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2010/11 Annual Report Lenovo Group Limited
Stock Code: 992
ABOUT LENOVO
Lenovo (HKSE: 992) (ADR: LNVGY) is a
US$21 billion personal technology company
serving customers in more than 160 countries,
and the world’s fourth-largest PC vendor.
Dedicated to building exceptionally engineered
PCs and mobile internet devices, Lenovo’s
business is built on product innovation, a
highly-efficient global supply chain and strong
strategic execution. Formed by Lenovo
Group’s acquisition of the former IBM Personal
Computing Division, the company develops,
manufactures and markets reliable, high-quality,
secure and easy-to-use technology products
and services. Its product lines include legendary
Think-branded commercial PCs and Idea-
branded consumer PCs, as well as servers,
workstations, and a family of mobile internet
devices, including tablets and smart phones.
Lenovo has major research centers in Yamato,
Japan; Beijing, Shanghai and Shenzhen, China;
and Raleigh, North Carolina, US.
®

Table of contents

  • Page 1
    ... Report Lenovo Group Limited Stock Code: 992 ® ABOUT LENOVO Lenovo (HKSE: 992) (ADR: LNVGY) is a US$21 billion personal technology company serving customers in more than 160 countries, and the world's fourth-largest PC vendor. Dedicated to building exceptionally engineered PCs and mobile internet...

  • Page 2
    WE ARE THE DOERS BEHIND THE DOERS. WE TINKER FOR THE TINKERERS, CREATE FOR THE CREATORS.

  • Page 3
    WE DO WHAT WE SAY. WE OWN WHAT WE DO. OVER 27,000 STRONG, EACH ONE OF US UNITED NOT IN THE AMAZING POWER OF OUR TECHNOLOGY, BUT IN THE POWER OF PEOPLE TO DO AMAZING THINGS WITH IT. FROM UNCLES TO ARCHITECTS, OUR GREATEST WORK IS IN SERVICE OF THEIR GREATEST WORK.

  • Page 4
    ... Balance Sheet Balance Sheet Consolidated Cash Flow Statement Consolidated Statement of Changes in Equity Notes to the Financial Statements Five-Year Financial Summary Corporate Information 2 2010/11 Annual Report Lenovo Group Limited EPS - basic (US cents) EPS - diluted (US cents) Interim dividend...

  • Page 5
    ...2010 2011 48% 37% 15% 16,605 China Mature Markets Emerging Markets (excluding China) 46% 36% 18% 21,594 63% 35% 2% 16,605 Notebook computer Desktop computer Mobile phone/Others 60% 34% 6% 21,594 375 798 305 432 603 161 484 (226) 129 273 2010/11 Annual Report Lenovo Group Limited...

  • Page 6

  • Page 7
    ...two years ago, and they developed the "Protect and Attack" strategy. Facing the volatile market and ever-shifting needs of customers, the new management executed the strategy with determination while fine-tuning it continuously. Time and time again, they practiced The Lenovo Way, and brought the "We...

  • Page 8
    ... development across geographies, products and customer segments. While strengthening our core business, we will seek new opportunities to drive business growth where opportunities present themselves. Liu Chuanzhi Chairman of the Board Hong Kong, May 26, 2011 2010/11 Annual Report Lenovo Group...

  • Page 9
    ...Lenovo the number one PC company in Japan, the world's third largest PC market. These successes demonstrate that we have the right strategy and solid execution, and that the company is well positioned to deliver strong, sustainable growth in the future. 8 2010/11 Annual Report Lenovo Group Limited

  • Page 10
    ... momentum, the commitment of 27,000 people worldwide, and a strong, clear vision for the future. I believe we are well positioned to continue to grow and be successful in the years ahead. Yang Yuanqing Chief Executive Officer Hong Kong, May 26, 2011 2010/11 Annual Report Lenovo Group Limited 9

  • Page 11

  • Page 12
    ... Markets 17 David Schmoock Senior Vice President and General Manager - North America 18 Peter Bartolotta Senior Vice President, Global Services 19 Qiao Jian Senior Vice President, Strategy and Planning 12 2010/11 Annual Report Lenovo Group Limited 2010/11 Annual Report Lenovo Group Limited...

  • Page 13
    WE ARE A GLOBAL COLLECTIVE OF EMPOWERED INNOVATORS, INVENTORS, OBSESSED WITH CRAFT OF MAKING THE PERFECT TOOLS FOR DOERS.

  • Page 14
    ...Mobile Internet and Digital Home (MIDH) Group - to coordinate its initiatives in the mobile internet markets and better prepare itself to tap growth opportunities. As a key first step, Lenovo launched its first tablet PC, LePad, in China in March 2011. 16 2010/11 Annual Report Lenovo Group Limited

  • Page 15
    ...a strategic joint venture with NEC Corporation (NEC). This joint venture would create the largest PC group in Japan, giving both Lenovo and NEC a unique opportunity to grow their commercial and consumer PC businesses in the world's third largest PC market through a stronger market position, enhanced...

