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Scitex Announces 2Q Results, To Write Down $150 Million from Creo Investment

Thursday, August 09, 2001

Press release from the issuing company

HERZLIA, Israel, Aug. 8 Scitex Corporation Ltd. a world leader in inkjet technologies and digital imaging solutions, today announced results for the second quarter ended June 30, 2001. This is the first quarter since the April 2000 transaction with Creo Products Inc. for which Scitex is able to provide meaningful year over year consolidated comparative figures. Revenues for the second quarter of 2001 increased 27% to $66 million, compared with $52 million in the second quarter of 2000. Operating income for the second quarter of 2001 before amortization of intangibles was $4 million, compared to a loss of $0.8 million in the second quarter of 2000. Pro forma net income was $2.9 million ($0.07 per share), compared with a pro forma net loss of $3.6 million ($0.08 per share) for the second quarter of 2000. Following a periodic review of the carrying value of the Creo holding and due to recent announcements from Creo, Scitex has written down the carrying value of that holding to reflect the decrease in its valuation. Under U.S. GAAP, the net loss for the second quarter 2001 was $162 million or ($3.75) per share, of which $150 million was attributed to the write down associated with the Company's holding in Creo. The net income under U.S. GAAP for the second quarter 2000 was $126 million, mostly associated with the capital gain and charges relating to the sale of the digital preprint business. (See accompanying reconciliation of U.S. GAAP figures to pro forma figures). The geographic distribution of revenues for the second quarter 2001 was as follows: Americas 37%, Europe 32%, Far East, Pacific and rest of the world 31%. Yoav Z. Chelouche, President and Chief Executive Officer said, "Scitex Digital Printing and Scitex Vision continued to show high growth in spite of the current difficult market conditions. Our focus on the fast growing digital printing markets, combined with our unique inkjet technologies, ensured continued strong performance in our core operating businesses.'' Mr. Chelouche added, "Creo, however, has been affected to a greater degree by market conditions and has recently reduced its outlook for the coming quarters. We have consequently decided to write down the carrying value of the Creo holding on our books.'' In a separate release issued August 7, 2001, Mr. Chelouche announced that he will step down from his position of President and CEO of the Company at the end of August. Mr. Chelouche will continue to advise Scitex through mid-year 2002. The Scitex Board of Directors is currently reviewing the Company's strategy and plans. In conjunction with this process it will announce a replacement shortly. Scitex Digital Printing, Inc. (SDP) Scitex Digital Printing continued to deliver strong revenue growth. Revenues in the second quarter 2001 increased by 20% to $42.5 million (Second quarter 2000: $35.3 million). Operating income for the second quarter 2001 before amortization of intangibles was $2.7 million. This compares to a second quarter 2000 operating income of $1.7 million, a year over year improvement of 58%. Gross profit was $15.6 million (37% of revenue) for the second quarter of 2001, compared to $14.8 million (42% of revenue) for the second quarter of 2000. The decline in gross margin is a result of the recent slowdown in the market, slower than expected penetration in the U.S. market, lengthening sales cycles and pricing pressure. During the quarter, SDP concluded the sale of a new Scitex VersaMark® Business Color Press(TM) to a major reseller in conjunction with an intended OEM relationship. In addition, SDP received the "R&D Magazine 100'' Technology Award for 2001. This annual Award was given based on innovation and excellence in technology development for its Scitex VersaMark Business Color Press. Scitex Vision Ltd. Scitex Vision continued its strong performance this quarter with revenues growing by 46% to $23.9 million (second quarter 2000: $16.3 million). Service and consumables revenues increased by an impressive 64% to $8.6 million for the second quarter of 2001 (second quarter 2000: $5.2 million). For the second quarter of 2001, operating income before amortization of intangibles was $2.9 million. This compares to a second quarter 2000 operating income of $0.9 million. During the quarter, Scitex Vision announced the closing of a major deal with the German printing