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 MARCH 31, 2002; OR
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[ ] 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
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RIMAGE CORPORATION
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(Exact name of Registrant as specified in its charter)
Minnesota 41-1577970
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7725 Washington Avenue South, Edina, MN 55439
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(Address of principal executive offices)
952-944-8144
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(Registrant's telephone number, including area code)
NA
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(Former name, former address, and former fiscal year,
if changed since last report.)
Common Stock outstanding at May 1, 2002 -
8,671,611 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 MARCH 31, 2002
Description Page
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PART I FINANCIAL INFORMATION
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Item 1. Unaudited Financial Statements
Consolidated Balance Sheets as of
March 31, 2002 and December 31, 2001................. 3
Consolidated Statements of Operations
for the Three Months Ended
March 31, 2002 and 2001.............................. 4
Consolidated Statements of Cash Flows
for the Three Months Ended
March 31, 2002 and 2001.............................. 5
Condensed Notes to Consolidated
Financial Statements................................. 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 8-10
PART II OTHER INFORMATION......................................... 11-12
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Item 1-4. None
Item 5. Other Information
Item 6. Exhibits
SIGNATURES............................................................... 13
2
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2002 and December 31, 2001
(Unaudited)
March 31, December 31,
Assets 2002 2001
- ------------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 5,115,420 $ 4,978,871
Marketable securities 24,184,316 23,131,393
Trade accounts receivable, net of allowance for doubtful accounts
and sales returns of $713,000 and $715,000, respectively 5,940,553 5,008,176
Inventories 3,125,643 3,624,701
Prepaid expenses and other current assets 303,425 211,941
Prepaid income taxes 335,414 764,523
Deferred income taxes-current 1,063,108 1,063,108
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Total current assets 40,067,879 38,782,713
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Property and equipment, net 1,463,545 1,608,197
Deferred income taxes-noncurrent 57,468 57,468
Other noncurrent assets 5,173 6,004
- ------------------------------------------------------------------------------------------------------------
Total assets $ 41,594,065 $ 40,454,382
============================================================================================================
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------
Current liabilities:
Trade accounts payable $ 2,311,152 $ 2,102,178
Accrued compensation 907,615 1,095,554
Accrued other 926,652 921,397
Deferred income and customer deposits 1,090,400 1,031,862
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Total current liabilities 5,235,819 5,150,991
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Long-term liabilities -- 68,750
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Total liabilities $ 5,235,819 $ 5,219,741
Stockholders' equity:
Common stock, $.01 par value, authorized 30,000,000 shares,
issued and outstanding 8,653,799 and 8,635,537, respectively 86,538 86,355
Additional paid-in capital 15,829,588 15,779,533
Retained earnings 20,804,574 19,670,369
Accumulated other comprehensive loss (362,454) (301,616)
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Total stockholders' equity 36,358,246 35,234,641
- ------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 41,594,065 $ 40,454,382
============================================================================================================
See accompanying condensed notes to consolidated financial statements
3
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
2002 2001
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Revenues $ 9,886,371 $ 10,196,132
Cost of revenues 5,139,298 4,858,784
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Gross profit 4,747,073 5,337,348
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Operating expenses:
Research and development 877,724 1,273,089
Selling, general and administrative 2,298,023 2,464,878
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Total operating expenses 3,175,747 3,737,967
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Operating income 1,571,326 1,599,381
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Other income (expense):
Interest 212,475 330,314
Loss on currency exchange 151 (221,423)
Other, net 2,197 (13,291)
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Total other income, net 214,823 95,600
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Income before income taxes 1,786,149 1,694,981
Income tax expense 651,944 644,093
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Net income 1,134,205 1,050,888
=============================================================================
Net income per basic share $ 0.13 $ 0.12
=============================================================================
Net income per diluted share $ 0.12 $ 0.11
=============================================================================
Basic weighted average shares outstanding 8,646,243 8,698,469
=============================================================================
Diluted weighted average shares and
assumed conversion shares 9,454,027 9,575,619
=============================================================================
See accompanying condensed notes to the consolidated financial statements
4
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Three months ended
March 31,
2002 2001
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Cash flows from operating activities:
Net income $ 1,134,205 $ 1,050,888
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 177,631 93,885
Change in reserve for excess and obsolete inventories (56,593) (101)
Provision for allowance for doubtful accounts and sales returns (2,064) --
Loss on sale of property and equipment -- 22,434
Changes in operating assets and liabilities:
Trade accounts receivable (930,313) 2,278,152
Inventories 555,651 (876,306)
Prepaid expenses and other current assets (91,484) (528)
Prepaid income taxes 429,109 461,749
Trade accounts payable 208,974 (119,101)
Accrued compensation (187,939) (450,159)
Accrued other 5,255 91,970
Deferred income and customer deposits 58,538 (47,958)
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Net cash provided by operating activities 1,300,970 2,504,925
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Cash flows from investing activities:
Purchase of marketable securities (1,052,923) --
Purchase of property and equipment (32,148) (128,945)
Other noncurrent assets (51,464) (20,667)
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Net cash used in investing activities (1,136,535) (149,612)
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Cash flows from financing activities-
Proceeds from stock option/warrant exercise 50,238 120,592
Other noncurrent liabilities (68,750) --
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Net cash (used in) provided by financing activities (18,512) 120,592
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Effect of exchange rate changes on cash (9,374) (30,907)
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Net increase in cash and cash equivalents 136,549 2,444,998
Cash and cash equivalents, beginning of period 4,978,871 21,100,604
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Cash and cash equivalents, end of period $ 5,115,420 $ 23,545,602
======================================================================================================================
Supplemental disclosures of net cash paid during the period for:
Income taxes $ 209,743 $ 135,413
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.
(Continued)
6
RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(2) INVENTORIES
Inventories consist of the following as of:
March 31, December 31,
2002 2001
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Finished goods and demonstration equipment $1,060,054 $1,179,963
Work-in-process 494,923 379,215
Purchased parts and subassemblies 1,570,666 2,065,523
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$3,125,643 $3,624,701
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(3) 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 in
the statement of operations for the three months ended March
31, 2002 and 2001, comprehensive income would be $60,838 and
$51,573 less than reported net income, respectively, due to
these adjustments.
(4) FOREIGN CURRENCY CONTRACTS
The Company enters into forward foreign exchange contracts
to hedge inter-company receivables denominated in Euros
arising from sales to its subsidiary in Germany. Gains or
losses on forward foreign exchange contracts are recognized in
net earnings on a current basis over the term of the
contracts.
As of March 31, 2002, the Company had twenty-seven
outstanding foreign currency contracts totaling $2,966,000.
These contracts mature in 2002 and bear rates between .8560
and .9145 U.S. Dollars per Euro. As of March 31, 2002, the
fair value of foreign currency contracts is $39,000 and is
recorded in other current assets.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth, for the periods indicated, selected
items from the Company's consolidated statements of operations.
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Percentage (%) Percentage (%)
of Revenues Increase/
Three Months (Decrease)
Ended March 31, Between Periods
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2002 2001 2002 vs. 2001
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Revenues 100.0 100.0 (3.0)
Cost of revenues (52.0) (47.6) 5.8
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Gross profit 48.0 52.4 (11.1)
Operating expenses:
Research and development (8.9) (12.5) (31.1)
Selling, general and administrative (23.2) (24.2) (6.8)
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Operating income 15.9 15.7 (1.8)
Other income, net 2.2 0.9 124.7
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Income before income taxes 18.1 16.6 5.4
Income tax expense (6.6) (6.3) 1.2
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Net income 11.5 10.3 7.9
=======================================================================
RESULTS OF OPERATIONS
REVENUES. Revenues decreased 3.0% from $10.2 million during the first
quarter of 2001 to $9.9 million during the first quarter of 2002.
During the first quarter of 2002, sales of systems equipped with DVD
capabilities more than tripled from the year earlier level. This
increase was offset by the negative impact of the continued
strengthening of the U.S. dollar on our European operations combined
with a noticeable slowdown in capital spending activities as a result
of a weakened economy.
As of and for the three months ended March 31, 2002, foreign revenues
from unaffiliated customers, operating income, and net identifiable
assets were $3,161,000, $105,000 and $3,566,000, respectively. As of
and for the three months ended March 31, 2001, foreign revenues from
unaffiliated customers, operating income, and net identifiable assets
were $3,282,000, $112,000 and $4,016,000, respectively. The revenue
decline is primarily due to the negative impact of the continued
strengthening of the U.S. dollar on our European operations.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
GROSS PROFIT. Gross profit as a percent of revenues was 48.0% during
the first quarter of 2002 compared to 52.4% of revenues during the same
period of 2001. The decrease was primarily due to increased volume of
sales generated in European markets outside Germany. Sales in these
markets are handled primarily by distribution, which involve additional
costs in comparison to direct sales. The decrease was also due to
increased depreciation during the first quarter of 2002 related to
tooling for the Everest color printer.
OPERATING EXPENSES. Operating expenses during the first quarter of 2002
were $3.2 million or 32.1% of revenues compared to $3.7 million or
36.7% of revenues during the same prior year period. The decrease was
primarily a result of lower research and development expenses due to
the completion of the initial round of development on the Everest color
printer. Research and development expense during the first quarter of
2002 was $878,000, or 8.9% of revenues, compared to $1.3 million, or
12.5% of revenues, during the first quarter of 2001.
