Creative 2006 Annual Report Download

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TABLE OF CONTENTS
Chairman’s฀Message฀ 2
Selected฀Consolidated฀Financial฀Data฀ 4
Management’s฀Discussion฀and฀Analysis฀of฀
Financial฀Condition฀and฀Results฀of฀Operations฀ 6
Report฀of฀Independent฀Registered฀Public฀Accountant฀Firm฀฀ 19
Consolidated฀Balance฀Sheets฀ 20
Consolidated฀Statements฀of฀Operations฀ 21
Consolidated฀Statements฀of฀Cash฀Flows฀ 22
Consolidated฀Statements฀of฀Shareholders’฀Equity฀ 24
Notes฀to฀Consolidated฀Financial฀Statements฀ 25
Stock฀Market฀Information฀ 44
The฀Creative฀Network฀ 46
Corporate฀Directory฀ 48
1

Table of contents

  • Page 1
    ...Sheets฀ Consolidated฀Statements฀of฀Operations฀ Consolidated฀Statements฀of฀Cash฀Flows฀ Consolidated฀Statements฀of฀Shareholders'฀Equity฀ Notes฀to฀Consolidated฀Financial฀Statements฀ Stock฀Market฀Information฀ The฀Creative฀Network฀ Corporate฀Directory...

  • Page 2
    ... settlement฀ terms฀ included฀ a฀ requirement฀ for฀ Apple฀ to฀ pay฀ Creative฀ $100฀ million฀ for฀ a฀paid-up฀license฀to฀use฀the฀ZEN฀Patent฀in฀their฀products.฀฀In฀addition,฀we฀will฀also฀join฀Apple's฀"Made฀for฀iPod"฀program,฀under...

  • Page 3
    ...฀in฀audio฀technology฀to฀improve฀our฀competitive฀position฀in฀the฀MP3฀digital฀audio฀market.฀฀The฀ success฀of฀these฀efforts฀can฀be฀seen฀in฀the฀highly฀acclaimed฀award-winning฀ZEN฀Vision:M,฀which฀won฀both฀"Best฀of฀CES฀2006:฀ MP3...

  • Page 4
    ...included฀in฀this฀annual฀report. CONSOLIDATED฀STATEMENTS฀OF฀OPERATIONS฀DATA฀฀ (US$'000,฀EXCEPT฀PER฀SHARE฀DATA ฀ ฀ 2006 Sales,฀net฀(2)฀ Cost฀of฀goods฀sold฀ Gross฀profit฀ ฀฀ Operating฀expenses:฀ ฀ Selling,฀general฀and฀administrative...

  • Page 5
    ...฀write-off฀of฀in-process฀technology฀arising฀from฀the฀acquisition฀of฀3Dlabs.฀ As฀described฀in฀Note฀10฀of฀"Notes฀to฀Consolidated฀Financial฀Statements,"฀Creative฀was฀granted฀a฀new฀Pioneer฀Certificate฀under฀ the฀International฀Headquarters...

  • Page 6
    ...฀market฀acceptance฀and฀to฀manage฀frequent฀product฀transitions;฀competitive฀pressures฀ in฀the฀marketplace;฀a฀reduction฀or฀cancellation฀of฀sales฀orders฀for฀Creative฀products;฀accelerated฀declines฀in฀the฀average฀selling฀prices฀ of฀Creative...

  • Page 7
    ...฀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฀in฀certain฀circumstances.฀Credit...

  • Page 8
    ...฀of฀use฀of฀the฀acquired฀assets฀or฀the฀strategy฀for฀Creative's฀overall฀business; significant฀negative฀industry฀or฀economic฀trends; significant฀decline฀in฀Creative's฀stock฀price฀for฀a฀sustained฀period;฀and Creative's฀market฀capitalization...

  • Page 9
    ... and฀ accruals฀ for฀ tax฀ and฀ accounting฀ purposes.฀ These฀ differences฀ result฀ in฀ deferred฀ tax฀ assets฀ and฀ liabilities,฀ which฀are฀included฀within฀Creative's฀consolidated฀balance฀sheet.฀Significant฀management฀judgement฀is฀required฀in...

  • Page 10
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS฀OF฀OPERATIONS The฀following฀table฀sets฀forth,฀for฀the฀periods฀indicated,฀selected฀statement฀of฀operations฀data฀as฀a฀percentage฀of฀sales: ฀ ฀ 2006 Sales,฀net฀...

  • Page 11
    ...฀of฀fiscal฀year฀2006฀due฀to฀a฀steep฀ drop฀in฀the฀ï¬,ash฀memory฀prices.฀The฀drop฀in฀ï¬,ash฀memory฀prices฀has฀caused฀market฀uncertainty฀that฀resulted฀in฀lower฀sales฀and฀ reductions฀in฀the฀selling฀prices฀of฀digital฀audio...

