Minnesota | 41-1577970 | ||
State or other jurisdiction of | (I.R.S. Employer | ||
incorporation or organization | Identification No.) | ||
7725 Washington Avenue South, Minneapolis, | 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 | ||
Preferred Stock Purchase Rights |
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Page | ||
ITEM 1. |
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maintenance contracts. Such recurring revenues contributed $26,775,000 or 38% of total revenue for 2004, compared to $16,261,000 or 30% of revenue, in 2003. The growth in recurring revenues has been spurred by the expansion of the Company’s worldwide installed base of CD-R/DVD-R publishing systems as well as the Company’s introduction in 2004 of its new consumable supplies strategy involving media kits. Through this strategy, the Company assembles Rimage-branded blank CD-R and DVD-R discs with replacement printer ribbons and cartridges into kits to simplify the customer’s purchase and use of these consumable products in the production process.
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ITEM 2. |
ITEM 3. |
ITEM 5. |
Low | High | ||||||
Calendar Year 2003: | |||||||
1st Quarter | $ | 7.86 | $ | 9.30 | |||
2nd Quarter | 8.95 | 12.99 | |||||
3rd Quarter | 12.02 | 15.68 | |||||
4th Quarter | 13.03 | 16.20 | |||||
Calendar Year 2004: | |||||||
1st Quarter | 13.56 | 17.50 | |||||
2nd Quarter | 13.11 | 17.40 | |||||
3rd Quarter | 12.02 | 15.21 | |||||
4th Quarter | 13.06 | 16.29 |
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Year ended December 31 | ||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||
Revenues | $ | 70,848 | $ | 53,797 | $ | 46,581 | $ | 38,894 | $ | 49,792 | ||||||
Cost of revenues | 38,027 | 27,399 | 23,986 | 19,669 | 23,254 | |||||||||||
Gross profit | 32,821 | 26,398 | 22,595 | 19,225 | 26,538 | |||||||||||
Operating expenses | 19,386 | 14,841 | 13,176 | 12,760 | 14,250 | |||||||||||
Operating income | 13,435 | 11,557 | 9,419 | 6,465 | 12,288 | |||||||||||
Other income, net | 608 | 515 | 760 | 972 | 1,017 | |||||||||||
Income tax expense | 4,971 | 4,406 | 3,715 | 2,628 | 5,056 | |||||||||||
Net income | 9,072 | 7,666 | 6,464 | 4,809 | 8,249 | |||||||||||
Basic net income per share | $ | 0.98 | $ | 0.86 | $ | 0.74 | $ | 0.55 | $ | 0.98 | ||||||
Diluted net income per share | $ | 0.91 | $ | 0.79 | $ | 0.68 | $ | 0.51 | $ | 0.85 | ||||||
Weighted average shares and assumed conversion shares: | ||||||||||||||||
Basic | 9,290 | 8,931 | 8,703 | 8,701 | 8,417 | |||||||||||
Diluted | 9,932 | 9,743 | 9,497 | 9,509 | 9,673 |
Balances as of December 31 | ||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||
Cash and cash equivalents | $ | 13,321 | $ | 26,742 | $ | 17,339 | $ | 14,767 | $ | 21,225 | ||||||
Marketable securities | 39,175 | 21,855 | 18,998 | 13,343 | — | |||||||||||
Trade accounts receivables, net | 10,184 | 6,243 | 6,644 | 5,008 | 9,013 | |||||||||||
Inventories | 7,396 | 3,334 | 3,042 | 3,625 | 2,936 | |||||||||||
Current assets | 71,665 | 59,849 | 47,337 | 38,783 | 35,744 | |||||||||||
Property and equipment, net | 2,386 | 1,137 | 1,314 | 1,608 | 652 | |||||||||||
Total assets | 74,138 | 61,024 | 48,709 | 40,454 | 36,555 | |||||||||||
Current liabilities | 11,277 | 9,013 | 6,552 | 5,151 | 5,594 | |||||||||||
Long-term liabilities | 139 | — | — | 68 | — | |||||||||||
Stockholders’ equity | 62,721 | 52,011 | 42,157 | 35,235 | 30,961 |
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Percentage (%) of Revenues | Percent (%) Increase (Decrease) Between Period | |||||||||||||||
2004 | 2003 | 2002 | 2004 vs. 2003 | 2003 vs. 2002 | ||||||||||||
Revenues | 100.0 | 100.0 | 100.0 | 31.7 | 15.5 | |||||||||||
Cost of revenues | (53.7 | ) | (50.9 | ) | (51.5 | ) | 38.8 | 14.2 | ||||||||
Gross profit | 46.3 | 49.1 | 48.5 | 24.3 | 16.8 | |||||||||||
Operating expenses: | ||||||||||||||||
Research and development | (6.4 | ) | (7.0 | ) | (7.7 | ) | 20.3 | 4.5 | ||||||||
Selling, general and administrative | (20.9 | ) | (20.6 | ) | (20.6 | ) | 34.1 | 15.7 | ||||||||
Operating income | 19.0 | 21.5 | 20.2 | 16.2 | 22.7 | |||||||||||
Other income, net | 0.8 | 0.9 | 1.7 | 18.1 | (32.2 | ) | ||||||||||
Income before income taxes | 19.8 | 22.4 | 21.9 | 16.3 | 18.6 | |||||||||||
Income tax expense | (7.0 | ) | (8.2 | ) | (8.0 | ) | 12.8 | 18.6 | ||||||||
Net income | 12.8 | 14.2 | 13.9 | 18.3 | 18.6 |
8
European operations increased reported 2003 revenues by approximately $3.3 million, or 6% of consolidated revenues.
