Crucial 2011 Annual Report Download - page 198

47
INOTERA MEMORIES, INC.
NOTES TO FINANCIAL STATEMENTS
Based on its financial statements as of December 31, 2010 and for the twelve-
month period then ended, which are not yet
submitted to the syndicate banks, 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, 2010, the total
liabilities plus contingent liabilities amounted to $89.00 million versus tangible net worth of $52.55 million or actual
leverage ratio of 1.694 to 1 and the current assets amounted to $17.87 million versus current liabilities of $32.81 million or
actual current ratio of 0.545 to 1. However, Inotera has obtained formal waiver from complying with all its financial
covenants from syndicate banks for the six-
month period ended June 30, 2010. Also, in its amended loan agreement with
syndicate banks, Inotera is allowed to avail of the cure period of not over 6 months and 5 months if Inotera is in breach of
its financial covenants in its annual financial statements and semi-
annual financial statements, respectively. As of
December 31, 2010, the Company was still in breach of the requirement to maintain minimum current and leverage ratios.
As the Company is required to cure this breach no later than the end of June 30, 2011, the Company will prepare to submit
a formal letter to the managing bank to request for a formal waiver before the expiration of the Remedial Period, so that the
managing bank can convene a meeting of the Banks to discuss the aforesaid breach and to resolve before the expiration of
the Remedial Period on whether a waiver of the breach will be granted.
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, current liability classification includes 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. Therefore, a callable loan shall
be classified as current on balance sheet date, unless one of the following conditions is met:
(Continued)
(i)
Classification of loans with covenants
(i)
The creditor has waived or subsequently lost the right to demand repayment for more than one year from the balance
sheet.