UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2003; 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
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(Address of principal executive offices)
952-944-8144
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(Registrant's telephone number, including area code)
NA
---------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report.)
Common Stock outstanding at August 7, 2003 - 9,063,712 shares
of $.01 par value Common Stock.
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Act). YES ___ NO _X_
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
RIMAGE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED JUNE 30, 2003
Description Page
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PART I FINANCIAL INFORMATION
- ------
Item 1. Financial Statements
Consolidated Balance Sheets
as of June 30, 2003 (unaudited)
and December 31, 2002 ...................................... 3
Consolidated Statements of Operations
(unaudited) for the Three and Six Months
Ended June 30, 2003 and 2002 ............................... 4
Consolidated Statements of Cash Flows
(unaudited) for the Six Months
Ended June 30, 2003 and 2002 ............................... 5
Condensed Notes to Consolidated
Financial Statements (unaudited) .......................... 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............ 10-14
Item 3. Quantitative and Qualitative Disclosures about
Market Risk ................................................ 15
Item 4. Controls and Procedures ...................................... 15
PART II OTHER INFORMATION ............................................ 16
- -------
Item 1-3. None
Item 4. Submission of Matters to a Vote of Security Holders .......... 16
Item 5. None
Item 6. Exhibits ..................................................... 17
SIGNATURES ................................................................. 18
2
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2003 and December 31, 2002
(Unaudited)
June 30, December 31,
Assets 2003 2002
- ------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 17,914,896 $ 17,339,135
Marketable securities 22,109,441 18,997,987
Trade accounts receivable, net of allowance for doubtful accounts
and sales returns of $741,000 and $635,000, respectively 6,425,854 6,643,613
Inventories 4,045,484 3,041,828
Prepaid expenses and other current assets 316,284 385,205
Prepaid income taxes 279,001 --
Deferred income taxes-current 929,279 929,279
- ------------------------------------------------------------------------------------------------------
Total current assets 52,020,239 47,337,047
- ------------------------------------------------------------------------------------------------------
Property and equipment, net 1,266,533 1,313,922
Deferred income taxes-noncurrent 55,274 55,274
Other noncurrent assets 1,958 3,011
- ------------------------------------------------------------------------------------------------------
Total assets $ 53,344,004 $ 48,709,254
======================================================================================================
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------------------------
Current liabilities:
Trade accounts payable $ 2,289,501 $ 2,476,299
Accrued compensation 1,267,780 1,287,585
Accrued other 1,287,250 1,270,536
Income tax payable -- 194,973
Deferred income and customer deposits 1,508,555 1,322,729
- ------------------------------------------------------------------------------------------------------
Total current liabilities 6,353,086 6,552,122
- ------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $.01 par value, authorized 30,000,000 shares,
issued and outstanding 9,017,785 and 8,719,411, respectively 90,178 87,194
Additional paid-in capital 17,667,768 16,157,259
Retained earnings 29,355,310 26,134,084
Accumulated other comprehensive loss (122,338) (221,405)
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 46,990,918 42,157,132
- ------------------------------------------------------------------------------------------------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 53,344,004 $ 48,709,254
======================================================================================================
See accompanying condensed notes to consolidated financial statements
3
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------
Revenues $ 12,791,163 $ 12,309,527 $ 24,334,897 $ 22,195,898
Cost of revenues 6,458,778 6,202,666 12,267,525 11,341,964
- -------------------------------------------------------------------------------------------------------
Gross profit 6,332,385 6,106,861 12,067,372 10,853,934
- -------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 926,506 1,012,523 1,775,036 1,890,247
Selling, general and administrative 2,822,941 2,503,244 5,456,699 4,801,267
- -------------------------------------------------------------------------------------------------------
Total operating expenses 3,749,447 3,515,767 7,231,735 6,691,514
- -------------------------------------------------------------------------------------------------------
Operating income 2,582,938 2,591,094 4,835,637 4,162,420
- -------------------------------------------------------------------------------------------------------
Other income (expense):
Interest, net 133,501 223,347 271,329 435,822
Gain (loss) on currency exchange 9,190 21,007 (12,592) 21,158
Other, net (21,080) 494 (21,577) 2,691
- -------------------------------------------------------------------------------------------------------
Total other income, net 121,611 244,848 237,160 459,671
- -------------------------------------------------------------------------------------------------------
Income before income taxes 2,704,549 2,835,942 5,072,797 4,622,091
Income taxes 987,160 1,035,119 1,851,571 1,687,063
- -------------------------------------------------------------------------------------------------------
Net income $ 1,717,389 $ 1,800,823 $ 3,221,226 $ 2,935,028
=======================================================================================================
Net income per basic share $ 0.20 $ 0.21 $ 0.37 $ 0.34
=======================================================================================================
Net income per diluted share $ 0.18 $ 0.19 $ 0.34 $ 0.31
=======================================================================================================
