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2009/10 Annual Report Lenovo Group Limited
a
THE
FUTURE
IS HERE
2009/10 Annual Report Lenovo Group Limited
Stock Code: 992

Table of contents

  • Page 1
    THE FUTURE IS HERE 2009/10 Annual Report Lenovo Group Limited Stock Code: 992 2009/10 Annual Report Lenovo Group Limited a

  • Page 2
    ...the former IBM Personal Computing Division, the Company develops, manufactures and markets reliable, high quality, secure and easy-to-use technology products and services worldwide. Lenovo has major research centers in Yamato, Japan; Beijing, Shanghai and Shenzhen, China; and Raleigh, North Carolina...

  • Page 3
    ...FINANCIAL HIGHLIGHTS CHAIRMAN'S STATEMENT CEO'S REPORT LENOVO MANAGEMENT TEAM MANAGEMENT'S DISCUSSION AND ANALYSIS CORPORATE GOVERNANCE DIRECTORS' REPORT INDEPENDENT AUDITOR'S REPORT CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED BALANCE SHEET BALANCE SHEET...

  • Page 4
    ...-tax income margin (%) Group Results Profit/(loss) attributable to equity holders of the Company EPS - basic (US cents) EPS - diluted (US cents) Interim dividend per share (HK cents) Final dividend per share (HK cents) Total dividend per share (HK cents) Cash and Working Capital Bank deposits, cash...

  • Page 5
    ... Equity Holders of the Company for the year ended March 31 (US$ million) 798 484 432 343 375 305 161 22 129 (226) 2009/10 Annual Report Lenovo Group Limited 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Notes: 1 Excluding discontinued operations for the period from April 1, 2005...

  • Page 6
    OUR FOUNDATION 2009/10 Annual Report Lenovo Group Limited 4

  • Page 7
    Our business model is fast, flexible and efficient. Lenovo's core strengths enable us to navigate a challenging global economy, maximize opportunities for growth and take a leading role in defining the future of technology. 2009/10 Annual Report Lenovo Group Limited 5

  • Page 8
    ... the Directors' applause. In 2009/10 Annual Report Lenovo Group Limited emerging markets and mature markets alike, from Think to Idea products, the "Protect-Attack" strategy was implemented and executed brilliantly with the right deployment. Thus, the Group has posted record high market share for...

  • Page 9
    ...Own What We Do" Lenovo Culture being embraced by our staff and the resulting boost in their morale. All of these developments have laid a solid foundation for the Group's long-term development. Liu Chuanzhi Chairman of the Board Hong Kong, May 27, 2010 2009/10 Annual Report Lenovo Group Limited 7

  • Page 10
    ... our strategy by simplifying our business model for global commercial accounts. At the same time we will increase our efforts to capture growth in key emerging markets and in worldwide transactional sales, while also pursuing new opportunities such as the Mobile Internet through new products and...

  • Page 11
    ... model globally all demonstrate our culture of commitment is taking hold. We call our culture The Lenovo Way, and at its essence, it is based on everyone owning their role and decisions. 2009/10 Annual Report Lenovo Group Limited Yang Yuanqing Chief Executive Officer Hong Kong, May 27, 2010...

  • Page 12
    ... of the Board 5 Milko van Duijl Senior Vice President and President of Mature Markets 8 Gerry Smith Senior Vice President, Global Supply Chain 2 Yang Yuanqing Chief Executive Officer 2009/10 Annual Report Lenovo Group Limited 6 He Zhiqiang Senior Vice President and Chief Technology Officer...

  • Page 13
    ... Senior Vice President, Global Services 2009/10 Annual Report Lenovo Group Limited 13 Liu Jun Senior Vice President and President of Product Groups 17 Wang Xiaoyan Senior Vice President and Chief Information Officer 20 Qiao Jian Vice President, Corporate Strategy and Planning 14 Peter Hortensius...

  • Page 14
    OUR FOCUS 2009/10 Annual Report Lenovo Group Limited 12

  • Page 15
    ... and delivering results. Guided by a clear strategy, we are able to protect our core businesses and attack new opportunities for growth in any market worldwide. Our business requires exceptional execution every day, in every market, for every customer. 13 2009/10 Annual Report Lenovo Group Limited

  • Page 16
    ... 12.3 percent in last year to 10.8 percent. In January 2009, Lenovo announced a global resource restructuring plan aimed at reducing costs and enhancing operational efficiency. The plan is on track to generate expected savings. The Group also delivered 14 2009/10 Annual Report Lenovo Group Limited

  • Page 17
    ... its transactional model globally, while simplifying its relationship business to make it more productive in focusing on the key accounts. The Group reacquired Lenovo Mobile in November 2009 as part of its strategy to establish a leadership position in the China mobile internet market during its...

  • Page 18
    ... 16 percent of the Group's total sales. Economic growth in emerging and developing economies was affected by the financial crisis. As a result, growth in the PC markets in certain emerging markets declined substantially in the first half of the 16 2009/10 Annual Report Lenovo Group Limited

  • Page 19
    ... in North America, and reached 4.4 percent according to the latest industry estimates. With relatively limited retail presence in this region, Lenovo's share gains highlight its strong execution in the market segments in which it has presence. 2009/10 Annual Report Lenovo Group Limited ThinkPad...