  • Page 12
    ...shares฀of฀SigmaTel,฀Inc.฀("SigmaTel").฀฀ As฀part฀of฀its฀long-term฀business฀strategy,฀from฀time฀to฀time,฀Creative฀makes฀strategic฀equity฀investments฀in฀companies฀that฀can฀ provide฀Creative฀with฀technologies฀or฀products฀that฀management...

  • Page 13
    ...ash฀memory฀and฀hard฀ drives;฀ and฀ significant฀ price฀ reductions฀ on฀ various฀ digital฀ audio฀ players฀ during฀ the฀ third฀ and฀ fourth฀ quarters฀ of฀ fiscal฀ year฀ 2005.฀ The฀markets฀in฀which฀Creative฀competes,฀especially฀the฀market...

  • Page 14
    ...฀equity-method฀investee฀company.฀ As฀part฀of฀its฀long-term฀business฀strategy,฀from฀time฀to฀time,฀Creative฀makes฀strategic฀equity฀investments฀in฀companies฀that฀can฀ provide฀Creative฀with฀technologies฀or฀products฀that฀management฀believes...

  • Page 15
    ...฀herein.฀Creative's฀business฀is฀seasonal฀in฀nature฀and฀the฀quarterly฀results฀are฀not฀necessarily฀indicative฀ of฀the฀results฀to฀be฀achieved฀in฀future฀quarters. ฀ Jun 30 2006 Unaudited data for quarters ended (in US$'000 except per share data) Dec...

  • Page 16
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Unaudited data for quarters ended (as a percentage of sales) Jun 30 2006 Mar 31 Dec 31 Sep 30 2006 2005 2005 100฀%฀ 100฀%฀ 100฀%฀฀ 100฀%฀฀ 86฀ 14฀ 105฀฀ (5)฀฀ 78฀ 22฀฀ 80...

  • Page 17
    ...business฀strategy,฀from฀time฀to฀time,฀Creative฀makes฀strategic฀equity฀investments฀in฀companies฀that฀can฀ provide฀Creative฀with฀technologies฀or฀products฀that฀management฀believes฀will฀give฀Creative฀a฀competitive฀advantage฀in฀the฀markets...

  • Page 18
    ...of฀June฀30,฀2006,฀Creative฀has฀utilized฀approximately฀$2.6฀million฀under฀guarantees฀and฀letters฀of฀credit. RECENTLY฀ISSUED฀ACCOUNTING฀PRONOUNCEMENTS Please฀ refer฀ to฀ Note฀ 1฀ of฀ "Notes฀ to฀ Consolidated฀ Financial฀ Statements"฀ for฀ the...

  • Page 19
    ...consolidated฀ statements฀ of฀ operations,฀ of฀ cash฀ ï¬,ows฀and฀of฀shareholders'฀equity฀present฀fairly,฀in฀all฀material฀respects,฀the฀financial฀position฀of฀Creative฀Technology฀Ltd.฀and฀its฀ subsidiaries฀at฀June฀30,฀2006฀and฀2005,฀and...

  • Page 20
    ...83,593฀shares฀ Additional฀paid-in฀capital฀ Other฀reserves฀ Unrealized฀holding฀gains฀on฀investments฀ Deferred฀share฀compensation฀ Retained฀earnings฀ Total฀shareholders'฀equity฀ Total฀Liabilities฀and฀Shareholders'฀Equity June 30 2006 June 30 2005 213...

  • Page 21
    ...STATEMENTS OF OPERATIONS ฀ ฀ 2006 Sales,฀net฀ ฀ Cost฀of฀goods฀sold฀ Gross฀profit฀ Operating฀expenses: ฀ Selling...฀ ฀ 963,217฀ 164,314฀ (In฀US$'000,฀except฀per฀share฀data Years ended June 30 2005 $฀ 1,224,411฀ ฀ ฀ 949,151฀฀ 275,260฀฀ 2004 ...

  • Page 22
    ...)฀increase฀in฀minority฀shareholders'฀loan฀฀ ฀ ฀ and฀equity฀balance฀ ฀ Buyout฀of฀subsidiary's฀minority฀interest฀ ฀ Proceeds฀from฀exercise฀of฀ordinary฀share฀options฀ ฀ Repurchase฀of฀ordinary฀shares฀ ฀ Proceeds฀from฀debt฀obligations...

  • Page 23
    ฀ ฀ 2006 23,625฀ 3,124฀ 187,246฀ Years ended June 30 2005 (23,449)฀ (382)฀ 211,077฀฀ 2004 (23,730) 2,...information:฀ ฀ Interest฀paid฀ ฀ Income฀taxes฀paid,฀net฀ Non฀cash฀transaction:฀ ฀ Fixed฀assets฀acquired฀under฀capital฀lease฀ ฀ ฀ ฀ ...

