e8vkza
 
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): November 1, 2010
UNIVERSAL ELECTRONICS INC.
(Exact name of Registrant as specified in its charter)
         
Delaware
(State or other jurisdiction
of incorporation or organization)
  0-21044
(Commission File No.)
  33-0204817
(I.R.S. Employer
Identification No.)
6101 Gateway Drive
Cypress, California 90630
(Address of principal executive offices, with Zip Code)
(714) 820-1000
(Registrant’s telephone number, including area code):
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o   Written communications pursuant to Rule 425 under the Securities Act
o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act
o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
 
 

 


 

Item 9.01   Financial Statements and Exhibits
EXPLANATORY NOTE: On November 4, 2010, Universal Electronics Inc. filed a Current Report on Form 8-K (the “Current Report”) under Items 1.01, 2.01, 3.02 and 9.01 to report the completion of its acquisition of Enson Assets Limited (“Enson”). The purpose of this Amendment to the Current Report is to amend and restate Item 9.01 in its entirety and to file the financial statements and pro forma information required by Item 9.01 or Form 8-K. This Form 8-K/A does not amend any other Items of the Form 8-K as originally filed.
(a) Financial Statements of Businesses Acquired
The historical unaudited condensed consolidated financial statements of Enson as of and for the six months ended September 30, 2010 and 2009, as well as the historical audited consolidated financial statements of Enson as of and for the years ended March 31, 2010, 2009 and 2008, and the related notes, are filed as Exhibit 99.1 and are incorporated herein by reference.
(b) Pro Forma Financial Information
Unaudited pro forma combined condensed financial statements of Universal Electronics Inc. and Enson as of and for the nine months ended September 30, 2010, and unaudited pro forma combined condensed financial statements of Universal Electronics Inc. and Enson for the year ended December 31, 2009, and the related notes, with respect to the transaction referred to above are filed as Exhibit 99.2 and are incorporated herein by reference.
(c) Exhibits. The following exhibits are furnished with this report.
         
  23.1    
Consent of Deloitte Touche Tohmatsu, Independent Auditors.
  99.1    
Historical unaudited condensed consolidated financial statements of Enson Assets Limited as of and for the six months ended September 30, 2010 and 2009, as well as historical audited consolidated financial statements of Enson Assets Limited as of and for the years ended March 31, 2010, 2009 and 2008.
  99.2    
Unaudited pro forma combined condensed financial statements of Universal Electronics Inc. and Enson Assets Limited as of and for the nine months ended September 30, 2010, and unaudited pro forma combined condensed financial statements of Universal Electronics Inc. and Enson Assets Limited for the year ended December 31, 2009.

 


 

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  Universal Electronics Inc.
 
 
Date: January 18, 2011  By:   /s/ Bryan Hackworth    
    Bryan Hackworth   
    Chief Financial Officer (Principal Accounting Officer)   
 

 

exv23w1
Exhibit 23.1
     
(LOGO)   (CHINES CHARACTER AND TEXT MATTER)
Independent Auditors’ Consent
We consent to the incorporation by reference in Registration Statements Nos. No. 33-66426, No. 333-09021, No. 333-23985, No. 333-91101, No. 333-95715, No. 333-47378, No. 333-103038, No. 333-117782, No. 333-149926 of Universal Electronics Inc. on Form S-8 of our report dated 18 January 2011, relating to the consolidated financial statements of Enson Assets Limited and its subsidiaries as of 31 March 2008, 2009 and 2010 and the years then ended appearing in this Current Report on Form 8-K/A of Universal Electronics Inc..
DELOITTE TOUCHE TOHMATSU
Deloitte Touche Tohmatsu
Hong Kong
18 January 2011
(LOGO)

exv99w1
Exhibit 99.1
ENSON ASSETS LIMITED
INDEX
         
    Page
Unaudited Condensed Consolidated Statements of Comprehensive Income
    1  
Unaudited Condensed Consolidated Statements of Financial Position
    2  
Unaudited Condensed Consolidated Statements of Changes in Equity
    3  
Unaudited Condensed Consolidated Statements of Cash Flows
    4  
Notes to the Unaudited Condensed Consolidated Financial Statements
    5  

 


 

ENSON ASSETS LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2009 AND 2010 (UNAUDITED)
 
                 
    Six Months Ended September 30,  
    2009     2010  
    HK$'000     HK$'000  
Revenues
    603,973       792,404  
Cost of revenues
    (468,873 )     (592,241 )
 
           
Gross profit
    135,100       200,163  
Investment income
    185       711  
Other income
    4,714       1,954  
Administrative expenses
    (29,095 )     (31,101 )
Distribution expenses
    (10,509 )     (13,239 )
Research and development costs
    (6,093 )     (10,438 )
Other expenses
    (201 )     (213 )
Other gains and losses
    352       (694 )
Finance costs — interest on bank borrowings wholly repayable within five years
    (263 )     (323 )
 
           
Profit before tax
    94,190       146,820  
Taxation expense
    (15,930 )     (30,264 )
 
           
Profit for the period and attributable to the owners of the Company
    78,260       116,556  
 
           
Other comprehensive income
               
Exchange difference arising on translation of foreign operations
    139       3,199  
 
           
Total comprehensive income for the period and attributable to the owners of the Company
    78,399       119,755  
 
           

1


 

ENSON ASSETS LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AT MARCH 31, 2010 AND SEPTEMBER 30, 2010 (UNAUDITED)
 
                 
    March 31,     September 30,  
    2010     2010  
    HK$'000     HK$'000  
Non-current assets
               
Property, plant and equipment
    343,885       337,807  
Buildings under construction
          7,548  
Prepaid lease payments
    3,894       3,911  
Club debenture
    885       885  
Deposit on property, plant and equipment acquisition
    1,840       3,218  
Deferred tax assets
    22,034       21,847  
 
           
 
    372,538       375,216  
 
           
Current assets
               
Inventories
    149,995       181,275  
Trade receivables, deposits and prepayments
    205,798       314,538  
Prepaid lease payments
    82       90  
Loan to a related company
    93,166        
Amounts due from related companies
    433        
Amount due from holding company
    52       9,984  
Derivative financial instruments
    1,101       495  
Cash and cash equivalents
    183,682       185,573  
 
           
 
    634,309       691,955  
 
           
Current liabilities
               
Trade creditors and accrued charges
    343,971       380,403  
Bills payable
    17,341       21,529  
Amount due to a director
    1,804        
Amount due to a related company
    6,119       10,104  
Derivative financial instruments
    633       125  
Bank borrowings — due within one year
    16,421       12,316  
Tax payable
    29,396       44,499  
 
           
 
    415,685       468,976  
 
           
Net current assets
    218,624       222,979  
 
           
Total assets less current liabilities
    591,162       598,195  
 
           
Non-current liability
               
Deferred tax liabilities
    7,442       14,687  
 
           
Net assets
    583,720       583,508  
 
           
Capital and reserves
               
Share capital
    470       470  
Reserves
    583,250       583,038  
 
           
Equity attributable to equity holders of the Company
    583,720       583,508  
 
           

2


 

ENSON ASSETS LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2009 AND 2010 (UNAUDITED)
 
                                                 
    Share     Share     Statutory     Translation     Accumulated        
    capital     premium     reserve     reserve     profits     Total  
    HK$'000     HK$'000     HK$'000     HK$'000     HK$'000     HK$  
Balance at April 1, 2009
    470       81,747       15,388       (4,004 )     337,107       430,708  
Profit for the period
                            78,260       78,260  
Exchange differences arising on translation of foreign operations
                      139             139  
 
                                   
Total comprehensive income for the period
                      139       78,260       78,399  
 
                                   
Balance at September 30, 2009
    470       81,747       15,388       (3,865 )     415,367       509,107  
 
                                   
Balance at April 1, 2010
    470       81,747       23,383       (3,727 )     481,847       583,720  
 
                                   
Profit for the period
                            116,556       116,556  
Exchange differences arising on translation of foreign operations
                      3,199             3,199  
 
                                   
Total comprehensive income for the period
                      3,199       116,556       119,755  
 
                                   
Dividends paid
                            (119,967 )     (119,967 )
 
                                   
Balance at September 30, 2010
    470       81,747       23,383       (528 )     478,436       583,508  
 
                                   

3


 

ENSON ASSETS LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2009 AND 2010 (UNAUDITED)
 
                 
    Six Months Ended  
    September 30,  
    2009     2010  
    HK$'000     HK$'000  
Cash provided by operating activities:
               
Net cash from operating activities
    74,011       65,560  
 
           
Cash used for investing activities:
               
Repayment from related company
    1,500       93,166  
Purchase of property, plant and equipment
    (9,662 )     (14,870 )
Advance to holding company
          (9,932 )
Payment of building under construction
    (1,939 )     (7,548 )
Other investing cash flows
    2,485       (155 )
 
           
Net cash (used for) from investing activities
    (7,616 )     60,661  
 
           
Cash used for financing activities:
               
Dividends paid
          (119,967 )
Repayment of bank loans
    (4,106 )     (4,105 )
Repayment to a director
          (1,804 )
 
           
Net cash used for financing activities
    (4,106 )     (125,876 )
 
           
Effect of exchange rate changes on cash
    15       1,546  
 
           
Net increase in cash and cash equivalents
    62,304       1,891  
Cash and cash equivalents at beginning of period
    110,504       183,682  
 
           
Cash and cash equivalents at end of period
    172,808       185,573  
 
           

4


 

ENSON ASSETS LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with International Accounting Standards (“IAS”) 34 “Interim Financial Reporting” issued by the International Accounting Standards Board (“IASB”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting only of normal recurring adjustments which are necessary for a fair presentation of financial results of such periods. As used herein, the terms “Group,” “we,” “us” and “our” refer to Enson Assets Limited and its subsidiaries, unless the context indicates to the contrary.
Purpose of consolidated financial statements
These unaudited condensed consolidated financial statements have been prepared for the special purpose of filing with the United States Securities and Exchange Commission in compliance with Rule 3-05 of Regulation S-X and Form 8-K under the Securities Exchange Act of 1934. This filing requirement is based on the Company being a significant business acquired by Universal Electronics Inc. (“UEI”).
2. Principal Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared on the historical cost basis, except for certain financial instruments, which are measured at fair values.
The accounting policies used in the unaudited condensed consolidated financial statements are consistent with those followed on the Company’s annual consolidated financial statements for the years ended March 31, 2008, 2009 and 2010, except for the adoption of new and revised International Financial Reporting Standards (“IFRS”) issued by the IASB which are effective for the Group for accounting periods beginning on or after April 1, 2010. The adoption of the new and revised IFRS had no material impact on the Group’s results and financial position for the current or prior periods.
The Group has not early applied new and revised standards, amendments or interpretations that have been issued but are not yet effective. The directors of the Company anticipate that, except for IFRS 9 Financial Instruments, the application of other new and revised standards, amendments or interpretations will have no material impact on the results and the financial position of the Group.
IFRS 9 Financial Instruments introduces new requirements for the classification and measurement of financial assets and will be effective from 1 January 2013, with earlier application permitted. The standard requires all recognised financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement to be measured at either amortised cost or fair value. Specifically, debt investments that (i) are held within a business model whose objective is to collect the contractual cash flows and (ii) have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost. All other debt investments and equity investments are measured at fair value. The application of IFRS 9 might affect the classification and measurement of the Group’s financial assets.

5


 

3. Profit before tax
Profit before tax has been arrived at after charging (crediting):
                 
    Six Months Ended  
    September 30,  
    2009     2010  
    HK$'000     HK$'000  
Allowance for inventories
          412  
Depreciation
    24,844       26,220  
Amortisation of prepaid lease payments
    13       46  
 
           
Total depreciation and amortisation
    24,857       26,266  
 
           
4. Taxation expense
The Group utilises the estimated annual effective tax rate to determine the provision for income taxes for interim periods. The income tax provision is computed by taking the estimated annual effective tax rate and multiplying it by the year-to-date pre-tax book income. The Group recorded income tax expense of approximately HK$15.9 million and HK$30.3 million for the six months ended September 30, 2009 and 2010, respectively. The effective tax rate was 16.9% and 20.6% during the six months ended September 30, 2009 and 2010, respectively.
5. Dividend
In June 2010, the Group paid a cash dividend in the amount of approximately HK$120.0 million to the shareholders.
6. Movements in Property, Plant and Equipment and Buildings under Construction
During the period, the Group spent approximately HK$11.6 million and HK$22.4 million for the six months ended September 30, 2009 and 2010, respectively on acquisition of property, plant and equipment and buildings under construction.
7. Inventories
                 
    March 31,     September 30,  
    2010     2010  
    HK$'000     HK$'000  
Raw materials
    85,019       99,680  
Work in process
    34,042       33,920  
Finished goods
    30,934       47,675  
 
           
Inventories, net
    149,995       181,275  
 
           

6


 

8. Trade Receivables, Deposits and Prepayments
Trade receivables, deposits and prepayments consisted of the following on March 31, 2010 and September 30, 2010:
                 
    March 31,     September 30,  
    2010     2010  
    HK$'000     HK$'000  
Trade receivables
  $ 197,026       300,242  
Less: Allowance for bad and doubtful debts
    (1,496 )     (1,500 )
 
           
Total Trade receivables
    195,530       298,742  
Other receivables, deposits and prepayments
    10,268       15,796  
 
           
Trade receivables, deposits and prepayments
    205,798       314,538  
 
           
9. Loan to a Related Party
The loan to a related party at March 31, 2010 represents the loan to New Reward Limited denominated in United States dollars (“USD”). The loan was neither past due nor impaired, and no history of default was noted. The loan was unsecured, bore interest at Hong Kong Interbank Offered Rate (“HIBOR”) plus 1.75% per annum and was fully payable by January 6, 2011. The loan was fully paid on June 2010. New Reward Limited was related to the Group, as a director of the Company was also a director of and has beneficial interest in this company as at March 31, 2010.
10. Amounts Due from Related Companies
                 
    March 31,     September 30,  
    2010     2010  
    HK$'000     HK$'000  
Name of company
               
Gemstar Asia Limited
    24        
New Reward Limited
    409        
 
           
 
    433        
 
           
The amounts due from related parties are unsecured, interest free and repayable on demand and mainly represent interest receivable for loan to a related company. These companies are related to the Group as certain directors of the Company are also directors of and have beneficial interests in these companies.
11. Trade Creditors and Accrued Charges
                 
    March 31,     September 30,  
    2010     2010  
    HK$'000     HK$'000  
Trade payables
    132,606       152,433  
Accrual for social security contribution
    116,458       125,245  
Accrual for long service payment
    23,295       21,281  
Accrual charges
    55,560       65,527  
Receipt in advance
    16,052       15,917  
 
           
Total trade creditors and accrued charges
    343,971       380,403  
 
           
12. Amount Due to a Director
The amount due to a director was unsecured, interest free and repayable on demand. The amount has been fully repaid in May 2010.

