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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2002; OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM _________________________ TO _________________________.
COMMISSION FILE NUMBER: 0-20728
RIMAGE CORPORATION
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(Exact name of Registrant as specified in its charter)
Minnesota 41-1577970
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7725 Washington Avenue South, Edina, MN 55439
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(Address of principal executive offices)
952-944-8144
------------
(Registrant's telephone number, including area code)
NA
------------------
(Former name, former address, and
former fiscal year, if changed since last report.)
Common Stock outstanding at August 2, 2002 - 8,712,111 shares
of $.01 par value Common Stock.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
RIMAGE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED JUNE 30, 2002
Description Page
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PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets
(unaudited) as of June 30, 2002 and
December 31, 2001.................................. 3
Consolidated Statements of Operations
(unaudited) for the Three and Six Months
Ended June 30, 2002 and 2001....................... 4
Consolidated Statements of Cash Flows
(unaudited) for the Six Months
Ended June 30, 2002 and 2001....................... 5
Condensed Notes to Consolidated
Financial Statements (unaudited)................... 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...... 8-11
PART II OTHER INFORMATION............................................. 12-13
- -------
Item 1-3. None
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. None
Item 6. Exhibits
SIGNATURES ..................................................................... 14
2
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001
(Unaudited)
June 30, December 31,
Assets 2002 2001
- -------------------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 5,187,617 $ 4,978,871
Marketable securities 27,532,520 23,131,393
Trade accounts receivable, net of allowance for doubtful accounts
and sales returns of $693,000 and $715,000, respectively 6,305,782 5,008,176
Inventories 3,162,191 3,624,701
Prepaid expenses and other current assets 294,168 211,941
Prepaid income taxes - 764,523
Deferred income taxes-current 1,063,108 1,063,108
- -------------------------------------------------------------------------------------------------------------------
Total current assets 43,545,386 38,782,713
- -------------------------------------------------------------------------------------------------------------------
Property and equipment, net 1,373,154 1,608,197
Deferred income taxes-noncurrent 57,468 57,468
Other noncurrent assets 4,342 6,004
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 44,980,350 $ 40,454,382
===================================================================================================================
Liabilities and Stockholders' Equity
- -------------------------------------------------------------------------------------------------------------------
Current liabilities:
Trade accounts payable $ 2,737,260 $ 2,102,178
Accrued compensation 1,064,066 1,054,572
Accrued other 1,114,117 962,379
Income tax payable 369,267 -
Deferred income and customer deposits 1,171,326 1,031,862
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 6,456,036 5,150,991
- -------------------------------------------------------------------------------------------------------------------
Long-term liabilities - 68,750
- -------------------------------------------------------------------------------------------------------------------
Total liabilities $ 6,456,036 $ 5,219,741
===================================================================================================================
Stockholders' equity:
Common stock, $.01 par value, authorized 30,000,000 shares,
issued and outstanding 8,711,295 and 8,635,537, respectively 87,113 86,355
Additional paid-in capital 16,105,310 15,779,533
Retained earnings 22,605,397 19,670,369
Accumulated other comprehensive loss (273,506) (301,616)
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 38,524,314 35,234,641
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 44,980,350 $ 40,454,382
- -------------------------------------------------------------------------------------------------------------------
See accompanying condensed notes to consolidated financial statements
3
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------------------
Revenues $12,309,527 $ 9,003,983 $22,195,898 $19,200,115
Cost of revenues 6,202,666 4,532,842 11,341,964 9,391,626
- -------------------------------------------------------------------------------------------------------------------------
Gross profit 6,106,861 4,471,141 10,853,934 9,808,489
- -------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 1,012,523 1,076,092 1,890,247 2,349,181
Selling, general and administrative 2,503,244 2,192,242 4,801,267 4,657,120
- -------------------------------------------------------------------------------------------------------------------------
Total operating expenses 3,515,767 3,268,334 6,691,514 7,006,301
- -------------------------------------------------------------------------------------------------------------------------
Operating income 2,591,094 1,202,807 4,162,420 2,802,188
- -------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest, net 223,347 293,215 435,822 623,529
Gain (loss) on currency exchange 21,007 (52,119) 21,158 (273,542)
Other, net 494 6,903 2,691 (6,388)
- -------------------------------------------------------------------------------------------------------------------------
Total other income, net 244,848 247,999 459,671 343,599
- -------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,835,942 1,450,806 4,622,091 3,145,787
Income taxes 1,035,119 519,848 1,687,063 1,163,941
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 1,800,823 $ 930,958 $ 2,935,028 $ 1,981,846
=========================================================================================================================
Income per basic share $ 0.21 $ 0.11 $ 0.34 $ 0.23
=========================================================================================================================
Income per diluted share $ 0.19 $ 0.10 $ 0.31 $ 0.21
=========================================================================================================================
Basic weighted average shares outstanding 8,705,099 8,726,495 8,690,880 8,712,559
- -------------------------------------------------------------------------------------------------------------------------
Diluted weighted average shares and
assumed conversion shares 9,496,105 9,545,555 9,487,623 9,561,222
- -------------------------------------------------------------------------------------------------------------------------
See accompanying condensed notes to the consolidated financial statements
4
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Six months ended
June 30,
2002 2001
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 2,935,028 $ 1,981,846
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 375,387 183,102
Change in reserve for excess and obsolete inventories 50,335 42,874
Change in reserve for allowance for doubtful accounts (21,999) (63,482)
Loss on sale of property and equipment 550 22,434
Changes in operating assets and liabilities:
Trade accounts receivable (1,275,607) 4,233,917
Inventories 412,175 (1,070,966)
Prepaid income taxes 764,523 359,785
Prepaid expenses and other current assets (82,227) 12,537
Trade accounts payable 635,082 (491,252)
Accrued compensation (308,939) (333,400)
Accrued other 470,171 (199,924)
Income taxes payable 369,267 -
Deferred income and customer deposits 139,464 (11,426)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,463,210 4,666,045
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of marketable securities (4,401,127) -
Purchase of property and equipment (139,232) (531,265)
Other noncurrent assets (19,569) (35,399)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,559,928) (566,664)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities-
Proceeds from stock option/warrant exercises 326,535 152,836
Other non current liabilites (68,750) -
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 257,785 152,836
- ----------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 47,679 (41,071)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 208,746 4,211,146
Cash and cash equivalents, beginning of period 4,978,871 21,136,132
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 5,187,617 $ 25,347,278
======================================================================================================================
Supplemental disclosures of net cash paid during the period for:
Income taxes $ 481,796 $ 709,376
See accompanying condensed notes to the consolidated financial statements
5
RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION AND NATURE OF BUSINESS
Rimage Corporation (the Company) develops, manufactures and
distributes high performance CD-Recordable (CD-R) and
DVD-Recordable (DVD-R) publishing and duplication systems, and
continues to support its long-term involvement in diskette
duplication and publishing equipment.
The accompanying unaudited consolidated financial statements of the
Company have been prepared pursuant to the rules of the
Securities and Exchange Commission. These financial statements
should be read in conjunction with the more detailed financial
statements and notes thereto included in the Company's most
recent annual report on Form 10-K.
The Company extends unsecured credit to its customers as well as
credit to a limited number of authorized distributor
wholesalers, who in turn provide warehousing, distribution, and
credit to a network of authorized value added resellers. These
distributors and value added resellers sell and service a
variety of hardware and software products.
In the opinion of management, the accompanying consolidated
financial statements reflect all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation
of the financial position and results of operations and cash
flows of the Company for the periods presented. Certain
previously reported amounts have been reclassified to conform
with the current presentation.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(2) INVENTORIES
Inventories consist of the following as of:
June 30, December 31,
2002 2001
- --------------------------------------------------------------------------------
Finished goods and demonstration equipment $1,036,433 $1,179,963
Work-in-process 532,680 379,215
Purchased parts and subassemblies 1,593,078 2,065,523
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$3,162,191 $3,624,701
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(Continued)
6
RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(3) COMPREHENSIVE INCOME
Comprehensive income is defined as net income and other changes in
shareholders' equity from transactions and other events from
sources other than shareholders. The components of and changes
in other comprehensive income (loss) are as follows (in 000's):
Three Months Ended Six Months Ended
June 30, June 30,
---------------- -----------------
2002 2001 2002 2001
----- ----- ----- -----
Net income $ 1,801 $ 931 $ 2,935 $ 1,982
Other comprehensive income (loss):
Foreign currency translation adjustment 110 (25) 100 (76)
Net unrealized gains (losses) on securities (21) -- (72) --
------- ------- ------- -------
Total other comprehensive income $ 1,890 $ 906 $ 2,963 $ 1,906
------- ------- ------- -------
(4) FOREIGN CURRENCY CONTRACTS
The Company enters into forward foreign exchange contracts to hedge
inter-company receivables denominated in Euros arising from
sales to its subsidiary in Germany. Gains or losses on forward
foreign exchange contracts are recognized in net earnings on a
current basis over the term of the contracts.
As of June 30, 2002, the Company had twenty-eight outstanding
foreign currency contracts totaling $2,521,000. These contracts
mature in 2002 and bear rates between .8650 and .9624 U.S.
Dollars per Euro. As of June 30, 2002, the fair value of foreign
currency contracts is $263,000 and is recorded in other current
liabilities.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth, for the periods indicated, selected
items from the Company's consolidated statements of operations. Percentage
amounts may not total due to rounding.
- ---------------------------------------------------------------------------- ----------------------------------------
Percent (%) Percent (%) Percent (%) Percent (%)
of Revenues Incr/(Decr) of Revenues Incr/(Decr)
Three Months Ended Between Six Months Ended Between
June 30, Periods June 30, Periods
- ---------------------------------------------------------------------------- ----------------------------------------
2002 2001 2002 vs. 2001 2002 2001 2002 vs. 2001
- ---------------------------------------------------------------------------- ----------------------------------------
Revenues 100.0 100.0 36.7 100.0 100.0 15.6
Cost of revenues (50.4) (50.3) 36.8 (51.1) (48.9) 20.8
- ---------------------------------------------------------------------------- ----------------------------------------
Gross profit 49.6 49.7 36.6 48.9 51.1 10.6
Operating expenses:
Research and development (8.2) (12.0) (5.9) (8.5) (12.2) (19.5)
Selling, general and admin (20.3) (24.3) 14.2 (21.6) (24.3) 3.1
- ---------------------------------------------------------------------------- ----------------------------------------
Operating income 21.0 13.4 115.4 18.8 14.6 48.5
Other income, net 2.0 2.7 (1.3) 2.1 1.8 33.8
- ---------------------------------------------------------------------------- ----------------------------------------
Income before income taxes 23.0 16.1 95.5 20.8 16.4 46.9
Income tax expense (8.4) (5.8) 99.1 (7.6) (6.1) 44.9
- ---------------------------------------------------------------------------- ----------------------------------------
Net income 14.6 10.3 93.4 13.3 10.3 48.1
- ---------------------------------------------------------------------------- ----------------------------------------
RESULTS OF OPERATIONS
REVENUES. Revenues increased 36.7% to $12.3 million and 15.6% to $22.2 million
for the three- and six-month periods ended June 30, 2002, respectively, from
$9.0 million and $19.2 million for the same prior-year periods. The increase in
revenues was primarily due to $2.0 million of sales to Kodak's Qualex wholesale
photo finishing labs during the three-month period ended June 30, 2002. This
order, which will enable Kodak's Qualex labs to significantly increase their
capacity for generating customer photos on CDs, enhances our belief that digital
photography represents a growing opportunity for the Company. The increase in
revenues was also due to the positive impact on our European operations of the
weakening U.S. dollar.
As of and for the six months ended June 30, 2002, foreign revenues from
unaffiliated customers, operating income, and net identifiable assets were
$6,453,000, $219,000 and $3,699,000, respectively. As of and for the six months
ended June 30, 2001, foreign revenues from unaffiliated customers, operating
earnings, and net identifiable assets were $6,290,000, $214,000 and $3,360,000,
respectively. The growth is due to increasing penetration in the European
markets of sales of CD-R and DVD-R products.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
GROSS PROFIT. Gross profit as a percent of revenues was 49.6% and 48.9% for the
three- and six- month periods ended June 30, 2002, respectively, compared to
49.7% and 51.1% for the same prior-year periods. The decrease during the
six-month period ended June 30, 2002 was primarily due to the larger percentage
of Desktop Line equipment sales which generally carry a slightly lower margin
than our Producer Line of products. The decrease is also due to increased
depreciation during the year 2002 related to tooling for the Everest color
printer.
OPERATING EXPENSES. Operating expenses during the three- and six-month periods
ended June 30, 2002 were $3.5 million or 28.5% of revenues and $6.7 million or
30.1% of revenues, respectively compared to $3.3 million or 36.3% of revenues
and $7.0 million or 36.5% of revenues during the same prior year periods. The
decreases in percent were primarily a result of lower research and development
expenses due to aggressive product development initiatives during the three- and
six-month periods ended June 30, 2001 coupled with the increased sales during
the three-month period ended June 30, 2002. Research and development expense
during the three- and six-month periods ended June 30, 2002 were $1.0 million or
8.2% of revenues and $1.9 million or 8.5% of revenues, respectively compared to
$1.1 million or 12.0% of revenues and $2.3 million or 12.2% of revenues during
the same periods of 2001.
OTHER INCOME/(EXPENSE). The Company recognized net interest income on cash
investments from continuing operations of $223,000 and $436,000 during the
three- and six-month periods ended June 30, 2002 compared to $293,000 and
$624,000 during the same prior year periods. This decrease is due to a decrease
in interest rates. Also included in other income, the Company recognized a
$21,000 gain on foreign currency exchange for both the three- and six-month
periods ended June 30, 2002 compared to a loss of $52,000 and $274,000 during
the same prior year periods.
INCOME BEFORE INCOME TAXES. Income before income taxes during the three- and
six-month periods ended June 30, 2002 were $2.8 million or 23.1% of revenues and
$4.6 million or 20.8% of revenues, respectively compared to $1.5 million or
16.1% of revenues and $3.1 million or 16.4% of revenues during the same prior
year periods. These increases are primarily due to increased sales within the
wholesale photography market.
INCOME TAXES. The provision for income taxes represents federal, state, and
foreign income taxes on earnings before income taxes. Income tax expense for the
three- and six-month periods ended June 30, 2002 amounted to $1.0 million or
36.5% and $1.7 million or 36.5% of income before income taxes, respectively. The
Company anticipates an effective tax rate of 36.5% for the remainder of 2002.
Income tax expense for the three- and six-month periods ended June 30, 2001
amounted to $520,000 or 35.8% and $1.2 million or 37%, of income before income
taxes, respectively.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company expects to fund its anticipated cash requirements (including the
anticipated cash requirements of its capital expenditures) with internally
generated funds and, if required, from the Company's existing credit agreement.
At June 30, 2002 there were no amounts outstanding under the credit agreement.
Current assets are $43.5 million as of June 30, 2002 compared to $38.8 million
as of December 31, 2001. The allowance for doubtful accounts as a percentage of
receivables was 10% and 12% as of June 30, 2002 and December 31, 2001,
respectively. Current liabilities are $6.5 million as of June 30, 2002 compared
to $5.2 million as of December 31, 2001. This increase primarily reflects
increased activity with our vendors and additional development cost on current
products.
Net cash provided by operating activities was $4.5 million and $4.8 million for
the six months ended June 30, 2002 and 2001, respectively. Net cash used in
investing activities was $4.6 million and $567,000 for the six months ended June
30, 2002 and 2001, respectively. This increase was primarily due to purchases of
marketable securities during the first six months of 2002. Net cash provided by
financing activities of $258,000 and $153,000 during the six months ended June
30, 2002 and 2001, respectively reflected proceeds from stock option and warrant
exercises.
The Company believes that inflation has not had a material impact on its
operations or liquidity to date.
MARKET RISK DISCLOSURE
The Company has a policy of using forward exchange contracts to hedge net
exposures related to its foreign currency-denominated monetary assets and
liabilities. The primary objective of these hedging activities is to maintain an
approximately balanced position in foreign currencies so that exchange gains and
losses resulting from exchange rate changes, net of related tax effects, are
minimized. (See footnote 4.)
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve risks and
uncertainties. For this purpose, any statements contained in this report that
are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, words such as "may," "will,"
"expect," "believe," "anticipate," "estimate" or "continue" or comparable
terminology are intended to identify forward-looking statements. These
statements by their nature involve substantial risks and uncertainties. The
Company's actual results could differ significantly from those discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, changes in media or method used for
distribution of software, technological changes in products offered by the
Company or its competitors and changes in general conditions in the computer
market, as well as other factors not now identified. These forward-looking
statements are made as of the date of this report and the Company assumes no
obligation to update such forward-looking statements, or to update the reasons
why actual results could differ materially from those anticipated in such
forward-looking statements.
11
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not Applicable.
Item 2. Changes in Securities
---------------------
Not Applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company's Annual Meeting of Stockholders' was held on May
21, 2002. The following members were elected to the Company's
Board of Directors to hold office for the ensuing year:
Nominee In Favor Withheld
------- -------- --------
Bernard Aldrich 6,946,144 195,236
Ronald Fletcher 7,088,576 52,804
Thomas Madison 7,088,176 53,204
Richard McNamara 7,087,176 54,204
Steven Quist 7,095,176 46,204
James Reissner 7,087,176 54,204
David Suden 6,948,282 193,098
Item 5. Other Information
-----------------
Not Applicable.
12
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit No. 11.1 Calculation of Earnings Per Share.
(b) Reports on Form 8-K:
Not applicable.
13
SIGNATURES
In accordance with the Exchange Act, this report has been signed below by
following persons on behalf of the registrant and on the dates indicated.
RIMAGE CORPORATION
------------------
Registrant
Date: August 6, 2002 By: /s/ Bernard P. Aldrich
------------------ ----------------------
Bernard P. Aldrich
Director, Chief Executive Officer,
and President
(Principal Executive Officer)
(Principal Financial Officer)
Date: August 6, 2002 By: /s/ Robert M. Wolf
------------------ ------------------
Robert M. Wolf
Treasurer
(Principal Accounting Officer)
14