Creative 2001 Annual Report Download - page 34

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34
NOTE 11 – ISSUANCE OF CONVERTIBLE PREFERENCE SHARES
In May 2000, a wholly owned subsidiary issued 5.0 million convertible preference shares at $4.50 per share, resulting
in net proceeds to the subsidiary of approximately $22.0 million. Subsequent to the issuance, Creative continued
to own approximately 89% of the outstanding shares of the subsidiary on a fully converted basis.
NOTE 12 – LICENSE AGREEMENTS
Creative has entered into license agreements with certain software developers under which it has the right to include,
modify and distribute software products in support of its sales. Typically, royalties are payable on a per unit basis
in relation to sales volume, although certain agreements may include one time payments or guaranteed minimum
commitments. Creative periodically reviews these arrangements in accordance with its stated accounting policies.
At June 30, 2001, Creative has committed to pay $2.1 million in respect of future minimum royalty obligations over
terms of up to 5 years.
NOTE 13 – RESTRUCTURING AND OTHER CHARGES
In March 2001, Creative announced a series of cost-cutting measures which included a worldwide workforce reduction
of approximately 10%, closure of Creative’s manufacturing location in Pennsylvania and transferring these
manufacturing activities to Creative’s other facilities, and sharp cutbacks in selected non-revenue generating Internet
initiatives. As a result of these measures and other market changes, Creative in fiscal year 2001 recorded restructuring
and other charges of $22.8 million which was included in operating expenses and an inventory charge of $8.2 million
to cost of goods sold. The $22.8 million restructuring and other charges comprised $5.1 million in employee
separation costs, $3.3 million in facility exit costs, fixed asset impairment write-downs of $3.2 million and write off
of other assets acquired from Aureal amounting to $11.2 million.
Employee separation costs represent the costs of involuntary severance benefits for approximately 400 positions. As
of June 30, 2001, approximately 90% of these employees had separated from the Company. Facility exit costs
primarily include lease termination and unutilized capacity costs. The accruals for employee separation costs and
exit costs are included in accrued liabilities in the consolidated balance sheet.
The following table display the accruals established for employee separation and facility exit costs (in US$’000):
Accruals as of
Initial Charges Amounts Paid June 30, 2001
Employee separation costs $ 5,092 $ 3,215 $ 1,877
Facility exit costs 3,290 715 2,575
Total $ 8,382 $ 3,930 $ 4,452
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS