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 July 2, 1996
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 0-21726
INTERNATIONAL IMAGING MATERIALS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3179629
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
310 Commerce Drive, Amherst, New York 14228
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(Address of Principal Executive Offices) (Zip Code)
(716) 691-6333
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(Registrant's Telephone Number, Including Area Code)
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
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At August 5, 1996, 8,661,291 shares of Common Stock of the Registrant were
outstanding.
INTERNATIONAL IMAGING MATERIALS, INC.
INDEX TO FORM 10-Q
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
July 2, 1996 (unaudited) and March 31, 1996 3
Consolidated Statements of Income (unaudited) for the
three months ended July 2, 1996 and July 4, 1995 4
Consolidated Statements of Cash Flows (unaudited) for the
three months ended July 2, 1996 and July 4, 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
EXHIBIT INDEX 11
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JULY 2, MARCH 31,
1996 1996
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(IN THOUSANDS, EXCEPT SHARE AND
ASSETS PER SHARE AMOUNTS)
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Current assets:
Cash and cash equivalents $ 335 $ 570
Trade receivables 13,826 16,157
Inventories:
Raw materials 7,015 9,397
Work in process 3,246 3,627
Finished goods 5,349 4,839
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Total inventories 15,610 17,863
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Prepaid expenses 824 635
Deferred income taxes 1,490 1,467
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Total current assets 32,085 36,692
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Property, plant and equipment, at cost:
Land 1,170 1,163
Buildings and improvements 10,924 10,924
Equipment 65,566 64,362
Construction in progress 21,552 17,194
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99,212 93,643
Less accumulated depreciation 23,290 21,826
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Net property, plant and equipment 75,922 71,817
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Other assets 8,008 6,952
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$116,015 $115,461
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Notes payable to banks 16,397 16,292
Current installments of long-term debt 1,529 1,674
Trade accounts payable 3,200 8,126
Accrued compensation and benefits 611 338
Payable to Fujicopian Co., Ltd., a related party 1,855 1,184
Other accrued liabilities 1,367 1,132
Income taxes payable 226 ---
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Total current liabilities 25,185 28,746
Long-term debt, excluding current installments 1,844 2,259
Deferred income taxes 6,733 6,336
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Total liabilities 33,762 37,341
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Stockholders' equity:
Preferred stock; $.01 par value; 5,000,000 shares
authorized; none issued --- ---
Common stock; $.01 par value; 30,000,000 shares
authorized; 8,839,587 and 8,855,301 shares issued
as of July 2, 1996 and March 31, 1996, respectively 88 89
Additional paid-in capital 51,852 53,037
Unearned compensation - restricted stock award (604) (692)
Notes receivable from exercise of stock options and warrants (1,138) (1,219)
Retained earnings 35,225 32,394
Treasury stock, 179,221 and 310,400 shares, at cost as of
July 2, 1996 and March 31, 1996, respectively (3,170) (5,489)
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Total stockholders' equity 82,253 78,120
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$116,015 $115,461
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See accompanying notes to consolidated financial statements
3
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
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JULY 2, JULY 4,
1996 1995
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(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
Revenues $25,003 $19,001
Cost of goods sold 17,479 13,584
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Gross profit 7,524 5,417
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Operating expenses:
Research and development 848 690
Selling 1,136 898
General and administrative 1,055 925
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Total operating expenses 3,039 2,513
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Operating income 4,485 2,904
Other expense 130 42
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Income before income taxes 4,355 2,862
Income taxes 1,524 1,031
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Net income $ 2,831 $ 1,831
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Net income per share of common stock $0.32 $0.20
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Weighted average common shares outstanding 8,942 9,321
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See accompanying notes to consolidated financial statements
4
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
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JULY 2, JULY 4,
1996 1995
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(IN THOUSANDS)
Cash flows from operating activities:
Net income $ 2,831 $ 1,831
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Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Depreciation and amortization 1,881 1,312
Deferred income taxes 626 399
Other noncash provisions 97 70
Reduction in income tax payable from the exercise of options and warrants 393 564
Cash provided (used) by changes in:
Trade receivables 2,322 (1,073)
Inventories 2,253 (802)
Prepaid expenses (189) (83)
Other assets (303) 10
Trade accounts payable (2,876) (2,078)
Accrued compensation and benefits 273 (553)
Payable to Fujicopian Co., Ltd. 701 (298)
Other accrued liabilities 235 (332)
Income taxes payable 226 (1,273)
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Total adjustments 5,639 (4,137)
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Net cash provided (used) by operating activities 8,470 (2,306)
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Cash flows provided (used) by investing activities:
Capital expenditures (7,670) (4,098)
Maturities of securities --- 3,468
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Net cash used in investing activities (7,670) (630)
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Cash flows provided (used) by financing activities:
Proceeds from sale of common stock 24 30
Exercise of stock options and warrants:
Proceeds 545 18
Notes received from officers and director (1,149) (1,873)
Proceeds from note payable 105 2,506
Repayments of long-term debt (560) (571)
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Net cash provided (used) by financing activities (1,035) 110
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Net decrease in cash and cash equivalents (235) (2,826)
Cash and cash equivalents at beginning of period 570 3,559
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Cash and cash equivalents at end of period $ 335 $ 733
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of amount capitalized 102 77
Income taxes $ 31 $ 1,341
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Supplemental disclosure of noncash investing and financing activities:
Decrease in liabilities incurred in connection with capital expenditures (2,080) (589)
Notes received from exercise of stock options and warrants --- 273
Common stock surrendered $ 240 $ 671
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See accompanying notes to consolidated financial statements
5
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ADJUSTMENTS
In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements contain all normal recurring adjustments
necessary for a fair presentation of the Company's consolidated financial
position as of July 2, 1996 and consolidated results of operations for the three
month periods ended July 2, 1996 and July 4, 1995 and consolidated cash flows
for the three month periods ended July 2, 1996 and July 4, 1995. Consolidated
results of operations for the three month periods ended July 2, 1996 are not
necessarily indicative of results to be expected for the full year ending March
31, 1997.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
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COMPARISON OF THE QUARTER ENDED JULY 2, 1996 WITH THE QUARTER ENDED JULY 4, 1995
Revenues in the three months ended July 2, 1996 were $25.0 million, an
increase of 31.6% from $19.0 million in the three months ended July 4, 1995.
