Crucial 2011 Annual Report Download - page 182
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31
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
All derivative financial instruments are intended to manage fluctuations in foreign exchange rates and interest rates.
Gains or losses from these managing instruments are likely to be offset by gains or losses from the hedged items. Thus,
market price risks are believed to be low.
The Company signed a “Supply Agreement”
with NTC and Micron. Under these agreements, the Company commits to
supply its production mostly to NTC and Micron. As sales are made to these two major customers, credit risk is
therefore concentrated on these major customers. Based on the results of the Company’
s assessment of this risk and the
good credits of these two major customers, its exposure to credit risk is low.
Credit risks of financial instrument transactions represent the positive net settlement amount of those contracts with
positive fair values at the balance sheet date. The positive net settlement amount represents the loss to the Company if
the counter-parties breached the contracts. The banks, which are the counter-
parties to the foregoing derivative financial
instruments, are reputable financial institutions. Management believes its exposure related to the potential default by
those counter-parties is low.
The Company might not have sufficient operating capital to meet its financial commitments. However, the Company
signed a syndicated loan agreement with syndicate banks in order to avail of a new credit line of $35,000,000 on May
10, 2010, and renewed its mortgage loan and unsecured loan aggregating $1,670,000 with Taichung Bank on December
24, 2010. Aside from these loans, the Company has unused credit facility for short-
term loans. For these reasons, the
Company believes that these new credit facilities can provide sufficient funding to meet its future operating and capital
expenditure needs. In addition, the syndicate banks have formally agreed to amend the syndicate loan agreements
particularly with respect to the remedial period for the company's breach of financial covenants, and amendments to
certain financial covenants under such agreements.
(Continued)
(ii)
The discounted present value of anticipated cash flows is adopted as the fair value of long-
term debt. The discounting
rates used in calculating the present value are similar to those of the Company’s existing long-
term loans (including
current portion of long-term loans) and long-term other payable -
related parties, whose interest rates fluctuates
depending on the current market rates.
(b)
Financial risk information
(i) Market risk
(ii)
Credit risk
(iii)
Liquidity risk