Basic weighted average shares outstanding 8,757,138 8,705,099 8,742,033 8,690,880
=======================================================================================================
Diluted weighted average shares and
assumed conversion shares 9,644,499 9,496,105 9,555,873 9,561,222
=======================================================================================================
See accompanying condensed notes to the consolidated financial statements
4
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Six months ended
June 30,
2003 2002
- ---------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 3,221,226 $ 2,935,028
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 455,908 375,387
Change in reserve for allowance for doubtful accounts 105,579 (21,999)
Loss on sale of property and equipment 25,475 550
Changes in operating assets and liabilities:
Trade accounts receivable 112,180 (1,275,607)
Inventories (1,003,656) 462,510
Prepaid income taxes 745,178 764,523
Prepaid expenses and other current assets 68,921 (82,227)
Trade accounts payable (186,798) 635,082
Accrued compensation (19,805) (308,939)
Accrued other 16,714 470,171
Income taxes payable (194,973) 369,267
Deferred income and customer deposits 185,826 139,464
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,531,775 4,463,210
- ---------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of marketable securities (21,006,217) (12,249,168)
Maturity of marketable securities 17,894,763 2,000,000
Purchase of property and equipment (432,941) (139,232)
Other noncurrent assets 14,794 (19,569)
- ---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,529,601) (10,407,969)
- ---------------------------------------------------------------------------------------------------------------
Cash flows from financing activities-
Proceeds from stock option/warrant exercises 489,314 326,535
Other non current liabilites -- (68,750)
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Net cash provided by financing activities 489,314 257,785
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Effect of exchange rate changes on cash 84,273 47,679
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 575,761 (5,639,295)
Cash and cash equivalents, beginning of period 17,339,135 14,767,126
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 17,914,896 $ 9,127,831
===============================================================================================================
Supplemental disclosures of net cash paid during the period for:
Income taxes $ 1,170,827 $ 481,796
Supplemental disclosures of non cash financing activities during the period for:
Tax effect of disqualifying disposition of stock options $ 1,024,179 $ --
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.
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.
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)
The Company applies APB No. 25 and related interpretations in
accounting for its stock based compensation plans. Accordingly,
no compensation expense has been recognized for its stock-based
compensation plans. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options
under SFAS No. 123, the Company's three months ended and six
month ended June 30, 2003 and 2002 net income and basic and
diluted earnings per share would have been adjusted to the
proforma amounts stated below:
Three Months Three Months Six Six
Ended Ended Months Ended Months Ended
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
=======================================================================================================================
Net income:
As reported $1,717,389 $1,800,823 $3,221,226 $2,935,028
Stock based employee compensation,
net of tax (99,158) (132,392) (167,410) (264,783)
- ----------------------------------------------------------------------------------------------------------------------
Proforma 1,618,231 1,668,431 3,053,816 2,670,245
- ----------------------------------------------------------------------------------------------------------------------
Basic net income per share:
As reported $ 0.20 $ 0.21 $ 0.37 $ 0.34
Stock based employee compensation,
net of tax $ (0.01) $ (0.02) $ (0.02) $ (0.03)
- ----------------------------------------------------------------------------------------------------------------------
Proforma $ 0.19 $ 0.19 $ 0.35 $ 0.31
- ----------------------------------------------------------------------------------------------------------------------
Diluted net income per share:
As reported $ 0.18 $ 0.19 $ 0.34 $ 0.31
Stock based employee compensation,
net of tax $ (0.01) $ (0.01) $ (0.02) $ (0.03)
- ----------------------------------------------------------------------------------------------------------------------
Proforma $ 0.17 $ 0.18 $ 0.32 $ 0.28
- ----------------------------------------------------------------------------------------------------------------------
(2) INVENTORIES
Inventories consist of the following as of:
June 30, December 31,
2003 2002
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Finished goods and demonstration equipment $ 1,082,849 $ 668,154
Work-in-process 412,721 480,293
Purchased parts and subassemblies 2,549,915 1,893,381
--------------------------------------------------------------------------------------
$ 4,045,484 $ 3,041,828
======================================================================================
(Continued)
7
RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(3) COMPREHENSIVE INCOME
Comprehensive income is defined as net income and other changes in
shareholders' equity from transactions and other events from
sources other than shareholders. The components of and changes
in other comprehensive income (loss) are as follows (in 000's):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2003 2002 2003 2002
------- ------- ------- -------
Net income $ 1,717 $ 1,801 $ 3,221 $ 2,935
Other comprehensive income (loss):
Foreign currency translation adjustment 65 110 96 100
Net unrealized gains (losses) on securities (16) (21) 3 (72)
------- ------- ------- -------
Total other comprehensive income $ 1,766 $ 1,890 $ 3,320 $ 2,963
======= ======= ======= =======
(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 calculated at each period end and
are recognized in net income(loss) in the period in which they
arose. The fair value of forward foreign exchange contracts is
recorded in other current assets or other current liabilities
depending on whether the net amount is a gain or a loss.
