Scitex Q2/2000 revenue – $53.4 million

Scitex Corporation Reports Results for Second Quarter 2000By Globes correspondent

Scitex Corporation (NASDAQ: SCIX) today reported its results for the quarter ended June 30, 2000.

The transaction with Creo Products Inc., whereby Scitex merged its preprint business with Creo, closed on April 4, 2000 and generated a pre-tax gain of $191 million. The full impact of the transaction (including the resulting capital gain and transaction expenses) is included in the results for the second quarter of 2000. Details of the financial treatment of the CreoScitex transaction are provided later in this earnings release.

Quarter Highlights

The second quarter of 2000 was an extremely busy period for Scitex. In addition to the transaction with Creo, Scitex announced its new strategy, centered on building a network of leading and innovative companies that are focused on combining digital imaging technologies with the power of the Internet. The second quarter marked substantial progress in Scitex’s digital printing activities in new product introductions and business performance. At the DRUPA 2000 trade show in May, Scitex was a major participant and through its network of companies exhibited many innovative technologies and new products. In this context, Scitex made new investments in Objet Geometries Ltd., a leading developer of color three-dimensional inkjet printing applications, and InfoBit Ltd., a start-up company which develops innovative and unique visual navigation tools for the World Wide Web and corporate Intranet environments.

Consolidated Results

In the second quarter, Scitex recorded revenue of $53.4 million and operating income of $2.7 million before amortization of goodwill ($2.3 million) and reorganization-related costs ($3.3 million, included in operating expenses). Net income in the second quarter, including the gain resulting from the Creo transaction, totaled $115.0 million or $2.66 per share on a diluted basis.

Since Scitex’s involvement in the preprint business has changed from full ownership through Q1 2000 to an equity investment in Creo Products Inc. beginning Q2 2000, direct comparison of the company’s results for the second quarter of 2000 with those for the second quarter of 1999 is not meaningful.

Yoav Z. Chelouche, President and Chief Executive Officer of Scitex, said, “We are pleased with our second quarter achievements. We are on target with our business plan and are continuing to maximize the synergetic opportunities created within our network of companies, in order to generate value and growth from the convergence of digital imaging technologies with the Internet.”

DRUPA 2000

DRUPA 2000, held in Dusseldorf, is the premier show for the conventional printing and graphic arts industry and takes place every four years. Over 400,000 visitors attended this year’s show in May, with 2,000 exhibitors from 50 countries around the world. DRUPA 2000 was perceived as ‘digital DRUPA’.

Recognizing that digital printing technologies complement conventional printing, commercial printers are buying into the technology of digital printing, bringing it into mainstream. Inkjet based technologies were at the center of attention, with industrial printing being the area of greatest innovation at the show. Scitex Digital Printing, with its inkjet-based Scitex VersaMark Business Color Press, and Aprion Digital, with its MAGIC inkjet technology broadening the market applications of inkjet technologies, drew great interest.

Scitex Network Companies

Creo Products Inc., in which Scitex has an equity interest of approximately 28% posted record revenues of $162.6 million in its third quarter 2000. The company had a strong DRUPA showing and used this event to launch CreoScitex, its principal operating division. Effective May 18, 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.

Scitex Digital Printing (SDP) – At DRUPA 2000, Scitex unveiled the Scitex VersaMark Business Color Press (BCP), the world’s highest speed 100% variable data digital color press. With extremely low operating costs per page, the BCP is set to redefine transactional printing, offering effective one-to-one marketing on financial statements, coupons and catalog pages. As SDP transitions into these new markets and launches its new products, the company recorded $35.5 million of revenue in the second quarter of 2000, a small reduction compared to $36.9 million for the same period last year. Operating income for the second quarter, before amortization of goodwill, was $1.7 million.

Scitex Wide Format Printing continued to experience fast growth, with record revenues for the second quarter of 2000 of $17.8 million, a rise of 91% compared to the second quarter last year. Operating income excluding amortization of goodwill was $2.6 million. During the quarter, Scitex Wide Format established its independent distribution activities in Europe and North America, building management teams and setting up business and logistics infrastructure. Sales of the Scitex Pressjet digital press, on which Scitex cooperates with 3M, began in this quarter.

Aprion Digital, appearing for the first time at a major trade show, had an excellent DRUPA demonstrating its MAGIC inkjet technology running on prototype printing systems. Reaching its DRUPA milestone, the company received $8 million, representing the second installment of its financing package. Initial beta placements are planned towards the end of 2000. Aprion signed a strategic distribution agreement with Scitex Wide Format Printing, an additional value added distribution partner, to bring to market its MAGIC technology.

Karat Digital Press initiated commercial shipments of the 74 Karat digital offset press and recorded first time revenue in the quarter on sales of five units. Following a strong DRUPA, Karat received ten orders. The company handles distribution in Europe through KBA and has established its own distribution and support operation in North America.

Vio Worldwide Limited, an applications service provider (ASP) for the graphic arts industry, is Scitex’s 50/50 joint venture with British Telecommunications plc. The latest quarter saw Vio expand activities in North America and add several software applications to its online suite of applications. As the company transitions from a network provider to an ASP, 20% of the latest quarter’s revenue was generated from applications.

CreoScitex Transaction

In April, Scitex closed the sale of the assets of its digital preprint business to Creo Products Inc. in consideration for 13.25 million shares of Creo. The impact of this transaction on the second quarter results is as follows:

1. A pre-tax gain of $191 million from the sale of the preprint business is included in ‘Other income’;
2. A loss of $35 million, of which $24 million is a one-time write-off of Creo in-process R&D, is included in ‘Share in losses of equity investments’; and
3. At June 30, 2000, the book value of the equity investment in Creo is $386 million.

Chelouche continued, “In early April, Scitex announced its new corporate strategy to dedicate itself to building a network of leading and innovative companies that are focused on combining digital imaging technologies with the power of the Internet. This strategy is based on the following business objectives:

• Enhance and highlight the value of its existing activities and investment portfolio;
• Invest in specialized technology companies that are revolutionizing their industries;
• Leverage the complementary strengths of the existing network of companies that Scitex Corporation either owns or has an interest in; and
• Add managerial depth and market knowledge to this network of companies.

“Our close adherence to this strategy is already beginning to bear fruit, and this has been reflected in the good progress achieved during the second quarter. We’ve expanded our network of companies, and strengthened our management team with the addition of Yossy Zylberberg as Chief Financial Officer. Our business model involves enhancing the value of companies within Scitex’s portfolio. As each of our network companies grows its operations, we expect to approach capital markets for either private equity investment or public equity offerings.”

Published by Israel’s Business Arena on August, 2000.