house, Ellerhold Grossplakate GmbH, in which this key customer signed a contract to purchase three of its Scitex Pressjet(TM) systems. These three printers will replace a conventional screen-printing line. In addition, Scitex Vision opened its new North American offices and customer demonstration center facility in Marietta, Georgia in June 2001. The new facility represents the growing importance of the North and Latin American markets and demonstrates the Company's strong commitment to these markets. * Creo Products Inc. * (Results reported with 3 months lag) * For its fiscal second quarter ended March 31, 2001, Creo reported revenues of $173 million and adjusted earnings of $12.8 million (Scitex's share: 27%). Under US GAAP, Scitex recorded $8.0 million equity loss from its investment in Creo. An additional $3.0 million loss, resulting from dilution of Scitex's holding by the exercise of options for Creo shares at lower prices than Scitex's cost, was recorded as Other Expenses. On August 2, 2001, Creo reported its fiscal third quarter results (ended June 30, 2001) with revenues of $170 million and adjusted earnings of $10.0 million or $0.20 per share (diluted). Under US GAAP, Creo recorded a loss of $8.4 million or $0.17 per share (diluted). Those results will be reflected in Scitex's third quarter results. In conjunction with that release, Creo announced a reduced outlook for the coming quarters mainly due to the economic climate. Scitex reviews the value of the Creo investment on a periodic basis to determine whether there has been an "other than temporary'' decline in value. The review concluded that Scitex needs to reduce the carrying value to reflect the decreased valuation of Creo. The resulting write down charge is $150 million. The reduced book value as of June 30, 2001 is $199 million. Cash Flow Both SDP and Scitex Vision generated positive operating cash flow for the quarter while continuing to invest in their operations.Scitex continued to expend cash in supporting a number of its investments, including the conclusion of the Karat operations that were fully provided for in the fourth quarter of 2000. The balance of cash and short-term investments at the end of the quarter was $27.1 million. Balance Sheet During the second quarter of 2001, accounts receivable decreased by $4.0 million, compared to an increase of $11.0 million in the first quarter of 2001. Inventory balances remained relatively stable. This was the result of improved collection efforts and operational efficiencies at both SDP and Scitex Vision. Outlook The Company continues to foresee revenue growth and expects margins to improve over the long-term. Price pressure and lengthened sales cycles are, however, expected in the short-term. Investments (See accompanying schedule for a full list of Scitex's investments) Conference Call Investors will have the opportunity to listen to a live simultaneous webcast of the analyst conference call in connection with Scitex's second quarter earnings. The call is scheduled for 10 a.m. New York (7 a.m. Pacific, 3 p.m. London, 5 p.m. Israel) on Thursday August 9, 2001. You can connect online through http://www.streetfusion.com or http://www.scitex.com. A replay of the conference call will be available during the following seven days on the following numbers: * US 1 (800) 475-6701 * Intl 1 (320) 365-3844 * Access code: 594108 The replay will be available until midnight on Thursday, August 16, 2001. About Scitex Corporation Ltd. Scitex Corporation Ltd., a world leader in digital imaging solutions, is building a network of leading, innovative companies focused on combining digital imaging technologies with the power of the Internet to create a world of visually rich business communications. Scitex shares trade on Nasdaq and The Tel Aviv Stock Exchange under the symbol SCIX. For more information, please visit our web site at http://www.scitex.com. The financial information included herein may not necessarily reflect the results of operations of the division in the future or what it would have been had it been a separate, unaffiliated entity during the periods presented. Investments US Dollars in Thousands Total Holding at Company Investment June 30, 2001 Creo Products Inc. 417,460 27.1% Aprion Digital Ltd. 3,238 19.2% Jemtex Ink Jet Ltd. 5,400 36.6% Objet Geometries Ltd. 6,000 18.7% SciDel Technologies Ltd. 3,330 26.9% RealTimeImage Ltd. 5,300 15.9% InfoBit Ltd. 1,000 21.3% XMPie Inc. 500 19.4% Dor Capital Ventures 2,000

 

 

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