  • Page 16
    ... to invest in growth opportunities such as the retail segment. The Group's SMB business across the Mature Markets was profitable even as it faced challenges in the retail channel due to significant slowdown in consumer demand. The channel strategy 18 2010/11 Annual Report Lenovo Group Limited

  • Page 17
    ... 2011 PERFORMANCE OF PRODUCT GROUPS During the fiscal year 2010/11, Lenovo achieved strong and balanced unit shipments growth in both commercial and consumer PC products. The performance of the Think Product Group, which mainly targets commercial customers, benefited from a recovery of corporate PC...

  • Page 18
    ..., Lenovo benefited from the recovery in commercial PC demand, as well as outstanding sales performance of its stylish All-in-One consumer desktop PC. The Group's desktop PC unit shipments grew 25.5 percent year-on-year, about seven times of the growth of the overall worldwide desktop PC market...

  • Page 19
    Lenovo's new global branding campaign "Lenovo: For Those Who Do" GLOBAL SUPPLY CHAIN Following a very turbulent period in the previous two fiscal years, Lenovo's global supply chain faced relatively favorable and stable cost and supply conditions in its markets for key commodities such as memory, ...

  • Page 20
    ...734 520,562 2010 Sales to external customers US$'000 7,892,275 2,639,812 6,072,728 16,604,815 Adjusted pre-tax income/(loss) US$'000 444,164 (96,625) (65,119) 282,420 For the year ended March 31 China Emerging Markets (excluding China) Mature Markets 22 2010/11 Annual Report Lenovo Group Limited

  • Page 21
    ... assets Employee benefit costs - long-term incentive awards - severance and related costs Rental expenses under operating leases 2011 US$'000 2010 US$'000 81,856 94,284 1,431,218 41,375 1,095 52,670 106,591 70,202 1,182,019 51,413 25,448 44,729 2010/11 Annual Report Lenovo Group Limited...

  • Page 22
    ...-in-progress and investments in the Group's information technology systems. LIQUIDITY AND FINANCIAL RESOURCES At March 31, 2011, total assets of the Group amounted to US$10,706 million (2010: US$8,956 million), which were financed by equity attributable to owners of the Company of US$1,835...

  • Page 23
    ...or enter into settlements of claims that could adversely affect its operating results or cash flows in a particular period. HUMAN RESOURCES At March 31, 2011, the Group had a total of 27,039 employees. The Group implements remuneration policy, bonus and long-term incentive schemes with reference to...

  • Page 24
    ..., while expanding margins and delivering more values to its customers and shareholders. The China PC market is expected to show gradual improvement in the new fiscal year benefiting from the momentum of China's healthy, growing economy. The relatively low PC penetration rates in emerging cities...

  • Page 25
    ... well-received by customers. Lenovo has benefited from its strong brand reputation in China, and it is the Group's strategy to build its brand reputation globally to drive future price stability and margin enhancement over time. The Group launched an aggressive corporate marketing campaign with an...

  • Page 26

  • Page 27
    .... The quarterly financial results were prepared using the accounting standards consistent with the policies applied to the interim and annual accounts. DIRECTORS' SECURITIES TRANSACTIONS The Company has adopted the Model Code set out in Appendix 10 to the Listing Rules from time to time and devised...

  • Page 28
    ..., or accounting or related financial management expertise as required under the Listing Rules. The biographies and responsibilities of directors and senior management are set out on pages 62 to 65 of this annual report. Save for the relationships (including financial, business, family, other...

  • Page 29
    ... to rule 3.13 of the Listing Rules. The Company is of the view that all independent non-executive directors meet the independence guidelines set out in rule 3.13 of the Listing Rules and are independent in accordance with the terms of the guidelines. As at the date of this annual report, the...

  • Page 30
    ... Review of enterprise risk management • Overview of group's tax model • Review of non-audit services provided by external auditor • Review of continuing connected transactions of the Group • Recommendation on re-appointment of external auditor 2010/11 Annual Report Lenovo Group Limited...

  • Page 31
    ... 2010/11 updated merit plan • Submission of 2010/11 non-executive director pay recommendation by independent consultant for the Board's approval • Approval of 2009/10 bonus payments and 2010/11 compensation for the direct reports of CEO and President • Approval of 2009/10 bonus payment...

  • Page 32
    ... planning, developing its corporate governance principles and determining Board evaluation criteria and process. During the year, the Committee members participated in a Board meeting to review the senior management succession planning of the Company. 2010/11 Annual Report Lenovo Group Limited...

