<PAGE>
[LETTERHEAD]
FOR IMMEDIATE RELEASE
CREO PRODUCTS INC. ANNOUNCES 2000 THIRD QUARTER:
RECORD REVENUE OF $162.6 MILLION AND
ADJUSTED EARNINGS* OF $13.7 MILLION OR $0.28 PER SHARE
(In thousands of U.S. dollars except earnings per share)
Vancouver, BC, Canada (August 1, 2000) Creo Products Inc. (NASDAQ - CREO, TSE -
CRE) (`Creo') reported adjusted earnings for the three months ended June 30,
2000 of $13.7 million or $0.28 per share (diluted - US GAAP) compared to $4.7
million or $0.16 per share for the three months ended June 30, 1999.
*The adjusted earnings excludes the effect of goodwill and other intangible
asset amortization, business integration costs and the equity loss from the
investment in Japan. The adjusted earnings is not prepared in accordance with
generally accepted accounting principles (GAAP) because it excludes these costs.
Total revenue for the three months ended June 30, 2000 (Q3) increased 266.8% to
$162.6 million from $44.3 million for the three months ended June 30, 1999.
Total revenue for the nine months ended June 30, 2000 increased 128.8% to $280.0
million from $122.4 million for the nine months ended June 30, 1999.
"We are very pleased with these operating results," said Raffi Amit, Co-Chair of
the Board of Creo. "This has been a remarkable accomplishment in light of
challenges the company faced in integrating these two business. Our shareholders
are beginning to realize the benefit from this merger."
On April 4, 2000, Creo acquired certain assets of Scitex Graphic Business and
shares of related subsidiaries for 13,250,000 shares of Creo. This acquisition
was valued at $508.0 million, which has been allocated to the assets and
liabilities acquired along with the related goodwill from the acquisition. The
acquisition was accounted for under the purchase method, with the results from
the operations of the Business acquired being included in the consolidated
financial statements of Creo commencing this quarter.
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"The acquisition of the Scitex pre-print operations was an important move for
us" said Amos Michelson, CEO of Creo. "Going forward we have broadened our
product offering and our sales distribution throughout the world and with our
merged innovative team, we have positioned ourselves for strong long-term
growth."
This is the first quarter that the Company's financial results include the
pre-print division of Scitex Corporation Ltd. acquired on April 4, 2000. The
following comparison is based on the results for the three months ended June 30,
2000 compared to the pro forma consolidation of the actual results of Creo and
the Scitex pre-print division for the quarter ended March 31, 2000. The Scitex
pre-print division results are extracted from Scitex Corporation's financial
statements for the quarter ended March 31, 2000.
The Statement of Operations this quarter includes business integration costs of
$8.2 million, goodwill and other intangible asset amortization of $18.1 million,
and the equity loss from the investment in Japan of $1.0 million. The following
is a pro forma summary of adjusted operations and earnings excluding these items
and has been prepared assuming the merger took place effective January 1, 2000
(in millions of U.S. dollars):
<TABLE>
<CAPTION>
Three months ended
June 30 March 31
2000 2000
(unaudited) (unaudited)
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue $ 162.6 $ 169.8
Cost of sales 91.1 96.8
---------------- ----------------
Gross profit 71.5 73.0
Research and development, net 14.2 19.0
Sales and marketing 24.7 24.5
General and administration 17.2 16.7
Other (income) expense 0.1 (1.7)
---------------- ----------------
Adjusted operating income 15.3 14.5
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Income tax expense (3.8) (4.8)
---------------- ----------------
Adjusted net operating income 11.5 9.7
Cash tax recovery from the amortization of
intellectual property 2.2 2.2
---------------- ----------------
Adjusted earnings $ 13.7 $ 11.9
================ ================
Adjusted earnings per share - fully diluted
under Canadian and US GAAP $ 0.28
===============
</TABLE>
Effective May 18, 2000, the joint venture between Heidelberg and Creo was
terminated, and the companies entered into an original equipment manufacture
(OEM) relationship on those products that were formerly in the joint venture.
Under this OEM relationship, Heidelberg has the right to continue to manufacture
and sell these products for at least the next two years.
Under our agreement on the termination of the joint venture, all equipment
orders that were received up to May 17, 2000 were considered joint venture
business and will be accounted for as the joint venture revenue when shipped.
All orders received after May 17, 2000 by Heidelberg will be accounted for as
OEM sales, whereby the company will record the full amount of the sale to
Heidelberg. Under this OEM relationship, Heidelberg will no longer continue to
fund R&D expenses on these products.
