Vtech 2007 Annual Report Download - page 52

Notes to the Financial Statements
VTech Holdings Ltd
Annual Report 2007
50
19 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 2007, 2011, 2019 and 2022 respectively. The lease expiring
in 2019 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. The leases
expire in 2022 can only be cancelled on six months’ notice
with penalties equivalent to three months’ rentals. The leases
expire in 2007 and 2011 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 fi fty year lease
agreement, the Group rented the fi rst and second phases
of the facility for non-cancellable periods of six and eight
years after completion respectively. The fi 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.
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 2007 amounted
to US$38.3 million (2006: US$55.1 million), whereas the
annual minimum royalty payment varies throughout the
agreement period between US$12.6 million and US$13.1
million. The subsidiary can renew the agreement for two
additional fi ve year terms provided certain performance
requirements are achieved.
Pursuant to the terms of the Agreement, VTech has started
the process of renegotiating certain terms of the Agreement
subsequent to 31st March 2007.
During the fi nancial year ended 31st March 2007, 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 2007
amount to US$2.6 million (2006: US$3.9 million), of which
US$1.8 million, US$0.7 million and US$0.1 million are
payable in the fi nancial years ended 31st March 2008, 2009
and 2010 respectively.
20 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 fi nancial
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 fi nancial position of the Group.
As at 31st March 2007, 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$246.3 million (2006: 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.
21 BALANCE SHEET OF THE COMPANY AS AT
31ST MARCH
2007 2006
Note US$ million US$ million
Non-current assets
Subsidiaries
227.5 227.5
Current assets
Amounts due from subsidiaries (i) 375.5 323.8
Cash and cash equivalents 0.1 0.1
375.6 323.9
Current liabilities
Amounts due to subsidiaries (i) (333.0) (320.2)
Creditors and accruals (1.6) (1.6)
(334.6) (321.8)
Net assets 268.5 229.6
Capital and reserves
Share capital 16 11.9 11.9
Reserves 17 256.6 217.7
Shareholders’ funds 268.5 229.6
(i) The amounts due from/(to) subsidiaries are unsecured, interest-free
and have no fi xed terms of repayment.
12cVtechNotes(E).indd50 2007/7/511:37:39PM