<PAGE>
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 January 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.
-------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3179629
-------- ----------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
310 Commerce Drive, Amherst, New York 14228
-----------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(716) 691-6333
--------------
(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 ________________
----------------
At January 23, 1996, 8,877,157 shares of Common Stock of the Registrant were
outstanding.
<PAGE>
INTERNATIONAL IMAGING MATERIALS, INC.
INDEX TO FORM 10-Q
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited) as of
January 2, 1996 and March 31, 1995 3
Consolidated Statements of Income (unaudited) for the
three and nine months ended January 2, 1996 and January 3,
1995 4
Consolidated Statements of Cash Flows (unaudited) for the
nine months ended January 2, 1996 and January 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 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
EXHIBIT INDEX 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 2, MARCH 31,
1996 1995
---------------- -----------------
(IN THOUSANDS, EXCEPT SHARE AND
ASSETS PER SHARE AMOUNTS)
- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 735 $ 3,559
Securities held to maturity --- 3,468
Trade receivables 15,040 11,902
Inventories:
Raw materials 10,246 8,581
Work in process 3,439 3,802
Finished goods 4,487 3,224
-------- -------
Total inventories 18,172 15,607
-------- -------
Prepaid expenses 822 818
Deferred income taxes 1,667 1,557
-------- -------
Total current assets 36,436 36,911
-------- -------
Property, plant and equipment, at cost:
Land 1,163 619
Building and improvements 10,889 10,444
Equipment 63,604 57,636
Construction in progress 13,289 6,388
-------- -------
88,945 75,087
Less accumulated depreciation 20,371 16,323
-------- -------
Net property, plant and equipment 68,574 58,764
-------- -------
Other assets 7,014 2,269
-------- -------
$112,024 $97,944
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------
Current liabilities:
Note payable 10,000 ---
Current installments of long-term debt 1,674 1,697
Trade accounts payable 6,078 8,011
Accrued compensation and benefits 764 1,085
Payable to Fujicopian Co., Ltd., a related party 2,999 1,853
Other accrued liabilities 1,309 1,467
Income taxes payable 215 1,285
-------- -------
Total current liabilities 23,039 15,398
Long-term debt, excluding current installments 2,539 3,940
Deferred income taxes 5,819 4,917
-------- -------
Total liabilities 31,397 24,255
-------- -------
Stockholders' equity:
Preferred stock; $.01 par value; 5,000,000 shares
authorized; none issued --- ---
Common stock; $.01 par value; 30,000,000 shares
authorized; 8,877,157 and 8,731,479 shares issued
as of January 2, 1996 and March 31, 1995, respectively 90 87
Additional paid-in capital 53,294 53,906
Unearned compensation - restricted stock award (763) (915)
Notes receivable from exercise of stock options and warrants (1,394) (1,880)
Retained earnings 29,400 22,491
-------- -------
Total stockholders' equity $ 80,627 $73,689
-------- -------
$112,024 $97,944
======== =======
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
JANUARY 2, JANUARY 3, JANUARY 2, JANUARY 3,
1996 1995 1996 1995
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER (IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS) SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues $24,018 $21,941 $64,242 $63,166
Cost of goods sold 16,712 15,340 45,310 44,477
------- ------- ------- -------
Gross profit 7,306 6,601 18,932 18,689
------- ------- ------- -------
Operating expenses:
Research and development 829 569 2,375 1,613
Selling 1,096 864 2,965 2,709
General and administrative 895 1,004 2,744 2,770
------- ------- ------- -------
Total operating expenses 2,820 2,437 8,084 7,092
------- ------- ------- -------
Operating income 4,486 4,164 10,848 11,597
Other expense 7 (80) 48 (67)
------- ------- ------- -------
Income before income taxes 4,479 4,244 10,800 11,664
Income taxes 1,614 1,613 3,891 4,432
------- ------- ------- -------