During Q3, all the shipments of these products were joint venture sales, since
all the orders were received prior to May 18, 2000. If these joint venture
shipments had been accounted for as OEM sales, the revenue of the company would
have increased by $11.5 million, offset by increased cost of sales of $5.2 and a
reduction in R&D funding of $0.4 million resulting in a net increase in
operating income of $5.9 million.
Total revenue for Q3 decreased $7.2 million to $162.6 million from $169.8
million for the three months ended March 31, 2000 (Q2). This was mainly due to a
decrease in equipment revenue from the joint venture with Heidelberg of $11.9
million offset by an increase in the non-joint venture products of $4.7 million.
Although the revenue from the joint venture in Q3 was low, we
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are entering our fourth quarter with a record level of sales backlog for these
products.
The following is a summary of our revenue for Q2 and Q3 (in thousands of US
dollars):
<TABLE>
<CAPTION>
Three months ended
June 30 March 31
2000 2000
(unaudited) (unaudited)
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Joint Venture $ 14,131 $ 26,023
Output division - includes computer to plate
(CTP) and computer to film 47,275 40,054
Workflow - Brisque and Prinergy software 25,758 23,759
Input division - scanners and digital cameras 10,217 12,586
Iris division - proofers 6,294 8,503
OEM revenue - includes DOP and
print on demand systems 11,663 12,605
Consumables on proofers 11,193 11,760
Service 36,043 34,497
---------------- ----------------
$ 162,574 $ 169,787
================ ================
</TABLE>
The gross margin in Q3 increased to 44% from 43% in Q2, due to our product mix
this quarter. In Q3 we sold more large format CTP's and workflow systems as
compared to Q2. The gross profit in Q3 decreased $1.5 million from that of Q2
due to a decrease in overall revenue.
Research and development expenses decreased $4.8 million from $19.0 million in
Q2 to $14.2 million in Q3. This decrease was due mainly to a $2.5 million
increase in research and development tax credits resulting from new tax
legislation in Canada and a $1.6 million decrease in R&D expenses in Israel.
Sales and marketing expenses increased $0.2 million from $24.5 million in Q2 to
$24.7 million in Q3, due to the increase in sales levels of the non-joint
venture products.
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General and administration expenses increased by $0.5 million from $16.7 million
in Q2 to $17.2 million in Q3. This increase was due mainly to an increase in
legal and audit fees.
Income tax expense as a percentage of pre-tax income decreased from 33% in Q2 to
$25% in Q3. This decrease was a result of the operating structure on the
acquisition from Scitex , which resulted in more of our operations being taxed
in jurisdictions with lower tax rates.
The cash tax recovery from the amortization of intellectual property is the
benefit the company will receive for the next five years as a result of the
Scitex acquisition. This intellectual property was acquired through the issue of
shares and therefore did not involve cash, but these tax savings result in an
actual cash tax savings to the company.
The business integration expenses consist mainly of expenses that are related to
integration of the Scitex business, including closing of offices and the
termination of the joint venture with Heidelberg. Management anticipates
additional integration expenses in the future as decisions are made on products,
computer systems and certain other activities that are necessary to integrate
the business.
The preliminary amounts assigned to goodwill and other intangible assets on the
acquisition of the Scitex pre-print division, Intense Software Inc. and Carmel
Graphics Systems Inc. totals $383.7 million. Under Canadian GAAP, this amount is
amortized over five years. Under U.S. GAAP, the in-process R&D is expensed
immediately and the residual amount is amortized over five years.
In July 2000, we increased our ownership of Nihon CreoScitex of Japan to 51% and
we will consolidate this company starting in the quarter ending September 30,
2000. In October 2000, we plan to increase our ownership to 81% and take over
operating control of this company.
