51” (“SFAS 160”). This Statement amends ARB 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity and should be reported as equity on the financial statements. SFAS 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. Furthermore, disclosure of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest is required on the face of the financial statements. SFAS 160 is effective as of the beginning of an entity’s first fiscal year that begins after December 15, 2008. The Company will incorporate the presentation requirements outlined by SFAS No. 160 on January 1, 2009. | ||
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 enhances the required disclosures under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”, in order to provide the investing community additional transparency in an entity’s financial statements and to more adequately disclose the impact investments in derivative instruments and use of hedging have on financial position, operating results and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early application allowed. SFAS 161 does not change the accounting treatment for derivative instruments and will change the Company’s disclosure for derivative instruments and hedging activities on January 1, 2009. | ||
In April, 2008, the FASB issued FSP. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142- 3”). In determining the useful life of acquired intangible assets, FSP 142-3 removes the requirement to consider whether an intangible asset can be renewed without substantial cost of material modifications to the existing terms and conditions and, instead, requires an entity to consider its own historical experience in renewing similar arrangements. FSP 142-3 also requires expanded disclosure related to the determination of intangible asset useful lives. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The guidance for determining the useful life of a recognized intangible asset must be applied prospectively to intangible assets acquired after the effective date. Early adoption is prohibited. The adoption of FSP 142-3 will not have a material impact on the Company’s consolidated financial position or result of operations. | ||
In November 2008, the Emerging Issues Task Force issued EITF No. 08-6, “Equity Method Investment Accounting Considerations” (“EITF 08-6”) that addresses how the initial carrying value of an equity method investment should be determined, how an impairment assessment of an underlying indefinite-lived intangible asset of an equity method investment should be performed, how an equity method investee’s issuance of shares should be accounted for, and how to account for a change in an investment from the equity method to the cost method. EITF 08-6 shall be effective in fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. EITF 08-6 shall be applied prospectively with early application prohibited. The impact of adopting EITF 08-6 will not have a material impact on our consolidated financial condition or results of operations. |
F-18
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
(y) | Loss per share | |
Basic loss per share is computed by dividing loss attributable to holders of ordinary shares by the weighted average number of ordinary shares outstanding (excluding shares subject to repurchase) for the year. Diluted loss per ordinary share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised or converted into ordinary shares. Ordinary share equivalents are excluded from the computation in loss periods as their effects would be anti-dilutive. |
F-19
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
F-20
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
F-21
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Instruments | Inputs | Inputs | ||||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total Balance | |||||||||||||
Liabilities: | ||||||||||||||||
Forward foreign exchange contracts | $ | — | $ | 3,510,305 | $ | — | $ | 3,510,305 | ||||||||
Cross-currency interest swap contracts | — | 360,089 | — | 360,089 | ||||||||||||
Derivative liabilities measured at fair value | $ | — | $ | 3,870,394 | $ | — | $ | 3,870,394 | ||||||||
F-22
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
Debt instruments maturing in one year | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | unrealized | unrealized | ||||||||||||||
Cost | gains | losses | Fair value | |||||||||||||
December 31, 2008 | $ | 19,928,289 | $ | — | $ | — | $ | 19,928,289 | ||||||||
December 31, 2007 | $ | 7,637,870 | $ | — | $ | — | $ | 7,637,870 | ||||||||
December 31, 2006 | ||||||||||||||||
Gross | Gross | |||||||||||||||
unrealized | unrealized | |||||||||||||||
Cost | gains | losses | Fair value | |||||||||||||
Mutual fund | $ | 52,866,825 | $ | — | $ | — | $ | 52,866,825 | ||||||||
F-23
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
December 31 | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Forward foreign exchange contracts | $ | 220,687,295 | $ | 404,103 | $ | 35,660,177 | ||||||
Interest rate swap contracts | — | — | 250,000,000 | |||||||||
Cross-currency interest rate swap contracts | 36,731,630 | 51,057,531 | 15,947,874 | |||||||||
$ | 257,418,925 | $ | 51,461,634 | $ | 301,608,051 | |||||||
Notional | US dollar | |||||||
Settlement currency | amount | equivalents | ||||||
As of December 31, 2008 | ||||||||
European Euro | 21,979,034 | $ | 31,144,291 | |||||
Renminbi | 1,294,294,400 | 189,543,004 | ||||||
$ | 220,687,295 | |||||||
As of December 31, 2007 | ||||||||
Renminbi | 2,950,400 | $ | 404,103 | |||||
As of December 31, 2006 | ||||||||
Japanese Yen | 4,235,537,500 | $ | 35,660,177 | |||||
Notional | US dollar | |||||||
Settlement currency | amount | equivalents | ||||||
As of December 31, 2008 | ||||||||
Euro | 25,922,110 | $ | 36,731,630 | |||||
As of December 31, 2007 | ||||||||
Euro | 34,624,665 | $ | 51,057,531 | |||||
As of December 31, 2006 | ||||||||
Euro | 12,098,220 | $ | 15,947,874 | |||||
F-24
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
December 31 | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Forward foreign exchange contracts | $ | (3,510,305 | ) | $ | 530,354 | $ | (2,694,415 | ) | ||||
Interest rate swap contracts | — | — | (5,641,467 | ) | ||||||||
Cross-currency interest rate swap contracts | (360,089 | ) | 1,003,275 | 323,630 | ||||||||
$ | (3,870,394 | ) | $ | 1,533,629 | $ | (8,012,252 | ) | |||||
F-25
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
2008 | 2007 | 2006 | ||||||||||
Current | $ | 108,109,977 | $ | 249,489,644 | $ | 213,539,198 | ||||||
Overdue: | ||||||||||||
Within 30 days | 18,211,498 | 39,131,577 | 31,611,729 | |||||||||
Between 31 to 60 days | 6,073,500 | 6,107,866 | 5,879,705 | |||||||||
Over 60 days | 66,976,719 | 3,658,565 | 1,154,343 | |||||||||
$ | 199,371,694 | $ | 298,387,652 | $ | 252,184,975 | |||||||
Allowance for doubtful accounts | $ | (5,680,658 | ) | $ | (4,492,090 | ) | $ | (4,048,845 | ) | |||
2008 | 2007 | 2006 | ||||||||||
Balance, beginning of year | $ | 4,492,090 | $ | 4,048,845 | $ | 1,091,340 | ||||||
Provision recorded during the year | 1,301,556 | 486,920 | 2,957,505 | |||||||||
Write-offs in the year | (112,988 | ) | (43,675 | ) | — | |||||||
Balance, end of year | $ | 5,680,658 | $ | 4,492,090 | $ | 4,048,845 | ||||||
F-26
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
2008 | 2007 | 2006 | ||||||||||
Raw materials | $ | 76,299,347 | $ | 83,645,656 | $ | 89,431,781 | ||||||
Work in progress | 53,674,794 | 139,959,481 | 150,506,509 | |||||||||
Finished goods | 41,662,727 | 24,704,628 | 35,240,662 | |||||||||
$ | 171,636,868 | $ | 248,309,765 | $ | 275,178,952 | |||||||
F-27
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
F-28
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
2008 | 2007 | 2006 | ||||||||||
Land use rights (50-70 years) | $ | 80,079,885 | $ | 62,410,846 | $ | 42,485,856 | ||||||
Less: accumulated amortization | (5,786,601 | ) | (4,858,855 | ) | (4,162,523 | ) | ||||||
$ | 74,293,284 | $ | 57,551,991 | $ | 38,323,333 | |||||||
F-29
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
2008 | 2007 | 2006 | ||||||||||
