Creative 2002 Annual Report Download

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Table of contents

  • Page 1

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  • Page 3
    ... of Operations Report of Independent Accountants Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Cash Flows Consolidated Statements of Shareholders' Equity Notes to Consolidated Financial Statements Stock Market Information The Creative Network Corporate...

  • Page 4
    ... enclosure that simply connects to a desktop PC or laptop via a USB connection for hassle-free use. It comes with excellent 24-bit digital audio clarity, Dolby Digital 5.1 surround sound and a host of connections. For the Lifestyle Digital Entertainment market, new products from Creative include the...

  • Page 5
    ... and consistent or broad based economic recovery, particularly in the global technology markets. With these market conditions, we need to carry on with the strategy to focus on profitability and higher-margin core audio, speakers and Lifestyle Digital Entertainment products and with the measures...

  • Page 6
    ...included elsewhere in this Annual Report. CONSOLIDATED STATEMENTS OF OPERATIONS DATA (US$'000, EXCEPT PER SHARE DATA): For the years ended June 30 2002(1) Sales, net (2) Cost of goods sold Gross profit Operating expenses: Selling, general and administrative (2) Research and development Other charges...

  • Page 7
    ... as a revenue offset rather than as selling, general and administrative expense. Prior years' financial statements have been reclassified to conform to this presentation. Included in the results of operations are other charges of: $26.1 million in fiscal 2002 for write-off of in-process technology...

  • Page 8
    ...'s products, or customers delaying or canceling purchasing decisions as a result of increased broad economic and safety concerns; the timely development, ramp, shipment, delivery, and market acceptance of new products, including Creative's next generation of audio and personal digital entertainment...

  • Page 9
    ... accounts, returns and discounts based on credit profiles of its customers, current economic trends, contractual terms and conditions and historical payment, return and discount experience. Management performs ongoing credit evaluations of customers' financial condition and uses letters of credit...

  • Page 10
    ... value; the financial condition of and business outlook for the company, including key operational and cash flow metrics, current market conditions and future trends in the company's industry, and the company's relative competitive position within the industry; and Creative's intent and ability...

  • Page 11
    ...a projected discounted cash flow method using a discount rate determined by the management to be commensurate with the risk inherent in Creative's current business model. RESTRUCTURING COSTS AND ACCRUALS FOR EXCESS FACILITIES In accordance with the provisions of EITF Issue No. 94-3, "Accounting for...

  • Page 12
    ...and accounting fees. The ordinary shares issued were valued in accordance with EITF Issue No. 99-12, "Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination," using the average closing prices for the Creative ordinary shares during...

  • Page 13
    ... % 70 30 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 2002 Audio products Speakers Multimedia Upgrade Kits Graphics & Video products Personal Digital Entertainment Communication / Other products 44...

  • Page 14
    ... to the year ended June 30, 2001. The substantially lower revenues in fiscal year 2002, was a result of the strategic shift by Creative to focus on its core products and to deemphasize lower margin products and the difficult global economic climate. Audio product sales (Sound Blaster audio cards and...

  • Page 15
    ...The decline in sales of multimedia audio upgrade kits, which comprised a combination of sound cards and CD-ROM drives is mainly due to the downturn in the PC business. Sales of video and graphics products decreased by 63% and represented 6% of sales in fiscal year 2001 compared with fiscal year 2000...

  • Page 16
    ..., 2002, together with the percentage of sales represented by such results. Consistent with the PC peripheral market, demand for Creative's products is generally stronger in the quarter ended December 31, compared to any other quarter of the fiscal year due to consumer buying patterns. In management...

  • Page 17
    ... as a revenue offset rather than as selling, general and administrative expense. Prior quarters' financial data have been reclassified to conform to this presentation. Other charges for the quarter ended June 30, 2002 relates to the write-off of in-process technology arising from the acquisition of...

  • Page 18
    ... the cash generated from operating activities were net decreases in marketable securities of $17.6 million, other assets and prepaids of $15.7 million, and inventory of $75.1 million which is in line with the management's decision to maintain a lower inventory level. However, the positive cash flow...

  • Page 19
    ... its existing product range. Creative generally satisfies its working capital needs from internally generated cash flows. Management believes that Creative has adequate resources to meet its projected working capital and other cash needs for at least the next twelve months. To date, inflation has...

