<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 July 1, 1997
[ ] 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 August 4, 1997, 8,363,086 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
July 1, 1997 and March 31, 1997 3
Consolidated Statements of Income (unaudited) for the
three months ended July 1, 1997 and July 2, 1996 4
Consolidated Statements of Cash Flows (unaudited) for the
three months ended July 1, 1997 and July 2, 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
EXHIBIT INDEX 11
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 1, MARCH 31,
1997 1997
--------------- -----------------
(IN THOUSANDS, EXCEPT SHARE AND
ASSETS PER SHARE AMOUNTS)
------
<S> <C> <C>
Current assets:
Cash $ 11 $ 444
Trade receivables 17,000 17,726
Inventories:
Raw materials 6,197 5,789
Work in process 4,808 4,602
Finished goods 5,713 5,478
-------- --------
Total inventories 16,718 15,869
-------- --------
Prepaid expenses 1,507 1,107
Deferred income taxes 1,500 1,176
-------- --------
Total current assets 36,736 36,322
-------- --------
Property, plant and equipment, at cost:
Land 1,170 1,170
Buildings and improvements 21,268 21,265
Equipment 83,661 82,702
Construction in progress 1,140 814
-------- --------
107,239 105,951
Less accumulated depreciation 30,095 28,320
-------- --------
Net property, plant and equipment 77,144 77,631
-------- --------
Other assets 4,862 4,521
-------- --------
$118,742 $118,474
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable to banks 15,000 8,484
Current installments of long-term debt 1,095 1,143
Trade accounts payable 4,586 7,858
Other accrued liabilities 4,350 3,622
-------- --------
Total current liabilities 25,031 21,107
Long-term debt, excluding current installments 744 1,111
Deferred income taxes 9,496 8,388
-------- --------
Total liabilities 35,271 30,606
-------- --------
Stockholders' equity:
Preferred stock; $.01 par value; 5,000,000 shares
authorized; none issued --- ---
Common stock; $.01 par value; 30,000,000 shares
authorized; 8,311,486 and 8,570,310 shares issued
as of July 1, 1997 and March 31, 1997, respectively 83 86
Additional paid-in capital 38,649 44,514
Unearned compensation - restricted stock award (319) (385)
Notes receivable from exercise of stock options and warrants (847) (37)
Retained earnings 45,905 43,690
-------- --------
Total stockholders' equity 83,471 87,868
-------- --------
$118,742 $118,474
======== ========
</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
--------------------------
JULY 1, JULY 2,
1997 1996
------ ------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Revenues $26,765 $25,003
Cost of goods sold 19,221 17,479
------- -------
Gross profit 7,544 7,524
------- -------
Operating expenses:
Research and development 1,168 848
Selling 1,595 1,136
General and administrative 1,177 1,055
------- -------
Total operating expenses 3,940 3,039
------- -------
Operating income 3,604 4,485
Other expense 298 130
------- -------
Income before income taxes 3,306 4,355
Income taxes 1,091 1,524
------- -------
Net income $ 2,215 $ 2,831
======= =======
Net income per share of common stock $0.27 $0.32
======= =======
Weighted average common shares outstanding 8,346 8,942
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
INTERNATIONAL IMAGING MATERIALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------
JULY 1, JULY 2,
1997 1996
------ -------
IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,215 $ 2,831
------- -------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,209 1,881
Deferred income taxes and other non cash expenses 329 723
Reduction in income tax payable from the exercise of option 1,072 393
Cash provided (used) by changes in:
Trade receivables 766 2,322
Inventories (849) 2,253
Prepaid expenses (400) (189)
Other assets 116 (303)
Trade accounts payable (2,532) (2,846)
Other accrued liabilities 728 1,405
------- -------
Total adjustments 1,439 5,639
------- -------
Net cash provided by operating activities 3,654 8,470
------- -------
Cash flows used in investing activities:
Capital expenditures (2,097) (7,670)
------- -------
Cash flows from financing activities:
Proceeds from employee stock purchase plan 21 24
Purchase of common stock (7,290) ---
Exercise of stock options and warrants:
Proceeds --- 545
Notes received for related tax liabilities (822) (1,149)
Proceeds from note payable to banks, net 6,516 105
Repayments of long-term debt (415) (560)
------- -------
Net cash used in financing activities (1,990) (1,035)
------- -------
Net decrease in cash (433) (235)
Cash at beginning of quarter 444 570
------- -------
Cash at end of quarter $ 11 $ 335
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of amount capitalized 318 102
Income taxes $ 46 $ 31
======= =======
Supplemental disclosure of noncash investing and financing activities:
Decrease in liabilities for capital expenditures (740) (2,080)
Notes received from exercise of stock options and warrants 810 ---
Common stock surrendered for payment of stock option exercise price $ --- $ 240
======= =======
</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 July 1, 1997 and consolidated results of operations for the three
month period ended July 1, 1997 and July 2, 1996 and consolidated cash flows for
the three month period ended July 1, 1997 and July 2, 1996. Consolidated
results of operations for the three month period ended July 1, 1997 are not
necessarily indicative of results to be expected for the full year ending March
31, 1998.
