Lenovo 2009 Annual Report Download

Download and view the complete annual report

Please find the complete 2009 Lenovo annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 156

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156

NEW WORLD. NEW THINKING.
2008/09 Annual Report Lenovo Group Limited
STOCK CODE 992

Table of contents

  • Page 1
    NEW WORLD. NEW THINKING. 2008/09 Annual Report Lenovo Group Limited STOCK CODE 992

  • Page 2
    ... in Yamato, Japan; Beijing, Shanghai and Shenzhen, China; and Raleigh, North Carolina. 2 6 8 10 14 36 56 75 76 77 78 79 80 152 Inside back cover Financial Highlights Chairman's Statement CEO's Report Lenovo Management Team Management's Discussion and Analysis Corporate Governance Directors' Report...

  • Page 3
    ... PCs by constantly challenging themselves with seemingly impossible goals. Luckily, our engineers are among the best in the world. At Lenovo, it's not about simply meeting customer expectations. It's about exceeding our own. ThinkPad X300 notebook 1 2008/09 Annual Report Lenovo Group Limited

  • Page 4
    ... N/A - N/A -81.0% Cash and Working Capital Bank deposits and cash Total bank borrowings Net cash reserves Cash conversion cycle (days) 1,863 685 1,178 (23) 2,191 561 1,630 (28) -15.0% 22.1% -27.7% 5 2 2008/09 Annual Report Lenovo Group Limited Notes: 1 The disposal of mobile handset business was...

  • Page 5
    ...) (Loss)/Profit Attributable to Shareholders for the year ended March 31 (US$ million) 2009 2008 2007 2006 2005 216 798 375 343 155 2009 2008 2007 2006 2005 (226) 484 161 22 144 3 2008/09 Annual Report Lenovo Group Limited Notes: 1 The disposal of mobile handset business was completed in...

  • Page 6
    ... new ground in the PC industry. Our culture encourages venturing into unknown territory to develop trailblazing products, solutions and services. These breakthroughs are the result of Lenovo's drive to constantly challenge convention. 2008/09 Annual Report Lenovo Group Limited no Le vo U SB Sm ar...

  • Page 7
    Passionate Solutions that fit your needs and your lifestyle. IdeaPa n d Y550 oteboo k Creative Products built t to be more intuitive and . more capable. 0ds mobil ThinkPad W70 e workstation 5 2008/09 Annual Report Lenovo Group Limited

  • Page 8
    ... of Chief Executive Officer in which he will apply his extensive experience in China and the insights that he has gained during the course of Lenovo's internationalization. When Lenovo acquired IBM's PC business in 2005, Yang Yuanqing considered working closely with managers from diverse cultural...

  • Page 9
    ... to execute various strategic priorities will enable Lenovo to emerge as a more competitive company when the market recovers. I would like to express my gratitude to our shareholders, my fellow board members, customers and employees for their continuous support for Lenovo. I hope the Group will...

  • Page 10
    ... faster than the market in such key emerging markets as Russia, Brazil and Turkey, demonstrating how we can tailor our proven China business model into success in other emerging markets, which collectively represent tomorrow's high-growth opportunities. 8 2008/09 Annual Report Lenovo Group Limited

  • Page 11
    ...always been to develop a company that is built to last. I have great appreciation for and belief in our employees around the world. They are the reason I am confident that Lenovo will succeed. 2008/09 Annual Report Lenovo Group Limited 9 Yang Yuanqing Chief Executive Officer Hong Kong, May 21, 2009

  • Page 12
    ... Chief Technology Officer 9 Gerry Smith Senior Vice President, Global Supply Chain 2008/09 Annual Report Lenovo Group Limited 3 Rory Read President and Chief Operating Officer 7 Kenneth DiPietro Senior Vice President, Human Resources 10 Michael O'Neill Senior Vice President and General Counsel...

  • Page 13
    ..., Lenovo Services 18 David Schmoock Senior Vice President, Operations for Lenovo's Mature Markets Senior Vice President, IDEA Product Group Senior Vice President and Chief Procurement Officer Vice President, Corporate Strategy and Planning 11 2008/09 Annual Report Lenovo Group Limited 13...

  • Page 14
    Inspired Designs that outclass the competition. 2008/09 Annual Report Lenovo Group Limited IdeaCentre A600 all-in-one desktop 12

  • Page 15
    ... to deliver consistent value by reacting quickly to global market requirements and changing customer needs. This approach makes maximum use of our resources to create the best products in the most efficient and effective way. IdeaPad S Series netbooks 13 2008/09 Annual Report Lenovo Group Limited

  • Page 16
    ...during the fiscal year. 2008/09 Annual Report Lenovo Group Limited to approximately US$14,901 million, resulting from the slower PC shipment growth and a steeper-than-normal decline in average selling prices exacerbated by the weak economic backdrop. The Group's gross margin performance was further...

  • Page 17
    ... and medium-sized business (SMB) customers. The Group also formed a strategic relationship with Alibaba, the largest online business-to-business (B2B) marketplace, to launch a customized Lenovo eCommerce PC model for SMB in China. 2008/09 Annual Report Lenovo Group Limited ThinkPad T400 notebook 15

  • Page 18
    ...by increasing channel partner relationships, increasing share-of-wallet with tailor-made product catalogs for the mid-market and public sectors, and using dedicated sales teams focused on new business acquisition. With improved execution, establishment of an integrated business management system and...

  • Page 19
    ... strategic global accounts by focusing on back-end execution, customer experience and segment coverage expansion. At the same time, Lenovo implemented best practices in its demand generation efforts targeting mid-market and public sector customers across the EMEA region while focusing on sales...

