Creative 2002 Annual Report Download - page 28

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)
Investments
Creative holds equity investments in various companies pursuant to which it has acquired anywhere from less than 1%
to 100% of the issuer’s outstanding capital stock. Investments in which Creative acquires more than 50% of the outstanding
capital stock of an entity, or which are under the effective control of Creative, are treated as investments in subsidiaries,
and the balance sheets and results of operations of these subsidiaries are fully consolidated after making allowance for any
minority interests. Companies in which Creative’s investment totals between 20% and 50% of such company’s capital
stock are treated as associated companies and recorded on an equity basis, whereby Creative adjusts its cost of investments
to recognize its share of all post acquisition results of operations.
Non quoted investments of less than 20% in an entity are carried at cost, less provisions for permanent impairment where
necessary.
In accordance with SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities”, quoted investments
of less than 20% in an entity are classified as available-for-sale. Such investments are reported at fair value with the
unrealized gains and losses included as a separate component of shareholders’ equity. Unrealized losses are charged
against income when a decline in fair value is determined to be other than temporary. Realized gains and losses upon the
sale or disposition of such investments are based on the average cost of the specific investments sold.
The investment portfolio is monitored on a periodic basis for impairment. Creative’s investments in these companies are
inherently risky because the markets for the technologies or products they have under development are typically in the
early stages and may never develop. In the event that the carrying value of an investment exceeds its fair value and the
decline in value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis for the
investment is established. Fair values for investments in public companies are determined using quoted market prices.
Fair values for investments in privately-held companies are estimated based upon one or more of the following: pricing
models using historical and forecasted financial information and current market rates, liquidation values, the values of
recent rounds of financing, or quoted market prices of comparable public companies.
In order to determine whether a decline in value is other-than-temporary, Creative evaluates, among other factors: the
duration and extent to which the fair value has been less than the carrying 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 to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value.
A summary of investments is as follows (in US$’000):
As of June 30
2002 2001
Non quoted investments $ 15,924 $ 40,761
Quoted investments 50,764 77,569
Total investments $ 66,688 $ 118,330
Acquisitions
Creative acquired 3Dlabs in fiscal 2002. The acquisition was accounted for under the purchase method of accounting, and
accordingly, the estimated fair value of assets acquired and liabilities assumed and the results of operations were included
in Creative’s consolidated financial statements as of the effective date of the acquisition through the end of the period.
There were no significant differences between the accounting policies of Creative and 3Dlabs.