6
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
On July 15, 1997, the Company, PAXAR Corporation and Ribbon Manufacturing,
Inc. a wholly owned subsidiary of PAXAR Corporation, entered into an Agreement
and Plan of Merger, upon and subject to the terms and conditions of which Ribbon
Manufacturing, Inc. will be merged with and into the Company and the Company
will become a wholly owned subsidiary of PAXAR Corporation. In the merger, each
issued and outstanding share of the common stock of the Company will be
converted into the right to receive between 1.2 and 1.412 shares of common stock
of PAXAR Corporation. The following discussion and analysis reflects the
Company's operations and prospects as a separate entity.
COMPARISON OF THE QUARTER ENDED JULY 1, 1997 WITH THE QUARTER ENDED JULY 2, 1996
Revenues in the three months ended July 1, 1997 were $26.8 million, an
increase of 7.0% from $25.0 million in the three months ended July 2, 1996.
The Company sells its ribbons primarily to printer original equipment
manufacturers, which in turn sell the ribbons under their own brand names to
end-users, either directly or through distributors and value-added resellers.
Revenues from OEM customers in the three months ended July 1, 1997 were
$18.5 million, comprised 69.3% of total revenues, and increased 3.7% from $17.9
million in the three months ended July 2, 1996. This increase primarily
reflects new product lines introduced by the Company to existing tag and label
customers partially offset by a decline in sales to the Company's traditional
color desktop ribbon customers in this channel.
The Company also sells its ribbons directly to distributors and dealers
where such sales do not adversely affect the Company's OEM customers. Revenues
from domestic distributors in the three months ended July 1, 1997 were $7.1
million, comprised 26.5% of total revenues, and increased 12.4% from
$6.3 million in the three months ended July 2, 1996. The addition of several
new significant tag and label customers, new product lines introduced to
existing tag and label customers, overall tag and label aftermarket growth and
the continuing end-user migration towards this distributor channel from the OEM
channel as the market for tag and label ribbons matures contributed to this
growth. This growth was partially offset by a decline in sales to the Company's
traditional color desktop ribbon customers in this channel.
Revenues from international distributors in the three months ended July 1,
1997 were
$1.1 million, comprised 4.2% of total revenues, and increased 38.7% from
$813,000 in the three months ended July 2, 1996. The rapid expansion of the
market for tag and label printing in Central and South America, and the
Company's marketing programs targeting these opportunities, were primarily
responsible for the sales increase.
Gross margin was 28.2% of revenues in the three months ended July 1, 1997
as compared to 30.1% in the three months ended July 2, 1996. This decline
primarily resulted from the incremental operating expenses from the new
manufacturing facility opened during the three months ended July 2, 1996, a
change in sales mix and lower overall selling prices, partially offset by the
increased leverage of fixed overhead costs and production efficiencies from
higher sales volumes, and lower raw material purchase prices.
7
<PAGE>
Operating expenses were $3.9 million in the three months ended July 1,
1997, an increase of $901,000 from $3.0 million in the three months ended July
2, 1996. Research and development expense increased $320,000 due to increased
staffing and sampling of new products as investments in future revenue growth.
Selling expenses increased $459,000 due to the hiring of additional personnel
and increased advertising and promotional activities to drive the Company's
sales growth.
Other expense was $298,000 in the three months ended July 1, 1997, an
increase of $168,000 from $130,000 in the three months ended July 2, 1996. This
increase reflects the expensing of current interest charges on the Company's
lines of credit in the three months ended July 1, 1997. A portion of the
interest charges incurred on the Company's lines of credit in the three months
ended July 2, 1996 was capitalized as part of the cost of the construction of
and equipment for the 100,000 square-foot manufacturing facility completed
during that three month period.
Income taxes in the three months ended July 1, 1997 were $1.1 million or
33.0% of income before income taxes. In the three months ended July 2, 1996,
income taxes were $1.5 million or 35.0% of income before income taxes. Benefits
from increasing sales through the Company's foreign sales corporation primarily
contributed to the rate reduction.
Weighted average common shares outstanding in the three months ended July
1, 1997 were
8.3 million shares, a decrease of 596,000 shares from 8.9 million shares in the
three months ended July 2, 1996. This decrease primarily resulted from the
repurchase of 551,000 shares on the open market during March and April 1997.
Liquidity and Capital Resources
- -------------------------------
The Company's financial condition remained strong, with long-term debt
comprising less than 1% of total capitalization at July 1, 1997. During the
three months ended July 1, 1997, $3.6 million of cash provided by operating
activities was used to fund $2.1 million of capital expenditures. The Company
borrowed $6.5 million under lines of credit in order to partially fund the $7.3
million repurchase of 420,800 common shares during the quarter. The Company
also loaned officers $822,000 for their income taxes related primarily to the
exercise of non-qualified stock options for which the Company will receive a tax
deduction of $2.2 million. Trade accounts payable decreased $3.3 million in the
three months ended July 1, 1997 due to payments for capital expenditures and the
timing of vendor payments.
The Company expects to spend approximately $5.0 million on capital
expenditures during the remainder of fiscal 1998. The Company had available
borrowing capacity under lines of credit with two banks of $25.0 million at July
1, 1997. The Company believes that internally generated cash will be more than
sufficient to fund working capital, capital expenditures and debt service
requirements and repay the balance on its lines of credit through the end of
fiscal 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable until after June 15, 1998.
8
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
2.0 Agreement and Plan of Merger, dated as of July 15, 1997, among PAXAR
Corporation, Ribbon Manufacturing, Inc. and International Imaging
Materials, Inc. (incorporated by reference to exhibit 2 to the
registrant's current report on Form 8-K, dated July 29, 1997).
10.1.2 Amendment, dated June 19, 1997, to License Agreement referenced in
Exhibit 10.1 OF Form 10-Q dated October 1, 1996.
11 Statement re: Calculation of Net Income Per Share of Common Stock.
27 Financial Data Schedule
(B) Reports on Form 8-K:
Form 8-K reporting date was July 29, 1997.
Items Reported:
Item 1(b): Registrant submitted a copy of the Merger Agreement between
International Imaging Materials, Inc., Paxar Corporation and
Ribbon Manufacturing, Inc..
Item 7: Registrant submitted exhibits related to the merger of
International Imaging Materials, Inc. and a wholly-owned
subsidiary of PAXAR Corporation.
9
<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: 8/11/97 /s/ JOHN W. O'LEARY
------- -------------------
John W. O'Leary
President and
Chief Executive Officer
Date: 8/11/97 /s/ MICHAEL J. DRENNAN
------- -------------------
Michael J. Drennan
Vice President - Finance,
Treasurer, Secretary and
Chief Financial Officer
10
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- ------------
2.0 Agreement and Plan of Merger, dated as of July 15,
1997, among PAXAR Corporation, Ribbon Manufacturing,
Inc. and International Imaging Materials, Inc.
(incorporated by reference to Exhibit 2 to the
Registrant's current report on Form 8-K, dated July 29,
1997.