  • Page 20
    MANAGEMENT'S DISCUSSION & ANALYSIS The Group's performance in this geography was impacted by execution issues in both India and Japan, which offset the higher growth achieved in the rest of the geography in the first half of the year. Even though Lenovo achieved the number one position in the ...

  • Page 21
    ... early 2008, Lenovo brought new colors, sizes and features to its consumer notebook series by launching 15 models during the 2008/09 fiscal year. The new IdeaPad notebooks were designed for style, mobility, entertainment and IdeaPad S Series netbooks 19 2008/09 Annual Report Lenovo Group Limited

  • Page 22
    ... Blu-ray DVD players on select models. In September 2008, Lenovo entered the rapidlygrowing netbook PC market with IdeaPad S9 and S10 netbook computers. The Group introduced a new super-slim netbook to complement the product portfolio and address the needs of first time buyers. The 10.2inch screen...

  • Page 23
    ... in China. During the fiscal year, Lenovo introduced six consumer desktop computer models to tap the consumer market outside China. The Group delivered the next generation of consumer desktop computing by introducing IdeaCentre A600 all-in-one desktop 21 2008/09 Annual Report Lenovo Group Limited

  • Page 24
    ... markets. Lenovo quickly gained traction and claimed the number one position in China's netbook PC market in the second half of the 2008/09 fiscal year and ranked third in Asia Pacific overall. ThinkPad W700 mobile workstation Emerging Markets During the 2008/09 fiscal year, the Group steadily...

  • Page 25
    ... the second half of the fiscal year. Workstations & Servers With respect to its expansion into the higher margin product markets, Lenovo laid the foundation during the fiscal year to position the company for strong growth ThinkServer pr oduct family 23 2008/09 Annual Report Lenovo Group Limited

  • Page 26
    ... specific service and support accolades by winning the CCID Consulting's best support award in China for the 11th consecutive year. Lenovo was also the only IT company in China to have ever been awarded four stars from Help Desk Institute (HDI). 24 2008/09 Annual Report Lenovo Group Limited Le...

  • Page 27
    ... for Lenovo's technology, and keeps Lenovo at the forefront of an arena where performance counts. Athletes at the Lenovo i.Lounge in the Olympic village The Lenovo Showcase on the Olympic Green Lenovo's trackside signage on display in Malaysia 25 2008/09 Annual Report Lenovo Group Limited

  • Page 28
    ... segments comprise Americas, EMEA (Europe, Middle East and Africa), Asia Pacific (excluding Greater China), and Greater China. 2009 US$'000 14,901,351 2008 US$'000 16,351,503 215,979 (226,392) (2.56) (2.56) 3.0 - 798,089 464,343 5.29 4.86 3.0 12.8 26 2008/09 Annual Report Lenovo Group Limited

  • Page 29
    ..., contracted services; and set off with decrease in staff costs. Research and development expenses The Group continues making investment towards its commitment to deliver the most innovative products in the industry. Research and development spending for the year ended March 31, 2009 decreased...

  • Page 30
    ... year ended March 31 Depreciation of property, plant and equipment and amortization of prepaid lease payments Amortization and impairment of intangible assets Employee benefit costs, including - long-term incentive awards - severance and related costs Termination of onerous contracts Rental expenses...

  • Page 31
    ... into settlements of claims that could adversely affect its operating results or cash flows in a particular period. HUMAN RESOURCES At March 31, 2009, the Group had a total of 22,511 (2007/08: 23,111) employees. The Group implements remuneration policy, bonus and long-term incentive schemes with...

  • Page 32
    ... from the government. Lenovo has built strategic relationships with telecom carriers and, since 2004, secured first-mover advantage in rural market development in China. The Group is confident that in the next few years it will benefit from its strong brand and extensive sales and services networks...

  • Page 33
    ... in emerging markets by building up a dedicated end-to-end operation that supports services, product development and supply chain needs. REALIGNMENT OF ORGANIZATIONAL STRUCTURE To align the Group more closely with its strategic direction and market dynamics, Lenovo announced in March 2009 a new...

  • Page 34
    ... for execution excellence across its global operation. Effective Business Model Lenovo's dual business model sets its products, services and business process around customer need and market segmentation. This tightly integrated, end- to-end model allows the Group to quickly react to market dynamics...

  • Page 35
    ...Lenovo plans to continuously improve the efficiency and expense structure of its relationship business through internal best practice sharing and external benchmarking to increase its marketplace competitiveness. The Group will also review the costs of its IT system, services and global supply chain...

  • Page 36
    ThinkCentre M58 desktop with ThinkVision dual screen display Responsible 2008/09 Annual Report Lenovo Group Limited Committed to products which are more energy efficient and environmentally friendly. 34

  • Page 37
    ... for new and better ways to make our customers more productive and competitive in their pursuits. Whatever you do, we build solutions that will help you do it better. X61 table t not eboo k Thin kPa dU SB Por table Sec ure Har dD rive 35 2008/09 Annual Report Lenovo Group Limited

  • Page 38
    ... the year ended March 31, 2009, the Company has complied with the code provisions of the Code on Corporate Governance Practices (the "CG Code") in Appendix 14 to the Rules Governing the Listing of Securities (the "Listing Rules") on The Stock Exchange of Hong Kong Limited (the "Exchange"), and where...

  • Page 39
    ... to be the Chairman of the Board effective on February 5, 2009; (iv) in place of Mr. Yang, Mr. Liu Chuanzhi was appointed the Chairman of the Board concurrently; and (v) Dr. Wu Yibing was appointed non-executive director of the Company on May 21, 2009. 37 2008/09 Annual Report Lenovo Group Limited

  • Page 40
    ... the chief executives to the best knowledge of the Board members as at the date of this annual report: 1. Mr. Liu Chuanzhi, Mr. Zhu Linan and Dr. Wu Yibing, non-executive directors, either serve on the board of directors or the management team of Legend Holdings Limited, the controlling shareholder...

  • Page 41
    ... strategy and in the achievement of its objectives whereas the CEO has delegated authority of the Board to take direct charge of the Group on a day-to-day basis and is accountable to the Board for the financial and operational performance of the Group. As at the date of this annual report, the posts...

  • Page 42
    ...interim and annual financial statements, announcements, interim report and annual report before submission to the Board for approval • 2007/08 internal audit and business control review and 2008/09 internal audit report of the Group • 2007/08 external audit progress report and 2008/09 audit plan...

  • Page 43
    ...09 employee bonus plan • To submit 2008/09 non-executive director pay recommendation by independent consultant for the Board's approval • Approval of 2008/09 pay recommendations and 2007/08 actual bonus payouts for senior management including the Chairman of the Board and the CEO • Approval of...

  • Page 44
    ... of work The Committee is to assist the Board in overseeing Board organization and senior management succession planning, developing its corporate governance principles and determining Board evaluation criteria and process. BOARD AND COMMITTEE MEETINGS The composition of the Board as at the date of...

  • Page 45
    ..., Company business performance and individual performance. Lenovo's compensation structure for its employees, including the Chairman of the Board, executive directors and senior management, is comprised of base salaries and allowances, performance bonus, long-term incentives, retirement benefits...

  • Page 46
    ... executive directors and senior management. These schemes are reviewed regularly and intended to deliver benefit levels that are consistent with local market practices. Details of the programs are set out in the Directors' Report on pages 69 to 71. 44 2008/09 Annual Report Lenovo Group Limited

  • Page 47
    ... 06.01.2009 - 06.01.2011 Mr. Yang Yuanqing SAR SAR SAR SAR RSU RSU RSU RSU PSU Mr. Zhu Linan SAR SAR SAR SAR RSU RSU RSU Ms. Ma Xuezheng SAR SAR SAR SAR SAR RSU RSU RSU RSU RSU PSU Mr. James G.Coulter SAR SAR SAR RSU RSU RSU 45 2008/09 Annual Report Lenovo Group Limited

  • Page 48
    ...RSU RSU RSU RSU RSU RSU Dr. Tian Suning SAR SAR RSU RSU 2008/09 Annual Report Lenovo Group Limited Note 1: Proceeds in respect of quarterly deferral grants to be paid only at point of termination from the board of directors or unforeseen emergency. Note 2: Dividends paid with respect to eligible...

  • Page 49
    ... for the financial year ended March 31, 2009 and the comparative figures for the financial year ended March 31, 2008 are as follows: 2009 US$mn Audit - 2006/07 - 2007/08 - 2008/09 Non-audit Total - 0.4 5.2 5.6 0.8 6.4 2008 US$mn 1.3 4.9 - 6.2 0.4 6.6 2008/09 Annual Report Lenovo Group Limited 47

  • Page 50
    ... Audit reports directly to the Audit Committee on all audit matters and to the Chief Financial Officer on administrative matters. The Head of Internal Audit is authorized to communicate directly with the Chairman of the Board and other Board members. 48 2008/09 Annual Report Lenovo Group Limited

  • Page 51
    .... The Board is not aware of any significant areas of concern which may affect the shareholders. The Board is satisfied that the Company has fully complied with the code provisions on internal controls as set forth in the Code on Corporate Governance. 49 2008/09 Annual Report Lenovo Group Limited

  • Page 52
    ... the latest developments of the market and Lenovo with investors. The Company welcomes suggestions from investors and shareholders, and invites them to share their views and suggestions by contacting its Investor Relations team at [email protected]. 50 2008/09 Annual Report Lenovo Group Limited

  • Page 53
    ...the Directors are aware, the Company has maintained a public float of more than 25 percent of the Company's issued Shares throughout the financial year ended March 31, 2009 and has continued to maintain the public float as at the date of this annual report. 2008/09 Annual Report Lenovo Group Limited...

  • Page 54
    ... Closure of Register of Members for Interim Dividend Payment of 2008/09 Interim Dividend Third Quarter Results Announcement Annual Results Announcement Annual General Meeting CORPORATE SOCIAL RESPONSIBILITY As a global company, Lenovo implements and supports sustainable business practices...

  • Page 55
    ... and continues to build upon a history of environmental achievement. With the foundation of a robust Environmental Management System (EMS) each Lenovo employee and manager bears a personal responsibility to conserve natural resources, develop, manufacture, and market products that are safe for the...

  • Page 56
    ... in the form of micro loans to entrepreneurs in Africa, Asia, Latin America and Eastern Europe. Lenovo dedicates one percent of earnings to corporate social investments, focusing on initiatives which reflect the company's capabilities and core values. 54 2008/09 Annual Report Lenovo Group Limited

  • Page 57
    Directors' Report & Financial Statements 56 Directors' Report 75 Independent Auditor's Report 76 Consolidated Income Statement 77 Balance Sheets 78 Consolidated Cash Flow Statement 79 Consolidated Statement of Changes in Equity 80 Notes to the Financial Statements 152 Five-year Financial Summary

  • Page 58
    ... property, plant and equipment of the Group and of the Company are set out in note 15 to the financial statements. Share capital Details of the movements in the share capital of the Company are set out in note 30 to the financial statements. 2008/09 Annual Report Lenovo Group Limited Subsidiaries...

