8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (date of earliest event reported): February 23, 2011

Rimage Corporation

(Exact name of Registrant as Specified in its Charter)

Minnesota

(State Or Other Jurisdiction Of Incorporation)

000-00619	41-1577970
(Commission File Number)	(I.R.S. Employer Identification No.)
7725 Washington Avenue South Minneapolis, MN	55439
(Address Of Principal Executive Offices)	(Zip Code)

(952) 944-8144

Registrant’s Telephone Number, Including Area Code

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐	Written communications pursuant to Rule 425 under the Securities Act
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

Items under Sections 1, 3, 4, 6 and 7 are not applicable and therefore omitted.

ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

Rimage Corporation (the “Company”) hereby furnishes a press release, issued on February 25, 2011, disclosing material non-public information regarding its results of operations for the quarter and year ended December 31, 2010 and hereby furnishes statements of Sherman L. Black, its President and Chief Executive Officer, and James R. Stewart, its Chief Financial Officer, made on February 25, 2011 at a telephone conference relating to the quarter and year ended December 31, 2010 results.

ITEM 5.02 DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS.

2011 Base Salaries for Executive Officers

On February 23, 2011, the Compensation Committee of the Company recommended, and the Board of Directors of the Company approved, a three percent increase in the annual base salaries of James R. Stewart, the Company’s Chief Financial Officer, Samir Mittal, the Company’s Chief Technology Officer, and Christopher A. Wells, the Company’s Senior Vice President, Marketing and Strategy.  Mr. Stewart’s annual base salary will be $231,750, Mr. Mittal’s annual base salary will be $228,094 and Mr. Wells’ annual base salary will be $216,300, with the increases effective April 1, 2011.  The base salary of Sherman L. Black, the Company’s President and Chief Executive Officer, was not changed.

2010 Incentive Plan Payouts

Additionally, on February 23, 2011, the Compensation Committee recommended, and the Board of Directors approved, cash incentive payments to the Company’s executive officers under the Company’s 2010 cash incentive compensation plan for executive officers (the “2010 Incentive Plan”) based upon achievement of the quarterly and annual goals related to sales and operating income as a percentage of sales that were established by the Compensation Committee.  The following table summarizes the estimated incentive pay under the 2010 Incentive Plan to the Company’s current executive officers.  The amount paid to Mr. Stewart under the 2010 Incentive Plan reflects service for part of 20 10.

Name of Executive Officer	2010 Incentive Plan Estimated Incentive Pay Amount
Sherman L. Black President and Chief Executive Officer	$296,550
James R. Stewart Chief Financial Officer	$  71,100
Samir Mittal Senior Vice President and Chief Technology Officer	$145,936
Christopher A. Wells Senior Vice President, Marketing and Strategy	$138,390

The estimated cash incentive pay will be finalized upon completion of the audit of the Company’s financial statements for the year ended December 31, 2010, but the final amounts are not expected to change materially from the estimated amounts stated above.  These cash incentive payments will be paid following substantial completion of the audit, which is expected to be on or about March 10, 2011.

Establishment of 2011 Cash Incentive Plan

On February 23, 2011, the Compensation Committee of the Company approved, and the Board of Directors of the Company ratified, the establishment of the Company’s cash incentive program for 2011 (the “2011 Incentive Plan”) and set the incentive pay opportunities under the 2011 Incentive Plan for the Company’s executive officers: Sherman L. Black, President and Chief Executive Officer; James R. Stewart, Chief Financial Officer; Samir Mittal, Senior Vice President and Chief Technology Officer; and Christopher A. Wells, Senior Vice President, Marketing and Strategy.

