Creative Grows Q2 Revenues 50% Year-Over-Year to $375 Million

Creative Grows Q2 Revenues 50% Year-Over-Year to $375 Million Targeting for Continued Substantial Growth in Q3 of 50% Year-Over-Year SINGAPORE, Jan. 20 /PRNewswire-FirstCall/ -- Creative Technology Ltd. (NASDAQ:CREAF), a worldwide leader in digital entertainment products, today announced financial results for the second quarter of fiscal year 2005, ended December 31, 2004. All financial results are stated in U.S. dollars. Sales for the second quarter were up 50% to $375.1 million, from sales of $250.4 million in the same quarter last year. Sales for the first six months of fiscal year 2005 were $585.2 million, compared to $411.2 million for the same period last year. During the second quarter, Creative had a substantial investment gain of $51.5 million. Net income for the second quarter was $25.5 million with EPS of $0.30 before the investment gain and before a non-cash impairment charge of $65.2 million for goodwill and intangible assets relating to the acquisition of 3Dlabs in 2002. In accordance with U.S. GAAP, the non-cash impairment charge is included as a component of operating expenses. This net income compares to the same quarter last year before the benefit of a $12.3 million tax write-back and an investment gain of $0.9 million with net income of $28.3 million and EPS of $0.34. Net income for the second quarter, after the investment gain of $51.5 million and the non-cash impairment charge of $65.2 million, was $11.8 million, with earnings per share of $0.14. This compares to the same quarter last year after the benefit of a $12.3 million tax write-back and an investment gain of $0.9 million, with net income of $41.5 million and EPS of $0.50. Net income for the first six months of the 2005 fiscal year before investment gains of $50.3 million and a non-cash impairment charge on 3Dlabs of $65.2 million, was $31.5 million, with earnings per share of $0.37. This compares to the same six months last year before the benefit of a $12.3 million tax write-back and investment gains of $24.5 million with net income of $33.8 million and EPS of $0.41. Net income for the first six months of the 2005 fiscal year, after the non-cash impairment charge of $65.2 million and investment gains of $50.3 million, was $16.6 million, with earnings per share of $0.20. This compares to the same six months of last year after the benefit of a $12.3 million tax write-back and investment gains of $24.5 million with net income of $70.6 million and EPS of $0.85. As noted in its press release issued on January 11, Creative sold two million shares of its SigmaTel holdings in the second quarter, generating cash proceeds of $61.5 million, with net investment gains in the period of $51.5 million. After this sale, Creative still holds 3.7 million shares of SigmaTel stock. The goodwill and intangible assets impairment charge of $65.2 million in the quarter resulted from a review of the goodwill and intangible assets of 3Dlabs done in accordance with U.S. GAAP standard SFAS142: "Goodwill and Other Intangible Assets." Based upon the review, Creative wrote down a portion of the goodwill and intangible assets on the balance sheet attributed to the acquisition of 3Dlabs in 2002. This impairment charge is a non-cash event. "We're thrilled with the results from our holiday quarter. We sold two million MP3 players, we grew our revenues 50% year-over-year and we posted a substantial investment gain of $51.5 million. With the two million units sold in the quarter, we now have sold over five million MP3 players," said Craig McHugh, president of Creative Labs. "We had strong global demand and sales across the board for our MP3 players, particularly for our Zen Touch, our Zen Micro 5GB player and our MuVo Micro flash players. The Zen Micro 5GB, from the day we launched it in late November, proved to be a huge success with our retail launch partners, consumers and the press." "During the quarter we began our aggressive global marketing campaign for our Zen Micro and generated huge demand for the holidays, with the player selling out in many retail and online stores," said Sim Wong Hoo, chairman and CEO of Creative. "We continued the excitement at the 2005 Consumer Electronics Show in Las Vegas this month, where we had what many described as the hottest booth at the show, constantly packed with crowds of people buzzing about the Zen Micro. At the show we previewed our Zen Micro Photo, which generated significant excitement and won the prestigious 'Best of CES' award. With the phenomenal success of the Zen Micro and our exciting new MuVo flash players, we are going to continue to build on