  • Page 20
    ... to 68 percent unit shipments growth in China and sustained sales in Mature Markets. Building on the success of the X300 product launched in 2008/09 fiscal year, the Group has introduced its thinnest and lightest flagship T Series model ever, the T400s, maintaining Lenovo's position as the high...

  • Page 21
    ... unit shipments compared to last year, of which netbook accounted for approximately 19 percent of notebooks unit shipments, while Idea desktops grew at 18 percent from last year, boosted by the success of the All-in-One models. 2009/10 Annual Report Lenovo Group Limited C100 All-in-One desktop 19

  • Page 22
    ... market, and supply chain efficiency. The Group's innovative products won major industry awards at the CES 2010. Lenovo's hybrid notebook IdeaPad U1, representing an industry first, was 20 2009/10 Annual Report Lenovo Group Limited RELATIONSHIP & TRANSACTION BUSINESS MODELS Lenovo's relationship...

  • Page 23
    ...Lenovo notebooks, desktops, and workstation/server products. Lenovo continued to optimize its manufacturing footprint and global logistics networks to meet customer needs and respond to market conditions. Lenovo employs a mix of in-house and outsourced manufacturing, managed by teams of supply chain...

  • Page 24
    ... on disposal of available-for-sale financial assets and restructuring costs (EBITDAR) Profit/(loss) attributable to equity holders of the Company Earnings/(loss) per share (US cents) - Basic - Diluted Dividend per ordinary share (HK cents) - Interim dividend - Proposed final dividend 368,888 129,368...

  • Page 25
    ... items 2009/10 Annual Report Lenovo Group Limited For the year ended Mach 31 Depreciation of property, plant and equipment and amortization of prepaid lease payments Amortization of intangible assets Employee benefit costs - long-term incentive awards - severance and related costs Termination...

  • Page 26
    ...91 million) in trade lines, US$2,641 million (2009: US$1,964 million) being used for the forward foreign exchange contracts; and US$65 million (2009: US$20 million) in short-term bank loans. 2009/10 Annual Report Lenovo Group Limited At March 31, 2010, the Group's outstanding bank loans represented...

  • Page 27
    ... period. HUMAN RESOURCES At March 31, 2010, the Group had a total of 22,205 (2009: 22,511) employees. The Group implements remuneration policy, bonus and long-term incentive schemes with reference to the performance of the Group and individual employees. The Group also provides benefits such...

  • Page 28
    ... in global currencies, like that experienced during the last several quarters, could cause additional challenges for PC makers including Lenovo. The Group will continue its fundamental "Protect and Attack" strategy that contributed to the Group's 26 2009/10 Annual Report Lenovo Group Limited

  • Page 29
    ...a common work culture and shared values and priorities across the Group. This means creating a cohesive and consistent approach to work. Success in building a strong culture will enable every employee to do their jobs more efficiently and for Lenovo to be a successful Company for the long-term. With...

  • Page 30
    OUR RESULTS 2009/10 Annual Report Lenovo Group Limited 28

  • Page 31
    ... careful planning and strong execution, we meet our commitments every day. We seek to exceed expectations not only for our customers, but also for our stakeholders. In this way we move closer each day to becoming the world's leading technology company. 29 2009/10 Annual Report Lenovo Group Limited

  • Page 32
    ... of the Company. The quarterly financial results were prepared using the accounting standards consistent with the policies applied to the interim and annual accounts. 30 2009/10 Annual Report Lenovo Group Limited DIRECTORS' SECURITIES TRANSACTIONS The Company has adopted the Model Code set out...

  • Page 33
    ...Board members as at the date of this annual report: 1. Mr. Liu Chuanzhi and Mr. Zhu Linan, non-executive directors, also serve on the board of directors of Legend Holdings Limited, the controlling shareholder of the Company. Mr. James G. Coulter and Mr. William O. Grabe were nominated by TPG Capital...

  • Page 34
    ... coverage is reviewed on an annual basis. On a bi-monthly basis, management furnished updates of the financial performance of the Company to all members of the Board. Every Board member was furnished with a copy of Non-statutory Guidelines on Directors' Duties published by the Hong Kong Companies...

  • Page 35
    ... members possess diversified industry experience and the Chairman has the accounting or related financial management expertise. Responsibilities and summary of work The Committee is responsible for assisting the Board in providing an independent review of the financial statements and internal...

  • Page 36
    ... 2009/10 updated merit plan • Submission of 2009/10 non-executive director pay recommendation by independent consultant for the Board's approval • Approval of 2008/09 bonus payments and 2009/10 compensation for the direct reports of CEO and President • Approval of 2008/09 bonus payment for CEO...

  • Page 37
    .... Wu Yibing1 Board (Total no.: 6*) 6/6 5/5 5/5 5/6 4/5 6/6 4/4 5/5 5/5 4/5 1/1 6/6 Strategy Committee (Total no.: 5) 4/5# 5/5 - - 4/5 4/5 - - - - - - 2009/10 Annual Report Lenovo Group Limited Independent non-executive directors Professor Woo Chia-Wei Mr. Ting Lee Sen Dr. Tian Suning Mr. Nicholas...

