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
Dated January 31, 2000
Creo Products Inc.
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(Name of Registrant)
3700 Gilmore Way
Burnaby, B.C.
V5G 4M1
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(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
<PAGE>
To the Shareholders
The three months ended December 31,1999 was the most profitable first quarter
in the history of Creo. During this quarter, Creo exceeded the one billion
dollar market capitalization for the first time and by the end of the quarter,
we were valued at $1.2 billion. At December 31, 1999, we had installed over
1,400 computer-to-plate systems, effectively maintaining our install base of
more than twice that of our nearest competitor.
In this quarter, Creo continued to be at the forefront of prepress innovation.
In October, both Amos Michelson and Dan Gelbart were selected as co-recipients
for the 1999 RIT Cary award for the development of digital technology in
graphic communications and Team Creo was named Entrepreneur of the Year
(Technology) for Pacific Canada as part of the international Entrepreneur of
the Year (EOY) awards program.
Our net income for the three months ended December 31, 1999 of $5.2 million or
$0.15 per share (fully diluted - US GAAP) compared to $3.4 million or $0.12
per share for the three months ended December 31, 1998.
Total revenue for the three months ended December 31, 1999 increased 48.1% to
$54.1 million from $36.5 million for the three months ended December 31, 1998.
Product revenue from our joint venture with Heidelberg increased 80.8% to
$22.3 million for the three months ended December 31, 1999 from $12.3 million
for the three months ended December 31, 1998. This increase was primarily due
to increased sales activity on the part of Heidelberg.
Service revenue increased 68.7% to $9.3 million for the three months ended
December 31, 1999 from $5.5 million for the three months ended December 31,
1998. This increase in service revenue was due to fees generated from
additional customer support agreements entered into in connection with new
product sales.
Cost of sales increased 45.4% to $28.3 million for the three months ended
December 31, 1999 from $19.5 million for the three months ended December 31,
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 52.3% for the three months ended December 31, 1999 from 53.3% for
the three months ended December 31, 1998.
Gross research and development expenses increased 71.7% to $10.3 million for
the three months ended December 31, 1999 from $6.0 million for the three
months ended December 31, 1998. This increase was due to a 42.0% increase in
the number of research and development personnel and the increase in the
amount of materials used for prototyping and developing new products.
<PAGE>
Outside funding of our research and product development activities increased
10.1% to $4.4 million for the three months ended December 31, 1999 from $4.0
million for the three months ended December 31, 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 192.0% to $5.9 million for the three months ended December 31, 1999
from $2.0 million for the three months ended December 31, 1998.
Sales and marketing expenses increased 34.6% to $9.1 million, or 16.9% of
total revenue, for the three months ended December 31, 1999 from $6.8 million,
or 18.6% of total revenue, for the three months ended December 31, 1998. This
increase was primarily due to the increase in sales activity.
General and administration expenses increased 42.3% to $2.9 million, or 5.3%
of total revenue, for the three months ended December 31, 1999 from $2.0
million, or 5.6% of total revenue, for the three months ended December 31,
1998. This increase was primarily due to the growth of our business.
Income tax expense increased to $3.4 million, or 39.5% of pre-tax income, for
the three months ended December 31, 1999 from $2.5 million, or 42.8% of
pre-tax income, for the three months ended December 31, 1998. This increase
was primarily due to the increase in our profitability.
"Amos Michelson"
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Amos Michelson
Chief Executive Officer
"Tom Kordyback"
- -----------------------
Tom Kordyback
Chief Financial Officer
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.
Information about these and other factors that could affect our financial
results is included in the Creo prospectus dated July 28, 1999 filed with the
SEC, which can be accessed via our website at www.creo.com. We do not assume
any obligation to update the forward-looking information contained in this
report.
<PAGE>
Creo Products Inc.
Consolidated Balance Sheet
(In thousands of U.S. dollars)
December 31 December 31
1999 1998
(unaudited) (unaudited)
Assets
Current assets
Cash and cash equivalents $ 89,209 $ 33,733
Accounts receivable 44,853 28,576
Inventories 36,682 26,524
Prepaid expenses 3,943 1,885
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174,687 90,718
Capital assets 43,521 35,862
Future income taxes 2,082 60
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$ 220,290 $ 126,640
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Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 30,936 $ 17,159
Income taxes payable 3,101 1,376
Future income taxes 639 394
Deferred revenue and deposits 20,110 15,323
Current portion of long-term debt - 389
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54,786 34,641
Long-term debt - 6,586
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54,786 41,227
Shareholders' Equity
Share capital 138,524 78,849
Retained earnings 26,980 6,564
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165,504 85,413
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$ 220,290 $ 126,640
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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
December 31
1999 1998
(unaudited) (unaudited)
Revenue
Product revenue $ 44,869 $ 31,065
Service revenue 9,252 5,484
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54,121 36,549
Cost of sales 28,317 19,471
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25,804 17,078
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Research and development, gross 10,312 6,007
Research and development, funding (4,375) (3,974)
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Research and development, net 5,937 2,033
Sales and marketing 9,134 6,785
General and administration 2,895 2,035
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17,966 10,853
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Earnings from operations 7,838 6,225
Other income (expenses) and foreign exchange
(loss) 795 (332)
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Earnings before income taxes 8,633 5,893
Income tax expense 3,407 2,523
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Net earnings for period $ 5,226 $ 3,370
========== ==========
Earnings per common share
- - basic $ 0.16 $ 0.13
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- - fully diluted (CDN GAAP) $ 0.15 $ 0.12
========== ==========
- - fully diluted (US GAAP) $ 0.15 $ 0.12
========== ==========
Retained earnings, beginning $ 21,754 $ 3,194
Net earnings for period 5,226 3,370
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Retained earnings, end of the period $ 26,980 $ 6,564
========== ==========
<PAGE>
Creo Products Inc.
Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
Three months ended
December 31
1999 1998
(unaudited) (unaudited)
Cash provided by (used in) operations:
Net earnings $ 5,226 $ 3,370
Items not affecting cash:
Amortization 1,737 1,189
Future income taxes (238) 247
Loss (gain) on disposal of capital assets 10 (42)
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6,735 4,764
Changes in non-cash working capital:
Accounts receivable (5,922) (4,191)
Inventories (4,435) (1,373)
Prepaid expenses (631) 327
Accounts payable and accrued liaiblities 792 (719)
Income taxes payable (385) 551
Deferred revenue and deposits 1,063 1,646
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(9,518) (3,759)
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(2,783) 1,005
Cash provided by (used in) investing:
Purchase of capital assets (4,550) (2,983)
Proceeds from sale of capital assets - 120
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(4,550) (2,863)
Cash provided by (used in) financing:
Proceeds from shares issues 322 19,995
Share-purchase loans (195) -
Repayment of long-term debt (6,660) (628)
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(6,533) 19,367
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Increase (decrease) in cash and equiv. (13,866) 17,509
Cash and cash equivalents, beginning 103,075 16,224
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Cash and cash equivalents, end $ 89,209 $ 33,733
========== ==========
Supplementary information:
Taxes paid $ 2,968 $ 1,239
Interest paid $ 139 $ 145