OTHER INCOME. The Company recognized net interest income on cash
investments of $212,000 during the first quarter of 2002 compared to
$330,000 during the first quarter of 2001. Also included in other
income, the Company recognized an almost zero impact on currency
exchange during the first quarter of 2002 compared to a loss of
$221,000 during the first quarter of 2001.
INCOME BEFORE INCOME TAXES. Income before income taxes increased 5.4%
to $1.8 million for the first quarter of 2002 from $1.7 million for the
same prior year period. This increase is the result of the return to
more normal levels of research and development expenditures during the
first quarter of 2002.
INCOME TAXES. The provision for income taxes represents federal, state,
and foreign income taxes on income before income taxes. Income tax
expense for the first quarter of 2002 and 2001 amounted to $652,000 and
$644,000, respectively or 36.5% and 38%, respectively of income before
income taxes. The decrease in percentage is primarily due to increased
research and development and foreign tax credits. The Company
anticipates an effective tax rate of 36.5% for the remainder of 2002.
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 that would allow borrowings up
to $5 million. At March 31, 2002 there were no amounts outstanding
under the credit agreement.
Current assets are $40.1 million as of March 31, 2002 as compared to
$38.8 million as of December 31, 2001. The allowance for doubtful
accounts and sales returns as a percentage of receivables remained
relatively stable at 11% as of March 31, 2002 as compared to 12% as of
December 31, 2001. Current liabilities remained constant at $5.2
million as of March 31, 2002 as compared to December 31, 2001.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Net cash provided by operating activities was $1.3 million and $2.5
million for the three months ended March 31, 2002 and 2001,
respectively. This decrease was primarily the result of timing of
collection of trade accounts receivables. Net cash used in investing
activities was $1.1 million and $150,000 for the three months ended
March 31, 2002 and 2001, respectively. This increase was primarily due
to purchases of marketable securities during the first quarter 2002.
Net cash (used in) provided by financing activities was $(19,000) and
$121,000 during the three months ended March 31, 2002 and 2001,
respectively. The net cashed used in financing activities for the three
months ended March 31, 2002 was primarily for long term debt repayment
on tooling for the Everest printer offset by proceeds from stock option
and warrant exercises. The net cashed provided by financing activities
for the three months ended March 31, 2001 was primarily provided by the
proceeds from stock option and warrant exercises.
The Company believes that inflation has not had a material impact on
its operations or liquidity to date.
MARKET RISK DISCLOSURE
The Company has a policy of using forward exchange contracts to hedge
net exposures related to its foreign currency-denominated monetary
assets and liabilities. The primary objective of these hedging
activities is to maintain an approximately balanced position in foreign
currencies so that exchange gains and losses resulting from exchange
rate changes, net of related tax effects, are minimized.
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.
10
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
In connection with the Company's Annual Meeting to be held May
21, 2002, the Company filed a Proxy Statement containing a
table showing the security ownership of certain beneficial
owners and management which overstated the beneficial
ownership of Messrs. Bernard Aldrich and Kenneth Klinck. The
Company hereby corrects the overstatement as follows: As of
April 8, 2002, Mr. Aldrich beneficially owned 270,326 shares
of Rimage Corporation Common Stock, including 223,126 shares
acquirable within 60 days of April 8, 2002. This represents 3%
of the 8,653,799 shares of Common Stock outstanding as of
April 8, 2002. As of April 8, 2002, Mr. Klinck beneficially
owned 97,101 shares of Rimage Corporation Common Stock,
including 81,251 shares acquirable within 60 days of April 8,
2002, representing 1.1% of the shares of Common Stock then
outstanding. As a result, the beneficial ownership of all
officers and directors as a group (9 persons) as of April 8,
2002, is 2,309,399 shares of Common Stock which includes
989,242 shares acquirable within 60 days of April 8, 2002 and
represents 23.9% of the shares of Common Stock then
outstanding.
11
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
EXHIBIT NO. DESCRIPTION
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3.1 1992 Restated Articles of Incorporation of
Rimage Corporation, as amended.
10.4 Lease dated September 1, 1998, between Rimage
Corporation and 7725 Washington Avenue
Corporation.
11.1 Calculation of Income Per Share.
(b) Reports on Form 8-K:
Not Applicable.
12
SIGNATURES
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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
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Registrant
Date: May 15, 2002 By: /s/ Bernard P. Aldrich
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Bernard P. Aldrich
Director, Chief Executive Officer,
and President
(Principal Executive Officer)
(Principal Financial Officer)
Date: May 15, 2002 By: /s/ Robert M. Wolf
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Robert M. Wolf
Treasurer
(Principal Accounting Officer)
13