Creative 2002 Annual Report Download - page 31

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Reclassification
In fiscal 2002, Creative adopted EITF Issue No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor’s Products).” EITF Issue No. 01-9 provides that consideration from a vendor to a
reseller of the vendor’s products is generally presumed to be an adjustment to the selling prices of the vendor’s products
and, therefore, should be classified as a reduction of revenue. As a result of the adoption, certain consideration paid to
distributors and resellers of its products has been reclassified as a revenue offset rather than as selling, general and
administrative expense. Prior years’ financial statements have been reclassified to conform to this presentation.
Recently issued accounting pronouncements
In July 2002, the FASB issued SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146
addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit
and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the
EITF has set forth in EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring).” The scope of SFAS 146 also includes (1)
costs related to terminating a contract that is not a capital lease and (2) termination benefits that employees who are
involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit
arrangement or an individual deferred-compensation contract. SFAS 146 will be effective for exit or disposal activities that
are initiated after December 31, 2002. Creative does not expect the adoption of this statement to have a material impact
on Creative’s financial statements.
In August 2001, the FASB issued SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS 144
supersedes FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of”, and the accounting and reporting provisions relating to the disposal of a segment of a business of
Accounting Principles Board Opinion No. 30. Adoption of SFAS 144 is not expected to have a material impact on
Creative’s consolidated financial statements.
In August 2001, the FASB issued SFAS 143, “Accounting for Asset Retirement Obligations.” SFAS 143 addresses financial
accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS 143 will be adopted for Creative’s fiscal year beginning July 1, 2002. Adoption of SFAS 143
is not expected to have a material impact on the consolidated financial statements.
In July 2001, the FASB issued SFAS 142, “Goodwill and Other Intangible Assets.” It also provides guidance on purchase
accounting related to the recognition of intangible assets and accounting for negative goodwill. SFAS 142 changes the
accounting for goodwill from an amortization method to an impairment-only approach. Under SFAS 142, goodwill will
be tested annually and whenever events or circumstances occur indicating that goodwill might be impaired. Creative will
adopt SFAS 142 effective July 1, 2002 for business combinations completed prior to June 30, 2001. Upon adoption,
amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 will cease, and intangible
assets acquired prior to July 1, 2001 that do not meet the criteria for recognition under SFAS 141 will be reclassified to
goodwill. In connection with the adoption of SFAS 142, the Company will be required to perform a transitional goodwill
impairment assessment. Adoption of these statements is not expected to have a material impact on the consolidated
financial statements.