7


 

13. Amount Due to a Related Party
The amount due to a related party at March 31, 2010 and September 30, 2010 represent amount due to Hangzhou Youcheng Electron Co., Ltd. for purchases made from this company. The amount is unsecured and interest free. A director of the Company has beneficial interest in this company.
14. Derivatives Financial Instruments
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
  Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets or liabilities.
  Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
  Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The Group’s financial assets at FVTPL and financial liabilities at FVTPL consist of foreign currency forward contracts and are categorized into Level 2. There has been no transfer between Level 1 and Level 2 of the financial instruments at FVTPL throughout the six months ended September 30, 2009 and 2010 and the details are as follows:
                     
        March 31,   September 30,
Description   Category   2010   2010
        HK$'000   HK$'000
Financial assets at FVTPL
                   
Foreign currency forward contracts
  Level 2     1,101       495  
Financial liabilities at FVTPL
                   
Foreign currency forward contracts
  Level 2     633       125  
15. Capital Commitments
                 
    March 31,     September 30,  
    2010     2010  
    HK$'000     HK$'000  
Contracted for but not provided in the consolidated financial statements in respect of acquisition of property, plant and equipment
    8,173       66,446  
Authorised but not contracted for in the consolidated financial statements in respect of acquisition of property, plant and equipment
    19,927       383,936  
 
           
Total capital commitments
    28,100       450,382  
 
           

8


 

16. Operating Lease Commitments
At the end of the reporting period, the Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:
                 
    March 31,     September 30,  
    2010     2010  
    HK$'000     HK$'000  
Within one year
    622       229  
 
           
Operating lease payments represented rentals payable by the Group for certain of its office properties. Leases negotiated for one to two years and rental was fixed during the lease term.

9


 

17. Related Party Transactions
Same as disclosed elsewhere, the Group also entered into the following significant transactions with related companies during the six months ended September 30, 2009 and 2010:
                         
            Six months ended
            September 30,
Name of related company   Note   Nature of transactions   2009   2010
            HK$'000   HK$'000
Hangzhou Youcheng Electron Co. Ltd.
  (i)   Purchases     20,773       27,211  
New Reward Limited
  (i)   Interest income           298  
Guangzhou Newshengtong Technology Co., Ltd.
  (i)   Software maintenance     7       7  
 
      expenses                
 
Note:
 
(i)   Certain directors of the Company are also directors of and have beneficial interests in these companies.
At March 31, 2010 and September 30, 2010, a director of the Company has provided personal guarantee of HK$109,500,000 and HK$109,500,000, respectively to banks in respect of general facilities granted to a subsidiary. Such personal guarantee has been reduced to approximately HK$100,500,000 at the date of this report.
Compensation of key management personnel
The remuneration of key management members of the Group during the six months ended September 30, 2009 and 2010 was as follows:
                 
    2009     2010  
    HK$'000     HK$'000  
Short-term benefits
    1,027       1,459  
 
           
The remuneration of executives is determined by the directors of the Company having regard to the performance of individuals and market trends.
18. Events After The Reporting Period
The unaudited condensed consolidated financial statements were approved and authorised for issuance by the board of directors on January 18, 2011. The following events occurred subsequent to September 30, 2010:
On November 3, 2010, CG International Holdings Limited entered into an agreement with UEI Hong Kong Private Limited, a wholly owned subsidiary of UEI, to dispose of its entire 100% interest in the Company to UEI Hong Kong Private Limited, for a total consideration of approximately US$125.8 million, to be satisfied in cash and UEI’s common stock. The transaction was consummated as of November 3, 2010.

10


 

ENSON ASSETS LIMITED
(Incorporated in the British Virgin Islands with
limited liability)
Report and Consolidated Financial Statements
For the years ended 31 March, 2008, 2009 and 2010

 


 

ENSON ASSETS LIMITED
REPORT AND CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED 31 MARCH, 2008, 2009 AND 2010
 
         
CONTENTS   PAGE(S)
INDEPENDENT AUDITOR’S REPORT
    1  
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
    2  
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
    3  
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
    4  
CONSOLIDATED STATEMENTS OF CASH FLOWS
    5  
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    6 - 43  

 


 

INDEPENDENT AUDITOR’S REPORT
TO THE DIRECTORS OF ENSON ASSETS LIMITED
 
(Incorporated in the British Virgin Islands with limited liability)
We have audited the accompanying consolidated statements of financial position of Enson Assets Limited (the “Company”) and its subsidiaries (the “Group”) as of 31 March 2008, 2009 and 2010, and the related consolidated statements of comprehensive income, changes in equity, and cash flows for the years then ended, all expressed in Hong Kong dollars. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31 March 2008, 2009, and 2010, and the results of their operations and their cash flows for the years then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong, 18 January 2011

- 1 -


 

ENSON ASSETS LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED 31 MARCH, 2008, 2009 AND 2010
 
                                 
    NOTES     2008     2009     2010  
            HK$     HK$     HK$  
Revenues
    5       1,036,670,252       1,037,699,713       1,164,233,090  
Cost of revenues
            (845,566,646 )     (895,902,559 )     (899,188,232 )
 
                         
Gross profit
            191,103,606       141,797,154       265,044,858  
Investment income
    6       1,750,673       1,424,227       951,166  
Other income
    7       7,362,398       17,061,301       24,845,894  
Administrative expenses
            (49,766,230 )     (59,641,627 )     (63,195,210 )
Distribution expenses
            (25,302,234 )     (20,853,933 )     (22,170,008 )
Research and development costs
    9       (14,480,741 )     (15,249,844 )     (16,363,469 )
Other expenses
            (11,286,200 )     (2,130,820 )     (402,724 )
Other gains and losses
    8       16,181,770       5,523,003       1,558,946  
Finance costs — interest on bank borrowings wholly repayable within five years
            (4,256,898 )     (2,220,682 )     (539,221 )
Loss on disposal of interest in a subsidiary
            (445,652 )            
 
                         
Profit before tax
    9       110,860,492       65,708,779       189,730,232  
Taxation expense
    10       (18,023,552 )     (6,894,275 )     (36,994,448 )
 
                         
Profit for the year and attributable to the owners of the Company
            92,836,940       58,814,504       152,735,784  
 
                         
Other comprehensive income
                               
Exchange difference arising on translation of foreign operations
            (1,910,050 )     (1,108,215 )     276,828  
Exchange difference realised upon disposal of interest in a subsidiary
            (247,473 )            
 
                         
 
            (2,157,523 )     (1,108,215 )     276,828  
 
                         
Total comprehensive income for the year and attributable to the owners of the Company
            90,679,417       57,706,289       153,012,612  
 
                         

- 2 -


 

ENSON ASSETS LIMITED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS AT 31 MARCH 2008, 2009 AND 2010
 
                                 
    NOTES     2008     2009     2010  
            HK$     HK$     HK$  
Non-current assets
                               
Property, plant and equipment
    11       317,905,419       338,423,031       343,884,984  
Buildings under construction
    12       2,295,981       9,041,951        
Prepaid lease payments
    13       998,583       1,241,414       3,894,186  
Club debenture
    14       885,000       885,000       885,000  
Deposit on property, plant and equipment acquisition
            8,213,516       3,001,209       1,839,729  
Deferred tax assets
    15       22,991,974       27,947,036       22,034,495  
 
                         
 
            353,290,473       380,539,641       372,538,394  
 
                         
Current assets
                               
Inventories
    16       127,880,885       85,698,647       149,995,066  
Trade receivables, deposits and prepayments
    17       171,828,798       162,125,376       205,797,409  
Prepaid lease payments
    13       19,416       26,780       81,460  
Loan to a related company
    18                   93,165,600  
Amounts due from related companies
    19       1,547,382       1,550,631       433,315  
Amount due from holding company
    33                   52,332  
Derivative financial instruments
    20       3,667,863       1,529,352       1,101,342  
Short-term bank deposits
    21       46,465,467       58,128,750       17,060,965  
Bank balances and cash
    21       55,870,626       52,375,747       166,621,468  
 
                         
 
            407,280,437       361,435,283       634,308,957  
 
                         
Current liabilities
                               
Trade creditors and accrued charges
    22       259,375,489       260,104,761       343,970,695  
Bills payable
    22       10,059,279       5,573,562       17,340,339  
Amount due to a director
    23                   1,804,400  
Amount due to a related company
    24             3,991,423       6,119,448  
Derivative financial instruments
    20       3,167,855       1,074,946       633,277  
Bank borrowings — due within one year
    25       92,042,105       24,631,579       16,421,053  
Tax payable
            15,471,585       7,967,767       29,395,641  
 
                         
 
            380,116,313       303,344,038       415,684,853  
 
                         
Net current assets
            27,164,124       58,091,245       218,624,104  
 
                         
Total assets less current liabilities
            380,454,597       438,630,886       591,162,498  
 
                         
Non-current liability
                               
Deferred tax liabilities
    15       7,453,000       7,923,000       7,442,000  
 
                         
Net assets
            373,001,597       430,707,886       583,720,498  
 
                         
Capital and reserves
                               
Share capital
    26       469,755       469,755       469,755  
Reserves
            372,531,842       430,238,131       583,250,743  
 
                         
Equity attributable to equity holders of the Company
            373,001,597       430,707,886       583,720,498  
 
                         

- 3 -


 

ENSON ASSETS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED 31 MARCH, 2008, 2009 AND 2010
 
                                                 
    Share     Share     Statutory     Translation     Accumulated        
    capital     premium     reserve     reserve     profits     Total  
    HK$     HK$     HK$     HK$     HK$     HK$  
Balance at 1 April 2007
    469,755       81,746,638       6,656,268       (738,442 )     194,187,961       282,322,180  
Profit for the year
                            92,836,940       92,836,940  
Exchange differences arising on translation of foreign operations
                      (1,910,050 )           (1,910,050 )
Realised upon disposal of interest in a subsidiary
                      (247,473 )           (247,473 )
 
                                   
Total comprehensive income for the year
                      (2,157,523 )     92,836,940       90,679,417  
 
                                   
Transfer
                3,816,211             (3,816,211 )      
 
                                   
Balance at 31 March 2008 and 1 April 2008
    469,755       81,746,638       10,472,479       (2,895,965 )     283,208,690       373,001,597  
 
                                   
Profit for the year
                            58,814,504       58,814,504  
Exchange differences arising on translation of foreign operations
                      (1,108,215 )           (1,108,215 )
 
                                   
Total comprehensive income for the year
                      (1,108,215 )     58,814,504       57,706,289  
 
                                   
Transfer
                4,915,606             (4,915,606 )      
 
                                   
Balance at 31 March 2009 and 1 April 2009
    469,755       81,746,638       15,388,085       (4,004,180 )     337,107,588       430,707,886  
 
                                   
Profit for the year
                            152,735,784       152,735,784  
Exchange differences arising on translation of foreign operations
                      276,828             276,828  
 
                                   
Total comprehensive income for the year
                      276,828       152,735,784       153,012,612  
 
                                   
Transfer
                7,995,655             (7,995,655 )      
 
                                   
Balance at 31 March 2010
    469,755       81,746,638       23,383,740       (3,727,352 )     481,847,717       583,720,498  
 
                                   
Statutory reserve which consists of appropriations from the profit after taxation of the subsidiaries established in People’s Republic of China (the “PRC”), forms part of shareholders’ equity of the PRC subsidiaries. In accordance with the PRC Company Law and the Articles of Association of the PRC subsidiaries, these PRC subsidiaries are required to appropriate an amount equal to a minimum of 10% of their profits after taxation each year to a statutory reserve.

