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Creative exceeded revenue expectations for the second quarter, reporting sales of $250.9 million for the period. The Company had forecasted a lower revenue base of $225 to $240 million for the quarter - a reduction from the previous year's Q2 revenues of $427 million - as a result of Creative's planned de-emphasis of certain product categories and the difficult economic climate.
Earnings per share were well ahead of expectations at $0.36. This was an increase from the previous year's Q2 earnings per share of $0.33.
Net income for the second quarter was $26.3 million compared to $26.5 million for the same quarter last year. Second quarter fiscal 2002 net income includes investment gains of $0.7 million, compared to gains of $0.5 million for the same quarter of the previous year.
Sales for the first six months of fiscal year 2002 were $433.2 million, compared to $731.4 million for the same period last year. Net income for the first six months of fiscal 2002 was $13.5 million or $0.18 per share, compared to net income of $44.1 million or $0.53 per share for the same period last year. Net income for the first six months of fiscal 2002 includes investment losses of $15.7 million or $0.21 per share. Net income for the first six months of the previous year includes investment gains of $2.9 million or $0.03 per share.
"We posted solid results for the holiday quarter," said Craig McHugh, president of Creative Labs, Inc. "Although the quarter started slowly and consumer holiday buying came very late this year, we were able to finish strong, particularly in the European region, and beat our revenue target for the period. The focus on our core audio product areas enabled us to increase our gross margin to 33.3%. This improved gross margin percentage, the higher-than-expected revenue base, and our ongoing efforts to keep operating expenses down were the major factors in surpassing our goal of $0.25 EPS - growing EPS more than nine percent year-over-year to $0.36."
"As I stated last quarter, I believe the Sound Blaster® Audigy platform will establish an entirely new standard for audio entertainment, and it sets the stage for a whole new family of our future audio products," said Sim Wong Hoo, Chairman and CEO of Creative. "We made great progress in establishing this standard, with a rapid adoption of the Sound Blaster Audigy in retail. The Sound Blaster Audigy continued its momentum of positive press from last quarter and received even more outstanding reviews, including prestigious 'Editor's Choice' awards from PC Magazine, Computer Shopper magazine and Computer Games magazine."
"We now plan to build upon the excitement of the Sound Blaster Audigy with the introduction of the Sound Blaster Extigy, the first external Sound Blaster," continued Sim. "We announced the Sound Blaster Extigy at this year's Consumer Electronics Show in Las Vegas, where CNET and ZDNET named it one of their 'Top Picks of CES.' The Sound Blaster Extigy extends our leadership in PC audio by delivering the stunning digital 24-bit, 96kHZ, 100dbSNR audio clarity of the Sound Blaster Audigy for the first time outside the PC. With the Sound Blaster Extigy's easy-to-use and ubiquitous USB connection, we can now offer super high-quality multi-channel audio to two new markets we've never been able to address before: notebook users and desktop users who don't want to install an add-in card."
During the quarter, Creative continued its share buy-back program, repurchasing approximately 1.2 million shares at a cost of $8.2 million. Subject to market price and conditions and securities law restrictions, the company plans to continue its buyback program.
Sound Blaster is a registered trademark and Live!, Audigy and Extigy are trademarks of Creative Technology Ltd. in the United States and other countries. NOMAD is a registered trademark of Aonix and is used by Creative Technology Ltd. and/or its affiliates under license in the United States and/or other countries. All other brand and product names are either trademarks or registered trademarks of their respective holder and are hereby recognized as such.
Safe Harbor for Forward-Looking Statements Under The Private Securities Litigation Reform Act of 1995:
Except for the historical information contained herein and in the corresponding conference call, the matters set forth herein and in the call (including all references to future financial performance, products and marketing efforts) are forward-looking statements within the meaning of the "safe harbor" provisions of The Private Securities Litigation Reform Act of 1995. Readers of this press release and listeners to the corresponding conference call are cautioned not to place undue emphasis or reliance on these forward-looking statements which reflect management's analysis, judgement, belief or expectation only as of the date of this press release and corresponding conference call. These forward-looking statements are subject to certain assumptions, risks and uncertainties that could cause actual results to differ materially from those set forth or implied in the forward looking statements. Such assumptions, risks and uncertainties include, among others: possible disruption in commercial activities, occasioned by terrorist activity and armed conflict which may, among other things, result in delays in, or damage to, the manufacture, shipment, or storage of Creative's products, or customers delaying or canceling purchasing decisions as a result of increased broad economic and safety concerns; the cost-cutting measures Creative has taken and plans to take may be insufficient or may fail to achieve the anticipated cost reduction benefits; further deterioration of the global stock market and overall reduction in demand for computer systems, peripherals and related products in general, and Creative's products specifically; increased exposure to excess and obsolete inventory; higher overhead costs as a percentage of revenue; 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; the timely development, ramp, shipment, delivery, and market acceptance of new products, including Creative's next generation of audio and personal digital entertainment appliances; the increasing proliferation of sound functionality in new products from new and existing competitors and at the application software, chip and operating system levels; reductions in the market value of products sold by Creative, including increases in inventory or declines in demand or prices for storage devices, digital entertainment appliances, board and chip-level products, software, speakers, and other products; reductions in revenues and gross margins due to numerous factors, including declines in average selling prices of Creative's products, failure to reduce costs, divestments of low margin product lines or businesses, and increased inventories and pricing pressure from competitors; the short product cycles that characterize most of Creative's products; further fluctuations in the value and liquidity of Creative's investee companies, including any losses that may result from the increased volatility for technology stocks and potential price reductions of carrying values of our investee companies; potential fluctuations in quarterly results due to the seasonality of Creative's business and the difficulty of projecting such fluctuations; the vulnerability of certain markets to current and future currency fluctuations, including the exchange rate of the Euro; labor shortages or work stoppages; credit shortages; effects of restricted fuel availability and rising costs of fuel; 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 volatility of share prices for companies in Creative's industry and the effect of those prices or other events beyond Creative's control, including acts of war, terrorist attacks, or adverse changes in general economic conditions; and other risk factors described herein and in Creative's other filings with the Securities and Exchange Commission over the past twelve months, including without limitation, Creative's Form 20-F dated October 10, 2001. Creative urges you to consider all such factors. Creative undertakes no obligation to publicly release the results of any revisions to such forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.