Vtech 2003 Annual Report Download - page 49

Annual Report 2003 47
Notes to the Financial Statements
22 FINANCIAL INSTRUMENTS (continued)
Interest rate swaps At 31st March 2003, there were no
outstanding interest rate swaps (2002: fixed interest rate relating
to interest rate swaps vary from 6.7% to 7.0% and notional
principal amounts of US$40.0 million).
Fair values The fair value of debtors, bank balances, creditors and
accruals and bank overdrafts approximate their carrying amounts
due to the short-term maturities of these assets and liabilities.
The fair value of term loans and obligations under finance leases
is estimated using the expected future payments discounted at
market interest rates.
* The weighted average effective interest rate on short term bank deposits was
1.2% (2002: 1.8%) and these deposits have average maturity of 1 day.
Currency profile The currency profile of the Group’s financial
assets and liabilities, before taking account of hedging
transactions, is summarized as follows:
2003 2002
Financial Financial Financial Financial
assets liabilities assets liabilities
US$ million US$ million US$ million US$ million
Currency:
United States Dollar 159.5 47.2 165.6 194.5
Euro 21.1 5.3 14.9 14.7
United Kingdom
Sterling 5.0 2.6 7.5 1.6
Hong Kong Dollar 3.5 23.9 2.5 28.1
Dutch Guilder ——0.1 0.1
Chinese Renminbi 0.7 8.3 1.5 6.9
Swiss Franc ——0.1 0.2
Others 3.8 5.7 0.3 4.4
193.6 93.0 192.5 250.5
23 COMMITMENTS
2003 2002
US$ million US$ million
(i) Capital commitments for property,
plant and equipment
Authorized but not contracted for 17.0 11.8
Contracted but not provided for 3.2 2.4
20.2 14.2
(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 6.9 10.9
Between one and two years 6.1 7.3
Between two and five years 11.9 12.4
In more than five years 3.5 5.9
28.4 36.5
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
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 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 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 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 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, 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 2003
amount to US$90.9 million (2002: US$94.6 million) and the
annual payment increases on a sliding scale from US$10.5 million
for the year ended 31st March 2004 to US$12.6 million for the
year ending 31st March 2010, when the agreement expires. The
subsidiary can renew the agreement for two additional five year
terms provided certain performance requirement are achieved.
24 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 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 effect on the financial
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 effect on
the financial position of the Group.