  • Page 59
    ...or consultants or contractors to, the Group; and the trustee of any trust pre-approved by the directors of which the beneficiary (or in case of discretionary trust, the discretionary objects) include any of the above-mentioned persons. 2008/09 Annual Report Lenovo Group Limited 57 (b) 2. (i) (ii...

  • Page 60
    ... the date of grant shall not exceed 1 percent of the ordinary shares of the Company in issue. Any further grant of share options in excess of this limit is subject to shareholders' approval in general meeting of the Company. Share options to be granted to a director or chief executive of the Company...

  • Page 61
    ...New Option Scheme was HK$5.562. 2008/09 Annual Report Lenovo Group Limited 59 2. 3. 4. Valuation of share options The share options granted are not recognized in the financial statements until they are exercised. The directors consider that it is not appropriate to value the share options on the...

  • Page 62
    ...body corporate. Purchase, sale, redemption or conversion of the Company's securities During the year, the Company purchased 77,628,000 ordinary voting shares of HK$0.025 each in the capital of the Company at prices ranging from HK$5.00 to HK$5.99 per share on The Stock Exchange of Hong Kong Limited...

  • Page 63
    ... at the forthcoming Annual General Meeting. The Company has received from each of independent non-executive directors an annual confirmation of his independence pursuant to rule 3.13 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited ("Listing Rules"). The...

  • Page 64
    ... Life Insurance Ltd. In addition, he is a non-executive director and chairman of Media China Corporation Limited (a company listed on Hong Kong Stock Exchange and formerly known as Asian Union New Media (Group) Limited) and a senior advisor of KKR. 62 2008/09 Annual Report Lenovo Group Limited

  • Page 65
    ...global strategy design and execution. Ms. Qiao has extensive experience in strategy, human resources, marketing and branding. She holds a Bachelor's degree in management science from Fudan University and holds an EMBA from China-Europe International Business School. 63 2008/09 Annual Report Lenovo...

  • Page 66
    ...the annual bonus. The service contract was approved by the shareholders at an extraordinary general meeting of the Company held on November 7, 2006 (at which Mr. Yang and his associates abstained from voting) pursuant to Rule 13.68 of the Listing Rules. Mr. Yang became the Chief Executive Officer of...

  • Page 67
    ... 31, 2009, the interests and short positions of the directors and chief executive of the Company in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance ("SFO")) as recorded in the register...

  • Page 68
    ...13% Legend Holdings Limited (Note 1) Employees' Shareholding Society of Legend Holdings Limited (Note 3) TPG Advisors IV, Inc. TPG GenPar IV, L.P. Ordinary voting shares 2,667,636,724 1,502,775,247 (Note 2) 4,170,411,971 4,170,411,971 2008/09 Annual Report Lenovo Group Limited Ordinary voting...

  • Page 69
    ... 253,500 14.28% Preferred Shares - 253,500 253,500 14.28% Preferred Shares - 253,500 253,500 14.28% Preferred Shares Preferred Shares Preferred Shares - - 426,244 253,500 426,244 - 253,500 426,244 426,244 14.28% 2008/09 Annual Report Lenovo Group Limited 67 24.01% 24.01% Preferred...

  • Page 70
    ... the SFO. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Save as disclosed above, as at March 31, 2009, no other interest or short positions in the shares or underlying shares of the Company were recorded in the register maintained under section 336 of the SFO. 68 2008/09 Annual Report Lenovo Group Limited

  • Page 71
    ...Expected return on plan assets: Future salary increases: 5.50% 5.00% 3.00% The qualified plan was 89% funded at the actuarial valuation date. There was a deficit of US$5,211,891 under the qualified plan for this reason at the actuarial valuation date. 69 2008/09 Annual Report Lenovo Group Limited

  • Page 72
    ... assumptions were Discount rate: Future salary increases: Future pension increases: 5.00% 2.20% 1.75% The plan was 63% funded at the actuarial valuation date. There was a deficit of US$8,909,000 under this plan at the actuarial valuation date. 70 2008/09 Annual Report Lenovo Group Limited

  • Page 73
    ...of the issued share capital of the Company; (ii) does not or ceases to control the Company; or (iii) is not or ceases to be the single largest shareholder of the Company. As at March 31, 2009, the Facility has been fully drawn by the Company. 71 2008/09 Annual Report Lenovo Group Limited Facility...

  • Page 74
    ... Service Agreement are set out in the Company's announcement dated May 23, 2007. On January 30, 2008, Lenovo Manufacturing Limited ("Lenovo Manufacturing") and Lenovo Beijing Limited ("Lenovo Beijing"), the Company's wholly-owned subsidiaries (collectively the "Vendors"), entered into a conditional...

  • Page 75
    ... Services Agreement are set out in the Company's announcement dated March 31, 2009. On September 5, 2008, the Company entered into three master agreements (the "Master Agreements") with Lenovo Mobile, APLL-Zhiqin Technology Logistics Limited ("APLL") and (Beijing Legend Tiaopin Technology Limited...

  • Page 76
    ...directors of the Company, as at the date of this report, there is sufficient public float of more than 25 percent of the Company's issued shares as required under the Listing Rules. On behalf of the Board Liu Chuanzhi Chairman Hong Kong, May 21, 2009 74 2008/09 Annual Report Lenovo Group Limited

  • Page 77
    ... flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the Hong Kong Companies Ordinance. PricewaterhouseCoopers Certified Public Accountants Hong Kong, May 21,2009 75 2008/09 Annual Report Lenovo Group Limited

  • Page 78
    ...cents) US5.29 cents US0.22 cents US5.51 cents Diluted (loss)/earnings per share attributable to shareholders of the Company - Continuing operations - Discontinued operations 14(b) (US2.56 cents) - (US2.56 cents) US4.86 cents US0.20 cents US5.06 cents 76 2008/09 Annual Report Lenovo Group Limited

  • Page 79
    ...000 144,147 828,546 2008/09 Annual Report Lenovo Group Limited 77 Current assets Inventories Trade receivables Notes receivable Derivative financial assets Deposits, prepayments and other receivables Amounts due from subsidiaries Income tax recoverable Bank deposits Cash and cash equivalents 24 25...

  • Page 80
    ... Decrease/(increase) in bank deposits Dividend received Interest received Net cash generated from/(used in) investing activities Cash flows from financing activities Exercise of share options Repurchase of shares Contributions to employee share trusts Dividends paid Net increase in bank borrowings...

  • Page 81
    CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended March 31, 2009 Share capital US$'000 At April 1, 2008 Fair value change on available-for-sale financial assets Fair value change on interest rate swap contracts Fair value change on forward foreign exchange contracts Transfer to ...

  • Page 82
    ...), "Share-based payment - vesting conditions and cancellation", effective for annual periods beginning on or after January 1, 2009 HKFRS 3 (Revised), "Business combinations", effective for annual periods beginning on or after July 1, 2009 - - - 80 2008/09 Annual Report Lenovo Group Limited

  • Page 83
    ...net investment in a foreign operation", effective for annual periods beginning on or after October 1, 2008 HK(IFRIC)-Int 17, "Distributions of non-cash assets to owners", effective for annual periods beginning on or after July 1, 2009 HK(IFRIC)-Int 18, "Transfers of assets from customers", effective...

  • Page 84
    ... are incorporated into the consolidated financial statements using the equity method of accounting. Under the equity method, investments in associated companies are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group's share of the profit or loss...

  • Page 85
    ... of the foreign entity and translated at the closing rate. (d) Property, plant and equipment 2008/09 Annual Report Lenovo Group Limited 83 (i) Buildings and leasehold improvements Buildings comprise mainly factory and office premises. Buildings and leasehold improvements are stated at cost less...

  • Page 86
    ... or amortization is provided for on construction-in-progress. On completion, the buildings, plant and machinery or internal use software are transferred to property, plant and equipment or intangible assets at cost less accumulated impairment losses. 84 2008/09 Annual Report Lenovo Group Limited

  • Page 87
    ... grouped at the lowest level for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. 85 2008/09 Annual Report Lenovo Group Limited

  • Page 88
    ... the income statement in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognized in the income statement as part of other income when the Group's right to receive payments is established. 86 2008/09 Annual Report Lenovo Group Limited

  • Page 89
    ...other income. Dividends on available-for-sale equity instruments are recognized in the income statement as part of other income when the Group's right to receive payments is established. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not...

  • Page 90
    ... cash on hand, deposits held at call with banks, highly liquid investments which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. 88 2008/09 Annual Report Lenovo Group Limited

  • Page 91
    ... right to defer settlement of the liability for at least 12 months after the balance sheet date. (o) Trade payables Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. 89 2008/09 Annual Report Lenovo Group Limited

  • Page 92
    ... at the time of sale for the estimated costs that will be incurred under its basic limited warranty. The specific warranty terms and conditions vary depending upon the product and the country in which it was sold, but generally includes technical support, repair parts and labour associated with...

  • Page 93
    ..., warranty costs, engineering changes, storage and warehousing cost, and contribute to bringing inventories to their present location and condition. Non-base manufacturing costs enter into the calculation of gross margin but are not inventoriable costs. 2008/09 Annual Report Lenovo Group Limited 91

  • Page 94
    ... the fair value of plan assets, together with adjustments for unrecognized past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the...

  • Page 95
    ...its discretion, to pay the award in cash or ordinary shares of the Company. The fair value of the employee services received in exchange for the grant of the Long-term Incentive Awards is recognized as employee benefit expense. The total amount to be expensed over the vesting period is determined by...

  • Page 96
    ...interest amounts calculated by reference to the agreed notional amounts. The Group operates a global channel financing program. The Group is exposed to fluctuation of interest rates of all the currencies covered by the global channel financing program. 94 2008/09 Annual Report Lenovo Group Limited

  • Page 97
    ... banks and other financial institutions, the Group controls its credit risk through monitoring their credit rating and setting approved counterparty credit limits that are regularly reviewed. The Group has no significant concentration of customer credit risk. The Group has a credit policy in place...

  • Page 98
    ... Derivative financial liabilities Provisions, accruals and other payables Convertible preferred shares Share-based compensation 3 months or less but not repayable on demand US$'000 Over 3 months to 1 year US$'000 Over 1 to 5 years US$'000 Total US$'000 2008/09 Annual Report Lenovo Group Limited...

  • Page 99
    ... the Group's and the Company's derivative financial instruments that will be settled on a gross basis into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the tables are the contractual undiscounted cash...

  • Page 100
    ... is based on the assumption that the interest rates of all the currencies covered by the global channel financing program go up and down at the same time and with the same magnitude; however, such assumptions may not be necessarily true in reality. 98 2008/09 Annual Report Lenovo Group Limited

  • Page 101
    ... on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of...

  • Page 102
    ... the period in which such determination is made. Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying values in the financial statements. 100 2008/09 Annual Report Lenovo Group Limited

  • Page 103
    ...are mainly based on market conditions existing at each balance sheet date. The Group has used discounted cash flow analysis for various available-for-sale financial assets that are not traded in active markets. 101 2008/09 Annual Report Lenovo Group Limited (f) Fair value of derivatives and other...