  • Page 38
    ... the Chairman of the Board, executive director and senior management, is comprised of base salaries and allowances, performance bonus, long-term incentives, retirement benefits, and benefits in kind. These components are described in more detail below. 36 2009/10 Annual Report Lenovo Group Limited

  • Page 39
    ... Company operates a Long-Term Incentive Program ("LTI Program") which was approved by the Company on May 26, 2005. The purpose of the LTI Program is to attract, retain, reward and motivate executive and non-executive directors, senior management and selected top-performing employees of the Company...

  • Page 40
    ... 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 63 to 65. Long-Term Incentive Awards The total number of awards of the members of the Board...

  • Page 41
    ....30.2010-11.30.2012 Mr. Zhu Linan SAR SAR SAR SAR SAR SAR RSU RSU RSU RSU RSU Ms. Ma Xuezheng SAR SAR SAR SAR SAR SAR SAR RSU RSU RSU RSU RSU RSU RSU Mr. James G. Coulter SAR SAR SAR SAR SAR RSU RSU RSU RSU RSU 39 2009/10 Annual Report Lenovo Group Limited

  • Page 42
    CORPORATE GOVERNANCE Number of units Total Cancelled/ outstanding Max no. of As at Awarded Vested during Exercised lapsed during As at as at shares subject April 1, 2009 during the year the year during the year the year March 31, 2010 March 31, 2010 to conditions (unvested) - 130,000 198,000 195,...

  • Page 43
    ... audit and non-audit services for the financial year ended March 31, 2010 and the comparative figures for the financial year ended March 31, 2009 are as follows: 2010 US$mn Audit - 2007/08 - 2008/09 - 2009/10 Non-audit Total - - 3.6 3.6 0.5 4.1 2009 US$mn 2009/10 Annual Report Lenovo Group Limited...

  • Page 44
    ... has also developed and implemented an Anti-Bribery and Anti-Corruption Policy which reinforces the message in the Code of Conduct and provides additional specific guidance regarding compliance with rules and laws related to bribery and corruption. 42 2009/10 Annual Report Lenovo Group Limited

  • Page 45
    ... Board, CEO, Chief Financial Officer, Chairman of the Audit Committee, Chairman of the Compensation Committee and representatives of external auditor PwC to answer questions raised by shareholders at the meeting. Resolutions passed at the 2009 Annual General Meeting included: adoption of the Group...

  • Page 46
    CORPORATE GOVERNANCE INVESTOR RELATIONS Lenovo establishes an investor relations department to promote open, transparent, efficient and consistent communications with shareholders, investors and equity analysts. The investor relations team commits to proactively provide investment community with ...

  • Page 47
    ...as 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, 2010 and has continued to maintain the public float as at the date of this annual report. 45 2009/10 Annual Report Lenovo Group...

  • Page 48
    ...) commitments encompass 2009/10 Annual Report Lenovo Group Limited maintaining high ethical standards employee health and welfare quality and safety for products the environment global supply chain, and social investments • • • A summary of Lenovo's CSR commitments and 2009 highlights are...

  • Page 49
    ...for needed change. Employee Health and Welfare Lenovo's people are our greatest asset, and we are committed to providing a safe and healthy working environment. This global commitment is clearly essential to the company's productivity and values. The Company's Global Occupation Heath and Safety (OHS...

  • Page 50
    ... its own supply chain operations. Lenovo also continues to optimize its global logistics program to drive additional product volumes to shipping methods that are more environmentally friendly, such as ocean vessels and rail. In FY2009/10, Lenovo shifted 11 percent of its notebook shipments from high...

  • Page 51
    DIRECTORS' REPORT & FINANCIAL STATEMENTS 50 DIRECTORS' REPORT 69 INDEPENDENT AUDITOR'S REPORT 70 CONSOLIDATED INCOME STATEMENT 71 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 72 CONSOLIDATED BALANCE SHEET 74 BALANCE SHEET 75 CONSOLIDATED CASH FLOW STATEMENT 76 CONSOLIDATED STATEMENT OF CHANGES IN...

  • Page 52
    ... the year. The directors recommend the payment of a final dividend of HK4.5 cents per ordinary share (2009: Nil). Subject to shareholders' approval at the forthcoming annual general meeting, the final dividend will be payable on Monday, August 9, 2010 to the shareholders whose names appear on the...

  • Page 53
    ... the Group; any director, executive and senior officer of any associated company of the Company; and 2009/10 Annual Report Lenovo Group Limited (b) the trustee of any trust pre-approved by the directors of which the beneficiary (or in case of discretionary trust, the discretionary objects) include...

  • Page 54
    ... period up to 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...

  • Page 55
    ... was HK$4.760. No options are granted and/or cancelled during the year. The accounting policy adopted for the above share option schemes are set out in note 2(w)(iv) to the financial statements. Other details are set out in note 29(b). 2. 3. 2009/10 Annual Report Lenovo Group Limited 4. 5. 53

  • Page 56
    ... in the number of awards for the year ended March 31, 2010 are set out in the Corporate Governance section on pages 37 to 41 and note 29(a) to the financial statements. Apart from the share option schemes and the LTI Program, at no time during the year ended March 31, 2010 was the Company or any of...

  • Page 57
    ... firm that focuses on public market and private minority investments. Mr. Coulter also serves on the Boards of Directors of J Crew Group, Inc. (NYSE listed), The Neiman Marcus Group, Inc. and IMS Health Inc. as well as on the Stanford University Board of Trustees. 55 2009/10 Annual Report Lenovo...

