Creative 2003 Annual Report Download - page 39

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets at June 30, 2003 and 2002 consisted of the following (in US$’000):
As of June 30
2003 2002
Non-deductible reserves $ 26,110 $ 33,778
Net operating loss carryforwards 70,390 20,099
Other 1,971 1,765
Total deferred tax assets $ 98,471 $ 55,642
Valuation allowance for deferred tax assets (98,471) (55,642)
$ – $ –
Creative had Irish net operating loss carryforward of nil and approximately $1.9 million at June 30, 2003 and June 30,
2002. US net operating loss carryforward is approximately $162.0 million and $47.8 million as at June 30, 2003 and June
30, 2002. The Irish net operating losses have an indefinite carryforward period while the US net operating losses expire
between 2005 to 2022. The utilization of these net operating losses by Creative is subject to certain conditions.
Valuation allowance is provided for Creative’s deferred tax assets as management believes substantial uncertainty exists
regarding the realizability of these assets.
Creative has United States tax deductions not included in the net operating loss carryforward described above aggregating
approximately $53.6 million at June 30, 2003 and June 30, 2002, as a result of the exercise of employee stock options,
the tax benefit of which has not been realized. The tax benefit of the deductions, when realized will be accounted for as
a credit to additional paid-in capital rather than a reduction of the income tax provision.
NOTE 11 – DEBT OBLIGATIONS
On March 13, 1996, Creative Technology Centre Pte Ltd (“CTC”), a Singapore subsidiary of Creative, entered into an
agreement with two banks for an eight year term loan facility for up to S$60.0 million ($34.0 million) to finance the
construction of Creative’s headquarters building in Singapore. The loan is repayable in nineteen quarterly installments
comprising eighteen installments of S$1.5 million ($0.9 million) and a final installment for the remaining S$30.9 million
($17.6 million). The repayment commenced on July 5, 1998. The interest on the outstanding loan balance is payable at
the banks’ cost of funds plus 1.25%. The interest rate charged for fiscal 2002 was at 2.19%. The loan is secured by a first
mortgage on the building and by way of a fixed and floating charge over all assets of CTC. At June 30, 2002, S$33.9 million
($19.2 million) was outstanding. The outstanding balance was fully repaid by CTC in January 2003.
On November 21, 2002, CTC entered into a new nine year term loan facility for up to S$54.0 million ($30.8 million) with
one of the banks. The loan is repayable in thirty-six quarterly installments of S$1.5 million ($0.9 million). The repayment
commenced on March 31, 2003. The interest on the outstanding loan balance is based on bank’s floating rate plus margin
1.5%. The interest rate charged for fiscal 2003 was at 2.15%. The loan is secured by a first mortgage on the building and
by way of a fixed and floating charge over all assets of CTC. At June 30, 2003, S$51.0 million ($29.1 million) was
outstanding.
NOTE 10 – INCOME TAXES (Cont’d)