UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 or 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Creo Products Inc.
3700 Gilmore Way
Burnaby, BC
V5G 4M1
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F
Form 20-F [X] Form 40-F [ ]
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934
Yes [ ] No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b):
82-N/A
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CREO PRODUCTS INC.
FORM 6-K
TABLE OF CONTENTS
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PAGE
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<S> <C>
Consolidated Statement of Operations and Retained
Earnings for the three and nine months ended
June 30, 1999 and 1998 3
Consolidated Balance Sheets as of June 30, 1999
and September 30, 1998 4
Consolidated Statements of Cash Flows for the three
and nine months ended June 30, 1999 and 1998 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
</TABLE>
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<TABLE>
CREO PRODUCTS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(Unaudited)
(Amounts in thousands of U.S. dollars, except per share data)
<CAPTION>
Three months ended Nine months ended
June 30 June 30
------------------ -----------------
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Product revenue $36,796 $30,835 $101,690 $84,055
Service revenue 7,524 3,037 20,687 9,066
------- ------- -------- -------
44,320 33,872 122,377 93,121
Cost of sales 23,669 18,325 64,357 51,514
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20,651 15,547 58,020 41,607
------- ------- -------- -------
Research and development, gross 8,771 5,098 22,027 14,060
R&D funding (4,671) (3,487) (12,652) (9,216)
------- ------- -------- -------
Research and development, net 4,100 1,611 9,375 4,844
Sales and marketing 7,625 5,723 22,021 15,824
General and administration 2,591 2,189 6,574 6,068
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14,316 9,523 37,970 26,736
------- ------- -------- -------
Earnings from operations 6,335 6,024 20,050 14,871
Other income (expenses) and
foreign exchange gain (loss) 1,320 (278) 727 (1,077)
------- ------- -------- -------
Earnings before income taxes 7,655 5,746 20,777 13,794
Income tax expense 2,943 2,219 8,434 5,141
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Net earnings for period $ 4,712 $ 3,527 $ 12,343 $ 8,653
======= ======= ======== =======
Earnings per common share
- basic $ 0.17 $ 0.14 $ 0.45 $ 0.35
======= ======= ======== =======
- fully diluted (Cdn GAAP) $ 0.15 $ 0.13 $ 0.41 $ 0.32
======= ======= ======== =======
- fully diluted (US GAAP) $ 0.16 $ 0.10 $ 0.43 $ 0.29
======= ======= ======== =======
Retained earnings (deficit),
beginning of the period $10,825 $(2,770) $ 3,194 $(7,896)
Net earnings for period 4,712 3,527 12,343 8,653
------- ------- -------- -------
Retained earnings (deficit)
end of the period $15,537 $ 757 $ 15,537 $ 757
======= ======= ======== =======
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CREO PRODUCTS INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands of U.S. dollars)
<CAPTION>
June 30 September 30
1999 1998
(Unaudited) (Audited)
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<S> <C> <C>
ASSETS
Current Assets
Cash $ 42,621 $ 16,224
Accounts receivable 31,987 24,385
Inventories, at the lower of cost
and net realizable value 30,232 25,151
Prepaid expenses 3,420 2,212
----------- ------------
Total Current Assets 108,260 67,972
Capital assets 38,209 34,146
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TOTAL ASSETS $ 146,469 $ 102,118
=========== ============
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<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
<S> <C> <C>
Current liabilities
Accounts payable and accrued
liabilities $ 21,040 $ 17,878
Income taxes payable 2,731 825
Future income taxes 61 87
Deferred revenue and deposits 21,321 13,677
Current portion of long-term debt 296 943
----------- ------------
Total Current Liabilities 45,449 33,410
Long-Term Debt 6,438 6,660
Share Capital
Unlimited voting common shares, NPV
and unlimited preferred shares
issuable in series
Issued and outstanding -
28,072,182 (1998: 25,052,098)
shares 79,045 58,854