  • Page 33
    ... at meetings of the Board and Board Committees during the financial year were as follows: Attendance/Meetings in the year Audit Compensation Strategy Board Committee Committee Committee (Total no.: 6) (Total no.: 4) (Total no.: 3) (Total no.: 4) Directors Executive director Mr. Yang Yuanqing (CEO...

  • Page 34
    ..., Company's business performance and individual performance. Lenovo's compensation structure for its employees, including the Chairman of the Board, executive director and senior management, is comprised of base salaries and allowances, performance bonus, long-term incentives, retirement benefits...

  • Page 35
    ... 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 68 to 70. 38 2010/11 Annual Report Lenovo Group Limited

  • Page 36
    ...the Chairman of the Board and CEO, under the LTI Program as disclosed pursuant to Securities and Futures Ordinance is set out below: Number of units Total outstanding as at March 31, 2011 Max no. of shares subject to conditions Name Award type Fiscal Year of Award Effective price (HK$) 3.15 2.99...

  • Page 37
    CORPORATE GOVERNANCE Number of units Total outstanding as at March 31, 2011 Max no. of shares subject to conditions Name Award type Fiscal Year of Award Effective price (HK$) 2.35 3.94 5.62 5.88 3.88 4.47 4.59 2....Mr. William O. Grabe Dr. Wu Yibing 40 2010/11 Annual Report Lenovo Group Limited

  • Page 38
    ... to be paid only at point of termination from the board of directors or unforeseen emergency. Note 2: Dividends paid with respect to eligible deferral grants. Note 3: These units were cancelled in accordance with the operation of the SAR plan rules. 2010/11 Annual Report Lenovo Group Limited 41

  • Page 39
    ..., business plans, budgets and financial results. As part of the focus on financial integrity, all relevant senior executives regularly verify the accuracy and completeness of the quarterly financial statements and compliance with key internal controls. 42 2010/11 Annual Report Lenovo Group Limited

  • Page 40
    ... and External Auditors, Lenovo also places importance on self testing of key controls by our management in order to ensure that their internal controls are working as intended or necessary actions have been taken to address control weaknesses. • 2010/11 Annual Report Lenovo Group Limited 43

  • Page 41
    ... in Hong Kong, New York, Beijing and San Francisco. Through various investor relations activities such as analyst briefings, webcasts, conference calls and global investor roadshows, the senior management team presented and communicated with investors and analysts on the Company's strategy and...

  • Page 42
    ... demonstrated market recognition for the Company's achievements in corporate sustainability. The investor relations team will continue to endeavor to provide award-winning investor relations services to the shareholders, investors and equity analysts. 2010/11 Annual Report Lenovo Group Limited 45

  • Page 43
    ... The investor relations team values and is eager to hear suggestions and comments from shareholders and investors through sending emails to [email protected]. Market Capitalization and Public Float As at March 31, 2011, the market capitalization of listed shares of the Company was approximately HK$44...

  • Page 44
    INFORMATION FOR INVESTORS Listing Information Listing Stock code American Depositary Receipts Level I Program Ordinary shares to ADR Stock code Share Information Board lot size Ordinary shares outstanding as of March 31, 2011 Market capitalization as of March 31, 2011 Basic earnings per share for ...

  • Page 45
    ... of corporate policies. Employee Health, Welfare and Diversity 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. Lenovo tracks its performance...

  • Page 46
    ..., service, and recycling. This enables Lenovo to have deep insight into opportunities for risk and cost minimization as well as insight into new opportunities for enhancing and increasing product marketability to meet the preferences of an increasingly informed public. Corporate strategies, policies...

  • Page 47
    ... Fulfillment Center Development In August of 2010, Lenovo's CEO Yang Yuanqing signed a comprehensive Climate Change Policy for Lenovo and approved associated targets to support these policy goals. Lenovo's climate change strategy focuses on five areas of influence, within which Lenovo works to...

  • Page 48
    ... recycled content in PC products, and has made tremendous progress in the use of post-consumer recycled content plastics. By working with Lenovo suppliers to develop and qualify engineering grades of post-consumer recycled content plastic (PCC), Lenovo 2010/11 Annual Report Lenovo Group Limited 51

  • Page 49
    ... offers these programs in every country it conducts business, with many of those programs free to the consumer. For business customers, Lenovo's Asset Recovery Service (ARS) provides computer take-back, data destruction, refurbishment and recycling services. Global Supply Chain Lenovo is focused...

  • Page 50
    ... code/compliance, Lenovo partnered with the EICC on supplier training events relating to topics such as supply chain capability building, material extraction, working hrs., EICC eLearning modules, carbon reporting and energy efficiency. Lenovo also continues to optimize its global logistics program...

  • Page 51
    ... who can no longer provide for themselves. During FY 2010/11, Lenovo and our employees supported various global disaster relief efforts including relief efforts in Japan, Mexico and New Zealand. In response to the March, 2011 magnitude 9.1 earthquake and tsunami in Japan, Lenovo donated US$1,000...

  • Page 52
    DIRECTORS' REPORT & FINANCIAL STATEMENTS

  • Page 53
    ...138 Directors' Report Independent Auditor's Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Balance Sheet Consolidated Cash Flow Statement Consolidated Statement of Changes in Equity Notes to the Financial Statements Five-year Financial...

  • Page 54
    ...share capital of the Company are set out in note 30 to the financial statements. Subsidiaries and Associates Particulars of the Company's principal subsidiaries and associates as at March 31, 2011 are set out in notes 38 and 19 to the financial statements respectively. 2010/11 Annual Report Lenovo...

  • Page 55
    ... shares As at March 31, 2011, the maximum number of ordinary shares available for issue under the New Option Scheme is 110,968,051 shares, representing approximately 1.11 percent of the issued share capital of the Company as at the date of this report. 58 2010/11 Annual Report Lenovo Group Limited

  • Page 56
    ...) the nominal value of the ordinary shares. Life of the scheme The New Option Scheme shall be valid and effective for a period of 10 years from April 26, 2002, the date on which it is deemed to take effect in accordance with its terms. (f) (g) (h) 2010/11 Annual Report Lenovo Group Limited 59

  • Page 57
    ...Scheme was HK$5.259. Weighted average closing price of the listed ordinary shares of the Company immediately before the dates on which the options were exercised by continuous contract employees under the New Option Scheme was HK$5.097. Weighted average closing price of the listed ordinary shares of...

  • Page 58
    ... the capital of the Company at prices ranging from HK$3.94 to HK$4.60 per share on The Stock Exchange of Hong Kong Limited. Aggregate Consideration paid (excluding expenses) HK$ 149,427,360 185,729,660 26,738,540 26,391,160 284,393,100 Month/Year 6/2010 7/2010 8/2010 9/2010 3/2011 Number of shares...

  • Page 59
    ... a member of the Listing Committee of HKSE. Besides, she is holding the following directorship; a non-executive director of Wumart Stores, Inc. (HKSE listed) and also an independent non-executive director of Standard Chartered Bank (Hong Kong) Limited. 62 2010/11 Annual Report Lenovo Group Limited

  • Page 60
    ... his retirement in June 2007. Mr. Allen is also an independent non-executive director of CLP Holdings Limited and Hysan Development Company Limited (both HKSE listed) and an independent non-executive director of VinaLand Limited (London Stock Exchange AIM listed). 2010/11 Annual Report Lenovo Group...

  • Page 61
    ... 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. 64 2010/11 Annual Report Lenovo Group Limited

  • Page 62
    ... 2006 as Senior Vice President, Global Supply Chain and is responsible for endto-end supply chain management encompassing order management, supply planning, procurement, manufacturing, logistics and fulfillment operations. Before joining the Group, Mr. Smith held a number of leadership roles at Dell...

  • Page 63
    DIRECTORS' REPORT Directors' Interests As at March 31, 2011, 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 ...

  • Page 64
    ... into ordinary shares. Details of share awards are set out under the section "Compensation Policy" in Corporate Governance section. 2. Save as disclosed above, as at March 31, 2011, none of the directors or chief executive of the Company or their associates had any interests or short positions in...

  • Page 65
    DIRECTORS' REPORT Retirement Scheme Arrangements The Company provides defined benefit pension plans and defined contribution plans for its employees. These benefits form an important part of the company's total compensation and benefits program that is designed to attract and retain highly skilled ...

  • Page 66
    ... be received had the amounts been invested in similar Lenovo Savings Plan investment options. Company matching contributions, are directed to participant accounts and fluctuate based on changes in the stock prices of the underlying investment portfolio. 2010/11 Annual Report Lenovo Group Limited 69

  • Page 67
    ..., the Company entered into a Master Services Agreement with (Lenovo Mobile Communication Technology Ltd.) ("Lenovo Mobile") in respect of the sharing of office spaces, provision of logistic, administrative and information technology services by the Group to Legend Holdings Limited, its subsidiaries...

  • Page 68
    ... the 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 26, 2011 2010/11 Annual Report Lenovo Group Limited...

  • Page 69
    ...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 26, 2011 72 2010/11 Annual Report Lenovo Group Limited

  • Page 70
    ...42 cents US1.33 cents 68,728 6 7 8(a) 8(b) 9 Basic earnings per share attributable to equity holders of the Company Diluted earnings per share attributable to equity holders of the Company Dividends 12(a) 12(b) 13 US2.84 cents US2.73 cents 96,601 2010/11 Annual Report Lenovo Group Limited 73

  • Page 71
    ... financial assets Investment revaluation reserve reclassified to consolidated income statement on disposal of available-for-sale financial assets Fair value change on cash flow hedge - interest rate swap contracts - forward foreign exchange contracts Actuarial loss from defined benefit pension plans...

  • Page 72
    ... financial assets Deposits, prepayments and other receivables Income tax recoverable Bank deposits Cash and cash equivalents 23 24(a) 24(b) 24(c) 25 25 803,702 1,368,924 391,649 13,295 2,305,325 56,912 42,158 2,954,498 7,936,463 Total assets 10,705,939 2010/11 Annual Report Lenovo Group Limited...

  • Page 73
    ...,711 71,561 449,706 8,032,653 Total liabilities Total equity and liabilities Net current liabilities Total assets less current liabilities 8,871,039 10,705,939 (96,190) 2,673,286 On behalf of the Board Liu Chuanzhi Director Yang Yuanqing Director 76 2010/11 Annual Report Lenovo Group Limited

  • Page 74
    ... 549,503 200,000 794,387 Total liabilities Total equity and liabilities Net current (liabilities)/assets Total assets less current liabilities 794,387 2,698,067 (54,455) 1,903,680 On behalf of the Board Liu Chuanzhi Director Yang Yuanqing Director 2010/11 Annual Report Lenovo Group Limited 77

  • Page 75
    ... generated from/(used in)investing activities Cash flows from financing activities Exercise of share options Repurchase of shares Dividends paid Net decrease in bank borrowings Net cash used in financing activities Increase in cash and cash equivalents Effect of foreign exchange rate changes Cash...

  • Page 76
    ...652) Exchange reserve US$'000 (35,969) - 34,446 Other reserve US$'000 34,430 - - earnings US$'000 188,106 273,234 (7,190) NonRetained controlling interests US$'000 177 2 - Total US$'000 1,606,018 273,236 (13,288) Share shares and revaluation redemption 2010/11 Annual Report Lenovo Group Limited 79

  • Page 77
    ... of financial statements HKAS 21, The effect of changes in foreign exchange rates HKAS 28, Investments in associates HKAS 31, Interests in joint ventures HKAS 32, Financial instruments: Presentation HKAS 34, Interim financial reporting HKAS 39, Financial instruments: Recognition and measurement HK...

  • Page 78
    ...interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. 2010/11 Annual Report Lenovo Group Limited 81

  • Page 79
    ... of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale are recognized in other comprehensive income and included in the investment revaluation reserve in equity. (ii) 82 2010/11 Annual Report Lenovo Group Limited

  • Page 80
    ... cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged in the income statement during the financial period in which they are incurred. 50% 14 - 20% 20 - 25% 20 - 33% 20% 2010/11 Annual Report Lenovo Group...

  • Page 81
    .... (iv) Patents, technology and marketing rights Expenditure on acquired patents, technology and marketing rights is capitalized at historical cost upon acquisition and amortized using the straight-line method over their useful lives of up to 5 years. 84 2010/11 Annual Report Lenovo Group Limited

  • Page 82
    ... within 12 months of the balance sheet date. Regular way purchases and sales of financial assets are recognized on the trade-date, the date on which the Group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not...

  • Page 83
    ...the subsidiary in the period the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the consolidated financial statements of the investee's net assets including goodwill. 86 2010/11 Annual Report Lenovo Group Limited

  • Page 84
    ... as current assets. If not, they are presented as non-current assets. Trade and other receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. 2010/11 Annual Report Lenovo Group Limited 87

  • Page 85
    ...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 labor associated with warranty repair and service actions. The period ranges from one...

  • Page 86
    ... until the goods are delivered and revenue is recognized. In-transit product shipments to customers of US$236 million as at March 31, 2011 (2010: US$48 million) are included in deposits, prepayments and other receivables in the balance sheet. 2010/11 Annual Report Lenovo Group Limited 89

  • Page 87
    ...or more factors such as age, years of service and compensation. 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 the fair value of plan assets, together with adjustments for...

  • Page 88
    ... 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 in case of final dividend and by the Company's directors in case of interim dividend. 2010/11 Annual Report Lenovo Group Limited 91

  • Page 89
    ...currency. The Group's forward foreign currency contracts are either used to hedge a percentage of anticipated cash flows (mainly export sales and purchase of inventories) which are highly probable, or used as fair value hedges for the identified assets and liabilities. For segment reporting purposes...

  • Page 90
    ... by the operating entities over and above balance required for working capital management are transferred to Group Treasury. Group Treasury invests surplus cash in interest bearing current accounts, time deposits, money market deposits and marketable securities, choosing instruments with appropriate...

