Creative 2004 Annual Report Download - page 37

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Deferred tax assets at June 30, 2004 and 2003 consisted of the following (in US$’000):
As of June 30
2004 2003
Non-deductible reserves $ 22,106 $ 26,110
Net operating loss carryforwards 60,288 70,390
Other 1,068 1,971
Total deferred tax assets 83,462 98,471
Valuation allowance for deferred tax assets (83,462) (98,471)
$–$ –
Creative had US net operating loss carryforward of approximately $136.3 million and $162.0 million as at June 30, 2004 and June 30,
2003, expiring between 2005 to 2022. The utilization of the 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, 2004 and June 30, 2003, 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 November 21, 2002, Creative Technology Centre Pte Ltd (“CTC”), a Singapore subsidiary of Creative, entered into a nine year term
loan facility for up to S$54.0 million ($31.5 million) with a bank. 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 2004 was at 2.26%. 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, 2004, S$45.0 million ($26.2 million) was outstanding.
3Dlabs was a party to a loan and security agreement with a financial institution in an amount up to $20.0 million or 85% of the qualified
accounts receivable of 3Dlabs’ U.S. companies, whichever is less. The agreement was secured by all tangible and intangible assets of 3Dlabs.
There were no borrowings outstanding under the agreement as of June 30, 2003 and the agreement was terminated in September 2003.
In December 1999, prior to its acquisition by Creative, 3Dlabs issued a subordinated convertible note to an investor in the principal
amount of $7.5 million which matures in December 2004. The outstanding unpaid principal balance under the note bears interest at
a rate of 4.5% per annum, payable upon conversion, prepayment or at maturity. The holder of the note has the option to convert all
or a portion of the outstanding unpaid principal balance under the note plus interest into shares of 3Dlabs’ common stock at a conversion
price of $5.563 per share or to transfer the note to a third party. At any time after June 2002, 3Dlabs has the option to require the
noteholder to convert all or a portion of the outstanding unpaid principal balance under the note plus interest, so long as the weighted
average closing share price of 3Dlabs’ common stock is equal to or greater than the conversion price of $5.563 for twenty trading days
prior to the conversion date. In August 2002, after the closing of the acquisition of 3Dlabs by Creative, 3Dlabs, the noteholder and
Creative entered into an amendment of the convertible subordinated note agreement and convertible subordinated note to allow the
outstanding unpaid principal balance under the note plus interest to be convertible into ordinary shares of Creative, at the conversion
price equal to $18.05. The full outstanding principal balance plus accrued interest was prepaid in January 2004.