UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001;
OR ------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO _______.
COMMISSION FILE NUMBER: 0-20728
-------
RIMAGE CORPORATION
-----------------------------------
(Exact name of Registrant as specified in its charter)
Minnesota 41-1577970
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7725 Washington Avenue South, Edina, MN 55439
--------------------------------------------------
(Address of principal executive offices)
952-944-8144
----------------------------------------------------
(Registrant's telephone number, including area code)
NA
----------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report.)
Common Stock outstanding at October 31, 2001 - 8,666,242 shares
of $.01 par value Common Stock.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
RIMAGE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
Description Page
----------- ----
PART I FINANCIAL INFORMATION
- ------
Item 1. Financial Statements
Consolidated Balance Sheets
(unaudited) as of September 30, 2001 and
December 31, 2000 ................................... 3
Consolidated Statements of Operations
(unaudited) for the Three and Nine Months
Ended September 30, 2001 and 2000 ................... 4
Consolidated Statements of Cash Flows
(unaudited) for the Three and Nine Months
Ended September 30, 2001 and 2000 ................... 5
Condensed Notes to Consolidated
Financial Statements (unaudited) .................... 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ....... 9-13
PART II OTHER INFORMATION ............................................. 14-15
- -------
Item 1-5. None
Item 6. Exhibits
SIGNATURES ........................................................... 16
2
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2001 and December 31, 2000
(Unaudited)
September 30, December 31,
Assets 2001 2000
- -------------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 17,490,177 $ 21,225,452
Marketable securities 6,640,340 --
Trade accounts receivable, net of allowance for doubtful accounts
and sales returns of $466,000 and $539,000, respectively 6,004,117 9,013,207
Inventories 3,684,333 2,936,119
Prepaid expenses and other current assets 208,209 212,566
Prepaid income taxes 502,094 1,418,498
Deferred income taxes-current 938,592 938,592
- -------------------------------------------------------------------------------------------------------------
Total current assets 35,467,862 35,744,434
Marketable securities 3,100,810 --
Property and equipment, net 1,694,241 651,569
Deferred income taxes-noncurrent 145,935 145,935
Other noncurrent assets 6,834 13,526
- -------------------------------------------------------------------------------------------------------------
Total assets $ 40,415,682 $ 36,555,464
============================================================================================================
Liabilities and Stockholders' Equity
- -------------------------------------------------------------------------------------------------------------
Current liabilities:
Trade accounts payable $ 2,483,019 $ 2,288,789
Accrued compensation 1,395,934 1,446,127
Accrued other 1,360,614 852,652
Deferred income and customer deposits 957,425 1,006,957
Other current liabilities 29,717 --
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 6,226,709 5,594,525
Long-term liabilities 137,500 --
- -------------------------------------------------------------------------------------------------------------
Total liabilities $ 6,364,209 $ 5,594,525
Stockholders' equity:
Common stock, $.01 par value, authorized 30,000,000 shares,
issued and outstanding 8,665,881 and 8,653,285, respectively 86,659 86,533
Additional paid-in capital 16,002,001 16,319,613
Retained earnings 18,238,177 14,861,224
Accumulated other comprehensive loss (275,364) (306,431)
- -------------------------------------------------------------------------------------------------------------
Total stockholders' equity 34,051,473 30,960,939
- -------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 40,415,682 $ 36,555,464
============================================================================================================
See accompanying condensed notes to consolidated financial statements
3
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------------------------
Revenues $ 10,296,163 $ 9,989,096 $ 29,496,278 $ 36,522,782
Cost of revenues 5,373,514 4,776,887 14,765,140 16,981,152
- -------------------------------------------------------------------------------------------------------------------
Gross profit 4,922,649 5,212,209 14,731,138 19,541,630
- -------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 741,288 1,050,554 3,090,469 2,549,175
Selling, general and administrative 2,421,806 2,399,857 7,078,926 7,541,319
Merger -- -- -- 541,396
- -------------------------------------------------------------------------------------------------------------------
Total operating expenses 3,163,094 3,450,411 10,169,395 10,631,890
- -------------------------------------------------------------------------------------------------------------------
Operating income 1,759,555 1,761,798 4,561,743 8,909,740
- -------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest, net 253,384 303,634 876,913 753,674
Gain (loss) on currency exchange 197,113 (161,654) (76,429) (289,190)
Other, net 4,404 23,480 (1,984) 28,168
- -------------------------------------------------------------------------------------------------------------------
Total other income, net 454,901 165,460 798,500 492,652
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,214,456 1,927,258 5,360,243 9,402,392
Income taxes 819,349 732,358 1,983,290 3,572,909
- -------------------------------------------------------------------------------------------------------------------
Net income $ 1,395,107 $ 1,194,900 $ 3,376,953 $ 5,829,483
===================================================================================================================
Income per basic share $ 0.16 $ 0.14 $ 0.39 $ 0.70
===================================================================================================================
Income per diluted share $ 0.15 $ 0.12 $ 0.35 $ 0.60
===================================================================================================================
Basic weighted average shares outstanding 8,734,692 8,510,224 8,720,018 8,338,555
===================================================================================================================
Diluted weighted average shares and
assumed conversion shares 9,478,563 9,741,237 9,535,091 9,679,197
===================================================================================================================
See accompanying condensed notes to the consolidated financial statements
4
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Nine months ended
September 30,
2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 3,376,953 $ 5,829,483
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 417,256 550,515
Change in reserve for excess and obsolete inventories 103,111 12,113
Change in reserve for allowance for doubtful accounts (73,071) 67,131
Loss on sale of property, plant, and equipment 22,434 6,494
Changes in operating assets and liabilities:
Trade accounts receivable 3,082,161 (182,943)
Inventories (851,325) (1,284,564)
Prepaid income taxes 916,404 (573,372)
Prepaid expenses and other current assets 4,357 21,015
Trade accounts payable 194,230 (297,385)
Accrued compensation (50,193) 311,155
Accrued other 507,962 81,629
Income taxes payable -- (312,154)
Other current liabilities 29,717 --
Deferred income and customer deposits (49,532) 175,085
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,630,464 4,404,202
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of marketable securities (9,741,150) --
Purchase of property, plant, and equipment (1,438,709) (247,374)
Other noncurrent assets 49,180 74,915
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (11,130,679) (172,459)
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from stock option and warrant exercises 198,338 1,587,106
Cash payments for stock buyback (552,785) --
Other noncurrent liabilities 137,500 --
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (216,947) 1,587,106
- -----------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (18,113) (25,343)
- -----------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents (3,735,275) 5,793,506
Cash and cash equivalents, beginning of period 21,225,452 13,664,151
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 17,490,177 $ 19,457,657
=======================================================================================================================
Supplemental disclosures of net cash paid during the period for-
Income taxes $ 1,003,690 $ 3,903,559
================================
See accompanying condensed notes to the consolidated financial statements
5
RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION AND NATURE OF BUSINESS
Rimage Corporation (the Company) develops, manufactures and
distributes high performance CD-Recordable (CD-R) and
DVD-Recordable (DVD-R) publishing and duplication systems, and
continues to support its long-term involvement in diskette
duplication and publishing equipment.
The accompanying unaudited consolidated financial statements of the
Company have been prepared pursuant to the rules of the
Securities and Exchange Commission. These financial statements
should be read in conjunction with the more detailed financial
statements and notes thereto included in the Company's most
recent annual report on Form 10-K.
The Company extends unsecured credit to its customers as well as
credit to a limited number of authorized distributor
wholesalers, who in turn provide warehousing, distribution, and
credit to a network of authorized value added resellers. These
distributors and value added resellers sell and service a
variety of hardware and software products.
In the opinion of management, the accompanying consolidated
financial statements reflect all adjustments, consisting of
only normal recurring adjustments, necessary for a fair
presentation of the financial position and results of
operations and cash flows of the Company for the periods
presented. Certain previously reported amounts have been
reclassified to conform with the current presentation.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(2) ACQUISITION
On March 1, 2000, the Company issued 497,496 shares of its common
stock in exchange for all outstanding stock of Cedar
Technologies, Inc. ("Cedar"), a manufacturer of CD-R desktop
publishing and duplication equipment. The Company also assumed
the obligations to issue 224,064 shares of its common stock upon
exercise of outstanding options of Cedar and 177,894 shares of
its common stock upon exercise of outstanding warrants of Cedar.
The business combination was accounted for as a
pooling-of-interests, and accordingly, the consolidated
financial statements for periods prior to the combination have
been restated to include the accounts and results of operations
of Cedar.
(Continued)
6
RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(3) MARKETABLE SECURITIES
Marketable securities generally consist of U.S. Government or U.S.
Government-backed obligations with long-term credit ratings of
AAA. 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 fifteen 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 other
comprehensive income until realized. As of September 30, 2001,
the amortized cost of all marketable securities is $9,677,359
and the net unrealized holding gain is $63,791.
