Creative 2003 Annual Report Download - page 24

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NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements include the financial statements of Creative Technology Ltd and Creative’s subsidiaries
under its effective control from their respective dates of acquisition, after elimination of intercompany transactions and
balances. The consolidated financial statements are presented in accordance with accounting principles generally accepted
in the United States of America (“US GAAP”). The preparation of financial statements in accordance with US GAAP
requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those estimates. Creative conducts a substantial
portion of its business in United States dollars (“US$” or “$”). All dollar amounts included in the financial statements and
in the notes herein are United States dollars unless designated as Singapore dollars (“S$”). Creative’s fiscal year-end is
June 30. Creative generally operates on a thirteen week calendar closing on the Friday closest to the natural calendar
quarter. For convenience, all quarters are described by their natural calendar dates.
Foreign exchange
The functional currency of Creative and its subsidiaries is predominantly US dollar and accordingly, gains and losses
resulting from the translation of monetary assets and liabilities denominated in currencies other than the US dollar are
reflected in the determination of net income (loss). Creative enters into forward exchange contracts to reduce its exposure
to foreign exchange translation gains and losses. Forward exchange contracts are marked to market each period and the
resulting gains and losses are included in the determination of net income or loss. No forward exchange contracts were
outstanding at June 30, 2003. Included in interest and other expenses for fiscal years 2003, 2002 and 2001 are exchange
gains of $5.4 million and $3.9 million, and exchange losses of $3.7 million, respectively.
At June 30, 2003, monetary assets and liabilities of Creative are denominated in the following currencies:
Approximate Percentage of $ Balance Denominated in:
US$ S$ EURO Other Currencies
Cash and cash equivalents 83 % 0 % 6 % 11 %
Accounts receivable, less allowances 72 % 0 % 15 % 13 %
Total current liabilities 79 % 9 % 6 % 6 %
Long-term obligations 32 % 67 % – 1 %
The exchange rates for the S$ and Euro utilized in translating the balance sheet at June 30, 2003, expressed in US$ per
one S$ and Euro was 0.5704 and 1.1413, respectively.
Cash equivalents
Cash equivalents consist of highly liquid investment instruments with original or remaining maturities of three months
or less at the time of purchase. All deposits are in short term deposit and money market accounts with various banks. This
diversification of risk is consistent with Creative’s policy to maintain liquidity and ensure the safety of principal. Included
in cash equivalents as of June 30, 2003 and 2002 are fixed rate deposits of $188.2 million and $128.0 million respectively.
In fiscal 2002, a total of $4.5 million in the fixed rate deposits was held as collateral for one of the subsidiary’s bank
overdraft and short term loan facilities (see Note 11), but in fiscal 2003, the entire outstanding balances has been repaid
and all liabilities were discharged.
Marketable Securities
Creative determines the appropriate classification of marketable securities at the 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 date. The
resulting net unrealized gains or losses on marketable securities are included in earnings in the period they are incurred.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS