Creative Announces Q2 FY07 Financial Results

Creative Announces Q2 FY07 Financial Results

SINGAPORE, Jan. 30 /PRNewswire/ -- Creative Technology Ltd. (NASDAQ:CREAF), a worldwide leader in digital entertainment products, today announced financial results for the second quarter of fiscal year 2007, ended December 31, 2006. All financial results are stated in U.S. dollars.

Revenues for the second quarter were $424.4 million, compared to revenues of $390.8 million for the same quarter last year. The revenues for the second quarter include a $100 million paid-up license from Apple for use of the Creative ZEN Patent in its products.

The paid-up license from Apple contributed $82.0 million to net income and EPS of $0.98 in the second quarter. Including this contribution, net income for the second quarter was $92.1 million with EPS of $1.10. This compares to net income of $8.2 million with EPS of $0.10 for the same period last year including an investment gain of $6.9 million. For comparative purposes, excluding the contribution from the Apple payment and investment gains in the second quarter, net income was $9.9 million, compared to net income of $1.3 million, excluding the investment gain for the same period last year.

"We're very pleased with the sales of our ZEN V and ZEN V Plus players in the holiday quarter. Overall, we sold a total of 2.5 million of our MP3 players in the period," said Craig McHugh, president of Creative Labs, Inc. "With the strong sales of our flash-based ZEN players in the period, we achieved our goals of bringing gross margins above 20 percent and returning to profitability. These results are even before taking into account the revenue and profit contribution from the paid-up license from Apple for use of the ZEN Patent."

"In the current third quarter, we have taken several steps to reduce our operating expenses and streamline our businesses," continued McHugh. "We announced the outsourcing of our European assembly and distribution operations, with a planned headcount reduction of approximately 200 employees. We scaled down or closed some of our smaller, unprofitable business units in the U.S., with headcount reduction of approximately 100 employees. As a result of these actions, we incurred approximately $4.4 million in restructuring costs in the second quarter. With our continuing efforts to reduce operating costs, we expect to incur additional restructuring costs in the current third quarter that will impact our results. We otherwise are targeting to be about break-even for the current period before special charges for restructuring. With the strong demand we anticipate for our ZEN MP3 players, and with the expectation that flash memory prices will continue to remain at low levels, we are targeting gross margins above 20 percent and to be profitable for each of the following quarters in the 2007 calendar year, before special charges if any, for restructuring."

Recent Announcements

Creative introduced the Xdock Wireless, Live! Cam Optia, Video Blaster Editor, TravelSound ZEN V, and Cambridge SoundWorks PlayDock i and PlayDock ZEN. For more information visit www.creative.com.

Awards & Accolades
-- The Creative Xmod won the "Editor's Choice" award from LAPTOP magazine.
-- The Creative Xdock Wireless and X-Fi received a "Best of CES" award
from LAPTOP magazine.
-- The Creative ZEN Vision:M won a PC Magazine's "Best of the Year" award.

Listen to Creative's Q2 FY07 Analyst Conference Call:

Link to the Q2 earnings conference call live on January 31 at 8:00AM Singapore time (January 30 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 6th
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 6848770.

About Creative

Creative is a worldwide leader in digital entertainment products. Famous for its Sound Blaster(R) audio cards and for launching the multimedia revolution, Creative is now driving digital entertainment on the PC platform with products like its highly acclaimed ZEN portable audio and media players. Creative's innovative hardware, proprietary technology, applications and services leverage the Internet, enabling consumers to experience high-quality digital entertainment -- anytime, anywhere.

NOTE: 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, X-Fi, Xtreme Fidelity, Live!, Video Blaster, Xmod 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 gross margins, operating expenses, restructuring costs, profitability and the market potential for its 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; a reduction or cancellation of sales orders for Creative products; accelerated declines in the average selling prices of Creative's products or any prices of components; 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; 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 SEC, including its Form 20-F for fiscal 2006 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,
2006 2006
ASSETS
Current Assets:
Cash and cash equivalents $234,406 $213,995
Accounts receivable, net 190,927 133,002
Inventory 201,234 234,942
Other assets and prepaids 41,791 53,248

Total current assets 668,358 635,187

Property and equipment, net 103,859 109,174
Investments 69,584 74,581
Other non-current assets 11,099 11,671

Total Assets $852,900 $830,613

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
Accounts payable $63,291 $104,923
Accrued liabilities 122,363 100,690
Income taxes payable 17,859 18,930
Current portion of long term
obligations and others 4,006 4,737

Total current liabilities 207,519 229,280

Long term obligations 205,176 206,593
Minority interest in subsidiaries 276 1,587
Shareholders' equity 439,929 393,153

Total Liabilities and Shareholders' Equity $852,900 $830,613

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,
2006 2005 2006 2005

Revenue $424,356 $390,826 $665,868 $670,999

Cost of goods sold 253,706 305,440 459,318 529,047

Gross profit 170,650 85,386 206,550 141,952

Operating expenses:

Selling, general
and administrative 52,366 55,220 94,193 100,485

Research and
development 14,958 22,734 30,821 42,661

Total operating
expenses 67,324 77,954 125,014 143,146

Operating income
(loss) 103,326 7,432 81,536 (1,194)

Gain (loss) from
investments, net 225 6,880 (492) 16,908

Interest income 2,270 1,399 4,179 2,394

Interest expense (2,885) (2,244) (5,749) (4,261)

Others 6,994 (5,140) 8,827 (4,988)

Income before income
taxes and minority
interest 109,930 8,327 88,301 8,859

Provision for income
taxes (18,118) (115) (18,500) (253)

Minority interest
in loss (gain) 310 (1) 1,313 296

Net income $92,122 $8,211 $71,114 $8,902

Basic earnings
per share: $1.10 $0.10 $0.85 $0.11

Weighted average
ordinary shares
outstanding ('000) 83,394 82,740 83,358 83,148

Diluted earnings
per share: $1.10 $0.10 $0.85 $0.11

Weighted average
ordinary shares
and equivalents
outstanding ('000) 83,992 83,532 83,889 84,111

CREATIVE TECHNOLOGY LTD.
SUPPLEMENTAL FINANCIAL INFORMATION

Three months ended
**Dec 31, Sept 30, Dec 31,
2006 2006 2005

Revenue by geographical region:
Americas 34% 47% 37%
Europe 51% 38% 48%
Asia and rest of the world 15% 15% 15%

Revenue by product category:
Personal Digital Entertainment 68% 70% 67%
Audio 10% 10% 13%
Speakers 14% 13% 13%
Others 8% 7% 7%

**Note: Exclude License Revenue from ZEN Patent

FCMN Contact:

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

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

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