  • Page 91
    ... (net-settled) At March 31, 2010 Bank loans Convertible preferred shares Accruals and other payables Amounts due to subsidiaries Derivative financial instruments Interest rate swap contracts (net-settled) (b) Market risks sensitivity analysis - - 549,503 Over 3 months to 1 year US$'000 200,000...

  • Page 92
    ... Level 3 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...

  • Page 93
    ... liabilities of the Group that are measured at fair value at March 31, 2011 and 2010. Level 1 US$'000 At March 31, 2011 Assets Available-for-sale financial assets - Listed equity investments - Unlisted equity investments Derivative financial assets Level 2 US$'000 Level 3 US$'000 Total US$'000 76...

  • Page 94
    ... 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 income tax assets and related financial models and budgets are reviewed at each balance sheet date and to the extent that...

  • Page 95
    ... allowing for limited rights of sales return, volume discounts, price protection and rebates, and marketing development funds. The Group's policy for sales to channels is to defer, until the return period is over, the full amount of revenue relative to sales for which the rights of return apply...

  • Page 96
    ... inventories Other unallocated assets Total assets per consolidated balance sheet 8,185,399 251,098 13,295 78,689 914 1,727,569 180,516 268,459 10,705,939 2010 US$'000 5,880,621 254,978 13,283 112,520 1,061 1,813,368 311,455 568,642 8,955,928 2010/11 Annual Report Lenovo Group Limited 99

  • Page 97
    NOTES TO THE FINANCIAL STATEMENTS (continued) 5 Segment information (d) (continued) Reconciliation of segment liabilities for reportable segments to total liabilities per consolidated balance sheet is provided as follows: 2011 US$'000 Segment liabilities for reportable segments Unallocated: ...

  • Page 98
    ... in the consolidated income statement represents: 2011 US$'000 Current tax - Hong Kong profits tax - Taxation outside Hong Kong Deferred tax (Note 21) 234 67,334 16,947 84,515 2010 US$'000 58 87,716 (40,839) 46,935 Hong Kong profits tax has been provided at the rate of 16.5% (2010: 16.5%) on the...

  • Page 99
    ... TO THE FINANCIAL STATEMENTS (continued) 10 Employee benefit costs 2011 US$'000 Wages and salaries (including provision for restructuring costs of US$1,095,000 (2010: US$5,123,000)) Social security costs Long-term incentive awards granted (Notes 30(a)) Pension costs - Defined contribution plans...

  • Page 100
    ... of the long-term incentive program of the Company are set out in Note 30(a). The fair value of the employee services received in exchange for the grant of the long-term incentive awards is recognized as an expense. The total amount to be amortized over the vesting period is determined by reference...

  • Page 101
    ...whether the long-term incentive awards are dilutive, and the number of shares that are deemed to be issued. 273,234 3,810 277,044 2010 9,113,645,262 - 621,234,062 9,734,879,324 US$'000 129,368 - 129,368 273,234 2010 9,113,645,262 US$'000 129,368 - - 104 2010/11 Annual Report Lenovo Group Limited

  • Page 102
    ... Total US$'000 686,152 372,010 314,142 314,142 2,541 - 36,144 16,720 5,158 (8,155) (11,823) (5,765) (100,701) 248,261 700,123 451,862 248,261 248,261 6,122 - 48,834 2,823 (748) (5,866) (8,249) (81,760) 209,417 697,108 487,691 209,417 2010/11 Annual Report Lenovo Group Limited...

  • Page 103
    NOTES TO THE FINANCIAL STATEMENTS (continued) 14 Property, plant and equipment (b) Company (continued) Leasehold improvements US$'000 At April 1, 2009 Cost Accumulated depreciation Net book amount Year ended March 31, 2010 Opening net book amount Exchange adjustment Additions Disposals ...

  • Page 104
    ...(748) (78) 24,711 Company Internal use software 2011 US$'000 2,204 (9) - 4,868 - - (3,461) - - 3,602 2010 US$'000 7,780 (6) - 2,206 - - (7,776) - - 2,204 No interest expenses were capitalized in construction-in-progress as at March 31, 2011 and 2010. 2010/11 Annual Report Lenovo Group Limited 107

  • Page 105
    ...) - - - - Total US$'000 2,288,169 435,308 1,852,861 1,852,861 39 32,320 194,820 56,499 (859) (69,343) 2,066,337 2,493,325 426,988 2,066,337 2,066,337 74,224 20,297 - 67,141 748 (11) (94,284) 2,134,452 2,637,554 503,102 2,134,452 108 2010/11 Annual Report Lenovo Group Limited

  • Page 106
    ... US$ million 24 9 North America US$ million 151 58 West Europe US$ million 92 35 Total US$ million 1,474 380 850 209 Includes Africa, Asia Pacific, Central/Eastern Europe, Hong Kong, India, Korea, Middle East, Pakistan, Russia, Taiwan and Turkey 2010/11 Annual Report Lenovo Group Limited 109

  • Page 107
    ... North America West Europe Japan, Australia, New Zealand Future cash flows are discounted at the standard rate of 11% (2010: 11%) across all CGUs. Management determined budgeted gross margins based on past performance and its expectations for the market development. The weighted average growth rates...

