Crucial 2012 Annual Report Download - page 291

46
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Under US GAAP, inventory is valued at the lower of cost or market, with market limited to an amount that is
not more than net realizable value nor less than net realizable value less a normal profit margin. The write-
down establishes a new cost basis for the inventory. Reversals of previous write-downs are not permitted, until
the related inventory is sold.
(g) Classification of loans with covenants
Based on its financial statements as of December 31, 2011 and for the twelve-month period then ended, Inotera
did not meet the covenant requirements for leverage ratio of not higher than 1.5 to 1 and current ratio of not
less than 1 to 1 under the two long-term loan agreements. As of December 31, 2011, the total liabilities plus
contingent liabilities amounted to $88,543,670 versus tangible net worth of $32,445,720 or actual leverage
ratio of 2.73 to 1 and the current assets amounted to $18,458,625 versus current liabilities of $59,414,171 or
actual current ratio of 0.311 to 1. On June 8, 2012, the Company received from the syndicate banks a waiver
for these December 31, 2011 financial covenant requirements. However, the Company was not able to meet
the same financial covenant requirements as of June 30, 2012 and management therefore has submitted a
request to the managing bank for a waiver of these June 30, 2012 financial covenant requirements. While
management is optimistic the Company will receive such waiver from the syndicate banks, there can be no
assurance that the syndicate banks will grant such waiver.
Under ROC GAAP, there is no specific guidance on whether or not the debtor is deemed to be in default on
the balance sheet date when the provisions of a long-term syndicate loan agreement requires the creditor/bank
to review its audited semi-annual or annual financial statements before declaring the debtor is in default. In
practice, however, such long-term loan is classified as non-current if the debtor (i) is able to secure from
syndicate banks formal confirmations that they do not have any information that the debtor is in default of its
financial covenant on the balance sheet date, and (ii) has not been formally notified by syndicate banks that
it is in default of any loan covenant or the loan agreement contains a provision that the debtor is allowed to
avail of the cure period of not over 6 months and 5 months if the debtor is in breach of its financial covenants
in its annual financial statements and semi-annual financial statements, respectively.
Under US GAAP, long-term obligations that are or can be callable by the creditor either because the debtor's
violation of a debt covenant at the balance sheet date makes the obligation callable, or because the violation,
if not cured within a specific grace period, will make the obligation callable, are classified as current liabilities.
Therefore, a callable loan shall be classified as current on balance sheet date, unless one of the following
conditions is met:
(i) The creditor has waived or subsequently lost the right to demand repayment for more than one year from
the balance sheet.
(ii) For long-term obligations containing a grace period within which the debtor may cure the violation, it is
probable that the violation will be cured within that period, thus preventing the obligation from
becoming callable.
Consequently, under US GAAP, loans totaling $37,842,012 and $24,950,000 at December 31, 2010 and 2011,
respectively would be classified as current liabilities whereas under ROC GAAP they are classified as long-
term liabilities.