Neither an audit nor a review provides assurance on the maintenance and integrity of
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Legislation in the United Kingdom governing the preparation and dissemination of
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Telit Communications PLC
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2006
Revenue
Cost of sales
Gross profit
Other income
Research and development expenses
Selling and marketing expenses
General and administrative expenses
Other expenses
Operating loss
Investment income
Finance costs
Share of results of associated undertakings
Loss before income taxes
Income taxes
Loss for the year from continuing operations
Loss for the year from discontinued operations
Loss for the year
Attributable to:
Equity shareholders of the parent
Minority interests
Basic loss per share (in euro cents)
From continued operations
From discontinued operations
Total continuing and discontinued
Diluted loss per share (in euro cents)
From continued operations
From discontinued operations
Total continuing and discontinued
(*) See Note 1(z).
27
2 0 0 6
Note
€’000
2 0 0 5
(Restated*)
€’000
2
4
5
6
7
8
10
11
12
12
86,780
(70,574)
85,914
(71,331)
16,206
14,583
1,438
(8,149)
(9,317)
(9,968)
(563)
1,134
(3,914)
(5,293)
(7,372)
(215)
(10,353)
(1,077)
190
(1,169)
(41)
656
(938)
(164)
(11,373)
(1,523)
(11)
(1,338)
(11,384)
(2,861)
-
(1,306)
(11,384)
(4,167)
(11,319)
(65)
(11,384)
(4,167)
-
(4,167)
(26.2)
-
(26.2)
(26.2)
-
(26.2)
(7.8)
(3.5)
(11.3)
(7.8)
(3.5)
(11.3)
Telit Communications PLC
BALANCE SHEETS
At 31 December 2006
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Investments
Other long term assets
Deferred tax asset
Current assets
Inventory
Trade receivables
Other current assets
Deposits – restricted cash
Cash and cash equivalents
Total assets
LIABILITIES AND SHAREHOLDERS'
EQUITY
Shareholders’ equity
Share capital
Other reserve
Share premium
Translation reserve
Retained earnings
Total shareholders’ equity
Minority interests
Total equity
Non-current liabilities
Loan from parent company
Post-employment benefits
Deferred tax liabilities
Other long-term liabilities
Current liabilities
Short-term borrowings from banks and other
lenders
Trade payables
Other current liabilities
Total equity and liabilities
Group
Company
2 0 0 6
Notes
€’000
2 0 0 5
(Restated*)
€’000
2 0 0 6
€’000
2 0 0 5
(Restated*)
€’000
13
14
15
17
10
16
17
17
18
18
19
25
20
10
21
21
21
7,710
3,019
579
303
3,696
15,307
10,284
17,452
6,806
7,115
3,926
45,583
60,890
616
1,414
649
73
3,696
6,448
12,030
33,286
4,357
4,000
13,207
66,880
73,328
-
-
27,741
-
-
27,741
-
-
574
7,115
1,376
9,065
36,806
-
-
20,652
-
-
20,652
-
-
493
4,000
11,781
16,274
36,926
627
(260)
29,651
(584)
(6,669)
22,765
1,248
627
(260)
29,651
(284)
3,432
33,166
627
5,894
29,651
-
(318)
35,854
627
5,894
29,651
-
68
36,240
-
-
-
24,013
33,166
35,854
36,240
2,035
1,226
1,193
244
4,698
17,375
10,584
4,220
32,179
60,890
3,054
856
-
106
4,016
22,823
8,955
4,368
36,146
73,328
-
-
-
-
-
-
-
-
-
-
-
16
936
952
36,806
-
65
621
686
36,926
(*) See Note 1(z).
The financial statements on pages 27 to 65 were approved by the board and authorised for issue on 21 March
2007 and are signed on its behalf by:
Oozi Cats
Director
28
Telit Communications PLC
CASH-FLOW STATEMENTS
For the year ended 31 December 2006
Group
Company
2 0 0 6
€’000
2 0 0 5
(Restated*)
€’000
2 0 0 6
€’000
2 0 0 5
(Restated*)
€’000
CASH FLOWS – OPERATING ACTIVITIES
Net cash from/ (used in) operating activities
(Note 26)
8,046
(5,025)
(1,058)
(41)
CASH FLOWS - INVESTING ACTIVITIES
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Purchase of intangible assets
Acquisition of subsidiaries (nil cash acquired)
Investment in subsidiary
Loan to subsidiary
Additions to financial assets
Proceeds from disposal of financial assets
Increase in restricted cash deposits
Additions to long term receivables
(2,074)
25
(513)
(5,396)
-
-
-
-
(3,000)
(56)
(431)
41
(622)
-
-
-
(190)
211
(4,000)
(27)
-
-
-
-
(13)
(6,461)
-
-
(3,000)
-
-
-
-
-
-
(14,500)
-
-
(4,000)
-
Net cash used in investing activities
(11,014)
(5,018)
(9,474)
(18,500)
CASH FLOWS - FINANCING ACTIVITIES
Repayment of short-term borrowings from banks and
others
Short-term borrowings from banks
Repayment of loan from parent company
Proceeds from issuance of share capital
(13,224)
8,000
(1,019)
-
(7,772)
-
-
30,019
Net cash (used in)/ from financing activities
(6,243)
22,247
-
-
-
-
-
-
-
-
30,019
30,019
(Decrease)/ increase in cash and cash equivalents
Cash and cash equivalents - balance at beginning of
year
Effect of exchange rate differences
(9,211)
12,204
(10,532)
11,478
13,207
(70)
582
421
11,781
127
-
303
Cash and cash equivalents - balance at end of year
3,926
13,207
1,376
11,781
Supplemental disclosure of cash flow information
(included in cash flow from operating activities):
Interest paid
Interest received
Income taxes paid
(*) See Note 1(z).
896
1,029
-
-
318
336
320
307
739
1,240
-
-
29
Telit Communications PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2006
Year ended 31 December 2006
Share
capital
€’000
Share
premium
€’000
Other
reserve
€’000
Translation
adjustment
€’000
Retained
earnings
€’000
Total
€’000
Minority
interest
€’000
Total
€’000
1 January 2006
627
29,651
(260)
(284)
3,432
33,166
-
33,166
Arising on acquisition
Translation
adjustments
Share-based payment
charge
Loss for the year
31 December 2006
-
-
-
-
-
-
-
-
-
-
-
-
-
(300)
-
-
-
-
-
1,317
1,317
(300)
(4)
(304)
1,218
1,218
-
1,218
(11,319)
(11,319)
(65)
(11,384)
627
29,651
(260)
(584)
(6,669)
22,765
1,248
24,013
Year ended 31 December 2005
Share
capital
€’000
Share
premium
€’000
Other
reserve
€’000
Translation
adjustment
€’000
Retained
earnings
€’000
Total
€’000
1 January 2005
Arising on transfer of
subsidiaries under
common control
-
-
-
-
Issue of share capital
627
29,651
Translation
adjustments
Share-based payment
charge
Loss for the year
31 December 2005
-
-
-
-
-
-
-
(915)
7,067
6,152
(260)
-
-
-
-
-
-
631
-
-
-
-
-
532
(260)
30,278
631
532
(4,167)
(4,167)
627
29,651
(260)
(284)
3,432
33,166
The other reserve arose on the transfer of the subsidiaries under common control and represents the nominal
value of shares issued in this transaction.
30
Telit Communications PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2006
Year ended 31 December 2006
Share
capital
€’000
Share
premium
€’000
Other
reserve
€’000
Retained
earnings
€’000
Total
€’000
1 January 2006
627
29,651
5,894
68
36,240
Loss for the year
-
-
-
(386)
(386)
31 December 2006
627
29,651
5,894
(318)
35,854
Year ended 31 December 2005
Share
capital
€’000
Share
premium
€’000
Other
reserve
(Restated*)
€’000
Retained
earnings
€’000
1 January 2005
-
-
-
Issue of share capital
627
29,651
5,894
Loss for the year
-
-
-
31 December 2005
627
29,651
5,894
-
-
68
68
Total
€’000
-
36,172
68
36,240
(*) See Note 1(z).
The other reserve arose on the issue of 1,790,785 shares to Polar Investments Ltd. (“Polar”) in consideration
for the transfer of Polar’s investment in Dai Telecom Holdings (2000) Ltd. and Dai Telecom Ltd., the assets
and liabilities of which were recorded at their previous carrying value.
31
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
1.
ACCOUNTING POLICIES
(a) General information
The consolidated financial statements for the years ended 31 December 2006 and 31 December 2005
have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted
by the European Union and in accordance with the provisions of the Companies Act 1985 applicable
to companies reporting under IFRS and Article 4 of the EU IAS Regulation.
Telit Communications PLC is a public limited company registered in England and Wales. The
registered office is given on page 66. The nature of the Group’s operations and its principal activities
are set out in note 3 and in the Chief Executive's statement and review on pages 9 to 14.
The financial statements have been prepared on the historical cost basis, except for the revaluation of
certain assets and liabilities which are measured at fair value and in accordance with Companies Act
1985 and applicable IFRSs. The principal accounting policies adopted are set out below.
(b) Functional and presentational currency
The consolidated financial statements are presented in Euros as this is the primary economic
environment of the Group, which differs from the functional currency of those subsidiaries that are not
located in the euro zone.
The assets and liabilities of the Company’s subsidiaries that have a functional currency other than the
Euro are translated at the closing exchange rates prevailing on the balance sheet date. Income and
expense items and cash flows are translated at the average exchange rates for the period. Exchange
rate differences arising, from the translation of the above mentioned items, are recorded directly to the
shareholders’ equity as a separate component called "translation adjustment". Goodwill and intangible
assets arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity.
(c) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities
controlled by the Company (its subsidiaries) made up to 31 December, each year. Control is achieved
where the Company has the power to govern the financial and operating policies of an investee entity
so as to obtain benefits from its activities.
The results of subsidiaries acquired during the year are included in the consolidated income statement
from the effective date of acquisition.
All intra-group transactions and balances between the Group’s companies are eliminated on
consolidation.
Minority interests in the net assets of consolidated subsidiaries are identified separately from the
Group’s equity therein. Minority interests consist of the amount of those interests at the date of the
original business combination and the minority’s share of changes in equity since the date of the
combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s
equity are allocated against the interests of the Group except to the extent that the minority has a
binding obligation and is able to make an additional investment to cover the losses.
32
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
(d) Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition
is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities
incurred or assumed, and equity instruments issued by the Group in exchange for control of the
acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable
assets and liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are
recognised at their fair values at the acquisition date.
Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the
excess of the cost of the business combination over the Group’s interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities recognised.
The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion
of the net fair value of the assets, liabilities and contingent liabilities recognised.
(e) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and short term deposits with maturity of
three months or less that are readily convertible to cash and are subject to an insignificant risk of
changes in value.
(f) Trade receivables
Trade receivables are recognised and carried at original invoice amount, which the Directors consider
to be equal to fair value. Approximate allowances for estimated uncollectible amounts are recognised
in profit or loss when there is objective evidence that the asset is impaired.
(g)
Inventories
Commercial finished goods are presented at the lower of cost or net realisable value, with cost
determined on a "first-in, first-out" method.
Produced finished goods are stated at the lower of cost or net realisable value. Cost comprises direct
materials and, where applicable, direct labour costs and those overheads that have been incurred in
bringing the inventories to their present location and condition. Cost is calculated using the weighted
average method. Net realisable value represents the estimated selling price less all estimated costs of
completion and costs to be incurred in marketing, selling and distribution.
Raw materials are presented at the lower of cost or net realisable value, with cost calculated using the
weighted average method.
(h)
Investments
Investments in associated undertakings
An associate is an entity over which the Group is in a position to exercise significant influence, but not
control, through participation in the financial and operating policy decisions of the associate.
The results, and assets and liabilities of the associate are incorporated in the financial statements using
the equity method of accounting. The investment in the associate is carried in the balance sheet at cost
as adjusted by post-acquisition changes in the Group’s share of the net assets of the associate, less any
impairment in the value of individual investments. Losses of the associate in excess of the Group’s
interest in those associates are not recognised.
Any excess of the cost of acquisition over the Group’s share of the fair value of the identifiable net
assets of the associate at the date of acquisition is recognised as goodwill.
33
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
Company - Investments in subsidiaries
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
(i)
Impairment of investments in associated undertakings
The Company considers at each balance sheet date whether there are any indications of impairment in
the value of its investment in associated undertakings. If the book value of an investment in a non-
subsidiary investee exceeds its recoverable value, the Company recognises an impairment loss.
(j)
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognised
impairment loss.
Depreciation is charged so as to write off the cost over the estimated useful life of the assets, using the
straight-line method.
Depreciation rates are as follows:
Office furniture and equipment
Computers and software
Vehicles
Leasehold improvements
Machines and equipment
%
6-15
33
15
10-14
10-25
The gain or loss arising on the disposal of an asset is determined as the difference between the sale
proceeds and the carrying amount of the asset and is recognised in the income statement.
(k) Goodwill
Goodwill arising on the acquisition of an entity represents the excess of the cost of acquisition over the
Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of
the entity recognised at the date of acquisition.
Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any
accumulated impairment losses. Goodwill is held in the currency of the acquired entity and revalued to
the closing rate at each balance sheet date. Goodwill is not subject to amortisation.
For the purposes of impairment testing, goodwill is allocated to the cash-generating unit to which it
relates. Cash generating units to which goodwill has been allocated are tested for impairment annually,
or more frequently when there is an indication that the unit may be impaired. If the recoverable
amount of the cash generating unit is less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to other
assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment
loss recognised for goodwill is not reversed in a subsequent period.
34
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
(l) Other intangible assets
Other intangible assets with finite lives are stated at cost less accumulated amortisation and
impairment losses. Amortisation is charged to the income statement on a straight-line basis over the
estimated useful lives of intangible assets from the date they are available for use. The amortisation
rates are as follows:
Software- 3 years
Customer relationships – 5 years
Development cost– 3 years
(m)
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, 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 any such indication exists, the recoverable amount of the asset is estimated in order to determine the
extent of the impairment loss. Where the asset does not generate cash flows that are independent from
other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset
belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in
use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset
for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying
amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is
recognised as an expense immediately.
(n)
Income taxes
The 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 net profit
as reported in the income statement because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates that have been enacted by the balance
sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying
amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the
computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the
temporary difference arises from the initial recognition (other than in a business combination) of other
assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the
extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of
the assets to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is
settled or the asset is realised. Deferred tax is charged or credited in the income statement, except
when it relates to items charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
35
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
(o) Trade payables
Trade payables are not interest bearing and are stated at their nominal value.
(p) Provision for warranty costs
A provision for warranty costs is recognised at the date of sale of the relevant products, at the best
estimate of the expenditure required to settle the Group's liability.
(q) Retirement benefit costs
For defined benefit retirement benefit schemes, the cost of providing benefits is determined using the
Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date.
Actuarial gains and losses are recognised in full in the income statement in the period in which they
occur.
The retirement benefit obligation recognised in the balance sheet represents the present value of the
defined benefit obligation as adjusted for unrecognised past service cost, and as reduced by the fair
value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus
the present value of available refunds and reductions in future contributions to the plan.
The values attributed to plan liabilities that are material to the financial statements are assessed in
accordance with the advice of independent qualified actuaries.
(r) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents
amounts receivable for goods and services provided in the normal course of business, net of discounts,
VAT and other sales related taxes.
Sales of goods are recognised when goods are delivered and title has passed.
Revenues from services are recognised as the services are provided.
(s) Leases
Rentals payable under operating leases are charged to statement of income on a straight-line basis over
the term of the relevant lease. Benefits received and receivable as an incentive to enter into an
operating lease are also spread on a straight line basis over the lease term.
(t)
Borrowing costs
Borrowing costs are recognised in profit or loss in the period in which they are incurred.
(u) Government grants
Government grants are recognised when it is reasonable to expect that the grants will be received and
that all related conditions will be met.
Government grants relating to employment are recognised as income over the periods necessary to
match them with the related cost and are recognised in other income.
36
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
(v) Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group
becomes a party to the contractual provisions of the instrument.
(w) Share-based payments
The Group has applied the requirements of IFRS 2 Share-based payment. In accordance with the
transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November
2002 that were unvested as of 1 January 2005.
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-
based payments are measured at fair value at the date of grant. The fair value determined at the grant
date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting
period, based on the Group's estimate of shares that will eventually vest.
Fair value is measured using the Black-Scholes model. The expected life used in the model has been
adjusted, based on management's best estimate, for the effects of non-transferability, exercise
restrictions, and behavioral considerations.
(x)
Loss per share
Basic and diluted loss per share is computed on the basis of the weighted average of paid up capital
shares during the year in accordance with IAS 33 (Revised) Earnings per share.
(y) Foreign currencies
In preparing the financial statements of the individual companies, transactions in currencies other than
the entity’s functional currency are recorded at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign
currencies are retranslated at the rates prevailing on the balance sheet date.
(z) Restatements
According to IAS 20 Accounting for Government Grants and Disclosure of Government Assistance,
the Group has presented grant income of €530,000 within other income. Prior periods have been
adjusted in order to conform with the current period presentation. This presentational change has no
impact on the reported net loss.
Restricted cash of €4.0 million, previously reported within cash and cash equivalents in the cash flow
statement for the year ended 31 December 2005, has been excluded as it does not meet the definition
set out in IAS 7 “Cash flow statements”. The increase in the year has been shown as an investing cash
outflow and the cash flow statement restated accordingly.
The Company balance sheet as at 31 December 2005 has been restated as a result of an error in the
application of the accounting for the acquisition of Dai Holdings (2000) Limited and a 20% stake in
Dai Telecom Limited. Investments in subsidiary undertakings and shareholders’ equity were
understated by €9.2 million as a result. Investments and shareholders’ equity have been restated by
this amount. There is no profit effect of this adjustment.
(aa) Critical accounting judgments and key sources of uncertainty
In the process of applying the Group’s accounting policies, management has made the following
judgements that have the most significant effect on the amounts recognised in the financial statements.
37
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the
balance sheet date, that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year, are discussed below.
Recoverability of deferred tax assets
Under IFRS, a deferred tax asset arising on trading losses is only recognised where it is probable that
future taxable profits will be available to utilise the losses. The key judgments in assessing the
recognition of a deferred tax asset are:
•
•
the probability of taxable profits being available in the future; and
the quantum of taxable profits that are forecast to arise.
This requires management to exercise judgement in forecasting future results. There are a number of
assumptions and estimates involved in estimating the future results of the relevant entity in which the
trading losses arose, including:
•
•
•
management’s expectations of growth in revenue;
changes in operating margins; and
uncertainty of future technological developments.
Changing the assumptions selected by management could significantly affect the Group’s results.
As at 31 December 2006, the Group had recognised a deferred tax asset of € 3,696,000. See note 10
for further information.
Allocating fair values in a business combination
Acquisitions of shares in subsidiaries are accounted for using the purchase method whereby their
aggregate consideration is allocated to the fair value of the assets acquired and liabilities assumed
based on management’s best estimates. Management is required to exercise judgment in the
determination of the fair value of identified assets and liabilities, and particularly intangible assets.
As at 31 December 2006, the carrying value of intangible assets other than the goodwill acquired in
business combinations was €4,343,000. For applicable amortization rate see note 1(l) above.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-
generating units to which goodwill has been allocated. The value in use calculation requires the Group
to estimate the future cash flows expected to arise from the cash-generating unit and a suitable
discount rate in order to calculate present value.
There are a number of assumptions and estimates involved in calculating the net present value of
future cash flows from the Group’s cash-generating units, including:
•
•
•
•
•
management’s expectations of growth in revenue;
changes in operating margins;
uncertainty of future technological developments;
long-term growth rates; and
the selection of discount rates to reflect the risks involved.
38
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
Changing the assumptions selected by management, in particular the discount rate and growth rate
assumptions used in the cash flow projections could significantly affect the Group’s results. As at 31
December 2006, the amount of goodwill included in the consolidated balance sheet was €1,439,000.
Recoverability of investments in associated undertaking
Asset recoverability is an area involving management judgment, requiring assessment as to whether
the carrying value of assets can be supported by the net present value of future cash flows derived
from such assets using cash flow projections which have been discounted at an appropriate rate. In
calculating the net present value of the future cash flows, certain assumptions are required to be made
in respect of highly uncertain matters, as noted below.
IFRS requires management to test for impairment if events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Group management currently undertakes an
annual impairment test for investments in associated undertakings at least annually to consider
whether a full impairment review is required.
If the book value of an investment in a non-subsidiary investee exceeds its recoverable value, the
Company recognizes an impairment loss. As at 31 December 2006, the book value of the investment
in associated undertakings was €579,000.
Grant income
Income relating to government grants is recognized when there is reasonable assurance that the
Company will comply with the conditions attaching to it and the grant will be received. Management
is required to exercise judgement in determining when compliance with the terms of the grant and
receipt of the grant are probable. The amount of grant income recognized in the income statement for
the year ended 31 December 2006 was €686,000. And as at 31 December 2006 an amount of
€1,044,000 is recorded in other debtors.
(ab) New standards and interpretations not yet applied
During the year, the IASB and IFRIC have issued a number of new standards, interpretations and
amendments to existing standards which will be effective for the Group in future accounting periods,
including:
IFRS 7
Financial instruments: Disclosures; and the related amendment to IAS 1 on capital
disclosures
Operating Segments
the Restatement Approach under
IAS 29 Financial Reporting
in
IFRS 8
IFRIC 7 Applying
Hyperinflationary Economies
Scope of IFRS 2
Reassessment of Embedded Derivatives
Interim Financial Reporting and Impairment
IFRS 2—Group and Treasury Share Transactions
IFRIC 8
IFRIC 9
IFRIC 10
IFRIC 11
IFRIC 12 Service Concession Arrangements
The Directors do not anticipate that the adoption of these standards and interpretations will have a
material impact on the Group’s financial statements in the period of initial application except for
additional disclosures on capital and financial instruments when the relevant standards come into
effect for periods commencing on or after 1 January 2007.
39
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
2.
REVENUE
Sales of goods
Services
Revenue
Investment income
3.
SEGMENTAL ANALYSIS
2 0 0 6
€’000
84,940
1,840
86,780
2 0 0 5
€’000
(Restated)
82,614
3,300
85,914
190
656
86,970
86,570
For management purposes, the Group is currently organised into two operating divisions, Wireless
Solutions and Wireless Products. These divisions are the basis on which the Group reports its primary
segment information.
Principal activities are as follows:
- Wireless Solutions business unit – designs, develops, manufactures and sells cellular
GSM/GPRS/CDMA/UMTS module products mainly to the machine-to-machine (M2M) application
markets.
- Wireless Products business unit – distributes third party cellular handsets and accessories in
European and Israel markets, including the products of Far East manufacturers, and provides the
aftermarket activities for all devices sold by it.
Segmental information for these businesses is presented below.
REVENUE
Wireless Products
Wireless Solutions
Total sales
Eliminations (*)
Total external sales
(*) Inter- segment transactions are charged at prevailing market prices.
OPERATING PROFIT (LOSS)
Wireless Products
Wireless Solutions
Unallocated corporate expenses
Operating loss
Investment income
Finance costs
Share of results in associated undertakings
Loss before income tax
40
2 0 0 6
€’000
2 0 0 5
(Restated)
€’000
59,086
28,709
87,795
(1,015)
86,780
(1,540)
(7,680)
(9,220)
(1,133)
(10,353)
190
(1,169)
(41)
(11,373)
70,677
15,237
85,914
-
85,914
4,318
(4,530)
(212)
(865)
(1,077)
656
(938)
(164)
(1,523)
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
3.
SEGMENTAL ANALYSIS (CONT.)
2 0 0 6
€’000
2 0 0 5
€’000
14,327
25,135
579
20,849
60,890
3,147
8,124
25,606
36,877
33,006
7,433
649
32,240
73,328
6,517
830
32,815
40,162
2 0 0 6
2 0 0 5
Wireless
Products
€’000
Wireless
Solutions
€’000
Wireless
Products
€’000
Wireless
Solutions
€’000
314
10,410
158
896
110
-
150
878
1,359
500
38
340
89
-
50
433
571
-
-
99
Total assets
Wireless Products
Wireless Solutions
Investment in associated undertaking
Unallocated assets
Total assets
Total liabilities
Wireless Products
Wireless Solutions
Unallocated liabilities
Total liabilities
Other segment items:
Capitalized tangible and intangible asset
additions
Non-cash items:
Depreciation and amortization
Impairment losses
Bad debt expense
Share-based payments
GEOGRAPHICAL SEGMENTS
The following table provides an analysis of the Group’s revenues by geographical market, irrespective
of the origin of the goods or services, and the Group’s carrying amount of segment assets and capital
expenditure on tangible and intangible fixed assets by geographical segment:
2 0 0 6
€’000
49,356
31,591
5,833
-
86,780
Europe
Israel
Asia Pacific
Rest of World
Revenue
2 0 0 5
€’000
(Restated)
Assets
2 0 0 6
€’000
2 0 0 5
€’000
Capital expenditure
2 0 0 5
2 0 0 6
€’000
€’000
28,161
52,419
5,334
-
85,914
38,663
10,959
10,847
421
60,890
44,965
28,363
-
-
73,328
2,934
314
7,308
168
10,724
896
158
-
-
1,054
41
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
4.
OTHER INCOME
Government grants
Other
2 0 0 6
€’000
686
752
1,438
2 0 0 5
(Restated)
€’000
530
604
1,134
In 2006, “Other” principally relates to amounts due to a supplier that have been waived as part of
the overall settlement with that supplier (see note 23.D). In 2005, “Other” principally related to
€548,000 received from the final settlement of litigation, net of expenses, as described in note
23.B.