As of June 30, 2003, the Company had thirty-two outstanding foreign
currency contracts totaling $3,576,000. These contracts mature
in 2003 and bear rates between 1.0498 and 1.1801 U.S. Dollars
per Euro. As of June 30, 2003, the fair value of foreign
currency contracts is $141,000 and is recorded in other current
liabilities.
(Continued)
8
RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(5) RECENT ACCOUNTING DEVELOPMENTS
EITF 00-21, "Revenue Arrangements with Multiple Deliverables" provides
revenue recognition guidance for arrangements with multiple
deliverables, and the criteria to determine if items in a
multiple deliverable agreement should be accounted for
separately. In some arrangements, the different
revenue-generating activities are sufficiently separable and
there exists sufficient evidence of their fair values to
separately account for some or all of the activities. In other
arrangements, some or all of the deliverables are not
independently functional, or there is not sufficient evidence of
their fair values to account for them separately. This issue
addresses when and, if so, how an arrangement involving multiple
deliverables should be divided into separate units of accounting.
This issue does not change otherwise applicable revenue
recognition criteria. The guidance in this issue is effective for
revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. The Company does not expect the adoption of
EITF 00-21 to have a material effect on its financial statements,
as it does not lead to a change in the allocation of revenue
between the different elements of a sale, when applied to the
Company.
(6) WARRANTY RESERVE
Warranty reserve rollforward is as follows:
Beginning Warranty Warranty Changes In Ending
Six Months Ended: Balance Provisions Claims Estimates Balance
June 30, 2003 $ 170,000 $ 177,000 $ (159,000) $ (29,000) $ 159,000
June 30, 2002 $ 110,000 $ 224,000 $ (224,000) $ 2,000 $ 112,000
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
items from the Company's consolidated statements of operations. Percentage
amounts may not total due to rounding.
- ------------------------------------------------------------------------- -------------------------------------
Percent (%) Percent (%) Percent (%) Percent (%)
of Revenues Incr/(Decr) of Revenues Incr/(Decr)
Three Months Ended Between Six Months Ended Between
June 30, Periods June 30, Periods
- ------------------------------------------------------------------------- -------------------------------------
2003 2002 2003 vs. 2002 2003 2002 2003 vs. 2002
- ------------------------------------------------------------------------- -------------------------------------
Revenues 100.0 100.0 3.9 100.0 100.0 9.6
Cost of revenues (50.5) (50.4) 4.1 (50.4) (51.1) 8.2
- ------------------------------------------------------------------------- -------------------------------------
Gross profit 49.5 49.6 3.7 49.6 48.9 11.2
Operating expenses:
Research and development (7.2) (8.2) (8.5) (7.3) (8.5) (6.1)
Selling, general and admin (22.1) (20.3) 12.8 (22.4) (21.6) 13.7
- ------------------------------------------------------------------------- -------------------------------------
Operating income 20.2 21.0 (0.3) 19.9 18.8 16.2
Other income, net 1.0 2.0 (50.3) 1.0 2.1 (48.4)
- ------------------------------------------------------------------------- -------------------------------------
Income before income taxes 21.1 23.0 (4.6) 20.8 20.8 9.8
Income tax expense (7.7) (8.4) (4.6) (7.6) (7.6) 9.8
- ------------------------------------------------------------------------- -------------------------------------
Net income 13.4 14.6 (4.6) 13.2 13.3 9.8
- ------------------------------------------------------------------------- -------------------------------------
CRITICAL ACCOUNTING POLICIES.