  • Page 58
    ... the President of CITIC Private Equity Funds Management Co., Ltd.. Dr. Wu was most recently the Managing Director and Executive Vice President of Legend Holdings Limited, the controlling shareholder of the Company, and the chief transformation officer of the Company. From 1996 to 2008, Dr. Wu was...

  • Page 59
    ... of leadership positions in Lenovo including president of the Consumer Business Group and leader of R&D, corporate strategy, the desktop PC business unit and global supply chain. He holds a Bachelor's degree in Automation and an EMBA, both from Tsinghua University and completed executive programs at...

  • Page 60
    ... joined the Group in 1991 and is currently the Senior Vice President of the Company and Chief Procurement Officer. He has expertise in product development, sales and marketing, and supply chain and procurement management. Mr. Qiao graduated from the Department of Computer Science and Technology with...

  • Page 61
    ...' interests As at March 31, 2010, 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...

  • Page 62
    ... to the Company and the Hong Kong Stock Exchange pursuant to the Model Code. Substantial shareholders' interests in securities of the Company As at March 31, 2010, the following persons (not being a director or chief executive of the Company) had an interests in the shares or underlying shares of...

  • Page 63
    ...- 109,850 109,850 14.28% Preferred Shares - 109,850 109,850 14.28% Preferred Shares - 109,850 109,850 14.28% Preferred Shares Preferred Shares Preferred Shares - - 184,706 109,850 184,706 - 109,850 184,706 184,706 14.28% 2009/10 Annual Report Lenovo Group Limited 24.01% 24.01% 61

  • Page 64
    DIRECTORS' REPORT (continued) Substantial shareholders' interests in securities of the Company (continued) Notes: 1. 2. 3. The English company name "Legend Holdings Limited" is a direct transliteration of its Chinese company name. The shares were beneficially held by Right Lane Limited, a direct ...

  • Page 65
    ... rate: - Expected return on plan assets: - Future salary increases: • • The qualified plan was 78% funded at the actuarial valuation date. There was a deficit of US$11,863,905 under the qualified plan for this reason at the actuarial valuation date. 2009/10 Annual Report Lenovo Group Limited...

  • Page 66
    ...: - Discount rate: - Future salary increases: - Future pension increases: • • The plan was 63% funded at the actuarial valuation date. There was a deficit of EUROS 8,296,000 under this plan at the actuarial valuation date. 4.00% 2.20% 1.75% • 64 2009/10 Annual Report Lenovo Group Limited

  • Page 67
    ...will increase from 5 percent to 7.5 percent and 10 percent respectively after completion of five and ten years of service by the relevant employees. Details of the cost charged to the income statement and forfeited contributions are set out in note 36. 65 2009/10 Annual Report Lenovo Group Limited

  • Page 68
    ...31, 2009 and 2010 respectively; and The aggregate amount payable by the Legend Group to the Group for the sale of Computing Products and Services will not exceed US$5,000,000 and US$6,000,000 for the financial years ended March 31, 2009 and 2010 respectively. (iii) 66 2009/10 Annual Report Lenovo...

  • Page 69
    ...a Master Services Agreement with Lenovo Mobile in respect of the sharing of office spaces, provision of logistic, administrative and information technology services by the Group to the Legend Group for a term of three years commencing from April 1, 2009 and expiring on March 31, 2012. The annual cap...

  • Page 70
    ...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 27, 2010 68 2009/10 Annual Report Lenovo Group Limited

  • Page 71
    ... and appropriate to provide a basis for our audit opinion. Opinion 2009/10 Annual Report Lenovo Group Limited In our opinion, the consolidated financial statements give a true and fair view of the state of the Company's and Group's affairs as at March 31, 2010 and of the Group's profit and cash...

  • Page 72
    CONSOLIDATED INCOME STATEMENT For the year ended March 31, 2010 Note Sales Cost of sales Gross profit Other income - net Selling and distribution expenses Administrative expenses Research and development expenses Other operating expenses - net Operating profit/(loss) Finance income Finance costs ...

  • Page 73
    ... Reserve realized on disposal of available-for-sale financial assets Fair value change on interest rate swap contracts Fair value change on forward foreign exchange contracts Actuarial (loss)/gain from defined benefit pension plans Currency translation differences 22 2010 US$'000 129,368 67,674 (70...

  • Page 74
    ... SHEET At March 31, 2010 Note Non-current assets Property, plant and equipment Prepaid lease payments Construction-in-progress Intangible assets Interests in associated companies Deferred tax assets Available-for-sale financial assets Other non-current assets 2010 US$'000 2009 US$'000 2008...

  • Page 75
    ...706 437,356 6,419,353 Total liabilities Total equity and liabilities Net current (liabilities)/assets Total assets less current liabilities 7,349,910 8,955,928 (183,740) 2,536,575 On behalf of the Board Liu Chuanzhi Director Yang Yuanqing Director 73 2009/10 Annual Report Lenovo Group Limited

  • Page 76
    ...3,252 19,848 526,686 230,000 779,786 Total liabilities Total equity and liabilities Net current assets Total assets less current liabilities 1,075,014 3,106,912 402,021 2,327,126 On behalf of the Board Liu Chuanzhi Director Yang Yuanqing Director 74 2009/10 Annual Report Lenovo Group Limited

  • Page 77
    ... disposal of financial assets (Increase)/decrease in bank deposits Dividend received Interest received Net cash (used in)/generated from investing activities Cash flows from financing activities Exercise of share options Repurchase of shares Contributions to employee share trusts Dividends paid Net...

