For the year ended December 31, 2010

21. Impairment Testing on Goodwill and Intangible Assets with Indefinite Useful Livesopen

As explained in Note 5, the Group uses the types of good sold for operating segment information. For the purpose of impairment testing, goodwill and trademarks with indefinite useful lives set out in Notes 19 and 20 have been allocated to five major individual cash generating units (CGUs), including four units in the Power Equipment segment and one unit in the Floor Care and Appliances segment. The carrying amounts of goodwill and trademarks as at December 31, 2010 allocated to these units are as follows:


Goodwill
Trademarks

2010
2009
2010
2009

HK$’000
HK$’000
HK$’000
HK$’000
Power Equipment – MET
3,138,904
3,130,835
901,756
899,438
Power Equipment – HCP
58,439
58,438
235,717
235,111
Power Equipment – Drebo
192,878
204,176
Power Equipment – Baja
70,331
70,331
24,896
24,832
Floor Care and Appliances – RAM/Hoover
583,064
537,577
216,284
215,728
Others
89,483
63,127

4,133,099
4,064,484
1,378,653
1,375,109

No goodwill impairment has been recognised for the year ended December 31, 2010 and December 31, 2009.

The basis of the recoverable amounts of the above CGUs and their major underlying assumptions are summarised below:

Power Equipment – MET (“MET”)

The recoverable amount of MET has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a 10-year period and a discount rate of 10.9% (2009: 11.0%) per annum.

Cash flow projections during the budget period for MET are based on management’s estimation of cash inflows/outflows including sales, gross margin, operating expenses and working capital requirements. The assumptions and estimation are based on MET’s past performance, management’s expectation for the market development, the success in reducing the working capital

requirements and the success of the cost cutting strategy implemented by the Group with the strategic repositioning plan. Cash flow projections beyond the 10-year period are extrapolated using a steady 3.0% (2009: 3.0%) growth rate. Management believes that any reasonably possible change in any of these assumptions would not cause the aggregate carrying amount of MET to exceed the aggregate recoverable amount of MET.

Power Equipment – HCP (“HCP”)

The recoverable amount of HCP has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a 5-year period, and a discount rate of 11.0% (2009: 11.0%) per annum.

Cash flow projections during the budget period for HCP are based on management’s estimation of cash inflows/outflows including sales, gross margin, operating expenses and working capital requirements. The assumptions and estimation are based on HCP’s past performance, management’s expectation for the market development, the success in new products launched in 2010 and the success of the cost cutting strategy implemented with the strategic repositioning plan. Cash flow projections beyond the 5-year period are extrapolated without considering any growth rate. Management believes that any reasonably possible change in any of these assumptions would not cause the aggregate carrying amount of HCP to exceed the aggregate recoverable amount of HCP.

Power Equipment – Drebo (“Drebo”)

The recoverable amount of Drebo has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a 5-year period, and a discount rate of 12.0% (2009:11.0%) per annum.

Cash flow projections during the budget period for Drebo are based on management’s estimation of cash inflows/outflows including sales, gross margin, operating expenses and working capital requirements. The assumptions and estimation are based on Drebo’s past performance, management’s expectation for the market development, the success in new products launched in 2010 and the cost cutting strategies implemented with the strategic repositioning plan. Cash flow projections beyond the 5-year period are extrapolated without considering any growth rate. Management believes that any reasonably possible change in any of these assumptions would not cause the aggregate carrying amount of Drebo to exceed the aggregate recoverable amount of Drebo.

Power Equipment – Baja (“Baja”)

The recoverable amount of Baja has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a 5-year period, and a discount rate of 16.0% (2009:16.0%) per annum.

Cash flow projections during the budget period for Baja are based on management’s estimation of cash inflows/outflows including sales, gross margin, operating expenses and working capital requirements. The assumptions and estimation are based on Baja’s past performance, management’s expectation for the market development and the success of the cost cutting strategies implemented with the strategic repositioning plan. Cash flow projections beyond the 5-year period are extrapolated using a steady 3.0% (2009: Nil) growth rate.

