Vtech 2009 Annual Report Download - page 57

VTech Holdings Ltd Annual Report 2009 55
21 COMMITMENTS (CONTINUED)
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 a
number of leases which expire in 2010, 2011, 2012, 2019 and
2022 respectively. The leases expiring in 2019 and 2022 have
a non-cancellable period of five 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 expiring in 2010, 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 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 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.
Under a Brand License Agreement expiring on 31st March
2015, 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 defined 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 Brand License Agreement may be extended
for an additional term of five years. As at 31st March 2009,
the Group has paid royalty prepayment of US$14.5 million
to AT&T Intellectual Property II, L.P. to set off 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 in 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
2009 amount to US$4.0 million (2008: US$3.8 million), of
which US$3.3 million and US$0.7 million are payable in the
financial years ended 31st March 2010 and 2011 respectively.
22 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 outcome of these claims and provisions have been
made only to the extent that the amounts can be reliably
estimated.
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.
As at 31st March 2009, 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 (2008: US$233.4
million). The Company has not recognised any deferred
income for the guarantees given in respect of borrowings
and other banking facilities for subsidiaries as their fair value
cannot be reliably measured and their transaction price was
US$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.
23 BALANCE SHEET OF THE COMPANY AS
AT 31ST MARCH
2009 2008
Note US$ million US$ million
Non-current assets
Subsidiaries 227.5 227.5
Current assets
Amounts due from
subsidiaries (i) 479.9 330.2
Cash and cash equivalents 0.1 0.1
480.0 330.3
Current liabilities
Amounts due to
subsidiaries (i) (319.7) (309.4)
Creditors and accruals (1.6) (1.7)
(321.3) (311.1)
Net assets 386.2 246.7
Capital and reserves
Share capital 18 12.3 12.1
Reserves 19 373.9 234.6
Shareholders’ funds 386.2 246.7
(i) The amounts due from/(to) subsidiaries are unsecured, interest-free
and have no fixed terms of repayment.