Under the 2011 Incentive Plan, the Compensation Committee determined minimum, target and maximum quarterly and annual performance goals for the Company’s executive officers.  The 2011 quarterly and annual performance goals relate to sales and operating income as a percentage of sales, weighted 60%, as well as annual performance goals related to (i) booked revenue as a result of commercialization of a virtual publishing solution by the Company and (ii) revenue acquired as part of the completion of a strategic acquisition, weighted 40%.   The 2011 quarterly and annual performance goals related to sales and operating income as a percentage of sales are in the form of matrices for each period of incrementally increasing sales and incrementally increasing operating income as a percentage of sales.  Under the 2011 Incentive Plan, the maximum incentive amoun t that may be achieved for any period by any participant will not exceed two times his or her incentive amount at the target level, even if actual performance exceeds the maximum for the performance goals.  Further, no incentive amount will be earned by any participant for a quarter or for the year if the minimum goals for that period are not achieved.  If performance is between any of the revenue targets, incentive amounts will be interpolated.  All incentive amounts earned in 2011 will be paid in the first quarter of 2012 and an executive officer must be employed by the Company as of December 31, 2011 and as of the payment date in order to receive payout of any incentive amounts earned during the year unless termination of employment is due to death, disability or follows a change in control.  Additionally, all incentive payments are subject to “clawback” to the extent required by federal law.

The Compensation Committee also approved the cash incentive amounts that executive officers may earn under the 2011 Incentive Plan based upon percentages of their respective salaries.  The following table shows the incentive amounts as a percentage of salary that will be earned by the executive officers under the 2011 Incentive Plan upon the Company’s achievement of the target and maximum goals under the 2011 Incentive Plan, assuming achievement at the target or maximum level for each quarter and for the year.  Achievement of the performance goals at less than target level will result in a decreasing incentive amounts until the achievement fails to meet the minimum performance goals, at which point the participant is entitled to no incentive payment.

	Incentive Opportunity Under 2011 Incentive Plan
Executive Officer and Title	As a Percentage of Base Salary Target Goals Achieved	Maximum Goals Achieved
Sherman L. Black President and Chief Executive Officer	75%	150%
James R. Stewart Chief Financial Officer	50%	100%
Samir Mittal Senior Vice President and Chief Technology Officer	50%	100%
Christopher A. Wells Senior Vice President, Marketing and Strategy	50%	100%

Changes in Structure of Board Compensation and Amounts

On February 23, 2011, the Compensation Committee of the Company recommended, and the Board of Directors of the Company approved, changes to a role-based structure for Board compensation. Under the new structure, non-employee directors would receive the following amounts, in lieu of any meeting fees, for Board and committee service during 2011: 

Ÿ	an annual retainer for non-employee directors of $38,000;
Ÿ	an additional retainer of $16,000 for our non-executive Chairman of the Board;
Ÿ	an annual retainer of $6,000, $4,000 and $3,000, respectively, for members of the Audit, Compensation and Governance Committees; and
Ÿ	an additional annual retainer of $8,000, $6,000 and $3,000, respectively, for the chair of the Audit, Compensation and Governance Committees.

No changes were made to the long-term incentive portion of compensation paid to the non-employee directors.  The non-employee directors who are elected or re-elected at the 2011 Annual Meeting of Shareholders will receive 3,500 restricted stock units under the terms of the Company’s 2007 Stock Incentive Plan.  

ITEM 8.01 OTHER EVENTS.

Through the press release issued on February 25, 2011 relating to the Company’s fourth quarter and fiscal year 2010 results, the Company announced the initiation of a quarterly cash dividend policy and authorized a dividend of $0.10 per outstanding share of the Company’s common stock to shareholders of record at the close of business on March 31, 2011.  The Company expects to pay this first quarterly dividend on April 15, 2011.  A copy of the Company’s press release containing this information is attached as Exhibit 99.1 to this report on Form 8-K and is incorporated herein by reference. 

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

Exhibit No.	Description
99.1	Press Release issued on February 25, 2011.
99.2	Statements of Sherman L. Black, President and Chief Executive Officer, and James R. Stewart, Chief Financial Officer at a telephone conference held on February 25, 2011.

SIGNATURE

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.

RIMAGE CORPORATION
By	/s/ James R. Stewart
	James R. Stewart Chief Financial Officer

Date:   February 28, 2011

EX-99.1

Exhibit 99.1

Rimage Reports Solidly Improved Fourth Quarter Sales and Earnings

$0.10/Share Quarterly Dividend Initiated

Minneapolis, MN—February 25, 2011—Rimage Corporation (Nasdaq: RIMG) today reported operating results for the fourth quarter of 2010 ended December 31.

