FORM 10-K
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
{X} ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-20728
RIMAGE CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1577970
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
7725 WASHINGTON AVENUE SOUTH, MINNEAPOLIS, MINNESOTA 55439
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (952) 944-8144
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
$.01 PAR VALUE
Indicate by checkmark 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 preceeding 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___
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. { }
Indicate by checkmark whether the registrant is an accelerated filer(as defined
in Rule 12b-2 of the Act). YES___ NO_X_
The aggregate market value of common stock held by non-affiliates of the
registrant, computed by reference to the last quoted price at which such stock
was sold on such date as reported by the Nasdaq Stock Market as of the last
business day of the registrant's most recently completed second fiscal quarter
was $48,324,932.
As of March 11, 2003, there were outstanding 8,740,190 shares of the
registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its 2003 Annual
Meeting of Shareholders, to be filed within 120 days after the end of the fiscal
year covered by this report, are incorporated by reference into Part III hereof.
1
GENERAL INFORMATION
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Rimage Corporation ("Rimage") is a leading provider of CD recordable ("CD-R")
and DVD recordable ("DVD-R") publishing systems required for producing discs
with customized digital content on an on-demand basis. Rimage's publishing
systems, which include equipment to handle a full range of low to high
production volumes, incorporate robotics, software and custom printing
technology for disc labeling. Rimage focuses its CD-R and DVD-R publishing
solutions on a set of vertical markets with special needs for customized,
on-demand digital information such as digital photography, banking and finance,
government, business offices, and medical imaging.
Incorporated as IXI, Inc. in Minnesota in February 1987, Rimage has focused on
digital storage production equipment since its inception. From 1987 until the
introduction of its first CD-R production equipment in 1995, most of Rimage's
products consisted of diskette and tape duplication equipment. Rimage also
generated a significant portion of its revenue from CD-ROM and diskette
duplication and production services from 1993 until 1999. Rimage also engaged in
other lines of business, including development of browser and archiving software
and distribution of CD-ROM stamping presses.
Since 1995, Rimage has focused its business on development and sale of its CD-R
publishing systems. In 1997, Rimage ceased distribution activities for CD-ROM
stamping presses and terminated browser and archiving software development.
During the third quarter of 1998, Rimage ceased operations of its Minnesota
services business and sold the equipment and inventory associated with that
business. On June 30, 1999, Rimage ceased operations of its Colorado services
business and sold all the assets associated with that business. The resources
previously applied to these businesses were instead applied to development and
sales of CD-R and DVD-R products, primarily for commercial applications.
On March 1, 2000, Rimage acquired Cedar Technologies, Inc. ("Cedar") and issued
497,496 shares of its common stock for all of the outstanding shares of Cedar.
Cedar had developed and manufactured CD-R publishing and duplication equipment
for desktop applications that sold at a lower price point than the higher volume
systems sold by Rimage. The Cedar operations have continued as Rimage's desktop
operations.
Rimage's operations during the past five years have been affected by the timing
of the foregoing acquisition and subsequent phasing out of unprofitable
operations, new product introductions and the expenses associated with
development of such new products, and by changes in preferred formats for media
storage. The shift from diskette to CD-R/DVD-R storage technologies precipitated
the introduction of Rimage's CD-R products in 1995 and DVD-R products in 2000.
PRODUCTS
Rimage's products are designed to enable the automation of data distribution
processes. In some cases this results in a reduction of labor and training costs
for users of the products, in other cases it enables totally new and innovative
applications. Rimage products provide compelling solutions for distribution of
information on CDs and DVDs for just-in-time, on-demand and mass customization
applications.
The principal benefits to users of Rimage's products include completely
unattended operation, reduced operational costs, higher throughput than
alternative systems, and higher quality. One of the essential elements of
Rimage's marketing and development is to provide users with a path for upgrading
to future enhancements and additional capabilities. Rimage has made a long-term
commitment to its customers by providing maintenance service contracts,
replacement parts, and repair service to customers for current as well as past
products.
Sales of CD-R/DVD-R production equipment comprised 74%, 74%, and 79% of Rimage's
revenue from operations during the 2002, 2001, and 2000 calendar years,
respectively. Rimage's other major sources of revenue consist of consumables and
maintenance contract sales.
2
Since the acquisition of Cedar, Rimage's CD-R and DVD-R products have been
divided into two product lines: the Producer line of higher volume equipment for
commercial CD-R, DVD-R production, and the Desktop line of lower cost products
for office and other desktop applications. The Producer line of products
continue to generate the majority of Rimage's revenue, contributing $28,300,000
or 61% of Rimage's revenue during the year ended December 31, 2002. The Desktop
line contributed $6,094,000 or 13% of revenue during 2002. The balance of
revenue was generated through sale of consumables and services.
THE PRODUCER LINE. The Producer CD-R/DVD-R product line consists of a growing
family of products that cover a broad range of requirements for the publishing
and duplication of CD-R's and DVD-R's. Each Producer Product incorporates CD-R
or DVD-R recorders, or both, with Rimage's customized robotics, Rimage's thermal
or re-transfer thermal printer for on-disc color printing, Rimage's unique
publishing and handling software, and computer hardware components.
Rimage offers its Producer line of products in a variety of configurations to
meet the varying needs of its commercial customers. The Producer Autostar
provides industry leading speed and throughput for on-demand CD-R/DVD-R
production utilizing up to four simultaneous data streams. The Autostar can
contain any combination of CD-R/DVD-R recorders and provides for a capacity of
300 discs. The Protege system comes standard with two CD-R recorders that may be
interchanged with DVD-R recorders. The Amigo is the least costly member of the
Producer family's full production machines and comes with one recorder. The
Autostar, Protege and Amigo are all available with either Rimage's Everest or
Prism printers.
The Everest printer was developed to meet the need of customers for an on-demand
surface printer able to produce color and monochrome labels with quality similar
to offset and silkscreen printing systems. Everest truly sets the standard in
the industry, producing images on CD and DVD media that are permanent,
indelible, and cover the full surface of the media. Rimage's Prism Printer
provides high-speed, laser quality monochrome and spot color printing on
standard CD-R/DVD-R media for in-house, customized printing. The Producer line
also includes Autoprinters that incorporate either an Everest or Prism printer.
Rimage has recently announced a new product called DiscLab(TM), initially
targeted at certain of our strategic markets. DiscLab combines the Everest
printing technology with a new robotic solution that results in impressive
speed, a small product size and footprint, and a unique media sorting
capability.
THE DESKTOP LINE. Acquired through the acquisition of Cedar Technologies, Inc.,
Rimage's Desktop line of CD-R/DVD-R products features economical pricing, a
compact "desktop" design, user-friendly software, customizable software tools,
network compatibility and stand-alone plug-and-play units ideal for office
environments. For low-volume users, the Desktop line of products offers
single-drive and two-drive recorder units. Complete four-drive publishing
systems are available for higher-volume users. The Desktop line also includes an
Autoprinter, a 1200 dpi inkjet printer capable of full color printing on
CD-R/DVD-R discs.
MARKETING AND DISTRIBUTION
Rimage utilizes the following principal means of distributing its products:
Direct sales using its own sales force, primarily in Europe; a two tier
distribution system of distributor to value added reseller both in Europe and
the U.S.; and distributor to end user in Asia Pacific and in some areas in
Europe.
Rimage's sales force focuses primarily on building and supporting the
distribution channel. In areas where Rimage sells directly into the market,
Rimage's sales force supports these sales directly. Rimage sells its CD-R/DVD-R
products within industry specific environments along with its consumables such
as ribbons and maintenance contracts.
During 2002, Rimage derived 17% and 16% of its revenues from Optical Laser, Inc.
(Huntington Beach, CA) and New Wave Technologies, Inc. (Gaithersburg, MD),
respectively. Each of these customers is a third party distributor of Rimage.
During 2001, Rimage derived 18% and 13% of its revenues from Optical Laser and
New Wave Technologies, respectively.
Rimage conducts foreign sales and services through its U.S. operation and its
subsidiary in Germany, Rimage Europe GmbH. Foreign sales constituted
approximately 39%, 40%, and 30% of Rimage's revenue for the years ended December
31, 2002, 2001, and 2000, respectively.
3
COMPETITION
Rimage competes with a number of manufacturers of CD-R/DVD-R production
equipment and related products. Rimage is able to compete effectively in the
sale of CD-R/DVD-R production equipment because of technological leadership in
automated solutions and its early start within the CD-R/DVD-R production
equipment industry. Rimage believes that the quality printing capabilities for
CD/DVD, its transporter mechanisms and its software differentiate its products
from those of competitors.
MANUFACTURING
Rimage's manufacturing operations consist primarily of the assembly of products
from components purchased from third parties. Some parts are stock
"off-the-shelf" components and others are manufactured to Rimage's
specifications. Rimage's employees at its facility in Edina, Minnesota conduct
final assembly operations. Components include CD-R/DVD-R drives, circuit boards,
electronics, electric motors, machined and molded parts, precision sheet metal
assemblies, and other mechanical parts.
Although Rimage believes it has identified alternative assembly contractors for
most of its subassemblies, an actual change in such contractors would likely
require a period of training and test. Accordingly, a sudden interruption in a
supply relationship or the production capacity of one or more of such
contractors could result in Rimage's inability to deliver one or more products
for a period of several months.
RESEARCH AND DEVELOPMENT
There are 28 people involved in research and development at Rimage. This staff,
with software, electrical, mechanical and drafting capabilities engages in
research and development of new products, and development of enhancements to
existing products.
The microcomputer industry served by Rimage is subject to rapid technological
changes. Alternate data storage media exist or are under development, including
high capacity hard drives, new CD/DVD technologies, file servers accessible
through computer networks, and the Internet. All these forces may affect the
usage of CD-R and DVD-R media. Rimage believes that it must continue to innovate
and anticipate advances in the storage media industry in order to remain
competitive.
Rimage's expenditures for engineering and development were $3,602,000,
$3,901,000, and $3,551,000 in 2002, 2001, and 2000 (or 7.7%, 10.0%, and 7.1% of
revenues, respectively). Rimage anticipates maintaining its expenditures in
research and development within the range of 7% to 8% of revenues during 2003.
PATENTS AND GOVERNMENT REGULATION
Rimage is the owner of seventeen patents, has six patents pending and has
license rights to another ten patents. In addition, Rimage protects the
proprietary nature of its software primarily through copyright and license
agreements and through close integration with its hardware offerings. It is
Rimage's policy to protect the proprietary nature of its new product
developments whenever they are likely to become significant sources of revenue.
No guarantee can be given that Rimage will be able to obtain patent or other
protection for other products.
As the number of Rimage's products increase and the functionality of those
products expands, Rimage believes that it may become increasingly subject to
attempts by others to duplicate its proprietary technology and to the
possibility of infringement claims. In addition, although Rimage does not
believe that any of its products infringe the rights of others, third parties
may nonetheless assert infringement claims against Rimage in the future. Rimage
may litigate such infringement claims or settle such claims through license or
other royalty arrangement.
The FCC requires some of Rimage's equipment meet radio frequency emission
standards. Rimage has the necessary certification.
EMPLOYEES
At December 31, 2002, Rimage had 140 full-time employees, of who 28 were
involved in research and development, 54 in assembly, testing, repair and
customer service, and 58 in sales, administration and management. None of
Rimage's employees are represented by a labor union or are covered by a
collective bargaining agreement. Rimage believes its relationship with employees
is good.
4
ITEM 2. PROPERTIES
Rimage headquarters are located in a leased facility of 43,000 square feet at
7725 Washington Avenue South, Edina, Minnesota 55439. The operating lease
contains a sixty-two month term for this facility ending September 30, 2003,
which is owned by a related party (see note 9 to the consolidated financial
statements). The operating lease also contains an option to renew for an
additional five years upon agreement by both parties. The Company intends to
exercise the five-year option. Rent is $7.59 per square foot per year, plus
taxes and common area charges of $3.04 per square foot per year. This facility
is used for manufacturing, engineering, service and sales. Rimage also leases a
facility in Dietzenbach, Germany used for manufacturing, service and sales and a
facility in Campbell, CA used for engineering.
ITEM 3. LEGAL PROCEEDINGS
Rimage is not a party to any litigation that may have a material adverse effect
on Rimage, its business, or its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Rimage did not submit any matters to a vote of security holders during the last
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Rimage's common stock is traded on the NASDAQ National Market under the symbol
"RIMG". The following table sets forth, for the periods indicated, the range of
low and high prices for Rimage's common stock as reported on the NASDAQ System.
Low High
--- ----
Calendar Year 2001:
1st Quarter................ $8.250 $12.000
2nd Quarter............... 7.250 10.000
3rd Quarter............... 6.000 8.940
4th Quarter............... 5.810 8.350
Calendar Year 2002:
1st Quarter................ 7.300 9.590
2nd Quarter............... 7.360 9.600
3rd Quarter............... 7.600 9.380
4th Quarter............... 7.800 10.600
SHAREHOLDERS
At March 25, 2003, there were 101 record holders of Rimage's common stock, and
management believes that there are approximately 2,200 beneficial holders of
Rimage's common stock.
5
DIVIDENDS
Rimage has never paid or declared any cash dividends on its common stock and
does not intend to pay cash dividends on its common stock in the foreseeable
future. Rimage presently expects to retain its earnings to finance the
development and expansion of its business. The payment by Rimage of dividends,
if any, on its common stock in the future is subject to the discretion of the
Board of Directors and will depend on Rimage's continued earnings, financial
condition, capital requirements and other relevant factors.
INFORMATION REGARDING EQUITY COMPENSATION PLANS
The following table sets forth information regarding our equity compensation
plans in effect as of December 31, 2002. Each of our equity compensation plans
is an "employee benefit plan" as defined by Rule 405 of Regulation C of the
Securities Act of 1933.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Number of shares of common
stock to be issued upon Weighted-average exercise Number of shares of common
exercise of outstanding price of outstanding stock remaining available
options, warrants and options, warrants and for future issuance under
PLAN CATEGORY rights(2) rights(2) equity compensation plans(1)
---------------------------- ------------------------------- ----------------------------- ------------------------------
Equity compensation
plans approved by
stockholders: 1,501,923 $4.66 555,749
Equity compensation plans
not approved by
stockholders: - - -
(1) Excludes shares of common stock listed in the first column.
(2) Does not include shares to be issued on June 30, 2003 under the
Company's Employee Stock Purchase Plan which has as its purchase
period July 1 to June 30 of each year. The purchase price for shares
under the Employee Stock Purchase Plan is the lesser of (a) 85% of
the fair market value of the common shares on the first business day
of the purchase period or (b) 85% of the fair market value of the
common shares on the last business day of the purchase period.
6
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 below and the Consolidated Financial Statements and the
Notes thereto included in Item 8 below. Amounts are shown in 000's (except per
share data).
CONSOLIDATED STATEMENTS OF OPERATIONS INFORMATION:
Year ended December 31
----------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Revenues $46,581 $38,894 $49,792 $41,355 $31,366
Cost of Revenues 23,986 19,668 23,254 20,305 15,372
Gross Profit 22,595 19,225 26,538 21,050 15,994
Operating Expenses 13,176 12,760 14,250 12,189 9,446
Operating Income From
Continuing operations 9,419 6,465 12,288 8,861 6,548
Other Income, Net 760 972 1,017 490 352
Income Tax Expense 3,715 2,628 5,056 3,389 1,164
Income From Continuing Operations 6,464 4,809 8,249 5,962 5,736
Income (Loss) From Discontinued
Operations - - - 490 (484)
Net Income 6,464 4,809 8,249 6,452 5,252
Basic Net Income Per Share $0.74 $0.55 $0.98 $0.81 $0.71
Diluted Net Income Per Share $0.68 $0.51 $0.85 $0.68 $0.60
Weighted Average Shares and Assumed
Conversion Shares:
Basic 8,703 8,701 8,417 7,974 7,384
Diluted 9,497 9,509 9,673 9,477 8,776
CONSOLIDATED BALANCE SHEET INFORMATION:
Balances as of December 31
--------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Cash and Cash Equivalents $17,339 $14,767 $21,225 $13,539 $7,488
Marketable Securities 18,998 13,343 - - -
Trade Accounts Receivables, Net 6,644 5,008 9,013 6,190 5,238
Inventories 3,042 3,625 2,936 2,644 1,981
Net Assets of Discontinued Operations - - - - 587
Current Assets 47,337 38,783 35,744 23,333 15,981
Property and Equipment, Net 1,314 1,608 652 902 631
Total Assets 48,709 40,454 36,555 24,623 17,544
Current Liabilities 6,552 5,151 5,594 5,546 5,183
Long-Term Liabilities - 68 - - -
Stockholders' Equity 42,157 35,235 30,961 19,077 12,361
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The percentage relationships to revenues of certain income and expense items for
the three years ended December 31, 2002 and the percentage changes in these
income and expense items between years are contained in the following table:
- ----------------------------------------------------------------------------------------------------------------------
Percent (%) Increase (Decrease)
Percentage (%) of Revenues Between Periods
- ----------------------------------------------------------------------------------------------------------------------
2002 2001 2000 2002 vs. 2001 2001 vs. 2000
- ----------------------------------------------------------------------------------------------------------------------
Revenues 100.0 100.0 100.0 19.8 (21.9)
Cost of revenues (51.5) (50.6) (46.7) 21.9 (15.4)
- ----------------------------------------------------------------------------------------------------------------------
Gross profit 48.5 49.4 53.3 17.5 (27.6)
Operating expenses:
Research and development (7.7) (10.0) (7.1) (7.7) 9.9
Selling, general and administrative (20.6) (22.8) (20.4) 8.1 (12.8)
Merger related costs - - (1.1) - (100.0)
- ----------------------------------------------------------------------------------------------------------------------
Operating income 20.2 16.6 24.7 45.7 (47.4)
Other income, net 1.7 2.5 2.0 (21.8) (4.5)
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes 21.9 19.1 26.7 36.9 (44.1)
Income tax expense (8.0) (6.7) (10.1) 41.4 (48.0)
- ----------------------------------------------------------------------------------------------------------------------
Net income 13.9 12.4 16.6 34.4 (41.7)
======================================================================================================================
RESULTS OF OPERATIONS
Rimage develops, manufactures and distributes high performance CD-Recordable
(CD-R) and DVD-Recordable (DVD-R) publishing and duplication systems.
