Creative Announces Q2 FY06 Financial Results With Revenues of $390.8 Million

Creative Announces Q2 FY06 Financial Results With Revenues of $390.8 Million

SINGAPORE, Jan. 25 /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 2006, ended December 31, 2005. All financial results are stated in U.S. dollars.

Sales for the second quarter were $390.8 million, up from sales of $375.1 million in the same quarter last year. Sales for the first six months of fiscal year 2006 were $671.0 million, compared to $585.2 million for the first six months of the previous fiscal year.

Net income for the second quarter was $8.2 million with EPS of $0.10, including an investment gain of $6.9 million. Excluding the investment gain, net income for the second quarter was $1.3 million with EPS of $0.02. This compares to net income of $11.8 million with EPS of $0.14 for the same quarter last year including an investment gain of $51.5 million and a non-cash impairment charge of $65.2 million for goodwill and intangible assets relating to the acquisition of 3Dlabs in 2002. Excluding the investment gain and non-cash impairment charge, net income for the same period last year was $25.5 million with EPS of $0.30.

Net income for the first six months of the 2006 fiscal year was $8.9 million, with EPS of $0.11, including investment gains of $16.9 million. Excluding the investment gain, net loss for the first six months of the 2006 fiscal year was $8.0 million, with loss per share of $0.10. This compares to net income of $16.6 million with EPS of $0.20 for the same period last year, including investment gains and the non-cash impairment charge. Excluding the investment gain and non-cash impairment charge, net income for the first six months of the previous fiscal year was $31.5 million with EPS of $0.37.

"During the quarter we achieved several key results. Of primary importance we achieved our goal of returning to profitability," said Craig McHugh, president of Creative Labs, Inc. "Our revenue in the quarter was the highest for any quarter in the past five years, with increased year-over-year sales in each of our key product categories -- MP3 players, audio, web cams and PC and MP3 speakers. The Zen Vision:M, our 30GB MP3, photo and video player was launched in December. We reduced our net inventory 18 percent from the previous quarter. In the next few quarters, we plan to further lower our inventory, reduce our overall level of operating expenses, and we will increase our focus on our higher-margin businesses."

"We're very excited about the introduction of our Zen Vision:M, MP3, photo and video player. We launched the Zen Vision:M in the U.S. at the Consumer Electronics Show in Las Vegas in January, where it won the 'Best of CES' award for the MP3 and portable video category and received the overall 'Best in Show' award," said Sim Wong Hoo, chairman and CEO of Creative. "We competed against thousands of companies, including all the big names in consumer electronics, to be recognized for the best product at the largest annual trade show in the United States. Being chosen as the best new product at the show validates our strategy to provide the coolest-looking, most feature-rich portable media players in the world."

Share Buyback Program

During the quarter, Creative did not repurchase any shares under its share buyback program.

Recent Announcements

Creative introduced the Zen Vision:M 30GB MP3, photo and video player. Featuring a dazzling, 2.5-inch, high-resolution 262,144 color LCD display, the Zen Vision:M holds 15,000 songs, thousands of photos and 120 hours of video, and is available in high-gloss black, white, blue, green or pink.

-- Creative announced that the Zen Vision:M won the overall "Best in Show" award at the Consumer Electronics Show and the "Best of CES" award in the MP3 and portable video category.

-- Creative announced ZenCast(TM), the new application for accessing, creating and transferring thousands of audio and video blogs for Creative Zen MP3 players.

-- Creative announced the Live!(R) Wireless, an easy-to-use web camera that utilizes a wireless network to enable remote viewing of a home or office from any Internet-enabled PC, PDA or mobile phone.

-- Creative announced the latest addition to its award-winning GigaWorks(TM) speaker family -- the THX-certified GigaWorks(TM) ProGamer G550W. Featuring wireless audio transmission to its two rear speakers, the GigaWorks ProGamer G550W delivers powerful surround sound audio for music, movies and games.

-- Creative announced the Fatal1ty 2020 Mouse, the only PC gaming mouse co-developed with 2005 Cyberathlete Professional League Worldwide Champion gamer, Johnathan "Fatal1ty" Wendel. A winning combination both in design and technology, the Fatal1ty 2020 Mouse features a 2400cpi HD-Laser engine that offers up to 6X the resolution of standard optical mice.

-- Creative introduced the Skype Internet PhonePLUS, a phone for the home or office that enables users to connect directly to a router to make free Skype calls. Functioning like a traditional phone, the Skype Internet PhonePLUS provides a new way to experience Skype without requiring a PC.