  • Page 108
    ... and development 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, 2011 Available-for-sale financial assets (Note 22) Derivative financial assets Trade...

  • Page 109
    NOTES TO THE FINANCIAL STATEMENTS (continued) 20 Financial instruments by category Group (continued) (continued) Liabilities at fair value through income statement US$'000 Liabilities as per consolidated balance sheet At March 31, 2011 Trade payables (Note 26(a)) Notes payable (Note 26(b)) ...

  • Page 110
    ... differences under the liability method using the rates applicable in the respective jurisdictions. The analysis of deferred income tax assets and liabilities is as follows: Group 2011 US$'000 Deferred income tax assets: Current Non-current Deferred income tax liabilities: Non-current Net deferred...

  • Page 111
    ... At March 31, 2010 and April 1, 2010 Exchange adjustment Debited to consolidated income statement At March 31, 2011 - - - 8 475 483 Undistributed earnings US$'000 - 10,331 10,331 128 6,151 16,610 Total US$'000 - 10,331 10,331 136 6,626 17,093 114 2010/11 Annual Report Lenovo Group Limited

  • Page 112
    ...for-sale financial assets Group 2011 US$'000 At the beginning of the year Exchange adjustment Fair value change recognized in other comprehensive income Acquisition of subsidiaries Disposals At the end of the year Equity securities, at fair value Listed in Hong Kong Listed outside Hong Kong Unlisted...

  • Page 113
    ... dollar Renminbi Euro Hong Kong dollar Other currencies 1,593,051 1,057,078 425,835 130,888 319,905 3,526,757 2010 US$'000 1,532,052 625,006 250,017 105,457 183,170 2,695,702 Company 2011 US$'000 - - - 379 - 379 2010 US$'000 531 - - 350 - 881 (e) 116 2010/11 Annual Report Lenovo Group Limited

  • Page 114
    ...the Group are mainly repayable within three months. The carrying amounts of trade payables and notes payable approximate their fair value. 2010 US$'000 2,504,068 276,183 38,736 284,624 37,815 3,141,426 2010 US$'000 2,425,237 609,720 74,499 31,970 3,141,426 2010/11 Annual Report Lenovo Group Limited...

  • Page 115
    ... accrual is reviewed quarterly to verify 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. 118 2010/11 Annual Report Lenovo Group Limited

  • Page 116
    ...: 2011 US$'000 At the beginning of the year Exchange adjustment Interest charged Interest paid Conversion to voting ordinary shares At the end of the year 94,980 62 3,810 (2,724) (96,128) - 2010 US$'000 215,974 (280) 10,915 (7,925) (123,704) 94,980 2010/11 Annual Report Lenovo Group Limited 119

  • Page 117
    ... in the balance sheet are as follow: Group 2011 US$'000 Bank borrowings (Note 28(a)(i)) Deferred revenue Others 200,000 245,793 3,913 449,706 2010 US$'000 230,000 196,806 10,550 437,356 Company 2011 US$'000 200,000 - - 200,000 2010 US$'000 230,000 - - 230,000 30 Share capital 2011 Number of shares...

  • Page 118
    ... the value of the Company and its shares by aligning their interests with those of the shareholders of the Company. The Company also approved a share-based compensation package for non-executive directors. Under the long-term incentive program, the Company may grant awards, at its discretion, using...

  • Page 119
    ... of the closing price of the listed ordinary shares on the date of grant; the average of the closing prices of the listed ordinary shares for the five trading days immediately preceding the date of grant; and the nominal value of the ordinary shares. 2011 Number of outstanding share options At the...

  • Page 120
    30 Share capital (b) (ii) (continued) Share options (continued) Details of share options exercised during the year ended March 31, 2011 are as follows: Market value per ordinary share at exercise date HK$ 5.67-6.20 4.64...,568 299,104 178,312 8,909,536 2010/11 Annual Report Lenovo Group Limited 123

  • Page 121
    NOTES TO THE FINANCIAL STATEMENTS (continued) 30 Share capital (b) (ii) (continued) Share options (continued) Details of share options exercised during the year ended March 31, 2011 are as follows: (continued) Market value per ordinary share at exercise date HK$ 4.70-4.81 5.35-5.54 4.98-5.61 4.92...