  • Page 104
    ... as the secondary reporting format. Segment assets consist primarily of inventories and accounts receivable, and exclude assets not dedicated to a particular segment, including mainly deferred tax assets and available-for-sale financial assets and centrally managed cash and cash equivalents and...

  • Page 105
    ... statement are as follows: Depreciation of property, plant and equipment and amortization of prepaid lease payments 59,351 Amortization and impairment of intangible assets 16,382 Employee benefit costs (Note 10), 354,909 including - long-term incentive awards 13,618 - severance and related costs...

  • Page 106
    ...Greater China US$'000 3,187,615 Corporate or unallocated US$'000 Total US$'000 5,623,462 2,635 190,844 101,916 145,174 35,301 208,967 684,837 6,308,299 1,014,142 418,552 1,527,532 465,000 215,974 7,382 89,459 1,215 4,218,354 779,030 4,997,384 104 2008/09 Annual Report Lenovo Group Limited

  • Page 107
    ... in the income statement are as follows: Depreciation of property, plant and equipment and amortization of prepaid lease payments 40,775 Amortization of intangible assets - Employee benefit costs (Note 10), 380,105 including - long-term incentive awards 14,697 - severance and related costs 12,926...

  • Page 108
    ... segments: Personal computer Notebook Total US$'000 US$'000 Desktop US$'000 Year ended March 31, 2009 Sales Capital expenditure At March 31, 2009 Total segment assets Year ended March 31,2008 Sales 106 2008/09 Annual Report Lenovo Group Limited Others US$'000 Total US$'000 5,905,620 8,730...

  • Page 109
    ... Dividend income from available-for-sale financial assets (Loss)/gain on disposal of investments and available-for-sale financial assets Impairment of investments 1,053 (124) - 929 2008 US$'000 - 19,791 (2,530) 17,261 7 Finance income 2009 US$'000 Interest on bank deposits Interest on money market...

  • Page 110
    ... for all qualified Hong Kong employees. The assets of the MPF are held separately from those of the Group in an independently administered fund. 108 2008/09 Annual Report Lenovo Group Limited The Group also contributes to certain defined benefit pension schemes, details of which are set out in Note...

  • Page 111
    ... with the management of the affairs of the Company and its subsidiaries. The remuneration of each director for the years ended March 31, 2008 and 2009 is set out below: 2009 Retirement payments and employer's Compensation contribution for loss of to pension office as schemes director US$'000...

  • Page 112
    ... 31, 2009. Mr. Justin T. Chang (alternate director to Mr. James G. Coulter), and Mr. Daniel A. Carroll (alternate director to Mr. Shan Weijian) did not receive any fees or remuneration during the years ended March 31, 2008 and 2009. (ii) (iii) 110 2008/09 Annual Report Lenovo Group Limited (iv...

  • Page 113
    ....0 cents per ordinary share (2008: HK3.0 cents) Proposed final dividend - Nil (2008: HK12.8 cents per ordinary share) 35,575 - 35,575 2008 US$'000 34,715 152,038 186,753 The directors do not recommend a final dividend for the year ended March 31, 2009. 111 2008/09 Annual Report Lenovo Group Limited

  • Page 114
    ... assuming the exercise in full of the share options and warrants. For the long-term incentive awards, a calculation is done to determine whether the long-term incentive awards are dilutive, and the number of shares that are deemed to be issued. - - 112 2008/09 Annual Report Lenovo Group Limited

  • Page 115
    ... to shareholders of the Company Interest expense on convertible preferred shares Profit from discontinued operations attributable to shareholders of the Company US$'000 (226,392) - (226,392) - (226,392) 464,343 18,700 483,043 19,920 502,963 113 2008/09 Annual Report Lenovo Group Limited

  • Page 116
    ... net book amount Exchange adjustment Additions Transfer from constructionin-progress Disposals Reclassification to intangible assets Depreciation Closing net book amount At March 31, 2009 Cost Accumulated depreciation Net book amount 114 2008/09 Annual Report Lenovo Group Limited Furniture and...

  • Page 117
    ...2008 Cost Accumulated depreciation Net book amount Year ended March 31, 2009 Opening net book amount Exchange adjustment Additions Disposals Transfer to intangible assets Depreciation Closing net book amount At March 31, 2009 Cost... 36 3,597 2,562 1,035 115 2008/09 Annual Report Lenovo Group Limited

  • Page 118
    ...-in-progress Group Buildings under construction 2009 2008 US$'000 US$'000 At the beginning of the year Exchange adjustment Reclassification Additions Transfer to property, plant and equipment Transfer to intangible assets Disposals Disposal of discontinued operations At the end of the year...

  • Page 119
    18 Intangible assets (a) Group Trademarks and trade Goodwill names US$'000 US$'000 At April 1, 2007 Cost Accumulated amortization and impairment losses Net book amount Year ended March, 31 2008 Opening net book amount Exchange adjustment Adjustment on purchase consideration Additions Transfer from ...

  • Page 120
    NOTES TO THE FINANCIAL STATEMENTS (Continued) 18 Intangible assets (continued) (b) Company Internal use software US$'000 At April 1, 2007 Cost Accumulated amortization Net book amount Year ended March 31, 2008 Opening net book amount Exchange adjustment Transfer from construction-in-progress ...

  • Page 121
    ... budgets approved by management covering a 5-year period with a terminal value related to the future earnings potential of the CGU beyond the next five years. Future cash flows are discounted at the rate of 11 percent (2008: 11 percent). The estimated growth rates adopted do not exceed the long-term...

  • Page 122
    ...Chinese Mainland (Wuhan Dawnpro Information Technology Limited) (Chineseforeign equity joint venture) Chinese Mainland (IGRS Engineering Lab Limited) (wholly foreign-owned enterprise) Notes: (i) 120 2008/09 Annual Report Lenovo Group Limited (ii) The associated companies operate principally in their...