Net income $ 2,865 $ 2,631 $ 6,909 $ 7,232
======= ======= ======= =======
Net income per share of common stock $ 0.31 $ 0.29 $ 0.74 $ 0.80
======= ======= ======= =======
Weighted average common shares outstanding 9,363 9,150 9,339 9,037
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
JANUARY 2, JANUARY 3,
1996 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,909 $ 7,232
-------- --------
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Depreciation and amortization 4,466 3,268
Deferred income taxes 1,571 1,799
Other noncash provisions 220 235
Reduction in income tax payable from the exercise of options and warrants 1,314 982
Cash provided (used) by changes in:
Trade receivables (3,148) (864)
Inventories (2,565) (1,289)
Prepaid expenses (4) (250)
Other assets 38 (21)
Trade accounts payable (2,143) 363
Accrued compensation and benefits (321) 747
Payable to Fujicopian Co., Ltd. 1,198 2,284
Other accrued liabilities (158) 592
Income taxes payable (1,070) 1,148
-------- --------
Total adjustments (602) 8,994
-------- --------
Net cash provided by operating activities 6,307 16,226
-------- --------
Cash flows used in investing activities:
Capital expenditures (13,789) (10,967)
Payments to acquire other assets (5,575) ---
Purchases of securities --- (3,415)
Maturities of securities 3,468 ---
-------- --------
Net cash used in investing activities (15,896) (14,382)
-------- --------
Cash flows from financing activities:
Proceeds from sale of common stock 80 83
Exercise of stock options and warrants:
Proceeds 408 799
Notes received from officers (2,299) (466)
Proceeds from note payable 10,000 ---
Repayments of long-term debt (1,424) (1,429)
-------- --------
Net cash provided (used) by financing activities 6,765 (1,013)
-------- --------
Net increase (decrease) in cash and cash equivalents (2,824) 831
Cash and cash equivalents at beginning of period 3,559 4,989
-------- --------
Cash and cash equivalents at end of period $ 735 $ 5,820
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of amount capitalized 117 219
Income taxes $ 2,076 $ 130
======== ========
Supplemental disclosure of noncash investing and financing activities:
Increase (decrease) in liabilities incurred in connection with capital expenditures 158 (420)
Notes received from exercise of stock options and warrants 548 1,264
Common stock surrendered for repayment of notes receivable 3,796 ---
Issuance of restricted common stock $ 58 $ 292
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
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 January 2, 1996 and consolidated results of operations for the
three and nine month periods ended January 2, 1996 and January 3, 1995 and
consolidated cash flows for the nine month periods ended January 2, 1996 and
January 3, 1995. Consolidated results of operations for the three and nine
month periods ended January 2, 1996 are not necessarily indicative of results to
be expected for the full year ending March 31, 1996.
(2) FOREIGN EXCHANGE
The Company periodically enters into forward foreign exchange contracts to
minimize exposure and reduce risk from exchange rate fluctuations in the regular
course of business. Since these contracts hedge exposures on firm foreign
currency commitments, gains and losses are deferred and recognized as
adjustments to the costs of the corresponding assets. Certain commitments to
purchase materials were hedged with forward foreign exchange contracts maturing
in January 1996 to purchase 15,000,000 Japanese yen for $149,000.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF THE QUARTER ENDED JANUARY 2, 1996 WITH THE QUARTER ENDED JANUARY
3, 1995
Revenues in the three months ended January 2, 1996 were $24.0 million,
an increase of 9.5% from $21.9 million in the three months ended January 3,
1995. Included in the three months ended January 3, 1995 revenues were $1.5
million, or 6.9% of revenues, that did not recur in the three months ended
January 2, 1996. The majority of this non-recurring revenue consisted of sales
to Armor, Fujicopian's thermal transfer licensee for Europe, to assist them when
their orders exceeded their manufacturing capacity.
Recurring bar code ribbon revenues in the three months ended January 2,
1996 were $14.1 million, comprised 58.5% of total revenues, and increased 8.1%
from $13.0 million in the three months ended January 3, 1995. The Company sells
its bar code ribbons principally to printer original equipment manufacturers
(OEM's), which in turn sell the ribbons to end users, either directly or through
distributors and value-added resellers. Bar code ribbon revenues from this OEM
channel were comparable to the three months ended January 3, 1995.
The Company also sells bar code ribbons directly to distributors and
dealers when such sales do not adversely affect the Company's OEM customers.
Bar code ribbon revenues from this alternative channel increased 30.5% in the
three months ended January 2, 1996, reflecting the addition of several new
customers and the success of a lower cost product line introduced early in
fiscal 1996.
Color supplies revenues in the three months ended January 2, 1996 were
$8.5 million, comprised 35.5% of total revenues, and increased 37.2% from $6.2
million in the three months ended January 3, 1995. The Company sells color
ribbons principally to printer OEM's who resell them through their own
distribution channels. Beginning this quarter, however, with the acquisition of
the thermal transfer supplies business from one of the Company's customers, QMS,
Inc., the Company sells supplies for QMS printers directly to distributors and
end-users. The color supplies revenue increase is primarily due to shipments
under a very significant color ribbon program which is being transferred from
the Company's licensor, Fujicopian, in addition to the incremental revenue from
the sale of supplies for QMS printers.
Other ribbon revenues in the three months ended January 2, 1996 were
$1.4 million, comprised 5.8% of total revenues, and increased 14.6% from $1.2
million in the three months ended January 3, 1995. This increase resulted from
higher sales of MICR (magnetic ink character recognition) ribbons.
Gross margins were 30.4% of revenues in the three months ended January
2, 1996 as compared to 30.1% in the three months ended January 3, 1995. This
increase resulted from the leverage of higher revenues against fixed expenses,
an improvement in sales mix and savings from the self-insurance of workers
compensation benefits, partially offset by expenses from the QMS business
acquisition and higher depreciation expense.
Total operating expenses were $2.8 million in the three months ended
January 2, 1996, an increase of 15.7% from $2.4 million in the three months
ended January 3, 1995. An increase in research and development staffing as well
as telemarketing and administrative expenses from the QMS thermal transfer
supplies business were primarily responsible for this increase.
Income taxes in the three months ended January 2, 1996 were $1.6 million
or 36% of income before income taxes. In the three months ended January 3,
1995, income taxes were $1.6 million or 38% of income before income taxes. This
rate reduction was due primarily to a state alternative minimum tax rate
reduction and the Company's foreign sales corporation incorporated in fiscal
1996.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF THE NINE MONTHS ENDED JANUARY 2, 1996 WITH THE NINE MONTHS ENDED
JANUARY 3, 1995.
Revenues in the nine months ended January 2, 1996 were $64.2 million, an
increase of 1.7% from $63.2 million in the nine months ended January 3, 1995.
Included in the nine months ended January 3, 1995 revenues were $4.4 million or
6.9% of revenues, that did not recur in the nine months ended January 2, 1996.
The majority of this non-recurring revenue consisted of sales to Armor. The
Company expects that continuing growth of its recurring revenue base will more
than offset the loss of this non-recurring revenue for fiscal 1996.
Recurring bar code ribbon revenues in the nine months ended January 2,
1996 were $39.0 million, comprised 60.6% of total revenues, and increased 6.8%
from $36.5 million in the nine months ended January 3, 1995. Bar code ribbon
revenues from the OEM channel increased 3.9%, principally due to the overall
growth of applications for bar code tag and label printing, offset by reductions
in inventory levels throughout the OEM channel made possible by the Company's
reduced delivery times. Bar code ribbon revenues from the dealer distribution
channel increased 14.3% in the nine months ended January 2, 1996, reflecting the
addition of several new customers, the success of a lower cost product line
introduced early in fiscal 1996 and the overall bar code ribbon aftermarket
growth.
