Creative 2007 Annual Report Download - page 6

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, the matters set forth contains forward-looking statements and are subject to
certain risks and uncertainties that could cause Creative’s actual results to differ materially. Such risks and uncertainties include:
Creative’s ability to timely develop new products that gain 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’s products or any prices of components; Creative’s ability to successfully integrate acquisitions; potential
fluctuations in quarterly results due to the seasonality of Creative’s business and the difficulty of projecting such fluctuations;
possible disruption in commercial activities caused by factors outside of Creative’s control, such as terrorism, armed conflict
and labor disputes; a reduction in demand for computer systems, peripherals and related consumer products as a result of poor
economic conditions, social and political turmoil; major health concerns; the proliferation of sound functionality in new products
from competitors at the application software, chip and operating system levels; the deterioration of global equity markets; exposure
to excess and obsolete inventory; Creative’s reliance on sole sources for many of its chips and other key components; component
shortages which may impact Creative’s ability to meet customer demand; Creative’s ability to protect its proprietary rights; the
vulnerability of certain markets to current and future currency fluctuations; the effects of restricted fuel availability and rising costs
of fuel; and fluctuations in the value and liquidity of Creative’s investee companies. For further information regarding the risks and
uncertainties associated with Creative’s business, please refer to its filings with the SEC, including its Form 20-F for fiscal 2006
filed with the SEC. Creative undertakes no obligation to update any forward-looking statement to conform the statement to actual
results or changes in Creative’s expectations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
GENERAL
Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon Creative’s Consolidated
Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making judgment about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions.
Management believes the following critical accounting policies affect its more significant estimates and assumptions used in the
preparation of its consolidated financial statements:
Revenue recognition;
Allowances for doubtful accounts, returns and discounts;
Product warranties;
Valuation of inventories;
Valuation of investments;
Valuation of goodwill and other intangible assets;
Assessment of the probability of the outcome of current litigation; and
Accounting for income taxes.
REVENUE RECOGNITION
Revenue from product sales is recognised when the following four criteria are met:
• Persuasive evidence of an arrangement exists
Persuasive evidence of an arrangement exists when Creative receives a purchase order from the customer and Creative
subsequently confirms the order by issuing a sales order to the customer.