the strong momentum we are achieving with our MP3 players. I believe we are extremely well positioned against the flash products and pricing that were recently announced by Apple, as we have superior features and broad product lines that span the entire category. I also believe that Apple's entry into the flash market will create more awareness in the flash market segment, and we are well positioned to become a big beneficiary of this expanding market. We are going to continue our aggressive marketing and improve our already strong market position, and we are targeting to grow revenue substantially in the third quarter on a year-over-year basis by 50%." Outlook For the third quarter of fiscal year 2005, Creative is targeting to grow revenues by about 50% year-over-year, to approximately $300 million. Gross margins are expected to be about 27%, and operating expenses are expected to be approximately 22% of sales. Share Buyback Program During the quarter, Creative did not repurchase any shares under its share buyback program. Recent Announcements -- At the 2005 Consumer Electronics Show in Las Vegas, Creative previewed the Zen Micro Photo, the MP3 player featuring a stunning 262,144-color OLED screen -- Creative introduced the 1GB, 4GB and 5GB Zen Micro MP3 players in ten electrifying colors -- Creative introduced the limited edition, THX-certified Sound Blaster(R) Audigy(R) 4 Pro sound card, featuring outstanding ADVANCED HD audio playback quality of up to 113dB SNR and an entirely new Entertainment Center software suite -- Creative introduced a new category of travel speakers which attach directly to a notebook PC screen with the TravelSound(TM) Notebook 500, a compact, ultra-portable, eight inch speaker system with neo-titanium microdrivers for excellent audio quality -- Creative announced a partnership with world champion PC gamer, Johnathan "Fatal1ty" Wendel, to collaborate on the design and technical specifications for a variety of PC input devices and audio solutions -- Creative introduced its Zen Micro Wireless Headphone technology based upon the Aura LibertyLink(R) LL888 chipset -- Creative introduced the USB Sound Blaster Audigy 2 ZS Video Editor, a full-featured, THX-certified Sound Blaster Audigy 2 ZS USB audio solution for true one-step video capture to burning of a DVD disc on a desktop or notebook PC -- 3Dlabs announced that the Wildcat(R) Realizm(TM) 100 and 200 professional graphics accelerators have been certified and selected for the HP Workstation xw6000 and xw8000 -- Cambridge SoundWorks announced an agreement with Ready To Play that allows customers to drop off CDs and have their music loaded onto MP3 players Awards & Accolades -- The Creative Zen Micro Photo won the "Best of CES 2005" award for the "Audio To Go" category from G4techTV -- The Creative Zen Micro received: -- The "Editor's Choice" award from PC Magazine -- The "Editor's Choice" award from CNET.com -- The "Editor's Choice" award from Computer Shopper magazine -- A 5 out 5 star rating from About.com -- The Creative PCMCIA Sound Blaster Audigy 2 ZS Notebook won: -- The "Extremetech Approved" award from Extremetech.com -- The "Editor's Choice" award from PC Magazine -- The "Editor's Choice" award from CNET.com -- The "Editor's Choice" award from LAPTOP magazine -- The Creative Zen Portable Media Center won the "Tip Pick" award from Tip magazine -- The Creative MuVo(R) TX FM won the "Editor's Choice" award from Urban Climber magazine -- The Creative MuVo TX was recognized as the "Best Midprice MP3 Player" by Glamour magazine -- The Creative Zen Touch won the "Editor's Choice" award from E-Gear magazine -- The Creative Sound Blaster Audigy 2 ZS won: -- The "Gear of the Year" award from Maximum PC magazine -- "Gear of the Year -- Best Tech of 2004" recognition from GamersDepot.com -- The Creative GigaWorks(TM) S750 won "Gear of the Year -- Best Tech of 2004" recognition from GamersDepot.com -- The 3Dlabs Wildcat Realizm 200 won the "2004 Front Line Award" for the "Hardware" category from Game Developer magazine Listen to Creative's Q2 FY05 Analyst Conference Call: Link to the Q2 earnings conference call live on January 20th at 1:00 p.m. Singapore time or at 9:30 p.m. Singapore time (8:30 a.m. Eastern time) via Creative's Investor Relations Web site: http://us.creative.com/corporate/investor/ or by calling 800-374-2493. A replay will be available from shortly after the end of the conference call until February 4th via the same link from the IR web site or by calling 800-642-1687 or 706-645-9291. The reservation number to listen to the first call is 3401464. To listen to the second call, enter reservation number 3506180. About