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Creative Technology Announces Fourth Quarter and Fiscal 2002 Operating Results in-line with Expectations

SINGAPORE - August 15, 2002 - Creative Technology Ltd. (Nasdaq: CREAF), the worldwide leader in digital entertainment products for users of personal computers and the Internet, today announced financial results for the fourth quarter and fiscal year 2002, ended June 30, 2002. All financial results are stated in U.S. dollars.

Before the revenue contribution and effects of the 3Dlabs acquisition, which was completed on May 15th, and excluding a write-down of investments of $29.8 million, Creative achieved fourth quarter revenues of $175.8 million with net income of $11.6 million or $0.15 per share, in line with expectations. Comparative results for the fourth quarter of last year were revenue of $233.3 million, with net income of $2.5 million or $0.03 per share before investment write-downs.

The effects of the 3Dlabs acquisition in the quarter included: a revenue contribution since May 15th of $6.8 million; gross margin of 40% or $2.7 million; operating expenses of $6.1 million including $2.5 million for amortization of intangible assets; and a one-time charge for in-process technology of $26 million.

Including the charges and effects related to the 3Dlabs acquisition and the write-down of investments in the period, Creative reported fourth quarter revenues of $182.6 million, with a net loss of $48.4 million or $0.65 per share, as noted in the attached financial statements. This compares to the previous year's fourth quarter revenue of $233.3 million, with a net loss of $73.4 million or $0.94 per share including investment write-downs.

For the fiscal year, excluding the charges and effects related to the 3Dlabs acquisition and investment write-downs, Creative reported revenues of $799.1 million, with net income of $55.8 million or $0.74 per share. This compares to the previous year's revenue of $1.226 billion, with net income of $40.9 million or $0.50 per share excluding net investment write-downs and restructuring charges.

For the fiscal year, including the charges and effects related to the 3Dlabs acquisition and investment write-downs, Creative reported revenue of $805.9 million, with a net loss of $19.7 million or $0.27 per share. This compares to the previous year's revenue of $1.226 billion with a net loss of $130.4 million or $1.65 per share including write-downs.

"We met our guidance for fourth quarter EPS excluding the effects of 3Dlabs and investment write-downs, growing EPS significantly over the same period last year," said Craig McHugh, president of Creative Labs, Inc. "We achieved these results, even though we experienced far lighter than expected demand in the fourth quarter from the system integrator and OEM markets. For the fiscal year, we beat our original guidance of $0.60 per share before special charges and the effects of the 3Dlabs acquisition, achieving $0.74 EPS before charges."

"During the quarter, given the depressed outlook for funding and valuation of early stage private technology companies, we took a $29.8 million write-down against our investment portfolio, predominantly as the result of re-valuing our private equity holdings, which are now valued at $15.9 million."

"We completed our acquisition of 3Dlabs in the quarter and are making good progress on our integration efforts. We have begun efforts to reduce costs, with a focus on turning around their operating results," said Hock Leow, president of 3Dlabs.

"We have taken significant steps forward with our industry-leading ultra high-end workstation visual processing products, and we have started shipping the new Wildcat® VP line, featuring the first fully programmable Visual Processing Unit," Leow continued. "The Wildcat VP line has received a very enthusiastic initial reception from the press and ISV community, and the multiple products in our Wildcat VP line target a broader segment of the workstation market than we have previously addressed. Our scalable architecture has allowed us to rapidly spin another lower-cost visual processor chip for the entry level workstation and volume desktop markets. This second visual processing chip is already fully functioning and we expect to ship before the end of the year."

"We had noted previously that we would be taking charges related to the acquisition of 3Dlabs as detailed above, and the statement of operations attached today incorporates these special charges and the effects of the acquisition," said Ng Keh Long, chief financial officer of Creative Technology Ltd. "In addition, our balance sheet reflects the goodwill and intangible assets of $109 million that we have added to our Other Non-current Assets as a result of the acquisition. Of the $109 million, $92 million will be carried on the books as goodwill, and we are going to amortize the remaining $17 million of identified intangibles, with the majority of the amortization taking place over the next three quarters, and the balance over the following five years."

"Even in such a tough economic and market climate, we see potential for exciting new products in digital entertainment in the second half of the calendar year. So we have continued to invest in R&D, focusing on innovation in our key product areas," said Sim Wong Hoo, chairman and CEO of Creative. "Over the coming weeks and months, as we move into the holiday selling season, we are preparing to launch many exciting new products. The first two of these new products just began shipping: the NOMAD® MuVo?, the world's smallest MP3 player and solid-state USB hard drive all in one; and the Creative ProdiKeys?, the revolutionary music and PC keyboard input device for interactive music entertainment. NOMAD MuVo has already won "Editor's Choice" awards from CNet and ZDNet, and was named 'Top Music Gadget' by Newsweek Online and pictured in Newsweek Magazine. And soon to be launched in Japan is the very exciting TravelSound? MP3 Titanium, the world's smallest digital stereo speaker system with built-in MP3 player."


Additional Items

Share Buyback Program

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

Creative to purchase remaining 50% interest in the Company's building in Singapore

In August, 2002, Creative will pay approximately $6.0 million for the remaining 50% interest that it does not currently own in its building located in the International Business Park in Singapore and, additionally, will repay outstanding building-related loans of approximately $7.1 million.

