2006 - TCL Communication Technology Holdings Limited

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TCL COMMUNICATION TECHNOLOGY HOLDINGS LIMITED Management Discussion and Analysis 2005: HK$35,447,000). Deposit balance of approximately HK$36,603,000 (31 December 2005: HK$18,870,000) represented the retention guarantee for factored trade receivables. Capital Commitment and Contingent Liabilities As at 31 December 2006, the Group had no capital commitments contracted, but not provided for (31 December 2005: HK$18,111,000). US$1.5 million was contracted for an investment at 31 December 2005. The Group had the following contingent liabilities: One of the Group’s subsidiaries, T&A Mobile Phones Suzhou Limited (“T&A Suzhou”) was involved in a patent infringement litigation brought by Hubin, Huxuanhua and Dalian Hanpu Applied Technology Co., Ltd. (the “plaintiff”) in March 2001. In May 2002, the PRC trial court rendered civil judgment in favor of T&A Suzhou with no damages or expenses to be borne by them. In the same month, the plaintiff appealed to the High Court and up to date, the appellate proceeding has been resolved. According to the legal opinion from the Group’s PRC lawyer, the judgment in favor of T&A Suzhou. Accordingly, no provision was made for such litigation in the financial statements. In October 2006, two subsidiaries of the Group, T&A Mobile Phones Europe SAS and T&A Mobile Phones International Limited, were involved in an European claim for disputed amount for patent royalty payment bought by a GSM essential patents holder (the “plaintiff”). The case is proceeding in the European courts as of the date of this report. No judgment or decision has been made in favor or against either party on the merit of the case. In preparation for the potential claims against T&A Mobile Phones Europe SAS and T&A Mobile Phones International Limited, the Group has made provisions sufficiently to meet the demands pleaded by the plaintiff. The parties have engaged in settlement discussions and continue to meet to settle the disputed royalty amounts amicably. The directors have estimated that the maximum financial impact to the Group relating to the above claim and have accrued in the Group’s financial statements for the year ended 31 December 2006 to provide for the claims and proceedings. In the opinion of the directors, based on legal advice from the Company’s lawyers engaged in this action, any resulting liabilities to the subsidiary of the Group regarding the aforesaid claims would not have material or adverse impact on the Group’s financial position given the current provisions provided to date. Therefore, no further provision in respect of royalty payment was considered necessary to be made in the financial statements. Foreign Exchange Exposure The Group has transactional currency exposures. Such exposures arise from sales or purchases by operating units in currencies other than the units’ functional currency, where the revenue is predominately in Euro, USD and RMB. The Group tends to accept foreign currency exchange risk avoidance or allocation terms when arriving at purchase and sales contracts. The Group takes rolling forecast on foreign currency revenue and expenses, matches the currency and amount incurred, so as to alleviate the impact to business due to exchange rate fluctuation. Employees and Remuneration Policy The Group had approximately 3,600 employees as at 31 December 2006. Total staff costs for the period under review were approximately HK$334 million. The remuneration policy was in line with current legislation, market conditions and both individual and company performance. 18 Annual Report 2006
Attraction TALKS We offer a wide range of products at entry level for different market segments, from voice phones with superior voice performance, to camera phones of high mega pixel and multimedia functions. Insisting on the moto of offering “World quality@Chinese values”, our products are attractive in terms of design, function and price Annual Report 2006 19
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2006 - TCL Communication Technology Holdings Limited

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