Creative 2008 Annual Report Download - page 27

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Concentrations of credit risk
Financial instruments that potentially subject Creative to significant concentrations of credit risk consist principally of cash
and cash equivalents and trade accounts receivable. Creative limits the amount of credit exposure to any one financial
institution. Creative sells its products to original equipment manufacturers, distributors and key retailers. Creative believes
that the concentration of credit risk in its trade receivables is substantially mitigated due to performance of ongoing credit
evaluations of its customers’ financial condition, use of short collection terms, use of letters of credit in certain circumstances,
procurement of credit insurance coverage and the geographical dispersion of sales. Creative establishes allowances for
doubtful accounts, returns and discounts for specifically identified doubtful accounts, returns and discounts based on credit
profiles 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 in accordance with SFAS No. 123(R),
“Share-Based Payment.” Accordingly, share-based compensation cost is measured on the date of grant, based on the fair
value of the award, and is recognized as expense over the employee’s requisite service period. Creative previously applied
Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations,
and provided the required pro forma disclosures of SFAS No. 123, “Accounting for Stock-Based Compensation,” and SFAS
No. 148, “Accounting for Stock-Based Compensation, Transition and Disclosures.” See Note 10.
Employees pension scheme
Creative participates in a number of defined contribution retirement plans in certain countries of operations. Contributions
are based on a percentage of each eligible employee’s salary and are expensed as the related salaries are incurred. Creative
incurred expenses of approximately $7.3 million, $8.0 million and $8.1 million with respect to these retirement plans for
the fiscal years 2008, 2007 and 2006, respectively.
Treasury share capital
Treasury shares are accounted for under the cost method and are shown as a deduction from shareholders’ equity in the
Consolidated Balance Sheet.
Recently issued accounting pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements”
(“SFAS 157”), which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding
fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies
in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. Earlier adoption is permitted, provided the Company has not yet issued financial statements, including
for interim periods, for that fiscal year. Creative is currently evaluating the impact of SFAS 157, but does not expect the
adoption of SFAS 157 to have a material impact on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities
– including an Amendment of SFAS No. 115” (“SFAS 159”). SFAS 159 permits companies to measure certain financial
assets and financial liabilities at fair value. The standard requires that unrealized gains and losses on items for which the
fair value option has been elected be reported in earnings. SFAS 159 amends previous guidance to extend the use of the
fair value option to available-for-sale and held-to-maturity securities. SFAS 159 is effective for fiscal years beginning after
November 15, 2007. Creative is currently evaluating the impact of SFAS 159, but does not expect the adoption of SFAS
159 to have a material impact on its consolidated financial statements.