(4) INVENTORIES
Inventories consist of the following as of:
September 30, December 31,
2001 2000
- --------------------------------------------------------------------------------
Finished goods and demonstration equipment $ 1,363,115 $ 1,239,034
Work-in-process 309,252 323,785
Purchased parts and subassemblies 2,011,966 1,373,300
- --------------------------------------------------------------------------------
$ 3,684,333 $ 2,936,119
================================================================================
(5) COMPREHENSIVE INCOME
The Company's other comprehensive income relates to foreign currency
translation adjustments and unrealized holding gains from
available-for-sale investments, and is presented separately on
the balance sheet as required. If presented on the statement of
operations for the nine months ended September 30, 2001 and
2000, comprehensive income would be $31,067 and $15,777 more
than reported net income, respectively, due to these
adjustments.
(Continued)
7
RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(6) FOREIGN CURRENCY CONTRACTS
The Company enters into forward foreign exchange contracts to hedge
inter-company receivables denominated in Euros arising from
sales to its subsidiary in Germany. Gains or losses on forward
foreign exchange contracts are recognized in net earnings on a
current basis over the term of the contracts.
As of September 30, 2001, the Company had seventeen outstanding
foreign currency contracts totaling $1,964,000. These contracts
mature in 2001 and 2002 and bear rates between .8690 and .9224
U.S. dollars per Euro.
(7) 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 September
30, 2001, no shares have been issued under this plan.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth, for the periods indicated, selected
items from the Company's consolidated statements of operations.
- ------------------------------------------------------------------------- -------------------------------------
Percent (%) Percent (%) Percent (%) Percent (%)
of Revenues Incr/(Decr) of Revenues Incr/(Decr)
Three Months Ended Between Nine Months Ended Between
September 30, Periods September 30, Periods
- ------------------------------------------------------------------------- -------------------------------------
2001 2000 2001 vs. 2000 2001 2000 2001 vs. 2000
- ------------------------------------------------------------------------- -------------------------------------
Revenues 100.0 100.0 3.1 100.0 100.0 (19.2)
Cost of revenues (52.2) (47.8) 12.5 (50.0) (46.5) (13.0)
- ------------------------------------------------------------------------- -------------------------------------
Gross profit 47.8 52.2 (5.6) 50.0 53.5 (24.6)
Operating expenses:
Research and development (7.2) (10.5) (29.4) (10.5) (7.0) 21.2
Selling, general and admin (23.5) (24.0) 0.9 (24.0) (20.6) (6.1)
Merger - - N/A - (1.5) N/A
- ------------------------------------------------------------------------- -------------------------------------
Operating income 17.1 17.7 (0.1) 15.5 24.4 (48.8)
Other income, net 4.4 1.6 174.9 2.7 1.3 62.1
- ------------------------------------------------------------------------- -------------------------------------
Income before income taxes 21.5 19.3 14.9 18.2 25.7 (43.0)
Income tax expense (8.0) (7.3) 11.9 (6.7) (9.8) (44.5)
- ------------------------------------------------------------------------- -------------------------------------
Net income 13.5 12.0 16.8 11.5 15.9 (42.1)
- ------------------------------------------------------------------------- -------------------------------------
RESULTS OF OPERATIONS
REVENUES. Revenues increased 3.1% to $10.3 million for the three-month period
ended September 30, 2001 from $10.0 million for the same prior-year period. The
increase in revenues was due to the introduction of the Company's new Producer
II line of products, strong European sales and an increased demand for DVD-R
publishing systems. Revenues decreased 19.2% to $29.5 million for the nine-month
period ended September 30, 2001 from $36.5 million for the same prior-year
period. The decrease in revenues was primarily due to the absence of sales
within the music fulfillment industry and the negative impact of a strengthened
U.S. dollar on our European operations. Sales during the three- and nine-month
periods ended September 30, 2001 were both negatively impacted by a noticeable
slowdown in capital spending activities as a result of a weakened economy.
As of and for the nine months ended September 30, 2001, foreign revenues from
unaffiliated customers, operating income, and net identifiable assets were
$9,218,000, $6,000 and $3,633,000, respectively. As of and for the nine months
ended September 30, 2000, foreign revenues from unaffiliated customers,
operating earnings, and net identifiable assets were $8,517,000, $290,000 and
$3,137,000, respectively. The growth is due to increasing penetration in the
European markets of sales of CD-R products.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
GROSS PROFIT. Gross profit as a percent of revenues was 47.8% and 50.0% for the
three- and nine- month periods ended September 30, 2001, respectively, compared
to 52.2% and 53.5% for the same prior-year periods. The decrease during the
three-month period ended September 30, 2001 was primarily due to increased
European sales outside Germany. These sales carry a lower margin associated with
selling through a distribution network. The decrease in gross profit as a
percent of revenues during the nine-month period ended September 30, 2001 was
primarily due to the lower sales volume partially offset by cost control
measures taken in our manufacturing process.
