-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IqeH6MsrMlZm+n2UWb4ltXTu5CEntl2s9rdhZ/brZGVKRxJhXgsneCApSvp5l+QL Kiknx753wbMhV0ia41wCyg== 0001145549-02-000506.txt : 20021231 0001145549-02-000506.hdr.sgml : 20021231 20021231081151 ACCESSION NUMBER: 0001145549-02-000506 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021231 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CREATIVE TECHNOLOGY LTD CENTRAL INDEX KEY: 0000888295 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 000000000 STATE OF INCORPORATION: U0 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20281 FILM NUMBER: 02872842 BUSINESS ADDRESS: STREET 1: 31 INTERNATIONAL BUSINESS PARK STREET 2: CREATIVE RESOURCE CITY: SINGAPORE 0513 SINGA STATE: U0 ZIP: 609921 BUSINESS PHONE: 1165895400 MAIL ADDRESS: STREET 1: 31 INTERNATIONAL BUSINESS PARK STREET 2: CREATIVE RESOURCES CITY: SINGAPORE STATE: U0 ZIP: 609921 6-K 1 u92086e6vk.txt CREATIVE TECHNOLOGY LTD ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 6-K REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934 REPORT FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 Commission File Number 0-20281 CREATIVE TECHNOLOGY LTD. (Exact name of Registrant as specified in its charter) SINGAPORE --------- (Jurisdiction of incorporation or organization) 31 INTERNATIONAL BUSINESS PARK CREATIVE RESOURCE SINGAPORE 609921 ---------------- (Address of principal executive offices) Indicate by check mark whether the Registrant files or will file annual reports under cover Form 20-F or 40-F. Form 20-F X Form 40-F --- --- Indicate by check mark if the Registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ---------------- Indicate by check mark if the Registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ---------------- Indicate by check mark whether by furnishing the information contained in this Form, the Registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes No X --- --- If "Yes" is marked, indicate below the file number assigned to the Registrant in connection with Rule 12g3-2(b):82 N/A --- ================================================================================ PAGE 1 OF 17 TABLE OF CONTENTS ----------------- PART I - FINANCIAL INFORMATION - ------------------------------ ITEM 1 Financial Statements Consolidated Balance Sheets as of September 30, 2002 and June 30, 2002 3 Consolidated Statements of Operations for the Three Months ended September 30, 2002 and 2001 4 Consolidated Statements of Cash Flows for the Three Months ended September 30, 2002 and 2001 5 Notes to Consolidated Financial Statements 6 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Safe Harbor Statements under The Private Securities Litigation Reform Act of 1995 10 Selected Consolidated Financial Data 11 Critical Accounting Policies and Estimates 12 Results of Operations 13 Liquidity and Capital Resources 14 Contractual Obligations and Commercial Commitments 14 Effects of Recent Accounting Pronouncements 14 ITEM 3 Quantitative and Qualitative Disclosures about Market Risk 15 PART II - OTHER INFORMATION - --------------------------- Submission of Matters to a Vote of Security Holders 16 SIGNATURE 17
Page 2 PART I - FINANCIAL INFORMATION - ------------------------------ ITEM 1 FINANCIAL STATEMENTS - ------ -------------------- CREATIVE TECHNOLOGY LTD. ------------------------ CONSOLIDATED BALANCE SHEETS --------------------------- (IN US$'000, EXCEPT PER SHARE DATA)
SEPTEMBER 30, 2002 JUNE 30, 2002 (Unaudited) ------------------ ------------- ASSETS - ------ CURRENT ASSETS: Cash and cash equivalents $182,047 $166,917 Marketable equity securities 615 1,388 Accounts receivable, net 85,631 85,193 Inventory 109,167 108,549 Other assets and prepaids 16,725 17,773 -------- -------- TOTAL CURRENT ASSETS 394,185 379,820 Property and equipment, net 108,578 104,748 Investments 55,352 66,688 Other non-current assets 112,238 115,122 -------- -------- TOTAL ASSETS $670,353 $666,378 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 81,773 $ 64,809 Accrued liabilities 92,271 77,831 Income taxes payable 43,368 43,794 Current portion of long term obligations and others 22,562 27,441 -------- -------- TOTAL CURRENT LIABILITIES 239,974 213,875 -------- -------- Long term obligations 16,651 16,782 -------- -------- Minority interest in subsidiaries 3,114 11,769 -------- -------- SHAREHOLDERS' EQUITY: Ordinary shares ('000); S$0.25 par value; Authorized: 200,000 shares Outstanding: 78,892 and 78,866 shares 7,596 7,592 Additional paid-in