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, 2011 allocated to these units are as follows:


Goodwill
Trademarks

2011
2010
2011
2010

US$’000
US$’000
US$’000
US$’000
Power Equipment – MET
402,424
402,424
115,907
115,610
Power Equipment – HCP
7,492
7,492
30,648
30,585
Power Equipment – Drebo
24,267
24,728
Power Equipment – Baja
9,017
9,017
3,200
3,192
Floor Care and Appliances – RAM/Hoover
75,040
74,752
27,800
27,810
Others
12,616
11,471

530,856
529,884
177,555
177,197

No goodwill impairment has been recognised for the year ended December 31, 2011 and December 31, 2010.

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 5-year period and a discount rate of 10.7% (2010: 10.9%) 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. Cash flow projections beyond the 5-year period are extrapolated using a steady 3.0% (2010: 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% (2010: 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 and the success of the cost cutting strategy implemented. 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 11.0% (2010: 12.0%) 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 and the cost cutting strategies implemented. 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% (2010: 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 strategy implemented. Cash flow projections beyond the 5-year period are extrapolated using a steady 3.0% (2010: 3.0%) 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 13.8% (2010: 15.0%) 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. 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.

22. Investments in Subsidiaries/Loans to Subsidiariesopen

Particulars of the principal subsidiaries of the Company as at December 31, 2011 and December 31, 2010 are set out in Note 55.

Loans to subsidiaries are unsecured, bear interest at 5.275% to 10.15% per annum (2010: 5.275% to 10.15%) and are fully repayable by 2021.

23. Interests in Associatesopen

The Group
The Company

2011 2010 2011 2010

US$’000 US$’000 US$’000 US$’000
Unlisted shares, at cost less impairment loss recognised 3,062 3,050
Share of net assets 806 1,148
Amounts due from associates 19,359 22,914 18,261 21,654

20,165 24,062 21,323 24,704

Particulars of the associates as at December 31, 2011 and December 31, 2010 are set out in Note 56.

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:


2011 2010

US$’000 US$’000
Total assets 20,351 20,563
Total liabilities (17,133) (15,969)
Net assets 3,218 4,594
Group’s share of net assets of associates 806 1,148
Turnover 31,882 33,534
Loss for the year (1,388) (619)
Group’s share of results of associates for the year (347) (155)

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 (loss) profit for the year and cumulatively, extracted from the relevant management accounts of the associates, are (US$737,000) (2010: US$28,000) and (US$5,574,000) (2010: (US$4,837,000)) respectively.

24. Available-for-sale Investmentsopen

The Group
The Company

2011 2010 2011 2010

US$’000 US$’000 US$’000 US$’000
Unlisted equity securities and club membership debentures, at cost less impairment loss recognised 1,269 1,267 218 217

As at December 31, 2011, 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.

25. Inventoriesopen

The Group
The Company

2011 2010 2011 2010

US$’000 US$’000 US$’000 US$’000
Raw materials 96,605 102,587
Work in progress 11,614 17,326
Finished goods 596,200 524,597 1,582 4,674

704,419 644,510 1,582 4,674
26. Trade and other Receivablesopen

The Group
The Company

2011 2010 2011 2010

US$’000 US$’000 US$’000 US$’000
Trade receivables 621,326 595,490 3 8,963
Less: Allowances for doubtful debts (14,680) (15,528)

606,646 579,962 3 8,963
Other receivables 66,811 38,026

673,457 617,988 3 8,963

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

2011 2010 2011 2010

US$’000 US$’000 US$’000 US$’000
0 to 60 days 569,695 547,718 8,554
61 to 120 days 17,145 16,212
121 days or above 19,806 16,032 3 409
Total trade receivables 606,646 579,962 3 8,963

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 US$19,806,000 (2010: US$16,032,000) 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 247 days (2010: 266 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

2011 2010 2011 2010

US$’000 US$’000 US$’000 US$’000
121 - 365 days 19,536 15,229 3 14
1 - 2 years 270 147 8
Over 2 years 656 387
Total 19,806 16,032 3 409

Movement in the allowance for doubtful debts


The Group
The Company

2011 2010 2011 2010

US$’000 US$’000 US$’000 US$’000
Balance at beginning of the year 15,528 15,111 437
Currency realignment (138) (417)
Impairment losses recognised on receivables 2,992 5,724
Amounts written off as uncollectible (1,697) (3,077)
Amounts recovered during the year (2,005) (1,813) (437)
Balance at end of the year 14,680 15,528

Included in the allowance for doubtful debts are individually impaired trade receivables amounting to US$14,680,000 (2010: US$15,528,000) 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)


2011 2010

US$’000 US$’000
0 - 120 days 7,877 4,087
121 - 365 days 2,359 7,749
1 - 2 years 3,925 2,956
Over 2 years 519 736
Total 14,680 15,528

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 US$71,800,000 (2010: US$71,616,000) 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, 2011 and 2010 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

2011 2010 2011 2010

US$’000 US$’000 US$’000 US$’000
Assets
Foreign currency forward contracts 8,645 10,331 2,776 5,437
Warrants 222 552 222 552

8,867 10,883 2,998 5,989
Liabilities
Foreign currency forward contracts 4,234 2,606 2,837 2,216
Interest rate swap 4,768 2,343 4,768 2,343

9,002 4,949 7,605 4,559

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

2011

Notional amount Maturity Exchange rates
Sell US$ 455M, Buy RMB January 10, 2012 to July 10, 2013 RMB 6.3128 to 6.5000 : US$ 1
Sell US$ 8M, Buy AU$ February 12, 2012 to March 20, 2012 US$ 1.0650 to 1.0725 : AU$ 1
Sell US$ 0.95M, Buy NZ$ January 24, 2012 to February 23, 2012 US$ 0.8200 to 0.8225 : NZ$ 1
Sell EUR 15M, Buy US$ January 31, 2012 to December 31, 2012 US$ 1.2943 : EUR 1
Buy US$ 213M, Sell RMB January 10, 2012 to December 31, 2012 RMB 6.3128 : US$ 1
Buy US$ 56.6M, Sell GBP January 3, 2012 to July 5, 2012 US$ 1.5499 to 1.6476 : GBP 1
Buy US$ 13M, Sell AU$ January 23, 2012 to March 20, 2012 US$ 1.0519 to 1.0725 : AU$ 1
Buy US$ 0.7M, Sell NZ$ January 25, 2012 to February 23, 2012 US$ 0.8200 to 0.8225 : NZ$ 1

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

The Company

2011

Notional amount Maturity Exchange rates
Sell EUR 15M, Buy US$ January 31, 2012 to December 31, 2012 US$ 1.2943 : EUR 1
Buy US$ 60M, Sell RMB January 10, 2012 to May 18, 2012 RMB 6.3128 : US$ 1
Sell US$ 242M, Buy RMB January 11, 2012 to July 10, 2013 RMB 6.5000 : US$ 1

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

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$ 70,000,000
May 4, 2016
LIBOR 1.2% - 3.1%

WarrantsAt December 31, 2011, 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 option pricing model.