Creative 2000 Annual Report Download

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Chairman’s Message 2
Selected Consolidated Financial Data 6
Management’s Discussion and Analysis of
Financial Condition and Results of Operations 8
Report of Independent Accountants 15
Consolidated Balance Sheets 16
Consolidated Statements of Operations 17
Consolidated Statements of Cash Flows 18
Consolidated Statements of Shareholders’ Equity 19
Notes to Consolidated Financial Statements 20
Stock Market Information 43
Corporate Directory 44
Contents

Table of contents

  • Page 1
    ... Chairman's Message Selected Consolidated Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Report of Independent Accountants Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Cash Flows Consolidated...

  • Page 2
    ...Gaming, Digital Video, Digital Photography and Digital Communication. By any measure, a successful Value-added Venture Capital entity. It leverages on Creative's strong brand name, abundant technological resources, global market position and customer base of over 40 million users annually, to invest...

  • Page 3
    ... Live! family of cards, which added even more audio functionality to their Sound Blaster Live!. During the year, Creative expanded into a number of new markets beyond the Wintel PC platform. For the first time, Creative offered Linux and Macintosh drivers for a number of its products, winning "Best...

  • Page 4
    ... spot to reap the benefits. A new digital audio revolution has just started, and Creative is right in the middle of it. It covers all ages, both genders, and it is many times bigger than the multimedia market that the Sound Blaster kick-started ten years ago. People want the music of their choice to...

  • Page 5
    ... his would effectively deliver a virtual music store right to the palm of every targeted user. T he "electronic wallet" in the Jukebox could be topped up via the Internet. With the PC, equipped with our high-end sound cards and connectivity to the Internet, many more new business models are possible...

  • Page 6
    ... read in conjunction with, the consolidated financial statements and related notes thereto included elsewhere in this Annual Report. CONSOLIDAT ED STAT EMENT S OF OPERAT IONS DATA (U S$'000, EX CEPT PER SHARE DATA): For the years ended June 30 2000 Sales, net Cost of goods sold $ 1,343,604 947,157...

  • Page 7
    CONSOLIDAT ED BALANCE SHEET DATA (U S$'000): As of June 30 2000 Cash and cash equivalents Working capital Total assets Long-term debt, net of current maturities Shareholders' equity $ 285,757 331,414 1,176,459 27,051 778,638 $ 1999 318,990 400,998 805,689 28,642 560,261 $ 1998(1) ...

  • Page 8
    ... Creative's products; the timely development, ramp, delivery and market acceptance of new products, including Creative's next generation audio, graphics accelerator, CD-RW, CD-ROM and DVD drives, communications and personal digital entertainment products; the volatility of share prices for companies...

  • Page 9
    ... income 12 % 9 % 11 % Creative's net sales, by product category, for the past three fiscal years were as follows: Percentage of Net Sales for fiscal years ended June 30 2000 Audio products Multimedia Upgrade Kits Graphic & Video products Speakers/ Communication/ Other products 39 % 23 % 18 % 20...

  • Page 10
    ...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. T his reduction in sales was primarily due...

  • Page 11
    ... to Consolidated Financial Statements"), marketing programs for Sound Blaster Live! and an increase in marketing and advertising expenses incurred in launching other new products. Research and development expenses in fiscal 1999 remained flat at 3% of sales, compared to the prior year. Included in...

  • Page 12
    ...contained elsewhere herein. Creative's business is seasonal in nature and the quarterly results are not necessarily indicative of the results to be achieved for the complete year. U naudited data for quarters ended (in U S$'000 except per share data) Jun 30 2000 Sales, net Cost of goods sold Mar 31...

  • Page 13
    ... data for quarters ended (as a percentage of sales) Jun 30 2000 Sales, net Cost of goods sold 100 % 69 Mar 31 2000 100 % 69 Dec 31 1999 100 % 70 Sep 30 1999 100 % 74 Jun 30 1999 100 % 77 Mar 31 1999 100 % 74 Dec 31 1998 100 % 70 Sep 30 1998 100 % 71 Gross profit Operating Expenses: Selling...