- 4 -


 

ENSON ASSETS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED 31 MARCH, 2008, 2009 AND 2010
 
                                 
    NOTE     2008     2009     2010  
            HK$     HK$     HK$  
OPERATING ACTIVITIES
                               
Profit before tax
            110,860,492       65,708,779       189,730,232  
Adjustments for:
                               
Depreciation
            33,809,283       46,902,341       50,385,472  
Allowance for inventories
            11,072,802       7,214,932       2,522,564  
Allowance for bad and doubtful debts
            10,704,550       1,635,410        
Unrealised exchange gain
            (8,008,195 )     (667,867 )     (152,745 )
Interest on bank borrowings wholly repayable within five years
            4,256,898       2,220,682       539,221  
Loss on disposal of interest in a subsidiary
            445,652              
Amortisation of prepaid lease payments
            20,042       22,161       26,293  
Investment income
            (1,750,673 )     (1,424,227 )     (951,166 )
Gain on disposal of property, plant and equipment
            (72,554 )     (66,427 )     (460,078 )
 
                         
Operating cash flows before movements in working capital
            161,338,297       121,545,784       241,639,793  
(Increase) decrease in inventories
            (52,957,240 )     37,536,823       (66,570,363 )
(Increase) decrease in trade receivables, deposits and prepayments
            (52,413,845 )     7,841,280       (43,645,298 )
Decrease in bills receivable
            1,074,326              
(Increase) decrease in derivative financial instrument assets
            (3,667,863 )     2,138,511       428,010  
Increase (decrease) in trade creditors and accrued charges
            78,603,760       (10,104,900 )     83,038,018  
Increase (decrease) in bills payable
            3,883,510       (4,485,717 )     11,766,777  
Increase in amount due to a related company
                  3,991,423       2,115,313  
Increase (decrease) in derivative financial instruments liabilities
            3,167,855       (2,092,909 )     (441,669 )
 
                         
Cash generated from operations
            139,028,800       156,370,295       228,330,581  
Income taxes paid
            (10,620,550 )     (18,584,530 )     (10,077,207 )
Interest paid
            (4,256,898 )     (2,220,682 )     (539,221 )
 
                         
NET CASH FROM OPERATING ACTIVITIES
            124,151,352       135,565,083       217,714,153  
 
                         
INVESTING ACTIVITIES
                               
Loan advance to a related company
                        (93,165,600 )
Purchase of property, plant and equipment
            (81,049,035 )     (49,801,460 )     (31,755,814 )
Payment of buildings under construction
            (38,959,978 )     (10,346,884 )     (11,309,687 )
Payment of prepaid lease payments
                  (249,433 )     (2,729,754 )
Payment of deposit paid for property, plant and equipment acquisition
            (8,213,516 )     (3,001,209 )     (1,839,729 )
Interest received
            1,750,673       1,424,227       951,166  
Proceeds from disposal of property, plant and equipment
            921,793       82,765       555,817  
Disposal of interest in a subsidiary
    29       (2,130,864 )     734,000        
Repayment from (advance to) related companies
            215,187       (3,249 )     1,117,316  
 
                         
NET CASH USED IN INVESTING ACTIVITIES
            (127,465,740 )     (61,161,243 )     (138,176,285 )
 
                         
FINANCING ACTIVITIES
                               
Repayment of bank loans
            (12,957,895 )     (67,410,526 )     (8,210,526 )
Advance from a director
                        1,804,400  
New bank loan raised
            60,000,000              
 
                         
NET CASH FROM (USED IN) FINANCING ACTIVITIES
            47,042,105       (67,410,526 )     (6,406,126 )
 
                         
NET INCREASE IN CASH AND CASH EQUIVALENTS
            43,727,717       6,993,314       73,131,742  
CASH AND CASH EQUIVALENTS AT 1ST APRIL
            57,044,784       102,336,093       110,504,497  
EFFECT OF FOREIGN EXCHANGE RATE CHANGES
            1,563,592       1,175,090       46,194  
 
                         
CASH AND CASH EQUIVALENTS AT 31ST MARCH
            102,336,093       110,504,497       183,682,433  
 
                         
ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS
                               
Short term bank deposits
            46,465,467       58,128,750       17,060,965  
Bank balances and cash
            55,870,626       52,375,747       166,621,468  
 
                         
 
            102,336,093       110,504,497       183,682,433  
 
                         

- 5 -


 

ENSON ASSETS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED 31 MARCH, 2008, 2009 AND 2010
 
1.   GENERAL
The Company is a private limited company incorporated in the British Virgin Islands (“BVI”) with its registered office at P.O. Box 71, Craigmuir Chambers, Road Town, Tortola, British Virgin Islands. The address of principal place of business is located at Unit A, 15/F, Gemston Tower, 23 Man Lok Street, Hung Hom, Kowloon, Hong Kong. Prior to 3 November 2010, its immediate and ultimate holding company is CG International Holdings Limited (“CG International”), a private limited liability company incorporated in Cayman Islands. On 3 November 2010, CG International sold its entire interest in the Company to UEI Hong Kong Private Limited, a limited liability company incorporated in Hong Kong and a wholly owned subsidiary of Universal Electronics Inc. (“UEI”). UEI is a company incorporated under the laws of the State of Delaware in the United States of America and UEI has became the Company’s ultimate holding company since then.
The principal activity of the Company is investment holding. The principal activities of its subsidiaries are set out in note 34.
The consolidated financial statements are presented in Hong Kong dollars (“HK$”), which is different from the functional currency of the Company, which is in United States dollars.
Purpose of consolidated financial statements
These consolidated financial statements have been prepared for the special purpose of filing with the United States Securities and Exchange Commission in compliance with Rule 3-05 of Regulation S-X and Form 8-K under the Securities Exchange Act of 1934. This filing requirement is based on the Company being a significant business acquired by UEI.
2.   APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”)
The International Accounting Standards Board (“IASB”) has issued a number of new and revised International Accounting Standards (“IASs”), International Financial Reporting Standards (“IFRSs”), amendments and related Interpretations (“IFRICs”) (hereinafter collectively referred to as the “new IFRSs”) which are effective for the Company and its subsidiaries’ (collectively referred to as the “Group”) financial year beginning on 1 April 2009. For the purpose of preparing and presenting the financial statements, the Group has consistently adopted all these new IFRSs which are effective for the accounting period beginning on 1 April 2009 and throughout the years ended 31 March 2008, 2009 and 2010.

- 6 -


 

ENSON ASSETS LIMITED
2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) — continued
At the date of issue of these financial statements, the IASB has issued the following new and revised standards, amendment and interpretations which are not yet effective during the years ended 31 March 2008, 2009 and 2010. The Group has not early adopted these standards, amendments and interpretations in the preparation of the financial statements for the years ended 31 March 2008, 2009 and 2010.
     
IFRSs (Amendments)
  Amendments to IFRS 5 as part of Improvements to IFRSs 20081
IFRSs (Amendments)
  Improvements to IFRSs April 20092
IFRSs (Amendments)
  Improvements to IFRSs 20103
IAS 24 (Revised)
  Related Party Disclosures7
IAS 27 (Revised)
  Consolidated and Separate Financial Statements1
IAS 32 (Amendments)
  Classification of Rights Issues5
IAS 39 (Amendments)
  Eligible Hedged Items1
IFRS 1 (Amendments)
  Additional Exemptions for First-time Adopters4
IFRS 1 (Amendments)
  Limited Exemption from Comparative IFRS 7
     Disclosures for First-time Adopters6
IFRS 1 (Amendments)
  Severe Hyperinflation and Removal of Fixed Dates for First-time
     Adopters9
IFRS 7 (Amendments)
  Disclosures — Transfers of Financial Assets9
IFRS 2 (Amendments)
  Group Cash-settled Share-based Payment Transactions4
IFRS 3 (Revised)
  Business Combinations1
IFRS 9
  Financial Instruments8
IAS 12 (Amendments)
  Deferred Tax: Recovery of Underlying Assets10
IFRS 14 (Amendment)
  Prepayments of a Minimum Funding Requirement7
IFRIC 17
  Distributions of Non-cash Assets to Owners1
IFRIC 19
  Extinguishing Financial Liabilities with Equity
     Instruments6
 
1   Effective for annual periods beginning on or after 1 July 2009
 
2   Amendments that are effective for annual periods beginning on or after 1 July 2009 and 1 January 2010, as appropriate
 
3   Effective for annual periods beginning on or after 1 July 2010 and 1 January 2011, as appropriate
 
4   Effective for annual periods beginning on or after 1 January 2010
 
5   Effective for annual periods beginning on or after 1 February 2010
 
6   Effective for annual periods beginning on or after 1 July 2010
 
7   Effective for annual periods beginning on or after 1 January 2011
 
8   Effective for annual periods beginning on or after 1 January 2013
 
9   Effective for annual periods beginning on or after 1 July 2011
 
10   Effective for annual periods beginning on or after 1 January 2012
The application of IFRS 3 (Revised) may affect the Group’s accounting for business combination for which the acquisition date is on or after 1 April 2010. IAS 27 (Revised) will affect the accounting treatment for changes in the Group’s ownership interest in a subsidiary.

- 7 -


 

ENSON ASSETS LIMITED
2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) — continued
IFRS 9 Financial Instruments introduces new requirements for the classification and measurement of financial assets and financial liabilities and will be effective from 1 January 2013, with earlier application permitted. The Standard requires all recognised financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement to be measured at either amortised cost or fair value. Specifically, debt investments that (i) are held within a business model whose objective is to collect the contractual cash flows and (ii) have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost. All other debt investments and equity investments are measured at fair value. The application of IFRS 9 might affect the classification and measurement of the Group’s financial assets.
In relation to financial liabilities, the significant change relates to financial liabilities that are designated as at fair value through profit or loss. Specifically, under IFRS 9, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the presentation of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Previously, under IAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was presented in profit or loss.
The directors of the Company anticipate that the application of the other new and revised standards, amendments or interpretations will have no material impact on the consolidated financial statements.
3. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared on the historical cost basis, except for certain financial instruments, which are measured at fair values, as explained in the accounting policies set out below.
The consolidated financial statements have been prepared in accordance with the following accounting policies which conform to IFRSs.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.
All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

- 8 -


 

ENSON ASSETS LIMITED
3.   SIGNIFICANT ACCOUNTING POLICIES — continued
Revenue recognition
Revenue is measured at fair value of the consideration received or receivable and represents amounts receivable for goods sold and service provided in the normal course of business, net of discount and sales related tax.
Revenue from sales of goods is recognised when goods are delivered, title has passed, there is persuasive evidence of an arrangement, the sales price is fixed or determinable and collectability is reasonably assured.
Tooling income is recognised when services are provided and accepted by customers.
Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably.
Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.
Property, plant and equipment
Property, plant and equipment including land and buildings held for use in the production are stated at cost less subsequent accumulated depreciation and accumulated impairment losses, if any.
Depreciation is recognised so as to write off the cost of items of property, plant and equipment over their estimated useful lives and after taking into account of their estimated residual value, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.
Leasehold land and buildings under development for future owner-occupied purpose
When the leasehold land and buildings are in the course of development for production or for administrative purposes, the leasehold land component is classified as a prepaid lease payment and amortised over a straight-line basis over the lease term. During the construction period, the amortisation charge provided for the leasehold land is included as part of costs of buildings under construction. Buildings under construction are carried at cost, less any identified impairment losses. Depreciation of buildings commences when they are available for use (i.e. when they are in the location and condition necessary for them to be capable of operating in the manner intended by management).

- 9 -


 

ENSON ASSETS LIMITED
3. SIGNIFICANT ACCOUNTING POLICIES — continued
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in profit or loss in the year in which they are incurred.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
The Group as lessee
Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Leasehold land and building
The land and building elements of a lease of land and building are considered separately for the purpose of lease classification, unless the lease payments cannot be allocated reliably between the land and building elements, in which case, the entire lease is generally treated as a finance lease and accounted for as property, plant and equipment. To the extent the allocation of the lease payments can be made reliably, leasehold interests in land are accounted for as operating leases and amortised over the lease term on a straight-line basis.
Foreign currencies
In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

- 10 -


 

ENSON ASSETS LIMITED
3. SIGNIFICANT ACCOUNTING POLICIES — continued
Foreign currencies — continued
Exchange differences arising on the settlement of monetary items, and on the re-translation of monetary items, are recognised in profit or loss in the period in which they arise.
For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Group (i.e. Hong Kong dollars) at the rate of exchange prevailing at the end of the reporting period, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the year, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity under the heading the translation reserve. Such exchange differences are reclassified to profit or loss in the period in which the foreign operation is disposed.
Research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
Retirement benefits costs
Payments to the Group’s defined contribution retirement benefit plans, including Mandatory Provident Fund Scheme and state-managed retirement benefit schemes, are charged as an expense when employees have rendered services entitling them to the contributions.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because it excludes items of income and expense that are taxable or deductible in other years and it further excludes items that are never taxable nor deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary difference to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

- 11 -


 

ENSON ASSETS LIMITED
3. SIGNIFICANT ACCOUNTING POLICIES — continued
Taxation — continued
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is recognised in profit or loss, except when it relates to items that are recognised in other comprehensive income or directly in equity, in which case the deferred tax is also recognised in other comprehensive income or directly in equity respectively.
Club debenture
Club debenture is related to a membership club for indefinite term. The balance is stated at cost, less any identified impairment losses.
Impairment loss on tangible and intangible assets
At the end of the reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If such indication exists, the recoverable amount of an asset is estimated in order to determine the extent of impairment loss, if any.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method.

- 12 -


 

ENSON ASSETS LIMITED
3. SIGNIFICANT ACCOUNTING POLICIES — continued
Financial instruments
Financial assets and financial liabilities are recognised in the consolidated statement of financial position when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets at fair value through profit or loss (“FVTPL”)) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets at FVTPL are recognised immediately in profit or loss.
Financial assets
The Group’s financial assets are classified into financial assets at FVTPL and loans and receivables. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted in respect of each category of financial assets are set out below.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition.
Interest income is recognised on an effective interest basis for debt instruments other than those financial assets recognised as at FVTPL, of which interest income is included in net gains or losses.
Financial assets at fair value through profit or loss
The Group’s financial assets at FVTPL are financial assets held for trading.
A financial asset is classified as held for trading if:
  it has been acquired principally for the purpose of selling in the near future; or
 
  it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
 
  it is a derivative that is not designated and effective as a hedging instrument.
Financial assets at FVTPL are measured at fair value, with changes in fair value arising from remeasurements recognised directly in profit or loss in the period in which they arise.

