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 period ending March 31, 2000
CREO PRODUCTS INC.
(Exact name of Registrant as specified in its charter)
3700 Gilmore Way
Burnaby, B.C. Canada 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
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(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
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<PAGE>
Report to Shareholders
2000 Second Quarter Report
March 31, 2000
<PAGE>
To Our Shareholders
The three months ended March 31, 2000 was a landmark quarter with the highest
quarterly profits in the history of Creo Products Inc. Our net income for the
three months ended March 31, 2000 was $7.1 million or $0.20 per share (diluted
- - US GAAP) compared to $4.3 million or $0.15 per share for the three months
ended March 31, 1999.
This quarter Creo was added to the Toronto Stock Exchange's 200 and 300
Composite Indices, and we are proud to be listed among Canada's leading public
companies. Creo also penetrated new markets with our $35 million investment
in printCafe, which provides business-to-business internet-based graphic arts
solutions. We expect notable growth in this market.
Throughout the quarter, the entire Creo team worked to prepare for Drupa 2000,
the largest graphic arts tradeshow, upcoming in May in Germany. We announced
that our patented thermal imaging technology will demonstrate at Drupa on
direct-to-press systems from the world's four largest press manufacturers;
they include Heidelberg's Speedmaster DI 74, MAN Roland's Dicoweb press,
Komori's new 8-page digital offset press, and KBA's 74Karat.
The Creo management team focused their attention this quarter on the
successful closure of the deal to acquire the prepress division of Scitex
Corporation Ltd. On April 4, 2000, CreoScitex, the new principal
operating division of Creo Products, was officially formed to create a leading
provider of worldwide digital prepress solutions.
Creo acquired certain assets of Scitex Graphic Business and shares of related
subsidiaries for 13,250,000 shares of Creo on April 4, 2000. The aggregate
value of these shares is estimated at $540 million (US GAAP), which will be
allocated to the assets and liabilities acquired along with the related
goodwill from the acquisition. The acquisition will be 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
April 4, 2000. We anticipate continued growth for Creo in the coming quarters
as strong synergies in innovation and technology are realized from this merger.
Subsequent to the close of the Creo-Scitex merger on April 5, 2000, Creo gave
notice to Heidelberger Druckmaschinen AG ('Heidelberg') of its election to
terminate the Heidelberg/Creo joint venture. The joint venture agreement
provides that upon termination Creo will enter into an original equipment
manufacture (OEM) arrangement with Heidelberg. Creo expects that the current
Heidelberg/Creo joint-venture products such as the Trendsetter(R) family of
thermal platesetters and the Prinergy(TM) workflow management system will be
sold through both CreoScitex and Heidelberg distribution channels. The
parties are currently engaged in discussions about OEM terms and about
certain objections raised by Heidelberg concerning Creo's termination of the
joint venture. Agreement has not been reached on all outstanding issues but
discussions are continuing with a view to their resolution.
Revenues. Total revenue for the three months ended March 31, 2000 increased
52.5% to $63.3 million from $41.5 million for the three months ended March 31,
1999. Total revenue for the six months ended March 31, 2000 increased 50.4%
to $117.4 million from $78.1 million for the six months ended March 31, 1999.
Product revenue from our joint venture with Heidelberg increased 75.5% to
$26.0 million for the three months ended March 31, 2000 from $14.8 million for
the three months ended March 31, 1999. This increase was primarily due to
increased sales activity on the part of Heidelberg. Product revenue from our
joint venture with Heidelberg increased 77.9% to $48.2 million for the six
months ended March 31, 2000 from $27.1 million for the six months ended March
31, 1999.
<PAGE>
Service revenue increased 37.8% to $10.6 million for the three months ended
March 31, 2000 from $7.7 million for the three months ended March 31, 1999.
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 50.7% to $19.8 million for the six months ended
March 31, 2000 from $13.2 million for the six months ended March 31,
1999.
Cost of Sales. Cost of sales increased 59.0% to $33.7 million for the three
months ended March 31, 2000 from $21.2 million for the three months ended
March 31, 1999. This increase was primarily due to the increase in our product
sales and our installed customer base. Cost of sales increased as a percentage
of total revenue to 53.3% for the three months ended March 31, 2000 from 51.1%
for the three months ended March 31, 1999. Cost of sales increased 52.5% to
$62.0 million for the six months ended March 31, 2000 from $40.7 million for
the six months ended March 31, 1999. Cost of sales increased as a percentage
of total revenue to 52.8% for the six months ended March 31, 2000 from 52.1%
for the six months ended March 31, 1999.
Research and Development. Gross research and development expenses increased
57.3% to $11.4 million for the three months ended March 31, 2000 from $7.2
million for the three months ended March 31, 1999. This increase was due to a
25.3% 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 63.8% to $21.7
million for the six months ended March 31, 2000 from $13.3 million for the six
months ended March 31, 1999.
Outside funding of our research and development activities increased 24.4% to
$5.0 million for the three months ended March 31, 2000 from $4.0 million for
the three months ended March 31, 1999. Outside funding of our research and
development activities increased 17.3% to $9.4 million for the six months
ended March 31, 2000 from $8.0 million for the six months ended March 31,
1999.
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 98.1% to $6.4 million for the three months ended March 31, 2000 from
$3.2 million for the three months ended March 31, 1999. Net research and
development expenses increased 134.3% to $12.4 million for the six months
ended March 31, 2000 from $5.3 million for the six months ended March 31,
1999.
Sales and Marketing. Sales and marketing expenses increased 20.2% to $9.1
million, or 14.5% of total revenue, for the three months ended March 31, 2000
from $7.6 million, or 18.3% of total revenue, for the three months ended
March 31, 1999. This increase was primarily due to the increase in sales
activity. Sales and marketing expenses increased 27.0% to $18.3 million,
or 15.6% of total revenue, for the six months ended March 31, 2000 from $14.4
million, or 18.4% of total revenue, for the six months ended March 31, 1999.
General and Administration. General and administration expenses increased
79.4% to $3.5 million, or 5.5% of total revenue, for the three months ended
March 31, 2000 from $1.9 million, or 4.7% of total revenue, for the three
months ended March 31, 1999. This increase was primarily due to the growth of
our business. General and administration expenses increased 60.4% to $6.4
million, or 5.4% of total revenue, for the six months ended March 31, 2000
from $4.0 million, or 5.1% of total revenue, for the six months ended March
31, 1999.
Income Taxes. Income tax expense increased to $4.7 million, or 39.6% of pre-tax
income, for the three months ended March 31, 2000 from $3.0 million, or
41.1% of pre-tax income, for the three months ended March 31, 1999. This
increase was primarily due to the increase in our profitability. Income tax
expense increased to $8.1 million, or 39.6% of pre-tax income, for the six
months ended March 31, 2000
<PAGE>
from $5.5 million, or 41.8% of pre-tax income, for the six months ended March
31, 1999.
Share Capital. As at March 31, 2000, Creo had 32,980,771 common shares
outstanding and 4,572,563 options outstanding.
Investments. In February 2000, Creo invested $25 million in printCafe, Inc.
and acquired in return 31,186,312 Class B common shares representing 17.24 per
cent of printCafe's voting rights. As part of the investment, Creo will have a
seat on the board of directors of printCafe, which provides Internet-based,
business-to-business communication solutions tailored specifically for the
printing and graphic arts industries. In a subsequent round of financing, Creo
invested an additional $10 million and acquired 1,132,502 Class C common
shares that currently grant no additional voting rights but are convertible
to stock with full voting rights at our discretion. Creo may, at its option,
increase its ownership and voting rights to approximately 53 per cent by
giving notice to printCafe and by paying an exercise/conversion premium.
On March 14, 2000, printCafe announced in a press release that it had filed a
registration statement with the Securities and Exchange Commission for an
initial public offering of its Class A common stock.
In February 2000, Creo invested $2.0 million and acquired 750,000 common
shares in Creo Ltd. of Israel, representing approximately 10 per cent of Creo
Ltd.'s total outstanding shares.
/s/ Amos Michelson
Amos Michelson
Chief Executive Officer
/s/ Tom Kordyback
Tom Kordyback
Chief Financial Officer
This report 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) Creo and Heidelberger
Druckmaschinen AG may be unable to transition to an OEM arrangement or the
expected advantages of the transition to an OEM arrangement 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; or (6) changes in general
economic, financial or business conditions adversely affect the combined
business or the markets in which it operates. Additional risks and uncertainties
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 report.
<PAGE>
Creo Products Inc.
Consolidated Balance Sheets
(In thousands of U.S. dollars)
March 31 March 31
2000 1999
(unaudited) (unaudited)
Assets
Current assets
Cash and cash equivalents $ 53,924 $ 37,150
Accounts receivable 47,301 31,923
Inventories 41,309 27,061
Prepaid expenses 5,774 3,421
------- -------
148,308 99,555
Investments 37,071 -
Capital assets 45,922 37,215
Future income taxes 2,177 120
------- -------
$ 233,478 $ 136,890
======= =======
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 30,749 $ 17,481
Income taxes payable 4,260 2,072
Future income taxes 307 -
Deferred revenue and deposits 21,005 20,787
Current portion of long-term debt - 296
------- -------
56,321 40,636
Long-term debt - 6,512
------- -------
56,321 47,148
Shareholders' Equity
Share capital 143,047 78,917
Retained earnings 34,110 10,825
------- -------
Total shareholders' equity 177,157 89,742
------- -------
$ 233,478 $136,890
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<PAGE>
Creo Products Inc.
Consolidated Statements of Operations and Retained Earnings
(In thousands of U.S. dollars except earnings per share)
Three months ended Six months ended
March 31 March 31
2000 1999 2000 1999
(unaudited)(unaudited) (unaudited)(unaudited)
Revenue
Product revenue $ 52,702 $ 33,829 $ 97,571 $ 64,894
Service revenue 10,582 7,679 19,834 13,163
------- ------- ------- -------
63,284 41,508 117,405 78,057
Cost of sales 33,727 21,217 62,044 40,688
------- ------- ------- -------
29,557 20,291 55,361 37,369
------- ------- ------- -------
Research and development, gross 11,406 7,249 21,718 13,256
Research and development funding (4,983) (4,007) (9,358) (7,981)
------- ------- ------- -------
Research and development, net 6,423 3,242 12,360 5,275
Sales and marketing 9,145 7,611 18,279 14,396
General and administration 3,495 1,948 6,390 3,983
------- ------- ------- -------
19,063 12,801 37,029 23,654
------- ------- ------- -------
Earnings from operations 10,494 7,490 18,332 13,715
Other income (expense) 1,319 (261) 2,114 (593)
------- ------- ------- -------
Earnings before income taxes 11,813 7,229 20,446 13,122
Income tax expense (4,683) (2,968) (8,090) (5,491)
------- ------- ------- -------
Net earnings $ 7,130 $ 4,261 $ 12,356 $ 7,631
======= ======= ======= =======
Earnings per common share
- - Basic, Canadian GAAP $ 0.22 $ 0.15 $ 0.38 $ 0.28
======= ======= ======= =======
- - Fully diluted, Canadian GAAP $ 0.20 $ 0.14 $ 0.35 $ 0.25
======= ======= ======= =======
- - Diluted, U.S. GAAP $ 0.20 $ 0.15 $ 0.35 $ 0.27
======= ======= ======= =======
Retained earnings,
beginning of period $ 26,980 $ 6,564 $ 21,754 $ 3,194
Net earnings 7,130 4,261 12,356 7,631
------- ------- ------- -------
Retained earnings,
end of period $ 34,110 $ 10,825 $ 34,110 $ 10,825
======= ======= ======= =======
<PAGE>
Creo Products Inc.
Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
Three months ended Six months ended
March 31 March 31
2000 1999 2000 1999
(unaudited)(unaudited) (unaudited)(unaudited)
Cash provided by (used in)
operations:
Net earnings $ 7,130 $ 4,261 $ 12,356 $ 7,631
Items not affecting cash:
Amortization 2,082 1,409 3,819 2,598
Future income taxes (427) (454) (665) (207)
Other - 6 10 (36)
------- ------- ------- -------
8,785 5,222 15,520 9,986
Changes in non-cash working
capital:
Accounts receivable (4,736) (3,346) (10,658) (7,538)
Inventories (4,627) (537) (9,062) (1,910)
Prepaid expenses (1,831) (1,537) (2,462) (1,209)
Accounts payable and accrued (187) 322 605 (397)
liabilities
Income taxes payable 1,159 696 774 1,247
Deferred revenue and deposits 895 5,464 1,958 7,110
------- ------- ------- -------
(9,327) 1,062 (18,845) (2,697)
------- ------- ------- -------
(542) 6,284 (3,325) 7,289
Cash provided by (used in)
investing:
Investments in other companies (37,071) - (37,071) -
Purchase of capital assets (4,483) (2,861) (9,033) (5,844)
Proceeds from sale of capital
assets - 93 - 213
------- ------- ------- -------
(41,554) (2,768) (46,104) (5,631)
Cash provided by (used in)
financing:
Proceeds from shares issued 4,523 68 4,845 20,063
Share-purchase loans 2,288 - 2,093 -
Repayment of long-term debt - (167) (6,660) (795)
------- ------- ------- -------
6,811 (99) 278 19,268
------- ------- ------- -------
Increase (decrease) in cash
and cash equivalents (35,285) 3,417 (49,151) 20,926
Cash and cash equivalents,
beginning of period 89,209 33,733 103,075 16,224
------- ------- ------- -------
Cash and cash equivalents,
end of period $ 53,924 $ 37,150 $ 53,924 $ 37,150
======= ======= ======= =======
Supplementary information:
Taxes paid $ 2,122 $ 687 $ 5,090 $ 1,980
Interest paid $ - $ 118 $ 139 $ 263
<PAGE>
Creo Products Inc.
3700 Gilmore Way
Burnaby, BC
V5G 4M1 CANADA
www.creo.com
Contact:
Tracy Rawa, Investor Relations
Tel: +1-604-451-2700
Fax: +1-604-437-9891
Email: [email protected]