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As at June 30, 2000, the company had 46,969,587 common shares outstanding and
6,341,661 options outstanding. The share capital used for the June 30, 2000
earnings per share calculations are as follows:
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<CAPTION>
Per Pro Forma
Per Consolidated Statement Summary of Adjusted
of Operations Operations
Three months ended Nine months ended Three months ended
JUNE 30 JUNE 30 June 30
2000 2000 2000
(unaudited) (unaudited) (unaudited)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic shares outstanding 45,948,027 37,010,710 45,948,027
Fully diluted - Canadian GAAP
Net earnings (loss) / Adjusted
earnings $ (10,211,000) $ 2,145,000 $ 13,715,000
Plus: income from options - 3,000 906,000
-------------------- ------------------- --------------------
$ (10,211,000) $ 2,148,000 $ 14,621,000
==================== =================== ====================
Basic shares outstanding 45,948,027 37,010,710 45,948,027
Plus: dilutive options - 48,000 6,364,555
-------------------- ------------------- --------------------
Fully diluted shares outstanding 45,948,027 37,058,710 52,312,582
==================== =================== ====================
Fully diluted EPS $ (0.22) $ 0.06 $ 0.28
==================== =================== ====================
Diluted - US GAAP
Net loss / Adjusted earnings (48,401,000) (36,045,000) 13,715,000
Basic shares outstanding 45,948,027 37,010,710 45,948,027
Plus: dilutive options - - 2,848,397
-------------------- ------------------- --------------------
Diluted shares outstanding 45,948,027 37,010,710 48,796,424
==================== =================== ====================
Diluted EPS $ (1.05) $ (0.97) $ 0.28
==================== =================== ====================
</TABLE>
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BASED IN VANCOUVER, CANADA, CREO PRODUCTS INC. IS A PUBLICLY HELD
HIGH-TECHNOLOGY COMPANY FOCUSED ON THE APPLICATION OF IMAGING AND INFORMATION
TECHNOLOGY. THROUGH CREOSCITEX - OUR PRINCIPAL OPERATING DIVISION - WE ARE
LEADING THE DIGITAL TRANSFORMATION OF THE GRAPHIC ARTS INDUSTRY. CREO PRODUCTS
INC. TRADES UNDER THE SYMBOLS CREO ON NASDAQ AND CRE ON THE TORONTO STOCK
EXCHANGE. ADDITIONAL INFORMATION ON CREO MAY BE OBTAINED BY CALLING INVESTOR
RELATIONS AT 604-451-2700 OR VISITING HTTP://WWW.CREO.COM OR THROUGH PUBLIC
SOURCES, INCLUDING THE COMPANY'S REGULATORY FILINGS IN CANADA AND THE US.
Investors will have the opportunity to listen to the analyst conference call
scheduled for August 1, 2000 at 4:30pm ET live over the Internet by accessing
Investor Broadcast Networks' Vcall website (http://www.vcall.com) through the
Creo homepage at HTTP://WWW.CREO.COM or through Streetfusion, located at
http://www.streetfusion.com. To listen to the call, please go to the web site at
least fifteen minutes early to register, download, and install any necessary
audio software. For those who cannot listen to the live broadcast, a web and
phone replay will be available shortly after the call. Web replay will be
available at http://www.vcall.com or http://www.streetfusion.com. To access
phone replay, available until August 8th, investors (except Toronto area) should
dial 1-800-408-3053, access #529620. In the Toronto area, please dial
416-695-5800 to avoid long distance charges.
This release contains forward-looking statements within the meaning of the "safe
harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995.
These statements are based on management's current expectations and beliefs and
are subject to a number of risks and uncertainties that could cause actual
results to differ materially from those described in the forward-looking
statements.
These risks and uncertainties include the following: (1) The expected advantages
for Creo of the transition to an OEM arrangement with Heidelberger
Druckmaschinen AG may be less than expected and may adversely affect Creo's
operating results and financial performance; (2) the expected cost-savings and
synergies from the combination of Creo's business with the Scitex Business
cannot be fully realized or take significantly longer to realize than expected;
(3) revenues from the Scitex Business are lower than expected or customer
attrition and business disruption following the acquisition are greater than
expected; (4) the integration of the Scitex Business into Creo's operations is
more difficult, time-consuming or expensive than anticipated, or the attrition
rate of key employees of the combined business is greater than expected; (5)
technological changes or changes in the competitive environment adversely affect
the products, market share, revenues or margins of the combined business;
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or (6) changes in general economic, financial or business conditions adversely
affect the combined business or the markets in which it operates. These risks
and uncertainties as well as other important matters are described under the
caption "Information Regarding Forward-looking Statements" and elsewhere in our
Annual Report on Form 20-F for the fiscal year ended September 30, 1999, as
filed with the U.S. Securities and Exchange Commission. We do not assume any
obligation to update the forward-looking information contained in this press
release.
Creo, the Creo logo, CreoScitex, Trendsetter, and Prinergy are registered
trademarks or trademarks of Creo Products Inc.
<PAGE>
CREO PRODUCTS INC.