Color supplies revenues in the nine months ended January 2, 1996 were
$21.5 million, comprised 33.4% of total revenues, and increased 16.2% from $18.5
million in the nine months ended January 3, 1995. The color supplies revenue
increase is principally due to shipments under a very significant color ribbon
program which is being transferred from Fujicopian.
Other ribbon revenues in the nine months ended January 2, 1996 were $3.7
million, comprised 5.8% of total revenues, and decreased 2.5% from $3.8 million
in the nine months ended January 3, 1995. This decrease resulted from lower
sales of facsimile ribbons, partially offset by higher sales of MICR ribbons.
Gross margins were 29.5% of revenues in the nine months ended January 2,
1996 as compared to 29.6% in the nine months ended January 3, 1995. This
decline primarily resulted from high depreciation expense, higher purchase
prices and expense from the QMS business acquisition, partially offset by the
benefit from higher revenues absorbing fixed expenses, an improvement in sales
mix and savings from the self-insurance of workers compensation expenses.
Total operating expenses were $8.1 million in the nine months ended
January 2, 1996, an increase of 14.0% from $7.1 million in the nine months ended
January 3, 1995. An increase in research and development staffing and sampling
of new products to customers as well as expenses for the QMS thermal transfer
supplies business were primarily responsible for this increase.
Income taxes in the nine months ended January 2, 1996 were $3.9 million
or 36.0% of income before income taxes. In the nine months ended January 3,
1995, income taxes were $4.4 million or 38% of income before income taxes. The
rate reduction was primarily due to a state alternative minimum tax rate
reduction and the Company's foreign sales corporation incorporated in fiscal
1996. The actual tax payments in the nine months ended January 2, 1996 were
lower than the tax expense reflected in the Company's statements of income due
to tax deductions from the exercise of non-qualified stock options and
compensatory warrants.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's financial condition is strong, with long-term debt
comprising only 3.1% of total capitalization at January 2, 1996. During the
nine months ended January 2, 1996, $13.8 million of capital expenditures, $5.6
million to acquire QMS, Inc.'s thermal transfer supplies business, $2.3 million
loaned to officers for their income taxes due upon the exercise of non-qualified
stock options and $1.4 million in scheduled
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
debt repayments were funded by $6.3 million of cash and short-term investments,
$10.0 million borrowed under the Company's lines of credit and $6.3 million of
cash provided by operating activities. The Company received a $5.8 million tax
deduction from the nonqualified stock option exercises, the benefit of which is
treated as additional paid-in capital for financial statement purposes.
The Company expects to spend approximately $5 million on capital
expenditures during the remainder of fiscal 1996, including the construction of
a separate 100,000 square-foot manufacturing facility. The Company had
available borrowing capacity under lines of credit with two banks of $20.0
million at January 2, 1996. The Company believes that its current cash balance
and internally generated cash, supplemented as needed by its lines of credit,
will be sufficient to fund its working capital, capital expenditure and debt
service requirements for at least the next two years.
9
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
10.1 Demand Note, dated January 15, 1996, between Donald D. Lennox 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 January 2,
1996.
10
<PAGE>
SIGNATURES
----------
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: 2/9/96 /s/ JOHN W. O'LEARY
--------- -----------------------
John W. O'Leary
President and
Chief Executive Officer
Date: 2/9/96 /s/ MICHAEL J. DRENNAN
--------- ------------------------
Michael J. Drennan
Vice President - Finance,
Treasurer, Secretary and
Chief Financial Officer
11
<PAGE>
EXHIBIT INDEX
Exhibit Number Description Page
-------------- ----------- ----
10.1 Demand Note, dated January 15, 1996, between 13
Donald D. Lennox and the Registrant.
