Vtech 2011 Annual Report Download - page 60

58 VTech Holdings Ltd Annual Report 2011
Notes to the Financial Statements
19 Financial Risk Management and Fair
Values (Continued)
(e) Fair values
The fair values of trade debtors, deposits and cash and trade
creditors and accruals approximate their carrying amounts due to
the short-term maturities of these assets and liabilities.
The fair values of forward foreign exchange contracts are
determined using forward exchange market rates at the balance
sheet date.
All financial instruments are carried at amounts not materially
different from their fair values as at 31 March 2011 and 31 March
2010. Given these terms it is not meaningful to disclose the fair
values.
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 2011, the fair value measurements of all forward
foreign exchange contracts are categorised as level 2.
20 Commitments
2011
US$ million
2010
US$ million
(i) Capital commitments for
property, plant and equipment
Authorised but not contracted for 55.9 42.4
Contracted but not provided for 6.5 2.8
62.4 45.2
(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 14.6 10.9
Between one and two years 12.9 8.8
Between two and five years 32.1 6.7
In more than five years 36.7 1.6
96.3 28.0
In November 2010, 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 2012, 2016, 2022, 2030 and
2031 respectively. The lease expiring in 2016 is not cancellable.
The leases expiring in 2030 and 2031 have a non-cancellable
period of ten years which expires in 2020 and 2021 respectively.
The lease expiring in 2022 can be cancelled on six months’
notice without penalty. The operating lease commitments above
include total commitments over the non-cancellable period of
the lease terms.
In November 2010, 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 twenty year lease
agreement, the Group rented the first and second phases of the
facility for non-cancellable periods of ten years. 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 2011, the
Group has a remaining royalty prepayment of US$4.1 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 2011 amount to US$2.6 million (2010: US$7.6 million),
of which US$2.4 million and US$0.2 million are payable in the
financial years ended 31 March 2012 and 2013 respectively.