Buildings | $ | 292,572,075 | $ | 283,153,927 | $ | 269,721,109 | ||||||
Facility, machinery and equipment | 540,021,636 | 470,434,074 | 435,112,058 | |||||||||
Manufacturing machinery and equipment | 5,467,846,683 | 5,035,366,468 | 4,539,566,491 | |||||||||
Furniture and office equipment | 76,210,542 | 67,835,774 | 61,979,029 | |||||||||
Transportation equipment | 1,768,949 | 1,750,734 | 1,666,185 | |||||||||
6,378,419,885 | 5,858,540,977 | 5,308,044,872 | ||||||||||
Less: accumulated depreciation and impairment | (3,763,083,884 | ) | (2,930,088,762 | ) | (2,314,667,455 | ) | ||||||
Construction in progress | 348,049,839 | 274,505,450 | 251,023,405 | |||||||||
$ | 2,963,385,840 | $ | 3,202,957,665 | $ | 3,244,400,822 | |||||||
F-30
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
F-31
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
2008 | 2007 | 2006 | ||||||||||
Technology, Licenses and Patents | ||||||||||||
Cost: | $ | 323,457,444 | $ | 322,435,363 | $ | 134,862,112 | ||||||
Accumulated Amortization and Impairment | (123,398,338 | ) | (90,240,231 | ) | (63,169,614 | ) | ||||||
Acquired intangible assets, net | $ | 200,059,106 | $ | 232,195,132 | $ | 71,692,498 | ||||||
F-32
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
December 31, 2008 | ||||||||
Carrying Amount | % of Ownership | |||||||
Equity Method Investment | ||||||||
Toppan SMIC Electronics (Shanghai) Co., Ltd. | $ | 9,162,766 | 30.0 | |||||
Cost method investments | $ | 2,189,420 | Less than 20.0 | |||||
Acquired intangible assets, net | $ | 11,352,186 | ||||||
F-33
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
2008 | 2007 | 2006 | ||||||||||
Current | $ | 126,149,360 | $ | 223,527,856 | $ | 238,864,239 | ||||||
Overdue: | ||||||||||||
Within 30 days | 26,524,678 | 46,571,502 | 43,364,820 | |||||||||
Between 31 to 60 days | 9,510,883 | 10,226,533 | 9,594,873 | |||||||||
Over 60 days | 23,733,618 | 21,666,848 | 17,305,267 | |||||||||
$ | 185,918,539 | $ | 301,992,739 | $ | 309,129,199 | |||||||
F-34
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
December 31, 2008 | ||||||||
Maturity | Face value | Discounted value | ||||||
2009 | $ | 30,000,000 | $ | 29,242,001 | ||||
2010 | 25,000,000 | 23,589,958 | ||||||
Less: Current portion of promissory notes | 30,000,000 | 29,242,001 | ||||||
Long-term portion of promissory notes | $ | 25,000,000 | $ | 23,589,958 | ||||
F-35
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
2008 | 2007 | 2006 | ||||||||||
Short-term borrowings from commercial banks (a) | $ | 201,257,773 | $ | 107,000,000 | $ | 71,000,000 | ||||||
Long-term debt by contracts (b): | ||||||||||||
Shanghai USD syndicate loan | $ | 266,050,000 | $ | 393,910,000 | $ | 274,420,000 | ||||||
Beijing USD syndicate loan | 300,060,000 | 500,020,000 | 600,000,000 | |||||||||
EUR loan | 72,037,070 | 51,057,531 | 15,947,873 | |||||||||
Tianjin USD syndicate loan | 259,000,000 | 12,000,000 | — | |||||||||
$ | 897,147,070 | $ | 956,987,531 | $ | 890,367,873 | |||||||
Long-term debt by repayment schedule: | ||||||||||||
2009 | $ | 360,628,789 | ||||||||||
2010 | 305,568,789 | |||||||||||
2011 | 135,482,995 | |||||||||||
2012 | 95,466,497 | |||||||||||
897,147,070 | ||||||||||||
Less: current maturities of long-term debt | 360,628,789 | |||||||||||
Non-current maturities of long-term debt | $ | 536,518,281 | ||||||||||
(a) | Short-term borrowings from commercial banks |
F-36
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
(b) | Long-term debt |
F-37
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
F-38
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
December 31, 2008 | ||||||||
Maturity | Face value | Discounted value | ||||||
2009 | $ | 50,133,334 | $ | 49,203,521 | ||||
2010 | 14,766,666 | 13,614,440 | ||||||
2011 | 5,200,000 | 4,554,566 | ||||||
70,100,000 | 67,372,527 | |||||||
Less: Current portion of long-term payables | 50,133,334 | 49,203,521 | ||||||
Long-term portion of long-term payables | $ | 19,966,666 | $ | 18,169,006 | ||||
F-39
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
F-40
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
1) | SMIS | |
Pursuant to the preferential tax policy available under the FEIT law as well as other related tax regulation, SMIS was subject to a preferential income tax rate of 15% . According to Circular Guofa (2000) No. 18 — New Policy Implemented for Software and Semiconductor Industries (“Circular 18”) issued by the State Council of China, SMIS is entitled to a 10-year tax holiday (5-year full exemption followed by 5-year half reduction) for FEIT rate starting from the first profit- making year after utilizing all prior years’ tax losses. The tax holiday enjoyed by SMIS took effect in 2004 when the SMIS completed its first profit-making year. | ||
In accordance with the New EIT Law and Caishui No.1, SMIS is eligible to continue enjoying 15% income tax rate and its tax holiday through its expiry in 2013. | ||
2) | SMIB and SMIT | |
In accordance with the Circular 18 and Caishui No.1, SMIB and SMIT are currently entitled to the preferential tax rate of 15% and will be entitled to a 10-year tax holiday (5-year full exemption followed by 5-year half reduction) subsequent to their first profit-making years after utilizing all prior tax losses. Both entities were in loss positions as of December 31, 2008 and as a result the tax holiday has not yet taken effect. | ||
3) | SMICD | |
Under the FEIT Laws, SMICD was qualified for a 5-year tax holiday (2-year full exemption followed by 3-year half reduction) subsequent to its first profit-making year after utilizing all prior tax losses. As of December 31, 2008, SMICD was still in a loss position. Pursuant to the New EIT Law, the tax holiday began in 2008 at the statutory tax rate of 25% despite the fact that SMICD had yet to be profitable. The applicable income tax rates for the years ended December 31, 2008, 2009, 2010, 2011, 2012 and thereafter are 0%, 0%, 12.5% 12.5%, 12.5% and 25%, respectively. | ||
4) | Energy Science | |
Energy Science is a manufacturing enterprise located in the Shanghai Pudong New Area. Pursuant to the preferential tax policy granted to the Pudong New Area under the FEIT Law, Energy Science was subject to a preferential tax rate of 15% and qualified for a 5-year tax holiday (2-year full exemption followed by 3-year half reduction in FEIT rate) subsequent to its first profit-making year after utilizing all prior years’ tax losses or 2008 in accordance with the New EIT Law. The tax holiday commenced in 2007 and would continue until 2011. The statutory tax rate is gradually transiting to 25% within a 5-year transition period starting from 2008. The applicable income tax rates for the year ended December 31, 2008, 2009, 2010, 2011 and thereafter are 0%, 10%, 11%, 12% and 25%, respectively. |
F-41
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
December 31 | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
PRC | ||||||||||||
Current | $ | 15,106 | $ | 19,602 | $ | 4,542 | ||||||
Adjustments on deferred tax assets and liabilities for enacted changes in tax rate | 20,542,716 | (20,542,716 | ) | — | ||||||||
Deferred | (9,506,907 | ) | (10,691,699 | ) | (25,075,987 | ) | ||||||
Other jurisdictions | ||||||||||||
Current | 15,382,078 | 1,495,038 | 143,701 | |||||||||
Deferred | — | — | — | |||||||||
$ | 26,432,993 | $ | (29,719,775 | ) | $ | (24,927,744 | ) | |||||
December 31 | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
PRC | $ | (291,664,135 | ) | $ | 51,906,337 | $ | 46,806,662 | |||||
Other jurisdictions | (113,838,901 | ) | (99,937,852 | ) | (116,777,420 | ) | ||||||
$ | (405,503,036 | ) | $ | (48,031,515 | ) | $ | (69,970,758 | ) | ||||
2008 | 2007 | 2006 | ||||||||||
Deferred tax assets: | ||||||||||||
Allowances and reserves | $ | 4,732,017 | $ | — | $ | 1,962,410 | ||||||
Start-up costs | 929,991 | 53,698 | 958,105 | |||||||||
Net operating loss carry forwards | 55,476,943 | — | 5,201,545 | |||||||||
Unrealized exchange loss | 33,228 | — | 47,860 | |||||||||
Depreciation of fixed assets | 59,224,163 | 75,886,896 | 33,715,867 | |||||||||
Subsidy on long lived assets | 479,817 | 479,817 | 295,654 | |||||||||