9
with product marketing and promotion, including expenses associated with the Company’s co-op marketing program. The Company expects continued growth in spending on sales and product marketing during 2005. General and administrative expenses contributed the remaining $1.1 million of growth in expenses, impacted primarily by incremental expenses associated with Sarbanes-Oxley related compliance, an increase in management compensation and increased costs for expanded coverage under the Company’s Directors’ and Officers’ liability insurance.
10
need to stock additional inventory of CD-R and DVD-R media, printer ribbons and cartridges as a result of expected growth in consumable product sales. The Company intends on utilizing its current assets primarily for its continued organic growth. In addition, the Company may use its available cash for potential future acquisitions or strategic alliances. Current liabilities increased to $11.3 million as of December 31, 2004 from $9.0 million as of December 31, 2003, primarily reflecting an increase in accounts payable, impacted largely by the increase in inventories described above.
Payments due by period | |||||||||||||||||||
Contractual Obligations | Total | 2005 | 2006 | 2007 | 2008 | 2009 | |||||||||||||
Operating leases | 2,411,726 | 818,051 | 697,983 | 580,423 | 286,477 | 28,792 | |||||||||||||
Capital leases (1) | 25,869 | 8,623 | 8,623 | 8,623 | — | — | |||||||||||||
Total contractual cash obligations | 2,437,595 | 826,674 | 706,606 | 589,046 | 286,477 | 28,792 |
· | Persuasive evidence of an arrangement exists. Orders are received for all sales and sales invoices are mailed on shipment. |
· | Delivery has occurred. Product has been transferred to the customer or the customer’s designated delivery agent. |
· | The vendor’s price is fixed or determinable. All sales prices are fixed at the time of the sale (shipment). |
· | Collectibility is probable. All sales are made on the basis that collection is expected in line with the Company’s standard payment terms, which are consistent with industry practice in the geographies in which the Company markets its products. |
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perform the service directly with the customer, with no financial interest or obligation on the part of the Company. In the limited situations in which the Company does provide installation or training services for customers, the Company charges separately for the service based upon its published list prices, and recognizes revenue upon the successful completion of the service.
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§ | technologically advanced systems that satisfy the demands of end-users; |
§ | continuing advancements in our CD-R and DVD-R products; |
§ | a dependable and efficient distribution and reseller network; |
§ | superior customer service; and |
§ | high levels of quality and reliability. |
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§ | foreign governments may impose tariffs, quotas and taxes; |
§ | the demand for our products will depend, in part, on local economic health; |
§ | political and economic instability may reduce demand for our products; |
§ | restrictions on the export or import of technology may reduce or eliminate our ability to sell in certain markets; |
§ | potentially limited intellectual property protection in certain countries may limit our recourse against infringing products or cause us to refrain from selling in certain markets; |
§ | we may face difficulties in managing our international operations; |
§ | the burden and cost of complying with a variety of foreign laws; |
§ | we may decide to price our products in foreign currency denominations; |
§ | our contracts with foreign distributors and resellers cannot fully protect us against political and economic instability; |
§ | we may face difficulties in collecting receivables; and |
§ | we may not be able to control our international distributors’ efforts on our behalf. |
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16
17
§ | the number and mix of products sold in the quarter; |
§ | the timing of major projects; |
§ | the availability and cost of components and materials; |
§ | timing, costs and benefits of new product introductions; |
§ | customer order size and shipment timing; |
§ | seasonal factors affecting timing of purchase orders; |
§ | promotions by ourselves or competitors, and the timing of the promotion; |
§ | the impact to the marketplace of competitive products and pricing; and |
§ | the timing and level of operating expenses. |
§ | actual or anticipated variations in our operating results, |
§ | technological innovations or new commercial products introduced by us or our competitors, |
§ | developments concerning proprietary rights, |
§ | changes in senior management, |
§ | investor perception of us and our industry, |
§ | general economic and market conditions including market uncertainty |
§ | national or global political events, and |
§ | public confidence in the securities markets and regulation by or of the securities markets. |
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§ | the provisions of Minnesota law relating to business combinations and control share acquisitions; |
§ | the provisions of our bylaws regarding the business properly brought before shareholders; |
§ | the right of our board of directors to establish more than one class or series of shares and to fix the relative rights and preferences of any such different classes or series; |
§ | our shareholder rights plan, which would cause substantial dilution to any person or group attempting to acquire our company on terms not approved in advance by our board of directors; and |
§ | the provisions of our stock option plans allowing for the acceleration of vesting or payments of awards granted under the plans in the event of specified events that result in a “change in control.” |
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or other current liabilities depending on whether the net amount is a gain or a loss. The Company does not utilize financial instruments for trading or other speculative purposes.
Expected Maturity or Transaction Date | ||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | There- after | Total | Fair Value | ||||||||||||||||
Anticipated Transactions and | (US$ Equivalent in Thousands) | |||||||||||||||||||||
Related Derivatives | ||||||||||||||||||||||
Forward Exchange Agreements | ||||||||||||||||||||||
(Receive $US/Pay €) | ||||||||||||||||||||||
Contract Amount | 3,623 | — | — | — | — | 3,623 | (210 | ) | ||||||||||||||
Average Contractual | ||||||||||||||||||||||
Exchange Rate | 1.2796 | — | — | — | — | 1.2796 |
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Page in Annual | |
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(i) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
(ii) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
(iii) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
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December 31, | December 31, | ||||||
Assets | 2004 | 2003 | |||||
Current assets: | |||||||
Cash and cash equivalents | $ | 13,320,681 | $ | 26,741,627 | |||
Marketable securities | 39,174,799 | 21,855,434 | |||||
Trade accounts receivable, net of allowance for doubtful accounts | |||||||
and sales returns of $600,000 and $887,000, respectively | 10,183,814 | 6,242,516 | |||||
Inventories | 7,395,689 | 3,334,370 | |||||
Prepaid expenses and other current assets | 462,214 | 473,053 | |||||
Deferred income taxes-current | 1,127,642 | 1,202,329 | |||||
Total current assets | 71,664,839 | 59,849,329 | |||||
Property and equipment, net | 2,386,494 | 1,137,446 | |||||
Deferred income taxes - non-current | — | 36,676 | |||||
Other non-current assets | 86,667 | 906 | |||||
Total assets | $ | 74,138,000 | $ | 61,024,357 | |||
Liabilities and Stockholders’ Equity | |||||||
Current liabilities: | |||||||
Trade accounts payable | $ | 4,717,073 | $ | 2,365,213 | |||
Accrued compensation | 2,300,009 | 1,658,741 | |||||
Other accrued expenses | 1,121,370 | 1,102,925 | |||||
Income taxes payable | 1,100,257 | 1,768,710 | |||||
Deferred income and customer deposits | 1,821,057 | 1,793,725 | |||||
Other current liabilities | 217,640 | 323,915 | |||||
Total current liabilities | 11,277,406 | 9,013,229 | |||||
Long-term liabilities: | |||||||
Deferred taxes | 122,932 | — | |||||
Other non-current liabilities | 16,317 | — | |||||
Total long-term liabilities | 139,249 | — | |||||
Total liabilities | 11,416,655 | 9,013,229 | |||||
Stockholders’ equity: | |||||||
Preferred stock, $.01 par value, authorized 250,000 shares, | |||||||
no shares issued and outstanding | — | — | |||||
Common stock, $.01 par value, authorized 29,750,000 shares, | |||||||
issued and outstanding 9,365,479 and 9,110,246, respectively | 93,655 | 91,102 | |||||
Additional paid-in capital | 19,677,692 | 18,156,735 | |||||
Retained earnings | 42,871,670 | 33,799,709 | |||||
Accumulated other comprehensive income (loss) | 78,328 | (36,418 | ) | ||||
Total stockholders’ equity | 62,721,345 | 52,011,128 | |||||
Commitments and contingencies (notes 8 and 12) | |||||||
Total liabilities and stockholders’ equity | $ | 74,138,000 | $ | 61,024,357 | |||
See accompanying notes to consolidated financial statements |
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2004 | 2003 | 2002 | ||||||||
Revenues | $ | 70,847,930 | $ | 53,797,164 | $ | 46,581,069 | ||||
Cost of revenues | 38,027,320 | 27,399,219 | 23,985,704 | |||||||
Gross profit | 32,820,610 | 26,397,945 | 22,595,365 | |||||||
Operating expenses: | ||||||||||
Research and development | 4,529,324 | 3,765,556 | 3,602,117 | |||||||
Selling, general and administrative | 14,856,217 | 11,075,879 | 9,574,110 | |||||||
Total operating expenses | 19,385,541 | 14,841,435 | 13,176,227 | |||||||
Operating income | 13,435,069 | 11,556,510 | 9,419,138 | |||||||
Other income (expense): | ||||||||||
Interest, net | 657,468 | 518,846 | 780,273 | |||||||
Gain (loss) on currency exchange | 17,983 | 30,331 | (27,658 | ) | ||||||
Other, net | (67,236 | ) | (33,836 | ) | 7,326 | |||||
Total other income, net | 608,215 | 515,341 | 759,941 | |||||||
Income before income taxes | 14,043,284 | 12,071,851 | 10,179,079 | |||||||
Income tax expense | 4,971,323 | 4,406,226 | 3,715,364 | |||||||
Net income | $ | 9,071,961 | $ | 7,665,625 | $ | 6,463,715 | ||||
Net income per basic share | $ | 0.98 | $ | 0.86 | $ | 0.74 | ||||
Net income per diluted share | $ | 0.91 | $ | 0.79 | $ | 0.68 | ||||
Basic weighted average shares outstanding | 9,289,553 | 8,931,084 | 8,702,552 | |||||||
Diluted weighted average shares and | ||||||||||
assumed conversion shares | 9,931,687 | 9,743,104 | 9,496,723 |
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Additional | Accumulated other | ||||||||||||||||||
CommonStock | paid-in | Retained | comprehensive | ||||||||||||||||
Shares | Amount | capital | earnings | income (loss) | Total | ||||||||||||||
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 exercises | 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 available- | |||||||||||||||||||
for-sale 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 | ||||||||||||
Stock issued in warrant and stock | |||||||||||||||||||
option exercises | 390,835 | 3,908 | 947,999 | — | — | 951,907 | |||||||||||||
Income tax benefit arising from | |||||||||||||||||||
exercising non-qualifying stock | |||||||||||||||||||
options | — | — | 1,051,477 | — | — | 1,051,477 | |||||||||||||
Comprehensive income: | |||||||||||||||||||
Net income | — | — | — | 7,665,625 | — | 7,665,625 | |||||||||||||
Translation adjustment | — | — | — | — | 178,298 | 178,298 | |||||||||||||
Unrealized gain from available- | |||||||||||||||||||
for-sale securities | — | — | — | — | 6,689 | 6,689 | |||||||||||||
Total comprehensive income | 7,850,612 | ||||||||||||||||||
Balance at December 31, 2003 | 9,110,246 | 91,102 | 18,156,735 | 33,799,709 | (36,418 | ) | 52,011,128 | ||||||||||||
Stock issued in stock option | |||||||||||||||||||
exercises | 255,233 | 2,553 | 991,131 | — | — | 993,684 | |||||||||||||
Income tax benefit arising from | |||||||||||||||||||
exercising non-qualifying stock | |||||||||||||||||||
options | — | — | 521,679 | — | — | 521,679 | |||||||||||||
Accelerated vesting of stock | |||||||||||||||||||
options | — | — | 8,147 | — | — | 8,147 | |||||||||||||
Comprehensive income: | |||||||||||||||||||
Net income | — | — | — | 9,071,961 | — | 9,071,961 | |||||||||||||
Translation adjustment | — | — | — | — | 170,500 | 170,500 | |||||||||||||
Unrealized loss from available- | |||||||||||||||||||
for-sale securities | — | — | — | — | (55,754 | ) | (55,754 | ) | |||||||||||
Total comprehensive income | 9,186,707 | ||||||||||||||||||
Balance at December 31, 2004 | 9,365,479 | $ | 93,655 | $ | 19,677,692 | $ | 42,871,670 | $ | 78,328 | $ | 62,721,345 |
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2004 | 2003 | 2002 | ||||||||
Cash flows from operating activities: | ||||||||||
Net income | $ | 9,071,961 | $ | 7,665,625 | $ | 6,463,715 | ||||
Adjustments to reconcile net income to net cash | ||||||||||
provided by operating activities: | ||||||||||
Depreciation and amortization | 918,945 | 930,480 | 794,745 | |||||||
Deferred income tax expense (benefit) | 234,295 | (254,452 | ) | 136,023 | ||||||
Change in allowance for doubtful accounts and sales returns | (286,774 | ) | 251,446 | (79,561 | ) | |||||
Loss (gain) on sale of property and equipment | 106,291 | 28,404 | (3,370 | ) | ||||||
Stock-based compensation | 8,147 | — | — | |||||||
Changes in operating assets and liabilities: | ||||||||||
Trade accounts receivable | (3,654,524 | ) | 149,651 | (1,555,876 | ) | |||||
Inventories | (4,061,319 | ) | (292,542 | ) | 582,873 | |||||
Prepaid income taxes | — | — | 764,523 | |||||||
Prepaid expenses and other current assets | 10,839 | (87,848 | ) | (173,264 | ) | |||||
Other non-current assets | (160,275 | ) | 33,535 | (17,995 | ) | |||||
Trade accounts payable | 2,351,860 | (111,086 | ) | 488,121 | ||||||
Income taxes payable | (146,774 | ) | 2,625,214 | 194,973 | ||||||
Accrued compensation | 641,268 | 371,156 | 192,031 | |||||||
Other accrued expenses and other current liabilities | (95,302 | ) | 156,304 | 235,139 | ||||||
Other non-current liabilities | — | — | (68,750 | ) | ||||||
Deferred income and customer deposits | 27,332 | 470,996 | 290,867 | |||||||
Net cash provided by operating activities | 4,965,970 | 11,936,883 | 8,244,194 | |||||||
Cash flows from investing activities: | ||||||||||
Purchases of marketable securities | (194,300,156 | ) | (52,470,170 | ) | (30,285,191 | ) | ||||
Maturity of marketable securities | 176,980,791 | 49,612,723 | 24,630,342 | |||||||
Purchase of property and equipment | (2,206,336 | ) | (781,650 | ) | (497,532 | ) | ||||
Proceeds from the sale of property and equipment | 80 | 1,347 | 3,425 | |||||||
Net cash used in investing activities | (19,525,621 | ) | (3,637,750 | ) | (6,148,956 | ) | ||||
Cash flows from financing activities: | ||||||||||
Proceeds from stock option exercises | 993,684 | 951,907 | 378,565 | |||||||
Net cash provided by financing activities | 993,684 | 951,907 | 378,565 | |||||||
Effect of exchange rate changes on cash | 145,021 | 151,452 | 98,206 | |||||||
Net increase (decrease) in cash and cash equivalents | (13,420,946 | ) | 9,402,492 | 2,572,009 | ||||||
Cash and cash equivalents, beginning of year | 26,741,627 | 17,339,135 | 14,767,126 | |||||||
Cash and cash equivalents, end of year | $ | 13,320,681 | $ | 26,741,627 | $ | 17,339,135 | ||||
Supplemental disclosures of net cash paid during the period for: | ||||||||||
Income taxes | $ | 4,883,801 | $ | 1,808,754 | $ | 2,619,846 | ||||
- The Company entered into capital lease obligations of $23,789 for the year ended December 31, 2004. | ||||||||||
See accompanying notes to the consolidated financial statements. |
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1) Nature of Business and Summary of Significant Accounting Policies
· | Persuasive evidence of an arrangement exists. Orders are received for all sales and sales invoices are mailed on shipment. |
· | Delivery has occurred. Product has been transferred to the customer or the customer’s designated delivery agent. |
· | The vendor’s price is fixed or determinable. All sales prices are fixed at the time of the sale (shipment). |
· | Collectibility is probable. All sales are made on the basis that collection is expected in line with the Company’s standard payment terms, which are consistent with industry practice in the geographies in which the Company markets its products. |
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Years ended: | Beginning Balance | Warranty Provisions | Warranty Claims | Foreign Exchange Impact | Ending Balance | |||||||||||
December 31, 2004 | $ | 172,000 | $ | 510,000 | $ | (498,000 | ) | $ | 3,000 | $ | 187,000 | |||||
December 31, 2003 | $ | 170,000 | $ | 283,000 | $ | (287,000 | ) | $ | 6,000 | $ | 172,000 |
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No. 123, the Company’s 2004, 2003 and 2002 net income and basic and diluted earnings per share would have been adjusted to the proforma amounts stated in the following table:
2004 | 2003 | 2002 | ||||||||
Net income: | ||||||||||
As reported | $ | 9,071,961 | $ | 7,665,625 | $ | 6,463,715 | ||||
Stock-based employee compensation, net of tax | (663,753 | ) | (443,720 | ) | (572,720 | ) | ||||
Proforma | $ | 8,408,208 | $ | 7,221,905 | $ | 5,890,995 | ||||
Basic net income per share: | $ | 0.98 | $ | 0.86 | $ | 0.74 | ||||
As reported | ||||||||||
Stock-based employee compensation, net of tax | (0.07 | ) | (0.05 | ) | (0.06 | ) | ||||
Proforma | $ | 0.91 | $ | 0.81 | $ | 0.68 | ||||
Diluted net income per share: | ||||||||||
As reported | $ | 0.91 | $ | 0.79 | $ | 0.68 | ||||
Stock-based employee compensation, net of tax | (0.05 | ) | (0.05 | ) | (0.06 | ) | ||||
Proforma | $ | 0.86 | $ | 0.74 | $ | 0.62 |
The following table calculates the fair market value of options granted on the date of grant using the Black-Scholes option pricing model:
2004 | 2003 | 2002 | ||||||||
Number of options granted | 213,500 | 177,000 | 45,500 | |||||||
Fair market value ofoptions granted | $ | 997,167 | $ | 618,480 | $ | 188,645 | ||||
Per share weighted averagefair value | $ | 4.67 | $ | 3.49 | $ | 4.15 | ||||
Volatility range | 26.9 to 34.6 | % | 34.8 to 39.2 | % | 37.0 to 56.0 | % | ||||
Risk-free interest rate range | 2.96 to 3.93 | % | 2.30 to 2.98 | % | 2.78 to 4.50 | % | ||||
Expected life of options in years | 5.0 | 5.0 | 5.0 |
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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.
32
after December 15, 2004. Adoption of the interpretation has not affected, and is not expected to affect, the Company’s consolidated financial statements.