- 13 -


 

ENSON ASSETS LIMITED
3. SIGNIFICANT ACCOUNTING POLICIES — continued
Financial instruments — continued
Financial assets - continued
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including trade receivables, other receivables, loan to a related company, amounts due from related companies, amount due from holding company, short term bank deposits and bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment of financial assets below).
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of the reporting period. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected.
For loans and receivables, objective evidence of impairment could include:
  significant financial difficulty of the issuer or counterparty; or
 
  breach of contract, such as default or delinquency in interest or principal payments; or
 
  it becoming probable that the borrower will enter bankruptcy or financial re-organisation.
For certain categories of financial asset, such as trade receivables, that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, observable changes in economic conditions that correlate with default on receivables and the financial performance of the customers.
For financial assets carried at amortised cost, an impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.
For financial assets carried at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

- 14 -


 

ENSON ASSETS LIMITED
3. SIGNIFICANT ACCOUNTING POLICIES — continued
Financial instruments — continued
Financial liabilities and equity
Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The Group’s financial liabilities are generally classified into financial liabilities at FVTPL and other financial liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant periods. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or where appropriate, a shorter period to the net carrying amount on initial recognition.
Interest expense is recognised on an effective interest basis for debt instruments other than those financial liabilities classified as at FVTPL, of which interest expense is included in net gains or losses.
Financial liabilities at fair value through profit or loss
The Group’s financial liabilities at FVTPL are financial liabilities held for trading.
A financial liability is classified as held for trading if:
  it has been incurred principally for the purpose of repurchasing in the near future; or
 
  it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
 
  it is a derivative that is not designated and effective as a hedging instrument.
Financial liabilities at FVTPL are measured at fair value, with changes in fair value arising on remeasurement recognised directly in profit or loss in the period in which they arise.
Other financial liabilities
Other financial liabilities including trade payables, bills payable, amount due to a director, amount due to a related company and bank borrowings are subsequently measured at amortised cost, using the effective interest method.
Equity instruments
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

- 15 -


 

ENSON ASSETS LIMITED
3. SIGNIFICANT ACCOUNTING POLICIES — continued
Financial instruments — continued
Derivative financial instruments
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of the reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
Derecognition
Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.
Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.
4. KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are described in note 3, the directors of the Company are required to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

- 16 -


 

ENSON ASSETS LIMITED
4. KEY SOURCES OF ESTIMATION UNCERTAINTY — continued
Allowance for trade receivables
An allowance for bad and doubtful debts is made when there is objective evidence of impairment. A considerable amount of judgment is required in assessing the ultimate realisation of these receivables including current creditworthiness and the past collection history of each customer. If the financial condition of customers of the Group was to deteriorate resulting in an impairment of their ability to make payments, additional allowances may be required. The Group’s carrying value of trade receivables as at 31 March 2008, 2009 and 2010 was HK$162,179,605, HK$152,490,658 and HK$195,529,853, respectively (net of allowance for bad and doubtful debts as at 31 March 2008, 2009 and 2010 of HK$10,704,550, HK$2,527,542 and HK$1,495,623, respectively).
Inventory valuation method and impairment
Inventory is valued at the lower of cost and net realisable value. Cost is determined using the weighted average method. Market price is generally the merchandise selling price quoted from the market of similar items. The Group reviews its inventory levels in order to identify slow-moving and obsolete inventories, where the Group identifies items of inventory having a market price lower than its carrying amount, the Group estimates the amount of inventory loss as allowance for slow-moving inventories. Where the estimated amount of allowance for slow-moving inventories are higher than expected, the Group could be required to change the recorded value of its inventories. The Group’s carrying value of inventory as at 31 March 2008, 2009 and 2010 was HK$127,880,885, HK$85,698,647 and HK$149,995,066, respectively.
Depreciation
The Group depreciates the property, plant and equipment over their estimated useful lives, using straight-line method, at the rates ranging from 4% to 331/3% per annum. The estimated useful lives that the Group depreciates the property, plant and equipment reflect the directors’ estimate of the periods that the Group intends to derive future economic benefits from the use of the assets. For any instance where this evaluation process indicates impairment, the appropriate asset’s carrying values are written down to the recoverable amount and the amount of the write-down is charged against the profit or loss. The Group’s carrying value of property, plant and equipment as at 31 March 2008, 2009 and 2010 was HK$317,905,419, HK$338,423,031 and HK$343,884,984, respectively.
5. REVENUE
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Sales of remote control units
    998,273,391       987,068,270       1,115,098,137  
Tooling income and others
    38,396,861       50,631,443       49,134,953  
 
                 
 
    1,036,670,252       1,037,699,713       1,164,233,090  
 
                 

- 17 -


 

ENSON ASSETS LIMITED
6. INVESTMENT INCOME
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Interest income on:
                       
Short-term bank deposits and bank balances
    1,750,673       1,424,227       542,472  
Loan interest income from a related company
                408,694  
 
                 
 
    1,750,673       1,424,227       951,166  
 
                 
7. OTHER INCOME
                         
    2008     2009     2010  
    HK$     HK$     HK$  
An analysis of the Group’s other income is as follows:
                       
Sales of other materials
    3,211,302       9,803,346       4,879,859  
Sample sales
    1,849,505       4,168,420       5,722,358  
Administration income from related companies (note a)
                8,236,800  
Service income from a related company (note b)
                1,287,000  
Sundry income
    2,301,591       3,089,535       4,719,877  
 
                 
 
    7,362,398       17,061,301       24,845,894  
 
                 
 
Notes:    
 
a.   Administration income of HK$8,236,800 represents income received from Gemstar Manufacturing Holdings Limited (“GMHL”) and its subsidiaries (collectively “GMHL Group”) for administrative services provided to GMHL Group from year 1999 to 2009 that are confirmed and settled by both parties in December 2009.
 
b.   Service income of HK$1,287,000 represents income received from Antares Holding Limited (“Antares”), a wholly owned subsidiary of GMHL, for services provided to Antares from year 2004 to 2007 that are confirmed and settled by both parties in December 2009.
These companies are related to the Group as certain directors of the Company are also directors of and have beneficial interests in these companies.
8. OTHER GAINS AND LOSSES
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Net exchange gain
    15,609,208       5,502,178       1,085,209  
Gain on disposal of property, plant and equipment
    72,554       66,427       460,078  
Net fair value change of derivative financial instruments - - FVTPL
    500,008       (45,602 )     13,659  
 
                 
 
    16,181,770       5,523,003       1,558,946  
 
                 

- 18 -


 

ENSON ASSETS LIMITED
9. PROFIT BEFORE TAX
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Profit before tax has been arrived at after charging (crediting):
                       
Allowance for inventories (included in cost of sales)
    11,072,802       7,214,932       2,522,564  
Allowance for bad and doubtful debts (included in other expenses)
    10,704,550       1,635,410        
Cost of inventories recognised as an expense
    845,566,646       895,902,559       899,188,232  
Minimum lease payments paid in respect of rented premises
    1,075,459       909,435       820,992  
Research and development costs recognised as an expense (note a)
    14,480,741       15,249,844       16,363,469  
Depreciation
    33,809,283       46,902,341       50,385,472  
Amortisation of prepaid lease payments
    20,042       22,161       26,293  
 
                 
Total depreciation and amortisation
    33,829,325       46,924,502       50,411,765  
Directors’ remuneration:
                       
Fees
                 
Others
    1,395,000       2,410,400       4,602,400  
Retirement benefit scheme contributions
    12,000       12,000       12,000  
 
                 
 
    1,407,000       2,422,400       4,614,400  
Other staff costs
    189,711,536       214,472,465       246,474,654  
Retirement benefit scheme contributions (excluding directors)
    17,700,102       14,900,740       16,460,746  
 
                 
Total staff costs
    208,818,638       231,795,605       267,549,800  
 
                 
 
Note:    
 
a.   Included in research and development costs for the three years ended 31 March 2008, 2009 and 2010 are other staff costs of approximately HK$13,020,513, HK$13,584,105 and HK$14,636,968, respectively. The Group did not capitalise any research and development expenditure during the years ended 31 March 2008, 2009 and 2010.

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ENSON ASSETS LIMITED
10. TAXATION EXPENSE
                         
    2008     2009     2010  
    HK$     HK$     HK$  
The charge comprises:
                       
Current tax:
                       
Hong Kong
    11,798,000       4,875,000       21,439,672  
Other jurisdictions
    2,924,915       4,158,332       10,032,112  
 
                 
 
    14,722,915       9,033,332       31,471,784  
 
                 
Underprovision in prior years
    5,259,120       2,003,933       33,297  
 
                 
Deferred taxation (note 15)
                       
Current year
    (3,026,812 )     (3,717,104 )     (3,122,969 )
Attributable to a change in tax rate
    1,068,329       (425,886 )     8,612,336  
 
                 
 
    (1,958,483 )     (4,142,990 )     5,489,367  
 
                 
 
    18,023,552       6,894,275       36,994,448  
 
                 
Hong Kong Profits Tax was calculated at 17.5%, of the estimated assessable profit for the year ended 31 March 2008.
On 26 June 2008, the Hong Kong Legislative Council passed the Revenue Bill 2008 which reduced corporate profits tax rate from 17.5% to 16.5% effective from the year of assessment 2008/2009. Therefore, Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for the years ended 31 March 2009 and 2010. The deferred tax balance as at 1 April 2008 has been adjusted to reflect the tax rates that are expected to apply to the respective periods when the asset is realised or the liability is settled.
On 16 March 2007, the PRC promulgated the Law of the PRC on Enterprise Income Tax (the “New Law”) by Order No. 63 of the President of the PRC. On 6 December 2007, the State Council of the PRC issued Implementation Regulations of the New Law. The New Law and Implementation Regulations changed the tax rate from 33% to 25% for certain subsidiaries from 1 January 2008. The deferred tax balance as at 31 March 2008 has been adjusted to reflect the tax rates that are expected to apply to the respective periods when the asset is realised or the liability is settled.
Gemstar Technology (Yangzhou) Co. Ltd. (“GTY”) is a wholly foreign invested entity of manufacturing nature. In accordance with Foreign Enterprise Income Tax (“FEIT”) Laws in PRC, GTY was approved to be exempted from FEIT for two years starting from its first profit making year since its establishment and followed by a 50% tax relief for the next three years. GTY first profit making year was 2007. GTY is therefore exempted from FEIT for the year ended 31 March 2008 and from 1 April 2008 to 31 December 2008 and subject to a reduced tax rate of 12.5% from 1 January 2009 to 31 March 2010.

- 20 -


 

ENSON ASSETS LIMITED
10. TAXATION EXPENSE — continued
Gemstar Technology (China) Co. Ltd. (“GTC”) is a wholly foreign invested entity of manufacturing nature. GTC was qualified as export-oriented enterprise in year ended 31 December 2007 and is eligible for a tax concession at a reduced tax rate of 12% for that year. In November 2009, GTC was awarded the certificate of Hi-Technology Enterprise and is entitled to enjoy a reduced tax rate of 15% from 1 January 2009 to 31 December 2011. The applicable income tax rates of GTC are as follows:
     
For the year ended 31 March 2008:
  12% from 1 April 2007 to 31 December 2007
25% from 1 January 2008 to 31 March 2008
For the year ended 31 March 2009:
  25% from 1 April 2008 to 31 December 2008
15% from 1 January 2009 to 31 March 2009
For the years ended 31 March, 2010:
  15%      
Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.
Taxation expense for the year can be reconciled to the profit before tax in the consolidated statement of comprehensive income as follows:
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Profit before tax
    110,860,492       65,708,779       189,730,232  
 
                 
Tax at Hong Kong Profits Tax calculated at 17.5% for 2008 and 16.5% for 2009 and 2010
    19,400,586       10,841,949       31,305,488  
Tax effect of expenses not deductible for tax purposes
    996,134             108,176  
Tax effect of income not taxable for tax purposes
    (545,804 )     (563,807 )     (439,940 )
Underprovision in prior years
    5,259,120       2,003,933       33,297  
Tax effect of tax losses not recognised
    228,903       319,101       357,111  
Effect of change in future tax rate on deferred tax assets and liabilities recognised
    1,068,329       (425,886 )     8,612,336  
Effect of different tax rates of subsidiaries operating in the PRC
    1,179,179       4,597,167       8,122,236  
Tax effect of tax exemption and tax concession granted to subsidiaries operating in the PRC
    (8,779,285 )     (8,967,528 )     (12,079,784 )
Increase in deferred tax liability resulting from PRC withholding tax
                697,000  
Others
    (783,610 )     (910,654 )     278,528  
 
                 
Income tax expense for the year
    18,023,552       6,894,275       36,994,448  
 
                 
Details of deferred taxation are set out in note 15.

- 21 -


 

ENSON ASSETS LIMITED
11. PROPERTY, PLANT AND EQUIPMENT
                                                         
    Leasehold                                            
    land and                                            
    factory             Furniture                     Machinery,        
    premises in     Leasehold     and     Office     Motor     equipment        
    the PRC     improvements     fixtures     equipment     vehicles     and moulds     Total  
    HK$     HK$     HK$     HK$     HK$     HK$     HK$  
COST
                                                       
At 1 April 2007
    112,415,810       37,382,048       1,538,459       11,044,146       1,407,220       131,649,549       295,437,232  
Transfer from buildings under construction
    51,076,504       11,432,467                               62,508,971  
Additions
          9,817,473       916,224       4,012,608       458,774       65,843,956       81,049,035  
Disposals
                      (784,843 )     (144,140 )     (6,879,563 )     (7,808,546 )
Eliminated on disposal of a subsidiary (note 29)
          (35,978 )     (51,739 )     (114,176 )                 (201,893 )
Currency realignment
    10,968,614       3,568,914       22,090       631,817       135,450       9,515,270       24,842,155  
 
                                         
At 31 March 2008 and
1 April 2008
    174,460,928       62,164,924       2,425,034       14,789,552       1,857,304       200,129,212       455,826,954  
Transfer from buildings under construction
          2,183,492                         1,469,226       3,652,718  
Additions
    1,969,726       13,290,174       175,635       4,508,284       766,243       37,304,914       58,014,976  
Disposals
                      (1,705,467 )     (19,000 )     (4,818,034 )     (6,542,501 )
Currency realignment
    3,936,248       1,384,545       24,655       204,343       41,477       2,810,758       8,402,026  
 
                                         
At 31 March 2009 and
1 April 2009
    180,366,902       79,023,135       2,625,324       17,796,712       2,646,024       236,896,076       519,354,173  
Transfer from buildings under construction
    18,246,116       2,134,317                               20,380,433  
Additions
          1,880,710       400,933       2,188,052       1,294,913       28,992,415       34,757,023  
Disposals
                      (1,184,525 )     (742,560 )     (5,226,473 )     (7,153,558 )
Currency realignment
    574,417       249,120       4,118       39,124       8,427       458,227       1,333,433  
 
                                         
At 31 March 2010
    199,187,435       83,287,282       3,030,375       18,839,363       3,206,804       261,120,245       568,671,504  
 
                                         
DEPRECIATION
                                                       
At 1 April 2007
    26,250,235       10,910,323       1,250,179       4,638,762       886,667       57,235,679       101,171,845  
Provided for the year
    5,281,001       5,728,091       147,714       2,306,832       230,872       20,114,773       33,809,283  
Eliminated on disposals
                      (784,843 )     (86,484 )     (6,087,980 )     (6,959,307 )
Eliminated on disposal of a subsidiary (note 29)
          (29,982 )     (13,389 )     (65,531 )                 (108,902 )
Currency realignment
    2,895,626       1,354,694       8,141       383,366       99,276       5,267,513       10,008,616  
 
                                         
At 31 March 2008 and
1 April 2008
    34,426,862       17,963,126       1,392,645       6,478,586       1,130,331       76,529,985       137,921,535  
Provided for the year
    7,165,709       8,721,211       152,969       3,084,674       378,823       27,398,955       46,902,341  
Eliminated on disposals
                      (1,689,129 )     (19,000 )     (4,818,034 )     (6,526,163 )
Currency realignment
    791,374       405,601       2,776       94,319       25,848       1,313,511       2,633,429  
 
                                         
At 31 March 2009 and
1 April 2009
    42,383,945       27,089,938       1,548,390       7,968,450       1,516,002       100,424,417       180,931,142  
Provided for the year
    7,406,635       9,876,427       185,951       3,379,703       441,250       29,095,506       50,385,472  
Eliminated on disposals
                      (1,161,967 )     (702,046 )     (5,193,806 )     (7,057,819 )
Currency realignment
    148,460       101,762       1,147       21,813       5,578       248,965       527,725  
 
                                         
At 31 March 2010
    49,939,040       37,068,127       1,735,488       10,207,999       1,260,784       124,575,082       224,786,520  
 
                                         
CARRYING VALUES
                                                       
At 31 March 2008
    140,034,066       44,201,798       1,032,389       8,310,966       726,973       123,599,227       317,905,419  
 
                                         
At 31 March 2009
    137,982,957       51,933,197       1,076,934       9,828,262       1,130,022       136,471,659       338,423,031  
 
                                         
At 31 March 2010
    149,248,395       46,219,155       1,294,887       8,631,364       1,946,020       136,545,163       343,884,984  
 
                                         

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ENSON ASSETS LIMITED
11. PROPERTY, PLANT AND EQUIPMENT — continued
The above items of property, plant and equipment are depreciated on a straight-line basis at the following rates per annum, after taking into account of their estimate residual value.
         
Leasehold land and factory premises in the PRC
  Over the shorter of the term of lease or 25 years
Leasehold improvements
  Over the shorter of the term of lease or 25 years
Furniture and fixtures
  121/2%
Office equipment
  20%
Motor vehicles
  20%
Machinery, equipment and moulds
  121/2% to 331/3%
At 31 March 2008, 2009 and 2010, the Group did not obtain relevant building ownership certificates for its leasehold land and factory premises in the PRC with carrying amount of approximately HK$644,215, HK$1,965,257 and HK$1,689,334, respectively. In addition, as at 31 March 2008, 2009 and 2010, certain of the Group’s leasehold land and factory premises in the PRC with carrying amount of approximately HK$88,814,371, HK$8,316,598 and HK$18,421,487, respectively are located on area without obtaining relevant land use right certificate.
12. BUILDINGS UNDER CONSTRUCTION
         
    HK$  
COST
       
At 1 April 2007
    23,547,411  
Additions
    38,959,978  
Transfer to property, plant and equipment
    (62,508,971 )
Currency realignment
    2,297,563  
 
     
At 31 March 2008 and 1 April 2008
    2,295,981  
Additions
    10,346,884  
Transfer to property, plant and equipment
    (3,652,718 )
Currency realignment
    51,804  
 
     
At 31 March 2009 and 1 April 2009
    9,041,951  
Additions
    11,309,687  
Transfer to property, plant and equipment
    (20,380,433 )
Currency realignment
    28,795  
 
     
At 31 March 2010
     
 
     

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ENSON ASSETS LIMITED
 
13.   PREPAID LEASE PAYMENTS
The Group’s prepaid lease payments are located in the PRC.
At 31 March 2008, 2009 and 2010, the Group did not obtain relevant land use right certificates for its leasehold land in the PRC with carrying amount of approximately HK$1,017,999, HK$292,809 and HK$2,846,620, respectively.
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Analysed for reporting purposes as:
                       
Current asset
    19,416       26,780       81,460  
Non-current asset
    998,583       1,241,414       3,894,186  
 
                 
 
    1,017,999       1,268,194       3,975,646  
 
                 
14. CLUB DEBENTURE
         
    2008, 2009 & 2010  
    HK$  
At cost
    885,000  
 
     
Club debenture is tested for impairment annually and whenever there is an indication that it may be impaired. The directors of the Company are of the opinion that no impairment loss was identified for years ended 31 March 2008, 2009 and 2010 by reference to the market value.
15. DEFERRED TAXATION
The following is the analysis of the deferred tax balances for financial reporting purposes:
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Deferred tax assets
    22,991,974       27,947,036       22,034,495  
Deferred tax liabilities
    (7,453,000 )     (7,923,000 )     (7,442,000 )
 
                 
 
    15,538,974       20,024,036       14,592,495  
 
                 

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ENSON ASSETS LIMITED
15. DEFERRED TAXATION — continued
The following are the major deferred tax assets (liabilities) recognised and movements thereon during the years ended 31 March 2008, 2009 and 2010:
                                                 
                    Accrual on            
                    social security            
    Accelerated           contribution   Undistributed        
    tax           and long   profits of        
    depreciation   Tax losses   service payment   subsidiaries   Others   Total
    HK$   HK$   HK$   HK$   HK$   HK$
At 1 April 2007
    (2,382,000 )     1,116,000       10,340,648             3,379,352       12,454,000  
Effect of change in tax rate
    21,322             (889,000 )           (200,651 )     (1,068,329 )
(Charge) credit to profit or loss
    (4,002,322 )     (1,116,000 )     7,333,862             811,272       3,026,812  
Currency realignment
                1,126,491                   1,126,491  
 
                                               
At 31 March 2008 and 1 April 2008
    (6,363,000 )           17,912,001             3,989,973       15,538,974  
Effect of change in tax rate
    425,886                               425,886  
(Charge) credit to profit or loss
    (846,591 )           4,897,611             (333,916 )     3,717,104  
Currency realignment
    (724 )           308,388             34,408       342,072  
 
                                               
At 31 March 2009 and 1 April 2009
    (6,784,429 )           23,118,000             3,690,465       20,024,036  
Effect of change in tax rate
    (356,000 )           (6,986,800 )           (1,269,536 )     (8,612,336 )
Credit (charge) to profit or loss
    1,490,473             3,020,305       (697,000 )     (690,809 )     3,122,969  
Currency realignment
    1,477             51,046             5,303       57,826  
 
                                               
At 31 March 2010
    (5,648,479 )           19,202,551       (697,000 )     1,735,423       14,592,495  
 
                                               
At 31 March 2008, 2009 and 2010, the Group had unused tax losses of approximately HK$1,785,000, HK$3,684,000 and HK$5,864,000, respectively available for offset against future taxable profits. No deferred tax asset has been recognised due to the unpredictability of future profit streams. All tax losses may be carried forward indefinitely.
16. INVENTORIES
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Raw materials
    69,953,985       39,559,508       85,018,910  
Work in progress
    34,468,085       23,864,020       34,041,901  
Finished goods
    23,458,815       22,275,119       30,934,255  
 
                 
 
    127,880,885       85,698,647       149,995,066  
 
                 

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ENSON ASSETS LIMITED
17. TRADE RECEIVABLES, DEPOSITS AND PREPAYMENTS
                         
    2008   2009   2010
    HK$   HK$   HK$
Trade receivables
    172,884,155       155,018,200       197,025,476  
Less: allowance for bad and doubtful debts
    (10,704,550 )     (2,527,542 )     (1,495,623 )
 
                       
Total trade receivables
    162,179,605       152,490,658       195,529,853  
Other receivables, deposits and prepayments
    9,649,193       9,634,718       10,267,556  
 
                       
 
    171,828,798       162,125,376       205,797,409  
 
                       
The Group allows an average credit period of 38 days, 40 days and 40 days to customers during the three years ended 31 March 2008, 2009 and 2010, respectively.
Before accepting any new customer, the Group has assessed the potential customer’s credit quality and defined credit limits by customer. Limits attributed to customers are reviewed once a year, and the Group reviews the repayment history of receivables by each customer with reference to the payment terms stated in contracts to determine the recoverability of a trade receivable. In the opinion of the directors of the Company, 60%, 84% and 77% of the trade receivables as at 31 March 2008, 2009 and 2010 that are neither past due nor impaired have good credit quality at the end of the reporting period with reference to past settlement history.
Included in the Group’s trade receivables balance as at 31 March 2008, 2009 and 2010 are debtors with an aggregate carrying amount of approximately HK$65,347,426, HK$23,852,017 and HK$44,849,996, respectively which are past due at the end of the reporting period for which the Group has no impairment loss, because historical experience is that the receivables are generally recoverable as supported by on-going settlements by customers. The Group does not hold any collateral over these balances.
Aging of trade receivables presented based on invoiced date which are past due but not impaired
                         
    2008     2009     2010  
    HK$     HK$     HK$  
0 - 30 days
                76,575  
31 - 60 days
    26,586,432       1,953,570       22,426,182  
61 - 90 days
    18,888,083       17,406,525       17,727,819  
Over 90 days
    19,872,911       4,491,922       4,609,420  
 
                 
Total
    65,347,426       23,852,017       44,839,996  
 
                 
The Group performed assessment on individual trade receivables and recognised an allowance on specific balances.

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ENSON ASSETS LIMITED
17. TRADE RECEIVABLES, DEPOSITS AND PREPAYMENTS — continued
Movement in the allowance for bad and doubtful debts
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Balance at beginning of the year
    17,389       10,704,550       2,527,542  
Impairment losses recognised
    10,704,550       1,635,410        
Written off during the year
    (17,389 )     (9,812,418 )     (1,031,919 )
 
                 
Balance at end of the year
    10,704,550       2,527,542       1,495,623  
 
                 
Included in the allowance for doubtful debts as at 31 March 2008, 2009 and 2010 are individually impaired trade receivables with an aggregate balance of approximately HK$10,704,550, HK$2,527,542 and HK$1,495,623, respectively, of which the Group has chased for settlements from customers but the amounts remained unsettled. The Group does not hold any collateral over these balances.
18. LOAN TO A RELATED COMPANY
The amount as at 31 March 2010 represents the loan to New Reward Limited denominated in United States dollars (“USD”). The Group has assessed the credit quality of the related company before providing the loan to a related company. The loan to a related company was neither past due nor impaired and no history of default was noted. The loan is unsecured, bearing interest at Hong Kong Interbank Offered Rate (“HIBOR”) plus 1.75% per annum and fully payable by 6 January 2011. This company is related to the Group as a director of the Company is also a director of and has beneficial interest in this company. Effective interest rate per annum at 31 March 2010 is 1.88%. The amount has been fully repaid in June 2010.
19. AMOUNTS DUE FROM RELATED COMPANIES
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Name of company
                       
Gemstar Manufacturing Holdings Limited
    1,529,857       1,532,105        
Gemstar Asia Limited
    17,525       18,526       24,621  
New Reward Limited
                408,694  
 
                 
 
    1,547,382       1,550,631       433,315  
 
                 
The Group has assessed the credit quality of the amounts due from related companies before providing the advances to the related companies. The amounts were neither past due nor impaired and no history of default were noted. The amounts are unsecured, interest free and repayable on demand. These companies are related to the Group as certain directors of the Company are also directors of and have beneficial interests in these companies.

- 27 -


 

ENSON ASSETS LIMITED
20. DERIVATIVE FINANCIAL INSTRUMENTS
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Other financial assets
                       
Foreign currency forward contracts at net settlement (not under hedge accounting)
    3,667,863       1,529,352       1,101,342  
 
                 
Other financial liabilities
                       
Foreign currency forward contracts at net settlement (not under hedge accounting)
    3,167,855       1,074,946       633,277  
 
                 
At 31 March 2008, 2009 and 2010, the Group has outstanding forward foreign exchange contracts entered into to buy/sell a specified notional amount of USD at a specified exchange rate.
31 March 2008
Financial assets
         
Notional amount   Maturity date   Exchange rate
Eight contracts with total purchase of approximately RMB55,809,000 and sell USD7,600,000 at the date of settlement
  From 18 April 2008 to 18 July 2008   Range from USD1 to RMB7.2682 and USD1 to RMB7.4847
Financial liabilities
         
Notional amount   Maturity date   Exchange rate
Six contracts with total purchase of USD7,600,000 and sell approximately RMB55,118,000 at the date of settlement
  From 18 April 2008 to 18 July 2008   Range from USD1 to RMB7.2002 and USD1 to RMB7.3247
31 March 2009
Financial assets
         
Notional amount   Maturity date   Exchange rate
Four contracts with total purchase of USD10,000,000 and sell approximately RMB65,565,000 at the date of settlement
  From 3 April 2009 to 9 July 2009   Range from USD1 to RMB6.5240 and USD1 to RMB6.6212

- 28 -


 

ENSON ASSETS LIMITED
20. DERIVATIVE FINANCIAL INSTRUMENTS — continued
31 March 2009 - continued
Financial liabilities
         
Notional amount   Maturity date   Exchange rate
Four contracts with total purchase of approximately RMB33,253,000 and sell USD5,000,000 at the date of settlement
  From 1 April 2009 to 7 July 2009   Range from USD1 to RMB6.6307 and USD1 to RMB6.6935
31 March 2010
Financial assets
         
Notional amount   Maturity date   Exchange rate
Twenty-six contracts with total purchase of USD26,000,000 and sell approximately RMB175,155,000 at the date of settlement
  From 1 April 2010 to 24 February 2011   Range from USD1 to RMB6.6224 to USD1 to RMB6.8140
Financial liabilities
         
Notional amount   Maturity date   Exchange rate
Twenty-six contracts with total purchase of approximately RMB176,559,000 and sell USD26,000,000 at the date of settlement
  From 1 April 2010 to 22 February 2011   Range from USD1 to RMB6.7233 to USD1 to RMB6.8490
At 31 March 2008, 2009 and 2010, the fair value of the Group’s foreign currency derivative financial instruments are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts.
21. SHORT-TERM BANK DEPOSITS AND BANK BALANCES AND CASH
Short-term bank deposits represented time deposits made by the Group which are between seven days to three months depending on the immediate cash requirement of the Group, and such deposit carry interest at market rates. Bank balances of the Group earn interest at floating rates based on the daily bank deposit market rate.