  • Page 14
    ...fiscal 2000 includes the purchase of investments of $228.2 million and the acquisition of capital and other assets amounting to $22.6 million. T he cash used in investing activities was offset in part by the proceeds from sale of quoted investments amounting to $146.5 million. Cash used in investing...

  • Page 15
    ... material respects, the financial position of Creative Technology Ltd. and its subsidiaries at June 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2000, in conformity with accounting principles generally accepted...

  • Page 16
    ..., except per share data) June 30 2000 ASSET S Current assets: Cash and cash equivalents Marketable securities Accounts receivable, less allowances of $37,197 and $12,721 Inventory Other assets and prepaids Total current assets Property and equipment, net Investments Other non-current assets June 30...

  • Page 17
    ... ION S (In US$'000, except per share data) Years ended June 30 2000 Sales, net Cost of goods sold $ 1,343,604 947,157 1999 $ 1,296,537 944,499 1998 $ 1,234,208 848,305 Gross profit Operating expenses: Selling, general and administrative Research and development Other charges (Notes 13, 14 and 15...

  • Page 18
    ... Capital expenditures, net Proceeds from sale of quoted investments Purchase of new subsidiaries (net of cash acquired) Purchase of investments (Increase) decrease in other assets, net Net cash used in investing activities Cash flows from financing activities: Decrease in minority shareholders' loan...

  • Page 19
    ... 522,605 19,075 2,484 (56,624) 134,774 Balance at June 30, 1998 Share option exercise Acquistion of SEI- Shares issued from the escrow account Repurchase of ordinary shares Dividends paid Unrealized holding gains on quoted investments Deferred share compensation Net income 92,914 921 102 (9,966...

  • Page 20
    ... time of acquisition and evaluates such designation at each balance sheet date. For all periods presented, Creative has classified marketable securities as trading securities, and accordingly such securities are stated at their market values based on the last transacted prices at each balance sheet...

  • Page 21
    ... Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the remaining facility lease term or the estimated useful lives of...

  • Page 22
    ... assets acquired, liabilities assumed and in-process technology based on their estimated fair market values at the dates of acquisition. Amortization is computed using the straight-line method over the estimated useful lives of the assets, ranging from one to seven years. Creative regularly reviews...

  • Page 23
    ... the expected collectibility of all accounts receivable. Stock-based compensation Creative accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees", and related Interpretations...

  • Page 24
    ... computing the diluted earnings per share, the treasury stock method is used to determine, based on average stock prices for the respective periods, the ordinary equivalent shares to be purchased using funds received from the exercise of stock options. Other than the dilutive effect of stock options...

  • Page 25
    ... Finished products $ 136,803 27,293 66,520 $ 95,290 18,406 34,332 1999 Total inventory Estimated U seful Life Property and equipment: Land and buildings Construction in progress Machinery and equipment Furniture and fixtures Leasehold improvements 25 years - 3 - 6 years 3 - 8 years Term of lease...

  • Page 26
    ... MENT S Creative leases the use of land and certain of its facilities and equipment under non-cancelable operating lease arrangements. T he land and facility leases expire at various dates through 2024 and provide for fixed rental rates during the terms of the leases. Minimum future lease payments...

  • Page 27
    ... of the program on November 6, 1998 are set out below: Years ended June 30, Number of Shares Repurchased (in millions) 10.0 5.9 Average Price 1999 2000 $ 14 $ 17 Total 15.9 $ 15 In accordance with Singapore statutes, such repurchases are recorded as a reduction in retained earnings. 27

  • Page 28
    ... maximum of 15% of the issued share capital of Creative. T he amended New Plan also provided for incentive stock options (ISO's) to be granted to employees of Creative on a quarterly basis, at the average market price established on the five days closing immediately prior to the date of grant. T he...

  • Page 29
    ... with stock options (from both the Old and New Plans), the opportunity to cancel four existing options in exchange for a grant of three new options at an exercise price of $5.90 (or S$8.52), the fair market value of Creative's Ordinary Shares on the date of the offer. T he resulting new options have...

  • Page 30
    ... Stock Option Plans A summary of options granted to employees and non-employee directors under Creative's stock option plans is presented below: Options Outstanding Number of Shares ('000) Balance as of June 30, 1997 Granted - at fair market value Exercised Canceled Weighted Average Exercise Price...

