Vtech 2010 Annual Report Download - page 64

62 VTech Holdings Ltd Annual Report 2010
Notes to the Financial Statements
20 Financial Risk Management and Fair
Values (Continued)
(e) Fair values (Continued)
Financial instruments carried at fair value
IFRS 7, Financial Instruments: Disclosures, requires the carrying
value of financial instruments measured at fair value at balance
sheet date across the three levels of the fair value hierarchy as
defined in IFRS 7, with the fair value of each financial instrument
categorised in its entirety based on the lowest level of input
that is significant to that fair value measurement. The levels are
defined as follows:
• Level 1 (highest level): fair values measured using quoted
prices (unadjusted) in active markets for identical financial
instruments.
• Level 2: fair values measured using quoted prices in active
markets for similar financial instruments, or using valuation
techniques in which all significant inputs are directly or
indirectly based on observable market data.
• Level 3 (lowest level): fair values measured using valuation
techniques in which any significant input is not based on
observable market data.
At 31 March 2010, the fair values of all derivative financial
instruments are categorised as level 2.
21 Commitments
2010 2009
US$ million US$ million
(i) Capital commitments
for property, plant
and equipment
Authorised but not
contracted for 42.4 18.0
Contracted but not
provided for 2.8 25.9
45.2 43.9
(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 10.9 11.1
Between one and
two years 8.8 10.1
Between two and
five years 6.7 12.7
In more than five years 1.6 1.2
28.0 35.1
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 31 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 31 March 2010, the
Group has a remaining royalty prepayment of US$9.0 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
31 March 2010 amount to US$7.6 million (2009: US$4.0 million),
of which US$5.1 million and US$2.5 million are payable in the
financial years ended 31 March 2011 and 2012 respectively.