REVENUE RECOGNITION Revenue from product sales is recognised when persuasive evidence of an arrangement exists, title and risk of loss transferred, delivery has occurred, price is fixed or determinable, and collectibility is probable. Allowances are provided for estimated returns, discounts and warranties. Management analyzes historical returns, current economic trends and changes in customer demand and acceptance of its products when evaluating the adequacy of the sales returns allowance. Such allowances are adjusted periodically to reflect actual and anticipated experience. When recognizing revenue, Creative records estimated reductions to revenue for customer and distributor programs and incentive offerings, including price protection, promotions, other volume-based incentives and rebates. Creative may take action to increase customer incentive offerings, possibly resulting in an incremental reduction of revenue at the time the incentive is offered. Significant management judgement and estimates must be used in connection with establishing these allowances in any accounting period. If market conditions were to decline, Creative may take action to increase customer incentive offerings, possibly resulting in an incremental reduction of revenue at the time the incentive is offered. ALLOWANCES FOR DOUBTFUL ACCOUNTS, RETURNS AND DISCOUNTS Creative establishes allowances for doubtful accounts, returns and discounts for specifically identified doubtful accounts, returns and discounts based on credit profiles of its customers, current economic trends, contractual terms and conditions and historical payment, return and discount experience. Management performs ongoing credit evaluations of customers financial condition and uses letters of credit in certain circumstances. Credit insurance coverage is obtained when coverage is available and feasible. However, Creative is not able to procure credit insurance coverage for all customers as insurers have excluded certain customers and geographic markets. In the event actual returns, discounts and bad debts differ from these estimates, or Creative adjust these estimates in future periods, its operating results and financial position could be adversely affected. VALUATION OF INVENTORIES Creative states inventories at the lower of cost or market. Management performs a detailed assessment of inventory at each balance sheet date to establish provisions for excess and obsolete inventories. Evaluation includes a review of, among other factors, historical sales, current economic trends, forecasted sales, demand requirements, product lifecycle and product development plans, quality issues, and current inventory levels. In the event that Creative adjusts its estimates, such as forecasted sales and expected product lifecycles, its operating results and financial position could be adversely affected.

VALUATION OF INVESTMENTS Creative holds equity investments in various companies from less than 1% to 100% of the issuers outstanding capital stock. Investments in companies in which Creative acquires more than 50% of the outstanding capital stock, or which are under Creatives effective control, are treated as investments in subsidiaries, and the balance sheets and results of operations are fully consolidated after making an allowance for any minority interests. Companies in which Creatives investments total between 20% and 50% of such companys capital stock are treated as associated companies and recorded on an equity basis, whereby the cost of investment is adjusted to recognise Creatives share of all post acquisition results of operations. As for investments of less than 20%, non-quoted investments are carried at cost, less provisions for permanent impairment where necessary, and quoted investments are reported at fair value with the unrealised gains and losses included as a separate component of shareholders equity. The investment portfolio is monitored on a periodic basis for impairment. Creatives investments in these companies are inherently risky because the markets for the technologies or products they have under development are typically in the early stages and may never develop. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis for the investment is established. Fair values for investments in public companies are determined using quoted market prices. Fair values for investments in privately-held companies are estimated based upon one or more of the following: pricing models using historical and forecasted financial information and current market rates, liquidation values, the values of recent rounds of financing, or quoted market prices of comparable public companies.
VALUATION OF INVESTMENTS (Contd) In order to determine whether a decline in value is other-than-temporary, Creative evaluates, among other factors: the duration and extent to which the fair value has been less than the carrying value; the financial condition of and business outlook for the company, including key operational and cash flow metrics, current market conditions and future trends in the companys industry, and the companys relative competitive position within the industry; and Creatives intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value. VALUATION OF GOODWILL AND OTHER INTANGIBLE ASSETS Creative uses the purchase method of accounting for business combinations, in line with Financial Accounting Standards Boards (FASB) Statement of Financial Accounting Standard (SFAS) No. 141 Business Combinations. The purchase method of accounting for acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price paid to the fair value of the net tangible and intangible assets acquired, including in-process technology. The allocation of the purchase price was based on independent appraisals. The amounts and useful lives assigned to intangible assets could impact future amortization; the amount assigned to in-process technology is expensed immediately. If the assumptions and estimates used to allocate the purchase price are not correct, purchase price adjustments or future asset impairment charges could be required. Creative reviews for impairment of goodwill on an annual basis. Reviews for impairment of goodwill and other intangible assets are also conducted whenever events indicate that the carrying amount might not be recoverable. Factors that Creative may consider important which could trigger an impairment review include the followings: significant under performance relative to expected historical or projected future operating results; significant changes in the manner of use of the acquired assets or the strategy for Creatives overall business; significant negative industry or economic trends; significant decline in Creatives stock price for a sustained period; and Creatives market capitalization relative to net book value.

When the existence of one or more of the above factors indicate that the carrying value of goodwill and other intangibles assets may be impaired, Creative measures the amount of impairment based on a projected discounted cash flow method using a discount rate determined by the management to be commensurate with the risk inherent in Creatives current business model. ASSESSMENT OF THE PROBABILITY OF THE OUTCOME OF CURRENT LITIGATION Creative records accruals for loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. ACCOUNTING FOR INCOME TAXES In preparation of the financial statements, Creative estimates its income taxes for each of the jurisdictions in which it operates. This involves estimating the actual current tax exposure and assessing temporary differences resulting from differing treatment of items, such as reserves and accruals for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within Creatives consolidated balance sheet. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and future taxable income for purposes of assessing the ability to realize any future benefit from its deferred tax assets. Valuation allowance is provided for Creatives deferred tax assets as management believes substantial uncertainty exists regarding the realizability of these assets. The Singapore corporate income tax rate is currently at 22.0%, the rate at which Creative is providing taxes on Singapore income. Creative was granted a Pioneer Certificate in 1990 under which income classified as pioneer status income is exempt from tax in Singapore, subject to certain conditions. As the Pioneer Certificate expired in March 2000, Creative has applied for a separate and new Pioneer Certificate. If Creative is awarded this new Pioneer Certificate, the effective tax rate will be reduced as profits under the new Pioneer Certificate will be exempted from tax in Singapore. In the event that actual results differ from these estimates or Creative adjust these estimates in future periods, its operating results and financial position could be materially affected.