  • Page 31
    ...the 2000 Plan may be less than the fair market value of the shares as of the date of grant and the options expire after the tenth anniversary of the date of grant. In December 1999, the subsidiary agreed to issue options to certain key executives to acquire 1.2 million shares at an exercise price of...

  • Page 32
    ...Shares ('000) Options granted Options cancelled 3,901 (60) Weighted Average Exercise Price ($) 1.99 2.50 Balance as of June 30, 2000 3,841 1.98 T he following table summarizes option information for the subsidiary employee stock option plans as at June 30, 2000: Range of Exercise Price Number...

  • Page 33
    ... value of the purchase rights under the Creative employee share purchase plan and stock option plan is estimated using the Black-Scholes model based on the following assumptions: Fiscal 2000 Volatility Risk-free interest rates Share purchase plan Stock options Dividend yield Expected lives: Share...

  • Page 34
    ...share: As reported Pro forma NOT E 9 - INCOME TAX ES Creative was granted a Pioneer Certificate in 1990 under the Singapore Economic Expansion Incentives (Relief from Income Tax) Act, Cap. 86 for the design and manufacture of digital computer video, audio and multimedia products, including personal...

  • Page 35
    ...Creative's effective tax provision for fiscal 2000, 1999 and 1998 reconciles to the amount computed by applying the Singapore statutory rate of 25.5% for 2000 and 26% for 1999 and 1998 to income before income taxes and minority interest, as follows (in US$'000): Years ended June 30 2000 Income tax...

  • Page 36
    ... tax assets $ 35,398 (35,398) - $ 30,263 (30,263) - Creative has United States tax deductions not included in the net operating loss carryforwards described above aggregating approximately $38.5 million at June 30, 2000, as a result of the exercise of employee stock options, the tax benefit...

  • Page 37
    ...1996, Creative Technology Centre Pte Ltd ("CT C"), a Singapore subsidiary of Creative, entered into an agreement with two banks for an eight year term loan facility for S$60.0 million ($34.7 million) to finance the construction of Creative's headquarters building in Singapore. T he loan is repayable...

  • Page 38
    ... $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. T he 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...

  • Page 39
    ... cash all outstanding shares of Ensoniq for approximately $77.0 million. Ensoniq is a key innovator in the design and development of PCI audio microchip technology and has strong brand recognition associated with its line of electronic musical instruments. Creative accounted for these acquisitions...

  • Page 40
    ... in Scotts Valley, California. SEI designs and develops integrated circuits for the multimedia, storage and communications markets. T he consideration for this acquisition was the issuance of 921,271 Ordinary Shares of Creative plus an additional 102,314 shares that were issued in fiscal 1999, upon...

  • Page 41
    ... advanced multimedia solutions for personal computers. Creative has manufacturing plants in Singapore and Malaysia with the European distribution center located in Dublin, Ireland and the Americas distribution center located in Milpitas, California. Creative focuses its worldwide sales and marketing...

  • Page 42
    ... NOT E 17 - SEGMENT REPORT ING (Cont'd) As of June 30 2000 Identifiable assets: Singapore United States of America Ireland Rest of the world $ 428,949 161,756 104,565 481,189 $ 421,827 183,559 98,480 101,823 1999 Consolidated $ 1,176,459 $ 805,689 Years ended June 30 2000 Revenue by geographic...

  • Page 43
    ...been traded on the NASDAQ National Market ("NASDAQ") since August 3, 1992, under the symbol "CREAF". Creative's Ordinary Shares have been traded on the SES since June 15, 1994. T he following table refers to the high and low sale prices of Creative's Ordinary Shares as reported by NASDAQ and SES for...

  • Page 44
    ...-895-4000 COMPANY SECRETARY Ng Keh Long 31 International Business Park Creative Resource Singapore 609921 U S HEADQU ART ERS 1901 McCarthy Boulevard Milpitas CA 95035 USA Tel: 1-408-428-6600 REGIST RAR / T RANSFER AGENT Lim Associates Pte Ltd 10 Collyer Quay #19-08 Ocean Building Singapore 049315...