Creative 2008 Annual Report Download - page 25

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In accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” quoted investments
of less than 20% in an entity are classified as available-for-sale. Such investments are reported at fair value with the
unrealized gains and losses included as a separate component of shareholders’ equity. Unrealized losses are charged against
income when a decline in fair value is determined to be other than temporary. Realized gains and losses upon the sale or
disposition of such investments are based on the average cost of the specific investments sold.
The investment portfolio is monitored on a periodic basis for impairment. Creative’s investments in these companies are
inherently risky because the markets for the technologies or products they have under development are typically in the early
stages and may never develop. In the event that the carrying value of an investment exceeds its fair value and the decline
in value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis for the investment
is established. Fair values for investments in public companies are determined using quoted market prices. Fair values
for investments in privately-held companies are estimated based upon one or more of the following: pricing models using
historical and forecasted financial information and current market rates, liquidation values, the values of recent rounds of
financing, or quoted market prices of comparable public companies.
In order to determine whether a decline in value is other-than-temporary, Creative evaluates, among other factors: the duration
and extent to which the fair value has been less than the carrying value; the financial condition of and business outlook for
the company, including key operational and cash flow metrics, current market conditions and future trends in the company’s
industry, and the company’s relative competitive position within the industry; and Creative’s intent and ability to retain the
investment for a period of time sufficient to allow for any anticipated recovery in fair value.
Goodwill and other intangible assets
Goodwill and other intangible assets are stated at cost and relate principally to the acquisition of new subsidiaries accounted
for under the purchase method. Under this method, the purchase price has been allocated to the assets acquired, liabilities
assumed and in-process technology based on their estimated fair market values at the dates of acquisition. Amounts allocated
to acquired in-process technology are expensed in the period in which the acquisition is consummated. Intangible assets
are amortized on a straight-line basis over the estimated useful lives of the assets, ranging from one to seven years.
Reviews for impairment of goodwill and other intangible assets are also conducted whenever events indicate that the carrying
amount might not be recoverable. Factors that Creative may consider important which could trigger an impairment review
include the following:
• significant under performance relative to historical or projected future operating results;
• significant changes in the manner 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 relative to net book value.
When the existence of one or more of the above factors indicates that the carrying value of the goodwill or other intangible
assets may be impaired, Creative measures any impairment based on a combination of market comparable method and
projected discounted cash flow method using a discount rate determined by the management commensurate with the risk
inherent in Creative’s current business model.