Creative Creative is a worldwide leader in digital entertainment products. Famous for its Sound Blaster audio cards and for launching the multimedia revolution, Creative is now driving digital entertainment on the PC platform with products like its highly acclaimed NOMAD Jukebox. Creative's innovative hardware, proprietary technology, applications and services leverage the Internet, enabling consumers to experience high-quality digital entertainment -- anytime, anywhere. This announcement refers to products and pricing sold in the United States of America. Pricing and product availability are subject to change without notice. Sound Blaster, I-Trigue, Creative TravelSound, Audigy, GigaWorks, MuVo, Wildcat and Realizm are trademarks of Creative Technology Ltd. in the United States and/or other countries. All other brand and product names are trademarks of their respective holder and are hereby recognized as such. Safe Harbor for Forward-Looking Statements: This press release contains forward-looking statements. These forward-looking statements represent Creative's expectations or beliefs concerning future events including those related to Creative's estimated revenue and gross margin for the quarter ended March 31, 2005. These forward-looking statements involve 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; 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; a reduction or cancellation of sales orders for Creative products; accelerated declines in the average selling prices of Creative's products; Creative's ability to successfully manage its expanding operations; the vulnerability of certain markets to current and future currency fluctuations; the effects of restricted fuel availability and rising costs of fuel; fluctuations in the value and liquidity of Creative's investee companies; and the potential decrease in trading volume and value of Creative's Ordinary Shares as a result of the continuing Flow Back Restriction that commenced on June 1, 2003 and Creative's previous plan and any future plans to delist from NASDAQ and to eliminate its U.S. reporting obligations. 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 2004 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. CREATIVE TECHNOLOGY LTD. CONSOLIDATED BALANCE SHEETS (In US$' 000) (Unaudited) December 31, June 30, 2004 2004 ASSETS Current Assets: Cash and cash equivalents $246,332 $211,077 Accounts receivable, net 201,503 85,456 Inventory 334,128 183,899 Other assets and prepaids 38,605 27,156 Total current assets 820,568 507,588 Property and equipment, net 112,503 106,198 Investments 205,859 209,291 Other non-current assets 49,439 117,771 Total Assets $1,188,369 $940,848 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $233,219 $86,179 Accrued liabilities 112,637 88,542 Income taxes payable 29,131 28,160 Current portion of long term obligations and others 7,035 7,205 Total current liabilities 382,022 210,086 Long term obligations 133,108 35,614 Minority interest in subsidiaries 4,304 3,651 Shareholders' equity 668,935 691,497 Total Liabilities and Shareholders' Equity $1,188,369 $940,848 CREATIVE TECHNOLOGY LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (In US$' 000, except per share data) (Unaudited) Three months ended Six months ended December 31, December 31, 2004 2003 2004 2003 Sales, net $375,142 $250,422 $585,162 $411,238 Cost of goods sold 273,398 161,494 418,215 265,842 Gross profit 101,744 88,928 166,947 145,396 Operating expenses: Selling, general and administrative 56,931 47,108 96,999 84,425 Research and development 22,620 16,800 42,338 31,638 Impairment of goodwill/ intangible assets 65,225 -- 65,225 -- Total operating expenses 144,776 63,908 204,562 116,063 Operating (loss) income (43,032) 25,020 (37,615) 29,333 Gain from investments, net 51,539 937 50,335 24,507 Interest income and other, net 5,750 5,259 7,018 6,973 Income before income taxes and minority interest 14,257 31,216 19,738 60,813 Provision for income taxes (2,236) 10,433 (2,771) 9,916 Minority interest in income (178) (165) (348) (160) Net income $11,843 $41,484 $16,619 $70,569 Basic earnings per share: $0.14 $0.52 $0.20 $0.88 Weighted average ordinary shares outstanding ('000) 82,320 80,522 81,882 80,212 Diluted earnings per share: $0.14 $0.50 $0.20 $0.85 Weighted average ordinary shares 85,930 83,683 85,083 83,160 and equivalents outstanding ('000) Source: Creative Technology Ltd. CONTACT: USA, Phil O'Shaughnessy, +1-408-546-6773, or poshaughnessy@creative.com, or Asia, Wynne Leong, +65-6895-4120, or wynne.leong@ctl.creative.com, both of Creative Technology Ltd. Web site: http://www.creative.com/ ------- Profile: International Entertainment