-----------------------------
Management utilizes its technical knowledge, cumulative business
experience, judgment and other factors in the selection and application
of the Company's accounting policies. The following accounting policies
are considered by management to be the most critical to the
presentation of the consolidated financial statements because they
require the most difficult, subjective and complex judgments:
REVENUE RECOGNITION. Revenue for product sales, including hardware and
consumables, which are bundled together for shipment to the
customer, is recognized on shipment, at which point the
following criteria of SAB Topic 13(A)(1) have been satisfied:
o Persuasive evidence of an arrangement exists - orders are
received for all sales, and sales invoices are mailed on
shipment.
o Delivery has occurred. Product has been transferred to the
customer or the customer's designated delivery agent.
o The vendor's price is fixed or determinable. All sales
prices are fixed at the time of the sale (shipment).
o Collectibility is probable. All sales are made on the basis
that collection is expected in line with our standard net 30
days' terms.
We accrue for warranty costs and sales returns at the time of shipment
based upon past experiences.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Revenue for maintenance agreements is recognized on a straight line
basis over the life of the contracts (commencing once the period
covered by standard warranty expires) based on renewal prices.
REVENUE ARRANGEMENTS WITH MULTIPLE DELIVERABLES. EITF 00-21, "Revenue
Arrangements with Multiple Deliverables" provides revenue recognition
guidance for arrangements with multiple deliverables, and the criteria
to determine if items in a multiple deliverable agreement should be
accounted for separately. In some arrangements, the different
revenue-generating activities are sufficiently separable and there
exists sufficient evidence of their fair values to separately account
for some or all of the activities. In other arrangements, some or all
of the deliverables are not independently functional, or there is not
sufficient evidence of their fair values to account for them
separately. This issue addresses when and, if so, how an arrangement
involving multiple deliverables should be divided into separate units
of accounting. This issue does not change otherwise applicable revenue
recognition criteria. The guidance in this issue is effective for
revenue arrangements entered into in fiscal periods beginning after
June 15, 2003. The Company does not expect the adoption of EITF 00-21
to have a material effect on its financial statements, as it does not
lead to a change in the allocation of revenue between the different
elements of a sale, when applied to the Company.
ALLOWANCE FOR DOUBTFUL ACCOUNTS AND SALES RETURNS. The Company records
a reserve for accounts receivable that are potentially uncollectible.
The reserve is established by estimating the amounts that are
potentially uncollectible based on a review of customer accounts, the
age of the receivable, the customer's financial condition and industry,
and general economic conditions. The Company also records a reserve for
sales returns from its customers. The amount of the reserve is based
upon historical trends, timing of new product introductions and other
factors. Results could be materially different if economic conditions
worsened for the Company's customers.
INVENTORY RESERVES. The Company records reserves for inventory
shrinkage and for potentially excess, obsolete and slow moving
inventory. The amounts of these reserves are based upon historical loss
trends, inventory levels, physical inventory and cycle count
adjustments, expected product lives and forecasted sales demand. During
the three- and six-month periods ended June 30, 2003, obsolescence
charges of approximately $25,000 and $140,000, respectively, were taken
on Desktop inventory due to the anticipated introduction of the new
Desktop line of products. Results could be materially different if
demand for the Company's products decreased because of economic or
competitive conditions, or if products became obsolete because of
technical advancements in the industry or by the Company.
DEFERRED TAX ASSETS. The Company recognizes deferred tax assets for the
expected future tax impact of temporary differences between book and
taxable income. A valuation allowance and income tax charge are
recorded when, in management's judgment, realization of a specific
deferred tax asset is uncertain. Income tax expense could be materially
different from actual results because of changes in management's
expectations regarding future taxable income, the relationship between
book and taxable income and tax planning strategies employed by the
Company.
WARRANTY RESERVES. The Company's non-consumable products are warranted
to the end-user to ensure end-user confidence in design, workmanship,
and overall quality. Warranty lengths vary by
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
product type, ranging from periods of six to twelve months. Warranty
covers parts, labor, and other associated expenses. The Company
performs the majority of warranty work, while authorized distributors
and dealers also perform some warranty work. Warranty expense is
accrued at the time of sale based on analysis of historical claims
experience, which includes labor and parts costs and the proportion of
parts that can be re-used.