10.1.2 Amendment, dated June 19, 1997, to License Agreement
referenced in Exhibit 10.1 of Form 10-Q dated October
1, 1996.
11 Calculation of Net Income per Share of Common Stock
27 Financial Data Schedule
11
<PAGE>
Exhibit 10.1.2
MEMORANDUM OF AGREEMENT
REGARDING RIGHTS OF AN ACQUIRER OF IIMAK
THIS MEMORANDUM OF AGREEMENT is made as of June 19, 1997 by and between
----
FUJICOPIAN CO., LTD. (hereinafter referred to as "Fuji") and INTERNATIONAL
IMAGING MATERIALS, INC. (hereinafter referred to as "IIMAK") with regard to that
certain Agreement dated as of September 18, 1996 between Fuji and IIMAK (the
"Agreement").
WITNESSETH:
WHEREAS, IIMAK and Fuji wish to record a further understanding relating
to the applicability of the Agreement in the event of acquisition, merger, or
business combination between IIMAK and a third party or parties;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto for themselves and their
respective successors and assigns do mutually agree as follows:
1. In the event that during the term of the Agreement IIMAK is acquired by,
merged with, or enters into a business combination with another entity or
otherwise becomes an affiliate of another entity (a "Transaction") which
entity, prior to the Transaction, engages in the manufacture or
distribution of (1) thermal carbon copy, (2) thermal carbon paper and
thermal ribbon and/or (3) thermal color paper and thermal color ribbon
(collectively, "thermal transfer products") or manufactures or distributes
thermal transfer printers or similar devices, (1) IIMAK may conduct
business with such entity after a Transaction to the same extent it may now
conduct business with such entity and (2) the Agreement will not apply to
any such entity or thermal transfer products manufactured or distributed by
any such entity (i) to the extent that the
<PAGE>
respective rights and obligations of Fuji and IIMAK under the Agreement
remain unaltered and IIMAK continues to perform its obligations under the
Agreement, and (ii) except to the extent that such entity manufactures and
distributes products utilizing Licensed Technology disclosed to such entity
by IIMAK, such disclosure subject to the relevant provisions of the
Agreement.
2. Terms defined in the Agreement shall have the same meaning herein as they
are assigned in the Agreement.
IN WITNESS WHEREOF, the parties have caused this Memorandum of Agreement
to be duly executed by their duly authorized representatives as of the day and
year first above written.
FUJICOPIAN CO., LTD.
By: /s/ Taro Akashiro
-----------------------------
Taro Akashiro, President
INTERNATIONAL IMAGING MATERIALS,
INC.
By: /s/ John W. O'Leary
-------------------------------
John W. O'Leary, President
and Chief Executive Officer
<PAGE>
EXHIBIT 11.
CALCULATION OF NET INCOME PER SHARE OF COMMON STOCK
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
----------------------
JULY 1, JULY 2,
1997 1996
--------- ---------
(UNAUDITED)
NET INCOME $2,215 $2,831
--------- ---------
Weighted average common shares
outstanding 8,135 8,543
Common stock equivalents for restricted
stock, stock options and warrants 211 399
--------- ---------
Weighted average common shares
outstanding as adjusted 8,346 8,942
--------- ---------
Net income per share of common stock $ .27 $ .32
========= =========
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUL-01-1997
<CASH> 11
<SECURITIES> 0
<RECEIVABLES> 17,000
<ALLOWANCES> 0
<INVENTORY> 16,718
<CURRENT-ASSETS> 36,736
<PP&E> 107,239
<DEPRECIATION> 30,095
<TOTAL-ASSETS> 118,742
<CURRENT-LIABILITIES> 25,031
<BONDS> 1,839
0
0
<COMMON> 83
<OTHER-SE> 83,388
<TOTAL-LIABILITY-AND-EQUITY> 118,742
<SALES> 26,765
<TOTAL-REVENUES> 26,765
<CGS> 19,221
<TOTAL-COSTS> 19,221
<OTHER-EXPENSES> 3,940
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 298
<INCOME-PRETAX> 3,306
<INCOME-TAX> 1,091
<INCOME-CONTINUING> 2,215
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,215
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