Ÿ	Sales rose 9% from the year-earlier quarter to $24.7 million, with the increase fueled primarily by nearly $4.0 million of retail shipments of disc publishing hardware under a previously announced supply agreement. Foreign currency adjustments reduced worldwide sales by 2% in this year’s fourth quarter.
Ÿ	Operating income of $4.0 million was up 37% from $2.9 million in the fourth quarter of 2009, reflecting the positive impact of increased sales, a 51% gross margin and operating expenses that were down slightly year-over-year.
Ÿ	Net income increased 18% to $2.6 million or $0.27 per diluted share, from $2.2 million or $0.23 per diluted share in the fourth quarter of 2009.
Ÿ	Cash and marketable securities totaled $116.8 million at the end of the fourth quarter, up from $113.3 million at the end of the third quarter and $110.1 million at the beginning of 2010. During the fourth quarter of 2010, Rimage used cash to repurchase 117,000 shares of its common stock under its existing buyback authorization. Approximately 305,000 shares remain available for repurchase under this authorization.

For full-year 2010, revenues rose 7% to $88.7 million, reflecting the positive impact of the retail business and new solutions. Net income of $7.7 million or $0.80 per diluted share was down from $8.5 million or $0.89 per diluted share in 2009, due primarily to increased operating expenses related to Rimage’s recovery and transformation strategy and lower interest income earned on cash and marketable securities.

At its February 23, 2011 meeting, Rimage’s board of directors initiated a quarterly cash dividend policy and authorized a dividend of $0.10 per diluted share, payable on April 15, 2011 to shareholders of record as of March 31, 2011. The Company said the initiation of a dividend represents an expression of confidence in Rimage’s future as well as a means for generating additional shareholder value. Reflecting forecasted levels of operating cash flow, cash reserves will be maintained at more than ample levels for supporting ongoing operations and investments in the business.

Sherman L. Black, president and chief executive officer, commented: “Rimage’s recent performance, together with the progress that we recorded throughout the past year, was achieved by aggressively pursuing a multi-faceted strategy of financial recovery and business transformation. Stabilizing Rimage’s core disc publishing business was our first order of business in 2010. We did this by strengthening our hardware and aftermarket sales models, refreshing and streamlining our equipment offerings and introducing solutions-based selling. As a result of the product refresh initiative, Rimage was awarded a major supply agreement in May for disc publishing hardware for integration into the digital photography solution of a major national retailer. Initially announced at $11.0 million, this agreement was subsequently revised to $9.9 million. We shipped $9.0 million under the agreement in 2010, with th e balance scheduled to ship in this year’s first quarter. Winning this significant retail opportunity has extended the life cycle of one of our key market segments.

New Revenue Sources

“Generating new revenue streams by maximizing our optical technology is the second aspect of our transformational strategy,” Black continued. “During the third quarter, we sold $2.8 million of our new video surveillance solution to federal agencies, and we are encouraged by the initial market reception accorded this product. Then, in early February 2011, we made a $2.3 million strategic minority investment in BriefCam, Ltd., an award-winning Israeli company, whose video synopsis software will provide our video surveillance solution with analytical capabilities and differentiation in the surveillance market. At the same time, we accelerated sales of Rimage’s traditional disc publishing systems into new geographic markets, including China, Latin America and India. Since developing economies have not deployed optical technology on a widespread basis, these markets offer Rimage a solid opportunity going forward. As part of this initiative, we launched a joint venture in China—Rimage Information Technology—that will deploy a complete digital publishing solution for medical imaging in Chinese hospitals. By enabling the transition from analog film to optical technology, this Shanghai-based venture has strong revenue potential. In all, 7% of our 2010 equipment revenues were derived from new sources that did not exist in 2009. We believe these new revenue sources, as a percentage of total revenue, will increase substantially in 2011, reflecting the anticipated growth of both equipment and related aftermarket sales.”