OPERATING EXPENSES. Operating expenses during the three- and nine-month periods
ended September 30, 2001 were $3.2 million or 30.7% of revenues and $10.2
million or 34.5% of revenues, respectively compared to $3.5 million or 34.5% of
revenues and $10.6 million or 29.1% of revenues during the same prior year
periods. The decrease during the three-month period ended September 30, 2001 was
primarily a result of a decrease in research and development expenses due to
completion of the Everest printer development initiative. The increase in
percent during the nine-month period ended September 30, 2001 was primarily a
result of the reduced sales volume and higher research and development expenses
associated with the Everest project. Research and development expense during the
three- and nine-month periods ended September 30, 2001 were $741,000 or 7.2% of
revenues and $3.1 million or 10.5% of revenues, respectively compared to $1.1
million or 10.5% of revenues and $2.5 million or 7.0% of revenues during the
same periods of 2000. The increase in operating expenses as a percent of
revenues was offset by $240,000 of gain recognized due to the termination of
operating leases during the second quarter of 2001 and by $541,000 of merger
expenses incurred during the first quarter of 2000 from the acquisition of Cedar
Technologies, Inc.
OTHER INCOME/(EXPENSE). The Company recognized net interest income on cash
investments of $253,000 and $877,000 during the three- and nine-month periods
ended September 30, 2001 compared to $304,000 and $754,000 during the same prior
year periods. Also included in other income, the Company recognized a
gain/(loss) on currency exchange of $197,000 and $(76,000) during the three- and
nine-month periods ended September 30, 2001 compared to $(162,000) and
$(289,000) during the same prior year periods.
INCOME BEFORE INCOME TAXES. Income before income taxes during the three- and
nine-month periods ended September 30, 2001 were $2.2 million or 21.5% of
revenues and $5.4 million or 18.2% of revenues, respectively compared to $1.9
million or 19.3% of revenues and $9.4 million or 25.7% of revenues during the
same prior year periods. The increase during the three-month period ended
September 30, 2001 was primarily due to strong market acceptance of our new
Producer II line of products combined with a return to normal research and
development expense levels. The decrease during the nine-month period ended
September 30, 2001 is the result of the absence of CD-R related product sales
into the music-on-demand audio segment combined with higher than normal research
and development expenditures.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
INCOME TAXES. The provision for income taxes represents federal, state, and
foreign income taxes on earnings before income taxes. Income tax expense for the
three- and nine-month periods ended September 30, 2001 amounted to $819,000 and
$2.0 million, respectively or 37% of income before income taxes. The Company
anticipates an effective tax rate of 37% for the remainder of 2001. Income tax
expense for the three- and nine-month periods ended September 30, 2000 amounted
to $732,000 and $3.6 million, respectively or 38% of income before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects to fund its anticipated cash requirements (including the
anticipated cash requirements of its capital expenditures) with internally
generated funds and, if required, from the Company's existing credit agreement.
Current assets are $35.5 million as of September 30, 2001 compared to $35.7
million as of December 31, 2000. The allowance for doubtful accounts as a
percentage of receivables was 7% and 6% as of September 30, 2001 and December
31, 2000, respectively. This increase is due to the perceived greater risk of
collecting on accounts receivables in light of the current slowing economy.
Current liabilities are $6.2 million as of September 30, 2001 compared to $5.6
million as of December 31, 2000. This increase primarily reflects amounts
payable for tooling costs relating to the Everest printer.
Net cash provided by operating activities was $7.6 million and $4.3 million for
the nine months ended September 30, 2001 and 2000, respectively. This increase
was primarily the result of timing of collection of trade accounts receivables.
Net cash used in investing activities was $11.1 million and $172,000 for the
nine months ended September 30, 2001 and 2000, respectively. This increase was
primarily due to purchases of marketable securities during the third quarter
2001 combined with payments made for tooling associated with new products
introduced during 2001. At September 30, 2001, the Company had commitments to
purchase additional capital equipment totaling $232,000 and $343,750 during
calendar years 2001 and 2002, respectively. Net cash used in financing
activities during the nine months ended September 30, 2001 was $217,000. This
amount primarily reflected payments to purchase treasury stock, partially offset
by proceeds from stock option and warrant exercises. Net cash provided by
financing activities during the nine months ended September 30, 2000 was $1.6
million. This amount reflected proceeds from stock option and warrant exercises.
The Company believes that inflation has not had a material impact on its
operations or liquidity to date.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board issued FASB Statement
No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
(Statement 144), which supersedes both FASB Statement No. 121, ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
(Statement 121) and the accounting and reporting provisions of APB Opinion No.