- 29 -


 

ENSON ASSETS LIMITED
22. TRADE PAYABLES AND ACCRUED CHARGES/BILLS PAYABLE
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Trade payables
    111,364,231       93,714,820       132,605,902  
Accrual for social security contribution
    72,290,000       93,724,000       116,458,000  
Accrual for long service payment
    11,758,949       19,029,965       23,295,171  
Accrual charges
    50,051,111       43,574,895       55,560,130  
Receipt in advance
    13,911,198       10,061,081       16,051,492  
 
                 
 
    259,375,489       260,104,761       343,970,695  
 
                 
The average credit period on purchases of goods is 60 days. The Group has financial risk management policies in place to ensure that all payables are within the credit time frame.
Bills payable as at 31 March 2008, 2009 and 2010 are aged within 90 days.
23.   AMOUNT DUE TO A DIRECTOR
The amount due to a director is unsecured, interest free and repayable on demand.
24.   AMOUNT DUE TO A RELATED COMPANY
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Name of the company
                       
Hangzhou Youcheng Electron Co., Ltd.
(CHINESE CHARACTERS)
          3,991,423       6,119,448  
 
                 
The amount represents purchases made from the above related party and is unsecured and interest free. A director of GTC and GTY is also director of and has beneficial interests in this company.
The credit period is 30 days.
25. BANK BORROWINGS
Borrowings comprises:
                                                 
    Effective interest rate     Carrying amount  
    2008     2009     2010     2008     2009     2010  
                            HK$     HK$     HK$  
Floating rate borrowings
    5.06 %     2.89 %     2.03 %     92,042,105       24,631,579       16,421,053  
 
                                         
Repayable on demand
                            92,042,105       24,631,579       16,421,053  
 
                                         

- 30 -


 

ENSON ASSETS LIMITED
25. BANK BORROWINGS — continued
The bank borrowings are variable-rate borrowings denominated in Hong Kong dollars which carry interest at a premium plus Hong Kong Interbank Offered Rate per annum for the years ended 31 March 2008, 2009 and 2010.
At the end of the reporting period, the Group has the following undrawn borrowing facilities:
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Floating rate — expiring beyond one year
    63,940,721       121,226,438       98,659,661  
 
                 
26. SHARE CAPITAL
                 
    Number        
    of shares     Share capital  
    2008, 2009     2008, 2009  
    & 2010     & 2010  
    US$     US$  
Ordinary shares of USD1 each
               
Authorised
    80,000       80,000  
 
           
Issued and fully paid
    60,225       60,225  
 
           
Shown in the financial statements as
          HK$ 469,755  
 
             
27. CAPITAL RISK MANAGEMENT
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged throughout the reported years. The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the Company, comprising issued share capital, reserves and accumulated profits.
The directors of the Company review the capital structure on an annual basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the directors, the Group will balance its overall capital structure through the payment of dividends, new share issues as well as the issue of new debt.

- 31 -


 

ENSON ASSETS LIMITED
28. FINANCIAL INSTRUMENTS
28a. Categories of financial instruments
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Financial assets
                       
FVTPL — derivative financial instruments
    3,667,863       1,529,352       1,101,342  
Loans and receivables (including cash and cash equivalents)
    267,130,743       264,576,842       481,720,186  
 
                 
Financial liabilities
                       
FVTPL — derivative financial instruments
    3,167,855       1,074,946       633,277  
Amortised cost
    213,465,615       127,911,384       174,291,142  
 
                 
28b. Financial risk management objectives and policies
The Group’s major financial instruments include trade receivables, other receivables, loan to a related company, amounts due from related companies, amount due from holding company, derivative financial instruments, short-term bank deposits, bank balances and cash, trade payables, bills payable, amount due to a director, amount due to a related company, and bank borrowings. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.
There has been no significant change to the Group’s exposure to market risks and manner in which it mange and measure the risks.
Market risk
Currency risk
The Group has foreign currency sales and purchases and certain bank balances, trade receivables and trade payables that are denominated in foreign currencies, which expose the Group to foreign currency risk. During the year 2008, 2009 and 2010, approximately 2.5%, 2.1% and 0.2% of the Group’s sales are denominated in currencies other than the functional currency of the relevant group entity making the sale, whilst approximately 78.3%, 86.3% and 81.2% of costs are denominated in currencies other than the functional currency of the relevant group entity.

- 32 -


 

ENSON ASSETS LIMITED
28. FINANCIAL INSTRUMENTS — continued
28b. Financial risk management objectives and policies — continued
Market risk - continued
Currency risk — continued
The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Assets
                       
HK
  $ 5,157,526       4,675,311       3,167,338  
Japanese Yen (“JPY”)
    638,079       644,046       738,975  
European dollar (“EURO”)
    5,832,583       4,894,818       5,010,224  
RMB
          16,417       5,682  
 
                 
Liabilities
                       
HK$
    (163,105,427 )     (61,455,747 )     (69,247,432 )
JPY
    (40,820 )     (3,467,870 )     (6,240,461 )
Euro
                (31,449 )
 
                 
HK$ monetary assets and liabilities
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Trade and other receivables
    1,658,880       587,520       893,963  
Amounts due from related companies
    1,547,382       1,550,631       433,315  
Bank balances and cash
    1,951,264       2,537,160       1,840,060  
Trade and other payables
    (61,004,043 )     (35,862,969 )     (43,090,104 )
Bills payable
    (10,059,279 )     (961,199 )     (7,931,875 )
Amount due to a director
                (1,804,400 )
Bank borrowings
    (92,042,105 )     (24,631,579 )     (16,421,053 )
 
                 
 
    (157,947,901 )     (56,780,436 )     (66,080,094 )
 
                 
JPY monetary assets and liabilities
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Bank balances and cash
    638,079       644,046       737,799  
Trade and other receivables
                1,176  
Trade and other payables
    (40,820 )     (42,930 )      
Bills payable
          (3,424,940 )     (6,240,461 )
 
                 
 
    597,259       (2,823,824 )     (5,501,486 )
 
                 

- 33 -


 

ENSON ASSETS LIMITED
28. FINANCIAL INSTRUMENTS — continued
28b. Financial risk management objectives and policies — continued
Market risk - continued
Currency risk — continued
Euro monetary assets and liabilities
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Short-term bank deposits
    5,224,047              
Bank balances and cash
    608,536       4,894,818       5,010,224  
Trade and other payables
                (31,449 )
 
                 
 
    5,832,583       4,894,818       4,978,775  
 
                 
RMB monetary assets
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Bank balances and cash
          16,417       5,682  
 
                 
The Group currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange exposure by closely monitoring the movement of the relevant foreign currency rates and will enter into foreign currency options or forward contracts, when and where appropriate.
Sensitivity analysis
As HK$ is pegged against the USD under the linked exchange rate system, the Group’s exposure to HK$ exchange rate risk is minimal. The Group is mainly exposed to the fluctuations in JPY, Euro and RMB against USD.
The following table details the Group’s sensitivity to a 5% increase and decrease in functional currency of the respective group entity against the relevant foreign currencies. 5% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes outstanding foreign currency denominated monetary items and adjusts their translation at the end of the reporting period for a 5% change in foreign currency rates at the end of each reporting period. A positive number below indicates an increase in profit when the USD strengthen 5% against the relevant currencies. For a 5% weakening of the USD against the relevant currencies, there would be an equal and opposite impact on the post-tax profit.
                                                                         
    JPY     Euro     RMB  
    2008     2009     2010     2008     2009     2010     2008     2009     2010  
    HK$     HK$     HK$     HK$     HK$     HK$     HK$     HK$     HK$  
Profit or loss
    (24,995 )     126,369       221,984       (244,094 )     (219,043 )     (200,894 )           (735 )     (229 )
 
                                                     

- 34 -


 

ENSON ASSETS LIMITED
28. FINANCIAL INSTRUMENTS — continued
28b. Financial risk management objectives and policies — continued
Market risk - continued
Currency risk — continued
The Group has outstanding forward foreign exchange contracts entered into to buy/sell a specified notional amount of USD/RMB at a specified exchange rate. If the foreign exchange rate of the respective forward foreign exchange contracts had been higher/lower by 2% at the end of each reporting period and all other variables were held constant, the Group’s post-tax profit for the three years ended 31 March 2008, 2009 and 2010 would increase/decrease by approximately HK$15,310, HK$732,693 and HK$34,211, respectively.
Cash flow interest rate risk
The Group is exposed to cash flow interest rate risk in relation to the variable-rate loan to a related company, variable-rate bank deposits and bank borrowings (see note 18, 21 and 25 for details).
The Group’s exposure to interest rates on financial liabilities are detailed in the liquidity risk management section of this note. The Group’s cash flow interest rate risk is mainly concentrated on the fluctuation of HIBOR arising from the bank borrowings.
Sensitivity analysis
The sensitivity analysis below have been determined based on the exposure to interest rates for loan to a related company and variable-rate bank borrowings at the end of the reporting period. No sensitivity is presented for variable-rate bank deposits and bank balances as the impact are insignificant. For variable-rate loan to a related company and bank borrowings, the analysis is prepared assuming the relevant amount outstanding at the end of reporting period was outstanding for the whole year. A 50 basis point increase or decrease is used when reporting interest rate risk to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.
If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group’s post-tax profit for the three years ended 31 March 2008, 2009 and 2010 would decrease/increase by approximately HK$385,196, HK$110,226 and HK$309,664, respectively.

- 35 -


 

ENSON ASSETS LIMITED
28. FINANCIAL INSTRUMENTS — continued
28b. Financial risk management objectives and policies — continued
Credit risk
The Group’s maximum exposure to credit risk in the event of the counterparties failure to perform their obligations as at 31 March 2008, 2009 and 2010 in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the consolidated statement of financial position. In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual debt at each of the reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is significantly reduced.
The credit risk for bank deposits and bank balances exposed is considered minimal as such amounts are placed with banks with good credit ratings.
The Group has concentration of credit risk on the Group’s trade receivables as the Group does not have large numbers of customers. The Group are concentrated in one industry sectors, namely the sales of remote control units. The outstanding balance of the five largest customers which are international well known companies and also engaged in the business of sales of electronic products, represented approximately 61.2%, 88.9% and 83.7% of the trade receivables of the Group as at 31 March 2008, 2009 and 2010, respectively.
In order to minimise the credit risk, management continuously monitors the level of exposure to ensure that follow-up actions and/or corrective actions are taken promptly to lower the risk exposure or to recover overdue balances.
Other than concentration of credit risk on liquid funds which are deposited with several banks with high credit ratings, amounts due from related companies which are with several of the Group’s related companies, and loan to a related company, and save as disclosed elsewhere in the consolidated financial statements, the Group does not have any other significant concentration of credit risk.

- 36 -


 

ENSON ASSETS LIMITED
28. FINANCIAL INSTRUMENTS — continued
28b. Financial risk management objectives and policies — continued
Liquidity risk
In the management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuation in cash flows.
The following table details the Group’s remaining contractual maturity for its financial liabilities based on the agreed repayment terms. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate curve at the end of the reporting periods.
Liquidity and interest risk tables
                                         
    Weighted                          
    average           3 months     Total        
    effective     Less than     to     undiscounted     Carrying  
    interest rate     3 months     1 year     cash flows     amount  
    %     HK$     HK$     HK$     HK$  
2008
                                       
Non-derivative financial liabilities
                                       
Trade payables
          111,364,231             111,364,231       111,364,231  
Bills payable
          10,059,279             10,059,279       10,059,279  
Bank borrowings
    5.06       92,042,105             92,042,105       92,042,105  
 
                               
 
            213,465,615             213,465,615       213,465,615  
 
                               
Derivatives — net settlement
                                       
Foreign exchange forward contracts
            2,231,387       936,468       3,167,855       3,167,855  
 
                               
                                         
    Weighted                          
    average           3 months     Total        
    effective     Less than     to     undiscounted     Carrying  
    interest rate     3 months     1 year     cash flows     amount  
    %     HK$     HK$     HK$     HK$  
2009
                                       
Non-derivative financial liabilities
                                       
Trade creditors
          89,169,093       4,545,727       93,714,820       93,714,820  
Bills payable
          5,573,562             5,573,562       5,573,562  
Amount due to a related company
          3,991,423             3,991,423       3,991,423  
Bank borrowings
    2.89       24,631,579             24,631,579       24,631,579  
 
                               
 
            123,365,657       4,545,727       127,911,384       127,911,384  
 
                               
Derivatives — net settlement
                                       
Foreign exchange forward contracts
            715,766       359,180       1,074,946       1,074,946  
 
                               

- 37 -


 

ENSON ASSETS LIMITED
28. FINANCIAL INSTRUMENTS — continued
28b. Financial risk management objectives and policies — continued
Liquidity risk — continued
Liquidity and interest risk tables — continued
                                         
    Weighted                          
    average           3 months     Total        
    effective     Less than     to     undiscounted     Carrying  
    interest rate     3 months     1 year     cash flows     amount  
    %     HK$     HK$     HK$     HK$  
2010
                                       
Non-derivative financial liabilities
                                       
Trade payables
          126,964,893       5,641,009       132,605,902       132,605,902  
Bills payable
          17,340,339             17,340,339       17,340,339  
Amount due to a director
          1,804,400             1,804,400       1,804,400  
Amount due to a related company
          6,119,448             6,119,448       6,119,448  
Bank borrowings
    2.03       16,421,053             16,421,053       16,421,053  
 
                               
 
            168,650,133       5,641,009       174,291,142       174,291,142  
 
                               
Derivatives — net settlement
                                       
Foreign exchange forward contracts
            126,045       507,232       633,277       633,277  
 
                               
28c. Fair value
The fair value of financial assets and financial liabilities are determined as follows:
  the fair value of financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis.
  The fair value of foreign currency forward contracts is estimated using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts.
The directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximate to their fair values.

