Creative 2003 Annual Report Download - page 12

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YEAR ENDED JUNE 30, 2002 COMPARED TO YEAR ENDED JUNE 30, 2001
Net sales for the year ended June 30, 2002 decreased by 34% compared 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 de-
emphasize lower margin products and the difficult global economic climate. Audio product sales for fiscal year 2002
decreased by 30% compared to fiscal year 2001, but as a percentage of total sales, increased from 41% in fiscal 2001 to
44% in fiscal 2002. Sales of speakers increased by 10% and represented 21% of sales in fiscal 2002 compared with 12%
of sales in fiscal 2001. The improvement in speaker sales was primarily a result of the introduction of new models of
multi-media speakers. Sales of PDE products decreased by 31% and represented 9% of sales in fiscal 2002 and fiscal 2001.
Sales of MMUKs decreased by 84% in fiscal 2002 compared to fiscal 2001 and comprised 5% of sales compared to 22%
of sales in the prior fiscal year. The reduction in MMUK sales in fiscal 2002 is in line with Creative’s current business
strategy of de-emphasizing lower margin products. Similarly, in line with this current strategy, sales of graphics and video
products decreased by 36% and represented 6% of sales in both fiscal years 2002 and 2001. Sales of other products, which
includes accessories, music products, communication products and other miscellaneous items, increased by 4% and
represented 15% of sales in fiscal 2002 compared to 10% of sales in the prior fiscal year. This increase in other product
sales was primarily due to an increase in sales of communication products.
Gross profit in fiscal 2002 increased to 33% of net sales, compared to 27% in fiscal 2001. This improvement in gross profit
was primarily a result 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 sales for fiscal 2002 and 19% for fiscal 2001.
R&D expenses were 5% of sales in fiscal 2002 and 4% of sales in fiscal 2001.
Other charges of $26.1 million in fiscal 2002 relates to the write-off of acquired in-process technology arising from the
acquisition of 3Dlabs and represented 3% of sales in fiscal 2002 compared to 2% of sales in fiscal 2001. See Note 16 of
“Notes to Consolidated Financial Statements.”
Net investment loss of $45.4 million in fiscal year 2002 comprised $49.3 million in write-downs of investments, offset
partially by a $3.9 million net gain from sales of investments and marketable securities. Net investment loss of $148.5
million in fiscal 2001 included $200.3 million in write-downs of investments, offset partially by a $51.8 million net gain
from sales of investments and marketable securities. Net interest and other income increased by $2.7 million to $5.1
million in fiscal 2002 compared to $2.4 million in the prior fiscal year. This increase was primarily due to an exchange
gain of $3.9 million in fiscal 2002 versus an exchange loss of $3.7 million in fiscal 2001, offset partially by lower interest
income resulting from lower interest rates and lower average cash balances.
Creative’s provision for income taxes for fiscal 2002 as a percentage of operating income was 20% compared to 34% in
fiscal 2001. The higher tax provision in fiscal 2001 was primarily due to changes in the mix of taxable income arising
from various geographical regions and a lower other charges in fiscal 2001 compared to fiscal 2002 which Creative has
considered it a non-tax deductible expense.