Vtech 2016 Annual Report Download - page 70

Notes to the Financial Statements
66 VTech Holdings Limited Annual Report 2016
21 Commitments (Continued)
In November 2010 and November 2015, the Group 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 2022,
2030, 2031 and 2036 respectively. The lease expiring in 2022 can
be cancelled on six months’ notice without penalty. The leases
expiring in 2030, 2031 and 2036 have a non-cancellable period of
 rst ten years. The operating lease commitments above include
total commitments over the non-cancellable period of the lease
terms.
In November 2010, September 2013, January 2014 and November
2015, 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. There are a number of leases which expire in 2030,
2031, 2035 and 2037 respectively. The leases expiring in 2030,
2035 and 2037 have a non-cancellable period of  rst ten years.
The leases expiring in 2031 is not cancellable. 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 2020,
a wholly-owned subsidiary of the Group is required to make
royalty payments to AT&T Intellectual Property LLC, calculated as
a percentage of net sales, as de ned, 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).
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 2016 amounted to US$1.4 million
(2015: US$1.9 million), of which US$1.0 million and US$0.3 million
are payable in the  nancial years ending 31 March 2017 and 2018
respectively and the remaining US$0.1 million is payable before the
 nancial year ending 31 March 2021.
22 Contingent Liabilities
(a) The Directors have been advised that certain accusations
of infringements of patents 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 e ect on the  nancial position of the Group.
(b) In November 2015, the Company experienced a cyber attack
in which an intruder gained unauthorised access to some of
our databases and servers, and stole certain personal data of
our customers around the world. The Company immediately
took the a ected databases and servers o ine to ensure that
our customer data was safe from further attack. In addition,
the Company has taken steps to report the incidents to a
number of governmental authorities and law enforcement
authorities in various jurisdictions.
The Company has subsequently recovered the personal data
of our customers to ensure that copies of information that
were disseminated to two other third parties (a journalist and
a cyber-security consultant) have been destroyed or taken o -
line, held securely and not disseminated further.
The Company has since then been subject to class action
litigation in the US and governmental investigations in various
jurisdictions. As the investigations are still in the early stages
and taking into account legal advice received, adequate
provisions have been made only to the extent that the
amounts can be reliably estimated.
(c) As at 31 March 2016, 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$353.6 million (2015: US$353.6 million).
The Company has not recognised any deferred income for the
guarantees given in respect of borrowings and other banking
facilities for subsidiaries as their fair value cannot be reliably
measured and their transaction price was US$Nil.
As at 31 March 2016, the directors do not consider it is
probable that a claim will be made against the Company
under any of the guarantees.
23 Company-level Statement of Financial
Position
Note
2016
US$ million
2015
US$ million
Non-current asset
Investments in subsidiaries 23(a) 227.5 227.5
Current assets
Amounts due from
subsidiaries 326.9 340.2
Deposits and cash 1.3 0.6
328.2 340.8
Current liabilities
Amounts due to subsidiaries (188.4) (184.8)
Creditors and accruals (0.6) (0.5)
(189.0) (185.3)
Net current assets 139.2 155.5
Net assets 366.7 383.0
Capital and reserves
Share capital 18(a) 12.5 12.5
Reserves 19(b) 354.2 370.5
Total equity 366.7 383.0
Approved and authorised for issue by the Board of Directors on
17 May 2016.
Allan WONG Chi Yun PANG King Fai
Director Director