The recoverable amount of Baja is close to its carrying amount.

Floor Care and Appliances – RAM/Hoover (“RAM/Hoover”)

The recoverable amount of RAM/Hoover has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a 5-year period, and a discount rate of 15.0% (2009:14.0%) per annum.

Cash flow projections during the budget period for RAM/Hoover are based on management’s estimation of cash inflows/outflows including sales, gross margin, operating expenses, capital expenditures and working capital requirements. The assumptions and estimation are based on RAM/Hoover’s past performance, management’s expectation for the market development, the success in reducing the working capital requirements and the success of the cost cutting strategies implemented with the strategic repositioning plan. Cash flow projections beyond the 5-year period are extrapolated without considering any growth rate.

The recoverable amount of the RAM/Hoover cash generating unit exceeds its carrying amount.

Average gross profit margin was a key assumption used in determining the value in use of the cash generating unit. The average gross profit margin would have to decrease by 2.0% in order for the aggregate of the cash generating unit’s recoverable amount to be equal to its carrying amount. Management considers the average forecast gross profit margin achievable due to the benefits of the strategic repositioning plan and other cost saving measures to be implemented in 2011.

22. Investments in Subsidiaries/Loans to Subsidiariesopen

Particulars of the principal subsidiaries of the Company as at December 31, 2010 and December 31, 2009 are set out in Note 56.

Loans to subsidiaries are unsecured, bear interest at 5.275% to 10.15% (2009: 7.875% to 10.15%) and are repayable in 2018 and
2020.

23. Interests in Associatesopen

The Group
The Company

2010 2009 2010 2009

HK$’000 HK$’000 HK$’000 HK$’000
Unlisted shares, at cost less impairment loss recognised 23,790 23,790
Share of net assets 8,958 10,165
Amounts due from associates 178,725 185,484 168,903 175,485

187,683 195,649 192,693 199,275

Particulars of the associates as at December 31, 2010 and December 31, 2009 are set out in Note 57.

The amounts due from associates are unsecured, non-interest bearing and are repayable on demand.

In the opinion of directors, no part of the amounts will be repaid within the next twelve months and the amounts are therefore presented as non-current assets.

The summarised financial information in respect of the Group’s associates is set out below:


2010 2009

HK$’000 HK$’000
Total assets 160,394 129,953
Total liabilities (124,562) (89,295)
Net assets 35,832 40,658
Group’s share of net assets of associates 8,958 10,165
Turnover 264,565 229,803
(Loss) profit for the year (4,826) 685
Group’s share of result of associates for the year (1,207) (987)

At the end of the reporting period, amongst the associates, the Group held 40.8% of the shares of Gimelli International (Holdings) Limited and its subsidiaries (together “Gimelli Group companies”). The Group has discontinued recognising its share of the losses of the Gimelli Group companies. The unrecognised share of profit (loss) for the year and cumulatively, extracted from the relevant
management accounts of the associates, are HK$220,000 (2009: HK$1,891,000) and (HK$37,731,000) (2009: (HK$37,951,000))
respectively.

24. Available-for-sale Investmentsopen

The Group
The Company

2010 2009 2010 2009

HK$’000 HK$’000 HK$’000 HK$’000
Unlisted equity securities and club membership





debentures, at cost less impairment loss recognised
9,879 22,701 1,695 1,695

As at December 31, 2010, all available-for-sale investments represent investments in unlisted equity securities and club membership debentures. They are measured at cost less impairment at each reporting date because the range of reasonable fair value estimates is so significant that the directors of the Company are of the opinion that their fair values cannot be measured reliably.

During the year, the Group recognised HK$13,363,000 impairment on an available-for-sale investment.