Developing Virtual Publishing Solution

Black commented: “Rimage’s disc publishing business is forecasted to remain a profitable cash generator for many years, since our optical technology is embedded in thousands of workflows that generate a steady stream of recurring revenues. However, the disc publishing market is mature and technology substitution is occurring. For this reason, developing a new growth engine is our foremost challenge, and the third component of our transformation strategy is focused on developing a virtual publishing solution, consistent with ongoing technology trends and our customers’ changing requirements.

“Content, particularly rich-media materials like video, and its online delivery to an ever-growing range of devices are growing exponentially,” he said. “Based on forecasted Internet traffic, the equivalent of approximately 12 billion DVDs will cross the internet each month by 2014. With an eye to their future needs, many customers have told us they want Rimage to extend its technology platform to encompass an enterprise-grade virtual publishing solution. And the solution they want must satisfy key needs that are going unmet by current virtual publishing offerings.”

Ÿ	Email and website downloads are dependent upon available bandwidth, making it difficult to handle such large, rich-media files as video, which is becoming an increasingly prominent information format
Ÿ	Content providers are challenged to efficiently send rich-media content to PCs, laptops, tablets and smart phones based on such diverse platforms as Windows, Mac, iPhone, iPad, Android, Blackberry and Windows Mobile. Given the exponential growth of mobile communications, the ability to deliver content to mobile devices is particularly critical.
Ÿ	Content, from provider to subscriber, is not always protected by failsafe security.
Ÿ	Current virtual offerings do not permit all phases of publishing to be automated and available in a turnkey, end-to-end, integrated solution or work synergistically with existing disc publishing workflows. This unmet need reinforces Rimage’s opportunity among its more than 20,000 optical installations worldwide.

Black said: “Through organic efforts, we are now developing a virtual publishing solution aimed at meeting these customer-driven requirements. In the proof of concept stage, our development effort is focused on video staging, cloud transport, mobile delivery and security technologies. We expect to start beta testing during the first half of this year, with the goal of launching a first-generation virtual publishing solution by late 2011. At the same time, we have engaged an investment banker to help us evaluate acquisition opportunities for augmenting and accelerating our technology development and go-to-market plans.”

2011 Financial Guidance

Rimage believes its recovery and transformation strategy is gaining traction, making the company believe its long-term future is promising. Near-term operating results will be adversely affected by the absence of a retail order similarly sized to the one received in 2010, as well as by significant investments in the virtual publishing initiative. For the first quarter of 2011 ending March 31, Rimage is forecasting earnings of $0.11 to $0.15 per diluted share on sales of $19 to $21 million. For the full year, earnings of $0.55 to $0.65 per diluted share are forecasted on sales of $80.0 to $85.0 million. Operating cash flows are expected to remain robust throughout the coming year.

About Rimage

Rimage Corporation (www.rimage.com) is the world’s leading provider of workflow-integrated digital publishing solutions that produce CD/DVD/Blu-ray discs with customized content and durable disc labeling. Key vertical markets and applications for our systems include video workflows, retail, medical imaging and law enforcement. We also are implementing a multi-year process to transform Rimage into a higher-performing business. In addition to strengthening Rimage’s traditional disc publishing business, growth strategies are being implemented aimed at developing total solutions and online publishing of rich-content digital assets. Headquartered in Minneapolis, Minnesota, Rimage is a global business with operations in North America, Europe and Asia.

Statements regarding Rimage’s anticipated performance are forward-looking and therefore involve risks and uncertainties, including but not limited to: market conditions, competitive products, changes in technology, conditions in overseas markets that could affect international sales, and other factors set forth in Rimage’s filings with the Securities and Exchange Commission.

#      #      #

For additional information, contact
James Stewart, CFO Rimage Corporation 952/944-8144	Richard G. Cinquina Equity Market Partners 904/415-1415

RIMAGE CORPORATION

Selected Consolidated Financial Information

(In thousands except per share data)

(Unaudited)

Consolidated Statements of Income Information:

	Three months ended December 31,				Year ended December 31,
	2010		2009		2010		2009
Revenues	$	24,691	$	22,686	$	88,731	$	83,227
Cost of revenues		12,160		11,203		45,221		42,894
Gross profit		12,531		11,483		43,510		40,333
Operating expenses:
Research and development		1,852		2,153		6,506		7,143
Selling, general and administrative		6,723		6,445		25,432		21,944
Total operating expenses		8,575		8,598		31,938		29,087
Operating income		3,956		2,885		11,572		11,246
Other income, net		108		223		524		1,866
Income before income taxes		4,064		3,108		12,096		13,112
Income tax expense		1,507		880		4,494		4,617
Net income		2,557		2,228		7,602		8,495
Net loss attributable to noncontrolling interest		68		—		98		—
Net income attributable to Rimage		2,625		2,228		7,700		8,495
Net income per basic share	$	0.28	$	0.24	$	.81	$	.91
Net income per diluted share	$	0.27	$	0.23	$	.80	$	.89
Basic weighted average shares outstanding		9,527		9,403		9,524		9,374
Diluted weighted average shares outstanding		9,581		9,586		9,596		9,507

Consolidated Balance Sheet Information:

	Balance as of
	December 31, 2010		December 31, 2009
Cash and marketable securities	$	116,772	$	101,088
Receivables		13,764		13,732
Inventories		4,502		4,123
Total current assets		136,532		120,760
Property and equipment, net		7,528		7,855
Marketable securities – non-current		—		9,037
Total assets		148,044		140,282
Current liabilities		16,303		17,589
Long-term liabilities		3,104		2,744
Noncontrolling interest		506		—
Stockholders’ equity		128,637		119,949

Conference Call and Replay

Rimage Corporation will review its fourth quarter operating results in a conference call at 10:00 AM Eastern today. Investors can listen to the conference call at www.rimage.com. Listeners should go to this web site at least 15 minutes before the scheduled start time to download and install any necessary audio software. A replay of the conference will be available through March 4, 2011 at 303-590-3030 with the 4413292 conference ID. In addition, the webcast of the conference call will be archived in the investor relations section of Rimage’s web site.

EX-99.2

Exhibit 99.2

Sherman Black Remarks RIMG 4Q10 Conference Call
Ÿ	Good morning and thank you for taking the time to participate in our fourth quarter earnings conference call.
Ÿ	I will lead off by briefly reviewing our performance for this period and then discuss the progress that we have made during the past year with our recovery and transformation initiatives.
Ÿ	Then, Jim Stewart, our chief financial officer, will cover our fourth quarter operating results in some detail.
Ÿ	We will be pleased to take your questions at the conclusion of our remarks.
Ÿ	Regulation FD prohibits us from providing any forward-looking statements unless they are released simultaneously to the public.
Ÿ	It is important to understand that any forward-looking statements are subject to a number of risks that could affect our anticipated performance.
Ÿ	These risks are set forth in our filings with the Securities and Exchange Commission, which we urge you to review.
Ÿ	Before turning to a brief review of our fourth quarter, I would first like to discuss the capital allocation action that we announced in this morning’s release.
Ÿ	At its February 23, 2011 meeting, Rimage’s board of directors initiated a quarterly cash dividend policy and authorized a dividend of $0.10 per diluted share, payable on April 15, 2011 to shareholders of record as of March 31, 2011.
Ÿ	Initiating a dividend at this level represents an expression of confidence in Rimage’s future as well as a means for generating shareholder value.
Ÿ	Despite paying a dividend, our forecasts indicate that cash reserves going forward will be more than ample for supporting ongoing operations and business investments, including development of the virtual publishing solution discussed in this morning’s release.
Ÿ	All in all, we believe a dividend serves the best interests of our shareholders by providing them with a meaningful return, while allowing for continued investments in Rimage’s future.
Ÿ	Turning now to a brief discussion of our fourth quarter, we are very pleased with Rimage’s overall performance.
Ÿ	Sales rose 9% from the year-earlier quarter to $24.7 million, with the increase fueled by $3.7 million of retail shipments of disc publishing hardware under a previously-announced retail supply agreement.
Ÿ	Operating income of $4.0 million was up 37% from $2.9 million in the fourth quarter of 2009, reflecting the positive impact of increased sales, a 51% gross margin and operating expenses that were down slightly year-over-year.
Ÿ	Fourth quarter earnings increased 18% to $2.6 million or $0.27 per diluted share, from $2.2 million or $0.23 per diluted share in the fourth quarter of 2009.

1

Ÿ	For full-year 2010, revenues rose 7% to $88.7 million reversing the sales declines that Rimage posted in the prior two years.
Ÿ	Net income of $7.7 million or $0.80 per diluted share was down from $8.5 million or $0.89 per diluted share in 2009, due primarily to increased operating expenses related to our recovery and transformation strategy as well as lower interest income on our cash and marketable securities.
Ÿ	Our success in 2010 was driven by aggressively pursuing a multi-faceted strategy aimed at transforming this company into a higher-performing business.
Ÿ	Stabilizing and maximizing Rimage’s core disc publishing business was our first priority of business in 2010.
Ÿ	We did this by strengthening our hardware and aftermarket sales models, refreshing and streamlining our equipment offerings and introducing solutions-based selling.
Ÿ	As a result of our product refresh initiative, Rimage was awarded a major supply agreement in May for disc publishing hardware for integration into the digital photography solution of a major national retailer.
Ÿ	Initially announced at $11.0 million, this agreement was subsequently revised to $9.9 million.
Ÿ	We shipped $9.0 million under the agreement in 2010, with the balance scheduled to ship in this year’s first quarter.
Ÿ	Winning this significant retail business has extended the life cycle of one of our key market segments.
Ÿ	Generating additional demand and new revenue streams by developing total solutions is the second aspect of our transformational strategy.
Ÿ	Toward this end, we shipped $2.8 million of our new video surveillance solutions to federal agencies in the third quarter, and we are encouraged by the initial market reception accorded this new product.
Ÿ	Then, in early February 2011, we made a strategic minority investment of $2.3 million in BriefCam, Ltd., an award-winning Israeli company, whose video synopsis software will provide analytical capabilities for our video surveillance solution and product differentiation in the marketplace.
Ÿ	We also accelerated sales of Rimage’s traditional disc publishing systems into new geographic markets, including China, Latin America and India.
Ÿ	Since developing economies have not deployed optical technology on a widespread basis, these markets offer Rimage a solid opportunity going forward.
Ÿ	As part of this initiative, we launched a joint venture in China—Rimage Information Technology—that will deploy a complete digital publishing solution for medical imaging in Chinese hospitals.

2

Ÿ	Our solution, which is market-ready, will enable the transition from analog film to optical technology, which gives this venture strong revenue potential over time.
Ÿ	During the year, we entered a joint venture agreement with a Taiwanese software company…secured our business license approval from the Chinese government…established an office in Shanghai…hired a general manager, who is now recruiting a sales team…and defined our sales channel.
Ÿ	In all, 7% of our 2010 equipment revenues were derived from these new sources that did not exist in 2009.
Ÿ	We believe our new revenue sources, as a percentage of total revenue, will increase substantially in 2011, reflecting the anticipated growth of both equipment and related aftermarket sales.
Ÿ	The third facet of our transformational strategy involves extending our technology platform in view of a rapidly changing IT landscape and  evolving customer needs.
Ÿ	Rimage’s disc publishing business is forecasted to remain a profitable cash generator for many years, since our optical technology is embedded in thousands of workflows that generate a steady stream of recurring revenues.
Ÿ	However, the disc publishing market is mature and technology substitution is occurring.
Ÿ	For this reason, developing a new growth engine is our foremost challenge, and toward this end, we are focused on developing a virtual publishing solution, consistent with ongoing technology trends and our customers’ changing requirements.
Ÿ	Content, particularly rich-media materials like video, and its online delivery to an expanding range of devices, are growing exponentially.
Ÿ	Based on forecasted internet traffic, we estimate that the equivalent of 12 billion DVDs will cross the internet each month by 2014.
Ÿ	To operate efficiently in an increasingly virtual environment, many customers have told us they want Rimage to extend its technology platform to encompass an enterprise-grade virtual publishing solution.
Ÿ	And the solution they want must satisfy a range of key needs that are largely unmet by current virtual publishing offerings.
Ÿ	Email and website downloads are dependent upon available bandwidth, making it difficult to handle such large, rich-media files as video, which is becoming an increasingly prominent information format.
Ÿ	Content providers are challenged to efficiently send rich-media content to PCs, laptops, tablets and smart phones based on such diverse platforms as Windows, Mac, iPhone, iPad, Android, Blackberry and Windows Mobile.
Ÿ	Given the exponential growth of mobile communications, the ability to deliver content to mobile devices is particularly critical.
Ÿ	Content, from provider to subscriber, is not always protected by failsafe security.