The Company sells its ribbons primarily to printer original equipment
manufacturers, which in turn sell the ribbons under their own brand names to
end-users, either directly or through distributors and value-added resellers.
Revenues from OEM customers in the three months ended July 2, 1996 were $17.9
million, comprised 71.5% of total revenues, and increased 19.6% from $14.9
million in the three months ended July 4, 1995. This increase primarily reflects
the transfer from Fujicopian to the Company of ribbon production for a
significant color ribbon program and new product lines introduced by the Company
to existing tag and label customers.
The Company also sells its ribbons directly to distributors and dealers
where such sales do not adversely affect the Company's OEM customers. Revenues
from domestic distributors in the three months ended July 2, 1996 were $6.3
million, comprised 25.3% of total revenues, and increased 63.3% from $3.9
million in the three months ended July 4, 1995. In September 1995, the Company
acquired the thermal transfer supplies business from one of its OEM customers,
QMS Inc., and began selling ribbons and other thermal transfer supplies under
the QMS brand name directly to distributors, dealers and end-users. The higher
selling prices for ribbons and other items included in the QMS supplies
business, the addition of several new significant tag and label customers, and
end-user migration towards this distributor channel from the OEM channel as the
market for tag and label ribbons matures contributed to this growth.
Revenues from international distributors in the three months ended July 2,
1996 were $813,000, comprised 3.3% of total revenues, and increased 330.2% from
$189,000 in the three months ended July 4, 1995. The rapid expansion of the
market for tag and label printing in South America, and the Company's marketing
programs targeting these opportunities, were principally responsible for the
addition of several new customers and the corresponding sales increase.
Gross margin was 30.1% of revenues in the three months ended July 2, 1996
as compared to 28.5% in the three months ended July 4, 1995. This improvement
primarily resulted from increased leverage of fixed overhead costs and
production efficiencies from the higher sales volume, higher margins on the QMS
thermal transfer supplies business and the stronger U.S. dollar for product
purchased from Japan.
Operating expenses were $3.0 million in the three months ended July 2,
1996, an increase of $526,000 from $2.5 million in the three months ended July
4, 1995. Personnel additions in research and development and sales and
marketing as investments in future revenue growth, as well as the creation of a
telemarketing capability for QMS thermal transfer supplies, contributed to this
expense increase.
Other expense was $130,000 in the three months ended July 2, 1996, an
increase of $88,000 from $42,000 in the three months ended July 4, 1995. This
increase reflects the expensing of current interest charges on the Company's
lines of credit subsequent to the completion of construction of the Company's
new manufacturing facility in April 1996. Interest charges incurred on the
Company's lines of credit in the three months ended July 4, 1995 were
capitalized as part of the cost of the facility.
Weighted average common shares outstanding in the three months ended July
2, 1996 were 8.9 million shares, a decrease of 379,000 shares from 9.3 million
shares in the three months ended July 4, 1995. This decrease primarily resulted
from the repurchase of 315,400 share on the open market during February and
March 1996.
7
Liquidity and Capital Resources
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The Company's financial condition remained strong, with long-term debt
comprising only 2.2% of total capitalization at July 2, 1996. During the three
months ended July 2, 1996, $8.5 million of cash provided by operating activities
was used to fund $7.7 million of capital expenditures primarily related to the
construction and purchase of equipment for the Company's new 100,000 square foot
manufacturing facility. The Company also loaned officers $1.1 million for their
income taxes related to the exercise of non-qualified stock options. Trade
accounts payable decreased $4.9 million in the three months ended July 2, 1996
due primarily to payments for capital expenditures and reductions in raw
material purchases in order to reduce inventory levels.
The Company expects to spend approximately $6.5 million on capital
expenditures during the remainder of fiscal 1997. The Company had available
borrowing capacity under lines of credit with two banks of $13.6 million at July
2, 1996. The Company anticipates funding its capital expenditures program and
its working capital requirements, in addition to repaying approximately $12.0
million of the $16.4 million balance on its lines of credit, with cash generated
by operating activities in fiscal 1997. The Company believes that internally
generated cash will be more than sufficient to fully repay the lines of credit
and fund working capital, capital expenditures and debt service requirements in
fiscal 1998.
8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
11 Statement re: Calculation of Net Income Per Share of Common Stock.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended July 2, 1996.
9
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
INTERNATIONAL IMAGING MATERIALS, INC.
Date: 8/12/96 /s/ JOHN W. O'LEARY
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John W. O'Leary
President and
Chief Executive Officer
Date: 8/12/96 /s/ MICHAEL J. DRENNAN
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Michael J. Drennan
Vice President - Finance,
Treasurer, Secretary and
Chief Financial Officer
10
EXHIBIT INDEX
Exhibit Number Description Page
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11 Calculation of Net Income per Share of Common Stock 12
27 Financial Data Schedule 13
11