  • Page 78
    ... income/(loss) Total comprehensive income/ (loss) for the year Transfer to statutory reserve Vesting of shares under long-term incentive program Exercise of share options Share-based compensation Repurchase of shares Contribution to employee share trusts Dividends paid At March 31, 2009 29,530...

  • Page 79
    ... of Hong Kong Financial Reporting Standards", effective for annual periods beginning on or after July 1, 2009; and for amendments to HKFRS 1 (Revised) published in May 2010, effective for annual periods beginning on or after January 1, 2011 HKFRS 2 (Amendment), "Share-based payment", effective...

  • Page 80
    ... limit on a defined benefit asset, minimum funding requirements and their interaction", effective for annual periods beginning on or after January 1, 2011 HK(IFRIC)-Int 16, "Hedges of a net investment in a foreign operation", effective for annual periods beginning on or after July 1, 2009 HK(IFRIC...

  • Page 81
    ... the asset transferred. In the Company's balance sheet, the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable. 2009/10 Annual Report Lenovo Group Limited...

  • Page 82
    ... TO THE FINANCIAL STATEMENTS (continued) 2 Significant accounting policies (continued) (b) Associated companies (continued) (ii) The Group 's share of its associated companies' post-acquisition profits or losses is recognized in the consolidated income statement, and its share of post-acquisition...

  • Page 83
    ...income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. (d) Property, plant and equipment (i) Buildings, buildings related...

  • Page 84
    ... as intangible assets. Costs include the employee costs incurred as a result of developing software and an appropriate portion of relevant overheads. 82 2009/10 Annual Report Lenovo Group Limited In addition to the review of the residual values and useful lives of property, plant and equipment...

  • Page 85
    ... that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified...

  • Page 86
    ...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 87
    ... than 12 months. Trading derivatives are classified as a current asset or liability. 2009/10 Annual Report Lenovo Group Limited (i) Fair value hedge Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recorded in the income statement, together with...

  • Page 88
    ... in shareholders' equity, net of income tax effects. Upon conversion of convertible preferred shares to voting ordinary shares, the amounts of liability portion and equity portion of respective preferred shares are reclassified to share capital and share premium. 2009/10 Annual Report Lenovo Group...

  • Page 89
    ... as interest expense. Incremental costs directly attributable to the issue of new shares or exercise of options are shown in equity as a deduction, net of tax, from the proceeds. Where any group company purchases the Company's equity share capital (treasury shares), the consideration paid, including...

  • Page 90
    ...recognized over the term of contract or when services are rendered. The Group defers the cost of shipped products awaiting revenue recognition until the goods are delivered and revenue is recognized. In-transit product shipments to customers of US$48 million as at March 31, 2010 (2009: US$77 million...

  • Page 91
    ... not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less...

  • Page 92
    ... lease term. 90 2009/10 Annual Report Lenovo Group Limited (y) Dividend distribution Dividend distribution to the Company's shareholders is recognized as a liability in the Group's and Company's financial statements in the period in which the dividends are approved by the Company's shareholders...

  • Page 93
    ... rate risk is considered not significant to the Group and therefore not hedged. 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. 91 2009/10 Annual Report Lenovo Group...

  • Page 94
    ... balance sheet date to the contractual maturity date. The amounts disclosed in the tables are the contractual undiscounted cash flows. Balances due within 12 months approximate their carrying balances, as the impact of discounting is not significant. 92 2009/10 Annual Report Lenovo Group Limited

  • Page 95
    ...,039 227,564 2009/10 Annual Report Lenovo Group Limited The tables below analyze 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...

  • Page 96
    ...THE FINANCIAL STATEMENTS (continued) 3 Financial risk management (continued) (a) Financial risk factors (continued) (iv) Liquidity risk (continued) Group 3 months or less but not repayable on demand US$'000 At March 31, 2010 Forward foreign exchange contracts: - outflow - inflow Interest rate swap...

  • Page 97
    .../lower mainly as a result of a increase/decrease in the fair value of the interest rate swaps. At March 31, 2010, if interest rates on the global channel financing program had been 25 basis points higher/ lower with all other variables held constant, post-tax profit for the year (2009: post-tax...

  • Page 98
    ... and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others...

  • Page 99
    ... 2. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency...

  • Page 100
    ... existence of taxable temporary differences, group relief, tax planning strategies and the periods in which estimated tax losses can be utilized. The carrying amount of deferred tax assets and related financial models and budgets are reviewed at each balance sheet date and to the extent that there...

  • Page 101
    ... shipped that still have a right of return as of the balance sheet date. (e) Retirement benefits Pension and other post-retirement benefit costs and obligations are dependent on various assumptions. The Group's major assumptions primarily relate to discount rate, expected return on assets, and...

