Creative 2007 Annual Report Download - page 14

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14
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net interest
Net interest for fiscal year 2006 was an expense of $3.2 million compared to an expense of $0.1 million for fiscal year 2005.
The higher net interest expense in fiscal year 2006 was due to the five-year $175.0 million syndicated term loan, of which $100.0
million was drawn-down in December 2004 and the remaining $75.0 million in February 2005.
Others
Other income was $3.6 million in fiscal year 2006 compared to an expense of $4.3 million in fiscal year 2005. Other income
of $3.6 million in fiscal year 2006 comprised mainly of $1.4 million in dividends received from investments and $2.0 million in
sundry income, the bulk of which pertained to a write-back of unclaimed invoices. Other expenses in fiscal year 2005 included
an exchange loss of $4.2 million and Creative’s share of equity-method investees’ losses of $1.6 million, offset partially by $1.2
million in dividends received from investments.
Income tax (expense) benefit
Income taxes of foreign subsidiaries are based on the corporate income tax rates of the country in which the subsidiary is located.
Net operating profits from some subsidiaries are not offsetable with the net operating losses sustained by subsidiaries from a
different tax jurisdiction. In Singapore, Creative was granted a Pioneer Certificate under the International Headquarters Award that
will expire in March 2010. Profits arising from qualifying activities under the Pioneer Certificate will be exempted from income
tax, subject to certain conditions. The Singapore corporate income tax rate of 20% is applicable to the profits excluded from the
Pioneer Certificate.
In fiscal year 2006, tax write-back included a $10.0 million reversal of income taxes. The reversal was related to corporate taxes
provided for in full for profits arising from qualifying activities from the commencement date of the Pioneer Certificate until the
second quarter of fiscal year 2004, based on the standard tax rates of 24.5% for fiscal year 2001, 22% for fiscal years 2002 and
2003, and 20% for fiscal year 2004.