25. Inventoriesopen

The Group
The Company

2010 2009 2010 2009

HK$’000 HK$’000 HK$’000 HK$’000
Raw materials 800,179 809,185 13,058
Work in progress 135,143 103,091
Finished goods 4,091,855 3,853,946 36,460 21,518

5,027,177 4,766,222 36,460 34,576
26. Trade and other Receivablesopen

The Group
The Company

2010 2009 2010 2009

HK$’000 HK$’000 HK$’000 HK$’000
Trade receivables 4,644,821 4,223,737 69,913 99,372
Less: Allowances for doubtful debts (121,120) (117,864) (3,412)

4,523,701 4,105,873 69,913 95,960
Other receivables 296,603 343,771

4,820,304 4,449,644 69,913 95,960

The aged analysis of trade receivables, net of allowances for doubtful debts, presented based on the invoice date at the end of the reporting period is as follows:


The Group
The Company

2010 2009 2010 2009

HK$’000 HK$’000 HK$’000 HK$’000
0 to 60 days 4,272,201 3,791,142 66,724 79,077
61 to 120 days 126,453 176,348 2,588
121 days or above 125,047 138,383 3,189 14,295
Total trade receivables 4,523,701 4,105,873 69,913 95,960

Before accepting any new customer, the Group uses an internal credit scoring system to assess the potential customer’s credit quality and defines credit limits by customer. Limits and scoring attributed to customers are reviewed regularly. Trade receivables that are neither past due nor impaired have the best credit scoring attributable under the internal credit scoring system used by the Group.

Included in the Group’s trade receivable balance are debtors with a carrying amount of HK$125,047,000 (2009: HK$138,383,000) which are past due at the reporting date for which the Group has not provided for impairment loss. The Group does not hold any collateral over these balances. The average age of these receivables is 266 days (2009: 277 days).

The Group has a policy of allowing credit periods ranging from 60 days to 120 days. Trade receivables that were past due but not provided for impairment loss are related to a number of independent customers that have a good track record with the Group. The management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable.

Ageing of trade receivables which are past due but not impaired


The Group
The Company

2010 2009 2010 2009

HK$’000 HK$’000 HK$’000 HK$’000
121 – 365 days 118,783 128,519 110 3,952
1 – 2 years 1,147 846 58 4,212
Over 2 years 5,117 9,018 3,021 6,131
Total 125,047 138,383 3,189 14,295

Movement in the allowance for doubtful debts


The Group
The Company

2010 2009 2010 2009

HK$’000 HK$’000 HK$’000 HK$’000
Balance at beginning of the year 117,864 101,207 3,412
Currency realignment (3,252) 1,675
Impairment losses recognised on receivables 44,645 64,054 3,412
Amounts written off as uncollectible (23,999) (27,802)
Amounts recovered during the year (14,138) (21,270) (3,412)
Balance at end of the year 121,120 117,864 3,412

Included in the allowance for doubtful debts are individually impaired trade receivables amounting to HK$121,120,000 (2009: HK$117,864,000) which have the worst credit scoring attributable under the internal credit scoring system used by the Group. The Group does not hold any collateral over these balances.

Ageing of impaired trade receivables (by invoice date)


2010 2009

HK$’000 HK$’000
0 – 120 days 31,881 69,396
121 – 365 days 60,440 32,879
1 – 2 years 23,058 9,758
Over 2 years 5,741 5,831
Total 121,120 117,864

Under certain receivables purchase agreements, a percentage in various pools of trade receivables were factored to banks (the “Factored Trade Receivables”). As the Group still retained the risks associated in respect of default payments, the Group continued to recognise the Factored Trade Receivables in the consolidated statement of financial position. At the end of the reporting period, proceeds from the Factored Trade Receivables of approximately HK$558,604,000 (2009: HK$547,744,000) were recognised as liabilities and included in “Unsecured borrowings – due within one year” in the consolidated statement of financial position.

27. Bills Receivableopen

All the Group’s and Company’s bills receivable at December 31, 2010 and 2009 are due within 120 days.

28. Amounts Due from/(to) Subsidiariesopen

The amounts are unsecured, interest-free and payable on demand.

29. Trade Receivables from Associatesopen

The trade receivables from associates are aged less than 30 days and are due within 120 days.