Investing Activities: Net cash used for investing activities during fiscal 2003 was $12.3 million compared with $50.0 million in fiscal 2002. The amount used in fiscal 2003 comprises $15.7 million in capital expenditures, $5.5 million to purchase investments, and $4.9 million for the acquisition of other non-current assets. The cash used in investing activities was offset in part by the proceeds from the sale of fixed assets and quoted investments amounting to $2.6 million and $11.2 million, respectively. Net cash used for investing activities during fiscal 2002 was $50.0 million compared with $69.4 million in fiscal 2001. The amount used in fiscal 2002 comprises $25.8 million for the acquisition of 3Dlabs, net of cash acquired (see Note 16 of Notes to Consolidated Financial Statements), purchase of investments of $9.2 million, capital expenditures of $8.7 million, and the acquisition of other non current assets of $20.6 million. The cash used in investing activities was offset in part by the proceeds from sale of quoted investments amounting to $13.9 million.
Financing Activities: During fiscal 2003, $22.3 million was used for financing activities compared with $40.7 million in fiscal 2002. Cash used for financing activities included a $6.7 million decrease in minority shareholders loan and equity balance, a $4.0 million buyout of minority interest, $21.7 million repayments of debt obligations, $2.9 million repayments of capital leases and dividends payment of $21.9 million (see Note 8 of Notes to Consolidated Financial Statements) to shareholders and minority interest. The cash used in financing activities was offset partially by cash generated from exercises of stock options to purchase Creative ordinary shares, which amounted to $4.1 million and $30.8 million proceeds from debt obligations. During fiscal 2002, $40.7 million was used for financing activities compared with $125.7 million in fiscal 2001. Cash used for financing included $18.0 million to purchase and retire 2.7 million Creative ordinary shares (see Note 7 of Notes to Consolidated Financial Statements), $18.0 million for dividends paid (see Note 8 of Notes to Consolidated Financial Statements), $10.0 million to buyout a subsidiarys preference shares issued to minority interests (see Note 12 of Notes to Consolidated Financial Statements), and $2.8 million to repay debt obligations. The cash used in financing activities was offset partially by cash generated from exercises of stock options to purchase Creative ordinary shares amounting to $8.2 million. As of June 30, 2003, in addition to cash reserves and excluding long term loans, Creative has credit facilities totaling $92.5 million for overdrafts, guarantees, letters of credit and fixed short-term loans, of which approximately $87.9 million were unutilized. Creative continually reviews and evaluates investment opportunities, including potential acquisitions of, and investments in, companies that can provide Creative with technologies, subsystems or complementary products that can be integrated into or offered with its existing product range. Creative generally satisfies its working capital needs from internally generated cash flows. Management believes that Creative has adequate resources to meet its projected working capital and other cash needs for at least the next twelve months. To date, inflation has not had a significant impact on Creatives operating results.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The following table presents the contractual obligations and commercial commitments of Creative as of June 30, 2003:
Payments Due by Period (US$000) Less than 1 to to year years years $ 3,423 1,949 9,976 49,$ 6,845 8,764 1,439 14,027 $ 6,3,832 $
Contractual Obligations Long Term Debt Convertible Note Capital Lease Obligations Operating Leases Unconditional Purchase Obligations Other Obligations $
Total 29,091 8,764 3,433 40,939 49,470 522
After 5 years 11,978 13,104
Total Contractual Cash Obligations $

132,219

65,340

31,075

10,722

25,082

As of June 30, 2003, Creative has utilized approximately $4.6 million under guarantees, letters of credit, overdraft and short-term loan facilities.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Please refer to Note 1 of Notes to Consolidated Financial Statements for the discussion of recently issued accounting pronouncements.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CREATIVE TECHNOLOGY LTD.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and of shareholders equity present fairly, in all material respects, the financial position of Creative Technology Ltd. and its subsidiaries at June 30, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of Creatives management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers Singapore August 5, 2003
CONSOLIDATED BALANCE SHEETS
(In US$000, except per share data) June ASSETS Current assets: Cash and cash equivalents Marketable securities Accounts receivable, less allowances of $18,417 and $22,159 Inventory Other assets and prepaids Total current assets Property and equipment, net Investments Other non-current assets Total Assets LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: Accounts payable Accrued liabilities Income taxes payable Current portion of long term obligations and others Total current liabilities Long term obligations Minority interest in subsidiaries Shareholders equity: Ordinary shares (000); S$0.25 par value; Authorized: 200,000 shares Outstanding: 79,714 and 78,866 shares Additional paid-in capital Unrealized holding gains on quoted investments Deferred share compensation Retained earnings Total shareholders equity Total Liabilities and Shareholders Equity $ $ June 30 2002

