2012 Annual Report - ZTE

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ZTE CORPORATIONMaterial Mattersdate was 18 July 2012, for A shares. In respect of H shares, the record date was 4 June 2012, and the dividendpayment date was 18 July 2012. For details, please refer to the “Information on Payment of Final Dividend”published by the Company on 10 July 2012.(XI)CAPITAL REDUCTION OF FOUR SUBSIDIARIES OF THE COMPANY BY WAY OF JUXIAN’S DISPOSALOF EQUITY INTERESTS AND THE COMPANY’S ACQUISITION OF 10% EQUITY INTERESTS INGUANGDONG NEW PIVOT FROM JUXIANAt the Thirty-first Meeting of the Fifth Session of the Board of the Directors of the Company, it was approvedthat four subsidiaries, namely ZTE Kangxun, Zhongxing Microelectronics, Zhongxing Software and Changfei wouldreduce their respective capital by way of the disposal by Juxian of its respective equity interests in the saidcompanies, upon the completion of which Juxian would no longer hold any equity interest in the said companies;and that the Company would acquire from Juxian a 10% equity interest in Guangdong New Pivot.The aforesaid matter constituted a connected transaction under the Hong Kong Listing Rules but not underthe Shenzhen Listing Rules. For details please refer to the “CONNECTED TRANSACTIONS — INCREASE OFINTEREST IN FIVE SUBSIDIARIES BY WAY OF CAPITAL REDUCTIONS AND EQUITY ACQUISITION” publishedby the Company on 16 July 2012.(XII) “DEVELOPMENT FINANCING STRATEGIC COOPERATION AGREEMENT” BETWEEN THE COMPANYAND CHINA DEVELOPMENT BANKOn 4 December 2012, the Company entered into a “Development Financing Strategic Cooperation Agreement” withChina Development Bank (“CDB”), pursuant to which CDB would provide a USD20 billion facility for cooperation,comprising financing facilities for the Company’s overseas projects and credit facilities for the Company. Theaforesaid agreement shall form the framework of business cooperation for an effective period of five years. Separateagreements shall have to be signed by the two parties in respect of specific cooperation entered into under thisAgreement. For details please refer to the “Announcement on the ‘Development Financing Strategic CooperationAgreement’ with China Development Bank” published by the Company on 4 December 2012.(XIII) PROGRESS OF THE FACILITY AGREEMENTOn 8 July 2011, ZTE HK, a wholly-owned subsidiary of the Company, entered into a facility agreement with atotal amount of USD900 million with 10 banks including BOCHK (the “Facility Agreement”), in respect of whichthe Company entered into a guarantee letter providing guarantee for this agreement. For details, please refer tothe “Announcement on the Facility Agreement and the Provision of Guarantee to a Wholly-owned Subsidiary”published by the Company on 8 July 2011.Pursuant to the Facility Agreement and the guarantee letter signed by the Company, the lending banks haveimposed certain restrictions in relation to certain financial indicators of the Group. If the Group’s financial indicatorsfail to meet the requirements under the Facility Agreement and the guarantee letter, the lending banks shall havethe right to demand early loan repayment from ZTE HK. As at the end of the reporting period, the Group failedto comply with the requirement of the Facility Agreement in respect of one financial indicator. ZTE HK has appliedto the lending banks for exemption from early loan repayment, and such application for exemption will take effectwhen the approval of no less than 2/3 of facility amount is granted. As at 27 March 2013, approval has beenobtained in respect of 58% of the facility amount. Taking into consideration of the Group’s liquidity, the operatingconditions and liquid capital of ZTE HK (amounting to HKD19.7 billion as at the end of the 2012 reporting period)and the status of negotiations with the lending banks, the Company is of the view that the matter will not haveany significant impact of the Group’s operations.76
ANNUAL REPORT 2012(XIV) SIGNIFICANT CONNECTED TRANSACTIONS1. Significant connected transactions under domestic laws and regulations(1) Connected transactions in the ordinary course of businessThe ordinary connected transactions of 2012 disclosed in the following table represented connected transactionsthat reached the benchmark for public disclosure as defined under the Shenzhen Listing Rules.Counterparty toconnected transactionShenzhen ZhongxingxinTelecommunicationsEquipment CompanyLimited and subsidiariesShenzhen ZhongxingXindi TelecommunicationsEquipment CompanyLimited, ShenzhenZhongxing Xinyu FPCCompany Limited,Shenzhen ZhongxingXinzhou CompleteEquipment CompanyLimitedMobi Antenna Technologies(Shenzhen) Co., Ltd.Huatong TechnologyCompany Limited( 華通科技有限公司 )Nature ofconnection Classification Subject matterControllingshareholder of theCompany and itssubsidiariesA company atwhich a supervisorof the Company’scontrollingshareholder actedas directorSubsidiary of thecompany for whichthe Chairman of theCompany co-actedas chairmanZhongxing Software A company theTechnology (Nanchang)Company Limited ( 中興軟件技術 ( 南昌 ) 有限公司 )Shenzhen Zhongxing HetaiHotel Investment andManagement CompanyLimited or its subsidiariesZhongxing DevelopmentCompany LimitedChongqing ZhongxingDevelopment CompanyLimitedZhongxing Hetai or