30. Derivative Financial Instrumentsopen

The Group
The Company

2010 2009 2010 2009

HK$’000 HK$’000 HK$’000 HK$’000
Assets





Foreign currency forward contracts 80,580 18,485 42,405 10,470
Interest rate swap 3,428 3,428
Warrants 4,306 4,306

84,886 21,913 46,711 13,898
Liabilities





Foreign currency forward contracts 20,327 7,158 17,285
Interest rate swap 18,278 18,278

38,605 7,158 35,563

Foreign Currency Forward Contracts (not under hedge accounting)

The fair values of foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts.

Major terms of the foreign currency forward contracts are as follows:

The Group

2010

Notional amount Maturity Exchange rates
Sell US$ 250M, Buy RMB January 3, 2011 to December 26, 2011 RMB 6.5227 to 6.7968 : US$ 1
Sell EUR 108M, Buy US$ January 3, 2011 to October 31, 2011 EUR 1.3510 to 1.4000 : US$ 1
Buy US$ 65M, Sell RMB August 29, 2011 to December 27, 2011 RMB 6.4860 to 6.5805 : US$ 1
Buy US$ 11.5M, Sell GBP January 13, 2011 to June 17, 2011 US$ 1.5855 to 1.5876 : GBP 1
Buy US$ 30M, Sell GBP January 12, 2011 to May 18, 2011 US$ 1.5542 to 1.6219 : GBP 1
Sell US$ 45M, Buy RMB October 12, 2011 to December 26, 2011 RMB 6.5227 to 6.5625 : US$ 1
Buy US$ 185M, Sell RMB January 4, 2011 to September 9, 2011 RMB 6.6050 to 6.7260 : US$ 1
Buy US$ 85M, Sell HK$ May 10, 2012 HK$ 7.7200 : US$ 1
Buy US$ 0.79M, Sell NZ$ January 31, 2011 NZ$ 1.4085 : US$ 1

2009

Notional amount Maturity Exchange rates
Buy US$ 90M, Sell RMB February 24, 2010 to December 2, 2010 RMB 6.5960 to 6.8313 : US$ 1
Sell US$ 93M, Buy RMB February 24, 2010 to September 7, 2011 RMB 6.6850 to 6.9500 : US$ 1
Buy US$ 29.5M, Sell GBP January 14, 2010 to June 25, 2010 US$ 1.5797 to 1.6818 : GBP 1
Sell CA$ 9.15M, Buy US$ January 11, 2010 to June 30, 2010 CA$ 1.0577 to 1.0810 : US$ 1
Buy US$ 5M, Sell AU$ January 27, 2010 AU$ 0.8200 : US$ 1

The Company

2010

Notional amount Maturity Exchange rates
Buy US$ 185M, Sell RMB January 4, 2011 to September 9, 2011 RMB 6.6050 to 6.7260 : US$ 1
Buy US$ 85M, Sell HK$ May 10, 2012 HK$ 7.7200 : US$ 1
Sell EUR 108M, Buy US$ January 3, 2011 to October 31, 2011 EUR 1.3510 to 1.4000 : US$ 1
Buy US$ 65M, Sell RMB August 29, 2011 to December 27, 2011 RMB 6.4860 to 6.5805 : US$ 1

2009

Notional amount Maturity Exchange rates
Buy US$ 90M, Sell RMB February 24, 2010 to December 2, 2010 RMB 6.5960 to 6.8313 : US$ 1
Sell US$ 3M, Buy RMB September 7, 2011 RMB 6.9500 to US$ 1

Interest Rate Swap (not under hedge accounting)

The fair value of the interest rate swap of the Group and the Company is measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates.

Major terms of the interest rate swap are as follow:

Notional amount
Maturity
Receive floating Pay fixed
US$50,000,000
May 4, 2016
LIBOR 3.1%

Warrants

At December 31, 2010, the Group and the Company owns 2,222,222 warrants to acquire the ordinary shares of a listed company in US. The fair value of the warrants is determined by an option pricing model.