Creative 2001 Annual Report Download - page 9

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YEAR ENDED JUNE 30, 2000 COMPARED TO YEAR ENDED JUNE 30, 1999
Net sales for the year ended June 30, 2000 increased by 4% compared to the year ended June 30, 1999. Audio
product sales (Sound Blaster audio cards and chipsets) increased by 6% and represented 39% of sales in fiscal year
2000 compared to 38% of sales in the prior fiscal year. This improvement was primarily due to an increase in sales
of Sound Blaster Live! and Sound Blaster PCI sound cards. Sales of multimedia upgrade kits, including data storage,
decreased by 13% in fiscal year 2000 and represented 23% of sales compared to 27% of sales in the prior fiscal year.
This reduction in sales was primarily due to a decline in sales of multimedia upgrade kits, DVD drives, and CD-ROM
drives, offset in part by increased sales of CD-RW (Compact Disk ReWritable) drives. Sales of DVD drives declined
primarily due to component shortages while the decline in sales of CD-ROM drives was primarily due to reductions
in average selling prices. Sales of video and graphics products including digital cameras, decreased by 7% and
represented 18% of sales in fiscal year 2000 compared with fiscal year 1999, when they represented 20% of sales.
This decrease in sales was primarily attributable to component shortages for the high-end 3D Blaster products, and
the phase out of low-end graphics and video cards. The decline in sales of video and graphics products was offset
in part by an increase in sales of digital cameras. Sales of speakers increased by 65% and represented 11% of sales
in fiscal 2000 compared with fiscal 1999, when they represented 7% of sales. This improvement in speaker sales
was a result of strong growth in the sales of multimedia speakers as a result of broader market acceptance. Sales of
other products, which included accessories, music products, digital music players, communication products and
other miscellaneous items, increased by 18% and represented 9% of sales in fiscal 2000 compared to 8% of sales
in the prior fiscal year. This increase in other product sales was primarily due to an increase in sales of digital music
players and communication products.
Gross profit in fiscal 2000 improved by 13% compared to fiscal 1999. As a percentage of sales, gross margin for fiscal
2000 was 30% as compared to 27% in the prior year. This improvement in gross margin was primarily attributable
to a favorable product mix, resulting from increased sales of higher margin products such as Sound Blaster Live!,
Sound Blaster PCI and multimedia speakers.
Selling, general and administrative expenses during fiscal 2000 increased to 19% of sales compared to 16% of sales
in fiscal 1999. This increase was primarily due to expenses incurred to develop and promote Creative’s Internet
businesses which accounts for about 4% of sales. Creative’s research and development (“R&D”) expenses increased
to 4% of sales in fiscal 2000 compared to 3% of sales in the prior year, primarily due to an increase in expenditures
on the development of a new range of products.
Included in the results of fiscal 2000 were other charges of $20.0 million relating to the settlement of all outstanding
litigation claims between Aureal and Creative, see Notes 13 and 14 of “Notes to Consolidated Financial Statements.”
In fiscal 2000, Creative’s net gain from investments was $103.4 million compared to $15.0 million in fiscal 1999. This
included $84.9 million net gain from investments and $18.5 million gain from an increase in the value of marketable
equity securities. Net interest and other income decreased by $9.3 million to $5.3 million in fiscal 2000 compared
to $14.6 million in the prior fiscal year. This decline was primarily a result of a reduction in interest income arising
from a lower average cash balance during the period and an adverse impact of foreign currency exchange rate
fluctuations.
Creative’s provision for income taxes for fiscal 2000 remained flat at 1% of sales as compared to the prior fiscal year.
The provision for income taxes as a percentage of income before taxes and minority interest excluding net gain from
investments increased from 9% in fiscal 1999, to 14% in fiscal 2000. The increase was primarily due to a change
in the mix of taxable income arising from various geographical regions, where the tax rates range from 0% to 50%.