RESULTS OF OPERATIONS
---------------------
REVENUES. Revenues increased 3.9% to $12.8 million and 9.6% to $24.3
million for the three- and six-month periods ended June 30, 2003,
respectively, from $12.3 million and $22.2 million for the same
prior-year periods. The increase in revenues was primarily due to
increased volume of producer line sales totaling $1.3 million and $2.4
million for the three- and six-month periods ended June 30, 2003 from
our European operation offset by decreased desktop line sales of
$115,000 and $634,000 for the three- and six-month periods ended June
30, 2003, respectively. The percentage increase for the three-month
period ended June 30, 2003 was impacted by the $2.0 million sale to
Kodak's Qualex wholesale photo finishing labs during the three-month
period ended June 30, 2002. Without this sale, the percentage increase
would have been 24.1% for the three-month period ended June 30, 2003.
The increase in revenues was also due to the positive impact on our
European operations of the weakening U.S. dollar.
As of and for the six months ended June 30, 2003, foreign revenues from
unaffiliated customers, operating income, and net identifiable assets
were $8,992,000, $306,000 and $5,462,000, respectively. As of and for
the six months ended June 30, 2002, foreign revenues from unaffiliated
customers, operating income, and net identifiable assets were
$6,453,000, $214,000 and $3,699,000, respectively. The growth is due to
increasing penetration in the European markets of sales of CD-R and
DVD-R products.
GROSS PROFIT. Gross profit as a percent of revenues was 49.5% and 49.6%
for the three- and six- month periods ended June 30, 2003,
respectively, compared to 49.6% and 48.9% for the same prior- year
periods. The increase during the six-month period ended June 30, 2003
was primarily due to the larger percentage of producer line product
sales, which generally carry a slightly higher margin than our desktop
line of products.
OPERATING EXPENSES. Selling, general and administrative expenses during
the three- and six-month periods ended June 30, 2003 were $2.8 million
or 22.1% of revenues and $5.5 million or 22.4% of revenues,
respectively compared to $2.5 million or 20.3% of revenues and $4.8
million or 21.6% of revenues during the same prior year periods. These
increases in expense are due to increased legal expenses, increased
wages due to increased commissions paid on sales and increased co-op
marketing program expenses offset by a decrease in advertising expenses
during the three- and six-month periods ended June 30, 2003. Research
and development expense during the three- and six-month periods ended
June 30, 2003 were $927,000 or 7.2% of revenues and $1.8 million or
7.3% of revenues, respectively compared to $1.0 million or 8.2% of
revenues and $1.9 million or 8.5% of revenues during the same periods
of 2002. This decrease is due to lower development cost related to new
product development during 2003 versus 2002.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
OTHER INCOME/(EXPENSE). The Company recognized net interest income on
cash investments of $134,000 and $271,000 during the three- and
six-month periods ended June 30, 2003 compared to $223,000 and $436,000
during the same prior year periods. This decrease is due to a decrease
in interest rates. Also included in other income, the Company
recognized a $9,000 gain and $13,000 loss on foreign currency exchange
for both the three- and six-month periods ended June 30, 2003 compared
to a gain of $21,000 during the same prior year periods.
INCOME BEFORE INCOME TAXES. Income before income taxes during the
three- and six-month periods ended June 30, 2003 were $2.7 million or
21.1% of revenues and $5.1 million or 20.8% of revenues, respectively
compared to $2.8 million or 23.0% of revenues and $4.6 million or 20.8%
of revenues during the same prior year periods. The decrease for the
three-month period ended June 30, 2003 is due primarily to the decrease
in net interest income earned on cash investments. The increase for the
six-month period ended June 30, 2003 is due to increased U.S. and
European channel sales of equipment and consumables and the positive
effect of the strengthening Euro on our European operation offset by
the decrease in net interest income earned on cash investments.
INCOME TAXES. The provision for income taxes represents federal, state,
and foreign income taxes on earnings before income taxes. Income tax
expense for the three- and six-month periods ended June 30, 2003
amounted to $1.0 million and $1.9 million or 36.5% of income before
income taxes, respectively. The Company anticipates an effective tax
rate of 36.5% for the remainder of 2003. Income tax expense for the
three- and six-month periods ended June 30, 2002 amounted to $1.0
million and $1.7 million or 36.5%, of income before income taxes,
respectively.
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. This credit agreement allows
for advances under a revolving loan up to a maximum advance of
$5,000,000. At June 30, 2003, there were no amounts outstanding under
the credit agreement.
Current assets are $52.0 million as of June 30, 2003 compared to $47.3
million as of December 31, 2002. The allowance for doubtful accounts as
a percentage of receivables was 10% and 9% as of June 30, 2003 and
December 31, 2002, respectively. Current liabilities remained
relatively unchanged at $6.4 million as of June 30, 2003 compared to
$6.6 million as of December 31, 2002.