- 38 -


 

ENSON ASSETS LIMITED
28. FINANCIAL INSTRUMENTS — continued
28c. Fair value — continued
Fair value measurements recognised in the consolidated statement of financial position
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
  Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets or liabilities.
  Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
  Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The Group’s financial assets at FVTPL and financial liabilities at FVTPL consist of foreign currency forward contracts and are categorized into Level 2. There has been no transfer between Level 1 and Level 2 of the financial instruments at FVTPL throughout the years ended 31 March 2008, 2009 and 2010 and the details are as follows:
                                 
            2008     2009     2010  
            HK$     HK$     HK$  
Financial assets at FVTPL
                               
Foreign currency forward contracts
  Level 2     3,667,863       1,529,352       1,101,342  
 
                         
Financial liabilities at FVTPL
                               
Foreign currency forward contracts
  Level 2     3,167,855       1,074,946       633,277  
 
                         

- 39 -


 

ENSON ASSETS LIMITED
29. DISPOSAL OF A SUBSIDIARY
In January 2008, the Group disposed of its 100% equity interest in CG Japan Limited to an independent third party for a consideration of HK$734,000 (equivalent to JPY10,000,000).
         
    2008  
    HK$  
NET ASSETS DISPOSED OF
       
Property, plant and equipment
    92,991  
Other receivables and prepayments
    768,317  
Bank balances and cash
    2,130,864  
Other payables and accruals
    (1,565,047 )
 
     
 
    1,427,125  
Release on exchange reserve
    (247,473 )
Loss on disposal
    (445,652 )
 
     
Total consideration
    734,000  
 
     
Satisfied by:
       
Receivables from disposal of a subsidiary
    734,000  
 
     
Net cash outflow arising on disposal
       
Cash consideration
     
Bank balances and cash disposed of
    (2,130,864 )
 
     
 
    (2,130,864 )
 
     
The subsidiary disposed of during the year ended 31 March 2008 has had no significant impact to the Group’s results and cash flows during that year.
30. CAPITAL COMMITMENTS
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Contracted for but not provided in the consolidated financial statements in respect of acquisition of property, plant and equipment
    10,449,000       11,089,491       8,172,928  
Authorised but not contracted for in the consolidated financial statements in respect of acquisition of property, plant and equipment
    11,852,129       8,901,814       19,926,771  
 
                 
 
    22,301,129       19,991,305       28,099,699  
 
                 

- 40 -


 

ENSON ASSETS LIMITED
31. OPERATING LEASE COMMITMENTS
At the end of the reporting period, the Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Within one year
    710,543       621,642       621,642  
 
                 
Operating lease payments represented rentals payable by the Group for certain of its office properties. Leases negotiated for one to two years and rental was fixed during the lease term.
32. PROVIDENT FUND SCHEMES
The Group has retirement schemes covering a substantial portion of its employees in Hong Kong. The principal schemes are defined contribution schemes. The assets of these schemes are held separately from those of the Group in funds under the control of independent trustees.
With effect from 1 December 2000, the Group joined a Mandatory Provident Fund Scheme (“MPF Scheme”) for all its new employees in Hong Kong employed therefrom or existing employees wishing to join the MPF Scheme. The MPF Scheme is registered with the Mandatory Provident Fund Scheme Authority under the Mandatory Provident Fund Schemes Ordinance. The assets of the MPF Scheme are held separately from those of the Group in funds under the control of an independent trustee. Under the rules of the MPF Scheme, the employer and its employees are required to make contributions to the MPF Scheme at 5% of relevant payroll cost or at maximum HK$1,000. The only obligation of the Group in respect of MPF Scheme is to make the required contributions under the MPF Scheme.
The employees of the Group’s subsidiaries in the PRC participated in the state-managed retirement benefit scheme operated by the government of the PRC. The subsidiaries are required to contribute certain percentage of their payroll costs to the retirement benefit scheme to fund the benefits. The obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions.
For the year ended 31 March 2008, 2009 and 2010, the amounts charged to profit or loss represent contributions paid or payable to schemes by the Group of approximately HK$17,712,000, HK$14,913,000 and HK$16,473,000, respectively.
At 31 March 2008, 2009 and 2010, the Group does not have any forfeited contributions, which arose upon employees leaving the retirement benefit schemes and which are available to reduce the contributions payable in future years.

- 41 -


 

ENSON ASSETS LIMITED
33. RELATED PARTY TRANSACTIONS
Same as disclosed elsewhere and apart from details of the balances with related parties disclosed in the consolidated statement of financial position on page 3 and in notes 18, 19, 23 and 24, the Group also entered into the following significant transactions with related companies during the years ended 31 March 2008, 2009 and 2010:
                                 
Name of related company   Note   Nature of transactions   2008   2009   2010
            HK$   HK$   HK$
Hangzhou Youcheng Electron Co. Ltd.
(CHINESE CHARACTERS)
  (i)   Purchases           12,659,389       41,057,679  
Gemstar Manufacture Holding
  (i)   Administration income                 8,236,800  
Limited and its subsidiaries
      Service income                 1,287,000  
New Reward Limited
  (i)   Interest income                 408,694  
Guangzhou Newshengtong Technology Co., Ltd.
  (i)   Software maintenance
expenses
    6,256       6,789       6,812  
 
  (i)   Purchase of software     46,924              
 
Note:
 
(i)   Certain directors of the Company are also directors of and have beneficial interests in these companies.
At 31 March 2008, 2009 and 2010, a director of the Company has provided personal guarantee of HK$109,500,000 to banks in respect of general facilities granted to a subsidiary. Such personal guarantee has been reduced to approximately HK$107,000,000 subsequent to 31 March 2010.
Amount due from holding company is unsecured, interest free and repayable on demand.
Compensation of key management personnel
The remuneration of key management members of the Group during the year was as follows:
                         
    2008     2009     2010  
    HK$     HK$     HK$  
Short-term benefits
    3,509,000       4,197,000       7,296,000  
 
                 
The remuneration of executives is determined by the directors of the Company having regard to the performance of individuals and market trends.

- 42 -


 

ENSON ASSETS LIMITED
34. PARTICULARS OF PRINCIPAL SUBSIDIARIES OF THE COMPANY
Particulars of the Company’s subsidiaries as at 31 March 2008, 2009 and 2010 are as follows:
                         
    Place   Proportion of nominal    
    and date of   value of issued capital/    
    incorporation/   registered capital held   Principal
Name of subsidiary   establishment   by the Company   registration activities
        Directly   Indirectly    
CG Asia Limited
  British Virgin Islands (“BVI”)
25 June 2004
          100 %   Holding of patent
CG Group Limited
  BVI
25 June 2004
    100 %         Investment holding
C.G. Development Limited
  Hong Kong
7 April 1989
    100 %         Investment holding and trading of electronic products
C.G. Technology Limited
  Hong Kong
28 April 1989
    100 %         Provision of engineering consultancy service
C. G. Timepiece Limited
  Hong Kong
2 June 2004
          100 %   Trading of electronic products
Gemstar Polyfirst Limited
  Hong Kong
3 November 1989
    100 %         Holding of club debenture
GTC
(CHINESE CHARACTERS)
  PRC
15 August 1992
          100 %   Manufacturing and trading of electronic products
GTY
(CHINESE CHARACTERS)
  PRC
16 December 2004
          100 %   Manufacturing and trading of electronic products
35. EVENTS AFTER THE REPORTING PERIOD
The consolidated financial statements were approved and authorised for issued by the Board of Directors on 18 January 2011. The following events occurred subsequent to 31 March 2010:
On 3 November 2010, CG International entered into an agreement with UEI Hong Kong Private Limited, a wholly owned subsidiary of UEI, to dispose of its entire 100% interest in the Company to UEI Hong Kong Private Limited, for a total consideration of approximately US$125.8 million, to be satisfied in cash and UEI’s common stock. The transaction was consummated as of 3 November 2010.

- 43 -

exv99w2
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
On November 3, 2010, the Company’s subsidiary, UEI Hong Kong Private Limited, entered into an agreement to acquire all of the issued shares in the capital of Enson Assets Limited (“Enson”), a limited liability company organized under the Laws of the British Virgin Islands, for total consideration of approximately $125.8 million, in cash and Universal Electronics, Inc. (“UEI”) common stock (the “Acquisition”). The Acquisition was consummated pursuant to a Stock Purchase Agreement, dated as of November 3, 2010, among Universal Electronics Inc., UEI Hong Kong Private Limited and CG International Holdings Limited, a closely-held exempted company incorporated in the Cayman Islands.
The following unaudited pro forma combined condensed balance sheet as of September 30, 2010 and the unaudited pro forma combined condensed income statement for the year ended December 31, 2009 and the nine months ended September 30, 2010 are based on the historical financial statements of UEI and Enson, after adjusting for the effects of the Acquisition, as well as the assumptions and adjustments described in the accompanying notes to the unaudited pro forma combined condensed financial statements. Certain reclassifications were made to the Enson consolidated financial statements to conform them to UEI’s presentation. In addition, Enson’s consolidated financial statements, from which these pro forma financial statements are derived, were prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board, which did not significantly differ from U.S. GAAP.
The unaudited pro forma combined condensed balance sheet combines UEI’s historical unaudited consolidated balance sheet as of September 30, 2010 with Enson’s historical unaudited consolidated balance sheet as of September 30, 2010. UEI and Enson had different fiscal year ends. Accordingly, the unaudited pro forma combined condensed income statement for the year ended December 31, 2009 combines UEI’s historical audited consolidated income statement for the year ended December 31, 2009 with Enson’s historical audited consolidated income statement for the year ended March 31, 2010. The unaudited pro forma combined condensed income statement for the nine months ended September 30, 2010 combines UEI’s historical unaudited consolidated income statement for the nine months ended September 30, 2010 with Enson’s historical unaudited consolidated income statement based on a consecutive nine month period ended September 30, 2010.
The unaudited combined condensed pro forma balance sheet as of September 30, 2010 is presented as if the Acquisition and the related financing occurred on September 30, 2010. The unaudited pro forma combined condensed income statement for the year ended December 31, 2009 and the unaudited pro forma combined condensed income statement for the nine months ended September 30, 2010 are presented as if the Acquisition and the financing had taken place on January 1, 2009 and January 1, 2010, respectively.
The Acquisition has been accounted for under the acquisition method of accounting. Under the acquisition method of accounting, we are required to measure the identifiable assets acquired and liabilities assumed at their acquisition date fair values, with limited exceptions. Goodwill is recognized as of the acquisition date, and is the excess of the consideration transferred and the net of the acquisition date amounts of identifiable assets acquired and liabilities assumed.
The unaudited pro forma combined condensed financial statements have been prepared for illustrative purposes only and are not necessarily indicative of the consolidated financial position or income statement in future periods or the results that actually would have been realized had UEI and Enson been a combined company during the respective periods presented. The unaudited pro forma combined condensed financial statements, including the notes thereto, should be read in conjunction with UEI’s historical consolidated financial statements included in its 2009 annual report on Form 10-K filed on March 15, 2010, Current Report on Form 8-K filed on November 4, 2010 and in its Form 10-Q for the nine months ended September 30, 2010 filed on November 9, 2010, as well as Enson’s historical consolidated financial statements included as Exhibit 99.1 in this Current Report on Form 8-K/A.

1


 

UNIVERSAL ELECTRONICS INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 2010

(In thousands)
(Unaudited)
                                             
    Enson     UEI     Proforma         Pro Forma  
    (U.S. GAAP)     (U.S. GAAP)     Adjustments     Note 2   Combined  
    (HK$) *     (US$)     (US$)     (US$)         (US$)  
ASSETS
                                           
Current assets:
                                           
Cash and cash equivalents
  $ 185,573     $ 23,939     $ 23,447     $ 536     (a)   $ 47,922  
Term deposit
                49,536       (49,536 )   (a)      
Accounts receivable, net
    320,944       41,402       57,990       (9,104 )   (b)     90,288  
Inventories, net
    181,275       23,384       44,615       (528 )   (b) (c)     67,471  
Prepaid expenses and other current assets
    4,163       537       1,594       60     (c)     2,191  
Income tax receivable
                480                 480  
Deferred income taxes
                2,938                 2,938  
 
                                 
Total current assets
    691,955       89,262       180,600       (58,572 )         211,290  
Property, plant and equipment, net
    348,573       44,966       10,913       20,484     (c)     76,363  
Goodwill
                13,609       16,466     (d)     30,075  
Intangible assets, net
                11,323       25,700     (e)     37,023  
Other assets
    4,796       619       757       2,662     (c)     4,038  
Deferred income taxes
    21,847       2,818       7,853                 10,671  
 
                                 
Total assets
  $ 1,067,171     $ 137,665     $ 225,055     $ 6,740         $ 369,460  
 
                                 
 
                                           
LIABILITIES AND STOCKHOLDERS’ EQUITY            
Current liabilities:
                                           
Accounts payable
  $ 176,352     $ 22,750     $ 30,969     $ (9,104 )   (b)   $ 44,615  
Accrued sales discounts, rebates and royalties
                6,692                 6,692  
Accrued income taxes
    44,499       5,740                       5,740  
Accrued compensation
    161,134       20,786       5,650                 26,436  
Other accrued expenses
    53,146       6,856       6,088       5,874     (f)     18,818  
Notes payable
    33,845       4,366             41,000     (g)     45,366  
 
                                 
Total current liabilities
    468,976       60,498       49,399       37,770           147,667  
Long-term liabilities:
                                           
Deferred income taxes
    14,687       1,894       159       9,965     (c)     12,018  
Income tax payable
                1,348                 1,348  
Notes payable
                                 
Other long-term liabilities
                78                 78  
 
                                 
Total liabilities
    483,663       62,392       50,984       47,735           161,111  
 
                                 
 
                                           
Commitments and contingencies
                                           
 
                                           
Stockholders’ equity:
                                           
Preferred stock
                                 
Common stock
                193       15     (h)     208  
Paid-in capital
    82,217       10,606       133,078       20,142     (i)     163,826  
Accumulated other comprehensive (loss) income
    (528 )     (68 )     (168 )     68     (j)     (168 )
Retained earnings
    501,819       64,735       130,304       (61,220 )   (c) (j)     133,819  
 
                                 
 
    583,508       75,273       263,407       (40,995 )         297,685  
 
                                           
Less cost of common stock in treasury
                (89,336 )               (89,336 )
 
                                 
Total stockholders’ equity
    583,508       75,273       174,071       (40,995 )         208,349  
 
                                 
Total liabilities and stockholders’ equity
  $ 1,067,171     $ 137,665     $ 225,055     $ 6,740         $ 369,460  
 
                                 
 
*   The Enson amounts included in the pro forma combined condensed balance sheet were translated into U.S. dollars using an exchange rate of 0.129 U.S. dollars per Hong Kong dollar, which was the representative exchange rate on September 30, 2010.
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.