Awards & Accolades

-- The Creative Zen Vision:M received:
- The "Best in Show" award at the Consumer Electronics Show
- The "Best of CES" award for the "MP3 and Portable Video" category at
the Consumer Electronics Show
-- The Creative Zen Vision received:
- A 5 out of 5 rating from About.com
- The "Innovations Award" from PC World magazine
-- The Creative Zen MicroPhoto won the "Editor's Choice" award from
CNET.com
-- The Creative Sound Blaster X-Fi received:
- The "Best of What's New" award from Popular Science magazine
- The "Gear of the Year" award from Maximum PC magazine
- The "Editor's Choice" award from TechReport.com
- The "Editor's Choice" award from Globetechnology.com (Canada)

-- The Creative GigaWorks ProGamer G500 won the "Editor's Choice" award from Official Xbox Magazine

Listen to Creative's Q2 FY06 Analyst Conference Call:

Link to the Q2 earnings conference call live on January 26th at 8:00AM

Singapore time (January 25th at 7:00PM Eastern time) via Creative's Investor

Relations Web site: http://us.creative.com/corporate/investor/

or by calling 1-800-374-2493.

A replay will be available from shortly after the end of the conference call

until February 1st via the same link from the IR web site or by calling 1-800-642-1687 or 1-706-645-9291. The reservation number to listen to call is

4606136.

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, Live!, X-Fi, GigaWorks, ZenCast and Zen are trademarks or registered 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 including statements relating to Creative's plan to lower its inventory, reduce its operating expenses, and focus on higher-margin products. 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; exposure to excess and obsolete inventory; accelerated declines in the average selling prices of Creative's products; 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, personal digital entertainment products and related consumer products as a result of poor economic conditions, social and political turmoil or 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; 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; fluctuation in component prices; Creative's ability to protect its proprietary rights; a reduction or cancellation of sales orders for Creative 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 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 U.S. Securities and Exchange Commission ("SEC"), including its annual report for fiscal 2005 filed on Form 20-F. 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,
2005 2005
ASSETS

Current Assets:
Cash and cash equivalents $200,390 $187,246
Accounts receivable, net 204,301 163,184
Inventory 301,128 395,886
Other assets and prepaids 43,356 43,144

Total current assets 749,175 789,460

Property and equipment, net 116,133 117,187
Investments 98,156 125,914
Other non-current assets 46,610 44,913

Total Assets $1,010,074 $1,077,474

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
Accounts payable $114,018 $151,070
Accrued liabilities 122,813 103,768
Income taxes payable 18,382 20,712
Current portion of long term obligations
and others 6,134 7,383

Total current liabilities 261,347 282,933

Long term obligations 207,001 209,455
Minority interest in subsidiaries 3,659 3,954
Shareholders' equity 538,067 581,132

Total Liabilities and Shareholders' Equity $1,010,074 $1,077,474

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,
2005 2004 2005 2004

Sales, net $390,826 $375,142 $670,999 $585,162

Cost of goods sold 305,440 273,398 529,047 418,215

Gross profit 85,386 101,744 141,952 166,947

Operating expenses:

Selling, general and
administrative 55,220 56,931 100,485 96,999

Research and development 22,734 22,620 42,661 42,338

Impairment of goodwill /
intangible assets -- 65,225 -- 65,225

Total operating expenses 77,954 144,776 143,146 204,562

Operating income (loss) 7,432 (43,032) (1,194) (37,615)

Gain from investments, net 6,880 51,539 16,908 50,335

Interest income 1,399 651 2,394 1,361

Interest expense (2,244) (456) (4,261) (607)

Others (5,140) 5,555 (4,988) 6,264

Income before income
taxes and minority
interest 8,327 14,257 8,859 19,738

Provision for income taxes (115) (2,236) (253) (2,771)

Minority interest in
(income) loss (1) (178) 296 (348)

Net income $8,211 $11,843 $8,902 $16,619

Basic earnings per share: $0.10 $0.14 $0.11 $0.20

Weighted average ordinary
shares outstanding ('000) 82,740 82,320 83,148 81,882

Diluted earnings per share: $0.10 $0.14 $0.11 $0.20

Weighted average
ordinary shares 83,532 85,930 84,111 85,083
and equivalents
outstanding ('000)

CREATIVE TECHNOLOGY LTD.
SUPPLEMENTAL FINANCIAL INFORMATION

Three months ended
Dec 31, Sept 30, Dec 31,
2005 2005 2004

Revenue by geographical region :
Americas 37% 41% 42%
Europe 48% 39% 39%
Asia and rest of the world 15% 20% 19%

Revenue by product category :
Personal Digital Entertainment 67% 66% 64%
Audio 13% 13% 13%
Speakers 13% 13% 15%
Others 7% 8% 8%

Source: Creative Labs, Inc.

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

Web site: http://www.creative.com/

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