The Group’s Italian subsidiary has been declared eligible to receive an €11.4 million grant, and
has secured a €14.1 million loan facility, under a business development program sponsored by the
Ministry of Trade and Commerce in Italy. The funds, totaling €25.5 million, were awarded to
Telit Italy to invest in research and development in a new R&D centre in preferred areas in Italy.
As of 31 December 2006 Telit Italy invested approximately €2.5 million in this grant project, and
has received a bank loan of €8.0 million as an advance against the expected cash inflow from the
Ministry of Trade and Commerce (see note 25).
5. OTHER EXPENSES
For the year ended 31 December 2006, other expenses principally comprise an impairment of
intangible assets of €500,000 whilst for the year ended 31 December 2005 other expenses
principally comprise amounts relating to the settlement of a VAT dispute.
6. OPERATING LOSS
Operating loss is stated after charging / (crediting)
2 0 0 6
€’000
2 0 0 5
€’000
(160)
763
706
500
8,149
188
7
1,409
66,030
221
567
93
-
3,914
50
-
903
64,792
Net foreign exchange (gains) / losses
Depreciation of owned fixed assets (note 14)
Amortisation of intangible assets (note 13)
Impairment of intangible fixed assets (note 13)
Research and development expenditure
Bad debt expense
Loss on disposal of property, plant and equipment
Advertising costs
Costs of inventory recognised as an expense
42
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
6. OPERATING LOSS (CONT.)
Fees payable to the Company’s auditors for the audit of the
Company’s annual accounts
Fees payable to the Company’s auditors and their associates for
other services to the Group
The audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
Tax services
Total non-audit fees
2 0 0 6
€’000
2 0 0 5
€’000
99
133
232
31
263
101
163
264
55
319
Fees payable to Deloitte & Touche LLP and their associates for non-audit services to the Company are
not required to be disclosed because the consolidated financial statements are required to disclose such
fees on a consolidated basis.
7.
INVESTMENT INCOME
Interest income from bank deposits
Gain on financial instruments
Interest from related parties
Exchange rate (losses)/ gains
8.
FINANCE COSTS
Interest expense on factoring arrangements
Interest expense on bank loans and overdrafts
Other
2 0 0 6
€’000
2 0 0 5
€’000
318
-
-
(128)
190
334
235
42
45
656
2 0 0 6
€’000
2 0 0 5
€’000
200
792
177
1,169
145
758
35
938
43
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
9.
EMPLOYEES
The average monthly number of persons (including executive
directors) during the year was:
Sales and marketing
Research and development
General and administration
Operations
Discontinued operations
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs
2 0 0 6
€’000
2 0 0 5
€’000
50
109
31
53
-
243
10,862
1,946
950
13,758
46
63
33
33
42
217
9,088
1,725
(193)
10,620
Directors’ remuneration disclosures described within the Directors’ Remuneration Report as audited
form part of these financial statements on page 20.
10.
INCOME TAXES
A. United Kingdom corporate tax at 30%:
Current year taxes
Overseas corporate tax:
Current year taxes
Adjustment in respect of prior years
Deferred taxes:
Overseas deferred taxes
2 0 0 6
€’000
2 0 0 5
€’000
-
264
29
30
1,099
219
(282)
(10)
11
1,338
B.
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
44
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
10.
INCOME TAXES (CONT.)
C.
Factors affecting the tax expense for the year
The table below explains the differences between the expected tax credit on continuing operations,
at the UK statutory rate of 30% for 2006 and 2005, and the Group’s total tax expense for the year:
2 0 0 6
€’000
2 0 0 5
€’000
Loss before income tax from continuing operations
(11,373)
(1,523)
Tax credit computed at 30%
Tax adjustments arising from:
Expenses which are not deductible (income exempted) in
determining taxable profit
Decrease in taxes resulting from a different tax rate of
subsidiaries operating in other jurisdictions
Tax losses not utilised
Adjustments in respect of prior year
Other differences
Tax charge
(3,412)
(457)
(37)
(151)
3,582
29
-
11
612
(810)
1,778
219
(4)
1,338
D.
Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and
movements thereon during the current and prior year, after offset of balances within countries:
At 1 January 2006
Arising on acquisition
Translation adjustments
Credit to income
At 31 December 2006
Net
operating
loss
€’000
Other
timing
differences
€’000
3,667
-
-
48
3,715
29
(1,374)
6
234
(1,105)
Total
€’000
3,696
(1,374)
6
282
2,610
The following is the analysis of the deferred tax balances for financial reporting purposes:
Deferred tax liabilities
Deferred tax assets-non current assets
Deferred tax assets-current assets
45
2 0 0 6
€’000
(1,193)
3,696
107
2,610
2 0 0 5
€’000
-
3,696
-
3,696
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
10.
INCOME TAXES (CONT.)
The Group has previously recorded a deferred tax asset of €3.7 million relating to losses incurred
in its Italian subsidiary, Telit Communications SpA. The directors consider that under existing
Italian tax law, the time period over which these losses are available for relieving future profits is
unlimited. Telit Communications SpA has incurred losses to date since formation in 2003, and has
incurred further losses in 2006. The Group has approved a four year business plan for Telit
Communications SpA. The four year business plan assumes substantial growth in revenues over
this period relating to m2m modules sales. The assumed growth in revenue is based on
management’s best estimates, having had regard to the revenue growth experienced during 2006 in
this division, which is expected to continue at a similar rate in 2007, together with independent
industry analysts’ market projections, and forecasts of growth in the M2M marketplace for years
beyond 2007. The business plan is also showing forecast gross margins that are substantially in
line with the subsidiary’s current financial performance in 2007, with some further improvement
due to increasing sales volumes and purchasing benefits. Operating expenses have been forecast
based on the current and expected future infrastructure required to execute the assumed revenues.
Additionally, Telit Communications SpA is the Group’s principal supplier of m2m modules to
other Group companies, predominantly in the United States, which is expected to generate
additional sales for the Group. Based on the business plan prepared, management expects to begin
to recover the deferred tax asset during the year ending 31 December 2008, and full recovery is
forecast in the year ending 31 December 2010. As this assessment is a judgment about future
events, there is no certainty as to this matter.
E.
Factors affecting the tax charge in future years
Factors that may affect the Group’s future tax charge include the finalization and acceptance of tax
returns with relevant tax authorities, corporate acquisitions and disposals, changes in tax
legislation and rates, the availability and use of brought forward tax losses, and the realization or
otherwise of recognised deferred tax assets.
At 31 December 2006, the gross amount and expiry dates of losses available for carry forward are
as follows:
Losses for which a deferred tax asset is recognised
Losses for which no deferred tax asset is recognised
11. DISCONTINUED OPERATIONS
Unlimited
€’000
11,266
18,706
29,972
During year 2003 the Group reorganized its activities, at which point the Group discontinued the activity
of developing, manufacturing and selling its own cellular handsets in Italy.
The results of the discontinued operations which have been included in the consolidated statements of
operations statement for the year ended 31 December 2005, as a separate component are as follows:
Cost of sales
Operating expenses
Loss for the year
46
2 0 0 6
€’000
-
-
-
2 0 0 5
€’000
338
968
1,306
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
12. LOSS PER SHARE
2 0 0 6
2 0 0 5
€’000
€’000
The calculations of basic and diluted earnings per ordinary share
are based on the following results and numbers of shares:
Loss for the year attributable to the equity shareholders of the parent
(11,319)
(4,167)
Weighted average number of shares:
For basic and diluted earnings per share
Loss per share from continuing operations (euro cents)
Loss per share from discontinued operations (euro cents)
Loss per share (euro cents)
No. of
Shares
No. of
Shares
43,214,281
36,886,157
(26.2)
-
(26.2)
(7.8)
(3.5)
(11.3)
Number of options that are antidilutive:
2,216,687
1,976,570
47
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
13.
INTANGIBLE FIXED ASSETS
Finite lived intangible assets
Exclusive
rights
€’000
Customer
relationships
€’000
Development
cost
€’000
-
500
500
-
-
-
500
-
-
-
-
(500)
-
(500)
-
-
-
-
(15)
4,306
4,291
-
-
-
(504)
-
3
(501)
-
-
-
-
(1)
689
688
-
-
-
(135)
-
-
(135)
Software
€’000
299
123
422
1,860
-
19
2,301
(213)
(93)
(306)
(67)
-
-
(373)
Goodwill
€’000
Total
€’000
-
-
-
-
(6)
1,445
1,439
-
-
-
-
-
-
-
299
623
922
1,860
(22)
6,459
9,219
(213)
(93)
(306)
(706)
(500)
3
(1,509)
1,928
-
3,790
553
1,439
7,710
GROUP
Cost
1 January 2005
Additions
31 December 2005
Additions
Translation adjustments
Arising on acquisition
31 December 2006
Accumulated
impairment losses and
amortization
1 January 2005
Charge for the year
31 December 2005
Charge for the year
Impairment losses
Translation adjustments
31 December 2006
Net book value
31 December 2006
31 December 2005
116
500
-
-
-
616
The goodwill is related to the acquisition of Bellwave M2M Company Limited, subsequently renamed
Telit Wireless Solutions Co Limited, which is included within the Wireless Solutions business unit and
the Asia Pacific geographical segment.