Concentrations of credit risk Financial instruments that potentially subject Creative to significant concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable. Creative limits the amount of credit exposure to any one financial institution. Creative sells its products to original equipment manufacturers, distributors and key retailers. Creative believes that the concentration of credit risk in its trade receivables is substantially mitigated due to performance of ongoing credit evaluations of its customers financial condition, use of short collection terms, use of letters of credit in certain circumstances, procurement of credit insurance coverage and the geographical dispersion of sales. Creative establishes allowances for doubtful accounts, returns and discounts for specifically identified doubtful accounts, returns and discounts based on credit profiles of its customers, current economic trends, contractual terms and conditions and historical payment, return and discount experience. Stock-based compensation Creative accounts for stock-based employee compensation in accordance with Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and related Interpretations, and complies with the disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, and SFAS 148, Accounting for Stock-Based Compensation, Transition and Disclosures. Accordingly, compensation expense for stock options is measured as the excess, if any, of the fair market value of Creatives stock at the date of the grant over the stock option exercise price. See Note 9. Recently issued accounting pronouncements In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based Compensation, Transition and Disclosures. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS 148 requires disclosure of the pro forma effect in interim financial statements. Creative has adopted the interim and annual disclosure requirements of SFAS 148 in this fiscal year 2003. In January 2003, the Financial Accounting Standards Board issued FASB Interpretation (FIN) No. 46, Consolidation of Variable Interest Entities. Under that interpretation, certain entities known as Variable Interest Entities (VIE) must be consolidated by the primary beneficiary of the entity. The primary beneficiary is generally defined as having the majority of the risks and rewards arising from the VIE. For VIEs in which a significant (but not majority) variable interest is held, certain disclosures are required. FIN 46 requires disclosure of VIE in financial statements issued after January 31, 2003, if it is reasonably possible that as of the transition date: (1) the Company will be the primary beneficiary of an existing VIE that will require consolidation or, (2) the Company will hold a significant variable interest in, or have significant involvement with, an existing VIE. Any VIEs created after January 31, 2002, are immediately subject to the consolidation guidance in FIN 46. The measurement principles of this interpretation will be effective for the Companys 2003 financial statements. Creative does not have any significant entities that require disclosure or new consolidation as a result of adopting the provisions of FIN 46. In April 2003, the FASB issued SFAS 149, Amendment of SFAS 133 on Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133, Accounting for Derivative Instruments and Hedging Activities. In particular, this Statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative. It also clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003 and is not expected to have a material impact on Creatives financial position or results of operations. In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). SFAS 150 is effective for interim periods beginning after June 15, 2003. The adoption of SFAS 150 is not expected to have a material impact on Creatives financial position or results of operations.

As of June Other non-current assets: Goodwill Other intangible assets Other non-current assets 2002

91,976 8,765 7,616

91,976 17,894 5,252
Total other non-current assets

$ 108,357

$ 115,122
As of June Other accrued liabilities: Marketing accruals Payroll accruals Royalty accruals Other accruals Total other accrued liabilities $ 20,732 18,177 6,319 34,345 79,573 $ 2002 20,764 19,188 5,092 32,787 77,831
Other accruals of $34.3 million and $32.8 million as of June 30, 2003 and 2002 includes accruals for various operating expense items that individually account for less than 5% of the total current liabilities.
NOTE 4 PRODUCT WARRANTIES The warranty period for the bulk of Creatives products typically ranges between 1 to 3 years. The product warranty accrual reflects managements best estimate of probable liability under its product warranties. Management determines the warranty provision based on known product failures (if any), historical experience, and other currently available evidence. Changes in the product warranty accrual for the fiscal year 2003 was as follows (in US$000):
June 30, 2003 Balance as of June 30, 2002 Accruals for warranties issued during the period Adjustments related to pre-existing warranties (include changes in estimates) Settlements made (in cash or in kind) during the period Balance as of June 30, 2003 $ 2,292 2,660 (94) (2,023) 2,835
NOTE 5 LEASES AND COMMITMENTS Creative leases the use of land and certain of its facilities and equipment under non-cancelable operating lease arrangements. The land and facility leases expire at various dates through 2052 and provide for fixed rental rates during the terms of the leases. Minimum future lease payments for non-cancelable leases as of June 30, 2003, are as follows (in US$000):
Operating Leases Fiscal years ended June 30, 2008 Thereafter Total minimum lease payments $ 9,976 8,101 5,926 2,580 1,252 13,104 40,939
Rental expense under all operating leases was $11.9 million, $10.7 million and $11.8 million for fiscal 2003, 2002 and 2001, respectively. Future minimum lease obligations, which are secured by the underlying assets, as of June 30, 2003, under capital leases are as follows (in US$000):
Capital Leases Fiscal years ended June 30, 2008 Thereafter Total minimum lease payments Less: Amount representing interest Total capital lease obligations 30 $ 1,999 1,49 3,526 (93) 3,433

