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, 2005; OR |
| |
| o |
|
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
incorporation or organization) |
(I.R.S. Employer Identification No.) |
7725 Washington Avenue South, Edina, MN 55439
|
| (Address of principal executive offices) |
952-944-8144
|
| (Registrant’s telephone number, including area code) |
NA
|
| (Former name, former address, and former fiscal year, if changed since last report.) |
Common Stock outstanding at July 31, 2005 – 9,534,056 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 X No
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
1
RIMAGE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED JUNE 30, 2005
2
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2005 and December 31, 2004
| Assets | | |
June 30,
2005
(unaudited) | |
December 31,
2004 |
|
| Current assets: |
|
|
| |
|
| |
|
| Cash and cash equivalents | | |
$ | 22,678,219 |
|
$ | 13,320,681 |
|
| Marketable securities | | |
| 33,390,849 |
|
| 39,174,799 |
|
| Trade accounts receivable, net of allowance for doubtful accounts | | |
| and sales returns of $579,000 and $600,000, respectively | | |
| 11,197,973 |
|
| 10,183,814 |
|
| Inventories | | |
| 7,554,771 |
|
| 7,395,689 |
|
| Prepaid expenses and other current assets | | |
| 1,123,811 |
|
| 462,214 |
|
| Deferred income taxes - current | | |
| 1,127,642 |
|
| 1,127,642 |
|
|
| Total current assets | | |
| 77,073,265 |
|
| 71,664,839 |
|
|
| |
| Property and equipment, net | | |
| 2,809,867 |
|
| 2,386,494 |
|
| Other non-current assets | | |
| 54,167 |
|
| 86,667 |
|
|
| Total assets | | |
$ | 79,937,299 |
|
$ | 74,138,000 |
|
|
| Liabilities and Stockholders’ Equity | | |
|
| Current liabilities: |
| Trade accounts payable | | |
$ | 5,415,647 |
|
$ | 4,717,073 |
|
| Accrued compensation | | |
| 2,076,929 |
|
| 2,300,009 |
|
| Other accrued expenses | | |
| 1,619,115 |
|
| 1,121,370 |
|
| Income taxes payable | | |
| 365,777 |
|
| 1,100,257 |
|
| Deferred income and customer deposits | | |
| 2,103,452 |
|
| 1,821,057 |
|
| Other current liabilities | | |
| 11,525 |
|
| 217,640 |
|
|
| Total current liabilities | | |
| 11,592,445 |
|
| 11,277,406 |
|
| |
| Long-term liabilities: |
| Deferred taxes | | |
| 122,932 |
|
| 122,932 |
|
| Other non-current liabilities | | |
| 19,238 |
|
| 16,317 |
|
|
| Total long-term liabilities | | |
| 142,170 |
|
| 139,249 |
|
|
| |
| Total liabilities | | |
| 11,734,615 |
|
| 11,416,655 |
|
| |
| Stockholders’ equity: | | |
| Preferred stock, $.01 par value, authorized 250,000 shares, |
| no shares issued and outstanding | | |
| — |
|
| — |
|
| Common stock, $.01 par value, authorized 29,750,000 shares, | | |
| issued and outstanding 9,502,420 and 9,365,479, respectively | | |
| 95,024 |
|
| 93,655 |
|
| Additional paid-in capital | | |
| 20,425,952 |
|
| 19,677,692 |
|
| Retained earnings | | |
| 47,850,476 |
|
| 42,871,670 |
|
| Accumulated other comprehensive income (loss) | | |
| (168,768 |
) |
| 78,328 |
|
|
| Total stockholders’ equity | | |
| 68,202,684 |
|
| 62,721,345 |
|
|
| |
| Commitments and contingencies |
| |
| Total liabilities and stockholders’ equity | | |
$ | 79,937,299 |
|
$ | 74,138,000 |
|
|
See accompanying condensed notes to consolidated financial statements
3
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
|
Three Months Ended
June 30, | |
Six Months Ended
June 30, |
|
2005 | |
2004 | |
2005 | |
2004 |
|
| Revenues |
|
|
$ | 22,306,863 |
|
$ | 17,630,729 |
|
$ | 43,182,161 |
|
$ | 32,074,427 |
|
| Cost of revenues | | |
| 12,661,706 |
|
| 9,563,962 |
|
| 23,926,655 |
|
| 16,934,136 |
|
|
| Gross profit | | |
| 9,645,157 |
|
| 8,066,767 |
|
| 19,255,506 |
|
| 15,140,291 |
|
|
| |
| Operating expenses: | | |
| Research and development | | |
| 1,499,407 |
|
| 1,227,038 |
|
| 2,778,029 |
|
| 2,351,930 |
|
| Selling, general and administrative | | |
| 4,786,577 |
|
| 3,658,327 |
|
| 9,146,637 |
|
| 6,869,046 |
|
|
| Total operating expenses | | |
| 6,285,984 |
|
| 4,885,365 |
|
| 11,924,666 |
|
| 9,220,976 |
|
|
| |
| Operating income | | |
| 3,359,173 |
|
| 3,181,402 |
|
| 7,330,840 |
|
| 5,919,315 |
|
|
| |
| Other income (expense): |
| Interest, net | | |
| 332,515 |
|
| 124,124 |
|
| 606,513 |
|
| 267,425 |
|
| Loss on currency exchange | | |
| (6,159 |
) |
| (14,293 |
) |
| (72,955 |
) |
| (23,968 |
) |
| Other, net | | |
| 7,424 |
|
| (92,578 |
) |
| 1,014 |
|
| (79,631 |
) |
|
| Total other income, net | | |
| 333,780 |
|
| 17,253 |
|
| 534,572 |
|
| 163,826 |
|
|
| |
| Income before income taxes | | |
| 3,692,953 |
|
| 3,198,655 |
|
| 7,865,412 |
|
| 6,083,141 |
|
| Income taxes | | |
| 1,405,383 |
|
| 1,167,509 |
|
| 2,886,606 |
|
| 2,220,346 |
|
|
| Net income | | |
$ | 2,287,570 |
|
$ | 2,031,146 |
|
$ | 4,978,806 |
|
$ | 3,862,795 |
|
|
| |
| Net income per basic share | | |
$ | 0.24 |
|
$ | 0.22 |
|
$ | 0.53 |
|
$ | 0.42 |
|
|
| |
| Net income per diluted share | | |
$ | 0.22 |
|
$ | 0.20 |
|
$ | 0.49 |
|
$ | 0.39 |
|
|
| |
| Basic weighted average shares outstanding | | |
| 9,490,910 |
|
| 9,313,162 |
|
| 9,456,683 |
|
| 9,255,964 |
|
|
| |
| Diluted weighted average shares and | | |
| assumed conversion shares | | |
| 10,214,125 |
|
| 9,941,572 |
|
| 10,152,471 |
|
| 9,942,095 |
|
|
See accompanying condensed notes to consolidated financial statements
4
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
|
Six months ended
June 30, |
|
2005 | |
2004 |
|
| Cash flows from operating activities: |
|
|
| |
|
| |
|
| Net income | | |
$ | 4,978,806 |
|
$ | 3,862,795 |
|
| Adjustments to reconcile net income to net cash |
| provided by operating activities: |
| Depreciation and amortization | | |
| 565,212 |
|
| 494,433 |
|
| Loss on disposal of property and equipment | | |
| 25,528 |
|
| 100,836 |
|
| Changes in operating assets and liabilities: | | |
| Trade accounts receivable | | |
| (1,014,159 |
) |
| (2,963,256 |
) |
| Inventories | | |
| (159,082 |
) |
| (1,407,759 |
) |
| Prepaid expenses and other current assets | | |
| (661,597 |
) |
| (51,981 |
) |
| Trade accounts payable | | |
| 698,574 |
|
| 1,707,975 |
|
| Accrued compensation | | |
| (223,080 |
) |
| (106,029 |
) |
| Other accrued expenses and other current liabilities | | |
| 287,880 |
|
| (243,456 |
) |
| Income taxes payable | | |
| (535,634 |
) |
| (42,216 |
) |
| Deferred income and customer deposits | | |
| 282,395 |
|
| (99,649 |
) |
|
| |
| Net cash provided by operating activities | | |
| 4,244,843 |
|
| 1,251,693 |
|
|
| |
| Cash flows from investing activities: | | |
| Purchases of marketable securities | | |
| (12,581,050 |
) |
| (6,020,335 |
) |
| Maturities of marketable securities | | |
| 18,365,000 |
|
| 13,919,541 |
|
| Purchases of property and equipment | | |
| (975,194 |
) |
| (692,364 |
) |
| Proceeds from sale of property and equipment | | |
| 5,480 |
|
| 60 |
|
| Other non-current assets | | |
| (91,092 |
) |
| (151,293 |
) |
|
| |
| Net cash provided by investing activities | | |
| 4,723,144 |
|
| 7,055,609 |
|
|
| |
| Cash flows from financing activities: |
| Principal payments on capital lease obligations | | |
| (5,228 |
) |
| — |
|
| Proceeds from stock option exercises | | |
| 550,783 |
|
| 417,505 |
|
|
| |
| Net cash provided by financing activities | | |
| 545,555 |
|
| 417,505 |
|
|
| |
| Effect of exchange rate changes on cash | | |
| (156,004 |
) |
| (36,805 |
) |
|
| |
| Net increase in cash and cash equivalents | | |
| 9,357,538 |
|
| 8,688,002 |
|
| |
| Cash and cash equivalents, beginning of period | | |
| 13,320,681 |
|
| 26,741,627 |
|
|
| |
| Cash and cash equivalents, end of period | | |
$ | 22,678,219 |
|
$ | 35,429,629 |
|
|
| |
| Supplemental disclosures of net cash paid during the period for: |
| Income taxes | | |
$ | 3,422,240 |
|
$ | 2,126,448 |
|
| |
| Supplemental disclosures of non cash financing activities during the period for: |
| Tax effect of disqualifying disposition of stock options | | |
$ | 198,846 |
|
$ | — |
|
The Company entered into capital lease obligations of $11,899 during the six months ended June 30, 2005.
See accompanying condensed notes to 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 from its
operations in the United States and Germany, and effective June 2005, Japan. The Company also distributes related consumables for
use with its systems, consisting of media kits, ribbons, ink cartridges and blank CD-R and DVD-R media. |
| |
The accompanying interim consolidated financial statements of
Rimage Corporation are unaudited and have been prepared by the Company in accordance with accounting principles generally accepted
in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and
Exchange Commission. Pursuant to such rules and regulations, certain financial information and footnote disclosures normally
included in the financial statements have been condensed or omitted. However, in the opinion of management, the financial
statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial
position and results of operations and cash flows of the interim periods presented. Certain previously reported amounts have been
reclassified to conform with the current presentation. Operating results for these interim periods are not necessarily indicative
of results to be expected for the entire year, due to seasonal, operating and other factors. These financial statements should be
read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2004. |
| |
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates. |
| (2) |
|
Marketable Securities |
| |
Marketable securities primarily consist of U.S. Treasury, money
market and municipal securities with long-term credit ratings of AAA and short-term credit ratings of A-1. All marketable
securities have maturities of twelve months or less and are classified as available-for-sale. Available-for-sale securities are
recorded at fair value and any unrealized holding gains and losses, net of the related tax effect, are excluded from earnings and
are reported as a separate component of accumulated other comprehensive income (loss) until realized. |
| (3) |
|
Stock Based Compensation |
| |
The Company applies APB No. 25 and related interpretations in
accounting for the issuance of stock incentives to employees and directors. Accordingly, no compensation expense related to
employees’ and directors’ stock incentives has been recognized in the financial statements as all options granted under
stock incentive plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Had
compensation costs for the Company’s stock incentive plans been determined based on the fair value of the awards on the date
of grant, consistent with the provisions of SFAS No. 123, the Company’s net income and basic and diluted earnings per share
for the three and six months ended June 30, 2005 and 2004 would have been adjusted to the proforma amounts stated below:
|
6
RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
|
Three Months
Ended
June 30, 2005 | |
Three Months
Ended
June 30, 2004 | |
Six Months
Ended
June 30, 2005 | |
Six Months
Ended
June 30, 2004 |
|
| Net income: |
|
|
| |
|
| |
|
| |
|
| |
|
| As reported | | |
$ | 2,287,570 |
|
$ | 2,031,146 |
|
$ | 4,978,806 |
|
$ | 3,862,795 |
|
| Stock based employee |
| compensation, net of tax | | |
| (371,803 |
) |
| (264,636 |
) |
| (560,934 |
) |
| (420,323 |
) |
| |
|
| Proforma | | |
$ | 1,915,767 |
|
$ | 1,766,510 |
|
$ | 4,417,872 |
|
$ | 3,442,472 |
|
|
| Basic net income per share: |
| As reported | | |
$ | 0.24 |
|
$ | 0.22 |
|
$ | 0.53 |
|
$ | 0.42 |
|
| Stock based employee |
| compensation, net of tax | | |
$ | (0.04 |
) |
$ | (0.03 |
) |
$ | (0.06 |
) |
$ | (0.05 |
) |
| |
|
| Proforma | | |
$ | 0.20 |
|
$ | 0.19 |
|
$ | 0.47 |
|
$ | 0.37 |
|
|
| Diluted net income per share: |
| As reported | | |
$ | 0.22 |
|
$ | 0.20 |
|
$ | 0.49 |
|
$ | 0.39 |
|
| Stock based employee |
| compensation, net of tax | | |
$ | (0.03 |
) |
$ | (0.03 |
) |
$ | (0.05 |
) |
$ | (0.04 |
) |
| |
|
| Proforma | | |
$ | 0.19 |
|
$ | 0.17 |
|
$ | 0.44 |
|
$ | 0.35 |
|
|
| |
Inventories consist of the following as of: |
|
June 30,
2005 | |
December 31,
2004 |
|
| Finished goods and demonstration equipment |
|
|
$ | 1,904,374 |
|
$ | 1,385,148 |
|
| Work-in-process | | |
| 476,590 |
|
| 479,787 |
|
| Purchased parts and subassemblies | | |
| 5,173,807 |
|
| 5,530,754 |
|
|
| | | |
$ | 7,554,771 |
|
$ | 7,395,689 |
|
|
| |
Comprehensive income consists of the Company’s net income, foreign
currency translation adjustments and unrealized holding gains (losses) from available for sale investments. The components of and
changes in other comprehensive income (loss) are as follows: |
|
Three Months Ended
June 30, | |
Six Months Ended
June 30, |
|
2005 | |
2004 | |
2005 | |
2004 |
|
| Net income |
|
|
$ | 2,287,570 |
|
$ | 2,031,146 |
|
$ | 4,978,806 |
|
$ | 3,862,795 |
|
| Other comprehensive income (loss): | | |
| Foreign currency translation adjustment | | |
| (148,162 |
) |
| (11,450 |
) |
| (260,426 |
) |
| (56,095 |
) |
| Net unrealized gains (losses) on securities | | |
| 32,338 |
|
| (4,970 |
) |
| 13,330 |
|
| (2,003 |
) |
|
| Total other comprehensive income | | |
$ | 2,171,746 |
|
$ | 2,014,726 |
|
$ | 4,731,710 |
|
$ | 3,804,697 |
|
|
7
RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| (6) |
|
Foreign Currency Contracts |
| |
The Company enters into forward foreign exchange contracts to
hedge inter-company receivables denominated in Euros arising from sales to its subsidiary in Germany. Gains or losses on forward
foreign exchange contracts are calculated at each period end and are recognized in net income 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, 2005, the Company had eighteen outstanding foreign
currency contracts totaling $3,853,000. These contracts mature in 2005 and bear rates ranging from 1.2039 to 1.3334 U.S. Dollars
per Euro. As of June 30, 2005, the fair value of foreign currency contracts was a net gain position of $177,675, recorded in other
current assets. |
| (7) |
|
Recent Accounting Developments |
| |
In December 2004, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard (SFAS) No. 123 (Revised 2004), “Share-Based Payment.” SFAS No 123R is
a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board (APB)
Opinion No. 25, “Accounting for Stock Issued to Employees” and its related implementation guidance. SFAS No. 123R
focuses primarily on accounting for transactions in which an entity obtains employee services through share-based payment
transactions. SFAS No 123R requires a public entity to measure the cost of employee services received in exchange for the award of
equity instruments based on the fair value of the award at the date of grant. The cost will be recognized over the period during
which an employee is required to provide services in exchange for the award. In April 2005, the Securities and Exchange Commission
amended the compliance dates for SFAS No. 123R, with the result that the effective date for the Company’s implementation of
SFAS No. 123R is deferred from July 1, 2005 to January 1, 2006. While the Company cannot precisely determine the impact on net
earnings that may result from the adoption of SFAS No 123R, estimated compensation expense related to prior annual periods can be
found in the notes to the Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December
31, 2004, and for interim periods, note 3 to the Consolidated Financial Statements included in this Quarterly Report on Form 10Q.
The ultimate amount of increased compensation expense will be dependent on whether the Company adopts SFAS 123R using the modified
prospective or retrospective method, the number of option shares granted during the year, their timing and vesting period, and the
method used to calculate the fair value of the awards, among other factors. In April 2005, the Securities and Exchange Commission
issued Staff Accounting Bulletin (SAB) No. 107, “Share-Based Payment,” confirming the latitude in SFAS No. 123R’s
provisions on selecting models for valuing share options and clarifying other positions on accounting and disclosure for
share-based-payment arrangements. SAB 107 permits registrants to choose from different valuation models to estimate the fair value
of share options, assuming consistent application, and also provides guidance on developing assumptions used in valuing employee
share options and on related MD&A disclosures. |
| |
FASB Interpretation No. 47, “Accounting for Conditional Asset
Retirement Obligations,” was issued in March 2005, and provides clarification on certain provisions of SFAS No. 143,
“Accounting for Asset Retirement Obligations.” Under Interpretation No. 47, an entity is required to recognize a
liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably
estimated. The fair value of a liability for a conditional asset retirement obligation should be recognized when incurred,
generally upon acquisition, construction, development or through the normal operation of the asset. This Interpretation also
clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement
obligation. Interpretation No. 47 is effective for the Company |
8
RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| |
no later than December 31, 2005, and is not expected to have a
significant impact on the Company’s consolidated financial statements. |
| |
In November 2004, the FASB issued SFAS No. 151, “Inventory
Costs, an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory
Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling charges and spoilage.
This Statement requires that those items be recognized as current period charges regardless of whether they meet the criterion of
“so abnormal” which was the criterion specified in ARB No. 43. In addition, this Statement requires that allocation of
fixed production overheads to the cost of production be based on normal capacity of the production facilities. The provisions
under SFAS No. 151 are effective for the Company beginning January 1, 2006, and shall be applied prospectively. The Company does
not expect that the adoption of this pronouncement will have a significant impact on its consolidated financial statements.
|
| |
In December 2004, the FASB issued SFAS No. 153, “Exchanges of
Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” The guidance in APB No. 29
is based on the principle that exchanges of nonmonetary assets should be measured based upon the fair value of the assets
exchanged. SFAS No. 153 amends APB No. 29 to eliminate the narrow exception for nonmonetary exchanges of similar productive assets
and replaces it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. This Statement
is effective for the Company for nonmonetary asset exchanges beginning July 1, 2005. The provisions of this Statement shall be
applied prospectively. The Company does not expect the adoption of this pronouncement to have a significant impact on its
consolidated financial statements. |
| |
In May 2005, the FASB issued SFAS No. 154, “Accounting
Changes and Error Corrections.” SFAS No. 154 replaces APB No. 20, “Accounting Changes,” and SFAS No. 3,
“Reporting Changes in Interim Financial Statements.” SFAS No. 154 requires retrospective application to prior
period’s financial statements of voluntary changes in accounting principle unless it is impracticable to do so. Retrospective
application refers to the application of a different accounting principle to previously issued financial statements as if that
principle had always been used. Statement 154‘s retrospective-application requirement replaces APB 20‘s requirement to
recognize most voluntary changes in accounting principle by including in net income of the period of the change the cumulative
effect of changing to the new accounting principle. This Statement is effective for the Company for accounting changes and
corrections of errors made beginning January 1, 2006. The Company does not currently expect the adoption of this pronouncement to
have a significant impact on its consolidated financial statements. |
| |
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 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 an analysis of historical claims experience, which includes labor and parts costs and the proportion
of parts that can be re-used. |
9
RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
| |
The warranty reserve rollforward, including provisions and claims,
is as follows: |
| Six Months Ended: |
Beginning
Balance | |
Warranty
Provisions | |
Warranty
Claims | |
Foreign
Exchange Impact | |
Ending
Balance |
| |
|
| |
| June 30, 2005 |
|
|
$ | 187,000 |
|
$ | 336,000 |
|
$ | (313,000 |
) |
$ | (6,000 |
) |
$ | 204,000 |
|
| |
| June 30, 2004 | | |
$ | 172,000 |
|
$ | 273,000 |
|
$ | (246,000 |
) |
$ | (2,000 |
) |
$ | 197,000 |
|
| |
The Company is exposed to a number of asserted and unasserted
claims encountered in the normal course of business. In the opinion of management, the resolution of these matters will not have a
material adverse effect on the Company’s financial position or results of operations. |
10
| |
The following table sets forth, for the periods indicated,
selected items from the Company’s consolidated statements of operations. |
|
|
Percentage (%)
of Revenues
Three Months Ended
June 30, | |
Percentage (%)
Increase
Between
Periods | |
Percentage (%)
of Revenues
Six Months Ended
June 30, | |
Percentage (%)
Increase
Between
Periods |
|
|
2005 | |
2004 | |
2005 vs. 2004 | |
2005 | |
2004 | |
2005 vs. 2004 |
|
| Revenues |
|
|
| 100 |
|
| 100 |
|
| 27 |
|
| 100 |
|
| 100 |
|
| 35 |
|
| Cost of revenues | | |
| (57 |
) |
| (54 |
) |
| 32 |
|
| (55 |
) |
| (53 |
) |
| 41 |
|
|
| Gross profit | | |
| 43 |
|
| 46 |
|
| 20 |
|
| 45 |
|
| 47 |
|
| 27 |
|
| Operating expenses: | | |
| Research and development | | |
| (7 |
) |
| (7 |
) |
| 22 |
|
| (6 |
) |
| (7 |
) |
| 18 |
|
| Selling, general and admin | | |
| (21 |
) |
| (21 |
) |
| 31 |
|
| (21 |
) |
| (21 |
) |
| 33 |
|
|
| Operating income | | |
| 15 |
|
| 18 |
|
| 6 |
|
| 17 |
|
| 18 |
|
| 24 |
|
| Other income, net | | |
| 1 |
|
| — |
|
| 1,835 |
|
| 1 |
|
| 1 |
|
| 226 |
|
|
| Income before income taxes | | |
| 17 |
|
| 18 |
|
| 15 |
|
| 18 |
|
| 19 |
|
| 29 |
|
| Income tax expense | | |
| (6 |
) |
| (7 |
) |
| 20 |
|
| (7 |
) |
| (7 |
) |
| 30 |
|
|
| Net income | | |
| 10 |
|
| 12 |
|
| 13 |
|
| 12 |
|
| 12 |
|
| 29 |
|
|
| |
Rimage develops, manufactures and distributes CD-Recordable (CD-R)
and DVD-Recordable (DVD-R) publishing and duplication systems from its operations in the United States, Germany, and effective
June 2005, Japan. These systems allow customers to benefit from cost savings by eliminating their manual labor efforts in
industries such as banking, medical, retail and government. Rimage anticipates sales and marketing expenditures will continue to
grow as a result of applying increased resources to further penetrate these markets. As Rimage’s sales within North America
and Europe have averaged 94% of total sales over the past three years, the strength of the economies in each of these regions
plays an important role in determining the success of Rimage. |
| |
Rimage earns revenues through the sale of equipment, consumables
(ribbons, ink cartridges and Rimage-branded blank CD-R and DVD-R media), maintenance contracts, parts and repair services.
Rimage’s recurring revenues (consumables, maintenance contracts, parts and service) comprised approximately 39% and 38% of
consolidated revenues during the six months ended June 30, 2005 and 2004, respectively. Exclusive of a small amount of capital
lease obligations, Rimage has no long-term debt and does not require significant capital investments as all fabrication of its
products is outsourced to vendors. |
| |
Revenues. Revenues increased 27% to $22.3
million and 35% to $43.2 million for the three and six months ended June 30, 2005, respectively, from $17.6 million and $32.1
million for the same prior-year periods. The growth in revenues for both the quarterly and year-to-date periods was primarily
impacted by an increase of $2.6 million and $4.7 million, respectively, in recurring revenues, including sales of CD-R and DVD-R
media, printer ribbons and ink cartridges, parts and maintenance contracts. The strong growth in recurring revenues is primarily
due to the continued expansion of the Company’s worldwide installed base of CD-R and DVD-R publishing systems. Sales of
desktop product line equipment also increased significantly in each period, with sales growth of $1.7 million and $2.4 million for
the three and six months ended June 30,
|
11
| |
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) |
| |
2005, respectively. Desktop product line sales were positively
impacted by the Company’s release in the second quarter of its new desktop product, the Rimage 360i. Also contributing
significantly to sales growth for the year-to-date period was an increase in the volume of Producer product line equipment sales
of approximately $4 million, impacted by strong sales of the Rimage DiscLab system introduced in 2004. |
| |
International sales rose 19% and 21% for the three and six months
ended June 30, 2005 over the same prior year periods, and comprised 34% and 35% of total sales, compared to 36% and 40%,
respectively. Currency fluctuations primarily affecting the Company’s European operations increased reported consolidated
revenues for the three and six months ended June 30, 2005 by approximately 1%. |
| |
As of and for the six months ended June 30, 2005, foreign revenues
from unaffiliated customers generated by the Company’s German and Japanese operations and the operating income and net
identifiable assets of such operations were $12,857,000, $465,000 and $6,636,000, respectively. These amounts relate primarily to
the Company’s German operations, as the establishment of subsidiary operations in Japan did not occur until June 2005.
Comparable amounts for the Company’s German operations as of and for the six months ended June 30, 2004 were revenues of
$10,934,000, operating income of $459,000 and net identifiable assets of $5,136,000. The growth is due to increasing penetration
in foreign markets of sales of CD-R and DVD-R products. |
| |
Gross profit. Gross profit as a percentage
of revenues was 43% and 45% for the three and six months ended June 30, 2005, respectively, compared to 46% and 47% for the same
prior-year periods. The decline in gross profit as a percentage of revenues for both periods in 2005 was primarily due to
increased costs for manufacturing and service labor and overhead due to investments in these areas to support the launch of the
new desktop product in the second quarter and expected continued growth in total sales. Also negatively impacting 2005 gross
profit margins was an increase in both the volume and concentration of recurring revenues, including consumable product sales,
which generally carry lower margins than equipment sales. Recurring revenues comprised 42% and 39% of total revenues for the three
and six months ended June 30, 2005, compared to 39% and 38% in the same prior year periods. |
| |
Rimage anticipates that its gross profit percentage during the
remainder of 2005 will be in the low to mid-40% range. Actual margins will continue to be affected by many factors, including
product mix, the timing of new product introductions, manufacturing volume, foreign currency exchange rate fluctuations and levels
of sales returns. |
| |
Operating expenses. Research and
development expenses totaled $1.5 million and $2.8 million for the three and six months ended June 30, 2005, representing 7% and
6% of revenues, respectively. Expenses for the same prior year periods totaled $1.2 million and $2.4 million, respectively,
representing 7% of revenues for each period. The 22% and 18% respective increases in 2005 expenses reflect continued development
of next generation products, including materials and resources required to complete development work on the Rimage 360i desktop
product released in the second quarter 2005. |
| |
Rimage expects its research and development expenditures to range
from 6% to 8% of revenues for the full year 2005. These expenditures will be made to support new product development initiatives
and improve existing products. |
| |
Selling, general and administrative expenses for the three and six
months ended June 30, 2005 were 21% of revenues at $4.8 million and $9.1 million, respectively, compared to expenses in the same
prior year periods approximating 21% of revenues at $3.7 million and $6.9 million, respectively. The dollar growth in expenses
|
12
| |
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) |
| |
in this year’s second quarter and year-to-date period
primarily reflects the continued expansion of the Company’s sales and marketing organization, implementation of programs to
support the second quarter launch of the Rimage 360i desktop product and other marketing initiatives as well as incremental
expenses associated with Sarbanes Oxley compliance. Sales and marketing expenses increased approximately $0.7 million and $1.2
million for the three and six months ended June 30, 2005, respectively, due to increased costs for product marketing and
promotional activities and a 7% and 14% respective increase in average sales and marketing headcount relative to the same prior
year periods. General and administrative expenses contributed the remaining $0.4 million and $1 million growth in expenses in the
second quarter and year-to-date period, respectively, impacted by a 12% and 23% respective increase in average headcount,
increased management compensation costs, and for the year-to-date period, incremental expenses associated with the completion of
Sarbanes-Oxley compliance for the 2004 fiscal year. Selling, general and administrative expenses are expected to increase in the
second half of 2005 relative to the first half primarily as a result of the planned engagement of a third party consulting firm to
perform a strategic study for the Company, with related fees approximating $1.5 million. |
| |
Other income, net. The Company recognized
net interest income on cash investments of $0.3 million and $0.6 million for the three and six months ended June 30, 2005,
compared to $0.1 million and $0.3 million for the same prior year periods. The increase in both the quarterly and year-to-date
periods was due to a $5 million increase in average cash equivalent and marketable securities balances and a small increase in
effective yields. Other income for the six months ended June 30, 2005 and 2004 was negatively affected by net losses on foreign
currency transactions, amounting to $73,000 in 2005 and $24,000 in 2004. |
| |
Income before income taxes. Income before
income taxes increased 15% and 29% to $3.7 million and $7.9 million for the three and six months ended June 30, 2005,
respectively, compared to $3.2 million and $6.1 million for the same periods in 2004. This rate of growth is lower than the rate
of revenue growth in each period of 27% and 35%, respectively, and reflects the decline in gross margins and increase in operating
expenses to support expected continued growth in revenues, as discussed above. |
| |
Income taxes. The provision for income
taxes represents federal, state, and foreign income taxes on income. Income tax expense for the three and six months ended June
30, 2005 amounted to $1.4 million and $2.9 million, or 38.1% and 36.7% of income before taxes, respectively. Income tax expense
for the three and six months ended June 30, 2004 was $1.2 million and $2.2 million or 36.5% of income before taxes for each
period. The higher effective tax rate in the second quarter of 2005 primarily reflects an increase in state income tax expense and
lower expected research and development tax credits. The Company anticipates its effective tax rate will range between 36% and 37%
for the full year 2005. |
| |
Net income / net income per share. Resulting
net income for the three and six months ended June 30, 2005 was $2.3 million, or 10.3% of revenues, and $5.0 million, or 11.5% of
revenues, respectively. This compares to net income of $2.0 million, or 11.5% of revenues, and $3.9 million, or 12.0% of revenues
for the same prior year periods. Related net income per diluted share amounts for the three and six months ended June 30, 2005
were $.22 and $.49, respectively, compared to $.20 and $.39 per diluted share for the same prior year periods. |
| |
Liquidity and Capital Resources |
| |
The Company expects it will be able to maintain current
operations, including anticipated capital expenditure requirements, through its internally generated funds and, if required, from
Rimage’s existing credit |
13
| |
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) |
| |
agreement. This credit agreement allows for advances under an
unsecured revolving loan up to a maximum advance of $10 million. At June 30, 2005, no amounts were outstanding under the credit
agreement. |
| |
Current assets increased to $77.1 million as of June 30, 2005 from
$71.7 million at December 31, 2004, reflecting increased cash and cash equivalents and marketable securities ($3.6 million),
accounts receivable ($1 million), prepaid expenses ($0.7 million) and inventories ($0.1 million). The increase in cash and
marketable securities and accounts receivable was impacted largely by revenue growth during the six months ended June 30, 2005.
The allowance for doubtful accounts and sales returns as a percentage of receivables was 5% at June 30, 2005, compared to 7% at
June 30, 2004. The reduction in 2005 reserve levels is primarily due to improved management of sales returns and improved quality
of receivable balances. The increase in prepaid expenses was primarily due to the renewal during the first quarter of a paid-up
software license agreement for a three-year term. Despite the increase in revenue during the current year-to-date period and
expected growth in third quarter revenue, inventory levels at June 30, 2005 increased by only 2% from December 31, 2004, due to
improved inventory management. Inventories remain high relative to historic levels due to the need to stock long lead-time parts
and additional inventory of CD-R and DVD-R media, printer ribbons and cartridges as a result of expected continued growth in
consumable product sales. Current liabilities increased to $11.6 million as of June 30, 2005 from $11.3 million as of December 31,
2004, due to increased accounts payable ($0.7 million), accrued expenses ($0.3 million) and deferred income and customer deposits
($.3 million), partially offset by reduced income taxes payable ($0.7 million) and other current liabilities ($0.2 million). The
increase in accounts payable and the reduction in income taxes payable primarily reflect timing of payments. The Company intends
on utilizing its current assets primarily for its continued organic growth. In addition, the Company may use its available cash
for potential future acquisitions or strategic alliances. |
| |
Net cash provided by operating activities was $4.2 million for the
six months ended June 30, 2005, compared to $1.3 million in the same prior year period. The approximate $3 million increase in
cash generated from operations was primarily impacted by a $1.1 million increase in net income adjusted for non-cash items and a
$1.9 million favorable net impact from changes in operating assets and liabilities. Primarily contributing to the change in
operating assets and liabilities was a $1.9 million smaller increase in accounts receivable for the six months ended June 30, 2005
compared to the same prior year period, due primarily to a larger concentration of second quarter sales in June 2004 relative to
June 2005, and the related timing of receivable collections. Also contributing to the favorable change in the current period was a
$1.2 million smaller increase in inventories, partially offset by a $1 million smaller increase in accounts payable, impacted by a
build up of inventory and related accounts payable as of June 30, 2004 for long lead-time parts and newly released products.
|
| |
Net cash provided by investing activities was $4.7 million for the
six months ended June 30, 2005, compared to $7.1 million during the same period in 2004. The decline in cash provided by investing
activities was the result of a $2.1 million increase in purchases of marketable securities, net of related maturities of
marketable securities, and a $0.3 million increase in capital expenditures. The increased level of capital expenditures was driven
primarily by leasehold improvements for the Company’s corporate facility. |
| |
Net cash provided by financing activities totaled $0.5 million and
$0.4 million for the six months ended June 30, 2005 and 2004, respectively. Amounts in both periods primarily reflect proceeds
from stock option exercises. |
14
| |
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) |
| |
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 do not include any requirement for installation or training, is recognized on
shipment, at which point the following criteria of SAB Topic 13(A)(1) have been satisfied: |
| • |
|
Persuasive evidence of an arrangement exists. Orders
are received for all sales and sales invoices are mailed on shipment. |
| • |
|
Delivery has occurred. Product has been transferred
to the customer or the customer’s designated delivery agent, at which time title and the risk of loss transfers.
|
| • |
|
The vendor’s price is fixed or determinable.
All sales prices are fixed at the time of the sale (shipment). |
| • |
|
Collectibility is probable. All sales are made on
the basis that collection is expected in line with the Company’s standard payment terms, which are consistent with industry
practice in the geographies in which the Company markets its products. |
| |
A standard product sale by the Company does not require a
commitment on the Company’s part to provide installation, set-up or training. When such services are requested, value-added
resellers generally arrange and perform the service directly with the customer, with no financial interest or obligation on the
part of the Company. In the limited situations in which the Company does provide installation or training services for customers,
the Company charges separately for the service based upon its published list prices, and recognizes revenue upon the successful
completion of the service. |
| |
The Company accrues for warranty costs and sales returns at the
time of shipment based upon historical experience and known trends in the business. |
| |
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 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 adoption of EITF 00-21 did not have an impact on the financial position or results of operations of 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 based on a specific assessment of accounts with known collection exposure, based upon a review of the age
of the receivable, the customer’s payment history, |
15
| |
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) |
| |
the customer’s financial condition and industry and general
economic conditions, as well as a general assessment of collection exposure in the remaining receivable population based upon bad
debt history. Actual bad debt exposure could differ significantly from management’s estimates if economic conditions worsened
for the Company’s customers. 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. |
| |
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. 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 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. The Company records a liability for warranty claims at the time of sale. The amount of the liability is based
on an analysis of historical claims experience, which includes labor and parts costs and consideration of the proportion of parts
that can be re-used. Also considered are the anticipated impact of changes in product quality, releases of new products and other
factors. Claims experience could be materially different from actual results because of the introduction of new, more complex
products; a change in the Company’s warranty policy in response to industry trends, competition or other external forces; or
manufacturing changes that could impact product quality. |
| |
New Accounting Pronouncements |
| |
In December 2004, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard (SFAS) No. 123 (Revised 2004), “Share-Based Payment.” SFAS No 123R is
a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board (APB)
Opinion No. 25, “Accounting for Stock Issued to Employees” and its related implementation guidance. SFAS No. 123R
focuses primarily on accounting for transactions in which an entity obtains employee services through share-based payment
transactions. SFAS No 123R requires a public entity to measure the cost of employee services received in exchange for the award of
equity instruments based on the fair value of the award at the date of grant. The cost will be recognized over the period during
which an employee is required to provide services in exchange for the award. In April 2005, the Securities and Exchange Commission
amended the compliance dates for SFAS No. 123R, with the result that the effective date for the Company’s implementation of
SFAS No. 123R is deferred from July 1, 2005 to January 1, 2006. While the Company cannot precisely determine the impact on net
earnings that may result from the adoption of SFAS No 123R, estimated compensation expense related to prior annual periods can be
found in the notes to the Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December
31, 2004, and for interim periods, note 3 to the Consolidated Financial Statements included in this Quarterly Report on Form 10Q.
The ultimate amount of increased compensation expense will be dependent |
16
| |
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) |
| |
on whether the Company adopts SFAS 123R using the modified
prospective or retrospective method, the number of option shares granted during the year, their timing and vesting period, and the
method used to calculate the fair value of the awards, among other factors. In April 2005, the Securities and Exchange Commission
issued Staff Accounting Bulletin (SAB) No. 107, “Share-Based Payment,” confirming the latitude in SFAS No. 123R’s
provisions on selecting models for valuing share options and clarifying other positions on accounting and disclosure for
share-based-payment arrangements. SAB 107 permits registrants to choose from different valuation models to estimate the fair value
of share options, assuming consistent application, and also provides guidance on developing assumptions used in valuing employee
share options and on related MD&A disclosures. |
| |
FASB Interpretation No. 47, “Accounting for Conditional Asset
Retirement Obligations,” was issued in March 2005, and provides clarification on certain provisions of SFAS No. 143,
“Accounting for Asset Retirement Obligations.” Under Interpretation No. 47, an entity is required to recognize a
liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably
estimated. The fair value of a liability for a conditional asset retirement obligation should be recognized when incurred,
generally upon acquisition, construction, development or through the normal operation of the asset. This Interpretation also
clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement
obligation. Interpretation No. 47 is effective for the Company no later than December 31, 2005, and is not expected to have a
significant impact on the Company’s consolidated financial statements. |
| |
In November 2004, the FASB issued SFAS No. 151, “Inventory
Costs, an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory
Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling charges and spoilage.
This Statement requires that those items be recognized as current period charges regardless of whether they meet the criterion of
“so abnormal” which was the criterion specified in ARB No. 43. In addition, this Statement requires that allocation of
fixed production overheads to the cost of production be based on normal capacity of the production facilities. The provisions
under SFAS No. 151 are effective for the Company beginning January 1, 2006, and shall be applied prospectively. The Company does
not expect that the adoption of this pronouncement will have a significant impact on its consolidated financial statements.
|
| |
In December 2004, the FASB issued SFAS No. 153, “Exchanges of
Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” The guidance in APB No. 29
is based on the principle that exchanges of nonmonetary assets should be measured based upon the fair value of the assets
exchanged. SFAS No. 153 amends APB No. 29 to eliminate the narrow exception for nonmonetary exchanges of similar productive assets
and replaces it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. This Statement
is effective for the Company for nonmonetary asset exchanges beginning July 1, 2005. The provisions of this Statement shall be
applied prospectively. The Company does not expect the adoption of this pronouncement to have a significant impact on its
consolidated financial statements. |
| |
In May 2005, the FASB issued SFAS No. 154, “Accounting
Changes and Error Corrections.” SFAS No. 154 replaces APB No. 20, “Accounting Changes,” and SFAS No. 3,
“Reporting Changes in Interim Financial Statements.” SFAS No. 154 requires retrospective application to prior
period’s financial statements of voluntary changes in accounting principle unless it is impracticable to do so. Retrospective
application refers to the application of a different accounting principle to previously issued financial statements as if that
principle had always been used. Statement 154‘s retrospective-application requirement replaces APB 20‘s requirement to
recognize most voluntary changes in accounting principle by including in net income of the period of the change the cumulative
effect of changing to the new accounting principle. This Statement is effective for the Company for accounting changes and
corrections of errors made |
17
| |
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) |
| |
beginning January 1, 2006. The Company does not currently expect
the adoption of this pronouncement to have a significant impact on its consolidated financial statements. |
| |
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, the following, as well as other factors not now identified: the Company’s ability to keep
pace with changes in technology in the computer and storage media industries as well as technology changes in the retail, medical,
banking, government and office markets; increasing competition and the ability of the Company’s products to successfully
compete with products of competitors and newly developed media storage products; the significance of the Company’s
international operations and the risks associated with international operations including currency fluctuations, local economic
health and management of these operations over long distances; the Company’s ability to protect its intellectual property and
to defend claims of others relating to its intellectual property; the Company’s dependence upon the selling efforts of the
Company’s key channel partners; the Company’s ability to maintain adequate inventory of products; the Company’s
reliance on single source suppliers; the ability of the Company’s products to operate effectively with the computer products
developed and to be developed by other manufacturers; the negative effect upon the Company’s business from manufacturing or
design defects; the effect of U.S. and international regulation; fluctuations in the Company’s operating results; the
Company’s dependence upon its key personnel; the volatility of the price of the Company’s common stock; provisions
governing the Company relating to a change of control, compliance with corporate governance and securities disclosures rules and
other risks, including those set forth in the Company’s reports filed with the Securities and Exchange Commission, including
its annual report on Form 10-K for the year ended December 31, 2004. 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. |
| |
The Company is exposed to market risk from foreign exchange rate
fluctuations of the European Euro and the Japanese Yen to the U.S. dollar as the financial position and operating results of the
Company’s German and Japanese subsidiaries, Rimage Europe and Rimage Japan, respectively, are translated into U.S. dollars
for consolidation. Resulting translation adjustments are recorded as a separate component of stockholders’ equity.
|
| |
The Company enters into forward exchange contracts principally to
hedge the eventual dollar cash flow of foreign currency denominated transactions (principally European Euro) with Rimage Europe.
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. Gains or losses on
forward exchange contracts are recognized in income on a current basis over the term of the contracts. The Company records the
fair value of its open forward foreign exchange contracts in other current assets or other current liabilities depending on
whether the net amount is a gain or a loss. The Company does not utilize financial instruments for trading or other speculative
purposes. |
18
| |
(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 evaluation, they have concluded that these
disclosure controls and procedures are effective. |
| |
(b) Changes in Internal Control Over Financial Reporting
|
| |
There have been no changes in internal control over financial
reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely
to materially affect, the Company’s internal control over financial reporting. |
| Item 1. |
|
Legal Proceedings |
| Item 2. |
|
Changes in Securities, Use of Proceeds and Issuer Purchases of Securities |
| Item 3. |
|
Defaults Upon Senior Securities |
| |
The Company’s Annual Meeting of Shareholders’ was held
on May 17, 2005. Of the 9,476,587 shares outstanding and entitled to vote at the meeting, 9,199,902 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 seven (7) directors of the Company to serve until the
next Annual Meeting of Shareholders or until their respective successors have been elected and qualified. |
| Nominee |
In Favor | |
Withheld |
| |
| Bernard Aldrich |
|
8,599,401 |
|
600,501 |
|
| Lawrence Benveniste | |
8,448,330 |
|
751,572 |
|
| Philip Hotchkiss | |
8,492,504 |
|
707,398 |
|
| Thomas Madison | |
8,409,054 |
|
790,848 |
|
| Steven Quist | |
8,554,977 |
|
644,925 |
|
| James Reissner | |
8,351,249 |
|
848,653 |
|
| David Suden | |
8,556,801 |
|
643,101 |
|
19
PART II – OTHER INFORMATION (continued)
| 2. |
|
To amend the Company’s Amended and Restated 1992 Stock Option
Plan to increase the number of shares authorized for issuance by 500,000 and to expand the types of equity compensation awards
that may be granted under the Plan. |
FOR
| |
AGAINST
| |
ABSTAIN
| |
BROKER NON-VOTE
|
| 4,536,371 |
|
1,125,842 |
|
22,792 |
|
3,514,897 |
|
| Item 5. |
|
Other Information |
| |
(a) |
|
The following exhibits are included herein: |
| |
|
11.1 |
|
Calculation of Earnings per Share. |
| |
|
31.1 |
|
Certificate of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of the Exchange Act. |
| |
|
31.2 |
|
Certificate of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 of the Exchange Act. |
| |
|
32 |
|
Certifications pursuant to 18 U.S.C. § 1350. |
20
SIGNATURES
In accordance with the Exchange Act, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereto duly authorized.
| |
|
RIMAGE CORPORATION
Registrant |
| |
| |
| Date: |
August 5, 2005 |
By: |
/s/ Bernard P. Aldrich |
| |
|
|
|
| |
|
Bernard P. Aldrich
Director, Chief Executive Officer,
and President
(Principal Executive Officer) |
| |
| |
| Date: |
August 5, 2005 |
By: |
/s/ Robert M. Wolf |
| |
|
|
|
| |
|
Robert M. Wolf
Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer) |
21