Management considers that there are no indicators of impairment in the goodwill balance at the year-
end.
48
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
14. PROPERTY, PLANT AND EQUIPMENT
GROUP
COST
As at 1 January 2005
Translation adjustments
Additions for the year
Disposals
As at 31 December 2005
Translation adjustments
Additions for the year
Disposals
Arising on acquisition
As at 31 December 2006
DEPRECIATION
1 January 2005
Translation adjustments
Charge for the year
Disposals
31 December 2005
Translation adjustments
Charge for the year
Disposals
31 December 2006
Net book value
31 December 2006
31 December 2005
Computers
€’000
Office
equipment
€’000
Vehicles
€’000
Leasehold
Improvements
€’000
Total
€’000
228
10
109
-
347
(3)
503
(6)
20
861
(129)
(9)
(54)
-
(192)
5
(96)
-
2,085
9
256
(22)
2,328
(3)
1,369
-
311
4,005
(914)
(2)
(459)
8
(1,367)
(608)
-
244
17
-
(52)
209
(4)
9
(58)
-
156
(97)
(7)
(36)
29
(111)
3
(23)
32
186
14
66
-
266
(5)
193
-
-
454
(45)
(3)
(18)
-
(66)
2
(36)
-
2,743
50
431
(74)
3,150
(15)
2,074
(64)
331
5,476
(1,185)
(21)
(567)
37
(1,736)
10
(763)
32
(283)
(1,975)
(99)
(100)
(2,457)
578
155
2,030
961
57
98
354
200
3,019
1,414
15.
INVESTMENTS
GROUP
Investment in associated undertaking, Cell-Time Ltd
Cost
Translation adjustments
Losses accumulated since acquisition
2 0 0 6
€’000
2 0 0 5
€’000
1,135
(70)
(486)
579
1,135
(41)
(445)
649
49
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
15.
INVESTMENTS (CONT.)
The accounts of Cell-Time Ltd are drawn up to 31 December 2006 for inclusion in the consolidated
financial statements. The summarised financial information of Cell-Time Ltd is as follows:
Balance sheet
Assets
Current assets
Property, plant and equipment
Total assets
Liabilities
Current liabilities
Long-term liabilities
Total liabilities
Income statement
Revenue
Cost of sales
Gross profit
Operating expenses
Financial expenses, net
Loss for the year after tax
COMPANY
Investment in subsidiaries
1 January 2005
Additions (Restated)
1 January 2006 (Restated)
Additions
Loan capitalised
31 December 2006
Investment in associated
undertaking, Cell-Time Ltd
2 0 0 6
€’000
2 0 0 5
€’000
1,198
48
1,246
1,212
8
1,220
789
52
841
666
6
672
2 0 0 6
€’000
2 0 0 5
€’000
7,536
(7,198)
338
(476)
(1)
(139)
3,288
(3,105)
183
(495)
(3)
(315)
Loans to
subsidiaries
€’000
Investments in
subsidiaries
€’000
Total
€’000
-
14,500
14,500
6,497
(10,000)
10,997
-
6,152
6,152
13
10,000
16,165
-
20,652
20,652
6,510
-
27,162
579
27,741
50
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
15.
INVESTMENTS (CONT.)
In November 2006, the Company purchased from Dai Telecom Ltd. all of its holdings in Cell-Time Ltd.
(29.33% of Cell - Time Ltd's outstanding share capital) for consideration equal to the value of the Cell-
Time Holdings in Dai Israel's books. Details of the associated undertakings of the Company are as
follows:
Name of company
Country of
incorporation
and
operation
Type of
shares
Ownership
interest and
voting
rights
Principal activity
Cell-Time Ltd
Israel
Ordinary
29.33% Development,
marketing and
operation of pre-call
billing systems of
cellular phones
Details of the subsidiary undertakings of the Company are as follows:
Dai Telecom Holdings (2000) Ltd.
("Dai Holdings")
Israel
Ordinary
100%
Dai Telecom Ltd
("Dai Telecom")
Israel
Ordinary
100%
Telit Laboratories Ltd
Israel
Ordinary
100%
Dai Telecom Far East Pte Ltd
Singapore
Ordinary
100%
Telit Wireless Solutions Srl
Sardinia, Italy Ordinary
100%
Telit Communications SpA
("Telit Italy")
Italy
Ordinary
100%
Intermediate holding
company
Selling and marketing
cellular phones,
accessories and spare
parts and after sales
support
Technical services for
cellular products
Intermediate holding
company
Intermediate holding
company
Development,
manufacturing and
selling data products
and distributing
cellular products
Telit Communications Spain SL
Spain
Ordinary
100%
Dormant
Telit Wireless Solutions Inc.
("Telit USA")
United States
of America
Ordinary
100%
Selling and marketing
data products
Telit Wireless Solutions Co Ltd
("Telit Korea")
Republic of
Korea
Ordinary
75%
Development,
manufacturing and
selling data products
51
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
16.
INVENTORY
GROUP
Finished goods
Spare parts
Raw materials
2 0 0 6
€’000
6,345
2,216
1,723
10,284
2 0 0 5
€’000
8,128
1,892
2,010
12,030
The Directors consider that there is no significant difference between the net book value and replacement
cost of stocks held. Inventories are stated net of provisions for slow moving and obsolete items of
€1,033,000 (2005: €331,000).
17. RECEIVABLES
Within current assets:
Trade debtors
Other debtors
Due from Group undertakings
Within non-current assets:
Other long term assets
Deferred tax asset (note 10)
Group
Company
2 0 0 6
€’000
2 0 0 5
€’000
2 0 0 6
€’000
2 0 0 5
€’000
17,452
6,806
-
24,258
33,286
4,357
-
37,643
303
3,696
3,999
73
3,696
3,769
-
268
306
574
-
-
-
-
145
348
493
-
-
-
The Directors consider that the carrying amount of trade and other receivables approximates their fair
value. The Group’s trade receivables are stated after allowances for bad and doubtful debts, an analysis
of which is as follows:
At 1 January
Amounts charged to administrative and other expenses
At 31 December
2 0 0 6
€’000
2 0 0 5
€’000
180
188
368
130
50
180
52
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
18. CASH
The Group’s cash resources are as follows:
Deposits – restricted cash
Cash and cash equivalents
Total
Group
Company
2 0 0 6
€’000
2 0 0 5
€’000
2 0 0 6
€’000
2 0 0 5
€’000
7,115
3,926
11,041
4,000
13,207
17,207
7,115
1,376
8,491
4,000
11,781
15,781
The carrying amount of the Group’s cash resources are denominated in the following currencies:
Sterling
Dollar
Euro
Other
Total
Group
Company
2 0 0 6
€’000
2 0 0 5
€’000
2 0 0 6
€’000
2 0 0 5
€’000
239
3,122
7,318
362
11,041
936
2,067
14,204
-
17,207
239
947
7,305
-
8,491
936
1,269
13,576
-
15,781
The cash and cash equivalents comprise cash held by the Group and short term deposits with an average
period at inception until maturity of three months or less. The carrying amount of these assets
approximates their fair value.
Restricted cash deposits are provided as security for Telit Italy's borrowings.
53
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
19. ALLOTTED SHARE CAPITAL
COMPANY AND GROUP
2 0 0 6
€’000
2 0 0 5
€’000
Authorised 80,000,000 ordinary shares of 1 pence each.
Allotted, issued and fully paid:
43,214,281 ordinary shares of 1 pence each
627
627
Share options
On 30 September 2005 the employees of Dai Telecom and Telit Italy, both wholly owned subsidiaries of
the Company, were granted options to purchase approximately 5 percent of the Company's issued and
outstanding shares at an exercise price of £1.40. The options vest in four equal installments starting from
the date of grant, through to 30 September 2009. The options expire within five years. On 1 March 2006,
an employee of Dai Telecom was granted options to purchase approximately 1.1 percent of the
Company's issued and outstanding shares at an exercise price of £0.705. The options vest in four equal
installments starting from the date of grant, through to 28 February 2010. The options expire within five
years.
