Vtech 2001 Annual Report Download - page 63

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24. COMMITMENTS
2001 2000
US$ million US$ million
(i) Capital commitments for property, plant and equipment
Authorized not contracted for 14.1 18.5
Contracted not provided for 3.2 3.7
17.3 22.2
(ii) Operating lease commitments
At 31st March the Group had total commitments
under operating leases payable as follows:
Land and buildings
In one year or less 11.7 8.9
Between one and two years 11.6 8.5
Between two and five years 21.4 19.6
In more than five years 74.6 74.0
119.3 111.0
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 totally
four separate leases which expire in 2003, 2004, 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
entire lease terms.
In December 1995, the Group entered into an agreement with an independent third party in the People's
Republic of China (``PRC'') whereby the PRC party will construct in phases and lease to the Group a new
production facility in Liaobu, Dongguan. Under a fifty year lease agreement, the Group will rent the first and
second phases of the facility for non-cancellable periods of six and eight years after completion respectively.
The total estimated rental commitment to the end of the non-cancellable periods, after offsetting the interest
bearing amount advanced for construction is US$6.4 million (2000: US$1.1 million). This amount is included in
operating lease commitments above. The Group also has 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. The first phase became fully
operational in April 1998 and the second phase is expected to be operational in October 2001.
Under a Brand License Agreement, VTech USA Holdings LLC (``VTech USA''), a wholly-owned subsidiary, 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 2001 amount to US$171.0 million and the annual payment
increases on a sliding scale from US$15.7 million for the year ending 31st March 2002 to US$21.2 million for the
year ending 31st March 2010, when the agreement expires. VTech USA can renew the agreement for an
additional five year term.
61
Notes to the Financial Statements
VTech Holdings Ltd Annual Report 2001