ANNUAL REPORT 2006 Stock Code: 2454dzDate: April 30, 2007dz This Annual Report is accessible through the websites below: Website of Taiwan Stock Exchange Corporation (TSEC), Public Information Observatory: http://emops.tse.com.tw/emops_all.htm Website for MediaTek Inc. Annual Report Disclosure: http://www.mtk.com.tw/ir-annual.htm I. Names, titles, telephones, e-mail addresses of spokesperson, deputy spokesperson: Spokesperson: Name: Ming-To Yu Position title: CFO TEL: (03) 567-0766 E-mail: [email protected] Deputy Spokesperson: Name: Hou-Yi Liang Position Title: Senior Manager, Finance Division TEL: (03) 567-0766 E-mail: [email protected] II. MediaTek Inc. address & telephone number: Headquarters Address: No.1, Dusing Rd. 1, HsinChu Science Park, HsinChu TEL : (03) 567-0766 Taipei Office Address: 11F, No.1, Alley 20, Lane 407, Tiding Boulevard, Sec. 2, Neihu District, Taipei TEL : (02) 2659-8088 III. Company name, address, website and telephone number of the Equity Agent: Company Name: Chinatrust Commercial Bank, Corporate Trust Client Service Department. Address: 5F,No. 83, Chungching S. Road, Sec. 1, Chungcheng District, Taipei Website: http://www.chinatrust.com.tw TEL: (02) 2361-3033 IV. Names of auditing CPAs for financial statements in recent years, their CPA office name, address, website and telephone number: CPA Names: Hui-Hsin Yeh, Ting-Ming Chang CPA Office: Ernst & Young Address: 9F, No.333, Keelung Road, Sec. 1, Taipei Website: http://www.ey.com/global/content.nsf/Taiwan_E/Home_E TEL: (02) 2720-4000 V. Name of overseas securities dealers and methods to inquire into overseas securities: Nil VI. MediaTek Website: http://www.mtk.com.tw 1 ANNUAL REPORT 2006 TABLE OF CONTENTS I. Shareholders Letter......................................................................................................................4 II. Company Profile ..........................................................................................................................6 1. Introduction to Company .....................................................................................................6 2. Milestones……………………………………………………………………………….....6 III. Corporate Governance Report .....................................................................................................8 1. Corporate Organization........................................................................................................8 2. Directors and Supervisors………………………………………………………………….9 3. Key Managers……………………………………………………………………………15 4. Corporate Governance Report……………………………………………………………17 5. Information on Independent Auditors…………………………………………………… 24 6. Status of transferring and pledging of shares among Directors, Supervisors, Managers, and dominant Shareholders holding more than 10% of the Commpany shares………… 25 7. Information on Top 10 Shareholders who are related to each other ……………..........…26 8. Long-Term Investment Ownership…………………………………………………........27 IV. Capital Raise..............................................................................................................................28 1. Capital Stock and Shares....................................................................................................28 2. Status of Corporate Bonds: None.......................................................................................32 3. Status of Preferred Stocks: None .......................................................................................32 4. Status of GDR/ADR: None................................................................................................32 5. Status of Employee Stock Option: None. ..........................................................................33 6. Mergers and Acquisitions, or as Assignee of New Shares Issued by Other Companies: ..33 7. Status on the Implementation of Fund Utilization Plan………………………………. 33 V. Review in Operation ..................................................................................................................34 1. Business Content…………………………………………………………………………34 2. Market, Production and Sales Outlook………………………………………………….. 39 3. Employees………………………………………………………………………………..48 4. Environmental Protection Expenditure………………………………………………….. 48 5. Labor Relations…………………………………………………………………………..49 6. Social Responsibility……………………………………………………………………..52 7. Important Agreements………………………………………………………………........55 VI. Financial Position and Review in Operation, Status of Risk Management ...............................56 1. Analysis of financial position ............................................................................................56 2. Analysis of Operation Results ...........................................................................................57 3. Evaluation on Assets and Liabilities ..................................................................................58 4. Analysis of devaluation of Assets ......................................................................................58 5. Cash Flow Analysis............................................................................................................58 6. The effect of major capital expenditure on financial position and operation ....................59 2 7. Direct Investment Policy, reasons for Profit or Loss, correction plan and investment plan for the coming year: ...........................................................................................................60 8. Risk Management ..............................................................................................................60 9. Other Important Notice: None ...........................................................................................65 VII. Important Notice……………………………………………………………………………….66 1. Profiles of Affiliates and Subsidiaries…………………………………………………... 66 2. Satus of Private Placement of Securities: None.................................................................70 3. Holding or Disposition of Company Stocks by Subsidiaries:............................................70 4. Events as stated in article 36-2-2 of the Securities and Exchanges Act in the most recent year to the day this report is in printing, and the effect on Shareholders’ Equity and price of Securities: None.............................................................................................................70 5. Other supplementary disclosures: None. ...........................................................................70 VIII. Financial Position.......................................................................................................................71 1. Condensed Balance Sheet ..................................................................................................71 2. Condensed Income Statement............................................................................................72 3. Information on CPAs and Audit Opinions .........................................................................72 4. Financial Analysis Covering the Period from 2002 to 2006..............................................73 5. Supervisors' Review Report...............................................................................................75 6. Financial Statements and Auditors' Report……………………………………………….76 7. Consolidated Financial Statements and Auditors' Report………………………………120 8. The Effect of Insolvency of the Company and Affiliates on the Financial Position of the Company…………………………………………………………………………….......191 3 I. Shareholders Letter Dear Fellow Shareholders, MediaTek Inc.(“the Company”) achieved a historic high in revenue and earnings per share in 2006, when its revenue reached NT$52.942 billion, growing by 13.9% over last year. Net profits after tax at NT$22.58 billion were 23.6% higher than the year before; earnings per share were NT$23.50, while the previous year’s were NT$19.02. Wireless communication handset chip sets did well, as revenue doubled that of the previous year and cumulative shipments exceeded 100 million sets, propelling the Company to become one of the top five global suppliers. The Company’s success in high definition digital TV chip products in the US market, as evidenced by the warm market reception and sales figures, has put it among suppliers of the world’s top three LCD flat-screen TV brands. Apart from having achieved success in new product development, the Company has also maintained good profitability in matured-market products such as those related to optical storage and DVD recorders and players, through the introduction of new functions and cost improvements. MediaTek has been the winner of the Hsinchu Science-Based Industrial Park Innovative Product Award for nine consecutive years, as well as the 2006 Best Financial Management Award for IC design companies worldwide, an honor conferred by the Fabless Semiconductor Association (FSA). In addition, the Company was three times elected to present papers at the International Semiconductor Conference – IEEE International Solid-State Circuits Conference, a mark of MediaTek’s persistent pursuit in academic excellence and it’s leadership in Taiwan’s IC design research and development. As products are diversified and a global organization takes shape, MediaTek has matured both in its technological and management capacities, enabling it to enjoy a steady growth. However, the challenge lies with bounds of technology industry and fast migration of semiconductor technology. MediaTek needs to continuously adjust itself for