On March 1, 2000, Rimage completed the acquisition of Cedar Technologies, Inc.
("Cedar"). This acquisition was accounted for using the pooling-of-interests
method of accounting. Accordingly, all periods prior to the acquisition date
have been restated to include the operations and balances of Cedar.
REVENUES. Revenues were $46.6 million, $38.9 million, and $49.8 million for
2002, 2001, and 2000, respectively, reflecting changes of 19.8%, (21.9)%, and
20.4%, respectively, over the prior years. The increase in revenues from 2001 to
2002 was primarily due to the addition of three distributors and thirty-eight
value added resellers (VAR's) to the worldwide distribution channel,
approximately $2 million of equipment sold to Kodak/Qualex during the second
quarter 2002, and an overall sales increase through our existing sales channel
partners. CD-R/DVD-R equipment only sales totaled $34.4 million during 2002,
reflecting a 19.9% increase over 2001. Underlying economic conditions continue
to be tough during 2002. The decrease in revenues from 2000 to 2001 was
primarily the result of the absence of sales within the music-on-demand and
photography industries during 2001. Revenues during 2001 were also negatively
impacted by a noticeable slowdown in capital spending activities as a result of
a weakened economy. CD-R/DVD-R equipment only sales totaled $28.7 million during
2001, reflecting a 26.6% decrease from 2000.
GROSS PROFIT. Gross profit as a percentage of revenues was 48.5%, 49.4%, and
53.3% during 2002, 2001, and 2000, respectively. The desktop line of products
which carries lower gross profit levels compared to the producer line of
products represented 13% of total sales during 2002 compared to 12% of total
sales during 2001. This percentage increase coupled with reduced pricing of the
desktop products during 2002 was the primary cause of the decrease in gross
profit as a percentage of revenues from 2001 to 2002. The decrease was partially
offset by foreign currency exchange rate fluctuations comparing 2002 to 2001.
The decrease in gross profit as a percentage of revenues from 2000 to 2001 was
primarily due to lower sales volumes and increased inventory reserves associated
with the Producer 2000 line of products, which was replaced with the new
Producer II line of products. The decrease in gross profit as a percentage of
revenues was also due to increased European sales outside Germany. These sales
carry a lower margin associated with selling through a distribution network.
Rimage anticipates that its future gross profit percentages will continue to be
affected by many factors, including product mix, the timing of new product
introductions and manufacturing volume.
8
OPERATING EXPENSES. Total operating expenses for 2002, 2001, and 2000 were $13.2
million, $12.8 million, and $14.2 million, respectively, representing 28.3%,
32.8%, and 28.6% of revenues, respectively. A non-recurring merger related
expense of $541,000 is included in the results of operations for 2000. This
non-recurring charge was related to acquisition expenses associated with the
Cedar transaction. Excluding this non-recurring charge, the operating expenses
for 2000 would have represented 27.5% of revenues.
Research and development expenses were $3.6 million, $3.9 million, and $3.6
million for 2002, 2001, and 2000, respectively, representing 7.7%, 10.0%, and
7.1% of revenues, respectively. The dollar decrease from 2001 to 2002 is
primarily due to the Everest development costs incurred during 2001 partially
offset by increased development materials needed to manage the increased number
of projects Rimage undertook during 2002. One of the most significant of these
projects included the development of the new DiscLab product introduced in March
2003. Rimage anticipates its research and development expenditures to be within
the range of 7% to 8% of revenues during 2003.
Selling, general and administrative expenses were $9.6 million, $8.9 million,
and $10.2 million for 2002, 2001, and 2000, respectively, representing 20.6%,
22.8%, and 20.4% of revenues, respectively. The increase in dollars from 2001 to
2002 was primarily the result of increased advertising expenses related to the
desktop line of products and increased management bonuses. The decrease in
dollars from 2000 to 2001 was primarily due to the reversal of $240,000
previously accrued for a vacated leased facility that was subleased in July of
2001 coupled with targeted workforce reductions and significantly reduced
management bonuses.
OTHER INCOME, NET. For 2002, 2001, and 2000 interest income was $780,000,
$1,111,000, and $1,088,000, respectively. While cash levels continued to
increase from 2000 to 2002 effective yields have decreased creating lower than
expected interest income levels. See "Liquidity and Capital Resources" below for
a discussion of cash levels. Other income was negatively impacted by foreign
currency transaction losses during 2002, 2001 and 2000.
INCOME BEFORE INCOME TAXES. For 2002, 2001, and 2000, income before income taxes
were $10.2 million, $7.4 million, and $13.3 million, respectively, representing
21.9%, 19.1%, and 26.7% of revenues, respectively. The increase from 2001 to
2002 was primarily due to increased sales from new and existing distribution
partners partially offset by slightly lower gross profit levels from sales of
the desktop line of products. The decrease from 2000 to 2001 primarily
represented the absence of CD-R related product sales into the music-on-demand
and photography industries coupled with a noticeable slowdown in capital
spending activities as a result of a weakened economy.
INCOME TAXES. The provision for income taxes represents federal, state, and
foreign income taxes on income before income taxes. For 2002, 2001, and 2000,
income tax expense amounted to $3.7 million, $2.6 and $5.1 million,
respectively, representing 36.5%, 35.3%, and 38.0% of income before income
taxes, respectively. The Company recognized increased benefits from research and
development and foreign tax credits during 2001. The Company anticipates an
effective tax rate of 36.5% during 2003.
NET INCOME. Net income was $6.5 million (or $0.68 per diluted share) for 2002,
compared to $4.8 million (or $0.51 per diluted share) for 2001 and $8.2 million
(or $0.85 per diluted share) for 2000. Excluding $541,000 of non-recurring
charges in 2000, net income would have been $8.8 million (or $0.91 per diluted
share).
LIQUIDITY AND CAPITAL RESOURCES
Rimage expects to fund its anticipated cash requirements (including the
anticipated cash requirements of its capital expenditures) with internally
generated funds and, if required, from Rimage's existing credit agreement.
Current assets increased to $47.3 million as of December 31, 2002 from $38.8
million as of December 31, 2001, primarily reflecting normal operating activity.
The Company intends on utilizing its current assets primarily for its recurring
operating needs and to grow the Company's CD-R and DVD-R business. In addition,
the Company may use its available cash for the repurchase of its common stock or
for potential future acquisitions. The allowance for doubtful accounts and sales
returns as a percentage of receivables decreased to 8.7% as of December 31, 2002
from 12.5% as of December 31, 2001, primarily reflecting decreased sales return
activity. Current liabilities increased to $6.6 million as of December 31, 2002
from $5.2 million as of December 31, 2001 reflecting increased trade payable
activity and increased deferred income as a result of added maintenance contract
sales.
Net cash provided by operating activities was $8.2, $9.2 million, and $6.2
million during 2002, 2001, and 2000, respectively. The changes in cash flow from
operating activities from 2000 through 2002 were primarily due to the timing of
cash collections from our customers.