  • Page 102
    ...000 Sales to external customers Adjusted pre-tax income/(loss) Depreciation and amortization Restructuring costs Total assets Total assets includes: Additions to non-current assets (other than financial instruments and deferred tax assets) Total liabilities 2009/10 Annual Report Lenovo Group Limited...

  • Page 103
    ... to total assets per consolidated balance sheet is provided as follows: 2010 US$'000 Segment assets for reportable segments Unallocated: Deferred tax assets Available-for-sale financial assets Interests in associated companies Unallocated cash and cash equivalents Unallocated inventories Other...

  • Page 104
    NOTES TO THE FINANCIAL STATEMENTS (continued) 5 Segment information (continued) (d) Reconciliation of segment liabilities for reportable segments to total liabilities per consolidated balance sheet is provided as follows: 2010 US$'000 Segment liabilities for reportable segments Unallocated: Income...

  • Page 105
    ... (b) Finance costs 2010 US$'000 Interest on bank loans and overdrafts Dividend and relevant finance costs on convertible preferred shares (Note 28(b)) Factoring cost Others 30,413 10,915 10,600 10,953 62,881 2009 US$'000 22,310 14,115 18,331 1,717 56,473 2009/10 Annual Report Lenovo Group Limited...

  • Page 106
    ... awards granted to directors and employees (Note 29(a)) Pension costs - defined contribution plans - defined benefit plans Others 2009 US$'000 899,970 95,923 51,412 32,978 11,088 90,648 1,182,019 939,421 98,250 54,114 25,403 11,032 109,030 1,237,250 104 2009/10 Annual Report Lenovo Group Limited

  • Page 107
    ...: 2010 Retirement payments and employer's contribution to pension schemes US$'000 Name of Director Fees US$'000 Discretionary bonuses Salary (note i) US$'000 US$'000 Long-term incentives awards (note ii) US$'000 Other benefitsin-kind US$'000 Total US$'000 Executive director Mr. Yang Yuanqing...

  • Page 108
    ... 31, 2009 and 2010 represent the amounts in connection with the performance bonuses for the two years ended March 31, 2008 and 2009, respectively. Details of the long-term incentive program of the Company are set out in Note 29(a). The fair value of the employee services received in exchange for the...

  • Page 109
    ... in issue during the year. 2010 Weighted average number of shares for the purpose of basic earnings/(loss) per share 2009 9,113,645,262 8,851,779,460 US$'000 Profit/(loss) attributable to equity holders of the Company 129,368 US$'000 (226,392) 107 2009/10 Annual Report Lenovo Group Limited

  • Page 110
    ...000 Profit/(loss) attributable to equity holders of the Company 129,368 US$'000 (226,392) 13 Dividends 2010 US$'000 Interim dividend of HK1.0 cent per ordinary share (2009: HK3.0 cents) Proposed final dividend of HK4.5 cents (2009: nil) per ordinary share 2009/10 Annual Report Lenovo Group Limited...

  • Page 111
    ...vehicles US$'000 Buildings US$'000 At April 1, 2008 Cost Accumulated depreciation Net book amount Year ended March 31, 2009 Opening net book amount Exchange adjustment Additions Transfer from construction-in-progress (Note 16) Disposals Reclassification to intangible assets Depreciation Closing net...

  • Page 112
    ... STATEMENTS (continued) 14 Property, plant and equipment (continued) (b) Company Leasehold improvements US$'000 At April 1, 2008 Cost Accumulated depreciation Net book amount Year ended March 31, 2009 Opening net book amount Exchange adjustment Additions Disposals Transfer to intangible assets...

  • Page 113
    ...-in-progress Group Buildings under construction Internal use software Others 2010 2009 2010 2009 2010 2009 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 At the beginning of the year Exchange adjustment Reclassification Additions Acquisition of subsidiaries Transfer to property, plant and equipment...

  • Page 114
    ... (a) Group Trademarks and trade Internal Customer names use software relationships US$'000 US$'000 US$'000 Patent and technology US$'000 Marketing rights US$'000 Goodwill US$'000 At April 1, 2008 Cost Accumulated amortization and impairment losses Net book amount Year ended March, 31 2009 Opening...

  • Page 115
    17 Intangible assets (continued) (b) Company Internal use software US$'000 At April 1, 2008 Cost Accumulated amortization Net book amount Year ended March 31, 2009 Opening net book amount Exchange adjustment Transfer from construction-in-progress (Note 16) Transfer from property, plant and equipment...

  • Page 116
    ... - Total US$ million 1,474 380 * Includes Africa, Asia Pacific, Central/Eastern Europe, Hong Kong, India, Korea, Middle East, Pakistan, Russia, Taiwan and Turkey At March 31, 2009 Asia Pacific (excluding Greater China) US$ million 152 45 Americas US$ million Goodwill Trademarks and trade names...

  • Page 117
    ... rates used for value-in-use calculations in 2010 are as follows: Japan, Australia, New Zealand (3.2%) China Growth rate 13.9% HARIE 9.7% Latin America 2.3% North America 4.3% West Europe 0.2% The estimated growth rates used for value-in-use calculations in 2009 are as follows: Asia Pacific...

  • Page 118
    ... of IT technology 20 Financial instruments by category Group Assets at fair value through income statement US$'000 Loan and receivables US$'000 Assets as per consolidated balance sheet At March 31, 2010 Available-for-sale financial assets (Note 22) Derivative financial assets Trade receivables...