Background: In November 1994, Creative Technology Ltd. entered into a joint venture agreement with Bukit Frontiers Pte Ltd ("BFPL"), a company owned by Creative's Chairman and CEO, Sim Wong Hoo. The joint venture agreement, which was approved by Creative's shareholders, provided that Creative and BFPL would set up Creative Technology Centre Pte Ltd ("CTC") and each would hold 50% of CTC. CTC was set up to carry out the development of a building in Singapore to house all of Creative's Singapore operations (including corporate, manufacturing, research and development, and sales and marketing functions). The building was completed in July, 1997.

The joint venture was formed because Creative anticipated requiring only about 50% of the building space upon the expected completion of the building. Sim's participation and the creation of the joint venture allowed Creative to stagger its capital investment in the building and reduce its cost of funding, while providing Creative the further benefit of assured additional space in the same building when needed to house its then-expanding operations in Singapore, and allowing CTC to derive rental income from leasing of the space not occupied by Creative to third parties.

The land for the building was leased from a Singapore government body, Jurong Town Corporation ("JTC"), on a long-term lease. As a condition of the lease of land from JTC, at the end of the five-year term commencing with the completion of the building, Creative was required to purchase all of BFPL's shareholdings in CTC, such that Creative would then have an effective 100% ownership of the building.

In accordance with the joint venture agreement, the financial consideration for the purchase of CTC shares was set at CTC's net asset value at July 4th, 2002, as audited by Creative's auditors based on the value of the building as determined by an independent property appraiser. The total consideration to be paid by Creative for the shares held by BFPL in CTC is about $6.0 million. Thus, pursuant to the joint venture agreement, Creative will purchase the 50% interest in CTC from BFPL.

During the construction phase between 1995 and 1997, BFPL also made interest-free loans of $7.1 million to CTC. Creative, in taking over full control of CTC, shall repay the loan total of $7.1 million.

Product Announcements

  • Creative introduced the NOMAD MuVo, the world's smallest MP3 player and solid-state USB hard drive all in one.
  • Creative introduced ProdiKeys, the revolutionary music and keyboard input device for interactive music entertainment.
  • Creative announced the completion of its acquisition of 3Dlabs, Inc., the leader in ultra high-end graphics.
  • 3Dlabs, Inc. introduced the Wildcat VP, the industry's first programmable visual processor family.

Awards & Accolades

  • The NOMAD MuVo won:
    • The "Editor's Choice" award from CNET
    • The "Editor's Choice" award from ZDNet
    • "Top Music Gadget" from Newsweek online

  • The NOMAD Jukebox 3 won:
    • The "Editor's Choice" award from PC Gamer magazine
    • The "Kick Ass Award" from Maximum PC magazine
    • The "Ultimate Choice Award" from Laptop magazine
    • 5 out of 5 stars from InfoExame Brazil
    • The "TC! Seal of Approval" from Toronto Computes, Canada

  • The Sound Blaster® Extigy won:
    • The "Editor's Choice" award from Computer Shopper magazine
    • The "Editor's Choice" award from Computer Gaming World magazine

  • The Sound Blaster Audigy won:
    • The "World Class Award" for Best Sound card from PC World
    • 5 out of 5 stars from InfoExame Brazil

  • The Creative PC-CAM line won:
    • The "Editor's Choice" award from PC Magazine for the PC-CAM 300
    • The "Ultimate Choice Award" from Laptop magazine for the PC-CAM 600

  • The Cambridge SoundWorks MegaWorks® 510D won:
    • The "Editor's Choice" award from Computer Gaming World magazine
    • A 9 out of 10 rating on IGN

  • Selected Creative Inspire speaker systems won:
    • The "Editor's Choice" award from PC Upgrade magazine
    • The "FHM Best Buy" award from FHM magazine
    • 5 out of 5 stars from InfoExame Brazil


Listen to Creative's Q4 FY02 Analyst Conference Call:

Link to Q4 earnings conference call live on August 14th at 7:00 p.m. EDT via Creative's Investor Relations Web site: http:/www.creative.com/corporate/investor         A replay will be available from shortly after the end of the conference call until August 21st via the same link from the IR web site or by calling 1-800-633-8284, reservation # 20733849.

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About Creative

Creative (Nasdaq: CREAF) is the worldwide leader in digital entertainment products for users of personal computers and the Internet. 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 is subject to change.

Sound Blaster and the Creative logo are registered trademarks and Live! is a trademark of Creative Technology Ltd. in the United States and other countries. Cambridge SoundWorks is a registered trademark of Cambridge SoundWorks, Inc. in the United States and/or other countries. NOMAD is a registered trademark of Aonix and is used by Creative Technology Ltd. and/or its affiliates under license. 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 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; further deterioration of the System Integrator markets and failure of the System Integrators or OEMs to adopt Creative's products; the cost-cutting measures Creative has taken and plans to take may be insufficient or may fail to achieve the anticipated cost reduction benefits; 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; 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 and increased inventories and pricing pressure from competitors; 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; 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; and other risk factors described herein, in Creative's press release announcing the signing of the definitive agreement to acquire 3Dlabs dated March 11, 2002, and in Creative's 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


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