30, REPORTING THE RESULTS OF OPERATIONS--REPORTING THE EFFECTS OF DISPOSAL OF A
SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING
EVENTS AND TRANSACTIONS (Opinion 30), for the disposal of a segment of a
business (as previously defined in that Opinion). Statement 144 retains the
fundamental provisions in Statement 121 for recognizing and measuring impairment
losses on long-lived assets held for use and long-lived assets to be disposed of
by sale, while also resolving significant implementation issues associated with
Statement 121. Statement 144 also retains the basic provisions of Opinion 30 on
how to present discontinued operations in the income statement but broadens that
presentation to include a component of an entity (rather than a segment of a
business). Unlike Statement 121, an impairment assessment under Statement 144
will never result in a write-down of goodwill. Rather, goodwill is evaluated for
impairment under Statement No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS.The
Company is required to adopt Statement 144 no later than the year beginning
after December 15, 2001, and plans to adopt its provisions for the quarter
ending March 31, 2002. Management does not expect the adoption of Statement 144
to have a material impact on the Company's financial statements because the
impairment assessment under Statement 144 is largely unchanged from Statement
121.
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141 "Business Combinations," and
SFAS No. 142 "Goodwill and Other Intangible Assets," which change the accounting
for business combinations and goodwill. SFAS No. 141 requires that the purchase
method of accounting be used for business combinations initiated after June 30,
2001. Use of the pooling-of-interests method will be prohibited. SFAS No. 142
changes the accounting for goodwill from an amortization method to an
impairment-only approach. The Company is currently evaluating SFAS No. 141 and
SFAS No. 142, but does not expect that they will have a material impact on the
Company's financial position or results of operations.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
NEW EUROPEAN CURRENCY
On January 1, 1999, eleven of the fifteen member countries of the European Union
established fixed conversion rates between their existing currencies and the
euro, a new European currency, and adopted the euro as their common legal
currency (the "Euro Conversion"). Either the euro or a participating country's
present currency will be accepted as legal tender from January 1, 1999 to
January 1, 2002, from which date forward only the euro will be accepted.
The Company has customers located in European Union countries participating in
the Euro Conversion. Such customers will likely have to upgrade or modify their
computer systems and software to comply with the euro requirements. The amount
of money the Company anticipates spending in connection with product development
related to the Euro Conversion is not expected to have a material adverse effect
on the Company's results of operations or financial condition. The Euro
Conversion may also have competitive implications for the Company's pricing and
marketing strategies, which could be material in nature; however, any such
impact is not known at this time.
The Company has also modified its internal systems (such as payroll, accounting
and financial reporting) to deal with the Euro Conversion. There is no
assurance, however, that all problems related to the Euro Conversion will be
foreseen and corrected, or that no material disruptions of the Company's
business will occur.
MARKET RISK DISCLOSURE
The Company has a policy of using forward exchange contracts to hedge net
exposures related to its foreign currency-denominated monetary assets and
liabilities. The primary objective of these hedging activities is to maintain an
approximately balanced position in foreign currencies so that exchange gains and
losses resulting from exchange rate changes, net of related tax effects, are
minimized.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve risks and
uncertainties. For this purpose, any statements contained in report that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "estimate" or "continue" or comparable terminology are
intended to identify forward-looking statements. These statements by their
nature involve substantial risks and uncertainties. The Company's actual results
could differ significantly from those discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, changes in media or method used for distribution of
software, technological changes in products offered by the Company or its
competitors and changes in general conditions in the computer market, as well as
other factors not now identified. These forward-looking statements are made as
of the date of this report and the Company assumes no obligation to update such
forward-looking statements, or to update the reasons why actual results could
differ materially from those anticipated in such forward-looking statements.
13
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not Applicable.
Item 2. Changes in Securities
---------------------
Not Applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not Applicable.
Item 5. Other Information
-----------------
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit No. 11.1 Calculation of Earnings Per Share.
(b) Reports on Form 8-K:
Not applicable.
14
SIGNATURES
In accordance with the Exchange Act, this report has been signed below by
following persons on behalf of the registrant and on the dates indicated.
RIMAGE CORPORATION
------------------
Registrant
Date: November 9, 2001 By: /s/ Bernard P. Aldrich
---------------- ----------------------
Bernard P. Aldrich
Director,
Chief Executive Officer,
and President
(Principal Executive Officer)
(Principal Financial Officer)
Date: November 9, 2001 By: /s/ Robert M. Wolf
---------------- ------------------
Robert M. Wolf
Treasurer
(Principal Accounting Officer)
15