capital 311,011 311,445 Unrealized holding gains on quoted investments 10,947 20,636 Deferred share compensation expense (7,078) (8,836) Retained earnings 88,138 93,115 -------- -------- TOTAL SHAREHOLDERS' EQUITY 410,614 423,952 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $670,353 $666,378 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. Page 3 CREATIVE TECHNOLOGY LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (IN US$' 000, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, -------------------------------- 2002 2001 ---- ---- Sales, net $160,623 $180,442 Cost of goods sold 102,630 124,529 -------- -------- GROSS PROFIT 57,993 55,913 -------- -------- Operating expenses: Selling, general and administrative 42,155 43,427 Research and development 15,267 9,608 -------- -------- TOTAL OPERATING EXPENSES 57,422 53,035 -------- -------- OPERATING INCOME 571 2,878 Loss from investments, net (6,316) (16,425) Interest income and other, net 807 1,424 -------- -------- LOSS BEFORE INCOME TAXES AND MINORITY INTEREST (4,938) (12,123) Provision for income taxes (57) (230) Minority interest in loss (income) 18 (495) -------- -------- NET LOSS $ (4,977) $(12,848) ======== ======== Basic loss per share $ (0.06) $ (0.17) Average ordinary shares outstanding ('000) 78,877 73,854 Diluted loss per share $ (0.06) $ (0.17) Average ordinary shares and equivalents outstanding ('000) 78,877 73,854
The accompanying notes are an integral part of these consolidated financial statements. Page 4 CREATIVE TECHNOLOGY LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (IN US$'000) (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, -------------------------------- 2002 2001 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (4,977) $(12,848) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 8,052 5,910 Deferred share compensation amortization 1,157 709 Minority interest in (loss) income (18) 495 Equity share in loss of unconsolidated investments -- 15 Write off of investments and other non-current assets 5,591 20,005 Gain from investments, net (49) (4,471) Changes in assets and liabilities, net: Accounts receivable (438) 4,565 Inventory (618) 24,346 Marketable securities 773 2,612 Other assets and prepaids 903 (1,452) Accounts payable 16,964 (12,860) Accrued and other liabilities (2,410) (15,155) Income taxes payable (426) (52) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 24,504 11,819 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net (3,142) (2,553) Proceeds from sale of quoted investments 935 12,303 Purchase of investments (4,829) (4,031) Increase in other non current assets, net (178) (1,098) -------- -------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (7,214) 4,621 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in minority shareholders' loan and equity balance -- 231 Proceeds from exercise of ordinary share options 170 231 Repurchase of ordinary shares -- (9,768) Repayments of long-term obligations, net (2,330) (118) -------- -------- NET CASH USED IN FINANCING ACTIVITIES (2,160) (9,424) -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 15,130 7,016 Cash and cash equivalents at beginning of year 166,917 168,157 -------- -------- CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $182,047 $175,173 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 313 $ 233 ======== ======== Income taxes paid $ 484 $ 288 ======== ======== SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTION: Accrual for buyout of minority interest $ 3,992 $ -- ======== ========
The accompanying notes are an integral part of these consolidated financial statements Page 5 CREATIVE TECHNOLOGY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited consolidated interim financial statements of Creative Technology Ltd. ("Creative") have been prepared on a consistent basis with the June 30, 2002 audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary to provide a fair presentation of the results for the interim periods presented. The consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). These consolidated interim financial statements should be read in conjunction with the consolidated financial statements and accompanying notes thereto included in Creative's 2002 annual report on Form 20-F filed with the Securities and Exchange Commission. The results of operations for the three month period ended September 30, 2002 are not necessarily indicative of the results to be expected for the entire year. Creative generally operates on a thirteen week calendar closing on the Friday closest to the natural calendar quarter. For convenience, all quarters are described by their natural calendar dates. Creative conducts a substantial portion of its business in United States dollars ("US$" or "$") and all amounts included in these interim financial statements and in the notes herein are in US$, unless designated as Singapore dollars ("S$"). NOTE 2 - OTHER NON-CURRENT ASSETS (IN US$'000)
