Vtech 2005 Annual Report Download - page 53

Notes to the Financial Statements
51
VTech Holdings Ltd Annual Report 2005
21 Financial Instruments (continued)
Fair values The fair value of interest rate swaps is calculated
as the present value of the estimated future cash flows. The fair
value of forward foreign exchange contracts is determined
using forward exchange market rates at the balance sheet date.
Derivative financial instruments Forward foreign
exchange contracts and interest rate swaps contracts were
designated as cash flow hedges and remeasured to fair values.
Forward foreign exchange contracts The net fair value
gains/(losses) at 31st March on open forward foreign exchange
contracts which hedge anticipated future foreign currency sales
and purchases will be transferred from the hedging reserve to
the consolidated income statement when the forecasted sales
and purchases occur, at various dates between 1 month to 6
months from the balance sheet date.
Details of the movements of fair value gains/(losses) arising
from forward foreign exchange contracts entered by the Group
are set out in note 20 on the financial statements.
At 31st March 2005, there were no outstanding forward foreign
exchange contracts (2004: nil).
The Group does not anticipate any material adverse effect on its
financial position resulting from its involvement in these
financial instruments, nor does it anticipate non-performance by
any of its counterparties.
Interest rate swaps At 31st March 2005, there were no
outstanding interest rate swaps (2004: nil).
Fair values The fair value of trade debtors, bank balances,
trade creditors and accruals and bank overdrafts approximate
their carrying amounts due to the short-term maturities of
these assets and liabilities. The fair value of term loans and
obligations under finance leases is estimated using the
expected future payments discounted at market interest rates.
The weighted average effective interest rate on short term bank
deposits was 2.6% (2004: 1.1%) and these deposits have an
average maturity of 1 day.
22 Commitments
2005 2004
US$ million US$ million
(i) Capital commitments for property,
plant and equipment
Authorised but not contracted for 45.1 25.0
Contracted but not provided for 2.9 7.6
48.0 32.6
(ii) Operating lease commitments
The future aggregate minimum
lease payments under
non-cancellable operating
leases are as follows:
Land and buildings
In one year or less 9.3 6.5
Between one and two years 8.2 6.4
Between two and five years 12.7 8.2
In more than five years 3.4 3.7
33.6 24.8
The Group has entered into agreements with an independent
third party in the PRC to lease factory premises in Houjie,
Dongguan comprising several factory buildings. There are totally
two separate leases which expire in 2022 and 2029 respectively.
The lease expiring in 2029 has a non-cancellable period of eight
years which expires in 2007. At the end of this non-cancellable
period, the lease can only be cancelled on six months’ notice
with a penalty equivalent to three months’ rentals. All other
buildings have lease terms which can be cancelled upon three
to six months’ notice with penalties equivalent to three to
twelve months’ rentals. The operating lease commitments above
include total commitments over the non-cancellable period of
the lease terms.
In January 1996, the Group entered into an agreement with an
independent third party in the PRC whereby the PRC party
constructed in phases and leases to the Group a production
facility in Liaobu, Dongguan. Under a fifty year lease agreement,
the Group rented the first and second phases of the facility for
non-cancellable periods of six and eight years after completion
respectively. The Group also had an option to purchase each
phase of the production facility at any time within four and a half
years after the completion of each phase.