  • Page 24
    ... STATEMENTS OF SHAREHOLDERS' EQUITY (In฀US$'000,฀except฀share฀data)฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ Ordinary Shares ('000) Balance฀at฀June฀30,฀2003฀ Shares฀issued฀under฀฀ ฀ employee฀options฀and฀฀ ฀ share฀purchase฀plans฀ Dividends฀paid...

  • Page 25
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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...

  • Page 26
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE฀1฀-฀SUMMARY฀OF฀SIGNIFICANT฀ACCOUNTING฀POLICIES฀(Cont'd) Inventory Inventory฀is฀stated฀at฀the฀lower฀of฀cost฀or฀market.฀฀Cost฀is฀determined฀using฀standard฀cost,฀appropriately฀adjusted฀at฀the฀...

  • Page 27
    ...฀of฀use฀of฀the฀acquired฀assets฀or฀the฀strategy฀for฀Creative's฀overall฀business; significant฀negative฀industry฀or฀economic฀trends; significant฀decline฀in฀Creative's฀stock฀price฀for฀a฀sustained฀period;฀and Creative฀market฀capitalization...

  • Page 28
    ...return฀and฀discount฀experience. ฀ Stock-based฀compensation Effective฀July฀1,฀2005,฀Creative฀accounts฀for฀stock-based฀employee฀compensation฀in฀accordance฀with฀Statement฀of฀Financial฀Accounting฀ Standards฀("SFAS")฀No.฀123(R),฀"Share-Based฀Payment...

  • Page 29
    ...earnings฀per฀share,฀the฀treasury฀stock฀method฀is฀used฀to฀determine,฀based฀on฀average฀stock฀prices฀for฀the฀ respective฀ periods,฀ the฀ ordinary฀ equivalent฀ shares฀ to฀ be฀ purchased฀ using฀ proceeds฀ received฀ from฀ the฀ exercise฀ of...

  • Page 30
    ...may฀not฀be฀recoverable฀in฀accordance฀with฀the฀Statement฀of฀Financial฀Accounting฀Standards฀ ("SFAS")฀No.฀142,฀"Goodwill฀and฀Other฀Intangible฀Assets."฀฀Creative฀typically฀performs฀its฀annual฀impairment฀assessment฀for฀goodwill฀ and฀other...

  • Page 31
    ...30 2005 $฀ 194,555 ฀ 888 ฀ 14,012 $฀ 209,455 NOTE฀4฀-฀PRODUCT฀WARRANTIES The฀warranty฀period฀for฀the฀bulk฀of฀Creative's฀products฀typically฀ranges฀between฀1฀to฀3฀years.฀฀The฀product฀warranty฀accrual฀reï¬,ects฀ management's฀best฀estimate...

  • Page 32
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE฀5฀-฀LEASES฀AND฀COMMITMENTS Creative฀leases฀the฀use฀of฀land฀and฀certain฀of฀its฀facilities฀and฀equipment฀under฀non-cancelable฀operating฀lease฀arrangements. Minimum฀future฀lease฀commitments฀for฀non-...

  • Page 33
    ...฀exercises. Effective฀ July฀ 1,฀ 2005,฀ Creative฀ adopted฀ the฀ provisions฀ of฀ SFAS฀ No.฀ 123(R),฀ "Share-Based฀ Payment."฀ SFAS฀ No.฀ 123(R)฀ establishes฀ accounting฀for฀share-based฀awards฀exchanged฀for฀employee฀services.฀Accordingly,฀stock...

  • Page 34
    ...trends.฀฀The฀expected฀share฀price฀volatility฀assumption฀was฀determined฀using฀ the฀historical฀volatility฀of฀Creative's฀shares.฀฀The฀following฀table฀presents฀the฀weighted-average฀assumptions฀used฀in฀the฀Black฀Scholes฀ option-pricing฀model...

  • Page 35
    ...outstanding฀options฀under฀Creative's฀employee฀share฀option฀plans The฀following฀table฀summarizes฀the฀option฀information฀under฀the฀Creative's฀employee฀share฀option฀plans฀as฀at฀June฀30,฀2006 Outstanding฀at฀June฀30,฀2003฀ Granted฀ Exercised...

  • Page 36
    ... FINANCIAL STATEMENTS NOTE฀9฀-฀EMPLOYEE฀SHARE฀PURCHASE฀AND฀STOCK฀OPTION฀PLANS฀(Cont'd) The฀options฀outstanding฀and฀exercisable฀as฀at฀June฀30,฀2006฀were฀in฀the฀following฀exercise฀price฀ranges: ฀ ฀ ฀ Options Outstanding ฀ ฀ ฀ Options...