Accrued sales return | 603,274 | — | 137,719 | |||||||||
Total deferred tax assets | 121,479,433 | 76,420,411 | 42,319,160 | |||||||||
Valuation allowance | (75,792,963 | ) | (19,505,239 | ) | (17,032,260 | ) | ||||||
Net deferred tax assets — non-current | $ | 45,686,470 | $ | 56,915,172 | $ | 25,286,900 | ||||||
Deferred tax liability: | ||||||||||||
Capitalized interest | $ | (411,877 | ) | $ | (604,770 | ) | $ | (210,913 | ) | |||
F-42
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
F-43
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
2008 | 2007 | 2006 | ||||||||||
Applicable enterprise income tax rate | 15.0 | % | 15.0 | % | 15.0 | % | ||||||
Expenses (credit) not deductible for tax purpose | (1.8 | %) | (0.9 | %) | 3.1 | % | ||||||
Effect of tax holiday and tax concession | 0.0 | % | 48.7 | % | 25.0 | % | ||||||
Expense (credit) to be recognized in future periods | 8.2 | % | (19.2 | %) | 29.3 | % | ||||||
Changes in valuation allowances | (15.6 | %) | 9.3 | % | (11.9 | %) | ||||||
Effect of different tax rate of subsidiaries operating in other jurisdictions | (7.2 | %) | (33.8 | %) | (24.9 | %) | ||||||
Changes of tax rate | (5.1 | %) | 42.8 | % | — | |||||||
Effective tax rate | (6.5 | %) | 61.9 | % | 35.6 | % | ||||||
2008 | 2007 | 2006 | ||||||||||
The aggregate dollar effect | $ | 10,572 | $ | 23,415,370 | $ | 17,472,283 | ||||||
Per share effect- basic and diluted | $ | 0.00 | $ | 0.00 | $ | 0.00 |
F-44
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
F-45
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
F-46
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
Ordinary shares | Weighted | |||||||||||||||
Average | ||||||||||||||||
Weighted | Remaining | Aggregated | ||||||||||||||
Number | average | Contractual | Intrinsic | |||||||||||||
of options | exercise price | Term | Value | |||||||||||||
Options outstanding at January 1, 2008 | 1,042,398,482 | $ | 0.14 | |||||||||||||
Granted | 248,840,090 | $ | 0.05 | |||||||||||||
Exercised | (22,730,522 | ) | $ | 0.03 | ||||||||||||
Forfeited or cancelled | (144,352,056 | ) | $ | 0.13 | ||||||||||||
Options outstanding at December 31, 2008 | 1,124,155,994 | $ | 0.12 | 6.79 years | $ | 34,499,475 | ||||||||||
Vested or expected to vest at December 31, 2008 | 1,080,819,321 | $ | 0.12 | 6.87 years | $ | 30,288,832 | ||||||||||
Exercisable at December 31, 2008 | 491,098,679 | $ | 0.13 | 4.89 years | $ | 28,604,914 | ||||||||||
F-47
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
2008 | 2007 | 2006 | ||||||||||
Average risk-free rate of return | 2.13 | % | 3.98 | % | 4.72 | % | ||||||
Expected term | 1-4 years | 1-4 years | 2-4 years | |||||||||
Volatility rate | 46.82 | % | 35.28 | % | 32.69 | % | ||||||
Expected dividend yield | — | — | — |
F-48
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
Restricted share units | Weighted Average | |||||||||||||||
Weighted | Remaining | Aggregated | ||||||||||||||
Number of | Average | Contractual | Fair | |||||||||||||
Share Units | Fair Value | Term | Value | |||||||||||||
Outstanding at January 1, 2008 | 119,442,808 | $ | 0.14 | |||||||||||||
Granted | 41,907,100 | $ | 0.08 | |||||||||||||
Exercised | (49,953,525 | ) | $ | 0.13 | ||||||||||||
Forfeited or cancelled | (15,775,621 | ) | $ | 0.13 | ||||||||||||
Outstanding at December 31, 2008 | 95,620,762 | $ | 0.12 | 8.19 years | $ | 11,970,507 | ||||||||||
Vested or expected to vest at December 31, 2008 | 29,485,303 | $ | 0.12 | 8.29 years | $ | 4,047,455 |
2008 | 2007 | 2006 | ||||||||||
Ordinary Shares | — | 90,000 | 16,498,871 |
F-49
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
2008 | 2007 | 2006 | ||||||||||
Net Loss | $ | (440,231,120 | ) | $ | (19,468,147 | ) | $ | (44, 109,078 | ) | |||
Less: Cumulative effect of a change in accounting principle | — | — | (5,153,986 | ) | ||||||||
Net loss before cumulative effect of a change in accounting principle | (440,231,120 | ) | (19,468,147 | ) | (49,263,064 | ) | ||||||
Basic and diluted: | ||||||||||||
Weighted average ordinary shares outstanding | 18,682,585,932 | 18,505,650,171 | 18,361,910,033 | |||||||||
Less: Weighted average ordinary shares outstanding subject to repurchase | (41,066 | ) | (3,709,682 | ) | (27,411,110 | ) | ||||||
Weighted average shares used in computing basic and diluted income per share | 18,682,544,866 | 18,501,940,489 | 18,334,498,923 | |||||||||
On the basis of loss per share before cumulative effect of a change in accounting principle, basic and diluted | $ | (0.02 | ) | $ | (0.00 | ) | $ | (0.00 | ) | |||
Cumulative effect of a change in accounting principle per share, basic and diluted | $ | — | $ | — | $ | 0.00 | ||||||
Basic and diluted loss per share | $ | (0.02 | ) | $ | (0.00 | ) | $ | (0.00 | ) | |||
December 31 | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Outstanding options to purchase ordinary shares | 128,361,312 | 72,685,282 | 62,339,207 | |||||||||
Outstanding unvested restricted share units to purchase ordinary shares | 61,117,195 | 75,302,939 | 161,479,670 | |||||||||
189,478,507 | 147,988,221 | 223,818,877 | ||||||||||
F-50
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
F-51
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
(a) | Purchase commitments | |
As of December 31, 2008 the Company had the following commitments to purchase machinery, equipment and construction obligations. The machinery and equipment is scheduled to be delivered at the Company’s facility by December 31, 2009. |
Facility construction | $ | 7,359,374 | ||
Machinery and equipment | $ | 52,235,105 | ||
$ | 59,594,479 | |||
(b) | Royalties | |
The Company has entered into several license and technology agreements with third parties. The terms of the contracts range from 3 to 10 years. The Company is subject to royalty payments based on a certain percentage of product sales, using the third parties’ technology or license. In 2008, 2007 and 2006, the Company incurred royalty expense of $18,867,409, $13,118,570 and $7,724,704, respectively, which was included in cost of sales. | ||
The Company has entered into several license agreements with third parties where the Company provides access to certain licensed technology. The Company will receive royalty payments based on a certain percentage of product sales using the Company’s licensed technology. In 2008, 2007 and 2006, the Company earned royalty income of $1,192,537, $1,428,603 and $1,384,137, respectively, which was included in sales. Royalty income is recognized one quarter in arrears when reports are received. | ||
(c) | Operating lease as lessor | |
The Company owns apartment facilities that are leased to the Company’s employees at negotiated prices. The apartment rental agreement is renewed on an annual basis. The Company also leases office space to non-related third parties. Office lease agreements are renewed on an annual basis as well. The total amount of rental income recorded in 2008, 2007 and 2006 was $5,818,655, $6,937,107 and $6,142,692, respectively, and is recorded in other income in the statement of operations. | ||
(d) | Operating lease as lessee | |
The Company has various operating leases including land use rights, under non-cancellable leases expiring at various times through 2053. Future minimum lease payments under these leases as of December 31, 2008 are as follows: |
Year ending | ||||
2009 | $ | 6,055,605 | ||
2010 | 269,868 | |||
2011 | 202,580 | |||
2012 | 168,153 | |||
Thereafter | 3,024,384 | |||
$ | 9,720,590 | |||
F-52
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
2008 | 2007 | 2006 | ||||||||||
Total sales: | ||||||||||||
United States | $ | 767,966,660 | $ | 657,603,189 | $ | 602,506,213 | ||||||
Europe | 92,572,683 | 328,710,235 | 440,327,872 | |||||||||
Asia Pacific (Excluding Japan and Taiwan) | 269,616,334 | 227,973,648 | 168,607,598 | |||||||||
Taiwan | 185,848,747 | 183,113,880 | 153,057,616 | |||||||||
Japan | 37,706,875 | 152,364,336 | 100,823,568 | |||||||||
$ | 1,353,711,299 | $ | 1,549,765,288 | $ | 1,465,322,867 | |||||||
Substantially all of the Company’s long-lived assets are located in the PRC.