Net cash provided by operating activities was $3.5 million and $4.5
million for the six months ended June 30, 2003 and 2002, respectively.
This decrease was primarily the result of stocking increased
inventories to prepare for the release of the new Desktop Line of
products and a decrease in accounts payables due to the timing of
payments offset by a decrease in accounts receivables due to improved
collection of receivables.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Net cash used in investing activities was $3.5 million and $10.4
million for the six months ended June 30, 2003 and 2002, respectively.
This decrease was primarily due to greater sales of marketable
securities offsetting increased purchases of marketable securities and
increased capital expenditures related to tooling and production setup
for the new Desktop products during the first six months of 2003. Net
cash provided by financing activities of $489,000 and $258,000 during
the six months ended June 30, 2003 and 2002, respectively, reflected
proceeds from stock option and warrant exercises.
The Company believes that inflation has not had a material impact on
its operations or liquidity to date.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve risks and
uncertainties. For this purpose, any statements contained in this
report that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, words such
as "may," "will," "expect," "believe," "anticipate," "estimate" or
"continue" or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve
substantial risks and uncertainties. The Company's actual results could
differ significantly from those discussed in the forward-looking
statements. Factors that could cause or contribute to such differences
include, but are not limited to, changes in media or method used for
distribution of software, technological changes in products offered by
the Company or its competitors and changes in general conditions in the
computer market, as well as other factors not now identified. These
forward-looking statements are made as of the date of this report and
the Company assumes no obligation to update such forward-looking
statements, or to update the reasons why actual results could differ
materially from those anticipated in such forward-looking statements.
14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has a policy of using forward exchange contracts to hedge
net exposures related to its foreign currency-denominated monetary
assets and liabilities. The primary objective of these hedging
activities is to maintain an approximately balanced position in foreign
currencies so that exchange gains and losses resulting from exchange
rate changes, net of related tax effects, are minimized. (See footnote
4.)
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer, Bernard P. Aldrich, and the
Company's Chief Financial Officer, Robert M. Wolf, have evaluated the
Company's disclosure controls and procedures as of the end of the
period covered by this report. Based upon such review, they have
concluded that these disclosure controls and procedures are effective
in ensuring that material information related to the Company is made
known to them by others within the Company.
(b) Changes in Internal Control Over Financial Reporting
There have been no significant changes in internal control over
financial reporting that occurred during the fiscal quarter covered by
this report that have materially affected, or are reasonable likely to
materially affect, the registrant's internal control over financial
reporting.
15
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not Applicable.
Item 2. Changes in Securities
---------------------
Not Applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company's Annual Meeting of Stockholders' was held on May
21, 2003. Of the 8,740,190 shares outstanding and entitled to
vote at the meeting, 7,582,420 shares were present, either in
person or by proxy. The following describes the matters
considered by the Company's shareholders at the Annual
Meeting, as well as the results of the votes cast at the
meeting:
1. To elect six (6) directors of the Company for the coming year.
Nominee In Favor Withheld
------- -------- --------
Bernard Aldrich 7,499,214 83,206
Lawrence Benveniste 7,512,514 69,906
Thomas Madison 7,455,164 127,256
Steven Quist 7,460,514 121,906
James Reissner 7,447,164 135,256
David Suden 7,512,514 69,906
2. Approval of the Amended and Restated 1992 Stock Option Plan.
In Favor Against Withheld Broker Non-Vote
-------- ------- -------- ---------------
3,355,062 472,783 8,801 3,745,774
Item 5. Other Information
-----------------
Not Applicable.
16
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
11.1 Calculation of Earnings Per Share.
31 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (Rules 13a-14 and
15d-14 of the Exchange Act).
32 Certifications pursuant Section 906 of the
Sarbanes-Oxley Act of 2002 (18
U.S.C.ss.1350).
(b) Reports on Form 8-K:
On April 23, 2003, the Company furnished a Form 8-K
reporting under Items 7 and 12 the issuance of a
press release and statements of certain of its
officers relating to the results of operations of the
Company for the quarter ended March 31, 2003.
17
SIGNATURES
----------
In accordance with the Exchange Act, this report has been signed below by
following persons on behalf of the registrant and on the dates indicated.
RIMAGE CORPORATION
Registrant
Date: August 14, 2003 By: /s/ Bernard P. Aldrich
------------------- ----------------------
Bernard P. Aldrich
Director,
Chief Executive Officer,
and President
(Principal Executive Officer)
Date: August 14, 2003 By: /s/ Robert M. Wolf
------------------- ------------------
Robert M. Wolf
Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)
18