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Creo Breaks Even in Q4: Cites Sales of Color Servers for Xerox Digital Printers

Friday, November 15, 2002

Press release from the issuing company

- Over a third of Creo units sold in North America in the last half of the fiscal year were sold to printers with under $5 million in revenue. - To return employees to market rate cash compensation after a year of reduced wages. - To consolidate North American administration and development locations in Vancouver. - Cash from operations was $14.4 million this quarter compared to $21.2 million the previous quarter. VANCOUVER, British Columbia--Nov. 14, 2002-- Creo today announced financial results for the fiscal year and quarter ended September 30, 2002, reported in U.S. dollars. For the 2002 fourth quarter, Creo revenues grew by 5 percent to $138.4 million from $131.8 million in the third quarter. Compared to the 2001 fourth quarter, revenue decreased 3 percent from $143.2 million. Adjusted earnings were up sequentially to $2.8 million or $0.06 per share (diluted) from $0.6 million or $0.01 per share (diluted) in the previous quarter, an improvement of $8.5 million over the adjusted loss of $5.7 million or $0.12 per share (diluted) reported in the 2001 fourth quarter. Under Canadian GAAP, the company recorded earnings of $579,000 or $0.01 per share (diluted) this quarter. In accordance with U.S. GAAP, Creo reported earnings of $205,000 or breakeven per share (diluted) for the fourth quarter. Weighted shares outstanding (diluted) under U.S. and Canadian GAAP were 49,790,182 for the quarter. For fiscal 2002, Creo revenues were $539.9 million, compared to $656.5 million in fiscal 2001. Adjusted earnings for Creo were $0.1 million or breakeven per share (diluted) for fiscal 2002. This compares to adjusted earnings of $27.1 million or $0.54 per share (diluted) for fiscal 2001. Under Canadian GAAP, the company recorded a loss of $24.3 million or $0.49 per share (diluted) in fiscal 2002. Under U.S. GAAP, Creo recorded a loss of $36.6 million or $0.74 per share (diluted) for the 2002 fiscal year. For the full year, weighted shares outstanding (diluted) under U.S. and Canadian GAAP were 49,528,285. The adjusted results exclude one-time write-downs, restructuring and business integration costs, goodwill and other intangible asset amortization, royalty arrangement and equity loss on investment, and for U.S. GAAP purposes, stock compensation expense. Further information on adjusted results is provided later in a note to this news release. "Creo reacted decisively to the changing market conditions in fiscal 2002 and we are seeing the results of our efforts in improved financial performance even with the slow pace of the economic recovery," stated Amos Michelson, chief executive officer of Creo. "Throughout this year we controlled our operating expenses, without compromising our ability to deliver competitive, cost-effective solutions to our customers. In addition, we launched new products in every market segment and established new, competitive price points. We correctly anticipated and responded to the growing market of small and mid-size printers. This year - with the combination of competitive consumables bundling, a global third-party leasing program and top-performing entry-level products - we have confirmed our leadership in every part of the market. Over a third of Creo units sold in North America in the last half of the fiscal year were sold to printers with under $5 million in revenue." Fourth Quarter 2002 Highlights * Revenue increased 5 percent sequentially to $138.4 million, driven by improved results in North America and strong OEM sales, particularly of color servers for Xerox digital printers, as well as positive currency effects from the strengthening Euro and Yen. * Gross margins remained relatively constant at 44.2 percent this quarter compared to 44.5 percent in the previous quarter. * Net operating expenses excluding other income were stable at $59.7 million this quarter, compared to $59.2 million in the previous quarter. * At September 30th, cash and cash equivalents were $70.7 million, an increase of $7.8 million over the previous quarter. * Cash from operations was $14.4 million this quarter compared to $21.2 million the previous quarter. Free cash flow, defined as cash from operations less capital expenditures, was $10.0 million this quarter compared to $16.3 million the previous quarter. * At quarter end, accounts receivables were $118.0 million, down $2.0 million over the previous quarter. Days sales outstanding shrunk to 77 days from 82 days in the previous quarter. Fiscal 2002 Highlights * Free cash flow improved by $5.7 million to $22.0 million, capital expenditures were lowered by over 40 percent and cumulative operating expenses were reduced by approximately $29.0 million over 2001 fourth-quarter run-rate as a result of targeted cost control program. * Gross margins increased moderately to 43.2 percent for 2002 compared to 42.4 percent for 2001. * Accounts receivables were reduced by $22.6 million and inventory declined $7.6 million in 2002. * Creo reached the growing market of mid-size and smaller printers through a combination of competitive consumables bundling, a global third-party leasing program and top-performing entry-level products. * Creo rolled out new solutions across all product lines, targeting opportunities with 25,000 current Creo customers. Major product launches include the Veris( proofer, Integris( proofing solution and iQsmart( professional color scanner. In addition Creo introduced new versions of its industry-leading CTP and workflow systems and complete solutions to address the specific needs of packaging and newspaper printers. * Creo reinforced its leadership position as the reference standard for computer-to-plate (CTP) and workflow systems. The total installed base of Creo CTP devices reached over 4,500 machines, approximately three times greater than the nearest competitor. * Subsequent to year-end, Creo completed the acquisition of ScenicSoft, Inc. for approximately $9.5 million in a combination of cash, convertible notes and an assumption of liabilities. The ScenicSoft products strengthen the Networked Graphic Production initiative from Creo, adding components that enable printers to increase automation in their operations. The acquisition is expected to be accretive to adjusted earnings by the end of fiscal 2003. "Creo continues to drive the graphic arts industry forward. Networked Graphic Production is the next wave of change in our industry, and will allow our customers to continue to be the most profitable competitors in their markets," Mr. Michelson concluded. "While there does not appear to be a quick return to a more robust economy, Creo's proven value and performance are key buying considerations in these challenging times. We will look to lasting product leadership and superior sales execution to increase market share and maintain our growth." Outlook For the first quarter ending December 31, 2002, Creo expects revenue between $139 and $143 million. Gross margins are expected to remain stable and net operating expenses (excluding other income) for the first quarter are expected to be between $60 and $61 million. As a result the company expects adjusted earnings per share (diluted) between $0.04 and $0.07. "We are pleased with the improvements in our business fundamentals this year and will manage the business conservatively given the continued uncertain economic climate," commented Mark Dance, chief financial officer and chief operating officer of Creo. "Barring the effects of currency variations, we expect sales in the 2003 first fiscal quarter to continue to improve with a corresponding improvement in earnings. In the near term, we forecast moderate growth in our North American and OEM businesses, with improvement in Asia and continued economic uncertainty in Europe. In January 2003 we expect to see a modest increase in operating expenses as we return our employees to market rate cash compensation after a year of reduced wages. We expect this effect will be substantially mitigated through fiscal 2003 as we consolidate our North American administration and development locations in Vancouver." Today in a separate news release Creo announced the adoption of a shareholder rights plan by the Creo board of directors. The plan is effective immediately and will be subject to shareholder ratification at the Creo annual general meeting to be held on February 19, 2003.

 

 

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