  • Page 20
    ... 5 years - - - 14,402 - - 14,402 As of June 30, 2002, Creative has utilized approximately $6.5 million under guarantees, letters of credit, overdraft and short term loan facilities. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Please refer to Note 1 of "Notes to Consolidated Financial Statements" for...

  • Page 21
    ... of their operations and their cash flows for each of the three years in the period ended June 30, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of Creative's management; our responsibility is to...

  • Page 22
    ... per share data) June 30 2002 ASSETS Current assets: Cash and cash equivalents Marketable securities Accounts receivable, less allowances of $22,159 and $25,221 Inventory Other assets and prepaids Total current assets Property and equipment, net Investments Other non-current assets Total Assets...

  • Page 23
    ... (In US$'000, except per share data) Years ended June 30 2002 Sales, net Cost of goods sold Gross profit Operating expenses: Selling, general and administrative Research and development Other charges (Notes 12 and 15) Operating income (Loss) gain from investments, net Interest income and other...

  • Page 24
    ...net Proceeds from sale of quoted investments Purchase of new subsidiaries (net of cash acquired) Purchase of investments Increase in other non current assets, net Net cash used in investing activities Cash flows from financing activities: Increase (decrease) in minority shareholders' loan and equity...

  • Page 25
    ...'s preference shares Shares and share options issued for acquisition of 3Dlabs Balance at June 30, 2002 83,971 Ordinary Share Capital 8,348 (In US$'000, except share data) Unrealised Additional Holding Gains Deferred Paid In (Losses) on Share Retained Capital Investments Compensation Earnings...

  • Page 26
    ... and cash equivalents Accounts receivable, less allowances Total current liabilities Long-term obligations S$ EURO Other Currencies 83 % 71 % 63 % 74 % 3% 1% 27 % 22 % 5% 11 % 4% - 9% 17 % 6% 4% The exchange rates for the S$ and Euro utilized in translating the balance sheet at June 30, 2002...

  • Page 27
    ..., forecasted sales, demand requirements, product lifecycle and product development plans, quality issues, and current inventory levels. Property and equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the...

  • Page 28
    ... value; the financial condition of and business outlook for the company, including key operational and cash flow metrics, current market conditions and future trends in the company's industry, and the company's relative competitive position within the industry; and Creative's intent and ability...

  • Page 29
    ... a projected discounted cash flow method using a discount rate determined by the management to be commensurate with the risk inherent in Creative's current business model. A summary of goodwill and other intangible assets are as follows (in US$'000): As of June 30 2002 Gross carrying value: Goodwill...

  • Page 30
    ... of cash and cash equivalents and trade accounts receivable. Creative limits the amount of credit exposure to any one financial institution. Creative sells its products to original equipment manufacturers, distributors and key retailers. Creative believes that the concentration of credit risk...

  • Page 31
    ...-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...

  • Page 32
    ...stock options, there are no other financial instruments that would impact the weighted average number of ordinary shares outstanding used for computing diluted earnings per share. The potentially dilutive ordinary equivalent shares outstanding under the employee share purchase plan were not material...

  • Page 33
    ... property and equipment 25 years - 3 - 6 years 2 - 8 years Term of lease $ As of June 30 2002 83,698 1,013 50,880 82,690 11,981 230,262 (125,514) $ 104,748 $ 2001 83,203 96 54,539 62,430 12,879 213,147 (102,612) $ 110,535 Included in property and equipment are assets purchased under capital lease...

  • Page 34
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - BALANCE SHEET DETAIL (in US$'000) (Cont'd) As of June 30 2002 Other non-current assets: 2001 Goodwill Other intangible assets Other non-current assets Total other non-current assets $ 91,976 17,894 5,252 $ - 3,857 49 $ 115,122 $ 3,906 As ...

  • Page 35
    .... The 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 for non-cancelable leases as of June 30, 2002, were as follows (in US$'000): Operating Leases Fiscal years ended June 30, 2003 2004...

  • Page 36
    ... 26.3 Average Price (US$) $ 14 $ 17 $ 12 $ 7 1999 2000 2001 2002 Total $ 13 At the 2001 Annual General Meeting ("AGM") held on October 31, 2001, the shareholders approved the share repurchase mandate allowing Creative to buy up to 10% of the issued share capital of Creative as at the date of the...

  • Page 37
    ...the issued share capital of Creative. The amended New Plan also provided for incentive stock options 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. The options vested at the rate of...

  • Page 38
    ...Subsidiary Stock Option Plan" below for additional information. In fiscal 2002, Creative granted 7.1 million options under the 1999 Scheme at a weighted average exercise price of $4.57. 2.9 million options granted in fiscal 2002 are below fair market value, resulting in a deferred share compensation...

  • Page 39
    ... year. The exercise price of options granted under 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...

  • Page 40
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - EMPLOYEE SHARE PURCHASE AND STOCK OPTION PLANS (Cont'd) Because the exercise prices for the aforementioned grants are below the deemed fair value per ordinary share of $4.50, the grants give rise to a deferred share compensation expense of ...

  • Page 41
    ... 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 2002 Volatility Risk-free interest rates Share purchase plan Stock options Dividend yield Expected lives: Share...

  • Page 42
    ... 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 computers and related components, chipsets and software but...

  • Page 43
    ..., as follows (in US$'000): Years ended June 30 2002 Income tax (benefit) at Singapore statutory rate Tax exempt income Singapore Others Non-deductible expenses and write-offs Change in valuation allowances Rate differences and others Provision for income taxes $ $ (2,681) (13) - 3,013 (657) 6,036...

  • Page 44
    ...and repayable by fiscal year 2003. A portion of the construction of the headquarters building is also being financed in equal parts by Creative and Bukit Frontiers Pte Ltd. ("BFPL"), a company owned by Creative's Chairman and CEO, Sim Wong Hoo. At June 30, 2002, loans extended and equity contributed...

  • Page 45
    ... cash. The repurchase was completed during the quarter ended March 31, 2002 and the excess of carrying value over the repurchase price paid of $11.8 million was credited to additional paid in capital. NOTE 12 - OTHER CHARGES In fiscal 2002, Creative wrote off $26.1 million of in-process technology...

  • Page 46
    ...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...

  • Page 47
    ...process technology and non-competition agreements. The estimated net free cash flows generated by the existing technology, in-process technology and non-competition agreements were discounted at rates ranging from 16% to 40%. In estimating the fair value of the patents/core technology and trade name...

  • Page 48
    ... Acquired in-process technologies Other intangible assets consisting of: Existing technology Patent/core technology Non-competition agreement Trade name/trademarks Total purchase price excluding deferred share compensation Total deferred share compensation Total purchase price including deferred...

  • Page 49
    ... consideration for the purchase of Creative Technology Centre Pte Ltd ("CTC") shares was set at CTC's audited net asset value at 4 July 2002, based on the value of the building as determined by an independent property valuer. The acquisition will be accounted for by the purchase method. The payment...

  • Page 50
    ... of the assets at the end of each of the fiscal years. Geographic revenue information for the three years ended June 30, 2002 is based on the location of the selling entity. As of June 30 2002 Identifiable assets: Singapore United States of America Ireland Rest of the world Consolidated $ $ 233...

  • Page 51
    ... Creative's ordinary shares have been traded on the Singapore Exchange ("SGX-ST") since June 15, 1994. The following table presents, for the registered shares on the NASDAQ and SGX-ST: (i) (ii) the annual high and low market prices for the five most recent full fiscal years; the high and low market...

  • Page 52
    ...6890 5269 China Creative Future Computer Co. Ltd Creative Park, No.18, Anhuaxili Block 2, Chaoyang District, Beijing 100011 People's Republic of China Tel: +86-10-6425 5500 Fax: +86-10-6425 9314 Hong Kong Creative Labs (HK) Limited Unit 927-931, 9/F., Hongkong International Trade & Exhibition Centre...

  • Page 53
    ... Auto Mall Parkway, Fremont, CA94538 Tel: +1-510-492 5000 Creative Labs Customer Response Center 1523 Cimarron Plaza, Stillwater, Oklahoma 74075 Tel: +1-405-742 6600 Fax: +1-405-742 6644 Cambridge Soundworks, Inc. 100 Brickstone Square, 5th Floor Andover, MA 01810 Tel: +1-978-623 4400 Fax: +1-978...

  • Page 54
    ...-4000 COMPANY SECRETARY Ng Keh Long 31 International Business Park Creative Resource Singapore 609921 US HEADQUARTERS 1901 McCarthy Boulevard Milpitas CA 95035 USA Tel: 1-408-428-6600 REGISTRAR/TRANSFER AGENT Lim Associates Pte Ltd 10 Collyer Quay #19-08 Ocean Building Singapore 049315 & Mellon...

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