F-53
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
Net revenue | Accounts receivable | |||||||||||||||||||||||
Year ended December 31, | December 31, | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
A | 22 | % | 16 | % | 17 | % | 23 | % | 14 | % | 14 | % | ||||||||||||
B | 14 | % | * | * | * | * | * | |||||||||||||||||
C | 13 | % | * | * | * | * | * | |||||||||||||||||
D | * | 18 | % | 28 | % | * | 15 | % | 29 | % | ||||||||||||||
E | * | * | * | * | 13 | % | * | |||||||||||||||||
F | * | * | * | 16 | % | * | * | |||||||||||||||||
G | * | * | * | 18 | % | * | * |
Receivable for sale of | ||||||||||||||||||||||||
Other current assets | manufacturing equipment | |||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
F | 50 | % | 29 | % | * | 83 | % | 100 | % | 100 | % | |||||||||||||
G | * | * | * | 17 | % | * | * |
* | Less than 10% |
F-54
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
1) | The Company and TSMC agreed to cross-license each other’s patent portfolio for all semiconductor device products, effective from January 2005 through December 2010. | |
2) | TSMC covenanted not to sue the Company for trade secret misappropriation as alleged in TSMC’s legal actions as it related to .15ìm and larger processes subject to certain conditions (“TSMC Covenant”). The TSMC Covenant did not cover .13ìm and smaller technologies after 6 months following execution of the Settlement Agreement (July 31, 2005). Excluding the .13ìm and smaller technologies, the TSMC Covenant remains in effect indefinitely, terminable upon a breach by the Company. | |
3) | The Company is required to deposit certain Company materials relating to .13ìm and smaller technologies into an escrow account until December 31, 2006 or under certain circumstances for a longer period of time. | |
4) | The Company agreed to pay TSMC an aggregate of $175 million in installments of $30 million for each of the first five years and $25 million in the sixth year. |
F-55
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
1) | The Settlement Agreement reached between TSMC and SMIC clearly stated that there was no admission of liability by either party; | |
2) | The Settlement Agreement required all parties to bear their own legal costs; | |
3) | There were no other damages associated with the Settlement Agreement; | |
4) | There was a provision in the Settlement Agreement for a grace period to resolve any misappropriation issues had they existed; | |
5) | Albeit a complaint had been filed by TSMC on trade secret infringement, TSMC has never identified to the Company which trade secrets it claimed were being infringed upon by the Company; | |
6) | The Settlement Agreement was concluded when the litigation process was still at a relatively early stage and the outcome of the litigation was therefore highly uncertain. |
F-56
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
a) | existing third-party license agreements with SMIC; | |
b) | the analysis of comparable industry royalty rates related to semiconductor chip/integrated circuit (“IC”) related technology; and | |
c) | the analysis of comparable industry royalty rates related to semiconductor fabrication. |
F-57
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
F-58
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
F-59
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
F-60
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
F-61
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
2008 | 2007 | 2006 | ||||||||||
Loss (income) from operations is arrived at after charging (crediting): | ||||||||||||
Auditors’ remuneration | $ | 1,584,925 | $ | 1,698,293 | $ | 1,577,928 | ||||||
Amortization of land use rights | 927,746 | 886,293 | 577,578 | |||||||||
Foreign currency exchange loss (gain) | (8,195,569 | ) | 3,117,962 | 3,939,745 | ||||||||
Bad debt expense | 1,301,556 | 486,920 | 2,957,505 | |||||||||
Inventory write-down | 17,766,628 | 6,570,137 | 2,297,773 | |||||||||
Staff costs inclusive of directors’ remuneration | $ | 190,942,366 | $ | 151,447,470 | $ | 108,742,094 |
F-62
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
Zheng | Jiang | |||||||||||||||||||||||||||||||||||||||
Richard | Kawanishi | Wang | Hsu | Lip-Bu | Henry | Gang | Albert | Shang | ||||||||||||||||||||||||||||||||
Chang | Tsuyoshi | Yang Yuan | Ta-Lin | Tan | Shaw | Wang | Y.C. | Zhou | Total | |||||||||||||||||||||||||||||||
2008 | ||||||||||||||||||||||||||||||||||||||||
Salaries and other benefits | $ | 218,398 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 218,398 | ||||||||||||||||||||
Stock option benefits | 144,300 | 4,285 | 4,285 | 4,285 | 4,285 | 4,285 | — | 12,489 | — | 178,214 | ||||||||||||||||||||||||||||||
Total emoluments | $ | 362,698 | $ | 4,285 | $ | 4,285 | $ | 4,285 | $ | 4,285 | $ | 4,285 | $ | — | $ | 12,489 | $ | — | $ | 396,612 | ||||||||||||||||||||
2007 | ||||||||||||||||||||||||||||||||||||||||
Salaries and other benefits | $ | 195,395 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 195,395 | ||||||||||||||||||||
Stock option benefits | 172,203 | 17,189 | 17,189 | 17,189 | 17,189 | 17,189 | — | 50,094 | — | 308,242 | ||||||||||||||||||||||||||||||
Total emoluments | $ | 367,598 | $ | 17,189 | $ | 17,189 | $ | 17,189 | $ | 17,189 | $ | 17,189 | $ | — | $ | 50,094 | $ | — | $ | 503,637 | ||||||||||||||||||||
2006 | ||||||||||||||||||||||||||||||||||||||||
Salaries and other benefits | $ | 192,727 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 192,727 | ||||||||||||||||||||
Stock option benefits | 156,241 | 12,951 | 12,951 | 12,951 | 12,951 | 12,951 | — | 37,742 | — | 258,738 | ||||||||||||||||||||||||||||||
Total emoluments | $ | 348,968 | $ | 12,951 | $ | 12,951 | $ | 12,951 | $ | 12,951 | $ | 12,951 | $ | — | $ | 37,742 | $ | — | $ | 451,465 | ||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||
Number of | Number of | Number of | ||||||||||
directors | directors | directors | ||||||||||
HK$nil to HK$1,000,000 ($128,620) | 8 | 9 | 10 | |||||||||
HK$1,000,001 ($128,620) to HK$1,500,000 ($192,930) | — | — | — | |||||||||
HK$1,500,001 ($192,930) to HK$2,000,000 ($257,240) | — | — | — | |||||||||
HK$2,000,001 ($257,240) to HK$2,500,000 ($321,550) | — | — | — | |||||||||
HK$2,500,001 ($321,550) to HK$3,000,000 ($385,860) | 1 | 1 | 1 |
F-63
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
2008 | 2007 | 2006 | ||||||||||
Salaries and other benefits | $ | 941,001 | $ | 586,065 | $ | 518,198 | ||||||
Bonus | — | 237,969 | 233,662 | |||||||||
Stock option benefits | 232,296 | 283,125 | 268,528 | |||||||||
Total emoluments | $ | 1,173,297 | $ | 1,107,159 | $ | 1,020,388 | ||||||
2008 | 2007 | 2006 | ||||||||||
Number of | Number of | Number of | ||||||||||
individuals | individuals | individuals | ||||||||||
HK$nil to HK$1,000,000 ($128,620) | — | — | — | |||||||||
HK$1,000,001 ($128,620) to HK$1,500,000 ($192,930) | 1 | — | — | |||||||||
HK$1,500,001 ($192,930) to HK$2,000,000 ($257,240) | 3 | — | 3 | |||||||||
HK$2,000,001 ($257,240) to HK$2,500,000 ($321,550) | 1 | 4 | 1 | |||||||||
HK$2,500,001 ($321,550) to HK$4,500,000($578,790) | — | 1 | 1 | |||||||||
HK$4,500,001 ($578,790) to HK$5,000,000 (643,100) | — | — | — |
F-64
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
F-65
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
F-66
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
(i) | In regard to accounting treatment for share-based payments, IFRS 2, “Share Based Payment”, was issued to specify recognition, measurement and disclosure for equity compensation. IFRS 2 requires all share-based payment to be recognized in the financial statements using a fair value measurement basis. An expense should be recognized when goods or services received are consumed. IFRS 2 was effective for periods beginning on or after January 1, 2005. | |
Had the Company prepared the financial statements under IFRS, the Company would have adopted IFRS 2 retrospectively for the fiscal year beginning on January 1, 2005 and compensation expenses on share-based payments to employees would have been calculated using fair value method for the years prior to January 1, 2006. | ||
Under US GAAP, prior to the adoption of the SFAS 123(R) from January 1, 2006, the Company was able to account for stock-based compensation issued to employees using either intrinsic value method or fair value method and the Company adopted the intrinsic value method of accounting for its stock options to employees. | ||
Under the intrinsic value method, compensation expense is the excess, if any, of the fair value of the stock at the grant date or other measurement date over the amount an employee must pay to acquire the stock. Compensation expense, if any, is recognized over the applicable service period, which is the vesting period. | ||
Effective January 1, 2006, the Company adopted the provisions of SFAS 123(R), “Share-Based Payment”. Under the provisions of SFAS 123(R), share-based compensation is measured at the grant date, based on the fair value of the award similar to IFRS 2. In addition, under SFAS 123(R) the Company was no longer required to record deferred sharebased compensation related to unvested share options in stockholder’s equity, consistent with IFRS 2. Upon the adoption of this accounting principle, the Company has recorded a cumulative effect of $5,153,986 in the year 2006 under US GAAP, which is not required under IFRS2. | ||
(ii) | Under US GAAP, the Series A shares of AT are accounted as minority interest and presented as temporary equity. The Series A shares are accreted to their redemption value at each reporting date. The accretion of interest is presented as minority interest expense in the consolidated statements of operations. | |
Under IFRS, the Series A shares of AT contains both liability and conversion option components. A conversion option that will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of AT’s ordinary shares is classified as an equity instrument. |
F-67
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
On initial recognition, the fair value of the liability component is determined using the prevailing market interest of similar non-convertible debt. The different between the gross proceeds from the issuance of the Series A shares and the fair value assigned to the liability components, presenting the conversion option for the holder to convert the loan notes into equity, is included in equity. In subsequent periods, the liability component is carried at amortized cost using the effective interest method. The equity component, representing the option to convert the liability component into ordinary shares of AT, will remain in equity until the embedded option is exercised. No gain or loss is recognized in profit or loss upon conversion or expiration of the conversion option. | ||
The value assigned to the conversion option of the Series A shares is considered to be insignificant at initial recognition. The accretion of interest to record the Series A shares at redemption value is recognized as interest expense. | ||
(iii) | Under US GAAP, a beneficial conversion feature refers to the preferential price of certain convertible equity instruments an investor receives when the effective conversion price of the equity instruments in lower than the fair market value of the common stock to which the convertible equity instrument is convertible into at the date of issuance. US GAAP requires the recognition of the difference between the effective conversion price of the convertible equity instrument and the fair market value of the common stock as a deemed dividend. | |
Under IFRS, this deemed dividend is not required to be recorded. | ||
(iv) | Under IFRS, leases of land and buildings are classified as operating or finance leases in the same way as leases of other assets. However, a characteristic of land is that it normally has an indefinite economic life and, if title is not expected to pass to the lessee by the end of the lease term, the lessee normally does not receive substantially all of the risks and rewards incidental to ownership, in which case the lease of land will be an operating lease. A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents lease prepayments that are amortized over the lease term in accordance with the pattern of benefits provided. For balance sheet presentation, the prepayment of land use rights should be disclosed as current and non-current. | |
Under US GAAP, land use rights are also accounted as operating leases and represent lease pre-payments that are amortized over the lease term in accordance with the pattern of benefits provided. Current and non-current asset classification is not required under US GAAP. | ||
(v) | IFRS requires an enterprise to evaluate at each balance sheet date whether there is any indication that a long- lived asset may be impaired. If any such indication exists, an enterprise should estimate the recoverable amount of the long-lived asset. Recoverable amount is the higher of a long-lived asset’s net selling price and its value in use. Value in use is measured on a discounted present value basis. An impairment loss is recognized for the excess of the carrying amount of such assets over their recoverable amounts. A reversal of previous provision of impairment is allowed to the extent of the loss previously recognised as expense in the income statement. |
F-68
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
Under US GAAP, long-lived assets and certain identifiable intangibles (excluding goodwill) held and used by an entity are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of a long-lived asset and certain identifiable intangibles (excluding goodwill) may not be recoverable. An impairment loss is recognized if the expected future cash flows (undiscounted) are less than the carrying amount of the assets. The impairment loss is measured based on the fair value of the long-lived assets and certain identifiable intangibles (excluding goodwill). Subsequent reversal of the loss is prohibited. Long-lived assets and certain identifiable intangibles (excluding goodwill) to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. | ||
The Company considered the operating loss in SMIB to be an impairment indicator for its long-lived assets in SMIB and evaluated whether or not such assets have been impaired at December 31, 2007. The undiscounted expected future cash flows were in excels of the carrying amount of the relevant long-lived assets and no impairment loss was required to be recognized under US GAAP in 2007. However, under IFRS, the estimated recoverable value derived from a discounted expected cash flow was less than the carrying value of those long-lived assts. As such, the Company has recognized an impairment loss of US$105,774,000 for the year ended December 31, 2007 under IFRS. | ||
The Company reached an agreement with certain customers to discontinue production of DRAM products and subsequently the Company’s Board of Directors decided to exit the commodity DRAM business as a whole. The Company considered these actions to be an indicator of impairment in regard to the plant and equipment in the Company’s Beijing facility. Based on a detailed analysis, the Company recorded an impairment loss of $105,774,000, equal to the excess of the carrying value over the fair value of the associated assets under US GAAP in 2008. | ||
The difference in timing of recognition of impairment loss under US GAAP and IFRS give rise to the difference in depreciation charges on long-lived assets after impairment allocation, which would be gradually reversed in future periods when the long-lived assets are fully depreciating. | ||
(vi) | Under US GAAP, income (loss) from equity investment is presented as a separate item before net income (loss) on net of tax basis. | |
Under IFRS, the income (loss) from equity investment is presented as a component of income (loss) before income tax benefit (expense). |
F-69
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
The adjustments necessary to restate loss attributable to holders of ordinary shares and stockholders’ equity in accordance with IFRS are shown in the tables set out below. |
2008 | 2007 | 2006 | ||||||||||
Net loss under US GAAP | $ | (440,231,120 | ) | $ | (19,468,147 | ) | $ | (44,109,078 | ) | |||
IFRS adjustments: | ||||||||||||
i) Reverse of cumulative effect of a change in accounting principle for share-based payment | — | — | (5,153,986 | ) | ||||||||
ii) Accretion of interest on Series A Share | 3,055,592 | (2,856,258 | ) | 18,803 | ||||||||
v) Impairment of long-lived assets | 105,774,000 | (105,774,000 | ) | — | ||||||||
v) Depreciation of long-lived assets | 4,633,535 | — | — | |||||||||
Net loss under IFRS | $ | (326,767,993 | ) | $ | (128,098,405 | ) | $ | (49,244,261 | ) | |||
Net loss per share under IFRS | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.00 | ) | |||
Stockholders’ equity as reported under US GAAP | $ | 2,749,364,501 | $ | 3,012,519,022 | $ | 3,007,419,918 | ||||||
ii) Presentation of minority interest | — | 34,944,408 | 38,800,666 | |||||||||
v) Impairment of long-lived assets | — | (105,774,000 | ) | — | ||||||||
v) Depreciation of long-lived assets | 4,633,535 | — | — | |||||||||
Stockholders’ equity under IFRS | $ | 2,753,998,036 | $ | 2,941,689,430 | $ | 3,046,220,584 | ||||||
Current liabilities as reported under US GAAP | $ | 899,772,911 | $ | 930,190,120 | $ | 677,361,816 | ||||||
ii) Presentation of Series A shares | 42,795,288 | — | — | |||||||||
Under IFRS | $ | 942,568,199 | $ | 930,190,120 | $ | 677,361,816 | ||||||
Land use rights, net – current portion as reported under US GAAP | $ | — | $ | — | $ | — | ||||||
IFRS adjustment | ||||||||||||
iv) Current portion adjustment for land use right | 1,442,730 | 1,054,777 | 712,521 | |||||||||
Under IFRS | $ | 1,442,730 | $ | 1,054,777 | $ | 712,521 | ||||||
Land use rights, net | ||||||||||||
As reported under US GAAP | $ | 74,293,284 | $ | 57,551,991 | $ | 38,323,333 | ||||||
IFRS adjustments | ||||||||||||
iv) Current portion adjustment for land use right | (1,442,730 | ) | (1,054,777 | ) | (712,521 | ) | ||||||
Under IFRS | $ | 72,850,554 | $ | 56,497,214 | $ | 37,610,812 | ||||||
Plant and equipment | ||||||||||||
As reported | $ | 2,963,385,840 | $ | 3,202,957,665 | $ | 3,244,400,822 | ||||||
IFRS adjustments | ||||||||||||
v) Impairment of long lived assets | — | (105,774,000 | ) | — | ||||||||
v) Depreciation of long lived assets | 4,633,535 | — | — | |||||||||
Under IFRS | $ | 2,968,019,375 | $ | 3,097,183,665 | $ | 3,244,400,822 | ||||||
Additional paid-in capital as reported under US GAAP | $ | 3,489,382,267 | $ | 3,313,375,972 | $ | 3,288,765,465 | ||||||
IFRS adjustments | ||||||||||||
i) Retrospective adjustment on adoption of IFRS 2 | 30,388,316 | 30,388,316 | 30,388,316 | |||||||||
i) Reverse of cumulative effect of a change in accounting principle | 5,153,986 | 5,153,986 | 5,153,986 | |||||||||
iii) Carry forward prior year’s adjustment on deemed dividend | (55,956,051 | ) | (55,956,051 | ) | (55,956,051 | ) | ||||||
Under IFRS | $ | 3,468,968,518 | $ | 3,292,962,223 | $ | 3,268,351,716 | ||||||
Accumulated deficit as reported under US GAAP | $ | (748,509,757 | ) | $ | (308,278,637 | ) | $ | (288,810,490 | ) | |||
IFRS adjustments | ||||||||||||
i) Carried over impact under IFRS 2 | (30,388,316 | ) | (30,388,316 | ) | (30,388,316 | ) | ||||||
i) Reverse of cumulative effect of a change in accounting principle | (5,153,986 | ) | (5,153,986 | ) | (5,153,986 | ) | ||||||
iv) Carry forward prior year’s adjustment on deemed dividend | 55,956,051 | 55,956,051 | 55,956,051 | |||||||||
v) Impairment of long-lived assets | — | (105,774,000 | ) | — | ||||||||
v) Depreciation of long-lived assets | 4,633,535 | — | — | |||||||||
Under IFRS | $ | (723,462,473 | ) | $ | (393,638,888 | ) | $ | (268,396,741 | ) | |||
F-70
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
2008 | 2007 | 2006 | ||||||||||
Cost of sales as reported under US GAAP | $ | 1,412,851,079 | $ | 1,397,037,881 | $ | 1,338,155,004 | ||||||
IFRS adjustments | ||||||||||||
v) Depreciation of long-lived assets | (4,633,535 | ) | — | — | ||||||||
Under IFRS | $ | 1,408,217,544 | $ | 1,397,037,881 | $ | 1,338,155,004 | ||||||
Operating expenses as reported under US GAAP | $ | 317,797,068 | $ | 188,659,217 | $ | 141,037,963 | ||||||
IFRS adjustments | ||||||||||||
v) Impairment of long-lived assets | (105,774,000 | ) | 105,774,000 | — | ||||||||