No options were granted under the 1999 Scheme in fiscal 2001. In fiscal 2002, Creative granted 7.1 million options under the 1999 Scheme at a weighted average exercise price of $4.57. Options to acquire 2.9 million shares were granted in fiscal 2002 below fair market value, resulting in a deferred share compensation of $0.8 million being amortized over the vesting period of the underlying options. The 7.1 million options that were granted in fiscal 2002 included 1.6 million Creatives options that were granted to assume 3Dlabs outstanding employee stock options. (See Note 16) In fiscal 2003, Creative granted 0.4 million options at fair market value under the 1999 Scheme at a weighted average exercise price of $6.99. Creative Employee Stock Option Plans A summary of options granted to employees and non-employee directors under Creatives stock option plans is presented below:
Options Outstanding Number of Shares (000) Balance as of June 30, 2000 Granted Exercised Canceled Balance as of June 30, 2001 Granted at fair market value below fair market value pursuant to the acquisition of 3Dlabs (see Note 16) Exercised Canceled Balance as of June 30, 2002 Granted at fair market value Exercised Canceled Balance as of June 30, 2003 1,641 (1,070) (913) 11,(566) (1,101) 10,592 3.93 6.45 9.18 6.56 6.99 4.58 7.44 6.59 8,894 (928) (1,185) 6,781 2,509 2,931 Weighted Average Exercise Price ($) 9.44 7.31 13.49 9.01 4.72 4.80
The total number of options exercisable at June 30, 2003, 2002 and 2001 under the New Plan and 1999 Scheme were 6,866,000, 4,031,000 and 3,843,000, respectively.
NOTE 9 EMPLOYEE SHARE PURCHASE AND STOCK OPTION PLANS (Contd) Summary of outstanding options under Creatives employee stock option plans The following table summarizes option information for Creatives employee stock option plans (New Plan and 1999 Scheme) as at June 30, 2003.
Options Outstanding Weighted Average Remaining Contractual Life (years) 7.86 8.28 7.90 5.91 6.67 7.19 Options Exercisable

Options Outstanding Number of Shares (000) Balance as of June 30, 2000 Options granted Options canceled Balance as of June 30, 2001 Options granted Options canceled Balance as of June 30, 2002 Options granted Options canceled Balance as of June 30, 2003 3,(2,540) 2,200 (2,195) 5 (5) Weighted Average Exercise Price ($) 1.98 2.45 1.80 2.39 2.39 2.50 2.50
Creative and Subsidiary Pro Forma Disclosures The fair value of the purchase rights under the Creative employee share purchase plan and stock option plan is estimated using the Black-Scholes model based on the following assumptions:
Fiscal 2003 Volatility Risk-free interest rates Share purchase plan Stock options Dividend yield Expected lives: Share purchase plan Stock options 6 months 0.01 years after vest date 6 months 0.01 years after vest date 6 months 2.18% to 3.26% 1.27% to 3.01% 3.0% 2.18% to 5.16% 2.16% to 5.16% 2.5% 3.78% to 6.09% 45% Fiscal 2002 60% Fiscal 2001 50%
NOTE 9 EMPLOYEE SHARE PURCHASE AND STOCK OPTION PLANS (Contd)
Years ended June Weighted average fair value of stock options granted: Stock options: At market Below market $ $ 1.70 $ $ 1.53 3.74 $ $ 2002 2001
The fair value of the purchase rights under the subsidiary stock option plan is estimated at the date of the grant using the Black-Scholes model based on the following assumptions:
Fiscal 2003 Volatility Risk-free interest rates Dividend yield Expected lives Fiscal 2002 Fiscal 2001 3.78% to 6.34% 0.01 years after vest date
The following table illustrates the effect on net income and earnings per share if the company had applied the fair value recognition provisions of SFAS 123, Accounting for Stock-Based Compensation, to stock-based employee compensation:
In US$000, except for per share data Years ended June Net income (loss) as reported Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects Add: Stock-based employee compensation expense included in reported net income, net of related tax effects Pro forma net income (loss) Earnings (loss) per share: Basic as reported Basic pro forma Diluted as reported Diluted pro forma $ $ $ $ 0.30 0.25 0.29 0.25 $ $ $ $ (0.27) (0.32) (0.27) (0.32) $ $ $ $ (1.65) (1.71) (1.65) (1.71) $ $ 23,377 $ 2002 (19,727) 2001 $ (130,373)

