Company Policy CP011 Scrap Sales Policy & Procedure

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1 Revision: 2 Page: 1 of 16 Company Policy CP011 Revision: 2 Effective Date: July 1, 2005 Distribution List Corporate Group Finance Group IT Group Procurement Internal Audit Plant General Manager Plant Manager PPMC Production Finance Dept Purchasing Dept

2 Revision: 2 Page: 2 of 16 SCRAP SALES POLICY & PROCEDURE SUMMARY: REV DATE DESCRIPTIONS OF CHANGE ORIGINATOR 1 Nov 7, 1984 Initial Release Jett Fung 2 June 2, 2005 Revised Procedure Details & add illustration Celia Chan 1.0 Objective

3 Revision: 2 Page: 3 of 16 To set forth a procedure - to better manage company resources, reduce waste & losses - to provide guideline to approve or remove scrap sales vendors to reach a fair, open & win-win cooperation - to meet environmental requirements e.g. ISO Scope This procedure is applicable to the sales of all scrap materials, direct or indirect including used raw materials, defective raw materials, spare parts, WIP, finished products, MRA boards (including PCBA) occur during production or arising from sub-contraction as well as discard machineries & equipment. 3.0 Applicable Documents 3.1 Scrap Sales Authorization Form (S.S.A.) 3.2 Gate Pass (carbon copy of S.S.A.) 3.3 Inventory Return Note (IRN) 3.4 Material Review Board (MRB) 4.0 Definition 4.1 Scrap materials ( including but not limited to those exhibit under Attachment 9.2 for illustrations of scrap materials): WIP and Finished Goods scrapped during production Normal WIP On hold/cancellation WIP incld. F/G & JIT Inventory when authorization to scrap has been approved by the concerned customers and regional sales manager/vice president Defective goods returned by customers to plants (MRA) Defective raw materials Document required for items under section 4.1.1: must have MRB coverage, and IRN shall be used to document the return of the scrapped materials to the scrap material store Defective goods returns for credit: must support by duly approved MRA unless specified otherwise Used drill bits, used spare parts, used chemicals, used indirect materials: must use IRN to return to scrap material store Discard machineries & equipment: must support by duly approved fixed asset disposition form.

4 Revision: 2 Page: 4 of Scrap Sales Committee: must comprise managers from material control, production, store, purchasing & finance department, and be chaired by the General Manager. 5.0 Reference Document 5.1 CP003: Purchasing Policy 5.2 IP001: Procurement of Materials and Provision of Services from Kingboard Group of Companies 5.3 SPN001: Scrap PN# list (issued by group finance) 6.0 Responsibility 6.1 Scrap Sales Committee: control, evaluate & approve vendors. 6.2 Purchasing Department: prepare S.S.A, negotiate and collect resale price & inform group procurement of scrap sales price. 6.3 Group Procurement: collect, compile and provide scrap sales prices list to all manufacturing sites, as well as monitoring price consistency. 6.4 Divisional and Group Finance Department: monitor and ensure compliance with scrap sales procedures and settlement of account is appropriately dealt with. 6.5 Production: separate and label scrap materials properly before storage. 6.6 Scrap Material Store: maintain correct in/out stock record, prepare monthly inventory report & perform annual stock take for the scrap material. 6.7 Scrap Material Store, Finance Department & Purchasing Department: determine & verify scrap sales quantity during the process of scrap sales activities. 6.8 Security guard: check proper documents are completed before allowing the trucks leave the company premises. 7.0 Procedure 7.1 Scrap Sales Committee Each plant must incorporate a scrap sales committee to control, evaluate & approve vendors The committee members shall comprise managers from departments of material control, production, store, purchasing & finance, and be chaired by the General Manager Market price should be reviewed quarterly & renewed at least every half yearly for presenting to group procurement for comparison The confirmed market price shall be valid for no more than 1 year Vendor performance should be reviewed every half year.

5 Revision: 2 Page: 5 of Finance will monitor and ensure compliance with the scrap sales procedures including sales proceeds collection. 7.2 Pricing Requirement Quotation should involve more than one vendor to ensure open & fair competition At least two vendors are required to provide quotations and test the content of the solution Sales of laminate are based on the IP price with reasonable discount off the IP price by comparing with board thickness and prevailing market price from time to time Scrap sales committee decides the final selling price. Group procurement will help coordinate to ensure uniform price is used The price will only become effective after General Manager s approval. 7.3 Duty, Tax & VAT Tax Consideration Based on company license, identify material nature in order to arrange proper declaration For domestic sales, scrap sales price should take into consideration Duty & VAT arrangements. 7.4 Vendor Selection / Evaluation Select the approved vendors with the valid license For the collection of hazardous materials, the vendors must possess appropriate license and are not allowed to resale to third party again Must select vendors with reasonable pricing, quality services & background Must specify payment terms in the scrap sales contract. 7.5 Scrap Materials Handling Production must separate and label their scrap materials daily & move to scrap material store for storage If external store is required, it should be managed by both finance & material control department. Each of these departments shall keep the door key and representative from both departments must be present when removing the scrap materials from the store Recycle materials must be stored in scrap material store and not to be used/moved without permission. Must also maintain a complete in/out stock record If customs clearance is needed, e.g. copper foil, Shipping department will inform the manager in charge of scrap material store the declared scrapped quantities.