  • Page 123
    ...receivables (Note 25(c)) Bank deposits (Note 26) Cash and cash equivalents (Note 26) - - 860,543 371,126 582,094 540,058 1,651,420 4,005,241 - 3,392 - - - - - 3,392 67,697 67,697 67,697 3,392 860,543 371,126 582,094 540,058 1,651,420 4,076,330 121 2008/09 Annual Report Lenovo Group Limited

  • Page 124
    ... by category (continued) Group Liabilities at fair value through income statement US$'000 Liabilities as per consolidated balance sheet At March 31, 2009 Trade payables (Note 27(a)) Notes payable (Note 27(b)) Derivative financial liabilities Other payables (Note 28) Short-term bank loans Interest...

  • Page 125
    ... At March 31, 2008 Other receivables (Note 25(c)) Cash and cash equivalents (Note 26) 938 338,122 339,060 - - - - - - - - - 938 338,122 339,060 Liabilities at fair value through income statement US$'000 Liabilities as per balance sheet At March 31, 2009 Derivative financial liabilities Other...

  • Page 126
    ... in the deferred tax assets/(liabilities) are as follows: Group 2009 US$'000 At the beginning of the year Reclassification and exchange adjustments Credited to consolidated income statement Disposal of discontinued operations At the end of the year 156,440 (17,833) 52,237 - 190,844 2008 US$'000 101...

  • Page 127
    ...) - Group 2009 US$'000 Equity securities, at fair value Listed in Hong Kong Listed outside Hong Kong Unlisted 2008 US$'000 Company 2009 US$'000 2008 US$'000 33,215 66,821 100,036 1,880 101,916 21,911 43,928 65,839 1,858 67,697 - - - - - - - - - 125 2008/09 Annual Report Lenovo Group Limited -

  • Page 128
    ... materials Work-in-progress Finished goods 72,402 109,246 268,722 450,370 2008 US$'000 209,815 56,440 205,302 471,557 25 Receivables (a) Customers are generally granted credit term of 30 days. Ageing analysis of trade receivables of the Group at the balance sheet date is as follows: Group 2009 US...

  • Page 129
    ..., prepayments and other receivables are as follows: Group 2009 US$'000 Deposits Prepayments Other receivables 3,466 197,050 413,310 613,826 2008 US$'000 2,640 182,534 582,094 767,268 Company 2009 US$'000 212 67 317 596 2008 US$'000 153 5,588 938 6,679 127 2008/09 Annual Report Lenovo Group Limited

  • Page 130
    ...to credit risk at the balance sheet date is the fair value of each class of receivable mentioned above. The Group does not hold any collateral as security. The carrying amounts of receivables are denominated in the following currencies: Group 2009 US$'000 Renminbi United States dollar Euro Hong Kong...

  • Page 131
    ... balance sheet date is as follows: Group 2009 US$'000 0-30 days 31-60 days 61-90 days Over 90 days 1,209,795 563,269 140,562 77,660 1,991,286 2008 US$'000 1,618,188 466,068 176,094 21,849 2,282,199 Trade payables are denominated in the following currencies: Group 2009 US$'000 Euro Hong Kong dollar...

  • Page 132
    ... TO THE FINANCIAL STATEMENTS (Continued) 28 Provisions, accruals and other payables (continued) Included in provisions are warranty, restructuring and battery recall provisions as follows: Group Warranty US$'000 Year ended March 31, 2008 At the beginning of the year Exchange adjustment Provisions...

  • Page 133
    ... pay a total amount of US$65,000,000 in cash and value in kind to obtain marketing rights which include the use of Olympic intellectual property rights and exclusive worldwide marketing opportunities in its products, technology and service categories from January 1, 2005 to December 31, 2008. US$200...

  • Page 134
    ...voting ordinary shares have been converted into 375,282,756 voting ordinary shares. For the year ended March 31, 2008, included in the 70,090,000 shares were 18,936,000 shares repurchased in March 2008 that were subsequently cancelled in April 2008. 2 132 2008/09 Annual Report Lenovo Group Limited

  • Page 135
    ... Share capital (continued) (a) Long-term incentive program A performance-related long-term incentive program was approved on May 26, 2005 for the purpose of rewarding and motivating directors, executives and top-performing employees of the Company and its subsidiaries (the "Participants"). The long...

  • Page 136
    ...of the year (iii) 282,959,051 (24,948,000) 258,011,051 2008 Number of outstanding share options 373,395,601 (90,436,550) 282,959,051 (i) No share options were granted, lapsed or cancelled by the Company during the years ended March 31, 2008 and 2009. 134 2008/09 Annual Report Lenovo Group Limited

  • Page 137
    ...ended March 31, 2009 Market value per ordinary share at exercise date HK...share options exercised Gross proceeds received HK...2008 to 09.23.2008 to 05.27.2008 to to to to to to 04.29.2008 05.27.2008 06.03.2008 07.22.2008 08.26.2008 09.09.2008 24,948,000 135 2008/09 Annual Report Lenovo Group Limited...

  • Page 138
    NOTES TO THE FINANCIAL STATEMENTS (Continued) 30 Share capital (continued) (b) Share options (continued) (ii) Details of share options exercised during the year are as follows: (continued) Year ended March 31, 2008 Market value per ordinary share at exercise date HK$ 4.87-4.93 4.71-5.26 4.91-5.26 ...