2) Marketable Securities
Amortized cost | Gross unrealized holding gains | Gross unrealized holding losses | Fair value | ||||||||||
At December 31, 2004 | |||||||||||||
U.S. Treasury securities | $ | 13,772,973 | — | (55,678 | ) | 13,717,295 | |||||||
Municipal securities | 10,223,926 | 651 | (10,502 | ) | 10,214,074 | ||||||||
Money market securities | 13,246,027 | 82 | (4,670 | ) | 13,241,440 | ||||||||
Corporate securities | 2,003,907 | — | (1,917 | ) | 2,001,990 | ||||||||
Total | $ | 39,246,833 | 733 | (72,767 | ) | 39,174,799 | |||||||
At December 31, 2003 | |||||||||||||
U.S. Treasury securities | $ | 14,541,370 | 4,876 | (1,367 | ) | 14,544,879 | |||||||
Asset-backed securities | 2,033,326 | 1,678 | (19,448 | ) | 2,015,556 | ||||||||
Commercial paper | 998,472 | — | — | 998,472 | |||||||||
Corporate securities | 4,298,251 | 774 | (2,498 | ) | 4,296,527 | ||||||||
Total | $ | 21,871,419 | 7,328 | (23,313 | ) | 21,855,434 |
3) Inventories
2004 | 2003 | ||||||
Finished goods and demonstration equipment | $ | 1,385,148 | $ | 899,962 | |||
Work-in-process | 479,787 | 362,645 | |||||
Purchased parts and subassemblies | 5,530,754 | 2,071,763 | |||||
$ | 7,395,689 | $ | 3,334,370 | ||||
33
4) Credit Agreement
5) Income Taxes
Year ended December 31 | ||||||||||
2004 | 2003 | 2002 | ||||||||
Current: | ||||||||||
U.S. Federal | $ | 3,816,759 | 3,685,766 | 2,887,333 | ||||||
State | 611,351 | 690,146 | 524,696 | |||||||
Foreign | 308,918 | 284,766 | 167,312 | |||||||
Total current | 4,737,028 | 4,660,678 | 3,579,341 | |||||||
Deferred: | ||||||||||
U.S. Federal | 192,754 | (205,053 | ) | 117,789 | ||||||
State | 41,541 | (49,399 | ) | 18,234 | ||||||
Total deferred | 234,295 | (254,452 | ) | 136,023 | ||||||
$ | 4,971,323 | 4,406,226 | 3,715,364 |
Year ended December 31 | ||||||||||
2004 | 2003 | 2002 | ||||||||
Expected income tax expense | $ | 4,915,149 | 4,225,148 | 3,562,678 | ||||||
State income taxes, net of federal tax effect | 424,380 | 422,893 | 358,334 | |||||||
Extraterritorial income exclusion | (153,687 | ) | (138,201 | ) | (102,000 | ) | ||||
Foreign operation | 31,342 | 27,734 | (42,239 | ) | ||||||
Benefit of lower federal tax bracket | (113,150 | ) | (120,719 | ) | (101,791 | ) | ||||
Other, net | (132,711 | ) | (10,629 | ) | 40,382 | |||||
$ | 4,971,323 | 4,406,226 | 3,715,364 |
The tax effects of temporary differences that give rise to significant portions of deferred tax assets (liabilities) as of December 31, are presented below:
2004 | 2003 | ||||||
Inventory reserves | $ | 262,000 | 330,000 | ||||
Accounts receivable reserves | 203,000 | 290,000 | |||||
Gross margin recognition on sale to foreign subsidiary | 292,000 | 273,000 | |||||
Unrealized foreign exchange loss | 81,000 | 122,000 | |||||
Deferred maintenance revenue | 76,000 | 71,000 | |||||
Accrued payroll | 88,000 | 66,000 | |||||
Warranty accrual | 53,000 | 50,000 | |||||
Amortization | 16,000 | 10,000 | |||||
Fixed assets | (138,000 | ) | 6,000 | ||||
Other | 72,000 | 21,000 | |||||
Total net deferred tax assets | $ | 1,005,000 | 1,239,000 |
6) Stockholders’ Equity
Shares available for grant | Options outstanding | Weighted average exercise price | ||||||||
Balance at December 31, 2001 | 231,736 | 1,500,366 | $ | 4.69 | ||||||
Granted | (45,500 | ) | 45,500 | 8.40 | ||||||
Exercised | — | (14,724 | ) | 4.44 | ||||||
Canceled | 107,272 | (107,272 | ) | 5.28 | ||||||
Balance at December 31, 2002 | 293,508 | 1,423,870 | $ | 4.76 | ||||||
Additional shares available | 400,000 | — | — | |||||||
Shares eliminated due to plan consolidation | (25,000 | ) | — | — | ||||||
Granted | (177,000 | ) | 177,000 | 9.62 | ||||||
Exercised | — | (355,901 | ) | 2.15 | ||||||
Canceled | 9,733 | (9,733 | ) | 9.89 | ||||||
Balance at December 31, 2003 | 501,241 | 1,235,236 | $ | 6.17 | ||||||
Granted | (213,500 | ) | 213,500 | 14.09 | ||||||
Exercised | — | (164,739 | ) | 3.67 | ||||||
Canceled | 3,999 | (3,999 | ) | 13.18 | ||||||
Balance at December 31, 2004 | 291,740 | 1,279,998 | $ | 7.79 |
Weighted | |||||||||
Number | Average | ||||||||
Exercise Price Range | Of Options | Exercise Price | |||||||
$ 1.33 — $ 1.33 | 192,175 | $ | 1.33 | ||||||
