Creo Reports 2005 Fiscal First-Quarter Financial Results

    Business Editors

    VANCOUVER, British Columbia--(BUSINESS WIRE)--Feb. 3, 2005--Creo Inc. (TSX:CRE) (NASDAQ:CREO):

    - Highest Quarterly Revenue in Creo's History; Revenue Growth of 12.4% to $174.6 million

    - Earnings Before Taxes and Other Items Increase of 64.0% to $7.3 million

    Creo Inc. today announced its financial results for the fiscal first quarter ended December 31, 2004, reported in U.S. dollars.

    Revenue in the first quarter of 2005 was $174.6 million, an increase of 12.4 percent from $155.3 million in the first quarter of 2004. Net earnings were $5.9 million or 10 cents per diluted share for the first quarter compared to $12.3 million or 24 cents per diluted share in the first quarter a year ago. Net earnings in first quarter of 2005 include 3 cents per diluted share of restructuring and intangible asset amortization offset by a higher than usual financial gain from the impact of foreign currency on net monetary assets of 3 cents per share. Earnings before taxes and other items increased by 64.0 percent to $7.3 million in the first quarter of 2005 compared to $4.5 million in the first quarter of 2004.

    Consumables revenue reached $27.9 million this quarter, an increase of 109.1 percent compared to the first quarter of last year and a 16.3 percent increase compared to the fourth quarter of 2004.

    Gross margin in the first quarter of 2005 was 40.6 percent, compared to 43.0 percent in the first quarter of 2004. A shift in revenue mix with the increase in plate revenue, and to a lesser extent, lower equipment margins contributed to the decline in gross margin this quarter.

    Total operating expenses of $63.6 million for the first quarter of 2005 were stable compared to $62.4 million in the first quarter of 2004, despite approximately $2.0 million in currency impact, net of hedging activities, from the appreciation of the Canadian dollar, Japanese yen, euro and Israeli shekel compared to the U.S. dollar. As a percentage of revenue, total operating expenses declined by 380 basis points to 36.4 percent compared to 40.2 percent in the prior year's first quarter.

    Cash used by operations was $5.4 million, reflecting a significant increase in accounts receivable as a result of higher revenue, increased inventory levels due to the ramp-up of our plate business, and the timing of vendor and restructuring payments. Cash on hand at quarter end was $86.5 million compared to $82.6 million as at September 30, 2004. Weighted shares outstanding (diluted) were 57,905,830 for the first quarter of 2005.

    Subsequent to the quarter end, Creo entered into an arrangement agreement to be acquired by Eastman Kodak Company (NYSE:EK). The acquisition is to be completed by way of a statutory plan of arrangement under which Kodak will acquire all of the issued and outstanding common shares of Creo at a cash price of $16.50 per share or approximately $980 million. Creo shareholders will be entitled to consider and vote upon the proposed transaction at the rescheduled annual and special meeting of shareholders to be held on March 29, 2005.

    In light of the pending transaction with Kodak and the uncertainty of how it may impact operations, Creo will not be providing guidance for the second quarter of 2005.

    First Call Estimates

    Creo reports its financial results in accordance with Canadian generally accepted accounting principles (GAAP). Therefore the company's earnings per share results reported in this news release cannot be directly compared with First Call estimates. First Call estimates are based on adjusted analyst forecasts, which exclude restructuring costs and intangible asset amortization.

    Conference Call

    Mark Dance, chief financial officer and chief operating officer of Creo, will present the financial results from the first quarter of 2005 at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time), today, February 3, 2005. The conference call may be accessed at www.creo.com/investors. To listen to the conference call live by telephone, dial +1-877-825-5811 for participants in North America and +1-973-582-2767 for international participants approximately 10 minutes before the start time. A telephone playback will be available after the completion of the call until February 7, 2005 at 8:00 p.m. Eastern Time (5:00 p.m. Pacific Time) and can be accessed at +1-877-519-4471 for participants in North America and +1-973-341-3080 for international participants using the access code 5548258.

    This news release 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) the announcement of the transaction to enter into an arrangement agreement with Eastman Kodak Company on January 31, 2005 may disrupt some of our customer or supplier relationships which may adversely affect future results; (2) new markets and product introductions do not proceed as planned and may adversely affect future revenues; (3) technological changes or changes in the competitive environment may adversely affect the products, market share, revenues or margins of the business; and (4) changes in general economic, financial or business conditions may adversely affect the business or the markets in which it operates. These risks and uncertainties as well as other important risks and uncertainties are described under the caption "Certain Factors That May Affect Future Results" and elsewhere in our Annual Report for the fiscal year ended September 30, 2004, as filed with the U.S. Securities and Exchange Commission and other documents filed with the U.S. Securities and Exchange Commission, and which are incorporated herein by reference. We do not assume any obligation to update the forward-looking information contained in this news release.

    (C) 2005 Creo Inc. The Creo product names mentioned in this document are trademarks or service marks of Creo Inc. and may be registered in certain jurisdictions. Other company and brand, product and service names are for identification purposes only and may be trademarks or registered trademarks of their respective holders. Data is subject to change without notice.

    About Creo

    Creo Inc. is a global company with key strengths in imaging, software technology and digital plates. The leading provider of prepress systems, Creo helps over 25,000 customers worldwide adopt digital production methods which reduce costs, increase print quality and allow them to serve their customers more efficiently. Based on a solid foundation of intellectual property, Creo has an unmatched range of technology solutions that address the needs of commercial, publication, on demand, packaging, and newspaper printers, and creative professionals. Creo product lines include software and hardware for computer-to-plate imaging, systems for digital photography, scanning, and proofing, as well as printing plates and proofing media. Creo also supplies on-press imaging technology, components for digital presses, color servers and high-speed digital printers.

    Based in Vancouver, Canada, Creo reported fiscal 2004 revenue of US$636 million. Creo trades on Nasdaq (CREO) and the TSX (CRE).

Creo Inc. Segmented Revenue by Economic Segment

Three months ended (in thousands December 31 December 31 September 30 of U.S. dollars) 2004 2003 2004 --------------------------------------------------------------------

Americas $ 58,693 $ 51,525 $ 58,197 EMEA 69,379 60,140 62,608 Asia-Pacific 24,448 20,709 25,123 OEM and Other 22,044 22,914 21,272 ---------------------------------------- $ 174,564 $ 155,288 $ 167,200 ---------------------------------------- ----------------------------------------

Creo Inc. Segmented Revenue by Economic Segment as a Percentage of Revenue

Three months ended (in thousands December 31 December 31 September 30 of U.S. dollars) 2004 2003 2004 --------------------------------------------------------------------

Americas 33.6% 33.2% 34.8% EMEA 39.8% 38.7% 37.5% Asia-Pacific 14.0% 13.3% 15.0% OEM and Other 12.6% 14.8% 12.7% ----------------------------------------

Creo Inc. Consolidated Balance Sheets

December 31 September 30 2004 2004 (in thousands of U.S. dollars) (unaudited) (unaudited) --------------------------------------------------------------------

Assets Current assets Cash and cash equivalents $ 86,461 $ 82,565 Accounts receivable 152,315 138,358 Other receivables 36,953 25,819 Inventories 119,162 111,745 Income taxes receivable 4,551 4,147 Future income taxes 15,830 16,171 ------------------------------ 415,272 378,805 Capital assets, net 123,827 121,080 Intangible assets, net 9,186 9,995 Goodwill 14,190 14,190 Other assets 40,217 33,655 Future income taxes 25,368 22,260 ------------------------------ $ 628,060 $ 579,985 ------------------------------ ------------------------------ Liabilities Current liabilities Accounts payable 48,903 49,546 Accrued and other liabilities 86,861 82,524 Future income taxes 2,257 320 Deferred revenue and credits 70,775 58,673 ------------------------------ 208,796 191,063 Long-term liabilities 14,084 13,099 Future income taxes 6,378 6,202 ------------------------------ 229,258 210,364 Shareholders' Equity

Share capital 762,919 747,847 Contributed surplus 2,704 2,225 Cumulative translation adjustment 29,350 21,617 Deficit (396,171) (402,068) ------------------------------ Shareholders' equity 398,802 369,621 ------------------------------ $ 628,060 $ 579,985 ------------------------------ ------------------------------

Creo Inc. Consolidated Statements of Operations and Deficit

Three months ended (in thousands of U.S. December 31 December 31 September 30 dollars, except share 2004 2003 2004 per amounts) (unaudited) (unaudited) (unaudited) --------------------------------------------------------------------

Revenue Product $ 100,310 $ 97,878 $ 97,434 Service 46,404 44,089 45,829 Consumables 27,850 13,321 23,937 --------------------------------------- 174,564 155,288 167,200 Cost of sales 103,617 88,469 100,706 --------------------------------------- Gross profit 70,947 66,819 66,494 ---------------------------------------

Research and development, net 19,393 20,145 22,924 Sales and marketing 26,404 26,675 27,980 General and administration 18,411 15,639 14,811 Other income (2,685) (815) (811) Restructuring 1,293 - 2,550 Intangible asset amortization 809 709 805 --------------------------------------- 63,625 62,353 68,259

Earnings (loss) before undernoted items 7,322 4,466 (1,765) Gain on sale of investment - 8,723 - Income tax expense (recovery) 1,425 875 (419) --------------------------------------- Net earnings (loss) $ 5,897 $ 12,314 $ (1,346) --------------------------------------- ---------------------------------------

Earnings (loss) per common share Basic $ 0.11 $ 0.25 $ (0.02) --------------------------------------- --------------------------------------- Diluted $ 0.10 $ 0.24 $ (0.02) --------------------------------------- ---------------------------------------

Deficit, beginning of period $ (402,068) $ (413,450) $ (400,722) Net earnings (loss) 5,897 12,314 (1,346) --------------------------------------- Deficit, end of period $ (396,171) $ (401,136) $ (402,068) --------------------------------------- ---------------------------------------

Creo Inc. Consolidated Statements of Cash Flows

Three months ended December 31 2004 2003 (in thousands of U.S. dollars) (unaudited) (unaudited) --------------------------------------------------------------------

Cash provided by (used in) operations: Net earnings $ 5,897 $ 12,314 Items not affecting cash: Amortization 6,461 5,321 Stock compensation expense 111 - Gain on sale of investment - (8,723) Future income taxes 661 (1,788) Other (3,406) 478 ------------------------ 9,724 7,602 ------------------------ Changes in operating assets and liabilities: Accounts receivable (7,769) (127) Other receivables (3,286) (2,961) Inventories (4,857) (1,898) Accounts payable (1,674) 6,464 Accrued and other liabilities (3,601) (1,897) Income taxes (3,228) (2,091) Deferred revenue and credits 9,242 3,000 ------------------------ (15,173) 490 ------------------------ (5,449) 8,092 ------------------------

Cash provided by (used in) investing: Purchase of intangible assets - (1,890) Repayment of promissory note - (4,000) Acquisition, net of cash acquired - (12,243) Purchase of capital assets - (3,723) Proceeds from sale of capital assets (6,875) 76 Proceeds from the sale of investments 22,074 Other (29) (66) ------------------------ (6,904) 228 ------------------------ Cash provided by financing: Proceeds from shares issued 15,072 1,561 Decrease in long-term liabilities - 47 ------------------------ 15,072 1,608 ------------------------ Foreign exchange gain on cash and cash equivalents held in foreign currency 1,177 944 ------------------------ Increase in cash and cash equivalents 3,896 10,872 Cash and cash equivalents, beginning of period 82,565 59,021 ------------------------ Cash and cash equivalents, end of period $ 86,461 $ 69,893 ------------------------ ------------------------

--30--JS/na*

CONTACT: Creo Inc. Tracy Rawa Investor Relations (604) 419-4794 Fax: (604) 437-9891 IR@creo.com OR Creo Inc. Kim Lawrence Corporate Communications (604) 451-2700, Ext. 2044 Fax: (604) 437-9891 kim.lawrence@creo.com www.creo.com

KEYWORD: NEW YORK INTERNATIONAL CANADA INDUSTRY KEYWORD: HARDWARE ADVERTISING/MARKETING PUBLISHING SOFTWARE EARNINGS SOURCE: Creo Inc.

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