Creative 2003 Annual Report Download

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Speakers Systems
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Table of contents

  • Page 1
    ... MP3 Player LX100 Creative CD-MP3 Slim600 Creative CD-MP3 M100 Creative CD-MP3 Player Creative Digital MP3 Player 2 Annual Report 2003 Creative Digital MP3 Player Creative NOMAD II MG Creative NOMAD II NOMAD DXT 200 MP3 English Learning Device Creative NOMAD I Speakers Systems Creative...

  • Page 2
    ...'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 Statements of...

  • Page 3
    ... macro-economic situation, we did not neglect investing in and growing new resources and capabilities. In fact, I am proud to say that we were able to cut our costs back to 1997 levels, while at the same time we developed many more products and entered several new markets. The PC market and Consumer...

  • Page 4
    ...ranges and more accurate sound reproduction. The full list of Creative's new products is far too long to incorporate into this letter, but it includes many offerings in sound cards, external audio, speakers, digital audio players, cameras, workstation graphics, communications, keyboards and mice. To...

  • Page 5
    ... audited financial statement which are not included in this annual report. CONSOLIDATED STATEMENTS OF OPERATIONS DATA (US$'000, EXCEPT PER SHARE DATA): For the years ended June 30 2003 Sales, net (2) Cost of goods sold Gross profit Operating expenses: Selling, general and administrative (2) Research...

  • Page 6
    ... Financial Statements," acquired during fiscal 2002, from the date the acquisition was completed. In fiscal 2002, Creative adopted Emerging Issues Task Force ("EITF") Issue No. 01-9, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products...

  • Page 7
    ... Condition and Results of Operations are based upon Creative's Consolidated Condensed Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make...

  • Page 8
    ... 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 9
    ... 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 10
    ... % 73 27 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 2003 Audio products Speakers Personal Digital Entertainment Graphics & Video products Multimedia Upgrade Kits Communication / Other products 33...

  • Page 11
    ...sales to the system integrator market and a drop off in sales of low-end audio products. Sales of speakers in fiscal 2003 decreased marginally by 4% compared to fiscal 2002, mainly due to reduced sales of non-multimedia speakers offset by higher demand for new models of multimedia speakers. Speakers...

  • Page 12
    ...of the strategic shift in business, with emphasis on Creative's core audio products, speakers and PDE products. SG&A expenses in fiscal 2002 declined by 26% due to management's cost cutting efforts to correspond to the revised revenue expectations. As a percentage of sales, SG&A expenses were 21% of...

  • Page 13
    .... Unaudited data for quarters ended (in US$'000 except per share data) Jun 30 2003 Sales, net (1) Cost of goods sold Gross profit Operating expenses: Selling, general and administrative (1) Research and development Other charges (2) Operating income (loss) Net gain (loss) from investments Interest...

  • Page 14
    Unaudited data for quarters ended (as a percentage of sales) Jun 30 2003 Sales, net (1) Cost of goods sold Gross profit Operating Expenses: Selling, general and administrative (1) Research and development Other charges (2) Operating income (loss) Net gain (loss) from investments Interest income (...

  • Page 15
    ...fiscal 2003 comprises $15.7 million in capital expenditures, $5.5 million to purchase investments, and $4.9 million for the acquisition of other non-current assets. The cash used in investing activities was offset in part by the proceeds from the sale of fixed assets and quoted investments amounting...

  • Page 16
    ... capital leases and dividends payment of $21.9 million (see Note 8 of "Notes to Consolidated Financial Statements") to shareholders and minority interest. The cash used in financing activities was offset partially by cash generated from exercises of stock options to purchase Creative ordinary shares...

  • Page 17
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The following table presents the contractual obligations and commercial commitments of Creative as of June 30, 2003: Payments Due by Period (US$'000) Less than 1 ...

  • Page 18
    ... opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and of shareholders' equity present fairly, in all material respects, the financial position of Creative Technology Ltd. and its subsidiaries at June 30, 2003 and 2002, and the...

  • Page 19
    ... BALANCE SHEETS (In US$'000, except per share data) June 30 2003 ASSETS Current assets: Cash and cash equivalents Marketable securities Accounts receivable, less allowances of $18,417 and $22,159 Inventory Other assets and prepaids Total current assets Property and equipment, net Investments...

  • Page 20
    CONSOLIDATED STATEMENTS OF OPERATIONS (In US$'000, except per share data) Years ended June 30 2003 Sales, net Cost of goods sold Gross profit Operating expenses: Selling, general and administrative Research and development Other charges (Notes 13 and 16) Operating income Loss from investments, net ...

  • Page 21
    ... tax Net cash provided by operating activities Cash flows from investing activities: Capital expenditures, net Proceeds from sale of fixed assets Proceeds from sale of quoted investments Purchase of new subsidiaries (net of cash acquired) Purchase of investments Increase in other non current assets...

  • Page 22
    ... Cash and cash equivalents at end of year Supplemental disclosure of cash flow information: Interest paid Income taxes paid, net Non cash transaction: Buyout of a subsidiary's preference shares Shares issued for aqcuisition of subsidiary Purchase of property and equipment financed by capital leases...

  • Page 23
    ...(In US$'000, except share data) Ordinary Shares ('000) Balance at June 30, 2000 Shares issued under employee options and share purchase plans Repurchase of ordinary shares Shares issued for purchase of Aureal assets Dividends paid Reversal of unvested deferred share compensation, net Amortization of...

