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 October 1, 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.
-------------------------------------
(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 October 25, 1996, 8,722,891 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 (unaudited) as of
October 1, 1996 and March 31, 1996 3
Consolidated Statements of Income (unaudited) for the
three and six months ended October 1, 1996 and October 3, 1995 4
Consolidated Statements of Cash Flows (unaudited) for the
six months ended October 1, 1996 and October 3, 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 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
EXHIBIT INDEX 12
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
OCTOBER 1, MARCH 31,
1996 1996
---------------- -----------------
(IN THOUSANDS, EXCEPT SHARE AND
ASSETS PER SHARE AMOUNTS)
------
Current assets:
Cash and cash equivalents $ 1,186 $ 570
Trade receivables 15,736 16,157
Inventories:
Raw materials 5,485 9,397
Work in process 3,907 3,627
Finished goods 5,594 4,839
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Total inventories 14,986 17,863
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Prepaid expenses 771 635
Deferred income taxes 1,513 1,467
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Total current assets 34,192 36,692
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Property, plant and equipment, at cost:
Land 1,171 1,163
Buildings and improvements 20,773 10,924
Equipment 74,208 64,362
Construction in progress 5,074 17,194
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101,226 93,643
Less accumulated depreciation 24,880 21,826
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Net property, plant and equipment 76,346 71,817
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Other assets 7,708 6,952
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$118,246 $115,461
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable to banks 13,300 16,292
Current installments of long-term debt 1,384 1,674
Trade accounts payable 4,649 8,126
Accrued compensation and benefits 641 338
Payable to Fujicopian Co., Ltd., a related party 2,428 1,184
Other accrued liabilities 1,272 1,132
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Total current liabilities 23,674 28,746
Long-term debt, excluding current installments 1,569 2,259
Deferred income taxes 7,307 6,336
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Total liabilities 32,550 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 October 1, 1996 and March 31, 1996, respectively 88 89
Additional paid-in capital 51,640 53,037
Unearned compensation - restricted stock award (551) (692)
Notes receivable from exercise of stock options and warrants (1,138) (1,219)
Retained earnings 38,095 32,394
Treasury stock, 136,696 and 310,400 shares, at cost as of
October 1, 1996 and March 31, 1996, respectively (2,438) (5,489)
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Total stockholders' equity 85,696 78,120
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$118,246 $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 SIX MONTHS ENDED
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OCTOBER 1, OCTOBER 3, OCTOBER 1, OCTOBER 3,
1996 1995 1996 1995
------------ ------------ ------------ -----------
(IN THOUSANDS, EXCEPT PER (IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS) SHARE AMOUNTS)
Revenues $26,851 $21,223 $51,854 $40,224
Cost of goods sold 19,013 15,014 36,492 28,598
------- ------- ------- -------
Gross profit 7,838 6,209 15,362 11,626
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Operating expenses:
Research and development 877 856 1,725 1,546
Selling 1,273 971 2,409 1,869
General and administrative 1,067 924 2,122 1,849
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Total operating expenses 3,217 2,751 6,256 5,264
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Operating income 4,621 3,458 9,106 6,362
Other expense 205 (1) 335 41
------- ------- ------- -------
Income before income taxes 4,416 3,459 8,771 6,321
Income taxes 1,546 1,246 3,070 2,277
------- ------- ------- -------
Net income $ 2,870 $ 2,213 $ 5,701 $ 4,044
======= ======= ======= =======
Net income per share of common stock $0.32 $0.24 $0.64 $0.43
======= ======= ======= =======
Weighted average common shares outstanding 8,978 9,327 8,932 9,325
======= ======= ======= =======
See accompanying notes to consolidated financial statements
4
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
------------------------
OCTOBER 1, OCTOBER 3,
1996 1995
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(IN THOUSANDS)
Cash flows from operating activities:
Net income $ 5,701 $ 4,044
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Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,915 2,707
Deferred income taxes 1,262 836
Other noncash provisions 160 140
Reduction in income tax payable from the exercise of options and warrants 526 826
Cash provided (used) by changes in:
Trade receivables 403 27
Inventories 2,877 (2,373)
Prepaid expenses (136) (230)
Other assets (352) 26
Trade accounts payable (1,539) (1,430)
Accrued compensation and benefits 303 (474)
Payable to Fujicopian Co., Ltd. 1,282 248
Other accrued liabilities 140 (56)
Income taxes payable --- (831)
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Total adjustments 8,841 (584)
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Net cash provided by operating activities 14,542 3,460
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Cash flows used in investing activities:
Capital expenditures (9,675) (9,377)
Payments to acquire other assets --- (5,575)
Maturities of securities --- 3,468
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Net cash used in investing activities (9,675) (11,484)
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Cash flows from financing activities:
Proceeds from sale of common stock 42 56
Exercise of stock options and warrants:
Proceeds 828 136
Notes received from officers (1,149) (2,172)
Proceeds from (repayment of) notes payable to banks (2,992) 7,500
Repayments of long-term debt (980) (998)
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Net cash provided (used) by financing activities (4,251) 4,522
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Net increase (decrease) in cash and cash equivalents 616 (3,502)
Cash and cash equivalents at beginning of period 570 3,559
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Cash and cash equivalents at end of period $ 1,186 $ 57
======= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of amount capitalized 356 92
Income taxes $ 1,107 $ 1,446
======= ========
Supplemental disclosure of noncash investing and financing activities:
Decrease in liabilities incurred in connection with capital expenditures (1,976) (354)
Notes received from exercise of stock options and warrants --- 448
Common stock surrendered for repayment of notes receivable 240 671
Issuance of restricted common stock $ 1 $ 58
======= ========
See accompanying notes to consolidated financial statements
5
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
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 October 1, 1996 and consolidated results of operations for the
three and six month periods ended October 1, 1996 and October 3, 1995 and
consolidated cash flows for the six month periods ended October 1, 1996 and
October 3, 1995. Consolidated results of operations for the three and six month
periods ended October 1, 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 OCTOBER 1, 1996 WITH THE QUARTER ENDED OCTOBER
3, 1995
Revenues in the three months ended October 1, 1996 were $26.9 million, an
increase of 26.5% from $21.2 million in the three months ended October 3, 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 October 1, 1996 were
$20.1 million, comprised 75.0% of total revenues, and increased 21.6% from $16.6
million in the three months ended October 3, 1995. This increase primarily
reflects the transfer of ribbon production for a significant color ribbon
program from Fujicopian to the Company, new product introduced by the Company to
existing tag and label customers in North America and increased sales of
existing products outside of North America.
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 October 1, 1996 were $6.3
million, comprised 23.4% of total revenues, and increased 38.9% from
$4.5 million in the three months ended October 3, 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 October
1, 1996 were $427,000, comprised 1.6% of total revenues and increased 202.8%
from $141,000 in the three months ended October 3, 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 29.2% of revenues in the three months ended October 1,
1996, as compared to 29.3% in the three months ended October 3, 1995. The
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 benefit from the stronger U.S. dollar for product purchased
from Japan offset the incremental operating expenses from the new manufacturing
facility opened during the three months ended July 2, 1996.
Operating expenses were $3.2 million in the three months ended October 1,
1996, an increase of $466,000 from $2.8 million in the three months ended
October 3, 1995. Personnel additions in sales and marketing, including the
creation of a telemarketing capability for QMS thermal transfer supplies, and
increased advertising to maximize revenue from new products and identify
opportunities for future products were primarily responsible for the increase.
Other expense was $205,000 in the three months ended October 1, 1996, an
increase of $206,000 from $1,000 of other income in the three months ended
October 3, 1995. This increase reflects the expensing of current interest
charges on the Company's lines of credit in the three months ended October 1,
1996. Interest charges incurred on the Company's lines of credit in the three
months ended October 3, 1995 were capitalized as part of the cost of
construction of the new manufacturing facility.
7
Weighted average common shares outstanding were 9.0 million shares in the
three months ended October 1, 1996, a decrease of 349,000 shares from 9.3
million shares in the three months ended October 3, 1995. This decrease
primarily resulted from the repurchase of 315,400 shares on the open market
during February and March 1996.
COMPARISON OF THE SIX MONTHS ENDED OCTOBER 1, 1996 WITH THE SIX MONTHS ENDED
OCTOBER 3, 1995
Revenues in the six months ended October 1, 1996 were $51.9 million, an
increase of 28.9% from $40.2 million in the six months ended October 3, 1995.
Revenues from OEM customers in the six months ended October 1, 1996 were
$38.0 million, comprised 73.3% of total revenues, and increased 20.7% from $31.5
million in the six months ended October 3, 1995. This increase primarily
reflects the transfer of ribbon production for a significant color ribbon
program from Fujicopian to the Company, new products introduced by the Company
to existing tag and label customers in North America and increased sales of
existing products outside of North America.
Revenues from domestic distributors in the six months ended October 1, 1996
were $12.6 million, comprised 24.3% of total revenues and increased 50.2% from
$8.4 million in the six months ended October 3, 1995. 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 six months ended October 1,
1996 were $1.2 million, comprised 2.4% of total revenues, and increased 275.8%
from $330,000 in the six months ended October 3, 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 29.6% in the six months ended October 1, 1996 as compared
to 28.9% in the six months ended October 3, 1995. The 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 benefit
from the stronger U.S. Dollar for product purchased from Japan more than offset
the incremental operating expenses from the new manufacturing facility opened
during the three months ended July 2, 1996.
Operating expenses were $6.3 million in the six months ended October 1,
1996, an increase of $1.0 million from $5.3 million in the six months ended
October 3, 1995. Personnel additions in sales and marketing, including the
creation of the telemarketing capability for QMS thermal transfer supplies, and
increased advertising to maximize revenue from new products and identify
opportunities for future products were primarily responsible for the increase.
Personnel additions in research and development to create new products for
future revenue growth also contributed to the increase.
Other expense was $335,000 in the six months ended October 1, 1996, an
increase of $294,000 from $41,000 in the six months ended October 3, 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 six months ended October 3, 1995 were
capitalized as part of the cost of the facility.
Weighted average common shares outstanding were 8.9 million shares in the
six months ended October 1, 1996, a decrease of 393,000 shares from 9.3 million
shares in the six months ended October 3, 1995. This decrease primarily
resulted from the repurchase of 315,400 shares on the open market during
February and March 1996.
8
Liquidity and Capital Resources
- -------------------------------
The Company's financial condition remained strong, with long-term debt
comprising only 1.8% of total capitalization at October 1, 1996. During the six
months ended October 1, 1996, $14.5 million of cash provided by operating
activities was used to fund $9.7 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 repaid $4.0
million of debt during the six-month period, consisting of $3.0 million repaid
on its lines of credit and $1.0 million of scheduled repayments on its long-term
facilities. Raw material inventories decreased $3.9 million in the six months
ended October 1, 1996, primarily due to a reduction in polyester film.
The Company expects to spend approximately $4.5 million on capital
expenditures during the remainder of fiscal 1997. The Company had available
borrowing capacity on lines of credit with two banks of $16.7 million at October
1, 1996. The Company anticipates funding its capital expenditure program and
its working capital requirements, in addition to repaying approximately $8.0
million of the $13.3 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.
9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the stockholders of the company was held on August 21,
1996 for the purpose of electing three Class I Directors to the Board of
Directors of the Company.
The Holders of the Company's common stock elected Michael J. Downey, Ronald J.
Kubovcik and Donald D. Lennox as Class I Directors, each with 6,769,513 shares
voting for their election and 128,720 shares withholding authority for their
election.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
10.1 License Agreement, dated September 18, 1996, between Fujicopian
Co. Ltd. and the registrant.
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 October 1,
1996.
10
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: 11/11/96 /s/ JOHN W. O'LEARY
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John W. O'Leary
President and
Chief Executive Officer
Date: 11/11/96 /s/ MICHAEL J. DRENNAN
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Michael J. Drennan
Vice President - Finance,
Treasurer, Secretary and
Chief Financial Officer
11
EXHIBIT INDEX
Exhibit Number Description Page
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10.1 License Agreement, dated September 18, 1996, 13
between Fujicopian Co. Ltd. and the
registrant.
11 Calculation of Net Income per Share of 45
Common Stock
27 Financial Data Schedule 46
12