  • Page 119
    ... by category (continued) Group Liabilities at fair value through income statement US$'000 Liabilities as per consolidated balance sheet At March 31, 2010 Trade payables (Note 26(a)) Notes payable Derivative financial liabilities Accruals and other payables (Note 27) Short-term bank loans Interest...

  • Page 120
    NOTES TO THE FINANCIAL STATEMENTS (continued) 20 Financial instruments by category (continued) Company Loan and receivables US$'000 Assets as per balance sheet At March 31, 2010 Deposits (Note 24(c)) Amount due from subsidiaries (Note 18(b)) Cash and cash equivalents (Note 25) 881 914,325 259,559 ...

  • Page 121
    ...: US$64,889,000) can be carried forward indefinitely. The remaining balances of unrecognized tax losses will expire as follows: Group 2010 US$'000 Expiring in - 2011 - 2014 - 2015 - 2016 - 2017 2009 US$'000 2009/10 Annual Report Lenovo Group Limited - 6,556 52,582 10,392 42,301 111,831 307 72,849...

  • Page 122
    ... 66,821 100,036 1,880 101,916 Available-for-sale financial assets held by the Group are denominated in the following currencies: 2010 US$'000 Hong Kong Renminbi United States dollars 1,640 19,111 91,769 112,520 2009 US$'000 34,220 875 66,821 101,916 120 2009/10 Annual Report Lenovo Group Limited

  • Page 123
    ... goods 371,592 118,851 388,444 878,887 2009 US$'000 72,402 109,246 268,722 450,370 24 Receivables (a) Customers are generally granted credit term of 30 days. Ageing analysis of trade receivables of the Group at the balance sheet date is as follows: Group 2010 US$'000 0-30 days 31-60 days 61-90...

  • Page 124
    ... 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 deposits and receivables are denominated in the following currencies: Group 2010 US$'000 Renminbi United States dollar Euro Hong Kong dollar...

  • Page 125
    ... dollar Euro Japanese Yen Renminbi Other currencies 1,046,513 38,602 3,827 1,137,606 212,103 2,438,651 2009 US$'000 1,224,838 52,083 34,637 456,337 95,484 1,863,379 Company 2010 US$'000 254,022 44 - - 5,493 259,559 2009 US$'000 163,146 - 109 - 363 163,618 123 2009/10 Annual Report Lenovo Group...

  • Page 126
    NOTES TO THE FINANCIAL STATEMENTS (continued) 26 Payables (a) Ageing analysis of trade payables of the Group at the balance sheet date is as follows: Group 2010 US$'000 0-30 days 31-60 days 61-90 days Over 90 days 2,425,237 609,720 74,499 31,970 3,141,426 2009 US$'000 995,240 476,657 86,164 77,229 ...

  • Page 127
    ... provision is reviewed quarterly to ensure it properly reflects the outstanding obligation over the warranty period. Certain of these costs are reimbursable from the suppliers in accordance with the terms of relevant arrangement with the suppliers. 125 2009/10 Annual Report Lenovo Group Limited

  • Page 128
    ...the reporting period are as follows: Group and Company 2010 US$'000 Repayable on demand Over 3 months to 1 year Over 1 year 230,000 - 200,000 430,000 2009 US$'000 400,000 35,000 230,000 665,000 (b) On May 17, 2005, the Company issued 2,730,000 convertible preferred shares at the stated value of HK...

  • Page 129
    ... of non-current liabilities presented in the balance sheet are as follows: Group 2010 US$'000 Marketing rights Electronic waste disposal levy Interest-bearing bank loans Deferred revenue 7,575 2,975 230,000 196,806 437,356 2009 US$'000 - 2,359 435,000 203,514 640,873 2008 US$'000 11,443 2,138 35,000...

  • Page 130
    ... TO THE FINANCIAL STATEMENTS (continued) 29 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...

  • Page 131
    ...The fair values of the SARs awarded under the long-term incentive program for the years ended March 31, 2009 and 2010 was calculated by applying a Black-Scholes pricing model. The model inputs were the fair value (i.e. market value) of the Company's shares at the grant date, taking into account the...

  • Page 132
    ... year (iv) 258,011,051 (32,370,500) (5,714,000) 219,926,551 2009 Number of outstanding share options 282,959,051 (24,948,000) - 258,011,051 (i) No share options were granted or cancelled by the Company during the years ended March 31, 2009 and 2010. 130 2009/10 Annual Report Lenovo Group Limited

  • Page 133
    29 Share capital (continued) (b) Share options (continued) (ii) Details of share options exercised during the year ended March 31, 2010 are as follows: Market value per ordinary share at exercise date HK$ 2.86-3.17 3.03-3.29...16,000 36,000 182,000 4,000 131 2009/10 Annual Report Lenovo Group Limited

  • Page 134
    ...FINANCIAL STATEMENTS (continued) 29 Share capital (continued) (b) Share options (continued) (ii) Details of share options exercised during the year ended March 31, 2010 are as follows: (continued) Market value per ordinary share at exercise date HK... 132 2009/10 Annual Report Lenovo Group Limited

  • Page 135
    ... lapsed during the year ended March 31, 2009 and 2010 are as follows: 2010 Number of share option lapsed 2009 Number of share options lapsed 2009/10 Annual Report Lenovo Group Limited Exercise period (MM.DD.YYYY) 01.28.2000 to 01.27.2010 Exercise price HK$ 4.038 5,714,000 5,714,000 - - 133

  • Page 136
    ... 2009 Fair value change on interest rate swap contracts Profit for the year Exchange differences Issue of ordinary shares (Note 37) Conversion of Series A cumulative convertible preferred shares Exercise and repurchase of warrants Vesting of shares under long-term inventive program Exercise of share...

