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INTERNATIONAL IMAGING REPORTS 22% DROP IN PROFITS

Costs associated with an expansion of its Amherst plant and higher research and development expenses caused a 22 percent drop in International Imaging Materials Inc.'s first-quarter profits, the printing ribbon manufacturer said Tuesday.

Iimak, which agreed to be acquired by Paxar Corp. of White Plains last week for $200 million in stock, said its earnings fell to $2.22 million, or 27 cents per share, from $2.83 million, or 32 cents per share, a year ago.

The earnings fell just short of the expectations of analysts, who had been predicting that the maker of color thermal transfer and bar code printing ribbons would earn an average of 28 cents per share, according to IBES International Inc.

Iimak's earnings fell despite a 7 percent increase in its sales, which rose to $26.8 million during the quarter that ended on July 1 from $25 million the year before.

The company said sales from its bar code and label printing ribbon market were up 26 percent during the quarter, while revenues from its four newer products used to make color tags and labels, signs, plain paper faxes and flexible packaging soared by 138 percent from their low levels of a year ago.

But Iimak's sales of ribbons for color desktop printing, which executives say is becoming a smaller part of its overall business, fell by $2.8 million, largely because consumers favor color inkjet printers.

John W. O'Leary, Iimak's president and chief executive officer, said the weaker profits were due to the firm's investment in a new 100,000-square-foot expansion at its Amherst plant, which opened last year, and a 38 percent increase in research and development expenses.

As a result, Iimak's profit margins weakened significantly, with the firm's net margin sliding to 8.3 percent from 11.3 percent a year ago.

"We expect profitability to quickly improve as our available capacity is more fully utilized and we begin to benefit from our recent investments in facilities and research and development," he said.

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