SEPTEMBER 30, JUNE 30, 2002 2002 ------------- -------- Goodwill $ 91,976 $ 91,976 Other intangible assets 14,702 17,894 Other non-current assets 5,560 5,252 -------- -------- $112,238 $115,122 ======== ========
NOTE 3 - INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined using standard cost, appropriately adjusted at balance sheet date to approximate actual cost on a weighted average basis. In the case of finished products and work-in-progress, cost includes materials, direct labor and an appropriate proportion of production overheads. The components of inventory are as follows (in US$'000):
SEPTEMBER 30, JUNE 30, 2002 2002 ------------- -------- Raw materials $ 37,107 $ 33,826 Work in progress 10,078 5,658 Finished products 61,982 69,065 -------- -------- $109,167 $108,549 ======== ========
Page 6 NOTE 4 - NET LOSS PER SHARE In accordance with Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings per Share", Creative reports both basic earnings per share and diluted earnings per share. Basic earnings per share is computed using the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of ordinary and potentially dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares are excluded from the computation if their effect is anti-dilutive. In computing the diluted earnings per share, the treasury stock method is used to determine, based on average stock prices for the respective periods, the ordinary equivalent shares to be purchased using proceeds received from the exercise of such equivalent shares. Other than the dilutive effect of stock options, there are no other financial instruments that would impact the weighted average number of ordinary shares outstanding used for computing diluted earnings per share. The potentially dilutive ordinary equivalent shares outstanding under the employee share purchase plan were not material. Following is a reconciliation between the average number of ordinary shares outstanding and equivalent shares outstanding (in '000):
THREE MONTHS ENDED SEPTEMBER 30, -------------------------------- 2002 2001 ------ ------ Average ordinary shares outstanding 78,877 73,854 Stock options -- -- ------ ------ AVERAGE ORDINARY SHARES AND EQUIVALENT OUTSTANDING 78,877 73,854 ====== ======
For the three-month period ended September 30, 2002, approximately 2.4 million potentially dilutive shares were excluded from the determination of diluted net loss per share, as the effect of including such shares is anti-dilutive. NOTE 5 - INCOME TAXES Provision for income taxes for interim periods are based on estimated annual effective income tax rates. Income of foreign subsidiaries of Creative is subject to tax in the country in which the subsidiary is located. The effective income tax rate is based on the mix of income arising from various geographical regions, where the tax rates range from 0% to 50%; pioneer status income in Singapore, which is exempt from tax; and the utilization of non-Singapore net operating losses. As a result, Creative's overall effective rate of tax is subject to changes based on the international source of income before tax. Creative's Pioneer Certificate expired in March 2000 and Creative has applied for a separate and new Pioneer Certificate. If Creative is awarded this new Pioneer Certificate, profits under the new Pioneer Certificate will be exempted from tax in Singapore. The Singapore corporate income tax rate of 22.0% is applicable to the profits excluded from the new Pioneer Certificate. Page 7 NOTE 6 - COMPREHENSIVE LOSS The components of total comprehensive loss are as follows (in US$'000):
THREE MONTHS ENDED SEPTEMBER 30, -------------------------------- 2002 2001 -------- -------- Net loss $ (4,977) $(12,848) Unrealized holding loss on quoted investments during the quarter (9,689) (19,136) -------- -------- TOTAL COMPREHENSIVE LOSS $(14,666) $(31,984) ======== ========
NOTE 7 - SHARE REPURCHASES Details of share repurchases by Creative since the commencement date of the program on November 6, 1998 are set out below:
NUMBER OF SHARES REPURCHASED AVERAGE PRICE ---------------------------- ------------- (IN MILLIONS) Year ended June 30, 1999 10.0 $14 Year ended June 30, 2000 5.9 $17 Year ended June 30, 2001 7.7 $12 Year ended June 30, 2002 2.7 $ 7 Quarter ended September 30, 2002 -- -- ---- --- TOTAL 26.3 $13 ==== ===
At the 2002 Annual General Meeting ("AGM") held on November 20, 2002, the shareholders approved the share repurchase mandate allowing Creative to buy up to 10% of the issued share capital of Creative as at the date of the AGM. This amounts to approximately 7.9 million shares. This authority to repurchase shares shall continue in force unless revoked or revised by the shareholders in a general meeting, or until the date that the next AGM of Creative is held or is required to be held, whichever is the earlier. In accordance with Singapore statutes, such repurchases are recorded as a reduction in retained earnings. NOTE 8 - LEGAL PROCEEDINGS During the course of its normal business operations, Creative and its subsidiaries are involved from time to time in a variety of intellectual property and other disputes, including claims against Creative alleging copyright infringement, patent infringement, contract claims, employment claims and business torts. Currently such disputes exist with, among other entities, MPEG Audio, Inc. (a declaratory relief action pending in the Northern District of California), and the Lemelson Foundation (an action that involved patent claims by Lemelson against over 500 entities, including Page 8 Creative, which action has been stayed pending resolution of issues in third party litigation). A patent infringement lawsuit by Sunonwealth Electric Machine Industry Co. has been dismissed pursuant to settlement. Creative and 3Dlabs have also been named as defendants in a class action lawsuit by a purported class of former 3Dlabs shareholders, alleging breach of fiduciary duty in connection with the acquisition of 3Dlabs. Based upon information currently available, Creative believes that it has strong defenses and the lawsuits are without merit. Creative also from time to time receives licensing inquiries and/or threats of potential future patent claims from a variety of entities, including Lucent Technologies and Dyancore Holdings. Creative believes it has valid defenses to the various claims asserted against it. However, should any of these claimants prevail in their suits or claims, Creative does not expect there to be any consequent material adverse effect on its financial position or results of operations. NOTE 9 - MINORITY INTEREST In July 2002, a Creative subsidiary, Creative Technology Centre Pte Ltd ("CTC") declared dividend of approximately $4 million to its shareholders, namely Creative and Bukit Frontiers Pte Ltd ("BFPL"), a company owned by Creative's Chairman and CEO, Sim Wong Hoo. Creative and BFPL will each receive a net dividend of approximately $2 million. In accordance with the joint venture agreement with BFPL as approved by Creative's shareholders, Creative in July 2002, acquired from BFPL the remaining 50% interest that it does not currently own in its building located in the International Business Park in Singapore. The consideration payable by Creative for the 50% interest in CTC amounted to approximately $4 million. Additionally, Creative will also repay the outstanding building-related loans of $7.1 million to BFPL. The financial consideration for the purchase of CTC shares was set at CTC's audited net asset valued at July 4, 2002, based on the value of the building as determined by an independent property appraiser. The acquisition was accounted for by the purchase method. The payment was allocated to land and buildings, deferred tax liability and against minority interest. NOTE 10 - SUBSEQUENT EVENTS At the Annual General Meeting held on November 20, 2002, Creative's shareholders approved an ordinary dividend of $0.25 for each outstanding ordinary share of Creative for the fiscal year ending June 30, 2003. The dividend was paid on December 19, 2002 to all shareholders of record as of December 5, 2002. Creative paid an ordinary dividend of $0.25 per ordinary share in the previous fiscal year. Page 9 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------ ----------------------------------------------------------------------- OF OPERATIONS ------------- SAFE HARBOR STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Except for the historical information contained herein, the matters set forth are forward-looking