$ 2.08 — $ 2.67 | 197,065 | $ | 2.66 | ||||||
$ 6.50 — $ 9.00 | 366,591 | $ | 7.86 | ||||||
$ 10.00 — $13.60 | 330,500 | $ | 10.62 | ||||||
$ 14.09 — $17.00 | 193,667 | $ | 14.47 | ||||||
1,279,998 | $ | 7.79 | |||||||
36
7) Net Income Per Share
Net Income | Weighted Average Shares Outstanding | Per Share Amount | ||||||||
2004: | ||||||||||
Basic | $ | 9,071,961 | 9,289,553 | $ | 0.98 | |||||
Dilutive effect of stock options | — | 642,134 | (.07 | ) | ||||||
Diluted | $ | 9,071,961 | 9,931,687 | $ | 0.91 | |||||
2003: | ||||||||||
Basic | $ | 7,665,625 | 8,931,084 | $ | 0.86 | |||||
Dilutive effect of stock options | — | 812,020 | (.07 | ) | ||||||
Diluted | $ | 7,665,625 | 9,743,104 | $ | 0.79 | |||||
2002: | ||||||||||
Basic | $ | 6,463,715 | 8,702,552 | $ | 0.74 | |||||
Dilutive effect of stock options | — | 794,171 | (.06 | ) | ||||||
Diluted | $ | 6,463,715 | 9,496,723 | $ | 0.68 |
8) | Lease Commitments |
Year ending December 31 | Total operating leases | |||
2005 | $ | 818,051 | ||
2006 | 697,983 | |||
2007 | 580,423 | |||
2008 | 286,477 | |||
2009 | 28,792 | |||
Net minimum lease payments | $ | 2,411,726 | ||
9) Profit Sharing and Savings Plan
37
10) Business Segment Information / Major Customers
Year Ended December 31, | ||||||||||
2004 | 2003 | 2002 | ||||||||
North America | $ | 43,864 | $ | 30,938 | $ | 28,612 | ||||
Europe | 23,144 | 19,888 | 14,818 | |||||||
Other (primarily Asia Pacific and Latin America) | 3,840 | 2,971 | 3,151 | |||||||
Total | $ | 70,848 | $ | 53,797 | $ | 46,581 |
Year Ended December 31, | ||||||||||
2004 | 2003 | 2002 | ||||||||
Equipment: | ||||||||||
Producer | $ | 36,186 | $ | 31,133 | $ | 28,385 | ||||
Desktop | 7,887 | 6,403 | 6,066 | |||||||
Total | 44,073 | 37,536 | 34,451 | |||||||
Consumables, parts and repairs | 23,628 | 13,606 | 9,902 | |||||||
Maintenance Contracts | 3,147 | 2,655 | 2,228 | |||||||
Total | $ | 70,848 | $ | 53,797 | $ | 46,581 |
38
December 31, 2004 | December 31, 2003 | ||||||
North America | $ | 2,151 | $ | 954 | |||
Germany | 235 | 183 | |||||
Total | $ | 2,386 | $ | 1,137 |
11) Related Party Transactions
12) Commitments and Contingencies
13) Fair Value of Financial Instruments
39
14) Supplemental Quarterly Data - Unaudited (dollars in thousands, except per share data)
2004 | 2003 | ||||||||||||||||||||||||
Fourth | Third | Second | First | Fourth | Third | Second | First | ||||||||||||||||||
Revenues | $ | 20,895 | 17,879 | 17,631 | 14,444 | 15,671 | 13,791 | 12,791 | 11,544 | ||||||||||||||||
Cost of revenues | 11,064 | 10,029 | 9,564 | 7,370 | 8,023 | 7,109 | 6,459 | 5,809 | |||||||||||||||||
Gross profit | 9,831 | 7,850 | 8,067 | 7,074 | 7,648 | 6,682 | 6,332 | 5,735 | |||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||
Research and development | 1,168 | 1,010 | 1,227 | 1,125 | 1,123 | 867 | 926 | 848 | |||||||||||||||||
Selling, general and administrative | 4,279 | 3,708 | 3,658 | 3,211 | 2,821 | 2,798 | 2,823 | 2,634 | |||||||||||||||||
Total operating expenses | 5,447 | 4,718 | 4,885 | 4,336 | 3,944 | 3,665 | 3,749 | 3,482 | |||||||||||||||||
Operating income | 4,384 | 3,132 | 3,182 | 2,738 | 3,704 | 3,017 | 2,583 | 2,253 | |||||||||||||||||
Other income (expense): | |||||||||||||||||||||||||
Interest, net | 215 | 174 | 124 | 143 | 121 | 127 | 134 | 138 | |||||||||||||||||
Gain (loss) on currency exchange | 42 | — | (14 | ) | (10 | ) | 55 | (12 | ) | 9 | (22 | ) | |||||||||||||
Other, net | (4 | ) | 17 | (93 | ) | 13 | 2 | (14 | ) | (21 | ) | (1 | ) | ||||||||||||
Total other income, net | 253 | 191 | 17 | 146 | 178 | 101 | 122 | 115 | |||||||||||||||||
Income before income taxes | 4,637 | 3,323 | 3,199 | 2,884 | 3,882 | 3,118 | 2,705 | 2,368 | |||||||||||||||||
Income tax expense | 1,538 | 1,213 | 1,168 | 1,052 | 1,417 | 1,138 | 987 | 864 | |||||||||||||||||
Net income | $ | 3,099 | 2,110 | 2,031 | 1,832 | 2,465 | 1,980 | 1,718 | 1,504 | ||||||||||||||||
Net income per basic share | $ | 0.33 | 0.23 | 0.22 | 0.20 | 0.27 | 0.22 | 0.20 | 0.17 | ||||||||||||||||
Net income per diluted share | $ | 0.31 | 0.21 | 0.20 | 0.18 | 0.25 | 0.20 | 0.18 | 0.16 |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
CONTROLS AND PROCEDURES |
(b) Changes in Internal Control Over Financial Reporting