  • Page 139
    ...) Year ended March 31, 2008 (continued) Market value per ordinary share at exercise date HK$ 3.15...11.26.2007 12.31.2007 01.28.2008 02.26.2008 03.31.2008 Exercise price HK$ 2.876 2.876 2.876 2.876 2.876....29.2008 02.19.2008 03.31.2008 90,436,550 137 2008/09 Annual Report Lenovo Group Limited 132,000...

  • Page 140
    NOTES TO THE FINANCIAL STATEMENTS (Continued) 30 Share capital (continued) (b) Share options (continued) (iii) Details of share options at the balance sheet date were as follows: 2009 Number of ordinary shares 2008 Number of ordinary shares Exercise period (MM.DD.YYYY) Old Option Scheme 01.28.2000...

  • Page 141
    ... of availablefor-sale financial assets Conversion of Series A cumulative convertible preferred shares Vesting of shares under long-term incentive program Exercise of share options Share-based compensation Repurchase of shares Dividends paid At March 31, 2008 At April 1, 2008 Fair value change on...

  • Page 142
    .... (b) Key management compensation Details on key management compensation are set out in Note 11. 33 Bank facilities Total bank facilities of the Group are as follows: Total facilities 2009 US$'000 Term loan Short-term syndicated loans Short-term loans Foreign exchange contracts Other trade finance...

  • Page 143
    ...(a) Capital commitments Group 2009 US$'000 Contracted but not provided for: - Property, plant and equipment - Intangible assets - Investment - IT consulting services 2008 US$'000 22,728 10,608 8,719 1,126 43,181 15,854 13,584 5,216 - 34,654 Authorized but not contracted for: - Property, plant and...

  • Page 144
    ... 2009 US$'000 Pension obligation included in other non-current liabilities (Note 29) Pension benefits Post-employment medical benefits 142 2008/09 Annual Report Lenovo Group Limited 2008 US$'000 59,115 8,885 68,000 77,264 8,226 85,490 Expensed in income statement Pension benefits Post-employment...

  • Page 145
    ...: Group 2009 US$'000 At the beginning of the year Reclassification Exchange adjustment Pension expense Contributions by employer Net actuarial gains Others At the end of the year The amounts recognized in the income statement are as follows: 143 2008/09 Annual Report Lenovo Group Limited 2008 US...

  • Page 146
    ... average of the long term expected rate of return on each of the asset classes that the plan was invested in at the balance sheet date. (b) Post-employment medical benefits The Group operates a number of post-employment medical benefit schemes, principally in the U.S.. The method of accounting...

  • Page 147
    ... US$'000 8,018 - - 217 (223) 13 - (264) - 7,761 (6) 2008 US$'000 6,920 - - 334 9 - - (63) 818 8,018 145 2008/09 Annual Report Lenovo Group Limited 343 Contributions of US$5,022,000 are estimated to be made for the year ending March 31, 2010, excluding amounts due to be transferred from IBM plans.

  • Page 148
    NOTES TO THE FINANCIAL STATEMENTS (Continued) 37 Retirement benefit obligations (continued) (c) Additional information on post-employment benefits (pension and medical) (continued) Reconciliation of movements in present value of defined benefit obligations of the Group: Pensions 2009 US$'000 ...

  • Page 149
    ... Distribution of IT products and provision of IT services Chinese Mainland (Lenovo (Shanghai) Co., Ltd.) (wholly foreign-owned enterprise) Held indirectly: Lenovo (Asia Pacific) Limited Hong Kong 1 HK$10,000,000 100% 100% HK$1,225,130,735 100% 100% Investment holding and distribution of...

  • Page 150
    ... Private Limited India HK$16,000,000 100% 100% INR326,969,990 100% 100% Manufacturing and distribution of IT products Manufacturing and distribution of IT products Chinese Mainland (Lenovo Information Products (Shenzhen) Co. Ltd.) 1 (wholly foreign-owned enterprise) 148 2008/09 Annual Report...

  • Page 151
    ...100% Hong Kong HK$2 ordinary and HK$1,000,000 non-voting deferred CHF2,000,000 100% 100% Lenovo (Schweiz) GmbH Switzerland 100% 100% Distribution of IT products Provision of IT services and distribution of IT products Procurement agency, group treasury, supply chain management, intellectual...

  • Page 152
    ...Information Technology Service (Beijing) Co., Ltd.) 1 (Chinese-foreign equity joint venture) Lenovo Technology Sdn. Bhd. (previously known as Think Products (Malaysia) Sdn. Bhd.) Malaysia RMB20,000,000 100% 100% RMB20,000,000 100% 100% 150 2008/09 Annual Report Lenovo Group Limited Provision...

  • Page 153
    ... and 2009 have been used. The company whose English name ends with a "1" is a direct transliteration of its Chinese registered name. (iii) 39 Approval of financial statements The financial statements were approved by the board of directors on May 21, 2009. 151 2008/09 Annual Report Lenovo Group...

  • Page 154
    ... US0.25 cents 5,040,558 3,995,911 1,044,647 US2.01 cents (US0.09 cents) US1.92 cents 1,157,943 487,686 670,257 Total assets Total liabilities Net assets 6,308,299 4,997,384 1,310,915 152 2008/09 Annual Report Lenovo Group Limited

  • Page 155
    ... (Depositary and Registrar) Chief Financial Officer Mr. Wong Wai Ming Citibank, N.A. 14th Floor, 388 Greenwich Street, New York, NY 10013, USA Company Secretary Mr. Mok Chung Fu Stock Codes Hong Kong Stock Exchange: American Depositary Receipts: 992 LNVGY Registered Office 23rd Floor, Lincoln...

  • Page 156
    WWW.LENOVO.COM This report is printed on environmentally friendly paper manufactured from elemental chlorine-free pulp Printed on chemistry free plate system and soy ink