Creative 2000 Annual Report Download - page 38

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38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 – OTHER CHARGES
Included in the results of operations for fiscal 2000 were the purchase of substantially of all of the assets of Aureal Semiconductor,
Inc. and the settlement of all outstanding litigation claims between Aureal and Creative (see Note 14 of “Notes to Consolidated
Financial Statements”); and in fiscal 1998 were other charges of $68.6 million relating to a $60.3 million write-off of acquired
in-process technology (see Note 15 of “Notes to Consolidated Financial Statements”) and a one-time write off of $8.3
million for cessation of certain activities.
NOTE 14 – LITIGATION
On September 21, 2000, the U.S. Bankruptcy Court for the Northern District of California, Oakland Division approved the
sale to Creative of substantially all of the assets of Aureal Semiconductor, Inc. The sale includes settlement of all outstanding
litigation claims between Aureal and Creative. Creative will pay $28.0 million in cash, plus two new shares of Creative stock
for every 100 outstanding shares of Aureal stock, or 208,079 shares of Creative stock. The Creative shares were valued at
approximately $4.35 million, based on the fair market value of Creative stock on September 21, 2000. As a result of the
settlement of outstanding litigation with Aureal, Creative recorded as a pre-tax charge of $20.0 million against fiscal 2000
earnings. Since the litigation was ongoing at June 30, 2000 and the settlement was reached after release of Creative’s fiscal
2000 earnings, but before distribution of Creative’s financial statements, the generally accepted accounting principles in the
United States require that this charge be reflected in Creative’s fiscal 2000 financial statements.
During the course of its normal business operations, Creative and its subsidiaries are involved from time to time in a variety
of intellectual property and other disputes, including claims against Creative alleging copyright infringement, patent
infringement and other business torts. Currently such disputes exist with, among other entities, Bose Corporation (an action
involving patent claims by Bose and other claims and counterclaims by both sides in the District of Massachusetts and
involving Creative and its Cambridge SoundWorks subsidiary), Phonetel Communications, Inc. (an action involving patent
claims by Phonetel against a number of companies, including Creative, in the Northern District of Texas); and the Lemelson
Foundation (an action involving patent claims by Lemelson against over 500 entities, including Creative). Creative also
from time to time receives licensing inquiries and/or threats of potential future patent claims from a variety of entities,
including IBM and Lucent. Creative believes it has valid defenses to the various claims and counterclaims asserted against
it. However, should any of these plaintiffs prevail in their claims or counterclaims, Creative does not expect there to be any
consequent material adverse effect on its financial position or results of operations.