itssubsidiariesmajority of boardmembers of whichcan be controlledby anothercompany for whichthe Chairman of theCompany co-actedas chairmanSubsidiary of thecompany for whichthe Chairman of theCompany co-actedas chairmanPurchase of rawmaterialsPurchase of rawmaterialsPurchaseof softwareoutsourcingservicesPurchaseof softwareoutsourcingservicesPurchase ofhotel serviceA company for Property leasingwhich the Chairmanof the Company coactedas chairmanSubsidiary of theCompany for whichthe Chairman of theCompany co-actedas chairmanSubsidiary of thecompany for whichthe Chairman of theCompany co-actedas chairmanProperty leasingLease ofproperty andequipment andfacilitiesThe purchase ofvarious products suchas cabinets, cases,distribution frames,flexible circuit boards andshelters by the Companyfrom the connected partyThe purchase ofvarious products suchas communicationsantennas and radiofrequency transmitter bythe Company from theconnected partyThe purchase ofpersonnel hiring andproject outsourcingservices by the Companyfrom the connected partyThe purchase ofpersonnel hiring andproject outsourcingservices by the Companyfrom the connected partyThe purchase of hotelservices by the Companyfrom the connected partyLease of property locatedat No. 19 Huayuan EastRoad, Haidian District,Beijing with an intendedleased area of 32,000sq.m. by the Companyfrom the connected partyLease of property locatedat No. 3 Xing GuangWu Road, North NewDistrict, Chongqingwith an intended leasedarea of 20,000 sq.m. bythe Company from theconnected partyThe lease of property andrelated equipment andfacilities to the connectedparty by the CompanyPricingprinciplePurchase ofraw materialsand lease ofproperties bythe Companyand itssubsidiariesfromconnectedpartiesat pricesdeterminedthrougharm’s lengthnegotiationsand onthe basisof normalcommercialterms. Pricesat which theGroup madepurchases fromthe connectedparties werenot higherthan prices atwhich similarproducts ofcomparablequantity aresold to otherusers by theconnectedparties. Pricesat which theGroup leasedproperties fromconnectedparties werenot higherthan marketrent levelsfor similarproperties inneighbouringarea. Theprices ofleasedproperties weredeterminedthrougharm’s lengthnegotiationsbased onnormalcommercialterms.Price (RMB)Cabinets and accessories:RMB1–RMB31,000 per unit andCases and accessories: RMB1–RMB17,000 per unit depending onlevel of sophistication; Distributionframes and accessories: RMB2-RMB150,000 per unit dependingon level of sophistication andfunctional features; flexible circuitboards: RMB0.3–RMB50 perunit depending on measurement,technical parameters and functionalfeatures; Shelter: RMB20,000–RMB100,000 per unit, depending onmeasurement, materials used andconfiguration.Communication antenna:RMB320–RMB2,500 per pieceand radio frequency Transmitter:RMB350–4,100 per unit, dependingon technical parameters andfunctional features.Intermediate-grade engineer at aprice ranging from RMB330–450per head/day; junior engineer at aprice ranging from RMB230-320per head/dayIntermediate-grade engineer at aprice ranging from RMB330–450per head/day; junior engineer at aprice ranging from RMB230–320per head/daySingle room: RMB240–380/night;double room: RMB240–380/night;suite: RMB500–600/nightMonthly rent of RMB115/sq.m.(property management undertakenby ZTE and no management feesare payable)Monthly rent of RMB45/sq.m. andRMB40/sq.m. for the office andcafeteria respectively and monthlymanagement fee of RMB2.5/sq.m.Rent was RMB34/sq.m./month forhotel in Dameisha in Shenzhen;RMB27/sq.m./month for hotel inNanjing; RMB55/sq.m./month forhotel in Shanghai; and RMB24/sq.m./month for hotel in Xi’an.Rental fee for related equipmentand facilities will be based onthe monthly rate of amortizationof assets.Amount(RMB in tenthousands)As apercentage oftransactionsin the sameclassification(%) Settlement51,136 1.11% Commercialacceptancebill27,810.6 0.60% CommercialacceptancebillMarket Domesticprice announcement(RMB) dateN/A28 October2009; 30December 2009Domestic announcementindexAnnouncement No.200942 “Announcementon Projected ContinuingConnected Transactionsunder the RulesGoverning Listing ofStocks on ShenzhenStock Exchange”;Announcement No.200950 “Announcementon the Resolutions ofthe Second ExtraordinaryGeneral Meeting of 2009N/A 28 October 2011 Announcement No.201144 “Announcementon Projected ContinuingConnected Transactionsunder the RulesGoverning Listing ofStocks on ShenzhenStock Exchange”5,212.82,139.30.11% Tele-transfer0.05% Tele-transferN/A 27 June 2012N/AAnnouncement No.201234 “Announcementon Projected ContinuingConnected Transactionsunder the RulesGoverning Listing ofStocks on ShenzhenStock Exchange”1,682.5 0.04% Tele-transfer N/A4,064.51 6.23% Tele-transfer N/A 28 April 2010 Announcement No.201051 “Announcementon ConnectedTransactions”892.97 1.37% Tele-transfer N/A 14 December2011Announcement No.201153 “Announcementon ConnectedTransactions”1,409.54 34.59% Tele-transfer N/A 27 June 2012 Announcement No.201234 “Announcementon Projected ContinuingConnected Transactionsunder the RulesGoverning Listing ofStocks on ShenzhenStock Exchange”Total — — 94,348.22 N/A — — — —77
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2012 Annual Report - ZTE

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