statements and are subject to certain risks and uncertainties that could cause 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; 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 products, including Creative's products, as a result of poor economic conditions and social and political turmoil; the proliferation of sound functionality in new products from competitors at the application software, chip and operating system levels; the failure of cost-cutting measures to achieve anticipated cost reduction benefits; the continued deterioration of global equity markets; increased 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; a reduction or cancellation of sales orders for Creative products or other unexpected or unplanned events that could cause Creative to miss its revenue guidance, operating expense projections or negatively impact its margins; accelerated declines in the average selling prices of Creative's products; 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 over the past twelve months, including, without limitation, Creative's Form 20-F dated October 31, 2002 and its press release, dated March 11, 2002, announcing the signing of a definitive agreement to acquire 3Dlabs. Creative undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in Creative's expectations. Page 10 SELECTED CONSOLIDATED FINANCIAL DATA The following is a summary of Creative's unaudited quarterly results for the eight quarters ended September 30, 2002, together with the percentage of sales represented by such results. Consistent with the PC peripherals market, due to consumer buying patterns, demand for Creative's products is generally stronger in the quarter ended December 31, compared to any other quarter of the fiscal year. In management's opinion, these results detailed below have been prepared on a basis consistent with the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the periods presented when read in conjunction with the financial statements and notes thereto contained elsewhere herein. Creative's business is seasonal in nature and the quarterly results are not necessarily indicative of the results to be achieved for the complete year.
UNAUDITED DATA FOR QUARTERS ENDED (IN US$'000 EXCEPT PER SHARE DATA) -------------------------------------------------------------------------------------- SEP 30 JUN 30 MAR 31 DEC 31 SEP 30 JUN 30 MAR 31 DEC 31 2002 2002 2002 2001 2001 2001 2001 2000 -------- -------- -------- -------- -------- -------- --------- -------- Sales, net (1) $160,623 $182,572 $193,385 $249,506 $180,442 $233,315 $ 262,009 $426,576 Cost of goods sold 102,630 122,291 129,209 167,353 124,529 170,211 199,622 313,069 -------- -------- -------- -------- -------- -------- --------- -------- GROSS PROFIT 57,993 60,281 64,176 82,153 55,913 63,104 62,387 113,507 Operating expenses: Selling, general and administrative (1) 42,155 42,815 38,737 45,143 43,427 48,237 54,664 69,614 Research and development 15,267 10,748 8,412 9,480 9,608 12,431 11,380 15,115 Other charges (2) -- 26,080 -- -- -- -- 22,814 -- -------- -------- -------- -------- -------- -------- --------- -------- OPERATING INCOME (LOSS) 571 (19,362) 17,027 27,530 2,878 2,436 (26,471) 28,778 Net (loss) gain from investments (6,316) (29,845) 128 728 (16,425) (75,988) (75,360) 507 Interest income (expense) and other, net 807 2,289 151 1,291 1,424 183 1,090 2,055 -------- -------- -------- -------- -------- -------- --------- -------- (LOSS) INCOME BEFORE INCOME TAXES AND MINORITY INTEREST (4,938) (46,918) 17,306 29,549 (12,123) (73,369) (100,741) 31,340 Provision for income taxes (57) (1,012) (1,703) (2,753) (230) -- -- (4,624) Minority interest in (income) loss 18 (436) (423) (489) (495) (71) (289) (241) -------- -------- -------- -------- -------- -------- --------- -------- NET (LOSS) INCOME $ (4,977) $(48,366) $ 15,180 $ 26,307 $(12,848) $(73,440) $(101,030) $ 26,475 ======== ======== ======== ======== ======== ======== ========= ======== Basic (loss) earnings per share $ (0.06) $ (0.65) $ 0.21 $ 0.36 $ (0.17) $ (0.94) $ (1.27) $ 0.34 ======== ======== ======== ======== ======== ======== ========= ======== Average ordinary shares outstanding ('000) 78,877 74,375 72,134 72,366 73,854 78,084 79,299 78,964 ======== ======== ======== ======== ======== ======== ========= ======== Diluted (loss) earnings per share $ (0.06) $ (0.65) $ 0.20 $ 0.36 $ (0.17) $ (0.94) $ (1.27) $ 0.33 ======== ======== ======== ======== ======== ======== ========= ======== Average ordinary shares and equivalents outstanding ('000) 78,877 74,375 76,323 73,664 73,854 78,084 79,299 81,180 ======== ======== ======== ======== ======== ======== ========= ========