(7,309)

(6,031)

(6,960)

3,703 19,771 $

2,295 (23,463)

2,465 $ (134,868)
NOTE 10 INCOME TAXES Creative was granted a Pioneer Certificate in 1990 under the Singapore Economic Expansion Incentives (Relief from Income Tax) Act, Cap. 86 for the design and manufacture of digital computer video, audio and multimedia products, including personal computers and related components, chipsets and software but not including interest income. The Pioneer Certificate exempted income derived from such activities (Pioneer Income) from tax in Singapore, subject to certain conditions. The Pioneer Certificate expired in March 2000. Creative has applied for a separate and new Pioneer Certificate. If Creative is awarded this new Pioneer Certificate, profits under the new Pioneer Certificate will be exempted from tax in Singapore. For fiscal 2001, 2002 and 2003, corporate tax was provided for in full based on the standard tax rates of 24.5% for fiscal 2001 and 22% for fiscal 2002 and 2003, as the terms and agreements of the new Pioneer Certificate is currently still under negotiation as at to-date. The new Pioneer Certificate is expected to result in the reduction of Creatives provision for income taxes, subject to the terms and agreement by the Singapore Comptroller of Income Tax. The Singapore and other components of income (loss) before income taxes are as follows (in US$000):

Years ended June Singapore Other countries Income (loss) before income taxes and minority interest The provisions for income taxes consists of (in US$000): Years ended June Singapore Other countries Provisions for income taxes $ $ 2,2,720 $ $ 2002 4,5,698 $ $ 2001 7,8,409 $ $ 36,199 (10,181) 26,018 $ $ 2002 45,738 (57,924) (12,186) $ 2001 25,193 (146,688) $ (121,495)
Creatives effective tax provision for fiscal 2003, 2002 and 2001 reconciles to the amount computed by applying the Singapore statutory rate of 22.0% for 2003 and 2002 and 24.5% for 2001 to income before income taxes and minority interest, as follows (in US$000):
Years ended June Income tax (benefit) at Singapore statutory rate Tax excempt income Singapore Others Non-deductible expenses and write-offs Change in valuation allowances Rate differences and others Provisions for income taxes $ (11) 1,433 (6,106) 1,680 2,720 $ (13) 3,013 (657) 6,036 5,698 $ (834) 5,486 8,699 24,824 8,$ 5,724 $ 2002 (2,681) $ 2001 (29,766)
NOTE 10 INCOME TAXES (Contd) Deferred tax assets at June 30, 2003 and 2002 consisted of the following (in US$000):
As of June Non-deductible reserves Net operating loss carryforwards Other Total deferred tax assets Valuation allowance for deferred tax assets $ $ $ 26,110 70,390 1,971 98,471 (98,471) $ $ $ 2002 33,778 20,099 1,765 55,642 (55,642)
Creative had Irish net operating loss carryforward of nil and approximately $1.9 million at June 30, 2003 and June 30, 2002. US net operating loss carryforward is approximately $162.0 million and $47.8 million as at June 30, 2003 and June 30, 2002. The Irish net operating losses have an indefinite carryforward period while the US net operating losses expire between 2005 to 2022. The utilization of these net operating losses by Creative is subject to certain conditions. Valuation allowance is provided for Creatives deferred tax assets as management believes substantial uncertainty exists regarding the realizability of these assets. Creative has United States tax deductions not included in the net operating loss carryforward described above aggregating approximately $53.6 million at June 30, 2003 and June 30, 2002, as a result of the exercise of employee stock options, the tax benefit of which has not been realized. The tax benefit of the deductions, when realized will be accounted for as a credit to additional paid-in capital rather than a reduction of the income tax provision.
NOTE 11 DEBT OBLIGATIONS On March 13, 1996, Creative Technology Centre Pte Ltd (CTC), a Singapore subsidiary of Creative, entered into an agreement with two banks for an eight year term loan facility for up to S$60.0 million ($34.0 million) to finance the construction of Creatives headquarters building in Singapore. The loan is repayable in nineteen quarterly installments comprising eighteen installments of S$1.5 million ($0.9 million) and a final installment for the remaining S$30.9 million ($17.6 million). The repayment commenced on July 5, 1998. The interest on the outstanding loan balance is payable at the banks cost of funds plus 1.25%. The interest rate charged for fiscal 2002 was at 2.19%. The loan is secured by a first mortgage on the