  • Page 122
    30 Share capital (b) (ii) (continued) Share options (continued) 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$ 2....528 105,778,461 US$13,640,000 2010/11 Annual Report Lenovo Group Limited 125

  • Page 123
    ...) Details of share options at the balance sheet date are as follows: 2011 Number of outstanding share options 2010 Number of outstanding share options Exercise period (MM.DD.YYYY) Old Option Scheme 01.15.2001 to 01.14.2011 04.16.2001 to 04.15.2011 08.31.2001 to 08.30.2011 Exercise price HK$ 4.312...

  • Page 124
    ... 1, 2010 Fair value change on interest rate swap Profit for the year Currency translation differences Conversion of Series A cumulative convertible preferred shares Exercise of share options Repurchase of shares Vesting of shares under long-term incentive program Share-based compensation Dividends...

  • Page 125
    ...: 2011 US$'000 (Beijing Legendsoft International Technology Company Limited) (an associate) - Sales of goods - Purchase of goods - Service income 2010 US$'000 60 281 2,024 - 165 1,724 (Beijing Legend Tiaopin Technology Limited) (a subsidiary of a substantial shareholder of the Company) - Purchase...

  • Page 126
    ... Not later than one year Later than one year but not later than five years Later than five years 36,267 94,409 44,268 174,944 At March 31, 2011, the Company did not have any operating lease commitments (2010: Nil) 2010 US$'000 35,960 77,218 50,796 163,974 2010/11 Annual Report Lenovo Group Limited...

  • Page 127
    ... Increase in trade payables, notes payable, provisions, accruals and other payables Effect of foreign exchange rate changes Net cash generated from operations (b) Changes in bank borrowings 2011 US$'000 Change in short-term bank loans Repayment of borrowings 6,855 (230,000) (223,145) 2010 US$'000...

  • Page 128
    ...statement of other comprehensive income 7,190 11,005 2010 US$'000 70,235 10,632 80,867 7,433 1,841 9,274 10,840 3,815 On the acquisition of the personal computer business of IBM, the Group assumed a cash balance pension liability for substantially all former IBM employees in Japan, and final salary...

  • Page 129
    NOTES TO THE FINANCIAL STATEMENTS (continued) 37 Retirement benefit obligations (a) Pension benefits (continued) The amounts recognized in the consolidated balance sheet are determined as follows: Group 2011 US$'000 Present value of funded obligations Fair value of plan assets Deficit of funded ...

  • Page 130
    ... Total 12,613 81,661 79,967 174,241 2010 US$'000 25,901 83,622 41,558 151,081 Medical 2011 US$'000 - - 6,562 6,562 2010 US$'000 810 - 6,808 7,618 Reconciliation of fair value of plan assets of the Group: Pensions 2011 US$'000 Opening fair value Exchange adjustment Expected return on plan assets...

  • Page 131
    ...) Chinese Mainland (Huiyang Lenovo Industry Property Limited)1 (Chinese-foreign equity joint venture) US$2,045,500 100% 100% HK$5,000,000 100% 100% Provision of IT services and distribution of IT products Property holding and property management 134 2010/11 Annual Report Lenovo Group Limited

  • Page 132
    ... subsidiaries (continued) Place of incorporation/ establishment Hong Kong Issued and fully paid up capital HK$1,225,130,735 Company name Lenovo (Asia Pacific) Limited Effective holding 2011 2010 100% 100% Principal activities Investment holding and distribution of IT products Distribution of IT...

  • Page 133
    ... (Lenovo Mobile Communication Technology Ltd.)1 (Chinese-foreign equity joint venture) Lenovo Mobile Communication Technology (HK) Limited Lenovo PC HK Limited Hong Kong RMB187,500,000 100% 100% Manufacturing and distribution of mobile handsets US$1,000,000 100% 100% Trading Hong Kong HK...

  • Page 134
    ... 2011 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 26, 2011. 2010/11 Annual Report Lenovo Group Limited...

  • Page 135
    ....47 cents US0.37 cents US1.84 cents 5,450,838 4,316,562 1,134,276 Diluted - Continuing operations - Discontinued operations US2.73 cents - US2.73 cents Total assets Total liabilities Net assets 10,705,939 8,871,039 1,834,900 138 2010/11 Annual Report Lenovo Group Limited

  • Page 136
    ... Corporation Limited INDEPENDENT AUDITOR PricewaterhouseCoopers Certified Public Accountants 22nd Floor, Prince's Building, Central, Hong Kong SHARE REGISTRAR Tricor Abacus Limited 26th Floor, Tesbury Centre, 28 Queen's Road East, Hong Kong AMERICAN DEPOSITARY RECEIPTS CHIEF FINANCIAL OFFICER...

  • Page 137
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