  • Page 37
    ... 2004 (10,346)฀ 1,807฀ (8,539)฀ Creative's฀effective฀tax฀provision฀for฀fiscal฀years฀2006,฀2005฀and฀2004฀reconciles฀to฀the฀amount฀computed฀by฀applying฀the฀Singapore฀ statutory฀rate฀of฀20.0%฀for฀2006,฀2005฀and฀2004฀to฀income฀before...

  • Page 38
    ...result฀of฀the฀exercise฀of฀employee฀stock฀options,฀the฀tax฀ benefit฀of฀which฀has฀not฀been฀realized.฀฀The฀tax฀benefit฀of฀the฀deductions,฀when฀realized฀will฀be฀accounted฀for฀as฀a฀credit฀to฀additional฀ paid-in฀capital฀rather...

  • Page 39
    ...and฀short-term฀loan฀bear฀interest฀at฀approximately฀ the฀banks'฀prime฀rates. NOTE฀12฀-฀OTHER฀CHARGES In฀February฀2006,฀Creative฀announced฀that฀3Dlabs฀will฀refocus฀its฀graphics฀business฀on฀the฀portable฀handheld฀device฀market฀instead฀ of...

  • Page 40
    ...led฀in฀the฀Eastern฀District฀of฀Texas,฀U.S.,฀against฀Creative฀Labs,฀Inc.฀and฀27฀other฀defendants);฀Nichia฀Corporation฀ (a฀ patent฀ infringement฀ action฀ filed฀ in฀ the฀ Northern฀ District฀ of฀ California฀ against฀ Creative฀ and฀ other...

  • Page 41
    ...located฀in฀Dublin,฀Ireland฀and฀the฀Americas฀distribution฀center฀located฀in฀Milpitas,฀California.฀Creative฀focuses฀its฀ worldwide฀sales฀and฀marketing฀efforts฀predominantly฀through฀sales฀offices฀in฀North฀America,฀Europe฀and฀the฀Asia฀Paci...

  • Page 42
    ... FINANCIAL STATEMENTS NOTE฀19฀-฀SEGMENT฀REPORTING฀(Cont'd) The฀following฀is฀a฀summary฀of฀operations฀by฀geographical฀regions฀(in฀US$'000): ฀ External฀net฀sales: ฀ Asia฀Pacific฀ ฀ The฀Americas฀ ฀ Europe฀ ฀ ฀ Consolidated 2006 ฀204...

  • Page 43
    ...฀Asia฀Pacific฀region.฀฀Geographic฀revenue฀information฀for฀the฀three฀years฀ended฀June฀30,฀2006฀is฀ based฀on฀the฀location฀of฀the฀selling฀entity. (In฀US$'000)฀ Identifiable฀assets: ฀ Singapore฀ ฀ United฀States฀of฀America฀ ฀ Ireland...

  • Page 44
    ... Creative฀ will฀ keep฀ shareholders฀informed฀in฀the฀event฀that฀the฀company฀decides฀to฀resume฀such฀plans. The฀following฀table฀presents,฀for฀the฀registered฀shares฀on฀the฀NASDAQ฀and฀SGX-ST:฀(i)฀the฀annual฀high฀and฀low฀market฀prices...

  • Page 45
    ...Singapore.฀฀Because฀many฀of฀the฀US฀shares฀are฀held฀by฀brokers฀and฀other฀institutions฀ on฀behalf฀of฀shareholders,฀Creative...฀August฀18,฀2006,฀the฀closing฀price฀of฀Creative's฀ordinary฀shares฀on฀the฀NASDAQ฀Global฀Market฀was฀$5.81฀...

  • Page 46
    THE CREATIVE NETWORK Worldwide฀Corporate฀Headquarters Creative฀Technology฀Ltd. 31฀International฀Business฀Park, Creative฀Resource, Singapore฀609921 Tel:฀+65-6895฀4000฀฀฀ Fax:฀+65-6895฀4999฀ Website:฀www.creative.com US฀Headquarters Creative฀Labs,฀Inc. 1901...

  • Page 47
    ...฀ Sweden Creative฀Technologies฀Scandinavia฀AB Spånga฀Center,฀Stormbyvägen฀2-4, S-163฀29฀฀Spånga,฀Sweden Tel:฀+46-8-564฀72020฀฀ ฀ Fax:฀+46-8-795฀7835 United฀Kingdom Creative฀Labs฀(UK)฀Ltd Unit฀3,฀The฀Pavilions Ruscombe฀Business฀Park฀ Ruscombe...

  • Page 48
    ...฀Business฀Park Creative฀Resource Singapore฀609921 US฀HEADQUARTERS฀ 1901฀McCarthy฀Boulevard฀ Milpitas฀CA฀95035฀USA฀ Tel:฀1-408-428-6600฀ ฀ ฀ EUROPE฀HEADQUARTERS฀ ฀ Ballycoolin฀Business฀Park฀ Blanchardstown,฀Dublin฀15฀ Republic฀of฀Ireland...