Under IFRS | $ | 212,023,068 | $ | 294,433,217 | $ | 141,037,963 | ||||||
Interest expense as reported under US GAAP | $ | 50,766,958 | $ | 37,936,126 | $ | 50,926,084 | ||||||
IFRS adjustments | ||||||||||||
ii) Accretion of interest on Series A shares | 4,795,288 | — | — | |||||||||
Under IFRS | $ | 55,562,246 | $ | 37,936,126 | $ | 50,926,084 | ||||||
Loss before income tax as reported under US GAAP | $ | (405,503,036 | ) | $ | (48,031,515 | ) | $ | (69,970,758 | ) | |||
IFRS adjustments | ||||||||||||
v) Impairment of long-lived assets | 105,774,000 | (105,774,000 | ) | — | ||||||||
v) Depreciation of long-lived assets | 4,633,535 | — | — | |||||||||
vi) Presentation of income (loss) from equity investment | (444,211 | ) | (4,012,665 | ) | (4,201,247 | ) | ||||||
ii) Accretion of interest on Series A shares | (4,795,288 | ) | — | — | ||||||||
Under IFRS | $ | (300,335,000 | ) | $ | (157,818,180 | ) | $ | (74,172,005 | ) | |||
(a) | Inventory valuation | |
Inventories are carried at cost under both US GAAP and IFRS. However, if there is evidence that the net realisable value of goods, in their disposal in the ordinary course of business, will be less than cost, whether due to physical obsolescence, changes in price levels, or other causes, the difference should be recognized as a loss of the current period. This is generally accomplished by stating such goods at a lower level commonly known as “market”. | ||
Under US GAAP, a write-down of inventories to the lower of cost or market at the close of a fiscal period creates a new cost basis that subsequently cannot be reversed based on changes in underlying facts and circumstances. Market under US GAAP is the lower of the replacement cost and net realizable value minus normal profit margin. | ||
Under IFRS, a write-down of inventories to the lower of cost or market at the close of a fiscal period is a valuation allowance that can be subsequently reversed if the underlying facts and circumstances changes. Market under IFRS is net realizable value. |
F-71
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
(b) | Deferred income taxes | |
Deferred tax liabilities and assets are recognized for the estimated future tax effects of all temporary differences between the financial statement carrying amount of assets and liabilities and their respective tax bases under both US GAAP and IFRS. | ||
Under IFRS, a deferred tax asset is recognized to the extent that it is probable that future profits will be available to offset the deductible temporary differences or carry forward of unused tax losses and unused tax credits. Under US GAAP, all deferred tax assets are recognized, subject to a valuation allowance, to the extent that it is ‘’more likely than not” that some portion or all of the deferred tax assets will be realized. “More likely than not” is defined as a likelihood of more than 50%. | ||
With regard to the measurement of the deferred tax, IFRS requires recognition of the effects of a change in tax laws or rates when the change is “substantively enacted”. US GAAP requires measurement using tax laws and rates enacted at the balance sheet date. | ||
Under US GAAP, deferred tax liabilities and assets are classified as current or non-current based on the classification of the related asset or liability for financial reporting. Under IFRS, deferred tax assets and liabilities are always classified as non-current. | ||
(c) | Segment reporting | |
Under IFRS, a listed enterprise is required to determine its primary and secondary segments on the basis of lines of business and geographical areas, and to disclose results, assets and liabilities and certain other prescribed information for each segment. The determination of primary and secondary segment is based on the dominant source of the enterprise’s business risks and returns. Accounting policies adopted for preparing and presenting the financial statements of the Company should also be adopted in reporting the segmental results and assets. The business segment is considered as the primary segment for the Company. Meanwhile, the Management believes the risk and return shall be similar among its different geographical segments. | ||
Under US GAAP, a public business enterprise is required to report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. US GAAP also permits the use of the accounting polices used for internal reporting purposes that are not necessarily consistent with the accounting policies used in consolidated financial statements. |
F-72
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
(d) | Borrowing costs | |
IFRS and US GAAP require capitalization of borrowing costs for those borrowings that are directly attributable to acquisition, construction or production of assets that necessarily take a substantial period of time to get ready for their intended use or sale. The amount to be capitalized is the borrowing cost which could theoretically have been avoided if the expenditure on the qualifying asset was not made. Under IFRS, borrowing costs are defined as interest and any other costs incurred by an enterprise in connection with the borrowing of funds, while under the US GAAP, borrowing costs are defined as interest only. | ||
Under IFRS, to the extent that funds are borrowed specifically for the purpose of obtaining a qualified asset, the amount of borrowing costs eligible for capitalization is determined as the actual borrowing costs incurred on the borrowing during the period less any investment income on the temporary investment of those borrowing. The amount of borrowing costs to be capitalized under US GAAP is based solely on actual interest incurred related to the actual expenditure incurred. | ||
(e) | Research and development costs | |
IFRS requires the classification of the costs associated with the creation of intangible assets by research phase and development phase. Costs in the research phase must always be expensed. Costs in the development phase are expensed unless the entity can demonstrate all of the following: |
• | the technical feasibility of completing the intangible asset so that it will be available for use or sale; | ||
• | its intention to complete the intangible asset and use or sell it; | ||
• | its ability to use or sell the intangible asset; | ||
• | how the intangible asset will generate probable future economic benefits. Among other things, the enterprise should demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset; | ||
• | the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and | ||
• | its ability to measure the expenditure attributable to the intangible asset during the development phase. |
• | those incurred on behalf of other parties under contractual arrangements; | ||
• | those that are unique for enterprises in the extractive industries; | ||
• | certain costs incurred internally in creating a computer software product to be sold, leased or otherwise marketed, whose technological feasibility is established, i.e. upon completion of a detailed program design or, in its absence, upon completion of a working model; and | ||
• | certain costs related to the computer software developed or obtained for internal use. |
F-73
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(In US dollars, except where otherwise stated)
The general requirement to write off expenditure on research and development as incurred is extended to research and development acquired in a business combination. | ||
(f) | Statements of cash flows | |
There are no material differences on statements of cash flows between US GAAP and IFRS. Under US GAAP, interest received and paid must be classified as an operating activity. Under IFRS, interest received and paid may be classified as an operating, investing, or financing activity. |
F-74
Table of Contents
FINANCIAL INFORMATION OF PARENT COMPANY
BALANCE SHEETS
(In US dollars, except share data)
December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 164,107,042 | $ | 6,042,030 | $ | 33,450,295 | ||||||
Accounts receivable, net | 260,331 | 10,970,690 | — | |||||||||
Amount due from subsidiaries | 203,326,525 | 21,586,283 | 138,701,627 | |||||||||
Prepaid expense and other current assets | 30,767,721 | 12,278,199 | 8,490,138 | |||||||||
Total current assets | 398,461,619 | 50,877,202 | 180,642,060 | |||||||||
Plant and equipment, net | 5,210,772 | 6,723,900 | 5,321,319 | |||||||||
Acquired intangible assets, net | 187,061,939 | 216,281,235 | 71,115,222 | |||||||||
Deferred cost, net | 47,091,516 | 70,637,275 | 94,183,034 | |||||||||
Investment in subsidiaries | 2,553,682,338 | 2,995,391,546 | 2,962,930,960 | |||||||||
Investment in equity affiliate | 9,452,186 | 9,896,398 | 13,619,643 | |||||||||
TOTAL ASSETS | $ | 3,200,960,370 | $ | 3,349,807,556 | $ | 3,327,812,238 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | $ | 20,231,796 | $ | 4,811,093 | $ | — | ||||||
Accrued expenses and other current liabilities | 81,367,429 | 34,021,253 | 46,191,765 | |||||||||
Amount due to subsidiaries | 61,512,045 | 76,762,892 | 84,080,142 | |||||||||
Short-term borrowings | 181,257,773 | 20,000,000 | 31,000,000 | |||||||||
Current portion of promissory note | 29,242,001 | 29,242,000 | 29,242,001 | |||||||||
Current portion of long-term payables relating to license agreements | 44,711,003 | 69,189,413 | 12,690,472 | |||||||||
Income tax payable | 474,983 | 1,149,983 | — | |||||||||
Total current liabilities | 418,797,030 | 235,176,634 | 203,204,380 | |||||||||
F-75
Table of Contents
December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Long-term liabilities: | ||||||||||||
Promissory notes | 23,589,958 | 51,057,163 | 96,861,657 | |||||||||
Long-term payables relating to license agreements | 9,208,881 | 51,054,737 | 16,992,950 | |||||||||
Other long term liabilities | — | — | 3,333,333 | |||||||||
Total long-term liabilities | 32,798,839 | 102,111,900 | 117,187,940 | |||||||||
Total liabilities | $ | 451,595,869 | $ | 337,288,534 | $ | 320,392,320 | ||||||
Stockholders’ equity: | ||||||||||||
Ordinary shares, $0.0004 par value, 50,000,000,000 shares authorized, shares issued and outstanding 22,327,784,827, 18,558,919,712, and 18,432,756,463, respectively | 8,931,114 | 7,423,568 | 7,373,103 | |||||||||
Additional paid-in capital | 3,489,382,267 | 3,313,375,972 | 3,288,765,465 | |||||||||
Accumulated other comprehensive (loss) income | (439,123 | ) | (1,881 | ) | 91,840 | |||||||
Accumulated deficit | (748,509,757 | ) | (308,278,637 | ) | (288,810,490 | ) | ||||||
Total stockholders’ equity | 2,749,364,501 | 3,012,519,022 | 3,007,419,918 | |||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 3,200,960,370 | $ | 3,349,807,556 | $ | 3,327,812,238 | ||||||
F-76
Table of Contents
FINANCIAL INFORMATION OF PARENT COMPANY
STATEMENTS OF OPERATIONS
(In US dollars)
Year ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Revenue | $ | 208,459,285 | $ | 12,363,023 | $ | 81,000 | ||||||
Operating expenses: | ||||||||||||
General and administrative expenses | 48,818,885 | 61,970,384 | 42,208,145 | |||||||||
Amortization of deferred cost and acquired intangible assets | 51,728,389 | 48,049,863 | 47,073,403 | |||||||||
Impairment loss of long-lived assets | 966,667 | |||||||||||
Total operating expenses | 101,513,941 | 110,020,247 | 89,281,548 | |||||||||
Loss from operations | 106,945,344 | (97,657,224 | ) | (89,200,548 | ) | |||||||
Other income (expense): | ||||||||||||
Interest income | 571,870 | 1,267,478 | 1,290,279 | |||||||||
Interest expense | (11,637,266 | ) | (6,029,720 | ) | (12,880,250 | ) | ||||||
Other expense, net | (3,889,327 | ) | (2,610,379 | ) | (20,125,363 | ) | ||||||
Total other expense, net | (14,954,723 | ) | (7,372,621 | ) | (31,715,334 | ) | ||||||
Net income (loss) before income tax | 91,990,621 | (105,029,845 | ) | (120,915,882 | ) | |||||||
Income tax expense | (15,030,257 | ) | (1,149,983 | ) | — | |||||||
Loss from equity investment | (444,211 | ) | (4,012,665 | ) | (4,201,247 | ) | ||||||
Profit (loss) from investment in subsidiaries | (516,747,273 | ) | 90,724,346 | 75,854,065 | ||||||||
Net loss before cumulative effect of a change in accounting principle | (440,231,120 | ) | (19,468,147 | ) | (49,263,064 | ) | ||||||
Cumulative effect of a change in accounting principle | — | — | 5,153,986 | |||||||||
Net loss | $ | (440,231,120 | ) | $ | (19,468,147 | ) | $ | (44,109,078 | ) | |||
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FINANCIAL INFORMATION OF PARENT COMPANY
STATEMENTS OF CASH FLOWS
(In US dollars)
Year ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Operating activities | ||||||||||||
Loss attributable to holders of ordinary shares | $ | (440,231,120 | ) | $ | (19,468,147 | ) | $ | (44,109,078 | ) | |||
Less: Cumulative effect of a change in accounting principle | — | — | (5,153,986 | ) | ||||||||
Net loss | (440,231,120 | ) | (19,468,147 | ) | (49,263,064 | ) | ||||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||||
Loss (profit) from investment in subsidiaries | 516,747,273 | (90,724,346 | ) | (75,854,065 | ) | |||||||
Loss from equity investment | 444,211 | 4,012,665 | 4,201,247 | |||||||||
Depreciation and amortization | 51,733,790 | 48,381,796 | 47,322,544 | |||||||||
Impairment loss of long-lived assets | 966,667 | — | — | |||||||||
Share-based compensation | 11,617,572 | 20,643,341 | 23,506,847 | |||||||||
Non-cash interest expense on promissory note and long-term payable relating to license agreements | 6,208,530 | 4,579,116 | 5,702,607 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable, net | 10,710,359 | (10,970,690 | ) | — | ||||||||
Amount due from subsidiaries | (102,943,505 | ) | 117,115,344 | 552,254,977 | ||||||||
Prepaid expense and other current assets | (18,489,522 | ) | (3,788,061 | ) | 1,151,816 | |||||||
Accounts payable | 1,482,771 | 4,811,093 | — | |||||||||
Amount due to subsidiaries | (15,250,847 | ) | (7,317,250 | ) | 71,206,587 | |||||||
Accrued expenses and other current liabilities | 50,055,886 | (5,397,776 | ) | (11,229,650 | ) | |||||||
Other long term liabilities | — | (3,333,333 | ) | 3,333,333 | ||||||||
Income tax payable | (675,000 | ) | 1,149,983 | — | ||||||||
Dividend received from a subsidiary | 47,000,000 | 315,000,000 | — | |||||||||
Net cash provided by operating activities | 119,377,065 | 374,693,735 | 572,333,179 | |||||||||
Investing activities: | ||||||||||||
Purchase of plant and equipment | (145,071,160 | ) | (1,734,514 | ) | (5,235,928 | ) | ||||||
Proceeds from sell of plant and equipment | 81,720,082 | — | — | |||||||||
Purchases of acquired intangible assets | (75,639,710 | ) | (87,295,157 | ) | (9,573,524 | ) | ||||||
Sale of short-term investments | — | — | 6,352,678 | |||||||||
Investment in subsidiaries | (122,038,065 | ) | (256,736,240 | ) | (426,974,644 | ) | ||||||
Net cash used in investing activities | (261,028,853 | ) | (345,765,911 | ) | (435,431,418 | ) | ||||||
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Year ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Financing activities: | ||||||||||||
Proceeds from short-term borrowing | 418,357,773 | 154,383,000 | 225,003,998 | |||||||||
Repayment of short-term debt | (257,100,000 | ) | (165,383,000 | ) | (369,485,080 | ) | ||||||
Repayment of promissory notes | (30,000,000 | ) | (49,260,000 | ) | (42,740,000 | ) | ||||||
Proceeds from exercise of employee stock options | 796,269 | 4,039,131 | 3,965,308 | |||||||||
Repurchase of restricted ordinary shares | — | (21,500 | ) | (58,190 | ) | |||||||
Proceeds from issuance of ordinary shares | 168,100,000 | — | — | |||||||||
Net cash provided by (used in) financing activities | 300,154,042 | (56,242,369 | ) | (183,313,964 | ) | |||||||
Effect of exchange rate changes | (437,242 | ) | (93,720 | ) | (47,138 | ) | ||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | 158,065,012 | (27,408,265 | ) | (46,459,341 | ) | |||||||
CASH AND CASH EQUIVALENTS, beginning of period | 6,042,030 | 33,450,295 | 79,909,636 | |||||||||
CASH AND CASH EQUIVALENTS, end of period | $ | 164,107,042 | $ | 6,042,030 | $ | 33,450,295 | ||||||
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCIAL ACTIVITIES | ||||||||||||
Inception of accounts payable for plant and equipment | $ | (20,231,796 | ) | $ | (4,811,094 | ) | $ | — | ||||
Inception of long-term payable for acquired intangible assets | $ | (9,208,881 | ) | $ | (51,054,737 | ) | $ | (16,992,950 | ) | |||
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FINANCIAL INFORMATION OF PARENT COMPANY NOTES TO SCHEDULE I
1. | The financial statements of Semiconductor Manufacturing International Corporation (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) except for accounting of the Company’s subsidiaries and certain footnote disclosures as described below. |
2. | Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted. The footnote disclosures contain supplemental information relating to the operations of the Company and, as such, these statements should be read in conjunction with the notes to the Consolidated Financial Statements of the Company. |
3. | As of December 31, 2008, 2007 and 2006, there were no material contingencies, significant provisions of long-term obligations, mandatory dividend or redemption requirements of redeemable stocks or guarantees of the Company, except for those which have been separately disclosed in the Consolidated Financial Statement, if any. |
4. | For the year ended December 31, 2008, $47,000,000 cash dividend was paid to the Company by SMIS. For the year ended December 31, 2007, $315,000,000 cash dividend was paid to the Company by SMIS. For the years ended December 31, 2006, there was no cash dividends paid to the Company by its consolidated subsidiaries. |
F-80
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ASIC | Application Specific Integrated Circuit. A proprietary integrated circuit designed and manufactured to meet a customer’s specific functional requirements. | |
Cell | A primary unit that normally repeats many times in an integrated circuit. Cells represent individual functional design units or circuits that may be reused as blocks in designs. For example, a memory cell represents a storage unit in a memory array. | |
CIS | CMOS Image Sensor. CIS can be used in applications such as still and video cameras and embedded cameras in mobile telephones. It is a fast growing imaging sensor technology. The fabrication of CIS is fully compatible with the mainstream CMOS process, which enables system-on-chip capability, low power consumption and low cost of fabrication. | |
Clean room | Area within a fab in which the wafer fabrication takes place. The classification of a clean room relates to the maximum number of particles of contaminants per cubic foot within that room. For example, a class 100 clean room contains less than 100 particles of contaminants per cubic foot. | |
CMOS | Complementary Metal Oxide Silicon. A fabrication process that incorporates n-channel and p-channel CMOS transistors within the same silicon substrate. Currently, this is the most commonly used integrated circuit fabrication process technology and is one of the latest fabrication techniques to use metal oxide semiconductor transistors. | |
CVD | Chemical Vapor Deposition. A process in which gaseous chemicals react on a heated wafer surface to form solid film. | |
Die | One individual chip cut from a wafer before being packaged. | |
Dielectric material | A type of non-conducting material used for isolation purposes between conductors, such as metals. | |
DRAM | Dynamic Random Access Memory. A device that temporarily stores digital information but requires regular refreshing to ensure data is not lost. | |
DSP | Digital Signal Processor. A type of integrated circuit that processes and manipulates digital information after it has been converted from an analog source. | |
EEPROM | Electrically Erasable Programmable Read-Only Memory. An integrated circuit that can be electrically erased and electrically programmed with user-defined information. | |
EPROM | Erasable Programmable Read-Only Memory. A form of PROM that is programmable electrically yet erasable using ultraviolet light. | |
FCRAM™ | Fast Cycle Random Access Memory. A proprietary form of RAM developed by Fujitsu Limited. | |
Fill factor | The percentage of LCOS metal surface area used for light reflection as compared to the total surface area. The higher the fill factor, the more light will be reflected from a given surface area. | |