Consolidated Statements of Operations and Retained Earnings
(In thousands of U.S. dollars except earnings per share)
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30 June 30
2000 1999 2000 1999
(unaudited) (unaudited) (unaudited) (unaudited)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
Product revenue $ 115,338 $ 36,796 $ 212,909 $ 101,690
Service revenue 36,043 7,524 55,877 20,687
Consumables revenue 11,193 - 11,193 -
-------------- -------------- -------------- --------------
162,574 44,320 279,979 122,377
Cost of sales 91,071 23,669 153,115 64,357
-------------- -------------- -------------- --------------
71,503 20,651 126,864 58,020
-------------- -------------- -------------- --------------
Research and development, net 14,241 4,100 26,601 9,375
Sales and marketing 24,703 7,625 42,982 22,021
General and administration 17,192 2,591 23,582 6,574
Other (income) expense 38 (1,320) (2,076) (727)
-------------- -------------- -------------- --------------
Operating income before
undernoted items 15,329 7,655 35,775 20,777
Business integration costs 8,172 - 8,172 -
Goodwill and other intangible
assets amortization 18,124 - 18,124 -
-------------- -------------- -------------- --------------
Earnings (loss) before income
taxes and equity loss (10,967) 7,655 9,479 20,777
Income tax expense (recovery) (1,723) 2,943 6,367 8,434
Equity loss 967 - 967 -
-------------- -------------- -------------- --------------
Net earnings (loss) $ (10,211) $ 4,712 $ 2,145 $ 12,343
============== ============== ============== ==============
Earnings (loss) per common
share
- Basic, Canadian GAAP $ (0.22) $ 0.17 $ 0.06 $ 0.45
============== ============== ============== ==============
- Basic, U.S. GAAP $ (1.05) $ 0.17 $ (0.97) $ 0.45
============== ============== ============== ==============
- Fully diluted, Canadian GAAP $ (0.22) $ 0.15 $ 0.06 $ 0.41
============== ============== ============== ==============
- Diluted, U.S. GAAP $ (1.05) $ 0.16 $ (0.97) $ 0.43
============== ============== ============== ==============
Retained earnings, beginning
of period $ 34,110 $ 10,825 $ 21,754 $ 3,194
Net earnings (loss) (10,211) 4,712 2,145 12,343
-------------- -------------- -------------- --------------
Retained earnings, end of period $ 23,889 $ 15,537 $ 23,899 $ 15,537
============== ============== ============== ==============
</TABLE>
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CREO PRODUCTS INC.
Pro Forma Summary of Adjusted Operations
(In thousands of U.S. dollars except earnings per share)
The following pro forma supplemental information excludes the effect of goodwill
and other intangible asset amortization, business integration costs and the
equity loss from the investment in Japan. This pro forma information is not
prepared in accordance with generally accepted accounting principles.
<TABLE>
<CAPTION>
Three months ended
June 30
2000
(unaudited)
----------------------------------------------------------------------------------------------------
<S> <C>
Adjusted operating income $ 15,329
Income tax expense (3,832)
------------------
Adjusted net operating income 11,497
Cash tax recovery from the amortization of intellectual property 2,218
------------------
Adjusted earnings $ 13,715
==================
Basic adjusted earnings per share $ 0.30
==================
Diluted adjusted earnings per share $ 0.28
==================
</TABLE>
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CREO PRODUCTS INC.
Consolidated Balance Sheets
(In thousands of U.S. dollars)
<TABLE>
<CAPTION>
June 30 June 30
2000 1999
(unaudited) (unaudited)
-----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 61,850 $ 42,621
Accounts receivable 153,335 30,137
Other receivables 53,948 5,270
Inventories 140,533 30,232
Income taxes receivable 4,064 -
Future income taxes 18,068 -
---------------- ----------------
431,798 108,260
Investments and other assets 37,572 -
Capital assets 102,911 38,209
Goodwill and other intangible assets 365,600 -
---------------- ----------------
$ 937,881 $ 146,469
================ ================
LIABILITIES
Current liabilities
Accounts payable $ 84,177 $ 8,428
Accrued liabilities 89,789 12,612
Income taxes payable - 2,792
Deferred revenue and deposits 51,113 21,321
Current portion of long-term debt - 296
---------------- ----------------
225,079 45,449
Long-term debt - 6,438
Future income taxes 25,134 -
---------------- ----------------
250,213 51,887
SHAREHOLDERS' EQUITY
Share capital 661,605 79,045
Contributed surplus 2,164 -
Retained earnings 23,899 15,537
---------------- ----------------
Total shareholders' equity 687,668 94,582
---------------- ----------------
$ 937,881 $ 146,469
================ ================
</TABLE>
