64 VTech Holdings Limited
Annual Report 2014
Notes to the Financial Statements
18 Financial Risk Management and Fair Values
(Continued)
(e) Fair values measurement
(Continued)
Financial instruments carried at fair value
(Continued)
At 31 March 2014, the fair values of the forward foreign exchange
contracts included in financial liabilities were US$4.3 million
(31 March 2013: US$3.3 million (financial assets)). At 31 March 2014
and 31 March 2013, the fair values of all forward foreign exchange
contracts were categorised as Level 2.
During the year ended 31 March 2014, there were no transfers
between Level 1 and Level 2, or transfers into or out of Level 3 fair
value hierarchy classifications.
The fair value of forward foreign exchange contracts in Level 2 is
determined by using the forward exchange rates at the balance
sheet date and comparing them to the contractual rates.
19 Commitments
2014
2013
US$million
US$ million
(i) Capital commitments for property,
plant and equipment
Authorised but not contracted for
27.3
25.7
Contracted but not provided for
7.4
7.1
34.7
32.8
(ii) Operating lease commitments
The future aggregateminimum
lease payments under
non-cancellable operating
leases are as follows:
Land and buildings
In one year or less
15.6
15.8
Between one and two years
14.2
13.8
Between two and five years
36.6
30.6
Inmore than five years
24.4
28.2
90.8
88.4
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 2016, 2022, 2030 and
2031 respectively. The lease expiring in 2016 is not cancellable.
The lease expiring in 2022 can be cancelled on six months’ notice
without penalty. The lease expiring in 2030 and 2031 have a
non-cancellable period of first ten years. The operating lease
commitments above include total commitments over the non-
cancellable period of the lease terms.
In November 2010 and September 2013, 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 2020, 2030, 2031 and 2034 respectively. The
lease expiring in 2030 and 2034 have a non-cancellable period
of first ten years. The leases expiring in 2020 and 2031 are 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 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).
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 2014 amount to US$2.2 million
(2013: US$2.5 million), of which US$1.4 million and US$0.8 million
are payable in the financial years ended 31 March 2015 and
2016 respectively.
20 Contingent Liabilities
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
the outstanding claims and taking into account of 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 31 March 2014, 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$353.4 million (2013: US$267.7 million). The Company has
not recognised any deferred income for the guarantees given in
respect of borrowings and other banking facilities for subsidiaries
as their fair value cannot be reliably measured and their transaction
price was US$Nil.
As at 31 March 2014, the Directors do not consider it is probable
that a claim will be made against the Company under any of
the guarantees.