building and by way of a fixed and floating charge over all assets of CTC. At June 30, 2002, S$33.9 million ($19.2 million) was outstanding. The outstanding balance was fully repaid by CTC in January 2003. On November 21, 2002, CTC entered into a new nine year term loan facility for up to S$54.0 million ($30.8 million) with one of the banks. The loan is repayable in thirty-six quarterly installments of S$1.5 million ($0.9 million). The repayment commenced on March 31, 2003. The interest on the outstanding loan balance is based on banks floating rate plus margin 1.5%. The interest rate charged for fiscal 2003 was at 2.15%. The loan is secured by a first mortgage on the building and by way of a fixed and floating charge over all assets of CTC. At June 30, 2003, S$51.0 million ($29.1 million) was outstanding.

3Dlabs has an overdraft facility for 2.0 million Pounds Sterling expiring on December 31, 2002 and the outstanding balance was $3.7 million as at June 30, 2002. The facility charges interest at a rate of 1.0% above the banks currency base rate if the overdraft balance is less than 2.0 million Pounds Sterling and 4.0% above the banks currency base rate at any amount exceeding 2.0 million Pounds Sterling. The banks currency base rate was 4.0% at June 30, 2002. A $3.5 million restricted investment with a Bermuda financial institution was held as collateral for this facility in the form of a certificate of deposit (see Note 1). At June 30, 2003, the outstanding balance has been repaid in full and all liabilities discharged. In August 2000, 3Dlabs entered into a $1.0 million credit facility to finance certain software purchases. The facility requires equal quarterly installments of $0.25 million and expired December 31, 2001. The repayments under the credit facility were revised in 2001, resulting in equal monthly repayments of $0.08 million commencing January 2002. The advances under the facility accrue interest at a per annum rate of the banks currency base rate of 4.0% plus 1%. At June 30, 2002, $0.75 million was outstanding. A $1.0 million restricted investment with a Bermuda financial institution was held as collateral for this facility in the form of a certificate of deposit (see Note 1). At June 30, 2003, the outstanding balance has been repaid in full and all liabilities discharged. 3Dlabs has entered into a Loan and Security Agreement with a financial institution in an amount up to $20.0 million or 85% of the qualified accounts receivable of 3Dlabs U.S. companies, whichever is less. The Agreement expires in July 2004 and is secured by all tangible and intangible assets of 3Dlabs. Borrowings under the Agreement bear interest at 1.25% above the institutions prime rate. The Agreement contains certain covenants, including that 3Dlabs meet certain agreedupon financial covenants. There were no borrowings outstanding under the Agreement as at June 30, 2003. In December 1999, prior to its acquisition by Creative, 3Dlabs issued a subordinated convertible note to an investor in the principal amount of $7.5 million which matures in December 2004. The outstanding unpaid principal balance under the note bears interest at a rate of 4.5% per annum, payable upon conversion, prepayment or at maturity. The holder of the note has the option to convert all or a portion of the outstanding unpaid principal balance under the note plus interest into shares of 3Dlabs common stock at a conversion price of $5.563 per share or to transfer the note to a third party. At any time after June 2002, 3Dlabs has the option to require the noteholder to convert all or a portion of the outstanding unpaid principal balance under the note plus interest, so long as the weighted average closing share price of 3Dlabs common stock is equal to or greater than the conversion price of $5.563 for twenty trading days prior to the conversion date. In August 2002, after the closing of the acquisition of 3Dlabs by Creative, 3Dlabs, the noteholder and Creative entered into an amendment of the convertible subordinated note agreement and convertible subordinated note to allow the outstanding unpaid principal balance under the note plus interest to be convertible into ordinary shares of Creative, at the conversion price equal to $18.05. To-date, no conversion has been made. 3Dlabs may prepay the outstanding unpaid principal balance plus interest due upon thirty days prior written notice to the noteholder. The following table presents the payments due by period for the long term debt and capital lease obligations as of June 30, 2003:

