Creative 2001 Annual Report Download - page 35

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Fixed and other asset impairment write-downs are attributed to manufacturing and other equipment associated with
the facilities being closed as well as certain other intangible assets which have been impaired as a result of recent
changes in market conditions.
The $8.2 million inventory charge primarily relates to digital video recorders and graphics which were written down
to their estimated sales values as a result of management’s decision to exit from these businesses.
Included in the results of operations for fiscal 2000 were US$20.0 million for the settlement of all outstanding
litigation claims between Aureal and Creative (see Note 14 of “Notes to Consolidated Financial Statements”).
NOTE 14 – LITIGATION
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 a patent claim by Bose and other claims and counterclaims by both sides in the
District of Massachusetts and involving Creative and its Cambridge SoundWorks subsidiary); the Lemelson Foundation
(an action involving patent claims by Lemelson against over 500 entities, including Creative); Photobit Corporation
(a patent infringement action pending with the International Trade Commission); Seer Systems, Inc. (a breach of
contract action in connection with a technology development scheme and convertible note pending in the state courts
of California); and Sunonwealth Electric Machine Industry Co. (a patent infringement action pending in the Northern
District of California). 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.
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 was completed
in November 2001, and included settlement of all outstanding litigation claims between Aureal and Creative. Creative
paid $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 $3.24 million based on the fair market
value of Creative stock on the settlement date. Creative recorded as a pre-tax charge of $20.0 million against fiscal
2000 earnings as a result of the settlement of outstanding litigation.
NOTE 15 – INVESTMENTS
Resulting from a continued downturn in global equity markets, Creative experienced a steep decline in its investment
portfolio in fiscal 2001, resulting in net investment losses of $148.5 million which included $200.3 million of losses
from permanent write-downs of quoted and unquoted investments and $51.8 million net gain from quoted investments
and marketable securities. Included in the results of operations for fiscal 2000 are net gains from quoted investments
and marketable securities of $113.2 million and investments write off of $9.8 million.