Sales for the first quarter were $241.5 million, which compares to sales of $280.2 million for the same quarter last year. Net loss for the first quarter was $21.0 million, compared to net income of $0.7 million for the same period last year. Loss per share was $0.25 compared to earnings per share of $0.01 for the same period last year.

"On August 24 we announced our broad settlement with Apple and our expectations that the one-time licensing payment of $100 million from Apple to Creative would contribute approximately 85 cents per share," said Craig McHugh, president of Creative Labs, Inc. "We received the payment from Apple on October 6, and we will account for the license payment in the current quarter. We're very pleased that the license payment is subject to a lower- than-expected effective tax rate, so we will recognize an even larger after- tax profit of $82 million with EPS of 98 cents from the payment in the current quarter."

"In addition to the $100 million paid-up license we received from Apple for use of the ZEN Patent, the settlement provides us with a significant new market opportunity," continued McHugh. "We can now develop products to market to the tens of millions of iPod users through our participation in the Made for iPod program. This provides expanded market potential for our speaker systems, our earphones and headphones and our family of X-Fi(R) Xtreme Fidelity(TM) audio enhancement products, including our recently announced Xmod.

"Over the past months we've been exploring strategic alternatives for streamlining and improving our operations," continued McHugh.

"As a part of that process we determined that our best course of action was to sell a majority interest and control of our CUBIC manufacturing operations in Malaysia. We have agreed to terms of a sale of 80.1 percent of our interest in CUBIC with a venture-backed group led by the current management team of the CUBIC operation. We expect to receive approximately $40 million in cash for sale consideration and repayment of inter-company balances. We expect to recognize a profit of approximately $5 million from the sale upon completion of the transaction. We anticipate a transition period for the operation, and then we will outsource some product production to the facility going forward as a term of the sale agreement.

We're very pleased by this agreement, as we have a high level of confidence and trust in the management team and the quality of production from the CUBIC operation. We expect to close the transaction in approximately three months."

"In the current quarter, in addition to the significant profit contribution from our licensing of our ZEN Patent, we are focused on improving our results in key areas," added McHugh. "We are targeting to increase our gross margin to 20 percent or above. In addition, we are working to bring operating expenses in line with our targeted gross margin in helping to achieve profitability by the end of the December quarter."

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