Creative 2008 Annual Report Download
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TABLEOFCONTENTS
Chairman’sMessage 2
SelectedConsolidatedFinancialData 4
Management’sDiscussionandAnalysisof
FinancialConditionandResultsofOperations 6
ReportofIndependentRegisteredPublicAccountingFirm 17
ConsolidatedBalanceSheets 18
ConsolidatedStatementsofOperations 19
ConsolidatedStatementsofCashFlows 20
ConsolidatedStatementsofShareholders’Equity 22
NotestoConsolidatedFinancialStatements 23
StockMarketInformation 45
TheCreativeNetwork 46
CorporateDirectory 48
Table of contents
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Page 1
...Balance฀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... -
Page 2
... resources to clear the way. The vision I am talking about is to create a totally new Creative, with a new product line and a new business model, whilst leveraging on the technologies we have mustered over the years, which will again see Creative set a new trend in the industry and open up new... -
Page 3
...$100 million outstanding balance of its syndicated term loan. With this repayment, Creative is now practically debt-free, with no outstanding bank borrowing. This has positioned us well to take advantage of the opportunities offered by the new product line and business model that I mentioned earlier... -
Page 4
... in this annual report. The data for the two years ended June 30, 2005 and 2004 is derived from the audited ï¬nancial statements which are not included in this annual report. CONSOLIDATED STATEMENTS OF OPERATIONS DATA (US$'000, EXCEPT PER SHARE DATA): Sales,฀net 2008฀ ฀ ฀ 736,848... -
Page 5
CONSOLIDATED BALANCE SHEET DATA (US$'000): ฀ ฀ Cash฀and฀cash฀equivalents฀฀ Working฀capital฀ Total฀assets฀฀ Long-term฀debt,฀net฀of฀ ฀ current฀maturities฀ Shareholders'฀equity 2008฀ 408,644฀ 363,571฀ 750,358฀ 10฀ 329,683 2007฀ 250,480฀ 351,260฀... -
Page 6
... 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... -
Page 7
...discounts and warranties. Management analyzes historical returns, current economic trends and changes in customer demand and acceptance of its products when evaluating the adequacy of the sales returns allowance. Such allowances are adjusted periodically to reï¬,ect actual and anticipated experience... -
Page 8
... competitive position within the industry; and Creative's intent and ability to retain the investment for a period of time sufï¬cient to allow for any anticipated recovery in fair value. VALUATION OF GOODWILL AND OTHER INTANGIBLE ASSETS Creative uses the purchase method of accounting for business... -
Page 9
...cant changes in the manner of use of the acquired assets or the strategy for Creative's overall business; signiï¬cant negative industry or economic trends; signiï¬cant decline in Creative's stock price for a sustained period; and Creative's market capitalization relative to net book value. When... -
Page 10
... statement of operations data as a percentage of sales: ฀ ฀ Sales,฀net฀ Cost฀of฀goods฀sold฀ Gross฀proï¬t฀ Operating฀expenses: ฀ Selling,฀general฀and฀administrative฀ ฀ Research฀and฀development฀ ฀ Impairment฀of฀goodwill฀and฀other฀intangible฀assets... -
Page 11
... from the sale of shares in subsidiaries and equity accounted investments. The disposals of these investments were in line with management's goal of streamlining and improving operational efï¬ciencies. Net loss of $1.9 million in ï¬scal year 2007 was mainly due to $2.0 million in write-downs of... -
Page 12
...฀฀ FINANCIAL฀CONDITION฀AND฀RESULTS฀OF฀OPERATIONS Net investment gain (loss) (Cont'd) 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 13
...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 in which Creative competes. Net interest Net interest for ï¬scal years 2007 and 2006... -
Page 14
...by Apple Inc. for use of the Creative ZEN Patent in its products and a $12.1 million exchange gain. Other income of $3.6 million in ï¬scal 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... -
Page 15
... equity investments in companies that can provide Creative with technologies or products that management believes will give Creative a competitive advantage in the markets in which Creative competes. Management believes that Creative has adequate resources to meet its projected working capital... -
Page 16
... current information. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations. As of June 30, 2008, Creative has utilized approximately $2.9 million under guarantees and letters of credit... -
