Vtech 2005 Annual Report Download - page 54

Notes to the Financial Statements
52 VTech Holdings Ltd Annual Report 2005
22 Commitments (continued)
The first phase became fully operational in April 1998 and the
completed production facility of the second phase became
operational in October 2001. The operating lease commitments
above include total commitments over the non-cancellable
period of the lease terms.
The operating lease commitments in respect of the agreements
with the above independent third party in the PRC reflect total
commitments over the non-cancellable period of the lease terms.
Under a Brand License Agreement expiring 31st March 2010, a
wholly-owned subsidiary of the Group is required to make
royalty payments to AT&T Corp., calculated as a percentage of
net sales of the relevant categories of products, subject to
certain minimum aggregate royalty payments. The percentage
of net sales payable varies over time and between products.
There is no maximum royalty payment. The aggregate minimum
royalty payments as at 31st March 2005 amounted to US$68.9
million (2004: US$80.4 million), whereas the annual minimum
royalty payment varies throughout the agreement period
between US$12.6 million and US$15.6 million. The subsidiary
can renew the agreement for two additional five year terms
provided certain performance requirements are achieved.
During the financial year ended 31st March 2005, certain
wholly-owned subsidiaries of the Group (the “licensees”)
entered into certain licensing agreements with various third
party licensors for the granting of certain rights to use the
relevant cartoon characters into the Group’s electronic learning
products. Under these licensing agreements, the licensees are
required to make royalty payments to the licensors, calculated
as a percentage of net sales of the relevant character licensed
products, subject to certain minimum aggregate royalty
payments. The percentage of royalty payable varies over time
and between licensed characters. There is no maximum royalty
payment. The aggregate minimum royalty payments as at
31st March 2005 amount to US$3.0 million (2004: US$3.5
million), of which US$1.7 million, US$1.1 million and US$0.2
million are payable in the financial years ended 31st March 2006,
2007 and 2008 respectively.
23 Contingent Liabilities
The directors have been advised that certain accusations of
infringements of patents, trademarks and tradenames have
been lodged against the Company and its subsidiaries. In the
opinion of the legal counsels, it is too early to evaluate the
likelihood of an unfavourable result. The directors are of the
opinion that even if the accusations are found to be valid, there
will be no material adverse effect on the financial position of
the Group.
Various group companies are involved in litigation arising in the
ordinary course of their respective businesses. Having reviewed
outstanding claims and taking into account legal advices
received, the directors are of the opinion that even if the claims
are found to be valid, there will be no material adverse effect on
the financial position of the Group.
24 Balance Sheet of the Company as at 31st March
2005 2004
Note US$ million US$ million
Non-current assets
Subsidiaries 170.2 102.6
Current assets
Amounts due from subsidiaries (i) 332.8 326.6
Taxation recoverable 0.2 0.2
Cash and cash equivalents 0.1 0.1
333.1 326.9
Current liabilities
Amounts due to subsidiaries (i) (326.6) (302.0)
Creditors and accruals (1.8) (1.8)
(328.4) (303.8)
Net assets 174.9 125.7
Capital and reserves
Share capital 19 11.3 11.3
Reserves 20 163.6 114.4
Shareholders’ funds 174.9 125.7
(i) The amounts due from/(to) subsidiaries are unsecured,
interest-free and have no fixed terms of repayment.