3

Ÿ	Current virtual offerings do not permit all phases of publishing to be automated and available in a turnkey, end-to-end, integrated solution or work synergistically with existing disc publishing workflows.
Ÿ	This unmet need reinforces Rimage’s opportunity among its more than 20,000 optical installations worldwide.
Ÿ	Through organic efforts, we are now developing a virtual publishing solution aimed at meeting these customer-driven requirements.
Ÿ	In the proof of concept stage, our development effort is focused on video staging, cloud transport, mobile delivery and security technologies.
Ÿ	We expect to start beta testing during the first half of this year, with the goal of launching a first-generation virtual publishing solution by late 2011.
Ÿ	At the same time, we have engaged an investment banker to help us evaluate acquisition opportunities for augmenting our technology development and go-to-market plans.
Ÿ	Turning now to the financial guidance contained in this morning’s release, our recovery and transformation strategy is gaining traction, making us optimistic about Rimage’s long-term future.
Ÿ	However, our near-term operating results will be adversely affected by the absence of a retail order similarly sized to the one received in 2010, as well as by significant investments in the virtual publishing initiative.
Ÿ	For the first quarter of 2011 ending March 31, we are forecasting earnings of $0.11 to $0.15 per diluted share on sales of $19.0 to $21.0 million.
Ÿ	This guidance compares to sales of $18.4 million and earnings of $0.13 that we reported in last year’s first quarter.
Ÿ	For the full year, earnings of $0.55 to $0.65 per diluted share are forecasted on sales of $80.0 to $85.0 million.
Ÿ	In addition, operating cash flows are expected to remain robust throughout 2011.
Ÿ	It bears repeating that our recovery and transformation initiative represents an extensive, multi-year process, and given the scope of the changes taking place, our progress will be uneven.
Ÿ	Within this context, we are off to a very promising start and we are confident about Rimage’s prospects.
Ÿ	Our success will be driven by the outstanding work of our many excellent employees around the world…by our VAR partners…and by our valued suppliers.
Ÿ	I want to thank every member of our team for their dedication and commitment to our common objectives.
Ÿ	Thank-you. Now, Jim will review some highlights from our fourth quarter operating results.

4

Jim Stewart Q4 Conference Call Remarks
Ÿ	Thanks, Sherman.
Ÿ	I will start off by providing some additional color to our fourth quarter revenues.
Ÿ	Sales of digital publishing equipment rose 31% from the fourth quarter of 2009, and accounted for 50% of our total sales, compared to 42% in the year-earlier period.
Ÿ	This increase was driven by the sale of $3.7 million of our traditional disc publishing systems to the retail market under the supply agreement that Sherman mentioned earlier - in the fourth quarter.
Ÿ	We sold $9.0 million of equipment under this agreement for the full year.
Ÿ	Equipment sales generated by new sources that did not exist in 2009 totaled $300,000 in the fourth quarter and $2.9 million for the full year.
Ÿ	These new sources of revenue include our video surveillance and evidence disc solutions, the China joint venture and sales in new overseas geographies, primarily China and Latin America.
Ÿ	All in all, our strategy for maximizing the global opportunities for our traditional optical business is working as planned, and we believe both equipment and related aftermarket revenues from new sources should increase further in 2011.
Ÿ	Recurring revenues, including sales of printer ribbons and cartridges, parts, CD/DVD media and maintenance contracts, were down 7% from last year’s fourth quarter.
Ÿ	This revenue category accounted for 50% of our total sales in the fourth quarter of 2010, compared to 58% in the year-earlier period.
Ÿ	Our consumables business is continuing to be affected by reduced utilization of our worldwide installed base of disc publishing systems, reflecting the impact of the sluggish economy and, to a lesser extent, technology substitutions.
Ÿ	However, the margin contribution from our consumables sales actually increased in the quarter and full year due to the cost saving actions that we implemented in our supply chain earlier in 2010.
Ÿ	It bears repeating that our consumables business has a relatively long tail.
Ÿ	By this, I mean that a stream of consumables is associated with virtually every disc publishing installation.
Ÿ	Moreover, high switching costs make it difficult for our customers to rapidly make a product substitution or technology change.
Ÿ	For these reasons, we expect our consumables business to remain a significant part of our business for some time to come.