Payments Due by Period (US$000) Debt Obligations Long Term Debt Convertible Note Capital Lease Obligations Total Debt Obligations $ $ Total 29,091 8,764 3,433 41,288 $ $ Less than 1 year 3,423 1,949 5,372 $ $ 1 to 3 years 6,845 8,764 1,439 17,048 $ 4 to 5 years $ 6,6,890 $ $ After 5 years 11,978 11,978
NOTE 11 DEBT OBLIGATIONS (Contd) Creative has various other credit facilities relating to overdrafts, letters of credit, bank guarantees and short term loans with several banks totaling approximately $92.5 million at June 30, 2003. Within these credit facilities, sub-limits have been set on how Creative may utilize the overall credit facilities. At June 30, 2003, $3.0 million in letters of credit and $1.6 million in bank guarantees were drawn under these facilities. Facilities under letters of credit and bank guarantees bear interest at approximately the banks prime rates, and for interest rates on overdraft and short term loan facilities, please see above comments.
NOTE 12 MINORITY INTEREST In May 2000, a wholly owned subsidiary issued 5.0 million convertible preference shares at $4.50 per share, resulting in net proceeds to the subsidiary of $22.5 million. In November 2001, Creative entered into agreements with the holders of these 5.0 million convertible preference shares to repurchase all such shares for $10.0 million cash. The repurchase was completed during the quarter ended March 31, 2002 and the excess of carrying value over the repurchase price paid of $11.8 million was credited to additional paid in capital. In July 2002, CTC declared dividends of approximately $4 million to its shareholders, namely Creative and Bukit Frontiers Pte Ltd (BFPL), a company owned by Creatives Chairman and CEO, Sim Wong Hoo. Creative and BFPL received a net dividend of approximately $2 million each. In accordance with the joint venture agreement with BFPL as approved by Creatives shareholders, in July 2002, Creative acquired from BFPL the remaining 50% interest that it did not currently own in its building located in the International Business Park in Singapore. The consideration payable by Creative for the 50% interest in CTC amounted to approximately $4 million. Additionally, Creative repaid the outstanding building-related loans of $7.1 million to BFPL. The financial consideration for the purchase of CTC shares was set at CTCs audited net asset valued at July 4, 2002, based on the value of the building as determined by an independent property appraiser. The acquisition was accounted for by the purchase method. The payment was allocated to land and buildings, deferred tax liability and against minority interest.