The number of outstanding options as of 31 December 2006 and the date of this report is 2,216,687,
equal to 5.1% of the outstanding share capital of the Company (4.9% of the outstanding share capital of
the Company, on a fully diluted basis).
20. POST-EMPLOYMENT BENEFITS
A.
B.
The Group operates a defined benefit scheme for all employees of Telit Italy. Under the scheme,
employees are entitled to retirement benefit based on the accumulated contributions upon
attainment of the retirement age or when leaving the company. The scheme is an unfunded scheme
and no other post retirement benefit is provided.
The actuarial present value of the defined benefit obligation, the related current service cost and
past service cost were measured using the projected unit credit method.
The Group's liability for severance pay for Israeli resident employees is calculated pursuant to the
Israeli Severance Pay Law, based on the most recent salaries and length of employment, and is
covered by payments to insurance companies and pension funds. Amounts accumulated in the
insurance companies and pension funds are not included in the financial statements since they are
not under the control and management of the Group. The accrued severance pay liability included
in the balance sheet in respect of the Israeli resident employees represents the balance of the
liability not covered by the above-mentioned deposits and/or insurance policies for which a fund is
maintained (in the Group's name) as a recognised pension fund.
54
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
20. POST-EMPLOYMENT BENEFITS (CONT.)
C.
The amount included in the balance sheet arising from the obligations in respect of the defined
scheme of Telit Italy and the accrued severance pay of Dai Telecom, Telit Korea and Telit USA
are as follows:
Movement in post employment benefit obligations
1 January 2006
Expense/(income) recognised in the income
statement
Contributions
31 December 2006
2 0 0 6
€’000
2 0 0 5
€’000
856
1,591
620
(250)
1,226
(191)
(544)
856
The liability in respect of accrued severance pay for Dai Telecom, Telit Korea and Telit USA is
€151,000 and the charge to the income statement in the year is €115,000. The IAS 19 disclosures
in respect of the Group’s unfunded defined benefit obligations in Italy are detailed further in D and
E below:
D. Amounts recognised in income statement in respect of the defined benefit scheme are as follows:
Current service cost
Interest cost
Actuarial loss/(gain)
Total (expense)/income included in income statement
2 0 0 6
€’000
2 0 0 5
€’000
351
32
122
505
281
78
(550)
(191)
E.
The amount included in the balance sheet arising from changes in the present value of the defined
benefit scheme obligation for Telit Italy are set out below:
Present value of defined benefit scheme obligation
1 January 2006
Actuarial loss/(gain)
Employer cash contributions
Benefits paid
Interest cost
31 December 2006
F.
Financial assumptions
Discount rate
Expected salary increase rate
Inflation
55
2 0 0 6
€’000
2 0 0 5
€’000
820
122
351
(250)
32
1,075
2 0 0 6
%
4.40%
3.50%
2.00%
1,577
(550)
259
(544)
78
820
2 0 0 5
%
4.15%
3.50%
2.00%
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
21. CURRENT LIABILITIES
Short-term bank loans and other borrowings
Advances on receivables factoring
Current maturities of long term loans
Total short-term borrowing from banks and other
lenders
Trade creditors
Due to Group undertakings
Other creditors and accruals
Group
2 0 0 6
€’000
15,429
927
1,019
17,375
10,584
-
4,220
2 0 0 5
€’000
19,534
2,270
1,019
22,823
8,955
-
4,368
Total current liabilities
32,179
36,146
Further information on the Group’s borrowings is presented in notes 23 and 25.
Company
2 0 0 6
€’000
2 0 0 5
€’000
-
-
-
-
16
761
175
952
-
-
-
-
65
-
621
686
The directors consider that the carrying amount of trade payables approximates to their fair value.
22. ACQUISITIONS
On 26 May 2006 Telit Communications SpA acquired 75% of the issued ordinary share capital of, and
voting rights in, Bellwave M2M Co., Ltd. (“Bellwave”) a company incorporated and located in Korea,
engaged in the production and sale of cellular communication products for the machine to machine
(“m2m”) market. The cost of the business combination was €5,396,000 in cash, including directly
attributable costs of €526,000. The revenues and net profit for Bellwave from the date of acquisition are
€5,833,000 and €196,000 respectively.
The transaction has been accounted for by the purchase method of accounting. The fair value of the
assets and liabilities of Bellwave recognised at the acquisition date is as follows:
Assets:
Trade and other receivables
Inventory
Tangible assets
Intangible assets:
Customer list
Development cost
Other
Deferred tax liabilities
Minority interests
Goodwill
Total purchase consideration
Net cash outflow arising on acquisition
Book value
(€’000)
Fair value
adjustments
(€’000)
Fair value
(€’000)
457
840
331
-
-
19
-
1,647
-
-
-
4,306
689
-
(1,374)
3,621
457
840
331
4,306
689
19
(1,374)
5,268
(1,317)
1,445
5,396
5,396
56
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
22. ACQUISITIONS (CONT.)
Goodwill has been determined on a provisional basis. The goodwill recognised is attributed to the
anticipated profitability of the distribution of products in new markets and to new customers.
It is not practicable to determine the revenue and loss of the Group as if the acquisition of Bellwave had
been completed on the first day of the financial year, as Bellwave was only incorporated immediately
prior to acquisition by the Group to receive the trade and assets of the machine to machine business unit
of Bellwave Company Limited for which separate financial information from the start of the financial
year is not readily available.
23. COMMITMENTS AND CONTINGENCIES
Commitments
Legal proceedings
A.
Ixfin Magneti Marelli Eletronica Ltda ("Ixfin") summoned Telit Italy before the Court of Sumaré,
San Paolo (Brazil) in order to obtain compensation for damages suffered as a consequence of
Finmek Telit SpA’s several breaches of the obligations provided by two contracts executed
between the parties on 28 October 2002 and assigned to Telit Italy by Finmek Telit SpA by a lease
of going concern agreement entered into on 23 December 2002.
The lawsuit was filed by Ixfin on November 2004, seeking the sum of €3,260,000.
Telit Italy filed a defence brief. Telit Italy's lawyer has advised that it is probable that Telit Italy
will make no payment.
B.
Following the final settlement of all litigation between the Company’s subsidiary Telit Italy and
Nuove Iniziative SpA and the mutual waivers of all claims filed by Telit Italy and Finmek SpA,
Telit Italy recorded net income of €548,000 resulting from offsetting of all the outstanding
balances between the parties as other income in the income statement for the year ended 31
December 2005.
C. On 17 March 2005, Dai Telecom filed a law suit against Sony Ericsson Mobile Communication
International Ltd. (“Sony Ericsson”) and L.M. Ericsson Israel Ltd. (“Sony Israel”) in the Tel Aviv
District Court in order to obtain compensation for damages suffered as a consequence of the
termination of their engagement with Dai Telecom in connection with an exclusive distribution
agreement for the sale and after sale support of Sony Ericsson cellular phones. Dai Telecom
claims damages and loss of future profits as a result of the termination of the agreements
amounting to approximately €1.6 million. On 5 September 2005, Sony Ericsson and Sony Israel
each filed separate lawsuits against Dai Telecom in the Tel Aviv Magistrates Court. Sony Ericsson
claimed for €252,000 for spare parts and accessories supplied to Dai Telecom during the years
2002 and 2003. Sony Israel claimed for €55,000 for cellular phones and accessories supplied to
Dai telecom during years 2001 and 2002. On 17 January 2006, following Dai Telecom’s
application, the Tel Aviv Magistrates Court postponed all legal proceedings related to these two
lawsuits until the Tel-Aviv District Court rules in the lawsuit Dai Telecom filed against Sony
Ericsson and Sony Israel.
The parties have agreed to mediation, which is ongoing.
As the legal proceedings had been postponed, the Group cannot estimate the outcome of those
legal proceedings and consequently no provision has been recorded in respect of those claims.
57
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
23. COMMITMENTS AND CONTINGENCIES (CONT.)
D. On 19 January 2004, Finmek Access S.p.A., in its capacity as assignee of the going business
formerly owned by Finmek Manufacturing S.p.A, served on Telit Italy a Court order of payment
issued by the Court of Padua for € 465,000, plus legal expenses.
Telit Italy opposed the court order of payment, claiming that no amounts were due to Finmek
Access since the requested amount has already been paid by Telit Italy in favor of Finmek S.p.A.,
and summoned the latter in the legal proceedings.
On 16 February 2007, the Company and Finmek Access entered into an agreement, according to
which Telit Italy has purchased from Finmek Access equipment for €235,000 and Finmek Access
has waived its debt and has withdraw the claim from court. The Group has recorded a gain of
€456,000 as other income relating to this settlement.
E.