  • Page 137
    ... these financial statements. The directors are of the opinion that the above transactions were conducted on normal commercial terms and in the ordinary course of business of the Group. 2009/10 Annual Report Lenovo Group Limited (b) Key management compensation Details on key management compensation...

  • Page 138
    NOTES TO THE FINANCIAL STATEMENTS (continued) 32 Bank facilities Total bank facilities of the Group are as follows: Total facilities 2010 US$'000 Term loan Short-term syndicated loans Short-term loans Forward foreign exchange contracts Other trade finance facilities 330,000 200,000 485,000 4,175,...

  • Page 139
    ...59,952,000) respectively. The Company has issued letters of guarantee to certain suppliers and vendors of its subsidiaries. At March 31, 2010, the guarantees of approximately US$100,000,000 (2009: US$100,000,000) granted were fully utilized. (b) (c) 137 2009/10 Annual Report Lenovo Group Limited

  • Page 140
    ...-based compensation Loss/(gain) on disposal of property, plant and equipment and prepaid lease Gain on disposal of subsidiaries and an associated company Impairment of assets Dividend income (Gain)/loss on disposal of financial assets (Increase)/decrease in inventories (Increase)/decrease in trade...

  • Page 141
    ... of funded obligations Fair value of plan assets Present value of unfunded obligations Liability in the balance sheet Pension plan asset in the balance sheet 213,769 (151,081) 62,688 7,547 70,235 - 2009 US$'000 188,720 (134,852) 53,868 5,247 59,115 - 139 2009/10 Annual Report Lenovo Group Limited

  • Page 142
    ... Total expense recognized in the income statement 4,833 6,505 (3,947) 42 7,433 2009 US$'000 7,522 6,186 (4,066) 1,390 11,032 The principal actuarial assumptions used are as follows: Group 2010 Discount rate Expected return on plan assets Future salary increases Future pension increases Cash balance...

  • Page 143
    ... income statement are as follows: Group 2010 US$'000 Current service cost Interest cost Expected return on plan assets Curtailment gain Total expense recognized in the income statement 1,221 816 (196) - 1,841 2009 US$'000 1,650 739 (217) (1,151) 1,021 141 2009/10 Annual Report Lenovo Group Limited

  • Page 144
    NOTES TO THE FINANCIAL STATEMENTS (continued) 36 Retirement benefit obligations (continued) (c) Additional information on post-employment benefits (pension and medical) Plan assets comprise: Pensions 2010 US$'000 Equities Bonds Others Total 25,901 83,622 41,558 151,081 2009 US$'000 36,245 88,711 9,...

  • Page 145
    ...(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 2010 US$'000 Opening defined benefit obligation Exchange adjustment Current service cost Interest cost Actuarial...

  • Page 146
    ... Communication Technology Ltd ("Lenovo Mobile") under a sale and purchase agreement dated November 27, 2009. The estimated total consideration for acquiring Lenovo Mobile is approximately HK$250 million, including cash, the Company's shares as consideration shares and related transaction costs. Set...

  • Page 147
    .../ establishment Issued and fully paid up capital Company name Effective holding 2010 2009 Principal activities Held directly: Chinese Mainland (Lenovo (Beijing) Limited) 1 (Wholly foreign-owned enterprise) Chinese Mainland (Lenovo (Shanghai) Co., Ltd.) 1 (Wholly foreign-owned enterprise) Held...

  • Page 148
    ... of IT services and distribution of IT products (Lenovo (Shenyang) Limited) 1 (Chinese-foreign equity joint venture) Lenovo (Singapore) Pte. Ltd. Singapore SGD1,314,573,749 100% 100% 146 2009/10 Annual Report Lenovo Group Limited Procurement agency, group treasury, supply chain management...

  • Page 149
    ... 31, 2009 and 2010 have been used. The company whose English name ends with a "1" is a direct transliteration of its Chinese registered name. 2009/10 Annual Report Lenovo Group Limited (iii) 39 Approval of financial statements The financial statements were approved by the board of directors on...

  • Page 150
    ... SUMMARY 2010 US$'000 Continuing operations Sales Cost of sales Gross profit Other income/(expenses) - net Selling and distribution expenses Administrative expenses Research and development expenses Other operating expenses - net Operating profit/(loss) Finance income Finance costs Share of profits...

  • Page 151
    ... Abacus Limited 26th Floor, Tesbury Centre, 28 Queen's Road East, Hong Kong American Depositary Receipts Chief Financial Officer Mr. Wong Wai Ming (Depositary and Registrar) Company Secretary Mr. Mok Chung Fu Citibank, N.A. 14th Floor, 388 Greenwich Street, New York, NY 10013, USA Stock Codes...

  • Page 152
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