Flash memory | A type of non-volatile memory where data is erased in blocks. The name “flash” is derived from the rapid block erase operation. Flash memory requires only one transistor per memory cell versus two transistors per memory cell for EEPROMs, making flash memory less expensive to produce. Flash memory is the most popular form of non-volatile semiconductor memory currently available. | |
Gold Bumping | The fabrication process of forming gold bump termination electrodes on a finished wafer. | |
High voltage semiconductor | High voltage semiconductors are semiconductor devices that can drive relatively high voltage potential to systems that require higher voltage of between five volts to several hundred volts. | |
IDM | Integrated Device Manufacturer. | |
Integrated circuit | An electronic circuit where all the elements of the circuit are integrated together on a single semiconductor substrate. |
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Interconnect | Conductive materials such as aluminum, doped polysilicon or copper that form the wiring circuitry to carry electrical signals to different parts of the chip. | |
I/O | Inputs/Outputs. | |
LCOS | Liquid Crystal On Silicon. A type of micro-display technology. | |
Logic device | A device that contains digital integrated circuits that perform a function rather than store information. | |
Low leakage | Characteristic of a transistor that has a low amount of current leakage. Low leakage allows for power-saving. Low leakage semiconductors are primarily used in applications such as cellular telephones, calculators and automotive applications. | |
Mask | A glass plate with a pattern of transparent and opaque areas used to create patterns on wafers. “Mask” is commonly used to refer to a plate that has a pattern large enough to pattern a whole wafer at one time, as compared to a reticle, where a glass plate can contain the pattern for one or more dies but is not large enough to transfer a wafer-sized pattern all at once. | |
Mask ROM | A type of non-volatile memory that is programmed during fabrication (mask-defined) and the data can be read but not erased. | |
Memory | A device that can store information for later retrieval. | |
Micro-display | A small display that is of such high resolution that it is only practically viewed or projected with lenses or mirrors. A micro-display is typically magnified by optics to enlarge the image viewed by the user. For example, a miniature display smaller than one inch in size may be magnified to provide a 12-inch to 60-inch viewing area. | |
Micron | A term for micrometer, which is a unit of linear measure that equals one one-millionth (1/1,000,000) of a meter. There are 25.4 microns in one one-thousandth of an inch. | |
Mixed-signal | The combination of analog and digital circuitry in a single semiconductor. | |
MOS | Metal Oxide Semiconductor. A type of semiconductor device fabricated with a conducting layer and a semiconducting layer separated by an insulating layer. | |
NAND Flash | A type of flash memory commonly used for mass storage applications such as MP3 players and digital cameras. | |
Nanometer | A term for micrometer, which is a unit of linear measure that equals one thousandth (1/1,000) of a micron. | |
Non-volatile memory | Memory products that maintain their content when the power supply is switched off. | |
OTP | One-time programmable memory used for program and data storage, usually used in applications that require only a one-time data change. | |
PROM | Programmable Read-Only Memory. Memory that can be reprogrammed once after manufacturing. | |
RAM | Random Access Memory. Memory devices where any memory cell in a large memory array may be accessed in any order at random. | |
Redistribution Layer Manufacturing | The manufacturing process of fabricating additional dielectric and copper interconnect layers to redistribute the pads to new locations on a finished wafer. | |
Reticle | See “Mask” above. | |
RF | Radio Frequency. Radio frequency semiconductors are primarily used in communications devices such as cell phones. | |
ROM | Read-Only Memory. See “Mask ROM” above. | |
Scanner | An aligner that scans light through a slit across a mask to produce an image on a wafer. |
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Semiconductor | An element with an electrical resistivity within the range of an insulator and a conductor. A semiconductor can conduct or block the flow of electric current depending on the direction and magnitude of applied electrical biases. | |
Solder bumping | The fabrication processes of forming solder bump termination electrodes, which are elevated metal structures, or lead free bump termination electrodes. | |
SRAM | Static Random Access Memory. A type of volatile memory product that is used in electronic systems to store data and program instructions. Unlike the more common DRAM, it does not need to be refreshed. | |
Stepper | A machine used in the photolithography process in making wafers. With a stepper, a small portion of the wafer is aligned with the mask upon which the circuitry design is laid out and is then exposed to strong light. The machine then “steps” to the next area, repeating the process until the entire wafer has been done. Exposing only a small area of a wafer at a time allows the light to be focused more strongly, which gives better resolution of the circuitry design. | |
System-on-chip | A chip that incorporates functions usually performed by several different devices and therefore generally offers better performance and lower cost. | |
Systems companies | Companies that design and manufacture complete end market products or systems for sale to the market. | |
Transistor | An individual circuit that can amplify or switch electric current. This is the building block of all integrated circuits. | |
Volatile memory | Memory products that lose their content when the power supply is switched off. | |
Wafer | A thin, round, flat piece of silicon that is the base of most integrated circuits. |
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Exhibit 1.1 | Eleventh Amended and Restated Articles of Association, as adopted at the Registrant’s annual general meeting of shareholders on June 2, 2008(1) | |
Exhibit 4.1 | Settlement Agreement dated January 31, 2005 by and between Semiconductor Manufacturing International Corporation and Taiwan Semiconductor Manufacturing Corporation, Ltd., including Patent License Agreement(2) | |
Exhibit 4.2 | English language summary of Chinese language Syndicate Loan Agreement dated May 26, 2005, between Semiconductor Manufacturing International (Beijing) Corporation, Semiconductor Manufacturing International Corporation, as guarantor, and China Development Bank, China Construction Bank, Bank of China, Agricultural Bank of China, China Merchants Bank, HuaXia Bank, China Mingsheng Bank, Bank of Communications, Bank of Beijing, Industrial and Commercial Bank of China (Asia) and CITIC Ka Wah Bank(2) | |
Exhibit 4.3 | Form of Indemnification Agreement, as adopted at the Registrant’s annual general meeting of shareholders on May 6, 2005(2) | |
Exhibit 4.4 | Form of Service Contract between the Company and each of its executive officers | |
Exhibit 4.5 | Form of Service Contract between the Company and each of its directors | |
Exhibit 4.6 | English language summary of Chinese language Syndicate Loan Agreement dated May 31, 2006, between Semiconductor Manufacturing International (Tianjin) Corporation, Semiconductor Manufacturing International Corporation, as guarantor, and China Construction Bank, China Minsheng Bank, China Development Bank, Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Merchants Bank, China Bo Hai Bank, Bank of Communications and Bangkok Bank(3) | |
Exhibit 4.7 | English language summary of Chinese language Syndicate Loan Agreement dated June 8, 2006, between Semiconductor Manufacturing International (Shanghai) Corporation, Semiconductor Manufacturing International Corporation, as guarantor, and ABN AMRO Bank N.V., Bank of China (Hong Kong) Limited, Bank of Communications, The Bank of Tokyo-Mitsubishi UFJ, Ltd., China Construction Bank, DBS Bank Ltd., Fubon Bank (Hong Kong) Limited, Industrial and Commercial Bank of China and Shanghai Pudong Development Bank(3) | |
Exhibit 4.8 | Share Purchase Agreement, dated November 6, 2008, by and between the Company and Datang Telecom Technology & Industry Holdings Limited Co., Ltd.(4) | |
Exhibit 4.9 | English language translation of Strategic Cooperation Agreement, dated December 24, 2008 by and between the Company and Datang Telecom Technology & Industry Holdings Co., Ltd.(5) | |
Exhibit 8.1 | List of Subsidiaries | |
Exhibit 12.1 | Certification of CEO under Section 302 of the U.S. Sarbanes-Oxley Act of 2002 | |
Exhibit 12.2 | Certification of Acting CFO under Section 302 of the U.S. Sarbanes-Oxley Act of 2002 | |
Exhibit 13.1 | Certification of CEO and Acting CFO under Section 906 of the U.S. Sarbanes-Oxley Act of 2002 | |
Exhibit 99.1 | Consent of Deloitte Touche Tohmatsu |
(1) | Previously filed as an exhibit to the Registrant’s Annual Report on Form 20F for the fiscal year ended December 31, 2007, filed June 27, 2008 and amended November 28, 2008. | |
(2) | Previously filed as an exhibit to the Registrant’s Annual Report on Form 20F for the fiscal year ended December 31, 2004, filed June 28, 2005. With respect to Exhibit 4.1, please refer to Item 8 “Litigation” in the Registrant’s Annual Report on Form 20F for the fiscal year ended December 31, 2008. | |
(3) | Previously filed as an exhibit to the Registrant’s Annual Report on Form 20F for the fiscal year ended December 31, 2005, filed June 28, 2006. | |
(4) | Previously filed as an exhibit to the Registrant’s Form 6-K dated November 17, 2008. Portions of this exhibit were omitted and filed separately with the Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, concerning confidential treatment. | |
(5) | Previously filed as an exhibit to the Registrant’s Form 6-K dated January 5, 2009. Portions of this exhibit were omitted and filed separately with the Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, concerning confidential treatment. |