In March 2006, Telit Italy received an invitation for arbitration proceedings from one of its
suppliers, according to which the supplier claims the enforcement of an agreement with Telit Italy
to the amount of €506,000. Telit Italy rejects such claims due to the supplier’s failure to deliver
the agreed products and services to Telit Italy.
According to Telit Italy’s management, based on the advice of its legal consultants, Telit Italy has
grounded claims against the supplier and the expected outcome of such claim is to be deemed
immaterial.
Operating lease commitments
F.
The Group had total outstanding commitments for future minimum lease payments under non-
cancellable operating leases as set out below:
Operating leases which expire:
Within one year
In the second to fifth years inclusive
Land and buildings
2 0 0 5
2 0 0 6
€’000
€’000
Other
2 0 0 6
€’000
2 0 0 5
€’000
746
1,206
1,952
350
830
1,180
165
165
330
114
330
444
Minimum lease payments under operating
leases charged to the income statement for
the year
746
350
165
165
Operating lease payments represent rentals payable by the Group for certain of its office
properties.
58
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
23. COMMITMENTS AND CONTINGENCIES (CONT.)
Guarantees and liens
G. As security for loans and guarantees provided to it, Dai Telecom Ltd has registered a floating lien
on all of its assets, including rights and insurance proceeds, in favor of a bank. Moreover, liens
were registered on all the funds due to Dai Telecom Ltd from its major customer in connection
with specific orders received from the latter.
The following table outlines the composition of the secured liabilities:
Short-term credit
Trade accounts payable
2 0 0 6
€’000
1,123
-
1,123
2 0 0 5
€’000
17,663
14
17,677
H.
The Company provided guarantees to certain suppliers of Telit Communications SpA, to sustain
credit lines to be granted by the suppliers in respect of purchases made. The guarantees shall not
exceed the amount of € 12.5 million.
In addition the Company provides guarantees to certain banks in Italy and Korea, to sustain credit
lines granted by those banks to the Group's subsidiaries. The guarantees shall not exceed the
amount of € 14.6 million.
At the balance sheet date the Company had deposited € 7.1 million in Italian bank accounts, to act
as security in relation to the credit facility granted by those banks (see note 25).
24. SHARE-BASED PAYMENTS
A.
Number
Weighted average exercise
price
(pence)
2 0 0 6
2 0 0 5
2 0 0 6
2 0 0 5
Outstanding at beginning of year
Granted during the year
Lapsed during the year
Outstanding at year end
1,976,570
490,117
(250,000)
2,216,687
-
1,976,570
-
1,976,570
1.40
0.70
(1.40)
1.25
-
1.40
-
1.40
Exercisable at year end
431,643
-
1.40
-
The options outstanding at 31 December 2006 had a weighted average exercise price of 1.25
pence, and a weighted average remaining contractual life of 2.84 years. In 2005, options were
granted on 30 September. The aggregate of the estimated fair values of the options granted on that
date was €443,000. In 2006, options were granted on 1 March. The aggregate of the estimated fair
values of the options granted on that date was € 188,000.
59
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
24. SHARE-BASED PAYMENTS (CONT.)
B.
The Company authorised an equity-settled share option plan with effect from 30 December 2004.
Under the plan, the Group’s senior employees were granted 3,883,925 options exercisable into
3,883,925 ordinary shares at a nil exercise price. The options were exercised immediately prior to
the Company's IPO in April 2005. 2,455,355 options granted vested at the date of grant and
1,428,570 options vest over 4 consecutive years with the first vesting period completing 24
months after the date of grant. The options expire within 5 years from the date of grant.
The fair value of the options granted that according to management estimates will satisfy the
vesting conditions is €1,693,000 to be expensed over the period of vesting. The inputs into the
Black-Scholes model used to determine the fair value of the option grant at the grant date were as
follows:
Share price
Exercise price
Expected share price volatility
Expected life of options
Risk free rate
€ 1.792
Par Value (1 pence)
40%
2.5-4.5 years
3.63 %
C. On 30 September 2005 the employees of Dai Telecom and Telit Italy were granted 1,976,570
equity-settled share options exercisable into 1,976,570 ordinary shares (approximately 5% of
Telit’s issued and outstanding shares) at an exercise price of ₤1.40. The options vest in four equal
instalments starting from the date of grant, through to 30 September 2009. The options expire
within five years.
The fair value of the options granted that according to management estimates will satisfy the
vesting conditions is €434,000, to be expensed over the period of vesting. The inputs into the
Black-Scholes model used to determine the fair value of the option grant at the grant date were as
follows:
Share price
Exercise price
Expected share price volatility
Expected life of options
Risk free rate
€ 1.4065
€ 1.792
40%
3-4.5 years
3.31%
D. On 1 March 2006 an employee of Dai Telecom was granted 490,711 equity-settled share options
exercisable into 490,711 ordinary shares at an exercise price of ₤0.705. The options vest in four
equal instalments starting from the date of grant, through to 1 March 2010. The options expire
within five years.
The fair value of the options granted that according to management estimates will satisfy the
vesting conditions is €188,000, to be expensed over the period of vesting. The inputs into the
Black-Scholes model used to determine the fair value of the option grant at the grant date were as
follows:
Share price
Exercise price
Expected share price volatility
Expected life of options
Risk free rate
€ 0.705
€ 0.705
40%
3-4.5 years
3.31%
60
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
24. SHARE-BASED PAYMENTS (CONT.)
E.
Additional information:
The expected volatility was determined as a weighted average of the historical volatility of Telit’s
share price calculated over the period from share listing through options awards and the historical
volatility of a similar entity.
The expected life of options has been determined based on management’s best estimates for
effects of non-transferability, exercise restrictions and behavioural considerations.
The Company recognised a total expense of €1,218,000 in respect of equity settled share based
payment transactions for the year ended 31 December 2006 (2005: €532,000).
25. BORROWINGS
Short-term bank loans and other borrowings
Factoring companies
Current maturities of long term loans
Total short-term borrowing from banks and other
lenders
Long-term loan from parent company
Total borrowings
Group
2 0 0 6
€’000
15,429
927
1,019
2 0 0 5
€’000
19,534
2,270
1,019
17,375
22,823
2,035
19,410
3,054
25,877
Included within short-term bank loans and other financing are:
- A drawn amount of €8.0 million on a loan with a maturity date of 6 July 2007. A further €3.0 million
is available to the Group under this facility up to this date, subject to satisfaction of the lending bank
that the Group has met certain qualifying expenditure targets with regard to its research and
development project in Sardinia. The interest rate on this short-term bank loan is Euribor plus 1.7%
per annum. The short-term bank loan is a bridging loan in advance of funds to be received from a
grant from the Italian government to the Group’s Italian subsidiary, which has been declared eligible
to receive from the government a €11.4 million grant, and a €14.1 million loan facility to support a
development project in Sardinia. The Company has provided a letter of guarantee of €11.0 million
against this facility.
- A bank overdraft of €2,634,000. The overdraft facility, which is available up to €3.0 million, is
cancellable on demand but is without a fixed renewal date.
- Drawn letters of credit and borrowings arising from invoice discounting totalling €3,701,000 in the
Group’s Italian subsidiary. These borrowings, including the bank overdraft, are secured against
purchased inventory or receivables, plus cash deposits made of €7.1 million and a letter of guarantee
issued by the Company of €3 million. The total available lines of credit and invoice discounting at 31
December 2006 was €16.0 million, of which €5.0 million has a maturity date of 30 April 2007, with
the remainder cancellable on demand, but without a fixed maturity date.
- Drawn lines of credit against invoices totalling €3,040,000 which are cancellable on demand but
without a fixed maturity date. These borrowings are denominated in New Israeli Shekels and secured
against purchased inventory and receivables from customers.
61
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
25. BORROWINGS (CONT.)
- Factoring facilities against qualifying receivables totalling €927,000. These borrowings are secured
against the factored receivables and are with recourse. The total available factoring facilities in the
Group’s Italian subsidiary are €4.5 million, provided there exists a satisfactory level of qualifying
debtors, which are cancellable on demand but are without a fixed maturity date.
The Group’s long-term loan to its parent company does not attract interest and will be repaid in three
yearly equal installments starting December 2007.