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UNAUDITED DATA FOR QUARTERS ENDED (AS A PERCENTAGE OF SALES) -------------------------------------------------------------------------------------- SEP 30 JUN 30 MAR 31 DEC 31 SEP 30 JUN 30 MAR 31 DEC 31 2002 2002 2002 2001 2001 2001 2001 2000 -------- -------- -------- -------- -------- -------- --------- -------- Sales, net (1) 100% 100% 100% 100% 100% 100% 100% 100% Cost of goods sold 64 67 67 67 69 73 76 73 -------- -------- -------- -------- -------- -------- --------- -------- GROSS PROFIT 36 33 33 33 31 27 24 27 Operating Expenses: Selling, general and administrative (1) 26 24 20 18 24 21 21 16 Research and development 10 6 4 4 5 5 4 4 Other charges (2) -- 14 -- -- -- -- 9 -- -------- -------- -------- -------- -------- -------- --------- -------- OPERATING (LOSS) INCOME -- (11) 9 11 2 1 (10) 7 Net (loss) gain from investments (4) (16) -- -- (9) (32) (29) -- Interest income (expense) and other, net 1 1 -- 1 -- -- 1 -- -------- -------- -------- -------- -------- -------- --------- -------- (LOSS) INCOME BEFORE INCOME TAXES AND MINORITY INTEREST (3) (26) 9 12 (7) (31) (38) 7 Provision for income taxes -- (1) (1) (1) -- -- -- (1) Minority interest in (income) loss -- -- -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- --------- -------- NET (LOSS) INCOME (3)% (27)% 8% 11% (7)% (31)% (38)% 6% ======== ======== ======== ======== ======== ======== ========= ========
1. For the quarter ended March 31, 2002, Creative has adopted EITF Issue No. 01-9, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)." As a result, certain consideration paid to distributors and resellers of its products has been reclassified as a revenue offset rather than as selling, general and administrative expense. Prior quarters' financial data have been reclassified to conform to this presentation. 2. Other charges for the quarter ended June 30, 2002 relates to the write-off of in-process technology arising from the acquisition of 3Dlabs. For the quarter ended March 31, 2001 includes $8.4 million in restructuring charges, fixed assets impairment write-downs of $3.2 million and write-off of other assets acquired from Aureal amounting to $11.2 million. CRITICAL ACCOUNTING POLICIES AND ESTIMATES GENERAL Management's Discussion and Analysis of Financial Condition and Results of Operations are based upon Creative's Consolidated Condensed 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 judgements 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. For the rest of the other critical accounting policies that might affect the management's more significant estimates and assumptions used in the preparation of its consolidated financial statements, please refer to the Form 20-F filed on October 31, 2002. Page 12 RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2001 Net sales for the first quarter of fiscal 2003 (Q1/03) decreased by 11%, compared to the same quarter (Q1/02) in the prior fiscal year. The lower revenue in this quarter was mainly attributed to the difficult global economic climate where several major U.S. retailers have encountered slowing sales. Audio product sales (Sound Blaster audio cards and chipsets) in Q1/03 decreased by 40% compared to Q1/02, primarily due to the continued weakness in the system integrator channel and a short delay in the introduction and shipment of new audio product, Sound Blaster Audigy 2. The delay has affected the overall audio sales because the shipments of other existing audio products had been limited to prepare the channel for the transition. As a percentage of sales, audio product sale decreased from 51% in Q1/02 to 34% in Q1/03. Sales of speakers in Q1/03 were about the same as Q1/02, but as a percentage of sales, it has increased marginally to 20% in Q1/03 compared to 17% in Q1/02. The increased was primarily due to the higher demand in the new models of multi-media speakers. Sales of personal digital entertainment ("PDE") products, which includes digital audio players and digital cameras increased by 64% and represented 14% of sales in Q1/03, compared to 8% of sales in Q1/02. This increase was mainly attributed to the sales of NOMAD MuVo launched in the beginning of Q1/03. Sales of graphics and video products in Q1/03 was four times higher than Q1/02 and represented 13% of sales in