2


 

PRO FORMA COMBINED CONDENSED INCOME STATEMENT
(In thousands, except per share amounts)
(Unaudited)
                                             
    Enson     UEI                  
    (U.S. GAAP)     (U.S. GAAP)                  
          For the Year                  
          Ended                  
    For the Fiscal Year Ended     December 31,     Proforma         Pro Forma  
    March 31, 2010     2009     Adjustments     Note 2   Combined  
    (HK$) *     (US$)     (US$)     (US$)         (US$)  
Net sales
  $ 1,164,233     $ 150,186     $ 317,550     $ (45,311 )   (b)   $ 422,425  
Cost of sales
    899,188       115,995       215,938       (42,067 )   (b) (k)     289,866  
 
                                 
Gross profit
    265,045       34,191       101,612       (3,244 )         132,559  
 
                                           
Research and development expenses
    16,363       2,111       8,691                 10,802  
Selling, general and administrative expenses
    86,068       11,103       70,974       2,815     (l)     84,892  
 
                                 
 
                                           
Operating income
    162,614       20,977       21,947       (6,059 )         36,865  
Interest income(expense), net
    412       53       471       (559 )   (m)     (35 )
Other income (expense), net
    26,705       3,445       (241 )               3,204  
 
                                 
 
                                           
Income before provision for income taxes
    189,731       24,475       22,177       (6,618 )         40,034  
Provision for income taxes
    (36,994 )     (4,772 )     (7,502 )     (328 )   (n)     (12,602 )
 
                                 
Net income
  $ 152,737     $ 19,703     $ 14,675     $ (6,946 )       $ 27,432  
 
                                 
 
                                           
Earnings per share:
                                           
Basic
                  $ 1.07                 $ 1.81  
 
                                       
Diluted
                  $ 1.05                 $ 1.78  
 
                                       
 
                                           
Shares used in computing earnings per share:
                                           
Basic
                    13,667                   15,127  
 
                                       
Diluted
                    13,971                   15,431  
 
                                       
 
*   The Enson amounts included in the pro forma combined condensed income statement were translated into U.S. dollars using an exchange rate of 0.129 U.S. dollars per Hong Kong dollar, which was the average of the representative exchange rates for twelve months ended March 31, 2010.
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.

3


 

PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010

(In thousands, except per share amounts)
(Unaudited)
                                             
    Enson     UEI     Proforma         Pro Forma  
    (U.S. GAAP)     (U.S. GAAP)     Adjustments     Notes   Combined  
    (HK$) *     (US$)     (US$)     (US$)         (US$)  
Net sales
  $ 1,082,669     $ 139,664     $ 229,275     $ (29,874 )   (b)   $ 339,065  
Cost of sales
    824,471       106,357       154,068       (27,383 )   (b) (k)     233,042  
 
                                 
Gross profit
    258,198       33,307       75,207       (2,491 )         106,023  
 
                                           
Research and development expenses
    16,455       2,123       7,944                 10,067  
Selling, general and administrative expenses
    67,471       8,704       50,694       2,120     (l)     61,518  
 
                                 
 
                                           
Operating income
    174,272       22,480       16,569       (4,611 )         34,438  
Interest income (expense), net
    892       115       99       (439 )   (m)     (225 )
Other income, net
    7,852       1,013       62                 1,075  
 
                                 
 
                                           
Income before provision for income taxes
    183,016       23,608       16,730       (5,050 )         35,288  
Provision for income taxes
    (34,144 )     (4,405 )     (5,415 )     (166 )   (n)     (9,986 )
 
                                 
Net income
  $ 148,872     $ 19,203     $ 11,315     $ (5,216 )       $ 25,302  
 
                                 
 
                                           
Earnings per share:
                                           
Basic
                  $ 0.83                 $ 1.68  
 
                                       
Diluted
                  $ 0.81                 $ 1.65  
 
                                       
 
                                           
Shares used in computing earnings per share:
                                           
Basic
                    13,572                   15,032  
 
                                       
Diluted
                    13,897                   15,357  
 
                                       
 
*   The Enson amounts included in the pro forma combined condensed income statement were translated into U.S. dollars using an exchange rate of 0.129 U.S. dollar per Hong Kong dollar, which was the average of the representative exchange rates for nine months ended September 30, 2010.
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.

4


 

Note 1: Preliminary Purchase Price Allocation
The unaudited pro forma combined condensed consolidated financial statements have been prepared to demonstrate the financial effect of the Acquisition of Enson, which was accounted for under the acquisition method of accounting. The aggregate amount of consideration paid by UEI to acquire Enson was $125.8 million in cash and stock. The consideration transferred consisted of $95.0 million in cash and 1,460,000 of newly issued shares of UEI common stock. A total of $5.0 million of the purchase price was held back at the closing to provide for any additional payments required by Enson’s former owners as a result of Enson’s failure to meet both a net asset target and an earnings target.
Under the acquisition method of accounting, the total estimated purchase price was allocated to the Enson net tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of November 4, 2010, the Acquisition date. Based on management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the preliminary estimated purchase price is allocated as follows (in thousands):
             
    Weighted      
    Average   Preliminary  
    Estimated Lives   Fair Value  
     
Cash & cash equivalents
      $ 20,877  
Inventories
        23,600  
Accounts receivable
        36,071  
Prepaid expenses and other current assets
        2,016  
Property, plant and equipment
  23 years     68,700  
Deferred income taxes
        2,980  
Other assets
        1,426  
Interest bearing liabilities
        (2,780 )
Non-interest bearing liabilities
        (69,294 )
 
         
Net tangible assets acquired
        83,596  
Customer relationships
  10 years     23,300  
Trademark and trade name
  10 years     2,400  
Goodwill
        16,466  
 
         
Total estimated purchase price
      $ 125,762  
 
         
Prior to the end of the measurement period for finalizing the purchase price allocation, if information becomes available which would indicate adjustments are required to the purchase price allocation, such adjustments will be included in the purchase price allocation retrospectively.
Intangible Assets Subject to Amortization
Of the total estimated purchase price, $83.6 million has been allocated to net tangible assets acquired, and $25.7 million has been allocated to intangible assets acquired. The intangible assets consist of $23.3 million assigned to customer relationships and $2.4 million assigned to trademark and trade name.
The value assigned to Enson’s customer relationships intangible asset was determined utilizing the income approach, discounting the estimated cash flows associated with the existing customers as of the Enson Acquisition date taking into consideration estimated attrition of this existing customer base. UEI expects to amortize the value of Enson’s customer relationships on a straight-line basis over an estimated life of ten years. Amortization of customer relationships is not deductible for tax purposes.

5


 

The value assigned to Enson’s trademark and trade name intangible asset was determined utilizing the income approach, discounting the future estimated cash flows associated with the trade mark and trade name. UEI expects to amortize the value of Enson’s trademark and trade name on a straight-line basis over an estimated life of ten years. Amortization of trademark and trade name is not deductible for tax purposes.
Goodwill
Goodwill represents the excess of the cost (purchase price) over the estimated fair value of identifiable tangible and intangible assets acquired. Goodwill from this transaction of $16.5 million will not be amortized, but will be analyzed for impairment at least on an annual basis in accordance with U.S. GAAP. We review our goodwill for impairment annually as of December 31 and whenever events or changes in circumstances indicate that an impairment loss may have occurred. Of the total goodwill recorded, none is expected to be deductible for tax purposes.
The goodwill recognized is attributable to the following value we received from the Acquisition:
  Enson should increase the Company’s market position in the strategically important consumer electronics market with its historic strength with leading Japanese customers. The Company has not historically been well positioned in this market.
 
  Enson currently produces approximately one-third of the Company’s volume, therefore, the Company may decrease third party supplier purchases. In addition, Enson has available manufacturing capacity, which may provide it the ability to increase utilization of its existing factories.
 
  The Company may utilize Enson’s in-place management and personnel to assist in implementing its plan to place more operations, logistics, quality, program management, engineering, sales, and marketing personnel in the Asia region.
 
  Enson’s full line of remotes, from dedicated to higher-end universal, should assist the Company to further penetrate the growing Asian and Latin American subscription broadcasting markets. The lower subscriber revenue in these markets can cause them to begin with lower-cost dedicated remotes and to later transition to universal remote controls.
 
  Acquiring Enson should allow the Company to gain purchasing economies.
Acquisition Costs
We recognized $0.7 million of total acquisition costs related to the Enson transaction in selling, general and administrative expenses during the year ended December 31, 2010. The acquisition costs consisted primarily of legal and investment banking services. Such acquisition costs have not been included in the pro forma combined income statements.
Note 2: Pro Forma Adjustments
Pro forma adjustments are made primarily to reflect the estimated purchase price of the Acquisition, to adjust Enson’s tangible assets, intangible assets and liabilities to a preliminary estimate of the fair values of those assets and liabilities, and to reflect the amortization expense related to the intangible assets.
The specific pro forma adjustments included in the unaudited pro forma financial statements are as follows:
a)   Prior to the acquisition we had a $49.5 million term deposit at Wells Fargo Bank. We elected to liquidate this term deposit account to assist us with the funding of the acquisition. This adjustment is to reflect the liquidation of the term deposit and the payment of $49.0 million in cash towards the purchase consideration.
 
b)   To eliminate intercompany transactions and balances between Enson and UEI.

6


 

c)   To reflect the fair value of assets acquired and liabilities assumed as if the acquisition date was September 30, 2010. The adjustment is equal to the difference between the fair value identified in the valuation (see Note 1) and the net book value at September 30, 2010.
 
d)   To recognize goodwill of $16.5 million related to the Acquisition.
 
e)   To reflect the fair value of the customer relationships estimated as $23.3 million and the fair value of the trademark and trade name estimated as $2.4 million.
 
f)   This adjustment reflects the $5.0 million of the purchase price which was held back at the closing, the accrual of transaction costs and costs associated with the Acquisition of $0.6 million, and the current portion of the deferred tax liability established as a result of the purchase price accounting.
 
g)   This adjustment adds the $6.0 million withdrawn from our Credit Facility and the $35 million Term Loan balances incurred to fund a portion of the purchase consideration. Related to this acquisition, UEI amended and restated its existing credit agreement with U.S. Bank. The amendments added a new $35 million secured Term Loan for the purpose of financing a portion of the Acquisition. In addition, UEI’s existing $15 million unsecured Credit Facility was increased to $20 million and the expiration date was extended from October 31, 2011 to November 1, 2012. Under the Term Loan, UEI may elect to pay interest based on the bank’s prime rate or LIBOR plus a fixed margin of 1.5%. The Term Loan maturity is November 1, 2011.
 
h)   To adjust the common stock balance for the 1,460,000 shares of UEI common stock issued in connection with the Acquisition. Such shares were valued based on the average of the high and low trades of UEI common stock on November 4, 2010.
 
i)   To eliminate Enson’s paid-in capital of $10.6 million and to reflect the issuance of 1,460,000 shares of common stock valued at $30.7 million in connection with the Acquisition.
 
j)   To eliminate Enson’s other comprehensive income and retained earnings.
 
k)   To reflect the depreciation effects caused by the purchase accounting fair value adjustments to property, plant and equipment, net, which amounted to $0.9 million and $0.7 million for the twelve months ended December 31, 2009 and nine months ended September 30, 2010, respectively. In addition, to reflect the cost of goods sold effect of the write-up of inventories, net to fair value of $1.6 million as a result of the purchase accounting for the twelve months ended December 31, 2009 and the nine months ended September 30, 2010.
 
l)   To reflect the amortization of intangible assets acquired of $1.9 million and $2.6 million for the nine months ended September 30, 2010 and the twelve months ended December 31, 2009, respectively. To reflect the depreciation effects caused by the purchase accounting fair value adjustments to property, plant and equipment, net.
 
m)   To record the interest expense related to the US Bank Term Loan and secured Credit Facility which was obtained for the purpose of funding the Acquisition. This interest expense adjustment for the Term Loan was calculated assuming the minimum required principle payments were made in accordance with the agreement and utilizing the interest rate in effect at the Acquisition date (1.8%). The balance on the secured Credit Facility was outstanding for 37 days, as the balance was paid in full on December 10, 2010. The interest expense adjustment for the secured Credit Facility was the actual interest expense incurred.
 
n)   To reflect the effect of the pro forma income statement adjustments on the provision for income taxes. The recognized intangible assets are not expected to be deductible for tax purposes; however we have included some tax effects with this adjustment for the amortization of the deferred tax liability associated with the acquisition.

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The unaudited pro forma combined condensed consolidated financial statements do not include adjustments for liabilities related to business integration activities related to the Acquisition, as management is in the process of assessing what, if any, future actions are necessary. However, liabilities ultimately may be recorded for costs associated with business integration activities related to the Acquisition in our consolidated financial statements.
UEI has not identified any material pre-Acquisition contingencies where the related asset, liability or impairment is probable and the amount of the asset, liability or impairment can be reasonably estimated.

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