26. RECONCILIATION OF NET CASH FLOWS TO OPERATING ACTIVITIES
Group
Company
2 0 0 6
€’000
2 0 0 5
(Restated)
€’000
2 0 0 6
€’000
2 0 0 5
(Restated)
€’000
Loss for the period from continuing operations
Loss for the period from discontinued operations
Loss for the period
(11,384)
-
(11,384)
(2,861)
(1,306)
(4,167)
Adjustment for:
Depreciation and amortization
Impairment of intangible assets
Income tax expense
Investment income
Finance costs
Increase (decrease) in provision for post
employment benefits
Share-based payment charge
Loss on disposal of fixed assets
Share in result of associated undertaking
Operating cash flows before movements in
working capital:
Decrease in trade receivables
(Increase) decrease in other current assets
Decrease (increase) in inventory
Increase (decrease) in trade payables
(Decrease) in other current liabilities
Increase in other long term liabilities
Cash generated by (used in) the operations
Income tax paid
Interest received
Interest paid
1,469
500
11
(190)
1,169
371
1,218
7
41
15,874
(2,458)
2,513
1,667
(1,583)
138
9,363
(739)
318
(896)
661
-
1,338
(656)
938
(735)
532
-
164
3,808
4,039
(5,952)
2,681
(5,743)
-
(3,092)
(1,240)
336
(1,029)
(386)
-
(386)
-
-
-
(670)
-
-
-
-
-
-
27
-
(49)
(300)
-
(1,378)
-
320
-
68
-
68
-
-
30
(894)
-
-
-
-
-
-
(238)
-
65
621
-
(348)
-
307
-
Net cash provided by (used in) operating activities
8,046
(5,025)
(1,058)
(41)
62
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
27. FINANCIAL RISK MANAGEMENT
Financial risk management is an integral part of the way the Group is managed. The Board establishes
the Group’s financial policies and the Chief Executive Officer establishes objectives in line with these
policies.
It is the Group's policy that no trading in financial instruments is undertaken.
In the course of its business the Group is exposed mainly to financial market risks and credit risks.
Financial market risks are essentially caused by exposure to foreign currencies and interest rates.
Foreign currency risk
Foreign currency risk arises because the Group undertakes transactions in foreign currency such as the
import and sale of cellular handsets. The Group uses short-term borrowings from banks in the same
foreign currency of those transactions to reduce the Group’s exposure to foreign currency risk.
Translation exposure arises because the Group’s financial information is presented in Euros while some
of the Group’s transactions are denominated in other currencies. As a result, material fluctuations in the
exchange rate between the Euro and other currencies (mainly US Dollar and NIS) can have an impact on
the Group's financial results.
Interest rate risk
Interest rate risk comprises the interest cash flow risk resulting from short-term borrowings at variable
rates. The Group’s working capital is funded through short-term borrowings at variable rates of interest.
Cash at bank earns interest at floating rates based on daily bank deposit rates. As a result, material
fluctuations in the market interest rate can have an impact on the Group’s financial results.
Concentration of credit risk
Financial instruments that potentially subject the Company and its subsidiaries to concentration of credit
risk consist principally of trade receivables. The Group’s trade receivables are mainly derived from sales
to a major customer in Israel and other customers in Italy and Korea. The Group performs ongoing credit
evaluations of its customers and to date has not experienced any material losses. An allowance for
doubtful accounts is determined with respect to those amounts that the Company has determined to be
doubtful from collection.
As at 31 December 2006, the Group had significant concentration risk in Dai Telecom Ltd, with a
balance of approximately €4 million due from one major customer (2005 – approximately €19 million).
The balance is due in New Israeli Shekels and bears no interest. The average credit period taken in 2006
and 2005 was 75 days.
Fair value of financial instruments
The financial instruments held by the Group are primarily comprised of non-derivative assets and
liabilities (non-derivative assets include cash and cash equivalents, trade accounts receivable and other
receivables; non-derivative liabilities including bank loans, trade accounts payable, other payables and
other current liabilities). Due to the nature of these financial instruments, there are no material
differences between the fair value of the financial instruments and their carrying amount included in the
financial statements.
63
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
28. BALANCES AND TRANSACTIONS WITH RELATED PARTIES
Transactions between the Company and its subsidiaries and associates represent related party
transactions. Transactions with subsidiaries have been eliminated on consolidation.
Except as disclosed below, no material related party transactions have been entered into, during the year,
which might reasonably affect any decisions made by the users of these Consolidated Financial
Statements.
A. The Group has entered into management agreement with Polar (the parent company) to provide
management services during year ended 31 December 2006 in consideration for an annual payment
in the amount of US $100,000 (2005 - $100,000). The amount outstanding at 31 December 2006
was €80,000 (2005 – €82,000).
B. On 1 October 2003 Dai Telecom entered into a lease agreement with Polar, for a three-year period,
of facilities located in Tel Aviv, for a monthly rental payment of approximately €4,500. Each party to
the agreement has an option to lengthen the lease period for additional two periods of 3 and 4 years
upon 2 months notice, for monthly rental of approximately €8,000. The amount outstanding at 31
December 2006 was €54,000 (2005 – €47,000).
On 1 October 2006 the lease agreement period was lengthen by 3 years.
C. On 1 March 2006 the Company granted the following key personnel options exercisable into
ordinary shares with no exercise price.
Number of
options
granted
Vested
at date
of grant
Unvested
at date
of grant
Chief Executive Officer of Dai Telecom
490,711
-
490,711
The compensation attributable to the key personnel calculated as the incremental fair value of the
options to be expensed over the period of vesting is €188,000.
D. Remuneration of key management personnel:
Short-term employee benefits
Post employment benefits
Total
Group
2 0 0 6
€’000
2 0 0 5
€’000
1,742
73
1,815
1,830
56
1,886
E. Oozi Cats and, in 2006 only, a member of key management personnel and others provided consulting
services to Telit Communications SpA, the Group’s Italian subsidiary pursuant to a contract dated 5
January 2004, as amended on 26 April 2006, between Excalibur Consulting Group LLC
(“Excalibur”) and Telit Communications Spa. Excalibur charged services amounting to €921,000 for
the year ended 31 December 2006 (31 December 2005 - €694,000 for Mr. Cats' services only) of
which €552,000 related to consulting services provided by Oozi Cats, €159,000 related to a member
of key management and €210,000 related to other consultants. No amounts were outstanding to
Excalibur at 31 December 2006 and 2005.
64
Telit Communications PLC
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2006
28. BALANCES AND TRANSACTIONS WITH RELATED PARTIES (CONT.)
F. In the opinion of the directors, the Company's ultimate parent company and ultimate controlling
party is Polar, a company incorporated in Israel. The parent undertaking of the smallest and largest
group, which includes the Company and for which group accounts are prepared, is Polar, a company
incorporated in Israel. Copies of the group financial statements of Polar Investments Limited are
available from 21 Ha’arbaa Street, Tel Aviv, 64739 Israel.
The Company is party to an agreement dated 29 March 2005 with its parent company Polar, pursuant
to which Polar agrees that as long as it remains a controlling shareholder the Company will be
capable of carrying on its business independently of Polar and that all future transactions with it will
be at arm’s length.
The agreement further provides that Polar as a controlling shareholder shall procure that any director
of the Company who is a director of Polar shall not be counted in the quorum on any matter, at board
meetings, where in the opinion of the independent Directors there is a conflict of interests.
29.
INFORMATION ON THE COMPANY
As permitted by Section 230 of the Companies Act 1985, the profit and loss account of the Company is
not presented in this Annual Report. The loss for the year amounted to €386,000 (2005: profit of
€68,000).
30. SUBSEQUENT EVENTS
Telit has entered into an agreement according to which a capital injection of €16 million into the
Company’s m2m subsidiary, Telit Wireless Solutions Srl, will be made by Bartolini After Market
Electronic Services Srl ("BAMES"), within the structure of a business alliance between the two
companies.
Under the terms of transaction, BAMES will provide Telit Wireless Solutions Srl with €9 million in
equity and an additional €7 million investment in December 2008, providing Telit meets certain m2m
module minimum purchase commitments. BAMES will receive up to 10% of the share capital of Telit
Wireless Solutions Srl. Managment currently assesses that, given current market conditions and the
expected growth of the Company, these minimum purchase commitments are attainable.
In addition to the investment agreement, Telit Wireless Solutions Srl entered into a strategic
manufacturing agreement with Services for Electronic Manufacturing s.r.l ("SEM"), BAMES' electronics
manufacturing subsidiary, for all present and future production of Telit’s m2m modules, with certain
exceptions, at competitive market prices for a term of not less than five years. This will enable Telit to
consolidate its European manufacturing into one geographical location, and will streamline operations
while keeping control of the Company’s intellectual property and increasing its control over its supply
chain. This is achieved by the Telit taking a 19.9% equity stake in SEM and the right to nominate one
director to SEM's board of directors. SEM will also provide Telit with a €7 million line of credit for
finished goods, which will defer payment until the second equity injection referred to above.
The proceeds from the investment will enable Telit to continue execution of its strategy of focusing on
the rapidly growing m2m market, consolidate its international expansion, and develop its next generation
m2m modules.
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