  • Page 24
    ... 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 25
    ... 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...

  • Page 26
    ... 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...

  • Page 27
    ... for estimated returns, discounts and warranties, based on historical experience, current economic trends and changes in customer demand and acceptance of its products. Such allowances are adjusted periodically to reflect actual and anticipated experience. When recognizing revenue, Creative records...

  • Page 28
    ... 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. Stock-based compensation Creative accounts for stock-based employee compensation in accordance with Accounting...

  • Page 29
    ... effect of 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...

  • Page 30
    ... 30 2003 Inventory: Raw materials Work in progress Finished products Total inventory $ 20,189 2,918 57,260 80,367 $ 2002 33,826 5,658 69,065 $ $ 108,549 Estimated Useful Life Property and equipment: Land and buildings Construction in progress Machinery and equipment Furniture, fixtures and office...

  • Page 31
    ... expire at various dates through 2052 and provide for fixed rental rates during the terms of the leases. Minimum future lease payments for non-cancelable leases as of June 30, 2003, are as follows (in US$'000): Operating Leases Fiscal years ended June 30, 2004 2005 2006 2007 2008 Thereafter Total...

  • Page 32
    ...- 26.3 Average Price (US$) $ 14 $ 17 $ 12 $ - $ 13 7 1999 2000 2001 2002 2003 Total At the 2002 Annual General Meeting ("AGM") held on November 20, 2002, 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...

  • Page 33
    ...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 34
    ... and non-employee directors under Creative's stock option plans is presented below: Options Outstanding Number of Shares ('000) Balance as of June 30, 2000 Granted Exercised Canceled Balance as of June 30, 2001 Granted - at fair market value - below fair market value - pursuant to the acquisition of...

  • Page 35
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - EMPLOYEE SHARE PURCHASE AND STOCK OPTION PLANS (Cont'd) Summary of outstanding options under Creative's employee stock option plans The following table summarizes option information for Creative's employee stock option plans (New Plan and 1999 ...

  • Page 36
    ... the Creative employee share purchase plan and stock option plan is estimated using the Black-Scholes model based on the following assumptions: Fiscal 2003 Volatility Risk-free interest rates Share purchase plan Stock options Dividend yield Expected lives: Share purchase plan Stock options 6 months...

  • Page 37
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - EMPLOYEE SHARE PURCHASE AND STOCK OPTION PLANS (Cont'd) Years ended June 30 2003 Weighted average fair value of stock options granted: Stock options: At market Below market $ $ 1.70 - $ $ 1.53 3.74 $ $ - - 2002 2001 The fair value of the purchase...

  • Page 38
    ... 10 - INCOME TAXES 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 computers and related components...

  • Page 39
    ...the realizability of these assets. Creative has United States tax deductions not included in the net operating loss carryforward described above aggregating approximately $53.6 million at June 30, 2003 and June 30, 2002, as a result of the exercise of employee stock options, the tax benefit of which...

  • Page 40
    ... price equal to $18.05. To-date, no conversion has been made. 3Dlabs may prepay the outstanding unpaid principal balance plus interest due upon thirty days' prior written notice to the noteholder. The following table presents the payments due by period for the long term debt and capital lease...

  • Page 41
    ... inventory charge primarily related to digital video recorders and certain graphic cards written down to their estimated sales values. 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...

  • Page 42
    ...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 for the Creative closing prices ordinary shares during...

  • Page 43
    ... capitalizing the royalties saved, with discount rates ranging from 18% to 28%. The following table summarizes the estimated fair values of the tangible assets acquired and the liabilities assumed at the date of acquisition (in US$'000): Cash Other current assets Property and equipment Total assets...

  • Page 44
    ... - SEGMENT REPORTING Creative operates primarily in one industry segment and provides advanced multimedia solutions for personal computers and personal digital entertainment products. Creative has manufacturing plants in Singapore, Malaysia and China with the European distribution center located in...

  • Page 45
    ... and 2002 was allocated to Asia Pacific region. Geographic revenue information for the three years ended June 30, 2003 is based on the location of the selling entity. As of June 30 2003 Identifiable assets: Singapore United States of America Ireland Rest of World Consolidated $ $ 289,248 89,683 52...

  • Page 46
    ...to accounts with brokers located in the United States. The delisting of Creative ordinary shares from NASDAQ would not affect the status of Creative's shares on the SGX-ST. The following table presents, for the registered shares on the NASDAQ and SGX-ST: (i) the annual high and low market prices for...

  • Page 47
    ... 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, 1 Trademart Drive...

  • Page 48
    ...Systems, Inc. 1600 Green Hills Road, Scotts Valley, CA 95066-4924 Tel: +1-831-438 1921 Fax: +1-831-438 8612 Website: www.emu.com Creative Advanced Technology Center 1500 Green Hills Road, Suite.... INSIDE EUROPE United Kingdom Creative Labs (UK) Ltd Unit 3, The Pavilions, Ruscombe Business Park, ...

  • Page 49
    ...-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 & EUROPE...

  • Page 50
    ..., inspiring experiences. e lifest tyle digital entertainment philosophy. Creative Broadband Blaster BritePort 7420C Creative Broadband Blaster BritePort Router 8110 Network Blaster Wireless LAN Access Point Network Blaster Wireless LAN PCMCIA Card Newton Theater T300 6.1 Home Theater Speaker...