Creative 2005 Annual Report Download - page 30

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30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Included in property and equipment are assets purchased under capital lease obligations with a cost and accumulated depreciation of
approximately $15.8 million and $12.8 million for fiscal 2005 and $16.2 million and $8.7 million for fiscal 2004, respectively.
As of June 30
2005 2004
Other non-current assets:
Other intangible assets $ 37,668 $ 40,082
Accumulated amortization (31,599) (28,216)
Other intangible assets, net 6,069 11,866
Goodwill 29,447 91,976
Other non-current assets 9,397 13,929
Total other non-current assets $ 44,913 $ 117,771
Other intangible assets consist of mainly patents and trademarks.
Creative traditionally performs its annual assessment for goodwill impairment in the fourth quarter of the fiscal year. However, during
the second fiscal quarter, management noted that the revenue of one of its subsidiaries, 3Dlabs, continued to perform below expectations
due to delays in the launch of new products. As such, in accordance with SFAS No. 142, an impairment test was performed on the
goodwill and other intangible assets that were acquired in connection with the acquisition of 3Dlabs in May 2002. 3Dlabs designs,
develops and markets graphics accelerator products aimed primarily at professionals using high-end and ultra-high-end workstations.
An independent assessor was engaged to perform the impairment review. The fair value was determined based on a combination of the
projected discounted cash flow method, and market comparable method whereby the market multiples of 3Dlabs were compared to the
market multiples of other publicly traded companies in similar lines of business. The conclusion of the impairment review was that the
fair value of 3Dlabs could no longer support the carrying value of the goodwill and other intangible assets associated with them. As a
result, Creative recorded a goodwill impairment charge of $62.5 million and other intangible assets impairment charge of $2.7 million
during the second quarter of fiscal year 2005. As at the end of the fiscal year 2005, Creative concluded that there had not been any
significant change in the fair value of the intangible assets since the second quarter of fiscal year 2005.
Goodwill and other intangible assets fully amortized were excluded from above. Other intangible assets amortization expense was $3.4
million, $3.3 million and $9.1 million for fiscal years 2005, 2004 and 2003, and estimated to be $2.9 million, $2.1 million and $0.8
million in fiscal years 2006, 2007 and 2008, respectively, and $28,000 for fiscal years 2009 and 2010.
As of June 30
2005 2004
Other accrued liabilities:
Marketing accruals $ 23,384 $ 20,075
Payroll accruals 21,362 20,443
Royalty accruals 8,131 8,300
Warranty accruals 12,418 6,232
Other accruals 38,473 33,492
Total other accrued liabilities $ 103,768 $ 88,542
Other accruals of $38.5 million and $33.5 million as of June 30, 2005 and 2004 includes accruals for various operating expense items
that individually account for less than 5% of the total current liabilities.
NOTE 3 – BALANCE SHEET DETAIL (in US$’000) (Cont’d)