Net cash used in investing activities was $6.1 million, $14.9 million, and
$337,000 during 2002, 2001, and 2000, respectively. Cash used in investing
activities during 2002 and 2001 primarily reflected purchases of short-term
investments. Investing activities during 2001 also included payments made
towards tooling for the Everest printer. These tooling payments were capitalized
and are being depreciated over 3 years. Cash used in investing activities during
2000 primarily reflected capital expenditures. At December 31, 2002 Rimage had
no significant commitments to purchase additional capital equipment.
9
Net cash provided by (used in) financing activities was $379,000, $(700,000),
and $1.8 million during 2002, 2001, and 2000, respectively. Cash provided by
financing activities during 2002 and 2000 reflected proceeds from stock option
exercises. Cash used in financing activities during 2001 primarily reflected
cash payments to acquire Company stock netted with proceeds from stock option
exercises.
Please refer to our lease footnote (note 9) for a detail of the Company's
contractual cash obligations at December 31, 2002. The Company has a term note
agreement with a bank. The agreement allows for advances under a revolving loan
up to a maximum advance of $5,000,000 and is effective until June 30, 2003. No
amounts have been outstanding since the establishment of the term note
agreement.
Rimage believes that inflation has not had a material impact on its operations
or liquidity to date.
CRITICAL ACCOUNTING POLICIES
Management utilizes its technical knowledge, cumulative business experience,
judgment and other factors in the selection and application of the Company's
accounting policies. The following accounting policies are considered by
management to be the most critical to the presentation of the consolidated
financial statements because they require the most difficult, subjective and
complex judgments:
ALLOWANCE FOR DOUBTFUL ACCOUNTS AND SALES RETURNS. The Company records a reserve
for accounts receivable that are potentially uncollectible. The reserve is
established by estimating the amounts that are potentially uncollectible based
on a review of customer accounts, the age of the receivable, the customer's
financial condition and industry, and general economic conditions. The Company
also records a reserve for sales returns from its customers. The amount of the
reserve is based upon historical trends, timing of new product introductions and
other factors. Results could be materially different if economic conditions
worsened for the Company's customers.
INVENTORY RESERVES. The Company records reserves for inventory shrinkage and for
potentially excess, obsolete and slow moving inventory. The amounts of these
reserves are based upon historical loss trends, inventory levels, physical
inventory and cycle count adjustments, expected product lives and forecasted
sales demand. In 2001, obsolescence charges of approximately $250,000 were taken
on Producer I inventory due to the introduction of the Producer II family of
products. Results could be materially different if demand for the Company's
products decreased because of economic or competitive conditions, or if products
became obsolete because of technical advancements in the industry or by the
Company.
DEFERRED TAX ASSETS. The Company recognizes deferred tax assets for the expected
future tax impact of temporary differences between book and taxable income. A
valuation allowance and income tax charge are recorded when, in management's
judgment, realization of a specific deferred tax asset is uncertain. Income tax
expense could be materially different from actual results because of changes in
management's expectations regarding future taxable income, the relationship
between book and taxable income and tax planning strategies employed by the
Company.
WARRANTY RESERVES. The Company records a liability for warranty claims at the
time of sale. The amount of the liability is based on the trend in the
historical ratio of claims to sales, the historical length of time between the
sale and resulting warranty claim, anticipated releases of new products and
other factors. Claims experience could be materially different from actual
results because of the introduction of new, more complex products; a change in
the Company's warranty policy in response to industry trends, competition or
other external forces; or manufacturing changes that could impact product
quality.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS 142, "Goodwill and Other Intangible Assets", changes the accounting for
goodwill from an amortization method to an impairment-only approach. The
adoption of SFAS 142 on January 1, 2002 did not have any impact on the financial
position or results of operations of the Company.
SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets",
addresses the financial accounting and reporting for the impairment of
long-lived assets. The adoption of SFAS 144 on January 1, 2002, did not have any
impact on the financial position or results of operations of the Company.
SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities",
addresses the costs associated with an exit activity (including restructuring)
or with a disposal of long-lived assets. The Company will account for any future
exit or disposal activities after December 31, 2002 under SFAS 146.
SFAS 148, "Accounting for Stock-based Compensation - Transition and Disclosure",
amends SFAS No. 123, "Accounting for Stock-based Compensation" to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. Since the Company
plans to continue to use APB 25 to account for stock options issued to employees
and directors, this portion of SFAS 148
10
will not have any impact on the financial position or the results of operations
of the Company. SFAS 148 also amends the disclosure requirements of SFAS 123 to
require additional disclosure in both annual and interim financial statements on
the method of accounting for stock-based employee compensation. The Company
adopted the disclosure provisions of SFAS 148 as of December 31, 2002.
FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness to Others", requires companies to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The Company plans to adopt
FIN 45 for guarantees issued or modified after December 31, 2002. The Company
does not expect the adoption of FIN45 to have any impact on the financial
position or results of operations of the Company.
EITF 00-21, "Revenue Arrangements with Multiple Deliverables", provides revenue
recognition guidance for arrangements with multiple deliverables, and the
criteria to determine if items in a multiple deliverable agreement should be
accounted for separately. The Company will adopt EITF 00-21 for qualifying
transactions after June 30, 2003.
FORWARD LOOKING STATEMENTS
Some of the statements in this Annual Report and in the Company's press releases
and oral statements made by or with the approval of the Company's executive
officers constitute or will constitute "forward looking statements". All forward
looking statements involve risks and uncertainties, and actual results may be
materially different. The following factors are among those that could cause the
Company's actual results to differ materially from those set forth in such
forward looking statements.
o The markets for computer and associated storage media have
historically changed rapidly and a reduction in industry prominence
from CD-R or DVD-R media, or the introduction of superior media, would
significantly negatively impact the Company's operations and
prospects.
o Approximately 40% of the Company's revenue is attributable to foreign
operations, primarily in Europe, and a majority of these sales are
invoiced in foreign currencies. Such operations are subject to the
affects of currency fluctuations, factors affecting local economic
health, and the difficulties of managing operations from long
distances.
o Although the Company has obtained patent protection on some of its
products, it has periodically been subject to competition from others
who have copied its products or otherwise used technology that may
infringe the Company's rights. There are a number of companies that
claim intellectual property rights in the industry in which the
Company competes and the Company cannot predict in advance that it
will be able to protect its products from the competing claims of
others or will not be required to pay others for use of technology for
which they claim rights.
o The Company sells its products through a large number of distributors,
value added resellers and dealers and its quarterly operations may be
affected by the operating results of some of these channel partners
and by its ability to keep its channel partners properly trained and
actively selling its products.
o The Company's products must operate with a number of other computer
and related equipment and the Company must maintain compatibility and
interoperability with the products of others, as well as new product
introductions.
o The Company's operations are periodically affected by introductions of
new products by competitors.
The Company makes its periodic and current reports available free of charge as
soon as reasonably practicable after such material is electronically filed with,
or furnished to, the Securities and Exchange Commission at www.rimage.com.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DERIVATIVE FINANCIAL INSTRUMENTS. The Company enters into forward exchange
contracts principally to hedge the eventual dollar cash flow of foreign currency
denominated transactions (principally European Euro) with Rimage Europe, a
German based subsidiary. Gains or losses on forward exchange contracts are
recognized in income on a current basis over the term of the contracts. The
Company does not utilize financial instruments for trading or other speculative
purposes.
11
EXCHANGE RATE SENSITIVITY
The table below summarizes information on foreign currency forward exchange
agreements that are sensitive to foreign currency exchange rates. For these
foreign currency forward exchange agreements, the table presents the notional
amounts and weighted average exchange rates by expected (contractual) maturity
dates. These notional amounts generally are used to calculate the contractual
payments to be exchanged under the contract.
EXPECTED MATURITY OR TRANSACTION DATE
-------------------------------------
There- Fair
2003 2004 2005 2006 after Total Value
---- ---- ---- ---- ----- ----- -----
ANTICIPATED TRANSACTIONS AND
RELATED DERIVATIVES (US$ Equivalent in Thousands)
Forward Exchange Agreements
(Receive $US/Pay (euro))
Contract Amount 3,302 - - - - 3,302 220
Average Contractual
Exchange Rate 0.9824 - - - - 0.9824
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS
Page in Annual
Report on Form 10-K
For Year Ended
December 31, 2002
-----------------
Independent Auditors' Report ................ 14
Consolidated Balance Sheets, as of
December 31, 2002 and 2001 .................. 15
Consolidated Statements of Operations,
for the years ended December 31, 2002,
2001 and 2000 ............................... 16
Consolidated Statements of Stockholders'
Equity and Comprehensive Income, for the
years ended December 31, 2002, 2001 and
2000 ........................................ 17
Consolidated Statements of Cash Flows,
for the years ended December 31, 2002,
2001 and 2000 ............................... 18
Notes to Consolidated Financial
Statements .................................. 19-31
13
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Rimage Corporation:
We have audited the accompanying consolidated balance sheets of Rimage
Corporation and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 2002. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Rimage Corporation
and subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2002 in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
Minneapolis, Minnesota
February 12, 2003
14
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2002 and 2001
December 31, December 31,
Assets 2002 2001
- -------------------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 17,339,135 $ 14,767,126
Marketable securities 18,997,987 13,343,138
Trade accounts receivable, net of allowance for doubtful accounts
and sales returns of $635,000 and $715,000, respectively 6,643,613 5,008,176
Inventories 3,041,828 3,624,701
Prepaid expenses and other current assets 385,205 211,941
Prepaid income taxes - 764,523
Deferred income taxes-current 929,279 1,063,108
- -------------------------------------------------------------------------------------------------------------------
Total current assets 47,337,047 38,782,713
- -------------------------------------------------------------------------------------------------------------------
Property and equipment, net 1,313,922 1,608,197
Deferred income taxes - non-current 55,274 57,468
Other non-current assets 3,011 6,004
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 48,709,254 $ 40,454,382
===================================================================================================================
Liabilities and Stockholders' Equity
- -------------------------------------------------------------------------------------------------------------------
Current liabilities:
Trade accounts payable $ 2,590,299 $ 2,102,178
Accrued compensation 1,287,585 1,095,554
Accrued other 1,156,536 921,397
Income tax payable 194,973 -
Deferred income and customer deposits 1,322,729 1,031,862
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 6,552,122 5,150,991
Long-term liabilities - 68,750
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 6,552,122 5,219,741
Stockholders' equity:
Common stock, $.01 par value, authorized 30,000,000 shares,
issued and outstanding 8,719,411 and 8,635,537, respectively 87,194 86,355
Additional paid-in capital 16,157,259 15,779,533
Retained earnings 26,134,084 19,670,369
Accumulated other comprehensive loss (221,405) (301,616)
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 42,157,132 35,234,641
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 48,709,254 $ 40,454,382
===================================================================================================================
See accompanying notes to consolidated financial statements
15
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 2002, 2001 and 2000
2002 2001 2000
- -------------------------------------------------------------------------------------------------------------
Revenues $ 46,581,069 $ 38,894,000 $ 49,792,051
Cost of revenues 23,985,704 19,669,148 23,254,042
- -------------------------------------------------------------------------------------------------------------
Gross profit 22,595,365 19,224,852 26,538,009
- -------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 3,602,117 3,901,147 3,550,534
Selling, general and administrative 9,574,110 8,858,804 10,157,956
Merger related costs - - 541,396
- -------------------------------------------------------------------------------------------------------------
Total operating expenses 13,176,227 12,759,951 14,249,886
- -------------------------------------------------------------------------------------------------------------
Operating income 9,419,138 6,464,901 12,288,123
- -------------------------------------------------------------------------------------------------------------
Other income:
Interest, net 780,273 1,110,745 1,088,348
Loss on currency exchange (27,658) (139,094) (69,119)
Other, net 7,326 349 (1,803)
- -------------------------------------------------------------------------------------------------------------
Total other income, net 759,941 972,000 1,017,426
- -------------------------------------------------------------------------------------------------------------
Income before income taxes 10,179,079 7,436,901 13,305,549
Income tax expense 3,715,364 2,627,756 5,056,109
- -------------------------------------------------------------------------------------------------------------
Net income $6,463,715 $4,809,145 $8,249,440
==============================================================================================================
- -------------------------------------------------------------------------------------------------------------
Net income per basic share $ 0.74 $ 0.55 $ 0.98
==============================================================================================================
- -------------------------------------------------------------------------------------------------------------
Net income per diluted share $ 0.68 $ 0.51 $ 0.85
==============================================================================================================
Basic weighted average shares outstanding 8,702,552 8,701,248 8,416,730
==============================================================================================================
Diluted weighted average shares and
assumed conversion shares 9,496,723 9,509,155 9,673,384
==============================================================================================================
See accompanying notes to consolidated financial statements
16
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2002, 2001, and 2000
Accumulated
Common Stock Additional other
----------------------- paid-in Retained comprehensive
Shares Amount capital earnings loss Total
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 7,962,358 $79,624 $12,611,700 $6,611,784 ($225,899) $19,077,209
Stock issued in warrant and stock
option exercise 690,927 6,909 1,753,236 - - 1,760,145
Income tax benefit from
disqualifying dispositions of
stock options - - 1,954,677 - - 1,954,677
Comprehensive income:
Net income - - - 8,249,440 - 8,249,440
Translation adjustment - - - - (80,532) (80,532)
---------------
Total comprehensive income 8,168,908
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 8,653,285 86,533 16,319,613 14,861,224 (306,431) 30,960,939
Stock issued in warrant and stock
option exercise 121,247 1,212 258,512 - - 259,724
Repurchases of Company stock (138,995) (1,390) (958,816) - - (960,206)
Income tax benefit from
disqualifying dispositions of
stock options - - 160,224 - - 160,224
Comprehensive income:
Net income - - - 4,809,145 - 4,809,145
Translation adjustment - - - - (50,578) (50,578)
Unrealized gain from marketable
securities - - - - 55,393 55,393
---------------
Total comprehensive income 4,813,960
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 8,635,537 86,355 15,779,533 19,670,369 (301,616) 35,234,641
Stock issued in warrant and stock
option exercise 83,874 839 377,726 - - 378,565
Comprehensive income:
Net income - - - 6,463,715 - 6,463,715
Translation adjustment - - - - 158,278 158,278
Unrealized loss from marketable
securities - - - - (78,067) (78,067)
---------------
Total comprehensive income 6,543,926
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2002 8,719,411 $87,194 $16,157,259 $26,134,084 ($221,405) 42,157,132
=====================================================================================================================
See accompanying notes to consolidated financial statements.
17
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2002, 2001, and 2000
2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 6,463,715 $ 4,809,145 $ 8,249,440
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 794,745 570,824 715,038
Deferred income tax benefit 136,023 (36,049) (210,090)
Change in reserve for excess and obsolete inventories (127,670) 298,670 16,000
Change in allowance for doubtful accounts (79,561) 175,545 218,333
(Gain) loss on sale of property and equipment (3,370) 30,977 9,073
Changes in operating assets and liabilities:
Trade accounts receivable (1,555,876) 3,829,486 (3,043,966)
Inventories 710,543 (987,252) (307,609)
Prepaid income taxes 764,523 814,199 536,179
Prepaid expenses and other current assets (173,264) 625 (12,827)
Other non-current assets (17,995) 42,491 (61,739)
Trade accounts payable 488,121 (186,611) (409,351)
Income taxes payable 194,973 - (312,154)
Accrued compensation 192,031 (350,573) 424,801
Accrued other 235,139 68,745 131,156
Other non-current liabilities (68,750) 68,750 -
Deferred income and customer deposits 290,867 24,905 214,197
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 8,244,194 9,173,877 6,156,481
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of marketable securities (5,654,849) (13,343,138) -
Purchase of property and equipment (497,532) (1,550,907) (336,532)
Proceeds from the sale of property, equipment and intangibles 3,425 - -
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (6,148,956) (14,894,045) (336,532)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from stock option exercise 378,565 259,724 1,760,145
Cash payments to purchase treasury stock - (960,206) -
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 378,565 (700,482) 1,760,145
- ----------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 98,206 (37,676) (18,793)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,572,009 (6,458,326) 7,561,301
Cash and cash equivalents, beginning of year 14,767,126 21,225,452 13,664,151
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 17,339,135 $ 14,767,126 $ 21,225,452
============================================================================================================================
Supplemental disclosures of net cash paid during the period for:
Income taxes $ 2,619,846 $ 1,849,606 $ 5,005,025
See accompanying notes to the consolidated financial statements
18
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) Nature of Business and Summary of Significant Accounting Policies
Basis of Presentation and Nature of Business
The consolidated financial statements include the accounts of
Rimage Corporation and its subsidiaries, collectively
hereinafter referred to as Rimage or the Company. All
material intercompany accounts and transactions have been
eliminated upon consolidation.
The Company develops, manufactures and distributes high
performance CD-Recordable (CD-R) and DVD-Recordable (DVD-R)
publishing and duplication systems.
Revenue Recognition
Revenue is recognized at the time of shipment on all equipment
orders. The Company provides maintenance services under
long-term maintenance contracts. Revenue associated with
these contracts is deferred and recognized on a
straight-line basis over the terms of the respective
contracts.
Accounting Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United
States of America require management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the
reported period. Actual results could differ from estimates
on items such as allowance for doubtful accounts and sales
returns, inventory reserves, deferred tax assets, and
warranty reserves.
(Continued)
19
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Cash Equivalents
All short-term investments with original maturities of three
months or less at date of purchase are considered cash
equivalents.
Marketable Securities
Marketable securities generally consist of U.S. Treasury,
asset-backed and corporate securities with long-term credit
ratings of AAA and short-term credit ratings of A-1.
Marketable securities are classified as short-term or
long-term in the balance sheet based on their maturity
date. All marketable securities have maturities of twelve
months or less and are classified as available-for-sale.
Available-for-sale securities are recorded at fair value
and any unrealized holding gains and losses, net of the
related tax effect, are excluded from earnings and are
reported as a separate component of accumulated other
comprehensive income (loss) until realized.
Inventories
Inventories are stated at the lower of cost, determined on a
first-in, first-out (FIFO) basis, or market.
Property and Equipment
Property and equipment are stated at cost and depreciated on a
straight-line basis over periods of two to seven years.
Leasehold improvements are amortized using the
straight-line method over the terms of the respective
leases. Repairs and maintenance costs are charged to
operations as incurred.
Stock Based Compensation
The Company applies APB No. 25 and related interpretations in
accounting for its plans. Accordingly, no compensation
expense has been recognized for its stock-based
compensation plans. Had the Company determined compensation
cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's 2002, 2001
and 2000 net income and basic and diluted earnings per
share would have been adjusted to the proforma amounts
stated below:
2002 2001 2000
-----------------------------------------------------------------------------------------------
Net income:
As reported $6,463,715 $4,809,145 $8,249,440
Stock based employee compensation, net of tax (529,565) (762,616) (704,249)
Proforma 5,934,150 4,046,529 7,545,191
-----------------------------------------------------------------------------------------------
Basic net income per share:
As reported $0.74 $0.55 $0.98
Stock based employee compensation, net of tax $(0.06) $(0.08) $(0.08)
Proforma $0.68 $0.47 $0.90
-----------------------------------------------------------------------------------------------
Diluted net income per share:
As reported $0.68 $0.51 $0.85
Stock based employee compensation, net of tax $(0.06) $(0.08) $(0.07)
Proforma $0.62 $0.43 $0.78
-----------------------------------------------------------------------------------------------
(Continued)
20
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Software Development Costs
Capitalization of software development costs begins upon the
establishment of technological feasibility of the product.
The establishment of technological feasibility and the
ongoing assessment of the recoverability of these costs
require considerable judgment by management with respect to
certain external factors, including, but not limited to,
anticipated future gross product revenues, estimated
economic life, and changes in software and hardware
technology.
The Company capitalizes software development costs between the
date when project technological feasibility is established
(beta stage) and the date when the product is ready for
normal production release. All other research and
development costs related to software development are
expensed as incurred. Software development costs are
amortized over the estimated economic life of the product,
which ranges from two to five years. Amortization expense
is included in cost of goods sold. Included in other
noncurrent assets are capitalized software costs of
$121,675 and $367,836 as of December 31, 2002 and 2001,
respectively. Accumulated amortization at December 31, 2002
and 2001 was $121,675 and $367,836, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to
differences between the financial statement carrying
amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates in effect for the year
in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Net Income Per Share
Basic income per share is calculated as income available to
common stockholders divided by the weighted average number
of common shares outstanding for the period. Diluted income
per share is calculated by dividing income by the weighted
average number of common and assumed conversion shares
outstanding during each period. Assumed conversion shares
result from dilutive stock options and computed using the
treasury stock method.
(Continued)
21
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Translation of Financial Statements in Foreign Currencies
The assets and liabilities for the Company's international
subsidiary are translated into U.S. dollars using current
exchange rates. The resulting translation adjustments are
recorded in the foreign currency translation adjustment
account in stockholders' equity. Statement of operations
items are translated at average exchange rates prevailing
during the period. Foreign currency transaction gains or
losses are included in net income.
Comprehensive Income
Comprehensive income consists of the Company's net income,
foreign currency translation adjustment, and unrealized
holding gains (losses) from available-for-sale investments
and is presented in the consolidated statements of
stockholders' equity.
Reclassification
Certain prior year amounts have been reclassified to conform
with the current year presentation.
2) Fair Value of Financial Instruments
The following methods and assumptions were used by the Company
in estimating the fair value of its financial instruments.
Cash and cash equivalents: The carrying amount approximates
fair value because of the short maturity of those
instruments.
Marketable securities: The fair values are determined using
uoted market prices.
Foreign currency forward exchange contracts: The fair value is
the amount the Company would receive or pay to terminate
the contracts at the reporting date. The fair value of
foreign currency forwards is $(220,000) and $11,000 at
December 31, 2002 and 2001, respectively.
Trade accounts receivable and accounts payable: The carrying
amount approximates fair value because of the short
maturity of those instruments.
(Continued)
22
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3) Marketable Securities
The amortized cost, gross unrealized holding gains, gross
unrealized holding losses and fair value of
available-for-sale securities by major security type and
class of security at December 31, 2002 and 2001 were as
follows:
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED COST HOLDING GAINS HOLDING LOSSES FAIR VALUE
-------------- ------------- -------------- ----------
AT DECEMBER 31, 2002
U.S. Treasury securities $ 10,849,707 22,526 - 10,872,233
Asset-backed securities 4,131,074 - (47,743) 4,083,331
Commercial paper 1,944,038 - - 1,944,038
Corporate securities 2,095,842 2,900 (357) 2,098,385
---------------- ------ ------- ----------
Total $ 19,020,661 25,426 (48,100) 18,997,987
================ ====== ======= ==========
AT DECEMBER 31, 2001
U.S. Treasury securities $ 14,857,948 22,982 (713) 14,880,217
Asset-backed securities 4,114,917 10,401 (3,773) 4,121,545
Commercial paper 993,175 - - 993,175
Corporate securities 3,109,960 28,299 (1,803) 3,136,456
---------------- ------ ------- ----------
Total $ 23,076,000 61,682 (6,289) 23,131,393
================ ====== ====== ==========
4) Inventories
Inventories consist of the following as of December 31:
2002 2001
- -------------------------------------------------------------------------------------------------------
Finished goods and demonstration equipment $ 668,154 $ 1,179,963
Work-in-process 480,293 495,245
Purchased parts and subassemblies 1,893,381 1,949,493
- -------------------------------------------------------------------------------------------------------
$ 3,041,828 $ 3,624,701
=======================================================================================================
5) Note Payable To Bank
The Company has a term note agreement (the Credit Agreement)
with a bank. The Credit Agreement allows for advances under
a revolving loan based on various percentages of qualified
asset (primarily accounts receivable and inventory)
amounts, up to a maximum advance of $5,000,000 and is
effective until August 1, 2003. There were no outstanding
borrowings under this revolving loan as of December 31,
2002 or 2001.
The Credit Agreement contains various covenants pertaining to
minimum tangible net worth and current, leverage and fixed
charge coverage ratios. The Company is in compliance with
all covenants at December 31, 2002.
(Continued)
23
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6) Income Taxes
The provision for income tax expense consists of the
following:
Year ended December 31
----------------------------------------------
2002 2001 2000
- ----------------------------------------------------------------------------------------------------------
Current:
U.S. Federal $ 2,887,333 2,074,550 4,441,768
State 524,696 419,876 628,234
Foreign 167,312 169,379 196,197
- ----------------------------------------------------------------------------------------------------------
Total current 3,579,341 2,663,805 5,266,199
- ----------------------------------------------------------------------------------------------------------
Deferred:
U.S. Federal 117,789 (17,682) (209,709)
State 18,234 (18,367) (381)
- ----------------------------------------------------------------------------------------------------------
Total deferred 136,023 (36,049) (210,090)
- ----------------------------------------------------------------------------------------------------------
$ 3,715,364 2,627,756 5,056,109
==========================================================================================================
Total tax expense differs from the expected tax expense,
computed by applying the federal statutory rate of 35% to
earnings before income taxes as follows:
Year ended December 31
-------------------------------------------------
2002 2001 2000
- -------------------------------------------------------------------------------------------------------
Expected income tax expense $ 3,562,678 2,602,915 4,656,942
State income taxes, net of federal tax effect 358,334 264,996 408,104
Extraterritorial income exclusion (102,000) (136,000) (179,725)
Foreign operation (42,239) (94,970) -
Merger costs - - 189,489
Benefit of lower federal tax bracket (101,791) (74,369) (100,000)
Other, net 40,382 65,184 81,299
- -------------------------------------------------------------------------------------------------------
$ 3,715,364 2,627,756 5,056,109
=======================================================================================================
(Continued)
24
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets as of December
31, are presented below:
2002 2001
- ------------------------------------------------------------------------------------------------------
Inventories $ 316,000 392,000
Gross margin recognition on sale to foreign subsidiary 252,000 298,000
Accounts receivable 214,000 230,000
Accrued payroll 56,000 68,000
Deferred maintenance 50,000 42,000
Warranty accrual 40,000 32,000
Fixed assets 24,000 6,000
Amortization 11,000 31,000
Other 22,000 22,000
- ------------------------------------------------------------------------------------------------------
Total deferred tax assets $ 985,000 1,121,000
======================================================================================================
(Continued)
25
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7) Stockholders' Equity
Stock Options
Rimage has two stock option plans that allow for the granting
of options to purchase shares of common stock to certain
key administrative, managerial and executive employees and
the automatic periodic grants of stock options to
non-employee directors. Options under these plans may be
either incentive stock options or non-qualified options.
Pursuant to this plan, the following options are currently
issued and outstanding:
Weighted
Shares average
available Options exercise
for grant outstanding price
- -------------------------------------------------------------------------------------------------
Balance at December 31, 1999 64,734 1,700,985 $2.65
Additional shares available 375,000 - -
Granted (250,000) 250,000 10.42
Exercised - (437649) 2.29
Canceled 2,275 (2,275) 8.01
- -------------------------------------------------------------------------------------------------
Balance at December 31, 2000 192,009 1,511,061 4.04
Additional shares available 245,000 - -
Granted (229,500) 229,500 7.28
Exercised - (99,749) 2.03
Canceled 20,600 (21,687) 9.19
- -------------------------------------------------------------------------------------------------
Balance at December 31, 2001 228,109 1,619,125 4.55
Additional shares available - - -
Granted (45,500) 45,500 8.40
Exercised - (51,802) 3.29
Canceled 110,900 (110,900) 5.28
- -------------------------------------------------------------------------------------------------
Balance at December 31, 2002 293,509 1,501,923 4.66
(Continued)
26
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes exercise prices of exercisable
options as of December 31, 2002:
================================================================
Weighted
Number Average
Exercise Price Range Of Options Exercise Price
----------------------------------------------------------------
$ 1.33 $ 1.33 524,425 $ 1.33
$ 2.08 $ 2.75 381,748 $ 2.67
$ 4.39 $ 6.50 7,200 $ 5.34
$ 6.85 $ 10.00 573,550 $ 8.69
$ 17.00 $ 17.00 15,000 $ 17.00
--------------- -------------
1,501,923 $ 4.66
================================================================
The exercisable options have a weighted average contractual
life of 6.7 years.
The following table calculates the fair market value of
options granted on the date of grant using the
Black-Scholes option pricing model:
=========================================================================================
2002 2001 2000
--------------- --------------- ---------------
Number of Options Granted 45,500 229,500 250,000
Fair Market Value of
Options Granted $ 188,645 $ 950,485 $ 1,953,420
Volatility Range 37.0 to 56.0% 54.4 to 94.6% 41.8 to 99.9%
Risk-free Interest Rate Range 2.78 to 4.50% 3.76 to 5.07% 5.73 to 6.46%
Expected Life of Options in Years 5.0 5.0 5.0
=========================================================================================
(Continued)
27
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Employee Stock Purchase Plan
In February 2001, the Company's board of directors adopted,
and our shareholders approved in May 2001, the Employee
Stock Purchase Plan (ESPP). A total of 300,000 common
shares were reserved for issuance under the ESPP. The ESPP
allows employees to elect, at one year intervals, to
contribute between 1 and 10% of their compensation, subject
to certain limitations, to purchase shares of common stock
at the lower of 85% of the fair market value on the first
day or last day of each one year period. At December 31,
2002, 30,259 shares have been issued under this plan.
(Continued)
28
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8) Net Income Per Share
The components of net income per basic and diluted share are
as follows:
Weighted
Average Shares Per Share
Net Income Outstanding Amount
----------- -------------- ---------
2002:
Basic $ 6,463,715 8,702,552 $ 0.74
Dilutive effect of stock options - 794,170 (.06)
-------------- ------------- ---------
Diluted $ 6,463,715 9,496,722 $ 0.68
============== ============= =========
2001:
Basic $ 4,809,145 8,701,248 $ 0.55
Dilutive effect of stock options - 807,907 (.04)
-------------- ------------- ---------
Diluted $ 4,809,145 9,509,155 $ 0.51
============== ============= =========
2000:
Basic $ 8,249,440 8,416,730 $ 0.98
Dilutive effect of stock options - 1,256,654 (.13)
-------------- ------------- ---------
Diluted $ 8,249,440 9,673,384 $ 0.85
============== ============= =========
9) Leases
The future minimum lease payments excluding operating expenses
and real estate taxes as of December 31, 2002 are:
Related Third
party party Total
operating operating operating
Year ending December 31 leases leases leases
--------------------------------------------------------------------------------------
2003 $ 217,580 246,128 463,708
2004 - 182,826 182,826
2005 - 52,500 52,500
--------------------------------------------------------------------------------------
Net minimum lease payments $ 217,580 481,454 699,034
============ ============= ============
Rent expense under operating leases amounted to approximately
$689,000, $642,000, and $1,038,000, respectively, for the
years ended December 31, 2002, 2001, and 2000. The related
party lease is for office space owned by two of the
Company's directors. The lease expires September 30, 2003
and contains an option to renew for an additional five
years upon mutual agreement by both parties. The Company
believes the terms associated with the lease are equivalent
to those that would be obtained in an arms-length
transaction.
(Continued)
29
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10) Profit Sharing and Savings Plan
Rimage has a profit sharing and savings plan under Section
401(k) of the Internal Revenue Code. The plan allows
employees to contribute up to 16% of pretax compensation.
The Company matches a percentage of employees'
contributions. Matching contributions totaled $171,290,
$167,715, and $168,314 in 2002, 2001, and 2000,
respectively.
11) Major Customers/Segment Information
The Company derived approximately $7,971,000 and $7,273,000 of
its 2002 sales from two unaffiliated customers and had
receivable balances of $967,000 and $560,000, respectively
as of December 31, 2002. The Company derived approximately
$6,993,000 and $5,229,000 of its 2001 sales from two
unaffiliated customers and had receivable balances of
$971,000 and $709,000, respectively as of December 31,
2001.
The Company's revenues from each of its principal geographic
regions were as follows (in thousands):
Year Ended December 31,
--------------------------------------------------------
2002 2001 2000
=================================================================================================
North America $ 28,612 $ 23,525 $ 34,075
Europe 14,818 12,912 12,776
Asia/Latin America 3,151 2,457 2,941
-------------------------------------------------------------------------------------------------
Total $ 46,581 $ 38,894 $ 49,792
=================================================================================================
Long-lived assets of the Company's U.S. and German operations
were as follows (in thousands):
December 31, 2002 December 31, 2001
------------------------- ------------------------
United States $ 1,192 $ 1,515
Germany 122 93
------------------------- ------------------------
Total $ 1,314 $ 1,608
========================= ========================
(Continued)
30
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12) Commitments and Contingencies
The Company is exposed to a number of asserted and unasserted
claims encountered in the normal course of business. In the
opinion of management, the resolution of these matters will
not have a material adverse effect on the Company's
financial position or results of operations.
13) Supplemental Quarterly Data - Unaudited (dollars in thousands, except
per share data)
2002 2001
-------------------------------------------- --------------------------------------------
Fourth Third Second First Fourth Third Second First
- -------------------------------------------------------------------------------------------------------------------------------
Revenues $ 11,830 12,555 12,310 9,886 9,398 10,296 9,004 10,196
Cost of revenues 6,237 6,407 6,203 5,139 4,904 5,374 4,533 4,859
- -------------------------------------------------------------------------------------------------------------------------------
Gross profit 5,593 6,148 6,107 4,747 4,494 4,922 4,471 5,337
- -------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 860 852 1,013 878 811 741 1,076 1,273
Selling, general and administrative 2,270 2,502 2,503 2,298 1,780 2,422 2,192 2,465
- -------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 3130 3,354 3,516 3,176 2,591 3,163 3,268 3,738
===============================================================================================================================
Operating income 2,463 2,794 2,591 1,571 1,903 1,759 1,203 1,599
Other income (expense):
Interest, net 155 189 223 213 234 253 293 330
Gain (loss) on currency exchange (20) (29) 21 - (63) 197 (52) (221)
Other, net - 5 1 2 2 4 7 (13)
- -------------------------------------------------------------------------------------------------------------------------------
Total other income 135 165 245 215 173 455 248 96
===============================================================================================================================
Income before income taxes 2,598 2,959 2,836 1,786 2,076 2,214 1,451 1,695
Income tax expense 948 1,080 1,035 652 644 819 520 644
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,650 1,879 1,801 1,134 1,432 1,395 931 1,051
===============================================================================================================================
Net income per basic share $ 0.19 0.22 0.21 0.13 0.17 0.16 0.11 0.12
===============================================================================================================================
Net income per diluted share $ 0.17 0.20 0.19 0.12 0.15 0.15 0.10 0.11
===============================================================================================================================
31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors, executive officers, promoters and control
persons of the Company is set forth under "Election of Directors" in the
Company's definitive proxy statement for its 2003 Annual Meeting of
Shareholders, to be filed by April 30, 2003 and is incorporated herein by
reference. Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 by the directors, executive officers and beneficial owners
of more than ten percent of the common stock of the Company is set forth under
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's
definitive proxy statement for its 2003 Annual Meeting of Shareholders, to be
filed by April 30, 2003, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of directors and executive officers of the
Company is set forth in the section entitled "Board Committee and Actions" under
"Election of Directors" and the sections entitled "Summary Compensation Table",
"Stock Options", and "Retirement Savings Plan" under "Executive Compensation" in
the Company's definitive proxy statement for its 2003 Annual Meeting of
Shareholders, to be filed by April 30, 2003, and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is set forth under "Beneficial Ownership of Common Stock" in the
Company's definitive proxy statement for its 2003 Annual Meeting of
Shareholders, to be filed by April 30, 2003, and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is set
forth in the section entitled "Certain Transactions" under "Executive
Compensation" in the Company's definitive proxy statement for its 2003 Annual
Meeting of Shareholders, to be filed by April 30, 2003, and is incorporated
herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
The Company's Chief Executive Officer, Bernard P. Aldrich, and Chief Financial
Officer, Robert M. Wolf, have reviewed the Company's disclosure controls and
procedures within 90 days prior to the filing of this report. Based upon this
review, these officers believe that the Company's disclosure controls and
procedures are effective in ensuring that material information related to the
Company is made known to them by others within the Company.
(b) Changes in Internal Controls.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls during the quarter
covered by this report or from the end of the reporting period to the date of
this Form 10-K.
32
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS. See Part II, Item 8 of this report.
(2) FINANCIAL STATEMENT SCHEDULES.
Page in this
Form 10-K
---------
Independent Auditors' Report on Financial Statement Schedule... 34
Schedule II - Valuation and Qualifying Accounts................ 35
(3) EXHIBITS. See Index to Exhibits on page 39 of this report.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the last
quarter of the fiscal year.
(c) See Exhibit Index and Exhibits.
33
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
of Rimage Corporation:
Under date of February 12, 2003, we reported on the consolidated balance sheets
of Rimage Corporation and subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 2002, as
included in Rimage Corporation's Annual Report on Form 10-K for the year ended
December 31, 2002. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related financial
statement schedule as listed in Item 15(a)(2). This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Minneapolis, Minnesota
February 12, 2003
34
SCHEDULE II
RIMAGE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts
Receivable and Sales Returns:
YEARS ENDED DECEMBER 31,
2002 2001 2000
-------------- -------------- --------------
Balance at beginning of year $ 714,943 $ 539,398 $ 321,065
Write-offs and other adjustments (95,672) (133,233) (5,228)
Recoveries (90,551) (2,508) -
Additions charged to costs and expenses 106,662 311,286 223,561
-------------- -------------- --------------
Balance at end of year $ 635,382 $ 714,943 $ 539,398
============== ============== ==============
Reserve for Inventory Obsolescence: YEARS ENDED DECEMBER 31,
2002 2001 2000
-------------- -------------- -------------
Balance at beginning of year $ 960,420 $ 661,750 $ 645,750
Write-offs and other adjustments (653,049) (99,330) (55,184)
Additions charged to costs of sales 525,379 398,000 71,184
-------------- -------------- -------------
Balance at end of year $ 832,750 $ 960,420 $ 661,750
============== ============== =============
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant caused this report to be signed on its
behalf by the undersigned, thereto duly authorized.
Dated: 3/27/03 RIMAGE CORPORATION
By: /s/ Bernard P. Aldrich
----------------------
Bernard P. Aldrich
Chief Executive Officer
By: /s/ Robert M. Wolf
----------------------
Robert M. Wolf
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Each person whose
signature appears below constitutes and appoints Bernard P. Aldrich and Robert
M. Wolf as his true and lawful attorneys-in-fact and agents, each acting alone,
with full power of substitution and re-substitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Annual Report on Form 10-K and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the U.S. Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Bernard P. Aldrich Chief Executive Officer, President and 3/27/03
- ------------------------------ Director (principal executive officer)
Bernard P. Aldrich
/s/ David J. Suden Chief Technical Officer & Director 3/27/03
- ------------------------------
David J. Suden
/s/ Robert M. Wolf Chief Financial Officer (principal financial 3/27/03
- ------------------------------ and accounting officer) and Corporate Secretary
Robert M. Wolf
/s/ Ronald R. Fletcher Director 3/27/03
- ------------------------------
Ronald R. Fletcher
/s/ Thomas F. Madison Director 3/27/03
- ------------------------------
Thomas F. Madison
/s/ Richard F. McNamara Director, Chairman of the Board 3/27/03
- ------------------------------
Richard F. McNamara
/s/ Steven M. Quist Director 3/27/03
- ------------------------------
Steven M. Quist
/s/ James L. Reissner Director 3/27/03
- ------------------------------
James L. Reissner
36
CERTIFICATIONS
I, Bernard P. Aldrich, certify that:
1. I have reviewed this annual report on Form 10-K of Rimage Corporation.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to me by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. I have indicated in this annual report whether or not there were significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
March 27, 2003 /s/ Bernard P. Aldrich
President and Chief Executive Officer
37
CERTIFICATIONS
I, Robert M. Wolf, certify that:
1. I have reviewed this annual report on Form 10-K of Rimage Corporation.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to me by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. I have indicated in this annual report whether or not there were significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
March 27, 2003 /s/ Robert M. Wolf
Chief Financial Officer
38
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
3.1 1992 Restated Articles of Incorporation of Rimage Corporation (Incorporated
herein by reference to Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002).
3.2 Articles of Amendment to 1992 Restated Articles of Incorporation of Rimage
Corporation (Incorporated herein by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-8 (File No. 333-69550)).
3.3 Bylaws of Rimage Corporation (Incorporated herein by reference to Exhibit
3.2 to the Company's Registration Statement on Form SB-2 (File No.
33-22558)).
10.1 Rimage Corporation 1992 Stock Option Plan, as amended * (Incorporated by
reference to exhibit of same number to the Company's Annual Report on
Form 10-K for the year ended December 31, 2001).
10.2 Rimage Corporation 2001 Stock Option Plan for Non-Employee Directors *
(Incorporated by reference to exhibit of same number to the Company's
Annual Report on Form 10-K for the year ended December 31, 2001).
10.3 Rimage Corporation 2001 Employee Stock Purchase Plan * (Incorporated by
reference to exhibit of same number to the Company's Annual Report on
Form 10-K for the year ended December 31, 2001).
10.4 Lease dated September 1, 1998, between Rimage Corporation and 7725
Washington Avenue Corporation (Incorporated by reference to exhibit of
same number to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002).
10.5 Credit Agreement dated December 31, 1997 between Rimage Corporation and
First Bank, National Association. (Incorporated by reference to Exhibit
10.3 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
21.1 Subsidiaries of Rimage Corporation.
23.1 Independent Auditors' Consent.
99.1 Certification Pursuant to 18 U.S.C. ss.1350
* Indicates a management contract or compensatory plan or arrangement
39
RIMAGE CORPORATION
7725 Washington Avenue South
Minneapolis, MN 55439
TEL: 952-944-8144
FAX: 952-944-7808
RIMAGE EUROPE, GMBH
Hans - Boekler - Str. 7
6057 Dietzenbach, Germany
TEL: 011-49-6074-8521-0
FAX: 011-49-6074-8521-21