5

Ÿ	Fourth quarter international sales declined 15% from the fourth quarter of 2009.
Ÿ	The decline from last year is largely due to continued softness in our European operation as well as foreign currency adjustments, which reduced our international sales by 6%, accounting for 40% of our international sales decline.
Ÿ	These fourth quarter foreign currency effects reduced our total worldwide sales by 2% in comparison to last year’s fourth quarter.
Ÿ	International sales accounted for 34% of our total fourth quarter revenue, down from 44% in the fourth quarter of 2009.
Ÿ	Moving down the income statement, Rimage’s gross margin of 51% was unchanged from the level recorded in last year’s fourth quarter.
Ÿ	Our gross margin in this year’s fourth quarter benefited from the higher proportion of hardware in our sales mix.
Ÿ	The gross margin also benefited from the cost reduction actions we have taken in our consumables business.
Ÿ	In addition, the sales model change instituted earlier this year has also benefited our gross margin.
Ÿ	We believe our gross margin in the first quarter of 2011 will be in the vicinity of 49% to 50%.
Ÿ	As a preface to my remarks about operating expenses, we implemented an 8%, companywide workforce reduction in October that we discussed in our third quarter earnings call.
Ÿ	We incurred a portion of the expenses related to this move in the third quarter as well as additional expenses in the fourth quarter in the areas of R&D and SG&A.
Ÿ	Turning now to operating expenses, R&D expense of $1.9 million was down from $2.2 million in last year’s fourth quarter, due largely to the completion of R&D in the fourth quarter of 2009 on our 5400 disc publishing system that was introduced last spring.
Ÿ	This decrease was partially offset by additional spending on our virtual publishing platform, continued work on our new solutions and the previously mentioned restructuring expense.
Ÿ	R&D expense is projected to decline by approximately 10% in the first quarter of 2011 from the fourth quarter level, since we anticipate no additional restructuring costs.
Ÿ	Selling, general and administrative expense totaled $6.7 million, up from $6.4 million in the fourth quarter of 2009.
Ÿ	This increase resulted from investment in our sales and marketing functions related to our emphasis on solution sales and additional hiring in our international operations.

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Ÿ	This increase was partially offset by lower restructuring costs in comparison to last year’s fourth quarter, when we incurred the separation expense related to our former CEO.
Ÿ	We believe SG&A in this year’s first quarter will increase approximately 5% from the fourth quarter level.
Ÿ	Rimage’s fourth quarter operating margin of 16% was up from 13% in the year-earlier period, due primarily to our increased revenues in the current quarter.
Ÿ	Our effective tax rate was 37% in the fourth quarter, and we anticipate a full-year tax rate in the vicinity of 37% in 2011.
Ÿ	Cash and investments totaled $117 million at the end of the fourth quarter, up from $113 million at the end of the third quarter and $110 million at the beginning of the year.
Ÿ	The increase in our cash reserves was attained despite using cash to repurchase 117,000 shares in the fourth quarter under our existing buyback authorization.
Ÿ	Approximately 305,000 shares remain available for repurchase under this authorization.
Ÿ	Working capital totaled $120 million at the end of the fourth quarter, up from $112 million at September 30 and $103 million at the beginning of 2010.
Ÿ	Finally, Rimage’s balance sheet remains debt free, while stockholders’ equity increased to $129 million at year-end, up from $127 million at the end of the third quarter and $120 million at the beginning of this year.
Ÿ	That wraps up our formal remarks and now the conference call operator will poll you for any questions.

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