OTHER INFORMATION |
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
— | Ownership of Voting Securities by Principal Holders and Management; |
— | Proposal 1—Election of Directors; |
— | Nominees for Election of Directors; |
— | Executive Officers of the Company; |
— | Executive Compensation; |
— | Section 16(a) Beneficial Ownership Reporting Compliance; |
— | Corporate Governance; and |
— | Code of Ethics. |
EXECUTIVE COMPENSATION |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
41
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) | (1)Financial Statements.See Part II, Item 8 of this report. | |
(2)Financial Statement Schedules. | ||
Page in this Form 10-K | ||
Report of Independent Registered Public Accounting Firm | ||
on Financial Statement Schedule | ||
(3)Exhibits. See Index to Exhibits on page 45 of this report. | ||
(b) | See Index to Exhibits on page 45 of this report. |
42
43
RIMAGE CORPORATION | ||
| | |
Date: March 16, 2005 | By: | /s/ Bernard P. Aldrich |
Bernard P. Aldrich | ||
Chief Executive Officer |
By: | /s/ Robert M. Wolf | |
Robert M. Wolf | ||
Chief Financial Officer |
Signature | Title | Date | |
/s/ Bernard P. Aldrich | Chief Executive Officer, President and Director | March 16, 2005 | |
Bernard P. Aldrich | (principal executive officer) | ||
/s/ David J. Suden | Chief Technical Officer & Director | ||
David J. Suden | March 16, 2005 | ||
/s/ Robert M. Wolf | Chief Financial Officer (principal financial | ||
Robert M. Wolf | and accounting officer) and Corporate Secretary | March 16, 2005 | |
/s/ James L. Reissner | Director, Chairman of the Board | ||
James L. Reissner | March 16, 2005 | ||
/s/ Thomas F. Madison | Director | ||
Thomas F. Madison | March 16, 2005 | ||
/s/ Steven M. Quist | Director | ||
Steven M. Quist | March 16, 2005 | ||
/s/ Lawrence M. Benveniste | Director | ||
Lawrence M. Benveniste | March 16, 2005 | ||
/s/ Philip D. Hotchkiss | Director | ||
Philip D. Hotchkiss | March 16, 2005 | ||
44
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 Registration Statement on Form SB-2 (File No. 33-22558)). | |
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)). | |
3.4 | Rights Agreement dated as of September 17, 2003 between Rimage Corporation and Wells Fargo Bank, as Rights Agent (Incorporated by reference to Exhibit 1 to the Company’s Registration Statement on Form 8-A (File No. 000-20728)). | |
10.1 | Rimage Corporation Amended and Restated 1992 Stock Option Plan * (Incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8 (File No. 333-106901)). | |
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 July 31, 2004, between Rimage Corporation and 7725 Washington Avenue Corporation (Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10Q for the quarter ended June 30, 2004). | |
10.5 | Form of Severance/Change in Control Letter Agreement dated November 5, 2004, between the Company and certain executive officers * (Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004). | |
10.6 | Credit Agreement, dated March 29, 2004, by and between the Company and Wells Fargo Bank, National Association. | |
10.7 | Revolving Line of Credit Note, dated March 29, 2004, in the principal amount of $10,000,000 issued to the Company by Wells Fargo Bank, National Association. | |
21.1 | Subsidiaries of Rimage Corporation. | |
23.1 | Consent of Independent Registered Public Accounting Firm. | |
31.1 | Certificate of Chief Executive Officer pursuant to Rules 13d-14(a) and 15d-14(a) of the Exchange Act. | |
31.2 | Certificate of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act. | |
32 | Certification Pursuant to 18 U.S.C. §1350 |
45
Allowance for Doubtful Accounts | ||||||||||
Receivable and Sales Returns: | ||||||||||
Years ended December 31, | ||||||||||
2004 | 2003 | 2002 | ||||||||
Balance at beginning of year | $ | 886,828 | $ | 635,382 | $ | 714,943 | ||||
Write-offs and other adjustments | (165,795 | ) | 1,282 | (95,672 | ) | |||||
Recoveries | (158,456 | ) | (151,549 | ) | (90,551 | ) | ||||
Additions charged to costs and expenses | 37,476 | 401,713 | 106,662 | |||||||
Balance at end of year | $ | 600,053 | $ | 886,828 | $ | 635,382 | ||||
46