Retained Earnings 15,537 3,194
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94,582 62,048
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TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $ 146,469 $ 102,118
=========== ============
</TABLE>
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<TABLE>
CREO PRODUCTS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands of U.S. dollars)
<CAPTION>
Three months ended Nine months ended
June 30 June 30
------------------ -----------------
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Cash provided by (used in)
operations:
Net earnings $ 4,712 $ 3,527 $ 12,343 $ 8,653
Items not affecting cash:
Amortization 1,691 1,298 4,289 3,467
Future income taxes 181 (52) (26) (151)
Incentive shares issued - - - 78
Loss (gain) on disposal
of capital assets (13) (8) (49) 2
------- ------- -------- -------
6,571 4,765 16,557 12,049
Changes in non-cash working
capital:
Accounts receivable (64) (1,278) (7,601) (7,545)
Inventories (3,171) (363) (5,081) (476)
Prepaid expenses 1 221 (1,209) (752)
Accounts payable and accrued
liabilities 3,559 (623) 3,162 (1,526)
Income taxes payable 659 882 1,906 1,060
Deferred revenue/deposits 534 1,337 7,644 993
------- ------- -------- -------
1,518 176 (1,179) (8,246)
------- ------- -------- -------
8,089 4,941 15,378 3,803
Cash provided by (used in)
investing:
Purchase of capital assets (2,683) (15,324) (8,527) (20,926)
Proceeds from sale of capital
assets 11 77 224 1,029
------- ------- -------- -------
(2,672) (15,247) (8,303) (19,897)
Cash provided by (used in)
financing:
Proceeds from share issues 128 132 20,191 157
Repayment of long-term debt (74) (387) (869) (2,713)
------- ------- -------- -------
54 (255) 19,322 (2,556)
------- ------- -------- -------
Increase (decrease) in cash
and cash equivalents 5,471 (10,561) 26,397 (18,650)
Cash and cash equivalents,
beginning of period 37,150 22,563 16,224 30,652
------- ------- -------- -------
Cash and cash equivalents,
end of period $42,621 $12,002 $ 42,621 $12,002
======= ======= ======== =======
Supplementary information:
Taxes paid $ 814 $ 498 $ 2,794 $ 1,473
Interest paid $ 110 $ 128 $ 373 $ 402
</TABLE>
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CREO PRODUCTS INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
June 30, 1999
To Our Shareholders
The three months ended June 30, 1999 was a milestone quarter for the company.
On May 14, 1999, we filed our preliminary prospectus both in Canada and the
United States. This was the first important step towards the company going
public on the NASDAQ and Toronto stock exchanges. In June 1999 we installed
our 1000th computer-to-plate system, effectively bringing our install base to
more than twice that our nearest competitor.
Our net income for the three months ended June 30, 1999 was the highest in any
quarter in the company's history at $4.7 million or $0.16 per share (fully
diluted - US GAAP) compared to $3.5 million or $0.10 per share for the three
months ended June 30, 1998.
Total revenue for the three months ended June 30, 1999 increased 30.8% to
$44.3 million from $33.9 million for the three months ended June 30, 1998.
Total revenue for the nine months ended June 30, 1999 increased 31.4% to
$122.4 million from $93.1 million for the nine months ended June 30, 1998.
Product revenue from our joint venture with Heidelberg increased 79.0% to
$14.5 million for the three months ended June 30, 1999 from $8.1 million for
the three months ended June 30, 1998. This increase was primarily due to
increased sales activity on the part of Heidelberg. Product revenue from our
joint venture with Heidelberg increased 70.0% to $41.6 million for the nine
months ended June 30, 1999 from $24.4 million for the nine months ended June
30, 1998.
Service revenue increased 147.7% to $7.5 million for the three months ended
June 30, 1999 from $3.0 million for the three months ended June 30, 1998. This
increase in service revenue was due to fees generated from additional customer
support agreements entered into in connection with new product sales. Service
revenue increased 128.2% to $20.7 million for the nine months ended June 30,
1999 from $9.1 million for the nine months ended June 30, 1998.
Cost of sales increased 29.2% to $23.7 million for the three months ended June
30, 1999 from $18.3 million for the three months ended June 30, 1998. This
increase was primarily due to the increase in our product sales and our
installed customer base. Cost of sales decreased as a percentage of total
revenue to 53.4% for the three months ended June 30, 1999 from 54.1% for the
three months ended June 30, 1998. Cost of sales increased 24.9% to $64.4
million for the nine months ended June 30, 1999 from $51.5 million for the
nine months ended June 30, 1998. Cost of sales decreased as a percentage of
total revenue to 52.6% for the nine months ended June 30, 1999 from 55.3% for
the nine months ended June 30, 1998.
Gross research and development expenses increased 72.0% to $8.8 million for
the three months ended June 30, 1999 from $5.1 million for the three months
ended June 30, 1998. This increase was due to a 50.9% increase in the number
of research and development personnel and the increase in the amount of
materials used for prototyping and developing new products. Gross research
and development expenses increased 56.7% to $22.0 million for the nine months
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ended June 30, 1999 from $14.1 million for the nine months ended June 30,
1998.
Outside funding of our research and product development activities increased
34.0% to $4.7 million for the three months ended June 30, 1999 from $3.5
million for the three months ended June 30, 1998. Outside funding of our
research and product development activities increased 37.3% to $12.7 million
for the nine months ended June 30, 1999 from $9.2 million for the nine months
ended June 30, 1998.
As a result of these factors affecting gross research and development expenses
and research and development funding, net research and development expenses,
which represent gross research and development expenses less outside funding,
increased 154.5% to $4.1 million for the three months ended June 30, 1999 from
$1.6 million for the three months ended June 30, 1998. Net research and
development expenses increased 93.5% to $9.4 million for the nine months ended
June 30, 1999 from $4.8 million for the nine months ended June 30, 1998.
Sales and marketing expenses increased 33.2% to $7.6 million, or 17.2% of
total revenue, for the three months ended June 30, 1999 from $5.7 million, or
16.9% of total revenue, for the three months ended June 30, 1998. This
increase was primarily due to the increase in sales activity. Sales and
marketing expenses increased 39.2% to $22.0 million, or 18.0% of total
revenue, for the nine months ended June 30, 1999 from $15.8 million, or 17.0%
of total revenue, for the nine months ended June 30, 1998.
General and administration expenses increased 18.4% to $2.6 million, or 5.8%
of total revenue, for the three months ended June 30, 1999 from $2.2 million,
or 6.5% of total revenue, for the three months ended June 30, 1998. This
increase was primarily due to the growth of our business. General and
administration expenses increased 8.3% to $6.6 million, or 5.4% of total
revenue, for the nine months ended June 30, 1999 from $6.1 million, or 6.5% of
total revenue, for the nine months ended June 30, 1998.
Income tax expense increased to $2.9 million, or 38.4% of pre-tax income, for
the three months ended June 30, 1999 from $2.2 million, or 38.6% of pre-tax
income, for the three months ended June 30, 1998. This increase was primarily
due to the increase in our profitability. Income tax expense increased to $8.4
million, or 40.6% of pre-tax income, for the nine months ended June 30, 1999
from $5.1 million, or 37.3% of pre-tax income, for the nine months ended June
30, 1998.
This report contains both historical information and forward-looking
information. Numerous important factors affect our operating results and
could cause the actual results to differ materially from the results indicated
in this report or in any other forward looking statements made by us or on our
behalf. There can be no assurance that future results will meet expectations.
Among the factors which could affect our future results are: (1) the failure
of our computer-to-plate solutions to gain broad market acceptance among small
and mid-size printers; (2) our ability to re-channel our resources fast enough
if our joint venture with Heidelberg were to be terminated; (3) our ability to
establish necessary relationships with plate suppliers and press
manufacturers, and to maintain our existing relationships; and (4) our ability
to overcome significant and increasing competition in the digital prepress
market and to adapt to new technologies and changing demands of our customers.
We do not assume any obligation to update the forward-looking information
contained in this report.
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CREO PRODUCTS INC.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
CREO PRODUCTS INC.
Registrant
August 12, 1999 Amos Michelson
Date Amos Michelson
Chief Executive Officer
August 12, 1999 Tom Kordyback
Date Tom Kordyback
Chief Financial Officer
