Vtech 2008 Annual Report Download - page 52

NOTES TO THE FINANCIAL STATEMENTS
VTech Holdings Ltd Annual Report 2008
50
20 COMMITMENTS CONTINUED
The Group has entered into agreements with an independent
third party in the People’s Republic of China (“PRC”) to lease
factory premises in Houjie, Dongguan comprising several
factory buildings. There are a number of leases which expire
in 2011, 2012, 2019 and 2022 respectively. The lease expiring
in 2019 and 2022 has a non-cancellable period of  ve years
which expires in 2012. 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. The leases
expire in 2011 and 2012 are non-cancellable over the lease
term. 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  fty year lease agreement,
the Group rented the  rst and second phases of the facility for
non-cancellable periods of six and eight years after completion
respectively. The  rst 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.
During the year, the Group renewed the Brand License
Agreement which was due to expire on 31st March 2010,
whereby a wholly-owned subsidiary of the Group is required
to make royalty payments to AT&T Intellectual Property II, L.P.,
calculated as a percentage of net sales, as de ned 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 annual minimum royalty payment is determined
based on a percentage of the preceding year’s earned royalty
payment (calculated based on the preceding year’s net
sales payable). The renewed Brand License Agreement was
extended to 31st March 2015 which may be further extended
for an additional term of  ve years. As at 31st March 2008,
the Group has paid royalty prepayment of US$18.2 million to
AT&T Intellectual Property II, L.P. to set o against future royalty
payments.
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 2008 amount to US$3.8 million (2007: US$2.6 million),
of which US$3.2 million and US$0.6 million are payable in the
 nancial years ended 31st March 2009 and 2010 respectively.
21 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 counsel, 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 e ect on the  nancial position
of the Group.
Certain subsidiaries of the Group are involved in litigation arising
in the ordinary course of their respective businesses. Having
reviewed outstanding claims and taking into account legal
advice received, the directors are of the opinion that even if the
claims are found to be valid, there will be no material adverse
e ect on the  nancial position of the Group.
As at 31st March 2008, there were contingent liabilities in
respect of guarantees given by the Company on behalf of
subsidiaries relating to overdrafts, short term loans and credit
facilities of up to US$233.4 million (2007: US$246.3 million).
The Company has not recognised any deferred income for the
guarantees given in respect of borrowings and other banking
facilities for subsidiaries as their fair value cannot be reliably
measured and their transaction price was US$Nil.
As at the balance sheet date, the Directors do not consider it is
probable that a claim will be made against the Company under
any of the guarantees.
22 BALANCE SHEET OF THE COMPANY AS AT
31ST MARCH
2008 2007
Note US$ million US$ million
Non-current assets
Subsidiaries 227.5 227.5
Current assets
Amounts due from
subsidiaries (i) 330.2 375.5
Cash and cash equivalents 0.1 0.1
330.3 375.6
Current liabilities
Amounts due to subsidiaries (i) (309.4) (333.0)
Creditors and accruals (1.7) (1.6)
(311.1) (334.6)
Net assets 246.7 268.5
Capital and reserves
Share capital 17 12.1 11.9
Reserves 18 234.6 256.6
Shareholders' funds 246.7 268.5
(i) The amounts due from/(to) subsidiaries are unsecured, interest-free
and have no  xed terms of repayment.