Creative 2002 Annual Report Download - page 45

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3Dlabs has also entered into a Loan and Security Agreement with a financial institution in an amount up to $20.0 million
or 85% of the qualified accounts receivable of 3Dlabs’ U.S. companies, whichever is less. The Agreement expires in July
2004 and is secured by all tangible and intangible assets of 3Dlabs. Borrowings under the Agreement bear interest at
1.25% above the institution’s prime rate. The Agreement contains certain covenants, including that 3Dlabs meet certain
agreed-upon financial covenants. Borrowings under the Agreement at June 30, 2002 was $1.4 million.
Creative has various other credit facilities relating to overdrafts, letters of credit, bank guarantees and short term loans with
several banks totaling approximately $115.3 million at June 30, 2002. Within these credit facilities, sub-limits have been
set on how Creative may utilize the overall credit facilities. At June 30, 2002, $3.7 million and $0.75 million in overdraft
and short term loans (as mentioned above), $0.6 million in letters of credit and $1.5 million in bank guarantees were
drawn under these facilities. Facilities under letters of credit and bank guarantees bear interest at approximately the banks’
prime rates, and for interest rates on overdraft and short term loan facilities, please see above comments.
NOTE 11 – MINORITY INTEREST
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 $22.5 million. In November 2001, Creative entered into agreements with the holders
of these 5.0 million convertible preference shares to repurchase all such shares for $10.0 million 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 arising from the acquisition of 3Dlabs (see Note
15).
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, 2002, all the affected 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.