Q1/03, compared to 2% in Q1/02. The increase was mainly contributed by sales of graphic cards from 3Dlabs Inc ("3Dlabs"), which was acquired by Creative in May 2002. Sales of multimedia upgrade kits, which includes data storage kits decreased by 81% to 2% of sales in Q1/03, compared to 9% of sales in the same quarter in the prior fiscal year. This decline is in line with Creative's current business strategy of de-emphasizing the lower margin products. Sales of other products, which includes communication products, music products, accessories and other miscellaneous items, were 17% of sales in Q1/03, compared to 13% Q1/02. Gross profit, as a percentage of sales, was 36% in Q1/03 compared to 31% in Q1/02. This improvement in gross profit was primarily a result of the new business strategy of shifting away from low margin and high-risk products and focus on audio, speaker and PDE products. Selling, general and administrative expenses ("SG&A") in Q1/03 were 3% lower than Q1/02, but as a percentage of sales, SG&A expenses were 26% in Q1/03, compared to 24% in Q1/02. The marginal increase in SG&A expenses was primarily due to the addition of operating expenses incurred by 3Dlabs. Creative's research and development expenses ("R&D") as a percentage of sales has increased to 10% of sales in Q1/03, compared to 5% in Q1/02. The increase was mainly relating to the R&D expenses incurred by 3Dlabs. Net investment losses of $6.3 million in Q1/03 comprised $5.6 million in permanent write-downs of quoted investments and $0.7 million net loss from sales of investments. In Q1/02, net loss from investments of $16.4 million comprised $3.6 million net gains from sales of investments and $20.0 million losses from write-downs from quoted and unquoted investments. Net interest and other income decreased by $0.6 million to $0.8 million in Q1/03 compared to $1.4 million in Q1/02. This decrease was primarily due to an exchange loss of $0.6 million in Q1/03 versus an exchange gain of $0.5 million in Q1/02 and a decline in interest income of $0.5 million due to lower interest rates, offset partially by dividend income of $0.9 million from investments. Tax provision as a percentage of income before taxes and minority interest excluding net loss or gain from investments declined slightly from the previous 5% in Q1/02 to 4% in Q1/03. This reduction was primarily due to a lower taxable income and changes in the mix of taxable income arising from various geographical regions. Page 13 LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents as of September 30, 2002 increased by $15.1 million to $182.0 million, compared to the balance of $166.9 million at June 30, 2002. Cash generated from operating activities was $24.5 million despite net loss of $5.0 million, mainly due to adjustments for non-cash items of $14.7 million and $17.0 million increase in accounts payable, offset by a net reduction in other accrued liabilities and income taxes payable of $2.8 million. The $14.7 million adjustment in non-cash items to net loss included depreciation and amortization of $8.0 million, deferred share compensation amortization of $1.2 million and write downs of investments of $5.6 million. $7.2 million utilized in investing activities comprised primarily capital expenditures of $3.1 million and purchase of investments of $4.8 million. Cash used in financing activities of $2.2 million was mainly due to repayment of long-term obligations. As of September 30, 2002, in addition to the cash reserves and excluding long term loans, Creative had unutilized credit facilities totaling approximately $111.6 million for overdrafts, guarantees and letters of credit. Creative continually reviews and evaluates investment opportunities, including potential acquisitions of, and investments in, companies that can provide Creative with technologies, subsystems or complementary products that can be integrated into or offered with its existing product range. Creative generally satisfies its working capital needs from internally generated cash flows. Management believes that Creative has adequate resources to meet its projected working capital and other cash needs for at least the next twelve months. To date, inflation has not had a significant impact on Creative's operating results. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The following table presents the contractual obligations and commercial commitments of Creative as of September 30, 2002:
PAYMENTS DUE BY PERIOD (US$'000) ---------------------------------------------------------------------------- LESS THAN 1 TO 3 4 TO 5 AFTER 5 CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR YEARS YEARS YEARS - ----------------------- -------- --------- -------- -------- -------- Short Term Debt $ 1,418 $ 1,418 $ -- $ -- $ -- Long Term Debt 26,727 18,241 8,486 -- -- Capital Lease Obligations 7,176 3,504 3,588 84 -- Operating Leases 48,637 11,418 17,983 5,816 13,420 Unconditional Purchase Obligations 62,826 62,826 -- -- -- Other Long Term Obligations 1,631 1,631 -- -- -- -------- -------- -------- -------- -------- TOTAL CONTRACTUAL CASH OBLIGATIONS $148,415 $ 99,038 $ 30,057 $ 5,900 $ 13,420 ======== ======== ======== ======== ========
As of September 30, 2002, Creative has utilized approximately $1.7 million under guarantees, letters of credit, overdraft and short-term loan facilities. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the EITF has set forth in EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." The scope of SFAS 146 also includes (1) costs related to terminating a contract that is not a capital lease and (2) Page 14 termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS 146 will be effective for exit or disposal activities that are initiated after December 31, 2002. Creative does not expect the adoption of this statement to have a material impact on Creative's financial statements. In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and the accounting and reporting provisions relating to the disposal of a segment of a business of Accounting Principles Board Opinion No. 30. Adoption of SFAS 144 is not expected to have a material impact on Creative's consolidated financial statements. ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------ ---------------------------------------------------------- EQUITY PRICE RISKS: Creative is exposed to equity price risk on its investments in marketable equity securities and quoted investments. An aggregate 10% reduction in market prices of Creative's investments in marketable equity securities and quoted investments, based on a sensitivity analysis of the balance as of September 30, 2002, would have a $3.7 million adverse effect on Creative's results of operations and financial position. Creative's results of operations for the period ended September 30, 2002 included $5.6 million of losses from permanent write-downs of quoted investments. INTEREST RATE RISK: Changes in interest rates could impact Creative's anticipated interest income on its cash equivalents and interest expense on its debt. Due to the short duration of Creative cash deposits and terms of its debt, an immediate 10% increase in interest rates would not have a material adverse impact on Creative's future operating results and cash flows. FOREIGN CURRENCY EXCHANGE RISK IN THE RATE OF EXCHANGE OF REPORTING CURRENCY RELATIVE TO US$: The functional currency of Creative and its subsidiaries is predominantly the U.S. dollar and accordingly, gains and losses resulting from the translation of monetary assets and liabilities denominated in currencies other than the U.S. dollar are reflected in the determination of net income (loss). Creative enters into forward exchange contracts to reduce its exposure to foreign exchange translation gains and losses. Forward exchange contracts are marked to market each period and the resulting gains and losses are included in the determination of net income or loss. No forward exchange contracts were outstanding at September 30, 2002. Included in interest and other expenses for the period ended September 30, 2002, are exchange losses of $0.6 million. The exchange rates for the S$ and Euro utilized in translating the balance sheet at September 30, 2002, expressed in US$ per one S$ and Euro were 0.5631 and 0.9769, respectively. Page 15 PART II - OTHER INFORMATION - --------------------------- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS RESULTS OF ANNUAL GENERAL MEETING At the conclusion of the Annual General Meeting of shareholders held on November 20, 2002, the Company announced that all resolutions set forth in the Proxy Statement dated October 21, 2002 filed with the Securities and Exchange Commission were successfully adopted and passed by its shareholders. Page 16 SIGNATURE - --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CREATIVE TECHNOLOGY LTD. /s/ NG KEH LONG ------------------------------------ NG KEH LONG CHIEF FINANCIAL OFFICER DATE: DECEMBER 31, 2002 Page 17 -----END PRIVACY-ENHANCED MESSAGE-----