Vtech 2006 Annual Report Download - page 54

VTech Holdings Ltd Annual Report 2006 51
20 Commitments (continued)
The Group has entered into agreements with an independent
third party in the People’s Republic of China 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. 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 2006 amounted
to US$55.1 million (2005: US$68.9 million), whereas the
annual minimum royalty payment varies throughout the
agreement period between US$12.6 million and US$15.4
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 2006, 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 2006
amount to US$3.9 million (2005: US$3.0 million), of which
US$2.5 million, US$1.0 million and US$0.4 million are payable
in the financial years ended 31st March 2007, 2008 and 2009
respectively.
21 Contingent Liabilities
The directors have been advised that certain accusations of
infringements of patents, trademarks and tradenames have
been lodged against the Company and its subsidiaries. In the
opinion of the legal counsel, it is too early to evaluate the
likelihood of an unfavourable result. The directors are of the
opinion that even if the accusations are found to be valid,
there will be no material adverse effect on the financial
position of the Group.
Various Group companies are involved in litigation arising in
the ordinary course of their respective businesses. Having
reviewed outstanding claims and taking into account legal
advice received, the directors are of the opinion that even if
the claims are found to be valid, there will be no material
adverse effect on the financial position of the Group.
22 Balance Sheet of the Company as at
31st March
2006 2005
Note US$ million US$ million
Non-current assets
Subsidiaries 227.5 170.2
Current assets
Amounts due from
subsidiaries (i) 323.8 332.8
Taxation recoverable –0.2
Cash and cash equivalents 0.1 0.1
323.9 333.1
Current liabilities
Amounts due to subsidiaries (i) (320.2) (326.6)
Creditors and accruals (1.6) (1.8)
(321.8) (328.4)
Net assets 229.6 174.9
Capital and reserves
Share capital 17 11.9 11.3
Reserves 18 217.7 163.6
Shareholders’ funds 229.6 174.9
(i) The amounts due from/(to) subsidiaries are unsecured, interest-free and
have no fixed terms of repayment.