6 Revision: 2 Page: 6 of If customs clearance is not required, scrap material store will inform purchasing department the scrap sales quantity to arrange the resale document. 7.6 Sales of Scrap Materials Weight Measurement within Factory Premises Scrap material store, finance & purchasing department shall weight & verify the quantity together. Finance department should compare the figures with scrap material store s record & approved S.S.A. form Purchasing department will provide the latest price agreed by the Scrap Sales Committee Gate Pass is also prepared by purchasing department & approved Security guard should only allow the goods to leave the company premises with the approved S.S.A. form & Gate Pass Weight Measurement outside Factory Premises Scrap material store, finance & purchasing department should monitor the loading of the truck & obtain the approved Gate Pass before leaving for outside measurement Purchasing department will prepare the S.S.A. form based on the weight for approval Security guard should only allow the goods to leave the company premise with the approved S.S.A. form & Gate Pass Special Materials Production will collect used gold solution regularly and must inform finance department to monitor the process. The laboratory will measure the concentration of the solution before sealed and properly labeled before moving to storage Scrap sales committee must select the right vendor collectively and prepare formal sales contract for the selected vendor The sales contract must be signed by both the Chairman of the scrap sales committee and the representative of the vendor. Validity of the sales contract shall not be longer than one year. 7.7 Payment Collection Revenue from scrap sales must be tightly controlled in order to minimize any

7 Revision: 2 Page: 7 of 16 risk involves with cash management. Thus individual plant must have contract coverage on one of the following payment methods with their scrap sales vendors: Scrap sales amount equal or above RMB1,500: scrap vendor must deposit the amount in the Company s designated bank account first, then present the receipt to finance to issue general invoice. Finance department will provide the general invoice and S.S.A to vendor as a form of approval to allow bringing the scrap materials outside the company premise Scrap sales amount below RMB1,500: vendor can pay cash at finance department. Again, the finance department will issue general invoice together with S.S.A to vendor as a form of approval to bring the scrap materials outside the company premise The scrap sales vendor could place certain amounts of deposit with the designated bank account of the selling entity and these deposits would apply against the proceeds of each scrap sales. When the deposit fall below the scrap sales proceeds, the scrap vendor must top-up the shortfall at the designated bank account to cover the full amount before the selling entity will release the scrap sales materials Finance department will issue general invoice for all scrap sales activities. For other administrative cash receipts, finance department will issue official receipt as Documentary proof All the above scrap sales activities & cash payment must complete during office hours (except scrap solution) for better monitoring and control, this will allow finance department to record all transactions on the same day. Scrap sales proceeds will be kept under lock at finance department s safe deposit box together with other cash on hand for monthly petty cash spending. If on hand dollar value exceeds the upper limit of cash on hand set under the Group policy, the finance department is responsible for depositing the surplus into the designated bank account. 7.8 Monthly Report

8 Revision: 2 Page: 8 of 16 Regular reports are needed for purpose of monitoring & control. Scrap material store will issue monthly stock report to monitor stock status and purchasing department will monitor total scrap sales of the month. Group finance department will oversee the Group s procedural compliance as a whole. 7.9 Annual Scrap Material Stock taking An annual scrap material stock taking exercise shall be conducted at once a year or as and when the management deemed appropriate. 8.0 Records retention Documents Resp Dept. Retention Quotation Purchasing Dept 2 year S.S.A. Accounting Dept 7 year Gate Pass Accounting Dept 7 year

9 Revision: 2 Page: 9 of Attachment 9.1 Scrap Sales Procedure Scrap sales committee Accounting Vendor Purchasing Shipping Scrap material store Production Security Keep Record No Separate & label scrap material daily Special material? Select right vendor & ask for quote throung bidding Apply Declaration Yes Req. customs declaration Identify special material No Yes Test the content Prepare SSA No Yes Ask lab to measure the concentration Review & decide final selling price Prepare quotation Prepare summary price with minimum two vendors Move to storage with label Approved by GM Prepare contract Yes Special material No Signed by GM Arrange collection date Identify the scrap material C B A

10 Revision: 2 Page: 10 of 16 Scrap sales committee Accounting Vendor Purchasing Shipping Scrap material store Production Security C B A Compare weight against SSA YES Measure in plant No Endorsed SSA with company chop Finalize price & qty Load material to truck Ask scrap material store to prepare gate pass Prepare gate pass No Monitor outside measure No Weight finished Yes Check SSA & gate pass Yes Receive payment Arrange payment Release truck End

11 Revision: 2 Page: 11 of Scrap Sales Authorization Form (S.S.A.)

12 Revision: 2 Page: 12 of 16 Sample 9.3 Gate Pass

13 Revision: 2 Page: 13 of 16 Sample

14 Revision: 2 Page: 14 of Inventory Return Note (IRN) Sample

15 Revision: 2 Page: 15 of Material Review Board (MRB) Sample

16 Revision: 2 Page: 16 of Illustration of Scrap Materials see PDF file Scrap Sales Photos CP Scrap Material Part No. List see excel file Scarp matl part nos.

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