Lenovo 2013 Annual Report Download - page 169

2012/13 Annual Report Lenovo Group Limited 167
29 Other non-current liabilities
Group Company
2013 2012 2013 2012
US$’000 US$’000 US$’000 US$’000
Contingent considerations (i) 302,367 428,915 301,113 256,093
Deferred consideration (i) 2,151 –––
Guaranteed dividend to non-controlling
shareholders of a subsidiary (ii) 23,699 31,015 ––
Environmental restoration (Note 27(b)) 54,328 83,876 ––
Written put option liability (iii) 215,018 –––
Government grants received in advance (iv) 122,841 51,301 ––
Others 126,135 46,879 597 725
846,539 641,986 301,710 256,818
Notes:
(i) Pursuant to the completion of business combinations, the Group is required to pay in cash to the then respective
shareholders/sellers contingent considerations with reference to certain performance indicators as written in the
respective agreements with those then shareholders/sellers; and deferred consideration. Accordingly, non-current
liabilities in respect of the present values of contingent and deferred considerations have been recognized. The
contingent considerations are subsequently re-measured at their fair values as a result of change in the expected
performance at each balance sheet date, with any resulting gain or loss recognized in the consolidated income
statement. Deferred consideration is subsequently measured at amortized cost.
On October 11, 2012, the Group entered into an agreement with the former major shareholder of Medion, to complete
the transfer of ownership interest under the business combination agreement between the Group and Medion.
Accordingly, the contingent consideration of approximately US$169 million (including financial liabilities arisen from put
option and guaranteed dividend) was derecognized at a gain of approximately US$20 million credited to ‘other income’
in the consolidated income statement.
As at March 31, 2013, the potential undiscounted amounts of future payments in respect of the contingent and deferred
considerations that the Group could be required to make to the then respective shareholders under the arrangements
are as follows:
Joint venture with NEC Corporation Nil – US$325 million
EMC JV US$39 – US$59 million
Stoneware Nil – US$48 million
CCE Nil – BRL400 million
With reference to the performance indicators, if their actual performances had been 10% higher/lower than their
respective expected performances, contingent considerations would have been increased/decreased by approximately
US$6 million and US$29 million respectively with the corresponding loss/gain recognized in consolidated income
statement.
(ii) Following the acquisition of Medion on July 29, 2011, Lenovo Germany Holding GmbH (“Lenovo Germany”), an indirect
wholly-owned subsidiary of the Company and the immediate holding company of Medion entered into a domination
and profit and loss transfer agreement (the “Domination Agreement”) with Medion on October 25, 2011. Pursuant to
the Domination Agreement, Lenovo Germany has guaranteed to the non-controlling shareholders of Medion an annual
guaranteed pre-tax dividend amounting to EUR0.82 per share for each fiscal year. The Domination Agreement became
effective on January 3, 2012 and is terminable by either Lenovo Germany or Medion after March 31, 2017. Accordingly,
a non-current liability in respect of future guaranteed dividend has been recognized. The corresponding amount stated
at its discounted value on the date of acquisition of Medion was charged to retained earnings in equity.
(iii) Pursuant to the joint venture agreement entered into between the Company and Compal Electronics, Inc. (“Compal”)
to establish a joint venture company (“JV Co”) to manufacture notebook computer products and related parts, the
Company and Compal are respectively granted call and put options which entitle the Company to purchase from
Compal and Compal to sell to the Company the 49% Compal’s interests in the JV Co. The call and put options will be
exercisable at any time after October 1, 2019 and October 1, 2017 respectively. The exercise price for the call and put
options will be determined in accordance with the joint venture agreement, and up to a maximum of US$750 million.
The financial liability that may become payable under the put option is initially recognized at fair value within other non-
current liabilities with a corresponding charge directly to equity, as a put option written on non-controlling interest.
The put option liability shall be re-measured at its fair value resulting from the change in the expected performance of
the JV Co at each balance sheet date, with any resulting gain or loss recognized in the consolidated income statement.
If the actual performance of JV Co had been 10% higher/lower than its expected performances, the written put
option liability would have been increased/decreased by approximately US$4 million with the corresponding loss/gain
recognized in consolidated income statement.
In the event that the put option lapses unexercised, the liability will be derecognized with a corresponding adjustment to
equity.
(iv) Government grants received in advance by certain group companies included in other non-current liabilities are
mainly related to research and development projects and construction of property, plant and equipment. These group
companies are obliged to fulfill certain conditions under the terms of the government grants. The government grants are
credited to the income statement upon fulfillment of those conditions.