11 Calculation of Net Income per Share of Common 14
Stock
27 Financial Data Schedule 15
<PAGE>
EXHIBIT 10.1
DEMAND NOTE
-----------
$240,000.00 AMHERST, NEW YORK
- ----------- JANUARY 15, 1996
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
INTERNATIONAL IMAGING MATERIALS, INC. ("IIMAK") at its offices at
310 Commerce Drive, Amherst, New York 14228, the sum of two hundred forty
thousand and 00/100 dollars ($240,000.00), payable on demand. This Note shall
not bear interest until maturity. After maturity (whether on acceleration or
otherwise), this Note shall bear interest on the unpaid principal balance at a
rate of twelve percent (12%) per annum. Interest shall be calculated on the
basis of one three hundred sixty-fifth (1/365th) of the above specified rate in
effect for each calendar day such principal balance is unpaid. This Note shall
be immediately due and payable upon the termination of the undersigned's
directorship with IIMAK for any reason. The holder of the Note has full
recourse against all of the undersigned's assets for collection of the unpaid
principal balance on the Note.
The undersigned shall have the right to prepay at any time without premium or
penalty, any or all of the principal indebtedness under this Note.
Any holder of the Note may declare all indebtedness evidenced by this Note to be
immediately due and payable upon: (1) the filing by or against the undersigned
of a request or petition for reorganization, arrangement, adjustment of debts,
adjudication as a bankrupt, relief as a debtor or other relief under the
bankruptcy, insolvency or similar laws of the Untied States or any state or
territory thereof or any foreign jurisdiction, now or hereafter in effect; or
(2) the making of any general assignment by the undersigned for the benefit of
creditors.
No failure by the holder of this Note to exercise, and no delay in exercising,
any right or power hereunder shall operate as waiver thereof, nor shall any
single or partial exercise by such holder of any right or power hereunder
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the holder hereof as herein
specified are cumulative and not exclusive of any other rights or remedies which
such holder may otherwise have.
No modification, rescission, waiver, forbearance, release of amendment of any
provisions of this Note shall be made, except by a written agreement duly
executed by the undersigned and the holder hereof.
The undersigned hereby waives diligence, presentment, protest and demand, and
also notice of protest, demand, dishonor and nonpayment of this Note.
The Note shall be governed by the laws of the State of New York. The
undersigned agrees to pay all costs and expenses incurred by the holder hereof
in enforcing this Note, including, without limitation, actual attorneys' fees.
January 15, 1996 Donald D. Lennox
--------------------- -----------------------------------
Date Name
<PAGE>
EXHIBIT 11.
CALCULATION OF NET INCOME PER SHARE OF COMMON STOCK
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
January 2, January 3,
1996 1995
------------ ------------
<S> <C> <C>
(Unaudited)
Net income $2,865 $2,631
------ ------
Weighted average common shares 8,827 8,355
outstanding
Common stock equivalents for restricted
stock, stock options and warrants 536 795
------ ------
Weighted average common shares
outstanding as adjusted 9,363 9,150
------ ------
Net income per share of common stock $ .31 $ .29
====== ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> JAN-02-1996
<CASH> 735
<SECURITIES> 0
<RECEIVABLES> 15,040
<ALLOWANCES> 0
<INVENTORY> 18,172
<CURRENT-ASSETS> 36,436
<PP&E> 88,945
<DEPRECIATION> 20,371
<TOTAL-ASSETS> 112,024
<CURRENT-LIABILITIES> 23,039
<BONDS> 2,539
90
0
<COMMON> 0
<OTHER-SE> 80,537
<TOTAL-LIABILITY-AND-EQUITY> 112,024
<SALES> 64,242
<TOTAL-REVENUES> 64,242
<CGS> 45,310
<TOTAL-COSTS> 45,310
<OTHER-EXPENSES> 8,084
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48
<INCOME-PRETAX> 10,800
<INCOME-TAX> 3,891
<INCOME-CONTINUING> 6,909
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,909
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
</TABLE>