Page 17
... 2007, and the results of their operations and their cash ï¬,ows for each of the three years in the period ended June 30, 2008 in conformity with accounting principles generally accepted in the United States of America. These ï¬nancial statements are the responsibility of the Company's management... -
Page 18
... Income฀taxes฀payable฀ Current฀portion฀of฀long฀term฀obligations฀and฀others฀ Total฀current฀liabilities฀ Long-term฀obligations฀ Advance฀payments฀from฀sale฀of฀building฀ Minority฀interest฀in฀subsidiaries฀ Shareholders'฀equity:฀ ฀ Share฀capital... -
Page 19
CONSOLIDATED฀STATEMENTS฀OF฀OPERATIONS (In US$'000, except per share data) ฀ ฀ ฀ Sales,฀net฀ ฀ Cost฀of฀goods฀sold฀ Gross฀proï¬t฀ Operating฀expenses: ฀ Selling,฀general฀and฀administrative฀ ฀ Research฀and฀development฀ ฀ Impairment฀of฀goodwill฀... -
Page 20
...Proceeds฀from฀sale฀of฀investments฀ ฀ Purchase฀of฀new฀subsidiaries฀(net฀of฀cash฀acquired)฀ ฀ Proceeds฀from฀sale฀of฀subsidiaries฀ ฀ Purchase฀of฀investments฀ ฀ ฀ Increase฀in฀other฀non฀current฀assets,฀net฀ ฀ Dividend฀income฀received... -
Page 21
...)฀in฀minority฀shareholders'฀loan and฀equity฀balance฀ ฀ Buyout฀of฀subsidiary's฀minority฀interest฀ ฀ Proceeds฀from฀advance฀payments฀from฀sale฀of฀building฀ ฀ Proceeds฀from฀exercise฀of฀ordinary฀share฀options฀ ฀ Purchase฀of฀treasury... -
Page 22
...SHAREHOLDERS'฀EQUITY (In US$'000, except share data) ฀ ฀ Balance฀at฀June฀30,฀2005฀ Shares฀issued฀under฀฀ ฀ employee฀options฀plans฀ Repurchase฀of฀ordinary฀shares฀ Dividends฀paid฀ Reversal฀of฀unvested฀deferred฀฀ ฀ share฀compensation,฀net... -
Page 23
... 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 deposits and money market accounts with various banks. This diversiï¬cation of risk is consistent with Creative's policy to maintain liquidity... -
Page 24
... the carrying value of the assets exceeds its fair market value. For the three ï¬scal years ended June 30, 2008, 2007 and 2006, Creative had no impairment of its long-lived assets. Investments Creative holds equity investments in various companies pursuant to which it has acquired anywhere from... -
Page 25
...ï¬cant changes in the manner of use of the acquired assets or the strategy for Creative's overall business; signiï¬cant negative industry or economic trends; signiï¬cant decline in Creative's stock price for a sustained period; and Creative market capitalization relative to net book value. When... -
Page 26
... for estimated returns, discounts and warranties based on historical experience, current economic trends and changes in customer demand and acceptance of its products. Such allowances are adjusted periodically to reï¬,ect actual and anticipated experience. When recognizing revenue, Creative records... -
Page 27
... accounts, returns and discounts based on credit proï¬les of its customers, current economic trends, contractual terms and conditions and historical payment, returns and discount experience. Share-based compensation Effective July 1, 2005, Creative accounts for share-based employee compensation... -
Page 28
... statement shall be applied retrospectively for all periods presented. Creative is currently evaluating the impact of SFAS 160. NOTE 2 - NET (LOSS) INCOME PER SHARE In accordance with SFAS No. 128, "Earnings per Share," Creative reports both basic earnings per share and diluted earnings per share... -
Page 29
... due to the likelihood of technological obsolescence arising from changes in production techniques or in market demand for the use of its machinery and equipment. Creative sold its headquarters ofï¬ce building in June 2008, to an unrelated third party at a sales price of $181.4 million which was... -
Page 30
... from sale of building" (see Note 4). The gain on the sale equal to the difference between the net book value of the building and the balance of the "Advance payments from sale of building" will be recognized at the end of the initial ï¬ve year lease term. ฀ ฀ Other฀non-current฀assets... -
Page 31
... received, net of the security deposit and rental prepayment, is presented as "Advance payments from sale of building." NOTE 5 - 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... -
Page 32
....2 million and $12.0 million for ï¬scal years 2008, 2007 and 2006, respectively. Future minimum lease commitments, which are secured by the underlying assets, as of June 30, 2008, under capital leases are as follows (in US$'000): ฀ Fiscal฀years฀ending฀June฀30, ฀ ฀ 2009฀ ฀ ฀ 2010... -
Page 33
... to acquire these shares and this had been presented as a component within shareholders' equity under the balance sheet. Creative had utilized 19,500 treasury shares in ï¬scal year 2008 to satisfy share option exercises pursuant to the 1999 Scheme at a weighted-average exercise price of $4.37... -
Page 34
... 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, share-based compensation cost is measured on the date of grant, based on the fair value of the award, and... -
Page 35
...฀fair฀value฀of฀stock฀options฀granted: Stock฀options: ฀ Above฀market฀ ฀ At฀market ฀ 2008฀ Years฀ended฀June฀30 2007฀ 2006 0.82฀ -฀ $฀ $฀ -฀ -฀ $฀ $฀ - 1.63 Summary of outstanding options under Creative's employee share option plans The... -
Page 36
... personal Creative shares to the employees of Creative. In accordance with the US GAAP, the value of these Creative shares was reported as a non-cash charge in the operating expenses of Creative. NOTE 11 - INCOME TAXES Creative was granted a Pioneer Certiï¬cate under the International Headquarters... -
Page 37
...฀ended฀June฀30 2007฀ 9,232฀฀ 4,068฀฀ (1,806)฀ 792฀ (1,247)฀ 12,936฀ (57)฀ 23,918 2006 (25,223) 13,633 (4,547)฀ 679 5,692 12,808 (10,192) (7,150)฀ Deferred tax assets at June 30, 2008 and 2007 consisted of the following (in US$'000): ฀ ฀ Reserves฀ Net฀operating... -
Page 38
... realizability of these assets. Creative has United States tax deductions not included in the net operating loss carryforward described above aggregating approximately $60.9 million at June 30, 2008 and June 30, 2007, as a result of the exercise of employee stock options, the tax beneï¬t of which... -
Page 39
...The interest on the outstanding loan balance is based on the bank's ï¬,oating rate plus a margin of 1.5%. The loan is secured by a ï¬rst mortgage on Creative's headquarter building in Singapore and by way of a ï¬xed and ï¬,oating charge over all assets of CTC. At June 30, 2007, S$27.0 million ($19... -
Page 40
... to warehouse lease cancelation was charged to cost of goods sold and the balance of $2.8 million was recorded in operating expenses. In February 2006, Creative announced that its wholly-owned subsidiary 3Dlabs will refocus its graphics business on the portable handheld device market instead of... -
Page 41
... manufacturing operation in Malaysia to a group of third party investors. Net loss of $1.9 million in ï¬scal year 2007 was mainly due to $2.0 million write-downs of investments. The following is a summary of investments as of June 30 (in US$'000): ฀ ฀ Non-quoted฀equity฀investments฀ Quoted... -
Page 42
... 12. NOTE 20 - SEGMENT REPORTING Creative operates primarily in one industry segment and provides advanced multimedia solutions for personal computers and personal digital entertainment products. Creative focuses its worldwide sales and marketing efforts predominantly through sales ofï¬ces in North... -
Page 43
The following is a summary of operations by geographical regions (in US$'000): ฀ ฀ External฀net฀sales: ฀ Asia฀Paciï¬c฀ ฀ The฀Americas฀ ฀ Europe฀ ฀ ฀ Consolidated 2008฀ 167,128฀ 200,268฀ 369,452฀ 736,848 Years฀ended฀June฀30 2007฀ ฀158,789฀฀ 331,960... -
Page 44
...30 2007฀ Long-lived assets are based on the physical location of the assets at the end of each of the ï¬scal years. Geographic revenue information for the three years ended June 30, 2008 is based on the location of the selling entity. (In฀US$'000)฀ ฀ Identiï¬able฀assets: ฀ Singapore... -
Page 45
...the company's current primary listing on the SGX-ST is Creative's sole exchange listing. The delisting from NASDAQ did not affect the status of Creative's shares on the SGX-ST. The following table presents, for the registered shares on the NASDAQ and SGX-ST: (i) the annual high and low market prices... -
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 McCarthy Boulevard, Milpitas, CA 95035 Tel: ... -
Page 47
... 2 08960 Sant Just Desvern, Barcelona, Spain Tel: +34-93-470 3150 Fax: +34-93-499 0811 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 Belmont Place, Belmont Road... -
Page 48
... Arfat Selvam Alliance LLC 55 Market Street #08-01 Singapore 048941 Chairman Director Director Director Director COMPANY SECRETARY Ng Keh Long 31 International Business Park Creative Resource Singapore 609921 REGISTRAR/TRANSFER AGENT Boardroom Corporate & Advisory Services Pte. Ltd. 3 Church Street...